Shirlaw and ANOR. v Associated Alloys Pty Limited

[2000] NSWCA 224

Reported Decision: (2000) 18 ACLC 763

New South Wales

Court of Appeal

CITATION:	SHIRLAW & ANOR. v. ASSOCIATED ALLOYS PTY. LIMITED [2000] NSWCA 224
FILE NUMBER(S):	CA 40878/98
HEARING DATE(S):	9 June 2000
JUDGMENT DATE:	28 August 2000
PARTIES :	KEVIN R. SHIRLAW and PAUL G. WESTON as Liquidators of ACN 001 452 106 PTY. LIMITED (In Liq.) (Appellants/Cross-Respondents) ASSOCIATED ALLOYS PTY. LIMITED (Respondent/Cross-Appellant)
JUDGMENT OF:	Priestley JA at 1; Powell JA at 2; Foster AJA at 55

LOWER COURT JURISDICTION :	District Court (Commercial List)
LOWER COURT FILE NUMBER(S) :	DC 2891/97
LOWER COURT JUDICIAL OFFICER :	Cooper DCJ

COUNSEL:	N.A. Cotman SC (Appellants/Cross-Respondents) W. Washington (Respondent/Cross-Appellant)
SOLICITORS:	Brown & Partners (Woolwich) (Appellants/Cross-Respondents) K.R. Minotti (Bondi Junction) (Respondent-Cross-Appellant)
CATCHWORDS:	COMPANIES - Winding up - Conduct and incidents of liquidation - Effect of winding up on other transactions - Preferences - Dealings "in good faith" - Onus of proof - "Ordinary course of business" - Knowledge or suspicion of debtor's insolvency D
DECISION:	Appeal dismissed; Cross-Appeal dismissed.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40878/98
DC 2891/97

PRIESTLEY JA
POWELL JA
FOSTER AJA

28 August 2000


SHIRLAW & ANOR v. ASSOCIATED ALLOYS PTY. LIMITED

JUDGMENT

1    PRIESTLEY JA: I agree with Powell JA.

2    POWELL JA: This is an appeal and a cross-appeal, in each case by leave, from a judgment delivered and orders made by Cooper DCJ in the District Court in proceedings which had been brought by the Appellants in their capacity as liquidators of the company now known as ACN 001 452 106 Pty. Limited (In Liq.) which company was formerly known as Metropolitan Engineering & Fabrications Pty. Limited ("MEF").

3 In those proceedings the Appellants, in reliance upon the provisions of ss. 588FA, 588FC, 588FE(1),(2), 588FF of the Corporations Law sought to recover from the Respondent sums totalling $A214,667.52 representing payments made by MEF to the Respondent in respect of invoices for goods supplied by the Respondent to MEF, those payments having been made on 5 January and 31 January 1996, that is, within 6 months prior to "the relation-back day" (ss. 9, 513B(b), 513C, 588FE(2) of the Corporations Law). To the Appellants' claim the Respondent raised a variety of defences of which only the following - the basis for the first of which being raised will later become apparent - need be noted:

"28. … the said payments were an accounting of a trustee to a beneficiary.
………
58. Additionally or alternatively at all material times the Defendant became a party to the transaction in good faith (within the meaning of s.588FG(2)(a) of the Corporations Law) and additionally or alternatively conducted itself in good faith at all material times.
59. Additionally or alternatively at the time when the Defendant became a party to the transaction it had no reasonable grounds for suspecting that the Company was insolvent at that time or would become insolvent as mentioned in s.588FC(b) of the Corporations Law (within the meaning of s.588FG(2)(b)(ii)(A) of the Corporations Law).
60. Additionally or alternatively at the time when the Defendant became a party to the transaction a reasonable person in the Defendant's circumstances would have had no such grounds for suspecting that the Company was insolvent at that time or would become insolvent as mentioned in s.588FC(b) of the Corporations Law (within the meaning of s.588FG(2)(b)(ii)(B) of the Corporations Law).
61. Additionally or alternatively the Defendant has provided valuable consideration under the transaction.
PARTICULARS
(a) the provisions of goods;
(b) the provision of credit."

4    MEF commenced operations in 1977 engineering and fabricating food, beverage and chemical plant equipment. By about 1987, the company's business had expanded into the supply and service of heat exchangers for the oil, gas and chemical industries and, as well, the supply of special purpose high integrity type pressure vessels. The Respondent was a steel distributor which had sold steel products to MEF over the years commencing in about 1981.

5    It is said (Combined AB 181) that, as from about 1987 or 1989, it was the practice of the Respondent to issue invoices on the reverse side of which appeared the following (Combined AB 186):

"
RESERVATION OF TITLE
It is expressly agreed and declared that the title of the subject goods/product shall not pass to the purchaser until payment in full of the purchase price. The purchaser shall in the meantime take custody of the goods/product and retain them as the fiduciary agent and bailee of the vendor.
The purchaser may resell but only as a fiduciary agent of the vendor. Any right to bind the vendor to any liability to any third party by contract or otherwise is however expressly negatived. Any such resale is to be at arms length and on market terms and pending resale of utilisation in any manufacturing or construction process, is to be kept separate from its own, properly stored, protected and insured.
The purchaser will receive all proceeds whether tangible or intangible, direct or indirect of any dealing with such goods/product in trust for the vendor and will keep such proceeds in a separate account until the liability to the vendor shall have been discharged.
The vendor is to have power to appropriate payments to such goods and accounts as it thinks fit notwithstanding any appropriation by the purchaser to the contrary.
In the event that the purchaser uses the goods/product in some manufacturing or construction process of its own or some third party, then the purchaser shall hold such part of the proceeds of such manufacturing or construction process as relates to the goods/product in trust for the vendor. Such part such be deemed to equal in dollar terms the amount owing by the purchaser to the vendor at the time of the receipt of such proceeds."

6    In an Affidavit sworn by him, Mr. Walton, the managing director of the Respondent said (inter alia) (Combined AB 181-183):

"7. I regularly took orders from Metropolitan over the last 16 years or so. I check sales and payments on a regular basis approximately every few days or so (as a customer (sic) of the Defendant, I was aware of all the sales made to and payments received from Metropolitan). I never had any reason to doubt Metropolitan's ability to pay the Defendant for goods Metropolitan ordered from the Defendant or to doubt Metropolitan's ability to pay its debts until January 1996 (the last delivery of goods from the Defendant to Metropolitan was in November 1995). Prior to January 1996 I only ever recall two discussions with officers about payment of their Account. They are:
(a) I recall that shortly prior to the time of taking a Metropolitan Order for approximately $US150,000.00 (delivered in October and November 1993) I had a conversation with Mr. Graham McClelland (whom I knew to be a Director of Metropolitan) in words to the following effect:
McClelland: 'We are about to get an order for columns at Shell Geelong through Sheddons.'
Me: 'How do we look?'
McClelland: 'OK. However, our terms with Shell are for milestone payments being made against the larger valued items like the plate and heads and we would like back-to-back terms if we can.'
Me: 'Would 85 days from Bill of Lading date cover it?'
McClelland: 'Yes, allowing for transit time, clearing, submitting our claim to Shell, we would expect funds in 75 days.'
Me: 'Let me check with Lukens and get back to you. If they agree, then you must meet this commitment firmly.'
McClelland: 'Okay, I understand.'
(b) About the time Metropolitan gave the Defendant a substantial Order for goods … and shortly before I received the Orders … I had a conversation with Mr. Graham McClelland in words in or to the following effect:
McClelland: 'We have a substantial order from a Korean Company, Lucky Goldstar, for which we have a Letter of Credit. Part of the commercial conditions is that we receive milestone payments on receipt of materials into our Store.'
(The Defendant had tendered to Metropolitan on this Contract and I was aware that the value of goods required by Metropolitan from the Defendant was in the order of $AUS500,000.00).
Me: 'We are in a position to give you 90 days from Bill of Lading date but once we are locked in, you have to stick to the terms and must pay on time.'
McClelland: 'That will be great. You can view the Letter of Credit if you wish.'
Me: 'That won't be necessary. If you're telling me that's what you've got, I accept that.'"
(The two invoices relating to the order referred to in (a) were dated 25 October 1993 ($US107,480.00) and 9 November 1993 ($US41,369.00) and were paid on 8 December and 31 December 1993 respectively (Combined AB 187)).

7    Although the materials which are before the Court do not contain copies of all the orders which, following the second of the conversations deposed to by Mr. Walton in his Affidavit, were forwarded by MEF to the Respondent or copies of all the invoices which were issued by the Respondent to MEF, such materials as are before the Court enable me to produce the following Table.

Order No. 37416 37603 37604 37605 37476 37635 37913 Date 31/5/95 31/5/95 7/6/95 7/6/95 29/6/95 25/8/95 ? Invoice No.
584
593
600 583
592 599 556
591
598 594 597 611 Date 5/9/95
5/10/95
26/10/95 31/8/95
26/9/95 26/10/95 12/7/95
20/9/95
26/10/95 5/10/95 18/10/95 18/11/95 Due approx. mid/ end Nov.
180 days after B/L
approx mid/end Nov. approx mid/end Nov.
? approx mid/end Nov. 18 September
approx mid/end Nov.
? approx mid/end Nov. approx mid/end Nov. 18 December

Each of the invoices - and, in particular, Invoice No. 583, the relevance of which invoice will shortly appear - of which there are copies in the materials which are before the Court has printed at the foot of the obverse side the words:
"Romalpa Clause set forth on the reverse side hereof applies"

although it is said ( Associated Alloys Pty. Limited v. Metropolitan Engineering & Fabrications Pty. Limited (1996) 14 ACLC 952, 954 (Bryson J); (1999-2000) 74 ALJR 862, 865, 879; 175 ALR 568, 572, 589-590 (High Court) ) that Invoice No. 583 did not contain, on the reverse side, the "Romalpa Clause".

8    Such materials as are before the Court also enable me to provide the following table recording payments made by MEF in respect of the various invoices issued by the Respondent to MEF.

Order No.	Invoice No.	Amount	Paid	Outstanding
37416 37603 37604 37605 37476 37635 37913	584 593 600 583 592 599 556 591 598 594 597 611	$A32,960.00 $A28,694.00 $A48,138.00 $US61,361.29 $US80,630.00 $US19,912.76 $US5,386.00 $US20,974.78 $US69,920.00 $A13,960.00 $US3,155.00 $US3,767.00	5/1/96 5/1/96 5/1/96 31/1/96 (part) - 5/1/96 31/1/96 5/1/96 - 5/1/96 5/1/96 31/1/96	$US47,361.29 $US80,630.00 $US69,920.00 --------------- $US197,911.29

As will be seen, the amount which, after January 1996, remained outstanding was $US197,911.29, the relevance of which sum will shortly appear.

9 Although no payment was made by MEF to the Respondent prior to 5 January 1996, Cooper DCJ, when dealing with "the statutory defence under s.588FG(2)", wrote (inter alia) (RAB 33-35):

"It is now necessary to look at the situation as it existed to the knowledge of AA, first as at 5 January, 1996 and secondly as at 31 January, 1996. That is, it is necessary to ascertain the state of knowledge of the defendant at the times it received the moneys and to leave out of consideration those facts which were unknown to the defendant at those points of time.
………
Whilst a considerable amount of evidence was adduced before me as to the state of the knowledge of AA as at 5 January, 1996, I am satisfied on the balance of probabilities of the following facts existing at that date:
(1) Late payment of up to 2 or 3 months was quite common in the steel supply industry so far as AA was concerned.
(2) So far as AA was concerned, it expected that MEF would be late with its payments and built into its pricing an allowance to cover this eventuality.
(3) AA was aware that some of its deliveries of steel to MEF were late and that this would cause a delay in MEF being paid by Goldstar and it was prepared to extend the due date because of this difficulty.
(4) On each of the invoices in respect of which payments were made on 5 January, 1996 were endorsed the following words:
'Payment terms: Payment due approx mid/end November 95 as per agreement Peter Tutt/Peter Walton.'
There was one exception to this and that was invoice No. 593. This invoice had endorsed on it:
'Payment terms: Payment due 120 days from B/L as per agreement Peter Tutt/Peter Walton.'
The date of the bill of lading does not appear from the evidence. However the goods were expected to arrive in Sydney on 11 October, 1995. It is to be noted that the payment terms do not prescribe a specific date but 'approx mid/end November 1995'.
(5) In fact payment was made on 5 January, 1996. Between 'approx mid/end November, 95' and 5 January, 1996, the Christmas holidays intervened.
In the light of the foregoing facts, I am comfortably satisfied of the following:
(1) At the time of receiving the two payments on 5 January, 1996, the defendant had no reasonable grounds for suspecting that MEF was unable to pay all of its debts as and when they became due and payable.
(2) A reasonable person in the circumstances of the defendant would have had no such grounds for suspecting that MEF was unable to pay all of its debts as and when they became due and payable.
(3) The defendant received the moneys in good faith.
(4) The defendant had provided valuable consideration for the moneys received on that date, namely by the provision of the steel referred to in the orders described earlier in this judgment."

10    A facsimile transmission from Demetrio Gebilagin, then MEF's accountant, addressed to "Helen" - who seems to have been a member of the Respondent's staff in its accounting department - in the following terms (Combined AB 89):

"The following invoices was (sic) paid into your bank acct 032-044.
Inv.# 584 AUS $ 32960.00
593 28694.00
594 13960.00
600 48138.00
AUS$123,752.00
And the following invoices into your U.S. D 46094
Inv.#591 US $ 20974.78
597 3155.00
599 19912.76
US $ 44042.54 "
reveals that the moneys (the equivalent of $A183,472.42) paid by MEF to the Respondent on 5 January 1996 were paid in part ($123,778.00) to the Respondent's bank account and in part (the equivalent of $A59,694.42) into a separate foreign currency account maintained by the Respondent with its bankers. The explanation for the differential method of payment lies in the fact that each of Invoice Nos. 591, 597 and 599 bore on its foot the following notation:

"Please remit US dollar funds via telegraphic transfer to:
Westpac Banking Corporation
Westpac Plaza,
273 George St., Sydney.
Account No. U.S.D 246094."

11    These payments had the effect of reducing the credit balance in MEF's account with its bankers from $323,778.47 to $140,306.05. Other debits made to MEF's account on 5 January 1996 reduced the credit balance to $85,485.68 at the end of the day.

12    A further facsimile transmission from Mr. Gebilagin to "Helen" would seem to indicate that, on 10 January 1996, "Helen" had spoken to Mr. Gebilagin inquiring when further payments in respect of the outstanding invoices would be made. That facsimile transmission was as follows (Combined AB 93):

"This is to confirm our telephone conversation today.
A. Payment of outstanding invoices is as follows:
1. AUS$50000 or US$ equivalent will be paid on January 20, 1996.
2. Balance of total invoices outstanding will be paid on February 23, 1996.
3. If possible, some payment will be made between Jan 27-Feb 22, 1996.
B. Late delivery of plates and heads resulted to (sic) a late production and our customer (S. Korea) approved partial payment of milestone submitted to them.
Thanks & I'll keep on (sic) contact."

13    In his Judgment, Cooper DCJ observed (RAB 36):

"The terms of this communication indicate that MEF was having difficulty in meeting its liabilities as they fell due. It indicates that the funds from which it would pay its liability to the defendant would be from payments made to it by its South Korean customer, Lucky Goldstar."

14    On 11 January 1996 Mr. Walton forwarded to Mr. McClelland by facsimile transmission a letter reading in part as follows (Combined AB 94):

"I realise you will be away for the next 2 weeks, but when you get back we need to talk about this order and payment in general with Metropolitan.
The bottom line is that this delayed payment has created serious problems for us as we have had to arrange re-financing of this whole contract through our Bank in order to meet our commitments to both Lukens and Trinity. As a result of being told several different stories regarding payment we have mislead (sic) Lukens as to when we would be making final payment and have only been able to finalise your actual promise of payment this week.
While I acknowledge Trinity's performance was not good, Lukens delivered as contracted.
At no stage were we told the payment rules were changing. It was originally contracted for mid/end November payment."

(As will be apparent, Lukens and Trinity - each of which appears to have been a United States company - were the Respondent's suppliers, Lukens for steel plate and Trinity for "semi-ellipsoidal heads").

After setting out the details of MEF's order requirements and the Respondent's delivery performance and noting that, apart from two deliveries of heads the rest of the order was on time, Mr. Walton continued (Combined AB 95):

"We now have a situation that as at 30th November '95 Metropolitan Eng. owed Associated Alloys (basing USD amounts on US$0.74)
A $472,650.
On 5th Jan. '96 we received $183,268 (5 weeks over)
On 27th Jan. '96 we are promised $ 50,000 (8 weeks over)
On 23rd Feb. '96 we are promised $239,000 (12 weeks over)
Graham, I'll let you be the judge, but as I stated earlier, getting caught with this amount of money out has really hurt us. At this stage of proceedings and coming on top of the last effort it is very disappointing."

15    In dealing with this letter in the course of his Judgment Cooper DCJ wrote (RAB 36-37):

"In the course of his evidence Mr. Walton said that this letter did not indicate that he had any suspicion that MEF was unable to meet its debts as they fell due. The whole tone of the letter, so he said, was to point out that the late payments were placing his company in financial difficulties requiring it to refinance the contract through its banking facilities.
I accept this explanation as partly correct. However the letter itself contains certain passages which indicate that if Mr. Walton did not actually suspect that MEF was insolvent as at 11 January 1996 he certainly had reasonable grounds for so suspecting. Furthermore, a reasonable person in the circumstances of the defendant (and that includes Mr. Walton), would have had reasonable grounds for suspecting that MEF was then unable to pay its debts as they became due and payable. This is borne out by such passages as:
'as a result of being told several different stories regarding payment' and
'at no stage were we told the payment rules were changing' and
'at this stage of proceedings and coming on top of the last effort it is very disappointing'.
This is also borne out by the facsimile from Mr. Gebilagin to Helen of 10 January 1996 which promises payments well after the due date and uses such phrases as 'if possible some payment will be made between Jan 27-Feb 22 1996'."

16    In a facsimile transmission to "Helen" on 31 January 1996, Mr. Gebilagin wrote (Combined AB 101):

"The following invoices was (sic) paid and transferred into your U.S.D246094 today.
Inv.# 556 US$ 5386.00
611 3767.00
Part payment inv.#583 14000.00
Total US$ 23153.00 "
This payment - the equivalent of $A31,195.10 - was not only later than, but also fell short of the $A50,000.00, promised in the facsimile letter of 10 January 1995.

17    The payment of that sum of $US23,153.00 had the effect of increasing the amount of MEF's overdraft with its bankers from $105,782.78 to $136,977.88 (Combined AB 99). By the end of 31 January 1996 MEF's overdraft with its bankers had increased to $168,314.77 (Combined AB 100).

18    On 31 January 1996, Mr. Walton forwarded to Mr. Gebilagin by facsimile a letter which was in the following terms (Combined AB 98):

"REF: OUTSTANDING MONIES
Demetrio,
Your promised payment of A$50,000 to be met on 26th Jan. '96 has not been received and several attempts to speak with you have also failed. Unfortunately we have no other alternative but to advise that as of today any further credit to Metropolitan Engineering and Fabrication Pty Ltd has been suspended.
With regards your P.O. 38072 we now must have a formal guarantee in place prior to any delivery being made.
In respect to (sic) your P.O. 38526 Graham advised on Thursday 11 January that a letter of credit would be put in place to cover payment. To date this has not been received.
This whole situation with your Company has placed Associated Alloys in a very serious situation."

19    When dealing with this facsimile in the course of his Judgment, Cooper DCJ wrote (RAB 38):

"The evidence of Mr. Walton was that he received the facsimile advising of the payment of US$23,153 prior to sending his fax of 31 January 1996. On behalf of the plaintiff (sic) it is submitted that the converse was the truth. In support of this submission it refers (sic) to the fact that no mention is made in Mr. Walton's facsimile of the payment which he claims he knew about and which had been made earlier that date.
Unfortunately the facsimiles which are respectively DG20 and DG18 annexed to the statement of Mr. Gebilagin are copies only and so lack the time of transmission which the facsimile machine endorses on the documents.
However it is not necessary to me to decide which document was transmitted first. Mr. Walton's facsimile speaks for itself. His decision to suspend credit to MEF is expressed to be made because the promise (sic) payment of $50,000 was not met on 26 January and several attempts to speak to Mr. Gebilagin had failed. He did not base his reason on receipt of the moneys on 31 January. He based his reasons upon events which had occurred prior to the 31st January 1996.
Thus, as a result of events which had occurred before receipt of the moneys on 31 January 1996 Mr. Walton and his company had ample reasonable grounds for suspecting that MEF was insolvent at that time and certainly a reasonable person in the circumstances of AA would have had such reasonable grounds for so suspecting."

20    Although, on the hearing before Cooper DCJ the Respondent disputed the Appellants' assertion that at the time of the payments made on 5 January and 31 January 1996 MEF was insolvent, his Honour held (RAB 21) that MEF was in fact insolvent as at 31 December 1995 and remained so throughout January and up to 9 February 1996, the relevance of which dates will shortly appear. No challenge to his Honour's finding in this regard was made on the hearing of the appeal.

21    On 9 February 1996, the Board of MEF resolved to appoint the Appellants to act as voluntary administrators, on a joint and several basis, of the company, such appointment to take effect immediately (Combined AB 106-107).

22    A first meeting of creditors of MEF was held on 15 February 1996 on which day a Committee of Inspection, of which Mr. Walton was appointed a member, was appointed - Mr. Walton was later to resign from that Committee.

23    On 22 February 1996 MEF's banker, Westpac Banking Corporation Limited, which held a fixed and floating charge over MEF's assets, with the consent of the Appellants appointed a receiver and manager over MEF's fixed assets, its land, buildings and plant and equipment, the Appellants as administrators having first obtained from the receiver and manager a licence to use the factory premises, plant and equipment until 30 June 1996 (Combined AB 170).

24    MEF continued subject to voluntary administration until 5 June 1996, on which day, so it would appear (Combined AB 176), a Deed of Company Arrangement was entered into.

25    By 5 August 1996, it had become apparent that it was no longer practicable or desirable to continue to implement the Deed of Company Arrangement and, accordingly, on that day a meeting of creditors was summoned for 13 August 1996 for the purpose of considering and if thought fit, passing a resolution that the Deed of Company Arrangement be terminated and MEF proceed into a creditors' voluntary winding-up (Combined AB 176-177). At the meeting held on 13 August 1996 the creditors resolved (inter alia) that the Deed of Company Arrangement be terminated and that MEF be wound up and, further, that a Committee of Inspection be appointed for the purposes of the winding-up (Combined AB 112-113).

26    Meantime, on 5 March 1996, the Respondent had lodged with the Appellants in their capacity as administrators of MEF a proof of debt (Combined AB 128) claiming to be a creditor in the sum of US$197,911.29 in respect of the balance owing under Invoice No. 583 and in respect of the amounts outstanding in respect of Invoices Nos. 592 and 598.

27 Thereafter, at a time which - save that it must have been prior to 10 May 1996 - is not revealed by the materials which are before the Court, there was filed in the Equity Division of the Court on behalf of the Respondent, a Summons in which, as it would seem (74 ALJR 874; 171 ALR 584), the Respondent sought the following (inter alia) relief:

"1. (a) A declaration that in the events which have happened the (Appellants) (or additionally or alternatively (MEF)) holds upon trust, for the benefit of (the Respondent) the sum of US$197,911.29 (or such other sum as the court deems fit) in respect of the goods referred to in Sch A hereto (hereinafter referred to as 'the goods').

(b) An order that the (Appellants) (or additionally or alternatively (MEF)) account to the (Respondent).

2. Additionally or alternatively a declaration that in the events which have happened the (Respondent) is entitled to the sum of US$197,911.29 (or such other sum as this honourable court deems fit).

3. (a) A declaration that in the events which have happened title in the said goods did not, at any time, pass to (MEF);

(b) A declaration that the (Appellants) (or additionally or alternatively (MEF)) is guilty of conversion of the goods;

(c) Damages.

4. Additionally or alternatively an order that the (Appellants) (or additionally or alternatively MEF)) pay to the (Respondent) the sum of US$197,911.29."
In addition, the Respondent sought such further declarations, orders or directions as the Court deemed fit, as well as interest and costs. The goods described in Sch A of the Summons were identical to the description of the steel supplied to MEF under Invoices 583, 592 and 598.

28 Those proceedings came before Bryson J who delivered Judgment on 10 May 1996, (1996) 14 ACLC 952; 20 ACSR 205 on which day his Honour dismissed the summons. In the course of his Judgment, Bryson J wrote (inter alia) as follows:

"Metropolitan Engineering must be taken to have known, from the course of business over some years, that Associated Alloys did business and sold steel on the basis that its standard Romalpa Clause would appear on the back of its invoices and would be incorporated in its agreements for sale. As a result Metropolitan Engineering was bound by the Retention-of-Title clauses in cases where those clauses did appear on the backs of invoices and Metropolitan Engineering accepted delivery and (as was invariably the case) raised no objection to the clauses. Cf. Chattis Nominees Pty. Ltd v. Norman Ross Homeworks Pty. Ltd. (1992) 28 NSWLR 338 at 343 (Cohen J). However this effect was only produced when the plaintiff did in fact use an invoice with a Retention-of-Title clause printed on the back. It is of no avail that the purchaser knew what the vendor's ordinary course was in a case where a vendor did not follow the ordinary course. Metropolitan Engineering's knowledge of the course of business would have no affect (sic) unless the clause was in fact incorporated in a particular agreement for sale. The clause was not incorporated simply by stating on the front of the invoice that a clause set forth on the reverse side applied; unless there was a clause on the reverse side, this statement was meaningless and can have no effect. In the rare cases such as Invoice 583 where there was no clause on the reverse side title passes in accordance with ss. 22 and 23 of the Sale of Goods Act 1923. This conclusion is not critical for the outcome of the proceedings."

29    Later in his Judgment, Bryson J wrote:

"If the plaintiff has any remedies they arise under the fifth subclause. They cannot arise under the first three subclauses because, on my view of the facts, the goods sold and delivered have gone out of existence and the derived products when produced were the property of Metropolitan Engineering only. Further there is no basis on the evidence on which any particular one of the derived products, whether they have been delivered to Lucky Goldstar or are still in Metropolitan Engineering's hands, can be identified as having been produced from the goods in any one of the three invoices. Nor is there any basis for carrying out any process of apportionment; if such a process were appropriate, the evidence would not enable it to be done."

30    In the end, Bryson J held that the provisions of the fifth subclause constituted a charge on the book debts of MEF, which charge, not having been registered, was voidable as against the Appellants as administrators, and it was for that reason that his Honour dismissed the Respondent's proceedings.

31    From Bryson J's Judgment the Respondent then appealed to this Court.

32    Before the appeal came on for hearing, however, Mr. Shirlaw, in his capacity as liquidator of MEF had written to the Respondent on 16 September 1996 (Combined AB 125) asserting that the payments which had been made by MEF to the Respondent on 5 and 31 January 1996, were unfair preferences and requiring the payment to MEF of the sum of $214,667.52, at the same time foreshadowing proceedings to recover those payments in the event of non-compliance. That letter provoked a reply (Combined AB 126) in which Mr. Walton, writing on behalf of the Respondent, indicated that the payments were not regarded as unfair preferences.

33    Although it is not clear that this was in fact so, the form of orders sought by the Appellants in the Amended Statement of Liquidated Claim (RAB 1-5) which was filed on their behalf on 8 May 1998 suggests that these proceedings were commenced on 29 May 1997.

34    In that Amended Statement of Liquidated Claim, the Appellants sought (RAB 5):

"I the sum of $214,667.52; and
II an order pursuant to the provisions of s.588FF(1)(a) or (c) of the Corporations Law that the Defendant pay the sum of $214,667.52 to the Plaintiffs.
III interest from the date of payment by the company to the date of judgment at the rate of 12% per annum to 28 February 1997 and at the rate of 10.5% per annum from 1 March 1997 which at 29 May 1997 amounts to $34,796.88; and
IV costs."

35 It is convenient, here, to pause for the purposes of recording what appear to be those provisions of the Corporations Law which are relevant to the issues debated on this appeal. They are as follows:

" 588FA Unfair preferences
(1) A transaction is an unfair preference given by the 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 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.
………
588FC Insolvent transactions
A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company; and:
(a) any of the following happens at a time when the company is insolvent:
(i) the transaction is entered into,
(ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction;
………
588FE Voidable transactions
(1) Where a company is being wound-up, a transaction of the company that was entered into at or after the commencement of this Part may be voidable because of any one or more of the following sub-sections:
(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;
………
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;
………
588FG Transaction is not voidable as against certain persons
………
(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 and if 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;
(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction."

36    It is not clear whether the appeal to this Court from the Judgment of Bryson J had been heard before these proceedings came on for hearing before Cooper DCJ in September 1998; it is, however, clear that, even if the appeal had been heard, Judgment had not then been delivered.

37    The hearing before Cooper DCJ concluded on 16 September 1998, following which his Honour reserved his Judgment, which Judgment, as I have earlier recorded, was delivered on 9 October 1998.

38 This Court's Judgment (1998) 16 ACLC 1633 was delivered on 21 September 1998, the principal Judgment being that of Sheller JA with whom Beazley and Stein JJA agreed. As the Court agreed with Bryson J's conclusion that the fifth subclause operated to charge MEF's book debts when they came into existence and that, by reason of that fact, the subclause was void as against the Appellants in their capacity as liquidators, the Court dismissed the appeal.

39    Whether or not the Judgment of this Court was drawn to the attention of Cooper DCJ before he delivered his Judgment is not clear (see T. 5), but it seems unlikely that it was.

40    When, in the course of his Judgment, Cooper DCJ came to deal with the question whether at the time of each payment the relationship between MEF and the Respondent was that of debtor/creditor or that of trustee/beneficiary, his Honour wrote (inter alia) as follows (RAB 30-31):

"On behalf of the defendant AA, it was submitted that Bryson J's decision in respect of the nature of the dealings between MEF and AA and the finding of a trust, is binding upon this court, because it is a decision of a superior court and also because of res judicata, that is it is a finding by a court on an issue in proceedings between the same parties.
The submission continues that under the fifth subclause, MEF (and that includes the liquidators) hold the proceeds of the sale of goods to Lucky Goldstar, manufactured from steel provided by AA in trust for AA and that the amount so held is defined in the fifth subclause as equal in dollar terms to the amount owing by the purchaser to the vendor at the time of the receipt of such proceeds.
Accordingly it is argued that the moneys paid by MEF to AA on 5 January and 31 January, 1996 represent moneys held by MEF in trust for AA and not the payment of a debt.
To my mind, there is a fatal flaw with this argument. Bryson J, whilst holding that a trust did exist, went on to say that the terms of subclause 5 of the Reservation of Title clauses created a charge over the moneys which was void as against the liquidators. This part of the decision of Bryson J. relates to the construction of a document and is binding on this court. Accordingly the submissions of AA on this point must fail.
In short, I would hold that the relationship of debtor/creditor did exist between MEF and AA as at 5 January, 1996 for the following main reasons:
1. On the facts in evidence before this court, it is not satisfied on the balance of probabilities that the Romalpa clause formed part of the contract between the parties.
2. If it did form part of the contract between the parties, it created a registrable charge which was not registered and which is void as against the plaintiffs in this action.
3. Even if there be a relationship of trustee and beneficiary between MEF and AA by reason of the operation of the clause, AA may still be properly characterised as a creditor for the purposes of the operation of s.588FA of the Corporations Law. See per Sweeney J in Re Donovan ex parte ANZ Banking Group Ltd 20 FLR 50 at 68 and 69. It is quite true to say that in that case, his Honour was dealing with the bankruptcy law. However the principles involved appear to be the same as those applicable to preferential payments under the Corporations Law."

41 Finally, Cooper DCJ turned to consider whether or not the moneys paid to the Respondent on 5 and 31 January 1996 constituted preferential payments which were prima facie voidable at the instance of the Appellants and, if so, whether the Respondent had made out in respect of any of those payments a defence in terms of s.588FG(2) of the Corporations Law.

42 It was common ground on the hearing before Cooper DCJ that the relation-back day was 9 February 1996. Although, as I have earlier recorded, the question of MEF's insolvency at the time of the payments in question was in issue at the trial Cooper DCJ found that it was and that finding is not now challenged; nor is his Honour's finding (RAB 21-22) that each payment resulted in the Respondent receiving from MEF more than the Respondent would receive if the payments were set aside and the Respondent were required to prove for a debt in the winding-up. The principal questions which were thus left for Cooper DCJ to determine were whether in respect of each of the payments the Respondent had made out a defence based upon the provisions of s.588FG(2) of the Corporations Law.

43    The passages from his Honour's Judgment which I have earlier set out led Cooper DCJ to hold that that defence had been made out in respect of the payments made on 5 January 1996 but that it had not been made out in respect of the payment made on 31 January 1996. His Honour therefore declined to make any order in favour of the Appellants in respect of the former payments but, in respect of the latter payments, directed the Respondent to pay to the Appellants the sum of $31,195.10 plus interest in the sum of $7,155.38, that sum representing interest from the expiration of the fourteen days allowed in Mr. Kershaw's letter of demand for the payments. Having heard submissions on the question of costs, Cooper DCJ also ordered that the Respondent pay one-fifth of the Appellant's costs (RAB 40).

44    Although a number of grounds of appeal were taken by the Appellants in their Notice of Appeal, in substance they might be reduced to two, they being:

1. that Cooper DCJ erred in holding that, at the time it received the moneys paid on 5 January 1996, the Respondent had no reasonable grounds for suspecting that MEF was unable to pay all of its debts as and when they became due and payable and that a reasonable person in the circumstances of the Respondent would have had no such grounds for suspecting that MEF was unable to pay all of its debts as and when they became due and payable; and

2. that his Honour erred in the exercise of his discretion in failing to order that the Appellants have the whole of their costs of the proceedings.

45    In its Notice of Cross-Appeal the Respondent raised four grounds of appeal of which, in the event, only three were relied upon on the hearing of the appeal. Reduced to their most simple form, those grounds were:

1. that Cooper DCJ erred in failing to find that the terms of the Romalpa clause were incorporated into the contract between MEF and the Respondents;

2. that Cooper DCJ erred in taking into account the fact that Bryson J had found that the fifth subclause created a charge which was void against the Appellants as liquidators, which consideration, so it was said, was irrelevant;

3. that Cooper DCJ erred in finding that a debtor/creditor relationship existed between MEF and the Respondent and in failing to find that there was a trustee/beneficiary relationship between MEF and the Respondent which governed the relevant payments made to the Respondent.

46    Before the Appeal and Cross-Appeal came on for hearing, the High Court had heard and determined an appeal which had been brought by the Respondent against the Judgment of this Court on the appeal which had been brought from the Judgment of Bryson J.

47 Although, in its Judgment - which Judgment proceeded on the basis that at least in respect of the goods the subject of Invoices Nos. 592 and 598, the reservation of title clause formed part of the contract between MEF and the Respondent - the High Court held that each of Bryson J and this Court had been in error in holding that the fifth subclause created a charge which was voidable against the Appellants, the High Court nonetheless dismissed the appeal. Since the High Court's reasons for so doing, in my view, effectively dispose of the Cross-Appeal, it is convenient here to set out that part of the Judgment of Gaudron, McHugh, Gummow and Hayne JJ which records their Honours' reasons for that conclusion. It was as follows 74 ALJR 874-875; 171 ALR 584-585:

" Evidence of receipt of 'the proceeds '
It was for the Seller to make out its case. In the end, this appeal turns on a critical gap in the evidence. Bryson J observed that if the Seller had any remedies they arose under the Proceeds Subclause. His Honour considered the evidence and said:
'[The Buyer] has done nothing to identify any part of the proceeds as relating to the steel in [the Invoices], and has done nothing to set aside and hold any part of the proceeds in trust for [the Seller]. …
[T]here is no basis on the evidence on which any particular one of the [Steel Products], whether they have been delivered to [the Third Party] or are still in [the Buyer's] hands, can be identified as having been produced from the goods in any one of the [Invoices]. Nor is there any basis for carrying out any process of apportionment; if such a process were appropriate, the evidence would not enable it to be done.'
In the first of these passages, Bryson J refers to 'proceeds' in the hands of the Buyer. This reference erroneously assumes that the payments received by the Buyer from the Third Party, as at the time of judgment, were 'proceeds' within the meaning of the Proceeds Subclause. However, in the context of the further findings quoted above, it is not possible to identify, as conceded in this Court by counsel for the Seller, whether any payments made by the Third Party to the Buyer were related, within the meaning of the Proceeds Subclause, to the steel supplied by the Seller under any particular invoice. Thus whilst the Proceeds Subclause operates in each case as an agreement to constitute a trust of future-acquired property, the Seller has not demonstrated receipt of the future-acquired property by the Buyer. In turn, therefore, it cannot be concluded that any trust in favour of the Seller was constituted under the Proceeds Subclause.
This lacuna in the evidence is fatal to the claim for the equitable relief made by the Seller. It is not disputed that the steel supplied by the Seller under the Invoices has been used in the Buyer's manufacturing process to produce the Steel Products. Further, as at the time of judgment of Bryson J, the Buyer had received part, but not complete, payment from the Third Party for the Steel Products. However, the question remains whether the Buyer has received those payments: (a) as trustee for the Seller, in the event that the payments received were 'proceeds'; or (b) for its own benefit, in the event that the payments received were not 'proceeds'. Neither the declarations sought, nor the remedy of equitable tracing against the Buyer, nor any liability of the Buyer to account as trustee will arise if the payments received were not 'proceeds' within the meaning of the Proceeds Subclause. The burden of proving that a trust was constituted by the Proceeds Subclause, in respect of each of the Invoices, lay on the Seller. This appeal may be contrasted with the position that would have resulted if the Buyer had, hypothetically, received all payments from the Third Party with respect to the Steel Products. If this had occurred (which has not been contended by any of the parties) the inference may have to have been drawn that the Buyer had received the 'proceeds' from the Third Party, in respect of each of the Invoices.
The proceedings were constituted by summons and heard promptly. However, the procedure adopted meant that the issues did not appear as would have been the case had there been pleadings. If such rigour had been applied it may have been readily identifiable to the parties, perhaps prior to trial, that the Seller had failed to prove an essential fact in issue, namely the receipt of 'proceeds' by the Buyer. Without proof of this threshold fact, no trust relationship can arise under the Proceeds Subclause between the Seller and Buyer.
The Seller submitted that an order to account should nevertheless be made against the Buyer; in substance, as a way of identifying whether the Buyer had received 'proceeds' within the meaning of the Proceeds Subclause in relation to the Invoices. Counsel for the Buyer correctly identified the weakness in this submission. Before a party can be ordered to account, liability to account must be established. The Seller's failure to prove that the Buyer is a fiduciary, owing trust obligations to the Seller, denies its claim to this remedy.
Conclusion
Whilst we differ from the Court of Appeal, which held that the Proceeds Subclause was a 'charge' within s 9 of the Law which was registrable under Pt 3.5, the appeal nevertheless cannot succeed for the reasons just given. In particular, the case for the equitable remedies sought by the Seller was not made out. The ultimate conclusion that the relief sought by the Seller had to be refused should not be disturbed and the appeal to this Court should be dismissed with costs.
It is therefore unnecessary to determine the ancillary issue of whether the Proceeds Subclause was a term of the agreement to supply steel in relation to Invoice No. 583, which omitted the retention of title clause."

48    It follows that, even if, as I am disposed to think is the case, Cooper DCJ erred in declining to hold that he was bound by Bryson J's finding that (at least in respect of all transaction reflected in invoices other than those such as 583 which did not have the retention of title clause on the reverse side) the terms of the retention of title clause formed part of the contract between MEF and the Respondent, that conclusion would not advance the Respondent's position. I say this, first, since, as was the case on the hearing before Bryson J, the evidence tendered on the hearing before Cooper DCJ did not demonstrate the receipt by MEF of any 'proceeds', in the absence of which evidence the relationship between MEF and the Respondent prima facie remained that of debtor/creditor; and, second, that, in any event, the moneys the subject of the payment on 31 January 1996 were provided, not from any moneys standing to the credit of MEF with its bankers, but by increasing MEF's overdraft with its bankers.

49    I turn, then, to the matters raised by the Appellants in their appeal.

50    It was conceded on the hearing of the appeal (T. 13) that, to the extent to which Cooper DCJ based his conclusions upon his acceptance of Mr. Walton's knowledge and beliefs, it would not be open to this Court to interfere. It was, however, submitted that it was open to this Court to substitute its views as to whether or not Mr. Walton had reasonable grounds for suspecting that MEF was insolvent and that a reasonable person in Mr. Walton's circumstances would have had no such grounds for so suspecting. While accepting that, if it were to conclude that Cooper DCJ had erred in finding that, at the time when the payments were made on 5 January 1996, Mr. Walton (and, thus, the Respondent) had no reasonable grounds for suspecting that MEF was insolvent and that a reasonable person in Mr. Walton's (and thus, the Respondent's) circumstances, would have had no such grounds for so suspecting, it would be open to this Court to substitute its own views on those questions, I am not persuaded that Cooper DCJ erred in the conclusions to which, in respect of those payments, he came; on the contrary, it seems to me that the reasons recorded by Cooper DCJ for coming to those conclusions are eminently sound.

51    Finally, I turn to the question of costs.

52    Costs are, of course, a matter which lies within the discretion of a Court. However, that discretion is not an unfettered, but a judicial, discretion and one which must be exercised in accordance with established principle. In general, the principles to be applied in inter-partes litigation such as this are, first, that, in the absence of special circumstances justifying some other order, costs follow the event so that a successful litigant receives his costs; and, second, that where a litigant succeeds in part only of his claim, the circumstances may make it reasonable that he bear the cost of litigating that portion upon which he has failed. Although, in past years, it was not uncommon for there to be orders for the costs of separate issues, the task of fixing the costs of those issues being left to the taxing officer, of more recent times it has become not uncommon, particularly when it might be difficult to apportion the costs appropriate to each issue, to order that the party who, although ultimately obtaining a judgment, succeeding in part only of his claim, receive but part of his costs (see, for example, Hughes v. Western Australian Cricket Association (Inc) (1986) ATPR 40-748) or that there be no order as to the costs of the proceedings (see, for example, Permanent Trustee Aust Limited v. FAI General Insurance Co. Limited Hodgson CJ in Eq. 3 June 1998 (unreported)).

53    In my view, nothing which has been advanced on behalf of the Appellants persuades me that, in making the order for costs which he did, Cooper DCJ erred in the exercise of the discretion vested in him.

54    For these reasons, I propose the following Orders:

1. ORDER that the Appeal be dismissed.

2. ORDER that the Cross-Appeal be dismissed.

As the time devoted to the issues raised by the Cross-Appeal was but minimal, I would propose the following further Orders:

3. ORDER that the Appellants pay the Respondent's costs of the appeal.

4. MAKE NO ORDER as to the costs of the Cross-Appeal.

55    FOSTER AJA: I agree with Powell JA.

********