Omegatrend International Pty Ltd (in liq) (ACN 074 557 681) v New Image International Limited HC Auckland CIV 2010-404-4098

[2010] NZHC 1761

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-004098

UNDER  Part 19 of the High Court Rules

IN THE MATTER OF     the Insolvency (Cross-border) Act 2006

BETWEEN  OMEGATREND INTERNATIONAL PTY LTD (IN LIQUIDATION) (ACN 074 557

681) Applicant

ANDNEW IMAGE INTERNATIONAL LIMITED

First Respondent

ANDBILL CUNLIFFE Second Respondent

ANDSTEPHEN LYTTELTON Third Respondent

ANDGRAEME LINDSAY CLEGG Fourth Respondent

ANDALAN STEWART Fifth Respondent

(On papers)

Counsel:         CJR Baird with J Findlay for applicant

JC Caird for respondents

Judgment:      5 October 2010 at 2:00pm

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for rulings on examinations]

This judgment was delivered by me on 5 October 2010 at 2:00pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Freehills, GPO Box 128, Melbourne, Victoria 3001, Australia

Simpson Grierson, Private Bag 92 518, Auckland

OMEGATREND INTERNATIONAL PTY LTD (IN LIQUIDATION) (ACN 074 557 681) V NEW IMAGE INTERNATIONAL LTD HC AK CIV 2010-404-004098  5 October 2010

[1]      The liquidators of Omegatrend International Pty Ltd (in liquidation) seek a number of rulings in respect of the examinations of Mr Bill Cunliffe, Mr Stephen Lyttelton,  Mr  Graeme  Lindsay  Clegg  and  Mr  Alan  Grant  Stewart  which  are scheduled before the Registrar on 6, 7 and 8 October 2010.

[2]      The rulings sought in summary are:

a)       That each person shall be excluded from attending all examinations other than their own examination;

b)No person present shall communicate any information to persons to be examined about examinations of any of them until the final conclusion of the examinations; and

c)        That the examinations be conducted in open court.

[3]      The examinations were ordered by me as part of the orders I made on 5 July

2010.  I then ordered that the liquidation of Omegatrend International Pty Ltd (ACN

074 557 681) (Sally Anne Hollins v Omegatrend International Pty Ltd (ACN 074 557

681) (COR 86 of 2007)) is recognised as a foreign main proceeding pursuant to

Schedule 1, Chapter 111, Articles 15-17 of the Insolvency (Cross Border) Act 2006.

[4]     In addition a number of related orders were made which included the examinations which I have referred to in [1] of this judgment.

[5]     Counsel for the persons to be examined has set out their position in a memorandum filed in opposition to the liquidators’ counsel’s memorandum.   In particular, the respondents:

a)      Consent to the exclusion of the respondents from each other’s examinations provided the examinations are conducted in chambers. If the examinations are conducted in open court (which is opposed) the respondents oppose the exclusion orders sought; and

b)        Oppose the remaining orders sought.

[6]      The rulings have been requested by memoranda filed by counsel for the liquidator applicant.   A memorandum in opposition has been filed, as I have mentioned, by counsel acting for the persons to be examined.  I have been provided with the liquidators’ counsel’s memorandum in reply.  I convened a short telephone conference hearing.  Counsel made oral submissions in the short time available.

[7]      Because of the conditional concessions made on the rulings which I have recorded  in  [2]a)  of  this judgment,  I deal  firstly with  the issue of  whether  the examinations should be chambers or in court.

[8]      The liquidators seek an order that the examinations be in open court because essentially:

a)       Each  examinee  is  either  a  current  or  former  director  of  the  first respondent which is a public listed company in New Zealand;

b)The  affairs  of  a  public  listed  company  is  a  matter  of  significant interest to the public in New Zealand and Australia, including the Australian Fair Work Ombudsman who has a particular interest in the outcome of the liquidators’ investigations;

c)       It  is  claimed  that  the  position  of  the  examinees  raises  a  possible conflict of interest between their position as directors or former directors or officers of the first respondent and their position with Omegatrend International Pty Ltd; and

d)Because the liquidators have sought the examination it is submitted that that is a material consideration justifying a public examination.  It is said that it has the potential to have an impact on shareholders, creditors and other stakeholders of the first respondent.

[9]      Counsel for the respondents opposes the hearing of the examinations in court as  opposed  to  chambers.     Very  briefly  the  reasons  advanced,  which  I  find compelling, are the following:

a)       The  liquidators’  statutory  powers  to  summon  an  individual  and conduct an examination under oath are extraordinary powers and the court is always mindful to ensure that they are not used unduly, unfairly or oppressively;

b)The examinations by liquidators under the Companies Act 1993, s 261 are carried out in private.  If an order is sought under the Companies Act 1993, s 266 the usual procedure is for the examination to be conducted in chambers: Brookers Insolvency Law & Practice[1]and Stubbs Enterprises Ltd v Springfield Acres Ltd;[2]

[1] Lindsay Hampton and others Brookers Insolvency Law & Practice (looseleaf ed, Brookers) at [CA266.03]. 

[2] Stubbs Enterprises Ltd v Springfield Acres Ltd (1992) 6 NZCLC 67,886.

c)       Examinations  of  this  kind  are  designed  to  assist  the  liquidator  to obtain information that he or she is lacking; and

d)There is, in fact, no need to have these examinations open to the public, particularly in circumstances where there are no substantive proceedings on foot and the directors have no opportunity to cross- examine the liquidators.

[10]     I consider the reasons advanced by counsel for the examinees compelling.  I cannot see any prejudice to the liquidators in there being an examination in chambers as opposed to court.  What develops in the future as a result of such examinations, of course, is an entirely different matter.   In those situations, particularly where proceedings are issued, there is the opportunity to prepare properly for the issues raised by a case.  Understandably, those cases are matters which should be open to whoever  has  an  interest  in  them  to  listen  to  the  outcome.     These  type  of examinations, however, without special reason, are designed to assist a liquidator in obtaining information which may, or may not, lead to a further line of inquiry and appropriate proceedings at a later date.

[11]     I deal next with the second ruling sought which I have summarised in [2]b) of this judgment.   What is sought is a prohibition as to the communication to an

examinee of the questions asked and answers given during the examinations until such time as the examinations are concluded.

[12]     The purpose of the order sought is  said to maintain the integrity of the process so that one witness is not advantaged by being forewarned of the questions likely to be asked of him and, further, that the witness will not be inclined to alter his evidence as a result of answers given by a previous witness.  Counsel submits that the restriction is required because the examinees are not separately represented.  Had they been separately represented, counsel submits that the restriction on communications would not have been necessary.

[13]     The examinees, by counsel, indicate their agreement not to communicate with each other or their counsel during adjournments while a particular examination is ongoing and to abide the principle which applies to a witness being cross- examined.  They oppose the further extension sought.

[14]     There will, on occasions, be a concern that if a witness has forewarning of questions to be asked that there is a risk that the examinee may tailor or modify his or her evidence in light of the position adopted by a prior witness.  Counsel for the applicant submits that issues of credibility of individual examinees and the accuracy of their recall are paramount to the examination.   There is, in fact, no foundation before me that any of these examinees would collude or dishonestly fabricate their evidence.   However, one cannot exclude the possibility of that occurring and its effect on the outcome of this examination.   I therefore conclude that the second ruling sought is justified in this case.

[15]     Accordingly I order:

a)        The examinations shall be conducted by the Registrar in chambers;

b)Bill Cunliffe, Stephen  Lyttelton, Graeme Lindsay Clegg and Alan Stewart shall be excluded from attending all examinations pursuant to the order made on 5 July 2010 other than their own examination;

c)       No  person  is  to  communicate  any  information  to  Bill  Cunliffe, Stephen Lyttelton, Graeme Lindsay Clegg or Alan Stewart about the examinations conducted of any of them, including the nature of or content of, including the questions asked and answers given by any examinee during the examinations until the final conclusion of the examinations before the Registrar;

d)In  the  event  of  an  adjournment  of  the  applications  before  the Registrar, leave is reserved to counsel to apply in relation to order (c) above; and

e)        Costs in relation to this ruling are reserved.

JA Faire

Associate Judge