Re Kao, Peter; Ex Parte Pyramid Building Society (in liq) [1997] FCA 802

FEDERAL COURT OF AUSTRALIA

BANKRUPTCY - sequestration - creditors' petitions - whether debtor carrying on business in Australia by means of an agent or manager - whether debtor a member of a firm or partnership carrying on business in Australia.

Bankruptcy Act 1966 (Cth) s43

Brauch, Re; ex parte Britannic Securities & Investments Ltd [1978] Ch 316

Lewis v Graham (1888) 22 QBD 1

Turner v Trevorrow & Anor (1994) 49 FCR 566

RE: PETER KAO

EX PARTE: PYRAMID BUILDING SOCIETY (IN LIQUIDATION)

NP 244 of 1996

JUDGE: DAVIES J

PLACE: SYDNEY

DATED: 5 AUGUST 1997

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NP 244 of 1996 ) GENERAL DIVISION )

RE: PETER KAO

Debtor

EX PARTE: PYRAMID BUILDING SOCIETY (IN LIQUIDATION)

Petitioning Creditor

CORAM: Davies J. PLACE: Sydney DATED: 5 August 1997

MINUTES OF ORDER

THE COURT ORDERS THAT:

The petition be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NP 244 of 1996 ) GENERAL DIVISION )

RE: PETER KAO

Debtor

EX PARTE: PYRAMID BUILDING SOCIETY (IN LIQUIDATION)

Petitioning Creditor

CORAM: Davies J. PLACE: Sydney DATED: 5 August 1997

REASONS FOR JUDGMENT The debtor, Peter Kao, suffered judgment in favour of the Pyramid Building Society (In Liquidation) in the sum of $3,517,706.18. Judgment was given on 6 December 1993. It appears that Mr Kao had business interests in Australia in earlier years but, from about 1992 or 1993, had moved from Australia to Taiwan where his family, including his parents, had business interests. He was last in Australia for a few days in the middle of 1994. Mr Kao failed to comply with a bankruptcy notice on 24 August 1995 when he was required to pay the sum due or to provide for its payment in accordance with the bankruptcy notice. The bankruptcy notice had been served by way of substituted service on Mr Kao's solicitor, Mr S.K. Hedges of T.H. Walker and Co of Forestville. Section 43 of the Bankruptcy Act 1966 (Cth) provides:- "43(1) Subject to this Act, where: (a) a debtor has committed an act of bankruptcy; and (b) at the time when the act of bankruptcy was committed, the debtor: (i) was personally present or ordinarily resident in Australia; (ii) had a dwelling-house or place of business in Australia; (iii) was carrying on business in Australia, either personally or by means of an agent or manager; or (iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager; the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor." The question presently for determination is whether, at the time when the act of bankruptcy occurred, 24 August 1995, Mr Kao was carrying on business in Australia by means of an agent or manager or was a member of a firm or partnership carrying on business in Australia. There are two authorities on the application of s 43 which are particularly relevant. One is in Re Brauch; ex parte Britannic Securities & Investments Ltd [1978] Ch 316. In that case, the debtor had engaged in property speculation, each property being purchased by a single company. In all some 90 companies had been involved. A considerable number of properties were in England. In the Court of Appeal, constituted by Buckley, Orr & Goff LJJ, it was held that the debtor had been carrying on business in the United Kingdom. Their Lordships made it clear that there had to be a business which was the debtor's own business and they expressed the opinion that that was satisfied on the facts before them. At 327, Goff LJ rejected the view that it was sufficient to show that the debtor had been in control of a company which conducted the business. His Lordship referred to the words of Lord Escher MR, in Lewis v Graham (1888) 22 QBD 1, where his Lordship said:- "I think that those words mean to describe a person managing or conducting his own and not somebody else's, business. He must either manage or conduct a business of his own or the business which is managed or conducted for him must be his own." Goff LJ said that the work done by the debtor in identifying properties for development, in establishing companies to hold the properties and in seeing to the transfer of the properties to the companies, constituted a business which was the debtor's business. At 329, his Lordship said:- "... all the preliminary stages I have described were, in my judgment, his business" . Orr LJ expressed his agreement with Goff LJ. Buckley LJ expressed the same view at 336. His Lordship said:- "I think on a true view of the evidence, it would be more accurate to say that the companies were part of the machinery by which the debtor implemented his business projects." That case was considered and distinguished in Turner v Trevorrow & Anor (1994) 49 FCR 566 where Sweeney, French & Heerey JJ said at 572:- "In our opinion it must be shown that the debtor was carrying on his or her own business. It is not sufficient that the debtor was engaged as an employee in the business of somebody else. That conclusion follows, we think, as a matter of the ordinary and natural meaning of the language of the statute. It is harmonious with s 43(1)(b)(iv) which speaks of a debtor as `a member of a firm or partnership carrying on business'; both paragraphs are concerned with debtors carrying on business as principals, either as sole traders (par (iii)) or in partnership (par (iv))." Mr B. Coles, QC, senior counsel for the petitioning creditor, first submitted that, on 24 August 1995 Mr Kao had been conducting through his agent Mr Hedges, the business of winding up a number of companies in Australia. The evidence of Mr Hedges which was given with respect to this matter was as follows:- "So apart from his unconcluded matrimonial affairs, what other business affairs did Mr Kao leave behind him that required your attention?---Well, there were matters for the companies. Yes, well, can you just cast your mind back, Mr Hedges? There were a number of companies, I take it?---Yes. And each one had to a greater or lesser extent, may we take it, outstanding matters that required attention after Mr Kao's departure?---Most of them would have been winding the companies up and striking them off the register. I see, well did you have instructions from Mr Kao about that?---Yes. And was that an activity which you pursued at various times or from time to time after he left or let us say after the middle of 1994?---Yes. And that presumably carried through until the following year did it?---Yes, yes. ... Now, how many were struck off over that time?---There probably would have been four, maybe five. When I say over that time meaning that in the next year or so following July 1994?---Yes, probably four or five. .... Do you remember when the last of those four or five companies was finally disposed of by you in accordance with Mr Kao's instructions?---No, because what I did was actually get an accountant to do it. It was very procedural and I was running behind with my other work and so I just gave it to him and said fix it up for me. ... Well, what did Peter Kao say to you in connection with giving those instructions?---Well, in fact it was the other way around. When Peter got told to go back to Taiwan by his parents there were companies left here and they just weren't doing anything. They were just incurring accountancy fees. So I suggested that the best thing was to get them removed from the register. Yes, and Mr Kao agreed with that and gave you instructions accordingly, is that what you are saying?---Yes. ... But you say you have continuing instructions from Mr Kao to procure its eventual dissolution?---Well, his instructions basically are he doesn't care what happens to the companies. They're superfluous, they're not trading. Well, he gave you instructions in connection with five companies, you told me previously, to have them struck off?---Well, he accepted my recommendation that we get rid of them, stop them, you know, just chewing up money in fees, etcetera. ... Well, may we take it that you are still in the course of carrying out those instructions so far as the company, I-Mei Pty Limited is concerned?---Yes, I haven't got around to doing that one." I am not satisfied the activities of the companies referred to in those questions had ever constituted a business of Mr Kao. The evidence, which is slight, suggests that each company had its own activity and that that activity was not a part of an overall business conducted by Mr Kao. Mr J. Kelly, SC, senior counsel for the debtor, referred to the group as a disparate group of companies. I am further not satisfied that the action of winding up the companies constituted the conduct of a business either of the companies or of Mr Kao. There is no evidence that there was any business to be wound up. The evidence merely shows that Mr Hedges was instructed to take steps to terminate the corporate structures. They incurred charges whilst they remained on the register. Accordingly, I am of the view that, in relation to these companies, there was no relevant business activity for the purposes of s 43 of the Bankruptcy Act and that, if I were wrong in that and anything was done which might have constituted a relevant business activity, it was not the activity of Mr Kao in carrying on business in Australia, it was merely the activity of winding up a defunct company in Australia and was the activity of the company. I turn now to the other more important aspect of these proceedings. There has been in Taiwan for a number of years a company with which Mr Kao's family has been involved. That is Parmen Marketing and Distributing Co. Ltd ("Parmen") which trades, to some extent at least, under the name "Multilink Golf Corporation". The present debtor, Mr Peter Kao, is a vice president of that corporation. Parmen is engaged in the manufacture and distribution of golfing products, the manufacture generally being undertaken in Taiwan and elsewhere in Asia. The name "Multilink" is a registered Australian trademark of which Parmen is the registered proprietor. It may be registered in other countries. There is in Australia a company, Multilink Golf (Aust) Pty Ltd, of which Mr Hedges and Ms Wang, who appears to be a resident of Taiwan and an employee of Parmen, are the directors. That company does not appear to carry on any activity and according to Mr Hedges' evidence is not the owner of the trademark. Its principal activity of Multilink Golf (Aust) Pty Ltd is shown on the Register as:- "Owns valuable name." Mr Kao was a director of that company from 4 December 1991 to 27 July 1995, on which day Ms Wang was appointed a director in his place. It has not been suggested that the Australian company has in itself any particular relevance other than that it is still on the Register and it was one of the companies with which Mr Kao was involved. From about 1986, Mr Kao had conducted a business distributing wholesale golfing products in Australia. Presumably, he imported and distributed mainly products of Parmen. That business has not been carried on since Mr Kao left Australia in the middle of 1994. A company, Fairway Golf Australia Pty Ltd, was incorporated on 26 June 1994, probably just before Mr Kao left Australia for the last time. Its members and shareholders originally were Mr Hedges, a Mr E.V. Young and Mr P. Cox, the latter two of whom were connected with E.V. Young International Pty Ltd. Mr Young and Mr Hedges appear to have had a number of interests in common. There is no evidence that Fairway itself took over Mr Kao's business; but it is clear enough that the business which Fairway developed must at least have filled the gap. The evidence shows that, over the years, Fairway has imported goods from overseas, principally but not exclusively from Parmen, and has distributed those goods by wholesale in Australia. The documents in evidence show on their face ordinary commercial arrangements whereby Parmen quoted prices, Fairway placed orders, invoices showing the agreed price were sent from Parmen to Fairway and the price was ultimately paid by Fairway by telegraphic transfer. Thus the first of these documents which are in evidence was from Mr Hedges to Mr Kao in Taiwan on 7 February 1994 requesting prices for the supply of certain golfing equipment, 100 of certain putters and 100 of metal woods. Quotes of prices on golf balls was also sought. I need not go into the details of all the facsimiles which have passed from the one company to the other. It is clear enough that Fairway regularly either inquired about prices or availability of equipment and Parmen responded, orders were placed and in due course, the deals having been struck, goods were forwarded and payment was made. It is noticeable in some of the correspondence that it has an arm's length character about it. For example, in a facsimile from Parmen of 19 December 1995 to Mr Hedges, Parmen set out details of what was said to be "new product available" and went on to say:- "We will be glad to quote you the best price after you pick the items which you will have interest in". Another example is a facsimile from Parmen of 15 February 1996 which, after confirming an order, went on to say:- "I also remind you that the price we quote you on Feb.12 is based on minimum quantity". Many of the facsimiles went to and from Mr Kao but he was not the only employee of Parmen who was involved in dealing with these matters. On the face of the documents, Fairway has not carried on business as agent for Parmen but has carried on business in Australia for itself. That business has been the business of importing goods from overseas and selling them by wholesale in Australia. On its letterhead Fairway has described itself as "exclusive distributor for Cheetah pro-one golf clubs in Australasia" and has also had a Cheetah logo on its letterhead. "Cheetah" is the name used by Parmen for some of its clubs. In more recent times, but certainly from as far back as June 1995, Fairway has had a letterhead which has described it as "exclusive distributor and agents for Multilink golf in Australasia" and has carried the Cheetah logo and the Multilink logo. It does not seem to me that these matters constitute Fairway as relevantly an agent for Parmen. They merely show that Fairway was the Australian distributor for the Cheetah and Multilink products. The impression that one gains from the documents is supported by the evidence of Mr C.D. Reade, who was manager of the Fairway's business for a short time in early 1996. Mr Reade has deposed:- "Fairway is not the Australian agent of Parmen, but merely purchases Parmen's products." I accept Mr Reade's evidence that that was how the business was conducted while he was the manager of Fairway's business. It appears to me from the whole of the documentation that that indeed was how the business was conducted throughout the relevant period. Mr Coles has raised a number of features which would lead one to have queries about Fairway and the relationship of its officers with either Mr Kao or either Mr Kao's family. He relies of course upon the fact that Fairway was created at the time when Mr Kao left Australia, that one of the principal persons who set it up was Mr Kao's solicitor and that the solicitor has been a prominent person in the conduct of the business. The solicitor, Mr Hedges, and Mr Young in their evidence have denied having much day to day input into the business. And none of Mr Hedges, Mr Young or Mr Cox appears to have put much capital into the business at its commencement. I think Mr Hedges said that $5000 was contributed by each. I think that was contributed by way of loan capital. Mr Hedges also said that he had since contributed other sums to a total of $30,000 by way of loan capital. Mr Young could not recall what he had lent the company. Mr Coles suggested that it was a strange thing for these people to set up this company, strange that Mr Hedges should have denied having any discussion about it with Mr Kao when Mr Kao was in Australia and strange that the company should have continued in operation although, according to the evidence, Mr Hedges and Mr Young seemed to have lost money and neither of them has got anything out of the business. Those are all matters to be taken into account. Mr Coles also referred to the fact that Mr Cox left the company after a while. It appears that, amongst other things, he did not get on with Mr Kao. Mr Coles suggests the inference should be drawn that the directors of the company are just Mr Kao's agents. The evidence of Mr Hedges was I thought not entirely satisfactory. It is a little difficult to pin the matter down; but I have the impression that not the whole truth emerged from Mr Hedges' evidence. That is not to say, however, that I thought that every particular answer was incorrect. Mr Young's evidence disclosed little knowledge of Fairway and its affairs, at any rate little knowledge that he could bring to mind for the purposes of his evidence. I feel that there are doubts about the weight to be given to the evidence of Mr Hedges and Mr Young; but the substance of the points that they make seems to be well supported by the documents that are in evidence. There is no evidence before the court that Fairway acted as agents for Parmen or Mr Kao or members of Mr Kao's family and, although it may be surprising that Mr Hedges, Mr Young and Mr Cox set up this company and continued it when it has not been particularly successful, it seems to me that there is no basis on which it would be proper to make a finding that the substance of their evidence was incorrect. Mr Coles referred to the fact Mr Cox was not called to give evidence, nor Mr Wen, the current manager of Fairway's business, nor Mr Kao. However, it does not seem to me that that submission carries the matter very far. The petitioning creditor has had discovery of documents, has had access to the documents and records of the companies, including Fairway, and there is simply no evidence indicating that Fairway is other than a purchaser of goods from overseas companies, including Parmen. There is no evidence that Fairway has carried on business on behalf of someone else and no evidence of contributions to Fairway's funds by persons other than the shareholders or of the payment by Fairway to other persons of profits or receipts. Mr Coles relies upon one document dated of 18 August 1994 which reads as follows:- "Shipment details: 1) 420 pieces PRO-1 DRIVERS 2) 298 pieces ELITE POWER PUTTERS Payment: 1) Please T/T to Taipei according to actual invoice, the amount of : A$18,418. 2) Please pay our Dee Why office A$ 15,298 These will represent 20 drivers and 20 putters included free of charge." The reference to $15,298 is strange, but is simply an unexplained statement in one facsimile. The reference to the 20 drivers and 20 putters is also strange for it is not clear what is said to represent them. In my view, no inference can be drawn from this facsimile. What it was referring to and what was done in relation to it is simply unknown. Mr D.J. Howard, a private investigator, gave evidence. He was concerned with the matter early in 1996. On 24 February 1996, he telephoned the manager of what he thought was Multilink, Mr Reade. Evidence has been given that the telephonist connected him to Mr Reade, who was the manager of Fairway. Mr Howard gave evidence that, in the course of the conversation, Mr Reade said of Mr Kao: "Yes, he's my partner". Mr Reade could not recall the details of the conversation other than the fact that someone had rung him about some unbreakable tees, a point which had been mentioned by Mr Howard. It seems to me that no weight can be placed upon the reference to "partner". If it was said, it was untrue. Mr Kao was not Mr Reade's partner. I accept Mr Reade's evidence that he had no impression that Fairway was in partnership with Mr Kao. If such a term was used I think it would have been used only in the very loose sense of someone with whom there was a business relationship. Not all of Mr Reade's evidence was stated with precision and it could be that he used an incorrect term to describe Mr Kao. However, I am not entirely satisfied that the word was used. It seems to me that this particular evidence is as strange as I have found other parts of the evidence to be. There is in this case no reliable evidence of a partnership. In conclusion it seems to me that Mr Kao was not, on 24 August 1995, carrying on a business in Australia through an agent or otherwise and he was not the partner of any person carrying on business in Australia. In those circumstances, it follows from s 43 that the Court does not have jurisdiction to make a sequestration order. The petition must be dismissed with costs. I certify that this and the preceding 11 pages are a true copy of the reasons for judgment of the Honourable Justice Davies. Associate: Date: 5 August 1997 Counsel for the debtor: Mr J. Kelly SC with Mr M. Galvin Solicitor for the debtor: T.H. Walker & Co. Counsel for the petitioning creditor: Mr B. Coles QC with Mr S. White Solicitor for the petitioning creditor: Clayton Utz Date of hearing: 5 August 1997 Date of judgment: 5 August 1997