Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (No 2)
[2016] VSC 410
•25 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2013 03530
IN THE MATTER of Swan Services Pty Ltd (in liquidation) (ACN 000 699 990)
BETWEEN
| CENTRAL CLEANING SUPPLIES (AUST) PTY LTD (ACN 112 644 587) | Plaintiff |
| v | |
| ANTHONY WAYNE ELKERTON (in his capacity as liquidator of Swan Services Pty Ltd (in liquidation) ACN 000 699 990) | Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 and 15 December 2015, listed for mention on 5 May and 12 May 2016 |
DATE OF JUDGMENT: | 25 May 2016 |
CASE MAY BE CITED AS: | Central Cleaning Supplies (Aust) Pty Ltd v Elkerton (No 2) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 410 |
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CORPORATIONS – Trial of remitted questions from Court of Appeal in Central Cleaning Supplies (Aust) Pty Ltd v Anthony Wayne Elkerton (2015) 321 ALR 181 – Payments appropriated to discharge debts of plaintiff’s choice – Batrouney v Forster [2015] VSC 230 considered – Running account – Nature of parties’ commercial relationship – Airservices Australia v Ferrier (1996) 185 CLR 483 applied – Lump sum payments to reduce outstanding accumulated debt – Single contract – Rule in Clayton’s case applicable – Presumption that payments be applied in ‘first in first out’ basis – Yarra Capital Group Pty Ltd and anor v Sklash Pty Ltd [2006] VSCA 109 considered – Reversal of entries post-dates and inconsistent with clear direction provided.
CORPORATIONS – Liquidation – Appeal under s 1321 of the Corporations Act 2001 (Cth) – Claim that liquidator account to supplier for goods subject to a valid retention of title claim and not paid for by the company in liquidation, and not capable of delivery up by the liquidator – Whether court empowered to make determination with respect to substantive rights – Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141; Osborne Computer Corporation Pty Ltd v Riddell (1995) 17 ACSR 606; Burdett-Baker, IMO AFS Group Limited (in liq) v National Australia Bank Ltd [2013] FCA 799 and White v Norman (No 2) (2012) 202 FCR 38 considered – Not required to be determined as question remitted to trial division by Court of Appeal – Legal basis of claim not identified or articulated – Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2002) 202 CLR 588 applied – No liability to account if no liability established.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D McAloon | Tisher Liner FC Law |
| For the Defendant | Mr D Luxton | Tress Cox Lawyers |
HER HONOUR:
The plaintiff (‘Central’) owns and operates a substantial Australia-wide business supplying cleaning machinery, equipment and consumables to, among others, commercial cleaning contractors. The defendant is the liquidator of a company which operated such a business, being Swan Services Pty Ltd (in liquidation) (‘Swan’). Swan, prior to going in to administration and then liquidation, was a substantial operator in the industry, providing cleaning services to hundreds of commercial and retail properties across the country. Prior to going into liquidation, Swan was amongst Central’s top twenty customers in terms of turnover.
Given the nature of the services provided by Swan, the goods supplied by Central to Swan were not just mops and buckets. Based upon the schedules of equipment in evidence, some of the equipment supplied by Central to Swan was quite substantial and expensive, with one item, for example, an ‘Adiatek Diamond 100 Ride On’, having an invoice price of $29,700.
The defendant was appointed as one of the administrators of Swan on 22 May 2013. The circumstances of the commencement of the administration seemed to be somewhat chaotic. Almost all of Swan’s staff, which numbered in the thousands, were dismissed within hours of the appointment of the administrators. There were reports of unknown persons entering premises where Swan had provided services and removing cleaning equipment. On 24 May 2013 the administrators’ staff sent an email to managers at various sites to the effect that equipment at the sites belongs to Swan and could not ‘be used or removed without the explicit instructions of the administrators’. Within days, some Swan managers were rehired by the administrators to assist them with, among other things, recovering the assets of Swan located at the various sites where it was feasible and commercial to do so. This task was complicated by the apparently poor record keeping practices of Swan, in particular, its incomplete asset registers.
On 30 May 2013, Mr Philip Carroll, the IT and Finance Manager of Central, wrote to the administrators, as follows:
Subject: Retention of Title Claim.
Central Cleaning Supplies (Aust) Pty Ltd (CCS) would like to submit a retention of title claim on machinery purchased but not paid by Swan Services Pty Ltd (SSERV).
CCS currently is owed by SSERV a total of $326,431.04, our claim for retention of title is $116,127.97 on the machinery only. $210,303.12 which is remaining the balance comprises of sundry items. This amount we wish to lodge formal proof of debt with yourselves and hopefully recover with the normal administration process.
In regard to machinery of $116.127.97, please find attached summary spreadsheet and copies of invoices for these goods.
If you have any questions, please do not hesitate to contact me.
As noted in the letter, the letter annexed a bundle of invoices and a summary spreadsheet supporting Central’s retention of title claim (‘ROT claim’). The ROT claim was rejected by the administrators on 5 June 2013 on the basis that Central had not registered its security interests on the Personal Properties Security Register, and the transitional provisions of the Personal Properties Security Act 2009 (Cth) (‘PPSA’) did not apply to the ROT claim.
On 8 June 2013, the solicitors for Central wrote to the administrators disputing their interpretation of the PPSA, and stated, as follows:
Our client therefore holds a transitional security interest in relation to the equipment and we are therefore writing to notify you of this and demand the immediate return of the equipment to our client.
The attached schedule lists the equipment – by both description and location. The equipment is easily identifiable and none of the equipment has been paid for. No other party can hold any interest in the equipment and our client will hold the Administrators responsible should the equipment not be immediately returned to our client.
We therefore urgently seek your confirmation that the equipment remains in the possession of the Administrators and advise that our client is seeking to collect the equipment at the earliest opportunity.
Subsequent correspondence between the solicitors for Central and the solicitors for the administrators failed to cause the parties to shift their position, and this proceeding was commenced in the Corporations List on 10 July 2013. By that time, the administrators had been appointed as the liquidators of Swan. The current defendant is now the sole liquidator of Swan.
Notwithstanding the rejection of the ROT claim, the administrators’ staff did make some attempts to track down the equipment the subject of the ROT claim. On 20 June 2013, a revised version of the schedule of equipment was circulated which appears to be an attempt to reconcile the information provided by Central with information from Swan’s records and from information provided by Grays Asset Services, a division of Grays NSW Pty Ltd (‘Grays’) (being the company engaged by the administrators to recover and sell equipment owned by Swan). The covering email was to the effect that the administrators were reliant upon information being supplied by Grays in order to locate the equipment. On 17 July 2013, a week after the commencement of this proceeding, Ms Laura Stanton, one of the administrators’ staff working on the administration and subsequently the liquidation of Swan, sent an email to a representative of Grays, as follows:
As advised in our earlier conversation, we are currently engaged in legal action with another party, Central Cleaning Supplies regarding the ownership of certain equipment.
As a result, we are required to remove certain assets from auction until the dispute has been finalised.
Please find attached a schedule provided by Central Cleaning Supplies which details assets they purport belong to them. You will note they have provided serial numbers in respect of same.
Please review the list and remove from auction any assets with the same serial numbers. Where serial numbers do not match, you are not required to remove these items from sale.
I should be grateful if you could provide me with a list of assets identified as belonging to Central Cleaning.
There was subsequent correspondence between Ms Stanton, ex Swan staff engaged by the liquidators, and representatives of Grays over the course of July 2013 in an attempt to locate the equipment identified by Central, and a flurry of further activity in February 2014 concerning the equipment held at Rundle Place, a shopping centre in Adelaide. In his affidavit sworn on 29 August 2013, Mr Elkerton confirmed that only four of the items of equipment identified by Central had been recovered.
In the Originating Process filed 10 July 2013, Central stated that the application was made under s 1321 of the Corporations Act 2001 (Cth) (‘Corporations Act’) appealing the decision of the liquidators rejecting Central’s claim to a perfected transitional security interest under the PPSA.
The question of whether the ROT claim was valid was heard before Ferguson J (as she then was) on 19 February 2014. In her judgment delivered on 7 March 2014, her Honour accepted the liquidator’s contention that Central did not have a valid ROT claim. This decision was reversed by the Court of Appeal. The Court of Appeal reversed the liquidators’ decision not to allow the ROT claim, and on 1 July 2015 remitted the proceeding to the Trial Division for determination of the following issues:
(a) which goods were actually supplied by [Central] to [Swan] during the period 9 November 2012 to 5 April 2013;
(b) which of those goods have not been paid for by [Swan] (‘the relevant goods’); and
(c) the value of the relevant goods
(‘remitted questions’).
On 1 October 2015, Central filed a Further Amended Originating Process. The Further Amended Originating Process:
(a) specified that the application was made under s 1321 of the Corporations Act;
(b) sought an order that the liquidator deliver up to Central any goods supplied by Central to Swan in the period leading up to 22 May 2013 and not paid for by Swan (‘goods’);
(c) sought an order that the liquidator pay to Central the proceeds of sale of the goods (or, in the case of goods sold during the period Swan was in administration, to apply such proceeds in accordance with s 442CC(1A) of the Corporations Act; and
(d) sought an order that the liquidator account to Central for the value of any goods that are not capable of being delivered up to Central.
By agreement between the parties, the focus of the enquiry at the trial of the remitted questions was limited to what have been described as the ‘high value goods’, not all goods supplied by Central to Swan in the relevant period. Essentially, the questions for determination are what goods have been paid for (which requires a determination of whether Central’s position that it was entitled to appropriate payments to whichever invoices it chose is correct), and, in the case of goods which have not been paid for, and have not been located or recovered by either party, whether the Court should order that the liquidator compensate Central for the invoice price of those goods.
In relation to the first issue, after Swan went into administration, Central reversed some entries in its accounting system (whereby funds paid to it by Swan had been applied to invoices rendered on an ‘oldest first’ basis) and applied the funds to other, later, invoices. This only became apparent after the liquidator undertook a reconciliation between the spreadsheet of equipment and invoices accompanying Mr Carroll’s letter of 30 May 2013 with the monthly statements of account provided by Central to Swan. In crossexamination‑, Mr Carroll candidly admitted that the purpose of this exercise was to maximise the value of the ROT claim, by maximising the number of items of ‘high value’ equipment which Central could contend had not been paid for by Swan. Central’s contention is that it is entitled to do so, on the basis of the wellestablished‑ principle restated by Robson J in Batrouney v Forster[1] (omitting citations):
There are several well established principles relating to the allocation of payments to satisfy debts due between a debtor and creditor. If a debtor owes several debts to a creditor, the debtor may inform the creditor to which debt a payment by the debtor should be applied. If a debtor fails to inform the creditor of an allocation, the creditor may make the allocation. If the allocation is made by the creditor in his or her books of account, the creditor may alter the allocation at any stage before the debtor is informed of an allocation.
[1][2015] VSC 230 [204].
The liquidator does not dispute this statement of principle, but contends that the uncontradicted evidence establishes that in fact a direction was made by Swan to Central that funds paid by Swan to Central be applied to the oldest invoice first, and that instruction was in fact adhered to by Central prior to Swan going into administration. The invoice value of these items, three of which are in the custody of Central pending the hearing and determination of this proceeding, totals $43,010.
In relation to the second issue, it is common ground between the parties that five items of equipment identified by Central as having been supplied by Central to Swan for use at Rundle Place in or around March 2013 (‘Rundle Place goods’):
(a) have not been paid for by Swan; and
(b) cannot be located, and indeed were not the subject of any recovery effort by Grays.
The invoice value of these items totals $62,996.07. The dispute between the parties is whether the Court is empowered by the terms of s 1321 of the Corporations Act to make an order compensating Central for the value of the missing equipment, if so, whether I ought to do so, and, if I ought to do so, in what amount.
The parties relied upon a number of affidavits. Much of the evidence was largely uncontentious. The affidavits relied upon by Central were as follows:
(a) an affidavit sworn by Simon Joel Abraham, the solicitor for Central, at the commencement of the proceeding which exhibited the correspondence between the parties (and subsequently, between their solicitors) regarding Central’s ROT claim, the relevant contractual documents, including invoices rendered by Central to Swan, and schedules listing equipment claimed by Central to be subject to its ROT claim. A schedule of the goods was first provided to the administrators on 8 June 2013;
(b) an affidavit sworn by Phillip Edward Carroll sworn on 29 July 2013 which exhibited further contractual and transactional documents, asserted that certain invoices rendered by Central to Swan remained unpaid, expressed concern about a pending public auction of goods by the liquidator, and the correspondence between the solicitors with respect to the removal of goods the subject of the ROT from the auction;
(c) a further affidavit sworn by Mr Carroll on 10 September 2013 annexing copies of purchase orders and delivery dockets in respect of the items being the subject of Central’s ROT claim, and identified certain ‘high value’ items. Mr Carroll deposed as follows:
As stated at paragraph 10(c) of my July affidavit, based on Central Cleaning’s records, the company has not paid any of the unpaid invoices (as defined in my July affidavit). In circumstances where [Swan] did not supply remittance advices to Central Cleaning when it made payments, Central Cleaning applied those payments as it saw fit (typically in reduction of [Swan’s] oldest debts first). At the time of the defendant’s appointment to [Swan], Central Cleaning was owed $326,431.04 by [Swan]. This total includes the amounts specified in the Unpaid Invoices, each of which is recorded as unpaid in Central Cleaning’s records.
(d) Mr Carroll also deposed as to the description and value of certain high value goods which were the subject of Central’s ROT claim. He deposed that Central is the sole Australian supplier of Adiatek products, and if Central had been provided with access to the sites to which these goods had been delivered, Central would have readily identified those items;
(e) an affidavit sworn by Waranje Dunuwille, a former manager of Swan. Mr Dunuwille’s evidence is summarised at paragraph 23 below; and
(f) a further affidavit sworn by Mr Carroll on 26 November 2015, in which Mr Carroll exhibited a missing delivery docket, and annexed a spreadsheet which contained details of invoices which, if Central had in fact allocated payments to the oldest invoice first, would remain unpaid at the time Swan went into administration.
Two witnesses relied upon by Central were required to attend for crossexamination: Mr Phillip Carroll, Central’s IT and Finance Manager, and Mr Waranje Dunuwille, Swan’s former State Manager for Victoria and Tasmania.
The crossexamination of Mr Carroll largely focussed upon the application by Central of payments made by Swan to Central towards Swan’s outstanding invoices. As noted above, notwithstanding the statements made in his affidavit sworn on 10 September 2013 referred to at paragraph 18(c) above, Mr Carroll freely admitted that the purpose of certain reversals in Central’s accounts after the appointment of the administrators, which are recorded in the statement sent by Central to the administrators on or about 1 June 2013, was to maximise Central’s potential recovery from the ROT claim. Mr Carroll also gave evidence that Central would have been in a position to collect any equipment it owned from any of the Swan sites had it been provided with the opportunity to do so.
Mr Carroll was taken to some email correspondence between Michael Bell, the former Chief Financial Officer of Swan, and Mr Richard Maloy, from Central’s accounts receivable department in early May 2013, which is reproduced below in chronological order.
Thursday, 2 May 2013 2:51 PM
Hi Richard,
Just letting you know I have a little delay in sending the details through to you as I want to obtain agreement from Bob Swan who is out of the office at the moment. He is expected back in the next hour so I will send to you as soon as possible.
Kind Regards
MICHAEL BELL
CHIEF FINANCIAL OFFICER
Michael,
Unless we receive a confirmation of the payment plan as discussed by close of business today we will have no option but to place your account on ‘HOLD’ until the matter is resolved.
Regards
Richard
Richard Maloy
Accounts Receivable
Thursday, 2 May 2013 5:11 PM
Richard,
Following on from our phone conversations and now agreed with Bob Swan.
As requested we agree to the following payments as we aim to reduce our outstanding balance on our account.
We will pay an amount each Friday in order to reduce the balancing owing on the account.
The amount paid will be equal to the amount contained in the 60 day balance of the last statement divided by the numbers of Friday’s in the month. In addition we will pay an amount of $15,000 each Friday until the balance of the 90 days+ is removed. All payments made will be allocated to the oldest outstanding invoice. We would appreciate your acceptance of this payment plan as we work to restore the account to an acceptable level.
Kind Regards
MICHAEL BELL
CHIEF FINANCIAL OFFICER
Friday, May 03, 2013 8:50 AM
Michael,
Further to our telephone conversation re your suggested repayment plan for your 90 day + balance we are prepared to accept $15,000.00 per week for the month of May’13, with the understanding that this will be increased to a minimum of $20,000.00 per week until the balance is cleared.
Could you please confirm that you are prepared to accept these conditions & confirm that payment will commence as of today 03/05/13.
Regards
Richard
Richard Maloy
Accounts Receivable
Friday, May 03, 2013 5:03 PM
Hi Richard,
This is agreed. We will be making a payment by EFT today.
Regards
Michael
Monday, 6 May 2013 7:47 PM
Hi Richard,
I spoke with Bob Swan tonight and he has agreed to pay an additional amount of $12,996 which I will process in the morning. You and your principals will need to speak with Bob as to whether this additional amount will continue to be paid for the remainder of this month as it is greater then (sic) what was envisaged in the preceding emails.
Regards,
Michael
Mr Carroll was not familiar with Mr Bell, or aware of this correspondence, but he agreed that Swan had a reputation as a ‘delinquent’ customer, and that Mr Maloy was in regular communication with Swan about its outstanding debt. He also agreed that prior to the appointment of the administrators, Central had allocated payments to invoices directed to Swan which was consistent with the oldest invoices being paid first. He also gave the following evidence regarding the reversal of credits applied to Swan invoices.
You weren’t aware of these emails at the time?---No, I wasn’t.
You weren’t aware of the communications between the telephone conversations for example that were referred to?---I knew there was many. I knew Richard was commenting on services on a daily basis asking for money and with a threat of stop supply, I know that for sure.
Perhaps turning to the reversal that we see in the May statement and the way the payments – because there were payments subsequent to this email weren’t there, there were payments made?---Yes, correct. Correct.
When the credit was reversed and the payments were applied in a way that excluded those two invoices that we looked at before - - - ?---It included?
Excluded?---Excluded from the payments?
That’s right?---Okay, thank you.
So the two November invoices - - - ?---Were now outstanding, yes.
When those payments were applied to exclude those two November invoices, the one for DFO Southern Cross and the one for Roxburgh Park, was that something you did?---Yes, I did.
And you did it because?---Of the large machinery, the serialised items that we wanted to recover.
So you did it for the purposes of your retention of title claim?---That’s correct.
And you did it - - - ?---After the administration.
After the administration?---Actually probably on the day I got the letter from Anthony Elkerton saying that he would recognise retention of title claims, please submit your retention of title claim.
I understand. So this was all with a view to making your retention of title claim, nice big items, big ticket items?---Yeah, not toilet paper, not mops and buckets, not half used chemicals which we couldn’t recover.
I understand?---Yes.
And you did that without knowledge of this email exchange?---No, I – I didn’t – in my exchange, I - I knew they were paying. I didn’t, on that exchange.
And you did it perhaps without giving thought to the history of ‑payments?‑That’s‑ correct.
And the way that the payments were applied?---That – that’s correct. I wanted to protect that interest in those light ticket items.
Yes. Your concern was simply, let’s make this ROT claim an effective ‑one?‑Yes‑, because – I didn’t change the balance. The balance was still 326,000 plus. It was just the allocation to bring the big ticket items, which we could recover, because they’re serialised. It’s not like a mop/bucket which can’t be recovered.
Yes?---And that’s why I did it.
In terms of the invoicing?---Yes.
Mr Carroll was also questioned about his understanding of Central’s practices and procedures with respect to the delivery of goods, what information was sent by Central to Swan, and whether he was able to identify goods returned to Central. Mr Carroll gave evidence that he had no knowledge about goods being returned to Central from the Rundle Place or Roxburgh Park sites.
In his affidavit affirmed on 30 January 2014, Mr Dunuwille gave, in summary, the following evidence:
(a) he was employed by Swan between 2009 and 2013;
(b) immediately prior to the appointment of the administrators, he was the State Manager for Victoria and Tasmania, and also oversaw larger sites operated by Swan in South Australia, including Rundle Mall;
(c) he was provided with the equipment list, and noted that a number of items were machines manufactured by Adiatek. Central was the only supplier of these machines;
(d) he was familiar with each of the locations referred to in the equipment list, as he personally oversaw these sites; and
(e) at paragraph 8 of his affidavit, Mr Dunuwille deposed as follows:
Each of the items listed on the Equipment List was present at the relevant sites as at the appointment of the administrators to Swan on 22 May 2013. Indeed, I recall that on the day of the appointment of the administrators, machinery supplied by Central Cleaning was used to clean each of these sites. There was certainly no missing equipment at any of these sites and I visited these sites regularly. If cleaning equipment supplied by Central Cleaning had gone missing whilst I was the State Manager of Swan, I am certain I would have been informed however I am not aware of this having occurred at any time prior to the appointment of the administrators.
During the course of his crossexamination, it became clear that Mr Dunuwille’s direct knowledge of what equipment was present at each of the Swan sites as at 22 May 2013 was somewhat overstated. In particular, with respect to Rundle Place, he gave evidence that he visited this site when the shopping centre opened in about March 2013, and had not otherwise visited that site. Accordingly, the utility of his evidence regarding what was actually on site at Rundle Place on 22 May 2013 is relatively limited. Similarly, Mr Dunuwille was also taken to email correspondence between senior managers of Swan later in the day of 22 May 2013 regarding reports of equipment being removed from Swan sites. He was unable to shed any light upon the events referred to in this correspondence, as he left Swan’s premises at about lunchtime that day after his employment was terminated that morning, and never returned.
The liquidator relied upon the following affidavits at the hearing:
(a) an affidavit of Alexander Petrie, a former employee of a company related to Swan who was engaged by the administrators to assist with various enquiries in relation to the business of Swan, including the task of trying to identify and locate equipment which was the subject of various claims by previous suppliers of Swan, including Central;
(b) an affidavit sworn by Campbell Grassick Sanders, a former employee of a company related to Swan, who was retained by the administrators until about 12 June 2013. He had been responsible for various sites in Victoria and Tasmania where Swan provided cleaning services, and reported to Mr Dunuwille. He described the process by which Swan ordered equipment and supplies from Central, and was aware of six or seven occasions upon which Central suspended supply to Swan on the basis that Central was owed money, including the period immediately prior to the appointment of the administrators to Swan;
(c) an affidavit sworn by Mr Anthony Wayne Elkerton, the liquidator, on 29 August 2013, which exhibited correspondence between the parties concerning Central’s ROT claims, and responded to the allegations made by Mr Carroll regarding the liquidators’ dealings with the goods;
(d) a further affidavit of Mr Elkerton sworn on 8 October 2013, where Mr Elkerton produced a number of invoices rendered by Central to Swan on 31 December 2012, none of which were said by Central to be unpaid, and which were for the supply of equipment which was not the subject of Central’s ROT claim. Mr Elkerton provided a further explanation about the attempts made by or on behalf of the liquidators to recover equipment from sites previously operated by Swan, and rejected ‘any assertion that the defendants have had any disregard for the plaintiff or treated the claim with contempt’;
(e) a further affidavit of Mr Elkerton sworn on 6 February 2014, summarising the results of an analysis of the statements of account rendered by Central to Swan, annexed the correspondence between Central and Swan in May 2013 regarding the payment of Swan’s outstanding debt to Central referred to in paragraph 21 above, and annexed a spreadsheet which showed which invoices remained unpaid by Swan had Central allocated the payments made by Swan in May 2013 to the oldest invoice first. Mr Elkerton also responded to Mr Dunuwille’s affidavit by annexing email correspondence regarding the alleged removal of equipment from sites previously operated by Swan by representatives of Central (including Roxburgh Park);
(f) a further affidavit sworn by Mr Sanders on 18 February 2014 regarding communications he had on 22 May 2013 with supervisors of sites operated by Swan in Northgate, and Eastlands in Tasmania and in Roxburgh Park, Victoria regarding the removal of machinery used by Swan at those sites;
(g) a further affidavit sworn by Mr Elkerton on 28 September 2015 confirming again that only the four items of equipment claimed by Central had been located by either Central or the liquidator. Mr Elkerton deposed as to the difficulties he had encountered after his appointment as administrator and subsequently liquidator, including the lack of proper, complete and accurate books and records, and the efforts made by him and former staff of Swan to obtain and compile asset registers. He deposed as to the absence of any reference in Swan’s books and records to ‘Rundle Place’, and the enquiries made by his staff regarding the equipment said to be located at Rundle Place;
(h) an affidavit sworn by Laura Stanton, who worked with the liquidator until November 2014, who deposed as to her involvement with the administration and liquidation of Swan, and a conversation she had with a manager of the Rundle Place shopping centre on 13 February 2014. The file note of the conversation was to the effect that Central had removed some equipment at the Rundle Place site, probably on 23 May 2013, and hired out other equipment to the new cleaning contractor. However, as deposed to by Mr Elkerton in the affidavit referred to in (g) above, Mr Warren was not willing to provide an affidavit or give evidence in this proceeding; and
(i) an affidavit sworn on 20 November 2015 by Justin Dangerfield, the former Centre Manager at Rundle Place, to the effect that the contents of the file note referred to in (h) above accords with his recollection at the time.
It is apparent from the evidence relied upon by the liquidator that the liquidator and his staff believed, or at least suspected, that some goods which were the subject of Central’s claim but not identified by the liquidator, had been recovered by Central in the early days of the administration. However, while Mr Carroll was crossexamined about this matter, it was not the subject of any submissions at the hearing.
Of the liquidator’s witnesses, Mr Elkerton, the liquidator, himself and Laura Stanton, a former employee of Pitcher Partners who worked with Mr Elkerton on the administration and liquidation, were subject to crossexamination‑, largely regarding the efforts undertaken by the administrators and their staff to recover the equipment referred to in the equipment list, and in particular, the equipment located at Rundle Place. What is tolerably clear from their evidence (including the contemporaneous documents), that neither the administrators’ staff or representatives of Grays appreciated that the Rundle Place site was a different site to a site identified in Swan’s records as Rundle Mall, notwithstanding a reference to Rundle Place in an email exchange in the days immediately following the appointment of the administrators,[2] and that, as a result, no-one from Grays ever attended the Rundle Place site. When the misunderstanding was finally realised, perhaps as late as February 2014, the equipment was nowhere to be found. As well as the confusion caused by the slight variance in the site names (I think judicial notice can be taken of the fact that Rundle Mall is a well-known commercial and retail centre in central Adelaide, such that interstate residents might assume that a reference to Rundle Place was a reference to Rundle Mall), both Mr Elkerton and Ms Stanton referred in their evidence to the large number of tasks required to be completed to gather in Swan’s assets from a large number of sites, a task which was complicated by the departure of most of Swan’s staff, and the inadequacy of Swan’s records.
[2] On 27 May 2013, Andrew Valencour, an ex-Swan manager rehired by the administrators to assist with the recovery of Swan’s assets, wrote to Swan’s South Australian manager (copying in, among others, Ms Stanton and Mr Petrie) asking him to list the equipment at Ingle Farm and Rundle Place. Mr Millar replied, referring to equipment at Ingle Farm and Rundle Place. This information was passed on to a representative of Grays, who replied to the effect that neither Ingle Farm and Rundle Place were not referred to in the site listing previously provided by the administrators to Grays. Ms Stanton asked Mr Valencour to follow up the matter, but there is no evidence he or anyone else ever did until Ms Stanton made further enquiries in February 2014.
For completeness, the Court was also provided with an agreed bundle of documents, which were derived from the parties’ discovery and documents produced by third parties upon subpoena, which largely related to the liquidator’s attempts to recover the goods claimed by Central.
The first issue for determination is whether Central is entitled to rely upon the manner in which it appropriated payments made by Swan prior to 22 May 2013 so as to contend that equipment supplied by Central to Swan which would be found to have been paid for if Swan’s payments had been applied to the oldest invoices first had in fact not been paid for. If the liquidator’s contentions are correct, then certain equipment currently held by Central pending resolution of the proceeding, with a total invoice price of $30,800,[3] would need to be returned to the liquidator.
[3]The equipment at Roxburgh Park, which if the liquidator’s position is accepted, was paid for by Swan, cannot be located.
As previously noted, Central relies upon the principles referred to by Robson J in Batrouney v Forster.[4] Robson J quoted the learned authors in the ‘Laws of Australia’, as follows:
In the absence of an express or inferred appropriation by a debtor, payment may be appropriated to the discharge of a debt of a creditor’s choice. There is no obligation to exercise that right at the time when the payment is received, or within a reasonable time, or by the date of the issue of a writ against the debtor. The creditor can make an appropriation at any time ‘up to the very last moment’ and in one case was permitted to do so while giving evidence in the witness box against a debtor with regard to the debts in question.[5]
[4][2015] VSC 230.
[5]Ibid [214].
However, the position is different in circumstances where there is a ‘running account’, described by the High Court in Airservices Australia v Ferrier as:[6]
an active account running from day to day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of a debtor and creditor with an expectation that further debits and credits will be recorded … Thus a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of a debt …
[6](1996) 185 CLR 483, 504-505.
Where there is a running account, the rule in Clayton’s case[7] is said to apply, that is, the creditor is required to appropriate each consecutive payment to the earliest outstanding loan. As stated by the Court of Appeal in Yarra Capital Group Pty Ltd and anor v Sklash Pty Ltd,[8] the rule in Clayton’s case is a ‘mere rule of evidence and not an invariable rule of law’, and ‘the rule has no operation where the payment in question was properly appropriated by the creditor (or debtor), or where there are distinct and separate debts.’
[7]Devaynes v Noble; Clayton’s Case [1814-23] All ER Rep 1.
[8][2006] VSCA 109 [25].
In my view, the evidence regarding the nature of the commercial relationship between the parties, including an examination of the statements of account provided by Central to Swan, is consistent with there being a ‘running account’ between the parties. The statement for May 2013 issued by Swan after the appointment of the administrators runs to some twelve pages, and lists scores of tax invoices, some for very small amounts (e.g. $4.95), and some for much larger amounts (e.g. $64,440.07).
The goods supplied by Central to Swan ranged from consumables such as cleaning chemicals and vinyl gloves to substantial pieces of machinery. The summary at the end of the May 2013 statement breaks down the total amount owing according to the age of the relevant invoices, and the email correspondence referred to at paragraph 21 above illustrates that Swan was making payments, or proposed to make payments on a lump sum basis to reduce the outstanding accumulated debt, rather than payment being made on an invoice by invoice basis. Finally, goods were supplied by Central to Swan pursuant to a single contract rather than a series of contracts. This much is clear from the findings of the Court of Appeal with respect to the nature of the contractual relationship between Central and Swan, and the circumstances of its formation (omitting citations):
In our view, Swan’s credit application was simply that — an application. The signing and lodgment of the application was a unilateral act by Swan, a request to Central that any future supply of equipment be on terms that payment was not due for 30 days. Swan thereby signified its intention to create legal relations with Central on those terms but until Swan’s offer was accepted, no such relations would come into existence. On ordinary principles, therefore, the mere signing of the credit application did not create a contract, and its lodgment with Central did not impose on Central a contractual obligation to do anything.
Swan had simply made an offer to acquire equipment from Central on the terms set out in the application. More particularly, Swan was offering to purchase equipment from Central on an ongoing basis, and to do so subject to Central’s ‘Standard Terms and Conditions as in force from time to time’, in return for Central agreeing to provide 30 day credit. The credit application ‘was in substance an application [by Swan] to become an account customer, and it was to cover all future dealings’ with Central.
In the absence of any other communication by Central of its acceptance, the terms in the application would not become binding on either party unless and until Central supplied equipment to Swan and extended the 30 day credit which Swan had requested. As a matter of contract, therefore, Swan did not become bound by the ‘Credit Application Terms’ until the first supply of equipment after the credit application was made. (That was the supply in respect of which Central issued the invoice dated 4 September.)
Central’s acceptance of Swan’s application for credit was an acceptance by conduct. The relevant conduct was the delivery of the equipment which Swan had ordered, and the sending of the invoice confirming that the supply was on 30 day credit. By that conduct, Central signified its acceptance of Swan as an account customer. The sending of the invoice was the critical step, of course, as it was the first communication confirming that credit was being provided.
On this analysis, the first supply of equipment operated to establish a supply agreement between Central and Swan. In accordance with the express terms of the credit application, the agreement governed all future supplies of equipment.
Importantly for present purposes, that first supply of equipment was a supply on Central’s ‘Standard Terms and Conditions’, that is, the conditions set out in the invoice including the ROT clause. The evidence showed, incontrovertibly, that those were Central’s standard terms. They appeared in identical terms on every supply invoice before the Court.
It is immaterial that the credit application form did not set out Central’s ‘Standard Terms and Conditions’. On ordinary principles, Swan’s signing of the credit application bound it to accept those terms and conditions for all future supplies of equipment. Clause 2 of the ‘Credit Application Terms’ (set out above) could not have been clearer in that regard.
As Callaway JA said in Maxitherm:
It is not uncommon to enter into a transaction on another party’s standard terms and conditions without enquiring what they are. It is often not worth doing so and a sensible commercial risk to run. The law reflects commercial reality by holding the party who does not enquire to such of the other party’s standard terms and conditions as may fairly be regarded as within the risk the first party took.
The supplementary submission for Swan contended that, because the ROT clause in the 4 September invoice was expressed to apply only to the particular goods ‘the subject of this sale’, it was not capable of being incorporated into the credit agreement ‘as a term of general application’. With respect, this contention misses the point.
It is clear that, in its terms, each ROT clause had application only to the invoiced goods the subject of the particular supply. The result of the contractual analysis, however, is that:
·Swan’s application for credit included an undertaking to be bound, in respect of every supply of equipment, by Central’s standard terms of supply;
·the ROT clause was in existence, as a standard term of supply, at the date on which the credit agreement became binding on Swan, being the date on which Swan received the first invoice for equipment supplied; and
·under that agreement, Swan accepted that all future supplies of equipment would be governed by that standard term (which would be expressed in each case to relate to the particular equipment supplied).
On this view, an agreement came into force — at the time of the first supply of equipment — which did ‘provide for the grant of’ a security interest in relation to all future supplies of equipment. That agreement was a ‘transitional security agreement’, and each of the security interests granted in respect of equipment supplied subsequently was a ‘transitional security interest’. Central is therefore able to enforce the ROT clauses notwithstanding the absence of registration.
All of the above points to a finding that there was a ‘running account’ between Central and Swan, with there being, in effect, a presumption that payments be applied on a ‘first in first out’, in the absence of any evidence as to an alternative means of appropriation. Central relies upon the evidence of Mr Carroll that he caused the reversal of certain entries in Central’s accounting system to ‘reverse out’ previous allocation of payments to certain invoices, largely in relation to higher value items. However, Central’s conduct in reversing out the previous allocations is not only inconsistent with the rule in Clayton’s case[9] (although that is not of itself fatal), it post‑dates and is inconsistent with the clear direction given by Swan to Central in the correspondence exhibited at paragraph 21 above. No submissions were made as to whether a subsequent appropriation by a creditor can countermand a previous appropriation by a debtor (which appears from the evidence to have been agreed to and implemented by Swan), but it seems to me to be wrong as a matter of principle that the reversal of previous appropriations could be made unilaterally, as opposed to say, methods of appropriation going forward.
[9]Devaynes v Noble; Clayton’s Case [1814-23] All ER Rep 1.
Accordingly, I find that the goods supplied by Central to Swan at the DFO-Southern Cross site and held by Central have been paid for by Swan. The same applies to the Adiatek Amber 83 Auto Scrubber supplied by Central to Swan at the Roxburgh Park site. The whereabouts of the latter equipment is unknown.
It is common ground that the equipment supplied by Central to Swan at the Rundle Place site (‘Rundle Place goods’) has not been paid for by Swan, and can no longer be located. Given the ROT clause in the contract between Central and Swan, there is no doubt that, if the Rundle Place equipment were able to be located, Central would be entitled to possession. The question is, what are the consequences of the disappearance of the equipment? Is the liquidator, as Central contends, liable to pay Central compensation in accordance with the invoice value of the goods? Counsel for Swan queried what the legal basis upon which such compensation ought to be payable, and, in any event, the circumstances are such that it would be unfair to impose such a liability upon the liquidator.
In my view, certain procedural and substantive complexities have been caused by Central’s claim and the way that the matter has proceeded to date, including the absence of pleadings. Originally, the proceeding was brought, quite properly, under s 1321 of the Corporations Act. Section 1321 provides as follows:
A person aggrieved by any act, omission or decision of … a liquidator or provisional liquidator of a company … may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy or omission, as the case may be, and make such orders and give such directions as it thinks fit.
The decision which was the subject of Central’s appeal was the liquidator’s decision not to accept that Central had a valid ROT claim in respect of any of the goods to which Central claimed to be entitled to possession. As this question was largely a question of contractual and statutory construction, it was dealt with as a preliminary question, at first by Ferguson J, and then by the Court of Appeal. The orders of the Court of Appeal expressly referred to s 1321 of the Corporations Act as the source of power to reverse the decision of the liquidator denying the validity of Central’s ROT claim. The remitted questions did not include a question to the effect of whether, if any goods not paid for by Swan, Central was entitled to compensation from the liquidator. However, one might expect that the parties and the Court of Appeal intended that all of the factual matters which remained in dispute between the parties be determined by the trial of the remitted questions once the preliminary question had been determined, particularly given the modest value of the goods claimed by Central.
When the matter first returned to me for directions, I ordered that Central file and serve an amended originating process to articulate the relief sought by Central. The amended originating process maintained a reference to s 1321 of the Corporations Act, and sought:
An order that if any of the Goods being used or occupied, or in the possession of the Company as at 22 May 2013 were removed, surrendered or dissipated on or from 22 May 2013 (such that they are not capable of delivery up to the plaintiff) the first defendant must account to the plaintiff for the value of the goods.
No point was taken by the liquidator at the time that s 1321 of the Corporations Act was not the proper vehicle for Central to pursue its claim for compensation, or that Central had not properly articulated the legal basis upon which Central was entitled to recover compensation from the liquidator, despite there being a two and a half month gap between the filing of the further amended originating process and the hearing. It was not until the filing and service of the liquidator’s written outline of opening submissions two business days prior to trial that it was contended, in summary, that:
(a) the power of the Court under s 1321 is not unlimited;
(b) the further amended originating process does not particularise any acts or omissions of the liquidator apart from the decision of the liquidator to refuse the ROT claim;
(c) there is no relationship between the decision of the liquidator to reject Central’s ROT claim and the relief sought with respect to the removal, surrender or dissipation of the goods; and
(d) the further amended originating process advances no basis for any liability of the liquidator to account for the goods.
These submissions have merit. There has been some doubt as to whether those provisions of the Corporations Act whereby an administrator or liquidator seeks advice from the Court, or where a party seeks to challenge a decision by a liquidator or an administrator with respect to a particular decision, enables a court to make a determination of third party rights.[10] However, in Burdett-Baker, IMO AFS Group Limited (in liq) v National Australia Bank Ltd,[11] Dodds‑Streeton J, after an extensive survey of the authorities, concluded that the Court, in an application by a liquidator for directions under s 511 of the Corporations Act, may give directions which affect the substantive rights of third parties without joinder of those parties, provided those parties had a right to be heard, although in the matter before her, her Honour, in an abundance of caution, joined all relevant parties and made representative orders.
[10]See, for example, Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141 (cf Osborne Computer Corporation Pty Ltd v Riddell (1995) 17 ACSR 606).
[11][2013] FCA 799.
In my view, for current purposes, the power of the Court to consider an appeal under s 1321 of the Corporations Act is in some respects analogous to provisions which enable the Court to give directions to a liquidator, which the weight of authority indicates the Court is empowered to make determinations with respect to substantive rights. Section 1321 is frequently utilised to appeal against the decisions of liquidators to refuse to admit proof of debts, but has also been used as a vehicle to challenge a liquidator’s determination as to the entitlements of a former employee,[12] and indeed, in the current proceeding, to challenge a liquidator’s determination of the validity of Central’s ROT claim.
[12]White v Norman (No 2) (2012) 202 FCR 38.
In any event, the debate about whether this court is empowered under s 1321 of the Corporations Act to determine the issues which are in dispute between the parties in the current case has largely been overtaken by events: in particular, the hearing and determination of the preliminary question by the trial judge and the Court of Appeal (noting that the orders of the Court of Appeal expressly referred to s 1321 of the Corporations Act and the referral of the remitted questions to the trial division.)
It was not until the filing and service of the further amended originating process on 1 October 2015 that a claim was made to the effect that the liquidator compensate Central for those goods which had not been paid for by Swan and not capable of being delivered up by the liquidator. This is odd, given that the inability of the liquidator to locate and deliver up the Rundle Place goods was an issue between the parties from mid to late 2013, well before the trial of the preliminary question in February 2014, and well before the determination of the Court of Appeal on 12 May 2015. Further, while there was no evidence before me as to how the remitted questions were formulated by the parties and the Court of Appeal, and whether this was a consensual process, it would have been helpful if the remitted question had included a question to the effect of, in the event that the liquidator was unable to deliver up the Rundle Place goods, the liquidator was liable to compensate Central in respect of those goods.
However, I doubt that inclusion of such a question would have addressed the dilemma discussed with the parties in the hearings which post‑dated the conclusion of the trial of the remitted questions. The question of jurisdiction to entertain Central’s claim may well have been resolved; but not the second issue raised by the liquidator’s submissions and the difficulties which emerged during the course of the preparation of these reasons, that is, the consequences of Central’s failure to articulate the legal basis of its assertion that it is entitled to compensation from the liquidator. The evidence throws up some causes of action, as well as some arguable defences. For example, the liquidator may have been in breach of his general law duties to recover the assets of the company for the benefit of the employees and unsecured creditors of Swan. Whether that duty extends to the property of secured creditors may be productive of an interesting debate. Alternatively, it could be contended that a liquidator in possession of property being the subject of an ROT claim is in the position of a bailee,[13] and, in the event that a bailee is unable to deliver up possession, the onus lies upon the bailee to establish why it is not liable to compensate the owner of the goods in question.[14] The difference as to where the onus of proof may lie in respect of these two causes of action referred to above may well lead to different results. Of course, in the current case, the liquidator would probably contend that he was never in possession of the Rundle Place goods, such that a bailment did not arise. Again, a fertile ground for debate, and other causes of action may be ascertainable on the facts. But the above discussion highlights the necessity for a plaintiff such as Central to identify and articulate the legal basis for its claim that the liquidator is ‘liable to account’ for the goods, not simply point to the evidence and contend that the liquidator is liable to compensate Central for the Rundle Place goods.
[13]Osborne Computer Corporation Pty Ltd v Riddell (1995) 17 ACSR 606, 610.
[14]Norman Palmer, Palmer on Bailment (Thomson Reuters, 3rd ed, 2009) 1-052, 3-032, 3-076.
In effect, what the Court is being asked to do is to establish what duty, if any, the liquidator owed to a party in the position of Central with respect to the Rundle Place goods, what the liquidator was required to do to discharge that duty, whether in fact the liquidator did discharge that duty, whether Central contributed to any failure on the liquidator’s part, and the consequences of the breach of duty. With respect, the role of the Court is to decide a party’s claim, not to construct it.
As noted by counsel for the liquidator in his written outline of submissions, the High Court in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (‘Associated Alloys’)[15] stated that:
Before a party can be ordered to an account, liability to account must be established.
[15](2002) 202 CLR 588 [56].
In that case, a supplier with an ROT claim with respect to the receipts of a builder using the supplier’s steel in construction was successful in establishing that the builder held those proceeds in trust for the supplier until a particular invoice was paid. However, there was insufficient evidence before the trial judge to establish that the funds in the builder’s bank account at the time of the appointment of administrators were in fact referable to payments received by the builder in respect of work carried out using steel supplied pursuant to invoices which remained unpaid. Accordingly, no fiduciary relationship was established with respect to any funds held by the liquidator.
The High Court also observed, relevantly, that:[16]
The proceedings were constituted by summons and heard promptly. However, the procedure adopted meant that the issues did not appear as would have been the case had there been pleadings. If such rigour had been applied it may have been readily identifiable to the parties, perhaps prior to trial, that the seller had failed to prove an essential fact in issue, namely the receipt of ‘proceeds’ by the buyer. Without proof of this threshold fact, no trust relationship can arise under the ‘proceeds’ by the buyer. Without proof of this threshold fact, no trust relationship can arise under the proceeds sub‑clause between the seller and the buyer.
[16]Ibid [55].
In the case referred to above, the gap was an evidentiary one. However, that case, like the current case, illustrates the difficulties that can arise in the absence of pleadings. Even so, in Associated Alloys, the supplier at least included in its claim for relief that the builder held certain funds on trust for the supplier, and thus was liable to account to the supplier for those funds, and an alternative claim for a declaration that the builder was guilty of conversion of the goods. Accordingly, the claim at least identified a legal basis against which the supplier’s claims could be assessed. In the current case, I have formed the view that it is not the role of the Court to in effect, assess the evidence and evaluate what cause of action it might support.
Finally, while the finding may be of limited practical consequence given my findings above, I accept Central’s contention that the best evidence available supports a finding that the value of the Rundle Place goods, having been delivered by Central to Swan only two months prior to the appointment of the administrators and less than three months before the appointment of the liquidators, was equivalent to the invoice value of the goods. While I accept that equipment of this nature is likely to depreciate rapidly, one would expect that Central, being a major supplier of such equipment, would be able to readily re‑sell the equipment. The evidence relied upon by the liquidator as to Grays’ valuation of the equipment is not particularly helpful given that it is provided in the context of a fire sale.
Accordingly, the answers to the remitted questions are as follows:
(a) items 1-10 of the document headed ‘Schedule – High Value Table’ annexed to the defendant’s written outline of submissions filed 10 December 2015 (‘High Value Table’);
(b) items 5-10 in the High Value Table; and
(c) as at 22 May 2013, $63,265.08 inclusive of GST. As at the date of trial, I am unable to say.
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