New South Wales Supreme Court CITATION : McGrath & Anor as Liquidators of HIH Insurance Ltd [2008] NSWSC 780 HEARING DATE(S) : 09/07/08, 23/07/08 Orders: 23/07/08 JUDGMENT DATE : 31 July 2008 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Orders at paragraph 35 CATCHWORDS : CORPORATIONS - winding up - application for examination summons - where person concerned resident in Hong Kong - leave to serve outside Australia - letter of request to Hong Kong court to act in aid of, and be auxiliary to, this court in conducting examination Corporations Act 2001 (Cth), ss 9, 53, 581(4), 596B, 597(6) Cross-Border Insolvency Act 2008 (Cth), article 21.1(d) in Schedule 1 Evidence Act 1995, s 64(2)(b) LEGISLATION CITED : Evidence Ordinance (Cap 8) (Hong Kong), ss 75, 76 High Court Ordinance (Cap 4) (Hong Kong) Insolvency Act 1986 (Eng), s 426 Supreme Court (Corporations) Rules 1999, rules 11.3(2), 11.3(4), 11.5 Uniform Civil Procedure Rules 2005, rule 11.5 CATEGORY : Principal judgment Aetna Pacific Securities Ltd v Hong Kong Bank of Australia Ltd (unreported, NSWSC, Giles J, 29 April 1993), Application of Robert William Whitton [2007] NSWSC 606 Arhill Pty Ltd v General Percival Company (1990) 23 NSWLR 545 Beach Petroleum NL v Cortaus Ltd [1995] HKLY 656; [1995] HKCFI 451 Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43; (2007) 157 FCR 558 CASES CITED : Joye v Beach Petroleum NL (1996) 67 FCR 275 Re B&B Construction Company Ltd [2004] HKCFI 592; [2005] HKEC 837 Re HIH Insurance Ltd [2004] NSWSC 454 Re Skase (1991) 32 FCR 212 Re Skase; Ex parte Donnelly (1992) 37 FCR 509 Stemcor (Australia) Pty Ltd v Oceanwave Line SA [2004] FCA 391 PARTIES : Anthony Gregory McGrath and Christopher John Honey as liquidators of HIH Insurance Ltd - Applicants FILE NUMBER(S) : SC 1799/01 COUNSEL : Mr S T White SC - Applicants SOLICITORS : Blake Dawson - Applicants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY 31 JULY 2008 1799/01 ANTHONY GREGORY McGRATH & ANOR AS LIQUIDATORS OF HIH INSURANCE LIMITED JUDGMENT 1 On 23 July 2008, I made certain orders upon application made by the liquidators of HIH Insurance Limited ("HIH"), indicating that I would give my reasons later, as I now do. 2 The principal orders were, first, an order under s 596B of the Corporations Act 2001 (Cth) that a summons for examination be issued to a named person resident in Hong Kong; second, an order under rule 11.5 of the Uniform Civil Procedure Rules 2005 granting leave for the summons to be served in Hong Kong; and, third, an order that there be issued pursuant to s 581(4) of the Corporations Act a letter of request directed to the High Court of the Hong Kong Special Administrative Region. I shall refer to that court as "the Hong Kong Court". 3 The liquidators' application was advanced on the footing that, if an examination summons were issued and leave for its service in Hong Kong were given, the Hong Kong Court should be requested to act in aid of, and to be auxiliary to, this court in the matter of conducting the examination. 4 In accordance with rule 11.3(2) of the Supreme Court (Corporations) Rules 1999, the s 596B application was made without notice to any person and proceeded by way of ex parte hearing. In accordance with rule 11.3(4), the interlocutory process and the affidavit supporting the application are retained in the court file in an envelope marked "Application and supporting affidavit for issue of summons for examination under s 596B of the Corporations Act 2001". The hearing, however, took place in open court. 5 Section 596B(1) is in these terms: "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." 6 The liquidators are "eligible applicants" within paragraph (b) of the s 9 definition of the term. The liquidators submitted that the person sought to be examined is within s 596B(1)(b)(ii). I should explain how that contention is framed. 7 HIH and its subsidiary HIH Investments Pty Ltd have commenced certain proceedings in this court which, for ease of reference, are called the "takeover loss proceedings". The thesis propounded in that case is that certain persons committed legal wrongs in and about events of late 1998 and early 1999 involving an offer by HIH and its subsidiary HIH Investments Pty Ltd to acquire all the shares in FAI Insurances Ltd. In particular, it is alleged that directors of FAI issued a Part B Statement that was false and misleading because information in it about FAI's financial position was drawn from financial statements that were themselves false and misleading. 8 Furthermore, the argument runs, certain persons might have acted to prevent the HIH takeover bid continuing (or, at least, taken or contributed to steps which might have resulted in its not continuing) if they had known about the deficiencies in the information provided in the Part B Statement. The proposed examinee is such a person. The liquidators are of the opinion that he was, at the time, in a position to contribute to actions which might have halted the takeover bid; and that he could or might or would have taken (or contributed to) such actions had he known the true position at the time. 9 The question that fell to be addressed was whether, in terms of s 596B(1)(b)(ii), information the proposed examinee could give about steps involving him that might have been taken to halt the bid is "information about examinable affairs of" HIH. 10 The liquidators referred to the definition of "examinable affairs" in s 9, as amplified or explained by the definition of "affairs" in s 53. The chose in action the liquidators consider HIH to have because of alleged misconduct within FAI relevant to HIH's takeover bid for FAI is, in my opinion, an aspect of the "examinable affairs" of HIH. Any evidence the proposed examinee could give relevant to the possibility that the loss ultimately suffered may have been avoided bears to that aspect of HIH's "examinable affairs" a relationship that makes information from the proposed examinee as to evidence he could give information "about" those "examinable affairs" within s 596B(1)(b)(ii). 11 I was therefore of the opinion that the liquidators had shown to the requisite degree that the proposed examinee is a person who may be summoned under s 596B. 12 The court's power to summon is, however, discretionary. Two factors needed to be considered in that connection. 13 The first is that the proposed examinee may be presumed to remain subject to certain obligations of confidentiality in respect of information obtained by him in the course of duties he was performing at the times relevant to the liquidators' inquiries. The submission made on behalf of the liquidators was that this matter, if relevant at all, should be addressed at a future time – either if and when an application is made to have the examination summons discharged under rule 11.5 of the Supreme Court (Corporations) Rules or when a particular question encroaching upon any confidentiality is put at the examination. 14 I accepted that submission. The existence, scope and ramifications of any duty of confidentiality are not matters to be addressed at the time of deciding whether an examination summons should be issued – unless any such duty is so obviously an impediment that it can be said, without further inquiry, that it negates the person's ability to give any information at all about the company's examinable affairs. In that case, the person would, because of the resultant inability, not be a person "able" in terms of s 596B(1)(b)(ii). But that is not the position here. 15 The second factor that had to be taken into account in exercising the discretion was that the person to whom the examination summons would be addressed is resident in a foreign country. Service of any examination summons will subject that person to a statutory obligation under s 597(6) to attend as required by the summons. Such service will be valid only if it is effected pursuant to the leave of this court or is subsequently confirmed by this court. This is the effect of rule 11.5 of the Uniform Civil Procedure Rules 2005. 16 Leave was granted under rule 11.5 in respect of an examination summons in Application of Robert William Whitton [2007] NSWSC 606. This is consistent with approaches taken to similar processes in bankruptcy: see Re Skase (1991) 32 FCR 212, Re Skase; Ex parte Donnelly (1992) 37 FCR 509. In the first of these bankruptcy cases, it was emphasised that there is a difference between requiring a person to act in a particular way and, on his or her failure to do so, seeking to enforce the requirement. But there may still be sensitivity about imposing the requirement upon a person not within Australia because there is no readily apparent means of applying a sanction for non-compliance. The sensitivity is illustrated by the cases about the issue of subpoenas for service on persons in other countries: see, for example, Arhill Pty Ltd v General Terminal Company (1990) 23 NSWLR 545, Aetna Pacific Securities Ltd v Hong Kong Bank of Australia Ltd (unreported, NSWSC, Giles J, 29 April 1993), Stemcor (Australia) Pty Ltd v Oceanwave Line SA [2004] FCA 391 and Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43; (2007) 157 FCR 558. 17 It was at this point that the liquidators' desire to have the Hong Kong Court act in aid of, and be auxiliary to, this court became relevant. The objective, broadly stated, is that the Hong Kong Court should, in Hong Kong, exercise powers and perform functions generally corresponding to those that would be exercised and performed by this court in relation to a s 596B examination. 18 The application for the issue of a letter of request was made under s 581(4): "The Court may request a court of an external Territory, or a court of a country other than Australia, that has jurisdiction in external administration matters to act in aid of, and be auxiliary to, it in an external administration matter." 19 Mr S T White SC, who appeared for the liquidators, submitted that, consistently with the decision in Re HIH Insurance Ltd [2004] NSWSC 454, a letter of request should be directed to a foreign court if three conditions are satisfied: first, that the situation is within s 581(4); second, that there is some good substantive reason for the request; and, third, that there is utility in the request in the sense that the foreign court is likely to accept and act upon the request if it is made. I accepted that submission. 20 As to the first matter, I was satisfied that the examination of the proposed examinee is a matter in respect of which this court may make a request under s 581(4). The examination, being an examination by the liquidators of a company being wound up in insolvency, will be, for the purposes of s 581(4), "an external administration matter". It will be, according to paragraph (a) of the s 580 definition of that term, a matter "relating to … a winding up, under this Chapter": Joye v Beach Petroleum NL (1996) 67 FCR 275 at 287-8. The s 581(4) jurisdiction is therefore available. Furthermore, since the Hong Kong Court has, by virtue of the High Court Ordinance (Cap 4) (Hong Kong), "original jurisdiction and authority of a like nature and extent as that held and exercised by the Chancery, Family and Queen's Bench Divisions of the High Court of Justice in England", it has, in terms of s 581(4), "jurisdiction in external administration matters". 21 As to the second matter, the considerations that warranted the issue of the examination summons with a view to seeking information from the proposed examinee, coupled with the fact that that person resides within the jurisdiction of the Hong Kong Court and is not compellable directly by Commonwealth law and orders of this court, were found to represent a good substantive reason to request the aid of the Hong Kong Court. 22 The third matter then arose for consideration: is the Hong Kong Court likely to accept and act upon the request, if made? That, of course, raised questions of Hong Kong law and procedure. 23 Two preliminary comments should be made in that connection. First, on the materials before me, Hong Kong has not adopted by domestic legislation the UNCITRAL Model Law on Cross-Border Insolvency. There is therefore no Hong Kong provision of the kind that has been in force in Australia since 1 July 2008 under the Cross-Border Insolvency Act 2008 (Cth) under which a foreign liquidator may seek access to local courts including, in particular, for the purpose of obtaining information "concerning the debtor's assets, affairs, rights, obligations or liabilities" (article 21.1(d) in Schedule 1 to the Cross-Border Insolvency Act). Second, there is not in force in Hong Kong any legislative provision analogous with s 426 of the Insolvency Act 1986 (Eng) empowering a Hong Kong court to render assistance to a foreign court in an insolvency matter and, in doing so, to apply either Hong Kong law (whether substantive or procedural) or the law of the requesting court. 24 A request made by this court under s 581(4) of the Corporations Act will therefore fall to be considered by the Hong Kong Court in a context that does not include any jurisdiction concerning assistance in cross-border insolvency that is specifically attracted by the receipt of such a request. 25 The liquidators tendered on the application a letter of advice from Hong Kong solicitors from which several salient points arose. 26 The solicitors confirmed that the Hong Kong Court has in the past exercised the Hong Kong statutory jurisdiction analogous to that created by Australia's s 596B in order to require a person resident outside Hong Kong to attend for examination, as well as the jurisdiction under Hong Kong rules of court to grant leave to serve such a summons outside Hong Kong. Reference was made to the decision of Kwan J in Re B&B Construction Company Ltd [2004] HKCFI 592; [2005] HKEC 837 in which the law was comprehensively reviewed. Her Ladyship directed that summonses for examination be issued for service on persons resident in Germany, thus recognising that a liquidator in one country, seeking to resort to statutory powers of compulsion available under the law of that country, may have the assistance of the court of that country with a view to compelling disclosure of information by a person in another country. 27 The solicitors also expressed the opinion that the Hong Kong Court has jurisdiction under ss 75 and 76 of the Evidence Ordinance (Cap 8) (Hong Kong) to make, upon receipt of a request from a foreign court, orders for the obtaining of evidence in Hong Kong. The threshold is described in s 75: "Where an application is made to the Court of First Instance for an order for evidence to be obtained in Hong Kong and the court is satisfied – (a) that the application is made in pursuance of a request issued by or on behalf of a court or tribunal ('the requesting court') exercising jurisdiction in a country or territory outside Hong Kong; and (b) that the evidence to which the application relates is to be obtained for the purposes of civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated, the Court of First Instance shall have the powers conferred on it by this Part." 28 The solicitors pointed out that the jurisdiction created by those sections of the Evidence Ordinance was exercised in Beach Petroleum NL v Cortaus Ltd [1995] HKLY 656; [1995] HKCFI 451 to require the production of documents to the Hong Kong Court following receipt of a letter of request transmitted by the Federal Court of Australia on the application of the Australian liquidator of an Australian company. A perusal of the judgment of Woo J in that case reveals that proceedings were pending in the Federal Court and that the liquidator required the documents with a view to proving certain matters in those proceedings about the movement of money. 29 The Hong Kong solicitors expressed the opinion that the Evidence Ordinance provisions are sufficiently wide in their terms to encompass letters of request of the kind that English courts may entertain under s 426 of the Insolvency Act. The general conclusion of the Hong Kong solicitors was that the Hong Kong Court would accept and act upon the letter of request the liquidators wish this court to transmit. 30 I had some unease about the notion that a request that a foreign court act in aid of, and be auxiliary to, this court in the conduct of a liquidator's examination under s 596B of the Corporations Act fits easily within any concept of obtaining "evidence … for the purposes of civil proceedings". As s 596B itself indicates, the purpose of a liquidator's examination is the purpose of obtaining "information" about "affairs" of a corporation; and even though the obtaining of such information is, in the particular context, relevant to the takeover loss proceedings, the product of the examination would not of itself normally be regarded as evidence for the purposes of those or any other proceedings. 31 Mr White submitted, however, that there could be circumstances in which a transcript of a s 596B examination may be tendered to prove the things said by the examinee. There is some force in that, particularly when one has regard to s 64(2)(b) of the Evidence Act 1995 the general effect of which is that what would otherwise be hearsay may be admitted if embodied in a document and it would cause undue expense or undue delay (or would not be reasonably practicable) to call the person who made the statement. It is at least conceivable that a transcript of the examination of the Hong Kong resident the liquidators wish to conduct in Hong Kong could be admitted into evidence in the takeover loss proceedings. 32 There accordingly appeared to be a basis for concluding that the Hong Kong court might see fit to give effect to this court's request by resorting to the Evidence Ordinance provisions. The question is, of course, ultimately one for the Hong Kong court. My task, on the particular application, was merely to see that there was utility in the request the liquidators wished this court to make, in the sense that the foreign court is likely to accept and act upon the request if made. Given the clear advice of the Hong Kong solicitors; the approach taken by the Hong Kong Court in Beach Petroleum NL v Cortaus Ltd (above) to the somewhat analogous matter of a liquidator's desire to obtain documents; and the Hong Kong Court's acknowledgment that an examination summons may be served outside the jurisdiction on a person resident outside the jurisdiction (which bespeaks a possibility of facilitation of an examination in Hong Kong, as a matter of comity, assuming some aspect of the Hong Kong Court's jurisdiction is engaged), I considered the relevant likelihood to be sufficiently shown. 33 It is for these reasons that I made the orders mentioned at the start of these reasons. 34 I should refer also to another order made. It was ordered that the person summoned to attend for examination be excused from compliance with the examination summons if he complies with orders made by the Hong Kong Court pursuant to the letter of request. That order was made to avoid a situation in which the person might be subject to parallel compulsion from two sources. 35 The full text of the orders made by the court is as follows: "1. Pursuant to s 596B of the Corporations Act 2001 (Cth) (the Act) a summons for examination is to be issued to the person whose name and address appears in prayer 1 of the Interlocutory Process, such summons to be in the form initialled on the Court file for identification. 2. Pursuant to section 581(4) of the Act, this Court requests the High Court of Hong Kong at 38 Queensway in the Special Administrative Region of Hong Kong, to act in aid of, and be auxiliary to, this Court in relation to summoning for examination the person referred to in Order 1, and any other matters incidental to that summoning and examining, such request to be made by the issue of a letter of request in the form initialled on the Court file for identification. 3. Pursuant to Uniform Civil Procedure Rule 11.5 that leave is granted to the Applicants for the service of the summons for examination on the person referred to in Order 1. 4. The person to whom the summons for examination is issued pursuant to Order 1 is excused from compliance with that summons where that person complies with the orders made by the High Court of Hong Kong pursuant to the Letter of Request referred to in Order 2. 5. A letter of request in the terms initialled on the court file for identification be transmitted by the solicitors for the applicants to the High Court of Hong Kong. 6. The whole of the Court file is not to be available for inspection by any person for a period of 14 days from today unless the Court otherwise orders." ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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