In the matter of Bluestone Property Services Pty Limited [2012] NSWSC 1473

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Bluestone Property Services Pty Limited [2012] NSWSC 1473 Hearing dates: 27 November 2012 Decision date: 27 November 2012 Jurisdiction: Equity Division - Corporations List Before: White J Decision: Refer to paras [30]-[32] of judgment. Catchwords: CORPORATIONS - liquidation - application to set aside summonses for examination by liquidator - application dismissed - examination as to defendants' capacity to satisfy judgment debts and costs orders party of company's examinable affairs - no material non-disclosure - liquidator's examination not rendered oppressive or unnecessary by prior creditor's examination Legislation Cited: Corporations Act 2001 (Cth) Civil Procedure Act 2005 (NSW) Cases Cited: Brown v Hodgkinson [2009] NSWSC 262 Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 386; (2009) 14 BPR 27,133 Category: Interlocutory applications Parties: Justin John Brown (1st Applicant) Brooke Brown (2nd Applicant) Ozem Azzam Kassem in his capacity as liquidator of Bluestone Property Services Pty Limited (In Liquidation) (ACN 090597836) - (Respondent) Representation: Counsel: F Gutierrez (Applicant) D R Stack (Plaintiff/Respondent) Solicitors: Avondale Lawyers (Applicants) ERA Legal (Plaintiff/Respondent) File Number(s): 2012/323024

Judgment 1HIS HONOUR: This is an application to set aside or discharge examination summonses and orders for production of documents issued to the applicants. 2On 17 October 2012, Mr Kassem, the liquidator of Bluestone Property Services Pty Ltd (in liq) ("Bluestone") filed an originating process pursuant to s 596B of the Corporations Act 2001 (Cth) and s 68 of the Civil Procedure Act 2005 (NSW) seeking orders for the examination of Mr Justin Brown and Ms Brooke Brown and for orders for the production of documents by them and also by First Equilibrium Pty Ltd and Economos Pty Ltd, amongst others. 3The examination summonses and orders for production were issued and made by the Registrar on 31 October 2012. The summonses require Mr and Ms Brown to appear on 3 December 2012 to be examined in relation to the examinable affairs of Bluestone. The orders for production originally required documents to be produced on 19 November 2012. Those orders have been stood over until the determination of this application. 4Mr and Ms Brown were not officers of Bluestone. Bluestone, together with Mr and Ms Brown and companies associated with Mr Brown, were parties to litigation in this court in 2008. On 8 April 2009, Palmer J delivered judgment. His Honour dismissed an application brought by Mr Brown and the company now known as First Equilibrium Pty Ltd ("First Equilibrium"), then called Abadeen Group Pty Ltd, for specific performance of what was said to be an agreement for a joint venture in relation to the development of real property. In a separate proceeding, his Honour gave judgment in favour of Bluestone against First Equilibrium in the sum of $600,000. An order was also made against Ms Brown to pay $150,000 plus interest (Brown v Hodgkinson [2009] NSWSC 262). 5Costs orders were made in both proceedings against First Equilibrium, Mr Brown and Ms Brown. First Equilibrium, Mr Brown, Ms Brown and others unsuccessfully appealed from the orders of Palmer J. That appeal was dismissed on 7 December 2009 (Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 386; (2009) 14 BPR 27,133). An application for special leave to appeal to the High Court was dismissed. 6According to the liquidator, the result is that Bluestone is entitled to judgment against First Equilibrium in the sum of $600,000 plus interest and costs and has costs orders in its favour in respect of the two proceedings heard before Palmer J, the Court of Appeal and the High Court against First Equilibrium. Moreover, a costs order has also been made in its favour against First Equilibrium on an application brought by First Equilibrium to set aside a statutory demand. The liquidator deposes that costs orders have also been made against Mr and Ms Brown in the various proceedings. 7In his affidavit in support of the originating process for the issue of the examination summonses and orders for production of documents, the liquidator deposed that he wished to examine Mr Brown to assist him to ascertain the current asset and liability position of First Equilibrium and its ability to meet payment of the judgment debt, interest and costs and to ascertain the current personal asset and liability position of Mr Brown and Ms Brown, as well as to gather information in respect of other matters related to the examinable affairs of the company. He deposed that he wished to examine Ms Brown to assist him to ascertain her current personal asset and liability position and her ability to meet payment of the costs orders. 8An order for production of documents has been made addressed to Economos Pty Ltd who, the liquidator deposes, he understands to be the external accountant of First Equilibrium. The purpose of that order is also to obtain information about the financial position of First Equilibrium. An order for production of documents has also been issued to that company. 9The applicants submit, as I understood their submissions, that the purpose of the proposed examination is not to obtain information about Bluestone's examinable affairs, but about the personal affairs of Mr and Ms Brown and the affairs of First Equilibrium. It is said that this is outside the power conferred by s 596B. Although this was asserted, no attempt was made to make good that submission by reference to the definition of "examinable affairs" in s 9 of the Corporations Act, nor by reference to any authority. 10Secondly, it was submitted for the applicants that the orders made ex parte should be set aside because there was material non-disclosure of various facts. 11Thirdly, as I understand the submissions, it was said that, having regard to a previous examination of Mr Brown by Bluestone as a judgment creditor, it would be oppressive for him to be examined further pursuant to s 596B of the Corporations Act. 12A submissions was also made that the order in relation to Ms Brown should be discharged because she has deposed that she has no knowledge of the affairs of Bluestone. It was submitted that her examination would be futile. 13Finally, it was submitted that an examination of Mr Brown should be limited to an examination of his personal assets and liabilities. 14Dealing with the first submission, the "examinable affairs" in relation to a corporation is defined in s 9 as including the winding-up of the corporation. It also includes any other affairs of the corporation. The winding-up of a corporation involves the collection of its assets. That in turn involves the making of decisions as to what steps should be taken to collect debts owed to the company and whether the expenditure of money in that regard would be for the benefit of the company and its creditors. First Equilibrium owes an existing judgment debt to Bluestone. It and Mr and Ms Brown are also under an existing liability to pay costs which will result in a judgment debt for costs once the costs have been assessed and a certificate entered. However, expenses would be incurred in the process of assessment. 15It is clearly part of the examinable affairs of Bluestone for the liquidator to ascertain the ability of each of First Equilibrium and Mr and Ms Brown to satisfy the judgment and costs orders. The costs will be substantial. The proceedings before Palmer J in 2008 took four days of hearing and the parties were represented by senior and junior counsel. 16The position is analogous to a case in which a liquidator wishes to investigate whether a prospective defendant is worth suing, or whether a prospective defendant has insurance which could be available to satisfy a judgment debt. It is well settled that it is a proper purpose of an examination summons, and the summons will be authorised by s 596B where the liquidator wishes to investigate those matters in order to decide whether and how a company should pursue an asserted chose in action against a prospective defendant. In principle this case is the same. 17So far as the second ground relating to non-disclosure is concerned, the position appears to be as follows. In an affidavit sworn on 26 November 2012 Mr Hutchins, the partner of the liquidator, deposed that Bluestone had served a new creditor's statutory demand for payment of the judgment debt on First Equilibrium. He deposed that since that demand was served on 18 September 2012, negotiations had been entered into between, amongst others, Bluestone, First Equilibrium and Mr and Ms Brown with a view to settling the disputes regarding the outstanding judgment debt and the costs orders against First Equilibrium, Mr Brown and Ms Brown. He deposed that those negotiations had broken down, as terms of settlement proposed by those parties had been regarded as unacceptable by the liquidator. He exhibited a copy of an unsigned agreement, apparently produced as the result of those negotiations. 18I do not consider that the fact of those negotiations was itself a matter which required disclosure when the application for ex parte orders was made. In any event that was not the ground relied upon. Rather, the applicants tendered a document called Deed of Agreement dated 15 December 2011. The agreement was prepared for execution by a number of companies in what was called the Hodgkinson Group of Companies, of which Bluestone was one. It was to be made with First Equilibrium, Mr Brown and Ms Brown, amongst others. 19It appears that the document was executed by all parties except one company called 230 Palmer Street Pty Limited. The applicants say that, nonetheless, the document was a binding agreement between the parties who executed it and, further, that notwithstanding the non-execution of the agreement by 230 Palmer Street Pty Limited, the liquidator of Bluestone has proceeded on the basis that the agreement was effective as between the parties who executed it. 20The agreement provided for the purchase by "the Brown parties" from Bluestone of shares said to be owned by Bluestone in 230 Palmer Street Pty Limited. It also provided for Mr Brown to make payments equal to 72.5 per cent of the equity in certain specified properties or payment of $430,000, whichever sum was greater. The agreement also provided that upon payment of all moneys provided for within the deed, the liquidator and the Hodgkinson companies, which included Bluestone, would release the Brown parties from all claims. 21There was no evidence that all of the moneys provided for in the deed had been paid. That is to say, there is no evidence that the release provided for by the deed has become effective. The liquidator's position is that the agreement of 15 December 2011, if it ever came into effect, is not now in effect. 22It does not seem to me that this was a material matter that required disclosure, given the evidence for the liquidator on the application for the ex parte orders as to his primary purpose in seeking the examinations. Had the releases come into effect the position would no doubt have been different. But Mr and Ms Brown and First Equilibrium remain liable under the costs orders. Mr and Ms Brown are prospective debtors of Bluestone. First Equilibrium is an existing debtor of Bluestone. The circumstances of the entry into the agreement of 15 December 2011 and the fact of the entry into that agreement does not appear to me to be material, where the releases have not come into effect. 23Mr Gutierrez, solicitor, who appeared for the applicants, also submitted that the liquidator's purpose in seeking the examination summonses and orders for production of documents was to embarrass Mr Brown. There was no evidence to support that submission. It was not a proper submission to make. Nor did Mr Gutierrez seek to cross-examine Mr Hutchins, who is the liquidator's partner who served the affidavits in this matter and has the carriage of the liquidation on behalf of Mr Kassem. As I have said, the purpose of seeking to ascertain the financial position of Mr Brown, Ms Brown and First Equilibrium is an entirely proper purpose for an examination. 24Mr Gutierrez submitted that it would be futile to examine Ms Brown because she had no knowledge to impart. She deposed that she had never been involved in the activities or affairs of Bluestone and that she was a housewife and was not aware of the dealings of Bluestone, nor in possession of any documents in relation to it. She also said she was not aware of the dealings of First Equilibrium, nor in possession of any documents in relation to it. 25These are not reasons for discharging the order in relation to her. First, she could be expected to provide information as to her own assets and liabilities and those of her husband. In any event, the question of what information she could provide cannot be determined simply on the basis of her affidavit. The liquidator is entitled to examine her to ascertain the extent of the information she can provide. 26Nor is there any reason to limit the examination of Mr Brown to information about his personal assets and liabilities. As I understood the submission, it is that there should be such a limitation because Mr Brown has already been the subject of a debtor's examination pursuant to the Civil Procedure Act. By an order made on 7 December 2010 he was required to attend court to be examined as to whether any, and if so what, debts were owing to First Equilibrium and whether it had any, and if so what, property or other means of satisfying the judgment in favour of Bluestone. He was required to produce to the court bank account statements from 8 April 2008 to 7 December 2010, profit and loss statements for 2008, 2009 and 2010, financial statements for those years and receipts of income received from any rental property. 27The fact that Mr Brown has been the subject of a debtor's examination which took place in May 2011 is not a reason for discharging the order under s 596B, or limiting the scope of the examination. First, the examination took place 18 months ago. The liquidator requires up-to-date information as to First Equilibrium's financial position. 28Secondly, Mr Hutchins deposes that he does not have a transcript of the judgment creditor examination and that the information and documents obtained from the examination have not been of assistance to him or the liquidator in determining First Equilibrium's net asset position, with any conclusiveness. Mr Brown is a director of First Equilibrium. There is no evidence that it would be oppressive for him to be required to provide the documents sought as to the financial position of that company, or to provide information pursuant to the examination in relation to the financial position of that company. 29For these reasons I do not accept the submission that directions should be given to limit the scope of the examination in the ways proposed. 30For these reasons I order that the interlocutory process filed on 16 November 2012 be dismissed. 31I order the applicants to the interlocutory process filed on 16 November 2012 to pay the respondents' costs of that interlocutory process. I note that those costs will include the costs of the hearing on 26 November 2012 as well as the costs of the hearing today. 32I order that the order for production of documents stand over to the registrar on Thursday 29 November 2012 at 9.00am. 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 November 2012