Federal Court of Australia Shangri-La Construction Pty Ltd v Hyatt, in the matter of GVE Hampton Pty Ltd (in liquidation) (No 2) [2021] FCA 1048 File number: VID 785 of 2019 Judgment of: MIDDLETON J Date of judgment: 2 September 2021 Catchwords: CORPORATIONS — insolvency — application for permanent stay of compulsory examinations — whether examination summonses constitute an abuse of process — improper purpose — application refused Legislation: Corporations Act 2001 (Cth) Cases cited: Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) & Ors [2021] VSC 161 Shangri-La Construction Pty Ltd v Hyatt, in the matter of GVE Hampton Pty Ltd (in liquidation) [2020] FCA 1577 UBS AG v Tyne (2018) 265 CLR 77 Victoria International Container Terminal Limited v Lunt (2021) 388 ALR 376 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 38 Date of hearing: 10 August 2021 Counsel for the Plaintiff: Dr M Wolff Solicitor for the Plaintiff: Noble Lawyers Counsel for the Defendants: Mr M Black Solicitor for the Defendants: Aitken Partners Solicitor for the Liquidator: Ms C Skeoch of Harrick Lawyers ORDERS VID 785 of 2019 IN THE MATTER OF GVE HAMPTON PTY LTD (IN LIQUIDATION) ACN 167 150 521 BETWEEN: SHANGRI-LA CONSTRUCTION PTY LTD Plaintiff AND: EUGENE KROK First Defendant BLADISLAV HYATT Second Defendant GREG KROK (and another named in the Schedule) Third Defendant order made by: MIDDLETON J DATE OF ORDER: 2 September 2021 THE COURT ORDERS THAT: 1. The application to permanently stay the examinations ordered to be issued by the Court on 18 December 2019 be dismissed; 2. The examinees pay Shangri-La's costs of and incidental to the application to permanently stay the examinations; and 3. Order 7 made on 18 June 2021 be vacated. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MIDDLETON J: INTRODUCTION 1 Shangri-La Construction Pty Ltd ('Shangri-La'), the plaintiff in the principal proceeding, at least at one time was a creditor of GVE Hampton Pty Ltd (in liquidation) ('GVE Hampton'). Shangri-La was engaged by GVE Hampton to construct apartments. Disputes arose between Shangri-La and GVE Hampton that resulted in Shangri-La obtaining a judgment against GVE Hampton in the County Court of Victoria for a sum of just under $200,000. 2 On 4 December 2017, GVE Hampton was placed in liquidation pursuant to a creditors' voluntary winding up. Mr Peter Gountzos and Mr Michael Carrafa were appointed the joint and several liquidators ('liquidators'). 3 Shangri-La sought to have the defendants in the proceeding ('examinees') examined under Div 1 of Pt 5.9 of the Corporations Act 2001 (Cth) ('Act'). For that purpose it took steps to become an "eligible applicant" for the purposes of ss 596A and 596B. 4 On 30 May 2019, ASIC acceded to Shangri-La's request to be granted "eligible applicant" status for the purposes of Div 1 of Pt 5.9 of the Act, being authorised to grant such status as contemplated by limb (e) of the definition of "eligible applicant" in s 9. 5 On 18 December 2019, on the application of Shangri-La, a Registrar of this Court made orders for the issuing of summonses for examination directed to Mr Vladislav Hyatt, Mr Eugene Krok and Mr Greg Krok as directors or former directors of GVE Hampton pursuant to s 596A, and Ms Ada Khait, who is the mother of Mr Hyatt, pursuant to s 596B. 6 The examinees now apply for the following orders: (a) a declaration that Shangri-La is no longer a creditor of GVE Hampton; and (b) a permanent stay of the examinations of Mr Krok, Mr Hyatt, Mr Krok and Ms Khait (who are the examinees). 7 The examinees initially placed significance on the question of whether Shangri-La remains a creditor of GVE Hampton. However, it was accepted that whilst the examinees did seek a declaration that Shangri-La was no longer a creditor of GVE Hampton, such a finding was not a necessary pre-requisite for the success of the examinees' application to stay the examinations. I should indicate at the outset that the declaratory relief, as the parties accepted, has no utility in the disposition of this application. On this basis, I do not entertain making any declaration of the type sought by the examinees. 8 The examinees had previously applied to discharge the summonses. That application was rejected on 30 October 2020: Shangri-La Construction Pty Ltd v Hyatt, in the matter of GVE Hampton Pty Ltd (in liquidation) [2020] FCA 1577 ('Shangri-La Construction'). 9 Since that decision on 30 October 2020, two significant events have occurred. 10 First, in the period from 1 February 2021 to 15 March 2021 monies were deposited by Ms Khait into Shangri-La's bank account, representing the total of the County Court judgment referred to above plus further accrued interest. Shangri-La has not returned any part of the amount deposited. The amount paid is consistent with the formal proof of debt sent by Shangri-La to the liquidators dated 6 March 2018. These payments were referred to by Connock J in a recent unsuccessful application by Shangri-La in the Supreme Court of Victoria seeking to appoint a special purpose liquidator to GVE Hampton: see Shangri-La Construction Pty Ltd v GVE Hampton Pty Ltd (in liq) & Ors [2021] VSC 161. 11 Secondly, a proceeding was commenced in the Supreme Court of Victoria brought by the liquidators against various defendants, including each of the examinees: In the matter of GVE Hampton Pty Ltd (in liquidation) (case no: S ECI 2020 04437). By statement of claim dated 8 February 2021, various allegations are made against the examinees. For present purposes all that needs to be observed is that the statement of claim details a variety of allegations against the examinees, including alleged improper conduct as directors and otherwise. The relief sought is the payment of certain sums of money, damages and compensation for breaches of directors' duties. Undoubtedly, this proceeding will cover the matters sought to be enquired into by Shangri-La through the examination of the examinees. STATUTORY FRAMEWORK 12 Section 596A of the Act provides: The Court is to summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (b) the Court is satisfied that the person is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending: (i) if the corporation is under administration—on the section 513C day in relation to the administration; or (ii) if the corporation has executed a deed of company arrangement that has not yet terminated—on the section 513C day in relation to the administration that ended when the deed was executed; or (iii) if the corporation is being, or has been, wound up—when the winding up began; or (iv) otherwise—when the application is made. 13 The phrase "eligible applicant" was defined at the relevant time in s 9 to mean: (a) ASIC; or (b) a liquidator or provisional liquidator of the corporation; or (c) an administrator of the corporation; or (d) an administrator of a deed of company arrangement executed by the corporation; or (e) a person authorised in writing by ASIC to make: (i) applications under the Division of Part 5.9 in which the expression occurs; or (ii) such an application in relation to the corporation. 14 The phrase "examinable affairs" is defined to mean: (a) the promotion, formation, management, administration or winding up of the corporation; or (b) any other affairs of the corporation (including anything that is included in the corporation's affairs because of section 53); or (c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation's examinable affairs because of paragraph (a) or (b). 15 Section 596B provides: (1) The Court may summon a person for examination about a corporation's examinable affairs if: (a) an eligible applicant applies for the summons; and (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. (2) This section has effect subject to section 596A. 16 Section 596F provides: (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). 17 Further, s 597 relevantly provides: (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. […] (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. CONTENTIONS OF EXAMINEES 18 The examinees contend that by virtue of the payments Shangri-La is no longer to be treated as a creditor of GVE Hampton. They say that this calls into question the purpose and motive of Shangri-La in seeking to continue with the examinations, which can only validly be conducted for a purpose which benefits all creditors. 19 This is not a question of standing. Shangri-La was an eligible applicant at all relevant times for the purposes of s 596A and s 596B by virtue of the granting of that status to it by ASIC. It was accepted by the examinees that nothing has occurred since which would deprive Shangri-La of its eligible applicant status. 20 However, the examinees contend that this does not mean that Shangri-La is entitled as of right to continue with the proposed examinations because the Court retains an implied jurisdiction to stay proceedings which are an abuse of process. Reference was made to IMO DW Marketing Pty Ltd (in liq) (ACN 056 498 509) [2009] VSC 663 ('DW Marketing'), where Gardiner AsJ said (at [43]): In Carter v Gartner 130 FCR 99, Branson J dealt with an application that the issue of an examination summons was an abuse of process, given that the applicants were represented by the same solicitors as had acted for a mortgagee bank and that the examination might be expected to become a fishing expedition. At paragraph 27 of the judgment, Branson J observed: It is important to note that the fact that the Court must issue a summons under s596A if the criteria for issue are satisfied does not mean that a person against whom a summons is issued has no remedy if the predominant purpose of the applicant is an improper purpose. Australian superior courts have jurisdiction, ordinarily described as inherent jurisdiction but in the case of this Court better described as implied jurisdiction, to stay proceedings which are an abuse of process (Williams v Spautz (1992) 174 CLR 509 per Mason CJ, Dawson, Toohey and McHugh JJ at 518). This jurisdiction may be invoked in an appropriate case to stay an examination pursuant to a summons issued under s596A (Re Bosun Pty Ltd (in liq); Makris v Sheahan at [9]; Hill v Smithfield Service Centre Pty Ltd (in liq) at [52]). 21 The main point raised by the examinees is that in circumstances where Shangri-La has received and retained payment from a third party in the amount of the debt owed to it by GVE Hampton, the Court is entitled to ask why Shangri-La seeks to persist with the examinations. 22 The examinees point out that the liquidators have not asked Shangri-La to conduct the examinations, have made no statement that they wish to obtain any further information and have not in any other way approved of the examinations occurring, and have commenced proceedings in the Supreme Court of Victoria seeking to recover various allegedly voidable transactions without needing to conduct any examinations themselves prior to issuing those proceedings. In short, there is nothing to suggest the liquidators want or need the examinations to occur. 23 It was then submitted that there is no direct benefit to Shangri-La itself in conducting the examinations. 24 The examinees in their written submissions put their main contention thus: The only and obvious inference is that the Plaintiff is seeking to conduct the examinations to cause expense and inconvenience to the Examinees. The Plaintiff is clearly aggrieved by the Company's and Mr Hyatt's conduct as evidenced by the following: (a) the Plaintiff (unsuccessfully) sought costs orders against Mr Hyatt in the County Court proceeding after judgment had been obtained; (b) the Plaintiff has demanded payment of the sum of $150,000 from Mr Hyatt and Mr Eugene Krok personally in relation to part of the sums owed by the Company to the Plaintiff; (c) the Plaintiff applied to the Supreme Court of Victoria for the appointment of a Special Purpose Liquidator to be funded by the Plaintiff to pursue recovery proceedings against, inter alia, the Examinees; (d) the Plaintiff has refused to accept that payment of the Paid Amount discharges its debt owed by the Company and has sought to continue with the examinations. (Footnotes omitted.) DISCUSSION 25 There is no doubt that the Court has an inherent jurisdiction to stay an examination if it is an abuse of process. An abuse of the public examination machinery will occur where the applicant for the examination summons is seeking to achieve some purpose foreign to that which the legislature intended. 26 It is the examinees who bear the onus of demonstrating that the predominant purpose of the examinations is improper. That evidentiary onus is a heavy one. 27 The comments of Gardiner AsJ in DW Marketing usefully summarise the position: [42] An abuse of process of the examination provisions will occur where the applicant for the examination summons is seeking to achieve some purpose foreign to that which the legislature provided the examination machinery: New Zealand Steel (Australia) Pty Ltd v Burton. The onus of satisfying the Court that there is an abuse of process is on the party alleging it and that party must establish that the improper purpose is the predominant one: Williams v Spautz. […] [44] In Re Qintex Group Management Services Pty Ltd (In liq.), the Queensland Court of Appeal (McPherson JA, Pincus JA and Derrington J) observed: For all that, there may be some cases in which it can be seen that liquidators are acting improperly in seeking to examine someone under the provisions of the Corporations Law. Examinations under the statute are capable of being or becoming oppressive if their real purpose is simply to exert pressure by inflicting costs, or causing undue inconvenience or embarrassment to the defendant. There may also be other ways in which they can operate harshly. Conducting a dress-rehearsal of cross- examination may conceivably be another instance, although in practice it probably serves mainly to alert a witness to the questions he may expect to be asked at trial and so enable him to anticipate them. 28 The High Court of Australia in Victoria International Container Terminal Limited v Lunt (2021) 388 ALR 376; [2021] HCA 11 made the following observations generally about abuse of process: [18] The fundamental responsibility of a court is to do justice between the parties to the matters that come before it. In the performance of that function, the doing of justice may require the court to protect the due administration of justice by protecting itself from abuse of its processes. The power to stay, or summarily dismiss, proceedings because one party has abused the processes of the court is concerned to prevent injustice, and that power is properly exercised where the conduct of the moving party is such that the abuse of process on its part may prevent or stultify the fair and just determination of a matter. [19] In Strickland (a pseudonym) v Director of Public Prosecutions (Cth), Gageler J explained that the concern which engages a court's power to order a stay of proceedings is the need to protect the integrity of its own processes. His Honour said: "The power of a superior court to stay its own proceedings as an abuse of process is a power to protect the integrity of its own processes. The power is in that limited respect and to that limited extent a power to 'safeguard the administration of justice'." […] [23] While the thrust of the appellant's argument in this Court shifted away from an argument about illegitimacy of purpose, it is desirable to be clear that the Full Court was right to conclude that, while Mr Lunt may have been motivated to bring the current proceedings out of loyalty to the CFMMEU or to avoid a possible forensic disadvantage to the CFMMEU, that does not mean that the proceedings were brought for an improper purpose. In this context the distinction between motive and purpose is of crucial importance. In Williams v Spautz, the plurality (Mason CJ, Dawson, Toohey and McHugh JJ) said: "To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept. The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event. Thus, to take an example mentioned in argument, an alderman prosecutes another alderman who is a political opponent for failure to disclose a relevant pecuniary interest when voting to approve a contract, intending to secure the opponent's conviction so that he or she will then be disqualified from office as an alderman by reason of that conviction, pursuant to local government legislation regulating the holding of such offices. The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor. But the immediate purpose of the prosecutor is within that scope. And the existence of the ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor's favour. It is otherwise when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers." (Footnotes omitted.) 29 In UBS AG v Tyne (2018) 265 CLR 77, Gordon J stated: [126] The power to grant a stay of proceedings exists to enable a court to "protect itself from abuse of its process thereby safeguarding the administration of justice". The doctrine of abuse of process is not limited to defined and closed categories of conduct. It is capable of being applied to "any circumstances in which the use of a court's procedures would be unjustifiably oppressive to a party or would bring the administration of justice into disrepute". If a proceeding would amount to an abuse of jurisdiction, or would clearly inflict unnecessary injustice upon the opposite party, the proceeding should be stayed or dismissed. Or, put another way, where "the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness", a proceeding should be stayed or dismissed. […] [136] The onus of satisfying the court that a proceeding is an abuse of process is "a heavy one". Although the power to grant a permanent stay is one to be exercised "only in the most exceptional circumstances", the exercise of the power can be justified by considerations which may include finality, fairness, and the maintenance of public confidence in the administration of justice. (Footnotes omitted.) 30 It seems to me that there is simply no persuasive evidence (certainly not satisfying the "heavy" evidentiary onus on the examinees) to show that the continuation of the examinations is an abuse of process. 31 I do not accept that I should draw the inference that the examinees ask me to draw as set out in their submissions at [24] above. These matters may go to indicate the motivation for Shangri-La to continue with the examinations. Yet a remaining relevant and legitimate purpose of these examinations is to protect the interests of all creditors. Each of the matters relied upon by the examinees (individually and cumulatively) do not suggest that Shangri-La has the predominant purpose of just inflicting costs, or causing inconvenience or embarrassment to the examinees. We can speculate as to motive, but this is to be distinguished from purpose. 32 I do not see the existence of the recent Supreme Court proceedings as in themselves a reason to stay the examination, although the matters examined upon may impact on this litigation. There is no evidence of oppression, or abuse, in relation to that proceeding, to indicate a basis for considering an improper purpose on Shangri-La's part. Further, the recent Supreme Court proceedings may not proceed to a hearing or judgment, and so there may be some utility in the examinations continuing to their appropriate conclusion. 33 Then, there is no evidence the examinees have any financial or resource difficulties in the conduct of the examination, so as to treat them as vulnerable financially to substantial harm. There is no evidence of Shangri-La having a purpose of taking advantage of any such vulnerability in any event. 34 I am persuaded that Shangri-La's abiding or most influential purpose is a legitimate purpose as it was when it commenced the examinations even though it may no longer be a creditor. 35 I consider that the examinations should continue, and to stay them permanently would be a remedy without foundation, where the examinations can properly be conducted fairly and justly for the purpose of assisting all the creditors. 36 It is to be recalled the Court and the Registrar conducting the examinations has power to limit the scope of the examinations if necessary: see s 596(1)(a) of the Act. As Beach J said in Shangri-La Construction at [105]: Further, the examinees contend that the grounds and material on which Shangri-La persuaded ASIC to grant it "eligible applicant" status are different from the way Shangri-La is now seeking to conduct the examinations. But so be it. As I have already indicated, the scope of the examinations is not confined to the four corners of the material or basis put to ASIC. Any such disparity may be permitted in the questioning. After all, ASIC's authorisation was an administrative decision concerning the grant of "eligible applicant" status. It did not in terms confine the boundaries of the examinations themselves. But of course, if it is clear that questions are not being asked for a proper purpose, which proper purpose would be to further the interests of GVE Hampton, its contributories or creditors including Shangri-La, then the Registrar may at the time of the examinations limit or disallow the questioning if it is solely collateral to the proper purposes for which the summonses were issued. 37 I did consider during the hearing the possibility of staying the examinations temporarily but subject to certain conditions, mainly relating to the particular position of Shangri-La and the progress of the recent Supreme Court proceedings. However, once one reaches the conclusion that Shangri-La does have a legitimate purpose in continuing with the examinations, to even temporarily stay the examinations is to act without any proper foundation in the exercise of a judicial discretion. DISPOSITION 38 I will order that: (1) the application to permanently stay the examinations ordered to be issued by the Court on 18 December 2019 be dismissed; (2) the examinees pay Shangri-La's costs of and incidental to the application to permanently stay the examinations; and (3) order 7 made on 18 June 2021 be vacated. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Middleton. Associate: Dated: 2 September 2021 SCHEDULE OF PARTIES VID 785 of 2019 Defendants Fourth Defendant: ADA KHAIT