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[2025] NSWSC 995
Supreme Court of NSW
2025-09-03
Pike J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: JM World Au Pty Ltd (in liq) v Kim [2025] NSWSC 995
Hearing dates: 7–10 and 15 April 2025
Date of orders: 3 September 2025
Decision date: 03 September 2025
Jurisdiction: Equity - Real Property List
Before: Pike J
Decision: Plaintiffs’ claim largely succeeds against both defendants. Parties to seek to agree orders.
Catchwords: CONTRACTS – Construction and interpretation – where wholly written contract – dispute as to identity of a party – whether regard may be had to post-contractual conduct to identify party to contract
CORPORATIONS – Directors and officers – Directors’ duties – whether directors have breached duties – no question of principle
CORPORATIONS – Directors and officers – whether director should be relieved of liability under ss 1317S or 1318 of the Corporations Act 2001 (Cth) – no question of principle
CORPORATIONS – Winding up – Voidable transactions – where plaintiff contends payments to second defendant and related parties from company were unfair preferences or unreasonable director-related transactions or otherwise voidable – whether related parties were creditors – no question of principle
EQUITY – Equitable charges and liens – Contribution to acquisition or improvement of another’s property – whether to impose an equitable charge – no question of principle
Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
Corporations Act 2001 (Cth), ss 180, 181 and 182
Evidence Act 1995 (NSW), s 140
Cases Cited: Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547
Angus Carnegie Gordon in his capacity as liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) (2015) 16 ASTLR 185; [2015] NSWSC 397
ASIC v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023
ASIC v Healey (No 2) (2011) 196 FCR 430; [2011] FCA 1003
BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351
BH Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367; [2019] NSWSC 1086
Changela v Dracoma Pty Ltd [2025] NSWCA 186
Collins Thomson v Clayton [2002] NSWSC 366
Cooper v CEG Direct Securities Pty Ltd [2024] FCA 6
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd [2020] NSWSC 1137
Fodare Pty Ltd v Shearn (2010) 240 FLR 187; [2010] NSWSC 737
Hewett v Court (1983) 149 CLR 639; [1983] HCA 7
In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696
In the matter of Alora Davies Developments 104 Pty Ltd (in liq) (2024) 114 NSWLR 77; [2024] NSWSC 335
In the matter of Bryve Resources Pty Ltd (2022) 163 ACSR 310; [2022] NSWSC 647
In the matter of Cummings Engineering Holdings Pty Ltd [2014] NSWSC 250
In the matter of DCM Solar Pty Ltd (in liq) [2013] NSWSC 323
In the matter of IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40
In the matter of Sans Pareil Estate Pty Ltd (in liq) [2024] NSWSC 255
In the matter of ZH International Pty Ltd (in liq) (2022) 160 ACSR 473; [2022] NSWSC 2
Infigo II Pty Ltd v Linmas Holdings Pty Ltd [2023] NSWSC 755
Kapp Consulting Pty Ltd v Lawfinance Ltd [2019] FCA 1760
Lym International Pty Ltd v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303
Smith v Starke, In the matter of Action Paintball Games Pty Ltd (in liq) (No 2) (2015) 109 ACSR 145; [2015] FCA 1119
Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621
Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536
Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15
Tomko v Palasty [2007] NSWCA 258
Tregida v Pasma Holdings Pty Ltd (t/as Pasma Electrical) [2021] FCA 721
Union Fidelity Finance (Aust) Pty Ltd v Renauf [2025] NSWSC 356
Westpac Banking Corporation v Sentox Pty Ltd (No 2) [2024] NSWSC 783
Texts Cited: Nil
Category: Principal judgment
Parties: JM World Au Pty Ltd (in liquidation) ACN 124 797 619 (first plaintiff)
Barry Anthony Taylor in his capacity as liquidator of
JM World Au Ply Ltd (in liquidation) ACN 124 797 619 (second plaintiff)
Eun Hee Kim (first defendant)
Yeong Jeen Bak (second defendant)
Representation: Counsel:
S Golledge SC / J Baird (plaintiffs)
A Maroya (first defendant)
J R Young (second defendant)
Solicitors:
Duggan Legal (plaintiffs)
Tsavdaridis Lawyers (first defendant)
Kim & Associates (second defendant)
File Number(s): 2022/00282297
Publication restriction: Nil
The first plaintiff (JM World) was wound up on 22 June 2021 and the second plaintiff (Mr Taylor) was appointed its liquidator.
JM World was incorporated on 5 April 2007 and carried on business as a wholesale distributor of cosmetic products. It ceased trading in April 2021. The first defendant (Ms Kim) and the second defendant (Mr Bak) were the two directors of JM World and its sole shareholders.
JM World was wound up upon the application of Sustainable Design & Construction Pty Ltd (SDC), a building company. SDC had performed substantial building work renovating a residential home owned by Ms Kim and Mr Bak in Lynwood Avenue, Killara (Killara Property). SDC contended that its contract in relation to that building work was with JM World and its status as a creditor to wind up JM World arose as a result of moneys not paid for that building work. Until the present proceedings, that status was not in dispute.
JM World carried on business from a property at Eastern Valley Way, Roseville (Roseville Property). The Roseville Property was sold by contract dated 12 March 2021 which completed on 4 May 2021. The net proceeds received were a little over $1 million.
Shortly thereafter, JM World purported to make three payments totalling approximately $980,000 to three overseas companies – JM World Co Ltd (Korea) (JM World Korea), Skin & Co Ltd (Korea) (Skin & Co Korea) and Aster Biyou Co Ltd (Japan) (Aster Biyou) – who it is said by Mr Bak and Ms Kim were long standing creditors of JM World. Mr Bak also retained $50,000 of the settlement moneys for his own use, apparently as part repayment of moneys advanced by Mr Bak to JM World during COVID.
Against this brief background, two broad sets of claims are advanced by the plaintiffs against Mr Bak and Ms Kim.
The first, described as the Building Work Claims, concern JM World funds allegedly used to pay for building work on the Killara Property and the moneys still owing by JM World to SDC. The claims are essentially based on breaches of statutory and fiduciary duties as directors in using JM World funds and incurring a further liability of JM World to SDC in respect of building work on their residential home.
The second, described as the Payment and Retention Receipt Claims, concern the three payments made in May 2021 from the proceeds of sale of the Roseville Property and the $50,000 retained by Mr Bak. A variety of claims under the Corporations Act 2001 (Cth) (Act) are advanced.
(a) SDC’s contract was with JM World and not with Mr Bak personally; (b) the plaintiffs have failed to establish that the cash payments made by Ms Kim to SDC were sourced from JM World funds; (c) JM World is indebted to SDC in the sum of $519,473.41; (d) both Mr Bak and Ms Kim breached their duties as directors of JM World in causing or permitting JM World to enter into a building contract with SDC in relation to the Killara Property, being a property in which it had no interest; (e) both Mr Bak and Ms Kim are liable to JM World for breach of duty in the amount of the outstanding liability of JM World to SDC; (f) it is appropriate to charge the Killara Property with the repayment of that sum by Mr Bak and Ms Kim; (g) the Payment and Retention Receipt Claims succeed in the amounts claimed; and (h) Ms Kim should not be relieved from liability under ss 1317S or 1318 of the Act.
Four lay witnesses gave evidence before me – the second plaintiff, Mr Taylor, Mr Sean Coddington (the owner of SDC) (Mr Coddington) and Ms Kim and Mr Bak.
Mr Taylor – as the liquidator of JM World – also prepared a solvency report in relation to JM World. The tender of this report was objected to on the basis that it was expert evidence and the provisions of the Code of Conduct were not complied with. I admitted the report. There was nothing unorthodox about its content or form: see, for example, Collins Thomson v Clayton [2002] NSWSC 366; In the matter of Alora Davies Developments 104 Pty Ltd (in liq*)* (2024) 114 NSWLR 77; [2024] NSWSC 335 at [4].
I accept the evidence of Mr Coddington and Mr Taylor. I formed the view that each was doing their best to assist the Court. I particularly reject any suggestion that Mr Coddington was aware at the time that the building contract was entered into that JM World (the party named as the owner) was not in fact the owner of the Killara Property. Nothing was put to Mr Coddington to provide any basis as to why Mr Coddington should have been so aware. I am satisfied that Mr Coddington did not become aware of the true position until after Mr Bak stopped paying SDC’s invoices and SDC sought legal advice.
Ms Kim and Mr Bak each gave their evidence through an interpreter. At one stage, Ms Kim became quite emotional in the witness box and her cross-examination had to be adjourned for a period to enable her to compose herself. As I explain below, Ms Kim suffered a traumatic accident in 2013 which has had a significant psychological impact on her.
I formed the view that Ms Kim was doing her best to give honest evidence and assist the Court. It was clear however that the accident and sequelae have had a profound impact on her memory. Objective material provides a more reliable guide than Ms Kim’s answers in the witness box. I do not regard Ms Kim’s denials of, for example, executing documents on which her signature appears as bearing adversely on her credit but rather an example of the unfortunate impact of her accident. I am satisfied that she acted honestly at all times.
Mr Bak was subject to a sustained attack in cross-examination and a significant credit attack was levelled at his evidence in closing submissions of the plaintiffs. I approach Mr Bak’s evidence with considerable caution. Objective material and inherent probabilities provide a surer guide than his answers in cross-examination.
In addition to lay evidence, the plaintiffs and Ms Kim each called evidence from a psychologist – the plaintiffs called Mr John McQuillen (Mr McQuillen) and Ms Kim called Mr Greg Anning (Mr Anning). Mr McQuillen and Mr Anning gave evidence in concurrent session having previously conferred and produced a joint report. The process worked quite efficiently and was of great assistance. I summarise this evidence below. In the end there was very little difference between Mr Anning and Mr McQuillen – each agreed that Ms Kim’s psychological condition waxes and wanes such that she has good days and bad days. This was my observation of Ms Kim.
Mr Taylor (as liquidator of JM World) compulsorily examined each of Ms Kim and Mr Bak and sought to tender the examination transcripts at the hearing: see s 597(14) of the Act and Fodare Pty Ltd v Shearn (2010) 240 FLR 187; [2010] NSWSC 737 at [34]-[41] per Barrett J.
The tender was subsequently narrowed, quite properly, so that each transcript was only sought to be tendered against the relevant examinee – Ms Kim’s transcript against her and Mr Bak’s against him.
Ms Kim did not object to this course. She in fact annexed the entirety of her transcript to one of her affidavits that was read.
Mr Bak’s counsel objected to this course in relation to his client on the grounds of relevance. This was resolved on the basis that I admitted Mr Bak’s transcript subject to relevance on the basis that the plaintiffs would subsequently identify, which they did, the passages from the transcript which they relied on as admissions. I have only had regard to those passages identified.
There were also a number of potential witnesses who were not called.
First, Mr Bak served affidavits from Myungjae Kim (a director of JM World Korea), Duk Young Lee (director of Skin & Co Korea) and Shouki Takamatsu (director of Aster Biyou) (Mr Takamatsu). Their evidence was relevant to the legitimacy of the payments made by JM World through Mr Bak from the proceeds of the sale of the Roseville Property, being the bulk of the Payment and Retention Receipt Claims. They were each officers of the recipients of those payments. The first two are resident in South Korea and Mr Takamatsu in Japan. In the week prior to the hearing an application was made for each to give evidence by Audio Visual Link. I granted these applications subject to arrangements being put in place for an independent solicitor to be present at the foreign location so as to preserve the integrity of the process and ensure that the interests of the cross-examiner were protected.
At the commencement of the hearing, I was informed by counsel for Mr Bak that his side could not comply with those orders and would not be calling the three witnesses. I questioned whether Mr Bak was applying to vary the orders that I made so as to relax the requirements that I put in place and was informed that no application was made and Mr Bak was simply not proposing to call those witnesses.
No further detail was provided as to why Mr Bak could not comply with the conditions that I imposed.
In these circumstances, I proceed on the basis that no proper explanation has been provided for the failure to call these witnesses and that I am entitled to infer, in accordance with well understood principles, that their evidence would not have assisted Mr Bak.
I set out below my findings as to the relevant facts, identifying and resolving any conflict.
JM World was incorporated on 5 April 2007. Prior to this, Mr Bak had established a business in Korea – JM World Korea – importing various products including cosmetics from Japan which were then distributed in Korea.
It was there that Mr Bak met Ms Kim – who was working for JM World Korea. They married in 2004.
Ms Kim and Mr Bak migrated to Australia in 2007 with their two young children. JM World was then established importing cosmetics from Korea and Japan to Australia.
According to ASIC’s records, Ms Kim and Mr Bak were its directors from incorporation. One thousand ordinary shares were issued with 500 each being owned by Mr Bak and Ms Kim.
The circumstances in which Ms Kim became a director of JM World and her involvement thereafter in the affairs of JM World were in issue in the proceedings.
Ms Kim gave evidence to the following effect:
(a) Mr Bak did not tell Ms Kim that she was appointed a director at the time of incorporation of JM World; (b) Ms Kim does not recall signing a consent to act as a director of JM World; (c) in about early 2008, Mr Bak said to her words to the effect that he had made her a director of JM World “just in case I am unavailable and need you to do something urgently while I am in Korea”; (d) at the time of the conversation, Ms Kim did not understand what it meant to be a director of a company in Australia. She was a full-time mother looking after their two young children; (e) thereafter, occasionally she would assist Mr Bak with some tasks for JM World.
I accept this evidence. I deal below with Ms Kim’s alleged involvement in JM World when I consider the claims against her.
Ms Kim and Mr Bak purchased an apartment in Rhodes in about 2007. In about March 2015, the Rhodes property was sold and a new family home was bought in St Ives for the sum of $2,350,000. Mortgage finance was obtained from the National Australia Bank.
In about 2013, Ms Kim suffered a serious accident. It is not necessary to descend into the detail of this accident save to record that it appears to have had a profound impact on Ms Kim. The relevant impact is dealt with by the psychological evidence which I describe later in these reasons.
On 7 February 2018, Mr Bak arranged to take out a loan in his and Ms Kim’s name, secured against the St Ives Property to purchase the Killara Property. The Killara Property was bought in about March 2018 for $5,300,000. Ownership of the Killara Property was assigned as to 99/100 to Ms Kim and 1/100 to Mr Bak as tenants in common. Mr Bak decided this arrangement.
Throughout this period Mr Bak continued his business in Korea and spent a majority of his time in Korea traveling back and forth from Korea to Australia frequently.
After the purchase of the Killara Property, Mr Bak and Ms Kim decided to make a number of renovations to the property. They continued to live in the St Ives Property while the works were carried out.
It was not in dispute that Mr Bak engaged Mr Choi as architect to assist in relation to the renovations to the Killara Property. A building contract was ultimately entered into with SDC in about March 2019 (as detailed below). It would also appear that Mr Bak entered into an agreement with Mr Choi’s company for that company to provide architectural services in relation to the Killara Property. A fee proposal from CHROFI dated 24 October 2017 was admitted into evidence. The fee proposal was addressed to Mr Bak personally. An undated but executed document (by Mr Bak) was also admitted into evidence accepting the proposal.
On 26 February 2019, Mr Choi sent an email to Mr Bak. The email stated:
Everything has been progressing well here with your project.
We have been working with Sean to get the details of the contract prepared for signing.
We will send through the contract tomorrow for execution.
As per timeline discussed when we last met, Sean and his team are ready to commence building work next Monday 4th of March assuming we can execute the contract promptly.
The reference to Sean in the above email was obviously to Mr Coddington. It was Mr Choi that identified SDC as the likely builder. Mr Bak had no prior knowledge of SDC or Mr Coddington.
On 27 February 2019, Mr Bak responded to Mr Choi’s email in the following terms:
Thank you for good news.
I’m waiting for the contract.
If you send me the document, I’ll take care of it quickly.
I attach you the payment details of our project. please check it.
and send our company detail of tax invoice too.
If you have any question, please let me know.
Attached to the email were two documents. First, a copy of the ASIC Certificate of Registration in relation to JM World. Second, a list of payments made or to be made by Mr Bak to Mr Choi in relation to the project.
Mr Bak was cross-examined to suggest that the effect of this email was that he wanted Mr Choi to invoice JM World for the work that Mr Choi was doing in relation to the Killara Property. It was also suggested that he wanted the building contract with SDC similarly in the name of JM World. Mr Bak denied both propositions saying it was only four invoices from Mr Choi that he wanted addressed to the company – referring to a later email dated 10 August 2019 (after the building contract was entered into) – which refers to only four invoices from Mr Choi.
It is not strictly necessary for me to make a finding as to what Mr Bak’s intention was in this regard. The relevant issue is the identity of the party to the contract. I deal with this issue below. On the evidence – including the absence of Mr Choi and the absence of any other explanation – the inescapable inference is that it was Mr Choi that caused the details of JM World to be inserted into the contract and that this was thought by Mr Choi to be at the request of Mr Bak. The provision by Mr Bak to Mr Choi of the company details for JM World was contemporaneous with the preparation of the contract by Mr Choi and its provision to Mr Bak.
The circumstances in which the contract was entered into led into one of the key issues between the parties – namely whether the contract was between SDC and JM World or SDC and Mr Bak personally.
The form of contract was prepared by Mr Choi using the Master Builders Association Head Contract Cost Plus (Residential) standard form at the time. Mr Choi provided the contract he prepared to Mr Coddington, most likely via a Dropbox link. Mr Coddington completed, by hand, the details in relation to SDC and signed the contract.
It would then appear that Mr Coddington returned the document that he had signed to Mr Choi. Mr Choi then provided it to Mr Bak.
Mr Bak signed in three places as “Owner” on the first page (page (i)) of the agreement headed “WARNING FOR THE PURPOSES OF THE HOME BUILDING ACT 1989”.
Mr Bak then signed as “Owner” on page iii of the agreement above Mr Coddington’s signature.
At the conclusion of the section of the contract headed “Statutory Owner’s Checklist and Questions” on page iv, a note appears in the following terms:
Where the Owner is a company or partnership or the contract is to be signed by an authorised agent of the owner, the capacity of the person signing the contract, eg director, must be inserted:
Signature
Name [print]
Capacity [print]
Next to signature, Mr Bak signed. He then inserted his name next to “Name” and wrote “Director” next to capacity.
On the particulars page of the contract, where Mr Coddington inserted SDC’s details, the details of JM World AU Pty Ltd have been typed in next to “Owner”. Mr Bak has been described as the “Contact”. His email address has also been inserted.
Mr Bak gave evidence that those typed details were not on the contract when he signed it and suggested that it was Mr Choi who must have inserted those details. Mr Bak denied that he was ever aware that JM World was the named party to the contract and said that it was a mistake. To the extent that it is relevant I do not accept this evidence of Mr Bak. The inescapable inference from the completion of the “Statutory Owner’s Checklist and Questions” and particularly Mr Bak writing “director”, is that he must have been aware that JM World was, or was going to be, named as the Owner in the contract. There is no other reason for the completion of the checklist in the manner that it was completed by Mr Bak.
Mr Coddington initially gave evidence that there was some sort of physical exchange of counterparts of the contract with Mr Choi although he resiled somewhat from this evidence during the course of cross-examination, retreating to a lack of recollection (which is understandable given the passage of time and the likely frequency of Mr Coddington entering into building contracts) and to a signed contract executed by Mr Bak and him being returned to him by Mr Choi, including the typed details of JM World (which seems more likely).
I deal later in these reasons with the issue of who the contract was between.
It was not in dispute that considerable work was carried out by SDC on the Killara Property. SDC issued regular progress claims to Mr Choi in respect of the work carried out. The project was given the internal reference SDC37 within SDC and invoices were numbered SDC 37.1, SDC 37.2 etc.
Each invoice was addressed as follows:
SDC 37 James Bak
C/ Hugo Raggett
CHROFI Architects, Manly, NSW
In respect of each invoice issued by SDC to Mr Bak, care of CHROFI, a Progress Payment Certificate was then issued by CHROFI to Mr Bak, who was described as the “Owner” on each certificate.
Neither the invoices issued by SDC to CHROFI or the Progress Payment Certificates issued by CHROFI to Mr Bak made any reference to JM World.
The Progress Payment Certificate stated that the original estimated cost of the building work is $1,963,734.91.
During the period from March 2019 to August 2020, SDC submitted 24 claims to CHROFI, numbered SDC 37.1 to SDC 37.24. Twenty-four Progress Payment Certificates were in turn issued by CHROFI to Mr Bak. All 24 were paid in full.
It was not in dispute that a number of these claims were paid by Mr Bak (or on his behalf by Ms Kim) in cash.
Mr Coddington contended that SDC received five payments in cash:
| 17 June 2019 | $30,000 | | 16 July 2019 | $45,362 | | 19 August 2019 | $58,548.26 | | 29 August 2019 | $20,000 | | 10 September 2020 | $110,050 |
A receipt was issued by SDC to Ms Kim in respect of each cash payment. A photograph of the cash in relation to the last payment was also in evidence.
The principal dispute in the case was the source of the cash – was it from sales of product by JM World and thus an improper use of company funds, or brought in from overseas by or on behalf of Mr Bak? I deal with this issue later in these reasons.
On 4 September 2020, SDC issued invoice 25 to CHROFI dated 31 August 2020, for $270,458.51. On 7 September 2020, CHROFI issued a Progress Payment Certificate for claim 25 certifying the amount for payment as $270,458.51. That Progress Payment Certificate stated that the value of the building work completed at the time of the certificate was $2,162,175.74.
The claim was not paid by Mr Bak. On 17 September 2020, SDC forwarded an email to Mr Bak purportedly under clause 19 of the Contract, giving notice that work on the site would be suspended “at 3.30pm (AEST) tomorrow, Friday 18 September 2020 due to outstanding invoice SDC 37.25 for the amount of $270,458.55”.
On 18 September 2020 at 3.30 pm, SDC suspended the works.
On 16 September 2020, SDC emailed to CHROFI claim 26 dated 15 September 2020 for $74,211.60. On 18 September 2020, CHROFI issued a Progress Payment Certificate in respect of claim SDC 37.26, certifying the amount payable as $74,211.60.
On 21 September 2020, SDC emailed to CHROFI progress claim SDC 37.27 for $156,341.99. On 23 September 2020, CHROFI issued a Progress Payment Certificate for progress claim SDC 37.27, certifying the amount payable as $156,341.99.
None of claims 25 to 27 were paid.
On 8 October 2020, SDC served on JM World a payment claim under the Building and Construction Industry Security of Payment Act 199**9 (NSW) (SOPA) for $500,962.17 – being the total of claims 25 to 27.
On 4 November 2020, SDC made an adjudication application under SOPA in respect of the payment claim to the Master Builders Association of New South Wales (MBA). An adjudicator (Mr Peter Finnane) was appointed.
Each of the parties made submissions to the adjudicator. The submissions on behalf of JM World did not contend that the contract was with Mr Bak personally but did point out that the contract was with JM World and not with the owner of the Killara Property. If Mr Bak and Ms Kim were treated as the owner, it was contended that the SOPA would have no application as it would be an “owner/occupier construction contract”.
On 19 November 2020, Mr Finnane notified the parties that he had made an adjudication determination. That determination was issued to the parties on 20 November 2020.
(a) $610,472.00 to JM World Korea, a company incorporated in the Republic of Korea of which Mr Bak was a director and shareholder; (b) $231,052.00 to Skin & Co Korea, a company incorporated in the Republic of Korea of which Mr Bak was also a director and shareholder; and (c) $142,572 to Aster Biyou, a company incorporated in Japan.
As set out above, JM World was wound up on 22 June 2021.
These proceedings were commenced on 21 September 2022.
Given Ms Kim’s claim to be relieved from liability based on her particular circumstances, it is appropriate that I separately record my findings in this regard.
The task of making findings in relation to Ms Kim’s knowledge and state of mind at particular points in time is complicated by the consequences of her accident in 2013 and its impact on her memory.
Ms Kim made two affidavits in the proceedings which set out, in reasonably unqualified terms, a recollection of events. Ms Kim was extensively examined in a liquidator’s examination in late September 2022. She was extensively cross-examined in these proceedings over the course of two days. As set out above, Ms Kim became quite distressed and extremely agitated during the cross-examination, necessitating an extended break.
Ms Kim’s evidence in cross-examination was at times quite inconsistent with the evidence she had previously given either to the liquidator or in her earlier affidavits. This included Ms Kim no longer having any recollection of what she had previously sworn to including executing documents.
I formed the view that Ms Kim was seeking in the witness box to give truthful evidence. The differences in her evidence at various stages were the product of the impact on her memory of the 2013 accident.
Ms Kim’s knowledge and state of mind largely went to her claim to be relieved from liability. As is apparent below, I am not satisfied that Ms Kim should be relieved from liability for reasons largely unrelated to her knowledge and state of mind. It is thus perhaps unnecessary to make any detailed findings in relation to her knowledge and state of mind.
In any event, I record the following findings:
(a) Ms Kim was informed by Mr Bak sometime after she had in fact been appointed as a director of JM World that she had in fact been appointed; (b) she was told by Mr Bak that he had made her a director “just in case”. She had no understanding at any time of what it meant to be a director and what responsibilities that entailed; (c) at no stage did Ms Kim have any real involvement in the affairs of JM World. At no stage did she ask Mr Bak about JM World. As she candidly admitted on a number of occasions in cross-examination, her focus was on raising her family; (d) apart from making cash payments to SDC as and when requested by Mr Bak, Ms Kim had no knowledge of or involvement in the renovation of the Killara Property including the contractual arrangements in relation to this work; (e) Ms Kim became aware of the fact that Mr Bak had appointed her a director of Skin & Co AU at about the time this occurred. She was then aware that Skin & Co AU was to enter a lease with JM World in relation to the Roseville Property because this is what the purchaser of the Roseville Property requested. She signed the lease; (f) at or about the time that it ceased trading, Ms Kim was told by Mr Bak that the JM World business in Australia was not doing well; (g) Ms Kim had no knowledge of the creditors of JM World and what was to happen with the proceeds of sale of the Roseville Property; and (h) at all times Ms Kim acted honestly.
Ms Kim adduced expert evidence from a psychologist, Mr Anning, in support of her claim for relief under ss 1317S or 1318 of the Act. The plaintiffs responded with expert evidence from Mr McQuillen. Mr Anning and Mr McQuillen then conferred and prepared a joint report setting out their areas of agreement and disagreement. Oral evidence was then given concurrently at the hearing. The process worked very efficiently and their evidence was of considerable assistance. The experts and legal representatives are to be commended in this regard.
In the end, I did not perceive there to be much difference between Mr Anning and Mr McQuillen.
Both Mr Anning and Mr McQuillen agreed:
(a) that Ms Kim was suffering from Post Traumatic Stress Disorder and a Major Depressive Disorder in accordance with DSM-5 criteria during the period February 2019 and May 2021; (b) that her depressive symptoms became more predominant as her course of illness progressed and that her depressive symptoms were more predominant during the period between February 2019 and May 2021; (c) Ms Kim’s disorders would have reduced her capacity to be involved in the management of JM World and to discharge her duties as a director to the standard that would be expected of a competent director on a day to day basis; and (d) her disorders would have reduced her capacity to process and retain information, to make decisions and to reason through all the possible consequences of her decisions.
Mr Anning and Mr McQuillen appeared to disagree as to the extent to which Ms Kim would have been impaired. It became clear during the course of the concurrent session that these differences were principally based on what each observed when they examined Ms Kim. This is in the context of each of Mr Anning and Mr McQuillen agreeing that the nature of Ms Kim’s conditions is that they wax and wane. Ms Kim’s relevant condition was not likely to have been stable on a day to day basis. She would have had good days and bad days in terms of her impairment. Mr Anning had observed Ms Kim on bad days, whereas Mr McQuillen seems to have observed Ms Kim on a good day in terms of her extent of impairment.
Neither Mr Anning or Mr McQuillen had any adverse comment to make on each other’s opinions based on what each observed, i.e. Mr Anning thought Mr McQuillen’s opinions were appropriate based on what Mr McQuillen observed and vice versa.
It is of some significance that Mr McQuillen, in his report of 29 July 2024 concluded that Ms Kim is not fit to function as the manager of a company currently and I expect she would have also not been fit to do so at the relevant time period between 2019 and 2021. Nonetheless her symptoms and severity would have varied, and she would have had awareness of her behaviours and their consequences.
Each only observed Ms Kim for an extremely brief period and did not assess her during the period between February 2019 and May 2021. Thus, it is difficult to rely on their opinions throughout the relevant period, save to conclude that there were days when Ms Kim would not have had the capacity to discharge any duties as a director of JM World. Conversely, there would be some days when she would likely have the capacity to understand that she was signing documents and the like.
These observations of Mr Anning and Mr McQuillen are consistent with my own, albeit extremely brief observations of Ms Kim in the witness box. Ms Kim’s evidence commenced on day two and went into day three of the hearing. During day three, Ms Kim became quite distressed and extremely agitated and at times was incoherent in some of her answers. An extended break was necessary before Ms Kim could continue. Ms Kim’s recollection seemed much poorer on day three than day two.
(a) on the Building Works Claim:
(i) was JM World a party to the Building Contract? (ii) did JM World incur a liability to SDC? (iii) was $386,448.16 of JM World’s money used to fund the building works? (iv) if JM World’s money was used, what relief is available to the plaintiffs as a result? (v) does either defendant incur any liability to the plaintiffs by reason of any remaining debt owed to SDC on account of the building work carried out on the Killara Property and them obtaining a benefit thereby?
(b) on the Payments and Retention Receipt Claims:
(i) whether Mr Bak (as to $50,000), or any of the three overseas entities who received payments from the sale proceeds of JM World’s property, were, at the time, creditors of JM World who received those payments in discharge of that indebtedness? If no, what relief, if any, flows? (ii) if the answer to (i) is that some or all of the payments were received in discharge of a real indebtedness, are those transactions nevertheless voidable or were they made in breach of duty and, if so, do any claims arise against either defendant as a result?
(c) as against Ms Kim, whether she suffered from some relevant mental or physical infirmity at the time of the events in question and, if so, is that relevant to the breach of duty claims against her and/or does it warrant an order under ss 1317S or 1318 relieving her in whole or in part from any liability?
As originally pleaded, the plaintiffs contended that JM World entered into the contract with SDC as agent for and on behalf of Ms Kim and Mr Bak. In the alternative, it was alleged that the building work was for the benefit of the defendants. As such, the defendants were liable to indemnify JM World for the amounts paid by JM World to SDC and the debt owed by JM World to SDC. A charge or lien was claimed by JM World over the Killara Property to this extent. Claims were also made in unjust enrichment.
I did not understand any of these claims to be pursued. Rather, the case advanced at the hearing was the further alternate claim pleaded of breach of common law and statutory directors duties in:
(a) causing JM World to enter into the contract with SDC when it had no funds to pay for the construction work, thereby exposing JM World to a liability to SDC for no benefit to it; (b) interposing JM World between them and SDC as a party to the contract to the detriment of JM World and to their benefit; (c) by the making of the payments on 5 May 2021, removed from JM World funds with which to pay the amount of the District Court judgment thereby leaving it liable to be wound up; and (d) benefitted and profited themselves from the value of the construction works undertaken on the Killara Property by SDC pursuant to the contract when in a position where their personal interests were in conflict with their duties.
Given that the principal disputes were factual, the following brief summary of relevant principles suffices.
In relation to both the Building Works Claims and the Payment and Retention Receipt Claims, reliance was placed on both the common law duties of directors and ss 180, 181 and 182 of the Act.
For present purposes, I gratefully adopt the following summary of the law recently set out by Black J in Alora Davies Developments 104 Pty Ltd (in liq*) v Raphael* [2024] NSWSC 547 at [139]-[142] as follows:
[139] Section 180 of the Act requires a director or other officer of a corporation to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation’s circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. The statutory duty of care and diligence under that section overlaps with directors’ duty of care arising at general law. I summarised the applicable principles in Colorado (at [408]) as follows:
“In Australian Securities Commission v Gallagher above at 52–3, Pidgeon J observed that the test whether the statutory duty of care and diligence had been contravened was an objective one, that a director need not exhibit a greater degree of skill in the performance of his or her duties than may reasonably be expected for a person of his or her knowledge and experience, in the relevant circumstances, and that it was relevant to consider the way in which the work of the company was distributed between its directors and other officers, provided that distribution was reasonable. In Australian Securities and Investments Commission v Adler above at [372] (upheld by the Court of Appeal in Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; 179 FLR 1; [2003] NSWCA 131), Santow J noted that the duties imposed by the section are essentially the same as directors’ duties at general law; that, in determining whether a director had exercised reasonable care and diligence, the test was what an ordinary person, with the director’s knowledge and experience, might be expected to have done in the circumstances if he or she was acting on his or her own behalf; and that the duty of care and diligence would require special vigilance in a situation of potential conflict, requiring scrupulous concern on the part of those officers who become aware of that transaction to ensure that any necessary corporate approvals are obtained and safeguards put in place. That decision has been cited with approval in recent case law, including Parker v Tucker (2010) 77 ACSR 525; [2010] FCA 263 at [70] per Gordon J and Diamond Hill Mining Pty Ltd v Huang Jim Mining Pty Ltd (2011) 84 ACSR 616; [2011] VSC 288 at [90] per Croft J.”
[140] A question whether this duty is breached can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450; 11 ACSR 162 at 209; Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023 at [479], aff’d Cassimatis v Australian Securities and Investments Commission (2020) 376 ALR 261; (2020) 144 ACSR 107; [2020] FCAFC 52; Re FAL Healthy Beverages Pty Ltd [2017] NSWSC 476 at [55]; Mudgee Dolomite & Lime Pty Ltd v Murdoch [2020] NSWSC 1510 at [99]-[100] (from which I have drawn the summary that appears above).
[141] Section 181 of the Act requires a director or officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose. I summarised the relevant principles in respect of that section and the broadly corresponding general law duty in Colorado (at [419]–[421]) as follows:
“In Chew v R (1991) 4 WAR 21; 5 ACSR 473 at 499, Malcolm CJ summarised the requirements of that duty as being that directors (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company’s assets for themselves.
The case law is divided as to whether a contravention of s 181(1)(a) of the Corporations Act requires that it be established that a director engaged deliberately in conduct which he or she knew was not in the company’s best interests: for example, Forge v Australian Securities and Investments Commission (2004) 213 ALR 574; [2004] NSWCA 448at [245] per McColl JA (with whom Handley and Santow JJA agreed); Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd above at [150], varied on appeal on another point in V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd above. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; 89 ACSR 1; [2012] WASCA 157, the Court of Appeal of the Supreme Court of Western Australia unanimously held that the corresponding general law duty to act in good faith in the company’s best interests was subjective and would be complied with if directors honestly believed they acted in the company’s best interests (at [923] per Lee AJA, at [1988] per Drummond AJA, at [2027], [2772], [2795] per Carr AJA). The alternative view is that a contravention of that limb of s 181 can be established if the law objectively considers that what the director did was improper, even if the director subjectively believed that he or she was acting in the company’s best interests: see, for example, Australian Growth Resources Corporation Pty Ltd (recs and mgrs apptd) v Van Reesema (1988) 13 ACLR 261at 270–1; 6 ACLC 529 per King CJ; Mernda Developments Pty Ltd (in liq*) v Alamanda Property Investments No 2 Pty Ltd (formerly known as* Dollarforce Financial Services Pty Ltd) (2011) 86 ACSR 277; [2011] VSCA 392 at [32]–[33]. The difference in those approaches does not seem to me to be material for the purposes of this case. The section may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company’s interests: Australian Securities and Investments Commission v Adler above at [735]; Parker above at [72].
A contravention of s 181(1)(b) may also be established if a director does not exercise his or her powers for the purpose for which they were conferred or exercised them for an improper purpose, and the bulk of authority indicates that question is to be determined objectively: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109at 137 per Ipp J (with whom Malcolm CJ and Seaman J agreed); Australian Securities and Investments Commission v Adler above at [738]–[739]; Parker above at [73]. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) above, the majority held that whether a director acts for an improper purpose, for the purposes of the corresponding general law duty, is determined objectively involving an assessment by the Court of what was reasonable in the circumstances (at [933] per Lee AJA, at [1988], [2027], [2073] per Drummond AJA). By contrast, Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective, although a decision would be voidable if directors acted in good faith for a purpose that was beyond their powers or for a collateral purpose (at [2923]).”
[142] Section 182 of the Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else, or cause detriment to the corporation. I again summarised the applicable principles in Colorado (at [432]–[433]) as follows:
“An objective standard is to be applied in determining what amounts to an ”improper” use of position, and impropriety is established by a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case”: R v Byrnes above at 514–15 per Brennan, Deane, Toohey and Gaudron JJ; R v Towey (1996) 21 ACSR 46 at 57; 132 FLR 434 per Gleeson CJ (with whom Allen and James JJ agreed). In Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; 223 ALR 218; 56 ACSR 159; [2005] HCA 78, the High Court observed (at [35]) that the relevant conduct would be improper if it amounted to:
“a breach of the standards of conduct that would be expected of a person in [the director’s] position by reasonable persons with knowledge of the duties, powers and authority of his position as director, and the circumstances of the case, including the commercial context.”
It is not necessary that the relevant director gain an advantage for himself or herself or cause a detriment to the company in order to establish a contravention of the section: Chew v R (1992) 173 CLR 626 at 633; 107 ALR 171 at 174; 7 ACSR 481 at 484 per Mason CJ, Brennan, Gaudron and McHugh JJ. An objective test was also applied to determine whether this section was contravened in Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd above and, in Hydrocool Pty Ltd v Hepburn (No 4) (2011) 279 ALR 646; 83 ACSR 652; [2011] FCA 495, Siopsis J followed R v Byrnes, above, in holding that impropriety for the purposes of this section was objective and did not require subjective knowledge of impropriety and followed Chew v R, above, in holding that a contravention could be established although the desired object was not achieved. …”
(See also what was further said by Black J at [144]-[146] in relation to the no conflict and no profit rules.)
In considering the position of Ms Kim, and in particular the duties that she owed, it is important to bear in mind that non-participation by a director in the management of a company may be a breach of director’s duties. A minimum standard is expected of directors. The standard of care and diligence is objective, not subjective.
This emerges most clearly from what was said by Spigelman CJ in Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91 (DCT v Clark) at [108]-[110] as follows (emphasis added):
[108] What constitutes breach of the standards of care and of diligence, in a particular case, will depend on a wide variety of circumstances including the precise nature of the business conducted by the company and the composition of its board. However, the case law indicates that there is a core, irreducible requirement of involvement in the management of the company.
[109] Although the standard of skill may vary in accordance with the particular skills of the director, the core, irreducible requirement of skill involves an objective test, such as “ordinary competence” (Kemish, supra at 373 per Foster J) or “reasonable ability” (Rema Industries and Services Pty Ltd v Coad (1992) 7 ACSR 251 at 259 per Lockhart J). An equivalent objective test applies to the core, irreducible requirement of diligence, such as “reasonable steps to place themselves in a position to guide and monitor the management of the company” per Rogers CJ CommD in AWA Ltd v Daniels, supra at 864, adopted by Clarke and Sheller JA on appeal in Daniels v Anderson at 501.
[110] The existence of a core, irreducible requirement of participation in management was one of the factors underlying the scheme for insolvent trading which falls to be construed in the present case.
[268] The respondents did not dispute that there is a core irreducible requirement of skill and diligence, measured objectively, that every director must exercise regardless of their actual skills or experience: Rich at [7205], [7206]; Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; 45 ACSR 332; [2003] NSWCA 91 (Clark) at [108], [109]. This brings with it a requirement of involvement in the management of the company, and requires a director to take reasonable steps to place himself or herself in a position to guide and monitor the management of the company: Clark at [108], [109]; Daniels at 501. A director is under a continuing obligation to become and remain informed about the activities of the company of which he or she is a director: Daniels at 503.
[30] Sections 181(1)(a) and (b) are the statutory expression of two separate duties owed at general law. Putting to one side the debate as to whether these duties are objective or subjective, the standards imposed are those that ”would be expected of a person in that position by reasonable persons with knowledge of the duties, power and authority of the position”: Downer EDI Ltd v Gillies [2012] NSWCA 333; (2012) 92 ACSR 373 at [76] (Allsop P). In Chew v R (1991) 4 WAR 21; (1991) 5 ACSR 473 at 499, Malcolm CJ said that the duty of honesty or good faith has a number of aspects under the general law, being that directors (1) must exercise their powers in the interests of the company; (2) must avoid conflict between their personal interests and those of the company; (3) should not take advantage of their position to make secret profits; and (4) should not misappropriate the company’s assets for themselves.
[31] In the context of insolvency or near insolvency, which includes a real and not remote risk that creditors will be prejudiced by the dealing in question (Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 at [162]), the standard under s 181(1) entails an obligation on the directors to take into account the interests of creditors, which has been described by Gummow J, as an ”imperfect obligation” because the creditors cannot enforce it ”save to the extent that the company acts on its own motion or through a liquidator”: Sycotex Pty Ltd v Baseler (1994) 122 ALR 53; 13 ACSR 766 at 785; see also Spies v R (2000) 201 CLR 603; [2000] HCA 43; (2000) 35 ACSR 500 at 525-526; Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354; 370 ALR 191; 135 ACSR 45 at [197]-[209].
[32] No detailed submissions were addressed to the question of whether any part of the duty under s 181(1) is objective or subjective, or a combination of the two: see Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [421]; Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 184; 117 ACSR 408 at [494]; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659; 117 ACSR 408 at [75]; Australian Securities and Investments Commission v Flugge [2016] VSC 779; (2016) 342 ALR 1 at [1976]-[1991]; Termite Resources (No 2) at [193]-[194].
[33] Counsel for the liquidators referred to the remarks of Windeyer AJ in Australian Securities and Investments Commission v Somerville (2009) 77 NSWLR 110; [2009] NSWSC 934 at [36]-[37], where after referring to the conflicting authorities, his Honour observed at [37]:
Whatever the position, I consider it clear first that unless the interests of the creditors are taken into account where objective circumstances require this, then if those interests are disregarded and only the interests of shareholders considered, the directors cannot be acting in good faith; and second, this really does not matter because it is clear the requirement to exercise powers for a proper purpose is an objective test: Chew v R (1992) 173 CLR 626; Linton v Telnet Pty Ltd (1999) 30 ACSR 465 at 471; Re HIH Insurance Ltd (in prov liq); ASIC v Adler (2002) 42 ACSR 80 at [738]-[740].
[34] Those remarks are apposite here where the objective circumstances required the interests of creditors of IW4U to be taken into account. A director will be acting in breach of duty if he or she incorporates a new entity for the purpose of continuing to trade the business of the company without the new entity acquiring the business of the first company in an arm’s length transaction for value: see, for example, the remarks of the Supreme Court of New Zealand in Madsen-Ries and Levin as Liquidators of Debut Homes Limited (in liquidation) v Cooper [2020] NZSC 100 at [174]-[188]. Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose: Permanent Building Society Pty Ltd (in liq) v Wheeler (1994) 11 WAR 187 at 218; (1994) 14 ACSR 109 at 137 (Ipp J, Malcolm CJ and Seaman J agreeing).
Having regard to the contentions advanced, there appeared to be a dispute between the parties as to the relevant principles to determine the parties to the contract, and in particular the relevance of subsequent conduct to that issue.
I was referred to several authorities, particularly by the plaintiffs.
Although not referred to by the parties, the relevant authorities were helpfully summarised and analysed by Leeming JA (sitting at first instance) in BH Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367; [2019] NSWSC 1086 (BH Australia) at [51]ff. The following principles emerge from Leeming JA’s judgment:
(a) the authorities which have stated that post-contractual evidence may be used to identify the parties to a contract, do not apply when the contract is wholly in writing and which is not said to be a sham or to involve fraud or is sought to be rectified in equity (see [90]-[91]); (b) in the case of an agreement wholly in writing, the terms are all identified in the document. The question of parties is one of construing the terms which are already identified, rather than identifying the terms themselves – construction and identification are vitally different processes: Ly**m International Pty Ltd v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303 at [141]-[143] see [92]; and (c) in the case of a wholly written contract, the written contract will disclose the names of the parties. Questions may arise as to the identity of the parties. Evidence may be adduced of mutually known facts to identify the meaning of a descriptive term – including the denotation of a named party. A second class of case of where there is said to be a mistake in the words used to identify a party – parol evidence is admissible to establish what was intended. (see [93]-[96]).
[97] But in all such cases, the question is one of construction or interpretation. There can be no issue that parol evidence may be used to give legal meaning to the label used in the contract to identify the contracting parties. However, I respectfully doubt that post-contractual conduct can be directly relevant to that question. Reasoning to the effect that post-contractual conduct is relevant on the issue of, say, whether an offer has been accepted by conduct, is inapplicable to a case such as the present.
[98] Ordinarily, the wholly written contract will have come into existence upon execution of the document. Conceivably, it may have been held in escrow. However, at such time as the contract comes into existence, the parties to which contractual obligations attach will, according to the objective theory of contract, be fixed.
[99] I fail to see how the identity of the parties to a contract which came into existence in January can be affected by conduct which occurs in March, consistently with the objective theory of contract. If that were so, then it must be possible at least in theory for there to be a wholly written contract purportedly between A and B entered into in January which, but for some conduct by B in March, is as a matter of law between A and B, but, when regard is had to B’s March conduct, is as a matter of law between A and C. Phenomena like that arise in physics — most famously, Schrödinger’s cat — but cannot arise consistently with the objective theory of contract. The parties to the contract are determined at all times — including in February — once the contract has been formed.
Leeming JA’s comprehensive analysis has been followed in a number of first instance decisions: see Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd [2020] NSWSC 1137 at [38], [42]; Infigo II Pty Ltd v Linmas Holdings Pty Ltd [2023] NSWSC 755 at [54]; Tregida v Pasma Holdings Pty Ltd (t/as Pasma Electrical) [2021] FCA 721 at [47]; Kapp Consulting Pty Ltd v Lawfinance Ltd [2019] FCA 1760 at [47].
I proceed on the basis that the issue – where the contract is wholly in writing and no question of rectification arises – is construction of the agreement to which post contractual conduct is not relevant. Lest I be wrong in proceeding in this way, I separately consider the post contractual conduct relied on.
For completeness, I should also record that the plaintiffs placed some reliance on the decision of the Court of Appeal in Tomko v Palasty [2007] NSWCA 258 (Tomko) in support of a submission that subsequent conduct was only admissible insofar as it constituted an admission on the part of a party. Tomko was considered by Leeming JA in BH Australia at [63]-[67]. As Leeming JA observed, Tomko does not appear to have involved a written contract. Leeming JA did accept, however, at [66] that Tomko as a matter of ratio authorises regard to be had to post contractual conduct as an admission.
The plaintiffs contended that the contract was between JM World and SDC – they being the express parties named in the agreement.
Mr Bak contended that the contract was not with JM World but rather with him personally. Reliance was placed in this regard not only on the terms of the written contract but also on various objective matters, including certain matters of post contractual conduct.
No claim was made by Mr Bak that the contract should be rectified. Mr Bak contended in closing that the reference to JM World was clearly a mistake, perpetuated by Mr Choi without Mr Bak’s knowledge. I do not accept this. The completion of the “Statutory Owner’s Checklist and Questions” stands, in my view, tellingly against it being a mistake. There was no reason for Mr Bak to execute this as “Director” unless he was aware that the named “Owner” was to be the company of which he was a director, being JM World.
I first identify the objective matters that seem to be relevant and then consider the competing arguments. As set out above, I do this on two alternate bases – first, by ignoring the post contractual conduct and second, by having regard to it.
The relevant objective matters are:
(a) the contract was in the form of the Master Builders Association standard contract for residential work which defines the parties to the contract as the Builder and the Owner, although the contract does not contain any warranty or promise that the named “Owner” is in fact the owner of the premises on which the residential building work is to be conducted; (b) at the time the contract was executed on behalf of SDC, no details had been included of who the “Owner” was; (c) at the time that Mr Bak executed the contract, it is not clear whether the details of the “Owner” had similarly not been inserted. Mr Bak’s contention is that it was not and this was most likely done by or on behalf of Mr Choi before it was sent back to SDC. Whether it had been inserted or not, at the time Mr Bak executed it, I am satisfied, if it be relevant on who is the contracting party, that Mr Bak was aware that JM World was to be named as the owner; (d) Mr Bak executed the contract in the places set out above; (e) Mr Bak was named as the contact for the Owner – JM World – in the contract; (f) all of the details, including JM World, were on the executed contract when it was sent back to Mr Coddington by way of exchange; (g) all invoices etc issued by SDC to Mr Choi and from Mr Choi to Mr Bak made no reference to JM World, only Mr Bak; (h) insurance, as required under the Home Building Act 1989 (NSW) was subsequently taken out by SDC naming Mr Bak as “Homeowner”; (i) the owners of the property were at all times Ms Kim as to 99/100 and Mr Bak as to 1/100; (j) no contention was made by Mr Bak in relation to the SOPA adjudication that JM World was not a party to the contract – it appears to have been accepted at this time that it was; and (k) there is nothing in the financial statements for JM World to suggest that the costs of the construction work were recorded as expenses of JM World.
Dealing first with the question of parties on the basis that it is a question of construction of a written agreement where subsequent conduct is not admissible, it seems to me to be tolerably clear that the party to the agreement is JM World and not Mr Bak.
Given that it is a question of construction, the well known principles apply: see Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] per French CJ, Hayne, Crennan and Kiefel JJ and the further principles I summarised in Union Fidelity Finance (Aust) Pty Ltd v Renauf [2025] NSWSC 356 at [75]-[80]; (see also In the matter of DCM Solar Pty Ltd (in liq*)* [2013] NSWSC 323 at [7]ff per Black J).
The starting, and perhaps end point, is that the “Owner” is clearly named in the contract as JM World. There is no suggestion that in the context of a home building contract that the contract was required to be with the owner of the property on which the building work was being conducted. There is nothing in the terms of the contract to this effect. In any event, this would perhaps not assist Mr Bak as he is only a 1% owner of the Killara Property. I thus reject the contention put by Mr Bak’s counsel that the contract had to be – as a matter of law I assume – the actual registered proprietor of the property on which the building work is being carried out. No probative reason was advanced as to why this was so.
The references to Mr Bak in the contract, including his signatures where they appear, would not, in my view, cause a reasonable person in the position of the parties to conclude that it was Mr Bak who was intended to be a party and not JM World.
Mr Bak is named as the contact person for JM World. He has signed on page (i) next to owner where a signature is required on behalf of the owner. Obviously enough, this requires an act by a person and in the case of an owner being a corporation – as in the case here given JM World is named as the owner – Mr Bak’s signature is at least equally consistent with him executing the contract on behalf of the owner as a director of JM World. The same may be said of his signature on page (iii). Most important, in my view, are the signature and the handwritten words on page (v). Mr Bak has signed, written his name and written “Director” next to “Capacity”. The note immediately above this reads:
Where the Owner is a company….the capacity of the person signing the contract, eg director, must be inserted.
If, as Mr Bak contends, he was the Owner and contracting party, there was no need at all for this section to be completed by Mr Bak. The fact that it was completed, and the way it was completed, is consistent, and only consistent, in my view, with JM World being the intended contracting party. I do not accept Mr Bak’s evidence that he was only indicating his title in completing this section, in a way (so the submission advanced by his counsel went) similar to what he did when making his affidavits in these proceedings. This makes no sense. If Mr Bak was intending to sign in his personal capacity there is no reason for him to have indicated some capacity which was completely unrelated to the capacity in which he was signing the contract. On the plain terms of the document it was only necessary for the capacity to be completed where the owner was a corporation.
A reasonable person in the position of the parties would also take these matters into account in considering what to make of Mr Bak’s signature on the preceding pages of the contract next to “Owner”. None of the earlier signatures require the person signing to indicate the capacity in which the person is signing. The only place this is called for is on page (v). Having regard to the named “Owner” and each of the signatures, together with Mr Bak being named as the contact person for the “Owner”, a reasonable person in the position of the parties would conclude that it was intended that JM World was to be the party and Mr Bak was executing the contract on JM World’s behalf as its director.
If regard is also had to the subsequent conduct, my conclusion is the same. The principal subsequent conduct relied on by Mr Bak was the certificate of insurance and the subsequent invoices and progress claims – all of which referred to Mr Bak as the homeowner. All of this is consistent, in my view, with Mr Bak being the contact person for JM World named in the agreement as such. He was also the person that Mr Choi was dealing with. None of this would lead a reasonable person, in the position of the parties, to conclude, notwithstanding the clear terms of the contract, that Mr Bak was intended to be the contracting party and not JM World.
For completeness, I also do not regard any of the subsequent conduct as an admission. Again, as I understood the arguments, the principal contention in this regard was that the failure of SDC to subsequently refer to JM World but rather refer to Mr Bak personally, was an admission against SDC. I am not satisfied that any of this conduct amounts to an admission. Again, it is entirely consistent with Mr Bak being the contact person for JM World named in the contract. I am not satisfied that SDC was aware prior to the time that payment stopped and legal advice was sought, that JM World was not the owner of the Killara Property.
I am satisfied that JM World is indebted to SDC for $519,473.41 for building work carried out under the contract. There was no real attempt to establish to the contrary. It is, in substance, the amount determined by the adjudicator appointed by the MBA and then recorded in the District Court judgment. Whilst no estoppels arise out of these matters, it is of some significance that the adjudicator determined the amount to be relevantly owing.
Various assertions were made by Mr Bak of substantial cost overruns in relation to the work and that the original estimate was significantly exceeded. I am also aware that he refused to pay the last set of invoices. There was, however, no evidence brought forward by Mr Bak to prove any claim of overcharging.
Against this, Mr Coddington was not seriously challenged to suggest that the amounts invoiced to JM World were not payable under the contract.
The case originally advanced by the plaintiffs, as I understand it, was that all of the moneys paid to SDC in relation to the Killara Property, came from JM World funds.
Come the hearing, and closing submissions, the plaintiffs’ contention was that $386,448.16 of JM World’s money was used to pay SDC for the building work.
The case advanced in this regard was said by the plaintiffs to involve a process of inferential reasoning based upon:
(a) the large amounts of cash being deposited to the personal accounts of Ms Kim and Mr Bak and their companies, said to total $2,215,445.89; and (b) the complete absence of any credible evidence which would satisfy the Court as to an alternative source of those moneys other than the takings from JM World.
(a) $107,487.86 from card entries/cash deposits; (b) $15,000.00 from trading receipts in JM World bank accounts; and (c) $263,960.30 in cash paid directly by Ms Kim to SDC.
Senior counsel for the plaintiffs frankly conceded that if I did not accept the proposition that all of the cash – either deposited into the bank accounts or paid directly by Ms Kim to SDC – must have been from JM World trading (cash proposition), “this part of the case is in serious trouble”.
I deal with (a) and (c) together in circumstances where, as I understand it, they are based on the cash proposition. I deal separately with (b) – the $15,000 – as this is not based on the cash proposition.
For the reasons set out below, I do not accept that the plaintiffs have established the cash proposition.
The starting point, obviously enough, is that the plaintiffs bear the onus on this issue. The proposition also has a degree of seriousness to it in the sense that, as I explain below, it included an allegation that JM World’s financial affairs were being conducted in ignorance of JM World’s obligations to the Australian Taxation Office (ATO). I bear the nature of the allegation in mind in considering whether I am satisfied that it has been proved: see s 140 of the Evidence Act 1995 (NSW). Senior Counsel for the plaintiffs accepted that this was the appropriate approach.
The starting, and perhaps end point, is the contention alluded to immediately above, that JM World was essentially being run as a cash business. The process of inferential reasoning to this conclusion was that it is clear that Mr Bak and Ms Kim had access to substantial amounts of cash – as evidenced by the cash payments made by Ms Kim to SDC and the substantial cash deposits into bank accounts under the control of Ms Kim and Mr Bak – it is also clear that JM World (owned and controlled by Ms Kim and Mr Bak) was conducting a business in Australia, and there was no other credible explanation put forward by Mr Bak or Ms Kim as to the source of the cash.
The response came largely from Mr Bak. Ms Kim’s evidence is largely irrelevant as to this issue, given that whilst she was aware of the substantial cash, she was not really aware of its source. Her only evidence in this regard was that Mr Bak would bring cash from Korea after selling properties in Korea.
Mr Bak’s evidence was to the effect that the business in Australia was not very successful and that the cash was brought in from Korea, sourced either from takings from the businesses conducted by Mr Bak in Korea, or the sale of properties previously owned by Mr Bak in Korea.
Some support for Mr Bak’s account is that it did not appear to be disputed that he conducted businesses in Korea – JM World Korea and Skin & Co Korea to name two. It also did not appear to be disputed that the Korean businesses were much bigger than the Australian business.
It is also not in dispute that the financial statements for JM World did not record any of the cash trading which the plaintiffs contend occurred. The plaintiffs obviously contend in this regard that the financial statements are not accurate. This is in contrast with the position advanced by the plaintiffs in relation to the May 2021 payments made to the overseas companies from the proceeds of sale of the Roseville Property. A central plank in the plaintiffs’ case in this regard is the fact that none of the entities to which payments were made were recorded as creditors in JM World’s financial statements. The plaintiffs embraced the accuracy of the financial statements in this regard, cross-examining Mr Bak to the effect that he knew they were accurate. There is thus an inconsistency in the plaintiffs’ position on the accuracy of the financial statements.
As set out above, the claim as ultimately pursued in relation to the Building Work Claims, was for breach of directors’ duties.
I have set out earlier in these reasons a basic outline of the relevant duties.
Mr Bak’s defence was simply that JM World was not a party to the contract and that it was Mr Bak personally who was the party. For the reasons set out above, I have rejected that contention.
In these circumstances, Mr Bak has no real defence to the contention that he breached his directors’ duties. It is no defence in this regard to say that Mr Bak was not aware and/or did not intend, that JM World be the contracting party. In any event, I do not accept this contention.
There was no dispute that JM World had no interest in the Killara Property and as such did not derive any benefit from the building work carried out in relation to the Killara Property.
I am satisfied that Mr Bak breached his duties as a director under the Act and at general law.
Ms Kim’s defence appeared to be primarily based on her lack of any awareness that the contracting party was JM World, or indeed lack of awareness about anything to do with JM World. The difficulty for Ms Kim is that she really did nothing to fulfill the minimum of what was expected of her as a director: see DCT v Clark. Her evidence really went no further than what she was told by her husband about a year after she had in fact been appointed that she had been made a director “just in case”. Beyond that, it appears that on occasions, Ms Kim executed several documents on behalf of JM World although at times in her cross-examination she denied having done so and having any recollection of doing so. She also made the cash payments as and when requested by Mr Bak.
No case was advanced by Ms Kim that she fulfilled the minimum obligations of a director including that there was some basis on which she was entitled to rely on what Mr Bak was doing.
I am thus satisfied that Ms Kim also breached her duties as a director both under the Act and at general law.
The loss suffered by JM World by reason of the breaches of directors’ duties is the quantum of the outstanding liability which JM World still has to SDC. This amount is $519,473.41.
There should be an order that each of Mr Bak and Ms Kim pay the first plaintiff the sum of $519,473.41 plus any pre-judgment interest thereon.
The plaintiffs also sought a form of proprietary relief against the Killara Property for this amount.
In closing submissions, senior counsel for the plaintiffs contended that the plaintiffs were entitled to an equitable charge over the Killara Property. Reliance was placed on the decision of Black J in *) v Leon Plant Hire Pty Ltd (in* *)* (2015) 16 ASTLR 185; [2015] NSWSC 397 (). Particular reliance was placed on [66] of Black J’s judgment which provides:
[66] The Plaintiffs sought, but did not advance substantive submissions as to, an alternative remedy of an equitable lien or equitable charge. Courts have imposed an equitable lien or charge as a proprietary alternative to the constructive trust in circumstances where, for example, a trustee has mixed trust funds with its own funds or has subsequently acquired an asset: Re Hallett’s Estate; Knatchbull v Hallett (1879) 13 Ch D 696; see also Hewett v Court (1983) 149 CLR 639 at 668. It seems to me that the imposition of relief in that nature is justified by the matters to which I have referred above and will sufficiently protect the Plaintiffs’ interests, and I will hear the parties as to the form of order that should be made to give effect to that relief. Although relief was sought by way of an order for judicial sale, no submissions were put in that regard by Counsel and no basis has been established for making such an order at this point.
We say the company is in the same position as Lyon Form was in that instance, that is, it is entitled to make a claim to the proceeds or what presently represents the benefit obtained by the director from the misuse of company money or the wrongful exposure of the company to liability to the builder, and that that is reflected in the value or the cost of the work which the company is liable for being work done on the property of the two directors and in particular Mrs Choi and that amongst the different types of relief that equity would grant.
The circumstance that his Honour is referring to there is one, again, more of the wrong in that case was a mixing of trust property in the purchase of an asset. We say that, at the level of principle is not meaningfully different from a situation where it’s not mixed, but the benefit is transmitted in the way that we described occurred by the retention of the builder.
Equitable lien does not depend either upon contract or upon possession. It arises by operation of law, under a doctrine of equity “as part of a scheme of equitable adjustment of mutual rights and obligations”; those words of Isaacs J. were used in Davies v. Littlejohn (1923), 34 CLR 174, at p. 185, in relation to the doctrine of vendor’s lien, but they have a general application. It would be difficult, if not impossible, to state a general principle which would cover the diversity of cases in which an equitable lien has been held to be created. A vendor’s lien for unpaid purchase money has been said to be founded on the principle that “a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration”: Mackreth v. Symmons (1808), 15 Ves. 329, at p. 340; 33 ER 778, at p. 782. The lien of a purchaser for the purchase money that he has paid to the vendor on a sale that has gone off through no fault of the purchaser may perhaps rest on the converse principle that he who has agreed to convey property in return for a purchase price will not be allowed to keep the price if he fails to make the conveyance. At all events, the rule has been said to be founded on “solid and substantial justice”: Rose v. Watson (1864), 10 HLC 672, at p. 684; 11 ER 1187, at p. 1192. In each of these cases the vendor or the purchaser, as the case may be, is treated as a secured creditor (cf. Combe v. Lord Swaythling, [1947] Ch. 625, at p. 628) — the lien is the security for the money which is justly due. In other circumstances an equitable lien may arise because of the relationship that exists between the parties (for example, that of partnership, or trustee and beneficiary or solicitor and client) or by reason of subrogation or estoppel. Cases of this kind, which will be found discussed in the textbooks (see Sykes, The Law of Securities, 3rd ed., pp. 164-167; Ashburner on Mortgages, 2nd ed., pp. 112-125; and Halsbury’s Laws of England, 4th ed., vol. 28, pars. 566-573), do not closely resemble the present, but their existence shows that the rules governing the circumstances in which equity has considered that justice requires the recognition of the existence of a lien are not confined to one narrow category. Indeed, as Professor Sykes suggests (op. cit., at p. 164), the list may not be a closed one.
In the present case the appellants naturally sought to draw an analogy with those cases in which property in the hands of a vendor has been held to be subject to an equitable lien in favour of the purchaser for the amount paid by way of deposit and purchase money. The right to a lien in such a case is not limited to the sale of land; it extends also to the sale of personal property: Barker v. Cox (1876), 4 Ch.D. 464; Imperial Ottoman Bank v. Trustees, Executors and Securities Insurance Corp. (1895), 13 R 287; Levy v. Stogdon, [1898] 1 Ch. 478 (affd., [1889] 1 Ch.5); Hannam v. Lamney (1926), 43 WN (N.S.W.) 68. However, it is a question whether the legislation which in Western Australia takes the form of The Sale of Goods Act, 1895 (WA) is such a complete code that there is no room for the creation of equitable liens by operation of law in respect of goods whose sale is governed by that legislation. That is a question which, in Australia, remains an open one, but for reasons which will appear it is unnecessary to express any views upon it in the present case.
The plaintiffs’ contention was that in circumstances where the moneys the subject of Mr Bak and Ms Kim’s liability to JM World are directly referable to building work performed by SDC on the Killara Property owned by Ms Kim and Mr Bak, the Killara Property should be charged with repayment of the liability of Mr Bak and Ms Kim to JM World.
Little was said in submissions by the defendants on this point.
I am satisfied for the reasons set out below that this is an appropriate case to impose an equitable charge over the Killara Property to secure repayment of Mr Bak and Ms Kim’s liability to JM World in respect of the Building Work Claims.
In Stewart v Atco Controls Pty Ltd (in liq*)* (2014) 252 CLR 307; [2014] HCA 15 at [13]-[17] the High Court (Crennan, Kiefel, Bell, Gageler and Keane JJ) stated:
[13] In Hewett v Court, Deane J explained that an equitable lien is a right against property which, although called a lien, is, in truth, a form of equitable charge over the subject property. It will be observed from the passage in Universal Distributing that the charge securing a liquidator’s realisation costs will take priority over a secured creditor’s charge.
[14] In Davies v Littlejohn, Isaacs J explained that an equitable lien arises by operation of law, under a doctrine of equity, ”as part of a scheme of equitable adjustment of mutual rights and obligations”. It may arise in a number of contexts. His Honour was there discussing the vendor’s lien, but, as Gibbs CJ noted in Hewett v Court, the words are of “general application”.
[15] Gibbs CJ observed in Hewett v Court that it is not possible to state “a general principle which would cover the diversity of cases in which an equitable lien has been held to be created”. However, equity has been able to develop and state a principle to be applied in or with respect to particular circumstances or relationships.
[16] With respect to a vendor’s lien for unpaid purchase money, Gibbs CJ said that such a lien is founded on the principle that “a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration”. The lien of a purchaser is based on a converse principle. In both cases, the lien is for money “justly due”. More closely analogous to the present case is the solicitor’s particular lien (which may be distinguished from the general or retaining lien that entitles retention of documents until fees are paid), which arises over any property recovered or judgment obtained by a solicitor’s work. In Guy v Churchill, Lindley LJ said that “[i]t is right that they who get the benefit of the recovery of money should bear the expense of recovering it”. A similar notion underlies the principle expressed in Universal Distributing. A secured creditor cannot lay claim to the benefit of realised assets without the costs of their realisation being met.
[17] Generally speaking, in a system based on case law, the type of general principle to which Gibbs CJ referred in Hewett v Court is derived from judicial decisions on particular instances. The principle stated by Dixon J in Universal Distributing was derived from the earlier decisions of the equity courts to which his Honour referred.
The equitable lien is not confined in its operation to cases where the parties are in contractual relations (as with vendor and purchaser). It has been described as an equitable remedy, created by the Court, regardless of the intent of the parties, as a remedial device to protect a party against some inequitable loss.
It is clear that one of the cases where the Court will impose an equitable charge or lien over the assets held by a wrongdoer is to the extent that the funds of the plaintiff were used to acquire, improve or maintain the wrongdoer’s assets: see for example Westpac Banking Corporation v Sentox Pty Ltd (No 2) [2024] NSWSC 783 referring to In re Hallett*’*s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 at 717 per Jessel MR and Lyon Form at [66] per Black J.
The present case is, in my view, in substance such a case where JM World funds have been used to improve Mr Bak and Ms Kim’s asset being the Killara Property. In permitting or causing this to occur, Mr Bak and Ms Kim breached their duties - both statutory and at general law.
It is appropriate in the circumstances to charge the Killara Property with repayment to JM World of the moneys due to JM World by Mr Bak and Ms Kim in relation to the Building Work Claims.
The Payment and Retention Receipt Claims were put on a number of bases.
First, that each of the three payments and the retention was an uncommercial transaction within the meaning of s 588FB of the Act in that each was a transaction that a reasonable person in JM World’s circumstances would not have entered into having regard to the absence of any benefits to JM World of entering into the transaction, the detriment to JM World of entering into the transaction and the benefits to Mr Bak of entering into them. These claims are essentially predicated on the basis that none of the three recipients or Mr Bak was a creditor of JM World at the time of the payments.
Second, if the Court finds that any of the three recipients or Mr Bak were creditors at the time of payment, the payments and retention, as the case may be, were an unfair preference within the meaning of s 588FA of the Act.
At the time of the payments and retention – 5 May 2021 – it was contended that JM World was insolvent or alternatively became insolvent because of matters including the payments and the retention. As a result, each of the payments and retention was:
(a) made, entered into or given effect to during the period of six months ending on the relation-back day; and hence (b) voidable pursuant to s 588FE(2) of the Act.
(a) an unreasonable director-related transaction within the meaning of s 588FDA of the Act, in that each was a payment or a disposition of property of JM World made to a close associate of Mr Bak, or alternatively to a person on behalf of or for the benefit of Mr Bak, being a transaction which it may be expected that a reasonable person in JM World’s position would not have entered into having regard to the respective benefits and detriments to JM World of entering into the transaction and the benefits to the other parties to the transaction of entering into it; (b) made, entered into or given effect to during the period of four years ending on the relation-back day; and hence (c) a voidable transaction pursuant to s 588FE(6A) of the Act.
(a) a creditor-defeating disposition within the meaning of s 588FDB of the Act, in that the consideration paid to JM World for each disposition was nil, or alternatively the payment to each respective creditor was greater than the amount of JM World’s indebtedness to that creditor and each disposition had the effect of preventing the subject amount from becoming available for the benefit of JM World’s creditors in its winding up or hindering or significantly delaying the process of making it available for the benefit of JM World’s creditors in its winding up; (b) made, entered into or given effect to when JM World was insolvent during the period of 12 months ending on the relation-back day; and hence (c) voidable pursuant to s 588FE(6B) of the Act.
In relation to this suite of voidable transactions, each payment and retention was said to be recoverable by JM World from Ms Kim and Mr Bak pursuant to s 588FF of the Act.
Separate to the voidable transaction claims it was contended that in making, causing or permitting to be made the payments and the retention, each of Ms Kim and Mr Bak was in breach of their general law and statutory duties as a director under ss 180, 181 and 182 of the Act. A particular aspect of this part of the case was the nature of the duties owed by directors in times of insolvency in preferring one creditor over another. I have set out earlier in these reasons the relevant duties in this regard.
I consider briefly the provisions of the Act relevant to the claims under Pt 5.7B of the Act.
[Where transaction uncommercial]
A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(a) the benefits (if any) to the company of entering into the transaction; and
(b) the detriment to the company of entering into the transaction; and
(c) the respective benefits to other parties to the transaction of entering into it; and
(d) any other relevant matter.
[Voidable where company insolvent]
The transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b) it was entered into, or an act was done for the purpose of giving effect to it:
(i) during the 6 months ending on the relation-back day; or
(ii) after that day but on or before the day when the winding up began.
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into; or
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b) the company becomes insolvent because of, or because of matters including:
(i) entering into the transaction; or
(ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
[Where transaction unfair preference]
A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a) the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
[Where transaction an unreasonable director-related transaction]
A transaction of a company is an unreasonable director-related transaction of the company if, and only if:
(a) the transaction is:
(i) a payment made by the company; or
(ii) a conveyance, transfer or other disposition by the company of property of the company; or
(iii) the issue of securities by the company; or
(iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b) the payment, disposition or issue is, or is to be, made to:
(i) a director of the company; or
(ii) a relative of a director of the company; or
(iii) a relative of a spouse of a director of the company; or
(iv) a person on behalf of, or for the benefit of, a person of a kind referred to in subparagraph (i), (ii) or (iii) ; and
(c) it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(i) the benefits (if any) to the company of entering into the transaction; and
(ii) the detriment to the company of entering into the transaction; and
(iii) the respective benefits to other parties to the transaction of entering into it; and
(iv) any other relevant matter.
The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.
(1) [Where company is being wound up]
If a company is being wound up:
…
(b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 ;
…
(6A) [Voidable where unreasonable director-related transaction]
The transaction is voidable if:
(a) it is an unreasonable director-related transaction of the company; and
(b) it was entered into, or an act was done for the purposes of giving effect to it:
(i) during the 4 years ending on the relation-back day; or
(ii) after that day but on or before the day when the winding up began.
The authorities in relation to unreasonable director-related transactions were recently reviewed and summarised by McGrath J in In the m**atter of Sans Pareil Estate Pty Ltd (in liq*)* [2024] NSWSC 255 at [50]-[57] and even more recently by Bell CJ in Changela v Dracoma Pty Ltd [2025] NSWCA 186 at [20]-[21] (Changela).
At [57], McGrath J set out the following summary by O’Sullivan J in Cooper v CEG Direct Securities Pty Ltd [2024] FCA 6 at [25]:
[57] Finally, more recently in Cooper v CEG Direct Securities Pty Ltd [2024] FCA 6, O’Sullivan J at [25] referred to the judgment of Anastassiou J in Aviation 3030 Pty Ltd (in liq) v Lao [2022] FCA 458 at [286]–[320], [358]–[360] and [407], summarising the principles stated in Aviation 3030 as follows:
25.1 There are three conditions which are necessary to establish an unreasonable director related transaction. They are the matters listed in s 588FDA(1)(a)-(c): at [298]-[320];
25.2 Insolvency is not a necessary requirement of s 588FDA. Accordingly, the defence in s 588FG(2) of having no reasonable grounds to suspect insolvency has no relevance to whether a transaction is an unreasonable director-related transaction, citing with apparent approval McClure P in Weaver v Harburn [2014] WASCA 227; 103 ACSR 416 at [65]: at [290], [291];
25.3 Since the focus on s 588FDA is the reasonableness of the company’s conduct, it is not necessary for a liquidator to first prove any impropriety or breach of directors’ duties: Smith v Starke (No 2) [2015] FCA 1119; 109 ACSR 145 at [104] (Gleeson J); Weaver at [78]-[79];
25.4 The test in s 588FDA(1)(c) is an objective one, which requires ‘an answer to the question what a reasonable person in the company’s circumstances may be expected not to do’: Re IW4U Pty Ltd (in liq) [2021] NSWSC 40; 150 ACSR 146 at 162 [82], citing Crowe-Maxwell v Frost [2016] NSWCA 46; 91 NSWLR 414, at [71] (Beazley P) and Weaver at [91]. This test ‘substantially adopts’ the language used to identify an ‘uncommercial transaction’ in s 588FB of the Corporations Act, and for that reason, case law regarding s 588FB may provide useful guidance and analogy in cases involving s 588FDA: D Pty Ltd (in liq*) v Calas (Trustee), in the matter of D Pty Ltd (in* liq) [2016] FCA 1409 at [58]: at [308].
25.5 Section 9 of the Corporations Act relevantly defines ‘benefit’ in this context as being ‘any benefit, whether by way of payment of cash or otherwise’. Consistent with this, the Plaintiffs say case law suggests that ‘benefit’ is to be interpreted broadly: at [309].
25.6 The term ‘detriment’ is not defined in the Corporations Act, but it is generally accepted that, in this context, the word ‘refers to “commercial detriment” but is not limited to a detriment that can necessarily be measured in money terms’: Shot One Pty Ltd (in liq) v Day [2017] VSC 741 at [211] (Sloss J): at [310].
25.7 [T]he matters in para (c)(i)-(iii) of s 588FDA(1) are mandatory relevant matters in the evaluative assessment of what is objectively unreasonable. The ‘any other relevant matter’ requirement in para (c)(iv) recognises that relevance depends on the facts and circumstances of the particular case; Weaver at [92] (McLure P): at [311].
25.8 The test in s 588FDA(1)(c) is to be applied to the transaction ‘taking into account the circumstances as they exist at the time when the transaction is entered into’: Re IW4U at [79]. The enquiry requires the Court to consider ‘all relevant matters’: Frost at [70] (Beazley P), with each case being considered in accordance with its peculiar facts, circumstances and context”: Golden Heritage Golf Pty Ltd (in liq) (recs and mgrs apptd) v Sun [2016] VSC 167; 113 ACSR 550 at [73] (Sifris J): at [312].
25.9 ‘Normal commercial practice’ is a relevant, but not determinative, consideration when considering what a reasonable person in the company’s circumstances would do: Frost at [70]. Other considerations include the company’s status ‘and what flows from that; its controllers, shareholders, business and other activities; and the facts and circumstances of, and surrounding, the transaction’: Weaver at [91]. This may (but need not) include the company’s financial condition at the time of the transaction in question: Weaver at [65]. A relevant consideration is whether a benefit received by a party from the company is ‘of such commercial magnitude that it is not explainable by normal commercial considerations’: Slaven v Menegazzo [2009] ACTSC 94 at [46] (Mansfield J): at [313].
25.10 Where there is limited evidence of the nature or purpose of a transaction, but ‘the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties’, then ‘absent some commercial explanation’, courts may infer that the transaction is an unreasonable director-related transaction: Frost at [89]. In such circumstances, a defendant may be said to bear an evidentiary onus of raising some commercial explanation for the transaction: Frost at [90]: at [314].
In Changela at [30], Bell CJ referred with approval to the examples of unreasonable director-related transactions given by Gleeson J in Smith v Starke, In the matter of Action Paintball Games Pty Ltd (in liq*) (No 2)* (2015) 109 ACSR 145; [2015] FCA 1119 at [112].
At [31], Bell CJ catalogued some further examples from the cases including relevantly paying one creditor and leaving another significant creditor “hanging out to dry” as the company was “without funds to pay towards reducing its liabilities to other creditors”: In the matter of Bry**ve Resources Pty Ltd (2022) 163 ACSR 310; [2022] NSWSC 647 (Bryve Resources) at [96]-[101]. At [47], Bell CJ referred to other examples from the cases of a director stripping benefits out of companies to the director’s own advantages, or repayment of a loan in full when a company has other creditors whose payment is due or imminent.
[Orders court may make upon voidable transaction]
Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;
(b) an order directing a person to transfer to the company property that the company has transferred under the transaction;
(c) an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;
(d) an order requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following:
(i) money that the company has paid under the transaction;
(ii) proceeds of property that the company has transferred under the transaction;
(e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;
(f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned—an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;
(g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;
(h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
(i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;
(j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.
The first issue that arises is whether the payments which Mr Bak caused to be made from the proceeds of JM World’s Roseville Property were to creditors of JM World who received the payments in discharge of that indebtedness?
I have set out the relevant chronology in detail above. It is to be remembered that:
(a) SDC suspended building work on the Killara Property on 18 September 2020; (b) a SOPA adjudication application was subsequently filed by SDC against JM World and determined on 1 December 2020 in SDC’s favour in an amount of $514,967.85; (c) on 3 December 2020, JM World entered into an exclusive agency agreement to sell the Roseville Property; (d) Skin & Co AU was incorporated on 17 December 2020 with Ms Kim its only director and carried on the same business as JM World; (e) SDC subsequently registered the adjudication certificate in the District Court then issued a statutory demand on JM World on 12 January 2021. An application to set aside the statutory demand was filed by JM World and subsequently dismissed; (f) on 12 March 2021 a contract for the sale of the Roseville Property was entered into for $1.8 million; (g) JM World ceased to trade in April 2021; (h) the contract settled on 4 May 2021. The net proceeds were $1,034,719.09. On 4 and 5 May 2021 a series of transactions were effected resulting in:
(i) $50,000 of the net proceeds being retained by Mr Bak; (ii) $610,472 being paid to JM World Korea; (iii) $231,052 being paid to Skin & Co Korea; and (iv) $142,572 being paid to Aster Biyou.
(i) JM World was wound up on 22 June 2021.
As shown in the “Received” item in the invoice, issued 21st May, 2021, Aster Biyou received 11,892,037JPY, which corresponds to the concerned amount of 142,572 USD.
But you can easily understand by the invoices that Aster Biyou sold products to JM World Co, Ltd., which is a company established according to the law of Japan. Aster Biyou does not conduct any business directly to JM World AU PYU LTD (“THE COMPANY”).
Accordingly, we wonder why the amount of 142,572 was paid by THE COMPANY, not by JM World in Japan.
As we mentioned above, Aster Biyou does not do any business with THE COMPANY. So, there are no amounts THE COMPANY owed to Aster Biyou and no existence of any contractual arrangements.
Mr Bak contended that each of JM World Korea, Skin & Co Korea and Aster Biyou were creditors of JM World. His evidence in support of this contention was contained in his affidavit of 30 June 2023.
In relation to Aster Biyou, Mr Bak gave evidence that JM World purchased products from Aster Biyou between 2014 and 2019. He listed in his affidavit a number of the invoices which he says were outstanding as at May 2021, and attached copies of these purported invoices (totalling ¥5,283,628). In relation to the Kato email, Mr Bak stated:
Mr Hiroshi Takamatsu was the founder and CEO of Aster Biyou. When he was CEO, Aster Biyou and JM World AU had many business dealings with each other. The business dealings included the supply of goods and a licencing agreement to sell Aster Biyou product in Australia. Mr Hiroshi Takamatsu passed away in 2019 and his son Mr Shoki Takamatsu became the CEO. During 2020 Mr Shoki Takamatsu was hospitalised for a prolonged period whilst infected with the COVID-19 virus. During this time Mr Murata with whom I have no relationship became an acting CEO. As Mr Murata was unfamiliar with the trading business relationship between Aster Biyou and JM World AU, I suspect that Aster Biyou did not properly check its records before Mr Mitsuhiro sent that email.
In relation to JM World Korea, Mr Bak gave evidence that JM World purchased products from JM World Korea. He attached copies of eight invoices from JM World Korea between 2017 and 2019. The eight invoices totalled $268,465.70.
In relation to Skin & Co Korea, Mr Bak gave evidence that JM World Korea purchased products from Skin & Co Korea and the products were supplied to JM World. Two invoices were attached to Mr Bak’s affidavit apparently from Skin & Co Korea dated 7 September 2017 (for $136,730 AUD) and 29 April 2021 (for ₩531,049,788) being issued by JM World and paid on 5 May 2021. This appears to be the invoice earlier said to have been received from Skin & Co Korea.
I am not satisfied that JM World Korea, Skin & Co Korea or Aster Biyou were in fact creditors of JM World as at 5 May 2021. I place particular emphasis in this regard on the absence of any record of any such indebtedness in the financial statements for JM World including the most recent general ledger. Mr Bak was unable to provide any sensible explanation as to why the alleged indebtedness was not incorporated into the financial statements.
I am also quite troubled by the circumstances in which the purported invoices were produced. They were not contained in the records produced to the second plaintiff. Mr Bak was not able to produce any when asked in his liquidator’s examination. They were only produced at the time of Mr Bak’s 30 June 2023 affidavit.
These matters cause me to doubt the authenticity of the invoices. Further, the value of the invoices does not appear to support the payments made. The position is complicated by Mr Bak’s inconsistent referencing in his affidavit to the 29 April 2021 purported invoice for ₩531,049,788 which is separately attributed to both Skin & Co Korea and JM World Korea.
In relation to Aster Biyou, I have no reason to doubt Mr Kato’s email. It is wholly uncontradicted. This is in circumstances where Mr Bak is the owner of JM World Korea and Skin & Co Korea. If the contention advanced in the email was said to be false, Mr Bak could presumably have proved this from the records of the Korean companies. Further, as set out at the commencement of these reasons, Mr Bak did serve three affidavits from persons purporting to corroborate his position in relation to the three overseas entities, but these affidavits were not read.
The inescapable inference is that by paying Aster Biyou, Mr Bak was discharging a debt owed by JM World Korea and thus was to his benefit.
Each of these matters enable me to more comfortably infer that which emerges from the other evidence – particularly the absence of any reference to these three companies as creditors in the financial statements – namely that they were not creditors.
I am conscious that I am reaching this conclusion in circumstances where Mr Bak was not extensively cross-examined on this point at the hearing. Mr Bak was questioned about it in the earlier liquidator’s examination and, as set out above, was not able to then produce any documents supporting his claim. Mr Bak was obviously well aware of the claim advanced by the liquidator and was extensively cross-examined at the hearing including as to his credit. As set out above, I approach Mr Bak’s evidence with caution. This is an issue where I do not accept his evidence.
Mr Taylor’s report expresses the conclusion that JM World was insolvent as at 5 May 2021. There was no serious challenge to this evidence. I accept it.
Further, Mr Bak admitted in his liquidator’s public examination that once the money was paid away to the Korean and Japanese entities, the company was left with no money to pay its creditors.
For completeness, I do not accept the contention that there was a possible return of funds to the company from the sale of the Roseville Property and remitted to the ATO. No evidence was led by Mr Bak in support of this contention. It was denied by Mr Taylor in cross-examination. Mr Taylor also went on to explain that subsequent enquiries with the ATO had elicited the response that no refund was or would be payable until such time as all returns were lodged and that in any event, JM World’s liability for capital gains tax (presumably on the sale of the Roseville Property) at least equalled the amount of the retention. The ATO also lodged a proof of debt in the liquidation of JM World for $102,556.01, which was admitted in full.
I consider first the claims under Pt 5.7B of the Act and then consider the claims for breach of director’s duties.
No issue arises as to the timing of the relevant transactions relevant to the winding up of JM World. There is also no need, in my view, for any detailed discussion of relevant principles or to consider each and every one of the many claims advanced under Pt 5.7B. The position is quite straightforward.
I consider first the retention claim of $50,000.
I am satisfied that this payment and retention constitutes an unfair preference.
The only real defence mounted by Mr Bak was that at the time the payment was made and retained by Mr Bak, JM World was not insolvent. It was contended that the payment was made prior to the overseas payments and was a repayment to Mr Bak for advances made to the company during the COVID 19 pandemic.
At the time of the retention, JM World had ceased to trade, with Skin & Co AU having been incorporated to take over its business. Its only asset – the Roseville Property – had been sold and the proceeds were, or were very shortly thereafter, on their way overseas in purported payment of debts owing to related companies of Mr Bak in Korea, or in the case of Aster Biyou, in satisfaction of debts owed to Aster Biyou by JM World Korea.
As Mr Bak freely admitted during his liquidator’s examination, once the money was paid away, JM World was left with no money to pay its creditors – including SDC and the ATO.
There was no submission advanced against the proposition that the effect of the payment to Mr Bak is that Mr Bak has received more than he would in a winding up.
I am also satisfied that the $50,000 retention was an unreasonable director related transaction. A reasonable person in the company’s circumstances would not have entered into the transaction. The transaction is of a similar character to the transactions that have been found in other cases to be unreasonable director related transactions – see Changela above. At a time of insolvency, when Mr Bak was being chased by creditors of JM World, including SDC, Mr Bak was preferring himself and leaving others out to dry.
I now turn to consider the overseas payments. I do so on the principal basis that, as I have found above, none of the recipients, JM World Korea, Skin & Co Korea and Aster Biyou were creditors of JM World at the time of the payment. (As I set out below, even if they were creditors, the end result is the same).
The background facts extant as at the time of the payments have been set out earlier in these reasons and need not be repeated.
The payments are clearly unreasonable director-related transactions. They involve stripping the company of all or virtually all of its then assets at a time of insolvency and paying them away to Mr Bak’s Korean companies – in the case of JM World Korea and Skin & Co Korea – and in the case of Aster Biyou, to satisfy a liability of JM World Korea to Aster Biyou. JM World received no benefit from any of the payments.
The relief sought by the plaintiffs for the breaches of Pt 5.7B was for Mr Bak to repay the entirety of the $50,000 retained and the three overseas payments as they each represented a benefit to him: see s 588FF(1)(c). I am satisfied that Mr Bak received a benefit in respect of the $50,000 retention and the three payments. In the case of JM World Korea and Skin & Co Korea, that benefit is clear – Mr Bak’s Korean companies received the money. In the case of Aster Biyou the benefit is slightly less direct but equally clear. The payment satisfied an obligation of Mr Bak’s JM World Korea to Aster Biyou. This is how Aster Biyou treated it.
It is not clear whether Ms Kim had any ownership interest in JM World Korea and Skin & Co Korea and thus whether she received a benefit from the transactions.
I now consider whether Mr Bak and Ms Kim breached their duties as directors in making, causing or permitting the Payments and Retention.
I have set out the relevant duties earlier in these reasons from Gleeson J’s summary in IW4U. As there set out, in the context of insolvency, or near insolvency, which includes a real and not remote risk that creditors will be prejudiced by the dealing in question, the standard under s 181(1) entails an obligation on the directors to take into account the interests of creditors: see also Bryve Resources at [61]-[66] per Williams J.
The claims against Mr Bak and Ms Kim must be considered separately.
Dealing first with Mr Bak, I am satisfied that in causing the payments to be made and retaining the $50,000, Mr Bak breached his duties under s 181 of the Act.
At the time of the payments and retention JM World had ceased to trade, a new entity had been incorporated to carry on its business, its only asset had been sold and JM World had substantial creditors including SDC and the ATO. SDC had been pressing for payment for some time.
JM World was insolvent.
Mr Bak took no account of the interest of creditors. He acted in flagrant disregard of them in causing the three payments to be made overseas and in retaining the $50,000 for himself.
In the case of Ms Kim, the case is, again, one of omission. At the time of the payments and retention, Ms Kim:
(a) was aware that many years earlier she had been informed by her husband that she had been made a director of JM World “just in case”; (b) had never really taken any role whatsoever in relation to JM World; (c) from time to time she had executed documents on behalf of JM World; (d) was aware that Skin & Co AU had been incorporated and that she was a director of it and that it had entered into a lease with JM World in relation to the Roseville Property; (e) was aware from what her husband had told her that the business in Australia was not doing well; and (f) was aware that the Roseville Property was being sold.
Ms Kim did nothing to inquire of Mr Bak as to what was happening with the proceeds from the Roseville Property or what arrangements were in place (if any) with respect to the payment of JM World’s creditors.
Again, in my view, Ms Kim fell well short of the core irreducible requirement of a director. Much was said by counsel for Mr Bak and adopted by counsel for Ms Kim that Ms Kim had no knowledge of the contracting party in relation to the Killara Property or the payments overseas or the retention of the $50,000. I do not regard this lack of knowledge as assisting Ms Kim on the issue of breach of duty. Her lack of knowledge was in the context of never taking any role whatsoever in relation to JM World. Concluding that she is not acting in breach of her duties would run counter to the well-established law of the minimum expected of directors.
For completeness, I am not satisfied that there is any basis to impose a charge over the Killara Property to secure repayment of the Payment and Retention Receipt Claims.
The claims against Ms Kim were based on omission, not commission. Ms Kim’s defence was, in substance, that she left the running of JM World to her husband and was not aware of the circumstances in which the building contract was entered into, or the payments made from the sale of the Roseville Property.
These matters – which were not seriously in dispute – do not avail Ms Kim as a defence to a claim for breach of directors duties. As set out earlier in these reasons, it is clear that a director has core irreducible obligations which she did not live up to.
Ms Kim’s circumstances post her accident, which to some extent explain her conduct or lack of conduct, are relevant only to her reliance on ss 1317S and 1318 to which I now turn.
Ms Kim relied on both ss 1317S and 1318 of the Act.
In ASIC v Healey (No 2) (2011) 196 FCR 430; [2011] FCA 1003 at [83], Middleton J observed that ss 1317S and 1318 make substantially identical provision for relief of persons who have or may have contravened a civil penalty provision (s 1317S) or who are or may be liable in respect of negligence, default, breach of trust or breach of duty in the capacity of, among others, an officer of the corporation (s 1318); see also ASIC v Cassi**matis (No 8) (2016) 336 ALR 209; [2016] FCA 1023 at [807] per Edelman J.
At [84], Middleton J stated that both ss 1317S and 1318 involve three stages of inquiry:
(a) whether the applicant for relief has acted honestly; (b) whether having regard to all the circumstances the applicant ought fairly to be excused; and (c) whether the applicant be relieved from liability wholly or in part, and if partly, to what extent.
Even if I were satisfied that they had acted honestly, I would still not be satisfied that they ought fairly be excused from liability: for the reasons referred to above in connection with honesty, because those matters also bear on the considerations of fairness and commonsense; but more fundamentally because relieving the directors would prejudice the plaintiffs. This is not a case of a contravention which has had no detrimental impact on the company or the other shareholders; it has depleted the equity, which ought to have been available for distribution among them. That of itself is a compelling and sufficient reason for concluding that the directors ought not fairly be excused [cf Re Wave Capital Ltd, [29]].
(see also In the matter of ZH International Pty Ltd (in liq*)* (2022) 160 ACSR 473; [2022] NSWSC 2 at [250]-[253] per Rees J).
Counsel for Ms Kim placed reliance on what was said by Palmer J in Southern Cross Interiors Pty Ltd (in liq*) v Deputy Commissioner of* Taxation (2001) 39 ACSR 305; [2001] NSWSC 621 at [123]-[135].
Considerable care must be taken in relation to this aspect of Palmer J’s decision in circumstances where it was overturned by the Court of Appeal in DCT v Clark.
At a factual level, Ms Kim’s application to be relieved from liability centred on her inability to fulfil her role as a director by reason of the consequences of her accident. The principal evidence, in addition to that given by Ms Kim herself, was given by the psychologists. I have summarised my findings earlier in these reasons in relation to the psychologists and Ms Kim.
I am not satisfied that this is an appropriate case in which Ms Kim should be relieved from liability.
Whilst I am satisfied that at all times Ms Kim acted honestly, I am not satisfied that in all the circumstances Ms Kim ought fairly to be excused. It was not in dispute that excusing Ms Kim would cause prejudice to JM World. Excusing Ms Kim in relation to the Building Work Claims would also lead to the perverse situation of Ms Kim being released from a liability from which she has directly personally benefited in that the liability relates to substantial building work carried out at the Killara Property, which Ms Kim owns 99 of 100 shares as tenants in common with Mr Bak and in which Ms Kim and her family lives.
For the reasons set out above, the plaintiffs have in substance succeeded in their claims against both defendants although, in relation to the Building Works Claims, not in the amount sought.
More particularly, I have determined: the parties should seek to agree orders to give effect to these reasons and any remaining issues will be determined on the papers.
I do not propose to make final orders but will direct the parties to seek to agree orders, including as to costs. I will determine any remaining issues on the papers. If any party contends that I have not dealt with any substantive issues raised by the parties, that can be raised within the timeframes set out below.
Absent any basis for a special costs order, it seems to me that the defendants should pay the plaintiffs’ costs of the proceedings.
The orders of the Court are:
Direct the parties to confer and seek to agree final orders to give effect to these reasons, including as to costs.
Direct the parties to provide any agreed orders, or competing orders, to my Associate by no later than 5pm on 10 September 2025.
In the event there is no agreement, including as to costs, direct the parties to provide to my Associate by no later than 5pm on 10 September 2025 any submissions and supporting material, such submissions not to exceed 3 pages.
Direct the parties to provide to my Associate by no later than 5pm on 17 September 2025 any submissions and supporting material in reply, such submissions not to exceed 3 pages, whereupon the remaining issues will be determined on the papers.
**********
Correction to typographical error party name
Correction to typographical errors in [28], [32], [56], [104], [112], [116], [127], [143], [176], [182], [198], [199], [237], [246], [247], [265] and [267]
JM World Au Pty Ltd (in liq)
Kim [2025] NSWSC 995
(2016) 336 ALR 209
(2011) 196 FCR 430
(2016) 348 ALR 227
(2019) 100 NSWLR 367
(2003) 57 NSWLR 113
(2014) 251 CLR 640
(2010) 240 FLR 187
(1983) 149 CLR 639
(2024) 114 NSWLR 77
(1987) 16 FCR 536
(2014) 252 CLR 307
(1993) 9 WAR 395
(2020) 376 ALR 261
(1991) 4 WAR 21
(2004) 213 ALR 574
(2012) 44 WAR 1
(1994) 11 WAR 187
(2005) 227 CLR 18
(1992) 173 CLR 626
(2011) 279 ALR 646
(1994) 122 ALR 53
(2000) 201 CLR 603
(2016) 340 ALR 75
(2016) 339 ALR 659
(2016) 342 ALR 1
(2009) 77 NSWLR 110
The proceedings were heard on 7-10 and 15 April 2025. Mr S Golledge SC and Mr J Baird appeared for the plaintiffs. Mr A Maroya appeared for Ms Kim and Mr J R Young for Mr Bak.
For the reasons set out below, I have concluded that:
It was also not in dispute that Mr Bak engaged an architect, Mr John Choi of CHROFI (Mr Choi) in relation to the building work on the Killara Property. It was Mr Choi who prepared the building contract for the Killara Property. Mr Choi was not called to give evidence. The plaintiffs contended that Mr Choi was in Mr Bak’s camp and no explanation has been given as to why he was not called such that I should infer that his evidence would not assist Mr Bak. I am not satisfied that I should draw any inference against Mr Bak. It did not seem to be in dispute that Mr Bak and Mr Choi had a falling out after the dispute arose between Mr Bak and SDC (Mr Coddington) and Mr Bak and Mr Choi had not spoken for some years. This dispute adequately explains, in my view, Mr Bak’s failure to call Mr Choi.
The adjudicator determined that JM World must pay to SDC the amount of $500,962.17 plus interest and the whole of the adjudicator’s fees. No payment was made.
On 1 December 2020, the MBA issued its adjudication certificate stating that the adjudicated amount is $514,967.85.
On 3 December 2020, JM World entered into an exclusive agency agreement with Sutton Anderson, real estate agents in relation to the sale of the Roseville Property. The agreement indicates that the property is being offered for sale with vacant possession.
In late November and into December 2020, the solicitors for SDC (who are now the solicitors for the plaintiffs in these proceedings) and the solicitors for JM World exchanged correspondence.
On 22 December 2020, SDC applied to register the adjudication certificate as a judgment debt in the District Court. On 23 December 2020, the District Court entered judgment against JM World in favour of SDC for $519,473.41.
On 12 January 2021, a statutory demand was served on JM World for the judgment debt.
An application to set aside the statutory demand was subsequently filed. The grounds relied on to set aside the statutory demand were not in evidence. The application was listed for hearing on 30 April 2021. There was no appearance on behalf of JM World on that occasion. It was adjourned to 10 May 2021 when again there was no appearance for JM World. The Court dismissed JM World’s application. JM World was then wound up by the Supreme Court on 22 June 2021 on the application of SDC.
Returning to the sale of the Roseville Property. On 29 January 2021, Sutton Anderson sent an email to Mr Bak indicating that they had a buyer interested in the Roseville Property. The interested buyer, however, wanted to know how long a lease would be signed by Mr Bak and whether he would pay a rental of $75,000 per annum plus outgoings plus GST.
Prior to this, and on 17 December 2020, Mr Bak caused a new company to be incorporated, Skin & Co AU Pty Ltd (Skin & Co AU). Ms Kim is its only director, secretary and shareholder. Ms Kim appears to have been aware that the company had been incorporated and that she had been made a director although I am satisfied that she had no real understanding at the time of what her role and responsibilities were as a director. She was simply acting at the request of Mr Bak. Skin & Co AU carried on the same business as JM World.
On 5 February 2021, Skin & Co AU entered into a three-year lease with JM World to rent the Roseville Property. The lease was signed by Ms Kim and Mr Bak on behalf of JM World and Ms Kim on behalf of Skin & Co AU. The annual rental was $83,720 plus GST a year.
On 12 March 2021, a Contract for the Sale and Purchase of Land was entered into between JM World (as Vendor) and HCA Holdings Pty Ltd and Suttonlay Pty Ltd (as Purchasers) in respect of the Roseville Property. The sale price was $1.8 million with completion to take place in 42 days. The contract is signed by Ms Kim and Mr Bak on behalf of JM World.
JM World ceased to trade in April 2021. Ms Kim was told by Mr Bak sometime prior to this that JM World was “not doing well”.
The Roseville Property contract settled on 4 May 2021. The net proceeds were $1,034,719.09. That amount was deposited into JM World’s ANZ Bank Account No 2. Prior to that deposit, the total in both its No 1 and No 2 accounts was $106.92.
On 4 May 2021, $1,034,000 was first transferred from the No 2 account to the No 1 account, and then transferred to Mr Bak’s personal account.
On 5 May 2021, Mr Bak transferred the sum of $984,000 back into the No 1 account, Mr Bak retaining $50,000 of the sale proceeds in his own name. That amount was used by Mr Bak to pay the new builder that had been engaged to complete building work on the Killara Property.
On 5 May 2021, JM World made the following three payments out of the No 1 account:
These matters – the existence of the overseas businesses and the lack of any record of the cash trading in JM World’s financial statements – are credible matters contrary to the cash proposition and in support of the case advanced by Mr Bak. Against this, there is nothing further to support the cash proposition. There was nothing to suggest that JM World’s trading activities must have been greater than disclosed in the financial statements. For example, there were no records of the quantity of products imported from overseas or evidence adduced from customers in Australia to the effect that they paid cash in significant quantities for products supplied.
The fact that I have some reservations about the evidence given by Mr Bak in particular, does not cause me to accept the cash proposition. Even if I were to reject the contentious aspects of Mr Bak’s evidence, there remains in my view an absence of evidence in support of the cash proposition. There is the objective material above against it.
In all the circumstances, including the seriousness of the allegation, I do not accept the cash proposition.
I turn now to deal with the $15,000 contention.
As I understand MFI-2, there are two components to the $15,000 – a $5,000 component and a $10,000 component.
The two payments have a relevant common feature and thus can be dealt with together. The common feature is the transfer of the $5,000 or $10,000 from a JM World account to Mr Bak on the same day as a payment is made by Mr Bak to SDC in payment of an SDC invoice. The $5,000 was transferred from a JM World account on 15 June 2020 to Mr Bak’s account and $15,576.53 was paid by Mr Bak to SDC on 15 June 2020 in relation to SDC invoice 37.19. The $10,000 was transferred from JM World to Mr Bak on 28 June 2020 and on the same day $39,565 was paid from Mr Bak’s account to SDC.
The basic contention appears to be that because company money was paid to Mr Bak on the same day as Mr Bak paid money to SDC, I should conclude that company money was used to pay SDC. I do not accept this contention. Mr Bak paid the money to SDC from his own account. No attempt was made, or case even put, seeking to attack the payments from JM World to Mr Bak. Such payments are not obviously improper.
For these reasons I reject the plaintiffs’ contentions that JM World money was used to pay SDC.
Similarly, each of the payments was a creditor defeating disposition. No consideration was received by JM World and the moneys paid away ceased to be available for the creditors of JM World in a winding up.
Even if, contrary to my finding above in relation to insolvency, JM World was not insolvent at the time of making each of the payments, it certainly became insolvent as a result of the transactions, and as such the transactions amount to an insolvent transaction under s 588FC(b).
The outcome of the analysis in this regard is also no different if, contrary to my findings above, each of the three recipients of the payments – JM World Korea, Skin & Co Korea and Aster Biyou – were creditors. The payments are each clearly unfair preferences and unreasonable director related transactions.