Re Corio Bay Dairy Group Pty Ltd (in liq)
[2025] VSC 466
•31 July 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 01468
IN THE MATTER of CORIO BAY DAIRY GROUP PTY LTD (IN LIQUIDATION) (ACN 618 921 092)
BETWEEN:
| JONATHON KINGSLEY COLBRAN IN HIS CAPACITY AS LIQUIDATOR OF CORIO BAY DAIRY GROUP PTY LTD (IN LIQUIDATION) (ACN 618 921 092) & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| NUTRITIONAL POWDER TECHNOLOGIES PTY LTD (ACN 624 769 900) | Defendant |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6–8 November 2024 and 13 December 2024 |
DATE OF JUDGMENT: | 31 July 2025 |
CASE MAY BE CITED AS: | Re Corio Bay Dairy Group Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2025] VSC 466 |
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CONTRACTS – Deed of settlement and release – Construction – Interpretation – Whether statutory unfair preference claims by liquidator released by deed of settlement between parties arising from earlier litigation over lien claimed by creditor – Whether preference claims ‘in connection with’ contract between parties under which creditor performed work – Whether claims in contemplation of parties at time of execution of deed – Whether unconscientious reliance by creditor upon general words of release – Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 applied.
CORPORATIONS – Insolvency – Corporations Act 2001 (Cth) – Div 2 of Pt 5.7B – Voidable transactions – s 588FA – Unfair preference claims brought by liquidator under s 588FF(1) – s 588FA(3) – Whether payments an integral part of continuing business relationship – Running account – Where progress payments made by company to creditor under engineering, procurement and construction management contract – Where additional work performed contemplated by contract itself – Payments for additional work not connected with future supply – Walsh v Salzer Constructions Pty Ltd (2000) 3 VR 305 followed – s 588FG(2) – Good faith defence – Whether creditor had no reasonable grounds for suspecting company insolvent at time of transactions – Whether reasonable person in creditor’s circumstances had no such grounds for so suspecting – Where creditor bore onus of proving defence but failed to call key witnesses – Inferences made that witnesses would not have assisted creditor in making out defence – Cook’s Construction Pty Ltd v Brown (2004) 49 ACSR 62 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C Möller SC | K&L Gates |
| For the Defendant | Mr A Morrison | Ward & Co. Legal Consultants Pty Ltd |
TABLE OF CONTENTS
Introduction
Background
Contract between CBDG and NPT
Relevant payments to NPT
Delays in payment to project contractors and funding difficulties
External administration of CBDG and lien dispute with NPT
Procedural history
Material relied upon by parties
Questions for determination
Release questions
Rectification questions
Unfair preference questions
Release questions
Legal principles
Construction of commercial contracts
Settlement agreements and deeds of release
Evidence
Lien correspondence
Negotiations leading to settlement deed
Settlement deed
Evidence given by NPT
Evidence given by plaintiffs
Parties’ submissions
NPT’s submissions
Plaintiffs’ submissions
Consideration
Rectification
Unfair preference questions
Legislative provisions
April payments
Issues in dispute and not in dispute
Continuing business relationship
Legal principles
EPCM contract key terms
NPT’s evidence
Documentary evidence
NPT’s submissions
Plaintiffs’ submissions
Consideration
Good faith defence
Statutory provisions and legal principles
Communications over delays in payment to contractors
NPT’s evidence
Submissions
Consideration
Answers to questions for determination
Conclusion
HIS HONOUR:
Introduction
By way of amended originating process dated 9 October 2023, Corio Bay Dairy Group Pty Ltd (in liquidation) (‘CBDG’ or ‘company’) and its liquidator, Mr Jonathon Kingsley Colbran (together, ‘plaintiffs’), bring unfair preference claims under ss 588FA, 588FC, 588FE and 588FF of the Corporations Act 2001 (Cth) (‘Act’) in respect of five payments totalling $555,640.70 made by CBDG to Nutritional Powder Technology Pty Ltd (‘NPT’ or ‘defendant’).
The case is, however, complicated by the existence of a deed of settlement and release dated 19 February 2021 made to resolve an earlier proceeding concerning NPT’s claim by way of lien over certain materials supplied to CBDG (‘settlement deed’). NPT contends the settlement deed operated to release it from the unfair preference claims the subject of this proceeding. The plaintiffs deny the settlement deed had that effect but contend that, even if it did, it should be rectified. NPT also alleges the existence of a running account as part of a continuous business relationship, with the result that the company’s overall indebtedness to NPT increased after the payments were made. Further, NPT alleges the payments were received in good faith with no reasonable grounds to suspect the company was insolvent at the time.
Background
CBDG was incorporated in May 2017 as a joint venture vehicle between its shareholders Niche Dairy Pty Ltd (‘Niche’), Organic Dairy Farmers of Australia Limited (now deregistered) (‘ODFA’), and Wellnex Life Limited (formerly known as Wattle Health Australia Limited) (‘Wattle’) for the purpose of producing organic dairy products and constructing a powdered milk and infant formula spray drying plant (‘project’). The project was funded by a facility provided initially by Wattle and Niche, and then by Wattle alone (from September 2019). Key personnel at CBDG during the course of the project included: Dr Tony McKenna, the Chief Executive Officer (‘CEO’);[1] Mr Josh Fletcher, the Chief Financial Officer (‘CFO’); Mr Robin Johnson, a project director; and Mr Murray Marnoch, a project accountant.
[1]In addition to his role at the company, Dr McKenna relevantly held additional positions as CEO or ‘Group CEO’ and managing director of Wattle.
NPT was incorporated in or around March 2018. The evidence suggests it was in fact specifically formed to provide engineering and project management services for the project. The directors of NPT are Messrs Salvatore (Sam) Verde and Nigel Holden. Mrs Susan Verde, the spouse of Mr Verde, is NPT’s office manager and senior electrical engineer. Other key personnel include: Mr Sam Holden, NPT’s process engineer and the son of Mr Nigel Holden; and Ms Melinda Gorman, an in-house accountant.
Contract between CBDG and NPT
On 23 January 2019, CBDG and NPT entered into an Engineering, Procurement and Construction Management contract (‘EPCM contract’ or ‘contract’) for NPT to provide engineering and project management services in relation to the construction of a large infant formula drying plant in North Geelong (‘plant’). The EPCM contract comprises a document-styled ‘Formal Instrument of Agreement’, general and special conditions, as well as schedules and annexures. In broad terms, under the EPCM contract, NPT as the ‘Engineer’ was to be paid the ‘Contract Sum’ of $4.45 million (excl GST) and other amounts, subject to CBDG’s receipt of ‘Payment Statements’ (cl 9.1). NPT was entitled to raise monthly payment claims (SC 6.1), with CBDG to make payment within five business days of receiving a certificate from the ‘Superintendent’[2] (a representative of CBDG) or 20 business days of the Superintendent receiving NPT’s claim (SC 6.5).
[2]The parties used the terms ‘Project Superintendent’ and ‘Superintendent’ interchangeably, which is distinct from NPT’s role as nominated superintendent in various contracts between CBDG and other contractors and suppliers engaged in the project.
As Engineer under the EPCM contract, NPT was required to ‘design all things necessary for the procurement, installation, construction, [and] commissioning’ of the plant (cl 14.1). Further, the Engineer granted to the ‘Principal’ (i.e. CBDG) a perpetual, royalty-free, irrevocable, non-exclusive licence to exercise all rights of the Engineer as owner in relation to the intellectual property and ‘Design Deliverables’ (being design documentation, including drawings, project plans, specifications, programs, schedules and data) produced by the Engineer under: the ‘Services’; the EPCM contract; and the construction and engineering works relating to the project (‘intellectual property licence’) (cl 5.2). I will refer to the mechanics of the EPCM contract in greater detail later in these reasons.
It is common ground that NPT was also the nominated superintendent in various contracts between CBDG and other contractors and suppliers engaged in the project, requiring it to assess progress claims submitted by those parties and make recommendations to CBDG about the payment of those claims.
NPT commenced providing services under the EPCM contract in or around February 2019 and CBDG issued a purchase order to NPT for design work on 28 February 2019.
Relevant payments to NPT
Throughout April 2020, CBDG made five payments to NPT in the total sum of $555,640.70 (‘April payments’). The April payments are described in greater detail later in these reasons. The plaintiffs allege the April payments constitute unfair preferences within the meaning of s 588FA of the Act.
Delays in payment to project contractors and funding difficulties
From around 3 February 2020, a number of contractors engaged in the project began contacting representatives of CBDG and NPT in relation to delays in payment of invoices. In April 2020, a number of contractors issued show cause notices requiring immediate payment of outstanding invoices. The correspondence and the associated communications between CBDG and NPT are set out later in these reasons.
On 19 May 2020, Mr Verde attended a meeting with Dr McKenna and was advised that CBDG had suspended the project whilst it explored alternative funding arrangements.
External administration of CBDG and lien dispute with NPT
NPT continued making progress payment claims to CBDG, including one dated 29 May 2020 which fell due on 30 June 2020 and remained unpaid by August 2020. On 19 August 2020, NPT served on CBDG a Notice of Intention to Exercise Lien pursuant to s 12A of the Building and Construction Industry Security of Payment Act 2002 (Vic) in respect of the unpaid May progress claim and over unfixed plant and materials (including intellectual property, such as designs and drawings) relating to the project (‘notice of lien’ or ‘lien’).
Two days later, on 21 August 2020, CBDG went into voluntary administration and Messrs Colbran and David Mark Mutton were appointed as its administrators.
On 25 August 2020, NPT purported to register security interests pursuant to the lien on the Personal Property Security Register (‘PPSR’). Correspondence then ensued between NPT, the administrators of CBDG, and their respective lawyers in relation to the lien. In particular, on 27 August 2020, NPT sent a letter to the administrators about the lien asserting NPT’s status as a secured creditor. The administrators responded by letter on 1 September 2020 requesting documentation to support NPT’s alleged security interest over CBDG’s property. On 15 September 2020, NPT’s lawyers, Ward & Co, sent a letter to the administrators and alleged NPT’s security interests registered on the PPSR were supported by the EPCM contract and notice of lien.
The issue of the lien then became contentious. Between mid-October 2020 and 23 December 2020, extensive correspondence passed between K&L Gates, on behalf of the voluntary administrators (and later liquidators) of CBDG, and Ward & Co, on behalf of NPT, concerning whether the lien had a proper basis. The correspondence is referred to in greater detail later in these reasons.
On 15 December 2020, CBDG and its voluntary administrators entered into an agreement with Maeil Australia Pty Ltd (‘Maeil’) for the sale of the company’s assets for $13.5 million (‘Maeil sale agreement’). The assets agreed to be sold included the company’s: premises; plant and equipment; intellectual property; and assets over which NPT claimed an interest in the notice of lien.
In the administration of CBDG, NPT lodged a formal proof of debt dated 16 December 2020 for the sum of approximately $2.05 million in respect of unpaid invoices. NPT submitted the proof of debt on the basis it was a secured creditor pursuant to the lien.
On 17 December 2020, during a second meeting of creditors held in accordance with s 439A of the Act (‘second meeting of creditors’), CBDG’s creditors resolved to wind up the company and appoint Messrs Colbran and Mutton as its liquidators (‘liquidators’). (I note Mr Mutton eventually retired as liquidator of CBDG on 16 August 2021.) A report provided to creditors dated 9 December 2020 for the purpose of the second meeting of the company’s creditors (held on 17 December 2020) (‘9 December 2020 report to creditors’) estimated the quantum of unfair preference claims that may be brought by the liquidators on behalf of the company was approximately $3.8 million ($3.707 million of which related to payments to ‘five key suppliers’ and the balance to the Australian Taxation Office (‘ATO’)). The $3.8 million figure was referred to during the second meeting of creditors.
While the liquidators sought to progress the sale of assets under the Maeil sale agreement, it became apparent that the lien then claimed by NPT threatened to obstruct the sale. As a consequence, by originating process dated 19 January 2021, the liquidators commenced a proceeding in this Court[3] seeking declarations that a registered security interest held by Wattle over CBDG’s property had priority over the interest claimed by NPT in its lien and that the liquidators were entitled to dispose of CBDG’s assets free of the interest claimed by NPT (‘earlier proceeding’). The originating process was supported by an affidavit of Mr Mutton dated 15 January 2021 (together, ‘earlier proceeding Court documents’).
[3]Supreme Court of Victoria proceeding S ECI 2021 00092.
Following an exchange of correspondence between the parties’ lawyers, the earlier proceeding was resolved in accordance with the settlement deed executed on 19 February 2021. The terms of the settlement deed and the contents of the correspondence preceding it are considered in greater detail later in these reasons.
On or around 12 March 2021, the liquidators issued a statutory report to creditors (‘12 March 2021 report to creditors’) which, again, referred to potential unfair preference claims that may be pursued by the liquidators on behalf of CBDG with the same approximate values as set out in the 9 December 2020 report to creditors.
On 27 May 2021, the liquidators wrote a comprehensive letter to NPT contending that the April payments constituted unfair preferences and demanding payment of $555,640.70 in settlement of anticipated preference claims (‘liquidators’ letter of demand’). This was met with a letter dated 11 June 2021 from Ward & Co on behalf of NPT denying the April payments were unfair preferences and raising a number of potential defences but making no mention of the settlement deed.
On 12 September 2022, K&L Gates wrote to Ward & Co making a ‘without prejudice’ offer to settle the liquidators’ preference claims. Ward & Co replied on 16 December 2022, rejecting the offer and asserting — for the first time and some 18 months after the liquidators’ letter of demand — that, by operation of the settlement deed, the liquidators had released NPT from all claims incidental to the EPCM contract, including the unfair preference claims the subject of this proceeding.
Procedural history
The plaintiffs filed their originating process on 13 April 2023 seeking, among other things, declarations that the April payments are: unfair preferences within the meaning of s 588FA of the Act; insolvent transactions within the meaning of s 588FC of the Act; and voidable transactions within the meaning of s 588FE of the Act.
On 26 April 2023, the Court made timetabling orders by consent, including for the filing of pleadings, discovery, and referral to judicial mediation.
On 5 October 2023, I granted the plaintiffs leave to file and serve an amended originating process and amended statement of claim to seek, among other things, declaratory relief that the settlement deed did not release NPT from the unfair preference claims or, if it did, that the settlement deed ought to be rectified.
On 10 October 2023, NPT filed a summons for the hearing of separate questions under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), specifically whether: the plaintiffs released and discharged the defendant from the claims made in this proceeding pursuant to the settlement deed; the plaintiffs are barred from bringing this proceeding; and the settlement deed contains a mutual mistake which should be rectified. The summons was made returnable on 10 November 2023. After hearing argument on that day, I ultimately dismissed NPT’s summons. I did not consider there was a clear case for the exercise of the Court’s discretion to order the separate trial of questions in the proceeding, having regard to the considerations identified in Vale v Daumeke & Ors.[4] Nor did I consider that a separate trial would serve the overarching purpose contained in s 7 of the Civil Procedure Act 2010 (Vic) or be consistent with the overarching obligation in s 24 of that legislation, which requires parties to ensure that legal costs incurred in connection with the proceeding are reasonable and proportionate to the complexity of the matter, importance of the issues, and the amount in dispute.[5]
[4][2015] VSC 342 [31]–[32] (Derham AsJ).
[5]Re Corio Bay Pty Ltd (Supreme Court of Victoria, S ECI 2023 01468, Hetyey AsJ, ruling on 10 November 2023).
The matter proceeded to trial commencing on 6 November 2024. Although initially fixed to be heard over three days, the trial was heard over four, with parties giving opening submissions and evidence on 6, 7 and 8 November 2024, and closing submissions on 13 December 2024.
In its amended defence dated 20 October 2023, NPT did not admit CBDG was insolvent from 1 April 2020 and at the time of each of the April payments. It further pleaded that at all material times until approximately 15 May 2020, or alternatively July 2020, CBDG had in place a funding arrangement with its shareholder and joint venture partner, Wattle, to fund the development, construction, and commission of the plant. In other words, NPT put the plaintiffs to proof on the question of insolvency (which is an element of the unfair preference claims by virtue of s 588FC of the Act). However, at the commencement of the trial, the Court was informed that NPT no longer wished to press the issue of solvency. According to the plaintiffs’ written opening submissions, on 21 October 2024, the plaintiffs served NPT with a notice to admit that CBDG was insolvent at the time of the April payments and, by email dated 25 October 2024, Ward & Co confirmed NPT did not intend to serve a notice of dispute in respect of the notice to admit or cross-examine Mr Bruce Gleeson (the plaintiffs’ expert witness) at trial.
Material relied upon by parties
The plaintiffs principally rely on the following materials in the proceeding:
(a)the affidavits of CBDG’s remaining liquidator, Mr Colbran, affirmed on 4 April 2023 and 12 April 2023;
(b)the affidavit of the plaintiff’s independent expert witness, Mr Gleeson, affirmed on 14 October 2024, including his expert report on the solvency of CBDG (‘solvency report’);
(c)the affidavit of Mr Mutton, affirmed on 16 October 2024 (by then retired as the joint liquidator of CBDG);
(d)the affidavit of Mr Stephen Alevras of the liquidator’s firm, affirmed on 1 November 2024; and
(e)outlines of submissions dated 29 October 2024, 6 November 2024 and 11 December 2024.
The defendant principally relies on the following material in the proceeding:
(a)the affidavits of Mr Verde sworn on 26 September 2024 and 23 October 2024;
(b)the affidavit of Mrs Verde sworn on 4 October 2024; and
(c)outlines of submissions dated 1 November 2024 and 5 December 2024.
Pursuant to the Court’s timetabling orders, the parties also jointly prepared a statement of issues and a chronology of agreed facts.
Questions for determination
The proceeding raises the following questions:
Release questions
(a)on its proper construction, did the settlement deed release the unfair preference claims the subject of this proceeding?;
(b)in all the circumstances, is it unconscientious for NPT to rely on the settlement deed?;
Rectification questions
(c)does the settlement deed, by mistake, fail to express the true agreement between the plaintiffs and NPT?;
(d)if so, should the settlement deed be rectified to give effect to the parties’ true intention?;
Unfair preference questions
(e)was CBDG insolvent at the time each of the April payments were made?;
(f)were each of the April payments an integral part of a continuing business relationship between NPT and CBDG?;
(g)depending on the answer to question (f) above, what is the effect (if any) of the ‘single transaction’ referred to in s 588FA(3)(d) of the Act?; and
(h)for each of the April payments:
(i)did NPT receive the payment in good faith?; and
(ii)at the time NPT received the payment:
(A)did NPT have no reasonable grounds for suspecting CBDG was insolvent or would become insolvent as mentioned in s 588FC of the Act?; and
(B)would a reasonable person in NPT’s circumstances have had no such grounds?
The rectification questions will only fall for determination if the release questions are resolved in favour of NPT. Similarly, the unfair preference questions will arise only if the release questions are resolved against NPT, or if the release questions are resolved against the plaintiffs but the rectification questions are resolved in their favour. Lastly, if the release and rectification questions are resolved against the plaintiffs, the preference issues will not arise.
Release questions
Legal principles
Construction of commercial contracts
The terms of a commercial contract are construed according to what a reasonable businessperson would have understood those terms to mean, as distinct from the subjective intention of the parties themselves.[6] In this way, the rights and liabilities of parties under a provision of a commercial contract are determined objectively, by reference to its: text and ordinary meaning; context (the entire text of the contract and any other contract, document or statutory provision to which it refers); and purpose of the contract.[7] The Court is entitled to approach the construction task on the basis that the parties intended to produce a result which makes commercial sense,[8] as opposed to a result which leads to commercial nonsense or commercial inconvenience.[9] Further, if there are reasonably open competing constructions, the preferred construction is one that avoids capricious, unreasonable, inconvenient or unjust consequences.[10]
[6]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–462 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–657 (French CJ, Hayne, Crennan and Kiefel JJ) (‘Electricity Generation v Woodside’); Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104, 116 (French CJ, Nettle and Gordon JJ) (‘Mount Bruce’); Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 (Kiefel, Bell and Gordon JJ) (‘Ecosse’); VS Property and Holding Pty Ltd v Zurzolo [2024] VSCA 199 [54] (Niall J (as his Honour then was), Walker and Kenny JJA) (‘VS Property’).
[7]Mount Bruce 116; Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [45] (Santamaria, Ferguson and McLeish JJA) (‘Eureka’); VS Property [54].
[8]Ecosse 551.
[9]Electricity Generation v Woodside 656–657; Amcor Ltd v Barnes, Trevor Mark [2021] VSCA 6 [648] (Ferguson CJ, Beach and Whelan JJA).
[10]Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99, 109 (Gibbs J).
In the construction of commercial contracts, recourse to evidence of surrounding circumstances is informed by the ‘true rule’ as propounded by the High Court in Codelfa Construction v State Rail Authority of New South Wales (‘Codelfa’).[11] Because there appears to be some disagreement between the parties on the application and scope of the rule, it is necessary to cite the following passages of Mason J’s reasoning (as his Honour then was) in full:[12]
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting.
[11](1982) 149 CLR 337 (‘Codelfa’).
[12]Ibid 352 (emphasis added).
In Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (‘Mount Bruce’),[13] the High Court revisited the true rule in Codelfa.The plurality (French CJ, Nettle and Gordon JJ) held:[14]
The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.
That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
[13](2015) 256 CLR 104.
[14]Ibid 116–117 (emphasis added) (citations omitted).
In Eureka Operations Pty Ltd v Viva Energy Australia Ltd (‘Eureka’),[15] the Court of Appeal referred to Mount Bruce and other High Court authorities in explaining the importance of context in interpreting a commercial contract:[16]
In the first place, the objective approach to contractual interpretation requires reference to the ‘text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’.
It follows that the meaning of a word or clause cannot be determined by reference to its own text alone. As such, resort to the ‘ordinary meaning’ of the word or clause can be no more than a starting point in a process which in every case requires the reader of the contract to look further to context and purpose. Nor is it necessary that there be ambiguity, however understood, before undertaking that further process.
Context (as defined above) and purpose are always relevant, no matter how clear the ‘ordinary meaning’ is said to be.
Secondly, the objective approach calls for the relevant provision to be interpreted as a reasonable businessperson would have understood it, which is revealed by considering the language used in the contract, the circumstances the contract addresses and the commercial purpose or objects to be secured by it, each of which is ordinarily able to be identified by reference to the contract alone. Again, the notion of ‘ordinary meaning’, while plainly a relevant aspect of this inquiry, cannot serve to foreclose consideration of these other elements. It is always possible that, despite the ‘ordinary meaning’, reference to context, the circumstances the contract addresses and its commercial purpose or objects will show that a reasonable businessperson would have understood a different meaning to apply. It is inherent in the test of the reasonable businessperson that he or she must be taken to be aware of more than just the text of the provision being construed.
Construction in the present case should therefore be approached on the basis that the ‘ordinary meaning’ of the relevant provisions is only one aspect of the wider inquiry, and that there is no need to establish any ambiguity arising from the text before undertaking that inquiry. It may be that no reason emerges to depart from the ordinary meaning of the words used. But the whole inquiry must be undertaken, whether or not the ordinary meaning can be described as unambiguous when read in isolation. Establishing ambiguity is not a threshold to be met before completing the inquiry.
[15][2016] VSCA 95.
[16]Ibid[45]–[48] (Santamaria, Ferguson and McLeish JJA) (emphasis added) (citations omitted).
In the later case of Lopes v Taranto (‘Lopes v Taranto’),[17] the Court of Appeal made reference to the above reasoning in Eureka and to the High Court authority of Electricity Generation Corporation v Woodside Energy Ltd[18] to emphasise that ‘in every case and whether or not there is ambiguity in the language, the Court should have regard to objective evidence of facts known to both parties as to commercial purpose.’[19] More recently, in VS Property and Holding Pty Ltd v Zurzolo (‘VS Property’),[20] the Court of Appeal again confirmed:[21]
[E]vidence of mutually known objective background circumstances relevant to the purpose is admissible ‘no matter how clear the “ordinary meaning” of the words’. Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.
…
Although evidence of prior negotiations is admissible to establish objective background facts known to both parties and the subject matter of the contract, evidence of negotiations reflective of actual intentions and expectations is not receivable.
[17][2018] VSCA 288 (‘Lopes v Taranto’).
[18](2014) 251 CLR 640.
[19]Lopes v Taranto [71] (Kyrou, McLeish and Hargrave JJA) (emphasis added).
[20][2024] VSCA 199.
[21]Ibid [54] (emphasis added), citing Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201 [70] (Whelan and Riordan AJJA).
Settlement agreements and deeds of release
Particular considerations arise when construing settlement agreements and deeds of release. In the High Court case of Grant v John Grant & Sons Pty Ltd (‘John Grant’),[22] the plaintiff sued for debt on a series of common money counts. The defendant relied on a general release clause in a deed that had been created to settle an unrelated dispute between two branches of the same extended family.
[22](1954) 91 CLR 112 (‘John Grant’).
The plurality (Dixon CJ, Fullagar, Kitto and Taylor JJ) applied three principles in determining whether the release barred the plaintiff’s action. The first two principles reflect ordinary common law construction principles that are applicable to contracts generally. The third rule is an equitable principle specific to releases which looks to the true purpose of the transaction and the subjective intentions of the parties, and which precludes a strict and unconscientious construction of the release.[23]
[23]Ibid 129–130. See also Burness v Hill [2019] VSCA 94 [73], [81] (Kaye, McLeish and Hargrave JJA) (‘Burness v Hill’); Reid v Commonwealth Bank of Australia (2002) 109 NSWLR 149, 151 (Bell CJ), 160–161 (Leeming JA), 176–177 (White JA) (‘Reid v Commonwealth’). By contrast, in Bank of Credit and Commerce International SA (in liq) v Ali [2002] 1 AC 251, 263 (Lord Bingham of Cornhill), 265 (Lord Nicholls of Birkenhead), 282 (Lorde Clyde), their Lordships suggested there were no rules of equitable construction applying to general releases and releases were to be construed in the same way as other contractual provisions (‘BCCI v Ali’). In obiter in Viterra Malt Pty Ltd v Cargill Australia Ltd (2023) 74 VR 1, 69 (Sifris, Walker and Whelan JJA), the Victorian Court of Appeal observed to the extent BCCI v Ali held that general releases in a settlement agreement were to be construed in the same way as any other contractual provision, the House of Lords had diverged from the High Court in John Grant. For completeness, in Perry Herzfeld and Thomas Prince, Interpretation (Lawbook Co, 3rd ed, 2024) [30.90], the learned authors express the view that the equitable principle in John Grant is not one of construction (‘Interpretation’).
The first principle is that ‘prima facie the release should be read as confined to the matters forming the subject of the disputes which the deed recites’.[24] Put differently, ‘the general words of a release should be restrained by the particular occasion’;[25] that is, ‘by the particular recital’.[26]
[24]John Grant 131.
[25]Ibid 123, citing Knight v Cole (1690) 3 Lev. 273 [83 E.R. 686].
[26]Ibid, citing Payler v Homersham (1815) 4 M. & S. 423 [105 E.R. 890]. To similar effect, the High Court also stated ‘[i]f there be introductory matter, that will qualify the general words of the release’: John Grant 123, citing Lampon v Corke (1822) 5 B. & Ald. 606, 611 [106 E.R. 1312, 1314].
The second principle is that the general words of a release should be restricted to what was in the contemplation of the parties at the time the release was given,[27] including disputes existing between the parties at the time.[28] This is ‘objectively ascertained… [from] mutually known circumstances that are extrinsic to the words of the contract’.[29] On the facts in John Grant, the application of the principle depended ‘upon the simple allegation that there never at any material time was any dispute between the plaintiff and the defendant concerning the moneys claimed in or the subject matter of the suit’.[30]
[27]John Grant 123–124.
[28]Ibid 123.
[29]Wardman v Macquarie Bank Ltd (2023) 322 IR 278, 339 (Wheelahan J, with Bromberg and Snaden JJ agreeing) (emphasis added), citing Mount Bruce.
[30]John Grant 123.
The third principle prevents unconscientious reliance upon the general words of a release by restricting the release ‘to that thing or those things which were specially in the contemplation of the parties at the time when the release was given’.[31] The High Court explained the principle as operating in this way:[32]
[E]quity proceeded upon the principle that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.
The facts stated in the third replication if true would show that the plaintiff company did not know of the defendant’s liability it now seeks to enforce, did not intend to release it as part of the transaction and did not know of any intention on the part of the defendant that it should be released.
[31]Ibid 123–126.
[32]Ibid 129–130 (emphasis added).
As is apparent, the inquiry called for by the third principle extends to the parties’ subjective intentions.[33] However, this does not mean a release can only ever apply to matters then known to the parties. There may be cases where the parties should be taken to have intended that the general words of a release should operate to encompass all conceivable further disputes, whether disclosed or not, and whether within the knowledge of one or both parties.[34] Further, the third principle does not depend on proof of actual unconscientious conduct by the releasee but rather applies to restrict the general words of the release to things which were specifically in the contemplation of the parties at the time.[35]
[33]Burness v Hill [78].
[34]John Grant 129; Owners Corporation of Strata Plan 61390 v Multiplex Corporate Agency Pty Ltd (No 2) [2012] NSWSC 322 [30] (Pembroke J) (‘Owners Corporation of Strata Plan’); Doggett v Commonwealth Bank of Australia (2015) 47 VR 302, 319 (Whelan JA) (‘Doggett’); Reid v Commonwealth 162.
[35]Burness v Hill [81]; Reid v Commonwealth 162.
Evidence
I have already described the nature of the project and the terms of the EPCM contract between CBDG and NPT. I have also set out the circumstances in which CBDG went into external administration, the lien relied on by NPT, and the correspondence which occurred between the parties (and their lawyers) from late August until mid-September 2020 concerning the lien and NPT’s alleged security interests registered on the PPSR.
Lien correspondence
More contentious correspondence then passed between the parties’ lawyers from mid-October 2020 until the end of December 2020 and prior to the commencement of the earlier proceeding on 19 January 2021, concerning the dispute about the lien and whether the liquidators were entitled to dispose of CBDG’s assets free of the interest claimed by NPT (collectively, ‘lien correspondence’):
(a)on 16 October 2020, the voluntary administrators, through their solicitors K&L Gates, corresponded with NPT’s solicitors, Ward & Co, in relation to the lien. On the bases of the intellectual property licence contained in the EPCM contract and timing of registration, the voluntary administrators disputed NPT’s assertion that the contract and notice of lien gave rise to a registrable security interest against CBDG and requested NPT to remove its security interest registrations on the PPSR against CBDG;
(b)on 4 November 2020, Ward & Co sent a letter to K&L Gates stating that NPT’s security interest registrations on the PPSR against CBDG had been discharged but maintaining the view that NPT was entitled to exercise the lien and the sum owed by CBDG to NPT was a secured debt;
(c)on 11 November 2020, K&L Gates sent a letter to Ward & Co containing an offer that the administrators and CBDG would agree not to exercise any interest or rights over unfixed items supplied under purchase orders 135, 147 and 149 and allow NPT to attend the project site to collect the items on condition that NPT release the administrators from any loss or claim in connection with the EPCM contract (among other things);
(d)the offer was rejected by Ward & Co in a letter to K&L Gates on 23 November 2020. The letter also requested delivery up of engineering plans, drawings, designs and documentation as particularised in the lien by 30 November 2020;
(e)on 17 December 2020 (the day of the second meeting of CBDG’s creditors), Ward & Co sent a letter to K&L Gates about the 9 December 2020 report to creditors and their alleged ‘failure’ to consider the lien; and
(f)on 23 December 2020, K&L Gates sent a letter to Ward & Co disputing the basis of the lien but offering $150,000 in full and final settlement of NPT’s claim to a lien or any other interest over relevant assets.
Negotiations leading to settlement deed
As already noted, in light of the pending Maeil sale agreement, the liquidators commenced the earlier proceeding on 19 January 2021. The parties’ solicitors then engaged in the following written negotiations to resolve the earlier proceeding and the underlying dispute over the lien (collectively, ‘earlier proceeding negotiations’):
(a)on 19 January 2021, Ward & Co sent a letter to K&L Gates rejecting the initial offer contained in its letter of 23 December 2020 above. Ward & Co then made a counteroffer for payment to it of $240,000 within 30 days and for the parties to execute and exchange a ‘standard deed of settlement on agreed terms in full and final settlement of [NPT’s] Lien and or interests over the items as set out within the Lien’;
(b)on 22 January 2021, K&L Gates responded by letter to Ward & Co, rejecting the previous settlement offer and making a counteroffer of payment of $180,000 within 30 days in ‘full and final settlement of [NPT’s] claim that it holds a lien or any other interest over items set out within [the lien]’ and the earlier proceeding, including costs (‘22 January K&L Gates letter’);
(c)on 27 January 2021, Ward & Co made an offer of compromise for payment to it of $210,000 on the same terms as set out in the 22 January K&L Gates letter;
(d)on 28 January 2021, K&L Gates sent a letter to Ward & Co containing a counteroffer of payment of $190,000 on the same terms as set out in the 22 January K&L Gates letter;
(e)on 29 January 2021, Ward & Co responded by letter to K&L Gates rejecting the previous offer and making a final offer for payment to it of $200,000 on the same terms as set out in the 22 January K&L Gates letter;
(f)on 1 February 2021, K&L Gates emailed Ward & Co accepting the final offer contained in its letter of 29 January 2021, subject to NPT confirming it would ‘execute all documentation necessary to give effect to the sale, assignment, release and/or transfer of the NPT assets (including the intellectual property assets) to CBDG or Maeil Australia (at [the liquidators’] election)’ and the inclusion of such confirmation in a deed of settlement; and
(g)on 2 February 2021, Ward & Co emailed K&L Gates confirming NPT’s acceptance of the terms set out in its email of 1 February 2021 above and requesting a draft deed of settlement for review.
I interpose that none of the correspondence above make any reference to the unfair preference claims now brought in this proceeding.
Settlement deed
Following the in-principle agreement reached on 2 February 2021, the parties’ solicitors then proceeded to exchange revised drafts of the settlement deed. Between 8 February 2021 and 19 February 2021, a series of correspondence and three versions of the proposed deed passed between the parties’ solicitors (‘draft settlement deed correspondence’). As previously stated, the settlement deed was eventually executed on 19 February 2021. On 16 February 2021, K&L Gates emailed Ward & Co attaching a second draft of the settlement deed and proposing amendments (to cl 2.2(a)) regarding the assignment of the right, title and interest in ‘the Intellectual Property Rights in respect of the Disputed Assets.’ Ward & Co responded the same day, accepting all the proposed amendments, except those to cl 2.2(c) and setting out certain concerns in that regard. In particular, NPT was concerned that Annexure 1 to the draft settlement deed listed some design documents which were rudimentary or incomplete and suggested the deed should provide that NPT only be obliged to provide documents created as at 24 June 2020, being the last day NPT said it undertook works under the EPCM contract. Additionally, it was suggested the deed identify ‘Disputed Assets’[36] that were by then in the control of third parties (for which deposits had been paid). Emails were exchanged on 17 February 2021 concerning the identification and location of certain assets in purchase orders 135, 147 and 149. Once again, I observe that no express reference was made by the parties in either the draft settlement deed correspondence or the three draft iterations of the settlement deed to, or to any potential, preference claims against NPT, including in respect of the April payments.
[36]Defined below.
In its final and executed form, the relevant recitals to the settlement deed read as follows:
A.On or around 23 January 2019, the Company [defined as CBDG] entered into the Contract with NPT.
B. On 19 August 2020, NPT served the Company with the Notice of Lien.
…
E.A dispute has arisen between the Liquidators, the Company and NPT in relation to the priority of NPT’s interest in the Disputed Assets (Dispute).
F. By way of an originating process filed on 19 January 2021, the Liquidators commenced the Proceeding in the Supreme Court of Victoria against NPT for, inter alia, a declaration that the Wattle Health Security Interest over the Company’s assets, including the Disputed Assets, has priority over the interest claimed by NPT in the Notice of Lien.
G.In order to avoid the cost, uncertainty and inconvenience of further litigation, the Liquidators and NPT have agreed to settle the Proceeding on the terms set out in this Deed.
The term ‘Contract’ used throughout the settlement deed is defined to be the EPCM contract.
‘Disputed Assets’ is defined to mean:
[A]ll assets created or supplied by NPT to the Company pursuant to the Contract on or before 24 June 2020, including but not limited to the assets particularised in Annexure 1 of this Deed.
Clause 2.2 of the settlement deed imposes the following obligations on NPT:
Disputed Assets
(a) Immediately upon NPT’s receipt of the Settlement Sum in cleared funds:
(i) NPT automatically releases any lien, claim or any other interest it has alleged that it has over the Disputed Assets, however so arising, whether pursuant to the Notice of Lien or any other statute or law;
(ii) NPT acknowledges that the Company has the right to:
(A) sub-licence the Licence to Maeil or any other third party in respect of the Disputed Assets; and/or
(B) assign to Maeil all of its rights and obligations under the Contract, including any rights and/or obligations that arise pursuant to clause 5 of the Contract;
(iii) NPT acknowledges that the Company is the sole beneficial owner of the Disputed Assets, excluding the Intellectual Property Rights relating to the Disputed Assets, and is entitled to dispose of the Disputed Assets; and
(iv) NPT will be entitled to prove for the Balance Amount in the liquidation of the Company as an ordinary unsecured creditor;
…
(c) Within 3 Business Days of receiving the Settlement Sum in cleared funds, NPT will:
(i) execute and provide to the Liquidators any and all documents necessary to give effect to the Sale, assignment, release and/or transfer of the Disputed Assets, and the sub-licence and assignment referred to in clause 2.2(a)(ii) to the Company and/or to Maeil Australia (at the Liquidators’ election); and
(ii) deliver up to the Company and/or Maeil Australia (at the Liquidators’ election) any of the Disputed Assets that are not already in the possession of the Company and/or Liquidators and that are within the possession, custody and control of NPT; …
The term ‘Balance Amount’ (as it appears in cl 2.2(a)(iv)) is defined to mean ‘the amount claimed in the NPT POD less the Settlement Sum’, which is, in turn, defined to be $200,000. The term ‘NPT POD’ is then defined to mean ‘the proof of debt dated 16 December 2020 submitted by NPT to the Voluntary Administrators claiming the amount of $2,055,063.26 (including GST)’.
Clause 4.1 is in the following terms:
NPT Release
Upon payment by the Company to NPT of the Settlement Sum in accordance with clause 2, NPT releases and discharges:
(a)the Company from all Claims and Liabilities of every description and whenever occurring that NPT has now, or but for the execution of this Deed may have had, against the Company as a direct or indirect result of, or arising from or in connection with, the Matters in Dispute; and
(b)the Voluntary Administrators and the Liquidators personally from all Claims and Liabilities of every description and whenever occurring that NPT has now, or but for the execution of this Deed may have had, against the Voluntary Administrators and the Liquidators as a direct or indirect result of, or arising from or in connection with, the Matters in Dispute.
Clause 4.2 contains the release which is the subject of controversy in this proceeding:[37]
[37]Emphasis added.
Company and Liquidators Release
Subject to NPT fully complying with its obligations under this Deed, the Company and the Liquidators release and discharge NPT from all Claims and Liabilities of every description whenever occurring that the Company and the Liquidators now have, or but for the execution of this Deed may have had, against NPT as a direct or indirect result of, or arising from or in connection with, the Matters in Dispute.
The term ‘Claim’ is defined to include:[38]
(as the context permits) a claim, notice, demand, action, proceeding, litigation, investigation, judgment, award, damage, loss (including economic loss), cost, expense or liability however arising, whether present, unascertained, immediate, future or contingent, whether based in contract, tort or statute and whether involving a third party or a party to this Deed or otherwise;
[38]Emphasis added.
‘Liability’ is, in turn, defined to include:
all liabilities, losses, damages, costs, interest, fees, penalties, fines, assessments, forfeitures and expenses of whatever description (whether actual, contingent or prospective); and
‘Matters in Dispute’ is defined to mean:
(a) the Dispute [as defined in recital E to the settlement deed];
(b) the Contract [being the EPCM contract];
(c) the Disputed Assets [as defined in cl 1.1 of the settlement deed];
(d) the Notice of Lien [previously defined in these reasons as ‘lien’]; and
(e)the Proceeding [previously defined in these reasons as ‘earlier proceeding’].
Clause 5 of the settlement deed provides:
Bar to suit
The Liquidators, the Company and NPT acknowledge and agree that this Deed may be used by either party as a complete bar and defence to any Claim or action commenced, continued or taken by or on behalf of either party in connection with any of the matters referred to in this Deed.
Evidence given by NPT
NPT relied on the evidence of Mr and Mrs Verde in relation to the circumstances of the negotiation and execution of the settlement deed.
In his first affidavit, Mr Verde makes reference to the lien correspondence and says that on or around 29 January 2021, he and Mrs Verde had a discussion with NPT’s lawyers, Ward & Co, in relation to without prejudice correspondence received from K&L Gates on 28 January 2021. Following the conversation, he says he told Mrs Verde that he would only agree to a settlement that was complete, in full and final settlement of all claims between NPT and CBDG, but which preserved the right of NPT to submit a proof of debt. He deposes he said to Mrs Verde that he was concerned CBDG and anyone to whom the company sold NPT’s designs could take legal action against NPT in relation to defects or issues in those designs. He relevantly states that he was:
… conscious of the fact that payments made and or received from the Company were potentially liable to be clawed back by the Liquidator as preferential payments and we were all explicit in our requirement that any agreement reached with the Company and the Liquidator needed to cater for this.
Mr Verde said he was ‘particularly aware’ of the possibility of preference claims because he was a member of the ‘committee of inspection’ in relation to the administration of CBDG. Although he cannot recall who specifically raised the question of preference claims at the committee of inspection, he believes it was one of the administrators or their staff. He also refers to a report prepared for creditors which ‘was clear on the fact the Liquidator was also aware there were potential preference claims against contractors.’
Following the conversation with Mrs Verde on 29 January 2021 above, Mr Verde says he contacted his fellow director Mr Nigel Holden and repeated the matters he had had raised with his wife, with which Mr Holden agreed. Mr Verde deposes the offer made by Ward & Co on 29 January 2021 was expressed as an ‘all-inclusive and encompassing final offer’. Mr Verde gives the following evidence in relation to a draft of the settlement deed received from K&L Gates on 8 February 2021:
When I received the First Draft, I was content with the wording of the proposed releases as it encompassed the full release of the matters in dispute and under the Contract that NPT was seeking as part of the settlement. Again, I was specifically conscious of the potential for the Liquidator to assert claims for preferential payments against NPT as part of the liquidation process. Had the deed not included the express reference to the matters in dispute including the Contract, the Disputed Assets and the Notice of Lien, I would have specifically requested for them to have been included and, if this had been refused, I would not have entered into the deed.
Mr Verde says it came as a surprise that the plaintiffs commenced this proceeding given his understanding that the words of the settlement deed provided that the parties had fully released each other from all claims in relation to the Matters in Dispute.
In his second affidavit, Mr Verde maintains that the intention behind the settlement deed and ‘the expansion of its application and release were to bring about a complete resolution of all claims as between NPT and the Company including any claims for preferential payment by the Liquidator, but carving out any additional funds payable to NPT as an unsecured creditor following the liquidation.’ He explains that the lien was in respect of a progress claim worth over $1 million and that NPT submitted its proof of debt for the sum of over $2 million. Mr Verde said he would never have executed the settlement deed, accepting a payment of $200,000, if it ‘left open the door’ for the liquidator to claim a sum of $550,000 for alleged unfair preference claims against NPT. He deposes that he entered into the settlement deed under the belief that NPT and the company were seeking to achieve a final resolution of all matters between them which dealt with not only the assets claimed under the lien but all the assets created and supplied by NPT under the EPCM contract in order that the company could complete the Maeil sale agreement.
At trial, Mr Verde was asked by NPT’s counsel what he thought, in the period prior to 2 February 2021, NPT was seeking to be released from and said ‘it sort of crystallised as it went along’. He conceded he was not ‘totally involved in the communications between the lawyers’ and said that when presented with the settlement deed, it was ‘a far bigger proposition than the lien’ and that he was seeking a release of ‘everything’. Mr Verde elaborated:
[B]ecause you don’t handover your IP designs, calculations, assumptions et cetera … when you haven’t commissioned a plant. So, there’s a risk in just the technical risk of handing over documents that are not fully ratified and fully assessed to a third party so that my primary concern was any, you know, professional indemnity claim that could come back on us. That was one concern, and the other was any claim a liquidator had on us for preferential payments.
During cross-examination, when taken to the plaintiffs’ affidavit evidence (discussed further below) concerning whether preference claims were ever discussed at any of the meetings held by the committee of inspection of the company, Mr Verde resiled from his earlier evidence of being aware of potential preference claims through the committee of inspection and said he thought the issue was raised at the second meeting of creditors. When asked how he was ‘explicit’ in requiring that the settlement deed release any preference claims, Mr Verde said: ‘[b]y letting our lawyers know that we wanted that included in any agreements.’ However, when pressed about the order of discussions on 29 January 2021 concerning the scope of the releases in the draft settlement deed, Mr Verde’s evidence was far more equivocal:[39]
Coming back to your affidavit … where you talk about what happened on 29 January. You had the discussion with Ward & Co and then you spoke with your wife and with Mr [Nigel] Holden?---Yes.
Did you speak with anyone after that?---Yeah, [Mr Marvin Ward].[40]
…
You say now that you then called Marvin back?---Um, yeah. Well, there was discussions with Marvin, but the sequence of them I’m not 100 per cent sure about. It could have been before I discussed it with [Mrs Verde] or after. I’m not 100 per cent sure.
…
If you had phoned Mr Ward again after your discussion with Mr Nigel Holden?---Yeah.
You would have put it in this affidavit?---Um, yeah. Maybe.
[39]Transcript of Proceedings, Re Corio Bay Dairy Group Pty Ltd (Supreme Court of Victoria, S ECI 2023 01468) (‘transcript’), 249–250.
[40]Mr Marvin Ward, Principal Lawyer at Ward & Co, being NPT’s lawyers.
Mr Verde’s evidence by way of re-examination did not clarify when instructions were given to Ward & Co. He stated Ward & Co’s letter of 29 January 2021, responding to K&L Gates’ letter of 28 January 2021 and conveying NPT’s final offer, was sent on verbal instructions given by him, or Mrs Verde, or both of them. But, confusingly, he could not recall whether the instructions were given before or after that letter was sent.[41]
[41]Transcript 285.
The following exchange also took place between senior counsel for the plaintiffs and Mr Verde about whether NPT informed the plaintiffs that the settlement deed should encompass a release from preference claims:[42]
[Mr] Verde, what I’m going to be submitting to the Judge is that [NPT] and its solicitors never communicated to the liquidators or their solicitors an intention that the settlement under the settlement deed should extend to preference claims?---It covered all claims.
That’s not my question. [NPT] never communicated to the liquidators or their solicitors the intention that the settlement should extend to the preference claims?---Specifically?
Yes?---Yeah.
…
It was never done, was it?---No…
And there’s not a single piece of contemporaneous paper, a note or other document before the court recording that that was your intention?---Ah, yeah, I don’t - - -
You agree with that?---Yeah, look, I’d have to check, but I’d - yeah, that - that could be right.
[42]Ibid 282–283.
In her affidavit, Mrs Verde deposes to having the conversation with her husband on 29 January 2021 in relation to a without prejudice offer made by the liquidator and says that Mr Verde told her he wanted a full and final settlement of all claims between the parties and did not want NPT to face preference claims ‘at some stage further down the track’. Mrs Verde says that following the conversation, Mr Verde called his fellow director Mr Nigel Holden to reiterate his concern that the settlement deed was a full and final settlement of all claims between the parties and that NPT would not be pursued for preference claims or for claims related to defective design or products. When she received a draft of the settlement deed from K&L Gates on 8 February 2021, Mrs Verde said she was happy with the proposed terms and believed that the release provided a full and final settlement of the matters between the parties.
During her evidence-in-chief, Mrs Verde said that after Mr Verde called Mr Nigel Holden, he then called Mr Ward of Ward & Co. However, under cross-examination, Mrs Verde accepted that her affidavit made no mention of any conversation between Mr Verde and Mr Ward on 29 January 2021 and she could not explain why her affidavit omitted that important detail. She conceded it was possible that Mr Verde had spoken to Mr Ward before he spoke to her and again afterwards.
Evidence given by plaintiffs
In his affidavit, Mr Mutton gives evidence in his former capacities as administrator and then liquidator of CBDG and explains he had primary carriage of the external administration of the company from the time he was appointed as administrator on 21 August 2020 until he retired as one of its liquidators on 16 August 2021. In those capacities, he gave instructions on the drafting of the settlement deed. He says that at no stage during discussions regarding the settlement of the earlier proceeding was it ever suggested by NPT or Ward & Co that the settlement would, or should, extend to preference claims. After extensively setting out the earlier proceeding negotiations, Mr Mutton states that he did not understand the offer made in Ward & Co’s 29 January 2021 correspondence to constitute an offer to settle anything other than the dispute concerning the lien and the earlier proceeding. He says at the time the settlement deed was executed, it was his intention and belief that the release contained in cl 4.2 was limited to the dispute about the lien and the earlier proceeding. Mr Mutton further states ‘it would make no commercial sense’ to settle the dispute over the lien and the earlier proceeding, as well as release NPT from preference claims (which total more than $550,000), on terms that involve paying $200,000 to NPT.
Under cross-examination, Mr Mutton said that at the time of preparing the 9 December 2020 report to creditors, the voluntary administrators had identified, ‘at a preliminary level’, payments that had flowed to NPT which may constitute unfair preferences. He also accepted that at the time of the 12 March 2021 report to creditors, the liquidators had identified potential unfair preference claims against NPT in the amount of approximately $550,000. However, when providing instructions in respect of the drafting of the settlement deed, Mr Mutton said he did not believe he turned his mind to the unfair preference claims. When asked whether it would have been prudent to mention to NPT that he had formed a high level view that NPT may have received preferential payments, Mr Mutton said the negotiations were about ensuring the plaintiffs could fulfil their obligations under the Maeil sale agreement and, at that early stage of the liquidation, the liquidators had only conducted preliminary investigations about preference claims and that further investigations were required. Mr Mutton considered it would have been premature to have raised the possibility of a preference claim with NPT at the time of the negotiations and stated he was not aware that NPT was seeking a release from any such claim.
Mr Colbran gave similar evidence under cross-examination. He confirmed that, in the voluntary administration of CBDG, he and Mr Mutton had reviewed the company’s records and identified, at a ‘high level’, potential preferential payments to the total value of $3.707 million against five key suppliers during the relation-back period. While he could not recall specifically whether NPT had been identified as one of those suppliers, he conceded that the analysis would typically have identified the names of the relevant suppliers. Mr Colbran accepted the same information was contained in the 12 March 2021 report to creditors. He did not believe NPT had been informed of the preference claims prior to the liquidators’ letter of demand of 27 May 2021.
Lastly, the plaintiffs relied on the evidence of Mr Alevras, an employee of the liquidators’ firm, who deposes in his affidavit to attending the meetings of the company’s committee of inspection and reviewing the minutes of those meetings. According to Mr Alevras, he does not recall the topic of potential preferential claims being raised at any of the meetings. The minutes of meetings held on 11 September 2020 and 8 October 2020 confirm the issue was not discussed.
Parties’ submissions
NPT’s submissions
Given NPT pleads the settlement deed as a defence to the plaintiffs’ claim, it is convenient to set out its main submissions about the operation of the deed first.
NPT submits the deed has a clear and unambiguous meaning on its face and, therefore, there is no need to have recourse to extrinsic evidence. Specifically:
(a)the terms ‘Claims’ and ‘Liabilities’ were broadly defined and included future matters yet to be ascertained, although any cause of action under s 588FF of the Act was in existence from the commencement of the liquidation on 17 December 2020;
(b)the connecting words ‘in connection with’ are similarly broad and do not connote a causal relationship;
(c)‘Matters in Dispute’ was defined in cl 1.1 to mean ‘(a) the Dispute; (b) the Contract; (c) the Disputed Assets; (d) the Notice of Lien; and (e) the Proceeding’; and
(d)‘Disputed Assets’ was also given a broad definition to mean ‘all assets created or supplied by NPT to [CBDG] pursuant to the [EPCM contract] on or before 24 June 2020’.
For cl 4.2 to include a release of the preference claims, NPT submits ‘Claims’ or ‘Liabilities’ must be in connection with the ‘Matters in Dispute’, which include the ‘Contract’ and ‘Disputed Assets’. It argues this connection exists on the following bases:
(a)the preference claims are in connection with the ‘Contract’ because NPT received the relevant payments for work done either under the EPCM contract or closely connected to it via ad hoc variations;[43]
(b)additionally, the preference claims are in connection with the ‘Disputed Assets’ which had expanded to include all assets supplied by NPT to CBDG pursuant to the EPCM contract on or before 24 June 2020. NPT submits this broad definition includes the assets for which NPT had received some of the April payments the subject of this proceeding. In fact, the first two items listed in Annexure 1 of the settlement deed, included in the definition of ‘Disputed Assets’, refer to equipment provided under purchase orders 135 and 147 which are referrable to two of the April payments;
(c)further, the list of assets in Annexure 1 of the settlement deed is broad and not limited to the assets the subject of the claimed lien; and
(d)it would be ‘an injustice’ if the settlement deed was construed to deprive NPT of any rights to the expanded category of ‘Disputed Assets’ while at the same time leaving it exposed to unfair preference proceedings for any payments made in respect of the ‘Disputed Assets’.
[43]The notion of ad hoc variations features more substantively in the context of NPT’s arguments about a running account.
While the plaintiffs argue that if NPT’s construction were correct, cl 4.1 of the settlement deed would have the effect of releasing NPT’s claims for which it has submitted a proof of debt, NPT says this ignores the express ‘carve out’ provided in cl 2.2(a)(iv).
In addressing the Court on the particular nature of voidable transaction claims under Pt 5.7 of the Act and whether such claims could readily be described as being ‘in connection with’ the EPCM contract or the ‘Disputed Assets’ so as to fall within the definition of ‘Matters in Dispute’, counsel for NPT maintained the subject matter of the preference claims was ‘in connection with’ the EPCM contract because the obligation to make the relevant payments fell under that contract. Similarly, a claim pursuant to the Act for the return of payments made for ‘Disputed Assets’ under the EPCM contract would be a claim ‘in connection with’ the EPCM contract and the ‘Disputed Assets’.
Further, NPT contends that, properly considered, the true rule in Codelfa imposes an ambiguity threshold. In other words, the process of contractual construction will ordinarily occur by reference to the contractual text and it is only if that process produces an ambiguity that extrinsic evidence is admissible to resolve the ambiguity. NPT points to High Court authority which it says is equivocal on whether such a requirement exists[44] and which has apparently resulted in some uncertainty at an intermediate appellate level about the practical application of the true rule.[45] In its written closing submissions, NPT initially submitted that a Victorian court at first instance was obliged to follow the Court of Appeal in Apple and Pear Australia Ltd v Pink Lady America LLC (‘Apple and Pear’)[46] and make an anterior finding of ambiguity before it may have recourse to any extrinsic evidence. However, that submission was only faintly pressed in closing oral submissions.
[44]Citing Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 188; Royal Botanical Gardens and Domain Trust v South Sydney City (2002) 240 CLR 45, 52–53; Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530, 559; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 160; Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, 605 (‘Jireh’). Jireh concerned a decision to refuse special leave where Gummow, Heydon and Bell JJ observed that Codelfa remained binding authority and that reconsideration of the ‘true rule’ was a matter for the High Court: Jireh 605. It is noted, however, that reasons for refusing special leave to appeal in a civil proceeding are not themselves binding authority: Mount Bruce 134 (Bell and Gageler JJ).
[45]Citing MBF Investments Pty Ltd v Nolan (2011) 37 VR 116, 165–167; Franklins v Metcash Trading (2009) 76 NSWLR 603, 615–616, 677; Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd 156 FCR 1, 12, 22, 48; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633, 652–655; Stratton Finance Pty Ltd v Webb (2014) 314 ALR 166, 173–174; cf Apple and Pear Australia Ltd v Pink Lady America LLC (2016) 343 ALR 112, 139–155 (Tate JA), 178–179 (Ferguson and McLeish JJA) (‘Apple v Pear’); Pepe v Platypus Asset Management Pty Ltd (2013) 46 VR 694, 700; Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd (2012) 37 VR 486, 501–502; Saville (T/as China Sourcing Services) v Hallmarc Construction Pty Ltd (2015) 47 VR 177, 220–221; Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161 [139]; Oakley Thompson & Co Pty Ltd v Maisano (No 2) [2017] VSCA 23 [71]; A & A Property Developers Pty Ltd v MCCA Asset Management Ltd [2017] VSCA 365 [39], [83]; GTW Investments (Aust) Pty Ltd v Pacreef Investments Pty Ltd (2023) 74 VR 290, 301.
[46]Apple v Pear 139–155, 178–179.
NPT says that in applying the true rule, the Court should not have regard to any of the correspondence passing between the parties’ solicitors prior to the execution of the settlement deed because no threshold ambiguity has been established.
NPT says that any inquiry into commercial purpose must be ‘at a high level and deal with objective background matters’ and not go into ‘individual correspondence negotiating the terms of the subsequent agreement [given that] negotiations merge in the subsequent agreement on an orthodox analysis’.[47] In closing remarks, NPT also submitted that having regard to the decisions of the High Court and our Court of Appeal,[48] this Court is not in a position where ‘the door is wide open’ to receiving extrinsic material, regardless of threshold ambiguity. Counsel for NPT cited Lord Wilberforce in the House of Lords decision, Prenn v Simmonds,[49] for the proposition that evidence of negotiations or of the parties’ intentions ought not to be received and evidence should be restricted to evidence of the factual background known to the parties at or before the date of contract, including evidence of the genesis and objectives of the transaction.[50]
[47]NPT also suggested such correspondence was precluded by the ‘entire agreement provision’ contained in cl 10.3(a) of the settlement deed.
[48]Citing Ecosse; Electricity Generation v Woodside; Lopes v Taranto.
[49][1971] 3 All ER 237, 241.
[50]Reference was also made to the decision of Mason J (as his Honour then was) (with whom Gibbs, Stephen and Aickin JJ agreed) in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 606 that evidence of antecedent oral negotiations and intentions of the parties were inadmissible in construing a contract.
NPT submits the objective context of the transaction known to both parties was that:
(a)the settlement arose in the context of settling the priorities fight over the assets specified in the lien;
(b)the liquidators were trying to sell the company’s assets to Maeil; and
(c)the liquidators had identified ‘at a high level’ that NPT was a likely target of a clawback proceeding for preferential payments.
In addressing the principles arising from John Grant, NPT submits the first two principles in John Grant are ordinary common law principles of construction and are, therefore, liable to be displaced where threshold ambiguity is not established. Despite the suggestion in its written opening submissions that the facts in John Grant are distinguishable from the present circumstances, NPT clarified at trial that it does not seek to distinguish the principles in John Grant from this proceeding but rather to apply them within their proper bounds.
At the same time, NPT submits the High Court in John Grant applied the first rule — i.e. that prima facie a release should be read as confined to the matters forming the subject of the disputes which the deed recites — in the context of a ‘general and ambiguous’ release, whereas the release in cl 4.2 of the settlement deed is ‘targeted and precise’. When asked by the Court whether the apparent tension between the recitals and operative parts of the settlement deed created ambiguity, NPT’s counsel relied on the following passage in Ex parte Dawes:[51]
If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.
[51](1886) 17 QBD 275, 286 (Lord Esher MR, with Lindley LJ agreeing), 289 (Lopes LJ) (‘Ex parte Dawes’).
Accordingly, if the language of a release is clear and broader than indicated by a recital, then it should not be read down.[52] NPT submits the recitals to the settlement deed are ambiguous because they refer to a narrower dispute than the one contemplated in the operative part. It says this tension is resolved by giving primacy to the operative part which is otherwise clear and must prevail. NPT contends that recitals are simply an aid to construction in the event of ambiguity but are not operative parts themselves[53] and, further, that recitals are subservient to clear words in the operative parts of a deed[54] and will not control the interpretation of the operative provisions when those provisions are clear and unambiguous.[55]
[52]Citing Crossman v Sheahan (2016) 115 ACSR 130, 177.
[53]Citing Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603, 695–696, 698.
[54]Citing Harpur v Levy (2007) 16 VR 587, 601.
[55]Citing OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1, 21.
NPT argues the scope of the settlement deed went well beyond the limited dispute described in the recitals and the mere abandonment of the lien; instead it sought to bring all of NPT’s deliverables to a state of partial completion to allow the Maeil sale agreement to proceed. The intention expressed in the settlement deed was that NPT would abandon any claims it might have had to any of its work product under the EPCM contract, in exchange for the payment of $200,000. NPT submits a sensible construction of the settlement deed would give the mutual releases in cl 4 their full literal meaning so as to effect a ‘clean break’ from any liabilities NPT might have had in respect of, among other things, the EPCM contract and the ‘Disputed Assets’.
As with the first rule, NPT submits the second rule in John Grant — i.e. a general release is restricted to the matters then in the contemplation of the parties — is informed by the application of ordinary common law principles of construction,[56] including the true rule in Codelfa. However, if the Court were to have regard to ‘the background, the context and the market in which the parties are operating’, there is no reason to override the clear wording of the settlement deed.[57] In particular, the parties were respectively aware from the second meeting of creditors that NPT was potentially liable in a preference action. It is said that the facts are far removed from those in John Grant in which the parties were not aware of the subject claim at the time of entering the deed.
[56]Citing Interpretation [30.70].
[57]Citing Electricity Generation v Woodside 656–657.
In relation to the equitable third rule in John Grant — i.e. the general wording of a release cannot be used to avoid obligations falling outside the true purpose of the transaction — NPT submits the rule is often described more widely than is justified.[58] It is not authority for the proposition that a release can only ever apply to matters then known to the parties.[59] Relevantly, the definition of ‘Claim’ included ‘unascertained’ or ‘future’ claims and the term ‘Liability’ included ‘contingent’ or ‘prospective’ liabilities. Accordingly, NPT says the settlement deed was sufficiently clear to release the preference claims, irrespective of the parties’ knowledge of them. NPT contends there is nothing unconscientious about the construction of the deed on which it relies.
[58]Citing Owners Corporation of Strata Plan [22]; Doggett 319.
[59]Citing Owners Corporation of Strata Plan [22]; Doggett 319; Wright v Lemon [2024] WASCA 19 [587].
NPT submits the factors that enlivened the third rule in John Grant were that the plaintiff in that case:
(a)did not know of the defendant’s liability it then sought to enforce;
(b)did not intend to release it as part of the transaction; and
(c)did not know of any intention on the part of the defendant that it should have been released.
While NPT accepts that evidence of the parties’ subjective intentions may be admitted for the purpose of the third rule in John Grant,[60] it contends the preference claims were not unknown and, therefore, the third rule is not enlivened. In particular, the plaintiffs were aware, at least at a high level, that NPT was a potential target for a preference claim. The 9 December 2020 report to creditors cites the potential quantum of preference claims against five key suppliers, the approximate sum of which was also mentioned at the second meeting of creditors. While NPT accepts it was not specifically identified by name, it submits the plaintiffs were at least aware of the identities of the potential targets of unfair preference claims by at least 17 December 2020 when the second meeting of creditors was held.
[60]Transcript 324.
NPT also refers to evidence given by Mr Mutton and Mr Colbran under cross-examination to the effect that at the time of preparing the 9 December 2020 report to creditors, the voluntary administrators had identified, at a preliminary or high level, payments to the total value of $3.707 million that had flowed to five key suppliers, including NPT, which might constitute unfair preferences. Accordingly, contrary to the facts in John Grant, NPT submits this is not a case in which the releasor did not know of the defendant’s liability at the time.
Lastly, NPT submits the Court should, as a matter of discretion, decline to apply the third rule as a ‘remedy’ in equity. It submits there is nothing unconscientious in seeking to take advantage of the ‘proper meaning of the wide releases’ in the broader context of the settlement deed. NPT accepts the genesis of the settlement deed was the resolution of NPT’s claim over a limited body of assets (referring to the notice of lien itself and the earlier proceeding Court documents) and that the settlement discussions up to 29 January 2021 were geared towards the resolution of the dispute over the lien. From that point on, however, NPT contends the nature of the transaction expanded to include a release from the preference claims the subject of this proceeding.
Submissions
NPT submits the evidence available to its directors suggested that CBDG’s difficulties in meeting its payment terms and its liquidity issues were temporary issues arising from changes in its funder that would be addressed once Wattle secured alternative finance, as reinforced by constant assurances by CBDG’s representatives. This meant it had no reasonable grounds for suspecting CBDG was insolvent when it received the April payments and a reasonable person in its shoes would not have had such grounds.
As a fallback argument, NPT submits the Court might conclude on the evidence that a reasonable person in NPT’s circumstances would only have had grounds for suspecting CBDG was insolvent on a specific date between the period 7 and 24 April 2020 (when the April payments were made). If that were to occur, there is no reason why the good faith defence could not operate as a partial defence. In this regard, NPT referred to a report dated 4 May 2020 prepared by Dye & Co Accountants on the instructions and information given by CBDG’s directors at the time, addressing the safe harbour provisions of s 588GA of the Act in the context of potential insolvent trading by the company (‘safe harbour report’). The report relevantly states:
We do not consider that as at 14 April 2020 that any transactions occurring prior to that date would be voidable as unfair preferences for the reason that we do not believe it could be established that: (a) the company was insolvent; and, (b) a creditor who received payment had grounds to reasonably suspect that fact.
At trial, NPT’s counsel said NPT relied on the contents of the safe harbour report to the extent it ‘shows what the directors were saying [at the time], which feeds into the general tenor of [NPT’s] good faith argument, that [it was] being told that the company was fine and was going to continue operating.’ It was suggested the safe harbour report corroborated information being conveyed to NPT to the effect that CBDG (or rather Wattle) was simply in the process of changing financiers. Therefore, a reasonable person in NPT’s position would not have had reasonable grounds to suspect insolvency at the relevant time.
An issue arose at trial as to whether NPT had called the necessary witnesses to prosecute its good faith defence. NPT argues against the application of the principle in Jones v Dunkel in this proceeding, namely that an unexplained failure by a party to give evidence, to call witnesses, or to tender documents or other evidence may lead to an inference that the uncalled evidence or missing material would not have assisted that party’s case. In particular, NPT resists the plaintiffs’ submission that an inference should be drawn from NPT’s failure to call Mr Nigel Holden, Mr Sam Holden and Ms Gorman given their respective roles and dealings in the project. Citing commentary from the text, Cross on Evidence,[149] NPT submits the principle only applies where a party is required to explain or contradict something but does not operate to require a party to give merely cumulative evidence. It was further submitted that a Jones v Dunkel inference cannot be drawn from the failure to call a witness (such as a non-party witness) unless it would be ‘natural’ or ‘reasonably expected’ that the witness be called.[150]
[149]John Dyson Heydon, Cross on Evidence (LexisNexis Australia, 14th ed, 2023) [1215] (‘Cross on Evidence’).
[150]Citing Cross on Evidence [1275]
The plaintiffs submit NPT’s good faith defence fails on two grounds. First, the plaintiffs submit the failure to call Mr Nigel Holden, Mr Sam Holden and Ms Gorman as witnesses is ‘fatal’. Here, the plaintiffs are not relying on the principle in Jones v Dunkel.[151] The real issue, which also arose in Cook’s Construction, is whether NPT, which bears the onus of establishing the good faith defence in s 588FG(2), without valid reason, failed to call relevant witnesses at its disposal and whether the Court may take this failure into account when assessing the evidence as a whole. This is distinct from the Jones v Dunkel principle. The plaintiffs submit Mr Nigel Holden, Mr Sam Holden and Ms Gorman were not called by NPT despite their availability[152] and clear involvement in dealing with CBDG in connection with NPT’s own invoices and/or those of CBDG’s contractors.
[151]The plaintiffs did, however, rely on the principle in Jones v Dunkel in the context of NPT’s evidence on rectification: see transcript 359. As already explained, it is unnecessary to determine questions of rectification
[152]In this regard, the plaintiffs observe that: Mr Nigel Holden attended every day of the trial; Mr Verde confirmed if it were necessary to contact Ms Gorman to ask about her work on the project or about the case, he could do so: see transcript 219; and Mr Verde confirmed if it were necessary to contact Mr Sam Holden to ask about his work on the project or about the case, he could do so: see transcript 217–218.
In addition, the plaintiffs submit NPT knew CBDG was not paying contractors, which was jeopardising the project. For example, NPT knew that as a consequence of the delays in payment, contractors were withholding the despatch or fabrication of equipment and others had directed important equipment away from the site (e.g. the Scanima mixer) until they were paid. The plaintiffs observe that NPT was responsible for dealing with contractors and, as evidenced by the 31 March Verde email, had been ‘inundated’ with calls from them. The situation was sufficiently serious for Mr Verde to arrange a telephone call with Mr Johnson on a Sunday (29 March 2020) about the issue. Further, NPT repeatedly warned CBDG about the effects of non-payment of contractors on the viability of the project.
The plaintiffs also challenge the reliability of NPT’s evidence on the good faith defence, particularly in relation to reliance on the Wattle ASX announcements by Mr Verde and Mrs Verde, respectively. The plaintiffs submit there is no contemporaneous evidence to show that either of them placed any reliance on the Wattle ASX announcements at the times they were actually made, to ground their expectation that CBDG was ‘fully funded’ and solvent. Even if they did, the plaintiffs submit such evidence is incongruous because Mr and Mrs Verde said they did not question why Wattle was experiencing difficulty in capital raising or how that might have impacted the project. Mr and Mrs Verde were also unable to explain why creditors were experiencing significant delays in payment, despite maintaining the project was ‘fully funded’. Further, the plaintiffs contend that NPT mostly places reliance on Wattle ASX announcements made in 2018 and 2019 and overlooks other announcements that painted a ‘bleak picture’ of Wattle’s financial position in 2020, when the April payments were made.
In summary, the plaintiffs argue that NPT cannot make out the good faith defence in s 588FG(2) of the Act because it has failed to prove the necessary negatives that: (a) it had no reasonable grounds for suspecting CBDG was insolvent; and (b) that a reasonable person in NPT’s circumstances would have had no such grounds.
Consideration
Having regard to the available evidence, I consider NPT has failed to discharge its burden of establishing the elements of its good faith defence in s 588FG(2) of the Act. I have arrived at that conclusion for the following reasons.
First, NPT only called two witnesses to lead evidence relevant to the defence, being Mr Verde, who is a director, and Mrs Verde, who is not. Without valid reason, NPT failed to call key personnel directly involved in the project. As a company established for the specific purpose of undertaking work on the project itself, the evidence of only one of its two directors and its office manager/senior electrical engineer is, in my view, insufficient to reveal NPT’s corporate state of mind at the time of the April payments. Neither Mr Nigel Holden, Mr Sam Holden nor Ms Gorman were called by NPT despite their clear involvement in dealing with CBDG and the project more generally. The failure to call those witnesses is a relevant consideration when assessing the evidence on good faith as a whole.
Mr Nigel Holden was a relevant witness given he is also a director of NPT and therefore one of its ‘controlling minds’. He was privy to communications with contractors who were pressing for payment, including Tasweld in early February 2020 and late March 2020 and 4Site Engineers in late March 2020. According to Mr Sam Holden’s email to Mr Johnson on 30 March 2020, Mr Nigel Holden also had a pivotal conversation with Mr Fletcher on 27 March 2020 when he was informed that ‘the funds were not available and could not say when they would be’. But because neither Mr Nigel Holden nor Mr Sam Holden were called, there is no evidence about: (a) the content of Mr Nigel Holden’s conversation with Mr Fletcher; (b) what Mr Nigel Holden thought following the conversation; or (c) what he in fact told Mr Sam Holden about it. Further, Mr Nigel Holden was specifically sent a copy of the Stainless Designs show cause notice on 1 April 2020. As a director, Mr Nigel Holden was copied into the emails from Mrs Verde sent to Mr Johnson on 30 March 2020 and 2 April 2020 which sought the prompt payment of NPT’s own outstanding invoices. On 9 April 2020, he produced an updated spreadsheet and sent it by email to Mr Johnson and Mr Verde, copying in Mr Sam Holden, which he said confirmed that CBDG had been delinquent in making payments to Tasweld since the start of 2020.
Despite the obvious relevance of this evidence in determining whether there were no reasonable grounds to suspect insolvency, NPT elected not to call Mr Nigel Holden. There is no explanation for why NPT did not call him or any reason to believe he was unavailable. In fact, he attended each day of the trial. I infer his evidence would not have assisted NPT in making out the good faith defence.
Mr Sam Holden also interacted with creditors seeking payment from CBDG and undertook ‘to chase CBDG on payment’ (in the case of TPE on 20 March 2020) and to ‘seek a definitive answer from CBDG’ (in the case of Stainless Designs in late March 2020). He made repeated inquiries of Mr Johnson in relation to the payment of outstanding invoices owed to Stainless Designs on 19 and 24 March 2020. He was then contacted by Stainless Designs on 31 March 2020 and told that it had advised another supplier to divert delivery of the Scanima mixer until payment issues between CBDG and Stainless Designs had been resolved. He was also sent a copy of the Stainless Designs show cause notice. Again, Mr Sam Holden was a material witness on the topic of NPT’s good faith defence and the failure to call him is unexplained. Mr Verde confirmed under cross-examination that if it were necessary to contact Mr Sam Holden, he could do so. I infer that Mr Sam Holden’s evidence would not have assisted NPT in making out the good faith defence.
As regards Ms Gorman, there is evidence that she sent NPT’s invoices to CBDG, including on: 4 September 2019; 31 January 2020; 6 February 2020; 13 February 2020; 13 March 2020; and 17 April 2020, and, in some instances, invited CBDG to contact herself or Mr Sam Holden with any queries. As an in-house accountant, it is reasonable to infer she had responsibilities for undertaking accounts payable work at NPT and monitoring CBDG’s levels of indebtedness. The fact that she was copied into Mrs Verde’s emails to Mr Johnson on 30 March 2020 and 2 April 2020 seeking payment of outstanding invoices supports this inference. There is no explanation for why NPT did not call Ms Gorman about these matters. Further, Mr Verde said under cross-examination that if it were necessary to contact Ms Gorman to ask about her work on the project or about the case, he could do so. I infer Ms Gorman’s evidence would not have helped NPT in establishing its good faith defence.
Secondly, in seeking to establish there were no reasonable grounds for suspecting CBDG’s insolvency at the time of the April payments, NPT led limited evidence that was both incongruous and unpersuasive. For example, NPT relied on certain Wattle ASX announcements to suggest CBDG was solvent because of funding from Wattle, but Mr Verde said he only read announcements that were critical to the project and did not look at cash flow figures for a company that NPT was not contracted to (i.e. Wattle). Whilst Mr and Mrs Verde steadfastly insisted the project was fully funded by Wattle, they were unable to reconcile this position with their awareness that contractors were not being paid on time by CBDG and that the project was being imperilled as a consequence. Similarly, Mrs Verde was unable to properly explain the basis of her belief that the Prospere loan could be utilised by Wattle to fund the project, in circumstances where the loan was not being drawn down upon and would soon expire.
Further, despite apparently reading the relevant Wattle ASX announcements at the time, neither Mr Verde nor Mrs Verde appeared to turn their mind to the significance of Wattle’s frustrated attempts at capital raising and the resulting impact on funding for the project. Accordingly, I consider NPT was highly selective in its reliance on particular Wattle ASX announcements, or parts of them (most of which were early in the life of the project in 2018 and 2019), notably omitting reference to:
(a)the 13 January 2020 announcement, concerning a reduction in Wattle’s minimum capital raise necessary to complete the B&P acquisition;
(b)the 23 January 2020 announcement, concerning a rights-issue offer to fund the B&P acquisition;
(c)the quarterly report located at Appendix 4C of the 31 January 2020 announcement, indicating Wattle’s available cash had drastically reduced from approximately $19.4 million in the previous quarter to approximately $7.3 million;
(d)the 27 February 2020 announcement that Wattle had received only $9.32 million under its rights issue, which is a shortfall of $15.7 million; and
(e)the 11 March 2020 announcement that the B&P acquisition had been terminated because it was unable to settle and the subscriber had not transferred the necessary funds.
Each of these further announcements painted a far murkier picture about the future of the project and the viability of its funding by Wattle than is suggested by Mr and Mrs Verde.
In relation to the selected Wattle ASX announcements that NPT does rely upon, it is important to observe that there is no contemporaneous evidence that Mr and Mrs Verde, or anyone else at NPT, placed any reliance on them at the time they were actually made so as to give rise to an expectation that CBDG was fully funded and solvent at the time of the April payments.
I do not accept Mr Verde’s assertion that Mr Fletcher’s email of 8 April 2020 to Tasweld (in response to the 7 April Tasweld show cause notice) stated that Tasweld’s invoices were ‘not payable’. While Mr Fletcher did observe in the email that Tasweld had not adhered to a previously agreed process of providing him and NPT with copies of invoices, he specifically did not suggest the invoices were not yet payable. Instead, he undertook to make payment the same day. The tone of his email was also decidedly apologetic.
Further, I am unpersuaded by evidence variously given by Mr and Mrs Verde that CBDG’s difficulties in making payments to contractors arose from administrative issues, an influx of creditor invoices, or COVID-19 restrictions. The cause of the delay in payments was an endemic problem with funding and cash flow.
I reject NPT’s apparent suggestion that the safe harbour report somehow supports a finding that s 588FG(2)(a) of the Act might operate as a partial defence to the unfair preference claims on a date between 7 April 2020 and 24 April 2020 (noting the authors of the report state that a creditor who received payment from CBDG prior to 14 April 2020 would not have had reasonable grounds to suspect CBDG’s insolvency). Nor do I accept the contents of the safe harbour report reflect what CBDG’s directors were saying to NPT about the funding position of the project. The report post-dates the April payments (it is dated 4 May 2020). Further, there is simply no evidence the report was circulated beyond the directors of CBDG, let alone any evidence that its contents were conveyed to contractors, including NPT. Any suggestion that this had occurred is a matter of pure speculation. The report has no corroborative evidentiary value.
Mr Verde’s evidence about the alleged representation by Mr Johnson and Mr O’Malley at the meeting held by the Project Control Group on 21 April 2020 is also unconvincing. He apparently took no steps to verify their claim that CBDG’s invoices were all paid up to date, including by ascertaining from information that was available to him at the time that there was a debt then outstanding to NPT in the sum of $331,000. It is difficult to see how any reliance on such a statement was reasonable in the circumstances. At any rate, the representation was made after four of the five April payments had already been made. Only the payment on 24 April 2020 remained to be paid at that time.
Thirdly, there is other evidence which strongly militates against any conclusion there were no reasonable grounds for suspecting CBDG’s insolvency at the relevant time. In particular:
(a)NPT was not only the appointed Engineer under the EPCM contract, which required it to ‘design all things necessary for the procurement, installation, construction [and] commissioning’ of the plant (cl 14.1), it was also the nominated superintendent in various contracts between CBDG and other contractors and suppliers engaged in the project, whereby NPT was required to assess progress claims submitted by those parties and make recommendations to CBDG about payment of those claims. It also dealt with complaints from those parties when CBDG delayed making payments of their invoices. NPT was not only a creditor of CBDG in its own right but it was in the unique position of being aware of the position of other creditors being owed money in connection with the project;
(b)the evidence clearly shows that at least from early March 2020, NPT’s directors and senior employees were acutely aware that CBDG was not paying contractors on time, which was placing the project in jeopardy. For example, NPT knew that as a consequence of the delays in payment, contractors were withholding equipment and others had diverted equipment away from the site until they were paid (e.g. Stainless Designs in the case of the Scanima mixer). The repeated communications from contractors regarding non-payment of invoices resulted in Mr Verde, Mr Nigel Holden and Mr Sam Holden each bringing those communications to the attention of CBDG to follow up on payments. The position was so serious that Mr Verde organised a telephone call with Mr Johnson on 29 March 2020, which fell on a Sunday, to discuss the issue. According to his email sent the next day to Mr Nigel Holden, Mr Verde informed Mr Johnson that if certain contractors were not paid by early April, it would jeopardise equipment delivery and site works. The 31 March Verde email, in which Mr Verde informed Mr Johnson that NPT had been ‘inundated’ with calls from contractors demanding payment for outstanding invoices, is especially telling and leaves little doubt that NPT, or a reasonable person in NPT’s position, would have had suspicions as to the solvency of CBDG by that stage. NPT’s receipt of the Stainless Designs show cause notice on 1 April 2020 further reinforces that view;
(c)despite Mr Fletcher’s advice in the 3 April CBDG email that funds had been released by Wattle (but not yet cleared) to pay certain creditors, it was only a few days later, on 6 April 2020, that Mr Verde was contacted by TPE concerning unpaid invoices for an amount characterised as ‘quite considerable’. Then, the following day on 7 April 2020, NPT received a copy of the Tasweld show cause notice;
(d)minutes for the Project Control Group meeting held on 7 April 2020 record that NPT stated it was ‘greatly concerned’ by delays in payment to contractors which was causing contractors to issue show cause notices and was ‘injurious to project progress’. The writing was well and truly on the wall by this time;
(e)aside from the Tasweld show cause notice, and perhaps also the Project Control Group meeting held on 7 April 2020 (depending on the precise timing of events on that day), all of the above events and communications occurred before the first of the April payments was made to NPT on 7 April 2020. At any rate, the first of the April payments was received by NPT the very same day that NPT recorded it was ‘greatly concerned’ by the late payment of contractors at the Project Control Group meeting;
(f)at the same time, NPT was actively pursuing CBDG for payment of its own outstanding debts. On 30 March 2020, Mrs Verde emailed Mr Johnson, attaching copies of eight outstanding invoices from NPT (dated between 31 January 2020 and 11 March 2020) which totalled $143,535.86 and requesting ‘prompt payment’. On 2 April 2020, Mrs Verde again emailed Mr Johnson, copying in Mr Nigel Holden and others and noting that the ‘quantity and quantum of outstanding invoices’ owed by CBDG to NPT had increased. Mrs Verde, once more, requested ‘prompt payment’ of NPT’s outstanding invoices;
(g)on 8 April 2020, the day after the first of the April payments was made and the day prior to the second of those payments, NPT issued its clause 20 extension of time notice;
(h)the following day, Mr Nigel Holden provided his updated spreadsheet to CBDG which apparently confirmed that CBDG had, in the case of Tasweld, been making late payments since the start of 2020. This reconciliation was undertaken by NPT the same day it received the largest of the April payments in the amount of $190,124.25;
(i)Mr Verde gave evidence under cross-examination to the effect that NPT had questioned why contractors were not being paid if the project was fully funded by Wattle (although it is unclear on the evidence whether questions were asked of CBDG or internally to NPT). Critically, Mr Verde also agreed that the delays in payments to contractors had led to ‘suspicions’ as to whether the project was in fact fully funded; and
(j)Mr Verde admitted under cross-examination that despite being told by Mr Johnson and Mr O’Malley at the Project Control Group meeting on 21 April 2020 that payments of invoices received by CBDG were ‘up to date’, he did not seek to confirm that was the case, despite having access to NPT’s own accounts which showed CBDG was indebted to NPT in the sum of $331,000 at the time of the meeting, or shortly thereafter.
Fourthly, having regard to the Wattle ASX announcements and the history of delayed payments to creditors, all of which NPT was aware, a reasonable person in the position of NPT would have regarded the cash flow difficulties experienced by CBDG in procuring funding and paying creditors as being chronic, rather than ‘temporary’, in nature.
Lastly, in my view, the above facts and matters, which were appreciated by NPT, were sufficient to induce a suspicion in the mind of a reasonable person in NPT’s circumstances that CBDG was insolvent prior to and at the time each of the April payments were made. Such suspicion goes well beyond mere idle wondering and reflects a positive feeling of actual apprehension or mistrust (without sufficient evidence) about the solvency of CBDG.
It follows that NPT cannot prove the following ‘negatives’ in s 588FG(2)(b) of the Act:
(a)that NPT had no reasonable grounds for suspecting CBDG’s insolvency at the time of each of the April payments; and
(b)that a reasonable person in NPT’s circumstances would have had no such grounds.
Further, as is apparent from the above analysis, I do not accept NPT’s fallback argument that a reasonable person in NPT’s circumstances might only have had reasonable grounds for suspecting CBDG’s insolvency at some (unspecified) point in time between 7 April 2020 to 24 April 2020.
Additionally, given the evidence suggests NPT suspected CBDG was insolvent at all relevant times and/or that the April payments would give NPT a priority over other creditors, there is a basis to conclude the April payments were not received by NPT in good faith within the meaning of s 588FG(2)(a) of the Act.
The good faith defence is therefore unavailable to NPT, including on a partial basis.
Answers to questions for determination
Having regard to the above reasons, the questions for determination have been answered as follows:
Release questions
(a)on its proper construction, did the settlement deed release the unfair preference claims the subject of this proceeding?;
Answer: No.
(b)in all the circumstances, is it unconscientious for NPT to rely on the settlement deed?;
Answer: Yes.
Rectification questions
(c)does the settlement deed, by mistake, fail to express the true agreement between the plaintiffs and NPT?;
Unnecessary to answer.
(d)if so, should the settlement deed be rectified to give effect to the parties’ true intention?;
Unnecessary to answer.
Unfair preference questions
(e)was CBDG insolvent at the time each of the April payments were made?;
Answer: Yes.
(f)were each of the April payments an integral part of a continuing business relationship between NPT and CBDG?;
Answer: No.
(g)depending on the answer to question (f) above, what is the effect (if any) of the ‘single transaction’ referred to in s 588FA(3)(d) of the Act?;
Unnecessary to answer.
(h)for each of the April payments:
(i)did NPT receive the payment in good faith?;
Answer: No.
(ii)at the time NPT received the payment:
(A)did NPT have no reasonable grounds for suspecting CBDG was insolvent or would become insolvent as mentioned in s 588FC of the Act?;
Answer: No.
(B)would a reasonable person in NPT’s circumstances have had no such grounds?
Answer: No.
Conclusion
I have found that: the settlement deed did not release the plaintiffs’ unfair preference claims; the April payments were not part of a continuous business relationship between the parties for the purpose of s 588FA(3) of the Act; and the defendant cannot make out the statutory defence of good faith under s 588FG(2). I am also satisfied that the April payments are: unfair preferences within the meaning of s 588FA of the Act; insolvent transactions under s 588FC; and voidable transactions pursuant to s 588FE(2). There will be judgment against the defendant in the sum of $555,640.70 pursuant to s 588FF(1)(a) of the Act, together with interest. I will hear the parties on the precise formulation of the necessary orders and on the question of costs.
SCHEDULE OF PARTIES
| S ECI 2023 01468 | |
| BETWEEN: | |
| JONATHON KINGSLEY COLBRAN IN HIS CAPACITY AS LIQUIDATOR OF CORIO BAY DAIRY GROUP PTY LTD (IN LIQUIDATION) (ACN 618 921 092) | First Plaintiff |
| CORIO BAY DAIRY GROUP PTY LTD (IN LIQUIDATION) (ACN 618 921 092) | Second Plaintiff |
| - v - | |
| NUTRITIONAL POWDER TECHNOLOGIES PTY LTD (ACN 624 769 900) | Defendant |
MR MORRISON: We put it that they are small v variations.
HIS HONOUR: To what?
MR MORRISON: In which work is requested and carried out in the context of the broader contract.
HIS HONOUR: So everything is happening in the shadow of the broader contract[?]
MR MORRISON: … Yes. We are not being asked as a stranger to do these works, but they are also not part of the body of works we are to carry out, and they are not part of a formal capital v Variation under clause 19.
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