In the decision of Re Mervyn Jonathan Kitay as liquidator of T & L Produce Marketing; Ex Parte Mervyn Jonathan Kitay as liquidator of T & L Produce Marketing [2022] WASC 299, the liquidator of T & L Produce Marketing Pty Ltd (“T&L“) obtained summonses under ss 596A and 596B of the Corporations Act 2001 (Cth) (“Act“) for the examination of prospective defendants in a proceeding foreshadowed by T&L.
The examinees brought an application to set aside the summonses as an abuse of process, and sought to inspect the affidavits filed in support of the application for the summonses. They also sought orders, in the alternative, that the examinations be held in private.
Background
The examinees were officers of Trandos Hydroponic Growers Pty Ltd (“THG“). THG operated a farm which grew seedlings for commercial production and supplied strawberry plants to T&L.
Prior to its liquidation, T&L commenced proceedings against THG in relation to a contract for the supply of strawberry plants. During the course of the litigation, T&L sought to join the examinees as defendants, but was unsuccessful in doing so.
On 15 March 2021 Mr Kitay was appointed as voluntary administrator of T&L and on 29 April 2021 became its liquidator. While separate proceedings against the examinees were foreshadowed by T&L prior to the liquidator’s appointment, no such proceedings were commenced.
Were the summonses an abuse of process?
The liquidator sought documents relating to the financial position of the examinees, as well as documents in respect of their dealings with T&L.
The examinees argued that the summonses served no forensic purpose, and were an abuse of process, because the liquidator already had all the information necessary to commence proceedings. They also argued the examinations would place the liquidator in a position of advantage in respect of the foreshadowed litigation.
The Court noted that an examination for the purposes of determining whether a company would be likely to succeed in prospective litigation is within the “examinable affairs” of a corporation within the meaning of the Act. Further, it is a legitimate use of the power under s.596B for a liquidator to seek to obtain information which may assist in the conduct of actual or prospective litigation.
In considering whether the summonses amounted to an abuse of process, the Court had regard to the following comments made by the High Court in Walton v ACN 004 410 833 Ltd (formerly Arrium Ltd) (in liq) [2022] HCA 3:
“Abuses of process in connection with an application for an examination summons may take many forms. An application brought by a liquidator for examination for the purpose of rehearsing the cross-examination of a potentially hostile witness in pending litigation would likely be an abuse of process. Other examples may include cross-examination of a person to destroy their credit and to obtain de facto discovery when an order for discovery has been refused. In these examples, the applicant is seeking a forensic advantage not otherwise available by ordinary pre-trial processes where the legislative purposes is not advanced.”
However, the Court noted the mere fact that an examination will give a liquidator a forensic advantage in pending or contemplated litigation does not, of itself, mean the examination is an abuse of process.
Ultimately, the Court found that the examination would enable the liquidator to obtain evidence and information as to the merits of bringing any proceeding. This in turn would benefit creditors, which was consistent with the policy of the Act. Accordingly, the alleged abuse of process was not made out.
In relation to the supporting affidavit, the Court noted the first step on an application for inspection is for the Court to determine whether there is an arguable case that the issue of the summons was invalid (i.e. because of an abuse of process). If an arguable case is made out, the Court will then inspect the affidavit and decide whether it is in the interests of justice to permit inspection by the applicant. However, an applicant for inspection should not be permitted to access the material to “fish” for an “arguable case.”
Because there was no arguable case on the facts regarding the issue of “abuse of process,” the examinees’ application for inspection of the supporting affidavit was refused.
Public or Private…
The examinees argued that the examinations ought to be held in private because the growing industry was small, and comprised mainly of creditors of T&L, and competitors of THG. Further, the examinees argued commercially sensitive information relating to their intellectual property, including methods of farming and cultivation techniques, would be revealed, causing significant prejudice to THG.
Pursuant to s597(4) of the Act, an examination under s596A must be held in public, unless the Court considers that “it is desirable to hold the examination in private” by reason of “special circumstances”.
In considering the issues, the Court noted that, while “special circumstances” is not a term defined in the Act, most cases where examinations had been held in private involved examinees facing related criminal charges.
Ultimately, the Court found the matters propounded by the examinees did not amount to any special circumstances which would have rendered it desirable to hold the examinations in private. Further, the Court observed that the judicial officer presiding over the examination would have sufficient powers to protect any commercially sensitive information.
~ with Alice Rudaya, Associate
