In the matter of Normans Wines Ltd (Receivers and Managers appointed) (in liq); Harvey v Burfield

[2004] SASC 171

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

IN THE MATTER OF NORMANS WINES LTD (RECEIVERS & MANAGERS) APPOINTED (IN LIQ); HARVEY & ORS v BURFIELD & ANOR

Judgment of The Full Court

(The Honourable Justice Mullighan, The Honourable Justice Gray and The Honourable Justice Vanstone)

10 June 2004

CORPORATIONS - WINDING UP - CONDUCT AND INCIDENCE OF LIQUIDATION

CORPORATIONS - SUPERVISION, REGULATION AND CORRECTION - EXAMINATIONS - SCOPE OF EXAMINATION

Appeal against decision of a single Judge of the Supreme Court dismissing an application to discharge an order of a Master - the appellants were auditors of a public company - the company appointed voluntary liquidators and was wound up - the respondents in this matter are liquidators of the company - the liquidators applied to a Master for issue of a summons to examine the auditors about the examinable affairs of the company and for production of documents pursuant to s 596B of the Corporations Act 2001 (Cth) - the liquidators filed affidavits deposing to the purpose of the application that referred to confidential affidavits filed by the liquidators in previous applications for examination - the Master made orders for examination and production of documents - the auditors applied to a single Judge of this Court for an order discharging the order of the Master or for an order that the auditors be permitted to inspect the confidential affidavits - the Judge dismissed the application - the auditors appeal against the decision of the single Judge - whether the Judge erred in findings of fact - whether the discretion to order examination and production of documents should not have been exercised because the auditors made offers to cooperate with the liquidators and to answer questions - whether the auditors discharged the onus of establishing an arguable case that the liquidators had a sole or dominant improper purpose when applying for the orders - whether the predominant purpose of the auditors was to assist a separate company in its investigations of claims against the auditors in a separate action - whether the auditors should be permitted to inspect the confidential affidavits filed by the liquidators - whether allowing the liquidators to maintain the confidentiality of these affidavits result in unfairness to the auditors - appeal dismissed by majority.

Corporations Law Rules 2000 (SA) 11.2(7), 11.3(2), 11.5, 11.7, 47; Corporations Act 2001 (Cth) Part 5.9, ss 9, 53, 596B-596E, 597(4), 597(9), 597(14), 597(14A); Fair Trading Act 1987 (SA) s 56; Supreme Court Rules 1987 (SA) R 6A; , referred to.
Re Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69, distinguished.
Re Southern Equities Corporation Ltd (In Liq); Bond & Anor v England (1997) 25 ACSR 394; In re Laurie Cottier Productions Pty Ltd (In Liq) (1992) 9 ACSR 513; Re BPTC (1992) 10 ACLC 271; Douglas-Brown v Furzer (1994) WAR 400; Simionato & Farrugia v Macks & Macks (1996) 19 ACSR 34; Re Moage Ltd (In Liq) (1997) 25 ACSR 53; Flanders v Beatty and Anor (1995) 16 ACSR 324, discussed.
Harvey & Anor v Burfield (2002) 84 SASR 11; Grosvenor Hill (Qld) Pty Ltd v Barber & Anor (1994) 48 FCR 301; Harman v Secretary of State for the Home Department [1983] 1 AC 280; Re Stirling Henry Ltd (In Liq) and the Companies Act [1972] 1 NSWLR 497; Mann v Carnell (1999) 201 CLR 1; Carter v Gartner; In the Matter of Gartner Wines Pty Limited and the Corporations Act 2001 [2003] FCA 653; Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561; Harvey v Burfield & Smith [2003] SASC 192; Thomas A Edison Limited v Bullock (1912) 15 CLR 679; Re North Australian Territory Company (1890) 45 CH 87; Hamilton v Oades (1988) 166 CLR 486; ASIC v Karl Suleman Enterprises; Application of Stoliar [2003] NSWSC 163; Re British & Commonwealth Holdings Plc [1992] Ch 342; Attorney-General (NT) v Maurice (1986) 161 CLR 475; Great Atlantic Insurance Co v Home Insurance Co [1981] 2 All ER 485; David Anderson v Holding Redlich [2003] VSC 303, considered.

IN THE MATTER OF NORMANS WINES LTD (RECEIVERS & MANAGERS) APPOINTED (IN LIQ); HARVEY & ORS v BURFIELD & ANOR
[2004] SASC 171

Full Court:  Mullighan, Gray and Vanstone JJ

1. MULLIGHAN J   The appellants, Mr Harvey and Ms Flower are employees of Deloitte Touche Tohmatsu (“Deloitte”). They appeal against orders made by a learned Judge on 18 July 2003 dismissing an application by each of them pursuant to R 11.5 of the Corporations Law Rules 2000 (South Australia) seeking the discharge of summonses to Mr Harvey and Ms Flower to appear before this Court for examination about the examinable affairs of Normans Wines Limited (Receivers and Managers Appointed) (In Liquidation) (“Normans Wines”) and the order of a Master that they produce to the Court books and records in their respective possession relating to Normans Wines. The appellants also sought, in the alternative, an order that the carrying into effect of the orders be permanently stayed as an abuse of process. I shall refer to Mr Harvey and Ms Flower together as “the examinees”.

2. Normans Wines was a public company listed on the Australian Stock Exchange which was engaged in the production of wine for sale, both in the bulk and bottled wine markets in Australia and overseas.  It owned vineyards in South Australia and overseas, wineries in this State and a bottling plant in Victoria.  On 30 July 2001 the major secured creditor of Normans Wines, the Australia & New Zealand Banking Group Limited, appointed receivers and managers to the company. On 27 August 2001 Normans Wines appointed voluntary administrators and was wound up by resolution of its creditors on 24 September 2001.  The respondents, Mr Burfield and Mr Smith, were appointed administrators and then liquidators of the company.  I shall refer to them together as “the liquidators”.

3. At all material times the appellants were the auditors of Normans Wines prior to its insolvency.  In mid 1999 Normans Wines issued 1.2 million unsecured convertible notes with a face value of $10 each.  Deloitte was also an accounting and taxation adviser to Normans Wines with respect to this issue.  A trustee company, Sandhurst Trustees Limited (“Sandhurst”) acted as trustee for the note holders in respect of their rights as against Normans Wines.  There were 795 holders of unsecured notes.  At the date of the winding up there were 757 unsecured creditors of Normans Wines with total claims of $29,249,143.11.  The largest creditor was Sandhurst with a claim of $12m as trustee from 795 holders of unsecured notes.

4. At all material times Johnson, Winter & Slattery have acted as the solicitors for the liquidators in the liquidation of Normans Wines, including in these proceedings.  Mr Hoffmann, who appeared with Mr Graham QC, including on this appeal, has acted as counsel for the liquidators since June 2002.

5. On 13 March 2002 Mr Burfield instituted a separate and earlier action in this Court seeking orders for the examination of the examinees under Part 5.9 of Division 1 of the Corporations Act 2001. Johnson, Winter & Slattery acted for him in that action. In early April 2002 the orders sought by Mr Burfield were made. The examinees applied to have the orders set aside and the summonses discharged. Mr Burfield opposed the applications. In an affidavit sworn on 15 May 2002 he deposed that in seeking the orders his predominant purpose was:

   “4.1to provide me with information in considering whether there is a course of action upon which I might proceed in the recovery of funds on behalf of the creditors of Normans;

   4.2to provide me with information in connection with proceedings which I believe I may be able to bring against the directors of Normans and against the auditors of Normans.”

6. On 17 June 2002 both Mr Burfield and Mr Smith deposed in their separate affidavits that each of them had the same predominant purpose in seeking examination of each of the examinees and the production of documents.

7. The applications by the examinees were dismissed by the Master on 18 July 2002.  They appealed and on 2 August 2002 Perry J stayed the orders of the Master upon the examinees undertaking to produce to the Court copies of documents relating to transactions between Normans Wines and Wisher McDonagh Holdings Pty Ltd (“Wisher McDonagh”).  The originals had been produced to the Australian Securities and Investments Commission in response to a notice.  The documents were produced and the liquidators were given leave to inspect and copy them.

8. The appeals of the examinees came on for hearing before Perry J.  On 20 September 2002 he held that Mr Burfield lacked the power to bring the applications alone and therefore the applications for the examination of the examinees and the production of documents were incompetent:  Harvey & Anor v Burfield (2002) 84 SASR 11.

9. On the same day Sandhurst commenced an action in this Court against Deloitte for $12 million being the loss said to have been suffered by the unsecured note holders alleging breaches of common law and statutory duties and of s 56 of the Fair Trading Act 1987. The proceedings were not served and were probably commenced at that time to comply with statutory time limits. These proceedings relate to the truth and fairness of the accounts of Normans Wines for the years ending 30 June 1998 and 1999 and the prospectus dated 12 July 1999. Johnson Winter & Slattery also acted for Sandhurst at that time and Mr Hoffmann settled the Statement of Claim. I shall refer to these proceedings as “the Sandhurst proceedings”. Subsequently other solicitors acted for Sandhurst in those proceedings.

10. Shortly before 20 September 2002 Mr Burfield had discussions with Mr O’Brien of Sandhurst regarding the possibility of the solicitors for the liquidators assisting Sandhurst to prepare and file the Sandhurst proceedings.  Mr Burfield held the view that it would be in the interests of the creditors and contributories of Normans Wines that the claim by Sandhurst against Deloitte be successful.  The amount due to the note holders represented about one-third of the amount claimed by unsecured creditors of Normans Wines.

11. Mr Hoffmann gave evidence upon the hearing of the appeal before the learned Judge.  He said that the Statement of Claim in the Sandhurst proceedings was drafted in the three days prior to 20 September 2002 and he had received instructions to draft that pleading a number of days beforehand.   In preparing the Sandhurst proceedings, neither Mr Hoffmann nor Johnson, Winter & Slattery made use of the Wisher McDonagh documents.  It is contended by the appellants that in preparing the Statement of Claim, Mr Hoffmann used these documents which had been provided to him by the liquidators.  Mr Hoffmann’s evidence is as follows:

    “QAre you able to say to the court that you put entirely out of your mind what you read from the documents produced by Deloittes.

    AI’m able to say that I did not make use of the documents or the information in them for the purpose of preparation of proceedings.

    QMy question is something different.

    AI appreciate that, and I don’t want to beat around the bush with you.  I don’t know that I can say categorically I put entirely out of my mind material.  It’s almost impossible for one to categorically say that, but, as I say, I didn’t use the documents or the information contained in them, and I was conscious at the time of drafting the pleading not to do so.

    QWhen you tell the court you didn’t make use of the documents, do you mean this; that you didn’t specifically refer physically to one of those documents produced by Deloittes at the time that you were preparing the statement of claim.

    ANo.  I mean to say that I used documents that were within the Normans material for the purpose of drafting the proceedings.

    ...

    QDo you accept that, in your preparation of the statement of claim, Sandhurst Trustees’ statement of claim, you referred to documents which were either the originals or copies of documents produced by Deloittes.

    ANo.”

12. The learned Judge accepted the evidence of Mr Hoffmann. He found that Mr Hoffmann received the Wisher McDonagh documents on 2 August 2002 and inspected them. He saw copies of most of them among the documents the liquidators collected and assembled as part of the liquidation, but he did not consciously use any of the Wisher McDonagh documents when preparing the pleadings in the proceedings brought by Sandhurst against Deloitte. The learned Judge found that he made every effort not to use the documents or the information contained in them. Mr Grace, a solicitor employed by Johnston, Winter & Slattery who instructed Mr Hoffmann, made statements similar to the evidence of Mr Hoffmann and the learned Judge accepted that evidence.

13. On 23 September 2002 Deloitte’s solicitors wrote to Johnson, Winter & Slattery informing them that the examinees had been willing at all times to cooperate with the liquidators in responding to any questions they may have arising out of the audit of Norman Wines.  They required any questions to first be directed to them.  They indicated that there was no need to seek orders for examination of the examinees and production of documents.  In relation to production of documents, Deloitte wrote:

    “2.1To the extent that the liquidators seek documents from Deloitte relating to the audit of Normans then we would be grateful if you would inform us of the particular transactions and the dates of those transactions together with sufficient identification of the issues to which the liquidators enquiries relate.

    2.2We would then expect that we would be in a position to make copies of those documents available to you subject to suitable arrangements about costs.”

14. On 1 October 2002 the liquidators filed in this Court the applications seeking examination of the examinees and the production of documents which are the subject of the present proceedings.  On the next day Deloitte’s solicitors informed Johnson Winter & Slattery, inter alia, that the examinees would not agree to be examined but re-affirmed their willingness to cooperate with the liquidators regarding the examinable affairs of Normans Wines.  They asserted that for that reason the liquidators were not entitled to an examination order.

15. The orders sought by the liquidators were made ex parte by a Master on 1 October 2002.  On 8 October 2002 the examinees applied to have the orders set aside.  They asserted that the liquidators’ purposes in seeking the orders were improper, and that they had failed to make full and frank disclosure in that the Master was not made aware of the Sandhurst proceedings.

16. The examinees, on a without prejudice basis, agreed to produce to Johnson Winter & Slattery for their inspection Deloitte’s audit files for the period which is the subject of the allegations made in the Sandhurst proceedings, although at that time they were not aware of those proceedings or that Johnson Winter & Slattery and Mr Hoffmann were acting for the liquidators and Sandhurst.

17. On 9 December 2002 Mr Grace filed an affidavit on behalf of Sandhurst in the Sandhurst proceedings.  He deposed that Sandhurst, through its solicitors, was currently investigating the matters which were the subject of the Sandhurst proceedings so as to be properly informed in its decision whether the Sandhurst proceedings should be served on, and prosecuted against, Deloitte.

18. On 12 February 2003 Mr Burfield swore an affidavit in which he deposed that he and Mr Smith sought the orders for examination and production of documents for the following purposes:

    1to further their investigation of the financial position and collapse of Normans Wines during the period from 30 June 1993 until 30 June 2001;

    2to provide them with information as to whether there were causes of action available to Normans Wines which could be pursued against its former auditors or directors; and

    3to provide information to assist the liquidators in the conduct of the examinations of the former directors and auditors of Normans Wines.

    Mr Smith confirmed those purposes in an affidavit which he swore on 13 February 2003.

19. On 12 February 2003 Normans Wines gave notice in writing to Deloitte pursuant to R 6A of the Supreme Court Rules 1987 of its intention to commence an action against Deloitte for $20.534 million for various losses incurred allegedly in consequence of the breach of duty to Normans Wines. The proposed claim of Normans Wines raised issues as to the truth and fairness of its accounts for the years ending 30 June 1997 to 30 June 1999 of wider scope than those raised in the Sandhurst proceedings.

20. Although the learned Judge delivered reasons for his decision to dismiss the applications of the appellants, the order doing so was not made until 18 July 2003.  On various days between 11 June 2003 and 21 August 2003, the liquidators conducted examinations of former directors and the company secretary of Normans Wines.  On 29 August 2003 Normans Wines commenced an action against Deloitte and others which was served on 2 October 2003.  In that action the conduct of Deloitte between 1995 and 1999 is brought into question.  Breaches of contractual, statutory and tortious duties are alleged against Deloitte regarding the audit of the accounts of Normans Wines in the years ending 30 June 1997, 1998 and 1999 and in respect of the convertible note prospectus.  Losses claimed include the losses alleged to have arisen from the issue of the convertible notes being irrecoverable costs of $800,000 and interest thereon.

21. Before turning to the decisions made by the learned Judge, I mention relevant provisions of the Corporations Act 2001. S 596B provides:

    “596B(1)      The Court may summon a person for examination about a corporation's examinable affairs if:

    (a)an eligible applicant applies for the summons; and

    (b)the Court is satisfied that the person:

    (i)has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or

    (ii)may be able to give information about examinable affairs of the corporation.

    (2)This section has effect subject to section 596A.”

22. The provisions of s 596A have no bearing upon any issues in this appeal. S 596C provides:

    “596C(1) A person who applies under section 596B must file an affidavit that supports the application and complies with the rules.

    (2)The affidavit is not available for inspection except so far as the Court orders.”

    “Examinable affairs” is defined in s 9 and s 53 in wide terms and includes the control, business trading, transactions, dealings and property (s 53(a)) of matters relating to carrying out an audit of a corporation (s 53(k)). S 596D(2) provides that a summons to a person under s 596B may require the person to produce at the examination specified books that are in the person’s possession and relate to the corporation or any of its examinable affairs. In Grosvenor Hill (Qld) Pty Ltd v Barber & Anor (1994) 48 FCR 301 the Full Court of the Federal Court considered that the relationship between a person against whom an examination is sought and the affairs of the company in liquidation was sufficient when that person “was, or may be, able to give information relevant to increasing or protecting the assets available in the winding up”: 308.

23. The liquidators filed affidavits in support of their application pursuant to s 596C.  Mr Burfield’s affidavits were sworn on 29 September 2002 and Mr Smith’s affidavits were sworn on the next day. The examinees sought orders pursuant to s 596C that they be permitted to inspect the affidavits.  As has been mentioned, the affidavits are not available for inspection except in so far as the Court orders.

1. I mention some, but not all, of the appellants’ contentions at this stage, the conclusions of the learned Judge and my conclusions on this appeal.  I address their more substantive contentions later.

2. The appellants contended before the learned Judge that they may be affected by the content of the affidavits in that the liquidators may have acted with an improper purpose in applying for orders that they be examined and documents be produced.  They contended that the liquidators may have failed to make full and frank disclosure to the Court.

3. The basis of the contention was that the purpose of the liquidators in seeking the examination and the production of documents was to gather information and evidence to assist Sandhurst in its action against Deloitte which, it was submitted, was not a proper purpose of the examinations.

4. The applications for the orders for examination of the appellants Mr Harvey and Ms Flower and the production of documents were made ex parte.  The learned Judge accepted that the liquidators were under an obligation to disclose all facts material to the making of the orders, including all facts which might lead the Court to refuse to make the orders:  Re Southern Equities Corporation Ltd (In Liq); Bond & Anor v England (1997) 25 ACSR 394 per Lander J (with whom the other members of the Court agreed) at 422. The learned Judge accepted that a liquidator and his advisors must disclose in an affidavit all material facts, including facts which are known to the liquidator and which “he believes (acting reasonably) might be brought forward by the examinees had they been aware of them and had they had the opportunity to appear on the application and oppose the making of the orders”: Re Southern Equities per Lander J at 426-430.

5. The appellants contended before the learned Judge that the liquidators failed to disclose to the Court the following:

   1That Sandhurst had issued proceedings against Deloitte on 20 September 2002.  The learned Judge accepted that this fact should be disclosed in the affidavits.  However, he rejected the contention that this fact had not been disclosed.  He held that there was no evidence to support that assertion and the onus was on the appellants to demonstrate at least an arguable case that the assertion was true.  Furthermore, he said that even if he was wrong on this point he was satisfied from the evidence put forward by the liquidators that the fact was disclosed.  In his affidavit sworn on 12 February 2003, Mr Burfield deposed that the commencement of the Sandhurst proceedings was disclosed to the Court and the summons and statement of claim were in evidence at the hearing of the application.

   2That Johnson, Winter & Slattery and Mr Hoffmann were acting for Sandhurst at the time the proceedings were instituted.  The learned Judge accepted that this fact needed to be disclosed.  He concluded that there was no evidence to support the assertion that this fact was not disclosed and the onus was on the appellants to show at least an arguable case that the assertion is true.  He found that the fact had been sufficiently disclosed.  The summons and the statement of claim, which were before the Court, disclosed that Johnson, Winter & Slattery were the solicitors for Sandhurst and that the statement of claim had been settled by Mr Hoffmann.

   3That there was an agreement between the liquidators and Sandhurst.

   The learned Judge said that the nature of the alleged agreement was not clear.  In his affidavit of 12 February 2003 Mr Burfield deposed:

   “7     Shortly prior to 20 September 2002 I held discussions with Mr Frank O’Brien of Sandhurst Trustees Limited (“Sandhurst”) in relation to the possibility of Mr Smith’s and my solicitors assisting Sandhurst to prepare and file a Protective Writ in respect of proceedings against Deloitte arising out of the circumstances of the issue by Normans of some $12 million in convertible unsecured notes pursuant to the terms of a Convertible Note Trust Deed between Normans and Sandhurst dated 1 July 1999. Following that discussion, Sandhurst were concerned as to the possible effluxion of statutory limitation periods under the Fair Trading Act 1987 (SA) and wished to protect against this eventuality.

   8      I and to my knowledge Mr Smith considered that in the circumstances it would be in the interests of Normans, its creditors and contributories for assistance to be provided to Sandhurst so as to prepare and file a Protective Writ in respect of its potential cause of action against Deloitte.  Sandhurst is trustee for the convertible unsecured note holders and represents some 33% of the claims of unsecured creditors of Normans.  If through litigation against Deloitte these claims could be satisfied this, in my, and to my knowledge, Mr Smith’s view, would be in the interests of the creditors and contributories of Normans generally.”

   The learned Judge accepted the submission of counsel for the liquidators that these allegations were not evidence of an agreement as alleged or from which an agreement could be inferred.  He concluded that there was an agreement between Sandhurst and Johnson, Winter & Slattery, namely a contract of retainer, but that agreement was known to the Court when it was disclosed to the Court that Johnson, Winter & Slattery acted for Sandhurst:

   4That Johnson, Winter & Slattery was acting for both the liquidators and Sandhurst which created a conflict of interest for the solicitors which, if disclosed, may have caused the Court to conclude that the liquidators were asking to further the interests of Sandhurst.  It would have been an improper purpose for the liquidator to apply for examination in those circumstances.

   The learned Judge rejected this contention.  As has been mentioned earlier, it was disclosed to the Court that Johnson, Winter & Slattery were acting for the liquidators and Sandhurst.  He said that it could not be concluded from that fact alone that the solicitors had a conflict of interest and the Court was entitled to assume that the solicitors would discharge their professional obligations.  Also, he concluded that even if the purpose of the liquidator was to advance the interests of Sandhurst, that would not be an improper purpose.

6. It is submitted by the appellants on this appeal that each of these decisions of the learned Judge was made in error.  No oral argument was presented by the appellant as to the first and second of them but the contentions were made in written argument.  I reject those submissions. The findings made by the learned Judge with respect to each of these matters were justified.  It was established that the Master was informed, or otherwise aware, of each of the matters set out in the complaints in paragraphs numbered 1-4 inclusive.  No error in the reasoning or conclusions of the learned Judge has been established.

7. The appeal based upon these matters must fail.  Adequate disclosure was made to the Master by the liquidators.

8. The next ground of complaint is that when the Wisher McDonagh documents were provided to the liquidators by Deloitte, the liquidators and their advisers were under an implied undertaking not to use those documents or the information contained in them for a collateral purpose.  This ground is raised in the Notice of Appeal but was not the subject of argument.  As it was not abandoned, I make observations about it.

9. On 2 August 2002 the appellants gave an undertaking to the Court to produce all documentation relating to advice given in relation to the transactions between Normans Wines and Wisher McDonagh and documents were produced pursuant to that undertaking.

10. The basis of the implied undertaking is said to be found in the well known case of Harman v Secretary of State for the Home Department [1983] 1 AC 280 where it was held that a solicitor who obtained documents in the discovery and inspection process gave an implied undertaking to the Court not to use the documents nor to allow them to be used for any purpose other than the proper conduct of the action. It was submitted by the appellants to the Judge that to provide the documents or the information contained in them to a creditor of a company for use by the creditor in proceedings instituted by the company is for a collateral or an ulterior purpose and is therefore in breach of the implied undertaking. The learned Judge rejected that submission. He concluded that a liquidator who obtained documents in the course of an examination or upon production of documents under Part 5.9 Division 1 of the Act may use them in any legal proceedings instituted by the liquidator to recover assets on behalf of the company and to do so is not to use them for a collateral or ulterior purpose.

11. The appellants further submitted that the liquidators and their advisers were in breach of the implied undertaking regarding the Wisher McDonagh documents once Mr Hoffmann and Johnson, Winter & Slattery commenced acting for Sandhurst.  They contended that these legal advisers could not have put out of their minds the information contained in the documents and must have used it in connection with the proceedings instituted by Sandhurst and also that, inevitably, there would be breaches of the implied undertaking in the future as the documents and the information was used.  In the alternative, the appellants contended that there was such a high risk that a breach of the undertaking had and would occur that there was a dilemma in which the liquidators and their advisers were placed which should have been disclosed to the Master.

12. Earlier I referred to evidence given by Mr Hoffmann to the learned Judge.  That evidence was accepted by the learned Judge.  Mr Grace of Johnson, Winter & Slattery swore an affidavit which also indicated that the solicitor had not consciously used the Wisher McDonagh documents.

13. The learned Judge found that neither Mr Hoffmann nor Johnson Winter & Slattery breached the implied undertaking.  He then considered whether the mere acceptance of instructions by Mr Hoffmann and the solicitors constituted a breach of the implied undertaking and decided that it did not.  He said at:

    “The undertaking is that the documents or the information contained in the documents must not be used.  If an injunction prohibiting a breach of the undertaking is considered appropriate it will be in terms prohibiting the use of documents and information, not in terms prohibiting, for example, the solicitors from acting in the second action (Re Schuppan (a bankrupt) [1996] 2 All ER 664 per Robert Walker J at 670; Crest Homes Plc v Marks [1987] 1 AC 829).

    It follows from this conclusion that there was no failure to disclose a relevant matter in relation to the implied undertaking because there was no breach of the implied undertaking at the time of the hearing before the Master and there was no likelihood of a breach in the future bearing in mind that it may reasonably be assumed that the liquidators and their advisers would comply with the undertaking in the future.  I reject the submission that the liquidators failed to make full and frank disclosure to the Master.”

14. In my view this approach by the learned Trial Judge was appropriate and justified in the circumstances.

15. The learned Trial Judge then considered whether the liquidators had an improper purpose in seeking the examinations, namely to obtain information and, or, material for use in the Sandhurst proceedings.  He accepted that whether a person has an improper purpose is nearly always a question of inference. 

16. Mr Burfield asserts in his affidavit sworn on 12 February 2003 that he deposed in an affidavit sworn on 29 September 2002 that the examinees would be able to give information as to the examinable affairs of Normans Wines and that all of the appellants had in their possession books and records relevant to those matters.  The learned Judge accepted that assertion. Mr Burfield also deposed that he sought production of books and records by Deloitte to further the liquidators’ investigation of the financial position and collapse of Normans Wines in the period from 30 June 1995 to 30 June 2001, to provide the liquidators with information as to whether or not there were causes of action available to Normans Wines which could be produced against its former auditors and directors and to provide to the liquidators information which would assist them in the conduct of examinations of former directors and auditors of Normans Wines.  Mr Smith swore an affidavit in which he deposed to having the same purposes.

17. The appellant contended that the inference to be drawn is that, as counsel and solicitors for the liquidators and Sandhurst were the same when the applications for the examinations were instituted, the inference should be drawn that in seeking the orders for examination the liquidators were acting only in the interests of Sandhurst.  The learned Judge rejected this contention.  He mentioned that applications for the examinations were made about six months before the institution of the proceedings by Sandhurst and that in the applications for examination the liquidators also sought examination of directors of Normans Wines.  He saw no reason to doubt the purposes stated by the liquidators and held that it was not arguable that the liquidators were acting for an improper purpose.

18. The learned Judge accepted that, even if the purpose of an examination was to assist a creditor of the company in liquidation to recover its debt, the purpose would not be an ulterior purpose which would justify setting aside the examination order:  In re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513, Re BPTC (1992) 10 ACLC 271 (which related to shareholders not creditors) and Douglas-Brown v Furzer (1994) 11 WAR 400. The learned Trial Judge accepted that:

    “The authorities establish that an improper purpose includes a purpose of using the examination as a dress rehearsal for cross-examination, or for the purpose of destroying the credibility of the examinees or witnesses who might be called for the examinee in substantive proceedings, or for the predominant purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, or simply to cause undue inconvenience or embarrassment to the examinee or to inflict costs.  In Re Southern Equities Lander J said at 432:

    ‘It is clear enough from the authorities that the mere fact that proceedings are pending against the proposed examinee does not make the application for an examination an abuse of process.  Nor will it be so even if the proposed examination touches upon or explores the subject matter of those existing proceedings.  Still it will not be an abuse if the examination will give rise to a forensic advantage, for example by way of securing admissions or obtaining material or evidence not otherwise available to the liquidator.’”

    He held that the liquidators’ purposes did not include one of those purposes:

    “... a purpose (of the liquidator) of advancing the interests of a creditor of the company who has instituted proceedings against the proposed examinees is not an improper purpose if there is a basis for concluding that advancing the interests of the creditor will also advance the interests of the company, its other creditors or contributories.  Perhaps the authorities support a broader proposition, but it is unnecessary for me to decide that in this case.  Counsel for the examinees and Deloitte submits that a liquidator cannot act for the purpose of advancing the interests of a creditor and he cites Re Excel Finance in support of that proposition.  However, I respectfully agree with the analysis of that case by Ormiston J in Flanders v Beatty (at 333-334).”

19. The next matter considered by the learned Judge was whether the Master adequately considered the applications.  He concluded that the applications, the affidavits and the materials placed before the learned Master were considered by him.  As there is no appeal against that finding, it is unnecessary to consider the matter on this appeal.

20. The appellants sought inspection of the confidential affidavits filed by the liquidators in support of the application for the orders for examination and production of documents.  As has been seen those affidavits were not available for inspection unless as ordered by the Court.  The learned Judge refused to allow inspection.  I mention this part of the appeal later in these reasons.

21. The last matter considered by the learned Judge was the relevance of the offer of cooperation by the appellants, which I have earlier mentioned.  It was submitted by the appellants that an order for examination and production of documents should not be made if there is an alternative means by which the liquidator may obtain the information he or she seeks.  The learned Judge rejected this contention.  He concluded that there may be circumstances in which relevant information could be obtained by alternative means which could be relevant to the exercise of the discretion to order examination and production of documents, but such was not so in the present case.  The offer was made in very general terms.  Questions had to be first directed by the liquidators to the solicitors for the examinees.

22. The learned Judge dismissed the application by the appellants.

23. I have rejected the contentions on appeal that the learned Judge made errors in reaching his conclusions about various matters and I shall not repeat my conclusions about those matters.  I now turn to other matters.

24. It is convenient to first deal with the offer of cooperation.  It is submitted by the appellants that the offer of cooperation was relevant to the exercise of the discretion to order the examinations and also in that the failure of the liquidator to accept the offer may permit the inference that the purpose of the examination is to obtain a forensic advantage or to facilitate the provision of information to a third party.  It is further submitted that the learned Judge erred in apparently reasoning that because the liquidators could apply for the orders, they should be entitled to do so and consequently there was no room for the exercise of the discretion.

25. I reject these submissions.  The examinees would not agree to be examined.  They merely indicated a willingness to cooperate by responding to any questions the liquidators might have arising out of the audit of Normans Wines.  The letter written by their solicitors on 23 September 2003 to the solicitors for the liquidators informed them that to the extent that the liquidators seek to gather information about the affairs of Normans Wines, they had been instructed that, in the first instance, the questions should be directed to them.  The letter went on to indicate that as the examinees were willing to cooperate with the liquidators in relation to the examinable affairs of Normans Wines, there was no need to seek any examination or production orders.  With respect to the production of documents, the liquidators were asked to inform the appellants’ solicitors of “the particular transactions and the dates of those transactions together with sufficient identification of the issues to which the liquidators enquiries relate”.

26. There was no commitment to answer the enquiries of the liquidators and there was no offer to respond on oath.  If the offer had been accepted, the appellants would have been forewarned and forearmed as to the subject matter of the enquiries, which, I accept, is contrary to the long term practice relating to examinations.  Their answers would have been vetted by their solicitors.

27. In my view, the offers of cooperation, as they have been described, were no effective substitute for examinations.  It has been accepted that the examinees are not forewarned of the purpose of an examination.  The use of an affidavit of the liquidator, which is not available for inspection, confirms this practice:  s 596C, see also Re Southern Equities Corporation Ltd (in liq); Bond & Anor v England (1997) 25 ACSR 394 per Lander J at 427, Simionato & Farrugia v Macks & Macks (1996) 19 ACSR 34 and Re Stirling Henry Ltd (In Liq) and the Companies Act [1972] 1 NSWLR 497 at 501.

1. It is not necessary when considering this aspect of the appeal to consider the boundaries of a proper purpose for an examination.  Clearly, the liquidators were entitled to pursue the proposed examinations in the usual way through the processes of the Court with answers to questions being given on oath and documents produced and available to the liquidators when the examinees were to be questioned.

2. There may be circumstances where an offer to cooperate by a proposed examinee may render formal examination unnecessary or inappropriate, such as when the scope of the enquiry is limited, and although necessary, not of much significance.  But the present case is not such a case.  The examinations are likely to be extensive and complicated and the process proffered by the appellants’ solicitors was entirely inappropriate.

3. The learned Judge did not err in rejecting the proposal as a substitute for examinations.

4. I now turn to the appellants’ contention that the learned Judge erred in refusing them access to the confidential affidavits.

5. The competing public interests of importance must always be considered, namely the liquidator obtaining necessary information in the winding up of the company and the right to privacy of an individual:  Grosvenor Hill (Qld) Pty Ltd v Barber & Anor at 306 and the cases therein cited. In my view, the second of those interests is not relevant to this appeal because the appellants were auditors of Normans Wines and otherwise retained by it. Clearly, it is in the public interest that all necessary information about the affairs of Normans Wines be available to the liquidators.

6. A useful starting point is to consider the reason for the confidential process. Rule 47 of the Corporations Law Rules provides that an affidavit in support of an order for examination may, at the option of the applicant, be sealed before it is filed and if so shall not be opened or inspected other than by direction of the Court.

7. In Simionato & Farrugia v Macks & Macks Lander J acknowledged that it has been the practice of this Court and of Courts in other States and England for a very long time to allow affidavits in support of applications for orders for examinations to be sealed: 63. He went on to say at 63:

   “The reason for the practice is clear enough, and that is so liquidators do not have to disclose to the proposed examinee the matters upon which the liquidator wishes to examine, so as to provide information to the proposed examinee which would allow that person to defeat the process of the examination itself: Re Gold Co (1879) 12 ChD 77. That is not to put the proposed examinee at a disadvantage. The proposed examinee is entitled to be represented, at the examinee’s own expense, at the time of the examinee’s examination and his counsel or solicitor is entitled at the examination to take objection to any question which counsel for the examinee considers appropriate. Moreover, counsel for the examinee is entitled to lead evidence from the examinee if the court considers it just for the purpose of enabling the examinee to explain or qualify any answers or evidence given by the examinee (s 597(16)). The examinee will have the full protection of the court at the time of the examination and the court will regulate the examination so that the examinee suffers no injustice (s 596F and 597(5B)) Hamilton v Oades (1989) 166 CLR 497; 15 ACLR 123.”

   Mansfield J expressed similar views in Re Moage Ltd (In Liq) (1997) 25 ACSR 53 at 65.

8. It is accepted that an applicant cannot “fish” for a case.  Before he or she may be permitted to examine a confidential affidavit there must be material before the Court “from which it appears that the applicant has an arguable case, to which the material is relevant, before the discretion should be exercised in favour of that applicant” and that once that arguable case appears, the discretion will normally be exercised so as to grant the application: Re Excel Finance Corporation Ltd (Receiver and Manager Appointed); Worthley v England (1994) 52 FCR 69 at 94. This test was approved in Re Southern Equities Corporation at 422.  In Worthley, in applying the test, the Court said at 94:

   “In the present case the commencement by the Trustee and debenture holders of proceedings against Mr Worthley raised, without more, the possibility that Mr England had sought the examination summons against Mr Worthley for an improper purpose.  The material filed in support of the application in which Mr England stated its purpose was clearly relevant to the issue of that purpose.  In our view his Honour was in error in refusing inspection in a case where so to do would cause prejudice to Mr Worthley in the proceedings, and that error was an error of principle which justifies the Court granting leave to appeal against what is otherwise a matter of practice and procedure.”

   In Southern Equities Corporation, Lander J, with whom the other members of the Court agreed, said that there must be some evidence before the Court from which it may be inferred that the examinee had an arguable case and that the content of the affidavit is relevant to that arguable case.  He went on to say, at 422:

   “The authorities are clear that there is no right, on the part of an examinee, to access to the material lodged in support of the application for the examination summons.  It is clear enough that while the court has a discretion to allow an examinee to inspect an affidavit supporting the application, which discretion should be exercised in favour of the examinee where the justice of the case so requires, there must be some evidence before the court from which it may be inferred that the examinee has an arguable case and that the affidavit material is relevant to that arguable case ...”

9. In Re Moage Ltd (In Liq) Mansfield J expressed his view about what is meant by an arguable case.  He said at 67:

   “In my view it involves no more than that the court requires to be satisfied to an appropriate level of satisfaction that the applicant is not pursuing the application without good cause or without good reason, and in particular is not doing so purely in the hope that, by procuring the release of the affidavit, some evidentiary foundation for the allegation will be made out.  In other words, if the applicant is merely ‘fishing’ for a case, then no reason for exercising the discretion in its favour will exist; if it presents material from which it is shown that it has passed the threshold beyond fishing, and has an arguable case based on that material, then the discretion may be exercised in its favour.  Refinements of degrees of arguability is, in my view, unnecessary.”

10. The appellants submitted that Worthley is an illustration of a principle that, when an examinee raises an arguable improper purpose, the discretion should normally be exercised in favour of inspection of a confidential affidavit.  They contended that an arguable case appears from the conversation between Mr O’Brien and Mr Burfield to which I have referred and that the learned Judge wrongly declined to draw the inference of an arguable case of improper purpose.  I do not think the decision in Worthley establishes any such principle.  It is an unusual case in that the receiver was appointed by the trustee of debenture holders and requested the Australian Securities Commission to make the application for examination of Mr Worthley, who was the auditor of the company.  The receiver acknowledged that his predominant reason for the proposed examinations was to ascertain the existence of assets for the benefit of his appointor.  Proceedings for damages were commenced by the trustee and the debenture holders against Mr Worthley for loss as a result of his acts.  It was held that the examination should not be permitted because the purpose was to aid the proceedings by the trustee and the debenture holders by obtaining a forensic advantage which was not otherwise available and not for the benefit of the company.  For this reason Worthley may be distinguished. In the present case, the liquidators are pursuing the examinations and the production of documents for the benefit of the company, many creditors and possibly the members.

11. In my view, the learned Judge was correct in concluding that the appellants had not discharged the onus placed upon them to establish an arguable case.  I reject the submission that the orders for examination had been sought for a purpose “foreign to the power” as the first was expressed by the appellants.  The liquidators were required to fully investigate all of the affairs of Normans Wines over the relevant years, and were entitled to examine the examinees and Deloitte as auditors and because of the role played by them in those years and also in relation to the issue by Normans Wines of the unsecured notes.  Examination of Mr Harvey and Ms Flower and production of the documents by Deloitte would very likely assist the liquidators in their task in view of the relationship between Normans Wines and the appellants.  There is no basis for the submission that the purpose of the examination was “foreign to the power”.

12. It was also submitted that the liquidators, in their confidential affidavits, had not made full disclosure of matters which might lead the Court to refuse the application.  I have mentioned the conclusions of the learned Judge about this matter.  I reject the submission.  The conclusions of the learned Judge were justified.  Sufficient disclosure had been made.

13. The appellants submitted that the confidential affidavits should have been released to them so that they could identify material which would be relevant to the allegations of misuse of the power and non-disclosure to the Court and to enable them to fairly test by cross-examination the open affidavits of the liquidators filed in opposition to the application of the appellants to have the orders for examination and production of documents rescinded.

14. I reject these contentions.  As has been seen, a mere application for disclosure is not a sufficient basis for exercise of the discretion to order examination and production of documents.  There must be material before the Court from which it appears that the applicant has an arguable case.  The examination of confidential affidavits to identify material for the purposes advanced by the appellants is not sufficient reason to warrant disclosure.

15. Earlier I mentioned the affidavit of Mr Burfield sworn on 12 February 2003, shortly before the hearing before the learned Judge commenced.  In that affidavit he deposed to various matters of fact, including discussions he held with a representative of Sandhurst.  Also, he deposed to holding the view that, if the proceedings by Sandhurst against Deloitte were successful, recovery of the $12m from Deloitte due to the holders of the unsecured notes would be beneficial to the creditors and contributories of Normans Wines generally.  He also set out in some detail the purpose of the proposed examination of Mr Harvey and Ms Flower and the production of documents by Deloitte.  Mr Smith filed an affidavit on 13 February 2003 that, in effect, adopted the contents of Mr Burfield’s affidavit about matters relevant to him.

16. The appellants contend that the learned Judge erred because he allowed the liquidators to rely upon these affidavits to establish their purpose at an earlier time, including by reference to the confidential affidavits, which earlier stated purposes could not be tested without the appellants having access to them.  Also, they contend that the learned Judge, in allowing the liquidators to rely upon the confidential affidavits, did not decide whether there was a proper purpose for the examination and production of documents at that time, the true purpose may have changed by the time of the later affidavits and was not then a proper purpose.

17. It appears that the learned Judge accepted that it was appropriate for the liquidators to commence fresh proceedings for orders for examination and production of documents following the decision of Perry J to which reference has been made.  The learned Judge held that there was no reason to doubt the statement of purposes in the later affidavits of the liquidators.  In my view, he was correct in doing so.  There was no basis to conclude that even if there was a proper purpose at the earlier time, there was not such a purpose in February 2003.  I think the conclusions of the learned Judge plainly indicate that he decided that there was a proper purpose at both times, and it follows that he obviously considered the matter.

18. In my view, inspection of the confidential affidavits merely to see if there are inconsistencies with the matters set out in the open affidavits amounts to fishing for an arguable case and does not constitute an arguable case for disclosure.

19. It was last submitted that the contents of the affidavits of Mr Burfield sworn on 12 February 2003 and of Mr Smith sworn on 13 February 2003 amounted to waiver of the confidentiality of the earlier affidavits. In these affidavits reference is made to the contents of the confidential affidavits.  The submission was made to the learned Judge by the appellants that he should not rely upon any matters in these affidavits unless the confidential affidavits were released to them.  They contended that, in effect, there had been an implied waiver of the confidentiality and consequently they were entitled to inspect the confidential affidavits.  The learned Judge rejected that contention and the appellants submit that he was in error in doing so.

20. The appellants contend that if the liquidators acted in a way which was inconsistent with that confidentiality, by seeking to state in the open affidavits what was in the confidential affidavits, the Court should recognise that inconsistency and determine its consequences, even though such consequences may not reflect the intention of the liquidators:  Mann v Carnell (1999) 201 CLR 1 at 13. In that case the High Court was concerned with inconsistencies such that there could be implied waiver of legal professional privilege. Those affidavits were filed in reply to matters set out in affidavits sworn by a solicitor acting for the appellants in support of the application to discharge the orders for examination and production of documents. I do not think that when the liquidators filed the open affidavits they acted inconsistently with the filing of the confidential affidavits.

21. The learned Judge rejected the contention that he should apply the principles relating to waiver of legal professional privilege.  He concluded that the content of the open affidavits did not justify inspection by the appellants of the confidential affidavits.  He rejected the submission that the purpose of the examinations was to assist Sandhurst in its action against Deloitte.  He noted that the action seeking the orders for examination and production of documents was commenced on 13 March 2002: “well before the commencement of the action by Sandhurst against Deloitte on 20 September 2002”.  Examination orders were also sought against persons other than the examinees, including directors of Normans Wines.  He saw no reason to doubt the statement of purposes for the orders for examination set out in the affidavits of Mr Burfield and Mr Smith on 12 February 2003 and 13 February 2003 respectively.  I need not repeat those purposes.  It is sufficient to say that the stated purposes all relate to the proper purposes of the liquidator of Normans Wines and included ascertaining whether causes of action were available to Normans Wines against Deloitte and the former directors and obtaining information which would assist in the examination of Mr Harvey and Ms Flower.  I can see no error in the approach of the learned Judge.

22. In my view there was no arguable case established for the inspection of the confidential affidavits and the learned Judge was correct in his conclusions.

23. The next ground raised in the appeal was that the evidence clearly established that the Court should infer that one of the purposes of the liquidators was to assist Sandhurst in its action against Deloitte.

24. It was submitted that the first piece of evidence from which such an inference should be drawn was the discussion between Mr Burfield and Mr O’Brien.  The second matter is the belief of Mr Burfield, stated in his affidavit of 12 February 2003, that if Sandhurst was successful in its action against Deloitte, the claims of the noteholders would be satisfied.  The third matter is that the application for examination orders occurred shortly after the discussion and the formation of the belief by Mr Burfield just mentioned.  The fourth matter is that Johnson, Winter & Slattery and Mr Hoffmann acted for both the liquidators and Sandhurst until some time before 12 February 2003.

25. The fifth matter is that the liquidators actively pursued production of the Wisher McDonagh documents from Deloitte in early August 2002, one month before the commencement of the Sandhurst proceedings.  The sixth matter is that Johnson, Winter & Slattery retained access to the Wisher McDonagh documents which, it is said, relate to “the transactions central to the case of Sandhurst”.  It is submitted that the learned Judge made a finding to that effect and I accept that he did so.  He discussed the Sandhurst proceedings and said:

    “Transactions between the company [Normans Wines] and Wisher McDonagh Holdings Pty Ltd (“Wisher McDonagh”) were identified as transactions (together with other transactions) which led to the conclusion that the company’s accounts for the year ending 30 June 1998 and the Deloitte prospectus report dated 12 July 1999 were not true and fair.  It is also alleged that the company’s accounts for the financial year ending 30 June 1999 were not true and fair.”

    It may be seen that his conclusions were not limited to the transactions between Normans Wines and Wisher McDonagh.

26. The seventh matter is that Mr Hoffmann, who was counsel for the liquidators, together with Johnson, Winter & Slattery prepared the statement of claim in the Sandhurst proceedings against Deloitte.  The eighth matter is that Mr Hoffmann used documents provided to him by the liquidators in preparing the Sandhurst proceedings.  The ninth matter is that Johnson, Winter & Slattery were investigating matters the subject of the Sandhurst proceedings.  Of course, as I have mentioned, they were also acting for Sandhurst at this time.

27. Again reliance was placed upon the decision in Worthley.  As has been seen in that case, the Court said that the commencement by the Trustee and debenture holders of proceedings against Mr Worthley raised, without more, the possibility of an improper purpose in seeking the examination.  It is submitted that the various matters which I have recited “raised without more” the possibility that the liquidators had sought the examinations and production of documents for an improper purpose, namely to assist Sandhurst.  The appellants contend that the nine matters raise an arguable circumstantial case justifying the inference that the purpose of the liquidators was to assist Sandhurst and the learned Judge erred in not making that finding.

28. Earlier I have mentioned the basis of distinction between Worthley and the present case and that the predominant purpose of the receiver in seeking orders for examination of the auditor was to assist the trustee and the debenture holders.  I mention that in Worthley the Court said at 89:

    “For an abuse to be found it will be necessary that the offensive purpose be, at the least, the predominant purpose:  see Burns Philp & Co Ltd v Murphy (1993) 29 NSWLR 723.”

    Later, the Court said, at 93:

    “… [W]e are of the view that the use of the power to obtain an examination summons for the principal purpose of furthering the cause of the applicant for the summons or, as in this case, appointor of the applicant in litigation against third parties not for the benefit of the corporation, its contributories or creditors (other than in the most indirect way) is a use of the power for a purpose foreign to that power and thus an abuse of the power.  Such a purpose would provide to the examiner the opportunity for pre-trial depositions which would not be available in the litigation.”

1. In Re Southern Equities the test of predominant purpose was adopted (see 431).

2. In my view there is no reason to draw the inference from the material before the Master and the learned Judge that the predominant or principal purpose of the application for orders for examination of the examinees and the production of the documents was to assist Sandhurst in the Sandhurst proceedings.  As I have mentioned, it must be remembered that the appellants were intimately involved in the financial affairs of Normans Wines during the relevant years and had considerable knowledge about those affairs.

3. It could not be assumed that the liquidators would receive assistance from the directors or the officers of Normans Wines.  The liquidators were entitled to use the examination process to gather as much information as possible about all of the relevant affairs of Normans Wines, including whether there was any cause of action against Deloitte with regard to the issue of the convertible notes.  They were required to consider whether such a cause of action existed with respect to any of the duties undertaken by Deloitte.  Also, they were required to investigate whether Normans Wines had a cause of action against Deloitte which could be pursued if the Sandhurst proceedings did not proceed. 

4. Indeed, in his affidavit of 12 February 2003, Mr Burfield deposed that his purpose for seeking the orders against the appellants was to further the investigation by the liquidators of the financial position and collapse of Normans Wines, to enable them to determine if Normans Wines had causes of action against Deloitte and to provide inspection to assist them in the conduct of the examination of the former directors and auditors of Normans Wines.

5. I do not think the nine matters raised by the appellants, even if accurately stated in context, permit the inference to be drawn that the predominant or principal purpose of the examination and production of documents was to assist Sandhurst.  In addition, I do not think they have all been accurately stated in context.  The evidence before the learned Judge established that orders were sought against the appellants as early as March 2002, about six months before the discussions between Mr Burfield and Mr O’Brien.  The Sandhurst proceedings were commenced to avoid the statutory limitation period which expired on 20 September 2000.  According to Mr Grace, the Wisher McDonagh documents were sought because the directors of that company were to be examined on 7 and 8 August 2002.  The Wisher McDonagh transaction is one of many alleged breaches of duty by Deloitte in the Sandhurst proceedings.  I have mentioned the evidence of Mr Hoffmann which was accepted by the learned Judge.  It was not established that documents produced by Deloitte were used in the preparation of the Sandhurst proceedings by Mr Hoffmann or Johnson, Winter & Slattery. 

6. I have referred to the views expressed in Worthley and Re Southern Equities about the predominant or principal purpose.  In his reasons for decision the learned Judge referred with approval to a number of decisions where the purpose of the liquidator was to assist others and was held to be a proper purpose:  Re BPTC Ltd (1992) 10 ACLC 271 at 237 (a creditor), Re Laurie Cottier Productions Pty Ltd (In Liquidation) (1992) 9 ACSR 513 at 518 (a creditor), Douglas-Brown v Furzer (1994) 11 WAR 400 (a creditor).

7. In Flanders v Beatty and Anor (1995) 16 ACSR 324 Ormiston J, with whom Tadgell and Harper JJ agreed, considered that it was unnecessary to decide whether the view expressed in Worthley was correct in view of the anomalies of that case. He went on to say at 335:

   “Nevertheless it is unnecessary to doubt the opinion expressed in Worthley’s Case that under the unamended provisions of s 597 it was necessary to show that the proposed examination was for the benefit of the corporation, its contributories or its creditors.  What is clear, however, is that the scope of the examination provisions was greatly expanded by the 1992 amendments.  Though I would doubt that the former section was intended to be constrained by any need to ensure that an examination was for the company’s benefit in the sense of keeping the company alive by paying out its creditors, it was part of a scheme derived from liquidators’ examinations.  Liquidators, it is accepted, owe certain duties to the company, whatever be the outcome of the winding-up:  cf Commissioner for Corporate Affairs v PW Harvey [1980] VR 669 at 691-692 and 695 and the cases there cited.

   Now the powers given under s 596A to s 597B are clearly so wide and so easily exercised by ‘eligible applicants’ (cf s 596A) that the purposes to be served by examinations ought not be limited by reference to the benefit of the company or its creditors or contributories.  The objects to be served by the issue of an examination summons and the making of orders for examination should be discerned only by reference to the statutory provisions which invest those powers.  If those powers are being used for oppressive purposes or to serve ends entirely outside the scope of the sections, such as to gather evidence for libel proceedings, then the court will intervene to prevent the examination.”

8. The learned Judge concluded that these authorities supported, at least, the proposition that a purpose of a liquidator of advancing the interests of a creditor who has initiated proceedings against proposed examinees is not an improper purpose if there is a basis for contending that advancing the interests of a creditor will also advance the interests of the company and its other creditors or contributories.  I respectfully agree with that observation.  It is not difficult to imagine a case where there is one dominant creditor and minor creditors.  A successful action by the dominant creditor against a third party would benefit the company and the minor creditors who could not have financially supported an action against the third party.

9. It was submitted by the appellants that the decision in Flanders v Beatty and Anor is of no assistance because there was a deed of company arrangement which provided that the claim of the company was against property which was expressly available for certain creditors.  As I understand the reasons for judgment in that case, the Court considered that contention in the context of the “standing” of the administrators to seek orders for examination and decided that it was not necessary to resolve it: 337.  However, it was held that the administrators did have a proper purpose in seeking orders for examination pursuant to s 597 if examination was necessary “for the benefit of the corporation, its contributories or creditors”: 335.  There Ormiston J was considering the question of “proper purpose” generally pursuant to s 597 and not merely in the context of the terms of the deeds of company arrangement.

10. The appellants also contended that the learned Judge erred in relying upon Re Laurie Cottier Productions Pty Ltd (In Liquidation) and Re BPTC because in Worthley the Court said that these cases did not decide that it was not an improper purpose to examine in aid of proceedings which had been commenced or were contemplated by third parties and that such a proposition would be too widely expressed: 92.  In my view, consideration of the decision in  Re Laurie Cottier Productions Pty Ltd (In Liquidation) justifies the reliance which the learned Judge placed upon it.  Waddell CJ said at 517:

    “It does not follow that, because the motive of [a substantial creditor] in funding the examination is to advance its own interests, the liquidator is seeking to conduct the examination solely in the interests of that company and not in the interests of other creditors or not in the interests of finding out what were the circumstances which led the company into its financial difficulties and liquidation which circumstances might reveal breaches of the Corporations Law.”

    and:

    “It does not seem to me that any inference adverse to the liquidator should be drawn from the fact that the creditor which is supplying the funds for the examination may have better prospects of recovering its debt than the other creditors who have taken no steps to recover theirs.”

11. It is also submitted that the learned Judge should not have placed reliance upon the decision in Douglas-Brown v Furzer. In that case orders for examination of various persons were obtained by the liquidator. He had been indemnified for his costs by a creditor. The issue was whether the creditor could have access to the transcript of the examinations to assist it in litigation against a party who had been examined. Such access was granted. It was not doubted that the examination was for a proper purpose. Malcolm CJ, with whom the other members of the Court agreed, acknowledged that under previous legislation the liquidator could have a proper purpose where the examination was to enable him to gain evidence and information to assist him in the winding up by protecting the interests of creditors. He went on to say that there appeared to be no reason why an examination for such a purpose should not be appropriate under the present legislation as a creditor is an eligible applicant: 406-407. It appears that His Honour was not correct in that observation as a creditor is not specifically mentioned in the definition of an eligible applicant in s 9, however I do not think that the liquidator has an improper purpose in those circumstances. Malcolm CJ followed the decision in Re BPTC Ltd and Re Laurie Cottier Productions and concluded that it did not necessarily follow that, when a creditor was funding an examination to advance his or her own interests, the liquidator was conducting the examination only for his own interests.

12. I do not think the learned Judge erred in having regard to these cases.  There are other cases which support his conclusions, eg Carter v Gartner, in the matter of Gartner Wines Pty Limited and the Corporations Act 2001 [2003] FCA 653.

13. The appellants also submitted that the learned Judge failed to appreciate the difference between cases where a successful claim by a creditor against a third party would reduce the liabilities of a company and where it would not.  I do not think such a distinction is relevant to the present case as recovery by Sandhurst of damages from Deloitte would, in my view, benefit Normans Wines as liability to the noteholders would be extinguished or substantially reduced.

14. In my view the learned Judge was correct in his conclusion that it had not been established that the liquidators had an improper purpose.

15. The appellants submit that success by Sandhurst against Deloitte will not have any impact upon the obligations of Normans Wines to pay a dividend to the noteholders, will not relieve Normans from its obligation to pay the noteholders and will not ultimately benefit either Normans Wines or the creditors generally.  Support for this contention is said to be found in Worthley at 93:

    “The present litigation in which the Trustee for debenture holders and the debenture holders themselves are engaged is somewhat different.  It alleges a loss to debenture holders as a result of the acts of Mr Worthley and claims that they are entitled to recover damages in respect of that loss.  Success in these proceedings would not necessarily free the corporation from the obligation to pay the Trustee for debenture holders.”

16. It is further submitted that even if Sandhurst were to obtain a judgment against Deloitte for the full $12 million then Deloitte would stand in the shoes of Sandhurst in the winding up of Normans.

17. I reject this submission.  If Sandhurst is successful in the action against Deloitte part of the damages recovered would be the loss of the noteholders’ investment in Normans Wines and probably loss of interest or compensation for loss of use of the money invested.  See the decision in Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561 at 572. It is possible that there would be other components of the damages. The noteholders would not be able to recover the same amounts in the liquidation. Furthermore, I do not accept that Demetrios is authority for the proposition that if Deloitte had to pay damages to Sandhurst, it would stand in the shoes of Sandhurst in the winding up of Normans Wines.  In that case the Court was concerned with fraud and accepted that in equity the defendant could succeed to any unrealised benefits which accrued to the plaintiffs under the transaction which would or might realise the plaintiffs’ loss: 573.  It is doubtful that Deloitte would be entitled to subrogation if found liable in damages in tort to Sandhurst, but it is unnecessary to so decide for present purposes.

18. Assisting Sandhurst was not the purpose of the examination let alone the dominant purpose.  Also, it cannot be established at the present that the Sandhurst proceedings would not benefit Normans Wines.

19. During the course of these reasons, I have canvassed each of the grounds of appeal and I have rejected all of them.

20. In my view the appeal should be dismissed.

21. GRAY J:               This is an appeal against the refusal of a judge of this court to set aside orders for examinations and production made pursuant to section 596B of the Corporations Act 2001 (Cth).

    Introduction

22. Examination and production orders were made ex parte by a master of this court on 1 October 2002.  The orders related to the examinable affairs of Normans Wines Limited (In Liquidation) ACN 007 206 484 and were made on the application of Timothy Paul Burfield and Anthony Stevens Smith, the liquidators of Normans.  The orders were for the examination of Stephen Thomas Harvey and Catherine Gae Flower, two members of the accounting firm Deloitte Touche Tohmatsu.  Orders were also made for the production of documents by both examinees and Deloitte.

23. Normans was a publicly listed company with 1,804 shareholders and 77 unsecured creditors with claims totalling more than $29,000,000.  The largest creditor was Sandhurst Trustees Limited in its capacity as trustee for 75 holders of unsecured notes issued by Normans pursuant to a prospectus dated 12 July 1999.  The Sandhurst claim was for $12,000,000.

24. Deloitte audited Norman’s accounts.  They also acted as accounting and taxation advisers and were engaged to conduct financial due diligence in respect of rights and unsecured notes issued by Normans.

25. Mr Burfield and Mr Smith were appointed administrators of Normans on 27 August 2001. They were appointed liquidators on 24 September 2001.  Johnson Winter and Slattery have been the solicitors for the liquidators at relevant times.  Mark Hoffmann was retained as counsel in June 2002.

26. Shortly prior to 20 September 2002 Mr Burfield had discussions with an officer of Sandhurst in relation to ‘the possibility of Mr Smith’s and my solicitors assisting Sandhurst to prepare and file a protective writ’.

27. On 20 September 2002 Sandhurst filed, but did not serve, proceedings against Deloitte for alleged breaches of common law and statutory duties.  This step was designed to protect against the possible effluxion of statutory limitation periods.  The proceedings concern the truth and fairness of the accounts of Normans for the years ended June 1998 and June 1999 and a prospectus dated 12 July 1999.  Johnson Winter and Slattery acted as solicitors for Sandhurst at that time.  Mr Hoffmann settled the statement of claim, but that was the extent of his retainer.  The Sandhurst proceedings were prepared during the three days prior to 20 September 2002.

28. On 23 September 2002 Deloitte made an offer to cooperate with the liquidators through their solicitors:

    - As you are aware, Mr Harvey and Ms Flower have, at all times, been willing to cooperate with the liquidators in responding to any questions they may have arising out of the audit of Normans Wines Limited (Receivers and Managers Appointed) (in Liquidation) (‘Normans’).

    - To the extent that the liquidators seek to gather information about the affairs of Normans, we have been instructed that, in the first instance, the liquidator should direct any questions to us.

    - To the extent that the liquidators seek documents from Deloitte relating to the audit of Normans then we would be grateful if you would inform us of the particular transactions and the dates of those transactions together with sufficient identification of the issues to which the liquidators enquiries relate.

29. On 26 September 2002 the liquidators sought orders for examination and production.  Confidential affidavits were sworn by the liquidators.  As earlier observed orders were made ex parte on 1 October 2002.

30. On 8 October 2002, the examinees and Deloitte applied to set aside the examination and production orders.  They alleged that the liquidators’ purposes were improper.  It was contended that there was an arguable case that the sole or dominant purpose of the liquidators was to assist the cause of Sandhurst.  It was said to be arguable that Johnson Winter and Slattery and Mr Hoffmann would have access to the books and records of Normans for the purpose of preparing the Sandhurst statement of claim.  It was argued that the liquidator did not have a legitimate interest in assisting the note holders to recover damages from Deloitte.  The action would not, it was said, relevantly benefit Normans as the estate of Normans would not be relieved of its obligations under the terms of the notes.  If the action were successful Deloitte would be entitled in equity to the rights of the note holders.

31. In response to the allegations of improper purpose Mr Burfield in an affidavit sworn on 12 February 2003 deposed:

    - As set out in my affidavits sworn 29 September 2002 [the confidential affidavits] I believe that:

    Ms Flower and Mr Harvey will be able to give information as to the examinable affairs of Normans; and

    Ms Flower, Mr Harvey and Deloitte have in their possession books and records relevant to the examinable affairs of Normans.

    -I and to my knowledge Mr Smith sought orders for the examination of and production of books and records by Ms Flower and Mr Harvey and for the production of books and records by Deloitte for the following purposes:

    -      To further Smith’s and my investigation of the financial position and collapse of Normans in the period 30 June 1995 through 30 June 2001.

    -      To provide Smith and myself with information in relation to whether or not there are causes of action available to Normans which Normans may be able to pursue against its former auditors and directors; and

    -      To provide information which will assist Smith and myself in the conduct of examinations of the former directors and auditors of Normans.

32. Mr Smith confirmed in an affidavit sworn 13 February 2003 that these were also his purposes:

    I swear this affidavit in response to the matters deposed to by Mr Dart in the Dart affidavits.  I refer to the affidavit of Timothy Paul Burfield sworn 12 February 2002 (sic).  I have read the contents of Mr Burfield’s affidavit and confirm that I agree with the matters set out in paragraphs 12 to 15 as to my and Mr Burfield’s purpose in relation to seeking the examinations of Ms Flower and Mr Harvey and production of documents by Ms Flower, Mr Harvey and Deloitte.

33. On 12 February 2003 the liquidators served notice that Normans intended to commence proceedings against Deloitte claiming $20,000,000.  The proposed claim raises issues as to the truth and fairness of Norman’s accounts for the years ended June 1997 to June 1999.  These issues are of wider scope than the issue in the Sandhurst proceedings.

    The Application to Set Aside

34. On 19 June 2003 the application of the examinees and Deloitte to set aside the examination and production orders was dismissed.[1]  The judge rejected the submission that the liquidators had failed to make full and frank disclosure or that an arguable case of improper purpose had been made out.  The judge rejected an argument that there had been an offer of cooperation that negated the need for an order.  The judge considered that the liquidators were entitled to disclose part of the contents of the confidential affidavits without being obliged to produce the entire affidavits.  He rejected the submission that partial disclosure gave rise to any waiver of confidentiality on principles akin to waiver of privilege.

    [1] Harvey v Burfield & Smith [2003] SASC 192

    The Corporations Act 2001

1. Relevantly the Corporations Act 2001 provides:

   596B(1)   The Court may summon a person for examination about a corporation’s examinable affairs if:

   (a)     an eligible applicant applies for the summons; and

   (b)     the Court is satisfied that the person:

   (i)has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or

   (ii)may be able to give information about examinable affairs of the corporation.

   (2)  This section has effect subject to section 596A.

   …

   596C(1) A person who applies under section 596B must file an affidavit that supports the application and complies with the rules.

   (2) The affidavit is not available for inspection except so far as the Court orders.

   …

   596D(2)  A summons to a person under section 596A or 596B may require the person to produce at the examination specified books that:

   (a)     are in the person’s possession; and

   (b) relate to the corporation or to any of its examinable affairs.

   …

   596E               If the Court summons a person for examination, the person who applied for the summons must give written notice of the examination to:

   (a)     as many of the corporation’s creditors as reasonably practicable; and

   (b)     each eligible applicant in relation to the corporation, except:

   (i)     the person who applied for the examination; and

   (ii)if a person authorised by ASIC applied for the examination – ASIC; and

   (iii)a person who is such an eligible applicant only because the person is authorised by ASIC.

   …

   597(4)     An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.

   …

   597(9)     The Court may direct a person to produce, at an examination of that or any other person, books that are in the firstmentioned person’s possession and are relevant to matters to which the examination relates or will relate.

   …

   597(14)   Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person.

   …

   597(14A) A written record made under subsection (13):

   (a)     is to be open for inspection, without fee, by:

   (i)     the person who applied for the examination; or

   (ii)    an officer of the corporation; or

   (iii)a creditor of the corporation; and …”

   (b)     is to be open for inspection by anyone else on paying the prescribed fee.

   Preliminary Matters

   A Statutory Power

2. Section 596B confers on the court a discretionary power to make an order to summon a person to be examined. A liquidator who applies for an examination order pursuant to that section must file an affidavit to support the application.[2]  The application may be made without notice to the proposed examinee.[3]  The liquidator’s affidavit will not be available for inspection except so far as the Court orders.[4]

   [2] Section 596C(1) of the Corporations Act 2001 (Cth)

   [3] Corporations Law Rules 2000 (SA) 11.3(2)

   [4] Section 596C(2) of the Corporations Act 2001 (Cth), Corporations Law Rules 2000 (SA) 11.2(7)

3. An examination order cannot be obtained merely because a liquidator applies. A liquidator must establish by affidavit that the proposed examinee has taken part of, been concerned in or be able to give information about the examinable affairs of the company. Further it must be shown that the examination is sought for a purpose that the power conferred by section 596B ‘is designed to serve’.

4. A liquidator will not be permitted to use the examination power for a purpose ‘foreign to that power’[5] or a purpose which the power is not ‘designed to serve’.

   [5]  Re Excel Finance Corporation Limited (Receiver and Manager Appointed);  Worthley v England (1994) 52 FCR 69 at 93E.

5. The order is made ex parte and the examinee cannot inspect the confidential affidavit without an order of the court.  As a result the liquidator is obliged:

   to provide to the court all material which might impact on the order sought, including all material which might lead the court to refuse the application.  The liquidator must act in the place of the proposed examinee and therefore draw to the attention of the court anything which might lead the court to refuse the application.[6]

   [6]  Re Southern Equities Corporation Limited (In Liq);  Bond and Anor v England (1997) 25 ACSR 394 at 423.

6. If an order has been obtained for a purpose foreign to the power, or a purpose which the section is not designed to serve, then the order should be set aside or stayed as a misuse of the power. Further, if an order has been obtained where the implied condition of full disclosure has not been met, then the order so obtained must almost invariably fall.[7]

   [7]  Thomas A Edison Limited v Bullock (1912) 15 CLR 679 per Isaacs J at 682, Southern Equities corporation (in Liq).  Bond v England (1997) 25 ACSR 394 at 423.

   The Legislative Purpose

7. The purpose of the power given in Part 5.9 of the Corporations Act is to provide a liquidator with the means of discovering the assets of a corporation, their whereabouts, the identity of creditors and the extent of the liabilities of the corporation. The Act further allows the liquidator to discover the reasons for the demise of the corporation and whether anyone, including those examined, might be guilty of some civil or criminal wrong.

8. The provisions of Part 5.9 represent an intrusion into an individual’s right to silence and privacy. While well-recognised public policy reasons exist to support the legislation, the examination sections undermine fundamental common law rights.

9. In Re North Australian Territory Company[8] Bowen LJ said of a predecessor provision:

   In the first place, it must be observed that it is an extraordinary section.  It is an extraordinary power; it is a power of an inquisitorial kind which enables the Court to direct to be examined - not merely before itself, but before the examiner appointed by the Court - some third person who is no party to a litigation.  That is an inquisitorial power, which may work with great severity against third persons, and it seems to me to be obvious that such a section ought to be used with the greatest care, so as not unnecessarily to put in motion the machinery of justice when it is not wanted, or to put it in motion at a stage when it is not clear that it is wanted, and certainly not to put it in motion if unnecessary mischief is going to be done or hardship inflicted upon the third person who is called upon to appear and give information.

   [8] (1890) 45 Ch 87 at 93

10. In Hamilton v Oades[9], when considering predecessor legislation, Mason CJ observed:

    [9] (1988) 166 CLR 486 at 494-5

    …it is well established that Parliament is able to "interfere" with established common law protections, including the right to refuse to answer questions the answers to which may tend to incriminate the person asked: see Hammond v The Commonwealth; Sorby. There has been a long history of legislation governing examinations in bankruptcy and under the Companies Acts which abrogate or qualify the right of the person examined to refuse to answer questions on the ground that the answers may incriminate him: see Rees v Kratzmann. In that case Windeyer J observed:

    "The honest conduct of the affairs of companies is a matter of great public concern to-day. If the legislature thinks that in this field the public interest overcomes some of the common law's traditional consideration for the individual, then effect must be given to the statute which embodies this policy."

    This passage was cited with approval by Walsh J (with whom Barwick CJ, Windeyer and Owen JJ agreed) in Mortimer v Brown.

    In ASIC v Suleman[10] Austin J observed:

    The examination process serves the public interest by enabling the liquidator to gather information which will assist in the winding up: Hamilton v Oades per Mason CJ; Hong Kong Bank of Australia v Murphy, per Gleeson CJ.  The fact that the liquidator uses the examination procedure to gather evidence in connection with proceedings he contemplates bringing, or has decided to bring, or has already brought, does not make his use of the process illegitimate: Re Hugh J Roberts Pty Ltd.

    These principles are now well settled.

    [10] ASIC v Karl Suleman Enterprises; Application of Stoliar, [2003] NSWSC 163 at para 21 onwards

    The Statutory Safeguards

11. While the legislation does amount to a statutory intrusion into common law rights, it provides safeguards to the erosion of those rights. It is important that those safeguards are upheld.

12. One such safeguard is the requirement that an affidavit be filed by applicants in support of the request for an ex parte order. The purpose of the affidavit is to satisfy the court that there is an appropriate case for the making of such an order.  As earlier observed the person applying for the examination summons must make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporations examinable affairs.  In Southern Equities Corporation v Bond[11]  Lander J observed:

    There can be no doubt, in my opinion, that a person who makes an application of this kind is under an obligation to bring all facts and material to the Court's attention which might bear upon the order to be made. The applicant has no lesser obligation than that imposed upon a party seeking an injunction ex parte. Indeed, in my opinion, the obligation for frankness and candour is even greater in an application of this kind. That is because, unlike on the return of an interlocutory injunction obtained ex parte, on the return of an examination summons the material supporting the application is not ordinarily made available to the proposed examinee

    Because the proposed examinee, ordinarily, is not privy to the information or material which was used to support the application for the examination summons, the person applying for the examination summons has the very highest obligation relating to frankness and candour and any breach of that obligation, in my opinion, ought to be viewed very seriously by the Court.

    The obligation is to provide to the Court all material which might impact upon the order sought, including all material which might lead the Court to refuse the application. The applicant must act in the place of the proposed examinee and therefore draw to the attention of the Court anything which might lead the Court to refuse the application.

    If an applicant fails to provide all of the information bearing upon the order sought, in my opinion, that might be sufficient ground to set aside the order, because the order will have been obtained in circumstances where the Court has not been apprised of a reason or reasons for the refusal of the order.

    [11] (1997) 25 ACSR 394 at 428

13. Lander J rejected a submission by a liquidator that the contents of the affidavit could be supplemented orally by the provision of material information at the hearing of the application for the issue of the summons:

    In my opinion s 596C makes it mandatory upon an applicant for an examination summons pursuant to s 596B to file an affidavit in support of the application which discloses all those matters material to the exercise of the master's discretion. That means the liquidator has an obligation to depose to all matters which support the application and all those matters which the liquidator is obliged to bring to the master's attention in fulfilling his obligation to make full disclosure.

14. The court has a discretion to order the production of the confidential affidavit.  However, before doing so the person seeking the affidavit must make out a basis for its disclosure. It appears well settled that the establishment of good reason will form the basis of disclosure.  This test was formulated in Re British & Commonwealth Holdings Plc[12] when Nourse LJ observed:

    The confidential statement, although unsworn, is the evidence on which the ex parte order is made.  Further evidence, usually from both sides, is then filed on the application to set it aside.  In my judgment inspection of the statement should prima facie be allowed where the court is of the opinion that it will or may be unable fairly and properly to dispose of the application if part of the evidence is withheld from the person against whom the order is sought.  It will then be for the office-holder to satisfy the court that confidentiality in whole or in part is nevertheless appropriate.

    For these reasons I do not speculate on other circumstances where a case for inspection may be made out.

    Ralph Gibson LJ commented:

    … I agree with the test formulated by Nourse LJ, namely, that there will be good reason for disclosure if it appears to the court that, without access to the statement, the applicant for disclosure will or may be unfairly prejudiced in the conduct of his application to have the order set aside.

    [12] [1992] Ch 342 at 355, 367

15. In Excel Finance Corporation Limited (Receiver and Manager Appointed[13]the Full Federal Court adopted this test:

    In our view the Court has a discretion to order the disclosure, to a prospective examinee, of material lodged in support of the application for an examination order and should do so where the justice of the case so requires: cf Re British and Commonwealth Holdings Plc (Nos 1 and 2) [1992] Ch 342 at 355 per Nourse LJ and at 367 per Ralph Gibson LJ.

    It does not follow that the Court would permit every examinee or potential examinee to have access to such material. There are sound reasons why inspection should not be freely granted for so to do could afford to an examinee information which could permit the examination process to be frustrated: cf per Sir George Jessel MR in Re Gold Co. There could also be confidential information which should properly be withheld. However, we agree with Nourse LJ in Re British and Commonwealth Holdings Plc:

    An applicant will not be permitted access to such material to enable him or her to "fish" for a case. There must be material before the Court from which it appears that the applicant has an arguable case, to which the material is relevant, before the discretion should be exercised in favour of that applicant. But once that appears the discretion will normally be exercised in favour of the application.

    [13] (1994) 52 FCR 69 at 94

    Issues on Appeal

16. Counsel for the examinees and Deloitte submitted that the judge erred in failing to find that the examinees should be entitled to inspect the liquidators confidential affidavits of 12 and 13 February 2003 in which they set out their purpose pursuant to section 596C.  Counsel further contended that the judge ought to have found that on the material before the court the examinees had an arguable case of improper purpose.  Accordingly the discretion to permit inspection should have been exercised in favour of the examinees and Deloitte.[14]

    [14]  Re Excel Finance Corporation Limited (Receiver and Manager Appointed);  Worthley v England (1994) 52 FCR 69 at 94.

17. Counsel submitted that the judge erred in failing to conclude that it was arguable the liquidators failed to make full and frank disclosure to the master at the time when the orders were made.  Accordingly, it was said that the judge erred in failing to find that inspection of the confidential affidavit be allowed.

18. Counsel complained that the judge erred in finding that notwithstanding the offer of the examinees and Deloitte to cooperate with the liquidators in their investigations, the liquidators were nonetheless legitimately entitled to obtain orders for their examination. Counsel submitted that the judge ought to have found that the discretion conferred on the court under section 596B should not have been exercised.

19. Counsel submitted that the judge erred in failing to find that one of the purposes of the liquidators in obtaining the examination orders was to assist Sandhurst in its action against Deloitte. It was said that accordingly, the use by the liquidators of the power conferred by section 596B was for a purpose foreign to that power and thus an abuse of that power.[15]

    [15]   Re Excel Finance Corporation Limited (Receiver and Manager Appointed);  Worthley v England (1994) 52 FCR 69 at 94. Worthleyv England (1994) 52 FCR 69 at 93.

    Limited Disclosure

20. As earlier observed the liquidators made limited disclosure regarding the contents of their confidential affidavits.  Counsel for the examinees and Deloitte submitted:

    Two days before the hearing of the application the liquidators filed an affidavit seeking to state, retrospectively, what was set out in their confidential affidavits, and seeking to state, retrospectively, their purpose for obtaining the orders.  … [T]he primary Judge rejected the submission that inspection of the confidential affidavit should be allowed because, on principles analogous to an implied waiver of privilege, the liquidators had elected to file an affidavit referring to their confidential affidavit, purporting to recount its contents and retrospectively restate their purpose at the time when they made the confidential affidavits on 29 September 2002.

    The principles underlying waiver of legal professional privilege are directly applicable.  Legal professional privilege exists to protect the confidentiality of communications between a lawyer and client.  This serves a policy of enhancing the administration of justice.  The reasons why inspection should not be granted is so as not to afford an examinee information which could permit the examination process to be frustrated or to preserve matters which should remain confidential.  Inspection is withheld, therefore, so as to assist the liquidator.

    If the liquidator acts in a way which is inconsistent with that confidentiality, by seeking to state what is contained in his confidential affidavit then the law should recognise the inconsistency and determine its consequences even though that consequence may not reflect the intention of the liquidator.  The consequence of the inconsistency should be determined by considerations of fairness. 

    In Attorney-General (NT) v Maurice[16] Gibbs CJ observed:

    [I]t is not difficult to see that where a document deals with a single subject matter it would be unfair to allow a party to use part of a document and claim privilege as to the remainder.   … Similarly, where a party disclosed a document which contained part only of a memorandum which dealt with a single subject matter, and then read the document to the Judge in the course of opening the case, it was held that privilege was waived as to the whole of the memorandum’.

    [16] (1986) 161 CLR 475 at 481

21. In Maurice the court approved the reasoning of Templeman LJ in Great Atlantic Insurance Co v Home Insurance Co[17]that the principle:

    is based on the possibility that any use of part of a document may be unfair or misleading, that the party who possesses the document is clearly not the person who can decide whether a partial disclosure is misleading or not, nor can the Judge decide without hearing argument, nor can he hear argument unless the document is disclosed as a whole to the other side.  Once disclosure has taken place by introducing part of the document into evidence or using it in Court it cannot be erased.

    [17] [1981] 2 ALL ER 485 at 492

22. In David Anderson v Holding Redlich[18] the Victorian court considered the issue of implied waiver in the context of legal professional privilege and observed:

    Waiver of privilege by implication through disclosure arises where the conduct of the party in whom the privilege reside makes it unfair or inconsistent to maintain the confidentiality which the privilege is designed to protect. See Attorney-General for Northern Territory v Maurice; Goldberg v Ng; Mann v Carnell; Great Atlantic Insurance Co v Home Insurance; and General Accident Fire & Life Assurance Corp Ltd v Tantor (The Zephyr).

    … The Court [in British American Tobacco Australia Services Ltd v Cowell ] made these observations to which I should refer:

    As we apprehend it, where legal professional privilege is waived in relation to one piece (or part) of advice, the privilege is impliedly waived in relation to another if and only if that other is necessary to a proper understanding of the first. As established by the High Court at least since Mann v Carnell, the test in such cases is whether it would be inconsistent for a party to rely upon and so to waive legal professional privilege in respect of the one without also being taken to have waived privilege in respect of the other.

    [18] [2003] VSC 303

1. The technique adopted by the liquidators of disclosing only part of the confidential affidavits by the use of further affidavits unfairly disadvantaged the examinees and Deloitte.  The manner of partial disclosure suggested that other relevant information may exist.  The scope of cross examination would be limited.  The limited disclosure precluded any unimpaired enquiry or testing of the assertions as to purpose.  No reason was advanced for the limited disclosure.  If special circumstances existed to justify the course taken, an appropriate application could have been advanced or an explanation offered.

2. In the circumstances of this case the liquidators have acted inconsistently with respect to the confidentiality of their affidavits.  They sought to disclose only discrete parts of their confidential affidavits.  They made a selective and partial disclosure. Fairness in the circumstances of this case required the disclosure of the entire documents of which only parts had been disclosed.  In these circumstances the ability of the examinees and Deloitte to make out their arguable case was unfairly prejudiced.  In the terms of the test propounded by Nourse LJ, good reason exists for disclosure.

3. Once it is accepted that there should have been a disclosure of the confidential affidavits, it follows that the consideration of the application to set aside the orders for examination and production proceeded on the basis of incomplete material.  If the disclosure of the confidential affidavits discloses nothing of substance beyond the limited disclosure already made, this appeal should be dismissed.  However, if material relevant to the argument on abuse is disclosed on the face of the confidential affidavits then the application to set aside will need to be reconsidered.

   Improper Purpose

4. The submission to this court was that on the already disclosed information an arguable case of improper purpose had been made out.  It was said that the proximity of the discussions between Sandhurst and the liquidators to the date of the application to examine, the fact that the same solicitors and counsel acted for both the liquidator and Sandhurst, the fact that steps were taken at proximate time to obtain documents relevant to the proposed Sandhurst proceedings all led to the conclusion that there was an arguable case that the liquidators sole or dominant purpose in seeking examination and production orders was to assist Sandhurst in its proceedings to recover damages on behalf of debenture holders.  This was said to be an abuse of process.

5. As earlier observed, it was then argued that the general estate of Normans would not be relieved of any burden.  Attention was drawn to the remarks of the Full Federal Court in Excel Finance:

   The present litigation in which the trustee for debenture holders and the debenture holders themselves are engaged is somewhat different.  It alleges a loss to debenture holders as a result of the acts of Mr Worthley and claims that they are entitled to recover damages in respect of that loss.  Success in those proceedings would not necessarily free the corporation from the obligation to pay the trustee for debenture holders.  The difficulties of a Court framing an order which would require the debenture holders, if successful, to repay Mr Worthley the amount of any dividend which became payable to them are made apparent in the judgment of Meagher and Handley JJA in Demetrios v Gikas Dry Cleaning Industries Pty Ltd (1991) 22 NSWLR 561. However, as that judgment points out, in contrast to the position at common law, equitable compensation can be awarded on terms that satisfaction of the award of damages will bring about an equitable assignment for the benefit of the judgment debtor of other rights of recovery vested in the judgment creditor.[19]

   [19] (1994) 52 FCR 69

6. It was submitted that success by Sandhurst against Deloitte would not have any impact on the obligations of Normans to pay a dividend to the noteholders. Nor, it was contended, would success relieve Normans from its obligation to pay the noteholders and would not thereby benefit either Normans or the creditors generally.  It was said that even if Sandhurst were to obtain a judgment against Deloitte for the full $12,000,000, Deloitte would stand in the shoes of Sandhurst in the winding up of Normans.  Interesting issues arise for possible determination at a later time.  However these arguments do not demonstrate improper purpose[20].

   [20]  see In Re Laurie Cottier Productions Pty Ltd (in Liq) (1992) 9 ACSR 513; Re BPTC (1992) 10 ACLC 271; Douglas-Brown v Furzer (1994) 11 WAR 400

7. The liquidators have deposed to their purpose as being the examination of the affairs of Normans.  The examinees are members of Deloitte.  Deloitte could be expected to be in a position to provide relevant information about the examinable affairs of Normans.  As earlier observed Deloitte was the auditor of Normans as well as taxation and accounting advisor.  No basis has been established to suggest that the learned judge erred in his conclusion that no arguable case of improper purpose had been made out.  The fact that coincidentally Sandhurst may have parallel or similar interests and that the liquidators have assisted Sandhurst from time to time does not make out an arguable case of improper purpose.  Absent something further arising from the disclosure of the confidential affidavits, an arguable case of improper purpose was not established.

   Co-operation

8. Counsel for the examinees submitted that the judge was wrong not to set aside the orders having regard to the offer to cooperate.  However, the offer to cooperate fell far short of the advantages offered by an examination.  The examinees required notice in writing of the proposed questions and there was no unqualified commitment to respond to the questions that may be asked.  There was no offer to verify the information on oath.  The offer was so “open-ended” that it could be described as being illusory.  The learned judge was correct to conclude:

   In some cases the fact that the relevant information and documents might be obtained by alternative means will be relevant to the question of whether an inference of improper purpose should be drawn. That is not the case here. The fact might also be relevant to the exercise of the discretion as to whether orders should be made. The offer of co-operation was disclosed to the Master. The transcript reveals that counsel for the liquidators referred to it on two occasions. There is nothing to suggest that the Master did not take it into account. The offer is very general in its terms in the sense that it is a statement that the examinees are willing to co-operate and it invites the liquidators to direct questions in the first instance to the solicitors for the examinees. The offer falls short of conferring the advantages the liquidators may legitimately seek by pressing for orders under Part 5.9 Division 1.

   Conclusion

9. For these reasons an order should be made that the confidential affidavits be produced to the examinees and Deloitte.  If upon production no further matters of substance arise, the appeal should be dismissed.  If relevant material to the issue of abuse of process is said to be disclosed, then this court should hear further submissions as to whether any further orders should be made.

10. VANSTONE J       I agree that the appeal should be dismissed for the reasons given by Mullighan J.