White and Templeton v ACN 153 152 731 Pty Ltd (in liq)
[2017] WASC 52
•2 MARCH 2017
WHITE & TEMPLETON -v- ACN 153 152 731 PTY LTD (in liq) [2017] WASC 52
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2017] WASC 52 | |
| Case No: | COR:19/2016 | 28 - 30 NOVEMBER & 1 DECEMBER 2016 | |
| Coram: | MASTER SANDERSON | 2/03/17 | |
| 28 | Judgment Part: | 1 of 1 | |
| Result: | Application dismissed | ||
| B | |||
| PDF Version |
| Parties: | HAYDEN LEIGH WHITE & DAMIAN JOHN TEMPLETON in their capacities as joint and several Liquidators of PORT VILLAGE ACCOMODATION PTY LTD (in liq) ACN 153 152 731 PTY LTD (in liq) HICKORY GROUP PTY LTD |
Catchwords: | Corporations law Claim payment made to defendants a preference Defence under s 588FG(2) Turns on own facts |
Legislation: | Corporations Act 2001 (Cth) |
Case References: | Burness v Supaproducts Pty Ltd (2009) 74 ACSR 1 Buzzle Operations Pty Ltd (In liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47 Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353 Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) Williams v Peters (2009) 232 FLR 98 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiffs
AND
ACN 153 152 731 PTY LTD (in liq)
First Defendant
HICKORY GROUP PTY LTD
Second Defendant
Catchwords:
Corporations law - Claim payment made to defendants a preference - Defence under s 588FG(2) - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiffs : Ms P E Cahill SC & Mr W C J Zappia
First Defendant : No appearance
Second Defendant : Mr J A Thomson SC & Mr R J S French
Solicitors:
Plaintiffs : Clayton Utz
First Defendant : No appearance
Second Defendant : B2B Lawyers
Case(s) referred to in judgment(s):
Burness v Supaproducts Pty Ltd (2009) 74 ACSR 1
Buzzle Operations Pty Ltd (In liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47
Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353
Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm)
Williams v Peters (2009) 232 FLR 98
1 MASTER SANDERSON: This action concerns the collapse of Port Village Accommodation Pty Ltd (PVA) and attempts by the liquidators of PVA to recover what they allege are preferential payments made to the second defendant.
The collapse of PVA - overview
2 The plaintiffs relied on an affidavit of Hayden Leigh White sworn 28 January 2016. Attached to the affidavit is a copy of the Administrators Report pursuant to s 439A of the Corporations Act 2001 (Cth). Section 6 of the Report sets out the 'Company history and financial analysis'. Section 6.1, which is headed 'The Company's history', gives a brief, and in my view accurate, overall summary of the background facts. It is a useful place to start before dealing in more detail with the defendants' position:
As detailed at section 5.1, the Company was incorporated as an Australian proprietary limited company on 7 April 2009.
In May 2009 the Company entered into a sale agreement to acquire the Port Hedland Caravan Park ('the Property') from parties whom are understood to be independent vendors. Due to a number of issues associated with this transaction the sale agreement was not settled until sometime in 2010. However, from late May 2009 the Company was in possession of and operating the caravan park.
The acquisition was predominantly funded by the Commonwealth Bank of Australia ('CBA') by way of a $9.5 million loan facility secured against the Property and supported by guarantees provided by the Company's directors at that time and related parties.
Subsequent to acquisition, the Company commenced improvement of the Property via:
• Incremental installation of short-term accommodation at the Property to complement the existing business. This was achieved through leasing and installation of caravans at the Property and entering into accommodation supply (off-take) agreements with customers. Ultimately 300 vans were installed at the Property; and
• Lodging a development application for the Property for the construction of a 600 bed mixed use accommodation facility and a business park. This project was known as 'The Landing Port Hedland'.
Operation of the caravan park and the development and construction of 'The Landing' project was exclusively handled by Centauri Property Group Pty Ltd pursuant to an Investment Management Agreement, executed on 24 January 2010, but applying from 7 April 2009 (i.e. the Company's incorporation date). This agreement is considered in more detail at section 7.14 of this report.
Subsequently, the Company acquired an adjacent parcel of land, on which a truck stop is situated. This land is leased to a third party who operates the truck stop and pays the Company an agreed lease fee.
On or around December 2011 the CBA facility had increased from its original value to approximately $13.4 million and was refinanced by St George Bank.
In April 2012, the Company entered into multi faceted agreements with BHPBIO to refinance the St George debt facility (which had reached approximately $31.6 million), partially finance construction of the accommodation aspects of 'The Landing', put in place long term off-take arrangements for existing accommodation (which made BHPBIO the sole customer of the Company's short term accommodation business) and long term off-take arrangements for accommodation that was to be constructed as a part of 'The Landing' development. These agreements included critical milestones such as requirements that the Company attract the balance of the required construction finance, equity injections, completion of the project and availability of accommodation to BHPBIO by a certain date.
On the basis of the BHPBIO agreements, the Company:
• Commenced construction of 'The Landing', which involved the commissioning of purpose built, prefabricated concrete modules (or pods) from which the facility was to be built, and partial completion of site works; and
• Sought to attract the funding required under the BHPBIO agreements and necessary to finance the build. The Company was ultimately unable to obtain an appropriate debt facility.
By June 2012, the Company had failed to achieve a number of critical milestones related both to the status of construction and introduction of additional construction finance. Between June 2012 and November 2012 and due to the Company's inability to satisfy contractual requirements, BHPBIO gradually escalated enforcement of its contractual rights under its agreements, which ultimately led to the appointment of the Receivers to the Company's assets and undertakings (and those of Centauri and NWI Fund 1) on 1 November 2012.
On their appointment the Receivers entered into possession of all of the Company's assets and undertakings, which includes operations of the Company's businesses (as they existed at that time).
Subsequent to the Receivers' appointment, BHPBIO terminated the off-take agreement for the pre-existing accommodation and vacated the Property.
Since mid to late 2012 there has been a number of discussions regarding incoming participants in the project and the possibility of a general recapitalisation and restructuring of the Company.
On or around 31 January 2013, the directors of the Company formed the opinion that a restructure and reorganisation could not be achieved outside of voluntary administration and as such resolved to appoint the Administrators.
3 The first defendant (then known as Hickory Group (WA) Pty Ltd) supplied certain goods and materials to PVA as part of a subcontract arrangement. The second defendant in the action was the parent company of the first defendant and payments made by PVA to the first defendant were transferred almost immediately to the second defendant. Against that general background it is now necessary to consider in some details facts relevant to the action.
The background facts
4 In the course of this hearing the first defendant was generally referred to as 'HWA' and the second defendant was referred to as 'HG'. I will adopt that designation. The first defendant took no part in these proceedings. The only evidence led for the second defendant was two affidavits of Michael Argyrou, the first sworn 20 April 2016 and the second sworn 16 November 2016. The following summary of the facts is drawn from these two affidavits.
5 HG is a building company which specialises in the construction of large scale developments. HWA was a company registered for the purpose of undertaking business in Western Australia including work on the Landing development (Landing Project). PVA approached HG in relation to the possibility of HG acting as builder of the Landing Project in Port Hedland. The project was formulated over a period of about two years prior to its commencement in March 2012. Mr Argyrou's contact with PVA was with Mr Robin Cornish. Mr Argyrou was given to understand the proposed development was to build accommodation to house people employed to work at BHP's iron ore project. Mr Argyrou understood BHP was the financier. Mr Cornish advised Mr Argyrou that HG was regarded as the appropriate builder because of its expertise and experience in building 'modular' buildings.
6 Mr Argyrou explains these modular buildings in this way. The end product of a modular building looks like an ordinary building. However the construction method is different as approximately 50% - 75% of the building is manufactured off-site in a factory. The components are then transported from the factory by truck to the site. Modular construction was regarded by PVA and by BHP as the appropriate delivery method for the Landing Project because of the remoteness of the development in South Hedland made accessibility to construction resources difficult and expensive. It was more financially viable to manufacture off-site and transport the modules to the building site rather than construct the hotel using the conventional method.
7 HG is based in Victoria. Mr Argyrou says when business is to be done interstate it is HG's usual practice to incorporate a stand-alone company in that State. That is done in part because different rules and regulations apply in different States. It was not suggested on the part of the plaintiffs that it was in any way improper for HG to have used HWA to undertake the project. HWA employed a construction team which was responsible for all aspects of the development. However, Mr Argyrou had the final say. He was the controlling hand of HWA. He says, and I accept, he rarely if ever discussed the progress of the Landing Project with his fellow directors of HG. That finding of fact is important in the overall resolution of this application.
8 The modular technology utilised in the Landing Project was not owned either by HG or HWA. It was owned by another Hickory entity, Hickory Building Systems Pty Ltd (HBS). Up until 16 October 2013 this entity was known as Unitised Building (Aust) Pty Ltd. HBS performed the majority of works on the project using the modular technology it owned. But HWA was directly responsible for managing and conducting the base building works for the Landing Project.
9 On or about 2 March 2012 HWA received a letter from PVA instructing HWA to commence preliminary works in advance of a contract for the project being finalised. The preliminary works were then undertaken by HWA. A contract was ultimately finalised and signed on 23 May 2012. Throughout the course of the Landing Project Mr Argyrou was aware PVA, through Mr Cornish, reported to BHP as the financier of the project and ultimate user and beneficiary of the proposed modular homes for workers at its iron ore mines. BHP appointed a project management firm to oversee and monitor the project.
10 At the time HWA commenced work Mr Argyrou was given to understand that BHP was to rent all of the modular homes constructed for a term of 10 years from PVA. Effectively BHP was paying rent in advance in order to provide funding and working capital to ensure completion of the project. Mr Argyrou says he understood that BHP would ensure sufficient funding for HWA to be paid for all of its work on the project.
11 This understanding of Mr Argyrou was a matter of some importance. Throughout his cross-examination Mr Argyrou was anxious to reinforce two points. First, BHP was the financier of this project in an arrangement which was unusual. Second, BHP was anxious to provide accommodation for its workers and was prepared to take the unusual and innovative step of financing the project effectively by pre-paying rent. Mr Argyrou repeatedly made the point that in his mind BHP would do whatever it took to ensure completion of the units so as to provide accommodation for the BHP work force.
12 On 21 June 2012 a 'Step-In Deed' was entered into between HWA, PVA and BHP Billiton Iron Ore Pty Ltd as manger and agent for the joint venture participants. Pursuant to the Step-In Deed HWA consented to BHP's security interests and HWA agreed to notify BHP upon a default by PVA. BHP then had the right to step-in and remedy the default. Mr Argyrou says these step-in deeds are 'always' entered into between the builder, the developer and the financier of the project. Obviously such a deed provides a level of comfort to any financier who has a significant commitment to a building project.
13 In about April 2012 PVA started to pay invoices issued by HWA. HWA issued invoices totalling $5.72 million on 5 March, 4 April and 4 May 2012. These invoices were issued for early work, procurement and design work. The invoiced amounts were paid on 16 March, 1 May and 9 May 2012 respectively. The amounts which were paid to HWA were immediately transferred from HWA to HG. The formal contract between PVA and HWA was executed on 23 May 2012.
14 Over the life of the project HWA made progress claims amounting to $35.1 million. It was paid $17.2 million. That left an amount of approximately $14.2 million outstanding. This related to work which was claimed in progress claims made in September, October, November and December 2012. This is an important point - work continued after September 2012 and the amount claimed for that work (and unpaid) is significant.
15 Almost from the moment the contract between PVA and HWA was signed problems arose. PVA was due to pay HWA $4,966,929.02 on 29 June 2012. PVA was due to pay HWA $6,496,186.97 on 23 July 2012. As at 2 August 2012 both amounts remained unpaid. There then followed an email exchange between Mr Argyrou and Mr Cornish in relation to the outstanding payments. Copies of those emails are attachment MA13 to Mr Argyrou's affidavit of 15 April 2016. The exchange begins with an email from Mr Argyrou to Mr Cornish sent 2 August 2012 at 1.01 pm. Mr Argyrou enquires in direct but not aggressive terms when payment can be expected. Mr Cornish responded at 3.12 pm on the same day. Relevantly that email reads as follows:
Understood - Im aiming to have the update through for end of the day. The funds have been confirmed but the disbursement by the 8th is what we are waiting confirmation on. Happy to discuss this afternoon by [sic] I don't expect a full update from Sydney where our Commercial Manager Dave is until the end of the day. The point I made with Geoff this morning is while we are excruciatingly close to kicking things off, we don't want you guys to start on site until we have those funds across and physically in your account as well as confirmation of acceptance by BHPBIO of the revised schedule so that once we do get going on site we can implement uninterrupted. The 8th is going to be tight given the pace of the stakeholders at this stage but I will confirm this this afternoon.
16 There was a further email exchange on 6 August 2012 which was inconclusive. On 7 August 2012 Mr Argyrou sent Mr Cornish an email in the following terms:
Can you please explain in detail what confirmation you are chasing. Is the money available or not and if it is then what exactly needs to take place for it to be transferred to our account.
17 Mr Cornish responded later that morning, relevantly, he said:
The summary process is as follows:
1. An equity line of $40m has been approved by the board for drawdown to cover any delays from the $30m Deutsche facility or BHPBIO loan (remaining $22m) process requirements.
2. The funding process requires a series of share warrants to be instantiated and signed off and we are currently working through executing these.
3. Once these are completed the cash transfers can happen immediately.
4. Im continuing to work on this this morning and will detail the outstanding steps this afternoon.
18 Later that same day (8 August 2012) a notice of default was issued to PVA by HWA. The notice gave PVA seven days to show cause why HWA should not terminate or suspend the contract. A copy of the notice of default was served on BHP in accordance with the provisions of the Step-In Deed.
19 On 17 August 2012 Mr Cornish signed a letter of undertaking. In that letter PVA promised it would sign a second mortgage in HWA's favour. It also undertook to procure BHP to provide all documents necessary to enable the second mortgage to be registered. Three days later on 20 August 2012 Mr Cornish wrote to HWA providing an explanation of the status of the Landing Project. This letter was written in response to the show cause notice. PVA said the project had experienced a series of delays which were material to the provision of finance from sources including BHP and Deutsche Bank. The settlement of outstanding payments was dependent upon conditions precedent for drawdowns from the finance being provided including due diligence not under the direct control of PVA. The letter referred to the proposed deed of amendment to the design and construction contract to reduce financial risk to HWA and to a second mortgage. The deed of amendment was executed by PVA on or about 24 August 2012.
20 On that same day a writ and statement of claim were filed on behalf of HWA in this court. The writ sought judgment against PVA for the amounts then due under the contract. The writ was served on PVA on 23 August 2012.
21 By letter from PVA to HWA dated 31 August 2012 PVA attached a letter from FMR Investments Pty Ltd (FMR) advising that HWA's outstanding invoices would be settled on 7 and 14 September 2012. The attached letter from FMR advised that FMR had made application for 20 million Ordinary Class B shares in PVA and in doing so had contributed $20 million in capital. The letter further confirmed that funds were provided to fund construction of stage 1 of the Landing Project and were available to distribute as all conditions precedent to provision of finance had been met.
22 HWA and PVA then had further communications in relation to PVA procuring the funds from FMR and making payment to HWA on 13 and 14 September 2012. On 14 September 2012 Mr Argyrou received a letter from PVA advising the $20 million equity subscription had been completed but had taken longer than anticipated. The letter further advised HWA's invoices were to be settled later that day. The sum of $8,163,115.99 was paid by PVA to HWA on 14 September 2012.
23 On 17 September 2012 HWA wrote to PVA advising that the sum of $3,024,608.26 remained owing. A further default notice and a 'cure notice' to be issued to BHP under the Step-In Deed were foreshadowed. The further sum of $300,000.64 was paid by PVA to HWA on 21 September 2012.
24 On 17 September 2012 HWA wrote to BHP raising matters including the seeking of consent to the registration of second mortgage. On 19 September 2012 BHP wrote to HWA advising that the matters referred to in the letter from HWA would be considered the following week.
25 HWA continued to perform works and submit claims on the project up until BHP appointed a receiver at the end of October 2012.
26 On 27 September 2012 Mr Cornish forwarded Mr Argyrou a copy of a letter from PVA to BHP. A copy of that letter is attachment MA32 to Mr Argyrou affidavit of 15 April 2016. The letter is headed 'Absence of BHP Billiton Drawdown'. It notes the drawdown facility had been suspended since July 2012. The letter requests the reinstatement of the facility 'to prevent the Company [PVA] from exposure to further Events of Default'. Although that letter requested a response by 28 September 2012 no reply was forthcoming. On 30 September 2012 Mr Cornish sent a further email to BHP. That email also failed to draw any definitive response.
27 On 9 October 2012 Mr Argyrou received an email from Mr Cornish. The email goes into the difficulties PVA was experiencing with BHP but gives no hint that BHP would not in due course provide further finance. The email concludes as follows:
As you've issued the cure notice to BHP in relation to the August payment and we have lodged with them the September payment as certified and overdue, we will continue to pressure for the payments either through us or directly in accordance with the cure notice. I'll update as soon as we hear ... and either way by the end of the day.
28 Clearly by this stage Mr Argyrou was concerned. He responded in the following terms:
I appreciate the email.
Obviously your phone doesn't work or your arms have been removed and that is why you couldn't return my phonecalls.
We are still waiting on our August claim of $2.7 million to be paid from the FMR equity, what has happened to this amount? will you still be receiving this equity or not? If you do is it still allocated to paying our august claim?
In addition we are still waiting for our September claim of $5.7 million and we have just made a claim for October which is another $4 million. You mention that the BHP facility is allocated to paying this but it already seems short.
How are you progressing with your other financiers (Deutche Bank)?
What do we do if BHP decide not to pay?
I would appreciate some answers to my questions.
29 On 27 October 2012 Mr Argyrou received a letter from BHP. The letter advised that BHP had issued default notices and had elected not to remedy PVA's defaults under the Step-In Deed. The letter also referred to the fact that Ernst & Young had been acting as investigating accountants since late August 2012 and had undertaken a thorough review of the project and provided a report. Mr Argyrou was already aware that Ernst & Young had been engaged to monitor the project but he does not recall precisely when and how he became aware of the fact. Following receipt of the report BHP had elected to require immediate repayment of outstanding amounts and not to advance further funds. Mr Argyrou received an email from Ernst & Young on 1 November 2012 advising of their appointment as receivers.
30 Mr Argyrou's affidavit of 16 November 2016 is of limited scope. Essentially he says that at no time up until the end of September 2012 did he have any access to financial information in relation to PVA. That is to say he did not have access to income statements, balance sheets, cash flow forecasts and the like.
The plaintiffs' claims
31 The plaintiffs' claim the following relief:
1. An order pursuant to section 588FF(1)(j) declaring that the mortgage granted by the Company on or about 30 August 2012 over its property located at Lots 2 and 3 Great Northern Highway, Port Hedland, Western Australia, being certificate of title volume 2704 folio 80, in favour of the First Defendant is void and unenforceable.
2. An order declaring that the payments from the Company to the First Defendant between 10 august 2012 and 21 September 2012 and totalling $10,463,115.64 (Payments) are:
(a) unfair preferences within the meaning of section 588FA of the Act;
(b) insolvent transactions within the meaning of section 588FC of the Act; and
(c) voidable transactions within the meaning of section 588FE(2) of the Act.
3. An order pursuant to section 588FF(1)(c) of the Act that the Second Defendant pay to the Company the sum of $10,463,115.64, or such other amount that, in the Court's opinion, fairly represents the benefits that the Second Defendant has received because of the Payments.
4. Interest pursuant to section 6 of the Supreme Court Act 1935 (WA).
5. Costs.
6. Such further or other orders as the Court thinks appropriate.
Statutory provisions
32 The plaintiffs seek a declaration to the effect that payments made were (a) unfair preferences within the meaning of s 588FA of the Act; (b) insolvent transactions within the meaning of s 588FC of the Act; and voidable transactions within the meaning of s 588FE(2) of the Act. They then seek consequential orders pursuant to s 588FF(1)(c) of the Act. In relation to all of these matters the onus of proof rests with the plaintiffs.
33 For their part the second defendant relies upon s 588FG(2). That section reads as follows:
(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.
(1) the party must have become a party to the impugned transaction 'in good faith';
(2) the party must have had 'no reasonable grounds for suspecting' that the company was insolvent;
(3) a reasonable person in the party's circumstances must have had no reasonable grounds for suspecting the company was insolvent; and
(4) the party must have provided valuable consideration under the transaction or alternatively changed its position in relation to the transaction.
35 There is no suggestion the fourth limb would not be satisfied. Clearly valuable consideration has been provided within the transaction and all the second defendant changed was its position in reliance on the transaction. The question is whether the second defendant has satisfied the other three requirements. The onus is upon it to do so.
36 In resolving this action I have approached the matter by looking first at whether a defence under s 588FG(2) is available. There are limited authorities available as to the correct interpretation of s 588FG(2).
Section 588FG(2) - the law
37 Dealing first with a question of good faith, the issue is whether when a party entered into the transaction it acted in good faith. The question is not whether the party received the payment in good faith. The requirement of good faith is one that the creditor because a party to the transaction with propriety or honesty: see Buzzle Operations Pty Ltd (In liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47 [154]. Where a creditor receives a payment of a genuine debt it prima facie acts in good faith that situation holding unless displaced.
38 The two limbs of subs (b) are generally taken together. The first limb fastens on actual awareness of insolvency; the second limb is based entirely objectively on the presumed state of mind of a reasonable person. It is sometimes said these two tests embody on the one hand a subjective test and the other an objective test. The authorities suggest it is seldom the two tests will produce different results: see Williams v Peters (2009) 232 FLR 98 [55] and Burness v Supaproducts Pty Ltd (2009) 74 ACSR 1 [52].
39 In fact there are actually three tests embodied in the two subsections. First the person must establish he did not actually suspect the company was insolvent. If, for instance, during cross-examination it emerged the person did actually suspect insolvency then that would be the end of the matter. On the other hand, it may be an entirely truthful witness did not actually suspect insolvency dispute overwhelming evidence to that effect. In that case no matter what the witness may actually have believed if the belief was not founded on 'reasonable grounds' then the requirements of the subsection are not satisfied. Thus there are two elements to the so-called subjective test.
40 The objective test on the other hand postulates the reasonable person. That reasonable person is said to be 'a reasonable business person': see Burness v Supaproducts Pty Ltd [52]. I am not sure why the subsection should be expanded to refer to a 'business person'. The subsection refers to the reasonable person being 'in the person's circumstances'. In this case that must mean a reasonable person who is managing a business supplying goods and materials in the building industry. That excludes almost everyone - including insolvency lawyers and liquidators. Moreover the test can be seen as it once objective and subjective. If the person concerned is found as a matter of fact to be a reasonable person and he 'would have' no grounds for suspecting insolvency then the requirements of the subsection are satisfied.
41 In Dean-Willcocks v Commissioner of Taxation (2004) 51 ACSR 353 Young CJ in equity accepted that what a party must do is negate any suggestion of actual apprehension of insolvency based on objective circumstances. His Honour went on at [29]:
[F]urthermore the apprehension must be considered in its factual matrix and prevailing business practices: Hamilton v BHP Steel (JLA) Pty Ltd (1995) 13 ACLC 1548 at 1552 . Further, one must look at it through the contemporary eyes of the relevant person in the then prevailing circumstances and beware of letting hindsight influence one's judgment: see eg Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477 at 483-4 [43].
42 Against that background I now turn to the facts of this case.
Evidence for the second defendant - overview
43 As might have been expected it was the plaintiffs' position that Mr Argyrou could not be believed when he maintained as he did in his affidavit and under cross-examination he did not actually suspect PVA was insolvent. Counsel for the plaintiffs had as her prime submission that for a variety of reasons Mr Argyrou was not to be believed. I will deal with that submission in more detail below. But there was a more general point. It was submitted in the circumstances of this case Mr Argyrou's evidence was inherently unreliable because of the time that had passed and the natural fallibility of his memory. In support of this proposition counsel relied upon what was said by Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm). Under the heading ' evidence based on recollection' his Honour said:
15. As obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.
16. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people's memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.
17. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called 'flashbulb' memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description 'flashbulb' memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience). External information can intrude into a witness's memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).
18. Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.
19. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party's lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.
20. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does not does not say. The statement is made after the witness's memory has been 'refreshed' by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness's memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.
21. It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.
22. In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.
44 This statement of principle (if that is what it is) is both patronising and paternalistic; it owes much to the pop psychology so popular in the 1960s. Any person who gives evidence in this court has the right to be believed on their oath. Under cross-examination some witnesses display a very clear recollection of events so that when put against a consistent documentary record their evidence must be accepted. Other witnesses will have a good recollection of events; others may have a poor recollection of events. Some witnesses when shown documents may have their memory jogged. Others will be unable to explain how particular documents are consistent with what they recall. There is then a group of witnesses whose evidence is unreliable. It may be because they simply cannot remember what occurred. Or the trier of fact may come to the conclusion the evidence is a simple fabrication made up to suit the best interests of the witness' case. But in all of these circumstances the starting point is an assumption the witness is honest and is giving evidence as best they can. Simply to discount a witness' evidence and say based upon documentary evidence he or she must have suspected insolvency is not, in my view, consistent with Australian jurisprudence.
45 Two further points can be made. First, I found Mr Argyrou to be a witness of truth. He was subjected to a rigorous but by no means unfair cross-examination. He gave his evidence carefully and said from time to time his memory did not allow him to answer particular questions. He was not evasive; and he did not give the impression he was giving his evidence simply to support his case. But that is not enough to satisfy the first limb of the test. He had to establish he had no reasonable grounds for suspecting that the company was insolvent. But as to any suggestion he actually formed a view the company was insolvent that can be put to one side. I am satisfied that was not the case.
46 Second, it is important to remember the circumstances in which HG entered into the contractual arrangements with PVA. HG knew BHP was the designated end user of the units when developed. Mr Argyrou along with every Australian citizen knows the financial strength of BHP. Mr Argyrou was well aware of the extent of BHP's operations in the Pilbara and the company's need to accommodation its workforce in Port Hedland. Mr Argyrou was at pains throughout his cross-examination to emphasise the importance of BHP as the end user of the units. He maintained this gave him great confidence that the project would proceed through to completion. On that issue he was utterly convincing.
47 It is worth developing that point just a little further. Mr Argyrou is obviously an optimist. He believed the project would proceed and it would produce for his company substantial profits. He was not casting around for impediments to stop the progress of the project; rather, he was looking for solutions to problems as they arose. He clearly took the view most of the problems bedevilling the project could be sheeted home to a lack of organisation and system on the part of PVA. He believed these problems were temporary and could be sorted out with the application of sound management principles. Mr Argyrou actually said to this day despite the significant losses his company experienced, he believed the project was sound and, properly managed, would have been seen through to completion. He may well be right.
The evidence of Mr Argyrou
48 The essence of Mr Argyrou's evidence is found in par 27 of his first affidavit. It is in the following terms:
27. In all of the circumstances set out in this affidavit, in September 2012, when the payments the subject of this proceeding were made by PVA to HWA, I was not concerned about the solvency of PVA, despite the fact that there had been delay in making payments to HWA. In particular:
(a) BHP was funding the project, was the ultimate beneficiary of the product of the works, and had appointed representatives to monitor it, and had not exercised any step in regarding their rights or taken other steps such as the appointment of a receiver;
(b) PVA still had $17.5 million in funding from BHP available;
(c) FMR had invested $20 million by way of an injection of equity. I considered that FRM would not have invested those funds unless it had conducted due diligence investigations and satisfied itself as to PVA's solvency.
(d) I had met with Robert Fiske of BHP who advised me that BHP would step-in and take over the project and ensure its completion if PVA ever defaulted because BHP urgently needed the modular homes to service its mining interests. I do not recall the date of that meeting, but it occurred before September 2012. Mr Fiske said to me, words to the effect that, the cost to BHP of having the rooms directly correlated to the revenue BHP would earn 'in the ground', that is, from the mining of iron ore. The value of each room was something like 50 times the revenue BHP would earn. He also said words to the effect that now I should understand that $50m or $100m means very little to BHP when we are talking about billions of dollars coming out of the ground. I left the meeting with the knowledge that whilst Hickory was playing only a small part in the construction of The Landing Resort, that role was pivotal to BHP's mining operation in that area.
50 The plaintiffs pointed out that from the commencement of the project, HG knew that PVA was principally, but not fully, funded by BHP. HG therefore expected there would be an equity gap and assumed it would be funded by equity contributions.
51 By 25 April 2012, there had been some issues regarding the timely payment of HWA's invoices. That is clear from the email from Mr Cornish to Mr Argyrou dated 25 April 2012. By that email, Mr Argyrou learned that PVA had a commitment to be cash-flow positive and that PVA was in the process of 'setting up to ensure that [PVA was] not wholly reliant on the BHP drawdown process'. The plaintiffs say the implication from the email is that PVA was not cash-flow positive at the time and would remain so absent additional funding.
52 Taken in the overall, it was submitted that from the first Mr Argyrou and HG knew or ought to have known there were funding issues for the project. That is to say, the BHP funding commitment was not in and of itself sufficient to allow the project to be constructed and Mr Argyrou knew that additional funding sources were required. That should have alerted him to the potential for cash-flow difficulties into the future.
53 On 15 June 2012, HWA issued PVA with an invoice for just under $5 million. Payment of the invoice was due on 30 June 2012. By 3 July 2012, HWA was chasing up the outstanding claim as well as an invoice rendered on 5 March 2012. Even at this stage Mr Argyrou was concerned to ensure these invoices were paid. The 5 March invoice was paid on 5 July 2012. This was the same day that HWA was advised that the drawdown from BHP was only $4.5 million and that it was to be used to pay all contractors, not just HWA. The additional funding was said to be coming from an equity contribution. That disclosure was not in line with Mr Argyrou's expectations. Mr Argyrou required a further explanation from Mr Cornish. Again, it was submitted doubts must have been in Mr Argyrou's mind as to the capacity of PVA to pay.
54 There were further exchanges on the issue of payment of the second defendant's invoices in July. During these exchanges there was no suggestion by Mr Cornish that PVA was now cash-flow positive or had arranged secondary funding. Instead, Mr Cornish suggested that payments had been capped at $500,000 and that there had been agreement for the payments to be positively cash-flowed to an amount of $2 million.
55 The plaintiffs say it is a reasonable inference to be drawn from Mr Cornish's communication of 25 April 2012 and his email regarding the capping of payments that PVA was cash-flow negative if invoices over the amount of $2 million were rendered. The plaintiffs say:
That would have caused a reasonable person in the position of Hickory Group to begin to question PVA's ability to access debt and equity funding to pay its debts as and when they fell due. At this time a level of doubt about PVA's financial position was also beginning to manifest itself within Hickory Group.
56 It is to be noted it is not suggested by the plaintiffs that at this stage Mr Argyrou or HG actually suspected insolvency. Furthermore, the submission is to the effect there was a level of doubt within HG about PVA's 'financial position'. Mr Argyrou maintained that was not the case. In response to questions in cross-examination he maintained throughout he never had any real concerns about PVA's financial position. What he was concerned about was its cash-flow and the way it was being managed as that impacted upon the cash-flow.
57 The plaintiffs say that any doubt HG had about the financial position of PVA would have been reinforced by the fact that on 13 and 19 July 2012 respectively, PVA made two rounded up lump sum payments of $500,000 towards the payment of the June invoice. By this stage PVA's indebtedness to HWA had increased. After the issue of the 10 July invoice, the indebtedness was just under $6.5 million. By 23 July 2012, Mr Argyrou knew that further advances from BHP were dependent upon the successful resolution of issues raised surrounding 'deliverables and delays'. The plaintiffs point out around this time Mr Argyrou started becoming more involved in the issue of non-payment of invoices by PVA. He accepted in cross-examination that the issue had been escalated within HG such that he began corresponding and meeting directly with Mr Cornish. The plaintiffs say the reasonable inference to be drawn from the process of escalation is that those within the 'project team' were sufficiently concerned about PVA's ability to pay its debts as and when they fell due and payable but they escalated the matter by involving Mr Argyrou. For his part, Mr Argyrou obviously considered it serious enough to warrant his direct involvement in discussions surrounding the recovery of the outstanding amounts.
58 It is worth pointing out again that even at this point it is not suggested by the plaintiffs that Mr Argyrou knew or ought to have known that PVA was insolvent. Really what is being submitted is that the scene was being set - the background being sketched in as it were - as a preliminary to the inevitable suspicion of insolvency.
59 The plaintiffs then focus on the meeting on 26 July 2012 between Mr Argyrou and Mr Cornish. At this meeting, Mr Argyrou sought from Mr Cornish evidence PVA would be able to fulfil its financial commitments under the entire contract. The plaintiffs say the approach of Mr Argyrou at this meeting disclosed a level of distrust HG had about PVA and its ability to pay its debts as and when they fell due. The evidence, it says, shows HG was not prepared to accept Mr Cornish's word without corroboration.
60 As I understand the submissions, it is at this point the plaintiffs say that Mr Argyrou should have suspected PVA was insolvent. It is submitted by this stage the weight of evidence was such that suspicion as to solvency was inevitable. I do not accept that submission for two reasons. First, Mr Argyrou maintains he did not actually have that suspicion. But looking at the evidence as a whole, I am not satisfied there were reasonable grounds for suspecting the company was insolvent. There certainly were reasonable grounds for suspecting the company had cash-flow difficulties and there were reasonable grounds for suspecting that the internal management of PVA was unsatisfactory. But as has so often been pointed out, there is a difference between temporary illiquidity and insolvency. In my view, given the background to the contract and all of the matters known to Mr Argyrou at the time, he would not have anticipated PVA was insolvent.
61 On 29 July 2012, the July invoice became due and payable. The next day Mr Argyrou wrote to Mr Cornish seeking confirmation of payment of funds by 7 August 2012 and information that was promised at the 26 July meeting. The fact that Mr Argyrou pressed Mr Cornish for the information about the finance facilities only four days after his meeting with Mr Cornish is indicative, the plaintiffs say, of an increasing level of distrust by the defendants of PVA's ability to meet its debts as and when they became due and payable.
62 It is convenient at this point to make some comment about the tactics employed by Mr Argyrou in attempting to obtain payment from PVA. I am satisfied at all relevant times Mr Argyrou believed PVA had access to funds to allow payment of the HWA invoices and the problem was the administration within PVA. Mr Argyrou therefore felt putting pressure on Mr Cornish was warranted. It is evident from the evidence there was a degree of bluster in what Mr Argyrou had to say to Mr Cornish. That is not to say HG was not desperate to be paid - Mr Argyrou made that point throughout his evidence. But Mr Argyrou had no hesitation in ratcheting up the pressure on Mr Cornish and PVA by exaggeration which may, at times, have strayed into straight out untruths. I am thinking particularly of emails which exaggerated the extent to which HG was under pressure from its bankers to ensure payment was made of outstanding invoices. There was no doubt HG was under pressure; but there is equally no doubt Mr Argyrou exaggerated the extent of that pressure. All of that is no more than legitimate business practice. It is an integral part of the debt collection process.
63 Mr Argyrou will never be mistaken for a choir boy. He has been in project management largely in Victoria for the last 25 years. He is in a hard, ruthless business. Cash-flow is everything and extracting money from creditors is essential to survival. The fact of threat and hyperbole does not in that environment translate necessarily to a suspicion of insolvency. No doubt it can do, but intemperate language is not by itself enough.
64 Returning to the plaintiffs' submissions, on 2 August 2012 works on the site were suspended because PVA did not want contractors working on site whilst PVA was trying to finalise financing arrangements because they did not want HWA to start on site without funds being guaranteed. The plaintiffs say this was a further indication that PVA could not meet its debts and was insolvent.
65 Throughout, PVA through Mr Cornish assured Mr Argyrou that, the BHP funding apart, PVA had access to a line of credit through Deutsche Bank and other equity funding. Mr Argyrou says he took Mr Cornish at his word. As it turned out, those reassurances offered by Mr Cornish were at least, in part, true. PVA did have access to funding from FMR. It is not clear whether there was ever any realistic prospect of a line of credit from Deutsche Bank. But given the assurances offered by Mr Cornish were at least half right, there is no reason to believe Mr Argyrou in fact suspected PVA was insolvent. Given the nature of the project, the possibility of debt and equity funding would not have appeared to Mr Argyrou to be fanciful.
66 The plaintiffs then point to HG's decision to issue a show cause notice to PVA for failure to pay June and July invoices. That step was taken only a day after Mr Cornish had emailed Mr Argyrou referring to the debt and equity funding. The notice was then sent to BHP. The issue of the show cause notice and later the writ of summons were, it was said, collectively and individually evidence Mr Argyrou should reasonably have suspected PVA was insolvent. I do not accept that submission. They were part of Mr Argyrou's ongoing efforts to apply pressure and obtain payment. The forwarding of the notice to BHP was, it seems, to have BHP sort out its difficulties with PVA. I am not satisfied the issue of the notice was enough to say Mr Argyrou suspected PVA was insolvent.
67 The plaintiffs then point to the meeting between PVA and HWA which was convened on 16 August 2012. The plaintiffs point out the meeting was convened despite assurances given by Mr Cornish in the email some three days earlier. Moreover, at the meeting Mr Cornish was pressured to provide information in relation to the financial status of the project. It is worthy of note on the same day as the meeting took place, HG took out a short-term commercial bill facility, the purpose of which was said to be 'short-term working capital facilities pending receipt of outstanding debtor payments under the 'landings' contract between Hickory Group (WA) Pty Ltd and Port Village Accommodation Pty Ltd'.
68 The expiry date of the facility was 31 August 2012. It is true the funds were borrowed short term because HG had a liquidity problem. However the fact that funds were borrowed and the reasons stated for the borrowing is consistent with Mr Argyrou's evidence he still expected to be paid. The fact of the borrowing does not suggest Mr Argyrou believed PVA was insolvent. If anything it suggested the reverse.
69 The day after the 16 August meeting PVA suggested to HG that when formalising the agreement a confidentiality clause should be inserted to ensure there was no communication with other parties on the site. The plaintiffs submit a reasonable person would draw the inference that there were other contractors on site that had invoices that were outstanding. Further, the plaintiffs say it is reasonable to infer PVA did not wish those other contractors to learn that the defendants were obtaining a benefit of security not being made available to other creditors. The motives for including the confidentiality clause suggested by the plaintiffs may well be correct. But it does not follow from that Mr Argyrou could reasonably have anticipated insolvency. Rather it would have confirmed him in the knowledge that not only had he not been paid but other subcontractors had not been paid. It is hard to believe Mr Argyrou would have been in any doubt as to that fact or that the fact the confidentiality clause was in the agreement would have raised suspicions.
70 On 20 August 2012 Mr Cornish provided a formal response to the show cause notice of 8 August 2012. The plaintiffs say the effect of that response was to communicate to the reader that:
(a) there had been a series of delays resulting in an inability to meet the target schedule;
(b) the target schedule was material to the provision of funding both from debt financiers and equity funders;
(c) a revised schedule had been submitted to the debt and equity funders;
(d) the debt financiers had suspended funding pending an assessment of the revised schedule;
(e) PVA had resolved to secure an alternative source of funding to enable the project to be completed independently of the debt financiers;
(f) the payment of HWA's June and July invoices was dependent upon equity drawdowns which were then subject to due diligence; and
(g) PVA and HWA had agreed to enter into a deed of amendment to manage the financial risk to HWA by adopting a forecast payment claim procedure and registering the mortgage.
71 It is submitted based upon the above:
The effect of the letter would have caused a reasonable person to form the view that debt funding was not presently available and that PVA did not have any confidence that it would be reinstated. Hence PVA's desire to source funding independent of the debt financiers.
72 To characterise the effect of the letter in that way is, with respect, to avoid asking the relevant question. Would that letter have given Mr Argyrou reasonable grounds for suspecting PVA was insolvent and would a reasonable person in Mr Argyrou's position not have had any grounds for suspecting PVA was insolvent?
73 Quite properly counsel for the plaintiffs saw the effect of various communications and discussions, failures to pay and promises which did not materialise as having a cumulative effect. That is to say an isolated failure to pay one invoice on time early in the contract might not have given rise to a suspicion of insolvency. But by 20 August 2012 a suspicion must have formed. But there is no basis for saying why that suspicion should have crystallised at that time. Mr Cornish remained optimistic and so did Mr Argyrou. There was no external source which had given any hint the project might not be proceeding. For instance BHP had not communicated directly with HWA indicating they might terminate the funding. There was no outside source to whom Mr Argyrou could turn for independent advice. He did not know precisely what the funding arrangements were between BHP and PVA nor was he aware of what equity funding might be available. He had no reason to doubt FMR might contribute. At this point it could not be said either a person in Mr Argyrou's position would have suspected insolvency or a reasonable person would have had grounds for suspecting insolvency.
74 The plaintiffs then point to the mortgage which was executed pursuant to the agreement and the amendment to the building contract which allowed the defendants to bill for work early. These two facts it is said show HG had doubts about PVA's ability to pay its debts as and when they fell due. It may be this shows doubts about PVA's liquidity; but it does not follow HG suspected insolvency.
75 The plaintiffs then turn their focus to the equity funding provided by FMR. By his letter of 31 August 2012 Mr Cornish advised HWA that PVA had completed its project financing restructure. The letter attaches a confirmation from FMR that $20 million was to be provided by way of equity. It was submitted the letter referred to prioritising payment to the defendants, therefore indicating other outstanding debts might not be paid. It was submitted that showed some preferential treatment to HG and further indicated the equity raising was not sufficient to meeting PVA's needs. Furthermore, payments made after the capital raising did not discharge all debts then due and owing by PVA to the defendants despite assurances on 31 August 2012 these debts would be fully paid.
76 The provision of equity funding by FMR is of real significance in considering the state of mind of Mr Argyrou and what a reasonable person would have believed. The fact is as at the end of August 2012 a third party was prepared to put $20 million in to PVA. Any reasonable person standing apart from such a transaction would surely assume FMR was confident PVA was financial sound. No reasonable person puts that amount of money into a company unless they are confident of a substantial return on funds invested. To suggest otherwise is simply fanciful. Persons who are in a position to invest $20 million are by definition sophisticated investors. Mr Argyrou said during the course of his cross-examination when he learned of the FMR investment he was overjoyed. And so he should have been. Such a vote of confidence in FMR could not have had any effect other than to give the defendants confidence in PVA's viability.
77 In fact the investment from FMR marks a turning point in the case. For reasons which I have outlined above from the time that investment was made through to the time Mr Argyrou learned of the appointment of receivers no reasonable person could have anticipated PVA was insolvent. Even if Mr Argyrou or the hypothetical reasonable individual had allowed his or her mind to drift on to the question of solvency the first response would have been to draw comfort from FMR's investment. Having been reminded of that investment the possibility of insolvency would be put to one side and other reasons for the cash flow difficulties experienced by PVA might have been considered.
78 In summary then I am satisfied Mr Argyrou had no reasonable grounds for suspecting the company was insolvent. I have reached that conclusion for the following reasons. First, based upon his evidence he did not suspect PVA was insolvent. In saying that I accept the evidence of Mr Argyrou in paragraphs 27 of his first affidavit. Second, there were no reasonable grounds for suspecting insolvency. The project had BHP with all its financial resources as its backer. BHP had an unmet demand for accommodation in Port Hedland. Repeated assurances were given by Mr Cornish to Mr Argyrou funding would be forthcoming. No external sources indicated a fundamental problem with the project itself. Mr Argyrou was familiar with delays in progress payments and believed there was a problem with internal administration rather than a fundamental problem with the financial viability of PVA.
79 I am also satisfied that a reasonable person in Mr Argyrou's circumstances would not have grounds for suspecting insolvency. The starting point here is to say that Mr Argyrou was, in my view, a reasonable person. That is the impression I formed of him during the course of cross-examination. That being so no other hypothetical individual slotted into the circumstances as they existed would, in my view, have suspected insolvency.
Conclusion
80 On balance I am satisfied the second defendant has made out a defence under s 588FG(2) of the Corporations Act. All four requirements of that section have been satisfied. The defendants became a party to the impugned transactions in good faith. I am satisfied Mr Argyrou had no reasonable grounds for suspecting the company was insolvent. I am satisfied that a reasonable person in Mr Argyrou's position had no reasonable grounds for suspecting the company was insolvent. Furthermore, I am satisfied Mr Argyrou was such a reasonable person. Finally, the defendants provided valuable consideration under the transaction.
81 For the sake of completeness I should note HG maintained PVA was solvent when the impugned transactions occurred. Counsel spent some time analysing the accounts of PVA in cross-examination of Mr White. Given the conclusion I have reached I have not found it necessary to consider that issue. The defence made out by HG would answer the plaintiffs' claims whether or not PVA was insolvent at the time the transactions took place.
82 Accordingly, I would dismiss the plaintiffs' claims. I will hear the parties as to the form of orders and as to costs.
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