Examination summons/ Abuse of process/Mulsanne Resources Pty Ltd [2013] NSWSC 359

by Michael Murray | Apr 19, 2013

Company officers have been unsuccessful in challenging s 596A examination summonses issued by liquidators as being abuses of process. It was claimed that the summonses were being used as a threat to force the resolution of settlement negotiations.

Justice Brereton said that
“the fact that a party to litigation takes a step in prosecuting that litigation while settlement discussions are continuing does not constitute an abuse of process, even though that step has the effect of putting pressure on the other side. To the contrary, such circumstances are commonplace in liquidation".
The Judge referred to comments in Valofo Pty Ltd (in liq) [2010] NSWSC 1255:
" ... whether or not liquidators have abused the process of an Examination Summons depends upon the same considerations as to whether they have abused any other litigious process which they might have commenced in the course of a liquidation: is the liquidator using the process, whatever it is, for a purpose for which it was not intended or designed or does the liquidator propose not to carry that process to its conclusion, but simply to use it as a means of coercion or to achieve a collateral purpose?"
and concluded that “in my view, what occurred in this case does not begin to approach an abuse of process”. 

The Judge ordered the unsuccessful applicants to pay costs of the liquidators on an indemnity basis.
 See In the matter of Mulsanne Resources Pty Ltd [2013] NSWSC 359.

Supreme Court New South Wales

Medium Neutral Citation

In the matter of Mulsanne Resources Pty Ltd [2013] NSWSC 359

Hearing Dates

Tuesday 12 March 2013

Decision Date

12/03/2013

Jurisdiction

Equity Division - Corporations List

Before

Brereton J

Decision

Application to stay examinations dismissed with costs

Catchwords

CORPORATIONS - EXAMINATION - ABUSE OF PROCESS - whether conduct of examination had become an abuse of process.

Legislation Cited

(Cth) Corporations Act 2001, s 596A

Cases Cited

In the matter of Valofo - Sheahan & Lock as Liq'r of Valofo Pty Ltd (in liq) [2010] NSWSC 1255
Milner as Liquidator of DW Marketing Pty Ltd [2009] BSC 663

Category

Interlocutory applications

Parties

Nathan Leslie Tinkler (First Applicant)
Troy Allan Palmer (Second Applicant)
Matthew Thomas McClelland Keen (Third Applicant)
Amy Louise Hyde (Fourth Applicant)
Proper Officer of Aston Resources Investments P/L (Fifth Applicant)
Blackwood Corporation Ltd (Plaintiff)
Mulsanne Resources P/L (in liq) (Defendant)
Robyn Louise Duggan and John Melluish as liquidators of Mulsanne Resources Pty Ltd (Respondents)

Representation

Solicitors:
DLA Piper Australia (Applicants)
Clayton Utz (Respondents)

Counsel:
A Leopald SC w V Whittaker (Applicants)
C R Newlinds SC w D Sulan (Respondents)

File Number(s)

2012/ 296966

Judgment (ex tempore)

1HIS HONOUR: The present respondents, Robyn Louise Duggan and John Melluish, are the joint and several liquidators of the company Mulsanne Resources Pty Ltd, which was wound up by order of the Court made on 20 November 2012. On 7 February 2013, the liquidators procured examinations summonses to be issued, pursuant to (Cth) Corporations Act 2001, s 596A addressed to four examinees who were officers of the company, namely the first applicant Nathan Leslie Tinkler, the second applicant Troy Allan Palmer, the third applicant Matthew Thomas McClelland Keen, and the fourth applicant Amy Louise Hyde. The examination summonses were returnable on 8 March 2013, with further days appointed for the examinations on 14 and 15 March 2013. When the summonses were called on at 11am on 8 March, they were stood down until 2pm. At 2pm, the examinees foreshadowed the present application and obtained an adjournment of the examinations in aid of it. Pursuant to directions then made, by interlocutory process filed on 8 March 2013, the applicants claim orders staying the examinations. However, a draft minute of order has been handed up today which proposes orders in narrower terms, as follows:

1. That all extant summonses and orders in these proceedings be stayed until the solicitor for the Applicants (that is, the Applicants in the substantive proceedings), or a successor to the present solicitor for the Applicants, delivers to the Registrar of the Equity Division a signed undertaking that neither she (or he) nor anyone assisting her (or him) will represent Blackwood Corporation Limited (or any of its controlled entities) or Noble Group Limited (or any of its controlled entities) in any negotiations or communications concerning the examinations, or documentary production, in these proceedings.

2. A copy of any such undertaking is to be served on the solicitors for the examinees on the same day that it is delivered to the Registrar.

2The essential facts may be shortly summarised. The principal and sole external creditor in the liquidation is Blackwood Corporation Ltd, for whom the law firm Clayton Utz, and in particular Ms Jennifer Ball, acts. Its majority shareholder is a company called Noble Group Limited, for whom Clayton Utz and Ms Ball also act or have acted. Noble and its associates hold 51% of the shareholding in Blackwood.

3Blackwood is apparently a creditor of Mulsanne to the extent of $28.4 million, pursuant to a share placement agreement. It was on that debt that Mulsanne was wound up. The other creditors of Mulsanne amount to about $31,000 in all, and are associates of Mulsanne under the control of Mr Tinkler.

4Blackwood has funded the liquidator to conduct the examinations, and the liquidator has retained Clayton Utz to act for it. Although another lawyer, Mr Moriarty at Clayton Utz, plainly has a role, it is also plain that Ms Ball acts for the liquidators in connection with the examinations.

5On 6 March 2013 - at, it would seem, 2.32am - Andrew Travis of Holman Fenwick Willan Singapore, solicitors acting for the Tinkler interests, sent an email to Mr Moriarty at Clayton Utz, on which Ms Ball was one of several cc addressees, attaching a draft "umbrella deed" for review and comment. That draft deed contemplated that another Tinkler company, called Cayenne would make an offer to acquire the shares in Blackwood, conditional upon satisfaction of the condition precedent that certain orders be made in the winding-up proceedings by 8 March 2013 "and prior to the commencement of any public examinations pursuant to the examination summonses", namely, that the proceedings be dismissed, the examination summonses dismissed and the orders for production set aside. In addition, the draft deed provided for the release by Blackwood and discharge of Mulsanne and associates from all actions, suits, claims, demands and other liabilities which Blackwood now has or may have against them, including the debt which founded the winding-up proceedings, the winding-up proceedings, and the share purchase agreement. The covering email specified that the actions the umbrella deed "captured" included:

1. Ensuring the examinations do not proceed;

2. Providing releases; and

3. Governing the automatic launch of the bid.

6On 7 March, at 1.15pm, Mr Moriarty responded to one Mr Gordon, who was apparently also acting for the Tinkler interests, indicating that the Blackwood board could not accept the proposal in its current form but expressing the position that the board was minded to accept an alternative proposal which included:

3. The current proceedings would be stayed on signing of the documents until completion of a successful bid or successful exercise of the security. Blackwood will also consider dismissing the proceedings on signing of the documents if the terms and strength of the security are of sufficient comfort.

7On 7 March, at 6.05pm, Mr Gordon responded to Mr Moriarty, with a copy inter alia to Ms Ball:

We are happy to try to make this work and would therefore ask you to have the board consider, as quickly as they can, the following:

...

2. BWD confirming in writing (and procuring that the liquidator or its lawyers confirms the same) that the proceedings shall be adjourned until 14 March 2013 (the next date set aside) in order for us to document the transaction including the provision of the bank guarantee/escrow account. Such confirmation from the liquidator (or its lawyers) must also outline that based on the agreed adjournment that the liquidator (or its lawyers) is/are aware and agrees:

(a) that Nathan, Amy, Troy and Matt shall not be required to attend the court proceedings and shall not be called; and

(b) that the production order's requirements for tomorrow shall be adjourned, by consent, until 14 March 2013.

8The document then set out terms of an alternative proposal.

9Communications continued throughout the evening in respect of the alternative proposal and various aspects of it. On 7 March, at 7.28pm, Ms Ball sent an email to Mr Gordon in the following terms:

I have had the opportunity to have a detailed discussion with the Blackwood board ("board")and obtain instructions with respect to your clients' offer.

The board's position is as follows:

1. Not willing to formally consider your clients' proposal until we see evidence of your clients' ability to deliver 15m cash or guarantee on satisfactory terms to the board.

2. Subject to (1), the board is willing to consider standing the examinations down to 2pm tomorrow, provided you can convince our clients that the above cash guarantee will be in place ... prior to the recommencement of proceedings at 2pm tomorrow.

3. The current orders regarding production of documents under the orders of production to remain and are not to be vacated.

...

10Although there is some other evidence, essentially the applicants' case is that enumerated in paragraph (2) of that email which has the effect of converting the examination proceedings, which to that point are not said to have been without proper basis or foundation, into an abuse of process. As I understand the applicants' case, it is in essence that by engaging the same solicitor as Blackwood and empowering that solicitor to make decisions concerning the conduct of the proceedings, the liquidator enabled the examination effectively to be "hijacked" by Blackwood for the purposes of using the spectre of the impending examinations as an inducement (or "leverage") to succumb to Blackwood's terms.

11This needs to be seen in the following context. First, it is not suggested that in their inception and initiation the examination summonses constituted an abuse of process. In other words, there is no suggestion that when issued they were not issued bona fide for the proper purposes contemplated by Corporations Act, s 596A, and the associated provisions of the Act. What is said is that they became an abuse of process because of the manner in which an adjournment was offered as an inducement or in connection with a settlement offer.

12Secondly, the idea that the examinations should not take place, as part of an overall commercial settlement, emanated not from the liquidator, nor from Blackwood, but from the examinees. The proposal in the umbrella deed emanated from the examinees. The stipulation in the email of 6.05pm that the examinees not be required to attend the court proceedings and the production orders be adjourned by consent until 14 March emanated from the examinees. In those circumstances, it seems at least curious that it would be suggested that acceding to such a proposal, albeit for a significantly shorter time than the examinees proposed, would have the effect of converting the proceedings into an abuse of process.

13Thirdly, what was involved was a very minor deviation from the regular progress of the examination, namely, deferring it for a few hours from the appointed time of 11am, until 2pm. It is not as if the liquidator's solicitors embarked on a course of adjourning the examinations indefinitely while it was seen whether a settlement resulted; rather, the liquidator acceded to a very minor deferral of a few hours.

14Fourthly, the evidence establishes that the examination of Mr Tinkler at least could not have gone ahead in any event, because, despite the command of the summons, he was not even in the country.

15Fifthly, the proposed arrangement, if it came to fruition, would not have been without benefit to the company in liquidation, as it would have involved the release of Blackwood's debt (upon which the company had been wound up) and, at least in terms of the offer, the dismissal of the winding-up proceedings. Perhaps what was really contemplated was that, with the release of the Blackwood debt, the company would be in a position to have the winding-up terminated. In an event, there would have been benefit to the company in the release of the Blackwood debt.

16But most importantly, I do not subscribe to the view that the circumstance that the pendency of an examination may impose pressure on an examinee, which that examinee may wish to avoid by entering into commercial negotiations with the liquidator (or the creditors) converts the examination procedure into an abuse of process. In almost every case, an examinee will prefer not to be examined. Even where the examinee has nothing to fear from the examination in terms of what it might expose, it will be disruptive to the examinee in terms of time and cost. There will, therefore, almost always be some reason why an examinee may be interested in exploring a commercial alternative.

17The exploration of a commercial alternative may often make an adjournment desirable or necessary. That does not for a moment mean that the use of the procedure has thereby become improper or an abuse of process, any more than that the timing of steps taken in conventional litigation, which may have the effect of imposing deadlines or time pressures on another party, is improper.

18I have been referred by Mr Leopold, in his helpful submissions, to a judgment of the Supreme Court of Victoria (Gardiner AsJ) in Milner as Liquidator of DW Marketing Pty Ltd [2009] BSC 663, in which his Honour concluded that a letter written by the liquidator's lawyers to examinees which amounted, as his Honour put it, to a threat to use the examination provisions to cause expense and inconvenience to the examinees if their demand was not met, amounted to an abuse of process. That was in a context where negotiations had been on foot between the examinees, who were directors of the company, and the liquidator for some time, without success. The liquidator asserted that he had legitimate insolvent trading claims against the examinees. The letter specified various matters about which the examinees would be examined, including some going to possible criminal liability. Critically, the demand in the letter included amounts which would never have been recoverable against the directors, for such matters as the liquidator's legal costs of the liquidation and expenses.

19Mr Newlinds, on the other hand, referred me to the judgment of Palmer J of this Court in the matter of Valofo, Sheahan & Lock as Liq'r of Valofo Pty Ltd (in liq) [2010] NSWSC 1255, in which application was made to set aside examinations summonses as an abuse of process, the improper purpose being said to be to coerce the examinee into agreeing to terms of settlement with which he otherwise would not have agreed. Palmer J said:

29. However, what is said is that the Court should find as a fact that the Summons was issued and, as it were, held like the sword of Damocles over Mr Seller's head by the liquidators in order to pressure him into agreeing to the terms of settlement which the liquidators sought to impose upon him. If such a purpose was found as a fact to be the purpose or the predominant purpose of the liquidators, then, even though the issue of the Summons in itself could be supportable as a legitimate exercise of the liquidators' power, the purpose for which that power was exercised would be so improper as to lead to the conclusion that the process was an abuse of process.

30. I am very far from satisfied that the liquidators' predominant intention in issuing and proceeding with the Examination Summons was to use the threat of the examination to procure Mr Seller's agreement to terms of settlement to which he otherwise would not have agreed. I accept that the liquidators had in mind that, while settlement negotiations could be pursued, they should also proceed with the litigation in the event that the settlement negotiations came to nothing.

31. The fact that a party to litigation takes a step in prosecuting that litigation while settlement discussions are continuing does not, in itself, constitute an abuse of process even though taking that step has the effect of putting some pressure on the other side to come to agreement or else join battle in Court. Settlement discussions during the course of litigation is commonplace in litigious life. Mr Seller must have been aware of that commonplace by reason of his own professional experience.

20As His Honour points out, the fact that a party to litigation takes a step in prosecuting that litigation while settlement discussions are continuing does not constitute an abuse of process, even though that step has the effect of putting pressure on the other side. To the contrary, such circumstances are commonplace in liquidation. As His Honour also said:

35. It seems to me that whether or not liquidators have abused the process of an Examination Summons depends upon the same considerations as to whether they have abused any other litigious process which they might have commenced in the course of a liquidation: is the liquidator using the process, whatever it is, for a purpose for which it was not intended or designed or does the liquidator propose not to carry that process to its conclusion, but simply to use it as a means of coercion or to achieve a collateral purpose?

21Were it not for the inclusion of unsupportable elements in the demand, I would have expressed the respectful view that Milner was wrongly decided, but it may well be that the decision turns on the fact that the demand included sums that could never have been properly recoverable, which would have been enough to convert an otherwise unobjectionable procedure into an abuse of process. In any event, there is no correlation with that in the present case. A further distinction is that there is no suggestion that in Milner the proposal that the examination be relisted at a certain time emanated from, or as a result of entreaties made by the examinees. In this case, it is plain that the examinees wished the trouble and inconvenience of examination to be avoided if conceivably possible.

22In my view, what occurred in this case does not begin to approach an abuse of process. I order that the interlocutory process be dismissed with costs.

23As to the proceedings before the Registrar on Friday, in my view, the costs of those proceedings should be dealt with, at least in the first instance, by the Registrar. As to the present application, it seems to me that in circumstances where the proposal for the adjournment before the Registrar emanated from the examinees, for them then to assert that the liquidator's partial accession to that proposal converted the proceedings into an abuse of process, is sufficiently tenuous to justify an indemnity costs order.

24The costs that I have ordered be paid by the applicants to the respondents shall be assessed on the indemnity basis.

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