Cashflow Finance v WestpacCOD Factors v Cashflow FinanceStar v Kylon P/LCOD Factors v Walters [1999] NSWSC 671

New South Wales Supreme Court CITATION : Cashflow Finance v WestpacCOD Factors v Cashflow FinanceStar v Kylon P/LCOD Factors v Walters [1999] NSWSC 671 CURRENT JURISDICTION : Equity Division - Commercial List FILE NUMBER(S) : 50111/97; 50177/97; 50047/98; 50114/98 HEARING DATE(S) : 15, 16, 17, 18, 19, 22 and 23 March 1999 JUDGMENT DATE : 14 May 1999

50111/97 Cashflow Finance Pty Limited (In Liquidation) - Plaintiff Westpac Banking Corporation - Defendant) 50177/97 C.O.D. Factors Australia Pty Limited - Plaintiff Cashflow Finance Pty Limited (In Liquidation) - First Defendant Peter Wright - Second Defendant C.O.D. Factors Pty Limited - third Defendant Edmund Joseph Walters - Fourth Defendant PARTIES : Lynette Anne Walters - Fifth Defendant 50047/98 John Edward Star - Plaintiff Kylon Pty Ltd - First Defendant C.O.D. Factors Australia Pty Limited - Second Defendant 50114/98 C.O.D. Factors Australia Pty Limited - Plaintiff Edmund Joseph Walters - First Defendant Lynette Ann Walters - Second Defendant Trans-pac Australia Pty Limited - Third Defendant JUDGMENT OF : Einstein J

Mr Campbell QC and Mr Stanton for Cashflow Finance Pty Ltd and for John E. Star Mr Jacobson QC and Francois Kunc for Westpac Banking Corporation Mr Walters appearing in person during part of the hearing Mr Wright appearing in person during part of the hearing COUNSEL : Mr Lindsay SC and Mr Meek for COD Factors Australia Pty Ltd Mr Meek for Mr and Mrs Burkett No appearance for COD Factors Pty Ltd Mrs Walters - in person during part of the hearing Mr Beasley appearing for Kylon Pty Ltd No appearance for Trans-pac Australia Pty Ltd Aitken McLachlan & Thorpe for Cashflow Finance Pty Ltd and John E. Star SOLICITORS : Dunhill Madden Butler for Westpac Banking Corporation John Burrell for COD Factors Australia Pty Ltd and for Royce W. Burkett and Penelope A. Burkett Cutler Hughes and Harris for Kylon Pty Ltd CATCHWORDS : TRUST - Constructive trust - Circumstances in which claimant to assets of insolvent company able to claim priority over general creditors by means of proprietary claim; TRUST - Moneys paid by debt factoring company A to or for benefit of debt factoring company B - Payments made by employee W carrying out accountancy services for both companies - Payments made without knowledge or authority of directors of either company - Partial repayments made by company B prior to discovery by directors of either company of W's misconduct-Liquidation of company B-Company B claim to avoid partial repayments made as uncommercial transactions and/or as preferential payments-Company A seeks to outflank insolvency provisions by suggested application of equitable doctrines including constructive trust declarations; TRUST - Tracing-Whether identifiable trust property ; TRUST - Constructive trust-General principles - Equity of transaction must shape measure of relief; EQUITY - Restitution - When does obligation to make restitution arise? - Is obligation to make restitution, a post-liquidation obligation? - Prerequisites of an equitable proprietary claim-Relationship between doctrine of constructive trust and tracing - Insolvent defendant not knowing the facts which form the basis of restitutionary claim and is insolvent; EQUITY - Remedies flexibly applied in modern commercial context to be adapted to commercial realities; NOTICE - Imputing of knowledge or notice - Knowledge imputed to company through agency - Knowledge imputed through directing mind and will of company - Knowledge acquired by officer of one company not imputed to another company unless common officer has duty imposed upon him to communicate that knowledge to the other company and a duty imposed on him by the company alleged to be affected by the notice, to receive the notice; COMPANIES - Fiduciary,statutory and common law duties of directors - Attribution of knowledge through common director or employee; BANKRUPTCY - Proprietary claims and their priority in insolvency-Constructive trust cuts across ordinary principles as to pari passu ranking of claims in insolvency administrations - Does property subjected to insolvency administration include property impressed with a constructive trust?; BANKRUPTCY - Insolvent and uncommercial transactions - Priority in respect of post liquidation liabilities-Is obligation to make restitution provable in a winding up - set-offs - Running accounts - Integral part of continuing business relationship,; CORPORATIONS LAW ; Part 5.7B , Part 6 Division 1A; s 9 Definitions, of'transaction","party"; ss232(2), 232(4), 232(6), 289, 553(1), 555(1), 556(1)(a), 588E(3), 588E(4), 588FA, 588FB, 588FC, 588FE2(2)(a) and (b), 588FE(3), 588FF(1), 588FF(1)(c), 588FG(2), 1307, 1317HD Bankruptcy Act 1924, 1966 (Com) ACTS CITED : Evidence Act 1995 (NSW) Fair Trading Act 1987 (NSW) 42 Securities Industry Act 1975 (NSW) Air Services Australia v Ferrier (1996) 185 CLR 483 A/S Rendal v Arcos Ltd [1937] 3 All ER 577 Australian Capital Television Pty Ltd v Minister for Transport and Communications (1989) 86 ALR 119 Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 Australian Postal Corporation v Lutak (1991) 21 NSWLR 584 Beach Petroleum NL v Johnson (1993) 43 FCR 1 Beatty v Guggenheim Exploration Co (1919) 225 N.Y. 380 Black v S Freedman & Co (1910) 12 CLR 105 Boscawen v Bajwa [1996] 1 WLR 328 Bringinshaw v Bringinshaw (1938) 60 CLR 336 Cave v Cave [1880] 15 Ch D 639 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1980] 2 WLR 202 Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426 Daly v The Sydney Stock Exchange Ltd (1986) 160 CLR 371 Duke Group Ltd (In Liquidation) v Pilmer & Ors (Unreported, Supreme Court of South Australia, 30 January 1998, Mullighan J) El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 English v Dedham Vale Properties [1978] 1 All ER 382 Expo International Pty Ltd (In Liquidation) v Torma [1985] 3 ACLC 748 Farrow Finance Company Ltd (In Liquidation) v Farrow Properties Pty Ltd (1997) 26 ACSR 544 Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 Fowkes v Deputy Director of Public Prosecutions [1997] 2 VR 506 Giumelli v Giumelli [1999] HCA 10, (24 March 1999) Re Goldcorp Exchange Ltd [1994] 3 WLR 199 Re Hampshire Land Company [1896] 2 Ch 743 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 JC Houghton & Company v Nothard, Lowe & Wills Ltd [1928] AC 1 Re Hunt; Ex parte Sean Investments Pty Ltd (1979) 53 ALJR 552 Re Jaques McAskell Advertising Freeth Division Pty Ltd (In Liquidation) [1984] 1 NSWLR 249 CASES CITED : Lennard's Carrying Company Ltd v Asiatic Petroleum Company Ltd [1915] AC 705 Liggett v Kensington ([993] 1 NZLR 257 Re Macks & Emanuel (No. 14) Pty Ltd (In Liquidation) v Blacklaw & Shadforth Pty Ltd (1997) 15 ACLC 1099 Manchester Trust v Furness [1895] 2 QB 539 Re Montagu's Settlement Trusts [1987] Ch 264 Muschinski v Dodds (1985) 160 CLR 583 Olifent v Australian Wine Industries Pty Ltd (1996) 14 ACLC 510 Re Pacific Hardware Brokers (Qld) Pty Ltd (1997) 16 ACLC 442 Re Paine; Ex parte Read [1897] 1 QB 122 Pedler v Richardson (unreported, Supreme Court of New South Wales, 16 October 1997, Young J) Pegulan Floor Coverings Pty Ltd v Carter (1997) 15 ACLR 1293 Pioneer Concrete Services Ltd v Yelnah Pty Ltd (1986) 5 NSWLR 254 Queensland Medical Laboratory v Blewett (1988) 84 ALR 615 R v Roffel [1985] VR 511 R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Space Investments Ktd v Canadian Imperial Bank Commerce Trust Co (Bahamas) [1986] 3 All ER 75 Star v O'Brien (1996) 40 NSWLR 695 State Bank of NSW v Swiss Bank Corporation (1995) 39 NSWLR 350 Stephenson Nominees Pty Ltd v Official Receiver (1987) 76 ALR 485 Sutherland v Liquor Administration Board (1997) 15 ACLC 875 Taylor v White (1964) 110 CLR 129 Taylor v Yorkshire Insurance Co Ltd [1913] 2 Ir R1 Commonwealth of Australia v SCI Operations Pty Ltd (1998) 72 ALRJ 687 Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 Re Wait [1927] 1 Ch 606 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 Woodson (Sales) Pty Ltd v Woodson (Australia) Pty Ltd (1996) 7 BPR 14,685 Yeomans v Lease Industrial Finance Ltd (1986) 5 ACLC 103 Zobory v Federal Commissioner of Taxation (1995) 64 FCR 86 DECISION : Short Minutes of Order to be brought in.