Walsh v Salzer Constructions Pty Ltd [2000] VSCA 228

2. This appeal is brought by the appellant John Martin Walsh ("the appellant") in his capacity as liquidator of Thompson Land Limited (in liquidation) ("TLL") - against judgment and orders made by the Supreme Court in favour of the respondent Salzer Constructions Pty. Ltd. ("Salzer"). The appellant contends that the trial judge was in error in determining that six payments made by TLL to Salzer between 11 December 1989 and 5 April 1990 should not be set aside as void preferential payments within the meaning of s.451 of the Companies (Vic.) Code and s.122 Bankruptcy Act 1966 (Cth.) ("the Act"). These sums totalled $3,897,265.00. TLL was ordered to be wound up upon application filed on 15 May 1990. The appellant also contends that the learned judge was in error in concluding that eleven payments made by TLL to Salzer between 18 August 1989 and 5 April 1990 (the last 6 of which were those alleged to be void as undue preferences) were not void "settlements of property" within the meaning of s.451 of the said Companies Code and s.120 of the Bankruptcy Act.

The Claim under s.122 Bankruptcy Act

6. The substantial issue debated between the parties on the appeal was narrowly confined. It related to his Honour's conclusion that the six payments made by TLL to Salzer, and which were claimed by the liquidator to be void as against him pursuant to s.122 of the Act, were not "preferential" in the sense that they did not give to Salzer a preference, priority or advantage over other creditors. S.122(1) relevantly provides that:

"A ... payment made ... by a person who is unable to pay his debts as they become due from his own money (... "the debtor") in favour of a creditor, having the effect of giving that creditor a preference, priority, or advantage over other creditors, being a ... payment ... made: (a) within 6 months before the presentation of a petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt; or (b) on or after the day on which the petition on which, or by virtue of the presentation of which, the debtor becomes a bankrupt is presented and before the day on which the debtor becomes a bankrupt; is void against the trustee in bankruptcy."

S.451 of the Companies Code applies these provisions, mutatis mutandis, to corporate entities and their appointed liquidators.

11. The appellant contended that, upon the basis of his Honour's findings that, at the time when the six payments were made:

(a) TLL was unable to pay its debts as and when they fell due;

(b) The payments were made from TLL's own money; and

(c) Salzer was a creditor of TLL by virtue of the provisions of the Performance Guarantee (otherwise known as "the Thompson Land Guarantee"),

his Honour was in error in his conclusion that the payments made to Salzer from the TLL account were made by TLL, not in its capacity as a debtor of Salzer, but as the provider of funds for Thompson Project Management Pty. Ltd. ("TPM") which was the company with whom Salzer had made its contract and which was in debt to Salzer in respect of the progress claims for which payment was made. On behalf of Salzer it was put that his Honour's conclusion was correct. It was submitted that, at the time when the payments were made to Salzer, TLL was not a debtor of Salzer pursuant to the Performance Guarantee, or at all, and that his Honour was correct to characterize the payments as payments made by TLL as "the Treasurer" of the Thompson group of companies to discharge the debt which TPM owed to Salzer, and were not payments in discharge of any debt which TLL owed.

17. These competing submissions have to be analysed against the background of the corporate structure of the Thompson group of companies and their contractual relationships with financiers and builders. The group were property developers and, between 1988 and 1990, were in the process of developing, inter alia, two city blocks of land in Elizabeth Street and King Street, Melbourne. TLL was the holding company in the Thompson Group. One of its wholly owned subsidiaries was TPM, the project manager of the group. In respect of the project at Elizabeth Street (the project with which these proceedings are concerned), the Thompson group of companies interposed themselves between their financiers - Burns Philp Trustee Co. Ltd. (as trustee for Estate Mortgage) - on the one hand, and the project builder Salzer on the other. On 15 August 1988 a series of contracts were entered into in respect of the Elizabeth Street project, the two most relevant of which for present purposes were a building contract between TPM and Salzer and the Performance Guarantee entered into between TLL and Salzer. Pursuant to the building contract - which was essentially a standard form lump sum "design and construct" contract - TPM agreed to pay Salzer by periodic progress payments in accordance with claims submitted by Salzer and processed by TPM. By the Performance Guarantee TLL guaranteed the performance of TPM under the building contract and indemnified Salzer against certain losses.

20. The agreement for financing the project was initially made between Burns Philp Trustee and TLL in June 1987. The fund initially agreed to be provided was $2.795m., increased to $10m. in December 1987 and ultimately, by amending agreement, to $50.133m.

23. The Elizabeth Street project proceeded in accordance with these contractual arrangements until September 1989, when it was substantially advanced. Progress claims were periodically submitted by Salzer to TPM on whose behalf they were analysed by the construction manager of the project - Landkon Pty. Ltd. - another company in the Thompson Group. Progress claims fell to be analysed and paid within a short time frame provided for by clause 12 of the building contract. Sub-clause (e) of Clause 12 provided:

"On or before the expiration of 15 calendar days after receipt of [Salzer's] claim certificate, [TPM] shall either - (i) consent to the progress claim and pay to the builder the amount stated in the progress certificate; or (ii) if [TPM] disagrees with any part or all of [Salzer's] progress claim, [TPM] shall notify [Salzer] giving details of the value in dispute and pay to [Salzer] the amount of the claim which [TPM] does not dispute."

27. As his Honour noted, the period within which Salzer's progress claims were to be evaluated and paid was very short. During the first year of the project they were paid in full, but always about four days late. Of the 10 claims made and paid during the year, one of the cheques was drawn by the ANZ Bank (TLL's bank), three by TLL, three by Twenty-Eigth Codara Pty. Ltd. (another company in the Group), two by TPM, and one by Meleday Pty. Ltd., a company the provenance of which was not known. By July 1989, the financier was in difficulties because of the problems beginning to beset Estate Mortgage. Progress claim 13 was not met in full until some 44 days after it was due. Negotiations for a new financier were set in train through Wardley Australia Ltd. That company introduced Hong Kong Bank Australia Ltd ("HKB") which agreed to participate in funding the completion of the projects at Elizabeth Street and King Street to a limit of $25m. The agreements pursuant to which HKB agreed to provide this funding were put in place on 22 September 1989. One of these agreements - the "Loan Facility Agreement" - contained no express covenant on the part of HKB to advance the moneys to TLL, but the inference from it was that TLL, described as the "borrower", was to be the recipient of the funds. By the other agreement - the Assignment Agreement" - to which HKB, TLL, TPM and Salzer were parties, TPM agreed to assign the benefit of the building agreement to HKB "as security for the due performance of [TLL's] obligations", presumably under the Loan Facility Agreement. It was clear that TPM was to retain the burden of the building contract including its obligation to make payments to Salzer pursuant to clause 12. By clause 4.2 of the Assignment Agreement, Salzer agreed with HKB to inform it of any default by TPM under the building contract and not to exercise its rights under that contract without first having given HKB notice of the default and the opportunity to rectify it. It was clear from correspondence which accompanied these agreements that HKB expected that TLL would deal with funds advanced for the completion of the Elizabeth Street project in accordance with the purpose for which those funds were advanced. In accordance with these agreements, the six progress payments made to Salzer pursuant to the building contract, which are alleged to be void preferences, were advanced. Three of them were advanced by TLL and three by HKB. It was not in dispute that each of these payments was made within the relevant period of six months before the commencement of the winding up of TLL.

30. Before the trial judge, the appellant submitted that these payments were made by TLL to Salzer in discharge of a liability which, in the events which had happened, it owed to Salzer as its creditor. The debtor/creditor relationship arose, it was contended, by virtue of the liability or contingent liability which accrued to TLL under clauses 1 and 2 of the Performance Guarantee and/or pursuant to an implied assignment or novation of TPM's payment obligation under the building contract which had been effected by the agreements made with the HKB. His Honour rejected the contention concerning the implied assignment or novation, and no argument has been put on this appeal contending that his Honour's conclusion in this respect is in error.

33. The Performance Guarantee was, as I have said, one of the agreements made in August 1988 before the project began. It was made between TLL and Salzer, and recites the building contract existing between TPM and Salzer and the fact that TLL "has agreed to guarantee the due performance by TPM of its obligations" pursuant to that contract. The two relevant clauses are as follows:

"1. Subject to: 1.1. [Salzer] having remedied any default (as defined by the Building Agreement of its obligations in accordance with clause 16 of the Building Agreement); 1.2. a default (as defined by the Building Agreement) having arisen and not being remedied by TPM in accordance with clause 16 of the Building Agreement; 1.3. [Salzer] having not exercised any right to determine the Building Agreement without first giving [TLL] by notice in writing within a period of 7 days from the day of receipt of the said notice to remedy the default by TPM; 1.4. as at the date of service of the notice referred to in this clause 1, the Building Agreement being valid and enforceable; Then upon service by [Salzer] of a written notice (Builder's Notice) served in accordance with clause 19 of the Building Agreement specifying the said default by TPM, the Guarantor shall rectify the said default within 7 days of the date of the Builder's Notice. 2. The Guarantor indemnifies the Builder against all losses, damages, costs and expenses which may be incurred by [Salzer] by reason of any default on the part of TPM in connection with the covenant given in clause 1."

37. It is apparent from the relevant provisions of the Performance Guarantee that they are "tied" to a default which is described in clause 16 of the building agreement. Insofar as relevant that clause - which is headed "Default and Termination of Contract" - reads:

"Determination by the Builder (d) In the event of default by [TPM] in the carrying out of any of its obligations under this contract including (but without limiting the generality of the foregoing) where [TPM] makes default in payment of any amount due to [Salzer] pursuant to any of the conditions of this contract and such default continues for a period in excess of 14 days after the date upon which such amount should have been paid to [Salzer] in accordance with such conditions, then Salzer may serve a notice upon [TPM] specifying the default or neglect or failure and calling upon [TPM] to show cause why the powers contained in this condition should not be exercised. If within 14 days after receipt of the Notice in writing [TPM] fails to satisfy [Salzer] that no default has occurred or fails to give a reply which, in the opinion of [Salzer], offers reasonable assurance that the default will be rectified forthwith and the obligations of [TPM] satisfactorily completed or thereafter fails to rectify the default forthwith, [Salzer] ... may determine this contract."

In respect of the six impugned payments, no default had existed for more than 14 days, and no notice under clause 16 had been given by Salzer to TPM.

42. In respect of the six payments alleged by the liquidator to be preferential by reason of s.122 of the Act, it was contended before his Honour that there was a debtor/creditor relationship between TLL and Salzer because clause 1 of the Performance Guarantee rendered TLL contingently liable as a surety as soon as the date for payment of a progress claim had passed. Such a circumstance, so it was submitted, rendered TLL liable for a contingent debt which was provable in the debtor's bankruptcy pursuant to s.82(1) of the Act[1]. The contention was that, as soon as the time for payment of the progress claim had passed, TPM was in breach of its obligations under clause 12 of the building contract and, accordingly, TLL was in the position of a surety who might be called upon to pay the debt. It was also submitted to his Honour, on behalf of the liquidator, that an immediate liability arose in TLL to pay the debt to Salzer pursuant to the indemnity created by clause 2 of the Performance Guarantee, pursuant to which TLL had agreed to indemnify Salzer against "losses" etc. incurred by Salzer "by reason of any default on the part of TPM in connection with the covenant given in clause 1". His Honour concluded that the words in this clause "in connection with the covenant given in clause 1" were "meaningless" and "superfluous" and should be ignored. He found that clause 2 was, accordingly, not "tied" to clause 1 and constituted a free-standing indemnity creating "an immediate obligation to indemnify [Salzer] whenever TPM falls into default under the building contract". Excepting the payment made on 2 March 1990 (which was made on the due date for payment under the building agreement), his Honour concluded that the alleged preferential payments were made in circumstances where TLL was under an obligation to make payment to Salzer pursuant to clause 2 of the Performance Guarantee. In this way, his Honour concluded that Salzer, immediately before it received five of the six payments, was a creditor of TLL. This was the fact, his Honour held, even though no demand had been made upon TLL by Salzer pursuant to the Performance Guarantee and the fact that none of the parties had even given a thought to that document.

45. In the long run, and notwithstanding the findings to which I have referred in the preceding paragraph, his Honour found that the payments were not made by TLL in its capacity as debtor to its creditor Salzer, but rather as the "treasurer" of the Thompson Group of companies. His Honour noted that, in the books of TLL, the payments were recorded as a "debit to TPM". His Honour said that, since August 1989 when the Facility Agreement was negotiated with HKB, "all concerned saw the payments to Salzer as payments made in response to its progress claims and payments in satisfaction of the liability to it of TPM - not that of TLL". His Honour, accordingly, concluded that the payments made to Salzer from TLL's cheque account "were made by it, not in its capacity as debtor of Salzer, but as the provider of funds for TPM which was itself a debtor of Salzer and in respect of progress claims payable by TPM to Salzer under the building contract". His Honour also found that the three payments made by HKB to Salzer "are, likewise, to be seen as payments by it in this capacity". "It follows", said his Honour, "that none of the 6 impugned payments was a payment made by [TLL] to Salzer as its creditor".

48. On behalf of the appellant, Dr. Hardingham submitted to this Court that this last conclusion reached by his Honour was not open to him on the findings which he had made. He submitted that his Honour was reading into s.122 a requirement which the section did not contemplate. He contended that all that s.122 requires is a payment from TLL from its own moneys; that at the time of such payment TLL was "insolvent" in the relevant sense; that the payment was made in favour of TLL's creditor; that it had the effect of giving the creditor a preference, priority or advantage; and that the payment discharged the debt of TLL to its creditor. All of these findings, he submitted, were made by his Honour and it was not to the point that neither creditor nor debtor intended that the creditor should be given preferential treatment. Section 122, he submitted, looks to the effect of the transaction and not to the intent, or state of mind, of the debtor, save in the case of what are called "running accounts"[2]. Dr. Hardingham pointed out that, in the course of determining that the payments made to Salzer were not "settlements" under s.120 of the Act on the grounds that they were "not voluntary", his Honour had concluded that the payments "had the effect of discharging the liability of TLL to Salzer under the Thompson Land Guarantee", even though, as he said, they "were not in fact made by [TLL] qua debtor to its creditor".

51. These submissions might have had substance were it not for the view, to which I have come, that his Honour's findings that, at the relevant times, TLL was either actually or contingently liable to Salzer pursuant to the Thompson Land Guarantee were in error. I agree with the submissions made by Mr. Archibald, on behalf of Salzer, that no liability did arise, or could have arisen, in TLL pursuant to clause 1 of that Guarantee until such time as the restrictive pre-conditions referred to in that clause had been fulfilled. Notwithstanding that five of the six payments were overdue by reference to clause 12(e) of the building contract, that was not a default which had arisen and remained unremedied by TPM in accordance with clause 16 of the building agreement within the meaning of clause 1.1.2 of the Performance Guarantee. In my view no liability, contingent or otherwise, could arise in TLL as a surety pursuant to clause 1 of that Guarantee - and thus no capacity in TLL to prove in the bankruptcy - until such time as the necessary steps required to be taken by Salzer under clause 16 of the building contract and clause 1 of the Performance Guarantee had been taken by Salzer. Only then would there be any liability in TLL "to rectify" pursuant to the Guarantee. I also agree with the respondent's submission that his Honour's construction of clause 2 of the Guarantee was in error. In my view, the provisions of that clause were not intended to create in TLL a "free-standing" indemnity in favour of Salzer for all losses etc. incurred by Salzer by reason of any default by TPM. In essence, that is how his Honour interpreted the clause when he found that its concluding words were meaningless and should be ignored. If his Honour's view as to the proper interpretation of the clause is correct, then it imposes a far greater liability upon TLL in respect of TPM's defaults than exists under the covenant in clause 1. In my opinion, when one reads the whole of the Performance Guarantee in context, it is clear that the parties intended that clause 2 should "march in step" with, and be subsidiary to clause 1. The satisfaction by the Builder of the pre-conditions necessary to secure the guarantor's "covenant to rectify" pursuant to clause 1, will almost inevitably involve the builder in loss and expense and, as I see it, it is that loss, expense etc. which is intended by clause 2 to attract the indemnity. Whilst I agree with his Honour that the words "in connection with the covenant given in clause 1" are not happily phrased, it is, I think, quite clear upon a construction of the entire document that they are intended to qualify the words "losses etc. ... incurred by the builder" and not solely the words "any default on the part of TPM". I agree with Mr. Archibald that, properly construed, clause 2 means:

"The guarantor indemnifies the builder against all losses etc. which may be incurred by the builder [by reason of TPM's default] in connection with the covenant given in clause 1."

So construed, the words "in connection with" are designed to convey the parties' intention that it is the losses etc. incurred by the builder in securing from TLL the covenant to rectify contained in clause 1 which will be the subject of the indemnity referred to in clause 2.

56. If, as I think is the case, no liability to Salzer had arisen in TLL under the Performance Guarantee to make the impugned payments, then the characterization given by his Honour to those payments is clearly correct. The payments were made to Salzer not to discharge any actual or contingent debt owed by TLL to Salzer in respect of those sums; rather they were made to discharge the liability of TPM under clause 12 of the building contract, TLL being the only company within the Thompson Group with the funds to make those payments. Salzer was therefore not a creditor of TLL in respect of those payments and, thus, there was no debtor/creditor relationship for the purposes of s.122 of the Act[3]. In those circumstances, the decision of Jenkinson, J. in Re S&N (Nominees) Pty. Ltd.[4] - upon which Dr. Hardingham relied - is distinguishable because the payment made by the insolvent company in that case had the effect of discharging its liability for "rent instalments" which were otherwise payable to its creditor, and in respect of which the creditor would have been entitled to prove in the winding up of the insolvent company.

59. The conclusion to which I have come in respect of this matter effectively disposes of the appeal challenging his Honour's conclusion that Salzer had not received any preference, priority or advantage within the meaning of s.122 of the Act. Strictly speaking, therefore, there is no need to consider two matters raised by the respondent in its Notice of Contention; namely that the impugned payments were made as part of a "running account"; and, secondly, that the payments were "ear-marked" for the benefit of Salzer following the funding arrangements which were put in place between TLL and HKB. His Honour rejected both of these contentions which had been put to him on behalf of Salzer.

62. It suffices to say that I would reject both of these contentions for the reasons given by his Honour. His Honour was critical of the way in which the "running account" claim had been raised before him. It found no place in the "points of defence" which had been provided on behalf of the respondent in accordance with directions given by the judge. It had been raised only obliquely in the opening by counsel for Salzer and did not emerge explicitly until counsel made their final address. Nevertheless, his Honour entertained the claim on the basis that no prejudice was caused to the liquidator by doing so. In the event, he concluded that where payments are made on progress claims for work done by a builder pursuant to a building contract which calls for payments by instalments in accordance with the value of work performed, the doctrine of the "running account" has no part to play. In substance, his Honour held that each payment of a progress claim is an "isolated one-off payment" in discharge of its own debt, a fact which had been conceded by trial counsel for Salzer. In essence, so his Honour held, such a payment is not made "to induce the creditor to provide further goods or services as well as to discharge existing indebtedness"[5]. Although Mr. Archibald was not able to point to any case where progress payments made under a building contract had been held to be within the doctrine of the "running account", he nevertheless challenged his Honour's conclusion in this regard, contending that, in the context of the wider commercial relationship which existed between the parties by virtue of the building contract, the judge ought to have found that progress claims were in fact paid partly for the purpose of inducing the builder to continue providing his services. But, whether that is so or not, the payments here in question were not, in my view, part of a "running account" as that term has been viewed by the authorities. The "significance of a running account lies in the inferences which can be drawn from the facts that answer the description of a `running account' rather than the label itself. A running account between traders is merely another name for an active account running from day to day as opposed to an account where further debits are not contemplated. The essential feature of the running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded"[6].

In my view, this description of a running account does not fit the concept of a building contract where progress claims are made separately and in isolation from each other and following analysis and confirmation of the claim[7]. In such a case no "balance of account" is maintained, nor is the account a "continuing one" in the sense in which that term was described by Barwick, C.J. in Queensland Bacon Pty. Ltd. v. Rees[8]. In a building contract which predicates progress payments from time to time for work done, one cannot say that the payment of a progress claim is relevantly connected with the future supply of services so as to indicate that there is a mutual assumption by the parties to the contract that there will be a continuance of the relationship of debtor and creditor. Unless that can be established it is not to the point that the payment is made, in a general sense, partly for the purpose of inducing further work.

66. Before his Honour, it was further contended by the respondent that no preference was obtained by Salzer because the impugned payments were "ear-marked" as payments to Salzer in the sense that the monies were paid by HKB to, and held by, TLL on a constructive trust for Salzer[9]. The trial judge rejected this contention, concluding that, on his analysis of the facts, no such fiduciary relationship had been established. As his Honour said:

"It is clear that the money paid to TLL was treated by all as being available, and in fact was used, as part of the general cash flow of TLL."

In this Court, Mr. Archibald expressly disclaimed that the impugned payments were held by TLL upon trust for Salzer. Rather he contended that Salzer, in receiving the payments, was receiving money which was not available for creditors generally. He contended that the financial facilities which were put in place between HKB and TLL were designed to ensure that the funds would flow from the financier to the builder to enable the latter to complete the project. In a broad sense this was so but, as his Honour pointed out, the terms of the facility did not "earmark" any advance made to TLL. He carefully considered all of the evidence which was put before him and concluded that none of the advances to TLL from the financier were earmarked in the sense now contended for and, indeed, the evidence suggested that TLL was using them for such of its commitments as were thought to be "most pressing". In the light of his Honour's findings, which were not directly challenged by the respondent on this appeal, it cannot, in my view, be successfully contended that the moneys made available to TLL were not moneys available to creditors generally, even though there may have been a "general understanding" that they would be applied to the completion of the project. Indeed I think that Dr. Hardingham was correct in submitting that, where monies have been advanced in these circumstances, and where they were not impressed with some form of trust in favour of the builder, it cannot be contended that they were not available for the general body of creditors.

Appellant's Claim that Payments were "Void Settlements" pursuant to s.120 of the Act

72. In this Court, Dr. Hardingham challenged his Honour's conclusions that the 11 payments made to Salzer (including the 6 payments alleged to be "preferential") were not "settlements of property" within the meaning of s.120 of the Act. Although this was not the primary contention made on the liquidator's behalf before his Honour, it leads to the result, if correct, that the appellant will be able to recover for the general body of creditors, a far larger sum than would be available to him in the event that he had succeeded solely in respect of the "preference" argument.

"A settlement of property, whether made before or after the commencement of this Act, not being: (a) a settlement made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration; (b) ... is, if the settlor becomes a bankrupt and the settlement came into operation after, or within 2 years before, the commencement of bankruptcy, void as against the trustee in bankruptcy.

"Nothing in this section shall be taken to affect or to prejudice the title or interest of a person who has in good faith and for valuable consideration, purchased or acquired from persons entitled to the benefit of the settlement ... or from the trustee of the settlement, the money or property the subject of the settlement ... or an interest in that money or property."

"In this section, `settlement of property' includes any disposition of property."

S.5 of the Act defines "property" as meaning, relevantly:

"... real or personal property of every description ..."

85. The submission of the liquidator proceeds on the basis that the inclusion of the definition of "settlement of property" into the amending Act of 1966 has operated to so broaden the description of such "settlements" that it is apt to include within its ambit all the payments made by TLL to Salzer between 18 August 1989 and 5 April 1990. It is contended that the definition now to be found in s.120(8) is markedly wider than that which had been found in s.94 of the Bankruptcy Act 1924. In that Act s.94(5) had provided that:

" `Settlement' for the purposes of this section includes any conveyance or transfer of property."

The meaning of "settlement" in s.94(5) was traditionally confined to a disposition of property to be held for the enjoyment of some other person, and did not contemplate a gift of money to be "expended at once".[10] This application of the meaning of "settlement", for the purposes of s.94 of the Bankruptcy Act 1924, was accepted by the High Court in Williams v. Lloyd[11], where Dixon, J. said, having referred to In re Player, ex parte Harvey:

"This exposition of the provision appears to have gained the approval of the Court of Appeal (In re Tankard (1899) 2 Q.B. 57; approved in In re Plummer (1900) 2 Q.B. 790; In re Branson; ex parte Moore (1914) 3 K.B. 1086). But it does not mean that there shall be any restriction on the donee's power of disposal, but merely that the retention of the property in some sense must be contemplated and not its immediate dissipation or consumption."

91. In recent years, there have been some expressions of judicial opinion that, because s.120(8) now defines "settlement of property" as including "any disposition of property", there is no need to confine it to dispositions of an enduring character and to exclude payments of the kind here under consideration which clearly were under the sole control of the payee and not intended to be retained. Dr. Hardingham submitted that the approach adverted to by Wilcox, J. in Re Ward[12], in respect of facts very different from the ones before this Court, was an approach which the Court should be prepared to adopt in this case. His Honour said:

"The substitution in s.120(8) of a new and wider definition of `settlement' offers to Australian Courts the opportunity to re-think the desirability of adhering to the traditional tests. No longer does the definition have the connotation of permanent benefit suggested by `conveyance or transfer' of property. Rather it refers to `disposition' of property. It ought to be enough that the relevant transaction is a disposition of a capital fund. It ought to be immaterial whether the settlor contemplates that the capital fund will be held indefinitely in specie, converted to some other form of capital or spent by the settlee."

95. These remarks have gained apparent approval in dicta of judges of the Federal Court in subsequent decisions[13]. However, in Re Norgard[14], the Full Court of the Federal Court rejected the argument - similar to that made in this Court - that a "settlement of property" within the meaning given to it by s.120 of the Act, was no longer confined to transactions in the nature of a settlement of the type referred to in the line of authorities commencing with In re Player (supra). Northrop and Davies, JJ. (with whom Lee, J. agreed) said [at 12]:

"It is clear from the use of the word `settlement' in s.120 and the use of the term `disposition of property' in s.121, and indeed from the overall content of s.120, that s.120 is not concerned with any disposition of property, but is concerned with dispositions of an enduring nature, that is to say, dispositions in the nature of a settlement."

Their Honours preferred the analysis of the section which had been adopted by Lockhart, J. in Barton v. Official Receiver[15] as follows:

"In my opinion, for there to be a `settlement of property' within the meaning of s.120, there must be a settlement in the ordinary sense of the word, a transaction in the nature of a settlement, though it may be effected by any disposition. The retention of the property in some sense must be contemplated and not its immediate dispersion. The transaction impugned by the respondent was not merely the payment of $170,000 by the bankrupt to the appellant. It was a loan of money on specific terms that included the repayment of an equivalent sum upon the expiration of 20 years. That is itself sufficient to satisfy the requirement that the property be retained in some sense and not immediately dissipated or consumed."

101. Thus, in Barton's case, the Federal Court was prepared to conclude on the facts that the disposition was of such a nature as to satisfy the requirements of a "settlement of property" within the meaning of s.120. That finding was not disputed when the matter went, on appeal, to the High Court[16]. Gibbs, C.J., Mason, Wilson and Dawson, JJ. said (at 78):

"It is not now disputed that the payment in question was a `settlement' within the meaning of s.120. Clearly it was, bearing in mind the broad definition of `settlement of property' in s.120(8), as including `any disposition of property' and the circumstances in which the payment was made. Although made in the form of a loan, no part of the principal was repayable for twenty years, and the purpose of the loan was to enable the appellant to buy property in the form of a house and company shares. There being no contemplation of the immediate dissipation or consumption of the money, the established principles governing the making of a settlement were satisfied : See Williams v. Lloyd; In re Williams [1934] HCA 1; (1934) 50 C.L.R. 341 at pp.364, 375; Re Hyams, Official Receiver v. Hyams (1970) 19 F.L.R. 232 at 247-253.)"

105. It was argued on behalf of the liquidator before the trial judge - an argument repeated before this Court - that the High Court in Barton's case had not been specifically asked to decide, nor did it specifically determine the question whether a "settlement of property" within the meaning ascribed to it by s.120(8) of the Act could include a disposition of money in the form of payments of the type made to Salzer in this case. It was submitted that the definition in s.120(8) was so wide that it "clearly" must include payments of money "in the discharge of debts owed to the payee".

108. The trial judge, in response to this argument, referred to a large number of authorities confirming what he termed "the traditional view of `settlement of property' " both before and after the amendments to the Act in 1966. After making such review of the authorities, his Honour said:

"It is, I think, fair to say that the preponderance of authority is in favour of the traditional view and this view has also the support of ... the Full Federal Court and the High Court. As a judge at first instance construing a national statute, I see myself bound by such a line of authority. For what it is worth, having examined the reasoning behind the competing views, I would not be inclined myself to depart from the traditional view. The payments made to Salzer are not settlements of property within the meaning of s.120."

His Honour then went on to conclude, in any event, that each of the relevant payments made to Salzer was not voluntary, was made for valuable consideration and received in good faith (s.120(1)(a)).

113. Before this Court, the liquidator challenged each of his Honour's findings, although counsel conceded that, unless the Court was prepared to accept their submission that a "settlement of property" within the meaning of s.120 was not confined to dispositions of property "to be held for the enjoyment of others and not for immediate dissipation or consumption", they could not successfully contend that the payments in dispute in this case were "settlements" within the meaning of s.120.

116. For my own part, I am of the view that his Honour's provisional conclusion that these payments were not "settlements of property" within the meaning of s.120 was clearly correct. Contrary to the submission made by the liquidator, I am also of the view that the decision of the Full Court of the Federal Court in Re Norgard (supra) is correct. Unless this Court was convinced that the decision was plainly wrong - a view which we were invited by the appellant to take - the need for uniformity in the interpretation of national legislation would require us to follow it[17].

119. The court in Re Norgard (supra), in reaching its conclusion that s.120 of the Act will not operate to avoid a transaction unless the disposition was intended to secure an enduring benefit and where there was no contemplation of the immediate dissipation or consumption of the property passed, was content to rely upon the views expressed by French, J., who was the trial judge in that case[18]. French, J., in what was characterized by the plurality in the Full Court as a "scholarly examination" of the history of the provisions of the Act touching void settlements, concluded that there was nothing in that history which suggested that the Parliament had intended, by introducing the new definition of "settlement of property" in s.120(8), to dispense with the concept of "retention" which the authorities in England and Australia had long held was implicit in the meaning of "settlement of property" where used in s.120 and its statutory predecessors. In reviewing the history of the legislation, French, J. referred to and expanded upon the analysis of s.120 which he had made in Re Kastropil; ex parte Official Trustee in Bankruptcy[19]. His Honour noted[20] that:

"The definition of `settlement of property' in s.120(8) of [the Act] substituted for `includes any conveyance or transfer of property' [in s.94(5) of the 1924 Act] the words `includes any disposition of property'. As a matter of logical analysis, the new definition is no wider than the old. The old definition, with a logical structure identical to that of the new, was wide enough on strict analysis to cover all forms of disposition of property. But it was read down by reference to the criterion of contemplated retention implicit in the notion of settlement ... . The retention of the term `settlement' and the same logical structure in its definition in the 1966 Act points, in my opinion, strongly to the conclusion that it was intended to be construed in the same way as in the 1924 Act."

123. With respect, I would for myself adopt this line of reasoning. S.120(8) was designed to emphasise that the "settlements of property" with which s.120 was concerned were not confined to settlements of real property but extended to all dispositions of property, provided that they are "settlements" as that term has been construed. Indeed, as his Honour pointed out (at 285) such a construction was consistent with the view of s.94(1) and (5) of the 1924 Act adopted by Clyne, J. in Re Pahoff[21], shortly before the Bankruptcy Review Committee - chaired by Sir Thomas Clyne - recommended the introduction of what is now s.120(8) of the 1966 Act. The definition in that sub-section is inclusive and, when read in the context of the whole of ss.120 and 121, is in my view inconsistent with an intention that the "settlements of property" to which it refers include dispositions of property for immediate

"In the event, I am satisfied that it is still the law that a disposition of property is not a settlement unless made with the intention that it will be retained by the recipient and not immediately dissipated or consumed."

I respectfully agree with this conclusion. I also accept, with respect, the view expressed by his Honour in Kastropil (supra at 141-2) that the remarks made by the High Court in Barton (supra), to which I have previously referred in [22], are "a powerful indicator that the permanency test remains entrenched in the concept of settlement until the High Court comes to a different view or the legislature otherwise provides".

132. Because counsel for the appellant conceded that, if the Court adopted the view of s.120 which I prefer, they could not make good their submission that the payments to Salzer were "settlements of property" contrary to s.120(1), it is unnecessary for me to consider their further contentions that his Honour was in error in concluding that such payments were made and received in good faith and for valuable consideration.

135. For the foregoing reasons, I would dismiss the appeal.

140. Dr Hardingham, on behalf of the liquidator, contended that the learned primary judge erred in rejecting the six claims for allegedly voidable preferences on the footing that the relevant payments were not made by the company in the capacity of debtor or received by the respondent in the capacity of its creditor. But

for that, Dr Hardingham argued, the judge would have upheld the claims, and he should have done so. I agree with the President, whose reasons I have had the benefit of studying in draft, that those claims should have failed at an earlier stage of the liquidator's proofs.

144. The judge was prepared to treat the respondent as a contingent creditor of the company by reason of an obligation that sprang up (spontaneously as it were) from clause 2 of the performance guarantee executed between them on 15 August 1988. The President has shown why clause 2, properly interpreted, (a) did not extend to provide an indemnity for all loss arising out of a failure on the part of the project manager to make progress payments; (b) imposed a relatively limited obligation of indemnity on the company; and (c) did not operate spontaneously to create a debtor-creditor relationship between the company and the respondent: service of a "builder's notice" on the company was a prerequisite to liability, and no such notice was served. Those six claims should have failed, accordingly, at the threshold on the footing that there was no relevant debtor-creditor relationship: the question of the capacity in which payment was made and received therefore did not in strictness arise.

147. I agree also that the eleven payments for which claims were made in reliance on s.120 of the Bankruptcy Act 1966 were not settlements of property within the meaning of that section. I do not wish to add to what the President has written on that subject.

155. I have had the benefit of reading the draft judgment of the President and, for the reasons given by him, I agree that the appeal should be dismissed.

158. A key issue in determining whether the six impugned payments were

void as against the liquidator pursuant to s.122 of the Bankruptcy Act 1996 (Cth.) ("the Act") was whether a debtor-creditor relationship existed between TLL and Salzer at the time of the payments. The liquidator contended that, at the relevant time, there was such a relationship between the parties because TLL was a contingent creditor of Salzer by virtue of the operation of clauses 1 and 2 of the Performance Guarantee. But as the President has shown, the operation of clause 1 was dependent upon there being a default by TPM under clause 16 of the building contract as is contemplated by clause 1.1.2 of the Performance Guarantee. On the material before the court, although TPM was in arrears in making the progress payments in question, there was no breach by it of clause 16 of the building contract so as to trigger the operation of clause 1 of the Performance Guarantee and thus, there was no liability in TLL to "rectify the said default" for the purposes of that clause. Further, for the reasons given by the President, clause 2 does not operate to provide Salzer with an indemnity for all losses arising out of a failure on the part of TPM to make progress payments. The obligation of TLL to indemnify Salzer under that clause is confined to losses incurred by it as a consequence of TPM's default under clause 16 of the building contract and its endeavour to enforce against TLL its rights under clause 1 of the Performance Guarantee. There being no breach of clause 16 of the building contract, there was no obligation in TLL to indemnify Salzer.

162. In the circumstances, therefore, the payments made by TLL (inclusive of those made by the Hong Kong Bank) were made by it, as the books of account of Salzer show, as treasurer of the Thompson Group, not for the purpose of discharging any of its liability to Salzer, but to discharge the liability of TPM under clause 12 of the building contract. Consequently, they are not avoided by s120 of the Act.

165. I also agree with the President that the eleven payments in respect of which claims were made under s.120 of the Act, were not settlements of property within the meaning of that provision and thus, cannot be set aside on that basis. The liquidator argued that the definition of "settlement of property" in s.120(8) is materially wider than that which was found in s.94 of the Bankruptcy Act 1924 and that the eleven payments in question fell within its ambit. In my view, however, for the reasons given by the President, the definition of "settlement of property" in s.120(8) is no wider than the definition of that term in s.94(5) of the 1924 Act and the eleven payments in question do not fall within its ambit.

[1] In re Blackpool Motor Car Co. Ltd. [1901] 1 Ch.77; ex parte Read [1897] 1 Q.B. 122.

[2] S. Richards & Co. Ltd. v. Lloyd [1933] HCA 26; (1933) 49 C.L.R. 49 at 59-60; Air Services Australia v. Ferrier & Anor. (1996) 185 C.L.R. 483 at 500-1, per Dawson, Gaudron and McHugh, JJ.

[3] cf. Expo International Pty. Ltd. v. Torma (1985) 3 N.S.W.L.R. 225, per Hope, J.A. at 229; Burns v. Stapleton [1959] HCA 34; (1959) 102 C.L.R. 97 at 105 per Dixon, C.J., Kitto and Windeyer, JJ.

[4] (1986) 76 A.C.T.R. 1

[5] Air Services Australia v. Ferrier & Anor. (1996) 185 C.L.R. 483 at 501-2 per Dawson, Gaudron and McHugh, JJ.

[6] See Air Services Australia v. Ferrier, supra at pp.504-5.

[7] cf. Sands & McDougall Wholesale Pty. Ltd. (in liq.) v. Commissioner of Taxation [1998] VSCA 76; [1999] 1 V.R. 489 at 508 per Charles, J.A.; Olifent v. Work Cover Corporation (S.A.) (1996) 135 F.L.R. 423 at 433 per Debelle, J.

[8] [1966] HCA 21; (1966) 115 C.L.R. 266 at 286.

[9] cf. Quistclose Investments Ltd. v. Rolls Razer Ltd. [1970] A.C. 567.

[10] In re Player, ex parte Harvey (1885) 15 Q.B.D. per Cave, J. at 687

[11] [1934] HCA 1; (1934) 50 C.L.R. 341 at 375 per Dixon, J.

[12] [1984] FCA 230; (1984) 3 F.C.R. 112

[13] Barton v. Official Receiver [1984] FCA 337; (1984) 4 F.C.R. 380, per Sweeney, J. at 386, per Fisher, J. at 387; P.T.Garuda Indonesia Ltd. v. Grellman [1992] FCA 188; (1992) 35 F.C.R. 515 at 533-4.

[14] Unreported Full Court of the Federal Court, 16 August 1990

[15] [1984] FCA 337; (1984) 4 F.C.R. 380 at 395

[16] [1986] HCA 44; (1986) 161 C.L.R. 75

[17] Australian Securities Commission v. Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 C.L.R. 485 at 492

[18] (1990) 21 F.C.R. 270 at 281 ff.

[19] Unreported, Federal Court of Australia, 14 July 1989

[21] (1961) 20 A.B.C. 17 at 19

[22] 21 F.C.R. 270 at 287