Clifton v CSR Buildings Products Ltd - [2008] SASC 254

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
CLIFTON & ANOR v CSR BUILDINGS PRODUCTS LTD
[2008] SASC 254
Reasons of Judge Lunn a Master of the Supreme Court
24 September 2008
PROCEDURE
Action by liquidators under 6R 32 for disclosure of documents before bringing a substantive action for repayment of unfair preferences - held where plaintiffs had multiple alternative causes of action they could obtain disclosure under 6R 32 in respect of one of them even though not for the balance of them - order made.

CLIFTON & ANOR v CSR BUILDINGS PRODUCTS LTD
[2008] SASC 254

JUDGE LUNN: The plaintiffs are the liquidators of Adelaide Fibrous Plasterboard Linings Pty Ltd (“the Company”). Between June 2005 and August 2006 the defendant regularly supplied building products to the Company. Between 26 April and 8 August 2006 the Company made six payments to the defendant, totalling $142,027.16. The plaintiffs asserted, and put forward some evidence, that each of the payments were made within six months of the Company going into voluntary administration and that the Company was insolvent in the whole of this period. They also asserted that by receiving these payments the defendant received more than it would have received if it had to prove for those amounts in the winding up of the Company.
The plaintiffs, as the liquidators of the Company, are contemplating bringing proceedings against the defendant under s 588FA of the Corporations Act 2001 (“the Act”) (quoted below) to set aside each of the six payments as unfair preferences. (The plaintiffs also allege other similar causes of action under other sections of the Act, but it is not necessary to go into these for the purposes of this action). By a letter of 18 May 2007 the solicitors for the defendant have denied liability to repay such unfair preferences on the grounds, inter alia, that the payments were made in good faith and without grounds to suspect insolvency under s 588FG of the Act and that the transactions between the defendant and the Company constituted a running account for the purposes of s 588FA(3) of the Act.
The plaintiffs bring this action under 6R 32 which provides:
32(1)If the Court is satisfied, on application by any person (the plaintiff) that the plaintiff may have a good cause of action and requires further information –
(a)to determine whether a cause of action exists; or
(b)to formulate the claim properly; or
(c)to determine against whom the claim lies,
the Court may exercise the investigative powers conferred by this rule in anticipation of an action.
(2)The Court may, if satisfied that a person may be in possession of evidentiary material relevant to the possible cause of action, make an order imposing one or more of the following requirements –
(a)to disclose to the Court or to the plaintiff whether the person is or has been in possession of relevant evidentiary material and, if so, to disclose full particulars of the relevant evidentiary material that is, or has been, in the person’s possession;
(b)if the person is in possession of relevant evidentiary material, to produce it to the Court or to the plaintiff;
In order to succeed the plaintiffs must first satisfy subr (1) and then show that the discretion under subr (2) should be exercised in its favour. For the purposes of 6R 32 “claim” and “cause of action” have the respective meanings given to them in 6R 30, which provides:
30(1)An action is based on a claim.
(2)A claim is an assertion that grounds exist on which the Court should or may in its discretion determine a justiciable issue, or exercise any other power, in the plaintiff’s favour (and includes a cross claim and a third party claim).
(3)A claim is based on a cause of action (that is, some basis in law and fact on which the plaintiff asks the Court for a remedy).
(4)An action may include claims based on more than one cause of action.
Under s 588FA there are two alternative, but related, ways in which a transaction can be an unfair preference. The first is laid down in s 588FA(1) which provides:
588FA(1) [What is unfair preference] A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b)the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
“(subs (1))”.
The second way in which a transaction can be an unfair preference is under subs 588FA(3) which provides:
588FA(3) [Transaction part of continuing business relationship] Where:
(a)a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
(b)in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then:
(c)subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
(d)the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.
“(subs (3))”.
On the material available to the plaintiffs they would have, and could properly plead, causes of action for six unfair preferences under subs (1). These causes of action might be defeated by defences under s 588FG, but they would still be causes of action. On the definition of “cause of action” in 6R 30 the term does not encompass matters relevant to a potential defence under s 588FG although the affidavit of the second plaintiff suggested to the contrary. Likewise the plaintiffs do not need information about any s 588FG defence to formulate their claim for the purposes of 6R 32(1)(b). Insofar as the plaintiffs seek to pursue causes of action under subs (1) they have not satisfied 6R 32(1) so as to be able to obtain any disclosure order against the defendant.
The argument revolved principally around the applicability of subs (3). The defendant asserted that if it could satisfy subs (3) it would have a defence to the claim under subs (1). If the plaintiffs only plead a cause of action under subs (1), that assertion would be correct in that the operation of subs (3) would by its terms exclude the operation of subs (1). However, the primary applicability of subs (3) is not as a defence to a cause of action under subs (1) but as constituting an alternative, and different, cause of action for an unfair preference. If the plaintiffs consider that they have a case to base the claim for an unfair preference on a running account under subs (3), they would be entitled to plead such a cause of action under subs (3), either as their only cause of action for an unfair preferences or in the alternative as an additional cause of action to that in subs (1). It is an example of a single claim under 6R 30 being based on two possible, different causes of action. The plaintiffs cannot succeed in causes of action under both subs (1) and subs (3) in respect of the same payments, but, subject to proper pleading under 6R 98(7), they can pursue them in the alternative or separately. The amounts recoverable on causes of action under subs (1) and (3) respectively may well be different. If the plaintiffs elect to pursue the causes of action in the alternative, there is probably no utility in the defendant raising subs (3) as a defence to subs (1), except possibly if there would be a lesser liability under subs (3).
Both counsel agreed that the relevant law on the operation of subs (3) was set out in the judgment of Santow J in Sutherland (as liquidator of Sydney Appliances Pty Ltd) v Euronix Pty Ltd (2001) 37 ACSR 477. Relevantly he held that it was necessary to look to the overall effect of all of the transactions between the parties in the relevant period and to see whether a substantive purpose of each payment on the part of both the purchaser and the supplier must have been that of inducing further supplies. He held knowledge or suspicion of the company’s insolvency is relevant, although not necessarily determinative, on this issue. Although Santow J spoke of s 588FA(3) as being a defence, at [167] he acknowledged that it could be an element of a cause of action.
Although I am not aware of any authority on the point, I consider that 6R 32 can apply to a single cause of action where plaintiffs intend to pursue a claim for multiple causes of action in the substantive action. Under s 26(v) of the Acts Interpretation Act, which applies by its s 14A, “cause of action” and “claim” in 6R 32 can be read in the plural, and are not confined to the singular. Thus, 6R32 can be used where one of multiple proposed causes of action satisfies subr (1) even though the other causes of action do not, although this may be relevant to the exercise of the discretion under subr (2).
On the material put forward by the liquidators, and from the matters alleged in the letter of 18 May 2007 from the defendant’s solicitors, I am satisfied on the balance of probabilities that the plaintiffs may have a good cause of action under subs (3). As the records of the company available to the liquidator are deficient I am also satisfied that the plaintiffs require further information to determine whether any cause of action under subs (3) exists and/or to formulate it properly. Thus the plaintiffs have satisfied the requirements of subr (1).
On the evidence I am satisfied that the defendant may be in possession of evidentiary material relevant to the possible cause of action under subs (3). If the order now sought is not made, presumably the plaintiffs are likely to sue on a cause of action under subs (1), and after the defendant has pleaded a defence to that under subs (3) and made disclosure of documents, then to consider amending to plead an alternative cause of action under subs (3). That course is likely to involve additional expense and cause delay which is not in the interests of the administration of justice. An incidental effect of the order will be to require the defendant to disclose material which will probably also be relevant to its defences under s 588FG. That is not of such prejudice or detriment to the defendant that it would outweigh other factors in favour of ordering the disclosure.
Disclosure and production will be ordered as sought by the plaintiffs.
I have today made the following orders:
1That within 21 days, or such further time as the Court may allow, the defendant is to file a list of documents setting out all of the documents in the following categories which are in its possession:
(1)A complete set of all invoices raised by CSR to the Company from the commencement of the Company’s dealings with CSR in June 2005;
(2)CSR’s Standard Terms of Trade;
(3)All documents which might evidence any agreement by CSR to a variation of the Standard Terms of Trade in the case of its dealings with the Company;
(4)A complete record of payments made by the Company to CSR from June 2005 to 8 August 2006 indicating how each payment was applied – that is, which invoice or invoices was each payment said to have discharged;
(5)All records held by CSR of all communications between it and the Company regarding payment of accounts.
2That the defendant produce such documents as are in its possession as disclosed pursuant to paragraph 1, for which privilege is not claimed, to the plaintiffs for their inspection within a further 14 days.
3That the question of the costs of this action be reserved to the trial Judge in any action brought in this Court by the plaintiffs against the defendant concerning the subject matter of this action.
4If no such action is commenced within 3 months, that the question of costs is reserved back to myself.
5Fit for counsel.