mdroth/huggingface-course_section-5_zst huggingface dataset:
Case: William H Muller &amp; Co's Algemeene etc v Ebbw Vale Steel, Iron &amp; Coal Co Ltd [1936] 2 All ER 1363
Outcome: cited
In William H Muller &amp; Co's Algemeene etc v Ebbw Vale Steel, Iron &amp; Coal Co Ltd [1936] 2 All ER 1363 at 1365-1366 Branson J said: "It seems to me that it must be a matter for the judge who is to try the case to decide for himself whether, in the particular case before him, and having regard to all the circumstances of it, it is likely to save the litigants before him expense and time and trouble to deal with the case by way of ruling upon the submission without putting any terms upon counsel upon either side, or whether it is better to say: 'In this case I think it would be desirable that before I rule I should hear the whole of the evidence." This passage has been referred to or quoted with approval in many cases. See, for example, Protean at 238, Rasomen at 504, J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (Western Australian Branch) (No 2) (1992) 38 FCR 458 at 461-462 and Union Bank of Australia Ltd v Puddy [1949] VLR 242. In Puddy at 245-246, after reviewing the earlier decisions on the circumstances in which, in the exercise of the discretion, it is appropriate to depart from the general rule requiring an election, Fullagar J said: "I would add only two observations of my own. In the first place ... something may turn on the nature of the case itself. ... [W]here, as in the case before me, fraud is alleged, it may often be wrong to suggest that a party should submit himself to cross-examination before it is seen that there is really some evidence against him. In the second place, it would seem that the exercise of the discretion must generally involve an estimating of probabilities. If I accede to the application made to me, I may save the parties a great deal of time and expense, or I may cause them much greater expense and delay in the event of a new trial being ordered. In order to assess these probabilities, it seems to me that it must generally be necessary to form some preliminary estimate of the evidence before ruling as to whether the submission is to be entertained without election. In the present case I felt no doubt that I ought to entertain and rule on the submission without requiring the plaintiff to elect to call no evidence. I felt clearly of opinion that the balance of convenience was heavily in favour of this course. The case for the defendant, consisting of the opening and examination in chief, with very little cross-examination, had lasted over three and a half days. Then, coming to determine the application on its merits, I have felt satisfied that there was no case for the plaintiff to answer on defence or counterclaim." Other cases which show that the discretion to depart from the general rule requiring an election is more readily exercised where fraud is alleged are Protean at 215 and 236 and Merry at 7.
Case: J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (Western Australian Branch) (No 2) (1992) 38 FCR 458
Outcome: cited
In William H Muller &amp; Co's Algemeene etc v Ebbw Vale Steel, Iron &amp; Coal Co Ltd [1936] 2 All ER 1363 at 1365-1366 Branson J said: "It seems to me that it must be a matter for the judge who is to try the case to decide for himself whether, in the particular case before him, and having regard to all the circumstances of it, it is likely to save the litigants before him expense and time and trouble to deal with the case by way of ruling upon the submission without putting any terms upon counsel upon either side, or whether it is better to say: 'In this case I think it would be desirable that before I rule I should hear the whole of the evidence." This passage has been referred to or quoted with approval in many cases. See, for example, Protean at 238, Rasomen at 504, J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (Western Australian Branch) (No 2) (1992) 38 FCR 458 at 461-462 and Union Bank of Australia Ltd v Puddy [1949] VLR 242. In Puddy at 245-246, after reviewing the earlier decisions on the circumstances in which, in the exercise of the discretion, it is appropriate to depart from the general rule requiring an election, Fullagar J said: "I would add only two observations of my own. In the first place ... something may turn on the nature of the case itself. ... [W]here, as in the case before me, fraud is alleged, it may often be wrong to suggest that a party should submit himself to cross-examination before it is seen that there is really some evidence against him. In the second place, it would seem that the exercise of the discretion must generally involve an estimating of probabilities. If I accede to the application made to me, I may save the parties a great deal of time and expense, or I may cause them much greater expense and delay in the event of a new trial being ordered. In order to assess these probabilities, it seems to me that it must generally be necessary to form some preliminary estimate of the evidence before ruling as to whether the submission is to be entertained without election. In the present case I felt no doubt that I ought to entertain and rule on the submission without requiring the plaintiff to elect to call no evidence. I felt clearly of opinion that the balance of convenience was heavily in favour of this course. The case for the defendant, consisting of the opening and examination in chief, with very little cross-examination, had lasted over three and a half days. Then, coming to determine the application on its merits, I have felt satisfied that there was no case for the plaintiff to answer on defence or counterclaim." Other cases which show that the discretion to depart from the general rule requiring an election is more readily exercised where fraud is alleged are Protean at 215 and 236 and Merry at 7.
Case: Stevenson v Barham [1977] HCA 4 ; (1977) 136 CLR 190
Outcome: cited
Sampson and Puddy were referred to with approval by Mason and Jacobs JJ (with whom Barwick CJ agreed) in Stevenson v Barham [1977] HCA 4 ; (1977) 136 CLR 190 at 203. Stephen J dissented in the result, but agreed with what Mason and Jacobs JJ said about election.
Case: Sarkis v Deputy Commissioner of Taxation [2005] VSCA 67
Outcome: cited
This approach has been approved in many cases. See, for example, Rasomen at 508-509, Merry at 8 and Sarkis v Deputy Commissioner of Taxation [2005] VSCA 67 at [14] .
Case: Hymix Concrete Pty Ltd v Garrity (1977) 13 ALR 321
Outcome: cited
It is beyond doubt that s 95A mandates a "cash flow" rather than "balance sheet" approach to determining solvency. Therefore, an excess of current liabilities over current assets is not conclusive of a company's insolvency and "cannot be more than a rule of thumb" as to the same: Quick v Stoland Pty Ltd (1998) 157 ALR 615 at 623 per Emmett J. Further, "[a] temporary lack of liquidity must be distinguished from an endemic shortage of working capital whereby liquidity can only be restored by a successful outcome of business ventures in which the existing working capital has been deployed": Hymix Concrete Pty Ltd v Garrity (1977) 13 ALR 321 at 328 per Jacobs J. Finally, a failure to pay a debt is not, without anything else, conclusive of insolvency. For example, as Jacobs J pointed out in Hymix Concrete at 328, such a failure: "could be explained by a desire on the part of the company to extend its effective working capital at no cost to itself by obtaining as long terms of credit as its creditors would tolerate, a business manoeuvre not necessarily related to an inability to pay." (This observation needs to be read subject to the matters canvassed at [45] to [48].)
Case: Lewis v Doran (2005) 219 ALR 555
Outcome: cited
In Lewis v Doran (2005) 219 ALR 555 at [79], Giles JA (with whom Hodgson JA and McColl JA agreed) quoted with apparent approval the following passage from the reasons of the primary judge (Palmer J): "I think that I must approach the application of s 95A of the [Act] with two considerations in mind. First the words of s 95A must be construed as they stand, without addition or subtraction. Second, the law both before and after the enactment of s 95A is unequivocally and emphatically clear that insolvency is, first and last, a question of fact 'to be ascertained from a consideration of the company's financial position taken as a whole. In considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realizations are achievable': Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621 ; (2001) 53 NSWLR 213 at 224." (The emphasis is mine.) I agree "that insolvency is, first and last, a question of fact". Giles JA went on to say at [103]: "Solvency or insolvency is a state on which directors and others act in current conduct, for example if the issue is trading while insolvent. Section 95A speaks of objective ability to pay debts as and when they become due and payable, but ability must be determined in the circumstances as they were known or ought to have been known at the relevant time, without intrusion of hindsight." It must also be borne in mind that the plain words of s 95A ("as and when they become") require anticipated debts to be taken, to some extent, into account in determining solvency.
Case: Re New World Alliance Pty Ltd (rec and mgr apptd); Sycotex Pty Ltd v Baseler (1994) 51 FCR 425
Outcome: cited
Notoriously, there is an apparent conflict in the authorities as to whether, and to what extent, a court should take into account creditors' forbearance in pursuing (by whatever means) the payment of debts that, according to the terms of the relevant agreement, are due and payable. That is, if a debtor is entitled to, say, 45 days' credit, when is that debt due and payable in a s 95A sense ? At the end of the 45 days? Or at the end of some longer period which the creditor has, customarily, tolerated as opposed to one supported by, say, an estoppel or a variation of the relevant agreement? Before reviewing some of the authorities said to be in conflict, I note the following passage from Re New World Alliance Pty Ltd (rec and mgr apptd); Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 434 per Gummow J: "Any conflict between the authorities may be more illusory than real and factual rather than legal. I would not consider such an issue to be a question of law to be decided by the application of a rigid rule. Rather, the statute appears to focus attention upon what it is reasonable to expect in a given set of circumstances, such a consideration being made by someone operating in a practical business environment. Attention is focused at whether a person would expect that at some point the company would be unable to meet a liability. Such a question is necessarily a factual one to be decided in light of all the circumstances in the case. At one end of the spectrum a company may be operating in an industry where a code of practice of paying 60 days after invoicing has arisen, despite stated terms of 30 days. If the company has a large number of creditors, it may be reasonable to expect that all of them would not suddenly insist on being paid in 30 days. At the other end of the spectrum would be a case where a single creditor had granted an indulgence on one occasion. It may well not be reasonable to expect a repetition of that event."
Case: Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247
Outcome: cited
The 'strict' approach can be found in Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 (Full Court of the Supreme Court of South Australia) at 254-255 per Debelle J: "[T]he inquiry required by [the relevant section] is concerned with the obligations of the company as to the payment of its debts, not with periods of grace which might have been obtained by creditors not insisting on payment strictly in accordance with agreed terms. A reasonable and prudent company director would assess whether a company is in a position to pay its debts as and when they fall due by reference to the legal obligations of the company not by reference to any indulgences which the company might have received from its creditors. He would have regard to the fact that the credit policy of any particular creditor might suddenly change and require any outstanding debts to be paid forthwith. The possibility of such a change could result from any one of a number of factors including the fact that the creditor is itself experiencing financial stringency or, as the circumstances of this case illustrate, a change in management. A reasonable and prudent director must found his expectations on reasonable grounds. An expectation that creditors will continue to permit late payment of accounts is founded on hope and optimism, not on reason. It is a policy fraught with danger and would only be adopted if the company was experiencing a temporary lack of liquidity. A reasonable and prudent director would acknowledge that, while his company might have enjoyed periods of grace in the payment of its debts, there could be no reasonable expectation that that situation would continue. Apart from these considerations, he would recognize that the very fact that the ability of a company to continue to trade depends on indulgences from its creditors points to the conclusion that it is unable to pay its debts as and when they fall due. In other words, a reasonable and prudent director will, generally speaking, be directing his attention to whether the company will be able to pay its debts on the date stipulated for payment." Cox J and Duggan J agreed with Debelle J that the appeal should be dismissed, but did not feel it necessary to express a view on the issue canvassed by his Honour in the passage quoted above. (See also Powell v Fryer [2000] SASC 97 at [32] - [33] per Prior J.) Similarly, Owen J (with whom Franklyn J and Murray J concurred) said in Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103 at 112: "whether or not a 'debt' is 'due' is to be determined by reference to the legally binding agreement between the parties. Any reluctance by creditors to enforce legal rights was not relevant to the approach under the relevant section. ... The question is whether or not a particular debt has fallen 'due'. The commercial likelihood of enforcement of the company's debts cannot override the substance of what is involved in the determination of that question." For reasons that will become apparent, the plaintiffs urge the Court to adopt the 'strict' approach.
Case: Powell v Fryer [2000] SASC 97
Outcome: cited
The 'strict' approach can be found in Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 (Full Court of the Supreme Court of South Australia) at 254-255 per Debelle J: "[T]he inquiry required by [the relevant section] is concerned with the obligations of the company as to the payment of its debts, not with periods of grace which might have been obtained by creditors not insisting on payment strictly in accordance with agreed terms. A reasonable and prudent company director would assess whether a company is in a position to pay its debts as and when they fall due by reference to the legal obligations of the company not by reference to any indulgences which the company might have received from its creditors. He would have regard to the fact that the credit policy of any particular creditor might suddenly change and require any outstanding debts to be paid forthwith. The possibility of such a change could result from any one of a number of factors including the fact that the creditor is itself experiencing financial stringency or, as the circumstances of this case illustrate, a change in management. A reasonable and prudent director must found his expectations on reasonable grounds. An expectation that creditors will continue to permit late payment of accounts is founded on hope and optimism, not on reason. It is a policy fraught with danger and would only be adopted if the company was experiencing a temporary lack of liquidity. A reasonable and prudent director would acknowledge that, while his company might have enjoyed periods of grace in the payment of its debts, there could be no reasonable expectation that that situation would continue. Apart from these considerations, he would recognize that the very fact that the ability of a company to continue to trade depends on indulgences from its creditors points to the conclusion that it is unable to pay its debts as and when they fall due. In other words, a reasonable and prudent director will, generally speaking, be directing his attention to whether the company will be able to pay its debts on the date stipulated for payment." Cox J and Duggan J agreed with Debelle J that the appeal should be dismissed, but did not feel it necessary to express a view on the issue canvassed by his Honour in the passage quoted above. (See also Powell v Fryer [2000] SASC 97 at [32] - [33] per Prior J.) Similarly, Owen J (with whom Franklyn J and Murray J concurred) said in Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103 at 112: "whether or not a 'debt' is 'due' is to be determined by reference to the legally binding agreement between the parties. Any reluctance by creditors to enforce legal rights was not relevant to the approach under the relevant section. ... The question is whether or not a particular debt has fallen 'due'. The commercial likelihood of enforcement of the company's debts cannot override the substance of what is involved in the determination of that question." For reasons that will become apparent, the plaintiffs urge the Court to adopt the 'strict' approach.
Case: Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103
Outcome: cited
The 'strict' approach can be found in Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247 (Full Court of the Supreme Court of South Australia) at 254-255 per Debelle J: "[T]he inquiry required by [the relevant section] is concerned with the obligations of the company as to the payment of its debts, not with periods of grace which might have been obtained by creditors not insisting on payment strictly in accordance with agreed terms. A reasonable and prudent company director would assess whether a company is in a position to pay its debts as and when they fall due by reference to the legal obligations of the company not by reference to any indulgences which the company might have received from its creditors. He would have regard to the fact that the credit policy of any particular creditor might suddenly change and require any outstanding debts to be paid forthwith. The possibility of such a change could result from any one of a number of factors including the fact that the creditor is itself experiencing financial stringency or, as the circumstances of this case illustrate, a change in management. A reasonable and prudent director must found his expectations on reasonable grounds. An expectation that creditors will continue to permit late payment of accounts is founded on hope and optimism, not on reason. It is a policy fraught with danger and would only be adopted if the company was experiencing a temporary lack of liquidity. A reasonable and prudent director would acknowledge that, while his company might have enjoyed periods of grace in the payment of its debts, there could be no reasonable expectation that that situation would continue. Apart from these considerations, he would recognize that the very fact that the ability of a company to continue to trade depends on indulgences from its creditors points to the conclusion that it is unable to pay its debts as and when they fall due. In other words, a reasonable and prudent director will, generally speaking, be directing his attention to whether the company will be able to pay its debts on the date stipulated for payment." Cox J and Duggan J agreed with Debelle J that the appeal should be dismissed, but did not feel it necessary to express a view on the issue canvassed by his Honour in the passage quoted above. (See also Powell v Fryer [2000] SASC 97 at [32] - [33] per Prior J.) Similarly, Owen J (with whom Franklyn J and Murray J concurred) said in Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103 at 112: "whether or not a 'debt' is 'due' is to be determined by reference to the legally binding agreement between the parties. Any reluctance by creditors to enforce legal rights was not relevant to the approach under the relevant section. ... The question is whether or not a particular debt has fallen 'due'. The commercial likelihood of enforcement of the company's debts cannot override the substance of what is involved in the determination of that question." For reasons that will become apparent, the plaintiffs urge the Court to adopt the 'strict' approach.
Case: Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation [2002] NSWSC 644
Outcome: cited
In Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation [2002] NSWSC 644 , Davies AJ, though he accepted Palmer J's first, second and third propositions, said at [14]: "I do not cite principles (iv), (v) and (vi) as enunciated by his Honour ... as I consider that, as enunciated, the principles may imply a legality or inflexibility which is inconsistent with the point that the ultimate issue is a question of fact." In White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220, McDougall J said at [291]-[293]: "I do not think that Palmer J, in the fourth, fifth and sixth propositions that he stated, was seeking to lay down exhaustively the circumstances in which indulgences that creditors may allow will be taken into account, or the manner in which such indulgences will be taken into account. It is certainly possible to read the fifth proposition as being expressed in prescriptive terms; but even there, I think, his Honour was stating, in effect, the basis upon which the courts have generally assessed the significance of indulgences that were shown to have been granted. If, contrary to my understanding, his Honour were intending, in the fourth, fifth and sixth propositions, to state exhaustively the circumstances in which indulgences will be considered relevant, and the weight that will be attributed to them, then I would share the reservations expressed by Davies AJ. But I do not so read what Palmer J said. Of course, as Palmer J pointed out at NSWLR 220-1; ALR 120-1; ACSR 312-13, the significance of indulgences granted by creditors will vary according to whether the question for consideration is 'actual' insolvency or 'reasonable grounds to suspect' insolvency. The case before his Honour fell into the former category. The case before me, on the pleading, is likewise a case of actual insolvency; as the defendants point out in para 2 of their written submissions 'this is not a case of insolvent trading'."