Kent v Aspermont Ltd - [2003] WASC 107

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: KENT -v- ASPERMONT LTD & ORS [2003] WASC 107

CORAM: MASTER SANDERSON

HEARD: 20 MAY 2003

DELIVERED : 6 JUNE 2003

FILE NO/S: CIV 2117 of 2002

BETWEEN: ANDREW LESLIE KENT
Plaintiff
AND
ASPERMONT LTD
First Defendant
RICHARD CAMERON MacLELLAN
Second Defendant
LECHMERE FINANCIAL CORPORATION
Third Defendant

Catchwords:

Practice and procedure - Application to set aside service of writ out of jurisdiction - Turns on own facts

Legislation:

Nil

Result:

Service set aside

Category: B

Representation:

Counsel:

Plaintiff:     Mr K J O'Toole
First Defendant             :     Mr C R Coulson
Second Defendant         :     Mr S J Penrose
Third Defendant           :     Mr S J Penrose

Solicitors:

Plaintiff:     O'Toole & Oprandi
First Defendant             :     Coulsons
Second Defendant         :     Tottle Christensen
Third Defendant           :     Tottle Christensen

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

Agar & Ors v Hyde (2000) 201 CLR 552

Case(s) also cited:

Agnew v Usher (1884) 14 QBD 78
Akai Pty Ltd v People's Insurance Co Ltd (1996) 188 CLR 418
Amin Rasheed Shipping Corp v Kuwait Insurance Co [1984] AC 50
Aspermont Ltd v Lechmere Financial Corporation [2001] WASC 344
Australian Broadcasting Commission v Lenah Game Meats (2001) 185 ALR 1
Australian Insurance Brokers v Hudig Langeveldt Pty Ltd [1988] WAR 44
Bonython v Commonwealth [1951] AC 201
BP Australia Ltd v Kirki Shipping Corporation & Anor, unreported; SCt of WA; Library No 940612; 1 November 1994
Compagnie D'Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC 572
Contender v Lep Air (1988) 82 ALR 394
Eng Mee Yong v Letchuman [1980] AC 331
Gosper v Sawyer (1985) 160 CLR 548
Hayim v Citibank NA [1987] 1 AC 730
Hyde v Agar (1998) 45 NSWLR 487
Kent v Lechmere Financial Corporation [2002] WASC 75
Kent v MacLellan & Ors [2002] WASC 199
Koranna Nominees Pty Ltd v Roberts, unreported; FCt SCt of WA; Library No 4289; 15 October 1981
Lindsay Edmonds & Associates Pty Ltd v Quest Sales Pty Ltd (1979) 60 FLR 349
Norwich Pharmacal Co v Commissioner of Customs and Excess [1972] 3 All ER 813
Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197
Official Solicitor v Stype Investments (Jersey) Ltd [1983] 1 WLR 214
Pilkington v McArthur Trust Ltd (No 2) [1938] NZLR 564
R v International Trustee for the Protection of Bond Holders Aktiengesellschaft [1937] AC 500
Re Usine de Melle's Patent [1954] 91 CLR 42
Seaconsor Far East Ltd v Bank of Makazi Jomhouri [1994] 2 AC 438
Sheldon Pallet Manufacturing Co Pty Ltd v New Zealand Forest Products Ltd [1975] 1 NSWLR 141
Tana v Baxter (1986) 160 CLR 572
The Brabo [1949] AC 326
Victoria v Hansen [1960] VR 582
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538

MASTER SANDERSON: This is an application by the second and third defendants to set aside orders I made on 24 October 2002 permitting service of proceedings on them outside the jurisdiction. The second and third defendants entered a conditional appearance under O 12 r 6(1) and make this application as is required by r 6(2).
In support of the application the second and third defendants relied upon an affidavit of Rina Yoke Yee Chang ("Ms Chang") sworn 8 April 2003. Counsel for the plaintiff relied upon an affidavit of the plaintiff sworn 28 August 2002. That was the affidavit upon which the plaintiff relied when leave to serve out of the jurisdiction was granted. The plaintiff did not file any additional material after this application was brought. Counsel for the second and third defendants also referred to an affidavit of the plaintiff sworn 14 June 2002 in support of an application for an interlocutory injunction in action number CIV 1820 of 2002.
At the same time I granted leave to serve the second and third defendants out of the jurisdiction I also granted leave to the plaintiff to amend the writ of summons. The amendments designated Aspermont Ltd, up until that time the sole defendant, as the first defendant and added the second and third defendants as parties. No amendment was made to the indorsement of claim. It would seem that the plaintiff overlooked the need to amend the indorsement, as I did when I granted leave. Anyway, the effect is that the indorsement of claim presently reads as follows:
"By an agreement made in Perth in or about August 1997 the defendant agreed to "assume responsibility" for a debt of the plaintiff to Lechmere Financial Corporation, a British Virgin Island company ('Lechmere').
The plaintiff claims
(a)the debt is property of a trust of which the plaintiff is sole beneficiary, that the trust has been terminated and the trustee, Richard Cameron MacLellan and, or alternatively, Lechmere, directed by the plaintiff to have the defendant pay the debt and interest thereon to the plaintiff;
(b)the trustee has refused or neglected to follow the directions of the plaintiff;
(c)the defendant refuses to acknowledge the plaintiff's claim to entitlement to payment of the debt and unless restrained is likely to pay the debt to Lechmere.
The plaintiff claims
(i)a declaration that the debt is due and payable to the plaintiff;
(ii)an order that the defendant be restrained from paying the debt to Lechmere;
(iii)such further or other relief including interlocutory relief as the court deems meet (sic)."
If that indorsement of claim is read in such a way that "first defendant" is substituted for "defendant", then the indorsement does make some sense. What it does not do is disclose what cause of action is brought against the second and third defendants. During the course of his submissions counsel for the plaintiff submitted that the second and third defendants were joined as parties to the proceedings because orders made against the first defendant would affect their interests. In other words, if the second and third defendants claimed that they were entitled to the property the subject of the trust and the plaintiff obtained orders which prevented that property being transferred to them, they would have the right to be heard. Put in that way, I think it can be seen that the second and third defendants are properly parties to the action, albeit that the indorsement of claim in its present form does not clearly articulate what, if any, relief is sought against them.
With the benefit of hindsight I think it is clear that the plaintiff ought not have been granted leave to serve the writ out of the jurisdiction on the second and third defendants with the indorsement of claim in its present form. However, this was not a matter which was developed by counsel for the second and third defendants either in his written or oral argument. No doubt were the appearances of the second and third defendants to become unconditional, they would apply to strike out the indorsement of claim. It is difficult to see how such an application could be resisted by the plaintiff. Given the conclusion I have reached in relation to the application as a whole, this is a matter about which I need say nothing more.
At the time the plaintiff's solicitors applied for leave to amend the writ and for leave to serve the second and third defendants out of the jurisdiction, they took the unusual step of requesting a special appointment. They took the view that the affidavit material was lengthy and that it would be appropriate to allow sufficient time for consideration of all matters raised by the plaintiff. They are to be commended for that course of action. However, it is to be noted that the matters to be considered on an application for leave to serve a writ out of the jurisdiction are different from the matters to be considered when a defendant, having been served, applies to set aside the service. The High Court drew this distinction in the decision of Agar & Ors v Hyde (2000) 201 CLR 552. Quoting from the headnote, the majority (Gaudron, McHugh, Gummow and Hayne JJ) said:
"… that if a statement of claim, alone or together with an affidavit as to factual matters not set out in the statement of claim or particulars, discloses that a claim falls within Pt 10, r 1A (of the New South Wales Supreme Court Rules), service outside Australia is permitted without an assessment of the strength of the case and, prima facie, the plaintiff should have leave to proceed. If the Court is not persuaded that it is an inappropriate forum for trial of the proceedings, it will have reached that conclusion having given due weight to considerations of comity and restraint. It is only on an application to set aside service under Pt 10, r 6A where the criteria are not met that the prospects of success of a claim fall for consideration. The same test should be applied in deciding whether originating process served outside Australia makes claims which have such poor prospects of success that the proceeding should not go (to) trial as is applied in an application for summary judgment by a defendant served locally."
The second and third defendants sought to set aside the proceedings on two separate grounds. First, it was said, that the cause of action did not fall within one of the categories mentioned in O 10 r 1(1). That was a matter which was covered in the written submissions but did not receive much attention from counsel for the second and third defendants in his oral submissions. Rather, counsel submitted that the plaintiff's action, as against the second and third defendants, was without merit. He submitted that on the summary judgment standard the plaintiff could not demonstrate it had an arguable case and the service ought be set aside. Given counsel's focus on this aspect of the application, it is appropriate if I deal with it first.
To do so I need to say something of the facts and the way the plaintiff puts his claim.
The plaintiff is a company director and businessman. He spends the bulk of his time in Perth, although he has property interests in Sydney which are managed through a Hong Kong structure. In the past he has spent a good deal of time living in London. The plaintiff says he met the second defendant in 1991 and they became friends and developed a business relationship. In the early 1990s the plaintiff gave the second defendant "carte blanche over my assets in Drysdale Investment Corporation Hong Kong" (hereinafter referred to as 'Drysdale HK'): see par 13 of the plaintiff's affidavit of 28 August 2002. The plaintiff does not say what assets were held by Drysdale HK, nor the nature of the business that it undertook.
For various reasons in the early 1990s the plaintiff had a need to "disengage" the assets of Drysdale HK from those of TC Coombes, a failed stockbroking business with which the plaintiff was involved. As part of this process a company known as Drysdale Investments Corporation ("Drysdale BVI") was incorporated in the British Virgin Islands. Thereafter the second defendant set about "disengaging" the plaintiff's assets in Drysdale HK and transferring them to Drysdale BVI. It would appear that the plaintiff, with the assistance of the second defendant, gradually reorganised his interests so that they were held by Drysdale BVI.
Some time later, so the plaintiff says, he was persuaded by the second defendant to set up a number of what he refers to as "second‑tier companies" for individual investments. He says that these companies were separate trustee vehicles: see par 28. One of these second‑tier companies was the third defendant. The plaintiff then says (at par 30 of his affidavit):
"MacLellan (the second defendant) is the bearer of the only Lechmere share and the sole legal and beneficial shareholder. MacLellan told me that Lechmere would be used as a conduit for the funds and assets held in trust for me by Drysdale BVI. Thus, Drysdale BVI and Lechmere were set up to deal with funds or assets that were beneficially owned by me."
The plaintiff then deals with his involvement with the first defendant. He says that he first became an investor in the early 1980s and that during the 1990s he invested substantial sums of money. The plaintiff says he held shares directly and shares were also held by the second defendant. Some of the plaintiff's investment in the first defendant was made (he says) in the name of the third defendant. Presumably it was this investment in the name of the third defendant which resulted in it holding shares in the first defendant. According to the plaintiff, by 1997 through a series of transactions, the first defendant was indebted to the third defendant in an amount of $237,163. Without going into the mechanics of what is a fairly complicated state of affairs, it is enough if I say that the plaintiff says that he was beneficially entitled to the money said to be owing to the third defendant by the first defendant and, in effect, the first defendant was indebted to him personally.
Some time in the 1990s the plaintiff purchased a half‑interest in a business known as Australian Mining Monthly. He says he paid $780,000 for that interest and the money came from Drysdale BVI. The plaintiff says that the money used for the purchase was "advanced" to him by Drysdale BVI. He then provided the money to Lechmere "as my trustee so that in effect the loan was a loan to myself": see par 52(c). The plaintiff then sold his interest in Australian Mining Monthly to Aspermont "for the same price as I had paid for it": see par 57. At the same time the second half of Australian Mining Monthly was purchased by Aspermont from a third party. Aspermont was then refloated in April of 2000 at a market capitalisation of $14 million: see par 62.
It is worth pausing at this point to consider the prospectus issued by the first defendant and dated 21 February 2000, pursuant to which the company offered to the public 11 million ordinary fully paid shares at an issue price of 20 cents. The prospectus appears as annexure "RYYC 3" to the affidavit of Ms Chang. Under the section of the prospectus headed "Material Contracts" there appears the following (at page 59 of Ms Chang's affidavit):
"5.LECHMERE LOAN
The following information is a summary of the provisions of a loan agreement between the Company and Lechmere Financial Corporation, a foreign company registered in the British Virgin Islands:
•During the period 22 October 1992 to 6 April 1995 Lechmere advanced in total $150,000 for working capital;
•In 1997 Lechmere assumed the liability for payment to all Aspermont's outstanding creditors equal to an amount of $184,000;
•Also in 1997 Lechmere advanced a further $780,000 to assist with the acquisition from Mr A L Kent of his 50% share of Australia's Mining Monthly;
•Aspermont agreed to pay Lechmere interest at the rate of 15% per annum.
As at 30 June 1999 the balance of the loan stood at $1,040,000, which will be repaid in full from the proceeds of the Issue."
Further on in the prospectus, under a section headed "ADDITIONAL INFORMATION" there is a reference to "DIRECTOR'S INTERESTS": see page 88. The plaintiff is listed as one of the directors. There then appears the following:
"Except as disclosed, below or elsewhere in this Prospectus, no Director named in this Prospectus now has or during the last two years has had any interest in the promotion of the Company, or any property proposed to be acquired by the Company in connection with its formation or promotion."
That statement is directly at odds with the case which is now being propounded by the plaintiff in these proceedings. The plaintiff says that the funds which were to be paid back to the second defendant were in fact his funds - or perhaps put more correctly, he was beneficially entitled to them. If that was so, it was a matter which should have been disclosed in the prospectus. That proposition is unarguable. It was a requirement of the then applicable Corporations Law: see s 711(2)(a).
The plaintiff has not filed any affidavit dealing with the matters raised by Ms Chang via the prospectus. Insofar as any explanation is provided by the plaintiff, it appears from his affidavit of 14 June 2002. He says (at par 9):
"… I am an experienced businessman however my venture in respect to Australia's Mining Monthly has been my first involvement in the direct running of a public company."
With great respect, that is simply not good enough. All of the evidence indicates that the plaintiff is an experienced businessman and a man of the world. Yet in a document which provides the basis of a capital raising from the Australian public, he is content to put out a blatantly misleading statement. When provided with the opportunity to do so he makes no effort to explain his actions. It is very dangerous on an interlocutory application where the evidence of a party is untested by way of cross‑examination, to draw adverse conclusions against a party. But in my view the irresistible conclusion in this case is that the plaintiff was in breach of his obligations at law with respect to the prospectus. He now seeks to use the processes of this Court to enforce an undisclosed side deal. That simply cannot be allowed to happen.
This is one of those rare cases where the plaintiff's claim is so lacking in merit there is no basis upon which it could proceed to trial. Accordingly I would order that the service of the writ on the second and third defendants be set aside. The plaintiff should pay the second and third defendant's costs of this application, including the reserved costs.