Plaintiffs v Defendants

(a) the applicants, who apparently all reside in Dubai are all current directors of Bustan Australia Holdings Pty Ltd ("Bustan Australia"). They are also shareholders in Bustan Australia. Bustan International Pty Ltd ("Bustan International") is a wholly-owned subsidiary of Bustan Australia. The applicants are also directors of Bustan International.

(b) Mr Edgar is instructed by the applicants and believes that:

(i) Bustan International traded from late 1994 to 2 November 2001 as a commodities trading company. Its principal activities were buying and selling agricultural commodities such as grain and wool. It bought commodities in Australia for sale and delivery at a future date, usually off-shore. The currency of sale was frequently a foreign currency, such as $US.

(ii) The exchange rate risks could be averted by hedging contracts. The Banks provided foreign currency facilities to permit Bustan International to hedge its trading assets and liabilities.

(iii) "Bustan International's procedures forbade traders engaging in foreign currency speculation, that is, entering into forward contracts for the sale of foreign currency that were not matched by physical contracts under which there were rights or obligations to receive like amounts of foreign currency for goods sold."

(iv) In November 2001, the Banks demanded payment of moneys allegedly owing by the Bustan Companies and appointed a receiver and manager to both companies.

(v) The Bustan Companies have not been sued by the Banks but the Banks have caused the company which held security for them to commence proceedings against certain guarantors of the debts of the Bustan Companies, namely, Gulf Import and Export Company ("GIEX") and Emirates Trading Agency Ltd ("ETA"). That proceeding is in this Court, proceeding number 8130 of 2002, in which Permanent Trustee Ltd is plaintiff and GIEX and ETA are defendants ("the Permanent Trustee proceeding").[1]

5 Mr Edgar's affidavit then continues his purported account of the facts by stating the sources thereof as follows:

"I have perused the pleadings in the Permanent Trustee proceeding and read affidavits which have been filed. The salient aspects of the pleadings [and] the affidavits I summarise or paraphrase in the following paragraphs of my affidavit; and which I believe to be true and correct."

6 Mr Edgar's affidavit then refers to pleaded allegations in the Permanent Trustee proceeding and may be summarised as follows:

(a) The documentation said to comprise the "Facility Agreement" between the Banks (or one or other of them) and the Bustan Companies is listed. It would appear that Bustan International was the borrower and that Bustan Australia was a guarantor.

(b) The sum claimed in December 2001 against GIEX and ETA was about $14.4M but when the Permanent Trustee proceeding was commenced the claim had been reduced to about $5.2M (presumably as a result of collections by the receiver and manager of the Bustan Companies).

(c) GIEX and ETA "contend" that Bustan International is not indebted to the Banks because Bustan International's traders engaged in substantial unauthorised foreign currency speculation and speculative futures trading from about 1998 until 2001 ("speculative trading"), this speculative trading was contrary to Bustan International's policy and the terms of financial accommodation, the Banks were aware that Bustan International's internal procedures prohibited speculative trading and the Banks (by reason of a number of matters) were "on inquiry: from late 2000 (or, at the latest, April 2001)" that they were funding speculative trading and the Banks were allegedly aware of a number of other specified matters.

7 Mr Edgar's affidavit then refers to an affidavit by Michael John O'Brien, a solicitor for GIEX and ETA filed in the Permanent Trustee proceeding, concerning alleged speculative and fraudulent trading, as outlined in O'Brien's affidavit, such trading having been carried out by senior officers and employees of Bustan International. O'Brien's allegations are said by him to be primarily derived from various investigations conducted by O'Brien which included interviews (in late 2001 and early 2002) of former staff and management of Bustan International, inspection of Bustan International's books and records and the appointment of forensic accountants.

8 Mr Edgar's affidavit says that O'Brien's affidavit states that O'Brien was "told" that "senior employees" had done various fraudulent things (including creating false reports, documents and records of commodity contracts and engaging in speculative trading), and O'Brien's affidavit apparently indicates (although this is clumsily stated in Mr Edgar's affidavit) that:

"Documents in the possession of [the Banks] appear to suggest that [the Banks'] officers knew or were aware and on notice that Bustan International staff were engaged in fraudulent and speculative conduct." (emphasis added)

9 It is important to note that the last above-quoted passage is not particularised, the sources are not stated and the unspecified documents are merely said to "appear to suggest" knowledge or notice of speculative trading.

10 Mr Edgar's affidavit then refers to an affidavit of N J P Raman, an officer of ETA, filed in the Permanent Trustee proceeding, which says that Raman was also provided with information from unnamed sources that "senior officers" of Bustan International had carried on speculative trading and:

"Documents in the possession of [the Banks] suggest that [the Banks] knew or were on notice that Bustan Australia management were engaged in fraudulent and dishonest conduct." (emphasis added)

11 It is again important to note that the last above-quoted passage is not particularised, the sources are unnamed, the documents are not identified and the documents are merely said to "suggest" knowledge or notice of fraudulent and dishonest conduct.

12 Then, in para 43, Mr Edgar says:

"Further, documents in the possession of Rabo and HSBC which I have read or are referred to in the various affidavits and pleadings filed in the Permanent Trustee proceedings appear to suggest that Rabo and HSBC officers knew or were on notice that Bustan International staff were engaged in fraudulent and speculative conduct." (emphasis added)

13 I note that Mr Edgar does not, in para 43, indicate which documents he has read as opposed to which documents are merely referred to in affidavits or in pleadings in the Permanent Trustee proceeding. The statement, like the others I have quoted, is conclusory. None of the statements referred to enables the Court to assess why it is said that these documents "appear to suggest" or "suggest" what is alleged.

14 A draft statement of claim and two schedules thereto are exhibited to the affidavits of Mr Edgar. Revised Schedule 1 particularises the alleged unauthorised and fraudulent conduct involved in the foreign exchange transactions. Revised Schedule 2 particularises how the knowledge of the Banks is "derived". The latter schedule refers to a number of matters said to be or show "transactions inconsistent with commodity trading" but there is no expert or any evidence to verify this characterisation. Numerous allegedly relevant documents sent or received by employees of the Banks are identified as relevant but there is no evidence as to their contents or significance.

15 A number of submissions were advanced by counsel for the applicants, for the Banks and for the Bustan Companies, respectively, in support of or in opposition to the grant of the leave sought by the applicants.[2] However in my view it is only necessary to refer to two of the matters that s.237 of the Act requires to be made out by an applicant for leave. Those matters are, first, that there is a serious question to be tried[3] and, second, that the applicant is acting in good faith.[4]

16 I am not satisfied on the evidence that there is a serious question to be tried. The applicants have put forward a case to a great extent based on unsubstantiated allegations. The evidence provided, such as it is, is hearsay, double-hearsay or worse. The issues crucial to the existence of a cause of action against the Banks, based upon the second limb of Barnes v Addy,[5] are not elucidated by specific evidence but are simply the subject of allegation, assertion and conclusion. The Court has not been provided with satisfactory evidence that might enable it to analyse whether there is a serious question to be tried. There is hearsay evidence as to investigations including interviews and inspections of books some years ago. The results of those investigations are apparently to be relied upon in the Permanent Trustee proceeding but the Court is not provided with anything sufficiently specific or coherent to enable it to assess whether the criterion of "serious question to be tried" has been satisfied in the present application.

17 Nor am I satisfied that the applicants are acting in good faith. The applicants have not sworn any affidavits themselves as to their involvement in the Bustan Companies at the relevant times and their state of knowledge or ignorance of the relevant facts. They have not stated their belief in the existence of a cause of action and neither has Mr Edgar, their solicitor. No deponent has been produced with direct knowledge of, or belief in, the existence of a relevant cause of action. There is no explanation for the substantial delay between the investigations and this application. There is ground for suspicion that if leave were granted the proposed proceeding might be sought to be utilised as a springboard for seeking an adjournment of the Permanent Trustee proceeding which is already fixed for trial.

18 For the foregoing reasons this application is dismissed and the applicants are ordered to pay the costs of the Bustan Companies and of the proposed defendants.

[1] The Permanent Trustee proceeding is listed for trial on 29 May 2006 on an estimate of 10 to 15 days.

[2] Counsel for the applicants referred generally to Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, 318, 320 and 324 per Palmer J.

[3] S.237(2)(d) of the Act.

[4] S.237(2)(b) of the Act.

[5] Counsel for the applicants cited Barnes v Addy (1874) LR 9 Ch App 244, 252 and Consul Development Pty Ltd v D.P.C. Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373, 396-8 per Gibbs J and 412 per Stephen J.