"1321 A person aggrieved by any act, omission or decision of:

(d) a liquidator --- of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act omission or decision, or remedy the omission, as the case may be and make such orders and give such directions as it thinks fit."

3 AMN was wound up by order of this Court on 22 March 1993.

4 S.C.A. was wound up by order of the Federal Court on 9 September 1994.

5 AMN lodged a proof of debt with the liquidators of S.C.A. in the sum of $661,076.73 which subsequent to an order made in the Federal Court was accepted by the liquidators of S.C.A.

6 On 7 November 1994 Wu/Lynink lodged a proof of debt with the liquidators of S.C.A. totalling $2,000,055.00.

7 On 25 November 1994 Lu/Lynink lodged a further proof of debt with the liquidators in the sum of $197,500. On 16 February 1996 the liquidators of S.C.A. admitted a proof of debt in the sum of $2,135,630.00. The basis of the admission was:-

"I confirm that at this stage I am prepared to admit the Proof of Debt lodged by Mrs Wu and Lynink Pty Ltd for the amount of $2,135,630. This amount may be increased if your clients are able to provide documentation to substantiate the alleged loan of $200,000 by your clients in August 1991, as requested in my letter dated 9 February 1996.

The amount of $2,135,630 which I am prepared to admit for Mrs Wu and Lynink Pty Ltd consists of the following amounts which were advanced to the company and have been adequately substantiated:

The payment of $105,000 on 9 April 1991 was not included in your clients' Proof of Debt as it appears that these funds were meant to have been loaned to Mastergrade Pty Ltd. However it is evident from the records in my possession that these funds were used to purchase the Mudgeeraba property for S.C.A. Properties Pty Ld after having been deposited to the trust account of Messrs Fitz-Walter Cull & Walker, Solicitors."

8 AMN appeals against the admission of the proofs of debt of Wu/Lynink essentially on the basis that the sums of money the subject of the proofs were not provable in the liquidation of S.C.A. An alternative ground is that the debts proved were not in fact advances by Wu/Lynink but were advances by another Wu family company Yong Feng Co Pty Ltd ("Yong Feng").

9 Essentially the proofs of debt by Wu/Lynink were admitted on the basis that moneys were advanced by them by way of loan to finance various investments and in different ways all ended up being used by S.C.A. to acquire assets or discharge liabilities and to the extent that they were not "loans" they were moneys advanced which at the date of liquidation of S.C.A. were refundable by it to Wu/Lynink.

10 It is the contention of the appellant AMN that :-

"(1) The funds advanced were wholly or in part not advanced by Mrs Wu or Lynink Pty Ltd;

(a) The funds advanced were by way of capital contribution rather than by way of a loan; or alternatively

(b) That the funds were advanced for the purpose of purchasing half of the real estate owned by S.C.A. Properties Pty Ltd; and

the appellant's case is that neither Ms Wu nor Lynink Pty Ltd are creditors whose claims can be admitted to proof. As such the liquidator should not have admitted their proofs of debt."

11 The issue before this Court is whether the liability referred to in the proofs of debt is a true liability of the company enforceable against it. (Tanning Research Laboratories Inc. v. O'Brien (1991) 169 C.L.R. 332 at 341.) The appellant in this case must show that the liquidator was wrong in admitting the proofs of debt challenged. See Westpac Banking Corporation v. Totterdell & Anor (1998) 20 W.A.R. 150 at 154 and 158.

12 At the outset it is convenient to outline briefly the persons and corporations involved directly and indirectly in the events that have led to this appeal.

13 Prior to 1991 Leslie Sing Chee Hui ("Hui") who came to Australia from China many years ago and became involved in various investment exercises and his wife Elizabeth Ann Hui were directors of various companies used as vehicles for Mr Hui's investment dealings. Two of those companies were AMN and S.C.A.. Hui had other companies which are referred to in the evidence but they have only a peripheral relevance to the issues in this case and I will not further refer to them except where necessary.

14 Lin Feng Lang Wu ("Wu") prior to 1991 was a lady living in Hong Kong with wide and varied investment portfolios. In 1991 her attention was drawn to certain investments in which Hui was interested in Queensland.

15 Hui was acquainted in Sydney with Mr Lu Ming Yong ("Yong") and Mr Peter Shui Kwan Lee ("Lee") who practised as an accountant in Sydney. Wu had known Lee for some time and had received advice from him in connection with her Australian business interests. Early in 1991 Wu advised Lee that she was interested in expanding her real estate investments in Australia.

16 I infer that Lee passed on this information to his acquaintance Yong who was involved in business and investments etcetera in Sydney. Yong travelled to Hong Kong in March 1991 and made contact with Wu and advised that Hui was an acquaintance who was in the process of purchasing some undeveloped land at Mudgeeraba in Queensland. He asked her if she would be interested in investing money in that property. Yong had obviously obtained instructions from Hui. He informed Wu that for a contribution of $180,000 she would be able to obtain a 40 per cent interest in the undeveloped land which Hui was in the process of purchasing. Wu agreed to become part owner holding a 40 per cent interest in the Mudgeeraba property and told Yong to make contact with her when the money was needed to enable her to pay for and acquire that interest.

17 In accordance with instructions received from Yong, Wu caused a telegraphic transfer of $180,027 from her savings account into the trust account of Fitz-Walter Walker, solicitors for Hui and some at least of his investment companies for the acquisition of a 40 per cent interest in the Mudgeeraba property.

18 At that stage apparently neither Yong nor Wu had even heard of S.C.A. The moneys forwarded to the trust account of the solicitors for Hui (who were also the solicitors for S.C.A.) were clearly advanced on the assumption that they would be used to settle a contract of sale where under Hui and Wu became owners of the property as tenants in common on a 60:40 basis.

19 Wu relied upon the integrity and advice of Lee her accountant in Australia and because Yong came with his recommendation, agreed simply to make the investment without obtaining either valuation or legal advice.

20 Shortly after the payment was made, Hui advised Yong that he was interested in having Wu contribute 50 per cent of the purchase price of the Mudgeeraba land. Yong asked Wu whether she would be prepared to increase her interest in the Mudgeeraba property to a 50 per cent interest. He also advised that Hui who was purchasing the Mudgeeraba property was also involved in investing in a snack food factory in China and was prepared to sell Wu a half interest in that business for $450,000. After telephone discussions with Yong, Wu agreed to take a 50 per cent interest in the Mudgeeraba land and also to invest $450,000 in a joint venture exercise with Hui in a snack food factory in China.

21 To partly fund the further investment, Wu on 9 April 1991 using her savings account caused a further telegraphic transfer of $150,000 to Lee who caused that sum to be transferred into the trust account of Fitz-Walter Walker, the solicitors for Hui and S.C.A.

22 At about this time or at least at some time early in April 1991, Yong again made contact with Wu and informed her that Hui also owned a farming property (the "Yarraman Farm") and that he would sell her a 50 per cent share in that farm property for the sum of $1.2M.

23 At some stage in early April 1991, settlement of the contract for the acquisition of the Mudgeeraba property was effected. However, the property was transferred not to Hui and Wu but rather to S.C.A. While this clearly enough did not procure the result which Mrs Wu contemplated on 28 March and 9 April 1991 when funds were transferred to allow her to become a 50 per cent owner of the property, nevertheless it is clear that she soon learnt that instead of becoming a 50 per cent owner of the property, she had simply a claim against S.C.A. in respect of the funds which she had advanced as she thought to Hui but which he had used for the purpose of allowing the contract between S.C.A. and the vendor of the Mudgeeraba property to be settled.

24 Thereafter discussions took place between Hui, Lee and Wong and obviously the outcome was relayed to Wu who seems not to have raised any objection to the use of her moneys intended for Hui, to permit S.C.A. to acquire the Mudgeeraba property. The discussions at the time seem to have involved the acquisition by Wu of half the control of S.C.A. It was then learnt that the owner of the Yarraman Farm was in fact S.C.A. and not Hui.

25 After discussions had taken place between all parties concerned in the investment exercise I infer it was agreed that instead of Wu becoming a 50 per cent owner of various items of property in which Mr Hui had invested using his company S.C.A. as the purchaser it was determined that she should acquire a 50 per cent control of the company S.C.A. and that Hui (or his associates/creditors Lee and Yong should between them hold the other 50 per cent control of the company). It is clear on the whole of the material that Hui was greatly over extended financially and was in desperate need of the funds necessary to discharge financial obligations to persons who had financed S.C.A.'s acquisition of property.

26 Unsurprisingly, having regard to the amount of money that Wu had agreed to invest in Australian property sight unseen it was decided that she would come to Queensland towards the end of April or early May 1991 to inspect that property. She did come to Queensland and inspected the Mudgeeraba property on or about 3 May 1991 and then travelled by motor vehicle to the Yarraman Farm which she inspected on 3/4 May 1991.

27 Prior to her arrival in Australia however there had been a meeting in the office of Lee, Wu's accountant attended by Hui, Lee and Yong. It seems that Hui was in straightened financial circumstances and owed Yong money. It seems also that Yong owed Lee money. It was agreed between the three men that Hui would give each of Lee and Yong a 5 per cent shareholding in S.C.A. which would satisfy the outstanding financial obligations between them, and he would end up with a 40 per cent shareholding. I accept the evidence of Lee and Yong that the understanding at this time was that they would acquire their 5 per cent shareholdings at Hui's expense and it was never contemplated that they would pay for the shares personally. This agreement was written out by Hui in Lee's office in the course of this meeting where it was typed up. However the agreement in its form was one to be executed by Wu, Hui, Lee and Yong. Obviously it would have no operation until Wu had attended Queensland to inspect the Yarraman Farm, which was one of the principal assets of S.C.A. at the time, and agreed to invest monies in it.

28 When Wu inspected the Yarraman Farm she was accompanied by Hui, Yong and Lee. She was very impressed with the size of the farm and the good fishing and shooting on it and acknowledged that more funding would be needed to properly stock it to make it a good commercial venture. Ultimately she agreed in the terms of the agreement which had been drafted by Hui after discussions with Lee and Wong in Sydney a couple of weeks earlier. Before leaving the farm however, Hui advised the others, somewhat to their surprise that S.C.A. was also in the course of acquiring an investment property at Beenleigh which had potential for industrial development. He offered either to have S.C.A. dispose of that property before all the shareholding arrangements and contributions etcetera were made or to leave it as an S.C.A. asset if Wu was prepared to make an additional loan to the company of $200,000.

29 I am satisfied on the evidence that Wu agreed either at the farm or as the party was returning to Brisbane from the farm to make that additional loan if the Beenleigh land remained an S.C.A. asset when the deal with Hui was finalised.

30 Wu in fact travelled to Lee's office in Sydney where she appended her signature to the agreement which by that time had already been signed apparently by Hui and either or both of Yong and Lee. The written agreement signed by Wu on 5 May 1991 was in the following terms:-

This document represents an agreement among the following parties in relations to the purchases of two (2) parcels of freehold land in Queensland, Australia and the percentage of participation as agreed by the said parties:-

b/ Mr. Leslie Sing Chee Hui, Gold Coast, Queensland 40%

1/ Mudgeeraba Land, Lot 53, 92.2 Hectares (227 Acres), Queensland.

Settlement of the said property was effected on the 9th April, 1991 covering a total amount of $450,000.00

Percentage of participation by the respective parties as follows:

2/ Yarraman Property, 1811 Hectares (4450 Acres), Queensland.

The value of the said property was agreed at $2,400,000.00.

Percentage of the participation by the respective parties as follows:

It has been agreed that the contribution of $1,200,000.00 from Mr. & Mrs. Wu shall be remitted on or before the 7th May, 1991 to finalise this transaction.

S.C.A. Properties Pty. Limited, a company registered in the State of

Queensland, Australia, would henceforth be restructured with the issue

of additional shares in accordance with the respective shareholders

Amendments to the appointment of new office bearers shall be attended

to upon conclusion of all financial transactions relevent (sic) to the above-

...................................................................(Mr. & Mrs. WU)

...................................................................(Mr. Leslie S.C. HUI)

...................................................................(Mr. Lu M. YONG)

...................................................................(Mr. Peter LEE)"

31 It is clear that it was her signature to the agreement which was thought necessary to record the arrangements that had been made. The only thing that the agreement did not record was the arrangement for the Beenleigh property to be included in the S.C.A. assets prior to Wu becoming a 50 per cent shareholder in that company. I might add that in the course of travelling from Yarraman Farm back to Brisbane it was agreed between all parties in the car - Wu, Hui, Lee and Yong that S.C.A. would make available to Wu all the title deeds to these three properties which constituted its assets - Mudgeeraba, Yarraman Farm and the Beenleigh land and that Lee, her accountant would then hold those Certificates of Title for her as security for the repayment by S.C.A. of the moneys she advanced.

32 In my view it is perfectly plain on all the evidence and upon the content of the contemporaneous documents executed by Hui as director of S.C.A. that the acquisition of the 25,000 one dollar shares by Wu was a device adopted merely to ensure that she had a 50 per cent control of the company which owned the land she sought to invest in. In fact with the support of Lee who was her accountant, agent and friend, she could expect to exert a 55 per cent control of the company. Yong at that stage seems to have been more in Hui's camp than was Lee.

33 Minutes of a meeting of members of S.C.A. (Mr and Mrs Hui) held on 15 May 1991 record the following resolution and allotment of shares to give effect to the agreement.

Minutes of a meeting of the members of S C A Properties Pty.

Ltd. held at the registered office of the company at Level 8,

Niecon Tower, 17 Victoria Avenue, BROADBEACH at 1.00 p.m. on 15 May

DIRECTORS: It was resolved that the following persons be

ALLOTMENT OF Applications for shares were received and it

SHARES: was resolved to allot the following shares in

LOANS: It was resolved that $1,425,000 be loaned to

Entries in the allotment journal of S.C.A. prior to 4 December 1991 record the allotment of shares to implement the arrangement agreed upon on 5 May 1991 and confirmed in the S.C.A. meeting of 15 May 1991.

34 Financial statements prepared for S.C.A. by its accountants for the year ended 30 June 1991 record as a current liability of S.C.A. a loan from Lynink in the sum of $1.6M and record the issued paid up capital to be 50,000 ordinary shares each of $1 fully paid up. They do not record any share premium account.

35 On 17 May 1991, Hui faxed S.C.A. documents for Lee's perusal. Among those pro forma documents was one headed "Pro Forma Balance Sheet". Interestingly, this document purported to compare the changes that had taken place in the financial records of the company between 30 April 1991 and 16 May 1991. That document forwarded by Hui, one of the then Directors of S.C.A. provided:-

Total Shareholders Equity ($195,000.00 ($155,000.00)"

36 In July 1991 Hui visited Wu in Hong Kong and told her that Yong had suggested that he contact her in connection with the development of the Beenleigh property. Hui asked for a "contribution" of $500,000 from Wu and said that he would provide a prefabricated building for erection on the site worth about the same amount of money. In the course of his discussion with Wu, Hui made notes in his handwriting which are exhibited as "LFLW 28" and "LFW 29" to Wu's affidavit filed on 5 May 1999. "LFLW 28" deals principally with the proposed Beenleigh development. Part of that document reads as follows:-

Then there is a further analysis of proposed development costs and contribution including a reference to "Wu (loan) $500,000" with a total investment proposed of $1,600,000. There are notes relating to other investments including Norvale (presumably the Yarraman Farm).

37 At the same time Hui wrote out a second explanatory document which records inter alia:-

38 On the same document Hui wrote a diagram showing the shareholding in S.C.A. of 50,000 shares at $1.00 and underneath that an indication that Wu held 50 per cent of the shares, Hui 40 per cent of the shares, Lee 5 per cent and Yong 5 per cent. Under this diagram he wrote the words:

Another indication as to the basis of the advances made to S.C.A. appears in a further diagram relating to the loans of directors of S.C.A. Under Wu appear notes:-

the next column records Hui's holding 20,000 shares at $1.00 with a loan of $1,280,000 and a Beenleigh building contribution of $500,000.

39 Lee is shown to have 2,500 one dollar shares with a loan of $160,000 and with no contribution towards the Beenleigh development.

40 Yong is shown to hold 2,500 one dollar shares with a loan of $160,000 and with no contribution towards the Beenleigh development.

41 Shortly after this visit to Wu by Hui in Hong Kong indeed on 31 July 1991 Wu caused to be transferred telegraphically $500,000 to S.C.A. from Hong Kong. The money was transferred to S.C.A. at its Westpac Banking Corporation branch at Yarraman. The transfer specifically records that the transfer was "for the settlement and constructing the showroom/warehouse located at Ressiers Road, Beenleigh.

42 On my analysis of this material, it is consistent only with Wu lending S.C.A. the sum of $500,000 on 31 July 1991 as a consequence of the agreement reached between Hui and Wu during Hui's visit to Hong Kong in that month, that Wu would provide $500,000 by way of loan to achieve the development of the Beenleigh property in a way proposed by Hui. At the time of that discussion, Hui and Wu were both directors of S.C.A. which was then apparently in the process of settling a contract whereunder S.C.A. purchased that Beenleigh land. Obviously, Hui was still in straightened financial circumstances and it seems clear that it was thought necessary for Wu to contribute $500,000 to permit S.C.A. to settle that contract. It is interesting to note that Hui's contribution was simply an undertaking or promise that he would provide a prefabricated industrial building of approximately the same value. It emerges that in fact the money lent by Wu on 31 July 1991 to assist funding the Beenleigh land investment was not used for that purpose but was diverted - presumably at the instance of Hui for other purposes. However, it seems to me unarguable on the material to which I have referred that the $500,000 was not lent to Hui but was indeed lent to S.C.A. It is clear that that money has never been repaid to Wu or to whichever of her companies at her request provided the funds for the telegraphic transfer of 31 July 1991.

43 Mark Pearce in his affidavit filed 8 January 1999 describes in detail the steps he took leading to the admission of the Wu/Lynink proof of debt. He was not challenged and I accept the evidence contained in his affidavit. It explains the inquiries that he made and the fact that ultimately he reported to the liquidators to the effect that having regard to the matters deposed to in his affidavit S.C.A. was indebted to Wu/Lynink in the sum of $2,135,629.90.

44 One of the documents "found" in the books and records of S.C.A. and examined by Mr Pearce were two sheets described as "a working paper" on Cheel Thompson file note paper which he thought supported his view that moneys had been lent by Lynink to S.C.A. Those notes appear as ex "MP 9" to his affidavit. On the first page of that notepaper which is undated there are various calculations and notes including the words: "*Issue shares at premium to Lynink". Whenever and by whomsoever those notes were written, they are consistent in my view with discussions taking place between some person in the office of Cheel Thompson the accountant for S.C.A. and presumably Hui or some other person representing S.C.A. To the extent that any inference can safely be drawn from the jottings on the file note, one might think that they were made by a person in the employment of Cheel Thompson.

45 On the second page there is a note "Issue and allotment of shares. Resolved that issue of further ordinary shares in the coy."

46 At the bottom of the first page appears the following note: "Yong & Lee loans from coy $2,500 ea to buy shares in coy."

47 In my view in the context of the other evidence to which I have referred the most likely inference to be drawn is that these notes were made preparatory to the ineffective attempt made by the Huis on 4 December 1991 to alter the shareholding structure of the company by converting the moneys owed by S.C.A. to Lynink into shares allotted to Lynink. The same resolution authorized a demand that Yong and Lee each repay the $2,500 "lent" by S.C.A. to them to purchase shares.

48 For the appellant it was contended strongly that these notes ex "MP 9" strongly support the appellant's contention that in effect the moneys advanced by Lynink/Wu to S.C.A. at least by the time of the admission of the proof of debt had been converted into a capital contribution. In particular the reference to the "issue shares at premium to Lynink" on the file note was argued to be evidence from which it might be inferred that an advance described everywhere else in the company records to which I have so far referred as a loan should be treated as a premium paid for the 25,000 shares in lieu of a loan made to S.C.A. There is no evidence to suggest any agreement by Wu/Lynink to such a course and it was not suggested that the resolution was effective to achieve this result.

49 In my view the most likely occasion for the making of these notes was in the course of a discussion with Hui in which the possibilities of altering the share structure of the company were discussed. It is clear however that the strategy adopted by Hui and his wife at the "general meeting of the members of " S.C.A. on 4 December 1991 does not reflect the figures jotted down in the undated office note. What those minutes do record however is an affirmation that there had been "shareholders' advances" as at 30 June 1991. The rather novel proposal recorded in the "resolution" was that Hui should be allotted 12,000 shares for work performed for S.C.A. between June 1991 and September 1991. Prior to the passing of this resolution it could not have been contended that fifty per cent of the shareholding of the company did not stand as follows:-

or that Wu/Lynink who had 25,000 $1 shares held the other fifty per cent of the issued $1 shares.

50 After the purported resolution of 4 December 1991 designed to effect a "proportionate reduction in shareholders' advances as at 30 June 1991" each of the Huis received an "allotment" of 800,000 shares and Lynink received an "allotment" of 1.6 million shares.

51 In addition Mr Hui received an allotment of 12,000 shares.

52 There was a further "allotment" recorded with respect to loans during the period 1 July 1991 to 30 November 1991. These "allotments" were to each of the Huis making totalling 383,198 shares and the equivalent number of shares (383,198) to Lynink.

53 It was proposed that the "loans" from S.C.A. to Lee and Yong to enable each to purchase 2,500 shares be repaid forthwith. I presume one object of this exercise was to lay foundation for the argument that the allotment of shares to those two men was invalid and that in one way or another they should cease to be shareholders.

54 If it had been valid, the effect of the resolution would seem to have permitted the Huis to control as majority shareholders the activities of S.C.A. and perhaps eventually to convert its liability under its shareholder - director loan accounts into issued share capital held by those shareholder-directors.

55 The ineffective attempt to convert Lynink's loans to share capital is reflected in the 1992 Balance Sheet prepared by S.C.A.'s accountants - vide para. 26 of the affidavit of Mark Pearce filed 8 January 1999.

56 Of the money that was advanced by Wu, I am satisfied that apart from the $25,000 advanced to purchase the 25,000 shares in S.C.A., all the rest with the exception of $200,000 disallowed by the liquidators was advanced by way of loan. The disallowance was based upon the fact that that sum was advanced to Hui personally to enable him to meet a financial obligation in China. It was not paid to or received by S.C.A. To the extent that the moneys initially advanced to acquire the Mudgeeraba property were not advanced by way of loan, they were certainly taken by and used for the purpose of S.C.A.'s acquisition of the Mudgeeraba land without any agreement to that effect on the part of Wu and would clearly have been repayable by S.C.A. at the election of Wu. In fact the parties all agreed between themselves that it should be treated as a loan to S.C.A. and in my view the contemporaneous agreements and writings and accounts kept by S.C.A. are consistent only with this agreement i.e. instead of S.C.A. being obliged to refund those moneys to Wu, it was agreed that she would lend that company those moneys.

57 In my view the acquisition of the shares by Wu's company Lynink for a minuscule part of the total moneys advanced by Wu through Lynink and her other companies was designed only to ensure that she had control over the use and disposition of the company assets in which she sought to have an interest. While in strict theory of course shareholders and directors of a company have no proprietary interest in its assets, the arrangement between Wu and Hui and the others in this case was more in the nature of a joint venture operation requiring each of Hui and Wu to contribute millions of dollars with a view to making a commercial profit and perhaps a capital gain in the foreseeable future. S.C.A., an investment company up to that stage owned by Hui was used to achieve this purpose and it is clear on the whole of the evidence that at least prior to December 1991 Hui was uninterested in the money needed for the joint venture operation being contributed by way of capital contribution for shares in the company whether by share premium account or otherwise. He wanted for obvious reasons, to have the funds advanced to the company by him and Wu to be treated as loans to the company so that loan accounts could be utilised. There are obvious advantages of such an arrangement, not the least being that interest paid by S.C.A. on the loan accounts would be paid before company profits were taxed whereas dividends on share capital would be paid after taxation of company profits. In any event on the whole of the material I am satisfied that the advances made by and at the direction of Wu to S.C.A. with the exception of the $25,000 paid to acquire shares in the company were all made by way of loan and not by way of capital contribution. Much less could it conceivably be held that they were made for the acquisition of an interest in the properties which were owned by the company. Even if they were there is no doubt S.C.A. received the monies and neither Wu nor Lynink obtained any interest in those properties. It is clear beyond argument that all the land forming assets of the company at Mudgeeraba, Yarraman and Beenleigh was in fact owned by S.C.A. at all material times and no basis really was advanced in argument to support the proposition that either Lynink or Wu (or Hui for that matter) had any interest in any of that land except perhaps to the extent that Wu/Lynink may have had an equitable interest based upon the deposit of title deeds with Wu to secure moneys lent to S.C.A. by Wu/Lynink.

58 It is unnecessary for me to consider in detail the chain of funds remitted by Wu either directly from her own savings account or other accounts or through various of the companies which she (and perhaps her husband) controlled. It would be extremely tedious to do so and I simply adopt the analysis contained in ex. 7 together with the supporting documentation attached to it as demonstrating that all the debts the proof of which was accepted by the liquidators of S.C.A. are clearly shown to be related to advances made by Wu or Lynink or at the request of one or other of them by Yong Feng to S.C.A. Some of the funds were put directly into the S.C.A. account either by Wu obviously on behalf of Lynink or by Wu's company Yong Feng at her request or perhaps formally at the request of Lynink.

59 Two of the sums of money were paid into the trust account of the solicitors for S.C.A. and used to settle the contract to purchase the Mudgeeraba property. The other sums were paid directly into a bank account of S.C.A.

60 In my view it is clear beyond argument that the moneys were lent to S.C.A.

61 In my view upon the material to which I have referred, the conclusion that the liquidators of S.C.A. were correct in admitting the proof or proofs of Wu and Lynink is inescapable. In my view there is no basis upon the evidence called and carefully examined before me upon which it could reasonably be argued either that the moneys in issue which Wu-Lynink advanced were in any sense a payment for shares or a "capital contribution" or a premium for the acquisition of the 25,000 shares that Lynink was allotted. The only suggestion that any person involved in this transaction even contemplated the allotment of shares in respect of the advance of these moneys is to be found in the resolution of Hui and his wife (in the absence of any other of the shareholders or directors) purporting to convert loan accounts into shares. There is no evidence that there was ever any agreement on the part of the other shareholders or directors to do this and it was not even contended on behalf of the appellant that the attempted conversion of loan money into fully paid shares on 4 December 1991 was successful.

62 At the end of the day, counsel for the appellant contended that an obiter remark by the Chamber Judge who on 23 September 1997 appointed the appellant as an additional liquidator of AMN with a view to permitting him to bring this appeal should in effect persuade me to allow the appeal.

63 Before this appointment was made, both AMN and S.C.A. had the same liquidators.

64 One of the creditors of AMN was apparently instrumental in obtaining the order appointing Mr Jefferson as an additional liquidator of AMN so that he might challenge the acceptance by the liquidators of S.C.A. of the Wu/Lynink proof of debt. If the liquidators' acceptance of the Wu/Lynink proof of debt were reversed, then of course there would be significantly more money available to satisfy the claim by AMN than there would be if the acceptance of the Wu/Lynink proof of debt in the S.C.A. liquidation stood. In that event the creditor of AMN would be financially advantaged.

65 In the course of appointing Mr Jefferson an additional liquidator so that he might pursue an appeal by AMN against the decision of the S.C.A. liquidators to admit the Wu/Lynink proof of debt and secure a reversal of that decision it was obviously desirable for the appellant to persuade the Chamber Judge that there was at least an arguable case that the decision of the S.C.A. liquidators might be reversed.

66 Against the objection of the respondents to this appeal, reference was made at some length to the observations of the Chamber Judge made 29 November 1997 in the following terms:-

"In paragraphs 18 and 19 of his helpful submissions Mr Varley raises many points by reference to the sworn material which in the aggregate lead to substantial doubt in my mind at least as to whether that proof of debt was valid."

The only evidence before the Chamber Judge was an affidavit of Mr Jefferson which was the only material upon which the appellant relied upon this appeal.

In my view it would be quite inappropriate for me, having embarked upon the hearing of this appeal to give any weight to those observations. The observation of the Chamber Judge upon which counsel for the appellant placed so much reliance may really be regarded as analagous to an observation made by a judge when granting an interlocutory injunction that on the arguments of the applicant upon the evidence then adduced there is a serious issue to be tried. It was contended however that even if the observations were of limited if any assistance on the determination of the substantive issue before me they were relevant in determining the application made by each of the respondents that the appellant pay indemnity costs.

67 Upon the whole of the evidence I am unpersuaded that the liquidator was wrong in admitting the challenged proofs of debt. Indeed I am satisfied that he was clearly and unarguably correct in doing so.

68 The appellant must pay the costs of each of the respondents.

69 The respondents however seek an order for indemnity costs. The first respondent, the liquidator of S.C.A. is entitled to indemnity costs out of the S.C.A. assets in any event and contends that it would be unjust if the creditors of S.C.A. had their entitlements reduced by the difference between the liquidator's party and party costs and indemnity costs.

70 Both respondents however seek indemnity costs also on a principle enunciated in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 A.L.R. 425 particularly at 441, 442 and 443 where Rolfe J. in the Supreme Court of New South Wales helpfully analyzes the principles upon which indemnity orders will be made. In the Selected Meats case [1988] FCA 202; (1988) 81 A.L.R. 397 Woodward J. sets out some of the principles which were affirmed by Lindgren J. in MGICA (1992) Ltd v. Kenny & Good Pty Ltd & Anor (No. 4) [1996] FCA 862; (1996) 140 A.L.R. 707 at 710. The principle emerging from those cases is that where it appears that an action has been either commenced or continued in circumstances where the applicant properly advised should have known that he had no chance of success, the action may be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts on the clearly established evidence. In some cases it is appropriate to make an order for indemnity costs to make it known that the court will not readily accept that its time and the successful litigant's money can be wasted on totally frivolous and thoroughly unjustified proceeding. If it appears it is not for the bona fide purpose of protecting and enforcing a legal right but to achieve an ulterior or extraneous purpose that in itself is justification for the making of an indemnity order.

71 On the facts of the present case it seems reasonably clear that the appellant has been persuaded by a creditor whose proof of debt in the AMN liquidation has been admitted to launch this appeal to have the proof of Wu/Lynink in the S.C.A. liquidation rejected so that that creditor of AMN which has had its proof of debt in S.C.A. accepted will have more funds to meet the proved debt of that AMN creditor.

72 Although the matter has not been investigated I would be surprised if the liquidator of AMN would go to the trouble and expense involved in launching this unsuccessful appeal to this Court without some indemnity from one or more interested creditors of AMN because it emerged in the course of this appeal that the only significant source of funds to meet creditors of AMN will be moneys received from S.C.A. as a result of AMN's proof of debt being accepted. These are matters which have a peripheral relevance to the question as to whether costs ought be ordered on an indemnity basis.

73 Both respondents contended that the appeal ought never to have been launched by Mr Jefferson as liquidator of the appellant whatever may have been the source of the funds used to do so. Put shortly, nearly all the material which I have analyzed was available to him long before steps were taken to enable this appeal to be instituted and long before it was in fact instituted by him pursuant to the order of the Chamber judge to which I have referred. Nearly all the documentary evidence which I have analyzed and nearly all the affidavit evidence was in his possession and indeed was contained in the affidavit which was filed upon the Chamber application to have him appointed to represent AMN so long ago. The only additional evidence from the appellant was that given in cross examination of its liquidator. What did clearly emerge in his cross examination was his clear admission that he was fully aware of all the material contained in all the exhibits to his affidavit prior to the Chamber application made to enable him to institute this appeal and certainly prior to its institution.

74 Counsel for the appellant relied strongly on the obiter observation of the Chamber judge to which I have referred. However that could only conceivably have relevance to the question of "continuing" on with the appeal process. It could have had no relevance to the making of that 1997 application. In my view upon a proper and detailed evaluation of all the material placed before this Court by Mr Jefferson himself the appeal was hopeless from the beginning. The evidence called by the respondents merely gave the opportunity to cross-examine the deponents to affidavits already in the possession of the appellant and unsurprisingly nothing emerged in cross-examination to cast any doubt on the reliability of those deponents. Mr Pearce who analyzed the records of the S.C.A. before recommending that the Wu/Lynink proofs be admitted was not even challenged by cross-examination.

75 In my view this is an appeal which ought never to have been instituted; the whole exercise has simply been a waste of court time and has involved the unnecessary incurring of significant costs not merely by the Wu/Lynink group but also by the liquidator of S.C.A. In my view none of the creditors of S.C.A. - including Wu/Lynink - should have their entitlement to payment of their debt accepted by the liquidator of S.C.A. reduced in effect by the costs incurred in meeting this appeal. I order therefore that the costs to be paid by the appellant to each of the respondents be taxed on an indemnity basis.

76 It seems quite unlikely that AMN will have sufficient funds to meet the orders for costs which I have made. The liquidator, Mr Jefferson must have been aware of this when he took the steps necessary to institute and prosecute this appeal. Applying the principles in Knight & Anor v. F.P. Special Assets Limited & Ors (1992) 174 C.L.R. 178, I also order that Phillip Gregory Jefferson pay the costs of the first respondent and the second respondent to be taxed on an indemnity basis.

MATTER OF S.C.A. PROPERTIES PTY LTD (IN LIQUIDATION)

CATCHWORDS: CORPORATIONS LAW - liquidation - appeal under s. 1321(d) of Corporations Law against liquidator's decision to admit a proof of debt - wh. funds advanced to company in liquidation were by way of capital contribution or loan - wh. funds were advanced by the creditor with the proof of debt or some other company - considerations as to the award of indemnity costs

Tanning Research Laboratories Inc. v. O'Brien (1991) 169 C.L.R. 332

Westpac Banking Corporation v. Totterdell & Anor (1998) 20 W.A.R. 150

MGICA (1992) Ltd v. Kenny & Good Pty Ltd & Anor (No. 4) [1996] FCA 862; (1996) 140 A.L.R. 707

Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Pty Ltd & Ors (1988) [1988] FCA 202; 81 A.L.R. 397

Knight & Anor v. F.P. Special Assets Limited & Ors (1992) 174 C.L.R. 178