Federal Court of Australia

Sprowles (Liquidator), in the matter of CWCN Pty Ltd (in liq) [2021] FCA 159

ORDERS

THE COURT NOTES THAT:

A.    In these orders, “Mr Kirschberg” means Lindsay John Kirschberg.

B.    In these orders, “liquidator” means Christian Peter Sprowles or any other person appointed from time to time as the liquidator of CWCN Pty Ltd ACN 605 827 021 (in liquidation).

THE COURT ORDERS AND DIRECTS THAT:

1.    Pursuant to s 597(4) of the Corporations Act 2001 (Cth) (Act), the examination of Mr Kirschberg be held in private before a Registrar of the Court.

2.    There be no order for a written record of the examination to be authenticated by Mr Kirschberg pursuant to s 597(13) of the Act.

3.    A transcript of the examination of Mr Kirschberg, as envisaged by s 597(14) of the Act, is to be made for the purposes of authentication pursuant to r 11.7 of the Federal Court (Corporations) Rules 2000 (Cth).

4.    The conduct of the examination and the transcript of the examination authenticated pursuant to r 11.7 of the Federal Court (Corporations) Rules 2000 (Cth) for the purposes of s 597(14) of the Act, be kept confidential and not be disclosed or published to any person, other than the Court and its staff, Mr Kirschberg, the liquidator, the liquidator’s staff, and their respective legal practitioners without 14 days’ notice to Mr Kirschberg and leave of the Court until the determination of the criminal proceedings against Mr Kirschberg.

5.    The liquidator’s costs of the interlocutory process be costs in the winding up of CWCN Pty Ltd ACN 605 827 021 (in liquidation).

6.    Order 2 made on 24 February 2021 is vacated.

7.    There be liberty to apply on 2 business days’ notice.

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

REASONS FOR JUDGMENT

FARRELL J:

Introduction

1    By an interlocutory process filed on 24 February 2021, Lindsay John Kirschberg seeks orders under ss 596F(1), 597(4) and 597(13) of the Corporations Act 2001 (Cth) in relation to the conduct of an examination under s 596B to commence on Monday, 1 March 2021 before a Registrar of this Court in relation to the examinable affairs of CWCN Pty Ltd (in liq) (CWCN) pursuant to a summons issued in late 2020. The interlocutory process is supported by an affidavit sworn by Jonathan O’Loughlin on 23 February 2020, exhibit JEO-1 and the applicant’s written submissions.

2    At the hearing conducted on 25 February 2021, both Mr Kirschberg and CWCN’s liquidator, Christian Peter Sprowles, were represented by their legal representatives.

3    Mr Kirschberg did not seek adjournment or vacation of the examination, but instead sought orders that any examination be conducted in private and ancillary relief in relation to maintaining the confidentiality of the examination and any transcript of the examination. Mr Sprowles neither consented to nor opposed the relief sought.

4    These are reasons for making the orders sought.

Background

5    Mr O’Loughlin’s affidavit and the submissions disclose the following matters.

6    Mr Kirshberg is a director of Adelphi Finance Pty Ltd (Adelphi), a company which has had business dealings with CWCN. In his affidavit, Mr O’Loughlin deposes that Adelphi has or may have had a security interest over property belonging to CWCN.

7    On 21 July 2020, Mr Kirschberg was arrested in New South Wales by the Australian Federal Police and charged with:

(1)    One count of conspiracy with the intention of dishonestly causing a loss to the Commonwealth contrary to s 135.4(3) of the Criminal Code 1995 (Cth); and

(2)    One count of conspiracy to deal with proceeds of crime, money or property worth $1,000,000 or more contrary to ss 11.5(1) and 400.3(1) of the Criminal Code.

8    Proceeding No 213439 has been commenced in relation to those offences and is currently before the Local Court of New South Wales (the criminal proceedings). A brief of evidence has not yet been served. Related proceedings under the Proceeds of Crime Act 2002 (Cth) (POCA) have also been commenced in the Supreme Court of Queensland (Proceeding No  BS7923/2020) (POCA Proceedings). On 17 July 2020, Boddice J made orders pursuant to s 18 of POCA which included an order restraining any disposal or dealings in respect of the security Adelphi holds over CWCN.

9    Exhibit JEO-1 at page 106 contains an undated document authored by Mr Sprowles’ legal representatives which relevantly indicates that at least one of the topics on which Mr Kirschberg will be examined will be the “debt properly owing by [CWCN] to [Adelphi]”. Mr Kirschberg submits that it is very likely that the examination will centre on matters such as the nature of Adelphi’s business; its relationship with CWCN; the circumstances giving rise to a debt owed by CWCN in favour of Adelphi; and its relationship with other relevant entities.

10    Mr O’Loughlin notes that a Statement of Facts provided to Mr O’Loughlin on 21 July 2020 by the Australian Federal Police alleges that:

(1)    Adelphi would process proceeds of crime that would be disguised as “loan payments”;

(2)    Mr Kirschberg and his associates controlled certain entities (referred to by the prosecution as “Money Laundering entities”) in order to receive, distribute and conceal the movement of proceeds of crime;

(3)    Adelphi was one such Money Laundering entity;

(4)    Adelphi received approximately $781,529.06 of “tax fraud proceeds” in the 2018–2019 financial year; and

(5)    Proceeds of crime were funnelled through Adelphi.

11    On 10 February 2021, Martin J made further orders in the POCA Proceedings pursuant to s 180 of POCA for the examination of Mr Kirschberg and others (POCA Examination). Order 11 provided as follows:

Pursuant to s266A(2)(b) of the Proceeds of Crime Act 2002 (Cth) until further order, in relation to any examinations conducted in accordance with paragraphs 1 to 10 of these Orders:

(a)    No person involved in the investigation or prosecution of the criminal offences of which the 12 Respondents are charged be present during the examinations; and

(b)    The transcript of the examinations, any matter contained in answers given during the course of the examinations and any documents produced at the examinations not be disclosed directly or indirectly to any person involved in the investigation or prosecution of the criminal offences with which the 12 Respondents are charged.

Legislation

12    Section 596F of the Corporations Act provides as follows:

596F Court may give directions about examination

(1)    Subject to section 597, the Court may at any time give one or more of the following:

(a)    a direction about the matters to be inquired into at an examination;

(b)    a direction about the procedure to be followed at an examination;

(c)    a direction about who may be present at an examination while it is being held in private;

(d)    a direction that a person be excluded from an examination, even while it is being held in public;

(e)    a direction about access to records of the examination;

(f)    a direction prohibiting publication or communication of information about the examination (including questions asked, and answers given, at the examination);

(g)    a direction that a document that relates to the examination and was created at the examination be destroyed.

(2)    The Court may give a direction under paragraph (1)(e), (f) or (g) in relation to all or part of an examination even if the examination, or that part, was held in public.

(3)    A person must not contravene a direction under subsection (1).

13    Section 597 of the Corporations Act provides as follows:

597 Conduct of examination

(4)    An examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.

(5A)    Any of the following may take part in an examination:

  (a)    ASIC;

(b)     any other eligible applicant in relation to the corporation;

and for that purpose may be represented by a lawyer or by an agent authorised in writing for the purpose.

(5B)    The Court may put, or allow to be put, to a person being examined such questions about the corporation or any of its examinable affairs as the Court thinks appropriate.

(6)    A person who is summoned under section 596A or 596B to attend before the Court must not intentionally or recklessly:

(a)    fail to attend as required by the summons; or

(b)    fail to attend from day to day until the conclusion of the examination.

(6A)    Subsection (6) does not apply to the extent that the person has a reasonable excuse.

Note: A defendant bears an evidential burden in relation to the matter in subsection (6A), see subsection 13.3(3) of the Criminal Code.

(7)    A person who attends before the Court for examination must not:

(a)    without reasonable excuse, refuse or fail to take an oath or make an affirmation; or

(b)    without reasonable excuse, refuse or fail to answer a question that the Court directs him or her to answer; or

(c)    make a statement that is false or misleading in a material particular; or

(d)    without reasonable excuse, refuse or fail to produce books that the summons requires him or her to produce.

(9)    The Court may direct a person to produce, at an examination of that or any other person, books that are in the first-mentioned person’s possession and are relevant to matters to which the examination relates or will relate.

(9A)    A person may comply with a direction under subsection (9) by causing the books to be produced at the examination.

(10)    Where the Court so directs a person to produce any books and the person has a lien on the books, the production of the books does not prejudice the lien.

(10A)    A person must not refuse, or intentionally or recklessly fail, to comply with a direction under subsection (9).

(11)    Subsection (10A) does not apply to the extent that the person has a reasonable excuse.

Note: A defendant bears an evidential burden in relation to the matter in subsection (11), see subsection 13.3(3) of the Criminal Code.

(12)    A person is not excused from answering a question put to the person at an examination on the ground that the answer might tend to incriminate the person or make the person liable to a penalty.

(12A)    Where:

(a)    before answering a question put to a person (other than a body corporate) at an examination, the person claims that the answer might tend to incriminate the person or make the person liable to a penalty; and

(b)    the answer might in fact tend to incriminate the person or make the person so liable;

the answer is not admissible in evidence against the person in:

(c)    a criminal proceeding; or

(d)    a proceeding for the imposition of a penalty;

other than a proceeding under this section, or any other proceeding in respect of the falsity of the answer.

(13)    The Court may order the questions put to a person and the answers given by him or her at an examination to be recorded in writing and may require him or her to sign that written record.

(14)    Subject to subsection (12A), any written record of an examination so signed by a person, or any transcript of an examination of a person that is authenticated as provided by the rules, may be used in evidence in any legal proceedings against the person.

(14A)    A written record made under subsection (13):

(a)    is to be open for inspection, without fee, by:

(i)    the person who applied for the examination; or

(ii)    an officer of the corporation; or

(iii)    a creditor of the corporation; and

(b)    is to be open for inspection by anyone else on paying the prescribed fee.

(15)    An examination under this Division may, if the Court so directs and subject to the rules, be held before such other court as is specified by the Court and the powers of the Court under this Division may be exercised by that other court.

(16)    A person ordered to attend before the Court or another court for examination under this Division may, at his or her own expense, employ a solicitor, or a solicitor and counsel, and the solicitor or counsel, as the case may be, may put to the person such questions as the Court, or the other court, as the case may be, considers just for the purpose of enabling the person to explain or qualify any answers or evidence given by the person.

(17)    The Court or another court before which an examination under this Division takes place may, if it thinks fit, adjourn the examination from time to time.

Examination in private

14    Mr Kirschberg acknowledges that, notwithstanding the liquidator’s position, he must positively establish that the criterion in s 597(4) (that there are “special circumstances” making it desirable to hold the examination in private) is satisfied: see In the matter of Plutus Payroll Australia Pty Ltd (in liq) [2020] NSWSC 46; (2020) 143 ACSR 234 (Plutus) at [7]-[9] (Gleeson J).

15    Mr Kirschberg accepts that the pendency of the criminal proceedings may, but will not necessarily, establish “special circumstances” warranting an order than an examination be held in private: see Plutus at [10], citing Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486; Corporate Affairs Commission (NSW) v Lombard Nash International Pty Ltd (No 4) (1987) 12 ACLR 475; In the matter of Clarecastle Pty Ltd (in liq) [2011] NSWSC 490 (Re Clarecastle); In the matter of Kimberley Diamond Company Limited [2016] NSWSC 1963 (Kimberley Diamond Company).

16    He says that “special circumstances” are established in this case for the following reasons:

(1)    He is not entitled to refuse to answer a question in his examination on the ground that the answer might tend to incriminate him or render him liable to penalty: Corporations Act s 597(12);

(2)    It is likely that there will be a significant overlap between the questions asked at the examination and the subject matter of the criminal proceedings. The examination, if conducted in public, will assist the prosecution of the criminal proceedings by disclosing lines of potential defence. For instance, he may be required to disclose in detail the nature of Adelphi’s business or the circumstances in which it acquired a debt from CWCN;

(3)    It is likely that there will be a degree of overlap between the subject matters canvassed in the POCA Examinations and the examination on 1 March 2021, given that Adelphi is a major figure in the criminal case against Mr Kirschberg, and given that part of the property restrained under the POCA includes a security interest relating to CWCN. Like an examination under s 596B of the Corporations Act, POCA examinations are mandatory and protections have been put in place in order to mitigate risk of prejudicing an examinee’s right to a fair trial or ability to mount a defence: see The Commissioner of the Australian Federal Police v Cranston (No 8) [2018] NSWSC 365 at [92]. Under s 188(1) of the POCA, the POCA Examination is in private and Martin J’s orders have restricted those people who may be present from obtaining access to information given by Mr Kirschberg at the examination. If the examination under s 596B of the Corporations Act is held in public, there is a risk that the intended operation of s 188 of the POCA and Martin J’s orders would be frustrated by releasing to the public, including investigators and prosecutors in the criminal proceedings, information that was intended to be kept confidential.

(4)    Having regard to the nature of the criminal proceedings, which allege a tax fraud conspiracy, it is not in the interest of the due administration of justice that Mr Kirschberg’s answers be publicly available, including to the other persons alleged to have been involved as discussed in the Statement of Facts.

17    I am persuaded that there is sufficient reason to make the order that the examination under s 596B be conducted in private. In Plutus at [12], Gleeson J agreed with comments made by Brereton J in Kimberley Diamond Company at [19] that the “fact that a criminal prosecution is pending distinguishes [it] from the ordinary run of cases” and makes it “special” because of the potential prejudice to Mr Kirschberg’s defence through exposure of evidence to derivative use and exposure of lines of defence, and that enlivens the discretion under s 597(4). I also agree.

18    Further, I am persuaded that this case involves “special circumstances” by reason of the pending POCA Examination, which will be conducted in private with orders made by Martin J restricting investigators and prosecutors in the criminal proceedings from being present at the examination, and the underlying alleged wrongdoing in the criminal proceedings is a conspiracy such that it would be inappropriate for Mr Kirschberg’s evidence to be made generally available at this time.

Restricting access to the transcript or other record of examination

19    Mr Kirschberg seeks orders of the same kind as those made in Plutus at [24] and Re Clarecastle at [88] restricting access to the transcript or other record of the examination to be conducted by a Registrar of this Court.

20    In Plutus at [18]-[23], Gleeson J analysed the interaction of s 596F(1) and s 597 of the Corporations Act as follows:

18    The interaction of s 596F(1) and s 597 was considered by Barrett J in Strarch International Ltd [2005] NSWSC 583 who explained at [18] that s 597 is to prevail over s 596F, given the opening words of s 596F “subject to s 597”:

… Bearing in mind ss.597(7)(d), 597(9), 597(9A) and, in particular, s.597(14) (to be mentioned in greater detail presently), the “records” referred to in s.596F(1)(e) may include things additional to any record of the questions and answers made in conformity with a s.597(13) order. That being so, the “subject to” specification with which s.596F(1) begins is to be read as indicating that the right to inspect given by s.597(14A) in relation to a “written record made under subsection (13)” may not be curtailed by a s.596F(1)(e) direction, even though such a direction might operate to deny, allow or otherwise regulate access to some other part of the wider subject matter comprehended by the description “records of the examination” in s.596F(1)(e).

19    Barrett J concluded at [25] that there was no power to make orders under s 596F(1)(e) restricting the right to access to transcript of an examination that was the subject of an order under s 597(13):

In my opinion, the provisions in question must, despite what is said in the Emanual Investments case, be approached on the basis that s.597(14A) is a legislative directive that every person who wishes it is to have the ability to inspect any written record of question and answers made pursuant to s.597(13). A fee must be paid where the person desiring to inspect is not within s.597(14A)(a); otherwise, inspection is free of charge. There is also, in my view, a manifested legislative intention that the ability to inspect is not to be curtailed through an order under s.596F(1)(e), even though such an order may preclude access to the whole or any part of the remainder of the “records of the examination” in the wider sense referred to by Santow J; and this is so whether or not the examination is conducted in private or in public.

20    In Re Clarecastle, Ward J agreed at [85] with the conclusion of Barrett J in Strarch International.

21    However, in [Strarch] International, Barrett J adverted to the distinction between a transcript as ordered by s 597(13) and otherwise and expressed the view that this enabled a result to be achieved whereby orders precluding access to the transcript could be made. Barrett J explained at [27]-[28]:

[27] In drawing the valid distinction between a written record made under s.597(13) and the “records of the examination” referred to in s.596F(1)(e) and observing correctly that the latter comprehends the former, Santow J had no need, in the New Cap Reinsurance case, to mention another species of documentary recording expressly contemplated by s.597. I refer to “any transcript of an examination of a person that is authenticated as provided by the rules”. Section 597(14) refers to such a transcript as well as to “any written record of an examination so signed by a person”. It is thus clear that there may be either a written record made under s.597(13) or a “transcript” of the kind mentioned in s.597(14) – or, indeed, there may be both. The reference to a “transcript”, it seems to me, acknowledges that, as was recognised by Campbell J in Re Doran Constructions Pty Ltd (2002) 194 ALR 101, an examination under s.596A is a proceeding in the court.

[28] Where a transcript of an examination is made and authenticated as contemplated by s.597(14) but there is no order under s.597(13) (and accordingly no written record of questions and answers made pursuant to an order under s.597(13)), s.597(14A) does not create any right to inspect the particular form of record of the examination, being the transcript. A transcript of the kind mentioned in s.597(14) is therefore amenable to directions under s.596F(1)(e) in a way that a record made pursuant to an order under s.597(13) is not. That is a circumstance that would no doubt be relevant to a decision as to the more appropriate way of proceeding in a particular case in which the existence of the statutory rights of inspection created by s.597(14A) gave cause for concern.

22    The distinction between a written record made under s 597(13) and a transcript of an examination referred to in s 597(14) had been earlier noted by Drummond J in Southern Cross Airlines Holdings Ltd v Arthur Anderson & Co (1998) 28 ACSR 455 at 458. The distinction was accepted by Ward J in Re Clarecastle at [31]. I agree that there is a valid distinction.

21    In Plutus, Gleeson J (at [24]) made the following orders:

(1)    Pursuant to s 597(4) of the Corporations Act 2001 (Cth) (the Act), the examination of Sevag Chalabian be held in private.

(2)    Direct that there be no order for a written record of the examination to be authenticated by Mr Chalabian pursuant to s 597(13) of the Act.

(3)    Note that a transcript of the examination of Mr Chalabian, as envisaged by s 597(14) of the Act, is to be made for the purposes of authentication pursuant to r 11.7 of the Supreme Court (Corporations) Rules 1999 (NSW).

(4)    Direct that the conduct of the examination and the transcript of the examination authenticated pursuant to r 11.7 of the Supreme Court (Corporations) Rules 1999 (NSW) for the purposes of s 597(14) of the Act, be kept confidential and not disclosed or published to any person, other than Mr Chalabian, the plaintiffs, their staff and their respective legal advisers without notice to Mr Chalabian and without the leave of the Court, until the determination of the criminal proceedings (2018/216206) against M Chalabian.

22    As I am satisfied (for the reasons set out above) that it is appropriate to order that Mr Kirschberg’s examination be conducted in private, I am also satisfied that it is appropriate to make the ancillary orders sought in the form approved in Plutus and Re Clarecastle. It would be illogical not to allow the examination to be conducted in public but to allow access to a transcript, including to those prosecuting Mr Kirschberg, before the criminal proceedings are concluded. While individual creditors of CWCN will not be in a position to obtain access to the transcripts until the criminal proceedings are concluded, the liquidator will have access to the information which may be derived from that evidence and Mr Kirschberg’s interest and the wider public interest in the conduct of fair criminal trials will be served. I am satisfied that that is an appropriate balance of interests.

Associate:

Dated:    1 March 2021