MERCATOR PROPERTY CONSULTANTS PTY LTD (ACN 008 737 022) v CHRISTMAS ISLAND RESORT PTY LTD

Western Australia DISTRICT REGISTRY WG 3017 of 1998

EX TEMPORE REASONS FOR JUDGMENT HIS HONOUR: The applicant brings a motion seeking orders in respect of service out of the jurisdiction of the Commonwealth of Australia in respect of three of the second respondents. The first respondent does not require a grant of such leave and endeavours are being made to serve the third‑named second respondent on Christmas Island. The circumstances in which the application arises appear from affidavit material before the Court. Factual background The applicant seeks to bring a motion for the appointment of a receiver and manager over the business and assets of the first respondent pursuant to O 26 r 1(1) of the Federal Court Rules ("the Rules") and an application pursuant to O 71 rr 5(1) and 20 (1) of the Rules for orders pursuant to s 260(1)(a)(i) of the Corporations Law. The applicant was the foundation shareholder and initiator of the Casino Resort complex ("the Casino") on the Australian territory of Christmas Island. The first respondent was the vehicle upon which the Casino Resort was built and funded. At present the applicant holds 10 per cent of the issued share capital of the first respondent. The only other shareholder in the first respondent is the first-named second respondent. On 4 June 1987 the second respondent as developer, with other parties as guarantors, entered into an agreement with the Commonwealth of Australia ("the agreement"). The effect of the agreement was to permit the construction and operation of the Casino on Christmas Island by the first respondent upon and subject to the terms and conditions of the agreement. Included among those was that in clause 41 of the agreement which provided: "If at any time prior to completion the developer, being a corporation, suffers winding up or other related proceedings the Commonwealth may by notice terminate the agreement, the casino licence, the lease of the airport site and there would be no further claim against the developer." Furthermore in clause 40 it was provided: "If the developer defaulted in the observance or performance of any obligation imposed on it under the agreement prior to completion, the Commonwealth could elect to terminate the agreement, the casino licence, the lease of the development site and the lease of the airport site." There is evidence that the agreement has been subject to variations but none of which are material to this matter. It will be noted the rights of the Commonwealth referred to were ones which arose prior to completion of development. It is implied from the circumstances before me that development is complete and the Casino is in operation. Nevertheless, it is asserted the Commonwealth maintains, as might be expected, remedies in this situation. Whether those remedies derive from this agreement or otherwise is not yet the subject of full argument before me. The applicant has entered into a contract for the sale of its shares in the first respondent to the first-named second respondent ("the share sale"). Originally the settlement date for such sale was 24 December 1997. The current date for settlement is 31 July 1998 which I note is approximately two weeks from the date on which these reasons are being delivered. If settlement is not completed on 31 July 1998 the applicant will retain its shares but its case is the value of those shares is now at extreme risk. The applicant has arrived at that view in the follow circumstances: firstly, it was unable to obtain documentation in relation to recent corporate developments including the financial statements to the end of the financial year 1997 from either the first respondent or the solicitors for the first-named second respondent, being the principal shareholder. That position has now been significantly remedied by the provision of some documentation following the first hearing before me on 9 July 1998. Secondly, the applicant is concerned that the value of the casino licence ("the licence") which represents the largest portion of the total value of the assets of the first respondent is at risk. The licence was granted pursuant to cl 53 of the Casino Control Ordinance 1988 ("the Ordinance"). It is to operate from 5 November 1993 for an initial period of five years. In or around May 1997 the Australian government suspended the casino licence and appointed, pursuant to the Ordinance, an administrator to the casino for a period of 12 months. The first respondent has not nominated or sought the approval of the Australian government for the appointment of a casino management company to replace the government administrator. On 10 July 1998 the Minister for Regional Development, Territories and Local Government made a direction under s 58 of the Ordinance. It was based on an asserted failure by the casino licensee to meet the financial commitments of the Casino when they became due and payable. Pursuant to the powers in that section, the Minister directed that within 14 days the first respondent was to meet its financial commitments to Christmas Island Power Authority, National Jet Systems Group and Christmas Island Travel Pty Ltd as well as the employees of Christmas Island Resort Pty Ltd as they have become due and payable and to provide him with an acknowledgment of receipt or other evidence of those financial commitments. This step by the Minister formed the subject of a press release by him dated 13 July 1998. It was headed, "Hope for Christmas Island Casino workers' wages following ministerial action." There is evidence that a lease agreement has been entered into between the first respondent and the Australian government relating to the land on Christmas Island from which the Casino is operated and managed ("the lease agreement"). Although variations have been made to that lease, they are said not to be material to the matter before me. Clause 5(b)(iv) provides that any breach of the Ordinance by the first respondent gives the Australian government the right to cancel the agreement. In the circumstances the applicant is concerned that the suspension and/or cancellation of the casino licence could give rise to placing the lease agreement itself in jeopardy. If this occurred, not only would the lease be lost but the value of the buildings erected at the first respondent's costs initially, and the substantial improvements made by it to those buildings, would be lost. The replacement cost of the buildings alone is estimated to amount to $40 million and the original cost $32 million. There has been advice from the First Assistant Secretary of Regional Development, Territories and Local Government that that department has imposed 7 July 1998 as a deadline to receive a response from the first respondent concerning the notice under cl 58(2) of the Ordinance. The applicant is concerned that a failure by it to so respond would give the department and the Minister no option but to cancel and/or revoke the casino licence. Additionally, a statutory demand was served upon the first respondent in or around the first week of June 1998 on behalf of the workers in the Casino demanding payment of outstanding wages. No action has been taken by the first respondent in respect of this statutory demand. The position, therefore, appears to be that pursuant to s 459G of the Corporations Law it is estopped from challenging the validity of that notice. The applicant is concerned that pursuant to cl 58(1)(k) of the Ordinance that would give rise to a further ground for cancellation of the casino licence. Additionally, the applicant has become aware from newspaper reports that the first respondent has recently been awarded a judgment in the Supreme Court of Western Australia for the sum of $2.5 million, being for a rebate of overpaid payroll tax. In the circumstances the applicant is concerned to ensure that any such funds owing to the credit of the first respondent not be dispersed offshore but retained for the benefit of the first respondent as a whole. Service out of the jurisdiction The first-named second respondent is shown on the corporate record as resident in Singapore. The second and fourth-named second respondents are shown as resident in Indonesia. There is evidence in the form of advice from the Commonwealth Attorney‑General's Department that there is no convention or other treaty in force between Australia and Singapore. There is further evidence that Australia and Indonesia are parties by succession to the Convention between the United Kingdom and the Netherlands regarding legal proceedings in civil and commercial matters made on 31 May 1932. The effect of that convention is that it permits service through the diplomatic channels, service by mail or service by private agent. In information from the International Civil Procedures section of the Attorney-General's Department, it is stated that service by a private agent is preferable in order to avoid delays involved in obtaining service through the diplomatic channel. There is also evidence in similar information with respect to Singapore that a party in Australia who wishes to serve a party in Singapore with documents issued by an Australian court should employ a private agent in Singapore to serve the documents. It is further stated that private service should be used wherever possible to avoid delays in using official channels. In the case of both Singapore and Indonesia, the use of diplomatic channels is said to give rise to an estimate of approximately four to six months to effect service on any person resident in those countries. These matters are relevant to a consideration of the application of the rules of the Federal Court and in particular of O 8. It is patent that here there is a proceeding founded on a cause of action arising in the Commonwealth so that O 8 r 1 is not an issue. That appears in div 1 of O 8. Division 2 deals with service in convention countries. It sets out in r 7 the requisite documents which involve translation. See also r 8. Rule 10 envisages after lodgment of a request and undertaking pursuant to r 9 that the Registrar of the Court will send sealed documents to the secretary of the Attorney-General's Department for transmission for service, together with such letter of request as may be necessary. Likewise, under div 3 r 14, there is a similar provision in respect of non-convention countries. It is this requirement which I understand to be that which the evidence from the Attorney-General's Department states will require a period of four to six months to allow for the effecting of service. The circumstances which I have outlined as pertaining to this matter, in my view, make it impractical to serve the documents in accordance with O 8. The principal assets of the first respondent in which the applicant has an interest as a 10 per cent shareholder are all highly at risk. It is possible that the principal asset, the casino licence, will be vulnerable to cancellation within two weeks and that leasehold and other interests will likewise be subject to termination. If there are any remedies open to the applicant, it is of the highest urgency they be acted upon and be considered by a court. Order 7 r 9 provides: "Where for any reason it is impractical to serve a document in the manner set out in the Rules, the Court may by motion in an existing proceeding made ex parte order that, instead of service, such steps be taken as are specified in the order for the purpose of bringing the document to the notice of the person to be served." In the Swan Brewery Co Ltd v Atlee (R D Nicholson J, Federal Court of Australia, 27 February 1998, unreported) I held that I did not consider that rule is confined to impracticality of service within the country and that it applies to all the circumstances in "the Rules" and thus to circumstances envisaged by O 8. I remain of that view. The impracticality of applying O 8 in the present circumstances is acute. In my opinion, it is necessary for the court to make an order pursuant to O 7 r 9 specifying steps which may be taken for the purpose of bringing the relevant documents to the notice of the first‑named, second‑named and fourth‑named second respondents. For those reasons, I am prepared and consider it proper that orders be made for service on them in a number of ways. The first would be by service upon solicitors who are known to have acted for them in respect of the share sale. The second would be by actual service by a private agent to each of them at their address on the corporate record of the relevant documents in an envelope marked "urgent"; alternatively, personal service at such address; thirdly, by advising the auditors and accountants acting for the first respondent of the service on the solicitors and requesting them to advise the instructing director, namely, the first‑named second respondent, and also advising of the service on the solicitors and the accountants to the third‑named second respondent whom it is presently believed, as has been stated, will be personally served. I am not prepared to make any order deeming service to have been effected at this time. I think the proper way to deal with the matter is for evidence to be brought back to the Court of the steps taken to comply with the orders and the results thereof and the Court can then deal with any deeming order in respect of service in the light of that evidence. That would not impede the progress on any aspect of the matter because it could be dealt with as a preliminary issue to any further substantive hearing. For those reasons, I would proceed to make orders generally along the lines of the motion as it is moved before me today. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R D NICHOLSON

Associate: Dated: 24 July 1998 Counsel for the Applicant: S D Pentony

Solicitor for the Applicant: Michell Sillar McPhee