The significant increase in the number of companies passing into liquidation in the current economic climate has focussed Courts on whether they can summons a non-resident. Dispute Resolution Associate, Justin Le Blond, examines the position.
It is in this climate that there has been an increasing need to clarify whether persons (with knowledge about the examinable affairs of a company) who reside or have absconded overseas can be issued with a summons for examination by an Australian Court. The Full Court of the Federal Court of Australia in Western Australia recently gave judgment in Waller v Freehills (Waller), and upheld that Australian Courts have powers to issue summons for examination under sections 596A and 596B of the Corporations Act 2001 (Cth) (Corporations Act) extraterritorially.
In Waller, it was argued by the plaintiff that:
- a proper construction of rule 11.4 of the Federal Court (Corporations) Rules did not authorise service of any summons for examination outside the jurisdiction of the Commonwealth of Australia;
- sections 596A and 596B of the Corporations Act could not provide a source of statutory jurisdiction for the Court to summons a non-resident of Australia to appear before it and be examined on the basis that the Corporations Act did not have extraterritorial effect;
- there was a presumption that the legislation was intended to operate territorially.
In considering the weight of these arguments, the Full Court turned to Lockhart J’s observations in Re Deposit which held that “the rules of the High Court, of this Court and of all the Australian Supreme Courts contain provisions for the service of process outside the jurisdiction”. Reference was also made to Order 8 of the Federal Court Rules which “gives the Court power to assume jurisdiction over persons not resident in Australia by authorising the service of the court’s process on those persons, in circumstances where there is a connecting factor between the subject matter of the proceeding involving the non-resident, and Australia”.
The Full Court considered that legislation which operates extraterritorially may be an additional source of power that gives the Court the ability to assert jurisdiction over non-residents, citing UK case, Re Seagull Manufacturing Co Ltd (in liq) (Re Seagull), as authority. Re Seagull held that there is a well-established presumption that legislation is intended to operate territorially but that such a presumption could be displaced if it was clear that there was a parliamentary intention that the legislation should apply extraterritorially.
Applying the approach in Re Seagull, the Federal Court found that Parliament had intended by the enactment of section 5 of the Corporations Act definition of “jurisdiction” to displace the presumption that the Corporations Act was only to apply territorially and that there was nothing in the tenor of sections 596A and 596B to suggest that Parliament should not give the provisions extraterritorial effect.
Accordingly, the Full Court held that:
- the language within sections 596A and 596B was wide enough to apply to persons regardless of their residency;
- there were policy considerations to suggest that Parliament legislated to give sections 596A and 596B extraterritorial effect; and
- the Corporations Act expressly modified the territorial reach of certain other provisions, which could only be construed that sections 596A and 596B apply extraterritorially.
Seeking the assistance of a foreign Court in relation to an external administration matter
Australian Courts have the statutory power to “request … 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”, pursuant to section 581(4) of the Corporations Act.
Justice Barrett of the Supreme Court of New South Wales in Re HIH Insurance Ltd held that a letter of request should be directed to a foreign Court if three conditions are first satisfied:
- the situation is within section 581(4) of the Corporations Act
- there is some good substantive reason for the request
- 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.
A recent NSW Supreme Court decision in McGrath and Anor as Liquidators of HIH Insurance Ltd approved the above factors of consideration and subsequently made an order, pursuant to section 581(4) of the Corporations Act, to request the High Court of Hong Kong to act in aid of, and be auxiliary to, the NSW Supreme Court in relation to summoning a person for examination.
The Waller decision confirmed the Court’s power to issue a summons for examination to a person who resides outside the jurisdiction of Australia irrespective of whether they are an Australian citizen or not. The Full Court recognised that the intention of Parliament would be undermined if it was held that sections 596A and 596B could not be applied extraterritorially.
Accordingly, the decision of Waller acts as a warning to directors and officers of Australian companies that Australian Courts will ensure that they remain accountable for their involvement in Australian companies, notwithstanding geographical constraints.