B.E.S.T. Australia Ltd v Aquagas Marketing P/L

[1989] FCA 241

NOT W R DISTRIBUTION

JUDGMENT No, ........ .....,. 241 89-

IN THE FEDERAL COURT OF AUSTRALIA )

NEW SOUTH WALES DISTRICT REGISTRY )	NO. G260 of 1988
GENERAL DIVISION	)

BETWEEN:  B.E.S.T. AUSTRALIA LIMITED

First Applicant

BROWN'S ENERGY SYSTEMS 6

TECHNOLOGY PTY. LIMITED

Second Applicant

YULL BROWN

~ h i r d Applicant

AND :  AQUAGAS MARKETING
PTY. LIMITED

First Respondent

HYDROX CORPORATION LIMITED

Second Respondent

JAMES DAVID CHAPLIN

Third Respondent

MORRIS WILLIAM WALKER

Fourth Respondent

CORAM: GUMMOW J.

PLACE: SYDNEY.

DATE:  19 MAY 1989.

REASONS FOR JUDGMENT

.

The nature of these proceedings sufficrently appears from Reasons for Judgment delrvered by me on 22 February 1989.

On that day, I granted the applicants interlocutory
injunctive relief and adjourned further hearing of the trial

under further order. I also drrected that on or before 31

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March 1989, the second respondent file and serve a further list of documents in respect of further discovery under orders made on 8 November 1988, and 19 December 1988.

The matter next came before the Court on 7 April 1989. On that day, there were before the Court two motions. Both had been filed on 4 April 1989. By its motion, the second respondent sought a variation to the orders of 22 February 1989, so as to provide for the filing and serving of a further list of documents on or before 31 May 1989 in lieu of 31 March 1989. By their motion, the applicants sought orders that the defence of the second respondent be struck out and that the applicants be at liberty to enter judgment against the first, second and third respondents.

The second respondent is a company incorporated under the New Zealand Companies Act 1955. On 15 March 1989, an order was made in the High Court of New Zealand that the second respondent be wound up by the High Court. The Official Assignee in Auckland was constituted provisional liquidator of the affairs of the second respondent, and

1989, he has become the official liquidator of the second following upon the first meeting of creditors on 18 April	respondent.
The first question that arose at the hearing before this Court on 7 April 1989 concerned the competency of the continuation of the present proceedings against the second respondent. Reference was then made by counsel for the
applicants to various decisions including Bond Media Ltd. v John Fairfax Group Pty. Ltd. (1988) 14 ACLR 701; Primary Producers Bank of Australia Ltd. v Hughes (1932) 32 SR (NSW) 14 and Fiske v Sterling Investment Co. Pty. Ltd. (1977) 3 ACLR 158. The applicability to the present facts of the reasoning in those cases was not disputed by counsel for the second respondent. Accordingly, for reasons then given orally, which appear from pages 17 and 18 of the transcript for that day, I held that the proceedings remained competent and granted leave to amend the title of the second respondent so as to insert the words "(in liquidation)" in the title of the second respondent in these proceedings.
For reasons also given orally on 7 April 1989, I stood over to 15 Hay 1989 both notices of motion. The motion of the second respondent was stood over:

". . . on terms that on or before S May

1989 the second respondent file and serve an affidavit dealing with the conduct and outcome of the first meeting of creditors of the second respondent on 18 April 1989 and any adjournment thereof, and with the estimate of costs of continuing with these proceedings and the grounds of such

estimate, and with any further matters the second respondent considers relevant	on the question of whether an order
should be made in its favour on its notice of motion."

I also then stood over to 15 May 1989 a notice of motion filed 8 November 1988 and addressed to the first, third and fourth respondents; I directed service upon those respondents of the orders made 7 April 1989 and further

service of that notice of motion. On 16 nay 1989, I was satisfied that service had been effected as required by the earlier orders.

On 16 May 1989, I made the following orders:

"1 .	Stand over to Friday 14 July 1989 at 9.30 am the applicant's notices of motlon filed 8 November 1988 and 4 April 1989 seeking entry of judgment.
2.	Direct that on or before 3 July 1989 the second respondent file and serve a further list of documents in respect of further discovery under orders made on 8 November 1988 and 12 December 1988.
3.	Costs reserved. "

The making of these orders followed a hearing on 15 and 16 May 1989 upon the motions which had been stood over on 7

~ p r i l 1989:

What follows is the reasons for the making of those

orders.

In compliance with the terms of the adjournment 1989 an affidavit by Mr. M.J.P. Srosnahan, the Deputy	granted on 7 April 1989, there was filed in Court on 15 May
Official Assignee and an officer of the Department of Justice in Auckland. Mr. Brosnahan reports to the Official Assignee with regard to the liquidation of the second respondent. Mr. Brosnahan was cross-examined by counsel for the applicants.
Mr. Brosnahan had earlier sworn an affidavit on 5 April 1989, which had been read at the hearing on 7 April 1989. In his first affidavit, Nr. Brosnahan had stated:

"The company's technology is the only realiseable [sic] asset of any substantial v a x e which would be available for distribution to the company's creditors and shareholders. If the company is not permitted to continue in these proceedings then I anticipate that that asset will not have any realiseable [sic] value."

The evidence includes the minutes of the first meeting of creditors of the second respondent held on 18 April 1989 at which it was unanimously resolved that the Official Assignee become the official liquidator of the second respondent, and that there be a committee of inspection with three members.

Mr. Brosnahan has taken counsel's advice and come to the view that the litigation should proceed, subject to the availability of funding. In para. 11 of his second affidavit, he details the present position regarding

discovery. What is there said was supplemented by his oral evidence, including evidence given on cross-examination.

The sum of $30,000 is held for use in connection with

discovery. It is apparent that much remains to be done. A large quantity of documents is now in Sydney. Others are en route from New Zealand. They await examination by the second respondent's solicitors. It is also apparent that what may well be discoverable materials may presently be located in two containers which have been landed in Manila and which are held there to the order of the second respondent. The bills of lading for the containers and an inventory of their contents were produced to Mr. Brosnahan by Mr. Williams, whose candour Mr. Brosnahan mistrusts. Mr. Williams' involvement in the present litigation is to some extent described in the judgment of 22 February 1989.

Huch of Mr. Brosnahan's energles have to date be'en absorbed in negotiations with prospective purchasers of certain assets of the second respondent. One prospective purchaser was a company associated with Mr. Williams, Hydrox International Incorporated, but this has come to nought. The evidence included as Exhibit B a draft asset purchase agreement between the second respondent and PH I1 Inc., a Delaware corporation which is a subsidiary or related

corporation of Peers & Company, a New York banking house.

The previous connection between that company and the second respondent is outlined in the reasons for judgment delivered 22 February 1989. The annexures to the draft include what apparently is the inventory of the two containers, supplied

by Hr. Williams. Mr. Brosnahan gave evidence that the	contemplated closing of the sale and purchase would take
place in Manila on 24 May 1989, and would involve the inspection of the contents of certain containers which I have previously mentioned as located in Manila. For technical assistance, he would rely upon Mr. Alabaster, whose previous involvement is described in the earlier judgment. The funds coming under the agreement would

facilitate the prosecution by the second respondent of the
litigation in this Court.

Settlement is contingent upon provision by the Bank of New Zealand of a letter informally releasing the subject matter of the sale from a registered charge held by it for a very large indebtedness of the second respondent. The charge will remain registered. The Bank holds guarantees or other security from third parties for its debt.

The position appears from the following passages from the cross-examination of Mr. Brosnahan:

"Now all this material that is apparently is somewhere in Manila at the minute, that is in these containers, bears not in any way on the subject matter of this proceeding? --- As I have been led to believe from the schedules that have been produced.

Well who led you to believe that? ---
David Williams.

But I thought you told us a moment ago that Williams on behalf of Hydrox International Inc. was, as you saw it, in a position adverse to PH 117 --- He is as at today. He certainly was not at the time that I saw him.

I see. But may it not be in fact the

case, contrary to what you were given to understand by Mr Williams, that some of the material in these containers in Manila might indeed have a bearing on this case? --- It could well do sir. I will not know until they are actually opened up.

~ u t is not it your commitment to have

them cleared through customs and then warehoused somewhere, is that right? --- Yes, that is correct.

And may we take it that they are to be warehoused for some indefinite period?

--- They are to be warehoused - the

actual handover is to take place on 24 May the date of closing. The basic reason that I am there is to inspect with the purchaser the contents of those containers. Until they are actually opened up I do not know that they contain what they lead me to believe they contain.

Is that what you are selling, what is rn the containers? - Basically, yes.

So it is your evidence, is it, that you are selling something which you - that the nature of which you are unaware? --- I am, yes.

Well now, just let us go over this Manila aspect again. You are going to execute exhibit B before you inspect the contents of the containers, is that right or afterwards? --- No, before.

Before, right, I see. And you are then going to inspect the contents of the containers, is that right? --- yes.

And if the containers contain nothing then I suppose you are going to tear exhibit B up? --- Basically, yes, sir.

HIS HONOUR: I am sorry. I do not quite understand who has got control of these containers at the moment? --- The official assignee has sir, we have got a firm undertaking from the Swire group who are the shipping agents of principals in

Hong Kong. I hold the bills of lading for those containers.

But they are in Manila not Hong Kong?
--- They are in Manila, they are on the

San Francisco wharf bay on the Manila wharf, they have not been through Customs as yet, they are in bond.

MR. GRIEVE: Now, if on the other hand the containers contain something, who is going to decide whether the agreement in the form of exhibit B should be torn up or not? --- Well, there is provision in there that if there is a dispute between the parties the accountant society will

appoint a member to decide.

So you will keep PH 11's money until that dispute is so resolved? --- That is correct.

Even if you find the containers contain all sorts of information at the time covered by the order of 22 February 1989, you will still retain PH I1 Inc's money, will you? --- Yes, I think I am duty bound I think to say that if there are any documents within those containers it is my firm belief that they should also come here to be examined.

But is not it your evidence that as you understand it the agreement to be executed in terms of exhibit B is to provide for the sale to PH I1 of whatever is in those containers? --- The assets, subject to matters that may be before this court.

I see. And PH I1 is going to commit itself to pay well over $US3,000,000 to acquire the contents of some containers in the Philippines which contents are not known to you nor to the PH I17 --- Yes.

Is that right? --- That is correct."

There was some debate before me as to whether entry into and completion of the asset purchase agreement would contravene the terms of the existing interlocutory relief granted on 22 February 1989 by this Court. In particular,

the applicants pointed out that whilst Order 1 (A)

imposed restraint from doing certain acts, whether in	restrained certain activities in Australia, Order 1 (B)
Australia or elsewhere. The injunction was framed in that form to reflect the views expressed in the judgment
delivered on 22 February 1989 as to the - in personam nature
of the jurisdiction to restrain the misuse of confidential information. It would appear from the oral evidence of Mr. Brosnahan that he has been proceeding on the basis that know-how, information or technology is disposed of, disclosed or made available only by oral disclosure, rather than in objects (documents or equipment) which might detail or embody that information; he sought to distinguish "the technical know-how or intellectual property side of it" from "the physical assets which are set out in the schedules to the agreement".
On the other hand, the applicants did not seek any variation or extension of the existing interlocutory relief so as to restrain in terms entry by the second respondent into the proposed asset purchase agreement with PH 11.
If the second respondent, on receipt of further advice, were to decide not to enter into the asset purchase agreement, a question would then arise as to the existence of any source of funds, other than the proposed purchaser under that agreement, for the prosecution of the present litigation. The evidence suggests that the second respondent does have funds in hand to comply with the
assurance that the second respondent will continue with the requirements for discovery. Beyond that, there is no
present litigation. Further, as I have indicated, the organisation of proper discovery has been allowed to lag and the state of affairs in Manila gives rise to doubt that even now adequate further discovery will be given.

In these circumstances, there is much force in the

submissions by senior counsel for the applicant that the time has come when no further indulgence is to be extended to the second respondent, even on the footing that the comparatively recent commencement of the liquidation in some way lessens the significance of the past delinquencies of the second respondent in complying with the directions of this Court.

Nevertheless, in all the circumstances, I believe that it is in the interests of justice that the second respondent not be shut out of its rights to a trial in this country on the merits, without it first having been given the extension it seeks to 3 July 1989 for the filing and serving of a further list of documents in respect of further discovery under the orders made on 8 November 1988 and 12 December 1988. But the applicantsv motions dated 8 November 1988 and 4 April 1989, seeking judgment against all three respondents, should stand over to 14 July 1989.

It was for these reasons that on 16 May 1989 I made the orders which I have earlier set out.

I certify that this and the ten (10)

preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Gummow.

Associate:

U

Date:  19 May 1989.

Counsel and Solicitors	D.E. Grieve QC and John Fernan Esq.
for the applicants:	instructed by Messrs. Abbott, Tout, Russell, Kennedy.
Counsel and Solicitors	P.G. Mahony Esq. instructed by
for the second respondent:	Messrs. McCourt, Ward-Harvey.
Dates of Hearing:	15, 16 May 1989.
Date of Judgment:	19 May 1989.