Re Akai Pty Limited (In Liquidation) [2002] NSWSC 346 (22 April 2002)

Last Updated: 30 April 2002

NEW SOUTH WALES SUPREME COURT

CITATION: Re Akai Pty Limited (In Liquidation) [2002] NSWSC 346



CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 1803/00

HEARING DATE{S): 22/04/02

JUDGMENT DATE: 22/04/2002

PARTIES:
Commissioner of Taxation - Applicant
Neil Robert Cussen in his capacity as liquidator for Akai Pty Limited (In Liquidation) - Respondent

JUDGMENT OF: Barrett J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:
Mr M.R. Aldridge SC- Applicant
Mr S.D. Rares SC/Mr G. Lucarelli - Respondent

SOLICITORS:
Australian Government Solicitor - Applicant
Minter Ellison - Respondent


CATCHWORDS:
CORPORATIONS - winding up - examination by liquidators - whether examination for impermissible purpose of unfairly obtaining forensic advantage - whether abuse of process

ACTS CITED:
Corporations Act 2001 (Cth)

DECISION:
Commissioner's application dismissed


JUDGMENT:

- 5 -
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

MONDAY 22 APRIL 2002

1803/00 - IN THE MATTER OF AKAI PTY LTD (IN LIQ)

JUDGMENT

1 The applicant, Commissioner of Taxation, seeks to have set aside examination summonses issued under s.596B of the Corporations Act 2001 (Cth) in the liquidation of AKAI Pty Ltd and directed to three members of the staff of the Australian Taxation Office.

2 The purpose of the liquidator, in seeking to examine the three taxation officials, is stated by the liquidator to be three-fold. The first purpose is to assess the prospects of success in the “preference proceedings”. The second is to identify potentially relevant witnesses formerly employed by the company in liquidation. The third is to obtain information to assist the liquidator to verify that amounts paid to the Commissioner during the twelve months before liquidation were correctly calculated, that is, to check that the company in liquidation was not overcharged by the Commissioner.

3 The “preference proceedings” referred to in the first of these purposes are the proceedings in which the liquidator seeks to recover certain moneys from the Commissioner as preferences. The Commissioner is defending the proceedings on the basis that at the time he received the payments, he had no reason to suspect insolvency and was of the requisite subjective state of mind.

4 The Commissioner takes no exception, as I understand it, to the second and third of the purposes advanced by the liquidator. There is, however, objection to the first. The Commissioner says that the order for examination should be set aside or, at least, an appropriate direction should be made confining the scope of the examination to the other two purposes and precluding examination in relation to the first, being to assess the prospects of success in the preference proceedings.

5 The allegedly preferential payments were made between 5 October 1999 and 21 March 2000. The Commissioner points to the fact that the three officers concerned, that is to say, the three officers whose examination has been ordered, were involved with matters concerning the company in liquidation only at times prior to that and also prior to the start of the relation back period. Furthermore, with evidence in the proceedings virtually complete and with the liquidator having had the benefit of discovery, what is left, the Commissioner asks rhetorically, for the liquidator to weigh in the balance as to likely success in the proceedings in which he seeks to recover preferences?

6 It is submitted on behalf of the Commissioner that the liquidator must have it in mind to attempt to assess potential witnesses in a way directed towards cross-examination and that that is a purpose beyond the proper scope of the examination power. The inference the court must draw, it is said, is that there is an impermissible purpose of seeking to obtain a forensic advantage not available from ordinary pre-trial procedures, that is, a dress rehearsal for cross-examination. It is also said that this is the only inference available, so that pursuit of the examinations will entail an abuse of process as in the case of Heli-Muster Pty Ltd v Chubb [2001] NSWSC 999 where Windeyer J held that examination should not be allowed for the purpose of facilitating cross-examination of witnesses, casting doubt on their evidence or casting doubt on their credit.

7 The liquidator maintains that the purpose of assessing the prospects of success in thr preference proceedings, as he intends to pursue it, is a proper purpose. I was taken to elements of the evidence which may show that the three officers of the Commissioner had in their possession information which might, to varying degrees, have warranted an inference of financial stress on the part of the company. Proper assessment of that, the liquidator says, is a legitimate purpose, given that his duty requires him not to pursue proceedings unless he can see some reasonable prospect of success. His assessment of strengths and weaknesses does not need to come to an end just because a pre-trial timetable has been largely complied with and played out. He has a continuing and ongoing interest, probably a duty, to assess prospects of success so that, and as and when information comes to his notice, he should, in accordance with that duty, follow through with his investigation of it.

8 The cases make it clear that examinations of this kind are designed to assist liquidators in obtaining information about the companies of which they are liquidators in circumstances where, of necessity, they have had no previous contact with the company and its affairs and are confined to information that they are able to discover after the event. This often happens in circumstances where trails have gone cold and the ability easily to piece matters together may have been prejudiced in the closing stages of a company's active life, particularly if those closing stages were attended by financial difficulties which often have the result that bookkeeping and record keeping are not as good as they should be and as they are in the case of healthy companies.

9 The facility that the legislation puts in the hands of liquidators exists for the purpose of enabling them to understand matters relevant to the pursuit of their functions. But there is a point beyond which reliance upon that facility will entail an abuse of process and, as one might expect, the dividing line is one of proper purpose.

10 The abuse of process possibility raised here is identified in the judgment of Gleeson CJ in Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 512, particularly in the following passage referring back to the judgment of Street J in Re Hugh J Roberts Pty Ltd (1970) 91 WN(NSW) 537:

“It is to be noted, however, as is implicit in the judgment of Street J, that there is no strict dichotomy between an advantage to be gained by an application for an examination order, such as a liquidator, in the capacity of a litigant, and a benefit that might flow to creditors, or contributories, or members of the public, from the conduct of an examination. 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.”

11 The test thus propounded by Gleeson CJ is a sole purpose test. In that respect it contrasts with the approach taken by Santow J in Re Global Medical Imaging Management Ltd [2001] NSWSC 481; (2001) 38 ACSR 214 where a dominant purpose test seems to be preferred. However, this case has been argued today on the basis of a sole purpose test and, given that that is the approach which commended itself to the Court of Appeal in the Hong Kong Bank case (Mahoney and Priestley JJA having agreed with Gleeson CJ), I see the relevant issue as whether the examination facility is being resorted to solely for the purpose of obtaining a forensic advantage not available from ordinary pre-trial procedures such as discovery or inspection, reminding myself that a possibility that a forensic advantage will be gained does not, without more, mean that the examination order will not advance the purpose intended to be secured by the legislation.

12 I must say that my view of this particular case is that, since there are three stated reasons and two of them are admitted to be proper and doubts are cast only on one, that alone is sufficient reason to allow the order for examination to stand in each case.

13 There is, however, the possibility, to which Mr Aldridge SC for the Commissioner adverted, of an order which, while allowing examination sufficiently and appropriately for the unexceptionable purposes, curtails it to preclude its use for an impermissible purpose. Such a result might be achieved through direction under s.596F(1)(a). That raises squarely the question whether the first of the three reasons advanced by the liquidator entails an improper purpose. It would be viewed in that light if, as Mr Aldridge submitted, the only possible inference to be drawn from the stated purpose of assessing the prospects of success in the preference proceedings was a purpose of running a dress rehearsal of cross-examination. I cannot see that at all as being the only inference available. The continuing duty of the liquidator to monitor the strength of the case he seeks to advance and to avoid litigation which does not have reasonable prospects and is not a suitable object for the expenditure of the scarce resources in his hands is quite proper. There is ample scope, as I view this matter, for the liquidator to use the examination facility in constructive ways directed towards the assessment of possibilities of evidence that these three officers might give, which does not involve an abuse of process in a relevant sense.

14 On that footing the examinations should be allowed to proceed and there is no need for any direction seeking to curtail their scope.

15 The Commissioner's application is therefore dismissed with costs, such costs to be assessed forthwith. Exhibit A may be returned.

LAST UPDATED: 24/04/2002