Mansfield (Liquidator) v Fortrust International Pty Ltd, in the matter of... [2023] FCA 350 | Case summary

JACKMAN J: 1 I have before me an interlocutory process dated 9 March 2023 seeking orders: (a) joining Mr Mansfield (who is already the first plaintiff in his capacity as liquidator of Palladium Investments Pty Ltd (Palladium)) as the third plaintiff in his capacity as the trustee of Mr Yang's bankrupt estate; (b) joining GS Asia Investment Co Ltd (GS Asia), a company incorporated in Hong Kong, as the fifth defendant; (c) granting leave for the filing of a further amended originating process and further amended statement of claim seeking relief against GS Asia; and (d) if necessary, and subject to the above orders being made, granting leave for the service of GS Asia outside Australia. 2 The circumstances leading to the present application are as follows. 3 In paragraph 17 of the amended statement of claim filed on 26 March 2022, the plaintiffs allege that Palladium made certain payments to the second defendant, PT Indogro Institut (Indogro), in 2016 in the sum of $6.95 million. Indogro admits that those payments were made. The plaintiffs seek, among other things, orders requiring Indogro to repay those amounts to Palladium or, in the alternative, orders under s 588FF of the Corporations Act 2001 (Cth). 4 The first to fourth defendants served evidence in the proceedings in July 2022, being an affidavit of the third defendant (Mr Suprapto) of 21 July 2022 and an affidavit of the defendants' solicitor of 21 July 2022. 5 Mr Suprapto's affidavit deposes that: (a) Palladium was incorporated to act as an investment manager for Mr Yang; (b) on 21 October 2016, Mr Yang entered into an investment management agreement with Palladium and GS Asia; (c) he was a director of GS Asia and remains the sole shareholder of GS Asia; (d) the $6.95 million transferred by Palladium to Indogro in 2016 was then transferred by Indogro to GS Asia which used the funds to purchase various investments on behalf of Mr Yang in accordance with the investment management agreement; and (e) on 3 August 2017, Mr Yang, Palladium and GS Asia entered into a Set-Off and Settlement Agreement, the terms of which provided that the property acquired pursuant to the investment management agreement would be assigned to GS Asia and that assignment would constitute a part payment towards loan debts owed by Mr Yang to GS Asia. 6 Mr Suprapto's evidence indicates that GS Asia held the property in which investments were made pursuant to the investment management agreement on behalf of Mr Yang until the Set-Off and Settlement Agreement purported to transfer the beneficial ownership of that property to GS Asia. That purported transfer occurred seven months before Mr Yang presented a creditors' petition on 6 March 2018. 7 On 23 September 2022, orders were made in these proceedings requiring the defendants to give discovery, including discovery of documents referring to loans made by GS Asia to Mr Yang or otherwise relating to the Set-Off and Settlement Agreement. The defendants filed a list of documents on 24 January 2023, and the documents discovered do not include any document which records a loan advance made by GS Asia to Mr Yang. The discovered documents include a transaction statement for an account in the name of GS Asia. Mr Mansfield's staff have reviewed the transaction statement against transaction records for Mr Yang and Palladium and are unable to find any receipts which correspond to any funds transferred from the GS Asia account. 8 In the absence of any loans having been made by GS Asia to Mr Yang which are capable of repayment, it is contended by the plaintiffs that the conditions for the purported assignment of Mr Yang's property acquired under the investment management agreement to GS Asia pursuant to the Set-Off and Settlement Agreement were not met and the agreement is void. It is contended by the plaintiffs that that property is property for the purposes of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) which is divisible among Mr Yang's creditors. In the alternative, the plaintiffs claim that the Set-Off and Settlement Agreement is a voidable transaction under ss 120 and 121 of the Bankruptcy Act, it being contended that there was no consideration for the transfer of the property and the transfer occurred at a time when Mr Yang was or was about to become insolvent. 9 The proposed amended pleading also seeks a declaration that the Set-Off and Settlement Agreement is void pursuant to s 37A of the Conveyancing Act 1919 (NSW) (Conveyancing Act) as involving the alienation of property with the intent to defraud creditors. The proposed pleading also makes claims at common law for restitution of payments made on a total failure of consideration and for pecuniary relief for breach of contract. 10 Putting to one side issues arising under the International Arbitration Act 1974 (Cth) (International Arbitration Act), it appears to me that there is a sufficient connection between, on the one hand, the proposed pleading by the trustee in bankruptcy of Mr Yang against GS Asia and, on the other hand, the existing subject matter of the proceedings. That connection is substantial and would justify the joinder of the new parties, together with the joinder of the new causes of action, in order to avoid a multiplicity of proceedings and also to ensure that all issues can be finally determined in these proceedings. In saying that, I bear in mind the terms of s 22 of the Federal Court of Australia Act 1976 (Cth), which provides, inter alia, that the court shall grant all remedies to ensure that all matters in controversy between the parties may be finally determined and all multiplicity of proceedings concerning any of those matters avoided. 11 I also bear in mind the useful collection of authorities concerning the principles which apply to the joinder of new parties as summarised by Markovic J in Fewin Pty Ltd v Burke [2016] FCA 503 at [40]-[48]. In particular, I note that Mr Mansfield is both the liquidator of Palladium and also the trustee in bankruptcy of Mr Yang. I note further that the Set-Off and Settlement Agreement arose in the evidence of Mr Suprapto filed for the defendants, and would appear to be part of his defence that the impugned transactions were legitimate commercial transactions. 12 A question has also arisen as to whether leave is required to serve the proceedings outside Australia. In my view, no such leave is required. The proposed further amended originating process may be served on GS Asia outside of Australia without leave where one or more of the items referred to in r 10.42 of the Federal Court Rules 2011 (Cth) are satisfied. In my opinion, the proposed pleading falls within r 10.42(h)(i), (j) and (n), and accordingly the Court's leave is not required for service of GS Asia in Hong Kong. 13 Turning then to the issue which arises under the International Arbitration Act, the defendants rely on cl 12.1 of the Set-Off and Settlement Agreement and also on cl 11.7 (expressed in identical terms) in the investment management agreement. Clause 12.1 provides as follows: This agreement is governed by, construed, and interpreted, and the relationship between the parties determined, in all respect [sic] in accordance with the laws of Singapore without reference to conflict of laws principles or their equivalent under the law of any jurisdiction. Any dispute, controversy, or claim arising out of or relating to this letter, or the breach, termination, or validity thereof, shall be finally settled by arbitration at the Singapore International Arbitration Centre (SIAC) in Singapore and shall be governed by the Rules of SIAC as they exist from time to time. 14 The plaintiffs accept that that is an arbitration agreement which falls within subs 7(1) of the International Arbitration Act. Section 7(2) of that Act provides that: Subject to this Part, where: (a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and (b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration; on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter. 15 Subsection 7(4) of the International Arbitration Act provides that: For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party. 16 I also note Art 8 of the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which is at sch 2 of the International Arbitration Act and given force of law by s 16 of that Act, and is in the following terms: A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. 17 In Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 (Tanning Research Laboratories), the High Court dealt with the construction of s 7 of the International Arbitration Act in a case which involved the rejection of a proof of debt by the liquidator of a company which had entered into a relevant arbitration agreement. Brennan and Dawson JJ (with whom Toohey J relevantly agreed) said at 342: In the first place, as sub-s (2) speaks of both parties to an arbitration agreement, a person who claims through or under a party may be either a person seeking to enforce or a person seeking to resist the enforcement of an alleged contractual right. The subject of a claim may be either a cause of action or a ground of defence. Next, the prepositions "through" and "under" convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence. A liquidator may be a person claiming through or under a company because the causes of action or grounds of defence on which he relies are vested in or exercisable by the company; a trustee in bankruptcy may be such a person because the causes of action or grounds of defence on which he relies were vested in or exercisable by the bankrupt. 18 That passage was referred to with approval by the majority of the High Court in Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514 at [62]. 19 In the present case the causes of action relied upon in the proposed amendments to the pleading may be categorised in the following three ways. 20 First, there are common law claims for restitution of money paid on a total failure of consideration and also contractual claims (paragraphs 57 and 58 of the proposed further amended statement of claim). It appears to me at this preliminary stage that those claims are derivative claims in the sense that an essential element of those causes of action was vested in and exercisable by Mr Yang himself. The plaintiffs do not resist that conclusion at the present hearing. 21 Second, the plaintiffs seek to have the Set-Off and Settlement Agreement declared void under ss 120 and 121 of the Bankruptcy Act, together with ancillary relief. At this preliminary stage, those claims do not appear to me to be derivative in the sense discussed in Tanning Research Laboratories, and are actionable only by the trustee in bankruptcy. None of the elements of ss 120 and 121 appear to me to have been vested in or exercisable by Mr Yang himself. Further, I note that it may be doubted whether those claims fall within the arbitration clause in any event as a matter of contractual construction: see New Cap Reinsurance Corporation Ltd v A E Grant [2009] NSWSC 662; (2009) 72 ACSR 638 at [87] (Barrett J). 22 Third, there is a claim pursuant to s 37A of the Conveyancing Act. I have not formed a view at this stage as to whether that is a derivative claim or one which would fall outside the scope of subs 7(4) of the International Arbitration Act, and it is not necessary for me to reach a view on that matter at this stage in order to dispose of the interlocutory application. 23 Accordingly, the view which I have formed at this stage, and subject to further argument on any stay application, is that ss 120 and 121 of the Bankruptcy Act are not caught by subs 7(2) of the International Arbitration Act, even having regard to the extended definition of "party" in subs 7(4). I would also reach the conclusion that those claims do not fall within Art 8 of the Model Law, not being claims which are the subject of an arbitration agreement. In any event, GS Asia is not represented before me on this application, and there is no stay application at this stage. The defendants themselves submit that this is not the occasion to consider a stay application pursuant to s 7 of the International Arbitration Act or Art 8 of the Model Law. 24 The issue, however, has been raised as a discretionary factor against the joinder of GS Asia. I can well understand that if a stay application were certain to be made and if it were inevitably to lead to a stay of the new causes of action, then that would be a very weighty factor on the question whether leave should be granted to join GS Asia and to permit the proposed new pleading to be filed. However, at this stage it is unclear whether GS Asia will make such an application, and if it does not, then neither subs 7(2) of the International Arbitration Act nor Art 8 of the Model Law will be enlivened. If the application is made, then my preliminary view is that it is unlikely to succeed in relation to ss 120 and 121 of the Bankruptcy Act, although I accept that the court may be faced with a position where it has no discretion to exercise in relation to the common law claims if an application is made for those to be stayed and referred to arbitration in Singapore. 25 In those circumstances, it appears to me appropriate to grant leave to join GS Asia, together with the joinder of the trustee in bankruptcy of Mr Yang, and to grant leave to the plaintiffs to file the proposed further amended originating process and further amended statement of claim. The defendants have submitted that the claims by the trustee in bankruptcy of Mr Yang against GS Asia should be the subject of separate proceedings which, if a stay application or anti-suit application ultimately fails, would be heard together with the present proceedings. It is incumbent on the court, however, to avoid a multiplicity of proceedings where that is reasonably practicable, and it appears to me that the defendants' proposal is unnecessarily cumbersome. I note that subs 7(2) of the International Arbitration Act does enable a stay to be granted in relation to so much of the proceedings as involves the determination of the matter which is capable of settlement by arbitration, which does leave the door open to a bifurcation of proceedings in due course, if a stay application is made and succeeds, at least to some extent, on the part of GS Asia. 26 As to costs, while the plaintiffs did have to approach the Court in order to seek the Court's indulgence to further amend the statement of claim and originating process, the application for joinder and amendment has been opposed and has been the subject of a substantive hearing today. It appears to me the appropriate order for costs is that costs should follow the event, and I order that the current defendants (ie not including GS Asia) pay the plaintiffs' costs of the interlocutory application dated 9 March 2023. In terms of further case management of the proceedings, I stand the matter over to 15 May 2023 at 9.30 am before me for a case management hearing. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.

Mansfield (Liquidator) v Fortrust International Pty Ltd, in the matter of Palladium Investments International Pty Ltd

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