In the matter of LIG Australia Pty Ltd; In the matter of Success Aluminium Pty Ltd

[2015] NSWSC 892

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of LIG Australia Pty Ltd; In the matter of Success Aluminium Pty Ltd [2015] NSWSC 892

Hearing dates:

10 June 2015

Decision date:

07 July 2015

Jurisdiction:

Equity Division - Corporations List

Before:

Black J

Decision:

Order that the Originating Processes filed on behalf of LIG Australia Pty Ltd (2015 101974) be dismissed with costs. Orders that the creditor’s statutory demand issued to Success Aluminium Pty Ltd (2015/101995) be amended in accordance with Order 2 and the Originating Processes filed on behalf of Success Aluminium Pty Ltd otherwise be dismissed with costs.

Catchwords:

CORPORATIONS – winding up – application to set aside statutory demand –whether verifying affidavit was sworn prior to statutory demand – whether verifying affidavit verifies debt the subject of the demand for the purposes of s 459E(3) of the Corporations Act 2001 (Cth).

CORPORATIONS – winding up – application to set aside statutory demand – where Part XVB of the Customs Act 1901 (Cth) applied to dealings that gave rise to debts – Whether debts unrecoverable for illegality.

CORPORATIONS – winding up – application to set aside statutory demand – whether demands an abuse of process.

Legislation Cited:

- Corporations Act 2001 (Cth) ss 459E(3), 459G, 459H, 459H(2), 459J, 459J(1)
- Customs Act 1901 (Cth) pt XVB, s 269SM
- Customs Tariff (Anti-Dumping) Act 1975 (Cth)

Cases Cited:

- Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22
- Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85; (2009) 71 ACSR 602
- David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
- Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498
- Gnych v Polish Club Ltd [2015] HCA 23
- Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262
- Preston International Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 603
- Re Gemaveld Pty Ltd [2012] NSWSC 582
- Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256
- T S Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074
- Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129
- Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35
- Williams v Spautz (1992) 174 CLR 509

Texts Cited:

- F Assaf, Statutory Demands and Winding Up in Insolvency, 2nd ed 2012, LexisNexis Butterworths

Category:

Principal judgment

Parties:

2015/101974
LIG Australia Pty Ltd (Applicant)
Opal (Macao Commercial Offshore) Ltd (Respondent)

2015/101995
Success Aluminium Pty Ltd (Applicant)
Opal (Macao Commercial Offshore) Ltd (Respondent)

Representation:

Counsel:
J T Johnson (Applicants)
J A C Potts (Respondents)

Solicitors:
GEA Lawyers (Applicants)
Clayton Utz (Respondents)

File Number(s):

2015/101974; 2015/101995

Judgment

The nature of the applications

1. These proceedings involve two associated applications to set aside creditor’s statutory demands.

2. By Originating Process filed on 7 April 2015, Success Aluminium Pty Ltd (“Success”) applied for orders under ss 459G, 459H and 459J of the Corporations Act 2001 (Cth) setting aside a creditor’s statutory demand dated 16 March 2015 served by Opal (Macao Commercial Offshore) Limited (“Opal”). The creditor’s statutory demand issued to Success (Ex A5) claimed the amount of $23,175,274.03, being the total of debts described in the Schedule. That schedule in turn identified the amounts due as the unpaid purchase price for goods supplied to companies within the P&O Aluminium Group and to Oceanic Aluminium Pty Ltd (“Oceanic Aluminium”), which debts were novated to Success by deeds of novation and assignment dated 31 May 2014 between the relevant companies, Success and Opal. That schedule indicated that the amount of the Demand had been reduced by payments subsequently made by Success to Opal in partial satisfaction of the relevant debt.

3. The creditor’s statutory demand issued to Success was verified by an affidavit of Ms Bonnie Ng dated 16 March 2015. Ms Ng indicated that she was a director of Opal and referred to the debts owed by each of the P&O companies and Oceanic Aluminium to Opal and the deeds of novation and assignment dated 31 May 2014 between each of the original debtors, Success and Opal. Her affidavit noted that those deeds of novation specified the total amount of the indebtedness owed to Opal as at 31 May 2014 as $46,909,881.18 and set out the amounts owing by each of the original debtor companies; identified the amount of payments, inclusive of a sales return, subsequently made by Success to Opal in the period from 1 June 2014 as $23,734,607.15 and the total amount of debts that remained due and payable by Success to Opal as $23,175,274.03, being the amount claimed in that demand. It was agreed between the parties that Success had, in the last few days, paid an amount of $2 million to Opal, by way of two payments each of $1 million. Accordingly, to the extent that the creditor’s statutory demand issued to Success is not otherwise set aside, it will need to be varied under s 459H(2) of the Corporations Act to have regard to that payment.

4. By Originating Process also filed on 7 April 2015, LIG Australia Pty Ltd (“LIG”) applied for an order under the same sections setting aside a creditor’s statutory demand also dated 16 March 2015 served on it by Opal. The creditor’s statutory demand issued to LIG identified the debt claimed as the amount of $20,835,462.60 as set out in a schedule, which in turn described the debt as the unpaid purchase price of goods supplied by Opal to LIG pursuant to invoices particularised in a table of invoices annexed to a second affidavit of Ms Ng also dated 16 March 2015. The table of invoices referred to numerous invoices over the period 4 September 2014 to 11 December 2014. That demand was also verified by that second affidavit of Ms Ng.

The affidavit evidence

5. Success’ and LIG’s applications to set aside the creditor’s statutory demands were supported by several affidavits and an order was made that the evidence in one proceeding be evidence in the other. The parties sensibly proceeded on the basis that the affidavits relied on by LIG and Success should largely be read, notwithstanding numerous objections that had been identified as to form or hearsay, on the basis that the relevant matters would be treated as going to the weight of the evidence.

6. Success and LIG relied on a lengthy affidavit of Chi Man Law, also known as Elfman Law, dated 7 April 2015. Mr Law has been, since 1 June 2014 the chief internal or group accountant for Success and became Success’ group financial controller on 12 February 2015. Mr Law’s affidavit indicates that he has a reasonably substantial involvement with Success’ financial accounts, and some involvement with LIG’s financial accounts, although LIG also appears to have separate accounting functions. Prior to his involvement with Success and LIG, Mr Law was the chief internal or group accountant of the P&O companies and Oceanic Aluminium. Mr Law’s affidavit in turn exhibited a substantial number of documents, in two large lever arch folders (Ex A1).

7. The broad thrust of Mr Law’s evidence is that the PanAsia Group is controlled by certain persons and, since 16 December 2014, its control has partly changed as a result of the resignation of the former chairman of its holding company and the appointment of its current chairperson, the former chairman’s wife or former wife, in circumstances that the marriage between the former chairman and the current chairperson has failed. Mr Law seeks to establish that Ms Ng, the joint chief executive of the PanAsia Group, and the deponent of the affidavits verifying the creditor’s statutory demands, previously had control over the P&O companies and Oceanic Aluminium. He also details the structure of the PanAsia Group and refers to reporting by the P&O companies and Oceanic Aluminium to Ms Ng and to the effect of anti-dumping rulings, to which I will refer below, on the business of the PanAsia Group, the P&O companies and Oceanic Aluminium.

8. Mr Law notes that the P&O companies and Oceanic Aluminium had, by 31 May 2014, liabilities that substantially exceeded their assets by reason of losses that those companies sustained, he contends, in order to allow them to competitively sell PanAsia products in the Australian market, and allow the offshore companies within the PanAsia Group to derive the profits of their doing so. Mr Law also refers to various developments, as a result of the anti-dumping rulings to which I will refer below and changes in aluminium market prices, that have been adverse to the ability of the P&O companies, Oceanic Aluminium, Success and LIG to make a profit in Australia, if they were treated separately from Opal and PanAsia Holdings. He also contends that, although the accumulated losses of the P&O companies and Oceanic Aluminium grew over time, Opal and PanAsia Holdings made a substantial profit from exporting PanAsia products to Australia.

9. I accept that Mr Law’s evidence, if accepted, would explain the circumstances in which the debt owed by Success and LIG to Opal arose. However, Mr Law’s evidence makes clear, and Mr Johnson (who appears for Success and LIG) did not contest, that the relevant debts are in fact due and payable to Opal by Success and LIG in the amounts claimed, less the recent $2 million payment to which I referred above. No submission was put that these matters created a situation that it was not open to Opal, whether by way of representations made to Success or LIG or by estoppel or otherwise, to call for payment of those debts. Such a submission, if made, would have faced the difficulty that payments have in fact been made by Success and LIG to seek to reduce that debt over time, suggesting that there was an expectation that would occur. Mr Law also led evidence of other matters relating to the corporate governance, accounting and record-keeping practices of the PanAsia Group, which seemed to have somewhat distant relevance to this application, and which it is not necessary or appropriate further to address in this judgment. The exhibit to Mr Law’s affidavit set out a substantial amount of material relating to dumping and anti-circumvention determinations made under the Customs Act in respect of the relevant entities and also included a copy of the Sale of Business Agreement for the P&O companies and included copies of the deeds of novation and assignment to which I will refer below.

10. Success and LIG also relied on an affidavit of Ms Li Jung (Sharon) Gao sworn 14 May 2015 which was read without objection and an exhibit to that affidavit was tendered, also without objection (Ex A2). Ms Gao has a degree in finance, but is not a qualified accountant, and worked for PanAsia Aluminium (Sydney) Pty Ltd from 2002 to 2010. Ms Gao’s affidavit set out her history with the PanAsia Group and referred to the transfer of the P&O companies’ business to Success and to her recent role with LIG and to the current directors of LIG, who did not give evidence in the proceedings. Ms Gao also referred to dealings between LIG and Opal and LIG and the PanAsia Group and led evidence that, over a significant period of time, Opal did not press LIG for payment of debts due to Opal, LIG did not press Success for payment of debts due to LIG, and from time to time Success made payments to Opal in priority to payments to LIG. It does not seem to me that that evidence takes matters substantially further, where there is ultimately no contest as to the existence or amount of the debts or the fact that they are due and payable, and no estoppel or representational claims were relied upon to give rise to any genuine dispute as to the debts or any contention that they were not presently due and payable.

11. Success and LIG also relied on an affidavit of Ms Lam Mui Petra Cheung dated 20 May 2015 which was read without objection and an exhibit to that affidavit which was also tendered without objection (Ex A3). Ms Cheung is also an accountant who initially worked with the PanAsia Group in Sydney, and subsequently with Success in Brisbane, and also referred to payments made by Success to LIG and then by LIG to Opal and to payments made by Success directly to Opal, and to instructions given by Ms Ng as to how payments were to be made to Opal rather than to the PanAsia Group in Hong Kong. Ms Cheung dealt with previous dealings between the P&O companies and the PanAsia Group and with circumstances affecting Success’ ability to be profitable. Ms Cheung also led evidence of approaches by a representative of the PanAsia Group, which has now established business in Australia, to staff associated with Success to join the PanAsia Group in Australia. That evidence was presumably led in support of the abuse of process claim to which I will refer below.

12. Affidavits of Jia Hong (Grace) Zou sworn 5 May 2015 and Benjamin Thornton sworn 21 May 2015 were read without objection. Mr Thornton is the sales manager of LIG and he also led evidence of the relationship between the P&O companies, Success, LIG and the PanAsia Group. Mr Thornton also refers to an approach to him to work for an entity associated with the PanAsia Group in Australia.

13. Opal did not lead affidavit evidence in respect of the applications but relied on email correspondence concerning outstanding accounts between Opal and Success Aluminium (Ex D1). In particular, by an email dated 10 December 2014, Success, acknowledged that an amount of $27,670,043.07 was then owing to Opal, and a schedule for payment of that amount and an amount owing to another entity over a four year period was proposed. Opal also relied on email correspondence between Ms Gao and a representative of Opal dated 27 February 2015, which identified a balance owing by LIG to Opal as at 31 December 2014 of $35,566,309.10, after reconciling certain amounts (Ex D2). Opal also pointed to Mr Law’s evidence, read in Success’ and LIG’s cases, as giving rise to various admissions as to the existence and amount of the debt owing by LIG.

14. Mr Johnson accepted that the amount of the debt claimed by Opal against Success was consistent with the admission in the email correspondence concerning outstanding accounts between Opal and Success Aluminium (Ex D1) and that the amount of the debt claimed by Opal against LIG was consistent with the admission that arose from the email correspondence dated 27 February 2015 (Ex D2). There is therefore no issue to be determined as to the existence of any genuine dispute in respect of the amounts claimed in the demands.

The first issue – whether Ms Ng’s affidavits verified the demands

15. The matters in issue between the parties narrowed somewhat in oral submissions. The first issue raised by Mr Johnson in oral submissions depends upon the fact that the creditor’s statutory demands issued by Opal to Success and LIG (and signed by Opal’s solicitor on its behalf) were each dated 16 March 2015 and were verified by affidavits of Ms Ng also dated 16 March 2015, and the demand to LIG was served by Opal’s solicitors under cover of a letter dated 17 March 2015. There is no corresponding evidence of when the demand to Success was served.

16. Under s 459E(3) of the Corporations Act, a creditor’s statutory demand, unless it relates to a judgment debt, must be accompanied by an affidavit that verifies the debt or the total amount of the debts that are payable by the debtor company and complies with the rules. In this case, as I noted above, each of the demands was verified by an affidavit sworn by Ms Ng dated 16 March 2015 and apparently witnessed by a solicitor in Hong Kong. A creditor’s statutory demand that relates to a debt other than a judgment debt will be set aside where it is not verified by an affidavit in support. In Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWCA 262, to which Mr Johnson referred, the Court of Appeal of the Supreme Court of New South Wales took the same approach as the Court of Appeal of the Western Australian Supreme Court in Wildtown Holdings Pty Ltd v Rural Traders Co Ltd [2002] WASCA 196; (2002) 172 FLR 35 and held that the omission of a statement that the deponent believed there was no genuine dispute about the existence or amount of the debt from an affidavit verifying a creditor’s statutory demand constituted some other reason why the demand should be set aside for the purposes of s 459J(1)(b) of the Corporations Act. Barrett JA (with whom Beazley P and Gleeson JA agreed) emphasised the importance of the requirement for such a statement in directing the creditor’s attention to the requirement that only an undisputed debt should be made the subject of a statutory demand, as well as informing the company served with the demand of the creditor’s belief that the debt was undisputed. That principle is not directly applicable to this case, since each of the debts claimed in the creditor’s statutory demands was in fact verified by Ms Ng’s affidavit.

17. Mr Johnson’s submission is directed to a narrower question, namely whether the demands were signed prior to their verification by Ms Ng’s affidavits. Mr Johnson submitted that it would be an impossibility for the original of the creditor’s statutory demands to have been signed by Opal’s solicitor on 16 March 2015, verified by Ms Ng in Hong Kong on the same day and then served in Australia on 17 March 2015, being the date on which the demand was served on LIG. Mr Johnson invites the Court to infer that the creditor’s statutory demands were backdated to 16 March 2015 by Opal’s solicitor (Mr Johnson made clear that he was not suggesting any impropriety in that regard) and should be set aside because they were not verified by Ms Ng’s respective affidavits. Mr Johnson also submitted that Opal needed to adduce evidence to establish that the demands had been signed when Ms Ng verified them and that no such evidence had been led by Opal. Mr Potts, who appears for Opal, responds that the onus of establishing that the verifying affidavits were sworn prior to the demands falls upon Success and LIG and they have not established that matter. Mr Potts also submits that, at least on the face of the demands and the verifying affidavits, they were signed and sworn on the same date, and that would not be sufficient to require that they be set aside under s 459J(1)(b) of the Corporations Act.

18. The weight of authority favours the view that an accompanying affidavit that is sworn prior to a creditor’s statutory demand may be set aside for some other reason under s 459J(1)(b) of the Corporations Act: Wildtown Holdings Pty Ltd v Rural Traders Co Ltd above; F Assaf, Statutory Demands and Winding Up in Insolvency, 2nd ed 2012, LexisNexis Butterworths, [7.52]. In Re Gemaveld Pty Limited [2012] NSWSC 582, I summarised the relevant authorities and noted (at [14]) that:

“There are, of course, a number of cases where affidavits sworn prior to a statutory demand have been held not to verify that statutory demand, and that has been held to give rise to a defect for the purposes of s 459J of the Corporations Act. However, those cases variously related to affidavits sworn between a day and several days prior to the date of the statutory demand: Wildtown Holdings Pty Ltd v Rural Traders Pty Ltd [2002] WASCA 196; Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd [2005] ACTSC 39; Ri-Co Holdings (Aust) Pty Ltd v Allied Sandblaster Pty Ltd [2009] QSC 122 [2010] 1 Qd R 293; R2M Pty Ltd v Gourlay [2011] FCA 168. It is obvious enough that an affidavit sworn on, say, 14 or 18 October could not, in fact, verify a debt claimed to exist on 19 October, because that debt might well have been repaid in the intervening day or days.”

However, I also there noted (at [15]) that:

“… I would not accept that, as a matter of fact, an affidavit sworn at 11.55am or 11.59am on 19 October could not verify a debt asserted to be due and payable in a statutory demand signed at noon on that day. I do not consider that such a construction of the section is required by the terms of s 459E(3) of the Corporations Act or by any of the authorities dealing with affidavits sworn prior to the day on which the statutory demand is signed. I can see no reason why the Court should adopt an approach which, first, will encourage arid inquiries as to which of the signature of a statutory demand and the swearing or affirmation of the verifying affidavit occurred first within a short time frame on the same day and, second, is likely to have the consequence that statutory demands will fail for technical reasons.”

19. In the present case, it does not seem to me that either Success or LIG have established that the affidavits were sworn before the creditor’s statutory demands were signed and did not verify them. The position is straightforward in respect of Success, since there is no evidence when the creditor’s statutory demand was served and therefore no basis for any inference that the demand could not have been signed by Opal’s solicitor in Sydney on 16 March, the verifying affidavit then sworn in Hong Kong on the same day and the affidavit sent by air courier to Sydney so as to be served at some subsequent time. I recognise that no evidence was led by Opal as to this matter, but the absence of such evidence, at best, creates an inference that that evidence would not have assisted Opal and does not allow an inference adverse to it to be drawn, where there is no other evidentiary basis for such an adverse inference. The weight to be given to any inference arising from the fact that Opal has not led such evidence is also weakened because, as Mr Potts points out, this issue was only raised by submissions served by Success and LIG shortly before the commencement of the hearing, and it may well have been an unattractive course for Opal to seek an adjournment of the hearing in order to allow it an opportunity to lead such evidence. The factual basis of the claim that Ms Ng’s affidavit was sworn before the creditor’s statutory demand was signed and did not verify it is therefore not established in respect of Success, and no basis to set aside the demand issued to it under s 459J of the Corporations Act is established on that basis.

20. The position is somewhat more complex in respect of LIG, where there is evidence the demand was served on 17 March 2015, the day after the demand was, on its face, signed in Sydney and the verifying affidavit affirmed in Hong Kong. However, it does not seem to me that I can draw an inference, as a matter of general knowledge, that a creditor’s statutory demand could not have been signed on 16 March in Sydney, an affidavit verifying that demand affirmed on 16 March in Hong Kong after the demand had been signed, and that affidavit sent by air courier from Hong Kong to Sydney, possibly on an overnight flight, so as to arrive in Sydney on 17 March 2015 and to be served on the same date. No doubt, that conclusion might have been reached had there been evidence led by LIG as to the time which it usually takes for an item to be sent by air courier from Hong Kong to Sydney, but there was no such evidence in this case. Again, I recognise that Opal did not lead evidence to the contrary of the inference that LIG seeks to draw, but the absence of such evidence again only creates an inference that that evidence would not have assisted Opal and does not allow an inference adverse to it to be drawn, where the evidentiary basis for that adverse inference is not otherwise established. The factual basis of the claim that Ms Ng’s affidavit was affirmed before the creditor’s statutory demand was signed and did not verify it is therefore also not established in respect of LIG, and no basis to set aside the demand under s 459J of the Corporations Act is established on that basis.

21. In these circumstances, it is not necessary for me to address the further question whether there is an absolute requirement that the creditor’s statutory demand be signed prior to the affidavit verifying it being sworn, so that a demand should invariably be set aside under s 459J(1)(b) of the Corporations Act if that requirement is not complied with, or whether the position is more qualified, as Mr Assaf suggests in Statutory Demands and Winding Up in Insolvency, above at [7.53] in observing that:

“Where an affidavit is sworn before the date of a statutory demand, and there is no other evidence of the debt, the creditor fails to prove that the debt is both due and payable as at the date of the demand.” [emphasis added]

The reference to “other evidence of the debt” in that statement would have some potential significance in this case, where it is common ground between the parties that there is in fact no dispute that the relevant debts were owed by Success and LIG to Opal.

The second issue – Whether the debts were unrecoverable for illegality

22. The second basis on which Success seeks to set aside the creditor’s statutory demand, which was addressed in written submissions and only briefly by Mr Johnson in oral submissions, is that it took over debts that arose by breaches of anti-dumping prohibitions under the Pt XVB of the Customs Act and that those debts were tainted by illegality. Administrative determinations were made in respect of dumping and subsidisation of the supply of aluminium extrusion products by Opal and the PanAsia Group, which was the subject of the debts novated to Success, and an application to the Federal Court of Australia to set aside those determinations was unsuccessful. Mr Potts took me, in oral submissions, through a detailed history of the steps taken under the Customs Act in respect of the P&O companies, Success and Opal and it is not necessary to recite that history in this judgment.

23. Success became liable for the relevant debts in connection with several sale of business agreements in similar terms entered into on 31 May 2014, by which Success acquired the business conducted by various companies trading under the “P&O Aluminium” name in various capital cities, and the business of Oceanic Aluminium. By clause 6 of those agreements, Success agreed to satisfy and discharge debts owed by the vendor entities to Opal. At the same time, deeds of novation and assignment were entered into in respect of the debts owed by each of the vendor entities, which provided that Success would assume all obligations as debtor, and would be substituted for the vendor companies as the debtor to Opal.

24. Despite the bulk of the affidavit evidence led by Success and LIG from their accounting staff, but not their directors, in support of the applications, the circumstances of Success’ acquisition of the P&O companies and Oceanic Aluminium do not emerge clearly or completely from the evidence. Contemporaneous documents indicate the complexity, but possibly not the substance, of the transaction. An information memorandum issued in respect of the global offering of PanAsialum Holdings Company Limited (“PanAsia Holdings”) in January 2013 referred to the disposal of Australian subsidiaries, including P&O Group and Oceanic Aluminium, in a series of relatively complex transactions, which are said to have had the result that an unnamed “Independent Third Party” held the entire equity interests in the P&O Group and Oceanic Aluminium from July 2010 or, possibly, January 2012, after which the P&O companies became PanAsia Holdings’ major customer in Australia. That document also set out trade receivables from the P&O companies, a substantial portion of which were then shown as overdue. An accountant’s report for PanAsia Holdings issued in Hong Kong in February 2015 in turn referred to the disposal, on 31 December 2009, by the PanAsia Group of its entire equity interests in PanAsia Group Pty Limited, which appears to be a reference to the Australian entities or their holding company, to an unnamed existing director of PanAsia Group Pty Limited (Ex A1, 113) and specifically referred to the disposal of companies within the P&O Group.

25. LIG also seeks to set aside the creditor’s statutory demand issued to it on the same basis. The debts claimed against LIG relate to supplies of aluminium extrusion products to it after the sale of the P&O companies to Success. LIG also relies on the fact that findings of dumping have also been made in respect of the supply of aluminium extrusion products by Opal to it, and it contends that those amounts are also not recoverable by reason of the Customs Act and principles of illegality.

26. In opening written submissions, Success and LIG submitted that, having regard to the customs determinations in respect of the supply to the P&O companies, Oceanic Aluminium and LIG:

“The circumstances under which the indebtedness the subject of the creditor’s statutory demand for payment arose on the part of the relevant original Creditors was such that they were unlawful and cannot be recovered, such determinations having been made in terms of Part XVB of the Customs Act 1901.”

In oral submissions, Mr Johnson accepted that Success’ and LIG’s submission required that I accept the proposition that, if an offshore entity was supplying goods in circumstances that amounted to dumping for the purposes of the Customs Act, the principle of illegality prevented it claiming the recovery of the price which it had charged to an intermediary for those goods (T8) and, by extension, it would be prevented from doing so even if the intermediary had onsold those goods to consumers and had obtained the proceeds of doing so.

27. Mr Potts submits that the structure of Pt XVB of the Customs Act, as summarised in s 269SM of the Act, deals with the position where importation into Australia involves a “dumping” or “countervailable subsidisation” of goods that injures, or threatens to injure, Australian industry, and allows the imposition of “anti-dumping measures” by way of the publication of a “dumping duty notice” or a “countervailing duty notice”, which creates a liability under the Customs Tariff (Anti-Dumping) Act 1975 (Cth) (“Tariff Act”) to pay a special customs duty on the importation of the relevant goods into Australia and, pending assessment of that duty, to pay interim duty. Mr Potts submits, and I accept, that the legislative response to such conduct under Pt XVB of the Customs Act is the imposition of that special customs duty, and that the Act does not render the relevant conduct unlawful or expressly invalidate the underlying contracts for the sale of goods. Indeed, as Mr Potts points out, the structure of the Act appears to contemplate that the relevant transactions by which the goods are sold in Australia will go forward, presumably on the basis of enforceable contracts between the parties to them, albeit at prices affected by the additional special customs duty imposed so as to avoid the apprehended disadvantage to Australian industry that would have arisen if that duty had not been imposed.

28. In Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498 at [23], the plurality of the High Court observed that:

“As appears from the joint judgment in this court in Miller v Miller [[2011] HCA 9; (2011) 242 CLR 446], and the decisions of this court cited in that judgment, an agreement may be unenforceable for statutory illegality where:

(i)    the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute;

(ii)    the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute;

(iii)    the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a “contract associated with or in the furtherance of illegal purposes”.

In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute “whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable.” As in the case when a plaintiff sues another for damages sustained in the course of or as a result of illegal conduct of the plaintiff, “the central policy consideration at stake is the coherence of the law.” [footnotes omitted]

29. In Westfield Management Ltd v AMP Capital Property Nominees Ltd [2012] HCA 54; (2012) 247 CLR 129 at [46], the High Court in turn observed that:

“It is the policy of the law that contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text.”

30. I do not accept the submission that the debts owed by Success and LIG were not recoverable by reason of illegality, for two reasons. The first is that, as Mr Potts points out, the Customs Act does not make conduct that amounts to “dumping” or “contervailable subsidisation” either an offence or otherwise unlawful, although it imposes additional duties which were in fact imposed in this case in respect of Opal’s sales to the P&O companies, Oceanic Aluminium and LIG. It seems to me that, as Mr Potts submits, the enforcement of the relevant contractual arrangements, which would operate subject to the special dumping and countervailing duties imposed by the Customs Act or the Tariff Act, would not in any way defeat or circumvent the relevant statutory purpose. It does not seem to me to that the policy of the relevant provisions in the Customs Act requires that a supplier’s recovery of a debt from an intermediary, who has onsold the goods to consumers, be prohibited, in order to give effect to the purposes of the statute: compare Gnych v Polish Club Ltd [2015] HCA 23.

31. Mr Johnson also contends that the debts novated to Success were not recoverable, because the debt was not recoverable against the P&O companies, including Oceanic, because of the relevant illegality, and therefore could not be recoverable against Success, which took an assignment of the relevant debts under the relevant deeds of novation and assignment. Mr Potts emphasises that the debt owed by Success to Opal arises under those deeds of novation and assignment, by which new contracts were substituted for the previous contracts between the P&O companies and Opal, rather than from any previous supply of goods by Opal to the P&O companies. Mr Potts also submits that, where the deeds of novation and assignment recite the existence of the debts owed by P&O companies to Opal, it is not open to Success to dispute the correctness of those recitals and an estoppel by deed arises. There seems to me to be substantial force in that submission. However, it is not necessary to express a final view as to Mr Potts’ reliance on the principle of estoppel by deed, where I have not held that the Customs Act or the Tariff Act gave rise to any bar to recover the relevant amounts under principles of illegality, as against the P&O companies or Oceanic Aluminium in the first instance, or as against Success as the party to which their debts were novated.

The third issue – Whether service of the creditor’s statutory demands was an abuse of process

32. Success and LIG also contend that the service of the creditor’s statutory demands was an abuse of process, within the principles identified in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 279, where Gummow J noted the potential application of abuse of process principles as set out in Williams v Spautz (1992) 174 CLR 509 in the context of winding up. The High Court’s decision in in Williams v Spautz above recognised that legal proceedings may constitute an abuse of process, if the predominant purpose of the moving party is to achieve a collateral purpose by those proceedings. Mr Johnson also refers to the decision in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 (2009) 71 ACSR 602, but that decision does not assist him, since it is directed to the issue of a creditor’s statutory demand in respect of a genuinely disputed debt, and it is plain that the debts in issue in this case are not disputed.

33. I accept that, in an appropriate case, the conduct of a creditor in issuing a statutory demand may be such that the demand should be set aside under s 459J(1)(b) of the Corporations Act, where that conduct amounts to an abuse of process in the relevant sense. In Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22, the Court of Appeal of the Australian Capital Territory identified “abuse of process” as one of the situations in which such an order could be made. In Preston International Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 603 at [13]–[14], White J noted that the conduct necessary to require a demand to be set aside must relate to the purpose for which that demand was issued, and would not support a wider inquiry into the creditor’s conduct in respect of matters unconnected with the demand. In T S Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd [2007] NSWSC 1074 at [17], Barrett J in turn noted that:

“Abuse of process is concerned predominantly with propriety of purpose. That issue must be judged according to the legitimate objectives of the particular process. A challenge under s 459J(1)(b) on the grounds of abuse of process would pay attention to the objectives properly pursued by service of a statutory demand …”

34. In Re UGL Process Solutions Pty Ltd [2012] NSWSC 1256 at [43], I also observed that:

“The Court may set aside a statutory demand under s 459J(1)(b) of the Corporations Act if it is satisfied that there is some other reason that the demand should be set aside. The Court’s power under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Corporations Act and is to be used to counter an attempted subversion of the statutory scheme, but is not exercised by reference to subjective notions of fairness … A statutory demand may be set aside under that section where it involves conduct which is unconscionable or an abuse of process …. ” [references omitted]

35. Success and LIG Australia contend that those controlling Opal, the ultimate supplier companies and, possibly, Success and LIG, and Ms Ng in particular, have sought to establish another business within Australia and injure the business activities being conducted by Success and LIG, and the service of the creditor’s statutory demands in that context constitutes an abuse of the creditor’s statutory demand procedure. Mr Johnson submitted that the purpose of service of the creditor’s statutory demands was directed primarily to eliminating opposition within Australia to companies that Opal or its associated entities within the PanAsia Group now wish to set up in Australia. The case for abuse of process is weakened because, as Mr Potts points out, there is no suggestion that the goods that were the subject of the debts underlying the deeds of novation and assignment in the case of Success, and the goods supplied directly to LIG, were not supplied or received; it is accepted that, subject to the issue as to dumping that I addressed above, the relevant debts are due and payable; and there is no reason to think that Opal does not intend to proceed to a winding up of Success and LIG in insolvency, if the relevant creditor’s statutory demands are not set aside. Mr Potts submits that the evidence led by Success and LIG is not sufficient to establish that Opal’s predominant purpose in issuing the statutory demands was anything other than to establish the insolvency of Success and LIG, so that it may bring winding up proceedings.

36. It does not seem to me that the claim for abuse of process is established as a matter of fact. There is an obvious legitimate purpose in Opal’s service of the creditor’s statutory demands, namely to establish the insolvency of Success and LIG, if they are in fact unable to pay the debts that are admitted to be due to Opal, which will allow them to be wound up and will allow Opal to prove in a liquidation for the amount of its unpaid debts. There is an obvious reason why Opal may wish to take that course, given the amount of the debts owed to it, particularly in circumstances where the correspondence between the parties indicated that, inter alia, Opal and the PanAsia Group were under “extreme pressure” to recover the amounts due to Opal; their auditors had requested a provision review on the outstanding amounts due to them; the amount outstanding had brought about a deterioration in Opal’s or the PanAsia Group’s working capital; and, by reason of issues including the recoverability of the receivable from Success, the issue of PanAsia Group’s financial statements had been delayed and trading of its stock had been suspended (Ex D1). None of these matters were contested by either Success or LIG.

35. I recognise that the evidence indicates that the PanAsia Group has now established businesses in Australia which are in competition with Success and LIG, and the prospects of those businesses may be advanced if Success and LIG are wound up. However, that does not seem to me to be sufficient to allow an inference of a predominant collateral purpose in serving the demands. It is difficult to see why an unpaid supplier could not properly proceed to recovery of its debt, or to issue a creditor’s statutory demand in respect of an undisputed debt, merely because it has established itself in competition with, or proposes to establish itself in competition with, the entity that owes that debt. Ultimately, Success’ and LIG’s case goes little further than the proposition that that course should not be permitted, notwithstanding the admitted debts and Opal’s commercial interest in their recovery, and the difficulties that Opal and PanAsia Group appear to have faced by reason of the non-payment of those debts.

Orders and costs

38. In the result, Success’ and LIG’s applications to set aside the creditor’s statutory demands issued to them on the basis that the debts are genuinely disputed were not pressed, although the demand issued to Success must be varied under s 459H of the Corporations Act to take account of the recent payment of $2 million to Opal to which I referred above.

39. Success’ and LIG’s claim to set aside the creditor’s statutory demands under s 459J of the Corporations Act on the basis that the verifying affidavits were affirmed before the creditor’s statutory demands were signed has not been established; the challenge to the recoverability of the debts on the basis of illegality has also not been established; and I am not satisfied that the predominant purpose of the creditors’ statutory demands is to assist the PanAsia Group in establishing a competing business, as distinct from recovering the very substantial amounts that are due to it, or, if that is not possible, establishing a basis for the winding up of Success and LIG such that Opal may prove in its liquidation.

40. For these reasons, I make the following orders:

1.   The Originating Process filed by LIG Australia Pty Ltd in proceedings 2015/101974 be dismissed with costs.

2. The creditor’s statutory demand dated 16 March 2015 issued by Opal (Macao Commercial Offshore) Ltd to Success Aluminium Pty Ltd be varied under s 459H of the Corporations Act 2001 (Cth) by amending the amount of the demand to $21,175,274.03.

3.   The Originating Process filed by Success Aluminium Pty Ltd in proceedings 2015/101995 otherwise be dismissed with costs.

**********

Decision last updated: 16 July 2015