Buckleys Earthmoving Pty Ltd, Re [1993] QSC 32

IN THE SUPREME COURT OF QUEENSLAND Application No. 18 of 1992 Brisbane Before The Hon. Mr. Justice K.W. Ryan [Re: Buckleys Earthmoving Pty. Ltd] IN THE MATTER of the Corporations Law - and - IN THE MATTER of BUCKLEYS EARTHMOVING PTY. LTD. A.C.N. 010 720 680 REASONS FOR JUDGMENT - RYAN J. Judgment delivered on 23/02/1993 Counsel: D.J. McGill for Applicant W. Cochrane for Respondent Solicitors: A. Abaza for Applicant Trenerry & Robinson for Respondent Hearing Date: 15 February 1993 -- 1 of 9 -- IN THE SUPREME COURT OF QUEENSLAND Application No. 18 of 1992 Brisbane Before The Hon. Mr. Justice K.W. Ryan [Re: Buckleys Earthmoving Pty. Ltd] IN THE MATTER of the Corporations Law - and - IN THE MATTER of BUCKLEYS EARTHMOVING PTY. LTD. A.C.N. 010 720 680 REASONS FOR JUDGMENT - RYAN J. Judgment delivered on 23/02/1993 The liquidators of Buckleys Earthmoving Pty. Ltd. apply for a declaration that a payment of $16,500 on 23 October 1991 and a payment of $7,461.15 on 20 November 1991 by Buckleys Earthmoving Pty. Ltd. (the company) to Ray John Brook are void as against the liquidators pursuant to s. 565 of the Corporations Law. They seek also an order that the respondent pay to the company the sum of $23,961.15 together with interest thereon. The application for winding up was filed on 9 January 1992, and an order that the company be would up was made on 10 February 1992. On 17 December 1990, Mr. Brook instituted proceedings in the District Court at Toowoomba against the company for $40,228.38. The claim was for money had and received by the defendant to the plaintiff's use under a mistake of fact, together with interest. It is alleged that in February 1989 the defendant orally agreed with the plaintiff to purchase from him an earthmoving scraper for $23,500, and that in lieu of cash payment for it the -- 2 of 9 -- 2 defendant, which is a contractor engaged in earthmoving would carry out certain work for the plaintiff to that value. The defendant carried out certain work for the plaintiff. On 3 April 1990 the plaintiff and defendant settled the amount owing by each party to the other as at that date at $8,000 payable by the plaintiff to the defendant, and the plaintiff paid that sum to the defendant. The plaintiff went overseas and while he was absent the defendant on 19 September 1990 presented a statement of account for $40, 228. 38 to the plaintiff 1 s agent in Toowoomba and demanded pay~ent. The agent, being unaware of the facts set out above, mistakenly paid that amount to the defendant. The plaintiff demanded repayment, but the defendant refused. The defence alleged that the sum of $8,000 was paid in part payment to the defendant in respect of the work done for the plaintiff, which had a total value of $61,025.38. It admitted that. the plaintiff was entitled to credits from the defendant in the sum of $71,728.38, and alleged that the amount due and owing by the defendant to the plaintiff was $10,703 and not $40,228.38. The action was settled on 19 September 1991 on terms that the defendant pay to the plaintiff $16,500 on or before 11 October 1991, and that the defendant pay the plaintiff 1 s costs of and incidental to the action. Payment of $16,500 was made on 25 October 1991, and of $7,461.15 on 20 November 1991. It is deposed by Mr. Brook that he had had a long standing business relationship wi.th Mr. Ostwald, the managing or executive director of the company, which had done a range of earthmoving jobs for him in the past. He states that over the years he has -- 3 of 9 -- 3 on a number of occasions bought and sold trucks and earthmoving equipment, and that on a number of occasions he has accepted either other machinery or had work done in lieu of the purchase price as opposed to insisting on payment in cash. Prior to the delivery by him of the scraper machine to Mr. Os twald, the business relationship between the company and him was that works done by the company for him would be specified and charged by way of monthly invoices at the end of each month. Subsequent to Mr. Ostwald taking delivery of the scraper he received no invoices between February 1989 and April 1990. A statement of account was delivered to him by Mr. Ostwald in April 1990 claiming $22,590.95. After discussion, it was agreed that the sum owing by him to the company was $30,377. From this was deducted the amount of $23,500 which was the agreed sale price of the scraper. Eventually a balance figure of $8,000 was agreed between them, and he paid that. He went overseas, and on his return three months later he discovered that a cheque in the sum of $40,228.38 had been drawn from his account. Section 565 of the Corporations Law imports s. 122 of the Bankruptcy Act 1986 (Cth) into the Corporations Law, treating the commencement of the winding up as corresponding to the presentation of a bankruptcy petition. It makes transactions entered into with a bankrupt within six months of bankruptcy void as against the trustee where a creditor is thereby given preference, priority or advantage over other creditors, unless the creditor can show himself to be a payee in good faith and for valuable consideration and in the ordinary course of business. -- 4 of 9 -- 4 In the instant case, the only issue for my determination is whether the respondent has shown that he was a payee in the ordinary course of business. It was accepted that if he did establish this, the question whether he was a payee in good faith would have to be determined at a trial. It was submitted for the liquidator that the test which should be applied was that stated by Rich J. in Downs Distributing Co. Pty. Ltd. v. Associated Blue Star Stores Pty. Ltd. (In Lig.) (1948) 76 CLR 463 at pp. 476-477. He stated:- "As was pointed out in Burns v. McFarlane (1940) 64 CLR 108 at p. 125, the issues in subs. 2(b) of s. 95 of the Bankruptcy Act 1924-1933 are '(1) good faith; (2) valuable consideration; and (3) ordinary course ofbusiness'. This last expression it was said 'does not require an investigation of the course pursued in any particular trade or vocation and it does not refer to what is normal or usual in the business of the debtoror that of the creditor. ' It is an additional requirement and is cumulative upon good faith and valuable consideration. It is, therefore, not so much a question of fairness and absence of symptoms of bankruptcy as of the everyday usual or normal character of the transaction. The provision does not require that the transaction shall be in the course of any particular trade, vocation or business. It speaks of the course of business in general. But it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation." In the Downs case, Williams J. said (at p. 480) that the expression "in the ordinary course of business" refers to a transaction into which it would be usual for a creditor and debtor to enter as a matter of business in the circumstances of the particular case, uninfluenced by any belief on the part of the creditor that the debtor might be insolvent. -- 5 of 9 -- 5 Counsel for the respondent submitted that the test under s.122 of the Bankruptcy Act of the ordinary course of business was that stated by Gavan Duffy C.J. and Starke J. in Robertson v. Grigg (1932) 47 CLR 257, namely not whether the' act is usual or common in the business of the debtor or of the creditor, but whether it is "a fair transaction, and what a man might do without having any bankruptcy in view." They held that a transaction was in the ordinary course of business because it was fair and reasonable, and such as any person might engage in without adverting even to the possibility of bankruptcy. In Taylor & Anor. v. White & Anor. (1964) 110 CLR 129 Taylor J. referred to the history of the expression, as stated by Gavan Duffy C. J. and Starke J. in Robertson v. Grigg 257, and to earlier decisions of the High Court on its interpretation. He concluded that the High Court decisions "are clear authorities for the proposition that the conclusion whether a payment has, within the meaning of s. 95(2), been made in the ordinary course of business does, as was the position under the English law, not require an examination of the character of the debtor's business". In concluding that the payments in question in that case were not made in the ordinary course of business, Taylor J. said that it was impossible to say that they "fell into place as part of the undistinguished common flow of business done'', or as "what a man might do without having any bankruptcy in view". The former is the test as stated by Rich J. in Downs Case, while the latter is that stated in Robertson v. Griggs. In Taylor v. White, Menzies J. commented that the statements by members of the High Court were not exactly to the same effect, -- 6 of 9 -- 6 but summarised their effect as being that payment occurred in the ordinary course of business if there were nothing about them that was unusual according to ordinary business standards. Windeyer J. at p. 161 stated that the expression "attracts attention, I think, both to the business of the payer, if he be in business, and to the business of the payee, if he be in business, so that one asks was the questioned payment one that would be made by the payer and .received by the payee in the ordinary course of a business transaction between them." Dixon C.J. said at p. 136 that the phrase "is meant to refer to transactions regularly taking place in a sustained course of activity or some usual process naturally passing without examination." The meaning and application of the phrase has been considered in many decisions in State Supreme Courts and in the Federal Court of Australia. In Katao Pty. Ltd. v. Dartnall [1983] 74 FLR 1983, it was said that dealings distinguished by lateness of payments and threats of legal action need not necessarily be outside the ordinary course of business if they present themselves to the defendants as fair payments to accept, uninfluenced by prospects of bankruptcy. I observe however that in that case there was no suggestion that any legal action was taken or even contemplated. In Re Lee Furniture Pty. Ltd. (In Lig.) (1977) FLR 164, it was said by the learned trial judge that aa a general rule payments received as a result of a process of execution are not payments received in the ordinary course of business, although even here exceptions may be conceived. He did not however agree with. a judicial statement that payments -- 7 of 9 -- 7 received by a creditor as a result of his solicitor's demands were not received by the creditor in the ordinary course of business. He considered that statement to be far too wide. He thought also that the issuing of a writ did not automatically place a payment outside the ordinary course of business. On appeal D.M. Campbell J. remarked that the conclusion by the learned trial judge that the mere fact that proceedings are instituted by a creditor to recover a debt is not conclusive of the question whether a subsequent payment should be treated as an undue preference had not been challenged by counsel for the liquidator on the hearing of the appeal. He said that he thought it to be correct. In that case, the Full Court followed its decision inK. & R. Fabrications (Old.) Pty. Ltd. v. M. & B. Rigging Pty. Ltd. [1982] Qd.R. 585, where the decision that a payment was not made in the ordinary course of business invoked the test formulated by Rich J. in Downs Case. See the judgment at p. 591. In Re Cummins (1985) 10 FCR 249, it was pointed out by Pincus J. that the test stated by Rich J. differed markedly from the test stated by Gavan Duffy C.J. and Starke J. in Robertson v. Grigg. His Honour gave reasons for concluding that it was desirable to apply the view of Rich J. I agree with respect with these reasons, and I would add that the decisions of the Full Court of Queensland to which I have referred adopt that test. Applying this test, I conclude that the payment was not made in the ordinary course of business. It was paid by way of settlement of an action which had been instituted in a District Court. The claim was not for payment of moneys arising out of -- 8 of 9 -- 8 dealings between the parties, but for the recovery of money paid under a mistake of fact to the defendant. It could not be said of such a payment that it was made as "part of the undistinguished common flow of business done" or one "arising out of no special or particular situation." The applicant seeks recovery of the preferential payment with interest. I consider that it is entitled to interest on money of which the respondent has had the benefit as a consequence of the preferential payment from the date the liquidation commenced. Accordingly, I declare that the payments of $16,500 on 23 October 1991 and of $7,461.15 on 20 November 1991 by Buckleys Earthmoving Pty Ltd. to Roy John Brook are void as against the liquidators. I order the respondent forthwith to pay Earthmoving Pty. Ltd. the sum of $23,961.15 to Buckleys together with interest thereon at 10 per cent for 13 months. That amounts in total to $26,556.93. I order further tha·t the respondent pay the costs of and incidental to this application to be taxed. -- 9 of 9 --