Mercantile Mutual Life Insurance Company Limited & Anor v Murphy & Ors; Pitt & Anor v Murphy

[1993] HCATrans 50

I

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl35 of 1992

B ~ _t__w_e ~ -

MERCANTILE MUTUAL LIFE

INSURANCE COMPANY LIMITED and

ROY MOORE

Applicants

and

JOHN WILLIAM MURPHY

First Respondent

PETER BERNARD ALLEN

Second Respondent

ANTHQNY GARDINER SHERLOCK

Third Respondent

MART_I_N RUSSELL BROWN

Fourth Respondent

Office of the Registry

Sydney No S137 of 1992

B e t w e e n -

STERLING DAVID PITT and DUNCAN

WADDIE FISCHER

Mercantile	1	5/3/93
BRENNAN ACJ GAUDRON J McHUGH J

Applicants

and

JOHN WILLIAM MURPHY

First Respondent

PETER BERNARD ALLEN

Second Respondent

Applications for special leave

to appeal

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 5 MARCH 1993, AT 2.47 PM

Copyright in the High Court of Australia

MR J.D. HEYDON, OC: If the Court pleases, I appear for the

applicants with MR C.P. COMANS, in the first of the

two matters just called. (instructed by Mallesons

Stephen Jaques)

MR J.C. CAMPBELL, OC: If it please the Court, I appear for

the respondents in each of the matters. (instructed

by Baker & McKenzie)

MR W.H. NICHOLAS, QC: If your Honours please, I appear with

my learned friend, MR P.W. TAYLOR, for the

applicants in the second matter. (instructed by

Ebsworth & Ebsworth)

BRENNAN ACJ:	Yes, Mr Heydon.
MR HEYDON:	Your Honours, in our submission, this case

raises a short point of law, but one of potentially

large practical significance in the conduct of

litigation. In essence the point is this: when a

person obtains an order under section 597 of the

Corporations Law, in what circumstances will that

be an abuse of process and in what circumstances

will it not be and, in particular, what is the test

for determining what purposes will render an

application under section 597 an abuse of process?

It has been recognized for at least 100 years that

an essential protection of the rights of examinees

is that the process not be abused and we submit

that the judgments below narrow that protection to

vanishing point.

Your Honours will be, I think, familiar with

the fact that section 597 gives extensive powers,
both of oral interrogation and document production,
to any person who gets an order under it; the

proceedings are compulsory, the oral material must

Mercantile 2 5/3/93

be given on oath in public without any privilege

against self-incrimination, there is compulsion to

sign a written record, the answers are admissible

in civil proceedings and there are criminal

sanctions, two years imprisonment and $10,000 fines

for breach of the various statutory commands, and

Your Honours, I think, will also be familiar with

the fact that in practice, these examinations, the

oral ones certainly, can take a lot of time and

have the character of being rather free wheeling

and uncontrolled for relatively junior judicial

officers and they are not restricted by the rules

of evidence or procedure.

Certain people can apply for these orders as

of right. The new trustees who Mr Campbell

represents are not of that character, but they

avail themselves of the opportunity to be

authorized by the Australian Securities Commission

to become so-called proscribed persons and they

made an application to the Supreme Court of

New South Wales and obtained the orders. Why did

they do this? They did it because they are parties
to various proceedings in the Supreme Court of
Victoria to which, among other people, Mercantile

Mutual and Mr Nicholas' clients are parties.

Now, Mr Justice McLelland, at first instance,

made a finding that the new trustees had one

purpose and one purpose only, and that finding is

recorded at page 62 of the application book. If I

could just invite the Court's attention to that for

a moment. On page 62, taking the numbering from

the bottom of the pages, in the middle of the page

there is an indented passage in which

Mr Justice McLelland said:

"I am not satisfied that the purpose for which

the new trustees are intending to conduct the

examinations of (named persons) is other than

what has been asserted in correspondence on

their behalf, namely to obtain information

which may assist them in prosecuting causes of

action presently pleaded in the Victorian

proceedings, to determine if any of those
causes of action should be abandoned, and to

determine if any other causes of action should

be added. Such a purpose is neither vexatious

nor oppressive".

McHUGH J:  Do you say that purpose, as found by His Honour,

is an abuse of process?

MR HEYDON:  Yes, if one applies the Court of Appeal's test

as stated.

McHUGH J:  No, what about Mr Justice McLelland's test?

Mercantile 3 5/3/93

MR HEYDON:	Yes.
McHUGH J:	So standing by itself?
MR HEYDON:	Yes.

McHUGH J: That test is an abuse of process.

MR HEYDON: Standing by itself, if that is the sole purpose

or, we would submit, if it is the predominant

purpose or the main purpose, it is an abuse of

process.

BRENNAN ACJ:	Why is that?
MR HEYDON:	Because the genre of law of abuse of process as

stated by this Court in Williams v Spautz said that

if the predominant purpose was something foreign to

the nature of the proceedings, it is an abuse of

process. A majority of four Justices said that; I

think Your Honour Justice Brennan stated

essentially the same test; Justice Gaudron - - -

BRENNAN ACJ:  Why is this purpose as found outside the scope

of the remedy?

MR HEYDON:  Because the purpose of a section 597 examination

is to permit, in this instance, the new trustees or

liquidators or whoever happens to be the examiner

to find out information about the affairs of the
corporation but not merely to obtain additional

forensic advantages in litigation, be it

contemplated or be it pending.

GAUDRON J:  Does your argument depend on the fact that

proceedings are in existence?

MR HEYDON:  No, though there is a recognition in the Court

of Appeal below and in the leading judgment of

Mr Justice Street on the subject that if

proceedings are in existence one has to be more

alert and sometimes abuses of process will be more

easy to detect, but the argument does not depend on

the distinction which Your Honour Justice Gaudron

propounded.

GAUDRON J:  You just say it is a foreign purpose to use the

examination for any forensic purpose?

MR HEYDON:	Yes, if that is the sole - - -
GAUDRON J:	Any forensic purpose or advantage?
MR HEYDON:	Yes.

GAUDRON J: Well, which is it, purpose or advantage?

Mercantile 4 5/3/93

MR HEYDON:	Purpose to get an advantage, I suppose.
GAUDRON J:	Not necessarily.
MR HEYDON:	We submit that, on the authorities correctly

approached, the test is a purpose test and does not

depend on an examination of advantages objectively

or in fact.

BRENNAN ACJ:  Why is it that 597 would exclude, in the way

in which you put it, a purpose of obtaining a

forensic advantage?

MR HEYDON:  Assuming it were predominant or main or whatever

the appropriate level is?

BRENNAN J: Yes.

MR HEYDON:  I suppose for two main reasons: in the first

place there is an element of harassment or double

inconvenience which, we submit, amounts to

oppression where a litigant in ordinary civil
proceedings - let us take more or less the facts of

the present case - has already given discovery; it

has been indicated by the Court that particular

interrogatories, but not general interrogation,

will be allowed, and presumably subpoenas and

notices to produce and all the other interlocutory

techniques remain available to the plaintiffs, that

that person should be subjected to overlapping
techniques of a compulsory type in section 597

proceedings, and the first proposition is that

there is an element of double inconvenience which

can amount to oppression.

The second reason why, we submit, the courts

have held this an abuse in the past is because

there is an element of inequality or discrimination

about it. If an examiner - the new trustees here -

get an order to examine other people, the people

who are parties to the litigation to which the

examiner is party do not have any standing to

appear at the examinations, nor do they have any

standing to conduct their own 597 examination of

what might be called the examiner's camp.

The conventional procedures of the civil litigation are designed to produce by a means of

regularity fairness, not only to plaintiffs but

also to defendants. The use by plaintiffs, if a

plaintiff is doing it, of a section 597 examination

is to confer entirely one-sided advantages on that

party and, we submit, that is a second background

consideration, if one likes, for why the courts

have, in certain cases in the past, detected abuses

of process.

Mercantile 5/3/93

The two leading late 19th century cases, in

one of them, interrogatories had been ordered and

answered and then the interrogating party obtained the then equivalent of a section 597 order to have

further interrogation. In our case discovery was

sought and refused and the party to whom it had

been refused then sought the equivalent of a

section 597 order. In both cases the order was

held to be improperly made because, we submit, the

examiner was seeking an advantage over and above

that which h.e could get by the conventional use of

the forensic procedures, in other words, some

advantage over and above that which he is entitled

to.

BRENNAN ACJ:  One can understand readily the notion that 597

procedures mioght be used vexatiously, in the

instances that you first gave where there had been

full discovery interrogatories have been a matter
of battle and settlement, interrogatories have been

answered, the matter was ready for trial, for

example. But it is hard to see, on that aspect of

the matter, why those who are entitled to a 597

order, prima facie, would not be entitled to

exercise that remedy rather than seeking any

discovery at all in an action and, if that be

right, then the intermediate position, where an

action has been launched and some discovery had and

the like, turns essentially on the facts of the

individual case.

MR HEYDON:  In our submission, the point of those two cases

I referred to is not just that the ordinary

procedures of the civil court, as it were, had been

exhausted and then the examiner wished to go away

and do something more. It would equally have

applied if he had chosen to, as Your Honour says,

abstain from his ordinary civil litigation rights

and seek the wider remedy outside.

For example, what one is concerned with is

mainly the oral aspect of the examination. In

Victoria, in the Supreme Court Rules, there is

actually a system of oral interrogation in order 31

of the rules, but it is controlled in the

conventional way one would expect such a thing to

be controlled. It can only be administered by

consent admittedly.

In our submission, it is an abuse of the

process of the Supreme Court of New South Wales to

take a procedure designed to assist liquidators and

other people to obtain information generally about

the affairs of the corporation in question, but not

to do it for that purpose of getting that

information, but to do it for the purpose of

Mercantile 6 5/3/93

getting some advantage neither it nor anyone else

can get in the primary civil litigation.

BRENNAN ACJ:  I find that dichotomy difficult to come to

terms with, Mr Heydon - the information and the

advantage. After all, what is information acquired

for by liquidators and the like, except for the

purpose of getting an advantage? It is in order to

recover assets and the like.

MR HEYDON:  Yes, Your Honour, but the traditional

authorities, and in form at least the court below

does nqt seek to disturb them, recognize that if

the main advantage which is sought is information

so as to improve one's position in litigation be it

anticipated or pending, that can make the order

unavailable.	Your Honour is correct in saying that
information is sought to get an advantage.	The

traditional authorities draw a distinction between

getting information to get an advantage by finding

out where property is, and by approaching people to
get it back and so on, or in order to determine
whether to institute criminal prosecutions. But if
the sole purpose is to obtain advantages in
litigation, the traditional authorities say there

is an abuse of process, and the effect of the

judgment - - -

BRENNAN ACJ:  Can you take us to the best of those

authorities?

MR HEYDON: 

Could I hand to the Court a copy of the Hugh J.

Roberts Pty Ltd in Liquidation and the Companies
Act before Sir Laurence Street, (1970)

91 WN(NSW) 537. I think I can ask the Court to

begin at the bottom of page 538 where His Honour

notes that the power is at long standing, and at

the top of page 539 he notes the examination is

ordinarily sought by the liquidator, and so on.

Then he says at Bon page 539:

There are, however, cases in which what might

appear superficially to be an attempt to

exercise the power for the purpose of the

winding up has been demonstrated, in point of

fact, to represent and abuse of the process of

the court.

Just pausing there. The modern 597 extends

well beyond companies which have been wound up.

If it should appear that the machinery of a

private examination -

of course now it is a public examination,

Mercantile 5/3/93

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 ..... or at any subsequent point of time.

We are, of course, only concerned with the time of

the application.	And then in the next paragraph he
says:

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.

And then he says at the end of that paragraph that

that practice that he has referred to is not to be

elevated to the point of a principle. And he says: In Re North Australian Territory Co. the Court of Appeal declined to permit a private

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.

And I mentioned that case briefly earlier. At the bottom of the page he refers to Heiron's case:

There interrogatories had already been allowed

in the proceedings ..... In those circumstances,

the Court of Appeal declined to permit the

liquidator to invoke the power of private

examination.	He was regarded, in effect, as
machinery of ordinary inter parties having made an election to proceed through the	interrogatories. 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.

Then at B he says:

These cases do not, in my opinion, lay down

any principle of general application ..... The

mere fact that questions might be asked of an

examinee directly involving a matter currently

being litigated ..... does not render those

questions inadmissible, nor does it render the

Mercantile 5/3/93

private examination itself an abuse of the

processes of the court.

Then just below Che says:

The mere fact that in obtaining that

information -

that is, to do with the company -

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.

There is ample authority to the effect that the liquidator's power to proceed by way

of a private examination is available to him

notwithstanding that the litigation to which

the subject matter of the private examination

may be directed is already current.

And then he quotes from Lord Esher:

"It has been suggested that the examination

could not properly take place after the

commencement of litigation, but the objection

was not persisted in, and there is no such

limitation in the Act of Parliament. If the

examination were before action brought it

would enable the company by their

liquidator ..... to consider whether it was

desirable to bring the action, and if it took

place after litigation, to consider whether it

was worthwhile to proceed with it. There is

nothing in the section to show that any

distinction is drawn between the reasons which

might influence the decision on the one hand

to commence an action, or ..... to continue it."

Then he quotes from Acting Justice Maughan in Re

Auto Import, who in turn is quoting Palmer:

The powers ..... are frequently exercised, for

example, where the liquidator ..... has reason
to suspect that there could be some claim

under section 215 ..... or where he thinks there

may be ground for taking proceedings for an

action against promoters or others; or where

proceedings are pending against the company,

and he desires to ascertain whether he can

prudently proceed with or defend an action."

And then he refers to the bankruptcy field, which

is similar.

Mercantile 9 5/3/93

BRENNAN ACJ: All of this seems to be utterly consistent

with the approach of the Court of Appeal.

MR HEYDON:	Could we just see if there is anything further that - the passage which just begins above letter F
on page 541:

it is immaterial in basic substance whether

the private examination is sought to be used

by a liquidator to gather information in

connection with proceedings he believes he

might be able to bring, proceedings he
cqntemplates bringing, proceedings he has

decided to bring, and proceedings he has

already brought. There is no presently
relevant distinction in substance between

gathering information referable to commencing

proceedings and gathering information

referable to continuing proceedings. There

may be more risk of or opportunity for the

examination being vexatious or oppressive

after proceedings have been commenced -

And he refers to those two cases.

Also an abuse of process may be more readily

exposed once proceedings are already on foot.

But this is surely not to the point, as

vexation or oppression will not be tolerated

no matter when the examination is held.

Then at the top of page 542 or at the very bottom of page 541 he says:

A liquidator ..... must not abuse this process.

an attempt, where litigation is either

contemplated or commenced, to summon the
prospective or existing defendant's probable

witnesses and examine them simply for the

purpose of destroying their credit would

exceed the legitimate use of the process.	Beyond stating this extreme instance, I
consider it unsafe to generalize - very often the gathering of information quite properly involves testing the reliability or credit -

And then he refers to the fact that:

a Master or Deputy Master in Equity presides
over the examinations.

And then there is discussion towards the bottom of the page of the extent to which fishing questions

should be allowed.

Mercantile 10 5/3/93

Now there are two things, we submit, running through what Mr Justice Street has said: one is,

that the essential purpose of the section is to

enable discovery of information about the company,

in that case, in liquidation; a second theme is

this, that if there is a purpose of obtaining that

sort of information, it is no vice that it leads to

a forensic advantage to the liquidator. But

implicit in it, we submit, is that if it is not

merely a question of an incidental forensic

advantage being gained or even an incidental

forensic advantage being aimed at, but the sole

purpose or the predominant purpose is to get a

forensic advantage not available in the ordinary

litigation, what has happened is an abuse of

process, and the Court of Appeal itself supports

that third proposition that I have enunciated on

page 61 in the middle - - -

BRENNAN ACJ:  How does that proposition, as you put it, sit

with Lord Esher's observations? One can understand

that the power cannot be exercised to produce

vexation or oppression in the conduct of particular

litigation - and some of the instances of vexation

and oppression are stated by Justice Street, for

example at the top of page 542 - but as at present

advised, reading the passages that you have drawn

our attention to, it seems to me that Lord Esher in

particular acknowledges the availability of the remedy for the purpose of gathering information

that may be used by parties involved in litigation

during the litigation.

MR HEYDON:  Your Honour is referring to the passage from Lord Esher on page 540 at about letters D to E?

BRENNAN ACJ: Yes, at about letter E.

MR HEYDON:  We would submit this: let us assume for

simplicity's sake that the liquidator had two

purposes, one, the conventional purpose of

collecting information generally about the company,	and two, to decide whether or not to start some	litigation or continue some litigation that the
company happened to be in. If those purposes were
essentially equal in weight, that would not be an
abuse of process. The abuse only arises if the
predominant or sole purpose is to obtain advantages
in the litigation. And that is the test which the
Court of Appeal below propounded and a test which
they derived from an English case which they discussed on pages 60 to 61, the Imperial
Continental Water Corporation case, which was a
case of the perhaps rare instance of a sole purpose
being to advantage the would-be examiner in defence
of the vindication of his rights in litigation.
That begins at line 15 on page 60 - - -

Mercantile 11 5/3/93

BRENNAN ACJ:  Mr Heyden, pardon me for taking you back to it

but, as I understand it, on page 62 the finding

made by Justice McLelland is accepted.

MR HEYDON: 

Yes.

BRENNAN ACJ: 

Now, if one compares what Justice McLelland found on page 62 with the passage to which I drew

your attention from Lord Esher on page 540, as I

read them I see no disparity between them. Am I
wrong in that?

MR HEYDON: 

We would submit there is no disparity between

them because they are not directed to precisely the
same point. Lord Esher's point is an attempt to

destroy a supposed distinction between examinations

that take place before the commencement of

litigation and examinations that take place after

the commencement of litigation.

McHUGH J: Could I just go further up page 540. Is there

any inconsistency between what Justice McLelland

said and what Sir Laurence Street said at 540C:

The liquidator is given by the statute this special authority to proceed by way of private

examination to obtain information which he

needs for the due winding up of the

company - - -

MR HEYDON:  We submit in essence there is. It is not so

much a difference between Mr Justice McLelland and

Mr Justice Street in that passage; it is a

difference between Mr Justice Street and the Court

of Appeal. What Mr Justice Street is saying is

that the legitimate use of the procedure and the

legitimate purpose of the procedure is to obtain

information which he needs for the due winding up

of the company but - and this is not actually

stated here - if there is some sole or predominant

purpose to do something else and not to do that,
then it is not. He says, "That is the purpose.	If
that purpose is absent and there's some other
purpose, implicitly it's impermissible."

McHUGH J: But one may have immediate purposes and ultimate

purposes and they may be quite different in a

sense. In a case like this, it seems to me

difficult to contend that the trustees would not be

seeking to obtain information which they need to

assist them in the ad.ministration of these

companies.

MR HEYDON:  It may not be difficult to contend it,

Your Honour, but the trustees did not contend for

that in front of Mr Justice McLelland, and

Mercantile 12 5/3/93

Mr Justice McLelland did not find it. He found

that sole purpose in that indented passage.

McHUGH J: But he found it was to obtain information which

may assist them in prosecuting causes.

MR REYDON:  And nothing else - in prosecuting causes, in

dropping new causes and in starting new causes.

McHUGH J: But that is part of the general administration of

the company, it is information for that general

purpose. Even if that is what Mr Justice McLelland

found is the immediate purpose, the ultimate

purpose is in accordance with what Sir Laurence

Street said at page 540, is it not?

MR REYDON:  Mr Justice McLelland made no finding of any

purpose ultimate, immediate or intermediate than

this. It may be a rare case in which you have this

sort of sole purpose, just as that English case on

page 59 of the appeal book is perhaps a rare case,
but this is the finding. In our submission, some

error has occurred in the - - -

GAUDRON J: It is a finding in a context. It might be quite

different if there were litigation being conducted

by the new trustees on their own account. Here the

context is litigation being conducted by the

trustees on account of others in circumstances

clearly falling within section 597.

MR REYDON:  It is litigation being conducted on account of

their beneficiaries but, Your Honours, the

distinction cannot depend on whether the litigation
is, as it were, relatively altruistic or selfish.

It could not depend on whether it is a liquidator

suing or a trustee on the one hand - - -

GAUDRON J:  No, but it is whether or not it is connected with the affairs of the company.

MR REYDON:  Yes. This litigation actually is not really

connected with the affairs of the company; it is connected with the affairs of the trust, of which the company BPTC Limited was once the trustee and

now is no longer. But may I try and highlight this

difference between what I am attempting to put and

what the Court is putting to me by directing

attention to the top of the page.
Mr Justice Gleeson, with all and unfeigned respect,

has invented an additional purpose at that point not supported by Mr Justice McLelland's finding.

He describes how the new trustees were appointed.

A very large number of members of the public

are owed money as a consequence of the

financial failure of the trust. The new

Mercantile 13 5/3/93

trustees are likely to be less than fully

informed about the affairs of the trust, and

seek to use the procedures of compulsory

examination for the purpose of adding to their

information -

that is, about the affairs of the trust generally.

That is not what the primary judge found. The

primary judge's finding is what I have referred to

between 10 and 16 or 17.

BRENNAN ACJ: That may be so, but on an application for

special leave, we are scarcely likely to

investigate whether the Court of Appeal's

assessment of the relevant facts was erroneous in

point of fact.

MR HEYDON:  Yes, but I am not asking this Court to do that.

I understand why Your Honour puts that to me. What

I am asking the Court to do is, with respect, to

put yourselves in the chair of a registrar who is

approached ex parte, as they almost always are, by

someone who is either a liquidator and approaching

as of right or has been authorized by the registrar and says, "We wish to get a 597 order."

The registrar, in our submission, will take this

judgment and do these things. First of all, he or

she will go to page 59, and in the middle of that

page at about line 16, he will note that the Chief

Justice has said:

the fact that current proceedings are pending

makes it necessary for the court to be alert

to the possibility that a proposed application

might be used for an improper purpose.

Having been told by the applicant, if he was not

already told, that there are pending proceedings,

he will then read on and come to the test which we

submit the court states in the middle of page 61:

Whilst the court will not permit a	liquidator, ..... to abuse its process by using
an examination solely for the purpose of
obtaining a forensic advantage not available
from ordinary pre-trial procedures, such as
discovery or inspection -

and so on. So, he will say, "Well, that is the

test" - - -

GAUDRON J:  It may be that that qualification is the

problem, but not necessarily in your favour.

MR HEYDON:  If the word "solely" did not exist, of course,

it would be easier for us to challenge, or people

Mercantile 14 5/3/93

like us to challenge the making of these orders, so

that the point - can I just continue with my little

picture of the unfortunate registrar.

He will then look at Mr Justice McLelland's

finding and, we would submit, say, "Well, that

finding seems to fit within the test". But then he

will go on to see the Chief Justice has said the

purposes are legitimate purposes, and then the

final problem is this: he will say, or it may be

said to him when an examinee tries to set aside the

ex parte order a few days later, that this Court in

Williams v Spautz enunciated a general test for

abuse of process. The examiner might say

Williams v Spautz is limited, or perhaps this field

is, the section 597 field is a limited field, an

island of immunity within the general principle of

Spautz v Williams.

The position is this, where registrars have to

choose between a decision of the Court of Appeal

pointing one way, and a decision of this Court

apparently pointing another, the cases meet for

this Court to determine whether the Court of Appeal

is correct in its particular sphere, or whether in

truth, it is inconsistent with Spautz v Williams. Spautz v Williams was decided after this case

was argued, so that it was not to the forefront and

the registrar thus will have a difficulty, we

submit, which needs to be cleared up.

BRENNAN ACJ:  You first have to find that intersection

between this case and Spautz v Williams, will you

not?

MR HEYDON: Well, there is something to be said, no doubt,

because there almost always is, on both sides, but

is that the sort of thing that it is fair for

registrars to - - -

BRENNAN ACJ:

No, but the proposition, as I understand you between this judgment and Williams v Spautz. Now,

are putting it, is that there is some conflict

that turns upon the scope of the remedy of 597.	If
the scope of the remedy 597 extends to what
Justice McLelland found on page 62, there is no
conflict, because there is no abuse of process.

MR HEYDON:  Yes, but we do submit one has to read no doubt

the judgment as a whole, but in particular one has to read pages 61 and 62 together and take the test

formulated, the fact found. One perhaps should put

on one side the fact found and just take the test

formulated and the test propounded in Williams v

Spautz and one sees they are different, because the

subject-matters of debate or discourse are

Mercantile 15 5/3/93

different, Williams v Spautz dealing with what I

will call substantive proceedings, section 597

proceedings on the other hand having a kind of

procedural or information-gathering character. But

on the other hand it is a little hard to see why

there really should be difference why - if either
the only or the main or predominant purpose is
abusive, why that does not taint both sets of
proceedings despite their different characters.

In our submission, a day will come when the courts will have to determine whether Williams v

Spautz applies to this area so that this test is wrong, or whether it is correct. We submit that

the day ought to be soon.	It is a short point on
short materials.	The appeal book will be no

greater and perhaps less than this application

book. One merely has to look at the judgment.

I think that in the course of endeavouring to

respond to Your Honour's questions we have put most

of the submissions we wished to. Can I merely

conclude by reminding the Court of these matters.

Section 597, of course, is uniform legislation

throughout every jurisdiction in the country.

Standing under section 597 is potentially very

wide, quite apart from those who have standing as

of right like liquidators and people in that class.

Any citizen who can get authorization from the ASC

can apply to the court, and if they can say to the

court, "Our sole purpose is to prosecute existing proceedings or to drop parts of them or to add to them", on this authority they will be able to

proceed. It does not matter that the corporation

in question is or is not in liquidation, and it

does not matter that the corporation in question

is or is not involved in litigation itself.

To use section 597 in the way the new trustees

are using it is to really add a new weapon to the

armoury of commercial litigation. It may or may

not be a desirable weapon, but whether it is or is

is not, the extent of it needs to be defined, and

in particular the purposes attending its inception

need to be defined in the light of the conflict

between these two authorities. That is

particularly so, we would submit, at a time when

the civil courts are trying to streamline their

procedures to drop time-wasting interlocutory

mechanisms, and to prevent the excessive use of

them. In those circumstances it is

appropriate - - -

McHUGH J: But it is not necessary to be a free-for-all, is

it, because in New South Wales the registrar

constitutes the court, but you can always appeal

against the registrar's order to the judge - - -

Mercantile 16 5/3/93

MR HEYDON:  An order to answer a question? That is the only

sort of order the registrar makes.	You appeal
against it - - -

McHUGH J:  How did this matter come before

Justice McLelland?

MR REYDON:  I am getting confused, I was thinking about the

registrar conducting the actual 597 examination

itself.

McHUGH J: Yes.

MR REYDON: This came before Mr Justice - on 21 April the

registrar made an order; the discontented parties

put on a notice of motion to Mr Justice McLelland

seeking to rescind the order.

McHUGH J: That is a procedure that is open and the Court

can give directions to control the examination in

various ways, and one would think in cases like

this might well do so.

MR REYDON: Everything Your Honour says is correct. All we

say is the effect of this decision is to wipe out more than a century of what was thought to be the

law, in practice.

McHUGH J:  Times have moved on, Mr Reydon. I mean, those

cases decided a century ago, the basis of the

corporations existence was not even settled. Was

it regarded as a form of partnership, or was it a

distinct entity of it own? There are all different

views. It is very easy to look at those old

authorities and forget just how people looked at

corporations in those days.

MR HEYDON:	In our submission, the juristic debate about the nature of the corporation has nothing whatever to
do with the legal merits of those authorities, which is as good now as they ever were.
McHUGH J: But they influence people's thinking even if it

is not always expressed.

MR HEYDON:	I can not rappel with propositions that are not expressed in words, Your Honour. Those are our
submissions.

BRENNAN ACJ:  Thank you, Mr Reydon. Mr Nicholas?

MR NICHOLAS:  Your Honours, with respect, we would add only

a little to what my learned friend has put to the

Court.	Can we do it this way? Can we ask the
Court to go back to page 61 of the book?	My friend

has drawn your attention to the passage at line 12,

where His Honour sets out what we perceive to be a

Mercantile 17 5/3/93

sole purpose test, and he distinguishes it, as we

read it, from a situation whereby information

gathering for the general purpose may carry with it

the incidental result that some forensic advantage

will be gained, and you see that reflected in

lines 17 and 18. Of course, that was the way that

Mr Justice Street approached the situation in the

passages to which my learned friend took the Court

in Hugh Roberts at page 540, emphasizing the

particular statements that His Honour made,

referring to the mere fact that in the course of
carrying out an investigation and the obtaining of

information for the general purposes, the mere fact

that it threw up information which may be useful or

advantageous in the conduct of litigation then on
foot, would not render the exercise bad.

That then brings us, with respect, to the

finding in this case and we say that it only
admits, as my learned friend put to the Court, of

one conclusion, namely, there is one purpose and

one purpose only, and when one looks at it, it is

quite clear, we would submit, that it is one for

the advancement of the interests of the trustees in

litigation on foot.

BRENNAN ACJ: Well, perhaps you might like to deal with the

question that I was concerned to debate with

Mr Heyden. Let that be assumed, where is the error

in the decision reached?

MR NICHOLAS:  It comes about this way, Your Honour. I think

my friend put to you, in effect, that in adopting a

sole purpose test, that was in error, and we will

not go over that because Williams v Spautz - - -

BRENNAN ACJ: Well, let it be assumed that that was wrong.

MR NICHOLAS:  Yes. Now, the error is this: His Honour goes

on to say at line 19, I think, Your Honours, that

that is a legitimate purpose, so that he has

identified the purpose and he has said that it is a

legitimate one. Now, our submission is that he was

wrong in saying that because he is dealing with one

purpose and one purpose only, and this is perhaps

where the foundation of the error, in answer to

Your Honour Mr Justice Brennan, is categorizing or

identifying the purpose which has been found, and

we say that no matter how one looks at it it cannot

be understood other than a purpose for the

advancement of the interests of the trustees in

relation to civil proceedings on foot. The very

sort of question which His Honour Mr Justice Street

recognized as leading to the situation where the
person required to consider an application for an

order of this kind is required to be alert and in

Mercantile 18 5/3/93

his judgment Mr Justice Gleeson, at page 59,

observed that. In line 16, he says:

For this reason, the fact that current proceedings are pending makes it necessary for

the court to be alert to the possibility that

a proposed application might be used -

so the fact that proceedings are on foot rings a

bell to the officer charged with the responsibility

of dealing with the order and lifts it in to a

particular category, we would say. So that imposes

upon the officer the duty of looking very hard at the purpose for which this order is being sought. That then brings us back to this finding.

Now, we say if one looks at the several

elements that are found here, and I would ask

Your Honours to travel through the passage between

lines 10 and 16 with me. The first seems to be

about a third of the way down the indented passage,

Your Honours:

namely to obtain information which may assist

them in prosecuting causes of action presently

pleaded in the Victorian proceedings.

Now, we would say that is as plain a statement as

one could imagine of seeking information to assist

the prosecution of these cases.

Now, take my clients' particular situation,

Your Honours. My clients are parties to the

litigation instituted by the trustees before this

application was made. Their firm, who carried out

the audit, Preistley and Morris, is joined as

defendants as "the firm". So my clients are facing

this situation, that they are brought forward by

this process for examination of the kind that my

learned friend has reminded the Court about, in

circumstances where the entire trial procedure of

the obvious kind - discovery, interrogatories and	so on, the protections and controls that go with
that - obviously enough are circumvented entirely.
And one knows that the conduct of the trial involving the application of the usual procedures will be under the control and supervision of the court; objections, for example, may be taken to the answer of interrogatories or the production of documents; if there is some contest about that, the court will rule upon them, having regard to the
issues to be dealt with in the proceedings.

It cannot be said, with respect, that the

system invoked as a consequence of the institution

of the proceedings would operate in some way to

deprive the trustee plaintiffs of such information

Mercantile 19 5/3/93

as they are perfectly entitled to get for the fair

and efficient conduct of the trial. And so we say,

Your Honours, that when one looks at the first limb

of this purpose, it seems to us that it has the

result which by-passes the procedures which have

been prescribed for the conduct of a trial fair to

both parties.

If one comes down to the second element, the

next we read it as:

to determine if any of those causes of action

should be abandoned.

Well, obviously one has available the usual trial

procedures to which reference has been made. But

in any event one might readily see that it requires

the making of a judgment by the trustee and in

order to make a judgment as to whether or not he

ought to proceed further with the matter, he is

going to do that after vigourous investigation of

the examinees; enough, one might think, to enable

the assessment of the strength and weaknesses of
the case. That then, we would suggest, leads

obviously enough to the expectation of cross-

examination of the examinees; in effect, a

rehearsal. The cases seem to suggest that that

would constitute an abuse.

The last limb, Your Honours, and I can be

brief, is obviously enough to determine if any

other causes of action should be added. Well, that

is a situation which is not permitted in terms by

the Victorian rules, the rules pursuant to which

this civil litigation is being conducted. It is

order 30.07(2)(b) of those rules, Your Honour, and

if we could hand them up to the Court in a moment. The rule has the effect of precluding -

Your Honours, may we hand up a copy of the rules

relating to discovery and inspection.	The
particular rule is to be found at page 125 and it

is dealing with interrogatories and it is 30.07:

Ground of objection to answer

(1) A party interrogated shall answer each

interrogatory except to the extent that it may

be objected to on any of the following

grounds -

and I do not take Your Honours to them. If you

could come down to subparagraph (2):

(2) Without limiting paragraph (l)(a), an

interrogatory that does not relate to any

Mercantile 20 5/3/93

question includes an interrogatory the sole

purpose of which is to -

(b) enable the interrogating party to

ascertain whether he has a claim or defence

other than that which he has raised in the

proceeding.

BRENNAN ACJ: Well, does that not really indicate that a

legitimate object of the trustees, under 597,

cannot be satisfied under the Victorian rules?

MR NICHOLAS: Well, Your Honour, if that could be hived off

in this case - if it was the sole object for
investigation for the purpose of the inquiry to

determine availability, and if there were no

proceedings under way, then we could raise no

objection to that, the situation seems to us plain.

But in this case one has a purpose from which,

really, that third limb could not be severed. It

is inextricably bound up with the other several

elements and exposes the examinees to a situation

which the rules set up for the conduct of a fair
trial preclude. The trustees, under_the Victorian,
and I think most other systems, provide - the

trustees had access to pre-trial discovery

procedures, in any event. They chose to institute

the proceedings. They put themselves in a

situation whereby the proceedings might be expected

to be conducted in accordance with the usual

procedures.

It seems to us, with respect, that exposing

the examinees to a situation whereby their

adversary is enabled to entirely circumvent the

system is to expose the examinees to activity which

is oppressive, likely to be prejudicial, and that

seems to us to constitute conduct, or rather result

in conduct, of the kind which supports the

contention that the process is being abused.

Your Honour Justice Gaudron and Mr Justice Deane in

Hamilton v Oades suggested that that might well be

the situation. May we hand up to Your Honours a

copy of Hamilton v Oades, 166 CLR 486? There are

two particular passages in that judgment to which

we would take you.

GAUDRON J: It was a minority view, was it not?

MR NICHOLAS:  Yes, it was, with respect, Your Honour.

McHUGH J: It was also a criminal case, was it not??

MR NICHOLAS:  Yes, that is so, Your Honour, but there were

four observations including that with respect to

Your Honour Justice Gaudron, on which great weight

Mercantile 21 5/3/93

should be attached. At page 498 - if I can go

first to the passage from the Chief Justice's

judgment, the last full paragraph on the page:

The court retains its power to give

directions and to restrain questions in cases

where the examination is being conducted for

an improper purpose or constitutes an abuse of

process. Thus if a liquidator were to conduct

an examination directed to compel the examinee

to disclose defences or to give pre-trial

discovery, or to establish guilt, this

examination may be restrained as an abuse of

process.

And, amongst others, Justice Street's judgment in

Hugh J. Roberts is referred to. The passage from

the dissenting judgment is at 502, but we would say

it is of great assistance in dealing with the

concept that we are seeking to have Your Honours
consider. At 502, the third paragraph in the

centre of the page:

The power of a court to control and

supervise its process to prevent injustice is

not restricted to defined and closed

categories. In this context injustice is not

simply a question of the purpose or motive for

which the relevant proceedings were instituted

but includes a consideration of the

consequences of the proceedings for the person
invoking the power. the terms "oppressive"

and "vexatious" are often used to signify

those considerations which justify the
exercise of the power to control proceedings

to prevent injustice, those terms respectively

conveying, in appropriate context, the meaning

that the proceedings are "seriously and

unfairly burdensome, prejudicial or damaging"

and "productive of serious and unjustified

trouble and harassment".

That, with respect, seems to us to maintain the

life in those earlier English cases to which

His Honour Mr Justice Street referred in

Hugh J. Roberts, the passages from which my learned

friend has recently taken the Court. So we say,

with respect, that in the circumstances of this

Court, obviously enough, the examinees will be

exposed to the oppression of the kind that

Your Honour Justice Gaudron referred to in Hamilton

v Oades.

When one then comes back to the purpose that

has been found in this case, it seems very clear to

us, we submit, that there simply is no room for

suggesting that the order is intended to bring

Mercantile 22 5/3/93

about a result of the kind which has been

recognized quite clearly as constituting an abuse.

It is a result which His Honour Mr Justice Gleeson

at page 61 would have found to be subject to the

very principle which he stated as being the

relevant principle, namely the sole purpose one.

What we are really saying, Your Honours, with

respect, is at page 61 he identifies a sole purpose

test. At page 62 he accepts a finding of, in

effect, a sole purpose, we say a bad purpose, and

yet fails to apply the very principle that he

propounded. If one took the correct purpose, which

we would say predominant, then we must have

succeeded before him in relation to that.

Those are the matters that we wish to put

before Your Honours in addition to those that my
learned friend has already put.

BRENNAN ACJ: Thank you, Mr Nicholas. We need not trouble

you, Mr Campbell.

Having regard to the view taken by the Court

of Appeal as to the purpose of the trustees, there

is not sufficient reason to doubt the correctness

of the decision of the Court of Appeal to warrant

the grant of special leave to appeal in this case.

Accordingly, special leave will be refused.

MR CAMPBELL:  I ask for costs, Your Honour.

MR HEYDON: Nothing to say, Your Honour.

MR NICHOLAS: Nothing to say, Your Honour.

BRENNAN ACJ:  It will be refused with costs

AT 3.46 PM THE MATTER WAS ADJOURNED SINE DIE

Mercantile 23 5/3/93