Class Actions and Examinations

In ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) v Michael Thomas Walton [2020] NSWCA 157, the NSW Court of Appeal clarified the scope of examination and production orders for investigative purposes in a potential shareholder class actions.

The case concerned shareholders of Arrium seeking to utilise the examination process under the Corporations Act 2001 (Cth) to effectively determine the viability of possible claims that could be brought against Arrium Ltd (in liq) (Arrium), its directors and auditor.

Key Points

  • Examination orders cannot be sought by application for any desired purpose of the applicant. The stated purpose must coincide within the scope of the power conferred by the Court provided that the predominant purpose is to benefit the company, its contributors and creditors.
  • Examinations sought for a private purpose will be dismissed as an abuse of process. This includes the purpose of investigating a possible class action.
  • All material submitted to Australian Securities and Investments Commission (ASIC) and related bodies in support of an application, will be examined and scrutinized by the Court.


Arrium, a publicly listed company, was a significant mining and producer of steel and iron ore, holding assets which included the South Iron mining operation.

Following a capital raising announcement released to the market in September 2014, Arrium had successfully completed a fully unwritten $754 million capital raising effort to pay down its accrued company debts by October 2014.

Published in its half yearly results, Arrium had then formally announced the closure of its Southern Iron Mining operation which consisted of a recognised $1.335 billion impairment to the value of its mining operation. On 7 April 2016, Korda Mentha were appointed as administrators to Arrium and subsequently appointed as liquidators on 20 June 2019.

In April 2018, shareholders of Arrium communicated with the ASIC seeking ‘eligible applicant’ status under section 597(5A)(b) of the Corporations Act 2001 (Cth) so as to examine Arrium’s directors and auditor.

It was communicated to ASIC that the purpose for their participation was to primarily determine whether the published financial results and information supplied to investors “adequately or fairly” portrayed the “true state of Arrium’s business”, and to determine the possibility of claims being brought against Arrium, its directors or its auditor [8].

Upon approval by ASIC, the shareholders sought to examine Mr Galbraith, a former director of Arrium, and orders for the production of documents from its auditors, KPMG and UBS AG, who advised on the capital raising.

Notably, the shareholders had published the details of their proposed claims on a website to inform other participants of the possible class action. Such claims included:

  • a potential claim against Arrium and its directors for misrepresentations made to the market in its Information Memorandum to investors in relation to the company’s true financial position and its capital raising exercise; and/or
  • a potential claim against Arrium’s auditors, KPMG, for negligence and misleading and deceptive conduct arising from published financial reports.

Primary Judgment

Shareholders pursued the matter in the Supreme Court of NSW and, at first instance, Black J dismissed Arrium’s application to set aside the summons for examination and orders for document production. His Honour allowed the examination and held that there was no apparent abuse of process as the shareholders sought to examine on the same matter in which the liquidators could have exercised.  

With respect to the information provided to ASIC, His Honour noted that although the predominant purpose for such orders was to investigate personal claims by the shareholders, the information likely to be produced by the examination would also likely advance the interests of Arrium [36].

Court of Appeal Decision

In the NSW Court of Appeal, Bathurst CJ, Bell P and Leeming JA unanimously overturned Black J’s decision in favour of Arrium.

The Court of Appeal considered the predominant purpose for which examination and production was sought.. IThe Court of Appeal determined that the purpose was to pursue personal claims of shareholders who had purchased shares at a particular time, and that such purpose amounted to an abuse of process. The Court of Appeal clarified that the examination power may only be conferred in circumstances where the predominant purpose was to benefit the company, its contributors and creditors.  

As the examination would have brought a primary benefit to a limited class of shareholders rather than the company, the Court deemed this to be a private or personal purpose and, as such, was out of scope for the conferral of the power. Notwithstanding this, Black J found that the examination ‘would also likely advance the interests of Arrium and its creditors’, in the circumstances of the application, the Court of Appeal held that this was not considered to be the predominant purpose in seeking orders for examination and production by the shareholders in this matter.

Consequently, the Court of Appeal held that the orders were sought for a purpose deemed to be foreign to the conferral of such powers. As a result, both the examination and orders for production were dismissed as an abuse of process.