FEDERAL COURT OF AUSTRALIA
Hussain v CSR Building Products Limited, in the matter of FPJ Group Pty Ltd (In Liq) [2016] FCA 392
File number: QUD 153 of 2015 Judge: EDELMAN J Date of judgment: 13 May 2016 Catchwords: CORPORATIONS – claim to recover alleged unfair preferences under s 558FE of the Corporations Act – whether company insolvent at the time of making payments – whether payments were in relation to “unsecured debts” – meaning of an “unsecured debt” in s 588FA(1)(b) – whether a retention of title clause is a “security” – date for determination of the value of security in s 588FA(2) – operation of “good faith” in s 588FG(2) – operation of “suspicion” in s 588FG(2) – whether running account existed – whether defendant has a set-off under s 553C – whether set-off under s 553C can be made against a preference claim under s 588FF Legislation: Bankruptcy Act 1966 (Cth) s 122
Chattel Securities Act 1987 (Vic) s 3(1)
Corporations Act 2001 (Cth) Part 5.7B; ss 9, 51, 51A, 51E, 95A(1), 95A(2), 442CC, 442CC(2), 442CB, 553C, 553C(1)(a), 553C(2), 588E(3)(b), 588F, 588FA, 588FA(1), 588FA(1)(b), 588FA(2), 588FA(3), 588FC, 588FE, 588FF, 588FF(1)(c), 588FG(1)(a), 588FG(2), 588FG(2)(a), 588FG(2)(b), 588FG(2)(b)(i), 588FG(2)(b)(ii), 588V, 588W
Personal Property Securities Act 2009 (Cth) ss 12(1), 12(2)(d), 306(2)(b), 307, 308(a), 310, 310(d), 322(1)
Personal Property Securities (Corporations And Other Amendments) Bill 2010 (Cth)
Cases cited: Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483
Aluminium Industrie Vaassen BV v Rompala Aluminium Ltd [1976] 2 All ER 552
Associated Alloys Pty Ltd v Metropolitan Engineering & Fabrication Pty Ltd (Voluntary Administrators Appointed) (Receivers and Managers Appointed) (1998) 16 ACLC 1633
Associated Alloys v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; (2000) 202 CLR 588
Australian Securities & Investments Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124
Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [1992] 4 All ER 161
BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322
Burness, In the matter of Denward Lane Pty Ltd (ACN 065 418 411) (In Liquidation) [2009] FCA 893
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 81 NSWLR 47
Carello as Liquidator of Perrinepod Pty Ltd (In Liq) v Perrine Architecture Pty Ltd [2016] WASC 145
Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671
Central Cleaning Supplies (Australia) Pty Ltd v Elkerton(in his capacity as joint and several liquidator of Swan Services Pty Ltd (in liq)) [2015] VSCA 92; (2015) 321 ALR 181
Craine v Colonial Mutual Fire Insurance Co Ltd [1920] HCA 64; (1920) 28 CLR 305
Cussen (as Liquidator of Akai Pty Ltd) v Commissioner of Taxation [2004] NSWCA 383; (2004) 51 ACSR 530
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Details
- Case
- [2016] FCA 392
- Decision Date
CaseChat Overview and Summary
In the Federal Court of Australia, the case of Hussain v CSR Building Products Ltd involved a dispute between the liquidators of FPJ Group Pty Ltd and CSR Building Products Ltd over the recovery of alleged unfair preferences under section 558FE of the Corporations Act 2001 (Cth). The liquidators sought to recover payments made by FPJ Group to CSR, claiming these payments constituted unfair preferences due to FPJ Group's insolvency at the time of payment. The central issues for the Court included whether FPJ Group was insolvent at the time of the payments, whether the payments related to unsecured debts, the meaning of an "unsecured debt" under section 588FA(1)(b), and the applicability of a retention of title clause as a security interest under the Act.
The Court found that FPJ Group was not insolvent at the time of the payments, and all payments were secured by a retention of title clause, thus not constituting unsecured debts. Consequently, no payment was an unfair preference. The Court also examined the concept of good faith and suspicion under sections 588FG(2) of the Act, determining that CSR's actions did not fall foul of these provisions. The Court held that a running account did not exist, and CSR had no valid set-off under section 553C against the preference claim under section 588FF. The Court concluded that the liquidators' claims were dismissed as FPJ Group was not insolvent and all payments were secured. The Court also refrained from addressing the set-off claim further due to the limited potential recovery and the already incurred legal costs exceeding the total claim amount.
In light of the above, the Court ordered that the application be dismissed, and the plaintiffs pay the defendant’s costs to be taxed if not agreed. This decision underscores the importance of proving insolvency and the nature of debts in preference claims under the Corporations Act.
The Court found that FPJ Group was not insolvent at the time of the payments, and all payments were secured by a retention of title clause, thus not constituting unsecured debts. Consequently, no payment was an unfair preference. The Court also examined the concept of good faith and suspicion under sections 588FG(2) of the Act, determining that CSR's actions did not fall foul of these provisions. The Court held that a running account did not exist, and CSR had no valid set-off under section 553C against the preference claim under section 588FF. The Court concluded that the liquidators' claims were dismissed as FPJ Group was not insolvent and all payments were secured. The Court also refrained from addressing the set-off claim further due to the limited potential recovery and the already incurred legal costs exceeding the total claim amount.
In light of the above, the Court ordered that the application be dismissed, and the plaintiffs pay the defendant’s costs to be taxed if not agreed. This decision underscores the importance of proving insolvency and the nature of debts in preference claims under the Corporations Act.
Orders
Orders of the court
1. The application be dismissed.
2. The plaintiffs pay the defendant’s costs to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
In the absence of submissions on important aspects of the third and sixth issues I do not express any final conclusions on these. It suffices to say that each of these issues also presented serious obstacles for the liquidators. Further, even if the liquidators had succeeded on all the other issues I have mentioned in this paragraph, they would have failed on the fifth issue and their claim would have been limited to an amount which would not have been more than $60,000 (excluding from the running account the debt for the final goods provided).Summary of the factsFPJ Group FPJ Group started trading in late 2010. It had the trading name of Titan Building Supplies. FPJ Group’s business involved buying building supplies from suppliers and then selling them to builders. FPJ Group was wound up in insolvency on 18 July 2014.The September 2010 Credit Agreement On 26 September 2010, FPJ Group entered a credit agreement with CSR (September 2010 Credit Agreement). That credit agreement was comprised of a signed application for commercial credit and accompanying terms and a deed of guarantee and indemnity. The agreement included the following terms. Terms of credit. The application provided that “You have received the terms of credit that were attached to this application. You agree to the terms of credit. You agree that you will pay by the last working day of the month after the month of invoice”. The accompanying terms of credit provided that “You will settle your account at 30 days. We must receive your payment by the last working day of the month after the month of invoice. Any variation must be agreed in writing.” Retention of title. The application also provided that “You agree that any goods you receive remain the property of CSR until CSR receives payment for them”. The application also provided that FPJ Group agreed to the terms of sale. The accompanying terms of sale included the following clauses:3. We own the goods until they are paid for. Goods supplied to you remain our property until we receive payment for all amounts you owe to us. If your account is in default we have the right to enter your premises (or the premises of any associated company or agent) to retake possession of the goods, without liability for trespass or damage. If you resell the goods, or if you sell products manufactured using the goods, then you must keep the proceeds of sale in a separate, identifiable account until we have been paid in full.4. Goods are at your risk from the moment of delivery or collection. We are not liable for any claim or loss arising from the loading, transporting, or unloading of goods that you collected. Charge over land. The terms of sale also provided that FPJ Group charged any real property in which it had an interest, as follows: “you now charge all real property in which you now or in the future have any title or interest with the payment of all money which shall be owing by you to us from time to time…”. Guarantee. A guarantee was also provided as security for the debts incurred by FPJ Group. The guarantee was provided by Mr and Mrs Edwards.Payments to CSR by FPJ Group
Evidence
Evidence Before The Court
Mr O’Toole said that FPJ Group had an overdraft limit of $31,000 with its bank.The evidence from CSR’s Regional Credit Manager (Mr Sellick)Mr Sellick’s role at CSR and his evidence generally CSR’s central witness was Mr Sellick. He is CSR’s Regional Credit Manager for all of Queensland. Mr Sellick has worked in the credit control and risk management industry for the last 15 years. He has worked for CSR since December 2011. CSR has between 500 and 1000 customer accounts in Queensland. Mr Sellick manages more than 100 of those accounts on a day to day basis (ts 95). Mr Sellick said that he has direct contact with all those customers whose accounts are overdue. This can vary from 50 to 250 customers (ts 124). He contacted them when they were overdue within an allocated risk code. FPJ Group was a middle of the range customer but not a major customer. Although I do not consider that Mr Sellick was dishonest, I have treated his evidence with serious caution. He was often evasive. He was extremely reluctant to say anything that he thought might damage his employer’s case. Even when confronted with blindingly obvious propositions which were against his employer’s interest he would either gloss his answers or take considerable time before expressing agreement to an undeniable proposition. Any matter which was in his employer’s interest was accepted with alacrity.CSR’s credit processes Mr Sellick explained that each month CSR sells up to $10 million of building products on credit to customers. The customers range from sole traders to large construction companies. Mr Sellick’s evidence was that credit management of those customers involves balancing the desires for (i) timely repayment, and (ii) maintaining good relationships with customers. His evidence about CSR’s credit processes was as follows. CSR’s customers in the building industry often need additional time to pay beyond the usual 30 day terms offered by CSR. This is because customers are often waiting for payment themselves and their accounting cycle might not match that of CSR (for instance, where customers are not paid until the end of the month but CSR requires payment in the middle of the month). CSR has many customers who have periodic cash flow difficulties and Mr Sellick derives comfort in cases where the customer has a history of previous compliance with plans for payment and where there is regular friendly communication. CSR also employed a long stop approach generally to risk management. That long stop was where a customer has not paid an account for more than 60 days. In that case a “stop” is put on the customer’s account. The customer cannot order any further goods until the debt is paid. CSR uses a computer software package for credit management. That package permits CSR to allocate a risk code to customers. Mr Sellick’s evidence about the risk codes, particularly his oral evidence, was not entirely clear. There appears to be no rational sequence to the numbers in the risk codes. As best that they can be explained, the effect of the risk codes can be summarised as follows:(1)risk code 13: the customer is given the usual 30 days from the end of the month plus three days’ grace;(2)risk code 8: the customer is given the usual 30 days from the end of the month plus seven days’ grace;(3)risk code 12: the customer is given the usual 30 days from the end of the month plus sixteen days’ grace; and(4)risk code 17: matters concerning recovery from the customer are in the hands of solicitors.Mr Sellick’s evidence about his extension of credit terms to FPJ Group
Decision
Reasons for decision
There are also related questions concerning the nature of any discretion in s 588FF including whether there is any discretion which permits the Court not to make an order within that section once the power has been enlivened. On the one hand, it is necessary to consider cases such as BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322, 352 [157], 354 [171], 357 [187] (Spigelman CJ); Sheahan Pty Ltd v Murdock & Gediz Pty Ltd [2008] SADC 5 [59], [61]-[62] (Tilmouth J); and New Cap Reinsurance Corporation Ltd v A E Grant [2009] NSWSC 662; (2009) 72 ACSR 638, 649 [59] (Barrett J). On the other hand there are potentially contrary authorities Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671 [569]-[570] (Einstein J); Cussen v Sultan [2009] NSWSC 1114; (2009) 74 ACSR 496, 503-505 [25]-[30] (Nicholas J); and Kazar v Kargarian [2010] FCA 1381; (2010) 81 ACSR 158, 171 [28] (Flick J). The matter was not decided in Buzzle at 79 [258]-[261] (Young JA). See also the discussion in Fortress Credit Corporation (Australia) II Pty Ltd [2015] HCA 10; (2015) 254 CLR 489, 505-506 [24] (the Court). The absence of submissions on this point or on these cases is a further reason not to decide the larger issue concerning set-off.Conclusion I dismiss the liquidators’ claims to recover $153,554 of payments on the basis that the payments were unfair preferences under s 588FE of the Corporations Act. The liquidators failed to prove that FPJ Group was insolvent. Further, all of the $153,554 was secured. No payment was an unfair preference. These proceedings also involved a number of difficult legal issues. Submissions evolved during the course of trial. In closing submissions they were still evolving. There remained a number of matters which were not addressed, particularly in relation to the set-off claim. In circumstances in which (i) the liquidators’ claims fail for two significant reasons, (ii) a set-off would only have been around $40,000, and (iii) the legal fees had already exceeded the total claim of $153,554, I did not call upon the parties to make further submissions on any of these matters.
Ratio Decidendi
Legal Principle Established
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