Aspermont Ltd v Lechmere Financial Corp
[2001] WASC 35
•12 FEBRUARY 2001
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: ASPERMONT LTD -v- LECHMERE FINANCIAL CORP [2001] WASC 35
CORAM: MASTER BREDMEYER
HEARD: 31 JANUARY 2001
DELIVERED : 9 FEBRUARY 2001
PUBLISHED : 12 FEBRUARY 2001
FILE NO/S: COR 2 of 2001
MATTER :Section 459E and s 459G of the Corporations Law
and
ASPERMONT LTD (ACN 000 375 048)
BETWEEN: ASPERMONT LTD (ACN 000 375 048)
Applicant
AND
LECHMERE FINANCIAL CORP
Respondent
Catchwords:
Security for costs by an applicant against a respondent - Allowable because applicant, in reality, is the defendant, defending a statutory demand
Legislation:
Corporations Law, s 459G
Result:
Application dismissed
Representation:
Counsel:
Applicant: Mr S Davies
Respondent: Mr A R Beech
Solicitors:
Applicant: Michael Paterson & Associates
Respondent: Tottle Christensen
Case(s) referred to in judgment(s):
Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334
Sentinel Financial Management Pty Ltd v Entercorp Finance Pty Ltd (1997) 15 ACLC 201
Case(s) also cited:
Amalgamated Mining Services Pty Ltd v Peko-Wallsend Operations Ltd (1988) 88 ALR 63
Bell Wholesale Company Limited v Gates Export Corporation (1984) 2 FCR 1
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171
Byron v Southern Star Group Pty Ltd (1997) 15 ACLC 191
DS Parklane Developments Pty Ltd v Korea First Finance Ltd, unreported; SCt Court of NSW (Santow J); Library No BC9703785; 20 August 1997
Green v Australian Industrial Investments Ltd & Ors (1989) 90 ALR 500
Maatschappij voor Fondsenbezit v Shell Transport and Trading Company (No 1) [1923] 2 KB 166
MindShare Communications Ltd v Orleans Investments Pty Ltd [2000] FCA 521
Remm Construction (SA) Pty Ltd v Wallbridge and Gilbert Pty Ltd & Ors (1991) SASC 3090
Riddle v Ingram [1977] VR 20
Royal Brunei Airlines Sdn Bhd v Ming [1995] 3 WLR 64
Willey v Synan (1935) 54 CLR 175
MASTER BREDMEYER: This is an application by the applicant for security for costs against the respondent which is a foreign company registered in the British Virgin Islands ("BVI").
The substantive application is by the applicant under s 459G of the Corporations Law to set aside a statutory demand issued by the respondent against the applicant on 12 December 2000 for $150,000 for:
"Moneys advanced by the creditor to the debtor between or on or about 22 October 1992 and on or about 6 April 1995."
I am not dealing with that application today.
The respondent has also applied by separate chamber summons to strike out certain parts of the applicant's affidavits as inadmissible. I have produced a schedule of my rulings on that.
Normally, an application for security for costs is brought by a defendant against the plaintiff. Here it is by the plaintiff (called here "the applicant") against the defendant (called here "the respondent"), but that is legally permissible where, commercially speaking, the company which issued the statutory demand is the attacker, and the applicant for an order under s 459G, is responding to that attack: See Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 12 ACLC 334.
The merits of the claim is an important matter to consider in connection with security for costs. The applicant has raised a number of matters to show that the debt is disputed.
Firstly, it is said that the demand was one of three served at the same time. The other two were withdrawn. It is said that three demands is oppressive as an abuse of process. The other two were withdrawn by fax late on the evening of Wednesday 3 January 2001 which was read by the solicitor for the applicant on the opening of his office on Thursday 4 January. The application to set aside and the affidavit in support had to be filed by Monday 8 January. For this submission, the applicant relies on Sentinel Financial Management Pty Ltd v Entercorp Finance Pty Ltd (1997) 15 ACLC 201. I have read that case. I think the facts of this case are distinguishable. If there was a potential abuse by issuing three demands instead of one, it was cured by the withdrawal of two of them prior to the filing of this application. I consider the applicant has no valid argument on this score.
Secondly, it is said that the affidavit in support of the statutory demand should be certified by a notary public. I am not persuaded by the applicant's argument on that. This Court regularly permits the use of affidavits sworn by foreign deponents which are not notarised. And I assume that is a proper procedure.
The third argument is that the respondent ("Lechmere") had no authority to issue the demands. According to Mr Kent, a director of the applicant, the loan moneys, the subject of the demand were, in turn, loaned by Drysdale Investment Corporation ("Drysdale") and then onloaned to Lechmere. Drysdale is a trustee company run for the benefit of Mr Andrew Kent. Mr Kent owns all the shares in Drysdale. According to Mr Kent, Mr McLelland, who is based in Monaco, suggested that another trustee company should be used to advance the money to Aspermont. The money would go from Drysdale to the other company (meaning Lechmere) and then to Aspermont. He said that this other company was already in existence and it would not result in any extra charges.
There is no evidence that Kent or one of his companies is a shareholder of Lechmere. There is no documentary evidence that it is a trust company for the benefit of Mr Kent. It may well be a company owned and controlled, or at least controlled, by Mr McLelland.
Mr Kent says that between 1992 and 1995 certain moneys were loaned from Drysdale to Lechmere and then onloaned to Aspermont. He has referred to that at par 9 of his second affidavit where he sets out a little table of these loans. The loans there total $110,000. The second loan in the table is for $40,000, but the supporting accounts suggest that it was for $18,203. With that adjustment, the loans total $88,203.
Both Drysdale and Lechmere are BVI companies controlled by Mr McLelland who is based on Monaco. Mr Kent says he does not want Aspermont to pay the $150,000 to Lechmere when the same sum is owned by Lechmere to Drysdale. Mr Kent has fallen out with Mr McLelland and he no longer trusts him. Mr Kent has no practical control over the two BVI companies. He fears that if Aspermont pays this debt to Lechmere, Lechmere might not pay the same amount on to Drysdale. He runs that argument in regard to the $150,000 but, as I have said, the accounts referred to in par 9 of his second affidavit show loans of $88,203, not $150,000.
Prima facie, the argument is weak. It is not a defence to a claim by company A against company B to say, well, if company A recovers this debt, it owes the same sum to company C and the owner of the shares in company C is the beneficial owner of company A. Prima facie, this is not a bona fide dispute over the existence of the debt and is clearly not an offsetting claim. However, it may some how fall under s 459J(1)(b), "some other reason why the demand should be set aside".
I draw an analogy here between that subsection and O 14 r 3 of the Rules of the Supreme Court which provide, inter alia, that summary judgment can be refused if "there ought for some other reasons be a trial of the claim". Case law on that rule has established that where a witness for the plaintiff may be lying, where there is a suspicion of fraud, or where a transaction is a sham to defeat some just right, the court hearing the summary judgment application will let it go to trial - to expose the guilty parties to cross‑examination, full discovery and to the spotlight of a trial. The applicant may be able to mount some argument along these lines. I am puzzled why the Drysdale loans to Aspermont needed to go through another BVI company. No commercial reason has been given for that step.
Drysdale borrowed approximately £638,000 from Vernon Finance Ltd in 1998. That is a BVI company controlled by Mr McLelland and some or all of that money has been onloaned to Aspermont via Lechmere. If the loans from Drysdale to Lechmere are outstanding, what steps has Drysdale taken to call up those loans? The answer is none on these papers. What instructions has Kent issued to McLelland to call up those loans on behalf of Drysdale? The answer is none on these papers. If Mr McLelland (as trustee for Kent) will not act in accordance with Kent's instructions (Kent as beneficiary), what legal steps has Kent taken to compel him to do so? The answer is none on these papers. On the present evidence, I consider the applicant's argument on these lines very weak.
The fourth argument on the merits to set aside the statutory demand is that Lechmere had no authority to issue demands for payment. These demands are said to have been issued in breach of trust. This argument is a variation of the previous one. In effect, because Mr Kent owns Drysdale and Drysdale loaned all the monies to Lechmere, Lechmere is a trustee company. Mr McLelland is the trustee and Kent or Drysdale is the beneficiary and therefore Mr McLelland should not act contrary to the instructions of Mr Kent or Drysdale. That strikes me as a very weak argument. Where is the documentary evidence that Lechmere is a trustee company for Kent? It is not in these papers. I remind myself that companies have separate legal personalities from shareholders etc. Therefore, what is to stop Lechmere issuing a statutory demand or otherwise trying to collect this debt. Mr Kent is not a director or shareholder of that company and there is no evidence that it is his trustee company. When loans were being channelled through Lechmere, Mr Kent had no problem with Mr McLelland's authority to control Lechmere. Now, Lechmere is trying to collect a loan, Mr Kent challenges Mr McLelland's authority to do so. He has no evidentiary basis for that.
Further, on the merits of the dispute, I look briefly at some of the evidence on the respondent's side. In a prospectus, not produced to me - it should have been because it is an important document in this dispute - registered with ASIC on 28 February 2000 and on p 31, Aspermont sought capital to pay off some loans and they included:
"During the period 22 October 1992 to 6 April 1995 Lechmere advanced in total $150,000 for working capital. The prospectus seeks to raise capital to pay off inter alia this loan."
That is strong admission evidence that that sum was owing and will be paid out of new capital raised. That supersedes the evidence of a debt for equity allocation of shares to Lechmere in November 1995. That allocation of shares to extinguish debt may have taken place but, based on the statement in the February 2000 prospectus, $150,000 is still owing.
Overall, the s 459G application is weak on the merits.
The threshold test to set aside a statutory demand is as follows:
"The dispute must be bona fide and truly exist in fact. The grounds alleging the existence of the dispute must be real and not spurious, hypothetical, illusory or misconceived - Turner Corporation WA Pty Ltd v Blackburne & Dixon [1999] WASCA 294."
I turn now to consider other matters relevant to security for costs. If the applicant wins the s 459G application and gets the statutory demand set aside, I consider it has no practical chance of recovering any costs from BVI or Monaco. I am told Western Australia has reciprocal enforcement rights in BVI but not in Monaco. But I remain of the view that the practical problems and costs of trying to enforce a judgment in BVI would be enormous.
On prejudice, there is no evidence that Lechmere would be prejudiced by a payment into court as security for costs. There is no evidence that it could not find the money and that that failure would stultify its defence of this application.
When I weigh up these factors, the major factor in my mind is that, prima facie, Aspermont owes the money because of the admission of the debt in its prospectus. I consider its prospects of setting aside the statutory demand are very weak and I decline to order security for costs.
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