Helm Maritime Corp v Coplex Resources Nl - [1999] WASC 21

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: HELM MARITIME CORP -v- COPLEX RESOURCES NL [1999] WASC 21

CORAM: MASTER BREDMEYER

HEARD: 17 & 18 MARCH 1999

DELIVERED : 14 MAY 1999

FILE NO/S: COR 8 of 1999

MATTER :Corporations Law, s459P(2)

BETWEEN: HELM MARITIME CORP
Applicant
AND
COPLEX RESOURCES NL
Respondent

Catchwords:

Application to bring a winding-up application by a contingent or prospective creditor - Whether company disputes the debt in good faith and on substantial grounds - Whether applicant has made out a prima facie case of insolvency

Legislation:

Corporations Law, s459P(2)

Result:
Leave granted

Representation:

Counsel:

Applicant: Mr M J McCusker QC & Mr N P Gentilli
Respondent: Mr M J Neil QC & Mr N Gye

Solicitors:

Applicant: Jackson McDonald
Respondent: Deacon Graham & James

Case(s) referred to in judgment(s):

Community Development Pty Ltd v The Engwirta Construction Co (1969) 120 CLR 455
CVC Investments v P & T Aviation (1989) 7 ACLC 1,218
Federal Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477
Jolley v Mainka (1933) 49 CLR 242
Mala Pty Ltd v Johnston (1995) 13 ACLC 100
Miliangos v George Frank (Textiles) Ltd (1976) AC 443
Re Bond Corporation (1990) 1 WAR 465
Re Gasbourne [1984] VR 801
Re PMC Investments (1991) 9 ACLC 1,559
Re QBS Pty Ltd [1967] Qd R 218
Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 258
Roy Morgan Research v Wilson Market Research (No 1) (1996) 14 ACLC 925
Wand v Kidswin (1625) 82 ER 283

Case(s) also cited:

ANZ Banking Group v Cawood [1987] 1 Qd R 131
AWA v Daniels, unreported; SCt of NSW; Library No 147253; 18 March 1992
AWA v Daniels (1992) 7 ACSR 463
Australian Mid Eastern Club v Elbakht (1988) 13 NSWLR 697
Bingham v Iona Corporation Pty Ltd (1995) 13 ACLC 560
Brinds Ltd v Offshore Oil NL (1985) 60 ALJR 185
Brooks v Heritage Hotel Adelaide (1996) 20 ACSR 61
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Community Development Pty Ltd v Engwirta [1968] Qd R 541
European Asian Bank v Katsikadis [1988] 1 Qd R 45
Field v Commissioner for Railways (1957) 99 CLR 285
Foti v Banque Nationale de Paris (No 1) (1989) 54 SASR 354
Graf v Auscan Timber Marketing (1995) 13 ACLC 952
Henry v Henry (1995-1996) 185 CLR 571
International Factors (Singapore) Pty Ltd v Speedy Tyres Pty Ltd (1991) 5 ACSR 250
L & D Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 1 ACLC 536
Leslie v Howship Holdings (1997) 15 ACLC 459
Mann v Goldstein [1968] 2 All ER 769
Melbox Corporation v Segenhoe (1995) 13 ACLC 823
Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACLC 1062
Mitsui SOK Lines v The Ship, "Mineral Transporter" [1983] 2 NSWLR 565
Oceanic Sun Shipping Co v Fay (1988) 165 CLR 197
Pitts v Adney (1961) 78 WN NSW 886
Re Alfred Melson & Co [1906] 1 Ch 841
Re Community Development Pty Ltd [1968] Qd R 548
Re Community Development Pty Ltd [1969] Qd R 1
Re QBS Pty Ltd [1967] Qd R 218
Re Trepca Mines [1960] 1 WLR 1273
Roy Morgan Research v Wilson Market Research Pty Ltd (No 2) (1996) 14 ACLC 934
Sandell v Porter (1966) 115 CLR 666
Stonegate Securities Ltd v Gregory [1980] Ch 576
Taylor v ANZ Bank (1988) 6 ACLC 808
Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc, unreported; Fed C of A; 19 December 1997
Williamson v Smith [1997] 2 Qd R 317

MASTER BREDMEYER: This is an application by the applicant for leave to apply to wind up the respondent, Coplex Resources NL (Coplex) in insolvency under s 459P(2) of the Corporations Law. If leave is granted, the applicant proposes to file an application to wind up the respondent and to seek the appointment of a provisional liquidator.
Section 459P(1) provides that a contingent or prospective creditor, may, among others, apply to wind up a company in insolvency. Subsection (2) provides that where the application is made by a contingent or prospective creditor, it can only be made with the leave of the court. Subsection (3) provides that the court may give leave if satisfied that there is a prima facie case that the company is insolvent but not otherwise. Subsection (4) provides that the court may give leave, subject to conditions, and subsection (5) provides that, except as permitted by this section, a person cannot apply for a company to be wound up in insolvency. My first task is to ascertain if the applicant is a contingent or prospective creditor of the respondent.
By way of background, the applicant (Helm) is a Liberian‑owned subsidiary of a publicly listed Norwegian company, Northern Offshore ASA (Northern). Coplex Resources NL (Coplex) is a publicly listed Australian company. It was incorporated in WA but its registered office has been transferred to Hobart. It has a number of wholly or partly owned subsidiaries, including:
(a) Galaxy Drilling Ltd (Galaxy), a 90 percent subsidiary incorporated in the Cayman Islands;
(b)Coplex Energy Corporation (Coenco), a wholly owned subsidiary incorporated in the Philippines;
(c)Naftex Energy Co (Naftex), a publicly listed Canadian company owned 75 percent by Coplex with oil interests in Egypt; and
(d)Petrolex Energy Corporation (Petrolex), a public listed Canadian company owned 65 percent by Coplex which is exploring for oil in Columbia;
Frigstad Offshore International Ltd (Frigstad) is a company incorporated in Singapore and it holds the other 10 percent equity in Galaxy. It was the manager of "Galaxy Driller", a semi‑submersible oil rig which I will mention in a moment.
Mr Frederik Magnus Steenbuch (Steenbuch) is the chief executive officer of Northern and a director of Helm and is based in Oslo. Mr Kenneth James Fellowes (Fellowes), based in Hobart, is the managing director of Coplex and was a director of Galaxy.
In January 1997 Galaxy purchased a semi‑submersible oil rig, known as the "Galaxy Driller", built in Korea in 1977, for US$4,000,000. In April 1998 it sold this rig to Northern for US$50,000,000 with a lease‑back arrangement. Fellowes announced in the company's 1997 annual report that it had made US$35,500,000 profit from the sale. The terms of the sale permitted an assignment and Northern assigned its interests in the rig to Helm, its Liberian subsidiary. The sale was settled on 15 May 1998. The documents evidencing the sale and the charter-party are found in Steenbuch's affidavit of 13 January 1999. The correspondence between the parties evidencing their later disputes are largely found in that affidavit and in the affidavit of Fellowes, sworn on 8 March 1999. The legal documents include a heads of agreement of 27 March 1998, a memorandum of agreement dated 3 April 1998, a charterparty of the same date, a corporate guarantee of 3 April 1998 and a cash deposit agreement of 15 May 1998.
As mentioned, the rig was sold by Galaxy to Northern and, prior to settlement, Northern assigned its interest to Helm. The purchase price was US$50,000,000. On settlement, US$8,000,000 was paid into a cash deposit account with Finansbanken ASA in Oslo to secure the hire obligations of Galaxy. The vessel was chartered as from 15 May 1998 from Helm back to Galaxy at US$45,000 per day for a three-year period. At that rate the purchaser would recover its US$50,000,000 purchase price in three years. There were some special conditions attached to the charter-party and these included the $8,000,000 cash deposit mentioned. Clause 29.2 of the charter-party provided for the cash deposit as follows:
"29.2 The Cash Deposit
The Cash Deposit shall be established with Finansbanken ASA in Oslo or any other financial institution which the parties agree upon (the "Bank") and shall be placed in a separate interest bearing account, any interest earned to be for the account of Charterers.
Charterers and Owners undertake to sign such documentation as may be reasonable (sic) necessary for the establishment of the Cash Deposit.
Should Charterers fail to pay hire in respect of any month, Owners shall give written notice of such failure to Charterers not less than 5 calendar days after the occurrence thereof and 10 calendar days after the receipt by Charterers of such notice, Owners shall have the right, by instructing the Bank accordingly, to withdraw an amount from the Cash Deposit, including interest accrued thereon on any unpaid amount, equalling the amount of unpaid hire. The Bank shall be entitled to rely on Owners' instructions in this respect. The provisions of Cl.10.(e) hereof shall apply on after such grace period of 15 calendar days. Following the same grace period Owners shall also be entitled to claim payment under the Corporate Guarantee.
Should Owners demand a withdrawal of an amount from the Cash Deposit due to any failure other than a failure to pay hire, Owners shall give notice of such demand to Charterers and the Bank. The Bank shall release such amount, including interest accrued thereon on any unpaid amount, from the Cash Deposit 30 calendar days after the receipt of such written demand from Owners if the Bank within such time has not received a written notice from Charterers stating that Charterers have initiated arbitration proceedings under Cl.32 hereof. If Owners demand payment from Charterers due to any failure other than a failure to pay hire, Owners shall at any time be entitled to claim payment under the Corporate Guarantee.
In the event that Owners cancel the Charter due to Charterers' actual or alleged failure hereunder, Owners and Charterers shall each have the right to give notice of such cancellation, in which case the Bank shall be obliged to retain all amounts currently in the Cash Deposit, which shall serve as security for Owners' claim for compensation. The amounts in Cash Deposit shall only be released as directed by the joint written instructions of both parties, or as directed by a final arbitration award."
Coplex guaranteed the obligations of its subsidiary Galaxy under the charter-party limited to US$12,000,000. I quote cl 29.5 of the charter-party agreement:
"29.5Reduction of the Cash Deposit, the Pledge of Shares and the Corporate Guarantee
The Cash Deposit and the Corporate Guarantee shall be reduced, with effect from the start of the thirteenth month after the day of delivery hereunder, by 1/24 per month from that date onwards and shall amount to zero 36 months after the day of delivery hereunder.
If the Pledge of Shares is issued, the number of shares pledged under the Pledge of Shares shall be reduced correspondingly with the reduction of the Cash Deposit. Every third month the value of the shares shall be calculated according to the provisions set out in the second paragraph of Cl.28.3. If such value exceeds 125% of the relevant amount corresponding to the Cash Deposit (as reduced according to the above) the number of shares corresponding to such excess value shall be released to Charterers or the pledgor, as the case may be, and if such value is lower than 110% of the relevant amount corresponding to the Cash Deposit, Owners shall have the right to demand additional security to provide that such value equals at least 110% of the relevant amount corresponding to the Cash Deposit."
The cash deposit agreement of 15 May 1998 is a separate agreement which sets out in more detail the terms of the cash deposit agreement already mentioned. The corporate guarantee of 3 April 1998 also sets out in more detail the guarantee arrangement. Under the terms of various clauses in each of the documents, any disputes between the parties are to be governed and construed in accordance with Norwegian law and to be settled by arbitration in Oslo in accordance with the Norwegian Civil Procedure Act 1915, Chapter 32. The special conditions attached to the charter-party also provide for a lien. I quote:
"33 Liens
Owners shall have a lien upon charter revenue belonging to Charterers for all claims under this Charter, and the Charterers shall have a lien on the vessel for all moneys paid and not earned."
The charter agreement provided for monthly payment of the hire at the rate of $45,000 per day, payable on the second of the month. The amount payable varied with the number of days in the month. The amount due for November (30 days) was $US1,350,000. The amount due for December (31 days) was US$1,395,000.
On 28 October 1998 Fellowes of Coplex, wrote to Steenbuch of Northern and Helm a long letter, and I quote from extracts of it:
"As you are aware, the drilling contract with Conoco was completed a few days ago and the Galaxy Driller is now laid up off Karimun Island. I have negotiated an effective 'hot stack' lay‑up budget with Frigstad of US$8,000 per day, or approximately US$240,000 per month.
Despite the fact that several contracts have been bid on and other tenders are in process, it may be some time before any one of these comes to fruition.
…
In summary, there are several 'irons in the fire' which, in my view, will take some time to follow through to conclusion.
I guess 20/20 hindsight is a wonderful thing - who would have guessed that the downturn in the drilling market would happen so quickly and so savagely - and, of course, South East Asia is the most severely affected.
You will recall that when Galaxy sold the rig to Northern, a Cash Deposit account of US$8.0 million was set up with Finansbanken in Oslo. In concert with this Coplex provided a limited Corporate Guarantee for a further US$12.0 million.
Clearly, now that the rig is not generating revenues and the guarantees referred to above do not diminish in the first 12 months of the Bareboat Charter period, there is little commercial incentive to continue paying the Bareboat Charter from other sources whilst Galaxy is sitting on US$8.0 million in cash in Norway for this particular eventuality.
I have therefore advised Finansbanken not to pay the usual Bareboat Charter payment from the Operating Account, but to be prepared for a joint instruction from Galaxy/Northern to drawdown on the US$8.0 million which is held in the Cash Deposit Account.
There are sufficient funds in the Galaxy Cash Deposit Account to allow for up to a 5 month lay‑up and to cover the lay‑up costs. I suspect that with a joint effort the rig will secure one of these very attractive projects, which may involve Coplex in some form of equity participation. Northern, or its nominee, would be very welcome to join us in this sector of the business.
Rather than go through the motions of having Northern 'demonstrate loss' before drawing down on the Cash Deposit or calling on the Corporate Guarantee (which could theoretically take until the end of the Bareboat Charter period) and possibly get into time consuming and costly Arbitration, the attached DRAFT Agreement sets out my thoughts on a mutually beneficial solution."
There followed a draft settlement agreement whereby Northern would draw down all of the US$8,000,000 in the cash deposit, apart from US$8000 per day payable to Frigstad, to keep a minimum staff on the vessel to make sure it was operational, ready for work, and would not be vandalised or stolen. The draw down of that US$8,000,000 would effectively pay the full hire fees up until 4 April 1999. One of the recitals of the draft agreement reads:
"Galaxy does not wish to continue with the Bareboat Charter and wishes to terminate such Bareboat Charter effective 4 April 1999."
In settlement of the guarantee, Coplex offered to transfer to Northern or its nominee 6,435,000 shares in Petrolex, representing 9.9 per cent of the issued capital of that company and 9,207,000 shares in Naftex, representing approximately 9.9 per cent of the issued shares of that company.
Shortly after the letter, Fellowes flew to Oslo and met with Steenbuch and others to discuss these matters. No agreement was reached. On 5 November 1998 Northern gave to Galaxy a default notice in relation to the November hire payment, part of which read as follows:
"On behalf of the Owner, we hereby notify you that the Owner did not receive November's charterhire under the Charterparty, which charterhire was due on 2 November 1998 (the 'Overdue Charterhire'). The Charterer is accordingly in default under the Charterparty and the Owner hereby demands immediate payment to its account no. 6007.04.42712 with Christiania Bank and Kreditkasse - Swift : ZIANNOKK - of USD 1,350,000 being the principal amount of the Overdue Charterhire together with interest at the rate of LIBOR plus 2% pa (being an amount of USD 272.74 per day, based on LIBOR of 5.273% pa) for each calender (sic) day from 2 November, 1998 until payment is received by us."
On the same day Fellowes sent a fax to Finansbanken in Oslo (the "bank") and to Helm, agreeing to a withdrawal of US$1,350,000 plus interest from the deposit account and waiving his company's right to the 10 day period of grace established by cl 29.2. The November rental of US$1,350,000 was paid from the cash deposit on 6 November 1998.
On 4 November 1998 Helm's solicitors gave notice to Conoco Indonesia Inc and PT Patra Drilling Contractor, the parties who had previously hired the Galaxy Driller, claiming a lien on moneys due to Galaxy. Galaxy said that there were no moneys due by these companies to Galaxy. On 16 November Northern wrote to Frigstad and part of that letter stated:
"The Charterer failed to pay charterhire due under the Charterparty on 2 November 1998 and has indicated that it does not intend to make further payment of charterhire pursuant to the Charterparty. As at the date hereof, the Charterparty remains in full force and effect and accordingly the Vessel is controlled by the Charterer as disponent owner and we are not in a position to make, terminate, approve, disapprove of arrangements and/or agreements as to, or otherwise control, her employment.
We understand that the Vessel may shortly commence employment under a short-term contract with Conoco Indonesia Inc. ("Conoco"). We have no objection to such employment. We have previously notified Conoco that the Charterer's are in breach of the Charterparty and instructed that payments of charterhire due to the Charterer under a joint operation contract and a drilling contract (no. 16-171-604) are to be paid to us in part satisfaction of the Charterer's obligations to us under the Charterparty. A similar instructions will be sent to Conoco in respect of the aforementioned short-term contact (sic).
You are hereby instructed that any charterhire or other earnings or payments whatsoever received by you on behalf of the Charterer or otherwise in connection with the employment of the Vessel by Conoco or any third party are to be paid to us. Payments should be made direct or by electronic transfer to our account no.6007.04.42712 with Christiania Bank og Kreditkaase – Swift Code XIANNOKK.
You may be held liable for failing to comply with the terms of this notice.
Please provide your immediate confirmation of your agreement with the terms of this Notice."
The hire charge of US$1,395,000 due on 2 December 1998 was not paid and on 3 December Northern, on behalf of Helm, gave written notice of default in relation to that payment which was a preliminary to drawing on the bank deposit.
The Norwegian solicitors for Galaxy wrote stating that the notice was invalid because under cl 29.2 of the charter-party agreement, which I have quoted above, the default had to last for five days before notice of default could be given and a further 10 days needed to elapse before the sum could be withdrawn. A second notice of default was given on 7 December 1998 in respect of the December hire payment.
On 16 December 1998 Fellowes, on behalf of Galaxy, purported to terminate the charterparty on the basis of Northern's interference in Frigstad's and PT Parta Drilling's efforts to hire the Galaxy Driller for the "upcoming Lusano job in the Comi Comi Block Offshore Indonesia". The letter said that Frigstad had advised:
"that it does not intend to risk significant potentially unrecoverable expenses in conducting its marketing of the Galaxy Driller in these circumstances. From both Frigstad's and GDL's point of view the whole situation has become totally untenable."

On 17 December 1998 Fellowes, as the sole director of Galaxy, appointed a receiver to it. On 21 December Galaxy went into voluntary liquidation. On 22 December, Coplex, through its solicitors, advised that it had no liability to Helm under the guarantee. Coplex and Frigstad claim ownership of the remaining balance of some US$6,650,000 held in the bank. They say they loaned the US$8,000,000 to Galaxy to pay the deposit and that loan is secured by a charge dated 1 June 1998 over the assets of Galaxy. At the present time the bank deposit is frozen pursuant to a court order obtained in Oslo.
On 23 December 1998 Northern and Helm purported to terminate the charter by a written notice to the company. The vessel was delivered to the applicant on 8 January 1999.
At the outset of the hearing a number of objections were made to the affidavits filed on each side. To avoid wasting valuable court time I reserved on ruling on those objections and my rulings are now contained in a schedule to these reasons.
For the meaning of a contingent or prospective creditor the applicant relies on Community Development Pty Ltd v The Engwirta Construction Co (1969) 120 CLR 455, Re Gasbourne [1984] VR 801 at 837-8, Re PMC Investments (1991) 9 ACLC 1,559, and Federal Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477.
In Engwirta (supra) a builder petitioned to wind up an owner for non‑payment of moneys under a building contract. The contract contained a Scott v Avery clause whereby any dispute or difference as to any matter arising under the contact had to be determined by arbitration. Under the contract the builder could only get paid after the architect had issued a progress certificate. The builder claimed what it considered was outstanding moneys due but the architect declined to give the certificate. As I have said, the builder petitioned for winding-up. A winding up order was made and was affirmed on appeal in the Queensland Full Court. A further appeal was brought by the owner to the High Court. The High Court held that the petitioner was a contingent creditor, the contingency being that the architect had to issue his certificate or an arbitrator had to make an award in favour of the petitioner before the debt was due. The High Court held the petitioner was a contingent creditor and as such had standing to bring the petition.
In Re Gasbourne (supra) Nicholson J of the Victorian Supreme Court at 838 said:
"In my view a claimant is properly admitted as a contingent creditor of the company if he can show that he has an arguable claim against the company whether the claim is for unliquidated damages or otherwise (subject to s82(2) of The Bankruptcy Act in the case of insolvent companies). It is not for the court to determine the validity of such a claim in winding up proceedings."
At 837 he said:
"In all the circumstances I do not regard the definition of a contingent debt contained in Re William Hockley Ltd as exhaustive. It may be that a court would look askance at a petition by a contingent creditor in circumstances where the debt was disputed by the company, particularly having regard to the usual principle that a petition based upon a disputed debt will be dismissed unless it is established that the company is otherwise unable to pay its debts; see McPherson, The Law of Company Liquidation 2nd ed p59 and cases therein cited. However, this is not to say that such a creditor would be refused locus standi on the hearing of a petition."
In PMC Investments Pty Ltd (supra) Williams J of the Queensland Supreme Court at 1561 quoted with approval from Engwirta (supra) and Gasbourne (supra) and from McPherson's text and said:
"Therefore, it seems to me that a person who has a claim for unliquidated damages for breach of contract is a contingent or prospective creditor who may by application seek an order for the winding up of the company …
There is, in addition to that, a broad general principle that a winding up order will not, as a matter of discretion, be made on a debt which is bona fide disputed provided that the dispute is based on some substantial ground. Those principles are well discussed in McPherson [3rd edition], commencing at p63. Given the argument which has taken place to date it is sufficient for me to rule that applicant has locus standi to seek the order for the winding up of the company. In those circumstances, it seems to me to be fair to give the company an opportunity of placing material before the court which may call in to play the principles in relation to disputed debts to which I have recently referred."
The respondent relies on Engwirta (supra), in Re Bond Corporation (1990) 1 WAR 465 at 470, Ron Pritchard Pty Ltd v Horwitz Grahame Pty Ltd (1988) 6 ACLC 258 at 265, CVC Investments v P & T Aviation (1989) 7 ACLC 1,218, Mala Pty Ltd v Johnston (1995) 13 ACLC 100 , Roy Morgan Research v Wilson Market Research (No 1) (1996) 14 ACLC 925 at 930, and Re QBS Pty Ltd [1967] Qd R 218.
I consider that senior counsel for the respondent was unable to distinguish the Engwirta (supra) decision, and its decision that a contingent debt can be contingent on the issuing of a certificate from an architect or a decision from an arbitrator, remains binding and good law. The agreements in the case before me provide that "any disputes between the parties which cannot be resolved amicably must be referred to Norwegian arbitrators". Those words do not cover the present application under s 459P or any application to wind up the company. Coplex is an Australian company and the Corporations Law gives a creditor a right to apply to wind-up. Ultimately whether the company owes money to the applicant, and how much, must be determined by the arbitrators, but whether the applicant is a creditor, whether the company is insolvent, whether it should be wound-up, etc, are outside the arbitration process. The creditor cannot be denied his rights given by the Law.
In Re Bond Corporation (supra) Ipp J at 470 discusses and follows a number of cases to the effect that a petitioner who attempts to wind up a company upon a debt that is genuinely disputed on substantial grounds will not be allowed to proceed, either because it is an abuse of process or because he is not able to prove satisfactorily that he is a creditor and therefore does not have standing. In that case the State Government Insurance Commission (SGIC) filed a petition to wind-up Bond Corporation and the Judge ruled that the debt was disputed on bona fide grounds and that the bringing of the petition in those circumstances was an abuse of process. He dismissed the petition and awarded costs on an indemnity basis against SGIC.
At 470 Ipp J in Re Bond Corporation (supra) quoted the following passage from CVC Investments (supra) at 1,223 per Cohen J of the New South Wales Supreme Court:
"The authorities seem almost unanimously to agree that where a claim debt is bona fide disputed on substantial grounds and there is no basis for regarding the claimant as a contingent or prospective creditor then that claimant has no standing to bring proceedings to wind up the company, and if he does so the bringing of those proceedings is an abuse of process."
In Ron Pritchard (supra) Smart J at 265 said:
"Where it appears that there is a genuine dispute on substantial grounds that the petitioner or plaintiff is an actual, contingent or prospective creditor and that position will probably continue up to and including the final hearing of the petition (or summons), such a petitioner or plaintiff lacks the standing necessary to present a petition or issue a summons for the winding up of the company."
Mala Pty Ltd (supra), a decision of Master Adams of this Court, concerned an application to set aside a statutory demand. In that case the creditor who had issued the demand had also instituted civil proceedings against the company in the Supreme Court in respect of the same debt. Those proceedings were defended and Master Adams concluded that there was clearly a bona fide dispute about the existence of the debt. At 102 he said:
"As to abuse of process, it is prima facie an abuse of process for any party to institute two proceedings for the one claim. That much, I think, appears from a case cited to me this morning Portfolio Projects Pty Ltd v Oakes Building Co Pty Ltd (1987) 5 ACLC 911. I use the words "prima facie" because there can be an explanation why two proceedings are issued and it is a matter for the court to determine whether the explanation is sufficient. That, I think, appears from the re Bond Corporation Holdings Ltd (1990) 8 ACLC 153 where there was at the time of the filing of a petition civil proceedings in the court which involved the dispute as to the same amount."
The learned Master ruled that the debt was genuinely disputed and he set aside the statutory demand.
In Roy Morgan (No.1) (supra) the creditor brought an application to wind up Wilson Market Research (the "company") in insolvency. It did not rely on a statutory demand. The company applied to dismiss the application as an abuse of process and Santow J ruled on a preliminary question of law namely:
"Is evidence of a general insolvency of the defendant admissible on an application to dismiss the winding up summons where:
a.the summons is alleged to be an abuse of process on the basis that the alleged abuse of process is coexisting parallel proceedings involving the same issues or substantially the same issues; and/or
b.the plaintiff is alleged to have no standing to bring the winding up summons as a creditor, whether contingent prospective or otherwise?"
At 931 and 932 Santow J adopted the view of Cohen J in CVC Investments which I have quoted above. He also cited with approval the following passage from Cohen J in the same judgment:
"… if it is established that a petitioner or plaintiff has or would have no standing to obtain a winding up order then there is no justification for proceedings being commenced or continued. If the company is insolvent then it is a matter for a creditor, established as such, or one of the other persons designated under s383 of the Code, to bring the matter to court. It is necessary for the court to make a careful scrutiny of the evidence in order to establish the genuiness of the alleged dispute and the substance of the defence or cross claim. If there is a likelihood that the debt may be owing even in part then the question of the solvency of the company may become relevant in the consideration of the court's discretion."
At 932 and 933 Santow J said:
"13.Both contingent and prospective creditors base their claim upon existing obligations of the company, though not yet due for performance. However, contingent liabilities, while dependent upon an existing obligation, involve a liability on the part of the obligor to pay a sum of money which will arise in a future event or contingency, whether it be an event which must happen or only an event that may happen. An example of such a contingent liability is provided by the case Engwirta where there was an existing obligation under a building contract to pay whatever amount might be fixed on an arbitration award. Before such award the builder was held to be a contingent creditor.
14.A prospective liability on the other hand is one not yet due but certain to become due. In Stonegate Securities Ltd v Gregory [1980] 1 All ER 241 at 243, Buckley LJ:
"… a prospective creditor is a creditor in respect of a debt which will certainly become due in the future either on some date which has already been determined or on some date determinable by reference to future events."
…
18.Thus I find no basis for including under 'contingent or prospective creditor' a person with an untried claim for unliquidated damages. I adopt the definition of 'prospective creditor' in the Stonegate Securities case rather than proffered by Holland J in Re Austral Group Investment Management Ltd [1993] 2 NZLR 692. There is no Australian authority which dissuades me from this view."
At 934 he said:
"Put shortly, insolvent companies, even if generally insolvent, are not to be put to the equivalent of citizens' arrests; particularly when the 'citizen' most likely to do this has yet to satisfy the requirements of standing. Otherwise the threat of winding up can so easily be used as a source of unfair pressure to achieve that end or other unfair commercial advantage. The Australian Securities Commission and other 'prescribed agencies' can adequately represent the citizens in taking such companies off the register along with genuine creditors pursuing their own interests."
I accept all these authorities and propose now to apply the law as found in them to the facts of the case before me. I consider that the applicant is very clearly a contingent or prospective creditor of the company. Its debt is a contractual one under the terms of the guarantee. It is not a claim for unliquidated damages.
The company has argued that even if found liable to pay a sum in US dollars by the arbitrators, it would not be liable in debt. It would only be liable in damages. The authority cited for that is Jolley v Mainka(1933) 49 CLR 242 at 260 per Dixon J. I do not think that reference supports that proposition. Dixon J is there discussing Wand v Kidswin (1625) 82 ER 283 a decision of Jones J. I quote from Dixon J at 260:
"The statement of Jones J means that an obligation the tenor of which requires payment in a sum of money in a particular form of legal tender constitutes a debt for which any other form of legal tender is a good and sufficient discharge. This proposition remains as true under the legislation of today as it was at common law in the Seventeenth Century." (Emphasis mine.)
I also consider the proposition put by counsel is illogical and should not be followed. Why should an obligation to pay in US dollars under a contract be considered a claim for damages? The applicant is not suing for a commodity (US dollars). He is "suing" (in the arbitration) for a sum expressed in US dollars which under our law can be paid in the Australian dollar equivalent. See Miliangos v George Frank (Textiles) Ltd (1976) AC 443 which has been followed in Australia. I agree with the authorities cited by the applicant in reply on this point.
The applicant in my view has a strong contingent claim that after April 1999 the guaranteed sum of US$12,000,000 will become payable by Coplex. It does not matter on the authority of Engwirta (supra) that the arbitrators will have to rule on this and that the arbitration process has been commenced and that the arbitration hearing has not yet been held. (It is to be held on 4‑12 October 1999.) I am aware that the applicant's claim to US$12,000,000 is disputed by the company on the basis of Northern's interference in Galaxy's efforts to obtain work for the rig and to help sell the rig, and on the basis of allegedly damaging statements made by Steenbuch about Galaxy and the rig in Norwegian newspapers. These are matters which will be ventilated before the arbitrators in Oslo. I doubt if the company's claims that Northern's actions justified the company's termination of the contract are bona fide. I think they may be motivated by the belief that an arbitration hearing, which may take some time to hear, will have the incidental advantage of reducing the company's $12,000,000 obligation by 1/24 for every month after 15 May 1999. I consider that is a mistaken view and that any reasonable interpretation of the cl 29.5 is likely to imply a term that the guarantee only reduces by 1/24 a month after 15 May 1999 so long as the monthly hire charge is being paid. Moreover the charter-party has been terminated, as from December 1998 by termination letters on both sides and therefore the guarantor's obligations have to be determined as at that date. I consider the Norwegian arbitrators are likely to reject Fellowes' view that the guarantee is diminishing at 1/24 a month after 15 May 1999. The company's bad faith is also illustrated I consider by Fellowes' inability to make himself available for an arbitration hearing before October 1999. In March the chief arbitrator proposed hearings date 14-22 June or 16‑24 August 1999. He later withdrew the June dates. The parties had the right to object to these dates. Fellowes objected to the August date according to his lawyers due to "travelling and time-consuming negotiations". The hearing dates were later fixed for October 1999. What, I ask, could he be doing between March and August which would be more important than defending his company against this claim for US$12,000,000?
Whether I be right or wrong in my view that the applicant's debt is not contested bona fide, I do not consider that the company's resistance to the applicant's claim is based on substantial grounds. The claims set out in the company's termination letter are, I consider, thin, and even if successful, are unlikely to do no more than afford some reduction in the US$12,000,000 owing by Coplex.
The applicant also claims to be a contingent or prospective creditor of Coplex under s 4(1) of the Fraudulent Dispositions Law 1989 of the Cayman Islands which provides:
"Avoidance of Fraudulent Dispositions
4(1)Subject to the provisions of this Law, every disposition of property made with an intent to defraud at an undervalue shall be voidable at the instance of a creditor thereby prejudiced.
(2)The burden of establishing an intent to defraud for the purposes of this Law shall be upon the creditor seeking to set aside the disposition.
(3)No action or proceeding shall be commenced pursuant to this Law unless commenced within 6 years of the date of the relevant disposition."
When the US$50,000,000 was paid to Galaxy on 15 May 1998, on the same day approximately US$39,000,000 was returned to shareholders, of which US$35,000,000 was paid to Coplex. It was paid via an intermediary, Killiney Hill Ltd, but the effect of the transaction was as I have stated. That does not appear to be caught by s 4.
The applicant has argued that if it recovers from the arbitration a sum in excess of the security deposit from Galaxy, then it could set aside a charge agreement of 1 June 1998 in favour of Coplex for US$7,200,000 under s4 of the Fraudulent Dispositions Law, and this could create a separate debt owed by Coplex to the applicant over and above the US$12,000,000 guarantee debt. I do not agree with all of that. It think it arguable that the charge agreement of 1 June 1998 (which I discuss again later) could be set aside (for reasons which I give later) but that does not create a debt by Coplex to the applicant. The setting aside of the charge merely prevents Coplex recovering the balance of the security deposit. It does not give the applicant the cause of action claimed. The setting aside of the charge will merely give the applicant free access to the deposit.

The solvency of the company

Section 459P(3) provides that the court may give leave if satisfied that there is a prima facie case that the company is insolvent but not otherwise. I turn to that question. There are a number of documents going into considerable detail filed on both sides relating to the question of solvency. I have to examine whether there is a prima facie case that the company is unlikely to pay its debts as and when they fall due and the principal debt I am concerned with is the guaranteed debt for US$12,000,000. I note too that under a loan agreement of 15 May 1998 Frigstad loaned US$2,207,779 to Galaxy as working capital. The money is to be repaid on 15 May 2001 with interest at 5.5 per cent per annum. The agreement contains an unconditional guarantee by Coplex. Giving Galaxy's insolvency, this is likely to be a guarantee which will be called upon.
The financial documents include the consolidated balance sheets for the company made up to 31 December 1998 and various quarterly reports for the company, the latest also being made up to 31 December 1998. The company's auditor, Mr Brayshaw, has submitted a detailed report and his summary of the potential resources available to the company to repay the guarantee are:
Present cash holdings of Coplex  US$3.49 million
Guarantee provided by Frigstad  US$1.2 million
Market value of shares in Naftex and Petrolex     US6.8 million
Philippines areas of interests  US$1.0 million
TotalUS12.49 million

Mr Fellowes in his affidavit of 8 March 1999 at paras 18 and 19 says that the arbitration proceeding is likely to take between eight and 15 months so this will give his company further time before the potential claim will crystallise. He says that the Coplex group has assets of AUD$31,000,000 in cash and can from its control position distribute the cash and assets to its listed subsidiaries should it so desire within a relatively short period of time (45 days) and that Coplex is quite prepared to do that if required. He says that a simple analysis of Coplex's cash position, as opposed to the cash in its controlled subsidiaries, is as follows:
Cash on hand and on deposit  US$3.49 million
Coplex share of cash deposit in Norway          US$6.64 million
Cash back guarantee from Frigstad                  US$1.20 million
Required realisable value of other Coplex
assets to meet cash balances of the maximum
possible Helm claim  US$0.67 million
TotalUS$12 million
I comment on these matters as follows. I accept that the cash holdings of Coplex (ie as at 31 December 1998) were US$3.49 million. I accept that Frigstad has provided a guarantee to support Coplex's guarantee to the extent of US$1.2 million. The document is exhibited to Mr Frigstad's affidavit. He says that his company has in excess of US$1.2 million in the bank to support this guarantee although no bank statement has been tendered. The guarantee will diminish by 1/24 per month for every month after 15 May 1999.
I do not consider that Coplex has a strong claim to US$6.64 million of the original US$8,000,000 bank deposit held in Oslo. There is affidavit evidence from Fellowes and Mr Frigstad that their companies loaned the US$8,000,000 deposit to Galaxy, US$7,200,000 by Coplex and US$800,000 by Frigstad. The loans are evidenced by a charge agreement dated 1 June 1998 given by Galaxy to Coplex and Frigstad to secure the repayment of those loans. Repayment is due on 15 May 2001 without interest. That evidence of the loans is however contradicted by cl 3 of the Memorandum of Agreement of 3 April 1998 which states:
"Security Deposit
To secure the fulfilment of their obligations under the Bareboat Charter, the Seller in their capacity as charterers shall deposit $8,000,000 into a predetermined account with Finansbanken ASA (the "Security Deposit"). The Security Deposit shall be deducted from the Purchase Price and deposited in such pre-determined account by the Buyers." (Emphasis mine.)
I consider the probabilities favour the view that the US$8,000,000 deposited came from the buyer and not from the loans mentioned. The buyer by cl 3 was to deposit US$8,000,000 of the purchase price in the nominated account. I note too, and this is not a major point because there may be a proper explanation for it, that the bank statement shows that one cheque for US$8,000,000 was deposited into the account, not two. I think the arbitrators are likely to find that the charge agreement will not stand and that Coplex is not a secured creditor of Galaxy for $US6.64 million.
I accept the figures of Brayshaw that the market value of the company's shares in Naftex is US$4,801,714 and Petrolex is US$2,095,640, total is US$6,897,354. Coplex holds a 75 per cent interest in Naftex and a 65 per cent interest in Petrolex. The shares of the two companies are listed on the Canadian Stock Exchange. The market price for Naftex shares is 10 cents Canadian and for Petrolex shares 7 cents Canadian. Brayshaw has tested this against their asset backing. I note that Naftex issued a rights issue in November 1998 and Petrolex issued a rights issue in September 1998 but these were unsubscribed except by Coplex. Coplex purchased 40,000,000 shares in Naftex at Canadian 0.20 cents per share an investment of Canadian $8,000,000 in October 1998. The value of those shares has since slipped to Canadian 0.10 cents. The value of the Naftex shares has slipped from Canadian 0.40 cents in May 1998 to Canadian 0.10 cents in December 1998. The October investment in Naftex produced a loss to Coplex of Canadian $4,000,000.
Clause 3 of the corporate guarantee excludes from the scope of the guarantee Coplex's shares in Naftex. Part of cl 3 reads:
"This Guarantee shall not include the Guarantor's shares in Naftex Energy Corporation. For the avoidance of doubt this shall mean that the beneficiary under no circumstances shall be allowed to take any steps towards such shares in connection with the enforcement, foreclosure and/or any failure by the Guarantor to comply with the provisions of the Guarantee."
This means that Coplex's US$4,801,714 stake in Naftex is not available to pay the applicant but the company could waive the benefit of the clause, that clause being for its benefit. Or it may mean that Coplex's stake in Naftex as at the date of the guarantee (15 April 1998) is not available to the applicant, but that its shares in Naftex acquired after that date, are available.
I accept that the Philippines areas of interest could be worth US$1,000,000.
On Brayshaw's figures the company is able to meet the claimed debt of US$12,000,000 because its assets which I have mentioned total US$12,490,000. Despite those figures I consider that the applicant has shown a prima facie case that the company is insolvent. It only has assets of US$12,490,000 if it sells its principal assets, namely its shares in Naftex and Petrolex. Insolvency is defined in s 95A of The Corporations Law in effect, as the inability to pay the company's debts as and when they become due and payable. It is primarily to be decided on a cash flow basis rather than a balance sheet basis. But this does not mean that the extent of the company's assets are irrelevant to the enquiry. The resources of the company requiring consideration include its assets which it can sell and the credit resources which may be available to it. It seems to me that this company's solvency is only gained by selling off its principal undertakings which are its shares in the two companies mentioned. I consider that on a cash‑flow test the applicant has made out a prima facie case that this company is insolvent.
I note too from Fellowes' affidavit that the company is essentially a trading company. It trades in assets which are predominantly oil and gas concessions and licences and oil fields and holds shares in listed and unlisted companies which themselves hold oil and gas concessions and licences and was involved in an offshore drilling rig – the Galaxy Driller. The company does not have, and has never had, continuous regular cash flow from oil or gas production, but based on market conditions around the world trades in oil and gas assets and completes two or three transactions a year to generate valuable interests and thereby produce profits.
The company may be able to borrow to pay out the guarantee debt. It does not have any current borrowings and it may be able to borrow enough to pay off its debts. No evidence of any borrowing attempts by it has been led. It may well have a borrowing capacity but at this stage I consider the applicant has demonstrated the company's prima facie insolvency. No doubt the question of its borrowing capacity will be examined in more detail and on more evidence in later proceedings.
For the reasons given I consider that the applicant is a contingent or prospective creditor of the company and that the company is prima facie insolvent. I think it just that leave should be given to the applicant to apply to wind up the company. I consider that it may be appropriate to impose some conditions under s 459P(4) and I will hear the parties on this.

SCHEDULE

RULINGS ON THE ADMISSIBILITY OF AFFIDAVITS

Rulings on the admissibility of the applicant's affidavits

Affidavit of EVENSEN sworn 13 January 1999
Para 3	Admissible The objection goes to weight
Para 4	Admissible The objection goes to weight
Para 5	Admissible
Paras 7 and 8	Admissible I regard the witness as an expert in Norwegian law who is able to give opinion evidence.
Para 9	Admissible I agree however that ultimately the question of breach is to be determined by the Norwegian arbitrators.
Para 10	Admissible I consider the witness is qualified to give expert evidence being a senior partner of a firm in Oslo of 21 years standing. I regard the witness as suitably qualified.
Affidavit of STEENBUCH sworn 13 January 1999
Para 8	Admissible
Para 10 - Re annexure FM6	Annexure is complete. The reference in cl 29.4 to cl 28.5 is a typing error. It should clearly refer to cl 29.5.
Para 11	Admissible In any event the document is not in dispute.
Para 13	Admissible
Para 18	Admissible
Para 19	Admissible
Para 20	Admissible This is an interlocutory application and hearsay evidence is permitted.
Para 22	Admissible
Para 24	Admissible
Para 26	Admissible
Para 31	Admissible hearsay
Para 32	Admissible
Para 34	Admissible
Para 35	Admissible
Para 43(c)	Admissible
Para 43(d)	Admissible
Para 43(g)	Admissible
Para 43(h)	Admissible
Para 43(j)	Admissible
Para 43(k)	Admissible
Para 44	Admissible
Paras 45 to 52	Admissible Although ultimately the question of insolvency is for the court to decide.
Para 54	Admissible
Para 55	Admissible
Para 56	Admissible
Affidavit of DOBBYN sworn 10 March 1999
I regard this witness as a suitably qualified in the Cayman Islands Law. I note her qualifications and experience before going to the Cayman Islands in 1988. I note that she lives there and works as an attorney in the Cayman Islands. I note also from the respondent's expert that there is no case law in the Cayman Islands on s4 of the Fraudulent Dispositions Law 1989.
Para 8	Admissible
Para 9	Admissible
Para 10	Admissible
Para 11	Admissible
Para 12 and 13	Admissible
Affidavits of GERARD sworn 10 and 26 February 1999
I consider these affidavits are admissible. Given the complexity of the respondent's affairs and its shareholding in two companies listed in Canada with mining interests in Egypt and Columbia respectively and given that one of its subsidiary's interests are in the Philippines and given that its financial accounts are long and complicated, I consider the evidence of an expert analysing this material is admissible. However, the ultimate decision as to its solvency or insolvency is up to the court. I propose to overlook the lateness of the second affidavit. I note that the company's expert witness, Brayshaw, has responded to her evidence by two later affidavits.
Affidavit of EVENSEN sworn 8 February 1999
Admissible. These documents annexed to this affidavit are not subject to legal professional privilege and are not inadmissible by reason of having been supplied to assist in out of court negotiations. I accept the admissions of Mr McCusker QC and the cases he cited on these matters.

Affidavit of STRACHAN sworn 8 March 1999

I reject this affidavit as outside the programming orders. It introduces substantial expert evidence and the respondent has not had an opportunity to counter it. Leave to file it is refused.

Affidavit of EVENSEN sworn 10 March 1999

I propose to give leave. It is in response to an affidavit of Roberts. I should hear evidence on both sides.

Affidavits of EVENSEN sworn 12 and 18 March 1999

I give leave to the applicant to file these affidavits. They deal with recent matters that have occurred between the parties in the progress of the arbitration proceedings. They deal with matters which have arisen since my programming orders of 3 February 1999 were made.

Affidavit of SCHMIDT sworn 10 March 1999

Admissible for the reasons given in relation to Evensen's affidavit of 10 March.

Rulings on the admissibility of the respondent's affidavits

Affidavit of RASMUSSEN sworn 2 March 1999
Para 11	Admissible
Para 19	Admissible
Affidavit of ROBERTS sworn 2 March 1999
Para 34	Inadmissible as irrelevant
Para 35	Inadmissible as irrelevant
Affidavit of MARRONE sworn 16 February 1999 Admissible. I consider the man is an expert on Canadian company law despite his disclaimer in para 8.
Affidavit of TIMMS sworn 3 March 1999
Para 7	Admissible The fact that it is secondary evidence of documents of course greatly reduces its weight.
Para 9	First and second sentence inadmissible as hearsay upon hearsay. Otherwise admissible.
Affidavit of FRIGSTAD sworn 10 March 1999 Ruling on admissibility deferred. In para 1 he says: "I am the president of Frigstad Offshore International Limited and until 16 April 1998 was an officer and director of Frigstad Offshore International Limited. I am a director of Frigstad Offshore Pty Ltd." This witness can give important evidence. The opening words are ambiguous. They could mean that he has ceased to be a director of the company after 16 April 1998 in which case he cannot speak for the company and the affidavit is inadmissible. Or, the words could mean somehow that he remains the President of the company although no longer "an officer or director". I would give leave to him to file a supplementary affidavit clarifying his role in the company after 16 April 1998. The following rulings on particular paragraphs are on the assumption that the affidavit is admissible.
Para 16	Admissible The objection goes to weight.
Para 18	Admissible
Para 23	Admissible
Para 25	Admissible I consider the witness sufficiently qualified in the industry to be able to express an opinion on these matters.
Para 36	Admissible as to the condition of the rig only
Para 39	Inadmissible as irrelevant
Para 46	Inadmissible
Affidavit of CHRISTENSEN sworn 3 March 1999
Para 38	Inadmissible
Para 39	Inadmissible
Para 41	Inadmissible
Affidavit of FELLOWES sworn 8 March 1999
Para 5CI	Admissible
Para CII	Admissible
Para CIII	Admissible
Para CIV	Admissible The lack of documents reduces the weight.
Para DI	Admissible
Para DII	Admissible
Para 8	Admissible
Para 9	Admissible
Para 10	Admissible
Paras 11 to 13	Admissible
Para 14	I strike out the word "legally"
Para 15	Admissible
Para 16	Admissible
Para 18	Admissible
Para 19	Admissible
Para 20	Admissible
Para 21	Admissible
Para 27	Admissible
Para 28	Inadmissible as hearsay upon hearsay.
Para 31	Admissible
Para 32	Admissible
Para 33	Admissible
Para 34	Admissible
Paras 35 to 43	Admissible
Para 45	Admissible
Para 46	Admissible
Para 48	Admissible as to what Fristad said not as to the truth of it.
Paras 49 and 50	Admissible
Para 51	Admissible
Para 53	Admissible second sentence as to his belief.
Para 54	Admissible
Affidavits of BRAYSHAW sworn 4 and 18 March 1999 Expert evidence admissible on the same basis as I admitted Ms Gerard's evidence
Affidavit of BLESSINGTON sworn 15 March 1999 Inadmissible. I consider that expert evidence on the consequences of applications to wind up a company to appoint a liquidator is not required. This is a matter for the court to consider after hearing legal submissions. I note however that some judges have expressed similar views to that of Mr Blessington. See Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (No 1) (1996) 14 ACLC 925 at 932 and 934. I have quoted from 934 in my reasons in this case.