Whittles Management Services P/L v Hugh Sutcliffe Martin as Liquidator of Samuel Group Australia P/L (in Liq) - [2017] SASC 42

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
WHITTLES MANAGEMENT SERVICES P/L v HUGH SUTCLIFFE MARTIN AS LIQUIDATOR OF SAMUEL GROUP AUSTRALIA P/L (IN LIQ)
[2017] SASC 42
Judgment of The Honourable Justice Vanstone
24 March 2017
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES AND VOIDABLE TRANSACTIONS - GENERALLY
Appeal against Magistrate’s decision refusing an order summarily dismissing the claim against it by the liquidator. Where the appellant, Whittles, claims to have received payments from the company in liquidation in its capacity as a body corporate manager and as a mere agent for the community corporations which it represented. Where payments alleged to be uncommercial transactions and insolvent payments and arguably voidable transactions within the meaning of the Corporations Act 2001 (Cth).
Whether the Magistrate erred in finding that there was a reasonable basis for the liquidator’s claim in respect of the payments. Whether the Magistrate erred in finding that the voidable transaction provisions could apply to an entity in the position of Whittles. Whether Whittles was a party to the transactions. Whether the Magistrate erred in finding, relevant to s 588FG, that Whittles had not shown that it acted in good faith and had no reasonable grounds for suspecting that the plaintiff was insolvent at the time of the payments, or that it did not obtain a benefit from the payments.
Held: The appeal is dismissed.
Corporations Act 2001 (Cth) s 9, s 588FB, s 588FE, s 588FF, s 588FG; Bankruptcy Act 1914 (UK) s 44; Community Titles Act 1996 (SA); Magistrates Court (Civil) Rules 2013 (SA) r 8, referred to.
JT Nominees Pty Ltd v Macks (2007) 97 SASR 471; Ceneavenue Pty Ltd & Ors v Martin & Ors (2008) 106 SASR 1, applied.
In Re Morant [1924] 1 Ch 79, distinguished.

WHITTLES MANAGEMENT SERVICES P/L v HUGH SUTCLIFFE MARTIN AS LIQUIDATOR OF SAMUEL GROUP AUSTRALIA P/L (IN LIQ)
[2017] SASC 42
Magistrates Appeal: Civil
VANSTONE J

The appellant and first defendant, Whittles Management Services Pty Ltd (“Whittles”) sought an order summarily dismissing the claim against it by the plaintiff, Hugh Sutcliffe Martin as liquidator of Samuel Group Australia Pty Ltd (in liquidation) (“the Company”). A Magistrate dismissed the application, giving written reasons. Whittles appeals against that judgment.
Background
The plaintiff was appointed as liquidator of the Company on 29 August 2012.
The proceedings relate to six amounts of money totalling $58,664 (“the payments”) which appear to have been made by the Company to Whittles in the period 13 March 2012 to 14 June 2012. The plaintiff’s central claim is as follows. The plaintiff alleges that the Company was insolvent at the time of making the payments. He alleges that the payments were insolvent transactions within the meaning of s 588FC of the Corporations Act 2001 (Cth) (“the Act”) and uncommercial transactions within the meaning of s 588FB(1) of the Act. If so, being made “during the two years ending on the relation-back day”, they are voidable: s 588FE. A finding that the transactions are voidable within the meaning of s 588FE of the Act will enliven the Court’s discretion to make remedial orders pursuant to s 588FF.
In its defence, Whittles denies that the Company made the payments to it. It says that if the amounts were paid at all, they were paid, not to Whittles, but to the second and third defendants, which are Community Corporations for whom Whittles acted as agent. In the alternative, Whittles says that if it did receive any of the payments, it received them only as the body corporate manager for those defendants.
By the unchallenged affidavit evidence of its General Manager, Mr Peter Affleck, Whittles proves that it was engaged to act as body corporate manager for the second and third defendants on terms set out in management agreements, which are produced. Under the agreements, Whittles was required to collect and bank monies payable to the second and third defendants and pay amounts due by those defendants to creditors. Whittles was entitled to payment for its fees and disbursements.
Arguments on appeal
Whittles is not presently in a position to dispute that the transactions are voidable. Before this Court Whittles renews the argument that it was an agent of the second and third defendants and that any monies received by it were received only in that capacity and were not retained or used to its benefit. It says it follows that it was not a party to the transactions and the provisions have no application to it. Therefore, it says that even if the transactions are voidable and the Court were prepared to make orders under s 588FF(1), those orders would not be made against it.
Counsel for Whittles, Mr Bullock, refers to In Re Morant [1924] 1 Ch 79 for the proposition that a disclosed agent of a creditor, who receives money from his principal’s debtor (without notice of possible insolvency and without benefit to himself) and applies it to the principal’s benefit, is not liable to repay the debts pursuant to s 44 of the Bankruptcy Act 1914 (UK), because the payment operates as one made to the creditor rather than to the agent.
Whittles argues that, taking a purposive approach to the voidable transaction provisions, the provisions do not apply at all to an entity in its position. It puts that Parliament has no interest in facilitating the recovery of monies from parties who are merely a conduit for payment to those who actually benefit. The provisions are targeted at the parties to transactions. If, against Whittles’ argument, the provisions are seen to apply, then for similar reasons, Whittles argues it should be seen as a non-party to the transactions, and to have available to it what the parties referred to as the ‘defence’ provided in s 588FG(1) of the Act.
Whittles acknowledges that pursuant to s 9 of the Act “transaction” means “a transaction to which the body [here, the Company] is a party” and “includes a payment made by the body”. However, it argues that, consistent with the Community Titles Act 1996 (SA) and its role as a mere agent, the payments made were not to it, but to the second and third defendants. Therefore those defendants were the parties to the transactions.
Consequently, Whittles argues that, if any defence is relevant, it is the defence in s 588FG(1) which is available to non-parties. In terms of that defence Whittles argues in the first instance that, because of the nature of the transaction, there is no evidence it received a benefit (s 588FG(1)(a)). If that is proved then it will not be subject to an order. Alternatively, it says if it received a benefit, it received it in good faith (s 588FG(1)(b)(i)), it had no reasonable grounds to suspect insolvency (s 588FG(1)(b)(ii)(A)) and nor would a reasonable person in its position have so suspected: s 588FG(1)(b)(ii)(B).
In respect of the requirement that it prove good faith and that it had no reasonable grounds to suspect insolvency, Whittles relies, not on any assertion going to those matters in the affidavit of Mr Affleck, but rather on inferences which flow from its role as agent as established by that affidavit, the fact that there is no suggestion by the plaintiff of bad faith on Whittles’ part or any suggestion that Whittles suspected insolvency, the obligations placed upon the plaintiff by the management agreements and its good reputation in the community.
Because the Magistrate found that Whittles was, at least arguably, a party to the transactions, he also considered whether Whittles could rely on the “defence” provided in s 588FG(2). Before that defence could be available Whittles would have to show a number of matters, which again include that it acted in good faith and that it had no reasonable ground to suspect insolvency.
Consideration
In order to succeed in this application Whittles needs to show that “there is no reasonable basis” for the plaintiff’s claim against it: r 8(1)(c) Magistrates Court Civil Rules; JT Nominees Pty Ltd v Macks (2007) 97 SASR 471; Ceneavenue Pty Ltd v Martin (2008) 106 SASR 1. To the extent that Whittles denies that the liquidator is entitled to an order against it under s 588FG, it is to be noted that the provision casts a burden of proof on the person seeking to rely on it to establish the factual matters set out in the section.
As the determination of this issue amounts to a question of mixed fact and law rather than to an exercise of discretion, I must form my own view of the position. Since I have determined that the appeal fails and it is probable that the claim will proceed to trial, I propose to state my findings concisely.
I accept for the purpose of this appeal that payments were made by the Company into Whittles’ account within two years of the appointment of the liquidator. It seems to me that it is arguable that the payments amounted to uncommercial transactions within the meaning of s 588FB, in that a reasonable person in the Company’s position would not have made the payments. It seems that the company had no obligation to pay them. The Whittles invoices which are in evidence were not addressed to the Company but to another company apparently in the same group. In addition, the Company apparently owns no real estate in South Australia. On that basis, there was no obvious reason for the Company to make these payments, the amounts of which do not conform, curiously, to the invoices provided by Mr Affleck.
I reject Mr Bullock’s argument that the voidable transaction provisions can have no application to a party which receives payments as a mere agent. I do not consider that In Re Morant assists Whittles. It was decided in the context of a markedly different statutory regime. There is no basis in the wording of the provisions of the Act to limit the ambit of their application in the way for which Whittles contends. The provisions do not direct attention to the capacity in which a person becomes a party to a transaction or becomes involved in it. Rather, s 588FG provides for limitations on the reach of the orders available under s 588FF, to allow for parties or non-parties to demonstrate that they should not be the subject of orders. Therefore at least arguably, the voidable transaction provisions apply to the payments.
For the purpose of this application, I accept Whittles’ contention as to the capacity in which it received the payments. Nonetheless, it is neither necessary nor advisable to decide at this time whether Whittles should be considered to be a party or a non-party.
Assuming that s 588FG can apply to Whittles’ benefit, it has failed to show that it will necessarily succeed by reference to the section in satisfying a court that no order should be made against it. Referring to s 588FG(1)(a) I am not persuaded on the present evidence that Whittles “received no benefit because of the transaction”. I am not to know whether Whittles took from one or more of the payments any amount in satisfaction of the fees which it was entitled to charge the second and third defendants.
Furthermore, relevant to s 588FG(1) and (2) there is no satisfactory evidence that Whittles acted in good faith. I reject the contention that this can be inferred in circumstances where the plaintiff has not brought evidence to the contrary. As mentioned, s 588FG places the onus on the person asserting good faith to prove it. Moreover, there is no evidence that Whittles had no reasonable grounds for suspecting that the Company was insolvent at the time of the payments, or would become insolvent. Again, the onus of proof is on Whittles and no material has been brought which would go to proof of that matter.
Conclusion
The appellant, Whittles, has failed to show that there is no reasonable basis for the liquidator’s claim against it. In my opinion the Magistrate’s decision was correct. The claim should proceed to trial.
The appeal is dismissed.