Giovanni Maurizio Carrello as Liquidator of Perrinepod Pty Ltd (in Liq) v Perrine Architecture Pty Ltd
[2016] WASC 145
•12 MAY 2016
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: GIOVANNI MAURIZIO CARRELLO AS LIQUIDATOR OF PERRINEPOD PTY LTD (IN LIQ) -v- PERRINE ARCHITECTURE PTY LTD [2016] WASC 145
CORAM: CHANEY J
HEARD: 5 - 9 OCTOBER 2015
DELIVERED : 12 MAY 2016
FILE NO/S: COR 27 of 2014
MATTER :Sections 588FF, 588G, 588M, 588W and 588Y of the Corporations Act 2001 (Cth)
Perrinepod (In Liq)
BETWEEN: GIOVANNI MAURIZIO CARRELLO AS LIQUIDATOR OF PERRINEPOD PTY LTD (IN LIQ)
Plaintiff
AND
PERRINE ARCHITECTURE PTY LTD
First DefendantLOUIS JEAN-MIC DU BUISSON PERRINE
MERCEDES DU BUISSON PERRINE
Second Defendants
Catchwords:
Companies - Insolvent trading - Incurring a debt - Uncommercial transactions - Unreasonable director-related transactions
Legislation:
Construction Contracts Act 2004 (WA), s 39, s 45(4)
Corporations Act 2001 (Cth), s 95A, s 588FA, s 588FA(3), s 588FA(6A), s 588FB, s 588FC, s 588FDA, s 588FE, s 588FF(1), s 558G, s 588H, s 588M, s 588V, s 588V(1)(d), s 588W, s 588X, s 588Y, s 588Y(2)
Evidence Act 1906 (WA), s 79C
Rules of the Supreme Court 1971 (WA), O 4 r 3(2), O 12 r 1(2), O 34 r 2
Supreme Court Act 1935 (WA), s 32
Result:
Judgment for plaintiff for $1,327,911.85 plus interest
Category: B
Representation:
Counsel:
Plaintiff: Mr M Douglas & Ms E McCloskey
First Defendant : No appearance
Second Defendants : In person
Solicitors:
Plaintiff: Tottle Partners
First Defendant : No appearance
Second Defendants : In person
Case(s) referred to in judgment(s):
Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483
Australian Securities and Investments Commission v Plymin [2003] VSC 123; (2003) 46 ACSR 126
Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1
Clifton v CSR Building Products Pty Ltd [2011] SASC 103
Georgiou Building Pty Ltd v Perrinepod Pty Ltd [2012] WASC 72; (2012) 86 ACSR 713
Hawkins v Bank of China (1992) 26 NSWLR 562
Mulherin v Bank of Western Australia Ltd [2006] QCA 175
Olifent v Australian Wine Industries Pty Ltd (1996) 19 ACSR 285
Perrinepod Pty Ltd and Georgiou Building Pty Ltd [2010] WASAT 136
Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319
Playspace Playground Pty Ltd v Osborn [2009] FCA 1486
Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1966) 115 CLR 266
Russell Halpern Nominees Pty Ltd v Martin [1987] WAR 150
Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213
Stone v Smith (1887) 35 Ch D 188
Sutherland (as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd [2001] NSWSC 230; (2001) 37 ACSR 477
Table of Contents
The plaintiff's claims
Mr and Mrs Perrine's credibility
The establishment of PPL
Insolvent trading principles
Plaintiff's contention as to insolvency
The Dwyer Project
The Millington and Ali Projects
PPL's accommodation arrangements
Georgiou Group Heads of Agreement
The Robinson Street Project
PPL's financial position as at 30 June 2009
PPL's solvency as at 30 June 2009
Demand by JADD Projects
PricewaterhouseCoopers
CID Consultants
Activities under the heads of agreement
Demand by Georgiou Building
PPL's financial position during 2009/2010
Reasonable grounds to suspect insolvency
Reasonable grounds to expect that PPL was solvent and s 588H(2)
Support of directors
Georgiou Group support
PWC valuation
Walltech Systems
Vicon Properties
The Cecich memorandum of understanding
Hospitality Inns Pty Ltd and ECC
Defence paragraph 203
Defence paragraph 205
Conclusion as to s 588G(2) and s 588H(2)
Insolvent trading claim
Incurring a debt
Perrine Architecture invoices
Perrine Architecture management fees
Perrine Architecture professional services
Perrine Architecture employees' work on behalf of PPL
Perrine Architecture disbursements
PricewaterhouseCoopers
Metaxas & Hager
David Reid Homes
CID Consultants
Nuway Rendering Group
Formcraft
Ali debt
JADD Projects
Jamm Industries
Quantum in relation to insolvent trading claim
Perrine Architecture's liability under s 588V and s 588W
Unfair preferences claim
Continuing business relationship
Measurement of indebtedness
Good faith and grounds to suspect insolvency
Uncommercial transactions and unreasonable director‑related transactions
Defendants' evidence as to uncommercial transactions
Tax refund payment
Perrine Architecture payments
Preference payments
Uncommercial payments
1 July payment
Conclusion
CHANEY J:
The plaintiff's claims
The first defendant (Perrine Architecture) was incorporated in 1989 and, until November 2011, carried on business as an architectural design firm. The second defendants, Mr and Mrs Perrine, were, at all material times, directors and shareholders of Perrine Architecture.
The plaintiff is the liquidator of a company called Perrinepod Pty Ltd (PPL), which was incorporated in July 2007 and was ordered to be wound up on the ground of insolvency on 1 March 2012. PPL was in the business of providing residential and commercial prefabricated buildings, including multistorey projects. Perrine Architecture held 39 million of the 49,500,100 issued shares in PPL.
In these proceedings, the plaintiff seeks remedies in relation to what he asserts:
(a)were failures by the second defendants to prevent PPL incurring debts while insolvent;
(b)was Perrine Architecture's liability, as holding company of PPL, for insolvent trading by PPL;
(c)were voidable transactions under the Corporations Act 2001 (Cth) for which Perrine Architecture is liable to pay compensation, and in particular:
a.unfair preferences (s 588FA);
b.uncommercial transactions (s 588FB); and
c.unreasonable director‑related transactions (s 588FDA).
The total amount claimed by the plaintiff against Perrine Architecture is $5,692,896.24 plus interest from the date of the issue of proceedings until judgment. Of that total, the insolvent trading claim amounts to $4,215,922.13, which is the amount claimed against the second defendants. The claim for unfair preferences amounts to $434,200. The claims in relation to uncommercial transactions and unreasonable director‑related transactions total $1,476,974.11, but that total includes the transactions which are said to be unfair preference payments. Exclusive of the overlap with the unfair preferences claim, the claim in relation to uncommercial transactions and unreasonable director‑related transactions is for $1,042,774.11. Those totals are made up of a series of transactions occurring between 2009 and the appointment of a liquidator in March 2012. A claim under s 588G(1A) against the second defendants in relation to insolvent trading by failing to prevent PPL from entering uncommercial transactions was abandoned at the commencement of the trial (ts 70).
As can be seen, the bulk of the quantum of the total claim is based upon the claims for insolvent trading. The claims against Mr and Mrs Perrine in relation to insolvent trading are based upon the proposition that they contravened s 588G of the Corporations Act. That section applies where a person is the director of a company at the time when the company incurs a debt, the company is insolvent at that time or becomes insolvent by incurring the debt, and there are reasonable grounds for suspecting that the company is insolvent or would become insolvent by incurring the debt. Section 588M provides that where a director has contravened s 588G and the person to whom an unsecured debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency, the company's liquidator my recover the amount of the loss or damage from a director as a debt due to the company.
The claim for insolvent trading against Perrine Architecture is made under s 588V and s 588W of the Corporations Act. Those sections enable a liquidator to recover from a holding company of the company in liquidation the amount of any loss or damage suffered by a person to whom a debt is incurred by the company in liquidation where the holding company, or one or more of its directors, are, or should reasonably have been, aware that there were grounds to suspect insolvency. In this case, because the directors of the holding company, Perrine Architecture, were also directors of PPL, which incurred the debts, it would follow that if Mr and Mrs Perrine are liable under s 588M, Perrine Architecture would be liable under s 588W.
Whether any losses suffered by creditors are recoverable on the basis of insolvent trading requires a determination as to whether, at the time particular debts were incurred, PPL was insolvent and there were reasonable grounds for suspecting that it was, at that time, insolvent. It also requires determination of whether Mr and Mrs Perrine were aware at the time that PPL incurred debts that there were grounds for suspecting that the company was insolvent or whether a reasonable person in their position would, in PPL's circumstances, be so aware.
Whether or not PPL was insolvent, and whether or not Mr and Mrs Perrine had reasonable grounds for suspecting PPL's insolvency, while not elements of liability for uncommercial transactions or unreasonable director‑related transactions, inform consideration of the transactions said to be uncommercial or unreasonable. I therefore turn first to the question of whether, and if so when, PPL became insolvent, and to the question of whether there were reasonable grounds to suspect insolvency at the time particular transactions were entered into.
Before doing so, I will make some observations on the credibility of Mr and Mrs Perrine, both of whom gave evidence and were cross‑examined at length, and then turn to some background to PPL's establishment.
Mr and Mrs Perrine's credibility
In closing submissions, the plaintiff's counsel submitted that, while the plaintiff's case is largely based upon the documents exhibited to various affidavits, the credibility of Mr and Mrs Perrine's evidence is relevant to questions of their actual knowledge of insolvency at any particular time, and also as to matters of context relevant to what should be made of various documents. A number of submissions were made to the effect that Mr and Mrs Perrine's evidence was unreliable.
The first of those was said to be Mrs Perrine's 'candid concession that there had been a significant degree of collaboration' between her and her husband, Mr Perrine, in the way that the evidence was prepared (ts 470). Mrs Perrine was cross‑examined about her statement in her affidavit where she said that she had read her husband's affidavit and was satisfied that the statements made in it were true and correct and accord with her recollection. Something was sought to be made of Mrs Perrine's admission in cross‑examination that the affidavits were prepared simultaneously, and that each of them read the other's affidavits during the course of preparation. Mrs Perrine was also cross‑examined about the fact that she did not give an independent account of events to which she was a party, but simply endorsed references to her in Mr Perrine's affidavit.
I do not consider that those matters affect Mrs Perrine's, or Mr Perrine's, credibility. They were self‑represented in these proceedings. Cross‑examination as to particular events to which either Mr or Mrs Perrine were party did not, for the most part, significantly undermine accounts of events in respect of which either Mr or Mrs Perrine gave evidence. Each of Mr and Mrs Perrine had different responsibilities within PPL and Perrine Architecture. Mrs Perrine's responsibilities were largely of a bookkeeping nature. Mr Perrine is an architect, and was the person was at the forefront of the operations of PPL and Perrine Architecture. The way that they prepared their evidence was consistent with those different roles. Mrs Perrine said that the reason that she did not give a separate account of events dealt with in her husband's affidavit was that, because they were dealt with by Mr Perrine, she did not feel that she needed to cover them in her own affidavit (ts 213). That decision does not constitute a reason to disbelieve Mrs Perrine's evidence.
The second basis upon which it was suggested Mrs Perrine's evidence should not be accepted was her failure to make concessions that PPL was insolvent. The question of whether or not PPL was insolvent at any particular time is a question central to these proceedings. It is a question to be determined not by reference to the subjective views of witnesses, but rather an analysis of all of the evidence. To the extent that Mrs Perrine's beliefs as to solvency are relevant, her assertions as to her subjective belief are to be assessed against the objective facts. As will be seen, there came a point where PPL was clearly insolvent and it could not reasonably have been thought otherwise. To that extent, I would not accept Mr or Mrs Perrine's evidence as to their subjective beliefs as to solvency.
That does not, however, cause me to conclude that Mr and Mrs Perrine's evidence as to particular transactions and events, and the context in which they occurred, is unreliable. Having seen and heard Mr and Mrs Perrine give their evidence, I am satisfied that they, alone of all the witnesses, had an intricate knowledge of PPL's business and the various transactions which it undertook. That is particularly so of Mr Perrine, given that Mrs Perrine has had a far less active role in those transactions. In general, I am satisfied that Mr and Mrs Perrine's account of events involving PPL as they occurred is generally reliable, although, as will be seen, in some particular respects their evidence is not accepted.
The establishment of PPL
Mr Perrine is an architect and has worked as an architect since 1983, initially as a graduate architect, and then as a registered architect since 1987. With his wife, he formed Perrine Architecture in 1989, and at all times Mr and Mrs Perrine have been the sole directors and shareholders of Perrine Architecture.
In 2007, PPL was established for the purpose of developing and bringing to market an affordable modular concrete based construction system which Mr Perrine had designed. The modular units were called Perrinepods. During 2007, Mr and Mrs Perrine gathered together a group of people with expertise in various areas with a view to commercialising Perrinepods. Those persons included:
•Mr Carmelo Bontempo, the founding director of a successful engineering company in Western Australia;
•Mr Dean Brickell, senior account manager with a finance organisation;
•Mr Serge Pecoult, a principal of ACCUE Pty Ltd (ACCUE) and a specialist precast manufacturer;
•Mr Joe Impicciatore, a registered builder with whom Mr and Mrs Perrine had had extensive dealings through Mr Impicciatore's company JADD Projects Pty Ltd (JADD);
•Mr Patrick Davin and Mr Bill Ali, who had successful marketing experience; and
•subsequently Mr Blair Sergeant.
Mr Sergeant was introduced to Mr and Mrs Perrine by Mr Davin and Mr Ali. Mr Sergeant was the managing director of a company called Evolution Capital Partners Pty Ltd (Evolution Capital), and had expertise in setting up corporate structures.
Mr Sergeant provided several proposals on behalf of Evolution Capital to capitalise an entity to allow it to deliver the Perrinepod system to the market. That eventually led to the establishment of PPL with Mr Sergeant and Mr Bontempo being appointed as directors along with Mr and Mrs Perrine in September 2007. Mr Perrine was appointed chairman of directors. As part of the initial establishment of PPL, various documents were executed assigning the rights to the intellectual property of the Perrinepod system to PPL.
A proposal by Mr Sergeant was that entities associated with Evolution Capital would invest $3 million in shares in the entity to be established. Two million dollars was proposed to be paid to Perrine Architecture by way of reimbursement of its work and expenditure on development of Perrinepods. The remaining $1 million was to be used for working capital. Mr Perrine said, and I accept, that he declined the $2 million reimbursement for Perrine Architecture on the basis that it was not then required. He said that $1 million was invested by entities associated with Evolution Capital. That sum was used to buy inventory for 10 Perrinepods. The inventory consisted of precast concrete modules to be fabricated by ACCUE, kitchens, bathrooms, fixtures and fittings, windows, doors, tiling and internal partitions. Mr Perrine said that that inventory was intended to enable, and was capable of enabling, substantial completion of the Dwyer Project, the Millington Project and the Ali Project, all of which are discussed below.
Mr Perrine described Mr Impicciatore and Mr Pecoult as special advisors to the board who remained associated with PPL on a commercial basis via their companies, JADD and ACCUE. Mr Ali, Mr Davin and another investor introduced through Evolution Capital, Mr Didier Maingard, remained advisors to the board. Mr Perrine said that the board was effectively managing PPL in September 2007 with initial responsibility for compliance matters resting with Mr Sergeant and at times Mr Davin or Mr Ali. In September 2007 there was an official launch of PPL to the market which attracted considerable media attention.
In October 2007, PPL's board appointed a general manager, Ms Diane Greville.
Ms Greville gave evidence at the hearing. She explained that the Perrinepod was not the type of product that could be sold off the shelf to a customer, but rather required considerable consultation with the client as to their particular needs and then substantial design work was required to produce a design solution which satisfied those requirements. In the initial stages of PPL's operation, Ms Greville said that there was a heavy reliance on Perrine Architecture because there was no in‑house designer at PPL at that stage. Mr Perrine said that Ms Greville's employment marginally decreased Mrs Perrine's day‑to‑day involvement with PPL but made no significant change to his own involvement, which involved a range of what he described as 'key roles' in the development of PPL's business.
Mr Sergeant resigned as a director in December 2007 to work in Africa. Mr Davin replaced him as a director but resigned in March 2009. Mr Ali replaced Mr Davin on the board. Mr Bontempo resigned as a director in May 2008. Those resignations left Mr and Mrs Perrine with substantial additional responsibilities.
Insolvent trading principles
The company is solvent if, and only if, it is able to pay all of its debts as and when they become due and payable. A company which is not solvent is insolvent: Corporations Act s 95A.
The onus of establishing a contravention of s 588G lies on the party asserting the contravention: Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 [43]; Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528 [23]. The standard of proof is the balance of probabilities: Australian Securities and Investments Commission v Plymin [2003] VSC 123; (2003) 46 ACSR 126 [367].
A helpful analysis of the applicable principles was undertaken by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213, where his Honour said:
In my opinion, the following propositions may now be drawn from the authorities:
i)whether or not a company is insolvent for the purposes of the Corporations Act s95A, s459B, s588FC or s588G(1)(b), is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole;
ii)in considering the company's financial position as a whole, the court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable;
iii)in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency;
iv)the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand;
v)in assessing solvency, the court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the court's satisfaction, that:
•there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or
•there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or
•there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand;
vi)it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence [54]. (citations omitted)
Those propositions, or at least extracts from them, have been frequently cited: see for example Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1; Smith v Bone [25], [26] and [28].
In the assessment of solvency for the purposes of pt 5.7B of the Corporations Act, what is referred to as the 'cash flow test' is generally viewed as the more appropriate mechanism, as opposed to what is referred to as the 'balance sheet test'. The cash flow test is an assessment of solvency based on the company's ability to meet its current liabilities as and when they fall due. The balance sheet test considers a company's total external liabilities by comparison to the value of its assets and if the assets are insufficient to satisfy all claims on the company, the company is insolvent. Although not generally applicable for the purposes of determining solvency for the purposes of s 95A, the balance sheet test is not irrelevant. In Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [1073], Owen J referred with approval to the passage in Coburn's Insolvent Trading (2nd ed, 2003) where the author says:
The courts have moved to a far wider consideration of solvency, rather than just applying a cash flow test, which is viewed as a basic starting point in the consideration of solvency. This is because the statutory emphasis is on 'solvency' rather than 'liquidity'. The consideration will be as a question of fact: in the light of commercial reality, all things considered, could the company pay its debts as and when they became due? Such an approach includes the balance sheet test, and other commercial realities such as access to money from third parties, raising capital or credit and financial support are all relevant considerations in determining a company's ability to pay debts (66).
Where directors are likely to continue to support a company, whether by unsecured loans or otherwise, the existence of that support is a relevant consideration in assessing solvency: Mulherin v Bank of Western Australia Ltd [2006] QCA 175 [115].
Plaintiff's contention as to insolvency
In order to succeed in relation to the insolvent trading claims, it is necessary for the plaintiff to establish that PPL was insolvent at the time each of the debts which form the basis of the claim was incurred. The debts said to comprise the insolvent trading claim are set out in [140] to [202] of the statement of claim. They are said to have been incurred on a variety of dates, the earliest being in relation to invoices from CID Consultants in July and August 2009. The majority of the debts which form the basis of the claim relate to the 2010 calendar year, and some extend into 2011 and 2012.
The plaintiff argued that PPL was insolvent by 30 June 2009 at the latest and his claims are quantified on that basis. Mr Carrello gave evidence at [56] of his affidavit of 13 February 2014 that, based on his review of PPL's books and records and his investigations into the affairs of the company, '[PPL] was insolvent at 30 September 2009 and was probably insolvent from as early as April 2009'.
Attached to Mr Carrello's third affidavit, sworn 10 April 2014, is a report of the same date containing Mr Carrello's opinion that PPL was insolvent by no later than June 2009. He reached that conclusion based on a review of PPL's financial records and consideration of what he referred to as specific indicators of insolvency. Those indicators were apparently drawn from a checklist of matters referred to by Mandie J in Australian Securities Investment Commission v Plymin [386]. The list was paraphrased by Mandie J in the course of reciting the evidence of an expert accountant who agreed that the list was 'a fairly extensive list, albeit in general terms, and brought to mind very common features in insolvency situations'. The list reads as follows:
1.Continuing losses.
2.Liquidity ratios below 1.
3. Overdue Commonwealth and State taxes.
4.Poor relationship with present bank, including inability to borrow further funds.
5.No access to alternative finance.
6.Inability to raise further equity capital.
7. Suppliers placing [company] on COD, or otherwise demanding special payments before resuming supply.
8.Creditors unpaid outside trading terms.
9. Issuing of post-dated cheques.
10. Dishonoured cheques.
11.Special arrangements with selected creditors.
12.Solicitors' letters, summons[es], judgments or warrants issued against the company.
13.Payments to creditors of rounded sums which are not reconcilable to specific invoices.
14. Inability to produce timely and accurate financial information to display the company's trading performance and financial position, and make reliable forecasts.
Mr Carrello's analysis referred to various transactions which are pleaded in the statement of claim, including many matters occurring after June 2009. A number of the indicators in the list are not present in the case of PPL either as at June 2009 or subsequently. The report does not purport to examine in any detail the transactions to which reference is made in the way that they have been examined in the trial of this matter. It is necessary to undertake an analysis of the various transactions that are pleaded as material to determine whether the plaintiff has established that PPL was insolvent at any point and, if so, when PPL was insolvent.
Mr Carrello referred to the financial statements of PPL for the financial year ended 30 June 2009 (2009 PPL accounts) which showed that in that year PPL incurred a gross loss of $1,128,019 having previously reported a profit in the previous year of $726,991. The 2009 PPL accounts reported current liabilities of $1,861,184 against current assets of $706,261 and total assets of $802,312. Of the current liabilities, trade creditors amounted to $977,547. A current liability of $800,000 was described as 'other creditors - building costs (Ali)'. The company's dealings with Mr Ali are discussed below. The 2009 PPL accounts balance sheet showed a net deficiency of $1,223,880.
The 2009 PPL accounts do not, by themselves, enable conclusions to be drawn as to PPL's capacity to pay its debts as and when they fell due. As I apprehend the plaintiff's case, he invites examination of the trading history of PPL up until mid‑2009 and particular transactions prior to that time that gave rise to unmet financial obligations, considered in the light of PPL's financial statements, to support the conclusion that PPL was insolvent as at 30 June 2009. Unfortunately, neither the lengthy statement of claim, nor the very large volume of documents tendered by the plaintiff, nor the plaintiff's written or oral submissions, identify with any precision the particular transactions or documents predating June 2009 upon which it contends the conclusion as to insolvency should be drawn. Rather, in the presentation of its case, the plaintiff pleaded or drew attention to numerous transactions between 2008 and 2012 from which it contends the court should draw conclusions as to the various causes of action pleaded against the various defendants and as to the solvency of PPL at particular times. In the context of pleadings exceeding 300 pages and evidence comprising 15 lever arch files of documents compiled in no particular order other than as annexed to affidavits, the task of analysis is particularly difficult. It is necessary however to identify the principal transactions leading up to mid‑2009 to assess whether the plaintiff has established that PPL was insolvent at that time.
The Dwyer Project
Mr Perrine said that in late 2007, the board was intent on the delivery of one or two key commercial projects.
The first commercial project undertaken by Perrinepod was the construction of six two‑storey motel units in Carnarvon for John Joseph Dwyer and Jillian Anne Dwyer (Dwyer Project). The contract price was $1 million plus GST. Mr Perrine said that there were difficulties obtaining development approval, which delayed the project for several months. He said that Mr Impicciatore, on behalf of JADD, agreed to undertake the building works at cost excluding any of JADD's internal costs and excluding Mr Impicciatore's own time. Mr Impicciatore said that he had a discussion with Mr Perrine in late 2007 to the effect that the Dwyer Project would allow BHP Billiton (BHPB), which was interested in purchasing Perrinepods, to see a finished PPL project, which could in turn lead to future projects for PPL and JADD. Mr Impicciatore said that he told Mr Perrine that JADD would complete the works at Carnarvon within PPL's budget on the understanding that JADD could also benefit by being the builder on the job if BHPB 'liked what it saw'. In cross‑examination he confirmed that he had agreed to do the Dwyer Project at cost. The budgeted cost for the project was $486,055.
The evidence is unclear as to precisely when construction of the Dwyer Project was undertaken or completed, although it was sometime in late 2008 or, more likely, early 2009. Mr Impicciatore said that for a period of six to eight months after completion of the Dwyer Project he went to PPL's premises to enquire as to when he would be paid for his outstanding account. That evidence is inconsistent with Mr Perrine's evidence that by February 2009, JADD had not presented a formal claim as to what the Dwyer Project cost (ts 357).
According to a summary of invoices in relation to the Dwyer Project prepared by JADD in July 2009 (GMC 23, page 603), JADD invoiced PPL for a total of $736,588 including GST. That amount was made up of the 'project value' of $486,055 together with variations of $250,533. The total amount recorded as having been paid by PPL was $498,778 leaving a balance payable of $237,810. Mr Perrine's position was that those variations had not been agreed, and that the balance claimed by JADD was not payable by PPL.
That contention is inconsistent with the acknowledgement by Mr Graham O'Neill, acting general manager of PPL, in a letter to JADD dated 26 November 2009 (GMC 23, page 608). In that letter Mr O'Neill 'acknowledged and confirmed' JADD's final reconciliation in correspondence of 19 May 2009 in relation to the Dwyer Project and concluded 'we confirm that $237,810 is due and outstanding'. The dispute between PPL and JADD in relation to that outstanding claim remained unresolved at the time that the order to wind up PPL was made.
Mr Perrine's position was that JADD was not paid because it had agreed to complete the project at an agreed cost and that the variations underlying the claim were not agreed, despite Mr O'Neill's letter to the contrary. His assertion is therefore that payment was not made to JADD because PPL chose not to pay, rather than that it was not able to pay. Although I accept that cash flow for PPL was tight and had to be carefully managed throughout 2009, I am not satisfied that PPL was unable to pay JADD had it chosen to do so rather than dispute liability.
In cross‑examination, Mr Perrine acknowledged that there was ultimately an overall loss in the vicinity of $800,000 on the Dwyer Project. He said that that loss was constituted by JADD's claim for $250,000 for variations which he said were not agreed, an overpayment by Ms Greville to ACCUE in relation to its pre‑casting work, and a planned loss of $100,000 to $200,000 which was said to be, in effect, an investment in research and development in respect of the delivery of PPL's first commercial project (ts 323). The asserted overpayment to ACCUE became the basis of a dispute between PPL and ACCUE.
The Millington and Ali Projects
Mr Perrine said that in late 2007, the board of PPL decided that the delivery of one or two local 'high end residential projects' would create further commercial credentials for the Perrinepod system. Mr Davin introduced a friend, Mr Martin Millington, who was interested in the construction of a small two bedroom modular home. Mr Millington negotiated a contract with PPL's sales staff (Millington Project). The contract was dated 12 October 2007. Completion of the contract was specified as being 'as soon as possible but no later than 2 months from date contract is unconditional' (sic).
Mr Ali was also interested in the construction of a residence. He appointed Perrine Architecture as an architect to design a residence which might be built using the Perrinepod system. On 31 January 2008, Mr Ali signed a contract with PPL for the construction of a residence in Coolbinia (Ali Project). The purchase price was $1,262,217. There was to be a deposit of $82,044.10, paid within 10 days of the date of the agreement. Two instalments, each of $472,069.16, were payable on the commencement of production and the completion of production respectively, and a final instalment of $236,034.64 was payable on delivery. The proposed commencement date for production was 3 March 2008 and the completion date for production was 31 March 2008. The proposed delivery date was 30 June 2008.
There were delays in the commencement of both the Ali and Millington Projects. Mr Perrine explained that those delays arose because of difficulties experienced with Mr Pecoult and ACCUE. He said that Mr Pecoult had slowed down in the delivery of pre‑cast inventories for the Ali and Millington Projects, and had forced PPL to pay additional costs in relation to the Dwyer Project. ACCUE claimed variations and additions in relation to the Dwyer Project which PPL 'deemed unacceptable' but paid to him so that the Dwyer Project would be completed expeditiously.
A letter dated 1 September 2008 (JMP 19, page 335) to ACCUE from Mr Graham O'Neil, who was by then the chief operating officer for the Perrine Group, records that payments totalling $652,126.60 had been made to ACCUE in relation to the Dwyer Project, and that progress payments had been made for the Millington Project for a total of $131,030.90. No payments had then been made in relation to the Ali contract. The letter proposed an immediate advance payment in relation to the Ali contract to assist ACCUE with its cash flow requirements. That payment was $120,822.64. Mr Perrine said that, subsequently, a further amount of $195,822.64 was paid to ACCUE for the Ali Project. He said that, however, ACCUE failed to deliver either the Millington or Ali pre‑cast units, and PPL and ACCUE entered into a dispute which ultimately led to a termination of the relationship between PPL and ACCUE. ACCUE made no further claims against PPL.
The minutes of a meeting of PPL's board of 22 May 2008 refer to a cash flow report by the general manager, Ms Greville. It reports there was $25,000 in the bank, that cash reserves had been impacted by delays in the Dwyer Project and that $120,000 was due for payments for taxation and superannuation requirements. The minutes record that Mr Bontempo 'enquired as to availability of cash flow shortfall if projects delayed' (sic). The minutes then record that 'Mr Davin indicated that there would be an ability to bring forward progress payments from the Millington transaction and Mr Ali indicated the same for his contract'. Ms Greville was to liaise with Mr Davin and Mr Ali 'should cash flow requirements dictate such a need'.
In early June 2008, Mr Davin advanced $160,000 to PPL as an advance payment of the Millington Project. The terms of that advance were set out in a letter from Ms Greville to Mr Davin on 4 June 2008. The letter confirmed that the advance payment was to be repaid in full once the final payment had been received by PPL from Mr Millington's bank at the conclusion of the project. That letter and an email from Mr O'Neill to Mr Ali on 22 July 2008 are inconsistent with Mr Perrine's evidence that Mr Davin made arrangements with Mr Millington's bank that repayment of the $160,000 would be made by the bank directly to Mr Davin. Although an email from Mr Davin to Ms Greville of 3 July 2008 suggested such an arrangement, it is unlikely that a bank would have advanced funds to discharge Mr Millington's liability under his building contract without the concurrence of PPL. Mr Millington's evidence, tendered by consent, was that Mr Davin told him that he had paid PPL $160,000 to assist with the construction of Mr Millington's home only after that payment had been made.
I find that in substance the payment by Mr Davin of $160,000 to PPL was a loan to PPL to enable PPL to progress Mr Millington's residence, the loan being repayable at the time that the final payment for the Millington Project was received by PPL from Mr Millington's bank. Repayment was no doubt expected to occur in the short term rather than the long term, although an assertion, contained in a tabulation of PPL debts prepared by the plaintiff, that the due date for the debt was no later than 31 July 2008 is not supported by the evidence. Correspondence from Mr Davin to Mr Perrine in the second half of 2010 makes clear that repayment of his loan was due on completion of Mr Millington's house rather than on any particular date, and I am satisfied that Mr Davin, by reason of his involvement with PPL, was generally aware of the status of the Millington Project throughout that period.
Mr Perrine said that PPL came to an agreement with Mr Millington not to complete Mr Millington's house and to return his deposit. He produced a copy of an agreement dated 19 April 2011. That agreement makes no mention of a return of the deposit. It records that the parties agreed that the building contract was at an end and that '[n]either party shall seek further payment as redress from the other party for the termination of the contract'. It appears, however, that PPL repaid Mr Millington's deposit of $50,000 on 3 October 2010 (LP 15, page 224). The report as to PPL's affairs completed by Mr and Mrs Perrine in April 2012 records Mr Davin as an unsecured creditor in the sum of $160,000.
Mr Ali died before the hearing of this matter. An affidavit by Mr Ali, sworn 26 May 2014, was received in evidence pursuant to s 79C of the Evidence Act 1906 (WA). In that affidavit, Mr Ali said that, at the time he signed the contract with PPL, he knew that PPL was experiencing cash flow problems and agreed that he would pay for his new house in advance provided that the money was used to build his house. He subsequently paid the first three contract instalments on 14 February 2008, 3 March 2008 and 3 June 2008 respectively. He said that in late August or early September 2008, Mr Perrine asked him to pay the final instalment of his contract saying that, if that instalment was paid, PPL could get started on his house immediately. Mr Perrine offered to include landscaping to the value of $100,000. Mr Ali paid the final instalment of $236,034.64 to PPL around 12 September 2008. On 20 November 2011, Mr Ali and PPL entered into a new contract which included provision for landscaping to a maximum value of $100,000, the contract sum being the same as the January 2008 contract. The dates for commencement of production and for completion were left blank.
Work on the Ali and Millington Projects was not completed by PPL. Emails passing between Mr Perrine and Mr Ali between February 2009 and October 2009 reveal ongoing attempts by Mr Perrine to negotiate with various parties so as to enable the works to proceed, and assurances being given to Mr Ali that work would commence shortly. The exchanges demonstrate an increasing level of concern and anxiety on Mr Ali's part having regard to financial difficulties that he was facing.
In cross‑examination, Mr Perrine acknowledged that, as at June 2009, PPL was unable to meet its obligations to Mr Ali (ts 336) because of its cash flow problems without the support of the Georgiou Group. The arrangements made with Georgiou Group are examined later in these reasons.
On 6 November 2009, Mr Perrine wrote on behalf of PPL to Mr Ali. The letter confirmed that payment for Mr Ali's project totalling $1,147,470 plus GST (being a total of $1,262,217) had been received in full and that the funds had been 'treated as a shareholder loan in accordance with previous board agreement' (sic). The reference to 'previous board agreement' is a reference to a meeting of the board of PPL on 25 February 2009 in which it is recorded that funds paid in advance of projects to be completed should be recorded in the company's accounts as loans rather than sales. As noted earlier, PPL's accounts for 30 June 2009 recorded a current liability in relation to Mr Ali in the sum of $800,000.
Eventually, the existing house on the Coolbinia property was demolished in order to allow work to proceed, and foundations were laid for the construction of the home by PPL. However, because of the delays and his financial problems, Mr Ali determined that he needed to sell the land. Mr Ali instructed that the foundations be removed and demanded the return of the money he had paid.
The plaintiff pleads that it is implied by law that the Ali debt was repayable on demand. It is pleaded that, despite demand, Mr Ali was not repaid. The demands are said to have been made in correspondence exchanged between Mr Perrine and Mr Ali annexed to Mr Ali's affidavit (SC [12(f)]). The correspondence between February 2010 and December 2011 attached to Mr Ali's affidavit comprises in excess of 300 pages. At least until early 2011, that correspondence more accurately reflects expressions of concern by Mr Ali about completion of his house, rather than demands for repayment of the funds which he had paid in advance. In mid‑July 2011, Mr Ali emailed Mr Perrine (WCA 17, page 479) saying that he required, 'at the bare minimum, around $100K' to be repaid by the end of that month. The email also referred to a suggestion that Mr Perrine had indicated some three months earlier that there would be sufficient cash flow to repay Mr Ali.
As at mid‑2009, it is apparent, and I find, that Mr Ali was aware of PPL's cash flow difficulties, and was proceeding on the basis that PPL had a contractual obligation to undertake and complete construction of his house but at that time did not intend to, and did not in fact, make any demand for repayment of the funds he had provided under the building contract. I am also satisfied that Mr Ali was aware of Mr Perrine's attempts to progress the works through Georgiou Group and subsequently others.
Although the funds advanced by Mr Ali were described in the books of PPL as a current liability, the true nature of the liability was that PPL had a liability to complete construction of his house and the liability was to be discharged in that way.
PPL's accommodation arrangements
Mr Perrine said that, from the earliest establishment of PPL, the directors determined that PPL would be best served to rely on Perrine Architecture's existing business infrastructure, including using its office, equipment and facilities, and its staff. PPL initially occupied part of the Perrine Architecture office at Level 1, 16 Milligan Street, Perth. Perrine Architecture did not charge PPL any rental for that space between 2007 and 2008.
In 2008, Mr and Mrs Perrine resolved to move Perrine Architecture to 317 Murray Street, Perth on a fully refurbished first floor of the building at that site. A portion of the Murray Street premises was then set aside for use by PPL, and Perrine Architecture and PPL shared use of some common areas. The separate office areas of each of PPL and Perrine Architecture were separately partitioned. On the basis of the shared common areas, the proportion of the overall premises occupied by PPL was calculated at 40%. From June 2008, PPL was charged for 40% of the rent on the premises. The base net rental payable under the lease of the Murray Street premises was around $315 per square metre in 2008, escalating to $400 per square metre in 2011. By comparison, Mr Perrine produced a monthly tenancy report in relation to premises which had previously been occupied by Perrine Architecture and PPL which showed that rent in the vicinity of $813 per square metre was being paid in that building in 2010.
From June 2008, charges were raised by Perrine Architecture to PPL in relation to rent.
Mr Perrine explained that, as PPL was a start-up company in 2008, he and the other directors of PPL thought it important for PPL to be able to present a professional space in order to host potential clients, investors, government officials and others with whom PPL had dealings.
As Ms Greville said, there was a heavy reliance by PPL on Perrine Architecture in the early stages of PPL's existence. The minutes of the meeting of the board of PPL on 22 May 2008 (JMP 18, page 332) record under the heading 'General Business':
6.1.JM advised the board that approx 60‑70% of his time and 50% of PA staff time was currently being spent on PP activity.
6.1.1DG had been provided with invoices from PA reflecting allocation of costs for time spent and rental costs
6.1.2Board acknowledged that this reflected the true cost of running the business
6.1.3JM advised that demand for payment would not be made to the detriment of PP's cash flow but would remain as an outstanding debtor until such time as payment could be made
[Reference to JM is a reference to Mr Perrine, and the reference to DG is to Ms Greville.]
Mr Perrine's evidence was that the rate of charging for the services provided by Perrine Architecture to PPL was well within general commercial rates for architectural services. I accept that evidence.
Mrs Perrine described the financial arrangements between PPL and Perrine Architecture as a running account relationship. She said that as part of that ongoing relationship, Perrine Architecture tendered invoices to PPL on a regular basis in relation to architectural and project fees, management fees, staff costs, office rent and outgoings, and project and administrative disbursements. At various times, Perrine Architecture transferred funds to, or made payments on behalf of, PPL and PPL made payments on behalf of Perrine Architecture. Mrs Perrine described those transactions as forming part of the running account. They were recorded through a loan account. The charges by Perrine Architecture to PPL for services were debited to an account referred to as the invoice account in the books of PPL. I will return to that evidence, and the objections to it, later in these reasons.
Mrs Perrine said that the payment arrangements between PPL and Perrine Architecture in respect of the combined running account was flexible and payments were only made by PPL to Perrine Architecture as and when PPL had funds to make a payment. That is consistent with Mr Perrine's advice to the board in September 2008 in the minutes referred to above. I accept that that was the basis of the financial relationship between PPL and Perrine Architecture.
Georgiou Group Heads of Agreement
By March 2009, PPL's board no longer enjoyed the commercial expertise of Mr Sergeant, Mr Bontempo or Mr Davin. Mr Perrine said that by that time the global financial crisis had begun to strongly impact on financial institutions and the market locally. He therefore decided to seek advice from a business acquaintance as to an appropriate person who might collaborate with PPL in the commercialisation and delivery of the Perrinepod concept. As a result, he was introduced to Mr John Georgiou in early March 2009. Mr Georgiou was the chief executive officer of Georgiou Group Pty Ltd (Georgiou Group). Companies associated with Georgiou Group included Georgiou Building Pty Ltd (Georgiou Building) and Georgiou Precast Pty Ltd (Georgiou Precast). Mr Perrine said that he gave Mr Georgiou a frank assessment of PPL to the effect that it needed a 'cashed up' partner to make headway in the market.
On 12 March 2009, Mr Georgiou wrote to Mr Perrine (JMP 21, page 351). Mr Georgiou said that the Georgiou Group was 'excited by the opportunity' to work with PPL. He proposed a six month marketing campaign funded jointly by PPL and Georgiou Group. The letter proposed that any projects generated during that six month period would be shared by PPL and Georgiou Group on the basis that PPL would receive its design fees; Georgiou Group would manufacture, supply and install the Perrinepods on a cost plus agreed margin basis; and any profits earned on a project above those fees would be shared 'in an equitable manner' by PPL and Georgiou Group.
Continuing negotiations were subsequently conducted by PPL's chief operating officer, Mr O'Neill. Negotiations on behalf of Georgiou Group were carried on by Mr Pangiarella.
By 7 May 2009, Georgiou Group and PPL had developed a statement of principles as to their ongoing relationship (JMP 23, page 363). By this time, PPL had negotiated and agreed with BHPB to construct seven multi‑occupancy two storey residences at Robinson Street, Port Hedland using the Perrinepod system for a price of $2.98 million (Robinson Street Project). Mr Perrine had been in discussions with Mr Frank Dilizia of Georgiou Building, with a view to Georgiou Building undertaking the work on the Robinson Street Project.
The statement of principles contemplated that Georgiou Group would be the exclusive builder and project delivery company for all non‑residential uses of Perrinepods where the number of pods used in a development is greater than three. PPL was to continue to develop the residential market requiring less than three Perrinepods per dwelling. PPL was to provide design, architectural and engineering services for any project identified by Georgiou Group, and Georgiou Group were to provide a range of services from sales and marketing to tendering and construction management. The statement of principles contemplated Georgiou providing 'interim funding' in respect to various costs, including losses on the Robinson Street Project. The repayment of that funding was to take place at the end of 12 months or some other earlier period to be determined, at which time Georgiou Group would be entitled to either repayment of the amount it had funded or conversion of that amount to equity in PPL, the conversion to take place broadly on the basis that $1.25 million represented 20% of the value of PPL.
Mr Perrine said that, in any of the negotiations with Georgiou Group to Mr O'Neill, he stipulated to Mr O'Neill that PPL's priorities in discussions with Georgiou Group included:
•for fees to be paid to PPL on the basis of Mr Georgiou's letter of 12 March 2009;
•the Georgiou Group completing small projects, and specifically the Ali and Millington Projects;
•Georgiou Group leading the development and marketing of the Perrinepod; and
•Georgiou Group taking over full delivery of all PPL projects.
On 4 September 2009, Mr O'Neill emailed Mr Martin Pugh of Georgiou Group (JMP 24, page 365) outlining a number of matters to be resolved between Georgiou Group and PPL. Among those was a reference to Georgiou Group supporting the completion of the Ali and Millington residences under the proposed heads of agreement on the basis that 'contribution would be defrayed against forward project profits'.
On 28 September 2009, Mr Perrine prepared a memorandum to Mr Georgiou concerning the meeting that had been arranged for execution of the heads of agreement between Georgiou Group and PPL. The memorandum referred to 'agreements reached' in relation to the provision by Mr and Mrs Perrine of personal guarantees to secure Georgiou Group's funding under the heads of agreement. Reference is then made to it being imperative that Georgiou Group undertake some smaller projects which PPL was not then in a position to complete, and in particular the Ali and Millington residences. The memorandum suggested that '[t]hese projects have to be formally acknowledged as being part of the JV process'. It continued:
I believe that we agreed informally that these projects (including Millington and Ali) can immediately flow to Georgiou project management for implementation, whether by GBC or independent builders, but under the control of GG. It is essential for me to have this acknowledgement with the signing of the JV agreement, that this is the case in moving forward.
The memorandum concluded by Mr Perrine asking that he be advised if he had misunderstood any element of the discussions.
On 30 September 2009, a meeting to sign the heads of agreement was held at Perrine Architecture's office. According to Mr Perrine, it was attended by Mr Georgiou, Mr Pangiarella, Mr Anthony Richard Vowles, Mr Pugh, Mr Dilizia, Mr O'Neill and Mr Perrine. Mrs Perrine was elsewhere in Perrine Architecture's office.
According to Mr Perrine, Mr O'Neill opened the meeting by saying words to the effect 'Jean‑mic has sent you all a memorandum, which I have printed copies of here in front of you. It is very important to Jean‑mic and Mercedes that these matters be acknowledged by Georgiou Group'. Mr Perrine said that he then briefly reiterated the contents of his memorandum, to which Mr Pangiarella responded to the effect that Mr Perrine's position had not changed in respect of those matters and that the heads of agreement had provision for what he wanted. He said that Mr Georgiou then nodded and said 'yes'. On that basis, Mr Perrine said that he agreed to sign the heads of agreement and Mrs Perrine, who said that she had overheard that conversation although she did not formally attend the meeting, agreed to sign the personal guarantee.
Apart from Mr Perrine, the only other person present at that meeting to give evidence was Mr Vowles. He is the general manager of risk at Georgiou Group and in 2009 was its commercial manager. He said that negotiations regarding the heads of agreement were predominantly held between Mr Pangiarella on behalf of Georgiou Group, Mr O'Neill, and Mr and Mrs Perrine. Mr Vowles' role was to incorporate the terms of the agreement into the heads of agreement. Mr Vowles said, at the meeting, Mr Perrine said that he did not require Georgiou to be the builder on every project but wanted to know there was a system in place which would enable him to deliver the product and complete smaller projects which would attract interest in the product. Mr Vowles said that Mr Pangiarella replied that he was aware of discussion of those kinds of matters at the steering committee level and that the arrangements under the heads of agreement were flexible enough to cover small projects 'but there needed to be more discussion with the steering committee about how this might happen'.
Mr and Mrs Perrine were unrepresented at trial, and Mr Perrine's cross‑examination of Mr Vowles did not challenge Mr Vowles' evidence as to the meeting on 30 September 2009.
Mr Perrine was not directly cross-examined on his account of what was said at the meeting on 30 September 2009 when the heads of agreement were signed. Mrs Perrine was cross‑examined as to whether or not some amendment to the heads of agreement to provide for completion of the Ali and Millington residences was discussed at the meeting. Although she was not participating in the meeting, she said that she was able to overhear what was said as she was within five metres of where the meeting was taking place in an open plan office. She said that certain amendments were agreed to be made to the heads of agreement to reflect what was said in the memorandum of 28 September 2009, but those amendments were never made.
There is some common ground between Mr Vowles' account of what occurred at the meeting of 30 September 2009 and Mr Perrine's account of that meeting. Mr Vowles acknowledged that Mr Perrine 'wanted to know there was a system in place which would enable him to deliver the product and complete smaller projects which would attract interest in the product'. It is reasonable to conclude that that was a reference to the Ali and Millington projects, which were always intended to be utilised for marketing purposes. Mr Vowles said that Mr Pangiarella replied that he was 'aware that these kinds of matters had been discussed at the steering committee level but was not aware of the detail', and that 'arrangements under the heads of agreement were flexible enough to cover smaller projects but there needed to be more discussion with the steering committee about how this might happen'. Mr Vowles also referred to Mr Perrine saying he wanted to avoid having to deal with a number of builders 'because he had jobs which needed action or which would otherwise lead to complaints if he hadn't delivered'. The only jobs which needed action at that time, other than the Robinson Street Project, were the Millington and Ali Projects. Mr Vowles said that Mr Georgiou said in reply that 'they could discuss these matters further after he returned from leave'.
Mr Perrine's account of the exchange was that Mr O'Neill made reference to the memorandum of 28 September 2009 to which Mr Pangiarella responded by acknowledging Mr Perrine and saying 'I can tell you that the heads of agreement has provision for what you want', before suggesting that the matter could be dealt with on Mr Georgiou's return from Japan.
The thrust of both Mr Vowles' evidence and Mr Perrine's evidence is to the effect that the Ali and Millington Projects could be undertaken within the terms of the existing heads of agreement. It is apparent that Georgiou Building had taken steps in relation to the Ali Project well before the heads of agreement were signed. On 13 November 2009, Mr Vowles sent an email to Mr Dilizia (JMP 29, page 569) confirming that house indemnity insurance had been effected in accordance with an email sent by Mr Dilizia on 15 June 2009. On 18 November 2009, Mr Lelio Gaudieri, general manager of Georgiou Precast, emailed Mr Perrine (JMP 28, page 572) advising that production of the precast panels for the Ali Project was scheduled for commencement and would take 33 days to complete.
I accept Mr and Mrs Perrine's evidence that they were willing to provide personal guarantees, which they did contemporaneously with the signing of the heads of agreement, because they expected the arrangements with Georgiou Group would enable PPL to meet its obligations to Mr Ali and Mr Millington. That necessity was made clear in Mr Perrine's memorandum of 28 September 2009. The likelihood is, and I find, that Mr Perrine reiterated the position outlined in that memorandum, and signed the heads of agreement and guarantee on the strength of an assurance as to the position. I find that, although the details of precisely how financial arrangements for completion of those jobs were not resolved, the outcome of the meeting on 30 September 2009 was that those projects would be undertaken by Georgiou Group broadly along the lines that the costs of completion of the project were treated as a loan which would either be met from future profits on other projects or through Georgiou Group taking equity in PPL as contemplated under the heads of agreement.
The heads of agreement as ultimately executed reflected the statement of principles that had been agreed in May 2009. At the same time as the heads of agreement were signed, Georgiou Group signed a contract with PPL to complete the Robinson Street Project as builder so as to enable PPL to fulfil its contract with BHPB.
The Robinson Street Project
Mr Perrine said that the Robinson Street Project came about after a number of the key accommodation asset decision makers in BHPB stayed at the Dwyer Motel sometime in late 2008 or early 2009. Mr Perrine said he was subsequently contacted by one of BHPB's representatives, a Ms Truman, who asked Mr Perrine to negotiate with another representative of BHPB, Mr John Bunt, for delivery of the seven multi‑occupancy two storey residences in Robinson Street. It is clear that Mr Perrine saw this as an opening to a potentially lucrative relationship with BHPB, and as a precursor to more work in the north west of Western Australia.
Mr Perrine said that, with the background of known costs from the Dwyer Project, he was confident that the Robinson Street Project could be profitable and viable. He said that he was influenced by the fact that he had located alternative pre‑casting options which would achieve efficiencies, and the fact that early discussions with Georgiou Precast were pointing to significant cost improvement in relation to pre‑casting panels.
Before engaging Georgiou Group for the Robinson Street Project, Mr Perrine's relationship with Mr Impicciatore and JADD had become strained over the issue of additional costs on the Dwyer Project and disagreement in relation to another project which JADD had done for Mr and Mrs Perrine. Mr Perrine had approached JADD in relation to the Robinson Street Project but Mr Impicciatore had offered him only a 'ball park figure', which Mr Perrine considered was well outside the comparative costs, including the additional costs claimed by JADD, in relation to the Dwyer Project. Mr Perrine did not proceed with using JADD for the Robinson Street Project.
Instead, Mr Perrine carried out a costs analysis based on information available to PPL, and asked another builder, Jamm Industries Pty Ltd (Jamm) to provide an estimate of fitout costs. Mr Perrine said that he calculated that PPL could agree to BHPB's target price of around $3 million and make a profit, and in doing so consolidate an opportunity to become a preferred BHPB contractor. Accordingly, Mr Perrine said that he instructed Mr O'Neill to make an offer to BHPB of $2.98 million, which was then accepted in or about March 2009 (although the figure of $2.98 million does not appear correct - the actual contract sum was $2,905,000). Mr Perrine said that he subsequently negotiated further terms of the contract with BHPB which were advantageous to PPL. One of those was an ability of PPL to claim for cost variations. Another was the elimination of any penalties for late completion and any requirement for security being provided to BHPB.
BHPB made an advance payment on the contract of $290,000 plus GST to PPL in March 2009.
Mr Perrine said that, in early March 2009, he asked Mr Dilizia of Georgiou Building to price the Robinson Street Project. Georgiou Building produced a cost estimate which exceeded PPL's expected costing and the contract price. In an email from Mr Perrine to Mr Dilizia of 13 May 2009 (JMP 27, page 566), Mr Perrine suggested that the estimate resulted in a cost overrun of $600,000 to $800,000. In that email, Mr Perrine identified the discrepancies between PPL's costing and Georgiou Building's costing, and asked that consideration could be given to various suggestions for a cost reduction. The email concluded:
The two flow on projects (RSL - negotiated & sports club - tender [with favourable conditions for ppod] are at least in part funded by BHPB. Each has strong opportunities for offsetting any deficit that occurs on this Robinson Street Project. This project sets up significant opportunities in the region. Our mutual aim is to reach the leanest possible deliverable model and to subsequently agree on suitable margins for the parties on flow on projects.
Mr Dilizia responded the following day (JMP 27, page 568). He said that Georgiou Building's current updated figure reflected certain reductions which resulted in a total project cost of $3,382,520. He said that based on that cost, and a contract value of $2,905,000, the shortfall would be in the order of $477,520. He said that Georgiou Building were 'still looking at the other areas of cost savings that you noted in your email' and would revert by the time the parties next met.
Mr Perrine said that well before the heads of agreement was executed and the building contract signed between Georgiou Building and PPL for the Robinson Street Project on 30 September 2009, Georgiou Building were already acting as builder for the project. He said they had all necessary insurances and preliminaries in place and had fully tendered and contracted the project to its subcontractors. Mr Perrine said that Georgiou Building began physical work on the pre‑cast elements of the Robinson Street Project in early May 2009 and began managing the project fully in late May 2009 when works began on site.
That evidence is consistent with the contents of the statement of principles as to the relationship between Georgiou Group and PPL referred to above (JMP 23, page 363). Paragraph 9(b) of the statement of principles provided:
Losses (if any) on the BHP Robinson Road job (with the exception of those items excluded in the contract between Georgiou and Perrine re LDs etc). All Direct Costs will be subject to the scrutiny of 'open book' principles. Any shortfall (loss) incurred by Georgiou in recovering its Direct Costs from the Robinson Road project shall be a debt owing to Georgiou by Perrine and shall fall under this principle of interim funding.
As already noted, the contract between PPL and Georgiou Building for the construction of the Robinson Street Project was eventually signed on 30 September 2009, at the same time as the heads of agreement were signed. The contract price was $2,905,000, being the same as the contract price between PPL and BHPB. Special condition 12.0 of the contract with Georgiou Building provided:
This agreement shall be read in conjunction with the separate agreement entitled 'heads of agreement' signed by both parties and dated 30 September 2009.
Where there is inconsistency between this agreement and the heads of agreement, the terms of the heads of agreement shall take precedence (JMP 26, page 396).
Mr Perrine said that the Robinson Street Project progressed relatively well between May 2009 and October 2009. He said that there were significant construction management failings by Georgiou Building and issues with the pre‑cast by Georgiou Precast. BHPB sought variations, and Mr Perrine said that there were some engineering design failures by CID Consultants Pty Ltd (CID) which required redress on site.
It is clear that there were cost overruns in relation to the Robinson Street Project, although the state of the evidence is such that the extent of those is difficult to identify.
PPL's financial position as at 30 June 2009
Mrs Perrine was responsible for recording and maintaining the financial records of the various companies associated with herself and her husband, including Perrine Architecture and PPL. She carried out an analysis of PPL's financial position, in particular the state of its creditors in each of the financial years 2008/2009 to 2010/2011, and for the period leading up to the order for PPL's winding up on 1 March 2012. The accuracy of the figures which she presented was generally not in issue.
Set out below is a table of current liabilities reproduced from Mrs Perrine's affidavit of 3 August 2015. Objection was taken to the second column of the table headed 'Status' on the basis that the comments as to status are conclusions, submissions, inadmissible opinions or hearsay evidence. Mrs Perrine was intimately involved in the accounts and financial dealings of PPL. She expanded on the comments in the status column subsequently in her affidavit. She is qualified to give evidence as to her reasons for the treatment of various entries in the books of PPL and as to the existence or otherwise of a dispute concerning debts recorded in the books. I will deal more specifically with Mrs Perrine's evidence in relation to recorded debts below.
In the financial year 2008/2009, PPL received $1,013,566.43 in trade income, principally from BHPB and Mr and Mrs Dwyer. That sum also included payments slightly in excess of $150,000 in relation to other projects which were in various stages of early planning. In addition, PPL received $123,688 in GST funds and government grants, so that PPL's total income, excluding any loan funds, was $1,137,254.43. At the end of the financial year, PPL had trade receivables of $356,402.24. In the year, PPL made supplier payments totalling $934,436.61 to suppliers other than Perrine Architecture. Those payments were made either directly by PPL or through what Mrs Perrine described as the Perrine Architecture running account.
Mrs Perrine said that at the end of financial year 2008/2009, the creditors making up the current liabilities shown in the company's accounts of $977,547.25 were made up as follows:
Customer
Status
Amount ($)
Accue Pty Ltd
Disputed Creditor
67,786.46
Action Couriers
Undisputed Creditor
29.74
Aldas Caffe e pannini
Undisputed Creditor
283.50
Cardno Saraceni
Disputed Creditor
2,335.30
CID Consultants
Undisputed Creditor
23,061.50
Citylife Holdings Pty Ltd
Undisputed Creditor
18,600.00
Dean & Rowick
Undisputed Creditor
5,814.60
Diversified Exhibitions
Disputed Creditor
2,339.95
Evolution Capital Partners
Undisputed Creditor
660.00
Forbes
Amount not payable
590.84
Georgiou Group Pty Ltd
Amount not payable
29,700.00
Golja Haines & Friend
Undisputed creditor
86.12
Hutchison 3G Australia Pty Ltd
Undisputed Creditor
354.10
iiNet
Undisputed Creditor
59.90
Jadd Projects
Undisputed Creditor
341,749.83
JMG
Undisputed Creditor
4,903.17
Milestone Building Compliance
Undisputed Creditor
1,850.00
Optimus Partners
Undisputed Creditor
2,519.00
Perrine Architecture
Running Account (PA)
470,720.64
Team Digital
Undisputed Creditor
181.50
Telstra
Undisputed Creditor
186.25
True North Building Therm
Undisputed Creditor
2,310.00
Wilson Parking
Undisputed Creditor
434.89
Worldwide Online Printing
Undisputed Creditor
990.00
Closing balance FY 2009
977,547.25
Mrs Perrine said that PPL did not consider the amount of $67,786.46 to be a debt due by PPL to ACCUE, and that the debt was reversed from the books of PPL on 30 June 2010. That is consistent with Mr Perrine's evidence as to the circumstances in which the relationship between PPL and ACCUE came to an end (see [46] above). In the circumstances, I am not satisfied that the plaintiff has established that the sum recorded in the books of PPL as a debt to ACCUE as at 30 June 2009 was in fact payable.
As to the Cardno Saraceni debt of $2,335.30, Mrs Perrine said that she was unaware of the basis of the dispute as to that invoice, which related back to the previous financial year during the period of Ms Greville's employment. She said that the amount was never pursued by the supplier and it was reversed out of the books of PPL on 30 June 2010. Given that Cardno Saraceni apparently did not seek payment, I am not satisfied that that debt was due and payable as at 30 June 2009.
As to the debt to Diversified Exhibition, Mrs Perrine said that during the period of Ms Greville's employment, Ms Greville committed PPL to participate in a building exhibition in the eastern states. In the financial year 2007/2008, Diversified Exhibitions invoiced, and PPL paid, a total of $2,718.65 in commitment fees. PPL subsequently opted out of the exhibition. Mrs Perrine said that on 13 August 2008 PPL received an invoice for $6,043.95 from Diversified Exhibitions, which PPL disputed on the basis that it was bound only to the commitment fee which it had already paid. Mrs Perrine said that following Ms Greville's departure, Mr O'Neill agreed to pay Diversified Exhibitions a portion of the disputed invoice, and $1,000 was paid on 10 December 2008 and a further $2,000 was paid on 20 May 2009. No further claim was made by Diversified Exhibitions and the balance reflected in the books as at 30 June 2009 was reversed out on 31 December 2010.
The balance of $590.80 in relation to Forbes was thought by Mrs Perrine to relate to an invoice adjustment in the financial year 2007/2008. It was reversed out of the books of PPL on 30 June 2010. The plaintiff has not established that that bill was due and payable as at 30 June 2009.
The debt of $29,700 to Georgiou Group Pty Ltd was not in dispute at 30 June 2009, but Mrs Perrine said that it related to the terms of the heads of agreement (perhaps more accurately, the statement of principles) between PPL and Georgiou Group and was thus not then due and payable. Mrs Perrine's evidence that the debt was not payable is inadmissible as an opinion or conclusion. It is, in effect, a submission, and whether or not the debt was due and payable requires an examination of the evidence which relates to it. I was not taken to any evidence as to the precise nature of this alleged debt. All of the evidence concerning the dealings between Georgiou Group and PPL is related to the statement of principles and the heads of agreement. Those documents contemplated deferral of PPL's liability for debts to Georgiou Group until the latter made its election to take equity or seek payment. In the circumstances, I am not satisfied that the debt to Georgiou Group was due and payable as at 30 June 2009.
As to the JADD Projects debt, Mrs Perrine said that as at 30 June 2009, the amount shown as a debt to JADD in PPL's books was not in dispute but that, shortly after the end of that financial year, $278,249.28 of the debt became the subject of dispute. I have referred above (at [40]) to the fact that Mr O'Neill acknowledged a debt of $237,810 as due from PPL to JADD on 26 November 2009. Having regard to the commercial reality of PPL's position as at 30 June 2009, the amount of $341,749.83 should be taken as due and owing by PPL to JADD.
Mrs Perrine calculated that once allowance was made for the debts which were not payable as at 30 June 2009, being the debts to ACCUE, Cardno Saraceni, Diversified Exhibitions, Forbes, Georgiou Group and Perrine Architecture, the balance of debts due and payable as at 30 June 2009 was $404,074.10. Against that, the trade receivables recorded in the books of PPL were $356,402.24. After allowance was made for the receivables, the deficit available for payment of debts due was $47,671.86. Mrs Perrine said that she had every expectation that that shortfall could be covered from customer receipts due to be invoiced by PPL, or by ongoing support from Perrine Architecture, which in the financial year 2009/2010 received income unrelated to PPL of $762,884.43 and showed a net profit of $83,247.
PPL's solvency as at 30 June 2009
I am not satisfied that, having regard to the commercial realities of PPL's trading position as at 30 June 2009, the plaintiff has established that PPL was insolvent at that time. There is no doubt that, particularly in the last six months of that year, PPL was encountering difficulties with cash flow. That was a matter acknowledged by Mr Perrine both at the time in directors' meetings and when he gave evidence in this matter. It was the realisation of PPL's need for cash that led to PPL engaging in negotiations with parties capable of providing working capital which would enable commercialisation of the Perrinepod concept so as to realise its potential in the market. There seems no doubt that the Perrinepod concept was viewed as having significant potential by those external directors or consultants who were involved in PPL's early formation, and by external parties like Georgiou Group and others with whom Mr Perrine subsequently undertook negotiations with a view to some form of joint enterprise.
The commercial realities to which I have had regard in reaching the conclusion that the plaintiff has failed to establish that PPL was insolvent as at 30 June 2009 are that:
•When PPL's balance sheet for 30 June 2009 is viewed in light of the analysis undertaken by Mrs Perrine and set out above, the shortfall between debts payable to 30 June 2009 and trade receivables as at that date is the relatively small amount of $47,671.86. Precisely when the debts payable were in fact due for payment, and when receipts of trade receivable were due, was not the subject of analysis.
•PPL was enjoying financial support from Perrine Architecture, both in the form of forbearance in relation to amounts due for rental and other services, and from time to time by way of payments made by Perrine Architecture to PPL's creditors.
•PPL was also enjoying support from Mr Ali and Mr Davin in relation to payments that had been made on account of the Ali Project and the Millington Project. Mr Ali and Mr Davin were not independent third party creditors. Both were advisers to the original board of PPL and Mr Davin was a director at the time he advanced funds to PPL repayable on completion of the Millington Project. Mr Ali became a director of PPL in March 2009. It is abundantly clear that each of Mr Davin and Mr Ali were aware of PPL's cash flow position and that they understood that the prospective building projects would be completed when PPL was in a position to do so.
•The basic structure of the joint enterprise by Georgiou Group and PPL was in place by May 2009. That structure was specifically designed to enable projects using the Perrinepod system to be identified and developed in a way which relieved PPL of immediate cash liabilities.
Demand by JADD Projects
On 22 July 2009, Mr Serdar of JADD emailed Mr Perrine (GMC 23, page 601). The email stated that unless a substantial payment could be made on outstanding accounts and guaranteed payments could be established for the Millington Project, JADD could not continue to finance the Perrinepod Projects and would be unable to continue with the Millington Project. A further email was sent by Mr Serdar to Mr O'Neill on 22 October 2009 seeking confirmation of acceptance of the 'final invoicing on the Dwyer Project' (GMC 23, page 602). As noted earlier, on 26 November 2009, a reconciliation of the debt in relation to the Dwyer Project was sent by JADD to PPL. JADD also sought to terminate its building contracts in relation to the Ali and Millington Projects.
On 26 February 2010, Mr O'Neill emailed Mr Serdar concerning outstanding payments to JADD (GMC 23, page 606). The email referred to some previous proposals in relation to the JADD debt which had been rejected by JADD and concluded by saying:
[W]e are hopeful that activity currently being experienced will be sufficient to cover construction costs on current projects and to generate some surplus levels during the first half of 2010 that will enable us to commence paying down the current outstandings to JADD.
On 6 October 2010, Hotchkin Hanly, lawyers acting on behalf of JADD, made formal demand for payment within 14 days of the amount of $237,810, being the amount that had been acknowledged by Mr O'Neill on 26 November 2009 as being due and owing.
PricewaterhouseCoopers
The second defendants admit in their defence that on 30 July 2009, PricewaterhouseCoopers (PWC) rendered an invoice, number 29072747, to PPL in respect of services rendered to PPL (TB 28, pages 86 ‑ 87). The plaintiff pleads that that invoice was payable by no later than 14 August 2009 but was not paid in full until 30 June 2010. That assertion is supported by the invoice which contains a footnote saying '[y]our remittance within 14 days is requested'. The defendants deny that payment was due by 14 August 2009 on the basis that PPL had a flexible agreement with PWC that PWC would be fully paid for their work, which related to obtaining a tax offset for research and development, calculated as 20% of the payment received by the company. That pleading is consistent with a reference to an arrangement to that effect in the body of the invoice and with an email from Mr O'Neill to Mr and Mrs Perrine of 29 April 2009 (JMP 70, page 947).
The plaintiff adduced no evidence of further demands by PWC for payment of the 30 July 2009 invoice. That is to be contrasted with PWC's attitude to payment of later invoices in late 2010 (GMC 19, page 581) when PWC made clear demands for payment. I do not consider that the request for remittance within 14 days, which appears to be a standard footer note on PWC's invoice, provides a basis to reject the defendants' assertion that a payment arrangement, tied to receipt of the taxation offset, had been made with PWC.
In Clifton, Peek J referred to the explanation by Dawson, Gaudron and McHugh JJ in Airservices Australia v Ferrier (502 ‑ 503) of the operation of the 'running account defence', and continued [68]:
Essential elements of the running account defence are therefore a continuing relationship of debtor and creditor and that payments are made in the mutual expectation that the creditor will continue to supply the debtor. In order to determine whether such an expectation exists, it is necessary to look at the particular circumstances from which it may be inferred since usually there will be no express statement that a payment is being made in the expectation that the supplier will continue to supply. As Barwick CJ said in Queensland Bacon Pty Ltd v Rees:
'In my opinion, it is enough if, on the facts of any case, the court can feel confident that implicit in the circumstances in which the payment is made is a mutual assumption by the parties that there will be a continuance of the relationship of buyer and seller with the resultant continuance of the relation of debtor and creditor in the running account, so that, to use the expressions employed in Richardson's case at 113: "it is impossible" ‑ I interpolate, in a business sense ‑ "to pause at any payment into the account and treat it as having produced an immediate effect to be considered independently of what followed …"' (references omitted)
Justice Peek concluded that it is possible to have a continuous business relationship notwithstanding the presence of a suspicion of insolvency. His Honour said [69] ‑ [70]:
I find that from the start of the relation back period on 3 April 2006 until 13 July 2006, there was a running account between CSR and AFPL. I do so notwithstanding my previous findings that CSR had reasonable grounds for suspecting the insolvency of AFPL during that same period. I respectfully agree with the view expressed by Santow J in Sutherland v Eurolinx, that it is possible to have a running account despite the presence of a suspicion of insolvency. His Honour said:
'[163]… If it be put that actual knowledge of insolvency must invariably terminate the necessary business relationship then I would not accept that proposition. That would presuppose, incorrectly, that a subjective suspicion of insolvency cannot coexist with an assumption of a continuing business relationship between creditor/payee and debtor/payer. That is incorrect as an invariable proposition, on the authority of Airservices Australia. Knowledge of insolvency in that case did coexist for all the payments, including the nine not set aside. The statements of principle by the High Court clearly do admit of that coexistence of knowledge and running account; they make no distinction between subjective and objective knowledge.
[164]However, the Plaintiff’s qualification may legitimately be put somewhat lower. One may accept that a level of actual suspicion, if it finally reaches actual subjective knowledge of insolvency, may, but not necessarily, lead to the termination of that continuing business relationship and its associated mutual purpose of payment to induce further supply. Thus the fact of such actual knowledge may (but need not necessarily) rebut, as even one of two purposes, that purpose of inducing the creditor to maintain the relationship by providing further supply. An example of the latter case is to be found in the circumstances surrounding the last payment in Airservices Australia itself. There, as I have explained, the latter purpose was subordinated to getting the creditor's money back.' (Emphasis in italics in original; emphasis in bold added)
Despite there being reasonable grounds for CSR to suspect the insolvency of AFPL at the time of the first two payments, and despite the particular problems that CSR had had with AFPL in the payment of the October 2005 account in December 2005 and January 2006, I consider that there was still a relationship based on mutual benefit subsisting up to 13 July 2006. (references omitted)
I accept that Mr and Mrs Perrine genuinely believed that PPL had good prospects of success in their claims against Georgiou Group in respect of which they commenced proceedings in August 2010 (LP 15, pages 225 ‑ 260). They had legal advice to that effect. Whilst the debt under the adjudication was due and payable, a successful claim against Georgiou Group would have resulted in an adjustment of the respective liabilities of PPL and Georgiou Group: Construction Contracts Act s 45(4). PPL had undertaken proceedings directed to setting aside the adjudication. Those proceedings were not finally completed until the Court of Appeal delivered its decision on PPL's appeal in October 2011. Although PPL had other debts and liabilities which predated July 2010, some of which were in dispute, it is apparent that PPL undertook several projects after July 2010 that appear to have been successfully completed and in respect of which no creditors have proved in the liquidation. It is clear that, throughout that period, PPL enjoyed the financial support of Perrine Architecture both in the form of forbearance on payment of Perrine Architecture's invoices (in accordance with the terms on which these two companies had always operated) and by the payment of PPL's creditors by Perrine Architecture from time to time. There is no reason to conclude that that ongoing arrangement altered at any time in the second half of 2011. The support provided by Perrine Architecture, and the payments made by Perrine Architecture on behalf of PPL from time to time, were designed to facilitate the continuing supply of services and funding by Perrine Architecture which enabled PPL to continue operating, and provided the benefit to Perrine Architecture in the sense that PPL was a consumer of its services.
There is no basis to conclude that the payments which are claimed as unfair preferences were made with PPL's insolvency in mind.
Perrine Architecture is entitled to the benefit of s 588FA(3), and the claim for unfair preference payments is not made out.
Uncommercial transactions and unreasonable director‑related transactions
The plaintiff claims that certain transactions undertaken by PPL were voidable transactions by reason that they were uncommercial transactions as defined in s 588FB or unreasonable director‑related transactions within the meaning of s 588FDA: see s 588FE(3) and s 588FE(6A).
Section 588FB(1) describes what is an uncommercial transaction. It provides that:
(1)A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(a)the benefits (if any) to the company of entering into the transaction; and
(b)the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d)any other relevant matter.
An unreasonable director‑related transaction relevantly includes a payment made by the company to the director of the company, or a close associate of a director , or a person on behalf of or for the benefit of a director or close associate of a director, where it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction having regard to:
(1)the benefits (if any) to the company of entering into the transaction; and
(2)the detriment to the company of entering into the transaction; and
(3)the respective benefits to other parties to the transaction of entering into it; and
(4)any other relevant matter.
Defendants' evidence as to uncommercial transactions
As noted at the beginning of these reasons, in opening the plaintiff's case at trial, counsel for the plaintiff announced that he was instructed that the liquidator did not press [210] to [214] of the statement of claim, which asserted liability on behalf of Mr and Mrs Perrine in relation to the transactions said to be uncommercial transactions (which are discussed below) on the basis that entry into those transactions contravene to s 588G and Mr and Mrs Perrine were liable for failing to prevent those transactions occurring. It was submitted that the consequence of the abandonment of that aspect of the claim was that none of the evidence filed by Mr and Mrs Perrine in the proceedings could be received as evidence in defence of the position of Perrine Architecture. That was said to be so because, on 9 April 2015, I made orders declaring that the solicitors previously on the record for all defendants had ceased to act. By reason of O 4 r 3(2) and O 12 r 1(2) of the Rules of the Supreme Court 1971 (WA), Perrine Architecture was precluded from taking a step in the proceedings other than through a practitioner. The plaintiff's position was that, although the evidence of Mr and Mrs Perrine which went to the question of the commerciality of the alleged uncommercial transactions would have been relevant and admissible when their affidavits were filed and had the claims at [210] to [214] of the statement of claim been maintained, it was not open to them to adduce that evidence after the claims had been abandoned. The particular evidence covered by that proposition was not identified. Thus, it was submitted that none of the evidence filed by Mr and Mrs Perrine could be received as evidence in defence of the position of Perrine Architecture. To uphold that submission, an analysis of all of the evidence adduced by Mr and Mrs Perrine is required to assess whether or not the evidence is directed to defence of a claim against them, or directed to a claim against Perrine Architecture, or both. Fortunately, that is not a task which I consider is necessary to undertake.
The issue of PPL's solvency, the question of reasonable grounds to suspect that the company was insolvent, and the defence under s 588H, necessarily involved an examination of PPL's trading history and, in particular, the many transactions identified in the plaintiff's pleading. The particular transactions that are asserted to be uncommercial transactions are relevant in that context. It would be artificial to compartmentalise the evidence in relation to particular transactions by reference to the particular cause of action upon which compensation is sought in relation to the transaction. The evidence of Mr and Mrs Perrine that relates to the alleged uncommercial transaction, and for that matter the alleged unfair preferences, was relevant to the question of solvency of PPL and grounds for suspicion of insolvency. Having received the evidence in that context, it becomes evidence in the trial to which regard can be had in dealing with all the issues to be determined, including the claims against Perrine Architecture. The adducing of that evidence by Mr and Mrs Perrine does not offend the requirement that a corporation not take a step in a proceeding other than through a legal practitioner. Although Perrine Architecture was not represented at trial, the plaintiff must prove his claim: Stone v Smith (1887) 35 Ch D 188, 190; O 34 r 2 of the Rules of the Supreme Court. The court is entitled, and indeed bound, to have regard to all relevant evidence before it in assessing whether the plaintiff's case is proved.
Tax refund payment
In September 2010, PPL received a tax refund in the amount of $75,697.48. That tax refund was paid to Perrine Architecture, and the amount of the tax refund was credited to the Perrine Architecture loan account on 2 September 2010. At the time, PPL was indebted to Perrine Architecture on the invoice account in the sum of $1,838,508.18. Perrine Architecture was indebted to PPL in the sum of $382,780.03, so that the net position was that PPL owed $1,455,728.15 to Perrine Architecture.
There are several bases upon which the plaintiff contends that the tax refund payment was an uncommercial transaction. It is not in issue that it was a transaction made within the relation back period, and I have concluded that the payment was made when PPL was insolvent.
The plaintiff pleads that the payment was made at a time when PPL was not taking on any new work. In response, the defendants admit that PPL was not taking forward building orders, but say that PPL had viable existing understandings of various parties in relation to projects on its books and continued to actively pursue new fully funded work and other income producing opportunities. I accept that throughout 2010 and 2011, PPL continued to explore projects which had realistic prospects of realising significant future profits. PPL can hardly be criticised for not taking on new projects unless they were fully funded.
The plaintiff contends that the tax refund payment benefitted Perrine Architecture by increasing the net asset position of that company by the amount of the tax refund payment. I do not accept that contention. Prior to receipt of the payment, Perrine Architecture had a debt owed to it by PPL in excess of $1.5 million. Receipt of the tax refund payment decreased value of the debt owed to it by the amount of the payment. There was no net change in Perrine Architecture's asset position.
It is said by the plaintiff that the tax refund payment benefitted Mr and Mrs Perrine in their capacity as directors and shareholders of Perrine Architecture. That contention is denied by the defendants. Given that the net asset position of Perrine Architecture did not change, the basis of that contention is unclear.
The plaintiff also contends that the payment could have been used to pay other outstanding creditors some of whom were pressing for payment of amounts due to them, and at a time when Mr Ali was pressing for progress on the construction of his house at 10 Warralong Way. It will be recalled that throughout the latter part of 2010, DRH were carrying out works in relation to the Millington Project and negotiations were underway in relation to arrangements with Walltech which would have included completion of the Ali contract. It is apparent that throughout September and October 2010, Perrine Architecture made payments to, or on behalf of, PPL. While it might have been preferable that PPL had retained funds and paid its creditors directly, the commercial effect of the arrangements between PPL and Perrine Architecture was that the amount of the tax refund payment appears to have been utilised by Perrine Architecture to meet PPL's ongoing creditors.
The final matter relied upon by the plaintiff is that PPL was insolvent at the time that the tax refund payment was made. That is true. It is not, by itself, a reason to conclude that the tax refund payment was an uncommercial transaction. The payment benefited PPL by reducing its overall debt to Perrine Architecture. PPL suffered no detriment in the sense of any change in its asset position. In essence, it was simply a transaction on the ongoing running account between PPL and Perrine Architecture which enabled PPL to pursue its prospective projects with a view ultimately to establishing a profitable business.
Perrine Architecture payments
The loan account for Perrine Architecture in PPL's books shows the following debits being made:
Date
Amount
15 February 2011
$27,888.88
1 April 2011
$154,677.05
18 April 2011
$120,000.00
3 May 2011
$49,000.00
Total
$351,565.93
These are referred to in the statement of claim as the 'PA payments'.
The plaintiff contends that these were uncommercial transactions or alternatively unreasonable director‑related transactions. The plaintiff pleads that the payments were uncommercial transactions because PPL was insolvent at the time that it made them, PPL was not taking on any new work, the payments benefited Perrine Architecture by increasing the net value of its assets and benefited Mr and Mrs Perrine in their capacity as directors of Perrine Architecture, and was made at a time when Perrine Architecture was insolvent.
The last of those contentions, that Perrine Architecture was insolvent at the time that the payments were made, invites an examination of Perrine Architecture's financial position which was only lightly addressed during the course of the hearing and was not developed in submissions. Reference is made in the pleadings (SC [98(f)]) to Perrine Architecture's financial statements as at 30 June 2011 and various bank account statements contained in the trial bundle, but is not otherwise referred to in submissions or evidence.
Paragraph 98 of the defence pleads that Perrine Architecture received just under a $1 million in income from independent sources in the financial year ended 30 June 2011, that the net operating loss recorded in Perrine Architecture's books and accounts was a result of bad debts being written off, and that Perrine Architecture had access to loans from Casas (WA) Pty Ltd, the trustee of the Perrine Trust. The financial records of Perrine Architecture produced at the hearing support those contentions. I am unable, from that limited information, to conclude that Perrine Architecture was insolvent at the time the various payments were made.
Beyond the entries in the books of PPL which reflect the PA payments, I was not taken to any evidence which explains the circumstances in which they were made. The defendants plead that the debit of $154,677.05 made on 1 April 2011 was not a payment of cash by the company to Perrine Architecture but was the transaction on the loan account in relation to the Terrace Hotel which occurred in the circumstances pleaded at [103] of the defence [D 97(a)(1)]. Paragraph 103(b) of the defence is set out above at [235].
The evidence goes no further than to identify that Perrine Architecture's loan account was debited with the PA payments. It is reasonable to infer from the terms of the defence that, other than the payment on 1 April 2011, the defendants admit that the funds reflected in the books were actually paid to Perrine Architecture. The Perrine Architecture loan account reveals that at the same time, or shortly after each payment, substantial payments were made by Perrine Architecture to or on behalf of PPL. In the context where there was clearly some juggling of funds between PPL and Perrine Architecture, and where no detailed analysis of the transactions has been undertaken by the plaintiff, I am not satisfied that the PA payments constitute either uncommercial transactions or unreasonable director‑related transactions.
The net asset position of PPL did not change as a result of any of the transactions. Although the reasons for payment of PPL's creditors by Perrine Architecture is not clear, each advance of funds by PPL to Perrine Architecture was followed by credits to the loan account which appear to reflect payments made by Perrine Architecture to or on behalf of PPL, in each case for amounts greater than the amount advanced. It cannot be said that a reasonable person in PPL's circumstances would not have entered into the transactions.
Preference payments
The plaintiff also contends that the payments which are said to be unfair preference payments (SC [112] ‑ [119]) were also uncommercial transactions or unreasonable director‑related transactions. In the circumstances which the running account was conducted and given the continuous business relationship between PPL and Perrine Architecture, which I have discussed above, I do not consider that a reasonable person in the company's circumstances would not have entered into the transaction notwithstanding that PPL was insolvent.
Uncommercial payments
Paragraph 120 of the statement of claim lists nine invoices rendered by Perrine Architecture to PPL between 1 October 2009 and 23 February 2010 which it is said PPL paid to Perrine Architecture on or about 30 June 2010. The invoices referred to are as follows:
Perrine Architecture Invoice Ref
Invoice Date
Amount Invoiced
Amount Paid
594
1 October 2009
$7,762.34
$7,762.34
604
11 November 2009
$7,816.70
$7,816.70
606
17 November 2009
$22,000.00
$22,000.00
607
17 November 2009
$22,000.00
$22,000.00
608
17 November 2009
$33,000.00
$33,000.00
609
17 November 2009
$71,500.00
$71,500.00
610
17 November 2009
$121,000.00
$121,000.00
612
1 December 2009
$7,649.86
$7,649.86
625
23 February 2010
$371,250.00
$317,399.43
TOTAL
$663,978.90
$610,128.33
Invoices 594, 604 and 612 are invoices for rent and outgoings on the premises occupied by PPL. The balance of the invoices relate to professional services rendered in relation to various projects which PPL was endeavouring to progress including the Northern Lights Project, the Kimberley Georgiou (Ord River) Project, the project in Pearce Street, the project referred to as Colin Matherson Oval and a project at Claisebrook in East Perth (GMC 53, pages 196 ‑ 200 and LP 16, page 316). The defendants admit that the invoices were issued and that they were credited to the Perrine Architecture's invoice account so as to increase the balance of the debt owed by PPL to Perrine Architecture. The defendants deny that payments were made by PPL in satisfaction of those invoices.
It is not clear whether or not the plaintiff maintains that the various invoices referred to were paid in the sense of money passing from one entity to the other. The particulars as to the plea that the invoices were paid on 30 June 2010 read as follows:
(i)The transactions recorded in and evidenced by the Company's clearing account in respect of Perrine Architecture;
(ii)The Company's remittance advice dated 30 June 2010;
(iii)The Company's recipient created tax invoices for each of the invoices pleaded in paragraph 62 of the Statement of Claim;
(iv)The handwritten annotations which appear on the Company's purchase order 00000621 dated 23 February 2010 and on the Perrine Architecture Invoice 00000612 dated 1 December 2009 rendered to the Company.
It is correct that each invoice is recorded against the Perrine Architecture invoice account. On 30 June 2010, the invoice account was debited with the sum of $1,070,315.81 and Perrine Architecture's loan account was credited with the same amount. Those entries had the effect of reducing the balance due to Perrine Architecture on the invoice account, and reducing Perrine Architecture's debt to PPL in the same amount. The net indebtedness of PPL to Perrine Architecture did not change.
The remittance advice dated 30 June 2010 (TB 53, pages 205 - 206) was tendered in evidence by consent but was not referred to in the course of the trial by any witness or counsel. It purports to record payment of 42 invoices dating from 31 December 2008 to 23 February 2010, including the nine invoices referred to in [120] of the statement of claim. The total of all the invoices referred to in the remittance advice is $1,070,315.81. The remittance advice by itself says nothing about the manner in which the invoices are said to have been paid.
Item (iii) of the particulars is correct but takes the matter nowhere. I am unable to locate in the evidence the document described as PPL's purchase order 000000621 dated 23 February 2010. The handwritten annotation on invoice 612 dated 1 December 2009 (GMC 30, page 728) reads:
Paid 30/6/10
$1,026,275.32
(P + $1,070,315,81)
The matters referred to in the particulars do not assist in identifying evidence that the invoices were paid. The evidence goes no further than the book entries of 30 June 2010.
The transactions are said to be uncommercial because:
•by October 2009, PPL was in financial difficulty and that difficulty continued;
•PPL had only two employees by October 2009;
•the invoices were not supported by adequate working papers evidencing the work done;
•no benefit was derived by the company in making payments;
•there is no commercial value in continued occupation of premises;
•to the extent that the invoices related to services, those services could have been provided by the directors at little or no cost to the company; and
•having regard to the amounts invoiced and paid, and the financial circumstances of the company, the transactions cannot be explained by normal commercial practice.
I do not accept that there was not commercial value in the transactions the subject of the invoices. Throughout 2009 and 2010, despite undoubted cash flow difficulties, PPL continued to endeavour to carry on its business. Its arrangements with the Georgiou Group were finally put in place in September 2009, as were discussions with DRH which continued through into the latter half of 2010. It was not objectively unreasonable for PPL to maintain the premises it occupied. There was no suggestion that the rental being paid was not a reasonable commercial rental. Nor has the plaintiff adduced any evidence to suggest that the charges made by Perrine Architecture were not at appropriate commercial rates. An observation was made in the PWC valuation that management and accounting expenses would have been significantly higher had PPL employed additional staff rather than utilising Perrine Architecture to supply those services. There was no challenge to Mr Perrine's evidence that the architectural charges made by Perrine Architecture to PPL were less than those charged to other commercial clients.
A further factor upon which the plaintiff contends payment of these invoices was an uncommercial transaction was that it depleted the funds available to PPL to carry on its business in the ordinary course. Given that it does not appear that any cash payment was made to Perrine Architecture in relation to the invoices, that contention is not made out. It is not established that PPL could have applied funds to pay other outstanding creditors, and the transactions did not increase the net asset position of Perrine Architecture or decrease PPL's net assets. The plaintiff has not established that a reasonable person in PPL's circumstances would not have entered into the transaction on 30 June 2010. That aspect of the claim is not made out.
1 July payment
I have dealt with the 1 July payment in the context of the discussion of unfair preference payments. In the circumstances discussed there, the payment reflected an adjustment necessary, between PPL and Perrine Architecture, in light of the novation of the Terrace Hotel contract. I am not satisfied that that transaction was either an uncommercial transaction or an unreasonable director‑related transaction.
It follows that I am of the view that the plaintiff is not entitled to the orders which it seeks as to uncommercial transactions or unreasonable director‑related transactions, and that aspect of its claim should be dismissed.
Conclusion
For the foregoing reasons, there should be judgment against each of the first defendant, under s 588W of the Corporations Act, and the second defendants, under s 588 of the Corporation Act, for $1,327,911.85 together with interest on the amount of each invoice making up the sums set out in [218] above, pursuant to s 32 of the Supreme Court Act 1935 (WA), from the date of each invoice to the date of judgment.
Pursuant to s 588Y(2) of the Corporations Act, there should be an order that the amount paid by the defendants pursuant to this judgment not be available to pay the debts of PPL to Perrine Architecture unless all of PPL's other unsecured debts have been paid in full.
11
7
5