ML Ubase Holdings Co Ltd v Trigem Computer Inc

[12] For these reasons, the fact that the documents related to communications between the defendants' legal representative and the prospective expert witness did not negate the claim for legal professional privilege.

29 Although it was faintly submitted that the draft witness statements did not attract privilege because they were not in the nature of and would not expose communications, such that they fell within proposition (3) in Lindgren J's judgment in Southcorp, I do not accept, in the light of Mr Woods' uncontradicted and unchallenged evidence, that these drafts were "the witness' own drafts of his or her report" in the relevant sense; to the contrary, the evidence shows that they were prepared as answers in response to questions directed to the witness, and were therefore communications between the witness and the instructing solicitor. Accordingly, the relevant documents were prima facie privileged under s 119.

30 However, Mr Scruby submitted that any privilege in them had been waived by the service of Mr Jhe's affidavit - relying, for the proposition that service of an expert witness' report waived privilege in any draft reports and instructions to the expert, on proposition (4) in Lindgren J's judgment in Southcorp. The submission had a flavour of the not infrequently heard proposition that once an expert's report is tendered, everything the expert has been given or has considered becomes admissible. As will become apparent, that in my opinion is not the law now, if it ever was.

31 The high point of that proposition was probably Crawford v Bailey (unreported, NSWSC, Enderby J, 26 October 1990, BC9001818), in which a submission that privilege had been waived in respect of an expert medical witness' letter of instructions was upheld. His Honour said: Once the step is taken to call the expert and expose him and his report to testing by cross-examination, the party calling him cannot determine by a claim of privilege, what the cross-examiner may see and what he may not see. In this case the defendant has chosen to waive the privilege for some materials but not to waive the privilege for something else. This something else was the letter.

32 Even before the Evidence Act, the correctness of that proposition was dubious. In Dingwall v the Commonwealth (1992) 39 FCR 521, a proposed medical witness was subpoenaed to produce all letters of instruction and related documents upon which his report had been prepared. Although the issue arose pre-trial, Foster J considered it as if the report had been received in evidence. The doctor said, and his Honour accepted, that the opinions expressed in his report had not been founded upon any information conveyed by the instructions or other subpoenaed documents. On that basis, his Honour concluded that the privilege in the letter of instructions and other documents had not been waived by the (assumed) tender of the expert report: there was no indication that they had been used in the preparation of the report in a way that could be said to have influenced its content of the medical report.

33 Since the Evidence Act, these questions must be resolved according to the rules provided by that Act, rather than according to earlier common law notions.

34 Section 122 addresses the situation where the material in question, the subject of the claim for privilege, has itself been disclosed. Section 122(2) provides that if a client or party has knowingly and voluntarily disclosed to another the substance of the otherwise privileged communication or document, then s 119 no longer prevents it being adduced, so that evidence of it can be given. Section 122(4) makes provision to the same effect, where the substance of the otherwise privileged communication or document has been disclosed with the consent of the client or party entitled to the privilege. The effect of the section is that where an otherwise privileged communication or document has been disclosed voluntarily or with consent, evidence of it can be adduced; but it relates only to what has already been disclosed, and not to other, associated documents, the substance of which has not been disclosed. Section 122 applies if and only if the evidence for which privilege is claimed has itself or in substance been disclosed. Illustrations of where it may operate are afforded by cases in which one party writes to another asserting that it has legal advice to a particular effect; that discloses the substance of the legal advice, and waives the privilege in it.

35 There is no suggestion that the substance of the documents, the subject of the present claim for privilege, has been disclosed, and although at one stage Mr Scruby referred to Evidence Act, s 122(4) in connection with the waiver argument, there is no room for the operation of s 122 in respect of the documents the subject of the claim here. However, service of an expert's report does not, without more, disclose the substance of the contents of the letter of instructions. As Mansfield J said in Tirango Nominees (at 368): In my view, the calling of an expert witness does not of itself amount to disclosure of the substance of the instruction or instructions given to that witness. There will be cases where the nature of the issue being addressed may involve such a conclusion. There will be cases where the operation of s 126 may mean that materials provided to that expert, even if not identified by the expert, should be disclosed notwithstanding that they may be the subject of client legal privilege. This is not necessarily such a case. 36 In respect of associated documents, the test is now that expressed in Evidence Act, s 126, which provides as follows: 126. Loss Of Client Legal Privilege: Related communication and documents

If, because of the application of ss 121, 122, 123, 124 or 125, this Division does not prevent the adducing of evidence of a communication or the contents of a document, those sections do not prevent the adducing of evidence of another communication or document if it is reasonably necessary to enable a proper understanding of the communication or document.

37 The effect of s 126 is that where there is a waiver (under any of the earlier sections to which it refers) in respect of an otherwise privileged communication or document - for example, under s 122 - the waiver extends to such associated documents as are reasonably necessary to enable a proper understanding of that communication or document. In this case, because of s 122, the adducing of evidence of Mr Jhe's report (which would otherwise have been privileged, but which has been disclosed voluntarily or with consent) is not prevented. The question then is whether the correspondence and draft statements which culminated in that report are "reasonably necessary to enable a proper understanding of" his report.

38 In Towney v Minister for Land and Water Conservation for New South Wales (1997) 147 ALR 402, the Minister applied to inspect certain documents produced on subpoena in a native title claim, which related to the preparation of an expert anthropological report filed in the proceedings, contending it was necessary to view the documents, the subject for the claim for privilege to gain a proper understanding of the final report. It was accepted that at the time they were brought into existence the documents were the subject of client legal privilege and the question was whether that privilege had been lost by operation of the Evidence Act or common law principles. Sackville J held that on the facts of the case certain of the documents in question - those which constituted a source for the final report - were the subject of a waiver, but not the others. His Honour emphasised that it was the terms of s 126, and not any common law notion of "fairness", that now provided the relevant test (at [412]): As I have noted, the applicant does not dispute that he has lost any client legal privilege that might otherwise have existed in respect of the final anthropological report. The question, then, is whether inspection of the claimed documents, or any of them, 'is necessary to enable a proper understanding' of the final anthropological report, within the meaning of s 126 of the Evidence Act. I do not think it necessary or desirable to attempt to specify exhaustively the meaning that should be attributed to the language in s 126. However, I think that certain general comments can be made.

Section 126 does not specify whose understanding is to be considered, when determining whether or not a source document is reasonably necessary 'to enable a proper understanding' of a document in respect of which client legal privilege has been lost by reason of a voluntary disclosure. In my view, the legislation contemplates the application of an objective standard, rather than an assessment of the likely understanding of a particular individual, such as an expert witness who is to be called in the proceedings, or a party to the litigation. That an objective standard is to be contemplated is indicated by the phrase 'reasonably necessary' and by the fact that the alert part of the s 126 is drafted in the passive tense. A court considering whether client legal privilege has been lost under s 126 must determine for itself whether the statutory standard has been satisfied in the particular circumstances of the case. In doing so, the court will take into account the forensic purpose for which it is proposed to use the document voluntarily disclosed. 39 His Honour proceeded to say that s 126 could not be read as simply incorporating the test in Attorney-General (NT) v Maurice (1986) 161 CLR 475, (at 413): I do not think that s 126 can be read as simply incorporating, unchanged, the common law test of implied waiver. It is clear that Pt 3.10 Div 1 of the Evidence Act departs from the common law in important respects. The changes include the formulation of a new test of determining whether client legal privilege exists ... Indeed, s 122, which deals with loss of the privilege in the case of disclosure, departs from the common law test for determining whether a party has impliedly waived privilege ... therefore, it cannot be safely assumed that s 126 is intended to embody the common law test of waiver of compliant legal privilege. The fact is that the criterion specified in s 126 for determining whether client legal privilege is lost is not the same as that laid down by the High Court in Attorney General (NT) v Maurice in determining whether legal professional privilege has been impliedly waived. The task of the courts is to apply the statutory language used by Parliament and not to substitute an equivalent test here because it reflects the pre existing law ...

This is not to deny that there is likely to be considerable overlap between the considerations relevant to the common law test governing waiver of legal professional privilege and those relevant to the test for loss of client legal privilege, specified in s 126. For example, as Attorney General (NT) v Maurice makes clear, an important factor in determining whether the privilege has been impliedly waived under the common law is whether it would be misleading for a party to refer to or use certain privileged material, yet insist that the remainder of the privileged material should remain protected. Similarly, if one party discloses a privileged document or communication, in circumstances that make the disclosure misleading unless associated privileged material is also disclosed, it would be difficult to dispute that the disclosure of the associated material is "reasonably necessary to enable a proper understanding of" the document already disclosed.

40 His Honour added that the expression "proper understanding" was by no means a narrow one, and includes a "complete or thorough" understanding, concluding: However, I think it fair to say that, if a privileged document is voluntarily disclosed for forensic purposes, and a thorough apprehension or appreciation of the character, significance or implications of that document requires disclosure of source documents, otherwise protected by client legal privilege, ordinarily the test laid down by s 126 of the Evidence Act will be satisfied. 41 His Honour then rejected the proposition that inspection of a source document must necessarily be reasonably necessary for a proper understanding of a report, noting that if it had been referred to for a very limited purpose, and that no further reference could assist in a proper understanding of the report, it would not satisfy the test. 42 In Tirango Nominees, the issue arose during the cross-examination of an expert accountant who had produced reports on the economic loss suffered by the applicants, based on letters of instructions from the applicants' solicitor. The witness did not identify in his report anything in the letters of instructions as influencing the opinions he offered. Cross-examining counsel called for the letters of instructions. The claim for privilege was upheld, Mansfield J holding that the calling of an expert witness did not of itself amount to the disclosure of the substance of the instructions given to that witness, although it sometimes may. His Honour rejected the proposition that even at common law, as a general rule, presentation of an expert to give evidence waived privilege in the letter of instructions (at 366): Counsel for the respondents submitted as a general proposition that, at common law, the document containing the instructions to the expert upon which the expert's report is given is available once the expert is presented to give evidence, because privilege in the letter of instructions necessarily is thereby waived. I do not accept that contention. In the limited time available, no authority directly on point has been referred to. 43 At 367, his Honour said: However, I do not consider that the High Court determined that invariably once such a document does become evidence all the documents giving rise to its creation are or should be available for inspection. Whether they should or should not be so produced will depend upon whether they do provide any foundation for the opinions expressed by the expert or whether the picture may be misleading or partial only if they are not produced. I agree with the reasons of Foster J in Dingwall v the Commonwealth (1992) 39 FCR 521 on that topic. … 44 Then his Honour referred to what Sackville J had said in Towney, and, like Sperling J in Roach v Page, recognised that the implications were not limited to expert witnesses (at 367): Section 126 does, however, have an incidental significance to this matter. Counsel for the applicant expressed in argument the concern that if the two documents called for are no longer the subject of the client legal privilege in the circumstances, there will be great difficulty in knowing 'where the line is to be drawn'. The spectre of waiver with respect to drafts, notes of discussions and other incidental materials was raised, and not simply with respect to expert witnesses but to any witness. Part of the answer to that concern may lie in the proper application of s 126 in the circumstances of any particular case. 45 In my view, what Enderby J said in Crawford v Bailey is no longer the law, if it ever was. What his Honour said is inconsistent with Dingwall and with Tirango. Moreover, it is not the test enunciated by Evidence Act, s 126. In my opinion, service and tender of an expert witness' report in proceedings does not constitute a waiver of the privilege which attaches to communications between the expert and the solicitors who instructed him or her, save to the extent that those communications are associated documents reasonably necessary to an understanding of the report. "Proper understanding" of a document or communication will sometimes, but not always require that documents to which it responds or refers be available. It may very likely be so when the primary document contains a summary or excerpt from an earlier communication, or responds to questions which are not themselves restated in it. But I do not accept that "a proper understanding of the communication or document" involves an appreciation of the manner in which the opinions contained in the document have been formed over time, or the iterations and evolutions through which they have passed. The test is concerned with the comprehensibility of the primary communication or document: if it can be completely or thoroughly understood without more, then access to the related communications or documents is not reasonably necessary.

46 Accordingly, for the purposes of s 126, one starts by looking at the substantive document (made admissible under s 122 or another of the applicable sections) and asking whether, in order to understand it thoroughly, it is necessary to know what is in the associated material.

47 Mr Jhe's final report does not refer to the associated material. In my view there is nothing in his report which cannot be understood without reference to the associated material. Counsel was unable to identify any specific part of Mr Jhe's report that the associated documents were reasonably necessary to understand, answering that they were necessary to an understanding of the whole of the report, to understand how the witness had come to the conclusions that he expressed. When asked "what is there in his report that is not capable of understanding?", the answer was, "The reasoning and basis behind a variety of the opinions ... it is not set out in the document and it is not obvious and there are no instructions". I suggested in argument that it would follow from Mr Scruby's argument that every time a witness was interviewed by counsel before being called to give evidence, the other party would be entitled to know everything that went on in that conference, whether the witness was expert or lay. Although Mr Scruby suggested that this was only so in the case of an expert witness, because expert opinions were based on processes of reasoning, it seems to me that there would not be the slightest distinction in the case of a lay witness whose evidence might have been influenced by discussion in conference which explored the witness' degree of certainty about a proposition, or might have prompted a recollection. As has been recognised by Sperling J in Roach v Page (No 17) and by Mansfield J in Tirango, privilege in the conference is not waived in that situation. 48 In the present case, Mr Jhe's report could be understood without access to any documents mentioned or referred to in it (other than the legislative material and record of proceedings in Korean courts which were exhibited to it). In particular, it was unnecessary for the purpose of understanding his report to know what instructions he had been given. I therefore upheld the claim for privilege, and upheld Trigem Australia's objection to producing the documents specified in Mr Woods' affidavit on the ground that those documents were privileged documents. 49 The legal effect of the Korean corporate reorganisation. The purpose of reorganisation proceedings under the (ROK) Corporate Reorganisation Act is to rehabilitate a business entity that is in difficulty where there is some prospect of rehabilitation. Once the Court decides to commence reorganisation proceedings (upon request from the corporation or a creditor or shareholder, it being a receiver who has power over the corporations, assets and business) and draws up a reorganisation plan containing provisions for the reduction and exemption as well as redemption of debts by instalments. If the plan is accepted by a meeting of interested persons and is confirmed by the Court, then the rights of creditors and shareholders are altered in accordance with organisation plan, and if the plan is successfully implemented, the reorganisation then comes to a close.

50 Article 4 of the Corporate Reorganisation Act provides: Territoriality Principle

(1) Reorganisation proceedings commenced in the territory of the Republic of Korea shall be effective only with respect to the property of the company existing in the Republic of Korea.

(2) Reorganisation proceedings commenced in a foreign country shall not have any effect on property in the territory of the Republic of Korea.

(3) Any claim to be pursued through a judgment under the Civil Procedure Act, shall be regarded as existing within the Republic of Korea.

51 Article 4(3) has the consequence that the effect of a corporate reorganisation on a debt due to the company depends upon whether the claim for the debt is actionable in the Korean courts under the (ROK) Civil Procedure Act. The only expert evidence on the topic, though it was less than compelling, was that of Mr Jhe, who, given the example of a claim by a Korean company against its New Zealand subsidiary for moneys due for goods sold and delivered by the Korean parent to the New Zealand subsidiary, said that it would be justiciable under the (ROK) Civil Procedure Act in Korea, and a Korean Court would regard there as being a sufficient nexus with Korea to assume jurisdiction. It would follow that the indebtedness of Trigem Australia to Trigem Inc would have been "property of the company existing in the Republic of Korea" for the purposes of Article 4 and, accordingly, would have been property in the corporate reorganisation.

52 Corporations Act, s 581(2). Trigem Australia submits that the Court should decline to make an order for payment, in aid of the Korean corporate reorganisation, pursuant to Corporations Act, s 581(2)(b), which provides: 581 …

(2) In all external administration matters, the Court:

(a) must act in aid of, and be auxiliary to, the courts of: (i) the external territories; and (ii) States that are not in this jurisdiction; and (iii) prescribed countries; that have jurisdiction in external administration matters; and

(b) may act in aid of, and be auxiliary to, the courts of other countries that have jurisdiction in external administration matters.

53 Section 580 defines "external administration matter" as a matter relating to, relevantly, the winding up, outside Australia, of a body corporate, or the insolvency of a body corporate. The corporate reorganisation proceedings are not winding up proceedings, but are akin to a scheme of arrangement [QBE Workers Compensation (NSW) Ltd v Wandiyali ATSI Inc (in liq) (2004) 62 NSWLR 117, [12]; Independent Insurance Company Ltd [2005] NSWSC 587, [8]. However, the order to commence a corporate reorganisation was made on the grounds "that Trigem Inc was in a state in which it could not pay its debts when due without causing significant disruption to its business and where there may occur a cause for its bankruptcy"; in my view that is sufficient to establish that the corporate re-organisation proceeding is a matter relating to the insolvency of Trigem Inc. 54 However, s 581(2) is addressed to external administration matters in this Court. The proceeding in this Court is one to enforce a judgment of this Court by garnishment. Insolvency forms no element of the proceeding. Accordingly, the proceeding in this court does not, in my opinion, fall within any aspect of the definition of "external administration matter" in s 580. Section 581(2) therefore provides no basis for declining to make an order for payment. 55 General discretion to decline order for payment. However, Trigem Australia submits that the order should in any event be refused as a matter of discretion, having regard to the Korean reorganisation proceedings and Ubase's involvement in them. This question has to be decided upon the hypothesis (contrary to my conclusion) that as at 15 March 2005, Trigem Australia remained indebted to Trigem Inc.

56 The making of a garnishee order absolute is discretionary, and the Court will not do so where the effect would be to confer a preference on a creditor, such as where a winding up order had been made or a petition presented. In Pritchard v Westminster Bank Ltd [1969] 1 All ER 999, Lord Denning MR, with whom Edmund Davies and Phillimore LJJ agreed, set aside a garnishee order attaching a debt and compelling immediate payment to the plaintiff, in circumstances that would prefer the plaintiff over all other creditors. His Lordship said: The Court will not allow one creditor, however diligent he may be, to get an advantage over the others by getting in first with a garnishee order.

There is an authority which seems to me to be conclusive on the point. It is Kennett v Westminster Improvement Commissioners . In that case there were bond holders who were, by agreement, to be paid pari passu by Westminster Improvement Commissioners. The Court held that one creditor could not get an advantage by coming in with a garnishee order before the others. Platt B said,((1855), 11 Exch at 354.):

… the Court are of opinion that this is not such a debt as ought to have been attached, because the attaching it and compelling immediate payment would give a preference to the debt due to this particular bond holder over all the others, which is in direct violation of the agreement. So, here the attaching of this debt and compelling immediate payment to the plaintiff would give a preference to him over all other creditors, which is in direct violation of the Act. The overriding rule is that all creditors should be treated equally. This garnishee order ought not to be made absolute.

57 In D Wilson (Birmingham) Limited v Metropolitan Property Developers Ltd [1975] 2 All ER 814, Buckley LJ, with whom Thompson J agreed, said (at 819): The position is, I think, that a Court in considering whether or not to exercise its discretion to make absolute a garnishee order in circumstances such as this, must bear in mind not only the position of the judgment creditor, the judgment debtor and the garnishee, but the position of the other creditors of the judgment debtor and must have regard to the fact that proceedings are on foot and were on foot at the time the garnishee proceedings were launched, for ensuring the distribution of the available assets of the judgment debtor company among the creditors pari passu : So, notwithstanding the ingenuity of that argument of counsel for the judgment creditor, I think this is a case in which the Registrar ought not have made absolute the garnishee orders nisi.

58 In the course of the judgment, his Lordship referred to Hudson's Concrete Products Ltd v D B Evans (Bilston) Ltd (1961) 105 Sol Jo 281, in which judgment creditors obtained a judgment on 14 December 1960, the judgment debtors having in November convened a meeting of creditors and made proposals which appeared to have received a favourable response. The judgment creditor obtained a garnishee order on 20 December, and on 16 January 1961 the judgment debtors took out a summons for approval of a Scheme of Arrangement. The same date a creditor filed a petition for the winding up of the company, and the following day, 17 January, the garnishee order was made absolute. His Lordship said: So the order of events in that case was: November 1960, the circular to creditors; December 1960, garnishee order nisi; January 1961, the launching of the proceedings to sanction the approval of the Court to the Scheme of Arrangement; and later in January 1961, garnishee order made absolute.

In that case Willmer and Donovan LJJ (who constituted the Court of Appeal) held: 'It would be wrong to allow these creditors, even though they were judgment creditors, to gain an advantage over other creditors. The garnishee order might have the effect of wrecking the Scheme of Arrangement because it gave the judgment creditors priority over other creditors'.

59 In Rainbow v Moorgate Properties Ltd [1975] 2 All ER 821, the Court of Appeal (Buckley and Ormond LJJ applied D Wilson (Birmingham) in the context of a charging order.

60 In Roberts Petroleum Limited v Bernard Kenny Ltd [1983] 2 AC 192, the Court of Appeal had said that the authorities established that the insolvency of a company, followed or to be followed inevitably by liquidation, was not enough of itself to justify discretionary refusal to make a charging order absolute, and that there had to be some further factor in the situation, the most common being that a Scheme of Arrangement had been set on foot by the main body of creditors and had a reasonable prospect of succeeding. The House of Lords allowed an appeal, holding that while each case was a matter for individual judgment, the compulsory winding up of a company, or a resolution for voluntary winding up, which brought into operation a statutory scheme for dealing with the assets of the company was, without more, a sufficient cause for not making a charging order nisi over such assets absolute.

61 In Re HIH Casualty and General Insurance Ltd (2005) 215 ALR 562, Barrett J said (at [96]) (with reference to the judgment of Windeyer J in New Cap Reinsurance Corp Ltd v Faraday Underwriting Ltd (2003) 47 ACSR 306; (2003) NSWSC 842): At an earlier point in his judgment (and for different purposes), Windeyer J had noted the way in which equality among foreign and local creditors is, as a matter of comity, usually maintained in concurrent windings up in different jurisdictions. The approach there is one of hotchpot designed to ensure distribution out of one estate is taken into account in determining the extent of participation in the other, with a view to ensuring that the receipts of all creditors are in a constant proportion regardless of source. The general rule in such cases was described by Lord Scott of Foscote (speaking for the Privy Council) in Cleaver v Delta American Reinsurance Co (in liq) [2001] 2 AC 328 as follows:

The authorities establish the principle that if a company is being wound up in an English liquidation and also in a liquidation in a foreign country, a creditor who has proved and received a dividend in the foreign liquidation may not receive a dividend in the English liquidation without bringing into the hotchpot his foreign dividends.

62 In New Cap, Windeyer J (at [44]) envisaged that this hotchpot principle had wider application than merely where there were winding up proceedings concurrently in more than one jurisdiction [citing Re Standard Insurance Co Ltd [1968] Qd R 118; Cleaver v Delta American Reinsurance Co (in liq) [2001] 2 AC 328, 240].

63 However, where a debt is attached to satisfy a local judgment before a foreign bankruptcy intervenes, the attachment is valid and prevails over the foreign bankruptcy. The prime authority for and explanation of this principle is Galbraith v Grimshaw [1910] AC 508, in which a judgment for debt was obtained in an action in Scotland, and was extended to England under the (UK) Judgment Extension Act 1868. The judgment creditor served a garnishee order nisi on a firm who owed a debt in England to the judgment debtor. After service of the garnishee order, the judgment debtor's estate was sequestrated under the Scottish bankruptcy law. The House of Lords held that the judgment creditor had, by service of the garnishee order nisi, obtained an attachment in England before the date of the sequestration, and that the Scottish Court had no power to interfere with his claim. Lord Loreburn LC said (at 510): To my mind your Lordships would be wise to apply the rule explained by Lord President Inglis in the case of Goetze v Aders [1874] 2 R 150. I think that rule is applicable in England also. The attachment in England will not prevail against a claim of a foreign trustee in bankruptcy which is prior in date, provided that the effect of the bankruptcy is to vest in the trustee the assets in question. If the attachment is prior to the date, then I do not think it will be affected by the title of the trustee in a foreign bankruptcy; and the reason is that a foreign law making the title of the trustee relate back to transactions which the debtor himself could not have disturbed, has no operation in England while the English law as to relation-back applies only to cases of English bankruptcy, and therefore, the trustee may find himself (as in this case) falling between two stools.

I think, my Lords, in each case the question will be if the bankrupt could have assigned to the trustee, at the date when the trustee's title accrued, the debtor assets in question situated in England, if any part of that which the bankrupt could have then assigned is situated in England, then the trustee may have it; but it could not have it unless the bankrupt could himself have assigned it. It follows that the trustee cannot have this debt free from the garnishee order, because the bankrupt could only have assigned it on November 12th, subject to the garnishee order.

64 Lord MacNaghten said (at 512) that the Court of an administration in bankruptcy which extended into another jurisdiction where there were assets, "must take the assets of the bankrupt such as they were at that date (i.e. the date of the sequestration order) and with all the liabilities to which they were then subject". Lord Dunedin said (at 512-13): I think that the general principle which underlies every bankruptcy system is that after bankruptcy the bankrupt is no longer really the owner of his own property, but holds his own property as the trustee for the whole of his creditors for equal division. That carries with it necessarily the idea that some of his creditors may already have got security or may have taken part of the property in execution ... It is a very natural development of that in working out bankruptcy system that you should introduce a law of relation back, and that within a certain period, which will always be an arbitrary period determined by positive enactment, you should hold that the security given or the execution effected should have no effect and that that property should be like the rest of the property of the bankrupt.

Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects, it should not allow steps to be taken in its territory which would interfere with that process of universal distribution ... But if you wish to extend that not only to the question of recognising a process of universal distribution, but also of introducing the law of relation back, then it seems to me you at once get into rather great difficulties, because the question at once arises, according to which law will you apply the doctrine of relation back? If you take the law of the country of the bankruptcy, then the execution or security in question may be and often is of a kind which is quite foreign to the system of law which you are administering in the bankruptcy court. If, on the other hand, you take the law of the country of the attachment, then you have to administer a law which is quite ignorant of the precise execution or security with which it has to deal. Accordingly, to say the least of it, there has been quoted to us no instance, where as a question of international law, a Court has applied the rule of relation back, and certainly there are dicta of Lord President Inglis which seem to point completely the other way. …

65 The rationale of the rule is that while local courts recognise foreign bankruptcies (and similar administrations), they do not recognise foreign rules of relation-back. Interestingly, prior to Galbraith v Grimshaw, the same result had been reached in this country, in Victoria, for the same reason, in Union Bank v Tuttle (1889) 15 VLR 258. The defendant's estate had been sequestrated in New South Wales, but before the sequestration order, creditors had seized under executions on judgments obtained in Victoria. Under the law of New South Wales, the sequestration order related back to a time before the execution in Victoria. A'Beckett J, in the Supreme Court of Victoria, refused to recognise any relation back period in favour of New South Wales official assignee: ... it has been argued that this Court, recognising the operation of the sequestration in New South Wales, must do so to its full extent, giving it in Victoria the retrospective operation which it would have had in New South Wales, thus divesting the entitlement of the execution creditors in Victoria. No authority has been cited which supports this contention. Story's Conflict of Laws p 412, and Geddes v Mowat in Jamieson's Bankruptcy Reports are against it. I hold that the judgment creditors' rights are not displaced by the sequestration of the debtor's estate in New South Wales subsequent to the seizure, and I bar the claim made on behalf of the estate of Tuttle, the judgment debtor. The property seized is admittedly the property of a bankrupt firm, of which Tuttle is a member, and I have not to decide anything how the debtor's interest in this property is to be sold. I merely decide that his official assigning in bankruptcy cannot stop the sale of his interest in the chattels seized.

66 In Clyne v DCT (NSW) (1981) 150 CLR 1, Mr Clyne had, after the service on his bank of a statutory notice requiring payment to the Commissioner, purported to assign the money owed to him by his bank to a third party. The question was whether the assignment operated to defeat the notice; all members of the High Court were unanimous that it did not. Brennan J said (at 27): The Commissioner's right to payment out of the money in the hands of the third person distinguishes him from a garnishor of a debt who obtains no proprietary interest in the debt owing to the judgment debtor, though he may obtain execution against the garnishee: Hall v Richards (1961) 108 CLR 84, 92 per Kitto J, but even a garnishor is not defeated by the judgment debtor's assignment of the debt after service of the garnishee order nisi, for a judgment debtor loses the right to assign his debt free of the garnishee order once the order nisi is served: Galbraith v Grimshaw [1910] AC 508 at 511 per Lord Loreburn LC.

67 See also Re Doyle (dec'd); Ex parte Brien v Doyle (1993) 41 FCR 40; 112 ALR 653, 663.

68 Thus, despite the significant body of authority that holds that the pendency of insolvency proceedings is reason to decline to make a garnishee order absolute, it is clear on the authority of Galbraith v Grimshaw and Union Bank v Tuttle that, so far as a foreign bankruptcy is concerned, the rules of relation-back do not apply in the local forum. However, in my view, Galbraith v Grimshaw, in holding that the relation-back provisions of a foreign bankruptcy law do not avoid an attachment made in the forum before the intervention of bankruptcy, does not deny that the making of a garnishee order absolute - or an order for payment - is discretionary, and that relevant considerations include whether it would confer a preference on the judgment creditor over other creditors. It might be taken to suggest that the pendency of foreign administration proceedings, before an order is made in them, is no reason to decline to make a garnishee order in the local forum, because if a foreign administration order were subsequently made, it would not avoid the local garnishment. However, I do not think anything in Galbraith was directed to what were relevant or permissible discretionary considerations; the issue in that case, as in Union Bank, was one of priority, not of discretion. Moreover, the modern doctrine of forum non conveniens had not evolved at the time of Galbraith.

69 Accordingly, in my view the pendency of a foreign administration proceeding, even if no order has been made in it at the date of attachment, remains a relevant consideration in informing the discretion whether or not to make order an absolute for payment, although because of the different impact in the local forum of the foreign relation-back provisions, it may be less compelling a consideration than a local administration proceeding. But in this case, there are factors in addition to the mere pendency of the foreign reorganisation proceedings.

70 First, the judgment creditor had notice of the reorganisation proceedings, which had been instituted before the application for leave to serve a garnishment notice was made. Trigem Inc made its application to the Suwon District Court for receivership and corporate reorganisation on 18 May 2005. The draft garnishment notice was filed on 19 May, and leave granted on 26 May. On 19 October 2005, Clayton Utz on behalf of Ubase wrote to Patrick Woods & Co on behalf of Trigem Australia as follows: 1. M L Ubase's knowledge of Trigem Computer Inc 's administration in insolvency .

On or about 18 May 2005, M L Ubase became aware that Trigem Computer Inc had made an application to Suwon District Court, the Ansan, for corporate reorganisation under the Korean Reorganisation Act . M L Ubase became aware of this fact when Trigem Computer's statement to the Korean Stock Exchange that it had made such an application was reported in the Bloomberg Press. On or about 16 June 2005, M L Ubase became aware that Trigem Computer's application for corporate reorganisation was granted.

Attached is a copy of M L Ubase's Proof of Debt lodged on 28 July 2005 in connection with Trigem Computer's corporate reorganisation.

In the last paragraph of your email you requested our client confirm that it: "Sought to enforce the same judgment in Korea, and its proceedings there were halted when the Korean Court made orders concerning the possible corporate reorganisation of the Trigem Computer Inc".

If by "same judgment" you are referring to the judgment of Supreme Court of New South Wales obtained by M L Ubase against Trigem Computer Inc on 17 March 2005 and entered on 22 March 2005, then our client conditionality confirms that fact.

However, prior to the Court granting Trigem Computer Inc's application for reorganisation on 16 June 2005, our client had commenced proceedings in Korea to enforce against Trigem Computer Inc and others the arbitration award, the subject of the judgment obtained by M L Ubase in the Supreme Court of New South Wales. On 29 June 2005, the Korean Court - in which proceedings to enforce the arbitration award had been commenced stayed the enforcement action against Trigem Computer Inc."

71 Accordingly, the garnishment proceeding was instituted the day after Ubase learnt of the reorganisation proceeding, and with notice of it; however, it was not disclosed to this court when the application for issue of a garnishment notice was made.

72 Secondly, the freezing order was made on 19 May 2005 - before the date of attachment - with the consequence that Trigem Inc could not lawfully have paid Ubase on the date of attachment, at least without the leave of the Korean court. The orders of 19 May 2007 were made under Article 39 (1) of the Corporate Reorganisation Act, and had the effect of freezing Trigem Inc's assets and liabilities and limiting its capacity to enter new commitments without court approval until further order of the Court. Article 39 relevantly provides as follows: 39 Preservative Measures and Preservative Receivers

(1) The Court may, upon the application of an interested person or ex officio, order the provisional seizure or injunction, or any other necessary preservative measure in respect of the affairs and property of the company, before making a decision on the commencement of reorganisation proceedings. In this case, it shall seek opinions from the Administration Committee.

73 The freezing order provided: 1. TG shall not repay or furnish security regarding any financial obligations incurred as a result of a cause that arose on or before 9:30am, May 19, 2005. 2. TG shall not transfer, furnish as security or cause leasehold rights to be established against, or otherwise engage in any act of disposition concerning, the ownership of any of its owned registered or registrable assets, including real property, automobiles, heavy machinery and industrial property rights, and other assets with a value of 10 million Won or more; provided, however, that there shall be an exception regarding the disposition of products and raw materials, among other things, in continuing ordinary business activities. 3. Regardless of the reason, TG shall not engage in any borrowing (including the discounting of notes). 4. TG shall not hire any officers and employees, other than labourers and production workers. 5. Each of the above acts shall not be restricted if this Court's approval has been obtained in advance.

74 Accordingly, under paragraph 1 of that order, the judgment debtor Trigem Inc could not have lawfully paid the judgment creditor, without leave of the Korean Court, after 19 May 2005. An order for payment, though directed to Trigem Australia, would have the effect of removing from Trigem Inc an asset in circumstances where, for Trigem Inc to have alienated that asset to a creditor would have been a contravention of the Korean orders of 19 May.

75 Thirdly, and decisively, Ubase is participating in the corporate reorganisation and seeking to prove its debt in the reorganisation. While it is true that a scheme of arrangement binds creditors only within the scheme jurisdiction [New Zealand Loan & Mercantile Agency Co v Morrison [1898] AC 349, 357.9; Fiske v Sterling Investment Co Pty Ltd (1977) 3 ACLR 158, 160], and that Article 4 of the Corporate Reorganisation Act provides that reorganisation proceedings in Korea shall be effective only with respect to the property of the company in Korea, and that reorganisation proceedings commenced in a foreign country shall not have any effect on property in the territory of the Republic of Korea - so that an Australian Deed of Company Arrangement would not affect property of a company in Korea - Ubase has sought to prove its claim as a creditor in the Korean corporate reorganisation, and has thus subjected itself to the scheme. As Trigem Australia submits, Ubase is seeking to take advantage of the benefits of the Korean corporate reorganisation by proving as a creditor in it, yet at the same time outflanking it by endeavouring to attach assets of Trigem Inc in Australia. In my view, Ubase ought not both have the benefit of the reconstruction by proving in it and at the same time be permitted to enforce its rights outside it. In this context, considerations analogous to those which apply on an application for a stay on grounds of forum non conveniens are pertinent. 76 It is far more just and convenient that the claims of all creditors be resolved according to the law of the place of incorporation, where there can if necessary be a general pro-rata distribution, than in New South Wales, which can deal only with the claim of one creditor against one asset, and that to the prejudice of the other creditors. Although it was submitted for Ubase that it could not be said that the creditors of Trigem Inc participating in the reorganisation would be prejudiced if the order for payment were made, the contrary is plain: if the order were made, a very large asset, which would otherwise be available for the general body of creditors, would be removed to satisfy Ubase's claim alone. Moreover, the garnishee is not an arm's length debtor to the judgment debtor, but its wholly owned subsidiary, and regardless of whether or not it is a debtor of Trigem Inc, its assets and liabilities may be of relevance to the reorganisation, since they will influence the value of Trigem Inc's assets, which include its shareholding as the holding company of Trigem Australia. The dispute has only a tangential connection with New South Wales, which is no more than the situs of an asset of the judgment debtor. In my view, the Korean jurisdiction has a much closer connection with and relationship to the issues, and is a manifestly more convenient and appropriate one for their resolution than New South Wales.

77 For all those reasons, had I concluded that Trigem Australia was, at the relevant date, indebted to Trigem Inc, I would nonetheless, as a matter of discretion, have declined to make an order for payment to Ubase. Conclusion 78 Although the garnishment notice was effective to attach all and any debts owed by Trigem Australia to Trigem Inc on the date of service, namely 30 May 2005, the evidence does not establish that there was any such debt owing or accruing as at that date. The effect of the HP foreclosure transaction was that the pre-existing indebtedness of Trigem Australia to Trigem Inc was repaid, and Trigem Inc became indebted to Trigem Australia. Even if that were not so, in the context that Ubase was on notice of the Korean reorganisation proceedings when it sought leave to issue the garnishment notice, and is proceeding to prove its debts in the Korean reorganisation, as a matter of discretion I would decline to make an order for payment. 79 It follows that I should dismiss the motion for payment and discharge the garnishment notice.

80 Although ordinarily a garnishee is not allowed costs, that rule does not apply where the garnishee appears and shows that no debt is due by it [Willis v Municipality of Five Dock (1895) 11 WN(NSW) 112; Dean v Dwyer (1924) 41 WN(NSW) 67]. This is such a case. 81 My orders are: (1) Order that the motion for payment pursuant to the garnishment notice issued on 26 May 2005 be dismissed.

(2) Order that the garnishment notice issued on 26 May 2005 be discharged. (3) Order that the judgment creditor pay the garnishee's costs. **********

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