Expile v Jabb's Excavations [2003] NSWSC 786

New South Wales Supreme Court

CITATION : Expile v Jabb's Excavations [2003] NSWSC 786 HEARING DATE(S) : 15 August 2003 JUDGMENT DATE : 15 August 2003 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Notice to Produce set aside

CATCHWORDS : PRACTICE & PROCEDURE - plaintiff's Notice to Produce issued to company in administration, partly complied with by administrator - Court decides it would be oppressive to require further answer - creditors resolve to execute deed of company arrangement - Plaintiff then serves Notice to Produce in identical terms, in anticipation of challenging creditors' decision and deed - whether second Notice to Produce should be set aside LEGISLATION CITED : Corporations Act 2001 (Cth) ss 286, 440A, 444E, 445D 459R, 467, 1321 Corporations Regulations, reg 5.3A CASES CITED : Bovis Lend Lease v Wily [2003] NSWSC 467 PARTIES : Expile Pty Ltd (P) Jabb's Excavations Pty Ltd (D) FILE NUMBER(S) : SC 1887/02 COUNSEL : S Epstein SC (P) D Allen (D) SOLICITORS : Baron and Associates (P) Middletons (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

FRIDAY 15 AUGUST 2003

1887/02 EXPILE PTY LTD V JABB'S EXCAVATIONS PTY LTD JUDGMENT (Ex tempore; revised 19 August 2003) 1 HIS HONOUR: The plaintiff brought this proceeding for an order for the winding up of the defendant. The proceeding was heard by Barrett J, who dismissed the application to wind the defendant up, but there was an appeal by the plaintiff to the Court of Appeal, which delivered its reasons for judgment on 24 June 2003. The Court of Appeal allowed the appeal against Barrett J's decision, set aside his Honour's orders, and ordered that the plaintiff's costs as appellant and at the trial be paid out of the assets of the respondent company. 2 Between argument concluding in the Court of appeal and judgment being handed down on 24 June, an administrator was appointed to the company. Consequently, the orders that would have been made by the Court of Appeal for the winding up of the company in insolvency were deferred in order to allow an opportunity for an application to be made for the company to continue in administration, rather than to be wound up. The application that the Court of Appeal had in mind was an application under s 440A(2) of the Corporations Act. 3 Eventually, orders were made for that application to be heard in the Equity Division, and it was heard by Campbell J on 18 July 2003. The hearing of the matter was not concluded on 18 July, although by the end of that day counsel had commenced their final addresses. 4 On the next working day, Monday 21 July, a Notice to Produce was served on the administrator of the company seeking various documents that would, in broad terms, give details about the creditors of the company and the basis for believing that particular people were creditors in particular amounts. Some photocopy documentation was produced in response to that Notice to Produce, but when the matter returned before his Honour on 24 July 2003, there was a dispute as to whether the Notice to Produce had been adequately complied with and, therefore, whether his Honour ought to make some further order for compliance with it. 5 In ex tempore reasons for judgment delivered on 24 July 2003, dealing with an application to set aside the Notice to Produce, Campbell J noted that the material, if produced, may well have been the basis for an application to re-open evidence on the application under s 440A(2) that was before his Honour for determination. He noted that this was the fourth Notice to Produce served by the plaintiff in the proceeding, all of which sought various kinds of financial documentation of the company. He concluded his ex tempore reasons, by saying this: "In my view, it would be oppressive to require any further answer to the Notice to Produce than has been produced already. I decline to set aside the Notice to Produce but I decline to require any further response to it." 6 The second meeting of creditors of the company in administration was due to be held on 8 August 2003. The administrator's report foreshadowed that a Deed of Company Arrangement might be proposed for approval by creditors at that meeting. In those circumstances, Campbell J stood over the application under s 440A and the proceeding to 15 August 2003, a date after the proposed date of the creditors' meeting. 7 On 6 August 2003, the plaintiff's solicitors wrote to the defendant's solicitors setting out, in very considerable detail, questions relating to information concerning the company's affairs and its voluntary administration, which the plaintiff sought to have the administrator provide either at the meeting on 8 August or prior to the adjourned date for the hearing of the proceeding, namely, 15 August. 8 Although the letter asked for information of other kinds, the information that it sought included information with respect to creditors' claims, the identity of creditors, and with respect to the books and records kept by the company. The defendant's solicitors replied on 7 August referring to the report to creditors, prepared by the administrator and recently sent to creditors, which contained some information relevant to the plaintiff's inquiries. The letter concluded by saying that the solicitors were obtaining instructions in relation to the other matters raised in the letter under reply. 9 The administrator's report to creditors, which bears the date 30 July 2003, contains some information relevant to the matters of inquiry in the letter of 6 August. For example, in paragraph 2.1, the administrator deals with the books and records of the company, expressing the opinion that the draft financial accounts that he had seen may not be fully reliable and asserting that the company did not keep financial records in compliance with s 286 of the Corporations Act. The report also deals with the reasons for the company's failure, alleging that the legal costs and fees associated with the present proceeding in the Equity Division and Court of Appeal had caused the company's insolvency, and it deals with the company's financial position. The treatment of the company's financial position suggests some discrepancy between the administrator's report and the evidence that was placed before Barrett J and dealt with in the Court of Appeal. 10 Mr McIntyre, solicitor for the plaintiff, attended the meeting of creditors on 8 August 2003. He addressed the meeting saying that the plaintiff did not believe that many of the claims of the alleged creditors of the company were credible claims, inviting the administrator to tell the meeting what steps he had taken to investigate the claims of creditors. He said that the plaintiff's solicitors had written to the administrators setting out a number of questions about the alleged creditors and the administration of the company, and he asked when there would be a reply. The administrator responded by saying all supporting documents of the creditors' claims had been provided at Court to the plaintiff's barrister. He noted that the company had sought to set aside the plaintiff's Notice to Produce and he said the Court had not set aside the Notice to Produce, but had not required the company to produce original documents. I take this to be a reference to Campbell J's decision on 24 July 2003. The administrator expressed the opinion that he had answered the Notice to Produce by producing the documents that he had. As to Mr McIntyre's second question, the administrator expressed the belief that he had answered most of the questions of the plaintiff's solicitors and offered to meet to go through the issues raised and answer any remaining questions. 11 The meeting then proceeded and the motion was moved that the company execute a proposed Deed of Company Arrangement. Mr McIntyre called for a poll and the administrator dealt with the poll by asking the parties voting against the motion to stand up. The plaintiff and the Australian Taxation Office voted against the motion, and the representative of Esanda Finance abstained from voting. The administrator asked for those in favour of the motion to stand and identify themselves, and that was done. He then carried out a process of calculation and declared that the motion had been carried. He said there had been two votes against the deed to the value of $245,744.73 and 30 votes for the deed, both by proxy and by creditors present, to the value of $676,929.64. 12 Since the time of the meeting, the plaintiff has been provided with minutes of the meeting of 8 August 2003 under cover of a letter of the defendant's solicitors, dated 14 August 2003. Prior to being provided with those minutes, the plaintiff had no precise details of the identities and claims of the creditors who voted in favour of the Deed of Company Arrangement. 13 The plaintiff wishes to challenge the administrator's decision to include in his calculation of the majority to the value of $681,399, those amounts which do not correspond with any amount claimed by a creditor (or alleged creditors) by formal or informal proof of debt or by notification of particulars of the debt. The plaintiff also wishes to challenge the genuineness of a number of the components of the alleged $681,399 majority figure. Mr McIntyre says, in his most recent affidavit, that the precise nature of the challenge will depend upon the extent to which documentary evidence may be available to the plaintiff which does or does not tend to support the proposition that the particular creditor's claim is a genuine debt. 14 In those circumstances, the plaintiff's solicitors wrote to the defendant's solicitors on 13 August 2003 enclosing a further Notice to Produce, in the same terms as the Notice to Produce returnable before Campbell J on 24 July 2003. The letter of 13 August asserted that the defendant had failed to comply properly with the previous Notice to Produce. 15 When the matter came before me today, I was informed by counsel for the defendant that the creditors had, on 8 August 2003, approved the Deed of Company Arrangement and, therefore, that the present proceeding should be dismissed. Counsel referred to s 444E(2)(b), according to which a person cannot proceed with an application to wind a company up, made before a Deed of Company Arrangement has become binding on the person, after the deed has become binding. 16 Counsel for the plaintiff drew my attention to s 467(1), according to which, on the hearing of a winding up application, the Court may, amongst other things, dismiss the application or adjourn it conditionally or unconditionally. Counsel submitted that the proceeding before me was still alive in the sense that the Court ought to consider the exercise of its powers under that section. 17 Section 459R states that an application for a company to be wound up in insolvency is to be determined within six months after it is made, unless the Court extends the period. The present proceeding was commenced by originating process filed in 2002, and it remains alive notwithstanding s 459R(1) because the Court has on various occasions made orders extending the period by which the application is to be determined. After some further consideration, I expressed the tentative opinion that the correct course would be for me to grant a further extension under s 459R(2) and to allow the plaintiff to formulate its claims as to the validity of the resolution of 8 August 2003 by commencing a new proceeding by statement of claim. 18 The matter was stood down in today's list to give the parties the opportunity to agree upon some appropriate orders. When the matter returned to me, I made orders by consent that the plaintiff file and serve a statement of claim within seven days in support of any claim for relief made by challenging the resolution of the creditors of 8 August under s 445D of the Corporations Act, or on grounds relating to invalidity of resolution, or by way of appeal against the administrator's decision with respect to the admission or rejection of votes under s 1321. I directed that the defendant file its defence within a further seven days, that the matter be stood over for directions on Monday 1 September 2003, and that the period prescribed in s 459R be extended until 8 September 2003. 19 It will be noted that this is an accelerated timetable for pleadings in respect of the plaintiff's current claims. What remained today was to deal with the new Notice to Produce which, as I have said, was issued in identical terms to the one considered by Campbell J. I must also to deal with another Notice to Produce, issued by the plaintiff yesterday. 20 By leave, the defendant filed in Court a Notice of Motion for the setting aside of those Notices to Produce. I heard evidence and submissions on that Notice of Motion. I have decided that the appropriate course is to set aside both of the Notices to Produce. 21 So far as both of them are concerned, it seems to me that by virtue of the consent orders made earlier today, the dispute between the parties is, as it were, moving on to a new phase. There will now be constituted a new proceeding for the challenging of the resolutions of 8 August. For the time being, the present proceeding will lay dormant, subject only to extension of the timetable set by 459R at least until the matter returns to the Court, and any further extension thereafter. 22 If the challenge to the creditors' resolution were to be successful, then the company would move from being a company in administration under a Deed of Company Arrangement to being deemed to be a company in creditors' voluntary liquidation by virtue of the operation of reg 5.3A.07 of the Corporations Regulations. At that time, there would presumably be an issue, arising in the present proceeding, as to whether an order for compulsory winding up should be made. That would have the effect of overriding the creditors' voluntary winding up and may also have the effect of replacing the present administrator with some other insolvency practitioner as liquidator. Some of the issues that might arise in that event are discussed in my recent judgment in Bovis Lend Lease v Wily [2003] NSWSC 467 (17 June 2003). 23 It follows, therefore, that the present proceeding is not defunct, but as I have said, dormant pending the outcome of the plaintiff's challenge to the creditors' resolution of 8 August, or pending some further order of the Court. 24 The grounds of challenge of the validity of the creditors' resolution and the Deed of Company Arrangement had been adumbrated in the evidence before me, but have not yet been precisely articulated. In particular, it is not clear at this stage what matters are to be raised under s 445D, which allows a plaintiff to raise issues going beyond matters to do with the validity of the creditors' resolution. In those circumstances, the criteria by reference to which the validity of a Notice to Produce should be assessed have not yet been defined. 25 That is not necessarily fatal to the Notices to Produce. The new proceeding will emerge from the existing winding up proceeding and is obviously closely related to it. One can envisage circumstances in which Notices to Produce might properly be administered in the old proceeding before the new Statement of Claim is filed. But prima facie, it is desirable for the issues to be defined by the process of pleading before information-gathering processes such as the administration of Notices to Produce are undertaken. There are provisions in the Supreme Court Rules to permit preliminary discovery, and the Court must be vigilant to ensure that the subpoena and Notice to Produce processes are not misused as a substitute for discovery. 26 Counsel for the plaintiff submitted that to set aside the Notices to Produce would be merely to delay a process which the Court should encourage, because there are serious questions before the Court on the evidence today as to the validity of the resolution of the creditors. On the other hand, it seems to me that the timetable that I have established by consent orders should ensure that any delay in the administration of proper Notices to Produce will not be an extensive one, and that when Notices to Produce are administered in light of the plaintiff's pleaded case, any judge having to consider their validity (should they be challenged) would be in a much better position to do so than I am today. 27 Those general procedural issues have led me to conclude that both Notices to Produce should be set aside. I should say that so far as the Notice to Produce of 14 August 2003 is concerned, there is scope for debate as to whether the Notice is really a disguised form of discovery, but its terms seem reasonably specific to me. 28 However, so far as the Notice to Produce dated 13 August 2003 is concerned, I have a second ground for deciding that this Notice ought to be set aside, relating to the history of the Notice to Produce. Its identical predecessor was made returnable on 24 July, and as I have said, Campbell J dealt with it then. Obviously, the circumstances have very substantially changed since 24 July. Now the creditors have met. The administrator has made decisions as to whether the creditors should be permitted to vote, and as to the value of their debts and as to the assessment of their votes on a poll. 29 Nevertheless, it is relevant that on 24 July, Campbell J expressed the opinion set out above, to the effect it would be oppressive to require any further answer to the Notice to Produce than had been provided already. That is not a determination of the issue before me now, but it reflects an assessment of the content of the Notice to Produce which I must bear in mind. 30 The Notice to Produce, returnable on 24 July, led to the administrator to provide a bundle of documents which is in evidence before me now. There is, in substance, a reaction to what has been produced both in the plaintiff's solicitor's letter of 6 August and in submissions made to me at the hearing today. Paragraphs 10 and 12 of Mr McIntyre's affidavit of 15 August 2003 were objected to and rejected as evidence because they constitute submissions, but counsel for the plaintiff adopted those paragraphs as submissions as to the adequacy of what has been provided to the plaintiff. 31 It seems to me that, having had documents produced on the earlier occasion, and having had the opportunity to assess what they regard as potential deficiencies in the produced information, the plaintiff and its legal advisers ought not to have administered a further Notice to Produce in identical terms. There is an element of oppression, in my view, in re-administering a Notice to Produce in identical terms in circumstances where documentation has been provided. The producing party says, as the administrator evidently did at the creditors' meeting, that the produced material is believed to be in compliance with the Notice to Produce, and yet the party administering the Notice wishes to have more information. In those circumstances, it seems to me incumbent upon the party administering the Notice to Produce to indicate in some appropriate fashion the more specific information that is required, rather than simply to reissue the Notice to Produce in its former terms. 32 Therefore, if it were not for the general procedural considerations to which I have referred, I would still set aside the Notice to Produce of 13 August on that ground. 33 My conclusion is that the Notice of Motion filed in Court today should succeed and, therefore, I shall make orders in terms of paragraphs 2 and 3 of that instrument. 34 I have decided the correct way of dealing with costs today is to make an order that costs be reserved. This is the approach that Campbell J took on the last occasion. It seems to me correct now because the issues upon which I ultimately decided in the defendant's favour on the Notice to Produce were contingent upon and emerged out of the plaintiff's decision to proceed by way of pleadings in respect of new claims. Though the defendant was successful, it was not successful on a principal ground that it had advanced prior to today. I take into account the plaintiff's counsel's submission that, had the matter been put the way it ultimately emerged, it may not have been necessary to have a hearing on a contested basis today. 35 I make orders in terms of paragraph 2 and 3 of the Notice of Motion. Costs reserved. **********