Sellers v Offset Alpine Printing Pty Ltd; Sellers v Trigra Pty Ltd (in liq)
[2003] VSCA 37
•17 April 2003
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 5515 of 2001
| KENNETH STEWART SELLERS and MICHAEL JAMES HUMPHRIS v. OFFSET ALPINE PRINTING PTY. LTD. | Appellants |
| Respondent | |
| No. 5516 of 2001 | |
| KENNETH STEWART SELLERS and v. TRIGRA PTY. LTD. (IN LIQUIDATION) | Appellants |
| Respondent |
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JUDGES: | WINNEKE, P., ORMISTON and CHARLES, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 2 April 2003 | |
DATE OF JUDGMENT: | 17 April 2003 | |
MEDIUM NEUTRAL CITATION: | [2003] VSCA 37 | |
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CORPORATIONS – Liquidation – Voidable transactions – Insolvent transactions – Whether payments “unfair preferences” – Whether payees had made out defence pursuant to s.588FG of the Corporations Law – Whether judge’s judicial conclusions correct.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr S.P. Whelan, Q.C. and | Deacons Lawyers |
| For the 1st Respondent For the 2nd Respondent | Mr A. Herskope Mr P.J. Cosgrave | Rigby Cook McKean & Park |
WINNEKE, P.:
I have had the advantage of reading the judgment of Ormiston, J.A. I agree with his Honour, for the reasons which he gives, that each of these appeals should be dismissed. As his Honour points out, these were not appeals where it was contended on behalf of the appellant liquidators that the learned trial judge had misunderstood or misconceived the relevant principles which he had to apply to the facts as he found them to be. Rather, the submission was that, on the evidence before him, the judge should have been compelled to find that the respondent companies had failed to discharge their respective onuses that they had received the impugned payments in good faith, and that they had no reasonable grounds, and a reasonable person in their respective circumstances would have had no reasonable grounds, for suspecting the company’s insolvency within the meaning of s.588FG of the Law. Notwithstanding the obvious difficulties which the appellants confronted, their counsel put his arguments to this Court firmly and eloquently. However, at the end of the day, I am – like Ormiston, J.A. – far from persuaded that the primary judge erred in the conclusions to which he came. Those conclusions depended very much upon the view of the contested evidence given before his Honour, and the view which he formed about the credibility of the witnesses who gave it. Much has been said over the years about the difficulty confronted by appellants who seek to impugn on appeal the findings of fact of the primary judge, where those findings are dependent upon the judge’s view of the witnesses and their credibility. Suffice it to say that, for the reasons given by Ormiston, J.A., the appellants have failed to persuade me that the careful reasons given by the judge to support his conclusions are vitiated by appealable error.
ORMISTON, J.A.:
These appeals arise out of judgments pronounced by a County Court judge in two related proceedings in which he dismissed applications by the appellants as the
liquidators of Eric Clarke & Associates Pty. Ltd. (in liquidation) (“the Company”) seeking orders avoiding some seven payments by the Company to the two respondents during the first half of 1998 as unfair preferences, within the meaning of s.588FA of the Corporations Law (“the Law”). The Company went into liquidation on 12 August 1998 in consequence of the passing of a resolution at the meeting of the Company’s creditors but, as the appellants had previously been appointed joint and several administrators of the Company on 11 June 1998 pursuant to s.436A of the Law, the date on which the winding up was taken to have commenced was 11 June 1998, by reason of the provisions of s.513B. Each of the relevant payments, the first of which was made on 15 January 1998, was made within the six month period relevant for the purposes of Division 2 of Part 5.7B of the Law, by reason of s.588FE(2). There is now no dispute that the Company was insolvent for these purposes at all relevant times. In consequence, by reason of the convoluted provisions of Division 2, the relevant transactions in each case were “unfair preferences” within the meaning of s.588FA, thus “insolvent transactions” within the meaning of s.588FC and thereby “voidable transactions” within the meaning of s.588FE, so that each was, pursuant to s.588FF, subject to the making of orders having the effect of setting it aside, unless the relevant respondent as to each payment was able to prove that it was received in good faith, that it had no reasonable grounds for suspecting that the Company was insolvent or would become insolvent, and that a reasonable person in the respondent’s circumstances would have had no such grounds for suspecting insolvency, within the meaning of s.588FG of the Law.[1]
[1]No issue was raised or was capable of being raised that either respondent received no benefit by reason of the payments, which is an alternative answer to a claim to set aside: see s.588FE(1)(a).
In each case the learned judge held that the relevant respondent had satisfied the requirements of s.588FG, so that the appellants were not entitled to any orders
pursuant to s.588FF and thus each application was dismissed.[2] The appellant has appealed against each of the judgments given in the respondents’ favour primarily asserting that the judge’s findings that each respondent had made out a defence pursuant to s.588FG were erroneous in that they were against the weight of the evidence. In the appeal in which Trigra Pty. Ltd. (in liquidation) (“Trigra”) was the respondent it was also asserted that the judge wrongly relied upon a “statement” given by one Stephen James Piper, which was said not to have been tendered in evidence.[3] No ground of appeal in either case asserted that the judge misstated the law or made any other error of law, except to the extent that the appellants asked the Court to infer that the judge must have misdirected himself in applying the relevant legal tests. Support for the appellants’ argument was drawn from a number of cases in particular Queensland Bacon v. Reece[4] and Sands & McDougall v. Commissioner of Taxation[5], but those principles were not disputed. The questions in each case therefore, raised primarily questions of fact, or at least mixed questions of fact and law dependent on accepted authority, so that it is not necessary to examine those authorities further.
[2]Each of the proceedings had been brought by way of application, originally in the Federal Court, but it had been subsequently transmitted to the Supreme Court and thence to the County Court in circumstances where one may assume that it was treated as an originating process pursuant to Chapter V of the Rules of the Supreme Court and remitted in accordance with Order 3 of Chapter 2 of the County Court Miscellaneous Rules 1999. The New Chapter V came into operation on 14 February 2000 shortly before the proceeding was transmitted to the Supreme Court. Each proceeding was treated as continuing in the Supreme Court by virtue of s.11 of the Federal Courts (State Jurisdiction) Act 1999 and the practice by then in this Court was to deal with the matter pursuant to an originating process, although that did not change the character of the application which was transmitted.
[3]In each case there was also a further ground, added later by leave, that the judge had erred in ordering costs after a specified date on a solicitor/client basis. The ground was not the subject of any written or oral argument before this Court and I assume the ground therefore to have been abandoned.
[4](1966) 115 C.L.R. 266 esp. at 303 per Kitto, J.
[5][1999] 1 V.R. 489 at 509 per Charles, J.A.
The trial of the two applications was conducted together over three days during which evidence on affidavit and oral evidence was given, much of it subject to vigorous cross-examination. After hearing that evidence and detailed argument the learned judge delivered a reserved judgment in each case, holding that each respondent had made out its defence under s.588FG. His conclusions were based not only on the affidavit evidence, much of which was undisputed insofar as it related to the financial transactions of the companies, but also on the oral evidence, on which he reached conclusions which were in part substantially influenced by his findings as to credibility.
His Honour’s judgments, as I have said, set out the relevant factual matters with care and precision. Each decision, therefore, depending essentially on what the trial judge found after having heard the evidence and on the inferences he drew from that evidence, is of no significance except to the parties directly engaged in these appeals. Moreover, the judge expressed his conclusions with care and accuracy, and I would agree both with those conclusions and with his reasons on the essential issues in each case. There may be some incidental factors (but not findings) on which I would perhaps not place as much weight as his Honour, but they were peripheral and not essential to his reasoning, so that it is not necessary to examine them.
Because I am so firmly of the opinion that the judge was correct in his conclusions in each case on what were primarily disputes of fact, I do not believe it is necessary to set out those facts in the detail in which they appear in his Honour’s judgments or in the submissions made to this Court. Those interested in each particular case have access to those reasons and this case stands for no legal principle, but only as an application of accepted principle to particular sets of facts. I shall therefore give only an outline of the circumstances.
(a) The payments to Trigra Pty. Ltd.
The Company, together with a related company, carried on an advertising and marketing business specialising in the production of catalogues and brochures under the name “Market Link”. Each of the respondent companies was a printer which had for several years printed catalogues and brochures for supply to the Company. The respondent Trigra had traded for several years under the name Tricolour Graphic and the formal name of the Company, until taken over in December 1997, was Tricolour Pty. Ltd. (“Tricolour”). Both respondents had been dealing with the Company for a number of years, Tricolour since 1987 and Offset Alpine Printing Pty. Ltd. (“Offset Alpine”) since 1993. They had had an almost identical experience in collecting their debts from the Company in that it was not unusual for the Company’s accounts to be outstanding for long periods of time, in the case of Tricolour, an average delay of between six and eight months during late 1996 and throughout 1997 and, in the case of Offset Alpine, delays of between two to nine months in payment since 1995. This was explained as flowing from the Company’s policy of not paying for printing until it had itself received payment for the various catalogues and brochures.
So far as Trigra was concerned, the Company’s payments had to some extent deteriorated in that no new payments were received between August and December 1997, although Trigra was performing a certain amount of new work for the Company during the period. By 15 January 1998 some $61,255 was owing, but on that date a small payment of $7,935, the first of the payments to be challenged as unfair preferences, was received by Trigra, as Tricolour was now called. Apart from the delay in payment, there seems to have been no other factor or event or even communication between the parties upon which the appellants relied, albeit that the onus rested on the respondent. There were then two meetings in February 1998 between Mr Worn, the managing director of the Company and officers of Trigra, at which the debt was discussed and various plans for payment proposed. At the first meeting in early February 1998, according to the affidavit of Mr Piper, Trigra’s general sales manager, the Company had conceded there were difficulties but it looked forward to improvements because new contracts had been secured that year. Mr Worn shortly afterwards on 13 February put forward a payment proposal to Mr Piper which suggested five payments of the outstanding $53,000 monthly through to August 1998. That was rejected by Trigra, so a further meeting was arranged for 10 March at which Mr Alteri, the managing director of Trigra, attended. It was he in fact who had sold the business in December 1997 to another entity but he stayed on as an officer of Tricolour until the end of June 1998. He questioned Mr Worn about the solvency of the Company and its current difficulties and was given a similar explanation and told of what was said to be a new contract which would improve the cash flow. Mr Piper confirmed that account and said that Tricolour did not have any practice of asking clients for financial information. A further proposal again suggesting August 1998 as the date for final payment was put forward by the Company’s solicitors.
Trigra then put the matter in the hands of its solicitor who sent a forceful letter requiring a much tighter schedule, demanding that Mr Worn guarantee the debt and seeking a statement by the Company’s accountants that it was solvent. He also insisted that the payments should be made by a bank cheque. The solicitor did not give evidence, but shortly afterwards a new payment schedule was accepted by Trigra without there being any personal guarantee nor a statement as to company solvency. The agreed payments were for $15,000 by 17 March, $20,000 by the end of April and $18,320 by the end of May 1998. The first two payments were made on time by bank cheque and the third payment was in fact made early by company cheque on 26 May 1998. During this period Tricolour continued to trade with the Company and, although the business was then owned by new proprietors, Mr Alteri was still an officer and working with that Company at all relevant times. The learned judge held as a matter of fact that the seeking by the solicitor of assurances of solvency and of the guarantee was not done on the instructions of Mr Alteri or Trigra.
The appellants relied on what may be thought to be obvious signs of insolvency to persuade the Court that the learned judge must have erred in being satisfied that Trigra had no reasonable grounds for suspecting that the Company was unable to pay its debts as they fell due.[6] So they pointed to the fact of insolvency, the poor payment history of the Company, the age of the debts, the earlier assurances that the Company could pay, the statements that the Company was in fact having difficulty in making payment and the forceful demand of Trigra’s solicitor for a guarantee and the provision of a statement of solvency.
[6]I shall use this as a convenient shorthand for the test a payee must make out, as described in para.[2] above.
All these matters were relevant but the question in each case depends on its particular circumstances. Counsel for the appellants insisted that it is not a subjective belief that there were no reasonable grounds for suspecting insolvency but an objective one. That may be accepted, and there is no reason to believe that the judge did not accept it, nor was there any contention that he did not do so; but the test is one based on the actual circumstances known to those who benefit by the “insolvent transactions” which must be examined to see whether a person in those circumstances and with that particular knowledge could have had no reasonable belief as to solvency. In each case the actual belief can be important, for, if the recipient is not believed as to this relevant issue, then almost invariably the recipient will not have discharged the onus resting on it. Acceptance of a recipient’s evidence, however, may be important in reaching a conclusion as to what in fact were the actual circumstances known to that recipient.
That is important in the present case for the learned judge accepted Mr Alteri’s version of his conversation with the Company’s representatives. So the judge accepted not only that Mr Alteri received Mr Worn’s assurances that, although the Company was having immediate problems in making payment, it was nevertheless making improvements overall, but also that Mr Alteri consequently did not think it necessary to ask for an assurance of solvency. Moreover the judge was entitled to accept Mr Alteri’s account that he did not give his solicitor instructions to seek either the guarantee or the assurance of solvency sought in the letter of 11 March. It is not to the point that the solicitor was not called if the judge was entitled to accept Mr Alteri’s evidence and did not thereby rely on any inadmissible evidence. On this issue he accepted Mr Alteri’s evidence notwithstanding vigorous cross-examination.
A regrettable aspect to this appeal is that, to demonstrate the judge’s error in this respect, it was asserted that Mr Piper’s evidence was not read or relied upon, being evidence which was used to confirm Mr Alteri’s account of the various meetings and his habit of not seeking financial information from debtors. Eventually, in the course of the hearing before this Court, part of the transcript in the appeal books was referred to in which Mr Piper’s affidavit (which appeared in the court book prepared for the trial) was in fact relied upon and the judge adjourned for a short time to read it and some other materials.[7] It seems that the appellant’s assertion was based on the fact that Trigra’s counsel said later in the trial that he did not intend to “call” Mr Piper. But the calling of a witness at a trial on affidavit is not necessary unless the other party is given a notice to attend for cross-examination or counsel can justify adducing supplementary evidence from the deponent. The judge relied on the affidavit in his judgment and there is nothing to show that he was wrong in doing so.
[7]One could be more critical, for it was obvious, apart from questions of recollection, from a careful reading of the transcript that it had been relied upon.
Generally, in my opinion the judge was entitled to conclude that the events of early 1998 did not show any significant difference from the history of slow payment which had been typical of the Company’s conduct over several years. In other cases delays of this kind may take on a far greater significance, but here the way in which the parties dealt with the delays did not seem untypical of their relationship over several years.
Moreover the acceptance of Mr Piper’s evidence is just a further factor in justifying the judge’s conclusion that the solicitor’s stringent requirements were not made on Mr Alteri’s or Trigra’s instructions. They were merely an aggressive means of collecting its client’s debt. These were people well versed in business and the hard bargaining which one might expect in the circumstances. Mr Alteri was severing his connection with the business at the end of June 1998 and he wished to be paid before then. The negotiations, with the solicitor’s assistance, produced a timetable of payments within two-and-a-half months or thereabouts which was in fact complied with precisely by the Company and indeed the last payment was a few days early. The demands for a guarantee and an assurance of solvency were not acceded to, for the very good reason that they were not needed and not essential to Trigra’s needs. Nothing could be more persuasive of Mr Alteri’s absence of concern as to solvency, than that the assurance was not heard of again and the timetable was accepted without further conditions.
The judge also properly treated as relevant the new Tricolour company’s continued willingness to accept work from the Company, for, if there had been any real concern as to solvency, Mr Alteri, as an executive of Tricolour, would not have allowed the Company to accept such contracts.
In all, therefore, the appellant has not shown that the judge erred in his conclusion that there were no reasonable grounds to suspect that the Company was insolvent. No argument was advanced that the judge misdirected himself on any legal principle. The particular circumstances were unusual, though not entirely unknown, in that the Company had had a long pattern over many years of making late payments and in that Tricolour’s tolerance in the past had led to no mishap. There was no significant difference on this occasion to lead reasonably to any different expectation on the part of Mr Alteri as representing Trigra. For these reasons and for those expressed by the learned judge, this appeal should be dismissed.
(b) The payments to Offset Alpine Printing Pty. Ltd.
The circumstances surrounding the debts owing and the payments made to Offset Alpine were not substantially different. Again it was shown that there had been dilatory payments by the Company to Offset Alpine although the normal terms of trade were thirty days from invoice. Nevertheless, various payments had been made through 1997, indeed in every month of that year other than March and December. Although there had been no new business written between December 1996 and August 1997, some work was ordered and performed in August 1997. By the end of that year all the existing debts had been paid off, apart from that arising from a new contract for printing a “Pets” Christmas catalogue which was invoiced at $101,362 on 8 December 1997, to be settled within sixty days. At the time that contract was written Mr Gracey, the Finance Manager of Offset Alpine, had been shown the first quarter accounts for the Company which showed a very small deficiency in shareholders funds of $4,696, resulting from previous years’ losses, a profit of $9,000 for the quarter and a surplus of current assets over current liabilities of $50,000.[8]
[8]In fact each of these figures was inaccurate, at least to some extent, as his Honour found; but that was not known to Mr Gracey.
Unfortunately, by 8 January of the following year Mr Worn found it necessary to seek extra time to pay the account. On 17 January Mr Worn told Mr Gracey of the temporary liquidity problem and that he would send a proposal by mail. That proposal was received on 4 February undertaking that the debt be paid by four instalments at the end of March, April, May and June of that year. Mr Worn was pressed to do better but said that, with his company’s cash flow, he could not improve for the time being. This provoked an apparently belligerent letter by Mr Gracey on 9 February, saying that, if he was to persuade his Board of Management to accept the four-payment proposal, he would need certain assurances before he could put it to his board. He therefore asked for the Company’s latest financial accounts, a first refusal on the Company’s future print work, interest and confirmation that, if Offset Alpine agreed, then the Company “will not be trading whilst insolvent”, that “no significant creditor will be paid on a more favourable basis” and that, if any instalment was not paid, then all would fall due and payable. Mr Worn immediately responded saying that he could not agree to “so many intrusive requirements” and pointing out that the Company had provided Offset Alpine with large contracts in the past and that they intended “to be here for the long haul”. Mr Gracey explained that the forceful demands in his letter reflected his desire to impress his Board of Management that he was trying to obtain the best repayment proposal that he could, but that the particular requests did not reflect any specific concerns by him as to solvency. On this issue the judge accepted the explanation of Mr Gracey.
As I would understand it, there was no direct response to Mr Worn’s reply and it seems that the original proposal must have been acceptable to Offset Alpine’s board for nothing further was said and the first two payments of $15,000 and $30,000 (each together with interest) were made a few days ahead of time. In May Mr Worn sought further time, but only a small payment of $701.58 interest was made on 28 May, shortly before the Company went into administration.
The appellant’s contentions relating to the payments to Offset Alpine were not all that different from those relating to Trigra. Again, however, the Company was known to be a slow payer by Offset Alpine: it had tolerated slow payments in the past, indeed for a number of years, but had eventually been paid on a regular, if deferred, basis. In my opinion nothing new had occurred to raise a reasonable suspicion in the mind of the executives of Offset Alpine.
The appellants relied on essentially the same factors to show that Offset Alpine had not discharged the onus of establishing that it had no reasonable basis to suspect that the Company was insolvent. They pointed to the poor payment record, to the failure of the Company to pay the last account within the specifically agreed sixty days from date of invoice, that it had been told of a “temporary liquidity problem” and yet again there was a forceful demand for payment seeking, amongst other things, copy accounts and various assurances, in particular as to solvency, at least in the future, each of which had been rejected by the Company.
One should turn immediately to the 9 February letter of Mr Gracey, since not only were its terms relied on as forming the basis for a reasonable apprehension that the Company was insolvent, but the judge was criticised for not dealing in detail with the significance of that letter. Again it was a letter sent with a purpose, mainly to ensure that the best deal possible was obtained by Offset Alpine. Clearly the Company had admitted to temporary cash flow problems, but Mr Gracey did not see them as potentially demonstrating insolvency. Mr Gracey was answerable to his board, so that his letter was designed to show them how he had sought to protect Offset Alpine’s interests. If one has regard to the cross-examination of Mr Gracey on this subject, where every request was examined in some detail, then his convincing answers show why the judge felt little need to say more about the letter than the brief references he made to it. It was again a means of driving a hard bargain where Mr Gracey was well used to delays of this kind in the past. A timetable for payment of this substantial debt for the Pets catalogue had been put forward which Mr Gracey hoped to abbreviate. He tried to obtain priority of treatment for new orders, and assurances as to future insolvency, though not, it may be noted, an assurance as to actual solvency at the time the letter was sent. Taking that request and the other requests into account, Offset Alpine through Mr Gracey was seeking merely to get some assurance that, by acceding to payments which would be spread over a number of months until August of that year, it would not prejudice itself in the future. In the course of cross-examination each of these requests or demands were succinctly explained by Mr Gracey in terms of Offset Alpine’s current strategy, but it is clear enough that he hoped to force agreement upon a more restricted timetable.
For all Mr Gracey’s bluster, little if anything was achieved. Mr Worn on behalf of the Company firmly rejected what he described as the “intrusive” demands of Offset Alpine. It seems that the Company’s timetable was, for better or for worse, accepted by Offset Alpine without the Company acceding to Mr Gracey’s demands and assurances. Indeed, the fact that they were not insisted upon by Offset Alpine shows how little weight he ultimately placed on those demands. If he had truly been concerned about the Company’s solvency, he would not so easily have acquiesced in a timetable for payment which extended through till August without any of what appeared to be stringent assurances. From what Mr Gracey was told there was little new known which would have caused a reasonable person in the respondent’s circumstances to feel apprehension of the relevant kind as to the Company’s inability to pay its debts as they fell due. The payment of the first two instalments on time provided in themselves no basis for any change of opinion by Offset Alpine and its
executives or for a court to take a different approach to the onus of proof which rested on Offset Alpine. At each stage there was no reasonable basis for apprehension.
The appellants again placed great weight on the failure of the Company to pay on time, particularly the debt incurred in relation to the Christmas catalogue for which a specific sixty day period had been agreed. This was not, however, inconsistent with the Company’s behaviour over many years, at least since 1993 and thus the judge was entitled to accept Mr Gracey’s evidence that he was not concerned as to the solvency of the Company. This was a finding of fact open on the evidence. Of course it did not answer the ultimate question for the decision, again, as the judge correctly recognised, which was whether in the circumstances Offset Alpine had shown that it had no reasonable grounds for suspecting that the Company was insolvent. Having regard to the judge’s implicit finding as to Mr Gracey’s belief that in substance there had been no change in the circumstances apparent to Offset Alpine, it is not surprising that the judge held that that company had satisfied the relevant onus. There was in fact no significant change in the relationship between the companies and the pattern of payments by the Company to Offset Alpine and the letter did not evidence the existence of circumstances which might have changed that opinion, an opinion which was in the first place borne out by the first two payments, although the Company thereafter went into administration.
Again for these reasons and for those stated by the learned judge, the appeal in the matter of Offset Alpine should also be dismissed.
CHARLES, J.A.:
I agree with Ormiston, J.A.
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