Service on a non resident of an examination summons issued under section 596B Corporations Act

Service on a non resident of an examination summons issued under section 596B Corporations Act

Waller v Freehills [2009] FCAFC 89, Federal Court of Australia, Full Court, Finn, Dowsett and Siopis JJ, 31 July 2009

(a) Summary

This case involved an appeal by Mr Andrew Waller (Waller) from a decision of the primary judge of the Federal Court to give Freehills leave to serve an examination summons on Mr Waller outside Australia by substituted service. This appeal was heard and determined unanimously by Finn, Dowsett and Siopis JJ (the court).

Mr Waller made the following submissions:

  • Primary judge erred in holding that a summons for examination issued pursuant to section 596B Corporations Act 2001 (Cth) (the Act) was an ‘originating process’ within the definition of O 8 r 1 Federal Court Rules.
  • Alternatively, the exercise of discretion by the primary judge miscarried in circumstances where the effect of the order for leave constituted a direct interference with the sovereignty of another country and the threat to a resident of the other state with criminal sanctions not enforceable in that state.

In dismissing the appeal the court held that while a summons for examination is not an ‘originating process’ within the definition of O 8 r 1, section 596B of the Act operates extraterritorially to allow service on a person not resident in Australia. Furthermore, the court found that the primary judge had properly exercised his discretion in the context of the Act and had properly considered the concerns involved in interference with the sovereignty of a foreign state.

(b) Facts

The dispute relates to a transaction that occurred in 2001, whereby New Tel Ltd (New Tel) sought to acquire control of Cable & Telecoms Limited (CAT). Freehills acted for New Tel in the acquisition by providing legal advice. Mr Waller, the applicant, was a director of CAT. During the acquisition, New Tel obtained the transfer of shares in CAT held by Wainter Pty Ltd (Wainter).

In December 2002 New Tel went into administration. Freehills was a creditor of New Tel in relation to unpaid legal fees. Wainter brought an action in the Federal Court alleging that a director of New Tel and a partner at Freehills were liable for $60 million as losses suffered as a result of their alleged misleading and deceptive conduct in relation to the takeover. In particular, the claim relates to whether the true worth of CAT and its assets were disclosed.

This proceeding concerned an application by Freehills for an examination summons directed to Mr Waller for the purpose of determining the merits of Wainter’s claim. Mr Waller was an Australian citizen residing overseas and Freehills was, therefore, seeking to serve the examination summons out of the jurisdiction.

This was an appeal to the Full Court of the Federal Court of Australia from a decision by the primary judge to grant leave to serve the examination summons out of the jurisdiction and that service could be effected by substituted service.

(c) Decision

(i) Whether the Corporations Act and Corporations Rules authorised the making of the orders

Mr Waller contended that sections 596A and 596B the Act were not intended to have extraterritorial jurisdiction and that Rule 11.4 of the Corporations Rules did not allow personal service on persons outside Australia. Section 596A provides that the court must issue a summons for examination about a corporation’s examinable affairs if the person is an officer or provisional liquidator of the corporation. Section 596B provides the court with discretion as to whether to issue a summons for examination in certain circumstances. Rule 11.4 of the Corporations Rules provides that an examination summons issued by the court must be personally served or served in any other manner as the court may direct.

The court found that when sections 596A and 596B are construed in light of section 5 of the Act it is clear that Parliament intended the court to have power and jurisdiction to issue a summons for persons to attend court and be examined whether or not they are resident in or citizens of Australia. Rule 11.4 must be interpreted by reference to the Corporations Act. Accordingly, Rule 11.4 permits substituted service and applies to service in respect of residents and non residents.

The court agreed with Peter Gibson J in In Re Seagull Manufacturing Co Ltd (In Liquidation) [1993] Ch 345 (Seagull) that there is a well-established presumption that legislation is intended to operate territorially but this presumption will give way where there is clear parliamentary intention that a statute is to apply extraterritorially. The court found that sections 596A and 596B apply extraterritorially for the following reasons:

  • The language of sections 596A and 596B is wide enough to apply to persons within their ambit, regardless of where those persons are resident.
  • Section 5 of the Act provides that the Act applies to natural persons and incorporated and unincorporated bodies whether or not they are resident in the jurisdiction.
  • In circumstances of liquidation, those concerned with the corporation’s state of affairs should be liable to be subjected to a process of public investigation regardless of their physical location. Deliberate evasion by removing oneself from the jurisdiction would otherwise be possible.
  • The Corporations Act contains provisions expressly modifying the territorial reach of certain provisions of the Corporations Act, otherwise capable of applying extraterritorially.

(ii) Is an examination summons an “originating process” for the purposes of the Federal Court Rules?

While the court was of the opinion that service could be affected under the Corporations Act and Rules, it nevertheless turned to consider whether service out of the jurisdiction could be affected under O 8 of the Federal Court Rules.

In particular, the question of whether service of an examination summons could be effected under the Federal Court Rules turned on whether it could be characterised as an “originating process”.

The court accepted Mr Waller’s contention that an examination summons is not to be regarded as an “originating process” and therefore service out of the jurisdiction could not be effected under the Federal Court Rules. This construction was adopted by the court for the following two reasons:

  • The Federal Court Rules must be read together with the Corporations Rules. Of particular relevance, the Corporations Rules do not characterise an examination summons as an “originating process”, rather they describe it as an order issued by the court following a hearing commenced by an “originating” or interlocutory process.
  • The Federal Court Rules (O 8 r 3(2)(c) ) require that the court must be satisfied that the applicant has a “prima facie case for relief”. The examination summons simply requires the recipient to attend court for examination and the applicant seeks no relief (the court dismissed arguments that sought to identify the attendance for examination itself, as a form of relief, as involving “an element of artificiality”).

(iii) Whether an examination summons is a ‘document’ which may be served out of the jurisdiction under O 8 r 4 of the Federal Court Rules

Freehills contended that if the examination summons was not an “originating process” to which O 8 r 2 and r 3 applied, it would be a document to which O 8 r 4 applied.

Mr Waller contended that O 8 r 4 had no application to the examination summons since it involves the assertion of extraterritorial sovereignty over a person by issuing coercive orders on that person rather than the service of a ‘document’. Mr Waller further contended that O 8 r 4 is procedural, not jurisdictional and should not operate to confer jurisdiction on the court.

In response to this, the court held that even if O 8 r 4 is limited in scope, section 596B of the Act provides the external statutory jurisdictional source for the court to summons a person not resident in Australia to appear before the court.

Accordingly, the court rejected Mr Waller’s contention that O 8 r 4 was incapable of applying to the examination summons. If sections 596A and 596B of the Act and Rule 11.4 Corporations Rules do not apply extraterritorially, the source of the power to serve the summons lies in O 8 r 4 by reason of Rule 1.3 Corporations Rules.

(iv) Discretion in not refusing to grant leave

Mr Waller contended that the primary judge had erred in granting leave to Freehills to serve the examination summons outside of the jurisdiction because when considering whether to exercise the discretion the primary judge failed to consider the intrusion upon the sovereignty of a foreign state and the fact that there is a criminal sanction for non-compliance with the summons.

The court dismissed this argument, holding that the primary judge was aware of the impact of the examination summons on the sovereignty of a foreign state, and found that concern for comity between the states was exceeded by the strong nexus between Mr Waller and Australia.


Co-authored by David Fixler, Virginia Burns.

Published by SAI Global on behalf of Centre for Corporate Law and Securities Regulation, Faculty of Law, the University of Melbourne with the support of the Australian Securities and Investments Commission, the Australian Securities Exchange and the leading law firms.