Fletcher v Capstone Aluminium SDN BHD, in the matter of McLay Industries Pty Ltd

4 These payments were made in the relation-back period between 12 May 2012 and 12 November 2012. The bank statements and cashbook of McLay reveal that the payments were made to an entity called "Capstone". The liquidators assert that these payments were made either to the first respondent or the second respondent or alternatively that some of the payments were made to the first respondent and other payments were made to the second respondent. The applicants contend that to the extent payments were made to either respondent in the relation-back period according to the dates above, the payment constituted an unfair preference under s 588FA of the Act; an insolvent transaction under s 588FC of the Act; and a payment voidable pursuant to s 588FE of the Act. The applicants seek an order that the first respondent and/or the second respondent pay the second applicant the sum of $423,376.84 pursuant to s 588FF of the Act. 5 Relevantly for the purposes of this application, r 10.43(1)(b) of the Rules provides that service of an originating application on a person in a foreign country is effective for the purpose of a proceeding if the Court confirms the service under r 10.43(6). That rule provides that if an originating application has been served on a person in a foreign country without the leave of the Court, a party may apply to the Court for an order confirming the service. 6 Rule 10.43(1)(a), on the other hand, contemplates leave being obtained before the application is served. 7 As to r 10.43(1)(b), r 10.43(7) sets out the matters a party must satisfy for the purposes of r 10.43(6). Rule 10.43(7) is in these terms: For subrule (6), the party must satisfy the Court that: (a) paragraphs (4)(a) to (c) apply to the proceeding; and (b) the service was permitted by: (i) if a convention applies - the convention; or (ii) if the Hague Convention applies - the Hague Convention; or (iii) in any other case - the law of the foreign country; and (c) there is sufficient explanation for the failure to apply for leave. 8 Rule 10.43(7)(a) requires satisfaction of the matters identified at paras (a) to (c) of subrule (4). Those paragraphs are in these terms: (a) the Court has jurisdiction in the proceeding; and (b) the proceeding is of a kind mentioned in rule 10.42; and (c) the party has a prima facie case for all or any of the relief claimed in the proceeding. 9 As to para (a), I am satisfied having regard to the originating application filed on 11 November 2015 and the affidavits relied upon in support of the application that the Court has jurisdiction in the proceeding in respect of the claims brought in reliance upon s 588FA and s 588FC of the Act. 10 As to para (b), that paragraph requires that the proceeding is of a kind mentioned in r 10.42. Rule 10.42 provides that subject to r 10.43, an originating application may be served on a person in a foreign country in a proceeding that consists of, or includes, any one or more of the kinds of proceedings mentioned in the table set out in that rule. There are 24 classes of proceedings described in that rule. Item 1 is a proceeding "based on a cause of action arising in Australia". Item 12 is a proceeding "based on a contravention of an Act that is committed in Australia". 11 The applicants say that the present proceeding is of a kind mentioned in Item 1 because the payments made by McLay, the subject of the claim under s 588FF of the Act, were made by an Australian company with its office located in Brisbane; the payments were made from an Australian bank account; and the company is being wound up in Australia: see the bank statements and cashbook extracts at TLK-03 to the affidavit of Ms Knight sworn on 10 November 2015. They also say that the present proceeding is of a kind mentioned in Item 12 because the claim is one based upon a contravention of a Commonwealth Act, committed in Australia. As to the principles to be applied, see Perdaman Chemicals & Fertilisers v Griffin Coal Mining Company Pty Ltd [2011] FCA 1425 per Siopis J at [11] and Woodgate v Network Associates International BV [2007] NSWSC 1260 per Barrett J at [6] and [7]. I am satisfied that the proceeding is of a kind mentioned in r 10.42. 12 As to para (c), that paragraph requires the applicants to demonstrate that they have a prima facie case for all or any of the relief claimed in the proceeding. Thus, the material before the Court must demonstrate a prima facie case and in doing so the applicants must demonstrate probative facts going to the causes of action and, where relevant, demonstrate that inferences drawn from facts are open which, if translated into findings of fact, would support the claims made at trial. 13 The applicants say that the basis upon which they seek to make good a claim under s 588FF can be summarised in this way: (a) that both the Company and the respondents were parties to a "transaction"; (b) that, as a result of the transaction, the respondents received from the Company, in respect of an unsecured debt owed by the Company to the respondents, more than the respondents would have received from the Company in respect of the debt if the transaction were set aside and the respondents were to prove for the debt in the winding up of the Company; (c) that a particular situation with respect to the insolvency of the Company existed at the time of the transaction; and (d) that the transaction was entered into during the period of six months ending on the "relation-back day". 14 As to the unfair preference claim, the applicants say that it is not necessary to establish any subjective test or a mental element on the part of the company or the respondent in order to establish the existence of a preference. The task is to demonstrate, by probative evidence, on a prima facie basis, that a transaction falling within the statutory integers occurred within the relevant timeframe prior to the liquidation, when the company was insolvent. The applicants must also show that the transaction favoured a creditor in the sense that the creditor received an advantage over other unsecured creditors in the winding up (subject to any of the defences which might be put against the applicants). 15 As to s 588FA, Ms Knight identifies at para 6 of her affidavit sworn 10 November 2016 that the company and the respondents were parties to particular transactions. Ms Knight identifies the payments made by the company. Ms Knight asserts at para 9 that should either the first respondent and/or the second respondent lodge a proof of debt in the winding up of the company in an amount in the aggregate of $423,376.84, those respondents would "receive considerably less than the $423,376.84 paid to it [or either of them] in the relation back period". Ms Knight also says this at para 9: Indeed, I estimate that priority unsecured creditors would probably receive a dividend of about 67 cents in the dollar if the unfair preference payments were set aside and a dividend declared today. 16 As to whether the company was insolvent at the relevant time (having regard to s 588FC of the Act), Ms Knight, at para 5 of her affidavit sworn 10 November 2016, identifies 13 typical criteria to be considered in determining whether a company is insolvent. Ms Knight says that these 13 criteria represent the "main indicators of insolvency". Having identified the indicators, Ms Knight then applies them to the facts and circumstances relevant to McLay. Ms Knight is a registered liquidator employed by Bentleys Corporate Recovery Pty Ltd. The applicants rely upon these facts: (a) As at April 2012 - being prior to the relation back period and the first of the payments the subject of the proceedings: (i) current liabilities exceeded current assets by $160,847; (ii) the current ratio was less than 1, namely 0.98; (iii) trade creditors totalled $3,776,763; (iv) there were unpaid tax liabilities of $318,083; (b) By 12 November 2012, the position in respect of each of the above matters had worsened. Moreover, in that six month period from May 2012 to November 2012, the Company's: (i) balance sheet position deteriorated from $636.204 to [negative] $39,661; (ii) the overdraft account balance deteriorated from $1,757,521 to $1,250,510 overdrawn; (c) The Company had losses: (i) for the FY2011 of $2,301,738; (ii) for each month from March 2012 to November 2012, save for June 2012; (d) The Company had cash flow difficulties, evidenced by: (i) a current ratio below 1 for July and August 2011 and from April to November 2012; (ii) the maintenance of an account entitled "Held/Unsent Cheques"; (iii) from August 2011 to November 2012, debtors were less than creditors; (e) The Company's debts were not being paid in accordance with agreed trading terms as early as February 2012; (f) Tax lodgements were not being made, going back as far as 30 June 2008, and taxes were not being paid; (g) Cheques were being dishonoured. 17 Thus, the applicants say that having regard to all of these circumstances, the "commercial reality" was that as far back as at least 12 May 2012, the company was unable to pay its debts as and when they fell due for payment. The payments, the subject of the proceeding, were made in the relation-back period as earlier described. 18 I am satisfied that the applicants have demonstrated a prima facie case for the relief they seek in the proceeding. 19 Rule 10.43(7)(b) requires the applicants to show that service was permitted pursuant to a Convention, if a Convention applies; or service was permitted under the Hague Convention if that Convention applies; or, in any other case, the law of the foreign country. No relevant Civil Procedure Convention with Australia applies in relation to Malaysia or Singapore: para 5(a), affidavit of Mr Shane Bruce Roberts sworn 11 November 2016. Malaysia and Singapore are not parties to the Hague Convention: paras 4 and 6 of the affidavit of Mr Roberts. 20 Thus, the applicants rely upon service on each respondent in the foreign country according to the law of the foreign country. 21 As to the requirements of the law of the foreign country, the applicants rely upon the affidavit of Mr Roberts sworn 11 November 2016. Mr Roberts is a partner in the firm Holman Webb Lawyers, the solicitors for the applicants. Mr Roberts gives evidence of the relevant law of Malaysia on the basis of advice provided in writing by letters of advice dated 10 November 2016 and 11 November 2016 from Mr Dhinesh Bhaskaran and Ms Serena Azizuddin, lawyers with Shearn Delamore & Co in Kuala Lumpur, Malaysia. Mr Bhaskaran is a partner in that firm. Ms Azizuddin is an employed lawyer in that firm. Mr Roberts gives evidence of the relevant law of Singapore on the basis of advice provided in a letter of advice dated 11 November 2016 from Abraham Vergis and Asiyah Arif, lawyers practising in Singapore with a firm called Providence Law Asia LLC (described as a "Law Corporation"). 22 The evidence of Mr Roberts (based on the opinion letters as described earlier) as to the relevant law of Malaysia and Singapore is this. In both Malaysia and Singapore service of foreign proceedings is permitted pursuant to Order 65 of an instrument in each jurisdiction called the "Rules of Court" (otherwise described as the "Malaysian ROC" and the "Singapore ROC"). Order 65 in each case is in the same terms. 23 Order 65, r 2 of the Malaysian ROC "applies" in relation to service of any process required in connection with civil proceedings before a court or other tribunal of a foreign country where a letter of request from such a court or tribunal "requesting" service on a person in Malaysia (or in Singapore under Order 65, r 2 of the Singaporean ROC) of any such process sent with the letter is received by the Minister and is sent by him to the High Court "with an intimation that it is desirable that effect should be given to the request". 24 Order 65, r 2(2) to (5) address aspects of that process. 25 Order 65, r 2A is in these terms: 2A. Alternative mode of service of foreign legal process (O.65, r.2A) (1) Subject to rule 3, this rule applies in relation to the service of any process required in connection with civil proceedings pending before a Court or other tribunal of a foreign country where rule 2 does not apply or is not invoked. (2) The service of any such process within Malaysia may be effected by a method of service authorised by these Rules for the service of analogous process issued by the Court. (3) This rule shall apply notwithstanding that the foreign process is expressed to be or includes a command of the foreign sovereign. [emphasis added] 26 Order 65, r 3 applies where service of any process of a foreign court or tribunal is sought to be undertaken pursuant to a subsisting Civil Procedure Convention between the country of the court or tribunal in question and Malaysia (or Singapore for the purposes of the Singaporean ROC). No such Civil Procedure Convention subsists between Australia and Malaysia or between Australia and Singapore. Order 65, r 2A applies "where r 2 does not apply or is not invoked". As to the circumstances where r 2 does not apply, the Singapore Court of Appeal expressed the following observations in Fortune Hong Kong Trading Ltd v Costco Feoso (Singapore) Pte Ltd [2000] SGCA 24 per Yong Pung How CJ, LP Thean JA and Chao Hick Tin JA (with the judgment of the Court delivered by LP Thean JA: 15 In our opinion, the learned judge's construction of O 65 r 2, with respect, ignores the express provisions therein. Giving the rule its plain and ordinary meaning, we are firmly of the opinion that the rule applies only where a letter of request for service from a foreign court or tribunal is received by the Minister for Law and is subsequently sent by him to the Supreme Court with an intimation that it is desirable that effect should be given to the request. In cases where no such letter of request is received, r 2 simply has no application. A similar view to this effect is stated in the 1979 edition of The Supreme Court Practice on O 69 r 2 of the RSC then in force, which we have quoted earlier. It seems to us that O 65 r 2 is not intended to govern the service of all foreign processes in Singapore issued by the courts or tribunals of non-convention countries. The question we need to consider now is what the procedure there is, which has been provided for service of foreign process emanating from a court or tribunal of a non-convention country, in the absence of a letter of request from the court or tribunal. If no such procedure has been provided, does it follow that the foreign process cannot be served in Singapore as submitted by counsel for the respondents? We think not. … 31 In our judgment, the service of foreign process in Singapore need not invariably go through official channels. As we have held, it clearly could not have been intended that O 65 r 2 should be an exhaustive and all, encompassing provision governing the service of all foreign processes in Singapore. Order 65 r 2 applies only where a letter of request for service from a foreign court or tribunal is received by the Minister for Law and is subsequently sent by him to the Supreme Court with an intimation that it is desirable that effect should be given to the request. Where no such letter of request is received, r 2 has no application. Procedure in the absence of a letter of request 32 We now turn to consider what the proper procedure is for service in Singapore of a foreign process emanating from a court or tribunal of a non-convention country, where there is no letter of request from the court or tribunal, as in the present case. … … 35 In our judgment, in the case of service of the foreign process emanating from a court or tribunal of a non-convention country, where no letter of request is issued by such court or tribunal, the service should be effected by personal service on the defendant in accordance with O 10 r 1, read with O 62 and, in the case of a body corporate, read with the relevant provisions of the Companies Act (Cap 50). Although these rules by their express terms apply only to an originating process issued locally, we see no reason in principle why that mode of service prescribed for service of an originating process issued in Singapore cannot and should not be followed and adopted in the absence of any rule of procedure to the contrary. This mode of service fulfils, at least, the vital function of service of legal process. [emphasis in italics is the original emphasis; emphasis in bold added] 27 Thus, Order 65, r 2A "applies". Order 65, r 2A(2) provides that service of the foreign process may be effected by a method authorised by the Rules for service of "analogous process" issued by the court (that is, process of the Malaysian Court or the Singapore Court). Mr Roberts gives evidence based on the opinions expressed by the Malaysian lawyers and the Singaporean lawyers that an "originating application" filed in the Federal Court is analogous for the purposes of the Malaysian ROC and the Singaporean ROC with a "writ" or "originating summons". 28 Each respondent is an incorporated entity (a company). 29 Order 62, r 4 of the Malaysian ROC provides that where an action is against a corporation, the writ may be served, relevantly, by "leaving a copy of it at the registered office (if any) of the corporation". Thus, the originating application of the Federal Court of Australia may be served in the same way. 30 Order 10, r 1 of the Singaporean ROC provides that "[s]ubject to the provisions of any written law and these Rules, a writ must be served personally on each defendant". Order 10, r 5 provides that Order 10, r 1 also applies to an "originating summons". The Singaporean lawyers say that the Singaporean ROC is supplemented by s 387 of the Companies Act of Singapore (Revised Edition, 31 October 2006; Originating Enactment: Act 42 of 1967) which provides for service of a document on a company by "leaving it at or sending it by registered post to the registered office of the company". 31 Service was effected upon the first respondent on 24 October 2016. Ismail Bin Marajas, a clerk employed by Shearn Delamore & Co attended the registered address of the first respondent (as to which see para 4 of the affidavit of Mr Marajas affirmed on 31 October 2016 and handed to a man (who acknowledged that the premises were the registered office of the first respondent) the following documents: (i) Letter from Holman Webb Lawyers to the first respondent dated 21 October 2016; (ii) Originating Application filed by the liquidators in the Federal Court of Australia on 11 November 2015; (iii) The Genuine Steps Statement of the Applicants; (iv) Order of the Court made in these proceedings on 9 August 2016; (v) Letter from Shearn Delamore & Co to the first respondent dated 24 October 2016. 32 Mr Marajas says in his affidavit that the individual he engaged with accepted service of the documents on behalf of the first respondent (in the manner described at para 6 of his affidavit). 33 Service was effected upon the second respondent in the way described in the affidavits of Tan Sheng Min (Chen Shengmin) affirmed on 7 November 2016 and 10 November 2016. The deponent is a clerk employed by Providence Law Asia LLC. He says that on 24 October 2016 at 12.50pm he attended the registered office of the second respondent (as to which see para 4 of his affidavit affirmed on 7 November 2016) and handed a copy of the following documents to the Receptionist at the registered address: (i) Letter Holman Webb Lawyers to the second respondent dated 21 October 2016; (ii) Originating Application filed by the liquidators in the Federal Court of Australia on 11 November 2015; (iii) The Genuine Steps Statement of the Applicants; (iv) Order of the Court made in these proceedings on 9 August 2016; (v) Affidavit of Tracy Lee Knight in these proceedings sworn 10 November 2015. 34 Tan Sheng Min says that the individual to whom he handed the documents accepted service of them (in the manner described at para 5 of his affidavit of 7 November 2016). 35 Rule 10.43(7), for the purposes of r 10.43(6) requires the applicants to satisfy the Court that there is "a sufficient explanation for the failure to apply for leave". An explanation for the failure to apply for leave is set out in the affidavit of Mr Roberts filed 11 November 2016. The explanation given by Mr Roberts involves these considerations. First, limited documents of McLay were provided to the liquidators. Second, a public examination is being carried out. Third, the public examination process is ongoing and has taken longer than the advisers to the applicants anticipated due to the volume of documents produced in response to various summonses; the range of areas of examination identified by the liquidators; and the need to summon additional examinees. Fourth, Mr Roberts has been acting with some haste in working on the various examinations. Fifth, Mr Roberts was anxious to ensure service on each respondent before 11 November 2016. 36 I am satisfied that the factors identified by Mr Roberts in his affidavit demonstrate a sufficient explanation for the failure to apply for leave. I accept that it is correct to say that there is a residual discretion as to whether the Court ought exercise a discretion to confirm service. I am satisfied that there is no consideration which warrants refusing an order confirming service, for all of the reasons identified in these reasons for judgments. One further matter should be mentioned. The underlying payments made by McLay to the Singapore entity (the second respondent) may be payments made pursuant to a contract which engages the provisions of the Sale of Goods (Vienna Convention) Act 1986 (Qld) (the "Vienna Convention Act"). If so, the contract has been performed and the question that arises is whether the making of the payment to the Singapore entity engages a contravention of the Corporations Act 2001 (Cth) in the way earlier described in these reasons. I am satisfied that a prima facie case on that footing arises. I am also satisfied that should the underlying transaction engage the Vienna Convention Act, that Act has no impact upon the question of whether the making of the payment engages a contravention of the Corporations Act 2001 (Cth). No question arises of the application of the Vienna Convention Act in relation to the first respondent as Malaysia is not a signatory to the Convention. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.