Supreme Court New South Wales Medium Neutral Citation: In the matter of Coral Resorts Pty Ltd (in liquidation) [2012] NSWSC 560 Hearing dates: 21 May 2012 Decision date: 21 May 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Orders for production addressed to company and its director amended. Orders for production addressed to two other persons set aside. Each party to pay their own costs of application. Catchwords: CORPORATIONS - Examination - Order for production - Oppression - Supreme Court (Corporations) Rules 1999 (NSW) r 11.5 - Uniform Civil Procedure Rules 2005 (NSW) r 49.19 - Application for summonses for examination and orders for production to be set aside. Legislation Cited: - Corporations Act 2001 (Cth) ss 596B, 596C, 596D, 596D(2) - Supreme Court (Corporations) Rules 1999 (NSW) r 11.5 - Uniform Civil Procedure Rules 2005 (NSW) rr 34.1, 49.19 Cases Cited: - Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 - Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 - Re Trio Capital Ltd (in liq) [2011] NSWSC 1483 - Wily Re LED (South Coast) Pty Ltd [2009] NSWSC 946; (2009) 76 NSWLR 428 Category: Interlocutory applications Parties: Waldorf Apartment Hotels The Entrance Pty Limited, Avi Rubenstein, Stephen Bluth, Nanette Peterson (Applicants on Interlocutory Process) David Mansfield, Coral Resorts Pty Ltd (in liquidation) (Respondents on Interlocutory Process) Representation: Counsel: J.T. Johnson (Applicants on Interlocutory Process) J. Giles (Respondents on Interlocutory Process) Solicitors: HWL Ebsworth (Applicants on Interlocutory Process) Piper Alderman (Respondents on Interlocutory Process) File Number(s): 11/298008 Judgment - EX TEMPORE 1By Interlocutory Process filed on 4 May 2012, the applicants, Waldorf Apartment Hotels The Entrance Pty Ltd ("Waldorf"), one of its directors and two of its employees, seek to set aside orders for production and summonses for examination issued at the request of the liquidator of Coral Resorts Pty Ltd ("Coral Resorts") on the grounds of oppression and under r 11.5 of the Supreme Court (Corporations) Rules 1999 (NSW) or r 49.19 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). The application is supported by affidavits of Mark Harrowell, dated 4 May and 17 May 2012. 2The examination summonses were issued under s 596B of the Corporations Act 2001 (Cth) and the orders for production were made under s. 596D and 597(9) of the Corporations Act, and UCPR r 34.1. Section 596B allows the Court to summons a person for examination about a corporation's examinable affairs where the Court is satisfied that person may be able to give information about those examinable affairs. The concept of "examinable affairs" extends, relevantly, to causes of action which may be available to Coral Resorts and whether Waldorf would have assets to meet a judgment against it. Section 596D(2) permits an examination summons to require the production of documents and UCPR r 34.1 allows for production on notice. 3By way of background, Waldorf is party to an agreement dated 31 January 2012 with Coral Resorts in respect of the management of a home unit complex in The Entrance, New South Wales. That agreement provides for a guaranteed rental return to be provided by Coral Resorts to purchasers of the units over a five year period and allows Waldorf to call upon part of that guarantee in each year. A supplementary agreement, dated 23 January 2004, provided a guarantee for additional units and amended the terms of the earlier guarantee. 4By letter dated 18 October 2011, the former solicitors for Coral Resorts advised the solicitors for Waldorf that the examinations would be directed to the affairs of Coral Resorts in relation to the provision of the relevant guarantees in respect of the property, the drawdown of those guarantees by Waldorf and the accounting for them, and the capacity of Waldorf to meet any judgment. Mr Giles, who appears for the liquidators has adopted that statement of the scope of the examination in the course of submissions. 5Waldorf and the examinees advanced several arguments in support of their application that the summonses for examination and orders for production should be set aside. Their primary arguments were directed to the period of time which has elapsed since the relevant events, so that potential claims may be statute barred at least in part, and that Waldorf had offered informal access to 65 boxes of documents to the liquidator of Coral Resorts and offered to discuss issues with the liquidator and indeed, the director of Waldorf has met with the liquidator on one occasion for such a discussion. 6Mr Johnson, who appears for Waldorf relies on the fact that the liquidator has not placed the affidavits filed under s 596C of the Corporations Act in support of the issue of the examination summonses in evidence before me, Waldorf did not press an application for access to those affidavits before me. Where that application for access to those affidavits was not pressed, no evidentiary burden is placed on the liquidator to reveal the content of the affidavits supporting the examination and Waldorf and the examinees must make good the challenge to the examination summonses and document production orders without access to those affidavits and also without any inference drawn against the liquidator from their absence: Meteyard v Love [2005] NSWCA 444; (2005) 65 NSWLR 36 at [140]-[141]; Wily Re LED (South Coast) Pty Ltd [2009] NSWSC 946; (2009) 76 NSWLR 428 at [27], [29]; Accord Pacific Holdings Pty Ltd v Accord Pacific Land Pty Ltd (in liq) [2011] NSWSC 707 at [105]-[106]. 7I do not consider that the fact that Waldorf has offered to make 65 boxes of documents available for inspection on an informal basis or that a director of Waldorf has offered to and has met with the liquidator to discuss the relevant matters warrant setting aside the examination summonses or orders for production. A liquidator is not obliged to proceed in an informal manner and may properly exercise the powers under ss 596B and 596D of the Corporations Act and the Supreme Court (Corporations) Rules in order to obtain evidence on oath or affirmation for a proper purpose and to ensure that all documents are produced in a manner which informal production cannot guarantee. Further, the offer of access to 65 boxes of documents has the difficulties that, first, those boxes may or may not contain all documents which the liquidator seeks and, absent the exercise of compulsory powers, he cannot be sure of that matter. Second, those boxes may contain a volume, and possibly a substantial volume, of documents that the liquidator does not seek. Whether that is the case is unknown, although Mr Johnson contended before me that the present categories of documents sought by the liquidator were so wide that all of those boxes of documents would be relevant to them. Orders for production 8There were, however, difficulties with several paragraphs of the order for production directed to Waldorf in their form prior to the hearing today. In particular, Mr Johnson rightly drew attention to the fact that the limitation period in relation to potential claims means that the earliest relevant period is likely to be May 2006. The order for production addressed to Waldorf extended in some paragraphs beyond that period. Those difficulties would not have warranted setting aside the orders for production but would, in my view, have required that they be modified to avoid oppression. The necessary modifications were offered by the liquidator in the course of submissions. 9The documents which fall within paragraphs 1 to 5 of that order for production are likely to be relevant to Waldorf's capacity to meet a judgment. Those paragraphs are not, in my view, oppressive, subject to narrowing paragraph 3 (as the liquidator proposes to do) to the period commencing 1 July 2005. 10Paragraph 6 of the order for production initially sought special purpose accounts relating to the business carried on by Waldorf in respect of the period from 1 July 2003 to 30 June 2010. In my view, that paragraph would have been oppressive to the extent that it required production of documents to 1 July 2005, since, at its widest, the review of accounts for one previous year beyond the relevant period would assist the liquidator in understanding the accounts for the year commencing 1 July 2006. The liquidator has narrowed the paragraph in the course of submissions to cover the more limited period. 11In my view, the time period in paragraph 7 of the order for production needed to be narrowed for the same reason. A substantial difficulty also arose as to the scope of the documents which were sought by that paragraph, which initially extended to records of relevant income and expenses and unit management agreements for the period 1 July 2003 to date. In that form, the paragraph would have extended before and after the relevant period and to a wide range of documents, such as individual expense requisitions, cheques, cheque requisitions, copy of letters enclosing cheques to tradespersons and so on. In my view, that paragraph required limitation, to avoid oppression, to the relevant period, and paragraphs 7.1 and 7.2 also required limitation to high level or summary accounting records. Mr Giles, who appeared for the liquidator, raised the possibility in the course of submissions of confining the paragraphs to ledgers recording rental income and expenses and has proffered an amended category which does so. The liquidator also proposed to confine the period for which documents are sought in this paragraph to 1 July 2005 to 30 June 2010, adopting a start date which is one year prior to the relevant claims period and an end date which is consistent with other paragraphs of the order for production. 12Paragraph 9 of the order for production initially sought all documents evidencing, recording, or referring to the negotiation of the supplementary agreement dated 22 January 2004 between Coral Resorts and Waldorf. That paragraph had an immediate difficulty, which Mr Giles acknowledged in submissions, that it was likely to require production of many documents which were subject to a claim for legal professional privilege. Had the paragraph been left unamended, I would have set it aside for that reason: Meteyard v Love at [132]-[133]; Re Trio Capital Ltd (in liq) [2011] NSWSC 1483 at [27]-[31]. In submissions before me, the liquidator proposed to amend the paragraph to exclude documents subject to legal professional privilege and I would not set aside that paragraph as amended in that manner. 13Orders for production were also issued to Mr Avi Rubenstein, Mr Stephen Bluth and Ms Nannette Peterson. The evidence before me is that Mr Rubenstein is a director of Waldorf; Mr Bluth is an internal accountant with Waldorf and Ms Peterson is an employee of Waldorf in an unidentified capacity. Counsel for the liquidator supported these orders for production on the basis that it is not known whether the relevant documents are in the custody of Waldorf or of the relevant individuals and that documents would not be required to be produced twice. I do not consider that it is oppressive to issue the order for production to Mr Rubenstein, who is a director of Waldorf and may have ultimate control of the documents in that capacity, or at least the ability to cause Waldorf to produce them. However, the order directed to Mr Rubenstein would need to be limited in the same manner as the order against Waldorf and adjourned to the same time. The liquidator has acknowledged that he does not seek double production of documents. 14On the limited evidence before me, the orders for production issued to Mr Bluth and Ms Peterson, who are employees of Waldorf, appear to be oppressive. The evidence indicates that the relevant documents are in Waldorf's custody and control and no suggestion to the contrary was advanced before me. Accordingly, I propose to set aside the orders for production addressed to Mr Bluth and Ms Peterson. It is open to the liquidator to, in future, make application for such orders if it emerges that documents were not produced because they were in those persons' personal custody rather than in Waldorf's custody or control. Orders for examination 15Application is also made to set aside the orders for examination issued to Mr Rubenstein, Mr Bluth and Miss Peterson. The making of an order for examination under s 596B of the Corporations Act requires that it be established that the person may be able to give information about the corporation's examinable affairs, relevantly, the examinable affairs of Coral Resorts. The evidence before me is sparse, to say the least, where the liquidator has not relied on the affidavits originally filed before the Registrar under s 596C of the Corporations Act and Waldorf and the examinees did not press their application for access to those affidavits. 16The evidence before me indicates the nature of the dealings between Coral Resorts and Waldorf and, as noted above, that Mr Rubenstein is a director of Waldorf, Mr Bluth is an internal accountant and Ms Peterson is an employee in an unknown capacity. In these circumstances, it would not be possible for me to form an affirmative view that all these examinations are necessary, but, equally, it is not possible for me to form an affirmative view that they are not necessary, where the Registrar has previously ordered they take place and each of the persons have sufficient connection with the company to be able to give evidence as to its dealings with Coral Resorts in respect of the particular property. 17Accordingly, although with some hesitation in relation to Ms Peterson, I will not set aside the examination summonses. I would expect a Registrar presiding over the examinations to be alert to any appearance that Ms Peterson, in particular, does not have relevant information which would warrant the continuance of the examination. 18In these circumstances, I make the following orders: 1. The orders for production addressed to Waldorf Apartment Hotels The Entrance Pty Ltd and Mr Avi Rubenstein, be amended as follows: (a) by replacing the phrase, "1 July 2003", in line 2 of paragraph 3, with the phrase, "1 July 2005"; (b) by replacing the phrase "1 July 2003" in paragraph 6 with "1 July 2005"; (c) by replacing the phase "1 July 2003" in line 1 of paragraph 7 with 1 July 2005"; (d) by replacing the word "date" in line 1 of paragraph 7 with "30 June 2010"; (e) by replacing the phrase "records of rental income received in relation to" in paragraph 7.1 with "ledgers recording receipt of rental income from"; (f) by replacing the phrase "records of expenses" in paragraph 7.2 with "ledgers recording payment of expenses"; (g) by adding the words "(other than those subject of client legal privilege, or legal professional privilege)" at the end of paragraph 9. 2. The orders for production, as amended, be adjourned to 9am on 25 May 2012 before the Registrar. 3. The orders for production addressed to Mr Stephen Bluth and Ms Nannette Peterson be set aside. Costs 19I have heard the parties as to costs. Mr Johnson has fairly submitted that each party has had a measure of success and the proper order would be an order that each party pay their own costs. Mr Giles has not sought actively to contest that result. This is an application in which, on the one hand, Waldorf has been successful in narrowing some categories in a manner which may make some practical difference in reducing the extent of searches required and two individual examinees have avoided the need to face orders for production of documents, but, on the other hand, the liquidators have largely retained the orders which they seek. In these circumstances, I consider that the proper order is that each party should pay their own costs of the application. 20I also order that the exhibits and subpoenaed material may be returned forthwith. Any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 May 2012