GEORGIOU BUILDING PTY LTD -v- PERRINEPOD PTY LTD [2012] WASC 72 (1 March 2012)

Supreme Court of WA|2012-03-01|Before: Allanson J

1 ALLANSON J: The plaintiff applies under s 459A and s 459P of the Corporations Act 2001 (Cth) for orders that the defendant company Perrinepod Pty Ltd (Perrinepod) be wound up by the court on the grounds that it is insolvent.

2 The plaintiff relies on the following grounds for its allegation that Perrinepod is insolvent:

On 16 July 2010, Mr R K F Davis, a registered adjudicator under the (WA), determined that the company was liable to pay the plaintiff $1,575,912.57.

3 Save for the allegation that Perrinepod is insolvent, none of these matters is in contest.

4 There are some background matters that are not in dispute for the present application. The plaintiff is a building company and a subsidiary of Georgiou Group Pty Ltd (Georgiou Group). One of the directors of the defendant, Mr JeanMic du Buisson Perrine, is an architect. He developed a prefabricated concrete shell for use in building. There appear to be two types or configurations of the shell the 'Csection' and the 'Hsection'.

5 In 2009, Georgiou Group and the defendant engaged in discussions regarding how they could work together in projects using the Perrine product. They did carry out one project together, constructing units for BHP Billiton in Robinson Street, Port Hedland. The determination in favour of the plaintiff under the Construction Contracts Act relates to a progress claim (progress claim 4) in that project.

6 There are two other proceedings that are relevant to this application. First, the Construction Contracts Act gives a limited right of review in the State Administrative Tribunal in relation to the determination of an adjudicator. Perrinepod had applied, unsuccessfully, to the Tribunal. An appeal from the decision of the Tribunal was heard by the Court of Appeal in May 2011, but judgment had not been delivered at the time of the hearing of the present application. On 13 October 2011, the Court of Appeal dismissed Perrinepod's appeal.

7 Second, on 13 August 2010 Perrinepod commenced proceedings against Georgiou Group (CIV 2257 of 2010). Mr and Mrs Perrine are also plaintiffs in that action. In the civil proceedings, Perrinepod directly challenges the plaintiff's right to the sum awarded to it by the determination under the Construction Contracts Act, and claims that it is itself entitled to substantial damages.

8 Further steps in the civil proceedings have been suspended awaiting the resolution of this application. Some comment on the proceedings is necessary as background to this decision.

9 Perrinepod says that its business relationship with Georgiou Group was governed by written heads of agreement. The terms of the agreement between Perrinepod, on the one hand, and Georgiou Group and the plaintiff on the other, are critical issues in Perrinepod's claim. Perrinepod pleads that, at a meeting on 30 September 2009 between Mr Perrine, Mr Georgiou and others, Mr Georgiou (on behalf of Georgiou Group) agreed that the heads of agreement would be amended. Perrinepod pleads that Georgiou Group breached the amended heads of agreement.

10 Perrinepod further pleads that on 15 March 2010 there was another meeting between Mr Perrine and Mr Georgiou at which they discussed claims by Perrinepod that Georgiou Group had failed to perform its obligations under the amended heads of agreement. Perrinepod pleads that the parties verbally agreed that Perrinepod could retain $746,000 paid to it by BHP, and that progress claim 3 need not be paid pending negotiations about Perrinepod's claims against Georgiou Group. Alternatively, Perrinepod pleads that Mr Georgiou made representations to that effect.

11 The determination obtained by the plaintiff for nonpayment of progress claim 4 included $910,000 carried over from progress claim 3. Perrinepod pleads that the plaintiff breached the agreement between the parties in applying for the determination, and that the plaintiff was estopped from making that claim. Perrinepod also alleges that the plaintiff and Georgiou Group are liable to it in damages that far exceed the amount of the judgment against it.

12 The plaintiff accepts that there are factual disputes for determination, including whether there was an agreement between the parties that the heads of agreement required Georgiou Group to carry out work on small scale domestic projects; whether the plaintiff owes the defendant $1,479,222, the subject of an invoice from the defendant to the plaintiff dated 30 September 2010; and whether the plaintiff or Georgiou Group breached the heads of agreement.

13 There are two matters that require separate comment. First, Mr Perrine recorded the meetings on 30 September 2009 and 15 March 2010, apparently without the knowledge of the others present, and Perrinepod wishes to rely on that evidence to establish the agreements and representations it has pleaded. The plaintiff objected to the evidence of these recordings being received. I am satisfied that evidence of the recordings and transcripts is admissible (see the supplementary reasons). But the evidence does not advance Perrinepod's case, at least at this stage. Those present at the meetings spoke informally, and in very general terms about being 'on the same page', and putting structures in place. Context may assist in understanding what was intended. What was said, to put it neutrally, requires some interpretation if it is to support the defendant's case that there were agreements, or representations, in the terms pleaded.

14 Second, the defendant disputes the debt which resulted in the judgment, but apparently admits that it owes part of that sum. In an affidavit of Mr Perrine dated 25 March 2011 (at [70] [71]), the defendant clearly put in issue whether it owes $95,722.55 the amount claimed for contract variations which are disputed. Mr Perrine also said that $910,000 is carried over from progress claim 3, and was subject to the agreement that it need not be paid pending negotiations. He also said that the amount 'has not been adjusted for liquidated damage' but I do not understand what he meant by that. Counsel for Perrinepod at the hearing of this application accepted, however, that there is a debt, submitting that 'the quantum is challenged, but certainly not the entire quantum of 1.5 [million]' (ts 17).

15 I cannot, on the affidavits and documents now before the court, assess how much is not disputed. Nor can I make a realistic assessment of the strength of the defendant's claims against Georgiou Group or the likely result.

16 Each party filed affidavits. The most substantial of the plaintiff's affidavits is that of Lee Simon Panotidis, solicitor for the plaintiff, dated 14 February 2011. Mr Panotidis annexed the transcript of an examination of the directors of Perrinepod (Mr and Mrs Perrine) in a means inquiry under the Civil Judgment Enforcements Act 2004 (WA), as well as financial statements and source documents relating to the defendant's solvency.

17 The plaintiff also relied on the following affidavits which set out the evidence of the plaintiff and Georgiou Group on issues of fact relating to the defendant's claim in the civil proceedings: John Georgiou sworn 24 May 2011; Luciano Steven Pangiarella sworn 17 May 2011; Franco John Delizia sworn 19 May 2011, and part of a supplementary affidavit sworn 13 July 2011; Anthony Richard Vowles sworn 19 May 2011; and Frank Ashley West sworn 19 May 2011. There were also supplementary affidavits from each of Mr Georgiou (sworn 5 July 2011), Mr Pangiarella (sworn 4 July 2011), and Mr Vowles (sworn 4 July 2011), directed to the admissibility of the recordings made by the defendant of meetings between the parties.

18 In addition, Mr Vowles (in his affidavit of 19 May 2011) gave evidence of a loan account between Georgiou Group and the defendant. The account records that Perrinepod is indebted in the sum of $642,876, in addition to the judgment sum. Georgiou Group has also foreshadowed a claim for additional outstanding payments from the Robinson Street project. The total claimed is over $4 million.

19 An affidavit of Caroline Cecilie Spencer, sworn 19 May 2011, covers procedural matters. It includes a current ASIC search of the defendant, and proof of the publication of this application. In two further affidavits (sworn 19 May and 2 September 2011), Ms Spencer annexes the property (seizure and sale) order and the sheriff's reports on attempts to enforce judgment.

20 The plaintiff has filed the consent of a liquidator to act.

21 The defendant relied on four affidavits of Mr Perrine, dated 23 March 2011, 12 April 2011, 15 June 2011 and 7 September 2011; and an affidavit of Graham Robert O'Neill, dated 28 March 2011.

The issues for determination Is the plaintiff a creditor

22 Under s 457P of the Corporations Act, a creditor may apply for a company to be wound up. The defendant puts in issue whether the plaintiff is a creditor with standing to make an application under s 457P.

23 The plaintiff asserts that it is a creditor because it has a judgment against Perrinepod for approximately $1.5 million. Perrinepod has not appealed against the judgment or applied to stay its enforcement, and Perrinepod's appeal against the decision of the State Administrative Tribunal has now been dismissed.

24 Even though Perrinepod conceded that it owed money to the plaintiff, it maintained its claim that the plaintiff is not a creditor and is not entitled to bring this application. Its stance is based on the peculiar nature of a judgment entered pursuant to the Construction Contracts Act, and its claim for damages against the plaintiff and Georgiou Group.

25 The Construction Contracts Act provides a means for adjudicating payment disputes arising under construction contracts. When a payment dispute arises, a party to the construction contract can commence an adjudication process under pt 3 of the Act. The object of the adjudication process is to determine the dispute fairly and as quickly, informally and inexpensively as possible: s 30. Adjudicators must act informally, are not bound by the rules of evidence, and may inform themselves as they see fit. The adjudicator is required to make a determination within 14 days; that time can only be varied with the consent of the parties: s 31(2), s 32(3)(a). Under s 31(2) the adjudicator must dismiss the application without making a determination of its merits in specified circumstances, including if the adjudicator is satisfied that it is not possible to fairly make a determination because of the complexity of the matter. Otherwise, where the dispute is as to payment, the adjudicator is to determine on the balance of probabilities whether any party to the payment dispute is liable to make a payment, and to determine the amount to be paid and any interest payable on it.

26 An adjudicator's determination is binding on the parties to the relevant construction contract: s 38. A party liable to pay an amount under a determination must do so on or before the date specified in the determination: s 39. Section 40 provides, in effect, that where a principal has paid the amount of a progress payment after a determination, the payment is to be taken as an advance towards the total amount payable under the contract by the principal.

27 By s 41, save for the amendment of accidental slips or omissions, determinations made by the adjudicator are final and cannot be subsequently amended or cancelled without the consent of the parties. The parties are not permitted subsequently to apply for an adjudication of the dispute.

28 Division 5 deals with the enforcement of determinations. If a determination requires a principal to pay the contractor an amount, and the principal does not pay, the contractor may suspend the performance of its contractual obligations pending payment, without becoming liable for any loss or damage suffered by the principal or any person claiming through the principal, and retains its rights under the contract: s 42.

A determination may, with the leave of a court of competent jurisdiction, be enforced in the same manner as a judgment or order of the court to the same effect, and if such leave is given, judgment may be entered in terms of the determination.

30 Critical to the present application is s 45, which deals with the effect of an adjudication on civil proceedings. Section 45 provides:

(1) This Part does not prevent a party to a construction contract from instituting proceedings before an arbitrator or other person or a court or other body in relation to a dispute or other matter arising under the contract.

(2) If other such proceedings are instituted in relation to a payment dispute that is being adjudicated under this Part, the adjudication is to proceed despite those proceedings unless all of the parties, in writing, require the appointed adjudicator to discontinue the adjudication.

(3) Evidence of anything said or done in an adjudication is not admissible before an arbitrator or other person or a court or other body, except for the purpose of an application made under s 29(3) or an appeal made under s 46.

(4) An arbitrator or other person or a court or other body dealing with a matter arising under a construction contract

(a) must, in making any award, judgment or order, allow for any amount that has been or is to be paid to a party under a determination of a payment dispute arising under the contract; and

(b) may make orders for the restitution of any amount so paid, and any other appropriate orders as to such a determination.

31 The Construction Contracts Act is part of a more or less uniform scheme of legislation in each state. There are differences between the states, but core elements of the legislation are similar. Speaking of the Building and Construction Industry Security of Payment Act 1999 (NSW), Keane CJ in Birdon Pty Ltd v Houben Marine Pty Ltd [2011] FCAFC 126 said of the counterpart to s 43:

[The section] attaches consequences, in terms of enforcement, to what is an adjudicator's assessment of a statutory entitlement. That statutory entitlement is provisional in that it must yield to the final determination of a court.

See also Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49; (2005) 62 NSWLR 385 [21] [22]; Brodyn Pty Ltd v Davenport [2003] NSWSC 1019 [14].

32 There are several cases where a creditor has issued a statutory demand on the basis of a judgment following adjudication under the Act. On the basis of those authorities, there does not appear to be any doubt that a person who has entered judgment pursuant to the Act has standing to bring an application as a creditor: Plus 55 Village Management Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 559 [11] [12]; Reed Construction (Qld) Pty Ltd v Dellsun Pty Ltd [2009] QSC 263; [2010] 2 Qd R 481; Property Builders Pty Ltd v Carlamax Properties Pty Ltd [2011] NSWSC 1068. In my opinion, that conclusion must follow from the structure of the Act in particular, from the limited right of review of an adjudicator's determination, and the ability enforce the determination as a judgment of the court. The judgment may be provisional in the sense described above, but there is a debt, and payment of it is due. Further, the judgment creditor is not a contingent creditor (see the explanation of that term in Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455). And it is not a prospective creditor, as the judgment debt is presently due and liable to be enforced.

33 In my opinion, the plaintiff is a creditor for the purposes of s 475P. The claim by Perrinepod against the plaintiff and Georgiou Group, and the dispute as to whether Perrinepod is liable to make the payment, must be taken into account in the exercise of the court's discretion under s 459A and s 467. It does not take away from the standing of the plaintiff to bring this application.

34 The defendant submitted that it is an abuse of process for the plaintiff to bring this application where there is a disputed claim between the parties which can be determined by a more suitable proceeding between the parties, and where it has a counterclaim based on substantial grounds for an amount greater than the plaintiff's claim. The defendant referred in particular to Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [2007] NSWCA 57; (2007) 69 NSWLR 374 [51] [57], where Beazley JA referred to long standing principles that govern the court's exercise of discretion when dealing with a winding-up application. The court will restrain a winding up application as an abuse of process where it cannot succeed, and also where the court hearing the application would, in the exercise of its discretion, decline to make a winding up order because 'there was a more suitable alternative means of resolving a disputed claim against the company sought to be wound up': Australian Beverage Distributors v Evans & Tate Premium Wines [51] [53]; Fortuna Holdings Pty Limited v Deputy Commissioner of Taxation [1978] VicRp 9; [1978] VR 83, 93.

35 As counsel for the defendant recognised, these principles must be reconsidered following the decision of the High Court in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) [2011] HCA 18; (2011) 85 ALJR 654. In ASIC v Lanepoint Enterprises, the High Court set aside the judgment of the Full Court of the Federal Court which, by majority, had allowed an appeal against a decision of Gilmore J. In a joint judgment, the court said:

The starting point in the reasons of the majority was that it was well established prior to the changes effected in 1993 'that ordinarily a company would not be wound-up on the basis of a disputed debt'. Their Honours considered that that principle was maintained after the coming into force of the statutory amendments in 1993 and that the exercise of the court's discretion:

'is also to be informed by the legislative policy manifest by the reforms introduced by the Corporate Law Reform Act to the effect that where a disputed debt is relied upon as being demonstrative of insolvency, that dispute should be resolved outside of the windingup process' [12].

36 The proceeding in ASIC v Lanepoint Enterprises was on an application by ASIC. The High Court said that, on that basis alone, the principle relied on by the Full Court of the Federal Court could have no application as ASIC did not claim the status of a creditor and did not seek winding up on the basis of the debt owed: [13], [29]. But the court also considered the effect of the 1993 amendments on a creditor's application:

More relevant to the reasons of the majority in the Full Court is the principle applied by the court in winding up proceedings brought under the former legislation, where the statutory demand process was not invoked. It will be recalled that the principle was based upon the potential abuse, by creditors, of the winding up process to compel a solvent company to pay a genuinely disputed debt. On that basis alone it could have no application to ASIC, which did not claim the status of creditor and did not seek winding up on the basis of a debt owed. It brought its application under the statutory entitlement given by s 459P and in reliance upon the presumption of insolvency in s 459C(2)(c), which operates on the fact of the appointment of receivers and managers. More fundamentally, because the principle has no application in the case of an insolvent company, it cannot apply in the context of the current Pt 5.4, where the statutory presumption of insolvency operates.

The majority in the Full Court were therefore wrong to conclude that the general principle could apply to ASIC's application or that it continues to apply to creditors' proceedings, given the presumption provided by s 459C. The current statutory scheme provides no basis for an assumption in favour of a dismissal or stay of proceedings where a company disputes the existence or amount of a debt. [29] [30] (emphasis added)

37 It still lies within the discretion of the court whether to make an order winding up the company: s 459A and s 467. And the court has power under s 467(1)(b) and (c) to adjourn the hearing or to make an interim or other order as it thinks fit. But I am satisfied that it is not an abuse of process for the plaintiff to bring this application. First, because enforcement of the judgment against Perrinepod was returned wholly unsatisfied, Perrinepod is presumed to be insolvent. The earlier cases on the 'second branch' of the principle of abuse of process as it relates to winding-up applications cannot now be applied. Second, even if the determination under the Construction Contracts Act is provisional in the sense that it is subject to be 'clawed back' under s 45(4) of the Act, it currently stands as a judgment. The plaintiff has exhausted its other avenues for recovery of the sum due.

38 By s 95A of the Corporations Act a person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. A person who is not solvent is insolvent.

39 There is a wealth of authority on the proper approach to proof of solvency or insolvency. It is not necessary to consider the authorities in detail because, as I discuss below, the defendant has presented only a limited case to rebut the presumption of insolvency that arises under s 459C(2). In Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213, Palmer J summarised the relevant principles as follows (I have omitted the detailed citation of authority):

whether or not a company is insolvent for the purposes of CA ss 95A, 459B, 588FC or 588G(1)(b) is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole;
in considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable;
in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency;
the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand;
in assessing solvency, the Court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court's satisfaction, that:
- there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or
- there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or
- there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand;
it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence. [54]

40 I would add the following which are particularly relevant in this case. First, although the issue of insolvency must be determined at the date of the hearing, this does not mean that future events are to be ignored: Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 [16]. The assessment requires a degree of 'forward looking': Melbase Corporation Pty Ltd v Segenhoe Ltd [1995] FCA 1225; (1995) 17 ACSR 187, 198. How far into the future this 'forward looking' assessment will go will depend on all the circumstances, the nature of the company's business and, if known, its future liabilities: Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 [103].

41 Second, the test for insolvency under s 95A does not require the company to be in a position to pay its debts as they fall due 'from its own money'. The company's ability to borrow is an aspect of the overall facts and commercial reality: see Lewis v Doran [106] [114]. The ability of company to borrow and the willingness of creditors to continue lending may be significant factors. The likelihood that directors and shareholders will continue to support the company by lending it money is relevant: see Mulherin v Bank of Western Australia Ltd [2006] QCA 175 [113] [115]. The terms on which funds are made available are also important: see Harrison v Lewis [2001] VSC 27; (2001) 19 ACLC 566 [49].

42 Third, as the defendant is presumed to be insolvent, it bears the onus of demonstrating its solvency. The authorities establish that for the company to discharge the onus of proving it is solvent, the court should ordinarily be presented with 'the fullest and best evidence' of the financial position of the defendants. Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency: see, for example, Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075, 1081; Ace Contractors and Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 [44]; Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWSC 96 [4].

43 Finally, it is open to the defendant in the civil proceedings to establish that it is not in truth indebted to the plaintiff for the amount of the existing judgment. But even if I am satisfied that the defendant has a genuine dispute as to that debt, the defendant will not have discharged its onus unless the disputed debt is material to whether the defendant is solvent.

44 The plaintiff relied on the presumption, but also produced further evidence going to the question of insolvency.

45 The most detailed evidence of the defendant's financial position is in the principal affidavit of Mr Panotidis, dated 14 February 2011, which annexes the transcript of examination of Mr and Mrs Perrine, as directors of Perrinepod, on a means inquiry pursuant to the Civil Judgments Enforcement Act. The examination was carried out on 29 October 2010 and 29 November 2010. Unfortunately, due to a copying error, not all pages of Mr Perrine's examination on 29 November 2010 are exhibited. The plaintiff also annexes a statement of financial affairs, dated 30 September 2010, that the defendant provided in the means inquiry, and source documents including invoices. The defendant has provided limited updating information, including two balance sheets dated February 2011 and March 2011. None of the financial information is audited. There is no expert evidence from either party.

At 30 September 2010 the defendant's balance sheet records total assets of $1,954,910 and current liabilities of $2,204,320. In addition there are significant long term liabilities including three loans. Two of them (in the amounts of $160,000 and $704,595) are said to be from shareholders. A third loan of $1,775,783 is from the Georgiou Group.
At February 2011 the defendant's balance sheet records total assets almost unchanged from the September 2010 balance sheet, but with current liabilities increased by about $260,000. This includes an increase of about $200,000 in trade creditors.
At March 2011 the balance sheet shows no significant change in the current liabilities or assets.

47 The plaintiff disputes an item in the trade debtors recording Georgiou Group as a debtor for $1,479,222 that is, about 75% of Perrinepod's total assets. The nature of this claimed asset, and the dispute about the debt, is relevant to whether Perrinepod could realise assets or borrow against them to meet its other debts.

48 The plaintiff also submits that there are further liabilities not disclosed, including two payments to third parties that Georgiou Group made on behalf of Perrinepod. The evidence is that Georgiou Group paid the debt in each case because Perrinepod did not have funds available to pay it.

49 The plaintiff provided a helpful summary of the trade invoices which are set out in the principal affidavit of Mr Panotidis. These show amounts outstanding at 4 October 2010, including:

$28,913 to CID Consultants, almost all of it outstanding for more than 12 months;
$35,284 to David Reid Homes;
$2,339 to Diversified Exhibitions Australia, outstanding for more than 12 months;
$57,640 to Formcraft, of which $55,000 is outstanding for more than 90 days;
$278,249 to JADD Projects, outstanding for more than 12 months;
$5,266 to Jamm Industries, outstanding for more than 12 months; and
$42,900 to PriceWaterhouseCoopers, outstanding for more than 90 days.

50 There is also more than $1.6 million recorded as owing to Perrine Architecture Pty Ltd, although it is not clear to what extent this item records loans by which cash was made available, or book entries for services provided by Perrine Architecture.

51 The records show that the defendant made partial payment and payment by instalments in several cases.

52 The transcript of the means inquiry reveals other liabilities. There was a superannuation liability to a former employee that was due in January 2010 and still outstanding in October 2010. Mrs Perrine gave evidence at the means inquiry that would it be met 'as company cash flow allows'. It has now been paid.

53 In his evidence at the means inquiry, Mr Perrine referred to a GST liability of $115,733, due on 16 November 2010 (that is about two weeks earlier). He said it would be paid by a loan from shareholders (Mr Perrine and his wife). It has now been paid.

54 On the issue of solvency, Perrinepod relied on the evidence of Mr Perrine. The major part of Mr Perrine's evidence was directed to the dispute regarding the judgment debt, and the defendant's civil action against Georgiou Group and the plaintiff. His evidence on Perrinepod's financial position is limited. In his affidavit of 15 June 2011, Mr Perrine states that his wife is the director of the defendant in charge of accounting and finance matters. Perrinepod did not, however, present evidence from either Mrs Perrine, or from its accountants.

55 The primary difficulty the defendant faces is the evidence of its failure to pay debts, other than the disputed debt, as they come due. I have referred above to the balance sheets put in evidence by Mr Perrine. In his affidavit of 25 March 2011, Mr Perrine also exhibits an aged payables summary of 25 March 2011. It shows several amounts outstanding for more than 90 days, including $42,900 to PricewaterhouseCoopers, $59,402 to Jamm Industries, and $278,249 to JADD Projects. There are several smaller amounts, ranging from about $50 to about $3,000. In relation to these matters, Mr Perrine says:

If Georgiou Group had carried out its obligations under the heads of agreement the defendant 'would not be in an illiquid state'.
JADD Projects is a disputed claim.
The Perrine Architecture debt is for work that should have been paid by Georgiou Group.
The ATO debt is for unpaid invoices from the defendant to the Georgiou Group.
PricewaterhouseCoopers have agreed to receive payment from a tax credit that will be received for the 2009/2010 tax year.

He gives no further information about the disputed claim, offers no evidence about terms of trade with various suppliers (other than PricewaterhouseCoopers), and provides no explanation for the defendant's failure to pay the other amounts.

56 In Mr Perrine's affidavit of 12 April 2011, the defendant produced a profit and loss statement for July 2010 to March 2011 from the defendant's management accounts, which paints a rosier picture of Perrinepod's financial state. It shows total income of $1,427,001 for the period, and a gross profit of $2,266,000 (net profit $980,000). But those figures need to be viewed with some caution. Almost all of the income ($1,344,747) is recorded as 'Georgiou fees and costs HOA'; and $979,484 of the profit is an (unexplained) write back of building costs. Perrinepod has offered no verification or explanation of any of the important items. The profit and loss statement is unsatisfactory as evidence. In the light of the other evidence, I do not accept that it discloses the defendant's true financial position.

57 Finally, there is some evidence looking forward. In his affidavits dated 15 June 2011 and 7 September 2011, Mr Perrine refers to recent developments. He says that:

Perrinepod entered into a licence agreement with Falcon Construction, a New Zealand builder, on 2 June 2001, under which it will shortly receive 'significant income' from New Zealand.
Perrinepod made a memorandum of agreement with a Mr Miro Cecich and Ms Helen Cecich dated 27 July 2011, in relation to a proposed 16 unit residential development at No 53, Lot 198 Morgan Street, Port Hedland, to be carried out in two stages. The defendant has been paid an $80,000 retainer.
Perrinepod is in advanced negotiations with Mr Cecich for a development at 25 Morgan Street, Port Hedland and a residence in Karratha.
Perrinepod is 'well advanced in negotiations' regarding a project in India.

58 In none of these cases has the defendant put forward evidence that enables me to be satisfied that any of the projects is proceeding or, if it does proceed, when it will result in income to the defendant. Save for the agreement with Mr and Ms Cecich, where a retainer has been paid, arrangements are at the stage of expectation, proposal, discussion and negotiation. I will deal with them in turn.

59 The Falcon Construction agreement is actually between Falcon Construction and the defendant and Perrine Architecture, and applies 'jointly and severally or, as the context requires, [to] either one of them'. Under the agreement, Falcon Construction is to pay a royalty to Perrinepod or Perrine Architecture (or both) of $NZD250 or $NZD500 (depending on whether it is a government or other order) for each Hsection manufactured for use in a building. There is no evidence, however, of firm contracts or projects under which Falcon Constructions will use Perrinepod's product, and that the defendant will receive royalties.

60 For example, Mr Perrine annexed a letter from the New Zealand Department of Building and Housing to Falcon Construction, dated 14 April 2011, advising Falcon Construction that it has been chosen as a preferred supplier of 'portable dwellings' to assist in the rebuild of Christchurch. There is no evidence that the Perrinepod product (a precast concrete structure) is a portable dwelling which would be used in such a project.

61 The defendant annexed another letter from Falcon Construction, dated 2 June 2011, referring to contact with the New Zealand government. From its date, the letter was prepared after these proceedings were commenced. Yet it is at an unhelpful level of generality. For example, it says the New Zealand government accepted a submission regarding emergency housing 'for delivering 1000 in less than six months', and that the submission 'outlined the 3 bedroom PerrinePod home'. It does not say that homes incorporating the Perrinepod Hsection are to be built as part of the emergency housing.

62 The memorandum of understanding with Mr and Mrs Cecich for 53 Morgan Street, Port Hedland raises similar unanswered questions. It records the parties' satisfaction regarding each other's capacity to carry out the agreement and the bona fides of each party. But it is stated to be 'a preamble to a contractual position' and 'subject to mutually acceptable terms'. Each party has the right to terminate on reasonable grounds by 24 hours notice. Further, the memorandum refers to a two stage development, but the documents show that the second stage requires amendments to council guidelines before it can proceed.

63 The evidence does not reveal what stage the negotiations have reached with regard to the development with Mr Cecich of 25 Morgan Street, Port Hedland and the residence in Karratha, or on what terms Perrinepod will be engaged.

64 The evidence regarding the project in India is equally vague. Mr Perrine annexed a proposal letter from Redesign Group, regarding orders for the construction of multiple dwellings in India which Redesign 'is in the process of securing'. Mr Perrine said that Perrinepod will receive a royalty for each house.

65 There is no evidence regarding costs of these projects for Perrinepod, the margin of profit, or how it will finance its participation while meeting its other liabilities. For example, the proposal letter from Redesign Group, which sets out the proposed responsibilities of the parties, requires Perrinepod to supply a mould with all necessary fittings up to Chennai Port, provide engineering and technical assistance, and provide an engineer to fly to Chennai (at Perrine's cost).

66 None of the proposed contracting parties has provided evidence.

67 On all of the evidence, Perrinepod has not displaced the presumption that it is insolvent. It has fallen far short of providing the fullest and best evidence.

68 On the evidence before the court, I find that Perrinepod's liabilities exceed its assets. It has to a considerable extent relied on loans from its directors and shareholders, but there is no evidence on which I can make findings regarding its ability to continue to borrow, or the terms on which it can do so.

69 There is no explanation for why so many debts, including some comparatively small amounts, have not been paid. On the limited evidence Perrinepod has put forward in response to the application, I find that, quite apart from its liability to the plaintiff for the disputed debt, it is and has been unable to pay its debts as and when then come due. Mr Perrine admitted in his affidavit that the company was 'illiquid' and that is what the evidence shows.

70 The evidence looking forward is unsatisfactory. On the materials put before me, I cannot say whether the various prospects referred to by Mr Perrine will come to fruition.

71 If Perrinepod were to be successful in its action against Georgiou Group, it would recover an amount that exceeds the judgment debt to the plaintiff. The disputed issues in that claim cannot be resolved in the winding up application. There are formal reasons why that cannot be done the parties are not the same in the civil proceedings and the winding up application. Also, the claim in the civil proceedings is complex and the court will need to resolve disputed facts. The action requires adjudication after normal interlocutory procedures.

72 Perrinepod urges the court to stay proceedings on the plaintiff's application until the civil proceedings have been tried. In considering that option, however, I must have regard to my finding that Perrinepod is insolvent, and to the statutory objective that this application should normally have been determined within six months (a period that has already long passed).

73 It is neither in the public interest nor in the interest of creditors other than the plaintiff for a company to continue to trade while insolvent: see, for example, Emanuele v Australian Securities Commission [1997] HCA 20; (1997) 188 CLR 114. It is also significant that my finding that the defendant is not capable of paying its debts as they arise is not confined to the disputed debt: see, for example, Australian Beverage Distributors Pty Ltd v Evans & Tate Premium Wines Pty Ltd [71] [72]. This is not a case where the plaintiff is seeking to wind up an otherwise solvent company over a disputed debt.

74 In my opinion, the court should, in the exercise of its discretion under s 459A, order that Perrinepod be wound up on the ground that it is insolvent. I will hear the parties as to further orders.

CITATION : GEORGIOU BUILDING PTY LTD -v- PERRINEPOD PTY LTD [2012] WASC 72 (S)

Illegally obtained evidence - Recording of private conversation - Principal party to conversation - Protection of lawful interests

1 ALLANSON J: The principal proceedings are an application by Georgiou Building Pty Ltd (Georgiou Building) to wind up Perrinepod Pty Ltd on the ground that it is insolvent.

2 These present reasons relate to an objection by Georgiou Building to the admission into evidence of three annexures to an affidavit of JeanMic du Buisson Perrine, sworn 15 June 2011 on the grounds that the evidence was obtained illegally through contravention of s 5 of the Surveillance Devices Act 1998 (WA). Georgiou Building submits that in the exercise of its discretion the court should decline to admit the evidence.

3 The evidence in question comprises a CD containing recordings of two meetings between Mr Perrine and representatives of the plaintiff, and a transcript of that recording for each meeting. The meetings occurred on 30 September 2009 and 15 March 2010.

4 The evidence relating to the present issue is quite limited. Mr Perrine, in his affidavit of 15 June 2011, simply refers to the meetings taking place and says that in accordance with his practice to taperecord important meetings he recorded the meeting on his mobile telephone. The representatives of the plaintiff who attended those meetings have made short affidavits. Each says that he did not give his consent to the meeting being recorded and was unaware that the recording was being done.

5 Under s 5 of the Surveillance Devices Act it is an offence for a person to use a listening device to record, monitor, or listen to a private conversation to which a person is not a party (s 5(1)(a)), or to record a private conversation to which that person is a party (s 5(1)(b)). The Act also regulates the use of optical surveillance devices, and s 6 makes it an offence to use an optical surveillance device to record visually or observe a private activity to which a person is not a party, or to record visually a private activity to which a person is a party.

6 Each of those prohibitions is subject to exceptions. Relevantly for the present case, s 5(3) provides that the prohibition in s 5(1)(b) does not apply to a party to a private conversation if:

(c) each principal party to the private conversation consents expressly or impliedly to that installation, use or maintenance; or

(d) a principal party to the private conversation consents expressly or impliedly to that installation, use, or maintenance and the installation, use, or maintenance is reasonably necessary for the protection of the lawful interests of that principal party.

7 The term 'principal party' is defined in s 3. In relation to use of a listening device, it means 'in relation to a private conversation, a person by or to whom words are spoken in the course of the conversation'. Mr Perrine was a party to the conversations and was a principal party.

8 The defendant submits that the recording was of a business meeting between parties to a joint venture and was not a 'private conversation' within the meaning of the Act. It relies on passages in the judgment in Alliance Craton Explorer Pty Ltd v Quasar Resources Ltd [2010] SASC 266 where Sulan J observed, in relation to the legislation in South Australia, which also uses the expression private conversation, that the ordinary meaning of the term conversation is 'an informal interchange of thoughts by spoken word'. His Honour said:

Although the conversation in the Act should not be given a restricted meaning, the communication should have the characteristics of a conversation which includes a degree of informality and would not normally apply to the proceedings of a committee.

The exchanges at meetings do not have the required characteristics of a conversation. Meetings have formal written agendas upon which the parties exchange positions orally and in writing, including the provision of reports. The parties seek to reach decisions that will affect the legal rights and duties of the parties to the joint venture. A formal record is kept of the meeting. There is a formality about meetings of the joint venture. Statements made and positions taken orally by those entitled to speak at the meeting cannot be said to be conversations in the ordinary meaning of that word [31] [32].

9 The present case does not appear to coincide with the factual description his Honour gives of the meetings in the case he was considering. There is no suggestion of a formal meeting with positions taken by those 'entitled to speak'. The transcript of what was said does not convey the degree of formality which influenced his Honour. Indeed the first exchange recorded is as follows:

Louis' known me long enough to be able to abuse me occasionally.

Now if I called you a lawyer, I'd be abusing you.

10 I would distinguish this case factually from the circumstances considered in Alliance.

11 There are also differences between the Western Australian Act and the Listening and Surveillance Devices Act 1972 (SA). The definition of private conversation in each Act is not the same. The South Australian Act, in s 3 defines private conversation to mean:

any conversation carried on in circumstances that may reasonably be taken to indicate that any party to the conversation desires it to be confined to the parties to the conversation.

12 In contrast, the Western Australian Act defines a private conversation as

any conversation carried on in circumstances that may reasonably be taken to indicate that any of the parties to the conversation desires it to be listened to only by themselves, but does not include a conversation carried on in any circumstances in which the parties to the conversation ought reasonably to expect that the conversation may be overheard.

13 In any event, in my opinion, the expression 'private conversation' in the context of the Western Australian Act is not intended to impose a limitation as submitted by the defendant. The function of a definition is not to enact substantive law, but to provide aid in construing the statute. As McHugh J said in Kelly v The Queen [2004] HCA 12; (2004) 218 CLR 216:

Nothing is more likely to defeat the intention of the legislature than to give a definition a narrow, literal meaning and then use that meaning to negate the evident policy or purpose of a substantive enactment. There is, of course, always a question whether the definition is expressly or impliedly excluded. But once it is clear that the definition applies, the better I think the only proper course is to read the words of the definition into the substantive enactment and then construe the substantive enactment in its extended or confined sense in its context and bearing in mind its purpose and the mischief that it was designed to overcome. To construe the definition before its text has been inserted into the fabric of the substantive enactment invites error as to the meaning of the substantive enactment [103].

14 The Surveillance Devices Act prohibits two sorts of activity: the use of listening devices to record, monitor or listen to private conversations or words spoken in a private conversation, and the use of optical surveillance devices to record visually or observe a private activity. The two strands, in my opinion, are intended to act together and be comprehensive. The definition of private activity has no limitation to informal activity. The evident aim of both strands is to protect privacy, whether formal or informal. For example, it would not be open for a business competitor to legally install a concealed listening device to listen in to or record a meeting intended to be private, although formal.

15 The principal exception which I must consider is that in s 5(3)(d). Mr Perrine was a principal party to the conversation, and consented to the use of the recording device. He committed no offence if that use was reasonably necessary for the protection of his lawful interests.

16 The authorities support the following propositions:

The term 'necessary' is capable of a wide range of meanings. There is, in Australia, 'a long history of judicial and legislative use of the term "necessary", not as meaning essential or indispensable but as meaning reasonably appropriate and adapted': Mulholland v Australian Electoral Commission [2004] HCA 41; (2004) 220 CLR 181 [39]; but compare Lithgow City Council v Jackson [2011] HCA 36; (2011) 281 ALR 223 [50] [54]. In the context of s 5, particularly qualified by the word 'reasonably', it should be construed as meaning appropriate, but not essential or unavoidable: Sepulveda v The Queen [2006] NSWCCA 379 [116] [118]. (Section 5 is in similar but not identical terms to the provisions of the New South Wales Act. Despite the differences, the New South Wales authorities are helpful in the understanding of s 5).
The word 'reasonably' imports an objective test: Sepulveda [118]; Marsden v Amalgamated Television Services Pty Ltd [2000] NSWSC 465 [14]; Violi v Berrivale Orchards Ltd [2000] FCA 797; (2000) 99 FCR 580.
Whether the use of the device is reasonably necessary is to be judged on the circumstances that existed at the time of the use: Marsden v Amalgamated Television Services [17] [18], [23]; Amalgamated Television Services Pty Ltd v Marsden [2000] NSWCA 167 [20] [22]; Violi [23]; See v Hardman [2002] NSWSC 234 [17].
The ordinary meaning of 'protection' as shelter, defence or preservation from harm, danger, or evil is apt in the context of s 5: Sepulveda [120].
Lawful interests may be distinguished from 'legal interests'. Section 5(3)(c) does not require a legal interest in the sense of a legal right, duty or liability: Violi [28]. A recording made where a serious dispute has erupted and there will be a dispute as to different versions of an arrangement may give rise to a lawful interest: Chao v Chao [2008] NSWSC 584. Generally, a finding depends on the circumstances of the particular case: Sepulveda [125].

17 I assume that there is an identity of interest between Mr Perrine and the defendant Mr Perrine is a director and was acting on behalf of the defendant at the meetings. There is now, quite clearly, a dispute between Mr Perrine and the defendant, on the one hand, and the plaintiff on the other. There is nothing before me, however, to show that in 2009 that dispute was either present or anticipated. The only evidence, as I have said, is Mr Perrine's statement in his affidavit that it was his usual practice to record meetings. That evidence is not sufficient to demonstrate that, in the circumstances that existed at the time of the use of the recording device, recording the meetings was reasonably necessary for the protection of his interests. Nor does that evidence suffice to show that Mr Perrine reasonably believed that recording the meeting was reasonably necessary for that purpose.

18 Accordingly, on the evidence which has been put before me and on the civil standard applicable in these proceedings, I find that the use of the device was a breach of the Act.

19 The consequences of that breach, for present purposes, depend upon:

(a) whether there is a discretion to exclude evidence obtained by such use; and

20 Improperly or illegally obtained evidence is admissible. But there is support for the proposition that there is a discretion to exclude evidence obtained illegally, even in a civil trial: Miller v Miller [1978] HCA 44; (1978) 141 CLR 269, 277; Pearce v Button (1985) 8 FCR 388, 402; Sheldon v Sun Alliance Ltd (1988) 50 SASR 236, 247; Southern Equities Corp Ltd (in liq) v Bond (No 2) [2001] SASC 70; (2001) 78 SASR 554 [109] [111]. It is not necessary, for present purposes, to decide whether that discretion is confined to evidence obtained by 'serious and deliberate infringements of the legal rights of another' (see Sheldon v Sun Alliance; The Duke Group Ltd (In liq) v Pilmer (1994) 63 SASR 364, 377 378), although the seriousness of the infringement is a matter relevant to the exercise of the discretion.

21 The discretion will be exercised having regard to the all of the circumstances, including the underlying policies which call for the discretion's existence, the circumstances in which the evidence was obtained, and the potential prejudice to any party if the evidence is admitted or rejected.

22 The first factor for consideration in the present case is the Surveillance Devices Act itself, and whether it imposes any limitation on the use of material obtained in breach of its provisions. Under s 9, a person shall not knowingly publish or communicate a private conversation, or a report or record of a private conversation that came to that person's knowledge as a direct or indirect result of the use of a listening device. That prohibition, however, does not apply where the publication or communication is made in the course of any legal proceedings: s 9(2)(ix).

23 Second, and quite independently of s 9, it would be open to Mr Perrine to give his account of what occurred at the meeting. No illegality taints that knowledge. In the circumstances, the availability of a recording goes to the best evidence that can be put before the court, and not to whether evidence of those facts can be given at all.

24 Third, as it is stated in Cross on Evidence [27270]:

Illegalities by persons who have no role in enforcing the laws have been said not to attract the discretion to exclude.

25 Cross refers to Barker v The Queen [1994] FCA 1577; (1994) 54 FCR 451, where the Full Court of the Federal Court found that no occasion arose for the exercise of the discretionary power to exclude from evidence a recording that was made by an accomplice, that was later made available to the police, but where the police and prosecution authorities had no hand in making it (478 479).

26 Fourth, on the evidence before me, the recording was done in a meeting by a device which was placed on the table. Mr Perrine has referred to it in his affidavit, apparently unaware that he may have been in breach of the Act. While I accept that the other parties to the conversation were not aware and did not consent to it being recorded, the conduct of Mr Perrine was not such an abuse as to require the protection of the processes of the court by excluding evidence of that conversation from admission in these proceedings.

27 For these reasons I allow the exhibits into evidence and further allow into evidence the affidavit of Kathleen Elizabeth Tyler, sworn 4 July 2011, containing a full transcription of the recordings.

Corporations Act 2001(WA)

Construction Industry Security of Payment Act 1999

Judgment Enforcements Act 2004

Surveillance Devices Act 1972

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Judgment (129 paragraphs)

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