Hazama Corporation (Australia) Pty Ltd v Dayton Group Ltd

[1991] FCA 57

IN THE FEDERAL COURT OF AUSTRALIA ) )

H T U O S ) No NG37 of 1991

)

- )

BETWEEN :	HAZAMA CORPORATION PTY LIMITEQ
Applicant

m:  DAYTON mOUP
Respondent

HILL J	H RECEIVED
SYDNEY
5 FEBRUARY 1991	FEDERAL COURT OF

AUSTRAUA PRINCIPAL

Before the court is an application brought by Hazama Corporation (Australia) Pty Limited, the applicant, pursuant to s.368(2) (a) of the com~anies Code IVicL 1981 ("the Code") that dispositions of property of the respondent to be made under a deed originally referred to in the affidavit as being marked HA23 but now HA26 be validated.

A further application is for an order that certain proceedings presently part heard in this court between the applicant and Dayton Group Limited, Hazama Corporation Limited and Mr Aoki and Mr Okubo, be discontinued with either party to pay their own costs.

that the occasion for seeking the relief claimed in the first
The applicant seeks to invoke the jurisdiction arising under 8.4 of the Jurisdiction of Courts (Cross	-

1987. In so doing it relies upon the fact

order is to give effect to the settlement of the proceedings part heard in the court before me which have presently been adjourned.

The matter is one, of course, of which this court would have original jurisdiction pursuant to the provisions of the -rations Act 1989 save for the provisions of 8.601 of that Act which provides that the provisions of that law with respect to winding up do not apply to any body corporate the winding up of which was started before 1 January 1991. In respect of conditions relating to the winding up the previous law remains in force.

In my view it is an appropriate matter which the court should exercise jurisdiction under the u s d i c t i o n of Courts ICross-Vestinal Act 1987 having regard to the matters referred to in 8.4 of that Act.

By way of background to the application, it may be noted that Dayton Group Limited in proceedings WAG13 of 1990 alleged that the respondents to those proceedings were in breach of the m d e Practices Act 1974 by virtue of representations alleged to have been made by Mr Okubo and Mr Aoki in the course of conversations with Mr Jones representing Dayton Group Limited.

The substance of the allegations is that the representations were that the joint venture in which the applicant was interested with Hazama (Australia) Pty Limited would unconditionally proceed. There are other counts referred to in the statement of claim being counts in contract relying upon certain implied terms.

It is also alleged that, to the extent that the respondents to those proceedings relied upon a provision of an agreement, that it was a condition precedent to an arrangement that approval be given by the board of directors of Hazama-Gumi Limited that was represented to be a mere formality and could be obtained without difficulty and would be obtained no later than December 1989.

The proceedings were hotly contested by the respondents, the representations were denied and a stand taken by the respondents that the existence of any joint venture agreement would depend ultimately upon the approval of the

board of directors of Hazama-Gumi Limited and that no such

approval had in fact been granted.

The claim by the applicants was ultimately for profit foregone and expenditure and liabilities incurred. The proceedings which were heard in Perth occupied at least seven days of hearing before the parties to them announced to the court that a settlement had been reached in principle between them.

It was on this basis that an application was made for an adjournment of some weeks to allow certain conditions precedent to that settlement to be satisfied. The adjournment was granted and the matter relisted in the court for directions.

I should say that counsel at the time indicated that in the event that the matter ultimately would proceed because these conditions precedent to the settlement had not been satisfied, there would be some further additional days of hearing involved. The respondents in the proceedings were represented by senior and junior counsel and the applicant by junior counsel.

On or around 17 November 1990, there was presented in the Supreme Court of Victoria a petition for the winding up of Dayton Group Limited, that petition being presented by Canberra Press (Melb.) Pty Limited and the application is

listed for hearing on 13 February next.

Should that application be granted, any disposition made in the course of the settlement would be void unless this court or the Supreme Court of Victoria, in the winding up proceedings, were to validate it, hence the present application. I should also mention that a petition was as well presented against Hazama Corporation (Australia) Pty Limited returnable on the same day.

Dayton Group Limited has an issued capital of 1,400,000 shares with a par value of $1 each. Its shareholders are companies controlled either by a Mr Altenstadt or by Mr Jones save that Mr Jones has a small number of shares in his own name. It is apparent from the participation of the respondent in these proceedings and the attitude that it has taken that the shareholders of the respondent support the present application.

The proceedings were originally commenced without the joinder in them of the petitioning creditor. However, notice had been given to the petitioning creditor who indeed appeared at the time the matter was called and I ordered that there be added as a party, Canberra Press (Melb.) Pty Limited.

At that time negotiations were proceeding between
the applicants, the respondents and Canberra Press (Melb.) Pty
Limited and that company initially was unable to indicate

whether it opposed or supported the application. Ultimately the matter was adjourned and I have today been advised that

Canberra Press (Melb.) Pty Limited wishes to withdraw from the proceedings and I gave leave that they could do so and I make no order as to costs in respect of that company.

In addition to the proceedings part heard before me, proceedings were also commenced by the respondents in the Supreme Court of Western Australia on 23 March 1990 in respect of a development which I shall refer to as "the Midland development". The action was discontinued by the respondent on 18 June 1990 but a counter claim by Hazama (Australia) Pty Limited against the respondent remains extant.

From the evidence before me it would seem that the reepondent and the applicant had associated together for the purposes of certain joint ventures involving development of land. One of those joint ventures involved land at Prahran in Victoria and is referred to by the parties as "the Prahran development". Another of the joint ventures concerned land in Ballarat, Victoria, referred to as "the Ballarat development". The proceedings in this court before me concerned a development at Riverside Drive in Perth.

In respect of these developments there arose
considerable liabilities. The activities involving the
Prahran development and the Ballarat development were

undertaken through a joint venture company called Dayton HA Pty Limited, the shares in which were held as to one by the

Dayton interests and as to the other by the Hazama interests.

The only assets owned by Dayton HA Pty Limited are
its holding of shares in a wholly owned subsidiary, Nalumbo

Pty Limited, and its interests held either by itself or Nalumbo Pty Limited in the two joint venture projects subject to rights of indemnity from the joint venture parties in respect of development liabilities.

It is perhaps convenient to note here that as at 30 September 1989 the gross assets of the group of companies comprising Dayton HA Pty Limited and Nalumbo Pty Limited were $27,924,249 and the total liabilities were $60,975,338, that is to say there was a deficiency subject to rights of indemnity in the amount of $33,051,089.

The situation has not materially altered since that date and in particular no steps have been taken since certain valuations of land were obtained more recently which would materially affect the very substantial deficiency in assets which Dayton HA Pty Limited has.

The agreement as to settlement was reduced to
writing in the form of a document of very considerable length.

Aa a result of discussions with counsel then appearing for the

proposed form of deed of settlement and those amendments are applicante, some minor amendments have been made to the

now incorporated in the document which is exhibit HA26 in
these proceedings.

The commercial effect of the proposed settlement may
be summarised as follows. First there is to be a payment of

$1 million by the applicant as an advance to the directors of

the respondent to enable them to subscribe for fresh capital in the respondent ranking equally with existing capital save and except that each share so issued will have 1.5 votes instead of one vote.

This amount of $1 million will be used to pay creditors of the respondent. The shares so issued will become security to the Hazama group for the repayment of the advance. The terms of the advance are that it will be for a period of five years interest free. The settlement involves a further amount of $1.1 million. So far as I understand the settlement, no real amount of cash is involved.

The settlement is to be achieved by the respondent transferring its one share in Dayton HA to the applicant in consideration of the sum of one dollar. Second, the Dayton interests in the joint venture agreements are to be transferred to Hazama. Third, liabilities of Dayton HA Pty Limited or the joint venture partners to various finance institutions, are to be assumed by the Hazama Group and there is a covenant that the respondents guarantees will be

extinguished or alternatively, the applicant will indemnify
the respondent against amounts owing under those guarantees.

Valuations of each of the projects tendered in evidence, make it clear that in respect of each of them there are substantial deficiencies which are in essence, the subject of guarantees to which the respondent would be jointly

responsible with the applicant, save for the proposed
settlement.

The final matter to be noted in respect of the proposed settlement is that the legal proceedings are to be discontinued, and each party releases the other in respect of claims arising.

The courts have generally refrained from setting out tests to be applied in orders made validating dispositions, pursuant to s.368(2)(a) of the Code or comparable sections. The court in determining whether to validate a disposition must act judicially and take into account all interests as may, having regard to the circumstances of the case, be relevant. In the present circumstances, the interests to be considered are clearly the interests of unsecured creditors, the interests of the parties to the disposition, and the share holders of the disposer. In other cases no doubt, there could

be other interests involved.

So far as the parties to the transaction are concerned, they have arrived at a bargain in commercial negotiations and I would be loathe to form a view that in so doing, interests of the respondent were adversely affected.

It seems to me inappropriate to express in detail a
view as to the litigation that was part heard before me, save

to say that an applicant seeking to rely upon a claim that representations were made which contradict written material, must obviously start with a disadvantage. Ultimately the outcome of the case would no doubt have depended upon views taken as to the credit of witnesses, not all of which of course, had been given before me prior to an agreement being reached between the parties.

As I already indicated, the shareholders of the respondent support the application and I need not delay to consider their interests. Hence the remaining question is whether the dispositions in the settlement adversely affect the interests of unsecured creditors.

The evidence satisfies me that the settlement would not affect the interests of unsecured creditors adversely. Indeed, if one puts to one side the consequences of discontinuing the proceedings part heard before me, it is

clear that unsecured creditors are not adversely affected and indeed are, if anything, affected beneficially in that

although the respondent is to transfer its share in Dayton HA and such interest as it has in the joint venture projects, the evidence makes it clear that these projects and interests, as well as the shares, are worthless and, indeed, that there is a deficiency in value of very considerable proportions.

What makes the settlement of benefit to unsecured creditors is, of course, that the respondent will be relieved of its obligations under guarantees to outside creditors. Guarantees for which the respondent was jointly and separately liable amount to $32,000,000. As the figures in respect of the joint venture project indicate, the deficiency is not matched by corresponding assets. The only matter that could be claimed in any way to be adverse to creditors is the release of its causes of action against the respondents in the proceedings before me.

As I have already indicated the outcome of proceedings of that kind is often very difficult to predict. If the respondent had been successful in those proceedings, questions of the appropriate measure of damages would have arisen, as well as issues of causation. If the respondent were to lose those proceedings of course, there would be a substantial liability of costs.

The settlement of those proceedings in the manner which is embodied in exhibit HA26 in my view is one which is in the interests of the respondent and the benefits gained to the respondent and to its creditors, far exceed the detriment to it of a release of its cause of action.

I order pursuant to s.368(2)(a) of the Code, that the dispositions of the property of the respondent made under a deed, which is annexed to the affidavit of Harutoshi AOKI, sworn 5 February 1991 in these proceedings, and marked HA26 be validated.

I will at the same time in proceedings WAG13 of 1990, between the respondent and the applicant, Hazama Corporation Limited, Harutoshi AOKI and Kamahiso Okubo, order that the applicant have leave to discontinue those proceedings and that there to be no order as to costs.

I certify that this and the
preceding eleven (11) pages
are a true copy of the Reasons
for Judgment herein of his Honour

Mr Justice Hill.

Associate:

Counsel and Solicitors	J.E. Thomson (1 February) and
for Applicant:	I. Lawry (5 February) instructed by Blake Dawson Waldron

Solicitors	M. MacRossan of Clayton Utz
for Respondent:
Dates of Hearing:	1, 5 February 1991
Date Judgment Delivered:	5 February 1991