Asian Century Holdings Inc v Fleuris Pty Ltd - [2000] WASC 169

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ASIAN CENTURY HOLDINGS INC -v- FLEURIS PTY LTD [2000] WASC 169

CORAM: MASTER SANDERSON

HEARD: 15 JUNE 2000

DELIVERED : 23 JUNE 2000

FILE NO/S: COR 98 of 2000

MATTER :Section 459S of the Corporations Law
and
FLEURIS PTY LTD (ACN 009 010 495)

BETWEEN: ASIAN CENTURY HOLDINGS INC
Applicant
AND
FLEURIS PTY LTD (ACN 009 010 495)
Respondent

Catchwords:

Corporations Law - Application to adduce further evidence on a matter raised in applying to set aside statutory demand - Whether evidence "material" - Conflict of authorities

Legislation:

Corporations Law, s 95A, s 459S

Result:

Application dismissed

Representation:

Counsel:

Applicant: Mr J C Vaughan
Respondent: Mr J C Giles

Solicitors:

Applicant: Freehill Hollingdale & Page
Respondent: Solomon Brothers

Case(s) referred to in judgment(s):

Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59
Bayview Holdings Pty Ltd (In Liq) v Zan Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 980585; 19 October 1998
BHP Steel (JLA) Pty Ltd v Eagle Steel Holdings Pty Ltd [1999] WASC 187
Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467
Fleuris Pty Ltd v Asian Century Holdings Inc [2000] WASC 86
Switz Pty Ltd v Glowbind Pty Ltd (2000) 33 ACSR 723
Zan Holdings Pty Ltd v Bayview Holdings Pty Ltd (1997) 15 ACLC 1238

Case(s) also cited:

Admin Communications Services Pty Ltd v Teledata World Services Pty Ltd [2000] WASC 20
Advanced Building Systems Ltd v Ramset Fasteners (Aust) Pty Ltd (1997) 145 ALR 121
Australian & New Zealand Banking Group Ltd v Merribee Pastoral Industries Pty Ltd (1998) 16 ACLC 1447
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485
Classic Gourmet Sausages Pty Ltd v Leda Commercial Properties Pty Ltd, unreported; FCA (Finkelstein J); No A8 of 2000; 17 February 2000
David Grant & Co Pty Ltd (Receiver Appointed) v Westpac Banking Corporation (1995) 184 CLR 265
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACLC 669
Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) (1986) 160 CLR 220
Gould v Brown (1998) 151 ALR 395
Gradfan Pty Ltd (In Liq) v Milling Nominees Pty Ltd (1996) 19 ACSR 466
Greenco Pty Ltd v Wilden Pty Ltd, unreported; FCt SCt of WA; Library No 970606; 24 October 1997
Hamersley Iron v Lovell (No 2) (1998) 20 WAR 79
House of Tan Pty Ltd v Beachiris Pty Ltd (1996) 20 ACSR 612
Jennings Construction Ltd v Burgandy Royale Investments Pty Ltd (No 1) (1986) 161 CLR 681
Kekatos v Holmark Construction Co Pty Ltd (1995) 18 ACSR 199
McDonald (as Liquidator of FFC Realisations Pty Ltd) v Favelle (1998) 28 ACSR 432
Morris v R (1987) 163 CLR 454
PDR Pty Ltd v Cottesloe Constructions Pty Ltd [2000] WASCA 62
Texel Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 298
Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294
Wilson v Churches (No 2) [1879] 12 Ch D 454
WMC Resources Ltd v Bulong Operations Pty Ltd [2000] WASC 131

MASTER SANDERSON: On 12 March 1999 Asian Century Holdings Inc, the applicant in these proceedings, served on the respondent a statutory demand. On 1 April 1999 the present respondent applied to this Court to set aside that statutory demand. The application was heard on 13 May 1999 and on 21 May 1999 I made orders setting the demand aside. From that decision the present applicant appealed. The appeal was heard on 15 November 1999 and on 15 March 2000 the Full Court allowed the appeal, dismissed the present respondent's application to set aside the statutory demand and made certain additional orders. On 13 April 2000 the applicant applied in this action to wind up the respondent, consequent upon the respondent's failure to comply with the statutory demand. The respondent now seeks two orders. First, it seeks an adjournment of the winding up proceedings pending determination of its application for special leave to appeal to the High Court in relation to the Full Court's decision reinstating the statutory demand. If that application is unsuccessful then it seeks leave to adduce further evidence on the winding up application pursuant to the provisions of s 459S of the Corporations Law.
The application for an adjournment was argued first. At the conclusion of argument I indicated to counsel for the respondent that I would not grant the adjournment. I indicated that I would publish reasons at a later date. These are those reasons.
Subsequent to the Full Court handing down its decision in the present applicant's appeal, the respondent made application for a stay. The matter came on before Ipp J sitting as the Full Court. His Honour dismissed the application: see Fleuris Pty Ltd vAsian Century Holdings Inc [2000] WASC 86. The present respondent then sought a stay from the High Court, pending determination of the special leave application. This application came on for hearing before Gaudron J. After hearing argument, her Honour dismissed the application (a transcript of the proceedings before Gaudron J is to be found as Annexure "RAL2" to the affidavit of Richard Anthony Lukin ("Lukin"), sworn 26 May 2000. Her Honour's reasons for dismissing the application are to be found at page 27 of Lukin's affidavit).
It was submitted on behalf of the respondent that different considerations apply to an application for an adjournment of the winding up proceedings as against a stay application in proceedings in relation to a statutory demand. As Gaudron J pointed out in the stay application a decision in relation to a statutory demand does not finally determine the rights of any party. That is not the case in a winding up application. If a stay is not granted there is a real prospect that the company will be wound up. Were that to happen and were special leave subsequently to be granted, then the grant of leave might be rendered nugatory. It would be too late. The company would be in the hands of the liquidator.
In dealing with the stay application in the Full Court, Ipp J summarised the conclusion reached by the court in relation to the appeal. His Honour continued:
"Accordingly, in my opinion, the ground on which the applicant relies for its application for leave to appeal to the High Court, namely, that the Full Court applied the 'wrong test', or applied a different test from that in Turner Corporation (WA) Pty Ltd v Blackburn & Dixon Pty Ltd [1999] WASCA 294, has no basis. The Full Court was of the opinion that the application failed before one reached the point where a test of that kind was to be applied. That is to say, it failed for lack of adequate evidence to support the case advanced."
His Honour's reasons did not deal at all with the question of whether or not the refusal to grant a stay might render nugatory any grant of special leave by the High Court. His Honour determined the matter simply on the merits of the application for leave. He determined there were none. While I accept that these are different proceedings, it nonetheless seems to me I ought follow Ipp J's decision. After all, as I have said, his Honour was sitting as the Full Court. On the basis, then, that there is little merit in the application for special leave, it seems to me that the application for a stay should be refused. Were I to reach any other conclusion, I think the result would be at odds with the Full Court's decision.
Turning then to s 459S of the Corporations Law, that section is in the following terms:
"(1) In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:
(a)that the company relied on for the purposes of an application by it for the demand to be set aside; or
(b)that the company could have so relied on, but did not so rely on (whether it made such an application or not).
(2) The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is insolvent."
Before detailing the nature of the respondent's application, I should say something of the basis upon which the respondent sought to set aside the statutory demand. It is convenient if I adopt the statement of facts found in the judgment of Kennedy J in the Full Court in Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 (at [8] - [24]):
"8Towards the end of 1997, Port Kennedy Resorts Pty Ltd ('PKR'), of which Mr R A Lukin and Mr G K Sheehan are directors, was urgently in need of additional funding to enable it to proceed with a development known as the Port Kennedy Project. By a letter dated 1 December 1997, Pac‑Asia (Holdings) Pte Ltd ('Pac-Asia'), a Singapore registered company, wrote to the directors of PKR advising that, 'together with its associates', it was prepared to provide additional funding of $4 million for the development, on the conditions set out in that letter. Those conditions included the acquisition by Pac‑Asia of 75 per cent of the existing shares in PKR. In order to enable the respondent, of which Mr Lukin and Mr Sheehan are also directors, to maintain its existing 20 per cent shareholding in PKR, Pac‑Asia undertook to procure that one of its associates would provide security to an Australian financial institution for an advance to the respondent of $800,000 (later described as 'the Commercial Loan'), which sum would be applied by the respondent in subscribing for an additional 800,000 shares of $1 each in PKR. The associate in question was later identified as being the appellant.
9The terms of the proposed advance of $800,000 had been set out in a previous letter, dated 4 November 1997, from the Singapore solicitors acting for both Pac‑Asia and the appellant addressed to Mr Lukin and Mr Sheehan as directors of the respondent, as modified by a letter from Mr Lukin to the solicitors for Pac‑Asia, written on the letterhead of PKR, dated 4 November 1997, and a letter from the solicitors to Mr Lukin and Mr Sheehan, as directors of the respondent, dated 10 November 1997. The proposed loan to the respondent was to bear interest at commercial rates and was to be repaid within five years. It was a term of the arrangement that the respondent was required to indemnify the appellant for any loss or damage in connection with its providing the standby letter of credit, and the obligations of the respondent were to be guaranteed severally by Mr Lukin and Mr Sheehan.
10By its letter of 1 December 1997, Pac‑Asia also indicated that, until approval had been obtained under the Foreign Acquisitions and Takeovers Act 1975 (Cth) permitting it to take up its proposed 75 per cent interest in PKR, Pac‑Asia (or one of its associates) would procure and advance the sum of $800,000 to the respondent for on‑lending to PKR. The respondent, in order to secure that advance, was required to grant a charge over 1.8 million of its shares in PKR, and Mr Lukin and Mr Sheehan were required severally to guarantee the obligations of the respondent. The terms of this temporary advance were said to be the same as those applying to the provision of the standby letter of credit. They accordingly incorporated conditions that the respondent would indemnify the lender against any loss or damage suffered or incurred by it in connection with the temporary loan and that the obligations of the respondent would be guaranteed severally by Mr Lukin and Mr Sheehan. All documentation relating to the transaction was to be 'in form and substance' approved by Pac‑Asia. There was no express requirement placed upon Pac‑Asia or its associate lending the money that it should itself prepare the documentation. No provision was made in the agreement for the payment of interest on the temporary advance to be made to the respondent, and no claim has since been made in that respect.
11On 6 February 1998, the solicitors for Pac‑Asia wrote to Mr Lukin regarding the proposed temporary advance of $800,000 to the respondent. In their letter, it was indicated that the appellant (then known as Asian Century Fund Inc), which is a substantial shareholder in Pac‑Asia, was prepared to make a temporary loan to the respondent in the sum of $200,000 pending the finalisation of the Commercial Loan from 'National Australia Bank or other financial institution', on the following terms and conditions:
'(a)unless a demand for repayment is made, in which case [the respondent] will repay the Advance on demand, [the respondent] will repay the Advance from the proceeds of the Commercial Loan; and
(b)the Advance will be disbursed into the account of [PKR] and such disbursement will be treated as disbursement of the Advance to Fleuris.'
12The respondent, by Mr Lukin, agreed to the terms and conditions set out in the letter by his signing it, and the sum of $200,000 was duly advanced by the appellant on or about the date of the letter.
13Further advances on identical terms and conditions, on each occasion being acknowledged and agreed to by Mr Lukin, were made by the appellant to the respondent, comprising sums of $200,000 on or about 10 March 1998, $200,000 on or about 24 April 1998 and $200,000 on 20 May 1998, by which time the whole of the agreed sum of $800,000 had been advanced. A letter to Mr Lukin dated 18 May 1998 confirmed that the fourth payment of $200,000 represented the final instalment of the temporary loan of $800,000. Subsequently, an additional amount of $100,000 was advanced by the appellant, payment of which was acknowledged in a letter dated 16 July 1998, written by Mr Lukin on behalf of the respondent to the solicitors for the appellant, accepting the advance 'on the same terms and conditions in respect of previous advances'. Mr Lukin's letter described the advance as 'a further temporary advance'. It was not strictly a part of the previous arrangement for a temporary loan of $800,000 and, clearly enough, the proposed Commercial Loan of $800,000 would be insufficient to pay out in full the total of the temporary advances made by the appellant unless at least $100,000 had already been repaid by the respondent.
14In the meantime, the appellant had been seeking a credit facility in the form of a term loan of $800,000 in favour of the respondent, notwithstanding that its obligation to the respondent was, on the face of it, limited to providing the ultimate lender with security in the form of a standby letter of credit. Initially, it appears that the National Australia Bank had been approached to provide this facility, but subsequently negotiations for the provision of the facility were entered into with the Overseas Union Bank Ltd ('OUB'), a Singapore registered bank having a branch in Sydney. Terms and conditions were discussed and, by letters dated 6 March 1998 and 16 March 1998, OUB wrote to the respondent directly, setting out 'indicative' terms and conditions. The respondent was later advised by letter dated 23 April 1998, from Mr Ho Swee Huat, who appears to have been a director of the appellant, that the loan from OUB had been approved, and that OUB was in the process of issuing the offer letter.
15On 12 May 1998, Mr Lukin wrote to Mr Ho. The letter is headed 'Standby Letter of Credit' and reads: 'Can you please arrange for this Standby Letter of Credit from Banque Paribas as soon as possible as this is urgent'. There apparently followed a telephone conversation between Mr Lukin and Mr Ho, after which Mr Ho wrote to Mr Lukin on 18 May 1998 confirming their conversation and stating, inter alia:
'1.Pac-Asia Holdings will organise to lend another AUD200,000 to Fleuris Pty Ltd for on-lending to PKR bringing the total to AUD800,000 by mid‑week.
2.As and when all legal documentation is complete, Pac-Asia's principal shareholder will organise to extend an SBLC [Standby Letter of Credit] to OUB Australia to enable Fleuris to drawdown AUD800,000 which will be remitted back to Singapore to pay Pac‑Asia Holdings the AUD800,000 loan to Fleuris (Remittance instructions shall be provided in due course).
3.Pac‑Asia will thereafter use the AUD800,000 to make advance payments to PKR for the subscription of new shares in PKR.'
This letter, which, of course, preceded the making of the fourth advance of $200,000 and the additional advance of $100,000, went on to request information from Mr Lukin as to the 'list of creditors (and amounts) who were paid with the AUD600,000 previously released to PKR via the loan to Fleuris Pty Ltd' and 'written confirmation that none of the lots reserved by the directors of PKR has been "released" by the government and an indication when the release may occur'. The letter continued: 'Your partner feels that in view of PKR's tight cash flow situations, directors should pay as soon as possible for their lots'. The reference in this letter to the appellant's providing the standby letter of credit 'as and when all legal documentation is complete' is significant.
16At some time prior to 24 July 1998, the evidence not indicating precisely when, the respondent executed an agreement with OUB, which had been prepared by the latter's solicitors, under which the bank agreed to place a loan facility not exceeding $800,000 at the disposal of the respondent. Provision was made for the payment of interest on the moneys advanced. The repayment date was defined in the agreement to mean the earliest of -
'(a)the day which is one calendar year from the date of first drawdown under this agreement or such other date as agreed to in writing by the Bank; and
(b)14 days before the expiry of the Letter of Credit; and
(c)the date on which the Facility is terminated or cancelled by the Bank in accordance with this agreement.'
By cl 6.2 of the agreement, OUB was to review the Facility on an annual basis.
17The letter of credit which was required to be provided pursuant to the respondent's agreement with OUB was a standby letter of credit from Banque Paribas, Singapore branch, in favour of OUB for $880,000 in the form attached to the agreement. It was a further term of the respondent's agreement with OUB that Mr Lukin and Mr Sheehan should each give a guarantee and indemnity with respect to the liabilities of the respondent, limited to $400,000, in favour of OUB.
18Various conditions precedent to any advance to the respondent were set out in cl 14 of the agreement. One of the conditions was that the guarantee and the letter of credit should be executed and delivered by the parties together with a certificate of independent legal advice in relation to the execution of the guarantee by each of the guarantors.
19Mr Lukin claimed in his affidavit which was filed in these proceedings that the respondent, 'in satisfaction of its obligations pursuant to the Commercial Loan', had executed the loan agreement; but he made no reference to the conditions precedent set out in the agreement or to the appellant's requirement with respect to the provision of an indemnity and guarantees in connection with the provision of the standby letter of credit. By a letter dated 24 July 1998, from OUB's solicitors to the respondent, enclosing a copy of the executed facility agreement, the solicitors indicated that they looked forward to hearing from the respondent that it was in a position to complete the matter, which is clearly a reference to its satisfying the conditions precedent in the agreement. There is nothing before us to indicate whether the respondent has satisfied those conditions with which it was required to comply.
20The material before us does not reveal anything regarding the actions of the parties in the second half of 1998, apart from the evidence as to the making of the additional advance of $100,000 by the appellant, although Mr Lukin has claimed, without elaboration, that he repeatedly requested the appellant to arrange for the standy letter of credit to be provided and Mr Ho has claimed that he, 'on occasions too numerous to particularise', had informed Mr Lukin that the letter of credit would be arranged upon finalisation of the documentation.
21The next evidence of any activity on the part of either party is that, on 12 January 1999, the appellant's solicitors wrote to Mr Lukin and Mr Sheehan with a list of outstanding matters which, it was said, had to be resolved, including documents which had to be executed, before any further funding would be provided by Pac‑Asia or its shareholders. The list included an acknowledgment by the respondent of all sums loaned to it by the appellant, a facility agreement between the appellant and the respondent in relation to the OUB loan to the respondent under which the appellant agreed to arrange for a standby letter of credit to be issued in favour of the bank, an indemnity to be given by the respondent, a share mortgage to be given by the respondent in favour of the appellant by which 1.8 million shares of PKR were to be mortgaged to the appellant by way of security and a deed of guarantee and indemnity to be given by Mr Lukin and Mr Sheehan in favour of the appellant.
22There is no evidence of a response to the letter of 12 January 1999. There has been no denial of the claim by the appellant in Mr Ho's affidavit that the required indemnity and guarantee have not been given to the appellant. Indeed, there has been no answering affidavit from the respondent, although it was granted leave to file such an affidavit.
23By what was described in the document as a notice of default, dated 24 February 1999, but which was, in reality, a notice of demand, the appellant gave a formal notice demanding the repayment of the total sum of $900,000 within seven days after its date.
24On 4 March 1999, Messrs Solomon Bros, solicitors, in a letter headed 'Port Kennedy Resorts Pty Ltd (PKR)', wrote to the solicitors for the appellant in relation to a variety of matters regarding PKR. The third paragraph of the letter concerned the respondent and reads as follows:
'So far as the "notices of default" which have been served, we note that these documents are in fact "notices of demand" and not "notices of default". Under all of the loan agreements, the money is not repayable until after having been demanded, and accordingly it is not possible for any default to occur until the time for payment has passed. Accordingly the notices which you were forwarded headed "Notices of Default" are incorrect and are not, and cannot be treated as notices of default.'
The letter did not address the merits of the claim. It raises no issue as to the provision of the letter of credit."

His Honour concluded that, based upon these facts, there was no "genuine dispute", as that phrase is used in s 459G of the Corporations Law. Kennedy J, with whom Ipp J agreed, put the position as follows (at [31] ‑ [35]):
"31 It is, in my view, apparent that the obligation of the respondent under the arrangement for the additional temporary advance of $100,000 was to repay that sum on demand, whilst retaining the requirement for repayment of the advance out of the Commercial Loan to the extent that funds were available from that source to satisfy the outstanding indebtedness. So far as the earlier advances are concerned, the terms expressly agreed upon by the respondent do not support the argument that, unless the proceeds of the Commercial Loan were then available, the respondent was not liable to repay on demand the moneys advanced by the appellant. The moneys were only contemplated as being repayable from the proceeds of the Commercial Loan in the event of a demand for repayment not previously having been made and satisfied. The terms in relation to repaying the advances on demand would have been pointless if the demands were only required to be repaid out of the Commercial Loan.
32The contention of the respondent is that the loan transaction with the appellant proceeded after, and in the light of, unspecified discussions, and that the respondent 'relied on the assurance given by [Mr Ho] that the [appellant] would arrange the Standby Letter of Credit, and has at all times assumed that, as a result of those representations, the [appellant] would not seek to make demand for repayment of the Advance unless and until the Standby Letter of Credit had been provided'.
33The explanation of the appellant, in the affidavit of Mr Ho, for not having provided the letter of credit was that the respondent and its directors had not complied with the conditions of the agreements reached in December 1997 and, in particular, had not provided the documentation, being the indemnity and guarantees, referred to therein. Subject to that, there is no denial on the part of the appellant that it is obliged to provide the letter of credit.
34Mr Ho has also deposed that he has not informed Mr Lukin or anyone else that the letter of credit would be arranged without finalising the documentation. He has further deposed that at no time has Mr Lukin or anyone else informed him or the appellant that the respondent 'assumed' that demand would not be made until the letter of credit had been provided. Indeed, it has not been suggested that either Mr Ho or the appellant has been so informed by the respondent. The respondent's assumption was not justified.
35... In my opinion, it has not been demonstrated in this case that there is a genuine dispute. There has been no adequate answer to the appellant's claim that it was not required to provide the letter of credit before it received the indemnity and the guarantees which the respondent and the two directors were required to provide. The appellant was entitled to demand and receive repayment of the advances made by it to the respondent."
Heenan J reached the same conclusion for slightly different reasons. His Honour concluded (at [46] ‑ [49]):
"46In relation to each of the five temporary loans the document setting out its terms clearly shows that the money was lent pursuant to a separate agreement, that each amount was repayable on demand and that, if no demand were made, it would be repaid from the proceeds of the Commercial Loan. The reference in the document to the Commercial Loan cannot reasonably be interpreted as implying a condition that repayment of the money lent depended upon grant of the Commercial Loan or upon the doing of anything by ACH to bring about such grant. The Commercial Loan was an agreed source of repayment, but it was no more than that. It follows that Fleuris cannot claim any support for its case in contract.
47As to the questions of estoppel and misleading or deceptive conduct the situation is much the same. Clearly both parties intended that the Commercial Loan should be made available to Fleuris and that, at the option of ACH, part or all of its proceeds might be applied to discharge each of the temporary loans. Of course, if demand had been made in respect of the first four loans, and they were repaid from the proceeds of the Commercial Loan, the last loan (of $100,000) could not have been repaid from those proceeds. But there is nothing in any of the documents resembling a promise, an undertaking or any form of representation by ACH to the effect that demand for repayment of any of the temporary loans would depend upon grant of the Commercial Loan.
48This aspect of the case for Fleuris seems to be based on the statement, in par 18.4 of the affidavit of its director Richard Anthony Lukin, that Fleuris relied on the assurance given by Ho Swee Huat, a director of ACH, that ACH 'would arrange the Standby Letter of Credit' and that Fleuris 'has at all time assumed that, as a result of those representations, (ACH) would not seek to make demand for repayment of the Advance unless and until the Standby Letter of Credit had been provided.' The evidence shows no reasonable basis for the making of that assumption by Fleuris.
49Because the liability of Fleuris to repay the temporary loans did not depend upon the doing of anything by ACH to bring about the grant of the Commercial Loan, it is not necessary to decide whether ACH was at fault in not procuring the Standby Letter of Credit. As it happens, as the learned Master observed, the evidence does not establish conclusively which of the parties was responsible for the failure of the Commercial Loan to materialize."
The respondent's application was brought under s 459S(1)(a). Essentially, the respondent sought to rely upon the same matters relied on for the purposes of its application to set aside the statutory demand as supplemented by further evidence. I will deal with that further evidence below. However, in his submissions, counsel for the applicant submitted that in the circumstances of this case it was not open to the respondent to rely upon s 459S(1). It was submitted that was because the evidence sought to be raised was not "material to proving that the company is solvent" and therefore leave could not be granted under the provisions of s 459S(2).
In opposition to the winding up application the respondent has filed affidavit evidence in which it says, even taking into account the debt the subject of the statutory demand, it is solvent. It says it is able to pay its debts when they become due and payable: see s 95A. In these circumstances, the applicant says, the debt the subject of the demand is not "material" and the application must fail.
I dealt with this issue in Zan Holdings Pty Ltd v Bayview Holdings Pty Ltd (1997) 15 ACLC 1238. I concluded (at 1241):
"In my view it is necessary for a corporation to show that the debt upon which the statutory demand is based is the difference between actual solvency and insolvency before leave under subss (1) can be granted. In effect, if by ignoring the debt upon which the statutory demand is based, the company might be found to be solvent, then, and only then, the existence of a bona fide dispute would be a relevant consideration ... . In other circumstances s 459S would have no application. The end result is that the section operates as a safety valve. In circumstances where existence of the debt on which the statutory demand is based is pivotal to a decision on solvency, then the existence of the debt is a relevant consideration. What the section seems designed to avoid is companies against which an application for winding up based on a statutory demand is pending, challenging the standing of the applicant late in the day."
On appeal, the Full Court came to a different conclusion: Bayview Holdings Pty Ltd (In Liq) v Zan Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 980585; 19 October 1998. Steytler J put the position as follows:
"The learned Master said in effect that, merely because the appellant asserted that it was solvent regardless of whether or not the disputed debt was taken into account, it followed that the existence or otherwise of the debt was not determinative of its solvency and therefore material to proving that it was solvent.
That approach seems to me, with due respect to the learned Master, to have been wrong. The materiality or otherwise of the disputed debt to the appellant's solvency was required to be assessed having regard for the available evidence as a whole. There will often be the prospect that a company's assertions as to its financial standing will not be made out when the whole of the available evidence is considered (as proved to be the case here). If that prospect is not evaluated at the time of the hearing of the application the court would be left to decide the application on the strength, only, of the applicant's own assertions. That could not have been the intention of the legislature. The court is required by s 459S to be satisfied that the ground sought to be raised is material to proving that the company is solvent, not that it is material on the strength of the applicant's contentions only.
Moreover the test, under s 459S(2), is that of whether or not the ground sought to be raised in opposition to the application is 'material' to proving that the company is solvent, not that of whether or not it is determinative of the company's solvency. It is not only determinative evidence which is material to proof of solvency. It will often be enough, for the purposes of an application under s 459S, to show that the ground sought to be raised might turn out to be determinative of the applicant company's solvency once all of the evidence has been heard, depending upon what evidence is accepted by the trier of fact."
A similar conclusion was reached by Austin J in Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467. Other decisions have followed a similar line: see BHP Steel (JLA) Pty Ltd v Eagle Steel Holdings Pty Ltd [1999] WASC 187. However, the New South Wales Court of Appeal in Switz Pty Ltd v Glowbind Pty Ltd (2000) 33 ACSR 723 has taken a different course. The facts of this case, as taken from the headnote, are as follows:
"Glowbind sought leave to oppose the winding up under CL s 459S on the ground that the debt was disputed, and led evidence showing Glowbind was solvent regardless of whether the disputed amount was owing. Austin J refused leave as he was not satisfied that the ground was 'material to proving that the company is solvent'. Glowbind sought leave to appeal from this decision, claiming that his Honour, by asking whether the company would be solvent even if the debt was owing, applied the wrong test. Glowbind further contended that the word 'material' in s 459S(2) meant that the disputed amount was only required to be of significance in the court's determination of solvency, and was not required to be determinative."
The Court of Appeal (Spigelman CJ, Handley and Giles JJA) referred, at some length, to the first instance decision in Zan Holdings and to the Full Court decision on appeal and to the decision of Austin J in the Paliflex case. The court also considered in some detail the legislative scheme which underpins the statutory demand procedure. The court then concluded (par 53 ‑ par 56):
"By the time an application under s 459S is made, the company will be presumed to be insolvent and will have the burden of proving that it is not. In my opinion s 459S(2) directs attention, in part, to what it is that the company intends to prove and how it intends to prove it. If the company is not prepared to contemplate the possibility that its assertion of solvency is subject to qualification, then the court cannot be 'satisfied' of the mandatory precondition in s 459S(2). An objective element is introduced by the word 'material' but that can only be determined after identifying the company's contentions.
If, as here, the company intends to prove that it is solvent whether or not a debt is payable, then with respect to a ground based on dispute about the debt, the test of materiality to it 'proving' its solvency, cannot be satisfied.
The process of proving solvency is not some kind of forensic game. Solvency is a matter particularly within the knowledge of the company. The primary source of information on the solvency of the company must be the company itself.
It may well prove to be the case that whether or not a particular debt is owing is material, indeed crucial, to a company being able to establish its solvency. However, if the company itself is not prepared to mount a case which contemplates that as a possibility, then it is not open to the court to be 'satisfied' in the sense required by s 459S(2) on the basis that the company should be protected from itself. As I have said, the fact that the company does not intend to so contend would not determine the issue of whether the disputed debt is 'material', let alone whether leave should be granted under s 459S(1)."
The applicant relied squarely on the Glowbind decision. On the basis of that decision it was said that the present application must fail. The respondent relied upon the Full Court decision in Bayview Holdings. Clearly, the two decisions are irreconcilable. However, I have come to the conclusion that the respondent's application fails for other reasons and I therefore need not determine which of these two decisions I should follow.
The additional evidence upon which the respondent seeks to rely is in two parts. The first part deals with the advance of $100,000. It is now said by the respondent that this amount was not advanced to it but was advanced to a company known as Port Kennedy Resorts Pty Ltd. Lukin deals with this issue in par 9 of his affidavit of 26 May 2000 and exhibits as Annexure "RAL‑4" an affidavit of Ho Swee Huat affirmed 16 April 1999 (see Annexure "HSH9" at page 111 of Lukin's affidavit). This is a copy of a letter on the letterhead of Kennedy Bay Resort and directed to Tan Jin Wee in Singapore. The letter which is signed by Lukin is in the following terms:
"Asian Century Fund Inc (ACF) is to make a further temporary advance of A$100,000 to Fleuris Pty Ltd on 20 July, 1998 on the same terms and conditions in respect of the previous advances.
We, Fleuris Pty Ltd, agree to the temporary loan of A$100,000 from ACF on the above terms and conditions."
It is said by Lukin that he signed this letter in his capacity as a director, not of Fleuris but of Port Kennedy Resorts Pty Ltd. Thus, it is said, that $100,000 was not loaned to Fleuris and is not repayable. With respect, that argument seems, on the face of the documentary evidence, to be untenable. The letter refers to Fleuris and it refers to the same terms and conditions as the previous advances. All of these advances were made to the respondent. That is common ground. In my view, Lukin's evidence is nothing more than mere assertion and could not give rise to a genuine dispute.
The evidence in relation to the $800,000 is somewhat more complicated. The evidence now sought to be put before the court is to be found in par 10 and par 11 of Lukin's affidavit of 26 May 2000 and par 5 and par 6 of the affidavit of Gary Kevin Sheehan sworn 14 May 2000. I think these paragraphs can be summarised in the following way. The applicant says that the documents referred to in these paragraphs and the additional evidence given by both deponents is such as to amplify the evidence so as to demonstrate there is a genuine dispute as to whether demand for repayment of the advance of $800,000 could be made before the standby letter of credit was in place. However, in my view, the evidence takes the matter no further.
In his judgment on the stay application, Ipp J succinctly summarised the conclusions of the Full Court. His Honour said (at [8] ‑ [9]):
"Kennedy J was of the opinion, implicitly, that there was no admissible evidence that the parties had agreed or that the respondent had represented that the money advanced was not to be repaid until the Standby Letter of Credit had been provided (see par 31, par 32 and par 34 of his reasons). Although the respondent gave an assurance that it would arrange the Standby Letter of Credit (subject to the agreed conditions being fulfilled), it did not follow from that that the respondent would not seek to make demands for repayment before the Standby Letter of Credit had been provided (par 33 and par 34).
Heenan J was of a similar view. His Honour pointed out (at par 48) that '[t]he evidence shows no reasonable basis for the making of that assumption by [the applicant],' and went on to say (at 50) that the applicant's case was 'founded on "a mere assertion" which is insufficient to establish that there is a genuine dispute between the parties'. "
In my view, nothing in this additional evidence changes that position. Put another way, in line with the decision of the Full Court, I am not satisfied that there is any additional evidence which would cast doubt upon the conclusion reached by the Full Court.
Having reached that conclusion, I am not satisfied that leave should be granted under s 459S(1). The application will be dismissed. The respondent should pay the applicant's costs of the application, including the reserved costs.