DAVIES v Chicago Boot Company Pty Ltd
[2007] SASC 170
•18 May 2007
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
DAVIES & ANOR v CHICAGO BOOT COMPANY PTY LTD
[2007] SASC 170
Reasons of Judge Burley a Master of the Supreme Court
18 May 2007
CORPORATIONS
Application by liquidators to recover allegedly preferential payments - plaintiffs seekk permission to file an amended statement of claim - opposed by the defendant - whether the proposed statement of claim adequately pleads all material facts relating to whether or not the payments were "transactions" - whether debtor company and the creditor were parties to the transaction.
Corporations Law s 588FF, 588FA, referred to.
re Emmanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shardforth Pty Ltd (1997) 24 ACSR 292., applied.
DAVIES & ANOR v CHICAGO BOOT COMPANY PTY LTD
[2007] SASC 170
JUDGE BURLEY: These proceedings now consist of 2 actions which have been consolidated whereby the respective plaintiffs, company liquidators, seek to recover from the defendant common to both actions, allegedly preferential payments. The companies in liquidation are Harris Scarfe Limited (“HSL”) and Harris Scarfe Wholesale Pty Ltd (“HSW”).
The proceedings have an extensive history which has been set out in the Judgment of Gray J in Davies & Anor v Chicago Boot Company Pty Ltd (No 2) [2007] SASC 12. I have taken it into account and I need not repeat what was there said.
The plaintiffs have applied for permission to file and serve a consolidated statement of claim to which the defendant has taken objection. The pleading is relatively short and it is worthwhile setting out in full the parts material to the application:
7Pursuant to a contract or contracts between HSW and the defendant for the supply of goods and/or services (“the HSW Contract”), the defendant provided goods and/or services to HSW in return for payment of the defendant’s invoices.
8Further or in the alternative to paragraph 7, pursuant to a contract or contracts between HSL and the defendant for the supply of goods and/or services (“the HSL Contract”), the defendant provided goods to HSL in return for payments of the defendant’s invoices.
The HSW Contract
9(a) HSW made the following payments to the defendant for unsecured debts owed to it pursuant to the HSW Contract.
Cheque Number Date Presented Amount $
47834 04r/10/2000 43,540.10
(b)HSL made the following payment to the defendant for and on behalf of HSW for unsecured debts owed to it pursuant to the HSW Contract.
Cheque Number Date Presented Amount $
45817322/02/2001 16,064.68
(c)HSW made the following payment to the defendant for and on behalf of HSW for unsecured debts owed to it pursuant to the HSW Contract.
Cheque Number Date Presented Amount $
45476502/02/2001 151,893.49
(d)HSW made the following payment to the defendant for and on behalf of HSW for unsecured debts owed to it pursuant to the HSW Contract.
Cheque Number Date Presented Amount $
45608619/01/2001 100,779.13
(e)HSW made the following payment to the defendant for and on behalf of HSW for unsecured debts owed to it pursuant to the HSW Contract.
Cheque Number Date Presented Amount $
45334902/01/2001 3,444.92
(f)HSL made the following payment to the defendant for and on behalf of HSW for unsecured debts owed to it pursuant to the HSW Contract.
Cheque Number Date Presented Amount $
45198102/01/2001 1,079.01
(g)The payments described in paragraph 9 above total $316,801.33.
The HSW Contract
10(a) In the alternative to paragraph 9(a), if the supply was made pursuant to the HSL contract then HSW made the following payments to the defendant for and on behalf of HSL for unsecured debts owed to it pursuant to the HSL Contract.
Cheque Number Date Presented Amount $
4783404/10/2000 43,540.10
(b)In the alternative to paragraph 9(b), if the supply was made pursuant to the HSL Contract then HSL made the following payments to the defendant for unsecured debts owed to it pursuant to the HSL Contract.
Cheque Number Date Presented Amount $
45817322/02/2001 15,064.68
(c)In the alternative to paragraph 9(c), if the supply was made pursuant to the HSL Contract then HSL made the following payments to the defendant for unsecured debts owed to it pursuant to the HSL Contract.
Cheque Number Date Presented Amount $
45476502/02/2001 151,893.49
(d)In the alternative to paragraph 9(d), if the supply was made pursuant to the HSL Contract then HSL made the following payments to the defendant for unsecured debts owed to it pursuant to the HSL Contract.
Cheque Number Date Presented Amount $
45608619/01/2001 100,779.13
(e)In the alternative to paragraph 9(e), if the supply was made pursuant to the HSL Contract then HSL made the following payments to the defendant for unsecured debts owed to it pursuant to the HSL Contract.
Cheque Number Date Presented Amount $
45334902/01/2001 3,444.92
(f)In the alternative to paragraph 9(f), if the supply was made pursuant to the HSL Contract then HSL made the following payments to the defendant for unsecured debts owed to it pursuant to the HSL Contract.
Cheque Number Date Presented Amount $
45198102/01/2001 1,079.01
(g)The payments described in paragraph 10 above total $316,801.33.
11For the purpose of the balance of this pleading, the transactions described in paragraphs 9(a) to 9(f) and the alternative transactions described in paragraph 10(a) to 10(f) are called “the Relevant Transactions”.
(Underlining and deletions omitted).
The objection taken by the defendant is to the use of the expression “for and on behalf of” in paragraphs 9 and 10. It connotes, it was said, agency, the underlying factual basis of which has not been pleaded. The plaintiffs, by their counsel, disavowed reliance upon agency in an attempt to answer the defendant’s objection. The defendant’s response was that the disavowal of agency only compounded the problem: what was it the plaintiffs relied upon if not agency.
These contentions are to be viewed against the background of the case law relating to the recovery of preferential payments by liquidators. The plaintiffs’ claim is based on s 588FF of the Corporations Law. The same provision has been re-enacted in the Corporations Act 2001 (CTH). The former statute applies to this case. The section is contained in Pt 5.7B of the Law. Another provision to which reference must be made is s 588FA(1). That section provides:
588FA(1)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 was set aside and the creditor were to prove for the debt in a winding up of the company; …..
“Transaction” is referred to in s 9 of the Law as follows:
Transaction”, in Part 5.7B, in relation to a body corporate or Part 5.7B means a transaction to which the body is a party, for example (but without limitation):
(a)a conveyance, transfer or other disposition by the body of property of the body; and
(b)a charge created by the body on property of the body; and
(c)a guarantee given by the body; and
(d)a payment made by the body; and
(e)an obligation incurred by the body; and
(f)a release or waiver by the body; and
(g)a loan to the body;
and includes such a transaction that has been completed or given effect to, or that has terminated.
What constituted a “transaction” was considered in some detail by the Full Court of the Federal Court in re Emmanuel (No 14) Pty Ltd (in liq); Macks & Anor v Blacklaw and Shadforth Pty Ltd (1997) 24 ACSR 292. The Court consisted of O’Loughlin, Branson and Finn JJ. They gave a joint judgment. The facts of the case were that the Emanuel Company agreed by contract with a company referred to as EFG that in settlement of all claims between them, EFG would, among other things, make payments both for the Emanuel Company and at that company’s direction to the defendant, Blacklaw and Shadforth Pty Ltd (“Blacklaw”). Blacklaw was a creditor of Emanuel and the payment by EFG to Blacklaw constituted a partial discharge of the indebtedness between Emanuel and Blacklaw. The question on appeal was whether, when payment was made to and accepted by Blacklaw, it could be said that Emanuel and Blacklaw were parties to a “transaction” constituting an unfair preference under s588FA of the Law.
The Full Court characterised the payment by EFG to Blacklaw as one which extinguished the indebtedness between Emanuel and Blacklaw and concluded that the authorisation of Emanuel of the payment by EFG was necessary to create the discharge of the indebtedness. It was held that. to that extent, Emanuel was a party to the extinguishment of the debt even if it could be said that it was not a party to the payment itself.
In arriving at that conclusion, the members of the Full Court said (at 299 line 47):
We confine our observations for present purposes simply to a course of dealing initiated by a debtor for the purpose of, and having the effect of, extinguishing a debt. It is not apparent to us why it should not be said that, where a debtor so acts and extinguishes a debt, the relevant “transaction” is the totality of the dealings through which the debtor procures the intended outcome, irrespective of whether one or more of the dealings in the sequence in question does not involve or require the participation of the debtor but does require that of a third party. The transaction, in other words, is the totality of the dealings initiated by the debtor so as to achieve the intended purpose of extinguishing the debt.
The Court was able to arrive at that conclusion without imputing the existence of the relationship of agency between the debtor (the Emanuel Company) and EFG. Because of this, the plaintiffs argued that re Emanuel No 14 supported their contention that paragraphs 9 and 10 of the proposed statement of claim sufficiently identified that a transaction of the type defined in s 9 of the Law and referred in s 588FA(1) of the Law had been entered into.
In my opinion, the decision does not support that contention. On the contrary, it supports the defendant’s contention that the plaintiffs must identify with sufficient particularity the factual and legal basis upon which it says that a transaction of the type contemplated by s 588FA was entered into. For example, the use of the expression “for and on behalf of” does not carry with it the implication that the alleged preferential payment was, as required by s 588FA(1)(b), received by the defendant “from the company”. Nor could it be said that the pleading in paragraphs 9 and 10 raises the implication that the payment was made at the instance of the company pursuant to some form of agreement or arrangement with the company that actually made the payment. Paragraph 9 asserts that HSL made various payments “for and on behalf of” HSW and paragraph 10(a), in the alternative to paragraph 9(a), contends for the reverse. Whether paragraph 9 or 10(a) is under consideration, the principle is still the same. In relation to paragraph 9, that paragraph does not carry the implication that HSW authorised the payment or required HSL to make the payment pursuant to some arrangement between HSL and HSW. The same, if these companies are reversed, may be said of paragraph 10(a).
For these reasons I consider that paragraph 9 and 10 are defective. They are central to the effectiveness of the proposed statement of claim and as such, it would be inappropriate to permit the proposed statement of claim to be filed and served.
I mention also that during the course of the argument I stated to counsel that it was possible that paragraphs 9 and 10 were defective because it could not be said that a payment by HSL on behalf of HSW depleted the assets of HSW with the result that there were less funds available for payment of other unsecured creditors and consequently the payment received by the defendant was preferential. On further consideration, I think it unsafe to adopt that approach if only because under the Corporations Law the test is as provided in s588FA(1)(b), namely whether the creditor would receive more by way of the transactional payment that the creditor would receive through the winding up administration.
In the pleaded circumstances of this case, it could be argued that the requirement would be fulfilled even if the debtor company’s assets were not depleted.
The plaintiff’s application will be dismissed. I will hear the parties as to costs.
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