Trans Global Projects Pty Ltd (in Liquidation) v Duro Felguera Australia Pty Ltd
[2018] WASC 136
•4 MAY 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: TRANS GLOBAL PROJECTS PTY LTD (IN LIQUIDATION) -v- DURO FELGUERA AUSTRALIA PTY LTD [2018] WASC 136
CORAM: TOTTLE J
HEARD: 23 & 27 APRIL 2018
DELIVERED : 4 MAY 2018
FILE NO/S: ARB 5 of 2018
BETWEEN: TRANS GLOBAL PROJECTS PTY LTD (IN LIQUIDATION)
Plaintiff
AND
DURO FELGUERA AUSTRALIA PTY LTD
Defendant
Catchwords:
International arbitration - Interim measure of protection - Practice and procedure - Application for freezing order - Ancillary order
Legislation:
Commercial Arbitration Act 2012 (WA)
Construction Contracts Act 2004 (WA)
International Arbitration Act 1974 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Application granted
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr M J Feutrill |
| Defendant | : | Mr M D Howard SC |
Solicitors:
| Plaintiff | : | HFW Australia (Perth) |
| Defendant | : | Jones Day |
Case(s) referred to in decision(s):
BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 3) [2013] WASC 239
Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380
Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274
Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194
Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49
Ninemia Maritime Corp v Trave Shiffahrtsgesellschaft GmbH & Co KG [1984] 1 All ER 398
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; (2015) 258 CLR 1
Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645
TOTTLE J:
Introduction
By an originating summons issued on 19 April 2018 the plaintiff has applied for a freezing order, and an ancillary order against the defendant requiring it to disclose details of its assets and liabilities. For the reasons set out below I will make the orders sought.
The plaintiff and the defendant are parties to a contract made in May 2014 (the subcontract). Pursuant to the subcontract the plaintiff agreed to transport processing facility components for the Roy Hill Iron Ore Project (the Project). The defendant is a party to a head contract with Samsung C&T Corporation (Samsung) pursuant to which the defendant agreed to perform work required for the Project.
The subcontract contained an arbitration agreement, cl 27.
By May 2015 the parties had substantial claims against each other. Those claims are unresolved. The plaintiff categorises its claims as follows:
1
Approved invoices claim - a claim for invoices approved but not paid by the defendant.
$ 7,370,029.31
2
POD claim - a claim for works completed but rejected by the defendant for insufficient 'proof of delivery'.
$ 5,119,068.04
3
PTC claim - a claim for works completed but rejected by the defendant as being 'Pass Through Claims' from the defendant to Samsung.
$ 3,669,953.53
4
Disputed invoices claim - a claim for services rendered and invoiced but rejected by the defendant.
$11,374,941.55
5
Performance bond claim - a claim for the recovery of the performance bond called on by the defendant.
$ 2,618,000.00
Total
$30,151,992.43
The defendant's claims against the plaintiff amount to $26,426,914.67. Approximately $25 million of the defendant's claims arise from the alleged delay in delivery of components by the plaintiff in respect of which the defendant either claims liquidated damages pursuant to the subcontract or an indemnity from the plaintiff in respect of liquidated damages deducted by Samsung from monies otherwise due to the defendant.
On 19 June 2015 the plaintiff served a notice of reference to arbitration. The notice assumed that the Commercial Arbitration Act 2012 (WA) applied. Correspondence was exchanged between the parties' solicitors in which the defendant's solicitors raised two issues: one, whether the Commercial Arbitration Act applied or whether the International Arbitration Act 1974 (Cth) applied; and two, whether there was a binding arbitration agreement. These issues can be put to one side as the plaintiff accepts that the International Arbitration Act applies and the defendant accepts that there is a binding arbitration agreement. No further steps towards commencing arbitral proceedings were taken in 2015.
On 30 July 2015 the plaintiff was placed in voluntary administration. A deed of company arrangement was executed. On 15 September 2016 the deed of company arrangement was terminated and the plaintiff was placed in liquidation.
On 15 December 2017 the plaintiff's creditors gave approval for the liquidators and the plaintiff to enter into an agreement to fund proceedings initiated by the plaintiff against the defendant in respect of the claims arising out of the subcontract.
On 16 January 2018 the liquidators and the plaintiff entered into a litigation funding agreement with ACN 609 289 170 Pty Ltd.
On 19 March 2018 the liquidators' solicitors instructed an investigator, Mr Geoffrey Peterson, to make inquiries to ascertain whether the defendant was still trading in Australia.
On 11 April 2018 the liquidators' solicitors wrote to the defendant's solicitors giving notice that the liquidators intended to pursue the plaintiff's claims. The liquidators sought an undertaking that:
(a)[the defendant] will lodge a financial report and directors' report for the 2016 and 2017 financial years with ASIC in accordance with ss 292 and 319 of the Corporations Act 2001 (Cth); and
(b)[the defendant] will not dispose of, deal with or diminish the value of:
(i)cash and equivalents;
(ii)intercompany loan receivables and other current and non-current receivables; or
(iii)the cause of action, award, or proceeds of award in relation to [the defendant's] claims against Samsung C&T Corporation,
up to $30,000,000 (except for disposing of cash and equivalents or trade receivables in the ordinary and proper course of [the defendant's] business, including paying business expenses bona fide and properly incurred) without first giving the liquidators of [the plaintiff] seven day's written notice of [the defendant's] to do so.
The liquidators' solicitors went on to identify the grounds upon which the undertaking was sought. Those grounds were as follows:
(a)[the defendant] has paid up capital of $1.00 and is a wholly owned subsidiary of Duro Felguera SA (Duro). Duro is a foreign company incorporated in Spain that does not apparently carry on business directly in Australia.
(b)The sole director of [the defendant] no longer appears to be resident in Australia.
(c)[The defendant] has not, contrary to ss 292 and 319 of the Corporations Act lodged financial reports and directors' reports with ASIC since the financial year ended 30 December 2015.
(d)[The defendant's] auditor resigned in December 2016.
(e)[The defendant] does not appears [sic] to carry on business in Australia.
(f)[The defendant] is involved in arbitration in Singapore under the rules of Singapore International Arbitration Centre (SIAC) in Case No ARB065/16/JJ with Samsung C&T Corporation. Samsung C&T is incorporated in the Republic of South Korea.
(g)The principal activity of [the defendant] appears to be the pursuit of its claims against Samsung C&T in its arbitration in Singapore.
(h)It appears likely that after payment of any award [the defendant] will be wound up or deregistered and the proceeds of the award and any remaining assets distributed to Duro as its sole shareholder.
The liquidators' solicitors gave notice that if the defendant disputed the plaintiff's claims and the undertaking requested was not provided, then the plaintiff would apply to the court for an interim measure of protection.
On 17 April 2018 the defendant's solicitors replied to the liquidators' solicitor's letter dated 11 April 2018 and confirmed that the plaintiff's claims were disputed and that the undertaking requested by the defendant would not be provided.
On the morning of 19 April 2018 Mr David Ulbrick of the liquidators' solicitors attempted to contact the solicitor with conduct of the matter within the defendant's solicitors to confer about the proposed application for a freezing order. The initial attempt to confer was unsuccessful because the partners in the firm of solicitors acting for the defendant were not available (they were in Singapore for the purposes of arbitral proceedings against Samsung). The plaintiff's solicitors filed and served the originating summons and supporting affidavit material. In the early afternoon of 19 April 2018 conferral between the parties' solicitors took place over the telephone but the application was not resolved.
At the hearing of the application on 23 April 2018 senior counsel for the defendant was critical of the plaintiff's solicitors for signing a certificate of urgency and for the lack of conferral before the application was filed. The defendant was content, however, for the hearing of the application to proceed and did not wish to apply for an adjournment.
The evidence
The plaintiff relied on the following affidavits.
(a)affidavits of Mr David Charles Ulbrick sworn on 18 April 2018, 22 April 2018 and 24 April 2018;
(b)an affidavit of Mr Geoffrey Faleu Peterson sworn on 30 March 2018; and
(c)an affidavit of Ms Anna Mary Prentice sworn on 23 April 2018.
The defendant relied upon the following affidavits:
(a)an affidavit of Ms Victoria Elizabeth Strong sworn on 22 April 2018; and
(b) an affidavit of Mr Drew Richmond Broadfoot sworn on 22 April 2018.
Applicable statutory provisions and legal principles
The court's jurisdiction to make a freezing order was not contested. The court has inherent jurisdiction to make such an order.[1] Independently of the court's inherent jurisdiction, jurisdiction is conferred by Article 17J of the UNICTRAL Model Law on Commercial Arbitration which is given the force of law by s 16 of the International Arbitration Act.
[1] PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; (2015) 258 CLR 1 [43]; Construction Engineering (Aust)Pty Ltd v Tambel (Australasia) Pty Ltd [1984] 1 NSWLR 274, 277 - 8.
The court's jurisdiction is regulated by O 52A of the Rules of the Supreme Court 1971 (WA) (RSC). Order 52A r 5(4) provides that the court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because, relevantly, the assets of the prospective judgment debtor are removed from Australia or from a place inside or outside Australia, or disposed of, dealt with or diminished in value.
Order 52A r 5(1) stipulates the circumstances in which O 52A r 5 applies which, by subrule (1)(b)(i), include those in which an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in this court. For reasons I explain below the plaintiff has a good arguable case on the accrued causes of action. Those causes of action are justiciable in the court albeit subject to the defendant's right to apply for a stay under s 7(2) of the International Arbitration Act.
An arbitral award may be enforced as a judgment of this court.[2]
[2] Article 35 of the UNICTRAL Model Law.
It was common ground that there are three primary questions which must be addressed:
(a)Has the plaintiff shown it has a good arguable case on an accrued or prospective cause of action?
(b)On the evidence before the court is there a danger that a prospective arbitral award and any judgment in respect of it will be unsatisfied because assets are removed from Australia, or disposed of, or dealt with, or diminished in value?
(c)In all the circumstances is this a case in which it is in the interests of justice to grant a freezing order?[3]
[3] Deputy Commissioner of Taxation v Hua WangBank Berhad [2010] FCA 1014; (2010) 273 ALR 194; BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 3) [2013] WASC 239.
In Ninemia Maritime Corp v Trave Shiffahrtsgesellschaft GmbH & Co KG Mustill J (as his Lordship then was) considered that in the context of a Mareva order, a good arguable case is one 'which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success'.[4]
[4] Ninemia Maritime Corp v Trave Shiffahrtsgesellschaft GmbH & Co KG [1984] 1 All ER 398, 404.
In BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 3) Le Miere J referred to the comments of Mustill J regarding what constituted a 'good arguable case' in Ninemia and observed:[5]
I do not think there is any difference between that test and the requirement that the applicant for a Mareva order show 'a reasonably arguable case on legal as well as factual matters' expounded by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at [68].
[5] BCBC Singapore Pte Ltd v PT Bayan Resources TBK (No 3) [75].
The interests of justice may support the granting of a freezing order to prevent the dissipation of assets pending the hearing of an action even though the risk of dissipation is less probable than not.[6] The fact that assets within the jurisdiction are moveable, or the fact that the proceeds from their realisation may be removed from the jurisdiction, and that the defendant is incorporated outside the jurisdiction, are not enough to warrant an inferential finding of danger of dissipation.[7] There must be facts from which a prudent, sensible, commercial person can properly infer a danger of default if assets are removed from the jurisdiction.[8]
[6] Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 325 (Gleeson CJ); Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 54; Deputy Commissioner of Taxation v Hua Wang Bank Berhad.
[7] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [12] (Kenny J).
[8] Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645, 671(Lawton LJ); Deputy Commissioner of Taxation v Hua Wang Bank [12] (Kenny J).
It is not necessary for an applicant to demonstrate a positive intention to frustrate a judgment.[9]
[9] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [10] and the cases there cited (Kenny J).
Applications for freezing orders must be approached with caution. As was explained by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Pty Ltd:[10]
… the granting of a Mareva order is bound to have a significant impact on the property of the person against whom it is made: in a practical sense it operates as a very tight 'negative pledge' species of security over property, to which the contempt sanction is attached. It requires a high degree of caution on the part of a court invited to make an order of that kind. An order lightly or wrongly granted may have a capacity to impair or restrict commerce just as much as one appropriately granted may facilitate and ensure its due conduct.
…
Another reason … for care in exercising the power to grant a Mareva order is that there may be difficulties associated with the quantification and recovery of damages pursuant to the undertaking [as to damages] if it should turn out that the order should not have been granted.
[10] Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 [50] - [52].
The plaintiff has shown a good arguable case
In support of the proposition that the plaintiff has a good arguable case the plaintiff relies principally on Mr Ulbrick's first affidavit. Mr Ulbrick deposed to the facts in part on the basis of information provided to him by Mr Steve Sullivan, who was the Commercial Manager of the plaintiff in relation to the subcontract and, in part, on the basis of a review of the plaintiff's business records. Mr Ulbrick annexed over 3,000 pages of business records to his affidavit. I will consider the plaintiff's claims by reference to the categories adopted by it.
The defendant's submissions did not focus on the question of whether the plaintiff has a good arguable case. The defendant made the overarching submission that in assessing the quantum of the plaintiff's claims the court should not assume that the plaintiff will enjoy complete success on its claims and that the defendant's claims will fail entirely. I will return to this submission.
Approved invoices claim
In his first affidavit Mr Ulbrick explained that the invoices forming the basis of this claim were approved by the defendant in 'pro forma' format before being issued. The defendant did not adduce any evidence to contradict Mr Ulbrick's explanation. On the basis of Mr Ulbrick's evidence that the invoices were approved by the defendant I am satisfied that the plaintiff has a good arguable case in respect of the approved invoices claim in the amount of $7,370,029.
POD Claims
Mr Ulbrick explained the background to the proof of delivery claims in his first affidavit. He explained that the defendant has refused payment of various invoices for the delivery of components on the basis that the plaintiff has not provided adequate proof of delivery. Mr Ulbrick deposed that the defendant has not made a claim for a failure to deliver any components. He also deposed that in some instances in which payment for an invoice for the delivery of components has been refused, the defendant has made a claim for late delivery of the components. I am satisfied that the plaintiff has an arguable claim for $5,119,068 in respect of those invoices that have been rejected by the defendant on the basis that the plaintiff has not proved delivery.
PTC claims
Clause 30 of the subcontract is a 'pass through claims' clause, which purports to limit the plaintiff's rights in two ways. First, cl 30 purports to limit claims made by the plaintiff arising from facts which constitute a breach of both the subcontract and a breach by Samsung of its contract with the defendant, to the amounts recovered in respect of the subject matter of those claims by the defendant from Samsung. Secondly, cl 30 purports to defer the plaintiff's entitlement to have the pass through claims determined until the defendant's claims against Samsung have been determined. Mr Ulbrick deposed that the defendant has withheld payment of claims claimed by the plaintiff in the sum of $3,669,953 on the basis that the defendant is entitled to pass through those claims to Samsung.
In my view the pass through claims may be considered to be reasonably arguable between the plaintiff and the defendant on the basis that they are not claims that have been rejected by the defendant on their merits but are the subject of claims by the defendant against Samsung.
In its written submissions the plaintiff submitted that, on the basis that the subcontract was a construction contract within the meaning of the Construction Contracts Act 2004 (WA), then cl 30 was a 'pay if and when paid' provision that was invalid and unenforceable by reason of s 9 of the Construction Contracts Act. A construction contract is defined in s 3 of the Construction Contracts Act to include a contract under which a person is obliged 'to supply to the site where construction work is being carried out any goods that are related to construction work by virtue of section 5(1)'. 'Goods related to construction work' are defined in expansive terms by s 5(1) of the Construction Contracts Act. In my view there is a reasonable argument that the subcontract is a construction contract and that cl 30 is invalid. This is a separate basis for concluding that the plaintiff has a good arguable case on the pass through claims.
Disputed invoices claim
Mr Ulbrick explained the background to these claims in a summary way in his first affidavit. It is evident from that summary that the claims are factually complex and are founded on facts that are contentious. The claims fall into four categories: ocean freight claims, variation claims, inland transport claims and vessel detention claims. Mr Ulbrick explained that the ocean freight claims are advanced in reliance on documentary records which he deposed have not been contradicted by the defendant.
In relation to the variation claims and inland transport costs, Mr Ulbrick deposed on the basis of information provided to him by Mr Sullivan to the effect that the relevant service was provided and the disputes concern the value of the services provided and the entitlement to claim, rather than whether the service was provided. Mr Ulbrick's explanation of the vessel detention claims is likewise dependent on information provided to him by Mr Sullivan and does not extend beyond a summary of the nature of the claim and a brief reference to the circumstances of one of the claims. The evidentiary foundation for the disputed invoices claim is limited. Whilst I am satisfied that the disputed invoices claims are good arguable claims the comparative lack of evidence supporting these claims is a factor that I will take into account when considering how the interests of justice are to be reflected in the relief to be granted.
Performance bond claim
The plaintiff's claim in relation to the performance bond is bound up with the defendant's claims. If the defendant's claims fail then the plaintiff's claim based on the calling of the performance bond will succeed. For the reasons referred to below I consider that the plaintiff has a good arguable case that the defendant's claims will fail. Accordingly I consider that the plaintiff has a good arguable case on the performance bond claim.
The defendant's set-off claim
The defendant claims that it is entitled to set off its claims against the plaintiff's claims. The defendant's claims are for liquidated damages arising by reasons of alleged delays in delivery of components transported by the plaintiff, and, for claims to be indemnified in respect of liquidated damages deducted by Samsung from the claims made by the defendant.
The defendant's set-off claim gives rise to an issue about the construction of various provisions in the subcontract and the application of those provisions to contentious facts.
In outline the construction issue arises in this way. The term 'Guaranteed Dates' is defined in cl 1 of the subcontract as 'the date stipulated in clause 13 of this Contract'. Clause 13 of the subcontract is entitled 'GUARANTEED DATES' but contrary to what is suggested by the definition in cl 1, no date is stipulated in cl 13.
Clause 13.1 states:
The [plaintiff] guarantees that it will comply with the Total Transit Dates as defined in Appendix 1A Rev05, 08.05.2014 fulfilling with all the conditions established in this Contract.
Appendix 1A Rev05, 08.05.2014 (referred to as the Packing List) is a long and detailed schedule that lists the components to be transported and cross references the components to, among other things, the dates on which the components would be 'available for shipment' and to 'requested delivery dates'. Four of the columns in the Packing List that contain information against which the components are cross-referenced are entitled: 'Actual Availability Date', 'Days in advance to reconfirm loading date', 'Total Transit Dates' and 'Requested Delivery Date at Final Destination'. No calendar dates appear under the heading 'Total Transit Dates', only various numbers that are clearly references to the time, measured in days, allowed for the transport of the referenced components. The 'Actual Availability Date' column and the 'Requested Delivery Date at Final Destination' column contain calendar dates and it appears that the latter dates have been calculated by adding the number of days listed under 'Total Transit Dates' to the calendar dates in the 'Actual Availability Date' column.
Clause 14.1 states:
Should the [plaintiff] fail to comply with the Guaranteed Dates mentioned in clause 13 for reasons not attributable to the [defendant] or to any other reason giving rise to a modification of the Guaranteed Dates, the [defendant] shall be entitled to apply … liquidated damages of 1% of the amount of the delayed shipment per day up to a maximum of 10% the Contract Price [sic] …
Clause 14.3 states:
In any case, the [defendant] shall be entitled to claim indemnification from the [plaintiff] for all loss and damages that such a delay may have caused it and that exceed the amount resulting from the application of the liquidated damages for delay.
The plaintiff contends that reasonable commercial business people would understand these contractual provisions to mean that the plaintiff guaranteed that it would transport the components using the number of days designated for the transit time, that is, the number of days specified in the 'Total Transit Dates' column of the Packing List. The relevant consequence of this construction is that the plaintiff would only be exposed to a claim for liquidated damages if the actual time taken to transport components exceeded the number of days specified in the 'Total Transit Dates' column.
It is not clear to me from the evidence exactly how the defendant says the contractual provisions should be construed but according to the plaintiff, the defendant asserts that the plaintiff guaranteed that it would deliver the materials, in effect, by the 'Requested Delivery Date at Final Destination' in the Packing List irrespective of the actual date the materials became available for loading. The plaintiff submits this construction is not supported by the natural and ordinary meaning of the text of cl 1 and cl 13 and the provisions of the Packing List to which I have referred. The plaintiff goes on to submit that the defendant's construction would defy commercial common sense because the carrier would be contractually obliged to deliver materials to a destination on a particular date in circumstances where the carrier had no control over the date upon which the materials would become available at the place or port of loading.
There is merit in the construction of the contractual provisions for which the plaintiff contends. Although the plaintiff's characterisation of the defendant's position on the construction issue on which its liquidated damages claims depend was not challenged at the hearing of this application, I have reservations about whether the plaintiff's submissions do justice to the defendant's position. On the basis of the annexure to the defendant's proof of debt it seems that one aspect of the defendant's liquidated damages for delay case is that the time within which materials had to be transported started to run from the 'Actual Availability Date' and that, in some instances at least, the plaintiff was not in a position to ship materials on the 'Actual Availability Date'.
On the material presented on this application the position is that the plaintiff has a good arguable case on its claims and the defendant has cross-claims that it claims to be entitled to set off. I am not persuaded that the existence of the set-off claim means that I should conclude that the quantum of the plaintiff's claims should be limited to the amount by which its claims exceed those of the defendant, that is, I am not satisfied that I should assume in the defendant's favour that it will be wholly successful on its claims. The existence of the defendant's set‑off is an additional matter which I will take into account when considering how the interests of justice are to be reflected in the relief to be granted.
The danger that judgment will be unsatisfied
There is a danger that a judgment will be unsatisfied because assets are removed from Australia, or disposed of, or dealt with, or diminished in value.
Before setting out the reasons for the conclusion I have reached it is necessary to refer to the background in more detail and to summarise the defendant's submissions.
Background
The defendant has paid up capital of $1.00. It is a wholly owned subsidiary of Duro Felguera SA (Duro SA), a Spanish company. The sole director of the defendant is Mr Ruben Fernandez. Mr Peterson's evidence suggests that Mr Ruben is currently in Spain but is expected to return to Perth in a month.
In her affidavit Ms Strong deposed that she is employed by the defendant as a Legal and Commercial Manager and that she manages the defendant's affairs on a day to day basis. She deposed that she reports to, and obtains, assistance from representatives of Duro SA and that Duro SA provides the defendant with financial and logistical support. Ms Strong explained the background to the defendant's involvement in the Project. She deposed that the defendant is currently engaged in arbitral proceedings with Samsung. Those proceedings are being conducted in Singapore. Ms Strong deposed that the defendant is engaged in two other sets of arbitral proceedings and is managing contracts with some 50 subcontractors engaged for the purposes of the Project and managing disputes arising out of those subcontracts.
Ms Strong deposed that the defendant has no current plans to leave Australia, remove assets from Australia, dispose of assets, or diminish the value of its assets. She deposed that the defendant is not in the process of winding up its operations in Australia. She said that the defendant has responded to expressions of interest and tenders for construction projects in Australia but that it has not been successful in winning work. Ms Strong deposed that Duro SA has made direct investments in companies in the Australian construction market and that it holds approximately 10% of the shares in Ausenco Ltd with whom Duro SA has entered a memorandum of understanding to pursue 'engineering procurement construction' (EPC) projects. If any EPC projects are secured in Australia Ms Strong deposed that the defendant would undertake that work. Ms Strong deposed that the defendant's accounts for the financial year ending 30 June 2017 are currently being audited by the accountancy firm KPMG.
The most recent publically available financial statements of the defendant are those for the calendar year ending 31 December 2015. The financial statements include a balance sheet that records total assets of $131,283,858 and total liabilities of $126,942,271 giving a net asset position of $4,341,587. The defendant's assets comprised principally cash, cash equivalents and receivables. Its liabilities comprised principally trade debts and a provision of approximately $67 million in respect of a guarantee.
Importantly, the notes to the defendant's accounts for the year ending 31 December 2015 record a loan by the defendant to Duro SA of $53,697,442 of which $12,000,000 had been repaid. It was common ground that it appears from Duro SA's accounts that the balance of the loan has been repaid.
A search of the Personal Property Securities Register established under s 147 of the Personal Property Securities Act 2009 (Cth) discloses that security over the defendant's present and after-acquired property (subject to unspecified exceptions) was granted to the Australia and New Zealand Banking Group Ltd on 5 November 2013. It is not possible to glean from the financial statements for the year ending 31 December 2015 what the secured debt is.
The financial statements of Duro SA and its subsidiaries for the year ending 31 December 2016 were annexed to Mr Ulbrick's first affidavit. The financial statements included a report to shareholders dated 17 March 2017 by Duro SA's auditor. In that report the auditor referred to Duro SA's liquidity risk and to the steps being taken to improve its liquidity. The auditor stated, in effect, that Duro SA's circumstances indicated that there was a material uncertainty that could give rise to significant doubts surrounding the company's ability to continue as a going concern.
A 'Results Report' published by Duro SA in respect of the calendar year ending 31 December 2017 included the following statements about Duro SA's operations and finances:
1.Main figures and milestones for the period
•In FY 2017, the company carried out an intense search for partners in a context of financial difficulty, which limited its business activity.
•The search for partners in the domestic and international market, with Rothschild as advisor, has led to multiple approaches, visits and due diligences from various different companies and led to a profoundly rigorous review of ongoing projects, including the current status and estimated costs for completion. The review led to adjustments in diverse projects which were started in previous years. These adjustments took place both in December, when they were announced by means of a significant deed, and at the close of the year.
•Reduced business activity, the consequence of the Group's financial situation, is reflected in both the sales, lower than in 2016, and in the negative margins, related to the greater relative proportion of structural costs, in all divisions except for Services, which took advantage of the Lujan and Matheu projects.
…
•The Company negotiated in February 2018 the terms and conditions for a proposal for a refinancing agreement with the banks, after three previous standstill agreements (June to September 2017, September 2017 to 15 January 2018 and January to 15 April 2018). This agreement proposal, with sufficient support from the banks, should be materialized in a refinancing agreement which would be fully effective after a successful capital increase of between 100 and 125 million Euros. The effectiveness of the agreement will enable a significant reduction in the financial leverage, balancing the company's own funds, improving liquidity and having sufficient financing for bringing into play a new business plan in the coming years, and in short, relaunching the Company's business activity.
The Results Report records that, '[o]n 16 January the Company reported the signing of the extension to the standstill agreement with its banks'. From the context I infer that the date on which the signing of the standstill agreement was reported was 16 January 2018 rather than 16 January 2017. The Results Report also records that '[o]n 7 March the Company provided further information concerning the refinancing process with its banks'. Again I infer from the context that the date referred to is 7 March 2018 rather than 7 March 2017.
In a press release dated 19 March 2018 Duro SA stated that $19.1 million had been recovered from Samsung. Duro SA stated that in the 'main case', which was proceeding by way of an arbitration in Singapore, a further $310 million was being claimed from Samsung. It stated that a final decision was expected at the end of 2018 or in early 2019.
Defendant's submissions
The defendant characterised the application as an 'opening gambit' by the plaintiff. Its submissions in opposition to the application revolved around the following seven interrelated propositions:
a) The application is not urgent and a certificate of urgency should not have been signed. In oral submissions this proposition was developed by reference to an observation made by the plaintiff's counsel that the risk that the use of funds derived from the defendant's arbitration against Samsung by Duro SA may not be 'imminent' but it was inevitable.[11]
b) There was no conferral prior to the filing of the application.
c) The plaintiff has not shown why orders are being sought now; nothing has changed since correspondence was exchanged in mid-2015 about the notice of reference to arbitration.
d) The court can have no confidence that the (insolvent) plaintiff will commence and pursue an arbitration having taken no steps to proceed to arbitration since mid-2015.
e)The application is not supported by an adequate undertaking as to damages.
f) The court should not assume that the plaintiff will be wholly successful in its claims and the defendant wholly unsuccessful in its cross-claims.
g)The plaintiff's evidence does not rise above the level of self‑serving speculation.
Reasons for concluding there is a danger that any judgment will be unsatisfied
[11] ts 9.
As I have indicated I am persuaded that there is a danger that a prospective judgment based on an arbitral award will be wholly or partly unsatisfied because the assets of the defendant will be removed from Australia or disposed of, dealt with or diminished in value.
The reasons for coming to this conclusion are as follows. If the defendant has any significant success in its claims against Samsung it will receive funds that exceed its operational requirements as disclosed by the evidence. In contrast, on the basis of the evidence of Duro SA's present financial position, it is likely that Duro SA will continue to have a significant need for funds. In those circumstances I infer that Duro SA will exert its control over the defendant to obtain the benefit of the latter's funds. To expect Duro SA to do otherwise would be quite unrealistic. The inference I have drawn is made more compelling by the fact that the defendant lent over $53 million to Duro SA in 2015. Even though that loan may have been repaid it is evidence that the defendant will provide funds to its parent company when required.
With respect to Ms Strong's evidence about the absence of any current plans on the part of the defendant to leave Australia, remove assets from Australia, dispose of assets, or diminish the value of its assets two observations may be made. First, the defendant's current plans may well be reviewed if the defendant receives substantial funds by way of an arbitral award. Second, the board and management of Duro SA are in a position to exert effective control over the affairs of the defendant and it is their plans that are most relevant and they are not matters about which Ms Strong has given evidence.
Further, to the extent to which the defendant's financiers, or Duro SA's financiers, do not have existing security interests in the defendant's claims against Samsung, I consider that there is a danger that as part of any refinancing of Duro SA - an exercise that the evidence suggests is currently being undertaken - security over those claims will be granted to Duro SA's financiers.
It should also be noted that although the evidence suggests that an arbitral award is not expected until late this year or early next year, that expectation does not preclude the possibility that the defendant will receive funds in the interim as a consequence of a settlement.
I turn to some of the other matters raised by the defendant's submissions. I am not persuaded that it was wrong for the plaintiff's solicitor to have signed a certificate of urgency in this case but even if I was to accept that such a certificate was not warranted, having regard to my conclusions on the questions raised by this application, I would not exercise my discretion to dismiss the application on that basis.
The application was filed prior to any oral conferral between the solicitors as is required. That omission must be assessed in the context of the defendant's solicitors having clearly stated in their letter dated 17 April 2018 that the defendant was unwilling to provide the undertakings sought by the plaintiff. Moreover, I am satisfied that conferral did take place on 19 April 2018 within hours of the papers being filed and, as noted earlier, it did not resolve the application.
The plaintiff's inaction from mid-2015 is explicable by the supervening insolvency of the plaintiff and it does not of itself constitute a reason to deny the plaintiff relief. Moreover, there have been developments that constitute a change in circumstances: first, Duro SA is in financial difficulties; second, direct evidence that the defendant's assets have been used to fund Duro SA's activities is now available when it was not in 2015; and thirdly, the plaintiff has obtained funding to pursue its claims in arbitration.
Grant of a freezing order
The conclusion that it is in the interests of justice to grant a freezing order flows primarily from the conclusions I have reached that the plaintiff has good arguable claims and that there is a danger that a judgment will not be satisfied.
Further, a freezing order in the terms proposed by the plaintiff will not prevent the defendant from continuing to conduct its business in the ordinary course as it presently does. Given the disclosures that have been made by Duro SA about its financial difficulties I am not persuaded that the making of a freezing order will cause the defendant reputational damage - a contention advanced on the defendant's behalf.
As indicated earlier in these reasons in making an assessment of the amount of the plaintiff's claims I take into account the limited evidentiary foundation for the plaintiff's disputed invoices claim and also take into account the defendant's cross-claims and I have determined that the value of the assets to be the subject of the freezing order should be $20 million, inclusive of any claim for interest.
The plaintiff's liquidators should provide an undertaking that they will commence and pursue arbitral proceedings with expedition.
The issue of an undertaking as to damages has been somewhat confused. Initially it was proposed that the liquidators would take the unusual course of providing unlimited personal undertakings as to damages. It transpired that there had been a misunderstanding as to the liquidators' position and in place of an undertaking from them an undertaking was proffered by Abnormal Load Engineering Ltd, a company registered in England. According to the annual report and unaudited financial statements of Abnormal Load Engineering Ltd for the year ending 31 March 2017, it had net assets of over £44 million. Abnormal Load Engineering Ltd is related to a proprietary company in Australia, ALE Heavy Lift (Australia) Pty Ltd, which is one of the shareholders in the funding party to the litigation funding agreement, ACN 609 289 170 Pty Ltd. Audited special purpose financial statements for the year ending 31 March 2017 for ALE Heavy Lift (Australia) Pty Ltd recorded that it had net assets of approximately $15 million. ALE Heavy Lift (Australia) Pty Ltd has provided an undertaking as to damages to the plaintiff's solicitors that it is prepared to give if the undertaking proffered by Abnormal Load Engineering Ltd is not acceptable. On the basis of the evidence before me a freezing order is unlikely to have a significant effect on the defendant's activities and I consider that the undertaking proffered by ALE Heavy Lift (Australia) Pty Ltd is acceptable.
The plaintiff seeks an ancillary order requiring the defendant to disclose its assets and liabilities, including any securities granted over its assets. I consider that the defendant should make the disclosure sought by the plaintiff and the disclosure should be on affidavit.
Subject to the provision of the undertakings to which I have referred I will make orders of the nature sought by the plaintiff. I will hear the parties as to the precise form of orders and costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JB
ASSOCIATE TO THE HONOURABLE JUSTICE TOTTLE7 MAY 2018
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