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Will last week’s High Court decision result in increased litigation?
The implications of a mid-February judgment from the High Court of Australia could be significant for litigators, including “clear” opportunities for class action promoters, argued one award-nominated partner.
Jerome Doraisamy
Last week, the High Court handed down its decision in Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liquidation) [2022] HCA 3, which considered when the mandatory examination power under s596A of the Corporations Act could be utilised.
This case, he explained, clarified that a summons under s596A does not constitute an abuse of process merely because its purpose does not confer a benefit upon the company.
Why this case is so important
Holistically, Mr Withane noted, the decision in Walton is a meaningful one because the court’s wider interpretation of the provision differs substantially from previous authorities.
As such, he said, the “true purpose of s596A is properly aligned with public policy interests and the enforcement of the law, and ASIC is the body who has been charged to accomplish this task”.
“Hence, it is open for ASIC to think that the public interest is being served by a grant of ‘eligible applicant’ status for a party seeking a public examinations summons and the court should not frustrate ASIC’s regulatory abilities by preventing this,” he explained.
Challenges for litigators
ASIC, Mr Withane went on, “may effectively become a gatekeeper figure”, as they are required to grant “eligible applicant” status.
“This might make them more reluctant to grant this status in order to prevent the onslaught of litigation, and consequently parties seeking the summons might have to do more to convince ASIC of the merits in granting ‘eligible applicant’ status,” he outlined.
“On the other hand, litigators who are representing the recipient of a s596A summons will find they have far greater difficulty rebutting the validity of public examinations.”
Opportunities elsewhere
For class action promoters, Mr Withane submitted, the opportunities are “clear”.
Public examinations can be a lot faster and more cost-effective than traditional discovery, he detailed, and litigators may well choose to rely on them in place of discovery.
“Furthermore, as the minority [of HCA] observed, the decision has also opened the floodgates for public examinations for reasons wholly unrelated to the external administration such as ‘industrial disputes’ or even ‘personal injuries claims’.
“Litigators working on such claims might consider utilising public examinations to identify other shareholders or parties with a vested interest,” he said.
Utilising the public examination process, Mr Withane continued, can help potential litigants to access information that would not otherwise be publicly available and therefore assess the merits of a claim.
“On the flipside, evidence gathered in the public examination process might avert litigation in circumstances where the examinations produce significant gaps, or the information obtained undermines any proper legal basis to bring a claim,” he hypothesised.
“This could be significant, because in some circumstances, litigants only discover this reality after service of evidence and discovery which can occur many months into litigation proceedings with the risk of adverse costs.”
Litigators who are representing parties who have a vested interest in a failed company can and should interpret this decision as an opportunity, Mr Withane surmised.
“The decision, which will have the effect of allowing broad new classes of applicants to utilise public examinations, may give examinations a far more litigious nature,” he predicted.
“Litigators might consider that utilising the public examination process might help them to put pressure on potential defendants to settle early or any evidential gaps before starting litigation.
“This is especially important in circumstances where public examinations do not give rise to adverse cost consequences in the same way as litigation.”
Other reflections
The implications of Walton on risk management departments, Mr Withane mused, are also “significant”.
“Companies and legal counsel will now have to develop new disclosure processes and practices bearing in mind the prospect of being subjected to a mandatory public examination for a much wider range of purposes,” he suggested.
“Directors and officers should also try to ensure that they have D&O policies that include responding to public examinations summonses – this could serve to defray what are sometimes hefty compliance costs.”
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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