Tuesday Law Report: Request for examination of witness wrongly refused

THE ENGLISH court was not precluded from granting a liquidator's request made by the Supreme Court of Australia for the examination of a witness after proceedings had been commenced merely because such a request would have been refused in English proceedings.

The Court of Appeal allowed the appeal of the liquidator of a company in Australia against the refusal of a request made on his application by the Supreme Court of Australia for the examination of the respondent, Mr Brian D. Smith.

By a letter of request the Supreme Court of South Australia had requested the Companies Court to exercise its jurisdiction pursuant to the provisions of section 426 of the Insolvency Act 1986 to assist it by making an order for the examination of Mr Smith, who was at the material time a partner in Arthur Andersen (UK). Arthur Andersen (Australia) were the statutory auditors of Southern Equities Corporation Ltd.

In 1994, the liquidator commenced proceedings against Arthur Andersen in the Supreme Court of South Australia, claiming damages for negligence and breach of duty, contractual, statutory and fiduciary, in the conduct of the audit of the company's accounts for 1988.

The judge determined that he had jurisdiction to make the order sought by the combined effect of section 596B of the Corporations Law (Aust) and section 426 of the 1986 Act. He found, in the light of the expert evidence before him, that a judge in South Australia exercising the discretion conferred on him by section 596B would make such an order.

He decided, however, that the fact that a comparable application under section 236 of the 1986 Act, made by the liquidator of a company being wound up in England after proceedings had been commenced, would be rejected because the potential for oppression of the witness outweighed any perceived advantage to the liquidator, was a good and sufficient ground for refusing to make the order.

He held that the purpose of section 426(5) was to extend the jurisdiction of the English courts, and that it would be wrong to use that extended jurisdiction to make orders which the English court could, but would not, have made because it thought them unfair.

Leslie Kosmin QC (Withers) for the liquidator; Gabriel Moss QC and Sue Prevezer for Mr Smith.

Lord Justice Morritt said that, once the Companies Court had chosen to apply section 596B, section 236 ceased to have any relevance.

It was not possible to divorce from a provision of insolvency law, which conferred a jurisdiction on the court of the relevant country, the principles and practice by which that jurisdiction was exercised by that court. If it were otherwise, section 426 would be deprived of much of its effect.

It was clear that the principles observed by the Australian courts were as directed towards avoiding oppression of the examinee as were those underlying section 236: what was different was the method by which that goal was to be achieved.

Further, it was plain that one object of section 426 was to provide for some form of reciprocal assistance for insolvencies with an international dimension, and it would be inconsistent with the framework provided for by that section that the Companies Court, having elected to apply the insolvency law of the requesting court, should then stigmatise either the substantive law, or the exercise by the requesting court of the jurisdiction thereby conferred, as excessive.

Moreover, if the request might properly be granted by the application of the law of the requesting court, for the English court to refuse to accede to the request would involve giving no weight to the fact of the request.