Federal Court of Australia Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) (No 2) [2021] FCAFC 111 Appeal from: Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Badenoch Integrated Logging Pty Ltd [2020] FCA 713 File number: SAD 121 of 2020 Judgment of: MIDDLETON, CHARLESWORTH AND JACKSON JJ Date of judgment: 24 June 2021 Catchwords: CORPORATIONS – voidable transactions – unfair preferences – commencement and end dates of single transaction under s 588FA of the Corporations Act 2001 (Cth) COSTS – where both parties had some success on appeal – general rule that costs follow the event – each party to bear own costs of appeal Legislation: Corporations Act 2001 (Cth), ss 588FA, 588FC, 588FE, 588FF Federal Proceedings (Costs) Act 1981 (Cth), s 6 Cases cited: Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64 Division: General Division Registry: South Australia National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 32 Date of last submissions: 28 May 2021 Counsel for the Appellant: Mr M Gronow QC with Ms R G Morison Solicitor for the Appellant: Scanlan Carroll Lawyers Counsel for the Respondents: Mr J Evans QC with Mr B M Gibson Solicitor for the Respondents: Johnson Winter & Slattery ORDERS SAD 121 of 2020 IN THE MATTER OF GUNNS LIMITED (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED) BETWEEN: BADENOCH INTEGRATED LOGGING PTY LTD (ACN 097 956 995) Appellant AND: DANIEL MATHEW BRYANT, IAN MENZIES CARSON, AND CRAIG DAVID CROSBIE IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF GUNNS LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 009 478 148) AND AUSPINE LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 004 289 730) Respondents order made by: MIDDLETON, CHARLESWORTH AND JACKSON JJ DATE OF ORDER: 24 June 2021 THE COURT ORDERS THAT: 1. Ground 1 of the appeal is allowed. 2. Insofar as it relates to payments 1 to 4, Ground 2 of the appeal is allowed. 3. The appeal is otherwise dismissed. 4. The Respondents' cross-appeal and Notice of Contention are dismissed. 5. Paragraphs 1 and 2 of the orders made by the Federal Court of Australia in proceeding number SAD 341 of 2015 on 30 July 2020 ('Orders') are set aside and in lieu thereof it is declared that: The following payments made by Gunns Limited to the Defendant and the invoices issued by the Defendant to Gunns Limited in respect of the period between 26 March 2012 and 10 July 2012 are integral to a single transaction and do not constitute an unfair preference within the meaning of s 588FA of the Act, are therefore not an insolvent transaction within the meaning of s 588FC of the Act, and are not a voidable transaction within the meaning of s 588FE of the Act: Date Amount 26 March 2012 ($322,976.00) 28 March 2012 ($322,975.75) 30 March 2012 $410,000.00 ('payment 1') 31 March 2012 ($660,347.78) 13 April 2012 $410,965.07 ('payment 2') 30 April 2012 ($674,368.12) 30 April 2012 ($4,561.51) 1 May 2012 $660,347.78 ('payment 3') 31 May 2012 ($737,633.68) 7 June 2012 $678,929.63 ('payment 4') 30 June 2012 ($627,687.34) 31 July 2012 ($194,273.06) 6. Paragraph 4 of the Orders be varied to provide as follows: Pursuant to s 588FF of the Act, the Defendant pay to the Plaintiffs the sum of $1,200,633.68, representing the total of the amounts of the unfair preferences received by the Defendant on the dates 8 August 2012, 17 August 2012, 27 August 2012, 3 September 2012, 10 September 2012, 17 September 2012 and 24 September 2012. 7. Paragraph 5 of the Orders be varied to provide as follows: Pursuant to s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth), the Defendant pay the Plaintiffs pre-judgment interest on the amount payable pursuant to paragraph 4 above, in the amount of three hundred and fourteen thousand and sixty-two dollars and ninety cents ($314,062.90) calculated as follows: pursuant to paragraph 3.1 of the Plaintiffs' Amended Originating Process, pre- judgment interest of $314,062.90 on the sum of $1,200,633.68 in respect of the transactions referred to in paragraph 4 of this Order above (being transactions which occurred between 3 July 2012 and 25 September 2012) calculated from 1 September 2015 until 27 May 2020 on the following basis: (i) $23,881.10 for the period between 1 September 2015 and 31 December 2015, calculated at a rate of 6.00% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (ii) $35,822.19 for the period between 1 January 2016 and 30 June 2016, calculated at a rate of 6.00% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (iii) $34,706.84 for the period between 1 July 2016 and 31 December 2016, calculated at a rate of 5.75% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (iv) $66,034.85 for the period between 1 January 2017 and 31 December 2017, calculated at a rate of 5.50% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (v) $66,034.85 for the period between 1 January 2018 and 31 December 2018, calculated at a rate of 5.50% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (vi) $32,746.05 for the period between 1 January 2019 and 30 June 2019, calculated at a rate of 5.50% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (vii) $31,775.67 for the period between 1 July 2019 and 31 December 2019, calculated at a rate of 5.25% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; and (viii) $23,061.35 for the period between 1 January 2020 and 27 May 2020, calculated at a rate of 4.75% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT. 8. The $65,000 (and any interest therein) held by the Court as security for the Respondents' costs of and incidental to the Appeal in this proceeding pursuant to the order of the Honourable Justice Middleton made on 28 January 2021 be released to the Appellant. 9. The Respondents be granted a certificate under s 6(3) of the Federal Proceedings (Costs) Act 1981 (Cth) in respect of any costs incurred in the appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT THE COURT: INTRODUCTION 1 On 10 May 2021, the Court delivered reasons in this appeal: Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64 ('Reasons'). There is a dispute between the parties as to the final orders to be made following the Reasons. The expressions used herein are the same as employed in the Reasons. 2 The points of disagreement between the parties are as follows: (a) the date on which the Court found the 'single transaction' within the meaning of s 588FA(3)(c) of the Corporations Act 2001 (Cth) ('Act') to have commenced (whether 26 March 2012 as contended for by the Liquidators or 30 March 2012 as contended for by Badenoch or some other date); (b) the date on which the Court found there to have been a break in the continuing business relationship and thus the single transaction to have ended (whether 30 June 2012 as contended for by the Liquidators or 31 July 2012 as contended for by Badenoch or some other date); and (c) the appropriate costs order. THE DATE ISSUES 3 The potential significance of the dates may be illustrated by reference to the following table, which shows the payments and invoices that occurred from the beginning of the statutory period on 26 March 2012 up to and including 31 July 2012. The table assumes that the parties are correct in their assumption that the start date of the continuing business relationship is either 30 March 2012 or 26 March 2012 (but not earlier). It is based on an extract of the table set out at [5] of the Reasons and includes impugned payments 1 to 4, which the Court found to have been integral to the continuing business relationship: see [72], [75] of the Reasons. Date Invoice Payment Balance $1,466,916.82 26 March 2012 $322,976.00 $1,143,940.82 28 March 2012 $322,975.75 $820,965.07 30 March 2012 $410,000.00 ('payment 1') $410,965.07 31 March 2012 ($660,347.78) $1,071,312.85 13 (or 16) April 2012 $410,965.07 ('payment 2') $660,347.78 30 April 2012 ($674,368.12) $1,334,715.90 30 April 2012 ($4,561.51) $1,339,277.41 1 (or 2) May 2012 $660,347.78 ('payment 3') $678,929.63 31 May 2012 ($737,633.68) $1,416,563.31 7 (or 8) June 2012 $678,929.63 ('payment 4') $737,633.68 30 June 2012 ($627,687.34) $1,365,321.02 31 July 2012 ($194,273.06) $1,559,594.08 4 The Liquidators' submission is to the effect that the starting balance for the single transaction (as at the beginning of 26 March 2012) was $1,466,916.82 and the end balance as at 30 June 2012 was $1,365,321.02, resulting in a net reduction in Gunns' indebtedness to Badenoch, and so an unfair preference. Badenoch's position is that the starting balance was $820,965.07 as at the beginning of 30 March 2012, and the end balance was either $1,365,321.02 as at 30 June 2012 or $1,559,594.08 as at 31 July 2012, resulting in an increase in net indebtedness, and so no unfair preference. 5 It is convenient to deal first with the date upon which the continuing business relationship (and hence the single transaction) ended. End date 6 It was always common ground between the parties that the relevant end date was either the date of cessation of the continuing business relationship (in fact) or the date of liquidation, whichever was earlier: see [85] of the Reasons. It is not necessary to consider whether the agreed position was correct, as it is now common ground that the continuing business relationship ceased prior to the liquidation in any event. But there is a dispute as to whether the Court found the continuing business relationship to have ceased on 30 June 2012 or 31 July 2012 or some other date. 7 In determining whether the impugned payments (including payments 5 to 11, all of which occurred after 6 August 2012), formed part of the continuing business relationship, the Court made reference to various dates by which time it considered the continuing business relationship to have ceased. The parties rely on these references to support their alternative contentions as to the end date of the single transaction. The Reasons referred variously to the continuing business relationship having ceased "in July 2012" (at [60]), "end of June 2012 (at [75]), "[f]rom July 2012" (at [76]), "[o]n 31 July 2012" (at [78]), and "after 31 July 2012" (at [79]). 8 For the purposes of s 588FA(3), the question is whether the rendering of the invoice of 31 July 2012 was "a transaction [that] is, for commercial purposes, an integral part of a continuing business relationship". The primary judge's reasons make it clear that Badenoch proposed the arrangement to wind down the relationship on 31 July 2012 and Gunns accepted it on 2 August 2012: see Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) v Badenoch Integrated Logging Pty Ltd [2020] FCA 713 ('PJ') [77]-[79]. 9 The significant fact is that Badenoch ceased providing services to Gunns on 10 July 2012: see PJ at [64], [73]. On 10 July 2012, the continuing business relationship ended. However, the invoice on 31 July 2012 reflected the provision of services as an integral part of the continuing business relationship relating to the provision of services during and pursuant to the relationship up to 10 July 2012. So the invoice was referable to the single transaction and the sum invoiced on 31 July 2012 must therefore form a part of the single transaction to which s 588FA(3)(c) refers. For the purposes of what follows it may be observed that Gunns' indebtedness on that day totalled $1,559,594.08 Commencement date 10 At first instance, the Liquidators alleged that 11 payments made by Gunns to Badenoch in the period from 26 March 2012 to 25 September 2012 (being, relevantly, the statutory period referred to in s 588FE of the Act) were unfair preferences under s 588FA of the Act, insolvent transactions under s 588FC of the Act and voidable transactions under s 588FE of the Act. Each of the impugned payments was made on or after the date of Gunns' insolvency of 30 March 2012. 11 The present dispute between the parties concerning the start date of the continuing business relationship is now expressed as a choice between 26 March 2012 (the commencement of the statutory period) or 30 March 2012 (the date of insolvency). 12 On the facts found by the primary judge, the relevant continuing business relationship (evidenced by the keeping of the running account) commenced (in fact) long before 26 March 2012 and long before Gunns' insolvency. 13 The arguments now before the Court presuppose that the Act should be interpreted so as to supply a different commencement date from which any increase or decrease in Gunns' net indebtedness to Badenoch can and should be ascertained. More than that, the parties are not in agreement as to what the alternate date should be, nor as to the provisions of the Act that justify its adoption. As discussed below, the present controversy formed no part of the issues arising for determination on the appeal. 14 The first ground alleged that the primary judge erred in finding that the peak indebtedness rule applies in Australia to claims made in respect of s 588A of the Act. That ground has been upheld. This Court was not asked to determine whether there was an unfair preference within the meaning of s 588FA of the Act should the peak indebtedness rule not operate to supply the "commencement date" for the relationship. Neither party made submissions on the appeal as to the consequences that should flow should the first ground of appeal be upheld. 15 The second ground of appeal alleged that the primary judge erred in finding that all payments made to the appellant in the period between 26 March 2012 and 24 September 2012 were part of a "continuing business relationship". By concluding that payments 1 to 4 were transactions forming an integral part of the continuing business relationship, this Court should not be understood as finding that the relevant relationship commenced on 26 March 2012, or on the date on which the relationship commenced in fact, or any other date. Similarly, the notice of cross-appeal took issue with the findings of the primary judge in relation to two payments made on 2 May 2012 (payment 3) and 8 June 2012 (payment 4). By dismissing the cross-appeal this Court should not be understood as having made any findings as to the date upon which the continuing business relationship commenced. 16 The third ground of appeal concerned the question of whether the relevant transactions were not voidable by reason of the so-called good faith defence in s 588FG(2). It proceeded on the assumption that there was an unfair preference within the meaning of s 588FA which was also an insolvent transaction within the meaning of s 588FC and that would otherwise be a voidable transaction within the meaning of s 588FE, but for the defence. The determination of this ground of appeal does not reflect any finding as to the correctness of any of those assumptions. 17 The fourth ground of appeal alleged that the primary judge erred in not finding that Badenoch was entitled to set off the sum owed to it by Gunns against the sum payable on a voidable transactions claim. Again, that argument assumed that there was a voidable transaction and so assumed that there existed an unfair preference that was also an insolvent transaction. The issue raised on the notice of contention proceeded from the same assumptions. 18 At [123] of the Reasons, the Court upheld Ground 1 of the notice of appeal and found the primary judge erred in finding that the peak indebtedness rule applied in Australia to claims made under s 588FA of the Act. The Liquidators point out that, in upholding Ground 1 and part of Ground 2, the Court: (a) found (at [117]) that "the majority judgment in [Airservices Australia v Ferrier (1996) 185 CLR 483] requires one to look to all payments (both impugned and non-impugned) and all supply (both past and future) forming part of the continuing business relationship and otherwise falling within the relevant statutory period" (emphasis added); (b) noted (at [121]) that "unfair results may arise in circumstances where, for example, the continuing business relationship commenced prior to the statutory period and the creditor has provided goods or services within the statutory period that are referrable to a payment made outside of the statutory period" (emphasis added) but concluded that the balance weighed in favour of not applying the peak indebtedness rule; (c) noted (at [122]) that "there are longer statutory periods for other types of voidable transactions prescribed in s 588FE of the Act" (emphasis added) with some being as long as ten years but found that this did not change its position as to the proper construction of the Act. 19 At [87] of the Reasons, the Court noted the parties had agreed that s 588FA(3) was to be construed by reference to s 588FE of the Act, which prescribes time periods prior to winding up in which transactions may be voidable. The Court also noted that it was "common ground" that the single transaction must begin within the statutory period. The passages of the Reasons upon which the Liquidator now relies are to be understood as reflecting the agreed position of the parties, without deciding the correctness of that position insofar as it assumed answers to questions of law. The answer to the present question is not to be found in the Reasons. 20 On the facts found by the primary judge, the relevant continuing business relationship (evidenced by the keeping of running account) commenced in fact long before 26 March 2012 and long before the date of Gunns' insolvency. Neither party has addressed the Court on the consequence that should follow if the commencement date of the continuing business relationship were to be fixed as at the date of the commencement of the running account in fact, the date of commencement of the six month statutory period, or any other date. 21 Our conclusion as to the end date of the continuing business relationship renders it unnecessary to resolve the dispute concerning the start date, presented (as it is) as choice between two dates in March 2012 and no earlier date. As the above table shows, if the start date be the beginning of 26 March 2012 and the end date be 31 July 2012, the net debt increased from $1,466,916.82 to $1,559,594.08, such that the single transaction (so conceived) could not constitute an unfair preference and nor could any one of the impugned transactions in that period: s 588FA(3)(c) and (d). Alternatively, if the start date be the beginning of 30 March 2012 and the end date be 31 July 2012, the net debt increased from $820,965.07 to $1,559,594.08. Again, the single transaction (so conceived) could not constitute an unfair preference, and nor could any one of the transactions in that period. 22 It may be also observed that if the continuing business relationship commenced at the beginning of the running account (some years prior to 2012), questions may arise as to whether Badenoch "received" anything in relation to an unsecured debt at all. Expressed another way, if the single transaction is that evidenced by the whole of the running account, Badenoch appears to have supplied more than it has received, such that there could be no unfair preference. Whether that is the intended operation of the Act is a question that may be deferred to a case where the outcome depends upon it. COSTS 23 The principles to apply in awarding costs are not in dispute. As a general rule, costs follow the event. The relevant "event" is the overall degree of success or failure on the appeal. Where there are competing considerations, the discretion will be exercised in such a way as to reflect a broad evaluative judgment of what justice requires. 24 Badenoch appealed the whole of the judgment and all of the orders made by the primary judge. Badenoch sought orders that all orders below be set aside and in lieu thereof it be ordered that the application and the proceeding be dismissed with costs. 25 The Court allowed one ground of appeal (Ground 1: Reasons at [123]), and part of another (Ground 2: Reasons at [80]), whilst rejecting two grounds of appeal (Ground 3: Reasons at [137]; Ground 4: Reasons at [143]) and part of another (Ground 2: Reasons at [80]). 26 The Court ultimately upheld the decision of the primary judge that there had been an unfair preference, so Badenoch is still be liable to pay the Liquidators more than $1.2 million plus interest, and the costs of the proceeding below. 27 The Liquidators' cross-appeal was unsuccessful: (Reasons at [75]), and it was not necessary to decide its notice of contention, the Court having upheld the primary judge's finding that there had been notice under s 553C(2) of the Act: (Reasons at [144]). 28 As we have mentioned, the appeal and cross-appeal dealt with four issues or questions that were before the Full Court (see Reasons at [8]). Of those four issues, Badenoch was wholly successful on the issue relating to peak indebtedness and partially successful on the issue of the continuing business relationship. 29 Whilst Badenoch has achieved a better result than it had at first instance, having been successful in extending the duration of the continuing business relationship as well as successfully arguing that the peak indebtedness rule could not be applied, it still has not achieved the ultimate relief it sought in the notice of appeal. 30 Therefore, it is apparent that both the Liquidators and Badenoch have had some success in the appeal. Each argument on costs of the parties has merit, but the reality is that Badenoch did seek to overturn the whole of the orders of the primary judge (which did not occur), and whilst successful on some issues, still has an indebtedness to the Liquidators. The order that justice requires is that each of the parties bear their own costs of the appeal, the costs orders of the primary judge remaining undisturbed. 31 We will order the security of $65,000 provided to cover the costs of and incidental to the appeal that could have been ordered to be paid by Badenoch to the Liquidators be now released to Badenoch. We will grant a certificate in favour of the Liquidators under s 6(3) of the Federal Proceedings (Costs) Act 1981 (Cth). 32 In these circumstances we will order that: (1) Ground 1 of the appeal is allowed. (2) Insofar as it relates to payments 1 to 4, Ground 2 of the appeal is allowed. (3) The appeal is otherwise dismissed. (4) The Respondents' cross-appeal and Notice of Contention are dismissed. (5) Paragraphs 1 and 2 of the orders made by the Federal Court of Australia in proceeding number SAD 341 of 2015 on 30 July 2020 ('Orders') are set aside and in lieu thereof it is declared that: The following payments made by Gunns Limited to the Defendant and the invoices issued by the Defendant to Gunns Limited in respect of the period between 26 March 2012 and 10 July 2012 are integral to a single transaction and do not constitute an unfair preference within the meaning of s 588FA of the Act, are therefore not an insolvent transaction within the meaning of s 588FC of the Act, and are not a voidable transaction within the meaning of s 588FE of the Act: Date Amount 26 March 2012 ($322,976.00) 28 March 2012 ($322,975.75) 30 March 2012 $410,000.00 ('payment 1') 31 March 2012 ($660,347.78) 13 April 2012 $410,965.07 ('payment 2') 30 April 2012 ($674,368.12) 30 April 2012 ($4,561.51) 1 May 2012 $660,347.78 ('payment 3') 31 May 2012 ($737,633.68) 7 June 2012 $678,929.63 ('payment 4') 30 June 2012 ($627,687.34) 31 July 2012 ($194,273.06) (6) Paragraph 4 of the Orders be varied to provide as follows: Pursuant to s 588FF of the Act, the Defendant pay to the Plaintiffs the sum of $1,200,633.68, representing the total of the amounts of the unfair preferences received by the Defendant on the dates 8 August 2012, 17 August 2012, 27 August 2012, 3 September 2012, 10 September 2012, 17 September 2012 and 24 September 2012. (7) Paragraph 5 of the Orders be varied to provide as follows: Pursuant to s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth), the Defendant pay the Plaintiffs pre-judgment interest on the amount payable pursuant to paragraph 4 above, in the amount of three hundred and fourteen thousand and sixty-two dollars and ninety cents ($314,062.90) calculated as follows: pursuant to paragraph 3.1 of the Plaintiffs' Amended Originating Process, pre- judgment interest of $314,062.90 on the sum of $1,200,633.68 in respect of the transactions referred to in paragraph 4 of this Order above (being transactions which occurred between 3 July 2012 and 25 September 2012) calculated from 1 September 2015 until 27 May 2020 on the following basis: (i) $23,881.10 for the period between 1 September 2015 and 31 December 2015, calculated at a rate of 6.00% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (ii) $35,822.19 for the period between 1 January 2016 and 30 June 2016, calculated at a rate of 6.00% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (iii) $34,706.84 for the period between 1 July 2016 and 31 December 2016, calculated at a rate of 5.75% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (iv) $66,034.85 for the period between 1 January 2017 and 31 December 2017, calculated at a rate of 5.50% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (v) $66,034.85 for the period between 1 January 2018 and 31 December 2018, calculated at a rate of 5.50% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (vi) $32,746.05 for the period between 1 January 2019 and 30 June 2019, calculated at a rate of 5.50% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; (vii) $31,775.67 for the period between 1 July 2019 and 31 December 2019, calculated at a rate of 5.25% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT; and (viii) $23,061.35 for the period between 1 January 2020 and 27 May 2020, calculated at a rate of 4.75% per annum pursuant to paragraph 2 of Federal Court Practice Note GPN-INT. (8) The $65,000 (and any interest therein) held by the Court as security for the Respondents' costs of and incidental to the Appeal in this proceeding pursuant to the order of the Honourable Justice Middleton made on 28 January 2021 be released to the Appellant. (9) The Respondents be granted a certificate under s 6(3) of the Federal Proceedings (Costs) Act 1981 (Cth) in respect of any costs incurred in the appeal. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Middleton, Charlesworth and Jackson. Associate: Dated: 24 June 2021