ARROW v SPORTSWORLD GROUP

COUNSEL : Mr M. Christie for the plaintiff Mr M. Orlov for the defendant SOLICITORS : Murray Stewart & Fogarty for the plaintiff Messrs Gray & Perkins for the defendant CATCHWORDS : Corporations Law. Application to set aside demand. Whether a claim based upon a total failure of consideration is a debt within the meaning of s 459E. Held that it is a debt for the purposes of the section. Defects in the affidavit verifying statutory demand. Held that compliance with Queensland rules is sufficient. Summons dismissed. CASES CITED : B&M Quality Constructions v Buyrite Steel Supplies (1995) 13 ACLC 88 at 90-91; Jesseron Holdings Pty Limited v Middle East Trading Consultants Pty Limited (1994) 13 ACSR 455 at 460; Commissioner for Corporate Affairs v Bracht (1989) VR 821 at 830; Aspermont Ltd v Robash Pty Ltd (1998) 16 ACLC; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382; Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 375; Molit Pty Limited v Lam Soon Aust Pty Limited (1996) 21 ACSR 157; Shephard v ANZ Banking Group (1997) 41 NSWLR 431; Zanjill Pty Limited v Sydney Autolack Centre Pty Ltd (5.12.99). DECISION : Para 31

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3969 of 1999 ARROW ASSET MANAGEMENT PTY LIMITED v SPORTSWORLD GROUP PLC JUDGMENT 1 MASTER: This is an application to set aside a statutory demand served by the defendant on the plaintiff. The demand was dated 19 August 1999 and sought repayment of $400,000. The description of the debt in the demand was "Deposit paid under agreement made between the company and the creditor dated 21 March 1997, repayable by reason of the company's repudiation of the agreement." 2 The agreement in question was one for the provision by the plaintiff as operator and Horwath Corporate Pty Limited as owner of rooms and related services during the Olympic period to the defendant. The provision of rooms and related services was in a hotel which was specified in the agreement as being the Astor Apartment Management Hotel in Sydney. 3 Although when the proceedings were first commenced there was on the affidavit evidence an issue as to whether or not the $400,000 referred to in the demand had been paid by the defendant to the plaintiff the plaintiff now concedes that the amount was paid to it. The grounds upon which it is sought to set aside the notice are fourfold. They are:-

1. A defective affidavit. It is suggested that the affidavit was not sworn by an appropriate person with knowledge of the facts.

2. A defect in the demand. This relates to the description of the debt claimed in the demand.

3. A genuine dispute as to whether the $400,000 is in the circumstances which have happened, repayable.

4. A genuine dispute as to whether the plaintiff was liable as it was alleged to be the agent of the owner of the hotel. 4 I will deal with each of these matters in turn.

1. A defective affidavit. It is suggested that the affidavit was not sworn by an appropriate person with knowledge of the facts.

5 The affidavit in support of the statutory was sworn by Anne Nicolai Irvine. She swore the affidavit on the 19 August 1999. Her affidavit was in the usual form in which she swore that she had knowledge of the facts of the matter and that she had examined the books and records which indicated that the debtor had not repaid the monies. The plaintiff in submissions relied upon comments by His Honour Mr Justice McLelland, Chief Judge in Equity in B & M Quality Constructions v Buyrite Steel Supplies (1995) 13 ACLC 88 at 90-91. "In my opinion the departure from the relevant rule in respect of the affidavit accompanying the statutory demand is a matter of substance. The requirement of that rule, as to the identity of the person making the affidavit accompanying the statutory declaration, is designed to serve the public interest as well as to protect the company against unwarranted demands, by endeavouring to ensure, within practical limits, that the person who must put his or her oath or solemn affirmation to the relevant matters (and thereby risk a conviction for perjury if a knowingly false statement is made) is the person associated with the creditor who is most likely to have direct knowledge of those matters. It is important in this regard to bear in mind that the relevant matters include not only a belief as to the existence and amount of the debt, but also a belief as to the absence of any genuine dispute about the existence or amount of the debt. The express requirement in the rule that the person making the affidavit depose to his or her belief that there is no genuine dispute is a significant mechanism for filtering out cases where there is in fact such a dispute, so as to prevent such cases from reaching the Court on such an application as the present, with a consequent waste of time and resources. This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit. A statement of a belief that there is no genuine dispute based solely on hearsay is unlikely to have anything like the same degree of reliability. I therefore do not regard what has occurred in the present case as a merely technical breach of the rules. It goes to the heart of what Part 80A rule 15 was intended to achieve." 6 In particular the submissions fastened upon the expression, "This mechanism would be substantially weakened unless a person likely to have personal knowledge of the existence of a dispute if there is one makes the affidavit". 7 The evidence before me established that the deponent was the Olympics Programme Manager Sportsworld Group of the defendant. Apparently she started with Sportsworld in September 1997 and was moved over to work for the particular defendant in July 1999. The defendant is a company which is incorporated in England and has its principal place of business in that country. Its directors reside in England as do its shareholders. The company's business in Australia is primarily the organisation of ground operations for sponsors of the Olympic Games and for members and guests of various national Olympic committees. Its responsibilities include contracting arrangements for hotel bookings, transport and air travel and related matters. The duties of the deponent involve the management of the defendant's activities in Australia. The defendant has two employees in Sydney, the deponent, Miss Irvin, and an accounts manager. The deponent reports directly to the directors in England. She effectively manages the defendant's activities in Australia and the accounts manager reports to her. 8 The submissions of the plaintiff concentrated upon the fact that the negotiations for the agreement in question occurred in 1997 the agreement itself having been made on 21 March 1997 prior to the deponent's employment by the defendant or one of its related companies. 9 Given her responsibility the deponent is an officer within the definition in 82A of the Corporations Law. See Jesseron Holdings Pty Limited v Middle East Trading Consultants Pty Limited (1994) 13 ACSR 455 at 460 and Commissioner for Corporate Affairs v Bracht (1989) VR 821 at 830. In the present case the arrangements surrounding the entering into the agreement are really not necessary for an understanding of the defendant's claim made in the statutory demand. The claim is a simple one based upon the existence of an agreement, its repudiation, acceptance of the repudiation and the non-payment of the sum of $400,000 paid pursuant to the agreement. Given the extent of what was required to be investigated by an officer it is clear that a consideration of the records of the company would have enabled her to have sufficient knowledge. In these circumstances I am satisfied that she was an appropriate person to swear the affidavit. In the event that this is wrong it should be noted that in the evidence it is clear that she had knowledge of matters prior to July 1999 because of her employment in Australia by other associated companies of the defendant. 2. A defect in the demand. This relates to the description of the debt claimed in the demand.

10 In order to understand this ground it is necessary to set out a little of the background to the matter. As I have said the agreement was entered into on 21 March 1997 and dealt with the provision by the plaintiff of rooms during the Olympic period. The rooms were to be provided in a specified hotel and the agreement provided that certain rates of payment to be made for accommodation. It also provided for a deposit of $400,000 to be paid to the operator on execution of the agreement. By letters of 10 April 1997 the defendant agreed that the sum of $400,000 could be utilised for pre-opening and operational expenses of the hotel and that it be treated as a credit against the total amount payable under the contract in respect of accommodation at the hotel. On 20 April 1999 His Honour Mr Justice Young ordered that the owner Horwath wind up the trust for the hotel and on 27 April 1999 the hotel ceased to operate. Clause 7.1 of the agreement provided that if the plaintiff's right to operate the hotel was terminated then it was obliged to cause any new operator to enter into a similar agreement with the defendant. On12 May 1999 the defendant called upon the plaintiff to remedy the default under clause 7. As there was no response the defendant's solicitors by letter of 13 August 1999 wrote to the plaintiff in these terms:- " Our Client - Sportsworld Group PCL As you are aware, we act for the about company. You are no doubt also aware that on 21 March 1997 our client entered into a contract with your company by which your company undertook to provide rooms and related services to our client during the Olympic Games at the Astor Apartment Management Hotel. Pursuant to the agreement, a deposit of $400,000 was paid upon account of the accommodation sum as defined within the agreement.

It is apparent from events that have occurred over a period of time since the end of last year that your company has repudiated this agreement. In these circumstances, our client accepts the repudiation and now terminates the agreement. Our client holds your company liable in damages both liquidated and unliquidated. In relation to liquidated damages, our client now demands the return of the deposit paid under the agreement in the sum of $400,000 and requires this amount to be paid within the next 7 days." 11 Thereafter the demand was served and it claimed an amount in the terms which I have quoted earlier. In submissions it was suggested that this was not an appropriate description of the claim for repayment which clearly is based upon a total failure of consideration. The submissions were to the effect that the description of the debt in the schedule leaves one not knowing whether it is a claim for damages or restitution. In submissions reference was made to Aspermont Ltd v Robash Pty Ltd (1998) 16 ACLC. That was a case where the description of the debt was one which included, "Monies lent or paid on behalf of the creditor". It also became apparent that part of the claim was a restitutionary claim. His Honour in those circumstances thought that the demand was defective. He said: "The debt is not 'specified' because it is put on alternatives bases in so far as it has a restitutionary basis and the essential element of the claim, namely, the conferring of a benefit on the company, is not apparent from the demand in relation to the amounts of $6,000 and $500." 12 His Honour, however, held that the defect would cause no substantial injustice. 13 Although the submissions referred to the ambiguities inherent in the nature of the claim as it appears from the letter accepting the repudiation of the contract, it is more important to concentrate on the words in the demand. That description by the use of the word "repayable" is setting out clearly the nature of the claim and the words are not apposite to the convey a suggestion of a claim for damages. The submissions suggested that the description should have included the words, "in acceptance of the repudiation" and "an election to seek restitution". For my part I would have thought that what is set out in the schedule would be understandable by a lawyer who would naturally have to deal with the claim on behalf of the company. 14 Even if it were a defect the question that would then arise would be whether it would cause any substantial injustice because this must be established before the demand can be set aside. In the affidavits in support of the application no suggestion was made of any substantial injustice at a practical level and what was articulated in submissions was the difficulty facing someone who had to respond within 21 days to what might be a damages claim or a restitutionary claim. The plaintiff seems to have been able to gather its evidence together and deal with the restitutionary claim aspects without any difficulty. Accordingly, I am not satisfied that there is any substantial injustice and I decline to set aside the demand upon this ground. 3. A genuine dispute as to whether the $400,000 is in the circumstances which have happened, repayable. 15 It worth noting how the defendant puts his claim for the $400,000. The contract provided specifically for the provision of rooms in the Astor Apartment Management Hotel, not in any other property. The closure of the hotel necessarily meant that the plaintiff could not perform its obligation to provide rooms at the hotel at the time of the Olympics. In these circumstances there was an anticipatory breach amounting to a repudiation of the contract. Such repudiation was accepted by the letter dated 13 August 1999. There was of course no need for the plaintiff to decide at that stage what course it would take. No doubt if proceedings were commenced it would at some stage be bound to elect whether or not it would claim damages for breach or seek restitution of the monies paid. All that was necessary in the letter of 13 September 1999 was for there to be an acceptance of the repudiation of the plaintiff. As the plaintiff's obligations under the contract were wholly executory there has been a total failure of consideration; see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382. In these circumstances the law requires that the money be repaid; see Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 375. The source of the obligation to repay money received for a consideration which has wholly failed is now seen as being grounded in restitutionary principles based upon unjust enrichment. 16 The plaintiff's submissions relied in particular upon the suggestion that the obligation to make restitution is not a debt but a claim of a different character which does not fall within the appropriate description of a debt for the purposes of the Corporations Law. A statutory demand can only be issued for recovery of a debt as referred to in s 459E of the Corporations Law and is not available, for instance, to allow recovery of a claim for unliquidated damages. 17 In this regard there is authority dealing with what is a debt for the purposes of the Corporations Law. In Molit Pty Limited v Lam Soon Australia Pty Limited (1996) 21 ACSR 157 Branson J was concerned with the meaning of the word "debt" which is in s 443A(1) of the Corporations 18 Law. On this aspect at page 159 Her Honour had the following to say:- "Mr Clayton referred to the well recognised distinction between the incurring of a debt and the incurring of a liability for unliquidated damages (see Ogdens Ltd v Weinberg (1906) 95 LT 567; Young v Queensland Trustees Limited (1956) 99 CLR 560; Hawkins & Ors v Bank of China (1992) 26 NSWLR 562). The following passage from the speech of Lord Davey in Ogdens Ltd v Weinberg at 567 has been frequently quoted:- 'The word "debts", no doubt, means something recoverable by an action for debt, and nothing can be recovered in an action for debt except what is ascertained or can be ascertained. A claim for an amount which is uncertain, and cannot be adjusted in an account, cannot, I think, be justly called a "debt".' There is authority for the proposition that the term "debt" is used in the Corporations Law in its usual sense which invokes the well recognised distinction between a debt and a liability for unliquidated damages (Jelin Pty Ltd v Johnson & Anor (1987) 5 ACLC 463; Commonwealth Bank of Australia v Butterell (1994) 14 ACSR 343). Nothing in the language of s443A(1) of the Corporations Law, or in the context in which it is found, suggests, in my view, that the term "debt" is not used in that section with its usual meaning. In its usual meaning it does not include a claim for damages for a failure to comply with a covenant in a lease to make good damage caused to the leased premises." 19 It would seem to me that the same principles that are referred to by Her Honour would apply to s 459E of the Corporations Law. Reliance was placed by the plaintiff upon Shephard v ANZ Banking Group (1997) 41 NSWLR 431. That was a case where there had been no election to accept a repudiation and accordingly the court was concerned as to whether a debt had been incurred at certain defined stages prior to an acceptance of the repudiation. Giles AJA at 434 talked of the meaning of a debt in these terms:- "A debt might have been incurred for the purposes of s556(1) notwithstanding that it was a contingent debt, in the sense of the undertaking of a conditional but unavoidable obligation to pay a definite sum of money at a future time. So in Hawkins v Bank of China giving a guarantee of payment of an existing debt was held to be the incurring of a debt, and in Commissioner of State Taxation v Pollack (1994) 12 ACLR 28 employing an employee in respect of whom pay-roll tax must be paid was held to be the incurring of a debt although the amount could only be ascertained in the future. 20 He went on to describe the restitutionary claim in these terms at 435. "The contingent obligations were of a very different kind from the contingent debt in Hawkins v Bank of China. They depended upon failure by Holdings to perform within a reasonable time, upon the customers' elections to terminate the contracts rather than to keep them on foot, and upon the circumstances being such that in the absence of restitution there would be unjust enrichment and no defence such as a change of position. The first contingency was up to a point within Holdings' control, though not inevitably so. The second contingency was not, but was a necessary event for recovery of the deposits because the restitutionary remedy was not available until the contract had been discharged. If the circumstances called for a remedy to prevent unjust enrichment, the restitutionary obligation was imposed by law rather than by agreement of the parties, and arose at the time the consideration for which the deposits were paid failed, that is, when the contracts were validly terminated for non-performance: see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 389." 21 Abadee AJA, with whom Meagher JA agreed, dealt with restitutionary claim at 442 in these terms:-

"Thus, returning to what might be regarded as the core submission of the respondents, it is that a customer has a restitutionary remedy if he or she terminates future performance of the contract and seeks recovery of the money paid under it. This remedy does not arise under the contract, and arises only when the contract has been so terminated by election. The basis of the remedy is that in the absence of the customer receiving the agreed performance or its equivalent in unliquidated damages, the law recognises it as unjust that the company continue to retain the purchase moneys received at the expense of the customer. The law then imposes the restitutionary obligation on the company. The restitutionary obligation is "incurred", if at all, only at that time. Thus, in this case no restitutionary obligation and hence no debt was incurred at any of the stages asserted by the appellant. In my view the respondent's submissions should be accepted as reflecting a correct analysis of contractual principles and restitutionary law and an appropriate application of them to the facts. 22 The restitutionary claim with which he was dealing was one which was based upon a total failure of consideration and his remarks are thus particularly apposite to the present case. Clearly both judges are of the view that a debt arises, when based upon a total failure of consideration upon acceptance of the repudiation. 23 In submissions I referred to His Honour's comments about the defence of change of position. In the context of the plaintiff or some other body having expended the $400,000 the question arose in argument before me as to whether that might be some change of position. Given the terms of the contract as varied which allowed the use of that sum by the plaintiff it does not seem to me that that fact of itself is a change of position. Accordingly, it seems to me that quite clearly the restitutionary claim based upon total failure of consideration is a debt within the meaning of that expression in the Corporations Law and there can be no genuine dispute in this regard.

4. A genuine dispute as to whether the plaintiff was liable as it was alleged to be the agent of the owner of the hotel.

24 During the hearing I rejected from the supplementary affidavits filed outside the 21 days period various allegations which might go to an argument that the plaintiff merely received the monies as agent for the owner of the hotel. At the time I gave my reasons and referred to a number of cases in support of those reasons. Subsequently I have also been referred to a further case, namely, a decision of Hill J in Zanjill Pty Limited v Sydney Autolack Centre Pty Ltd 5 December 1997. That case does not cause me to change the view which I took. Indeed His Honour considered the matter to be arguable. 25 There did remain, however, some evidence in the original affidavit that was filed within time. This included in paragraph 5 that the trustee of the Astor Apartment Hotel was Horwath Corporate Pty Limited and that the managing agent was the plaintiff. Clause 8.1 of the agreement of March 1997 was as follows:- "8.1. If at the date of this agreement the operator is operating the hotel as agent for the owner then the owner by entering this agreement assumes the obligations and liabilities of operator and shall be responsible therefor as if it had entered this agreement as the operator." 26 The submissions of the plaintiff fastened upon the word, "assumes" in this clause and suggested that thereby the owner was liable to the exclusion of the agent. The general principles of agency law in this regard are conveniently referred to in Australian Trade Commissioner v Goodman Fielder Industries Limited (1992) 36 FCR 517 at 521. Before turning to the particular statutory provisions which have given rise to the questions of law that are before us, it is appropriate to refer to some settled propositions of the law of principal and agent. In Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 53 at 59-60 Donaldson J said that an agent can conclude a contract on behalf of his principal in one of three ways:

(a) By creating privity of contract between the third party and his principal without himself becoming a party to the contract.

(b) By creating privity of contract between the third party and his principal, whilst also himself becoming a party to the contract.

(c) By creating privity of contract between himself and the third party, but no such privity between the third party and his principal. In considering the issues which arise on this appeal it will be important to bear in mind, in particular, category (b). Donaldson J's decision, as regards questions of agency, was affirmed by the Court of Appeal: see Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545. Earlier, in Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370 at 372 Wright J said, describing it as an important proposition, that: "[I]n all cases the parties can by their express contract provide that the agent shall be the person liable either concurrently with or to the exclusion of the principal, or that the agent shall be the party to sue either concurrently with or to the exclusion of the principal." The effect of the authorities was summed up by Mr F M B Reynolds in Chitty on Contracts (25th ed, 1983), Vol 2, Ch 1. Mr Reynolds wrote - "The fact that a person is an agent and is known to be so does not, however, of itself necessarily prevent him incurring personal liability. Similarly he may be entitled to sue. Whether this is so is to be determined by the construction of the contract, if written, and by its nature and the surrounding circumstances. When the agent does contract personally the scope of the contract which he makes requires careful analysis. He may undertake sole liability to the exclusion of his principal: conversely he may undertake joint liability on the main contract together with his principal. He may act as surety for his principal, or enter into a collateral contract with its own terms. The possibilities shade into one another, and there is no general rule." See also the commentary by the same author on Art 105 of Bowstead on Agency (15th ed, 1985), pp 426-429, and Scott v Geoghegan & Sons Pty Ltd (1969) 43 ALJR 243 at 245, per Taylor J." 27 The question of whether the agent has personal liabilities can be determined quite easily by a perusal of terms of the contract. The following clauses clearly indicate a personal liability of the agent to perform under the agreement.

7.1 Obligation to have new operator enter agreement.

14. Solving complaints of Guests. 28 In addition, the provision of clause 11.1 which deals with default shows that the obligations owed by the owner and operator are distinct. 29 It does not seem to me to be arguable that the operator does not have any liability under the agreement or that its liability is "assumed" by the owner under clause 8.1. All that clause does, in effect, supply a guarantee by the owner of the hotel for the existing liability of the operator. 30 In the circumstances the matter is so clear that I am of the view that there is no genuine dispute as to the plaintiff's liability to refund the deposit. 31 I order that the Summons be dismissed and that the plaintiff pay the defendant's costs.

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