AGL Victoria Pty Ltd v Lockwood and Others

[2003] VSC 453

---

(Judgment by: Byrne J)

Agl Victoria Pty Ltd
vLockwood and Others

Court:

Judge:
Byrne J

Subject References:
Companies
Receivers and managers
Liability for company debts
Manufacturing business
Purchase of electricity
Company's pre-existing agreement with electricity retailer
Interpretation
Nature of company's obligation
Receiver instructing electricity retailer to continue supply
Pre-existing supply agreement not thereby terminated
Whether electricity supply debt arose by contin-ued operation of agreement or by receiver's decision to use electricity to conduct company's busi-ness
Whether a debt for goods purchased, services rendered or property used
Corporations Act 2001 (Cth)s 419(1)

Legislative References:
Corporations Act 2001 (Cth) - s 419(1)
Companies Act 1934 (SA) - s 311(4)
Companies Act 1948 - s 369(2)
Companies Act 1955 (NZ) - s 354(2)
Electricity Industry Act 2000 - s 18
Trade Practices Act 1974 - s 68A
Contractors' and Workmen's Liens Act 1908 (NZ) - s 48
Commerce Guarantees Act 1993 (NZ) - The Act
Companies Act 1936 (NSW) - s 337(3)
Small Claims Tribunal Act 1973 - The Act
Factories and Shops Act 1896 - The Act
Companies Act 1948 (UK) - s 108(1)
Theft Act 1968 (UK) - s 4

Hearing date: 14 November 2003
Judgment date: 14 November 2003

---

Judgment by:
Byrne J

[1] This case raises interesting questions as to the meaning and effect of s 419(1) of the Corporations Act 2001 (Cth). This provision renders a receiver appointed over the assets of a company personally liable for certain debts incurred during the receivership. The subsection is in the following terms:

A receiver, or any other authorised person, who, whether as agent for the corporation or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any charge is, notwithstanding any agreement to the contrary, but without prejudice to the person's rights against the corporation or any other person, liable for debts incurred by the person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased, used or occupied.

Background

[2] On 25 June 2001, Exelerate Funding Pty Ltd, pursuant to a debenture dated 31 July 2000 granted by F & T Industries Pty Ltd ("F & T"), appointed the defendant, David Neil Lockwood, to be the receiver and manager of the property of F & T. Under the terms of the debenture the receiver was to act as the agent of F & T, and not as the agent of Exelerate.

[3] Immediately prior to the commencement of the receivership, F & T carried on the business of the manufacture of wheelie bins, and it did so from five premises:

25 Nelson Street, Moorabbin

74-8 Keys Road, Moorabbin

31 Nelson Street, Moorabbin

92-4 Cochranes Road, Moorabbin

79-81 Cochranes Road, Moorabbin

With respect to these sites, there was in place an agreement between F & T as buyer and United Energy Ltd as supplier for the supply of electricity. This agreement was executed by F & T on 10 July 2000. The period of this supply agreement with respect to the first four sites was from 14 July 2000 to 13 July 2002. I am not concerned with supply to the fifth site, 79-81 Cochranes Road, and I shall say nothing further about it. I shall return to the terms of the supply agreement in due course.

[4] In or about July 2000, the supply agreement was assigned by United Energy to the plaintiff, then called Pulse Energy, but now called AGL Victoria Pty Ltd ("AGL").

[5] Upon his appointment, the receiver sent out a circular to creditors and suppliers of F & T. This document is dated 26 June 2001. AGL received a copy of this circular which is in evidence and is stamped as having been received on Tuesday, 3 July 2001. The terms of this circular are as follows:

I advise that I was appointed Receiver and Manager of the abovenamed company on 25th June 2001 pursuant to powers contained within a Registered Mortgage Debenture Charge granted by the company in favour of Exelerate Funding Pty Ltd.

Following my appointment, I entered into possession of all of the assets of the company secured under the charge. All debts of the company are "frozen" as at 25th June 2001 and I am unable to make any payment against them.

It is my present intention to continue trading the company's assets with a view to selling the business as a going concern. The co-operation of all creditors is sought in supplying goods and services.

Please open a new account styled "F & T INDUSTRIES PTY LTD (RECEIVER AND MANAGER APPOINTED)" care of the Melbourne address. Goods will only be paid for if they are supplied against an official order form which has been signed by one of the persons whose specimen signatures as attached to this notice.

As Receiver and Manager I will be responsible for payment for goods and services which have been properly authorised and incurred during my administration.

No set-off will be allowed for any amount due to the company in dealings subsequent to my appointment against any sum due by the company prior to my appointment.

If any goods you have supplied have been delivered on the basis of your company retaining title to the goods until payment has been received, would you please contact my office as a matter of urgency.

If you have any queries in relation to the above please contact Caroline Tucker of my office.

[6] AGL also received from the receiver a letter dated 27 June 2001. The copy of this letter produced by AGL shows that it is stamped as having been received on Monday, 2 July 2001. This letter refers to the electricity accounts for the first three premises only. This document, too, bears quoting in full.

Electricity Account Numbers :

8500 4902 8119 31 Nelson St Moorabbin

6169 2025 5455 25 Nelson St Moorabbin

2265 4038 7058 74 Keys Rd Moorabbin

I advise that I was appointed Receiver and Manager of the abovenamed company on 25 June 2001 pursuant to the powers contained within a Registered Mortgage Debenture Charge granted by the company in favour of Exelerate Funding Pty Ltd.

As I intend to continue the trading activities of the company I request that you maintain the existing services until further notice. Would you please open a new account in the name of "F & T INDUSTRIES PTY LTD (RECEIVER AND MANAGER APPOINTED)" and forward all future accounts to my Melbourne office. Please note that I am only responsible for debts incurred after the date of my appointment.

Any amount owing to you as at 25 June 2001 is an unsecured debt of the company which can only be paid after the secured creditors have been paid in full. Please also advise of any other services which are held in the company's name.

Should you have any queries in relation to this matter, please contact Caroline Tucker of my office.

[7] AGL complied with this request. It supplied electricity to each of the four premises at which the trading activities of F & T were continued. It closed off the existing accounts and sent tax invoices as from 26 June 2001 addressed to the company c/o Sims Lockwood at the receiver's address. These invoices commence with a nil balance as requested. ^[1] The request of the receiver that the accounts be opened in the name of "F & T Industries Pty Ltd (Receiver and Manager Appointed)" was not entirely complied with. The tax invoices are addressed as follows.

The invoices show, too, that supply was maintained until April 2003 at which date they show balances outstanding totalling $756,749.70, and this is part of the sum for which AGL has sued. There is no issue as to the supply but, as will be seen, there is a contest as to the rates charged.

[8] I should add that on or about 6 December 2001 a representative of the receiver requested AGL to commence supply to a sixth site situate at 39 Nelson Street, Moorabbin and it did so until the end of 2001. The tax invoices show that this account is No 2261 6940 6668 in the name of F & T Industries Pty Ltd (Receiver and Manager Appointed). The balance outstanding for which the receiver is sued in respect of this account is $5141.70.

[9] It is clear enough that, in so far as the receiver requested that supply be continued to the four sites and that it be provided to the sixth, he was acting as agent for a disclosed principal, F & T. Accordingly, at common law he is not personally liable for the debts. A suggestion that the receiver by the two June letters to the creditors, or otherwise, assumed a personal liability for the electricity supplied otherwise than pursuant to s 419 was abandoned by counsel for AGL. The claim of AGL is therefore put solely on the basis that the receiver is liable pursuant to s 419(1).

[10] The receiver in his defence raises an issue as to the amount which may be due but, otherwise, adopts a fairly passive position. The issue which he raises turns upon the question whether the supply agreement was terminated at the time of his appointment so that the supply provided thereafter was at rates greater than the contract rates, as AGL alleges, and if so what are these rates.

[11] The receiver has joined 11 third parties who, he says, have agreed to indemnify him against liabilities incurred in the receivership. Against the first-named third party Allianz Australia Insurance Ltd, he says that the indemnity arises under its professional indemnity policy. This claim is not the subject of the present trial. The remaining third parties are said to have provided indemnities. Most of them are now in liquidation. The remaining third parties are the eighth-named third party Redkin Pty Ltd, the ninth-named third party Forfabs Pty Ltd, the tenth-named third party Frank Alessi and the eleventh-named third party Filippa Alessi. For convenience, these have been referred to as the Alessi third parties, and I shall adopt this terminology.

[12] The issues concerning the applicability of s 419(1) are raised by the Alessi third parties in their amended defence filed on 8 September 2003 pursuant to r 11.09(2). This subsection as it applies to the facts of this case may be set out as follows:

A receiver ... who, whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of

enforcing any charge is ... liable for debts incurred by the person in the course of the receivership ... for services rendered, goods purchased or property ... used ...

[13] As to this the Alessi third parties say two things:

(1)

Since the supply of electricity was continued to the first four sites under the supply agreement, the debt for this supply is not "a debt incurred by" the receiver; it was a debt incurred by the pre-existing supply agreement.

(2)

The debt for the supply of electricity to all of the sites during the receivership was not "a debt ... for services rendered, goods purchased or property ... used".

Termination of the supply agreement

[14] The first of these contentions and the argument of the receiver require the resolution of AGL's contention that the supply agreement was terminated at the time of the commencement of the receivership, and it is to this that I first turn.

[15] Under the supply agreement the period of supply commences on 10 July 2000 and ends on 13 July 2002. It was, therefore, on foot on 25 June 2001 when the receiver was appointed. In its statement of claim, AGL alleges that the termination was by reason of the appointment ^[2] or, alternatively it was terminated by the receiver's letter of 27 July 2001 which is set out at [6] above. ^[3]

[16] I can deal shortly with the first of these contentions. It is well established that the appointment of a receiver under a debenture does not determine a commercial contract such as the present supply agreement. ^[4] I do not, therefore, conclude that the supply agreement was terminated by the mere fact that the receiver was appointed by the mortgagee.

[17] The terms of the contract may, however, provide for termination in such an event. The supply agreement contains such a term in cl 7.1:

7.1 Either party (the "Terminating Party") may terminate this Agreement with respect to a particular Site or Sites and Seller may disconnect or procure disconnection of Supply with respect to a particular Site or Sites, by giving notice to the other party,

•

if the other party materially breaches any obligation (without limitation, any breach of Clause 4.2 of this Annexure 2 is a material breach) under this Agreement, and the Terminating Party has issued a notice identifying the breach and warning of disconnection or termination, and the other party fails to rectify its breach, if capable of rectification, within 10 Business Days of giving notice in accordance with this clause, or if the breach is not capable of rectification, fails to agree to pay the Terminating Party compensation for the breach within 5 Business Days of giving notice in accordance with this clause and make payment within a further 5 Business Days; or

•

if the other party is insolvent (as defined in the Corporations Law) or a liquidator, receiver, receiver and manager, trustees in bankruptcy, or any other administrator or controller of the Buyer or any part of the Buyer's business or assets is appointed; or

•

at any time after the expiry of the Period of Supply by giving 10 Business Days notice; or

•

if there is a material weakening in Buyer's creditworthiness and Buyer does not provide Credit Support within 10 Business Days of receiving notice from Seller requiring Buyer to provide such Credit Support; or

•

if LNSP disconnects Supply to Buyer other than pursuant to an Applicable Regulation or a direction or request from a Regulatory Body or a TNSP.

I have broken up this lengthy clause in order to render its structure more apparent. It is clear that the appointment of a receiver over the buyer's business or assets is an event which enlivens the right to terminate. This right, however, must be exercised by notice.

[18] Counsel for the receiver and for the Alessi third parties contended that such a notice may be given only by AGL and that no such notice was given in this case. On behalf of AGL it was put that the notice, in the event of receivership, may be given by either party and that such a notice was given, not by the receiver's letter of 27 June 2001, as pleaded, but by the receiver's circular of 26 June 2001. For my part, I very much doubt whether a buyer whose assets are subject to the appointment of a receiver may itself give the notice of termination under cl 7.1. But I prefer to rest my rejection of this submission upon the basis that neither the circular letter of 26 June nor the letter of 27 June amounts to a termination. Rather the contrary; in each document the receiver requests a continuance of supply. The fact that he requests that a new account be opened in the now proper trading name of the company ^[5] does not take the matter any distance. Nor does the receiver's assertion that he is himself responsible for the payment for supply during the receivership, for this, on one view, represents the effect of s 419. I have considered, too, whether his statement that no set-off would be allowed, which suggests an interruption to the existing running account, might fairly be construed as a statement of his intention that the existing contract was at an end. On reflection, I do not think so. I reject this alternative basis for termination.

[19] In his final address, counsel for AGL raised a third and unpleaded basis for termination. This was a kind of consensual termination. It was said that the terms of the two letters show that the receiver wished to trade in the future on a contractual basis which differed from the pre-existing one. By this, and by his requesting of supply and by his use of the electricity supplied, he should be seen as treating the supply agreement as at an end. AGL, too, should be treated as proceeding on this basis because its invoices for electricity supplied during the receivership were costed on the basis that the agreement was at an end. This is in fact the case: supply during the receivership was charged, not at the agreed contract rates but at what was called the "tariff extension rate". This is a rate fixed by reference to a government gazetted rate for buyers who have not negotiated a contract rate. Moreover, it was pointed out that the receiver, for the most part, paid these invoices without demur. I will not, even so, infer such a termination. There is no evidence that the charging the tariff extension rate was brought to or otherwise came to the attention of the receiver. Indeed, he says that he did not see the supply agreement until after this proceeding was commenced. Moreover, the invoices on their face provide little information as to the source of the rates used to calculate the amounts payable.

[20] I should add for completeness that I was pressed with two letters from AGL to the receiver dated 1 March 2002 each of which is expressed in terms which show that the writer thought that the supply agreement was then still on foot. I have had no regard to these. The contention presently under consideration must be determined upon an objective assessment of events at the time of the alleged termination, not 12 months later.

[21] In conclusion, therefore, I am satisfied that the supply agreement was not terminated by or at the time of the commencement of the receivership. It continued on until the period of supply ended on 13 July 2002.

A debt incurred by the receiver

[22] Having reached this conclusion, counsel for the Alessi third parties contended that the debt arose, not through any act of or on behalf of the receiver, but from the pre-existing supply agreement. He relied upon the well-known decision of Street J in Associated Newspapers Ltd v Grinston . ^[6] In that case, a mortgagor company had, before the appointment of a receiver, entered into a contract with the plaintiff whereby the plaintiff was to print certain magazines. This work was well underway when a receiver was appointed over the assets of the company. Street J found that the receiver, by accepting delivery of the magazines, was merely carrying out a contract previously entered into by the company. Accordingly, unless the receiver made himself personally liable, no such liability was then attracted by the operation of the then equivalent of s 419. Likewise, in Sipad Holdings ddpo v Popovic , ^[7] Lehane J in the Federal Court held that, where a receiver was appointed to preserve the status quo pending resolution of a dispute between directors, and the employment of employees who had been engaged under contracts of employment entered into prior to the commencement of the receivership was continued during the receivership, the receiver did not incur personal liability for the payment of wages during the course of the receivership. ^[8] In McMahon's (Transport) Pty Ltd v Ebbage ^[9] the Queensland Court of Appeal reached the same conclusion with respect to unpaid rental where the receiver simply caused the company to remain in possession under a lease previously entered into. Pincus JA, with the concurrence of the other members of the court, said this: ^[10]

Merely taking and keeping possession of the company's property consisting in premises leased to the company does not create any liability; it is the lease agreement which creates the liability and, ordinarily, that liability would continue whether or not the company was continuously in possession during the period of the lease. But if an act done by the receiver, or one done on behalf of the receiver, creates a liability in the company which would not otherwise have existed, it appears to me that s 324(1) ^[11] makes the receiver personally liable; that is so even if the liability has its origin in a contract made by the company before the receivership. For example, electric power purchased with the receiver's authority during the period when the receiver is in possession would be a debt incurred by the receiver under s 324(1), even if the supply has been arranged under a pre-receivership contract.

[23] This case, read in conjunction with the judgment of Needham J in British Investments & Development Co Pty Ltd ^[12] throws up and resolves a difficulty arising from the words "debts incurred by the [receiver]" in s 419(1). Needham J observed that this expression in its ordinary meaning would require that these be debts "for which the receiver makes himself responsible either expressly or by necessary implication". ^[13] This is, of course, correct. But it does not follow that the expression in its present context has no further significance. If it meant nothing more than this, then s 419 would simply create a statutory liability in the receiver which co-exists with the ordinary contractual liability. So understood, s 419 would have no work to do, save perhaps in the case where the common law liability has been for some reason extinguished or its enforcement barred. Moreover, such an interpretation would, as will be seen, ^[14] not address the mischief which the section was designed to remedy. As Pincus JA said in Ebbage's case the section "must have been intended to make the receiver liable in circumstances where in its absence there would have been no liability". ^[15] It follows, then, that the expression "incurred by the [receiver]" must cover the case where the receiver, by some act which does not create in him personal liability, such as his act as agent for a disclosed principal, incurs for some other entity a liability for the debt. In such a case, liability for that debt is imposed also on the receiver by operation of s 419.

[24] I return, then, to the facts of the present case. Counsel for AGL expressly disavowed any claim against the receiver based on an assumption of liability by him, otherwise than by the operation of s 419. I am therefore not concerned to consider whether by the terms of his circular letter of 26 June 2001 or his letter of 27 June 2001 he undertook this liability as a matter of contract or by the operation of any principle such as an estoppel. The question which then arises is whether, by any act of his or of those for whom he was responsible, the receiver created a liability for payment for electricity supplied where none previously existed.

[25] Under cl 8 of the supply agreement, F & T agreed to buy and AGL agreed to supply electricity on the terms of the agreement. The contract, in Annexure 1, fixes the price for this supply at a rate per MWh. There is also a demand charge which is calculated by reference to MVA/year. I was told that I should not be concerned with this and I act accordingly. It includes also a meter charge which was fixed at $980 per meter per year and a meter service charge of 96 cents per day. Under condition 3.1 of Annexure 4, the obligation of F & T was to pay AGL "for all electricity which passes through the Delivery Point at each site the prices for electricity specified in Annexure 1 for the period of supply for the relevant site". There is no minimum supply stipulated. It would seem, therefore, that if, for some reason, no electricity was used, there would be no charge except perhaps for the meter charges. I conclude from this that the obligation to pay under cl 3.1 arises from the fact that electricity is used by F & T so that it then passes through the delivery point. The decision to use electricity during the receivership is that of the receiver or some person acting upon his direction. It follows, then, that it is by this act of the receiver that the liability is incurred.

[26] I therefore reject the submission put on behalf of the Alessi third parties that the liability of F & T is incurred, not by an act of the receiver, but by the operation of the supply agreement. The submission based on the Grinston case must fail.

A debt for services rendered, goods purchased or property used

[27] The final submission put on behalf of the Alessi third parties is that the debt incurred for the supply of electricity does not fall within one of the classes of debt identified in s 419. Counsel for the receiver did not support this submission. Counsel on behalf of AGL contended that such a debt was a debt for services rendered; alternatively, a debt for goods purchased; alternatively, albeit a little faintly, a debt for property used.

The origin and purpose of s 419(1)

[28] Before I address the evidence offered on this point, it is convenient to make some general observations about the origins and purpose of s 419. In an attractive and carefully presented historical analysis, counsel for the Alessi third parties demonstrated that the provision made its first appearance as s 311(4) of the Companies Act 1934 (SA). The relevant part of this subsection was in similar terms to the current s 419(1):

Any receiver ... shall ... be liable for debts incurred by him or the company in the course of the receivership ... for services rendered, goods purchased, or property hired, leased, used, or occupied.

The mischief identified in the parliamentary debates as that which the provision was to overcome, was that of a receiver "buying goods without paying for them and, on their being sold, giving the proceeds to the debenture holder, the original seller not being paid". ^[16] This practice, referred to as "the filling up of a security", which was castigated as commercially immoral, would evidently go beyond the buying and selling of goods, and the terms of s 311(4) demonstrate this. It would seem from the array of transactions mentioned in the subsection that what was intended was the filling up of the security by a receiver who entered into any of the stipulated transactions on a credit basis so that the secured creditor recovered the fruits earned from the services, goods or property, leaving the supplier to rank with other unsecured creditors.

[29] Similar provisions were enacted in New South Wales in 1936 ^[17] and in Victoria in 1938. ^[18] In England, the mischief was addressed in different terms. Section 369(2) of the Companies Act 1948 provides:

A receiver ... appointed [under the powers contained in any instrument] shall, to the same extent as if he had been appointed by order of a court, be personally liable on any contract entered into by him in the performance of his functions, except in so far as the contract otherwise provides.

The personal liability in these terms of a receiver appointed by a court had been established for over 50 years. ^[19] A statutory provision similar to that in England was enacted in New Zealand in its Companies Act 1955 (NZ), s 354(2).

[30] It will be noted that the statutory provisions based on the South Australian model, unlike those in England and New Zealand, specify the transactions for which the receiver is fixed with personal liability. In 1987 the Australian Law

Reform Commission proposed that the provision be widened to impose personal liability for contracts and transactions made by the company with the authority of the receiver in the course of the receivership to the extent that the company receives a benefit as a result. ^[20] This proposal was, however, rejected in the final report on the ground that it would create uncertainties ^[21] and the South Australian model was substantially retained in s 419(1) of the Corporations Law and ultimately in s 419(1) of the Corporations Act.

[31] I draw two conclusions from this brief historical excursus. First, that the mischief to which s 419(1) is directed is wider than that of filling up the security by the buying and selling of goods. Secondly, that the provision operates only where the debt is one arising from a transaction of a kind specified in the subsection; for other transactions the common law rule will apply. Further, these two conclusions suggest that the court should not be astute to read the transactions in an unduly narrow way because, as expressed, they appear, broadly speaking, to be directed to the three principal ways in which a company acquires the resources with which to earn money from its commercial activities:

•

by purchasing things for resale or consumption or other use in its commercial activities;

•

by providing work or using it in its commercial activities; or

•

by using the property of others in its commercial activities.

In any such case, the person who provides these resources on credit is entitled to be paid otherwise than by ranking with ordinary unsecured creditors of the insolvent companies.

Electricity

[32] Evidence was led from Iven Mareels, Professor of Electrical and Electronic Engineering at the University of Melbourne, as to the nature and characteristics of electricity. Professor Mareels was not cross-examined, nor was his evidence challenged. I accept it.

[33] In his affidavit the professor said this:

From the point of view of what electricity does as distinct from what it "is", electricity is best described as a form of "energy". From a scientific point of view, what electricity is has not been satisfactorily determined. One model for electricity is to describe it as a phenomenon associated with stationary or moving electrically charged particles for example electrons or ions. Another and complementary model considers electricity as an electromagnetic wave described by what is known as "Maxwell's equations". Both models are useful, but neither model provides a completely satisfactory picture for what electricity is.

[34] Professor Mareels explained the characteristics of electricity using the familiar image of the flow of water. Adopting this image, the water as such, whether it be moving or stationary, is a tangible thing. A quantity of it, whether ascertained or not, is capable of being bought and sold and such a transaction is a sale or purchase of goods.

[35] Where water is at a height, this height, given the presence of gravity, represents the specific potential energy of the water. This energy is the analogue of voltage, which between two points in space is defined as the measure of energy required to bring a unit of charge from one point in space to the other. This specific potential energy is measured in volts. Where the water is permitted to move under the influence of gravity, the amount of water flowing is the analogue of electrical current. The product of this specific potential energy and the water mass flow, both measured at the same place, is the total mechanical power available at that place. This mechanical power is analogous to the total of electrical power at a given point in an electrical circuit and is measured in watts. In the electricity distribution industry, electrical energy is commonly reported in the unit of watts or kilowatts per hour (kWh).

[36] The professor, however, pointed to limitations in this water flow analogy. Of particular relevance for my purposes is his observation that electrical power transfer must be seen as "riding on an electromagnetic wave, rather than associating it with a material electric current". This is demonstrated by the fact that the transfer of electrical power from generator to end user is virtually instantaneous. In contrast, the actual speed with which the electrical charges in the electric current move is very much slower -- of the order of centimetres per second. A further point of possible distinction is that, unlike water stored at high altitude containing specific potential energy, electricity, once generated, cannot be stored; it is consumed immediately.

[37] The significance of this, for my purposes, is that what the customer of AGL pays for is not an unascertained quantity of electrically charged particles as might be suggested by the water image. A more apt image is that it pays for the energy in the water flow, as for example, a hydro-electric generating company might pay for the energy in the flow of water, but not the water itself. Another image is that of a manufacturing company which uses in its processes super-heated steam which it purchases and, having exhausted the heat, returns the steam or the water to the supplier. ^[22]

Supply of electricity

[38] I turn now to the evidence with respect to the supply. Michael Mercuri, AGL's Manager, Commercial Development, explained the structure of electrical supply in Victoria at the relevant time. Under the Electricity Industry Act 2000, s 18, four types of licence are issued:

a licence to generate electricity for supply or sale;

a licence to transmit electricity;

a licence to distribute or supply electricity; and

a licence to sell electricity.

The scheme of the legislation is that the electrical supply industry is to operate in a competitive market. Generators produce electricity and bid into the national electricity market which is managed by National Electricity Market Management Co Ltd ("NEMMCO"). They may also sell direct to distributors. Distributors themselves are licensed to deliver or supply electricity to customers in a specified area. Sellers may be licensed to sell electricity otherwise than through the market, in which case they are called retailers. ^[23]

[39] Mr Mercuri said that AGL holds a licence to sell electricity and is a retailer. For the purpose of fulfilling its contracts of sale it purchases electricity from NEMMCO or, in some instances, from a licensed generator and procures its delivery to the customer through contracts with licensed distributors and sells it to the customer. AGL, then, itself pays NEMMCO or the generator and the distributor for their contributions and in the course invoices its customers for the supply.

[40] The supply agreement reflects this arrangement, but with one complication. The operative cl 8 provides:

Buyer agrees to purchase electricity at the Supply Point from United Energy Limited (Seller) and Seller agrees to procure that LNSP Supply electricity to the Supply Point and agrees to sell the electricity Supplied by LNSP on the terms of this Agreement.

In the agreement F & T is identified as the buyer. The seller is identified as United Energy Ltd, a licensed retailer. In or about July 2000 United Energy sold its retail business to AGL, including the supply agreement with F & T. Presumably, AGL was also a licensed retailer at the time of the supply. The LNSP (Local Network Service Provider) is identified in Annexure 4 as United Energy. This company was also, at all material times, a licensed distributor. This part of its business was not sold to AGL in July 2000 so that United Energy remained the LNSP. Next, the supply point is defined in Annexure 2 as the point nearest to the supply address where the electricity last leaves a supply facility owned or operated by the LNSP before being supplied to the buyer. Finally "supply" is defined in Annexure 2 in these terms:

"Supply" in relation to electricity means, the delivery of electricity and such related services as must, if provided, be provided within the Network Tariff as defined in the Tariff Order and in relation to any other product or service, means the provision of that product or service.

[41] One searches the supply agreement in vain to discover what else AGL is obliged to provide or do. The agreement is replete with obligations imposed upon the buyer, such as keeping electricity lines clear and providing a metering installation. There are abundant qualifications to the obligations of AGL to make supply as contemplated. The subject of these obligations of AGL is that set out in cl 8 above: to procure that LNSP supply electricity to the customers and for itself to sell the electricity to the customer.

[42] Clause 6.1 of the supply agreement may be of significance for my purposes. It includes an obligation in general terms in AGL to indemnify the customer against loss and damage suffered, liabilities incurred and legal costs incurred arising directly or indirectly from a breach by AGL of the supply agreement or its wilful, negligent or reckless act or omission. Then follow six subclauses which are directed to limiting this indemnity. Subclause 6.5 is in these terms:

To the fullest extent permitted by law, liability under any condition or warranty which cannot legally be excluded is limited to:

(1)

in the case of goods (which shall include electricity), the replacement of the goods or the supply of equivalent goods;

(2)

in the case of services:

(a)

supplying the services again; or

(b)

paying the cost of having the services supplied again.

[43] This subclause was not relied upon by any party before me as showing an intention of the contracting parties that the subject matter of the supply agreement was either goods or services or both if, indeed, that be relevant for my purposes. It may be that the provision is simply directed to invoking the limitation on liability permitted by s 68A of the Trade Practices Act 1974 (Cth), a statute in which electricity is specifically included in the statutory definition of goods. ^[24]

[44] I should add for completeness that the terms of supply under the supply agreement are subject to a number of codes, rules, regulations and other documents none of which is in evidence.

[45] The terminology used throughout the Electricity Industry Act is that of sale of electricity by a retailer to a buyer. Similar terminology is adopted in the supply agreement. In each case the subject matter of the sale is simply described as electricity. That document also in its definition of "Supply" speaks of "the delivery of electricity and such related services". I mention this, notwithstanding that the parties to the contract cannot by their contract give to the words of a statute a meaning which they do not otherwise bear. It does, however, lend support for the contention that the expression "supply of electricity" may in the industry be understood as extending to the delivery of electricity and related services.

[46] I now consider the application of this factual material to the words of the statute. It will be recalled that counsel for AGL submitted, in order of priority, that the liability to pay for the supply of electricity provided during the receivership was a debt for services rendered, goods purchased or products used.

[47] I remind myself at this point that the passage quoted from McMahon's (Transport) Pty Ltd v Ebbage , ^[25] an example selected by the Queensland Court of Appeal to demonstrate the operation of s 419(1), was that of the receiver purchasing electricity. It is evident from this that the court was of opinion that this was an uncontroversial example of the application of the legislative provision. It may be that this is the reason why the receiver in this case did not support the argument of the Alessi third parties. In any event, I do not treat the example selected by the Queensland court as representing a considered conclusion on the point.

Electricity supply as services rendered

[48] In support of his primary submission, counsel for AGL contended that what AGL does for its customers, including F & T, is that it purchases electricity, procures its delivery through the distribution network to the customer's premises and sells it to the customer. In general terms, this is correct.

[49] I was not referred to any Australian authority bearing on the issue whether electricity is services or the supply of electricity is the rendering of services.

[50] There are, however, in some of the cases to which I shall refer hints that the judge might have reached this conclusion. ^[26]

[51] Counsel for AGL referred to two United States decisions in support of his proposition that the provision of electricity is the rendering of a service. Each of these cases arises from injury suffered to property as a consequence of a malfunction in the electrical supply provided by the defendant. In each, the plaintiff sought to establish strict liability for the tort of selling a product in a defective condition which was unreasonably dangerous to the user or consumer or to his property. The relevant question in each case was whether the supply of electricity was the selling of a product.

[52] In the first, Otte v Dayton Power & Light Co , ^[27] the Supreme Court of Ohio described as "an intellectual disaster" the plaintiff's attempt to equate the process of creating and delivering electricity to the manufacture and sale of an ordinary consumer product. This was in part because of the special characteristics of the errant voltage in that case. Of greater interest for my purposes is the following passage in the judgment of the court: ^[28]

Consumers, moreover, do not pay for individual electrically charged particles. Rather they pay for each kilowatt hour provided. Thus, consumers are charged for the length of time electricity flows through their electrical systems. They are not paying for individual products but for the privilege of using DP & L's service.

The court then observed that the electrical charge received by the consumer is substantially different from that which leaves the generator plant where the supposed manufacture takes place, so that this requirement for strict product liability had not been established. The court then concluded: ^[29]

For this reason, and for the reasons stated above, we find electricity is a service, not a product, in the generally accepted sense of the word under the factual context of this case.

[53] This decision was accepted and applied in the Appellate Division of the Supreme Court of New York in the second of the US cases, Bowen v Niagara Mohawk Power Corporation . ^[30] This was a case where the plaintiff asserted strict product liability for loss suffered when his house burned as a result of a power surge. The opinion of the court included the following in support of its conclusion that the provision of electricity is a service, not the sale of a product: ^[31]

Electricity is the flow of electrically charged particles along a conductor. The utility does not "manufacture" electrically charged particles, "but rather, sets in motion the necessary elements that allow the flow of electricity". ^[32] The consumer pays for electricity by kilowatt hour, that is the length of time electricity flows through the system. There is no individual product. Instead, the consumer pays for the use of electricity.

[54] Further insight into these decisions is to be had from the earlier product liability decision of the Appellate Division of the Supreme Court of New York in Farina v Niagara Mohawk Power Corporation , ^[33] where the court observed that no plaintiff in New York or other jurisdiction had established a claim based on strict product liability for injury sustained from contact with an electrical line. The resistance of the courts to these claims was said to be based upon a number of considerations, including the difficulty of categorising electricity as a product. These other considerations include the fact that electricity is not in a marketable state, that it is difficult to describe the carrier cable as packaging for the purposes of the associated rule, the fact that the current in the cable remains under the control of the electricity supplier and is not then sold to the customer, the fact that electricity is not in "the stream of commerce" and the fact that the defect must be shown to exist in the product itself, that is, in the manufacture of the electricity. Many of these considerations, of course, relate to the particular elements of the strict products liability rule in those jurisdictions with which I am not concerned. They do nevertheless show that the views expressed as to whether electricity is a product for the purposes of that rule have little relevance to the different question, whether the supply of electricity is services rendered.

[55] Closer to the context of the present case are those United States cases where the plaintiff has sought to establish liability for damage caused by a power surge against an electricity supplier in contract for breach of an implied warranty of fitness for the purpose or of merchantability. ^[34] As will be seen, the question whether electricity is goods for this purpose is an unsettled one. ^[35] What is of interest for my purposes is that, as in the product liability cases, the courts tend to approach the question on the basis that it must be either goods or services, so that if it is not one it must be the other. This means that, where the goods argument fails, there tends to be little analysis as to why the supply should be described as services. ^[36]

[56] The matter has also been considered by the courts in New Zealand. In Kanieri Electric Ltd v Hansford & Mills Construction Co Ltd , ^[37] the question was whether the supply of electrical energy was "work" within the meaning of s 48 of the Contractors' and Workmen's Liens Act 1908 (NZ). The contract between the parties was for the supply of electrical power by Kanieri to enable the Hansford & Mills Construction to complete the erection of a large steel dredge. It was accepted that the dredge contract itself concerned work, the question being whether the supply of the electricity was work. "Work" was defined in the statute to include "any work or labour, whether skilled or unskilled, executed or done, or commenced to be executed or done, by any person of any occupation upon or in connection with ... various things". Blair J noted that, if the defendant's machines were powered by hand, the application of this power would fall within the definition of work. His Honour continued: ^[38]

But behind every piece of machinery and responsible for its functioning is the human being. There is hardly a single modern mechanical operation which does not to some extent make use of tools. A workman using a saw could not cut the timber he is operating upon without that tool. Sometimes the saw is operated by a means of mechanical power; the finished article nevertheless is to my mind just as much "work" whether it was done altogether manually or in part manually and in part mechanically. The electrical energy supplied by the Kanieri company was the mere mechanical equivalent of the energy that would otherwise have been supplied by the muscles of the workmen.

This decision has been subjected to criticism in Motor Rebuilds Ltd v Bollard ^[39] on the basis that the supply of electricity to a manufacturer which is used by the manufacturer in the performance of its work cannot have the consequence that the electricity company is itself performing part of the customer's work. To my mind this criticism is justified.

[57] In Electricity Supply Association of New Zealand Inc v Commerce Commission ^[40] the New Zealand High Court was required to determine whether electricity was "a good" or "a service" within the meaning of the Commerce Guarantees Act 1993 (NZ). With respect to a service, the contention advanced in support of the inclusion of electricity within that term depended upon the statutory definition of service in s 2. The relevant part of the definition was as follows:

"Service" means any rights, benefits, privileges or facilities that are or are to be provided, granted, or conferred by a supplier under any of the following classes of contracts:

(a)

a contract for in relation to --

(i)

the performance of work (including work of a professional nature) whether with or without the supply of goods; ...

Neazor J rejected this submission for reasons which I venture to set out in full: ^[41]

The essence of the argument that the supply of electricity comes within one of the categories of contract covered by the definition of services is that the contract entered into between consumer and supplier requires the supplier to perform obligations or do work which will result in the provision of electricity to a consumer, such work including the establishment, maintenance and administration of the supply network, including reading a meter and sending a bill.

That argument must be considered in the context that the Act regulates dealings between a particular supplier and a particular consumer. Thus in the context of the Act the work performed must be taken to be work for the consumer . In respect of any individual household the only work by an electricity supplier that can sensibly be said to be done for the consumer is the provision and maintenance of the line connection between the main supply and the particular house. Everything else is for the benefit of consumers generally. Making the connection is ordinarily a single event so that in respect of the continuing supply of electricity the contention must come down to that the consumer has entered into a contract for whatever work may need to be done for maintenance of that connection. It would be straining the definition to hold on that analysis that the contract between the parties is in reality for the performance of work for the consumer. Maintenance work may never in fact need to be done on the particular supply connection during a particular consumer's occupation of the premises.

The wider contention that each consumer is to be taken to have a continuing contract with the supplier under which the supplier has bound itself to each consumer to establish and maintain the distribution network in my view is simply not a realistic description of the arrangement between the parties. It is a much more realistic approach that the network is maintained by the distributor for the purpose of enabling it to supply the commodity for which it charges the consumer, namely kilowatt hours of electrical energy, and does not involve work performed under contract for the consumer. I put aside such matters as installing and reading meters and billing, which hardly fit into the concepts (at least from the consumer's point of view) of rights, benefits, privileges or facilities conferred by the supplier on the consumer. They are activities for the benefit of the supplier.

Although the issue was not explored in argument, it would make no difference in my view that the supplier imposed continuing charges on the consumer based on the existence and maintenance of lines or other equipment associated with the supply of electricity. So far as the consumer is concerned such charges are no more than an accounting breakdown of charges for the supply of electricity, which is what the consumer contracts for.

In my judgment the supply of electricity or line function services do not come with the definition of services.

[58] The statute presently under consideration does not contain any definition of services. Accordingly, I must construe the expression "debt for services rendered" in accordance with ordinary usage. Moreover, I must construe the expression in its entirety. It is, therefore, beside the point that electricity or the supply of it might properly be characterised as a service or as an essential service. ^[42] In Employers' Mutual Indemnity Association Ltd v Federal Commissioner of Taxation , ^[43] a majority of the High Court concluded that an insurance company was not a company having as its primary object the rendering of services to its shareholders. Latham CJ expounded the ordinary meaning of the expression "the rendering of services" as requiring the doing of work of some kind for the shareholders. His Honour was of opinion that the issuing of an insurance policy to a person could not be described as doing work for that person. ^[44] Williams J considered that it referred to services which would be remunerated by commissions, fees or charges and therefore "services and earnings of a personal nature". ^[45] Starke J observed that, in a general sense, insurance companies render services to the public or their members but, in the context of the legislation under consideration, he concluded that the expression required the doing of acts for the shareholders. ^[46] This case was analysed by McTiernan J ^[47] in Revesby Credit Union Co-operative Ltd v Federal Commissioner of Taxation ^[48] where he concluded that the expression would be satisfied where the company performed work for the benefit of its shareholders which work is more than the making of a contract and which goes beyond the performance of an obligation undertaken in the course of an ordinary commercial contract.

[59] In Grinston ^[49] Street J considered that the expression "services rendered" in s 337(3) of the Companies Act 1936 (NSW) ^[50] suggests an ordinary master and servant account for work done where the claim is made by the servant so that, on one view, the debt is one for payment in the nature of wages and salary to a staff employed by the receiver. This suggested interpretation was put to and rejected by Muir J in 1998 in Re WorkCover Queensland , ^[51] a case that considered the application of the comparable provision of s 443A(1) of the Corporations Law with respect to the liability of administrators appointed under Pt 5.3A for debts incurred by them during the administration. The case before the court raised the question whether the administrator was liable for WorkCover insurance premiums in respect of employees whose employment was continued during the administration. His Honour concluded that the debt arose before the administration commenced so that s 443A did not apply. Nevertheless, in the course of his judgment he said this, ^[52] in rejecting the submission that a debt for services rendered extended no further than a debt for wages and salary:

Just as there is no attempt to impose any qualification or limitation in respect of types of goods bought or circumstances in which they have been bought, the subsection does not purport to qualify or restrict the description "services rendered". I cannot detect anything in the language or context of s 443A(1) which suggests that it should be construed in a restrictive way. The meaning of "services rendered", grouped as it is with other general dealings of a commercial nature encompasses, at least, work done for the company which could be regarded as the "rendering of a service" in the ordinary sense of that expression.

With respect, I agree.

[60] The expression "services" has been the subject of analysis in the rather different context of the Small Claims Tribunal Act 1973 which confers on the tribunal jurisdiction to determine small claims arising out of "a contract for the supply of goods or the provision of services". In R v Small Claims Tribunal ; Ex parte RACV General Insurance Pty Ltd , ^[53] Gobbo J held that an essential feature of a contract for the provision of services is the performance of positive physical acts for a person which can be characterised as services. This does not include the mere making of a contract with that person.

[61] On behalf of AGL, counsel submitted that his client performed services for which it received payment under the supply agreement -- services in addition to the sale of electricity. He pointed out that AGL read the meter and that it caused other persons with whom it had contracts to deliver the electricity to the customer. As to the first of these activities, I doubt whether it takes the matter very far. Under cl 12.1 of the supply agreement the buyer is to do all things required by the seller to have a metering installation at the supply point. The seller is to provide for the buyer what is called in cl 20.1 "metering services". These services are essentially for the benefit of the seller for they enable it to quantify the electricity for which its charges are imposed. The procuring of another to do work may, however, amount to a service.

[62] Even so, my task is to characterise the AGL debt as a whole. The AGL submission presently under consideration involves a consideration of a question similar to that considered by Fullagar J in Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd . ^[54] This was whether a contract for the design and construction of a tool for the manufacture of plastic drawers was a contract for the sale of goods or one for work and labour. His Honour, applying, albeit with reluctance, the English Court of Appeal decision in Robinson v Graves , ^[55] determined this question by identifying the substance of the contract as one for the sale of goods, namely the tool. In the present case, where the performance of metering tasks represents but an activity ancillary to the principal obligation of selling electricity and one for which a very small part of the charge is referable, these do not transform the contract for the sale of electricity to a contract for work. Nor do they transform the consequent debt to a debt for services rendered. Likewise, where a dealer agrees to sell a thing to a customer, this contract is not transformed into a contract for work and labour simply because the only task the dealer performs, apart from the preparation of the necessary paperwork, is to arrange for a manufacturer to deliver the thing directly to the customer. In such a case the contract and the consequent debt is one for the sale of the thing.

[63] The difficulty which faces AGL's argument that the debt is one for services rendered is, essentially, that the supply agreement is expressed as one for the sale of electricity. But to pose this difficulty is not to reject the argument because the terminology of the supply agreement requires an answer to the question: what is the subject matter of the sale? It is possible to sell one's services. The answer to that question, that the subject matter is electricity, is not, on the evidence before me, a satisfactory one.

[64] In normal legal usage, a sale, or for that matter a purchase, involves the transfer to the purchaser of a thing or rights to a thing in exchange for money or other consideration. In the case of the supply agreement, this thing is a type of energy with certain qualities. The measure of the thing sold is in terms of the period of time of its provision. What exactly this energy is was said by Professor Mareels to be uncertain, although it has certain known characteristics. Nevertheless, F & T received this thing which was a benefit to it and it used the thing in its manufacturing process. Whatever it be, it is a thing which AGL was prepared to sell and F & T was prepared to purchase.

[65] If the contract uses "sale" and "sell" in this sense, it becomes very difficult to characterise as services rendered the essential activity of AGL in the performance of its obligation under the supply agreement. I take as an example the case of a customer desirous of acquiring a motor car. The customer goes to a dealer, who does not then own the car, and agrees the sale price. As I have mentioned, where the dealer does nothing more than sell and procure the delivery of the car to the customer, the transaction is characterised as a sale by the dealer to the customer because, on a proper analysis, the owner sells to the dealer and the dealer on-sells to the customer. Where, however, the dealer is merely acting as a broker, whose task it is to find an owner and to negotiate a price for a sale direct from the owner to the customer, the transaction between the dealer and the customer might be characterised as that of rendering services.

[66] Clause 8 of the supply agreement contains elements of both types of transaction, for AGL is to procure that LNSP supply the electricity to F & T and also itself to sell this electricity to F & T. Annexure 1 to the supply agreement, which sets out the pricing, and cl 3 in Annexure 2, moreover, make it clear that the contract for the sale of the electricity is with AGL and not with LNSP. This is confirmed in this case by the evidence of Mr Mercuri who said that AGL purchased the electricity from the national electricity market and sold it to the customer.

[67] I conclude from this that the transaction contained in the supply agreement is in truth not one which is properly to be characterised as an agreement to provide services to F & T; it is a contract for the sale and purchase of a thing. ^[56] The AGL debt which arose from it is not, for the same reason, a debt for services rendered.

Electricity supply as goods purchased

[68] Accepting, as I do, that the terms of the transaction giving rise to the AGL debt are those of sale and purchase of a thing, the question then moves to whether that thing is properly characterised as goods.

[69] The meaning of the word "goods" is "of very general and quite indefinite import" and, primarily, will depend upon the context in which it is found. ^[57] In ordinary usage it means "[p]roperty or possessions, now in more restricted sense, moveable property". ^[58] At common law, the word "goods" was in ancient times taken as including all chattels real as well as personal. But, in more current usage, it is taken to mean personal property of every kind, as distinguished from real property. ^[59] The essential feature is that the property is moveable and therefore capable of manual delivery, ^[60] although the word "chattels" was also, in the sense of chattels real, applied to certain interests in land. ^[61] It is frequently a defined word in statutes ^[62] and in cases where the word in such a statute has been judicially expounded must be approached with caution. It is not defined in the Corporations Act. As part of the expression "debt for goods purchased" it seems to me that the greatest assistance is to be found from its use of "goods" in the area of sale of goods. In this context, the requirement that they be capable of delivery is reflected in the common count for goods sold and delivered which dates from the early nineteenth century. ^[63]

[70] This said, it must be acknowledged that the common law in this area has been codified in 1896. The definition of "goods" in the legislation, however, is an inclusive one:

"Goods" includes all chattels personal other than things in action and money ... ^[64]

In this area of law, goods may be non-specific or unascertained. I should also record that, of the standard texts, Sutton is of opinion that electricity cannot be the subject matter of a sale of goods ^[65] whereas Benjamin is uncertain. ^[66]

[71] Relevant commercial characteristics of electricity are that it is capable of being bought and sold. It is capable of delivery ^[67] and, to a limited extent, it is capable of being stored in batteries. It is quantifiable and in this case, at the point where it passes through the meter, it is in fact quantified and appropriated for the customer's use. Finally, it is consumed, in the sense that it is transformed or dissipated by its use by the customer.

[72] In an early case in this court, Draper v Friend , ^[68] Hood J considered the case where the supplier of electricity sued in the Court of Petty Sessions for the value of electricity supplied. Its claim was pleaded as one for goods sold and delivered. The justices, without hearing evidence, determined that they had no jurisdiction on the basis that electricity was incapable of being either goods or chattels. Hood J remitted the case to the justices for them to receive some evidence as to the nature of electricity. They were not entitled to reach such a conclusion of fact only on the basis of a scientific text produced to them in the course of opening statements. Having reached this conclusion, his Honour expressed the view, ^[69] apparently on the basis of his own understanding of the matter, that:

If I had myself to decide on evidence whether electricity is "goods or chattels", so that its price could be recovered in an action for goods sold and delivered, I think I should probably find in the negative ...

The report also records his Honour as commenting in the course of argument, "would not the justices have had jurisdiction if the complaint had been for work or labour done?" The significance of this case, for my purposes, lies, not so much in his Honour's passing comment made in the early days of electricity, but rather on the need for each case to be determined on the evidence before the court.

[73] Five years later, in Erwin v Strand Electric Light Co , ^[70] the Full Court of the Supreme Court of New South Wales had before it a case brought by the personal representative of a deceased apprentice who had died as a result of an industrial accident in the defendant employer's premises. The defendant is described as "a company which made electricity and supplied it to customers for the purposes of lighting their shops". At the trial, the trial judge was moved by the defendant to grant a non-suit on a number of grounds, first that the allegation of common law negligence must fail as the apprentice knew and accepted the risk. This ground was upheld. Secondly, that the allegation of failure to fence in breach of the Factories and Shops Act 1896 must fail as the premises were not a factory. Under s 2 of the Act, "factory" was defined to mean:

(a)

any office, building, or place in which four or more persons are engaged directly or indirectly in work at any handicraft or in preparing or manufacturing articles for sale or trade;

(b)

any place or building where steam or other mechanical power or appliance is used in manufacturing goods or packing them for transit.

A non-suit was granted on this ground on the basis that electricity was not an article and, further, that electricity supplied in storage batteries brought to the defendant's premises to be charged was not an article or goods within the paragraphs of the definition. It does not appear what evidence the trial judge acted upon in reaching these conclusions. The third ground was that the plaintiff failed to show any damage. The trial judge made no ruling on this third ground. In the Full Court, the plaintiff's application to set aside the non-suit failed on the third ground. The court expressed no opinion as to the first or the second grounds.

[74] In Bentley Bros v Metcalf and Co , ^[71] a tenant of part of factory premises sought to recover from the landlord the amount which it had to pay in compensation as a consequence of a malfunction of a machine which caused the death of a worker. In the lease the landlord also undertook to supply power from its own engine to enable the fatal machine to operate and the malfunction of the tenant's machine was due to a surge in the power so provided. The allegation of the tenant plaintiff was that the defendant had breached the agreement in that the power supplied was not fit and proper for the disclosed purpose. The Court of Appeal had little difficulty in holding that the supply agreement was a contract for the purchase and sale of something and that it included an obligation that the thing, the power, should be reasonably fit for the purpose. It was not necessary for this purpose for the court to determine whether the thing was goods. In the course of his judgment, Cozens-Hardy LJ said this: ^[72]

[A contract for the supply of power] is a contract to supply something for a particular purpose, and that which is supplied must be fit and proper for use. It is said that power is not a chattel, but it is not material to consider that matter, because, whether it be work and labour or a chattel, it is, at any rate, something that is not returnable to the vendors. That which is supplied is destroyed in the use of it, and there is in fact a purchase of something, whatever it may be called, and it seems to me that the principle which governs the relation of the parties upon a purchase and sale, that the article bought should be fit and proper for the purpose for which it is to be used, is equally applicable to the supply of power.

And in a concurring judgment Barnes P made the following observation: ^[73]

... the evidence in this case does not show any contract restricting the source from which power was to be supplied to any particular engine, and consequently there is a contract in general terms for the supply of power to work the machine hired to the plaintiffs. It seems to me that the implication in such a case is similar to that which arises on the supply of any chattel or other article, which is that the chattel or article supplied should be reasonably fit for the purpose for which it is supplied. So here, the power supplied ought to have been reasonably fit to work the plaintiffs' machine.

[75] County of Durham Electrical Power Distribution Co v Commissioners of Inland Revenue ^[74] was a tax case concerning an agreement under which consumers agreed to take from the distribution company all electrical current used on their premises for motive power heading and lighting. The statute exempted from duty an agreement for the sale of goods. The Court of Appeal did not decide this question since the appeal was dismissed on another point. The judges, however, noted that the parties presented argument on the basis that electrical energy was to be considered "goods, wares or merchandise". Their Lordships expressly reserved the question of whether electrical energy should be so considered for another day, venturing no opinion upon it.

[76] The interesting case of Re Central Heat Distribution Ltd ^[75] was decided in the British Columbia Court of Appeal in 1970. The question was whether the company should be taxed upon the basis that it sold "tangible personal property". The transaction which the company entered into with its customers was for the delivery to them for reward of steam to enable them to heat their premises. It was a term of the supply contract that the steam should, after use, be returned to the company in gaseous or condensate form and that property in this did not pass to the customer. What the customer paid for was simply the heat. It was put that this heat is simply energy and therefore not personal property or tangible personal property. All of the judges were of opinion that the steam was tangible personal property so that it was taxable if sold. Davey CJBC expressly reserved the question whether heat as a form of energy was itself tangible personal property within the meaning of the Social Services Tax Act, RSBC 1960. The two other judges express no view on this matter. The case was decided in favour of the company by a majority, which held that the transaction between the company and its customers did not amount to a sale of anything at all.

[77] The next case in point of time to which I was referred was the 1980 decision of the County Court in England. ^[76] The plaintiff electricity company supplied electricity to a company, AD King Promotions Ltd. In fact there was no such company in existence. The plaintiff sought to recover the value of the supply from the defendant pursuant to s 108(1) of the Companies Act 1948 (UK). Under this provision, the defendant would be liable personally on "an order for money or goods" where the company's full name was not set out in the order as required by the Act. The note of the case with which I was provided records the judge as finding that the claim failed because electricity was not goods. ^[77] His Honour is also recorded as commenting that the defendant's letter appeared to him to be an order for services.

[78] In Lowe v Blease ^[78] the defendant entered premises as a trespasser and there made a telephone call. He was charged with burglary for stealing electricity while using the telephone. The justices accepted the prosecutor's submission that electricity was property within the meaning of s 4 of the Theft Act 1968 (UK) and convicted the defendant. On appeal, Lord Widgery CJ, Milmo and Wien JJ upheld the appeal contending that electricity was not appropriated by switching on a current and could not be described as property within the meaning of s 4. This was a conclusion which was supported by the fact that Parliament had in s 13 created a separate offence of dishonestly using electricity.

[79] The commentary on this case in the Criminal Law Review ^[79] includes the following:

Abstraction of electricity was dealt with as a separate offence under the Larceny Act because of the difficulty of applying it to the common law concepts of taking and carrying away. The same difficulties do not apply to the notion of appropriation. One can "assume the rights of an owner" over electricity as well as, for example, gas. It is a little surprising to find that something which is bought and sold at such a high price is not "property".

[80] I have already referred to the recent New Zealand case of Electricity Supply Association of New Zealand Inc v Commerce Commission ^[80] which concluded that electricity was not a service within the meaning of the Commerce Guarantees Act 1993 (NZ). Neazor J also rejected a submission that electricity was goods within the following definition in the Act:

"Goods" includes --

(a)

Goods attached to, or incorporated in, any real or personal property;

(b)

Ships, aircraft and vehicles;

(c)

Animals, including fish;

(d)

Minerals, trees and crops, whether on, under, or attached to land or not --

but, notwithstanding paragraph (a) of this definition, does not include a whole building attached to land unless the building is a structure that is easily removable and is not designed for residential accommodation.

His Honour reached this conclusion for a number of reasons including that the inclusive nature of the definition meant that the ordinary meaning of the word "goods" was to be considered. This, he contended, included a characteristic of tangibility ^[81] which, I infer, his Honour found to be absent in the case of electricity. His Honour also relied upon indications to the same effect to be found in many of the cases to which I refer in this judgment including a number of Australian cases.

[81] Toby Constructions Products Pty Ltd v Computer Bar Sales Pty Ltd ^[82] was one of the cases referred to by Neazor J. This was a decision of Rogers J in the Supreme Court of New South Wales which raised the question whether a contract for the sale of a computer system comprising both hardware and software was a sale of goods within with the meaning of the Sale of Goods Act 1923 (NSW) and the Trade Practices Act. The definition of "goods" in the Sale of Goods Act is the standard definition in this area of law which is set out in [70] above. It was not disputed that the hardware was goods; the question was whether the software component, the component containing the defects, should be treated separately as a contract for services. This issue was resolved in favour of there being one contract for the sale of the computer system comprising both hardware and software. His Honour concluded that this composite transaction was a sale of goods. This case is therefore remote from the present except that his Honour gave some consideration to the question whether a sale of computer software alone constituted a sale of goods. ^[83] He did not venture a conclusion upon this issue, making it clear that he did not thereby wish to be taken as having the view that software alone may not be goods. I note in passing that, in St Albans District Council v International Computers Ltd , ^[84] Sir Iain Glidewell expressed the opinion on this topic that the disc on which the software resides is clearly within the definition of goods but that the program itself is not.

[82] Reference was also made in the Electricity Supply Association of New Zealand Inc case to the Full Federal Court decision of ASX Operations Pty Ltd v Pont Data Australia Pty Ltd . ^[85] This was a case which turned on the definition of goods in the Trade Practices Act, s 4(1). This is an inclusive definition and amongst the inclusions are "gas and electricity". The case concerned a company which transmitted electronically to subscribers in real time mode certain stock exchange information. It was contended that the arrangements pursuant to which this was done constituted price discrimination between purchasers of goods of like grade and quality contrary to s 49 of the Trade Practices Act. The trial judge concluded that, as Parliament had intended electricity to fall within its definition of goods, it should be taken to include within this definition encoded electrical impulses which the company was transmitting. On appeal, counsel for the respondent conceded that his Honour's conclusion was not correct. In acknowledging that the concession was properly made, the Full Court mentioned that Rogers J in the Toby Constructions case had left open the question whether software by itself may be goods. They observed that this question remained open. ^[86]

[83] I come now to the recent decision of the Federal Court in State Electricity Commission of Victoria v Federal Commissioner of Taxation in which the SECV sought a declaration that certain transformers used in electricity distribution were exempt from sales tax. The relevant exemption was that where the items were mainly used in carrying out a "manufacture related activity". This expression was defined in the legislation to mean applying a process or treatment to goods. And so, the question became whether electricity was goods within the meaning of the sales tax legislation. In the legislation, goods was given an exhaustive definition of "any form of tangible property" with certain immaterial qualifications. At first instance ^[87] the court decided that electricity was not goods as so defined. In so concluding, Ryan J was of opinion that electricity was not property because it was not possible to attach rights of ownership to any particular "piece" of electricity. ^[88] No submission was addressed on behalf of the commissioner that the property was not tangible. ^[89] In the result, his Honour held that the transformers were not exempt from sales tax.

[84] Upon appeal to the Full Federal Court ^[90] counsel for the commissioner conceded before the court that electricity and electrical power were goods as defined in the legislation. Of this concession the majority said this: ^[91]

[23] In our view that concession was correct. The qualifier "tangible" primarily has the effect of excluding choses in action. Clearly electric power is something subject to the dominion of United. It can be transported from place to place. It can be bought and sold. Other provisions of the Exemptions Act are consistent with electricity or electrical power being goods: s 10(1)(d)(vii), Sch 1, Items 18(3)(d)(1) and 56: see also explanatory memorandum, par 6.7.

And later they added:

[28] In the context of the Exemptions Act, and in particular Item 18, the tangible "goods" brought into existence for sale in the present case is electrical energy. Energy is a function of power over time. That is the "commodit[y] of commerce" ^[92] which is bought and sold. The commodity is electrical energy, rather than electric current having a particular voltage. On this view, a change in current or voltage does not result in the manufacture or production of a different commodity or different goods.

[29] Notwithstanding what was said by the learned primary judge, electrical energy can be bought and sold, as such, in a quantifiable amount or by the piece. A consumer purchases and consumes energy by turning on a switch and subsequently turning it off.

Carr J dissented on factual aspects of this passage.

[85] Nor do the United States sale of goods cases resolve these uncertainties. They are, of course, decided against the background of the definition of "goods" in the Uniform Commercial Code:

"Goods" means all things (including specifically manufactured goods (which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action.

The emphasis in this definition is on moveability, rather than tangibility.

[86] In Helvey v Wabash County REMC ^[93] the plaintiff sued for damage to household appliances caused by a surge in power supplied by REMC. The defendant relied upon a four year limitation available only for actions for breach of contracts of sale so that the court had to determine whether electricity was goods for the purposes of the contract of sale within the meaning of the Uniform Commercial Code. The plaintiff conceded that electricity was legally considered to be personal property, that it is subject to ownership and may be bought or sold. As to the application of the definition, the Court of Appeal said this:

It is necessary for goods to be (1) a thing; (2) existing; and (3) movable, with (2) and (3) existing simultaneously. We are of the opinion that electricity qualifies in each respect. Helvey says it is not movable and in this respect we do not agree, if for no other reason than the monthly reminder from the electric company of how much current has passed through the meter. Logic would indicate that whatever can be measured in order to establish the price to be paid would be indicative of fulfilling both the existing and movable requirements of goods.

[87] To the contrary may be the decision of the Court of Appeals of Michigan in Buckeye Union Fire Insurance Co v Detroit Edison Co , ^[94] where the claim arose from a fire which destroyed a building as a consequence of faulty power supplied by the defendant. One basis for the claim was for breach of implied warranties of fitness and merchantability of the electricity supplied. The trial judge non-suited the plaintiff on the breach of warranty claim on the basis that electricity was not a good or commodity to which the warranty could attach. On appeal, the court was "inclined to agree with the trial court" ^[95] that electricity was not a good as defined in the Uniform Commercial Code, but was of opinion that similar warranties should apply to the sale of services. The respondent, however, succeeded on another basis.

[88] These and other cases were reviewed by the Hamilton County Municipal Court, Ohio in Cincinnati Gas and Electric Co v Gobel , ^[96] another case concerning the applicability of the sale of goods limitation period. In reviewing the cases, Judge Hogan drew a distinction between "raw electricity encountered in unmarketed and unmarketable state in the overhead transmission cable" which is not a good and "metered electricity sold in consumer voltage and passed into the household system" which was held within the definition. ^[97] Since the offending electricity in the case before the court was of the latter kind, it was goods so that the claim was barred by the sale of goods limitation period.

[89] Faced with this mass of material, I turn for guidance to the text and the context of the statute. Section 419(1), like its counterpart, s 443A, uses terminology which has been unchanged for some 70 years -- "services rendered, goods purchased or property hired, leased, used or occupied". I infer that it was the intention of Parliament to cast its net widely and it may be supposed that the expressions "services rendered" and "goods purchased" would be taken to cover most, if not all, acquisitions which a receiver might cause a company to make (other than real estate purchases) for the continuance of its trading. I, too, will interpret these expressions in a broad rather than a narrow way.

[90] The word "goods" as part of the expression must be related to a debt of a particular kind. It is reasonable, therefore, to construe it as an expression used in a legal sense rather than a popular sense, if there be any difference. Moreover, the juxtaposition of the expressions "services rendered", "goods purchased" and "property hired, leased, used or occupied", suggests that the drafter had in mind the common counts which were available for these kinds of causes of action. This strongly points to the conclusion that "goods" was intended to signify deliverable personal property of whatever kind. I accept that this is the proper construction of the word in the present context. In so far as the word in common usage has a characteristic of tangibility, I share the view of the Federal Court that the electricity which was the subject of the supply agreement in this case meets that description. I refer to what I have described as the commercial characteristics of electricity. ^[98] I conclude that the thing for which F & T is liable under the supply agreement, that is, the electricity which has passed through the meter and has been consumed virtually instantaneously by F & T, is goods which F & T purchased. Accordingly, the receiver who has relevantly incurred this debt, is liable for it pursuant to s 419(1).

[91] This is sufficient to dispose of this case, nevertheless in case it may go further and, in deference to the submissions of counsel, I will briefly express my views on the third suggested basis for fixing liability on the receiver for electricity supplied. This involves a consideration as to whether the debt to AGL is one for product used.

Electricity supply as product used

[92] In any ordinary sense of the word "used", the electricity which flows into the circuits of F & T has been used. It no longer exists, at least in the form in which it was received. But in Associated Newspapers Ltd v Grinston , ^[99] Street J considered that the word "used" should be read down having regard to its context in the phrase "hired, leased, used or occupied". This restricted meaning has been adopted by Young J in Commonwealth Bank of Australia v Butterell . ^[100] In neither of these cases was it clear what precisely was this restriction.

[93] To my mind, the context suggests that the first two expressions dealt with the acquisition of goods and services. "Goods" falls within the meaning of "property", a word which is defined in s 9 of the Corporations Act in very broad terms:

"property" means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.

This suggests that the verb "used" in the third expression means something other than purchased and used. This is confirmed by the accompanying verbs hired, leased and occupied. I conclude, therefore, that the restriction referred to is that the third expression deals with a debt which arises where the property has become available for the company's commercial purposes otherwise than by purchase. Accordingly, a debt arising from the purchase of property does not fall within the third category of debt, notwithstanding that the property has been consumed in the commercial activities of the company.