FEDERAL COURT OF AUSTRALIA

Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 4)

[2007] FCA 500

PRACTICE AND PROCEDURE – Freezing Order – sharply conflicting evidence as to underlying facts – whether serious question to be tried as to whether person against whom Freezing Order sought would be held liable to applicants – whether Freezing Order should be discharged because applicants had not made full disclosure on original ex parte application for the Order.

Hayden v Teplitzky (1997) 74 FCR 7 cited

Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 cited

Biscoe P, Mareva and Anton Piller Orders: Freezing and Search Orders (LexisNexis Butterworths, 2005)

ELDERSLIE FINANCE CORPORATION LIMITED (ACN 008 678 233) AND OTHERS v NEWPAGE PTY LIMITED AND OTHERS

NSD 4 of 2007

LINDGREN J

4 April 2007

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 4 OF 2007

BETWEEN:	ELDERSLIE FINANCE CORPORATION LIMITED (ACN 008 678 233) First Plaintiff PETER ALEXIS GEORGE Second Plaintiff
AND:	NEWPAGE PTY LIMITED (ACN 087 645 216) (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION) Defendant/First Applicant BARRY KENNETH HAMILTON IN HIS CAPACITY AS OFFICIAL LIQUIDATOR OF NEWPAGE PTY LIMITED (ACN 087 645 216) (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION) Second Applicant CASINO BUSTERS INTERNATIONAL PTY LTD (ACN 108 453 809) First Respondent ROUMALD CHARLES PARSONS Second Respondent MARTIN YONG HENG YII Third Respondent
JUDGE:	Lindgren J
DATE OF ORDER:	4 April 2007
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Upon the applicants and the first plaintiff, Elderslie Finance Corporation Limited, giving to the Court the usual undertaking as to damages, the Freezing Order made against the third respondent, Martin Yong Heng Yii, on 26 February 2007, and extended on 1, 7 and 26 March 2007, be further extended to the final hearing and determination of the claim for relief against him.

2. The costs of the application for the Freezing Order against the third respondent, Martin Yong Heng Yii, be reserved.

3. The proceeding be listed on 11 April 2007 at 9.30 am for the making of directions in relation to the applicants’ claim for final relief against the third respondent, Martin Yong Heng Yii.

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	NSD 4 OF 2007

BETWEEN:

ELDERSLIE FINANCE CORPORATION LIMITED

(ACN 008 678 233)

First Plaintiff

PETER ALEXIS GEORGE

Second Plaintiff

AND:

NEWPAGE PTY LIMITED (ACN 087 645 216)

(RECEIVER AND MANAGER APPOINTED)

(IN LIQUIDATION)

Defendant/First Applicant

BARRY KENNETH HAMILTON IN HIS CAPACITY AS

OFFICIAL LIQUIDATOR OF NEWPAGE PTY LIMITED

(ACN 087 645 216) (RECEIVER AND MANAGER APPOINTED) (IN LIQUIDATION)

Second Applicant

CASINO BUSTERS INTERNATIONAL PTY LTD

(ACN 108 453 809)

First Respondent

ROUMALD CHARLES PARSONS

Second Respondent

MARTIN YONG HENG YII

Third Respondent

JUDGE:	LINDGREN J
DATE:	4 APRIL 2007
PLACE:	SYDNEY

REASONS FOR JUDGMENT (No 4)

1 By an amended interlocutory process filed on 16 March 2007, the third respondent (‘Mr Yii’) moves for an order discharging freezing orders made against him on 26 February 2007. The period of operation of the freezing orders had been extended on 1 and 7 March 2007. They were due to expire at 5.00 pm on 26 March 2007, the date of the hearing. By consent, and upon a continuation of undertakings given to the Court by:

· the first applicant, Newpage Pty Limited (Receiver and Manager Appointed) (in liquidation) (‘Newpage’);

· the second applicant, the liquidator of Newpage, Barry Kenneth Hamilton (‘Mr Hamilton’); and

· the first plaintiff, Elderslie Finance Corporation Limited (‘Elderslie’),

I extended the operation of the freezing orders against Mr Yii until delivery of this judgment.

2 The applicants had also obtained freezing orders against the second respondent, Roumald Charles Parsons (‘Mr Parsons’). In his case the orders were expressed to operate until further order of the Court. Mr Parsons does not seek to have the orders against him discharged.

3 By his amended notice of motion, Mr Yii also seeks orders that Mr Hamilton be removed as liquidator of Newpage and that the Court appoint an official liquidator in his place. However, Mr Yii has not pressed for these orders at this stage.

4 For their part, the applicants, Newpage and Mr Hamilton, move for a further extension of the freezing orders against Mr Yii. It is their motion for an extension, and Mr Yii’s for a discharge, of the freezing orders against Mr Yii that are the subject of these reasons for judgment.

5 The second plaintiff, Peter Alexis George (‘Mr George’), is a director of Elderslie. Elderslie and Mr George, the plaintiffs, are creditors of Newpage. They successfully sought an order that Newpage be wound up and that Mr Hamilton, whom they had previously appointed as receiver and manager of Newpage under a security held by them, be appointed as liquidator of Newpage.

6 Mr Yii is the sole director and secretary of Newpage. The debt, on the basis of which the plaintiffs applied for the winding up of Newpage, arose out of a loan of $3 million to Newpage made in circumstances described below. Of that sum, Newpage paid two amounts of $610,000 and $1,527,000 (totalling $2,137,000) to the first respondent to the interlocutory process, Casino Busters International Pty Ltd (‘CBI’), of which Mr Parsons is the sole director and shareholder.

7 On various bases Newpage and Mr Hamilton contend that Mr Yii is liable to reimburse Newpage in respect of those two amounts totalling $2,137,000.

BACKGROUND FACTS

General

8 The evidence before the Court gives but a dim picture of the true facts that must underlie the case. In particular, the versions of events given by both Mr Parsons and Mr Yii in their respective affidavits are quite unsatisfactory. Neither of them was cross-examined. Indeed, the affidavit of Mr Parsons was not read, but was tendered in evidence by the applicants. Senior counsel appeared for Mr Parsons on the hearing but was not in a position to lead evidence from him because he is not a party to the present dispute – it will be recalled that he does not oppose a continuation of the freezing orders made against him.

9 Under a deed of loan dated 31 May 2006 between Elderslie as lender and Newpage as borrower, Elderslie lent Newpage $1 million. Newpage granted to Elderslie a charge over its assets as security, and Mr Yii guaranteed payment by Newpage. The advance of $1 million was deposited to the credit of Newpage’s bank account No 24-2903 with Westpac Banking Corporation the next day, 1 June 2006. On that day, 1 June 2006, Newpage paid out of the sum of $1 million a sum of $610,000 to CBI, by a deposit on that date of cheque No 033126 drawn on Newpage’s account in favour of CBI’s bank account No 21-0011, also at Westpac (although at a different branch). It is not in dispute that the Newpage cheque was signed by Mr Yii.

10 The sum of $1 million lent was to be repaid by 1 September 2006. It was not repaid. Newpage, through Mr Yii, unsuccessfully applied to Lewis Securities Limited (‘Lewis’) for a loan of $3 million. However, later in September 2006, Newpage successfully applied to Lewis for such a loan. Under a Loan Facility Agreement dated 22 September 2006 between Lewis as lender and Newpage and Mr Yii jointly and severally as borrowers, Lewis advanced $3 million to Newpage and Mr Yii upon the terms of that agreement. The advance of $3 million was secured by a Fixed and Floating Charge dated 22 September 2006 executed by Newpage in favour of Lewis. Apparently the advance was also secured by a Mortgage of Shares executed by Mr Yii.

11 Out of the advance of $3 million, the sum of $1 million was paid to Elderslie in discharge of Newpage’s liability to that company, $1,600,000 was deposited to Newpage’s bank account on 22 September 2006, and Lewis retained the remaining $400,000.

12 Out of the sum of $1,600,000, Newpage paid $1,527,000 to CBI on 22 September 2006 by causing that sum to be withdrawn from Newpage’s account and transferred to that of CBI. Again, it is not in dispute that it was Mr Yii who caused the sum to be transferred from Newpage’s account to that of CBI.

13 By a deed of assignment dated 3 November 2006 between Lewis as assignor and Elderslie and Mr George as assignees, Lewis assigned all its right title and interest under the Loan Facility Agreement and the said securities to Elderslie and Mr George in consideration of payment by them of an ‘Assignment Fee’ of $2 million. Lewis gave Newpage and Mr Yii notice in writing of the assignment.

14 Newpage and Mr Yii defaulted under the Loan Facility Agreement, and on 29 December 2006, Elderslie and Mr George appointed Mr Hamilton as receiver and manager of the property of Newpage.

15 Mr Hamilton’s investigations as receiver and manager suggested that Newpage’s major asset was 30,788,751 shares in the capital of Intermoco Limited (‘Intermoco’), a public company whose shares were listed on the Australian Stock Exchange. According to the 2006 Annual Report of Intermoco, Newpage’s shareholding represented 3.82 percent of the issued capital of Intermoco. Mr Hamilton’s evidence was that Newpage also appeared to hold 500 out of 850 issued shares (approximately 58.8 percent) in the capital of Australon Enterprises Pty Ltd (‘Australon’), which held, as at 30 June 2006, 83,831,922 shares in Intermoco, amounting to 10.4 percent of the capital of Intermoco. However, Mr Hamilton’s inquiries suggested that Australon may have divested itself of its shareholding in Intermoco at same time after 30 June 2006.

16 In his capacity as receiver and manager, Mr Hamilton had a telephone conversation on 29 December 2006 with Mr Yii, who had telephoned him. Mr Yii said that he was aware of Mr Hamilton’s appointment as receiver and manager. Asked by Mr Hamilton about the monies Newpage had borrowed from Elderslie, Mr Yii replied:

‘The $3 million has gone to Penthouse Concepts Pty Ltd, a company owned by Ron Parsons. This was a fee for a loan being organised by him from the US of $150,000 million, which will be available on 15 January 2007. I will be returning to Australia on 20 January 2007 to arrange settlement.’

Mr Yii explained that he was in Singapore at the time, with his wife and two sons, and was going from there to Malaysia, travelling on his Malaysian passport.

17 Penthouse was another company associated with Mr Parsons. It will be recalled that in fact, of the sum of $3 million, $2,137,000 ($610,000 + $1,527,000) had been paid by Newpage, not to Penthouse, but to CBI, a different company associated with Mr Parsons.

18 On 2 January 2007, the date on which this proceeding was commenced by Elderslie and Mr George as plaintiffs against ‘Newpage Pty Ltd (ACN 087 645 216) (Receiver and Manager appointed)’ as defendant, Warwick Isherwood, solicitor, contacted Mr Baird of Kemp Strang, the solicitors for the plaintiffs and for Mr Hamilton as receiver and manager of the property of Newpage. Mr Isherwood advised Mr Baird that he (Mr Isherwood) represented Mr Yii. He said that he accepted that if Mr Hamilton’s appointment as receiver and manager was valid, he did not act for Newpage.

19 By the originating process the plaintiffs sought orders for the winding up of Newpage and the appointment of Mr Hamilton as liquidator. By an accompanying interlocutory process they sought an order that Mr Hamilton be appointed as liquidator provisionally. On 2 January 2007, Stone J made orders abridging the time for service and directing service upon Mr Isherwood. On 5 January 2007, her Honour appointed Mr Hamilton as provisional liquidator of Newpage (see Elderslie Finance Corporation Limited v Newpage Pty Ltd [2007] FCA 4).

20 On 24 January 2007, Elderslie and Mr George filed an interlocutory process against CBI as first respondent and Mr Parsons as second respondent seeking freezing orders against CBI up to a sum of $2,137,000. The interlocutory process also sought an order that Mr Parsons file and serve an affidavit disclosing the facts and circumstances under which the sums of $610,000 and $1,527,000 were received by CBI from Newpage on 1 June and 22 September 2006 respectively, and as to any disposition or use by CBI or Mr Parsons of those amounts, and their present whereabouts. In the event, on 25 January 2007 Stone J ordered that Newpage be wound up and that Mr Hamilton be appointed as liquidator (see Elderslie Finance Corporation Limited v Newpage Pty Ltd [2007] FCA 61). On the same day, on the application of Newpage (now in liquidation) and Mr Hamilton, (now its liquidator), her Honour made freezing orders against CBI and a ‘disclosure order’ against both CBI and Mr Parsons.

The account given by Mr Parsons

21 Mr Parsons has filed two affidavits – one sworn 8 February 2007, and the other, 13 February 2007. The following is his account of the facts, as to which I make no findings.

22 CBI was registered on 22 March 2004 and its business is that of operating a tutorial gaming internet site open to the public at large. In broad terms, members of the public are invited to purchase over the internet individual modules of instructions concerning the card game known as ‘blackjack’.

23 Mr Parsons first met Mr Yii in or about 2002 when Mr Yii discussed the possibility of his purchasing a share in CBI. This did not eventuate, but they developed a friendship and would share meals together and discuss Mr Parsons’s expertise at blackjack. Eventually Mr Yii offered Mr Parsons funds for the purpose of gambling on the basis of his expertise at blackjack. Their purpose was to make a profit from winnings.

24 Mr Parsons is unable to remember the number of occasions Mr Yii made funds available to him for blackjack gaming but the last payment to him was of $1,527,000 made in September 2006. He estimates that during his association with Mr Yii, the total sum provided by Mr Yii to him for blackjack gaming exceeded $10 million.

25 Mr Parsons used the amounts at various casinos in Australia and abroad, namely, Crown Melbourne, Jupiters Queensland, and Belaggios, MGM Grand and Wynns Casinos, all in Las Vegas, USA. Mr Parsons has not had sufficient opportunity to determine whether they are all of the casinos where he gambled with money provided by Mr Yii.

26 Mr Parsons estimates that the total amount returned to Mr Yii until about mid November 2006 exceeded $12 million.

27 Mr Parsons states (para 10):

‘To the best of my recollection during my association with Mr Yii I have never had a loan agreement with him or any corporate entity associated with him. I am also the sole director of Penthouse Concepts Pty Ltd (ACN 103 282 944). This company has never had any loan agreement with either Mr Yii or Newpage Pty Ltd.’

28 From time to time when Mr Yii would provide him with funds for blackjack gaming, Mr Yii would tell him ‘that the funds were from abroad and from wealthy friends, interested in turning a profit from blackjack gaming’.

29 In relation to the sum of $610,000 deposited into CBI’s Westpac account on 1 June 2006, Mr Parsons says that as best he can remember Mr Yii told him that he had funds of around $600,000 and would deposit them into CBI’s account. He did not tell Mr Parsons they were from Newpage, and the first time Mr Parsons saw the name of Newpage as being associated with CBI was when he received documents in connection with this proceeding. Neither he nor CBI has had any loan agreement with Newpage.

30 Mr Parsons has inspected the Westpac trading account of CBI between 1 June 2006 and 31 July 2006 and, as best he can recall and allowing for the lapse in time, he identifies certain withdrawals which he characterises as having been for the purpose of blackjack gaming at the Crown Melbourne and Jupiters Queensland Casinos.

31 In respect of the deposit of $1,527,000 on 22 September 2006, Mr Parsons states that, as best he can remember, Mr Yii told him in about mid September 2006 that he had funds coming from London which would go directly into the CBI account, and that when they arrived Mr Parsons should contact him to confirm their arrival. Mr Parsons states: ‘These funds were for the purpose of blackjack gaming’.

32 Mr Parsons has inspected the CBI Westpac trading account for the period 22 September to 24 November 2006 and identifies five withdrawals totalling $1,592,333.00 which he states were used for blackjack gaming.

33 Mr Parsons states (para 16):

‘To the best of my knowledge and recollection Mr Yii received the return of all of his capital and a percentage of the winnings depending on the amount of the winnings. The returns to Mr Yii were always in the form of cash and casino chips.’

34 In his second affidavit (sworn 13 February 2007), Mr Parsons gives further details. Rather than attempt to summarise the affidavit, I set out paras 3–10 as follows:

‘3. In respect of the sum of $610,000.00AUD deposited into the trading account CBI Westpac on 1 June 2006 and the withdrawals identified in paragraph 13 of my Affidavit a) to d) inclusive as best I am able to remember, these withdrawals were executed by raising bank cheques in each case made out in favour of Crown Casing Melbourne and deposited in my name at Crown Casino. These funds were used for the purpose of blackjack gaming. However, in respect of the amount identified in paragraph 13 a), only the sum of $150,000.AUD was deposited at Crown Casino Melbourne. As best I remember $9,000.00AUD was withdrawn in cash. I understand that the remaining $10,00AUD was a bank charge;

4. In respect of the sum of $610,000.AUD identified in paragraph 12 of my previous Affidavit, as best I am able to recall, I returned the entirety of this amount plus winnings to Mr Martin Yii. The returns to Mr Yii were in cash and casino chips. The casino chips would usually be in lots of chips to the value of $25,000.00AUD per chip and lots to the value of $5,000.00AUD per chip. As best I remember, I returned approximately $750,000.00AUD to Mr Yii episodically between 1.6.2006 – 1.8.2006;

5. The returns of approximately $750,000.00AUD to Mr Yii were at the following locations:-

(a) McDonalds Restaurant, Cnr Wellington and Springvale Rd, Mulgrave, Melbourne;

(b) McDonalds Restaurant, Cnr Fulham and Stud Rd, Stud Park, Melbourne. Mr Yii and I would meet regularly for morning coffee at the aforementioned McDonalds;

(d) Village Green Hotel, Brandon Park, Melbourne. Mr Yii and I would meet for drinks;

(e) Brandon Park Shopping Centre Coffee Shop. Mr Yii and I would meet for mid-afternoon coffee;

(f) Crown Casino Melbourne.

I am now unable to remember the specific dates and the break down of the amounts I handed over to Mr Yii at the various locations aforementioned.

6. In respect of the deposit in the CBI trading account dated 22^nd September 2006 in the sum of $1,527,000.00AUD identified in paragraph 14 of my previous Affidavit, as best I remember, I returned to Mr Yii’s agent “Walter” the sum of $370,000.00USD and $270,000.00USD in cash and chips. I would describe “Walter” as Asian in appearance, black hair, approximately mid forties, 1.75cm in height. “Walter” spoke fluent English without an American accent. I understood that he resided in Los Angeles. On the first occasion I met “Walter” and before I handed over money and chips, I rang Mr Yii using my mobile in order to confirm “Walter’s” Identity. These funds were returned to “Walter” in Las Vegas, USA in September and October, 2006 respectively. As best I remember, the cash and chips were handed to “Walter” at Belaggios and Wynns Casino in Las Vegas. This was pursuant to a prior arrangement between Mr Yii and myself;

7. Further in respect of the withdrawals identified in paragraph 15 a) to e) inclusive, as best I am able to remember the withdrawal from the CBI Westpac trading account in the sum of $155,010.00AUD was by Westpac bank cheque in favour of Crown Casino Melbourne in the sum of $150,000.00AUD, $5,000.00AUD was withdrawn in cash. The remaining $10.00AUD, I understand to be a bank charge;

8. Further in respect of the withdrawals identified at paragraphs 15 b) and d) in the sums of $401,797.77AUD and $535,505.23AUD, these amounts were telegraphically transferred to either Wynns or Belaggios Casino, Las Vegas USA and deposited into my name for the purpose of blackjack gaming;

9. In respect of the withdrawals identified in paragraph 15 c) and e) of my previous Affidavit, as best I am able to recall, these funds were deposited with either Crown Casino Melbourne and/or Jupiters Casino, Queensland;

10. In respect of the amount of $1,527,000.00 identified in paragraph 14 of my Affidavit, I estimate between 22.9.2006 and the first week of December 2006 I returned to Mr Yii approximately $1,900,000.00AUD. These funds were returned episodically at the locations identified at paragraph 5 above except for the sums which were returned to “Walter” in the United States. I am now unable to recall a break down of the specific amounts I returned to Mr Yii and the dates I returned these amounts at the locations identified at paragraph 5 above.’

35 On the basis of the two affidavits of Mr Parsons, Mr Hamilton had evidence to the effect that Mr Yii had gambled the sums of $610,000 and $1,527,000 of the $3 million borrowed by Newpage as part of an amount exceeding $10 million, and had received in return an amount exceeding $12 million. Mr Hamilton’s next move, therefore, was to seek a freezing order against Mr Yii. Accordingly, by an amended interlocutory process filed on 26 February 2007, the applicants sought leave to join Mr Yii as third respondent and sought freezing and disclosure orders against him. Upon the applicants and Elderslie giving to the Court appropriate undertakings, I made such orders on 26 February 2007 (see Elderslie Finance Corporation Limited v Newpage Pty Ltd (No 3) [2007] FCA 259), and, as noted earlier, they were the subject of subsequent extensions.

Mr Yii’s response to Mr Parsons’s affidavits

36 In response to the two affidavits of Mr Parsons, Mr Yii filed a substantial affidavit sworn 2 March 2007. In substance, he states that the account given by Mr Parsons is a complete fabrication. The following is Mr Yii’s account, as to which I make no findings.

37 In early 2002, Mr Yii received a telephone call from Mr Parsons who spoke about his company, CBI, and asked Mr Yii if he would be interested in investing in it.

38 Mr Yii disputes that from time to time he and Mr Parsons would share meals together and discuss Mr Parsons’s expertise in blackjack. Rather, their discussions were about CBI’s business, and Mr Parsons gave Mr Yii a promotional video CD on ‘CBI’s internet portal’.

39 Mr Yii is not interested in gambling at all and is certainly not interested in it as a business model. He states (para 3(b)(ii)):

‘In fact, from recollection, except for an occasional Tattslotto “quick pick” ($5 every few weeks) and on three or so occasions playing many years ago the one cent slot machines, I have not gambled.’

40 Mr Yii has never offered funds to Mr Parsons for gambling purposes and has no interest in gambling.

41 In early 2006, Mr Parsons approached Mr Yii to assist him with ‘arranging some bridging finance to assist him with concluding a funding arrangement with his business partners in the United States of America (USA)’. Mr Yii does not recall the actual amount, but it was expressed in USA dollars. He understood that the USA funds were to be paid to Penthouse Concepts Australia Pty Ltd (‘Penthouse’) ‘for the purpose of developing yet to be identified projects’.

42 Vagueness permeates Mr Yii’s affidavit, just as it did those of Mr Parsons, and is illustrated by the following quotation from para 3(d):

‘(iii) I was told by Mr Parsons and believe that Penthouse was mainly involved in marketing hotel rooms and was associated with a USA based company that owns and manages a range of assets around the world including properties across a number of countries. I was also told by Mr Parsons and believe that Penthouse was interested in investing in various projects.

(iv) The bridging finance [apparently the $610,000] was granted by the Defendant (Newpage) to Penthouse. The terms agreed between Mr Parsons and I were that any costs of arranging for the funds were to be borne by Penthouse and that the interest payable to Newpage was 17% per annum.

(v) In or about early September 2006, Mr Parsons told me that he required further bridging finance to finalise the funding arrangements with his business partners in the USA.

(vi) I arranged for Newpage to loan Mr Parsons the amount of $1,527,000 (Loan Amount) as requested by him for the purpose of assisting Mr Parsons to conclude his USA funding arrangements.

(vii) I agreed with Mr Parsons that the Loan Amount was to be repaid within 30 days by Mr Parsons. Mr Parsons agreed that the costs of procuring the funds were to be borne by Penthouse and the interest charged would be high at 17% per annum.’

43 In response to Mr Parsons’s allegation that he (Mr Parsons) expended the money paid to CBI in various casinos in Australia and abroad, Mr Yii states that this is the first time that he has heard of this. He states (para 3(e)(ii)):

‘Up until my last meeting with Mr Parsons on or about 28 February 2007, Mr Parsons mentioned repeatedly to me that the purpose for which the Loan Amount was to be applied was to allow him to complete the funding arrangement in the USA. If I had known that the moneys were to be used for gambling, I would never have put Newpage at risk by lending money to Mr Parsons to support his gambling habit. I would never have provided funding to him for that purpose.’

Mr Yii’s affidavit continues as follows (within para 3(e)):

‘(iii) As a part of my business dealings, which involves broadly speaking, identifying projects for my clients, I had identified projects which could also use part of the funds being arranged in the USA by Mr Parsons. As a result of a number of conversations with Mr Parsons, he promised me that a proportion of the USA funds would be made available for the purpose of investing in some major projects that were yet to be identified. It was agreed between Mr Parsons and I that the USA funds could only be used on projects approved by Mr Parsons.

(iv) If I had known that Mr Parsons was a heavy gambler, I would have been very concerned about dealing with him at all. Keeping those prospective projects referred to in paragraph 3(e)(iii) above active and available to be utilised for the USA funds caused me serious reputation issues with my Asian interests. Mr Parsons had continued to promise that the USA moneys were almost ready to be sent to Australia but was always being delayed for some reason or other. I then had to explain that situation to my Asian interests and that was affecting my reputation. I did not lend money to Mr Parsons or companies associated with him for the purpose of gambling.

(v) To the date of making my affidavit, Mr Parsons has continued to talk to me about access to the USA funds. Mr Parsons has repeatedly told me that all the procedures required by his business partners in the USA have been completed. I understand from my discussions with Mr Parsons that he and CBI are also the subject of some freezing orders obtained against them and he said to me that those freezing orders need to be removed before any moneys from the USA could be transferred to Australia.

(vi) During my telephone conversations with Mr Parsons in the last few weeks, he has continued to press me for confirmation that the projects that I had previously identified in Asia were still available for Penthouse to invest in.’

44 Mr Yii has exhibited to his affidavit a number of ‘Investment Agreements’ which do suggest some support for the notion that Newpage was negotiating to lend money to Mr Parsons or a company associated with him. However, these documents give rise to as many questions as they answer.

45 Mr Yii firstly exhibits an undated Investment Agreement between Ingestre Pty Ltd (‘Ingestre’), another company associated with Mr Yii, and Penthouse (‘Exhibit MYHY 1’). The Investment Agreement is signed by Mr Yii on behalf of Ingestre, and by Mr Parsons on behalf of Penthouse. Exhibit MYHY 1 has 29 clauses. It bears the name ‘Dibbs Abbott Stillman/Lawyers’ and the word processor number ‘Doc#326235–v1–Matter#61499–GB’. The significance of these details will appear below.

46 Exhibit MYHY 1 is a very odd document in that it is impossible to identify from it any project or amount of money to which it relates. It is undated. While submissions and further evidence may alter my view, my impression is that the document was intended to convey that Ingestre and Penthouse had agreed upon some kind of joint venture structure, whereas in fact, in the absence of any detail whatever, they had agreed on nothing of significance at all.

47 Mr Yii states (para 3 (e) (vii)) that as recently as on 23 February 2007 ‘and at Mr Parsons’s insistence’, he emailed a draft Investment Agreement to Mr Parsons for his consideration. He exhibits to his affidavit a copy of his email to Mr Parsons and of the form of Investment Agreement (‘Exhibit MYHY 2’). Exhibit MYHY 2 names Ingestre as one party, Allemar Investments Limited (‘Allemar’) as ‘trustee’ as another party, and leaves blank the name of a third company which is to be a party to the agreement. This third party is simply called ‘Company’ and is indicated within Exhibit MYHY 2 as being associated with Mr Parsons.

48 Exhibit MYHY 2 contains more detail than does Exhibit MYHY 1. It relates to an investment of US$330 million, and to a project of ‘Development of the Kerengga Coastal Industrial City … at the District of Marang, Terrenganu Darul Imam, Malaysia.’ The document is not executed.

49 Mr Yii denies (para 3 (f)) that until mid November 2006 Mr Parsons returned to him an amount exceeding $12 million, and asserts that Mr Parsons has not repaid the ‘bridging finance’ or the ‘Loan Amount’ to Newpage, let alone any interest or costs’. The ‘Loan Amount’ is defined as the sum of $1,527,000. The amount of the ‘bridging finance’ is apparently the sum of $610,000 that was paid by Newpage on 1 June 2006 into the bank account of CBI.

50 In response to Mr Parsons’s statement that he has never had a loan agreement with Mr Yii or with any corporate entity associated with him, Mr Yii states (para 3(g)(ii) that Mr Parsons first approached him in relation to the USA monies in 2005, saying that he had access to such monies and wanted Mr Yii’s assistance in identifying projects in which they could be invested. Mr Yii adds (para 3(g)(ii)):

‘After I had made enquiries with respect to Mr Parsons and the companies associated with him I formed the view that I could assist Mr Parsons with identifying projects.’

Apparently Mr Yii’s inquiries did not reveal to him the fact that Mr Parsons had spent some time in prison arising out of his conviction for fraud (see below).

51 Mr Parsons told Mr Yii that Penthouse had access to funds in excess of $US330 million, and that he and Mr Parsons agreed that $US130 million would be made available through Newpage and the balance, $US200 million, would be made available to Ingestre.

52 Lest it be thought that the vagueness of my account of Mr Yii’s affidavit is due to the summary nature of the account, I should note that this is not so and that I am reflecting accurately the vagueness of the affidavit.

53 Mr Yii states (para 3(g)(iv)) that in or about June 2006 he instructed Dibbs Abbott Stillman to prepare an agreement to document ‘the investments’ and provide a draft to Mr Parsons for his review. While Mr Parsons told him in or about September 2006 that he would sign the document, he did not do so. Accordingly, the agreement prepared by Dibbs Abbott Stillman remains in draft form, and a copy of it is Exhibit MYHY 3 to Mr Yii’s affidavit. Exhibit MYHY 3 appears to be almost identical to Exhibit MYHY 1. There is the change of name from Ingestre to Newpage and related change of ACN number, but it has the same table of contents indicating 29 clauses dealing with the same subjects, and the same word processor reference.

54 On or about 7 September 2006, Mr Parsons wrote to ‘the Board of Directors Ingestre Pty Ltd’ on the letterhead of Penthouse (‘Exhibit MYHY 4’). The letter was headed ‘Confirmation of USD 200 Million Dollars Investment Fund’. The text of the letter was as follows:

‘I refer to our discussion on the Investment Agreement and the payment of establishment fees for this Investment Fund.

I have been instructed by our office in San Francisco and confirm that the fund referred to above is available and ready for payment to your company’s account upon receipt of the establishment fees and costs in accordance with our Investment Agreement.

The establishment fees and costs totalling, AUD 2.5 million, shall be refunded in its entirety immediately if the fund is not transferred from our associate company in San Francisco within 10 days.’

In this letter, Mr Parsons appears to be assuring Mr Yii that $US200 million is ready to be paid to the account of Mr Yii’s company (apparently Ingestre). The letter implies that establishment fees and costs of $2.5 million either have been or are to be paid, and that if the $US200 million is not paid to Ingestre within 10 days, the $2.5 million is to be refunded.

55 No part of the $US200 million was ever forthcoming.

56 On 3 August and 13 August 2006, Mr Yii emailed Mr Parsons (‘Exhibit MYHY 5’) (para 3(g)(vi)). In the absence of context, the meaning of the two emails is obscure. Mr Yii provided Mr Parsons with details of Ingestre’s bank account in Hong Kong and enclosed a ‘sample document’ which was to be executed. This is the form of Investment Agreement expressed to be between Ingestre and Penthouse that is Exhibit MYHY 1. Two paragraphs in the earlier email were as follows:

‘I shall submit the executed agreement to the HK Bankers so they can look out for transaction and clear the transaction with HK Monetary Authority.

We will need a separate local agreement for the balance of the USD 130m.’

57 In the second email (that of 13 August 2006) Mr Yii stated that he was enclosing some ‘files discussed earlier’ and said that there ‘was still a bit of work to be done on this fund agreement for HK’. He asked Mr Parsons to ‘fill in’ as much as he could, then added ‘I will further massage the document after receiving the copy back from you’, saying that he wished the document ‘to look as complete and good as possible for the bank manager’.

Further affidavits

58 Mr Hamilton has sworn a further affidavit on 7 March 2007, to which is annexed a copy of the ‘Report as to Affairs’ relating to Newpage signed by Mr Yii and dated 18 February 2007, which shows that the value of Newpage’s shares in Intermoco and Australon is $2,112,133.14. I was informed from the bar table that Intermoco shares were re-listed on the ASX, and that based on the latest sales of them, the market value of Newpage’s shareholdings is of the order of approximately $652,000.

59 Mr Hamilton forwarded to Dibbs Abbott Stillman Lawyers of Melbourne a copy of the unsigned ‘Investment Agreement’ between Newpage and Penthouse and asked the solicitors to provide certain information about the document, such as whether it was indeed prepared by that firm, and, if so, the approximate date range for the preparation of it, the date it was provided to Newpage or Mr Yii, whether it was the only copy, and if other copies (including drafts) were prepared, the dates on which they were delivered to Newpage or Mr Yii. On 27 February 2007, Dibbs Abbott Stillman replied to the effect that that firm did draft an Investment Agreement but that ‘the Investment Agreement was not drafted for and on behalf of Newpage or Penthouse Concepts Aust Pty Ltd and relates to another matter’. The letter advised that the solicitors were unaware of ‘the interplay’ between Newpage and Penthouse and that neither of those companies was a client of the firm.

60 I will not digress to attempt to reconcile the solicitors’ letter to Mr Hamilton with Exhibits MYHY 1, 2, 3 and 5, discussed earlier. The best that I can make of it is that Dibbs Abbott Stillman must have prepared the form of Investment Agreement as between Ingestre and Penthouse, or as a standard form document leaving the parties’ names and other particulars to be inserted by Mr Yii. No doubt the true position will emerge on the final hearing.

61 The word processor references on Exhibits MYHY 1, MYHY 3 and MYHY 5 are identical. That on Exhibit MYHY 2, the Investment Agreement expressed to be between Ingestre and Allemar, is different, being: ‘Investment Agreement Penthouse Foreign co 20 Feb 07v 2.1’.

62 The reference ‘GB’ in the three identical word processor references is apparently a reference to George Bartzis of Dibbs Abbott Stillman. Mr Bartzis was the signatory of the letter of 27 February 2007 to Mr Hamilton.

63 The last piece of evidence to which it is necessary to refer is an affidavit dated 13 March 2007 of Mr Yii. He states that on 29 January 2007 he had a telephone conversation with Mr Hamilton in which Mr Hamilton informed him that Mr Parsons was convicted of fraud in the early 1990s and served some time in jail. Mr Yii said that that was when he learned of Mr Parsons’s conviction for dishonesty. Mr Yii relies upon this evidence as showing that when the applicants applied for the freezing order against him on 26 February 2007, they were aware of Mr Parsons’s conviction and imprisonment for fraud and were under an obligation to disclose this information to the Court.

64 A copy of the report in The Queen v Roumald Charles Parsons, Supreme Court of Victoria Court of Appeal on 24 October 1997 (unreported, BC9705568 – see now R v Parsons [1998] 2 VR 478) and a copy of the report of Roumald Charles Parsons v The Queen [1999] HCA 1 (see now Parsons v The Queen (1999) 195 CLR 619)were tendered in evidence before me. They show that Mr Parsons pleaded guilty to five counts of obtaining property by deception. Mr Parsons admitted 30 prior convictions from two previous court appearances, all relating to offences of dishonesty. On 24 June 1997, the Victorian County Court imposed sentences of 16 months’ imprisonment on each count, directing that four months of the sentence imposed on four of the counts be served cumulatively upon each other and upon the sentencing imposed on the remaining count. The total effective sentence was thus two years and eight months. His Honour directed that Mr Parsons serve a minimum period of two years before becoming eligible for parole. Mr Parsons applied for leave to appeal against his conviction, notwithstanding his pleas of guilty, and for leave to appeal against the sentences imposed. His applications were dismissed by the Victorian Court of Appeal. His appeal to the High Court was dismissed.

65 Mr Yii states that he attended a meeting with Mr Hamilton on 30 January 2007 at which Nigel Elias, a director of Lewis was present. Mr Elias said that he was assisting Elderslie to collect the debt owed by Newpage and Mr Yii to Elderslie, through his (Mr Elias’s) company, Print Mail Logistics. Mr Elias also said that he was responsible for the appointment of Mr Hamilton as receiver and manager of the property of Newpage, and that he was the person to whom any matter relating to the debt assigned by Lewis to Elderslie and Mr George should be raised.

66 At one time the applicants sought an order that Mr Yii surrender his passport. I refused to make that order and the applicants have not renewed their application for it. Accordingly, I need not address the evidence relating to Mr Yii’s practice of travelling between Australia and Asia in the course of his business.

REASONING

Non-disclosure

67 Mr Yii submits that the freezing order should be set aside for non-disclosure of the following matters:

1. Mr Parsons’s conviction and sentence to imprisonment for fraud; and

2. the provision in cl 14(a) of the Loan Facility Agreement between Lewis as lender and Newpage and Mr Yii as borrowers by which Newpage and Mr Yii undertook not to transfer any of their assets during the continuance of the Loan Facility Agreement, without Lewis’s prior consent in writing, except in the usual course of daily business activity, the discounting of bills in the ordinary course of business, the realisation of short term investments, or disposals in accordance with proposals agreed to by Lewis in writing.

68 Mr Hamilton knew, when he applied for the freezing order against Mr Yii on 26 February 2007, that the evidence of Mr Parsons on which he was relying was the evidence of a man who had been convicted of obtaining property dishonestly and had been sentenced to imprisonment in consequence.

69 Was it incumbent on Mr Hamilton to disclose these facts? It is said for the applicants that it was not, because the conviction and sentence are not germane to the question whether Mr Parsons’s affidavit evidence relating to the joint gambling enterprise should be believed.

70 The obligation on an applicant for an order on a hearing ex parte is usually expressed as an obligation to bring to the Court’s attention all ‘material’ facts, that is to say, all facts material to the decision whether to grant the relief: cf Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 at 681-2 per Isaccs J; and see Biscoe P, Mareva and Anton Piller Orders: Freezing and Search Orders (LexisNexis Butterworths, 2005) at [6.44] – [6.56], and cases there cited.

71 The conviction and sentence were in respect of transactions that occurred between May and August of 1994. They concerned frauds perpetrated by Mr Parsons on five Victorian newsagents. Mr Parsons obtained from these five people cheques totalling over $160,000 by various false pretences. In substance, he procured the newsagents to make out cheques in favour of his company on the promise that the funds would be used to procure paper from a supplier in South East Asia, for the sale of which his company already had contracts in place with large and reputable buyers in the districts in which the newsagents were carrying on their businesses. In fact, no orders for paper were placed, no supplies of paper in commercial quantities were ever imported, and the funds were squandered. Mr Parsons told a variety of lies to explain the whereabouts of the promised paper. In each case, the deceived person’s cheque was paid into a bank account of a company called Canyon Bay Pty Ltd, and shortly afterwards, Mr Parsons procured a withdrawal of the amount.

72 Although the matter may be arguable, and I would not wish to detract in any way from the duty of a party applying for an order ex parte to make full disclosure to the Court (see Hayden v Teplinsky (1997) 74 FCR 7 at 12), I do not think that it was incumbent on Mr Hamilton to disclose on the application he made on 26 February 2007, that the deponent on whom reliance was placed had engaged in that fraudulent conduct some 13 years earlier. It is easy with the benefit of hindsight, and, in particular, with the benefit of the evidence of the version of events that Mr Yii subsequently gave, to question whether Mr Parsons was telling the truth in his two affidavits. However, at the times when those affidavits were filed and read, there was no reason for the applicants to think that his account was not or might not be true. The factual circumstances of some 13 years earlier had, of course, no connection with the factual circumstances touching the dealings between Mr Parsons and Mr Yii in 2006: they go only to the credit of Mr Parsons. In any event, according to the evidence, all that Mr Hamilton knew was that Mr Parsons had been convicted of fraud of some kind in the early 1990s and had served some time in gaol. Mr Hamilton did not know the nature or degree of seriousness of the fraudulent conduct or the length of the period of imprisonment.

73 In relation to the second matter, likewise I do not think that the applicants for the freezing order were obliged to draw the Court’s attention to cl 14(a). It was not relevant to the application for the freezing order that Newpage and Mr Yii had undertaken to a non-party, Lewis, not to dispose of assets.

Serious question to be tried and risk of dissipation

74 Have the applicants shown that there is a serious question to be tried as to whether Mr Yii will be found on the final hearing to be liable to reimburse Newpage to the extent of $2,137,000? If so, have they shown that there is a risk of dissipation of Mr Yii’s assets which would frustrate an order that he reimburse Newpage to that extent.

75 The first of these questions directs attention to the legal bases of the claim for final relief against Mr Yii on which the applicants rely. In draft points of claim, the applicants claim that as sole director and secretary of Newpage, Mr Yii owed Newpage:

(i) a duty under s 180(1) of the Corporations Act 2001 (Cth) (‘the Act’) to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if the reasonable person were a director or officer of Newpage in Newpage’s circumstances and occupied the office (director and secretary) held by, and had the same responsibilities within the corporation as, Mr Yii;

(ii) a duty under s 181(1) of the Act to exercise his powers and discharge his duties in good faith in the best interests of Newpage and for a proper purpose;

(iii) a duty under s 182(1) of the Act not to use his position improperly to gain an advantage for himself or someone else, or to cause detriment to Newpage; and

(iv) a duty under the general law to exercise reasonable care and diligence in and about the exercise of his powers and the discharge of his duties as a director of Newpage.

76 The applicants complain that Mr Yii breached all of these duties by paying away $610,000 and $1,527,000, being funds of Newpage, to CBI, alternatively, to Mr Parsons through his agent, CBI, without any consideration or any proper consideration for the making of those payments.

77 The draft points of claim assert that no reasonable person would, in the circumstances, have entered into either of the two transactions, having regard to the absence of any benefit to Newpage, the detriment to Newpage, and the benefit to CBI or, alternatively, to Mr Parsons, of the transactions.

78 It is said that each of the two transactions was an unreasonable director-related transaction of Newpage, and, by reason of s 588 FE (6A) of the Act, is voidable.

79 According to the draft points of claim, by reason of s 1317H of the Act, Mr Yii is liable to compensate Newpage for the loss and damage suffered by it, and is liable to account for any profits made by Mr Yii resulting from his breaches of duty.

80 Finally, it is said that if Mr Parsons’s account of his having received the sums of $610,000 and $1,527,000 from Mr Yii and repaid those amounts to Mr Yii in the form of cash and casino chips should be found to be correct, then, in addition, Mr Yii has breached his fiduciary duties to Newpage by not acting honestly and in good faith in the best interests of Newpage, by improperly using his position as a director of Newpage to gain an advantage for himself, and by preferring his own interests to those of Newpage.

81 I have two diametrically opposed accounts. All parties agree that I am not to make findings of fact. Senior counsel for Mr Yii submits, however, that I am at liberty to prefer, on a preliminary basis and for the purpose only of the present motions, one version to the other. Of course, he urges me to accept that Mr Yii’s version is to be preferred. As I understand it, he accepts that if I were to prefer Mr Parsons’s account, it would be appropriate to continue the freezing order against Mr Yii.

82 Senior counsel for the applicants submits that if the version (vicarious gambling) given by Mr Parsons were to be accepted, it would be clear that the applicants have a cause of action against Mr Yii, and that the same facts show a risk of dissipation of assets (through gambling). He submits that it is enough that Mr Parsons has given sworn evidence as to his version. In other words, his submission is that on the basis that Mr Parsons’s sworn version exists, and notwithstanding the existence of the diametrically opposed sworn version given by Mr Yii, there is a serious question to be tried as to Mr Yii’s liability to the extent of $2,137,000.

83 In the alternative, he submits that even on Mr Yii’s version (investment), there was a disposal of $2,137,000 without documentation or security, resulting in a similar liability on the part of Mr Yii.

84 I do not accept that it is necessarily sufficient that one sworn version of the facts shows a serious question to be tried. One could imagine a situation in which irrefutable evidence demonstrates the falsity of that version. That, however, is not this case. While there are many unsatisfactory aspects of Mr Parsons’s affidavits, there is also possibly some corroborative evidence in the form of references in the statement relating to CBI’s bank account of withdrawals at Broadbeach and at Conrad Jupiters Casino Queensland following the crediting of the sums of $610,000 on 1 June 2006 and $1,527,000 on 22 September 2006.

85 I do not regard the affidavit evidence of Mr Yii as being of the irrefutable kind that entitles me to set at nought the evidence given by Mr Parsons. There are problems to which I referred earlier also with the evidence of Mr Yii.

86 In addition, I note that an affidavit sworn by Joseph Edward Crogan on 24 January 2007 gives yet a further version of the purpose of at least the loan of $1 million. Mr Crogan was, at the time, Managing Director of Elderslie. He states that Mr Yii said that the sum of $1 million was part of an ‘arrangement fee’ of $4.8 million required to be paid ‘up front’ to procure the release of US$30.5 million from an investor in the Republic of South Africa. The arrangement fee of $4.8 million was to be paid to obtain the approval of the Reserve Bank of South Africa to the repatriation of the money.

87 Mr Yii does not mention this version in his own affidavits.

88 On Mr Yii’s own account, he caused $2,137,000 out of the advance of $3 million to Newpage to be paid to CBI on the most vague of assurances, unsecured and not documented. Even on his own version, there is serious question to be tried as to whether he is liable to Newpage for that sum in respect of his negligent performance of his duties as a director. I need not discuss the other causes of action mentioned earlier.

89 Mr Yii has shown by his disposals of the amounts of $610,000 and $1,527,000 belonging to Newpage without anything approaching a satisfactory explanation, and without documentation or security, that there is a risk of dissipation by him of his own assets.

Conclusion

90 All in all, I think that the freezing order should be continued against Mr Yii until the final hearing and determination of the applicants’ claim for relief against him. Directions should be made with a view to bringing that claim to an early final hearing.

I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Associate:

Dated: 5 April 2007

Counsel for the Plaintiffs:	Mr M Cashion SC

Solicitor for the Plaintiffs:	Kemp Strang

Counsel for the Second Respondent (Roumald Charles Parsons):	Mr AW Street SC and Mr GD Wendler

Solicitors for the Second Respondent (Roumald Charles Parsons)	Van Houten Law

Counsel for the Third Respondent (Martin Yong Heng Yii):	Mr M Sifris SC and Mr ADB Fox

Solicitors for the Third Respondent (Martin Yong Heng Yii)	Maddocks Lawyers

Date of Hearing:	26 March 2007

Date of Judgment:	4 April 2007

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