FEDERAL COURT OF AUSTRALIA Clifton v Wuxi Suntech Power Co., Limited, (People's Republic of China) [2016] FCA 1014 File number: SAD 275 of 2014 Judge: BESANKO J Date of judgment: 23 August 2016 Catchwords: PRACTICE AND PROCEDURE – application for freezing order – where liquidator plaintiffs have a good arguable case to recover payments as unfair preferences – where defendant's only asset in Australia is a debt owed to it by the company in liquidation – whether there is a risk that a prospective judgment will be wholly or partly unsatisfied because the debt might be assigned to a third party – where defendant is a foreign corporation – where asset is a non-trading asset – where insufficient risk of dissipation established – application dismissed. Legislation: Corporations Act 2001 (Cth) ss 439A, 588FA, 588FE, 588FF Corporations Regulations 2011 (Cth) reg 5.6.67 Federal Court Rules 2011 (Cth) rr 7.32, 7.35, 10.42, 10.43 Cases cited: Cardile and Others v LED Builders Pty Limited (1999) 198 CLR 380 Cherry v Boultbee (1839) 4 My & Cr 442; (1839) 41 ER 171 Deputy Commissioner of Taxation v Hua Wang [2010] FCA 1014; (2010) 273 ALR 194 Finn and Ors v Carelli [2007] NSWSC 261 Frigo v Culhaci [1998] NSWCA 88 Khalifeh v Rahme and Another [2009] NSWSC 1332 Ninemia Maritime Corp v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398 Patterson v BTR Engineering (Aust) Ltd and Others (1989) 18 NSWLR 319 Severstal Export GmbH v Bhushan Steel Ltd [2013] NSWCA 102; (2013) 84 NSWLR 141 Keay AF, McPherson's Law of Company Liquidation (3rd ed, Sweet & Maxwell, 2013) Date of hearing: 28 July 2016 Registry: South Australia Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 19 Counsel for the Plaintiffs: Mr S Evans Solicitor for the Plaintiffs: O'Loughlin Lawyers Counsel for the Defendant: Mr S Hay Solicitor for the Defendant: Holding Redlich ORDERS SAD 275 of 2014 BETWEEN: TIMOTHY JAMES CLIFTON AND MARK CHRISTOPHER HALL IN THEIR CAPACITY AS LIQUIDATORS OF SOLAR SHOP AUSTRALIA PTY LTD (IN LIQUIDATION) ACN 092 562 877 Plaintiffs AND: WUXI SUNTECH POWER CO., LIMITED, (PEOPLE'S REPUBLIC OF CHINA) LICENSE NUMBER 320000400001498 Defendant JUDGE: BESANKO J DATE OF ORDER: 23 AUGUST 2016 THE COURT ORDERS THAT: 1. The interlocutory process dated 28 June 2016 be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BESANKO J: 1 This is an application by the plaintiffs in this proceeding for a freezing order under r 7.32 of the Federal Court Rules 2011 (Cth) ("the Rules"). The precise order sought is as follows: 2. That a freezing order be made against the Defendant, Wuxi Suntech Power Co Limited, pursuant to rule 7.32 of the Federal Court Rules, 2011 (Cth) preventing it from assigning, disposing of, mortgaging, charging or otherwise howsoever dealing with: 2.1 any debt owed by Solar Shop Australia Pty Ltd (In Liquidation) to the Defendant ("Debt"); and 2.2 any right to receive a dividend in respect of the Debt in the winding up of Solar shop Australia Pty Ltd (In Liquidation) pursuant to regulation 5.6.67 of the Corporations Regulations 2001 (Cth) or otherwise. 2 Solar Shop Australia Pty Ltd ("the company") was registered in the State of South Australia on 20 April 2000. It was in the business of selling and installing solar electrical power systems for the Australian residential market. Wuxi Suntech Power Co Limited ("Wuxi Suntech") is a company incorporated in the People's Republic of China ("PRC") and it carries on business in the PRC and Australia as a manufacturer, vendor and exporter of solar panels. Wuxi Suntech is in the business of developing, manufacturing and selling solar panels in more than 80 countries. It primarily distributes its solar panel products in Australia through a local distribution entity, SF Suntech Australia Pty Ltd ("Suntech Australia"). The evidence in this case is that typically Wuxi Suntech sells its solar panels to Suntech Australia which in turn sells them to other Australian distributors or customers. 3 Wuxi Suntech sold solar panels to the company and the company was obliged to pay for those goods, although not immediately upon receipt of the goods. 4 On 21 October 2011, Timothy James Clifton and Mark Christopher Hall were appointed as joint and several administrators of the company. On 25 November 2011, Mr Clifton and Mr Hall were appointed joint and several liquidators of the company by a resolution of the creditors of the company at a meeting convened pursuant to s 439A of the Corporations Act 2001 ("the Act") ("the liquidators"). The date of the commencement of the winding up and the relation-back day is 21 October 2011. Six months prior to that date is 22 April 2011. 5 Between 22 April 2011 and 21 October 2011 the company made payments to Wuxi Suntech for goods it had purchased from Wuxi Suntech and Wuxi Suntech delivered goods to the company for which it was not paid. As to the former, the liquidators allege that they have a claim for recovery of the payments made by the company. As to the latter, Wuxi Suntech alleges that it has a claim for the unpaid purchase price of the goods it delivered to the company. 6 The liquidators claim that the company made payments to Wuxi Suntech in May, June and August 2011 totalling, USD1,814,066.80 and in this proceeding, they seek to recover those payments under s 588FF of the Act as unfair preferences (s 588FA); insolvent transactions (s 588FC) and voidable transactions (s 588 FE). 7 Wuxi Suntech's claim against the company is for goods delivered to the company but not paid for in June to July 2011. The claim is for the amount of USD4,766,999.40. Wuxi Suntech lodged a formal proof of debt with the liquidators (then administrators) on 27 October 2011. 8 Wuxi Suntech had a policy of insurance in relation to its unpaid trade debts with China Export and Credit Insurance Corporation (Sinosure) and it gave Sinosure notice of a claim for the unpaid amount owed by the company to it in November 2011. On 6 November 2011, Wuxi Suntech received payment from Sinosure of 75% of its claim. 9 In April 2013, the liquidators received correspondence from the solicitors for Sinosure noting their interest in any future potential dividend in the administration. On 20 June 2013, the liquidators' office wrote to the solicitors for the insurer stating that the liquidators had "amended their records to note that Sinosure should receive any dividends in this administration". 10 This proceeding was commenced on 17 October 2014. On 21 November 2014, I made an order pursuant to rr 10.42 and 10.43 of the Rules that the plaintiffs have leave to serve the originating process and statement of claim on Wuxi Suntech in the People's Republic of China in accordance with the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965. In making that order, I was satisfied that the liquidators had a prima facie case for the relief claimed in the proceeding. 11 Wuxi Suntech filed a notice of address for service on 9 December 2015. The liquidators issued their interlocutory process on 28 June 2016. The interlocutory process was supported by an affidavit from Mr Clifton sworn on the previous day. Mr Clifton's affidavit establishes the following. First, searches carried out by Mr Clifton's solicitors reveal that Wuxi Suntech is not recorded as owning any shares in any Australian company or as owning any real property in Australia. Mr Clifton is not aware of any asset of Wuxi Suntech in Australia other than the debt the company is said to owe to it. Secondly, the Wuxi Suntech proof of debt has not yet been admitted by the liquidators in full. Thirdly, the liquidators of the company have made certain recoveries in its winding up and it is likely there will be a return to creditors paid as a dividend pursuant to reg 5.6.67 of the Corporations Regulations 2011 (Cth). Mr Clifton's opinion as at 27 June 2016, is that it is likely an interim dividend will be paid to creditors of the company in the amount of approximately 6 cents in the dollar. This dividend has not been declared and the figure is only approximate. Should a dividend in that amount be declared, then Wuxi Suntech would become entitled to be paid a dividend in the order of AUD381,141.00. Mr Clifton refers to this as the potential dividend. Mr Clifton goes on to say that it is anticipated that an additional final dividend will also be declared. Finally, Mr Clifton's solicitors have asked Wuxi Suntech to provide an undertaking not to deal with the debt or the potential dividend, but Wuxi Suntech has declined to provide an undertaking to that effect. 12 The Australian solicitor acting for Wuxi Suntech has affirmed two affidavits. In his major affidavit, he deposes to the fact that he had been informed by Wuxi Suntech's legal counsel that the company had ongoing business interests in Australia. He identifies certain distributors currently supplying Wuxi Suntech's products in Australia and provides certain information about them. He states that his online searches have revealed that in or around August 2015, Suntech Australia announced a partnership with Reclaim PV Recycling, an Australian-based waste management company that focuses on reclaiming and recycling solar panels. He states that in or around 2015, Suntech Australia submitted a proposal for funding to the Australian Renewable Energy Agency for large-scale solar photovoltaic in relation to the Griffith Solar Farm project. He states that he has been instructed by legal counsel for Wuxi Suntech and knows from various online searches that Suntech Australia is a major contributor and participates actively in conferences held throughout Australia focusing on clean energy. Mr Cecil refers to the information legal counsel for Wuxi Suntech has provided to him about Wuxi Suntech's claim on the insurance policy it holds with Sinosure. He refers to the terms of the policy and the rights of subrogation in Sinosure. 13 Wuxi Suntech accepts that for the purposes of this application the liquidators have a good arguable case on a cause of action which is justiciable in this Court. The question then is whether there is a danger that a prospective judgment will be wholly or partly unsatisfied because 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 (r 7.35(4)). 14 Wuxi Suntech's principal submission in opposition to the application is that the liquidators have not established a danger that a judgment obtained by the liquidators will be wholly or partly unsatisfied because the debt and the right to a dividend might be removed from Australia or disposed of. As I understood the submission, it is that the prospect of removal or disposition is not established on the evidence and is no more than an assertion by the liquidators. Mere assertion is not sufficient and a party is not entitled to obtain a form of security for its judgment on the basis of assertion only. 15 Before considering this submission, I will identify some matters which do not stand in the way of the liquidators' application. First, there was evidence from Mr Cecil of Wuxi Suntech's "presence" in Australia. This evidence does not rise to the level of establishing that Wuxi Suntech has other assets in Australia. Even if I should infer that there are likely to be debts owed by Suntech Australia and perhaps other Australian companies to Wuxi Suntech which might be the subject of a garnishee order, that prospect is not sufficient to persuade me that that is a significant factor in this case. Secondly, I accept that there is at least an arguable case that Wuxi Suntech could be required to pay any judgment debt owed to the liquidators before sharing in the fund available in the liquidation (Cherry v Boultbee (1839) 4 My & Cr 442; (1839) 41 ER 171; Keay AF, McPherson's Law of Company Liquidation (3rd ed, Sweet & Maxwell, 2013) at [14-099 ff]). Thirdly, while Wuxi Suntech does not concede that an assignee of the debt and the right to share in a dividend would not be subject to the same liabilities as the assignor, it did not press an argument to that effect. 16 Wuxi Suntech emphasised the drastic nature of a freezing order and the fact that such an order should not be made lightly (Cardile and Others v LED Builders Pty Limited (1999) 198 CLR 380 at 403 per Gaudron, McHugh, Gummow and Callinan JJ; Khalifeh v Rahme and Another [2009] NSWSC 1332 at [20] per Slattery J). It accepted that mala fides need not be shown, but, as I have said, mere assertion that a defendant was likely to put assets beyond the plaintiff's reach was inadequate (Frigo v Culhaci [1998] NSWCA 88; Finn and Ors v Carelli [2007] NSWSC 261). Wuxi Suntech also submitted that the fact that the defendant is registered and domiciled overseas is not sufficient to justify a freezing order (Ninemia Maritime Corp v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398). Nor does the fact that a party declined to give an undertaking in respect of a disputed claim means that any judgment ultimately obtained would not be honoured (Severstal Export GmbH v Bhushan Steel Ltd [2013] NSWCA 102; (2013) 84 NSWLR 141). 17 The liquidators submitted that the assessment of the extent of the real danger sufficient to satisfy the requirement in the Rules (and under the common law) is to be made having regard to the particular circumstances of the case. They point to the fact that they are only seeking to restrain the disposition of one asset, that it is Wuxi Suntech's only asset in Australia, and it is not an asset that Wuxi Suntech needs to use in the ordinary course of its business. Subject to the fact that whether Wuxi Suntech owns other assets in Australia is unclear, I accept that these matters are correct and I accept that they bear upon the level of risk of removal or disposition which the liquidators must establish. The liquidators also point to the fact that they do not have to prove the risk is more likely than not (Patterson v BTR Engineering (Aust) Ltd and Others (1989) 18 NSWLR 319 ("Patterson") at 325 per Gleeson CJ; Deputy Commissioner of Taxation v Hua Wang [2010] FCA 1014; (2010) 273 ALR 194 at [9] per Kenny J). That also is correct and I note that Gleeson CJ in Patterson said that there may be cases where an injunction will be granted even though the risk of dissipation may be assessed as being somewhat less probable than not. The difficulty for the liquidators and the reason I refuse this application is that I do not think that the liquidators have established a sufficiently appreciable risk of removal or dissipation to satisfy the relevant requirement. In my opinion, that is fatal to the application, even assuming only a moderate level of risk is required to be shown in this case. 18 It is not necessary for me to consider the balance of convenience. Had it been necessary, I would have found that it favoured the liquidators. It is significant that the asset is a non-trading asset of Wuxi Suntech. Furthermore, I do not think there has been any significant delay by the liquidators when it is borne in mind that they needed to obtain leave to serve the originating application and statement of claim and then to serve those documents. 19 The plaintiffs' interlocutory process dated 28 June 2016 must be dismissed. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 23 August 2016