Applecross Pte Ltd (ARBN 079 372 722) v Lim

REASONS FOR JUDGMENT 1 On 22 September 2009, I gave the plaintiff (Applecross) leave to serve the originating process in this proceeding out of the jurisdiction on the second and fifth defendants. These are short reasons for the granting of that leave. The second and fifth defendants reside in Singapore. Applecross applied (ex parte) for leave pursuant to O 8 r 3 of the Federal Court Rules for service on those defendants in Singapore. The application was supported by affidavits of Michael Cheng Lock Tan, dated 27 August 2009; Galappathige Dhanushka Minoshi De Silva, dated 26 August 2009; and a further affidavit of Michael Cheng Lock Tan of 18 September 2009. 2 By O 8 r 3 FCR, service outside of the Commonwealth of an originating process is not valid unless (amongst other things) the prior leave of the Court is obtained. Leave of the Court may be granted if the Court is satisfied it has jurisdiction in the proceedings, that it is the kind of proceeding in which the originating process may be served on a person outside of Australia as categorised in O 8 r 2 FCR and that the party seeking leave has a prima facie case for the relief sought in the proceedings. 3 The statement of claim raises two causes of action. The first is a directors' insolvent trading claim pursuant to s 588G of the Corporations Act 2001 (Cth) (CA) and, secondly, a misleading and deceptive conduct claim pursuant to s 10 of the Fair Trading Act 1987 (WA) (FTA). 4 This Court has original jurisdiction to hear the insolvent trading claim pursuant to the CA (s 1337B(1) CA). The claim under the FTA is related to the CA claim. Each is based under a lease entered into by Asiatree Hay Street Pty Ltd (Asiatree). The claim under the CA turns on the terms of the lease as well as the CA provisions mentioned. Under the FTA the claim is made in respect of representations said to be made by the first defendant and further or alternatively, the second defendant concerning Asiatree's capacity to meet the obligations under the lease. I was satisfied that there was a sufficient substratum of facts to constitute a matter within the meaning of s 76(ii) of the Commonwealth Constitution. The jurisdictional requirements were satisfied. 5 I was also satisfied that it is the kind of proceeding in which the originating process may be served on a person outside of Australia within the meaning of O 8 r 2, as the representations were made and agreement was reached concerning the lease of premises in Western Australia. 6 As to the prima facie case, it was necessary for Applecross to establish that there was evidence which was sufficient to support its allegations and which would lead to judgment in its favour unless there was evidence rebutting the allegations. Actual evidence rather than mere allegations are required. Notwithstanding these requirements, an interlocutory process for leave to serve outside the jurisdiction does not call for a substantial inquiry but rather one in proportion to the nature of the relief sought on the interlocutory application: WSGAL Pty Limited v Trade Practices Commission (1992) 39 FCR 472 at 476 per Beaumont J. 7 In relation to Asiatree, the question was whether it was insolvent when it entered into the lease concerned or otherwise became insolvent by incurring the entire rental debt at the time of the commencement of the lease or, alternatively, whether it did so at each of the dates an instalment of rent was due pursuant to the lease. My primary concerns related to the question of whether there was a prima facie case of insolvency at the date of entry into the lease. 8 The second and fifth defendants were directors of Asiatree from the commencement of the lease in 2003. Each signed the lease as directors of Asiatree. 9 The financial records produced to the Court in the affidavit of Michael Tan of 18 September 2009, showed that at or shortly before the entry into the significant lease obligations, Asiatree's total liabilities significantly outweighed its assets. No property was owned at all. Significant loans were owed by the company. Although the financial records will require substantially greater scrutiny as the insolvency case unfolds, there was, prima facie evidence of insolvency at the time of entry into the lease. I fully accept that this evidence may be rebutted. At a prima facie level only and on the basis of the current evidence only, there would also be no reasonable basis having regard to the simple accounts, for a belief by these directors that without unidentified external support or other grounds, that the company would be able to meet its debts under the lease as and when they fell due or for concluding other than that its liabilities substantially exceeded its assets. 10 Counsel for Applecross submitted that things only became worse. In other words, at the time of entry into the lease, the financial state of affairs of Asiatree was at its best. 11 I am less convinced that the pleaded case for Asiatree would succeed if insolvency at the time of entry into the lease is not established but that question remains open. The alternative cases to be advanced for Applecross are that Asiatree became insolvent during the course of the lease because of entering into the lease or that Asiatree's financial position deteriorated substantially during the course of the lease and the directors of Asiatree should have entered into a voluntary administration under the CA. 12 In the Western Australian Full Court decision of Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150, in respect of a lease, Burt CJ held (at 153) that no 'relevant act on the part of the tenant beyond his entering into the lease in the first instance can be identified' (Smith J at 153 and Olney J at 156 agreed, although Olney J otherwise dissented). Bryson J refined the position in Bans Pty Ltd v Ling (1995) 16 ACSR 404 at 406, holding that the obligation to pay ascertainable rent but not unascertainable and contingent interest was incurred when the tenancy was entered into. Applecross seeks to argue that Russell Halpern Nominees ought not be followed or can be distinguished as it dealt with s 556 of the Companies (Western Australia) Code. Applecross argues that under that code each separate act of insolvent trading was a separate offence whether or not the debt was incurred honestly or dishonestly. Applecross points to the fact that under the Corporations law and then under the CA directors have greater flexibility in putting an insolvent company which is under their control into 'voluntary administration' by Pt 5.3A CA. Applecross wish to argue that even if they do not establish insolvency of Asiatree at the time it entered into the lease (and it contends that Asiatree clearly was insolvent at that time), that as its position rapidly deteriorated, the directors were able to and should have put it into voluntary administration under the current CA procedures which were not previously available under the Code. 13 Russell Halpern Nominees has been followed a number of times and certainly at least as recently as 2002, but the argument which Applecross now seeks to ventilate may not have fallen for consideration in those subsequent cases. 14 If Asiatree was insolvent at the time of entry into the lease, the additional arguments do not require consideration. At a prima facie level, it appears that it was insolvent but I accept that it may well be that there is evidence to rebut that inference on material which is presently before the Court. 15 Given my views as to the prima facie case of insolvency of Asiatree as at entry into the lease, it is unnecessary to consider those arguments at present. 16 In relation to the alternative FTA claim, this claim relates only to the first and second defendants. Applecross asserts that the first defendant and/or second defendant assured it or its representatives that the impending new trading activities of Asiatree would enable it to meet all its commitments and ongoing commitments under the lease. Those statements are said to have been misleading and deceptive at the time they were made. Applecross claims that if they had not been made and Applecross had not been persuaded by them to permit Asiatree to remain in possession of the premises, it would have obtained alternative income from another prospective lessee. The matters deposed to are, for present purposes, adequately pleaded and also fall within the jurisdiction of the Court. They constituted a prima facie case only. 17 On those bases and taking into account the detailed submissions advanced in writing, supplemented orally and the affidavits to which I have referred, I made the following orders: 1. The plaintiff be granted leave to personally serve the originating process, by private agent, on the second defendant at an address in Singapore most likely to be, but not limited to, either: (a) 343 Upper Bukit Timah Road, #09-07 The Hillside, Singapore 588196; or (b) Block 14 #04-220 Dover Close, East Singapore 1300014. 2. The plaintiff be granted leave to personally serve the originating process, by private agent, on the fifth defendant at an address in Singapore most likely to be, but not limited to, either: (a) Block 459, #04-257 Pasir Ris Drive 4, Singapore 510459; or (b) Block 101 Jurong East Street 13, #05-172, Singapore 600101. 3. The costs of this application be reserved. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.