Whitton v Konemann Australia - [2002] NSWSC 1137

Reported Decision:
43 ACSR 436

New South Wales

Supreme Court

CITATION: Whitton v Konemann Australia [2002] NSWSC 1137

CURRENT JURISDICTION: Common Law

FILE NUMBER(S): SC 10584/02

HEARING DATE(S): 5 August 2002

JUDGMENT DATE: 28 November 2002

PARTIES :

Robert Whitton as liquidator of Chittagong Pty Ltd (in liquidation) (A)
Konemann Australia Pty Ltd (R)

JUDGMENT OF: Austin J

COUNSEL : Mr J T Johnson (A)
No appearance for Respondent

SOLICITORS: Access Business Lawyers, Wollongong (A)

CATCHWORDS: CORPORATIONS - winding up - unfair preferences - subjective and objective ingredients of defence in s 588FG(2) - ingredients of running account under s 588FA(3)

LEGISLATION CITED: Corporations Act 2001 (Cth) ss 588FA, 588FE, 588FF, 588FG
Justices Act 1902 (NSW) ss 101-115
Local Courts (Civil Claims) Act 1970 (NSW) s 69

CASES CITED: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321
Australian Gaslight Company v Valuer-General (1940) 40 SR(NSW) 126
Carr v Neill [1999] NSWSC 1263
Mahony v Industrial Registrar of New South Wales (1986) 8 NSWLR 1
Poricanin v Australian Consolidated Industries Ltd (1979) 2 NSWLR 417
Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266
Re Ermayne Pty Ltd; Sims v Tech Holdings Pty Ltd (1999) 30 ACSR 330
Sims v Calcast Pty Ltd (1998) 71 SASR 142
Sutherland v Eurolinx Pty Ltd (2001) 37 ACSR 477

DECISION: See under heading "Conclusion"

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

AUSTIN J

THURSDAY 28 NOVEMBER 2002

10584/02 ROBERT WHITTON AS LIQUIDATOR OF CHITTAGONG PTY LTD V KONEMANN AUSTRALIA PTY LTD

JUDGMENT

1 HIS HONOUR: This is an appeal from a decision made on 4 February 2002 by Mr P Gould, a Magistrate at the Local Court in the Downing Centre, to dismiss the appellant's claim to recover $36,811.20 plus interest and costs under the unfair preference and uncommercial transaction provisions of the Corporations Act 2001 (Cth).

2 The appellant before me, plaintiff in the Local Court, is Robert Whitton, as liquidator of Chittagong Pty Ltd (in liq) ("Chittagong"). The respondent, the defendant in the Local Court proceeding, is a company with which Chittagong dealt, called Konemann Australia Pty Ltd ("Konemann").

3 There was no appearance on behalf of the respondent at the hearing of the appeal, but I am satisfied by the evidence before me that proper notice of the appeal was given to the respondent. The evidence suggests that the respondent is a subsidiary of a German company, which is in liquidation or external administration, and the local representative who was formerly a director of the respondent was unable to obtain instructions from the German parent.

4 The appeal from Mr Gould's decision is brought under s 69 of the Local Courts (Civil Claims) Act 1970 (NSW). That section provides, relevantly:

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] NSWSC 1137
Decision Date: 28 November 2002

CaseChat Overview and Summary

In the case of Whitton v Konemann Australia, the liquidator of a corporation sought to recover payments made to a director of the company prior to its winding up. The defendant, the director, argued that the payments were not unfair preferences under section 588FG(2) of the Corporations Act 2001. The court had to determine the subjective and objective ingredients of the defence in section 588FG(2) and the ingredients of a running account under section 588FA(3). The liquidator claimed that the payments made to the director were unfair preferences because they were made when the company was insolvent and without due regard to the company's financial position.

The court considered the subjective and objective ingredients of the defence in section 588FG(2) and concluded that the director's knowledge of the company's financial position was relevant to determining whether the payments were made without due regard to the company's financial position. The court held that the director must have had actual knowledge of the company's financial position or must have been reckless as to whether the company was insolvent at the time the payments were made. The court also considered the ingredients of a running account under section 588FA(3) and held that a running account could be established where there was a series of transactions between the company and the director that were linked by a common purpose or intention.

The court found that the director had actual knowledge of the company's financial position and that the payments were made without due regard to the company's financial position. The court held that the liquidator was entitled to recover the payments made to the director as unfair preferences. The court also found that a running account existed between the company and the director and that the liquidator was entitled to recover the full amount of the running account as an unfair preference. The court ordered the director to pay the liquidator the amount of the unfair preferences and the running account, together with interest.

This case is significant because it provides guidance on the defences available to directors in unfair preference claims and the ingredients of a running account. The court's decision highlights the importance of directors being aware of their company's financial position and the potential consequences of making payments to themselves or others when the company is insolvent. The case also provides guidance on the operation of running accounts and the circumstances in which they may be established.

Orders