DURO FELGUERA AUSTRALIA PTY LTD -v- SAMSUNG C&T CORPORATION [2017] WASC 348 (4 December 2017)

3 On 10 February 2017 new SCT gave Duro notice of its intention to make a call for the whole amount of the Advance Payment Bond. It has not yet made demand upon AIG to pay to it the amount of the bond.

4 Duro says that new SCT should be restrained from making its proposed call on the bond for the following reasons. A demand by new SCT for payment of the bond would be conduct in the course of carrying on business in Australia. New SCT is a foreign company and is not registered as a foreign company under ch 5B.2 div 2 of the Corporations Act. Demanding payment of the bond would contravene Corporations Act s 601CD which prohibits a foreign company from carrying on business unless it is registered under ch 5B.2 div 2 of the Corporations Act or has applied to be so registered. Corporations Act s 1324(1) provides that where a person is proposing to engage in conduct that would constitute a contravention of the Act the court may on the application of a person whose interests would be affected by the conduct, grant an injunction restraining the person from engaging in the conduct. Section 1324(4) provides that where in the opinion of the court it is desirable to do so, the court may grant an interim injunction pending determination of an application under s 1324(1). The court should grant an interim injunction restraining the defendant, new SCT, from making demand for payment of the bond until the defendant has applied to become registered pursuant to ch 5B.2 div 2 of the Corporations Act.

5 I find that it is not desirable and is not just or convenient to grant the interim injunction sought by Duro. Duro's application for an interim injunction will be dismissed for the following reasons. First, Duro has not shown a sufficient likelihood that it will succeed in its claim that the registration of old SCT does not apply to new SCT and hence new SCT is not a registered foreign company. Secondly, even if Duro had established a prima facie case that new SCT is not a registered foreign corporation, the balance of convenience is against granting the interim injunction and it is not desirable and it is not just and convenient to grant the interim injunction sought by Duro.

Principles relevant to grant of interim injunction

6 The court has power under Supreme Court Act 1935 (WA) s 25 to grant an injunction in all cases in which it shall appear to the court to be just or convenient that such an order should be made. In Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57 at [65] Gummow and Hayne JJ said that the relevant principles for applications for interlocutory injunctions are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618 where the plurality said that the court addresses itself to two main inquiries:

The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted (622 623).

Their Honours explained that the phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. Further how strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the order the plaintiff seeks.

7 The Advance Payment Bond was provided by Duro to Samsung C&T Corporation pursuant to its contractual obligations under the Interim Subcontract between Duro and Samsung C&T Corporation. The Interim Subcontract incorporates cl 5.2 of the General Conditions of the Subcontract. One of the purposes of cl 5.2 of the General Conditions is to allocate risk between the parties such that Duro and not Samsung C&T Corporation shall be out of pocket pending the resolution of the dispute between them. A contractual provision which allocates risk pending final determination of the dispute alters the context in which the court must exercise its discretion to grant an interlocutory injunction by raising the prospect of substantial injustice if the purpose of the provision is defeated. That is, the status quo in such circumstances becomes what the parties had agreed to as to which of them should bear the financial risk pending final determination, not the continuation of where that risk would naturally fall in the absence of a performance bond to call upon: Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 [31] (Osborn & Ferguson JJA).

8 The context in which an injunction is sought will govern the extent to which a plaintiff must make out its case in order to obtain relief. If the commercial purpose of a contractual provision will be defeated by the grant of an injunction, that must bear on the ultimate risk of injustice inherent in the grant of an injunction. When the above underlying principles are applied to the facts of the present case they support the conclusion that the court should not exercise its discretion to grant an injunction unless Duro establishes a strong case, and not merely an arguable case, that by demanding payment of the amount of the bond the defendant would contravene Corporations Act s 601CD.

9 There is divergent authority as to whether the usual equitable considerations that apply to the grant of interlocutory injunctions apply to the grant of an interim injunction under Corporations Act s 1324(4). There are authorities which apply Corporations Act S 1324(4) by using well accepted equitable principles and other authorities which say that the court's jurisdiction under s 1324(4) is not confined by those equitable principles. In ASIC v Triton Underwriting Insurance Agency [2003] NSWSC 1145; (2004) 48 ACSR 249, Barrett J observed:

... the statutory nature of the section 1324(4) jurisdiction and the words of the legislation ('Where in the opinion of the Court it is desirable to do so'), mean the Court is not constrained by the traditional methods of equity. But there can be no doubt that those methods represent a sound basis for undertaking a preliminary assessment which would then be reviewed against the statutory role ASIC plays and the wider question of what is 'desirable' in the statutory context [24].

10 In my opinion, the preferable approach is one in which traditional equitable principles do not circumscribe the court's consideration of an application for an interim injunction under Corporations Act s 1324(4) but the court will examine carefully whether the plaintiff has showed a sufficient likelihood of success to justify in the circumstances the restraint sought, and where the balance of convenience lies, and will not grant the injunction where it would not have done so if it were exercising its traditional equity jurisdiction unless there are matters relating to the statutory obligation sought to be enforced or the public interest which require the grant of the injunction. In this case, the plaintiff is a private litigant. There is no public interest involved other than the public interest in the law being enforced. The principles to be applied on this application for an interim injunction are those identified by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill.

11 Duro says that old SCT was registered as a foreign company in Australia but old SCT has been dissolved and no longer exists and new SCT is carrying on business in Australia but is not registered as a foreign company. The defendant says in effect that the legal personality of old SCT continues in new SCT and new SCT is therefore registered as a foreign company.

12 Determination of whether new SCT is a continuation of the legal personality of old SCT is a matter which goes to the status of the foreign corporation and is therefore governed by the law of the place of its incorporation. Whether it appears to be substantially the same legal person is not to be determined by reference to Australian law principles.

13 Under Korean law new SCT is the 'universal successor' of old SCT. In Eurosteel Ltd v Stinnes AG [2000] 1 All ER (Comm) 964, Longmore J observed that the concept of universal succession is not a term of art of English domestic law but is a concept which is firmly entrenched in continental systems of law and in Scotland (966). Similarly, universal succession is not a concept of Australian law but is, on the evidence, a feature of Korean law. The concept was referred to by Parker LJ in Metliss v National Bank of Greece & Athens SA [1957] 2 QB 33 (CA) at 51:

Under this conception a new person or entity continues the personality of another. All the rights and liabilities of the former are automatically transferred to and invested in the latter. The new person or entity succeeds 'per universitatem' and not by a series of particular acts to each item of property.

The whole point of universal succession is that the successor is treated as the same person as the person to whom he succeeds (969).

14 The process by which a merged entity succeeds to the rights, assets and liabilities of its predecessors does not necessarily entail that there is a continuity of legal personality between the old and new entities. It is necessary to examine the evidence to determine whether the process of succession under Korean law entails that there is a continuity of legal personality between the old and new entities.

15 In Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2015] WASC 484 at [83] I determined that the effect of merger on the rights and obligations of the premerger companies is provided for by articles 235 and 530 of the Korean Commercial Act. However, the issue now before the court is not as to succession to rights and liabilities but as to whether the corporate personalities of both companies continue in the merged entity.

16 Sae Youn Kim, a Korean lawyer and former judge, has given an expert opinion on certain extracts of Korean legal authority on the status and legal personality of the constituent entities which merge into the continuing entity. Ms Kim reviewed portions of extracts from authorative treatises on the Korean Commercial Act that refer to the status and legal personality of the constituent entities which merge into the continuing entity in the case of merger under the Korean Commercial Act and confirms that they represent an authorative view of Korean law regarding that issue. I find Ms Kim's evidence to be somewhat confusing. The essence appears to be that the personality of the premerger corporation transmigrates to and is inherited by the merged corporation. As best as I can reconcile the three extracts referred to by Ms Kim and the concepts employed, the effect of the relevant provisions of the Korean Commercial Act is that the legal personality of the premerger companies continues in the merged company.

17 Applying Korean law, in accordance with the evidence of Ms Kim, the legal personality of old SCT continues in new SCT. For the purposes of the registration provisions of pt 5B.2 div 2 of the Corporations Act the legal personality of the registered foreign company continues in new SCT and new SCT should be treated as a registered foreign company. Duro has not adduced any evidence concerning Korean law. It is arguable that on one view of Ms Kim's evidence the legal personality of old SCT does not continue in new SCT. However, that is not a strong argument. On the evidence presently before the court Duro has not shown a sufficient likelihood of success to justify in the circumstances restraining the defendant from making demand for payment of the amount under the bond.

18 In any event, the balance of convenience is against the grant of the interim injunction sought. First, Duro has led no evidence of any prejudice to it if the injunction is not granted. Duro does not dispute the defendant's contractual entitlement to call upon the bond. Neither the Interim Subcontract nor the Advance Payment Bond is void or unenforceable by reason of the noncompliance by the defendant with Corporations Act s 601CD, if such noncompliance is established: Maronis Holdings v Nippon Credit Australia Ltd (1990) ACSR 139 at 141 142. The defendant's rights under the contract and the bond are not unenforceable because of illegality. There is no issue as to the validity or enforceability of the bond or the contract between Duro and the defendant.

19 In oral submissions, counsel for Duro referred to the damage that will be done to Duro's reputation if the defendant makes demand for payment under the bond. Duro has adduced no evidence of such damage to reputation and in the absence of evidence the court will not infer reputational damage.

20 Duro says that the defendant will suffer no prejudice by the grant of the interim injunction because the defendant can apply for registration. I do not accept that. There is at least a risk that if the defendant applies for registration as a foreign company that may give rise to arguments that the defendant has a different legal personality than old SCT with potentially adverse consequences for the defendant.

21 There is a further reason why I decline to grant the injunction. Duro procured and provided to the defendant the Advance Payment Bond issued by AIG on 16 December 2016. That is the bond which Duro now seeks to restrain the defendant from enforcing notwithstanding that since 3 December 2015 Duro has known all of the facts on which it now relies to claim that the defendant should be restrained from enforcing the bond because it is carrying on business in Australia without being registered. It is not just or convenient and it is not desirable that a person can say at one time that a transaction is valid and thereby obtain some advantage to which it could only be entitled on the footing that it is valid and then turn around and say that the other party should be restrained from enforcing it for the purpose of securing some other advantage. It is not just or convenient and it not desirable that Duro can in December 2016 gain some advantage, or avoid some detriment, or the risk of some detriment, by providing the bond to the defendant and then seek to restrain the defendant from enforcing the bond when it suits Duro's interest to do so.