In Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (In Liquidation)  HCA 3, the High Court of Australia handed down a decision regarding the purposes for which a Court may summon an officer of a corporation for examination about the corporation’s examinable affairs under s 596A of the Corporations Act 2001 (Act).
The appellants were former shareholders of Arrium. In 2014, Arrium announced a capital raising exercise. In 2015, the company announced that it would suspend or close its mining operations and subsequently acknowledged a significant reduction in the value of its operations.
In 2018, the appellants applied for orders that a former director of Arrium, as well as the auditor and bank who advised on the capital raising, appear for examination and produce documents. A Registrar in Equity made the orders. The respondents sought to have the orders set aside.
In the set aside hearing, it was acknowledged that appellants’ ultimate purpose was to investigate and pursue a potential class action on the behalf of some former shareholders of Arrium against former officers and advisers of Arrium. In the potential class action, the appellants would seek to recover losses sustained as a result of events that occurred during the course of the examinable affairs of the company.
The Court of Appeal decided that the predominant purpose of the examination sought was not to confer a benefit on Arrium, its creditors, or its contributories; rather, the purpose of the examination was to pursue a “private” benefit for only a “limited group” of shareholders. As such, the Court of Appeal decided that the examination served a purpose foreign to s 596A and was therefore an abuse of process.
The High Court by majority (3:2) found that the Court of Appeal erred in limiting the purposes for which an examination may be sought pursuant to s 596A.
The categories for an abuse of process are loosely divided into three overlapping categories:
- the use of the court’s processes for an illegitimate purpose;
- the use of the court’s processes in a manner that is unjustifiably oppressive; and
- bringing the administration of justice into disrepute.
This matter concerned the first category. In their joint judgment, Edelman and Steward JJ summarised the first category as follows:
A better way of expressing the first category of abuse of process is therefore simply to ask whether the predominant means adopted and ends to be achieved by a litigant (in other words, the litigant’s purpose) are consistent with the express or implied scope of the legal process. Where the legal process is statutory, if the purpose of the litigant is consistent with the scope of the legislation, then it will not usually matter whether the litigant has some ulterior motive. After the identification of the litigant’s predominant means and ends, the question that is “implicit in, indeed at the very heart of, that process” is to ask whether the “scope and purpose of the statute” will be contradicted or stultified.
There was little in dispute about the purpose of the appellant’s application, being to investigate and to pursue personal claims in their capacity as shareholders against the former directors and auditors of Arrium. The focus was whether this purpose fell within the scope of s 596A.
In determining s 596A’s purpose, the High Court reviewed the legislative history behind the current criteria for obtaining an examination, observing that it significantly widened in terms of the range of eligible applicants, and expanded the scope of the examinations by the broad definition of “examinable affairs”.
The statutory history, context, and terms of s 596A demonstrated that a characterisation of the purpose of s 596A at a higher level of generality should not be curtailed by “muffled echoes of old arguments” concerning its predecessors. As the scope of application of s 596A expanded, so did its underlying purpose and concern.
Reference was made to the fact that ASIC or persons authorised by ASIC could apply for a summons under s 596A in the furtherance of ASIC’s statutory duties, something the appellants submitted may ultimately confer no benefit on a company, its creditors, or its contributories. It followed that:
Legitimate purposes under s 596A therefore include the enforcement of the Corporations Act, the promotion of compliance with that Act, and the protection of shareholders or creditors from corporate misconduct. An examination conducted for a purpose that included investigating the possible existence of misconduct on the part of a company’s officers might be expected to serve the public interest in ways such as these. Hence, regardless of whatever ultimate purpose a litigant might have, a summons that is sought for a substantial purpose that includes the public purpose of enforcement of the Corporations Act, whether by ASIC or another eligible applicant, is not a summons sought for a purpose foreign to s 596A in the sense that it is inconsistent with the purposes of s 596A. And the purpose of enforcement of the Corporations Act includes examination for the purpose of determining whether relief might be obtained in respect of potential corporate misconduct.
A summons for examination will not be an abuse of process unless the predominant purpose of the examination would contradict the public interest in the external administration of a company.
The High Court concluded that Arrium’s shareholders wanting to examine an officer of Arrium for the purpose of pursuing a claim against Arrium’s officers or advisers for the enforcement of the law was a legitimate use of the power conferred by s596A. Similarly, the pursuit of the claim for the benefit of some shareholders can be just as legitimate as a claim made for all shareholders. In both cases, money recovered from corporate misadventures serves the public interest of law enforcement and compliance with the law.
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