Playspace Playground Pty Ltd v Osborn

Case [2009] FCA 1486

FEDERAL COURT OF AUSTRALIA

Playspace Playground Pty Ltd v Osborn [2009] FCA 1486

CORPORATIONS LAW – Insolvency – insolvent trading – consideration of what is meant by incurring a debt for the purposes of s 588G of the Corporations Act 2001 (Cth) – to be determined according to commercial reality – whether goods are manufactured to order or whether goods are readily resalable if delivery is refused or order cancelled

CORPORATIONS LAW – Insolvency – insolvent trading – consideration of what is meant by insolvency – “cash flow test” – consideration of the financial position of the company in its entirety – checklist of indicators of insolvency

CORPORATIONS LAW – Insolvency – insolvent trading – onus of proof of insolvency – contravention of s 588G – requirement to meet Briginshaw approach

Corporations Act 2001 (Cth), ss 588G, 588G(2), 588G(3), 588H, 588M, 588M(3)

Hawkins v Bank of China (1992) 26 NSWLR 562
Woodgate v Davis (2002) 55 NSWLR 222
Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290
Leigh-Mardon Pty Ltd v Wawn (1995) 17 ACSR 741
Hussein v Good (1990) 1 ACSR 710
Rema Industries and Services Pty Ltd v Coad (1992) 107 ALR 374
Taylor v Powell (1993) 113 ALR 374
Australian Securities and Investments Commission v Plymin (2003) 175 FLR 124
Lewis (as liq of Doran Constructions Pty Ltd (in liq) v Doran (2005) 54 ACSR 410
Re Damilock Pty Ltd (In Liq); Lewis and Carter as Liquidators of Damilock Pty Ltd (In Liq) v VI SA Australia Pty Ltd (2009) 252 ALR 533
Sandell v Porter (1966) 115 CLR 666
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213
Quick v Stoland Pty Ltd (1998) 29 ACSR 130
Emanuel Management Pty Ltd (in liq) v Foster’s Brewing Group Ltd (2003) 178 FLR 1
TCN Channel Nine Pty Ltd v Scotney (1995) 17 ACSR 116
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
Briginshaw v Briginshaw (1938) 60 CLR 336

PLAYSPACE PLAYGROUND PTY LTD (ACN 066 537 022) v CHRISTINE MAY OSBORN

NTD 12 of 2009

REEVES J
11 DECEMBER 2009
BRISBANE (VIA VIDEOLINK TO DARWIN)

IN THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY DISTRICT REGISTRY

GENERAL DIVISION

NTD 12 of 2009
BETWEEN:

PLAYSPACE PLAYGROUND PTY LTD (ACN 066 537 022)
Plaintiff
AND:

CHRISTINE MAY OSBORN
Defendant

JUDGE:

REEVES J

DATE OF ORDER:

11 DECEMBER 2009

WHERE MADE:

BRISBANE  (VIA VIDEOLINK TO DARWIN)

THE COURT ORDERS THAT:

1.The plaintiff’s application filed on 28 May 2009 be dismissed

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY DISTRICT REGISTRY

GENERAL DIVISION

NTD 12 of 2009
BETWEEN:

PLAYSPACE PLAYGROUND PTY LTD (ACN 066 537 022)
Plaintiff
AND:

CHRISTINE MAY OSBORN
Defendant

JUDGE:

REEVES J

DATE:

11 DECEMBER 2009

PLACE:

BRISBANE (VIA VIDEOLINK TO DARWIN)

REASONS FOR JUDGMENT

INTRODUCTION

  1. During…

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AGLC
Playspace Playground Pty Ltd v Osborn [2009] FCA 1486
Case
[2009] FCA 1486
Decision Date

CaseChat Overview and Summary

In the Federal Court of Australia, Playspace Playground Pty Ltd sought a declaration against Toy Shed, a company in liquidation, regarding the timing of when Toy Shed incurred a debt to Playspace and whether Toy Shed was insolvent at that time. The primary dispute centred around the timing of when Toy Shed was obligated to pay for playground equipment ordered from Playspace. The court had to determine when Toy Shed's obligation to pay for the goods arose, specifically whether it was upon ordering the goods or upon delivery. Additionally, the court needed to ascertain whether Toy Shed was insolvent at the time it incurred the debt, with differing expert opinions presented by both parties on this point.

The legal issues before the court involved interpreting the contractual terms and identifying the moment Toy Shed's debt to Playspace was incurred. The court examined the Distributor Agreement between the parties and general sale terms, though the latter were not provided in evidence. The court also considered whether the goods were specially manufactured, a factor that could affect when the debt was incurred, but this was refuted by Toy Shed's representative. The court needed to balance the authorities on when a debt is incurred in commercial transactions against the specific terms and context of the agreement between Playspace and Toy Shed.

The court concluded that Toy Shed incurred the debt to Playspace on or about 26 July 2004, the date when the dispatch of the playground equipment should have occurred but failed to materialise. This conclusion was based on the failure of Toy Shed to cancel the order before the dispatch date, which rendered the order binding. Regarding insolvency, the court found that Toy Shed was not insolvent on 26 July 2004, as the evidence did not support that Toy Shed had a net deficiency of assets compared to liabilities at that time. Instead, insolvency was determined to have occurred later, in 2005.

The court's orders were that the plaintiff’s application filed on 28 May 2009 be dismissed. This decision was based on the findings that Toy Shed did not incur a debt to Playspace until the dispatch date had passed, and that Toy Shed was not insolvent at that time.

Orders

Orders of the court

1. The plaintiff’s application filed on 28 May 2009 be dismissed

Note:

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

REEVES J
Thus, while I do not consider Toy Shed was obligated to pay for the goods as at the date of its order on 21 June 2004, I consider it became so obligated on 26 July 2004 once the dispatch date shown on the order form passed without Toy Shed cancelling the order. In other words, in the terms of the authorities set out above, the omission to cancel the order before this dispatch date was the critical choice Toy Shed made giving rise to the obligation for the debt.Conclusion For these reasons, I conclude that Toy Shed incurred the debt to Playspace on or about 26 July 2004 when the nominated dispatch date for the playground equipment came and passed with the order still extant.WAS TOY SHED INSOLVENT AT THAT TIME? Having determined that Toy Shed incurred the debt to Playspace on or about 26 July 2004, the next issue is: when did Toy Shed first become insolvent? It is common ground that Toy Shed was insolvent in 2005, so the question is: was that insolvency present as early as 26 July 2004?Contentions Playspace contended that Toy Shed was insolvent by, at the latest, April 2004. It based this contention on the expert evidence of Mr Angus, Toy Shed’s liquidator. In his report, Mr Angus set out a monthly insolvency calculation (Schedule 5) that showed that Toy Shed had a net deficiency of assets, or available funds, compared to liabilities, at the end of each month between April 2004 and December 2004. It followed, so Playspace contended, that Toy Shed was insolvent at all relevant times, including when it ordered the goods, when it took delivery of them and when it received the invoices for them. On the other hand, Ms Osborn contended that Toy Shed was not insolvent until early 2005, and possibly until as late as April 2005. Ms Osborn relied upon the expert evidence of Ms Kylie Wright, a chartered accountant. Ms Osborn’s counsel also criticised Mr Angus’ report, claiming that it contained at least five “fundamental flaws” as follows:·it proceeded on the mistaken assumption that the invoices issued by Playspace for the goods were issued in July 2004 as opposed to various dates between August and December 2004;·it mistakenly assumed that Playspace’s invoices were to be paid within 30 days, whereas Clause 8.1 of the Distributor Agreement allowed for payment to be made in 60 days;·it proceeded on the basis of a consideration of assets versus liabilities and did not have any regard for the possibility of alternative funding, or expected income;·it made no allowance, as an asset, for the income Toy Shed could expect for the invoice in the sum of $129,349 issued by it to the Darwin City Council in August 2004; and·it failed to make any assessment of the various indicators of insolvency set out in Ms Wright’s report, which were taken from the decision of Plymin. The answer to this question therefore requires a consideration of the evidence of the two expert witnesses. Before doing that, I should set out a summary of the relevant legal principles.The Authorities

Ratio Decidendi

Legal Principle Established

Established by: REEVES J

In relation to the sale of goods, Mandie J concluded (at [517]) that: “… I think that it will often be the case, for the purposes of the section, that under a contract for the sale of goods where delivery times are left for future orders or instructions that, as a matter of substance and commercial reality, a debt will be incurred on each occasion when a delivery is ordered …”. In this respect, it is also appropriate to mention the observation of Lockhart J in Rema Industries (at 381) that: “The time when a debt is ‘incurred’ will vary from case to case, depending principally upon the terms of the agreement between the parties, express or implied …”.Consideration Taking into account these authorities, in determining when Toy Shed incurred the debt, it is appropriate to begin with the Distributor Agreement signed between Toy Shed and Playspace on 30 September 2003. Surprisingly, that Agreement does not expressly state when it was that Toy Shed became obligated to pay for any goods it ordered from Playspace. However, Ms Osborn’s counsel submitted that the obligation can be inferred from the terms of Clause 7.1.3. That clause provides that: “The Distributor shall not be relieved of any obligation to accept or pay for goods by reason of any delay in delivery or supply or dispatch”. But, as I have already observed above, the “obligation” referred to in this clause is not described anywhere in the Agreement. Without the obligation being so described, that clause does not, in my view, provide any support for the contention that it can be inferred that Toy Shed was under an obligation to pay for the goods once they were ordered. The Distributor Agreement does state that: “All orders will be subject to the provisions of this Agreement and the general terms and conditions of sale of the Company” (Clause 7.2) and that payment is due: “60 days from the date of invoice rendered in respect of the supply of the Products unless otherwise stated in writing by the Company” (Clause 8.1). However, the general terms and conditions of sale of Playspace were not tendered in evidence before me and, as a consequence, I do not know whether they placed any obligation on Toy Shed to pay for the goods from the time they were ordered or from some other time. Similarly, there was no evidence before me to suggest that Playspace had stated in writing a different period of payment in relation to Toy Shed’s order as provided in Clause 8.1. In any event, the timing of the payment is not the critical issue. It is: when did the obligation for the debt arise? It follows that the Distributor Agreement does not assist in answering this question. In addition to Clause 7.1.3 of the Distributor Agreement, Ms Osborn’s counsel relied upon the observations made by Hodgson J in Leigh-Mardon to submit that Toy Shed incurred the debt when the goods were ordered because they were goods that were “specially manufactured”. The difficulty with this submission is that Ms Osborn, herself, expressly denied the factual basis for it in re-examination, as follows: “Question: Is there any element of manufacture in the material before it gets to you?Answer: No, it comes up as posts, decks, clamps and the hangy-offy bits like slides and things, it comes up as bits. Then it was my responsibility to organise the installation in the ground and putting the bits together.”