Re Mervyn Jonathan Kitay As Liquidator of T&L Produce Marketing - [2022] WASC 299

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE MERVYN JONATHAN KITAY AS LIQUIDATOR OF T&L PRODUCE MARKETING; EX PARTE MERVYN JONATHAN KITAY AS LIQUIDATOR OF T&L PRODUCE MARKETING [2022] WASC 299
CORAM:   HILL J
HEARD:   26 AUGUST 2022
DELIVERED          :   29 AUGUST 2022
PUBLISHED           :   2 SEPTEMBER 2022
FILE NO/S:   COR 105 of 2022
MATTER:   IN THE MATTER OF MERVYN JONATHAN KITAY AS LIQUIDATOR OF T&L PRODUCE MARKETING

EX PARTE
MERVYN JONATHAN KITAY AS LIQUIDATOR OF T L PRODUCE MARKETING
Plaintiff
HARISI TRANDOS and DANNY CHRIS TRANDOS
Interested Party

Catchwords:

Corporations law – Application to set aside examination summonses – Application for inspection of affidavit in support of application for examination summons – Whether the examinees have established an arguable case that the summonses were sought for an improper purpose or involved an abuse of process - Application for examinations to be held in private – Applications dismissed

Legislation:

Corporations Act 2001 (Cth) s 9, s 53, s 596A, s 596B, s 596C, s 597

Supreme Court (Corporations) (WA) Rules 2004 (WA), r 11.5

Result:

Applications dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	S D Majteles
Interested Party	:	T Houweling

Solicitors:

Plaintiff	:	Edwards Mac Scovell Legal
Interested Party	:	Cornerstone Legal

Cases referred to in decision:

Bazzo v Robert Michael Kirman and William James Harris as joint and several liquidators of Whitby Land Company Pty Ltd (in liquidation) [2021] WASCA 170
Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 221 ALR 331
Friedrich v Herald and Weekly Times Ltd [1990] VR 995; (1989) 1 ACSR 277
Lombe in the matter of Babcock and Brown Ltd (in liq) [2022] FCA 957
Re Mustang Marine Australia Services Pty Ltd [2014] NSWSC 136
Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [2022] HCA 3

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

On 2 August 2022, on the application of the plaintiff, who is the liquidator of T&L Produce Marketing Pty Ltd (T&L), Strk J made orders for examination summonses to be issued to each of Harisi Trandos and Danny Trandos (the examinees).
The examination summonses were served on the examinees on 19 August 2022. On 22 August 2022, within the three day time period prescribed by r 11.5 of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules), the examinees filed an application for the discharge of the examination summons. In support of the application, the examinees relied on an affidavit of their solicitor, Ebonny Jane Bell, filed 22 August 2022.
Each summons requires the examinee to attend for examination and to produce 12 categories of documents. The first five concern the assets of each of the examinees. The remaining categories concern Trandos Hydroponic Growers Pty Ltd (THG) and require production of documents in relation to the supply of strawberry plants to T&L, financial records and assets of THG, and any insurance policies.
The examinees also sought an order for access to the affidavit that was filed in support of the application for examination summons.
In the alternative to the order setting aside the summonses, the examinees sought an order that the examinations be held in private.
Initially, the examinees also sought an order that they be given leave to rely on certain documents which had been filed in CIV 3187 of 2018. However, this application was withdrawn after counsel for the plaintiff confirmed that the matters referred to in Ms Bell's affidavit were not in dispute for the purpose of this application.

Factual background

The factual background to the application was not in dispute between the parties.
The examinees are both officers of THG. THG operates a farm that grows seedlings for commercial production. In the course of their business, they supplied strawberry plants to T&L.
In 2017 and 2018, Mr Kitay was engaged by the examinees to investigate a quarantine incident involving THG.[1]
[1] Affidavit of Ebonny Jane Bell filed 22 August 2022 [24(a)] - [24(b)].
In May 2018, T&L commenced proceedings against THG, being proceedings CIV 3187 of 2018, in relation to a contract for the supply of strawberry plants.[2]
[2] Affidavit of Ebonny Jane Bell filed 22 August 2022 [11] - [12].
On 30 October 2020, in CIV 3187 of 2018, T&L filed an application to join the examinees to those proceedings and to amend its statement of claim and writ to include a cause of action for misleading and deceptive conduct under the Australian Consumer Law. This application was dismissed by Registrar Whitbread on 18 February 2021. At the time the application was dismissed, counsel for T&L informed the court that they intended to file a new writ including these claims against the examinees and would then seek leave to 'join the matter to the litigation'.
The original proceedings are well advanced with discovery having been provided and expert reports exchanged.
However, as at today's date, the foreshadowed proceedings have not been commenced.
On 15 March 2021, the plaintiff was appointed voluntary administrator of T&L and on 29 April 2021 was appointed liquidator.

Relevant Statutory Provisions

Chapter 5, pt 5.9, div 1 of the Corporations Act 2001 (Cth) (Act) sets out the provisions for a person to be examined about a corporation.
Section 596A provides for mandatory examinations and s 596B sets out the power of the court to order a discretionary examination. Section 596B provides that:
(1)The Court may summon a person for examination about a corporation's examinable affairs if:
(a)an eligible applicant applies for the summons; and
(b)the Court is satisfied that the person:
(i)has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or
(ii)may be able to give information about examinable affairs of the corporation.
Section 9 of the Act defines both 'eligible applicant' and 'examinable affairs' in the following terms:
(a)'eligible applicant', in relation to a corporation, is defined to include, relevantly, a liquidator of the corporation.
(b)'examinable affairs', in relation to a corporation, is defined to include, relevantly, 'any other affairs of the corporation (including anything that is included in the corporation's affairs because of s 53)'.
Section 53 of the Act defines the affairs of a body corporate and includes in its definition the business, trading, transactions and dealings of the company.
Section 596C(1) provides that a person who applies under s 596B must file an affidavit that supports the application and complies with the rules. By s 596C(2), the affidavit is not available for inspection except so far as the court orders.
That is, the starting point is that an affidavit in support of an application for the issue of a summons under s 596B of the Act is not available for inspection unless the court otherwise orders.
Section 597 of the Act sets out the provisions governing the conduct of the examination. Section 597(4) provides that:
An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.
That is, the starting point is that the examination is held public unless the court considers there are special circumstances to otherwise order.

Legal principles

There is a two-stage process on an application for access to the supporting affidavit for the issue of an examination summons.
First, the court is required to determine whether there is an arguable case that the issue of the summons is invalid on the material before the court, other than the supporting affidavit. If an arguable case is established, the court will then inspect the affidavit and form a view as to whether it is in the interests of justice to permit the application.
In Bazzo v Robert Michael Kirman and William James Harris as joint and several liquidators of Whitby Land Company Pty Ltd (in liquidation),[3] the plurality of the Court of Appeal summarised the test that applies on an application for inspection of the affidavit in the following terms:[4]
Where a person to whom an examination summons has been issued applies to the court for an order discharging the summons and, in the context of that application, seeks to inspect the affidavit relied upon by the eligible applicant who applied for the summons, the court must be satisfied that the person who seeks to inspect the affidavit has an arguable case that the examination summons has been issued for an improper purpose or involves an abuse of the court's process. Ordinarily, if the person establishes an arguable case, it can be accepted that there are persuasive grounds for permitting the person or his or her legal representatives to have access to the affidavit.
In Re Excel Finance Corporation Ltd; Worthley v England, Gummow, Hill and Cooper JJ said the court has 'a discretion to order the disclosure, to a prospective examinee, of material lodged in support of the application for an examination order and should do so where the justice of the case so requires'. Their Honours elaborated:
An applicant will not be permitted access to such material to enable him or her to 'fish' for a case. There must be material before the Court from which it appears that the applicant has an arguable case, to which the material is relevant, before the discretion should be exercised in favour of that applicant. But once that appears the discretion will normally be exercised in favour of the application.
In Re Moage, Mansfield J observed in relation to the degree of satisfaction of 'an arguable case' which needs to be made out by the applicant:
In my view it involves no more than that the court requires to be satisfied to an appropriate level of satisfaction that the applicant is not pursuing the application without good cause or without good reason, and in particular is not doing so purely in the hope that, by procuring the release of the affidavit, some evidentiary foundation for the allegation will be made out. In other words, if the applicant is merely 'fishing' for a case, then no reason for exercising the discretion in its favour will exist; if it presents material from which it is shown that it has passed the threshold beyond fishing, and has an arguable case based on that material, then the discretion may be exercised in its favour. Refinements of degrees of arguability is, in my view, unnecessary. (citations omitted)
[3] Bazzo v Robert Michael Kirman and William James Harris as joint and several liquidators of Whitby Land Company Pty Ltd (in liquidation) [2021] WASCA 170.
[4] Bazzo v Kirman and Harris [85] - [87].
In Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq),[5] the High Court considered the purpose and scope of the examination powers under the Act. Kiefel CJ and Keane J stated that:[6]
There can be no doubt that if the predominant purpose of the examination for which an application is made under s 596A, or s 596B, is collateral or foreign to the statutory purpose of such an examination, the application will amount to an abuse of process.
[5] Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [2022] HCA 3.
[6] Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [19].
They went on to state that:[7]
Abuses of process in connection with an application for an examination summons may take many forms. An application brought by a liquidator for an examination for the purpose of rehearsing the cross-examination of a potentially hostile witness in pending litigation would likely be an abuse of process. Other examples may include the cross-examination of a person to destroy their credit and to obtain de facto discovery when an order for discovery has been refused. In these examples, the applicant is seeking a forensic advantage not otherwise available by ordinary pre-trial processes where the legislative purpose is not advanced. They have in common that they are purposes foreign to the statutory purpose, and do not permit the exercise of the statutory power. To do so would be an abuse of that power. In those circumstances it would be an abuse of the processes of the court to seek the exercise of the power.
[7] Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [21].
The court confirmed that the purpose of the examination powers is the 'examinable affairs' of the company and do not authorise an examination to facilitate the investigation or prosecution of a claim that has nothing to do with the external administration of the company and which has been pursued exclusively for the benefit of persons other than the company, or its creditors or contributories considered as a whole.[8]
[8] Walton v ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [87].
An examination to determine whether the corporation would be likely to succeed in litigation against its officers, auditors or third parties is within the examinable affairs of a corporation. This is because this type of examination will assist an eligible applicant in identifying a chose in action which is an asset of the corporation.[9]
[9] Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 221 ALR 331 [81] (Lander J).
It has also previously been held that a legitimate use of the power under s 596B of the Act is to obtain information which might assist in the conduct of litigation. Even if proceedings have been commenced, this does not mean the power cannot be used.[10]
[10] Lombe in the matter of Babcock and Brown Ltd (in liq) [2022] FCA 957 [44].
In Evans v Wainter Pty Ltd, Lander J summarised the legitimate purposes that arise from these sections in the following terms:[11]
First, an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation.
Secondly, it assists the corporation's administrators to identify the corporation's assets, both tangible and intangible. It also allows the corporation's liabilities to be identified.
Thirdly, the purpose is to protect the interests of the corporation's creditors.
Fourthly, it serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation.
Fifthly, it assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations.
[11] Evans v Wainter Pty Ltd [252].
In Re Mustang Marine Australia Services Pty Ltd,[12] Brereton J noted that while this judgment refers to the proposition that the procedure may not be used to allow a party to obtain a forensic advantage, the mere fact that an examination will give a liquidator a forensic advantage in pending or contemplated litigation does not mean the examination an abuse of process. He went on to state:[13]
[T]hose authorities establish that the concept of an examination summons being an abuse of process if used to procure a forensic advantage not available to the ordinary litigant does not extend to using the process as a means of discovery to obtain evidence and admissions which may raise a case to answer or prove the liquidator's case in contemplated or pending proceedings. It may be that if restrictions have been placed on discovery in the substantive proceedings, to seek to circumvent those restrictions would be an abuse of process. Such was the case in the North Australian Territory Company case, to which I have referred.
It might also be that if the examination is sought to be conducted at a very late stage in the proceedings, such that it would interfere with the examinee's preparation for trial, or after all the examinee's evidence was on, so that it was manifestly a rehearsal of the cross-examination, that it would then be an abuse of process. But, as here, where the liquidator's evidence, let alone the director's evidence, has not yet been served, this case does not approach that.
[12] Re Mustang Marine Australia Services Pty Ltd [2014] NSWSC 136.
[13] Re Mustang Marine Australia Services Pty Ltd [45] - [46].
In respect of an application for an examination to be held in private, as was explained by Court of Appeal in Bazzo v Kirman,[14] the policy of the Act is that examinations are generally held in public and that the exception only operates if the court considers that by reason of special circumstances, it is desirable to hold the examination in private.[15]
[14] Bazzo v Kirman [2020] WASCA 43.
[15] Bazzo v Kirman [33].
In Friedrich v Herald and Weekly Times Ltd,[16] it was recognised that the court retains power to control the examination to avoid injustice to the examinee, including by prohibiting publication about the examination where there is a real or substantial risk that publication will cause an interference with the administration of justice which might cause serious injustice. The court said that a non-publication order:[17]
cannot be justified unless it be shown that the particular question and answer or even, arguably, some particular line of questioning will, if published, result in prejudice of a kind which outweighs the need for publicity which the legislature sees as forming an essential element of the purposes of examinations under s 541.
[16] Friedrich v Herald and Weekly Times Ltd [1990] VR 995; (1989) 1 ACSR 277.
[17] Friedrich v Herald and Weekly Times Ltd [1990] VR 995, 1007; (1989) 1 ACSR 277, 291.
In Bazzo v Kirman, the Court of Appeal stated that:[18]
The reference to 'special circumstances' is naturally a reference to circumstances which are unusual or out of the ordinary. However, it is not sufficient that there is something unusual about the circumstances of the case. The power to dispense with a public examination only arises where the court considers that, by reason of special circumstances, it is desirable to hold the examination in private. Something about the unusual or out of the ordinary circumstances must provide the reason why a private examination is desirable.
The condition for the holding of a private examination is a state of satisfaction in the mind of the court. The examination is to be held in public except to such extent that the court considers that, by reason of special circumstances, it is desirable to hold the examination in private. Unless the court is satisfied that is the case, the examination is to be held in public.
[18] Bazzo v Kirman [37].

Submissions

In this case, the examinees sought production of the affidavit in support of the application to their solicitors to enable the solicitors 'to properly review all of the discretionary factors in setting aside the summonses, including the purpose of the examination'.[19]
[19] Examinees' submissions [25].
Counsel for the examinees submitted that the issue of the summonses was not for a proper purpose and was an abuse of process because the plaintiff, as liquidator, already had all the information necessary to be able to commence the proceedings and did not require any further information to commence the proceedings. For this reason, it was contended there was no forensic purpose that would be served by the public examinations. That is, it was contended that this application fell outside the fourth category summarised by Lander J in Evans v Wainter Pty Ltd.[20] To use the words of counsel for the examinees, they 'stand or fall' on this.[21]
[20] Evans v Wainter Pty Ltd [81].
[21] ts 26.
In addition, counsel for the examinees submitted that if the examination summons were allowed to stand, the plaintiff would be placed in a position of advantage which is not extended to other plaintiffs.
In relation to the application for the examinations to be held in private, the examinees contended that the growing industry was a small industry with most growers known to each other, many of whom are creditors of T&L. The evidence of Ms Bell was that over the last 55 years, THG has established and crafted its own methods of farming and cultivation techniques which are its intellectual property not known to the public at large.[22]
[22] Affidavit of Ebonny Jane Bell filed 22 August 2022 [37].

The examinees contended that the documents and information sought by the plaintiff were of a commercially sensitive nature which were not ordinarily disclosed to customers and competitors and that they would suffer significant prejudice if they were required to disclose this information publicly.
The plaintiff opposed each of the orders sought by the examinees. In essence, the plaintiff contended that the examinees had not disclosed any arguable case for the discharge of the summons and on this basis, the application for inspection of the affidavit should be refused and the summons dismissed. In relation to the application for the examination to be held in private, counsel for the plaintiff submitted that no special circumstances had been established by the examinees to support an order in these terms.

Disposition

It is clear from the terms of the summonses that the plaintiff seeks documents in respect of the financial position of each of the examinees as well as the documents in relation to their company's dealings with T&L. The summons are listed on Tuesday 30 August for the production of documents. At this time, the summonses will be adjourned for at least 4 weeks before the examinees are examined on oath.
It is not in dispute between the parties that while there are existing proceedings on foot, the examinees are not parties to those proceedings. It is also not in dispute that there are no current proceedings against the examinees, although proceedings were foreshadowed prior to the appointment of the plaintiff as liquidator.
In my view, the fact that proceedings have previously been foreshadowed against the examinees does not mean that the proposal to undertake examinations of the examinees is not a proper use of the power in s 596B of the Act.
Section 596B of the Act allows examinations to occur in relation to a corporation's examinable affairs. This term is defined in the Act to have an expansive term. The power allows the plaintiff to investigate the assets of the examinees and the prospects of the proposed claim prior to the commencement of any proceedings. The examination will enable the liquidator to obtain evidence and information so that the liquidator can consider the merits of bringing any proceedings, as well as the prospects of recovery. If the liquidator determines to bring proceedings and recovers damages from the examinees, this will be for the benefit of creditors of the company. In addition, if the liquidator, as a result of the examinations, determines that the costs of the proceedings will outweigh any potential benefit and that any proceedings will not be to the benefit of creditors, this will also benefit the creditors.
I do not accept that the fact that proceedings were foreshadowed prior to the appointment of the liquidator means that the examinations will not serve this purpose.
While I accept that in allowing the examination summonses to stand, the plaintiff will obtain an advantage that is not available to other litigants, this of itself does not mean the examination summonses are an abuse of process. The authorities to which I have already referred make plain that this is a result which is clearly envisaged by the legislation.
Having considered the affidavit of Ms Bell, the written submissions filed by both parties as well as their oral submissions, I do not consider the examinees have established they have an arguable case to set aside the examination summonses. On this basis, I refuse the application to inspect the affidavit. In circumstances where that I do not consider the examinees have an arguable case to set aside the examination summonses, I also dismiss the application to discharge the summonses.
Turning then to the question as to whether the examinations should be held in private. The basis put forward by the examinees was that:
(a)THG has methods of farming and cultivation techniques which are not known to the public at large;
(b)THG operates in a small industry, many of whom are creditors of T&L;
(c)the documents and information sought by the plaintiff are commercially sensitive and would not ordinarily be disclosed to customers or competitors; and
(d)THG will suffer significant prejudice if they are required to disclose this information publicly.
The phrase 'special circumstances' is not defined in the Act. In most cases in which the courts have held that examinations should be held in private, the applicants have been facing related criminal charges. In this case, there are no such charges nor is there any suggestion this will occur.
In relation to the matters relied upon by the examinees, their evidence is at a very high level. They have not descended into any detail as to what the intellectual property is, why the documents sought are commercially sensitive or what, if any, prejudice they may suffer if these documents are disclosed or if they are asked questions about them.
In circumstances where the section, and its policy, makes plain that the starting point is that examinations are to be held in public, I do not consider the examinees have put forward any special circumstances which would cause the court to consider that it is desirable to hold the examination in private.
In forming this view, I take into account the fact that the judicial officer who will preside over the examination has wide powers to control the examination, including in relation to the access to documents and the questions that can be asked. These powers will sufficiently protect any commercially sensitive information that may be the subject of the examination.
For these reasons, I also dismiss the examinees' application for the examination to be held in private.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
HW
Associate to the Honourable Justice Hill
2 SEPTEMBER 2022