FEDERAL COURT OF AUSTRALIA
Arab v Pan, in the matter of Pan (No 3) [2024] FCA 563
ORDERS
OSMAN MOHAMMED ARAB AND WONG KWOK KEUNG AS JOINT AND SEVERAL TRUSTEES OF THE BANKRUPT ESTATE OF PAN SUTONG Applicant | ||
AND: | Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The review of the Registrar’s decision, made on 6 November 2023, that summonses for the production of documents be issued to Goldin Australia Pty Limited, Goldin Wines Australia Pty Limited, and Nicholas Charles Radford in the form exhibited to the Confidential Affidavit affirmed by Wong Kwok Keung on 29 June 2023, be allowed in part.
2. The Schedule to the summons for production addressed to Goldin Australia Pty Limited be varied by:
(a) amending the definition of “Relevant Period” to read 1 January 2021 to 31 March 2023;
(b) in paragraphs 1, 2, and 4 to 11, deleting the words “or relating to” and inserting the word “or” before the word “describing”;
(c) in paragraphs 4, 5, and 6, deleting the words “and/or dealings” and inserting the word “or” before the word “agreements”;
(d) in paragraph 4 inserting after the name “Liu Jianming” the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt”;
(e) in paragraphs 5 and 6, inserting the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt” at the end of each paragraph;
(f) in paragraphs 7 to 11, deleting the words “and/or Goldin Australia’s affairs” (or “and/or Goldin Australia’s financial affairs”) and the words “and/or the Properties”.
3. The Schedule to the summons for production addressed to Goldin Wines Australia Pty Limited be varied by:
(a) amending the definition of “Relevant Period” to read 1 January 2021 to 31 March 2023;
(b) in paragraphs 1, and 4 to 7, deleting the words “or relating to” and inserting the word “or” before the word “describing”;
(c) in paragraphs 1, 2, and 3, deleting the words “and/or dealings” and inserting the word “or” before the word “agreements”;
(d) in paragraph 1, inserting after the name “Liu Jianming” the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt”;
(e) in paragraphs 2 and 3, inserting the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt” at the end of each paragraph;
(f) in paragraphs 4 to 7, deleting the words “and/or Goldin Wines financial affairs”.
4. The Schedule to the summons for production addressed to Nicholas Charles Radford be varied by:
(a) amending the definition of “Relevant Period” to read 1 January 2021 to 31 March 2023;
(b) in paragraphs 1, and 4 to 8, by deleting the words “or relating to” and inserting the word “or” before the word “describing”;
(c) in paragraphs 1, 2, and 3, deleting the words “and/or dealings” and inserting the word “or” before the word “agreements”;
(d) in paragraph 1, inserting after the name “Liu Jianming” the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt”;
(e) in paragraphs 2 and 3, inserting the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt” at the end of each paragraph;
(f) in paragraphs 4 to 8, deleting the words “and/or Goldwin Wines affairs” (or “and/or Goldin Australia’s financial affairs”).
5. Osman Mohammed Arab and Wong Kwok Keung as joint and several trustees of the bankrupt estate of Pan Sutong provide security for the costs of Goldin Australia Pty Limited, Goldin Wines Australia Pty Limited, and Nicholas Charles Radford in complying with the summonses for production addressed to them in the sum of $50,000 (the security amount).
6. The security amount be paid into Court, or provided in such other form as the parties might agree, within 14 days.
7. Goldin Australia Pty Limited, Goldin Wines Australia Pty Limited, and Nicholas Charles Radford be excused from complying with the summonses for production until the security is provided.
8. Liberty to apply be granted to the parties to vary Orders 5 to 7.
9. Osman Mohammed Arab and Wong Kwok Keung pay the costs of Goldin Australia Pty Limited, Goldin Wines Australia Pty Limited, and Nicholas Charles Radford of the interim application dated 9 April 2024.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
YATES J:
INTRODUCTION
1 By an interim application dated 9 April 2024, the applicants (Goldin Australia Pty Limited (GA), Goldin Wines Australia Pty Limited (GWA), and Nicholas Charles Radford) seek a review under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) of orders made by a Registrar on 6 November 2023 that certain summonses for production be issued. Alternatively, they seek orders under s 30(1)(b) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) that the summonses be discharged or varied because they call for certain categories of documents.
2 Further, the applicants seek orders under s 56 of the Federal Court Act that the respondents (who are the applicants in the principal proceeding and who sought the issue of the summonses) provide security in respect of the costs of complying with the summonses.
3 The categories of documents referred to in the summonses that are in dispute (the disputed categories) are reproduced in Schedules A, B, and C to these reasons.
BACKGROUND
4 On 8 July 2022, Pan Sutong (the Bankrupt) was adjudged bankrupt by the High Court of the Hong Kong Special Administrative Region Court of First Instance (the bankruptcy order). The petition presented against the Bankrupt was filed by China Citic Bank Corporation Limited, Tianjin Branch; Citic Bank International (China) Limited, Beijing Branch; and China Citic Bank International Limited, on 25 November 2021 (the bankruptcy petition).
5 The creditors in the bankruptcy are vast. The petitioning creditors alone have lodged proofs of debt totalling over HK$15 billion (approximately AUD$3 billion). Another creditor, Bank of China Limited, has lodged a proof of debt for over HK$96 billion (approximately AUD$18 billion). Overall, the proofs of debt that have been lodged substantially exceed these large amounts.
6 At a general meeting of creditors on 11 August 2022, the respondents to the interim application were appointed as joint and several trustees of the bankrupt estate (the Trustees).
7 On 9 October 2023, the Hong Kong proceeding in which the Bankrupt was adjudged bankrupt on 8 July 2022 was recognised by this Court as a “foreign main proceeding” pursuant to s 6 of the Cross-Border Insolvency Act 2008 (Cth) and Art 17(1) of the Model Law on Cross-Border Insolvency of the United Nations’ Commission on International Trade Law (the Model Law).
8 GA was incorporated on 19 July 2013 in Victoria. GW was incorporated on 18 April 2019 in South Australia. The sole shareholder of GW is GA. The sole shareholder of GA is Goldin Group (Investment) Pte. Ltd (GGI), which was incorporated in Singapore. Until 25 May 2022, the sole shareholder of GGI was Goldin Investment (Singapore) Limited (GIS), which was incorporated in the British Virgin Islands. On 25 May 2022, GIS transferred its share in GGI to Smart Virtue Limited (Smart Virtue), after the presentation of the bankruptcy petition.
9 The Bankrupt was a director of GA from 19 July 2013 until 15 August 2022 (approximately one month after the bankruptcy order). On 15 August 2022, Kin Ming Wong became GA’s sole director. The Trustees suspect that Kin Ming Wong is an associate of the Bankrupt.
10 The Bankrupt was a director of GWA from 18 April 2019 until 15 November 2023. The current directors of GWA are the Bankrupt’s spouse, Jianming Liu (from 19 August 2022) and Kin Ming Wong (from 12 March 2024). Mr Radford was a director of GWA from 18 April 2019 until 7 March 2024. The evidence is that he resigned as a director of GWA because he was concerned with the lack of funding provided in respect of his wine development tasks.
11 The Bankrupt was a director of GGI from 29 February 2012 until 3 July 2022 (approximately five days before the bankruptcy order).
12 GA was established to operate a stud farm business known as Goldin Farms. The focus of this business was the breeding career of the stallion called Akeed Mofeed. Goldin Farms is located in the Barossa Valley, South Australia.
13 GA owned several parcels of land in the Barossa Valley (the Properties). The Properties were transferred to unrelated third parties in December 2022 for the total sum of $20,850,000.
14 GA is the trustee for the Goldin Australia Equine Trust (the GAET). The financial statements for the GAET for the month ended 31 December 2022 show that a loan from the Bankrupt recorded as $50,887,060 as at 30 November 2022 had been reduced to $28,304,021. The financial statements for the GAET as at 30 June 2023 record that the loan had been further reduced to $28,288,095. The reduction in the amount of the loan owed to the Bankrupt broadly correlates to the aggregate sale prices of the properties transferred in December 2022.
15 GWA operates a vineyard in the Eden Valley, South Australia. The operations encompass various stages of wine production including the development of the vineyard, the cultivation of grapes, harvesting, bottling, branding, and the sale of wine. Mr Radford is responsible for the product-based aspects of GWA’s affairs, such as marketing, the branding and sales of GWA’s wines, management of the vineyard, harvesting of the grapes, and arranging for the bottling and sale of the wine. As I have noted, until recently, he was a director of GWA.
16 The applicants are represented by the same firm of solicitors and bring the interim application jointly.
SCOPE OF THE SUMMONSES FOR PRODUCTION
Introduction
17 As this proceeding is a review under s 35A(5) of the Federal Court Act of the Registrar’s decision to issue the summonses for production, the onus falls on the Trustees to establish, in the review, and to the satisfaction of the Court, that the summonses should be issued.
18 The nature of such a review was considered by Colvin J (Allsop CJ, and Markovic, Derrington and Anastassiou JJ agreeing on this point) in Robson as former trustee of the estate of Samsakopoulos v Body Corporate for Sanderling at Kings Beach CTS 2942 [2021] FCAFC 143; 286 FCR 494 at [63]:
63 Further, the de novo review is not to be seen as directed to a consideration of the correctness of the delegate’s decision or redressing error by the delegate. On review, the Court hears the case again unaffected by what has gone before. However, the Court does not act as if there is a new appellate proceeding. The review task it undertakes is a determination again of an application that has already been listed for hearing and proceeds in the same manner that would be the case if the power had not been delegated. In consequence, on review, the Court can entertain new arguments, receive new evidence or adjourn the proceeding but only to the extent, and in the circumstances where, it would do so in a matter that had already been set down for determination. Further, the applicant on review is the applicant on the application irrespective of whether the applicant was successful before the delegate. The same onus arises as if the application was being heard for the first time. This has particular significance for the review of a sequestration order. The review is initiated by the debtor (now bankrupt by the order to be reviewed), but proceeds as an application by the creditor on its petition.
19 To similar effect in Callegher v Australian Securities and Investments Commission [2007] FCA 482; 239 ALR 749, Lander J said (at [46]):
46 The hearing before me is a hearing de novo: Mazukov v University of Tasmania [2004] FCAFC 159; Pattison v Hadjimouratis (2006) 155 FCR 226. The right to review arises because the Registrar has exercised the judicial power of the Commonwealth and, as such, is subject to the supervision of the Court. The Registrar’s orders are reviewable by hearing de novo: Harris v Caladine (1991) 172 CLR 84 per Dawson J at 124. A hearing de novo contemplates a complete rehearing. The moving party before the Registrar has the responsibility of satisfying the Court that the orders should have been made. The parties may adduce further evidence before the Court and the rehearing is determined on the evidence put before the Court which may include the evidence put before the Registrar. The judge determines the rehearing without being fettered by the decision of the Registrar: Southern Motors Pty Ltd v Australian Guarantee Corporation Ltd [1980] VR 187...
20 These principles were affirmed by Kenny J in Deputy Commissioner of Taxation v Australian Securities and Investments Commission [2013] FCA 623; 304 ALR 319 at [36] – [38] and by me in Roufeil (Trustee), in the matter of Tarrant (Bankrupt) v Tarrant (Bankrupt) [2018] FCA 1616 at [6].
21 Section 81(1) of the Bankruptcy Act confers the power to summon a bankrupt, or an “examinable person” in relation to a bankrupt, for examination in relation to the bankruptcy. The summons may require the person to produce at the examination books, including books of an associated entity of the bankrupt, that are in possession of that person and relate to the bankrupt or to any of the bankrupt’s examinable affairs: s 81(1B) of the Bankruptcy Act.
22 It is not in dispute that each of the applicants is an “examinable person” in relation to the Bankrupt’s bankruptcy.
23 The term “examinable affairs” in relation to a person means: (a) the person’s dealings, transactions, property and affairs; and (b) the financial affairs of an associated entity of the person insofar as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs: s 5(1) of the Bankruptcy Act.
24 Further, r 30.34 of the Federal Court Rules 2011 (Cth) confers a general power on the Court to order the attendance of a person for examination at any hearing of a proceeding, and to produce documents.
25 The disputed categories in Schedule A are reproduced from the summons for production addressed to GA.
26 The disputed categories in Schedule B are reproduced from the summons for production addressed to GWA.
27 The disputed categories in Schedule C are reproduced from the summons for production addressed to Mr Radford.
28 The summonses contain defined terms. No substantial issue is taken in respect of the definitions other than that, when read with the terms of the disputed paragraphs, there is a degree of redundancy introduced by the terms “books and records” and “correspondence”. Ultimately, this is of no moment.
29 One of the defined terms is “Relevant Period”. This period is defined in the summonses as 1 July 2018 to 31 March 2023. The Trustees’ solicitors have stated in correspondence that this period can be limited to 1 January 2021 to 31 March 2023.
30 In the same correspondence, the Trustees’ solicitors have stated that the summonses can be read as omitting reference to the word “dealings”.
31 Finally, in submissions, the Trustees have stated that the phrase “relating to”, where used in the summonses, “can be treated as deleted”.
32 The submissions at the hearing of the interim application were directed to the disputed categories in Schedule A on the basis that consideration of these categories will inform the consideration of the disputed categories in Schedules B and C that are expressed in substantially similar terms.
33 In considering all the disputed categories, the applicants’ submissions based on the definition of “Relevant Period”, and the use of “dealings” and “relating to”, can be put to one side given the concessions made by the Trustees as to how the summonses should be limited.
Submissions
34 The overarching submission advanced by the applicants is that the disputed categories are expressed in terms that are “extensive, uncertain and imprecise” and that production by reference to these categories imposes an unreasonable burden on the applicants. In short, production, to this extent, is oppressive.
35 Mr Withane, the applicants’ solicitor, has deposed to the difficulties in complying with the summonses in their present form.
36 First, Mr Withane deposes on information and belief that, following his resignation as a director, Mr Radford no longer has access to the books and records of GWA other than emails in his work email inbox. This inbox contains approximately 4,500 emails.
37 Secondly, Mr Withane deposes on information and belief that the records of GA and GWA are stored electronically online using a document storage provider. There are over 80,000 documents so stored. In addition there are email accounts, including accounts in respect of Mr Radford and an administrative assistant, Ms Hayley-Lee Harnath Chapman.
38 Thirdly, drawing on his experience as an insolvency law practitioner, Mr Withane deposes that, having regard to the terms of the disputed categories, the applicants will require legal assistance in determining the scope of the obligations imposed on them by the summonses. I accept that this is certainly possible.
39 Further in this regard, Mr Withane has expressed the view that the disputed categories are drawn so broadly that it will be necessary to review each document slowly and carefully and to form an evaluative assessment as to whether the document is responsive. I accept that this is likely to be the case for some, but not all, documents caught by the disputed categories.
40 Fourthly, Mr Withane has estimated that, using the services of two law graduates and two paralegals, it would take approximately 56 days to review 80,000 documents. This estimate is subject to further refinement after the number of pages of the documents involved can be determined. It is envisaged that this determination will be made once a forensic services provider has established a document review database. Mr Withane estimates that establishing the document review database will take seven days. Mr Withane estimates that a further period of approximately four days would be required to compile and produce the documents responding to the summonses, once the review process has been completed.
41 As to the scope of the disputed categories, the applicants do not object to the production of the documents referred to in subparagraphs (a) to (d) in category 1 in Schedule A, or to the correspondence referred to in subparagraph (e) to the extent that the correspondence relates to those subparagraphs. They submit, however, that the chapeau to category 1 is of such breadth that it is likely to capture a large number of documents that have no relationship to the examinable affairs of the Bankrupt. The applicants illustrated this submission with a number of examples.
42 The applicants advance the same submission with respect to category 2. They do not object to the production of the documents referred to in subparagraphs (a) to (e) in this category but contend that the chapeau to category 2 will also capture a large number of documents that have no relationship to the examinable affairs of the Bankrupt. The applicants also criticise the use of the expression “and/or”, although I think that in this category the scope of the required documents is not uncertain by reason of this expression alone.
43 In relation to category 4, the use of “and/or” is more problematic. However, the permutations are not unlimited. The category calls for books and records that refer to, record, or describe any payments, transactions, or agreements between: (a) GA and the Bankrupt and Jianming Liu; (b) GA and the Bankrupt; and (c) GA and Jianming Liu. I do not accept the applicants’ submission that the use of “and/or” in this part of the category captures documents that record communications between the Bankrupt and Jianming Liu alone.
44 Perhaps of more importance is the fact that category 4 calls for documents that include, but are not limited to, any amounts paid and/or remitted by GA to: (a) the Bankrupt and Jianming Liu; (b) the Bankrupt; and (c) Jianming Liu, from the proceeds of the sale of the Properties. In other words, the category extends to payments that do not relate to the Bankrupt’s examinable affairs.
45 In relation to categories 5 and 6, the applicants point to the fact that the books and records that are called for are not limited by any subject matter other than the fact that they evidence, record, or describe, payments, transactions or agreements between GA and GW (category 5) and between GA and Foreign Entities (category 6). The applicants submit that these categories capture documents that do not relate to the Bankrupt’s examinable affairs. The categories extend to quotidian matters unrelated to the Bankrupt’s examinable affairs.
46 Categories 7 to 11 are specifically directed to correspondence.
47 In relation to category 7, which deals with correspondence between GA (its employees, servants, agents or representatives) and the Bankrupt, the applicants criticise (what they submit is) the imprecision of the phrase “Goldin Australia’s affairs”. They point to the fact that in category 8, which deals with correspondence between GA (its employees, servants, agents or representatives) and Jianming Liu, the more precise phrase “Goldin Australia’s financial affairs” is used.
48 In relation to both categories, the applicants point to the breadth of the documents called for which, based on the use of “and/or” would include correspondence solely in relation to GA’s affairs (category 7) or GA’s financial affairs (category 8) or the Properties (categories 7 and 8) unrelated to the Bankrupt’s examinable affairs.
49 Categories 9 to 11 are drafted in similar terms but are directed to correspondence between GA (its employees, servants, agents or representatives) and: (a) Eckerman Lawyers (category 9); (b) Perks & Associates Pty Limited (category 10); and (c) GWA (category 11).
50 The Trustees defend the disputed categories on the basis that their obvious breadth is justified, including for the reason that s 81(1B) of the Bankruptcy Act empowers the issue of a summons that is not limited to the Bankrupt’s examinable affairs; in terms, s 81(1B)(b) extends to and includes documents that “relate to” the Bankrupt.
Consideration
Schedule A
51 The limitations which have been conceded by the Trustees should be made. Therefore, the description of the disputed categories should be varied by: (a) deleting the words “or relating to” and inserting the word “or” before the word “describing”; and (b) limiting the definition of “Relevant Period” to 1 January 2021 to 31 March 2023. Categories 4, 5, and 6 should be varied deleting the words “and/or dealings” and inserting the word “or” before the word “agreements”.
52 Subject to these overarching amendments, I am satisfied that the documents sought in categories 1 and 2 should be permitted. I do not consider that the call of these categories is uncertain or that the requirement to produce the documents is unduly extensive in the circumstances or otherwise oppressive.
53 For the same reasons, I am satisfied that, subject to one amendment, the documents sought in category 4 should be permitted. For the reasons I have given, these categories call for books and records that refer to, record, or describe any payments, transactions, or agreements between: (a) GA and the Bankrupt and Jianming Liu; (b) GA and the Bankrupt; and (c) GA and Jianming Liu.
54 Although this category calls for documents extending beyond documents that concern the sale proceeds from the sale of the Properties, I do not consider the category to be unduly extensive in the circumstances or otherwise oppressive, given the relationship between GA, the Bankrupt, and Jianming Liu. However, the category should be limited by the insertion after the name “Liu Jianming” of the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt”.
55 Also, even though the words “Examinable Affairs of the Bankrupt” are of considerable breadth, I do not think that they introduce uncertainty in the circumstances. To the extent that category 4 extends beyond documents that concern the sale proceeds from the sale of the Properties, they will cover payments, transactions or agreements that have a known actual, or apparent, connection with the Bankrupt or with an entity associated with him.
56 Similarly, categories 5 and 6 should be permitted, provided the call of these categories is limited to payments, transactions, or agreements between the nominated entities (GA and GWA in category 5, and GA and the Foreign Entities (and any of their employees, servants, agents or representatives) in category 6) that relate to the Bankrupt or the Examinable Affairs of the Bankrupt.
57 I accept that these categories are of considerable breadth but, given that the payments, transactions or agreement are between those who, themselves, are connected or recently connected with the Bankrupt (and are properly regarded as “insiders”), I do not consider that the call of these categories is unduly extensive or uncertain. Once again, the payments, transactions or agreements between those entities will be payments, transaction or agreements that have a known actual, or apparent, connection with the Bankrupt or with an entity associated with him.
58 Categories 7 to 11 are too broad. As drafted, they capture correspondence solely relating to GA’s “affairs” or “financial affairs”, or solely relating to the Properties, without any necessary relation to the Bankrupt or his examinable affairs. However, these categories can be brought within permissible limits by deleting the words “and/or Goldin Australia’s affairs [or Goldin Australia’s financial affairs] and/or the Properties”.
Schedule B
59 The disputed categories in Schedule B should be varied by limiting the definition of “Relevant Period” to 1 January 2021 to 31 March 2023.
60 Categories 1, and 4 to 7 should be varied by deleting the words “or relating to” and inserting the word “or” before the word “describing”.
61 Categories 1, 2, and 3 should be varied by deleting the words “and/or dealings” and inserting the word “or” before the word “agreements”.
62 I accept that category 1 is broad but, for the reasons I have given with respect to category 4 in Schedule A, I do not consider this category to be unduly extensive or otherwise oppressive, provided it is limited by the insertion after the name “Liu Jianming” of the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt”.
63 Categories 2 and 3 are in the same position as categories 5 and 6 in Schedule A. They should be limited to payments, transactions or agreements between GWA and GA (category 2) or between GWA and Foreign Entities (and any of their employees, servants, agents or representatives) (category 3) that relate to the Bankrupt or the Examinable Affairs of the Bankrupt.
64 Categories 4 to 7 are too broad because they capture correspondence solely relating to GWA’s financial affairs without any necessary relation to the Bankrupt or his examinable affairs. These categories can be brought within permissible limits by deleting the words “and/or Goldin Wines financial affairs”.
Schedule C
65 The disputed categories in Schedule C should be varied by limiting the definition of “Relevant Period” to 1 January 2021 to 31 March 2023.
66 Categories 1 and 4 to 8 should be varied by deleting the words “or relating to” and inserting the word “or” before the word “describing”.
67 Categories 1, 2 and 3 should be varied by deleting the words “and/or dealings” and inserting the word “or” before the word “agreements”.
68 I accept that category 1 is broad but, for the reasons I have given with respect to category 1 in Schedule B, I do not consider this category to be unduly extensive or otherwise oppressive, provided it is limited by the insertion after the name “Liu Jianming” of the words “that relate to the Bankrupt or the Examinable Affairs of the Bankrupt”.
69 Categories 2 and 3 are in the same position as categories 5 and 6 in Schedule A and categories 2 and 3 in Schedule B. They should be limited to payments, transactions or agreements between GWA and GA (category 2) or between GWA and Foreign Entities (any of their employees, servants, agents or representatives) (category 3) that relate to the Bankrupt or the Examinable Affairs of the Bankrupt.
70 Categories 4 to 8 are too broad because they capture correspondence solely relating to GWA’s affairs or financial affairs without any necessary relation to the Bankrupt or his examinable affairs. These categories can be brought within permissible limits by deleting the words “and/or Goldin Wines affairs [or Goldin Australia’s financial affairs]”.
SECURITY FOR THE COSTS OF COMPLIANCE
Introduction
71 Mr Withane has estimated the possible costs to the applicants of producing the disputed categories of documents, based on the presently known, but admittedly incomplete, facts.
72 If the review and production of documents were to be carried out by two law graduates and two paralegals using a document review database, then Mr Withane estimates that the costs of compliance (excluding GST) will be between $271,125 and $766,925. He has expressed concern about enforcing any order for costs that the applicants might obtain in respect of their compliance with the summonses.
73 For this reason, the applicants seek an order that the Trustees provide security for such costs as a precondition to compliance being required.
74 Section 81(14) of the Bankruptcy Act provides that the Court may direct that the costs of the person (other than the Bankrupt) examined under s 81 be paid out of the bankrupt estate. In Scott (Trustee), in the matter of Price (Bankrupt) [2011] FCA 1478, Lander J referred to this as a remedial provision that should be given a beneficial construction: see at [51] – [54]. The provision is, however, limited to recourse to property in the bankrupt estate. It is conceivable that any such property may be insufficient to meet those costs in a given case.
75 The authorities refer to the somewhat limited circumstances in which an order to pay compliance costs will be made. In Surpion Pty Ltd v M R Works Pty Ltd (receivers and managers appointed) [2010] FCA 1262; 80 ACSR 635, Finklestein J (at [16]) summarised the effect of the cases dealing with the question of whether examinees, in a corporate insolvency, should be awarded compliance costs. This summary is equally applicable to examinations in the context of personal insolvency:
16 The remaining cases that deal with cost orders concern applications for costs by examinees. The effect of the cases may be summarised as follows:
A. It is unjust to require a person to attend and give evidence or produce documents without making adequate provision for his/her costs of coming to and from the place of examination together with the costs of his/her sustenance while required to remain there: see Bank of New South Wales v Withers (1981) 35 ALR 21 at 37, a subpoena case.
B. The power to summon a person to be examined confers the right to impose conditions or make ancillary orders: Re Kempal Pty Ltd (in liq) (1989) 17 NSWLR 550 at 551; Re Spedley Securities Ltd (in liq); Ex parte Australian National Industries Ltd (1990) 4 ACSR 322 at 327.
C. This right to impose conditions and the power to make ancillary orders enables the issuing court to ensure that an examinee be paid his/her reasonable costs of attending the examination. In some cases the examinee can also be compensated for searching for the documents (if any) which he/she is required to produce: Re Equiticorp Finance Ltd; Ex parte Brock (1992) 6 ACSR 725 at 734 and the cases cited therein.
D. The power cannot be exercised to cover an examinee’s consultation with lawyers to prepare for the examination: Re Equiticorp Finance Ltd; Ex parte Brock (No 2) (1992) 27 NSWLR 391 at 397.
E. Generally the power is not available for the examinee to obtain the costs of legal representation: Re Moreton Joinery Pty Ltd [1975] Qd R 121 at 122; Equity Corp (No 2), 734. But, in limited circumstances, (eg when the examination may properly be characterised as “litigation” between the liquidator and the examinee, payment of the costs of representation of the examinee may be justified: Re Lutscher; Ex parte Waddell (1877) LR 6 Ch D 328 at 331; Re Appleton French & Scrafton Ltd [1905] 1 Ch 749 at 755–6.
F. In some cases it has been suggested that a distinction should be drawn between examinees who were officers of the company (insiders) and third parties (outsiders) and that a costs order should generally only be made in favour of outsiders: Equity Corp (No 2) at 734. In Re Imobridge Pty Ltd (in liq) [1999] 1 Qd R 38 at 52, Lee J doubted whether insiders should be treated any differently from outsiders. I think there is no principled reason for the distinction.
G. Sometimes it is best to await the conclusion of the examination when all the relevant circumstances will be known before exercising the power: Re Total Entity Pty Ltd (2003) 47 ACSR 577, [27]; Re Fox Home Loans Pty Ltd (in liq) [2005] NSWSC 1050, [4].
76 In Hodgkinson, in the matter of Kupang Resources Ltd (Subject to Deed of Company Arrangement) [2017] FCA 1342; 125 ACSR 301 (Kupang Resources), Markovic J, addressed the question of providing security for compliance costs in the context of examinations in corporate insolvencies. Once again, her Honour’s comments are equally applicable to examinations in the context of personal insolvencies. At [64] – [66], her Honour observed that public policy considerations:
64 … weigh heavily against the making of an order for security for costs. … the purpose of Pt 5.9 of the Corporations Act, which includes Div 1 titled “Examining a person about a corporation”, is to aid persons who have responsibility for the external administration of a corporation in carrying out their duties: see Palmer v Ayres (in their capacities as liquidators of Queensland Nickel Pty Ltd (in liq) (2017) 341 ALR 18; [2017] HCA 5 at [98] (per Gageler J). That purpose could be frustrated if orders for security for costs were regularly made in relation to examination summonses.
65 It will not be unusual for an external administrator to have only limited funds and assets available to carry out his or her duties. An order requiring an external administrator to provide security for the costs of an examination summons or summons for production could prevent the external administrator from carrying out examinations which he or she might otherwise believe are necessary to discharge his or her obligations to investigate the examinable affairs of a company. If such an order were easily obtained it could be used as a tool in the armoury of an intended examinee or a person subject to a summons for production to avoid examination or production of material.
66 It must be that only in an exceptional case would an order for security for costs of an examination summons or summons for production be made so as not to defeat the purpose of Pt 5.9 of the Corporations Act. That this is so is apparent from the lack of decided cases in which such an order has been considered, let alone made, by a court.
Submissions
77 Whilst accepting the general effect of these cases, the applicants submit that there are features of the present case that “set it apart from the usual circumstances in which a citizen of Australia is required to attend for examination in relation to an Australian bankruptcy or to produce documents in [connection] with such an examination”.
78 In this regard, the applicants submit that the Trustees are located outside the jurisdiction, and the notional presence within the jurisdiction is only by dint of the Model Law and the order made by the Court on 9 October 2023. They submit that the Trustees have no personal assets located within the jurisdiction from which any future costs might be recovered (assuming any order for recompense is made only after the examinations are concluded). The applicants submit, further, that there is no basis in the evidence, as it presently stands, for concluding that any assets of the Bankrupt might be found in Australia.
79 The applicants point out that the Trustees have not suggested that an order for security would stultify their investigations in Australia or that they do not have the means to provide security, if ordered. In this regard, the applicants refer to the size of the creditors who brought the petition against the Bankrupt, as well as the size of the other creditors who seek to prove in the Bankrupt’s estate.
80 The applicants also point to the fact that they raised the question of costs directly with the Trustees. In a letter dated 2 April 2024, the applicants’ solicitors asked the Trustees to confirm that they would meet the applicants’ costs of compliance with the summonses. The Trustees’ response, as conveyed by their solicitors, was:
(a) A Summons for Production is not akin to a Summons for Examination. Our clients are not required to provide security for costs or otherwise pay your clients’ costs for compliance with the Summons for Production. See Hodgkinson Re Kupang Resources Ltd (Subject to Deed of Company Arrangement) (2017) 125 ACSR 301;
(b) Whilst it is possible for the Court to make an order for the payment of your clients’ costs, such an order is only made where justice requires and in circumstances where production of documents may be onerous; however
(c) the time for assessing whether your clients are entitled to any costs is after production of documents has occurred.
81 Whilst the applicants place reliance on this response as supporting an order for security for costs, the Trustees submit that their response was not a refusal to pay any order for compliance costs that might be made.
82 Further, in oral submissions, the Trustees proffered an undertaking to the Court that they will pay, from the assets of the bankrupt estate, if any, any costs that are ordered to be paid in respect of the applicants’ compliance with the “orders for production”.
83 Relatedly, the Trustees submit that, in any event, the balance sheet for GA as trustee of the GAET for the year ended 30 June 2023 shows that GA is indebted to the Bankrupt for $28,288,095, which they claim as an asset in the Bankrupt’s estate. I observe, however, that the balance sheet also shows a substantial deficiency of assets (-$24,612,017). There is no more recent evidence of GA’s financial position. It is not clear what other assets in Australia might comprise the Bankrupt’s estate.
84 The Trustees submit that orders for the payment of compliance costs are “rare” and that orders for security for costs, in the present context, are “at the very least exceptional, and possibly novel”. They contend that public policy considerations weigh against the making of such an order: see [76] above.
85 The Trustees also contend that Mr Withane’s “costings” are “extravagant”, both as to the scope of the task at hand, and as to the costs of carrying out that task. As to scope, they submit:
It is absurd that the everyday procedure of producing documents to court in the furtherance of the public interest in assisting insolvency practitioners should be subject to the sort of rigorous, detailed scrutiny which Mr Withane suggests a fortiori where the producing party - unlike many bankrupts - should have no vested interest in the outcome of the proceedings.
86 The Trustees described the amount of the security that is sought as “vastly overstated”. They submit that the amount claimed does not take into account the fact that the Trustees have now limited the Relevant Period to 1 January 2021 to 31 March 2023. They also submit that the disputed categories are directed to documents in the nature of business records that would not require a lawyer to review each and every page. They submit that it is unlikely that the documents will evidence communications that attract a claim of privilege (although I note that category 9 in Schedule A seeks correspondence between GA and lawyers).
87 Finally, the Trustees submit that any costs order in favour of the applicants could be enforced in Hong Kong against them.
Consideration
88 The parties have not found any decision in which security for costs has been ordered in a case such as the present.
89 Section 56(1) of the Federal Court Act provides:
The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.
90 For the purposes of the Federal Court Act, a “proceeding” is defined in s 4 as:
proceeding means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal.
Example: Discovery is an example of an incidental proceeding.
91 I am satisfied that the examination of a person under s 81 of the Bankruptcy Act is a “proceeding” for the purposes of s 56(1) of the Federal Court Act and that there is no reason in principle why security for costs in respect of the costs of complying with a summons issued under s 81 of the Bankruptcy Act, as it relates to the production of documents, cannot be granted. The question is, should such security be granted in the particular circumstances of this case?
92 In approaching this question, I do not express any view as to whether, in this case, the applicants are, or will be, entitled to their costs of complying with the summonses. I do recognise, however, that they may well be entitled to such costs.
93 I also recognise that, in a great many cases, the granting of security may not be warranted, including for policy reasons such as those referred to by Markovic J in Kupang Resources. Nevertheless, I am persuaded that the present case has certain features which make it appropriate that an order for security for costs be made.
94 In arriving at that conclusion, I acknowledge that each of the applicants can be regarded as an “insider” in relation to the Bankrupt’s examinable affairs. However, the scope of the production the Trustees seek is extensive. Whether it will be as extensive as Mr Withane’s affidavit suggests remains to be seen.
95 As I have noted, I accept that it is possible that the applicants will require assistance in determining the scope of the obligations imposed on them by the summonses. I also accept that the breadth of the disputed categories, even given the limitations I propose, is such that a document by document review is likely for some, albeit not all, of the documents that are required to be produced. I also accept that evaluative assessments as to whether particular documents are responsive to the summonses will be involved. Overall, it is likely that significant compliance costs will be incurred.
96 The Trustees are outside the jurisdiction, with no known assets in Australia. While they have proffered an undertaking to the Court to meet any order for compliance costs that the applicants may obtain, this undertaking extends only to payment out of the assets in the Bankrupt’s estate. It is not presently known what those assets are beyond the debt owed to the Bankrupt by GA in its capacity as trustee of the GAET. The balance sheet of the GAET for the year ended 30 June 2023 indicates that there is no prospect that that debt can be paid out of those assets. Therefore, on present information, the undertaking that the Trustees have proffered provides little assurance to the applicants that their compliance costs, if ordered, will be met.
97 I also take into account the nature and size of the creditors seeking to prove in the Bankrupt’s estate. It is hardly likely that an order for security will impose a significant burden on the Trustees or impede them in carrying out their investigations, by way of examination, given the financial resources on which they can call.
98 Given the limitations I propose to place on the disputed categories, Mr Withane’s present estimate of the range of costs involved in complying with the summonses is no longer reliable. Nevertheless, some amount of security should be provided, with liberty being granted to the applicants to apply to the Court to vary the amount of the security depending on circumstances at the time.
99 At the present time, I will order the Trustees to provide security for the costs of the applicants in complying with the summonses, such security to be in the sum of $50,000. This security is to be provided by payment into the Court within 14 days, or in such other form as the parties might agree. The applicants will be excused from complying with the summonses until the security is provided.
100 I should indicate that I have considered the possibility that an order for security could be made directed to an amount to cover the applicants’ costs of enforcing, in Hong Kong, any order for compliance costs in their favour: Maxim’s Caterers Limited v Magnona Pty Ltd (No 1) [2010] FCA 450. However, I have no evidence that would satisfy me as to the appropriateness of an order of that kind or enable me to fashion an appropriate order. Recognising the possibility that such an order could be made on appropriate evidence, I will also grant liberty to the Trustees to apply to the Court to vary the order for security I will make.
DISPOSITION
101 The review will be allowed in part. The disputed categories will be limited as I have indicated. The Trustees will be ordered to provide security for the applicants’ costs of complying with the summonses for production, as amended. Costs of the interim application should follow the event.
I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. |
Associate:
SCHEDULE A
1. All books and records referring to, recording, describing or relating to the sales of the Properties including but not limited to:
(a) the signed contracts for sale of the Properties;
(b) the settlement statements, statements of account and cheque directions for the sales of the Properties;
(c) all documents recording, referring or relating to the payout figures of any encumbrances on the Properties; and
(d) all documents recording, referring or relating to the distribution of the sale proceeds attributable to the sales of the Properties; and
(e) any correspondence.
2. All books and records referring to, recording, describing or relating to any horses owned and/or held in a syndicate by the Bankrupt and/or Goldin Australia and/or Goldin Farms and/or Goldin Australia Equine Trust wholly or partly during the Relevant Period, including, but not limited to, all books and records referring to, recording, describing or relating to:
(a) the purchase of any horses;
(b) the lease of any horses;
(c) the sale of any horses;
(d) horses held under any other agreement; and
(e) the current location of any horses.
…
4. All books and records (including correspondence) referring to, recording, describing or relating to any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Australia and Bankrupt and/or Liu Jianming, including, but not limited to, any amounts paid and/or remitted by Goldin Australia to the Bankrupt and/or Liu Jianming from the sale proceeds from the sale of the Properties.
5. All books and records (including correspondence) evidencing, recording or describing any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Australia and Goldin Wines.
6. All books and records (including correspondence) evidencing, recording or describing any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Australia and the Foreign Entities and any of their employees, servants, agents or representatives.
7. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Australia’s affairs and/or the Properties between Goldin Australia and any of its employees, servants, agents or representatives, and the Bankrupt.
8. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Australia’s financial affairs and/or the Properties between Goldin Australia and any of its employees, servants, agents or representatives, and Liu Jianming.
9. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Australia’s financial affairs and/or the Properties between Goldin Australia and any of its employees, servants, agents or representatives, and Eckermann Lawyers and any of its employees, servants, agents or representatives.
10. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Australia’s financial affairs and/or the Properties between Goldin Australia and any of its employees, servants, agents or representatives, and Perks and any of its employees, servants, agents or representatives.
11. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Australia’s financial affairs and/or the Properties between Goldin Australia and any of its employees, servants, agents or representatives, and Goldin Wines and any of their employees, servants, agents or representatives.
…
SCHEDULE B
1. All books and records (including correspondence) referring to, recording, describing or relating to any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Wines and Bankrupt and/or Liu Jianming.
2. All books and records (including correspondence) evidencing, recording or describing any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Wines and Goldin Australia.
3. All books and records (including correspondence) evidencing, recording or describing any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Wines and the Foreign Entities and any of their employees, servants, agents or representatives.
4. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between Goldin Wines and any of its employees, servants, agents or representatives, and the Bankrupt.
5. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between Goldin Wines and any of its employees, servants, agents or representatives, and Liu Jianming.
6. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between Goldin Australia and any of its employees, servants, agents or representatives, and Perks and any of its employees, servants, agents or representatives.
7. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between Goldin Wines and any of its employees, servants, agents or representatives, and Goldin Australia and any of their employees, servants, agents or representatives.
…
SCHEDULE C
1. All books and records (including correspondence) referring to, recording, describing or relating to any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Wines and Bankrupt and/or Liu Jianming.
2. All books and records (including correspondence) evidencing, recording or describing any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Wines and Goldin Australia.
3. All books and records (including correspondence) evidencing, recording or describing any payments, transactions, agreements and/or dealings during the Relevant Period between Goldin Wines and the Foreign Entities and any of their employees, servants, agents or representatives.
4. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s affairs and/or Goldin Wine’s affairs between you and the Bankrupt.
5. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between you and Liu Jianming.
6. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between you and Goldin Wines and any of its employees, servants, agents or representatives.
7. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between you and Perks and any of its employees, servants, agents or representatives.
8. All correspondence (including emails and text messages) during the Relevant Period referring to, recording, describing or relating to the Bankrupt’s Examinable Affairs and/or Goldin Wine’s financial affairs between you and Goldin Australia and any of its employees, servants, agents or representatives.
…
