FEDERAL COURT OF AUSTRALIA

Kimberley Diamonds Ltd v Arnautovic [2017] FCAFC 91

ORDERS

THE COURT ORDERS THAT:

1.    Leave to appeal be granted.

2.    The appeal be allowed.

3.    The orders made by the primary judge be set aside and in lieu thereof order that:

(a)    the amended interlocutory process filed by Sule Arnautovic dated 8 August 2016 be dismissed; and

(b)    Sule Arnautovic pay Kimberley Diamonds Ltd’s costs of the amended interlocutory process.

4.    Sule Arnautovic pay Kimberley Diamonds Ltd’s costs of the application for leave to appeal and the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    As its name suggests, Kimberly Diamond Company Pty Limited (KDC) was the owner of diamond mine located in the Kimberley region of Western Australia. Its mining operations at the mine, known as Ellendale, were apparently not very successful. On 1 July 2015, KDC was placed into voluntary administration, and on 5 August 2015 the administrators were appointed joint and several liquidators. Mr Sule Arnautovic was one of the liquidators.

2    On 19 October 2015, the liquidators disclaimed their interest in the Ellendale mine, with the result that the mine reverted to the Western Australian Government. This appears not to have pleased KDC’s sole shareholder, Kimberley Diamonds Limited (KDL). KDL was concerned that the disclaimer of the Ellendale mine may have followed an inadequate and defective attempt by the liquidators to sell the mine. KDL, through its lawyers, sought answers to various questions concerning the sales process from the liquidators. Not satisfied by the responses it received from the liquidators, KDL requested the Australian Securities and Investments Commission (ASIC) to authorise it to make an application under s 596A of the Corporations Act 2001 (Cth) for a summons to examine Mr Arnautovic about the sales process. ASIC duly authorised KDL as an eligible applicant, and KDL subsequently applied for an examination summons, as well as an order for production of documents at the examination pursuant to s 597(9) of the Corporations Act. On 20 July 2016, a summons and an order for production, both addressed to Mr Arnautovic, were issued by a Registrar of the Court.

3    That appears not to have pleased Mr Arnautovic. He applied to the Court for an order that the summons be discharged, apparently on the basis that it was an abuse of process. His primary contention was that the examination summons placed an unnecessary imposition on the liquidator in circumstances where there was no realistic prospect of the examination having any utility. His application was successful. The primary judge found that the examination summons was an abuse of process and ordered that it be permanently stayed. Her Honour also set aside the order for production.

4    The central issue in KDL’s application for leave to appeal the judgment of the primary judge is whether the primary judge erred in principle in permanently staying the examination summons on the basis that it was an abuse of process. Did the primary judge misconstrue the statutory scheme concerning examination summonses in Part 5.9 of the Corporations Act? Did that cause her Honour to have regard to irrelevant considerations, or to effectively reverse the onus of proof and require KDL to justify the utility of the examination of Mr Arnautovic?

the Statutory Scheme in respect of examinations

5    Chapter 5 of the Corporations Act deals with the external administration, including the winding up, of corporations. Part 5.9 of Chapter 5 contains miscellaneous provisions concerning external administration. Division 1 of Part 5.9 deals with the examination of persons about a corporation’s examinable affairs. The central provisions of Part 5.9 are s 596A, which is headed “mandatory examination”, and s 596B, which is headed “discretionary examination”.

6    Section 596A, with which this proceeding is primarily concerned, is in the following terms:

596A Mandatory examination

The Court is to summon a person for examination about a corporation’s examinable affairs if:

(a)    an eligible applicant applies for the summons; and

(b)    the Court is satisfied that the person is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending:

(i)    if the corporation is under administration – on the section 513C day in relation to the administration; or

(ii)    if the corporation has executed a deed of company arrangement that has not yet terminated – on the section 513C day in relation to the administration that ended when the deed was executed; or

(iii)    if the corporation is being, or has been, wound up – when the winding up began; or

(iv)    otherwise – when the application is made.

7    Section 596A must be considered along with s 596B, which separately provides for discretionary examinations on certain grounds. Section 596B is in the following terms:

596B Discretionary examination

(1)    The Court may summon a person for examination about a corporation’s examinable affairs if:

(a)    an eligible applicant applies for the summons; and

(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; or

(ii)    may be able to give information about examinable affairs of the corporation.

(2)    This section has effect subject to section 596A.

8    This Court is a “Court” for the purposes of s 596A and s 596B: s 9 and s 58AA.

9    The expression “eligible applicant” is defined in s 9 in the following terms:

eligible applicant, in relation to a corporation, means:

(a)    ASIC; or

(b)    a liquidator or provisional liquidator of the corporation; or

(c)    an administrator of the corporation; or

(d)    an administrator of a deed of company arrangement executed by the corporation; or

(e)    a person authorised in writing by ASIC to make:

(i)    applications under the Division of Part 5.9 in which the expression occurs; or

(ii)    such an application in relation to the corporation.

10    The expression “examinable affairs” is defined in s 9 as follows:

examinable affairs, in relation to a corporation means:

(a)    the promotion, formation, management, administration or winding up of the corporation; or

(b)    any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or

(c)    the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs because of paragraph (a) or (b).

11    A “corporation” includes a “body corporate” and a body corporate includes a body corporate that is being wound up: s 9 and s 57A(1)(b).

12    Section 53 provides a further non-exhaustive list of matters or things that may constitute the affairs of a body corporate for the purposes of the definition of examinable affairs. The list relevantly includes “any act or thing done … by or on behalf of the body, or to or in relation to the body or its business or property, at a time when … the body is being wound up”: s 53(d)(iv).

13    An “officer” of a corporation relevantly includes a liquidator of the corporation: s 9.

14    Section 596C(1) provides that a person who applies under s 596B must file an affidavit that supports the application and complies with the rules. The reference to the rules is a reference to the Federal Court (Corporations) Rules 2000 (Cth). Rule 11.3 of the Corporations Rules relevantly provides that the affidavit must state the facts in support of the application. The affidavit is not available for inspection except so far as the Court orders: s 596C(2).

15    A summons may require the examinee to produce at the examination specified books in the examinee’s possession: s 596D(2).

16    The Court effectively controls the conduct of the examination. The Court may give a direction about the following things: the matters to be inquired into at the examination; the procedure to be followed at an examination; who may be present at an examination while it is being held in private; the exclusion of a person from an examination, even while it is being held in public; access to records of the examination; the prohibition of the publication or communication of information about the examination; and the destruction of a document that relates to the examination and was created at the examination: s 596F(1). The Court may put, or allow to be put, to a person being examined such questions about the corporation or its examinable affairs as the Court thinks appropriate: s 597(5B).

17    Section 597B provides that where the Court is satisfied that a summons to a person under s 596A or s 596B was obtained without reasonable cause, the Court may order some or all of the costs incurred by the person because of the summons to be paid by the applicant for the summons or any person who took part in the examination.

18    Rule 11.5 of the Corporations Rules provides that a person served with an examination summons may, within 3 days of being served, apply to the Court for an order discharging the summons by filing an interlocutory process and an affidavit stating the facts in support of the interlocutory process.

19    The following points may be made concerning the statutory scheme.

20    First, an applicant for a summons under s 596A is required to satisfy two criteria: first, that the applicant is an “eligible applicant”; and second, that the person to be examined is or was, during the specified period, an officer or provisional liquidator of the corporation. If those two criteria are met, the Court must issue a summons. There is no discretion.

21    Second, and flowing from the first point, it is unnecessary for the eligible applicant for a s 596A summons to establish any particular reason for seeking the summons; or demonstrate that the proposed examination would have practical utility; or that the examination would or would be likely to achieve any particular result or outcome; or that the examination would be in any sense desirable or efficacious. While r 11.3(3) of the Corporations Rules (though not s 596C of the Corporations Act) provides that the applicant for a s 596A summons must file an affidavit in support of the application, the affidavit need only address the two express criteria in s 596A.

22    The relative ease with which a s 596A summons might be obtained appears to have been expressly intended by the legislature. The Explanatory Memorandum to the Bill that introduced s 596A noted (at [1155]) that it was “envisaged that the issue of a summons in such circumstances will be a formality”.

23    Third, an applicant for a summons under s 596B must also satisfy two criteria. The first criterion is relevantly the same as the first criterion in respect of a summons under s 596A. The second criterion requires the applicant to satisfy the Court that the person to be examined is either a person who has taken part or been concerned in the examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation, or is a person who may be able to give information about examinable affairs of the corporation. This is an important point of distinction between s 596A and s 596B. In the case of a summons under s 596A, the applicant does not have to demonstrate, and the Court is not required to inquire into whether, the person who has been involved in the examinable affairs of the corporation may have been guilty of misconduct, or would be able to give information about the examinable affairs of the corporation: Evans v Wainter [2005] FCAFC 114; (2005) 145 FCR 176 at [84] and [191].

24    Fourth, in the case of a s 596B summons, even if the Court is satisfied that the two criteria have been made out, the Court is not required to issue the summons. It retains a discretion whether or not to do so. The Court could, in such circumstances, decline to exercise the discretion if it was not satisfied, for example, that the proposed examination was sufficiently justified, or would have any practical utility.

25    Fifth, a liquidator can be an eligible applicant for an examination summons under s 596A. Equally, he or she may also be an examinee in a s 596A summons. That is because a liquidator is an officer of a corporation as defined in s 9: see Evans v Wainter at [72].

26    Sixth, the examinable affairs of the corporation, about which the examinee may be questioned, include acts done by or on behalf of the relevant corporation, or to or in relation to the corporation or its business or property, when the corporation is being wound up.

27    Seventh, it follows from the fifth and sixth points that the legislative scheme specifically envisages that a s 596A summons might be issued in respect of a liquidator of a corporation, and that the liquidator may be examined about acts done by the liquidator on behalf of the corporation, as well as acts done by the liquidator in relation to the corporation’s business or property, in the course of the winding up of the corporation. This point was emphasised by Lander J in Evans v Wainter, where his Honour said (at [72]) (Ryan and Crennan JJ relevantly agreeing):

I have already noted that a provisional liquidator is not an eligible applicant. However, a provisional liquidator may be an examinable officer. More importantly, a liquidator, an administrator and an administrator of a deed of company arrangement can be both an eligible applicant and an examinable officer. There is nothing surprising about that. It may be that in a given case ASIC has a need to inquire into the conduct of the examinable affairs of a corporation during a liquidator’s administration. So also a liquidator might need to inquire into a corporation’s examinable affairs constituted by events which occurred whilst the corporation was under the control of an administrator. Section 596A is in the widest possible terms so that the relevant eligible applicant can inquire into the examinable affairs of the corporation. The eligible applicant need only establish that he or she has that status and that the person who is sought to be summoned is an examinable officer within the meaning of s 596A(2). The eligible applicant does not have to establish any reason for seeking an order to summon a person for examination.

28    While in this passage his Honour referred to ASIC being the eligible applicant, the point made by his Honour would apply equally to a person authorised as an eligible applicant by ASIC. More importantly, there would appear to be nothing in the statutory scheme itself to suggest that liquidators are in some different or privileged position insofar as they might be examinees as the result of the issue of an examination summons under s 596A.

29    Eighth, once a summons is issued, the Court controls the conduct of the examination. It could effectively limit the scope and length of the examination, and even bring the examination to a halt, if it considered it to be wasteful or unnecessary. In such circumstances, the Court could also require the applicant for the summons to pay some or all of the costs of the examination.

Abuse of process

30    While an applicant for a summons under s 596A need only satisfy the two express criteria to secure the issue of the summons, it is equally clear that a summons issued in compliance with s 596A can be discharged if it is found that the applicant had an improper purpose in securing the summons, or if the summons and resulting examination is otherwise found to amount to an abuse of process: Carter v Gardner [2003] FCA 653; (2003) 130 FCR 99 at [27]. As indicated earlier, r 11.5 of the Corporations Rules provides that a person served with an examination summons may, within 3 days of being served, apply to the Court for an order discharging the summons by filing an interlocutory process and a supporting affidavit. That procedure can be invoked in circumstances where it is alleged that the examination summons is an abuse of process.

31    The Court, like all superior courts, has inherent jurisdiction to prevent misuse of its processes and procedures in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right thinking people: Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536 (per Lord Diplock). The jurisdiction extends to all those categories of cases in which the processes and procedures of the Court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice and unfairness: Walton v Gardiner [1993] HCA 77; (1993) 177 CLR 378 at 392.

32    The classes of case which might amount to an abuse of process are not closed. Rather, the Court may exercise its inherent powers “as and when the administration of justice demands”: Jago v District Court of New South Wales [1989] HCA 46; (1989) 168 CLR 23 at 74 (per Gaudron J). In Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256, the majority (Gleeson CJ, Gummow, Hayne and Crennan JJ) at [15] accepted as correct the statement of McHugh J in Rogers v R [1994] HCA 42; (1994) 181 CLR 251 at 286, that:

Although the categories of abuse of procedure remain open, abuses of procedure usually fall into one of three categories: (1) the court’s procedures are invoked for an illegitimate purpose; (2) the use of the court’s procedures is unjustifiably oppressive to one of the parties; or (3) the use of the court’s procedures would bring the administration of justice into disrepute.

33    The power to permanently stay proceedings on the ground that they are an abuse of process should be exercised with caution and only in the most exceptional or extreme case: Moore v Inglis (1976) 9 ALR 509; (1976) 50 ALJR 589 at 593; Walton v Gardiner at 392 (per Mason CJ, Deane and Dawson JJ); O’Shane v Harbour Radio Pty Ltd [2013] NSWCA 315; (2013) 85 NSWLR 698 at [111] (per Beazley P, with whom McColl JA and Tobias AJA agreed). The onus of satisfying the court that there is an abuse of process lies upon the party alleging it, and that onus is a “heavy one”: Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 at 529 (per Mason CJ, Dawson, Toohey and McHugh JJ); Tyne (Trustee) v UBS AG (No 2) [2017] FCAFC 5 at [97] (per Jagot and Farrell JJ).

PROCEEDINGS BEFORE THE PRIMARY JUDGE

34    Mr Arnautovic’s amended interlocutory process relevantly sought orders that the examination summons addressed to him, and an associated order for production, be discharged, set aside or permanently stayed. The amended interlocutory process did not specify the grounds of the application, but stated that it was made on the facts stated in the supporting affidavits.

Evidence

35    The affidavits read by Mr Arnautovic in support of the interlocutory process comprised two affidavits affirmed by Mr Arnautovic’s solicitor, Mr Simon Gallant. It does not appear that Mr Gallant was cross examined.

36    Mr Gallant’s first affidavit was a short affidavit which addressed three matters. The first was the fact that Mr Arnautovic and his joint liquidator had, in their capacity as liquidators of KDC, commenced proceedings in the Supreme Court of New South Wales against KDL and the directors of KDC. The relief sought against KDL included: declarations that certain agreements entered into between KDL and KDC were void or unenforceable; declarations that certain payments that had been made by KDC to KDL were unfair preferences, insolvent transactions, or voidable transactions; an order that KDL pay KDC an amount equal to those payments; a declaration that KDL had no entitlement to certain payments made by KDC for and on behalf of KDL; and an order that KDL pay KDC an amount equal to those payments. The relief sought against the directors included: orders that the directors pay KDC an amount reflecting losses incurred as a result of insolvent trading; declarations that the directors contravened various provisions of the Corporations Act; and an order that the directors pay compensation to KDC for losses arising from those contraventions.

37    The relevance of the fact that the liquidators had commenced proceedings against KDL and the directors is unclear, other than perhaps that it indicated that KDL may ultimately become a creditor of KDC. There is no indication in the judgment of the primary judge that KDC relied on the existence of the proceedings against KDL and the directors as evidence of any improper purpose on the part of KDL in applying for the examination summons. Indeed, as will be seen, KDC appears to have conceded that KDL had a proper purpose in applying for the examination summons. Nor does it appear that the fact that there were proceedings on foot against KDL and the directors played any part in KDC’s contention, and the primary judge’s finding, that the examination summons was an abuse of process.

38    The second fact addressed in Mr Gallant’s first affidavit was the uncontentious fact that Mr Arnautovic had been served with the examination summons.

39    The third fact was that Mr Gallant had written to KDL’s lawyers asking them to provide an “overview of the matters” that KDL “contemplates will be the subject of the examination”. Mr Gallant also asked that he be provided with KDL’s submission to ASIC in relation to its application for eligible applicant status. The letter did not assert that the examination summons was an abuse of process.

40    The second and lengthier affidavit affirmed by Mr Gallant addressed a number of facts concerning the liquidation of KDC. In summary, the affidavit established the following potentially relevant facts.

41    First, the claims of KDC’s unsecured creditors were likely to significantly exceed the recovered and recoverable assets of KDC. The affidavit in fact refers to the assets and liabilities of KDL, not KDC. While it is not entirely clear, that would appear to be a typographical error. On that assumption, Mr Gallant stated that KDC’s realised assets totalled $7,382,863.17, whereas the claims of ordinary unsecured creditors totalled $33,554,018.89. Mr Gallant also referred to a liability of $28,321,553 which KDC carried on its balance sheet reflecting costs payable to the Department of Mines and Petroleum in respect of the rehabilitation of the Ellendale mine. No proof of debt had been lodged in relation to that liability. In addition, the Federal Government had paid $5,110,927.60 to KDC under the Fair Entitlement Guarantee Scheme to enable the payment of liabilities to KDC’s employees. That amount was repayable to the Federal Government in priority to the claims of ordinary unsecured creditors.

42    Second, Mr Arnautovic and his fellow liquidator offered the Ellendale mine for sale as a going concern during the administration and in the course of the winding up of KDC. The mine was offered for sale on “Mines Online”, the Australian Financial Review, the website of the office of the liquidators and the website of the auctioneers and valuers who were retained by the liquidators. A data room was established for interested parties which contained “information relevant to potential purchasers”, and the liquidators received advice from representatives of KDL in relation to the information that was appropriate to be included in the data room.

43    Third, a number of offers to purchase the mine were received by the liquidators, however none of the offers “would have resulted in more money being available for creditors generally than would have a sale of KDC’s plant and equipment at auction”.

44    Fourth, Mr Arnautovic and his fellow liquidator disclaimed KDC’s interest in the tenement constituting the Ellendale mine after the auction of KDC’s plant and equipment. The decision to disclaim was taken “[i]n order to prevent costs being incurred (including those associated with keeping the mine under care and maintenance and with respect to rent), to obviate the need to maintain insurance, to mitigate against the risk of claims being made with the [sic] respect to ongoing occupation of the mine and to prevent penalties being incurred for noncompliance with statutory obligations”.

45    It would appear that the documentary exhibits relied on by Mr Arnautovic before the primary judge included a copy of the letter to ASIC prepared by KDL’s lawyers for the purpose of requesting ASIC’s authorisation of KDL to apply to the Court as an eligible applicant for the issue of an examination summons. The letter to ASIC, and the documents provided along with it, contained detailed information concerning the asserted purpose of the proposed examination of Mr Arnautovic by KDL, and what was expected or hoped to be gained from it.

46    In short terms, KDL’s letter to ASIC indicated that the “sole focus” of the proposed examination of Mr Arnautovic was the sales and marketing process undertaken by Mr Arnautovic and his fellow administrators and liquidators in respect of the Ellendale mining lease, mine and process plant. The letter pointed out that KDL was concerned about the fact that the Ellendale mine was “a very valuable asset, but was disclaimed for nil value by the liquidators after a short and defective Sales Process”. KDL’s specific concerns were said to be that the duration of two months for the sales process was “grossly inadequate given the uniqueness and international appeal of the mine” and that the conduct of the sales process was “defective in a number of respects”. Fairly detailed information was included in the letter to support KDL’s assertions that the mine was a valuable asset and that the sales process was defective.

47    One of the documents that KDL provided to ASIC was a document prepared by the Government of Western Australia Department of Mines and Petroleum entitled “Ellendale Information Sheet 1”. The information sheet, which was dated December 2015, roughly two months after KDC disclaimed the Ellendale mine, stated that it had been produced by the Department to “provide our stakeholders with an update on the status” of the Ellendale mine. Amongst other things, the information sheet included the following statements: “Ellendale is well known internationally as a source of high quality fancy yellow diamonds”; that the “diamond resource” that existed within one of the Ellendale mine tenements “is of significant value to the State of Western Australia”; that the Department’s “objective is to ensure that the site remains viable for future responsible resource development”; that the “tenements associated with Ellendale contain a substantial diamond potential”; and that “it is highly likely that future mining will be conducted in this area”.

48    Another document provided to ASIC was a statutory declaration made by a director of KDL, Mr Sainty. In his statutory declaration, Mr Sainty recounted some comments that had been made to him about the liquidator’s sales process in respect of the Ellendale mine by a consultant who had apparently been retained by a potential purchaser of the mine. The comments included that no site visit was offered by the liquidators; that the time period for the assessment of the potential purchase was “very tight”; and that there was no negotiation process. The consultant’s principal, the potential purchaser, was not named and did not ultimately make any offer.

49    The letter to ASIC also referred to and annexed correspondence between KDL’s lawyers and Mr Arnautovic’s lawyers. That correspondence tended to suggest that Mr Arnautovic had not answered all of the questions that KDL had asked him in relation to the sales process. ASIC’s attention was drawn in particular to the fact that Mr Arnautovic had not provided a substantive answer to two questions: whether he had undertaken a valuation of the Ellendale mine, and how he came to the conclusion in a two month timeframe that he was unable to sell the mine for value.

50    The letter to ASIC summarised the purpose and potential benefit of the examination in the following terms:

It is KDL’s view that if properly marketed and sold, the proceeds of the sale of the Mine may have met the claims of all of KDC’s creditors and resulted in a dividend to KDL as shareholder.

The benefit to KDC, its creditors and its contributories of the Proposed Examinations is [sic] follows:

•    to determine the precise details of the Sale Process;

•    to ascertain if the Sale Process was defective; and

•    to determine if any causes of action against the Appointees [liquidators] arise as a result of those defects.

It is KDL’s intention that, should a cause of action with reasonable prospects of success against the Appointees arise from the Proposed Examinations, to seek orders for a derivative action or the appointment of [sic] special purpose liquidator to prosecute the claim against the Appointees for the benefit of KDC and its creditors and contributories.

51    Mr Gallant’s second affidavit addressed several other factual matters, though none of the other matters featured prominently, or at all, in the primary judge’s reasons. It is accordingly unnecessary to address them.

52    KDL read an affidavit sworn by its solicitor, Mr John Martin. That affidavit responded to some of the factual matters referred to in Mr Gallant’s second affidavit, though mainly those matters that did not feature prominently, or at all, in the reasons of the primary judge. It does not appear that Mr Martin was cross examined.

53    The following points may be made concerning the evidence.

54    First, there was nothing in the evidence to suggest that KDL’s purpose in obtaining the examination summons was improper or illegitimate, in the sense of being outside the purposes for which the power in s 596A was conferred. The evidence did not cast any doubt on the claims that KDL made in its letter to ASIC concerning its purpose in examining Mr Arnautovic.

55    Second, there was nothing in the evidence to suggest that the time, effort and costs that Mr Arnautovic would be required to expend in complying with the examination summons and order to produce could be characterised as being excessively or unfairly burdensome or oppressive. It would appear that the scope of the examination was fairly narrow and focussed. KDL had undertaken to meet Mr Arnautovic’s costs in relation to the examination.

56    Third, Mr Arnautovic did not himself swear an affidavit concerning the facts and issues that were the proposed focus of the examination. The evidence concerning the sales process and the disclaimer of the Ellendale mine was given by Mr Arnautovic’s solicitor on information and belief. That evidence was also in fairly general terms and did not completely answer all of the questions that KDL had advised ASIC that it wanted answers to in relation to the sales process.

Submissions

57    Mr Arnautovic did not suggest, before the primary judge, that KDL had any ulterior purpose for the examination. It would appear that it was conceded that KDL’s purpose was to obtain information from Mr Arnautovic concerning aspects of the sales process in respect of the Ellendale mine, and thereby investigate the concerns it had in relation to that matter. In any event, as already noted, there was no evidence to support a finding that this was not KDL’s purpose.

58    Mr Arnautovic’s main submission before the primary judge was that the examination summons was an abuse of process because it placed an unnecessary imposition on the liquidator in circumstances where there was no realistic prospect of the examination having any practical utility. It was submitted that, while the categories of abuse of process are not closed, if it was necessary to place the abuse within an established category, the examination fell within the second category identified by McHugh J in Rogers v R, namely that it was unjustifiably oppressive to a party.

59    Mr Arnautovic relied on authorities which were said to establish that liquidators were in a “special position” by reason of the nature of their office. More significantly, the authorities were said to establish that, given the special position that liquidators occupy, proceedings cannot be commenced against a liquidator in respect of decisions or acts taken by them in the course of a winding up without the leave of the Court. Before granting such leave, the Court would ordinarily require the applicant to demonstrate a prima facie case. Mr Arnautovic also relied on authorities concerning the Court’s power under s 536 of the Corporations Act (now repealed: see Insolvency Law Reform Act 2016 (Cth), schedule 2), and like provisions, to conduct inquiries into the actions of liquidators. Those authorities were said to establish, amongst other things, that the Court should be loath to order an inquiry into the conduct of a liquidator unless it was considered that there were substantial reasons for believing that the liquidator had not performed his or her duties, and that it was likely that a practical benefit would be derived from the inquiry.

60    KDL, on the other hand, submitted before the primary judge that the Court was not in a position to determine that there was no realistic prospect of the examination having practical utility. In particular, it was said that the Court was in no position to reach any conclusion concerning the value of the mine. It was acknowledged that the examination might ultimately not reveal any conduct on the part of Mr Arnautovic and his fellow liquidators that would support a claim. It was submitted, however, that the purpose of an examination under s 596A was investigative, and that it was in the interests of creditors and contributories of KDC for conduct that might support a claim to be investigated and revealed. On a broader level, it was submitted that s 596A was of a different character to s 536 and that the “safeguards” provided in respect of applications for inquiries under s 536 and like provisions were unnecessary in the context of s 596A.

The judgment of the primary judge

61    As noted earlier, the primary judge found that the examination summons was an abuse of process. Her Honour accordingly ordered that the summons be permanently stayed. Her Honour also ordered that the order for production be set aside.

62    The primary judge’s reasoning may be summarised as follows.

63    First, her Honour found that an examination under s 596A required “justification”. According to the primary judge, the purpose of s 596A was to “benefit the company, its creditors, members or the public generally”, and an examination should not be permitted to proceed unless there is reason to believe that it will fulfil that purpose: Judgment at [62]. That conclusion was “based upon the role of the Court in protecting the integrity of the winding up, and in ensuring that the winding up is conducted in a timely and efficient manner”, and was “consistent with the requirements for the grant of leave to commence proceedings against a liquidator and for grounds to commence an inquiry under s 536”: Judgment at [62].

64    In relation to the last-mentioned point, her Honour had considered, at some length (Judgment at [45]-[61]), the authorities concerning the special position of liquidators and the general reluctance or unwillingness of the Court to permit actions, or order inquiries under s 536 of the Corporations Act and like provisions, which might interfere in a liquidator’s conduct of a winding up. Her Honour referred to a number of decisions in that regard, in particular: Sydlow Pty Ltd (in Liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 (a case in which Tamberlin J referred to the need to obtain the leave of the Court before filing a cross-claim against a liquidator); Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456 (Brereton J, Supreme Court of New South Wales; a case concerning an application to appoint a special purpose administrator to examine transactions entered into by an administrator); Re Joe and Joe Developments [2014] NSWSC 1444 (Black J, Supreme Court of New South Wales; a case concerning an application under s 447E of the Corporations Act, which is in similar terms to s 536 but relates to the actions of an administrator); and Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99 and Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 (both cases concerning inquiries into the actions of a trustee in bankruptcy under s 179 of the Bankruptcy Act 1966 (Cth)).

65    Second, the primary judge held that, even though s 596A was in wide terms, and expressly permitted KDC, as an eligible applicant, to examine Mr Arnautovic, it did not follow that the Court should not examine whether the exercise of the power “can be justified”, or that the Court was prevented from “examining the purpose of the examination, and its possible results, with a view to staying the examination summonses if those matters do not justify the mandatory examination of the liquidator in this case”: Judgment at [63]. The primary judge rejected KDL’s submission that, because s 596A was of a different character to the inquiry power under s 536, the “safeguards” provided in the context of s 536 were unnecessary in the context of a s 596A examination: Judgment at [64]. Her Honour concluded (at Judgment [64]):

The examination summons involves a challenge to the integrity of the liquidation process in relation to KDC. Such a challenge warrants justification, to avoid intrusion into the regular administration of the liquidation (which has not concluded) and to prevent the liquidator from being required to account on oath for the exercise of discretions and commercial judgments if there is no suggestion of lack of good faith or breach of duty.

66    Third, the primary judge found that the examination of Mr Arnautovic was not justified in that sense. That was the case for essentially two reasons: first, her Honour was not satisfied that there was any realistic prospect that the examination would have any practical utility; and second, her Honour considered that the examination involved a “substantial intrusion” into the liquidation.

67    In relation to the first of those matters, the primary judge’s finding that there was no reasonable prospect that the examination would have any practical utility was based on her Honour’s analysis of the information said to have been relied on by KDL as suggesting that there were flaws or defects in the sales process put in place by Mr Arnautovic in relation to the Ellendale mine. The facts relied on by KDL were identified as being: the absence of a formal valuation; the completion of the sales process within two months; the doubt as to whether proper information was made available to interested purchasers; the failure to advertise internationally; the absence of information about which experts were retained to advise on the sales process; and statements made by the West Australian government that the mine was of “significant value to the State of Western Australia” and was a “viable resource project”: Judgment at [66].

68    In relation to the statements made by the West Australian government, her Honour noted that those statements did not provide substantial support for KDL’s position “in the absence of any explanation of the basis for the views expressed in such general terms”: Judgment at [71]. Her Honour also referred to Mr Sainty’s statutory declaration. Her Honour gave little weight to the criticisms of the sales process referred to in the statutory declaration, given that there was no evidence that the unnamed potential purchaser may have purchased the mine at a price exceeding the amount received by the liquidators from the sale of the mining equipment, and no evidence concerning the potential purchaser’s position in relation to KDC’s “known rehabilitation obligation”: Judgment at [72].

69    Her Honour also pointed out that there was “no positive evidence” of a number of matters that may have borne on the propriety or otherwise of the liquidators’ conduct of the sales process. Those matters included: any evidence of fraud, dishonesty or other misconduct on the part of the liquidators; any evidence of a conflict of interest or lack of impartiality; any evidence that the sales process was conducted in a manner inconsistent with the proper discharge of the liquidators’ functions, such as any improper purpose; evidence of any particular flaw in the liquidators’ exercise of commercial judgement; or evidence that there may have been an outcome more favourable to the liquidation if the sales process was conducted differently: Judgment at [70].

70    It would perhaps not be unfair to characterise her Honour’s reasoning in relation to the evidence as amounting to a finding that the evidence did not support a reasonably arguable case that Mr Arnautovic had failed to faithfully perform his duties, or was guilty of any misconduct in relation to the conduct of the sales process and the eventual disclaimer of the Ellendale mine.

71    Fourth, the primary judge’s findings concerning the utility of the examination and the intrusion caused by it, led her to conclude that the examination summons was an abuse of process. Her Honour’s conclusion was expressed in the following terms (Judgment at [74]):

In those circumstances, I am not satisfied that the material relied upon by KDL provides reason to believe that the mandatory examination of the liquidator may provide a benefit to the company, its creditors, its members or the public generally. There is currently no realistic prospect that the examination will have any practical utility. KDL’s desire to explore the circumstances of the sale process, which it considers to have been defective, does not justify the exercise of the s 596A power which, in this case, involves a substantial intrusion into the liquidation by examining the liquidator in the course of the conduct of the liquidation. The examination summons is therefore an abuse of process and should be stayed. It follows that the order for production of documents, which was made in aid of the examination summons, should be set aside.

Leave to appeal

72    The matter before the primary judge was an interlocutory process. Her Honour’s judgment was accordingly an interlocutory judgment. Leave to appeal was required: s 24(1A) Federal Court of Australia Act 1976 (Cth). The application for leave to appeal was ordered to be heard concurrently with the appeal.

73    Mr Arnautovic did not submit that leave to appeal should be refused. In any event, the grant of leave to appeal is justified. First, the orders made by the primary judge had the effect of finally determining KDL’s right to examine Mr Arnautovic. Injustice would accordingly follow if leave to appeal was refused, supposing the decision to be wrong. That injustice could fairly be said to be substantial. Second, and perhaps more significantly, as the following discussion reveals, in all the circumstances the decision was attended by sufficient doubt to warrant being reconsidered by the Full Court.

GROUNDS OF APPEAL AND SUBMISSIONS

74    KDL’s grounds of appeal were lengthy and somewhat prolix. Its submissions did not closely align with the grounds. There were, however, in substance three grounds of appeal, each of which alleged error on the part of the primary judge in finding that the examination of Mr Arnautovic was an abuse of process. The three appeal grounds and the corresponding submissions may be summarised as follows.

75    First, the primary judge erred by applying an incorrect “test”, or perhaps more accurately an incorrect construction, of s 596A of the Corporations Act, when her Honour found that the summons was an abuse of process. In KDL’s submission, there was no requirement in s 596A, or anywhere else in the Corporations Act, for an eligible applicant to demonstrate that an examination summons was justified, in the sense that the examination would have practical utility, or may provide a benefit to the company, its creditors or members, or the public generally. KDL contended that, in concluding otherwise, the primary judge gave insufficient attention to the terms of s 596A and the statutory scheme for examinations, including that once the basic criteria were satisfied, the grant of a s 596A summons was mandatory, not discretionary. Instead, her Honour applied principles applicable to the inquiry power under s 536 and other provisions which may impact on the legal rights of a liquidator.

76    Second, KDL contended that, while Mr Arnautovic bore the onus of proving that the examination summons was an abuse of process, the primary judge effectively cast the onus on KDL to justify the summons. In short, her Honour’s reasons for finding an abuse of process were as much concerned with what evidence KDL did not lead, or the absence of evidence of certain matters, as they were with what was proved by Mr Arnautovic. KDL pointed out that there was no direct evidence from Mr Arnautovic, and no evidence of oppression.

77    Third, and related to the first ground, KDL contended that the primary judge incorrectly took into account, and gave weight to, the special position of liquidators. KDL submitted, in effect, that her Honour incorrectly read into s 596A of the Corporations Act the “safeguards” applicable to s 536, including the need for an arguable case, and the need to demonstrate that a practical benefit would be derived from the inquiry. Such requirements were said to be irrelevant to a consideration of whether an examination summons was an abuse of process.

78    Mr Arnautovic, on the other hand, submitted that the primary judge was correct to approach the question of abuse of process by asking whether there was any practical utility in permitting the examination to proceed. A s 596A examination requires public and private resources, time and cost. An examination is not an end in itself. In Mr Arnautovic’s submission, the overarching purpose of s 596A is to achieve a benefit for the company, or its creditors or contributories. In those circumstances, an examination cannot properly be held if it is unlikely to achieve that purpose or to “lead somewhere”.

79    Mr Arnautovic also submitted that when a s 596A summons is issued to a liquidator, the authorities in relation to provisions such as s 536 of the Corporations Act reveal that there is good reason for the Court to look very closely at whether the examination should be stayed. That is because liquidators are in a different position to other officers who might be subject to a s 596A examination. Where the examinee is a liquidator, in Mr Arnautovic’s submission there is a burden on the person who seeks to justify the mandatory process to demonstrate that it is a worthwhile exercise.

80    As for the suggestion that the primary judge reversed the onus, Mr Arnautovic relied on the fact that he had invoked the procedure in r 11.5 of the Corporations Rules and had filed and served an affidavit in support of the application to discharge the examination summons. That affidavit initiated an evidentiary contest concerning whether there was any practical utility, in the sense of a potential financial benefit, to the company, its creditors or contributories, in allowing the examination to proceed. That shifted the evidentiary burden to KDL to justify the examination. Mr Arnautovic went so far as to submit that it was not necessary for him to prove an abuse of process to secure relief under r 11.5. In his submission, it was enough for him to lead sufficient evidence to justify a discharge or permanent stay of the examination summons.

81    In Mr Arnautovic’s submission, the primary judge’s reasons did not support KDL’s contention that her Honour reversed the onus of proof. Rather, when her Honour referred to the absence of evidence of certain matters, for example fraud or dishonesty by the liquidator in relation to the sales process, her Honour was simply reasoning that the evidence that was before the Court did not support a finding that the examination had any practical utility and was therefore justified.

did the primary judge err in finding an abuse of process?

82    In his submissions on appeal, Mr Arnautovic tended to shy away from abuse of process as being the basis upon which he had sought to, and succeeded in having, the examination summons permanently stayed. There could be little doubt, however, that abuse of process was the very basis upon which the primary judge granted a permanent stay: Judgment at [74]. It would also appear from the primary judge’s reasons that Mr Arnautovic’s case was put on the basis of abuse of process: see in particular Judgment at [18].

83    While r 11.5 of the Corporations Rules does not, in terms, provide that an examination summons may only be discharged if it is found to be an abuse of process, an application to discharge an examination summons must be anchored in legal principle. Likewise, the Court’s power to discharge an examination summons regularly issued under s 596A is not at large. The applicant must demonstrate some legal basis for discharging the summons. The principle that was invoked in Mr Arnautovic’s case was abuse of process. The question, then, is whether her Honour erred in principle in finding that the examination summons that was issued and served on Mr Arnautovic was an abuse of the Court’s processes and procedures.

84    There is no doubt that an examination process can be discharged or permanently stayed if the invocation of the examination process was for an improper or illegitimate purpose. If a power is used for a purpose foreign to the purpose for which it was given, there is an abuse of process for that reason alone; questions of fairness or unfairness do not arise: New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 at 616; (1994) 12 ACLC 586 at 591 (per Hayne J); referred to with approval by Basten JA (with whom Beazley and Santow JJA relevantly agreed) in Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 at [45].

85    It is unnecessary, for the purposes of this case, to decide whether improper purpose is an aspect of abuse of process or, as KDL submitted, provides a separate and distinct ground for discharging or staying an examination summons. Either way, there was no evidence of an improper or illegitimate purpose. So much appeared to be conceded by Mr Arnautovic before the primary judge: Judgment at [14].

86    Irrespective of Mr Arnautovic’s apparent concession, the evidence indicated that KDL’s purpose in examining Mr Arnautovic was to obtain information concerning the sales process of Ellendale, and to ascertain from the information it obtained whether any cause or causes of action may exist against Mr Arnautovic, and perhaps others, as a result of any identified defects or flaws in the sales process. There was no basis to conclude, and the primary judge did not conclude, that such a purpose would be foreign to the examination power in s 596A.

87    As discussed earlier, the primary judge found that the examination summons was an abuse of process for essentially two reasons. First, the examination was said to amount to a substantial intrusion into the liquidation. Second, it was said that KDL’s desire to explore the circumstances of the sales process did not justify the exercise of the examination power under s 596A. In our opinion, both of those findings are problematic.

88    Dealing first with the “substantial intrusion” finding, it is possible to conceive of a case where an examination of a liquidator pursuant to a s 596A examination summons could be considered to be so burdensome, costly or intrusive to the liquidator, and his or her administration of the winding up of a company, that the summons could rightly be found to constitute an abuse of the Court’s processes. If, for example, the evidence led on an application under r 11.5 of the Corporations Rules revealed that the winding up was in its very late stages, the proposed examination was expected to cover a very wide range of ill-defined topics, last many weeks, and involve considerable private and public expense, the Court might well conclude that the summons significantly intruded on the performance by the liquidator of his or her duties and the administration of the winding up. In those circumstances, the Court might well conclude that the examination would be seriously and unfairly burdensome, prejudicial or damaging, or productive of serious and unjustified trouble and harassment: cf Ridgeway v The Queen [1995] HCA 66; (1995) 184 CLR 19 at 75 (per Gaudron J); cited with approval in Batistatos at [14].

89    This, however, was not such a case. Mr Arnautovic led no evidence which was capable of supporting a finding that the proposed examination would be significantly burdensome, costly or intrusive to him or his administration of the winding up of KDC. The evidence revealed that KDL had undertaken to limit the examination to a fairly narrow and discreet topic – the sales process of the Ellendale mine. There was nothing to suggest that the examination would be lengthy or would require Mr Arnautovic to be significantly or substantially diverted from his task of administering the winding up. The process could not have been expected to be costly to Mr Arnautovic or KDC because KDL had undertaken to fund the examination at no cost to KDC: Judgment at [36]. In any event, by virtue of s 596F(1) and s 597(5B), the Court would remain in control of the examination, and could limit or end it if it was considered to be taking too long, or to be costing too much. The Court could also order KDL to pay Mr Arnautovic’s costs if it was ultimately found that the examination summons was obtained without reasonable cause: s 597B.

90    The primary judge’s conclusion that the exercise of the s 596A power in this case involved a substantial intrusion into the liquidation appears to have been based on a presumption or inference that the examination of any liquidator in the course of the conduct of a liquidation would necessarily involve a substantial intrusion into the liquidation. That assumption or presumption appears to have been derived from her Honour’s analysis of the authorities concerning the special position of liquidators, particularly the authorities concerning other statutory powers that permit inquiries into the conduct of liquidators, such as s 536 the Corporations Act.

91    There are, however, dangers inherent in transposing the general statements in those authorities to the entirely different statutory context of s 596A. That is particularly so given the significant differences between the power to order an inquiry under s 536, and the power to issue an examination summons under s 596A.

92    The Court’s power to order an inquiry under s 536 into a liquidator’s performance of his or her duties is discretionary. The discretion is only enlivened if it appears to the Court that the liquidator has not faithfully performed or is not faithfully performing his or her duties, or has not observed or is not observing a requirement of the Court or the Corporations Act, or a complaint is made to the Court or ASIC concerning the conduct of the liquidator in connection with the performance of his or her duties. Important also is the fact that, once the discretion is exercised, the Court is given very wide powers. The Court may “take such action as it thinks fit”, which might include making orders that affect the substantive rights of the liquidator. It is perhaps not surprising, in those circumstances, that the authorities suggest that the Court should exercise restraint in ordering such an inquiry lest it unduly interfere in the liquidator’s conduct of the winding up.

93    In contrast to s 536, the issue of a summons under s 596A is mandatory once the essentially formal criteria are satisfied. It is also tolerably clear that, by virtue of the definitions of “officer” and “examinable affairs”, the statutory scheme envisages that a liquidator can be summonsed to be examined about an act or thing done on behalf of the company when the company is being wound up. The statutory scheme for examinations does not treat a liquidator differently to any other officer who might be subject to an examination. Important also is that an examination itself cannot affect or alter the substantive rights of the examinee.

94    Given these important differences, the authorities concerning s 536 and like provisions do not provide any real support for a presumption or inference that an examination of a liquidator pursuant to a s 596A examination summons would necessarily involve a substantial intrusion into the liquidation, or would otherwise be unfairly burdensome or oppressive, such that it might constitute an abuse of process. Nor was the evidence before the primary judge capable of supporting a finding that the examination of Mr Arnautovic in fact involved a substantial intrusion into the liquidation of KDC such as to constitute the sort of oppression or unfairness which could amount to an abuse of process.

95    The primary judge’s conclusion that the examination of Mr Arnautovic under s 596A was an abuse of process because it was not justified is also problematic. That is so for a number of reasons.

96    First, the primary judge’s finding that an examination under s 596A requires justification was again derived primarily from the authorities concerning s 536 and like provisions of the Corporations Act. Those authorities, however, do not support the broad proposition that the examination of a liquidator pursuant to s 596A should be stayed if the possible results of the examination do not justify the examination. That is particularly the case if, by “possible results”, what is meant is that the examination may disclose a cause of action which may in turn result in a financial advantage to the company, its creditors or contributories.

97    As already indicated, there are difficulties in transposing the observations made in the authorities concerning s 536 and like provisions into the different statutory context of s 596A. On the one hand, s 536 is discretionary and the discretion is only enlivened if the Court is satisfied that the liquidator has not been faithfully performing his or her duties. Section 596A, on the other hand, is mandatory and the express criteria that must be satisfied do not include any requirement that it be demonstrated that the possible results of the examination justify the issue of a summons to a liquidator or any other officer.

98    Section 596A also does not discriminate between, or provide different criteria, in respect of different officers. It does not, in terms, provide that the power to examine a liquidator pursuant to s 596A is limited to circumstances where the Court can be satisfied that the possible results of the examination justify the exercise of the otherwise mandatory power. A provision conferring a broad power on the Court should generally not be read down by making implications or imposing limitations which are not found in the express words: The Owners of the Ship “Shin Kobe Maru” v Empire Shipping Company Inc [1994] HCA 54; (1994) 181 CLR 404 at 421; Wong v Silkfield Pty Limited [1999] HCA 48; (1999) 199 CLR 255 at [11]. The authorities in relation to other materially different statutory provisions do not provide a sound basis for reading an additional criterion or limitation into s 596A when the proposed examinee is a liquidator.

99    Second, the reasoning of the primary judge appears to be based on the premise that the purpose of s 596A, being to benefit the company, its creditors, members or the public, can only be fulfilled if there is “reason to believe”, or there is a “realistic prospect”, that the examination will reveal conduct capable of supporting a claim and therefore have “practical utility”. That premise is not supported by the terms of s 596A or the statutory scheme for examinations.

100    While it may be accepted, in a broad sense, that the overarching purpose of an examination under s 596A must be to benefit the corporation, its creditors, members or interested members of the public generally (cf. Evans v Wainter at [143], [248], [252]), it does not necessarily follow that an examination summons issued under s 596A can be discharged or stayed as an abuse of process simply because the Court cannot be satisfied, on the evidence then available, that there is a reasonable or realistic prospect that the end result of the process will be the disclosure of a viable claim against the examinee or another person. The primary judge’s reasoning appears to have ascribed an overly narrow meaning to the benefit of the company, its shareholders and contributories. More significantly, it appears to have confused or conflated the purpose for which an examination summons is sought with the possible outcome of the process.

101    There could be little doubt that an examination summons can be discharged or stayed as an abuse of process if it is found that the eligible applicant’s predominant purpose in obtaining the examination summons was to secure a private benefit or advantage, as opposed to a benefit for the company, its creditors or contributories: Evans v Wainter at [247]. Thus, for example, if an eligible applicant obtained an examination summons for the purpose of securing a benefit for itself in other litigation, not involving the company, that purpose would be “offensive”, such that the summons could be stayed as an abuse: Evans v Wainter at [140], [143] and [252] (proposition 8). Such a summons could not be of any benefit to the company, its members or creditors. It is worth pausing, at this juncture, to note again that Mr Arnautovic did not allege, nor did the primary judge find, that KDL’s purpose in obtaining the summons was to secure a private benefit, or was otherwise offensive or illegitimate, in the sense of being foreign to the purpose of s 596A.

102    The fact that an examination summons can be stayed as an abuse of process if it is found that the eligible applicant had a private purpose in conducting the examination does not mean that a summons can be stayed as an abuse simply because the Court is not satisfied, on the evidence available at that stage, that there are reasonable prospects that the examination will reveal wrongdoing on the part of the examinee, or will otherwise disclose a viable cause of action which may benefit the company. That would ignore the fact that an examination summons under s 596A is essentially an information gathering process.

103    It would be entirely proper for an eligible applicant to apply for and obtain an examination summons under s 596A for the purpose of obtaining information concerning legitimate issues, or to obtain answers to legitimate questions, which relate to the management of the company, including while it is in the process of being wound up. That would be the case even if, at that stage, the information that was available to the eligible applicant was not such that it could be said that the applicant had an arguable case, or that the examination was likely to reveal conduct capable of supporting a claim. The obtaining of answers to otherwise unanswered questions, or the quelling of a perceived controversy concerning the management of a company can, in a broad sense, be regarded as amounting to a benefit to the company, its creditors or contributories, and as therefore fulfilling a purpose of s 596A. An examination that achieves nothing more than that may still reasonably be regarded as having some practical utility. It would not necessarily be an abuse of process.

104    The position may be different if the examinee is able to demonstrate that the controversy, or the perceived controversy, or the unanswered questions, do not genuinely relate to or arise from the examinable affairs of the company, or are otherwise speculative, far-fetched or misconceived. In such circumstances, it could well be concluded that the examination was an abuse of process. The use of the examination process for such a purpose could rightly be found to be vexatious or oppressive and to bring the administration of justice into disrepute. The “heavy” onus of demonstrating this rests on the party seeking to stay the summons. As explained in more detail below, the evidence adduced by Mr Arnautovic was not capable of discharging this heavy onus.

105    Third, it would appear from the primary judge’s reasoning that, in considering whether the examination summons was justified, or had practical utility, her Honour reversed the onus of proof. Her Honour effectively required KDL to justify the practical utility of examining Mr Arnautovic, and to do so by pointing to evidence that demonstrated that there was a “reason to believe”, or that there was a “reasonable prospect”, that there was an available action against Mr Arnautovic.

106    The primary judge did not consider whether the evidence led, or relied upon, by Mr Arnautovic demonstrated that the information sought by KDL, or the potential controversy identified by KDL in its application to ASIC for eligible applicant status, was speculative, far-fetched, misconceived or vexatious. Rather, the primary judge focussed on what her Honour considered to be deficiencies or gaps in the evidence or facts relied on by KDL. Her Honour pointed out there was no “positive evidence” of misconduct or default by Mr Arnautovic, and that the facts relied on by KDL (being primarily the material provided to ASIC) did not address various matters that her Honour considered were relevant to Mr Arnautovic’s decision to disclaim the mine: Judgment at [66], [70]-[73]. This led her Honour to conclude that she was not satisfied that “the material relied upon by KDL provides reason to believe that the mandatory examination of the liquidator may provide a benefit to the company, its creditors, its members or the public generally” (emphasis added): Judgment at [74].

107    The difficulty with this reasoning, in addition to the fact that it appears to have reversed the onus, is that the main purpose of the examination of Mr Arnautovic was to explore and obtain information about the very facts and matters that the primary judge considered were missing from the evidence. In its application to ASIC, KDL had pointed to certain facts that it was aware of in relation to the potential value of the Ellendale mine and the sales process with which Mr Arnautovic was involved. It provided ASIC with correspondence that indicated that it had asked Mr Arnautovic, through his lawyers, certain questions concerning the sales process and that those questions mostly remained unanswered, or not fully answered. There was nothing to suggest that those questions were speculative, far-fetched, misconceived or vexatious. The purpose of the examination was, amongst other things, to seek answers to those unanswered questions and to otherwise explore whether there had been any misconduct, default or breach of duty by Mr Arnautovic. In short, the primary judge effectively required KDL to lead evidence concerning the very matters that it wanted to ascertain from the examination.

108    This was not, as Mr Arnautovic submitted, a case where, because he had adduced certain evidence concerning the sales process, the evidential burden shifted to KDL to prove that the examination was justified or had practical utility. That submission presupposes that the question for determination by the primary judge was whether KDL had a reasonably arguable case, which might be advanced by the examination, that Mr Arnautovic might have breached his duties as a liquidator in respect of the sales process and disclaimer of the Ellendale mine. That was not the relevant question. The question was whether the examination was an abuse of process. The burden of proving an abuse of process remained with Mr Arnautovic at all times. KDL did not bear the onus, evidential or legal, of justifying the examination, or demonstrating a reasonably arguable case against Mr Arnautovic that might be advanced by the examination.

109    An approach which required an eligible applicant to justify the examination by pointing to evidence which effectively demonstrated an arguable case, in defence of a claim that a s 596A examination should be stayed as an abuse of process, is contrary to the statutory scheme. The examination in question was a mandatory examination under s 596A, not a discretionary examination under s 596B. To obtain the examination summons, KDL was not required to satisfy the Court that Mr Arnautovic had been guilty of misconduct, or may be able to give information about the examinable affairs of KDC, as would be the case if the application was made under s 596B. The approach advocated by Mr Arnautovic would effectively require the Court, under the guise of an application for a stay on the basis of an abuse of process, to conduct a mini-trial into the possible end result of the examination at a stage when the available information and evidence was not complete. That would unduly stultify the operation of s 596A.

110    None of the foregoing analysis should be taken as derogating from the general principle of judicial restraint in relation to actions that might unduly interfere with the exercise by liquidators of their statutory powers, in particular in the context of s 536 of the Corporations Act and like provisions. There could be little doubt that those principles must, to a certain extent, be borne in mind when an application is made to discharge or stay an examination summons issued to a liquidator under s 596A. KDL’s submission that these principles were an irrelevant consideration must accordingly be rejected. It must, however, equally be borne in mind that s 596A is part of a different statutory scheme. That scheme expressly envisages that an eligible applicant may examine a liquidator about acts done by or on behalf of a company at a time when the company is being wound up, without having to demonstrate that the liquidator may have been guilty of misconduct. Equally, it must be borne in mind that the person who seeks to discharge or stay such an examination on the basis that it is an abuse of process bears a heavy onus, and that the power to permanently stay a process such as an examination summons should be exercised with some caution and only in exceptional or extreme cases.

111    Fourth, and finally, having regard to the statutory scheme and the nature of the particular process under challenge, and having regard to the relevant principles concerning abuse of process, it cannot be concluded that Mr Arnautovic discharged the heavy onus required to prove an abuse of process. In summary, and at the risk of repetition, the evidence did not reveal any improper or illegitimate purpose on the part of KDL in obtaining the examination summons. Nor was the evidence capable of demonstrating that the summons was unfairly burdensome or oppressive to Mr Arnautovic. To the extent that justification, or the utility of the examination, was in issue, the questions and concerns raised by KDL concerning the sales process had not been fully answered by Mr Arnautovic. It could not reasonably be concluded, on the available evidence, that the questions raised by KDL concerning the sales process did not relate to the examinable affairs of KDC, or were otherwise speculative, far-fetched, misconceived or vexatious. They were apparently sufficient to satisfy ASIC that KDL should be authorised as an eligible applicant. Mr Arnautovic did not demonstrate that the material that KDL provided to ASIC was in any respect incorrect, incomplete or otherwise misleading. Nor did he seek to impugn ASIC’s decision in any way.

Conclusion and disposition

112    The primary judge erred in principle in permanently staying the examination summons and setting aside the ancillary order for production. KDL has succeeded in making out its main appeal grounds. The appeal must be allowed with costs. The orders made by the primary judge should be set aside, and in lieu thereof it should be ordered that the interlocutory process filed by Mr Arnautovic be dismissed with costs.

Associate:

Dated:    6 June 2017