Hyundai Engineering & Steel Industries Co Ltd v Alfasi Steel Constructions (NSW) Pty Ltd [2018] FCA 1054

FEDERAL COURT OF AUSTRALIA 

FILE NUMBER: NSD 976 OF 2018

JUDGE: O’CALLAGHAN J

DATE OF JUDGMENT: 13 JULY 2018

CATCHWORDS: ARBITRATION – international arbitration – where award creditor brought proceedings to enforce award obtained in Singapore – whether proceeding brought by award creditor to enforce foreign award should be adjourned – where award debtor seeks to set aside the award in part in the High Court of the Republic of Singapore – application of s 8(8) of the International Arbitration Act 1974 (Cth) – adjournment granted on condition that award debtor provide security for full amount of the award plus interest

LEGISLATION: International Arbitration Act 1974 (Cth), ss 8(I), 8(3), 8(8)

CASES CITED:

  • Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905
  • IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2005] EWHC 726
  • Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208

DATE OF HEARING: 10 JULY 2018

REGISTRY: NEW SOUTH WALES

DIVISION: GENERAL DIVISION

NATIONAL PRACTICE AREA: COMMERCIAL AND CORPORATIONS

SUB-AREA: INTERNATIONAL COMMERCIAL ARBITRATION

 

ORDERS

BETWEEN: HYUNDAI ENGINEERING & STEEL INDUSTRIES CO LTD 

Applicant

AND:              ALFASI STEEL CONSTRUCTIONS (NSW) PTY LTD

Respondent

 

THE COURT ORDERS THAT:

1.           The respondent have leave to amend paragraph 2 of its interlocutory application filed on 22 June 2018 by substituting the following: “The proceeding for the enforcement of the Award be adjourned pursuant to either subsection 8(8) of the International Arbitration Act 1974 (Cth), or, alternatively, pursuant to the Court’s general power to control its own process, until such time as the respondent’s application to the High Court of the Republic of Singapore is determined”.

2.           Pursuant to subsection 8(8) of the International Arbitration Act 1974 (Cth), the proceedings be adjourned to 30 November 2018 before O’Callaghan J for further mention.

3.           The adjournment in order 2 is conditional upon the respondent providing security for the Award in the manner and period set out in order 4, in the sum of AUD $7,900,542.41 (the secured sum).

4.           The security in order 3 shall be provided within 21 days in the form of:

(a)          payment into court of the secured sum, such sum to be invested by the Registrar in an interest bearing account; or

(b)          payment of the secured sum into an interest bearing account under the control of the respondent’s solicitors in Melbourne, such monies to be invested until further order on reasonable terms that the parties agree or as the court may further order; or

(c)          on-demand bank guarantee payable in the secured sum on the demand of the Registrar of the Federal Court of Australia on such terms as the parties may agree or the court may further order.

5.The parties may agree in writing to vary the secured sum and the form of security provided for in order 4.

6.There be liberty to apply to O’Callaghan J in connection with these orders.

7.The respondent pay the applicant’s costs of and incidental to the respondent’s interlocutory application filed 22 June 2018.

 

REASONS FOR JUDGEMENT

The proceeding

  1. This is an application by the respondent (Alfasi) to adjourn the further hearing of this proceeding, in which the applicant (Hyundai) seeks to enforce an international arbitral award, so that it may run its case in the High Court of the Republic of Singapore (Singapore being the seat of the arbitration) that significant parts of the award be set aside. Alfasi says that it should be granted the adjournment without having to provide security. Hyundai opposes the application and says that Alfasi’s application for an adjournment, if it is to be granted at all, should be granted only if it provides satisfactory security for the amount Alfasi was ordered in the arbitration to pay, plus additional interest.The facts
  2. The following description of the relevant facts is taken largely from the written submissions of counsel for Hyundai, Mr Hogan-Doran. Counsel for Alfasi, Dr Trichardt, accepted their accuracy.
  3. Hyundai is a company incorporated in the Republic of Korea.
  4. The respondent, Alfasi, is an Australian company and the wholly owned subsidiary of Alfasi Group Investments Pty Ltd (Alfasi Group).
  5. On 23 December 2013, Hyundai and Alfasi entered into a “Sub-Subcontract” by which Hyundai agreed to fabricate and deliver steel for use by Alfasi in the construction of the Sydney International Convention Exhibition and Entertainment Precinct in Darling Harbour, including an exhibition hall and a theatre (the Project).
  6. By clause 45.2 of the Sub-Subcontract, the parties agreed that the agreement would be governed by the law of New South Wales and that the parties would submit to the non-exclusive jurisdiction of the courts of New South Wales.  By clause 45.3, the parties agreed that “any dispute or difference arising out of or in connection with” the Sub-Subcontract “shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (the SIAC) for the time being in force”.  The relevant rules were the Arbitration Rules, 5th edition dated 1 April 2013 (the SIAC Rules).
  7. During the course of the Project, a dispute arose between Hyundai and Alfasi in connection with delays in the performance of work by Hyundai in relation to the theatre and the exhibition hall within the Project.
  8. On 29 February 2016, in accordance with clause 45.3 of the Sub-Subcontract, Alfasi commenced arbitral proceedings by notice of arbitration issued under the SIAC Rules.
  9. On 11 May 2016, Mr. Alvin Yeo SC was appointed sole arbitrator (the Arbitrator).
  10. After various interlocutory steps, including pleadings and the service of evidence, the hearing of the arbitration took place over eight days in Singapore on 13 to 16 June 2017 and 19 to 22 June 2017.
  11. During the course of the arbitral hearing, a principal issue was the question of responsibility for delay in the execution of steel manufacturing works by Hyundai for the Project; whether Hyundai was responsible for over 200 days of delays and, as such, liable for liquidated damages; or whether Alfasi was responsible for delays including by reason of its failure to provide adequate drawings in a timely manner thus disentitling Alfasi to liquidated damages and entitling Hyundai to extensions of time (EOTs) and delay-related costs. Alfasi claimed that it was entitled to $19m by way of liquidated damages, as follows:

    As the Respondent [Hyundai] failed to achieve Practical Completion by the Date for Practical Completion in respect of the Exhibition Hall and Telstra Theatre, pursuant to clause 38.1 of the Sub-Subcontract, the Respondent is liable to the Claimant for liquidated damages at the rate stated in item 29 of Schedule 1 for every day after the Date for Practical Completion and including the Date of Practical Completion as follows:-

    Exhibition Hall – AUD $40,000 per day

    Telstra Theatre – AUD $40,000 per day

    The Claimant therefore claims the following as liquidated damages:

    (254 + 224) x AUD$40,000 = AUD $19,120,000

  12. On 9 March 2018, the Arbitrator issued his final award (the Award). The Arbitrator found that:

    (1)          the main cause of relevant delays was the failure by Alfasi to provide adequate drawings in a timely manner during the analysed time periods (referred to as “Windows”);

    (2)          Hyundai was entitled to an extension of time to the Date of Practical Completion of the Exhibition Hall (21 October 2015) of 197 days and an extension of time to the Date of Practical Completion of the Theatre (18 June 2015) of 167 days; and

    (3)          within that total, the conduct of Alfasi in the delay in provision of adequate drawings was an act of prevention causing 88 days’ delay in respect of the theatre during Window 3 (the Theatre Finding) and 86 days in respect of the Exhibition Hall during the same period (the Exhibition Hall Finding).

  13. The Arbitrator awarded Hyundai A$5,584,148.39 to the date of the Award, comprising:

    (1)          A$5,001,026.19 (net of payment for the parties’ claims and counterclaims);

    (2)          A$555,993.32 by way of pre-Award interest (to 31 January 2018); and

    (3)          A$753.58 per day from 1 February 2018 to 9 March 2018, being A$27,882.46.

  14. The Arbitrator further awarded Hyundai US$1,502,958.86 in costs of the arbitration.
  15. The Arbitrator’s declarations on the claims and counterclaims that resulted in the net payment to Hyundai of A$5,001,026.19 were recorded in the Award as follows:

    521.     The Tribunal declares that:

    (a) the Respondent [Hyundai] is entitled to an extension of time to the Date of Practical Completion of the Exhibition Hall (21 October 2015) of 197 days and an extension of time to the Date of Practical Completion of the Theatre (18 June 2015) of 167 days;

    (b) the Respondent is liable to the Claimant [Alfasi] in the amount of AUD 5,637,147.66 in respect of the Claimant’s claims:

    (i) AUD 4,160,000.00 in liquidated damages for delay;

    (ii) AUD 645,626.16 in damages for the Claimant’s Omitted Works Claims; and

    (iii) AUD 831,521.50 in damages for the Claimant’s Defects Claims;

    (c) the Claimant is liable to the Respondent in the amount of AUD 10,638,173.85 in respect of the Respondent’s counterclaims:

    (i) AUD 4,764,247.00 for unpaid progress payments and the returns of Retention Moneys;

    (ii) AUD 1,962,544.79 for the additional costs incurred by the Respondent in complying with the Claimant’s Directions;

    (iii) AUD 305,223.00 for the unpaid amounts for the Surplus Steel ordered by the Claimant; and

    (iv) AUD 3,606,159.06 for the return and/or reimbursement of the amount called by the Claimant under the Respondent’s Performance Bond;

    (d) the Claimant shall pay the Respondent the net amount of AUD 5,001,026.19, after setting off the sum of AUD 5,637,147.66 payable from the Respondent to the Claimant in respect of the Liquidated Damages, Defects and Omitted Works Claims (see sub-paragraph (b) above) against the sum of AUD 10,638,173.85 payable from the Claimant to the Respondent in respect of CC1, CC2, CC3, CC4 and CC5 (see sub-paragraph (c) above)

  16. The arbitrator also:

    (1)          ordered Alfasi to pay interest at 5.33% per annum on the principal amount of A$5,001,026.19 and on the costs of US$1,502,958.86 from the date of the Award until paid in full;

    (2)          made orders as to who shall bear the costs of the arbitration (i.e. arbitration fees), allocating 70% of the burden on Alfasi and 30% of the burden on Hyundai, entitling the Hyundai to reimbursement; and

    (3)          declared that Hyundai was entitled to extension of time to the Date of Practical Completion of the Exhibition Hall (21 October 2015) of 197 days and an extension of time to the Date of Practical Completion of the Theatre (18 June 2015) of 167 days.

  17. On 29 March 2018, Alfasi made an application to the Arbitrator for correction and further interpretation of the Award under Rule 29 of the SIAC Rules.
  18. On 25 April 2018, the Arbitrator refused the application for correction and interpretation.
  19. On 6 June 2018, Hyundai filed the originating application in this proceeding, seeking to enforce the award.
  20. On 8 June 2018, Alfasi filed an originating application in the High Court of the Republic of Singapore to set aside the Award (the Singapore proceeding). (Singapore has implemented the UNCITRAL Model Law on International Commercial Arbitration (Model Law) which governs the question).
  21. In the Singapore proceeding Alfasi seeks to set aside the Award on these grounds:

    (1)          the Theatre Finding was beyond the scope of the submission to the Arbitrator, i.e. it was the determination of “a difference not contemplated by, or not falling within the terms of, the submission to the Arbitrator, or contains a decision on a matter beyond the scope of the submission to arbitration”: see Art 34(2)(a)(iii) of the Model Law, which corresponds to the same ground in the case of enforcement of the Award to Art 36(1)(a)(iii), which is in the same terms as s.8(5)(d) International Arbitration Act 1974 (Cth) (the IAA) and Art V(1)(c) of the New York Convention.

    (2)          each of the Theatre Finding and the Exhibition Hall finding was arrived at in breach of the rules of natural justice: see s 24(b) of the Singapore International Arbitration Act, which is the same ground in Art 34(2)(b)(ii) of the Model Law, which corresponds to s 8(7)(b) IAA and Article V(2)(b) of the New York Convention.

  22. On 22 June 2018, Alfasi filed an application for an adjournment of Hyundai’s application to enforce the Award. At the hearing, it sought leave, which was not opposed, to amend paragraph 2 of the application by substituting it with language substantially similar to this: “The proceeding for the enforcement of the Award be adjourned pursuant to either subsection 8(8) of the International Arbitration Act 1974 (Cth), or, alternatively, pursuant to the Court’s general power to control its own process, until such time as the respondent’s application to the High Court of the Republic of Singapore is determined”.
  23. By oral application made in Court on 25 June 2018, Hyundai sought an order for security in the event of an adjournment being granted.
  24. The Singapore proceeding will be heard in November 2018.Relevant provisions/principles
  25. Section 8 of the IAA provides for the recognition of foreign awards. Subsections (1) and (3) of s 8 provide:

    8 Recognition of foreign awards

    (1) Subject to this Part, a foreign award is binding by virtue of this Act for all purposes on the parties to the arbitration agreement in pursuance of which it was made.

    (3) Subject to this Part, a foreign award may be enforced in the Federal Court of Australia as if the award were a judgment or order of that court.

  26. Section 3 of the IAA defines “foreign award” to mean “an arbitral award made, in pursuance of an arbitration agreement, in a country other than Australia, being an arbitral award in relation to which the Convention applies”.
  27. The parties do not dispute that the requirements of s 8 of the IAA are satisfied. An arbitral award was made, in pursuance of an arbitration agreement, (viz clause 45.3 of the Sub-Subcontract) in a country other than Australia (Singapore). The Award is an “arbitral award” (within the meaning of s 3 of the IAA) as defined in the 1958 New York Convention in Sch 1 to the IAA (as defined in Article I of the Convention), being an award that is “made in the territory of a State [Singapore] other than the State [Australia] where the recognition and enforcement of” the award “is sought”; and it arises out of differences between persons, whether physical or legal.
  28. It follows that the Award is prima facie liable to be enforced in Australia under the IAA.
  29. Alfasi relies upon s 8(8) of the IAA as the source of power for this Court to adjourn this proceeding. It also relies on the court’s undoubted general power to control its own processes. Subsection 8(8) provides:

    8        Recognition of foreign awards

    (8) Where, in any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court is satisfied that an application for the setting aside or suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made, the court may, if it considers it proper to do so, adjourn the proceedings, or so much of the proceedings as relates to the award, as the case may be, and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

  30. As Foster J explained in Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905, [56]-57], subsections (9), (10) and (11) of s 8 of the IAA give to the court significant power to monitor and supervise the enforcement proceeding during any period of adjournment granted under [subsection] (8) and recognise the need for the court “to keep a close and active eye on the progress of the foreign proceedings which will have underpinned any adjournment granted under subsection (8)”. Those subsections provide:

    (9)  A court may, if satisfied of any of the matters mentioned in subsection (10), make an order for one or more of the following:

    (a)  for proceedings that have been adjourned, or that part of the proceedings that has been adjourned, under subsection (8) to be resumed;

    (b)  for costs against the person who made the application for the setting aside or suspension of the foreign award;

    (c)  for any other order appropriate in the circumstances.

    (10)  The matters are:

    (a)  the application for the setting aside or suspension of the award is not being pursued in good faith; and

    (b)  the application for the setting aside or suspension of the award is not being pursued with reasonable diligence; and

    (c)  the application for the setting aside or suspension of the award has been withdrawn or dismissed; and

    (d) the continued adjournment of the proceedings is, for any reason, not justified.

    (11)  An order under subsection (9) may only be made on the application of a party to the proceedings that have, or a part of which has, been adjourned.

  31. As Foster J also noted (Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905, [58]) subsection 8(8) of the IAA reflects the terms of Art VI of the Convention (which was adopted in 1958 by the UN Conference on International Commercial Arbitration). The English text of the Convention is Schedule 1 to the IAA. Article VI provides:

    ARTICLE VI

    If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

  32. After quoting Article V(1)(e), Foster J explained:

    59. Article V(1)(e) provides that recognition and enforcement of a foreign arbitral award may be refused if the party against whom enforcement is invoked proves to the satisfaction of the authority by which enforcement is sought that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

    60. Article VI supports Art V(1)(e). It is designed to preserve the status quo in order to enable an application to set aside or suspend the award to be made in the country where it was made.

    61. Article V(1)(e) is substantially reproduced in s 8(5)(f) of the IAA. Section 8(5) provides that the Court may refuse to enforce a foreign arbitral award if the party against whom the award is sought to be enforced proves to the satisfaction of the Court that the award has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made.

    62. Section 8(8) of the IAA is, therefore, intended to protect the position of a party in Australia against whom enforcement of a foreign arbitral award is invoked under s 8 of the IAA in circumstances [where] a bona fide application for the setting aside or suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made provided that the Court is satisfied, having taken account of all relevant facts and circumstances in the exercise of its discretion, that an adjournment of the enforcement proceedings is justified.

  1. In this case, it was not disputed that this is a proceeding in which the enforcement of a foreign award is sought and that Alfasi has made an application for the setting aside or suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made within the meaning of subsection 8(8) of the IAA. The Court’s discretion under that provision is, therefore, engaged.
  2. I turn now to consider the principles that guide the exercise of that discretion, including whether suitable security should be ordered as condition of any adjournment.
  3. In Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905, Foster J made these helpful and apposite observations about how that discretion is to be exercised:

    70. Section 8(8) gives to the court a wide discretion to adjourn an enforcement proceeding (“… may, if it considers it proper to do so …”). The court is also given a specific power to order “… suitable security …” if the party seeking enforcement of the award requests it …

    71. What is “suitable security” in any given case will depend upon all of the circumstances under consideration in that case. The concept covers:

    (a) the quantum of the security;

    (b) the type of security;

    (c) the terms and conditions upon which the security is to be provided, including the circumstances in which it might be called upon by the enforcing party.

    72. Factors to be considered by the court when ordering security would include the subject matter of the award; the history of the parties’ dealings (especially with each other) since the making of the award; the enforcing party’s prospects of enforcing the award; and the potential for the party against whom enforcement is sought to resist enforcement by, for example, applying to suspend or set aside the award in the jurisdiction where it was made.

    73. “Suitable” is a word which calls into play a wide range of discretionary factors. The discretion to order security, like the discretion to adjourn enforcement proceedings, must be exercised by having regard to the objects of the IAA [in s 2D] and the rationale underlying the convention.

  4. Foster J then turned to consider the relevant decisions in the United Kingdom, in particular the decision of Staughton LJ (with whom Neill LJ and Roch LJ agreed) in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 and the decision of Gross J in IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2005] EWHC 726, each of which sets out factors to be considered in adjournment applications of this sort. His Honour observed:

    76. In the United Kingdom, the leading authority on the approach to be taken by the courts of that country when dealing with an adjournment application under a provision expressed in very similar terms to s 8(8) of the IAA is Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208. In that case, at 211, Staughton LJ held that the mere existence of proceedings to challenge an award in another jurisdiction did not, of itself, require the UK courts to refuse enforcement for the time being and to adjourn the enforcement proceedings. His Lordship also held that the enforcing court should examine for itself the strength of the arguments in the foreign jurisdiction for setting aside or suspending the award. If those arguments are strong, an adjournment will be granted, probably without security. If those arguments are weak, an adjournment may be refused or, if granted, only granted upon terms that substantial security be provided.

    77. The enforcing court’s assessment of the strength of the arguments in support of setting aside or suspending the award would ordinarily be undertaken on incomplete material and in circumstances where only the briefest consideration of the arguments would be appropriate. It would not be sensible or appropriate for the enforcing court to second-guess the judgment of the foreign court or authority called upon to rule on the application to set aside or suspend the award nor would it be sensible or appropriate for the enforcing court to usurp the role of that foreign court or authority.

    78. In Soleh Boneh, at 212, Staughton LJ said:

    The other cases show, perhaps, a more general tendency to order security, but no more than that. I certainly cannot accept the opinion of Mr. W. Michael Tupman in Arbitration International [1987] vol. 3, p. 223 that—

    “… it is difficult to think of any circumstances in which security would not be warranted.”

    If, for example, the challenge to the validity of an award is manifestly well-founded, it would in my opinion be quite wrong to order security until that is demonstrated in a foreign Court.

    In my judgment two important factors must be considered on such an application, although I do not mean to say that there may not be others. The first is the strength of the argument that the award is invalid, as perceived on a brief consideration by the Court which is asked to enforce the award while proceedings to set it aside are pending elsewhere. If the award is manifestly invalid, there should be an adjournment and no order for security; if it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security. In between there will be various degrees of plausibility in the argument for invalidity; and the Judge must be guided by his preliminary conclusion on the point.

    The second point is that the Court must consider the ease or difficulty of enforcement of the award, and whether it will be rendered more difficult, for example, by movement of assets or by improvident trading, if enforcement is delayed. If that is likely to occur, the case for security is stronger; if, on the other hand, there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened.

    80. The observations made by Staughton LJ in Soleh Boneh at 212 which I have extracted at [75] above were approved by the UK Court of Appeal in Dardana Ltd v Yukos Oil Co [2002] 2 Lloyd’s Rep 326 at 337 (per Mance LJ with whom Neuberger LJ and Thorpe LJ agreed).

    81. In IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2005] EWHC 726 at [15], Gross J said:

    In my judgment, it would be wrong to read a fetter into this understandably wide discretion (echoing, as it does, Art. VI of the New York Convention). Ordinarily, a number of considerations are likely to be relevant: (i) whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics; (ii) whether the application before the court in the country of origin has at least a real (i.e., realistic) prospect of success (the test in this jurisdiction for resisting summary judgment); (iii) the extent of the delay occasioned by an adjournment and any resulting prejudice. Beyond such matters, it is probably unwise to generalise; all must depend on the circumstances of the individual case. As it seems to me, the right approach is that of a sliding scale, in any event, embodied in the decision of the Court of Appeal in Soleh Boneh v Uganda Govt. [1993] 2 Lloyd’s Rep. 208 in the context of the question of security …

  5. Having summarised the UK authorities to which his Honour referred, Foster J concluded that those authorities “provide useful guidance as to the proper exercise of the discretion reposed in the court once the discretion to adjourn under s 8(8) is engaged. I propose to follow those authorities when considering whether to adjourn the present proceeding”. Foster J also said at [85]:

    The discretion to adjourn an enforcement proceeding pursuant to s 8(8) of the IAA is a wide one. But it has to be exercised against the background that a foreign arbitral award is to be enforced in Australia unless one of the grounds in s 8(5) of the IAA is made out by the party against whom the award is sought to be enforced or unless the public policy of Australia requires that the award not be enforced. The pro-enforcement bias of the convention and its domestic surrogate, the IAA, requires that this court weigh very carefully all relevant factors when considering whether to adjourn a proceeding pursuant to s 8(8) of the IAA. The discretion must be exercised against the obligation of the court to pay due regard to the objects of the IAA and the spirit and intendment of the convention.

  6. I agree, with respect, with his Honour’s reasoning and approach, and I also propose to follow the UK authorities relied upon by his Honour in considering whether to adjourn the further hearing of this proceeding and, if so, on what terms.The competing contentions of the parties
  7. Alfasi relied upon a number of affidavits, including one sworn by Mr Gill Dvir, a director of Alfasi, that was 1,770 pages long.
  8. Hyundai opposes the application for an adjournment of this proceeding, and says that, if any adjournment is to be granted, it should be on terms that Alfasi provide suitable security, for the whole of the Award sum, including interest calculated up until the time when it is likely that the Singapore proceeding will be heard. In summary, it submits:

    (1)          The application in Singapore is “demonstrably wrong, or at least very weak, and is most unlikely to succeed even if … made bona fide”.

    (2)          The Exhibition Hall finding is only worth $400,000.

    (3)          The Theatre finding is worth around A$1.64m.

    (4)          Even allowing these claims in full, around $3m in principal net of liquidated damages would still be payable, plus interest at 5.33% to the date of the Award (and thereafter).  As Hyundai would still largely be successful, even an award of 50% of costs (and not the 70% it was awarded) would see Alfasi required to pay A$1,456,616.91 of costs payable (in addition to cost of the arbitration, i.e. SIAC fees).

    (5)          The security in favour of Hyundai should be “in a form which can be readily accessed … should it become entitled to the benefit of the security”: Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905 at [90](a).

  9. Hyundai filed lengthy written submissions on the merits of Alfasi’s case in Singapore. It did so because (as counsel who appeared for Hyundai explained) Hyundai had rather thought that Alfasi intended to run a case before me that its case in Singapore was bound to succeed, or something along those lines.
  10. As it happened, counsel who appeared for Alfasi did not seek to persuade me of more than the proposition that its case in Singapore is at least arguable.
  11. In the end, and if I may say so quite properly, given the volume and nature of material filed, which included Alfasi’s submissions filed with the High Court of the Republic of Singapore, Mr Hogan-Doran accepted, for the purposes of this application only, that Alfasi had established that its case was, at least, arguable.Evidence/submissions about security
  12. Alfasi relied on an affidavit from Mr Dvir sworn 10 July 2018, which relevantly stated:

    9. At the time the Sub-subcontract was entered into, neither Hyundai nor Alfasi owned any real property in Australia. Those positions remain unchanged.

    10. Alfasi, being a special purpose vehicle incorporated for sole purpose of the Sydney International Convention, Exhibition and Entertainment Precinct Project, raised operating capital from time to time to meet the cash flow requirements of the Project.

    11. There has been no material difference in Alfasi’s financial position since it engaged Hyundai, other than in the ordinary and proper conduct of its business and these legal proceedings in Australia and Singapore.

    12. Hyundai never sought any security under the Sub-subcontract during the Project, nor during the arbitration proceedings or the Singapore Proceedings.

    13. The giving of any security to Hyundai now would have the effect of re-balancing the parties’ risks and commercial positions which were been agreed in the Sub-subcontract.

    14. My fellow director, Avri Alfasi, and I are prepared to provide undertakings that Alfasi will not deal with or use any of its assets other than to pay its legal fees in these proceedings and those in Singapore

  13. Counsel for Hyundai submitted that this evidence is opaque in its representation of Alfasi’s financial position, and that to the extent Staughton LJ’s observations in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 (see [34] above) are relevant (that is, that the enforcing court must consider the ease or difficulty of enforcement of the award, including whether the award debtor has assets within the jurisdiction), the court is effectively none the wiser.
  14. For those reasons, counsel for Hyundai submitted that the only way to secure Hyundai’s position is to require Alfasi, as a condition of the adjournment, to provide security in the full amount of the Award (being “a form which can be readily accessed” per Esco Corporation v Bradken Resources Pty Ltd [2011] FCA 905, (2011) 282 ALR 282 at [90(a)]) and for that security to be in the form of cash, to be invested at interest; or to be in a form that includes interest on the Award at the rate specified in the Award. In this way, it was submitted, “those with a real interest in the financial outcome of the Singapore proceedings cannot prosecute those proceedings in the face of a Final Award without running the necessary risk that they will have to pay the full amount of the Final Award”.Consideration
  15. It is undoubted that this court’s assessment of the strength of the arguments in support of setting aside an award “would ordinarily be undertaken on incomplete material and in circumstances where only the briefest consideration of the arguments would be appropriate”: Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905 at [77]. And nor is it this court’s role as the enforcing court “to second-guess” the judgment of the foreign court, here the High Court of the Republic of Singapore: Esco Corporation v Bradken Resources Pty Ltd(2011) 282 ALR 282; [2011] FCA 905 at [77].
  16. It is not possible, nor is it desirable, for this court to embark upon a detailed review of the competing cases that the parties will make upon the hearing of the application in Singapore. The materials filed on this application run into the thousands of pages. I cannot possibly form a meaningful and considered view about the merits of the matter, even if it were otherwise appropriate to do so.
  17. As I have indicated, although Hyundai insists that Alfasi’s case will fail, it agrees, for the purposes of this application only, that it is made bona fide and that it is arguable. And, as I have also said above, counsel for Alfasi did not seek to persuade the court of any proposition beyond that its case was bona fide brought and was arguable.
  18. I will accordingly proceed on that basis.
  19. In my view, for the reasons I now give, the adjournment that Alfasi seeks should be granted only if Alfasi provides security, and does so in a form which can be readily accessed for the full amount of the Award, plus interest until a date by which it may reasonably be thought that the Singapore proceeding will be heard.
  20. The case for security here is overwhelming. Alfasi’s counsel accepted that even if it succeeded in obtaining all of the substantive relief it seeks in the Singapore proceeding, that outcome would reduce the total amount payable in principal net of liquidated damages plus pre-award interest under an “amended” award only to about $3.3m.
  21. Counsel for Hyundai proffered, and counsel for Alfasi did not substantively dispute, this table which reflects the possible outcomes of the Singapore proceeding:
Full Amount Less Theatre Claim ($1.64m) And Less Exhibition Hall ($400,000)
Principal $5,001,026.19 $3,361,026.19 $2,961,026.19
Pre-Award Interest (pro rata reduction) $555,993.32 $373,664.93 $329,194.59
$27,882.46 $18,738.89 $16,508.75
Costs (USD) $1,502,958.86
In AUD (0.7467) (70% / 60% / 50%) $2,042,063.67 $1,750,340.29 $1,458,616.91
Subtotal $7,626,965.64 $5,503,770.30 $4,657,392.77
Interest from date of Award to 30 November (pro rata reduction) $273,576.77 $183,862.00 $161,980.35
Total (AUD) $7,900,542.41 $5,687,632.30 $4,927,326.79

 

  1. The costs have been converted to Australian dollars at the current Reserve Bank rate. The Arbitrator awarded Hyundai 70% of its costs. The figures in the table assume that if the Theatre Claim succeeds only, then it is fair enough to predict that Hyundai may then receive 60% of its costs instead – and 50% if both claims succeed. Therefore, Hyundai submits, in effect, that even if Alfasi’s prospects of success in the Singapore proceeding were certain, it is bound to provide security for an amount that it would be bound to be liable for in any event (viz, on  “worst case scenario”, $4,927,326.79).
  2. In such circumstances, as Hyundai submits, and I agree, it would still be largely successful. So it would be difficult to see why it should not get a significant portion of its costs, plus the costs of the arbitration and the SIAC fees. This is all the more so when, as is apparent from the face of the Award, Hyundai (in addition to succeeding on most of its counterclaim) also successfully resisted most of the $19m claim brought against it by Alfasi: see [11] and [15] above.
  3. However, in my view, in circumstances where I have not been asked to accept more than that Alfasi’s case in Singapore is arguable, the amount of security should, in fairness to Hyundai, be the full amount of the Award, plus interest to November 2019.
  4. I have considered whether to limit the amount of security to be ordered to an amount that approximates only that which is indisputably owed. In my view, that would not be “suitable security” within the meaning of s 8(8) of the IAA. The effect of what Staughton LJ said in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 in the passage approved by Foster J in Esco Corporation v Bradken Resources Pty Ltd (2011) 282 ALR 282; [2011] FCA 905 at [78] is that a notional sliding scale is of help in determining where the justice of the matter lies. If, on a brief consideration by the enforcing court, the court forms the view that the award is manifestly invalid, as his Lordship observed, there should be an adjournment and no order for security made. At the other end of the scale, if it is manifestly valid, then if the award is not to be immediately enforced, and an adjournment granted, then all other things being equal, an order for substantial security should be made. Here, of the “various degrees of plausibility in the argument for invalidity” that his Lordship referred to, I can do no more, because I was asked to do no more, than assume that the appeal in Singapore is arguable. In those circumstances, the notional sliding scale favours provision of full security.
  5. I should also deal with the two other submissions made by Alfasi’s counsel. The first is founded on Mr Dvir’s evidence, which provided that Hyundai never sought any security under the Sub-Subcontract during the Project, nor during the arbitration proceedings or the Singapore proceedings; that the giving of any security to Hyundai now would have the effect of re-balancing the parties’ risks and commercial positions which were been agreed in the Sub-Subcontract; and that Alfasi will not deal with or use any of its assets other than to pay its legal fees in these proceedings and those in Singapore. In my view, the first two of those submissions are irrelevant and they ignore the fact that the onus is on Alfasi to justify the adjournment, including on the basis that it should be given one without providing any security. Whatever arrangements were, or were not, made during the course of the project, it seems to me, have nothing to do with the position that now subsists, namely that Hyundai has a prima facie right to enforce the Award. As to the third submission, in circumstances where the court is left to speculate about the financial state of Alfasi, it offers little comfort to Hyundai, and I do not think that it should weigh in the balance.
  1. Dr Trichardt also advanced a submission, relying on a judgment of the House of Lords in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2005] EWHC 726 (per Lord Mance, with whom Lord Clarke, Lord Sumption, Lord Hodge and Lord Toulson agreed), to the effect that the High Court of the Republic of Singapore has no power to order security pending the hearing of an application to set aside an award, and that, because that is so, and that it is a matter of procedural happenstance that Hyundai seeks to enforce the Award in this court (where a power to award security exists under s 8(8) of the IAA), I should exercise my discretion not to award security. That is, in any event, how I understood the submission. It is sufficient, without intending any disrespect, to say that the submission misapprehends what Lord Mance said in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2005] EWHC 726. The passages which counsel took me to (especially at [24], [26], [28] and [29]) are directed to a case, having no similarity to the present one, where what is proposed, tacitly or otherwise, is that an order be made for security, failing which the award would without more be enforced. As I say, that is not proposed here. For those reasons, I do not accept the submission to the contrary.
  2. As to the interest competent of the amount of security that Hyundai seeks, Dr Trichardt submitted as follows:

    I would submit to your Honour that the amount for interest from date of the award to 30 November … [the date by which the hearing of the Singapore proceeding will be complete] should not be part of any security because that is a sum that is not, or cannot be, attributable to the adjournment of the enforcement application.  It is just part and parcel of what is happening in Singapore, where there has been a delay, three weeks agreed for Hyundai’s counsel to look at it, and then for the Singapore court to allocate two half … days to hear the matter.  Now, that is something which is not caused by Alfasi and should not be laid at the door of Alfasi.

  3. I do not accept that submission. It seems to me that the delay in the enforcement of the Award is directly attributable to Alfasi, because it seeks an adjournment of Hyundai’s application in this court.
  4. Alfasi seeks an order that the adjournment be granted until the determination of the proceeding in Singapore. That is, in my view, too indeterminate. I shall grant the adjournment until 30 November 2018.
  5. As to costs, Hyundai has succeeded in its case that, if an adjournment is to be granted, it should be on the basis of “full” security. It should, therefore, have its costs of the application, especially when, in all the circumstances, Alfasi’s insistence that it was entitled to an adjournment without proffering any security at all, was, in my view, unreasonable.
  6. Accordingly, the court will order as follows:

    (1)          The respondent have leave to amend paragraph 2 of its interlocutory application filed on 22 June 2018 by substituting the following: “The proceeding for the enforcement of the Award be adjourned pursuant to either subsection 8(8) of the International Arbitration Act 1974 (Cth), or, alternatively, pursuant to the Court’s general power to control its own process, until such time as the respondent’s application to the High Court of the Republic of Singapore is determined”.

    (2)          Pursuant to subsection 8(8) of the International Arbitration Act 1974 (Cth), the proceedings be adjourned to 30 November 2018 for further mention.

    (3)          The adjournment in order 2 is conditional upon the respondent providing security for the Award in the manner and period set out in order 4, in the sum of AUD $7,900,542.41 (the secured sum).

    (4)          The security in order 3 shall be provided within 21 days in the form of:

    (a)          payment into court of the secured sum, such sum to be invested by the Registrar in an interest bearing account; or

    (b)          payment of the secured sum into an interest bearing account under the control of the respondent’s solicitors in Melbourne, such monies to be invested until further order on reasonable terms that the parties agree or as the court may further order; or

    (c)          on-demand bank guarantee payable in the secured sum on the demand of the Registrar of the Federal Court of Australia on such terms as the parties may agree or the court may further order.

    (5)          The parties may agree in writing to vary the secured sum and the form of security provided for in order 4.

    (6)          There be liberty to apply in connection with these orders.

    (7)          The respondent pay the applicant’s costs of and incidental to the respondent’s interlocutory application filed 22 June 2018.

Eastern Goldfields Ltd v GR Engineering Services Ltd [2018] WASC 224

JURISDICTION: SUPREME COURT OF WESTERN AUSTRALIA (IN CHAMBERS)

CITATION: EASTERN GOLDFIELDS LTD V GR ENGINEERING SERVICES LTD [2018] WASC 224

CORAM: TOTTLE J

HEARD: 22 JUN 2018

DELIVERED: 27 JULY 2018

FILE NO: ARB 7 OF 2018

BETWEEN:

EASTERN GOLDFIELDS LTD

Plaintiff

 

AND

 

GR ENGINEERING SERVICES LTD

Defendant

CATCHWORDS: ARBITRATION – Application to determine arbitrator’s jurisdiction – Where parties referred to arbitration by court – Where arbitrator decided he did have jurisdiction – Whether arbitrator has jurisdiction to hear dispute

LEGISLATION: Commercial Arbitration Act 2012 (WA), s 8, s 16, International Commercial Arbitration Act 1974 (Cth), s 7(5)

RESULT: Application dismissed

CATEGORY: B

Cases referred to in decision:

  • Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58
  • Bakri Navigation Company Ltd v Owners for Ship ‘Golden Glory’ Glorious Shipping SA (1991) 217 ALR 152
  • GR Engineering Services Ltd v Eastern Goldfields Ltd [2018] WASC 19
  • Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10
  • Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd (1996) 133 FLR 417

TOTTLE J:

Summary

  1. On 24 January 2018 I ordered that the plaintiff, Eastern Goldfields Ltd (EGS), and the defendant, GR Engineering Services Ltd (GRE), be referred to arbitration for the determination of disputes between them.  The order was made following an application by EGS and Investmet in proceedings numbered CIV 2140 of 2017 that had been commenced by GRE against EGS, Investmet Pty Ltd and Squire Patton Boggs.  For the purposes of the referral application the disputes to be determined by arbitration had been identified by EGS as the claims pleaded by GRE against it in an amended statement of claim filed in the proceedings.
  2. In March 2018 GRE commenced the arbitral proceedings against EGS.  It served points of claim which plead substantially the same claims against EGS as those that were pleaded in its amended statement of claim in CIV 2140 of 2017.
  3. On 30 April 2018 EGS served its points of defence.  This included a plea that the arbitrator does not have jurisdiction to determine a dispute concerning an agreement alleged by GRE described in the points of claim as the Partial Accord and Satisfaction Agreement.  The claim based on the alleged Partial Accord and Satisfaction Agreement had been pleaded in the amended statement of claim in CIV 2140 of 2017.
  4. EGS sought the arbitrator’s consent to apply to the court under s 27J of the Act for the determination of the jurisdictional question that it characterised as a question of law.  On 2 May 2018, the arbitrator notified the parties that he declined to give his consent and informed them that in his view he did have jurisdiction to determine the dispute concerning the Partial Accord and Satisfaction Agreement. The parties have proceeded on the basis that the arbitrator has ruled on the jurisdictional issue, not merely that he had declined to give his consent for the court to determine the question as a matter of law.
  5. EGS has requested the court to determine whether the arbitrator has jurisdiction to hear the dispute concerning the Partial Accord and Satisfaction Agreement.  Section 16(9) of the Act provides that a party may request that the court decide whether the arbitrator has jurisdiction.  The request must be made within 30 days of the arbitrator’s preliminary ruling.  The present application was made on 10 May 2018 and is thus brought within time.
  6. By the present application EGS is seeking to undo, in part at least, the result it achieved by its application for an order referring the parties to arbitration for the determination of all the claims made by GRE in the amended statement of claim in the proceedings.
  7. The substantive hearing in the arbitration is scheduled to commence on 13 August 2018.
  8. For the reasons explained below I consider that EGS and GRE were referred to arbitration for the determination of all the disputes between them and that the arbitrator has jurisdiction to determine all the disputes, including the claim based on the alleged Partial Accord and Satisfaction Agreement.

Background

  1. On 22 September 2016, EGS and GRE entered into a design and construct contract under which GRE agreed to design and carry out certain refurbishment works on EGS’s Davyhurst Gold Plant (the Contract).  The contract sum was $12,487,638.00.
  2. Disputes arose between EGS and GRE.  GRE claimed that EGS did not pay invoices submitted for progress claims and that EGS would not pay for work that GRE contended amounted to variations under the Contract.
  3. GRE served a demand on EGS under s 459E of the Corporations Act 2001 (Cth) in which it stated that $6,601,496.68 was owing to it in respect of three invoices that were particularised in the demand. EGS commenced proceedings to set aside the statutory demand. The application to set aside the statutory demand was compromised and GRE consented to an order setting it aside.
  4. In its points of claim in the arbitration, in addition to its claims for monies due for progress claims and variations, GRE alleges that it reached an agreement with EGS – the Partial Accord and Satisfaction Agreement – the terms of which included terms to the effect that it would consent to an order for the setting aside of the statutory demand and that EGS would pay it $5 million. GRE alleges that it was agreed that:

    (a)          Investmet would provide an irrevocable guarantee to GRE in respect of the obligation to pay $5 million;

    (b)          the payment would be secured by a transfer of 18,461,538 shares in the capital of EGS held by Investmet;

    (c)          Investmet would execute a share transfer of the shares in favour of GRE; and

    (d)          the transfer would be held in escrow by the law firm Squire Patton Boggs.

  5. It is common ground that GRE, EGS and Investmet executed a deed of guarantee and an escrow agreement to which Squire Patton Boggs was also a party.  In summary, the terms of the escrow agreement required Squire Patton Boggs to deliver up the share transfer to GRE in the event that EGS failed to pay the $5 million on the stipulated date.
  6. EGS did not pay the $5 million to GRE.  In its points of defence in the arbitration, subject to its objection to jurisdiction, EGS’s primary pleaded case is the agreement alleged by GRE was not made and thus it was under no obligation to pay GRE $5 million or any sum.  It pleads that the deed of guarantee and the escrow agreement are of no legal effect.[4]  EGS pleads alternative defences but it is not necessary to refer to them.

The issues

  1. EGS defines the issues raised by its application as follows:

    (a)          Was the dispute concerning the alleged Partial Accord and Satisfaction Agreement as it relates to EGS and GRE stayed by the order made on 24 January 2018?

    (b)          If it was not stayed, should an order be made staying the dispute and referring it to arbitration?

    (c)          If it was stayed (and referred to arbitration) should an order be made to the effect that the arbitrator does not, in fact, have jurisdiction to determine that dispute?

  2. GRE submitted that the dispute concerning the alleged Partial Accord and Satisfaction Agreement as it relates to EGS and GRE had been stayed and referred to arbitration and that the doctrines of res judicata, waiver or estoppel prevented EGS from contending otherwise.  As I have come to the conclusion that the parties were referred to arbitration for the determination of GRE’s claim based on the Partial Accord and Satisfaction Agreement and that the arbitrator has jurisdiction to determine that dispute, it is not necessary for me to address GRE’s submissions in relation to res judicata, waiver and estoppel.

The dispute about the alleged Partial Accord and Satisfaction Agreement stayed and referred to arbitration

  1. The material paragraphs of the order made on 24 January 2018 read as follows:

    1.           The proceedings between [GRE] and [EGS] be stayed.

    2.           [GRE] and [EGS] be referred to arbitration for the determination of the disputes between them.

  2. The order must be construed in the context of the reasons for decision. When it is so construed it is clear that the order had the effect of staying all disputes between EGS and GRE – the disputed claims arising under the Contract and the disputed claim arising under the alleged Partial Accord and Satisfaction Agreement.
  3. In the reasons for decision I noted that a difference or dispute between the parties arising in connection with the subject matter of the Contract was within the ambit of the arbitration agreement constituted by cl 41 of the Contract and stated:

    The words ‘arises in connection with the subject matter of the Contract’ are words of wide import.  A reasonable business person would understand those words to mean that all disputes having some degree of connection with the Contract should be resolved by the process set out in cl 41.  (footnote omitted)

  4. In their submissions EGS and Investmet expressly accepted that the claim based on the alleged Partial Accord and Satisfaction Agreement was a claim that arose in connection with the subject matter of the Contract and I concluded that:

    It follows from what I have said that [GRE’s] claims against [EGS] should be stayed and [GRE] and [EGS] should be referred to arbitration for the resolution of the disputes between them.

  5. This conclusion did not draw a distinction between the disputes between EGS and GRE about the claims made under the Contract on the one hand, and the dispute between them about the claims made under the alleged Partial Accord and Satisfaction Agreement on the other, because no such distinction was drawn by EGS and Investmet.  They submitted that all the claims should be stayed and referred to arbitration.  Against that background it was unnecessary for the reasons to draw any distinction between the different claims.
  6. To explain further, reference needs to be made to GRE’s amended statement of claim in CIV 2140 of 2017, and the written submissions relied upon by EGS and Investmet for the purposes of the referral application.

  7. As noted above, in its amended statement of claim in CIV 2140 of 2017 GRE advanced claims for monies due in relation to progress claims made by it, claims for monies due for variations and, additionally, GRE claimed $5 million due to it under the alleged Partial Accord and Satisfaction Agreement.
  8. In their written submissions EGS and Investmet submitted:

    35.          The causes of action identified in GR Engineering’s statement of claim ‘arise in connection with the subject matter of the Contract’. 

    And

    39.          The broad scope of the Dispute Resolution Clause demonstrates that the parties did not intend to limit the issues that would be subject to arbitration: Cable & Wireless plc v IBM United Kingdom [2002] 2 All ER (Comm) 1041 at 1052.

    And

    43.           The Dispute Resolution Clause applies to Disputes between the parties in connection with the subject matter of the Agreement.  Having regard to the purpose and subject matter of the Agreement and the breadth of the Dispute Resolution Clause, GR Engineering and Eastern Goldfield’s allegations fall within the scope of the Dispute Resolution Clause.

  9. It should be noted that GRE accepted that its claim based on the Partial Accord and Satisfaction Agreement was a claim which arose in connection with the subject matter of the Contract.
  10. Thus, the orders of 24 January 2018 resolved the application by EGS and Investmet in their favour in accordance with the submissions advanced by them.  I held that all GRE’s claims fell within the ambit of the arbitration agreement and all GRE’s claims should be referred for determination by arbitration and that was the effect of the order.

 

  1. The arbitrator has jurisdiction to determine GRE’s claim based on the alleged Partial Accord and Satisfaction Agreement
  2. EGS advances three reasons as to why the arbitrator lacks jurisdiction to determine GRE’s claim based on the alleged Partial Accord and Satisfaction Agreement.
  3. First, EGS submits that whatever the scope of the arbitration agreement, it ceased to operate in relation to the dispute about the Partial Accord and Satisfaction Agreement because, paraphrasing EGS’s contentions, that is not a dispute arising in connection with the Contract but a dispute arising in connection with the Partial Accord and Satisfaction Agreement – a settlement agreement.  EGS contends that this aspect of GRE’s case rests on the proposition that the dispute arising in connection with the Contract was compromised.  Therefore, EGS argues, it ceased to exist, at least in relation to the claims constituted by the invoices particularised in the statutory demand.  EGS submits that as a consequence there was no longer any dispute capable of being referred to arbitration in accordance with the arbitration agreement.  In support of its contention EGS relies on the decisions in Bakri Navigation Company Ltd v Owners for Ship ‘Golden Glory’ Glorious Shipping SA and Shanghai Foreign Trade Corporation v Sigma Metallurgical Co Pty Ltd.
  4. In Bakri, after hearing evidence as to whether an arbitrable dispute had been settled, Gummow J reached the conclusion that a settlement had been agreed between the parties. As a consequence of that finding Gummow J held that the settlement rendered the arbitration agreement ‘inoperative’ for the purposes of s 7(5) of the International Commercial Arbitration Act 1974 (Cth).
  5. In Shanghai Foreign Trade Corporation Bainton J held that the court should determine a question about whether there had been a settlement of a dispute falling within an arbitration agreement as a preliminary issue rather than stay that question and refer the parties to arbitration.  His Honour reasoned that if an arbitrable dispute had been resolved, the arbitration agreement, that would otherwise have applied, was ‘inoperative’ for the purposes of s 7(5) the International Commercial Arbitration Act 1974 as there was no longer a dispute on which its provisions could operate.
  6. In my view, the principle applied in Bakri and Shanghai Foreign Trade Corporation does not apply in this case.  The compromise alleged by GRE involved the setting aside by consent order of the statutory demand that had been served by it.  GRE does not allege that there was a settlement of its claims under the Contract.  Unlike the factual situations in Bakriand Shanghai Foreign Trade Corporation the factual connection between the Contract and the Partial Accord and Satisfaction Agreement that satisfies the requirement that the dispute or difference between GRE and EGS ‘arises in connection with the subject matter of the Contract’ will not be broken even if GRE succeeds on its claim under the Partial Accord and Satisfaction Agreement. In that event it will still be entitled to pursue all of its claims under the Contract, though, as it acknowledges, if successful it would have to give credit for the amount received in respect of the Partial Accord and Satisfaction Agreement claim.
  7. As I have observed, not only does GRE not allege that there was a settlement of all its claims under the Contract but it does not allege its claims based on the invoices particularised in the statutory demand were settled.  It is not possible therefore for EGS to identify discrete claims that were compromised and argue that the question of whether those claims have been settled should be determined by the court as a preliminary question.
  8. The second reason why EGS contends that the arbitrator lacks jurisdiction is that choice of law and choice of jurisdiction provisions in the deed of guarantee and the escrow agreement evidence an intention on the part of the parties that disputes arising from those documents would be resolved by the court and not by arbitration.
  9. In support of its argument EGS points to GRE’s plea that the Partial Accord and Satisfaction Agreement was constituted by a number of documents including the deed of guarantee and the escrow agreement each of which contain a choice of law clause specifying that it is governed by the laws of Western Australia and recording that each party submits to the non-exclusive jurisdiction of the courts of Western Australia.  In addition, the relevant clause in the guarantee records that each party waived the right to object to an action being brought in the courts of Western Australia.  EGS submits that these provisions make it clear that the parties intended any dispute arising out of the guarantee or the escrow agreement would be resolved by litigation and that is why the parties submitted to the non-exclusive jurisdiction of the courts.  EGS contends that the provisions are inconsistent with an agreement between GRE and EGS to refer any dispute in connection with the alleged Partial Accord and Satisfaction Agreement to arbitration.
  10. The existence of the choice of law and non-exclusive jurisdiction clauses in the guarantee and escrow agreement are not inconsistent with the continued operation of the arbitration agreement constituted by cl 41 of the Contract.  A non-exclusive jurisdiction clause does not expressly preclude the parties from implementing an arbitration agreement nor does it do so impliedly.  Even when parties have agreed to refer their disputes to arbitration, a non-exclusive jurisdiction provision serves a purpose because the court retains supervisory and ancillary jurisdiction with respect to arbitrations under the Act as demonstrated by both the referral application and the present application.  As was submitted on GRE’s behalf, the existence of the choice of law clauses and the non‑exclusive jurisdiction provisions are harmonious with the existence of an arbitration agreement.
  11. The third reason advanced by EGS as to lack of jurisdiction is that the dispute about the existence of the Partial Accord and Satisfaction Agreement is not within the scope of the arbitration agreement because it is not a bipartite dispute between GRE and EGS but is a multi-party dispute between GRE, EGS, Investmet and Squire Patton Boggs.  I do not accept that this is a basis for concluding the arbitrator does not have jurisdiction.  As GRE submits, the fact that the Partial Accord and Satisfaction Agreement is alleged to be an agreement between more than two parties and is an agreement that gives rise to multiple obligations does not mean that a dispute between GRE and EGS in relation to the latter’s obligations under the alleged agreement is not a difference or dispute between them in connection with the subject matter of the Contract for the purposes of cl 41 of the Contract.   To hold otherwise would be to adopt a restrictive approach to the construction of the arbitration agreement, which is one inconsistent with a ‘broad, liberal and flexible approach’ which ‘favours a construction which provides for the adjudication of all disputes arising from, or in connection with, that agreement’.
  12. I will hear the parties as to costs.

Ye v Zeng (No 7) [2018] FCA 1478

File numbers: 

  • NSD 1123 of 2015
  • NSD 258 of 2018

Judge: Lee J

Date of judgment: 28 September 2018

Catchwords:

ARBITRATION – orders for the appointment of a receiver because obligations of payment were not fulfilled by award debtor subsequently set aside by agreement between parties – application to restore orders

CONSUMER LAW – whether respondents engaged in misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law – whether oral representations were made as alleged – whether the making of a representation as to financial capacity was conduct in trade and commerce – whether contravening conduct caused entry into agreements – contravening conduct established and agreements set aside

Legislation: 

  • International Arbitration Act 1974 (Cth) ss 8, 9
  • Australian Consumer Law ss 18, 237, 243
  • Evidence Act 1995 (Cth) ss 91, 140, Pt 3.5
  • Trade Practices Act 1974 (Cth) s 52
  • Contracts Review Act 1980 (NSW)
  • Civil Procedure Law, Art 242
  • Urban Real Estate Administration Order of the People’s Republic of China, Art 38

Cases cited: 

  • Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
  • Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
  • Bevanere Pty Ltd v Lubidineuse [1985] FCA 134; (1985) 59 ALR 334
  • Blatch v Archer (1774) 1 Cowper 63; (1774) 98 ER 969
  • Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
  • Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
  • Chowder Bay Pty Ltd v Paganin [2018] FCAFC 25
  • Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
  • Gerard Cassegrain & Co Pty Limited v Cassegrain [2013] NSWCA 453; (2013) 87 NSWLR 284
  • Gould v Vaggelas (1985) 157 CLR 215
  • I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; (2002) 210 CLR 109
  • Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCAFC 151
  • Murphy v State of Victoria [2014] VSCA 238; (2014) 45 VR 119
  • Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
  • Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
  • Watson v Foxman (1995) 49 NSWLR 315
  • Williams v Pisano [2015] NSWCA 177; (2015) 90 NSWLR 342
  • Ye v Zeng [2015] FCA 1192
  • Ye v Zeng (No 2) [2015] FCA 1243
  • Ye v Zeng (No 3) [2015] FCA 1279
  • Ye v Zeng (No 4) [2016] FCA 386
  • Ye v Zeng (No 5) [2016] FCA 850
  • Ye v Zeng (No 6) [2016] FCA 923
  • Young v Hughes Trueman Pty Ltd (No 4) [2017] FCA 456

Date of hearing: 3, 4, 5 April 2018, 17, 18 May 2018, 1 June 2018

Date of last submissions: 12 June 2018

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: International Commercial Arbitration

 

ORDERS

NSD 1123 of 2015

BETWEEN:  JOHNSON YE (Applicant)

AND: RONGHUO ZENG ALSO KNOWN AS ANDREW TSANG (First Respondent)

CHUNXIANG ZENG (Second Respondent)

Qinglong Zen (and others named in the Schedule) (Third Respondent)

Judge: Lee J

Date of Order: 28 September 2018

THE COURT ORDERS THAT:

  1. The parties provide to the Associate to Justice Lee by 4pm on 5 October 2018 an agreed minute giving effect to these reasons or, failing agreement, each party’s proposed minute of order.
  2. The proceedings be listed to hear any argument as to any competing orders and to receive any submissions on the topic referred to at [105] of the reasons for judgment at 9:30am on 8 October 2018.

ORDERS

NSD 258 of 2018

THE COURT ORDERS THAT:

  1. The proceedings be dismissed.

REASONS FOR JUDGMENT

LEE J:

A        INTRODUCTION AND BACKGROUND

  1. The relevant background to this matter and its procedural history is revealed in a number of judgments delivered by the Chief Justice of this Court: Ye v Zeng [2015] FCA 1192; Ye v Zeng (No 2) [2015] FCA 1243; Ye v Zeng (No 3) [2015] FCA 1279; Ye v Zeng (No 4) [2016] FCA 386; Ye v Zeng (No 5) [2016] FCA 850 and Ye v Zeng (No 6) [2016] FCA 923.
  2. For reasons that will become obvious, it is unnecessary to recount, yet again, every aspect of the litigious saga that arose after the applicant, Mr Johnson Ye, pursuant to ss 8and 9 of the International Arbitration Act 1974 (Cth), enforcement of an award made in the People’s Republic of China by the Xiamen Arbitration Commission in August 2015.
  3. Judgment was sought in this Court in the sum of RMB 50,055,950.26 (or approximately $11 million at prevailing exchange rates). At the time the application was made, freezing orders were sought restraining the respondents from dealing with certain assets pending resolution of the proceeding.  As the Chief Justice explained in Ye v Zeng (No 5) at [6]-[10], the award made by the Xiamen Arbitration Commission arose in the following circumstances:

From 2011, Ronghuo Zeng (the first respondent) borrowed money from the applicant.  On 7 December 2013, all six respondents (the second respondent being the wife of the first, the third and fourth respondents being the son and brother, respectively, of the first, and the fifth and sixth respondents being companies apparently controlled by the first respondent or in which he had an interest) entered into a loan agreement.  In that loan agreement, the parties to it confirmed that the first respondent had received loan funds of RMB 37,000,000 (being principal), carrying interest of 2.5% per month from 8 December 2013; that he would pay the principal in full by 7 December 2014; that the second to sixth respondents would guarantee said payment; and that the parties agreed to submit any dispute to arbitration at the Xiamen Arbitration Commission.

The moneys were not repaid.  The applicant claimed RMB 37,000,000 principal and RMB 11,100,000 in interest (RMB 48,100,000 in total).

In the arbitration, the respondents claimed that only RMB 15,00,000 was principal and the balance interest; that repayments had been made; and that security pledges had been given, including valuable watches and jewellery.

After examining all relevant material and setting out the parties’ arguments, the Commission ordered that the first respondent repay RMB 37,000,000 principal and RMB 12,214,460.26 in interest (up to 31 July 2015); that the second to sixth respondents assume joint liability for these payments; and that the six respondents pay costs and arbitration fees.

An appeal against the award was lodged in the Xiamen Intermediate People’s Court. In my reasons of 2 November 2015 (Ye v Zeng [2015] FCA 1192 at [6]) I described the grounds of appeal as follows:

Mr Ye, as the applicant, now comes to this court for enforcement of the award under s8(3) of the International Arbitration Act 1974 (Cth). Meanwhile an appeal has been lodged in the relevant intermediate appeal court in the PRC (the Xiamen Intermediate People’s Court) identifying 3 grounds of appeal. The first ground is a procedural fairness complaint, which, if made out, would be a breach of public policy and a ground not to enforce the award. The second and third grounds seem to be factual matters and an apparent re-litigation of what appears to have already been fought out before the Commission, when one looks at the Commission’s lengthy reasons: Xia Zhong Cai Zi [2015] no.523.

  1. None of the matters referred to by his Honour in the above extract were in contest before me.
  2. Given the procedural fairness ground identified, the Chief Justice was not prepared to enforce the award before the outcome of the Chinese appeal could be known (and orders were made extending the freezing orders previously made). In March 2016, the Xiamen Intermediate People’s Court dismissed the appeal and thereafter, in April 2016, the Chief Justice made orders enforcing the award as no basis was advanced by the respondents for resisting such an order.  Indeed, as the reasons for judgment of the Chief Justice made clear, the applicant was put to significant cost in the preparation of the evidence and in dealing with the material filed by the respondents: see Ye v Zeng (No 4)Ye v Zeng (No 5).  Moreover, the Chief Justice had previously been critical of the respondents’ conduct, noting that their approach to the proceedings had generally been less than desirable: see Ye v Zengat [12].
  3. In particular, his Honour observed that there had never been any real attempt to agitate a legitimate ground to resist enforcement and concluded that no such ground ever existed.  The respondents subjected the applicant to entirely unreasonable costs in resisting enforcement.  It was for these reasons, among others, that in July 2016 the respondents were required to pay costs incurred by the applicant on an indemnity basis: see Ye v Zeng (No 5).  Against this background of unjustly delaying the applicant enforcing a just commercial claim, in July 2016, orders were made appointing a receiver to all the property of the respondents in Australia.  The detailed reasons for making such an order are set out in Ye v Zeng (No 6).
  4. In taking this step, the Chief Justice found the respondents had extensive assets in Australia and China and (on the basis of the evidence then before his Honour) there was no basis to conclude that any of the respondents were insolvent (hence there was no apparent basis to conclude that the appointment of the receiver and the conduct of liquidating assets might interfere with the conduct of any insolvency by a trustee in bankruptcy or liquidator).  In the course of his reasons, his Honour recorded the submission made by the respondents that “the applicant should first have recourse to the assets in China owned by some of the respondents, and no receiver should be appointed until such steps have been taken”: at [6].  Further, it was suggested that the respondents should have time to arrange their affairs to arrange for an orderly sale of their Australian properties especially the family homes of the first, second and third respondents.
  5. His Honour rejected such submissions noting that the existence of assets in China and the fact that the applicant had sought freezing orders in China were irrelevant to the enforcement of the licitly obtained judgment in this Court.  In this regard, the Chief Justice noted there “was evidence that was the subject of comment in earlier judgments that the respondents had been less than co-operative in fulfilling their commercial obligations of payment”: at [7].  His Honour went on to note that the appointment of the receiver over the family homes of the first, second and third respondents was unfortunate, but the remedy to prevent such personal disruption has always been present, that is, to pay the legitimate debt owed to the applicant.
  6. The orders expressly accepted that it was just and convenient to appoint a receiver to provide the applicant with an effective mode of enforcing the award and judgment and that, given the history, the clearest and most effective remedy was warranted.
  7. One would be forgiven for thinking that this was the end of the matter, but the background I have recounted forms only the prologue to the events with which this judgment is concerned.
  8. The receiver appointed by the Chief Justice commenced the process of seeking to realise the respondents’ available Australian assets including, in September 2016, scheduling an auction of a property located at 39A Stanhope Road, Killara (Killara Property).
  9. I will recount the dealings between the parties in more detail below, but it suffices for present purposes to note that the first respondent, Mr Ronghuo Zeng, contacted the applicant, Mr Johnson Ye, concerning the sale.  Various discussions took place which involved the applicant’s son, Mr Jacky Ye instructing his father’s solicitor, Mr Terry Zhang, to prepare a proposed deed of release, in accordance with terms that were communicated to him by Jacky Ye.  Additionally, communications then took place between Mr Zhang and the solicitor for the respondents, Ms Margaret Koh, by email during the day of 12 October 2016.
  10. On 12 October 2016 at about 7.00 pm, a meeting took place over dinner at the Fook Yuen Seafood Restaurant located at Level 1, 7 Help Street, Chatswood (being a restaurant owned by Ronghuo Zeng) (Restaurant).  It was common ground that a number of people were present at the Restaurant: Johnson Ye, his son, Jacky Ye, and the applicant’s solicitor, Terry Zhang; Ronghuo Zeng was present, accompanied by his brother, Rongxing Zeng; Bihiu Lin and Guozhong Yu, who were friends of Ronghuo Zeng were also present (Bihiu Lin was also known to Johnson Ye); the final participant was Margaret Koh, who, as noted above, was the respondents’ solicitor.
  11. At that Restaurant meeting a document in the English language was discussed which sought to re-state the then existing legal relationship between the applicant and the respondents (English Agreement).  Later that night, a further meeting took place at Rongxing Zeng’s home located at 39B Stanhope Road, Killara.  At this meeting, a final version of the English Agreement was signed. Another agreement, written in Chinese, was thereafter discussed and signed (Chinese Agreement).
  12. Relevantly, as can be seen by reference to [17] below, the upshot of the October 2016 meetings was that the parties put in place an agreed regime which was much more favourable to the respondents than the regime rejected by the Chief Justice at the time the receiver was appointed (see [7] and [8] above).
  13. Who was present at the later meeting at Rongxing Zeng’s home, and precisely what occurred at this meeting was the subject of detailed and ultimately irrelevant evidence in the present hearing.  Neither party suggests that anything said in the earlier communications between Ronghuo Zeng and Johnson Ye (when the applicant was contacted concerning the sale) was different in substance to what was later said at the critical Restaurant meeting.  Nor is it suggested by either party that anything conveyed at Rongxing Zeng’s home, was substantively different to, or qualified by, what had been communicated earlier that evening at the Restaurant.  Accordingly, for the purpose of determining the substance of what was conveyed on behalf of the respondents to the applicant, it is convenient to focus primarily on what was conveyed at the Restaurant.
  14. Returning to the English Agreement, its principal terms were that:

(a)          Johnson Ye agreed to settle all ‘Claims’ in Australia including the orders made in the ‘Federal Court of Australia Proceedings’ (see Recital D), including the orders made on 15 April 2016, which recognised the Award and the orders made on 18 May 2016 appointing a receiver;

(b)          the respondents agreed to pay to Johnson Ye $3.7 million on or before 20 October 2016 (see clause 3.1) with the sum initially to be held on trust by an intermediary, but then remitted to Johnson Ye when consent orders were made (see clause 3.2);

(c)          the sum of $3.7 million received would be applied to reduce the ‘Debt’ owing to Johnson Ye (see clause 3.5);

(d)          Johnson Ye then agreed to “permit” the respondents to pay the balance of the remaining amount in China (see clause 3.6).

  1. To give effect to the paction (as constituted by both the English Agreement and also the Chinese Agreement), the Court was approached and orders were made vacating the appointment of the receiver.  Again, however, there was a twist.  Despite the terms of the agreements, the balance of the judgment sum has not been paid out of assets located in China.  Johnson Ye remains out of his money and now contends that the English Agreement and the Chinese Agreement are unjust contracts, were procured by unconscionable conduct or misleading, deceptive or fraudulent conduct and should otherwise be set aside in equity or at law.

B        THE HEARING AND THE DIFFICULTIES WITH THE ORAL EVIDENCE

  1. The hopes of Johnson Ye as to the payment of the debt being, yet again, dashed, he approached the Court for the restoration of the status quo ante.  This would allow him to move to enforce the judgment against the Australian assets (some of which have now been sold).  The matter was referred to me for the purpose of conducting a hearing as to whether Johnson Ye is entitled to such relief.  In order to give some precision to the matters to be determined, I ordered service of Points of Claim and Points of Defence and, when these documents did not prove sufficiently pellucid to indicate the nature of the case advanced, I ordered a further document to be provided specifying the nature of the alleged contravening conduct of the respondents.  Evidence in chief was ordered to be adduced orally.
  2. The hearing took place over the course of six days with written submissions being provided afterwards. It is an exercise in understatement to remark that the conduct of the hearing presented real challenges.  Almost all of the witnesses called did not have fluency in English.  Apart from Ms Koh, Mr Zhang, Jacky Ye and an expert, each witness of significance gave evidence through an interpreter.  No criticism is, of course, intended by remarking upon the use of interpreters to place the evidence of the witnesses before the Court.  The challenge was that with the exception of the solicitors and the expert to which I have just made reference, a general and somewhat troubling tendency was exhibited by each witness (to various degrees) to act as advocates for the side of the record that had called them. Perhaps the lack of easy communication between the cross examiner and the witness heightened this problem, but the case was striking for this feature of the evidence.  Additionally, the transcript, at times, is difficult to follow and was not the subject of suggested correction by the parties. This includes the evidence given by the witnesses who gave their testimony in heavily accented English.  Despite these challenges, as I will explain, the critical parts of the evidence were able to be followed and emerged quite clearly.  By the conclusion of the case, it seemed to me that identifying what had actually occurred leading up to and at the critical events in October 2016 was a relatively straightforward task which accorded with the thrust of the evidence given by Mr Zhang, Johnson Ye and Jacky Ye and also the inherent probabilities.
  3. Before leaving the difficulties with the hearing, I should make one further point.  The conduct of the case was regrettably bedevilled by a lack of focus on the real issues between the parties and unnecessary disputation.  A bewildering array of causes of action (including allegations of fraud) were advanced and maintained, when pursuit of almost all of these causes of action was unnecessary. Additionally, the evidence became interminably mired in ultimately irrelevant disputation about the means by which the English Agreement and the Chinese Agreement were drafted and the Chinese Agreement was executed.
  4. As will be seen, the facts necessary to resolve this controversy are relatively narrow:  whether certain representations which fall within the case pleaded were made and whether, if made, those representations amounted to misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law(ACL).  In the event that contravening conduct was established, the further issue was whether the decision of Johnson Ye to surrender his overwhelmingly powerful legal position was causally connected to the contravening conduct and, if so, the appropriate remedial response.
  5. It is to this case that I now turn. Counsel for the applicants accepted that it was unnecessary for me to deal with the balance of the case if conduct in contravention of s 18was proved and this led to the setting aside of the English Agreement and the Chinese Agreement (T524.32). For reasons explained below, I have reached the conclusion that the English Agreement and the Chinese Agreement were entered into by reason of conduct which was in contravention of s 18 of the ACL. In the circumstances, I consider the appropriate remedial response is for the English Agreement and the Chinese Agreement to be set aside and for me to make orders which will have the effect of vacating (pursuant to FCR05) the interlocutory orders made by the Court removing the receiver (in other words, I have concluded that the status quo anteshould be restored).
  6. It follows from this conclusion that I do not need to resolve a number of what I consider to be irrelevant or peripheral matters of factual disputation and the other ways the applicants put their case, including the allegations of dishonesty.

C        THE MISLEADING AND DECEPTIVE CONDUCT CASE

C.1     The Impugned Conduct

  1. Shorn of unnecessary distractions, the applicant’s core case was that numerous representations had been made as at 12 October 2016.  The representations were overlapping and repetitive but for reasons that will become evident, it is only necessary to have regard to three of them, which related to the capacity of the respondents to pay the judgment debt and the timing within which it would be paid.  These can be identified as follows:

(a)          First, a representation (which was alleged to be partly a future representation) made by Ronghou Zeng, that the respondents had the intention of repaying the moneys owing to Johnson Ye (being the whole of the judgment) and would do so within six months if Johnson Ye granted the release and forbearance of the Court’s orders for sale of the Killara Property (Amended Points of Claim (APOC) [8(a)], [14(a)]).

(b)          Secondly, a representation made by Rongxing Zeng, that the respondents would guarantee to pay, and had the financial and economic capacity to pay, the full amount of the judgment if their Australian and Chinese properties were not sold within six months (APOC [9(ii)], [15(ii)]).

(c)          Thirdly, a representation made by Ronghou Zeng, admitted to have been conveyed, that the respondents were able to and had the financial capacity to pay to the judgment (APOC [9(iv)], [14(b)]).

  1. At the hearing, the representations at (a) and (b) above, together with one other in identical form, were known as the “First Representation”, and the representation at (c) above, was known as the “Second Representation”.  Plainly, however, they overlap and taken together, have two distinct components being:

(a)          a representation made by Ronghou Zeng and Rongxing Zeng on behalf of the respondents of an intention of the respondents to pay the judgment within six months (see [25(a),(b)]), which I will refer to as the Repayment Representation; and

(b)          a representation made by Ronghou Zeng and Rongxing Zeng on behalf of the respondents that the respondents were able to and had the financial capacity to pay to the judgment (see [25(b),(c)]), which I will refer to as the Capacity Representation.

  1. For completeness I note that when dealing with both representations collectively, I will refer to them as the Representations.

C.2     Were the Representations Conveyed

C.2.1   Relevant Principles 

  1. The Representations were alleged to have been conveyed orally and at the Restaurant meeting and, as noted above, were not alleged to have been qualified by other communications. As I have already explained at [16], while it is necessary to have regard to all the relevant context, it is sufficient to focus on the Restaurant meeting in determining whether the Representations were conveyed.
  2. In a case relying on oral representations, it is necessary, in assessing the evidence, to have close regard to the following principles identified by Dowsett, Rares and Logan JJ in Julstar Pty Ltd v Hart Trading Pty Ltd[2014] FCAFC 151 at [73]-[74]:

The assessment of the evidence of witnesses in such a case, ordinarily, will be approached in the manner discussed by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 as follows:

“Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as “misleading”) [sic] within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not … attained or established independently of the nature and consequence of the fact or facts to be proved” including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen[1940] HCA 20; (1940) 63 CLR 691 at 712.

Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) … in the absence of some reliable contemporaneous record or other satisfactory corroboration.”

That caution is also reflected in s 140 of the Evidence Act 1995 (Cth) and in what Dixon J said in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-363 about the standard of proof. Dixon J emphasised that, when the law requires proof of any fact, the Court must feel an actual persuasion of its occurrence or existence before it can be found. He said that a mere mechanical comparison of probabilities, independent of any belief in its reality, cannot justify a finding of fact: see too Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 466 at 479-482 [29]- [38] per Weinberg, Bennett and Rares JJ. As Dixon J said (60 CLR at 362): “In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences”. But, the nature of the fact to be proved necessarily affects the sufficiency of the evidence by which it can be established.

  1. These principles have, if anything, greater resonance when the evidence of the oral representations was given through an interpreter of discussions held entirely in a foreign tongue.  The danger of grammatical differences obscuring meaning, the failure to appreciate the presence or absence of some unfamiliar or not readily translatable qualifying phrase, or some other subtlety being lost in translation, becomes real.  With this caution and these principles in mind, I turn to the question as to whether the Representations were made.

C.2.2   The Alleged Representations Generally 

  1. I have no doubt that something likethe Repayment Representation was conveyed by both Ronghou Zeng and Rongxing Zeng to Johnson Ye.  That is, representations were made that the respondents had the intention of repaying the judgment and proposed to do so within six months if Johnson Ye granted the forbearance sought. This was connected to the Capacity Representation, that is, that the respondents were able to and had the financial capacity to pay the judgment.
  2. It is important to recall, however, that the Repayment Representation has component parts.  As to the statement of intentionto pay the judgment debt, this does not seem to really be in dispute.  Counsel for the respondents, Mr Ratnam, accepted that words to the following effect were said to Johnson Ye on behalf of the respondents: “[p]lease give me a chance. I’m going to pay [the judgment]. I want to pay it. And you can trust me. I’m not a cheat” (T214.30).  The concession was hardly surprising, as it was not only consistent with the evidence of Ronghou Zeng that he had such an intention (T351.34-36) but also the evidence given by Johnson Ye, which I accept, that Rongxing Zeng had said to him “(d)efinitely.  Yes.  I will keep my word and repay the money to you.” (T38.8-9). It is also consistent with the inherent probabilities: if one is entreating a person to forbear exercising their rights against you, it does not make sense to suggest that you will not perform your side of the bargain.
  3. The real issues of controversy are whether that stated intention was accompanied by another component of the Repayment Representation, that is, the unequivocal promise that this intention would be realised within six months (which is said to amount to a future representation) and the proper characterisation of the admitted Capacity Representation.  It is convenient to now turn to the evidentiary dispute about what was said.

C.2.3   The Evidentiary Contest as to the Representations 

34. Whether a six month “guarantee” of repayment was discussed and the effect of what was said about financial capacity was starkly in dispute. The submission of the respondents that the           evidence they adduced as to the absence of any reference to repayment in six months should be accepted included two arguments of substance.

  1. First, and most importantly, if it was part of the bargain that the judgment would be paid within six months and this was subjectively important, then the fact that this promise is not reflected in an express term in either the English Agreement or the Chinese Agreement is inexplicable, a fortioriwhere Johnson Ye was legally represented.
  2. Secondly, Johnson Ye gave evidence that he instructed his solicitor, Mr Zhang, to include in the draft of the English Agreement a six-month period (T83.44-84.9) but, despite this, the “first generation” of the English Agreement was issued by Mr Zhang on 12 October 2016 at 11:24am and such a term is absent.
  3. These arguments have an obvious attraction, as it does, prima facie, seem strange that such a “guarantee” would be omitted by an apparently competent solicitor from the agreement when reduced to writing.  In order to appreciate why I have reached the conclusion that some comfort was given to the applicant that the respondents had the intention to pay within six months, but no temporal guarantee was provided as alleged, it is necessary to set out relevant aspects of the evidence of Mr Zhang, regrettably at some length and despite the fact that Mr Zhang’s first language is not English and the transcript, at times, is difficult to follow.  This lengthy extract also sets out the evidence of Mr Zhang as to the making of the Capacity Representation.  After setting out Mr Zhang’s evidence and summarising the key points emerging from that evidence, I will then turn to the separate issues being: (a) whether the Repayment Representation was made; and (b) identifying the context in which the admitted Capacity Representation was made and its content.
  4. During the course of examination in chief Mr Zhang said:

HIS HONOUR:  … your evidence before the luncheon adjournment was the fact that what the first and fourth respondents had said to you was that they were going to sell three properties in China to pay down the judgment debt, and that was going to happen within six months; correct?

THEWITNESS:  Yes.  That’s correct.

HIS HONOUR:  And that you understood from what had been said to you that they were not the subject of freezing orders in China, those properties?

THE WITNESS:  Yes.

HIS HONOUR:  Right.

THE WITNESS:  That’s correct.

HIS HONOUR:  Now, when you got back to Killara, was that still the discussion about selling properties?  Because I thought you were talking about something else just a moment ago.  I was just trying to clarify what you were saying.

THE WITNESS:  Yes, the same things, actually.  Discussing twice.

HIS HONOUR:  I see.

THE WITNESS:  Yes, because one would require something to put this – whether we put into this deed of release or not, and they retract it, so we worried maybe they do not …

HIS HONOUR:  All right.  Now, I will just ask this further question of clarification and Mr King …

THE WITNESS:  Okay.

HIS HONOUR:  … can ask whatever he wants about it.  You said also before lunch that you proposed putting in a term of six months.

THE WITNESS:  Yes.

HIS HONOUR:  The six-month term in the deed of release, and that was …

THE WITNESS:  Yes.

HIS HONOUR:  And they rejected that.

THE WITNESS:  No.  They put this six month.  They make the offer for six months to transfer the property or – or pay the money.

HIS HONOUR:  Yes, and …

THE WITNESS:  This is their offer, not our offer.

HIS HONOUR:  No, but I thought you had said before lunch that you had tried to get a term in the deed which said that.

THE WITNESS:  That’s right.  Yes.

HIS HONOUR:  And they rejected that.

THE WITNESS:  Yes.

HIS HONOUR:  Can you explain that, please.

THE WITNESS:  They don’t want to put into the term into the deed of release.

HIS HONOUR:  Was there any reason given?

THE WITNESS:  The reasons is they’re not 100 per cent sure this – this property – maybe another – maybe the property change.

HIS HONOUR:  I see.

THE WITNESS:  Maybe this property we sold somewhere.  Maybe they put another , property.  Not 100 per cent sure this is the property they want to transfer to the … but if not, they give another property to sell.  So …

HIS HONOUR:  But why would the identity of the property matter for the six-month period?

THE WITNESS:  Yes.

HIS HONOUR:  I said but why would the identity of the property matter for the six-month period?

THE WITNESS:  This six period because they said they guarantee they can – they can do it in six month, because they have a lot of other properties they have.

HIS HONOUR:  Well, if that’s the case, why wasn’t the six-month period put in the deed?

THE WITNESS:  No.

HIS HONOUR:  What did they say about that?

THE WITNESS:  They said not necessary.

39. In cross-examination Mr Zhang said:

MR RATNAM:  Now, your evidence is that certain representations were made about – I withdraw that.  You say that my clients had suggested to sell three properties.

THE WITNESS:  Yes.

MR RATNAM:  But you were – “concerned”, I think your word was.  You were concerned because there was no valuation and there was no title search.

THE WITNESS:  That’s right.

MR RATNAM:  And you told that to your client.

THE WITNESS:  Yes.

MR RATNAM:  You told that to Mr Ye.

THE WITNESS:  Yes.

MR RATNAM:  Yet – and you suggested – what did you suggest him to do?

THE WITNESS:  I suggest that we don’t need to – we shouldn’t sign until we make sure what this property is existing.  Also it belong to the respondent, and also we have to do the search to find whether they have caveat or not, and the valuation – all the things that we make sure, and then we make a decision whether we – we sign or not.  That’s what I suggested at that time.

MR RATNAM:  But despite that, your client was still prepared to sign an agreement?

THE WITNESS:  That’s right.  Yes.

MR RATNAM:  And even though he was prepared to sign it, you still said it was not a good idea?

THE WITNESS:  No.  Not a good idea to sign, no.

MR RATNAM:  And I think you suggested that there was a term discussed about the repayment at six months?

THE WITNESS:  That’s correct.

MR RATNAM:  And …

THE WITNESS:  We didn’t discussing it for six months.  The six months offer to pay the respondent and our client accepted.

MR RATNAM:  And …

***

MR RATNAM:  …And you thought that having a six-month term would be a good idea?

THE WITNESS:  Yes.

MR RATNAM:  And you told your client, the applicant, that there should be a six-month term?

THE WITNESS:  Yes.

MR RATNAM:  Yet that six-month term is not in the agreement, is it?

THE WITNESS:  No.

MR RATNAM:  And that’s because my client has made no such representation that any payment could be made within six months.

THE WITNESS:  You – the respondent did, but they don’t want to write it down in the terms of the agreement.  This is why it take a long time to discussing in the – in the house.

***

MR RATNAM:  My client Ronghuo Zeng and Rongxing Zeng did say that there was assets in China to be sold.  Do you recall hearing that at the meeting?

THE WITNESS:  Yes.

MR RATNAM:  And it is, in fact true – sorry.  I withdraw that.  It is in fact the case that no specific properties were discussed at the meeting.

THE WITNESS:  Not right.

MR RATNAM:  Because the applicant – withdraw that – the respondents could not offer assets with immediate sale because of the freezing orders.

THE WITNESS:  You are not right.

MR RATNAM:  And when it was discussed to sell assets in China, they could not give a period of time because of the freezing orders that were in place.

***

MR RATNAM:  l will put it a different way.  My clients said – I withdraw that.  Rongxing Zhu and Rongxing Zeng did not say that they could pay within six months.

THE WITNESS:  Is this question or is it a statement?

MR RATNAM:  Yes.  I’m putting a proposition to you.  They did not say that, did they?

THE WITNESS:  Okay.  I say – yes.  Did say that.  Yes.

***

MR RATNAM:  I will put it another way.  Rongxing Zeng and Rongxing – Ronghuo Zeng and Rongxing Zeng asked your client in the meeting to lift the freezing orders so that they could sell assets in China.

THE WITNESS:  No.  They never request to lift the freezing order in China during the discussion, and because our client will not accept it.  They have experience for the freeze order issues in China.  Our client, plaintiff, already got a judgment in China, want to enforce judgment because – and then they can’t sell.

HIS HONOUR:  And what, sorry?

THE WITNESS:  They can’t enforce the judgment in China.

HIS HONOUR:  They can’t enforce the judgment in China?

THE WITNESS:  That’s right.  This is the … to freeze … the sale … respondent.

HIS HONOUR:  And what was your understanding of why they couldn’t enforce the judgment in China by selling the property?

THE WITNESS:  The reason is all the properties of the respondent in China has been freezing by many …

HIS HONOUR:  I see.

THE WITNESS:  Includes bank, to borrow a lot of money.

HIS HONOUR:  I see.

THE WITNESS:  And … 100 … they borrow money either on the way … freeze … China, so … the funds – couldn’t enforcement.

HIS HONOUR:  Is that why, when these additional properties were identified, that is, properties which were said not to be subject to the freezing order …

THE WITNESS:  That’s right.

HIS HONOUR:  … you thought it would be possible to sell those properties and pay the sums?

THE WITNESS:  That’s right.

HIS HONOUR:  I see.

THE WITNESS:  This is why we said this – this other party is not on the freezing order so they can sell.  In this we can all agree.

HIS HONOUR:  I understand.

THE WITNESS:  Yes.

HIS HONOUR:  So you didn’t think that – so when they were saying to you that they could pay, they had the capacity to pay …

THE WITNESS:  Yes.

HIS HONOUR:  … your understanding was that was in relation to these non-freezing order properties, the three that were being talked about, not all their other properties …

THE WITNESS:  No.

HIS HONOUR: … because you thought they were all tied up with other creditors?

THE WITNESS:  That’s correct.

HIS HONOUR:  I see.

THE WITNESS:  Yes.

***

MR RATNAM:  I want to suggest to you that there was no properties that were available to be sold that were not the subject of freezing orders.

THE WITNESS:  Well, your client told our client there’s no freezing order over the property and that property will be free to sell to our client.

  1. Finally, at the conclusion of re-examination, in order to obtain some clarity as to the evidence of the witness, the following exchange occurred:

HIS HONOUR:  …Now, I also understood from your evidence that you say that the three properties that you thought were going to be sold in order to pay the judgment debt were not the subject of freezing orders in China?

THE WITNESS:  Yes, correct.

HIS HONOUR:  In doing the best you can in your own words, can you tell me precisely what it was the respondents said to you, if anything, as to why they didn’t want to include a term in the deed which required them to pay the balance of the judgment debt within six months?

HIS HONOUR:  They are friends many years.

HIS HONOUR:  So your client said that or [did] they said that?

THE WITNESS:  Yes.  Our clients say that.

HIS HONOUR:  Your client said that.

THE WITNESS:  Yes.  The one way … client shouldn’t sign this deal agreement.

HIS HONOUR:  Sorry.  You said they shouldn’t sign it.

THE WITNESS:  They shouldn’t.

HIS HONOUR:  Yes.

THE WITNESS:  Before I … away they say they have other issues on this … and our client said a few of the reasons they’re trying to convince me they should sign.

HIS HONOUR:  So they tried to – your clients tried to convince you that they should sign.

THE WITNESS:  They should sign because I rejected, and, yes …What … can I say that is, firstly, there was friends many years.  So certainly what the … properties how can I already know, so they know the property there.  They know the values, but I worry about whether they exist or not.

HIS HONOUR:  Yes.

THE WITNESS:  What about this … they know the values.  They just … that price, and also they said they don’t want to make their … too hard, you know.  They try and, you know … know where to … that each mother live in that properties.

HIS HONOUR:  Yes.

THE WITNESS:  And they say that it’s very hard to do that … for him from their heart … another sales.  Certainly they said they had plenty of the properties, especially these three property, plus other properties.  They believe what the respondent has said to them.

HIS HONOUR:  But what about the properties the subject of the freezing order?  You said a little earlier that you didn’t think those properties could be sold to pay the debts because that they were – there were amounts owed on those properties to lots of people.

THE WITNESS:  Yes.  Yes.  We – we know, but we have no chance at that time to check whether the properties is on freezing or not.

HIS HONOUR:  I see.

THE WITNESS:  Because the first time they told me on that – that day, I tell them we have to wait …

HIS HONOUR:  Yes.

THE WITNESS:  … by the – you know, the – our client trying to say, you know, they have money to give upfront – soon they give – money will be soon and also a lot of reasons, as I mentioned, and they … once again, but if – you know, if they … or, you know, they want to pay and our client will not believe any more.  So …

HIS HONOUR:  All right.

THE WITNESS:  … that kind of thing, you know, and our client said in this situation they will – that they would like to sign.

HIS HONOUR:  Okay.  Thank you very much.  Anything arising from that by …

MR KING:  No, your Honour.

MR RATNAM:  No.

  1. As noted above, the evidence in chief of Mr Zhang was adduced orally and dealt, at labourious length, with a range matters that are irrelevant to the determination of the real issues between the parties. Perhaps understandably in these circumstances, the cross examination and re-examination were only in part focussed on the key issue as to whether the Representations were made.  My interventions were directed at trying to understand the evidence of the witness as it related to what I consider to be the principal issues: what was said as to payment of the judgment and capacity to pay, and why the agreements were drafted as they were (if the applicant’s contention as to what was said is correct).
  2. Having had the opportunity to observe Mr Zhang give evidence, I have little doubt he was doing his best to provide a truthful account of his recollection and I accept his evidence. Despite the disjointed nature of the questioning and, without intended disrespect, his limited capacity to express himself with great fluency in English, five key matters emerged with clarity from his evidence:

(a)          First, it was said on behalf of the respondents that they had the intention of repaying the moneys owing to Johnson Ye (being the whole of the judgment) within six months if Johnson Ye signed the proposed agreements.

(b)          Secondly, it was said on behalf of the respondents, that the respondents had access to three properties in China which were not subject to current freezing orders which would allow the respondents to pay the judgment.

(c)          Thirdly, it was said on behalf of the respondents that because the respondents had access to three properties in China, the respondents were able to and had the financial capacity to pay the judgment.

(d)          Fourthly, Mr Zhang did not consider it was a good idea to proceed, particularly in circumstances where there were insufficient details as to the identity of the three properties proposed to be used to source the means of payments.

(e)          Fifthly, despite Mr Zhang’s advice not to proceed, Johnson Ye trusted the respondents and because of his friendship with them, he proceeded to enter into the forbearance arrangement reflected in the English Agreement and the Chinese Agreement.

43. In the context of examining the evidence as to precisely what was said about how the respondents were to pay, I will detail below the evidence of Johnson Ye and Jacky Ye, consistent with         the evidence of Mr Zhang, as to the respondents having access to three properties in China (which was said to illustrate why the respondents had the financial capacity to pay to the judgment).

Whether the Repayment Representation was Conveyed?

  1. Notwithstanding I consider that I should accept the key aspects of the evidence of Mr Zhang (as summarised in [42] above), consistent with the caution expressed by McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318,I am not reasonably satisfied that it has been proven, with a sufficient degree of precision, that Ronghou Zeng said that the respondents “will” repay the judgment “within six months”, or that Rongxing Zeng said that the respondents “guarantee to pay” the full amount of the judgment if their Australian and Chinese properties are not sold within six months as was pleaded (cf APOC [9(ii)], [15(ii)]).
  2. Although I am satisfied (despite their denials) that somethingwas said by Ronghou Zeng and Rongxing Zeng about the intention of the respondents to repay the moneys owing to Johnson Ye within six months, I am not satisfied that this amounted to a guarantee or promise that this “will” occur within six months, still less that this would occur if the respondents’ Australian and Chinese properties were not sold. If this is correct, the absence of an express term in both the English Agreement and the Chinese Agreement as to the six month period is explicable; as is its absence from the “first generation” of the deed prepared by Mr Zhang.  Although the respondents were willing to convey an intention, they did not want the six month period to amount to an enforceable obligation or “guarantee”.  It follows that the Repayment Representation as pleaded was not conveyed.

The Context and Content of the Capacity Representation 

  1. Although the making of the Capacity Representation is admitted, it is worth pausing to reflect on the context of the discussions, and why the conclusion that a representation as to capacity to pay was conveyed makes intuitive sense. It is also necessary to set out the context and content of what was said about the capacity to pay.

The Relevant Context

  1. As to context, by reason of the orders made by the Chief Justice, after giving the respondents every opportunity to pay the judgment debt, the position of Johnson Ye was unassailable.  In order to convince him to give up this strong commercial position, it is understandable that efforts would be made to allay his concerns about the capacity of the respondents to pay the judgment debt.
  2. In Ye v Zengat [10], the Chief Justice observed:

The respondents say that there has been a freezing order put on all of the respondents’ properties in the PRC, by the Xiamen Intermediate People’s Court (Xia Min Bao Zi [2015] no.2), and that the applicant is thus protected. There are two difficulties with that proposition. First, there is evidence that the respondents’ properties in PRC are highly leveraged to Chinese lenders.

  1. No evidence was adduced to the contrary at this hearing and the respondents accepted, in submissions, that there was no available property in China which was not subject to the freezing orders.
  2. As noted above, the recalcitrance of the respondents in paying the debts was longstanding.  Johnson Ye had already sought to enforce his judgment against all the respondents’ properties in China and had obtained freezing orders.  This is why the representation made as to the existence of three properties which were not the subject of freezing orders was no doubt attractive.  As Mr Ratnam accepted, if there were three unencumbered properties in China, there would be nothing stopping the respondents selling those properties and remitting the proceeds to Johnson Ye within six months (T134.36).  This is essentially what Johnson Ye, Jacky Ye and Mr Zhang said was conveyed to them as to the intentions of the respondents.  In the context of entreating Johnson Ye and appealing to his feelings of goodwill, the making of the Capacity Representation makes sense, accompanied as it was by the notion that there was an ability for the respondents to realise assets not the subject of the freezing orders.
  3. I am fortified in this view because the counterfactual (that no discussion took place as to properties that were not subject to the freezing order), makes little sense.  Somewhat curiously, the position of the respondents was that they expected Johnson Ye to take the necessary steps in China to have the properties sold, so that Johnson Ye could be repaid.  According to Ronghuo Zeng, the only available assets were the subject of freezing orders and hence, without Johnson Ye taking steps to lift the freezing orders, then “nothing can be auctioned.  No way to pay” (T349.22).  I consider this evidence is curious as it made little commercial sense for Johnson Ye to have entered an agreement by which the only avenue for payment was for him to facilitate the sale of properties, apparently leveraged to a range of creditors, to pay himself.  Apart from anything else, as I explain below, in order to sell the properties, it would be necessary for Johnson Ye to obtain the cooperation of other creditors.
  4. In summary, it seems to me to be fairly clear that what was happening was that the respondents were seeking to delay payment of the judgment debt as long as possible in the hope, Micawber-like, that something might turn up in order to allow them to continue to string along Johnson Ye, but now with the benefit of the English Agreement and the Chinese Agreement. The likelihood of the Capacity Representation being made in the context alleged, together with the evidence of Mr Zhang in particular, persuades me that the Capacity Representation was conveyed and that something was also said about an intention to pay within six months, but that reference to a time period fell short of guarantee.

The Content of what was said about Capacity to Pay

  1. Having already noted I accept Mr Zhang’s evidence, it is now convenient to turn to the content of what was said about the respondents’ capacity to pay in more detail.
  2. A good deal of evidence was adduced as to the effect of the Chinese freezing orders and confusing evidence as to three properties which were the subject of Mr Zhang’s evidence, being the three properties in China to which the respondents supposedly had access which were not subject to current freezing orders and which would allow the respondents to pay the judgment.  I will deal with each topic separately.

Freezing Orders

  1. In considering what was conveyed I am, of course, conscious that the applicant agreed to do all things necessary to facilitate the sale of any property owned by the respondents in China to discharge the debt owing (see clause 3.6).  This supports the notion that there was to be some possible dealings with the properties the subject of the freezing orders.  Despite this, it was common ground that there was no discussion of the specifics of the steps to be taken to remove the freezing orders during the Restaurant meeting on 12 October 2016 (T146). As Mr Zhang explained (see [38] and [40] above), there was at least some ambiguity as to whether it was guaranteed that the three properties that were not “frozen” would necessarily be the ones (or the only ones) eventually sold to pay all the debts, or would be “substituted” or augmented by other properties.  The primary relevance of the three properties was that their existence and availability was relied upon to demonstrate a capacity to pay.
  2. An expert was called, Mr Qing Zhu. With respect to Mr Zhu, a Chinese lawyer, his oral evidence was somewhat difficult to understand.  He had given evidence about the operation of Article 38 of the Urban Real Estate Administration Order of the People’s Republic of Chinaand Article 242 of the Civil Procedure Law, pursuant to which the owner of an asset subject to freezing orders cannot dispose, including sell, assign or mortgage the relevant asset. He adhered to this evidence in cross examination and also gave evidence that if there is more than one creditor, then, it appears, all creditors need to approach the Court to facilitate the sale of the property the subject of the freezing orders (T183-184).  As I have already explained, the existence of these freezing orders made the prospect of any non-encumbered properties attractive from the perspective of Johnson Ye.

The Three Properties

  1. On one level, the precise identity of the three properties does not really matter.  As is evident from the evidence of Mr Zhang (see [39]-[40] above), the absence of concrete details such as title searches, valuations and confirmation that the three properties were not the subject of freezing orders, were matters that caused him sufficient concern to mean he gave advice that Johnson Ye should not enter into the proposed agreement.
  2. The following evidence (at T430.23-44) was adduced in the cross examination of Rongxing Zeng:

MR KING: And you – were you present at the restaurant when your brother said to Johnson Ye that, as an example of his capacity to pay the judgment debt of the court, he had three properties in China which were unaffected by any freezing order?

THE INTERPRETER: All frozen.

MR [KING]: He mentioned two houses in Zhangzhou City in China, didn’t he?

THE INTERPRETER: No. So many.

MR [KING]: Each house was valued, he said, at 10 million RMB.

THE INTERPRETER: I don’t understand the question.

MR [KING]: He also said that he had a car park with 100 car capacity.

THE INTERPRETER: No.

MR [KING]: And that if he were – if he sold those three assets their value would be 40 million RMB, enough to repay the debt.

THE INTERPRETER: As long as the frozen order lifted, I am able to repay.

59. These questions were put consistently with the evidence adduced by the applicant.  Apart from Mr Zhang, to whose evidence reference has already been made, Johnson Ye gave evidence that Ronghuo Zeng (T43.9-11):

… said that these properties [that is, the car park in Guangzhou city and the two properties in Zhangzhou city] are not subjected to any frozen order – freezing order, just the matter of the money and he can sell these properties any time to get cash.

He had earlier given evidence (at T42.39-44) that:

He [Ronghuo Zeng] gave me example. He said he has two properties two houses in Zhangzhou city, China. Each house valued about 10 million RMB. And also he told me that he has a car park which has hundred cars capacity and which valued about 100,000 to 200,000 RMB. And for these three assets, if he sell these three assets, the value would be 40 million RMB and would be enough to repay the debt.

  1. Similarly, in cross examination (at T147.31-33) he gave evidence:

No, no. They promised to me that they would pay me for about 4 million Australian dollars. And then I cancelled the receivership and then they [were to use] the carpark and the two other properties to repay the balance.

  1. Jacky Ye (at T192-193) gave similar evidence:

THE WITNESS: Yes. Both brothers say those words that they promised my dad they can – they have asset in China they can sell, but just need time. They can sell in six months to get the rest of the payment.

MR KING: And what did your father say in response?

THE WITNESS: And he ….. discuss with Terry about ….. and then my father say….. you have to keep your promise, and because I’m going to say you’re auctioning your house ….. so at least – I mean ….. last time you ask me, and then I trust you again, but you have to keep your promise.

  1. I accept this evidence.  The respondents’ submissions as to why this evidence should be rejected evolved somewhat.  Initially, it was asserted that there was no mention of the three properties and that any mention was inherently improbable because all the properties, in any event, were the subject of a freezing order (T143.42-46).  This was refined somewhat when it came to final submissions where it was contended that I should reject the evidence of Mr Zhang, Johnson Ye and Jacky Ye because:

As to the Car park – it was not the Respondents to give. Mr Yu’s evidence must be accepted. The Car Park belonged to him. Mr Yu gave evidence that the topic of the Car Park was raised in an initial discussion (before 12 October 2016) and was not raised at the Restaurant meeting. If the representation was made, the Applicant could not have relied upon it because he knew that Mr Yu was the owner and not the Respondents. Mr Yu gave this evidence and was not challenged by calling Mr Bihui Lin who was present at the Restaurant. Mr Lin’s evidence would have been critical to challenge Mr Yu’s evidence. An inference should be drawn that by failing to call Mr Lin, his evidence would not have assisted the Applicant.

Two properties in Zhangzhou city – no precise details of these two properties were ever particularised by the Applicant in chief (nor were they pleaded) apart from him identifying that they existed in Zhangzhou city.

63. I do not accept these submissions. The point about Mr Lin can be put to one side immediately.  Mr Lin was described in the two “List of Personalities” documents provided to the Court, and not disputed between the parties, as being a friend of both Johnson Ye and Ronghuo Zeng.  He was in no-one’s camp, and could have been called by either side of the record.

  1. More significantly, Mr Ratnam for the respondents cross examined on the basis that the car park had been discussed at the Restaurant, putting the positive proposition to Johnson Ye that he had asked for the car park to be transferred to him as security for the part payment of the judgment (T147.28-29).  As to Mr Yu’s evidence, in response to the question that if Ronghuo Zeng had said to Johnson Ye on 12 October 2016 that he can sell the car park, and repay Johnson Ye, whether such a statement would be false (a question which had to be asked numerous times), Mr Yu responded (T458.39):

THE INTERPRETER: So the car park can park 100 cars, I gave this proposal –mentioned it to Mr Ye at his home in China. After I arrived at Australia, we never mentioned about this car park any more.

65. It was unexplained why “this proposal”, that is, selling the car park and reducing the amount outstanding with the proceeds, was ever raised with Johnson Ye. Mr Yu was not an impressive witness and I would not accept his evidence to the extent it conflicted with that of Johnson Ye and Jacky Ye, and, even more so, Mr Zhang.

  1. The evidence as to the properties in Zhangzhou city was difficult to follow. Johnson Ye gave evidence that one of the properties had been “registered under his name” (T148.10), by which he meant that he had previously been listed as an incoming purchaser pursuant to an uncompleted contract for sale in 2013 (T158.30).  He had then later told his solicitor that he did not want the property, and he had then been “removed as the incoming purchaser” and because of that fact, Johnson Ye said (T159.11) that he:

knew that the property was the – was not subjected to the freezing order, so can be sold to get cash, because I retuned that property.

  1. Evidence was also given of another property, in Rongxing Zeng’s name. Apparently what was to happen, was that the respondents were going to sell the property, get the money from a purchaser and give the money to Johnson Ye in partial reduction of the judgment debt (T160.10-20).
  2. As best I understand it, it is contended that I should reject the evidence of Johnson Ye because: (a) Johnson Ye knew in 2016 that one of the properties could not have been the subject of bargain on 12 October 2016, because “he remained on title (by his own evidence) until 2017”; and (b) Johnson Ye knew the respondents could not sell the three assets (because, the Car Park did not belong to the respondents, one of the properties in Zhangzhou city was under contract and the second property in Zhangzhou city was the subject of a freezing order).
  3. As to the first of these arguments, it rests on far from clear evidence as to when it became evident that the 2013 contract was not to be completed.  Read contextually and consistently with the evidence of Mr Zhang, it seems to me clear that Johnson Ye formed the view during the course of the enforcement proceedings that he did not want to complete the purchase (notwithstanding the inaccurate reference, through the interpreter, to “last year” during his cross examination (T159.9)).  By the time of the discussions on 12 October 2016, Johnson Ye thought recourse was available by the respondents to this Zhangzhou city property to assist in discharging the amount owing and that it was not subject to a freezing order.
  4. As to the second argument, the topic of the car park had been discussed and the fact that Mr Yu may have had some ownership interest is beside the point.  So is the fact that all of Rongxing Zeng’s properties should have been subject to freezing orders.  As Johnson Ye explained (at T144), he was unsure as to whether freezing orders had been obtained over all the properties to which the respondents could have recourse in China because he suspected “they just hided the assets so we couldn’t search all of them” (T144.33).  As noted above, Mr Zhang was unsure as to the identity of the relevant properties and, understandably, wanted to obtain further particulars and searches.
  5. Finally, before leaving the evidence, I should make some reference to Margaret Koh. I formed the general impression that Ms Koh was also a witness who was doing her best to assist the Court, notwithstanding I was concerned that she was prepared to make serious allegations against the witnesses called by the applicant, including fellow practitioners (see T490.5-32).  As noted above, she was also at the Restaurant.  She gave evidence in chief that initially Johnson Ye was angry, but that Rongxing Zeng and Ronghou Zeng “very much wanted to settle the… matter” (T482.10-20).  No evidence was adduced in chief as to precisely what Rongxing Zeng and Ronghou Zeng said to Johnson Ye. This was perhaps understandable because Ms Koh is Malaysian and much of the discussion, it appears, took place in a variant of the Fujian dialect.  This meant that comprehension of exactly what was being communicated was not an easy task for Ms Koh (T484.30-45; T488.10).  She gave evidence that she “wasn’t participate in the discussion” (T496.26-32) and, although she said she did not believe that Mr Zhang was within earshot of what was passing between Rongxing Zeng and Ronghou Zeng on the one hand and Johnson Ye on the other, she was not definitive and accepted that she did not overhear everything (T502.8).
  6. Notwithstanding the denials of the other witnesses called by the respondents, as I have already found, I have little doubt that reference was made to “available” properties during the course of discussions. In accordance with s 140(1)of the Evidence Act 1995(Cth), I am persuaded of the existence of the five key matters to which I have made reference in [42] above and, in particular, of the evidence of Mr Zhang, Johnson Ye and Jacky Ye that Rongxing Zeng and Ronghou Zeng represented, on behalf of the respondents, that the respondents had access to assets which were not subject to current freezing orders, which demonstrated a financial capacity to allow the respondents to pay the judgment.
  7. It follows that the Capacity Representation as pleaded was conveyed.

C.3     Was the Conduct in Trade or Commerce?

  1. The respondents put in issue whether the making of the Representations, could be considered “conduct” for the purposes of s 18, given that the section requires the impugned conduct to have been made “in trade or commerce”.
  2. The usual starting point for the interpretation of the phrase is Concrete Constructions (NSW) Pty Ltd v Nelson(1990) 169 CLR 594, which concerned a preliminary question of whether an inaccurate statement by the defendant’s foreman to another employee was conduct in trade or commerce. Mason CJ, Deane, Dawson and Gaudron JJ, at 602-3,noted that the statutory words refer to “‘the central conception’ of trade or commerce”, consisting of “conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character”.
  3. The approach to the understanding of the statutory concept as explained in Concrete Constructions, although in the context of s 52of the Trade Practices Act 1974(Cth), is equally applicable to s 18 of the ACL: see Murphy v State of Victoria [2014] VSCA 238; (2014) 45 VR 119 at 143-144 [77] (Nettle AP, Santamaria and Beach JJA). This includes the notion, as Toohey J explained in Concrete Constructions at 613, that the relevant conduct may relate to the trade or commerce of a party other than the representor. This was confirmed by the High Court in Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553 at 565 [34] where Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ considered the meaning of “in trade or commerce” (in the context of the fair trading legislation) and observed:

Moreover, in his judgment in Concrete Constructions, Toohey J emphasised that, while in most cases, the focus would be on the nature of the business of the party making the representation, s 52 was not so limited; in particular, the section did not, in terms, refer to the trade or commerce of any particular corporation. Accordingly, statements made by a person not himself or herself engaged in trade or commerce may answer the statutory expression if, for example, they are designed to encourage others to invest, or to continue investments, in a particular trading entity.

(Citations omitted, emphasis added)

  1. In Williams v Pisano [2015] NSWCA 342; (2015) 90 NSWLR 342 at 350[41]Emmett JA (with whom Bathurst CJ and McColl JA agreed) made clear: “(i)t is the character of the act that is the subject of complaint, so far as the person doing the act is concerned, that is critical”. Accordingly, statements by a person that are designed to persuade others to provide goods or services answer the description of conduct “in trade or commerce”. Such conduct has the requisite trading or commercial character.
  2. Relevantly, the Capacity Representation was designed to persuade Johnson Ye, who, in the circumstances described in [3] above, had provided financial accommodation to Ronghuo Zeng from 2011, and to all six respondents since 2013, to defer repayment of the monies outstanding.  Additionally, it was made in the context of a commercial negotiation between Johnson Ye and the respondents, by which the respondents were seeking to have Johnson Ye enter into agreements which, among other things:

(a)          required the respondents to pay $3.7 million to a trustee’s bank account and provide for the subsequent remission of that money to the beneficiary of the trust sums;

(b)          required Johnson Ye to take steps to facilitate the sale of property by the respondents in China (cl 3.6 of the English Agreement); and

(c)          effected the transfer of a Vietnamese rosewood office table and two armchairs for stated consideration (cl 2(c) of the Chinese Agreement).

A series of mutual promises were made relating to, and facilitating, a deal by which the right of Johnson Ye to take steps to recover the amount owing to him was deferred.

  1. The contention of the respondents was undeveloped in submissions, but it seems to be that the expression “in trade or commerce” necessarily connotes a course of conduct as opposed to isolated and unusual or extraordinary conduct.  This contention cannot be correct if expressed at this level of generality and was, in any event, rejected by the Full Court in Bevanere Pty Ltd v Lubidineuse[1985] FCA 134; (1985) 59 ALR 334 at 339(per Morling, Neaves and Spender JJ) where it was explained that a single transaction should not be viewed in isolation from the totality of the commercial activity of the relevant actors. The Capacity Representation was made in the context of a longstanding commercial relationship, albeit one that had soured. This was not like a one off private sale of a dwelling: see Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 127–31 per Hill J. Here, not only did the totality of the dealings between the parties have a commercial character, but also the precise conduct in the making of the Capacity Representation as to the commercial proposal later reflected in the English Agreement and the Chinese Agreement. The impugned conduct was relevantly carried out in trade and commerce.

C.4     Was the Capacity Representation Misleading or Deceptive?

C.4.1   The Principled Approach to Characterisation

  1. There was no debate between the parties as to the applicable principles of how the Court is to approach characterisation of the conduct in making the Capacity Representation.  Despite this, it is worth emphasising how the Court is to approach the assessment of whether a contravention is established.  Recently, in Chowder Bay Pty Ltd v Paganin[2018] FCAFC 25, the Full Court (Besanko, Markovic and Lee JJ) at [15] and [27]-[32], referred to the relevant principles, from which the following summary is taken:

… consideration as to whether particular conduct is misleading or deceptive is a question of fact to be determined in the context of the evidence as to the alleged conduct and all relevant surrounding facts and circumstances: Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 199 per Deane and Fitzgerald JJ. A fundamental requirement is that, in the circumstances, the impugned conduct induces or is capable of inducing error: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 per Gibbs CJ.

… where the misleading or deceptive conduct is directed not to a class but to a specific individual, the court must necessarily take into account the knowledge of the person to whom the conduct is directed: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at 604-605 per Gleeson CJ, Hayne and Heydon JJ. In this regard, as French CJ noted in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at 319 [26]:

Characterisation [of the conduct] may proceed by reference to the circumstances and context of the questioned conduct. The state of knowledge of the person to whom the conduct is directed may be relevant, at least in so far as it relates to the content and circumstances of the conduct.

Moreover, it is not only the situational or relative commercial position of representor and representee is relevant, but also the specific dealings which related to the impugned conduct: see Butcher at 604-605 per Gleeson CJ, Hayne and Heydon JJ.

What is also clear is that in determining whether any particular conduct is misleading or deceptive is a question of fact to be determined objectively. In Campbell at 341-342, Gummow, Hayne, Heydon and Kiefel JJ approved the following statements of McHugh J in Butcher at 625 [109]:

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the [person’s] conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct.

(Emphasis added, citations omitted)

This task is more straightforward when one is dealing with the representation of existing fact; but sometimes representations as to fact are more appropriately classified as representations as to opinions, which raise particular issues. The initial step is to identify precisely what representations the statement of opinion entails. French CJ remarked on the importance of properly characterising the representation in Campbell at 321 [32]-[33] where his Honour observed:

Opinions may carry with them one or more implied representations according to the circumstances of the case. There will ordinarily be an implied representation that the person offering the opinion actually holds it. Other implied representations may be that the opinion is based upon reasonable grounds, which may include the representation that it was formed on the basis of reasonable inquiries.

  1. It seems to me that the better view is that the Capacity Representation was a representation as to an existing fact (although in this case, the proper characterisation is not determinative when it comes to the later task, addressed below, of assessing whether it was misleading).
  2. Having identified the relevant principles, it is convenient to turn, in further detail, to the findings as to the true position of the capacity of the respondents to pay.

C.4.2   Findings as to the True Position

  1. The question then becomes: as at 12 October 2016, when the Capacity Representation was made, did the respondents have the financial capacity to pay to the judgment?
  2. The approach adopted by the respondents in closing submissions (T508) was to say that the applicant failed to prove a lack of capacity.  The Capacity Representation was not put, or not put squarely, as a future representation. After the close of the respondents’ case, Mr Ratnam accepted that the respondents had not adduced any evidence on the question of financial capacity and (subject to the trade and commerce point), given the admission the Capacity Representation was made, if the applicant proved a lack of such capacity, he would win but if not, he would lose.  As Mr Ratnam noted (at T553.20) “this is an onus case”.
  3. It is worth noting that it was not always the way the respondents put the case.  This is perhaps unsurprising given the recalcitrance of non-payment and evident inability to pay the judgment out of the Australian assets and the admissions previously made by the respondents (recorded in Ye v Zengat [10] and not in contest before me), that there has been a freezing order put on all of the respondents’ properties in China, by the Xiamen Intermediate People’s Court. Clearly there was some evidence that there was a want of capacity to pay at the time of the meeting on 12 October 2016. That was, after all, the whole point of seeking the forbearance to allow time to realise Chinese assets. Freezing orders over all the assets in China and the mendicant approaches to the applicant (and, to a lesser extent, the appointment of receivers in Australia to realise assets) are hardly indicative of a capacity to pay.
  4. Against this background, on day two of the hearing the following exchanges occurred (T115, T121):

HIS HONOUR: Do you still say you’ve got sufficient assets in China to discharge this debt?

MR RATNAM: I would have to get those instructions, but I don’t have – this is – your Honour raises a very good point, because we had made a submission some months ago that we wanted to get valuation evidence to – – –

HIS HONOUR: Well, your client must know what his position is with his creditors.

HIS HONOUR: …it seems to me that, once I look at the way the representation case is now being put, with some degree of precision, one of the things that they say is, that was misleading and deceptive is, you had the capacity to repay. And you want to meet that case by saying, well, you have assets which – – –

MR RATNAM: That’s right.

HIS HONOUR: – – – give to you the capacity to pay at the time. All right. Well, we will continue with the applicant’s evidence, but we might have to come back to that, because I think we’re going to be part-heard anyway, and I did indicate to you, you should be getting these – that notation in the orders. So if you do want to have valuation evidence it’s going to have to be done pretty quickly.

MR RATNAM: And can I inform your Honour that I have received a phone call from Ms Koh this morning, telling me that, one set of valuation evidence is prepared and was received not long ago, but it needs to be translated.

HIS HONOUR: Okay.

MR RATNAM: I want to assure your Honour that we have not been sitting on our hands on this.

  • On 5 April 2018 orders were made for the respondents to file any valuation evidence upon which they proposed to rely.  Evidence was filed, said to be pursuant to that order, but it was not ultimately read when the matter came back before the Court in June 2018.  No explanation was provided for no evidence being adduced by the respondents to prove a capacity to pay, other than reliance upon the contention that it was unnecessary because the applicant had not adduced sufficient evidence to allow the Court to form a conclusion that there was an issue as to the capacity to pay.
  1. This deliberate forensic choice may well be entirely understandable, but it has consequences.  There was prima facieevidence of a lack of capacity to pay.  On the respondents’ own case, the Australian assets were insufficient. In final submissions the respondents asserted that Johnson Ye knew the Australian properties owned by the respondents were leveraged and that money was owing to banks. Moreover, the respondents accepted that all the respondents’ property in China was the subject of freezing orders. They were pleading for time and forbearance over a payment of a significant debt that was long past due. They had failed to pay despite there being no reasonable basis to deny liability.  As a matter of logic, the only way they could pay was by realising any equity in the “frozen” properties or bringing other properties to the table. On the respondents’ case, the latter option was unavailable, as the respondents’ contend that there were no other “unfrozen” assets and hence any admitted representation as to a capacity to pay necessarily had, as its justification, the notion that there was sufficient equity in the “frozen” properties.  No attempt was made by the respondents to adduce evidence relevant to this fact.
  2. Although the applicant placed no direct reliance on Blatch v Archer(1774) 1 Cowper 63; (1774) 98 ER 969, where Lord Mansfield said that “all evidence is to be weighed according to the proof which it was in the power of one side to have produced”, it is apposite in the present circumstances. Also relevant is the corollary of his Lordship’s dictum, that is, where further evidence is available, a tribunal of fact is entitled to consider that factor when assessing whether a party has produced evidence sufficient to satisfy the requisite standard of proof: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at 412 [165] and 441 [250].
  3. In Gerard Cassegrain & Co Pty Limited v Cassegrain[2013] NSWCA 453; (2013) 87 NSWLR 284 at 292 [26], Beazley P said of Blatch v Archer that it is authority for the proposition that “where material evidence is peculiarly within a party’s knowledge, it may be sufficient for the opposing party to adduce slight evidence of a matter in issue”. The other party (in the present case, the respondents):

… then faces a tactical decision as to whether to adduce evidence to explain that ‘slight evidence’ given by the other party. If a decision is made not to call evidence, there is a risk the court may draw inferences contrary to the interests of the other party who chose not to respond to the evidence adduced: De Gioia v Darling Island Stevedoring & Lighterage Company Ltd (1941) 42 SR (NSW) 1 at 4; Blatch v Archer at 970; Hampton Court Ltd v Crooks [1957] HCA 28; 97 CLR 367; Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 especially at [250] ff.

  1. Leaving aside the issue of capacity in relation to assets generally, it is common ground that the three (so-called “unfrozen”) properties provided no basis for the Capacity Representation.  Indeed the position of the respondents (which I have rejected) is that nothing would have been said about these properties because the respondents did not have access to them to assist in repaying the debt. There is no evidence that there was any other way the respondents had the capacity to pay at the time of the meeting at the Restaurant.  In fact, all indications are to the contrary.  Accordingly, it follows that the applicant established that the true position is that when the Capacity Representation was made, the respondents did not have the financial capacity to pay to the judgment.
  2. Before leaving this topic I should mention a further matter for the sake of completeness.  The submissions of the applicant were replete with references to findings made by the Chief Justice in earlier interlocutory judgments or to findings made by the Xiamen Intermediate People’s Court in order to prove a lack of financial capacity.  In reaching my conclusion as to a want of financial capacity I have had regard to admissions made which were common ground before me (see [89] above), but not to findingsmade in other proceedings.  I should shortly explain why.
  3. The exclusionary provision in s 91(1)of the Evidence Act 1995(Cth) is in the following terms:

(1) Evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding.

  1. The applicant’s submissions contained an implicit assumption that a finding of fact in the earlier interlocutory judgments of the Court or a finding made by the Xiamen Intermediate People’s Court could prove the existence of the fact that was in issue before me. This is incorrect.
  2. As I explained in Young v Hughes Trueman Pty Ltd (No 4)[2017] FCA 456 at [20]:

s 91(1) is an exclusionary and not a facultative provision and is part of a regime, found in Part 3.5 of the Evidence Act, which deals with not only civil judgments but also convictions and acquittals.  The explanatory material contained in the Australian Law Reform Commission’s Interim Report: Evidence (ALRC 26) explains the relevant recommendation (no 782) which was informed, in part, by the notion that a civil judgment (and findings in such judgments) are based on evidence chosen by the parties (with no obligation, like that of a Crown Prosecutor, to make available all known evidence).

Sections 92 and 93 set out specific exceptions and savings which limit the operation of the exclusionary rule, but none speak to the present issue in circumstances where the applicant does not develop any submission that an issue estoppel has arisen.

  1. Having said this, for reasons I have explained, the applicant established that the respondents did not have the financial capacity to pay the judgment by reference to the prima facieevidence of a lack of capacity to pay, together with the inferences able to be drawn contrary to the interests of the respondents, who chose not to respond to the evidence adduced in accordance with the principles explained in Blatch v Archer.

C.4.3   Conclusions

  1. Mr Ratnam, counsel for the respondents, accepted that if I were to find that if a representation was conveyed that there were three properties not subject to freezing orders that could be sold to discharge the judgment debt, that such a representation would necessarily be misleading and deceptive (T537.23).  However, the Capacity Representation was pleaded somewhat differently and less specifically, as I raised with Mr King during the course of final submissions (T538.43).  The submission of the applicant was that the references to the three properties in China which were not the subject of freezing orders, were part of the context in which a broader representation was made to Mr Ye, being that the respondents both intended to pay and, more relevantly, had the capacity to pay (T532.12).  This submission should be accepted.
  2. There is no doubt given the findings I have made as to the true position at the time the Capacity Representation was made, that the conduct in making the Capacity Representation was misleading or likely to mislead or deceive.  What the respondents were seeking to do was buy time.  In doing so they were seeking to give Johnson Ye comfort that within the foreseeable future there was a real prospect that the judgment would be paid.  I have referred above to the commercial context in which the representations were conveyed and the desire on behalf of the respondents to appeal to Johnson Ye’s goodwill.  In this context, the Capacity Representation was of signal importance.  In this context and having regard to all relevant surrounding facts and circumstances, the Capacity Representation induced or was capable of inducing error.

C.5     Causation

  1. The essential issue as to causation in this case can be stated as whether the contravening conduct in making the Capacity Representation played some part, even if only a minor part (Gould v Vaggelas(1985) 157 CLR 215 at 236 per Wilson J) in materially contributing (I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited [2002] HCA 41; (2002) 210 CLR 109 at 130 [62] per Gaudron, Gummow and Hayne JJ) to the course of action taken by the applicant in entering into the English Agreement and the Chinese Agreement?
  2. I do not consider the issue of causation in this case to be attended by any real doubt.  Any suggestion that there is a failure to prove the necessary causal link between the entry into the English Agreement and the Chinese Agreement by reason of the fact that the solicitor for Johnson Ye had advised against the entry into the agreement is misconceived.  The issue here, in a case in which no proportionate liability defence was filed and no claim is made for statutory compensation, is whether the decision of Johnson Ye to enter into the English Agreement and the Chinese Agreement was materially contributed to by the proved contravening conduct?
  3. The effect of the contravening conduct on Johnson Ye is graphically demonstrated by the evidence of Mr Zhang.  Given the promises that had been made by the respondents and the applicant’s willingness to believe in the truth of the Capacity Representation, he was prepared to ignore the prudent advice of Mr Zhang and proceed to enter into agreements which were perceived by his solicitor to be contrary to his interests. The necessary causal link is easily established.

C.6     The Remedial Response

  1. Sections 237 and 243 of the ACL provide a discretion to set aside (or declare as being void ab initio), contracts where the applicant has proven: first, that a respondent has engaged in contravening conduct; and secondly, the applicant is likely to suffer loss or damage because of the contravening conduct. Further, s 237(2)requires that the Court only exercise its discretion to make an order setting aside the contract where the Court considers that the order will: (a) compensate the injured person or persons for the loss or damage; or (b) prevent or reduce the loss or damage suffered, or likely to be suffered.
  2. Although the issue as to whether the respondents engaged in conduct which contravened of s 18 of the ACL was addressed, the distinct issue of proving actual or likely loss, and the related matter of whether I should exercise my discretion to set aside the contract, were not issues explicitly addressed in submissions. Presumably this was because each party accepted that if contravening conduct was established in procuring the forbearance arrangement and postponing the sale of Australian assets, likely loss would necessarily follow. As I have explained, the Capacity Representation was designed to persuade Johnson Ye to defer repayment of the monies outstanding. It had the effect of preventing recourse to Australian assets that otherwise would have been available to reduce the amount outstanding.  Likely loss is proved.
  3. Given my conclusion that the English Agreement and the Chinese Agreement were entered into by Johnson Ye by reason of the contravening conduct of the respondents, then those agreements must be set aside and be regarded as being void ab initio.  Further, the orders made by the Chief Justice by consent should also be set aside so that the status quoante is restored. This will serve to reduce the loss or damage suffered, or likely to be suffered (see s 237(2)). It may be necessary to make further orders in order to ensure that the receiver is in a position to deal with what remains of the Australian assets and I will direct the parties to provide short minutes of order reflecting these reasons.
  4. This leaves one point unaddressed by submissions.  I have already made reference to the fact that clause 2(c) of the Chinese Agreement effected the transfer of a Vietnamese rosewood office table and two armchairs with the alleged market value of RMB 2,550,000 as “part of the payback of financial debts owed” to Johnson Ye.  Given no party addressed this aspect of the matter in submissions, I proceed on the basis that each party is content for this conveyance of property to remain untouched notwithstanding the setting aside of the Chinese Agreement. Having said that, I will reserve liberty to either party to make submissions on this issue at the time orders are made giving effect to these reasons.

D        OTHER ISSUES, COSTS AND CONCLUSION

  1. I have already made reference to the bewildering number of claims and causes of action initially relied upon by the applicant.  Misleading and deceptive conduct claims were made under a number of legislative schemes which the parties later agreed were irrelevant.  A claim in deceit was made and relief was sought under the Contracts Review Act 1980 (NSW). Claims were made as to statutory unconscionability and as to equitable relief.
  2. Leaving aside the question of the unnecessary complication of the legal issues, a costly, distracting and time consuming enquiry was made as to the genesis of each of the agreements and the various iterations of the documents.  Properly analysed, if the evidence of Johnson Ye and Mr Zhang was accepted, this was always a distraction.  Put simply, Johnson Ye was willing to sign a document the respondents put up for him to sign notwithstanding the advice of his solicitor.  He was willing to do this because of the contravening conduct.  He trusted the respondents and accepted what they said. Irrelevant to his reasoning processes was the timing of the creation of various drafts of the documents or the authorship of the documents.
  3. I mention this because significant time was wasted in not only preparing this matter for hearing but also in the way that evidence was adduced on topics that were irrelevant to its efficient and cost effective disposition.
  4. A further unnecessary complication was the filing of a separate proceeding in the Supreme Court of New South Wales which sought relief in substantially the same form as was ultimately sought in the Points of Claim.  As a result, the hearing of this matter consisted of two separate proceedings, being NSD1123 of 2015 and NSD 258 of 2018 (the latter being the proceeding commenced in the Supreme Court, which was subsequently cross vested to this Court). The 2018 proceeding was apparently commenced as a result of a misconceived understanding as to the jurisdiction of this Court.  It was sufficient, and indeed entirely appropriate, for the applicant to obtain relief in the existing proceeding. Indeed, it was necessary for them to do so to obtain a setting aside of the order made by consent giving effect to the English Agreement and the Chinese Agreement.  The 2018 proceeding should be dismissed.
  5. I will hear from the parties on the question of costs. My preliminary view is that the applicant should be entitled to their costs to the extent that those costs relate to the bringing of the claim for misleading and deceptive conduct and do not include costs incurred in relation to either the balance of the claims made or, more particularly, those costs incurred in relation to the issue of the various stages of production of the English Agreement and the Chinese Agreement (which will include the costs associated with the referee process).  In relation to these excluded costs my view, subject to hearing from the parties, is that the parties should bear their own costs.  I also consider, again subject to hearing from the parties, that any costs order should be on a lump sum basis.
  6. I will direct that the parties provide to my Associate agreed orders giving effect to these reasons or their competing proposed orders.  I will then relist the matter for hearing any argument and for final orders to be made.

 

Duro Felguera Australia Pty Ltd v Trans Global Projects Pty Ltd (In Liquidation) [2018] WASCA 174

JURISDICTION: SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT: THE COURT OF APPEAL (WA)

CITATION: DURO FELGUERA AUSTRALIA PTY LTD -v- TRANS GLOBAL PROJECTS PTY LTD (IN LIQUIDATION) [2018] WASCA 174

CORAM: BUSS P, MURPHY JA and MITCHELL JA

HEARD:  20 JULY 2018

DELIVERED: 11 OCTOBER 2018

FILE NO/S: CACV 49 of 2018

BETWEEN: DURO FELGUERA AUSTRALIA PTY LTD ACN 164 834 753

Appellant

AND

TRANS GLOBAL PROJECTS PTY LTD (IN LIQUIDATION) ACN 112 290 089

Respondent

ON APPEAL FROM:

Jurisdiction: SUPREME COURT OF WESTERN AUSTRALIA

Coram: TOTTLE J

Citation: TRANS GLOBAL PROJECTS PTY LTD (IN LIQUIDATION) -v- DURO FELGUERA AUSTRALIA PTY LTD [2018] WASC 136

File Number: ARB 5 of 2018

Catchwords:

International commercial arbitration – Interim orders – Appeal against granting of freezing order – Concurrent sources of power to make freezing order – Whether it was open to be satisfied of danger that a prospective judgment will be unsatisfied – Parent and subsidiary company – Parent company in financial difficulties – Whether disposition of assets must be irregular – Whether respondent to freezing order application must intend that conduct will prevent prospective judgment from being satisfied – Whether freezing order should have been made operative ‘until further order’

Legislation:

International Arbitration Act 1974 (Cth), s 2A, s 7(2), s 7(3)
Supreme Court (Arbitration) Rules 2016 (WA), r 14
Rules of the Supreme Court 1971 (WA), O 52A, O 52A r 5(4)
United Nations Commission on International Trade Law – Model Law on International Arbitration, Art 9, Art 17A, Art 17J, Art 35

Result: Appeal dismissed

 

JUDGMENT OF THE COURT:

 

Summary

  • In May 2014, the appellant (Duro) and the respondent (TGP) entered into a subcontract under which TGP would transport processing facility components for the Roy Hill Iron Ore Project (Project).  Duro is a party to a head contract with Samsung C&T Corporation (Samsung), pursuant to which Duro agreed to perform work required for the Project.  Duro is engaged in arbitration proceedings in which Duro claims payment of approximately $310 million from Samsung.
  • By May 2015, Duro and TGP had substantial claims against each other under the subcontract.  TGP claimed approximately $30 million from Duro and Duro claimed approximately $26 million from TGP.  On 19 June 2015, TGP served notice of a reference to arbitration.  It is common ground that the International Arbitration Act 1974 (Cth) (Act) applies to the arbitration between Duro and TGP.
  • TGP was placed into voluntary administration on 30 July 2015, and into liquidation on 15 September 2016.  On 11 April 2018, the liquidators of TGP gave notice of their intention to pursue TGP’s claims under the subcontract.  An undertaking not to deal with assets was sought from Duro, but was not provided.  On 19 April 2018, TGP applied for a freezing order against Duro, in relation to the prospective judgment enforcing the arbitral award which TGP hopes to obtain against Duro.  On 7 May 2018, the primary judge granted a freezing order.  The primary judge published written reasons for that decision, as well as short oral reasons for making the freezing order operative ‘until further order’.
  • Duro now appeals against the freezing order on two grounds.
  • The primary judge made the freezing order under Order 52A r 5 of the Rules of theSupreme Court 1971 (WA) (Rules).  Under r 5(4), one condition for the exercise of the discretion is, relevantly, the court’s satisfaction that:

having regard to all the circumstances, that there is a danger that a … prospective judgment will be wholly or partly unsatisfied because any of the following might occur:

(b)          the assets of the … prospective judgment debtor … are:

(i)          removed from Australia or from a place inside or outside Australia; or

(ii)         disposed of, dealt with or diminished in value.

  • Order 52A is expressed not to diminish the court’s inherent, implied or statutory jurisdiction to make a freezing order. Order 52A r 5(6) provides that nothing in r 5 affects the court’s power to make a freezing order if it considers it is in the interests of justice to do so. Notwithstanding these provisions, it is convenient in these reasons to refer to the state of satisfaction referred to in O 52A r 5(4) as a ‘jurisdictional requirement’. This reflects the need for the court to be satisfied of one or more of the matters referred to in r 5(4) before its discretion to make a freezing order under r 5 is enlivened.
  • Ground 1 of Duro’s appeal contends that the primary judge erred in fact and law in being satisfied of this jurisdictional requirement.
  • In our view, ground 1 is not established.
  • Although it has unsuccessfully tendered for other work, Duro’s only current operations in Australia involve litigation arising from the Project.  The primary judge found that, if Duro received funds following significant success in its proceedings against Samsung, then Duro’s Spanish parent company Duro Felguera SA (Duro SA) would exert its control over Duro to obtain the benefit of those funds.  An inference that Duro might lend Duro SA funds which were excess to Duro’s operational requirements was open on the evidence.  The evidence as to Duro SA’s current financial difficulties also indicated a real risk that Duro SA will not have the capacity to repay such a loan when it becomes due or is sought to be enforced.  In that manner, the evidence supported the primary judge’s finding that there was a danger that a prospective judgment will be wholly or partly unsatisfied because Duro SA might obtain the benefit of Duro’s funds.
  • The primary judge also found that there was a danger that, as part of any refinancing of Duro SA, security over Duro’s claims against Samsung will be granted to Duro SA’s financiers.  In our view, the finding that such a danger existed was not open on the evidence.  However, the primary judge’s ultimate finding as to the satisfaction of the jurisdictional requirement was supported in the manner indicated in the previous paragraph.
  • Ground 2 of Duro’s appeal is expressed in the alternative, and only arises for determination if ground 1 fails.  Ground 2 contends that the primary judge erred in making the freezing order operate ‘until further order’.  Duro contends that any freezing order should have operated only until the arbitral tribunal had been constituted and had a reasonable opportunity to consider for itself whether to grant relief equivalent to a freezing order.
  • In our view, ground 2 is not established.  Having regard to the terms of the Act and the circumstances of the present case, the making of a freezing order that operated until further order was not inconsistent with the arbitration agreement and did not usurp the role of the arbitral tribunal.
  • Therefore, we would dismiss the appeal.

Power to make a freezing order

  • The court’s power to make a freezing order derives from two concurrent sources.

Power under the Model Law

  • The first source of power is found in the UNCITRAL Model Law on International Commercial Arbitration(Model Law).  The Model Law has the force of law in Australia under s 16 of the Act.  Article 17J of the Model Law provides:

A court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the territory of this State, as it has in relation to proceedings in courts. The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.

  • Article 17(1) of the Model Law empowers the arbitral tribunal to grant interim measures.  Art 17(2)(c) relevantly defines an interim measure to be:

any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:

(c)           Provide a means of preserving assets out of which a subsequent award may be satisfied.

  • In resolving the justiciable controversy as to whether the court should make an order under art 17J of the Model Law, the court is exercising federal jurisdiction in a matter arising under the Act. That jurisdiction is conferred by s 39(2) of the Judiciary Act 1903 (Cth), read with s 76(ii) of the Commonwealth Constitution.

Inherent or implied power

  • The second source of power is the inherent or implied power of the court to make a freezing order to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction.  The inherent or implied power arises in the following manner.
  • Article 35(1) of the Model Law provides:

An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.

Article 35(2) provides for a party relying on an award or applying for its enforcement to supply the original award or a copy thereof.  Article 36 identifies the limited circumstances in which recognition or enforcement of an arbitral award may be refused.

  • Under r 14 of the Supreme Court (Arbitration) Rules 2016 (WA), an application under art 35 of the Model Law to enforce an award must be made by originating summons, accompanied by an affidavit deposing to specified matters.  In dealing with such an application, the court is exercising federal jurisdiction in a matter arising under the Act.  If the court determines that the arbitral award is binding and should be enforced, the result is a judgment of the court in terms of the award, or (to the same practical effect) an order of the court that the arbitral award be enforced as if it were a judgment of the court.   Such a judgment or deemed judgment is enforceable under the Civil Judgments Enforcement Act 2004 (WA).
  • Implicit in the conferral of federal jurisdiction in a Supreme Court is the conferral of power to make such orders as are needed to ensure the effective exercise of the jurisdiction. The court has that inherent or implied power to make such orders as it may determine to be appropriate to prevent the abuse or frustration of its processes in relation to matters coming within its jurisdiction.  A freezing order is the paradigm example of an order to prevent the frustration of a court’s process.
  • The court’s inherent or implied power extends to making a freezing order in relation to an anticipated arbitral award of which there is a sufficient prospect of the court being asked to enforce under art 35 of the Model Law, when the award is made.  The exercise of that power to protect the court’s prospective exercise of federal jurisdiction is itself an exercise of federal jurisdiction in a matter arising under the Act.

Purpose of the concurrent powers

  • The purposes for which the above concurrent powers are exercised are slightly different.  The purpose of the power conferred by art 17J of the Model Law is to protect the integrity of the arbitral process.  The purpose of the inherent or implied power is to protect the prospective exercise of the court’s jurisdiction to determine the binding effect of, and enforce, the award.  In many cases there will, in practical terms, be little, if any, difference between these two purposes.  In each case the purpose is to prevent the relevant process from being frustrated by dealings which will prevent the satisfaction of the prospective arbitral award and of the judgment recognising the award and providing for its enforcement.

Application of O 52A of the Rules

  • Order 52A applies to the exercise of both of the court’s concurrent powers to make a freezing order.
  • Article 17J of the Model Law requires the court to exercise the power conferred by that article ‘in accordance with its own procedures’. That reference picks up the provisions of O 52A of the Rules and applies O 52A to an exercise of power under art 17J of the Model Law. However, O 52A, in its application to the exercise of the power conferred by art 17J, must be implicitly modified so that a reference to a ‘judgment’ includes an arbitral award.
  • In the case of the inherent or implied power, O 52A is picked up and applied as federal law by s 79 of the Judiciary Act.

Operation of Order 52A of the Rules

Provisions of the Order

  • Under O 52A r 2(1) of the Rules, the court may make a freezing order:

for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

  • For these purposes a ‘judgment’ is defined to include an ‘order’. As discussed above, for the purposes of the exercise of the power under art 17J of the Model Law, the reference to a judgment must also be taken to include an arbitral award.
  • Order 52A r 2(2) defines a freezing order in the following terms:

A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

  • Order 52A r 3 provides for the court to make an order ancillary to a freezing order or prospective freezing order as the court considers appropriate. Under O 52A r 4, the court may make a freezing order or an ancillary order against a respondent even if the respondent is not a party to a proceeding in which substantive relief is sought against the respondent.
  • Order 52A r 5 of the Rules applies in the circumstances defined by sub-rules (1) – (3). Relevantly for present purposes, r 5 applies where:

an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in:

(i)          the Court; or

(ii)         in the case of a cause of action to which subrule (3) applies: another court.

  • Sub-rule (3) applies where:

(a)          there is a sufficient prospect that the other court will give judgment in favour of the applicant; and

(b)          there is a sufficient prospect that the judgment will be registered in or enforced by the Court.

  • Again, for the purposes of the exercise of the power under art 17J of the Model Law, the reference to a judgment must also be taken to include an arbitral award and the reference to ‘another court’ must be taken to include an arbitral tribunal.
  • Where O 52A r 5 applies, sub-rule (4) provides:

The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur:

(a)          the judgment debtor, prospective judgment debtor or another person absconds; or

(b)          the assets of the judgment debtor, prospective judgment debtor or another person are:

(i)          removed from Australia or from a place inside or outside Australia; or

(ii)         disposed of, dealt with or diminished in value.

  • Order 52A r 5(5) provides for when the court may make a freezing order against a third party.
  • Under O 52A r 5(6):

Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so.

  • Similarly, O 52A r 6 provides:

Nothing in this Order diminishes the inherent, implied or statutory jurisdiction of the Court to make a freezing order or ancillary order.

  • These last two provisions make it clear that the court retains its inherent or implied power to make a freezing order to prevent the abuse or frustration of its processes in relation to matters coming within its jurisdiction.

Order 52A r 5(4) of the Rules

  • The language of O 52A r 5(4) reflects that which has been adopted under the general law in relation to the inherent or implied power of a superior court to grant a Mareva As Deane J, with whom other members of the majority agreed, noted in Jackson v Sterling Industries Ltd:

As a general proposition, it should now be accepted in this country that ‘a Mareva injunction can be granted … if the circumstances are such that there is a danger of [the defendant’s] absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied’. (citations omitted)

  • Order 52A r 5(4) identifies a state of satisfaction by the court as a condition for the exercise of the court’s power to make a freezing order under that rule. The court must be satisfied of three elements:

(1)          one or more of the events described in par (a) or par (b) might occur;

(2)          there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied; and

(3)          that danger arises because one or more of the events described in par (a) or par (b) might occur.

  • That is, it is not sufficient for the court to conclude that one or more of the events described in O 52A r 5(4)(a) or (b) might occur. The court must be satisfied that the identified danger arises becauseone or more of those events might occur. That is, the court must be satisfied that there is a causal connection between the event and the danger. So, for example, the court’s satisfaction that property might be removed from the State (a place inside Australia) to another State would not ordinarily give rise to a relevant danger so as to enliven the court’s power to make a freezing order under O 52A r 5(4) of the Rules. Equally, the mere removal of property from Australia will not necessarily give rise to a relevant danger, particularly where the property is removed to a country where judgments of the court are enforceable.
  • The events referred to in O 52A r 5(4)(a) and (b) must give rise to a ‘danger’ that a judgment or prospective judgment will be wholly or partly unsatisfied. The reference to a ‘danger’ is to a risk of that outcome.
  • The risk or danger must be real or substantial, as opposed to a remote, speculative or theoretical possibility.   The applicant must prove facts from which the court can infer the existence of a real or substantial risk or danger that the respondent will dispose of or otherwise deal with its assets in a way such that the applicant will not be able to satisfy any judgment obtained against the respondent. The facts from which the risk or danger is to be inferred must be proved on the balance of probabilities. However, it is not necessary to establish that it is more probable than not that judgment will be unsatisfied unless a freezing order is made.
  • There is little utility in attempting a more precise quantification of the degree of danger or risk which will justify the grant of a freezing order. The test must be applied in a variety of circumstances.  Ultimately, it is a question for evaluation by the issuing court as to whether the degree of the danger or risk is sufficient to justify an order in the terms which the court is asked to make.  In making that evaluative assessment, the court will bear in mind that a freezing order is a drastic remedy which imposes a severe restriction on a respondent’s right to deal with its assets, and that the purpose of the order is not to provide security for a judgment which the applicant hopes to obtain and fears might not be satisfied.  Nor is a freezing order designed to stop a debtor from sliding into insolvency.
  • In Hua Wang Bank, Kenny J referred to facts from which a prudent, sensible commercial person can properly infer a danger of default if assets are removed from the jurisdiction.  That passage of Kenny J’s decision was cited with approval by the New South Wales Court of Appeal in Severstal Export. The observation was made by reference to the reasons in Third Chandris Shipping Corporation v Unimarine SA, where Lawton LJ said:

There must be facts from which the Commercial Court, like a prudent, sensible commercial man, can properly infer a danger of default if assets are removed from the jurisdiction.  For commercial men, when assessing risks, there is no commercial equivalent of the Criminal Records Office or Ruff’s Guide to the Turf.  What they have to do is to find out all they can about the party with whom they are dealing, including origins, business domicile, length of time in business, assets and the like; and they will probably be wary of the appearances of wealth which are not backed up by known assets. In my judgment the Commercial Court should approve applications for Mareva injunctions in the same way. Its judges have special experience of commercial cases and they can be expected to identify likely debt dodgers as well as, probably better than, most businessmen.  They should not expect to be given proof of previous defaults or specific incidents of commercial malpractice. Further they should remember that affidavits asserting belief in, or the fear of, likely default have no probative value unless the sources and grounds thereof are set out … In my judgment an affidavit in support of a Mareva injunction … should set out what inquiries have been made about the defendant’s business and what information has been revealed, including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen. These facts should enable a commercial judge to infer whether there is likely to be any real risk of default. Default is most unlikely if the defendant is a long established, well known foreign corporation or is known to have substantial assets in countries where English judgments can easily be enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise.  But if nothing can be found out about the defendant, that by itself may be enough to justify a Mareva injunction. (emphasis added)

  • The emphasised parts of the quoted passage indicate that what is contemplated is not an assessment about the risks which a businessman would perceive.  Rather, the inference of danger or risk is an inference drawn by the court from facts proven before the court, which may include facts concerning the lack of available information about a respondent.
  • The passage quoted at [45] above also indicates that the mere fact of removal of assets from the jurisdiction of the court will not necessarily give rise to a danger or risk that judgment will be unsatisfied.  In assessing whether such a danger or risk arises because of a removal of assets from the jurisdiction, it is necessary to take account of reciprocal regimes for the registration and enforcement of judgments, and other means by which a judgment may be enforced.
  • The significance of the enforceability of a judgment in a country to which assets are removed is illustrated by the decision in Severstal Export. In that case, it was sought to restrain a Swiss company from removing from Australia cheques received in satisfaction of a judgment it had obtained in Switzerland against an Indian company. The Indian company sought the freezing order in prospect of it registering judgment in proceedings which it had instituted in India against the Swiss company. The Swiss company relied on a provision of Swiss law which the Indian company contended might bar enforcement in Switzerland of the judgment which it hoped to obtain and register in New South Wales. The New South Wales Court of Appeal upheld the primary judge’s conclusion that the requirements of the equivalent to O 52A r 5(4) were satisfied. It did so on the basis that there was evidence on which the judge was entitled to infer that the Swiss company would resist enforcement by relying on the Swiss provision and, while there was no direct evidence that the provision would bar enforcement:

it was arguable that enforcement of the Indian judgment could be successfully resisted in Switzerland and, therefore, there was a danger that the prospective Indian judgment could not be enforced. [70]

Regular and irregular transactions

  • Duro submits that there must be something irregular in the disposition of assets before the court can be satisfied as to the existence of a relevant danger.
  • We do not accept the submission to the extent that Duro contends that the respondent to an application for a freezing order must act for the purpose of avoiding the satisfaction of judgment before a freezing order can be granted.
  • There is some support for Duro’s position in the English authorities.  In TTMI Ltd v ASM Shipping Ltd, Clarke J observed that something more than a real risk that judgment would go unsatisfied is required and referred to a respondent acting for the purpose of avoiding the possibility of judgment or making an unjustifiable disposal of assets.  In Polly Peck International plc v Nadir (No 2), Lord Donaldson MR said that it is not the purpose of a Mareva injunction to prevent a defendant acting ‘as he would have acted in the absence of a claim against him’.
  • Support for Duro’s proposition may also be found in Official Receiver of the State of Israel v Raveh. In that case, Murray J referred to the general law jurisdiction being exercised where a respondent might deal with assets ‘in a way which is deliberately designed or calculated to have the capacity to defeat the final process of the court’.  However, the decision in Raveh, that a Marevaorder cannot be granted for the purpose of enforcing foreign process, is inconsistent with the later decision of the High Court in PT Bayan.  In the latter case, Keane and Nettle JJ referred to Raveh and, albeit without reference to the element of deliberate design or calculation, indicated that Murray J’s understanding reflected a narrower view of the inherent power to make a freezing order than is warranted by the principle which informs the power.
  • In Jackson, Gaudron J said that an asset preservation order of the Mareva variety, ‘issued only when the court is satisfied that a defendant is deliberately disposing of his assets with the object of defeating or frustrating the ultimate judgment of the court’, fell within the court’s inherent or implied power.  However, subsequently, in Patrick, Gaudron J said that the court’s inherent jurisdiction is not confined to orders of that kind. Gaudron J recognised that the inherent or implied power ‘extends to whatever orders are necessary to enable the Federal Court effectively to exercise its jurisdiction’.  The plurality in Patrick identified the same scope of the inherent or implied power.
  • The jurisdictional basis for, and extent of, the inherent or implied power to make a freezing order recognised in Patrickis inconsistent with the power being limited to cases where a party deliberately acts for the purpose of defeating the court’s process. If the court is empowered to make orders to ensure the effective exercise of the court’s jurisdiction, there is no principled reason why it can only restrain conduct undertaken with the purpose (as opposed to merely having the effect) of frustrating its process.
  • Consistently with the approach in Patrick, the court in PT Bayanperceived no imperative for there to be a finding that the dealing must be for the purpose of defeating the prospective judgment before the jurisdictional requirement in O 52A r 5(4)(b) could be satisfied. In National Australia Bank Ltd v Bond Brewing Holdings Ltd, the court said that a judgment it was considering did not involve ‘a mistaken view that a Mareva injunction cannot be obtained in the absence of a positive intention to frustrate any judgment’.  In Riley McKay Pty Ltd v McKay, the New South Wales Court of Appeal referred to a Mareva injunction as being directed to dispositions, other than the payment of debts in the ordinary course of business, which are either intended to frustrate, or ‘have the necessary effect of frustrating’ a prospective judgment.
  • Further, and more importantly for present purposes, there is no basis in the text of O 52A r 5(4)(b) for a requirement that the respondent to a freezing order application must intend that the relevant conduct will prevent a prospective judgment from being satisfied.
  • Therefore, if the effect of a dealing is to give rise to a danger that a prospective judgment will be wholly or partly unsatisfied, then the jurisdictional requirement in O 52A r 5(4)(b) will be satisfied irrespective of the purpose for which the respondent may act. The court is able to protect the exercise of its jurisdiction by preventing its frustration by conduct which is not intentionally directed to that end.
  • That is not to say that the purpose for which a respondent may enter into a transaction, or the irregular nature of the transaction, will be irrelevant to the exercise of the power to grant a freezing order.
  • If there is evidence that a respondent intends to act with the purpose of frustrating the satisfaction of a judgment, that will be a powerful discretionary consideration once the court is satisfied of the existence of the danger referred to in O 52A r 5(4)(b).
  • Further, evidence as to such an intention held by the respondent will be a factor pointing towards the existence of a real or substantial risk that a prospective judgment will be unsatisfied because assets might be dealt with.  If the evidence demonstrates that the respondent may act for that purpose then it may readily be inferred that there is a real or substantial risk of the purpose being achieved.
  • Conversely, when the court exercises its discretion having found the jurisdictional requirement to be satisfied, the absence of any purpose of defeating the court’s process or any irregularity in the transaction will be a relevant factor. For example, it is difficult to see how the discretion would be exercised in favour of granting a freezing order where the danger referred to in O 52Ar 5(4)(b) arose only because of dealings, such as the payment of normal trading debts, in the ordinary course of trade. In such a case, while the court may be satisfied of the existence of a danger that judgment will be unsatisfied because of such dealings, the court would not exercise its discretion to make a freezing order. It remains the case that a freezing order is not made under O 52A only for the purpose of providing security for judgment or preventing insolvency.
  • In the present case, the ground of appeal does not contend that, if the primary judge was correct in finding the jurisdictional requirement to be satisfied, his Honour erred in exercising his discretion to grant a freezing order. In any event, as discussed below, the kind of dealing which the evidence indicates might frustrate the exercise of the court’s discretion in the present case is not simply the payment of normal trading debts in the ordinary course of trade.

Facts found by the primary judge

  • The primary judge made the following findings as to the background facts, relevant to the matters referred to in O 52A r 5(4) of the Rules. Although some of these facts were deposed to in affidavits, it was apparent that the primary judge implicitly accepted that evidence.
  • Duro has paid up capital of $1.00.  It is a wholly owned subsidiary of Duro SA, a Spanish company.  The sole director of Duro is Mr Ruben Fernandez.  Mr Fernandez was in Spain at the time of the primary judge’s decision, but was expected to return to Perth in a month.
  • Ms Victoria Strong is employed by Duro as a Legal and Commercial Manager and manages Duro’s affairs on a day to day basis.  She reports to, and obtains assistance from, representatives of Duro SA.  Duro SA provides Duro with financial and logistical support.
  • Duro is currently engaged in arbitral proceedings with Samsung.  Those proceedings are being conducted in Singapore.  Duro is also engaged in two other sets of arbitral proceedings.  Duro is managing contracts with some 50 subcontractors engaged for the purposes of the Project and managing disputes arising out of those subcontracts.
  • Duro has no current plans to leave Australia, remove assets from Australia, dispose of assets, or diminish the value of its assets.  Duro is not in the process of winding up its operations in Australia.  Duro has responded to expressions of interest and tenders for construction projects in Australia but has not been successful in winning work.
  • Duro SA has made direct investments in companies in the Australian construction market.  Duro SA holds approximately 10% of the shares in Ausenco Ltd with whom Duro SA has entered a memorandum of understanding to pursue ‘engineering procurement construction’ projects.  If any such projects are secured in Australia, Duro would undertake that work.
  • Duro’s accounts for the financial year ending 30 June 2017 are currently being audited by the accountancy firm KPMG.
  • The most recent publicly available financial statements of Duro are those for the calendar year ending 31 December 2015.  The financial statements include a balance sheet that records total assets of $131,283,858 and total liabilities of $126,942,271, giving a net asset position of $4,341,587.  Duro’s assets principally comprised cash, cash equivalents and receivables.  Its liabilities principally comprised trade debts and a provision of approximately $67 million in respect of a guarantee.
  • The notes to Duro’s accounts for the year ending 31 December 2015 record a loan by Duro to Duro SA of $53,697,442, of which $12,000,000 had been repaid.  It appears from Duro SA’s accounts that the balance of the loan has been repaid.
  • A search of the Personal Property Securities Register established under s 147 of the Personal Property Securities Act 2009(Cth) discloses that security over Duro’s present and after-acquired property (subject to unspecified exceptions) was granted to the Australia and New Zealand Banking Group Ltd on 5 November 2013. It is not possible to glean from the financial statements for the year ending 31 December 2015 what the secured debt is.
  • The financial statements of Duro SA and its subsidiaries for the year ending 31 December 2016 included a report to shareholders dated 17 March 2017 by Duro SA’s auditor.  In that report the auditor referred to Duro SA’s liquidity risk and to the steps being taken to improve its liquidity.  The auditor stated, in effect, that Duro SA’s circumstances indicated that there was a material uncertainty that could give rise to significant doubts surrounding the company’s ability to continue as a going concern.
  • A ‘Results Report’ published by Duro SA in respect of the calendar year ending 31 December 2017 included the following statements about Duro SA’s operations and finances:

Main figures and milestones for the period

  • In FY 2017, the company carried out an intense search for partners in a context of financial difficulty, which limited its business activity.
  • The search for partners in the domestic and international market, with Rothschild as advisor, has led to multiple approaches, visits and due diligences from various different companies and led to a profoundly rigorous review of ongoing projects, including the current status and estimated costs for completion.  The review led to adjustments in diverse projects which were started in previous years.  These adjustments took place both in December, when they were announced by means of a significant deed, and at the close of the year.
  • Reduced business activity, the consequence of the Group’s financial situation, is reflected in both the sales, lower than in 2016, and in the negative margins, related to the greater relative proportion of structural costs, in all divisions except for Services, which took advantage of the Lujan and Matheu projects
  • The Company negotiated in February 2018 the terms and conditions for a proposal for a refinancing agreement with the banks, after three previous standstill agreements (June to September 2017, September 2017 to 15 January 2018 and January to 15 April 2018).  This agreement proposal, with sufficient support from the banks, should be materialized in a refinancing agreement which would be fully effective after a successful capital increase of between 100 and 125 million Euros.  The effectiveness of the agreement will enable a significant reduction in the financial leverage, balancing the company’s own funds, improving liquidity and having sufficient financing for bringing into play a new business plan in the coming years, and in short, relaunching the Company’s business activity.

 

  • The Results Report records that, ‘[o]n 16 January [2018 Duro SA] reported the signing of the extension to the standstill agreement with its banks’.  The Results Report also records that ‘on 7 March [2018 Duro SA] provided further information concerning the refinancing process with its banks’.
  • In a press release dated 19 March 2018, Duro SA stated that $19.1 million had been recovered from Samsung.  Duro SA stated that in the ‘main case’, which was proceeding by way of an arbitration in Singapore, a further $310 million was being claimed from Samsung.  It stated that a final decision was expected at the end of 2018 or in early 2019.

Primary judge’s approach

Relevant questions identified

  • The primary judge noted that it was common ground that there were three primary questions which must be addressed:

(a)          Has [TGP] shown it has a good arguable case on an accrued or prospective cause of action?

(b)          On the evidence before the court is there a danger that a prospective arbitral award and any judgment in respect of it will be unsatisfied because assets are removed from Australia, or disposed of, or dealt with, or diminished in value?

(c)          In all the circumstances is this a case in which it is in the interests of justice to grant a freezing order?

Good arguable case

  • The primary judge concluded that TGP had a good arguable case on its claims.  The primary judge concluded that, while Duro has cross-claims which it claimed to be entitled to set-off, it could not be assumed that Duro would be successful in those cross-claims.  The primary judge said that the existence of Duro’s set‑off was an additional matter which he would take into account when considering how the interests of justice are to be reflected in the relief to be granted. As there is no challenge to this aspect of the primary judge’s reasons, there is no need to say anything more about it.

Danger that a prospective judgment will be unsatisfied

  • The primary judge found that there was a danger that a prospective judgment based on an arbitral award will be wholly or partly unsatisfied because Duro’s assets will be removed from Australia or disposed of, dealt with or diminished in value. That finding is made in terms of O 52A r 5(4)(b) of the Rules.
  • The primary judge identified two kinds of dealing which gave rise to that danger:

(1)          Duro SA exerting its control over Duro to obtain the benefit of the funds which Duro will receive if Duro has any significant success in its claims against Samsung.

(2)          Security over Duro’s claims against Samsung being granted as part of any refinancing of Duro SA.

  • As to the first of those matters, the primary judge said that if Duro has any significant success in its claims against Samsung it will receive funds that exceed its operational requirements as disclosed by the evidence.  In contrast, on the basis of the evidence of Duro SA’s present financial position, it is likely that Duro SA will continue to have a significant need for funds.  To expect Duro SA not to exert its control over Duro to obtain Duro’s funds in those circumstances would be quite unrealistic.  The primary judge further observed that: 

The inference I have drawn is made more compelling by the fact that [Duro] lent over $53 million to Duro SA in 2015.  Even though that loan may have been repaid it is evidence that [Duro] will provide funds to its parent company when required.

  • The primary judge made two observations with respect to Ms Strong’s evidence about the absence of any current plans on the part of Duro to leave Australia, remove assets from Australia, dispose of assets, or diminish the value of its assets.  First, Duro’s current plans may well be reviewed if it receives substantial funds by way of an arbitral award.  Second, the board and management of Duro SA are in a position to exert effective control over the affairs of Duro and it is their plans that are most relevant and they are not matters about which Ms Strong gave evidence.
  • As to the second of the matters referred to at [80] above, the primary judge observed:

Further, to the extent to which the defendant’s financiers, or Duro SA’s financiers, do not have existing security interests in the defendant’s claims against Samsung, I consider that there is a danger that as part of any refinancing of Duro SA – an exercise that the evidence suggests is currently being undertaken – security over those claims will be granted to Duro SA’s financiers.

  • The primary judge noted that, although the evidence suggested that an arbitral award was not expected until late 2018 or early 2019, that expectation did not preclude the possibility that Duro will receive funds in the interim as a consequence of a settlement.
  • The primary judge rejected Duro’s submissions that the application should be refused by reason of the signing of a certificate of urgency by TGP’s solicitor, the absence of prior oral conferral and TGP’s inaction from mid-2015. The primary judge said that the inaction was explicable by TGP’s supervening insolvency, and that there had been a change in circumstances.  The change was described in the following terms:

first, Duro SA is in financial difficulties; second, direct evidence that [Duro’s] assets have been used to fund Duro SA’s activities is now available when it was not in 2015; and thirdly, [TGP] has obtained funding to pursue its claims in arbitration. (emphasis added)

Exercise of discretion

  • The primary judge then concluded that it was in the interests of justice to grant a freezing order, and that the value of the assets to be subject to the freezing order should be $20 million. The primary judge indicated that an undertaking would be required, and that he would make an ancillary order requiring Duro to disclose its assets and liabilities.  No complaint is made about these matters on appeal.

Form of order

  • In the primary decision, the primary judge said that he would hear from the parties as to the precise form of the orders. The primary decision was delivered on 4 May 2018.  A hearing as to the form of the orders was held on 7 May 2018.  At that hearing, there was debate as to whether the freezing order should only operate until an arbitral tribunal had been convened and given an opportunity to consider whether it should make a freezing order.
  • The primary judge gave oral reasons indicating that the freezing order would continue until further order. The primary judge indicated that he was satisfied that an order in those terms will not have the effect of usurping the role of the arbitral tribunal in a manner that is contrary to the observations of Martin CJ in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd.  The primary judge said that there were essentially three reasons for coming to that conclusion:

(1)          Article 9 of the Model Law expressly provides for the court to grant interim measures and, that being so, the making of a freezing order until further order could not be said to usurp the role of the arbitral tribunal.

(2)          Cape Lambert was concerned with s 7 of the Act.

(3)          The purpose of the freezing order is not only to preserve the arbitral process, but also to preserve the court’s processes in relation to the enforcement of any judgment that may result from the arbitral proceedings.

  • The freezing order made by the primary judge was expressed to have effect ‘until further order’.
  • The freezing order provided that Duro must not remove from Australia or in any way dispose of, deal with or diminish the value of any of its assets in Australia up to the unencumbered value of $20 million. The freezing order allowed for Duro to so act so long as the unencumbered value of its assets in Australia still exceeds $20 million.
  • The freezing order also provided, in effect, that if the value of Duro’s assets in Australia was less than $20 million, Duro could not dispose of, deal with or diminish the value of any of its assets unless the unencumbered value of all of its assets would exceed $20 million after the disposal etc.
  • The freezing order did not prohibit Duro from paying reasonable legal expenses or from dealing with or disposing of assets in the ordinary and proper course of its business, including paying business expenses bona fide and properly incurred.  The freezing order also did not prohibit Duro from otherwise discharging obligations bona fide and properly incurred under a contract entered into before the freezing order was made, provided it gave 2 days’ notice to TGP.

Grounds of appeal

  • Duro appeals against the freezing order on two grounds.
  • Ground 1 contends that the primary judge erred in law and fact in making the finding referred to at [79] above.  The particulars to the ground contend that the evidence before the primary judge was not capable of supporting the findings referred to at [80] above or the ultimate conclusion referred to at [79] above.  The particulars contend that:

The primary judge should have found that there was no, or no evidence from which to infer the existence of a, real risk or real danger that a prospective judgment based on an arbitral award will be wholly or partly unsatisfied because the assets of Duro will be removed from Australia or disposed of, dealt with or diminished in value.

  • Ground 2 contends that the primary judge erred in law by ordering that the freezing order would have effect until further order.  Duro contends that the freezing order should only have had effect until an arbitral tribunal had been constituted and given a reasonable time to consider whether to grant equivalent relief.  Ground 2 only arises for determination if ground 1, which contends that no freezing order ought to have been made, fails.

Duro’s submissions on ground 1

  • Duro submits that the inference that Duro SA would exercise its control over Duro to obtain the benefit of Duro’s surplus funds was, properly understood, a matter of conjecture only.[59] Duro notes that the 2015 loan was made before the dispute arose with TGP, and there was no evidence as to the circumstances in which Duro entered into that loan agreement or the purpose of the loan.  Duro says that the fact that its parent has a significant need for funds does not advance the situation.  Duro says that the available evidence did not go beyond establishing that it was possible that there was a risk that a loan of surplus funds would be made, and there were no facts proven capable of supporting an inference as to the relevant danger.
  • Duro says that the implication of the primary judge’s approach is that, in any case where a subsidiary is shown to have advanced surplus funds to its parent, and the parent is shown to have need for funds, a freezing order is available to a claimant who can establish an arguable case against the subsidiary and that the balance of convenience favours the grant of an order.  Duro characterises that as a surprising outcome which could ‘produce considerable commercial disruption and uncertainty’.
  • Duro submits that the existence of a risk that Duro might grant security over its claim against Samsung, as part of the refinancing of Duro SA, was merely a matter of conjecture.  It says that the only evidence was that Duro SA was negotiating refinancing.  There was no evidence of what security was being offered, or that Duro or other subsidiaries of Duro SA had granted security for the benefit of Duro SA in the past.  Duro also submits that, in the absence of evidence to suggest that it would be in Duro’s best interests to grant such a security, it could not be inferred that Duro would provide the security in a manner that would breach its director’s duties to the company.
  • Duro says that there was no other evidence capable of supporting the primary judge’s ultimate findings as to the existence of the relevant danger.

TGP’s submissions on ground 1

  • In response, TGP contends that the evidence before the primary judge was sufficient to support the conclusion that there was a real danger that Duro might act in a manner that will have the effect of frustrating a prospective order of the court enforcing a prospective arbitral award.
  • TGP notes the following aspects of the evidence before the primary court:

(1)          The evidence was to the effect that Duro has no significant ongoing commercial activity in Australia.  As of January 2018, Duro’s only apparent work in Australia was at an end, and it had two employees: a legal and commercial manager and a person responsible for administration and accountancy.  The day‑to‑day activities of Duro involve the management of disputes associated with the Project.  Duro has not successfully tendered for any other work in Australia.

(2)          There was evidence that Duro had committed an offence by failing to lodge financial statements and directors’ reports with ASIC for the 2016 and 2017 financial years, and that its sole director was no longer resident in Australia.

(3)          In addition to the 2015 loan by Duro to Duro SA, which TGP says was unsecured, there was evidence of a number of loans from apparent subsidiaries to Duro SA.

(4)          Duro had failed to pay TGP the sum of $2 million in accordance with an adjudication determination made under the Construction Contracts Act 2004 (WA), and in defiance of another adjudication determination, continued to assert a set-off against other amounts due to TGP.

(5)          Duro’s last publicly available financial statements record that it has little tangible property and the vast majority of its other assets are of a kind that are easily transferred out of or diverted away from Australia.

  • We do not accept Duro’s submission that it is not open to TGP to rely on the matters referred to at [101] above in the appeal, many of which were not relied on by the primary judge, without having filed a notice of contention.  Ground 1 contends that the evidence before the primary judge was not capable of supporting the conclusion as to the relevant danger, and the primary judge should have found there was no evidence from which to infer such a danger.  It is open to TGP to respond to that ground by pointing to evidence which does support the conclusion as to the relevant danger.  The court’s determination of a ground expressed in those terms necessarily entails a review of all of the evidence before the primary judge, and an assessment as to whether the evidence as a whole is capable of supporting the primary judge’s ultimate finding.
  • TGP submits that, according to common commercial experience, parent companies exert control over subsidiary companies to obtain use of funds surplus to the subsidiary’s requirements and to obtain guarantees or other securities for group related debts.  The conclusion was clearly open to the primary judge to infer that Duro SA will exert its control over Duro to obtain the benefit of Duro’s funds.  Likewise, there was a danger that one of the benefits Duro SA would obtain is security over Duro’s claims against Samsung. TGP says that there is no inference that the provision of intercompany loans and securities would necessarily be a breach of directors’ duties, and points to the 2015 loan from Duro to Duro SA.
  • TGP also invites the inference, from the failure to lodge ASIC reports and satisfy the adjudication determination, that Duro is prepared to act in breach of its legal obligations and has a propensity to avoid paying its debts.
  • TGP submits that it was open to the primary judge to conclude that there was a danger of the relevant kind.

Disposition of ground 1

  • We accept that it was open to the primary judge to infer that, if success in the proceedings against Samsung resulted in Duro receiving funds in excess of its operational requirements, there was a real risk that Duro SA would obtain the benefit of those funds.  That inference was open for the reasons given by the primary judge.  The real prospect that Duro would have funds surplus to its operational requirements at a time when Duro SA would have a need for funds, considered against the history of intercompany lending, gives rise to an inference as to a real risk that Duro will lend surplus funds to Duro SA.  That inference is more easily drawn in circumstances where Duro has not adduced any evidence as to the future intentions of Duro SA, which it would be expected to have adduced if that evidence would assist its case.  It may also be noted that Duro did not offer any enforceable undertaking not to lend proceeds of its claim against Samsung to Duro SA until the arbitration with TGP is resolved.
  • There was little evidence as to the terms and conditions on which such a loan might be made.  The imperative for any loan transaction to be in Duro’s best interests, and the history of past lending, supports the inference that a commercial rate of interest would be charged on the loan. Duro notes that there is no evidence about the extent to which security has been granted for intercompany loans.  In those circumstances, it cannot be inferred that any loan by Duro to Duro SA would necessarily be secured.
  • For the above reasons, the primary judge was correct to conclude that there is a real risk that any funds which Duro receives from the Samsung proceedings will be transferred to Duro SA. That is an inference that the assets of Duro might be removed from Australia or dealt with, for the purposes of O 52A r 5(4)(b) of the Rules.
  • However, the conclusion that Duro’s assets might be removed from Australia or dealt with does not itself satisfy the requirements of O 52A r 5(4)(b). It was also necessary for the primary judge to be satisfied that there is a danger that the prospective judgment would be wholly or partly unsatisfied because that might occur. That is, as explained at [41] above, the court must be satisfied of a causal connection between the relevant removal of or dealing with the asset and the danger that a prospective judgment will not be satisfied. This further step requires consideration of the means by which Duro SA might gain the benefit of funds received by Duro which are surplus to Duro’s requirements.
  • We do not accept TGP’s submission that the evidence as to Duro’s failure to lodge an ASIC report and satisfy adjudication determinations shows that Duro is prepared to act in breach of its legal obligations and has a propensity to avoid paying its debts. As to the latter matter, TGP’s insolvency raises questions as to the availability of a statutory set-off under s 553C of the Corporations Act 2001 (Cth). We are not satisfied that an inference as to general lawlessness is properly drawn from the first matter.
  • Surplus funds could be transferred from Duro to Duro SA by way of gift, dividend or loan.  However, counsel for TGP properly conceded that there was no evidence to support the inference that Duro might make a gift to Duro SA or distribute dividends in a manner that left Duro in a position where it was unable to satisfy its contingent liabilities. That leaves only the prospect of a loan by Duro to Duro SA.
  • If the arbitral proceedings against Samsung result in a significant payment of money to Duro, it will be by way of payment of funds into a bank account held by Duro.  The asset which Duro would then have would be a chose in action: the debt owed by the bank to Duro for the amount standing to the credit of Duro in the bank account.  A transfer of funds by Duro to Duro SA would involve the reduction in the debt owed by the bank to Duro and the creation of a debt in the same amount owed by Duro SA to Duro.  The value of Duro’s net assets would not be affected so long as the debt owed by Duro SA is enforceable by Duro and Duro SA has the capacity to repay the loan on the due date.  In that event, the dealing in Duro’s assets would change the identity of the debtor but would not alter the value of the receivable.  The dealing would not give rise to a danger that the prospective judgment would be unsatisfied.
  • TGP submits that the enforcement of the prospective judgment would be made more difficult if the receivable from which judgment might be satisfied was a debt owed by a foreign company rather than a debt owed by an Australian bank. So much may be accepted.  However, the test is not whether satisfaction of the prospective judgment will be more difficult because of a dealing with Duro’s assets.  The court must be satisfied that there is a danger that the prospective judgment will be wholly or partly unsatisfied because of the relevant dealing.  Increased difficulty in enforcing a prospective judgment will only be relevant if it establishes a danger that the judgment will be unsatisfied.
  • There was no direct evidence as to the extent to which the prospective arbitral award, or a judgment of this court based on such an award, would be enforceable in Spain.  It was common ground that Spain was a party to the Model Law, and so had assumed an obligation under art 35 of the Model Law to recognise a relevant arbitral award as binding and make provision for its enforcement.  There is no evidence that Spanish law does not provide for the enforcement of a judgment or arbitral award by attachment of debts owed to the judgment debtor.  Counsel for TGP also accepted that satisfaction of the prospective arbitral award would also constitute satisfaction of a judgment of this court based on the award.  The evidence does not establish that the fact that Duro SA is located in Spain itself gives rise to a danger that the prospective judgment will not be satisfied if a loan is made by Duro to Duro SA.  In any event, the evidence indicates that Duro SA holds assets in a number of countries, including Australia, where it holds shares in Duro and Ausenco Ltd.
  • TGP’s contention that the evidence supports a conclusion that the jurisdictional requirement was satisfied therefore turns on its submissions as to the financial position of Duro SA.  That is, does the evidence establish the existence of a real risk that Duro SA may not be able to repay a substantial loan made by Duro to Duro SA at the time when the loan becomes payable or is sought to be enforced?
  • The evidence as to the financial position of Duro SA comprises:

(1)          The English language version of consolidated financial statements of Duro SA for the Spanish financial year ended 31 December 2016 (2016 Accounts) and the Directors’ Report for 2016 (2016 Directors’ Report).

(2)           A press release issued by Duro SA on 20 March 2018, reporting on its Annual General Shareholders’ Meeting 2017 (Press Release).

(3)          The 2017 ‘Results Report’ referred to at [74] – [75] above.

  • The 2016 Accounts indicate that, as at 31 December 2016, Duro SA had non-current assets of about €242 million, current assets of about €586 million and total assets of about €829 million.  Most of the non-current assets were comprised of trade and other receivables, and current investments in group companies and associates. At the same time, there were non-current liabilities of about €309 million and current liabilities of about €462 million, leaving a balance of equity of about €57 million.  In the 2016 financial year, Duro SA made a loss of about €23 million, compared to a loss of about €85 million in the 2015 financial year.
  • Note 2.2 to the 2016 Accounts refers to the above position and the distribution of about €9 million in dividends.  The note also refers to an increase in Duro SA’s liquidity risk, ‘basically due to enforcement of the guarantees of the’ Project and financing necessary to complete two other projects.  This led to ‘higher drawdowns from available credit facilities and an increase in the Group’s overall debt’.  As at the authorisation for issue of the 2016 Accounts, Duro SA was ‘in talks with the financial institutions in the bank pool to match its liquidity needs and the maturity of the debt to its business plan’.  Duro SA was also exploring ‘alternative measures to improve liquidity in the short and medium term’, including by ‘bringing in a strategic partner, disposing of non-core assets, and carrying out an organisational streamlining’.  The note continued:

The directors of [Duro SA] have prepared the accompanying financial statements on a going concern basis on the favourable outlook for the conclusions of the negotiation process and the arrival of a strategic partner. Until the process is clear, there are reasonable doubts regarding [Duro SA’s] ability to continue its business if an agreement with the financial institutions is not reached.

  • Note 4.1(c) to the 2016 Accounts repeated the statements as to increased liquidity risk, negotiations with financial institutions and other steps to improve liquidity.  The note gives a negative value for total liquidity reserves in the amount of about €289 million.
  • The 2016 Directors’ Report noted that Duro SA’s balance sheet showed gross cash of €65 million and net debt of €290 million.  The increase in net debt from 2015 was said to be caused mainly by enforcement of guarantees for the Project for €88 million and losses related to two other projects.  It was said that Duro SA had begun taking steps to boost liquidity while litigation involving those projects is underway.  Duro SA had also ‘issued a sales mandate for non-productive assets to avoid any further erosion of its cash position’.  It was also said that Duro SA was ‘in talks with credit institutions to adapt its debt maturities to the likely resolution of these business disputes’.  The report said:

[Duro SA] expects to return to profit in 2017, although the objective for the year is to conclude the negotiations with the main financial institutions in the bank pool to match its liquidity needs and the maturity of the debt to its business plan, not [to] mention take alternative measures to improve liquidity in the short and medium term, such as bringing in a strategic partner, disposing of non-core assets, and carrying out an organisational streamlining.

  • The Press Release noted that the net consolidated result for the group in 2016 was a loss of €18 million.  It indicated that three main reasons for the result were unexpected events at the end of a project in the United Kingdom, high financial costs and the ‘cost of arbitration processes currently underway’.  It referred to a total claim against Samsung of €204 million, and a total amount of outstanding invoices and claims in arbitration of almost €500 million.  The Press Release refers to engaging the investment bank Rothschild to:

reinforce the company’s strategic position in any way possible in order to strengthen its solvency and lead to future growth, and to provide support in renegotiating the debt with banks.

The Press Release indicated that the management team had been ‘reinforced’ by the appointment of two new advisors ‘in the financial restructuring process’.  It stated that:

In relation to the restructuring process, the financial entities have proposed signing a standstill agreement to delay payment of the debt until a definitive agreement is reached; this is being looked into and could be signed very soon.

  • The Results Report began by noting that, in the 2017 financial year, the ‘company’ (which we infer to be Duro SA) ‘carried out an intense search for partners in a context of financial difficulty, which limited its business activity’. The report noted a net loss of the group of €254 million, and a ‘consolidated and individual net worth’ of negative €164 million and negative €181 million respectively.  The report said:

[Duro SA] negotiated in February 2018 the terms and conditions for a proposal for a refinancing agreement with the banks, after three previous standstill agreements (June to September 2017, September 2017 to 15 January 2018 and January to 15 April 2018). This agreement proposal, with sufficient support from the banks, should be materialized in a refinancing agreement which would be fully effective after a successful capital increase of between 100 and 125 million Euros. The effectiveness of the agreement will enable a significant reduction in the financial leverage, balancing [Duro SA’s] own funds, improving liquidity and having sufficient financing for bringing into play a new business plan in the coming years, and in short, relaunching [Duro SA’s] business activity.

  • The Results Report referred to the sale of office buildings as ‘part of the disinvestment process’, and said that Duro SA was ‘still analysing the sale of other non-strategic assets’.  It said that, as at 31 December 2017, the consolidated net debt amounted to about €272 million.
  • Financial tables in the Results Report include reference to a net loss of ‘the parent company’ (which we infer to be Duro SA) of about €254 million, and a negative net worth of Duro SA of about €151 million.  The total liabilities for the group (about €923 million) exceeded total assets (about €759 million) by about €164 million.  Current liabilities for the group (about €825 million) exceeded current assets (about €618 million) by about €207 million.
  • The above material indicates that Duro SA is a large construction company, forming part of a group of subsidiary and associated companies including Duro.  However, just prior to the application for a freezing order, Duro SA had significant negative equity and had entered into a series of ‘standstill’ agreements with its financiers.  While the Results Report referred to the negotiation of ‘a proposal for a refinancing agreement with the banks’, no actual agreement had been reached.  The report suggests that the contemplated refinancing agreement will be ‘fully effective’ only after a successful capital increase of between €100 million and €125 million.  A ‘strategic partner’ which would commit to that investment was being searched for but had not been located.
  • On the basis of this evidence, it was open to the primary judge to conclude that Duro SA ‘will continue to have a significant need for funds’, and was in ‘financial difficulties’. The financial position indicated by the above material was not such that recovery will not be possible.  However, recovery from that position would appear to depend on success in various contested proceedings in which about €500 million is claimed, reaching a suitable refinancing agreement with Duro SA’s financiers and obtaining a further injection of capital into the company.  None of those matters appeared to be assured.  If recovery from Duro SA’s difficult financial position is not achieved, there is a real prospect that Duro SA might not have the capacity to repay a significant loan by Duro to Duro SA at the time when it falls due or is sought to be enforced.
  • The above evidence supported the primary judge’s conclusion that there was a danger that a prospective judgment based on an arbitral award will be wholly or partly unsatisfied because Duro’s assets might be dealt with.  The evidence establishes a real and not remote risk that, if Duro was successful in its claims against Samsung:

(1)          Duro would hold funds in excess of its operational requirements;

(2)          Duro would lend those funds to Duro SA;

(3)          Duro SA would not have the capacity to repay the loan to Duro at the time when it fell due for repayment, or was sought to be enforced; and

(4)          Duro’s remaining assets would be insufficient to wholly satisfy a judgment of the court based on an arbitral award against Duro in favour of TGP.

  • This approach does not involve the surprising or commercially disruptive outcome suggested by Duro in its submissions summarised at [97] above.  The freezing order in this case is not justified merely by the prospect that Duro will lend funds surplus to its operational requirements to Duro SA.  The important additional element is the evidence as to the precarious financial position of Duro SA, which gives rise to a real risk that Duro SA will lack the capacity to repay a significant loan when it falls due or is sought to be enforced.  Duro’s own financial position, and limited presence in Australia at present, is also an important factor.
  • For the purposes of this appeal, it is unnecessary to determine whether it was open to the primary judge to infer that Duro might grant security over its claim against Samsung as part of Duro SA’s refinancing.  The primary judge’s ultimate conclusion that the jurisdictional requirement was satisfied is supported by the inference as to the loan by Duro to Duro SA.  However, we accept Duro’s submissions, summarised at [98] above, that the inference as to the grant of security was not open on the evidence, given the absence of evidence as to the content of the refinancing negotiations, a past history of security being provided and the manner in which the grant of security could be in the best interests of Duro.
  • For these reasons, Duro’s first ground of appeal has not been established.

Duro’s submissions on ground 2

  • Duro submits that, whether it is considering the grant of a freezing order under its implied or inherent power or under art 17J of the Model Law, the court is acting in aid of the prospective enforcement of an arbitral award in accordance with the Act.  In either case, Duro submits that the court is required to pay due regard to the subject matter, scope and purpose of the Act in the exercise of the relevant power.
  • Duro also submits that, by s 39(1)(a)(vi) and s 39(2) of the Act, a court performing functions or exercising powers under the Act or Model Law is required to have regard to the objects of the Act. The following relevant objects are identified in s 2D of the Act:

(a)           to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and

(b)           to facilitate the use of arbitration agreements made in relation to international trade and commerce; and

(c)           to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and

(e)          to give effect to the [Model Law].

  • Duro submits that a court faced with an application for a freezing order in aid of a prospective award to which the Act applies should:[101]

(1)          Exercise judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration; and

(2)          In the absence of a compelling reason to do otherwise, avoid exercising the power in a way which would usurp jurisdiction which the parties have agreed should be conferred upon an arbitrator.

  • Duro submits that the power of a court to grant interim relief under art 9 and art 17J of the Model Law does not detract from that approach, as art 17J recognises that the power to grant an interim measure in relation to arbitral proceedings should be exercised ‘in consideration of the specific features of international arbitration’.
  • Duro submits that the primary judge erred in failing to approach the exercise of the discretion in formulating the freezing order in a way which reflected the requirement that a court exercise its art 17J power sparingly and in a way which gives due recognition and weight to the objects of the Act.
  • Duro contends that, in light of the above matters, any freezing order should have operated only until the arbitral tribunal was constituted and has had a reasonable opportunity to consider for itself whether to grant relief equivalent to a freezing order.

TGP’s submissions on ground 2

  • TGP submits that the court’s power to grant freezing orders is for the purpose of protecting the court’s process and the administration of justice. TGP contends that this is not a power that is shared with the arbitral tribunal, which has an independent, albeit similar, power to protect the arbitral process. TGP refers to articles 9 and 17J of the Model Law, and says that the court’s power to grant freezing orders under those provisions and its implied or inherent power are independent powers which do not involve an encroachment on the exclusive jurisdiction of the prospective arbitral tribunal.  TGP contends that the primary judge made no error, and did not fail to have regard to the objects of the Act, in exercising the court’s discretionary power.

Disposition of ground 2

  • Under art 17(1) of the Model Law, unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures.  As noted at [16] above, an ‘interim measure’ is defined by art 17(2) of the Model Law to include an order made prior to the final award to preserve assets out of which a final award may be satisfied.
  • Article 17A of the Model Law provides for the conditions of the exercise of this jurisdiction by the arbitral tribunal.
  • Under art 17H(1):

An interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued, subject to the provisions of article 17 I. [which deals with the limited grounds for refusing recognition or enforcement of an interim measure]

  • The terms of art 17J of the Model Law are reproduced at [15] above.
  • Under art 9 of the Model Law:

It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure. (emphasis added)

  • It is also relevant to note the provisions of s 7 of the Act.  In broad summary, s 7(2) provides for a court to stay curial proceedings involving the determination of a matter capable of settlement by arbitration under an arbitration agreement, and refer the parties to arbitration.  Under s 7(3) of the Act:

Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.

  • In Cape Lambert, Martin CJ, with whom Buss JA agreed, held that the power in s 7(3) should be utilised for the purpose of promoting and enforcing the agreement of the parties to resolve their disputes by arbitration, rather than by making orders which would be inconsistent with, or subversive of, that agreement.
  • Martin CJ inferred that the orders contemplated by s 7(3) of the Act:

are orders which are interim, in the sense that they are necessary to preserve the rights of the parties in relation to any property that is the subject of the matter to which the stay orders relate until such time as the arbitral tribunal can itself embark upon the reference and determine whether interim measures in relation to that property should be ordered, or supplementary in the sense that they augment or facilitate the reference of the dispute to arbitration, by preserving those rights until the arbitral tribunal is properly seized of the dispute.

  • Martin CJ also observed that:

This approach to the ambit of the powers conferred upon the court by s 7 of the Act is consistent with the limited role which national courts play when parties have agreed to resolve their disputes by international commercial arbitration. National courts are not properly regarded as competitors or rivals for the jurisdiction which the parties have agreed to confer upon an arbitral tribunal. As I have already noted, the exercise of judicial power to facilitate the agreement of the parties to resolve their disputes by arbitration, and the strictly limited supervisory role usually conferred upon national courts by the lex arbitri, which is generally limited to containing arbitral tribunals within the jurisdiction conferred upon them by the parties and ensuring that the jurisdiction is exercised, is fundamentally different in character to the role of the arbitral tribunal in resolving the dispute by making an award defining the substantive rights and obligations of the parties. International comity requires national courts to faithfully respect these limitations upon their role — in this case by appropriately construing the ambit of the powers conferred upon the court by s 7 of the Act having regard to such limitations.

  • Martin CJ found it unnecessary to deal with the power conferred by art 17J of the Model Law, as there was no ground of appeal against a refusal to exercise that power in Cape Lambert. However, McLure P, who generally agreed with Martin CJ’s reasons, quoted art 17J of the Model Law and observed:

With concurrent jurisdiction of that nature, it seems unlikely that the default position is that a court should formulate its orders to facilitate a review or reconsideration thereof by the arbitral tribunal.  At first blush, it appears that Arts 9 and 17J of the [Model Law] are in tension with the evident policy and purpose of s 7 of the Act.  That tension can be reconciled by the court exercising its Art 17J power sparingly and only if there are compelling reasons to do so.

  • In our view, there is a difference between the exercise of the court’s power under s 7(3) of the Act and art 17J of the Model Law.  The power under s 7(3) is incidental to the power in s 7(2) of the Act to stay proceedings inappropriately commenced in the court and refer the parties to arbitration.  The power in s 7(3) is exercised in a setting where curial proceedings have been commenced contrary to the terms of an arbitration agreement and the policy of the Act.  In that context, it is natural to read the power conferred by s 7(3) as limited to what is required to facilitate the reference of the parties to arbitration.
  • By contrast, the power in art 17J is expressly conferred on a court by the Model Law for the evident purpose of protecting the integrity of the arbitration process.  Further, as noted at [18] – [22] above, the court is also exercising its concurrent power to protect the integrity of the court’s own process and prevent the frustration of a prospective judgment based on a prospective arbitral award.  It may also be noted that the enforcement of an arbitral tribunal’s interim measure in the form of a freezing order would depend on a court making an order under art 17H of the Model Law.
  • We accept that, in exercising its power to make a freezing order in a case such as the present, the court must have regard to the objects of the Act and should not make an order which is inconsistent with an arbitration agreement or that usurps the role of the arbitral tribunal.  However, in assessing that matter it is necessary to take account of art 9 of the Model Law.  Article 9 is one of the ‘specific features of international arbitration’ to which art 17J of the Model Law refers.  Article 9 expressly provides that it is not incompatible with an arbitration agreement for a court to grant an interim measure (which includes a freezing order under art 17J) during arbitral proceedings.  Article 9 is inconsistent with Duro’s submission that the court should only make a freezing order which operates until an arbitral tribunal has been established and has had a reasonable opportunity to make such an order itself.
  • The drafting history of the Model Law counts against the power in art 17J being limited in the manner contended for by Duro.  An Explanatory Note by the UNCITRAL secretariat described that the purpose of introducing art 17J in 2006 was ‘to put it beyond any doubt that the existence of an arbitration agreement does not infringe on the powers of the competent court to issue interim measures and that the party to such an arbitration agreement is free to approach the court with a request to order interim measures’. Proposals to limit art 17J consistently with the approach for which Duro now advocates were considered but not adopted at the drafting stage.
  • There appear to be few reported cases in other jurisdictions which address the question of the appropriate period of operation for court-ordered interim measures.  However, we note that the approach of the primary judge is consistent with that taken, in relation to a pre-judgment garnishment order, by the Supreme Court of British Columbia in Trade Fortune Inc v Amalgamated Mill Supplies Ltd, decided before the addition of art 17J to the Model Law.
  • It may be accepted that the power to make a freezing order, under either the court’s implied or inherent power or under art 17J of the Model Law, should be exercised sparingly and only if there are compelling reasons to do so.  A court is always required to exercise a high degree of caution when invited to make a freezing order. However, where an applicant satisfies the onerous requirements for obtaining a freezing order, there is no reason for a court to adopt a default position that the order should only be made until the arbitral tribunal can consider the question.  That is particularly so when the enforceability of any interim measure granted by an arbitral tribunal will depend on a judgment of the court giving effect to the interim measure.
  • A court may properly be reluctant to make a freezing order except for a limited time in circumstances where there is a serious contest as to whether the applicant for a freezing order has established a good arguable case for final relief.  In such circumstances, the court may be seen to trespass on the role of the arbitral tribunal if it resolves a contest between the parties as to the merits of a claim which the arbitral tribunal will ultimately be required to determine. However, that is not the present case, where Duro’s submissions ‘did not focus on the question of whether [TGP] has a good arguable case’, and on appeal Duro does not challenge the finding that TGP had a good arguable case.
  • In our view, in the circumstances of this case it was open to the primary judge to make the freezing order operate until further order, and his Honour did not make any error of principle in doing so.
  • Duro also makes submissions as to delay by TGP in instituting proceedings, the absence of urgency in the application for a freezing order and the lack of conferral before the application was made.  These matters, which were considered by the primary judge, were relevant to the question of whether it was appropriate to make a freezing order at all.  However, ground 2 does not challenge the exercise of the discretion in that respect.  In our view, those matters do not materially impact on the question of whether, having decided to grant a freezing order, the primary judge should have made it operate until further order.
  • For these reasons, ground 2 is not established.

Orders

  • For the above reasons, neither ground of appeal has been established.  The appeal should be dismissed.

Case(s) referred to in decision(s):

 

BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 3) [2013] WASC 239; (2013) 276 FLR 273

Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66; (2013) 298 ALR 666

Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380

Consolidated Constructions Pty Ltd v Bellenville Pty Ltd [2002] FCA 1513

Deputy Commissioner of Taxation v Gashi [2010] VSC 120; (2010) 27 VR 127

Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194

Federal Commissioner of Taxation v Growth Investment Fund SA [2014] FCA 780; (2014) 98 ATR 865

Frigo v Culhaci [1998] NSWCA 88

Hamersley Iron Pty Ltd v Forge Group Pty Ltd [2018] WASCA 163

Hamersley Iron Pty Ltd v James [2015] WASC 10

Haruki Machinery Pte Ltd v RSM Crane Sales and Hire Pty Ltd [2012] WASC 131

Hayden v Teplitzky (1997) 74 FCR 7

Jackson v Sterling Industries Ltd (1987) 162 CLR 612

National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271

Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG (The Niedersachsen) [1983] 1 WLR 1412; [1984] 1 All ER 413

Official Receiver of the State of Israel v Raveh [2001] WASC 72; (2001) 24 WAR 53

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1

Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319

Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769

PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2014] WASCA 178; (2014) 288 FLR 299

PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; (2015) 258 CLR 1

RAB’s Plumbing Services Pty Limited v Elite Civil Management Pty Ltd [2014] FCA 264

Reches Pty Ltd v Tadiran Pty Ltd (1988) 85 FCR 514

Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264

Severstal Export GmbH v Bhushan Steel Ltd [2013] NSWCA 102; (2013) 84 NSWLR 141

Silver Standard Resources Inc v Joint Stock Company Geolog, Cominco Ltd (1998) 59 BCLR (3d) 196

TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia [2013] HCA 5; (2013) 251 CLR 533

Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645

Trade Fortune Inc v Amalgamated Mill Supplies Ltd (1994) 113 DLR (4th) 116

TTMI Ltd v ASM Shipping Ltd [2005] EWHC 2666; [2006] 1 Lloyd’s Rep 401

Hancock Prospecting Pty Ltd v Rinehart (No 2) [2017] FCAFC 208

FEDERAL COURT OF AUSTRALIA

Hancock Prospecting Pty Ltd v Rinehart (No 2) [2017] FCAFC 208

Appeal from: Rinehart v Rinehart (No 3) [2016] FCA 539

File numbers: NSD 916 of 2016
NSD 922 of 2016

Judges: 

  • ALLSOP CJ
  • BESANKO
  • O’CALLAGHAN JJ

Date of judgment: 15 December 2017

Catchwords:
ARBITRATION  – stay of proceeding brought in Court in favour of arbitration – making of orders

COSTS – appropriate order for costs – whether costs of stay application below and on appeal should follow the event – whether costs below and on appeal should be payable forthwith

Legislation: Commercial Arbitration Act 2010 (NSW), s8

Cases cited:

  • AED Oil Ltd v Puffin FPSO Ltd (No 2) [2010] VSCA 109
  • Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253
  • Ansett Australia Ltd v Malaysian Airline System Berhad (No 2) [2008] VSC 156
  • Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S)
  • Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45
  • Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170
  • John Holland Pty Limited v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 564
  • Novawest Contracting Pty Ltd v Brimbank City Council [2015] VSC 679
  • Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 (S)
  • Re Ikon Group Ltd (No 2) [2015] NSWSC 981

Date of hearing: Determined on the papers

Date of last submissions: 29 November 2017

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Commercial Contracts, Banking, Finance and Insurance

ORDERS

NSD 916 of 2016
NSD 922 of 2016

BETWEEN:
HANCOCK PROSPECTING PTY LTD ACN 008 676 417(and others named in the schedule)
Applicants/Appellants

AND:
BIANCA HOPE RINEHART (and others named in the schedule)
Respondents

JUDGES:

  • ALLSOP CJ
  • BESANKO
  • O’CALLAGHAN JJ

DATE OF ORDER: 15 DECEMBER 2017

THE COURT ORDERS THAT:

  1. Leave to appeal be granted.
  2. The appeals be allowed.
  3. The cross-appeals be dismissed.
  4. The notices of contention be dismissed.
  5. The orders of the Court made on 26 May 2016 be set aside and in lieu thereof order:
    1. that the proceeding brought in the Court by the applicants being NSD 1124 of 2014 be stayed under s8(1) of the Commercial Arbitration Act 2010 (NSW) article CA Act) pending any arbitral reference between the parties or until further order, save and except for those claims made against those entities that are not parties to the relevant arbitration agreements, being Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd; and
    2. the first and second applicants to the main proceedings (being the first and second respondents to the appeals) pay the costs of the moving parties to the interlocutory application filed on 3 November 2014 in proceedings NSD 1124 of 2014 in connection with paragraph 9 thereof and the costs of the moving parties to the interlocutory application filed on 24 December 2014 in those proceedings, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd, and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s 2 of the CA Act.
  6. The claims made by the applicants in the underlying proceedings against Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd be stayed on the same terms as the stay in order 5.
    Subject to the stays in orders 5 and 6 above, the matter be remitted to the primary judge for any application properly available in the light of the stays.
  7. The first and second respondents pay the appellants’ costs of appeal including the costs of the application for leave to appeal, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s 2 of the CA Act.
  8. Leave be granted nunc pro tunc to Wright Prospecting Pty Ltd to intervene on the condition that they bear their own costs of intervention.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
THE COURT:

  1. On 27 October 2017 (Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170) the Court published reasons including proposed draft orders dealing with the appeal arising from orders made by the primary judge on the application by (to use the relevant definitions in the earlier judgment) the HPPL Parties, Mrs Rinehart and 150 Investments to stay proceedings brought by Mr John Hancock and Ms Bianca Rinehart against the HPPL Parties, Mrs Rinehart, and 150 Investments and other parties.
  2. We do not rehearse the detailed background that is in the earlier judgment.
  3. Two issues arise: first, whether costs should be awarded against the first and second respondents (Bianca and John) in the application below, as well as on appeal, or whether the costs below be reserved to a time in the future; and secondly, whether costs (on appeal and below) should be payable forthwith.
  4. Short submissions have been filed on these two questions. Our views are that the first and second respondents should pay the costs of both the appeal and the application below, but that no order for payment forthwith should be made.
  5. Briefly our reasons are as follows. As to the first issue, the costs of the application and the appeals from it are related to the issues whether there should be a stay of the Court proceedings to refer the dispute to arbitration, and, as part of that question, whether there was any properly formulated attack on the arbitration agreements, and if so, what that attack was.  These are issues different from whether or not the underlying claims are valid or not. The primary judge correctly approached the matter on the basis that the underlying claims were not to be decided.  That is how the matter was approached on appeal.  The respondents to the appeal contested and lost the stay and arbitration issues.  Costs of that should follow the event.  There is ample authority for treating the stay as separate in this way: Ansett Australia Ltd v Malaysian Airline System Berhad (No 2)[2008] VSC 156 at [20]; Amcor Packaging (Australia) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253 at [49]; Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10 (S) at [33]; Re Ikon Group Ltd (no 2) [2015] NSWSC 981 at [25]; Norwest Contracting Pty Ltd v Brimbank City Council [2015] VSC 679 at [34]; Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S) at [27]; John Holland Pty Limited v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 564 at [46]-[47]; Comandate Marine Corp v Pan Australia Shipping Pty Ltd [2006] FCAFC 192; 157 FCR 45 at 110-11 [253] and 111 [255]; and AED Oil Ltd v Puffin FPSO Ltd (No 2) [2010] VSCA 109 at [3] and [12].
  6. As to the second issue, there is no reason why in justice these costs should be paid forthwith.  The costs will be large. That is a result of how both sides have treated the applications.  With some exception in oral address, no stone has been left unturned, no opportunity for opposition passed up, and no proposition in writing expressed otherwise than to the fullest.  Should the costs be payable forthwith that would raise the real risk of stultification of the substantive complaints of the first and second respondents to the appeal.  That would be a matter of some real injustice.  If the first and second respondents’ complaints are legitimate (whether to be vindicated in an arbitration or court proceeding) they would amount to very serious wrongs.
  7. There were two interlocutory applications before the primary judge that sought to stay the proceeding brought in the Court by Ms Rinehart and Mr Hancock.  The first was filed on 3 November 2014 by the HPPL parties. Paragraph 9 of that application sought an order that the proceeding be stayed.  The remainder of that application sought suppression orders in respect of documents filed in the proceedings.  The second application was filed on 24 December 2014 by Mrs Rinehart and 150 Investments.  It sought orders staying the proceeding brought in Court by Ms Rinehart and Mr Hancock and, in its own terms, referring the proceeding or aspects of the proceeding to arbitration.  In making orders as to costs below, it is important to recognise that there were two interlocutory applications. The costs of both of these applications were reserved in the orders made by the primary judge on 26 May 2016.
  8. Thus, the orders we would make are as follows:
    1. Leave to appeal be granted.
    2. The appeals be allowed.
    3. The cross-appeals be dismissed.
    4. The notices of contention be dismissed.
    5. The orders of the Court made on 26 May 2016 be set aside and in lieu thereof order:
      (a) that the proceeding brought in the Court by the applicants being NSD 1124 of 2014 be stayed under s8(1) of the Commercial Arbitration Act2010 (NSW) (CA Act) pending any arbitral reference between the parties or until further order, save and except for those claims made against those entities that are not parties to the relevant arbitration agreements, being Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd; and
      (b) the first and second applicants to the main proceedings (being the first and second respondents to the appeals) pay the costs of the moving parties to the interlocutory application filed on 3 November 2014 in proceedings NSD 1124 of 2014 in connection with paragraph 9 thereof and the costs of the moving parties to the interlocutory application filed on 24 December 2014 in those proceedings, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd, and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s2 of the CA Act.
    6. The claims made by the applicants in the underlying proceedings against Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd be stayed on the same terms as the stay in order 5.
      Subject to the stays in orders 5 and 6 above, the matter be remitted to the primary judge for any application properly available in the light of the stays.
    7. The first and second respondents pay the appellants’ costs of appeal including the costs of the application for leave to appeal, subject to Hope Downs Iron Ore Pty Ltd, Roy Hill Iron Ore Pty Ltd, Mulga Downs Investments Pty Ltd and Mulga Downs Iron Ore Pty Ltd paying the costs related to the question as to whether those entities are parties to the arbitration agreement pursuant to s2 of the CA Act.
    8. Leave be granted nunc pro tunc to Wright Prospecting Pty Ltd to intervene on the condition that they bear their own costs of intervention.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop and Justices Besanko and O’Callaghan.

Associate:

Dated:        15 December 2017

SCHEDULE A – SCHEDULE OF PARTIES

Party

NSD1124/2014

(Underlying Proceeding)

NSD916/2016

(HPPL’s Appeal)

NSD922/2016

(Mrs Rinehart’s Appeal)

BIANCA HOPE RINEHART

First Applicant

First Respondent/First Cross-Appellant

First Respondent/First Cross-Appellant

JOHN LANGLEY HANCOCK

Second Applicant

Second Respondent/Second Cross-Appellant

Second Respondent/Second Cross-Appellant

GEORGINA HOPE RINEHART (IN HER PERSONAL CAPACITY AND AS TRUSTEE OF THE HOPE MARGARET HANCOCK TRUST AND AS TRUSTEE OF THE HFMF TRUST

First Respondent

Third Respondent

First Applicant

HANCOCK PROSPECTING PTY LTD ACN (008 676 417)

Second Respondent

First Applicant

Third Respondent

HANCOCK MINERALS PTY LTD (ACN 057 326 824)

Third Respondent

Second Applicant

Fourth Respondent

HANCOCK FAMILY MEMORIAL FOUNDATION LTD (ACN 008 499 312)

Fourth Respondent

Fourth Respondent

Eleventh Respondent

TADEUSZ JOSEF WATROBA

Fifth Respondent

Third Applicant

Fifth Respondent

WESTRAINT RESOURCES PTY LTD (ACN 009 083 783)

Sixth Respondent

Fourth Applicant

Sixth Respondent

HMHT INVESTMENTS PTY LTD (ACN 070 550 104)

Seventh Respondent

Fifth Applicant

Seventh Respondent

150 INVESTMENTS PTY LTD (ACN 070 550 159)

Eighth Respondent

Fifth Respondent

Second Applicant

HOPE RINEHART WELKER

Ninth Respondent

Sixth Respondent

Twelfth Respondent

GINIA HOPE FRANCES RINEHART

Tenth Respondent

Seventh Respondent

Thirteenth Respondent

MAX CHRISTOPHER DONNELLY (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF THE LATE LANGLEY GEORGE HANCOCK)

Eleventh Respondent

Eighth Respondent

Fourteenth Respondent

HOPE DOWNS IRON ORE PTY LTD (ACN 071 514 308)

Twelfth Respondent

Seventh Applicant

Ninth Respondent

ROY HILL IRON ORE PTY LTD (ACN 123 722 038)

Thirteenth Respondent

Sixth Applicant

Eighth Respondent

MULGA DOWNS INVESTMENTS PTY LTD (ACN 132 484 050)

Fourteenth Respondent

Ninth Respondent

Fifteenth Respondent

MULGA DOWNS IRON ORE PTY LTD (ACN 080 659 150)

Fifteenth Respondent

Eighth Applicant

Tenth Respondent