Cooke [as Liquidator of a H (No 2) Pty Ltd] v Hosken
[1991] TASSC 137
•27 May 1991
Serial No B23/1991
List "B"
COURT: SUPREME COURT OF TASMANIA
CITATION: Cooke [As Liquidator of A H (No 2) Pty Ltd] v Hosken [1991] TASSC 137; B23/1991
PARTIES: COOK [As Liquidator of A H (No 2) Pty Ltd]
v
HOSKEN, Robert
HOSKEN, Heather
FILE NO/S: 590/1990
DELIVERED ON: 27 May 1991
JUDGMENT OF: Cox J
Judgment Number: B23/1991
Number of paragraphs: 17
Serial No B23/1991
List "B"
File No 590/1990
COOKE [AS LIQUIDATOR OF A H (No 2) PTY LTD]
v ROBERT HOSKEN and HEATHER HOSKEN
REASONS FOR JUDGMENT COXJ
27 May 1991
By writ of summons filed on 6 December 1990 the plaintiff claimed against the defendants:
"(a) a declaration that payments made to the defendants between the 14th day of September 1989 and the 31st day of January 1990, totalling $76,183.75 by and/or on behalf of A H (No 2) Pty Ltd constituted voidable preferential payments, pursuant to the provisions of s451 of the Companies (Tas) Code;
(b) an order that there be judgment for the plaintiff against the defendants in the sum of $76,183.75 together with interest on the said sum at the rate of $10 per centum per annum from 22 November 1990 until payment, pursuant to the provisions of s34B of the Supreme Court Civil Procedure Act 1932."
By his statement of claim dated 23rd January 1991 the plaintiff pleaded that he was the liquidator of A H (No 2) Pty Ltd (hereafter referred to as the company), that the company was incorporated pursuant to the provisions of the Companies (Tas) Code, that the defendants were at all material times directors of and shareholders of the company and that on 8 March 1990 a meeting of creditors of the company resolved to wind it up voluntarily and to appoint the plaintiff as liquidator. He further pleaded that between 14 September 1989 and 24th January 1990, the company paid to and/or on behalf of the defendants varying sums of money totalling $91,179.75. Particulars of these payments were as follows:
"114th September 1989 payment by cash to
RW Hosken receipt whereof was acknowledged
in writing $ 2000.00
218th September 1989 payment by cash to
RW Hosken receipt whereof was acknowledged
in writing $18000.00
318th September 1989 payment by cheque to
RW Hosken receipt whereof was acknowledged
in writing $18000.00
419th September 1989 payment by cash to
H Hosken receipt whereof was acknowledged
in writing $15000.00
519th September 1989 payment by cheque to
H Hosken receipt whereof was acknowledged
in writing $15000.00
618th October 1989 payment by cheque to
Telecom of personal telephone account of
RW Hosken $ 183.75
724th January 1990 payment by cheque drawn
payable to cash and negotiated by
RW Hosken $ 8000.00
824th January 1990 payment by cheque drawn
payable to cash and negotiated by RW Hosken $14996.00
$91179.75"
By an interlocutory application dated 14 March 1991 the plaintiff applied for the following orders:
"1That there be judgment for the plaintiff on the claim against the defendant (sic) in the sum of $19,179.75 (sic) plus costs to be taxed pursuant to the provisions of O15 of the Rules of the Supreme Court;
2That the defendant pay the plaintiff's costs of and incidental to this application."
On 8 April 1991 Crawford J. made an order by consent amending the sum sought in para(1) of the application from $19,179.75 to $91,179.75.
Affidavits in support of the application by the plaintiff and one by the male defendant were filed and read at the hearing of this application. Mr Pitt QC, for the plaintiff, conceded at the hearing that having regard to the material in the defendant's affidavit, he could not sustain the claim in respect of the first payment of $2000.00 and that as to the last payments of $8000.00 and $14,996.00 he could not establish that these payments which had ultimately gone to solicitors in payment of legal costs incurred by the company had been received by the defendant. He had not excluded the possibility that the cheques made payable to cash and endorsed by the male defendant had been passed over to the solicitors concerned so as to constitute a receipt by the male defendant.
The application is merely for judgment against "the defendant" for the sum of $91,179.75 plus costs. The action has been taken against both defendants jointly and the relief sought is a judgment against both on the basis that the payments were made to them jointly. However, even on the basis of the particulars of payment in the statement of claim, none of the payments was made to both. Some were made to or for Mr Hosken and some to Mrs Hosken. On any basis the plaintiff is not entitled to a judgment against both for the aggregate of the sums paid to each.
The second difficulty in the plaintiff's path is that his whole claim is based on the premise that these payments, though lawfully made, are voidable as preferences. He cannot get judgment in respect of any of them unless the court has determined that they are preferential payments. It is submitted by counsel for the defendants that such a determination can only be made by declaration and that as a declaration is not sought in the O15 summons, there can be no judgment for the sums claimed.
Both hurdles may well be surmountable. The court has power under O15, r3 to give such judgment for the plaintiff on the claim as may be just, having regard to the nature of the remedy or relief claimed. On the face of it, if part of the claim is proved or an entitlement as against one or more defendants is proved, the court would have power to give judgment for a lesser sum or a judgment against one or other severally of two defendants rather than jointly against them both. As to the second objection, application has been made (admittedly in reply) to amend the application so as to seek the appropriate declaration and I would be disposed to grant it as no prejudice to the conduct of the interlocutory application by the defendants has been established by so doing.
However, I think that although on the material adduced by the plaintiff a prima facie case has been made out for the relief sought at least in respect of substantial parts of the claim, that which has been adduced by the defendants is such that they should be given leave to defend. In respect of particulars 1,7 and 8 to which I have referred, a defence is conceded. Particular 6 claims payment of a cheque to Telecom in respect of the male defendant's personal telephone account. His evidence is that his employer, the company, was required by the contract of service to pay such accounts. It was a payment made direct to Telecom and was not paid to Mr Hosken in his capacity as a creditor of the company.
As to the other claims the defendants' assert that there were payments to each of sums due in respect of wages then owing to them by the company. Total payments were $36,000.00 to Mr Hosken on 18 September 1989 and $30,000.00 to Mrs Hosken the following day. The plaintiff cannot succeed in establishing that these payments amounted to voidable preferences unless he first establishes that the company was at that time insolvent.
The company is a $2 company and was the operating company in a complex chain of companies utilized to run the Launceston International Hotel project. The land on which the hotel was constructed was owned by Old GMJ Pty Ltd a company owned and controlled by the defendants, and was subject to a long term lease in favour of Partnership Pacific (Launceston) Ltd, a wholly owned subsidiary of the Westpac Banking Corporation. Partnership Pacific (Launceston) Pty Ltd held the lease as trustee for the Launceston International Unit Trust. Of the units in the said Trust, 100 were held by Launceston International Pty Ltd (LIP) and 228,000 units owned by Partnership Pacific Securities Pty Ltd (PP) a company owned by the Westpac Banking Corporation. LIP was wholly owned and controlled by the defendants. LIP had an option to purchase the 228,000 units held by PP for $28,800,000 which enabled LIP at any time upon notice to purchase those units for that sum and thereby to become the sole beneficiary of the Unit Trust. Launceston International Hotel Pty Ltd (LIH) later to become AH No 2 Pty Ltd was also wholly owned and controlled by the defendants and held a management agreement with LIP to operate and run the hotel on behalf of the Launceston International Unit Trust.
At the time of the transactions in question the hotel was valued at $37,500,000.00. At all material times companies owned and operated by the defendants owned the properties known as York Town Square and Morton House and as at 19 September 1989, the net equity held by those companies in those properties was approximately $4,700,000.00 and $500,000.00 respectively.
In paras7 to 12 of his affidavit, Mr Hosken swore:
"7 It was always anticipated that during its establishment phase for the first five years of its operation LIH would operate with a negative cash flow because of the costs of establishing the business. This situation is normal in hotel operation generally and is common to all large international hotels. In consequence it was always intended the LIH would require periodic and substantial injections of working capital to offset the negative cash flow and anticipated operating losses during the first five years.
8 In about early September 1989 Partnership Pacific declined to maintain the earlier agreement with LIP to provide the necessary working capital required for the reasons referred to above. Moreover the commencement of the airline pilots' strike on 26 August 1989 temporarily reduced the profitability of the operations of the hotel.
9 The directors of LIH decided for the time being against continuing to operate the hotel in the absence of adequate working capital to finance its further operations and in the absence of a foreseeable end to the pilots' strike, until the other members of the Hosken group of companies had sufficient time to realise some of its substantial assets to raise the capital required.
10 In order to preserve the value of the hotel in the meantime, LIH entered into an arrangement with the Unit Trust for the Westpac Bank to conduct the operations of the hotel in place of LIH until LIH could raise sufficient working capital or refinance to resume its former role.
11 On 28 September 1989 this agreement took effect and the Westpac Bank took over operation of the hotel. I and my wife continued to carry out the same duties as before in the operation of the hotel and subject to the direction of Westpac and in receipt of a salary from Westpac of $5,000.00 and $1,667.00 per month respectively, which was the same salary rate as our previous salary for those duties.
12 Until 8 March 1990 LIH was not insolvent because of the financial support which it was always intended it should receive from the other companies of the Hosken Group, and which it was always agreed would be forthcoming and was forthcoming when required, This agreement was reinforced by a system of cross–guarantees which linked the financial affairs of LIH with LIP, Old GMJ Pty Ltd, Barrington Investments Pty Ltd, Old CRMI Pty Ltd, and every other company in the Hosken Group. Thus the liabilities of LIH were guaranteed and indemnified by all the other companies in the group."
By the following March when the plaintiff was appointed liquidator, the company's realizable assets amounted to $56,334.00 while it had trade debts of approximately $1.4 million. Pursuant to the guarantees it, together with other companies in the Group, had given, it was responsible for a further debt of about $32.3 million dollars. Due to the recession and to the adverse effects upon the tourist industry the prolonged pilots' strike extending passed 19 September 1989 had had on the property market, sales of the Group's significant assets had not by then materialized.
In my opinion there is an arguable case that at the time the payments particularized as 2, 3, 4 and 5 above were made the company was not in fact insolvent. It was the operating company in a group of companies each of which (including the various holding companies), had given mutual guarantees. Those holding companies had valuable assets and it has not been established beyond argument, in my view, that the company could not pay its debts as they fell due out of its own assets, including its rights under the complex cross–guarantees. In Sandell v Porter (1966) 115 CLR 666 at p670 Barwick CJ said:
"An essential step in making out that a payment is a preference within s95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to met his debts as they fall due which indicates insolvency."
His Honour was dealing with a natural person in bankruptcy whereas we are concerned with a company and it would be unrealistic to ignore the inter–relationship between that company and others in the corporate structure employed to promote the hotel project. In my view, the court cannot say with confidence notwithstanding the attractiveness of inferences to that effect the plaintiff invites me to draw from the Group's inability to realize assets and meet debts the following year, that the its position in September 1989 was such that the company itself was then insolvent. On a review of all the evidence adduced at trial that may turn out to be the only proper conclusion but on an application for summary judgment the defendant should not be deprived of his right to a hearing if the absence of an essential element of the plaintiff's claim and the existence therefore of a good defence is arguable.
The defendants will have leave to defend.
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