FEDERAL COURT OF AUSTRALIA

Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2005] FCA 1224

CORPORATIONS – summonses for examination – examinees’ application to stay pending special leave application – whether substantial prospect of leave being granted – balance of convenience

Corporations Act 2001 (Cth) ss 596A, 596D, 596F

Federal Court of Australia Act 1976 (Cth) s 25(2)

High Court Rules 2004 (Cth) r 41.02.1

Re The Duke Group Ltd (in liq) and Corporations Law of South Australia; Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) 119 ALR 401 followed

Edelsten v Ward [No 2] (1988) 63 ALJR 346 referred to

Elspan International Ltd v Aerospatiale Holdings Ltd (1992) 67 ALJR 177 referred to

Re Excel Finance Corporations Ltd; Worthley v England (1994) 52 FCR 69 cited

Flanders v Beatty (1995) 16 ACSR 324 cited

Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd [No 1] (1986) 161 CLR 681 referred to

Joye v Sheahan (1996) 21 ACSR 71 referred to

Sandhurst Trustees Ltd v Harvey (2004) 206 ALR 594 followed

Re Southern Equities Corporation Limited (in liq); Bond & Anor v England (1997) 25 ACSR 552 cited

Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2004] FCA 1021 referred to

Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2005] FCAFC 114 referred to

Woolfe v Australian Securities and Investments Commission [2004] FCA 1020 referred to

IN THE MATTER OF NEW TEL LIMITED (IN LIQ)

THE APPLICATION OF WAINTER PTY LTD v PAUL DOMINIC EVANS and DAVID WOOLFE

WAD 35 OF 2004

NICHOLSON J

31 AUGUST 2005

PERTH

IN THE MATTER OF NEW TEL LIMITED (IN LIQ)

ACN 009 068 955

THE COURT ORDERS THAT:

1.                  Compliance with the summons dated 10 March 2004 addressed to Paul Dominic Evans be stayed pending the determination or finalisation of the application for special leave to appeal to the High Court, No. P32 of 2005, filed on 13 July 2005.

2.                  Compliance with the summons dated 10 March 2004 addressed to David Woolfe be stayed pending the determination or finalisation of the application for special leave to appeal to the High Court, No. P32 of 2005, filed on 13 July 2005.

3.                  Costs be reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF NEW TEL LIMITED (IN LIQ)

ACN 009 068 955

REASONS FOR JUDGMENT

1                     These reasons should be read in the context of the matters addressed in Woolfe v Australian Securities and Investments Commission [2004] FCA 1020, Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2004] FCA 1021 and Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2005] FCAFC 114.

2                     The applicant examinees, Messrs Evans and Woolfe now bring an application seeking interlocutory relief in the form of an order staying compliance with the summonses dated 10 March 2004 addressed to each of them pending the determination or finalisation of an application for special leave to the High Court filed on 13 July 2005.  The special leave is sought with respect to the decision of the Full Court referred to above. 

3                     Two alternative forms of relief are sought.  The first is that the documents to be produced by Mr Evans be limited to the documents in his possession, custody or control in his capacity as a former director of NewTel Limited.  Further, in the alternative, an order is sought that in the event Mr Evans is required to comply with the summons in its present form the return date be on or after 22 February 2006 and the plaintiff respondent pay the reasonable costs of Mr Evans solicitors inspecting, extracting and collating the documents on a monthly basis. 

4                     The applications are brought in reliance upon ss 596A, 596D and 596F of the Corporations Act 2001 (Cth) and s 25(2) of the Federal Court of Australia Act 1976 (Cth).  The power of the Court to stay the summonses is not in dispute.

5                     The applicant examinees’ application is supported by affidavits from each of them.  The plaintiff respondent supports its case by the affidavit of Mr Waller, a director of Wainter Pty Ltd.

criteria for exercise of discretion

6                     The character of the criteria relevant to the exercise of a discretion to grant a stay of the order for examination are not in dispute.  In Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd [No 1] (1986) 161 CLR 681 at 684, Brennan J said:

‘A stay to preserve the subject matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted.  If an order for a stay is made, the respondent is kept out of the benefit of the order of the Court in which the matter is pending until the hearing of the application for special leave to appeal.’

7                     In Edelsten v Ward [No 2] (1988) 63 ALJR 346, Brennan J emphasised that the jurisdiction was an exceptional one which could ‘only be exercised in extraordinary circumstances’.  He said ‘something quite exceptional must be shown before that jurisdiction is exercised’. 

8                     In Jennings at 685, Brennan J continued:

‘In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this Court’s discretion.  In each case when the Court is satisfied a stay is required to preserve the subject-matter of the litigation, it is relevant to consider:  first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek as stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies.’

In Jennings at 685, Brennan J had also stated that on the particular circumstances there in issue ‘the prospect of a grant of special leave is insubstantial’.  In Re The Duke Group Ltd (in liq) and Corporations Law of South Australia; Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1994) 119 ALR 401 at 403 Dawson J relied on Jennings and Elspan International Ltd v Aerospatiale Holdings Ltd (1992) 67 ALJR 177 at 178 in stating that an applicant for a stay ‘must establish a substantial prospect’.  In addition he listed other matter reflecting the reasoning of Brennan J in Jennings at 685.

9                     In Joye v Sheahan (1996) 21 ACSR 71 at 79, Beaumont J, with whom Spender and Lehane JJ agreed, relied on the factors identified by Brennan J in Jennings as stating the material factors for the exercise of the discretion.  In relation to the difference between Brennan J’s formulation of a prospect of a grant of leave being ‘substantial’ and ‘not insubstantial’, Beaumont J stated that it would not be right that verbal distinctions should govern the outcome and that there clearly must be a range of possibilities.  In the case of Joye v Sheahan, he held that there was a prospect of obtaining special leave which was ‘not insubstantial’ and that the apparent weakness of the case was outweighed by the other discretionary considerations:  at 80 and 81. 

whether substantial prospect that special leave to appeal will be granted

10                  When the interlocutory applications to discharge the summons for examination of the Messrs Evans and Woolfe came before me In the matter of New Tel Limited on 26 March 2004, they were refused.  As the reasons of the Full Court in Wainter Pty Ltd at [38] record, it was submitted before me on behalf of the applicant examinees that the examinations were sought to be conducted to give the plaintiff respondent a forensic advantage and to obtain evidence to bring proceedings against New Tel thereby disadvantaging other creditors.  The ratio of my decision placed reliance on the reasoning in Sandhurst Trustees Ltd v Harvey (2004) 206 ALR 594, particularly as described in the reasons at [30] as follows:

‘The effect of the decision is to make it clear that the discretion conferred by s 596B:

            ‘…is to be exercised to enable inquiry to be made into the examinable affairs of a corporation, with a view to exposing misconduct (which might attract civil or criminal sanctions, or possibly action by a body such as a professional regulator) or which might provide information that will advance (in a broad sense) the external administration of the corporation in question.’  (per Doyle CJ at 605, at [50])

He continued at [51]:

            ‘[51]    The fact that a consequence of an examination order may be a forensic advantage to a particular class of creditors, or to a particular creditor, of the corporation, or to a particular person, does not of itself lead to  the conclusion that the order was not made for a proper purpose.  Nor does the fact that the order was made at the instance of that person or creditor.  On the other hand, the power is not conferred with a view to its exercise solely to benefit an individual with a claim of some kind against the corporation in question, or with a claim arising out of its affairs.  Nor, I consider, is it conferred to enable an applicant for an order to pursue an inquiry into a matter in relation to which the applicant has no legitimate interest.’’

11                  In the Full Court in Wainter Pty Ltd, Lander J reviewed the authorities.  He concluded at [246] - [247] that persons having the responsibility of external administration are entitled only to seek an order for an examination summons where the purpose of the examination is for the benefit of the corporation, its creditors or its contributories.  At [250], his Honour stated that the power to issue a summons for an examination cannot be used for a collateral or ulterior purpose and that it must be used for a purpose expressly or implicitly authorised by the legislation itself.  At [262], he concluded that because New Tel stood to benefit from any action brought by the plaintiff respondent against the applicant examinees’ solicitors, it could not be said that the application was an abuse of process.  He therefore dismissed the appeals. 

12                  Ryan J, who agreed generally with the reasons of Lander J, considered it was unnecessary to enter into the controversy which was generated by some readings of Flanders v Beatty (1995) 16 ACSR 324 and Sandhurst.  He considered that a pronouncement by a Full Court on that matter should await an occasion when it would it would be decisive of the outcome of an instant case:  at [2]. 

13                  Crennan J at [267] stated:

‘Whilst Lander J agreed with Ormiston JA in Flanders that the 1992 Act extended the ambit of the relevant inquiry by including in the definition of ‘examinable affairs’, the business affairs of a related entity, he did not agree with Ormiston JA’s opinion in Flanders, at 332, that whatever had been said in the past as to the scope of compulsory examinations must be qualified by the amendments in 1992 which Ormiston JA. characterised as ‘significant changes to the relevant provisions.’  The other judges of appeal agreed with Ormiston JA.  Lander J also did not agree with Doyle CJ’s statement in Sandhurst at [32] that the ‘statutory provisions as they now stand are wider in their reach than their predecessors’, except to the narrow extent that the provisions now included business affairs of a related entity in ‘examinable affairs.’  Bleby J. agreed with Doyle CJ, and in a short separate judgment, Perry J. did not disagree with Doyle CJ on this issue.’

While agreeing that the questions of whether or not the relevant amending provisions in the 1992 Act were ‘significant changes’ or ‘wider in their reach than their predecessors’ were important questions, Crennan J considered it was not necessary to determine them for the purposes of disposing of the appeals.  At [270], her Honour stated that since it was not necessary for the purpose of the appeals to depart from interpretations of the relevant legislation by other Australian intermediate appellate courts, she declined to do so, particularly as the legislation in question was of a kind where it would be necessary to be convinced that the interpretations of the other intermediate appellate courts were plainly wrong. 

14                  Counsel for the applicant examinees points to [267] in the reasoning of Crennan J and other authorities referred to by Lander J as illustrating the redolence of the reasoning of the Full Court for a grant of special leave to appeal.  He described the above reasoning as raising the essential point of whether the Court in granting a summons for examination could be looking to the purpose or the effect of the making of the order.  He pointed to references by Lander J to authorities said to support the purposive interpretation.  These authorities included Re Excel Finance Corporations Ltd; Worthley v England (1994) 52 FCR 69 at 89 citing in particular Williams v Spautz (1992) 174 CLR 509 at 529; Re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513 and New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 at 616 per Hayne J. 

15                  The applicant examinees also bring to the Court the summary of the argument which will be made in support of the application for special leave.  That provides the following concise statement of the questions arising:

‘1.        Whether the test to be applied in determining whether a summons for examination issued pursuant to s 596A and s 596B of the Corporations Act ought to be discharged pursuant to Rule 11.5 of the Federal Court (Corporations) Rules 2000 or pursuant to the inherent jurisdiction of the Court is one that focuses on:

(a)               the purpose of the putative examiner; or

(b)               the potential benefit to the corporation in respect of the examinable affairs of which the examination is to occur; or

(c)                a possible benefit of assisting the Liquidator and ASIC.’

16                  The concise statement also lists the following as the tests which are at issue in relation to the above questions:

‘(a)      the Full Court of the Federal Court in Re Excel Finance Corporation Ltd (Rvr & Mgr Apptd); Worthley v Australian Securities Commission (1994) 52 FCR 69 at 89D, 90E-91F, 93E ;or

(b)               Ormiston J for the Full Court of the Supreme Court of Victoria in Flanders v Beatty (1995) 16 ACSR 324 at 333.15-333.35, 334.30-335.20; or

(c)               Doyle CJ of the Full Court of the Supreme Court of South Australia in Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519 at 531-532 ([46]-[53]); or

(d)               Perry J of the Full Court of the Supreme Court of South Australia in Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519 at 538-540 ([88]-[97]); or

(e)               Mullighan J of the Full Court of the Supreme Court of South Australia in Re Normans Wine Ltd (2004) 88 SASR 541 at 561 ([86]) and 562 ([91]); or

(f)                Lander J in this matter at [143], [194], [247] and [252.8]; or

(g)               Crennan J in this matter at [268]; or

(h)               Nicholson J in the original judgment at this matter at [38].’

Further, it is sought to contend:

‘Whether Lander J at [143], [194], [247] and [252.8] (Ryan J concurring) and Crennan J at [268] wrongly construed Re Excel by fusing the discrete issues of the principal purpose of the putative examiner and the benefit of the examination to the corporation in liquidation.’

17                  The plaintiff respondent contends that six of the cases cited by the applicant examinees as evidence that the eight different tests are consistent.  Further, it points to the fact that there is no demonstration that this case is a ‘suitable vehicle’ for resolution of the issue, particularly as two members of the Full Court have said it is not.  That is because success by the applicant examinees rests in part on the High Court concluding that there is no prospect at all of the examinations providing benefit to New Tel, its creditors or contributories.  Further, the examination of one of the applicant examinees, Mr Peter Malone (who has not applied for special leave to appeal) is continuing so that the utility of the special leave application is reduced.  This latter factor is said by the applicant examinees to be irrelevant.  In a brief statement of the plaintiff respondent’s argument, the suitability issue is again raised when it is submitted that if there are two or three different tests that have been applied in determining whether a s 596A or a s 596B summons ought to be discharged for abuse of process, the applicant examinees fail on any of them. 

18                  Having considered these submissions, I consider that it can be safely concluded that the issues raised on behalf of the applicant examinees are ‘not insubstantial’.  However, I am not persuaded that there is a ‘substantial’ prospect that special leave to appeal will be granted.  I am particularly influenced in that respect by the reasons for judgment of Ryan J and Crennan J (which held the appeal would fail on either of the purpose or effect tests) and by the conclusion reached by Lander J.  In my view the submission of the plaintiff respondent that this matter is not a suitable vehicle for arguing the issues sought to be raised by the applicant examinees is therefore a strong one.  Additionally there is strength in the plaintiff respondent’s argument that any formulation of the test cannot overcome the fact of the benefit to New Tel.  Further, the range of conflict, if any, in the tests is considerably narrower than the applicant examinees proposed contentions on the special leave application makes out.

19                  I therefore turn to the other criteria which must weigh in respect of the exercise of a discretion. 

balance of convenience factors

20                  It is apparent that the applicant examinees are now taking the steps necessary to seek a stay.  There is no evidence a grant of a stay will cause financial loss to the plaintiff respondent.

21                  In relation to the balance of convenience, the evidence is as follows.  The applicant examinees say that if no stay is granted they will suffer irreparable prejudice and loss in the following form:

(a)        the applicant examinees will be put to expense in reviewing and collating documents to be produced;

(b)        the applicant examinees will be put to expense in attending a public examination both as to their own time and as to their legal costs in respect of those examinations;

(c)        the applicant examinees’ personal civil liberties will be interfered with in circumstances where an appeal is pending (see Re Cortaus Limited (in liq), Sheahan v Joye & Ors, at [12] as referred to in Joye v Sheahan at 81; and

(d)               if the appeal succeeds, the plaintiff respondent will have derived a benefit from an improper purpose, i.e. the benefit referred to in (c) above is irreversible; and

(e)               if no stay is granted and the High Court does grant special leave to appeal, the effect of the special leave will be rendered nugatory:  Gerah Imports at 403 per Dawson J.

22                  These submissions need consideration in the context of the time which it will take for special leave to be considered by the High Court.  There is evidence that it is unlikely that the application for special leave will be heard in October; it may be heard during November or December; and would probably be heard during the period of February to April 2006. 

23                  The plaintiff respondent filed the originating process seeking orders issuing summonses for examination of the applicant examinees on 12 February 2004.  By the time of the Full Court decision, a period of over 16 months had elapsed since the plaintiff respondent filed that application.  Further, the plaintiff respondent says that the application for special leave was filed exactly 28 days after the Full Court had given its decision. that is on the last day pursuant to r 41.02.1 of the High Court Rules 2004 (Cth):  Re Southern Equities Corporation Limited (in liq); Bond & Anor v England (1997) 25 ACSR 552 at 555 - 556.  There would therefore be a further delay of a period between two to eight months if a stay were to be granted pending the disposition of the application for special leave.  The plaintiff respondent claims that it will suffer prejudice in that event.  Two forms of prejudice alleged by the plaintiff respondent are that the applicant examinees’ memories will fade with time and that there will be delay in the concurrent examination of Mr Malone.  I agree with the submission for the applicant examinees that it is unlikely the relevant memories would fade more than they may have already.  I do not agree with the submission for the applicant examinees that the decision by the plaintiff respondent not to proceed with Mr Malone’s examination alone is not a prejudice attributable to the special leave application.  It is apparent that the nature of the examination of Mr Malone could be shaped in part by documents or evidence becoming available in the course of the examination of the applicant examinees.

24                  The case for the applicant examinees needs to be understood in the context of the evidence of Mr Evans that if the summons to him is not stayed (and the scope of it is not confined) it will be necessary for the applicant examinees’ solicitors to review approximately 205 different matters opened in relation to New Tel for documents that may fall within the categories of documents sought.  It appears there will be approximately 130 boxes of documents to be reviewed, taking approximately three hours each.  This would total approximately 390 hours of review. 

25                  The above evidence and contentions on the balance of convenience show that the plaintiff respondent would suffer prejudice from further delay and that the applicant examinees would suffer prejudice in terms of the requirements to proceed to examine documents.  The difficulty in balancing these is that the time which it will take for the special leave application to be considered is not known.  The evidence is it could range from two to eight months.  If the delay were only two months, the balance of convenience would favour the applicant examinees.  If it is eight months, the balance of convenience would move to the plaintiff respondent. 

26                  I am therefore left to weigh in those relatively uncertain circumstances the prejudice of proceeding to the applicant examinees against the prejudice of delay to the plaintiff respondent.  The latter prejudice entails delay but not loss of rights.  The former prejudice, in addition to being constituted by substantial work and cost, also contains the risk that ‘the questions will have been asked and answered and the documents produced before the application for special leave is heard’:  Gerah at 403 per Dawson J.  I therefore conclude the former prejudice outweighs the latter prejudice so that the balance of convenience favours the applicant examinees.

conclusion

27                  The prospect of a grant of special leave being ‘not insubstantial’ and the balance of convenience favouring the applicant examinees, I therefore conclude the stay orders should be made.  It follows there is no need to consider the alternative orders sought.

Associate:

Dated:              31 August 2005