Australian Kitchen Industries Pty Ltd v Albarran & Anor [2004] NSWSC 1047 | Case summary

4231/04 - AUSTRALIAN KITCHEN INDUSTRIES PTY LIMITED v RICHARD ALBARRAN & ANOR JUDGMENT 1 The plaintiff (which I shall call "AKI") appeals to the court from a decision of the Local Court at the Downing Centre (Magistrate P.J. O'Shane) in which it was ordered on 19 December 2003 that judgment and verdict be entered for the present defendants (plaintiffs in the Local Court) upon a statement of liquidated claim pleading a claim for relief under s.588FF(1) of the Corporations Act 2001 (Cth). The present defendants are Mr Albarran as liquidator of W&J Kitchens Pty Ltd (which I shall call "W&J") and that company itself. 2 It is common ground that, on 4 March 2002, W&J became subject to the form of creditors voluntary winding up produced by s.446A of the Corporations Act as a sequel to voluntary administration under Part 5.3A. It is also common ground that the antecedent voluntary administration commenced on 5 February 2002 which was accordingly (and by virtue of the provisions of Division 1A of Part 5.6) the "relation-back day" in relation to the winding up. It is accepted that, before 10 December 2001, W&J was a franchisee of and sub-lessee from AKI under contractual arrangements which involved W&J's supplying to customers kitchens or kitchen renovations sourced from AKI. W&J operated from premises at Blacktown of which AKI was sublessor to W&J. The shop or showroom was identified as a "Nobby Kitchen" outlet, that being a brand name or business name of AKI. It was AKI that manufactured or obtained the components that were delivered to a particular customer to construct or renovate that customer's kitchen in accordance with an order placed by the customer with, and accepted by, W&J. 3 The claim of Mr Albarran as liquidator of W&J, as advanced in the statement of liquidated claim, was that (a) in the period 5 August 2001 to 5 February 2002, "[W&J] paid to [AKI] in reduction or satisfaction of debts owed to [AKI] by [W&J] $38,635.00" (which sum was particularised by reference to nine customers); (b) "The payments were made by [W&J] to [AKI] during the six months ending on the relation back day for [W&J] as defined in section 9 of the Corporations Act , being 5 February, 2002"; (c) "The payments have resulted in [AKI] receiving from [W&J], in respect of unsecured debts that [W&J] owed to [AKI], more than [AKI] would have received from [W&J] in respect of those debts if the payments were set aside and [AKI] proved for the debts in the winding up of [W&J]"; (d) "Each of the payments were transactions within the meaning of section 9 of the Corporations Act "; (e) "At the time of making the payments [W&J] was insolvent or alternatively [W&J] became insolvent because of, or because of matters including, the making of payments"; (f) "Each of the payments constituted insolvent transactions within the meaning of section 588FC of the Corporations Act"; (g) "Each of the payments are voidable transactions at the suit of [Mr Albarran and W&J] pursuant to section 588FE(2) of the Corporations Act ". 4 After pleading demand by Mr Albarran and W&J for payment of $38,635.00 and non-compliance with that demand, the statement of liquidated claim asserted an entitlement to relief under s.588FF(1) of the Corporations Act by way of judgment for $38,635.00, interest and costs. The Magistrate's judgment and verdict awarded those remedies to Mr Albarran and W&J. 5 The Magistrate's decision was, in essence, that, on 10 December 2001, W&J had, in effect, walked away from the Blacktown premises and its business carried on from there. This was because of pressing debts and the unwillingness of AKI to buy the W&J business. After W&J left, staff of AKI arrived at the premises and, in the succeeding days, AKI proceeded to make deliveries direct to customers who had previously placed orders with W&J. By invoices dated between 12 and 19 December 2001 on the AKI letterhead, AKI claimed a total of $38,635.00 from customers who had originally placed orders with W&J, being customers to whom AKI rather than W&J eventually supplied kitchens. 6 There was no finding that moneys thus received by AKI were paid to W&J. Nor does either party contend on appeal that this was the case. There were, however, findings as to certain entries made by AKI in its books of account in consequence of the receipt of these moneys by it from the customers who had placed orders with W&J. I quote from the judgment: "Mr Stephen Beazley, Accounts Officer for AKI Pty Ltd, stated that he had initially posted a number of payments to the account of W & J Kitchens, in reduction of that account; but in the witness box, stated that he had incorrectly done that because 'the accounts were coded for Blacktown, and that the only account that they could have been posted to would have been the account of W & J Kitchens'. Mr Beazley, as Accounts officer, is taken to have the requisite qualifications and experience for the job, and therefore he would have known full well the import of the transactions being posted to the account of the 2nd plaintiff. He stated that the 'mistake' was brought to his attention by Mr Amer, after which he then amended his Statement of the account by deleting the payments from the account of W & J Kitchens. Under cross-examination, Mr Beazley's explanations sounded highly implausible, and the Court formed the view of him that he was not a reliable witness. Indeed, the Court formed the view that when he posted the entries to the account of W & J Kitchens, it was done accurately, reflecting the true situation: that it was the intention of the Defendant company to recover monies from W & J Kitchen's customers, with a view to reducing W & J Kitchen's indebtedness to the Defendant company." 7 After referring to relevant provisions of the Corporations Act, the Magistrate stated the submissions of Mr Albarran and W&J, namely: "(i) that the subject payments were made within the six months ending on the relation back day 'being the day on which the 1st Plaintiff was appointed voluntary administrator of the 2nd Plaintiff; (ii) that the payments were made at a time when the 2nd Plaintiff was insolvent; (iii) that if the payments were set aside and AKI proved for its debt, AKI would receive no dividend." 8 The issues said by AKI to be germane to the determination of the case before the Magistrate were then stated by her: "(i) whether the payments were made by W & J Kitchens, and (ii), if so, whether they would attract the operation of the Act; and (iii) whether in fact the payments were made by third parties, and therefore could be properly characterised as preference payments." 9 The judgment continues: "It is further argued, however, that there is no evidence before the Court from the Plaintiffs that W & J Kitchens was involved in any transaction after 10 or 11 December 2001, which resulted in the delivery by the defendant of kitchens to each of the customers; or made any payments to the defendant in relation to any kitchen, or directed any of the customers to make payment directly to the defendant. From that, it is argued that the lack of evidence on those aspects should be sufficient to dispose of the claim. In fact, the Court firmly rejects those submissions. It is true that there is no such evidence; however, it is not to the point of what is in issue here. In particular, it is not to the point whether or not W & J Kitchens was involved in any transaction after 10 December 2001; nor, as the evidence has fallen is it to the point that W & J Kitchens did not make any payments to the Defendant. The point is that the Defendant company supplied W & J Kitchen's then existing customers, who had not up to that date received their kitchens, and that the Defendant wrote off the monies received therefrom, against debt owed to it by W & J Kitchens - that is the evidence of the Defendant's witnesses, including that of Mr Beazley. Apart from that, as is pointed out in the Plaintiffs' submissions in reply, there is no evidence from the Defendant that any new contracts were negotiated between itself and the relevant customers with respect to the supply of kitchens to them by the Defendant." 10 By its amended summons in this court, AKI claims an order that the Magistrate's decision of 19 December 2003 be set aside, an order that the statement of liquidated claim in the Local Court be dismissed and costs orders. The grounds of appeal are that (a) the Magistrate erred in finding that, for the purposes, of s.588FA Corporations Act and, in the circumstances of the case, it was irrelevant whether or not W&J was involved in any transaction after 10 December 2001; (b) the Magistrate erred in finding that, for the purposes, of s.588FA of the Act and, in the circumstances of the case, it was irrelevant that W&J did not make any payments to AKI; (c) the Magistrate erred in finding that, for the purposes, of s.588FA of the Act and, in the circumstances of the case, it was relevant that AKI supplied W&J's then existing customers with kitchens; (d) the Magistrate erred in finding that (given the absence of evidence) when the entries of the customers were posted to the account of W&J it reflected the true situation - i.e. it was the intention of AKI to recover monies from W&J's customers with a view to reducing W&J's indebtedness to AKI; (e) the Magistrate erred in failing to find that AKI mistakenly wrote off monies received from W&J's customers against the debt owed by W&J and that, upon discovery of such a mistake, the payments were added to the debt owed to AKI by W&J; (f) the Magistrate erred in preferring the evidence of Mr Jackson to the evidence of Mr Hall (in relation to their discussions about the future of Nobby Kitchens) in circumstances where the Magistrate rejected the evidence of Mr Jackson on this issue. 11 Central to the Magistrate's decision were findings about events that occurred on and shortly before 10 December 2001. There was a finding that, in early December, Mr Jackson of W&J had a conversation with Mr David Amer of AKI in which the possibility of AKI's buying W&J's business was discussed. Such a conversation is recorded in the judgment in terms related in paragraph 14 of Mr Jackson's witness statement, which paragraph was rejected and therefore did not form part of the evidence before the Magistrate. Mr Amer did not give evidence. The supposed conversation to which I have referred was not mentioned in Mr Jackson's cross-examination. 12 There was then a finding that, at the time in question (or, at any rate, in November 2001), W&J had debts of about $130,000 of which $90,000 was owing to AKI and that the majority of the debts were overdue. The next finding relates to a meeting of early December 2001 (subsequent to the conversation already referred to) between Mr Jackson and Mr Amer at which, it is said, there was further discussion of the possibility of AKI's buying W&J's business. This too was dealt with solely in a rejected paragraph (paragraph 17) of Mr Jackson's witness statement. 13 A finding was made about a conversation between Mr Jackson and Mr Hall (a director of AKI) on 10 December 2001. The Magistrate found that the conversation concerned the future of the Blacktown operation and the possibility of AKI's taking it over. Mr Jackson testified that Mr Hall said: "The only way AKI will supply the kitchens is if W & J Kitchens agrees to let us deliver the kitchens direct to each customer and collect from each customer the outstanding balance they owe. We done some sums. We estimate the value of the kitchens to be about $50,000." 14 The Magistrate then referred to evidence given by Mr Hall about this conversation with Mr Jackson. Mr Hall said that he had no recollection of having spoken the words attributed to him by Mr Jackson - evidence the Magistrate regarded as "equivocal" because "it leaves open the implication that he could have said it". The Magistrate continued: "Under cross-examination, Mr Hall stated that after the 10th December, AKI supplied kitchens to customers of the second plaintiff, but qualified that by stating: We'd supply kitchens to orders that we had in the system, originally come from W & J Kitchens [sic]." 15 There was then a finding to the effect that the version given by Mr Jackson was to be preferred to the version given by Mr Hall. 16 There was next a finding that AKI prepared invoices addressed to W&J's customers "for the purpose of supplying kitchens to W&J Kitchens' customers". 17 The Magistrate's findings and the contentions of AKI in relation to them must be assessed in the light of the statutory provisions upon which the liquidator's claims in the Local Court were based. Section 588F of the Corporations Act begins: "Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders …" 18 Section 588FE(1) provides: "Where a company is being wound up, a transaction of the company that was entered into at or after the commencement of this Part may be voidable because of any one or more of the following subsections." 19 Each of s.588FE(2) to (6) begins: "The transaction is voidable if …"

and describes a class of "transaction" by reference to classifications set out in ss.588FA, 588FB, 588FC and 588FD. The classification relevant in the present case is that in s.588FA(1): "(1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency." 20 The various references to "transaction" are to be understood in the light of the definition of that term in s.9: " transaction , in Part 5.7B, in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a charge created by the body on property of the body; and (c) a guarantee given by the body; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waiver by the body; and (g) a loan to the body; and includes such a transaction that has been completed or given effect to, or that has terminated." 21 It is relevant next to refer to the nature of the appellate jurisdiction AKI has invoked. Under s.69(2) of the Local Courts (Civil Claims) Act 1970, a party to proceedings under that Act who is "dissatisfied with the judgment or order of the court as being erroneous in point of law" may appeal to this court. Under s.69(3), an appeal lies on a ground involving a question of mixed fact and law but only with the leave of this court. There has been no application for such leave in this case, with the result that AKI can succeed in the present appeal only if the grounds upon which it relies are such as to justify a conclusion that the Magistrate's decision is "erroneous in point of law". The corollary is, of course, that the appeal will not succeed to the extent that the grounds relied upon involve error of fact. 22 The question whether a finding which is, in the particular evidentiary context, "perverse" reflects error of law or error of fact is generally regarded as settled by the observations of Glass JA in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139. His Honour said (at pp.155-6): "To say of a finding that it is perverse, that it is contrary to the overwhelming weight of the evidence, that it is against the evidence and the weight of the evidence, that it ignores the probative force of the evidence which is all one way or that no reasonable person could have made it, is to say the same thing in different ways. Upon proof that the finding of a jury is vitiated in this way, it will be set aside because it is wrong in fact. Since the Act does not allow this Court to correct errors of fact, any argument that the finding of a Workers' Compensation Commission judge is vitiated in the same way discloses no error of law and will not constitute a valid ground of appeal. It is also pointless to submit that the reasoning by which the court arrived at a finding of fact was demonstrably unsound as this would not amount to an error of law: R v District Court of the Metropolitan District Holden at Sydney; Ex parte White (1966) 116 CLR 644 at 654." 23 The findings attacked in Grounds (d), (e) and (f) set out at paragraph [10] above fall within the province of fact rather than law. The Magistrate took a particular view of the evidence on the matters concerned, including as to questions of credibility going to a choice whether to accept one witness's evidence rather than another's where there was conflict. No matter of law entered into the relevant decisions. It is irrelevant that the evidence may have been misunderstood or did not support a particular finding. The findings referred to in Grounds (a), (b) and (c), by contrast, go to the question whether the facts, as found, were of such a quality or description as to come within the "transaction" concept employed in the relevant sections of the Corporations Act. Given the nature and scope of those provisions, the relevant question goes beyond the mere meaning of an ordinary word, that generally being a question of fact. The relevant principles and therefore those stated by Mason J in Hope v Bathurst City Council (1980) 144 CLR 1 at p.7: "Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law. One example is the judgment of Fullagar J in Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47, at p 51, where his Honour quoted the comment of Lord Parker of Waddington in Farmer v Cotton's Trustees [1915] AC 922, at p 932, which was adopted by Latham CJ in Commissioner of Taxation v Miller (1946) 73 CLR 93, at p 97, that where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only. Fullagar J then said (1956) 96 CLR, at p 51 : '... this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and facta probantia (the facts adduced to prove or disprove that ultimate fact). The `facts' referred to by Lord Parker ... are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally--so far as I can see, always--be a question of law.'" 24 The relevant concept of "transaction" is, as the definition implies, very broad. Its breadth is illustrated by a number of cases in which a series of steps over a period, involving several parties and not always contractual consequences, have been held to be a "transaction". "Transaction" includes an arrangement giving rise to an estoppel under which one party may not resile from a position. And, as the definition itself makes clear (for example, by referring to a disposition of property), a "transaction" may be unilateral in character. These matters are made clear by the decision of the Full Federal Court in Re Emanuel (No 14) Pty Ltd; Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292 and those of the Court of Appeal in Bartercard Ltd v Wily (2001) 39 ACSR 94 and Somerset Marine Inc v New Cap Reinsurance Corporation [2003] NSWCA 338. 25 Ground (a) referred to in paragraph [10] above proceeds on the basis that the Magistrate erred in finding that it was irrelevant whether or not W&J was involved in any transaction after 10 December 2001. There might be merit in this submission if, in saying what she said (see paragraph [9] above) the Magistrate had been referring to a "transaction" potentially relevant to the claim for relief under s.588FF(1). However, it is clear that she was not. The finding was that the cause of action the liquidator pursued was maintainable even though the evidence did not show that, after 10 or 11 December 2001, W&J was involved in the delivery of kitchens to customers or made any payments to AKI in relation to kitchens or gave any direction as to payment to any of its customers. The subsequent reference (which became the subject of Ground (a)) to the lack of relevance of the question whether W&J was involved in any transaction after 10 December 2001 is no more than a reference to involvement of W&J in deliveries to customers, such deliveries being referred to by the Magistrate as transactions. The finding was that the cause of action was maintainable in the absence of any evidence that W&J was party to any transaction of delivery to customers after 10 or 11 December 2001. Thus understood, the finding cannot be said to be erroneous in point of law. The "transaction" concept upon which the statutory provisions rely was quite capable of being regarded as satisfied despite evidence of that kind. 26 Ground (b) at paragraph [10] above is that the Magistrate erred in finding that it was irrelevant that W&J did not make any payments to AKI. Having regard to the s.9 definition of "transaction", such a finding cannot be erroneous in point of law. It would be erroneous only if payment as such was an indispensable element of "transaction" which, of course, it is not. 27 Ground (c) is that the Magistrate erred in finding that, for the purposes of s.588FA and in the circumstances of the case, it was relevant that AKI supplied W&J's then existing customers with kitchens. This ground cannot be sustained. Supply of kitchens by AKI to W&J's customers was an event capable of contributing to an inference that W&J received a valuable benefit from AKI. It was found at a factual level that AKI, through Mr Hall, told W&J (Mr Jackson) that AKI would only supply outstanding kitchens if W&J allowed AKI to deliver them direct to W&J's customers and to collect the moneys from those customers. It was relevant that AKI supplied kitchens to W&J's customers because that step by AKI represented part of the plan of action AKI had told W&J it would implement, which plan was apparently concurred in by W&J or, at least, allowed by W&J to be pursued in the sense that W&J did not take steps to inform its customers that their payment obligations were to W&J and they should not pay AKI. Steps going to the implementation of that plan are matters relevant to a decision on the "transaction" question central to the operation of the statutory provisions. 28 My overall conclusion, therefore, is that none of Ground (a), Ground (b) and Ground (c) is made out and that none of Ground (d), Ground (e) and Ground (f) is a ground upon which the plaintiff may rely consistently with s.69(2) of the Local Courts Act. 29 This is sufficient to dispose of the appeal but I nevertheless proceed to consider the defendants' notice of contention. The main point made there is that the Magistrate's decision is sustainable on the basis that, according to the course of trade between AKI and W&J, AKI charged against W&J the wholesale price of kitchens ordered by W&J to satisfy its customers' orders and W&J paid that wholesale price to AKI upon W&J's receipt of the retail price charged by it to its relevant customer; that, following the conversation between Mr Hall and Mr Jackson on 10 December, the arrangement between the two companies was varied so that, with the consent of W&J, AKI not only made deliveries direct to W&J's customers to complete existing orders but also received the payments that the customers would otherwise have made to W&J; that it was part of (or a corollary of) that variation that moneys so received by AKI direct from W&J's customers should be reflected, as between AKI and W&J, in a reduction of W&J's pre-existing indebtedness including components for the wholesale prices of the kitchens in question; and that these events and circumstances themselves constituted a "transaction" to which AKI and W&J were parties, being a transaction which had the effect referred to in s.588FA(1)(b). 30 It was submitted on behalf of the liquidator that this analysis breaks down because there was no evidence of a direction by W&J to its customers to make payment to AKI instead of to W&J. But payment, in a direct or conventional sense, is not an essential element of the statutory cause of action available to a liquidator. Having regard to s.588FA(1), there must be a "transaction" to which the creditor and the company are parties and that transaction must have a particular result, namely, that the creditor "receives from the company, in respect of an unsecured debt that the company owes to the creditor, more than …". The Emanuel and Bartercard decisions, in particular, make it clear that the relevant concept of receipt from the company looks beyond payments as such and is concerned with the accruing of value. 31 I am satisfied that the Magistrate could have reached the same conclusion and result in the way outlined above (by reference to the notice of contention), with the agreement reached on 10 December 2001 for W&J to stand back and allow AKI to make delivery to customers from whom W&J held orders and the several things done pursuant to that agreement (including receipt of moneys by AKI from the customers and application of those moneys in reduction of W&J's indebtedness to AKI), taken as a whole, being the relevant "transaction" and the financial advantage accruing to AKI through reduction of the indebtedness of W&J to AKI as the receipt within s.588FA(1)(b). It is particularly pertinent, to my mind, that AKI itself made contemporary representations that it had achieved receipt. This occurred when, in a statutory demand verified by affidavit of Mr Hall sworn on 21 December 2001, AKI claimed a debt of $99,783 after allowing as credits the sums referable to the kitchens delivered direct to, and paid for by, W&J customers. 32 The appeal is dismissed with costs. **********

Australian Kitchen Industries Pty Ltd v Albarran & Anor

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (6)

Cited By (1)