Beveridge v Whitton [2001] NSWCA 6

New South Wales Court of Appeal

CITATION : Beveridge v Whitton [2001] NSWCA 6 FILE NUMBER(S) : CA 40441/99 HEARING DATE(S) : 5 February 2001 JUDGMENT DATE : 5 February 2001

PARTIES : Graeme David Beveridge (Appellant) Robert W Whitton as Liquidator of HSBB Pty Limited (In Liquidation) (Respondent) JUDGMENT OF : Mason P at 1,37, 39; Powell JA at 38; Heydon JA at 2

LOWER COURT JURISDICTION : District Court LOWER COURT DC 1417/97 FILE NUMBER(S) : LOWER COURT Robison DCJ JUDICIAL OFFICER :

COUNSEL : Mr K Smark (Appellant) Mr P Jacobson QC/Mr J Smith (Respondent) SOLICITORS : McPhee Kelshaw (Appellant) Andrew Frank & Co (Respondent)

LEGISLATION CITED : Corporations Law Airservices Australia v Ferrier (1996) 185 CLR 483 CASES CITED: Re Discovery Books Pty Ltd (1973) 20 FLR 470 V R Dye & Co v Peninsula Hotels Pty Ltd (In Liq) [1993] 3 VR 201 Akins v Abigroup Ltd (1998) 43 NSWLR 539 DECISION : See para 36

- 14 - THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40441/99 DC 1417/97

MASON P POWELL JA HEYDON JA

5 February 2001

GRAEME DAVID BEVERIDGE v ROBERT W WHITTON AS LIQUIDATOR OF HSBB PTY LTD (IN LIQUIDATION) JUDGMENT

1 MASON P: I invite Heydon JA to deliver the first judgment. 2 HEYDON JA: Background This is an appeal, by leave, from orders of Robison DCJ made on 21 May 1999 after a trial conducted in the District Court on 20 and 21 May 1999. The primary orders comprised a verdict and judgment for the plaintiff in the sum of $70,982.85, based on the plaintiff's successful claim for repayment as an unfair preference of $52,000 plus interest. The claim was made under s 588FA of the Corporations Law which at the relevant time provided: " (1) [What is unfair preference] A transaction is an unfair preference given by a company to a credit of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. (2) [When secured debt to be unsecured debt] For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security. (3) [Transaction part of continuing business relationship] Where: (a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and (b) in the course of the relationship, the level of the company's net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship; then (c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and (d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference." 3 The plaintiff was the liquidator of a company for which the defendant, an accountant, had provided services in the following circumstances. 4 In 1994 the company was controlled by Mr Miller, a bricklayer. It operated in the building industry by supplying bricklaying services. By the end of June 1994 the company was in financial difficulties. It owed the Australian Taxation Office over $200,000. It owed an insurer unpaid premiums for workers compensation insurance polices. It had a substantial overdraft with its bank. The accounts for the years ending 30 June 1992 and 30 June 1993 had not been prepared. 5 In May 1994 the bank manager with whom Mr Miller dealt invited him to a meeting with Mr Mark Fry, an officer of the Penrith branch. Mr Fry was given special responsibility for the account. Mr Fry advised Mr Miller to engage a good accountant because "the bookkeeping side of [the business] was not good". Mr Fry recommended the defendant. 6 In late June or early July 1994 Mr Miller spoke to the defendant and went to see him. He delivered substantial quantities of documents to the defendant. The defendant said they would take "quite a while to sort out" and informed Mr Miller what fees would be payable. 7 On 11 July 1994 the defendant informed Mr Miller of the terms of the engagement. The defendant said he would be responsible for the following (Blue 41N-X): "1. Provision of advice on general management matters including the preparation of periodic (monthly, quarterly and six monthly) financial statements, budgets and cash flow forecasts where necessary and as requested. 2. Preparation of financial statements (including statutory accounts and returns), and income tax returns for the business and individuals. 3. When requested, advising or instructing staff on the maintenance of the accounting and internal control systems. 4. Advising on sales tax, payroll tax, fringe benefits tax, land tax, capital gains tax, superannuation, sources of finance, investments etc. as required. 5. Undertaking special assignments such as management consulting services, purchase, installation and training in respect of computer systems, estate planing, business acquisitions and other similar matters as required. In particular I will bring all of your accounting and income tax matters up to date (1993 and 1994) as a matter of urgency so that updated accounts and budgets can be provided to the ANZ Bank. I will also liaise with the Taxation Department in respect of outstanding income and other taxes." 8 The letter offered various forms of general advice, set out hourly rates chargeable, and said memoranda of fees would be due for payment within seven days of issue. Mr and Mrs Miller agreed to these terms. 9 The trial judge found that the defendant "was in virtual sole control of the company" on the financial side (Red 22G), though there were many contacts between him and Mr Miller. 10 Payments were made to the defendant from 12 July 1994 to 20 February 1995. The company went into liquidation on 28 February 1995. The relation back period began on 22 June 1994. 11 The trial judge made several important findings. 12 The first was that at the time when the defendant was engaged, "the bookkeeping really was in a shambles and it is quite clear a great deal of work had to be done on the company's position by Mr Beveridge" (Red 25H-J). 13 The trial judge also said: "Mr Miller acknowledged in cross-examination that if the defendant had not got the books in order then the bank would have taken the matter further and acted against the business" (Red 25K-M).