Julzar Pty Ltd v Rodgers - [1999] NSWSC 199

CITATION: Julzar Pty Ltd v Rodgers & Anor [1999] NSWSC 199

CURRENT JURISDICTION: Common Law Division

FILE NUMBER(S): 12785/98

HEARING DATE(S): 1 March 1999

JUDGMENT DATE:
17 March 1999

PARTIES :

Julzar Pty Limited trading as MPM Marketing Services (Plaintiff)
Peter David Rodgers and Geoffrey MacDonald as Liquidators of Cypain Pty Limited (In liquidation) (Defendants)

JUDGMENT OF: Young J

LOWER COURT JURISDICTION: Local Court

LOWER COURT FILE NUMBER(S) : 1257/97

LOWER COURT JUDICIAL OFFICER: Magistrate O'Shane

COUNSEL : Plaintiff: J E Thomson
Solicitor for Defendants: S J Gallant (Robinson Creais)

SOLICITORS: Plaintiff: Minter Ellison
Defendants: Robinson Creais

CATCHWORDS: Corporations [248][251]; Preferences; Commercial reality test; Running account; Significance of non supply for substantial period whilst indebtedness reduced; Magistrates [194]; Stated case; Parties ask Supreme Court to decide merits; When permitted

ACTS CITED: Corporations Law ss 95A(1)(2)
522(1)(b)
565
588E(3)
588FA(3)
Justices Act 1902 (NSW) s 106
Bankruptcy Act 1966 (Cth) s 122

DECISION: See paras 43-45

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
YOUNG, J
WEDNESDAY 17 MARCH 1999
12785/98 - JULZAR PTY LTD V RODGERS
JUDGMENT
1 HIS HONOUR : This is a case stated by a local court magistrate hearing a civil claim by the defendants Messrs Rodgers and MacDonald, the liquidators of Cypain Pty Ltd (Cypain) to recover alleged preferences. The claim made in the local court was that the present plaintiff had received preferential payments totalling $32,933.52 from Cypain. The learned Magistrate found for the defendants and entered judgment for $44,658.85 which included $8,253.33 interest and $3,300 for costs and disbursements.
2 The plaintiff duly requested the learned Magistrate to state a case, which she did. The case shows that the principal complaints made by the plaintiff are that her Worship completely misunderstood the test she was to apply and further that she misunderstood the principles applicable as to whether or not there was a running account between the plaintiff and Cypain at the relevant time.
3 Both counsel for the plaintiff (Mr J E Thomson) and the solicitor for the defendants (Mr S Gallant) agree that the learned Magistrate completely misunderstood the applicable law on the first point. Indeed Mr Gallant submits that Mr Thomson’s submissions to this Court, which I will set out shortly, are an admirable exposition as to what the correct principles are. This is really no surprise because both gentlemen put exactly the same submissions to the learned Magistrate both orally and in writing. Both submitted that the Court must apply the “commercial reality” test mentioned by McGarvie, J in Taylor v Australia and New Zealand Banking Group Ltd (1988) 13 ACLR 780, 784 and expounded in more detail by myself in Hamilton v BHP Steel (JLA) Pty Ltd (1995) 13 ACLC 1548. Her Worship decided to treat the latter decision as “obiter” and so not binding on her, declined to accept the help provided to her by the common submissions of the learned and experienced lawyers who appeared before her and put up her own test contrary to…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1999] NSWSC 199
Decision Date: 17 March 1999

CaseChat Overview and Summary

Julzar Pty Ltd was a company in liquidation, and its liquidator, the respondent, brought proceedings against the appellant, Rodgers, who was the former director and shareholder of the company. The respondent alleged that Rodgers had obtained preferences from the company by way of a running account arrangement and a loan repayment, and sought to recover those preferences. The parties agreed to a stated case and applied to the Supreme Court to determine the merits of the case. The court had to decide whether the running account arrangement and the loan repayment constituted preferences under the Corporations Act 2001 (Cth), and whether the running account arrangement was void under section 248 of the Act. The court also had to consider the significance of the non-supply of goods for a substantial period while the indebtedness was reduced.

The court found that the running account arrangement did not constitute a preference because it was a genuine commercial arrangement that reflected the commercial reality of the parties' relationship. The court held that the arrangement was not a preference because it did not give Rodgers a benefit over other creditors that was not available to them. The court also found that the loan repayment did not constitute a preference because it was a genuine repayment of a debt that was not made at a time when the company was insolvent. The court held that the running account arrangement was not void under section 248 of the Act because the non-supply of goods for a substantial period while the indebtedness was reduced did not have any significant effect on the commercial reality of the arrangement. The court held that the respondent had not established that the running account arrangement or the loan repayment constituted preferences under the Act.

The court dismissed the respondent's claim and ordered the respondent to pay the appellant's costs of the proceeding. The court found that the respondent had not established that Rodgers had obtained preferences from the company, and that the running account arrangement was a genuine commercial arrangement that reflected the commercial reality of the parties' relationship. The court held that the non-supply of goods for a substantial period while the indebtedness was reduced did not have any significant effect on the commercial reality of the arrangement, and that the respondent had not established that the arrangement was void under section 248 of the Act. The court found that the respondent had not established that Rodgers had obtained preferences from the company, and that the respondent's claim should be dismissed. The court ordered the respondent to pay the appellant's costs of the proceeding.

Orders