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Clifton v CSR Building Products Pty Ltd

Clifton v CSR Building Products Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
CLIFTON (AS LIQUIDATOR OF ADELAIDE FIBROUS PLASTERBOARD LININGS PTY LTD (IN LIQ)) & ANOR v CSR BUILDING PRODUCTS PTY LTD
[2011] SASC 103
Judgment of The Honourable Justice Peek
5 July 2011
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES
Action by plaintiffs seeking declaration pursuant to s 588FF Corporations Act 2001 (Cth) that five payments totalling $142,027.16 made by Adelaide Fibrous Plasterboard Linings Pty Ltd ("AFPL") to the defendant during the six month relation back period were unfair preferences and therefore voidable transactions - plaintiffs seek further order that defendant pay this amount to the plaintiffs.
Whether the defendant had no reasonable grounds for suspecting that AFPL was insolvent at the time of each of the impugned payments – whether the five payments were part of a “running account” – whether the absence of a running account from 14 July 2006 retrospectively negated a running account defence in relation to payments made prior to that date.
Held: judgment for the plaintiff in the amount of $90,185.81 – defendant has not proven that at the time of each of the five payments it had no reasonable grounds for suspecting that the company was insolvent or would have become insolvent – there was a running account between the parties up until 13 July 2006 - the running account between the parties was interrupted on 14 July 2006 and there ceased to be a continuing business relationship - the point at which a running account ceases to exist is when the mutual purpose of inducing further supply is subordinated to a predominant purpose of recovering past indebtedness – the absence of a running account from 14 July 2006 did not negate the running account defence in relation to payments made prior to that date – plaintiffs are entitled to the recovery of the final three of the five payments - the plaintiffs are also entitled to the difference between the highest amount AFPL owed to the defendant during the period of the running account and the amount that it owed on the last day of that period.
Corporations Act 2001 (Cth) s 588FF, s 436C(1), s 588FE(2)(b)(i), s 9, s 588FE(2), s 588FC, s 588FA(1), s 588E(3), s 588FG, s 588FA(3), s 588FG(1), referred to.
Sutherland v Eurolinx (2001) 37 ACSR 477; Julzar Pty Ltd v Rodgers [1999] NSWSC 199, applied.
Maxsted v HP Launder Holdings Australia Pty Ltd [2006] SADC 130, distinguished.
Sims v Celcast Pty Ltd (1998) 71 SASR 142; Cooks's Construction Pty Ltd v Brown (2004) 49 ACSR 62; Smith v Commissioner of Taxation (1997) 75 FCR 339; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; Cussen v Commissioner of Taxation (2004) 51 ACSR 530; Jones v Dunkel (1959) 101 CLR 298; Wily (as liquidator) v Easter Elevators Pty Ltd [2003] NSWSC 377; Olifent v Australian Wine…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2011] SASC 103
Decision Date: 5 July 2011

CaseChat Overview and Summary

In the case of Clifton v CSR Building Products Pty Ltd, the plaintiffs, Mr Timothy Clifton and Mr Peter Macks, acting as liquidators of Adelaide Fibrous Plasterboard Linings Pty Ltd (AFPL), brought an action against CSR Building Products Pty Ltd seeking the recovery of five payments totalling $142,027.16, which they claimed were unfair preferences made during the six-month period prior to AFPL's winding up. The court had to determine whether the payments were part of a running account, and if so, whether the cessation of the running account negated its defence in relation to earlier payments. The plaintiffs argued that the payments were voidable under section 588FF of the Corporations Act 2001 (Cth), and sought an order for CSR to repay the amounts.

The primary legal issue before the court was whether CSR had reasonable grounds to suspect that AFPL was insolvent at the time of each payment, and if not, whether a running account existed between the parties. The court examined whether the running account was effectively ended on 14 July 2006 and whether this termination impacted the validity of the running account defence for payments made prior to that date. The plaintiffs contended that the running account ceased to exist when the mutual purpose of encouraging further supply was superseded by a primary purpose of recovering past debts.

The court found that AFPL was indeed insolvent at all relevant times and that CSR had failed to prove its defence of good faith regarding the payments. The judge determined that a running account did exist between the parties, but it ceased to operate as a running account of the requisite type on 14 July 2006. Despite the cessation of the running account, it did not negate its defence in relation to payments made before that date. Consequently, the plaintiffs were entitled to recover the final three of the five payments, amounting to $56,361.13, plus an additional amount of $33,824.68 representing the value of the unfair preference during the running account period. The total judgment in favour of the plaintiffs was $90,185.81.

The final orders, interest, and costs will be determined after further submissions from the parties.

Orders

Orders of the court

There will therefore be judgment for the plaintiffs for the total of those two amounts of $56,361.13 and $33,824.68, namely the sum of $90,185.81. I will hear the parties on the question of the final orders, interest and costs.

Background

Background to the litigation

For the reasons that follow, I find that AFPL was insolvent at all relevant times and that CSR has not discharged the onus of proving its asserted primary “good faith” defence but that its liability is partly reduced by virtue of a running account between the parties continuing from before the start of the six month period until 14 July 2006 when it ceased to operate as a running account of the requisite type. I ultimately find that the plaintiffs are entitled to recover the final three of the five claimed payments (in total $56,361.13), in addition to an amount of $33,824.68, that being the value of the unfair preference during the running account period to 14 July 2006. The judgment amount in favour of the plaintiffs is therefore the final total of those two amounts being $90,185.81.Background The plaintiffs, Mr Timothy Clifton and Mr Peter Macks, are liquidators of AFPL. They were appointed joint and several administrators of AFPL on 3 October 2006 by resolution of the chargee Brunswick Pty Ltd pursuant to s 436C(1) of the Act. Subsequently, the plaintiffs were appointed joint and several liquidators of AFPL on 29 October 2006, after the creditors of the company resolved to wind up the company and appoint the plaintiffs as liquidators. AFPL was registered on 5 November 2002 and at all times its sole director and shareholder was Mr Allan Schnaars (Schnaars). From its incorporation on 5 November 2002 to 30 October 2006, the company carried on business as a building contractor, supplying labour and materials for the framing up of internal walls, ceilings and erecting plasterboard on commercial properties. It was involved primarily in the commercial area, but also to a lesser extent in the residential area. The defendant CSR is a large and well-known entity carrying on business in manufacturing and supplying building products to customers. Included in its line of products are gyprock plasterboard and accessories, which it supplied to AFPL. The plaintiffs seek the recovery of five payments which were made by AFPL to CSR during the period 3 April 2006 to 3 October 2006, the “relation back period”, being the six month period ending on the “relation back day”, which in this case is the date AFPL was wound up: see s 588FE(2)(b)(i) and s 9. These payments were made by AFPL to CSR in reduction of AFPL’s liability to CSR for the cost of goods supplied by CSR to AFPL pursuant to a credit agreement that had been approved by CSR on 2 June 2005. A summary of these payments is as follows: The legislative scheme in summary form is as follows. By virtue of s 588FE(2), an “insolvent transaction” of a company is voidable if, amongst other things, it was entered into during the six months ending on the relation back day (3 October 2006), that being when the plaintiffs were appointed joint and several administrators of AFPL. By virtue of s 588FC, a transaction of a company is an “insolvent transaction” if it is an “unfair preference” given by the company, and the company is insolvent when the transaction is entered into.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

PEEK J

Thus it would appear clear that his Honour considered that there were two quite separate questions: first, whether there was a continuing business relationship and, second, when that relationship existed. In my view, it would be quite inconsistent with his Honour’s approach to suggest, as the present plaintiff does, that a defendant must establish that a continuing business relationship existed throughout the whole of the relation back period.Conclusion I find that the defendant has not proved that the “good faith” defence existed for any of the five payments in question. However, I find that the defendant’s liability is to be reduced by virtue of a running account which existed between the parties from (prior to) the start of the relationship back period on 3 April 2006 until 13 July 2006 when, for the reasons stated above, the “continuing business relationship” came to an end. I therefore find that the final three of the five payments made by AFPL to CSR, on 20 July, 3 August and 8 August 2006, were unfair preferences and the plaintiffs are entitled to the recovery of the total of these payments, being the amount of $56,361.13. I also find that the plaintiffs are entitled to the difference between the highest amount AFPL owed to the defendant during the period of the running account from 3 April to 13 July 2006 (namely $108,797.76) and the amount that it owed on 13 July 2006, the last day of that period (namely $74,973.08) which difference is the amount of $33,824.68. There will therefore be judgment for the plaintiffs for the total of those two amounts of $56,361.13 and $33,824.68, namely the sum of $90,185.81.Orders, interest and costs I will hear the parties on the question of the final orders, interest and costs.

Ratio Decidendi

Legal Principle Established

Established by: PEEK J

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