Walton & Anor v ACN 004 410 833 Limited (Formerly Arrium Limited) (In Liquidation) & Ors
[2021] HCATrans 154
[2021] HCATrans 154
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S20 of 2021
B e t w e e n -
MICHAEL THOMAS WALTON
First Appellant
ANTHONY BOGAN
Second Appellant
and
ACN 004 410 833 (FORMERLY ARRIUM LIMITED) (IN LIQUIDATION)
First Respondent
KPMG
Second Respondent
COLIN GALBRAITH
Third Respondent
KIEFEL CJ
GAGELER J
KEANE J
EDELMAN J
STEWARD J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA BY VIDEO CONNECTION TO BRISBANE, SYDNEY AND MELBOURNE
ON WEDNESDAY, 6 OCTOBER 2021, AT 2.15 PM
Copyright in the High Court of Australia
____________________
KIEFEL CJ: In accordance with the protocol for remote hearings, I will announce the appearances of the parties.
MR N.C. HUTLEY, SC appears with MS J. SHEPARD for the appellants. (instructed by Banton Group)
MR M.A. IZZO, SC appears with MR T.E. O’BRIEN for the first respondent. (instructed by Arnold Bloch Leibler)
MR J.K. KIRK, SC appears with MR A.B. EMMERSON for the second respondent. (instructed by Ashurst)
KIEFEL CJ: There is a submitting appearance for the third respondent. Yes, Mr Hutley.
MR HUTLEY: Thank you, Chief Justice. As your Honours have received our outline of oral submissions, there is one essential question before the Court which is identified in paragraph 2 of that outline. I will address you on the appeal, Ms Shephard will respond in relation to the notice of contention.
Now, the Court of Appeal held that the purpose of my clients was improper and that was because, as we observe at point 3, of what they found, particularly in paragraphs 140 and 141 where the – because the litigation was not apt, any litigation was not apt to confer a benefit on the company, its creditors and possibly all its members. That benefit was variously described by the Court of Appeal at paragraph 123 as a “commercial benefit” and in paragraph 140 as a “demonstrable benefit”, being the requisite. We submit the Court was wrong.
Turning to point 4, we there observe, by reference to what was said by Sir Anthony Mason in Hamilton v Oades, that the purposes of section 596A and, for that matter, its antecedents is to create a system of discovery. I will not take your Honours to the quote. The Court has recently approved of that in the plurality judgment in Palmer v Ayres at paragraph 40 in 295 CLR 478.
We submit that authorities in this Court support our submission that that system of discovery has at least two objectives and we identify those objectives in paragraphs 5 and 6 of our outline, and we will develop that obviously by reference to the cases.
Now, turning to point 7, the appellant’s application was in aid of what we have identified in point 6 as the second purpose in circumstances which are recorded in the judgment of the Court of Appeal at paragraphs 2 to 18, in the core appeal book from paragraphs 83to 87. Can I tell your Honours shortly what that involved – it is not contentious.
The appellants were members of a company called Arrium, which raised $750 million in capital, including from the appellants. Some months after the raising, Arrium roped down its assets by some $1.3 billion. Thereafter, Arrium went into administration. ASIC authorised the appellants to make an application under section 596A. That authorisation has not been challenged. A summons was issued but on appeal it was set aside as an abuse of process.
As I have said, the Court of Appeal’s conclusion, your Honours will see at paragraphs 122 to 141 of their judgment, and the gravamen is at paragraphs 123, 140 and 141. The Court of Appeal found, and it is accepted, that the appellants’ predominant purpose was to investigate and pursue a potential claim in their capacities as shareholders against Arrium’s officers and auditors. That finding your Honours will find at the Court of Appeal’s judgment paragraph 129, at the core appeal book, page 128.
KIEFEL CJ: Mr Hutley, in the class action that is proposed, what would be the remedy sought?
MR HUTLEY: Damages, your Honour.
KIEFEL CJ: Against?
MR HUTLEY: At the moment officers of the company and potentially the auditors. Now, can we pause here and address the nature of those potential claims ‑ ‑ ‑
KEANE J: Mr Hutley, sorry to interrupt. Can I just ask, would the claims be in relation to the discharge of their functions as officers of the company?
MR HUTLEY: Yes. In relation to their – the inquiry, of course, has to be as to the examinable affairs of the company, and I will come to the section in due course, and the claim ‑ ‑ ‑
KEANE J: Is that section the section that is concerned with transfers of shares in the company?
MR HUTLEY: I am sorry, your Honour? Yes, it is concerned ‑ ‑ ‑
KEANE J: Section 53.
MR HUTLEY: Section 53 is concerned with promotion and the like, and I will come to those sections in due course, your Honour.
KEANE J: Okay.
MR HUTLEY: Now, the nature of those potential claims, they concern potential breaches by the company’s directors of their statutory obligations and misrepresentations as to the company’s financial affairs, that is – and I will take your Honours to the - that is referred to in the judgment, and it is not suggested by anyone that the nature of the claims would be otherwise. Specifically, the appellants were concerned that the 2014 financial results and information supplied in respect of the capital raising did not fairly portray the true state of Arrium’s business.
Those concerns are reflected in a letter to ASIC seeking its authorisation as recorded in the judgment of the Court of Appeal, and can I take your Honours shortly to that. That is at the core appeal book page 84. Your Honours will see in paragraph 8 of the reasons “The letter referred” at about line 22 and following.
Those matters, your Honours, were the subject of affidavit in support of the application, which your Honours will see referred to at paragraph 15 in the reasons on page 86 of the core appeal book and your Honours see that matters are set out from the affidavit of Ms Banton, particularly paragraph 40. Such matters might of course legitimately be the subject of liquidator examinations, as the primary judge found at paragraph 50 of the primary judgment at core appeal book page 32, line 30.
EDELMAN J: Mr Hutley, could they also have been matters that could have been the subject of an examination by ASIC?
MR HUTLEY: That was the next sentence I was going to put to your Honours.
EDELMAN J: If so, could ASIC have been examining for the purpose of perhaps bringing an action under section 1317J of the Corporations Act for compensation for third parties?
MR HUTLEY: Yes, your Honour, and also should it have sought determinations of certain civil penalty provisions, any determination under 1317F, I think your Honour, would have been in rem, in effect. Any person could take advantage of such findings in any civil proceedings. I will come to that provision in due course. In other words, we say ASIC could have done and sought to undertake the examinations which were sought by my clients and we say – I will come to it – ASIC can and has appointed my clients to be…..to do that very thing.
KIEFEL CJ: But the third parties that would have been the subject of the ASIC action would not have been as wide as the classes proposed in this class action, would they?
MR HUTLEY: I am sorry, your Honour. I missed the beginning of your Honour’s question.
KIEFEL CJ: The third parties or the class who might have been the subject of the ASIC claim for compensation, those third parties would not have been as wide as the class or classes involved in the proposed class action, would they?
MR HUTLEY: Potentially not, your Honour. Could I come back to your Honour whether that is the case?
KIEFEL CJ: Yes.
MR HUTLEY: What, of course, it could be is all those third parties could take advantage of any determination insofar as such proceedings involve civil penalty proceedings for their benefit. That is the effect of 1317J.
Now, in the present case the liquidators chose not to conduct detailed investigations and examinations on those matters because they considered it would not benefit Arrium creditors to do so and that was found at the Court of Appeal’s judgment, paragraph 21 at core appeal book 88.
The appellants concede that their ultimate objective is not to benefit the company or its creditors given the following two circumstances. The first is that Arrium benefited from the capital raising. The Court of Appeal found - judgment 123, if your Honours would go there shortly, at core appeal book 126 – and there is no dispute that the capital raising allowed Arrium to pay down the better part of $754 million worth of debt. Arrium thereby obtained a more robust balance sheet which was able to weather a $1.3 billion write‑down of assets some months later and allowed it to trade for a further period.
The second circumstance is that by reason of the operation of the provisions of the Corporations Law, the appellants are not creditors of the company. It was not suggested that the appellants’ circumstances could never give rise to them being creditors. The reason that they are not is because they did not submit a proof of debt by the barring date specified in the relevant deed of company arrangement, and your Honours will find that referred to in the judgment at paragraph 20, core appeal book pages 87 to 88.
As your Honours will appreciate, the relevant scheme was a scheme under a part of the Act dealing with deeds of company arrangement which are apt to, in effect, set short‑term timetables to bring, as it were, resolution to a company’s affairs consistent with the scheme of that part, and I will refer your Honours to the scheme of the part in a little while.
We say that the Court of Appeal erred by imposing a gloss on the language of the statute, such that the applicants’ intended objective or result must be to bring a commercial or demonstrable benefit to Arrium or its creditors. That is our first appeal ground.
I now turn to point 8 of our outline. We say that a legitimate use of section 596A is that set out in appeal ground 2, which your Honours will find at core appeal book pages 146 to 147. The appellants wish to obtain, by means of section 596A, the very object for which the section was designed, that is, to facilitate the examination of a company’s officers about the company’s examinable affairs, with a view to supporting proceedings against them. We submit that that purpose is not foreign to the object. It is aligned with it.
That purpose, we say, is established by the plain terms of the statute. Now, could I ask your Honours to go, if your Honours would, to 596A in the materials, in Part A of the materials. Your Honours will find it at page 151. Your Honours will see a reference in the section to 513C. Section 513C, your Honours, concerns the commencement of administration, and you will find that on pages 148 to 149 of the bundle, the joint bundle.
Now, turning to the provision, we observe nowhere does it say that its purpose is to benefit creditors or the company, no condition is imposed requiring the court to be satisfied of the benefit. A benefit accrues to the company or its creditors, or possibly all its contributories, as the Court of Appeal observed. No conditions are imposed on the exercise of the power other than two. First, the applicant must be:
an eligible applicant –
and we will come to that term in a little while, and secondly the proposed examinee must be:
an officer or provisional liquidator –
of the company within the relevant period. Once those two conditions are met, the summons must be issued. There is no discretion - the words, quote:
is to summon –
make good the descriptive heading “Mandatory examination”. The provision simply affords a power to the court which must be exercised if two conditions are met. Those two conditions were met by the appellants, and it is not suggested otherwise.
STEWARD J: Mr Hutley, just on the formal requirements, you would also say that you would need to require with 596D, content of summons? So the Court would not issue unless that was satisfied?
MR HUTLEY: Quite, yes. Yes, I accept that, your Honour.
STEWARD J: You also accept that, implicitly, another formal requirement is that it is limited to companies in administration for the purposes of Chapter 5?
MR HUTLEY: It is companies, yes, as this Court has observed. It is concerned with external administration of organisations or companies, I accept that, your Honour. None of what we have submitted, of course, gainsays the court’s powers to control its own processes and prevent abuses. The process cannot be evoked for a purpose which is foreign to it. However, the facility with which Parliament attends the provision to be used tells against a narrow construction which would thwart that facility.
Going back to the words of the provision, the immediate object of the power is writ large in the introductory words. Its object is to require a company officer or provisional liquidator to be summoned for an examination about the examinable affairs of the company. Your Honours will find “examinable affairs” in section 9 which is in Part A of the materials at page 112. The definition commences:
(a)the promotion, formation, management, administration or winding up of the corporation; or
(b)any other affairs of the corporation -
It is augmented, as Justice Keane observed earlier, by section 53, which again speaks to the promotion, formation, membership, control, business, et cetera of the company.
KIEFEL CJ: Mr Kirk, you are not muted.
MR KIRK: I do apologise.
KIEFEL CJ: I meant in the sense that your audio was not off.
MR HUTLEY: Those words, “promotion, formation, membership and control of the company”, are typically of interest to members of the company. Matters such as company’s trading and liabilities are also noted. However, we submit there is no basis to infer that Parliament has privileged the interest of creditors over that of, say, members when enumerating the potential matters of inquiry. Certainly the appellants’ proposed examination falls squarely within the scope of the definition of “examinable affairs” and it has not been suggested otherwise. We pause to note that while broad, the definition of “examinable affairs” ‑ ‑ ‑
EDELMAN J: Mr Hutley, is it paragraph (b) of the definition of “examinable affairs” that you say it falls squarely within?
MR HUTLEY: Yes, your Honours. If one goes to 53, it includes “promotion, membership, control, business, trading”, et cetera. Now, whilst broad, as I was submitting, the definition of “examinable affairs” does not extend to affairs of the corporation and its connected entities. Your Honour Justice Gageler observed beyond that in Palmer v Ayres. I will not take your Honours to it. It is at page 514 in the report at paragraph 94. Thus, the scope of examinable affairs is not as large, contains the scope of the inquiry and is a significant check on any potential for abuse.
Now, returning if we might to 596A, nothing on its face says that the applicant’s purpose or its fulfilment must be to benefit a company or its creditors. The question is whether such a requirement ought to be, in effect, the subject of a conclusion as to the construction as to its limitation. Nothing, in our respectful submission, supports that construction so far.
Now, the target of 596A examination is limited to officers or provisional liquidators. The definition of “officers”, your Honours will find in section 9, at page 113 in your Honours’ print. Your Honours, the provision has been the subject of much commentary but, in essence, it is confined to directors, secretaries and those who participate or influence the company’s internal decision‑making, including external administrators of the company.
Those required to be examined are those assumed, as it were, to know about the company’s management. This accords with the public interest in exposing matters concerning the management of a failed company.
I now turn to point 10 in our outline. Standing to apply is limited to eligible applicants. Your Honours will find those defined at page 110 in the print. There are three categories: ASIC - (a); (b) to (d) is the second category, comprising external administrators of a company, namely provisional liquidators and administrators; and (e) is the third category comprising those persons authorised in writing by ASIC to make such application.
Could we start with the second category? The conferral of standing on external administrators illuminates the first purpose which we have set out in point 5 of our outline. One may assume that liquidators and administrators, when expending companies’ funds to conduct an examination, have the purpose of benefiting the company and/or its creditors, or at least sections of them, in keeping with their fiduciary and statutory duties.
The requirement that that such application benefit the company or its creditors, with respect, adds nothing. However, a requirement that the liquidator must intend to benefit all creditors in fact may be counterproductive if the work undertaken will only benefit secured or perhaps priority creditors to the exclusion of the remaining unsecured creditors.
We note that receivers are not expressly conferred standing as eligible applicants. They may nonetheless be authorised as eligible applicants by ASIC. This is a category which we will address in turn after considering the position of ASIC itself.
We now turn to ASIC. ASIC, of course, is a statutory body. If your Honours go to Part B of your materials at page 217 your Honours will see the objects of the ASIC Act. Now, the first two objects are listed in section 1(2) of the Act:
ASIC must strive to:
(a) maintain, facilitate and improve . . .
(b)promote the confident and informed participation of investors and consumers –
ASIC’s objectives do not include benefiting individual companies or their creditors. That objective does not inform its action or the applications it makes.
Now, our opponents say that ASIC has its own extensive investigation powers under the ASIC Act. Your Honours will see that in our learned friend the second respondent’s submissions at paragraph 41. With respect, that is beside the point. There may be very good reasons why ASIC may wish to conduct examinations under section 596A, not least because the regime – and we will come to it – provides for the participation of others in any public examination, notably all eligible persons.
The conferral of standing on ASIC for the purposes of 596A discloses an intention to do more than benefit solely the company or its creditors. If not, it is beyond strange that a regulator of the financial markets and prosecutor of corporate misconduct would be empowered to invoke it.
Further, as we have submitted, ASIC may obtain declarations which, pursuant to 1317F ‑ your Honours will see that at page 170 in Part A ‑ which are “conclusive evidence of the matters” stated. That is, they can be deployed for the benefit of any person. Our written submissions addressed these issues further at paragraphs 29 to 32 and at paragraph 9 in reply, and I will not go further into it. There seems little basis for dispute.
Going back, if we could, to page 110 of the joint bundle, that is in Part A in your Honours’ prints, and the definition of “eligible applicant”, (e) is the remaining category, little (e), those authorised by ASIC. Your Honours will see that (e) is divided into (i) or (ii). ASIC may authorise a person to make a specific application in relation to a corporation or authorise the person to make applications generally under a Division of Part 5.9 which may include participation in an examination.
The capacity to participate in examinations conducted by others assumes some significance, in our respectful submission, in construing the purpose, as we shall develop later when we turn to section 597. We address the issue of ASIC authorisations in our submissions at paragraphs 33 to 41. We do not understand that to be substantially in dispute.
The short point is that Parliament intended a range of people with an interest in the company’s examinable affairs, duly authorised by ASIC, to be conferred standing to apply. To that end, ASIC has a relevantly unconstrained statutory discretion to authorise eligible applicants, including shareholders, without reference to whether the company or its creditors will benefit from the authorisation.
Now, that was a conclusion which was reached by Justice Gyles in Ryan v ASIC 158 FCR 301. Relevantly, the paragraph is 51, which we have set out in paragraph 37 of our submissions, and I will not take your Honours there, although it is tab 30 in the bundle. That conclusion has not been challenged. In that case, ASIC authorised shareholders to examine on matters it had already investigated. The matters were complex, and ASIC was open to different conclusions being arrived at by others with the benefit of further examination. The judgment has been cited favourably by the Full Court of the Federal Court in Saraceni v Jones, which we have referred to in our submissions.
The point is that ASIC can appoint people to conduct examinations which may be taking conflicting positions to those that itself was taking, because it may consider it in the public interest that there be a full exposure of complex matters concerned with matters of importance in relation to companies which have failed.
Similarly, we say, the appellants seek to examine former directors on matters which ASIC, as we have submitted, could itself investigate or examine. Despite this, the Court of Appeal has held, at judgment 141 at the core appeal book 132 that the appellant’s purpose is private and abused, because ultimately they seek to be compensated.
We submit, how seeking accountability - we submit that seeking accountability from directors of a publicly listed multi‑billion dollar company about public announcements is not a private concern or made such merely because ASIC has chosen someone other than itself to investigate.
STEWARD J: Mr Hutley, can I ask you another question? In the preceding paragraph what is the origin of the use of the word “all” in the last line?
MR HUTLEY: I am sorry, is this the paragraph ‑ ‑ ‑
STEWARD J: At 140.
MR HUTLEY: At 140. Your Honour, with respect, “all” ‑ ‑ ‑
STEWARD J: I have not seen that word used in previous decisions.
MR HUTLEY: No, your Honour. We make that criticism of that. It leads to enormous complexities. For example, we give the example of let it be assumed there is a large number of preferred creditors, such as employees, who are the only people who could be benefiting. It would seem that, if a liquidator expended money which could only possibly benefit them, it would be an abuse of process.
STEWARD J: Does that mean that if it was for the benefit of 99.99 per cent of shareholders it would be an abuse?
MR HUTLEY: If “all” means all, yes, your Honour.
STEWARD J: All right, thank you.
MR HUTLEY: I think our learned friends are not necessarily, to be fair to them, pressing “all” as meaning all. We will come to further difficulties even with a substantial subset in a little while. But as we submit, it is not private to be authorised to investigate clearly matters of public interest which have to be conducted subject to court control prima facie in public, and as we will come to the Act, which materials are available for all members of the public to utilise on payment of a fee.
EDELMAN J: Mr Hutley, do you mean it is not a private purpose at all or do you mean it is not only a private purpose?
MR HUTLEY: We will come to it. It is a distinction which we say is misleading and is concentrating on ultimate ends, abuse of process purposes, rather than the correct question, what is the purpose for which we are exercising this power. That is, we are invoking this power to carry out discovery in respect of examinable affairs with a view to litigation, and that is the proper purpose. So calling it private, in our respectful submission, deflects attention from the true inquiry.
STEWARD J: Can I ask you another question in this regard, Mr Hutley? Given that there is no statutory requirement for an application to be accompanied by an affidavit, unlike the power in (b), would you go so far as to say that looking at this statutory regime, the power in (a) is really analogous to the issue of a subpoena – that is, once its formalities are ticked off, off it goes and then whether there are abuses can be dealt with here at the examination stage?
MR HUTLEY: Your Honour, it is close to it. I would not like to rule out the possibility that an applicant - the object of, for example, such a process, might have materials in his or her possession which shows that, for example, there had been a lie to ASIC and the whole exercise was one purely in the classic case to undertake an abusive invasion, that that person might not approach the court, at the time of the application, and say no, this could be an abuse and an issue.
STEWARD J: Or it might be another obvious case where an applicant has lost their proceeding in court and yet still seeks to invoke this process.
MR HUTLEY: Quite. Something of that variety – I would not want to go that far, but we do say that the, as it were, the summary- the peculiarly summary nature of it tells against any narrow invocation of purpose of the variety raised.
GAGELER J: Mr Hutley, is it really correct to think of this power as being purposive at all?
MR HUTLEY: Well, your Honour, in one sense, it has object. The difficulty - with respect, correct. The object of this power is to enable discovery in the identified examples, and it has to be discovery for constitutional purposes for litigation. Now, they are the requirements, together with who is the subject and the like…..but that, in effect, identifies the statutory purpose, it shows and exhausts it. So the objective criterion identified the purpose sufficiently. There is no purpose beyond the criteria.
GAGELER J: So if you meet the criteria, there may be other purposes, ulterior motives, which would make the proceeding an abuse of process, but it is a different inquiry, is it not?
MR HUTLEY: Quite.
GAGELER J: Conceptually different.
MR HUTLEY: Quite, we accept that. Yes, your Honour, and that is why we say – anyway, that is consistent with what we say is the evident objects of discovery, and discovery for a wide range of ends.
KEANE J: Mr Hutley, while you are being interrupted, the list of eligible applicants, I mean, it is there, it does not include people who want to sue.
MR HUTLEY: But it does include ‑ ‑ ‑
KEANE J: What is the list and the nature – what is the list telling us?
MR HUTLEY: Thank you, your Honour. The list is identifying who can commence the proceedings. We know, because of (b) to (d), that some external controllers are made eligible applicants. But we know that ASIC is made one, and ASIC is given a very broad discretion to appoint other persons to do so.
We say it is in that fundamental structural element that the breadth of the power, being a discovery power against failed corporations, which could only be operated against a limited number of persons as a matter of right – we say this is in a context of - it gives to ASIC the power to choose those who ASIC considers properly consistent with its powers – should be able to ask appropriately controlled questions – and I will come to that and the other sections of whatsaname - in respect of failed companies.
Often they will be, for example, people like contributories, like my clients, because effectively once a company has gone into external administration, the powers to call upon the company in the usual way to account for its activities and find out what has happened, such as the general meetings and the like, has gone.
It is because – and also we would say objectively – there is a tendency for the controllers of failed companies not to be forthcoming in assisting those who have suffered harm as a result of the failure. That power to discover has been drafted – and we say consciously drafted – in a very broad fashion – in a mandatory fashion, and the gatekeeper – going beyond the class of ASIC itself and the external administrators identified – has been given to ASIC.
KEANE J: Insofar as ASIC is the gatekeeper, what is it about the scheme, or about ASIC’s powers, that informs ASIC as to when it should open the gate to people who want to sue but who cannot themselves do so on the footing that they were – they are, or once were – contributories?
MR HUTLEY: ASIC, as you can see in the case with which we are concerned, clearly to exercise its power in a responsible fashion seeks from the people who are applying an explanation as to why they are applying. What would inform ASIC? It would no doubt be ASIC’s overriding concern under its Act with such matters as maintaining the integrity of the corporate structure – a company law throughout – a company operation throughout the country and perhaps advancing the interests of those who are harmed by potential wrongdoings within the administration of the company.
So, in our respectful submission, it has been given a deliberately broad discretion to achieve that end and, because of its specialised role, the legislature has seen fit to confer that upon them. We see, from our learned friends’ submissions, the idea that ASIC would be approving people to, in effect, look at slip and falls. Now, of course, a liquidator could look at a slip and fall. ASIC could look at a slip and fall.
Now, whether ASIC would ever approve that would probably depend upon a whole range of factors which, ex ante, it is impossible to determine. For example, there may be major questions of public interest in relation to vast harm, perhaps to children or the like in a company whose structures have failed to the extent that there is a prevalence of damage. There could be a whole range of factors, your Honour. We do not resile from that. We submit it is deliberately broad, because the protean complexities of public interest examinations cannot be defined by specific criteria.
KEANE J: So, if we are talking about a general notion of public interest as informing the examinations, is that not something that is – that is what the Court of Appeal is fixing on, the need for the pursuit of the public interest, rather than the narrow interest of the particular purchaser of shares?
MR HUTLEY: But, your Honour, the public interest is also the public interest – take this case, for example, this is three‑quarters of a billion dollars were raised from members of the public and three‑quarters of a billion dollars was lost within, if not the blink of an eye, in a very, very short time. ASIC could well examine that as being in the public interest or could well think it is in the public interest that another person, who has a similar interest, to examine such a matter of public interest, undertakes it, because they may also be motivated, ultimately, to bring the litigation on the basis of what is exposed. But again, I will come to it.
ASIC, firstly, can intervene at any examination itself. ASIC, and every other human being can have access to what is produced from it. People who are examined have to sign - can be compelled to sign transcripts which can then be used against them, subject to certain protections, of a variety which I will take your Honour to.
So, the idea that this ever becomes wholly private or, in our respectful submission, in any meaningful way private, misconceives the whole structure, which we will take your Honours through. It, in effect, has conferred upon ASIC a power to have others do what it might do. There may be very good reasons for that to do so, because they may be seized of more materials, they maybe have the funds, they may have the time, a whole series of things.
Now, “eligible applicants” may have a purpose which aligns with ASIC’s objectives, namely to disclose wrongdoing, but that is not necessary. That point applies when ASIC authorises receivers as eligible applicants. In this respect, we have referred to the cases dealing with that in paragraph 36 of our submissions.
In short, ASIC may authorise a privately appointed receiver of a trustee of debenture holders own duties only to debenture holders to conduct the examination. That is no more public, in our respectful submission, than that with which we are concerned, no less public or no more public.
For the purposes of construing the statute, the point is that not all eligible applicants will have the subjective purpose of ultimately benefiting the company or its general body of creditors. To say that any one range of eligible applicants is committing an abuse if they do not have this subjective purpose rather suggests that this purpose is not the object of the provision. That is what we say comes out of the plain reading.
Now we turn some of the other parts, Part 5.9, and this is point 11 of our outline. Section 596B your Honours will find at page 151 of the joint book. Like 596A, standing is conferred upon eligible applicants. In contrast to section 596A, 596B is discretionary. By subsection (2), section 596B is expressed to be subject to 596A – that is, section 596A applies to those “officers” who fall within 596A to the exclusion of 596B, otherwise, 596B requires the court to be satisfied that one of two circumstances apply to the potential examinee – that is (i). It says that:
(b)the Court is satisfied that the person:
(i)has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation -
This appears to satisfy a public interest in exposing matters concerning the management of a failed company, which otherwise takes precedence over a person’s privacy and convenience. There is no reason to assume that this applies any less to a company’s officer under section 596A. Nothing in this first matter supports a construction that the purpose of 596B and by extension 596A is to confer a benefit on the company or its creditors.
It may be that it is in the interests of the company, qua company in liquidation, and its creditors that matters not be investigated. It may, for example, disclose matters of such seriousness as to embarrass insurance and other assets of the company. So the idea that one, in effect, has to only act to benefit the creditors seems antithetical to a fundamental public interest in potentially of disclosing wrongdoing.
The second matter, roman (ii), merely requires that a person “be able to give information about [a company’s] examinable affairs”. Now, we have already been through that. Nothing in its definition can satisfy the Court that the defined scope of inquiry suggests the purpose of the inquiry must confer a benefit on the company or its creditors.
KIEFEL CJ: Mr Hutley, would you go so far as to say section 596A authorises an examination about the potential misleading and deceptive conduct of a corporation generally, or is it limited by context?
MR HUTLEY: Your Honour, a liquidator could clearly examine in relation to that potentially because that could fall within what we say is one of the purposes to secure benefit for the company in relation to its insolvency.
KIEFEL CJ: I am really just inquiring as to the connection with the administration. The purpose of the discovery and the proceedings for which it is in aid must have a connection, must they not, with matters which occurred under or around the administration of the company?
MR HUTLEY: Yes, quite, and that could be misleading and deceptive conduct.
KIEFEL CJ: Hence my question, more general question. You would not suggest that section 596A authorises an examination about a corporation’s conduct as being misleading and deceptive more generally as it affects either its shareholders or other third parties.
MR HUTLEY: Your Honour, it is hard, with respect, to answer that in an absolute way. The examinable affairs of the company may be terribly tied up with that misleading conduct. For example, it may have been misleading conduct whereby the company procured vast assets and the examinable affairs of the company were designed to in effect bring that about. That is exactly the sort of wrongdoing that ASIC could inquire into and, we would respectfully submit, authorise a person under (e) of the definition of “eligible applicant” to investigate.
So I do not think one can answer these questions at two, with respect, complete levels of generality. One has to, in effect, examine what we say is ASIC has given them this role, ASIC has conferred this role upon us, no one has challenged ASIC. The examinable affairs with which we are concerned are central to the operation of this company. It raised three‑quarters of a billion dollars, and we say that is at the very heart of the discovery power and it is a discovery power which we say is properly invoked.
KIEFEL CJ: The reason I ask is that, as you have pointed out, the definition of “examinable affairs” is very wide.
MR HUTLEY: Quite.
KIEFEL CJ: But the person to be examined in relation to them under 596A is an officer who has had something to do with the administration of the company during the particular period of administration or deed of company arrangements. …..there has to be some connection with the misleading and deceptive conduct and the administration, does there not?
MR HUTLEY: Quite, and not the – by “administration”, one means the running of the company, not the conduct in administration.
KIEFEL CJ: The conduct must have occurred during the periods in 596AB when the officer was - when the corporation is in a particular state and the officer is doing something while it is in that state.
MR HUTLEY: No, no, no, with respect, your Honour, if I go to 596, an eligible actor:
is satisfied that the person is an officer . . . or was such an officer . . . during or after the 2 years ending –
when the application is made, so it is the two years preceding, yes. It has to be, in effect, an act within that period, your Honour. It is limited in that respect, of course ‑ ‑ ‑
KIEFEL CJ: Yes.
MR HUTLEY: I am sorry, I have been obscure, your Honour, I do apologise.
KIEFEL CJ: No, thank you.
MR HUTLEY: I missed the gravamen of your Honour’s question, I accept that.
STEWARD J: Could I also interrupt you, Mr Hutley? Can I ask you this question and leaving aside what the New South Wales Supreme Court Corporations Rules say, and the Federal Court Corporations Rules say, there is no legal requirement under this statutory scheme for the application to be accompanied with an affidavit. If no affidavit is supplied, how would the Court know (a) whether it is for the benefit of all contributories to the company and so on, or indeed whether it fulfils the two purposes that you say the provision is about?
MR HUTLEY: Your Honour, I accept the court would not necessarily know that. I accept that, your Honour. Therefore the question might arise at a later time, and I will come to the later time, it may arise because the object of the examination may seek out material from ASIC to invoke it. But I accept your Honour’s observation.
Can I then turn, if I can, your Honours - 596C and D set out matters to deal with the various summons and contents of affidavits of 596B? Can I draw your Honours’ attention to 596E? It says:
If the Court summons a person for examination, the person who applied for the summons must give written notice of the examination to:
(a)as many of the corporation’s creditors as reasonably practicable; and
(b)each eligible applicant in relation to the corporation, except:
(i)the person who applied for the examination; and
(ii)if a person authorised by ASIC applied for the examination‑ASIC -
So, in other words, if a person who is authorised by ASIC to apply applies, ASIC does not have to be notified:
(iii)a person who is such an eligible applicant only because the person is authorised by ASIC.
Now, what appears to be the structure is – if an application, for example, is made by…..
KIEFEL CJ: Mr Hutley, you are breaking up. I wonder if we could just correct that.
MR HUTLEY: Somehow, something happened to kind of mute me, your Honour, I do apologise. To take the classic example – let us assume a liquidator applies, if a liquidator applies, as many creditors as reasonably practicable need to be informed, each eligible applicant needs to be informed – everyone – except if a person authorised by ASIC applied, ASIC – that does not apply, so ASIC would have to be notified:
a person who is such an eligible applicant only because the person is authorised -
They would not have to be notified.
It appears that the structure of the section is assuming that ASIC is in practice identified with those it has notified – it has authorised, I am sorry – whether on the assumption that if ASIC is notified, it will notify those that it has authorised and if the applicant is a person ASIC has authorised is the applicant, ASIC will somehow find out. So that also tends to, in our respectful submission, evidence that there is – the legislature saw an applicant authorised by ASIC as potentially carrying, as it were, the same purpose, same operative characteristic, as ASIC in the examination process.
Now, 596F sets out detailed provisions as to the control of the court in respect of all applications subject to section 597. The court always maintained a capacity to give:
a direction about the matters to be inquired into in an examination –
a direction as to who may be present, who may be excluded, et cetera. In other words, the floodgates arguments that this could lead to all manner of things is really without substance. The court always maintains a complete control – of course, subject to appropriate judicial discretion – to control the conduct of the examination. It has further powers under 597, which commences at subsection (4). Firstly, an examination is to be public except if otherwise ordered. Secondly, any of the following may take part in an examination:
(5A)Any of the following may take part in an examination:
(a)ASIC;
(b)any other eligible applicant in relation to the corporation;
and for that purpose may be represented by a lawyer or by an agent -
In other words, any eligible applicant has a right to participate in an examination ordered at the instigation of another eligible applicant, again, in our respectful submission, suggesting the breadth of the possible interests which may be at work in an examination not limited to solely persons who seek to benefit creditors or the corporation, people in effect who may have adverse positions. ASIC may have an adverse position to a liquidator. An eligible applicant, for example a receiver of certain assets, may have interests adverse to the liquidator and the like. These are all structural aspects of this legislation.
Your Honours will see (5B) and other controls. We jump if we could down to subsection (13). There are certain protections against incrimination and the like from (11) and (12A). Subsection (13) empowers the questions put and answers to be recorded in writing and requires signature. Subsection (14) requires, subject to (12A), which is the protection which I do not need to trouble your Honours with, the record can be utilised in evidence in any legal proceedings against the person, and (14A):
A written record made under subsection (13):
(a)is to be open for inspection, without fee, by:
(i)the person who applied . . .
(ii)an officer . . .
(iii)a creditor . . . and
(b)is to be open for inspection by anyone else on paying the prescribed fee.
In other words, the transcript is open and open to be used by anyone, again, in respect of an inquiry which is prima facie to be private and at which can participate any eligible applicant. Again, the breadth of this discovery regime tells against any constrained or limited object or purpose in 596A.
KIEFEL CJ: Mr Hutley, could I take you back to another point that I was trying to ask about, rather ineptly, before. Is there any connection, any suggested connection, between the capital raising, the subject of the proposed proceedings, or information around it, and what led the company into administration?
MR HUTLEY: Your Honour, the evidence – I will have that checked, your Honour. I do not think the evidence, because of the nature of these proceedings, went much beyond that which is recited in the judgments as to – and the position is that the company’s parlous position – from the point of view of the company, the company has said we have $750 million which enabled us to pay off debt and so we would ‑ ‑ ‑
KIEFEL CJ: Well, quite. Perhaps the answer to the question is to be found in the finding of the primary judge and the Court of Appeal that the company benefited from the capital raising.
MR HUTLEY: Quite.
KIEFEL CJ: What I am really trying to point to is whether there is required to be a connection - for the purpose of an examination under 596A, a connection to those matters which may have led to the administration as distinct from something which cannot be said to be connected.
MR HUTLEY: No, your Honour ‑ ‑ ‑
KIEFEL CJ: That is, whether there was misleading and deceptive conduct over here ‑ ‑ ‑
MR HUTLEY: No, your Honour, I do not think anyone has ever held, for example, that a liquidator has to establish, before he or she examines in respect of an examinable affair, that that materially or may have materially contributed to the insolvency of the companies.
KIEFEL CJ: No, I am not going that far. I am really asking whether, in relation to the question – when the question of whether or not there is a purely private purpose raised, is one not then – questions such as does it benefit the company may be another way of inquiring, what is the connection to what occurred in the period prior to entry into administration, to which section 596AB is directed?
MR HUTLEY: In our respectful submission, one could not limit it in such a fashion. The period, the two‑year period, could be a period in which desperate – they have chosen a period of two years, essentially. That is obviously a period approximate to the external administration.
KIEFEL CJ: Yes.
MR HUTLEY: Obviously, wrong things are apt to occur in those periods ‑ ‑ ‑
KIEFEL CJ: …..bankruptcy, yes.
MR HUTLEY: And, in effect, wrong things which may not harm the company, which, in effect, technically, such as frauds to get assets for the company, which are then sought to be held onto. But the whole purpose of this is a summary procedure to look into that period, the examinable period.
KIEFEL CJ: You mean if necessary to find the connection?
MR HUTLEY: To find the connection, and even if there is – to disclose potential wrongdoing of public importance.
KIEFEL CJ: Accepting that, where it is suggested that the examination, the discovery and the proceedings which it is intended to aid have a purely private purpose, is it not incumbent upon the applicant to show some such connection that is sought to be pursued, otherwise this can just be at large. Someone can just have a proceeding in deceptive conduct against the company and there are no bounds around it.
MR HUTLEY: There is the bound, firstly, that ASIC has to approve it because you will not be an eligible applicant, if your Honour is dealing outside ASIC and (b) through (d). To be an eligible ‑ ‑ ‑
KIEFEL CJ: I see, but it is a question of ‑ the limitation of the powers affects ASIC itself, so it is a question then of whether ASIC understands the limitation on its own powers.
MR HUTLEY: Well, no challenge has been made to ASIC’s determination to approve the inquiry. In our respectful submission, the raising of three-quarters of a billion dollars which are lost within a matter of months is almost ex facie a matter of the inquiry into which it would be justified by any of the nominated individuals because of its extraordinary nature that a company would raise that amount of money and then turn around within a matter of months and effectively declare itself insolvent and because of the structure of an administration which had, for example, cut‑off dates with respect to proofs which has converted my clients into having, to use the Court of Appeal’s description, a private claim is hardly, with respect, in our respectful submission, a basis for precluding inquiry into a matter of such obvious public interest.
ASIC has chosen us to do so, in our respectful submission for perfectly good reason because the company has no interest in disclosing that potential very serious wrongdoing because it has had the money. That does not mean the public interest is not vitally interested in it being disclosed and if the engine by which that happens to be done is shareholders who seek also to benefit themselves through recouping moneys through loss, we say so be it, in our respectful submission.
KIEFEL CJ: To put the matter another way, do you say that 596A could authorise what is colloquially called a “fishing expedition” to see if there is anything there in relation to the conduct of officers?
MR HUTLEY: If one went to ASIC and said, “Look, we don’t think there is anything wrong but we would like to poke around and have a look,” and ASIC exercised its power to appoint one, there might be a real question then as to whether one could bring administrative review proceedings to set aside the determination of ASIC.
That would be the first point and then in a sense the question of whether they were for a proper purpose – we do not know whether there is any litigation, we do not know if we are going to bring it, we just want to fossick around, in our respectful submission it is hard to imagine that ASIC would ever approve that and if did it would probably be the subject of challenge at an administrative law point of view and in any event the court might then examine whether in its controlling powers under 596F it would say, “Unless you tell me that there is something proper to do, I’m not going to let you examine anybody. This is not an exercise for you to harass people and there is no basis”. So there would be many ways of controlling the scenario which your Honour the Chief Justice posits.
The position could be contrasted with section 598, if I could take your Honours there. Section 598, your Honours will find at 159 in your Honours’ print. That is in a separate division, Division 2. That empowers a court on the application of an eligible applicant to make orders against a person. It can only do this if it is satisfied that the person is guilty of some default or breach and that the corporation has suffered loss or damage as a result.
That condition is telling for two reasons. First, the condition is notable in its absence from section 596A where there is no constraint on the type of proceedings for which the transcripts may be used. Had the legislature sought to confine the type of proceedings which may be commenced using the transcript it could have imposed a similar condition.
Secondly, it is notable that the condition to be satisfied is that the company has suffered loss and not that the order must be beneficial to the company or its creditors. While subsection (4) permits orders directing a person to repay money to the company, there is no reason why an order could not be sought, for example, in joining a person from phoenixing an insolvent company, its operations, for the protection of potential creditors of a new company even though such an order may not assist the present company or its creditors.
Could I then turn to point 12 on our outline. Section 596A appears in Chapter 5 which is headed “External administration”. It was held by Justice French when sitting on the Federal Court in Highstoke Pty Ltd v Haynes Knight GTO Pty Ltd 156 FCR 501 at 527 to 528 in paragraphs 88 to 89 that your Honours have at the joint bundle of material volume 4, page 799, that 596A only applies to those companies subject to external administration under Chapter 5. That statement was approved by Justice Gageler in Palmer v Ayres at paragraph 94 of your Honour’s judgment, page 513 of the report, which your Honours have at joint bundle of authorities 3544. We submit those observations are correct.
We address the significance of Chapter 5 and external administration at paragraphs 42 to 45 of our submissions. Could I turn to some aspects of that. A member’s voluntary winding up, your Honours, is dealt with in Division 2, Part 5.5, and your Honours will find that commencing at page 141 in the bundle of materials. The general meeting may only appoint a liquidator and continue in that form of administration provided that the company is solvent.
Creditors are unlikely to benefit from actions taken when it is assumed that their debts will be paid in any event. So it would seem that that…..is inconsistent with the statement of principle of the Court of Appeal. Receivership is addressed at Part 5.2 of Chapter 5, and your Honours will find that commencing at page 132. We have already referred to receivers in the context of their status as eligible and applicant. Provided a receiver does not sacrifice the value of the assets to the detriment of subsequent security holders, its actions cannot be impugned if it acts only for the benefit of the security holder.
No subjective intention to benefit the company or the general body of creditors can be presumed or required. Further, it is not to be presumed that in satisfying the security holder’s debt that somehow all creditors are always, or even usually, in a better position. Unless a receiver seeks recourse against, for example, a co‑guarantor of the company’s debt, a receiver will satisfy the secure debts from the secured assets of the company, which are correspondingly diminished, along with their costs of realisation. In those circumstances, there is no net benefit to the company or its general bodies of creditors.
So authorising such a person to examine would seem to conduct an examination under 596A, would similarly seem to confront the Court of Appeal’s judgment. These types of external administrations may be contrasted, for example, with Part 5.3A, voluntary administration, which has as – the object, started as section 453A. If I can take your Honours to page 133 in the materials, that object, that is the closest one comes to an express purpose of benefiting the company or its creditors. Even here, such a purpose is not stated in absolute terms. The company must be administered in a way which maximises its chances of continuing, or, if that is not possible:
results in a better return for the company’s creditors and members than would result form immediate winding up –
That is, the object of voluntary administration is not to benefit the company or its creditors per se. The object expressed in section 435A is not replicated in other parts of Chapter 5. It would be unworkable if it had been.
Now, by way of example, we refer to Part 5.4, different provisions which have had different operations, that is winding up by the court on other grounds. If your Honours would kindly go to page 137, your Honours will see section 461. That provides that a court may order the winding up of a company on a number of grounds. None of the grounds specified are for the purpose of benefiting the company’s creditors. To the contrary, subsection 461(1)(e) to (g) are expressly directed to protecting the interests of members as a whole, or the interest of a member or members.
We also bring to your Honours’ attention subsection (1)(h)(ii) which refers to winding up on the basis of a report submitted by ASIC in which ASIC has formed the opinion that:
it is in the interest of the public, of the members, or of the creditors, that the company should be wound up -
that is, notwithstanding any other basis upon which the company can be wound up, if winding up is required to protect the interests of the public, or of members or of creditors, then it should be done.
Looking to Chapter 5 as a whole, it cannot be said that its purpose is to confer…..on the company or its general body of creditors. The very act of putting a company into an external administration is a drastic intervention. Its status must be notified, as part of the company’s name. It gives notice to the world that the company is not trading as usual. It may presage and hasten the company’s demise. The appointment may also harm the interests of the company’s unsecured creditors, crystallising as it does the company’s secured loans. Had the company kept trading, these creditors may have been better off, albeit potentially at the expense of the company’s future creditors.
What can be said about Chapter 5 is that it is protective. It protects members of the public as well as current and potential creditors, investors – and investors from engaging with a company which for one reason or another should not continue trading or should not do so without supervision or control. This was recognised by Chief Justice Gleeson when sitting in the Supreme Court of New South Wales, with whom Justices Priestley and Mahoney agreed, in the decision in Hong Kong Bank of Australia v Murphy 28 NSWLR 512.
Can your Honours go to tab 24, which is in volume 4 of the joint bundle. If your Honours turn to page 521 of the report, one finds his Honour writing the lead judgment on the question of whether the examinations power, then 597, was a law with respect to winding up for the purposes of section 601, a transitional provision. His Honour declined to hold that in circumstances where liquidation was just one form of external administration. If your Honours go down to F, his Honour said:
The statutory context of “external administration”, in which s 597 has its place, throws light on the purposes for which the power to order examinations (or to authorise persons to apply for examination orders) is conferred. Those purposes include the protection f shareholders and creditors and of interested members of the public. They are not, however, confined to the need for such protection in the case of winding up. Winding up is only one form of external administration. The scope of s 597 is wider.
That, with respect, must be correct. Section 596A is not only a provision with respect to winding up, or for that matter administration. Its purposes are affirmed by the chapter in which it appears, which serves a number of different interests not just those of creditors. Further, its purposes are protective of the interests of shareholders and members of the public as well.
Can I now turn to point 13 in our outline. The examinations power has been considered by this Court. The first decision to which we refer is Rees v Kratzmann (1965) 114 CLR 63. It is in Part C of the materials, volume 3, at tab 19. The Court there was concerned with the construction of section 250 of the Companies Act 1961 (Qld). Your Honours will see the provisions set out below the headnote on page 549.
The majority declined to construe section 250 as restricting the scope of the examination to matters stated in the initiating report from the liquidator, provided that the examinations did not stray beyond promotion, formation, trade dealings, affairs or properties of the company as required by the legislation. The argument was based upon the reference in, for example, section 549(5) to the provision to the person of the liquidator’s report. The relevant statement is that of Justice Menzies at page 78 of the report, with which Chief Justice Barwick and Justice Taylor agreed, and it starts at about point 2 on the page, when he says:
I can find no justification for reducing the wide words describing the subject matter of the examination to the narrow limits –
and if your Honour reads down to the end of the judgment, particularly stressing:
A liberal construction –
et cetera. Justice Windeyer, at page 80, noted that such examination provisions correlated to those originally appearing in bankruptcy, stating at about point 6 on the page, or point 5:
the purpose of the bankruptcy statute –
The next decision in this Court, your Honour, is that of Hamilton v Oades 166 CLR 486. That is in tab 17 in Part C of the materials. In the decision the majority determined that the common law privilege against self‑incrimination had been abrogated by section 541(12) of the Companies Code (NSW), which is set out, your Honours, at pages 492 to 493 of the report, which is in terms not dissimilar to 596B. Coming to his conclusion, the Chief Justice stated at 496 to 497 at about point 8:
There are the two important public purposes that the examination is designed to serve -
and continuing on to the next purpose, the end of that paragraph on the next page, and I have taken your Honour to the passage at the bottom.
Now, the reference to liquidator, of course, gives way now to all forms of external administration. The need for a broader focus was recognised in Evans v Wainter 145 FCR 176 at paragraph 116 and we have set out the relevant passage in paragraph 56 of our submissions. Similarly, the reference to criminal charges was made in the context of addressing the privilege against self‑incrimination and thus is not exhaustive of the public interest.
The second purpose identified by the Chief Justice has since evolved into the fourth purpose identified by Justice Lander at page 252 of Evans v Wainter. Again, we have set out the relevant paragraph at paragraph 57 of our submissions which is at the top of page 15 and it deals, of course, with proceeding generally. We submit that that position, with respect, must be correct considering the terms of the statute and an express reference to further proceedings not restricted to criminal…..
The final decision is the recent decision of your Honours in Palmer v Ayres 259 CLR 509. That is in Part C behind tab 18. Of course, as your Honours are aware, it focuses on whether 596A is a matter in the constitutional sense and therefore engages with the judicial power of the Commonwealth. In determining that it does the plurality held that section 596A looks forward to the possibility that information gathered in the course of an examination will support a claim for relief against the examinee or other person.
If your Honours go to paragraph 30 in the report. Now, as elsewhere noted, the anticipated proceedings were not limited to criminal or civil penalty proceedings. Now, we note also your Honours’ observations at paragraphs 39 and 40 of the reasons. It is noted there that the corporation is “a creature of statute” and has the “powers and rights” given to it provided it acts within the law and subject to supervision by the court.
Upon a company failure intrusion into the examinee’s privacy is warranted given the examinee’s involvement with the examinable affairs of the company. These matters speak to the public purposes of provisions such as 596A. They do not speak to ensuring a benefit accrues to the company or its creditors. We also refer to your Honour Justice Gageler’s observations at paragraph 98. We say each of the majority judgments separately supports one or other of the two objects, purposes referred to at points 5 and 6 of our outline.
I now turn to paragraph 14 of our outline. To the extent that intermediate appellate courts have suggested that the purpose or result of an application must be to benefit the company or its creditors, those decisions ought not to be followed. In particular, cases which refer to the purposes of the 19th century legislation and which predate the legislative prescribed role of the regulatory body such as ASIC have no bearing upon the proper construction of the current provision, section 596A. Those provisions have their genesis in section 541 of the Companies Code, which expanded the relevant power, and we have referred to the legislative history at our submissions paragraphs 46 to 50.
Much reliance is placed on Re Excel Finance Corporation Ltd 52 FCR 69. Your Honours will find those in the joint book of authorities at page 862, tab 27, if I can take your Honours there for a moment. The report commences at 837. It was a case of limited application. On the question of abuse, it acknowledged the possibility of improper purposes for the purpose of allowing access to a supporting affidavit. That was the question before the court.
Your Honours can see that if your Honours go to page 94, letter D. The question was not a question as to whether there was an improper purpose. It was whether, for the purpose of inquiring whether there was an improper purpose might access be given to the affidavit. It did not in fact determine whether the summons in the case ought to be set aside as an abuse.
Can I go back to paragraph 86 in the report. The court referred to the two purposes stated in Hamilton v Oades and your Honours can see that, and at page 86, C to D, it said:
In the present case the second of the public purposes, to which Mason CJ referred, has no application.
Everything that followed in the case was coloured by that limitation, including the statement of principle upon which our learned friends rely at page 93E. The requirement for a benefit to the company, its creditors, must be understood in the context of the first purpose to which Chief Justice Mason referred and which we have sought to encapsulate in point 5 of our outline, which is about assisting the process of external administration.
It says nothing about the requirement for the benefit in the context of an examination for the second evident purpose involving exposure of misconduct in the management of the company. We address Re Excel further at paragraphs 66 to 71 of our submissions. To the extent that Justice Lander extends Re Excel’s limited statement of principle to every examination, including those serving the second purpose, we would say it was in error. That was the two Federal Court cases upon which, of course, the Court of Appeal based its conclusion.
Now, we also refer to Hong Kong Bank of Australia v Murphy 28 NSWLR 512 again, and if your Honours would take that up. It is behind tab 24. Now, as we previously noted, the court was satisfied that the purposes of the examination power included the matters set out at 521F. At 519C, if I could take your Honours back to that, the Chief Justice refers to Hamilton v Oades and the first purpose of gathering information to assist in the winding up. His Honour there referred to an 1886 Chancery Division case of Re Imperial Continental Water, and the circumstances where the applicant is not a liquidator.
In 519E to F, the reference to the object of the section is the object of section 115 of the Companies Act 1862. It is not a statement about the object of section 597, which, as your Honours will see at letter G, in the sentence just below it:
It is unnecessary for the purposes –
declines to explore the limits of the provision, and were it limited in the way of the sentence between E and F, it would be inconsistent with his Honour’s statement at 521F to G.
Now, in any case, it was no part of the purpose of the trustees in that case to confer a demonstrable or commercial benefit on the creditors more generally, and it was no part of the reasoning that the application had to result in such a benefit. Your Honours will see that from the observations made by the Chief Justice at 520B to D, when referring to the findings of Justice McLelland, as the Chief Judge in Equity then was, at first instance, and the fact that there was no successful challenge to it. So, in other words, to the extent that there is any statement of principle concerning legislative object, or purpose, it is at 521F to G, and wholly consistent with our position.
Now, other cases do not support a finding of a benefit to a company and the creditors as being an essential or necessary requirement. If we could take your Honours shortly to a judgment of Justice Santow in Re New Cap Reinsurance Corporation [2001] NSWSC 835, and your Honours will find that in tab 29 of the materials, at page 873. I am sorry your Honours, I am sure that this is in one of the company reports and we will arrange for your Honours to be given a citation. I am assured that it is not.
But if your Honours go to paragraph 12 of the judgment, his Honour ‑ that a creditor’s action which may augment the assets is sufficient to negate a claim of abuse, however nothing in the judgment suggests it is an essential condition, which is made clear when his Honour considers the wider statutory basis for…..examinations at paragraphs 13 to 15 of the judgment, and your Honours will see those.
Now, similar observations have been made by Chief Justice Doyle in the Full Court of South Australia in Sandhurst Trustees v Harvey 88 SASR 519. The relevant paragraphs are paragraphs 54 to 61, and your Honours will find that in the book at tab 32, Part D 938 to 939. And that suggests that an examination of the company’s auditors by the trustee of noteholders would provide a number of benefits, only one of which was a potential benefit to creditors and contributories; other benefits included providing information of interest to ASIC and the auditing profession, as well as providing information to the trustee to determine whether to commence proceedings. The benefit to creditors and contributories was not stated to be in any way essential, or if that was necessary and sufficient, the rest was superfluous.
To a similar effect is the observations of Justice Hayne when sitting in the Supreme Court of Victoria in Re Marvin Manufacturers. Can I just give your Honours a reference to that? That is in (1994) 12 ACLC 586 at 593 to 594 and we have referred to it in our footnote 7 at paragraph 34 of the applicants’ submissions.
Again, the fact that in addition there might ultimately be benefit to creditors was a sufficient but not necessary outcome to save the application. In this respect we note that the cases we have just cited demonstrate an aversion to finding abuse notwithstanding the creditor acts out of his or her self‑interest and not to assist creditors generally.
This was addressed in Evans v Wainter by saying that a creditor may apply to obtain information about its debt if the examination is in the interests of their corporation or creditors as a whole. Your Honours will see that at paragraph ‑ referred to in proposition 9 of our outline ‑ proposition 9 in his reasons at page 217 of the report.
That, of course, looks to the result and not purpose. In effect, the incoherence between a creditor’s purpose and legislative object is fixed with a bandaid which deems that a purpose which has the effect of benefiting the company is not illicit. That follows from imposing, erroneously we say, the requirement that such a benefit, i.e. to the company, must be the purpose of the examination. Now, that comes up particularly in the notice of contention which Ms Shepard will address further in response on the notice of contention.
Having considered the purposes of 596A to the extent that they are purposes, its characteristics, we must now consider whether in the light of those purposes or characteristics there has been an abuse, and this is point 15 of our outline. Abuse of process requires the court to consider whether the object sought to be effected is within the lawful scope of the process. And, your Honours, we have referred to Williams v Spautz 174 CLR 509, Dowling v Colonial Mutual 20 CLR 509. This Court, of course, has recently considered abuse of process in Victoria International Container Terminal Limited v Lunt which is currently reported in 95 ALJR 363.
Now, if I can go to paragraph [23] to [24] of that, which is at pages 369 to 370 of the Australian Law Journal Reports. Paragraph [23] commences at the very bottom of 1025, over to 1026. Now, the Court determined it was crucial to distinguish between the applicant’s motive and his or her immediate purpose. That is, if the applicant’s immediate purpose is within the scope of the relief sought it matters not whether the applicant ultimately seeks to satisfy some other motive which is not within the scope of the process.
Turning to the present case, we say the same applies. The appellant wished to use the process for the purpose stated at point 6 of the outline, for the evident object, that is discovery in relation to the examinable affairs of the company in the relevant period from the relevant officer. That is, we wished to examine a director of Arrium about Arrium’s examinable affairs to support, potentially, proceedings against the directors and others.
Even assuming our ultimate purpose is to be compensated for damages they have suffered, such a motive does not render their use of the process and abuse, that ultimate purpose is merely the entitlement or benefit which the law gives to the applicant in that event.
KIEFEL CJ: Mr Hutley, is there a potential for there to be confusion, I think as Justice Gageler pointed out before, about what we call purpose? The question here really is the statutory purpose ‑ that is the first question, and the second is, is it not, whether the objective aims ‑ or objectives, which is to say, the purposes of the appellants, fall within the statutory purpose? So, we are really within the realm of power.
MR HUTLEY: Your Honour, I am content. We say that is correct, and we say the Court of Appeal has put a gloss on the power which finds no expression in any of the legislative provisions. It is a construction question of the power, and the power, in our respectful submission, the gloss is inconsistent with the evident scope of the power for the reasons we have been through, having regard to the parts and the positions of ASIC, and for those reasons, we say, the court erred and our client’s conduct is not conduct which defeats or is contrary to the power conferred under the legislation. Those are our submissions, if the Court pleases.
EDELMAN J: Mr Hutley, just before you finish, can I just ask, you may not have had a chance to look at it, but in the decision of the United Kingdom Supreme Court, in Eclairs Group Limited v JKX Oil & Gas plc (2016) 3 All ER 641, I do not have the precise passage, but my recollection is that in the leading judgment, Lord Sumption describes the abuse of purpose as a doctrine which is concerned with matters that are within power, rather than just matters that are outside power. In other words, that it is concerned with whether an authorised action is undertaken for a subjective abusive purpose. Do you say that Australian law is consistent with that approach? He does quote from Mills v Mills.
MR HUTLEY: As we conceive it, nothing stated by His Lordship would be inconsistent with what was said by this Court recently in Lunt which concentrates on a state of mind. It would be inconsistent to this extent. Abuse of process has been held not to be a closed category, and therefore one could not say that all abuses of process necessarily required a subjective assessment of aims and necessarily – if the activity is beyond the power, that is relevantly here would be beyond the power of the Court to make the order, then no necessity for abuse of process arises because it simply would strike at the power of the Court to make the order, not anything about the deployment by the person of relief which the Court had power to issue for an end foreign to the proper end of the relief, if that answers your Honour’s question.
EDELMAN J: Perhaps I would just put it in narrower terms. Is there anything in the doctrine of abuse of purpose that permits a court to go beyond the construction of the Act itself and what the Act authorises?
MR HUTLEY: Your Honour, can I give an example. Let it be assumed it was found as a fact upon the application, accepting Justice Steward’s observations as to what lay before the court on application, that my client’s sole object was to harass the proposed witness, in point of fact. Now, the court might have a power to make the order – might. There could be an interesting discussion about that.
But the conventional way in which the courts have dealt with these things is to say it is an abuse of process to pursue an application in that. It has usually, of course, occurred in the context where the court has a
discretion to grant – make the order, and the court will not make the discretion, exercise the discretion, where it found that.
Now, whether you need to call that an abuse of process or just a basis for not granting it because it has been done for an aim which the court considers alien to the proper process of discovery which lies at the heart of this ‑ that is, you are not seeking discovery – your doing it may be debated. It may be because of 596A which is mandatory that this distinction in effect dissolves into one of power. I accept that argument.
But I still think there could be issues about abuse of process in the examples I gave I think in answer to Justice Steward’s question where you might even in a 596 question raise it. But whether you said in that circumstance it is a power or abuse of process may be a distinction which bears on one without a difference because it would be at those extreme levels where in effect you are saying, “I am no longer seeking to utilise the power of discovery. I am doing something for a wholly different reason”.
The classic cases are harassing people, running cross‑examinations because you know enough, all those cases, and we do not dispute that if that was established, that could be a basis for giving some relief in respect of 596A. Whether it was under 597 – 596E I think – the controlling provision or the other does not probably need to be debated at the moment. All we say is, whatever it is, we are not there, if that answers your Honour’s question. Those are our submissions in‑chief, your Honours.
KIEFEL CJ: Yes, thank you, Mr Hutley. The Court will now adjourn until 10.00 am tomorrow.
AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 7 OCTOBER 2021
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