Daewoo v Suncorp-Metway

COUNSEL : D J Hammerschlag (P) J Sheahan SC (D) SOLICITORS : Blake Dawson Waldron (P) Corrs Chambers Westgarth (D) CATCHWORDS : CORPORATIONS - companies - winding up - statutory demand - whether demand expressed in foreign currency falls within s 459E - whether failure to make demand in Australian currency is a defect within s 459J(1)(a) - whether failure to state address in New South Wales is such a defect - whether affidavit complies with s 459E without expressing deponent's belief in the truth of matters deposed to - whether facts provided 'some other reason' for setting demand aside under s 459J(1)(b) Corporations Law ss 109U, 459C, 459E, 459J, 467, 553, 588G LEGISLATION CITED : Corporations Regulation 1.0.03 and Form 509H Income Tax Assessment Act 1936 (Cth) s 218 Supreme Court Rules Part 80A Rule 15(1) and Form 154FA Alcatel Australia Ltd & Anor v PRB Holdings Pty Ltd (1998) 27 ACSR 708 Anscorp Pty Ltd v GRS Nominees Pty Ltd (Federal Court of Australia, Olney J, unreported, 11 March 1994) Australia and New Zealand Banking Group Ltd v Cawood [1987] 1 Qd R 131 Beta Trading Co Pty Ltd v Specialised Laminators (1997) 15 ACLC 270 Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (1989) 15 NSWLR 448 Case of Mixed Money; Gilbert v Brett (1604) Davie's (Ireland) 18; 2 State Trials 114; Co Litt 207a and b) Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682 Choice Investments Ltd v Jeromnimon and Midland Bank Ltd [1981] QB 149 Deputy Commissioner of Taxation v Conley (Federal Court of Australia, Full Court, 21 October 1998, unreported) Deputy Commissioner of Taxation v CYE International Pty Ltd (No 1) (1985) 10 ACLR 303 Ehrensperger v Anderson (1848) 3 Exch 148 GoldSpar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456 Help Desk Institute Pty Ltd v Adams (Supreme Court of New South Wales, Young J, unreported, 18 November 1998) Hoare Bros Pty Ltd v Deputy Commissioner of Taxation 135 ALR 677 International Factors (Singapore) Pty Ltd v Speedy Tyres Pty Ltd (1991) 5 ACSR 250 Jolley v Mainka (1933) 49 CLR 242 Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446 Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd 29 ACSR 11 Liu v Minister for Immigration and Multicultural Affairs (1997) 72 FCR 345 Maschinenfabrik Augsburg-Nurenburg Aktiengesellschaft v Altikar Pty Ltd [1984] 3 NSWLR 152 Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025 CASES CITED : MEC Import Sales Pty Ltd v Iozzelli (1998) 29 ACSR 229 Mercantile Credits Ltd v Foster Clarke (Aust) Ltd (1964) 112 CLR 169 Miliangos v George Frank (Textiles) Ltd [1976] AC 443 Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1,095 Re Ad-A-Cab Holdings Pty Ltd (1996) 14 ACLC 1,763 Re Ikin; ex parte Lambourghini Tractors of Australia Pty Ltd (1985) 4 FCR 582 Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 675 Re Rickett, ex parte Insecticide Activated Products Ltd v Official Receiver [1949] 1 All ER 737 Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007 Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 13 ACLC 1,256 Seymour v Serian (NSW CA, unreported, 15 November 1983) Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 Sturdy Components Pty Ltd v Burositzmobelfabrik Friedrich W Dauphin Gmbh & Co [1999] NSW SC 595 Swiss Bank Corporation v State of New South Wales (1993) 33 NSWLR 63 The Despina R [1979] AC 685 The Halcyon the Great [1975] 1 WLR 515 Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc (1997) 25 ACSR 709 Vishipco Line v Chase Manhattan Bank, 754 F.2d 452 (1985) Ward v Kidswin (1626) Latch 77 Watson v Lee (1979) 144 CLR 374 Woodhouse A C Israel Cocoa Ltd v Nigerian Produce Marketing Co Ltd [1972] AC 741 DECISION : Summons to set aside demand dismissed

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4548/99 - DAEWOO AUSTRALIA PTY LTD V SUNCORP-METWAY LTD

1 HIS HONOUR: The plaintiff is a wholly owned subsidiary of Daewoo Corporation of Korea. It carries on business in Sydney as a trading house which buys and sells motor vehicle parts, batteries and non-ferrous minerals, usually on behalf of or for other members of the Daewoo Group throughout the world. 2 On 29 March 1999 the plaintiff entered into a trade finance agreement as Borrower with the defendant as Bank (financier). By that agreement the defendant financed the acquisition of goods by the plaintiff from suppliers for the purpose of on-sale to its customers, issuing bank invoices to the plaintiff in US dollars when it did so. I shall return to the terms of the agreement later. 3 In August 1999 a number of the Korean based companies in the Group, including Daewoo Corporation, entered into an informal workout agreement with the Group's domestic creditors. A feature of the workout agreement is that under it all Daewoo Group companies have suspended payments of principal and interest to their financiers on an interim basis in order, according to the plaintiff's evidence, 'to preserve fairness amongst creditors across the Group and to allow a proposal to be put to those creditors generally'. 4 In accordance with that arrangement the plaintiff has ceased to make payments to its financiers including the defendant, pending the formulation of the workout proposal and extensive negotiations with foreign creditors. The Korean workout procedure is being supervised by committees of both foreign and Korean creditors. A meeting of creditors took place in Tokyo during October 1999, and on 29 October 1999 representatives of the plaintiff met with representatives of the defendant and its insurer to persuade them to wait for the workout proposal to emerge. The plaintiff's affidavit evidence of November 1999 was that a proposal should be available to be put to creditors, including the defendant, within a few months of that time. The plaintiff says that it is in the best interests of the creditors of the plaintiff generally, including the defendant, to have the opportunity of considering the workout proposal rather than to wind up any of the companies in the Group. 5 The defendant sought to adduce evidence about the meeting of 29 October 1999, but the plaintiff objected to some of that evidence (specifically, the affidavit of Mr Natsis, a director of the insurance broker who arranged the defendant's insurance) on the ground of 'without prejudice' privilege, and I reserved my ruling on admissibility. Having had the opportunity to consider the matter, I have decided to admit the affidavit evidence of Mr Natsis. The evidence as a whole does not indicate that there is a dispute as to whether the amount claimed in the statutory demand is due and payable. The plaintiff has sought to dissuade the defendant from taking winding up proceedings and the meeting was evidently called for that purpose, but it would be inaccurate to classify the meeting as 'an attempt to negotiate settlement of [a] dispute' within s 131(1) of the Evidence Act 1995 (NSW). Instead, its purpose appears to have been to give the plaintiff the opportunity to present its case for deferral to one of its creditors and that creditor's insurer. 6 The plaintiff says that it paid interest on the facilities in advance up to 24 January 2000. However the defendant alleges that the plaintiff failed to make other payments due under the agreement. On 15 October 1999 it served a demand on the plaintiff under s 459E of the Corporations Law, and it also instituted proceedings against Daewoo Corporation in the Supreme Court of Queensland upon a guarantee given by Daewoo Corporation for the plaintiff's obligations, entering default judgment in those proceedings in US dollars on 3 December 1999. 7 The statutory demand claimed an amount of USD10,968,768.27 in respect of three bank invoices payable in September 1999. It did not claim interest. The demand did not purport to convert the USD amount into Australian dollars. It gave a Queensland address for service of any application, although the plaintiff does not carry on business there. There being no judgment debt against the plaintiff for the amount claimed, the demand was supported by an affidavit under s 459E(3), but the affidavit was not precisely in the form prescribed by Pt 80A r 15(1)(d) of the Supreme Court Rules, in that it did not expressly assert that the deponent believed the matters set out in the affidavit to be true. 8 By its summons filed on 3 November 1999, the plaintiff has applied under s 459G for an order setting aside the defendant's demand. On 8 December 1999 I ordered that the proceedings be expedited. The defendant apprehended that the financial position of the Daewoo Group may be deteriorating rapidly, having regard to some press reports which were put into evidence, and its concern that Daewoo Corporation had suspended all payments to its subsidiaries including the plaintiff, leaving the plaintiff without any money to meet its obligations. Subsequently the proceedings came before me for expedited hearing in the Duty List on 14 December 1999. Since the plaintiff's contentions raised an important and difficult point of law, it was not possible for me to deliver judgment before the Court's term ended on 17 December 1999. 9 The plaintiff challenges the defendant's statutory demand and the supporting affidavit on four grounds, namely that:

(a) the demand is ineffective because, being a demand for payment in a foreign currency, either it does not relate to a debt and is therefore not a demand within the meaning of s 459E(1), or it is a defective demand (this being the important and difficult point);

(b) the affidavit does not comply with the Rules because it fails to follow the prescribed form and fails to state that the deponent believes that the matters deposed to are true;

(c) the demand is defective because it does not specify an address in New South Wales; and

(d) the demand should be set aside for 'other good reasons' (which I shall explain) under s 459J(1)(b).

The terms of the trade finance agreement 10 The plaintiff's first submission is that the statutory demand does not comply with s 459E because it demands payment of an amount expressed in a foreign currency. Before assessing this submission, I shall explain the relevant provisions of the trade finance agreement under which the obligation to pay a foreign currency is said to have arisen. 11 Under that agreement, the Borrower requests its suppliers to issue invoices to the Bank (clause 4.3), for a purchase price 'denominated in an Available Currency'. The effect of the definitions in the agreement is that an Available Currency is either Australian dollars or a Foreign Currency acceptable to the Bank which is freely transferable and freely convertible into US dollars. It was submitted that the definitions excluded US dollars, since they are not 'freely convertible into US dollars'. However, while on a literal construction something is not convertible into that which it is, the agreement is a commercial document and in my opinion, the drafter's intention was clearly to include US dollars as an Available Currency, given the widespread use of US dollars in international trade. Properly construed, the definitions adopt convertibility into US dollars as a criterion for qualification as a Foreign Currency under the agreement, because of the importance of US dollars in international trade, and thereby imply that US dollars themselves are a Foreign Currency and consequently an Available Currency for the purposes of the agreement. 12 The agreement provides for the Bank to pay the Borrower's suppliers by issuing documentary letters of credit. These are up to a facility limit calculated by reference to the current Australian dollar equivalent of the outstanding accommodation (clause 4.4) and are issued pursuant to drawdown notices given by the Borrower (clauses 4.5 and 4.6). Property in the goods passes to the Bank (clause 4.7). 13 Upon receiving a supplier's invoice, the Bank issues a bank invoice to the Borrower in respect of the goods which are the subject of the supplier's invoice (clause 5.1). The bank invoice is in an amount equal to 111.12 percent of the purchase price of the relevant goods, although the Bank agrees to accept payment of the amount of the supplier's invoice if the Borrower pays that amount before the payment date (clause 5.5). Clause 5.1 states that the bank invoice is denominated in the Relevant Available Currency. This is defined (relevantly) as the Available Currency in which the purchase price of the relevant goods is payable under the supplier's invoice. By clause 5.2 the Borrower agrees to purchase the goods referred to in the bank invoices from the Bank, by making payments to the Bank of the amounts payable under the bank invoices in the Relevant Available Currency on or before the payment dates specified in the bank invoices. The Borrower's obligation to make these payments is absolute and unconditional (clause 5.3). The Borrower must provide bills of exchange as security for its obligation to make these payments (clause 5.5). 14 The effect of the above provisions is that the supplier selects the currency in which payment is to be made, and if that is a foreign currency the Bank must issue its invoice in the selected currency unless it exercises its discretion (under the definition of 'Foreign Currency') not to accept the selected currency and consequently not to provide finance in respect of that transaction. Assuming the Bank's discretion is not exercised, the Borrower must pay the Bank in the currency selected by the supplier. However clause 10.3 gives the Bank another discretion, namely the discretion to accept payment from the Borrower in a currency other than the currency in which the Borrower is obliged to make payment. If the Bank does so, then the payment will not satisfy the amount due for payment except to the extent that 'the Bank could in the ordinary course of its business buy with the payment received the required currency within a reasonable time of receipt, after the deduction of all costs relating to the purchase'. 15 In the present case the supplier selected US dollars as the currency in which payment was to be made, and the defendant Bank did not exercise its discretion to reject that currency. In terms of the distinction recognised in Woodhouse A C Israel Cocoa Ltd v Nigerian Produce Marketing Co Ltd [1972] AC 741, US dollars was both the money of account and the money of payment, though another currency could be substituted as the money of payment (though not the money of account) if the Bank agreed to accept payment in that other currency. The bank invoices were issued for payment in US dollars and consequently the plaintiff as Borrower was obliged under the agreement to pay the amount of the bank invoices in US dollars. The plaintiff could have paid in Australian dollars or some other currency, but only if the defendant agreed to accept a different denomination of payment. In fact the plaintiff did not pay the amount of the bank invoices to which the demand refers, either in US dollars or Australian dollars or any other currency, before the demand was issued. 16 Clause 6 of the agreement stipulates, as a condition precedent to the Bank agreeing to issue documentary letters of credit or provide any other facilities, that the Borrower must insure its obligation to make payment of the bank invoices to the satisfaction of the Bank, and must pay all premiums. The plaintiff arranged for a credit insurance policy to be issued by HIH Casual and General Insurance Ltd in favour of the defendant Bank, and provided funds for the defendant to pay a premium due in April 1999. The terms of the policy permit claims to be made in the event of 'insolvency' or 'protracted default', which are defined terms. The case proceeded on the basis that 'insolvency' had not occurred, but would obviously occur if a winding up order were made. 'Protracted default' is defined to mean the non-payment of the insured debt for a period of four months commencing on the due date for payment under the applicable contract for the sale of goods. 17 Mr Natsis, whom I have mentioned, gave oral evidence that 'protracted default' would occur if the amount claimed by the defendant was not paid by a date in January or early February 2000. He said that at that stage the defendant may become entitled to receive payment under the policy, although he stated at the meeting on 29 October 1999 that the defendant's claim under the policy might be prejudiced if it did not continue with the present proceeding. He produced an insurance claim form signed on behalf of the defendant dated 3 December 1999.

The first submission: can a creditor's demand be expressed in foreign currency? 18 The requirements for a valid demand under Part 5.4 are set out in s 459E of the Corporations Law. Section 459E(2) states that the demand must specify the debt and its amount and must require the debtor company to pay the amount of the debt. The word 'debt' is not defined in the Corporations Law but according to the Macquarie Dictionary a 'debt' is 'that which is owed; that which one person is bound to pay or perform for another'. Therefore, in order for there to be a debt for the purposes of s 459E, there must be (relevantly) an obligation by one person to pay an amount to another person. In the present case, the source of the obligation is said to be the trade finance agreement upon which the creditor' s demand was based. 19 The plaintiff says that an obligation to make payment in US dollars is an obligation to deliver a commodity, and does not create a debt. Counsel for the plaintiff relies on some observations by Dixon J in Jolley v Mainka (1933) 49 CLR 242. In that case a mortgage of land in New Guinea obliged the mortgagor to make all payments 'in gold or in currency equivalent thereto at the market or exchange rate current at the time when every such payment is actually made'. At that time New Guinea was a mandated territory of Australia. The mortgagor made an interest payment in Australian pounds, which were less valuable than gold sovereigns. Commonwealth legislation stated that Australian pounds were legal tender throughout all territories under the control of the Commonwealth. The mortgagee contended unsuccessfully that Australian notes had never been made legal tender in New Guinea, and then argued that even if they were found to be legal tender, nevertheless the mortgage required payment of sufficient Australian pounds to have a value equivalent to the amount of interest expressed in gold sovereigns. Dixon J held (at 259) that, since Australian notes and gold sovereigns were both legal tender in New Guinea, a money debt incurred there could in point of law be discharged by payment in gold sovereigns or in Australian notes of the same face denomination. He contrasted the case before him with a case where 'the obligation undertaken was to pay or deliver foreign money or coins in use as money, not being lawful money of the Kingdom'. In such a case, he said (at 260), no debt was created: 'an action for their recovery lay, but it was necessary to bring it in the detinet and not in the debt and detinet; that is, it was in the nature of detinue and not of debt proper.'

I shall refer to the view that a foreign currency obligation must be treated as an obligation to deliver a commodity as 'the commodity theory of foreign obligations'. 20 In my opinion it would be wrong to regard Dixon J's observations as authority for the view that the commodity theory of foreign currency obligations applies generally and without qualification as part of modern Australian law. His Honour's remarks about foreign currency were obiter, since he mentioned the position with respect to foreign currency simply to contrast it with the case before him, which (like the famous Case of Mixed Money; Gilbert v Brett (1604) Davie's (Ireland) 18; 2 State Trials 114; Co Litt 207a and b) involved selection between two forms of legal tender. Even at the time when Dixon J's judgment was delivered, there were cases which for certain purposes treated an obligation to pay foreign currency as a money obligation. Cases such as this were analysed in the first edition of Dr Mann's impressive treatise, The Legal Aspect of Money , which was published in 1938. 21 The process of recognising foreign currency obligations as money obligations for certain purposes has accelerated since the time of Dixon J's judgment, no doubt partly because of the vastly changed economic circumstances created by the floating of sterling and the Australian dollar within recent decades, and the burgeoning of international trade denominated in foreign currencies. Thus, for example, it has been held that the words 'currency, coinage and legal tender' in s 51 (xii) of the Constitution include foreign money: Watson v Lee (1979) 144 CLR 374, 396 per Stephens J. It appears that foreign money is to be regarded as money for the purposes of an action for money had and received: Ehrensperger v Anderson (1848) 3 Exch 148; F. A Mann, The Legal Aspect of Money (5th ed, 1992), p 191-192. The word 'sell' as generally used in English and Australian law of sale of goods includes selling for a price in foreign currency: The Halcyon the Great [1975] 1 WLR 515, 519 per Brandon J; Mann, at 197. A creditor to whom a sum of French francs is due has a 'debt' and is accordingly entitled under English law to vote at a creditors' meeting in bankruptcy proceedings: Re Rickett, ex parte Insecticide Activated Products Ltd v Official Receiver [1949] 1 All ER 737. A claim in foreign currency is capable of being a liquidated amount: Seymour v Serian (NSW CA, unreported, 15 November 1983). A bank keeping a dollar account for a judgment debtor is 'indebted' to him so as to permit a garnishee order to be made: Choice Investments Ltd v Jeromnimon and Midland Bank Ltd [1981] QB 149; Deputy Commissioner of Taxation v Conley (Federal Court of Australia, Full Court, 21 October 1998, unreported). 22 The commodity theory of foreign currency obligations, to which Dixon J subscribed, has received some support in other Courts. Thus, the US Court of Appeals, 2nd Circuit, in Vishipco Line v Chase Manhattan Bank , 754 F.2d 452 (1985), at 458 made the broad statement that in an action 'brought to recover sums expressed in foreign money the obligation - whether characterised as an unpaid debt or a breach of contract - is treated as a promise to deliver a commodity'. (I note that this observation may not reflect US law generally, as Dr Mann refers to the decision as 'unsupportable' (at 195).) 23 In Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007, the English House of Lords held that an English court could only give judgment in sterling, even if the money of account and the money of payment were both a foreign currency, and that the appropriate date for conversion of the foreign currency into sterling was the date of breach (in the normal case, this would be the due date for payment of the foreign currency) rather than the date of judgment or the date of payment. Viscount Simonds based his decision squarely on the commodity theory of foreign currency obligations. He said (at 1043) that actions for damages and to recover a foreign debt could not be distinguished, and that 'an action to recover a foreign debt was upon a sound analysis nothing else than an action for recovery of damages for breach of a contract to deliver foreign currency...'. He quoted with approval the observation by Jones J in Ward v Kidswin (1626) Latch 77, that an action to recover payment of Hamburg money was 'properly brought in detinet alone for Hamburg money which is of no value and as if the action were brought for a piece of plate'. 24 However, the other speeches in that case did not support the commodity theory of foreign obligations. Lord Reid laid emphasis on procedural considerations rather than the theoretical idea that foreign currency must be regarded as a commodity (at 1052). Lord Radcliffe expressly disagreed with the commodity theory (at 1059), and Lord Denning's reasoning was more concerned with procedural limitations than with theory (at 1069,1071). 25 Their Lordships' decision was therefore not a ringing endorsement of the commodity theory of foreign currency obligations, although all of their Lordships agreed that an English court could not give judgment for payment of an amount in a foreign currency, and that a debt expressed in a foreign currency must be converted into sterling at the exchange rate applicable when the debt was payable. This produced the inconvenient result that the creditor would be forced to accept the sterling exchange rate applicable at that date if he sued in England, but if he sued in the jurisdiction of the currency, the sterling value of his claim would be measured at the date of payment. 26 In Miliangos v George Frank (Textiles) Ltd [1976] AC 443 the House of Lords took the unusual step of reversing its earlier decision in the Havana Railways case. The majority held that English law does not require a contractual foreign currency obligation to be converted into sterling for the purpose of commencing proceedings or entering judgment. A foreign currency creditor is entitled to seek judgment in terms of the foreign currency, and conversion into sterling takes place only at the point of payment (or more precisely, the date when the court authorises enforcement of the judgment) and at the exchange rate prevailing at that time. 27 These principles have subsequently been held to apply where the claim is for damages for breach of contract or tort, or for recovery by way of restitution, and it seems that the principles now apply to an action in an English court whether the contract is governed by English law or foreign law: see Mann, at 352, and the cases there cited, including in particular The Despina R [1979] AC 685. The Miliangos case has been applied in Australia, notwithstanding Jolley v Mainka , subject to the overriding proposition that the duty of the court is to express its judgment in the currency which best expresses the loss of the party who has sued: Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (1989) 15 NSWLR 448; Maschinenfabrik Augsburg-Nurenburg Aktiengesellschaft v Altikar Pty Ltd [1984] 3 NSWLR 152; Australia and New Zealand Banking Group Ltd v Cawood [1987] 1 Qd R 131; Swiss Bank Corporation v State of New South Wales (1993) 33 NSWLR 63; see generally G A Weaver and C R Craigie, The Law Relating to Banker and Customer in Australia (1990, looseleaf) paragraphs [3.840] to [3.1030]. 28 For present purposes, an important question is whether the Miliangos case holds or implies that a contractual obligation to make payment in a foreign currency is a 'debt' for any statutory or other purpose. This question was touched upon in Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc (1997) 25 ACSR 709. In that case the debtor's contractual obligation was to pay in US dollars and a statutory demand was served on the debtor for a US dollar amount. The debtor sought to set aside the statutory demand on several grounds, one of which was that it was defective because the demand was made in US dollars, but evidently the debtor did not deny that a debt was owed by it to the creditor in US dollars. It was therefore unnecessary for Finkelstein J to reach a firm decision on 'the nature of a cause of action for recovery of foreign currency in the light of modern international commerce' (at 714). In the present case the plaintiff has submitted that its obligation to make payment in a foreign currency is not properly described as a 'debt' for the purposes of s 459E, and not merely that the use of US dollars renders the statutory demand 'defective'. Consequently, the issue which did not need to be determined by Finkelstein J has been laid squarely before me for decision. 29 Finkelstein J referred to Jolley v Mainka as authority for the proposition that an obligation to pay an amount in a foreign currency does not create a debt (at 713). He expressed the view (contrary to the view of Dr Mann) that the majority in the Miliangos case had not decided that an action to recover a judgment in a foreign denomination is an action in debt (at 714). In Finkelstein J's opinion, all that was decided, and all that needed to be decided, was that the court had a procedure available under which orders could be made for payment of foreign currency claims in the foreign currency. He said that a finding that a procedure exists for entering judgment in a foreign sum does not convert the claim from a claim for damages for breach of contract into a claim for debt. 30 I agree with Finkelstein J that the House of Lords in Miliangos decided that in certain cases an English court is entitled to give judgment for payment of an amount of foreign currency. But their Lordships went further. They departed from the 'breach-date rule' which had been asserted in the Havana Railways case, opting instead for the rule that conversion should be at the date when the Court authorises enforcement of the judgment, and they approved a form of claim in which the plaintiff seeks judgment in the foreign currency or the sterling equivalent as at that date (at 467-8 per Lord Wilberforce). Their Lordships' decision on those matters is consistent with the view that a claim for payment of foreign currency is strictly a claim for damages for failure to deliver the currency, but only if one accepts that damages in such a case are to be measured differently from the damages which were available under the law of that time in any other case of breach of contract, and that an order for payment of the very thing promised to be paid is properly regarded as an order for the payment of damages. Lord Wilberforce's emphasis on procedural questions, following to that extent the approach of Lord Reid in the Havana Railways case ([1961] AC at 1051-1052), implies that his Lordship (like Lord Radcliffe in the Havana Railways case, [1961] AC at 1059) did not believe that the solution to the problem before him would emerge from any theoretical classification of foreign currency as a commodity. His Lordship made it clear ([1976] AC at 468) that he was directing his attention to foreign money obligations rather than damages for breach of contract. 31 Putting all these things together, in my opinion the Miliangos decision has destroyed any theoretical basis for contending that a claim for failure to pay foreign currency is a claim for damages rather than debt. Subsequently the English Court of Appeal in the Choice Investments Ltd case (cited above) treated the Miliangos decision as authority for the proposition that the amount of foreign currency for which judgment could be given is a debt, for the purposes of a garnishee order . I therefore respectfully disagree with Finkelstein J on this point. 32 It may be an overstatement to proclaim that after Miliangos the commodity theory of foreign currency obligations is dead: cf R M Goode, Commercial Law (1982), 938. But Miliangos confirms the trend established by earlier cases, to the effect that the commodity theory cannot be regarded as universally applicable to solve the problems of characterisation of foreign currency obligations. In my opinion the correct modern principle is stated by Dr Mann (at 197): 'The legal nature of the transaction is always to be tested by the question: does the currency function as money, that is to say, as a medium of exchange, or is it the object of commercial intercourse?' 33 Where the foreign currency functions as money, an English or Australian court is likely to regard the legal character of the obligation as being inherently identical with an obligation to pay a sum of domestic money. But if the foreign money is the object of commercial intercourse, as in a typical foreign exchange contract and certain currency futures contracts, it is likely to be treated as a commodity. This approach comes closest to reconciling the case law, while producing sensible commercial results. Applied to the present case, it means that the plaintiff's obligation to pay the bank invoices under the trade finance agreement in US dollars is properly described as a 'debt'. 34 As Dr Mann remarks (at 196), 'in the last resort [correct categorisation] rests on the intention of the parties and is, therefore, a matter of construction'. Where, as in the present case, the Court' s task is to decide whether statutory words encompass foreign currency obligations, the intention is Parliament's intention and the instrument to be construed is the statute. In construing the statute one must bear in mind that Parliament is more likely to have intended a construction which has a sensible practical operation than one which does not. Thus, the Full Federal Court in Deputy Commissioner of Taxation v Conley (cited above) held that a deposit in a foreign currency account is not 'money' which is due to or may become due to the taxpayer for the purposes of s 218 (1) of the Income Tax Assessment Act 1936, largely because the contrary view would create practical difficulties. This section requires the recipient of a notice from the Commissioner to pay so much of the money which the recipient owes the taxpayer as is sufficient to pay the amount due by the taxpayer to the Commissioner, and also creates a charge for that amount as well as a penalty for non-compliance. The Court drew attention to the difficulties which the recipient of the notice would experience in working out the correct exchange rate, especially in a case where money was not immediately due to the taxpayer but may become due. 35 In the case of a statutory demand relating to a contractual obligation to make payment in foreign currency, it seems to me that practical considerations point to permitting the demand to be expressed in foreign currency. Ex hypothesi, the debtor has agreed to make payment in the foreign currency, and can be taken to understand what he has to do. In such a case there is no lack of clarity in the foreign currency demand. Conversely, if it is necessary for the demand to be expressed in Australian currency there is a quandary. The demand could be made solely in Australian currency converted as at the date of the demand, as was done in MEC Import Sales Pty Ltd v Iozzelli (1998) 29 ACSR 229, but the contract may not entitle the creditor to insist upon conversion to Australian dollars at that date. The demand could be made in foreign currency and also in the Australian dollar equivalent calculated as at the date of the demand, as was done in Sturdy Components Pty Ltd v Burositzmobelfabrik Friedrich W Dauphin Gmbh & Co [1999] NSW SC 595. However if this was done, although the creditor may be entitled contractually to waive the benefit of any later favourable movement in the exchange rate, he may not be entitled under the contract to insist on the Australian dollar amount of the demand if the Australian dollar has depreciated against the foreign currency after the date of the demand. These problems would be avoided if a statutory demand based on a contractual obligation to make payment in foreign currency could be expressed solely in the foreign currency concerned. 36 The question before me arises in the context of the insolvency provisions of Part 5 of the Corporations Law. A decision that the word 'debt' in s 459E does not extend to a foreign currency obligation would suggest that the same word is similarly limited in other provisions of Part 5 - for example, ss 588G (insolvent trading) and 553 (debts provable in winding up). While not attempting to resolve questions of interpretation of those other provisions, I note the implausibility and inconvenience of excluding foreign currency obligations from their scope. 37 However, there may be an obstacle to the view that a demand expressed in foreign currency may qualify as a statutory demand under s 459E, even if one accepts that the obligation is properly characterised as a 'debt' for the purposes of that section. Section 459E(2)(e) requires that the demand must be in the prescribed form. Regulation 1.0.03 of the Corporations Regulations prescribes Form 509H for this purpose. The form provides for the creditor to state that the debtor company owes it 'the amount of $(insert amount)'. Does this have the effect of requiring that the demand must be expressed in Australian dollars? 38 An analogous problem arose in Re Ikin; ex parte Lambourghini Tractors of Australia Pty Ltd (1985) 4 FCR 582, though the case concerned a bankruptcy notice rather than a statutory demand. The Court set aside a bankruptcy notice which simply required payment in a foreign currency. The bankruptcy legislation required that a bankruptcy notice be in accordance with the prescribed form, and the prescribed form had a space for the insertion of an amount after the dollar sign. It was held that the dollar sign was a reference to Australian currency, and consequently that the statute required the bankruptcy notice to state an amount in Australian dollars. The Court rejected a contention that the bankruptcy notice substantially complied with the prescribed form and was therefore sufficient, having regard to a 'substantial compliance' rule which was said to be applicable. It did so for two reasons. First, when the Bankruptcy Act was passed Parliament could not have contemplated that the law with respect to foreign currency judgments, then represented by the Havana Railways case and similar Australian authorities, would be reversed by the House of Lords in the Miliangos case. Since the amount to be stated in the bankruptcy notice was the amount of a judgment, Parliament must therefore have intended that the amount be stated in Australian dollars. Secondly, in the Court's view the debtor could not be assumed to know that he could comply with the notice by paying the Australian dollar equivalent at the time of payment, and consequently the notice failed clearly to state what the debtor was required to do in order to avoid committing an act of bankruptcy. 39 In my view Re Ikin is distinguishable from the present case. Section 459E of the Corporations Law was enacted after the Miliangos case was decided, and after that case had been applied by Australian courts. Parliament must be taken to have been aware of the possibility that a foreign currency judgment may be entered in an Australian court. Furthermore, in my view a debtor presented with a statutory demand for payment of a foreign currency amount in circumstances such as the present, where the demand relates to an agreement which entitles the creditor to be paid in foreign currency, would have no doubt that in order to comply with the demand, it must pay the amount of foreign currency or seek the creditor's acceptance of an equivalent amount in another currency, calculated using the exchange rate applicable at the time of payment. 40 In the Vehicle Wash case, Finkelstein J followed Re Ikin and held that Form 509H assumes that the debt will be specified in Australian currency. He distinguished the earlier statutory notice case of International Factors (Singapore) Pty Ltd v Speedy Tyres Pty Ltd (1991) 5 ACSR 250 on the ground that under the Companies Code in force at the time of that case, there was no prescribed form and the text of the Code did not expressly or impliedly require that the amount of the debt be stated in Australian currency. It followed, in the view of Finkelstein J, that there was a deficiency in the statutory demand. But under s 459J(1)(a) and (2), a statutory demand may not be set aside because of a defect unless the Court is satisfied that substantial injustice will be caused. He held that no such injustice would arise because there was no obligation upon the debtor to convert the foreign currency into Australian dollars before payment, and therefore no lack of clarity as to the amount to be paid. 41 I agree with Finkelstein J's reasoning on the question whether substantial injustice would arise through expressing the demand in foreign currency, and I regard it as directly applicable to the present case. Indeed, it is likely that the same conclusion would be reached whenever the debtor has agreed to make payment in a foreign currency. But it seems to me unfortunate to be forced by the wording of the prescribed form to conclude that the most practically sensible expression of the demand, namely a demand in the foreign currency, is necessarily defective. I note that according to s 109U of the Corporations Law, strict compliance with a prescribed form is not required and substantial compliance is sufficient. If one accepts that a contractual obligation to make payment in a foreign currency is a 'debt' the purposes of s 459E, it is plausible to say that the prescribed form has been substantially complied with by a demand expressed in the foreign currency (compare Liu v Minister for Immigration and Multicultural Affairs (1997) 72 FCR 345; Anscorp Pty Ltd v GRS Nominees Pty Ltd (Federal Court of Australia, Olney J, unreported, 11 March 1994); Help Desk Institute Pty Ltd v Adams (Supreme Court of New South Wales, Young J, unreported, 18 November 1998). 42 On that basis, I conclude that the demand in the present case is a statutory demand for the purposes of s 459E because it is a demand for the amount of a debt, and it is not defective because it substantially complies with the prescribed form. But even if it were defective because it is a demand for payment of foreign currency, no substantial injustice would be caused if it were not set aside. Consequently the plaintiff's challenges to the statutory demand on grounds relating to the fact that it requires payment in a foreign currency are unsuccessful.

Scope of s 459J 43 The plaintiff's second, third and fourth submissions each invite the Court to set aside the statutory demand under s 459J. The section is in the following terms: '(1) On an application under section 459 G, the Court may by order set aside the demand if it is satisfied that: (a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or (b) there is some other reason why the demand should be set aside. (2) Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.' 44 Prior to the decision of the Full Federal Court in Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452, there were inconsistent lines of decision as to the correct interpretation of s 459J. One line of cases, represented by Hill J's decision in Kalamunda Meat Wholesalers Pty Ltd v Reg Russell & Sons Pty Ltd (1994) 51 FCR 446, was to the effect that a defect in the demand could be dealt with only under subparagraph (a), and therefore a defect in the demand would not justify an order setting the demand aside, unless substantial injustice would otherwise be caused by the defect. But the demand could be set aside if there was some other reason to do so, under subparagraph (b), such as a significant defect in the affidavit supporting the demand. The other line of cases, thought to be typified by Lockhart J's decision in Topfelt Pty Ltd v State Bank of New South Wales Ltd (1993) 47 FCR 226 and the decision of Senior Master Mahoney in Scandon Pty Ltd v Dome Supplies Pty Ltd (1995) 13 ACLC 1,256, was to the effect that a defective demand might be set aside under subparagraph (a) because substantial injustice would be caused if the order were not made, or under subparagraph (b) because, regardless of whether substantial injustice would be caused, the defect in its surrounding circumstances provided some other reason for doing so. 45 In Spencer Constructions the Court held that a defect 'in the demand' is only to be set aside if a substantial injustice would otherwise be caused; but if there is any other defect, including a defect in relation to the demand rather than in the demand itself, the demand may be set aside only if the Court is satisfied that there is some reason for doing so going beyond the mere defect itself. The Court disagreed with the Scandon decision, to the extent that it suggested that a defect in a demand could be set aside under subparagraph (b) when the defect is not productive of substantial injustice. As to the Topfelt case, the Court said that Lockhart J had based his decision not on a defect in the demand, but on the proposition that the debtor was unable to comply with the notice without making inquiries, because the interest due to the creditor had not been calculated in the demand. This provided a reason under subparagraph (b), other than a defect in the demand, for setting the demand aside. 46 I regard the Spencer Constructions case as resolving the issue of construction to which I have referred. 47 The scope of subparagraph (b) has been explored in other cases. For example, in Hoare Bros Pty Ltd v Deputy Commissioner of Taxation 135 ALR 677, the Full Federal Court took the view that subparagraph (b) gave the Court a discretion, in a case which did not involve a defect in the demand, to set aside the demand if some appropriate reason was shown. That discretion could be exercised in favour of the debtor without showing that substantial injustice would otherwise be caused. The Court referred to the explanatory memorandum for the Corporate Law Reform Bill 1992, which introduced the new provisions concerning statutory demands, noting that at paragraph 687 the explanatory memorandum indicated that subparagraph (b) would enable the Court to take into account matters such as improper or invalid service and mistakes or misstatements in the statutory demand, in circumstances where this would significantly prejudice any party. The Court noted another example which had been given by the Australian Law Reform Commission, namely where a creditor unreasonably refuses the company's offer to meet the debt. The Court held that the mere fact that the debtor, a taxpayer, had lodged an objection to a tax assessment did not require the Court to exercise its discretion to set aside the Commissioner's demand for the unpaid tax under subparagraph (b). 48 In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 14 ACLC 1,095, Bryson J held that defects in the affidavit supporting the demand were sufficiently serious to justify setting the demand aside under subparagraph (b), since the requirement of verification by affidavit and the responsibilities attaching to the officer swearing it meant that the affidavit was more than just another form to be filled in. I considered and applied this case in Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11. 49 In Chippendale Printing Co Pty Ltd v Deputy Commissioner of Taxation (1995) 15 ACSR 682, Lindgren J observed that solvency alone is not a sufficient 'other reason' for setting aside the demand, having regard to the history of the statutory demand provisions. This is because, amongst other things, the Corporations Law evinces an intention that the issue of solvency is to be the subject of a final determination in the winding up proceedings, whereas the statutory demand procedure is of a preliminary and adjectival nature. This reasoning was accepted and applied by Santow J in Alcatel Australia Ltd & Anor v PRB Holdings Pty Ltd (1998) 27 ACSR 708. 50 I shall consider the plaintiff's second, third and fourth submissions in light of these principles.

The second submission: compliance with the prescribed form of affidavit 51 Part 80A Rule 15 (1) of the Supreme Court Rules sets out the requirements for the affidavit which must be supplied under s 459E(3) in a case where the demand relates to a debt other than a judgment debt. Subparagraph (d) of the Rule says that the affidavit must 'state that the deponent believes those matters [namely, the matters stated in the affidavit concerning the debt] to be true'. The wording of the prescribed form (Form 154FB) is: 'I believe that the amount of $ , being the debt specified in the statutory demand served on the defendant, is due and payable by the defendant to the plaintiff.' 52 In the present case, paragraph 3 of the affidavit sets out the facts relating to the debt. The first sentence of paragraph 3 asserts that the plaintiff was at the date of the affidavit, 'and I so verify', indebted to the creditor in the sum of USD 10,969,768.27. It will be noted that the wording of the affidavit does not precisely correspond with the wording of the form, and there is no express statement using the words of Rule 15(1). However, in my opinion the affidavit's formal departures from Rule 15(1) and the prescribed form are light years away from providing a reason for setting aside the statutory demand under s 459E(1)(b). In substance, by saying that she 'verifies' the first sentence of paragraph 3 of the affidavit, and even by asserting paragraph 3 in affidavit form, the deponent makes it clear that she believes the truth of paragraph 3, although she does not expressly say so in so many words. This is why I rejected an identical submission in GoldSpar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456, 459.

The third submission: demand's failure to specify a NSW address 53 Paragraph 6 of the statutory demand specifies, as the address of the creditor for service of copies of any application and affidavit, the address of Corrs Chambers Westgarth, Lawyers in Brisbane. The plaintiff says that this is a substantial defect in the demand. There is evidence that the plaintiff has no business address or operations in Queensland, and that substantial legal and administrative costs would have to be incurred if it were necessary to bring an application to set aside the demand in Queensland. 54 The plaintiff's counsel relies on the Scandon case, and Beta Trading Co Pty Ltd v Specialised Laminators (1997) 15 ACLC 270. These two cases were based on the incorrect proposition that a defect in a demand (including failure to give an address for service in the State) could be treated as 'some other reason' for setting the demand aside under s 459E(1)(b), even if there was no substantial injustice involved. As I have indicated, the Full Federal Court disagreed with this proposition in the Spencer Constructions case. In Re Ad-A-Cab Holdings Pty Ltd (1996) 14 ACLC 1,763, the correct general principles were applied and the Court held, on the facts of the case, that failure to specify an address in the State did not cause substantial injustice and therefore was not a basis for setting aside the demand. 55 In the present case there is the clearest basis for concluding that no substantial injustice would arise from the failure to specify an address in New South Wales. The proceedings have been brought in New South Wales and the plaintiff appeared before me at the hearing with New South Wales counsel and solicitors. I therefore reject the contention that a failure to specify an address in New South Wales in the demand justifies the setting aside of the demand.

The fourth submission: some 'other reason' to set aside the demand 56 The plaintiff says that there are other good reasons why the statutory demand should be set aside, falling within s 459E(1)(b). Essentially, the plaintiff submits that there is no justification for the statutory demand because the defendant is fully protected. The plaintiff says it has paid interest in advance up to January 2000, and has provided funds for payment of the insurance premium, and that the defendant has credit insurance which fully covers it for the remaining risk. Under the terms of the insurance policy, a claim would be available if the failure to pay the amount owing becomes a 'protracted default', and this would occur late in January 2000. While it is true that a claim would become available earlier if 'insolvency' were to occur, the plaintiff says there is no good reason for the defendant to move to the insolvency of the plaintiff, since a claim will become available soon enough in any case. The plaintiff submits that it is in the best interests of creditors generally that no further steps be taken towards its winding up, so that the workout proposal can be developed and placed before all creditors including the defendant. 57 In reply, the defendant points out that non-compliance with a statutory demand only produces a rebuttable presumption of insolvency (s459C(2)(a) and (3)) and does not compel a winding up order. On the hearing of any subsequent proceedings for winding up, the Court may decline to order that the company be wound up, even if it is insolvent: s467(1); Mercantile Credits Ltd v Foster Clarke (Aust) Ltd (1964) 112 CLR 169; Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 675. In particular, the Court may have regard to the wishes of other creditors, and for the purpose of ascertaining their wishes it may direct a meeting or meetings of creditors: s547 ; Deputy Commissioner of Taxation v CYE International Pty Ltd (No 1) (1985) 10 ACLR 303. That being so, the contention that an immediate winding up is not in the interests of creditors is not a reason relevant to the purposes for which the power to set aside the demand has been conferred, in the defendant's submission. The defendant argues that matters going to the question whether a winding up order should be made are not generally relevant to the question whether the statutory demand should be set aside. Reliance is placed on the Chippendale Printing and Alcatel cases, as well as Master Paving Pty Ltd v Heading Contractors Pty Ltd (1997) 15 ACLC 1025. 58 I generally agree with the defendant's submissions, although I would not go so far as to say that matters such as the plaintiff relied on can never be relevant to the exercise of the Court's discretion under s459J(1)(b). In my view, nothing submitted by the plaintiff provides any good reason for depriving the defendant of the benefit of the statutory presumption of insolvency. The plaintiff's submissions may persuade the Court to defer the hearing of winding up proceedings, if such proceedings are commenced, as in the Presha Engineering case, but they do not justify an order setting aside the statutory demand. 59 Moreover, on the evidence presented to me at the hearing I would not regard the plaintiff's case for deferral as a strong one, even if the question was whether to make a winding up order. The evidence about the workout arrangements is very general and imprecise. No proposal had come forward at the time of the hearing, and it was unclear how long it would take to develop one. It is accordingly far from clear that it is in the best interests of creditors to defer seeking the plaintiff's winding up, especially if there is a prospect that the passage of time may put preferential payments beyond the reach of creditors (as the defendant's evidence suggests). Although it may be that the defendant's risk of non-payment is covered by insurance, the above issues will be just as much a concern to the insurer if it meets an insurance claim, as they are to the defendant at the present time, since the insurer will then be subrogated to the defendant's rights against the plaintiff. 60 I conclude that no sufficient 'other reason' has been established for me to set aside the statutory demand under s 459J(1)(b).

Conclusions 61 The plaintiff has failed on all grounds, and consequently the summons should be dismissed. I shall hear the parties on costs, though I see no reason why costs should not follow the event. * * * * * * * * *

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