Re Excel Finance Corporation (Receiver and Manager Appointed); Worthley v Australian Securities Commission
[1993] FCA 154
•24 MARCH 1993
Re: EXCEL FINANCE CORPORATION LIMITED (RECEIVER AND MANAGER APPOINTED) and
JOHN FREDERICK WORTHLEY
And: RICHARD ANTHONY FOUNTAYNE ENGLAND and AUSTRALIAN SECURITIES COMMISSION
No. S G3040 of 1991 and 27 of 1992
FED No. 154
Number of pages - 68
Corporations - Subpoenas - Notice to Produce - Administrative Law
(1993) 10 ACSR 255
(1993) 113 ALR 543
(1993) 41 FCR 346
(1993) 29 ALD 844 (extract)
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)
CATCHWORDS
Corporations - Companies - receivers and managers - order for examination of a person under s597 of Corporations Law - right of a receiver and manager to apply for such an order - whether a conflict of interest arises.
Subpoenas - Breadth of and delay in applying for issue - whether process available to an intended examinee under s597
Notice to Produce - whether process available to an intended examinee under s597
Administrative Law - corporations - application for an order or review - decision of Australian Securities Commission authorizing a receiver and manager to apply to the Court for an order to examine auditor of a company - reviewable decision - intended examinee an "aggrieved person" - extreme delay in making application.
Corporations Law ss82A, 232, 422, 423, 533, 597.
Administrative Decisions (Judicial Review) Act 1977 (Cth) ss3, 5, 11
Federal Court Rules O71 r81
Cheney v Spooner (1928) 41 CLR 532
Re Stirling Henry Ltd. (1971-1976) ACLC 40-036
In re Gold Company (1879) 12 Ch D 77
The Commissioner for Railways v Small (1938) 38 SR NSW 564
Finnie v Dalglish (1982) 1 NSWLR 400
Lucas Industries Ltd v Hewitt (1987) 18 ALR 555
R. v White (1976) 13 SASR 276
Hunt v Wark (1985) 40 SASR 489
Visbord v The Federal Commissioner of Taxation (1943) 68 CLR 354
Re B. Johnson and Co (Builders) Ltd (1955) Ch 634
Expo International Pty. Ltd. (Receivers and Managers Appointed) (In Liq.) v Chant (1979) 2 NSWLR 821
Re BPTC Ltd. (In Liq.) (1992) 10 ACLC 877
Hong Kong Bank of Australia Ltd. v Murphy (1992) 10 ACLC 1573.
Re Hugh J. Roberts Pty. Ltd. (In Liq.) Companies Act (1970) 91 WN (NSW) 537.
Hamilton v Oades (1989) 166 CLR 486
Re Spedley Securities Ltd. (In Liq.); Spedley Securities Ltd.(In Liq.) v Bank of New Zealand (1990) 3 ACSR 366
Re Spiraflite Ltd. (1979) 1 WLR 1096
Re Imperial Continental Water Corporation (1886) 33 Ch D 314
Re National Safety Council of Australia Victorian Division (1989) 15 ACLR 355
Re Equiticorp Finance Ltd; Ex parte Brock (1992) 10 ACLC 382
Re Alan Fitzgerald Pty. Ltd. (In Liq.); Starkey v Schnieder (1989) 15 ACLR 752
In Re British and Commonwealth Holdings PLC (Nos.1 and 2) (1992) Ch 342
Spedley Securities Ltd. (In Liq.) v Bond Corporation Holdings Ltd. (1990) 1 ACSR 726
Lombard Nash International Pty. Ltd. v Berentsen (1990) 3 ASCR 343
Perry v Director of Public Prosecutions (1985) 6 FCR 578
Letts v The Commonwealth (1985) 8 FCR 585
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, Edelsten v Health Insurance Commission (1990) 27 FCR 56
Mercantile Mutual Life Insurance Co. Ltd. v Australian
Securities Commission (unreported: Full Court judgment delivered 26 February 1993)
Duff v Freijah (1982) 62 FLR 280
Hunter Valley Developments Pty. Ltd. v Cohen (1984) 3 FCR 344
Australian Foremen Stevedores Association v Crone (1989) 20 FCR 377
Newby v Moodie (1988) 83 ALR 523.
J. O'Donovan Company Receivers and Managers, (2nd ed., 1992) at 4011
H.A.J. Ford, Principles of Company Law (5th ed., 1990) p 341 Palmer's Company Law Vol.2 para 14.116
R. Baxt: Auditors and Accountants Their Role, Liabilities and Duties: (3rd ed., 1987) p 10.
HEARING
ADELAIDE, 28 and 29 May, 15 and 27 July, 19 November, 9 December 1992 and 8 February 1993
#DATE 24:3:1993
Counsel for the Applicant: Mr T.A. Gray QC, Mr R.J. Whitington
and Mr J.P. Keen
Solicitors for the Applicant: Messrs Finlaysons
Counsel for the Receiver
Manager: Mr B.T. Lander QC and Mr J.B. Jarvis
Solicitors for the Receiver
Manager: Messrs Kelly and Co
Counsel for the Australian
Securities Commission: Mr R.W. Evans and Mr J.J. O'Halloran
ORDER
No. S G3040 of 1991
1. The notice of motion filed herein by John Frederick Worthley on 6
May 1992 be dismissed.
2. Each of the subpoenas duces tecum addressed to Richard Anthony
Fountayne England, Executor Trustee Australia Limited and Australian Securities Commission be set aside.
3. The notice of motion filed herein by John Frederick Worthley on 3
June 1992 be dismissed.
4. That the said John Frederick Worthley pay the costs of Richard
Anthony Fountayne England, Executor Trustee Australia Limited and Australian Securities Commission which costs are to be taxed in default of agreement.
No. S G27 of 1992
1. That the application be dismissed.
2. That the applicant pay the respondent's costs which costs are to
be taxed in default of agreement.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
Introduction: Events to December 1991
O'LOUGHLIN J. On 15 February 1991, Richard Anthony Fountayne England, a chartered accountant, was appointed receiver and manager of Excel Finance Corporation Ltd. ("Excel"). His appointment was effected by Executor Trustee Australia Limited ("Executor Trustee") in its capacity as trustee for certain debenture holders (a syndicate of Banks) pursuant to the terms of a Debenture Trust Deed dated 19 January 1987.
In September 1991, Mr. England sought orders of this Court, pursuant to subs597(3) of the Corporations Law, directing nominated persons, two of whom were directors of Excel and one of whom was John Frederick Worthley, to attend before the Court to be examined "on any matters relating to the management, administration and otherwise in relation to the affairs" of Excel. It was the case for Mr. England that, on 28 May 1991, the Australian Securities Commission ("the ASC") had authorised him to make an application under s597 in relation to Excel and that, by letter dated 12 September 1991 to his solicitors, Messrs Kelly and Co, the ASC had confirmed that it had no objection to him making such an application for the examination of Mr. Worthley.
In his affidavit, sworn on 20 September 1991 in support of the orders that he sought, Mr. England explained that the auditors of Excel had been KPMG Peat Marwick and its predecessor firm, Peat Marwick Hungerfords, and that the partner in charge of the audit during the relevant periods had been Mr. Worthley. I was told from the bar table that Peat Marwick Hungerfords had been appointed auditors sometime in the 1985-1986 financial year. In paragraph 2 of his affidavit, Mr. England deposed that he and his staff had been investigating "the adequacy of the audit reports issued on the accounts of Excel" for the 1989 and 1990 financial year and the six months ending on 31 December 1989.
On 8 October 1991, on an ex parte application, a Registrar of this Court made the necessary orders that Mr. Worthley and the two directors attend for examination and that Mr. Worthley produce certain records relating to the affairs of Excel. Although the examinations of the two directors have, as I understand, been completed, the proposed examination of Mr. Worthley has been the subject of numerous attendances in Court. For this reason, and having regard to the way in which this litigation has developed, it is desirable to set out, in full, the terms of the fourth paragraph of the Registrar's order:
"4. JOHN FREDERICK WORTHLEY of care of KPMG Peat Marwick of 97 Pirie Street, Adelaide in the State of South Australia attend before the Federal Court of Australia at a time and place specified in a notice of examination to be issued by the applicant pursuant to Order 71 Rule 81(5) of the Corporations Rules and from day to day until the conclusion of his examination, to be examined on oath or affirmation on any matters relating to the management, administration and otherwise in relation to the affairs of the company, and produce all books, records and other documents in his possession or under his control and/or in the possession or under the control of KPMG Peat Marwick, Chartered Accountants of 97 Pirie Street, Adelaide aforesaid relating to the management, administration and otherwise in relation to the affairs of the company including, but without limiting the generality of the foregoing, the following:- 4.1 All plans of audits of the company; 4.2 All working papers prepared in connection with audits of the company;
4.3 All advice given and recommendations made to officers or employees of the company in connection with matters arising out of audits of the company."
On 29 November 1991, notice that his examination would commence on 16 December at 10.30 a.m. was served on Mr. Worthley. On 5 December 1991, he moved on motion seeking an order that the earlier order of 8 October 1991 providing for his examination be partially discharged. At that stage Mr. Worthley raised no complaint about his being examined on oath; his complaint was directed to the nature and extent of the documents that he was required to produce. The order that was sought in his notice of motion was:
"That the Order of the Court of 8 October 1991 in this action requiring John Frederick Worthley be examined pursuant to section 597 of the Corporations Law be discharged to the extent that it requires the said examinee to produce to the Court the books and records referred to in sub-paragraphs 4.1 and 4.2 of the Order on the grounds that the Court has no power to order production of the said books and records or in the alternative that it is oppressive or vexatious."
Argument on Mr. Worthley's notice of motion came on for hearing on 12 December 1991 when the matter was part-heard and adjourned for further argument to 28 January 1992. At that hearing, Mr. Worthley was represented by Queens Counsel and his solicitors were Messrs Finlaysons. On 13 December 1991, a material change in direction occurred; on that date, Messrs Finlaysons wrote Messrs Kelly and Co advising them that Mr. Worthley did not intend to proceed with his application to discharge the order for examination and that he was prepared to produce his firm's audit working papers.
Upon the matter being relisted, no order was made on Mr. Worthley's notice of motion save that he was ordered to pay the costs of Mr. England and of the ASC. The Court was also informed that the parties had earlier agreed between themselves that Mr. Worthley's examination would be postponed pending a determination of the orders sought in his notice of motion and that, in view of the change in circumstances, a fresh date would be arranged for the examination. That examination commenced on 20 December 1991 when Mr. Worthley attended before a Registrar of this Court, was sworn and delivered up documents; his examination was then adjourned sine die.
Particulars of the litigation commenced in May 1992.
1. The motion to set aside the order for examination.
8. Among the papers on the Court file is a letter dated 25 March 1992 from Messrs Kelly and Co to the Registrar. It states:
"We have today advised Mr. Worthley's solicitors, namely Finlaysons, of our intention to relist the examination of their client on 7th May 1992."
On the morning of 6 May 1992, Mr. Worthley filed a second notice of motion. He moved the Court for an order:
"That the Order of the Court of 8 October 1991 in this action requiring John Frederick Worthley be examined pursuant to Section 597 of the Corporations Law be discharged on the ground that the Order was obtained for an improper purpose and is in contempt of Court."
As the examination of Mr. Worthley was due to resume on the next day, this notice of motion was made specially returnable for 3.30 p.m. on 6 May. When the matter came on for hearing an order was made, once again, postponing the examination of Mr. Worthley. Further enabling orders were made with respect to the filing of affidavits and the matter was set down for argument later in the month. At this stage, Messrs Finlaysons were still acting as solicitors for Mr. Worthley but Mr. T.A. Gray QC had, by then, been retained as senior counsel.
In his affidavit sworn 6 May 1992 in support of the order sought in the notice of motion, Mr. J.P. Keen, the solicitor from Messrs Finlaysons who has the conduct of the matter on behalf of Mr. Worthley, referred to the contents of Mr. England's affidavit of 20 September 1991, saying of it in paragraph 9:
"It is apparent from the applicant's affidavit that the primary purpose of the examination of Worthley is to obtain evidence and investigate the possibility of an action by the Trustee against KPMG Peat Marwick. This is an improper purpose for such an examination. Examinations under Section 597 of the Corporations Law should be conducted for the purpose of the company (Excel) taking actions against other parties. It appears that the applicant has a conflict of interest and appears to be investigating the affairs of Excel on behalf of the Trustee and not Excel." (Emphasis added)
The "possibility" to which Mr. Keen referred has become a reality. Executor Trustee has indeed instituted proceedings against the auditors in the Supreme Court of South Australia. Mr. Keen went on to explain in his affidavit that his firm had only recently retained the services of Mr. Gray and that it was upon his advice "that the applicant may have conflict of interest that Worthley has issued a notice of motion to discharge the order for examination". Mr. Keen swore a further affidavit on 12 May supplementing the information contained in his first affidavit of 6 May. He explained that a brief had not been delivered to Mr. Gray until 27 April and that at a conference on the following day Mr. Gray raised the problem of Mr. England "having a conflict of interest in conducting the examination".
Mr. Keen raised, for the first time, a further matter in his second affidavit with respect to Mr. England's professional history as a chartered accountant. Mr. England is presently a partner in the firm of Ernst and Young. That firm came into existence in July 1989 as a result of the merger of Ernst and Whinney and Arthur Young. At the time of the amalgamation, Mr. England was a partner of Ernst and Whinney and, I infer, had been a partner since March 1988. From July 1982 until March 1988 Mr. England had been a partner in the firms of Peat Marwick Mitchell and Peat Marwick Hungerfords, both predecessor firms of KPMG Peat Marwick. According to Mr. Keen, Ernst and Whinney were, until 30 June 1985 the auditors of Excel and, I infer, Peat Marwick Hungerford were appointed auditors in their place. None of these factual assertions has been challenged and I accept that they represent an accurate summary of Mr. England's professional career. At this stage, two neutral observations may be made. The first is that at one stage of his career (until July 1989) Mr. England was a partner in the firm of chartered accountants (Ernst and Whinney) who had, prior to him joining the partnership, been the auditors of Excel. The second observation is that Mr. England was, for about six years until March 1988, a partner in the firms which were the auditors of Excel. These factors are to be balanced against Mr. England's proposal to investigate the activities of KPMG Peat Marwick as auditors of Excel with effect as from 1 July 1988.
The issue of subpoenas duces tecum
14. The next matter of importance to refer to in this narration is the service by Mr. Worthley of subpoenas duces tecum on Mr. England, the ASC and Executor Trustee, calling for production of correspondence, notes, memoranda and other documents between Mr. England, Excel, the ASC, Executor Trustee and others concerning Mr. England's "application to and purported authorisation of the ASC to make an application under section 597 of the Corporations Law for the examination of John Frederick Worthley..." The period covered by the subpoenas commenced on 15 February 1991, the date of Mr. England's appointment as receiver and manager, and extended to the dates of the issue of the subpoenas (19 and 20 May 1992). Each of them, Mr. England, the ASC and Executor Trustee responded in the period 20 to 26 May by filing notices of motion seeking orders that the respective subpoenas be set aside. In the alternative, the ASC sought an order that two identified documents be exempted from production on the ground of privilege.The notice to produce
15. The third matter which calls for resolution is in respect of a notice to produce dated 21 May 1992 that Mr. Worthley served on Mr. England. In his affidavit that was sworn on 20 September 1991 in support of his application for an order for examination under s597 of the Corporations Law, Mr. England deposed in paragraph 4:
"4. I have made application to the Australian Securities Commission pursuant to Section 597 of the Corporations Law to be authorised to make an application under that section for the examination of John Frederick Worthley."
The second purported authorisation, dated 12 September 1991, from the ASC to Mr. England was, in fact, a letter from the ASC to Messrs Kelly and Co. That letter, which was an exhibit to Mr. England's affidavit, commenced with the words "I acknowledge receipt of your letter dated 10th September 1991...".
The notice to produce calls on Mr. England to produce the application that is referred to in paragraph 4 of his affidavit and the letter of 10 September 1991 from Kelly and Co to the ASC. By letter dated 2 June 1992, Kelly and Co responded on behalf of Mr. England to the notice to produce claiming privilege from production on the grounds of public interest. They also claimed that O15 of the Rules of Court does not apply to copy documents and that Mr. England only had copies of these documents in his possession. Their final claim was that, in any event, O15 is not an avenue available to an examinee such as Mr. Worthley in respect of an order for examination under s597 of the Corporations Law. Mr. Worthley, having regard to the provisions of O15 r10(2)(a) of the Rules of Court, has moved on motion for an order for inspection. That sub-rule states that where a notice to produce a document is served on a party he shall, within 4 days thereafter give notice:
"(a) appointing a time within 7 days after service of the notice under this subrule when, and a place where, the document may be inspected."
The ADJR proceedings
18. On 22 May 1992, Mr. Worthley initiated separate proceedings against the ASC seeking relief under the provisions of the Administrative Decisions (Judicial Review) Act 1977 Cth. ("the ADJR Act"). It was expressed to be an application to review three nominated decisions of the ASC. The first was identified as a decision made on 28 May 1991 to authorise Mr. England to make an application under s597 of the Corporations Law in relation to Excel. The second was said to be a decision that the ASC made on 12 September 1991 not to object to Mr. England making an application for examination of Mr. Worthley. The third decision, allegedly made on 15 May 1992, was said to be the failure of the ASC to reverse its two earlier decisions.The first and second alleged decisions were respectively, the authority of the ASC dated 28 May 1991 and its letter to Mr. England's solicitors of 12 September 1991 to which references have earlier been made. The third of the alleged decisions was identified by Mr. Worthley in his affidavit, sworn on 22 May 1992 and filed in the ADJR proceedings, as a letter from the ASC to Messrs Finlaysons advising that the ASC did not "propose to withdraw its authorization to the Receiver in this matter, to conduct the public examination in question". The ASC has filed a notice of objection to competency in the ADJR proceedings claiming in respect of all three alleged decisions that Mr. Worthley is not a person "who is aggrieved" by the decision within the meaning of s5 of the ADJR Act and that the decision was not a "decision" within the meaning of that Act. In respect of the second and third alleged decisions a further ground of objection was that neither decision was a "decision to which the Act applies" within the meaning of s5 of the Act in that it was not "made... under an enactment" within the meaning of s3 of the ADJR Act.
The Events of May 1992 to February 1993
20. Before proceeding to consider the many issues that have surfaced during the course of these hearings, it is necessary to supply some further background material. Submissions with respect to the application to set aside the order for Mr. Worthley's examination commenced on 28 May 1992. Mr. Whitington, at that stage, led for Mr. Worthley and presented arguments on Mr. England's alleged conflict of interest based upon the possibility that his appointor, Executor Trustee, might institute proceedings against the auditors. Coincidentally, and unknown to all counsel, Executor Trustee had, that day, initiated such proceedings in the Supreme Court. This information came to the attention of Mr. Lander QC, counsel for Mr. England, and he informed the Court accordingly on 29 May 1992. Thereafter, argument continued on various days until judgment was reserved on the last of the outstanding issues on 27 July 1992.
On 6 October and again on 26 November 1992, Executor Trustee filed a first and then a second amended statement of claim in the Supreme Court. Upon the basis that the factual assertions that were contained in the amended pleadings amounted to "new evidence", Mr. Gray who then led for Mr. Worthley, sought and obtained leave to have the matter re-opened so that further argument could be presented. Those arguments were presented on 22 December 1992 and 8 February 1993. In addressing the issues that must be resolved I propose to merge the respective arguments of each party without regard to when they were submitted and I will only have regard to the actuality that proceedings have been instituted by Executor Trustee against the auditors.
The motions to set aside the subpoenas duces tecum directed to Mr. England, the ASC and Executor Trustee
22. Although this was the second matter in the chronology it, was argued first and therefore, will be dealt with first. The subpoena that was directed to Mr. England required production of "the documents and things described in the schedule...". The schedule listed the following documents:
"1. Correspondence between yourself, including any person acting on your behalf, and the Australian Securities Commission ("ASC") or any other person concerning the application to and purported authorisation of the ASC to make an application under Section 597 of the Corporations Law for the examination of John Frederick Worthley, from 15 February 1991 to the date hereof.
2. Notes, memoranda and all other documents recording discussions between yourself, including any person acting on your behalf, and the ASC or any other person concerning the application and purported authorisation referred to in paragraph 1.
3. All documents evidencing or recording the basis for the application and purported authorisation referred to in paragraph 1."
It is not necessary to set out the material parts of the subpoenas that were addressed to the ASC and to Executor Trustee. Although there were some differences in language, they were essentially the same.
A "subpoena for production" is defined in O27 r1 as meaning:
"... an order in writing requiring the person named to attend as directed by the order and produce a document or thing for the purpose of evidence."
It is a writ which is issued by the Court in a "proceeding" (O27 r2) on the request of a "party" (O27 r6).
An examination under s597 is inquisitorial; it is not part of the usual adversary system and hence one does not think of an intended examinee as a person giving evidence in conventional civil litigation. The powers that are contained in the section do not limit inquiries to persons who may be capable of giving information in relation to the affairs of the corporation for it is expressly stated that a person who "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; ..." may also be examined. There is no doubt that a person can be subjected to examination under s597 notwithstanding that the examining party may have a belief that the examinee has some civil or criminal responsibility for his earlier conduct. However, it is quite clear from the decision of the High Court in Cheney v Spooner (1928) 41 CLR 532 that the examination process under s597 is to be regarded as the giving of evidence in a civil proceeding. That case dealt with a summons that had been issued under the provisions of s123 of the Companies Act 1899 (NSW) requiring a person to attend and to be examined. Service of the summons had allegedly been effected under subs16(1) of the Service and Execution of Process Act 1901 (Cth); so far as relevant that subsection provided that:
"When a... summons has been issued by any Court... in any State... requiring any person to appear and give evidence or to produce books or documents, in any civil or criminal trial or proceeding, such... summons may... be served on such person in any other State."
In their joint judgment Isaacs and Gavan Duffy JJ. said that the word "proceeding" was used "broadly" in s16 of the Service and Execution of Process Act and that it indicated "some method permitted by law for moving a Court or judicial officer to some authorized act, or some act of the Court or judicial officer." (536-537). They went on to say that the application for an order for an examination was "a distinct judicial proceeding" and that the decision in In re Appleton, French and Scrafton Ltd (1905) 1 Ch 749 was "a clear authority that the examination takes place in a 'proceeding'." (p 537) In his separate judgment Starke J. held that what was a civil proceeding included "... any application by a suitor to a Court in its civil jurisdiction for its intervention or action." (pp 538-539)
The purpose of an examination under s597 is to bring the examinee before the Court without forewarning him of the subjects upon which he will be examined. There is a long and respectable history tracing back to the last century that shows that liquidators have obtained orders for examinations on ex parte applications based on unverified written statements. In Re Stirling Henry Ltd. (1971-1976) ACLC 40-036 Street J. (as he then was) quoted the following passages from the judgment of Jessell M.R. in In re Gold Company (1879) 12 Ch D 77 at 82-84 and commented that (with one exception of no consequence) the NSW practice was the same as that in England. The Master of the Rolls had said at pp 82-83:
"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."
and had added at p 84:
"... 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 which he leaves with the Chief Clerk, who thereupon issues an order, and the written statement cannot be got at by anybody, whereas an affidavit can."
It is true that the examining process is an invasion upon the freedom of the proposed examinee but the function of the Court, in making an order for an examination:
"... is not a function that involves a determination of rights in the sense that court orders customarily do in proceedings inter partes:" (Stirling Henry Ltd at p 27,305)
In my opinion there are strong arguments to support a proposition that, in general, the subpoena process would not be available to an examinee who is seeking to set aside an order for examination. Although an examinee may bring an application before the Court to have the order for his examination set aside, that would not mean, in the ordinary course, that the liquidator (or other examining party) would have to "justify the making of the order": (Stirling Henry Ltd. at p27,304). However, I will assume that the subpoena process is potentially available to an examinee, such as Mr. Worthley, for the purpose of considering the arguments that were submitted on behalf of Mr. England, the ASC and Executor Trustee, that the present subpoenas should be struck down on the ground that they were oppressive, and, additionally, on the ground that they were an abuse of process.
Mr. Lander, counsel for Mr. England, first argued that the subpoena that was directed to Mr. England was, on its face, oppressive and an abuse of process because it fished for documents, because it sought to obtain discovery of documents in circumstances where discovery ought not be available, because it sought documents that would be protected by legal professional privilege and finally because it was too wide. It was for these reasons that he submitted that the subpooena should be set aside. He also argued a second and broader proposition that the subpoena, having regard to the circumstances appertaining to this matter, and in particular, the conduct of Mr. Worthley in issuing these subpoenas at such a late stage, was, itself, an abuse of the Court's process warranting an order setting them aside. Mr. O'Halloran and later Mr. Evans, counsel for the ASC and Mr. Blue, counsel for Executor Trustee, adopted Mr. Lander's arguments. Mr. Whitington and Mr. Keen presented arguments on behalf of Mr. Worthley in support of the returns of the subpoenas.
The classical treatment of the law dealing with subpoenas duces tecum is contained in the judgment of Jordan C.J., (with whom Davidson and Owen JJ. agreed) in The Commissioner for Railways v Small (1938) 38 SR NSW 564 at 573-575. As recently as last year this judgment was described by Byrne J. as "a convenient and authoritative starting point": Roux v Australian Broadcasting Commission (1992) VR 577 at 595: (see also Gilligan v Nationwide News Pty. Ltd. (1990) 101 FLR 139 at 146; Finch v Grieve (1991) 22 NSWLR 578 at 598; Arhill Pty. Ltd. v General Terminal Co Pty. Ltd. (1991) 23 NSWLR 545 at 557 as examples of recent cases that acknowledge the authority of this decision). As the learned Chief Justice explained, whether the subpoena is addressed to a stranger (p 573) or to a party (p 574), it is necessary that it state with reasonable particularity the documents that are to be produced. It is not a legitimate use of the writ of subpoena to use it as a substitute for an application for discovery of documents. In addition, his Honour emphasised that the subpoena is not to be used for the purpose of "fishing" which he described as "endeavouring, not to obtain evidence to support his case, but to discover whether he has a case at all". (p 575)
In Small's case the subpoena had sought five categories of documents. The first related to those documents that had already been produced and of them the Chief Justice said that no exception could be taken (p 575). The remaining four categories were very wide, commencing with a request for records, papers etc relating to the installation of automatic or self-closing safety doors on electric trains in NSW "or any other places" and concluding with a request for all documents etc relating directly or indirectly to "complaints about the running and control of electric trains". In respect of them the Chief Justice said at p 575:
"... but it is evident, having regard to the principles which have just been examined, that those marked (2) to (5) inclusive are quite improper, and that it was a serious abuse of the process of the Court that the issue of a subpoena in this form should have been procured."
In Finnie v Dalglish (1982) 1 NSWLR 400 Rath J. was of the view that a subpoena would always be oppressive if it required production of documents described as "relating to a matter of fact that is capable of being an issue in the proceedings". One of the subpoenas that had been challenged was directed to the plaintiff (who was seeking a declaration as to the validity of a mortgage). It called for the production of "all documents, correspondence, memoranda, files, letters, instructions, notes, reports, minute books, share registers, bank statements, cheque butts, accounts relating to" a variety of nominated subject matters including certain mortgages. A second subpoena, which was directed to the plaintiff's solicitors, sought a similar range of documents "in respect of transactions for finance arrangements relating to the operation of a new and used car dealership" in certain places by certain named people and companies.
In the course of concluding that these subpoenas should be set aside Rath J. said at p 407:
"The central question is whether these subpoenas are oppressive in the sense that they place on the persons to whom they are addressed an obligation to form a judgment as to which of their documents relate to issues between the parties. In substance each subpoena requires the person to whom it is addressed to form a judgment as to the relevance of his papers to a subject matter. The subject matter is not stated in terms of an issue between the parties, and indeed there are presently no issues joined between the parties except in the broadest and most imprecise terms. On the authorities I think it is apparent that a subpoena is oppressive as requiring discovery when it requires the person to whom it is addressed to produce documents described as relating to a matter of fact that is capable of being an issue in the proceedings. A subpoena requiring such production is as oppressive upon the person to whom it is addressed, whether a stranger or a party, as a subpoena which describes the documents in terms of a defined issue in the proceedings. The subpoena in Small's case required the production, inter alia, of (1) all documents, papers, reports and correspondence relating directly or indirectly to falls from electric trains (2) all documents, papers, reports and correspondence relating directly or indirectly to complaints about the running and control of electric trains. It was said by Jordan C.J. (at p 575) that these requirements (1) and (2) were 'quite improper'."
Care must be taken not to give too literal an interpretation to the language in this passage. Common sense must prevail. As Smithers J. (with whom Bowen C.J. and Nimmo J. agreed) said in Lucas Industries Ltd v Hewitt (1987) 18 ALR 555 at 571:
"Also it is required of a person to whom a subpoena is directed that he will read it sensibly and with reference to the circumstances as known to him."
In R. v White (1976) 13 SASR 276 the Full Court of the Supreme Court of South Australia was required to consider (as a ground of appeal against the appellant's conviction of a charge of housebreaking and larceny) the refusal of the trial Judge to compel the production of a police record book. The appellant had sought to establish at his trial that certain events had happened when he was taken to the police cells. The record book included particulars of the names of other prisoners who were in the cells at the relevant time. The purpose of the appellant in issuing the subpoena was to identify those persons so that they might be interviewed in an effort to obtain corroboration of his story. After referring to Small's case with approval, the Full Court, in a joint judgment, went on to say:
"The book, production of which is required by the subpoena, could not be given in evidence, could not be used to refresh the memory of a witness, and could not be used as the basis for cross-examination. It was not itself relevant to any issue at the trial nor could it be used to assist in eliciting evidence which was relevant to any issue at the trial. Its only function would be to serve as a source of leads for the appellant's solicitors by means of which they hoped to find some witness or witnesses who might be able to give relevant evidence. This is not a legitimate use of the subpoena duces tecum and we consider that the trial Judge was correct, on this ground alone, in refusing to compel production of the book." (pp 281-282)
A more recent authority on the subject of subpoenas is the decision of the Full Court of the Supreme Court of South Australia in Hunt v Wark (1985) 40 SASR 489. In that case a subpoena had been directed to "The Commissioner of Police" requiring production of documents pertaining to the recruitment and the use of agents provocateurs. The appellants, who were the defendants named in an information, contended in argument that certain evidence against them may have been obtained by entrapment. The documents that were sought under the subpoena were sought for the purpose of assisting the appellants in establishing a ground that may have lead to the trial Judge exercising his discretion to reject otherwise admissible evidence. King C.J., with whom White and Millhouse JJ. agreed, was clear in his view that the material that had been placed before the Court was:
"... incapable of raising any serious issue of impropriety in relation to entrapment or the use of agent provocateur." (p 493)
The learned Chief Justice then went on to add:
"A summons to witness to produce documents cannot be used for purposes of mere 'fishing'. There must be some reason to suppose that the documents sought will be capable of being used as evidence." (p 493)
and
"The subpoena process may not be used as a means of obtaining discovery of documents from the Commissioner of Police or as a means of obtaining information in the hope that it may lead to the ascertainment of witnesses or evidentiary documents." (p 493-494).
This is the context in which, according to Mr. Lander's argument, the efficacy of the subpoena to Mr. England and the other subpoenas should be tested.
In line with modern practice, (see O71 r81(4)) the ex parte application for the order to examine Mr. Worthley was supported by affidavit, viz, Mr. England's affidavit of 20 September 1991. That affidavit was subsequently sealed and its contents remained unknown to Mr. Worthley and his advisers until 12 December 1991 - the time of Mr. Worthley's first challenge to the order for his examination. On that date, Mr. England agreed, without compulsion, to the supply of a copy of his affidavit to Mr. Worthley. This fact was relied on heavily during argument about the bona fides of Mr. Worthley's application in May 1992 when he raised, for the first time, concerns about Mr. England having a conflict of interest. Mr. Lander said that Mr. Worthley's only disclosed source of information and source for concern was Mr. England's affidavit and a copy of that had been in his hands and his legal advisers hands for five months.
Mr. Lander further complained about the oppressive breadth of the subpoena. It was submitted that Mr. Worthley not only wanted all the documents upon which Mr. England relied in making his decision that Mr. Worthley should be examined but also that he wished to examine the memoranda that Mr. England may have received from his expert advisers. It was claimed that the words "any person acting on your behalf" and "any other person" appearing in the subpoena would mean that Mr. England would have to produce documents passing between him and his advisers and agents as well as documents passing between his advisers and agents. According to Mr. Lander, the issue of the subpoena was merely a devise, a fishing expedition, to obtain access to the documents upon which Mr. England relied or may have relied (including the advice of experts) so that Mr. Worthley could achieve the impermissible object of being forewarned about the likely subjects of his examination. It was the breadth of inquiry (and the extent of disclosure that it required) that led to Mr. Lander's submission that the subpoena was, on its face, oppressive and an abuse of the process of the Court.
The second argument to the effect that, in the circumstances as they existed, it was an abuse by Mr. Worthley of the process of the Court to cause the Court to issue the three subpoenas requires consideration of further factual material and the Rules of Court. I will first summarise the relevant Rules. Order 71 r81 deals with examinations of persons under s597 of the Corporations Law. Sub-rule 81(5) requires that an intended examinee be served, at least 5 days before the date set for his examination, with an office copy of the relevant order and other nominated documents. In fact Mr. Worthley was served on 29 November 1991, about 17 days in advance. Sub-rule 81(7) is expressly directed to the subject of challenging the order for examination. It provides:
"(7) A person served with an order under this rule may apply to discharge that order by filing, within 3 days of service of the order:
(a) a notice of motion in the proceedings in which the order was granted seeking that the order be discharged; and
(b) an affidavit setting out the material facts and matters relied on by the person seeking to discharge the order for the examination."
Mr. Lander asserted three main points. First, no application was made within the three day period referred to in subr81(7). Secondly, when an application was made by notice of motion dated 5 December 1991 it was not to have the order for personal examination discharged but to be relieved from the burden of producing certain documents, and in any event, Mr. Worthley did not proceed with that application. Thirdly, Messrs Kelly and Co, (the solicitors for Mr. England) having advised Messrs Finlaysons (the solicitors for Mr. Worthley) by letter dated 25 March 1992 that Mr. Worthley's examination had been listed to resume on 7 May 1992, the current notice of motion seeking a discharge of the order was not made until 6 May 1992 - a further delay of about six weeks. At that stage, five months had elapsed since the events of December 1991 and, even then, the material facts and matters set out in Mr. Keen's supporting affidavit of 6 May 1992 were limited to those facts and matters that were contained in Mr. England's affidavit (a copy of which had been in the hands of Mr. Worthley and his advisers since 12 December 1991). In such circumstances, it was submitted by Mr. Lander, that it was an abuse to cause the issue of subpoenas in May 1992, particularly having regard to the consequential delays in the examination of Mr. Worthley.
Mr. Lander referred to Mr. Keen's affidavit of 6 May 1992, emphasising, as is the case, that a fair reading of the affidavit supports his assertion that no new information had apparently come into Mr. Worthley's possession between December 1991 and 6 May 1992; he had relied only on the information in Mr. England's affidavit as is apparent from the contents of paragraph 9 of that affidavit. Further information about the involvement of Mr. Gray in the matter is to be found in Mr. Keen's later affidavit of 12 May 1992. It discloses that a brief was delivered to Mr. Gray on 28 April 1992 but it does not disclose the reason for the lack of activity from 25 March (or thereabouts) when Messrs Finlaysons would have learnt of the date of the resumed examination nor the shorter delay from 28 April to 6 May 1992.
A curious aspect of Mr. Keen's affidavit of 12 May 1992 is that no explanation is given for recounting therein the professional history of Mr. England. There are statements of fact nominating the names of firms and the dates when Mr. England was a partner in one or other of them but it is not asserted that, as a consequence, there is, or might be, a conflict of interest. One is left to speculate about the reason for the inclusion of this information. Is it suggested that Mr. England is in conflict because he was a partner in a firm which was once the auditor of Excel? If so, why? Or is it suggested that he is in conflict because he was once a partner in Mr. Worthley's firm? Again, one is left to ask: why?
I return, however, to paragraph 9 of Mr. Keen's affidavit of 6 May and his assertion that "it is apparent from (Mr. England's) affidavit that the primary purpose of the examination of Worthley is to obtain evidence and investigate the possibility of an action by the Trustee against KPMG Peat Marwick". That claim had been preceded by three references to Mr. England's affidavit, namely, to paragraph 7, paragraph 19 and sub-paragraph 20(e).
The first of these, paragraph 7, referred to provisions of the Debenture Trust Deed under which Excel was required to have its auditors report regularly to Executor Trustee. In the report, the auditors had to state that they had not become aware of any matter which in their opinion was likely to be prejudicial to the interests of stockholders, or, if such were not the case, the auditors were required to report accordingly. Paragraph 19 referred to an advice from an officer of Executor Trustee to Mr. England that the auditors had not advised the Trustee of the matters mentioned in three letters from the auditors to Excel. Those letters were annexed to the affidavit as exhibits and referred to certain deficiencies and inadequacies. The last of the matters, sub-paragraph 20(e), referred to an amount of $2.5m, earlier described in sub-paragraph 20(a) as "commission, administration and procurement fee on the sale of a property...." This item of alleged income had been included in Excel's accounts for the year ended 30 June 1989 and the six months to 31 December 1989 but there was an entry in the minutes of a Directors' meeting held on 20 October 1989 to the effect that the negotiations for the sale of the property "had broken down". Mr. England concluded sub-paragraph 20(e) by referring to this and to other matters in his affidavit (to which Mr. Keen did not refer in his affidavit) saying: "there would have been a resulting breach of the (Debenture Trust) Deed as at 30 June 1989".
Those other matters to which Mr. Keen had made no reference included claims that Excel lent large sums of money to Directors, that a number of transactions "were not properly documented", that "inadequate security" had been obtained with respect to some transactions and that the nature of some securities (relating to leases of and finance relating to the acquisition of bloodstock) was "relevant when calculating provisions for doubtful debts". It is important to emphasise that, having enumerated the above matters in somewhat more detail that is listed here, Mr. England then stated his conclusion in paragraph 16 of his affidavit by saying that his investigation had suggested that Excel's accounts "did not make adequate provisions for doubtful debts and that Excel's auditors may not have made an adequate assessment and review of the collectability of receivables". Such an allegation strikes directly at the responsibilities of the auditor in the affairs of Excel. It would normally justify an order for the examination of the auditor and it could well lead to the institution of proceedings against the auditors by the receiver and manager in the name of and on behalf of the company; see paragraph 420(2)(k) of the Corporations Law. It is therefore difficult to accept Mr. Keen's assertion that the "primary purpose" for the examination was "to obtain evidence and investigate the possibility of an action by" Executor Trustee against the auditors. However, that is a subject to which further consideration must be given in light of the submissions made by Mr. Gray about the events in late 1992 and early 1993.
Mr. Whitington submitted that the three subpoenas that had been issued at the suit of his client could be supported both in substance and in principle. As to substance, he argued for their validity but, whilst not making any concessions, he was forced to concede that they were expressed in wide terms. His argument as to principle was, however, far more forceful and far more interesting. He advanced the argument that the full range of conventional interlocutory processes was available to an intended examine (such as Mr. Worthley) who was seeking to set aside an order for an examination under s597. Thus his argument encompassed discovery, interrogatories, notices to produce as well as subpoenas. As to subpoenas, he observed that if the current three were set aside because they were too wide, his client would not be prevented from issuing fresh subpoenas in more restricted terms. In advancing this argument, Mr. Whitington was careful to emphasise that all interlocutory processes would be limited to the decision-making process which led to the making of the order for examination. It would, therefore, extend to the motive and purpose of Mr. England and of the ASC but it would not go to the information or the material that would form the basis for the examination. Such a demarcation line is not at all apparent on the face of the subpoenas. Take, for example, the first paragraph in the schedule to the subpoena that was directed to Mr. England: it refers to "correspondence" concerning "the application to and purported authorisation of the ASC..." A reader would not comprehend that correspondence from Mr. England's advisers that identified possible breaches by the auditors of their duty to Excel was not intended to be covered by the terms of the subpoena. The same observation may be made about paragraphs 2 and 3 of the schedule. The breadth of the language in the subpoenas unreasonably requires the persons to whom they are directed to form judgments about the documents that are covered by the subpoenas.
I have no doubt, having regard to the authorities, that each of the three subpoenas is oppressively wide and should be struck down. It could not be said that the subpoenas, as drafted, are directed only to the limited issues of motive and purpose leading to the authorization of Mr. England by the ASC to apply for an order for examination under s597. I am further of the opinion that, in the circumstances of this case, the conduct of Mr. Worthley in issuing the three subpoenas amounted to an abuse of process. In my opinion, issuing the subpoenas was a strategy and part of a process to delay the examination under s597. It should be emphasised that such last minute manoeuvres are to be discouraged. In this case, the delay from December 1991 to May 1992 was manifestly excessive and was not adequately explained. In my opinion therefore the three subpoenas should be set aside.
The Motion to set aside the order for examination
51. Subsections (1) and (2) of s597 of the Corporations Law provide:
"(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."
Mr. England claims that he is a "prescribed person" because he is a "person authorised by the Commission to make applications" under the section.
The role of a receiver and manager
53. To what extent can it be said that the provisions of s597 are available to a receiver and manager? The base upon which the case for Mr. Worthley was developed rests on the fact that a privately appointed receiver and manager is the agent of his appointor and is subject to his appointor's directions. Thus in sub-clause 24.4 of the Debenture it is provided that the receiver shall, "in the exercise of his powers, authorities and discretions conform to any regulations and directions, from time to time made and given by the trustee." On the other hand, it is commonplace to find in a debenture a provision to the effect that the receiver and manager, in the performance of his duties, shall be the agent of the company. Such a provision appears in sub-clause 27.9 of the debenture that Excel executed in favour of Executor Trustee. This has led one author to remark that:
"The law governing the duties and liabilities of a receiver and manager appointed out of Court ignores the biblical dictum that a man cannot serve two masters." (J. O'Donovan, Company Receivers and Managers, (2nd ed., 1992) at 4011).
Professor Ford said of it:
"The statement that the receiver is the agent of the company is a seemingly odd provision in the light of the fact that the receiver is appointed by the chargee." (H.A.J. Ford, Principles of Company Law (5th ed., 1990) p341)
In Visbord v The Federal Commissioner of Taxation (1943) 68 CLR 354 at 382 Williams J. recognised this plurality of positions when he said:
"Although the receiver is in law the agent of the mortgagor, he occupies a very special position. He is appointed to and may be removed from office by the mortgagee."
To this last remark one may add that, notwithstanding this agency, he may not be removed from office by the mortgagor. Even though a privately appointed receiver and manager is an "officer" of the company for all purposes (s82A of the Corporations Law), he still acts, primarily, for his appointor and not for the company, its members or other creditors.
Much the same position pertains in the United Kingdom: see for example, the reference in Palmer's Company Law Vol.2 para 14.116 to the decision of the Court of Appeal in Re B. Johnson and Co (Builders) Ltd (1955) Ch 634:
"In the Johnson case all three members of the court, while not referring expressly to fiduciary obligations, recognised that a person appointed as receiver and manager is concerned not for the benefit of the company but for the benefit of the debenture holders in realising the security. That is the whole purpose of the appointment and all powers which are conferred on him are really ancillary to that purpose. An argument based on the fact that often (indeed usually) the receiver is agent for the company was brushed aside by Evershed M.R."
In Johnson's case Jenkins L.J. expressed himself in these terms at pp661-662:
"The primary duty of the receiver is to the debenture holders and not to the company. He is receiver and manager of the property of the company for the debenture holders, not manager of the company. The company is entitled to any surplus of assets remaining after the debenture debt has been discharged, and is entitled to proper accounts. But the whole purpose of the receiver and manager's appointment would obviously be stultified if the company could claim that a receiver and manager owes it any duty comparable to the duty owed to a company by its own directors or managers. In determining whether a receiver and manager for the debenture holders of a company has broken any duty owed by him to the company, regard must be had to the fact that he is a receiver and manager - that is to say, a receiver, with ancillary powers of management - for the debenture holders, and not simply a person appointed to manage the company's affairs for the benefit of the company."
Johnson's case was referred to and applied by Needham J. in Expo International Pty. Ltd. (Receivers and Managers Appointed) (In Liq.) v Chant (1979) 2 NSWLR 821 at pp830-832. However, and withstanding these authorities, it would be wrong to assume that a privately appointed receiver and manager does not have a duty of care to the company. His actions must be compatible with his statutory responsibilities. For example, all receivers and managers (including those appointed by the Court) are, for purposes of s232 of the Corporations Law, "officers" of the company and are required by the terms of that section to "act honestly in the exercise of his or her powers and the discharge of the duties of his or her office." Subsection (6) of that section provides:
"An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation."
Thus, even though the receiver and manager is answerable to his appointor and is subject to his control, he could not make improper use of his position as a receiver and manager "to gain, directly or indirectly, an advantage for ... (his appointor)." In particular, he could not make improper use of such powers as he may have under or as a consequence of the provisions of s597 to examine any person so as to gain an advantage for Executor Trustee or to cause detriment to Excel. In addition to these specific provisions there are also the general provisions of Part 5.2 - Receivers and Managers - ss416-434. Those sections impose numerous statutory obligations on receivers and managers. If it appears to the Court or the ASC that a receiver "has not faithfully performed or is not faithfully performing the receiver's duties", or if a complaint is made about the conduct of a receiver, the Court or the ASC may inquire into the matter and the Court "may take such action as it thinks fit" (s423).
One particular duty that warrants specific mention in the circumstances that are presently under consideration is the requirement in subss(1) and (2) of s.422:
"(1) If it appears to the receiver of property of a corporation that:
(a) a past or present officer, or a member, of the corporation may have been guilty of an offence in relation to the corporation; or
(b) a person who has taken part in the formation, promotion, administration, management or winding up of the corporation:
(i) may have misapplied or retained, or may have become liable or accountable for, any money or property (whether the property is within or outside Australia) of the corporation; or
(ii) may have been guilty of any negligence, default, breach of duty or breach of trust in relation to the corporation; the receiver shall:
(c) lodge as soon as practicable a report about the matter; and
(d) give to the Commission such information, and such access to and facilities for inspecting and taking copies of any documents, as the Commission requires.
(2). The receiver may also lodge further reports specifying any other matter that, in the receiver's opinion, it is desirable to bring to the notice of the Commission."
There is a similarity, but not complete harmony, in the language of this provision with the language of subs(1) and (2) of s533 which is directed to reports that must be filed by a liquidator:
"533. (1) If it appears to the liquidator of a company, in the course of a winding up of the company, that:
(a) a past or present officer, or a member or contributory, of the company may have been guilty of an offence under a law of the Commonwealth or a State or Territory in relation to the company;
(b) a person who has taken part in the formation, promotion, administration, management or winding up of the company:
(i) may have misapplied or retained, or may have become liable or accountable for, any money or property of the company; or
(ii) may have been guilty of any negligence, default, breach of duty or breach of trust in relation to the company; or
(c) the company may be unable to pay its unsecured creditors more than 50 cents in the dollar; the liquidator shall:
(d) as soon as practicable lodge a report with respect to the matter and state in the report whether he or she proposes to make an application for an examination or order under section 597; and
(e) furnish the Commission with such information, and give to it such access to and facilities for inspecting and taking copies of any documents, as the Commission requires.
(2). the liquidator may also, if he or she thinks fit, lodge further reports specifying any other matter that, in his or her opinion, it is desirable to bring to the notice of the Commission."
The similarity in the language of s422 and s533 is such that both a receiver and a liquidator must report the transgressions of past and present officers, members and persons who have taken part in various executive aspects of the company. I put to one side Mr. Lander's suggestion that an auditor is a person concerned in the administration or management of a company. I maintain that every step should be taken to emphasise the auditor's independence, even though it is said to be "unobtainable".
"The auditor occupies a position of some significance in so far as the shareholders are concerned. His independence from the management and the board of directors is seen as a major concern not only in Australia but also in other countries. There has been much written by academic accountants and others on this concept of independence. It is suggested that whilst it is a highly desirable state, it is an unobtainable one. It involves not just the absence of any direct relationship between the auditor and the company; it requires the auditor to act with the attitude that his work as auditor will not affect his future situation as auditor of the company or his other work for the company." (R. Baxt, Auditors and Accountants Their Role, Liabilities and Duties, (3rd ed. 1987) p10.
The statutory requirement to report the activities of such persons strongly suggests that a receiver and manager (with the authority of the ASC) would share with a liquidator the right to invoke the examination process of s597. Such a general proposition - that the examination process is freely available to a receiver and manager (subject only to being authorised by the ASC) - flies in the face of a proposition that was asserted on behalf of Mr. Worthley, viz, that s597 is available to a receiver and manager only in exceptional circumstances. Thus much emphasis was placed on the fact that, unlike a liquidator's report, there is no provision in s422 for a receiver's report to state whether he or she proposes to make an application to a Court for an examination or order under s597. But this is to be expected because a receiver cannot approach the Court without the prior authorization of the ASC.
The operation of s597 was recently considered by the New South Wales Supreme Court in Re BPTC Ltd. (In Liq.) (1992) 10 ACLC 877 (on appeal: sub-nom. Hong Kong Bank of Australia Ltd. v Murphy (1992) 10 ACLC 1573. That case dealt with the collapse of Burns Philp Trustee Co Ltd. which had been removed, by order of the Court, as the trustee of six large mortgage trusts. The ASC authorised the new trustees to make an application under s597 in relation to BPTC and, in due course, officers of Hong Kong Bank of Australia Ltd. and the Mercantile Mutual Life Insurance Company Ltd. were ordered to attend for examination. The intended examinees and their employers sought to set aside the orders for examination on a variety of grounds.
At the time when the orders for examination were made, five sets of proceedings were pending in the Supreme Court of Victoria in which the interests of the new trustees were in conflict with those of Hong Kong Bank and Mercantile Mutual. It was argued before McLelland J. at first instance that the new trustees were in the position of private litigants in the Victorian proceedings who, by means of s597, were seeking to obtain advantages by way of pre-trial depositions from key witnesses which would have otherwise been unavailable to them. It was claimed that the obtaining of such depositions would be an abuse of process and possibly a contempt of the Supreme Court of Victoria. The learned trial Judge rejected this argument and was upheld on appeal. He said that it had not been shown that examinations by the new trustees for the ultimate benefit of the unit holders in the trusts was any less a matter of "public" concern and interest than would an investigation by a liquidator. Nor was he satisfied that the purpose for which the new trustees were intending to conduct the examinations was:
"... 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." (p882)
On appeal, Gleeson C.J., with whom Mahoney and Priestly JJ.A. agreed, quoted this passage saying that the identified purposes were "legitimate purposes, and there is no reason for this Court to conclude that the actual conduct of the proposed examinations will transgress the limits referred to by Street J. in Re Hugh J. Roberts Pty. Ltd." (1,577). The learned Chief Justice had earlier referred with approval to the decision in Re Hugh J. Roberts Pty. Ltd. (In Liq.) and the Companies Act (1970) 91 WN (NSW) 537. In that case, Street J. considered the principles that applied in New South Wales with respect to the exercise of the power to make examination orders where a liquidator has already commenced litigation; he said:
"A liquidator needs information concerning his company just as much in connection with current or contemplated litigation as in connection with other aspects of its affairs. In using the statutory machinery of private examination he will in many cases be gathering evidence as an ordinary and legitimate use of this procedure... In my judgment 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 contemplates 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." (p541)
The views expressed by Street J. in Hugh J. Roberts were approved by members of the High Court in Hamilton v Oades (1989) 166 CLR 486:
"The cases in which a court has stayed an examination on the grounds now claimed when charges have not been laid are rare. The very purpose of the section is to create a system of discovery, which may cause defences to be disclosed, for the purpose of bringing charges. The section gives to the liquidator rights not possessed by an ordinary litigant... In these circumstances it must be accepted that the section applies equally to proceedings which the liquidator 'might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring, and proceedings he has already brought'." (per Mason C.J. at p497)
Re Spedley Securities Ltd. (In Liq.); Spedley Securities Ltd. (In Liq.) v Bank of New Zealand (1990) 3 ACSR 366 was a case where the liquidator having commenced proceedings against the defendant, made a decision to apply to examine two employees of the defendant's solicitors as a result of the contents of the defence that had been filed in the action. Cohen J. refused to set aside the orders for examination or to restrain the examination, saying at pp374-375:
"The mere fact that the liquidator is given an advantage not enjoyed by other litigants is not a basis for finding injustice or an abuse of process. It is an advantage which the statute gives to a liquidator because of the particular circumstances in which he stands. The question to be considered is whether, in exercising that power, the liquidator might be going beyond an investigation of matters to enable him to carry out the liquidation more effectively and instead seeking to obtain an unfair advantage in the other litigation so as to amount to injustice. It is accordingly relevant to consider the purpose of the examination and to take into account the liquidator's statement of that purpose."
Megarry J. in England had come to the same conclusion that the "real question is one of purpose". With his usual ability to state a point succinctly, he said in Re Spiraflite Ltd. (1979) 1 WLR 1096 at 1100:
"What may properly be given to a liquidator qua liquidator will not be given to a liquidator-litigant qua litigant."
Coincidentally, the intended examinee in that case was the company's auditor.
There is, however, no general rule. Each case must be decided on its merits. Re Imperial Continental Water Corporation (1886) 33 ChD 314, to which Gleeson C.J. also referred in his judgment Hong Kong Bank v Murphy, is an illustration of a case where an application for an examination order by a private individual was found to be for the collateral purpose of improving his position as a creditor and was held to be an abuse of process.
Re National Safety Council of Australia Victorian Division (1989) 15 ACLR 355 was a case where the Full Court of the Supreme Court of Victoria was satisfied that conflict might exist or might be seen to exist. Care must be taken in considering this case because it dealt with a challenge to a provisional liquidator being appointed liquidator of a company; it was not a case dealing with the right to invoke the examination process. In that case, a firm of chartered accountants, Ernst and Whinney, had been retained by the Directors of the National Safety Council of Australia, Victorian Division, ("the NSC") in December 1988 to investigate and report on the accounting procedures, controls and records of the NSC. A Mr. Richardson, who was the partner in charge of the investigation, came to the conclusion that the NSC was insolvent and on 20 March 1989 the directors resolved to liquidate the company and seek the appointment of Mr. Humphris, another partner of Ernst and Whinney as provisional liquidator. When the matter later came before the Court, certain creditors appeared challenging Mr. Humphris as the proposed liquidator. The complaint that a payment of $40,000 for professional fees for services rendered might be a preference was overcome by an undertaking from Ernst and Whinney to refund it. A second complaint, which was described by the learned trial Judge as more apparent than real, but which was accepted by the Full Court, was described in their joint judgment in these terms:
"A more substantial objection was taken to the appointment of Mr. Humphris as liquidator. It was said by the banks that the liquidator would have to investigate the question whether the Company might have an action against Ernst and Whinney for failing to investigate the affairs of the Company with due diligence and reasonable care. Between December 1988 and March 1989 the Company's indebtedness to the State Bank of Victoria increased by about $17 million and its indebtedness to the State Bank of South Australia by about $27 million, a total of $44 million. In these circumstances the banks submit that they would expect the liquidator of the Company to investigate fully whether, if Ernst and Whinney had performed their function properly, the insolvency of the Company would have come to light earlier than it did. The Company and Mr. Humphris say that there is no foundation for an allegation that Ernst and Whinney did not perform their function with due diligence and reasonable care, and that if in the course of the liquidation a conflict arose between Mr. Humphris's duty and his personal interest he would resign as liquidator or one of a number of other courses might be followed: an additional liquidator might be appointed, the liquidator might be removed by the court and so on. In these circumstances it was said by counsel for the liquidator that there would be great advantage to the creditors in having available for their benefit the work done by Mr. Humphris as provisional liquidator. The costs of that work should not be thrown away until it was clear that there would be a conflict between the liquidator's personal interest and his duty. It seems probable, however, that the real advantage sought to be obtained for the creditors was the work done by Ernst and Whinney in the three months during which they were investigating the accounting procedures of the company." (p360)
The Full Court emphasised that there was nothing to suggest that there would necessarily be any conflict but they nevertheless concluded that:
"...the relationship between Ernst and Whinney and the Company at a critical time and the purpose of the retainer of Ernst and Whinney is sufficient. The liquidator should not be put in a position where his independence might be open to challenge." (p360)
They explained at the next page that the conflict lies in the need for the liquidator to be seen to be independent of any matter which his duties as liquidator may require him to investigate.
Young J. stayed the examination of the company's auditor in Re Equiticorp Finance Ltd; Ex parte Brock (1992) 10 ACLC 382 to allow the parties to agree on the scope and conditions for the examination in a way which would reflect his Honour's reasons. One such condition was that the liquidator should be directed to produce a statement in writing of the purpose or purposes of the examination and the subjects thereof and its intended scope. Young J. took time to emphasise that a liquidator's right to examine was not automatic and that a liquidator acted in the interests of the creditors and the public. His Honour also pointed out that there will be cases where a petitioning creditor has a particular interest in the outcome of an examination because he has funded the liquidator. In such circumstances (which bear some similarity to the relationship between a receiver and manager and his appointor) his Honour said that "... one must discount the views of a liquidator even though he was appointed by the Court and will have some degree of professional independence" (387). These words are a salutary reminder of the need to examine each case carefully on its merits.
The complaints that were listed on behalf of Mr. Worthley were extensive. They may be summarised as follows: first, the examination procedure was a Draconian procedure which was being used in this case for the benefit of private interests and not in the public interest. The examination order of 8 October 1991 should not be permitted to stand, he argued, unless Mr. England can convince the Court that Mr. Worthley's application to set aside the order is manifestly worthless. On the authority of In re Gold Company (supra) and Stirling Henry Ltd. (supra) this proposition must be rejected. The onus is on the examinee to satisfy the Court that there are good and sufficient reasons to set aside the order. There is no onus on the examining party to justify the making of the order: see also, Re Alan Fitzgerald Pty. Ltd. (In Liq.); Starkey v Schnieder (1989) 15 ACLR 752.
Secondly, Mr. England, as receiver and manager was in, and would continue to be in, a position of conflict in conducting such an examination. To the extent to which this complaint relates to Mr. England's professional history, it must be rejected. In addition to the matters addressed by Mr. Keen in his affidavits of 6 and 12 May 1992, Mr. Worthley swore an affidavit on 22 May in the ADJR proceedings. Without objection, that affidavit was also read during argument on the matters that were raised in action No. SG3040 of 1991. So far as that affidavit might be regarded as containing material tending to establish that Mr. England had a conflict of interest, or that he was pursuing the examination of Mr. Worthley for an improper purpose, it is singularly lacking in detail or persuasion. The limit of Mr. Worthley's evidence on the subject is contained in paragraph 5 of his affidavit:
"In late April 1992 my solicitors retained Tom Gray QC to act on my behalf. Pursuant to Gray's advice that England may have a conflict of interest in applying for and conducting an examination under Section 597 of the Corporations Law of myself, I have issued this application for review of the purported authorisations by the respondent and have also applied in the examination proceedings (Action SG3040 of 1991) to discharge the order for examination."
It should be noted that nowhere in his affidavit did Mr. Worthley address the fact that Mr. England had been once a partner in Mr. Worthley's firm or that Mr. England's firm had once been the auditor of Excel. Notwithstanding such a significant gap, it was still advanced in argument that, although no personal aspersions were cast on Mr. England, because Ernst and Whinney had once been the auditors of Excel and because Mr. England had been a partner of Peat Marwick and Mitchell, when that firm had been auditors of Excel, it would not be possible for an objective observer to regard him as independent. It was asked, rhetorically, what would happen if, during the examination of Mr. Worthley, it was ascertained that there had been some fault on the part of earlier auditors? The answer to that is as simple as it is obvious: it is sheer speculation. There is not a scrap of evidence to suggest such might be the case. Another question attracts the same answer; it was put forward that Mr. England could find himself in an impossible position of conflict if, during the course of the examination, evidence was forthcoming indicating that the Debenture Trust Deed was invalid. For example, Mr. Gray drew attention to the fact that it had been pleaded by Executor Trustee, in the Supreme Court proceedings, that a notice of default had been served on Excel: (see paragraph 12 of the original statement of claim and paragraph 18 of the current version). He argued that Mr. England's refusal to supply a copy of this notice created doubts about the validity of Mr. England's appointment. In my opinion, the answer to that complaint is to be found in Messrs Kelly and Co's letters to Messrs Finlaysons of 22 December 1992 and 22 January 1993. In the first letter they said:
"Our client is not prepared to provide you with a copy of the notice of demand, nor to permit you to inspect its documents in the absence of an order for third party discovery made in the proceedings in the Supreme Court. Please file and serve an application for an order for third party discovery. Our client will consider whether it is prepared to consent to the making of such order once we have received the application and supporting affidavits."
In the later letter they wrote:
"Once your clients have exhausted their recourse to the plaintiffs and have narrowed their application to those documents which are relevant to the proceedings, our client would be prepared to agree in principle to an order for discovery being made against him. However, as indicated in our letter to you of 22 December 1992, our client would only consent to the making of an order on the conditions that: your clients meet the costs of our client complying with the order; and
the operation of the order is stayed until the examination of Mr Worthley has been completed."
The last part of this letter shows quite clearly that the receiver and manager believes that he is entitled (just like a liquidator) to use the examination process against Mr. Worthley without forewarning him of the subjects upon which he will be questioned. For his part, Mr. Worthley is seeking by every legitimate means to avoid being examined.
I am satisfied that there is nothing in Mr. England's antecedents that is or would be a cause for concern. The details of his professional history that were placed before the Court do not warrant any interference by the Court and this issue should be put aside.
Thirdly, it was submitted that no ultimate benefit would necessarily flow from the examination to the unsecured creditors of Excel. This proposition is speculative, but even if it were correct it would not, of itself, constitute a ground for setting aside the examination order.
Fourthly, it was claimed that the examination procedure was never intended for the purpose for which Mr. England proposes to use it. The submission that was advanced on behalf of Mr. Worthley was that Mr. England's dominant or primary purpose in seeking to examine Mr. Worthley was to obtain evidence that might be used by Executor Trustee in the Supreme Court proceedings. Executor Trustee has alleged in the Supreme Court that the auditors owed it a duty to take reasonable care that the audited accounts of Excel would accord with prescribed standards and that the information provided by the auditors to it would be accurate and comprehensive. Executor Trustee has claimed that the auditors have breached their duty of care and has claimed substantial damages.
It was claimed, in argument before me, that the information obtained by Mr. England through the examination process might be made available to Executor Trustee to be used by it to the detriment of the auditors in the Supreme Court proceedings. Mr. Whitington rejected, on two bases, the suggestion that the examination process would benefit Excel. First, he said that, in principle, the receiver and manager could collect evidence, ostensibly for the benefit of the company, but could be forced by his appointor, under pain of dismissal, to hand over the evidence to the appointor for use by the appointor against the auditor in private litigation. The immediate answer to that contention is subs597(4) which provides that, unless the Court considers there are special circumstances, any such examination shall be held in public. In normal circumstances, representatives of Executor Trustee will be able to attend and listen to Mr. Worthley's examination. Furthermore, a transcript of Mr. Worthley's public examination may be inspected by any creditor: O71 r81(15) and that, in my opinion, would include Executor Trustee in its capacity as trustee for the debenture holders. Mr. Whitington's second proposition was derived, as a matter of fact, so he claimed, from the contents of Mr. England's affidavit. According to Mr. Whitington, the affidavit established that there was an allegation that the auditors had been remiss in the performance of their duties to the trustee and he went so far as to say that there was no reasonable prospect of any action at the suit of the company against the auditors. In my opinion such a proposition does not amount to a fair reading of the affidavit which, from the outset, addressed the adequacy of the audit reports that had issued on Excel's accounts: see paragraph 2. Thereafter the affidavit descends into much detail but concludes, in paragraph 21, by referring back to the contents of paragraph 2 with these words:
"As a result of the said investigations and review referred to in paragraph 2 of this my affidavit, it appears to me that:
(a) John Frederick Worthley, having been concerned in the administration of, or having otherwise taken part or been concerned in the affairs of Excel, may have been guilty of negligence or breach of duty in relation to Excel; or
(b) John Frederick Worthley may be capable of giving information in relation to the management or administration or otherwise in relation to the affairs of Excel."
In addition, Mr. Gray raised the further complaint that Executor Trustee had obtained access from this Court to the documents that had been produced by Mr. Worthley in answer to the order of 8 October 1991. That fact was conceded by the receiver and manager but only upon the premise that the Court, not the receiver and manager, was the instrument of the access.
Mr. Whitington's fifth argument was a submission that a privately appointed receiver and manager could not make use of the examination process under s597 except in exceptional circumstances. He based that argument upon the premise that the receiver and manager's purpose in acting would always be predominantly for the benefit of the debenture holders and their trustee. There may, said Mr. Whitington, be consequential or subsidiary benefits to the company but they would be incidental to the dominant purpose. He claimed that the language of s597 was narrow and should be construed narrowly.
The power to apply to the Court for an order to examine is contained in subs597(2); only the ASC or a "prescribed person", as defined in subs(1) may apply.
Mr. Whitington's argument rested on the premise that it would have been easy for Parliament to have added "receivers" or "receivers and managers" to the grouping of "official manager, liquidator or provisional liquidator". Whilst that may be true, it overlooks what I believe should be described as the breadth of the language in the subsection which extends to "any other person authorised" by the ASC. That language permitted the ASC to authorise the new trustees for the unit holders in Hong Kong Bank v Murphy to apply for orders to conduct examinations.
Mr. Whitington pointed to the language of Young J. in Re Equiticorp Finance (supra) and to the need to "discount" the views of a liquidator who is being funded by an indemnifying creditor, claiming that they offer support to his proposition that s597 is primarily for liquidators and is rarely to be used by receivers and managers. If the views of a Court appointed liquidator are to be discounted, what weight, he asked, could attach to the views of a privately appointed receiver and manager? As I have already said, each case is to be determined on its merits and one will always proceed cautiously. With that qualification, I cannot, however, see any mandate in the legislation for a proposition that a receiver and manager should not be permitted to use the examination process except in exceptional circumstances. On the assumption that I am correct in holding that a receiver and a receiver and manager can each be a "prescribed person" for the purpose of s597, such a person becomes, like an official manager, liquidator, or provisional liquidator, an office holder with a function to perform. In discussing what he considered to be seven undisputed principles relating to these examinations, Gibson L.J. in In Re British and Commonwealth Holdings PLC (Nos.1 and 2) (1992) Ch 342 at 371 nominated as the fifth that the section was directed to enabling the Court to help the office holder to complete his function as effectively, and with as much expedition as possible and to discover, with as little expense and as much ease as possible, the facts surrounding any possible claim. I respectfully agree.
In my opinion, there is no cause to give a restricted meaning to s597 and there is no reason to proceed upon the premise that, because it is mainly used by liquidators, that fact should somehow constitute a restriction on its use. The better approach to s597 is to have regard to its objectives and then to have regard to those who may be entrusted to pursue those objectives. I agree with the view taken by Rogers J., Chief Judge of the Commercial Division, in Spedley Securities Ltd. (In Liq.) v Bond Corporation Holdings Ltd. (1990) 1 ACSR 726. His Honour there said:
"I can see considerable justification for an argument that, in particular, directors, but also others, concerned with the management and affairs of a failed company owe a duty to creditors and shareholders to provide a candid, full and truthful account of their stewardship." (p738)
The objective of the section is to find out from those who might know what has happened to the company. In Lombard Nash International Pty. Ltd. v Berentsen (1990) 3 ASCR 343 Bryson J. at p346 quoted the above passage from the judgment of Rogers J. and then went on to say:
"In my view there is such a duty and as well as being owed to creditors and shareholders it is owed to the whole community which has an interest, not only in attaining civil justice in particular pieces of litigation, but also in the emergence to public knowledge of information relating to the affairs of companies which fail although clothed in privileges by the law, including the limited liability of their members.
In my view it is too restrictive to consider whether an examination under s541 should take place with a view only to the enforcement of rights of the company by means of information obtained in such an examination, or with a view only to the due administration and completion of the liquidation. There is also a public interest in the emergence to knowledge and the light of day of what happens in the administration of companies formed under public laws."
I respectfully endorse those views and in doing so add that I can see no reason for limiting to liquidators and the like the right to inquire into those administrations. The legislation refers to "prescribed persons" who will be such persons as are considered, first by the ASC and later, if necessary, by the Court, to be suitable to act as an examining parties. Such prescribed persons will include receivers and managers if it is required by the circumstances of the case. As Gleeson C.J. said in Hong Kong Bank of Australia Ltd. v Murphy:
"As appears from its place in the legislative scheme, and from its terms, whilst s597 has an important role to play in relation to companies that are being would up, and liquidators or provisional liquidators will be amongst those who most commonly take advantage of its provisions, the operation of the section is by no means confined to liquidators. The statutory context of 'external administration', in which s597 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 s597 is wider." (p1578)
I have therefore concluded that the application by Mr. Worthley for an order setting aside the order of 8 October 1991 should be dismissed.
The notice to produce
91. In my opinion this issue can be disposed of peremptorily. The two documents that were the subject of the notice to produce were Mr. England's application to the ASC to be authorised to make applications under s597 in relation to Excel and his solicitors' letter of 10 September 1991 to the ASC. The existence of each document came to the knowledge of Mr. Worthley only because he was supplied, gratuitously, with a copy of Mr. England's affidavit of 20 September 1991. That affidavit had come into existence as part of Mr. England's ex parte application to this Court for an order that Mr. Worthley be examined. A regime for the application for an the order for examination is laid out in O71 r81 of the Rules of Court. Nothing in that rule suggests that the examinee has any entitlement to obtain a copy of the affidavit. In fact one would infer the contrary because sub-rule 81(4)(b) states that:
"An affidavit in support of an application for an order under section 597:
(a) ...
(b) may, at the option of the applicant, be filed in a sealed envelope."
When one recognises that the whole procedure for examinations is predicated on the premise that the examinee is not to be forewarned, it becomes clear that the usual right of a litigant to call for the production of a document is not available. If Mr. Worthley had not been supplied with a copy of the affidavit, he would not have known of the two documents; and furthermore, for the reasons stated, he would not have been entitled to copies of them. It would be incongruous if the voluntary act of Mr. England in supplying the affidavit changed that fundamental position. Mr. Worthley's notice of motion dated 3 June 1992 seeking an order for inspection of documents should be dismissed.
The ADJR proceedings
The identification of the "decisions": is Mr. Worthley a person "aggrieved"?
93. Mr. Worthley has, as I have already mentioned, advanced the proposition that there are three decisions of the ASC that must be considered. First, there was the "decision" represented by the authority dated 28 May 1991; it authorized Mr. England to make applications under s597 of the Corporations Law in relation to Excel. Secondly, there was the "decision" not objecting to Mr. England's decision to seek an order for the examination of Mr. Worthley (the letter from the ASC to Messrs Kelly and Co dated 12 September 1991). Finally, there was the "decision" not to change or withdraw the two earlier "decisions". In answer to that proposition, the ASC argued that the "decision" which led to Mr. Worthley describing himself as "a person who is aggrieved" was the decision embodied in the order of this Court made on 8 October 1991. That decision, so the argument proceeded, was a judicial, not an administrative decision, and, as such it is not reviewable under the ADJR Act. In support of this argument, Mr. O'Halloran, counsel for the Commission referred to and relied upon decisions of this Court in Perry v Director of Public Prosecutions (1985) 6 FCR 578 and Letts v The Commonwealth (1985) 8 FCR 585 as two examples of administrative conduct forming part of a procedure which culminated in a judicial decision. He also relied on dicta in Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321, and in Edelsten v Health Insurance Commission (1990) 27 FCR 56 at 68 as evidencing a more restrictive interpretation of the meaning of the word "decision". Since reserving judgment in this matter, however, the Full Court has published a decision which, in my view, requires me to reject these submissions.
Mercantile Mutual Life Insurance Co. Ltd. v Australian Securities Commission (unreported: Full Court judgment delivered 26 February 1993) is the most recent judgment in the numerous battles surrounding the collapse of the former Burns Philp Trustee Company. The applicants had sought judicial review under the provisions of the ADJR Act and s39B of the Judiciary Act 1903 (Cth) of a decision of the ASC authorising the third respondents, Messrs Murphy and Allen, (the new trustees) to apply for orders pursuant to s597 in relation to the affairs of BPTC. The application was heard by a Full Court in the exercise of the Court's original jurisdiction in consequence of a direction given by the Chief Justice under subs20(1A) of the Federal Court of Australia Act 1976 (Cth).
The applicants asserted that the decision of the second respondent, the ASC Regional Commissioner for New South Wales, to authorise Messrs Murphy and Allen to apply to the Court pursuant to s597 was a "decision to which (the ADJR Act) applies" within the meaning of s5 of that Act and that the applicants were "persons aggrieved" with the meaning of subs3(4) and thereby entitled to make the application for an order of review. Alternatively, the applicants submitted that if no "decision" was involved or if they were not "persons aggrieved" then they were entitled to invoke the provisions of the Judiciary Act. The application was unanimously dismissed; each of the principle grounds advanced by the applicants was rejected. Those grounds had been: (1) that the ASC had no power to authorise Messrs Murphy and Allen to apply to the Court for an order for examination, (2) that the ASC had not effectively delegated its power to the Regional Commissioner, and (3) that the Regional Commissioner's decision to authorise Messrs Murphy and Allen had been tainted by failing to take into account a relevant matter (namely, the potential for an abuse of process) and by taking into account an irrelevant matter. In those circumstances, it was not necessary for the Court to discuss whether the decision to authorise Messrs Murphy and Allen was a decision to which the ADJR Act and the Judiciary Act applied. Even so, both Lockhart and Gummow JJ. (Black C.J. not deciding) made it quite clear that they were of the opinion that the issue of standing under the ADJR Act would have favoured the applicants. Lockhart J. said at pp34-35 of his judgment:
"As the applicants' case has failed and the application must be dismissed, these questions do not arise for consideration. However, I have considered the submissions of the applicants and the other parties with respect to these matters and in my opinion the decision of the second respondent to authorize the third respondents to apply to the Court pursuant to s597 of the Corporations Law is a 'decision to which (the ADJR Act) applies' within the meaning of ss5 and 3(1) of the ADJR Act. Also, the applicants are in my view 'persons aggrieved' within the meaning of s3(4) of the ADJR Act. If it were necessary to do so I would support the extension of time for the bringing by the applicants of the application for judicial review. I do not find it necessary to consider the submissions made by the parties with respect to s39B of the Judiciary Act."
Although these views are properly obiter dicta, they come from a strongly constituted Court and are the aftermath of submissions from the parties on the subject. It seems to me therefore, that a single judge should follow them and proceed upon the premise that, in the present case, the decision of the ASC authorising Mr. England to apply to the Court pursuant to s597 is a reviewable decision.
However, I am quite convinced that neither the letter of 12 September 1991 nor the refusal by the ASC in May 1992 to reconsider its earlier decision would be a "decision to which (the ADJR) applies". The letter of 12 September was merely an advice that the ASC did not object to Mr. England's proposal to apply for an order to examine Mr. Worthley. It could not be classed as a decision nor was it suggested that it could be "conduct for the purpose of making a decision" within the meaning of s6 of the ADJR Act. It would create a most unfair situation if the refusal of May 1992 was treated as a "decision". The true decision was made on 28 May 1991. The making of that decision and Mr. Worthley's awareness of it gave him certain rights which had to be exercised within certain time constraints. If an applicant failed to exercise those rights within those time constraints, it would be most unfair to the decision-maker if the whole matter could be reactivated by asking for a reconsideration of the original decision and using the refusal as a fresh "decision" which reactivated those lost rights.
Delay
98. I turn then to the question of Mr. Worthley's delay in making his application for judicial review.
It was agreed at the bar table that for the purpose of the ADJR proceedings, Mr. Worthley obtained copies of the ASC's authority of 28 May 1991 and the ASC's letter of 12 September 1991 to Messrs Kelly and Co in the period 11-13 December 1991 when he was supplied with a copy of Mr. England's affidavit of 20 September 1991. He had of course, earlier been served on 29 November 1991 with the order for his examination.
Mr. O'Halloran's primary attack on the question of delay was simple but direct: if, as Mr. Worthley now says, the nature of Mr. England's conflicts of interest were so obvious
- because of his role as a receiver and manager who was specifically answerable to his appointor - because his former partnerships were, on different occasions, auditors of Excel
why was no action taken between mid December 1991 and early May 1992? The issue is not, of course, that simple. If there is a conflict of interest, the Court must take account of it even though the litigant and his advisers may have been unaware of its existence. On the other hand, in determining, as a question of fact, whether there is or there is not a conflict of interest, the Court would be entitled, as a matter of weight, to have regard to the fact that all material facts had been known to the party's advisers for five months before any action was taken. In a balancing exercise, one would be entitled to hold such a lengthy delay against the interests of those now arguing conflict.
Whether regard is had to the period of 3 days that is referred to in 071 r81(7) as the period within which a party is to file a notice of motion if he seeks to have an order for examination discharged, or whether regard is had to the period of 28 days that is referred to in s11 of the ADJR Act as the period of time within which to file an application for an order of review, the delay in this matter has been substantial and, as I have earlier stated, largely unexplained.
The Court has a discretion to extend the time for the filing of an application for an order of review: paragraph 11(1)(c) of the ADJR Act. It is an unfettered discretion but it must be exercised judicially having regard to the relevant facts: Duff v Freijah (1982) 62 FLR 280 at 285 per Northrop J. In that case, his Honour, speaking of delay, said that he was "not satisfied that the applicants have explained in any satisfactory manner the delay in lodging the applications" (at p287) thereby indicating the importance that is attached to this subject.
In Hunter Valley Developments Pty. Ltd. v Cohen (1984) 3 FCR 344 Wilcox J. had before him an application for an extension of time within which to apply to the Court under the ADJR Act for review of a decision. At 348-350 his Honour set out what he considered to be the principles that may be distilled from the authorities "to guide, not in any exhaustive manner, the exercise of the court's discretion". (348). One such principle that his Honour said should be taken into consideration dealt with the question of delay. As to this he said:
"It is a pre-condition to the exercise of discretion in his favour that the applicant for extension show an 'acceptable explanation of the delay' and that it is 'fair and equitable in the circumstances' to extend time." (p348)
It was suggested during the course of argument that time has not yet started to run against Mr. Worthley. Under s11 of the ADJR Act time runs from "the day on which a document setting out the terms of the decision is furnished to the applicant" or from "the day on which the statement is so furnished". In Australian Foremen Stevedores Association v Crone (1989) 20 FCR 377 Pincus J referred to this phrase and concluded that:
"... the expression 'furnished to the applicant' appears to contemplate delivery of a document specifically to the applicant rather than a general publication of it; further, it contemplates its delivery by or on behalf of the decision maker." (p385)
In this case, it is common ground that the ASC never "furnished" Mr. Worthley with copies of its authority of 28 May 1991 or of its letter of 12 September 1991; Mr. England and his solicitors were the parties responsible for making copies of these documents available to him but there is nothing in the papers to suggest that in so acting they were acting on behalf of or with the authority of the ASC.
There is, however, an alternative proposition which I favour. It is to this effect: the primary obligation upon an applicant for an order of review is to lodge an application "within the prescribed period" (paragraph 11(1)(c)). That prescribed period is 28 days from (for example) "the day on which a document setting out the terms of the decision is furnished to the applicant" (paragraph 11(3)(a)). If, however, the decision is never furnished to the applicant, then there is no prescribed period and subs11(4) comes into operation; it states that where "no period is prescribed for the making of applications for orders of review in relation to a particular decision" the Court may "refuse to entertain an application for an order of review" if the Court is of the opinion "that the application was not made within a reasonable time after the decision was made". Subsection 11(5) then states that, in forming an opinion for the purposes of subs(4), the Court shall have regard to "the time when the applicant became aware of the making of the decision" and may have regard to such other matters as it considers relevant.
The reference in subs(5) to becoming "aware of the making of a decision" points to awareness by means other than being "furnished" with a relevant document under subs(3). The further requirement that the Court is to "have regard to" the time when the applicant became aware indicates a need to have regard to the actual facts of a case. Thus in this case it is quite clear that Mr. Worthley became "aware" of the ASC's decision in December 1991.
In my opinion the conclusion that I have reached finds authority in the decision of the Full Court in Newby v Moodie (1988) 83 ALR 523. In that case, the appellant, a solicitor was charged on summons with offences against the Crimes (Taxation Offences) Act 1980 (Cth). Eight months after he first became aware of the "decision" to prosecute him he sought review. In the course of its judgment the Full Court noted that:
"It was common ground before the trial Judge that no period was prescribed in the Judicial Review Act for the making of an application for an order of review of the decision of which the appellant complained." (p525)
This is quite understandable for in most prosecutions the decision to prosecute is never communicated or "furnished" in advance. The service of the summons or the arrest on information is the first official act that is brought to the attention of the party and from it is dated his "awareness" and the calculation of a reasonable time. Thus, in Newby v Moodie the appellant "became aware of the decision that he was to be prosecuted when he was served with the summonses..." (p526).
In Mercantile Mutual Life Insurance Co. Ltd. v Australian Securities Commission Lockhart J. indicated that if the question had arisen, he would have granted the applicant the required extension of time. But in that case the extent of the delay was only 21 days and that can hardly be compared with a period of 5 months. I have concluded therefore, as a threshold question, that the applicant should not be granted an extension of time within which to file his application. The application for review should be summarily dismissed.
One matter remains to be mentioned; that is the question of the availability to the applicant of an alternative remedy. The Court has a discretionary power to decline an application for review if adequate provision is available elsewhere. It was submitted that O71 r81(7) is clearly intended as the proper vehicle for review of decisions encompassed in orders for public examination of which the order of 8 October 1991 in this case is an example. The onus is on the party who asserts that the Court should not exercise its jurisdiction under the ADJR Act: Kelly v Coates (1981) 35 ALR 93 at 94 per Toohey J. and Neaves J. has described that onus as "heavy": Convery v Ziino (1985) 7 ALN N402.
In view of the conclusion that I have reached on the question of delay, it is not necessary to express a view on this question. None of the judgments in Mercantile Mutual v ASC mentioned the question of an alternative remedy but it may be that they have an inferential effect on the subject. I would prefer to delay expressing a view on this issue until a later occasion when fuller consideration can be given to the matter.
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