Rodgers v Berchtold Pacific [2006] NSWSC 462 | Case summary

4400/05 PETER DAVID RODGERS V BERCHTOLD PACIFIC PTY LTD & ANOR JUDGMENT 1 HIS HONOUR: This is an application for an order that further and better particulars be provided, or that in the alternative, a pleading be struck out. 2 The plaintiff is the liquidator of Otapin Pty Ltd, appointed by the court on 16 September 2002. At the relevant times, Otapin's sole shareholder was the first defendant (Berchtold Pacific), which in turn was a wholly owned subsidiary of the second defendant (Berchtold GmbH). It seems that Otapin was formerly known as Berchtold Australia Pty Ltd. 3 The liquidator alleges that, as at 1 July 2001, Otapin owed Berchtold GmbH the sum of $1,249,198.86; while Berchtold Pacific owed Otapin $938,736.62. He contends that on about 1 July 2001 there was a transaction recorded in Otapin's books, whereby $938,736.62 was transferred from the account of money owed by Berchtold Pacific to Otapin, to the account of money owed by Otapin to Berchtold GmbH. The transaction had the effect of extinguishing Berchtold Pacific's debt to Otapin and reducing Otapin's debt to Berchtold GmbH by that amount. The liquidator claims that Otapin was insolvent at the time. 4 Section 588FF authorises the court, on the application of a company's liquidator, to make various orders if it is satisfied that a transaction of the company is voidable because of s 588FE. Section 588FE(2) says (approximately) that a transaction is voidable if it is an insolvent transaction of the company and was entered into during the 6 months ending on the relation-back day. "Insolvent transaction" is defined in s 588FC to include a transaction that is an unfair preference given by the company, entered into at a time when the company is insolvent. A transaction is an unfair preference in the circumstances set out in s 588FA. 5 Section 588FE(5) provides: "The transaction is voidable if: (a) it is an insolvent transaction of the company; and (b) the company became a party to the transaction for the purpose, or for purposes including the purpose, of defeating, delaying, or interfering with, the rights of any or all of its creditors on a winding up of the company; and (c) the transaction was entered into, or an act was done for the purpose of giving effect to the transaction, during the 10 years ending on the relation-back day." 6 By a statement of claim filed on 26 October 2005, in a proceeding commenced on 9 August 2005, the liquidator seeks orders under s 588FF setting aside the transaction and requiring each of the two defendants to pay him $938,736.62. The pleading alleges that the transaction is voidable under s 588FE as an insolvent transaction that was an unfair preference. Paragraph 8 of the statement of claim pleads: "Otapin became a party to the transactions [sic] for the purpose, or for purposes including the purpose, of defeating, delaying, or interfering with the rights of creditors other than the defendants on a winding up of Otapin." 7 Clearly enough, para 8 seeks to invoke s 588FE(5), under which the transaction, if an insolvent transaction, is voidable if it was entered into or effectuated during the 10 years ending on the relation-back day. In the case of an unfair preference that is an insolvent transaction without the additional ingredient of subsection (5), the transaction is voidable only if entered into or effectuated during the 6 months ending on the relation-back day. The facts in evidence do not permit me to identify the relation-back day, but it seems that the transaction is outside the six-month period while clearly within the 10-year period. I draw this inference from the correspondence between the parties' solicitors, in which the first defendant's solicitor alleged that para 8 should be struck out and that accordingly the claim would be statute barred, and the liquidator's solicitor alleged that there would be no potential time limit problem in the amendment they proposed to the statement of claim. 8 By letter dated 23 December 2005, the first defendant's solicitors contended that para 8 of the statement claim did not plead material facts as required by Part 14 rule 7 of the Uniform Civil Procedure Rules. The letter also sought further and better particulars of para 8. 9 The liquidator's solicitors replied by letter dated 17 March 2006. Generally speaking, the reply was along the lines that the liquidator did not at that stage know the answers to the questions that had been asked. For example, the letter said that the liquidator did not currently know who on behalf of Otapin caused it to become a party to the transaction, or to form the intention on behalf of Otapin as to the purpose of the transaction. Asked to identify the facts, matters and circumstances relied on to support the allegation as to the purpose of the transaction, and the allegation that the rights of the creditors were to be defeated, the letter said that the company was insolvent at the time and it was a natural, probable and obvious effect of the transaction that the benefit of Berchtold Pacific's debt owed to Otapin would be wholly received by Berchtold GmbH rather than all of Otapin's unsecured creditors. 10 The first defendant's solicitors responded by letter dated 22 March 2006, alleging that the answers provided by the liquidator's solicitors were manifestly inadequate, and saying that unless further and adequate particulars were supplied, an application would be made to the court to strike out para 8 or the entire statement of claim. On 6 April 2006 the liquidator's solicitors wrote again, pointing out that Otapin did not retain the usual records that would permit the identification of an individual who caused the company to enter into the transaction, but contending that inferences about the company's purposes are available for the court to draw. The letter said: "If and when our client is, from time to time, in a position to provide further particulars, he shall do so." The letter also foreshadowed an intention to amend the statement of claim to include allegations to the effect that Otapin was a subsidiary of Berchtold Pacific. 11 The evidence includes a report as to affairs provided to the liquidator by Peter Triese, as a director of Otapin. He also filled out a questionnaire answering questions for the liquidator. In the answers to the questionnaire he said that there were monthly directors' meetings of Otapin, held through telephone conferencing and attended by himself, and persons called "Christian" and "Gunter". He said that minutes of the meetings were kept in Germany, where the minute book was located. 12 By an interlocutory process filed on 13 April 2006 Berchtold Pacific seeks, in the alternative, an order that the liquidator provide particulars in response to the letter of 23 December 2005, or that para 8 of the statement of claim be struck out, or that the statement of claim be struck out or dismissed. In my opinion, the correct course is to strike out para 8. 13 Part 15 rule 1 of the Uniform Civil Procedure Rules says the pleading must give such particulars of any claim, defence or other matter pleaded by the party as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet. The particulars that the liquidator has so far supplied relate to the insolvency of Otapin at the time the transaction was entered into, and the assertion that it was natural, probable and obvious that the benefit of the debt owed by Berchtold Pacific was wholly received by Berchtold GmbH rather than all of Otapin's unsecured creditors. 14 Those particulars do no more than supply some ingredients of a case for an unfair preference under ss 588FA, 588FC and 588FE(2), under which the statutory time limit is 6 months. They are not, in any sense, particulars of the additional ingredients necessary to establish a case for recovery within the time limit of 10 years under s 588FE(5)(b). An allegation of a purpose of defeating creditors is tantamount to an allegation of fraud, which must be fully pleaded and particularised under Part 15 rule 3. Although it is not necessary for a plaintiff asserting an improper purpose of defeating creditors to prove the actual state of mind of any officer of the defendant, and permissible to rely upon inferences from the circumstances surrounding the transaction, the mere facts that the company was insolvent at the time of the transaction and that the transaction has had a preferential effect are not a sufficient basis upon which to ground such an inference (an analogy may be drawn with cases under s 121 of the Bankruptcy Act 1966 (Cth) and s 37A of the Conveyancing Act 1919 (NSW), such as Cannane v J Cannane Pty Ltd (1998) 192 CLR 557, and 566 per Brennan CJ and McHugh J, and Puglia v Basol [2005] NSWSC 1271 per Barrett J). 15 If it could be inferred, merely from evidence of insolvency and preferential effect, that a transaction was entered into for the purpose of defeating creditors, the effect would be to replace the six-month time limit in s 588FE(2) with the 10-month time limit in s 588FE(5) in every case. That is an outcome that the legislature cannot have intended. 16 Counsel for the liquidator contended that there is an additional ingredient in the present case, which establishes special circumstances. The additional circumstance is said to be that at the time when the transaction was entered into, Otapin's shares were wholly owned by Berchtold Pacific which is in turn wholly owned by Berchtold GmbH. Those relationships provide a basis, it is submitted, from which it can be inferred that the transaction was entered into for the purpose of defeating creditors. However, it does not seem to me that the fact that the transaction was entered into between related entities in respect of a related entity can of itself (or in conjunction with evidence of insolvency and preferential effect) provide an adequate basis for inferring a purpose of defeating creditors. Were that so, every case of a related-entity insolvent transaction would be a case of obstruction of creditors' rights, and the effect would be to substitute the 10-year time limit in s 588FE(5) for the four-year time limit in s 588FE(4). Again, that cannot have been the intention of the legislature. 17 It follows that the liquidator has failed to give adequate particulars of the allegations made in para 8. Moreover, it is appropriate to infer from the correspondence that the liquidator's reply to the request for further and better particulars, contained in his solicitor's letter of 17 March 2006, reflects the totality of his knowledge of the matters pleaded in that paragraph (especially, the letter by the liquidator's solicitor dated 6 April 2006). It therefore seems to me that there is no point in ordering him to give adequate particulars at this stage. The true position is that the statement of claim asserts a cause of action not supported, in one essential ingredient, by the pleading and particulars, and therefore para 8 should be struck out under Part 14 rule 28, on the grounds that, as particularised, it discloses no reasonable cause of action and has a tendency to cause prejudice, embarrassment or delay in the proceeding. 18 However, I shall not, at this stage, strike out the statement of claim as a whole, for two reasons. First, evidence as to the relation-back day is inadequate to me to do so. The liquidator should be given the chance of saving the remaining parts of the pleading as an unfair preference case, if the time limit can be overcome. Secondly, in their letter dated 6 April 2006, the liquidator's solicitors foreshadowed an intention to seek leave to file an amended statement of claim, introducing assertions intended to ground a case under s 588FE(4), under which an insolvent transaction with a related entity of the company is a voidable transaction if entered into during the 4 years ending on the relation-back day. I should give the liquidator the opportunity to seek that leave. 19 Berchtold Pacific has been successful in the application, which was resisted by the liquidator. I shall order that the respondent pay the applicant's costs. I shall stand the proceedings over to the Registrar's Corporations List for further directions. **********

Rodgers v Berchtold Pacific

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