Global Television Pty Ltd v Sportsvision Australia Pty Ltd

Did the CFA confer contractual rights and impose liabilities on Blue Sennar?

1. Section 568(1)(f) authorises the disclaimer by a liquidator of onerous property, including "property of the company that consists of…a contract". It is to be observed that the disclaimer so authorised is of property, not of liabilities. For a contract to be amenable to disclaimer, the company must have contractual rights under it. [5] If the contract in question does not confer rights on the company, there is no property capable of disclaimer.
2. The purported disclaimer by Blue Sennar was of the CFA. Blue Sennar is not a party named in the CFA, and (unlike Eye Plantain, which acceded to it by Deed Poll) it has never acceded to the CFA. Blue Sennar is not a party to the CFA (which does not pertain to Lot 5, of which it is the owner). The CFA confers no rights on Blue Sennar, and there is therefore nothing under the CFA for its liquidator to disclaim.
3. Presumably, the liquidator has purported to disclaim lest it be held that some estoppel operates to bind Blue Sennar to the CFA, as it has been suggested in correspondence on behalf of AAPC that Lot 5 (which is referred to in the Deed Poll by which Eye Plantain acceded to the CFA, though not in the CFA itself) was omitted from the CFA by mistake. As Lot 5 is not one of the conference lots referred to in the CFA, and as the owner of Lot 5 (Blue Sennar) is a different entity from the owner of the conference lots (Eye Plantain), it is difficult to see how any such estoppel (or claim for rectification) would arise. But assuming that it did, and that Blue Sennar were somehow held estopped from denying that AAPC was entitled to use Lot 5 under the CFA, that does not alter the position that the CFA gives Blue Sennar no rights amenable to disclaimer.
4. As the CFA is not amenable to disclaimer by the liquidator of Blue Sennar, that purported disclaimer is a nullity.
5. In supplementary written submissions, which were inappropriately provided to my chambers without leave and without consent at 2.50pm on the eve of delivery of this judgment, the defendants submitted that in the absence of any argument by the plaintiff that the CFA applied to Blue Sennar and Lot 5, there was no basis for the plaintiff to apply to have this disclaimer set aside. However, the plaintiff does not (at least primarily) apply under s 568B to have that disclaimer set aside; rather, it applies to have it declared a nullity. In my view, as a party with rights under the CFA, AAPC plainly has standing to impugn a purported disclaimer of that contract by a liquidator claiming a right to do so. It was entitled to obtain clarification, by declaratory order, of the efficacy of the purported disclaimer, and was not obliged to leave it on the public record - for whatever it might be worth - with its effect on the CFA uncertain.

Were the CFA and CFL "unprofitable contracts"?

1. The term "unprofitable contract" in s 568(1A) is not the subject of any statutory definition, but has been elucidated by case law. An unprofitable contract is one under which the company has obligations or liabilities (such as to pay money, transfer property, or supply goods or services), the burden of which exceeds the benefits of the contract for the company, and the performance of which will impede the liquidator's ability to realise the assets and distribute the proceeds to the creditors and contributories. [6] The purpose of the provision is to facilitate the due administration of liquidations, not to enable the liquidator to increase the divisible property by clawing back property the company has previously disposed. [7] While the concept has not infrequently been expressed in terms that it is insufficient merely because performance of the contract will incur loss or that a better bargain could have been or could be made, [8] the qualifier "merely" has significance; it means that the element that the contract is one under which the company does not make a profit is a necessary but insufficient feature of an "unprofitable contract". It is not possible to see how a contract under which the company makes a profit can satisfy the concept of an "unprofitable contract". The circumstance that, with leave, even a profitable contract can be disclaimed, tells against giving wider scope to the words "unprofitable contract" than their ordinary meaning bears. [9]
2. The question whether a contract is unprofitable is one of fact. While it is necessary to identify from the contract the company's contractual obligations and liabilities, and compare them with its contractual rights and entitlements, it is the detriments and benefits that in fact flow from those obligations and entitlements that govern whether or not the contract is in fact profitable. Thus, it is necessary to have regard to the actual operation of the contract and the results its operation in fact produces.
3. The defendants did not suggest that the CFL standing alone - which in substance governs priorities for bookings for the conference centre - imposed any relevant onerous obligation on Eye Plantain. The case turns on the CFA. Under clause 3.1 and Schedule 1 of the CFA, the company is entitled to receive, as consideration for the grant of management rights to AAPC, 70% of the gross revenue generated by AAPC - AAPC retains the other 30%. The relevant obligations of the company are to pay: 1. for all utility services (including electricity, gas and water) relating to the conference facilities, and any maintenance materials used for the conference lots (clause 1.3). This appears to have been conventionally approximated as $1,500 per month, which has been deducted from the amounts remitted to Eye Plantain. Offsetting that, the operator is responsible for any labour relating to minor repairs and maintenance, and for cleaning and tidying the facilities (clauses 1.4 and 1.5). 2. for its own property, machinery and contents insurances (clause 1.6). But it would be responsible for its own insurances in any event. 3. an amount reasonably determined by the operator to meet the costs of maintaining, replacing or redecorating the furniture, fittings and base contents, and any major refurbishment or changes to the conference lots considered necessary or desirable by the operator to keep the facilities at a 4.5 star standard (clause 4.4). However, all furniture, fittings and equipment so acquired are the property of the owner (clause 4.3).
4. The company may dispose of its interest in the conference lots, but must first cause the incoming owner to execute a deed poll agreeing to comply with all the owner's obligations under the CFA, whereupon the outgoing owner is released from all its obligations under the agreement.
5. In practice, the contract consistently produces net benefits for Eye Plantain: after deduction of utilities and FF&E contributions, Eye Plantain has derived net income from the contract over the last five years as follows: in 2012, $170,904; in 2013, $112,598; in 2014, $97,643; and in the first six months of 2015, $65,825.
6. The liquidator invokes a number of matters in aid of the contention that the contract is nonetheless an "unprofitable" one.
7. First, reference is made to the lengthy term. As it will not expire until 2086, the term is admittedly a very lengthy one. But while a long term contract from which a company cannot escape and under which it is making a loss might well be "unprofitable", a contract under which the company is making a profit is not rendered "unprofitable" by the length of its term. Moreover, in this case, the company can extricate itself from the contract by disposing of the conference lots and having the purchaser execute the requisite deed poll.
8. Secondly, it was said that the potential for the operator to make a call for a FF&E contributions under clause 4.4 left the company exposed to an uncertain and indefinite liability. That such a call might be made is not entirely speculative - there is some suggestion of a need for renovations. However, the ability to make such a call is limited by the parameters of maintaining the conference facility to its 4.5 star standard, and reasonableness. Moreover, under clause 4.3, the benefit of any such expenditure is to the benefit of the owner, not the operator. There is no reason for thinking that such expenditure, if required, would outweigh the benefits derived by the owner under the contract.
9. Thirdly, it was said that because the room rates were at the discretion of the operator, and could be reduced to attract customers to the accommodation apartments by delegates (clause 3.3), future benefits to the owner were effectively at the discretion of the operator. However, the remuneration structure (30% of gross revenue for the operator, and the balance for the owner) incentivises the operator to maximise gross revenue, from which the owner benefits even more (clause 3.3). Furthermore, the contract provides that if conference room rates are discounted to attract customers to the apartments, then the owner is entitled to be compensated at an appropriate market (not discounted) rate (clause 3.4).
10. Fourthly, it was argued that the CFA impacted adversely on the saleability of the conference lots. In particular, it was submitted that the valuation evidence of Mr Wotton indicated that the conference lots would be difficult to sell, more so with the CFA on foot, and that a better price would probably be achieved if the lots were unaffected by the CFA because they could then be used as food and drink premises. However, this argument fails on two bases. The first is that its factual basis was not made good: Mr Wotton assumed that the conference lots could be used for food and drink outlets; but under the strata plan bylaws, they can only be used as a conference centre (and only by AAPC). The second is that even if the lots could be sold more readily and at a higher price without the CFA, that does not render the contract unprofitable. If the conference lots cannot be sold (or readily sold), by reason of the CFA, then the liquidator can disclaim the conference lots under Corporations Act, s 568(1)(c). However, the liquidator (understandably) does not seek to do so, because the evidence indicates that the conference lots are realisable, if with some difficulty, for a not insubstantial value. In reality, the liquidator is seeking to use s 568, not to rid himself of onerous property, but to enhance the divisible property by ridding himself of a profitable contract. That he cannot do, at least without the leave of the Court. Leave has not been sought, let alone obtained.
11. The purported disclaimers by Eye Plantain are therefore without effect and nullities.

Should the disclaimers be set aside under s 568B?

1. As I have concluded that all three purported disclaimers are nullities, it is unnecessary to consider whether they should be set aside under s 568B.

Conclusion and orders

1. The CFA confers no contractual rights on Blue Sennar, whose liquidator is therefore not entitled to disclaim it under s 568. From the perspective of Eye Plantain, the CFA and CFL were not unprofitable contracts, and the defendants required the leave of the Court under s 568(1A) in order to disclaim them. They did not obtain such leave. It follows that all three purported disclaimers are nullities.
2. Accordingly, the Court declares that: 1. The Conference Facilities Agreement (for the Sebel Manly Beach) dated 11 May 2006 was not property of Blue Sennar Pty Limited, and the first defendant was not entitled to disclaim it. 2. The second defendant required the leave of the Court under (CTH) Corporations Act 2001, s 568(1A), in order to disclaim the Conference Facilities Agreement (for the Sebel Manly Beach) dated 11 May 2006 and the Deed Poll dated 13 December 2006, and the Conference Facilities Licence (at the Manly Sebel Hotel) dated 22 December 2009. 3. The purported disclaimers, notices of which were filed by the defendants with ASIC dated 21 August 2015, are nullities and have no effect.
3. The Court orders that: 1. The defendants pay the plaintiff's costs.

Endnotes

1. As required by (CTH) Corporations Act 2001, s 568A(1)(a).
2. As required by (CTH) Corporations Act 2001, s 568A(1)(b).
3. See Rothwells Ltd (in liq) v Spedley Securities Ltd (in liq) (1990) 20 NSWLR 417 at 422 (Hodgson J).
4. See Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq) [1995] 2 VR 457; (1994) 15 ACSR 191 at 200, 202 (Hayne J); Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq) [2000] NSWSC 960; (2000) 35 ACSR 484 at 496 [58] (Santow J).
5. Rothwells Ltd (in liq) v Spedley Securities Ltd (in liq) (1990) 20 NSWLR 417 at 422 (Hodgson J).
6. See Rothwells Ltd (in liq) v Spedley Securities Ltd (in liq) (1990) 20 NSWLR 417 at 422 (Hodgson J); Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq) [1995] 2 VR 457; (1994) 15 ACSR 191 at 200, 202 (Hayne J); Transmetro Corporation Ltd v Real Investments Pty Ltd [1999] QSC 089; (1999) 17 ACLC 1,314 at 1,320 (Chesterman J).
7. Willmott Growers Group Inc v Willmott Forests Limited [2013] HCA 51; (2013) 251 CLR 592 at 627 [125] (Keane J).
8. Transmetro Corporation Ltd v Real Investments Pty Ltd [1999] QSC 089; (1999) 17 ACLC 1,314 at 1,320 (Chesterman J); Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq) [2000] NSWSC 960; (2000) 35 ACSR 484 at 497 [60] (Santow J).
9. Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq) [2000] NSWSC 960; (2000) 35 ACSR 484 at 497 [63] (Santow J).

Amendments 16 June 2016 - Paragraph [2] typographical error 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. Decision last updated: 16 June 2016