Nilant, Charles Philippe Louis v Plexipack Packaging Services Pty Ltd
[1996] FCA 774
•30 AUGUST 1996
CATCHWORDS
Companies - winding up - voidable transactions - insolvent transaction - unfair preference - pre-liquidation contract between company and third party providing for payment of purchase consideration to list of creditors - where payment made by purchaser to creditor voidable - whether creditor a party to the transaction constituted by the contract.
Bankruptcy Act, s122
Corporations Law, s588FA, s588FA(1), s588FA(1)(a), s588FC, s588FE, s588FE(2), s588FF, and s9
Companies (Victoria) Code, s451(1)
Interpretation Act 1901 (Cth), s15AA(1)
Property Law Act (1869), s11(1), s11(2)
Ashdown v Ingamells (1880) 5 Ex D 280
CodelfaConstruction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
Palmer v Commissioner of Taxation [1976] WAR 37
Ramsay v National Australia Bank Ltd [1989] VR 50
Richardson v Commercial Banking Co of Sydney Ltd (1951) 85 CLR 110
Robertson v Commission of Inland Revenue [1959] NZLR 492
Trident General Assurance Company Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Westralian Farmers Co-Operative Ltd v Southern Meat Packers Ltd (1981) WAR 241
CHARLES PHILIPPE LOUIS NILANT v PLEXIPACK PACKAGING SERVICES PTY LTD (ACN 005 388 778)
NO. WAG 3053 OF 1995
R D NICHOLSON J
PERTH
30 AUGUST 1996
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO. WAG 3053 OF 1995
B E T W E E N: CHARLES PHILIPPE LOUIS NILANT
Applicant
and
PLEXIPACK PACKAGING SERVICES PTY LTD (ACN 005 388 778)
Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: R D NICHOLSON J
DATE OF ORDER: 30 AUGUST 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
The application be dismissed so far as it relates to the payment of $4,582.00.
The applicant pay the respondents costs of the application.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO. WAG 3053 OF 1995
B E T W E E N CHARLES PHILIPPE LOUIS NILANT
Applicant
and
PLEXIPACK PACKAGING SERVICES PTY LTD (ACN 005 388 778)
Respondent
CORAM:R D NICHOLSON J
DATE:30 AUGUST 1996
PLACE:PERTH
REASONS FOR JUDGMENT
This is an application by the liquidator of Norimed Pty Ltd (in liq) ("the Company") for a declaration that a payment of $2,000.00 made on or about 28 February 1994 and a further payment of $4,582.00 made on or about 19 April 1994 by the Company to the respondent are void transactions against the applicant as liquidator. An order is also sought that the respondent repay to the applicant the total sum $6,582.00.
The respondent, without any admission as to the alleged insolvency of the Company consents to judgment in relation to the claim for $2,000.00 but contests the application in respect of the payment $4,582.00.
That payment came about in the following circumstances. The Company was incorporated on 6 May 1992 to manufacture and distribute fire lighters.
On 14 April 1994 the Company as vendor entered into an "Agreement for purchase of business" ("the Contract") with Silkbay Holdings Pty Ltd ("the Purchaser") and the directors of the Company as guarantors. It was recited that the Company had agreed to sell and the Purchaser had agreed to purchase the assets of the business on the terms set out in the Contract.
This expression of intention was given effect in cl2.1 in which the Company agreed to sell and the Purchaser agreed to purchase "the Assets" for the "Purchase Price" and on the terms and conditions of the Contract with effect from the opening of business on the "Completion Date." The Completion Date was defined to mean 14 April 1994 or any other date agreed by the Company as vendor and the Purchaser. The "Purchase Price" was defined in cl1.1 (subject to contrary intention) to mean the consideration for the Assets calculated in accordance with cl3. That clause provided the Purchase Price was $80,000.00. Clause 5 of the Contract provided the Purchaser was to pay the Purchase Price on the Completion Date "in accordance with the list of payments as mutually agreed by the parties" and that such payment would be in full and final satisfaction of the Purchaser's obligation to pay that price.
It is not disputed that annexed to the Contract is the list of payments one of which provides for the payment of the sum of $4582.00 to the respondent. It was the payment of this amount in accordance with the Contract which the applicant as liquidator now seeks to have set aside.
The application is brought pursuant to s588FE of the Corporations Law with orders being sought pursuant to s588FF. Section 588FF provides where a Company is being wound up a transaction of the Company that was entered into at or after the commencement of Pt5.7B of the Corporations Law may be voidable because of the application of any of the sub-sections of s588FE. It is common ground the Company was wound up by order of the Supreme Court of Western Australia on 28 September 1994 on which date the applicant was appointed liquidator.
The particular sub-section relied upon is s588FE(2) which reads:
"The transaction is voidable if:
(a)it is an insolvent transaction of the company; and
(b)it was entered into, or an act was done for the purpose of giving effect to it:
(i)during the 6 months ending on the relation-back day; or
(ii)after that day but on or before the day when the winding up began."
It is not in dispute the payment was made within the relation‑back period. Nor is it in dispute that it was made after the commencement of Pt5.7B of the Corporations Law.
An "insolvent transaction" for the purposes of Pt5.7B is defined in s588FC as a transaction which, relevantly, is "an unfair preference" and is entered into at a time when the company is insolvent. It is not in dispute here that the Company was as at 30 June 1992 insolvent, having an excess of total liabilities to total assets of $13,135.00 and, as at 30 June 1993, having an excess of total liabilities to total assets of $27,959.00.
An "unfair preference" is defined by s588FA(1) as follows:
"A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b)the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australia court or a direction by an agency."
For the respondent it is contended the transaction constituted by the Contract cannot be an unfair preference within this section because first, with reference to (a) the respondent was not a party to the transaction and, with reference to (b)
the transaction did not result in the respondent receiving payment from the Company.
It is said for the respondent the payment by the purchaser to the respondent was made:
(1)because of and in compliance with an express contractual obligation imposed on the Purchaser so to do pursuant to cl5.1 of the Purchase Agreement; and
(2)in circumstances where there was no contractual nexus as between the Purchaser and the respondent;
(3)by the Purchaser to the respondent out of the Purchaser's monies and not the Company's; and
(4)by a third party to a creditor of the debtor company in order to discharge the company's indebtedness.
It is the case, however, that the respondent was a creditor of the Company and that as a consequence of the payment it received more than it would of done had it proved with other creditors in the winding up of the Company.
In support of the respondent's case reliance is placed upon the decision of the Full Court of the Supreme Court of Victoria in Ramsay v National Australia Bank Ltd [1989] VR 50. In that case an agreement was entered into on 31 March 1984 whereby K & I Distributors Pty Ltd (in liq) ("Distributors") sold to K & I Industries Pty Ltd ("Industries") the whole of its undertaking. Industries covenanted to take over the liability of Distributors and to indemnify the latter in respect of them. It was found the sole purpose of the transaction was to defeat the claim of a creditor ("Cromellin") by leaving Distributors as no more than a shell. Industries drew a bill for $50,000.00 which was discounted by a bank for $47,000.00 and, with certain other monies and an overdraft facility granted to Industries, Distributors account was credited for the whole amount of the overdraft.
The question was whether the payment to the bank in this way was payment "made by" Distributors within the meaning of s451(1) of the Companies (Victoria) Code which provided:
"451. (A) A settlement, a conveyance or transfer of property, a charge on property, a payment made, or an obligation incurred, by a company that if it had been made or incurred by a natural person, would, in the event of his becoming a bankrupt, be void as against the trustee in the bankruptcy, is, in the event of the company being wound up, void as against the liquidator."
Counsel for the respondent in that appeal submitted that for the purposes of s451(1) of the Companies (Victoria) Code the "payment" need not necessarily be made out of monies owned by the debtor in order to fall within s122 of the Bankruptcy Act. He relied upon Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 368-9 and Richardson v Commercial Banking Co of Sydney Ltd (1951) 85 CLR 110 at 136. It was submitted that since Industries was under a contractual obligation to pay Distributors debt to the bank, and Industries never had any contractual obligation to the bank to make the payment, the effect of the payment was to discharge the obligations of Industries to Distributors under the agreement for sale and accordingly, it was in the relevant sense, a payment by Distributors. In the present case the Purchaser does not have a debtor relationship to the Company and it does have a contractual obligation to pay the Company's debts to the extent provided for in the Contract. For the applicant in the present case the same argument is made as was made on behalf of the respondent in the Victorian appeal.
There, after examination of Octavo and Richardson, the Supreme Court concluded there was no authority for the proposition the payment out of his own monies by B to C pursuant to a contractual obligation to discharge A's debt to C, an obligation imposed upon B by a contract between A and B, can be said to be a payment made by A to C. The Court said the words of s451 "must be given their ordinary, natural meaning". Accordingly they considered they were bound to conclude the payment by Industries to the bank was not a payment "made by" Distributors within the meaning of that section.
In the course of their reasons the Victorian Full Court also examined the decision in Ashdown v Ingamells (1880) 5 Ex D 280 there the plaintiff was a trustee appointed under the Bankruptcy Act 1869 of two traders whose affairs were liquidated by arrangement. Before this they sold their fruit and potato business to Ingamells who agreed to pay their trade debts. Ingamells failed to pay some of the debts knowing that the traders would be forced into liquidation. Their trustee sued Ingamells for breach of contract. On appeal it was held the trustee suing for breach of contract would be entitled to recover by way of damages the sum which ought to have been paid. Brett LJ at 285-6 said:
"... the purchase money ... was not to be paid to the liquidating debtors directly but to be devoted to the satisfaction of debts owing by the insolvents to other creditors. It is obvious that there was no contract between the defendant and those creditors; the only contract was between the defendant and the liquidating debtors. If there had been no insolvency, the defendant would have committed a breach of contract by not paying off those creditors. What would have been the damages recovered? They would have been the sum of 1750; the amount of the unpaid debts... I can see no principle upon which the trustee may not sue for the breach of that contract, and may not recover the same damages as the insolvents could have recovered:..."
The Full Court held the case would have been in point if the liquidator had sued Industries for breach of contract for not paying Cromellins debt owed it by Distributors. However, the case concerned the liquidator suing the bank for money paid to it by Industries pursuant to its covenant under the contract by Distributors.
In my opinion it is the case here that the words of s588FA must be given there ordinary, natural meaning. In par(a) of s588FA(1) there is a requirement that:
"the company and the creditor are parties to the transaction (even if someone else is also a party)."
Furthermore those words are preceded by the requirement that a transaction is an unfair transaction "if, and only if" that is one of the conditions satisfied. A literal translation of the words is therefore rendered appropriate by the preceding words and thus by the context in which a par(a) appears. So far as the Contract is concerned, it is apparent the creditor (the respondent) is not a party to it.
In Western Australia, however, consideration needs to be given to s11(2) of the Property Law Act (1969) which provides:
(1) A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he is not named as a party to the conveyance or other instrument that relates to the land or property.
Except in the case of a conveyance or other instrument to which sub-section (1) of the section applies, where a contract expressly in its terms purports to confer a benefit directly on a person who is not named as a party to the contract, the contract is, subject to sub-section (3) of this section, enforceable by that person in his own name but -
(a)all defences that would have been available to the Defendant in an action or proceeding in a Court of component jurisdiction to enforce the contract had the Plaintiff in the action or proceeding been named as a party to the contract, shall be so available;
(b)...
(c)...
Unless the contract referred to in sub-section (2) of this section otherwise provides, the contract may be cancelled or modified by the mutual consent of the persons named as parties thereto at any time before the person referred to in that sub-section has adopted it either expressly or by conduct."
The provisions of this section entitle the third party beneficiary to enforce the contract: see Westralian Farmers Co-Operative Ltd v Southern Meat Packers Ltd (1981) WAR 241 at 244, J W Carter and D J Harland, Contract Law in Australia 2nd ed (1991) at 315, par915; Trident General Assurance Company Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 117.
In the case of the Contract this provision means the respondent, being the beneficiary of a covenant in the
Contract for payment, could enforce that payment although the respondent is not named as a party to the Contract. Section 11(1) of the Property Law Act thereby provides a statutory right of enforcement. It does not, however, have the consequence of making the respondent a party to the Contract. Indeed the words of s11(1) make that patently clear when they use the words "although he is not named as a party".
However, the applicant says the definition of "parties" in s588FA(1) should take its meaning from the wide definition of "transaction" in s9 of the Corporations Law. This reads:
""Transaction" in part 5.7B in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation):
(a)a conveyance, transfer or other disposition by the body or property of the body
(b)a charge created by the body on property of the body; and
(c)a guarantee given by the body; and
(d)a payment made by the body; and
(e)an obligation incurred by the body; and
(f)a release or waiver by the body; and
(g)a loan to the body;
and includes such a transaction that has been completed or given effect to, or that has terminated."
There is no doubt the Contract is a "transaction" within this definition. There is no statutory ambiguity providing the occasion for reference to extra legislative materials to interpret what is meant by this definition: Interpretation Act 1901 (Cth) s15AA(1).
Nor is this a case where it is necessary to interpret the Contract to determine who those parties are. This is not a case where evidence of surrounding circumstances needs to be admissible to interpret ambiguous language in the Contract - there is no point of construction: see CodelfaConstruction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352.
It is open to argument that the relevant transaction here is not the Contract alone but rather the transaction which it represents. That transaction may be analysed as involving (with reference to the subparagraphs of the definition of "transaction") (a) a transfer of the property of the company; (d) a payment made by Silkbay; and (f) a release or waiver in the form of extinguishment of debt. As the definition expressly admits, the scope of "transaction" is not limited to the matters adumbrated in the subparagraphs. In Palmer v Commissioner of Taxation [1976] WAR 37 at 40-1 Jackson CJ cited Robertson v Commission of Inland Revenue [1959] NZLR 492 at 498 for the statement that a transaction "can cover a series of steps linked together to attain a definite objective."
In the case of the definition in s9 there are, however, important words which govern the scope of the definition in that subsection. The primary requirement is there must be "a transaction to which the body is a party." The reference to "the body" is a reference "a body corporate." The relevant "body corporate" is that which is said to have entered into a transaction which is an unfair preference. I do not consider the definition is referring to more than that corporate body. Consequently, when par(d) requires the payment to have been made "by the body" it requires the payment to have been made by (in this case) the company and not by the Purchaser. Similarly, when par(g) refers to a release or waiver "by the body" it refers to a release by (in this case) the company and not the respondent.
The requirement that there be a "transaction" to which "the body" is a party is firstly an element of the definition of "transaction" in s9 and secondly an express requirement of there being an unfair preference in accordance with s588FA(1) par(a). If "the body" is not a party there is no "transaction" to which s588FA(1) can be applicable. What par(a) of s588FA(1) adds to s9 is the statement that someone else may also be a party.
In my view it is apparent that although the Contract is a "transaction" for the purpose of s9, the payment provided for in it by the Purchaser to the respondent and the consequent extinguishment of the indebtedness of the company to the respondent are not themselves capable of being a "transaction" because neither moves from "the body", that is the company.
The question then becomes whether nevertheless "the transaction" is properly to be seen as involving the Contract, the payment and the extinguishment so that, by being a party to the Contract, the company is a party to the other elements of the transaction. If that were the case it would have the effect of joining in the transaction the acts of payment and extinguishment neither of which singularly qualifies as a transaction. In my view that course is not open because the subparagraphs of the definition of "transaction" in s9 are each specifically qualified by use of the words "by the body". Each type of transaction exemplified in those subparagraphs must be one in which "the body" is the active party. The words "but without limitation" do not have the effect of qualifying as a "transaction" actions by others as transactions to which the body is a party. If it was intended by the draftsperson that the definition should have the wider compass, I do not consider that intention has been accomplished.
There is no evidence upon which it can be argued that in truth the respondent as creditor was truly a party to the transaction. The Contract providing a benefit to it was not of its making. The transaction was not one to which it was a party. There is no evidence the receipt by it of a sum of money from the Purchaser was done with knowledge of the contract before or after it was entered into. Even if there were such knowledge that would not have made the respondent a party unless there was other evidence that it participated in the formulation of the transaction so as to be party to it.
In my opinion, therefore, neither as a matter of law or fact can it be said the company is a party to the payment by the Purchaser to the respondent. There is consequently no "transaction" upon which s588FA(1) can operate nor is par(a) of that section satisfied.
There is the further question raised for the respondent whether the payment is capable of characterisation as a receipt by the respondent from the company given that it was paid by the Purchaser out of its funds. In view of the opinion I have reached it is not necessary to decide this issue.
It is also submitted for the applicant that to defeat the liquidators claim on what is said to be a purely technical reading of s588FA of the Corporations Law would lead to an unjust result. That may be a valid consideration in the event that it was necessary for the Court to interpret ambiguous language in s588FA in the context of legislative purpose. In my view there is no relevant ambiguity.
I therefore consider the application should be dismissed.
I certify that this and the preceding 10 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.
Associate:
Date:
APPEARANCES
Counsel for the Applicant: Mr J Panegyres
Solicitors for the Applicant: Williams & Hughes
Counsel for the Respondent: Mr R L MacCormack
Solicitors for the Respondent: Pullinger Sanderson
& Workman
Date of Hearing: 15 May 1996
Date of Judgment: 30 August 1996
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