Hamilton & Anor v O'Malley [2004] NSWSC 615

New South Wales Supreme Court

CITATION : Hamilton & Anor v O'Malley [2004] NSWSC 615 HEARING DATE(S) : 29/06/04, 30/06/04, 01/07/04, 06/07/04 JUDGMENT DATE : 9 July 2004

JUDGMENT OF : White J DECISION : Order that the Originating Process be dismissed. Order the plaintiffs' to pay the defendant's costs of the proceedings.

CATCHWORDS : Corporations - Winding up - Voidable transactions - Alleged uncommercial transaction - Loan to brother or to brother's company - Proper characterisation of payment - Whether brother was the defendant's agent to receive repayment - No question of principle - s 588FG(2)(c) considered. LEGISLATION CITED : Corporations Act 2001 (Cth) South Sydney District Rugby League Club Ltd v News Ltd (2000) 177 ALR 611 CASES CITED : Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 Garnac Grain Co. Inc v HMF Faure & Fairclough Ltd [1968] A.C. 1130 Tosich Construction Pty Ltd (In Liq) v Tosich (1997) 23 ACSR 466 William James Hamilton & Another PARTIES : v Geraldine Dorothy O'Malley FILE NUMBER(S) : SC 1481/03 COUNSEL : Plaintiff: Mr J Ireland QC Defendant: Mr B Rayment QC, M Gollan SOLICITORS : Plaintiff: Baker & McKenzie Solicitors Defendant: M J Woods Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

WHITE J

Date

1481/03 WILLIAM JAMES HAMILTON v GERALDINE DOROTHY O'MALLEY JUDGMENT 1 HIS HONOUR: In these proceedings the plaintiffs claim the recovery of $299,762.19 from the defendant. This was the amount which was debited to the second plaintiff's account with its bank to procure a bank cheque of $299,756.19. On 7 September 2000 the second plaintiff provided that bank cheque for the defendant's benefit. It was used by the defendant as part payment of the purchase price on a property which she purchased at 8/17-19 Prince Street, Cronulla. 2 The second plaintiff ("the company") is in liquidation. The first plaintiff is its liquidator. The company was wound up by order made on 22 February 2002. 3 The plaintiff's claim is made under ss 588FE(3) and 588FF(1) of the Corporations Act. The plaintiffs allege that the payment made on 7 September 2000 is voidable under those provisions as an insolvent and uncommercial transaction. 4 It is admitted that at the time the payment was made the company was insolvent. 5 The question therefore is whether the payment made for the defendant's benefit on 7 September 2000 was an uncommercial transaction within the meaning of s 588FB. That section provides: " 588FB Uncommercial transactions (1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction and; (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and…" 6 If that question is answered in the plaintiff's favour the defendant pleads a defence under s 588FG(2), which at relevant times provided as follows: " 588FG Transaction not voidable as against certain Persons (2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company and it is proved that: (a) the person became a party to the transaction in good faith; and (b) at the time when the person became such a party: (i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and (ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and (c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction." 7 At all relevant times the defendant's brother, Mr Patrick O'Malley, was a director and shareholder of the company. 8 It is the defendant's case that at the request of her brother she lent $400,000 to the company in October 1999 by making payments of $300,000 and $100,000 on his direction to a joint account in the name of Mr Patrick O'Malley and his wife. She says that the payment made on 7 September 2000 was by way of partial repayment of that loan. 9 The plaintiffs say that the defendant lent the money to her brother not to the company and the company had no business paying her $299,756.19 on 7 September 2000 when it was insolvent. 10 The plaintiffs' case was elaborated on and refined during the hearing. As initially pleaded it was that: