Re Southern Wine Corporation
[2005] WASC 21
RE SOUTHERN WINE CORPORATION; EX PARTE GLENN ROBERT FEATHERBY and MARK DAVID REILLY in their capacity as Liquidators of SOUTHERN WINE CORPORATION LTD (IN LIQ) [2005] WASC 21
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 21 | |
| Case No: | COR:235/2004 | 1 DECEMBER 2004 | |
| Coram: | MASTER NEWNES | 28/02/05 | |
| 19 | Judgment Part: | 1 of 1 | |
| Result: | Applications to set aside dismissed | ||
| B | |||
| PDF Version |
| Parties: | GLENN ROBERT FEATHERBY and MARK DAVID REILLY in their capacity as Liquidators of SOUTHERN WINE CORPORATION LTD (IN LIQ) (ACN 083 901 786) SOUTHERN WINE CORPORATION LTD (IN LIQ) (ACN 083 901 786) |
Catchwords: | Corporations Liquidation Summonses for examination and directions to produce issued on application of liquidators Application to set aside summonses and directions or for access to affidavit filed under s 596C Relevant principles Whether summonses and directions to produce sought for improper purpose Whether categories of documents to be produced too wide Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 596, s 596B, s 596C, s 596D, s 597(9) |
Case References: | Bond v England (1997) 25 ACSR 394 Boys & Ors v Quigley (as Receiver and Manager of Geneva Finance Ltd) (2002) WASCA 99 HongKong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512 New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 Re BPFC Ltd (in liq) (1994) 14 ACSR 460 Re Coretel Pty Ltd (Subject Deed of Company Arrangement) (2003) 48 ACSR 178 Re Excel Finance Corporation Ltd (1994) 52 FCR 69 Re Hugh J Roberts Pty Ltd (in liq) (1970) 2 NSWLR 582 Re Leisure Developments (Qld) Pty Ltd v Palmer (2002) NSWSC 248 Re Southern Equity Corporation Ltd (in liq); Bond v England 24 ACSR 472 Sent & Ors v Andrews (2002) VSCA 209 Williams v Spautz (1992) 174 CLR 509 Worthley v England (1994) 124 ALR 281 Ader & Anor v Qintex Group Management Services Pty Ltd (in liq) 22 ACSR 446 Moage Ltd (in liq) Re Shean & Pittorino (1997) 25 ASCR 53 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
GLENN ROBERT FEATHERBY and MARK DAVID REILLY in their capacity as Liquidators of SOUTHERN WINE CORPORATION LTD (IN LIQ) (ACN 083 901 786)
Applicants
Catchwords:
Corporations - Liquidation - Summonses for examination and directions to produce issued on application of liquidators - Application to set aside summonses and directions or for access to affidavit filed under s 596C - Relevant principles - Whether summonses and directions to produce sought for improper purpose - Whether categories of documents to be produced too wide - Turns on own facts
(Page 2)
Legislation:
Corporations Act 2001 (Cth), s 596, s 596B, s 596C, s 596D, s 597(9)
Result:
Applications to set aside dismissed
Category: B
Representation:
Counsel:
Applicants : Mr M G Pendlebury
Plaintiffs : Mr K L Christensen
Solicitors:
Applicants : Corrs Chambers Westgarth
Plaintiffs : Christensen Vaughan
Case(s) referred to in judgment(s):
Bond v England (1997) 25 ACSR 394
Boys & Ors v Quigley (as Receiver and Manager of Geneva Finance Ltd) (2002) WASCA 99
HongKong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512
New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610
Re BPFC Ltd (in liq) (1994) 14 ACSR 460
Re Coretel Pty Ltd (Subject Deed of Company Arrangement) (2003) 48 ACSR 178
Re Excel Finance Corporation Ltd (1994) 52 FCR 69
Re Hugh J Roberts Pty Ltd (in liq) (1970) 2 NSWLR 582
Re Leisure Developments (Qld) Pty Ltd v Palmer (2002) NSWSC 248
Re Southern Equity Corporation Ltd (in liq); Bond v England 24 ACSR 472
Sent & Ors v Andrews (2002) VSCA 209
Williams v Spautz (1992) 174 CLR 509
(Page 3)
Worthley v England (1994) 124 ALR 281
Case(s) also cited:
Ader & Anor v Qintex Group Management Services Pty Ltd (in liq) 22 ACSR 446
Moage Ltd (in liq) Re Shean & Pittorino (1997) 25 ASCR 53
(Page 4)
1 MASTER NEWNES: This is an application to set aside summonses for examination and directions to produce documents issued pursuant to s 596B and s 597(9) respectively of the Corporations Act 2001 (Cth). The summonses and directions were issued on the application of the plaintiffs as liquidators of Southern Wine Corporation Ltd (in liq).
2 On 5 August 2004 the plaintiffs applied for a summons for examination pursuant to s 596B of the Act to be issued to each of Michael Silbert, Craig Readhead and David Carr requiring them to attend before a Registrar of the Court to be examined about the examinable affairs of the company. The liquidators also applied for a direction to produce documents to be issued to each of Evans & Tate Ltd, Southern Olive Management Pty Ltd ("SOM") and Frankland River Olive Company Ltd ("FROC"). I will come back to the terms of the directions in due course. Mr Silbert is a director and the in-house counsel of Evans & Tate. Messrs Readhead and Carr are each directors of SOM and FROC. I should also note that FROC and SOM have common directors.
3 On 18 August 2004 orders were made for the summonses and directions to be issued. On 21 September 2004 applications were made on behalf of each of the examinees, and each of the companies subject to the direction to produce documents, seeking orders that those summonses and directions respectively be set aside and, in the alternative, that the applicant be allowed access to all affidavits filed in support of the original application.
4 It is necessary first to say something about the applicable statutory framework.
5 So far as it is relevant, Pt 5.9 of the Act provides that the Court may summon a person for examination about a corporation's "examinable affairs" (as defined in s 9 of the Act) if, among other things, the Court is satisfied that the person "may be able to give information about examinable affairs of the corporation" (s 596B(1)(b)(ii)). A summons under s 596B requires the person to attend before the Court to be examined on oath about the corporation's examinable affairs: s 596D(1)(b). The Court may direct a person to produce, at an examination of that or any other person, "books" (defined in s 9 to include a "document") in the first mentioned person's possession that "are relevant to matters to which the examination relates or will relate": s 597(9).
6 "Examinable affairs" as defined in s 9 means, among other things:
(Page 5)
- "(a) the promotion, formation, management, administration or winding-up of a corporation; or
(b) any other affairs of the corporation (including anything that is included in the corporation's affairs because of s 53) …"
7 Section 53(a) of the Act provides that, for the purposes of the definition of examinable affairs in s 9, the affairs of a body corporate include:
"(a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body …"
8 It is necessary in order to put the present applications in context to set out some of the background of the matter.
9 Southern Wine Corporation Ltd ("SWC") was the responsible entity of a managed investment scheme known as "SWC MIS". The scheme is now known as Preston Vale MIS. The scheme was established by SWC for the purpose of establishing a vineyard, to be known as Preston Vale Vineyards, for the cultivation and harvesting of wine grapes. SWC leased the land on which the vineyard stands from Charters Securities Pty Ltd (Receiver and Manager Appointed) by a lease dated 28 June 1999.
10 In the conduct of the scheme SWC entered into a Licence and Management Agreement ("Management Agreement ") with each of the investors (known as "growers") in the scheme. Under the Management Agreement, SWC provided a licence to each grower to use and occupy the area allocated to that grower for the cultivation and harvesting of wine grapes and SWC agreed with the growers to manage the business and to maintain and harvest the grapes. Approximately 800 investors were involved in the scheme.
11 It was term of the Management Agreement that SWC would be entitled to management fees in accordance with cl 12. Clause 12.1(e)
(Page 6)
- provided that if the total gross project income in any year was not sufficient to pay the management fees for that year, the management fees would be deducted from the gross project income in subsequent years.
12 In July 2002 the plaintiffs were appointed as administrators of SWC. On 18 October 2002 SWC entered into an agreement with SOM by which SOM agreed to manage the vineyard.
13 On 23 January 2003 a meeting of growers was held at which it was resolved to amend the Management Agreement. The effect of the amendments was that each grower agreed to pay, by 6 February 2003, the sum of $1,254 to SWC for each licensed area the grower held. SWC agreed that the funds would be used only for certain specified purposes, including the payment of rental due by SWC under the lease for the period 1 July 2002 to 30 June 2003, payments due by SWC for insurance or otherwise in respect of the project, and for the payment of certain expenses. The amendments provided that any of the funds which were held by SWC after 30 June 2003 must be returned, before 15 July 2003, on a pro-rata basis to the growers who had contributed them.
14 Subsequently, pursuant to that agreement, the growers made payments to SWC in the total sum of $655,473, of which the sum of $320,000 (the "rent funds") was for the payment of rental owing by SWC.
15 On 28 February 2003 the creditors of SWC resolved that the company be wound-up. The plaintiffs were appointed as liquidators of the company. FROC was appointed as the responsible entity for the scheme on 21 July 2003.
16 On 23 July 2003 the liquidators wrote to FROC, among other things, regarding management fees which they said were owing to SWC.
17 FROC responded to the liquidators on 29 July 2003, denying that SWC was entitled to a management fee and contending that SWC had not performed the duties that entitled it to the fee. FROC also demanded that SWC transfer to FROC the rent funds, to enable those funds to be applied to the rental owing for the period 1 July 2002 to 30 June 2003.
18 On 30 July 2003 the solicitors for the liquidators wrote to FROC saying that the status of the rent funds had changed by virtue of the growers' resolution and the funds were available to support a lien that SWC claimed over the 2004 harvest in respect of management fees owing to SWC by growers. It seems the management fees claimed, which were for the year ended 30 June 2003, were in the sum of $2,239,650.
(Page 7)
19 FROC responded on 8 August 2003 reiterating that it disputed the entitlement of SWC to receive any management fee and requesting clarification of the basis upon which the liquidators contended the status of the rent funds had changed.
20 On 26 August 2003 the liquidators' solicitors wrote to FROC conceding that the resolution of the growers of January 2003 had created a form of "Quistclose" trust, with the result that SWC was required to pay to the growers any of the rent funds it held as at 30 June 2003. It contended, however, that it could set off against the rent funds owed to the growers the management fees which it is claimed were owing by the growers to SWC. The solicitors for FROC replied denying SWC's entitlement to any management fees and arguing that SWC was obliged either to apply the rent funds to payment of rental under the lease or, after 30 June 2003, to return those funds to the growers.
21 On 18 November 2003 FROC entered into a management agreement with SOM in respect of the vineyard.
22 In January 2004 the liquidators wrote to FROC saying that they had received advice that the rent funds constituted trust moneys which could not be set off against the claimed management fees and that the liquidator intended to request the growers' consent to apply the funds to the outstanding rental under the lease, failing which they would return the rent funds to the growers on a pro-rata basis.
23 The solicitors for the liquidators wrote to Evans & Tate on 22 June 2004 directing them to pay the proceeds of the 2004 harvest to the liquidators. Evans & Tate replied on 1 July 2004 saying that Evans & Tate was contractually obliged to pay the proceeds to SOM and FROC.
24 On 1 July 2004 SWC commenced proceedings against FROC and SOM in this Court. In the action SWC claims, among other things, a lien over the proceeds of the 2004 harvest, and claims that it is entitled to a lien over the proceeds of future harvests, in respect of management fees owing to it. SWC also sought an interlocutory injunction but the injunction was refused.
25 As I have said, on 5 August 2004 the liquidator filed applications for summonses to examine and directions to produce documents, and on 18 August 2004 orders were made that those summonses and directions be issued.
(Page 8)
26 In an affidavit sworn on 28 September 2004, Mr Silbert says that on 19 August 2004, following discussions he had had with the solicitors for the plaintiff, he sent to those solicitors certain information and documents on the understanding that, if that material was received, they would consider not enforcing the order for his examination or the direction to produce to Evans & Tate. In his covering letter Mr Silbert invited the solicitors to specify any other information they sought. I understand that Mr Silbert has not had any response to that invitation.
27 It was not in issue that a liquidator who applies under s 596B of the Act for an order for examination bears a heavy onus of disclosure in making the affidavit required under s 596C in support of the application. The obligation of the liquidator is to disclose any matter which might lead the Court to refuse the application: Re Southern Equities Corp Ltd (in liq) (1997) 25 ACSR 394 at 422-3; Re Coretel Pty Ltd (Subject Deed of Company Arrangement) (2003) 48 ACSR 178.
28 The affidavit filed in support of the application is not available for inspection, except so far as the Court allows: s 596(c)(2). Before the discretion to allow inspection will be exercised in favour of an applicant there must be material before the Court from which it appears that the applicant has an arguable case for abuse of process to which the material is relevant: Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69. A person seeking access will not be permitted to inspect the affidavit to enable him or her to "fish" for a case.
29 An abuse of process will occur where the applicant for the examination summons is seeking to achieve some purpose foreign to that for which the legislature provided the examination machinery: New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610. The examination process will be used for an improper purpose where, for instance, the examination is sought for the predominant purpose of a dress rehearsal of cross examination or obtaining a forensic advantage not available from ordinary pre-trial procedures or simply to cause undue inconvenience or embarrassment to the examinee: Re Southern Equity Corporation Ltd (in liq); Bond v England (supra) at 433-4. The mere fact that a third party may acquire a collateral benefit by reason of an examination does not render the purpose for which it was obtained improper: Re Hugh J Roberts Pty Ltd (in liq) (1970) 2 NSWLR 582; HongKong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512.
30 In Re Hugh J Roberts Pty Ltd (in liq), Street J said (at 584):
(Page 9)
- "The mere fact that questions might be asked of an examinee directly involving a matter currently being litigated between the company or the liquidator and that examinee or a third party does not render those questions inadmissible, nor does it render the private examination itself an abuse of the processes of the Court. The liquidator is given by the statute this special authority to proceed by way of private examination to obtain information which he needs for the due winding-up of the company, the affairs of which he has the responsibility of administering. The mere fact that in obtaining that information he also obtains admissions or material that are available for him to use in evidence in current proceedings falls short of rendering the process abusive, vexatious or oppressive."
31 In HongKong Bank of Australia Ltd v Murphy, Gleeson CJ (with whom Mahoney JA and Priestley JA agreed) said (at 519):
"Whilst the court will not permit a liquidator, or other eligible person, to abuse its process by using an examination solely for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, such as discovery or inspection, on the other hand, the possibility that a forensic advantage will be gained does not mean that the making of an order will not advance a purpose intended to be secured by the legislation."
32 The fact that a liquidator seeks to use the examination to gather information in relation to proceedings which the liquidator has already instituted, does not, of itself, constitute an abuse of process
33 In Re Hugh J Roberts Pty Ltd (in liq) (supra), Street J said (at 585):
"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."
34 See also HongKong Bank of Australia v Murphy (supra) per Gleeson CJ at 519.
(Page 10)
35 Where there are pending proceedings the Court must, however, be alert to the possibility that the examination is sought for an improper purpose: HongKong Bank of Australia v Murphy per Gleeson CJ at 518-9.
36 The onus of satisfying the Court that there is an abuse of process lies on the party alleging it and that party must establish that the improper purpose is the predominant one: Williams v Spautz (1992) 174 CLR 509; Sent & Ors v Andrews (2002) VSCA 209; Re Southern Equity Corporation Ltd (in liq); Bond v England 24 ACSR 472.
37 While the power to compel production of documents is a wide one, it is ancillary to an examination order and cannot require the production of documents independently of the examination of particular individuals. An order for production of documents which has the effect of compelling the production of documents which are not required for the examination would be oppressive and in excess of the power to make such an order: Re Leisure Developments (Qld) Pty Ltd v Palmer (2002) NSWSC 248; Re BPTC Ltd (in liq) (1993) 10 ACSR 756 per Bryson J at 763. If the scope of the documents sought is too wide, because they would include documents having no connection with the enforceability of a claim by the plaintiffs, it ought to be narrowed: Boys & Ors v Quigley(as Receiver and Manager of Geneva Finance Ltd) (2002) WASCA 99. Where the production required goes beyond permissible limits and it is not possible to limit it the whole order for production may need to be set aside: Re BPTC Ltd (in liq) (supra) at 766; Re Leisure Developments v Palmer (supra) per Austin J at [25].
38 As I have mentioned, Messrs Silbert, Readhead and Carr have applied to have the summons for examination issued to them set aside. Applications have also been made by each of SOM, FROC and Evans & Tate to set aside the directions to produce documents directed to them or, in the alternative, for the scope of the documents required to be produced by SOM and FROC to be substantially narrowed.
39 The direction to Evans & Tate is to produce:
"documents from 1 January 2003 (including any communication, note or memorandum of a conversation, notice or memorandum of a meeting, memorandum note, report, working paper or any draft thereof) concerning or relating to any negotiations, the execution of and the performance of any obligations on behalf of Evans & Tate Ltd in respect to either of
(Page 11)
- Frankland River Olive Company Ltd ('FROC') or Southern Olive Management Pty Ltd ('SOM') in relation to the sale of the grapes from land known as 'Preston Vale Vineyard' including documents relating to the payment for any grapes or any proposal in the future to acquire any grapes from SOM or FROC."
40 The direction to FROC is to produce the following:
"1. documents from 1 January 2003 (including any communication, note or memorandum of a conversation, notice or memorandum of a meeting, memorandum, note, report, working paper or any draft thereof) concerning or relating to any negotiations, the execution and the performance of any obligations with Evans & Tate Ltd with respect to either of Frankland River Olive Company Ltd ('FROC') or Southern Olive Management Pty Ltd ('SOM') in relation to the sale of the grapes from land known as 'Preston Vale Vineyard' including documents relating to the payment for any grapes or any proposal in the future to supply any grapes to Evans & Tate Ltd or any other entity.
2. documents (including any books, records and financial statements) concerning or relating to the financial position of FROC since June 2003 and in respect to its continued funding of its operations including, without limiting, the generality of the foregoing, copies of any management accounts and any unaudited or audited financial statements.
3. documents (including any communication, note or memorandum of a conversation, notice of memorandum of a meeting, memorandum, note, report, working paper or any draft thereof) concerning or relating in any way to any and all arrangements entered into between FROC and SOM in relation to the harvest of the grapes from a vineyard property known as Preston Vale Vineyard from the date upon which FROC became the responsible entity of the Preston Vale MIS (previously known as the SWC MIS).
(Page 12)
- 4. all documents (including any communication, note or memorandum of a conversation, notice or memorandum of a meeting, memorandum, note, report, working paper or any draft thereof) concerning or relating to the use of or expense of monies received from any person or entity in any way relating to the sale of grapes from the vineyard property known as the Preston Vale Vineyard.
5. documents (including any communication, note or memorandum of a conversation, notice or memorandum of a meeting, memorandum, note, report, working paper or any draft thereof) in relation to costs incurred by FROC in running or maintaining the vineyard property known as Preston Vale Vineyard.
6. documents (including any communication, note or memorandum of a conversation, notice or memorandum of a meeting, memorandum, note, report, working paper or any draft thereof) in any way relating to the communication with any other person or entity on or in respect of the terms of the constitution of the SWC MIS or any constituent documents including without limiting the generality of the foregoing, the terms of any licence and management agreement entered into between any person or entity for the purpose of conducting a vineyard business at the property known as the Preston Vale Vineyard.
7. documents (including any communication, note or memorandum of a conversation, notice or memorandum of a meeting, memorandum, note, report, working paper or any draft thereof) in relation to the maintenance of all lots of interest to any investor and of Southern Wine Ltd (In Liquidation) in relation to the plots or licensed areas which had been forfeited under the terms of any licence and management agreement as referred to above, or under the constitution of the said managed investment scheme."
41 The direction to SOM is to the same effect, mutatis mutandis, as pars 1 to 6 of the direction to FROC.
42 Counsel for the applicants submitted that the plaintiffs had been involved in the affairs of SWC, either as administrators or liquidators,
(Page 13)
- prior to the occurrence of the events which, it appears, are intended to be the primary, if not the sole, subject of the examination. The originating process seeking orders for examination and directions for the production of documents was filed a month or so after SWC commenced proceedings in this Court claiming a lien over the proceeds of the harvest. Counsel argued that there is a clear and substantial (if not complete) overlap between the matters the subject of the civil proceedings and the matters apparently proposed for the examination and to which the various directions to produce documents are directed. Counsel also said that prior to any proceedings being commenced there had been a substantial amount of correspondence between the parties on the matters now the subject of the civil proceedings. Settlement discussions in respect of those and other wider issues have been underway for some time.
43 It was submitted on behalf of the applicants that the scope of the documents required to be produced by FROC and SOM went beyond any legitimate enquiry on the part of the liquidators. The task involved in producing the documents was enormous. The vineyard had annual grape sales exceeding $1 million. It would require each of FROC and SOM essentially to go through their entire office and work out what the direction requires them to produce and then to find that material. Counsel for the applicants also argued that the documents went to matters in respect of which there was nothing to suggest the liquidators had any legitimate interest, including as to the future intentions of the applicants. The ambit and generality of the description of the documents was such that in each case it amounted to "ransacking the office" of the applicant concerned.
44 The only objection to the terms of the direction to Evans & Tate was as to documents relating to future matters.
45 Counsel for the applicants also drew attention to the evidence of Mr Silbert that, prior to service on him of the examination summons, the plaintiffs' solicitors had requested certain information from Evans & Tate. Mr Silbert, on behalf of Evans & Tate, provided a considerable amount of information and asked the plaintiffs' solicitors to identify what else their clients required. Mr Silbert had received no response to that request.
46 Counsel for the applicant submitted that in the circumstances sufficient had been shown to raise the inference that the applicants have an arguable case that the plaintiffs have as a predominant purpose one or more of the following:
(Page 14)
- (a) seeking information in respect of matters which occurred subsequent to the plaintiffs appointment as liquidators of SWC;
(b) obtaining a forensic advantage not otherwise available in connection with the civil proceedings;
(c) a dress rehearsal of cross-examination;
(d) causing undue inconvenience or embarrassment to one or more of the examinees with a view to obtaining a settlement on behalf of SWC of various matters being negotiated between the parties on terms that are more favourable than might otherwise be achieved.
47 Counsel for the applicants argued that the liquidators were in the unusual position of seeking to obtain information in relation to events that had occurred since their appointment as administrators or liquidators. The applicants' counsel submitted that the powers of examination and production of documents under the Act are designed to overcome the disadvantages encountered by a liquidator who comes to a company with limited or no knowledge of its assets, business or affairs and in circumstances where little or no assistance can be expected from those with that knowledge. In this case the liquidators were not strangers to the company and did not suffer from such disadvantages in respect of the matters the subject of the proposed examinations.
48 It was submitted that the liquidators would get the forensic advantage of having, well before trial of the civil proceedings, production of a great volume of documentation and the cross examination of key witnesses.
49 In relation to the issue of embarrassment or inconvenience, it was submitted that it would have been obvious to the liquidator that it was embarrassing to each of the corporate applicants to have to show their hand as to their future intentions, and potentially commercially prejudicial. It would involve each party disclosing their future intentions in relation to grapes from the vineyard when they have not yet entered into any binding arrangements with each other in relation to those grapes. In addition, Evans & Tate is not connected with FROC or SOM and the trouble and expense to which it would be put by the examination and direction to produce is likely to prejudice future dealings between it and FROC or SOM. Counsel also referred to prejudice in respect of negotiations between the liquidators and FROC in relation to the acquisition by FROC of SWC's interest in the Fernvale Unit Trust. I should say that it seems to me the evidence as to the last matter was
(Page 15)
- insufficient even to indicate the nature, current state or significance of any such negotiations.
50 It was submitted on behalf of the plaintiffs that there was no evidence to support any inference of any proper motive. The fact that the examinations and directions to produce documents were related in part to the possible future conduct of the examinees was unexceptional.
51 In the civil proceedings SWC seeks declarations to the effect that the assets of the SWC MIS, and the proceeds of the grape harvest from the Preston Vale Vineyards for the 2004 harvest year and future harvests, are subject to an equitable charge in favour of SWC until the outstanding management fees claimed to be due to SWC have been paid. The assets of the SWC MIS are held by FROC. The proceeds of the 2004 grape harvest were assigned by that company to an associated company, SOM, and, it seems, then sold by SOM to Evans & Tate.
52 As a lien is claimed over future harvest proceeds, it was argued that the future intentions of the supplier and potential acquirer were relevant to the examinable affairs of SWC. Accordingly, the future intentions of FROC, SOM and Evans & Tate in respect of grape harvests from the vineyard are relevant to the examinable affairs of SWC.
53 It was submitted that it was not to the point that the liquidators had been in control of SWC for some, or even all, of the period to which the proposed examinations relate or that the liquidators are not strangers to the affairs of SWC. Post liquidation events fall within the examinable affairs of the company under s 9 of the Act and include the realisation of the company's assets in the course of the winding-up, including, in this case, enforcing rights arising in connection with the lien in respect of present and future harvests.
54 It was further submitted on behalf of the plaintiffs (and I did not understand it to be in issue) that the plaintiffs were not, and are not, privy to matters relating to the applicant's dealings with the 2004 harvest or the proceeds of it, nor of the ability of Evans & Tate, FROC or SOM to meet any judgment which may be obtained by SWC in the current or other proceedings. Accordingly, it was submitted, it could not be said that the use of the examination power to enquire into those matters was an abuse of process and no inference to that effect could arise on the facts.
55 Counsel for the plaintiffs submitted that any issues of confidentiality that arose in relation to the documents produced or which arose in the course of the examinations could be dealt with by suitable directions by
(Page 16)
- the Court. Issues of confidentiality are not unusual and it was not suggested on behalf of the applicants that there was any insuperable problem that would prevent such orders being effective in the present case.
56 In relation to the directions to produce, counsel for the plaintiffs submitted that item 1 of the documents to be produced by FROC and SOM related to the future supply of grapes and that was relevant to the lien claimed by the liquidators in respect of the management fees. Item 2 related to the financial worth of FROC and SOM and that was a legitimate enquiry by a liquidator who had commenced proceedings against FROC and SOM. In relation to item 3, SWC had earlier terminated the Management Agreement with some growers and therefore became entitled to those growers' areas. It accordingly had a continuing interest in the maintenance of the vineyard which went beyond the litigation. Item 3 also dealt with the proper management of the vineyard since FROC had become the responsible entity and that was relevant to the financial health and wellbeing of FROC and SOM. It was also relevant to the lien. Items 4 and 5 were relevant to SWC's continuing interest in the vineyard but they were also relevant in connection with the lien claimed by SWC, including as to how moneys had been used and applied and whether they were traceable. In the latter respect, Counsel drew attention to payments that had been made by SOM to FROC in relation to the 2004 harvest and submitted that the documents may identify parties who have obtained the money with knowledge. Item 6 was relevant because changes had been made to the constitution and the effect of those changes was of relevance to SWC which still has an interest in the scheme. The same applied to item 7. All of the documents therefore related to matters which fell within the scope of the examinable affairs of SWC.
57 It was submitted that there was no evidence that any of the requests was oppressive or would create unreasonable difficulty for the parties to whom the directions were made. No affidavit evidence to that effect had been put on by any of the parties concerned.
58 Counsel for the plaintiffs submitted there was no evidence tending to show that the liquidators intended to use the examinations for any improper purpose. He argued that the applicants had not identified any impermissible forensic advantage that the liquidators were allegedly seeking to achieve. It was submitted that there was no basis for the contention that the examinations were to be used as a rehearsal for cross-examination. In any event, the Court will prevent injustice by
(Page 17)
- exercising its power to give directions and restrain improper questions in the course of the examination.
59 I do not consider it can reasonably be inferred that the predominant purpose of the liquidators is an improper one. It is, of course, not to the point that the liquidators may in fact gain some collateral benefit from the examinations; the question is whether, as the applicants allege, the predominant purpose of the examinations is some improper purpose. I am not satisfied that it is. Nor do I consider the applicants have shown any basis for an arguable case of an abuse of process.
60 Insofar as it may have been suggested by the applicants that the exercise of the relevant powers of the liquidator is limited to that which is necessary to overcome disadvantages experienced by a liquidator as a stranger to the company, I do not agree. In my view the powers are not so limited. The fact that relevant events occurred post-appointment is, in my view, a matter to which the Court must be alert in considering whether the examinations are sought for an improper purpose, but it does not mean that the examinations will not advance a purpose intended by the Act. The Act does not limit the powers to pre-appointment matters and no inference of an improper purpose can be drawn simply from the fact that the examination and documents deal with matters occurring after the liquidators' appointment.
61 It is clear that an eligible applicant is not precluded from seeking an examination summons simply because legal proceedings have been brought by that applicant against the examinee in relation to a transaction which will be a subject of the proposed examination. It is also well established, for instance, that the ability of a defendant to meet the company's claim is a legitimate basis for examination. Nor will the power be misused where the examination leads to a liquidator obtaining admissions or material that are available to be used in evidence in current proceedings. The issue is whether the applicant has as the predominant purpose an improper purpose such as the obtaining of a forensic advantage not otherwise available.
62 The forensic advantage in connection with the legal proceedings that the applicants allege the liquidators seek to obtain has been identified as obtaining well before trial a great volume of documentation and the cross examination of key witnesses.
63 It is the case that the liquidators will obtain access to documents sooner than they are likely to do by discovery of documents in the
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- litigation. But if there is any significant forensic advantage in having the documents sooner than they would be obtained on discovery it was not identified. It was not clear to what extent the documents required to be produced would go beyond those that would be available on discovery (it not being suggested that discovery in the action would be other than discovery in the usual form) but again, so far as they did, the forensic advantage the liquidator was said to gain was not identified. In any event, I do not consider that there is any basis for the contention that obtaining any forensic advantage that might exist was the predominant purpose of the liquidators.
64 It is also not apparent on what basis it is alleged that the examinations are intended to be a dress rehearsal of the cross-examination in the civil proceedings. It appears from the material before me that the substantive issues in those proceedings will be first, whether SWC is entitled to the management fees it claims; secondly, if the management fees are owing to SWC, whether it is entitled to a lien over the proceeds of the 2004 harvest proceeds and the proceeds of future harvests in respect of those fees; thirdly, whether SOM holds upon constructive trust so much of the proceeds of the 2004 harvest proceeds as are necessary to meet the management fees; and fourthly, whether SWC is entitled to an account in respect of the amount claimed by SOM as the costs and expenses SOM incurred in carrying out the grape harvest in the financial year ended 30 June 2004 and the sale of that harvest.
65 I should say that it was not evident to what extent the examinees would be able to give relevant evidence in relation to the specific factual issues that will arise in the litigation. In any event, in my view there is nothing to suggest that the predominant purpose of the examinations was, or included, to serve as a dress rehearsal for cross-examination.
66 The contention that the examinations are intended to cause inconvenience or embarrassment to one or more of the examinees to obtain a settlement of outstanding matters on better terms than SWC would otherwise obtain was similarly, in my view, unsupported by the evidence. To the extent that issues of commercial confidentiality arise it is well established that the Court can make such orders as are necessary in relation to the documents produced and the evidence given on the examinations as are necessary to protect that confidentiality. It cannot be imagined that that was not known to the liquidators and their legal advisers. It was not submitted that confidentiality orders would be ineffectual in this case.
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67 The assertion that the commercial relationship of FROC and SOM with Evans & Tate would be prejudiced because Evans & Tate was put to trouble and expense by the examination and direction to produce was not founded on any evidence. There was also, as I have said, insufficient evidence as to negotiations in relation to the units in the Fernvale Unit Trust to indicate the nature or current state of those negotiations and no inference could be drawn in relation to them. In any event, in my view, no basis has been shown for an inference that the predominant purpose of the liquidators was, or included, to achieve a better settlement of whatever was then being negotiated with the examinees or entities associated with them.
68 Counsel for the applicants also submitted that the direction to produce documents was unreasonably onerous on FROC, SOM and Evans & Tate respectively.
69 It is the case that the ambit of the documents directed to be produced is wide, but that of itself is not sufficient to establish that the scope of the documents required to be produced is unreasonably onerous. There is no evidence as to the volume of documents that the applicants would be required to produce nor any other evidence to indicate that compliance with the direction would be unreasonably onerous. In relation to FROC, it is notable that it has entered into an agreement with SOM to manage the vineyard, so it is by no means self evident that pars 4 and 5 of the notice to produce would, as counsel for the applicants argued, involve an enormous number of documents. Even in relation to SOM there is no evidence that the scope of the request would impose an unreasonable burden.
70 Nor, in my view, has it been demonstrated that the scope of the documents is wider than is reasonably required for the purposes of the examinations or that they go beyond matters of legitimate enquiry by the liquidators in respect of the company's examinable affairs. The nature of the material sought to be produced, in my view, falls within the ambit of the examinations. Although counsel for the applicants submitted that the directions amounted, in effect, to a ransacking of the applicants' offices, there was no evidence to support that, nor is it evident that the directions would have that effect.
71 In my view, the applications to set aside the summonses for examination and directions to produce or, alternatively, to have access to all affidavits filed in support of the application that they be issued, should be dismissed.
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