Industrial Relations Commission of New South Wales in Court Session CITATION : Lee and anor v Song and anor [2004] NSWIRComm 335 FIRST APPLICANT Jung Ki Lee SECOND APPLICANT Sharon Fishing Co S.DE.R.L. PARTIES : FIRST RESPONDENT Young Dung Song SECOND RESPONDENT Lobana Trading Pty Ltd FILE NUMBER: 3463 of 2002 CORAM: Marks J CATCHWORDS : Interlocutory applications - strike out - security for costs - unfair contract - joint venture loss - transfer of vessels to joint venture company without payment - bill of sale alleged to be unjust - Anshun Principle not applicable - applicants not resident in Australia and indeterminate assets - no response following request for further evidence of applicants' finances - application for strike out dismissed - application for security for costs stood over with liberty to apply LEGISLATION CITED : Industrial Relations Act 1996 s106 Trade Practices Act s52 Chellaram (1991) 102 ALR 321 CASES CITED : Green v Brown (2002) NSWIRComm 177, 116 IR 21 Knott v Signature Security Group Pty Ltd (2001) 104 IRC 84 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 HEARING DATES: 04/20/2004 DATE OF JUDGMENT: 12/13/2004 APPLICANTS Mr H Dixon SC (until 31 August 2004) Solicitor: Mr S Woodbury/Ms S Harris Blake Dawson Waldron (until 31 August 2004) LEGAL REPRESENTATIVES: RESPONDENTS Mr P Kite SC Solicitor: Mr R Howard Owen Hodge Lawyers JUDGMENT: - 3 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: MARKS J Monday 13 December 2004 Matter No IRC 3463 of 2002 JUNG KI LEE AND ANOR v YOUNG DUNG SONG AND ANOR Application under s 106 of the Industrial Relations Act 1996 INTERLOCUTORY JUDGMENT ON APPLICATION TO STRIKE OUT AND FOR SECURITY FOR COSTS [2004] NSWIRComm 335 1 This judgment deals with two interlocutory applications made by the respondents. The first is framed in the alternative either as a strike-out or permanent stay application. The second seeks security for costs. 2 The applicants were granted leave at the commencement of the hearing of the interlocutory applications on 20 April 2004 to file a further amended summons. By agreement with the parties I shall deal with these interlocutory applications on the basis that the proceedings are constituted by the further amended summons. 3 The first applicant is Jung Ki Lee, a resident of Korea. The second applicant, Sharon Fishing Co S.D.E.R.L. is incorporated in Honduras. The summons names as first respondent Young Dung Song and as second respondent Lobana Trading Pty Ltd. It seeks the making of a number of orders directed to "the contract(s) or arrangements or any related conditions or collateral arrangements between the applicants and respondents under which the applicants performed work in the fishing industry". Orders are sought for a declaration of unfairness within s 106 of the Industrial Relations Act 1996 (the "Act"), a declaration that the contracts, arrangement or related conditions or collateral arrangements described be declared void and, presumably in the alternative, orders varying them. The variations seek payment of compensation on the transfer of certain fishing vessels, a condition restraining the respondents from encumbering the vessels without approval of the applicants, with the insertion of provisions that the applicants be paid wages and superannuation in respect of work performed in the fishing industry, and a requirement that the applicants be consulted and consent obtained prior to decisions being made with respect to the business activities of Lobana Fisheries Pty Ltd including the borrowing of monies and the transfer of funds. 4 The above is intended by way of summary only and is not intended to deal with the orders sought in an exhaustive fashion. 5 The further amended summons contains within it a "summary of matters of fact and law". This recites the fact that the first applicant is the president and principal shareholder of the second applicant. The second applicant owned three new shipping/fishing vessels which were acquired in 1990 at a cost of approximately US$1 million each. Those vessels were used by the second respondent for tuna fishing in Micronesia and Indonesia. The first applicant commenced negotiations with the first respondent in July 1994 for the creation of a joint venture to use the vehicles for tuna fishing within Australian waters. The summons alleges that the first respondent, Mr Song, agreed in about September 1994 that the joint venture arrangement would involve the utilisation of an Australian corporation, the investment by the applicants of the three vessels for the use of the joint venture corporation, the expenditure of approximately AUD$500,000 by the respondents to prepare the vessels for use in Australian waters, and the repayment of those monies out of a bank loan of between AUD$700,000 to AUD$1 million to be obtained by the respondents by using their own resources to secure the loan. The applicants allege that those loan monies were to be used as working capital for the joint venture. 6 Although the summons does not specifically say so, I should interpolate that the second respondent is a corporation associated with the first respondent as has become clear from the evidence tendered for the purpose of these interlocutory proceedings. 7 The summons alleges that an affiliated company of the second respondent which was a Korean company in fact advanced US$449,663 to allow modifications to be made to the three vessels in Indonesia. 8 In November 1994 further documentation was prepared by the respondents with respect to the joint venture arrangement. The applicants allege that a representation was made that the first respondent "was going to put money into the joint venture". 9 The summons alleges that in about March 1995 there was executed a joint venture agreement dated 7 September 1994 made between the second applicant and the second respondent, that is, between the respective corporate entities. In summary a company, Lobana Fisheries Pty Ltd, was to be the joint venture company owned equally by the second applicant and the second respondent. The second applicant was to transfer title to the three fishing vessels to the joint venture company, the second respondent was to "exercise its best efforts" to provide an agreed amount of working capital. The second applicant was said to be "mainly responsible" for the operation of the vessels and the second respondent responsible in the same way for the "internal administration and management" of the joint venture company. After negotiation bills of sale were signed transferring each of the vessels from the second applicant to the joint venture company at an alleged agreed price of AUD$1 million each. 10 In June 1995 the joint venture company executed bank documents in favour of the National Australia Bank to secure a loan facility. There is a contention referred to in the summons as to whether the first applicant, who executed the bank documentation on behalf of the joint venture company was or was not aware of the nature and effect of that documentation. In any event it secured a charge over the vessels in favour of the bank. 11 The summons alleges that the loan monies obtained from the bank were not paid into the account of the joint venture company but were paid to an account operated by the second respondent, Lobano Trading Pty Ltd. 12 A provisional liquidator was appointed to the joint venture company on 8 March 1996. The second applicant attempted to lodge a caveat on the vessels but these were removed by Justice Hunter in the Supreme Court of New South Wales by order dated 19 June 1996. The liquidator sold the vessels and subsequently a deed of company arrangement was entered into in respect of the joint venture company. 13 The summons alleges that the relevant unfairness required for the exercise of jurisdiction and power under s 106 included the transfer of the vessels to the joint venture company without the payment of consideration or without requiring the respondents to make a contribution of an equal value or on a fair basis, the encumbrance of the vessels to the bank without any consideration being payable to the applicants, the failure to account to the applicants after the sale of the vessels, the making of decisions about the financial affairs of the joint venture company by the respondents without consulting with or obtaining the agreement of the applicants, the failure by the respondents to provide the applicants with appropriate financial information about the financial position of the joint venture company, the failure of the respondents to fully disclose to the first applicant the financial affairs of the joint venture company at the time that the bank facility was executed, and the transfer of the monies advanced by the National Australia Bank direct to the second respondent rather than utilising those monies for the purposes of the joint venture company. 14 The above narrative refers fleetingly to proceedings in the Supreme Court of New South Wales. The nature and extent of those proceedings formed the basis of the dismissal application and it is necessary to describe them in some greater detail. The proceedings were commenced in the Admiralty Division of the Supreme Court by the provisional liquidator of the joint venture company as plaintiff. The first defendant was the second applicant in these proceedings. The second defendant was the Australian Maritime Safety Authority. The proceedings sought the removal of caveats lodged by the second applicant claiming an interest in the three shipping vessels. The summons issued by the provisional liquidator asked the second applicant to show cause why the caveat should not be removed. The second applicant as the first defendant in those proceedings filed amended points of claim which I shall describe in approximate terms as a cross-claim. It is this cross-claim which requires analysis in terms of the dismissal application brought in these proceedings. 15 The cross-claim asserts that at all material times the second applicant was the owner of the three vessels and that on 1 December 1994 the first applicant on its behalf signed documents purporting to constitute bills of sale in favour of the joint venture company, Lobana Fisheries Pty Ltd. There are allegations of misrepresentations made by the respondents to these proceedings as to the requirement to execute this documentation and as to its effect. It was said that the first applicant Mr Lee did not understand English and was unable to read English and that he was reliant upon advice given on behalf of the respondents and their solicitor. The cross-claim challenged the effect of the bills of sale to pass title. In the alternative, the cross-claim alleged that if the bills of sale were effective to pass title then the circumstances in which they were executed were "unjust" and that they should be "declared void". Finally, in the alternative the cross-claim alleged that the conduct of the joint venture company was unconscionable in seeking to claim ownership of the vessels and that the company would "thereby be unjustly enriched." 16 The relief claimed included the vesting of title and ownership in the vessels in favour of the second applicant, orders under s 52 of the Trade Practices Act that the execution of the bills of sale resulted from misleading or deceptive conduct, that the bills of sale be declared void, and for an accounting for all monies received by way of charter payments in respect of the vessels whilst in the possession of the joint venture company. 17 Amended points of defence denied these allegations. 18 In an interlocutory judgment given on 31 May 1996 Rolf J in the Admiralty Division of the Supreme Court of New South Wales ordered that the second applicant give security for costs in the proceedings in the sum of $30,000. It seems that the second applicant failed to comply with the order for the giving of security for costs and the proceedings were stayed. The second applicant did not appear in proceedings before Hunter J in the Admiralty Division on 19 June 1996 and his Honour made orders removing the caveats lodged by the second applicant and further ordered that it pay the plaintiff's costs. 19 It is against this factual background that the respondents have sought the dismissal of the proceedings and the other orders to which I have referred. The Relevant Principles 20 The arguments advanced in favour of this aspect of the interlocutory proceedings by the respondents were based on what has usefully been referred to as the Anshun Principle. This principle has been stated authoritatively by the High Court of Australia in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, especially in the joint judgment of Gibbs CJ, Mason and Aickin JJ at 602 - 604. Fortunately, the relevant principles to be derived from this authority have recently been considered by a Full Bench of this court in Green v Brown (2002) NSWIRComm 177, 116 IR 21. The relevant authorities are referred to at paragraphs 44 to 56 and at paragraph 71 to 86 of the Full Bench judgment. It is not necessary that I refer to any of these matters in detail because they are adequately canvassed in that judgment. 21 It is sufficient for present purposes to make reference to a number of matters: 1. It would not, in my opinion, be expected that all of the issues raised in the s 106 proceedings as currently constituted would have been raised in the Supreme Court proceedings. This is because the Supreme Court proceedings were confined to the entitlement on the part of the second applicant to assert a caveatable interest with respect to the three fishing vessels. The claim which was made by the second applicant, albeit as a corporate entity owned substantially by the first applicant was directed to, and concerned only, the interests of the joint venture company. By contrast, the proceedings in this court are directed to the overall arrangements made with the respondents, a part of which involved the formation of the joint venture corporation. For example, there is a significant focus within the s 106 proceedings on allegations that the proceeds of the NAB loan were diverted to the second respondent rather than being paid into the bank account conducted by the joint venture company. 2. There is no question of any judgment given in these proceedings being in conflict with any judgment given in the Supreme Court proceedings. Those proceedings, as I have said, were confined in their effect to the ability of the second applicant to maintain a caveat against the three fishing vessels. The proceedings in this court assume appropriate transfer of ownership of the three fishing vessels to the joint venture company. 3. There are a number of facts which are relevant to these s 106 proceedings which were not relevant to the proceedings before the Supreme Court of New South Wales, particularly the factual circumstances relating to the NAB loan and the dispersal of the loan proceeds. 4. The parties to these proceedings are significantly different to the parties in the proceedings before the Supreme Court. Whilst on the one hand the second applicant might be said to be a corporate manifestation of the first applicant, neither the first respondent nor the second respondent were parties to the proceedings in the Supreme Court. 22 For all of these reasons I am of the opinion that the Anshun Principle does not apply so as to preclude the applicants from maintaining the proceedings before this court. 23 Security for Costs In order to deal with this matter it is necessary to refer to some additional factual material. 24 The first applicant is a Korean national and a resident of Korea. Prior to entering into the joint venture arrangement he appears to have been extensively involved in the tuna fishing industry and had captained tuna fishing vessels for 30 years. In a statement of assets and liabilities prepared for the purpose of an application to the Department of Immigration the first applicant said that he owned a residence in Seoul valued at $667,000, land at Busan valued at $234,000 and a motor vehicle and furniture valued at $55,000. He said that he had total liabilities of $18,000 and valued his interest in the second applicant at $1.5 million. That reflected an estimate of the value of one half of the joint venture company. 25 In an affidavit sworn 1 July 2003 the first applicant deposed that he was forced to return to Korea after the joint venture failed and that having lost the fishing vessels, he had no other source of income. He said that he was then currently operating a Japanese restaurant in Koyang City and that his monthly income varied but was about US$1,000. He referred to the restaurant business as being "my only asset" and said that he was renting a residential property and did not own a car. He said his three children provided him with financial support. 26 There is no mention in that affidavit of the circumstances in which the residences in Seoul and the land in Busan valued in total at $900,000.00 in February 1995 were disposed of and as to the disposition of the proceeds of sale. 27 The overall impression that I have gained from the evidence filed in the proceedings is that the second applicant was incorporated in Honduras, the first applicant owned 95% of the shares, the remaining 5% being owned by local Honduran residents in accordance with a requirement of Honduran law. It seems that the second applicant has no assets and is not trading. 28 Given these circumstances it is now necessary to consider the application brought by the respondents that the applicants provide security for costs. 29 There was no debate between the parties as to the jurisdiction and power of this court to order the payment of security for costs. The relevant principles and authorities have been usefully gathered and explained in the judgment of Wright J, President of this court, in Knott v Signature Security Group Pty Ltd (2001) 104 IRC 84. I shall not endeavour to either summarise or repeat what was said by his Honour in that judgment; it is sufficient for present purposes that I adopt, with respect, his Honour's summation of the relevant principles and authorities. In particular I have regard to the judgment of McHugh J in the High Court of Australia in Chellaram (1991) 102 ALR 321, the relevant portion of which is extracted by Wright J in Knott. 30 The respondents sought security for costs in the sum of $194,865. This is the total amount of costs assessed by Mr Rolf Howard, solicitor, taking into account preparation and taking into account also a hearing of ten days. A contrary assessment was made by Mr Michael Seck, a solicitor employed with Blake Dawson Waldron, solicitors who then acted for the applicants. It was his estimate that the appropriate legal costs which would be incurred by the respondents in the proceedings would be of the order of $131,550. In either case, the potential costs are significant. 31 For completeness I should add that the applicant has already consented to an order to provide security for costs in the sum of $10,000, for the purpose of the conciliation process. 32 Having regard to all of the material to which I have referred and having regard to the relevant principles and authorities I am of the opinion that the following matters are of significance for the purpose of determining this issue: 1. The second applicant is not resident in Australia and has no assets in Australia or, indeed, elsewhere. Any cost order made against the second applicant would need to be satisfied by the first applicant. 2. The first applicant is resident out of Australia. However whilst he may, as he says, have limited assets, there is no satisfactory evidence which has been made available to the court to determine with any precision the nature and extent of the applicant's current assets. This is because there has been no attempt to explain the disposition of assets worth about $900,000 which the applicant held in February 1995 and as to the manner in which any proceeds of sale were dealt with. In addition, there is some doubt as to whether the applicant owns the restaurant or manages it and as to any value to be attached to any such asset. 3. It is possible that an order for security for costs, even of an amount at the lower end of the scale, were made against the applicants, they would be precluded from prosecuting these claims. 4. Whatever the assets owned by the first applicant, they have been severely diminished by the losses sustained in connection with the joint venture operation. 5. If the respondents are not given the benefit of an order for security for costs, there are significant prospects that if the applicants are unsuccessful any costs orders made in their favour will not be capable of being satisfied. 6. The applicants have an arguable case but I am unable to assess even for the purpose of these interlocutory proceedings whether the applicants' claims can be characterised as having "good prospects of success" or as being "a good arguable case". This is because whether or not the applicants succeed in their principal arguments concerning the entry into the bank facility and that the proceeds of the bank loan were paid to the second respondent and not made available for use of the joint venture company, it is clear from the evidence that there was a loss sustained in the joint venture operation. Some part of that loss must arguably be borne by the second applicant. I do not detect from the documentation filed in the proceedings to date that there is any analysis of the trading losses of the joint venture company by reference to the resultant impact on the financial circumstances of each of the joint venturers as in turn reflective of any ultimate liability to contribute to any losses sustained. 7. Prima facie, by reason of the circumstances of the applicants in that they reside outside Australia and have, in the case of the second applicant, no assets and, in the case of the first applicant, an indeterminate amount of assets, the respondents are entitled to some form of order for security of their costs. To some extent any debate about the costs of recovery of costs in Korea is academic because of some doubt concerning the level of the first applicant's assets. 8. On the other hand, however, I am reluctant to impose a costs order on the applicants which would have the effect of precluding them from prosecuting these proceedings because of their inability to comply with any such order. In coming to this conclusion I rely not only on the basic statement of principle of McHugh J in Chellaram , (see 102 ALR at 323 commencing line 23), but also on the fact that the sole reason for the applicants' financial state is said to be the losses sustained by them as a result of the loss of their principal assets by virtue of the sale of the three fishing vessels. Furthermore, the first applicant left the jurisdiction only because of the failure of the joint venture. Therefore to the extent that ultimately the applicants might succeed against the respondents in these proceedings by reason of some conduct of the respondents as alleged, then this has brought about the first applicant's departure from the jurisdiction and the resultant financial difficulties. 33 In my opinion the proceedings should be determined so that the respondents should have in their favour an order for security of costs in an amount which would not have such financial impact as to preclude both applicants through the financial means of the first applicant from pursuing these proceedings. Unfortunately, there is insufficient evidence to make any determination on this issue. I would propose to stand the proceedings over to enable the parties to consider these reasons for judgment and to consider whether and to what extent either party may wish to adduce evidence either on a contested or on an agreed basis to enable any relevant order for security for costs to be made. If no such evidence is to be produced, then this may dictate that in all the circumstances the court will adopt a different approach. 34 By letter dated 23 April 2004 my Associate wrote to Senior Counsel who appeared for the respondents in support of the notice of motion and Senior Counsel then appearing for the applicants to resist the orders sought. That letter asked counsel to consider whether the parties could reach some agreement on the production of any further evidence concerning the financial means of the first applicant which could allow a determination to be made on a cost effective basis. Both counsel communicated the substance of this letter to their respective instructing solicitors, who, as I understand it, undertook certain inquiries. 35 On 31 August 2004 Blake Dawson Waldron, who had previously acted as solicitors for the applicants, filed a notice of ceasing to act and counsel retained by them ceased to act for the applicants accordingly. 36 I have heard nothing from any party since 31 August 2004 and I have determined therefore to deliver judgment to the extent that I am able. For the reasons which I have advanced above I make the following orders: 1. So much of the proceedings as are constituted by an application by the respondents to strike out or permanently stay the proceedings are dismissed. 2. The balance of the proceedings constituted by the respondents' application for security for costs are stood over with liberty to apply. 3. Costs are reserved. 37 The Industrial Registrar is directed to forward a copy of this interlocutory judgment to the applicants at their last known address. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.