AIS International Pty Ltd (In Liq) v Jones; UTX Foods Corporation Ltd (In Liq) v Ngan [2002] NSWSC 592

New South Wales Supreme Court

CITATION : AIS International Pty Ltd (In Liq) v Jones; UTX Foods Corporation Ltd (In Liq) v Ngan [2002] NSWSC 592 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 3696/01; 2145/02 HEARING DATE(S) : 22 May 2002; 17 June 2002 JUDGMENT DATE : 11 July 2002

PARTIES : AIS International Pty Limited (In Liq) v Michael Gregory Jones; UTX Foods Corporation Ltd (In Liq) v Peter Ngan JUDGMENT OF : Davies AJ at 1

COUNSEL : G.M. Colman - Plaintiff (3696/01) Defendant (2145/02) G.B. Colyer - Plaintiff (2145/02) Defendant (3696/01) SOLICITORS : Peter Kemp - Plaintiff (3696/01) McCabe Terrill - Defendant (3696/01) CATCHWORDS : Corporations - Proof of debt - Onus of proof - No point of principle LEGISLATION CITED : Corporations Act 2001 Galaxy Media (2001) 39 ACSR 483 CASES CITED : Southern Cross Commodities Pty Ltd (In Liq) v Ewing (1988) 14 ACLR 39 Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769 Young v Queensland Trustees Ltd (1956) 99 CLR 560 DECISION : SC 3696/01 - Application dismissed with costs; Decision of Liquidator confirmed; SC 2145/02 - Application dismissed with costs; Decision of Liquidator confirmed.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

DAVIES AJ

Thursday 11 July 2002

3696/2001 AIS INTERNATIONAL PTY LIMITED (IN LIQUIDATION) v MICHAEL GREGORY JONES 2145/2002 UTX FOODS CORPORATION LTD (IN LIQ) v PETER NGAN JUDGMENT 1 HIS HONOUR: These two proceedings were heard together, the evidence in the one being evidence in the other. In each case, the plaintiff seeks the review under s1321 of the Corporations Act 2001 of a liquidator's decision to reject a proof of debt. 2 In proceedings 3696/2001, Mr Peter Ngan, liquidator of AIS International Pty Limited (In Liq) ("AIS"), lodged a proof of debt with Mr M.G. Jones, liquidator of UTX Foods Corporations Ltd (In Liq) ("UTX"), claiming that AIS was owed $1,187,388 by UTX. Mr Jones rejected that proof of debt. In proceedings 2145/2002, Mr Jones, as liquidator of UTX, lodged with Mr Ngan, the liquidator of Sushi Rolls Pty Limited (In Liq) ("Sushi Roll"), a proof of debt claiming that Sushi Roll owed $274,229.45 to UTX. Mr Ngan rejected that proof. 3 Each of the three companies AIS, UTX and Sushi Roll was a member of a group which was controlled by Japanese interests. It appears that Mr Robert Chikamoto was involved in the management and direction of the three companies. He was recorded as the sole director and shareholder of AIS. However, a report prepared by Mr Ngan indicates that substantial funds were invested in AIS by a Mr Shigenobu Osuka and Australian investors. The report complains of payments made to related companies and to Mr Osuka's bank accounts in various countries. Mr Chikamoto may not have had the control and influence which his position as sole director and shareholder would seem to indicate. Mr Chikamoto and Mr Takayasu Kumazawa were the directors of UTX. Mr Chikamoto was not a shareholder of UTX. Mr Chikamoto was the director and shareholder of Sushi Roll. The evidence does not disclose the precise part he played in the affairs of the company. 4 Mr Chikamoto has returned to Japan and his whereabouts are unknown. When Mr Jones turned his attention to obtaining an affidavit from Mr Kumazawa, he was, and still is, out of the country, and, apparently, not available. The bookkeeper of UTX, Mr Hermansah Elina, is in Australia and has sworn an affidavit. However, his affidavit has not been read and neither side has called him to give evidence. I assume that it is considered that his evidence would be as unreliable as the books for which he was responsible. 5 Counsel are in agreement that, on a review of a liquidator's rejection of a proof of debt, it is the duty of the Court to rehear the matter and to conduct that rehearing in accordance with legal principles. See Galaxy Media (2001) 39 ACSR 483 at 493-4; Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769 at 775-6. Mr Jones rejected the AIS proof of debt on the ground that it was not supported by evidence. On that ground, the liquidator was correct to reject the proof. However, in these proceedings, AIS has adduced evidence supporting its proof of debt and the issue must be determined on the evidence before the Court. It has not been submitted that the proof of debt was so inadequate as not to be a proof in fact. 6 The onus lies on the applicant to establish that the decision rejecting the proof of debt should be overturned. Counsel for AIS submitted that the evidence adduced on behalf of AIS proved the loan of moneys by AIS to UTX and that the burden of establishing repayment of the moneys therefore lay on UTX. He relied upon Young v Queensland Trustees Ltd (1956) 99 CLR 560; Southern Cross Commodities Pty Ltd (In Liq) v Ewing (1988) 14 ACLR 39 at 66; Re Galaxy Media at 494. I accept the principle of shifting onus on which counsel relied. However, this is not a simple case where the only issue is a claim of repayment. 7 A problem which arises in both cases is that there is no evidence before the Court from any person who had any connection with the transactions the subject of the proofs of debt. Both liquidators rely principally upon the records of the company of which they are the liquidator. Those records are incomplete, unsatisfactory and unreliable. In these proceedings, there are no witnesses who, having primary knowledge of relevant facts, have given evidence of those facts in support of a contention that those facts lead to a certain legal result. In the present proceedings, the claims rely upon inferences said to arise from incomplete materials. That is not a satisfactory foundation for legal proceedings. 8 I do not draw any Jones v Dunkel inference from the fact that neither Mr Kumazawa nor Mr Elina was called to give evidence. Both parties have chosen to conduct this case on documentary material. 9 In the AIS claim, Mr Ngan has given evidence that AIS maintained numerous bank accounts, but that its main account was with the National Australia Bank at its Lane Cove Branch. Mr Ngan, in his affidavit, exhibited copies of the bank statements for that account, of relevant cheques written on that account, and of the cheque butts for those cheques. Each of the cheques was written in favour of UTX or made payable to cash. The cheques were banked and cleared in the account of UTX or in the account of another company in the group, Southpac Corporate Services Pty Limited ("Southpac"). Mr Ngan said that there were also a number of telegraphic transfers and direct debits to the account of UTX. He traced sums totalling $2,720,326, which passed to UTX or Southpac from the AIS bank account at Lane Cove. Mr Ngan deducted from that total the sum of $455,156 in respect of instances where the cheque book expressed the payment to be "UTX for Sushi" and a further $230,000 in respect of the payments which went to Southpac's account. Mr Ngan further deducted $282,596, which he recognized to be credits paid by UTX into the AIS bank account at Lane Cove. The balance due and owing on Mr Ngan's figures is $1,752,572. 10 That figure of $1,752,572 is considerably greater than the sum of $1,187,388, which Mr Ngan inserted in the AIS proof of debt against UTX. That latter sum was derived from a report, dated 22 January 2001, into the affairs of AIS which appears to have been prepared as if for filing with the Australian Securities and Investment Commission but which Mr Ngan has deposed was submitted to him as Voluntary Administrator by Mr Chikamoto. This report lists a number of debtors of AIS including Sushi Roll $1,240,916, UTX $1,187,388 and Southpac $1,094,144. 11 The cheque butts exhibited by Mr Ngan extend from 15 March 1996 to 22 November 2000. The inference, which Mr Ngan seeks to draw from the cheque butts, is that the relevant payments were a loan by AIS to UTX. In his evidence, Mr Ngan said: "It is very reasonable to assume that… AIS was the funder of the UTX group of companies." 12 However, no evidence was given as to why AIS funded the group and, particularly, as to why UTX had a need for its own purposes, as distinct from the purposes of other companies, to borrow funds from AIS. 13 The majority of the relevant cheque butts record "UTX transfer". If there were no other explanation for the cheques this could be an appropriate recording for an intercompany loan. At least two of the cheque butts use the word "reinvestment" and other cheque butts give a description of a subject matter such as "forklift". Without having further details as to the reason for each payment it is very much a guess as to whether any particular payment was made by way of loan. There are some cheque butts which make it plain that the sum transferred was paid as a loan to UTX. One cheque butt specifically refers to "fixed rate loan". One or more cheque butts refer to "working capital", which suggests that there was an advance of a sum of money to UTX for use as working capital. Many of the cheque butts show that the cheque was payable to cash. 14 No ledgers of AIS and no formal accounts of AIS have been produced. Thus, apart from the report submitted to Mr Ngan as Voluntary Administrator by Mr Chikamoto, there is no record of AIS which records UTX as a debtor. Mr Ngan relied upon no financial accounts, of either AIS or UTX, to support his contention that there is a sum due by UTX to AIS. 15 Mr Ngan relies upon an affidavit of Mr Tokuzui Takemura, who is a creditor of AIS in the amount of $1,150,000. Mr Takemura deposed that, as a creditor, he had been in constant touch with Mr Chikamoto and had been advised by Mr Chikamoto that UTX had repaid only approximately $100,000 of advances made by AIS. However, Mr Takemura did not refer to the quantum of the amount advanced by AIS to UTX or give any relevant details of advances and repayments. 16 Mr Jones, on behalf of UTX, produced a set of accounts, which he had received from the external accountants to UTX. These include balance sheets and profit and loss accounts for some years up to 30 June 2000. The accounts, like the AIS accounts available to Mr Ngan, show the company as trading profitably. The evidence does not disclose whether these accounts were wrong and misleading or whether there was some other explanation for the loss of funds. So far as AIS is concerned, Mr Ngan in his report to creditors referred to payments to related companies and repayment of investor funds to Mr Osuka. 17 The accounts of UTX include the balance sheet of UTX as at 30 June 2000, which incorporates the comparable figures for the previous year. This balance sheet shows that, as at 30 June 1999, current creditors include AIS $617,388, and Southpac $570,000. As at 30 June 2000, these creditors are shown as nil, but there is recorded, as at 30 June 2000, a loan from Saint Company Limited ("Saint") of $1,388,472. The inference to be drawn from the change in the balance sheet is that AIS and Southpac were paid off with monies borrowed from Saint. 18 Mr Jones is of the view that there was a timing error in the balance sheet for the relevant transaction occurred before 30 June 1999. He exhibited a loan agreement dated 4 January 1999 between UTX and Saint, whereunder UTX borrowed JP¥100,000,000. Under the agreement, this sum was to be paid in two instalments, JP¥50,000,000 on 11 January 1999 and JP¥50,000,000 on 11 February 1999. Mr Jones also produced a facsimile transmission from Mr Chikamoto to Mr Kumazawa of 11 February 1999 which asked Mr Kumazawa to attend to three money transfers, JP¥18,000,000 to Jiyoun Kang in Seoul, Korea, JP¥12,000,000 to AIS at its Lane Cove bank account and JP¥20,000,000 to AIS at its Crows Nest bank account. 19 Evidence has been given that JP¥49,970,500 was credited to the UTX account on 13 January 1999 that and JP¥49,970,000 was paid out on 14 January 1999. There was a similar payment of JP¥50,000,000 on 17 February and payments out of JP¥12,000,000 and JP¥18,000,000 and JP¥19,970,000 on 17 February. I am satisfied on the evidence that the payment to Korea was a payment for the benefit of AIS, for payment was made to AIS International Pty Ltd ("AIS International") in Korea. 20 The Australian dollar equivalent of JP¥100,000,000 was approximately the figure which was shown in the UTX balance sheet as due to Saint, namely $1,388,472. The evidence produced by Mr Jones establishes to my satisfaction that sums in Japanese yen to the value of AU$1,388,472 were borrowed by UTX from Saint in January and February 1999 and were paid by UTX to AIS and AIS International. The probability is that these payments were, as the balance sheet as at June 2000 for UTX showed, treated as paying out the $617,388 shown in the 1999 balance sheet as due to AIS and the $570,000 shown as due to Southpac, which was a company related to AIS. In any event, the moneys were paid by UTX to or for the benefit of AIS. These monies, which were paid into yen accounts, were not included in the credits which Mr Ngan took into account. 21 A particular significance of these two figures $617,388 and $570,000 is that they total $1,187,388, the sum shown in Mr Chikamoto's report to Mr Ngan as due to AIS by UTX. In the circumstance that the two sums totalling $1,187,388 were paid off early in 1999, the report made by Mr Chikamoto to Mr Ngan is rendered wholly unreliable. It should be noted, moreover, that the Australian dollar value of the moneys paid to AIS exceeded the two loans totalling $1,187,084 by more than $200,000. 22 This conclusion is sufficient to destroy the AIS proof of debt, which as I have said, was a proof for $1,187,388. It was Mr Chikamoto's report which led Mr Ngan to conclude that UTX was a debtor of AIS. Absent that report, no document of AIS has been produced which records UTX as a debtor. 23 Mr Ngan has proved that there were payments made by AIS to UTX most of which were recorded in the cheque butts as "UTX transfer". However, the reasons for each transfer are not disclosed. Each transfer may have been a loan. But why UTX needed to receive moneys by way of loan is not shown. The mystery deepens when consideration is given to the fact that many of the cheques were made out to cash. 24 Unfortunately, Mr Ngan refused to face up to the proofs which Mr Jones produced. He conceded that he did not take into account any transactions involving Japanese yen. That means that $1,388,472 must be deducted from the sum which he calculated to be due, $1,752,572. 25 Nor did Mr Ngan take into account the fact that, in 1997, AIS and Southpac were each placed on the register of shareholders in UTX as holding 200,000 fully paid $1 shares. There is in existence a facsimile transmission dated 3 November 1997 from Mr Chikamoto to the external accountants to UTX which reads: "1. In conjunction with Mr Kumazawa, I am advised you will be attending to the removal of Mr Morita as a shareholder of UTX Foods Corporation Pty Ltd. Please provide this Office with an update. 2. On removal of Mr Morita as a shareholder of UTX Foods Corporation Pty Ltd., I would ask that you prepare all necessary forms to amend Company shareholding / attend to new share issue as follows:- Shareholder Amount Percentage Southpac Corporate Services Pty Ltd $ 200,000 40 % AIS International Pty Ltd $ 200,000 40 % Takayasu Kumazawa $ 35,000 7 % Kazuki Araoka $ 35,000 7 % Hermansah Elina $ 30,000 6 %