Fleuris Pty Ltd v Asian Century Holdings

[2000] HCATrans 476

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P21 of 2000

B e t w e e n -

FLEURIS PTY LTD

Applicant

and

ASIAN CENTURY HOLDINGS INC

Respondent

Application for special leave to appeal

KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON FRIDAY, 27 OCTOBER 2000, AT 12.29 PM

Copyright in the High Court of Australia

MR D.H. SOLOMON:   If it please the Court, I appear for the applicant.  (instructed by Solomon Brothers)

MR J. GILMOUR, QC:   If the Court please, I appear with MR J.C. VAUGHAN, for the respondent.  (instructed by Freehills)

KIRBY J:   Yes, Mr Solomon.

MR SOLOMON: Your Honours, the factors in this matter which we submit warrant the grant of special leave to appeal are as follows. Firstly, there is a need to identify, in general terms, the appropriate test to be applied to establish when there is a genuine dispute as referred to in section 459G of the Corporations Law.

HAYNE J:   That would arise if, but only if, it was revealed that there was some matter that might arguably qualify as a genuine dispute between these parties about the debt.

MR SOLOMON:   That is right.

HAYNE J:   Yes.  And, if you look at 107 and 108 of the application book, do we find in paragraph 11 of the judgment of Justice Kennedy the terms on which the lending occurred?

MR SOLOMON:   What we find there is a letter about an initial loan of $200,000 which was plainly part of a larger transaction which was referred to in the earlier paragraph of his Honour’s judgment at paragraph 10 on that page.  He refers to a letter there of 1 December 1997.  You can find that letter at page 72 to 73, the earlier letter.

HAYNE J:   Yes, but the temporary advance of 800,000 was regulated, was it not, according to his Honour’s holdings, by the terms recorded at the top of 108, is that right?

MR SOLOMON:   That is right, but ‑ ‑ ‑

HAYNE J:   And that was a loan repayable on demand, was it not?

MR SOLOMON:   That is what the short letter says, but ‑ ‑ ‑

HAYNE J:   And if it was not a loan repayable on demand it was a loan that was never to be repaid if the stand-by letter of credit was not negotiated.

MR SOLOMON:   No, that would not be right, either, but the point is, is that each party was obliged to do what was required on their part to get the stand-by letter of credit granted.  Now, we received the stand-by letter of credit instrument and we signed it and sent it back.  That is in the papers.  It was then suggested that we had to give a guarantee to these applicants to cover any losses which they may sustain under the stand-by letter of credit.

HAYNE J:   But is the consequence of your argument that the loan is never repayable?

MR SOLOMON:   No.

HAYNE J:   On what term is it repayable if it not the terms at 108, namely, on demand?

MR SOLOMON:   The answer would be that it only not be repayable if the lender did not do what they had undertaken to do to obtain the stand-by letter of credit.  That was required to be given to the United Overseas Bank who had sent us the loan agreement.  They had undertaken to give the stand-by letter of credit and they say, “Oh, but you have not signed a guarantee in our favour of our liability under the stand-by letter of credit”.  Well, the short answer is, how could we sign that guarantee before the stand-by letter of credit was in place?  The guarantee has got no subject matter to refer to until the stand-by letter of credit was in place.        So, these were issues of fact which are required to be explored.  What Mr Lukin had ‑ ‑ ‑

HAYNE J:   Can I put the point as bluntly as I can, Mr Solomon, so that you may grapple with it.  Money was lent not given.  It is not suggested this was a gift.  If it was lent it was repayable on some arrangement.  If it was not repayable on the arrangement at 108, what do you say it was repayable on?

MR SOLOMON:   It was lent to this applicant for the purpose of subscribing for shares in another company.  That is for the purpose of making an ill-liquided investment.  Mr Lukin says that at page 6.  That is, to borrow money, to borrow $800,000, put it into shares in another proprietary limited company that is going to expend it on a property development and then say, “Oh, but I am liable to be wound up at any time at your election because I will have to repay it on demand” is a fairly remote type of commercial logic, but ‑ ‑ ‑

HAYNE J:   It is done every time a company borrows on ordinary overdraft facility with a bank, I think…..ordinary overdraft facilities are repayable on demand, but perhaps I saw an unusual crop of them out of the 80s.

MR SOLOMON:   No, with respect, most type of long-term lending for project finance – I do not know what your Honour has seen but it would not generally be payable on demand.  There were be a term loan and it would be expected to be repaid out of profits of the property development, subject to normal conditions of not paying the interest and this and that, but to suggest that the ‑ ‑ ‑

KIRBY J:   Can I bring you back to the essential question we have to ask ourselves and that is to say, what is it that lifts this case out of the ruck of just another case that involves the elucidation of its own particular facts, having gone through two levels of the court below.

MR SOLOMON:   We won at the first level.

KIRBY J:   Yes.

MR SOLOMON:   That, in itself, is an important fact.  This is a regime in the nature of summary judgment that an applicant – they become a respondent, but a creditor who has not got a judgment but serves a statutory demand with an affidavit.  There is then a very rapid-fire procedure that this Court has held, 21 days means 21 days, no extensions in the Westpac v Gardner Case.  Within those 21 days, the recipient, the company, has to put on an application to set it aside and there is a statutory regime that says if there is a genuine dispute then it must be set aside.  Now, we had a Master of the court decide that, that there is a genuine dispute.

KIRBY J:   Yes.

MR SOLOMON:   Now, in Western Australia, and I am sure it is the case in other jurisdictions - in our Supreme Court Act, it is section 60(1)(b) - in an ordinary summary judgment there is no appeal from an order granting unconditional leave to appeal.  This is the closest thing to a grant of unconditional leave to appeal.  That is a Master of the court has said, “I am going to set aside this statutory demand because I think there is a dispute here that ought to be determined under the ordinary processes of the court and not in a summary way”.

KIRBY J:   And you argued, I think, that the present respondent needed leave to appeal against that order and the Full Court said that if ‑ ‑ ‑

MR SOLOMON:   That is one aspect.  It is final.

KIRBY J:   They said it was final but they said if the respondent did need leave they would grant it.

MR SOLOMON:   Well, indeed.

KIRBY J:   So, that issue was resolved against you and they looked at the matter on the footing that even if you did need leave they would have granted it.  It is a unanimous opinion of the Full Court.

MR SOLOMON:   Yes, but the important point about that is that is that appropriate?  Is it appropriate that where in what is essentially a species of summary jurisdiction one judicial officer says, “I think there is a genuine dispute here”.  Should it be appropriate – this took 11 months to come on in the Full Court and get judgment in the Full Court.

KIRBY J:   It may, but it was then heard by three experienced judges of the court in the Full Court headed by a most experienced judge and the decision was as it turned out.  Ultimately, you can have all sorts of judicial re‑wordings of it but you have to go back to the terms of the section in the Corporations Law, “genuine dispute”.

MR SOLOMON:   That is right.  There is two issues, one is what is a genuine dispute, but the earlier issue, or perhaps the later issue is where the primary judicial officer finds a genuine dispute is it appropriate for an appellate court to, if it is final and not interlocutory - which is an issue in itself, but leave that aside - is it appropriate to intervene in this way to examine the evidence when there is affidavits put on explaining that this was a transaction?  I just wanted to refer your Honours to a couple of things in what the evidence was, like Mr Lukin’s affidavit that the Full Court found was inadequate.

In the first place, with respect, if you look at page 6 of the book, paragraph 18 of the affidavit in opposition, or perhaps I should take your Honours back one page to paragraph 5, paragraph 15, that having been sent this loan agreement that the Overseas Union Bank was prepared to lend us the money to repay this loan so long as they got a stand‑by letter of credit to be arranged by this applicant, we had ascertained – Mr Lukin had ascertained that although we had sent that loan agreement back, it has been there but they are still awaiting the letter of credit.  That was why the transaction had not proceeded.

Then he refers at paragraph 18 firstly to an annexure RAL-12 which is at page 65.  That is not our document, it is the other side’s document.  That was a document from 18 May 1998 addressed to Mr Lukin saying that:

Pac-Asia Holdings -

which is the company in which this applicant is a shareholder -

will lend another –

money and:

2.  As and when all legal documentation is complete Pac-Asia’s principal shareholder –

which is this company -

will organise to extend a SBLC to OUB Australia to enable Fleuris to drawdown AUD 800,000 which will be remitted back to Singapore to pay Pac-Asia Holdings the AUD 800,000 loan to Fleuris…..thereafter use the AUD 800,000 to make advance payments to PKR for the subscription of new shares in PKR.

Now, Mr Lukin refers at paragraph 18 that that confirmed his discussions.  He says he had agreed and discussed the following matters:

with Mr Ho Swee Huat on behalf of the respondent as follows:

18.1 the applicant would only borrow money if the respondent arrange a suitable facility, because the applicant had no liquid assets available to repay the loan without such a facility –

because it was going to be ‑ ‑ ‑

KIRBY J:   You are doing what the respondent complains, you are merely trying to have a retrial of this matter in the final Court of Appeal of Australia.

MR SOLOMON:   My complaint, your Honour, is we have never had a trial of the matter.

KIRBY J:   You have had a trial of the question of whether there was a genuine dispute and you have had that by three judges of the court.  You say, “Is that reasonable?”  Well, there just happens to be in our country systems of appeal.  They would have known that they do not lightly intrude into a decision of this kind.  They said this was a final decision, therefore, they were entitled to, but even if it was not a final decision and it needed leave they would grant it because a mistake had happened.  Now, it has gone through that process.  To lift it into this Court you have to show some significant issue of principle or some other basis to get in but at the moment you just seem to be rearguing the merits of the case.  The merits are not irrelevant but you have got to show something extra.

MR SOLOMON:   Well, what is extra is that what has emerged as a matter of principle from this decision is that if this Full Court decision stands you have companies like the one I am here representing today that really stand to have their corporate life terminated by winding-up proceedings with presumptions of insolvency on issues like this where they have never ever had a trial.

KIRBY J:   In the particular facts of this case, and the provision is there in the statute to guard third parties, members of the public dealing with companies, which are insolvent, so it is important for the company that the decision should be right but it is important for the public that insolvent companies should not be trading.

MR SOLOMON:   Your Honour, this is an extreme example of problems that a company can suffer through a finding that there is no genuine dispute in circumstances where, in our respectful submission, there plainly was.  It is entirely a suitable vehicle for this Court to enunciate appropriate principles to be applied in this field.  There are, at the general level, a range of different tests and words which are enunciated at the Federal Court and Supreme Court levels.  That is the first point.  What this case would give rise to, if your Honours granted leave, apart from enunciation of what would be an appropriate test for guidance of everybody, is this, that this case will require analysis of not just a test and articulating a test as a vacuous form of words, but it will enable the test to be articulated by reference to an appropriate particular example, which is what is required in order to articulate the test.

KIRBY J:   But the test cannot get very far away from the words of the statute, is there a genuine dispute or not, and that involves evaluating the detailed issues of the case against the applicable law.

MR SOLOMON:   That is right, but my respectful submission is this:  the question that would be appropriately determined by the High Court is what is the quality of evidence that is required to be adduced to show there is a genuine dispute?

KIRBY J:   That is the qualify of evidence in this particular case.  How could we lay down any test of general utility talking about evidence at large?  Every case is going to be somewhat different.

MR SOLOMON:   I think Justice McClelland said in a case that in this field it is somewhere between mere assertion and detailed evidence, that is, one cannot just say, “I don’t owe the debt, full stop”.  So, we in this paragraph 18 and the other paragraphs have sworn to the basis of the arrangement and what we say was said and on the basis of that that we borrowed this money, we invested it in shares that we could not get back, we believed quite apart from the document we had claims under the law of estoppel under the Trade Practices Act for misleading and deceptive conduct, both of which sit outside of the short letter document that your brother Hayne took me to.

So, what actually is a company required to do in this very limited window of time, 21 days, no extensions on that?  Surely, it is not to put together one’s whole case, all of the possible evidence that was put forward.  It is certainly something more than to simply do a two-line affidavit and say, “I deny I owe the debt” but how could it have been appropriate?  We satisfied a Master of the Supreme Court that what we had put on here was sufficient to identify a genuine dispute on these matters that needed to be tried.  Now, the Full Court says, “No, you really have not shown anything”.

Now, in that they were in plain error but I accept I am not dealing with the merits here except to the extent that there is some merit in the matter going forward but one reads this paragraph 18 of the affidavit – at least I read it – and I think what more was required of us here to demonstrate that we had had discussions – there is a short form letter, but ‑ ‑ ‑

KIRBY J:   I can hear you making all of these submissions to the Full Court.

MR SOLOMON:   I did.

KIRBY J:   Of course you did, and that is the problem for you, you see.  These are the submissions that were proper to be resolved in our judicial hierarchy at the level of the Full Court.  We simply cannot take up every case and every case of a dispute about whether there was a genuine dispute.  It is just not feasible.

MR SOLOMON:   All right.  Well, all I can say is if your Honours do not think that the issue in itself as to what is the appropriate test for a genuine dispute, what is the quality of evidence that a company within those 21 days is required to put on and what is the appropriate response of intermediate appellate courts where the primary officer finds essentially in a species of summary judgment there is unconditional leave to defend?  In other words, “I find that I am going to set aside the demand because there is a genuine dispute.”

KIRBY J:   The duty is plain.  It is to attend to the facts, attend to the applicable law that governs those facts and then to ask themselves the statutory question, “Is there a genuine dispute?”  Now that is what the Master did and he reached one view and it went on appeal and there is, as you say, this unresolved question of whether it is appeal as a right or by

leave, but the Full Court removes that by saying, “We would have given leave if it was required”.  So, we are not asked to resolve that question and, therefore, this is not a suitable vehicle to resolve that question and so we are back to the evaluation of the facts of the case.

MR SOLOMON:   All right.  The only other point I wanted to make is that a differently constituted Full Court of the same State in the case of Turner v Blackburne & Dixon essentially decided a case which is in a irreconcilably opposite way, that therefore is considerable confusion as to really what is the correct approach, and that being the case ‑ ‑ ‑

KIRBY J:   Yes, but each of these decisions would stand there only for the result in the particular facts of the case.  They cannot be lifted to some sort of general principle of law.  If they purported to assert a general principle of law that might be a matter attracting special leave to appeal but in the end they all get back to their particular facts.

MR SOLOMON:   I cannot take it further, your Honours, I ‑ ‑ ‑

HAYNE J:   Could I just clarify one matter with you at page 13 of the application book.  Is that the resolution of directors recording the terms on which this money was borrowed?

MR SOLOMON:   Yes, it is.

HAYNE J:   Yes, on demand.

MR SOLOMON:   Yes, but subject to what is said in the affidavit, your Honour, of what the discussions were.

HAYNE J:   Yes.

MR SOLOMON:   Thank you, your Honours.

KIRBY J:   Thank you very much.  The Court does not need your assistance, Mr Gilmour.

This application concerns a dispute, the resolution of which turned on the particular facts of the dealings between the parties.  That dispute comes to this Court in the circumstances of an application for special leave to appeal from a judgment of the Full Court of the Supreme Court of Western Australia.  That court held that there was no evidence of a genuine dispute to warrant the setting aside of a statutory demand served by the respondent on the appellant pursuant to the Corporations Law section 459E.

The applicant complains that the Full Court applied the wrong test in determining whether there was a genuine dispute about the debt alleged to be owed.  However, the Full Court made it clear that whichever formulation of the test was applicable, the applicant had failed in the evidence to establish the existence of a genuine dispute in this case.  The matter would not, therefore, be a suitable vehicle to explore the meaning of the statutory phrase.

In the end it is that phrase, not judicial reformulations of it, that governs the resolution of cases of this kind.  Special leave is, therefore, refused and the applicant must pay the respondent’s costs.

AT 12.51 PM THE MATTER WAS CONCLUDED