Burness v Supaproducts Pty Ltd

Case [2009] FCA 893

FEDERAL COURT OF AUSTRALIA

Burness, In the matter of Denward Lane Pty Ltd (ACN 065 418 411) (In Liquidation) [2009] FCA 893

PAUL BURNESS (AS LIQUIDATOR OF DENWARD LANE PTY LTD (ACN 065 418 411) (IN LIQUIDATION)) v SUPAPRODUCTS PTY LTD (ACN 057 134 522)

VID 203 of 2008

GORDON J
18 AUGUST 2009
MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 203 of 2008

GENERAL DIVISION

IN THE MATTER OF DENWARD LANE PTY LTD (ACN 065 418 411) (IN LIQUIDATION)

BETWEEN:

PAUL BURNESS (AS LIQUIDATOR OF DENWARD LANE PTY LTD (ACN 065 418 411) (IN LIQUIDATION))
Plaintiff
AND:

SUPAPRODUCTS PTY LTD (ACN 057 134 522)
Defendant

JUDGE:

GORDON J

DATE OF ORDER:

18 AUGUST 2009

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The application is dismissed.

2.The Plaintiff is to pay the Defendant’s costs of the application.

3.Liberty to apply within 7 days.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 203 of 2008

GENERAL DIVISION

IN THE MATTER OF DENWARD LANE PTY LTD (ACN 065 418 411) (IN LIQUIDATION)

BETWEEN:

PAUL BURNESS (AS LIQUIDATOR OF DENWARD LANE PTY LTD (ACN 065 418 411) (IN LIQUIDATION))
Plaintiff
AND:

SUPAPRODUCTS PTY LTD (ACN 057 134 522)
Defendant

JUDGE:

GORDON J

DATE:

18 AUGUST 2009

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

  1. Supaproducts Pty Ltd (ACN 057 134 522) (“the Defendant”) manufactures and supplies building hardware by way of sale and hire to builders.  Between 1997 and 23 June 2005 (a period of some eight years), the Defendant supplied building hardware to Denward Lane Pty Ltd (ACN 065 418 411) (“Denward Lane”).  At all relevant times, Denward Lane had two directors – Mr Stephen Smith and, his father, Mr Keith William Smith. 

  2. On 13 July 2005, Denward Lane was wound up and Paul Burness (“the Liquidator”) was appointed liquidator of Denward Lane. The relation back date was 19 April 2005, being the date application was made to wind up Denward Lane. The relation back period commenced on 19 October 2004 (the “Relation Back Period”): s 588FE(2) of the Corporations Act 2001 (Cth) (“the Act”).

  3. The following facts and matters are not in dispute:

    1.Denward Lane was insolvent at all times during the Relation Back Period;

    2.the dealings between the Defendant and Denward Lane took place under a running account (see Sutherland (as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477 at [142], [148] – [163]; Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 286; Airservices Australia v Ferrier (1995) 185 CLR 483 at 492, 502 – 504; Sutherland v Lofthouse (2007) 64 ACSR 655 at [35]);

    3.during the Relation Back Period, the peak indebtedness of Denward Lane’s account with the Defendant was $203,128.35;

    4.the Defendant received the following payments in reduction of the running account balance…

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Details
AGLC
Burness v Supaproducts Pty Ltd [2009] FCA 893
Case
[2009] FCA 893
Decision Date

CaseChat Overview and Summary

In the matter of Burness v Supaproducts Pty Ltd, the plaintiff, Burness, sought to have certain transactions involving the defendant, Supaproducts Pty Ltd, deemed as voidable preferences under section 588FA of the Corporations Act 2001. Supaproducts, operating under the name "Shisham Products," is a company that supplies building hardware, particularly props used in the construction industry. Burness, who was a creditor of Supaproducts' customer, Denward Lane, claimed that payments made by Denward Lane to Supaproducts in the period leading up to Denward Lane's liquidation constituted voidable preferences. The central issue before the court was whether the transactions between Denward Lane and Supaproducts met the criteria for being classified as voidable preferences under the Corporations Act.

The court considered whether the transactions in question were preferences within the meaning of section 588FA(1)(a), and if so, whether they met the additional criteria set out in sections 588FA(1)(b) and (c). Supaproducts argued that the transactions did not constitute preferences as they were ordinary course of business transactions. The court found that the payments made by Denward Lane to Supaproducts were indeed in the ordinary course of business, given the longstanding relationship and the practice in the industry of delayed payments. The court further held that the payments did not result in Supaproducts receiving more than it would have in a winding up, as the post-dated cheques were eventually honoured and there was no significant delay beyond industry norms. Consequently, the court dismissed Burness's application, finding that the transactions did not constitute voidable preferences.

In summary, the court ruled against the plaintiff's claim, determining that the transactions between Denward Lane and Supaproducts did not meet the statutory criteria for voidable preferences. The plaintiff was ordered to pay the defendant's costs of the application. Supaproducts was granted liberty to apply within seven days if there were any further issues to be addressed.

Orders

Orders of the court

1. The application is dismissed.

2. The Plaintiff is to pay the Defendant’s costs of the application.

3. Liberty to apply within 7 days.

Note:

Background

Background to the litigation

Thirdly, the transaction in issue must result in the creditor receiving from the debtor in respect of the unsecured debt that the debtor owes to the creditor more than the creditor would receive from the debtor in respect of the debt if the payment were set aside and the creditor was to prove for the debt in the winding up of the debtor: s 588FA(1)(b). FACTS The Defendant, under the trading name “Shisham Products”, manufactures and supplies building hardware by way of sale and hire to builders. Its principal products are props which are used in the building and construction industry to support prefabricated concrete walls and slabs and other structures during the construction process. As noted earlier, for eight years from 1997 until 23 June 2005, the Defendant supplied props to Denward Lane. Denward Lane was a regular customer of the Defendant. Denward Lane was wound up on 13 July 2005. Initially Denward Lane’s terms of trade with the Defendant were cash on delivery. After approximately 12 months, trading terms were extended to one week’s credit, then 14 days credit and subsequently 30 days. The terms of trade were not documented and were reached as a result of face to face or telephone discussions. The Defendant separately invoiced Denward Lane for purchases and for hire. Purchases were invoiced and charged to Denward Lane’s account on the day of the transaction. Hire charges would accrue from the day the equipment was delivered to Denward Lane or to a site but would be invoiced monthly at the end of each month. Throughout Denward Lane’s eight year relationship with the Defendant, the Defendant’s sales manager (Mr Kelly) would visit Denward Lane’s premises to collect cheques and Denward Lane would provide post dated cheques. Mr Messina, a director of the Defendant, gave evidence that he was not concerned to receive post dated cheques from Denward Lane or any other account customer as he had been dealing with builders for more than 30 years and it was a common practice in the building industry. In particular, Mr Messina gave evidence that it is common for builders to pay their own suppliers from a project’s revenue or progress payments. As a result, delays in principal contractors making progress payments necessarily causes builders to pay their suppliers later than usual. By 2001, Denward Lane was a significant customer of the Defendant. The Defendant was regularly raising invoices with monthly totals exceeding $10,000. During 2002, the volume of business increased substantially. By December 2002, monthly charges had reached approximately $34,000. In October 2003, Denward Lane paid the August 2003 invoices totalling $12,284.06 by cheque. The cheque bounced. The cheque was re-presented and honoured. Mr Messina was not concerned. This was not the first occasion on which a cheque provided by Denward Lane was not met. Mr Messina gave evidence that usually he knew about the cheque bouncing before the bank notified him because the Defendant (he or Mr Kelly) received a telephone call from Mr Smith at Denward Lane advising him of the fact. Mr Messina’s evidence was that the explanations provided were credible – a cheque deposited into Denward Lane’s account and against which the cheque had been drawn had not cleared or he was waiting on a progress payment from a contractor. At no time did a bounced cheque bounce a second time.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

GORDON J

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Ratio Decidendi

Legal Principle Established

Established by: GORDON J

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