Re Palandri Ltd (in liq); Ex Parte Cussen, Doran and Greig in their capacities as liquidators of Palandri Ltd (in liq)
[2012] WASC 399
•30 OCTOBER 2012
RE PALANDRI LTD (in liq); EX PARTE CUSSEN, DORAN & GREIG in their capacities as liquidators of PALANDRI LTD (in liq) [2012] WASC 399
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 399 | |
| Case No: | COR:69/2011 | 30 AUGUST 2012 | |
| Coram: | MASTER SANDERSON | 30/10/12 | |
| 9 | Judgment Part: | 1 of 1 | |
| Result: | Amendment allowed | ||
| B | |||
| PDF Version |
| Parties: | NEIL ROBERT CUSSEN, GARY PETER DORAN and JOHN LEITHBRIDGE GREIG in their capacities as liquidators of PALANDRI LTD (in liq) PWPL (formerly PALANDRI WINE PRODUCTION LTD) (in liq) PWL LTD (formerly PALANDRI WINES LTD) (in liq) PIML LTD (formerly PALANDRI INVESTMENT MANAGEMENT LTD) (in liq) PFL LTD (formerly PALANDRI FINANCE LTD) (in liq) MRWIPL PTY LTD (formerly MARGARET RIVER WINE INVESTMENTS PTY LTD) (in liq) |
Catchwords: | Corporations Act 2001 (Cth) Application to amend examination summons Turns on own facts |
Legislation: | Nil |
Case References: | Boys v Quigley (as Receiver and Manager of Geneva Finance Ltd) [2002] WASCA 99 Grosvenor Hill (Queensland) Pty Ltd v Barber (1994) 120 ALR 262 Re Bosun Pty Ltd (in liq); Kotses v Sheahan [2000] SASC 348 S & V Nominees Pty Ltd (in liq) v Rabobank Australia Ltd [2010] FCA 429 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
NEIL ROBERT CUSSEN, GARY PETER DORAN and JOHN LEITHBRIDGE GREIG in their capacities as liquidators of PALANDRI LTD (in liq)
PWPL (formerly PALANDRI WINE PRODUCTION LTD) (in liq)
PWL LTD (formerly PALANDRI WINES LTD) (in liq)
PIML LTD (formerly PALANDRI INVESTMENT MANAGEMENT LTD) (in liq)
PFL LTD (formerly PALANDRI FINANCE LTD) (in liq)
MRWIPL PTY LTD (formerly MARGARET RIVER WINE INVESTMENTS PTY LTD) (in liq)
Plaintiffs
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Catchwords:
Corporations Act 2001 (Cth) - Application to amend examination summons - Turns on own facts
Legislation:
Nil
Result:
Amendment allowed
Category: B
Representation:
Counsel:
Plaintiffs : Mr W C Zappia
Solicitors:
Plaintiffs : Lavan Legal
Case(s) referred to in judgment(s):
Boys v Quigley (as Receiver and Manager of Geneva Finance Ltd) [2002] WASCA 99
Grosvenor Hill (Queensland) Pty Ltd v Barber (1994) 120 ALR 262
Re Bosun Pty Ltd (in liq); Kotses v Sheahan [2000] SASC 348
S & V Nominees Pty Ltd (in liq) v Rabobank Australia Ltd [2010] FCA 429
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1 MASTER SANDERSON: By interlocutory process filed 19 July 2012 the plaintiffs sought to vary an examination summons granted on 8 June 2011. The interlocutory process offers a number of different alternatives to achieve the same end. Essentially, the plaintiffs seek to expand the categories of documents the respondent is to produce under the terms of the summons. I will set out these categories of expanded documents later in these reasons. First, it is necessary to provide some background to this application.
2 The applicants are the liquidators of a group of companies and a number of managed investment schemes. In particular, they are the liquidators of the Margaret River Wine Business Managed Investment Scheme (MRWB) and the Palandri America Wine Business Managed Investment Scheme (PAWB). PWL-ACN 0842524848 Ltd (formerly known as Palandri Wines Ltd) (PWL) is one of the entities that comprise the group and is the responsible entity for the schemes.
3 The respondent is a partner of the chartered accountancy partnership known as 'Grant Thornton (WA) Partnership' and formerly known as 'Bentleys MRI Perth Partnership' (Grant Thornton). At material times, Mr Patrick Warr and Mr Morris Anghie were also partners of Grant Thornton.
4 On 8 June 2011, the court issued a summons for public examination of the respondent pursuant to s 596B of the Corporations Act 2001 (Cth) (the Act). In support of the application to issue the summons, the plaintiffs relied on an affidavit of Gary Peter Doran sworn 19 July 2012. By this application the plaintiffs sought to maintain confidentiality over that affidavit. However by the time this matter came on for hearing, the plaintiffs had provided the defendant with a copy of the annexures to the affidavit and at the commencement of the hearing counsel for the plaintiffs indicated the plaintiffs had no objection to a copy of the affidavit itself being provided to the defendant. This was done. As a consequence the submissions of counsel for the defendant were informed by the contents of the Doran affidavit.
5 The documents the summons would have the defendant produce are first, the respondents or his partners' books and records or audit files in relation to the compliance plan audit for MRWB for the financial years ended 30 June 2005 and 30 June 2006. Second, the same documents for the compliance plan audit for PAWB for the years ended 30 June 2005 and 2006. Thirdly, the respondents' professional indemnity insurance
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- policies for the financial years ending 30 June 2005, 30 June 2006 and 30 June 2007.
6 The 2005 MRWB Report and the 2005 PAWB Report were signed by the respondent on 30 September 2005. The financial statements for PWL for the year ended 30 June 2005 were finalised by Mr Anghie on 27 October 2005. The 2006 MRWB Report and the 2006 PAWB Report were signed by Mr Warr on 11 June 2007. The financial statements for PWL for the year ended 30 June 2006 were finalised by the respondent on 6 December 2007.
7 There were two critical matters on this application. First, whether the documents were relevant to the examinable affairs of the applicant companies and the schemes. Second, whether the interlocutory process in its different manifestations was oppressive.
8 Prior to the issue of the originating process in this matter, the appellants disclosed to the respondent the nature of information they were seeking to obtain in a letter dated 22 December 2008. That letter appears as annexure MJH1 to an affidavit of the respondent sworn 15 August 2012. As detailed in this letter, potential claims against the respondent relate to whether financial statements of the applicant companies were correct. The alleged errors in the financial statement only relate to the financial years 30 June 2006 and 2007. It also appears the alleged errors relate to two matters. First, whether certain subleases were properly terminated and second, whether there was evidence of bad debtors which should have led to the reclassification of those debtors as non-current and then as an impaired asset.
9 On behalf of the respondent, it was submitted there was no basis advanced to show that the compliance plan audit documents were likely to contain any information relevant to those errors.
10 On behalf of the plaintiffs, it was said that the purpose of the present application was not limited to obtaining information in relation to the potential claims notified in the correspondence. Rather, the applicants' purpose was to obtain information regarding a range of potential causes of action the group or schemes may have against the respondent and his partners. In general terms, it was said the applicants considered causes of action may exist against the auditors in relation to the preparation of the financial statement audit reports and in the preparation of a compliance plan audit report. The second of these two areas requires further elucidation.
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11 Section 601FA of the Act requires a responsible entity of a registered scheme to be a public company that holds an Australian Financial Services Licence authorising it to operate a managed investment scheme. Under s 601FC(1)(g) a responsible entity operating a management investment scheme has to ensure the scheme's compliance plan meets the requirements of s 601HA.
12 Section 601HA details the contents of the compliance plan. Pursuant to s 601HA(1)(d) the plan must set out the arrangements for ensuring the compliance plan is audited in accordance with s 601HG. The overarching requirement of s 601HA is the compliance plan must set out adequate measures to show the responsible entity is taking in operating the scheme to ensure compliance with the Act. This includes the requirement in s 601FA that the responsible entity hold the Australian Financial Services Licence.
13 Section 601HG(1) requires the responsible entity of a registered scheme must ensure that at all times a registered company auditor, an audit firm or an authorised audit company, is engaged to audit compliance with the scheme's compliance plan. None of this is discretionary. The Act proscribes a strict regime for the routine and proscriptive auditing of a responsible entity's compliance plan.
14 The plaintiffs detail the potential cause of action available against the respondent and his partners as auditors in respect of preparation of the compliance audit reports in the following way. The 2005 MRWB Report and the 2005 PAWB Report were finalised and signed by the respondent on 30 September 2005. This was prior to the finalisation of PWL's financial statements for the year ended 30 June 2005. That occurred on 27 October 2005. Similarly, the 2006 MRWB Report and the 2006 PAWB Report were finalised and signed by Mr Warr on 11 June 2007. This was prior to the finalisation of PWL's financial statements for the year ended 30 June 2006 which occurred on 6 December 2007.
15 By virtue of s 601FA of the Act (and the compliance plans themselves) PWL is required to comply with the terms of its Australian Financial Services Licence. This licence requires PWL to lodge financial statement audit reports each financial year and to state whether PWL has complied with the financial requirements of the Australian Financial Services Licence. The financial statement audit reports are therefore directly relevant to the Compliance Plan Audit Reports.
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16 The information in the finalised financial statements for PWL and the Schemes for the financial years ended 30 June 2005 and 30 June 2006 indicated that PWL may not be able to continue as a going concern. This ultimately led the auditors to qualify their audit of these financial statements. Given that the financial statements for PWL were not finalised at the time the Compliance Plan Audit Reports were prepared, it is unclear what information the auditors relied upon in relation to the financial position of PWL and the Schemes.
17 The plaintiffs allege had the auditors had regard to PWL's likely inability to continue as a going concern, they ought to have identified matters suggesting that each of the schemes were unable to continue as going concerns. That in turn, so it is argued, would have led to an auditor who was exercising due care and skill making appropriate inquiries as to the Schemes' ability to continue as a going concern into the foreseeable future. The plaintiffs also say it would have led an auditor to consider notifying ASIC that PWL was in breach of the terms of its AFSL and there was a potential for insolvent trading.
18 The compliance plan audit reports were qualified but only with regard to the financial statements being despatched to members of the scheme outside the timeframe prescribed by the compliance plans. The compliance plan audit reports did not contain any qualification regarding the potential breach of the Australian Financial Services Licence. Had this been done, there would have been a breach of s 601FA and therefore a breach of the compliance plans. Moreover, the plaintiffs say it is difficult to understand how the compliance plan audit reports could have been signed off in circumstances when PWL had not lodged its financial statement audit report stating inter alia, it had complied with all of the financial requirements of s 4 - s 12 of its Australian Financial Services Licence.
19 The phrase 'examinable affairs' is defined in s 9 of the Act as follows:
(a) the promotion, formation, management, administration or winding up of a corporation; or
(b) the other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or
(c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b).
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20 Section 53 of the Act relevantly provides that for the purposes of the definition of 'examinable affairs', the affairs of a body corporate include (amongst other things):
(j) where the body has made available interests in a managed investment scheme - any matters concerning the financial or business undertaking, scheme, common enterprise or investment contract to which the interests relate; and
(k) matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph.
21 It was submitted on behalf of the plaintiffs, the statutory definition of 'examinable affairs' expressly includes matters concerning the schemes and matters relating to or arising out of the audit of the schemes. Clearly that submission is correct.
22 Turning to the facts of this case, it is convenient to deal first with the insurance policies. Clearly they fall within the statutory definition of the examinable affairs of the group and the schemes. There are numerous cases which support the proposition insurance policies are relevant to the examinable affairs of a company: see for example Grosvenor Hill (Queensland) Pty Ltd v Barber (1994) 120 ALR 262.
23 The defendant does not dispute insurance policies are relevant. However on his behalf it is said the insurance cover available to the defendant is on a 'claims made and notified' basis. A claim was made in 2008. That therefore is the insurance policy which is relevant. In my view to go beyond that policy is unnecessary. I would therefore so limit the documents to be provided by the respondent.
24 The remainder of the additional documents sought by the plaintiffs seem to me to fall within the rubric of examinable affairs. Essentially I accept the submissions made on behalf of the plaintiffs as to the relevance of these documents. They are clearly important to allow the plaintiffs to determine whether or not the auditors have properly carried out their task. As such the documents ought prima facie be produced.
25 The court is empowered by s 597(9) of the Act to direct the respondent to produce books that are in the respondent's possession and are relevant to matters to which the examination relates or will relate. It is necessary for the court to be satisfied the respondent may be able to produce the documents not that the person is able to produce the documents: see S & V Nominees Pty Ltd (in liq) v Rabobank Australia
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- Ltd [2010] FCA 429. There is no evidence to suggest the documents are not in the possession of the respondent. Furthermore, the circumstances of the case suggest it is highly likely these documents will be in the possession of the respondent.
26 The remaining question is whether or not in the exercise of discretion I should allow amendment of the examination summonses. In exercising a discretion under s 597(9) of the Act, the court must be guided by the statutory purpose of the section to determine whether or not the information is relevant to the applicants for the purpose of performing their statutory duties and whether, and in what manner, the respondent needs to be safeguarded from any oppressive exercise of power: see Grosvenor Hill (272).
27 In my view there is no doubt the court has power to amend an existing summons. That power is found in the Rules of the Supreme Court 1971 (WA) O 21 r 7(1). In the past I have allowed such amendments to be made: see Boys v Quigley (as Receiver and Manager of Geneva Finance Ltd) [2002] WASCA 99 [13].
28 The respondent resists the application on three grounds. First it is said the application is an abuse of process. It is submitted what the plaintiffs are doing is using the examination summons for the sole purpose of obtaining documents. That is impermissible: see Rabobank [39]. In my view this claim is not made out.
29 The extent of the deficit between the groups' assets and liabilities is significant. At the time the respondent produced documents pursuant to the existing summons, the pool of assets available on the liquidation of the group was insufficient to allow the applicants to review and analyse these documents in any detail. The applicants now having had the opportunity to conduct a detailed analysis of the documents already produced by the respondent, the applicants are now alert to the possible existence of further causes of action against the respondent.
30 I see nothing in the facts which would suggest the amendment to the examination summonses is an abuse of process.
31 Nor am I satisfied the second of the respondent's arguments that is there has been undue delay is made out. What is apparent is until recently, the plaintiffs have not had the funds to undertake the investigations they would wish. They now have those funds. A delay of 15 months since issuing the summonses does not render any application for amendment an abuse of process: see Re Bosun Pty Ltd (in liq);
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- Kotses v Sheahan [2000] SASC 348 (Martin J) [18]. To make good this ground the respondent would have to show the delay has resulted in some prejudice to him. No such prejudice has been shown. I am therefore not satisfied the delay is an abuse of process.
32 Finally it was suggested statements by counsel on the return of the summons before Registrar Whitby in someway limited the plaintiffs' capacity to seek subsequent amendment of the summons. I do not accept that argument. A copy of the transcript of the hearing before Registrar Whitby appears as annexure AMD 16 to the affidavit of Alexandra Margaret Brundenell Derham sworn 15 August 2012. There is nothing in that hearing which could possibly give rise to a res judicata. In my view there is nothing which would amount to an abuse of process.
33 In my view the proper course is to allow amendment of the presently extant examination summons.
34 As to costs the respondent submitted as the plaintiffs had changed their position with respect to this application at the last minute and further as they were seeking an indulgence of the court, they should pay the costs of the application. There is merit in that submission. However I will provide the plaintiffs with the opportunity to make submissions with respect to costs.
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