Diana Denise Newman v Fruit and Produce Agents Association Pty Ltd - [2000] WADC 242

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: DIANA DENISE NEWMAN & ANOR -v- FRUIT & PRODUCE AGENTS ASSOCIATION PTY LTD [2000] WADC 242

CORAM: O'SULLIVAN DCJ

HEARD: 21 AUGUST 2000

DELIVERED : 5 OCTOBER 2000

FILE NO/S: CIVO 276 of 1999

MATTER :Section 588FF of the Corporations Law of Western Australia
Sunrise Produce Merchants Pty Ltd (ACN 009 398 421)

BETWEEN: DIANA DENISE NEWMAN
PAUL GWILYM AS JOINT AND SEVERAL LIQUIDATORS OF SUNRISE PRODUCE MERCHANTS PTY LTD (IN LIQUIDATION)
Applicants
AND
FRUIT & PRODUCE AGENTS ASSOCIATION PTY LTD (ACN 008 669 181)
Respondent

Catchwords:

Corporations - Insolvent transaction - Unfair preference - Corporations Law s 9, 588 FA(1), 588 FC, 588 FE

Legislation:

Corporations Law of Western Australia

Result:

Application dismissed

Representation:

Counsel:

Applicants: Ms K J Broux
Respondent: Mr T B Lyons

Solicitors:

Applicants: Hammond Worthington
Respondent: Gibson Lyons

Case(s) referred to in judgment(s):

Re Emanuel (No 14) Pty Ltd (In Liquidation); Macks and Anor v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281
Yeomans v Lease Industrial Finance Ltd (1987) 5 ACLC 103

Case(s) also cited:

Nil

O'SULLIVAN DCJ: By an application filed in this Court on 3 December 1999 the applicants seek orders and declarations as follows:
"1.A declaration that the transaction between the respondent and the company on 8 July 1998 whereby the respondent withheld the amount of $26,723.25 from proceeds payable to the company by the respondent is void as against the applicants.
2.An order that the respondent pay the applicants as joint and several liquidators of Sunrise Produce Merchants Pty Ltd (In Liquidation) the amount of $26,723.25.
3.An order that the respondent pay the applicants' interest from 8 July 1998 to judgment pursuant to s 32 of the Supreme Court Act."
The company referred to in para 1 of the application is Sunrise Produce Merchants Pty Ltd (In Liquidation) and the applicants were appointed joint and several administrators of it on 6 July 1998.
At all material times the company carried on business as a fresh produce merchant at Market City in Canning Vale. Michael Stephen Gould, a director of the company, has sworn an affidavit saying as follows:
"6.The Respondent is an association which provides a service known as the Fruit & Produce Agents Association Credit Service ("the FPAA Credit Service"). This is a central credit system which facilitates trading among the various wholesalers at the markets.
7.Under the credit system each participant had a purchase order code ("the Code"). The Code would be quoted to other wholesalers at the markets when placing a purchase order with them.
8.On a weekly basis each participant in the credit system would draw up their accounts for goods sold to other participating wholesalers ("the accounts").
9.The accounts would then be forwarded to FPAA Credit Service who would sort them according to purchase order codes and create one invoice comprising all the accounts bearing a particular purchase order code (the invoice).
10.The invoice would then be forwarded to the purchaser responsible for its payment …
11.Each individual wholesaler would pay the FPAA Credit Service the amount shown on the invoice within 14 days when the amount of the invoice became due and payable. The FPAA Credit Service would then distribute the money it had received to the various vendors."
On 30 June 1998 a cheque in the sum of $5,147.75 was drawn on the company's bank account payable to Dimasi, a wholesale merchant. On 1 July 1998 a cheque in the amount of $21,575.50 payable to the respondent was drawn on the account. Both cheques were dishonoured by the company's bank on 2 July 1998. As at 8 July 1998 the total amount due to the company by the respondent pursuant to the arrangement described in Mr Gould's affidavit was $119,426.17. On 6 July 1998 the credit manager of the respondent sent a memorandum to the accountant of the company advising that the company would have no further credit with the respondent. The credit manager further stated in the memorandum:
"I will be deducting the following amounts from Sunrise's Wednesday distribution:
$21,575.50 - FPAA payment made 1 July 1998
$20 - dishonour fee for above cheque
$5,147.75 – payment regarding buyer code ASI (crates)
$20 – dishonour fee for above cheque
Total $26,763.25."
On 8 July 1998 the respondent caused to be credited to the company's bank account the sum of $21,603.77 and withheld the balance of the sum of $119,426.17 which amounted to $98,062.40. On that date the respondent forwarded to the company a statement entitled "Deductions to be made from Sunrise's distribution". The statement showed that the amounts withheld included the amounts the subject of the two dishonoured cheques and the bank fees in relation to them.
The applicants claim that the withholding of the moneys the subject of the two cheques and their dishonour fees is a transaction which is voidable by reason of s 588FE of the Corporations Law which provides in part:
"1.Where a company is being wound up, a transaction of that company … may be voidable because of any one or more of the following subsections.
2.The transaction is voidable if:
(a)it is an insolvent transaction of the company; and
(b)it was entered into or an act was done for the purpose of giving effect to it
(i)during the six months ending on the relation‑back day; or
(ii)after that day but on or before the day when the winding up began."
For present purposes the "relation‑back day" was 6 July 1998.
Section 588FC provides:
"A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:
(a)any of the following happens at the time when the company is insolvent
(i)the transaction is entered into;
(ii)an act is done, or an omission is made, for the purpose of giving effect to the transaction; or
(b)the company becomes insolvent because of or because of matters including
(i)entering into the transaction; or
(ii)a person doing an act, or making an omission, for the purpose of giving effect to the transaction."
A transaction that is a "unfair preference" is defined in s 588FA(1) which provides in part:
"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 the debt in a winding up of the company;…"

Transaction

It will be noted that s 588FA deals with "transactions" and the question arises whether the events can be so described. Section 9 of the Corporations Law provides:
"'Transactions', in Part 5.7B in relation to a body corporate or Part 5.7 body, 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."
Mr Lyons for the respondent submitted that the role of his client was simply that of an intermediary whose function was to collect and disburse monies due to and from members of the association. Against that background he argued that there was no relevant transaction between the respondent and the company and that the respondent was not a creditor of the company.
It is clear that s 9 of the Corporations Law does not define the word transaction. Nevertheless as the full court of the Federal Court said in Re Emanuel(No 14) Pty Ltd (In Liquidation); Macks and Anor v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 at 288;
"…it does through the process of exemplification typify the terms of conduct or dealing engaged in by a company that will be characterised as a transaction for its purposes – "a conveyance of property", "an obligation incurred", "a release or waiver" etc. Common to the examples is the characteristic that the conduct or dealing engaged in by the debt or company has the consequence of effecting a change in the rights, liabilities or property of the company itself."
In Re Emanuel the court held that where a debtor initiates a course of dealings for the purpose of extinguishing a debt the relevant transaction is the totality of the dealings through which the debtor procures the intended outcome (see page 289). Implicit in this approach is the conclusion that there are some dealings or events which are not to be regarded as "transactions" for the purposes of s 9 of the Corporation Law and that the search for the relevant transaction in a case such as this involves an examination of the composite of dealings by which a change in the rights and liabilities of a company have been effected.
The relationship between the respondent and the company was governed by a document entitled "Credit Application and Continuing Credit Contract". In the document the company is described as "the applicant" and the respondent as "FPAA". S 4 is headed "Terms of Trade" and cl 4.1 (c) provides:
"A reference to a member herein shall mean a reference to any member of FPAA and a reference to the members shall mean a reference to each and every member of FPAA."
Clause 4.3 provides:
"The applicant acknowledges that FPAA represents and is agent for the members and is the body responsible for the approval or otherwise of this credit application and for the ongoing management of the credit relationship that will operate between the applicant and the members should this credit application be approved …"
Clause 4.9 provides in part:
"(a)the applicant agrees to pay direct to FPAA the amounts included in any weekly statements for produce supplied by the members plus any additional charges applicable thereto …
(b)payments received by FPAA shall be applied first in payment of any default charges, second in payment of any enforcement expenses, third in payment of any government charges and duties and forth in payment for produce supplied."
Clause 4.10 provides in part:
"(a)the applicant hereby acknowledges that produce supplied by a member shall remain the property of the member until payment is received for the same;
(b)during this time the applicant retains the produce as bailee;
(c)provided that the applicant adheres to the terms and conditions of this credit application neither applicants shall be allowed to deal, sell or trade with produce in the normal course of its business and to retain the sale proceeds of such sale or dealing;
(d)in the event of the applicant defaulting in any of the terms of this credit application including the payment of any monies due under this credit application then the member shall have the right (without giving notice) to retake possession of the produce supplied to the applicant …"
In my view it is clear from the terms of the Credit Application and Continuing Credit Contract that in its dealings with the applicant the respondent was acting as an agent for the members of FPAA in collecting and disbursing monies due to them in respect of produce supplied. Against that background it seems to me that the relevant transaction for purposes of s 9 of the Corporations Law was comprised of the dealing between the members of the association, by their agent the respondent, and the company whereby the debts of the company to the members were extinguished.
It follows that in my view that there was no "transaction" between the respondent and the company within the meaning of that word in s 9 of the Corporations Law.
However if I am wrong in this conclusion I am also of the opinion that in any event the respondent cannot be described as a "creditor" of the company so as to enable the transaction between them to be regarded as an "insolvent transaction" being an "unfair preference" as defined in s 588FA(1) of the Corporations Law. It is true that the word "creditor" in legislation of this kind has been liberally construed (see the remarks of Jenkinson J in Yeomans v Lease Industrial Finance Ltd (1987) 5 ACLC 103 at 109) but it is clear in this case that the monies due for the produce were owed to the suppliers and not to the respondent beneficially and any claim for them could only be prosecuted in the name of the suppliers or with their authority and for their benefit.
It follows that for these reasons the application should be dismissed.