The Japanese submarine I-174 attacked the convoy on 16 June, sinking the United States Army transport ship Portmar and damaging USS LST-469.

Because of Japan's deteriorating strategic situation, I-174 was the last Imperial Japanese Navy (IJN) submarine to operate off the Australian east coast.

A force of midget submarines raided Sydney Harbour on the night of 31 May – 1 June 1942 and attacks on merchant shipping travelling off the east coast began several days later.

[3] In response to the Japanese attacks, the Australian naval authorities ordered that all ships with a displacement of more than 1,200 tons and a maximum speed of less than 12 knots travel in escorted convoys from 8 June.

I-21 made a highly successful patrol in January and February, during which she sank five ships, and two other submarines operated off Sydney and Brisbane in March.

[7] A force of five boats from the IJN's 3rd Submarine Squadron subsequently attacked shipping along the full length of the Australian east coast during April and May in an attempt to disrupt the Allied supply line to New Guinea.

[9] The large number of Japanese attacks in 1943 put great strain on the Allied forces responsible for protecting shipping off eastern Australia.

The Australian military had also not kept pace with improvements to British and United States ASW doctrine by fully implementing the tactics that had proven most successful in other theatres of the war.

[12] I-174 departed from the major Japanese naval base at Truk on 16 May 1943 under the command of Lieutenant Nobukiyo Nanbu and arrived off Sandy Cape, Queensland on 27 May.

[19] U.S. Army transport Portmar, which had been badly damaged in the Bombing of Darwin on 19 February 1942, had difficulty maintaining her position in the convoy and at times straggled behind the other ships.

Deteriorating weather broke the tow-line between Deloraine and LST-469, and instead the corvette proceeded to the nearby town of Coffs Harbour with Portmar's survivors and the LST's wounded personnel.

[11][15] Following the attack, the Australian Chief of Naval Staff, Admiral Sir Guy Royle, judged that the submarine had been damaged and ordered that "special measures" be taken to search for it.

The RAAF commenced air searches of an 80-square-nautical-mile (270 km2) box south-east of Coffs Harbour on the night of 16/17 June, while Deloraine, Kalgoorlie and the recently arrived destroyer HMAS Vendetta patrolled the area.

[17][22] On 17 June, Anson aircraft were assigned to patrol the submarine's most likely escape routes in the hope that this would force her to remain submerged during the day and surface at night.

[22] The Beauforts reported that they had damaged the submarine and intensive efforts were made on 19 June to locate and sink her, with twelve Ansons continuously sweeping the area while six Vengeance dive bombers were held in readiness nearby.

[24] Naval historian David Stevens has written that the sighting made on 18 June was probably mistaken, as I-174 was at least 60 miles (97 km) to the east of where the RAAF attack took place and the incident was not recorded in her war diary.

This found that a breakdown in communication between the two services was the main cause of the failure, with both the aircraft and the naval signal room in Sydney making procedural errors.