FEDERAL COURT OF AUSTRALIA

Rambaldi, In the matter of Quick Plumbing Australia Pty Ltd

[2005] FCA 1850

CORPORATIONS – company in voluntary administration – application by administrator to summons third parties for examination pursuant to s 596B of the Corporations Act 2001 (Cth) granted – application by third party to set summonses aside – whether summons directed to an individual – whether summons relates to “examinable affairs” of a company – whether administrator and third party entered into an agreement – whether summons should be set aside for material non-disclosure of relevant facts by administrator – whether summons for improper purpose 

Corporations Act 2001 (Cth), s 596B

Federal Court (Corporations) Rules 2000, r 11.5

Commonwealth v Sheahan [2004] FCA 1301 referred to

Douglas-Brown v Furzer (1994) 13 ACSR 184 referred to

Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 discussed

In Re John Arnold’s Surf Shop Pty Ltd (1979) 23 SASR 222 referred to

Masters v Cameron (1954) 91 CLR 353 referred to

Morton v Joynson (1999) 31 ACSR 76 referred to

New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 referred to

Re Bosun Pty Ltd (in liq) (2000) 34 ACSR 597 referred to

Re Clutha Ltd (2000) 34 ACSR 685 referred to

Re Coretel Pty Ltd (2004) 48 ACSR 178 referred to

Re Interchase Corporation (In Liquidation) (No 2) (1993) 47 FCR 253 cited

Re Modern Woodcraft Pty Limited (In Liquidation) (1997) 75 FCR 245 referred to

Re New Tel Ltd (in liq) (2005) 54 ACSR 284 referred to

Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600 referred to

Re Rothwells Ltd (No 2) (1989) 7 ACLC 576 referred to

Re Southern Equities Corporation Ltd (in liq) (1997) 25 ACSR 394 discussed

Re Spersea Pty Ltd (In Liq) (1991) 9 ACLC 1,114 referred to

Sent v Andrews (2002) 6 VR 317 referred to

Sherlock v Permanent Trustee Australia Limited (1996) 22 ACSR 16 referred to

Vagrand Pty Ltd (in liq) v Permanent Trustee Australia Ltd (1995) 17 ACSR 386 cited

IN THE MATTER OF QUICK PLUMBING AUSTRALIA PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) and IN THE MATTER OF AN APPLICATION FOR THE ISSUE OF AN EXAMINATION SUMMONS

GESS MICHAEL RAMBALDI

VID 1018 OF 2005

YOUNG J

16 DECEMBER 2005

MELBOURNE

IN THE MATTER OF QUICK PLUMBING AUSTRALIA PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

and

IN THE MATTER OF AN APPLICATION FOR THE ISSUE OF AN EXAMINATION SUMMONS

GESS MICHAEL RAMBALDI

PLAINTIFF

THE COURT ORDERS THAT:

1.             The application to discharge the summons directed to MPA Bond Panel Custodian Pty Ltd be granted.

2.             The application to discharge the summons directed to Raymond William Herbert be dismissed.

3.             The parties be granted liberty to apply.

4.             Three quarters of the plaintiff’s costs of the interlocutory application to discharge summonses be paid by Herbert and MPA Bond Panel Custodian Pty Ltd.

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

IN THE MATTER OF QUICK PLUMBING AUSTRALIA PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

and

IN THE MATTER OF AN APPLICATION FOR THE ISSUE OF AN EXAMINATION SUMMONS

GESS MICHAEL RAMBALDI

PLAINTIFF

REASONS FOR JUDGMENT

1                     Gess Michael Rambaldi (“Rambaldi”) was appointed as voluntary administrator of Quick Plumbing Australia Pty Ltd (“Quick Plumbing”) on 17 May 2002.  At a meeting held on 11 June 2002, the creditors of Quick Plumbing resolved, pursuant to s 439C of the Corporations Act 2001 (Cth) (“the Act”), that Quick Plumbing enter into a Deed of Company Arrangement and that Rambaldi be the administrator of the Deed.  The Deed of Company Arrangement was executed on 1 July 2002.

2                     Clause 7.1.1 of the Deed of Company Arrangement provided that:

“The Administrator shall be entitled to collect all assets of the Company as at the Fixed Date (being 17 May 2002), which a liquidator would ordinarily collect and realise in a liquidation.”

3                     Quick Plumbing carried on business as a contract plumber and it worked on several large construction projects.  One of the potential assets of Quick Plumbing is its interest in a contingency fund administered by MPA Bond Panel Custodian Pty Ltd (“MPA”).  The contingency fund constitutes or forms part of a trust fund of which MPA is the trustee.  The trust fund (“the Trust”) arises from a retention bond scheme (“the Scheme”) initiated by the Master Plumbers and Mechanical Services Association of Australia (“the Association”).

4                     On 26 August 2005, Rambaldi, in his capacity as voluntary administrator of Quick Plumbing, applied to the Court for orders under s 596B of the Act permitting a summons to be issued for the examination of each of Raymond William Herbert (“Herbert”) and the proper officer of MPA.  Both summonses were subsequently issued pursuant to an order made by Registrar Bardsley on 26 August 2005.  The first summons was directed to Herbert.  The second summons was directed to MPA itself rather than its proper officer.

5                     In the form originally issued, each summons erroneously referred to the examinable affairs of MPA.  However, leave was granted by Registrar Bardsley on 13 October 2005 to amend each summons by substituting a reference to Quick Plumbing for the previous reference to MPA.  The summons directed to Herbert requires him to produce the following documents at his examination:

“Schedule of Documents

(a)               The deed of trust establishing the MPA Bond Panel Custodian Trust (“Trust”) and any amending deed.

(b)               Balance sheets and profit accounts of the Trust and for the years ending 30 June 2002 to date (“period”).

(c)               Balance sheets and profit and loss accounts of MPA Bond Panel Custodian Pty Ltd (“MPA”) for the period.

(d)               Management accounts of the Trust for the period.

(e)               Management accounts of MPA for the period.

(f)                Bank statements and other documents which disclose moneys or other investments held by the Trust at all times during the period.

(g)               Bank statements and other documents which disclose the moneys or other investments held by MPA at all times during the period.

(h)               Tax returns of the Trust for the period.

(i)                 Tax returns for MPA for the period.

(j)                Minutes of meetings of directors of the trustee of the Trust during the period.

(k)               Minutes of meetings of the directors of MPA during the period.

(l)                 All documents which disclose details of claims made on the fund (“Fund”) described in the agreement dated 18 December 1989 between MPA, Quick Plumbing Australia Pty Ltd (“Company”) Mercantile Mutual Insurance (Australia) Ltd and others during the period.

(m)             All documents which disclose details of any outstanding claims on the Fund.

(n)               Unit register of the Trust.

(o)               All valuations and other documents which bear on the value of any unit held by the Company in the Trust.”

The summons to MPA requires it to produce the same list of documents.

6                     I have before me an interlocutory application under r 11.5 of the Federal Court (Corporations) Rules 2000 seeking orders that each summons be discharged.

background

7                     Herbert is the executive director of the Association.  In an affidavit sworn 29 September 2005, he described the origins of the Scheme as follows:

“7.       The MPMSAA [the Association] is a member organization serving the plumbing industry and has been in existence since 1891.  In December 1989 the MPMSAA, established a scheme (“the Bond Panel Scheme”) to enable a panel of its members to offer insurance bonds as security for performance of their contracts with building owners and proprietors.  The scheme provided an alternative for members to providing more costly bank guarantees.  Members provided their funding support to the Bond Panel Scheme in the form of cash deposits (usually $50,000) lodged with Mercantile Mutual Insurance (Australia) Limited (“the underwriter”).  The underwriter issued insurance bonds at the request of members.  The terms of the scheme were comprised in a tripartite agreement between the members, the underwriter and MPAB as trustee for the members. …

8.         The Bond Panel Scheme has operated with a great deal of success since its introduction.  However, owing to a change in ownership of the underwriter and a review of its business it has decided not to continue to support the Bond Panel Scheme.  Accordingly MPAB and the underwriter have resolved to wind up the Bond Panel Scheme once all outstanding bonds issued at the request of members have been either cancelled or returned.

9.         Once all the insurance bonds are cancelled or returned it is proposed that the tripartite agreement establishing the Bond Panel Scheme will be terminated by mutual consent.  Once that has been done the remaining assets and liabilities of MPAB as trustee of the Bond Panel Scheme will be determined and any excess available for distribution to members in return of their deposits will be distributed.  At this stage it is impossible to estimate what amount might be available since at any time a claim could be made under a current insurance bond.”

8                     Quick Plumbing was not one of the original members of the Scheme but became a member in 1997 pursuant to the terms of a succession agreement.  In essence, two members of the Scheme retired and they were replaced by Quick Plumbing and another company.  The succession agreement provided that the $50,000 bond previously lodged by Quick Contracting Pty Ltd (“Quick Contracting”) would be deemed to be lodged by Quick Plumbing in satisfaction of Quick Plumbing’s obligations under an agreement known as the Retention Bond Agreement, so that all right, title and interest in that deposit vested in Quick Plumbing.  The evidence shows that Robert Quick was a director of both Quick Plumbing and its predecessor Quick Contracting as at the date of the succession agreement.  Quick Plumbing became a member of the Scheme subject to the terms and conditions of the Retention Bond Agreement. 

9                     The Retention Bond Agreement was executed 18 December 1989.  It provides for the establishment and maintenance of a contingency fund consisting of the collective deposits made by each of the members in the sum of $50,000.  Under clause 3.1, each of the members is required to deposit $50,000, and to continue to keep it deposited with MPA for the term of the agreement or until the underwriter has no further liability under any retention bond issued in respect of that member.  Under clause 5.4, the parties agree that the underwriter can have direct access to the contingency fund in the event that a principal contractor successfully claims under a retention bond and the relevant member fails to make direct reimbursement to the underwriter.  The obligations of the trustee, MPA, are set out in clause 6.  It provides, inter alia, that MPA will:

“6.1     prior to the issue by the Underwriter of the Retention Bonds, collect from each Member of the Panel the sum of Fifty Thousand Dollars ($50,000) to make up the Contingency Fund and shall hold such Contingency Fund on trust in accordance with the terms of this Agreement and the trust deed of the Trust Fund;

…

6.3       not permit any Member of the Panel to withdraw their deposit with the Trustee without prior consent of both the Underwriter and the Trustee unless all the Retention Bonds issued on behalf of that Member of the Panel have expired and been returned to the Underwriter;

…

6.7       to secure the obligations of the Members of the Panel under this Agreement, enter into an agreement in substantially the form of Annexure “D” hereto being a mortgage agreement with the Underwriter over the assets of the Contingency Fund in order to secure the assets of the Contingency Fund and shall provide further assurances in respect of the assets of the Contingency Fund as may be required by statute or by the Underwriter and the Trustee warrants that it has the power to do so pursuant to the terms of the Trust Deed of the Trust Fund.”

Clause 8.1 provided that, subject to the underwriter’s right to terminate the agreement in certain circumstances, the term of the agreement shall be one year, renewable upon written agreement by both parties.

10                  The succession agreement also effected amendments to the Retention Bond Agreement.  Clause 5.2 extended the term of the Retention Bond Agreement beyond the twelve months referred to in clause 8.1.  It provides that the Retention Bond Agreement shall continue in full force and effect until either the underwriter or MPA gives not less than one year’s notice of termination.  Part 2 of the schedule to the succession agreement inserted a new clause 10 in the Retention Bond Agreement providing as follows:

“Retirement of Members of the Retention Bond Panel.

The Trustee may upon being satisfied that an intending Retiring Member has satisfied all obligations in terms of the Retention Bond Agreement and that there are no outstanding bonds in respect of such Member and subject to the approval of the Underwriter accept from the intending Retiring Member a Deed of Retirement in or to the effect of Annexure B.

Upon execution of the Deed of Retirement by the Trustee, the Underwriter and the Retiring Member, the Retiring Member shall be deemed to have retired from the MPMSA Retention Bond Panel and shall be relieved of any further obligations as a Retiring Member to the extent permitted by the Retention Bond Agreement and the Deed of Retirement.”

11                  The Deed of Retirement provided that the retiring member would confirm to the satisfaction of the underwriter and the trustee that all bonds issued for its benefit had been cancelled and were of no further effect, would warrant that there are no other bonds outstanding, and would indemnify the trustee against any loss which may arise as a result of the breach of that warranty.

12                  Based on his investigations to date, Rambaldi believes that Quick Plumbing is entitled to one unit in the Trust.  This belief is based upon statements made to Rambaldi by Robert Quick, a director of Quick Plumbing.  On the other hand, Herbert’s affidavit states that Quick Plumbing does not hold any unit in the Trust.

13                  Since 13 October 2005, the plaintiff has inspected the register of the unitholders in the Trust.  I was told by Mr Bailey, counsel for Herbert and MPA, that the register of unitholders shows that Quick Contracting holds a unit in the Trust but that Quick Plumbing does not.  Mr Randall, counsel for the plaintiff, did not take any exception to this statement.  It is possible that, when the succession agreement was entered into, Quick Contracting omitted to transfer its unitholding to Quick Plumbing.

14                  Neither the Trust Deed governing the Trust nor the register of unitholders has been tendered in evidence.  The only evidence I have before me concerning the provisions of the Trust Deed appears in a letter dated 24 March 2005 from Herbert to Rambaldi which extracts two provisions relating to the redemption and transfer of units.  Those extracts state:

“9.1     The Trustee may at any time after a Unit Holder has ceased to be a member of the Retention Bond Panel and all insurance bonds issued in respect of such Unit Holder shall have expired, on the request of such Unit Holder, provide such Unit Holder with a written statement informing the Unit Holder of the price per Unit (if any) at which the Trustee is prepared to redeem any Units held by the Unit Holder, which price shall be equivalent to the Net Asset Value of the Trust divided by the number of Units in Issue on the date on which the Statement is issued by the Trustee.

…

10.1     A Unit Holder may not transfer all or a portion of the Units to any other person without the approval of the Trustee and subject to such conditions of membership of the Retention Bond Panel as may be applicable.”

There is no evidence as to whether the Trust Deed contains winding up provisions, and if so, what they provide.

15                  Herbert gave evidence that, owing to a change in ownership of the underwriter and a review of its business, the underwriter has decided not to continue to support the Scheme.  In these circumstances, MPA and the underwriter have resolved to wind up the Scheme once all outstanding bonds issued at the request of members have been either cancelled or returned.  At that point, the remaining assets and liabilities held by MPA as trustee will be determined and any surplus will be distributed to members.  Herbert stated in his affidavit that it is impossible to estimate at this stage what amount might be available for final distribution since at any time a claim could be made under a current insurance bond.  Herbert anticipates that the Scheme will be wound up within the next 12 to 18 months depending upon the return of all remaining outstanding bonds issued at the request of its members.  When the Scheme is wound up, Herbert deposes that all members will receive a full accounting by MPA’s auditors. 

16                  When the interlocutory application came on for hearing, counsel for Herbert and MPA sought leave to file a supplementary affidavit of Matthew Andrew Fielden sworn 12 December 2005.  Mr Randall did not object to the filing of this affidavit and I granted leave as sought.  The affidavit records that Herbert and MPA made additional documents available for inspection by the administrator on 21 October, 25 October and 6 December 2005.  The additional documents included the Trust Deed, annual financial reports for MPA, a register of unitholders, bank statements for the MPA Bond Panel, the memorandum and articles of association of MPA and redacted minutes of meetings of directors of MPA.  The supplementary affidavit also exhibited a document dated 6 February 1990 signed on behalf of Quick Contracting which states that its deposit of $50,000 was made for a period of 10 years and would not attract interest.  The document also records that Quick Contracting agreed not to request or require repayment of the deposit until expiration of the term of the deposit, or cessation of membership by Quick Contracting of the MPA Retention Bond Panel and expiry of all insurance bonds issued at its request pursuant to the Scheme.

17                  In the course of argument, Mr Randall informed me that the administrator had now inspected, but not taken any copies of, all of the documents listed in the schedule to each summons (set out in paragraph 5 of these reasons for judgment), other than the following: the redacted portions of the minutes referred to in paragraphs (j) and (k) of the schedule; and documents disclosing details of claims on the fund as described in paragraphs (l) and (m) of the schedule.  I was informed by Mr Randall that there are no documents falling within paragraph (o) of the schedule.  In the course of his submissions, Mr Bailey explained that the minutes had been redacted to protect information relating to the financial position of other members.  In his submission, this information was not relevant to the examinable affairs of Quick Plumbing.

grounds relied on to discharge each summons

18                  There are essentially four grounds for the application to set aside each summons:

(a)           neither summons relates to the examinable affairs of Quick Plumbing;

(b)          the administrator of Quick Plumbing on the one hand, and Herbert and MPA on the other hand, entered into an enforceable agreement under which Quick Plumbing’s interest in the contingency fund would be satisfied by the payment of $37,471 to Quick Plumbing’s administrator;

(c)           material non-disclosure of relevant facts in the application to issue the summonses; and

(d)          abuse of process - each summons was issued for the improper purpose of achieving a renegotiation of the agreed payment figure of $37,471 and/or placing Quick Plumbing in a better position than other members of the panel with identical interests in the contingency fund.

19                  I will deal with each of these issues turn in relation to the summons directed to Herbert.  However, it is unnecessary to consider these four grounds for discharge in relation to the MPA summons for the reasons set out below. 

the summons to mpa

20                  The second summons directed to MPA purportedly requires MPA to attend for an examination, and to produce the same list of documents.  The summons is irregular because only an individual can be summoned under s 596B: Re Interchase Corporation (In Liquidation) (No 2) (1993) 47 FCR 253 at 260-261.  I propose to set aside the summons directed to MPA.  However, aside from the question of costs, this is of little practical consequence because the same ground is covered by the summons directed to Herbert.  Mr Randall did not object to this course. 

21                  I turn now to the four grounds for discharge of the Herbert summons. 

The examinable affairs of Quick Plumbing

22                  Under s 596B, the Court has a discretion to summon a person for examination in respect of a corporation’s examinable affairs if an eligible applicant, such as the administrator of a deed of company arrangement, applies for the summons and the Court is satisfied that the proposed examinee may, inter alia, be able to give information about the examinable affairs of the corporation.  As voluntary administrator, Rambaldi is an eligible applicant.  The statutory definition of “examinable affairs” in s 9 of the Act, read with s 53, casts a very broad net.  Because of s 53, s 9 catches anything that is included in the corporation’s affairs.  The examinable affairs of a company include an inquiry into the value of property or other interests held by the company.  Such property includes the company’s choses in action, including any right of action that the company may have against the persons summoned.  In HAJ Ford, RP Austin and IM Ramsay, Ford’s Principles of Corporations Law (“Ford”), at 27.170.1, the learned authors point out that, in the context of rights to take legal action, the examination is not confined to the question of the existence of the right of action; it extends to the nature, scope and value of the right of action so that the liquidator or administrator may assess prospects of success before committing property of the company to the expense of litigation: see Grosvenor Hill (Qld) Pty Ltd v Barber (1994) 48 FCR 301 (“Grosvenor Hill”); Morton v Joynson (1999) 31 ACSR 76; and Re Clutha Ltd (2000) 34 ACSR 685.  In Re Bosun Pty Ltd (in liq) (2000) 34 ACSR 597 at 599 the Court held that examining the value of a right of action can involve examining a former director about his capacity to satisfy any judgment that might be obtained against him.

23                  The governing principles are discussed at some length by the Full Court in Grosvenor Hill.  Referring to s 596B, the Court said that the effect of the legislation is to place a liquidator or administrator in a privileged position to obtain information relevant to, and necessary for, the proper discharge of his or her statutory function.  The Full Court made the following observation, at 306, about the nature of this power:

“The courts have recognised since the introduction of statutory powers similar to that provided for in s 596B of the Law that the exercise of the power can involve tension between two important public interests. The first is the public interest in a liquidator obtaining necessary information to properly discharge the function of liquidator in the winding up of the company for the benefit of the creditors.  The second is the right of the individual to privacy in regard to his or her affairs, documents and papers.”

24                  In Grosvenor Hill, the issue was whether an order could properly be made for the production of a policy of professional indemnity insurance held by the examinee.  In that context, the Full Court said that it is within power to order production of relevant documents, including insurance policies, to ascertain whether or not the person has an enforceable right to indemnity from an insurer or other person.  The obtaining of such information by the liquidator in the course of the winding up was a step towards facilitating the realisation of the chose in action to the best advantage of the company and its creditors.  As such it fell within the scope of the examinable affairs of the company. 

25                  The Full Court stressed the difference between the ambit of the power and the circumstances in which the power is to be exercised at 311-12:

“The Court retains a discretion in appropriate cases to refuse to exercise the power or to make its exercise subject to stringent conditions.  It is impossible in advance to lay down all of the relevant circumstances which will affect the exercise of a discretion to exercise the power or to subject it to limitations or conditions.  Some of the relevant circumstances are set forth in the judgment of Nicholson J in Re Rothwells Ltd (No 2) (1989) 7 ACLC 576 at 587-589.  However, in the final analysis, it must be left to the Court in any particular instance, guided by the evident statutory purpose of the section, to determine whether or not the information is relevant to the liquidator for the purpose of performing his statutory duty and whether and in what manner any proposed examinee needs to be safeguarded beyond the ordinary safeguards of court control of the examination process from any oppressive exercise of the power.”

26                  One of the relevant considerations which Nicholson J referred to in Re Rothwells Ltd (No 2) (1989) 7 ACLC 576 (“Rothwells”) is that the Court will give weight to the eligible applicant’s opinion of the purpose which he sees the examination serving.  The basis for doing so is that the eligible applicant will have detailed knowledge of the problems which exist in relation to the company’s affairs and the information which is required: In Re John Arnold’s Surf Shop Pty Ltd (1979) 23 SASR 222 at 230; and Re Spersea Pty Ltd (In Liq) (1991) 9 ACLC 1,114 at 1,117.

27                  The administrator also relied upon the principles stated by Lander J in Re New Tel Ltd (In Liquidation) (2005) 54 ACSR 284 at 323.  Ryan and Crennan JJ agreed with Lander J’s summary of the relevant principles.  In particular, the administrator relied upon Lander J’s proposition that a legitimate purpose of a summons for examination is to assist the administrator of the corporation to identify its assets, both tangible and intangible, and its liabilities. 

28                  The present case is unusual in that there is very little by way of evidence from the administrator as to the purposes and objects of the proposed examination of Herbert, particularly given the extensive voluntary disclosures by Herbert and MPA.  Rambaldi’s affidavit sworn 25 August 2005 stated that, at the date of the affidavit, Rambaldi had received no financial documents whatsoever from MPA which would enable him to make an assessment of the value of a unit in the Trust.  This appears to be the basis upon which Rambaldi went on to depose that Herbert is able to give information about the examinable affairs of Quick Plumbing.  The position has changed significantly since then, given Herbert’s affidavit and the provision of additional documents for inspection.

29                  Despite these reservations, I have concluded that the summons to Herbert relates to the examinable affairs of Quick Plumbing because it relates to the realisable value of Quick Plumbing’s interests in the contingency fund.  Mr Randall submitted from the bar table that it fell squarely within the scope of s 596B for Rambaldi to inquire into the assets of Quick Plumbing and how they might be realised.  Further, he submitted that this inquiry properly extends to the questions whether Quick Plumbing is a unitholder in the Trust, whether the deposits carry interest, whether the Trust is likely to have a distributable surplus, and whether there are ways in which the Trust can be dissolved earlier than the currently contemplated winding up process that will occur within the next 12 to 18 months.  I accept that these matters constitute “examinable affairs” for the purpose of s 596B.

30                  As the executive director of the Association and as a director of MPA, Herbert is a person who may be able to give information about the existence and realisable value of Quick Plumbing’s interests in the contingency fund and/or the Trust.  Accordingly, the summons falls within the scope of s 596B. 

The alleged agreement

31                  In his affidavit sworn 29 September 2005, Herbert states that an agreement was reached between MPA, the plaintiff and the underwriter as to the basis upon which Quick Plumbing would be released from the Scheme.  Herbert contends that the agreement was reached in the course of discussions and correspondence, and thereafter recorded in a deed of retirement and release prepared by the solicitors for MPA.  There is, however, no evidence that the deed was ever executed. 

32                  The administrator’s position is that, while a conditional agreement was arrived at, the conditions were never satisfied. 

33                  The evidence shows that the administrator accepted an offer from Herbert and MPA to release Quick Plumbing from the Retention Bond Agreement in consideration of the payment of $37,471 to Quick Plumbing.  This acceptance was set out in Rambaldi’s letter of 15 April 2005 to Herbert:

“I refer to previous correspondence regarding the abovenamed Company, in particular to your letter dated 25 January 2005.

After consideration of all matters, I accept your offer to release Quick Plumbing from the MPMSAA Retention Bond Agreement based on the following:

Monies deposited by Quick Plumbing                                          $50,000

Less: Membership fees outstanding to the MPA Bond Panel

Custodian Pty Ltd                                                                        $12,529

Total payable to Quick Plumbing                                                $37,471

Please arrange payment of above amount by cheque payable to “Quick Plumbing Australia Pty Ltd (Subject to Deed of Company Arrangement)” within fourteen (14) days.

Should you have any queries, please do not hesitate to contact Mr Bobby John of my staff on 9289 9777.”

34                  In response to this letter, Herbert forwarded a draft deed of retirement and release to Rambaldi.  Rambaldi requested an amendment to the draft deed on the basis that he could not warrant the matters referred to in clause 4 of the draft. 

35                  The clause which was objected to (clause 4 of the draft deed) read as follows:

“Quick warrants that all bonds issued at its request have been fully satisfied and that there are no bonds outstanding and indemnifies the trustee and the underwriter against any loss arising as a result of any breach of this warranty.”

36                  Rambaldi’s position was communicated by a facsimile dated 15 July 2005 from the plaintiff’s solicitors to Herbert.  The facsimile read as follows:

“We refer to your proposed terms of Release forwarded this afternoon.

As you would be well aware following many discussions with the Administrator and his representative Mr Yeo our Client cannot provide the warranty set out in clause 4 of the Agreement.  We are instructed that our Client will execute this Agreement provided this clause is deleted.  Our Client considers that in fact the Trustee is best placed to provide this warranty.

Failing acceptance of this position by 1 PM on Monday July 15 2005 we will proceed to issue court proceedings to obtain the information sought in our letter dated December 24 2005 without further notice.  Please contact the writer or Mr Bobby John at Pitcher Partners to discuss.”

37                  Herbert’s evidence was that he referred the plaintiff’s request for amendment of the draft deed to his solicitors and to the underwriter to confirm that the amendment was acceptable.  Upon confirmation that the amendment was acceptable, he arranged for an amended version of the deed to be executed by MPA and the underwriter.  On 4 August 2005, Herbert wrote to the solicitors for the plaintiff enclosing four copies of the amended deed which had been executed on behalf of the underwriter and MPA and advising that MPA was ready to effect settlement in accordance with its terms.

38                  It is convenient to set out the full text of Herbert’s letter of 4 August 2005:

“We enclose 4 copies of the Deed of Retirement and Release for Quick Plumbing Australia Pty Ltd (subject to Deed of Company Arrangement) from the Bond Panel Agreement.  The document has been amended as requested and has now been executed by the underwriter and the MPA Bond Panel Custodian Pty Ltd.

Subject to the execution and return of the release documents by Quick Plumbing Australia Pty Ltd (subject to Deed of Company Arrangement) the amount of $37,471 will be forwarded immediately (or may be collected if you prefer).

Your request for a copy of the Trust Deed has been considered and we advise that as Quick Plumbing Australia Pty Ltd (subject to Deed of Company Arrangement) is not a member of the Trust we are not obliged to provide a copy.

We remain prepared to settle this matter as previously agreed and look forward execution of the document so that we may release the cheque to you.”

39                  By letter dated 3 August 2005, the plaintiff requested a copy of the Trust Deed of the Trust.  By his letter of 4 August 2005, Herbert advised Rambaldi that, as Quick Plumbing is not a member of the Trust, MPA was not obliged to provide a copy of the Trust Deed.

40                  In these circumstances, counsel for Herbert and MPA submitted that the parties reached a legally binding commercial settlement requiring the payment of $37,471 to Quick Plumbing in satisfaction of Quick Plumbing’s claim to an interest in the contingency fund.  After the administrator had issued the summonses, Herbert wrote to the plaintiff and enclosed a cheque for the sum $37,471. 

41                  The plaintiff disputes that any agreement was reached.  In his affidavit sworn 13 October 2005, Andrew Reginald Yeo (“Yeo”), a partner in Pitcher Partners who assisted Rambaldi in performing his functions as deed administrator, states that Rambaldi was only prepared to accept the offer of $37,471 on condition that the payment was received by a stipulated date.  Initially the period was within fourteen days of 15 April 2005.  This was then extended to 27 May 2005 and then to 3 June 2005.

42                  Yeo also states that the acceptance letter of 15 April 2005 elicited a response from Herbert.  In a letter dated 22 April 2005, Herbert advised that he had applied to the underwriter to release Quick Plumbing from the Retention Bond Agreement and to agree to release the contingency deposit.  In this context, Yeo states in paragraph 19 of his affidavit:

“The critical issue regarding the purported settlement was that Mr Herbert considered that the $37,471 was only payable if and when all of the outstanding warranty bonds for the Company had been returned to the MPA Bond Panel.  Mr Rambaldi’s letter of 15 April 2005 was clear that the agreement was that the $37,471 was to be received within 14 days, and without condition.  In other words, the MPA Bond Panel would be taking the risk that the warranty bonds were not received.  Mr Herbert did not wish to make the payment until the warranty bonds were returned.  This was the critical point of difference, and the reason why no agreement was ever concluded.”

43                  The next piece of correspondence is a letter dated 25 May 2005 from Rambaldi to Herbert extending the date of payment until 27 May 2005 at which point Rambaldi advised that he would consider the agreement at an end if the payments were not made.  In response, Herbert advised Rambaldi by his facsimile of 26 May 2005 that the underwriter had instructed its legal department to prepare release documents, and that Herbert was endeavouring to hasten the process and requested an extension of time. 

44                  In a telephone conversation between Yeo and Ms Hasseloff (an assistant of Herbert) on 1 June 2005, Yeo says that he advised that he was only prepared to extend the deadline to 3 June 2005.  The file note of this conversation states that Yeo reiterated in the course of the conversation that “If Ray had felt that we had done a deal on the basis that $37,000 would only be repaid if all the bonds were returned, then he was clearly under a misapprehension.”  No payment was received by Friday 3 June 2005.

45                  Yeo’s affidavit does not refer to, or explain, the facsimile of 15 July 2005 from the plaintiff’s solicitors to Herbert, in which the plaintiff’s solicitors advised that the administrator could not provide the warranties set out in clause 4 of the agreement but will execute the agreement provided that clause is deleted.  The facsimile confirms that the administrator was not at that point of time seeking to enforce a final time limit of 3 June 2005.  There is no evidence that Herbert rejected the request to delete clause 4.  The evidence indicates that MPA and the underwriter subsequently agreed to delete clause 4, and this was enshrined in the final draft.

46                  The plaintiff denies that any concluded agreement was reached between the administrator and any organisation represented by Herbert.  The final breakdown of discussions concerning the proposed agreement can be attributed to an exchange that took place in early August concerning the provision of the Trust Deed.  Paragraphs 25 and 26 of Yeo’s affidavit describe the position in the following way:

“25.     On 3^rd August 2005 Mr John [an employee of Pitcher Partners] had a telephone discussion with Ms Hasseloff of the MPA Bond Panel.  The telephone discussion was regarding Mr Rambaldi’s letter dated 2 August 2005 requesting a copy of the Trust Deed.  Ms Hasseloff advised that the Mr Herbert was not currently available and that she would require permission from Mr Ray Herbert to release this document. Ms Hasseloff asked Mr John whether providing the Trust Deed affected the signing of the Deed of Release that was currently being drafted.  Mr John advised briefly that the Trust Deed would be required before any document was considered.  Ms Hasseloff advised that she would try and speak to Mr Herbert and advise by 4 August 2005.  Now produced and shown to me marked with the letter “AY-9” is a true copy of the letter dated 2^nd August 2005.

26.       By 4^th August 2005 I had received no response from Ms Hasseloff regarding Mr John’s request to provide a copy of the Trust Deed.  The decision was made to attempt to obtain the relevant documents through an examination of Mr Herbert.”

47                  The plaintiff’s evidence is unsatisfactory in several respects.  It does not deal with, or explain, the plaintiff’s apparent agreement to the draft deed on the proviso that the counter-parties agreed to the deletion of clause 4.  The evidence does not support the contention in paragraph 19 of Yeo’s affidavit that the critical point of difference, and the reason why no agreement was concluded, was Herbert’s requirement that all outstanding bonds for Quick Plumbing be returned.  Any such requirement had disappeared by 4 August 2005.  However, the precise date at which it disappeared is left unclear by the evidence.

48                  There is no direct evidence from Rambaldi or John as to why the provisional agreement was not concluded.  According to paragraph 25 of Yeo’s affidavit, John advised Ms Hasseloff in a telephone conversation on 3 August 2005 that the Trust Deed would be required before any revised deed of release would be considered by the administrator.  Ms Hasseloff advised that she would respond by 4 August 2005.  A response was in fact provided by Herbert’s letter of 4 August 2005 which forwarded the draft deed from which clause 4 had been excised.  None of the evidence from the plaintiff deals with the further draft deed.  No reason is advanced as to why that deed was not acceptable, other than the statements in Yeo’s affidavit from which it can be inferred that the draft deed was not considered because of the non-provision of a copy of the Trust Deed.

49                  The evidence given on behalf of Herbert also leaves some gaps.  On the face of the evidence, it appears that the agreement by Herbert and MPA to delete clause 4 was not communicated otherwise than by his letter of 4 August 2005.  I also note that Mr Bailey, counsel for Herbert and MPA, did not contend that the administrator’s letter of 15 July 2005 gave rise to a legally binding agreement.  In fact, he submitted that the acceptance referred to in the letter of 15 July 2005 was subject to a condition that payment be made within 14 days, and this condition was not satisfied.  The evidence is also open to the inference that Herbert and MPA were insisting upon satisfaction of a further condition before a binding agreement would arise, namely the execution of a deed of release.  Counsel for the administrator submitted that the acceptance of 15 July 2005 was conditional upon an agreement being recorded and executed in writing, and that legal relations were postponed until the execution of such an agreement.  This never occurred.  The administrator therefore submitted that the case fell within the third category described by the High Court in Masters v Cameron (1954) 91 CLR 353. 

50                  Notwithstanding the gaps in the evidence, I must reach a conclusion for the purposes of this application as to whether or not the parties made a final and binding agreement.  On the whole of the evidence, and taking into account the submissions made by the parties, I find that no final and binding agreement had been reached before the end of September 2005.  There are two possible views of what happened thereafter.  One is that the communication of 4 August 2005 constituted an acceptance of the counter offer made on behalf of the administrator in his solicitor’s facsimile of 15 July 2005.  The alternative view is that the administrator withdrew his counter offer on 3 August 2005, adding a further condition that was never met, namely that the Trust Deed must be provided for consideration before the administrator would agree to the deed of release.  Mr Bailey acknowledged that, in the absence of more complete evidence, he was not in a position to dispute the view that on 3 August 2005, prior to the provision of the revised Trust Deed, the administrator withdrew his counter offer to execute a deed from which clause 4 had been deleted.

51                  In all the circumstances, I am not satisfied that the parties made a final and binding agreement whereby the plaintiff agreed to accept a payment of $37,471 in full and final satisfaction of any rights that Quick Plumbing may possess in relation to the recovery of its deposit or the distribution of any surplus trust assets.

material non-disclosure

52                  In his affidavit supporting the issue of the summonses under s 596B of the Act, Rambaldi did not refer to his acceptance letter of 15 April 2005, the first draft deed of June 2005, his solicitor’s facsimile of 15 July 2005 requesting an amendment to the deed, or the final version of the deed of retirement and release forwarded under cover of the letter of 4 August 2005.  His affidavit does not detail any of the exchanges that took place concerning the sum of $37,471.  Exhibited to Rambaldi’s affidavit was the letter of 4 August 2005 from Herbert enclosing the revised deed of release, but the affidavit simply describes this as a letter by which Herbert refused Rambaldi’s request for a copy of the Trust Deed. 

53                  However, Rambaldi referred to the existence of discussions and negotiations in paragraph 11 of his affidavit:

“11.     Since I became administrator of the deed, on 1 July 2002, I have been attempting to realize the interest of the Company in the Trust.  There have been discussions and negotiations but no arrangement has been concluded.  In these negotiations money has been offered, for the purposes of the deed of company arrangement, for what I believe was the company’s unit in the Trust.”

54                  In the course of submissions, Mr Randall accepted that the last sentence of paragraph 11 is inaccurate.  The evidence before me demonstrates clearly that money was offered in the course of the negotiations in satisfaction of Quick Plumbing’s claim to the repayment of its deposit, and not by way of payment for Quick Plumbing’s unit in the Trust.  In other respects, however, Mr Randall submitted that paragraph 11 made adequate reference to the discussions and negotiations.  In his submission, it was unnecessary for the plaintiff to make fuller disclosure of those discussions and negotiations as they had not resulted in any concluded arrangement or binding agreement. 

55                  The plaintiff’s failure to disclose all of the correspondence and other exchanges concerning the settlement discussions is a matter of serious concern.  In Fordat 27.170.1, the learned authors correctly point out that applicants under s 596B bare a heavy onus to disclose any matter which might lead a court to refuse an examination application: Re Southern Equities Corporation Ltd (in liq) (1997) 25 ACSR 394 (“Southern Equities”); Re Coretel Pty Ltd] (2004) 48 ACSR 178 (“Re Coretel”); and Commonwealth v Sheahan [2004] FCA 1301.

56                  The applicable principles were explained by Lander J in Southern Equities at 422-3, in a passage in which Cox and Bleby JJ agreed:

“An application for an examination summons is made ex parte.  Consequently there is a heavy obligation upon the person applying for the examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporations [sic]examinable affairs.

There can be no doubt, in my opinion, that a person who makes an application of this kind is under an obligation to bring all facts and material to the court’s attention which might bear upon the order to be made. The applicant has no lesser obligation than that imposed upon a party seeking an injunction ex parte.  Indeed, in my opinion, the obligation for frankness and candour is even greater in an application of this kind.  That is because, unlike on the return of an interlocutory injunction obtained ex parte, on the return of an examination summons the material supporting the application is not ordinarily made available to the proposed examinee.

Because the proposed examinee, ordinarily, is not privy to the information or material which was used to support the application for the examination summons, the person applying for the examination summons has the very highest obligation relating to frankness and candour and any breach of that obligation, in my opinion, ought to be viewed very seriously by the court.

The obligation is to provide to the court all material which might impact upon the order sought, including all material which might lead the court to refuse the application.  The applicant must act in the place of the proposed examinee and therefore draw to the attention of the court anything which might lead the court to refuse the application.

If an applicant fails to provide all of the information bearing upon the order sought, in my opinion, that might be sufficient ground to set aside the order, because the order will have been obtained in circumstances where the court has not been apprised of a reason or reasons for the refusal of the order.”

These principles were applied by Gyles J in Re Coretel and by Brownie J in Re One Twenty Seven Corporation Pty Ltd (1995) 13 ACLC 1600 at 1602.

57                  Lander J also observed that it is not always the case that a material non-disclosure will have the consequence that the order must be set aside.  His Honour said at 424:

“It cannot be said that an order obtained in circumstances where there has been a failure to disclose material facts must necessarily be set aside. Whether or not the order ought to be set aside for failing to disclose material facts will depend upon the facts not disclosed and the circumstances in which the non disclosure came about.  An error of judgment in failing to disclose a fact which later becomes material may not necessarily lead to the setting aside of the order previously obtained.  So also an innocent non-disclosure may not necessarily require the setting aside of the order for the examination.

On every occasion where there has been a non-disclosure and an order obtained it will be a matter of inquiry as to whether or not that non disclosure should lead to the setting aside of the order.

However, even if the order is set aside that is no bar to an application for a further order.”

58                  In my opinion, all of the correspondence and other exchanges concerning settlement ought to have been disclosed by Rambaldi in his affidavit of 25 September 2005.  However, I have reached the conclusion that this is not a case in which the non-disclosure should have the consequence that the summons must be set aside.  I have taken into account the fact that Rambaldi’s affidavit refers to unspecified discussions and negotiations that did not result in a concluded arrangement.  I am prepared to assume that Rambaldi made an error in judgment in not disclosing all of the correspondence and other exchanges concerning settlement, and that he did so because he genuinely considered that there was no concluded arrangement.  While I have come to the same conclusion, I consider that the relevant material ought to have been placed before the Court.  The Court should be provided with all of the material which might impact upon its preparedness to make the orders sought, including any material which might lead the Court to refuse the application.  The assessment of whether or not the evidence established a concluded agreement should have been left to the Court.  This is particularly so in the present case, where it is far from clear cut whether or not a concluded agreement had been reached. 

Improper purpose

59                  In paragraph 23 of his affidavit of 29 September 2005, Herbert contends that each summons was issued by the plaintiff in an effort to renegotiate the terms of settlement or to obtain some other commercial or collateral advantage and not for the purposes of investigating the affairs of Quick Plumbing. 

60                  The Court has power to stay an examination where the process under Part 5.9, Div 1 of the Act is being abused.  The burden of showing improper purpose is on the proposed examinee and the existence of an improper purpose must be proven to be the predominant purpose being pursued by the eligible applicant: New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 at 612 (“Burton”); Sherlock v Permanent Trustee Australia Ltd (1996) 22 ACSR 16 (“Sherlock”); and Sent v Andrews (2002) 6 VR 317.  In my view, a purpose will be improper if it is foreign to that for which the legislature provided the examination machinery: see Burton at 616.  I doubt that it is sufficient that the proposed examination can be characterised as unfair in some generalised way:  see Re Modern Woodcraft Pty Limited (In Liquidation) (1997) 75 FCR 245; Burton; cf Douglas-Brown v Furzer (1994) 13 ACSR 184 at 189; and Sherlock.  Nor is it sufficient that the examination will lead to questions or inquiries of a fishing nature: see Rothwells at 588.  I note, however, that Santow J, in Vagrand Pty Ltd (in liq) v Permanent Trustee Australia Ltd (1995) 17 ACSR 386 (“Vagrand”) suggested, at 404, that “disproportionality” may be sufficient to infer an ulterior purpose:

“if the examination employs means which are clearly disproportionate to the claimed legitimate purpose, that may, with other circumstances, justify an inference that the claimed legitimate purpose was not in fact the real one, so leading to the inference of the use of examination for a foreign purpose.”

61                  In this case, the sole argument advanced is that the summons has been issued for an ulterior purpose, namely to attempt to renegotiate concluded terms of settlement or the attempt to obtain some other commercial or collateral advantage falling outside any proper investigation of the affairs of Quick Plumbing.

62                  The allegation of improper purpose is based on several considerations.  First, counsel for Herbert and MPA submitted that the administrator has received substantial information by virtue of Herbert’s affidavit and the documents that were subsequently made available for inspection.  Despite this information, the administrator proposes to press forward with the examination without specifying what further information, if any, he seeks to obtain.  Mr Bailey submitted that if Rambaldi would only say precisely what additional information he wants, then Herbert and MPA may be able to provide it by affidavit or otherwise.  In Mr Bailey’s submission, the administrator’s failure to specify what further information he requires casts doubt upon his purposes.  According to Mr Bailey, a similar doubt arises from the fact that the administrator was persisting in his demand to see an unredacted version of the MPA minutes, notwithstanding the explanation that the concealed parts of the minutes relate solely to the internal financial affairs of other members. 

63                  Secondly, Mr Bailey submitted that Quick Plumbing’s rights and obligations are limited by the Retention Bond Agreement and the terms of the Trust.  MPA cannot discriminate between members of the Trust and must follow the same conditions and procedures in respect of all members.  Mr Bailey said it is apparent from the list of documents scheduled to the summons that the administrator is seeking information not relevant to the rights and obligations of Quick Plumbing under the succession agreement, the Retention Bond Agreement and the Trust Deed; rather, the summons seeks documents relating to the administration of the Trust, the claims, procedures and experience of the underwriter, and other matters that cannot conceivably have any relationship to the rights and obligations of Quick Plumbing.

64                  Thirdly, Herbert and MPA submit that the examination summons will achieve no useful purpose because Herbert and MPA have been, and remain, willing to provide all relevant information relating to the rights and obligations of Quick Plumbing in respect of the Scheme and the Trust.  They say that if the administrator is seeking to achieve an outcome that places Quick Plumbing in a better position than other members with identical interests in the return of their contingency deposits and an identical interest in the surplus assets of the Trust, that outcome cannot be achieved consistently with MPA’s obligations as trustee. 

65                  On the other hand, Mr Randall submitted that there was no basis for inferring that the administrator is actuated by an improper purpose.  In his submission, the administrator is entitled to pursue inquiries to determine whether Quick Plumbing has any legal right to recover interest on its deposit, and/or any legal right to participate in a distribution of the surplus assets of the Trust upon its dissolution.

66                  In my opinion, the allegation that the administrator is pursuing an improper purpose has not been made out.  On the evidence, the administrator has pursued an examination process for the purpose of identifying and valuing certain rights or interests held by Quick Plumbing which may be available to the creditors of that company.  If a final settlement agreement existed, that would provide a basis for setting aside each summons.  But I come to this leg of the argument on the footing that the evidence does not establish the existence of a concluded and enforceable agreement.  In those circumstances, I am satisfied that the matters identified by Mr Randall in argument, set out at in the preceding paragraph and in paragraph 29, represent legitimate avenues of examination.  The evidence before me does not establish that all relevant information has already been provided to the administrator, so as to render the proposed examination futile or oppressive.  Nor does the evidence, in my view, satisfy the “disproportionality” test suggested by Santow J in Vagrand.

67                  Nevertheless, the matters raised by Herbert and MPA do arouse a concern that the administrator may be intending to pursue some matters that lie at the extremity, or beyond the boundaries, of Quick Plumbing’s examinable affairs.  An example is afforded by the redacted minutes.  To the extent that the minutes contain information about the individual financial affairs of other members, I consider that such matters fall outside the appropriate field of inquiry. 

68                  It is difficult for me to judge on the limited material that is before me, but I also have a concern that paragraph (l) of the schedule to the summons goes beyond the scope of Quick Plumbing’s examinable affairs.  It seeks production of all documents disclosing details of claims made on the contingency fund since its inception.  I have given consideration to the question whether I should make directions pursuant to s 596F in an effort to confine the matters which may be inquired into at Herbert’s examination.  In the end, I consider that I have inadequate information before me to make such a direction.  The Registrar who oversees the examination will be better placed to ensure that it is kept within proper limits.

69                  I do wish to emphasise that a voluntary administrator such as Rambaldi is entrusted with special responsibilities to ensure that the coercive power conferred by s 596B is confined within appropriate limits, and only exercised for proper and bona fide purposes.  In this case, I consider that the proper purpose identified by the material before me is the identification and valuation of any rights or interests held by Quick Plumbing in the Trust.  The summons does not authorise a roving inquiry into the past history of the Scheme or the financial affairs of other members.

70                  I consider that Herbert and MPA have not made good their contention that the administrator is pursuing an improper purpose by issuing and acting upon the summons for examination.

conclusion

71                  Accordingly, the application before me for the discharge of the summons directed to Herbert is dismissed.  As previously indicated, the application to set aside the summons directed to MPA is granted.

72                  Although the administrator has largely succeeded, I have set aside the MPA summons.  I propose to order that three quarters of the plaintiff’s costs of the interlocutory application be paid by Herbert.

73                  Because I have considered this matter at some length and remain concerned to ensure that the examination be conducted within proper bounds, I will reserve liberty for the parties to apply.

Associate:

Dated:              16 December 2005