SCOTT KERSHAW & CLIFFORD ROCKE in their capacity as Joint and Several Deed Administrators of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement)
[2012] WASC 389
•19 OCTOBER 2012
SCOTT KERSHAW & CLIFFORD ROCKE in their capacity as Joint and Several Deed Administrators of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement) [2012] WASC 389
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 389 | |
| Case No: | COR:98/2012 | 8 OCTOBER 2012 | |
| Coram: | MASTER SANDERSON | 19/10/12 | |
| 18 | Judgment Part: | 1 of 1 | |
| Result: | Application by Devereaux Holding Pty Ltd and Graham Donald Croot dismissed Application by the plaintiffs to amend production order made | ||
| B | |||
| PDF Version |
| Parties: | SCOTT KERSHAW & CLIFFORD ROCKE in their capacity as Joint and Several Deed Administrators of Griffin Energy Group Pty Ltd (Subject to Deed of Company Arrangement) |
Catchwords: | Corporations Act 2001 (Cth) Application to set aside examination summonses Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 596A, s 596B, s 597(9) Supreme Court (Corporations) (WA) Rules 2004, r 11.3(3)(a), r 11.3(7) |
Case References: | Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 Ariff v Fong [2007] NSWCA 183 Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 Meteyard v Love (as Receivers and Managers of Southland Coal Pty Ltd (in liq)) [2005] NSWCA 444 Re BPTC Ltd (in liq) (No 5) (1993) 10 ACSR 756 Re Hugh J Roberts Pty Ltd (in liq) [1970] 2 NSWR 582 Re Mendarma Pty Ltd (in liq) (2006) 24 ACLC 1611 Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600 Re Southern Equities Corporation Ltd (in liq), Bond & Caboche v England (1997) 25 ACSR 394 Sent v Andrews [2002] VSCA 209; (2002) 6 VR 317 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
Plaintiffs
Catchwords:
Corporations Act 2001 (Cth) - Application to set aside examination summonses - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 596A, s 596B, s 597(9)
Supreme Court (Corporations) (WA) Rules 2004, r 11.3(3)(a), r 11.3(7)
Result:
Application by Devereaux Holding Pty Ltd and Graham Donald Croot dismissed
Application by the plaintiffs to amend production order made
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Category: B
Representation:
Counsel:
Plaintiffs : Mr S M Davies SC & Mr D Jackson
Devereaux Holdings Pty Ltd : Mr S K Dharmananda SC & Mr J Garas
Mr G D Croot : Mr J C Vaughan
Solicitors:
Plaintiffs : Ashurst Australia
Devereaux Holdings Pty Ltd : Allens
Mr G D Croot : Norton Rose Australia
Case(s) referred to in judgment(s):
Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707
Ariff v Fong [2007] NSWCA 183
Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486
Meteyard v Love (as Receivers and Managers of Southland Coal Pty Ltd (in liq)) [2005] NSWCA 444
Re BPTC Ltd (in liq) (No 5) (1993) 10 ACSR 756
Re Hugh J Roberts Pty Ltd (in liq) [1970] 2 NSWR 582
Re Mendarma Pty Ltd (in liq) (2006) 24 ACLC 1611
Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600
Re Southern Equities Corporation Ltd (in liq), Bond & Caboche v England (1997) 25 ACSR 394
Sent v Andrews [2002] VSCA 209; (2002) 6 VR 317
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1 MASTER SANDERSON: This is an application to set aside or vary orders for the examination of persons summonsed under s 596A and s 596B of the Corporations Act 2001 (Cth) (the Act), and orders made for production of books in relation to those examinations under s 597(9) of the Act. The application for the issue of the summonses was supported by an affidavit as is required by r 11.3(3)(a) of the Supreme Court (Corporations) (WA) Rules 2004. Under r 11.3(7) that affidavit remained confidential until an order of Acting Master Chapman made the affidavit available to the legal representatives of the persons summonsed.
2 In total summonses were issued to eight persons. Some of those summonses were issued under s 596A and some under s 596B of the Act. The same affidavit was relied upon in relation to all summonses. This hearing proceeded on the basis all summonses could be set aside if the applicant made good its argument. No point was taken as to the difference between the mandatory requirement to issue a summons under s 596A and the discretionary power to order a summons under s 596B.
3 Orders for the production of documents at the examination of persons summonsed were made against Devereaux Holding Pty Ltd (Devereaux) pursuant to s 597(9) of the Act (the production order). There were five categories of documents set out in annexure 1 of the orders. Production orders were made against other corporations.
4 Devereaux applied by interlocutory process dated 20 August 2012 for orders vacating or narrowing category 5 of the production order and granting leave to inspect the confidential affidavits filed in support of the Deed Administrators' application to issue the examination summonses and production order. Pursuant to an order I made on 28 August 2012 Devereaux filed a minute of proposed amended interlocutory process dated 4 September 2012 that proposed a further order narrowing categories 1 - 4 of the production order.
5 On 27 September 2012 Devereaux was granted leave to inspect by its external legal advisors the confidential affidavits filed by the Deed Administrators. Inspection of the affidavits revealed in Devereaux's submission material non-disclosure by the Deed Administrators and the proposed use of the examination process for improper or extraneous purposes.
6 Subsequently a second minute of proposed amended interlocutory process to vacate or vary summonses for examination dated 4 October 2012 was filed. This application proposed further orders discharging the
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- whole of the orders made on 5 July 2012 including all production orders and the examination summonses or alternatively the whole of the production order.
7 Devereaux should have leave to amend its application in terms of the minute of 4 October 2012. Further I accept Devereaux has standing to bring this application. No argument to the contrary was put by the Deed Administrators.
8 The production order has been varied by agreement between the parties so that pending the determination of this application Devereaux is required to produce certain narrowed categories of documents. Devereaux has produced a number of these documents. If the examination summonses were discharged it would follow that the production orders would fall away.
9 The plaintiffs have applied by chamber summons to vary the production order. These reasons deal with that issue.
10 The issues for determination then are first whether the summonses ought be set aside for material non-disclosure. Second should the summonses be set aside because they are being used for an improper or extraneous purpose. Finally are the summonses or the production order oppressive requiring discharge of either or both.
11 The background facts are not controversial. Devereaux is the head entity of the Griffin Group of Companies. Griffin Energy Group Pty Ltd (GEG) is a wholly owned subsidiary of Devereaux. Until 28 February 2011 Griffin Coal Mining Company (GCMC) was a wholly owned subsidiary of GEG and therefore of Devereaux. On 3 January 2010 both GEG and GCMC entered into administration under pt 5.3A of the Act. Brian McMaster, Mark Mentha (in respect of GCMC only), Scott Kershaw and Clifford Rocke were appointed as joint and several administrators of both companies.
12 On or about 28 February 2011 both GEG and GCMC entered into deeds of company arrangement. Messrs McMaster, Kershaw and Rocke were appointed the joint and several Deed Administrators. Mr McMaster has since ceased to be a deed administrator. On 28 February 2011 GEG and GCMC among other parties entered into an agreement under which GCMC sought to assign to GEG all rights and interests of GCMC in debts and monetary liabilities owed to GCMC and GEG sought to assume all GCMC's liabilities and obligations.
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13 The shares in GCMC have been sold to a third party.
14 There are proceedings between Devereaux and GEG in the Federal Court. On 29 March 2011 Devereaux lodged a proof of debt with the Deed Administrators relating to claims against GCMC. The claims in that proof were substantially rejected. On 9 December 2011 Devereaux commenced proceedings in the Federal Court appealing against the Deed Administrators' decision disallowing the proof of debt. On 17 May 2012 the Deed Administrators filed and served a defence. That same day the Deed Administrators' solicitors in the Federal Court proceedings notified Devereaux's solicitors, in the letter serving the defence, that the Deed Administrators intended to apply to join GEG as a party for the purpose of filing a cross-claim in respect of certain matters pleaded in the defence. This is referred to throughout the documents and by counsel as the 'Tax Receivable' issue.
15 By a report from the Deed Administrators to creditors of GEG dated 23 May 2012 the Deed Administrators stated:
It was outlined in the November 2011 update report that preliminary legal advice in relation to the Devereaux tax receivable suggests a public examination of officers of GCMC is appropriate. The Deed Administrators have sought a barrister's opinion on the proposed strategy to collect the outstanding monies due to GEG from Devereaux.
The GEG COI [committee of inspection] have been consulted in relation to the recovery strategy and have endorsed the recommended strategy proposed by the Deed Administrators solicitors which, in summary, involves:
(i) use of the proceedings commenced by Devereaux against GEG appealing the Deed Administrators' rejection of the Devereaux's proof of debt to cross claim against Devereaux for the $63 million Devereaux tax receivable; and
(ii) commencement of public examinations of a number of parties in connection with the historical treatment of the Devereaux tax receivable in GCMC's financial accounts (and other related matters). This includes the assertions that, at that time, a tax funding agreement existed supporting the accounting treatment of the Devereaux tax receivable.
16 Consistent with the recovery and examination strategy outlined in the report to creditors on 14 June 2012 the Deed Administrators filed in the Federal Court an interlocutory application seeking leave to bring a cross-claim out of time. The application was supported by an affidavit sworn 14 June 2012 by Ms Maria O'Brien, the Deed Administrators'
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- solicitor in the Federal Court proceedings. The affidavit annexed a copy of the proposed statement of cross-claim.
17 On 15 June 2012 Mr Kershaw swore an affidavit in support of the Deed Administrators' application for orders issuing the examination summonses and production orders. Mr Kershaw disposes to the Deed Administrators purpose of conducting the examinations at pars 52 - 54 of the affidavit. On 19 June 2012 the Federal Court granted to the Deed Administrators leave to bring the cross-claim. In accordance with the leave granted, on 20 June 2012 the Deed Administrators filed and served a notice of cross-claim and a statement of cross-claim on Devereaux.
18 The statement of cross-claim makes numerous allegations including that GCMC and Devereaux were parties to a tax funding agreement and pursuant to that agreement Devereaux was indebted to GEG in an amount of $61,359,966. Further it is said that GCMC and Devereaux were parties to a Loan Agreement and by reason of such agreement Devereaux owed GEG at least $74,047,064.66.
19 On 5 July 2012 the Deed Administrators obtained the orders issuing the examination summonses and production orders. On 1 August 2012 the orders were served on Devereaux. On 7 August 2012 Mr Lucas Wilk, the solicitor for the Deed Administrators in these proceedings, swore an affidavit in support of an application by the Deed Administrators to issue a further summons to Ms Julie Burns of Somes & Cooke (accountants). On 10 September 2012 Devereaux filed a defence to the cross-claim.
20 (This summary of the facts is taken largely from the submissions made on behalf of Devereaux. As I have indicated above, there is no dispute between the parties as to these facts.)
21 On any ex-parte application it is incumbent upon the party applying to make full and frank disclosure of all matters which may impact upon the decision of the court. This is most often applied in relation to ex-parte interlocutory injunctions. However when an examination summons is issued the founding affidavit is confidential and the only protection available to the persons summonsed is the court and the steps it takes to ensure the summons is properly issued. If anything, that makes full and frank disclosure even more important: see Re Southern Equities Corporation Ltd (in liq), Bond & Caboche v England (1997) 25 ACSR 394, 422 - 423 (Lander J).
22 Examination summonses will be set aside if there has been material non-disclosure in the founding affidavit. The test as to whether there has
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- been non-disclosure is not whether the information would have made a difference to the decision. The test is whether or not the information not disclosed was material in the sense of relevant to the consideration of the question in issue: see Re Mendarma Pty Ltd (in liq) (2006) 24 ACLC 1611.
23 Before going to the applicant's complaints about Mr Kershaw's affidavit I should make two points. First the affidavit itself is extensive. The body of the affidavit runs to 80 paragraphs over 18 pages. There are 40 exhibits and taken together the affidavit is 720 pages long. Because the affidavit remains confidential (apart from the access provided to the applicant's solicitors) it is not appropriate to undertake a thorough examination of Mr Kershaw's evidence. But it is possible to say he goes into considerable detail as to the corporate structure of the various entities, the way they interacted when trading and what investigations he has undertaken while handling the company's affairs. This is not a cursory examination of the relevant matters. The affidavit provides a detailed insight into the workings of the corporate group and explains why Mr Kershaw believes the examination summonses should be issued.
24 Secondly I made the orders issuing the summonses. I examined the affidavit before making the order. I therefore know whether matters which were omitted would have made a difference to my decision. But both counsel agreed that is not the test. The question is whether or not there has been material non-disclosure.
25 Devereaux puts its submissions in this way. At the time Mr Kershaw swore his affidavit the Deed Administrators had already settled on a strategy to bring a cross-claim in the Federal Court proceedings in relation to the Tax Receivable and to utilise the examination process to aid them in prosecuting the claim. Further the Deed Administrators had applied in the Federal Court proceedings for leave to bring their cross-claim out of time. Not only that, they already had the proposed notice of cross-claim and the statement of claim prepared.
26 In his affidavit Mr Kershaw discloses the existence of the 'Loan Receivable', the dispute surrounding the Tax Receivable, the submission of Devereaux's proof of debt and Devereaux's appeal against the Deed Administrators rejection of the proof. But he says nothing about the proposed cross-claim. Mr Kershaw says the main purpose of conducting the examinations is to investigate the recovery of the Loan Receivable and the Tax Receivable. Devereaux says in relation to the Tax Receivable Mr Kershaw must have known it would be squarely in issue in the
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- cross-claim. Further Devereaux says the Deed Administrators make no statement about the present state of knowledge they have about the Tax Receivable nor do they refer to documentation already available to them from their administration of GCMC and GEG.
27 Devereaux also points to the fact the documents sought in categories 1 - 4 of the production order are likely to be the subject of discovery in the Federal Court proceedings particularly if leave to cross-claim out of time was granted. Devereaux says all these matters taken together amount to material non-disclosure.
28 The plaintiffs answer Devereaux's complaints in two ways. First they say there has been disclosure. Second they say insofar as there may not have been any disclosure there was not material non-disclosure. It is accepted by the plaintiffs, as it must be, the cross-claim is not referred to in Mr Kershaw's affidavit. Essentially what is said is the nature of the dispute referred to in the cross-claim is set out in the material which was filed. The argument was developed in this way.
29 Mr Kershaw's affidavit explains the plaintiffs as Deed Administrators of GEG wish to investigate the recoverability of the $62 million referred to as the Tax Receivable. On 12 January 2010 shortly after the appointment of voluntary administrators to GCMC and GEG Devereaux's financial manager Matthew Thomson sent a memorandum to the Deed Administrators concerning the Tax Receivable amount. The memorandum claimed sums totalling $62.5 million had been posted incorrectly to the loan account between Devereaux and GCMC 'as they represent accounting entries to record the transfer of tax loss benefits to the parent entity [ie Devereaux] under the tax consolidation regime'.
30 In a letter to Mr McMaster dated 22 March 2012 Mr Croot, the managing director of Devereaux, explains Devereaux's position. It was said the Tax Receivable arose because deferred tax losses of GCMC available to Devereaux as head entity in the Griffin Tax Consolidation Group were noted in Devereaux's accounts as an asset and thus needed to be booked in those accounts as correspondingly payable to GCMC. Devereaux's position as expressed by Mr Croot is the Tax Receivable was a mere accounting entry and not a real liability. Mr Croot further claimed since Devereaux will have no future taxable profits against which tax losses can be utilised the deferred tax asset should not be recognised in the accounts anyway.
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31 Mr Kershaw's affidavit sets out how these matters were dealt with in various accounts issued by Devereaux between 2006 - 2009, including references to a tax funding agreement provided for Devereaux to compensate subsidiaries for deferred tax assets that were transferred to Devereaux. Mr Kershaw says the Deed Administrators cannot locate a written agreement to that effect in relation to GCMC.
32 These are matters the Deed Administrators wish to investigate by way of the examinations.
33 Mr Kershaw's affidavit disclosed these matters were already the subject of proceedings between the Deed Administrators and Devereaux in the Federal Court. The statement of claim in the Federal Court was annexed to the affidavit. The fact Devereaux had pleaded it had not entered into a tax funding agreement with GCMC was specifically referred to in the body of Mr Kershaw's affidavit. The statement of claim pleads in detail as to the issues between the parties. Devereaux alleges there was no tax funding deed between Devereaux and GCMC. In the financial years 2007 - 2009 GCMC while it was still a member of the Griffin Tax Consolidated Group, had unused tax losses which gave rise to the recognition of deferred tax assets and in the absence of a tax funding deed these unused tax losses were to be accounted for as an equity contribution by GCMC to Devereaux. Devereaux maintain mistakenly an amount of $61,359,966 was entered into the accounts as loans from GCMC to Devereaux.
34 Mr Kershaw's affidavit disclosed the nature of the dispute between Devereaux and the Deed Administrators. Moreover the cross-claim addresses the Tax Receivable by pleading Devereaux and GCMC were party to a tax funding agreement under which unused tax losses allocated by GCMC to Devereaux would be treated as a loan. It is further pleaded in the years ending 30 June 2007 to 30 June 2009 GCMC's activities resulted in unutilised tax losses of $61,359,966. These were allocated by GCMC to Devereaux. Therefore it is alleged Devereaux owes these amounts to GCMC and has not paid them.
35 By par 23 of their submissions the Deed Administrators put the position as follows:
The issues raised by the cross-claim are thus the same as the issues raised by the statement of claim, namely whether there is a tax funding agreement between Devereaux and GCMC and whether, as a result, Devereaux is liable to pay GEG as the assignee of GCMC an amount of $61,359,966. The relief sought by the Deed Administrators in the
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- cross-claim was in effect the obverse of the relief sought by Devereaux in the statement of claim.
36 The plaintiffs' submissions ought be accepted. It would have been appropriate if Mr Kershaw had referred to the cross-claim in the Federal Court proceedings and if possible annexed the pleading to his affidavit. But any reading of the claim made by Devereaux in the Federal Court proceedings makes it clear the nature of the dispute between the parties. The claim and the cross-claim are different sides of the same coin. Anyone reading Devereaux's pleading would find it surprising if the Deed Administrators did not pursue a cross-claim. Success on the cross-claim would follow if Devereaux's claim was unsuccessful.
37 It was the plaintiffs primary position there had been no non-disclosure. On behalf of Devereaux it was said that submission was clearly wrong - there is no mention anywhere in Mr Kershaw's affidavit of the cross-claim. Resolving this dispute really requires a determination of what is meant by non-disclosure. It seems to me it must be a matter which is kept hidden from the court. The position can be illustrated by reference to the case Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600. In that case the examination summons was sought in order to examine a receiver and manager about the circumstances in which he compromised litigation on behalf of the company. The applicant failed to disclose the receiver had sought and obtained directions from the Federal Court that the compromise was justified. There was no way the court could have ascertained from the affidavit material such directions had been sought. The fact was known to the applicant. It is difficult to imagine a clearer case of non-disclosure. In my view there was no non-disclosure in this case. The fact of litigation between the parties was addressed and considerable detail was provided as to the nature of the dispute. While it would have been preferable to have referred to the cross-claim a failure to do so when such a claim could be anticipated by the documents provided did not amount to a failure to disclose.
38 If I am wrong about that conclusion it still seems to me there was no 'material' non-disclosure. There would have been material non-disclosure had no reference been made to the Federal Court proceedings. But in circumstances where a cross-claim could be anticipated the failure to make reference to it in the affidavit would not amount to material non-disclosure.
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39 The matter may be approached in another way. Devereaux says there was a failure on the part of Mr Kershaw to disclose the fact that documents sought in categories 1 - 4 of the production order were likely to be the subject of discovery in the Federal Court proceedings in the event leave to cross-claim out of time was granted. This really is the only mischief Devereaux points to as a consequence of the alleged non-disclosure. It was obvious in proceedings between Devereaux and the Deed Administrators in the Federal Court discovery would be ordered. The regime in the Federal Court is somewhat different to that which applies in this court - our broad test has been somewhat modified. But even so there was no need for the Deed Administrators to specifically mention what the plaintiffs in their submissions refer to as a 'routine procedural step'.
40 There is one final point which does require comment. The plaintiff submitted if there had been material non-disclosure it was inadvertent. They filed affidavit material supporting that proposition. In my view it makes no difference whether the non-disclosure is innocent or intentional. What is relevant is the non-disclosure was material. The test does not need to be complicated by making it necessary for a party seeking to discharge a summons to establish there was intentional material non-disclosure.
41 Turning then to the question of whether the summonses were issued for an improper purpose there was no difference between the parties as to the applicable principles. In written submissions Devereaux put the position this way (par 67):
The use of the examination powers for a purpose that is foreign to the purpose for which they were enacted (ie, an improper purpose), involves an exercise of the Court's machinery in excess of the power conferred on it. Such a use of the Court's powers, is an abuse of its process (Wainter Pty Ltd; Re New Tel Ltd (in liq) (2005) FCAFC 114 at [85], per Lander J (Crennan and Ryan JJ agreeing)).
42 While accepting that as a statement of principle the plaintiffs went further. They said the onus of satisfying a court there has been an abuse of process lies on the party alleging it and the onus as a heavy one. Further, it was submitted the applicants must establish the improper purpose is the predominant one. These two statements of principle are supported by Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 [138].
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43 On behalf of Devereaux it was submitted the Deed Administrators were attempting to use the examination power for three impermissible interrelated purposes. They were:
1. to engineer an 'insolvency event' under the Loan Agreement dated 15 November 2006 between Devereaux and GCMC;
2. to inquire impermissibly into the solvency of Devereaux in the period January 2010 and in the future to 2016; and
3. to conduce a dress rehearsal of cross-examination in the Federal Court proceedings.
44 At par 54(a) of Mr Kershaw's affidavit he says:
In relation to the Loan Receivable, the plaintiffs seek the issue of examination summonses to assist them in investigating:
(a) whether Devereaux is or maybe insolvent, which could lead to a chain of events causing the Loan Receivable to immediately fall due.
45 Category 5 of the production order requires Devereaux to produce all books relating to the solvency and financial position of Devereaux in the period between January 2010 and the present date including standstill agreements entered into between Devereaux and its creditors. The category is clearly connected to the purposes set out in par 54 of the Mr Kershaw's affidavit.
46 For their part the plaintiffs accept if Devereaux were found to be insolvent that could lead to a chain of events causing the Loan Receivable to immediately fall due. However they say that is a matter which the Deed Administrators wish to pursue. If it was the case Devereaux was insolvent that would be important to the deed administration as it may allows the Deed Administrators to recover the loan sooner than July 2016 to the benefit of GEG's creditors. They say there is nothing to suggest it is the purpose of the issue of the summonses to bring about that event. Rather the Deed Administrators wish to gather information. If information once gathered is useful so be it. There is nothing improper in taking that course.
47 That submission should be accepted. There is nothing in Mr Kershaw's affidavit or any of the other material which suggests Mr Kershaw is seeking to 'engineer' an insolvency event. Clearly that would be an improper use of the examination power and a clear inference
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- would have to be available from the material before such a conclusion could be reached. No such implication is possible here. In my view it is perfectly legitimate for the Deed Administrators to seek information about the solvency of Devereaux. It has considerable consequences for their role as Deed Administrators. There is nothing to suggest they intend to act improperly.
48 Turning then to Devereaux's second submission, it relies upon what was said by Basten JA in Meteyard v Love (as Receivers and Managers of Southland Coal Pty Ltd (in liq)) [2005] NSWCA 444. After referring to the definition of 'examinable affairs' in s 9 of the Act his Honour refers to s 50 and s 64B of the Act. These sections deal with connected entities and corporations indebted to the corporation. His Honour then says:
In relation to such bodies, the business affairs of the body can be examined if they are or appear to be 'relevant to' the corporation or the corporation's examinable affairs. This provision confirms the conclusion that the internal operations or activities of another person or corporation will not fall within the examinable affairs of the corporation simply because they have the potential to affect the value of the assets of the corporation. In other words, although the 'property' of the corporation may constitute part of its examinable affairs, the phrase 'information about' such property should not be read so broadly as to include 'any information which may affect the value of the property' [42].
49 On behalf of Devereaux it was submitted the scope of the solvency inquiry dating back to January 2010 was too wide. It was submitted events and circumstances nearly three years ago give little or no indication of Devereaux's present ability to satisfy any judgment.
50 In his affidavit Mr Kershaw says the Deed Administrators are concerned Devereaux may have been insolvent at the time of entry into a standstill agreement in 2010. This standstill agreement is a 'Deed of Forbearance' dated 8 July 2010. The deed provides for an asset sale regime with certain major creditors who do not include GCMC. These creditors include Windermere Corporation and Stowe Worldwide Investments Management Pty Ltd both companies associated with a director of Devereaux, Mr Ric Stowe. The plaintiffs submit if between 2010 and the present date Devereaux was insolvent and its assets were being distributed to the benefit of creditors other than GCMC or GEG that may found recovery action by the Deed Administrators on behalf of the creditors of GEG. They therefore submit investigating the solvency of Devereaux during the period is highly material to protecting an increasing the assets available to GEG's creditors.
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51 Further it is submitted if asset realisations continue into the future that may significantly impact the recoverability of the Loan Receivable if it falls due in 2016. The Deed Administrators say they may be able to take steps to have the debt fall due sooner and prevent further realisations. The information they seek as to whether Devereaux is likely to be in a position to repay the Loan Receivable in 2016 is highly material to the conduct of the administration and therefore a proper matter to investigate in the interest of creditors.
52 Again the submissions of the plaintiffs on this point ought be accepted. The solvency or otherwise of Devereaux between 2010 and now has real consequences for the Deed Administrators. It would be remiss of them not to investigate the issue. Further they are entitled to make what inquiries they can to see whether the Loan Receivable is likely to be repaid in 2016. As submitted by the plaintiffs there is nothing improper about what the Deed Administrators propose nor could it be suggested it is the predominant purpose.
53 In submitting there is a risk these examination summonses being used as a dress rehearsal Devereaux is relying on what was said by Basten JA in Meteyard v Love:
[A]n improper purpose includes a purpose of using the examination as a dress rehearsal for cross-examination, or for the purpose of destroying the credibility of the examinees or witnesses who might be called for the examinee in substantive proceedings, or for the predominant purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, or simply to cause undue inconvenience or embarrassment to the examinee or to inflict costs [44].
54 In support of its position Devereaux relied on two cases. The first was Sent v Andrews [2002] VSCA 209; (2002) 6 VR 317. In that case the liquidator already had a large amount of information about an active case. He sought to examine persons about the issue in the proceedings. The summonses were set aside as an abuse of process there being a finding that the liquidators predominant purpose was to conduct a dress rehearsal of cross-examination. It was observed the fact that litigation has been commenced calls for greater caution before an examination is ordered - especially where battles lines have been clearly drawn. While the issue is the eligible applicant's purpose and not the result which will ensue from the examination, the result of the examination may found an inference as to the eligible applicant's purpose.
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55 The second case relied upon is Ariff v Fong [2007] NSWCA 183. In that case the number of examinees and the breadth of documents required to be produced were taken into account when considering whether the examination process was being used for an improper purpose. In that case a requirement to produce in excess of 1,080,000 documents at a cost of nearly $350,000 in circumstances where the party requiring production already had many of those documents was sufficient to raise a question of improper purpose.
56 It needs to be stated again to set aside examination summonses on this ground it is necessary to conclude the predominant purpose of the summonses was a dress rehearsal for cross-examination in the Federal Court proceedings.
57 In this case there are eight proposed examinees. Under categories 1 - 4 of the production order there may be as many as 404,539 documents. On behalf of Devereaux it was submitted many of the documents sought by the Deed Administrators can properly be said to be documents that were either created by or were in the possession of GCMC. Put another way the vast majority of the documents that answer categories of documents sought for production are GCMC's documents.
58 It is convenient to deal first with the number of summonses issued and the number of documents required to be produced. It was not submitted on behalf of Devereaux any of the persons summonsed would not be able to provide relevant information. Each of the individuals could be summonsed either under s 596A or s 596B of the Act. Therefore the number of individuals cannot in and of itself have a significant bearing on whether or not the summonses are improper.
59 As to the documents, the financial transactions involved are complicated. The companies turned over large sums of money and were significant trading concerns. It is only to be expected a large number of documents would be produced. That is what has happened. The number of documents to be produced in compliance with the production order in a case such as this, does not, without more suggest some improper purpose.
60 It is clear and it was accepted by counsel for Devereaux the fact a Deed Administrator might be able to bring proceedings or indeed has already brought proceedings does not make the use of the summons procedure inappropriate: see Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486, 497 - 498. A liquidator (or as in this case a deed administrator) needs information concerning his company just as much in
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- connection with current or contemplated litigation as in connection with other aspects of its affairs. In using the statutory machinery of private examination he will in many cases be gathering evidence as an ordinary and legitimate use of this procedure: Re Hugh J Roberts Pty Ltd (in liq) [1970] 2 NSWR 582, 585.
61 The submission put on behalf of the plaintiffs that the overlap between the Federal Court proceedings and the examinations is not sufficient to establish improper purpose should be accepted. In fact the use of the summonses is for an entirely proper purpose. The submission the summonses will be used as a dress rehearsal for cross-examination in the Federal Court is not made out.
62 The remaining question is whether the scope of the document production orders ought be limited; and the related question as to whether the scope of the orders ought be amended in line with an application by the plaintiff. It was Devereaux's position the production order was too wide, uncertain or it was oppressive. Once again there was no disagreement as to the legal principles. What follows is largely taken from Devereaux's written submissions.
63 The legal limits of the power to order production of documents were mapped out by Bryson J in Re BPTC Ltd (in liq) (No 5) (1993) 10 ACSR 756. The question of whether an order for production was properly made was to be determined by asking whether a person, acting judicially, could reasonably form the view that production of the documents described in the order was required for the purpose of examining a person within:
(a) the bounds set out by s 597 of the Act (the precursor to s 596A and s 596B); and
(b) the internal limitation in the examination orders.
64 The scope of the power to issue an order for production under the section is more narrow than the power to issue a subpoena. Each examination for which the documents are sought must be assisted or facilitated by the production of each specific category of documents. It is not enough to merely say that the examinations generally relate to the examinable affairs of the company and the documents produced will assist in these examinations. Further this 'implied limit' on the power will be informed by the role of the examinee and the part they have played in the examination affairs, including relevant times at which they were associated with the company.
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65 Before dealing with the specific complaints of Devereaux it is appropriate to make some general comments. Eight individuals have been summonsed by the Deed Administrators. Each of them has played a role in the affairs of the company. Some have had a significant role. Others less so. In his affidavit Mr Kershaw deals with the roles of the particular individuals and says why he wishes to examine them. It is apparent from that material the examination of some witnesses might be lengthy, examination of others quite short. Some witnesses will have put to them a few documents because they have had limited involvement with the company; other witnesses might be asked about a vast range of documents. Although there are five categories of documents they are necessarily described in general terms. It is simply not possible in a case such as this, where hundreds of thousands of documents are in issue, to go through the documents one by one and determine which should and should not be produced. Necessarily many of the documents which will be produced will not be used and may be entirely irrelevant to the examinations. It is a matter of describing the documents in the best way possible to ensure the examinees know what documents they have to produce and do not produce vast reams of documents which are irrelevant. But parties in the position of the Deed Administrators will not be in a position to assess what documents might and might not be relevant until they actually see the documents. In my view it is inappropriate to restrict the Deed Administrators access to the documents unnecessarily. While it could never be the case the Deed Administrators should have access to everything they think they may need, to restrict access unnecessarily may frustrate the examinations.
66 It is convenient to begin with category 5 of the production order. In the form I originally made the order Devereaux was required to produce its books relating to its solvency between January 2010 and the present. There were some specific documents mentioned but the order was couched in broad terms. The amendments proposed by the plaintiffs actually stated with more specificity what is to be produced. At first glance it would appear the category has expanded; but on further reading that is shown not to be so. There is rather more definition about just what documents are to be produced. In my view it offers greater certainty to the examinees and is to be preferred to the production order in its present form. I am satisfied in its amended form it is not so wide as to be oppressive nor so vague as to render compliance difficult.
67 Accordingly I will allow amendment to the category 5 documents in terms of the amended schedule annexed to the plaintiffs' chamber summons of 3 October 2012.
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68 Amendment should also be made to categories 1 - 4 in the production list. The complaint by Devereaux is the phrase 'relating to' when used in conjunction with the defined categories is too wide. Devereaux, it is said would be placed in a position of having to review virtually every document in its possession.
69 I am not unmindful of the difficulties faced by Devereaux and the enormity of the task it has to undertake. But it is difficult to see there is any alternative. Looking at the amendments proposed by the plaintiffs I am not entirely sure they restrict in any way the categories of documents to be produced under the production order as originally made. They may make the position slightly more certain and for that reason I would allow the amendment. But as framed the orders are the only ones that could be realistically made. To attempt to restrict the breadth of the documents to be produced in the manner proposed by Devereaux would in my view unduly restrict the Deed Administrators in the discharge of their task.
70 In summary then I would dismiss Devereaux's application to set aside the examination summonses. I would dismiss Devereaux's application to vary the production order. I would make orders in terms of the plaintiffs' chamber summons varying the scope of the production order.
71 Throughout these reasons I have referred exclusively to Devereaux. Devereaux applied to set aside these summonses on behalf of all of those summonsed for examination. However Mr Croot was separately represented and counsel made additional submissions on his behalf. In broad terms those submissions supported Devereaux's position with one or two minor variations. I have taken those submissions into account in preparing these reasons. In my view there is nothing about Mr Croot's position which sets him apart from the other examinees. Clearly he will have a bigger part to play in the examination than some of the other individuals concerned. To that extent it seems to me appropriate he was separately represented. But his application should also be dismissed essentially for the reasons I have given in dealing with Devereaux's application.
72 I will hear the parties as to costs.