Dae Boong International Pty limited v Dae Boong Australia Pty Limited

[2008] NSWSC 357

CITATION:	Dae Boong International Pty limited v Dae Boong Australia Pty Limited [2008] NSWSC 357
HEARING DATE(S):	15 April 2008
JUDGMENT DATE :	15 April 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
EX TEMPORE JUDGMENT DATE:	15 April 2008
DECISION:	Proceedings dismissed with costs.
CATCHWORDS:	TORTS - negligence - advice as to procedure for preserving assets of insolvent company about to be wound up - whether advice acted upon - whether advice negligent - whether advice caused loss to company
LEGISLATION CITED:	Corporations Act 2001
CATEGORY:	Principal judgment
PARTIES:	Dae Boong International Co Pty Limited (In Liq) (First Plaintiff) Peter Ngan (Second Plaintiff) Hae Sook Kae (Third Plaintiff) Dae Boong Australia Pty Limited (In Liq) (First Defendant) Cha Lip Kim (Second Defendant) Soon Hae Choi (Third Defendant) Kang-Joon Choi (Fourth Defendant) Sung Jin Park (Fifth Defendant) Andrew Pasternacki (Sixth Defendant) Ventry Rollo Wakefield Gray (Seventh Defendant)
FILE NUMBER(S):	SC 1920 of 2005
COUNSEL:	J Raine (Plaintiffs) Discontinued or stayed (First to Sixth Defendant) M A Ashhurst SC with him Ms P A Horvath (Seventh Defendant)
SOLICITORS:	Hall Partners (Plaintiffs) Discontinued or stayed (First to Sixth Defendants) Moray & Agnew (Seventh Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

TUESDAY 15 APRIL 2008

1920/05 DAE BOONG INTERNATIONAL PTY LIMITED & ORS v DAE BOONG AUSTRALIA PTY LIMITED & ORS

JUDGMENT

1 HIS HONOUR: This is a case where the plaintiff company, which is in liquidation and brings proceedings through its liquidator, sues the seventh defendant, who is a barrister, for negligence arising out of advice said to have been given by facsimile transmission dated 6 March 2005 from Mr Gray to Mr Pasternacki, a solicitor at Messrs Strathfield Law. I should explain that the proceedings against the first to sixth defendants have either been discontinued or stayed, so that the only action is that against the seventh defendant.

2 The plaintiff company was, on 8 March 2005, to answer a summons seeking its winding up. On the evidence, there is no doubt that a winding up order would have been made. The summons was based on non-compliance with a statutory demand which was based on a judgment debt of over $100,000 which had been unsatisfied. It is, therefore, clear that a winding up order was going to be made on 8 March 2005 and, in fact, it was made.

3 The advice of Mr Gray, having dealt with the question of the inevitable result of winding up proceedings, then went on to consider the question of what was described by him as the following:

To avoid the control of the company and its assets passing into the hands of a liquidator on 8 March 2005, I believe the company has available to it the following options only.

4 The second of those options dealt with the possibility of appointing an administrator - that need not be considered further because nothing was done to bring that about.

5 The first option set out was as follows:

No later than 10 am on 8 March, the company must transfer by way of sale the whole of the company's undertaking and assets to a new company.
If the new company assumes liability for all the existing company's debts (except the judgment debt on which the winding up summons is based) then there would be no need for any significant sum of money to change hands, but the transaction must be completed (ie transfer of title of assets be actually completed) by 10 am Tuesday 8 March;

The consequence of this course will be that the existing company will be wound up by the court and the directors of the company will have to comply with their obligations under the Corporations Act and assist the liquidator in his winding up of the company. On the other hand, control of the company's assets and the continuing conduct of its business will pass to the new company.

If the existing company be wound up, the directors of the new company can be expected to be examined by the liquidator of the existing company.

6 I am satisfied that it is more likely than not that this advice, which was sent by facsimile, was sent to Mr Pasternacki at Strathfield Law and the solicitor who was acting for the plaintiff company, although not stated to be related to the plaintiff company, it was so related. I so find.

7 There is, then, a question of whether or not Mr Pasternacki and the company relied upon and acted upon that advice. What happened was that on 7 March a contract was entered into, or purported to be entered into, for the sale of the business which was described as retail groceries from the plaintiff company to a company Dae Boong Australia Pty Ltd for the sum of $155,000, plus trading stock with a value ________ for a maximum sum of $400,000. In other words, the maximum price payable under the contract would have been $555,000. The goodwill was shown to have no value. Under an assignment, which I will come to shortly, the purchasing company was to assume liability for creditors on what was called a debit list amounting to a total of $2,309,751.18. The major creditor was a company, KEB Australia Pty Ltd, shown to be owed two amounts of $1,950,000 and $265,000 respectively. On the basis that the purchasing company assumed liability for those debts, together with a purchase price which could have amounted to $555,000, it could not have been said that there was not a substantial consideration for what were the assets of the company.

8 On the same day, namely 7 March 2005, a deed of assignment was entered into between the same parties which, basically, recited that the vendor had agreed to sell and the purchaser had agreed to purchase the vendor's undertaking and assets in the business being conducted by the vendor at 10 London Street, Campsie, with all the vendor's rights, title, and interest in the business together with goodwill and its plant and equipment, and further recited that it was a term of the contract that the vendor “acknowledged in lieu of further payment the purchaser may instead indemnify the vendor against any outstanding liabilities in respect of debts listed and specified in the schedule”. In clause 3 in the operative part of the deed a covenant to so indemnify was given. Both these documents are dated 7 March 2005.

9 In fact, the purchasing company, Dae Boong Australia Pty Ltd, was not in existence, it was not formed until 8 March 2005. On that basis it seems clear to me that both documents were a nullity unless there was ratification in the way provided for in s 131 of the Corporations Act 2001. It was faintly argued that there was ratification because one of the directors of the vendor company had said to the liquidator upon his attendance "the whole supermarket had been sold. The business has been sold the day before you were appointed". On any basis that could not amount to ratification.

10 The other fact said to be some evidence of ratification is that the address of the business of the purchaser company was stated to be the address at 10 London Street, Campsie, where the business was being carried on. That in my view is not sufficient evidence of ratification. I would have thought it followed from that that there was no sale, and that if that were the position, then the liquidator could have taken possession of the business because it was still the business of as the plaintiff. On that basis, that is the end of the matter, and there is no loss or no loss can arise from whatever Mr Gray said. However, I proceed to other arguments.

11 While the vendor company and the proposed non-existent purchasing company have similar names, that is never surprising when the same business is to be conducted as the purchaser usually tries to have some benefit of the earlier name. It does not necessarily show that the whole contract was fraudulent. The other matter is that there has not been proved to be any connection between the vendor company and purchaser company, although the only director of the purchaser company has the same surname as one of the directors of the vendor company. In my view that is not sufficient to show that the whole transaction was a sham. In any event, if the transaction was a sham, it could have been set aside by its liquidator.

12 The claim in respect of the negligence of Mr Gray has been particularised to some extent and this appears in exhibit 1. The particulars are that:

“It is alleged that Gray gave the advice that the assets be placed beyond the reach of the liquidator and that the petitioning creditor's claim be avoided. Implicit in this was the failure of Gray to advise Dae Boong be paid the contract price or that the contract price be market value."

13 It then goes on to state that in his advice Mr Gray had stated there was no need for any significant sum of money to change hands as the contract price.

14 There is a further claim that there was a failure to give sufficient advice in that no warning was given to the company that the transactions entered into prior to winding up had to be bona fide and for value and otherwise might be set aside as preference or as uncommercial transactions.

15 I do not consider that these matters are made out. It is not shown to have been the responsibility of the barrister to give such advice. The advice which he gave was not incorrect. The claim is that it was incomplete. One of the claims made in submissions was that he had not advised that security should be taken for the indemnity but that is not one of the matters pleaded or in the particulars, and in my view should be disregarded. In any event I do not consider that it was part of his responsibility; neither is there any evidence which would show that had such a warning been given, it would have made any difference as to the events which took place.

16 It is now necessary to turn to the question of loss. There is in evidence a valuation which was obtained by the plaintiff's liquidator. That accepts the figures of $555,000 which are stated in the contract. That does not establish that those figures are correct. In addition, it gives a value for goodwill which the valuer considers should have been added at an amount from $1 to $99,000, so that seems to be of no real help. The loss which the plaintiff claims is that it has been deprived of the value of its undertaking. It says that this is a loss which the creditors of the company have suffered. As things have turned out, that may well be the position. Against that, had the contract been performed, the creditors would have benefited substantially, so that unless there was evidence the whole transaction was a sham, and that there was never any intention to make payment of the purchase price, it could not be said that as a result of the transaction the plaintiff company has suffered a loss. There is in fact no evidence the liquidator sought payment.

17 While there is some evidence that the purchaser company was subsequently wound up, there is no evidence that the indemnity was worthless at the time that it was given. The result of all of this is that it has not been shown that the advice that was given was negligent, and if I were wrong about that, it has not been shown that any loss arose as a result of that advice. In those circumstances, the proceedings should be dismissed and I so order.

18 Order the proceedings be dismissed. Plaintiff to pay the costs of the seventh defendant. Exhibits may be returned. Direct that money paid into court as security for the costs of the seventh defendant remain in court until those costs have been assessed or agreed and, thereafter, be dealt with by the registrar.

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