Graphite Energy Pty Limited v Lloyd Energy Systems Pty Limited

extempore Judgment 1The parties to these proceedings are the plaintiff, Wollongong Coal Limited (WCL), and the defendant, PCL (Shipping) Pte Limited (PCL). WCL was formerly called Gujarat NRE Coking Coal Limited. 2 By interlocutory process filed on 5 November 2014 WCL seeks discovery under UCPR rule 21.2(a), all of the following classes of documents described in par 1 of its interlocutory process: 1.The defendant is to give discovery to the plaintiff in respect of the following categories of documents: a)All correspondence between any employee, officer or agent of PCL (Shipping) Pte Ltd (PLC) and any employee, officer or agent of Saigal Sea Trade Ltd of JV House, 2nd Floor, D.S Babrekar Marg, Dadar (W), Mumbai India (Saigal) referring to: i.PCL's requirement that a fixture note be given by WCL; ii.The preparation of the Fixture Note; iii.The Fixture Note itself iv.The meeting in Singapore on 22 May 2013 between Mr Gerald Teo of PCL and Mr Niraj Rattan of Saigal; v.Any arrangements made for the execution of other fixture notes. b)Any correspondence between any employee, officer or agent of PCL and any of: i.Any employee, officer or agent of WCL; ii.Any employee, officer or agent of Gujarat NRE Coke Ltd or iii.Arun Jagatramka which concerns iv.Mr Jagatramka's travel to Singapore in May 2013; v.The execution of the Fixture Note. c)Any other Fixture Notes between: i.PCL and WCL; or ii.PCL and Gujarat NRE Coke Ltd d)Correspondence between Mr Gerald Teo Tse Sian of PCL and Mr Niraj Rattan of Siagal, or other people, concerning the circumstances in which Mr Teo came to be in possession of Mr Rattan's passport. 3The application is made in proceedings commenced by WCL by originating process filed on 6 May 2014. In the originating process WCL seeks orders under s 459G of the Corporations Act 2001 (Cth) setting aside a creditors statutory demand on the grounds contained in s 459H and 459J. 4 For the reasons that I set out below, I regard this as being an exceptional case in which I will make an order for discovery of documents, albeit one that is limited and does not include all of the categories sought by WCL in its interlocutory process. 5I should say at this stage that ordinarily the Court will not in the exercise of its discretion make an order for discovery within proceedings to set aside a creditors statutory demand. 6The present case is exceptional for reasons that I will elaborate below, which relate to the extent to which the parties have in fact litigated within these proceedings the issue of whether the debt claimed by PCL is in fact payable by WCL. 7The creditors statutory demand on which PCL relies is dated 14 April 2014, and makes a claim for (USD)3,293,681.48. The claim is in respect of moneys owing for freight, demurrage and additional port costs in relation to the use of PCL's vessel "Illawarra Fortune" by WCL on a voyage charter between 29 May 2013 and 9 October 2013, together with various interest claims. 8The debt is said to have arisen out of a charterparty agreement dated 7 August 2012. For present purposes it is sufficient to note that in the charter party the agreement is expressed to be between PCL and "Gujarat NRE Coke Limited, Kolkata or their guaranteed nominee. (Intention is Gujarat NRE Coking Coal Limited, Australia)" I will call this agreement the "charterparty". 9Gujarat NRE Coke Limited is a company incorporated in India. I will call it "Gujarat". The effect of the part of the charterparty to which I have referred is that it was between PCL, or its nominee. The charter party contains a statement to the effect that the intended nominee was WCL 10There is evidence that, until June 2013, Gujarat was the largest shareholder in WCL. WCL and a related company own coal mines in the Wollongong area. The debt the subject of the creditors statutory demand arises out of the carriage of a cargo of coal partly from Port Kembla, and partly from Gladstone, to a port in India by PCL's vessel "Illawarra Fortune". 11The issue between the parties is whether the debt is owed to PCL by WCL as claimed by PCL, or by Gujarat. For the purposes of this application it does not seem that the amount of the debt is challenged. 12WCL filed three affidavits in support of its originating process. The first is by Mr Sanjay Sharma sworn on 5 May 2014. Mr Sharma is the company secretary and CFO of WCL. The second affidavit is by Mr Morris Anghie sworn 5 May 2014. Mr Anghie is a non-executive director of WCL. The third affidavit is another affidavit by Mr Sharma sworn on 7 May 2014. In those three affidavits WCL propounded its reasons and evidence for saying that there was a genuine dispute as to whether WCL was indebted to PCL in the manner claimed in the creditors statutory demand. 13It is only necessary to indicate the basis of WCL's argument in outline. It is said that Gujarat was a majority shareholder in WCL up to 2013. Mr Arun Jagatranka was the executive chairman and a director of WCL until late October 2013. A company called Jindal Steel and Power (Mauritius) Limited became WCL's largest shareholder in November 2013. Effectively Mr Sharma said that, to his knowledge, WCL had never entered into a contract of charter with any shipping company, including PCL. In all cases where WCL shipped coal to purchasers before late October 2013 Gujarat effected the charter. It had been the practice between Gujarat and WCL, essentially for reasons of convenience concerning payments of obligations out of Australia compared with India, for WCL to pay share companies on behalf of Gujarat. He said that, as at May 2014, Gujarat owed WCL some $58,000,000, a large part of which related to shipping charges. 14As at May 2013, WCL was a defendant to proceedings 2013/319088 in this Court. The original plaintiff was RUS Mining Services Pty Limited. I will call those proceedings the "RUS proceedings". 15Subsequently, a company called UIL (Singapore) Pty Limited became the plaintiff in the RUS proceedings. PCL was a non-party supporting creditor in the RUS proceedings. PCL filed an affidavit of Mr Scott Andrew Bartlett dated 25 May 2014. One of the annexures to the affidavit of Mr Bartlett was the charterparty. Mr Sharma gaveevidence that the first time he saw the charterparty was when he read the affidavit. Mr Sharma said that WCL does not own any mine which exports coal from the port of Gladstone. I have omitted much of the detail in the initial three affidavits filed for WCL. 16The thrust of the evidence was that WCL's local executives were not aware of the charterparty until it was received as an annexure to Mr Bartlett's affidavit, and that, for the reasons that I have outlined, it was contrary to the practice as to how Gujarat and WCL did business for WCL itself to become a party to a charterparty with direct liability to shipowners. 17An affidavit in support of the relief sought in the interlocutory process was sworn by Mr Bede Hanes on 6 November 2014. Mr Hanes is a solicitor employed by the solicitors for WCL. 18Mr Hanes said that, after service of the creditors statutory demand, but before commencement of these proceedings, by letter dated 24 April 2014, PCL's solicitors delivered to WCL's solicitors a number of documents, including a document which has been called a "fixture note". 19The fixture note is dated 20 May 2013. It starts by providing as follows: It is hereby mutually agreed between owners [PCL] and charterers [WCL] that owners will carry for charterers a quantity of coal from ports in Australia to ports in India. 20On the face of the fixture note it appears to be an agreement between PCL and WCL, and is capable of being a document prepared and entered into as contemplated by the charterparty, whereby Gujarat would cause WCL to be the charterer as its nominee, in relation to that agreement. 21It is not necessary to set out the terms of the fixture note, although it has to be noted that in the space provided for the fixture note to be signed by PCL there is no signature. However, a stamp described as a chop of PCL appears at the bottom left of the execution page of the fixture note. The fixture note was signed on behalf of WCL by Mr Jagatranka as executive chairman. 22As Mr Hanes deposes that in the RUS proceedings RUS sought orders that WCL be wound up. On 20 June 2014 PCL brought an application to be substituted as plaintiff in the RUS proceedings. In that application PCL asserted that it was a creditor for the debt that is subject to the statutory demand that is challenged in these proceedings. 23The affidavit of Mr Bartlett sworn 25 February 2014, to which I have referred above was relied upon in the RUS proceedings by PCL. 24As I have noted, it was by means of that affidavit that WCL claims to have become aware of the existence of the charterparty. The affidavit did not refer to the fixture note. 25Mr Bartlett swore a second affidavit on 21 July 2014. The fixture note was an annexure to that affidavit. In par 11 of the affidavit Mr Bartlett stated: By this fixture note [WCL] was identified as the 'nominee' of Gujarat an Indian company that was formerly a majority shareholder in WCL in accordance with the charterparty. 26On 25 July 2014 PCL filed and served an amended interlocutory process in respect of its substitution application. The amended interlocutory process relied expressly on the fixture note as a basis of PCL's claim that WCL was indebted to it. 27On 29 July 2014 WCL issued a notice to produce to PCL. I will not relate the description of the document sought. It is sufficient to note that documents were sought by WCL going to the creation of the fixture note, and were intended to assist WCL in determining the authenticity of the fixture note. 28The response of PCL was that it did not have any knowledge concerning any of the documents sought in the notice to produce. 29On the hearing of the substantive application before Brereton J on 5 September 2014, his Honour allowed WCL's objection to par 11 of Mr Bartlett's second affidavit, on the basis that it was a conclusion and that the document referred to would speak for itself. The objection was also upheld on the basis that the authenticity of the document had not been established. 30It appears that a consequence of the rejection of the tender of the fixture note was that PCL discontinued its application for substitution in the RUS proceeding, which was accordingly dismissed. 31Following the dismissal of the RUS proceeding, PCL commenced the present proceedings. The effect of the present proceeding is that PCL seeks to rely upon the statutory demand served by it, and also on the fixture note that was not admitted into evidence in the RUS proceedings. 32In these proceedings PCL has filed evidence from a number of persons being officers of PCL, or the shipping company that arranged the charter party. It is sufficient to note that those affidavits are by Lim Hong Yew made on 14 October 2014, Gerald Teo affirmed on 14 October 2014, Ken Chen Ywei Kang made on 14 October 2014, and a Mr Rattan made on 29 October 2014. Those affidavits in a relatively detailed way deal with the manner in which the fixture note was prepared by the witnesses, executed by Mr Jagatranka on behalf of WCL, and also executed on behalf of PCL. 33Mr Kang said that on 28 May 2013 he met with Mr Jagatranka in PCL's office in Singapore, and that he saw Mr Jagatranka sign the fixture note on that day. On the following day, 29 May 2013, he applied PCL's chop to the fixture note. Among other things, Mr Teo said that he signed the fixture note on 31 July 2014. That is in the present year rather than in May 2013. 34The position has therefore been reached where WCL and PCL have both served their evidence in chief in relation to the originating process which seeks an order setting aside the creditors statutory demand. 35The effect of the decision of Brereton J in Graphite Energy Pty Limited v Lloyd Energy Systems Pty Limited [2014] NSWSC 1326 at [16] is that, at this stage of the proceedings, exceptional circumstances need not be shown before a party can obtain an order for discovery, and that Practice Note SC Eq No 11 does not have a contrary effect. 36The Court was directed to authorities which have considered the issue of whether a discovery order, or the like, should be made in proceedings to set aside creditors statutory demands. 37In Techel Computer Services Pty Limited v Clarke (unreported, Federal Court of Australia, Tamberlin J, 24, 26 July 1996), Tamberlin J found that subpoenas may be issued in proceedings to set aside creditors statutory demands. 38 In Robowash Pty Limited v Robowash Finance Pty Limited [2001] WASC 119, Sanderson M considered the issue of whether an order for discovery should be made in proceedings to set aside a creditors statutory demand. The Master said at [17]; "...if Finance is able to establish that it does not have all the necessary documents, that further relevant documents exist and it cannot fully assess Robowash's claim without access to those documents then it will establish that there is a bona fide dispute as to the debt. In other words by establishing circumstances that justify an order for discovery Finance would have established enough to show a bona fide dispute. No order for discovery is necessary for Finance to achieve its aim. 39What the Master is effectively here saying is that, if the issue is whether the plaintiff has a bona fide dispute as to the existence of the relevant debt, the likelihood is that, if it can be shown that the defendant has documents which are likely to exist and which are rejected not on the grounds that it is not appropriate but on the grounds that it is not necessary. 40 In the subsequent case of Thorlock International Limited v Keenfern Pty Limited [2002] WASC 131, Bredmeyer M was also concerned with an application for discovery in a proceeding in which an order was brought to set aside a creditors statutory demand. 41The Master referred to the decision in Robowash, but at [9] said that while he agreed with what Sanderson M had to say, the case before him was distinguishable. The reason given for the distinction was that discovery was not sought by the party seeking to establish a genuine dispute, but it was sought by the creditor seeking to refute offsetting claims raised by the debtor. 42Counsel for PCL submitted that the Court should not make an order for discovery brought in the proceedings because the Court in accordance with its usual practice will not permit cross-examination of the witnesses called by PCL in any event. 43Counsel referred to the decision of Black J in Montag Group Pty Limited v Wong [2011] NSWSC 726. His Honour's judgment contains a consideration of the relevant authorities which establish that it is not the practice of the Court to permit cross-examination in applications to set aside creditors statutory demand. Be that as it may, the submission is not sufficient by itself to justify the rejection of WCL's application. If there were otherwise good grounds for discovery to be ordered, then the question of what should happen as a result of documents being produced should be dealt with at a later and more appropriate time. The purpose of the present application is to assist WCL to test the authenticity and date of creation of the fixture note. 44There are at least some unusual features of the circumstances in which the fixture note came to light. On the evidence the local executives of WCL were not aware of the fixture note until it was provided by PCL's solicitors after service of the creditors statutory demand. The fixture note was proffered in the RUS proceedings through a witness, Mr Bartlett, who had no knowledge of is provenance. The fixture note was not included in the records of WCL. The fixture note that was originally provided was not signed on behalf of PCL although it did have that company's chop at the bottom of the signature page. Mr Teo signed the document on 31 July 2014. 45Of course it may well be that the way that the fixture note came to light is entirely innocent, and that the circumstances have no bearing at all on its authenticity or validity. 46WCL has alleged that Mr Jagatranka embarked upon the course of arranging the affairs of Gujarat and WCL so that debts in reality owed by Gujarat were made to appear to be the debts of WCL. 47However, as Mr Jagatranka was the executive chairman of WCL until late 2013 it may well be that he was able to create a valid contract between WCL and PCL by means of the fixture note, even if that was contrary to his actual authority from WCL. 48In essence the issue in this case concerns the resolution of that question. There is the evidence at this point that tends to show that, if this debt is owed by WCL to PCL, it arose by reason of Mr Jagatranka actions which may have been contrary to his authority, and which were unknown to WCL's local executive, until PCL sought to enforce the debt against WCL. 49PCL's response to the arguments of WCL is to submit that there is no genuine dispute as to the existence of the debt. 50It was stated by their counsel that WCL has simply grasped opportunistically at the circumstances in which the fixture note was introduced into the RUS proceedings, and that in effect there is no reason to doubt its authenticity. 51It was said that the affidavits by PCL in October of this year have established the authenticity of the fixture note and the date it was delivered by WCL in the person of Mr Jagatranka to PCL. 52It is necessary to bear in mind that I am not being asked to consider the application to set aside the creditors statutory demand. If I were then it would be important to have regard to the words of Barrett J (as his Honour then was) in Solarite v York [2002] NSWSC 411. At [23] his Honour said: "...the task faced by a company challenging a statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon a hearing of its s 457G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted..." 53The Court has been referred to aspects of the detailed evidence available to PCL to establish that WCL is liable on the debt claimed. 54For the purposes of this application, it is only necessary to refer to that evidence in summary. On 21 August 2013, two invoices were sent by PCL to WCL for the entirety of the freight payable in relation to the relevant voyage. One was for the coal loaded at Port Kembla and the other for the coal loaded at Gladstone. 55Oon 29 August 2013, a letter was apparently written by WCL to PCL and signed by Mr Jagatranka. It said that WCL irrevocably agreed to pay 100 per cent of the freight for the voyage of the "Illawarra Fortune". 56On 12 September 2013 another letter was written on behalf of WCL to PCL, which again irrevocably confirmed that WCL had the obligation to pay the debt. 57On 7 October 2013, however, Gujarat wrote a letter to PCL in which in the first paragraph it irrevocably and unconditionally guaranteed PCL in relation to the "due observance and performance by Gujarat NRE Coal Limited Kolkata of its any and all obligations under the relevant Voyage Charter." The heading of the letter appears to refer to the carriage of coal by the "Illawarra Fortune". The fourth paragraph of the letter states: "Further, we guarantee that latest by 18 October 2013 we will remit $(US)1,000,000 and thereafter $(US)1,000,000 every week until the outstanding break and demurrage is fully settled and in any case no later than 15 November 2013 whichever occurs earlier." 58The evidence shows that on about 12 September 2013, (USD)1,000,000 was paid by WCL to PCL in response to an invoice sent by PCL to WCL, and the credit is noted on a freight invoice dated 17 October 2013. 59Thereafter there are a number of email reminders sent by PCL to many people, including Mr Sharma at WCL, requiring payment of the outstanding moneys. It appears from the evidence that the email was also sent to representatives of Gujarat. 60There is also a chain of emails that was relied upon heavily by counsel for PCL. The emails were produced on 7 and 8 October 2013. The first email was sent by Mr Sharma to Mr Anghie. It is evident from that email that there was concern with the unwillingness of PCL to discharge the coal in India unless it received payment. The email referred to demurrage being incurred of $21,000 per day, and the fact that the shipper had agreed to discharge the load on the provision of the attached letter of guarantee by WCL. 61The overall effect of the chain of emails is that it appears that Mr Sanjay Sharma, Mr Anghie and Mr Jasbir Singh, who as I understand it became the cheif executive of WCL, agreed to the signing by WCL of a letter of guarantee. 62That letter of guarantee dated 7 October 2013 was in apparently identical terms to the letter of the same date written by Gujarat to which I have already referred. 63The point is that it may be a result of the evidence to which I have referred that, whether or not WCL originally was liable for the debt, on or about 7 October 2013 it did become liable, but as guarantor for that debt. 64Mr Sharma in his evidence in these proceedings provided a number of explanations for the various documents that go to the question of WCL's liability for the debt. As I understand it, he has not yet provided an explanation for the chain of emails to which I have referred. 65When one reflects upon this evidence, it looks very much like the evidence that the Court would expect to see if the issue before the Court was whether or not WCL was liable for the debt of PCL. In these proceedings WCL initially proffered explanations as to why it genuinely challenged the existence of the debt. PCL responded by providing the evidence in the October affidavit in order to support the authenticity of the fixture note, and to respond to the circumstances in which the fixture note first came to light. WCL then sought discovery of the documents in the categories listed in the interlocutory process, in order to test the explanation given by PCL's witnesses. 66There is a strong argument in this case that, in accordance with the usual practice, the Court should not make an order for discovery as sought by WCL. That is not because WCL has no good reason for wanting to challenge the possible authenticity of the fixture note. In this case there is evidence that would ordinarily justify discovery being made, if these were proceedings for the enforcement of the debt. 67The questions concerning the authenticity of the fixture note, plus all of the other evidence that has been served by the parties, makes for a good argument that in this case there is a genuine dispute as to the existence of the debt. I am attracted by the conclusions reached Sanderson M in Robowash that is extracted above. 68However, exceptionally in this case, I have formed the view that the considerations contained in ss 56 to 58 of the Civil Procedure Act 2004 (NSW) justify the making of an order for discovery. 69However, these reasons for judgment should not be treated as authority in favour of generally making orders for discovery in applications to set aside creditors statutory demands. On the contrary orders for discovery should not usually be made, essentially for the reasons given by Sanderson M, if the circumstances are such that the question of whether the debt is due and payable depends upon the availability of documents in the hands of the defendant, which the plaintiff does not have. 70It may take little additional evidence for the plaintiff to be able to establish that there is a genuine dispute, given the words of Barrett J in Solarite v York that I have set out above. 71What then is special about this case? It is my view that the parties have brought themselves to the position, where in the context of an application to set aside a creditors statutory demand, they have put before the Court all of the evidence necessary to prosecute proceedings to establish the existence of the debt. 72Counsel for WCL supported its claim for discovery essentially on the basis that, if there are documents produced within the categories sought, they may finally cast light on the authenticity or otherwise of the fixture note. 73It must be remembered that this is a case where if WCL is liable, it is liable because of acts done by its then executive chairman, which were not known, it is said, by the legal executives of the company. 74There may or may not be documents produced under the order for discovery. One way or another the consequence of discovery will likely assist WCL to make an objective judgment about whether it has a proper basis for defending PCL's claim. 75If, at this stage of the proceedings, in the particular circumstances of this case, the Court declined to make the order, then there is at least a significant chance that WCL will succeed in establishing that there is a genuine dispute about the existence of the debt. I do not foreclose on that issue and do not express any view about it. However, it can at least be said that upon the existing evidence it appears that the position adopted by WCL is genuine. 76Whether the debt is ultimately genuinely in dispute may be another matter. If, without having the benefit of discovery at this stage, WCL succeeded in its application to set aside the creditors statutory demand, the parties would then be consigned to new proceedings to prove the existence of the debt. 77At some stage in those proceedings the discovery that is now sought would be granted. 78In my judgment, as the application for discovery has been made at this time, it is appropriate that I make orders broadly as sought by WCL. 79So far as the terms of the order are concerned, counsel for PCL submitted that it was not appropriate to make orders in terms of par 1(a)(v). I agree. The only justification for making any discovery order at this stage is to bring to light, if it be possible, objective facts and circumstances relevant to the execution of the fixture note in question to assist WCL to know whether the evidence given by PCL must be accepted, and, as category (v) concerns any arrangements made for the execution of other fixtures notes, it is not appropriate that discovery of that nature be ordered. 80Counsel for PCL also objected to category (v), which concerns correspondence related to the circumstances in which Mr Teo came into possession of Mr Ratan's passport. I agree with the submission that that category should be excluded as Mr Ratan has now given an affidavit himself that deals with the issue. 81Paragraph 2 of the orders gives PCL 14 days to give the discovery. There is no opposition to PCL's request for that 14 days to be changed to 28 days, and I will amend the order accordingly. 82I will make orders in terms of par 1 of the interlocutory process, having deleted sub-pars (a)(v) and (d). I will make order 2 after varying 14 days to 28 days. 83As I understand it, there is no opposition to order 3 if I were, as I am, to make an order for discovery. 84In relation to the issue of costs, WCL submits that costs should follow the event and it should get the costs of the interlocutory process. The submission made on behalf of PCL is that it should not be ordered to pay costs because I have made it clear in this judgment that I have only made the order for discovery for exceptional reasons, it being normally inappropriate that discovery be given in applications to set aside a statutory demand. 85What has happened is that, for reasons arising out of ss 56 to 58 of the Civil Procedure Act, because the parties have gone to the extreme of putting on evidence going to the heart of the question of whether the debt is actually payable, I have concluded that it was in the interests of both parties that I order that discovery be made. 86In part that was because, as I understand the submissions, PCL did not assert that discovery would be onerous or oppressive in any way. 87On the one hand, obliging PCL to give discovery will, so to speak, give WCL a last shot at seeing all of the information that is available on the issue of the authenticity of the fixture note. On the other hand, somewhat perversely, I take the view that it is in the interests of PCL to give the discovery. If the discovery is not given, the likelihood that the creditors statutory demand will be set aside on the basis of the existence of a genuine dispute will be increased. 88I regard this application as being integral to the proceedings commenced by the originating process to set aside the creditors statutory demand. 89There is a case for making the costs of this application costs in the cause, but it may be that the nature of the costs order that is appropriate may be affected by the result of the discovery, and while ordinarily it is not advisable for costs to be reserved, in my view this is a case which warrants that approach, and I will reserve the costs. 90I direct the plaintiff to file and serve its evidence in reply by 9 February 2015. I stand the proceedings over to Monday 16 February 2015 before the Corporations List Judge.