Re N.W.E.L. Pty Ltd (In Liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2015 00332

NICK JIM COMBIS AND PETER DINORIS AS JOINT AND SEVERAL LIQUIDATORS OF N.W.E.L. PTY LTD (IN LIQUIDATION) (ACN 147 714 850) (FORMERLY KNOWN AS NOSKE WIND ENERGY LOGISTICS PTY LTD)	Plaintiff
v
KEPPEL PRINCE ENGINEERING PTY LTD (ACN 004 727 619)	Defendant

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JUDGE:	Efthim AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	13, 14, 15, 16, 17 November 2017 and 7 December 2017
DATE OF JUDGMENT:	31 July 2018
CASE MAY BE CITED AS:	Re N.W.E.L. Pty Ltd (In Liq)
MEDIUM NEUTRAL CITATION:	[2018] VSC 634

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CORPORATIONS – Whether a transaction is voidable – Whether a transaction was an unfair preference – Whether the wrong debtor defence is available – Whether the defendant was a secured creditor – Whether the good faith defence is available – Corporations Act 2001 (Cth) ss 588FA, 588FF(1), 588FE(2).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr D McAloon	Patane Lawyers
For the Defendant	Mr M Galvin QC with Mr M Harvey	Harwood Andrews, Sladen Legal and Adley Burstyner

HIS HONOUR:

The plaintiffs, Nick Jim Combis and Peter Dinoris, as joint and several liquidators of N.W.E.L. Pty Ltd (In Liquidation) (ACN 147 714 850) (‘NWEL’) seek orders that the defendant, Keppel Prince Engineering Pty Ltd, repay $1,235,001 to NWEL, plus interest and costs, on the basis that a total of $1,235,001 was paid by NWEL to the defendant in September and October 2012 by way of transactions that are voidable under section 588FF(1)(a) of the Corporations Act 2001 (Cth) (the ‘Act’).

On 12 October 2012, NWEL was wound up in insolvency by the Supreme Court of Queensland and the plaintiffs were appointed as liquidators of NWEL.

As at 12 October 2012, NWEL had unpaid creditors (excluding the defendant) with debts totalling in excess of $4.5 million (of which, a total of $1,027,590 was owing to creditors that did not form a part of the corporate group of which NWEL was a member). Those creditors have not received payment in respect of their debts, however the defendant received the following payments:

(a) $301,000, paid by NWEL to the defendant on 10 September 2012 (being the date upon which the application for the winding up of NWEL was filed in the Supreme Court of Queensland); and

(b) $935,000, paid by NWEL to the defendant on 10 October 2012 (being two days before the making of the winding up order).

Background

On 6 December 2010, NWEL was incorporated and Anthony Stuart Noske is and was the sole director of the company. NWEL carried on a business as the supplier of logistics services in the renewable energy sector, including the transportation of wind tower components to wind farm projects.

From 6 December 2010 until 20 August 2012, NWEL was known as Noske Wind Energy Logistics Pty Ltd. It was part of the Noske Group of companies which included Whitpark Pty Ltd (in liquidation) (‘Whitpark’), Noske Logistics Pty Ltd (subject to deed of company arrangement) and Noske Forestry Logistics Pty Ltd (subject to deed of company arrangement). All of those companies were controlled by Mr Noske.

From at least 2010 onwards, the defendant carried on business fabricating and installing industrial structures and equipment. Stephen Charles Garner is and was a director and the general manager of the defendant.

In 2011, NWEL entered into contracts with Leighton Contractors Pty Ltd (‘Leighton Contractors’) in respect of a project known as the Macarthur Wind Farm Project. Two contracts were entered into; a works contract and a freight forwarding contract (the ‘Contracts’).

Pursuant to the works contract, NWEL was required to transport wind tower sections from the premises of the defendant and from premises of RPG Australia Pty Ltd in South Australia to the Macarthur Wind Farm located at Macarthur, Victoria, and to unload and erect wind tower sections at the Macarthur Wind Farm site. Pursuant to the freight forwarding contract, NWEL took delivery of the imported wind farm components and cargo containers at the Port of Portland and transported those components and cargo containers to the Macarthur Wind Farm site. It then returned empty cargo containers from the Macarthur Wind Farm site to Melbourne. Those deliveries commenced in July 2011.

In order to perform the works under the Contracts and the works associated with another wind farm project (under a contract with Goldwind Australia), NWEL utilised the services of various contractors, including:

- the defendant;

- companies within the McAleese Group of companies (‘McAleese’), National Crane Hire Pty Ltd (‘NCH’) and Harbrew Pty Ltd (‘Harbrew’);

- QUBE Ports Pty Ltd, formerly known as POAGS Pty Ltd;

- Windhoist Australia Pty Ltd;

- Whitpark (which provided labour hire services and vehicles in circumstances where NWEL did not own vehicles and did not have employees); and

- Action Workforce Pty Ltd (‘Action Workforce’), a creditor that ultimately obtained the order for the winding up of NWEL.

There has been a history of dealings with the plaintiff and defendant relating to the payment of accounts. On 11 August 2011, Jodie Rethus of the defendant sent an email to Mr Noske stating words to the effect that if she did not receive payment of $202,265 by close of business on Friday 26 August 2011, the account would be put on hold. Mr Noske replied to the effect that he was having to conserve cash while he waited for the first progress payment from Leighton Contractors on the Macarthur Wind Farm Project. It was likely that the defendant would receive the full amount outstanding by 16 September 2011. He expected progress payments to be made on the 16^th of each month going forward.

On 12 August 2011, Dan McKinna of the defendant sent an email to Mr Noske requesting payment of $85,666.60 by 26 August 2011, payment of $116,509.30 by 16 September 2011, and provision of a payment plan clearing the remaining outstanding debt to the defendant by 16 September 2012. Mr Noske replied, stating words to the effect that he could not guarantee to meet the defendant’s schedule.

On 15 August 2011, Mr McKinna sent an email to Mr Noske stating words to the effect that the defendant’s position in regard to the outstanding accounts remained unchanged and if no payment had been received by close of business on 26 August 2011, the account would be placed on hold.

On 24 August 2011, Mr Garner of the defendant sent an email to Mr Noske, asking whether NWEL was able to pay $85,000 by that Friday. Mr Noske replied and stated it was doubtful that payment could be made by Friday and that NWEL was struggling to get customers to pay on time and with Leighton Contractors’ first progress payment not due until 15 September 2011, NWEL was having to conserve cash.

On 22 September 2011, Mr Garner sent an email to Mark Hansen of NWEL copying in Mr Noske, stating words to the effect that once again there had been no deposit from the Noske Group and he needed to know urgently when the money was being paid and to what extent. Mr Hansen replied, stating words to the effect that once funds received from Leighton Contractors had cleared and other receipts had been confirmed, he would be in a position to advise if payment on the arrears could be made. Mr Garner then sent an email to Mr Hansen copying in Mr Noske, stating words to the effect that continued delays left him with no other option but to advise that if payments were not made ‘today/tonight’, then he would advise Leighton Contractors that the defendant would not be unloading any sections on site or in its yard as of the following morning and that all labour and equipment would be withdrawn.

On 2 December 2011, Mr Garner sent an email to Mr Noske stating words to the effect that ‘your account’ beyond 90 days was in excess of $270,000 and that urgent payment was required to bring the account to 30 day trading terms ‘as per the contract you submitted to us.’

On 24 December 2011, Mr Noske attended a meeting with Mark Rowsthorn of McAleese and Mr Garner at the RACV Club in Melbourne. After that meeting, Mr Garner sent an email to Mr Noske and Mr Rowsthorn stating to the effect that the estimated cost to complete the Macarthur Wind Farm Project was to be $2 million.

On 23 March 2012, Mr Garner sent an email to David McPadden of Leighton Contractors stating that, ‘We have not seen any of the money that Tony [Noske] told you we would be paid this week’.

On 28 March 2012, Mr Garner sent an email to Mr Noske demanding a minimum payment of $500,000 by close of business that day and further stated words to the effect ‘I am sick and tired of your promises about when and what payments are being made’.

On 30 March 2012, Mr Garner sent an email demanding a payment of $616,000 by the end of March 2012 to bring the account within 30 days.

On 2 April 2012, Mr Garner, by email, informed David Mawhinney of Leighton Contractors that the amount owed to the defendant beyond 30 days had been reduced to $666,000 and that ‘unfortunately, I believe I have no option than to withdraw our labour and equipment from the MWF site and Port of Portland site to resolve this issue’.

On 4 April 2012, a meeting was attended by Mr Noske and representatives of the defendant, McAleese and Leighton Contractors at the Melbourne offices of Leighton Contractors to discuss unpaid invoices.

On 26 April 2012, the plaintiff and the defendant entered into a written agreement signed by Mr Noske on behalf of the plaintiff and Mr Garner on behalf of the defendant, providing for payments listed in the payment schedule attached to that agreement (the ‘Repayment Agreement’).

On 2 August 2012, Action Workforce issued a creditor’s statutory demand for payment of the debt owed by the plaintiff.

On 10 August 2012, Mr Garner sent an email to Mr Rowsthorn of McAleese asking whether McAleese was still being paid ‘as agreed’. Mr Rowsthorn replied that ‘I am hearing that Leightons are not paying Noske for the time extensions. We are still worried about getting the total amount. Will keep you posted.’

On 10 September 2012, Action Workforce filed an originating process in the Supreme Court of Queensland at Brisbane seeking an order that NWEL be wound up in insolvency under the provisions of the Act.

On 10 September 2012, $300,001 was paid to the defendant. This is the first payment of the plaintiff’s claim as a preference.

On 11 September 2012, Mr Garner sent an email to Mr Mawhinney of Leighton Contractors asking why the amount of $300,000 had been paid to the defendant overnight and not the amount of $350,000. Mr Manchee of Leighton Contractors replied, stating, ‘Each month Noske Wind Energy Logistics (NWEL) provide a payment certificate to Leightons stating what the break-up of their payment is to be each month. Leighton has followed the direction provided by NWEL for payment this month.’

On 12 September 2012, Mr Noske sent an email to Mr Garner stating that in order to ensure they can all be paid in full by Leighton Contractors, NWEL had agreed with Leighton Contractors to take a hit on the final contract value inclusive of variations and in turn, McAleese had agreed to discount its outstanding invoices by $500,000 and expected the defendant to do the same to a magnitude of $422,600.

On 19 September 2012, NWEL, Leighton Contractors, the defendant, Harbrew and NCH entered into a Deed of Settlement and Release (the ‘Deed’). Those creditors were to be paid directly by Leighton Contractors under the Deed. There were other creditors which were not to be paid under the Deed. Clause 2.1(a) of the Deed provides:

Upon:
(i)NWEL having fully performed its obligations pursuant to clause 2.2 of this deed; and
(ii)KPE, Harbrew and NCH completing all works that each of KPE, Harbrew and NCH have contracted to NWEL to provide in connection with the Project,

Leighton will discharge its payment obligations under the Freight Forwarding Contract by making payment of the Agreed Freight Forwarding Amount [$3,914,546 (exclusive of GST)] upon receipt of an invoice from NWEL for the Agreed Freight Forwarding Amount as follows:
…
(iv)$850,000 will be paid by Leighton to KPE within 14 days of receipt of the invoice…

In addition to the amounts that were to be paid directly to NWEL’s Deed creditors, amounts totalling $1,365,158.67 (plus GST) were to be paid by Leighton Contractors to NWEL in discharge of NWEL’s entitlements under the Contracts on 25 September 2012. In his witness statement, Mr Noske states that he appreciated this at the time, stating in the presence of Mr Garner that, “the amount payable to NWEL under the Deed of Settlement was not enough for NWEL to pay all of its creditors”.

In an email to John Smith of KBR (a creditor) on 27 September 2012, Mr Noske stated as follows:

As you are aware, we were forced last week to agree to final contract values with Leighton’s via a deed of settlement in order to be ensured of receiving payment without a long and expensive legal battle.
The gap between NWEL contract cost … and the amount offered by Leighton was $904,988.
Under the terms of the deed, Leighton have subsequently made priority (in full payments) to three nominated NWEL sub contractors being McAleese Group, Keppel Prince Engineering and Sth Australian Police Escort group.
This has now left NWEL with insufficient funds to pay outstanding amounts owing to the main sub contractor Noske Logistics and a number of other suppliers being VicRoads, Action Workforce, Coates Hire, KR Wind & POAGS (Port of Portland Stevedoring labour).
Our accountants have today advised that we have no hope of getting any banking facility support and they cannot see any option other than to recommend we put NWEL into voluntary administration which in turn will result in Noske Logistics also going into administration with the subsequent flow on effect impacting all suppliers and non Wind Farm customers and the direct payments made to sub contractors by Leighton.
…

On 10 October 2012, Leighton Contractors paid $935,000 (inclusive of GST) to the defendant as stipulated by the Deed, thereby reducing the indebtedness of NWEL to the defendant by that amount.

Two days later, on 12 October 2012, orders were made in the Supreme Court of Queensland that NWEL be wound up in insolvency and the plaintiffs were appointed as the liquidators.

The Unfair Preferences

Section 588FA(1) of the Act provides:

588FA Unfair preferences
(1)A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b)the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

Sections 588FF(1)(a) of the Act provides:

588FF Courts may make orders about voidable transactions
(1)Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;

Pursuant to s 588FE(2) of the Act, the transaction must be an insolvent transaction entered into during the six months ending on the relation-back day. It provides:

(2) The transaction is voidable if:
(a) it is an insolvent transaction of the company; and
(b)it was entered into, or an act was done for the purpose of giving effect to it:
(i)during the 6 months ending on the relation‑back day; or
(ii)after that day but on or before the day when the winding up began.

The application to wind up the company was filed on 10 September 2012 and the relation back day is therefore 10 September 2012.[1] A payment of $300,001 was paid to the defendant on 10 September 2012 (the ‘September Payment’), the second payment of $935,000 was paid to the defendant on 10 October 2012 (the ‘October Payment’). These payments were each made or entered into during the six months ending on the relation back day or after that day but prior to the winding up of NWEL. They are preferences for the purposes of s 588FA of the Act. The defendant has received more from NWEL in respect of an unsecured debt than it would have received if those payments were set aside and it was to prove in NWEL’s winding up.
[1]See s 91 of the Corporations Act 2001 (Cth).

The Defences Raised by the Defendant

There are four defences that have been raised by the defendant:

(a) whether the obligations discharged by the September Payment and the October Payment were obligations of Whitpark or NWEL (the wrong debtor defence);

(b) if the obligations were obligations of NWEL, whether the Repayment Agreement and the first direction made the defendant a secured creditor as to the September Payment and the October Payment (the secured creditor’s defence);

(c) if the obligations were obligations of NWEL and the defendant was not a secured creditor of NWEL, whether NWEL became insolvent either:

- from January 2012; or

- from 28 September 2012 (the insolvency timing defence); and

(d) assuming the other elements of the plaintiff’s claim are made good, whether the defendant, or a reasonable person in the circumstances, had reason to suspect NWEL’s insolvency at the time of the payments within the meaning of s 588FE(2) of the Act (the good faith defence).

The Wrong Debtor Defence

The defendant submits that it contracted with Whitpark, not NWEL and therefore NWEL was not the party involved in the transaction. The plaintiff submits that on the evidence adduced at trial, there is no sound basis for this defence.

The defendant relies on the following matters to demonstrate that the defendant contracted with Whitpark:

-The Noske Group comprised eight companies which include NWEL and Whitpark. According to Mr Noske when cross‑examined, Whitpark is the ‘longest standing company in the group’[2] and Whitpark traded under the name Noske Group.[3]
[2]T110.
[3]T111.
-In 2011, Mr Noske negotiated the works contract and freight forwarding contract in relation to the Macarthur Wind Farm. They were both entered into by NWEL. In mid-2011, Mr Noske approached Mr Garner with a view to engaging the defendant’s crane hire services in connection with the Macarthur Wind Farm Project. The defendant submits that there is no suggestion that Mr Noske informed Mr Garner that a new entity, NWEL, would be contracting with the defendant. As far as Mr Garner was concerned, the defendant was providing services to Whitpark.
-The defendant began providing services in relation to the Macarthur Wind Farm in July 2011. A purchase order dated 8 July 2011 was sent to the defendant headed ‘Noske Group’ (the name under which Whitpark traded).
-From about August 2011, the defendant began providing additional services pertaining to freight forwarding. At all times it invoiced Whitpark. Credit notes were raised from time to time in favour of Whitpark. At no stage did NWEL or Mr Noske say the invoices and credit notes should be issued in favour of NWEL.
-Dozens of emails from Mr Noske from at least August 2011 to April 2012 are signed off as either Noske Logistics or Noske Logistics Pty Ltd. There is not one email from NWEL.

-Mr Garner gave evidence that before the defendant worked on the Macarthur Wind Farm Project, the defendant provided services to one of Mr Noske’s companies in relation to a project at Oaklands. In the period 31 March 2011 to 21 June 2011, the defendant issued six invoices all to ‘Whitpark Pty Ltd, T/A Noske Transport’. The defendant submits that prior to working on the Macarthur Wind Farm Project, the defendant was acting in accordance with Mr Noske’s direction that the defendant bill Whitpark when dealing with the Noske Group.
-Invoices were issued by the defendant to Whitpark T/A Noske Transport in relation to:

- unloading tower sections at Macarthur Wind Farm – 28 invoices and three credit notes;

- transporting blades, hubs and nacelles to Macarthur Wind Farm – 11 invoices and one credit note; and

- unloading blades, hubs and nacelles at Macarthur Wind Farm – 11 invoices and two credit notes.

-In March 2012, Whitpark began issuing the defendant Recipient Created Tax Invoices in relation to the Macarthur Wind Farm Project. They were all dated 1 February 2012 and Mr Garner, in his witness statement, said that the defendant received the Recipient Created Tax Invoices in March 2012. There were 44 invoices, all sent by ‘Whitpark Pty Ltd T/A Noske Group’ with the ABN 42 007 242 515 and they related to work carried out by the defendant for the Macarthur Wind Farm Project.
-Executive Committee meeting papers and minutes of the defendant demonstrate that the defendant did not regard NWEL as being indebted to it. For example, the executive committee papers of 21 November 2011 note:

- the financial report under the hearing ‘Revenue’ with respect to ‘other crane work’ says ‘the main income was generated for the work for Noske Transport, Leighton Contractors and Day Electrical’;

- the financial report for the year to date revenue similarly refers to income being generated by the work for ‘Noske Transport’;

- a list of the defendant’s major clients for October and year to date referred to ‘Noske Transport’; and

- the Debtor’s Report refers to ‘Whitpark Pty Ltd trading as Nosk’ [sic]. There is no reference to any other entity in the Noske Group.

-The Executive Committee meeting minutes for 15 March 2012, 11 April 2012, 10 May 2012, 13 September 2012 and 15 October 2012 refer to either Noske Transport or Whitpark payments and debts.
-The minutes of the meeting of the defendant’s board of directors held on 28 May 2012 state, under the heading ‘Debtors’:
6.1Ho Kuen Loon asked about the Whitpark debt. Steve Garner explained the agreement which has been negotiated for direct payments from the client, Leighton’s.
6.2Debtors – no major concerns. Whitpark debt is under agreement and is paid directly by Leightons.

-During the period 24 December 2010 to 17 July 2012 the defendant carried out other services in relation to Mr Noske’s business but not in relation to the Macarthur Wind Farm Project. It issued 23 invoices and two credit notes with respect to this work. All of the tax invoices and credit notes were issued to ‘Whitpark Pty Ltd T/A Noske Transport’.

As to the tax invoices being issued by the defendant in the name of Whitpark, the plaintiff submits this simply reflects an approach explicable by previous practice, but failed to take into account a specific request made to the defendant that invoices for the services be issued by the defendant to NWEL.

The plaintiffs rely on the following evidence to demonstrate that there was an agreement between NWEL and the defendant:

- On 16 June 2011, Anja Brueggemann of Noske Logistics, sent an email to John Grey of the defendant, advising:

We still have to finalise our rate structure with KPE which we will hopefully have enough time for the next few days.
Pls note our invoicing procedure for Macarthur as follows: All invoices are to be sent by email,
Invoice to
Noske Wind Energy Logistics
PO Box 419, Brighton 3186 VIC
ABN: 52 147 714 850

- The defendant executed and relied upon a Crane Hire Agreement between NWEL and the defendant (‘Crane Hire Agreement’). That agreement was sent to Mr Garner on 19 October 2011. It was executed by Mr Garner on 3 November 2011.

- Mr Garner made express reference to that agreement to the fact that the contracting party was NWEL. In an email to Mr Noske on 14 March 2012, Mr Garner stated, ‘I have a contract in place’, asking Mr Noske whether he was ‘intending to honour the legal contract that you put in place with us in November last year’. On 27 March 2012, in a further email to Mr Noske, Mr Garner again referred to the contract, rejecting a suggestion by Mr Noske that it had not been executed and stated:

The version we received from Anja on 19^th October was between NWEL and KPE which was not complicated and had all the rates that were agreed upon fixed into the contract which we have continued to operate from 8^th November 2011.

- Mr Garner frequently referred to NWEL and not Whitpark as the contracting party in correspondence over an extended period of time with various parties.

- On 26 April 2012, NWEL and the defendant entered into the Repayment Agreement signed on behalf of both parties by Mr Noske and Mr Garner, providing for the payment of certain amounts to the defendant. The Repayment Agreement contains no reference to Whitpark. The September Payment the subject of this dispute was made pursuant to a payment certification given by NWEL to Leighton. The payment certification was signed for and on behalf of NWEL.

- On 19 September 2012, the Deed of Settlement and Release was entered into between Leighton Contractors, NWEL, Harbrew, NCH and the defendant. The October Payment, which is the subject of this dispute, was made pursuant to the terms of the Deed. The Deed recorded that the defendant, Harbrew and NCH were engaged by NWEL to provide services in connection with the Macarthur Wind Farm Project and made payment contingent upon the defendant, Harbrew and NCH completing all works that each of the defendant, Harbrew and NCH had contracted to NWEL to provide in connection with the project.

- When cross-examined, Mr Garner gave the following evidence in relation to the Deed:

Mr Garner, we're going to have to cover the circumstances later today in which this document was entered into. But this was a pretty important document for you, wasn't it?---Yes.
Because you took quite a bit of comfort from this document that Keppel Prince was going to be paid the amount that was specified at p.653, which was a GST-exclusive amount of $850,000?---Correct.
And accordingly, you would have taken some care before you signed this document, to have read it carefully?---I guess I certain made sure the numbers that dealt with KPE were accurate, yes.
What about the parties to the document? Did you look to see who was signing up to this document?---Well, I certainly read who was signing up to it, and the people that were in the room when I was called back, yes.[4]
…
And it doesn't say they were engaged by Whitpark, does it?---No.
No. And you didn't think that was a problem, you didn't think it mis‑described anything?---No.[5]

-At a public examination on 3 December 2012, Mr Garner confirmed that the defendant was providing services to NWEL. He made no reference at all during that examination to Whitpark.
[4]T424-7.
[5]T425-1.

The Email Sent by Ms Brueggemann

Mr Garner, in response to the email from Ms Brueggemann, says in his first witness statement filed in this matter that John Grey is and was at June 2011 the manager of KPE’s crane division. Mr Garner states:

I did not see this email at the time it was apparently sent or at any time before preparing for trial of this proceeding. Nor did I ever discuss with John Grey a requirement that invoices be directed to an entity, ‘Noske Wind Energy Logistics’. As far as I was concerned, all business conducted between KPE and Noske group was with Whitpark trading as Noske Transport.[6]

[6]Stephen Charles Garner first witness statement at [30].

The defendant submits that Mr Garner’s evidence is supported by the fact that every invoice in relation to the Macarthur Wind Farm project was sent to Whitpark, the Executive Committee minute’s papers show that the defendant did not regard NWEL as being indebted to it, and when the defendant carried out other services in relation to Mr Noske’s business not in relation to the Macarthur Wind Farm Project, invoices were issued to Whitpark Pty Ltd trading as Noske Transport.

This email, while not coming to the attention of Mr Garner, did come to the attention of the defendant. It supports the conclusion that there was no agreement with Whitpark.

The Crane Hire Agreement

In relation to the Crane Hire Agreement, the defendant submits that a careful analysis of the surrounding documents to that agreement shows that the plaintiffs’ reliance on the agreement is misplaced.

On 14 October 2011, Ms Brueggemann sent an email to Mr Garner and Mr Grey, attaching an agreement with Harbrew trading as Walter Wright Cranes. Ms Bruegermann states in her email that:

We will have a similar contract with KPE outlining their scope of works. This will be drafted up in the beginning of next week.
Pls let me have your comments on this draft so we can start finalising.

On 19 October 2011, Ms Brueggemann sent an email from ‘Noske Logistics’ to Mr Garner and Mr Grey attaching the Crane Hire Agreement. The email states:

Pls see attached contract for the services and equipment provided by KPE to Noske.
This should be used as a starting point to finalise our agreement and the items discussed over the last meetings and to bring us all to the same page.
Pls let us have your feedback asap.

The Crane Hire Agreement defines NWEL as ‘Noske’. Recital D of that agreement states that ‘Noske now wishes to engage Keppel Prince to provide crane hire services for the purpose of Noske fulfilling its contractual obligations’ to Leighton Contractors.

Clause 2.1 of the Crane Hire Agreement provides:

This agreement starts on the date of signing this agreement and will continue until all equipment hired from Keppel Prince is returned to Keppel Prince and all hired labour has completed the contracted work and this agreement is formally terminated.

The defendant submits that, as there is no evidence of the Crane Hire Agreement being signed by both parties, it cannot be said to have commenced.

Mr Garner made a handwritten amendment to clause 19.4 of the Crane Hire Agreement dated 3 November 2011 which bears his signature. Under that clause, the defendant was to provide an indemnity to NWEL for loss arising from a delay in the provision of the defendant’s services. Mr Garner’s note reads: ‘Needs to have a limit inserted’. According to the defendant, the document does not evidence a concluded agreement.

The defendant relies on Mr Garner’s evidence in his first witness statement in support of the submission that the Crane Hire Agreement does not support the plaintiffs’ contention that the contract was with NWEL. In his statement, Mr Garner states:

I noticed the reference in the document Noske Wind Energy Logistics, but I did not understand that to be a different entity to Whitpark. I was aware that Tony Noske operated his business under various names, including “Noske Group”, “Noske Logistics” and “Noske Transport”. Various names appeared on the side of trucks and letterheads. I also recall Tony referring to his business as “Noske Oversize”. I was not particularly interested in the reference to Noske Wind Energy Logistics. I just regarded it as another name used by Noske. I was more focussed on satisfying myself that the rates and conditions were as had been discussed with Ron Atkins and Anja Brueggemann. I noted in handwriting some proposed changes to the document, including a limit to the indemnity in clause 19.4.
…
I signed the document and dated it 3 November 2011 in anticipation of Tony [Noske] signing it, with my amendments. I rang Tony and asked him to come to my office to sign and witness the execution of the contract. The emails from this time indicate that he was to attend a meeting with me at which the agreement would be executed. In fact, the meeting never occurred. I put the document in a drawer in my office. KPE continued to invoice Whitpark for its services and equipment hire, for both loading and unloading tower sections and equipment hire, for both loading and unloading tower sections and loading and unloading turbines and blades. The charges were as had been agreed with Ron Atkins and Anje Brueggemann.[7]

[7]Defendant’s closing submissions, [34]–[35].

The defendant states that none of this evidence was challenged in the cross‑examination of Mr Garner. As to how Mr Garner regarded the Crane Hire Agreement, the defendants rely on the following evidence given by Mr Garner when he was cross‑examined:

But at this stage you wanted to honour it because you wanted to keep those rates, didn't you?---I wanted to - ah, I wanted to work with those rates that had been negotiated.
And the rates were part of the contract, weren't they?---The rates were - were what was the contract. In all the - in all the instances that I had done business with Tony Noske before it was all around, um, ah, honouring - honouring rates, honouring agreement, just getting on and getting the work done. As I've clearly said, I really took no - no notice of names of companies, names of business, because I knew that I was working for Whitpark.[8]

[8]T408-7.

The defendant submits that the Crane Hire Agreement was not a binding agreement between NWEL and the defendant because:

- it was not signed by both parties in accordance with clause 2.1 and therefore never commenced;

- there is no evidence that Mr Garner’s amendment to the indemnity clause 19.4 was acceptable to Mr Noske, therefore there was no consensus;

- if the provision of a draft Crane Hire Agreement constituted an offer, then Mr Garner’s amendment of the Crane Hire Agreement was a counter offer. The evidence shows that Mr Garner did not communicate the counter offer to Mr Noske, therefore it cannot be said that there was an agreement between the parties; and[9]

- if it is argued that Mr Garner merely accepted Mr Noske’s offer, then his failure to communicate his acceptance to Mr Garner meant there was no valid acceptance.[10]

[9]See Henthorn v Fraser [1892] 2 Ch 27 [37].

[10]See Powell v Lee [1908] 99 LT 284.

The submissions made by the defendant that Mr Garner did not consider that he was signing a contractual document, are in conflict with his emails of 14 March 2012 and 27 March 2012 where he relies upon the Crane Hire Agreement.

When cross‑examined, Mr Garner’s evidence in relation to the crane hire agreement was as follows:

That's your signature, isn't it?---Correct.
And you signed it on behalf of Keppel Prince?---Yes.
And you put the date in, 3 November 2011?---Yes.
And above Keppel Prince's details is Noske Wind Energy Logistics Pty Ltd do you see that?---Yes.
And your evidence is that you've noticed that that entity was referred to?---Yes.
And you signed it on that day, that you've dated it?---Yes.
And then you relied upon that agreement, didn't you subsequently?---Yes.[11]

[11]T 406-1.

I agree with the plaintiffs that Mr Garner was treating the Crane Hire Agreement as a contractual document. I note that the document is clear. The party who contracted with the defendant was NWEL and not Whitpark.

References to NWEL in Emails

In relation to Mr Garner making references to NWEL in email correspondence, the defendant submits Mr Garner explained that this was only because other parties to the correspondence had adopted that acronym. When cross‑examined, Mr Garner gave the following evidence:

You said, "N.W.E.L. meant nothing to me," you said. But you keep using it, Mr Garner, you keep using it. In the next sentence you say you're having payment problems with N.W.E.L. Do you see the next line of your email?---Yes.
It didn't mean nothing to you, that's who you were having trouble being paid by?---But that was who they were working with.
But you say that's who you are working with. "We are providing cranes, labour and services to N.W.E.L"?---But in discussions, when they talk to me, they were using the word N.W.E.L. So in discussions, I would be using the same word back to them.[12]

[12]T414-26.

The defendant submits that Mr Garner’s explanation of his undertaking of NWEL is entirely plausible and it was never suggested to him that any of it was recent invention or untrue. As regards his use of the term ‘NWEL’ in email or oral evidence as an admission that the defendant had ceased working for Whitpark and had begun working for a separate entity, Noske Wind Energy Logistics Pty Ltd, according to the defendant would be to misconstrue and to distort Mr Garner’s evidence.

In support of that submission, it relies on the evidence given by Mr Garner in cross‑examination as follows:

By that time, you'd been yourself using that acronym quite frequently in emails, hadn't you?---Yes.
It states in the first paragraph that "Noske Wind Energy Logistics is the contractor to Leighton", and that was right, wasn't it?---Yes.
And then it says that N.W.E.L. has engaged KPE as a sub-contractor?---Yes.
And that was correct, wasn't it?---Yes.
And then it said, "N.W.E.L. and KPE have been in discussions in relation to the payments currently owing"?---Yes.
And that was correct?---Yes.[13]

[13]T422-21.

The defendant says this cross-examination did no more than demonstrate that the parties in the email correspondence used a name ‘Noske Wind Energy Logistics’ and acronym ‘NWEL’. It does not demonstrate that Mr Garner acknowledged that the defendant had entered into a contract with a corporate entity distinct from Whitpark.

The emails, when considered in conjunction with the other evidence, cannot support a conclusion that the defendant contracted with Whitpark. They are only a piece of the chain which demonstrates that the defendant had a contract with NWEL.

In relation to the Repayment Agreement, Mr Garner, in his second witness statement, said:

To the best of my recollection, I signed both the spreadsheet and the letter on 26 April 2012. I did not notice or pay any attention to the references to NWEL or, more particularly, the statement that NWEL had engaged KPE. My concern was to secure payment by Leightons of amounts owed to KPE. I did not turn my mind to the identification of which entity within the Noske group of companies and divisions was named in the documents.[14]

[14]Defendant’s outline of submissions, [57].

When cross-examined about the Repayment Agreement, Mr Garner gave the following evidence:

It states in the first paragraph that "Noske Wind Energy Logistics is the contractor to Leighton", and that was right, wasn't it?---Yes.
And then it says that N.W.E.L. has engaged KPE as a sub-contractor?---Yes.
And that was correct, wasn't it?---Yes.
And then it said, "N.W.E.L. and KPE have been in discussions in relation to the payments currently owing"?---Yes.
And that was correct?---Yes.
And that N.W.E.L. and KPE had agreed to commit to that payment schedule, and that's the other page of the document?---Yes.
And that was correct too. The parties had agreed to commit to that payment schedule?---Yes.
And you, on behalf of Keppel Prince, signed this document at the same time you signed the next page?---Correct.
And you're not suggesting that this document wasn't signed - I withdraw that. So to the extent there was any doubt before, Mr Garner, about who you were contract with, there was no doubt after you'd signed this letter, was there? When I say you, I mean Keppel Prince?---Well, once again, it still reverts back to my earlier comments. Exactly what I talked about earlier is that the agreement that I had in place had the name N.W.E.L. on it, and that was what was referenced all the time.[15]

[15]T422-23.

The defendant submits that Mr Garner’s evidence is frank but does not determine the question of which entity in the Noske group was indebted to the defendant. It says by the time the Repayment Agreement was made, the defendant had been providing services for the Macarthur Wind Farm Project and invoicing Whitpark in accordance with Mr Noske’s standing instructions for nine months. The Repayment Agreement did not alter the original arrangement and the defendant continued to invoice Whitpark.

It is true that the Repayment Agreement did not alter the original arrangement, but the Repayment Agreement does not refer to Whitpark. It refers to NWEL. This agreement, in my view, is only one of many factors which indicates that the defendant had a contract with NWEL.

The Public Examination

In relation to the public examination conducted and Mr Garner’s references to NWEL at the examination, the defendant submits that the plaintiffs’ counsel did not make it clear that what he was putting to Mr Garner was a proposition to the effect that Mr Garner knew or admitted that the defendant had contracted with a separate corporate entity, Noske Wind Energy Logistics Pty Ltd as distinct from Whitpark trading under a name ‘Noske Wind Energy Logistics’ or ‘NWEL’. The defendant says that the suggestion that Mr Garner never mentioned Whitpark in the public examination does not assist the plaintiffs because Mr Garner attended the public examination to respond specifically to questions put to him regarding the affairs of NWEL not to advance a case concerning a question of whether the defendant had contracted with Whitpark or another entity.

When cross examined in relation to the public examination, Mr Garner gave the following evidence:

But you understood during the examination that whenever this barrister referred to the company, he was referring to N.W.E.L. because that's what he explains right at the beginning, doesn't he?---Yes.
And during the examination you responded to the questions on that basis, didn't you?---Yes.
And never once during that examination Mr Garner, did you refer to Whitpark, did you?---I don't know.[16]
[16]T403-15.

The Evidence of Mr Garner/Consideration

The defendant submits that the oral evidence relied upon by the plaintiffs to demonstrate that the agreement was with NWEL and not Whitpark, does not assist the plaintiffs. Mr Garner is not a lawyer. He is qualified as a fitter and turner, and is in the business of managing a crane hire and labour supply business. The defendant submits that the Court had the opportunity to observe his demeanour in the witness box and Mr Garner was an honest and cooperative witness, attempting to answer questions as they were put to him and making concessions where appropriate.

The defendant submits that Mr Garner made it clear that he was dealing at all times with Whitpark. When cross‑examined, Mr Garner said:

Thank you. And what I'm going to suggest is in relation to invoicing, you didn't discuss invoicing details at all did you? You left that to others?---No there was certainly discussion, ah, there was certainly discussion to get an exact time, date or whatever but we certainly talked and I certainly gave no instruction to change the practice of invoicing Whitpark for anything that we did.
No?---Because I knew I was dealing with Tony Noske.[17]

[17]T 404-25.

In his first witness statement, Mr Garner states: ‘As far as I was concerned, all business conducted between KPE and the Noske group was with Whitpark trading as Noske Transport.’

The defendant submits that Mr Garner knew that Whitpark and Noske group traded under various names from time to time, but it was never put to him that he was aware of a distinct corporate entity, in particular, Noske Wind Energy Logistics Pty Ltd. There was no reason for him to suppose that ‘Noske Wind Energy Logistics’ or ‘NWEL’ was anything other than another name under which Mr Noske and Whitpark operated.

The defendant also relies on evidence given by Mr Garner as an unsound basis to conclude that the defendant contracted with NWEL without it having been fairly and clearly put to Mr Garner that he not only knew he was dealing with an entity known as NWEL but also knew that NWEL was a separate and discrete entity from Whitpark. The evidence relied upon by the defendant is as follows:

You knew at this stage, as you were asserting to Mr Noske, that you had a contract you wanted to rely upon, and the parties to it, as you state here, were N.W.E.L. and Keppel Prince?---As I said before, I - I took that document as an agreement based around the rates of what we were going to be working for.
But who was the agreement with?---It was with - with - sorry, oh, the document definitely states N.W.E.L.
And the agreement was with N.W.E.L.?---The agreement for the rates and conditions were definitely with N.W.E.L., yes.
Thank you. And this wasn't the first or the last time that you've referred to N.W.E.L. as being the entity that you were providing the services to, is it, Mr Garner?---Um, I was providing services, as I've said to you before, um, to Tony Noske. If you're taking it to that level, I'm talking about that being Whitpark. I make - I don't deny there is reference to N.W.E.L., which was in relation to the agreement around the rates and conditions.[18]

[18]T 411-13.

The defendant submits that Mr Garner’s evidence regarding his familiarity with NWEL must be viewed in the context of his evidence that he was dealing with Whitpark and Mr Noske, which he knew operated under various names. It says that the evidence does not go so far as amounting to an admission that the defendant contracted with a separate legal corporate entity. It relies on the following evidence given by Mr Garner in cross‑examination:

So you always understood that you were a sub-contractor to N.W.E.L?---Yes.
That's who the contract was with, it was N.W.E.L. and Keppel Prince?‑‑‑I didn't have a signed contract. I keep coming back to that, I'm sorry.
Well, you did sign the contract, though, didn't you?---I didn't have a signed contract. So I was working, as I always had, with Tony on the agreement that we always had. As I said in my witness statement, I've said many times. The reference to N.W.E.L. really meant nothing to me at the time, as the GM of the company, because I knew that I was always to be invoicing and working with Tony Noske. I had not had any instruction from Tony Noske to be changing that way we did our business. There were many companies' names that we had put in front of us, as I said, Noske Oversize, Noske - I won't go through them again.

The defendant also submits that no party in the proceeding challenges the validity of the defendant’s contract to provide services for the Macarthur Wind Farm Project, but in order to be a legally binding contract, consideration must move from the promisee.[19] It is submitted that NWEL cannot be the promisee because it provided no consideration. The invoices, credit notes and Recipient Created Tax Invoices are an obstacle to the conclusion that NWEL was the promisee.
[19]See Pico Holdings Inc v Wave Vistas Pty Ltd [2005] 214 ALR 392 at 407.

While the plaintiffs have relied on the oral evidence given by Mr Garner, it is not the oral evidence alone on which it relies. They submit that the identity of a contracting party is to be determined by looking at the matter objectively, examining and construing any relevant documents in the factual matrix in which they were created and ascertaining between whom the parties objectively intended to contract.[20]
[20]See Air Tahiti Nui Pty Limited v McKenzie [2009] 77 NSWLR 299.

In Lederberger v Mediterranean Olives Financial Pty Ltd,[21] Nettle and Redlich JJA and Beach AJA stated:

Identification of the parties to a contract must be in accordance with the objective theory of contract. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had. The process of construction requires consideration not only of the text of the documents, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. This in turn presupposes knowledge of the genesis of the transaction, the background, and the context in which the parties are operating.[22] [citations omitted]

[21](2012) 38 VR 509 at [19].

[22]At [19]

On the evidence before me the wrong debtor defence raised by the defendant cannot be sustained. The Crane Hire Agreement, the Repayment Agreement and the Deed provide clear evidence of the debtor/creditor relationship between NWEL and the defendant. These documents were executed by Mr Garner on behalf of the defendant. I agree with the plaintiff as objectively assessed there is no basis for concluding that the contracting party, the entity that became indebted to the defendant was any entity other than NWEL. The September Payment and the October Payment which are the subject of this dispute were paid in accordance with the terms of the Repayment Agreement and the Deed respectively. These payments came from NWEL.

There were inconsistencies in Mr Garner’s evidence and his evidence was not such that any doubt was placed on who the contacting party was in accordance with the executed agreements. His belief that he was contracting with Whitpark simply does not stand up when viewed against the evidence presented, particularly the documentary evidence.

Secured Creditor’s Defence

The defendant submits that if the Court concludes that NWEL was indebted to the defendant, then there is no preference because the defendant was a secured creditor. It says that by entering into the Repayment Agreement and giving the first written direction on 1 May 2012 by NWEL to Leighton Contractors, NWEL assigned to the defendant by way of charge or hypothecation current and future debts to be paid by Leighton Contractors.

The terms of the Repayment Agreement are as follows:

NWEL has engaged KPE as a subcontractor to provide certain services under the contracts.
NWEL and KPE have been in discussions in relation to payments currently owing under the arrangement between the parties and costs still to be incurred until scheduled completion of the MWF [Macarthur Wind Farm] project.
NWEL and KPE have agreed to commit to the payment schedule set out in Appendix 1 to this agreement. [Commitment Clause]
Further, NWEL authorises Leighton Contractors Pty Ltd to withhold the scheduled amounts from their monthly remittance to NWEL and remit the scheduled amounts per the payment schedule directly to KPE. [Authorisation Clause]

The defendant submits that it is clear that an assignment can be of current and future debts. That principle was referred to in Tailby v Official Receiver.[23] In that case, the House of Lords considered whether an assignment by way of security of certain book debts not existing at the time of the assignment was valid so as to give the assignee a good title to them when they came into existence. Lord Macnaghten said:

It has long been settled that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention an assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the conscience of the assignor and so binding the subject-matter of the contract when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified.[24]

[23](1888) 13 App Cas 523.

[24]Ibid 543.

In Bakewell v Deputy Federal Commissioner of Taxation (South Australia),[25] the High Court accepted that principle. In that case, a partner in a trading firm and his wife entered into a separation deed. He agreed that upon ceasing to be a partner of his firm, he would, out of the moneys received by him from the firm, lodge with a trustee ₤40,000 upon trust to pay an annuity to his wife. His share in the partnership continued until his death. The question arose whether the ₤40,000 was part of his property.
[25](1936) 58 CLR 743.

The High Court held that there had been a good equitable assignment or charge of the share in the partnership as a fund out of the income of which the annuity was answerable. Starke J said:

The covenants already mentioned are supported by valuable consideration, and are binding on the conscience of the covenantor. Do they so bind the subject matter of the contract as to amount to an equitable assignment or charge? A valid assignment or charge of property or of a fund not yet in existence but to arise thereafter may be made if the property or fund is of such a nature and “so described as to be capable of being ascertained and identified” when it comes into existence … Any words which show a clear and definite intention of assigning or charging property or a chose in action for valuable consideration in favour of another constitute an equitable assignment … Now the fund out of which the £40,000 was to be provided was capable, when it came into existence, of being ascertained and identified. There was a covenant to pay £40,000 out of that fund to the trustee, and there was a creation of trusts in relation to that sum. It is thus a plain case of an equitable assignment or charge.[26]

[26]Ibid 761–2.

This principle has also been referred to and accepted by the High Court in Australian Guarantee Corporation Limited v Balding,[27] Palette Shoes Pty Ltd (In Liquidation) v Krohn[28] and Bailey v New South Wales Medical Defence Union Ltd[29] where McHugh and Gummow JJ said:

…the assignment by way of charge of a presently existing chose in action is effective only in equity. Likewise, an assignment of part of a presently existing chose in action. Where the subject-matter of the assignment is the future “fruit” rather than the whole or part of the presently existing “tree”, value is necessary to render the “future assignment” effective in equity.[30]

[27](1930) 43 CLR 140.

[28](1937) 58 CLR 1.

[29](1995) 184 CLR 399.

[30]Ibid 446.

The defendant submits that the form of the words of the Deed which gives the assignment are not important. The words “assignment” or “charge” are not needed in the Deed to effect an assignment. It says that the law is concerned with substance not form. If the words in the Deed convey the meaning in a general sense that can effect an equitable charge or an equitable hypothecation.

In support of its submission, the defendant relies on William Brandt’sSons Co v Dunlop Rubber Co Ltd.[31] In that case, a merchant was provided finance by its bankers to purchase goods. The bankers, by way of security, took delivery of the goods. When the goods were sold by the merchant, the bankers released the goods and forwarded to the purchasers notice in writing that the merchant had given the bank the right to receive the purchase money and requested the purchasers to sign an undertaking to remit the purchase money to the bank. There was a mistake in the documents which lead the purchaser in a particular transaction to pay the wrong party. Questions raised in the case were whether there was evidence of an equitable assignment of the debt to the bankers with notice to the purchaser and whether the bankers could recover the debt from the purchaser.
[31][1905] AC 454.

The House of Lords held that there was an equitable assignment of the debt and the bank could recover the debt from the purchasers. Lord Macnaghten said:

[a]n equitable assignment does not always take that form. It may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person. If the debtor ignores such a notice, he does so at his peril. If the assignment be for valuable consideration and communicated to the third person, it cannot be revoked by the creditor or safely disregarded by the debtor.[32]

[32]Ibid 462.

Lord Macnaghten’s statement was considered by the High Court in Bakewell v Deputy Federal Commissioner of Taxation (SA).[33] Starke J expressly approved Lord Mcnaghten’s statement. His Honour said:

Any words which show a clear and definite intention of assigning or charging property or a chose in action for valuable consideration in favour of another constitute an equitable assignment.[34]

[33](1937) 58 CLR 743.

[34]Ibid 762.

The plaintiffs accept that for an equitable assignment, a future debt can be assigned and the form of words is immaterial if the meaning is plain. In support of their submissions, the plaintiffs rely on James Talcott Ltd v John Lewis & Co Ltd.[35]
[35][1940] 3 All ER 592.

In that case, a creditor placed the following notice upon its invoices:

To facilitate our accountancy and banking arrangements, it has been agreed that this invoice be transferred to and payment in London funds should be made to James Talcot, Ltd. Errors in this invoice must be notified to James Talcot Ltd immediately.

That notice was ignored by a debtor who paid the creditor. The assignee of the debt then sued the debtor for payment of the sum alleged to be assigned. The English Court of Appeal held that the debtor was not liable to pay the money to the assignee because the language of the notice was not sufficiently plain to give the debtor an understanding that the debt had been assigned to a third party. Mackinnon LJ said:

One may have a notice to a debtor from his creditor asking him to pay the money to a third party. The terms of it may be such as to indicate that it is to be paid to that third party because that third party has, by virtue of an assignment, become the person entitled to receive it. On the other hand, it may be a request to pay the debt to a third party, not because that third party has a right to it, but because, as a matter of convenience, the creditor desires that it shall be paid to that third party as his agent to receive it in respect of the right of the creditor still surviving to receive the debt himself. Plainness of meaning is necessary in order that the debtor who has received a notice to pay a third party shall be rendered liable to pay the money over again if he disregards the notice. The language is immaterial if the meaning is plain, but that plain meaning must be that the debt and the right to receive it have been transferred to the third party. It is not merely that I have made some arrangement by which I request another to pay this money to the third party as my agent. The question is whether this stamped clause put upon the invoices did amount to a plain intimation to the first defendants that the right to receive this money had been transferred to the plaintiffs.[36]

[36]Ibid 595.

Du Parcq LJ considered that there were three categories under which a notice could be placed. He said:

It is plain that the notice relied upon is a clear notice that it is desired that payment should be made to James Talcott Ltd, and not to the original creditor. As has been said—indeed, it is obvious—the notice to pay the plaintiffs a debt is not necessarily a notice that the debt has been assigned to the plaintiffs. A notice to pay a debt to a third person may be given in words which show that there has been an assignment of the debt. It may be given in words which show that there has not been an assignment of the debt. It may be given in words which leave it in doubt whether or not there has been an assignment of the debt. If those words are in the first category, the plaintiffs succeed. If the words are in either of the other categories, the plaintiffs fail. I say either of the other categories, because it is not enough that the notice should be capable of being understood to mean that the debt is assigned.[37]

[37]Ibid 599.

Du Parcq LJ found it impossible to say that the notice was a plain and unambiguous notice and there had been an assignment of the debt.[38]
[38]Goddard LJ dissented and in his view the words were clear enough to indicate that there was an assignment.

I accept that if the words of the Repayment Agreement are in the first category, there has been an assignment and the plaintiff will succeed, but if they are in the last two categories, the plaintiff must fail. The issues of whether there has been security given on a hypothecation depends on the construction of the Repayment Agreement.

The last two clauses of that agreement are important in construing whether there has been an assignment. The second last clause can be referred to as the commitment clause whereas the last clause is an authorisation clause. According to the plaintiff neither of those clauses can be considered in isolation nor without regard to the commercial context in which the Repayment Agreement was executed.

The plaintiff submits properly categorised, the Repayment Agreement did not grant security to the defendant. At its highest, according to the plaintiff, the Repayment Agreement contemplated a payment direction being given by NWEL to Leighton Contractors, such as would be to the same effect as considered in Re Emanuel (No 14) Pty Ltd (in liq); Macks v Blacklaw & Shadforth Pty Ltd.[39]
[39](1997) 147 ALR 281.

In that case, Elfic Ltd offered finance to Emanuel for the construction of a road in Queensland. Emanuel contracted Blacklaw to construct the road. Progress claims for payment were lodged by Blacklaw. Two days after the second progress claim was lodged, Blacklaw served a statutory demand. Emanuel wrote to Elfic Ltd calling upon it to advance funds to pay Blacklaw. It acknowledged that Elfic was under the terms of their agreement not obliged to make advances. Emanuel signed an authority for Elfic Ltd to pay Blacklaw for work performed by Blacklaw. A cheque for $322,313.54 was forwarded to Blacklaw and Blacklaw banked the cheque.

In Re Evolvebuilt Pty Limited,[40] Brereton J referred to Re Emanuel and said:

The direction to pay Blacklaw had the effect that one unsecured creditor was preferred. Had the direction not been given, Emanuel would have been entitled to recover the same sum from EFG, in which case it would have been for the benefit of all its unsecured creditors.[41]

[40][2017] NSWSC 901.

[41]Ibid [37].

In neither case did the Court consider whether in those particular circumstances there was an equitable charge or hypothecation. Those two decisions may not be relevant.

The plaintiff submits that the Repayment Agreement does not give rise to an equitable assignment or a hypothecation because there must be a clear and definite intention of assigning or charging property and the Repayment Agreement does not have that character. It relies on Roberts v Investwell Pty Ltd (In Liq),[42] where the New South Wales Court of Appeal stated that:

What is clear from the authorities is that for either an equitable mortgage or equitable charge to come into existence there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or in the case of a charge, future property.[43]

[42](2012) 88 ACSR 689.

[43]At [29].

The payment schedule attached to the agreement includes amounts the defendant was not entitled to receive at the time of entering into the Repayment Agreement. They were in respect of future debts which assumed that the defendant would continue to supply services and be paid for them.

The plaintiff submits that those features of the Repayment Agreement cannot be reconciled with the parties intending that the amounts equating to the “scheduled amounts” would be immediately and irrevocably assigned to the defendant on 26 April 2012 when the Repayment Agreement was entered into. The plaintiff submits that it could not have been intended that the defendant was immediately and irrevocably entitled to monthly remittances from Leighton Contractors equating to the scheduled amounts in circumstances where there was a prospect that those amounts would never be payable to the defendant. For example, if the defendant became unwilling or unable at a date after 26 April 2012 to provide future services to NWEL anticipated by the Repayment schedule. The plaintiff says that if such an event occurred there would be no basis for the defendant to receive the amounts equating to the scheduled amounts from Leighton Contractors. That outcome on the construction of the Repayment Agreement contended by the defendant would be irretrievable. It says that what the Repayment Agreement envisaged was that the defendant’s entitlement to payment from Leighton Contractors would arise upon NWEL certifying each month the amount that was to be paid direct to the defendant.

I do not agree with the plaintiff’s submission. The schedule to the Repayment Agreement is titled ‘Cashflow Thru To End of Project’. The Repayment Agreement also contains on the schedule in the handwriting of Mr Noske:

I sign and accept this proposal on the basis that Leighton Contractors pay the above amounts to KPE directly and guarantee in writing these payments and dates.

The payments referred to in that schedule are in my view no more than future debts. It is clear that there can be an equitable assignment of a future debt.

The plaintiff submits that the Authorisation Clause is the only part of the Repayment Agreement that could have the effect contended by the defendant and to attribute that affect would render superfluous the Commitment Clause. It submits that the Commitment Clause is intended to impose upon NWEL an ongoing obligation to pay. That obligation would serve no purpose (and the Commitment Clause would have no work to do) if, by the Authorisation Clause, NWEL’s entitlement to receive monthly remittances from Leighton Contractors was to the extent of the scheduled amounts immediately and irrevocably assigned to the defendant.

The Commitment Clause, in my view, does not impose an ongoing obligation on NWEL to pay the defendant. All it does is simply commit to the payment schedule. It is not inconsistent with the Authorisation Clause.

I do not, however, accept that the Repayment Agreement creates an equitable assignment or equitable charge. Properly categorised, in my view, all the Repayment Agreement does is provide a direction to Leighton Contractors. There is no clear and definite intention of assigning or charging property. The Repayment Agreement cannot be enforced by the defendant against Leighton Contractors. The plaintiff has not divested itself of its right to receive monthly payments from Leighton Contractors.

The conclusion that I have arrived at is fortified by subsequent events when payments were made in accordance with monthly certifications provided by NWEL and only after Leighton Contractors sought and obtained confirmation from NWEL as to the amounts to be paid.

The plaintiffs submit that if the Repayment Agreement does have the effect of creating a secured liability, it would be voidable as an unfair preference unless NWEL was solvent on the entry into the Repayment Agreement on 26 April 2012.

In Re Ashington Bayswater Pty Ltd (In Liq),[44] the plaintiff was the liquidator of a company that had operated as a commercial property developer in the Sydney central business district. That company borrowed funds from third party financiers and also from the defendant as trustee of the Cross + Trust. The company granted a fixed and floating charge to the defendant by Deed. Certain property rights and interests were assigned to the defendant by the company under the Deed. Black J held that the grant of the charge converted an unsecured debt owed by the company to the defendant into a secured debt and thereby conferred an additional benefit on the defendant to that which it would have received had it submitted a proof of debt on an unsecured creditor. The grant of the charge was therefore a preference. I accept Re Ashington Bayswater as good law.
[44][2013] NSWSC 1008.

In my view, if the company was insolvent on 26 April 2012 which in my view it was, then even if I did conclude that the Repayment Agreement created a secured liability, the entry into the Repayment Agreement would constitute an unfair preference. I accept that the defendant could raise a good faith defence but in my view, it would be unlikely to succeed for the reasons I have stated later.

Solvency

Section 95A of the Act provides a company is solvent if, and only if, it is able to pay all of its debts, as and when they become due and payable. It establishes a cash flow test which focuses on liquidity and viability of the business.

The cash flow test was considered by Owen J in The Bell Group Ltd (In Liq) v Westpac Banking Corporation (No 9).[45] His Honour said:

The ‘cash flow’ or ‘commercial insolvency’ test is an assessment of solvency based on a company's ability to meet its debts (current liabilities), as and when they fall due. This test assesses the financial health of a company by reference to its capacity to finance its current operations. In other words, it looks at whether the company’s business is viable and can continue to operate by meeting the present demands upon it. ... [T]he essential features of the cash flow test include an assessment of the company’s existing debts and debts that will arise in the near future, the date each debt is due for payment, the company’s present and expected cash resources and the date each inflow item will be received...[46]

[45](2008) 70 ACSR 1.

[46]Ibid [1066].

In Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation,[47] Palmer J when considering s 95A of the Act, held that whether a company is insolvent for the purposes of that section is a question of fact which is to be ascertained from a consideration of the company’s financial position taken as a whole. In considering that position, the Court must have regard to commercial realities.
[47][2001] 53 NSWLR 213.

There is no dispute that NWEL was insolvent from 26 September 2012. If it was insolvent only after that date, then the September Payment made prior to that date is not a preference.

The plaintiffs submit that NWEL was insolvent from at least March 2012 and most likely earlier, as early as November or December 2011. To prove insolvency it relies on evidence of:

-the liquidator, Mr Combis, who prepared a report as to solvency dated 31 May 2016;
-Mr Noske;
-Terence George Rees, an accountant who from 1977 was a director of Bell Partners Chartered Accountants and was employed for the Noske family including Mr Noske and his companies; and
-Mark Andrew Hansen, accountant for the Noske group commencing from 2011 until the group was put into liquidation. Mr Hansen did not sign a witness statement and was subpoenaed to given evidence.

Mr Noske, in his witness statement, states that on 24 December 2011 he met with Mark Rowsthorn of the McAleese Group and Mr Garner at the RACV Club at Bourke Street, Melbourne. He says that at that time, NWEL owed the McAleese Group approximately $1.3million and a similar amount was owed by NWEL to the defendant. When examined by counsel for the plaintiff regarding that statement, he gave the following evidence:

You say there at paragraph 136 that at that time N.W.E.L. owed both McAleese Group and Keppel Prince approximately $1.3m?---Correct.
They were amounts that N.W.E.L. could not afford to pay at that time?---Correct.[48]

[48]T81-21.

He also said in his witness statement which was unchallenged:

NWEL’s cash position remained very tight during that period [January 2012 to March 2012]. NWEL had insufficient cash to pay McAleese Group and Keppel Prince the full amount of their outstanding invoices while also continuing to make deliveries on the Macarthur Project.
Specifically, NWEL was not in a position to pay the amounts McAleese Group and Keppel Prince were asking for, bring its account with Keppel Prince back within terms, or pay the full outstanding amount owed by NWEL to McAleese Group and Keppel Prince Engineering.[49]

[49]Anthony Stuart Noske witness statement at [162]-[163].

Mr Rees, in his witness statement, says that in or about December 2011, he had conversations with Mr Noske concerning payment difficulties he was experiencing under contracts between NWEL and Leighton Contractors on the Macarthur Wind Farm Project. He suggested that Mr Noske should have someone independent come in to look at the contracts with Leighton Contractors and make an independent assessment of the viability of the NWEL business. During those discussions, he mentioned to Mr Noske that if NWEL was not going to be paid by Leighton Contractors that he may need to consider appointing voluntary administrators.

He also states that he attended a meeting in September 2012 with Mr Noske, Antoinette Brandi and Frank Porter from Leighton Contractors in order to try and negotiate a payment amount to NWEL for the completion of work under the contracts. By the conclusion of that meeting, a settlement framework had been agreed. The substance of that framework was that Leighton Contractors would pay NWEL the outstanding balance of the contract price under the Leighton contracts together with a further $1.3million for completing delivery of a shipment to the Macarthur Wind Farm site. Those amounts would be paid by Leighton Contractors by an escrow agreement or via a letter of credit. He sent an email dated 10 September 2012 to Peter Cohen, solicitor, summarising the outcome of the meeting.

In that email he wrote:

After six hours of haggling on Friday we reached agreement to pay out the existing contract, an additional $1.3million to complete shipment eight all to be paid by escrow agreement or letter of credit on 21 September 2012. Whilst this is a good result it probably won’t save the client.

When asked questions about this email by counsel for the plaintiff, Mr Rees gave the following evidence:

And you talk about six hours of haggling and an additional $1.3m. My question is - you'll see the sentence, "Whilst this is a good result, it probably won't save the client". Are you able to - actually, I think this is dealt with in your outline, but perhaps, just for convenience sake, are you able to explain to His Honour who was the client you were referring to?---The client, as explained in my outline, was always Whitpark Pty Ltd.
And why would it have not saved the client?---Because I felt that the quantum that we negotiated probably would not be enough to pay out all of the - all of the outstanding bills and expenses.[50]

[50]T235-25.

Mr Hansen when giving his evidence, was asked about an email sent from him to Mr Rees dated 16 December 2011. The email simply stated that ‘the PPB guys are coming down on Monday morning at 9.30am to discuss options and to get some more detailed information about possible cash flows under a VA scenario’. He gave the following evidence:

And if you have a look at that, as I understand it, that's an email from you to Mr Rees in December 2011?---Yes.
And Mr Rees, what was his role?---Um, he I guess was an advisor to the company and had been advisor to um, the Noske business going back to the early days in Portland I believe.
And there you say to Mr Rees that the PPP guys are coming down on Monday to discuss options and get some more detailed information about possible cash-flows under a VA scenario, do you see that?---Yes.
Can you tell His Honour what VA was a reference to?---Ah, voluntary administration.
And that was a scenario that was under consideration in December 2011?‑‑‑Ah, it would have been yes.[51]

[51]T333–30.

He was also shown an email forwarded by Mr Hansen to Mr Noske on 7 May 2012 which contained a forecast cash flow. In that email he states:

I will have to call, Bendigo, NAB, Port of Portland, CMV, Toyota and State Govt (payroll tax) tomorrow and tell them we won’t be able to meet the payment plans.

In relation to that email and payment plan, he gave the following evidence:

That's an e-mail that you sent to Mr Noske on 7 May? Do you see that?---Yes.
And that's attaching a document called a Weekly Cash Forecast which appears to be on the next page at 968. And again there's a series of these documents in the court book, I'm not going to take you to any more than other than this one, but both before and after this there's lots of these documents. That was a regular, another document you'd prepared Mr Henson, on a regular basis?---That would have been correct, yes.
HIS HONOUR: Sorry what was that?---Yes.
You did prepare it?---?---Yes.
MR McALOON: And you'll see in your email to Mr Noske, presumably referring to the contents of your forecast, that you'll have to call Bendigo, NAB, Port of Portland, CMV, Toyota and State Government tomorrow and tell them we won't be able to meet the payment plans, do you see that?---Yes I do.
And was that the position at the time as at May 2012 the group was unable to meet its obligations under the payment plan to each of those creditors?---Ah, at the time of writing that email, yes.
Thank you. And one of the things that happened whilst you were there was PPP advisory became involved didn't they, or can you tell His Honour whether you recall that at all?---Um, we were trying to re-capitalise the business so we were actively trying to raise money, um, and as part of that process, we had a Credit Suisse initially and then another corporate advisor we were talking to, um, but during that time it was, well my recommendation to Tony was that we need to talk to people in that space to understand where you sit legally in terms of continuing trading.
So when you say what that space, what do you mean by that space?---All people in um, insolvency administration space.[52]

[52]T332-22.

Mr Hansen did not sign a statement and did not adopt the statement that was in the Court Book. He was called to give evidence under subpoena as was Mr Noske and Mr Rees. The only conclusion that can be reached from his evidence was that NWEL was insolvent. In my view, his evidence was clear and truthful as was that of Mr Rees and Mr Noske.

The liquidator, in his report as to solvency, did not conduct an audit of all the financial information provided or compare all transactions to primary source documents. In preparing his report, he relied on the financial information of NWEL provided to him including Noske Group electronic accounting records maintained in the Group’s TransLogix database and internally prepared management accounts. NWEL did not maintain separate accounts and no financial statements were ever prepared for NWEL.

The liquidator after conducting his investigations is of the opinion that:

- the financial records of the Noske Group of companies were of poor quality in that the Group did not adequately record inter-entity loan positions of the companies in the Group; the Group’s trade creditor balances were significantly understated in the accounts; the amount payable by Leighton Contractors was overstated in the Group’s accounts; NWEL’s cash at bank balance as noted in the Group financials were significantly overstated; and there were delays in entering supplier invoices into the TransLogix accounts;

- the Group had a significant net asset deficiency from March 2012 onwards;

- internal emails show that the Group suffered from significantly poor cash flow from at least January 2012 onwards;

- the Group’s monthly profit and loss statements indicates that the Group made a loss of $1,000,000 in March 2012 and material trading losses of $3.1million in June 2012 and $3.9 million in July 2012;

- at all times from March 2012, the Group’s liquid assets were not sufficient to cover its short term debts;

- invoices sighted from key suppliers to NWEL indicate that NWEL’s payment terms with its trade creditors were outside trading terms and overdue;

- NWEL operated a business cheque account with the National Australia Bank which reveals a history of round dollar payments to creditors that are not referable to specific invoice amounts;

- the Group had a history of dishonouring payments;

- NWEL had a history of entering into repayment arrangements with its creditors. On 6 January 2012, NWEL prepared an initial payment plan to discharge its indebtedness to the McAleese Group by monthly instalment payments based on NWEL’s cash flow and anticipated payments from Leighton Contractors;

- NWEL was in receipt of letters from solicitors acting on behalf of Action Workforce from as early as 27 July 2012. The statutory demand was served on NWEL by that company on 2 August 2012;

- NWEL was part of a GST Group but as NWEL made losses it would not have been liable to company income tax. The Group, as early as May 2011, commenced negotiations with the Deputy Commissioner of Taxation to enter into a repayment arrangement of the group’s outstanding taxation liabilities; and

- the company did not appear to have excess equity or sufficient cash flow to attract external funding.

The defendant submits that the plaintiffs have failed to prove NWEL was insolvent before 28 September 2012. It relies on a report as to solvency from Hugh McPharlin of Nexia Edwards Marshall Pty Ltd Chartered Accountants.

In his report, Mr McPharlin says that his opinions are based on the documents that he has referenced in the report and his report is therefore qualified to that extent. He also says that his report is qualified because his ability to interrogate the Noske Group’s general ledger database is limited. In his view, the company was solvent as at 1 April 2012 and remained solvent until 28 September 2012.

Some of the key factors which he relies upon in coming to his conclusion are as follows:

- entering into the Repayment Agreement increased the likelihood of NWEL’s capacity to continue to trade and its key suppliers continuing to support the project and thereby increase its likelihood of completion;

- NWEL’s financial obligations to Whitpark were not contemporaneously quantified and were not due and payable because they were effectively subordinated to NWEL’s third party creditors until its obligations to Whitpark were effectively called to the extent of NWEL’s available funds to the detriment of NWEL’s third party creditors on 28 September 2012;

- during the period from 7 to 19 September 2012, Mr Noske was negotiating with Leighton Contractors in relation to what became the Settlement Agreement which was executed on 19 September 2012;

- on 10 September 2012, NWEL received $265,159 from Leighton Contractors;

- on 25 September 2012, NWEL received $1,501,676.00 from Leighton Contractors;

- on 27 September 2012, NWEL held sufficient cash at bank to pay in full all of the creditors of the winding up other than Whitpark; and

- on 28 September 2012, NWEL applied monies to the benefit of related parties by making payments which cause NWEL to have insufficient funds to pay all of its creditors other than Whitpark in full, thereby rendering NWEL insolvent.

When cross-examined, Mr McPharlin said large sums of money were paid from NWEL’s account to creditors of companies other than NWEL. He gave the following evidence:

Thank you. What I'm going to suggest to you, Mr McPharlin, is a series of payments on 6 March, both on p.715 and 716, that were paid to creditors that were not N.W.E.L. creditors, like Matthews Petroleum. Do you accept that, or you just don't know?---I accept that.
Thank you. Then if we scroll forward a couple of months, I want you to go to p.737. I'm just picking these days at random, because the reality is, Mr McPharlin, you'd accept this, wouldn't you - that large sums of money were paid from this bank account on an almost daily basis to creditors of companies other than N.W.E.L?---Yes.
Not just on 28 September, it happened all the time, didn't it?
---Yes. [53]
…
That's right. So what I'll put to you, Mr McPharlin, is this. It was a regular occurrence for large sums of money to be withdrawn from the N.W.E.L. account to pay creditors of Whitpark?---Yes.[54]

[53]T374–4.

[54]T377–2.

I accept that a premise of Mr McPharlin identifying insolvency as at 28 September 2012 is based on Whitpark calling on a debt that it claimed NWEL owed it. The defendant submits that the insolvency of NWEL prior to 28 September 2012 is entirely dependent upon the plaintiffs establishing that Whitpark was a creditor of NWEL.

The opening balance of NWEL’s bank account on 28 September 2012 was $1,441,050.86, which according to the defendant, was more than adequate to pay the creditors which had lodged proofs of debts in the liquidation other than Whitpark. The defendant submits that the claim that Whitpark is a creditor is not made out. While it may be that Whitpark supplied labour, vehicles and administration to NWEL, it is equally clear that a very large sum of money passed from NWEL’s NAB account to Whitpark’s CBA account. The defendant submits that the plaintiffs are not able to say whether Whitpark is a creditor of NWEL or NWEL is a creditor of Whitpark and for what amount. It therefore follows that, according to the defendant, the plaintiffs have failed to demonstrate that NWEL was insolvent at any time between April 2012 and 28 September 2012.

The plaintiffs submit that Whitpark was a significant creditor of NWEL. Its indebtedness to NWEL arose from external third party supplier costs that were incurred by Whitpark on behalf of NWEL in connection with contracted works provided by NWEL in relation to the MacArthur Wind Farm Project and the Morton Lanes Project and also internal costs incurred by Whitpark in connection with the supply of labour, vehicles, plant, equipment and fuel to NWEL.

In relation to the external third party supplier costs, a document titled ‘Summary of Whitpark Charges to NWEL’ was put to Mr Hansen who gave the following evidence:

Yes. And are you able to venture an opinion as to what those costs relating to the Macarthur wind project might be referable to?---Based on the list of those creditors, I think the top two or three would have been - so Leighton and Goldwind would have been for labour, vehicles and costs that we've spoken about before. The other items there would have been specifically identified as being built into the wind energy program.
So the labour and vehicles, based on your earlier answer, who incurred those costs? Or who was liable for those costs in the first instance?---Whitpark.
Thank you. Going down a little further, you'll see a reference to Vestas. Can you recall where Vestas fitted into this jigsaw puzzle back in 2011 and 2012?‑‑‑I think they either supplied the turbines or the wind blades. I'm not sure why we would have owed them money though. But maybe it was for storage or something like that for their gear.
HIS HONOUR: Speak up?---Sorry, maybe it was for storage, for their equipment. I'm not sure why.
MR McALOON: I might be able to help you. So I'm reluctant to do this, but I'm going to need to do it with at least one of these line items, and I'll choose Vestas. If you keep that folder open, Mr Hansen, and I want you to go to a different folder. I'm just for the life of me trying to work out which one it is. I think it might be volume 4, which I think's been wisely friendless during this trial, so - - -
HIS HONOUR: Yes, I don't think I've had to open four.
MR McALOON: Well, no better time than now, Your Honour.
(To witness) Have you got that folder?---Yes.
Sorry, I'm holding you up, not the other way around. If you go to p.2702, and I just want you to do a little bit of a page turn. You've shown that you're adept with, sort of, dealing with this type of information, but if you do a bit of page turn and satisfy yourself about the documents from 2702 to 2823. It's a lot of material, but if you have - just after a bit of a skim, what I'm going to suggest to you is that those documents - well, perhaps you have a look at them first?---Sorry, how far did you want me to go?
I had from 2702 to 2823. If you've just had a bit of a peruse, based upon that, are you able - have you formed any views about what they relate to?---Um, looks like we're, um, storing or moving containers for them, based on their consignment notes.
HIS HONOUR: I just didn't hear, I'm sorry?---Sorry. We're, um - we've - we're storing and transporting, um, components for Vestas or are you having Vestas undertake it for you?---Ah, they look like they're doing it for us.
All right?---Yep.
MR McALOON: Then the next item back on page 5791 is for Sargent vehicles. Do you see that?---Ah, yes, I do.
Do you remember where they, sort of - what role they played in the life of N.W.E.L.?---Ah, I think we hired, um, pilot vehicles from them.
What's a pilot vehicle?---Um, a four-wheel drive or a - a - a vehicle that drove in front and behind, um, the oversize vehicles.
Thank you. And then if you switch back to our new favourite, volume 4, for a moment and go to p.2680 to 2701 and just undertake the same exercise, which is just to have a quick breeze through that material, and I promise this will be the last one?---Yes.
What does that look like to you, Mr Hansen?---Ah, it looks like our arrangement to hire vehicles from the supplier.[55]

[55]T323–4.

In relation to the internal costs incurred by Whitpark, no invoices were issued by Whitpark to NWEL. Both Mr Hansen and Mr Noske gave evidence that the amounts payable by NWEL to Whitpark were the subject of regular quantification and reporting and were both quantifiable and regularly quantified. Mr Noske gave the following evidence:

So this was a way in which the costs of these staff were ultimately assessed for the purpose of the sort of costs sharing exercise you described before?‑‑‑Correct, yeah.[56]
…
No, do you know how it was made up?---I know it was made up of amounts re-charged across to the project from Whitpark.
Are there any primary documents which show how this amount is made up?---There was spreadsheets.
There were spreadsheets that were prepared in October 2012?---No, there were spreadsheets prepared right from the very start of the project, every week.
Yes, which haven't been produced, as far as we're aware. Do you know where they are?---I would have assume they're all part of the documents that went to either Ferrier Hodgson or Vincents. Was a weekly reconciliation done right through the whole project.[57]

[56]T104-14.

[57]T195-18.

Mr Hansen gave the following evidence:

So was it possible to identify at a point in time how those assets and/or employees - which of the other entities was using them or getting the value from them?---Ah, we would have known 95 per cent of the time where they were, yeah.
Was that something that was the subject of reporting at any stage or in any form?---Um, as - as part of both, um, reporting and trying to raise money for nearly the whole time I was there we were producing accounts and then producing forecasts. And they were based on the three - three business streams so that we could, hopefully, sell them upside in the business for Vestas, so we would be looking at, um, yeah, what - what costs belong where, and any that couldn't be allocated to one of the three businesses would stay in Whitpark.[58]
…
And that was an - that was an exercise that was undertaken?---Yes, both for reporting and for trying to raise capital because we had to keep current forecasts to show investors.[59]
…
The system that managed the fleet, again by registration number and the type of vehicle, we knew which division they were working in. So, each month as the lease payments came in and the fuel cards associated with those, we could allocate those across to divisions. Other costs were, because of the three quite businesses, you knew which one they related to.[60]

[58]T301-12.

[59]T311-10.

[60]T310-25.

In my view, Mr Noske and Mr Hansen gave truthful evidence and on their evidence, I am satisfied that Whitpark was a creditor of NWEL. I also note that in the Repayment Agreement, Whitpark was identified as a creditor of NWEL. The plaintiffs provided further and better particulars dated 28 March 2017 and 15 May 2017 to the defendant stating that the plaintiffs assessed that NWEL is indebted to Whitpark in the amount of $3,525,206.69. The liquidator based his calculation on the interrogation of data that was available to him and his staff and took into account payments made by NWEL to Whitpark.

As Whitpark is a creditor of NWEL, I am satisfied that NWEL was insolvent from at least March 2012. There are also numerous other indications of insolvency referred to in the liquidator’s report. I also find support for my conclusion when taking into account contemporaneous correspondence that has been produced to the Court. I note that as at 23 March 2012, the daily bank account movement report disclosed that Whitpark and NWEL had combined cash at bank of $129,197.80 but had defaulted arrears payments totalling $1,161,225.02. The listing of default payments making up the total included creditors of Whitpark but did not include the defendant and the McAleese companies who were owed $661,000, DLA Piper who was owed $31,539.75, Action WorkForce who was owed $62,439.69 and QUBE Ports who was owed $80,546.40.

The Good Faith Defence

This defence is found in s 588FG(2)(b) of the Act which provides:

(2)A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director‑related transaction of the company, and it is proved that:
(a) the person became a party to the transaction in good faith; and
(b) at the time when the person became such a party:
(i)the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and
(ii)a reasonable person in the person’s circumstances would have had no such grounds for so suspecting; and

(c)the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

Pursuant to s 588FG(2)(b), the defendant must establish that there were no reasonable grounds for suspecting NWEL was insolvent and that a reasonable person in the defendant’s circumstances would not have had such grounds for so suspecting. In Tamaya Resources Ltd v Claymore Capital Pty Ltd,[61] Farrell J considered the requirements to demonstrate the existence and reasonable grounds for suspicion. His Honour said:

It follows, then, that the existence of reasonable grounds for suspicion should be determined by reference to commercial reality derived from the particular industry as applied to the facts at the time of the transaction without using hindsight. There is no single factor whose presence invariably establishes that there was, or should have been, reasonable grounds for suspicion. It is necessary to identify the factors pointing towards insolvency of the debtor and which of those factors were apparent to the creditor and their cumulative impact. There may be countervailing factors and circumstances to be weighed in the balance which could tend to dispel suspicion at the time an impugned payment is made: see Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230 (“Sutherland v Eurolinx“) at [43]–[47] per Santow J.[62]

[61][2015] FCA 357.

[62]Ibid [34].

In Sutherland v Lofthouse,[63] the Court of Appeal when considering what ‘suspicion’ meant stated:

The effect of the section is to put the burden on the creditor of establishing both the subjective and objective legs of the defence. It follows that in this case the burden was on the appellants to establish both that they had no reasonable grounds for suspecting that the company was insolvent and that a reasonable person in their circumstances would not have had reasonable grounds for so suspecting. “Suspicion” for that purpose means a mistrust of the company’s ability to pay its debts as they become due and of the effect which acceptance of a payment would have as between the appellants and the company’s other creditors.[64]

[63](2007) 64 ACSR 655.

[64]Ibid [16].

The approach to determine the intention and knowledge of a corporate defendant in assessing whether it has a defence under s 588FG(2)(b) was also considered by the New South Wales Court of Appeal in Cook’s Construction Pty Ltd v Brown.[65]The Court of Appeal stated:

There is no doubt that the onus is on the defendant in the proceedings to satisfy the court that: (1) it had no reasonable grounds for suspecting DML was insolvent, the so-called subjective test; and (2) that a reasonable person in the appellant’s circumstances would have had no such grounds, the so-called objective test. It is always difficult to ascertain what is the intention or purpose of a corporation in various aspects of the law and this has been noted time and time again, perhaps most significantly in Re Mayor, City of Hawthorn; Ex parte Co-operative Brick Co Ltd [1909] VLR 27 at 51; (1908) 14 ALR 664 at 673 and Arthur Yates and Co Pty Ltd v Vegetable Seeds Committee (1945) 72 CLR 37 at 69; [1945] ALR 474 at 481.
The question is always one of fact. Often it is necessary to look at the acts and words of a number of directors of the corporation: see eg Sydney Municipal Council v Campbell [1925] AC 338 (PC). In other cases one can look at the controlling mind of the corporation or its appointed spokesperson: see for instance Johns v Australian Securities Commission (No 2) (1992) 35 FCR 146; 108 ALR 405; 8 ACSR 156 at 182.[66]

[65](2004) 49 ACSR 62.

[66]Ibid [19]–[20].

The defendant’s good faith defence is based on the Repayment Agreement. It concedes that there is evidence of correspondence from Mr Garner prior to April 2012, complaining about failures on the part of Mr Noske to make payments on time. It says once arrangements had been entered into with Leighton Contractors in April 2012, such complaints ceased because Mr Garner had been comforted by the involvement of Leighton Contractors in seeing sub-contractors paid. At the time of the September Payment and the October Payment, Leightons had stepped in to ensure the project would be carried out to its conclusion. It is submitted that Mr Garner was satisfied that the defendant would be paid as a result and had no doubts in this regard after April 2012. Any complaints by Mr Garner after that time were directed at Mr Noske’s attempts to obtain reductions in the amounts owed by NWEL to the defendant.

The defendant relies on the evidence given by Mr Garner in his witness statement to demonstrate that it has a good defence. Mr Garner states that:

I was never concerned about Whitpark’s ability to pay its debts to KPE, because I knew that very large corporations, Suzion (in the case of the Oaklands Project) and Leightons Contractors (in the case of Macarthur Wind Farm Project, below), were standing behind it. I found that demands and complaints about late payment were necessary in order to get Noske to address or focus his attention on outstanding invoices, but I did not associate this with a lack of ability to pay. Tony was constantly telling me about the expansion of his business with new contracts and investors. He gave me every reason to believe that he was trading successfully.

The plaintiff submits that this evidence is not sufficient to discharge the onus on the defendant and cannot be reconciled with evidence adduced at trial and should not be accepted. The plaintiff also submits that Mr Garner’s assertion is not borne out by the following contemporaneous correspondence:

-On 10 May 2012, the minutes of the executive committee of the defendant record that:
News of actions taken by the Port of Portland to recover money owed by Noske transport may have implications of payment of debts to KPE. Management will still need to monitor this debt very closely.

- On 10 August 2012, Mr Garner emailed Mark Rowsthorn of Harbrew:
Hi Mark
Just to let you know that we are still being paid by Leightons as per schedule. Are you also being paid as agreed???

In response Mr Rowsthorn replied by email:
Steve …
I am hearing that leightons [sic] are not paying noske [sic] for the time extensions. We are still worried about getting the total amount. Will keep you posted.

- On 11 September 2012, Mr Garner sent an email to Mr Noske which states:
Tony I have just been made aware that you may be attempting to not honour the payment schedule and plan that we both agreed to in April???
If that be the case then you would give us no option than to cease work immediately and instigate whatever action is needed to recover all outstanding monies.

In my view, the documentary evidence does not bear out the assertion made by the defendant that Mr Garner was never concerned about his debt being paid. I also note that Mr Garner’s purported lack of concern refers only to the defendant’s debt and not whether NWEL was able to pay all of its debts. Mr Garner must have known that by virtue of the Repayment Agreement, the defendant was not the only creditor. He was only concerned with the defendant’s debt.

The test that must be applied in these circumstances is whether the defendant suspected NWEL had the ability to pay all debts when they fell due. Not only the debt of the defendant. There is no evidence at all filed on behalf of the defendant as to whether he suspected that NWEL was unable to pay its debts as and when they fell due. The Repayment Agreement may have placated Mr Garner but it is unlikely that it would have alleviated his suspicion that the amount of money to be paid for all creditors would be sufficient.

On the evidence, I find that a reasonable person in Mr Garner’s circumstances would have had grounds for suspecting that NWEL was insolvent. I also note that no other evidence was given from any other director or staff member of the defendant that they had no reason to suspect that NWEL was insolvent.

Conclusion

The two payments of $300,001 on 10 September 2012 and $935,000 on 10 October 2012 constitute unfair preferences. They were made by NWEL to the defendant and not by Whitpark. The defendant was not a secured creditor of NWEL due to the Repayment Agreement entered into in April 2012 and a written direction of 1 May 2012.

The Repayment Agreement did not create an equitable charge or hypothecation and the defendant is not a secured creditor of NWEL.

[2018] VSC 634

31 July 2018