Cooper v Sithe Energies Australia Limited and another

APPLICANT: The Hon. J. Shaw Q.C. Mr S. Prince of Counsel Mr C. Staff, Solicitor Jones Staff & Co LEGAL REPRESENTATIVES: RESPONDENT: Mr M. Tobias Q.C. Mr M. Steele of Counsel Ms H. McKenzie, Solicitor Blake Dawson Waldron

JUDGMENT:

• 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

Matter No IRC 1671 of 2000 GRAHAME ALLAN COOPER v SITHE ENERGIES AUSTRALIA PTY LIMITED AND ANOTHER

Notice of Motion - Application under s 106 of the Industrial Relations Act 1996

Introduction 1 On 14 April 2000 Grahame Allan Cooper ("the applicant") filed a Summons for Relief under s 106 of the Industrial Relations Act 1996 ("the Act"). The respondents were named as Sithe Energies Australia Pty Limited ("first respondent") and Sithe Energies Inc ("second respondent"). The first respondent is a company incorporated in New South Wales. The applicant was the Managing Director of the first respondent, although he was not formally appointed as a director of that company. The second respondent is a corporation incorporated in the state of Delaware in the United States of America. At all material times the first respondent was a fully owned subsidiary of the second respondent. 2 The Summons sought relief by way of various orders, including money orders, to the extent of A$14 million of which A$4,251,538.80 was particularised in the Summons. 3 On 24 July 2000 the applicant caused to be filed in this Court an ex parte notice of motion and affidavit in support the effect of which would be to restrain until further order the first respondent from disposing of, or dealing with, any assets or removing any assets from the jurisdiction including, in particular, moneys or funds standing to the credit of the first respondent in an account with the Banque Nationale de Paris ("BNP") in Sydney. These funds amount to about A$9 million. 4 The notice of motion was called on for hearing on 24 July 2000. Mr R Goot, of counsel, appeared for the applicant. After hearing Mr Goot and having read the applicant's Summons for Relief and affidavit, as well as the respondents' Reply, I granted, with amendment, the short minutes of order sought by the applicant. I published my reasons on 26 July 2000. 5 The inter partes hearing as to whether or not the order made by me on 24 July 2000 should be continued came on for hearing on 27 July 2000. At that hearing, Mr M H Tobias of Queens Counsel with Mr M J Steele appearing for the first respondent, indicated that the continuation of the order would be contested but that to do so it was necessary to file further evidence on behalf of the first respondent. In the meantime, the first respondent did not contest an extension of the order, until further order, subject to a number of agreed amendments. These amendments were made and directions given for the filing and service of additional material. 6 The matter came on again for hearing on 24 August 2000. The Hon Mr J W Shaw of Queens Counsel with Mr S Prince of counsel appeared for the applicant. Factual Background 7 Before addressing the question of whether the amended order of 27 July should continue, it is necessary to explain the relevant factual background. 8 Until October 1996 the applicant was a partner in a major Australian law firm. In that capacity the applicant was the principal legal adviser to the first respondent. In July 1996 the applicant was approached by the second respondent to take up a position with the first respondent. Following representations by the second respondent and an offer by it in September 1996 the applicant accepted the offer and commenced as Managing Director of the first respondent in or about November 1996. 9 The applicant deposed that, despite numerous requests made by him to officers of the second respondent, he has not received most of the benefits as contained in the representations and/or contained in the offer made and accepted by him. The applicant consequently sought relief under s 106 of the Act. 10 The first respondent, a wholly owned subsidiary of the second respondent, has a number of assets in New South Wales that include shareholdings, loans to subsidiaries, a gas fired cogeneration power plant at Smithfield ("the plant"), the net value of which is A$50 million and approximately A$9 million credit in the account with BNP. 11 The second respondent is a large, reputable US corporation that owns substantial interests in a total of 39 operating power plants around the world. Of these 28 are in North America and 10 in Asia as well as the Smithfield plant in Australia. As at 31 March 2000, the second respondent had total assets in excess of US$4.6 billion, including current assets of $2.5 billion and stockholders' equity of over US$1.1 billion. On 14 August 2000, PECO Energy Company ("PECO") announced that it had entered into an agreement to acquire from the stockholders of the second respondent 49.9 per cent of the issued shares of the second respondent for US$682 million. On completion of the agreement the shareholders in the second respondent and their respective approximate shareholding interests would be: PECO (49.9%); Vivendi, S.A. (33%); Marubeni Corporation and its affiliates (15%); and management (2%). For the year ended 31 December 1999, PECO had operating revenues in excess of US$5 billion and net income of US$582 million. As at that date, the company had consolidated total assets of US$13 billion and shareholders' equity of US$1.9 billion. 12 In October 1999 the second respondent's board resolved to cease all further development activity in Australia and on 31 March 2000 almost all of its head office staff in Sydney were retrenched. The Smithfield plant is to be sold. 13 The applicant's concern is that if the sale proceeds and assets of the first respondent are transferred to the second respondent he would be deprived of the fruits of any judgment obtained pursuant to s 106 of the Act. At the ex parte hearing the applicant contended that the second respondent was in the process of attempting to sell the assets of the first respondent but since he had filed his Summons for Relief under s 106 of the Act he had not been informed of any details of these attempts and did not know the status of the proposed sale. He contended that the sale or disposal of the shares and the plant could proceed without his knowledge. 14 The applicant contended that proceeds of the account with BNP could be transferred by the first respondent without the knowledge of the applicant who was not a signatory to the account; that the applicant had been recently informed by the Treasurer of the second respondent that the second respondent intended to transfer all of the proceeds of the account with BNP as soon as the second respondent needed such proceeds or when she was satisfied with the exchange rate between the Australian dollar and the United States dollar. 15 The applicant contended that there was a risk of the assets being moved from the jurisdiction or otherwise dealt with so that there was a danger that the applicant, if he recovered judgment under s 106 of the Act, would not be able to satisfy it or, at the very least, disposal of the assets in Australia would expose the applicant to significant expense and delay in enforcement of any judgment in the proceedings under s 106, by requiring him to bring further proceedings in the state of Delaware. Consideration 16 In my opinion, in moving the court for ex parte orders, the applicant had legitimate grounds for fearing that, if he was successful in obtaining judgment in his favour in the proceedings he has brought under s 106 of the Act, there would be no assets of the first respondent within jurisdiction to satisfy the judgment. He was concerned with the lack of information from the second respondent and the state of the sale of the Smithfield power station. He was also concerned with the prospect of an imminent transfer of funds from the first respondent to the second respondent. There was a distinct air of uncertainty about the second respondent's intentions and I think it might be said, its bona fides. 17 The question now, however, having had the benefit of full argument and having received additional evidence which helps to clarify the position of the second respondent and which, importantly, includes material relating to the enforcement of Australian judgments in US courts, is whether I should make an order which continues to prevent the removal of those assets, or any part of them, from the jurisdiction or dealing with or disposing of them within the jurisdiction so that judgment would not be satisfied. I have also had the opportunity to consider the judgment of Lehane J in Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514 at 520. 18 The means by which I may prevent the removal or disposal of assets in the circumstances of this case is a 'Mareva' or 'asset preservation' order. Such an order is discretionary: Patterson v BTR Engineering (Aust) Ltd and others (1989) 18 NSWLR 319 per Gleeson CJ at 321; Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514 at 520. 19 The basis of the jurisdiction to grant a Mareva order and its purpose was explained by the New South Wales Court of Appeal in Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 at 276: "The basis of jurisdiction is founded on the risk that the defendant will so deal with his assets that he will stultify and render ineffective any judgment given by the Court in the plaintiff's action, and thus impair the jurisdiction of the Court and render it impotent properly and effectively to administer justice in New South Wales. As has appeared, the jurisdiction to grant the injunction is not to be exercised simply to preclude a debtor from dealing with his assets, and in particular to prevent him from using them to pay his debts in the ordinary course of business. It is directed to dispositions which do not fall within this category and which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject." 20 This approach was confirmed by the High Court in Jackson v Sterling Industries Ltd (1987) 162 CLR 612. Deane J, with whom the other members of the court agreed said: "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": per Lord Denning M.R., Rahman (Prince Abdul) v. Abu-Taha [1980] 1 WLR 1268 at p 1273; [1980] 3 All ER 409 at 412." 21 In Patterson v BTR Engineering (Aust) Ltd and Others (1989) 18 NSWLR 319 at 321-322, the then Chief Justice, Gleeson CJ, observed of Mareva orders that: "The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish first upon the basic cause of action against the defendant and, secondly, the danger that by reason of the defendants absconding or assets being removed out of the jurisdiction or disposed within the jurisdiction or otherwise dealt with in some fashion, the plaintiff if he succeeds will not be able to have his judgment satisfied." 22 While discretion exists to protect the court's process, and that discretion is to be exercised by reference to considerations the relevance of which is suggested by the purpose for which the relief is granted (Reches at 520), importantly the discretion to make a Mareva order must be exercised with great prudence and a predisposition against the making of an order: Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662 at 688. 23 The cases cited above set out the purpose of a Mareva order and the prudence that must be exercised in making such orders but they do not answer the question that arises here, namely, where there is a risk that a reputable foreign company will remove assets from a court's jurisdiction, not with the positive intent to frustrate any judgment but in the ordinary course of commerce, should the court act to prevent such removal? 24 The leading statement in this respect appears to be that of Sir Robert Megarry V-C in Barclay-Johnson v Yuill [1980] 1 WLR 1259, where he said at 1265: "In addition to establishing the existence of a sufficient risk of removal of the defendant's assets, the plaintiff must satisfy certain other requirements….. One is that it must appear that there is a danger of default if the assets are removed from the jurisdiction. Even if the risk of removal is great, no Mareva injunction should be granted unless there is a danger of default. A reputable foreign company, accustomed to paying its debts, ought not to be prevented from removing its assets from the jurisdiction, especially if it has substantial assets in countries in which English judgments can be enforced." 25 Similarly, In Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645, Lord Denning MR at 668 -669 set out guidelines for applicants for a Mareva order. At 669 he said: "(iv) The plaintiff should give some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied. The mere fact that the defendant is abroad is not by itself sufficient. No one would wish any reputable foreign company to be plagued with a Mareva injunction simply because it has agreed to London arbitration." 26 In the same case at 672 Lawton LJ said: "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 are easily enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise." 27 Reches, upon which Mr Tobias relies as being on all fours with the present proceedings, involved a situation where the applicant had acted as agent for the respondent, an Israeli company with no assets or business in Australia. The respondent, which was a reputable and substantial corporation with assets in Israel, terminated the agency. The applicant sought an injunction in relation to a chose in action in Australia, namely the right to be paid certain sums of money at future dates in Switzerland by a company doing business in Australia. The application for injunctive relief was dismissed. 28 At 518 of his judgment in Reches, Lehane J observed that: "Accordingly, this case raises, in a striking way, a question which does not seem to have been directly confronted in any reported case: whether it is appropriate to restrain a respondent which is a foreign corporation from removing or depleting its sole asset within Australia, in circumstances where: (a) the removal or depletion is in the ordinary course of business, (b) the respondent is a major and profitable corporation with very substantial assets, particularly current assets, (c) there is nothing to suggest that the respondent is likely to "default": that is, to decline to pay a judgment debt and to resist, other than by grounds properly available to it under the law, enforcement of a judgment against it, and (d) the respondent resides, and principally carries on its business, in a jurisdiction where enforcement is possible under a reciprocal regime for the registration of judgments. 29 After canvassing the relevant authorities, Lehane J concluded that: "In the present case, in my view, no serious risk is apparent that the court's process is likely to be frustrated unless the injunction sought is granted or that the applicant, if it obtains a judgment, will not be able to have it satisfied unless money belonging to its subsidiary is retained in Australia. The respondent, on the evidence, is a large and prosperous corporation, incorporated in a country which has reciprocal arrangements with Australia for the enforcement of judgments; it is a corporation, on the evidence, which has extensive dealings with governments and their instrumentalities, both domestically and abroad; it has ample means readily to satisfy any judgment which the applicant might obtain in these proceedings. It bears, on the evidence, none of the hallmarks of a likely "defaulter". It is true, of course, that if the respondent were not to discharge its liability under a judgment obtained by the applicant, the applicant would have to seek satisfaction by proceeding on the judgment abroad, no doubt by seeking to register it in Israel. That would involve some trouble and expense additional to that which would be incurred in enforcing a judgment against property in Australia. No evidence was tendered of the provisions of Israeli law for the registration of foreign judgments; but, given the substantial reciprocity requirements of the Australian Act, I infer that the requirements of Israeli law for the registration and enforcement of an Australian judgment are not substantially more onerous to the judgment creditor than are the provisions of Australian law as they apply to the registration and enforcement of a judgment of a superior court of Israel." "The applicant pointed to two circumstances as suggesting that the respondent might well refuse to pay any damages awarded to the applicant and might also resist attempts by the applicant to register its judgment in Israel. One such circumstance was that the respondent has ceased paying commission to the applicant; the other was that the respondent has declined to undertake not to oppose registration in Israel of a judgment favourable to the applicant. The former of those two circumstances is in my view of no weight; the respondent's case is that no commission is owing because it lawfully terminated the agency agreement (and the applicant's own case is, of course, that it accepted a repudiation of that agreement). In those circumstances it would surprising indeed if the respondent had not ceased to pay commission; and the applicant's position in that respect is not improved if, as the evidence suggests, the respondent has in fact paid commission for a period longer than, on its case, it was obliged to. On the lack of an undertaking not to oppose registration, the applicant relied on Anthony & Sons Pty Ltd v Basilan Lines Inc (unreported, Supreme Court, WA, 28 May 1997) where Scott J, in discharging a Mareva injunction previously granted, took into account the fact that the foreign defendant had deposited a sum in a trust account in Australia, to abide the outcome of the proceeding. But given what I infer to be the limited grounds available on which registration might be imposed, I do not think it would be right to draw any adverse inference from the respondent's refusal, in effect, to waive its right to rely on those grounds. The refusal should not be taken as indicating that the respondent is likely to seek to avoid discharging its obligations under a judgment properly and regularly obtained and not, for instance, stayed pending appeal." 30 There is a strong parallel between Reches and the proceedings before me and although I am not bound to follow Reches I would need to have good reason for not so doing. 31 In the proceedings before me the evidence is that :

1. The first respondent is wholly owned by the second respondent. The second respondent is a "large and prosperous corporation" with significant assets in the US;
2. The second respondent has ample means readily to satisfy any judgment which the applicant might obtain;
3. The second respondent bears none of the hallmarks of a likely defaulter;
4. The second respondent is incorporated in a country in which Australian judgments may be readily enforced;
5. Unlike Reches, it is not necessarily the case that, unless a Mareva order is made, there will be no assets in Australia to satisfy any debts;
6. The corporate practice and policy of the second respondent and its subsidiaries is to pay their debts, including their judgment debts, as they fall due and to comply strictly with court orders. 32 The first three points I believe I have already addressed and I find in the affirmative in respect of each of them. I do, however, need to expand on the last three points. Enforcement of Australian Judgments in US Courts 33 Firstly, the enforcement of Australian judgments in US courts. In Reches, Lehane J said at 518: "Additionally, Israel can be hardly be said to be a place where the enforcement of a judgment is likely to be unusually difficult. Its superior courts are among those listed in the schedule to the Foreign Judgments Regulations 1992 (Cth). That means that a money judgment of any of those courts may be registered under s 6(1) of the Foreign Judgments Act 1991 (Cth) and may, subject to the various exceptions and qualifications which that Act provides, enforce the judgment as if it were a judgment of the court in which it is registered: s 6(7). More importantly for present purposes, inclusion in the schedule to the regulations required (s 5(1)) that the Governor-General be satisfied that substantial reciprocity of treatment would be assured in relation to the enforcement in Israel of money judgments given in all Australian superior courts. Thus it may be inferred, and the parties accepted, that a money judgment in favour of the applicant in this proceeding could be registered in a superior court in Israel and (no doubt subject to similar exceptions and qualifications to those under the Australian Act) enforcement as a judgment of that court. The applicant has sought an undertaking by the respondent not to oppose registration in the appropriate court in Israel of any judgment which the applicant obtains in this proceeding; the respondent has refused to given any such undertaking." 34 Unlike the arrangements between Israel and Australia, the superior courts of the US are not listed in the Schedule to the Foreign Judgments Regulations 1992 (Cth). In endeavouring to meet this point the second respondent caused an affidavit to be filed by Andrew N. Vollmer. One of the areas in which Dr Vollmer specialises in as a practising US lawyer is international civil litigation in US courts, which covers such subjects as the enforcement of foreign judgments in the US, international forum selection, service and the taking of evidence abroad, and litigation in US courts against foreign sovereigns and their instrumentalities. 35 Given that the second respondent's corporate headquarters are in the state of New York, Dr Vollmer surmised that state would be the jurisdiction in which the applicant might seek to enforce any judgment against the second respondent. 36 In his affidavit, Dr Vollmer expressed the opinion that notwithstanding the existence of grounds in the relevant "New York Act" for the non-recognition of foreign judgments, any judgment of the Industrial Relations Commission of New South Wales in Court Session, as a superior court of record, would be recognised and enforced under New York law. 37 Dr Vollmer further expressed the opinion that: "If there are no arguable grounds available under the New York Act for opposing the recognition and enforcement of a foreign judgment, then the procedure for summary judgment in lieu of complaint would be relatively straightforward, quick and inexpensive. If the judge acted promptly in those circumstances, the foreign judgment would become a New York judgment in approximately two to four months, and the judgment creditor would probably incur legal expenses in the range of US$5,000 to $10,000." 38 Understandably, the applicant was less confident about the prospects for enforcement under US law. Two points were made. Firstly, unlike the arrangements between Australia and Israel described by Lehane J in Reches there is no provision for Australian judgments to be automatically registered with a US court and treated as a judgment of that court. This creates greater uncertainty and increases the prospect of an Australian judgment not being recognised and subsequently enforced. I note, however, even though a judgment may be registered in Israel, that a party against whom it is registered can move for the cancellation of that registration on certain grounds and those grounds are the same as the grounds to resist registration in the US except that greater discretion lies with US courts. I note further that in Reches the respondent refused to give any undertaking that it would not oppose registration. 39 The other concern expressed by the applicant about the prospect of enforcement in a US jurisdiction arose out of certain correspondence from the respondent's solicitors to the applicant's solicitors. It so happens that the spouse of the applicant is a member of the Industrial Relations Commission of New South Wales in Court Session. In initial correspondence to the applicant's solicitors, the respondent's solicitors conveyed the view of counsel that it would be appropriate for a number of stated reasons that this matter not be heard by that member's professional colleagues on the Commission. In later correspondence the respondent's solicitors advised the applicant's solicitors that "….notwithstanding our concerns in relation to the final hearing of this matter, we are prepared for Boland J to hear and determine the present notice of motion in relation to a Mareva order and for any judicial member of the Commission to conciliate under s 109, provided that your client acknowledges these concessions are without prejudice to, and are not to be taken as any waiver of, our clients' rights to make an application to the President of the Commission for the appointment of an acting judicial member for the final hearing." 40 One of the grounds in the New York Act referred to by Dr Vollmer for non-recognition of foreign judgments is that "the judgment was rendered under a system of law which does not provide impartial tribunals or procedures compatible with the requirements of due process of law". Given this, the applicant in his affidavit of 18 August 2000 expressed concern that if the application to the President of the Commission foreshadowed in the respondent's correspondence was unsuccessful, then a defence on the grounds of impartiality may be raised in any proceedings for recognition of a judgment of a current member of the Commission. 41 A second affidavit by Dr Vollmer was filed in court on 24 August 2000 by the first respondent and responded to the concerns expressed by the applicant relating to impartiality. Dr Vollmer expressed the opinion that "…a U.S. court would be unlikely to refuse to recognize or enforce the Commission order on the ground that the tribunal was not impartial. On the assumed facts, Sithe would have raised the issue in the Australian proceedings, had it properly considered, and lost. A U.S. court is likely to decide that Sithe had a full and fair opportunity to have the issue of disqualification adjudicated on the merits and reviewed by the Full Bench of the Commission and that the court should defer to the conclusion of the Australian proceedings. U.S. courts take this approach on other issues in proceedings to recognize and enforce foreign judgments." 42 What Dr Vollmer says seems to me to be right and in the absence of any persuasive contrary view I accept his opinion. 43 Somewhat related to this issue of enforcement of an Australian judgment in a foreign court, the applicant raised the possibility that in the proceedings under s 106 there could be a finding of unfairness against the first respondent and not against the second respondent. If at the time of judgment, the first respondent held no assets because they had been transferred to the second respondent, any judgment would not be able to be satisfied. 44 It seems to me, having read the Summons for Relief filed by the applicant pursuant to s 106 of the Act and the affidavit material filed in the proceedings that, if the applicant is to obtain relief, any finding of unfairness would necessarily involve the second respondent. At the heart of the applicant's complaint is that misrepresentations were made to him regarding his employment arrangements - what he was promised was not delivered - and the misrepresentations were made by officers of both the first and second respondents. If there was unfairness it is difficult to see how the second respondent would escape liability. Access to assets absent a Mareva order 45 In Reches, Lehane J found that removal of assets from the jurisdiction was "practically certain" but his Honour, nevertheless, refused the relief sought. In the present proceedings it was submitted by the first respondent that it was far from certain that, unless a Mareva order was made, there would be no assets in Australia to satisfy any judgment. In this respect the first respondent referred to the following circumstances:

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