Re Forge Group Construction Pty Ltd (in Liq) (Receivers And Managers Appointed)
[2015] WASC 184
•26 MAY 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RE FORGE GROUP CONSTRUCTION PTY LTD (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED); EX PARTE JONES AND JOHNSON [2015] WASC 184
CORAM: CHANEY J
HEARD: 8 MAY 2015
DELIVERED : 26 MAY 2015
FILE NO/S: COR 28 of 2015
EX PARTE
MARTIN BRUCE JONES
BENJAMIN MICHAEL JOHNSON
(Joint and Several Liquidators of Forge Group Construction Pty Ltd)
Plaintiffs
Catchwords:
Corporations - Examination in relation to company's examinable affairs - Access to affidavit in support of examination summons - Extension of time for application - Whether relief should be refused because of absence of conferral - Urgency - Arguable case to set aside summons - Improper purpose
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Supreme Court (Corporations)(WA) Rules 2004
Result:
Access to affidavit granted
Category: B
Representation:
Counsel:
Plaintiffs: Mr J C Vaughan SC
Applicants: Mr C G Colvin SC & Mr G D Cobby
Solicitors:
Plaintiffs: Lavan Legal
Applicants: Herbert Smith Freehills
Cases referred to in judgment:
Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707
Ariff v Fong [2007] NSWCA 183; (2007) 63 ACSR 384
Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36
Re Excel Finance Corp Ltd; Worthley v England (1994) 52 FCR 69
Re Moage Ltd (in liq); Sheahan v Pitterino (1997) 77 FCR 81
Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176
CHANEY J: The plaintiffs are the liquidators of Forge Group Construction Pty Ltd (In Liq) (Forge). On 17 February 2015, the Master made orders pursuant to s 596B of the Corporations Act 2001 (Cth) (the Act) for the examination of Mr Juyeul Son, Mr David Brough and Mr Anthony John Clifford. The Master also ordered that Samsung C & T Corporation (Samsung) produce certain specified books. Forge and Samsung were parties to a subcontract dated 30 August 2013 relating to very substantial mining construction (subcontract).
On 2 April 2015, solicitors acting on behalf of Mr Son, Mr Clifford and Samsung (applicants) filed an interlocutory process to discharge the examination summonses in relation to those three parties. The interlocutory process also sought an extension of the time provided for in r 11.5(2) of the Supreme Court (Corporations) (WA) Rules 2004 (Corporations Rules) which requires an application to discharge a summons to be brought within three days of service. The interlocutory process also sought an order that the affidavit filed in support of the application to issue the examination summonses be made available for inspection by the plaintiffs and their legal representatives.
By the consent of the parties, I made orders for the filing of affidavits and submissions in relation to the application for access to the supporting affidavit, and listed that question for hearing at a special appointment. At that special appointment, the question of extension of time was also canvassed.
Principles in relation to access
An affidavit in support of an application for an examination summons is not available for inspection except so far as the Court orders.[1]
[1] Corporations Act 2001 (Cth) s 596C(2); Supreme Court (Corporations) (WA) Rules 2004 r 11.3(4), r 11.3(7).
The principles upon which the Court should act in relation to an application for access to a supporting affidavit pursuant to s 596C(2) of the Act were helpfully summarised by the plaintiffs in their written submissions. Those principles were not challenged by the applicants. They are as follows:
•Section 596C(2) reflects a pre-existing informal practice of keeping confidential the grounds of an application for examination. That practice arose because it is generally desirable that an examinee not be forewarned of the subjects on which the examination is proposed.[2]
•A person seeking to discharge an examination summons does not, merely by making the challenge, place an evidentiary burden on the liquidator to reveal the contents of the affidavit.[3]
•There are sound reasons why inspection should not be freely granted because to do so may afford the examinee information which could permit the examination process to be frustrated.[4]
•An applicant seeking disclosure of the affidavit will generally be able to obtain access to the affidavit if he or she can demonstrate an arguable case that the issue of the summons exceeded the power of the Court under s 596B and that access to the affidavit is likely to assist in determining the correctness of the challenge.[5]
•Once an arguable case is raised, it can be accepted that there are persuasive grounds for allowing access to the affidavit and, at that point, it is appropriate for the Court to examine the affidavit.[6] Such a review may satisfy the Court that it is unnecessary to permit the inspection of the affidavit, for example, where it could make no difference to the outcome.[7]
[2] Re Moage Ltd (in liq); Sheahan v Pitterino (1997) 77 FCR 81, 92 (Mansfield J).
[3] Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 [140] - [141].
[4] Re Excel Finance Corp Ltd; Worthley v England (1994) 52 FCR 69, 94.
[5] Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 [141]; Re Excel Finance Corp Ltd; Worthley v England (1994) 52 FCR 69, 194; Ariff v Fong [2007] NSWCA 183; (2007) 63 ACSR 384 [25] - [26].
[6] Ariff v Fong [2007] NSWCA 183; (2007) 63 ACSR 384 [22], [90].
[7] Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 [98].
Grounds of the application to set aside orders
The applicants contend that the orders for examination should be set aside because they have been sought for improper purposes. They contend that the orders have been obtained for the predominant purpose of assisting the receivers and managers of Forge and thereby their appointor, in circumstances that provide no advantage or benefit for the creditors of Forge other than the appointor. The applicants also contend that the orders have been obtained for an improper purpose of allowing a public examination of the applicants outside of a binding arbitration process which the subcontract required the parties to utilise to resolve any dispute. The applicants contend that the examination is of a kind that would not otherwise be available to the receivers and managers in that arbitration, and s 596B cannot properly be used to achieve that advantage.
Given that the grounds upon which the liquidators have obtained the orders for examination turn upon the purpose for which the orders were obtained, it is reasonable to expect that the affidavit in support of the application would likely be relevant to that question.
The plaintiffs' objection to inspect of the affidavit
There are two bases upon which the plaintiffs object to an order permitting inspection of the affidavit in support of the application for examination orders.
The first is that inspection of the affidavit is 'without utility' because the substantive application does not overcome preliminary hurdles. In their written submissions, the plaintiffs identified those hurdles as being the necessity for an extension of time, and non-compliance with O 59 r 9(1) of the Rules of the Supreme Court 1971 (WA) (the Rules), which requires conferral before bringing an interlocutory application.
The second basis of opposition to inspection is the plaintiffs' contention that the applicants have not demonstrated an arguable case that the examination summonses were issued for an improper purpose as alleged.
Extension of time
In light of the contents of an affidavit of Ante Golem filed shortly before the hearing, Senior Counsel for the plaintiffs advised at the hearing that the plaintiffs no longer pursued their argument in relation to an extension of time. Notwithstanding that concession, it is necessary to set out the circumstances of the delay in order to explain whether the extension should be granted. Those circumstances are also relevant to the question of conferral.
Mr Golem is the solicitor within Herbert Smith Freehills who has the conduct of this matter on behalf of the applicants. He explained that shortly after accepting service of the summons on behalf of the applicants on 4 March 2015, he took steps to brief counsel in relation to the matter. A brief was then prepared and provided, and conferences and exchanges with counsel followed. By 27 March 2015, senior and junior counsel provided advice in relation to steps to be taken to discharge the summonses. Mr Golem then obtained instructions from his clients in respect of the advice provided by counsel. On 30 March 2015 he received instructions to take steps to have the summons withdrawn or discharged. It was only in the course of preparing the documents to be filed and served as part of the application that the issue of the time limit under r 11.5 of the Corporations Rules was identified. The following day, Mr Golem wrote to Lavan Legal, the solicitors for the plaintiffs, advising of the applicants' contentions that the examination summonses should be set aside, and seeking access to certain documents. The letter enquired whether, in light of the assertions contained in it, the summonses might be withdrawn, and sought a reply by 5.00 pm on the following day, 1 April 2015. The letter concluded by advising that Mr Golem's firm had instructions to bring an application to seek to have the summonses set aside without further notice.
On 1 April 2015, the plaintiffs' solicitors responded, complaining about the short time frame for a substantive response. The letter sought further information as to the basis upon which it was contended that the examination summonses were liable to be set aside. The solicitors otherwise declined to respond further to the letter until such time as their enquiries as to the legal basis of the proposed application were dealt with.
On 2 April 2015, Herbert Smith Freehills wrote to Lavan Legal advising that they were not in a position to provide further time to consider the matters, and were instructed immediately to make an application to set aside the summonses '[i]n view of the approaching first return date of the Summonses'. The letter concluded:
Despite taking this step, our clients remain willing to confer in relation to the issues raised in your letter.
The delay in bringing the application to set aside appears to have resulted from an oversight by the applicants' legal advisers as to the time limit imposed under r 11.5 of the Coporations Rules. The oversight occurred in the context of what appears to be timely endeavours by the solicitors and counsel to give full consideration to the substantive legal and factual issues surrounding any application to set aside the summonses. Given the complexities of the issues involved, it cannot be said that there was any inordinate delay in the process of consideration of an application. Such delay as there was, was not attributable to the applicants themselves.
In those circumstances, I consider that the plaintiffs' decision not to pursue their opposition to a grant of an extension of time was appropriately made. There should be an order that time for the making of an application to set aside the examination summonses should be extended to 2 April 2015, the date on which the applications were made.
Conferral
Order 59 r 9 of the Rules provides that no order shall be made on an application in chambers unless the application was filed with a memorandum stating that the parties have conferred to try to resolve the matters giving rise to the application, and which matters remain in issue. By O 59 r 9(2), the Court may waive that requirement in case of urgency or for other good reason.
The plaintiffs contend that O 59 r 9(1) should operate in this case so that the Court cannot make an order on the substantive application to set aside the examination summonses.
There was no conferral in relation to the application beyond the correspondence which I have outlined in relation to the extension of time question. That exchange of correspondence is not adequate conferral for the purpose of O 59 r 9. The applicants contend, however, that the requirement to comply with O 59 r 9(1) should be waived by reason of urgency. That urgency is said to arise from the fact that the summonses were returnable on 9 April 2015. The applicants contend that conferral could only sensibly happen after counsel had provided advice in relation to an application to set aside the summonses, which advice was the subject of the letter from Herbert Smith Freehills to Lavan Legal of 31 March 2015. The response to that letter was received on 1 April, being the Wednesday before the Easter holidays, which extended from 3 to 6 April. The examination summonses were returnable on 9 April. An exchange of correspondence between the parties' solicitors on 31 March and 1 April made it clear that further conferral would inevitably take some time, having regard to each party's request to the other for further information and the inevitability that that provision of that information by either party would take at least some further time.
Having regard to the impending return date for the examination of summonses, and the fact that an application to set aside the summonses was already well out of time, and required an extension of time, I accept the applicants' contention that, by the time conferral became appropriate, the matter had become urgent. In those circumstances, I would waive the requirement for compliance with O 59 r 9(1).
An arguable case
As the applicants correctly submit, the plaintiffs do not advance any submissions as to their purpose in seeking orders for examination. Rather, they approach the matter by way of demurrer, claiming that, as a matter of law, the purposes that are relied upon by the applicants are not improper.
The parties advanced extensive argument, by reference to detailed consideration of previous authority, on the question of whether or not the improper purposes asserted are capable of supporting an arguable case to set aside the examination summonses. The preliminary objections to the applicants' application concerning an extension of time and conferral now having been dealt with, the question of improper purposes is the only matter to be dealt with in the final hearing of this application. It would be inappropriate, at this stage of the proceedings, to embark upon a detailed analysis of the authorities referred to by the parties, and express any conclusion on them if, as I do, I reach the conclusion that, for the purposes of considering access to the supporting affidavit, the applicants have raised an arguable case of improper purpose.
The plaintiffs accept that it is uncontroversial that an examination will be for an improper purpose if it cannot be characterised as being for the benefit of the company, its contributories or creditors.[8] In this case, the applicants assert that the financial position of the company is such that if all potential claims against Samsung are realised, the maximum amount recovered will serve only to benefit the secured creditor and have no bearing on, or benefit to, the company or its other creditors. There are factual issues which are raised in the affidavits as to whether that contention is correct. However, I do not consider that it is appropriate to seek to resolve those factual questions in the context of the present interlocutory application.
[8] Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 [143], [222], [252].
Reliance was placed by the applicants on previous correspondence and documents concerning the involvement of the receivers in the decision to bring the application for examination summonses. That correspondence supports an argument that it is the receivers that have caused the application to be made and who will have a very close involvement in any proceedings that may eventuate from the examination, no doubt because of the likely benefit to the receivers' appointor. There are factual aspects of this case which differ from the factual background of the various cases to which the parties referred, concerning the necessary benefit to the company, it contributors or its creditors. In order to fully present their case in relation to the role of the receivers in relation to the examination summonses, and the consequences which flow from that role, the appellants should be in a position to address all evidence upon which they wish to rely, which may include the content of the affidavit to which they seek access. Whilst I recognise the force of the plaintiffs' submissions in relation to the issue as to who benefits from the proceedings, I do not consider that the applicants' case is unarguable. It is not appropriate to endeavour to finally resolve the issue until such time as the applicants are in possession of all materials on which they wish to rely so that the matter can be fully argued at a final hearing.
I am of the same view in relation to the second of the applicants' contentions. The applicants contend, and I do not understand it to be in issue, that Forge and Samsung are obliged to resolve any differences or dispute between them in relation to the subcontract, which appears to be the only relevant source of rights and obligations between them, by arbitration. Certain disputes have already been referred to arbitration. The procedure to be followed in the arbitration is governed by the law of Singapore. The receivers assert security rights on contractual claims by Forge against Samsung pursuant to the subcontract which are to be determined by arbitration. Forge contends that the notice to Samsung to produce documents is, in effect, a step to obtain pre-arbitration discovery, a forensic advantage not available under the procedural rules applicable to the arbitration in Singapore, nor available under O 26A r 4 of the Rules. On that basis, the applicants contend that the liquidators are, in effect, assisting the receivers to circumvent the arbitral process.
In my view, this is not a question which should be determined until all factual matters which the parties wish to put before the Court are available.
The applicants refer to the proposition identified in Re New Tel Ltd (in liq); Evans v Wainter Pty Ltd that a creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration. The plaintiffs contend that that proposition, and statements to the same effect made in other cases, focus on 'a creditor' obtaining an otherwise unavailable forensic advantage. As the plaintiffs correctly submit, the claims to which the examination must inevitably be directed are claims of Forge, not of the secured creditor, albeit that the secured creditor stands to gain by a successful outcome. There may be considerable force in that submission. There are, however, particular facts in this case, illustrated by the course of correspondence over time since Forge went into liquidation, which indicate a particular involvement on the part of the receivers in the decision to pursue the examinations. In my view, the question as to whether that leads to a finding of improper purpose is one which should only be determined when all of the evidence which either party wishes to rely upon is available. For present purposes, I am satisfied that the applicants have raised an arguable case in relation to the purpose.
Should the affidavit be released for inspection?
Once an arguable case, to which the material is relevant, is established, the discretion will normally be exercised in favour of the application for inspection.[9] As indicated above, in order to determine whether the affidavit material is actually relevant, it is usually preferable for the Court to examine the affidavit. I have undertaken that task. I am satisfied that, as might be expected, the affidavit is relevant to the question of the purpose for which the application was made, and I do not consider that I would be able to fairly and properly dispose of the application to set aside the summonses if that evidence were not available to the parties.
[9] Re Excel Finance Corp Ltd; Worthley v England (1994) 52 FCR 69, 94.
It was common ground between the applicants and the plaintiffs that access should, at least in the first instance, be limited to the applicants' solicitors and counsel, with liberty to apply. There should be an order to that effect.
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