BARTERCARD LIMITED v WILY & ANOR

Court of Appeal (NSW)|2001-07-31|Before: Handley JA, Sheller JA, Powell JA, Austin J, Per Sheller JA

Background 4 Bartercard operated a reciprocal trade exchange by which members of its trading programme exchanged goods and services between themselves. The value of the exchanged goods and services was recorded in "Bartercard Trade Dollars". Bartercard was the record keeper and directed members to each other for the purpose of facilitating trade transactions. It charged transaction and membership fees. Bartercard also acted as a franchisor granting franchises or licences to selected entities to operate within a specified geographical boundary. Its franchisees were referred to as "brokers" and licensed to use the name "Bartercard" and draw a commission on trading volume and cash transaction fees collected. Bartercard provided credit to members and brokers. Before 28 August 1996 BBX was operating a business as a reciprocal trade exchange under a licence agreement with Bartercard dated 1 July 1994. 5 On 28 August 1996 Bartercard terminated the licence agreement with BBX. At that date BBX was indebted to Bartercard in the amount of $656,292. The circumstances in which the licence was terminated are central to the issues raised in this appeal. What follows is a summary of the primary facts found by Austin J. Bartercard did not challenge these findings. 6 BBX was formed in 1991 to purchase a barter exchange business in the Central Coast area north of Sydney from Bartercard. BBX's principal director and shareholder was Colin Butcher. From 1991 to 1994 BBX conducted that business as an independent barter exchange. It operated in a manner broadly similar to that of Bartercard already described. The business grew and extended into the Newcastle area. By June 1994 it had approximately five hundred members. 7 By letter of 1 June 1993 Wayne Sharp, then the managing director of Bartercard, put to BBX a proposal aimed to establish a national network within which BBX members would trade. BBX would cease to be an independent barter exchange, and become a franchisee of Bartercard. Bartercard would assist BBX with staff training and systems. According to the letter one of the benefits of the change would be to "ensure a full sale value, as a Bartercard brokerage of approximately $150-200,000 net" compared with an estimated $120-150,000 as a separate exchange. 8 Negotiations in the first half of 1994 resulted in the execution of agreements on 1 July 1994. One of those agreements was for the "conversion" of BBX members to Bartercard membership. Because BBX contemplated selling the Newcastle franchise separate licence agreements were made for the Central Coast and Newcastle areas. The licences were each for a term of five years with a right of renewal for another five years. Neither licence was to be assigned without the prior written consent of Bartercard but that consent could not be unreasonably withheld. The licences were non-exclusive licences to operate the business of providing and facilitating trade for Bartercard members in the designated locality. BBX was to receive 70 percent of the "cash transaction net fees" applicable to trade by the members assigned to the designated locality. Bartercard had the right to terminate the licence agreement immediately on various grounds including (clause 14.3(a) and (b)) BBX's "repeated and persistent breaches of any duties, obligations and responsibilities required to be performed or observed" by it under the agreement or if BBX passed a resolution to wind up voluntarily or suffered a winding up petition or order to be presented or made against it or entered into any arrangement, reconstruction or composition with its creditors or was otherwise unable to pay its debts. 9 In June 1995 BBX sold the assets of the Newcastle business (comprising the licence, goodwill, plant and equipment and debts to the business) to a Bartercard subsidiary for $107,828.67. The purchase price was apportioned as follows:

Licence fee and training $70,000 Goodwill $29,828.67 Plant, fitting and chattels $3,000 Debtors $5,000

10 Mr Butcher said in evidence that BBX suffered a downturn in trade as a result of the changeover to Bartercard. Some existing members declined to join Bartercard because they would be required to pay a joining fee. Staff were diverted from promoting the business so as to undertake training programmes in Bartercard procedure and systems. In early 1996 Mr Butcher decided to end his involvement in the barter industry and to sell the Central Coast licence. On 18 March 1996 he wrote to Bartercard saying it was time for him to move on because he had "run out of steam". His letter envisaged that there would be an amount of money payable to him (more precisely to BBX) upon the sale of the Central Coast licence, although he acknowledged that a substantial debt was owing by BBX to Bartercard. 11 The sale of the Central Coast licence was advertised and negotiations took place with two potential purchasers. Mr Butcher, in a letter of 28 May 1996, suggested three alternative methods for valuing an existing brokerage, producing valuations for goodwill of $397,184, $225,000 and $232,500 respectively. One potential purchaser replied on 3 June 1996 expressing the view that $90,000 was a more appropriate value of the business and rejecting Mr Butcher's proposal. The other potential purchaser had in the meantime purchased the Newcastle licence from Bartercard. He offered to purchase the Central Coast licence, but Bartercard rejected him as a licensee, evidently because he was already the Newcastle licensee. 12 On 27 August 1996 Trevor Dietz, the general manager of Bartercard, spoke to Mr Butcher by telephone. Mr Dietz said that BBX's trade debt had reached 650,000 trade dollars and that it would be "mission impossible to fix from it there". Mr Butcher said he had a "cash flow problem" on the following weekend for payment of wages. Mr Dietz asked him to send a facsimile detailing his requirements. Subsequently, Mr Butcher sent a facsimile outlining cash requirements for wages, commission and rent of $6,519.48. A meeting was arranged for the next day. 13 Mr Butcher's meeting with Mr Dietz on 28 August 1996 took place at 9.40am in a motel at Artarmon. Mr Butcher expected the meeting to be with Dominic Circosta but he was not present. In Mr Butcher's presence, Mr Dietz made a phone call saying words to the effect: "Dominic, its Trevor. I am with Colin Butcher. You can proceed to the Central Coast office." Mr Butcher said that he had no clear recollection of exactly what was said at the meeting. The failure of BBX had led to his own and his wife's bankruptcy. The events of the time were very traumatic for him. Mr Dietz gave Mr Butcher a bundle of draft documents and asked him to sign where appropriate. In his affidavit of 5 March 1999 Mr Butcher listed twelve separate documents (a) to (l). Austin J adopted this listing in his reasons for judgment. Document (a) was a deed of release between BBX and Mr and Mrs Butcher, of the first part and Bartercard of the second part, to be under the seal of Bartercard and BBX and signed by Mr and Mrs Butcher. After reciting that Bartercard had terminated the licence on that day, BBX released Bartercard from any future liability that might arise under the licence and any claims connected with the licence and released and indemnified Bartercard against any debts arising out of the conduct of the business in the licensed area. 14 Document (b) was a memorandum from Mr Butcher to Bartercard to be signed by Mr Butcher by which Mr Butcher acknowledged and undertook to observe and comply with the obligations under clause 9.4 of the licence agreement and, inter alia, accept restraint on Mr Butcher's competing with Bartercard during a defined period in particular areas described and to keep certain trade information confidential. The consideration for this was Bartercard's undertaking to negotiate with the landlord/lessor of BBX's business premises at 26 Karalta Road, Erina so as to transfer the lease and the liabilities from the date of transfer from a BBX associated company to a subsidiary in the Bartercard group, Barter North Pty Limited. 15 Document (c), a document of central importance to this litigation, was to be signed by Mr Butcher for and on behalf of BBX and was in the following terms: "I acknowledge and agree personally and for and on behalf of the Company and my wife to observe and comply with the following: 1. That BCL has properly terminated its Licence Agreement to the Company effective from 28th August 1996. 2. Trade dollar debt to BCL in the Company's Brokerage account for the sum of $……. and in the Brokerage Scrip account for the sum of $…….. 3. The Company's obligations under Clause 14.5 of the Licence Agreement to zero the account within 60 days from the date of termination of the Licence Agreement and if after the expiration of 60 days any lines of credit which have not been repaid shall be payable in cash. 4. Payment as per attached formula (my emphasis) by BCL to the Company is a fair and equitable sum attributable to the value of the Brokerage and shall offset the debt owed by the company to BCL. 5. To pay all entitlements to employees of the Company in respect of wages, salaries, annual sick leave and superannuation and the Company agrees to indemnify BCL and keep BCL indemnified against all claims, costs and expenses associated with the obligations of employment or engagement of employees in respect of accumulated wages, salaries or other emoluments, annual sick leave and superannuation made against BCL or any employee in respect to any employment up to the date of possession by BCL. 6. To forfeit all commissions due to the Company pursuant to Clause 14.4 of the Licence Agreement from the date of termination. 7. That the termination of the Licence Agreement in no way confers any liability upon BCL with respect to any debts due and owing by the Company and/or the business being conducted under the business name 'Bartercard Central Coast'. 8. To deliver to BCL any signs, manuals, audio visual recordings, computer software, official receipt books, client files, stationery, instruction notes, writings and any other documents relating to the business and further acknowledge and agree to cease to exploit in any way whatsoever the business name, logo, trademarks, proprietary marks and other industrial and intellectual property including techniques and procedures owned by BCL or developed by BCL and used by the Company in respect of the business and all rights granted under the Licence Agreement with respect to the 'Bartercard' marks, logos and business names shall revert to BCL. 9. To take all steps necessary to effect the assignment of the Lease with respect to the premises situated at 26 Karalta Road, Erina, NSW, 2251 within 30 days from the date of termination if BCL desires and agrees to take over the Lease. 10. To keep the herein terms of settlement confidential and not to disclose the contents herein to any person, corporation or any other entity now or in the future unless required for the purposes of court proceedings." 16 The "attached formula" referred to in para 4 of document (d) in Austin J's list, purported to value the brokerage at $110,020. The value was calculated by taking the average trading volume and cash fee collection for the three months preceding 28 August 1996 and then extrapolating that figure over a twelve month period. Document (d) was prepared by Bartercard's Financial Controller, Stephen Harris. 17 Documents (e), (f), (g) and (h) were respectively, a fee payment report for the Central Coast brokerage, a statement for BBX's scrip account, a statement for BBX's brokerage account, and a statement for BBX's debt recovery account. 18 Document (i) was a page headed "Trade Exchange Account Balances". The top part of this page showed the credit or debit balances and the brokerage, scrip and debt recovery accounts for the Central Coast brokerage. The lower part of the page was headed "Settlement Calculation" and began with Bartercard's valuation of the brokerage at $110,020, added the value of debtors of the business ($4,427) and subtracted amounts outstanding to Bartercard for trade account balances and other matters (the total debt being $656,292), leaving a negative net sum of $541,845 said to be an amount "owed by Col Butcher". In fact, BBX was the principal debtor. 19 Document (j) was a page headed "Debtors Calculation as at 28/8/96". Document (k) was a letter dated 28 August 1996 from Bartercard's Corporate Solicitor to Mr and Mrs Butcher. The body of the letter was as follows: "Please find enclosed copy of Notice of Termination provided to Lorncol Holdings Pty Ltd (also known as BBX) effective from the date of 28 August 1996. For your information please note we would hold you both jointly and severally liable for any damages suffered by BCL pursuant to the Guarantee provided by you wherein you personally guaranteed the due and punctual performance of the terms, conditions and obligations by BBX under the Licence Agreement. Pursuant to the Guarantee we reserve our legal rights of action to recover any losses, damages, suffered by BCL as a result of any breach of the terms and conditions of the Licence Agreement by Lorncol Holdings (BBX)." 20 Document (l) was a letter of 28 August 1996 with the termination notice enclosed which purported to terminate the Central Coast licence agreement. Although the notice referred to clauses 9.1(c), 9.1(e), 14.3(a) and 14.3(b) of the licence, no particulars of breaches of those provisions were particularised in the letter or elsewhere. However, the plaintiffs made it clear at the hearing that they did not challenge the validity of the termination. 21 In a letter dated 28 August 1996 to Ms Nea Roberts, a BBX employee in the Central Coast office, the managing director of Bartercard wrote: "Earlier this morning, Trevor Dietz met with your Broker, Mr Colin Butcher to discuss the operations of the Central Coast Brokerage. As a result of that meeting Colin has relinquished his role as a Bartercard Broker and his company's license has been withdrawn. Bartercard Ltd will now assume management of the Brokerage operations and will extend an offer of employment to each existing staff member. A small team from our Head Office comprising Trevor, Domenic and Vicki Genrich will be working with each of you over the next few days to effect the hand over. We want to ensure all clients receive the same kind of service and support across Australia. To that end, several of Bartercard Ltd's senior personnel will be spending time in the Brokerage over the next several weeks retraining all staff and supporting everyone's efforts. However, we are not in the business of owning Brokerages. Our aim will be to resell the Brokerage but only after we are confident everything is working well."

Mr Butcher said in his affidavit of 5 March 1999 that he later became aware that this letter had been written. 22 Mr Butcher gave evidence that he told Mr Dietz that he would need to take the documents away and have a look at them before signing. Documents (a) the deed of release, (b) the memorandum of acknowledgment and undertaking and (c) the personal acknowledgment and agreement each provided for execution or signing by BBX or Mr and Mrs Butcher or Mr Butcher. This never occurred. 23 In his affidavit of 2 May 2000 Mr Butcher elaborated on his affidavit of 5 March 1999 by saying: "4. Later in the afternoon on 28 August I returned to the company's premises at 26 Karalta Road, Erina. Those premises were leased by BBX and the office plant and equipment situated at the premises was owned by BBX (although subject to a charge in favour of a factoring company). 5. When I arrived that afternoon at the company's premises Mr Dietz was at the premises along with Vicky Genrich and Dominic Circosta from Bartercard. Those persons were in my office. A locksmith was present at the offices and was in the process of changing all of the locks to the office doors. I had not made any arrangements on behalf of BBX, for that to happen. I met with Mr Dietz and the others for approximately one hour. In the course of that meeting I delivered up my mobile phone and my Bartercard plastic membership card. An arrangement was also made for me to return to the company premises on the next day to collect company records and paperwork. I cannot recall much of the precise terms of the meeting that afternoon although I do recall agreeing to the transfer of the lease of the premises to Bartercard and the transfer of the office plant and equipment. I cannot now recall but I believe I must also have agreed, at that meeting, on behalf of BBX to the transfer of the business telephone number in favour of Bartercard and, as well, the transfer of the registered business name. Any documents that were signed by me that afternoon were not provided to me and I have not seen copies of any signed documents in relation to those transfers since that day. 6. As a result of the transfer of the Lease, and of the plant and equipment as referred to above, Bartercard was able to continue operating the business from the existing premises with the existing staff in place with the benefit of the existing infrastructure as referred to in the letters issued by Bartercard, an example of which appears at pages 179 of CB1 referred to in my early Affidavit." 24 Mr Butcher was called by the plaintiffs at the hearing and cross-examined by counsel for Bartercard. According to his evidence in cross-examination, on 28 August 1996 after Mr Dietz had handed him the notice of termination of the licence in the morning, Mr Butcher continued for the rest of that day making service calls. When asked whether beyond that day he knew the licence to perform services under the agreement had been terminated he said: "Only when I got back to the office, and the locks had been changed, and the office was full of Bartercard staff it probably really hit me." When asked "You knew from the close of business on 28 August 1996 that the licence had been terminated?" he answered "The afternoon meeting at 4 o'clock, that is when it sort of hit." He agreed that thereafter BBX did not have any source of income and ceased trading. He agreed that there were at that point of time ongoing liabilities for rent and to financiers.

Statement of Claim 25 By their statement of claim Mr Wily and BBX asserted that as a result of terminating the licence of BBX, Bartercard became liable to pay BBX an amount representing the goodwill value of the business operated, pursuant to the licence, by BBX. The goodwill had a value of not less than $110,020. Following the termination of the licence, Bartercard purported to set off the amount owing by it for the value of the goodwill against amounts owing by BBX to Bartercard. The transaction was said by the plaintiffs to result in Bartercard receiving from BBX in respect of the amount of $656,292 a credit of $110,020 which was more than Bartercard would receive from BBX in respect of the outstanding debt if the transaction, defined as the setting off referred to, was set aside and Bartercard were to prove for that debt in the winding up of BBX.

Findings 26 Austin J found as follows: "24 Later on 28 August 1996 [Mr Butcher] returned to BBX's business premises. When he arrived there Mr Dietz was present, with some other Bartercard personnel. A locksmith was in the process of changing all locks to the office doors. Mr Butcher had not made arrangements for that to happen. He met with Mr Dietz and the others for about an hour, and in the course of the meeting he handed up his mobile phone and his Bartercard membership card, and arranged to return to the premises to collect BBX's records. He agreed to the transfer of the lease of the premises to Bartercard, and the transfer of the plant and equipment of the business. He thinks he must also have agreed to the transfer of the business telephone number and the registered business name. 25 Subsequently Bartercard was able to continue operating the business from the existing premises, with the existing staff in place, and with the benefit of the existing infrastructure. Bartercard paid no money to Mr Butcher or BBX to acquire the business. Shortly after 28 August 1996 Mr Harris, the financial controller, decided that the proposed set-off of the estimated value of the Central Coast brokerage against BBX's debt to Bartercard would not be 'an acceptable accounting practice', and therefore he decided not to proceed with it. On 3 October 1996 Bartercard sent to Mr Butcher a termination notice for various Bartercard accounts, in which the total amount of the debt was claimed without any set-off. 26 By an agreement dated 24 March 1997, Barter North Pty Ltd, a subsidiary in the Bartercard group, sold the assets of the Central Coast brokerage to Tuggerah Straight Auto Electrical Pty Ltd, a company associated with Mr Palmer, the person previously proposed by Mr Butcher as a purchaser and at that time rejected by Bartercard. The purchase price was $21,799 for the plant and equipment. Liquidation of BBX 27 As I have mentioned, BBX was placed in liquidation by order of this Court on 17 December 1996, and the first plaintiff, Mr Wily, was appointed the liquidator. The winding up proceedings were instituted by the Deputy Commissioner of Taxation. The report as to affairs by Mr and Mrs Butcher as the directors of BBX, dated 18 December 1996, shows an estimated deficiency of $1,170,856. The Bartercard debt is listed at the full amount without any set-off. The report lists goodwill of $110,000 as a contingent asset. 28 On 23 May 1997 Bartercard lodged a proof of debt for the full amount of the debt, which by that time had increased by several thousands of dollars for interest claimed. In his report as to solvency of April 1999, Mr Wily expressed the opinion that BBX was insolvent from at least 28 August 1996 due to the cancellation of its licence agreement. On the question of goodwill, Mr Wily said: 'The transaction [the 'payment' of goodwill to Bartercard] resulted in Bartercard receiving from BBX, in respect of its debt of $656,292 a credit of $110,020, which is more than Bartercard would receive from BBX in respect of the outstanding debts if the transaction was set aside and Bartercard were to prove for that debt in the winding up of BBX. As a result of terminating the licence, Bartercard became liable to pay BBX an amount representing the goodwill value of the business operated by BBX. The business operated pursuant to that licence agreement by BBX had a value for goodwill of not less than $110,020 as determined by Bartercard. It is arguable the value of the business is considerably higher. The transaction: (a) was entered into at a time when BBX was insolvent; and (b) was entered into within six months of the relation back day. In the circumstances, the transaction by which Bartercard set off its liability to pay BBX for the goodwill of BBX's business appears to be void pursuant to section 588FE of the Corporations law'. 29 Mr Wily obtained a valuation report by Mr Neil Singleton, a chartered accountant, for the purpose of the present proceedings. Mr Singleton valued the goodwill of BBX as at 28 August 1996. After reviewing the alternative method of valuation, Mr Singleton expressed the view that BBX's goodwill was the value of its customer base. He estimated the value of the customer base and therefore the goodwill of the business at approximately $180,000." The Law 27 Section 588FA (1) of the Law provided: " Unfair preferences (1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency." 28 Section 588FC of the Law provided " Insolvent transactions A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happen at a time when the company is insolvent: (i) the transaction is entered into;" 29 Section 588FE of the Law provided: " Voidable transactions (1) Where a company is being wound up, a transaction of the company that was entered into at or after the commencement of this Part may be voidable because of any one or more of the following subsections. (2) The transaction is voidable if: (a) it is an insolvent transaction of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it: (i) during the 6 months ending on the relation-back day; or (ii) after that day but on or before the day when the winding up began." 30 The plaintiffs alleged and Austin J found that there was a transaction entered into on 28 August 1996 between BBX and Bartercard when BBX was insolvent and within the six month relation-back period. The plaintiffs alleged that the transaction by which Bartercard set off its liability to pay BBX for the goodwill of BBX's business was void pursuant to s588FE of the Law.

Austin J's Conclusion 31 The plaintiffs submitted to Austin J that on 28 August 1996 Mr Dietz on behalf of Bartercard made an offer to Mr Butcher on behalf of BBX to the effect that the Central Coast licence would be terminated and the business transferred to Bartercard with the consent of Mr Butcher and BBX. The plaintiffs said that Mr Butcher, on behalf of BBX, acquiesced in and co-operated with the termination of the licence and the transfer of the business and other assets and thereby accepted Bartercard's offer. They invited the Court to infer that there was an agreement or arrangement between BBX and Bartercard. They drew attention to three aspects of the context in which the events of 28 August occurred. First there were the prior negotiations between BBX and Bartercard from which there emerged an understanding between the parties that the licence agreement constituted an investment creating an asset of value, which would not be destroyed unless other avenues had been exhausted. Secondly the plaintiffs submitted that in another case where Bartercard brought a licence to an end it did so in a way that preserved some value for the business. That submission referred to a negotiated termination of the Sunshine Coast licence. Thirdly the plaintiffs referred to the behaviour of the parties after the documents were handed over on 28 August 1996. They said that Mr Butcher's conduct later on that day was consistent with an arrangement going beyond the termination of the licence, and that the conduct of the parties implied that the business, including plant and equipment, was to be transferred to Bartercard. 32 Bartercard denied that there was any such offer, acquiescence or agreement. It submitted that the documents which attributed a value to the Central Coast brokerage of $110,020 and purported to set that amount off against BBX's debt to Bartercard, were prepared for internal accounting purposes in order to reduce the amount of the bad debt which it would eventually be required to write off. Bartercard said that at no time was it contemplated that any amount would actually be due or payable to BBX. 33 Austin J said: "34 I have decided to accept the plaintiffs' submissions on this point. The evidence implies that before 28 August 1996 Bartercard had decided to terminate the Central Coast licence and take control of BBX's business, because of the mounting trade debt. The volume and complexity of the documentation handed to Mr Butcher on that day implies substantial preparation on Bartercard's part. Bartercard might have acted by exercising what it conceived to be its right of termination of the licence agreement, without more. But instead, it chose to present to Mr Butcher a package of documents, some of which required his signature and therefore his consent. As the plaintiffs submit, if Bartercard sought to obtain an accounting benefit by reducing the amount of BBX's debt to be written off, there was no need for it to give anything to Mr Butcher, let alone documents suggesting that he was being given value for termination of the licence. 35 The package of documents reflected a transaction containing several components, only one of which was the termination of the licence. The transaction included an agreed valuation of the Central Coast brokerage, acknowledged to be fair by Mr Butcher, and the setting off of that agreed value against the debt owed by BBX to Bartercard. 36 Although Mr Butcher did not sign the documents, events proceeded on 28 August on the basis that the documents reflected a consensual arrangement between the parties. Mr Dietz authorised his colleagues at Bartercard to proceed to the Central Coast office after Mr Butcher arrived for their meeting. When Mr Butcher arrived at the Central Coast office, the officers of Bartercard were already in the course of replacing BBX there, without Mr Butcher's previous authority. He acquiesced in and co-operated with that process. If Bartercard's conduct at the Central Coast office had been referable to their prior unilateral termination of the licence, it is unlikely that Mr Butcher would have conducted himself in the way he did. His co-operative conduct confirms that the parties were proceeding under an arrangement for the amicable replacement of Mr Butcher and BBX. 37 Additionally, a letter by Bartercard's managing director to Ms Nea Roberts, an employee of BBX, dated 28 August 1996 tends to confirm that the replacement of Mr Butcher was pursuant to an arrangement. The letter referred to the meeting earlier that day between Mr Dietz and Mr Butcher, and said that 'as a result of that meeting Colin has relinquished his role as a Bartercard broker and his company's licence has been withdrawn'. Moreover, on 30 August 1996 Mr Dietz wrote to all staff saying that Mr Butcher was co-operating fully with the actions of Bartercard to secure the future of the Central Coast brokerage. 38 It is reasonable to infer, and I do infer, that the consensual arrangement implied by this evidence was the arrangement presented to Mr Butcher in the documents handed to him on 28 August 1996, which included the valuation and setting off of the goodwill of the Central Coast business. 39 Bartercard submits that the documents handed to Mr Butcher on 28 August 1996 were inconsistent, and so they cannot be used as the basis for inferring an arrangement. Paragraph (6) of the document identified in paragraph (d) above [sic - in fact Austin J was referring to document (c)] provides that commission will be forfeited, but the settlement sheet (paragraph (i)) set out an accounting to BBX for commissions. In my opinion, however, there is no inconsistency between the documents, since the settlement sheet refers to commissions that have already become due, while the other document refers to forfeiture of the right to future commission." 34 Having referred to the statutory provisions and found that the events relevant to the case occurred during the six months ending on the relation back day and that on 28 August 1996 BBX was insolvent, Austin J said: "46 I have found that there was an arrangement between BBX (through Mr Butcher) and Bartercard, reflected in the documents handed by Mr Dietz to Mr Butcher on 28 August 1996. One of the components of that arrangement was that Bartercard would forthwith exercise its contractual right to terminate the Central Coast licence. Another was that Bartercard would set off against the debt owed to it by BBX an amount of $110,020 acknowledged by Mr Butcher to be a fair and equitable amount. That arrangement was acted upon by the parties later on the same day. 47 I hesitate to say that the arrangement amounted to a binding contract, since Mr Butcher did not sign the documents but merely acquiesced in the implementation steps that Bartercard took after handing the documents over. However, in my view there was either a binding contract or else Bartercard's conduct and Mr Butcher's acquiescence gave rise to an equitable estoppel binding Bartercard in favour of BBX not to resile from the arrangement. 48 In my opinion, an arrangement between two parties which produced legal consequences under either the law of contract or the law of equitable estoppel is a 'transaction' for the purposes of s588FA. The word 'transaction' is defined in s9, but not exhaustively. Having regard to the legislative policy with respect to voidable transactions, an arrangement having legal consequences and giving one of the parties to it a benefit of the kind described in s588FA should, as a matter of legislative policy, be amenable to the application of that section. In Re Emanuel (No 14) Pty Ltd (in liq) (1997) 24 ACSR 292, the Full Federal Court referred to the definition of 'transaction' in s9 and said (at 299): 'Common to the examples is the characteristic that the conduct or dealing engaged in by the debtor company has the consequence of effecting a change in the rights, liabilities or property of the company itself.' On this principle, the arrangement in the present case is a transaction whether it operates by way of contract or estoppel. 49 The plaintiffs submitted that even if the Court were to find that there was no such arrangement as alleged, there was nevertheless a 'transaction' constituted by the receipt of benefits by Bartercard upon termination of the licence. I do not accept this submission. The 'transaction' to which s588FA refers is a transaction to which the company and the creditor are parties. If there was no arrangement between Bartercard and BBX, all that happened was that Bartercard terminated the licence and received the benefits of doing so. On that hypothesis, there would be nothing capable of being described as a transaction to which BBX was a party."

35 Turning to the question whether Bartercard received any benefit on 28 August 1996 Austin J said: "50 On 28 August 1996 Bartercard took over the business of the Central Coast brokerage, pursuant to a transaction in which it terminated BBX's licence. In the same transaction Mr Butcher and BBX acknowledged that $110,020 would be a fair and equitable sum attributable to the value of the brokerage, and that this amount would be set off against the debt owed by BBX to Bartercard. The benefit which it thereby obtained was the business, including its goodwill, customers, plant and equipment and the licence. Consequently, it was no longer under any obligation to pay any licensee a share of the transaction fees received from members. 51 Bartercard submits that it obtained nothing of value. Bartercard says that it was entitled to terminate the licence on that day and had it done so without more, it would have become entitled to take over the customers allocated to the Central Coast brokerage. Bartercard notes that the customers were members of the Bartercard program. Termination had the effect that any asset or value with respect to the business, disappeared. There was no goodwill (citing Commissioner of Taxation v Murry (1998) 72 ALJR 1065). 52 Bartercard submits that Mr Singleton's valuation, which equates the goodwill of the Central Coast brokerage with the customer base, is unhelpful because the customer base always belonged to Bartercard. It says that BBX's entitlement to use any part of the customer base came to an end when the licence was terminated. 53 In my opinion Bartercard's submission is beside the point. The question is not whether the business had any value after the licence was terminated. The question is whether, termination having occurred by arrangement between the parties, Bartercard received a benefit under terms of the arrangement. Mr Singleton's evidence shows that the goodwill of the business had a value prior to the termination, a conclusion which is supported by other evidence as I have shown. The arrangement between the parties assigned a value to the business of $110,020. By carrying out the arrangement, Bartercard received leased premises and plant and equipment, while also undertaking liabilities for rent and wages and other matters. It was relieved of the obligation to share members' transaction fees with BBX. In these circumstances it received a benefit. 54 The statutory question is whether the creditor received, in respect of the debt, more than it would receive if the transaction were set aside and the creditor were to prove for the debt in the winding up. If the transaction that I have described was set aside, the licence would be restored and the full debt would be owing. If, in those circumstances, Bartercard had lodged a proof of debt in the winding up of BBX, it would not have had the benefit of the set-off which the documents purported to confer, nor the value which it received when the transaction was implemented. 55 It cannot be doubted that the transaction resulted in the benefits to Bartercard which I have described, and also resulted in Bartercard receiving more than it would have received if the transaction were set aside and it proved in the winding up. It is unnecessary, given my findings of fact, to investigate the breadth of the words 'in respect of' in s588FA, having regard to the case law on analogous provisions to which counsel for the plaintiffs has referred. 56 It follows, in my view, that there was a transaction in the present case which was an 'unfair preference' falling within s588Fa of the Corporations Law. Having regard to my findings of fact, there is no relevant defence."

Appeal 36 Bartercard's grounds of appeal were that the 'trial Judge erred in fact and in law' · in finding that there was an agreement or an arrangement between Bartercard and BBX or inferring that there was a consensual arrangement consistent with the documents presented by Bartercard to Mr Butcher on behalf of BBX on 28 August 1996, in respect of the termination of the licence granted by Bartercard to BBX on 1 July 1994 (grounds 1 and 2); · in finding that there was a binding contract between Bartercard and BBX whereby Bartercard was bound to pay to BBX a sum of money upon termination of the licence granted by Bartercard to BBX on 1 July 1994 (ground 3); · in finding that there was an equitable estoppel that operated against Bartercard in favour of BBX so as to prevent Bartercard from resiling from the agreement or arrangement between Bartercard and BBX in respect of the termination of the licence granted by Bartercard to the BBX on 1 July 1994 as found by the Judge (ground 4); · in finding that the agreement or arrangement between Bartercard and BBX in respect of the termination of the licence granted by Bartercard to the BBX on 1 July 1994 as found by the Judge was a 'transaction' for the purposes of s588FA of the Law (ground 5); and · in finding that Bartercard received a relevant benefit for the purposes of s588FA of the Law by reason of the agreement or arrangement between Bartercard and BBX in respect of the termination of the licence granted by Bartercard to BBX on 1 July 1994 as found by the Judge (ground 6);

Bartercard sought to have the orders made by Austin J set aside.

Submissions on appeal 37 As I have said Bartercard did not challenge Austin J's findings of primary facts. It emphasised that none of the documents handed to Mr Butcher by Mr Dietz on 28 August 1996 was formally agreed to or accepted by signature or otherwise by Mr Butcher in his own capacity or on behalf of Mrs Butcher or BBX. It was pointed out that on the morning of 28 August 1996 Mr Butcher was presented with a termination of the licence effective from that date. The accompanying documents sought his agreement to the release of Bartercard from its obligations and any future liability under the licence (document (a)), and to Bartercard's negotiating a transfer of the lease of the business premises to a subsidiary in return, inter alia, for a restraint on Mr Butcher's competing during a defined period in certain areas and agreement to keep certain trade information confidential (document (b)) and Mr Butcher's acknowledgment that payment by Bartercard to BBX of $110,020 was a fair and equitable sum attributable to the value of the brokerage and would offset the debt owed by BBX to Bartercard (document (c) clause 4). 38 Bartercard stressed the disparity between the proposals in the documents handed to Mr Butcher in the morning and what occurred at BBX's premises in the afternoon. It was submitted that the documents did not cover the taking over of the plant and equipment and BBX's employees. In short, it was said that nothing in the documents would have allowed Bartercard to do what it did in the afternoon. 39 In his affidavit of 2 May 2000 Mr Butcher said that he was present while the locks to the office doors were changed, though he had not made any arrangements for that to happen, that he delivered his mobile phone and his Bartercard plastic membership card to the Bartercard people present, that an arrangement was made for him to return to the company premises on the next day to collect company records and paperwork. Mr Butcher stated that he agreed to the transfer of the lease of the premises and of the office plant and equipment to Bartercard and that he believed he must have agreed to the transfer of the business telephone number and the transfer of the registered business name which was apparently "Bartercard Central Coast". He deposed as follows: "As a result of the transfer of the lease, and of the plant and equipment as referred to above, Bartercard was able to continue operating the business from the existing premises, with the existing staff in place with the benefit of the existing infrastructure as referred to in the letters issued by Bartercard, an example of which" [was the letter to Ms Nea Roberts.]

This evidence was not challenged in cross-examination. During his oral evidence, Mr Butcher agreed there was a floating charge given to Hunter Factors Pty Limited over the assets and undertaking of the business and, in effect, that Bartercard took over the obligation so secured. Mr Butcher also acknowledged that after 28 August 1996 some BBX employees became employees of Bartercard. 40 Bartercard also submitted that Austin J erred in holding that, if there was a transaction within the meaning of s588FE of the Law, it resulted in benefits to Bartercard in the form of leased premises and plant and equipment and being relieved of the obligation to share members' transaction fees with BBX. Bartercard submitted that the benefit it was said to have received was illusory. It took on all of BBX's ongoing liabilities for rent, plant and equipment and staff. The only benefit it obtained was to rid itself of a licensee that was persistently in breach of the licence agreement. That was not a benefit of the type that it could prove for in liquidation. 41 Counsel for Bartercard pointed out, as Austin J noted in his reasons for judgment, that on 3 October 1996 Bartercard wrote to Mr Butcher referring to particular account numbers and stating 'your accounts have been closed'. The recipient was given thirty days in which to bring the account to zero. The amount outstanding was shown as $657,410.49 without any deduction of $110,020. Mr and Mrs Butcher's report as directors of BBX dated 18 December 1996 showed an estimated deficiency of $1,170,856. The debt owing to Bartercard was listed at the full amount without any set off. The report listed goodwill of $110,020 as a contingent asset. On 23 May 1997 Bartercard lodged a proof of debt for the full amount of the debt, again without any allowance for the $110,020. These later acts and statements were said to be consistent only with the conclusion that there was neither agreement to nor acquiescence in any arrangement whereby BBX's indebtedness to Bartercard would be reduced by $110,020 or any other amount. 42 Mr Harris, Bartercard's financial controller, in his affidavit of 30 March 2000 said that in document (d) entitled "Central Coast brokerage" he calculated the amount of $110,020 attributed to the value of the brokerage: "by taking the average trading volume and cash fee collection for the preceding period of three months and extrapolating that figure over a twelve month period. I calculated that sum with a view to setting it off against the amount owed to the defendant by BBX in trade dollars. I did that because I did not expect BBX to be able to repay, within thirty days of the termination of the Licence Agreement, the negative trade balance that it had accrued. It was my intention that, after the set off, the defendant would have to write off as a bad debt, a smaller amount than the amount actually owed by BBX. The sum to be written off was significant and I thought there was some benefit in being able to reduce that amount. At no time did I contemplate that an amount would actually be paid to BBX and the amount was not a genuine set off in that sense." 43 Mr Harris went on to say that following the termination of the licence and the production of document (d) he reviewed the proposed set off as a book entry and determined that it was not an acceptable accounting practice. Accordingly, he resolved to "no longer proceed with the idea of the set off". 44 In broad terms, Bartercard's second point was that even if it was open to infer some arrangement for the termination of the licence and the transfer of BBX's business to Bartercard, agreement by the parties to pay to BBX $110,020 was no part of that arrangement. Bartercard pointed out that it was entitled to terminate the licence and take over the customers allocated to the brokerage. Moreover, termination had the effect that any asset or value with respect to the business disappeared. No goodwill remained. 45 The issue in this dispute is clouded if attention is directed only to the existence or value of goodwill or whether there was an arrangement resulting in BBX having a right of set off against any claim by Bartercard to recover the debt BBX owed it. Compare Stehar Knitting Mills Pty Ltd v Southern Textile Converters Pty Ltd (1980) 2 NSWLR 514. For the transaction to be an unfair preference given by BBX to Bartercard and hence, in the circumstances of this case, an insolvent transaction of BBX which was voidable, the transaction must have resulted in Bartercard receiving from BBX in respect of the debt owed by BBX to Bartercard more than Bartercard would have received from BBX in respect of the debt if the transaction was set aside and Bartercard were to prove for the debt in a winding up of BBX (s588FA (1)(b)). 46 In my opinion, the documents which Mr Dietz handed to Mr Butcher on the morning of 28 August 1996 set out terms upon which Bartercard was prepared to deal with the crisis that had arisen. The crisis was the result of the heavy indebtedness and imminent collapse of BBX's business. Mr and Mrs Butcher were guarantors, bankruptcy loomed. It is not difficult to conclude that, in the circumstances, Bartercard had an interest in ensuring that BBX's business, which was part of Bartercard's franchise enterprise, continue. 47 Not surprisingly in the context of the plans described in the managing director's letter of 28 August 1996, Bartercard saw fit to value the brokerage and include the valuation as part of a settlement calculation which reduced the amount owed by BBX to $541,845. It was not Mr Butcher but Bartercard that was asserting that this was the value of the brokerage. Whether this was regarded by Bartercard as a price worth paying for a quick and efficient transfer of the business or as a recognition of the value of the business or as having some other justification does not matter. It is Bartercard's acknowledgment that BBX should receive that amount by way of deduction from the debt it owed to Bartercard, if Bartercard's terms were accepted. 48 On the afternoon of 28 August 1996 Mr Butcher was present as physical steps were taken to secure the business to Bartercard. There was no reason why he would reject the proposed arrangements whereunder Bartercard took over the lease and finance arrangements and offered to re-employ BBX's employees. This is what happened without any objection by him. Equally there was no reason why he would not have accepted the benefit of the $110,020 deduction from BBX's debt. He never suggested it was too little. In the directors' statement that amount was shown as the value of a contingent asset. It appears from the evidence that by the end of the day, 28 August 1996, the proposals put forward by Bartercard were carried into effect save only that none of the documents was signed by either Mr or Mrs Butcher. No doubt Bartercard had still to reach agreement with the lessor of the premises and the holder of the floating charge. Having proffered the terms it did and the transfer of the BBX business and premises to it having been achieved without any objection from Mr Butcher, to renege on the price offered was unconscionable. 49 In other words, on the morning of 28 August 1996 Bartercard made proposals directed to taking over BBX's business, as for example, making arrangements to obtain an assignment of the lease, and to do this on a basis that was agreed. The calculation of $110,020 by Bartercard was part of the proposal. Most importantly, this figure represented Bartercard's assessment of what it was worth to obtain the BBX business on the terms set out in the documents as carried into effect that afternoon. Instead of paying that amount to BBX the arrangement was that it be deducted from BBX's debt to Bartercard. Having achieved the objective, I do not think Bartercard can now be heard to say that $110,020 was not a fair value for what it achieved. 50 In my opinion, substantially for the reasons given by Austin J, it was entirely open to his Honour to conclude that Bartercard made an offer to BBX through Mr Butcher that certain steps be taken to cope with the crisis and that Mr Butcher either accepted or acquiesced in those proposals. In my opinion, Austin J was also right to conclude that what took place could properly be described as a transaction within the meaning of s588FE of the Law.

Conclusion 51 The appeal should be dismissed with costs. 52 POWELL JA: I agree with Sheller JA. *****

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : BARTERCARD LIMITED v WILY & ANOR [2001] NSWCA 262 FILE NUMBER(S) : CA 40409/00 HEARING DATE(S) : 31 July 2001 JUDGMENT DATE : 16 August 2001

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