Finlen's Contract Build Pty Ltd, Re [2000] QSC 174

SUPREME COURT OF QUEENSLAND CITATION: In the matter of the CORPORATIONS LAW In the matter of FINLEN'S CONTRACT BUILD PTY LTD (Subject to Deed of Company Arrangement) [2000] QSC 174 PARTIES: BARRY JOHN ARNISON (first applicant) and IAN CHARLES TURNER (second applicant) and GORDON WILLIAM LEPP (third applicant) and DIANNE MAUREEN MOSES (fourth applicant) and MARY JANE RUDKIN (fifth applicant) and JOHN DAVID AITKENHEAD (sixth applicant) v TREVOR JOHN SCHMIERER (first respondent) and RAYMOND WILLIAM RICHARDS (second respondent) and FINLEN'S CONTRACT BUILD PTY LTD ACN 010 115 741 (SUBJECT TO DEED OF COMPANY ARRANGEMENT) FILE NO: S1142 of 2000 DIVISION: Trial Division DELIVERED ON: 15 June 2000 DELIVERED AT: Brisbane HEARING DATE: 4 April 2000 JUDGE: Mackenzie J ORDER: 1. I order that the envelope containing documents sealed in accordance with Rule 764 of the Corporations (Queensland) Rules 1993 and marked not to be opened -- 1 of 5 -- 2 unless by order of the court be opened for inspection by a judge only for the purpose of considering matters relevant to the present application. 2. I dismiss the application. 3. I order that the documents referred to in order 1 be resealed and marked so as to indicate that the envelope was opened for the purposes of order 1 and that it not be opened again unless by order of a judge. 4. I order the applicants to pay the respondents' costs of and incidental to the application to be assessed. CATCHWORDS: CORPORATIONS LAW – EXAMINATION OF AFFAIRS – s596B – Application – affidavit – must give full and frank disclosure – not be used to give administrators unfair advantage – abuse of process. COUNSEL: J Batch SC for the applicants M Martin for the respondents SOLICITORS: Gadens Lawyers for the applicants McCullough Robertson Lawyers for the respondents [1] MACKENZIE J: On 24 February 2000 an order was made by Senior Deputy Registrar Kempin pursuant to s596B of the Corporations Law for the purpose of conducting an examination of each of the applicants concerning examinable affairs of the respondent company. With the exception of Mr Arnison who is headmaster and CEO of Somerset College Limited and Mr Turner who is bursar, each of the applicants is a director of the college which is a private school on the Gold Coast. [2] The respondent company carried out works for the college on the swimming pool and the administration building under separate contracts. A dispute concerning the administration building contract is currently the subject of arbitration. A claim has also been made in respect of the swimming pool. Without prejudice negotiations ensued in that regard and it is asserted in correspondence by the applicant Mr Smith (who is also the solicitor on the record) that Somerset College's position based on expert reports is that no moneys remain payable to the respondent company under that contract. It is asserted that a response to this from the first and second respondents who are administrators of the Deed of Company Arrangement of the corporate respondent remains outstanding. [3] In the same correspondence the applicants' attitude to examination is expressed to be that as litigation is under way in respect to the administration building an examination in relation to that building would give the administrators an unfair advantage in relation to the litigation. It is asserted that the applicants are not obliged to disclose documents or answer questions in relation thereto. The legal validity of this proposition is denied by the solicitors for the respondents. [4] Section 596B permits a court to summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and -- 2 of 5 -- 3 (b) the court is satisfied that the person: (i) has taken part or been concerned in examinable affairs of the corporation and has been or may have been guilty of misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation. [5] The "examinable affairs" of a Corporation are those defined in s9. Section 53 elaborates on what the affairs of a body corporate include in a non-exclusive way. The scope of those definitions is extremely broad. [6] The present application does not seek to set aside the order for summonses for examination. However, presumably as a preliminary step towards such end, it asks that the affidavit or affidavits relied on by the respondents in applying for the orders to be open for inspection by the applicants and that copies of those documents and the written outline of submissions or argument relied on by the respondents be made available to the applicants. Section 596C requires a person who applies under s596B to file an affidavit that supports the application and complies with the rules and further provides that the affidavit is not available for inspection except so far as the court orders. The Senior Deputy Registrar ordered that the affidavit be sealed and marked not to be opened unless by order of the court. [7] The administrators sought, in effect, all relevant documents pertaining to the dealings between Somerset College and Finlen's Contract Build Pty Ltd from 1996 to the date of the summons. Section 596B authorises an eligible applicant to gather information even though it may relate to legal proceedings involving those examined and a company with whose examinable affairs an eligible applicant is dealing, subject to the power of the court not to allow the power to be used for improper purposes or as an abuse of process (Re: Hugh J Roberts Pty Ltd (in liq) (1970) 2 NSWR 582, Hamilton v Oades (1989) 166 CLR 486, Grosvenor Hill (Queensland) Pty Ltd v Barber (1994) 120 ALR 262). [8] The real thrust of the present application is that it is a consequence of the requirement in s596C that an affidavit supporting an application under s596B be filed that a person applying for a summons to be issued under s596B must properly justify the application in the affidavit. It was submitted that the only purpose of the affidavit is to provide a public record of the justification for the application. It was further submitted that by allowing the court to vary the general rule that the affidavit is not available for inspection s596C(2) contemplates that a person for whose examination an order has been made could apply for and, furthermore, usually expect an order that the affidavit be made available. The last mentioned proposition relies on obiter dictum by Derrington J in Sunkist Tile Merchants Pty Ltd (in liq) v Ruiter (1987) 1QdR 477. However, it was concerned with a practice under a predecessor of the present legislation and Derrington J's comment did not form part of the majority in that McPherson J agreed with Connolly J's reasons. [9] It was submitted that failure by the administrators to give information concerning the basis of the application to the applicants when they requested it in correspondence is of significance. It was submitted that since there was no reason -- 3 of 5 -- 4 to suppose that there had or may have been misconduct on the part of any of the applicants the only basis for the application for summonses was that they may be able to give information concerning the examinable affairs of the company. It was further submitted that involvement in contractual disputes one of which was subject to ongoing arbitration probably did not even support a basis for satisfaction that the present applicants may be able to give information about examinable affairs of the company. [10] In my view it would not be unreasonable to think that the directors and executive officers of a company which is in dispute with another company over very significant sums of money allegedly owing under contracts entered into by the company of which they are directors and the other company may have information concerning examinable affairs of the other company. There is no evidence from any of them deposing that they have none, if that be relevant. There is in my view a prima facie basis for issuing the summonses. [11] The authorities referred to above establish that it is the legislative intent that it is legitimate for examination under compulsion to be used to obtain information concerning proceedings or which may assist in deciding whether or not proceedings may be brought on behalf of the company under administration. In my opinion to the extent that the notion that an unfair advantage in the arbitration proceedings or any subsequent litigation may accrue to the administrators underpins the application, it cannot succeed without more. If it appears that the purpose of obtaining the summons is to obtain a forensic advantage not otherwise available the process may be open to challenge (Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512; Re: Moage (1997) 25 ACSR 53). However, this kind of case needs to be distinguished from incidentally gaining a forensic advantage by gaining information when pursuing the legitimate purposes of the process. As Gleeson CJ said in Hong Kong Bank (519): "Whilst the court will not permit a liquidator, or other eligible person, to abuse its process by using an examination solely for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures, such as discovery or inspection, on the other hand, the possibility that a forensic advantage will be gained does not mean that the making of an order will not advance a purpose intended to be secured by the legislation." [12] It was also argued that where an ex parte application is made for an order under s596B full and frank disclosure in the affidavit is vital. So much is established by Re: One Twenty Seven Corporation (1995) 13 ACLC 1601 and Re: Southern Equities Corporation Ltd (1997) 25 ASCR 394, 422-3. It was argued that the outline of the argument which was admittedly relied on before the Senior Deputy Registrar would reveal whether additional material to that in the affidavit had been relied on and should be made available as well so that any application to set aside the summonses may be facilitated. Southern Equities does not support the conclusion that failure to include material information in the affidavit inevitably breaches the principle that full disclosure be made (424). [13] Having explored the relevant principles for the purpose of exposing the appropriate issues recourse has been had to a course encouraged by Mr Batch and consented to by Mr Martin of examining both the affidavit and the outline of argument. I am -- 4 of 5 -- 5 satisfied after such examination that there has been full compliance with the requirement of full and frank disclosure to the Senior Deputy Registrar and that the application was made for permissible purposes. I am satisfied that the application has not been made for improper purposes or in a way which amounts to abuse of process. [14] Accordingly I make the following orders: 1. I order that the envelope containing documents sealed in accordance with Rule 764 of the Corporations (Queensland) Rules 1993 and marked not to be opened unless by order of the court be opened for inspection by a judge only for the purpose of considering matters relevant to the present application. 2. I dismiss the application. 3. I order that the documents referred to in order 1 be resealed and marked so as to indicate that the envelope was opened for the purposes of order 1 and that it not be opened again unless by order of a judge. 4. I order the applicants to pay the respondents' costs of and incidental to the application to be assessed. -- 5 of 5 --