n the matter of Cousins, Wayne Robert and Ors t/as Active Constructions Services v Clout, David Lewis
[1998] FCA 1462
•16/10/98
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 7326 of 1998
In the matter of WAYNE ROBERTS COUSINS, BRENDAN OLIVER MOLLOY, SUSAN JANE BEAVERSON AND GARY GRAHAM BEAVERSON TRADING AS ACTIVE CONSTRUCTION SERVICES
WAYNE ROBERTS COUSINS, BRENDAN OLIVER MOLLOY, SUSAN JANE BEAVERSON AND GARY GRAHAM BEAVERSON trading as ACTIVE CONSTRUCTIONS SERVICES
ApplicantsDAVID LEWIS CLOUT
RespondentJUDGE(S):
SPENDER J
DATE OF ORDER:
16/10/98
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
The summonses issued to William Harold Clough, Stuart Cunningham, Peter Jorss, Wayne Hartfiel and Michael Wardale be discharged.
The applicants on the motion have three-quarters of their costs, to be taxed if not agreed.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 7326 of 1998
In the matter of WAYNE ROBERTS COUSINS, BRENDAN OLIVER MOLLOY, SUSAN JANE BEAVERSON AND GARY GRAHAM BEAVERSON TRADING AS ACTIVE CONSTRUCTIONS SERVICES
WAYNE ROBERTS COUSINS, BRENDAN OLIVER MOLLOY, SUSAN JANE BEAVERSON AND GARY GRAHAM BEAVERSON trading as ACTIVE CONSTRUCTIONS SERVICES
ApplicantsDAVID LEWIS CLOUT
Respondent
JUDGE(S):
SPENDER J
DATE:
16/10/98
PLACE:
BRISBANE
REASONS FOR JUDGMENT
By notice of motion filed 7 October 1998, a number of natural persons sought orders that a number of summonses be discharged. The summonses were directed to William Harold Clough, Michael Schoenauer, Stuart Cunningham, Peter Jorss, Michael Wardale, Gavin Taylor and Wayne Hartfiel.
Each of those persons have been summoned to attend a public examination, the summonses having been obtained at the instigation of Mr David Lewis Clout, who is the trustee of a deed of arrangement of a number of natural persons, being Wayne Robert Cousins, Brendan Oliver Molloy, Susan Jane Beaverson and Gary Graham Beaverson. Those persons had carried on a partnership called Active Constructions Services. In 1995 they had performed work under a sub-contract for Clough Engineering. A Supreme Court action was instituted by the partnership claiming more than $350,000 was owed to the partnership by Clough Engineering pursuant to the sub-contract.
In 1996 a deed of arrangement was entered into and the trustee under the deed has the conduct of the proceedings in the Supreme Court. A statement of claim has been delivered and particulars of the statement of claim sought and given, but the proceeding has not advanced much further than that. Part of the reason for the delay has been because of the financial constraints concerning the resources available to the trustee to prosecute the litigation.
The material before me discloses, amongst other things, a "without prejudice" offer having been made by Clough Engineering to settle the matter for $130,000. That particular aspect of the matter is troubling but the present proceedings are concerned with setting aside the summonses directed to the named persons. The applicants seek an order that the summonses be set aside on the basis that they are oppressive and an abuse of process. The task of the court in such circumstances is to apply a balancing test as to the likely utility of the summons for any legitimate purpose by the trustees on the one hand, against the cost and inconvenience to the respondents on the other.
The power of the court to issue a summons to attend a public examination is contained in s 81 of the Bankruptcy Act 1966, which relevantly provides.
“81. (1) Where a person (in this section called the ‘relevant person’) becomes a bankrupt, the Court or a Registrar may at any time (whether before or after the end of the bankruptcy), on the application of:
(a)a person (in this section called a ‘creditor’) who has or had a debt provable in the bankruptcy;
(b)the trustee of the relevant person’s estate; or
(c)the Official Receiver;
summon the relevant person, or an examinable person in relation to the relevant person, for examination in relation to the bankruptcy.
(1A) A summons to a person by the Court or the Registrar under subsection (1) shall require the person to attend:
(a)at a specified place and at a specified time on a specified day, being a place, time and day that are reasonable in the circumstances; and
(b)before the Court or the Registrar or, if the Court or the Registrar thinks fit, a magistrate;
to be examined on oath under this section about the relevant person and the relevant person’s examinable affairs.
(1B) A summons to a person under subsection (1) may require the person to produce at the examination books (including books of an associated entity of the relevant person) that:
(a)are in the possession of the first-mentioned person; and
(b)relate to the relevant person or to any of the relevant person’s examinable affairs.
…”
In Karounos v Official Trustee (1988) 80 ALR 626, a judgment of the Full Court of the Federal Court, an application was made seeking to set aside summonses directed to certain persons to give evidence and produce documents relating to a bankrupt. The then terms of s 81 of the Bankruptcy Act 1966 differ from the present. The Court dismissed the appeal, but in the course of its reasons for judgment indicated that the power given by s 81 of the Bankruptcy Act (which applies in relation to the present circumstances by s 237 of the Bankruptcy Act), is an unusual and far reaching power, whose use could easily become oppressive and vexatious if not approached responsibly by the applicants for the use of the power and carefully controlled by the Registrar. The power for public examination is to be exercised in the interest of creditors and those interests are not to be defeated by an unduly technical or restrictive approach. However, the court said that the grounds for the application for a summons should identify the grounds for the enquiry sought. In particular, the Court said:
“If a person summoned believes compliance with the summonses would be oppressive or vexatious, that person can apply to the Court to have the summonses set aside or adjourned to a more convenient time.”
Such an application, the Court said, will usually be determined on a broader view of the issues in the case and a weighing of competing principles. It was pointed out that discharge or adjournment of a summons may be appropriate where there is litigation pending or likely to be instituted, and it is alleged the summons is being improperly sought as an aid to that litigation, and ordinary procedures of discovery, interrogation or subpoena would be fairer and more appropriate, or that it would be more just and equitable to defer the examination under s 81 of the Act until the particular piece of litigation has been disposed of.
In Hong Kong Bank v Murphy 8 ACSR 736, a decision of the Court of Appeal of the Supreme Court of New South Wales, Gleeson CJ said:
“While the Court will not permit a liquidator or other eligible person 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…on the other hand the possibility that a forensic advantage will be gained does not mean that the making of an order will not advance a purpose intended to be secured by the legislation.”
Gleeson CJ said, at 745:
“Admissions made in the course of "without prejudice" negotiations, even if they come to be known as a result of information that emerges from a s 597 examination, would not be admissible in evidence in the pending litigation. Furthermore, the circumstance that a particular question might relate to “without prejudice” communications might be relevant to whether a particular line of questioning is legitimate, and ought to be permitted by the registrar, or to a decision by the registrar under s 597(4) or s 597(5) as to whether the public ought to have access to an examination, or part of an examination.”
Hugh J Roberts Proprietary Limited (In Liq) (1970) 91 NSW(WN) 537 referred to by the Chief Justice in Hong Kong Bank (supra) is relevant as to the limits of a proposed examination. In Re Hugh J Roberts Pty Ltd (supra), Street J said at 542:
“For instance, 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 of the examinee from whom the information is being obtained.”
And later on the same page, his Honour said:
“At the same time it is not my intention to allow this examination to be used in any oppressive way. I do not think that the liquidator is entitled to have a "dress rehearsal of the cross-examination of the action", and I think that the Master, while allowing the liquidator to ask questions which would elucidate those matters of which I have just pointed out he is ignorant, should disallow any questions of a fishing nature or any questions which (not being of the class just mentioned by me) are merely a rehearsal of the crossexamination which may take place on the hearing of the suit.”
That quotation is from the words of Maughan AJ in Re Auto Import Co (Australia) Ltd (1924) 25 SRNSW at 55 to 56. Following that quotation Street J continued :
“I make one qualification to this statement. What exactly is meant by ‘questions of a fishing nature’ in a context such as a s 249 examination may be open to some doubt. I would not wish to associate myself with the proposition that questions of a fishing nature are to be disallowed. Indeed, it is questions of that very nature that appear to me to be legitimate under s 249, inasmuch as the liquidator is afforded this statutory aid to enable him to obtain information not otherwise available to him.”
Finkelstein J in Clark v Wood (1997) 149 ALR 38, recently observed:
“For the reason that mischief or hardship might result from a misuse of the power to compel and conduct an examination the courts have been at pains to point out that care should be exercised before ordering an examination and that vigilance must be observed by those overseeing an examination to ensure that no injustice occurs: see the cases cited in Karounos v Official Trustee (1988) 19 FCR 330 at 336; 80 ALR 626. Not only must injustice be guarded against but "irrelevant or fishing questions or [those that] have an indirect purpose not connected with the bankruptcy" must not be allowed: see Re Hodder; Ex parte Cougle (1965) 7 FLR 436 at 437 and the cases cited at 438. Indeed, as early as 1888 in Re Pennington; Ex parte Pennington 5 Mor 268 at 269 Lord Esher said: What I want the registrars to do is to do their duty and to stop counsel at once if the question is one which is clearly irrelevant and which ought not to be put; and if it is clear that the object of the question is to lead the witness to say something which he or she does not intend then to stop it and tell the witness not to answer.’ ”
So, also in Adler v Quintex Group Management Services Pty Ltd (in liq) (1996) 22 ACSR 446 at 449, where the Full Court said :
“In the nature of things liquidators when they are appointed labour under the particular disability of not knowing as much about the affairs of the company as former directors and others, and that they often cannot obtain reliable information about suspicious transactions. Generally, the only source available to them is the records of the company as former directors and others, and that they often cannot obtain reliable information about suspicious transactions.”
And later again -
“For all that, there may be some cases in which it can be seen that liquidators are acting improperly in seeking to examine someone under the provisions of the Corporations Law. Examinations under the statute are capable of being or becoming oppressive if their real purpose is simply to exert pressure by inflicting costs, or causing undue inconvenience or embarrassment to the defendant. There may also be other ways in which they can operate harshly. Conducting a dress rehearsal of cross examination may conceivably be another instance, although in practice it probably serves mainly to alert a witness to the questions he may expect to be asked at trial and so enable him to anticipate them.”
I turn now to the circumstances of the present application. The trustee, Mr Clout, says in paragraphs 37 and 38:
“37.I require, for the benefit of the creditors, to conduct further investigations as to the prospects of success of the proceeding, which investigations I believe can best be undertaken by publicly examining the individuals specified in this affidavit.
38.Further, it is my opinion that such examinations will assist me to recover, on behalf of the creditors, any amount properly due and owing to the estate by Clough and/or Placer Pacific.”
Notwithstanding those paragraphs which Mr Keane, Senior Counsel for the applicants on the motion, referred to as “the ritual incantations that one might expect in an application of the present sort”, when one has a regard to the actual evidence before me, it seems to me clear that, insofar as the summonses directed to William Harold Clough, Stuart Cunningham, Michael Wardale and Wayne Hartfiel are concerned, those summonses are not directed at seeking to obtain information relevant to the strength or reliability of evidence in relation to the Supreme Court proceedings. Nor do I accept that a possible basis for their examination relates to the capacity of Clough Engineering to satisfy any judgment that might be obtained. That truly seems to me to be a last minute suggestion sought to be relied upon to justify the summons and no question arises in the material prior to the submissions that there was any such concern.
I have had regard to the entirety of the evidence and to the submissions made by counsel, which have been helpful. In my opinion, the trustee's purpose here is a combined one. I think that a fair assessment of the purposes indicates that a dominant purpose by Mr Clout was to try to attract information by means of the public examination, or by the inconvenience and pressures caused by attending at such an examination, to attract information leading to a higher offer than the “without prejudice” offer of $130,000 which has already been made and rejected.
There is, the evidence discloses, a very real incentive for the trustee to attempt a settlement within a short time frame, and I think, truly, that the number of summonses and the identity of the persons to whom they were directed, was intended to achieve that dominant purpose. I think also there was in truth a subsidiary purpose, but very much a subsidiary purpose, which is to evaluate the strength of the case of Active Constructions Services or, more particularly, the defence of Clough Engineering in the principal proceedings, and that that purpose could be achieved by a public examination of those three persons who may be able to shed light on the factual circumstances in the litigation in the Supreme Court. Those persons are Schoenauer, Mitchell and Taylor.
While I suspect that the attempt publicly to examine them is not directed primarily to assess the strength of the evidence they might be able to give on the questions in issue in the Supreme Court, but has more of the flavour of the purpose directed to the other persons, it seems to me consistent with the authorities to be a legitimate purpose, and one which Mr Clout in the present circumstances might pursue in respect of the others. However, it seems to me a clear case where the summonses have been issued for an improper objective; in particular the summons directed to Mr Clough seems to be calculated to cause nothing but inconvenience, cost and embarrassment, and directed to what I hold to be the improper purpose of seeking to extract, by these forensic manoeuvrings, a higher offer in settlement of the action than has presently emerged from the respondents in the Supreme Court proceedings.
This is not a case where a trustee has not had the full co-operation of the debtors. This is not a case where he is in the invidious position of having to make a case without access to information. His position is not analogous to that of liquidator in winding up a corporation's affairs and in conducting litigation for the benefit of the corporation in circumstances where he does not have the co-operation of the directors and finds himself in a hostile situation with little or no information or assistance in relation to the affairs of the company.
In my opinion the evidence does not indicate how (except in the limited sense that I have referred to in respect of those three persons who may be able to shed light on the actual events at the core of the Supreme Court litigation) the exercise of the issuing of the summonses and the public examination to the others, will provide the trustee with information that is not available from the ordinary processes of discovery and subpoena, or from the debtors for whom he acts.
In my opinion there is a very significant disparity between the utility of the orders issued to the four persons that I have indicated, and the results that would be likely to be achieved by their public examination on the one hand, and the cost and inconvenience to them and to the Clough group on the other. Such an examination is likely to be time consuming and costly, and those costs would not be recoverable in the action. I am of the view that the examinations have been sought to bring commercial pressure to bear upon Clough Engineering to come up with a higher offer than what they have been prepared thus far to make.
In the circumstances it is important to note that Mr Clough has not said that the undertaking of the examinations will be necessary in order for him to decide whether to continue with the litigation. The public examination, at the highest for him, can be said simply to assess the extent of the defence raised by Clough Engineering. It seems to me that in the circumstances I should discharge the summonses directed to the four persons, William Harold Clough, Stuart Cunningham, Peter Jorss, and Wayne Hartfiel. For the reasons which I have indicated, I am not minded to discharge the summonses directed to those three persons who might be able to give evidence concerning the direct matters in issue in the Supreme Court proceedings, Messrs Schoenauer, Mitchell and Taylor.
In relation to costs, it seems to me that those who moved the motion have been substantially successful, and ordinarily a successful applicant is entitled to costs. In this particular case, the success has not been complete, and it seems to me that there is a basis on which the general rule might be departed from. I order that the applicants on the motion have three quarters of their costs, to be taxed if not agreed.
I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.
Associate:
Dated: 16/10/98
Counsel for the Applicant: Mr P D McMurdo QC with Mr K B Varley Solicitor for the Applicant: Barwicks Wisewoulds Counsel for the Respondent: Mr P A Keane QC with Mr L F Kelly Solicitor for the Respondent: Clayton Utz Date of Hearing: 16 October 1998 Date of Judgment: 16 October 1998
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