Radio Frequency Systems Pty Ltd v Noel Guthrie as the Liquidator of ULT Ltd (Receiver Appointed) (In Liq)
[2001] WASCA 195
•27 JUNE 2001
RADIO FREQUENCY SYSTEMS PTY LTD -v- NOEL GUTHRIE as the Liquidator of ULT LTD (Receiver Appointed) (In Liq) [2001] WASCA 195
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASCA 195 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:116/2000 | 1 JUNE 2001 | |
| Coram: | STEYTLER J MILLER J PIDGEON AUJ | 27/06/01 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| PDF Version |
| Parties: | RADIO FREQUENCY SYSTEMS PTY LTD NOEL GUTHRIE as the Liquidator of ULT LTD (Receiver Appointed) (In Liq) |
Catchwords: | Contract Sale of goods subject to retention of title clause Construction of Romalpa clause Whether credit agreement intended to create a charge over goods supplied Effect of back-dating credit agreement Whether payments void against liquidator |
Legislation: | Corporations Law, s 9, s 565 Bankruptcy Act 1966, s 122 |
Case References: | Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 Armour v Thyssen Edelstahlwerke AG (1991) 2 AC 339 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (formerly Metropolitan Engineering and Fabrication Pty Ltd) (2000) 171 ALR 568 Baker v Wind (1748) 1 Ves Sen 160 [27 ER 956] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Douglas v Culverwell (1862) 4 De G F & J 20 [45 ER 1089] DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Esanda Ltd v Burgess [1984] 2 NSWLR 139 Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98 Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33 Associated Alloys Pty Ltd v Metropolitan Engineering & Fabrication Pty Ltd (1998) 16 ACLC 1633 Cinema Plus Ltd v Australia and New Zealand Banking Group Ltd (2000) 49 NSWLR 513 Clough Mill Ltd v Martin [1985] 1 WLR 111 Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 Kent & Sussex Sawmills Ltd [1947] Ch 177 Noakes & Co Ltd v Rice [1902] AC 24 Puma Australia Pty Ltd v Sportmans Australia Ltd [1994] 2 Qd R 149 Re Bond Worth Ltd [1979] 3 WLR 629 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : RADIO FREQUENCY SYSTEMS PTY LTD -v- NOEL GUTHRIE as the Liquidator of ULT LTD (Receiver Appointed) (In Liq) [2001] WASCA 195 CORAM : STEYTLER J
- MILLER J
PIDGEON AUJ
- Appellant (Respondent)
AND
NOEL GUTHRIE as the Liquidator of ULT LTD (Receiver Appointed) (In Liq)
Respondent (Applicant)
Catchwords:
Contract - Sale of goods subject to retention of title clause - Construction of Romalpa clause - Whether credit agreement intended to create a charge over goods supplied - Effect of back-dating credit agreement - Whether payments void against liquidator
Legislation:
Corporations Law, s 9, s 565
Bankruptcy Act 1966, s 122
(Page 2)
Result:
Appeal allowed
Representation:
Counsel:
Appellant (Respondent) : Mr E M Heenan QC
Respondent (Applicant) : Mr G J O'Hara
Solicitors:
Appellant (Respondent) : Phillips Fox
Respondent (Applicant) : Kott Gunning
Case(s) referred to in judgment(s):
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676
Armour v Thyssen Edelstahlwerke AG (1991) 2 AC 339
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (formerly Metropolitan Engineering and Fabrication Pty Ltd) (2000) 171 ALR 568
Baker v Wind (1748) 1 Ves Sen 160 [27 ER 956]
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Douglas v Culverwell (1862) 4 De G F & J 20 [45 ER 1089]
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Esanda Ltd v Burgess [1984] 2 NSWLR 139
Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98
Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33
Case(s) also cited:
Associated Alloys Pty Ltd v Metropolitan Engineering & Fabrication Pty Ltd (1998) 16 ACLC 1633
Cinema Plus Ltd v Australia and New Zealand Banking Group Ltd (2000) 49 NSWLR 513
Clough Mill Ltd v Martin [1985] 1 WLR 111
Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602
(Page 3)
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
Kent & Sussex Sawmills Ltd [1947] Ch 177
Noakes & Co Ltd v Rice [1902] AC 24
Puma Australia Pty Ltd v Sportmans Australia Ltd [1994] 2 Qd R 149
Re Bond Worth Ltd [1979] 3 WLR 629
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1 STEYTLER J: This appeal against a decision of a Commissioner of this Court raises the question whether five payments made in 1991 by a company, ULT Ltd ("ULT"), to the appellant ("RFS") amounted to voidable preferences under s 565 of the Corporations Law read with s 122 of the Bankruptcy Act 1966, ULT now being in liquidation. The Commissioner found that they did amount to voidable preferences. RFS contends that he was wrong in doing so.
2 ULT was a supplier of equipment for the establishment of mobile telephone networks. RFS supplied parts of that equipment to ULT. It did so upon terms requiring payment in cash within 14 days from the date of invoice, although it ordinarily allowed ULT 30 days credit. ULT failed, after a period, to meet even the extended terms of trading which had been allowed it by RFS. By early July 1991 it owed to RFS $462,267 in respect of debts incurred from as early as 22 March 1991. Officers of RFS became increasingly concerned and, on 7 August 1991, a representative of ULT was asked if ULT had "any objection to signing [a] retention of title document for ... [RFS'] security".
3 In mid August 1991 Mr John Matthews, RFS' financial controller, and Mr David Cooke, its national sales and marketing manager, met with Mr John Walters, ULT's financial controller, and another employee of ULT, Mr Noel Raymond. In the course of that meeting Mr Matthews told Mr Walters that, as RFS "was agreeing to accept late payment on all of its invoices, ... [it] wanted some security and wanted ULT to sign ... [a] credit application and date it 1 May 1991, so that all of the outstanding invoices would be covered by the retention of title clause" contained within the application form. Mr Walters agreed to this and RFS' credit application form was signed by him on 16 August 1991 and dated 1 May 1991. It was then returned to Mr Matthews.
4 The retention of title clause to which Mr Matthews had referred, and which comprised effectively the whole of the application form which was signed by Mr Walters on behalf of ULT, read as follows:
"A. Retention of Title
We, the Customer referred to above [ULT], hereby agree with the Supplier [RFS] that, in relation to all those products supplied by the Supplier to the Customer:
(a) Ownership and property is to remain with the Supplier until the Customer or the Guarantor has
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- paid to the Supplier all moneys owing by the Customer to the Supplier at any time.
- (b) Risk shall pass to the Customer whether the products are at the premises of the Supplier or the Customer;
(c) They shall be stored by the Customer in its capacity as a bailee and as a fiduciary of the Supplier and in such a way that they are clearly the property of the Supplier;
(d) They may be sold by the Customer to third parties in the ordinary course of the Customer's business;
(e) In the event any moneys owed by the Customer and the Guarantor to the Supplier are overdue for payment or the Customer has defaulted in any of the other terms of the arrangement between the Supplier and the Customer, the Supplier (or its agent) may enter the Customers' premises and take possession of the products;
(f) The Supplier, may once it has repossessed the products, resell the products to third parties;
(g) The Supplier shall have a right to any claims the Customer may have against third parties emanating from the sale of the products or new goods or objects into which the products have been incorporated;
(h) In the event of a sale by the Customer of the products or new goods or objects into which the products have been incorporated; the Supplier shall have the right to trade [sic (trace)] the proceeds."
5 The five payments to which I have referred were made by ULT to RFS after the application form was signed. They comprised a payment of $46,148 made on 4 October 1991, one of $80,159.22 made on 10 October 1991, one of $40,000 made on 7 November 1991, another of $40,000 made on 15 November 1991 and one of $1,259 made on 17 December 1991. The petition pursuant to which ULT was wound up
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- was presented on 3 April 1992. Each of the challenged payments was consequently made within six months of that date. The Commissioner found that each payment was made at a time when ULT was unable to pay all of its debts as they fell due from its own money.
6 At the time of each of the payments ULT had in its possession a large quantity of parts supplied to it by RFS after 1 May 1991. The Commissioner found that, insofar as those parts had been incorporated into equipment manufactured by ULT, they could be removed by unscrewing or unbolting them.
7 It is important to mention that it was, and is, common cause between the parties that, if the five payments were made at a time when, by virtue of the signing of the credit application form (to which I shall henceforth refer as "the credit agreement"), RFS had an absolute title to the parts which had been supplied to ULT between 1 May 1991 and the date of the credit agreement, those payments did not have the effect of giving to RFS a preference, priority or advantage over other creditors but that, if the credit agreement, construed in its context, merely created a charge (which was unregistered) over those parts, then the payment did have that effect and the payments, and the unregistered charge, were void as against the liquidator.
8 The Commissioner found that the credit agreement was effective only to create a charge over the parts in question and that it, and the payments, were void as against the liquidator of ULT. It is this finding which is challenged on the appeal.
9 His Honour's reasons for arriving at his finding in this respect were briefly expressed. He said (par 87) that the critical point was that the property in all of the parts sold and delivered by RFS to ULT before 15 August 1991 had passed to ULT. He also said that RFS' argument that the credit agreement reflected an intention on the part of the parties to it that parts previously sold and delivered to ULT by RFS should be treated as if the property in them had never passed "did not fit the facts". He concluded that what RFS had wanted was security and that "the section [s 565 of the Corporations Law as it stood in 1992] cannot be evaded by the form of a transaction at odds with commercial reality". He went on to say (pars 87 and 88):
" ... Moreover, that there were debts owing in respect of the goods in question, and rights of ULT to be in possession of the goods and to sell them in the ordinary course of business and of
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- the respondent to seize them in case of default were consistent with a chattel mortgage having been created. And ULT having been the owner of the goods, it would have been odd indeed if, immediately after seizure of the goods, they could not have been redeemed if ULT had been able to raise the wind [sic].
Then there is the evidence of Mr Matthews. In par 6.6 of his affidavit, exhibit 9, he deposed to saying at the meeting in August 1991 'we wanted some security'. He also referred to security in the event that ULT faltered or collapsed; t/s 160 - 1."
10 RFS challenges, firstly, the Commissioner's finding that what it wanted was security. It contends that, insofar as evidence of its intention is admissible at all, that evidence did not establish that it intended that the credit agreement should take effect only as a charge.
11 In my opinion it is right in this contention.
12 It is settled that a court may admit evidence of mutually known facts to identify the genesis and aim of a transaction but that it cannot receive evidence from one party as to its intentions so as to construe the contract by reference to those intentions (see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352).
13 It is also settled that courts will allow oral evidence to be given that a document is a sham and was "never intended by the parties to be operative according to its tenor at all, but was meant to cloak another and different transaction" (Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33 at 39 and see also Esanda Ltd v Burgess [1984] 2 NSWLR 139 at 144 and 153). In Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98 Windeyer J said (at 114) that, if it can be shown by parol evidence that both parties to a document adopted the form they did as a disguise, then their true intent and not the form will prevail. Thus, his Honour said (ibid), agreements that were in form sales have sometimes been held to be mortgages when the form of a sale had been adopted as a disguise as, for example, in Douglas v Culverwell (1862) 4 De G F & J 20 [45 ER 1089] and Baker v Wind (1748) 1 Ves Sen 160 [27 ER 956]. In the same case Barwick CJ (who was in dissent in the result) said (at 108):
"It is beyond question that oral evidence will be admitted to determine with what intention the parties entered into a writing which is a sale or a conveyance of land. This is not an
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- exception to the rule that oral evidence will not be admitted to contradict or vary a writing into which the parties have reduced their entire agreement for the very question at issue is whether the parties have made the writing the expression of their whole agreement or of their mutual intention. Also, a sale or conveyance is a common means of providing security. Thus, the intention with which parties enter into the sale or conveyance becomes an issue to be resolved by evidence, whether oral or documentary. It cannot be resolved merely by resort to the conveyance for the mutual intention to use the document as security, if it exists, by hypothesis lies dehors that instrument."
14 There is, in this case, no suggestion that the credit agreement is a sham and that the form of the document was intended by the parties thereto to disguise the true nature of their transaction. Nor is it contended that the writing was not intended to be the expression of their whole agreement or of their mutual intention, at least so far as the issue of ownership of the parts is concerned.
15 However, if it be assumed that RFS' intention, as expressed by it to ULT, is admissible as identifying the genesis and aim of the transaction (and on no basis could its subjective intention, not conveyed to ULT, be regarded as admissible for the purpose of construing the credit agreement, notwithstanding submissions by counsel for the respondent to the contrary), it seems to me that Mr Matthews, in saying that he wanted "some security", was not using the language of a lawyer (which he was not). He was merely saying that RFS wanted to protect its position against the possible insolvency of ULT and that he thought that this might be achieved, as he said to ULT, by having ULT execute the credit agreement, backdated to 1 May 1991, "so that all of the outstanding invoices would be covered by the retention of title clause".
16 That brings me to the second of RFS' contentions. This contention is to the effect that, on the proper construction of the credit agreement, even taking into account the background evidence to which I have referred, that agreement did not create a charge but, rather, effected a transfer, or re-transfer, of the title to the parts in question to RFS absolutely.
17 Before considering the terms of the credit agreement I should mention two points about the law as it has developed in respect of retention of title clauses or, as they have come to be described, Romalpa clauses, following upon the decision of the Court of Appeal in
(Page 9)
- Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676.
18 The first point which might relevantly be mentioned is that a provision which reserves title to goods sold to the seller until payment, not only of their purchase price, but of all debts due to it, does not amount to the creation by the buyer of a right of security in favour of the seller (Armour v Thyssen Edelstahlwerke AG (1991) 2 AC 339 at 351 - 352). This proposition rests upon the foundation that, if a seller should agree with the buyer that the latter is not to have title to the goods sold until the happening of a certain event, then the buyer would, until then, have no property in the goods over which to confer any security. It matters not at all whether the event in question is payment of the purchase price for the goods in question or payment of all debts then due to the seller. Either way the result is the same. The buyer has no property in the goods until the condition which has been agreed between the parties has been satisfied. Thus, in Armour, at 353, Lord Keith (with whom the other Lords were in agreement) said that, while a provision of this kind does, in a sense, give the seller security for the unpaid debts of the buyer, "it does so by way of a legitimate retention of title, not by virtue of any right over his own property conferred by the buyer".
19 The second point is that, as has recently been said by Gaudron, McHugh, Gummow and Hayne JJ in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (formerly Metropolitan Engineering and Fabrication Pty Ltd) (2000) 171 ALR 568 at 583, the legislature has, in the Corporations Law, chosen to select as the criterion of operation of the registration provisions that which it defines as a "charge" and it is not for the courts to destroy or impair property rights by supplementing the list of those rights which the legislature has selected for such treatment.
20 That brings me back to the credit agreement in this case.
21 It was conceded by counsel for the respondent that that agreement was effective to reserve to RFS the title to parts sold by it to ULT after the date upon which it was made, 16 August 1991, until such time as ULT had paid all that it owed to RFS (which it never did). It follows from this concession (as was also conceded by counsel for the respondent) that the agreement consequently did not, on the authority of Armour and Associated Alloys, create a charge over those parts, whether at common law or for the purposes of the Corporations Law. I should mention, in this last respect, that under s 9 of the Corporations Law a "charge" means "a charge created in any way and includes a mortgage and an agreement to
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- give or execute a charge or mortgage, whether on demand or otherwise". The definition consequently preserves the common law meaning.
22 The only remaining question, having regard for the way in which the parties have chosen to argue the case, is whether the credit agreement created a charge over those parts which were supplied by RFS to ULT between 1 May 1991 and 16 August 1991.
23 There can, in this respect, be no doubt (as was ultimately conceded by counsel for the respondent and as must necessarily have been found by the Commissioner) that the credit agreement was deliberately backdated to 1 May 1991 with the intention (objectively derived from the terms of that agreement when construed in the context of the expressed genesis and aim of the transaction) that its terms were to apply, not only to parts which had yet to be supplied by RFS to ULT, but also to those parts which had been supplied by RFS to ULT between 1 May 1991 and the date of execution of the credit agreement.
24 Why, then, should the agreement be taken to have created a charge over these parts? The answer, according to counsel for the respondent, is because ULT had, at the time of the making of that agreement, the absolute title to them and, while giving up that title, still intended to pay for the parts and for all other parts supplied by RFS (as RFS knew that it did) with the consequence that the parties must be taken to have intended that ULT was to transfer the title to the parts already supplied back to RFS only by way of security and subject to ULT's right to redeem that title. This, he submitted, is essentially what the Commissioner found in that portion of his Honour's reasons which I have quoted above.
25 It seems to me, firstly, that the credit agreement effected a transfer of the title to the parts in question from ULT to RFS. While subcl (a) of the agreement provides that property "is to remain" with RFS until payment of all moneys owing, it is clear from the fact of the backdating of the agreement that this subclause was intended to apply to parts supplied by RFS after 1 May 1999 and before 16 August 1999 as well as to parts supplied by it after 16 August 1999. Once that is accepted (and I have already said that this was ultimately conceded by counsel for the respondent), then it seems to me necessarily to follow that the parties must be taken to have intended, by this subclause, to transfer back to RFS the title to those parts supplied in the first of the two periods to which I have referred.
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26 That leaves only the question whether that transfer of title was intended to operate absolutely or by way of charge only. In my opinion the transfer was one of the absolute title to the parts in question.
27 It seems to me that the parties intended, by means of the backdating of the agreement, to put themselves in the position in which they would have been had the agreement in fact been made on 1 May 1999, namely one in which RFS had, by virtue of subcl (a), the absolute title to all parts delivered after that date until such time as the condition for the passing of title to ULT was satisfied.
28 That the re-transfer was intended to operate absolutely, and not by way of security, is apparent from subcls (c), (g) and (h). The requirement that the parts be stored by ULT "in its capacity as a bailee" and "in such a way that they are clearly the property of ... [RFS]" is, in my opinion, consistent only with RFS being the absolute owner of the goods. The same is true of the fact that RFS is to have, under subcl (g), "a right to any claims ... [ULT] may have against third parties emanating from the sale of the products or new goods or objects into which the products have been incorporated" and, under subcl (h), the right to trace the proceeds of a sale by ULT of the products or new goods or objects into which they have been incorporated (although each of these clauses might raise other issues with which the parties have found it unnecessary to deal). While it may be so, as was said by the Commissioner, that the right of seizure conferred by subcl (e) of the credit agreement is consistent with a chattel mortgage, it is, in my respectful opinion, not indicative, in its context in this agreement, of any intention to create such a mortgage but, rather, is intended only to give to RFS a licence, in the event of default by ULT, to enter ULT's premises in order to recover its own property.
29 None of this is, in my respectful opinion, affected by the fact that ULT intended, to the knowledge of RFS, to pay what it owed to RFS over the course of its continued trading and to continue to possess and then sell the parts to third parties as part of the equipment supplied by it. That was the case, also, in respect of the parts supplied after 16 August 1999 and, as I have already said, it is conceded, in respect of those parts, that RFS retained the title thereto and that no charge came into being over them. I am unable to accept that the fact that ULT had, at the time of making the agreement, title to the parts earlier supplied was sufficient, of itself, to support the conclusion that the parties intended, by their agreement, to create a charge over those parts (thereby creating, by one set of words, two different results). Rather, as I have said, it seems to me that the evident intention of the parties was that the title to the goods should be
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- restored to RFS in order to place the parties in precisely the same position as that in which they would have been had the agreement been made on 1 May 1999.
30 While there can be no doubt that ULT expected (and RFS hoped) that ULT would subsequently re-acquire the title to the parts in question, this was not, on the construction of the agreement which I prefer, to be pursuant to any right or equity of redemption. Rather, it was to be pursuant to ULT's rights as the buyer of those parts.
31 It follows that the appellant's contentions have, in my opinion, been made good. I would consequently allow the appeal, set aside the judgment below and substitute for it a judgment that the respondent's claim be dismissed and that there be judgment in favour of the appellant against the respondent.
32 MILLER J: I have had the benefit of reading in draft the reasons published by Steytler J. I am in agreement with those reasons and have nothing further to add.
33 PIDGEON AUJ : I agree with the reasons to be published by Steytler J and have nothing further to add.
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