MD and B (No 8) Pty Ltd (in liq)

[1994] QCA 422

IN THE COURT OF APPEAL	[1994] QCA 422
SUPREME COURT OF QUEENSLAND

Appeal No. 166 of 1993.

Brisbane

[Re M.D. & B. (No. 8) Pty. Ltd.]

Before The Chief Justice

Pincus J.A.

White J.

IN THE MATTER of the Corporations

Law

- and -

IN THE MATTER of M.D. & B. (NO. 8)

PTY. LTD. (In Liquidation)

BETWEEN:

PETER IVAN FELIX GEROFF and ROBERT JOHN
FRED BURNS (in their capacity as joint
liquidators of M.D. & B. (No. 8) PTY. LTD.

(In Liquidation)

(Respondents) Appellants

AND:

TREVOR WILLIAM THOMAS, JANET THOMAS,
LIONEL WILLIAM THOMAS, RODNEY JAMES
THOMAS, CHRISTOPHER ROBERT THOMAS,
SUZANNE MARGARET THOMAS and RONALD

ARTHUR BRIDEAUX

(Applicants) Respondents

JOINT REASONS FOR JUDGMENT - THE CHIEF JUSTICE

AND PINCUS J.A.

Judgment delivered 14/10/1994

We have had the advantage of reading the reasons for judgment of White J and do not repeat her Honour's explanation of the facts of the case.

Mr Matthews, for the respondent, contended that the stay of the examination was properly ordered because the conduct of the examination during the pendency of the District Court action mentioned in the reasons of White J would tend towards unfairness. Mr Matthews embraced the proposition that if there is an action on foot, and the plaintiff in that action may be improperly assisted by the examination, the examination should be deferred. He relied upon the circumstance that in the examination questions which trench upon legal professional privilege or upon the privilege against self-incrimination may be permitted.

We did not understand Mr Matthews to submit that the order for a stay could be defended on the ground that the liquidators had sought the order in bad faith or for an improper purpose. He said in effect that a deferral of the examination would be a fairer course than allowing it to proceed, because of the likelihood that the questioning would assist the major creditor in its pending District Court action against some of the respondents.

It seems to us, with respect, clear enough that the order for a stay should not have been made and certainly not on such grounds as Mr Matthews suggests support it. The circumstance that some answers given may possibly assist a creditor in an action against directors, as well as being useful to the liquidators in the performance of their tasks, cannot make it wrong to proceed with an examination.

Objections to the propriety of particular questions would of course be dealt with in the course of the examination; for example, questions which may prejudice an examinee's criminal trial may be disallowed, but "the types of questions which may warrant such a course should not be predicted by a court in advance of their being asked":

Hamilton v. Oades (1989) 166 C.L.R. 486 at 499. It should be noted that the statute law has changed since the order which was stayed was made; see now Part. 5.9 of the Corporations Law effective from 23 June 1993.

Suggestions, to be found in some of the cases, that it can never be right for a liquidator to use an examination to obtain information or documents which are needed for pending litigation, at least where attempts to obtain them in the litigation have failed or are stalled, may not accord with current notions of the proper attitude towards such examinations. "The very purpose of the section is to create a system of discovery...": Hamilton v. Oades at 497. A restriction of that sort would not accord well with the liberal attitude illustrated by the fact that it has become clear that it may be a legitimate purpose of such examinations to get evidence to support the bringing of criminal charges in connection with a company's affairs, and that even the pendency of criminal charges does not necessarily prevent all questioning about matters relevant to the charges: Hamilton v. Oades. The High Court case illustrates the proposition that the balance of opinion has swung in favour of discouraging undue inhibition of the often difficult process of finding out such matters as what has happened to the company's money. In our respectful opinion, courts should be slow to respond to submissions of the kind which succeeded below, advocating the placing of obstacles in the path of liquidators seeking, in good faith, information about matters of legitimate interest to them.

We agree that the appeal should be allowed and the order for a stay set aside. In our opinion the respondents should pay the costs of the proceedings before Lee J and the costs of this appeal.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 166 of 1993

Brisbane

[Re M.D. & B. (No. 8) Pty. Ltd.]

IN THE MATTER of the Corporations

Law

- and -

IN THE MATTER of M.D. & B. (NO. 8)

PTY. LTD. (In Liquidation)

BETWEEN:

PETER IVAN FELIX GEROFF and ROBERT JOHN FRED BURNS (in

their capacity as joint liquidators of M.D. & B. (NO. 8)

PTY. LTD. (In Liquidation)

(Respondents) Appellants

AND:

TREVOR WILLIAM THOMAS, JANET THOMAS, LIONEL WILLIAM
THOMAS, RODNEY JAMES THOMAS, CHRISTOPHER ROBERT THOMAS,
SUZANNE MARGARET THOMAS AND RONALD ARTHUR BRIDEAUX

(Applicants) Respondents ____________________________________________________________ __

The Chief Justice
Pincus JA

White J

Judgment delivered 14/10/1994

Joint reasons for judgment of the Chief Justice and Pincus J.A., White J. separately. All concurring as to the orders to be made.

ORDER FOR A STAY MADE ON 24 AUGUST 1993 SET ASIDE.
RESPONDENTS TO PAY COSTS OF THE PROCEEDINGS BEFORE LEE J.

AND THE COSTS OF THE APPEAL.

CATCHWORDS:	APPEAL AND NEW TRIAL - appeal from order to stay an order for public examination during pendency of civil proceedings against directors for insolvent dealing - whether stay order should be set aside
Counsel:	Mr P Hack for the appellant Mr T Matthews for the respondent
Solicitors:	Thynne and Macartney for the appellant Bridge Brideaux for the respondent

Hearing date: 24 February 1994
IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 166 of 1993

Brisbane

[Re M.D. & B. (No. 8) Pty. Ltd]

Before The Chief Justice

Pincus JA

White J

IN THE MATTER of the Corporations

Law

- and -

IN THE MATTER of M.D. & B. (NO. 8)

PTY. LTD. (In Liquidation)

BETWEEN:

PETER IVAN FELIX GEROFF and ROBERT JOHN FRED BURNS (in

their capacity as joint liquidators of M.D. & B. (NO. 8)

PTY. LTD. (In Liquidation)

(Respondents) Appellants

AND:

TREVOR WILLIAM THOMAS, JANET THOMAS, LIONEL WILLIAM
THOMAS, RODNEY JAMES THOMAS, CHRISTOPHER ROBERT THOMAS,
SUZANNE MARGARET THOMAS AND RONALD ARTHUR BRIDEAUX

(Applicants) Respondents

JUDGMENT - WHITE J

Judgment delivered 14/10/1994

This is an appeal by the liquidators of M.D. & B. (No. 8) Pty. Ltd. ("the company") from the order of Lee J. made in chambers on 24 August 1993 staying the public examination of the respondents until the determination of a District Court proceeding which order for examination had been made by Moynihan J. on 31 May 1993. The respondents had sought the stay on the ground that the liquidators had abused the Court's process in obtaining the order for examination because the creditor, whom it could be inferred was financing the examination, was plaintiff in a pending District Court action against some of the respondents as directors of the company alleging insolvent trading. On appeal Mr Matthews sought to hold the order below by arguing that the plaintiff in the District Court action would be improperly assisted by the examination and it ought therefore to be deferred until after the conclusion of the action.

The company was ordered to be wound up by the Supreme Court of Queensland on 11 November 1990 on the application of Australian Poultry Limited, a creditor and subsequently, plaintiff in the District Court proceedings. The application was based upon failure to comply with a statutory demand for payment of $193,892.95. After the date of liquidation all of the creditors of the company save three were paid by members of the Thomas family. The remaining creditors are: Australian Poultry ($193,892.95), A.P.M. Containers ($357.56) and Durant Food Services ($162.10). Australian Poultry filed a plaint in the District Court at Brisbane on 18 April 1991 against Trevor William Thomas, Suzanne Margaret Thomas, Lionel William Thomas, Rodney James Thomas and Christopher Robert Thomas pursuant to s.566 of the Companies (Queensland) Code (this is likely to be an error and should read s.556) or alternatively s.592 of the Corporations Law, being based upon the personal liability of the directors for insolvent trading. Those defendants are five of the seven respondents in this appeal, the other two respondents are Ronald Arthur Brideaux, the company's solicitor from 1986 until October 1990 when it was placed in provisional liquidation and Janet Thomas, company book-keeper and secretary to one of the directors. One Peter Reid was also ordered to be examined and was described in the order as former accountant of the company. He was not party to the application for a stay nor to this appeal.

The orders made by Moynihan J on 31 May 1993 for public examination also provided for the production by the examinees of all documents relevant to the company. As is usual in such applications his Honour ordered that the affidavit of Mr Geroff, one of the liquidators, read in support of the application, be sealed up and not be opened without the order of the court. After the order was served there was some attempt by the solicitor for the examinees to limit the scope of the examination or to obtain some indication from the liquidators' solicitors as to the ambit of documents required but with no obvious success.

An application was brought before Lee J on 24 August 1993 seeking a stay of the order of Moynihan J until the final determination of the District Court action or, alternatively directions as to the conduct of the examination. The liquidators filed no material on that application whilst the applicants' solicitor, Mr Brideaux (also an examinee) filed an affidavit referring, inter alia, to the District Court action and its progress. Mr. Brideaux submitted in the affidavit that were the examination to proceed Australian Poultry through the liquidators would be provided with an opportunity to test the applicants' defence in the District Court action, to view documents and seek evidence which were the subject of a claim of privilege in the District Court proceedings. In the course of argument Lee J was pressed by counsel for the applicants to read the affidavit of Mr Geroff filed in support of the application for examination without revealing the contents to the applicants or their advisers. In their application the applicants had sought an order that they be permitted to inspect that affidavit, but their counsel abandoned that relief at the commencement of the hearing. Counsel for the liquidators strenuously opposed any perusing of the affidavit by the Court on the ground that to do so would constitute the application then before the Court as an appeal from the order of Moynihan J. His Honour did read the affidavit and ordered that the order for examination made by Moynihan J be stayed pending final determination of the District Court action. His Honour did not give reasons, apart, as counsel here recalled, from saying that he had taken into account the submissions, the material which Moynihan J had before him and the material read before him.

It was urged upon this court by Mr Matthews that we also should read Mr Geroff's affidavit since it would appear likely that it had operated upon the exercise of Lee J's discretion to stay, there being no changed circumstances since the order of Moynihan J. Copies of Mr Geroff's affidavit were provided to the Court by Mr. Hack for the liquidators and the Court read the affidavit.

It is accepted that the examinees are not entitled to
have access to the information placed before the Court upon
which the summons for examination is to be issued.
Jessel M.R. in Re Gold Company (1879) 12 Ch.D. 77 observed:

"The liquidator, according to the practice of the Court, comes ex parte, and, as a general rule he makes no affidavit, for a very good reason, that it is not desirable for him to put anything upon the files of the Court which can be inspected by the person against whom he intends to proceed, and which, if so inspected, might afford information which would enable him to defeat any proceeding to be taken against him... The Court acts without legal evidence, the object being to keep the proceedings secret from the person sought to be affected, and the practice is, and as far as I know always has been, that the liquidator, instead of making an affidavit, simply makes a written statement...."

In Re Stirling Henry Ltd. (In Liq.) [1972] 1 N.S.W.L.R. 497 the applicants had sought to have the opportunity of challenging the ex parte order by having access to the information that had been placed before the court by the liquidator. Street J rejecting that application expressed the view that the practice was so long standing both in England and in New South Wales that the day had long since passed for considering an argument that such orders ought not to be made ex parte. That is also the case in Queensland. His Honour (who had been the Judge in Re Allebart Pty. Ltd.) said at p.502:

"But whilst recognising that an application may be set aside an order for the issue of a summons, it does not necessarily follow that, merely upon such application being made, the applicant is entitled,as it were, to have the liquidator start from scratch again to justify the making of the order. I have, already, in recounting the facts, noted that I have not been asked to review the reasons placed before me by the liquidator, and upon which the order proceeded. Nor has the applicant himself given evidence disputing his capacity of 'giving information concerning the promotion, formation, trade, dealings, affairs or property of the company'. In the case of Re Allebart [1970] 2 N.S.W.R. 444, the court was invited specifically to reconsider the reasons, senior counsel in that case accepting the position that he, on behalf of his client, the proposed examinee, was not entitled to see the reasons himself, but that nevertheless it was open to him to invite the court itself to reconsider them in the light of matters put forward in evidence on behalf of the proposed examinee."

The applicants before Lee J formed a suspicion that the liquidators had not revealed to the court that there were s.556 proceedings on foot between Australian Poultry and some of the examinees, the stage of those proceedings, or that Australian Poultry was funding the examination and that it was the only creditor for all practical purposes. It was thus not inappropriate for his Honour to consult the liquidator's reasons. This court has done so at the express request of the respondents and over the objection of counsel for the liquidators. It in no way breaches the necessary secrecy of the reasons to reveal that nowhere does Mr Geroff depose to the District Court litigation between Australian Poultry and the directors, or that Australian Poultry was for all practical purposes the sole creditor and funding the oral examination. It does however deal with matters which, standing alone, would clearly have persuaded the primary Judge that an order for examination ought to be made.

Before proceeding further it is necessary to say something about the progress of the District Court proceedings. The plaint was filed on 18 April 1991 and the defence on 14 May 1991. Affidavits of documents were filed and served including, it would seem, supplementary affidavits, the appellants' affidavit of documents apparently being the most recent being filed on 26 June 1992. Mr Brideaux has exhibited a letter from Australian Poultry's solicitors dated 11 June 1992 to the defendant's solicitors in which further information was sought about documents not discovered. This letter was clearly in a sequence of correspondence not before the court, but it appears that the solicitors were taking issue with the defendants' failure to state in their affidavit of documents if certain documents (named, it seems, in earlier correspondence) had ever been in their power or possession and, if they had, stating how they passed from their possession. This observation appears to have been in response to an intimation from the defendants' solicitors that those documents were not in the defendants' care or possession or control. In the final paragraph of the letter Australian Poultry's solicitors indicated that an application may be made for further and better discovery.

Nothing further occurred in the action until Australian Poultry's solicitors wrote by letter dated 7 May 1993 to the defendants' solicitors stating that it was proceeding with the District Court action and was obtaining advice on the delivery of interrogatories and any further interlocutory steps that might be required. It was submitted that there was a coincidence of dates between the application for oral examination which was filed on 25 May 1993 and the letter of 7 May 1993 indicating that the action was to continue.

Mr. Hack, without objection, was given leave to inform the court that oral instructions were given to bring the application for oral examination on 9 September 1992 and written instructions on 15 September 1992. An inference can be drawn from the liquidators' accounts filed with the Australian Securities Commission that the application was settled by counsel prior to 9 November 1992. Since neither of the minor creditors have been asked to fund the oral examination it is a fair inference to draw from the liquidator's accounts that Australian Poultry is doing so.

In essence the appellants submit that Lee J had to be satisfied that the liquidators were misusing their statutory powers in seeking an oral examination before he could make an order to stay that oral examination and that on the material before the court he could not have reached the decision to stay and therefore his discretion miscarried.

As mentioned above Mr. Matthews submitted that
considerations of fairness would justify the stay.

There was some preliminary debate before this Court as to the appropriate form of relief which should have been sought before Lee J. The application before Moynihan J., as is customary, was brought ex parte. There is no material before the court as to when the order for oral examination was served upon the respondents but some three months elapsed from that order and the hearing of the application.

In Re North Australian Territory Company (1890) 45 Ch.D. 87 Cotton L.J. at p.90 expressed the view that if an order to attend for examination for the purpose of giving information to the liquidator of a company is wrongly made the person summoned ought to be able to appeal that order. In Re Stirling Henry (In Liq), supra, Street J at p.502 said that the order having been made ex parte it was open to the person summoned to apply to the court that made the order to have it set aside without having to undertake the burden of appealing against it. In Queensland the usual practice has been to seek to vary the order made by giving directions or to set aside the order or to adjourn the order.

In Hamilton v. Oades, (1989) 166 C.L.R. 486, the examinee, whilst under examination sought to have the questions limited to those to which an answer would not incriminate him in respect of criminal proceedings then pending and which were pending prior to the order for examination. Mason CJ said at p.492 of that application that if acceded to "the examination for practical purposes is stayed pending the determination of the charges".

Where the order is sought to be set aside then resort must be had to the Court's inherent power, but there is no reason why an application to adjourn the examination would not be the appropriate procedure where an examinee does not seek to avoid forever the examination but only until after the conclusion of a particular event. An application for adjournment has the advantage of using the legislative scheme which is comprehensive.

The present appeal is governed by old s.597 of the Corporations Law. Amending legislation came into effect on 23 June 1993.

So far as is relevant old s.597 of the Corporations Law

provided:

"(1) In this section, a reference, in relation to a corporation, to a prescribed person, is a reference to an official manager, liquidator or provisional liquidator of the corporation or to any other person authorised by the Commission to make applications under this section or to make an application under this section in relation to that corporation.

(2) Where it appears to the Commission or to a
prescribed person that:

(a)  a person who has taken part or been concerned in the promotion, formation, management, administration or winding up of, or has otherwise taken part or been concerned in affairs of, a corporation has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to that corporation; or

(b)  a person may be capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to affairs of, a corporation;

the Commission or prescribed person may apply to the Court for an order under this section in relation to the person.

(3) Where an application is made under subsection (2) in relation to a person, the Court may order that the person attend before the Court on a day and at a time to be fixed by the Court to be examined on oath on any matters relating to the promotion, formation, management, administration or winding up of, or otherwise relating to affairs of, the corporation concerned.

(4) An examination under this section shall 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."

Similar provisions have been extant from the earliest legislation regulating winding up but the first most closely approaching the present was s.115 of the Companies Act 1862 (U.K.). Whilst in practice it was usually liquidators who sought orders for examination, because they could not always get the willing cooperation of the former officers of the company, other interested specified persons could also apply for an order. Section 597 of the Corporations Law, like s.541 of the Code and unlike its predecessors, does not appear in the part of the legislation dealing with winding up. Thus the winding up of a company from the time of the Code was not a pre-condition to making an order for examination and the cases prior thereto need to be read with this in mind. Applications by liquidators for oral examination have often been brought where there is pending or intending litigation, usually by the liquidator, concerned with the subject matter of the examination and courts have been called upon to consider the appropriateness of such an examination prior to the disposition of the litigation. In Hamilton v. Oades, supra, Mason CJ at p.496 observed:

"There are the two important public purposes that the examination is designed to serve. One is to enable the liquidator to gather information which will assist him in the winding up; that involves protecting the interests of creditors. The other is to enable evidence and information to be obtained to support the bringing of criminal charges in connexion with the company's affairs: Mortimer v. Brown (1970) 122 C.L.R. at pp.496,499. Sub-section (2)(a) and (b) emphasizes the high

public importance of these purposes. The examination is designed to elicit, among other things, evidence and information relating to the question whether the witness 'has been, or may have been, guilty of fraud, negligence, default, breach of duty or other misconduct in relation to' the corporation."

Two early cases indicated the approach which the courts would take to applications for examination when litigation was extant or contemplated. In Re Metropolitan Bank (Heiron's Case) (1880) 15 Ch.D. 139 interrogatories had been answered by the proposed examinee in an action by the liquidator. The liquidator then sought to have further answers given to those interrogatories but that application was disallowed. The Court of Appeal refused to allow an order for examination to stand. James L.J. said at p.142:

"He [the liquidator] commenced his action, and called upon the Defendant to put in his statement of defence. He then called upon the Defendant to answer interrogatories, which he did, and then sought to enforce further answers, but the Judge held them to be sufficient. Having done all that, he now comes and seeks to take advantage of the inquisitorial powers conferred on him by the section. In my opinion that is vexatious. It is an axiom that nemo debit bis vexari, but here the liquidator having subjected this Defendant to searching interrogatories now asks to interrogate him again. In my opinion the liquidator must be content with what he has done: at any rate, he ought to make out a very strong case before the Court will, after what has taken place here, allow him to proceed under the 115th section."

In Re North Australian Territory Co (1890) 45 Ch.D. 87 the Court of Appeal declined to permit examination to be held in circumstances in which the liquidator had sought and been denied discovery upon a matter then currently being litigated between the company and the prospective examinee.

In Re a Debtor; ex parte Swirsky [1958] 1 WLR 283 Jenkins

L.J. at p.293 observed of that case:

"That appears to me to be a very difference case from this one, for in that case the inquisitorial procedure of the right to invoke s.115 of the Companies Act, 1862, was sought to be used for the ulterior purpose of obtaining in the action against the very person whose examination was sought an advantage in a matter of discovery which had been denied to the liquidator in the action, and I should have thought that that was a very good example of an abuse of the process of the Court, the process of one Court being, as it were, played off against that of another and used to defeat the order of that other Court."

A more recent case is the often-quoted decision of Street J. in Re Hugh J. Roberts Pty. Ltd. (1969) 91 W.N. (N.S.W.) 537.

The legislation then extant required that there be an order to wind up the company before an application for examination could be made, and his Honour's reasoning must be understood with this limitation in mind. In that case a liquidator sought a summons for oral examination against two directors of the company in liquidation. Before the examination was held the liquidator issued a misfeasance summons against those examinees. The examinees challenged the order for examination on the grounds that the sole purpose of the examination was to obtain admissions to be used against them in evidence in the misfeasance proceedings. It was also argued that the liquidator ought to have disclosed to the court at the time of obtaining the order that he intended to bring misfeasance proceedings against the proposed examinees. Street J said at p.539;540:

"Ordinarily the examination is sought by the liquidator and is granted by the court where the circumstances render it just and beneficial for the purposes of the winding up to make available this opportunity for compulsory private examination (Re Metropolitan Bank (1880) 15 Ch.D. 139, at p.142, per James and Bramwell L.JJ.). The basic principle underlying the making of such an order is encompassed within this general proposition. There are, however, cases in which what might appear superficially to be an attempt to exercise the power for the purposes of the winding up has been demonstrated, in point of fact, to represent an abuse of the process of the court. If it should appear that the machinery of a private examination is being used for a vexatious or oppressive purpose, then it would amount to an abuse of the process of the court, and the procedure would be withheld by the court from the party seeking to invoke it. The position will be the same whether the vexation or oppression appears at the time the application is first made for the holding of a private examination or at any subsequent point of time.

The court will find no difficulty in moulding an order appropriate to prevent any abuse of its process.

Within the general proposition that the power is exercisable in aid of the just and beneficial winding up of the company, it has become recognized that the private examination is fraught with the risk of the examinee being harassed by a rehearsal of cross examination which might be directed against him in proceedings that may be current at the time of his examination. Clearly enough this would be oppressive.

...
The mere fact that questions might be asked of an
examinee directly involving a matter currently
being litigated between the company or the
liquidator and that examinee or a third party does
not render those questions inadmissible, nor does
it render the private examination itself an abuse
of the processes of the court. The liquidator is
given by the statue this special authority to
proceed by way of private examination to obtain
information which he needs for the due winding up
of the company, the affairs of which he has the
responsibility of administering. The mere fact
that in obtaining that information he also obtains
admissions or material that are available for him
to use in evidence in current proceedings falls
short of rendering the process abusive, vexatious
or oppressive."

In Re Rothwells Ltd. (No. 2) (1989) 7 A.C.L.C. 576 Nicholson J. in considering an application to set aside orders for examination made pursuant to s.541 of the Companies (Western Australia) Code reviewed the authorities in respect of an allegation of abuse of process by a liquidator in seeking such examination. At pp.587-9 he summarised in a convenient fashion the propositions which emerge from those authorities. At p.588 he concluded:

"(6) The section will be misused where examination
is sought:

(a) to surmount a failure by the liquidator as litigant; for example, as a means to overcome refusal to answer interrogatories or refusal of leave to administer interrogatories (Metropolitan Bank (supra); North Australia Territory Co. (supra); Bletchley Boat (supra) all cited in Spiraflite (supra) at pp. 1102-1103).

(b) to examine prospective or existing defendants' probable witnesses simply for the purpose of destroying their credibility, although very often the gathering of information may quite properly involve testing the reliability or credit of the examinee from whom the information is being obtained (Roberts (supra) at p. 585). The basic rule is that the liquidator is not entitled to have a dress rehearsal of the cross-examination in the action (Re Franks; ex parte Gittins (1892) 1 Q.B. 646 at p. 648 per Vaughan Williams J. cited at Re Auto Import Company (Australia) Ltd. (1924) 25 S.R. (N.S.W.) 52 at p. 56).

(7) The section will not be misused where
examination leads to:

(a) questions of a fishing nature (Roberts (supra) at p. 586; contra Auto Import (supra) at pp. 55-56);

(b) a liquidator obtaining admissions or material that are available for him to use in evidence in current proceedings: Roberts (supra) at p. 584. The section gives to a liquidator in the interest of creditors an advantage denied to the ordinary litigant; the activities of the liquidator qua litigant are naturally and unavoidably the proper activities of the liquidator qua liquidator: Surf Shop (supra) at CLC p. 34,038; A.C.L.R. at pp. 671-672."

In Re Spedley Securities Ltd; ex parte Potts and Anor (1990) 8 A.C.L.C. 673 Young J. observed at p.675 of s.541 of the Code that the liquidator does not go beyond permissible limits if the examination is held to collect information, which the liquidator genuinely needs, such as information as to whether a cause of action exists or as to the prospects of success. On the other hand, his Honour noted that the liquidator did do so if he used the examination merely to gain an advantage in proposed proceedings and if he used the examination simply to destroy the credit of witnesses who might be called for the examinee in the proposed proceedings or used it to have a dress rehearsal of the examination in those proceedings. He considered that it was legitimate when gathering information to test its reliability and the credit of the examinee and that the liquidator was entitled to probe the surrounding circumstances in the hope that a further line of inquiry might be opened up which might lead to an elucidation of the truth of the transaction in question.

In Re HongKong Bank of Australia Ltd. v. Murphy (1992) 10 A.C.L.C. 1,573 Gleeson C.J. said at p.1,578:

"As appears from its place in the legislative scheme, and from its terms, s.597 has an important role to play in relation to companies that have been wound up, and liquidators or provisional liquidators will be amongst those who most commonly take advantage of its provisions, the operation of this section is by no means confined to liquidators. The statutory context of 'external administration', in which s.597 has its place, throws light on the purposes for which the power to order examinations (or to authorise persons to apply for examination orders) is conferred. Those purposes include the protection of shareholders and creditors and of interested members of the public. They are not, however, confined to the need for such protection in the case of winding up. Winding up is only one form of external administration the scope of s.597 is wider."

It follows that old s.597 and its analogues are not limited to cases in which the examination will be for the purposes of a winding up and for the benefit of those interested in that winding up but, if, of course, the company is in the process of winding up that will be an important aspect of the exercise of the power. In Re Laurie Cottier Productions Pty. Ltd (In Liq). (1993) 11 A.C.L.C. 178 a liquidator's action funded by a creditor was extant at the time of the application to examine was made. The examinee sought to have the order set aside as being made by the liquidator for an ulterior purpose. A substantial creditor of the company, was the applicant in the winding up proceedings and had funded proceedings brought by the company and the liquidator against the directors and another company associated with them. The same solicitors acted for that creditor in the winding up proceedings and for the liquidator since the commencement of the proceedings. The examinee submitted that the order ought be set aside because the purpose of the examination was to advance the interests of only that creditor, and that this was improper. Waddell C.J. in Eq. said at p.181:

"It does not follow that, because the motive of McQuarie Print [the 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 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......Generally speaking, it seems

to me that the course taken by the liquidator is the result of not having funds to take any other.

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 debts than the other creditors who have taken no steps to recover theirs."

In Douglas-Brown (Official Liquidator of Woomera Holdings Pty. Ltd. v. Furzer (Appeal No. 1065 of 1994; 940152A-C reasons published 4 March 1994) the Full Court of the Supreme Court of Western Australia considered an application to appeal from an order made by a Master in chambers varying an order made by another Master pursuant to s.596A and B of the Corporations Law for the examination of the respondents relating to the company in liquidation. The creditor of the company was indemnifying the liquidator for the costs of the examination ordered to be taken. It had already commenced an action in the Federal Court against the proposed examinee. The solicitors for the creditor were also acting for the liquidator in the examination proceedings. It was argued by the examinee that the creditor was obtaining an advantage in litigation which was not available to ordinary litigants and was thus improper.

The Master from whom the appeal was brought having been satisfied that the examination was not for an improper purpose however varied the earlier order for examination so as to require the evidence of the director to be recorded but not transcribed and therefore not requiring him to sign that evidence. Malcolm CJ, with whom Ipp and Anderson JJ agreed, said at p.13 of his judgment:

"It does not necessarily follow from the fact that a creditor was funding an examination to advance his or her own interest that the liquidator was conducting the examination only in that creditor's interest. In his affidavit in support of the application for the order for examination in the present case, the appellant said that he was investigating the possibility of recovering approximately $2,500,000 in alleged preferential payments to certain creditors and seeking on behalf of the creditors of the company generally to bring legal actions against the perpetrators of the alleged fraud, but that so far he and his officers had been unable to procure the assistance of any person allegedly involved in the fraud."

At p.20 his Honour said:

"It was submitted that it would be unfair to submit the respondent to an examination for the purpose of facilitating the gathering of evidence in connection with proceedings in the Federal Court where interrogatories are not permitted without leave of that Court. In my opinion, however, while an examination under s.597 may have advantages over the administering of interrogatories, if the Federal Court were to grant leave, it does not follow that this amounts to such a forensic advantage as to be unfair, oppressive or unjust to the respondent. It would be a different matter if an application had been made to the Federal Court for leave to administer interrogatories and had been refused for reasons other than the existence of the facility for an examination under s.597."

Whilst s.597(14A) of the Corporations Law, now places liquidators and individual creditors on equal footing so far as examination is concerned and is thus materially different from the previous provision where access to the transcript of the examination could only be had with the leave of the court, the above observations are apt to be applied to the old s.597 procedure. Similarly, in Re Marvin Manufacturers (Aust.) Pty. Ltd. (1994) 12 A.C.L.C. 586 Hayne J. in the Victorian Supreme Court, considering the current legislation, was concerned with an application to set aside the order for examination obtained by a creditor of the company in liquidation on the ground that the order was sought for the sole or predominant purpose of obtaining forensic advantage in a pending action by the creditor against, inter alia, the examinee. His Honour concluded at p.591 that the examination provisions of the companies legislation were not to be limited to cases in which the examination was for the purposes of a winding up and the benefit of those interested in that winding up, but that there would be an abuse of process if the coercive powers were to be invoked for a purpose foreign to the purposes for which those powers were conferred. His Honour referred to the decision of the Full Court of the Supreme Court of Victoria in State of Victoria v. Day Neilson Jenkins and John (a firm) [1993] 2 V.R. 545 wherein it was held that the conclusion that there has been an abuse of process does not depend upon the application of what was described as "some vague notion of 'fairness'" in civil litigation, at p.559.

There is nothing in the present material before the court which suggests that the liquidator is seeking to assist Australian Poultry to deal with a difficulty encountered in the litigation. The mere fact that a letter was written (11 June 1992) asking for further and better discovery in relation to documents which once were but no longer are in the power, possession or control of the defendants cannot be characterised as a set-back in the District Court litigation. Had there been an application to the court for further and better discovery in relation to, for example, particular documents or with respect to legal professional privilege claimed in the affidavit of discovery then that might be a different matter. Without breaching the necessary secrecy of the liquidator's reasons this much can be said of Mr Geroff's affidavit - the liquidators have sought to examine the persons named in respect of possible breaches of s.592(1) and s.592(6) of the Corporations Law.

What then should be said about the failure of the liquidator to disclose in his affidavit of reasons the existence of the District Court proceedings and the funding of the oral examination by the plaintiff to those proceedings? In Re Imperial Continental Water Corporation (1886) 33 Ch.D. 314 a contributory took out a summons seeking examination of the directors of the company in liquidation. In his affidavit of reasons he did not disclose the existence of an action which he had brought against the company and its directors except by the most oblique reference. Chitty J was of the view that the affidavit ought to contain the whole of the case that was being brought by him against the directors. He said that as a general rule there must be full disclosure of the circumstances particularly those which are adverse to the party making the application since the order is obtained ex parte and concluded that there had been an abuse of process of the court and an improper suppression of facts. The examination was ordered not to proceed until after the trial of the action. Chitty J's observations are often relied upon, but Cotton L.J. in the Court of Appeal was careful to say that he did not put his judgment upholding the order in any way on the suppression of facts before the Chief Clerk (to whom the application was first made) and Lindley and Lopes LJJ were of a similar view. In Re Hugh J. Roberts Pty. Ltd., supra, Street J in dealing with the submission that the misfeasance proceedings ought to have been disclosed to the court making the order for examination as immediately imminent, said at p.543:

"The intention to commence such proceedings is not a matter which should, under penalty of what is tantamount to impropriety, have been disclosed to the court at the time the application was made last December for the issue of summonses for private examinations."

His Honour held that there was no significance to be attached to the intention to commence those proceedings. In HongKong Bank the orders for examination were obtained by ex parte application and the applicants were aware that two defendants in actions between the new trustees and themselves desired to be present and be heard on the application. The new trustees did not disclose that to the Registrar before whom they appeared for the order. It was argued on appeal that this constituted a material nondisclosure. At first instance McLelland J took the view that the new trustees did not have an obligation to make the Registrar aware that those companies wished to appear in opposition to the application. He concluded that they had no right to appear and therefore their opposition was not a material matter of the kind referred to by Chitty J in Re Imperial Continental Water Corporation, supra. His Honour held that even if he had taken a different view concerning the obligation to disclose that matter to the Registrar he would not have set aside the orders on that ground. The Court of Appeal, per Gleeson C.J., agreed with this approach at p.1,578.

It is to be regretted that Mr. Geroff did not reveal the existence of the District Court proceedings, how far they had progressed, and that the plaintiff therein was funding the oral examination. It was a matter relevant to the exercise of the Court's discretion with respect to old s.597 whether to order the examination. As I have concluded that there has been no abuse of process by the liquidators in seeking the order and no notion of "fairness" in civil litigation is relevant, the failure to make that disclosure has not affected the outcome of the appeal and since the respondents were unaware of the contents of Mr. Geroff's affidavit it cannot affect the question of costs.

In the event that the appeal is successful Mr. Matthews submitted that directions ought to be given to circumscribe the nature of the questions and to limit the ambit of discovery on the examination. It is not appropriate to fetter the examination in advance, Hamilton v. Oades, supra, at p.499 per Mason C.J. Appropriate objections may be taken at the time both as to the nature of the questions asked and as to the ambit of the material to be produced. Mr. Brideaux has deposed as to the arduous task of assembling all the documentation sought by the liquidator in the order.

He had been the solicitor from 1986 to the date of the winding up. No doubt common sense will prevail and the liquidators will endeavour to give some guidance as to the temporal range of documents.

It is clear that the orders for examination were made against two respondents to this appeal who are not parties to the District Court litigation. There would in any event have been no basis for staying the order for examination against them.

The appeal is allowed with costs.