George Aubrey Lopez (in His Capacity as Liquidator of Swan Concrete Products Pty Ltd (in Liq)) v Harvey
[2015] WASC 292
•14 AUGUST 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GEORGE AUBREY LOPEZ (IN HIS CAPACITY AS LIQUIDATOR OF SWAN CONCRETE PRODUCTS PTY LTD (IN LIQ)) -v- HARVEY [2015] WASC 292
CORAM: CHANEY J
HEARD: 12 JUNE 2015
DELIVERED : 14 AUGUST 2015
FILE NO/S: CIV 2410 of 2014
BETWEEN: GEORGE AUBREY LOPEZ (IN HIS CAPACITY AS LIQUIDATOR OF SWAN CONCRETE PRODUCTS PTY LTD (IN LIQ))
Plaintiff
AND
BRADLEY EDWARD HARVEY
First DefendantCOMMONWEALTH BANK OF AUSTRALIA
Second Defendant
Catchwords:
Practice and procedure - Summary judgment - Whether arguable defence
Corporations - Unfair preference - Running account - Whether commercial purpose - Whether continuing business relationship - Calculation of preference during relation-back period
Legislation:
Corporations Act 2001 (Cth), s 588FA, s 588FC, s 588FDA, s 588 FE
Result:
Judgment for part of claim, leave to defend on balance of claim
Category: B
Representation:
Counsel:
Plaintiff: Mr P T Arns
First Defendant : Mr J G Kitto
Second Defendant : No appearance
Solicitors:
Plaintiff: Arns & Associates
First Defendant : Kitto & Kitto
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483
Clifton (As Liquidator of Adelaide Fibrous Plasterboard Linings Pty Ltd (In Liq)) v CSR Building Products Pty Ltd [2011] SASC 103
Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87
Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266
Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210
Richardson v Commercial Banking Co of Sydney [1952] HCA 8; (1952) 85 CLR 110
Sutherland v Liquor Administration Board (1997) 15 ACLC 875
Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Ltd [2001] NSWSC 230
CHANEY J: In this action, the plaintiff seeks judgment against the first defendant for $141,007.15, together with interest on that amount, being an amount for payments received by the first defendant from creditors of a company, Swan Concrete Products Pty Ltd (In Liquidation) (the Company). The plaintiff, as liquidator of the Company, claims that the payments were unfair preference payments within the meaning of s 588FA of the Corporations Act 2001 (Cth) (Corporations Act), and, because they were made within six months of the Company's liquidation, they are voidable by reason of s 588FE of the Corporations Act. The plaintiff seeks summary judgment in relation to that claim.
In the statement of claim, the plaintiff also seeks remedies on the basis that the relevant payments were unreasonable director related transactions, as that term is defined by s 588FDA of the Corporations Act, and on the basis that the payments were monies had and received by the first defendant for the use of the plaintiff. The application for summary judgment is, however, confined to the cause of action based on s 588FA and s 588FE of the Corporations Act.
The pleaded claim
The plaintiff's claim is based on the following pleaded facts, none of which are put in issue by the first defendant.
On 9 September 2014, the plaintiff was appointed liquidator of the affairs of the Company following an order of this court on 9 September 2014 that the Company be wound up on the basis of insolvency.
The first defendant, Mr Bradley Harvey, is the son of Mr Phillip Patrick Harvey, who was at all material times a director of the Company. Prior to its liquidation, the Company traded from premises in Middle Swan providing concrete and related services.
Between May 2014 and September 2014, the Company provided concrete and related services to various clients and subsequently invoiced those clients for the services provided. The clients, and the amount for which they were invoiced, were as follows:
Client
Amount
FMR Investments Pty Ltd
$18,265.50
FMR Investments Pty Ltd
$30,150.89
Radlink
$7,870.94
Radlink
$12,100.00
Page Truck Hire
$3,242.25
Page Truck Hire
$3,955.05
Main Roads Department
$16,093.00
Main Roads Department
$9,245.50
Gregsons Auctioneers
$1,603.60
Shire of Northam
$33,214.50
GMF Contractors
$5,265.92
Total
$141,007.15
Between 22 May 2014 and 1 September 2014, Bradley Harvey received payment of the amounts of the invoices to the clients set out above, and each payment was paid, at the direction of the Company, into a nominated bank account being an account controlled and operated by Bradley Harvey with the second defendant, the Commonwealth Bank of Australia.
For the purposes of div 2 of pt 5.7B of the Corporations Act, the relation‑back day, as defined under s 9, is 9 September 2014. The relation‑back period for the purposes of s 588FE(2) is between 10 March 2014 and 9 September 2014. Each of the payments received by Bradley Harvey, therefore, made within the relation‑back period.
It is pleaded that Bradley Harvey was a creditor of the plaintiff at the time each of the payments was made as a result of four stipulated agreements between him and the Company, or Phillip Harvey on the Company's behalf.
It is further pleaded that each of the payments resulted in Bradley Harvey receiving, at the expense of the plaintiff, in respect of an unsecured debt, more than he would have received if the payments were set aside and he were to prove in the winding up of the plaintiff. It is pleaded that each of the payments was an insolvent transaction within the meaning of s 588FC of the Corporations Act by reason of being of an unfair preference within the meaning of s 588FA and was entered into when the plaintiff was insolvent, or alternatively, became insolvent as a result of making the payments. Thus, the payments were voidable transactions for the purpose of s 588FE of the Corporations Act.
The evidence in support of the application for summary judgment
The plaintiff relied on an affidavit of Frances O'Regan, a supervisor assisting the liquidator in the investigation of the affairs of the Company. That affidavit deposed to the various inquiries made by Ms O'Regan with creditors of the company, and attached relevant correspondence which supported the contention that the various creditors referred to in the table contained in the statement of claim had made payments to Bradley Harvey's account in the amount pleaded in discharge of their debts to the Company.
The plaintiff also relied on an affidavit of Mr Lopez in which he deposed to his efforts to obtain the books and records of the Company, and the Company's failure to provide books and records in response to those requests. He also deposed to the fact that on or around 28 October 2014, he received a report as to the affairs of the Company from Phillip Harvey which disclosed that the Company had no assets and had debts of approximately $87,439.20. The report as to affairs provided by Phillip Harvey did not disclose that Bradley Harvey was a creditor of the Company. Mr Lopez's investigations have since revealed that as of 9 September 2014, there were a total of nine creditors of the Company, not including Bradley Harvey, whose debts totalled $283,525.98.
Mr Lopez deposed to his opinion that the Company had been unable to pay its debts as and when they fell due from at least 1 May 2014 for reasons upon which he elaborates in his affidavit.
The first defendant's evidence
The first defendant relied upon an affidavit of Phillip Harvey sworn 4 February 2015. Phillip Harvey deposed to the fact that he was a former director of the Company. In early 2013, he began to suffer from mental health issues for which formal diagnosis was subsequently made, and for which he has subsequently undergone treatment. Those issues resulted in him being unable to properly manage the affairs of the Company with the result that the Company's financial position worsened. Notwithstanding his poor health and his inability to manage the day‑to‑day affairs of the Company, he wished the Company to continue trading.
Phillip Harvey said that he asked his son, Bradley Harvey, who was an employee of the company, to assist with the operation of the business, but Bradley Harvey 'did not have access to the Company's business account and thus could not purchase materials or pay the Company's trade debtors using Company monies'. Accordingly, in or about April 2013, he asked Bradley Harvey to lend the Company money by paying the Company's trade debtors from his personal account. He said that Bradley Harvey agreed to do so on the basis that the Company would repay those loans by directing creditors of the Company to pay money directly to Bradley Harvey's bank account. Phillip Harvey said that any money still owing to Bradley Harvey would be repaid as soon as the Company had funds available. Phillip Harvey expected that arrangement to be temporary, but his health continued to deteriorate and the arrangement remained in place.
Phillip Harvey continued:
9.In addition to the loans advanced to the Company by the first defendant, the Company accrued further debts to the first defendant by virtue of:
a.the Company failing to pay all of the first defendant's wages for the period 3 January 2013 to 2 September 2014, despite the first defendant continuing to provide his labour to the Company for the duration of that period;
b.the Company failing to pay the first defendant for the use of his vehicles, pursuant to written hire agreements between the first defendant and the Company (copies of which are attached as Annexures 'BEH7' and 'BEH8' of the first defendant's affidavit sworn 4 February 2015);
c.the Company loaning funds from the first defendant to pay wages to some of the Company's employees.
10.In August 2013, the first defendant agreed to advance further monies to the Company so that it could pay some of its employees. The first defendant provided me with the login details for his online banking and the authority to make these payments from his Commonwealth Bank accounts.
11.Between August 2013 and September 2014, I paid three of the Company's employees (Brenton McCloy, Joy Latchanna and William Ahuru) directly from the first defendant's bank account. Those payments are identified at paragraph 25 of the affidavit sworn by the first defendant on 3 February 2015.
Bradley Harvey also swore an affidavit on 4 February 2015 in response to the application for summary judgment. In that affidavit, he confirmed that he was an unsecured creditor of the Company as a result of the four agreements pleaded in the statement of claim and an additional agreement to provide his labour without full payment of wages as they fell due. The agreements were described as follows:
a.an oral agreement with Phillip Harvey under which I would pay the Company's day to day operating expenses and its trade debtors from my personal account;
b.from November 2013 until the appointment of the liquidator to the Company on 9 September 2014, I provided my labour to the Company to the value of $77,464 without full payment of my wages as they fell due. I agreed with Phillip Harvey that I would defer payment of my wages but continue to provide my labour;
c.a written hire agreement made on 30 August 2013, under which I agreed to loan the Company my Mitsubishi Hiab Truck (registration KE1478) for $1,625.00 per month. The Company hired my vehicle for a period of 12 months but did not pay me in accordance with the hire agreement;
d.a written hire agreement made on 30 September 2013, under which I agreed to loan the Company my Toyota Landcruiser (registration 1CBB832) for $665.00 per month. The Company hired my vehicle for a period of 12 months but did not pay me in accordance with the hire agreement;
e.an oral agreement by which I would loan money to the Company to pay its employees, by authorising Phillip Harvey to pay Company employees directly from my personal bank account.
Bradley Harvey said that he provided that 'assistance to the Company in consideration for the Company directing its trade debtors to pay [him] directly some of the monies [he] was owed'.
Bradley Harvey said that he would not have continued to provide his labour, or payment of the Company's day‑to‑day operating expenses, nor, the use of his vehicles, unless he received repayment from the Company's debtors from time to time. He asserted that the sum of his unpaid wages and loans advanced to the company totalled more than he received in payments from the Company's debtors. He said that, whilst he was unable to ascertain or account for all monies lent by him to the Company or received by him from the Company's debtors, he estimated the total indebtedness of the Company to him, on the basis of documents which he could locate, to be $221,983.93 made up as follows:
Liability
Amount ($)
Wages
49,338.00
Payments to suppliers (evidenced by receipts and tax invoices)
49,136.03
Payments to suppliers (evidenced by Bradley Harvey's bank statements)
24,138.34
Cash payments to suppliers
6,835.08
Loan hire agreements
27,480.00
Payments to Company employees
65,056.48
Total
$221,983.93
The amount of $49,338.00 shown as outstanding wages was the product of deduction from what he asserted was his total employment entitlement between 3 January 2013 and 3 September 2014 being $85,344.00, of the amount actually paid to him, namely $36,006.00. He annexed or exhibited to his affidavit extensive documentation to support the amounts advanced by, or not paid to, him which provided the basis for the figures set out in the table above.
First defendant's defence
The first defendant accepts that, subject to s 588FA(3), the transactions fall within s 588FA(1). That is, he accepts that the transactions by which he received the pleaded payments from the Company's creditors were unfair preferences as defined. He contends, however, that s 588FA(3) applies so that all of the advances and payments must be taken together as though they constituted a single transaction, and if that is done, the result is that the first defendant's debt increased over the duration of the relation‑back period so that no amount is recoverable as an unfair preference.
Continuous business relationship
Section 588FA(3) of the Corporations Act provides:
(3)Where:
(a)a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and
(b)in the course of the relationship, the level of the company’s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship;
then:
(c)subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and
(d)the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last‑mentioned paragraph is taken to be such an unfair preference.
In Sydney Appliances Pty Ltd (in liq) v Eurolinx Pty Ltd [2001] NSWSC 230 at [139], Santow J adopted the paraphrasing of the section by Young J in Sutherland v Liquor Administration Board (1997) 15 ACLC 875 where Young J said:
Although this is a very verbose section and the concatenation of words is sometimes difficult to comprehend, in a simple case it means that if a supplier and consumer are constantly trading, one constantly supplying goods and the other constantly making payments, then one does not look at transactions in isolation but looks at the overall effect at the beginning and the end of the relevant period. That is an inadequate summary but it is perhaps generally more meaningful than the words of the subsection itself.
Santow J added that he would qualify Young J's explanation by adopting the approach of Kitto J in Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210. Applying this approach, Santow J said that he would measure the preference, if any, by reference to the period of the relevant transactions constituting a running account within the six month relation‑back period. Measuring the preference would be done by reference to the highest amount owed during the relation‑back period, not necessarily at the beginning, which would then be compared to the amount owing on the last day.
As Santow J observed in Sutherland, s 588FA(3) of the Corporations Act codifies, in part, the law on preferences in the context of running accounts. This law had been earlier developed by the High Court in cases such as Richardson v Commercial Banking Co of Sydney [1952] HCA 8; (1952) 85 CLR 110, Rees v Bank of New South Wales and Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266. In Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483 at 504, Dawson, Gaudron and McHugh JJ said:
Since the decision of this court in Richardson v Commercial Banking Co of Sydney Ltd, the term 'running account' has achieved almost talismanic significance in determining when the ultimate, rather than the immediate and isolated, effect of a payment is to be examined for the purpose of a determination under s 122 of the Bankruptcy Act. However, the significance of a running account lies in the inferences that can be drawn from the facts that answer the description of a 'running account' rather than the label itself. A running account between traders is merely another name for an active account running from day to day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account. Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt to the Bad or Doubtful Debt A/C. (pinpoint references omitted)
Their Honours noted that a record of dealings between the parties that fits the description of a running account will 'usually provide a solid ground for concluding that they conducted their dealings on the basis that they had a continuing business relationship and that goods or services would be provided and paid for on the credit terms ordinarily applicable to the creditor's business'. It is, however, not the label 'running account' that is relevant, but rather the conclusion that the payments in the account were connected with the future supply of goods and services.
After analysing the decisions referred to above, Santow J identified in Sydney Appliances Pty Ltd what he termed 'some essential prerequisites' for the defence under s 588FA(3) to be maintained. His Honour said:
First, there must be no cessation of that mutual assumption of payment and reciprocal supply throughout the relevant period. Second, those payments must continue to have as at least one operative, mutual purpose, namely inducing further supply. I would add that such purpose must not come to be subordinated to a predominant purpose of recovering past indebtedness. As the decision in Airservices Australia makes clear (see for example the majority judgment at 510), knowledge or even actual suspicion, though it be such as to negate the good faith defence, does not of itself preclude reliance upon the running account defence for a payment so received [148].
Principles to be applied
The power to order summary judgment must be exercised with great care and should not be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99. Summary disposal of proceedings requires 'a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way': Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57].
Is there an arguable defence?
The way in which the Company's affairs were managed during the relevant period were, to say the least, quite irregular and unsatisfactory. The evidence suggests a serious failure on the part of the Company to maintain proper accounting records. The arrangements which led to monies being received from creditors of the Company, in a way which bypassed the Company's bank accounts, raise immediate questions of concern. Any trial of this matter would no doubt involve close investigation of those matters. For present purposes, however, it is necessary to consider whether the arrangements deposed to by Bradley Harvey and Phillip Harvey are capable of supporting an arguable case for the application of s 588FA(3) of Corporations Act.
The starting point is that the parties are agreed that Bradley Harvey was, at all relevant times, a creditor of the Company. It is only a creditor who can receive an unfair preference. It is also common ground between the parties that Bradley Harvey was a creditor by reason of the four agreements between him and the Company referred to in the statement of claim, and by reason of the Company being in arrears of wages due to him.
It also appears to be common ground for the purposes of this application that the payments received by Bradley Harvey from the Company's creditors are taken to be payments by the Company in reduction of the Company's debt to Bradley Harvey. Nor is it in issue that no adequate accounts were kept to record the level of indebtedness by the Company to Bradley Harvey from time to time.
Importantly, the evidence of both Bradley Harvey and Phillip Harvey is to the effect that the arrangement for Bradley Harvey to receive payments from the Company's creditors was designed to encourage and facilitate Bradley Harvey to extend credit to the Company both by way of payment of the Company's creditors or employees and for hire charges for vehicles, all of which were necessary for the continuation of the Company's business.
There are several reasons why the plaintiff contends that s 588FA cannot apply in the circumstances of this case.
First, it is contended that the arrangement between Bradley Harvey and Phillip Harvey was not 'for commercial purposes', and was not part of a 'continuing business relationship'. That contention is based on several features of the relationship. They are that:
•there was no record of the running account in the books and records of the Company. The plaintiff contends that a 'record' of debits and credits is an essential feature of a running account;
•the agreements were oral and were interest free;
•there was no commercial advantage to Bradley Harvey and the services provided by him in lending funds and administering the Company were provided free of charge so that it was not a commercial business relationship;
•at the relevant time, Bradley Harvey was the effective controller of the business, and the arrangement was not a commercial arm's length transaction;
•the report as to affairs of the Company did not disclose Bradley Harvey as a creditor of the Company, and Bradley Harvey did not lodge a proof of debt with the liquidator which suggests that, at the time the Company was wound up, neither Bradley Harvey nor the Company viewed themselves as being in a creditor‑debtor relationship.
It is said that those elements take the relationship outside the bounds of a conventional business relationship contemplated by the words of s 588FA(3).
There is considerable force in that submission. I do not, however, consider that the first defendant's contention that the transactions entered into were for commercial purposes, and part of a continuous business relationship, is unarguable. The proposition that a 'record' of debits and credits 'is an essential feature of a running account' is said to be supported by a passage from the judgment of Dawson, Gaudron and McHugh JJ in Airservices Australia (wrongly cited by counsel for the plaintiff as coming from Rees v Bank of New South Wales) which is set out above. I do not accept that that passage can be construed as necessarily requiring a physical 'record' of debits and credits as an 'essential feature' of a running account. In any event, it must be borne in mind that a running account is, for the purposes of s 588FA(3), an 'example' of a continuing business relationship. It is necessary to consider the inferences to be drawn from the facts rather than the description of an account.
Nor do I accept that the absence of a written agreement necessarily means that there is not a continuing business relationship, that transactions are not undertaken for commercial purposes, or that there was no commercial advantage to the first defendant. Two of the agreements related to the hire by the first defendant to the company of vehicles. The continuation of the Company's business enabled Bradley Harvey to maintain his employment.
I do not consider that it could be said that, because Bradley Harvey was in effective control of the Company, the transactions concerned are incapable of being for commercial purposes or as part of a continuing business relationship. The oral agreements relied upon were said to be made by Bradley Harvey with Phillip Harvey, a director of the Company. The contracts for the hire of the vehicles were executed by Phillip Harvey on behalf of the Company in August and September 2013.
There may be reasons why the first defendant did not lodge a proof of debt with the liquidator other than that he did not consider himself to be a creditor of the Company.
In those circumstances, I do not consider that the first defendant's contention that the transactions were for a commercial purpose and part of a continuous business relationship is unarguable. The facts of this case are highly unusual, and in my view the first defendant should not be deprived of the opportunity for those facts to be fully explored and established at trial.
The second basis upon which the plaintiff argues that the first defendant cannot avail itself of the provisions of s 588FA is that it contends that, if there was a business relationship between the first defendant and the Company, it ceased by at least 1 May 2014. Why that date is selected is by no means clear. The contention appears to be based on the proposition that the Company was insolvent at least from that date because it was unable to pay the first defendant's wages for the period January 2013 to September 2014, that it was unable to pay rent for its premises, and it was unable to pay a judgment debt obtained against it by a trading creditor. The plaintiff contends that the evidence establishes that Bradley Harvey had actual or constructive knowledge of the Company's insolvency, and that therefore the predominant purpose of the payments to Bradley Harvey was the recovery of debt rather than the inducement of further supply of services. Reliance is placed on the passage from the judgment of Santow J in Sydney Appliances Pty Ltd set out at [27] above. The plaintiff concedes that it is possible that s 588FA(3) can have application notwithstanding knowledge on the part of the creditor of the likely insolvency of the debtor. The plaintiff contends, however, that the defence of having a running account cannot be maintained where the purpose of inducing further supply is subordinated to a predominant purpose of recovering debt: see Sutherland [147] ‑ [148]; Airservices (510). The plaintiff also asserts that Bradley Harvey's actual or constructive knowledge of the insolvency of the Company puts this case in the same category as Clifton (As Liquidator of Adelaide Fibrous Plasterboard Linings Pty Ltd (In Liq)) v CSR Building Products Pty Ltd [2011] SASC 103, where Peek J found a business relationship to have been interrupted upon the issue of a legal letter of demand. From this point onwards, the running account ceased to exist for the mutual purpose of inducing further supply and was subordinated to the predominant purpose of recovering the past indebtedness.
The difficulty with this argument is the lack of clarity on the evidence as to the precise trading position of the Company during the relation‑back period. The plaintiff attached to its written submissions a schedule described as 'running account including wages and hire charges'. A similar document was attached to the first defendant's submissions. The difference between the two were simply that the first defendant aggregated vehicle hire charges and unpaid wages in each case as a single lump sum entry into the schedule, whereas the plaintiff's schedule showed unpaid wages accruing weekly and unpaid hire charges accruing monthly. Both schedules demonstrate, however, that continuous payments were made for what appear to be operating expenses of the Company throughout the whole relation‑back period including payments made after the last receipt by Bradley Harvey of the Company's funds on 1 September 2014. The payments made include payments described as 'employee payment' throughout the period and as late as 2 September 2014. Those entries suggest that the Company continued to have employees at least until shortly before the appointment of a liquidator. A letter to the liquidator dated 14 October 2014 from solicitors previously acting for Phillip Harvey asserted that 'in or about June/July 2014 the Company ceased trading'. The inconsistency between that assertion and what appears in the schedules of payments and receipts prepared by the parties is not explained in the evidence before me. The evidence is not sufficient to enable me to determine the trading position of the Company during the relation‑back period. The first defendant's position is, of course, that the agreement which he had with the Company was to make payments to its creditors essentially to enable the Company to continue its operations. I do not consider that it can be said that the position is analogous to that considered by Peek J in Clifton.
On balance, having regard to the need to exercise great care in the exercise of the power to grant summary judgment, I am not satisfied that there is no arguable case for the application of s 588FA(3) in the circumstances of this case.
The plaintiff contends, however, that even if I were to reach that conclusion, he is nevertheless entitled to summary judgment for a lesser sum than the amount claimed, with leave to defend being given as to the balance of the claim.
Amount due if s 588FA(3) applies
As mentioned above, Santow J in Sutherland considered that any preference, where relevant transactions constitute a running account, should be measured not by comparing the overall effect of the transactions at the beginning and the end of the relevant period, but by comparing the amount of the debt at the point within the relation‑back period that indebtedness was at its highest with the amount of the indebtedness on the last day of the period. The first defendant did not contend that the peak indebtedness approach adopted by Santow J should not be taken.
As noted above, each of the plaintiff and the first defendant's counsel prepared a table showing the running balances of indebtedness throughout the relation‑back period. Apart from questions concerning the timing that wages and hire charges were brought to account, the only substantial difference between the respective tables was that the total of unpaid wages throughout the period calculated by the plaintiff was $32,448.00. The total unpaid wages during the relation‑back period calculated by the first defendant was $49,338.00. The plaintiff's figure is supported by payslips annexed to Bradley Harvey's affidavit of 4 February 2015. The first defendant provided no explanation as to how he reached the figure of $49,338.00. It is inconsistent with Bradley Harvey's own evidence. I am satisfied that the figures shown on the plaintiff's table are reliable.
Those figures demonstrate that on 1 September 2014, the state of the account as between Bradley Harvey and the Company reached a peak indebtedness of $77,324.58 on 1 September 2014. On the same day, receipts totalling $35,416.87 are recorded. Also on the same day, three debits to the account appear. Those debits total $3,390.90. The plaintiff's table adds those three debits to the total indebtedness to produce the figure of $77,324.58, before applying the credit for the $36,416.87 received on the same day. If the credits were applied to the total indebtedness before the debits were applied, the peak indebtedness over the relation‑back period would be that shown on 28 August 2014, namely $73,933.68. Since both credits and debits occurred on 1 September 2014, I do not consider it appropriate to treat the debits as increasing the indebtedness to a peak which should be taken as the starting point for the ascertainment of a preference. I consider that the appropriate figure that should be adopted is $73,933.68.
The indebtedness on the relation‑back date was $46,136.28. The net effect of the transactions taking the peak indebtedness as the starting point is therefore the difference between $73,933.68 and $46,136.28, namely $27,797.40.
In the course of oral submissions, I discussed with counsel whether it was proper to include the first defendant's wages in the running account for the purposes of s 588FA(3). It may be that, as the plaintiff contended, wages are not capable of comprising part of a continuing business relationship for the purposes of s 588FA(3). It seems to me, however, that, if one were to exclude wages from the running account table, and assume that payments received by Bradley Harvey should in part be treated as payment of wages, the net effect on the difference between peak indebtedness and final indebtedness would be unchanged. That is because the amount of unpaid wages on the debit side of the ledger would be offset by receipts applied to payment of wages on the credit side of the ledger. It is not, therefore, necessary to resolve the question as to the proper application of the debt so far as it related to wages in the context of this application.
Applying the approach adopted by Santow J in Sutherland, it follows that even if the first defendant is entitled to the benefit of s 588FA(3), the plaintiff is nevertheless entitled to judgment in the sum of $27,797.40. The first defendant should have leave to defend the balance of the claim.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GEORGE AUBREY LOPEZ (IN HIS CAPACITY AS LIQUIDATOR OF SWAN CONCRETE PRODUCTS PTY LTD (IN LIQ)) -v- HARVEY [2015] WASC 292 (S)
CORAM: CHANEY J
HEARD: ON THE PAPERS
DELIVERED : 27 OCTOBER 2015
FILE NO/S: CIV 2410 of 2014
BETWEEN: GEORGE AUBREY LOPEZ (IN HIS CAPACITY AS LIQUIDATOR OF SWAN CONCRETE PRODUCTS PTY LTD (IN LIQ))
Plaintiff
AND
BRADLEY EDWARD HARVEY
First DefendantCOMMONWEALTH BANK OF AUSTRALIA
Second Defendant
Catchwords:
Costs - Summary judgment application partially successful - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 588FA, s 588FDA, s 588FE
Result:
First defendant ordered to pay 50% of plaintiff's costs
Category: B
Representation:
Counsel:
Plaintiff: No appearance
First Defendant : No appearance
Second Defendant : No appearance
Solicitors:
Plaintiff: Arns & Associates
First Defendant : Kitto & Kitto
Second Defendant : No appearance
Case(s) referred to in judgment(s):
George Aubrey Lopez (In his Capacity as Liquidator of Swan Concrete Products Pty Ltd (In Liq)) v Harvey [2015] WASC 292
CHANEY J: On 14 August 2015 I delivered reasons for decision on the plaintiff's application for summary judgment against the first defendant (see George Aubrey Lopez (In his Capacity as Liquidator of Swan Concrete Products Pty Ltd (In Liq)) v Harvey [2015] WASC 292). The plaintiff sought summary judgment in the sum of $141,007.15 together with interest. Judgment was granted in the sum of $27,797.40, and the first defendant was given leave to defend as to the balance of the claim. The plaintiff now seeks his costs of the summary judgment application. The first defendant resists that application on the basis that the plaintiff was only successful in respect to approximately one‑fifth of his claim, and on the basis that the defendant incurred costs in relation to an issue which was raised in the pleadings, but not ultimately pursued in the summary judgment application. The defendant's submission is that, for pragmatic reasons, the appropriate order is simply that the costs of the summary judgment application should be reserved to trial.
Background to the summary judgment application
The writ was issued on 9 October 2014. The original claim was for $93,725.03 on the basis that that amount of money had been received by the first defendant for the plaintiff's use. At the same time as the issue of the writ, the plaintiff sought a freezing order and ancillary orders. Those orders were granted on 10 October 2014, the ancillary order requiring the second defendant to provide a statement of a bank account for the purposes of enabling the plaintiff to better understand transactions relevant to, and more accurately formulate, his claim against the first defendant.
On 1 December 2014, an amended writ of summons was filed. The amendment increased the amount of the claim to $141,007.15, and added a further cause of action being that certain transactions were unreasonable director related transactions pursuant to s 588FDA of the Corporations Act 2001 (Cth) and were voidable pursuant to s 588FE of that Act (unreasonable director related transactions claim). A statement of claim was also filed on 1 December 2014.
On 14 January 2015 the plaintiff filed his motion for summary judgment together with supporting affidavits and a minute of proposed directions in relation to the summary judgment application. On 15 January 2015 I made directions for the filing of affidavits and submissions. The motion for judgment did not identify, or distinguish between, the causes of action in respect of which judgment was sought.
In accordance with the directions made, the first defendant filed affidavits in defence of the summary judgment application. Those affidavits contained considerable material going to the unreasonable director related transactions claim.
On 26 February 2015, the plaintiff filed an amended statement of claim. The effect of the amendment was to introduce a further alternative cause of action, namely that the transactions which formed the basis of the existing causes of action constituted unfair preference payments within the meaning of s 588FA of the Corporations Act and were voidable on that basis pursuant to s 588FE (unfair preferences claim). A further affidavit of the plaintiff was filed in support of the application for summary judgment, essentially directed to the unfair preferences claim.
On 5 March 2015, I made further directions programming the matter to its hearing on 12 June 2015. At the hearing at which those directions were made, counsel for the plaintiff indicated that summary judgment was to be sought in relation to both of the causes of action under the Corporations Act.
On 19 March 2015, the plaintiff filed a supplementary outline of submissions in which it was made clear that, for the purposes of the summary judgment application, the plaintiff was relying only on the unfair preferences claim.
On 22 April 2015, the first defendant filed an outline of submissions. Those submissions noted the plaintiff's supplementary submissions of 19 March 2015 limiting the basis of the claim for summary judgment. However, 'out of abundance of caution' the first defendant's submissions proceeded to deal with both of the causes of action under the Corporations Act raised by the plaintiff in the statement of claim. The first five pages of the first defendant's submissions dealt with the unreasonable director related transactions claim. One and a half pages were devoted to the unfair preferences claim, and the final four pages dealt primarily with the question of costs on the summary judgment application.
Costs thrown away
The first defendant contends that the plaintiff should be held liable to account for his costs thrown away as a result of the indication at the directions hearing on 5 March 2015 that both Corporations Act causes of actions would be pursued in the summary judgment application. I do not accept that submission. The first defendant's submissions were filed over a month after the plaintiff had unequivocally identified, in its submissions of 19 March 2015, that the summary judgment application was to proceed purely on the basis of the unfair preferences claim. To the extent that costs were incurred in compiling the written submissions, that work was unnecessary for the purpose of the summary judgment application. To the extent that the work consisted of research and advice to the client in relation to the unreasonable director related transactions, those costs are not thrown away. That is because the cause of action remains live to be dealt with if and when the matter ultimately goes to trial.
Plaintiff's cost of summary judgment application
As noted, the plaintiff sought summary judgment for the full amount of $141,007.15. It succeeded only in relation to approximately 20% of that claim. Much of the argument at the hearing centred on whether the first defendant had an arguable case for the application of s 588FA(3) of the Corporations Act. The first defendant was successful in relation to that issue, at least for the purpose of resisting summary judgment. Success on that issue resulted in leave to defend being granted in relation to the majority of the claim, at least in terms of money.
Having regard to the only partial success by the plaintiff in relation to the summary judgment application, I consider that the appropriate order is that the first defendant should pay 50% of the plaintiff's costs of the summary judgment application. There will be an order accordingly.
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