Duncan as Liquidator of WDR Iron Ore Pty Ltd (In Liquidation) v SMA Industries Pty Ltd - [2020] SASC 88

Supreme Court of South Australia
(Civil)
DUNCAN AS LIQUIDATOR OF WDR IRON ORE PTY LTD (IN LIQUIDATION) v SMA INDUSTRIES PTY LTD
[2020] SASC 88
Judgment of The Honourable Justice Blue
26 May 2020
CORPORATIONS - WINDING UP - WINDING UP IN INSOLVENCY
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES AND VOIDABLE TRANSACTIONS - UNFAIR PREFERENCES
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PROTECTED TRANSACTIONS - DEALINGS IN GOOD FAITH
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COURT SUPERVISION - AMENDMENT - OUTSIDE OR INVOLVING LIMITATION PERIOD
Stephen Duncan is the liquidator of WDR Iron Ore Pty Ltd (In Liquidation) (WDRIO) and of Western Desert Resources Ltd (WDRL).
Mr Duncan as liquidator of WDRIO sues the defendant for payments totalling $1,216,274 received between 14 April and 18 July 2014 as recoverable unfair preferences. The defendant contends that its contract or contracts were with, and it was a creditor of, WDRL and not WDRIO and in any event it has a statutory defence under section 588FG of the Corporations Act 2001 (Cth).
In the alternative, Mr Duncan as liquidator of WDRL sues the defendant for $1,216,274 as recoverable unfair preferences. The defendant contends that the plaintiff is out of time to sue as liquidator of WDRL under section 588FF of the Corporations Act 2001 and that in any event it has a statutory defence under section 588FG of the Act.
Held:
1. The contracts entered into by WDRIO in August and November 2013 were entered into by it in its own right and not as actual or ostensible agent of WDRL (at [173] and [186]).
2. In February 2014 the parties to the existing contracts agreed to vary them. There was no new or novated contract between the defendant and WDRL (at [206]).
3. The plaintiff is out of time to sue as liquidator of WDRL under section 588FF of the Corporations Act 2001 (at [257]).
4. The defendant succeeds in its statutory defence under section 588FG of the Act in respect of first payment of $220,000 made on 14 April 2014 (at [294]).
5. In considering whether both limbs of the no reasonable grounds to suspect insolvency element of the "good faith" defence have been satisfied, regard is to be had only to information in the possession of the creditor (at [312] and [318]).
6. The defendant fails in its statutory defence under section 588FG of the Act in respect of the remaining payments (at [325], [328], [333], [336] and [342]).
7. The plaintiff as liquidator of WDRIO is entitled to judgment for $996,274.39 plus interest (at [346]).
8. The claim by the plaintiff as liquidator of WDRL fails (at [347]).
Corporations Act 2001 (Cth) ss 95A, 588FA, 588FC, 588FE, 588FF, 588FG; Judiciary Act 1903 (Cth) s 79; Limitation of Actions Act 1936 (SA) s 35; Supreme Court Civil Rules 2006 (SA) rr 54, 74, referred to.
Re Spec FS NSW Pty Ltd (in liq) (2013) 225 FCR 79, not followed.
Davies v Chicago Boot Co Pty Ltd (No 2) (2007) 96 SASR 164; Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489; Gordon v Tolcher (2006) 231 CLR 334; Grant Samuel Corporate Finance Pty Ltd v Fletcher (2015) 254 CLR 477; Greig v Stramit Corporation Pty Ltd [2004] 2 Qd R 17; Rodgers v Commissioner of Taxation (1998) 88 FCR 61; Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) (2016) 93 NSWLR 251; Weldon v Neal (1887) 19 QBD 394; White as Joint and Several Liquidators of Harris Scarfe Ltd (2011) 282 ALR 378; White v ACN 153 152 731 Pty Ltd (in liq) (2018) 53 WAR 234, discussed.
Chicago Boot Co Pty Ltd v Davies and Nicol as Joint and Several Liquidators of Harris Scarfe Ltd (2011) 282 ALR 378; Cussen as Liquidator of Akai Pty Ltd (in liq) v Commissioner of Taxation (2004) 51 ACSR 530; Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Morgans v Launchbury [1973] AC 127; Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; Oskar United Group Inc v Chee [2012] ONSC 1545; Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154; Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; Sims v Celcast (1998) 71 SASR 142; Tomko v Palasty [2007] NSWCA 258, considered.

DUNCAN AS LIQUIDATOR OF WDR IRON ORE PTY LTD (IN LIQUIDATION) v SMA INDUSTRIES PTY LTD
[2020] SASC 88
Civil
BLUE J:

The first plaintiff Stephen Duncan is the liquidator of WDR Iron Ore Pty Ltd (In Liquidation) (WDRIO). The second plaintiff Stephen Duncan is liquidator of Western Desert Resources Ltd (WDRL).
The defendant SMA Industries Pty Ltd, then known as Smithbridge Australia Pty Ltd (SMA), supplied equipment and labour hire services to WDRIO or WDRL. Between 14 April and 18 July 2014, it received payments totalling $1,216,274.[1]
[1] All dollar figures referred to are rounded to the nearest whole dollar, unless otherwise shown.
Mr Duncan as liquidator of WDRIO sues SMA for $1,216,274 as recoverable unfair preferences under sections 588FA, 588FC, 588FE and 588FF of the Corporations Act 2001 (Cth) (the Act). SMA contends that its contract or contracts were with, and it was a creditor of, WDRL and not WDRIO and in any event it has a statutory defence under section 588FG of the Act.
In the alternative to that claim, Mr Duncan as liquidator of WDRL sues SMA for $1,216,274 as recoverable unfair preferences. SMA contends that Mr Duncan is out of time to sue as liquidator of WDRL under section 588FF of the Act and in any event it has a statutory defence under section 588FG of the Act.
There were originally six defendants in this action. Ultimately the claims against three defendants were resolved and against one was stayed. The claim against the fifth defendant, Downer EDI Works Pty Ltd, is addressed in my reasons for judgment delivered concurrently in Duncan as Liquidator of WDR Iron Ore Pty Ltd (In Liquidation) v Downer EDI Works Pty Ltd.[2]
Background
[2] [2020] SASC 89.
Parties
Smithbridge Group Pty Ltd (SMG) was incorporated in October 2005. Albert Smith is its sole shareholder. In 2013 and 2014, he was the managing director of SMG.
Mr Smith was born in 1959. In 1980 he completed a Bachelor in Civil Engineering (First Class Honours) at Canterbury University in Christchurch. He worked in the construction industry until 1989, when he established his own business in the construction industry.
SMG has several subsidiaries, including SMA, which was incorporated in June 2013 under the name Smithbridge Australia Pty Ltd. SMG has a sister company that trades in New Zealand. SMG, its subsidiaries and its New Zealand sister company operate as a group (collectively Smithbridge). Mr Smith has always been the sole director of SMA. Alan Bell was in 2013 and 2014 the General Manager of SMA, reporting to Mr Smith. Paul Fitzgerald was in 2013 and 2014 a contract manager at SMA, reporting to Mr Bell.
WDRIO was incorporated on 14 July 2008. It acquired exploration licences at Roper Bar in the Northern Territory. Iron ore of direct shipping grade was discovered at Roper Bar in 2009. WDRIO acquired two mineral leases covering approximately 45 square kilometres and three ancillary mineral licences for services at Roper Bar.
WDRIO was a wholly-owned subsidiary of WDRL. WDRL had its shares listed on the Australian Stock Exchange.
WDRL had three other wholly-owned subsidiaries: WDR Gold Pty Ltd, WDR Base Metals Pty Ltd and Red Desert Minerals Pty Ltd. The only production activity undertaken by WDRL and its subsidiaries (collectively Western Desert) was the production of iron ore by WDRIO.
Western Desert did not internally distinguish between the financial activities and positions of WDRL and WDRIO. Western Desert’s MYOB accounting system operated a single company general ledger in the name of “Western Desert Resources Ltd”. No inter-company loan accounts were maintained between companies in the group.
Norm Gardner was the managing director of WDRL and WDRIO. Claude Severino was the project manager for the construction phase of the iron ore mine and haul road project at Roper Bar. Andrew Edmunds was a commercial manager for the construction project. James Loechel was a financial controller.
Roper Bar project
WDRIO was required to construct a pit, campsite and airstrip at Roper Bar; a 165 kilometre long road from Roper Bar to Bing Bong port on the Gulf of Carpentaria with associated bridges; and stockyard facilities and conveyor systems at Bing Bong port.
At Bing Bong port, the crushed iron ore was to be loaded onto barges and transported to bulk carriers approximately 35 kilometres offshore. WDRIO engaged PB Sea-Tow (Australia) Pty Ltd to tranship the iron ore from Bing Bong port to markets in Asia.
WDRIO entered into an Iron Ore Off-Take Agreement with Noble Resources Pte Ltd (Noble) for five years under which WDIRO agreed to sell and Noble agreed to buy all iron ore produced by WDRIO from the Roper Bar project for five years.
WDRIO operated a US dollar bank account entitled “USD proceeds account” (the Macquarie USD account) and an Australian dollar account entitled “AUD proceeds account” (the Macquarie AUD account) with Macquarie Bank. WDRL operated a cheque account with National Australia Bank (the NAB account).
Proceeds of iron ore sales received from Noble and hedge settlements were deposited into the Macquarie USD account. Funds were converted into Australian dollars and transferred into the Macquarie AUD account. Funds were then transferred into the NAB account. Payments to creditors were made out of the NAB account.
Mining at Roper Bar commenced in September 2013 and crushing in late November 2013. Haulage to Bing Bong port commenced in December 2013 and shipping commenced at the end of December 2013.
In January 2014 less than 100,000 tonnes of commercial grade iron ore was mined, crushed, hauled and shipped. The tonnage shipped was 59,000 tonnes.
In February 2014 less than 100,000 tonnes of commercial grade iron ore were mined, crushed, hauled and shipped. The tonnage shipped was 92,000 tonnes.
During the three months to 31 March 2014, only 298,000 tonnes of commercial grade iron ore was mined; 274,000 tonnes was crushed, 295,000 tonnes was hauled and 277,000 tonnes was shipped.
On 20 February 2014 Western Desert wrote to Macquarie requesting an increase in the facility limit by $12 million.[3]
[3] All dollar figures in the millions referred to are rounded to the nearest one hundred thousand dollars, unless otherwise shown.
On 27 February 2014 the board of directors of WDRL resolved to undertake a capital raising of $50 million by a rights issue, of which it was estimated that approximately $11 million would be available to reduce trade creditors, pay a settlement with PB Sea-Tow and pay the port access fee.
On 28 February 2014 Macquarie Bank issued a letter to Western Desert offering to increase the facility limit temporarily until 18 April 2014 by $3.5 million (to $84.15 million) upon payment of an upfront fee of $290,000. The repayment of the temporary increase was premised on a capital raising by WDRL.
On 28 February 2014 Western Desert was in default of the Liquidity condition. It held $3.2 million in its Macquarie bank accounts, leaving a shortfall of $6.8 million.
On 7 March 2014 the board of directors of WDRL resolved to increase the proposed capital raising to $60 million due to a potential $10 million shortfall to June as a result of wet weather.
On 7 March 2014 Western Desert wrote to Macquarie Bank requesting a further increase in the facility limit by $12 million.
On 10 March 2014 Macquarie Bank issued a letter to Western Desert offering to increase the facility limit temporarily until 18 April 2014 by $8.5 million (to $92.65 million) and defer the increase in the Liquidity condition to $15 million until 30 June 2014 upon payment of an upfront fee of $710,000 and various other conditions. The repayment of the temporary increase was premised on a capital raising by WDRL.
On 14 March 2014 WDRL issued an entitlement offer booklet offering to eligible shareholders up to 120 million shares at 50 cents per share. The offer was open for acceptance between 24 March and 7 April 2014. The offer was fully underwritten by Ord Minnett.
Dealings between the parties
In May 2013 Mr Gardner telephoned Mr Smith, introducing himself as the “Managing Director of Western Desert Resources”. Mr Gardner invited Mr Smith to tender for bridge and wharf/port works relating to the finalisation of the construction of an iron ore mining project at Roper Bar.
On 24 May 2013 Mr Franks on behalf of Western Desert sent two emails to Mr Bell of Smithbridge attaching various documentation including a technical specification for the haul road. The technical specification bore on its front page the Western Desert logo (reproduced below). Clause 1.1 identified the principal as “WDR Iron Ore Pty Ltd”.
In early June 2013 Mr Smith met Mr Gardner and Mr Severino on site. Mr Gardner said that they had raised substantial capital for the project and thought that it would be extremely profitable given the iron ore price. Mr Smith inspected the Roper Bar camp and the port at Bing Bong.
On 12 June 2013 Mr Smith on behalf of SMG wrote to Mr Severino at WDRL submitting a tender to construct four bridges for the haul road and berthing and mooring piling and structure works at Bing Bong port. The tender price was $17.2 million. In June or July, Mr Smith was told by Mr Gardner or Mr Severino that the tender exceeded their expectations and they intended to perform the works the subject of the tender themselves.
On 28 June 2013 SMA was incorporated.
On 12 July 2013 Mr Severino, as “Project Manager – Iron Ore – Western Desert Resources”, sent an email to Mr Smith confirming that the tender had exceeded their budget expectations. He expressed a preference to engage Smithbridge under a plant and personnel hire agreement on the basis of an attached cost schedule for the construction activities at the site of the Limmen Bridge.
On 20 July 2013 Mr Smith, as “Group Managing Director, Smithbridge Group Pty Ltd”, sent an email to Mr Severino offering to supply specified equipment at specified rates per week and provide operators and foremen at specified rates per hour.
Other emails passed between Mr Smith or Mr Bell and Mr Severino refining the proposed works, equipment, labour and rates. These communications extended the subject matter of the proposed hire to include construction activities at the Bing Bong loadout facility.
On 27 July 2013 Mr Bell sent an email to Mr Severino, copied to Mr Smith, setting out a proposed schedule commencing with “receipt of an order to proceed from WDR”.
August contract
On 29 July 2013 Mr Edmunds, as “Commercial Manager Western Desert Resources”, sent an email to Mr Smith attaching purchase order 201315 for mobilisation, demobilisation and equipment hire. He said that “If there are any amendments required to the attached PO please advise and I shall amend and forward to you later today”.
The purchase order was shown as being by WDRIO and was addressed to SMA as supplier. It attached purchase order standard terms and conditions comprising 18 clauses together with Annexures A, B and C (the Standard Conditions).
There is no direct evidence that Smithbridge told Western Desert that SMA had been incorporated and that Smithbridge intended that SMA be the contracting party on the Smithbridge side. However, it is uncontentious that SMA was the contracting party on the Smithbridge side.
Similarly, there is no direct evidence that Western Desert told Smithbridge before this email that it intended that WDRIO be the contracting party on the Western Desert side.
On 29 July 2013 Mr Smith, as “Group Managing Director Smithbridge Group Pty Ltd”, sent a responding email to Mr Edmunds saying that he understood that Mr Severino was also planning on taking the extra items listed in an attached email and asking Mr Edmunds to check with Mr Severino and if necessary amend the purchase order. He also said that the purchase of a drill bit needed to be added. He invited Mr Edmunds to deal directly with Mr Bell, General Manager of SMA, in relation to the order.
On 29 July 2013 Mr Bell, as “Group Manager Smithbridge Group Pty Ltd”, sent a later responding email to Mr Edmunds and Mr Severino, copied to Mr Smith, requesting the addition of the purchase of the drill bit at a cost of $80,000. He also provided various information that had been requested by Mr Severino in an email sent in the interim.
On 2 August 2013 Mr Edmunds sent an email to Mr Smith and Mr Bell attaching a revised purchase order for the pile construction at Limmen Bridge and Bing Bong loadout facility. He said “[p]lease check the Purchase order carefully to ensure it correctly reflects the agreement between WDR and Smithbridge”. The purchase order itself was not tendered.
On 5 August 2013 Mr Bell sent a responding email to Mr Edmunds, copied amongst others to Mr Severino and Mr Smith, clarifying various conditions and requesting an amended purchase order or confirmation of acceptance of the clarifications.
On 6 August 2013 Mr Severino sent an email to Mr Bell, copied amongst others to Mr Smith, responding to Mr Bell’s request for clarifications by providing his response in red after each point.
On 8 August 2013 Mr Bell sent an email to Mr Severino, copied amongst others to Mr Smith, responding to Mr Severino’s response by providing his response after Mr Severino’s response at each point. Mr Bell said in his covering email that the initial plant had left Brisbane and was due on site on 12 August and the guys were also due on site to unload and assemble the plant on 12 August.
On 8 August 2013 Western Desert issued a purchase order dated 8 August 2013 addressed to SMA in final form (the August purchase order). It contained a cover page that the 29 July version did not have but otherwise was in the same form but with 17 line items rather than eight. It attached the Standard Conditions. It also attached SMG’s “Standard Terms and Conditions of Dry Hire” (the Smithbridge hire conditions). The wording of the purchase order and Standard Conditions is critical to the first issue in this matter and is addressed below.
I infer that the August purchase order was sent to SMA. By the exchange of the draft and final purchase orders and correspondence between them and by SMA commencing the work, the parties entered into a contract on the terms set out in the August purchase order (the August contract).
The work undertaken by SMA pursuant to the August purchase order at Limmen Bridge was completed in October or November 2013 and at the Bing Bong loadout facility was completed towards the end of December 2013.
November contract
On 7 November 2013 Mr Smith sent an email to Mr Severino quoting a price to mobilise and hire an excavator dredge barge.
On 8 November 2013 Mr Severino told Mr Fitzgerald that the proposal was accepted. Mr Severino sent an email to Mr Smith and others confirming that conversation and saying that a purchase order would be issued on 11 November 2013.
On 12 November 2013 Mr Edmunds sent an email to Mr Smith and others attaching a purchase order for the mobilisation of the excavator and barge (the November purchase order).
The purchase order was shown as being by WDRIO and was addressed to SMA as supplier. It attached the Standard Conditions. The wording of the purchase order and Standard Conditions is critical to the first issue in this matter and is addressed below.
By the sending of the purchase order and by SMA commencing the work, the parties entered into a contract on the terms set out in the November purchase order (the November contract).
Events leading up to February agreement

On 8 December 2013 Mr Severino sent an email to Mr Bell referring to the barge digger having stopped work and said that the best case was that it would not start up again until 10 December. Mr Gardner forwarded the email to Mr Smith, Mr Bell and Mr Fitzgerald saying that this was very disappointing and would have serious implications financially for Western Desert.
On 22 December 2013 Mr Smith sent an email to Mr Gardner, copied to Mr Severino, setting out details of invoices and payments since October and stating that the balance unpaid for invoices issued until the end of November was $1,133,320.[4] He said that he understood that Mr Severino had been making deductions from invoices rendered at his leisure without agreement by anybody from Smithbridge and this was unacceptable. He requested that Mr Gardner either pay the outstanding balance or call him to discuss the matter if he was refusing to pay. He said that it was necessary to get this resolved before the end of 2013 and he was not prepared to continue to work if accounts remained unpaid or in dispute.
[4] All dollar figures in invoices are inclusive of GST, unless otherwise shown.
On 22 December 2013 Mr Severino sent a responding email to Mr Smith, referring to the disappointing performance of Mr Smith’s team at the Bing Bong loadout facility, saying that this was causing unacceptable delays and costs to Western Desert and that Western Desert was looking forward to discussing these issues further.
On 3 February 2014 Mr Smith sent an email to Mr Gardner confirming a recent telephone conversation with Mr Gardner in which Mr Gardner had said that he would make a payment by the end of the week and would meet with Mr Smith to resolve the disputed invoices. Mr Smith said that he had not been able to get to Mr Gardner by phone despite many attempts. He asked for confirmation of the date and location for the meeting and when some money would be paid.
Mr Smith said that nobody would be returning to site until the finance matter was resolved, leaving only four people on site from 6 February. He said that Smithbridge intended to demobilise the remainder of the team on 8 February if the payment issue was not resolved and the machines would stop work. Smithbridge also intended to proceed with the statutory demand process the following week if satisfactory agreement could not be reached on the amounts owed to Smithbridge to get the payments up to date.
On 3 February 2014 Western Desert paid $400,000 to SMA.
On 4 February 2014 Mr Smith sent a further email to Mr Gardner. He set out details of unpaid invoices and said that the total due by the end of January had been $1,951,208 against which the payment of $400,000 had just been received. January invoices totalled a further $308,003, resulting in a total outstanding of approximately $1.86 million. He said that Smithbridge was not prepared to continue to work until the matter was resolved. He said that he was available to meet with Mr Gardner at any time.
On 5 February 2014 Mr Severino sent an email to Mr Smith attaching a spreadsheet setting out a summary and status of invoiced and approved amounts. He reiterated that payment would only be made for hours worked on site. He said that the work dockets were inconsistent, hence the reason for disputing hours shown on them.
On 8 February 2014 Mr Severino sent an email to Mr Fitzgerald attaching a summary of SMA claims as assessed by Western Desert and said that the accounts department was currently working through a payment plan.
On 11 February 2014 Mr Smith received an email from Mr Coombridge of PB Sea-Tow, who had heard that Smithbridge had stopped work. In the course of the email exchange, Mr Coombridge said that PB Sea-Tow was owed slightly more than the $2 million that Smithbridge was owed.
On 21 February 2014 Mr Smith and Mr Fitzgerald met with Mr Gardner and Mr Severino in Adelaide. At about 4 pm Mr Smith sent an email to Mr Gardner setting out his understanding of what was agreed at that meeting.
On 23 February 2014 Mr Smith sent an amended email to Mr Gardner setting out his understanding of what was agreed at the meeting. Mr Smith sent a second email requesting Mr Gardner to countersign the first email as a record of the agreement. Mr Gardner printed the first email and signed it as “all agreed” and returned it by email to Mr Smith on 25 February.
The agreement as set out by Mr Smith included the following terms:
·SMA would issue credits totalling $317,040 against 12 of the invoices rendered by SMA up to and including 26 January 2014 (in agreed amounts against each invoice) and the total credit would be deducted from the next invoice issued by SMA;
·the balance outstanding for all SMA invoices up to and including 26 January 2014 was agreed at $1,571,432;
·SMA had issued three further invoices between 2 and 16 February 2018 totalling $175,216; Mr Severino would assess them and provide a proposed discount/payment value to Mr Fitzgerald for consideration on 24 February; if the matter could not be agreed within three days, it would be referred to Mr Smith and Mr Gardner for a final resolution;
·no charge would be made by either party for anything that occurred during the stand down week between 17 and 23 February 2014;
·the balance of lump sum amounts under the original contract lump sum schedule, totalling $404,140, would be claimed upon the occurrence of defined events;
·specific plant and labour hire terms were agreed to be effective from 24 February 2014 with a target of completing the remaining dredging work by mid-March and undertaking demobilisation as soon as possible thereafter;
·the total estimated amount to be paid was $2,323,172 subject to final corrections and quantities and was to be paid as follows:
Instalment 1      28 February 2014      $440,000
Instalment 2      21 March 2014         $440,000
Instalment 3      4 April 2014              $440,000
Instalment 4      18 April 2014            $440,000
Instalment 5      1 May 2014                $562,100 approximately;
·interest at 1.5 per cent per month, calculated daily, would be charged against any amounts that were not paid in line with the agreed schedule.
Subsequent events
In March 2014 SMA returned to work at the Bing Bong loadout facility and by the end of March had completed its work and demobilised its equipment.
On 3 March 2014 Western Desert paid $400,000 to SMA and on 4 March it paid the balance of instalment 1 of $40,000.
On 14 March 2014 Western Desert paid $440,000 to SMA being instalment 2.
Between 2 and 30 March SMA rendered to Western Desert invoices totalling $622,292 as follows:
2 March 2014            $672
9 March 2014            $59,230
16 March 2014          $41,863
23 March 2014          $261,568
30 March 2014          $258,959.
On 3 April 2014 Mr Loechel spoke to Mr Fitzgerald. It was agreed that instalment 3 due on 4 April would be paid as to $220,000 on 7 April (instalment 3A) and as to $220,000 on 11 April (instalment 3B), that instalment 4 would be paid when due on 18 April and instalment 5 (anticipated to be $556,274) would be paid when due on 1 May. On 4 April, Mr Fitzgerald sent an email to Mr Loechel, copied among others to Mr Gardner and Mr Smith, confirming this agreement.
On 7 April 2014 Western Desert paid $220,000 to SMA being instalment 3A.
On 11 April 2014 Mr Fitzgerald and Mr Loechel agreed that instalment 3B would be paid on 14 April instead of 11 April. That payment was made on 14 April.
On 16 April 2014 Mr Fitzgerald sent an email to Mr Loechel seeking confirmation that instalment 4 would be paid on or before 18 April given that it was Good Friday. Mr Loechel responded, saying:
Our position is difficult at the moment, with a number of large creditors and a limited pool of funds to utilise. You can rest assured we are doing everything we can to ramp up operations & generate additional cash to pay our creditors. As it stands, we are forced to defer our planned payment to Smithbridge this week. We expect proceeds from a shipment next week which we will utilise to make creditor payments. For cash flow purposes, please allow for a payment from WDRL of $200k next Thursday 24/4/14. We will continue to pass on funds from shipments as they become available. We thank you for your ongoing support and apologise for the delay.
Mr Fitzgerald forwarded the email to Mr Smith and Mr Bell and said it “would appear the WDR payment plan is falling apart”.
On 16 April 2014 Mr Smith sent an email to Mr Severino seeking confirmation that $440,000 would be paid on 18 April and the balance of $556,274 would be paid on 2 May.
On 17 April 2014 Mr Smith sent an email to Mr Loechel in response to his email to Mr Fitzgerald of 16 April. He said:
James this is not acceptable to us. We agreed on a delayed payment arrangement with Norm Gardiner [sic] and now you are saying that you will not honour it, but that you will pay us “when you can.”
Please advise when you plan to pay us?
Can you commit to a new set of payment dates?
Please confirm that the amount owing is agreed.
Please confirm your agreement to pay interest as covered by the delayed payment arrangements with the dates included.
On 17 April 2014 Mr Loechel sent an email to Mr Smith in response, saying:
As discussed, whilst WDRL anticipated making a payment to Smithbridge today in accordance with the payment plan, this has not eventuated. The reason for the deferral is essentially because the pool of funds from which to pay creditors is less than what was anticipated when the payment plan was agreed. WDRL was forced to meet a number of one off costs ahead of planned creditor payments. I have listed below a number of these costs:
Settlement of hedging liabilities with WDRL financiers  $15m
Repayment of short term working capital funding to WDRL financiers        $12m
Transaction costs associated with the capital raising  $2.5m
Cost associated with changing barge operator
Since September 2013, Smithbridge has invoiced WDRL circa $4.7m + GST. To date, WDRL has paid circa $4.0m of that total & the majority of repayments have been on time. In light of our positive trading history, we are seeking an extension on repayment terms for the final amounts outstanding. Below is a proposed payment plan for consideration:
24/4/14     $100k
2/5/14        $200k
9/5/14        $200k
16/5/14     $200k
23/5/14     In respect of remaining balances, WDRL requests a statement from Smithbridge to confirm amounts outstanding in excess of the $736k which is currently recorded in WDRL’s books. Upon receipt, WDRL can confirm payments to be made on 23/5/14 and thereafter.
On 23 April 2014 Mr Loechel told Mr Fitzgerald that Western Desert would pay $220,000 on the following day instead of $110,000. He also said that the outstanding balance as recorded by Smithbridge of $996,274 reconciled with the Western Desert accounting system.
On 24 April 2014 Western Desert paid $220,000 to SMA.
On 2 May 2014 Western Desert paid $220,000 to SMA.
On 9 May 2014 Western Desert did not pay the instalment of $200,000 due on that day.
On 16 May 2014 Western Desert did not pay the instalment of $200,000 due on that day.
On 22 May 2014 Mr Fitzgerald sent an email to Mr Loechel, copied amongst others to Mr Gardner and Mr Smith, agreeing to payments of $200,000 on 23 May, $200,000 on 30 May and $196,274 on 6 June 2014.
On 22 May 2014 Mr Smith spoke to Mr Gardner. Mr Gardner said that Western Desert could only pay $100,000 per week commencing on 23 May. Mr Smith agreed to the revised payment plan but said that interest on late payments would still apply in accordance with the February agreement. On 22 May Mr Smith sent an email to Mr Gardner seeking confirmation of this agreement and Mr Gardner responded confirming it.
In accordance with this agreement, Western Desert paid $100,000 to SMA on 23 May, 30 May, 6 June, 13 June and 20 June 2014.
On 20 June 2014 SMA issued an invoice to Western Desert for $16,026 for late payment interest charges.
On 23 June 2014 Mr Fitzgerald and Mr Loechel agreed that SMA would credit the 20 June invoice and Western Desert would pay the balance of $96,274 on 27 June 2014.
On 7 July 2014 Western Desert paid $87,522 to SMA, being the outstanding balance of $96,274 exclusive of the GST component.
On 18 July 2014 Western Desert paid the GST component of $8,752 to SMA.
On 5 September 2014 WDRIO and WDRL were placed into voluntary administration.
On 9 April 2015 WDRIO and WDRL were wound up and Mr Duncan, Mark Mentha and Scott Kershaw were appointed joint and several liquidators. Mr Mentha and Mr Kershaw resigned as liquidators on 30 June 2015.
The action
The action was commenced by Mr Duncan as the liquidator of WDRIO against six defendants. SMA was the second defendant. SMA filed a defence admitting that it was a creditor of WDRIO.[5] It denied that WDRIO was insolvent before the end of May 2014. It pleaded a defence under section 588FG and certain other defences that were not ultimately pursued.
[5] It denied that the impugned payments were made by WDRIO, pleading that they were made by WDRL.
In November 2017 it was ordered that there be a trial of a preliminary issue involving all defendants, namely the issue of insolvency (the insolvency trial). Before the commencement of that trial, the issue of insolvency (if not the entire claim) was resolved as between the plaintiff and all defendants except for the fifth defendant (Downer). As between the plaintiff and SMA, the insolvency issue was resolved on the basis that it was agreed that WDRIO was insolvent on and after 10 April 2014.
The insolvency trial proceeded. Although Downer appeared at the trial, it did not participate. Mr Duncan tendered various documents, including affidavits or written witness statements by Christopher Powell, Andrew Edmunds and George Bandes.
Separate trials were listed in respect of each separate defendant to proceed successively. The trial in respect of SMA (the SMA trial) was listed to proceed last.
A month before the trial, SMA sought permission to amend its defence to withdraw its admission that it was a creditor of WDRIO and to plead instead that it was a creditor of WDRL because WDRIO was only a party to the purchase orders in its capacity as agent for WDRL as a disclosed principal or alternatively in February 2014 a fresh contract was made between WRDL and it, pursuant to which the subsequent payments were made. I granted permission to amend.
Mr Duncan applied for an order that he, in his capacity as liquidator of WDRL, be joined as a second plaintiff making an alternative claim for recovery of unfair preferences on behalf of WDRL. SMA opposed the application on the ground that Mr Duncan was out of time under subsection 588FF(3) of the Act to bring a recovery action as liquidator of WDRL. I made the order sought by Mr Duncan but reserved to the trial the question as to the operative date of joinder so that SMA’s time limitation contention could be determined on the merits at trial.
SMA filed an amended defence in which, amongst other things, it pleaded that the claim by Mr Duncan as liquidator of WDRL was time-barred by operation of subsection 588FF(3) of the Act.
Trial
At the SMA trial, it was agreed that all of the evidence adduced at the insolvency trial, except for the evidence by Mr Edmunds and Mr Bandes, is to be treated as evidence adduced for the purposes of the SMA trial. This included the affidavits by Christopher Powell. In addition, he gave oral evidence in cross-examination.
An affidavit by Mr Smith was tendered and he gave oral evidence in chief, cross-examination and re-examination.
Both parties tendered various documents.
The insolvency issue in relation to WDRL was resolved on the basis that it was agreed that WDRL was insolvent and on and from 10 April 2014.
Mr Powell gave evidence that he is a chartered accountant, having been engaged in the conduct of insolvency administrations since 1986. He is a partner with Mr Duncan in the accountancy firm Duncan Powell. He is self-evidently not independent.
Mr Powell produced his report as to solvency dated 18 December 2017. In that report, he expressed the opinion that each of WDRIO and WDRL was insolvent from no later than 28 February 2014. Given the resolution of the insolvency issue, this opinion is not directly relevant. However, Mr Powell also gave evidence concerning the extent to which each of WDRIO and WDRL engaged in operations or traded. He was cross-examined on that topic.
There is no challenge to the honesty or reliability of Mr Powell’s evidence. I address his evidence when I address the issue whether SMA was a creditor of WDRIO or WDRL.
Mr Smith gave evidence for SMA. I consider that he was an honest and relatively straightforward witness. However, as the ultimate owner of SMA, he has an obvious interest in the issues in this action. Mr Smith said in his affidavit that he had no suspicion of Western Desert becoming insolvent. I consider that this was an unconscious exaggeration. However, he was frank during cross-examination about his concerns over payment and beliefs that Western Desert had cash flow problems.
I generally accept Mr Smith’s account of events and conversations to the extent that he recalled them in the witness box.
Elements of the cause of action
Subsections 588FE(1)(a) and (2) and 588FF(1)(a) and (3) of the Act relevantly provide:
588FE Voidable transactions
(1)     If a company is being wound up:
(a)     a transaction of the company may be voidable because of any one or more of                subsections (2) to (6) if the transaction was entered into on or after 23 June         1993; and
…
(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 6 months ending on the relation-back day; or
(ii) after that day but on or before the day when the winding up began.
588FF Courts may make orders about voidable transactions
(1)     Where, on the application of a company's liquidator, a court is satisfied that a       transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a)     an order directing a person to pay to the company an amount equal to some         or all of the money that the company has paid under the transaction;
…
(3)     An application under subsection (1) may only be made:
(a)     during the period beginning on the relation-back day and ending:
(i)    3 years after the relation-back day; or
(ii)     12 months after the first appointment of a liquidator in relation to the                 winding up of the company;
whichever is the later; or
(b)     within such longer period as the Court orders on an application under                 this paragraph made by the liquidator during the paragraph (a) period.
An “insolvent transaction” is relevantly defined by section 588FC:
588FC Insolvent transactions
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 … and:
(a)     any of the following happens at a time when the company is insolvent:
(i)    the transaction is entered into; or
(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.
The term “insolvent” is defined by section 95A:
Solvency and insolvency
(1)A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.
An “unfair preference” is relevantly defined by section 588FA(1):
588FA Unfair preferences
(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 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.

A “transaction” is relevantly defined by section 9:
"transaction" , 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
…
(d) a payment made by the body; and
…
and includes such a transaction that has been completed or given effect to, or that has terminated.
The “relation-back day” is effectively defined by sections 91 and 513C of the Act to mean amongst other things the day on which the company’s administration began in circumstances in which it was placed into and remained in administration until the winding up order was made.
In the paradigm case of a payment to a creditor, as in the present case, the elements of a recoverable unfair preference cause of action are:
1immediately before the payment, the company owed a debt to the defendant (the debt) and the defendant was thereby a creditor of the company;
2the debt was unsecured;
3the payment was made by the company or, if the payment was made by another entity, the company was a party to the transaction involving the payment such that the creditor received a benefit from the company;
4immediately before or immediately after the payment, the company was unable to pay all its debts as and when they fell due and payable;
5the payment resulted in the creditor receiving from the company, in respect of the debt, 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;
6an application to recover the payment is made by the company’s liquidator; and
7the application is made within the limitation period specified by subsection 588FF(3).
If these elements of the cause of action are established, a defence is available to the creditor if it establishes the matters specified by section 588FG (addressed below).
In this case, the issues relate to two of the elements of the cause of action and the defence. In relation to the claim made by Mr Duncan as liquidator of WDRIO, SMA denies that it owed a debt to WDRIO, being the first element of the cause of action. If it fails on that issue, SMA accepts that the remaining elements of the cause of action are established[6] but contends that it has a defence under section 588FG.
[6] By its defence, SMA denied the second element but abandoned that defence at trial; SMA denied the third element but accepted at trial that, if the first element is established, the third element will also be established; SMA denied the fourth element in respect of the period before May 2014 but at trial it was agreed that WDRIO (and WDRL) was insolvent from 10 April 2014 onwards; and SMA denied the fifth element but accepted at trial that, if the first element is established, the fifth element will also be established.
In relation to the claim made by Mr Duncan as liquidator of WDRL, SMA denies that the application was made within the limitation period specified by subsection 588FF(3), being the first element of the cause of action. If it fails on that issue, SMA accepts that the remaining elements of the cause of action are established but contends that it has a defence under section 588FG.
Was SMA a creditor of WDRIO?
SMA contends that it received the impugned payments as a creditor of WDRL and not as a creditor of WDRIO. It puts this contention on two alternative bases.
First, SMA contends that the February agreement superseded the August and November contracts and that under the February agreement WDRL, and not WDRIO, was liable to make all future payments. Alternatively, it contends that WDRL alone was liable to make future payments for work performed after the February agreement even if WDRIO remained liable to make future payments for work performed before the February agreement.
Secondly, in the alternative SMA contends that, although it accepts that WDRIO was a party to the August and November contracts, it entered into those contracts as a disclosed principal of WDRL and therefore WDRIO is not liable to SMA under those contracts. It contends that WDRL conferred actual authority on WDRIO to enter into the contracts as its agent, albeit the authority is implied. In the alternative, it contends that WDRIO had ostensible authority to enter into the contracts as agent of WDRL.
I first address SMA’s second contention because it is necessary to consider the proper construction of the February agreement in the context of the anterior August and November contracts. I reject SMA’s contention to the contrary.
Was WDRIO the agent of WDRL?
SMA does not plead, and does not actually contend, that, on the proper construction of the August and November contracts, WDRL was its counterparty rather than WDRIO.
However, in submissions in support of its agency contentions, SMA tends to conflate the issue of who was or were the immediate party or parties to the contract with the issue of agency. Although not directly an issue, it is necessary to address the identity of the immediate party or parties to the contracts as a prelude to addressing the agency issues and to avoid confusion.
The immediate parties to the August and November contracts
It is common ground that, where there is doubt about the identity of the parties to a contract, that identity is to be determined objectively in the same manner as construing a term of the contract. A contract is construed by reference to its text, context and evident purpose. Parties to a contract are identified by reference to the text and context of the contract.
In Air Tahiti Nui Pty Limited v McKenzie,[7] Allsop P and Handley AJA (with whom Hodgson JA agreed) said:
The identity of the contracting party is to be determined looking at the matter objectively, examining and construing any relevant documents in the factual matrix in which they were created and ascertaining between whom the parties objectively intended to contract. This is, to a point, a process of construction similar to the task of identifying whether a clearly contractual document (such as a bill of lading) is made with one party or another (such as a shipowner or time charterer). Where the documents are silent or ambiguous, but there is undoubtedly a contract, the identity of the parties must be determined objectively from the surrounding circumstances.[8]
[7] [2009] NSWCA 429, (2009) 77 NSWLR 299.
[8] At [28]. (Citations omitted). See also Abram v AV Jennings Ltd [2002] SASC 417, (2002) 84 SASR 363 at [44] per Besanko J (with whom Doyle CJ and Mulligan J agreed).
The first substantive page of the August purchase order bears at the top left the stylised logo “Western Desert Resources” as follows:
At the top centre, to the left of a box in the top right enclosing the words “PURCHASE ORDER” is a box as follows:
Below that are 3 boxes as follows:
Pausing at this point, before turning to the attached Standard Conditions, the purchase order is unequivocally issued by WDRIO. WDRIO is shown in the centre top box as the issuer of the purchase order and in addition it is shown as the entity to whom invoices are to be made out.
The fact that the stylised logo “Western Desert Resources” appears at the top left of the page does not indicate that the purchase order is issued by WDRL. It may be expected by the reasonable businessperson in the position of SMA or observing impartially that companies in a group will use a common logo based on the name of the group or the name of the parent and this is no indication that the parent is the contracting party. Moreover, the logo does not include the word “Limited”, such that it is apparent that it refers to the Western Desert group rather than just to the parent WDRL. Similarly, the fact that the covering page of the purchase order contains the stylised logo is no indication that the purchase order was issued by WDRL.
The body of the purchase order contains a listing of attachments, including the Standard Conditions. Clause 1 of the Standard Conditions provides that acceptance by the Supplier of the purchase order constitutes a contract comprised of the purchase order, standard conditions and any other document attached thereto.
Clause 2 provides:
2. Supply of Goods and/or Services
WDR Iron Ore Pty Ltd (the Company) agrees to purchase the goods specified in the Purchase Order (Goods) and/or accept the supply of the services specified in the Purchase Order (Services), and the Supplier agrees to supply and deliver the Goods to, and/or perform the Services at, the location specified in the Purchase Order (Site) for the amount specified in the Purchase Order (Price) on these terms and conditions.
This unequivocally confirms that WDRIO is the issuer of the purchase order and the counterparty to the contract with the Supplier.
Various clauses of the Standard Conditions refer to “WDR”, which is defined by clause 18.9 as follows:
WDR means WDR Iron Ore Pty Limited can [sic] 46 132 204 025
These provisions also confirm that WDRIO is the counterparty to the contract with the Supplier.
At the foot of each page of the Standard Conditions (including its three annexures) appear the words “Western Desert Resources Ltd - Standard Terms and Conditions for the supply of Goods and/or Services”. Given the explicit provisions in the purchase order referring to WDRIO identified above and the explicit provisions within the Standard Conditions defining “WDR” to mean WDRIO, the footer does not indicate that WDRL is the issuer of the purchase order or a party to the contract. The 18 clauses of the Standard Conditions are obviously drawn in a manner such that they could be used for a purchase order issued by any member of the Western Desert group: all that is required to be changed is the definition of “WDR” contained in clause 18.9. It would be obvious to the reasonable businessperson in the position of SMA or observing impartially that the person within Western Desert who created the purchase order overlooked removing the footer.
Returning to the purchase order itself, it concludes with a provision for execution as follows:
For Western Desert Resources Limited (ABN 48 122 301 848)
Authorised Officer: This purchase order is subject to the terms and conditions attached to this purchase order.
The August purchase order and the November purchase order were not signed. It is self-evident that the pro forma of the purchase order was prepared so that it could be used by any member of the Western Desert group. The person within Western Desert who created the purchase order obviously overlooked deleting the reference to WDRL or changing it to WDRIO. Given the unequivocal provisions at the top of the purchase order showing that WDRIO was the issuer of the purchase order, this reference at the foot is not capable of indicating that the purchase order was issued by WDRL or that WDRL was the contracting party. The position is the same as in respect of the footer to the pages of the Standard Conditions.
The purchase order must be construed as a whole and in context to determine who is the counterparty to the supplier. So construed, there is no doubt that the counterparty is WDRIO and not WDRL.
For the purpose of determining the identity of the parties to a contract, it is permissible to have regard to relevant background facts and circumstances known to both sides. In the present case, that background includes the fact that dealings between Western Desert and Smithbridge commenced with the submission of a tender by SMG to WDRL in June 2013. However, this is no indication of the identity of the parties to a purchase order, and especially a purchase order with a different subject matter, issued in August 2013. By that stage, the parties on each side had been identified as WDRIO and SMA respectively.
It is to be noted that the technical specification provided to Smithbridge on 24 May 2013 identified the principal as “WDR Iron Ore Pty Ltd”. Particularly taking into account the fact that the June 2013 tender was not accepted by Western Desert, even if that tender suggested that WDR was the party to the August 2013 contract, that factor is offset by the identification of the principal as WDRIO in the technical specification.
In communications leading up to the formation of the August contract, the parties on both sides corresponded by email or letter using a letterhead or email address referable to the group or parent company (“Western Desert Resources on the Western Desert side and “Smithbridge Group Pty Ltd on the Smithbridge side). This is not unusual in company groups. It is not an indication of the identity of the parties to the contract.
In the present case, it is common ground that a contract existed: the only question presently addressed is as to the identity of the party to the contract on the Western Desert side. It has not been authoritatively determined whether, when a contract clearly exists, it is permissible to have regard to post-contractual conduct in determining the identity of a party to the contract: see for example the discussion by the New South Wales Court of Appeal in Pethybridge v Stedikas Holdings Pty Ltd[9] and Tomko v Palasty.[10] As a matter of principle, if the identity of a party is a matter of construction as was held in Air Tahiti Nui Pty Limited v McKenzie,[11] evidence of post-contractual conduct would appear to be inadmissible. However, if regard is had to the post-contractual conduct by the parties, this does not affect the identification of the parties to the contracts.
[9] [2007] NSWCA 154 at [59] per Campbell JA (with whom Beazley P and Basten JA agreed).
[10] [2007] NSWCA 258 at [63]-[67] per Einstein J (with whom Mason P agreed).
[11] (2009) 77 NSWLR 299.
For example, SMA addressed its invoices to “Western Desert Resources”. This is ambiguous because it does not uniquely designate WDRL or WDRIO. In any event, it is a unilateral act by SMA and there is no reason to think that Western Desert would comment on it as opposed to considering each invoice on its merits. Remittance advices were issued in the name of “Western Desert Resources Ltd”: it is evident that they were issued by a computerised accounting system (MYOB) and in a company group it is not unusual for such documents to be issued in the name of the parent. Similarly, internal documents produced by the MYOB system (such as aged payables reports) bore the name “Western Desert Resources Ltd”: this is inconsequential for the same reason. Payments were made by WDRL out of its NAB bank account. There is no evidence that SMA was aware of the specific source of payments transferred into its bank account. In any event, it is not unusual for a parent in a company group to perform a treasury function and make payments of amounts due by its subsidiaries.
There are also post-contractual indications that the contracting party was WDRIO. Mr Fitzgerald on behalf of SMA sent letters addressed specifically to “Western Desert Resources (WDR) Iron Ore Pty Ltd” dated 8 August, 29 August, 17 September and 3 October 2013 and 7 March 2014.
Mr Smith gave evidence that he believed that the counterparty to the contracts was WDRL and not WDRIO. However, if Mr Smith held such a belief, the subjective belief (or intent) of one party is irrelevant because the identity of the parties to a contract is determined objectively.
Mr Powell described the operations of, and relationship between, WDRIO and WDRL by reference to company records. He expressed the opinion that Western Desert operated only on a consolidated basis. This does not indicate that WDRL was the party to the contracts.
Actual agency
SMA contends that, although the August and November contracts were made by WDRIO, they were made by WDRIO on behalf of a disclosed principal, namely WDR. The starting point is that WDRIO was a party to the contracts. The onus of proof therefore lies on SMA to prove that WDRIO was not liable under the contracts because it was acting as an agent for WDR. I reject SMA’s contention to the contrary.
In the context of a contract with a third party, an actual agency relevantly exists when:
1the putative principal and putative agent each manifest assent to the agent acting on the principal’s behalf to enter into a contract with the third party; and
2the agent enters into a contract with the third party on behalf of the principal within the scope of the agency.
Commonly the assent required for the first step is manifested in an agreement (not necessarily contractual) between principal and agent. Thus, in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd,[12] Diplock LJ said:
An “actual” authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. [13]
[12] [1964] 2 QB 480.
[13] At 502.
In Morgans v Launchbury[14] Lord Pearson said:
For the creation of the agency relationship it is not necessary that there should be a legally binding contract of agency, but it is necessary that there should be an instruction or request from the owner and an undertaking of the duty or task by the agent. …. I think there has to be an acceptance by the agent of a mandate from the principal, though neither the acceptance nor the mandate has to be formally expressed or legally binding.[15]
[14] [1973] AC 127.
[15] At 140-141.
Commonly, the requisite assent of the principal and agent is manifested by express words, whether orally or in writing. This is called express agency However, just as an agreement may be implied from conduct (including words), the requisite assent of the principal and agent can be implied from their conduct (including words). This is called implied agency.
In Oskar United Group Inc v Chee[16] McCarthy J said:
Even if there is no express contract of agency in existence, if the conduct of an alleged principal is sufficient for a reasonable person to conclude that another is that person’s agent, an agency will arise by implication. The facts must show that the alleged agent intentionally acted on another’s behalf. Agreement between principal and agent may be implied in a case where each has conducted himself towards the other in such a way that it is reasonable for that other to infer from that conduct consent to the agency relationship.[17]
[16] [2012] ONSC 1545, 212 ACWS (3d) 721.
[17] At [58]. (Citations omitted).
The agency relationship is exclusively between the principal and agent: the third party is a stranger to that relationship. When an implied agency is alleged, attention is directed to the conduct (including words) of the putative principal and putative agent: the conduct of the third party is irrelevant except insofar as it throws light on the alleged assent by the putative principal and putative agent.
SMA contends that implied agency exists in this case.
The questions are whether WDRL manifested assent to WDRIO acting on its behalf in entering into the August and November contracts; whether WDRIO manifested assent to doing so; and whether WDRIO entered into the contracts on behalf of WDRL as its principal.
SMA relies in the first instance on the appearance of the stylised logo “Western Desert Resources” on the August and November purchase orders; the execution clause at the end of the purchase orders referring to “For Western Desert Resources Limited” and the footer of the Standard Conditions pages referring to “Western Desert Resources Ltd - Standard Terms and Conditions for the supply of Goods and/or Services”. This is not evidence that WDRIO entered into the contracts as agent for WDRL.

First, the use of the stylised logo is neutral and the references to WDRL at the end of the purchase orders and in the footer of the Standard Conditions are obviously artefacts arising from the use of common documents across companies within the Western Desert group. Secondly, if it were the intention of WDRL to enter into the contracts, there is no evident reason why it would not itself have been the immediate party to the contracts without involving WDRIO at all.
SMA relies also on dealings between the parties leading up to issue of the August purchase order whereby the parties on both sides corresponded using a letterhead or email address referable to the group or parent companies (Western Desert Resources or WDRL and SMG). This is not unusual in company groups. It is not evidence that WDRL appointed WDRIO as its agent to enter into the contracts.
SMA relies on dealings between the parties after entry into the contracts, namely the issue of invoices by SMA addressed to “Western Desert Resources”; the issue by Western Desert of remittance advices in the name of WDRL and the fact that payments of the invoices were made out of the NAB bank account of WDRL. Post-contractual evidence is admissible when the issue is the existence of an alleged agency. However, these matters are no more evidence that WDRL appointed WDRIO as its agent to enter into the contracts than they are evidence that WDRL was the immediate party to the contracts as addressed above.
There is a substantial body of evidence that indicates that WDRIO entered into the contracts in its own right and not as agent for WDRL. The mining leases at Roper Bar and the tenements for the haul road and Bing Bong stockyard and facilities were in the name of WDRIO. The contract for the sale of all iron ore production with Noble was in the name of WDRIO. This entailed that all revenue from the iron ore operation was derived by WDRIO.
The report as to affairs by the directors of WDRIO dated 31 October 2014 showed trade creditors totalling $64.9 million; whereas the report as to affairs by the directors of WDRL dated 31 October 2014 showed trade creditors totalling $4.8 million. This suggests that the costs of construction and mining and transporting iron ore were incurred by WDRIO rather than WDRL.
SMA points to the fact that invoices issued by Aon for insurance were addressed to “Western Desert Resources”. Assuming that this referred to WDRL, the fact that insurance premiums are paid by the parent in a company group is not evidence that the parent undertakes all of the trading in the group. SMA points to the fact that employees of Western Desert were employed by WDRL. Again, it is not unusual in a company group for the parent to employ all of the employees and for those employees to discharge functions of the subsidiaries.
SMA points to its cross-examination of Mr Powell. In his report, Mr Powell said that trading within the Western Desert group was undertaken by WDRIO and not by WDRL. In cross-examination, he accepted that WDRL engaged in limited “trading”, to the extent that it engaged various service providers and thereby incurred debts, but he maintained that the vast bulk of the trading was undertaken by WDRIO. Mr Powell said:
WDRIO undertook the day-to-day operations, undertook the work to conduct the mine, incur the expenses, predominantly incur the expenses in relation to the tenements, the transport, the shipping, the general operations of the mine and the subsequent sale of the iron ore.
SMA points to the fact that Mr Powell agreed with the following propositions put to him in cross-examination:
·“WDRIO's ultimate purpose was to try to make profits to flow to the holding company and on to the public. So in that sense WDRIO traded for the benefit of WDRL”;
·“WDRL, the holding company, was a mining exploration entity but to the extent that it mined iron ore, it did so through a wholly owned subsidiary, WDRIO”;
·“the reason they [‘Cashflows Related to Operating Activities’] would appear in this report given to ASX by Western Desert Resources Ltd is because the holding company, Western Desert Resources Ltd, was a mining entity conducting those operating activities through its subsidiary”;
·“any member of the public looking at investing in WDRL would in effect understand that the holding company, WDRL was undertaking a mining enterprise and was doing so via different subsidiaries which held tenements. So it would be understood that WDRL was effectively trading as a mining enterprise, partly through those subsidiaries. And in that sense, the subsidiaries were trading for their parent company”.
It is apparent from Mr Powell’s answers, and from his evidence as a whole, that he considered that these propositions applied generally to company groups comprising a parent and wholly-owned subsidiaries. His evidence was directed to the commercial reality and appearance of company groups and not to contractual or legal distinctions between companies in such groups.
Finally, Mr Smith gave evidence that he believed that the counterparty to the contracts was WDRL and not WDRIO. However, the subjective belief (or intent) of the third party is irrelevant to the existence of actual agency.
Even if Mr Duncan bore the onus of proof on the issue of agency, I am affirmatively satisfied that WDRIO did not enter into the August or November contracts as agent for WDRL.
Ostensible agency
SMA contends in the alternative that WDRIO had ostensible authority to enter into contracts on behalf of WDRL.
In the context of a contract with a third party, an ostensible agency relevantly exists when:
1the putative principal holds out to the third party that the putative agent has authority to act on the principal’s behalf to enter into a contract with the third party; and
2the entry into the contract with the third party is within the scope of the ostensible agency.
The elements of the holding out are:
1the putative principal represents to the third party that the putative agent has authority to act on the principal’s behalf to enter into a contract with the third party;
2the third party relies on the representation to enter into the contract with the putative agent; and
3the third party would suffer detriment if the putative principal were permitted to resile from the representation in circumstances in which it is unjust for the principal to deny the existence of an agency.[18]
[18] See Rama Corp Limited v Proved Tin & General Investments Ltd [1952] 2 QB 147 at 149 per Slade J; Egyptian International Foreign Trade Company v Soplex Wholesale Supplies Ltd (“the Raffaella”) [1985] 2 Lloyds Reports 36 at 41 per Browne-Wilkinson LJ; Tsangaris v Gaymark Investments Pty Ltd (1986) 82 FLR 269 at 281-282 per Maurice J.
In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd,[19] Diplock LJ said:
An “apparent” or “ostensible” authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.[20]
[19] [1964] 2 QB 480.
[20] At 503.
In Northside Developments Pty Ltd v Registrar-General,[21] the High Court confirmed that ostensible agency is based on estoppel.
[21] (1990) 170 CLR 146 at 172 per Brennan J, 200 per Dawson J and 211 per Gaudron J.
SMA pleads that, during the oral pre-contract negotiations, Mr Gardner and Mr Severino held themselves out to Mr Smith as being representatives of WDRL. I reject that contention. The only specific evidence given by Mr Smith in this respect was his very first telephone conversation with Mr Gardner in which Mr Gardner introduced himself as the “Managing Director of Western Desert Resources”. Mr Smith was himself the managing director of SMG and was aware that businesses (such as his own) often adopted the structure of a parent and subsidiaries. By referring to “Western Desert Resources”, Mr Gardner would have been reasonably understood as referring to the Western Desert group rather than specifically to the parent. In any event, this is not capable of comprising a representation by WDRL that WDRIO was authorised by it to enter into a contract on its behalf with Smithbridge. Moreover, this discussion at the very outset was overtaken by later events. On its side, Smithbridge decided that SMA should be the party to the contracts and, on its side, Western Desert decided (as reflected in the purchase orders) that WDRIO should be the party to the contracts.
SMA pleads that, during the email pre-contract negotiations, WDRL and not WDRIO was held out to SMA as being the principal party with whom SMA was contracting. I reject that contention. Emails sent by Western Desert to Smithbridge contained the stylised Western Desert Resources logo in the signature panel appearing at the bottom of each of these emails. This did not designate WDRL, or any specific company in the Western Desert group, but merely designated the group. Indeed, emails sent by Smithbridge to Western Desert contained the name “Smithbridge Group Pty Ltd”: This did not amount to a holding out by SMG to Western Desert that it authorised SMA to enter into the contracts as agent on its behalf.
SMA in its pleading refers to the following statement by Mr Edmunds, in the email sent by him to Mr Smith on 2 August 2013 enclosing a purchase order:
Western Desert Resources (“WDR”) are pleased to award a Purchase Order to Smithbridge Group Pty Ltd (“Smithbridge”) to carry out the Pile Construction on the above Project.
This was not a representation that the purchase order was issued by WDRL. The reference to “Western Desert Resources”, if it were considered in isolation, was merely a reference to the Western Desert group. However, considered in conjunction with the attached purchase order which clearly showed that it was issued by WDRIO, the reference to “Western Desert Resources” was manifestly a reference to WDRIO. Similarly, although Mr Edmunds referred to SMG in his covering email, considered in conjunction with the attached purchase order which clearly showed that it was issued to SMA, it was a reference to SMA.
SMA in its pleading also refers to the fact that the purchase orders contained provision for a signature at the footer including the words “For Western Desert Resources Limited” and the Standard Conditions contained in their footer the words “Western Desert Resources Ltd – Standard Terms and Conditions for the supply of Goods and/or Services”. For the reasons given above, and taking into consideration the references in the purchase orders and Standard Conditions to WDRIO, these words did not constitute a representation by WDRL to SMA that WDRIO was authorised to enter into the August and November contracts on its behalf.
Considered collectively, by the communications between Western Desert and Smithbridge leading up to entry into the August and November contracts, WDRL did not represent to SMA that WDRIO was authorised to enter into the August and November contracts on its behalf.
Given my conclusion, it is not strictly necessary to consider whether SMA relied on any representations about the identity of the party entering into the contracts on the Western Desert side. Mr Smith gave evidence that he had no recollection of WDRL having a subsidiary company called WDR Iron Ore Pty Ltd and that he thought that he was dealing with a public company.
It is possible that Mr Smith observed the references to WDRIO in the purchase orders and does not now recall them. However, in any event I find that he simply assumed that he was dealing with the public company and did not turn his mind to the specific identity of the company that issued the purchase orders. I find that, if he had turned his mind to that question, he would have observed that the purchase orders were issued by WDRIO. If he did observe this, it cannot have been of concern to him because he did not raise any query in relation to it. I find that Mr Smith did not rely on any representations made by Western Desert to him.
Conclusion on agency
In entering into the August and November contracts, WDRIO was not acting as actual or ostensible agent for WDRL. Mr Duncan as liquidator of WDRIO succeeds on the first substantive issue.
New contract between SMA and WDRL in February?
SMA contends that the February agreement superseded the August and November contracts and that under it, WDRL and not WDRIO was liable to make all future payments for work performed before or after the February agreement or alternatively for work performed after the February agreement.
This contention is only relevant if, as has transpired, I conclude that the August and November contracts were between SMA and WDIRO. It follows that the February agreement was made in the context of those anterior contracts and their existence and terms are relevant to determining the identity of the parties to the February agreement.
The February agreement was in writing, comprising Mr Smith’s email dated 23 February 2014, which was countersigned by Mr Gardner and returned on 25 February 2014. It is common ground that it is to be construed objectively.
Mr Smith’s email, like all other emails sent by him during the dealings between the parties, was sent under his name described as Group Managing Director of SMG. This does not, however, indicate that SMG was a party to the February agreement and, on the contrary, it is common ground that SMA was the party to that agreement on the Smithbridge side.
Mr Smith’s email was sent to “Norm Gardner”. It commenced with the following paragraphs:
The following summarizes the discussions held and the agreements reached between Western Desert Resources (WDR) (N Gardner & C Severino) and Smithbridge Australia (SMA) (A Smith & P Fitzgerald, regarding the final invoice values, the money’s owing by WDR to SMA, the payment schedule, and the way forward to complete the dredging works at the Bing Bong Loadout Facility (BBLF) project being undertaken by SMA on behalf of WDR via plant and labour hire agreement.
My understanding of our agreement is as follows…
It is clear from the initial paragraph that there was no suggestion of a change in the identity of the parties to the August or November contracts for the purpose of ongoing dealings. On the contrary, the reference to agreement reached on final invoice values is a reference to amounts invoiced under the existing contracts; the reference to monies owing by WDR to SMA is a reference to monies owing under the existing contracts; the reference to completing the dredging works is a reference to works being undertaken under the existing contracts; and the reference to the project being undertaken was a reference to the project being undertaken under the existing contracts.
The reference by Mr Smith to “Western Desert Resources” is not a reference to WDRL. For the reasons given above, it is a generic reference to the Western Desert group.
In the balance of the email, under item 1 Mr Smith set out agreement that invoices rendered up to and including 29 September 2013 were not the subject of any dispute and had been paid in full. This is clearly a reference to the position under the existing contracts between the existing parties.
Similarly, under item 1, Mr Smith referred to an agreement to credit amounts against invoices rendered up to 26 January 2014. This is also clearly a reference to the position under the existing contracts between the existing parties.
Under item 3, Mr Smith referred to an agreement that there would be no charge for claims as between the parties for the period from 17 to 23 February 2014. This was a specific agreement reached between the parties to the August and November contracts: it was not a new agreement between different parties.
Under item 4, Mr Smith referred to future performance of the works under the November contract. It is clear that those works would still be performed under the November contract and, subject to agreed variations, they would be performed for the prices stipulated in the November contract.
Mr Smith referred to the “as yet unclaimed original contract lump-sum schedule items still to be claimed” and identified when they would be claimed. This clearly proceeded on the basis that those items were still governed by the November contract. The reference to when the amounts would be claimed was merely a statement of fact or intention; it did not amount to a variation as to the time when payment would be due. Even if it did, it would only have been a variation of the November contract and not the entering into of a new contract.
Under item 5, Mr Smith set out plant and labour hire terms to be effective from 24 February 2014. These contained rates different to those specified under the November contract. This was a specific agreement to vary the rates under the November contract rather than the entry into of a new agreement between different parties.
Under item 6, Mr Smith set out the amounts agreed between the parties as payable and when they would be paid. Again, the payment plan amounted to a variation of the original contracts and not the entry into of a new agreement between different parties.
It is true, as SMA points out, that at three points on the last page of the email Mr Smith referred to “WDRL” rather than WDR. This needs to be considered in the context that Mr Smith defined “WDR” at the outset of the email to be “Western Desert Resources” and thereafter used the term “WDR” (not “WDRL”) on 30 occasions. Unless a reader specifically looks for “WDRL” in the email, it does not stand out. In light of the considerations already addressed, these occasional references to “WDRL” are incapable of evincing an objective intention by Western Desert and Smithbridge to change the identity of the contracting party on the Western Desert side.
It is also true, as SMA points out, that Mr Smith’s secretary pasted his email onto a letter under the letterhead of SMA and added a signing clause for Mr Gardner as managing director of “Western Desert Resources Ltd”. Assuming that it was this document that was attached to an email sent by Mr Smith’s secretary on 24 February 2014, the fact is that Mr Gardner did not countersign or return that letter but instead signed Mr Smith’s 23 February email and returned that to Mr Smith.
Considered holistically, Mr Smith’s email does not evince an agreement that there would be a change in the identity of the Western Desert party to the contracts or that WDRL and SMA were entering into a new contract and WDRIO and SMA were discharging the August and November contracts. It would of course have been possible for those three entities to have entered into such an agreement, or alternatively to have agreed on a novation (to the same effect) of the August and November contracts to substitute WDRL for WDRIO as the Western Desert party to those contracts. This clearly did not happen.
SMA contends that the onus lies on Mr Duncan, as the plaintiff, to establish the identity of the debtor under the February agreement. I reject that contention. Mr Duncan has established that the identity of the debtor under the August and November contracts was WDRIO. If SMA contends that this was altered by an agreement reached in February 2014, the onus lies on SMA to prove this. In any event, even if the onus lies on Mr Duncan, as the issue involves the construction of Mr Smith’s email, I am affirmatively satisfied that there was no change in the identity of the debtor by reason of the entry into the February agreement.

The first instalment of $440,000 was due to be paid on Friday 28 February 2014. Western Desert paid $400,000 on Monday 3 March and $40,000 on Tuesday 4 March 2014. The payment plan expressed in Mr Smith’s email was expressed as “$400,000 (excl GST)”. The short payment was likely to have been due to an administrative error within Western Desert by paying the GST-exclusive amount referred to in the email (notwithstanding a different, not readily understandable, explanation given by Mr Gardner at the time). In any event, the short payment was rectified overnight. The intervention of the weekend would not have caused significant concern to a reasonable businessperson in Mr Smith’s position or to Mr Smith in respect of this or subsequent instalments.
The second instalment of $440,000 was due to be paid on Friday 21 March 2014. It was paid on 14 March 2014.
The third instalment of $440,000 was due to be paid on Friday 4 April 2014. Mr Fitzgerald and Mr Loechel agreed that this would be divided into two half instalments and paid on 7 and 11 April 2014 (with the fourth and fifth instalments still to be paid on time on 18 April and 1 May respectively). The first half instalment was paid on 7 April and the second half was paid on 14 April 2014.
Between 21 February 2014 when the agreement was reached and 14 April 2014 when this impugned payment was received, the fact that Western Desert had now paid three instalments of $440,000 each would have reduced the level of suspicion entertained, and grounds for suspicion, by SMA or a reasonable businessperson in its position notwithstanding the week’s delay of half of the third instalment.
Taking into account all of the circumstances up to and including 14 April 2014, I am satisfied that Mr Smith, and thereby SMA, did not have reasonable grounds to suspect that Western Desert would not pay its debts as they fell due. Likewise, I am satisfied that a reasonable businessperson in the position of Mr Smith and SMA would not have had reasonable grounds to so suspect.
Good faith
It is common ground that the test for good faith is subjective.
Good faith connotes honesty or propriety and a lack of good faith connotes dishonesty or impropriety.[70] Thus, if a creditor colludes with a company to disadvantage other creditors or intends to obtain a preference over other creditors, it could not be said that the creditor entered into the transaction in good faith.
[70] See for example Levi v Guerlini(1997) 24 ACSR 159 at 170 per Malcolm CJ; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 at 656 per Doyle CJ; Re Ermayne Pty Ltd; Sims v Tech Holdings Pty Ltd (1999) 30 ACSR 330 at 336-337 per Wicks J; Sutherland v Eurolinx[2001] NSWSC 230, (2001) 37 ACSR 477 at [39] per Santow J; Mann v Sangria Pty Ltd[2001] NSWSC 172, (2001) 38 ACSR 307 at [44]-[45] per Bryson J; Trinickv EM & RM Williams & Sons [2009] WASC 297 at [168] per Murphy J.
If a creditor receives a payment knowing that the company is insolvent, that would be evidence that the creditor intends to obtain a preference and hence does not receive the payment in good faith. It is difficult to identify any circumstance in which a creditor possessing such knowledge would not have such an intention.
It has been suggested that a creditor who suspects insolvency on reasonable grounds could hardly be said to be acting in good faith.[71] I do not consider that mere suspicion of insolvency is sufficient in itself to amount to a lack of good faith, particularly given the fact that the lack of reasonable grounds to suspect insolvency is an independent element of the defence (albeit assessed objectively). However, in the circumstances, suspicion of insolvency may form part of an intention to obtain a preference over other creditors or otherwise a lack of good faith on the part of the creditor.
[71] Sutherland v Eurolinx(2001) 37 ACSR 477 at [38] per Santow J; Trinickv EM & RM Williams & Sons [2009] WASC 297 at [169] per Murphy J.
In the present case, the payment received by SMA on 14 April 2014 was received as an integral part of the February agreement under which SMA agreed to complete the dredging works and in fact did so in March 2014 and under which it was agreed that instalment payments would be made. I am satisfied that Mr Smith, and thereby SMA, entered into the February agreement in good faith and received the 14 April 2014 payment in good faith.
Mr Smith gave evidence that, although he had believed that Western Desert had cash flow problems, his concerns were alleviated by what he was told by Mr Gardner on 21 February 2014 and by the entry by Western Desert into the February agreement. If it were necessary for SMA to prove that Mr Smith did not actually suspect insolvency on 14 April 2014, I am so satisfied.
Conclusion
SMA has established the defence in respect of the first impugned payment.
Payment 24 April 2014
The second impugned payment is the payment of $200,000 on 24 April 2014. The circumstances in which this payment was received were very different to the circumstances in which the first impugned payment was received.
The fourth instalment of $440,000 was due on 18 April 2014 but Western Desert was unable to pay it.
On 16 April 2014 Mr Loechel sent an email to Mr Fitzgerald, saying:
Our position is difficult at the moment, with a number of large creditors and a limited pool of funds to utilise. You can rest assured we are doing everything we can to ramp up operations & generate additional cash to pay our creditors. As it stands, we are forced to defer our planned payment to Smithbridge this week. We expect proceeds from a shipment next week which we will utilise to make creditor payments. For cash flow purposes, please allow for a payment from WDRL of $200k next Thursday 24/4/14. We will continue to pass on funds from shipments as they become available. We thank you for your ongoing support and apologise for the delay.
Mr Fitzgerald forwarded the email to Mr Smith and Mr Bell and said it “would appear the WDR payment plan is falling apart”.
On 17 April 2014 Mr Loechel sent an email to Mr Smith, saying amongst other things:
As discussed, whilst WDRL anticipated making a payment to Smithbridge today in accordance with the payment plan, this has not eventuated. The reason for the deferral is essentially because the pool of funds from which to pay creditors is less than what was anticipated when the payment plan was agreed. WDR was forced to meet a number of one off costs ahead of planned creditor payments…
... In light of our positive trading history, we are seeking an extension on repayment terms for the final amounts outstanding. Below is a proposed payment plan for consideration:
24/4/14     $100k
2/5/14        $200k
9/5/14        $200k
16/5/14     $200k
23/5/14     In respect of remaining balances, WDRL requests a statement from Smithbridge to confirm amounts outstanding in excess of the $736k which is currently recorded in WDRL’s books. Upon receipt, WDRL can confirm payments to be made on 23/5/14 and thereafter.
By this stage, eight weeks had passed since the 21 February 2014 meeting when Mr Gardner had mentioned the capital raising. Mr Loechel made no mention in either email of the capital raising. It must have been evident to Mr Smith, and it would have been evident to a reasonable businessperson in his position, that the proceeds of the capital raising had been received and disbursed. The fourth instalment of $440,000 that was due to be paid on 18 April would now be split over three sub-instalments (totalling $500,000) between 24 April and 9 May 2014. The revised payment plan emanating from Mr Loechel was unilateral, being imposed on SMA rather than being negotiated. Unlike the position in February 2014, there was no dispute that the sum of $440,000 was owing or was due and payable on 18 April 2014.
By 24 April 2014 when the payment of $200,000 was made, the further events referred to above, coupled with the anterior circumstances, entailed that Mr Smith now had reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable. Likewise, a reasonable businessperson in Mr Smith’s position would have had reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable.
SMA contends that the information in the possession, and knowledge, of an ordinary businessperson in SMA’s circumstances is not, as a matter of law, confined to information in the possession and knowledge of SMA; an ordinary businessperson in SMA’s circumstances would have conducted a search of publicly available information provided to the stock exchange by Western Desert Resources and releases by Western Desert Resources to the stock exchange as at the date of each of the impugned payments, which would have allayed a suspicion on reasonable grounds.
I observe at the outset that SMA does not identify the precise releases by Western Desert to the stock exchange, or the information contained in each release, upon which it relies in this respect. Documents tendered at the trial included, amongst other things, Western Desert’s 2013 annual report, the December 2013 half year and quarterly reports, and the announcement in March 2014 relating to the $60 million rights issue.
I also observe that, although Mr Smith gave some vague evidence about becoming aware second-hand of enquiries made by Smithbridge concerning Western Desert shares, he did not ultimately give evidence that he saw, or became aware of the specific details of, any releases by Western Desert to the stock exchange and I find that he did not.
Interstate intermediate appellate authority holds that, on the proper construction of section 588FG, the ordinary businessperson in the circumstances of the creditor is not to be regarded as being in possession of information that is not possession of the creditor. I am bound by those authorities unless they are contrary to binding South Australian appellate authority or I am persuaded that they are plainly wrong.[72] As to the former, I address that below. As to the latter, I am not persuaded that these interstate authorities are plainly wrong.
[72] Australian Securities Commission v Marlborough Gold Mines Ltd(1993) 177 CLR 485 at 492 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89 at [135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
In Cussen as Liquidator of Akai Pty Ltd (in liq) v Commissioner of Taxation,[73] the liquidator put the same argument as is advanced by SMA. Spigelman CJ (with whom Handley and Tobias JJA agreed) rejected the construction advanced by the liquidator, saying:
The reference in (b)(i) to “had no reasonable grounds” cannot readily be construed to extend to the results of further inquiries. The reference in (b)(ii) to “would have had no such grounds” could so extend. The issue that arises is whether, on the proper construction of (b)(ii), it does.
…
There is no difficulty with the proposition that a “reasonable person” in the circumstances of a particular creditor must be assumed to have the full range of information actually available to that creditor. That would include knowledge of the fact that some things were not known because no request for additional information had been made. In my opinion, however, this does not encompass information which is not in fact available but which a “reasonable person” would have sought and, presumably, received.
…
For the above reasons, the words “would have had” in (b)(ii) should be construed as the “reasonable person’s” assessment of information in fact in the possession of the creditor, into whose “circumstances” the reasonable business man is theoretically placed.[74]
[73] (2004) 51 ACSR 530.
[74] At [102], [114], [122]. (Emphasis in original).
In White,[75] Murphy and Mitchell JJA and Allanson J said:
In Cussen Appeal, the New South Wales Court of Appeal considered the construction and operation of s 588FG(2)(b)(ii). The following propositions may be drawn from that case:
…
2.The reference to whether a 'reasonable person' in the person's circumstances 'would have had' reasonable grounds for suspecting that the company was insolvent is a reference to the 'reasonable person's' assessment of the information in fact in the possession of the creditor.
3.In this context, the information in the possession of the creditor includes the fact (if it be the fact) of the absence of enquiries, but not information which a 'reasonable person' would theoretically have obtained had enquiries been made and responded to.
…
We would respectfully accept, and adopt, those propositions as to the proper construction of s 588FG(2)(b)(ii).[76]
[75] (2018) 53 WAR 234.
[76] At [123]-[124].
SMA contends that the Full Court in Chicago Boot Co Pty Ltd v Davies and Nichol as Joint and Several Liquidators of Harris Scarfe Ltd[77] held that, for the purpose of the second limb, the hypothetical reasonable person is taken to be in possession of information that such a person would have sought and obtained even if it was not sought or obtained by the creditor.
[77] [2011] SASCFC 92 at [21]-[22].
In Chicago Boot Co, Chicago Boot argued on appeal that the trial Judge had not given sufficient weight to countervailing factors militating against grounds for suspicion, including Harris Scarfe’s 2000 annual report, December 2000 half yearly report and media reports about Harris Scarfe. The Full Court noted that Mr and Mrs Mance of Chicago Boot gave evidence that it was their practice to monitor public statements of their customers, including Harris Scarfe. Although not explicitly stated in the Full Court’s reasons for judgment, it appears that the public statements monitored included annual and half yearly reports.
In relation to Harris Scarfe’s annual and half yearly report, White J (with whom Nyland and Anderson JJ agreed) said:
Chicago Boot submitted that Harris Scarfe appeared to be a well established, stable and respectable company and that the content of HSHL’s annual report would have suggested to a reasonable person that Harris Scarfe was in a healthy financial state.
Although there is force in Chicago Boot’s submissions concerning the annual report, I consider that its reliance upon HSHL’s half yearly report to 31 January 2001 was misplaced. That report was not published until 16 March 2001, just on one month after the last of the payments to Chicago Boot. There was no evidence that its contents were known to Chicago Boot or would have been known by a reasonable person in its position any earlier than that date.[78]
[78] At [60]-[61].
SMA contends that, by the last sentence, the Full Court held that, on the application of the second limb, regard can be had to information not in the possession of the creditor that would have been obtained by a reasonable person in its position. I reject that contention.
First, in the passage in question, White J made no differentiation between the first and second limbs. This strongly suggests that the evidence was that the public statements that Mr and Mrs Mance monitored included annual and half yearly reports. Moreover, if White J had intended to hold that there was a difference between the first and second limbs in this respect, it would have been necessary to draw a distinction at that point between the two limbs.
Secondly, White J did not refer to any opposing contentions by the parties on the question what information was to be regarded as being in the possession of the reasonable person. If that had been an issue on appeal, White J would have referred to it. It is clear that it was not an issue on appeal.
Thirdly, White J had earlier (in a section of the reasons for judgment part of which is extracted at [268] above) addressed the construction of section 588FG under the heading “Statutory Provisions and Relevant Principles”. If White J had intended to decide the construction of section 588FG, it would have been addressed at that earlier point. No reference was made at the earlier point to the issue now identified by SMA.
Fourthly, when White J referred to the construction of section 588FG at that earlier point, his Honour cited the decision in Cussen as authority for the proposition set out in the second paragraph extracted at [268] above. Given that the Court of Appeal in that case dealt at length with this issue of construction and decided that under both limbs regard was to be had only to information in the possession of the creditor, if White J had intended to hold to the contrary, express reference would have been made to this issue.
In any event, I have no basis on which to make a finding that an ordinary businessperson in SMA’s circumstances would have conducted a search of releases by Western Desert to the stock exchange. The only evidence I have is that SMA did not so act. SMA does not suggest that it did not conduct itself in the same manner as an ordinary businessperson in its circumstances. I have no basis on which to find that its conduct in this respect was aberrant.
In addition, I have no basis on which to make a finding as to what information an ordinary businessperson in SMA’s circumstances would have sought or obtained if that person chose to make external inquiries. Which releases by Western Desert to the stock exchange would that person seek and obtain? Which passages from that material would that person read? What other inquiries would that person make? For example, would that person speak to a fellow creditor? Would that person seek an up-to-date credit report from an agency such as Dunn & Bradstreet? What information would that person receive as a result of any such inquiries?
SMA has failed to establish the defence in respect of the second impugned payment.
Payment 2 May 2014
The third impugned payment is the payment of $200,000 on 2 May 2014. This was the second instalment under Mr Loechel’s unilateral payment plan of 17 April.
The circumstances are essentially the same as in respect of the second impugned payment. Mr Smith had, and a reasonable businessperson in his position would have had, reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable.
SMA has failed to establish the defence in respect of the third impugned payment.
Payment 23 May 2014
The fourth impugned payment is the payment of $100,000 on 23 May 2014.
The third and fourth instalments of $200,000 under Mr Loechel’s unilateral payment plan of 17 April were due to be paid on 9 and 16 May 2014 respectively. Western Desert failed to make those payments and was evidently unable to do so.
On 22 May 2014 Mr Smith spoke to Mr Gardner. Mr Gardner said that Western Desert could only pay $100,000 per week commencing on 23 May. Mr Smith agreed to the revised payment plan but said that interest on late payments would still apply in accordance with the February agreement.
By 23 May 2014 when the payment of $100,000 was made, the further events referred to above coupled with the anterior circumstances entailed that Mr Smith had reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable. Likewise, a reasonable businessperson in Mr Smith’s position would have had reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable.
SMA has failed to establish the defence in respect of the fourth impugned payment.
Payments 30 May, 6, 13 and 20 June 2014
The next impugned payments are the payment of $100,000 on 30 May, 6 June, 13 June and 20 June 2014. These were each instalments under Mr Gardner’s payment plan of 22 May.
The circumstances are essentially the same as in respect of the fourth impugned payment. Mr Smith had, and a reasonable businessperson in his position would have had, reasonable grounds to suspect that Western Desert was able to pay its debts as and when they fell due and payable.

SMA has failed to establish the defence in respect of the fifth, sixth, seventh and eighth impugned payments.
Payments 7 and 18 July 2014
The final impugned payments are the payment of $87,522 on 7 July and $8,752 on 18 July 2014.
The final instalment of $96,274 under Mr Gardner’s payment plan of 22 May was due to be paid on 27 June 2014.
On 23 June 2014 Mr Fitzgerald and Mr Loechel agreed that SMA would credit the 20 June invoice and Western Desert would pay the balance of $96,274 on 27 June 2014.
Western Desert failed to make that payment and was evidently unable to do so.
By 7 and 18 July 2014 when payment of the principal and the GST component was made respectively, the further events referred to above coupled with the anterior circumstances entailed that Mr Smith had reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable. Likewise, a reasonable businessperson in Mr Smith’s position would have had reasonable grounds to suspect that Western Desert was unable to pay its debts as and when they fell due and payable.
SMA has failed to establish the defence in respect of the ninth and tenth impugned payments.
Conclusion
WDRIO entered into the August and November contracts in its own right and not as agent (actual or ostensible) of WDRL. The February agreement merely varied, and did not supersede, the August and November contracts and did not alter the identity of the contracting parties. SMA was a creditor of WDRIO in respect of all of the impugned payments.
The alternative claim by Mr Duncan as liquidator of WDR is statute-barred.
SMA’s good faith defence succeeds in respect of the first impugned payment of $220,000 on 14 April 2014. It fails in respect of the subsequent impugned payments.
Mr Duncan as liquidator of WDRIO is entitled to judgment for $996,274.39 being the total of the impugned payments apart from the payment of 14 April 2014.
The claim by Mr Duncan as liquidator of WDR fails.
I will hear the parties concerning the orders to be made to finalise the action, including as to interest and costs.