Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89

Court of Appeal (Vic)|2001-06-14|Before: BROOKING, ORMISTON and CHARLES, JJ.A.

CORPORATIONS - Winding-up - "Statutory" demand under s.459E of Corporations Law - Advance to company setting up business in department store - Construction of agreement - Whether "moneys owing" on termination - Whether "genuine dispute" within meaning of s.459H of Law.

This appeal is concerned with whether, on an application to set aside a statutory demand served under s.459E of the Corporations Law, there was, within the meaning of s.459H, a "genuine dispute" between the company and the respondent about the existence of a debt. The judgment of Ormiston, J.A. shows the circumstances in which the appeal arises and deals with the arguments advanced on the appeal and indeed certain other arguments. The Master thought there a genuine dispute; the judge thought otherwise and set aside the statutory demand.

Having considered her Honour's reasons for decision and the arguments advanced on each side before us, we, like Ormiston, J.A., are of the view that leave to appeal, if needed, should be given and that the appeal should be allowed, since a genuine dispute had been shown to exist. Thus the statutory demand will be set aside.

The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.

We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.

5 This being so, we think we should make it clear that, in joining in the allowance of this appeal, we express no opinion on the ultimate question of the existence of the debt. We add that in our view it would be unfortunate if anything said by the Court in disposing of this appeal was treated by a judge before whom the ultimate question came as an authoritative albeit obiter statement, as a single judge of the Trial Division might ordinarily be expected to do. We ourselves do not express, and have not sought to form, a view on the ultimate question, which we regard as by no means easy and one about which minds may well differ. We abstain from enlarging on this for the very reason which underlies these additional remarks.

In this appeal from the order of a judge of the Trial Division setting aside an order of the Senior Master, the appellant asserts that the learned judge wrongly held that there was no "genuine dispute" within the meaning of s.459H of the Corporations Law as to its liability to pay the sum of $1.2m. which was (in part) the subject of a statutory demand served by the respondent Myer Stores Ltd. ("Myer") pursuant to s.459E of the Law.[1]

The facts may be said to be simple but they arise out of an imperfectly drafted commercial document, which the parties entered into, together with a security agreement, an agreement to license floor space in three Myer stores and an agreement to license intellectual property rights from an American corporation, Aveda International Corporation ("Aveda"), which was said to have developed a particular kind of health and beauty care involving the use of spas. The health and beauty services there provided were compendiously called "Aveda Services", the right to market which was licensed from Aveda to Aroma Science Pty. Ltd. ("Aroma"), a company associated with the appellant, which in turn was licensed to

provide those services. Outlets to provide Aveda Services were to be set up in three[2] of Myer's larger stores. The parties to the "initial agreement", as it was described, which was entered into in June 1998, were the appellant Spacorp Aust. Pty. Ltd. ("Spacorp"), the respondent Myer and Aroma, their object being to establish a business to retail Aveda Services in those stores.

The dispute concerns the construction of that agreement and in particular whether in the circumstances the appellant was under an obligation to repay a sum of $1.2m. which was "advanced" by Myer to the appellant for the purposes of the business. The initial term of the agreement was two years, which was capable of being extended for a further two years, but, although the three Aveda outlets were opened, the first term ended without any extension. It was not said, however, that the termination arose because of any default on the part of the appellant or indeed of any circumstances which could be described as a "default event"[3]

within the meaning of the agreement. Myer alleged that the sum of $1.2m. had become immediately repayable at the termination of the initial term and, after the refusal of the appellant to make such payment, it had served the statutory demand. The appellant sought under s.459G of the Corporations Law to have the demand set aside but the Senior Master in the first place had held that there was a genuine dispute as to the existence of the debt, or more precisely as to the existence this part of the debt. On appeal the learned judge held that there was a clear obligation to repay the money which was not denied by any of the specific terms of the agreement.

What the appellant has to show on this appeal, as it did before the Senior Master and the judge of the Trial Division, was that there was a "genuine dispute" within the meaning of the relevant section. It is unnecessary to examine the relevant authorities, the effect of which the parties agreed was correctly stated by the learned judge. The applicant must demonstrate the existence of a plausible contention requiring investigation[4] and, in the words of the Full Federal Court in Spencer Constructions Pty. Ltd. v. G. & M. Aldridge Pty. Ltd.[5], that the dispute is "bona fide and truly exists in fact" and its grounds are "real and not spurious, hypothetical, illusory or misconceived". The issue here is whether that test has been satisfied.

The principal funding clauses of this agreement analysed and relied upon for this purpose by the learned judge, took this form:

"6.5 Funding by Myer (a) Myer agrees to advance to SpaCorp the sum of $1,200,000 for the purpose of establishing the Aveda Business. The sum will be payable as follows: (i) $850,000 payable within three days of signing this agreement or within three days of satisfaction of the preconditions (which ever is the later); and (ii) $350,000 payable on 30 June 1998. (b) The parties acknowledge and agree that the sum of $1.2 million advanced pursuant to clause 6.5(a) is to be paid to SpaCorp and is only recoverable from SpaCorp: (i) if SpaCorp fails to open for business the Aveda Business at the three Initial Store Locations other than for reasons not within its reasonable control by 31 December 1998 (or such later date as Myer and SpaCorp agree); or (ii) in accordance with clause 7.4, where prior to the calculation and distribution of any surplus revenue in excess of Authorised Expenses, Myer is to be reimbursed the $1.2 million advanced pursuant to this clause. (c) Myer will advance to SpaCorp sums agreed upon from time to time between Myer and SpaCorp to fund the operations of the Aveda Business. It is expected funding will initially be required to fund the commencement of operations but that over time the Aveda Business will be self-funding and profitable. It is acknowledged that Myer will fund all Authorised Expenses, to the extent necessary to cover any shortfall from the operation of the Aveda Business." "7.4 Repayment of Myer funding (a) SpaCorp must on an ongoing basis repay to Myer any moneys advanced by Myer including the moneys contemplated to be advanced in accordance with clause 6.5. The moneys must be repaid by SpaCorp from the surplus of revenue earned by, or in respect of the Aveda Business after deduction of Authorised Expenses. Repayments will be made where reasonably possible on a monthly basis. No interest will be payable to Myer on any advance made by it except in the case of a Default Event. (b) SpaCorp must repay to Myer all moneys advanced by Myer which are outstanding immediately upon the happening of a Default Event. Interest will also be payable in the event of a Default Event. Interest will be calculated at the rate of 10% pa, compounding, on the outstanding balance of any moneys owing to Myer, including accrued interest, calculated as from time to time the of default. Interest will be deemed to accrue on a daily basis."

The other clause, of a general nature, apparently relating to repayment of moneys owing, was clause 11.4 which took the following form:

"11.4 Consequences of termination or expiry All obligations under this agreement will cease upon the expiry or termination of this agreement, except all accrued obligations will continue. Upon expiry or termination SpaCorp must immediately repay to Myer any moneys owing to Myer."

As the learned judge perceived the parties' contentions, there was no dispute that the respondent Myer had advanced the sum of $1.2m. to the appellant and, although there were clauses which provided for repayment at an earlier time, essentially out of profits or on default, no part of that sum had been repaid so that the moneys remained "moneys owing to Myer" within the meaning of clause 11.4. Thus, upon the expiry of the initial term of two years, the appellant was under an obligation "immediately [to] repay to Myer the sum pursuant to that clause". In the judge's opinion those clauses showed that the agreement was cast in "unequivocal terms" and so there was no genuine dispute within the meaning of the section.

In terms of conventional lending transactions by banks and other financial institutions, such a conclusion might readily be justified, notwithstanding that an agreement and its terms are inelegantly or uncertainly drawn. Indeed, so the matter first appeared to me. However, Mr Merralls in his careful exposition of the document has convinced me that my initial impression was misconceived, largely because he demonstrated that the nature of the parties' relationship might well be other than one which produced or included a conventional lending transaction, at least to the extent of having persuaded me on the relevant issue, namely, that a "genuine dispute" exists as to the appellant's obligation to pay the sum of $1.2m. Of course, if this advance could be characterised as a simple loan from the respondent to the appellant for use in the appellant's own business, then clause 11.4 might almost certainly have been conclusive, as the learned judge sought to demonstrate. But, on the materials presently before the Court, that was not its nature, or at least it is strongly arguable that it was not its nature, as I shall attempt to explain.

First, however, I should mention the final clause of the agreement, one mentioned in passing by the learned judge but not set out in full, namely clause 16.8. It was called a "survival" clause, which may well have come out of a computer precedent, but it purported to keep alive a number of provisions in the agreement after its expiry in circumstances where their continued operation served to throw at least the seeds of a doubt over the general nature of the transaction between the parties. I shall set it out here because it is useful to recall its terms when dealing with the specific provisions[6]:

"16.8 Survival Clauses 1, 3.3(b), 6.5(b), 7.3, 7.4, 7.5, 7.7, 8, 10.2, 10.3, 11.4, 14 and 15 will survive the termination or expiry of this agreement."

For the rest, however, it is desirable to return to the beginning. There was other evidence as to the manner in which the parties entered into their arrangements which might tend to support the appellant's arguments and thus the tentative conclusion to which I have come, but I should prefer to exclude all consideration of those extraneous matters, for an examination of what the parties actually agreed upon might be said to show sufficiently their objectives and intentions.[7] First one might look at the recitals to the agreement. Recitals A, B and C described briefly the business operations of Myer, Aroma and SpaCorp.[8] "Aveda Services" were stated in recital B to comprise at the relevant time "hairdressing, beauty therapy, beauty treatment and massage". Recital D stated that the three parties "wish to enter into an agreement for the establishment by SpaCorp of a business which will retail the Aveda Services ... ", that certain space will be licensed by the respondent to the appellant and that the appellant "will be responsible for all operational issues ...". Finally, recital E stated that:

"Myer will provide funding as mutually agreed to SpaCorp to conduct the Aveda Business. Myer and SpaCorp will each be entitled to a payment equal to 50% of the surplus of revenue after deduction of authorised expenses earned from the Aveda Business."

Lest there be doubt as to the effect of the recitals, the "objectives of the parties" were set out in clause 2. It should be noted that in this clause the "parties" (i.e. the three parties to the agreement) were described in the plural and in general terms. The clause read:

"2.1 Initial objective The parties initial objectives are to: (a) establish a viable business of providing Aveda Services in at least three Myer stores, being the Initial Store Locations, for the Initial Term; (b) make available the Aveda Services in the Initial Store Locations as an enhancement to the other retail services and products offered by Myer to its customers; (c) expand the reputation and standing of the `Aveda' brand through the Initial Store Locations; and (d) make a commercial return on their investment. 2.2 Long term objective The parties wish to explore operating a viable business of providing Aveda Services in the Initial Store Locations as well as at other sites in the longer term. The conduct of an Aveda Business in a Myer store will need to be complementary to, and an enhancement of, the prevailing retail services offered by Myer, and will need to provide a commercial return on investment." (Emphases added.)

It is also desirable here to notice the operative provision which reflected recital E, namely that relating to the distribution of surplus revenue on a 50/50 basis to the appellant and the respondent, contained in clause 7.5, as follows:

"7.5 Payment of surplus revenue After reimbursement to Myer of any and all moneys advanced by it to SpaCorp, Myer and SpaCorp will each receive payments equal to 50% of the surplus revenue derived in respect of the Aveda Business after deduction of Authorised Expenses."

The reimbursement referred to was that contemplated in the preceding sub-clause 7.4, and in particular para.(a) thereof, set out above.[9]

Counsel also drew attention to the definition of the expression "Authorised Expenses" appearing in the definition clause 1.1 which read:

"'Authorised Expenses' means expenses that are substantiated and reasonably justified as expenses of the Aveda Business and being expenses within the Aveda Business budget as agreed from time to time by SpaCorp and Myer, or as otherwise specifically agreed to in writing by SpaCorp."

It also appears that the agreement is replete with references to SpaCorp "establishing", "conducting" and "operating" the Aveda business in the licensed store locations but at all times subject to what seem to be stringent controls by the respondent Myer. For example, clause 6.1(a) provided that the appellant and respondent "from time to time will agree the range of retail services" to be marketed. Further under clause 7, although the appellant was "responsible for operating the Aveda business", in the relevant locations, including "sourcing all necessary supplies" and the "employment of all necessary staff" (clause 7.1), all revenue had to be collected and disbursed under clause 7.2 "in accordance with the terms of the Concession Licence Agreement", designed to ensure payment of the licence fee promptly to the respondent. Although clause 7.3 stated that SpaCorp was "responsible for all expenses incurred" in the business, the appellant was not allowed to treat as an expense in the business any expense which was not one of the "Authorised Expenses", as defined and thus as agreed specifically with the respondent. Further restrictions were placed on the appellant by clause 7.6, as follows:

"SpaCorp must not take any of the following action in relation to the Aveda Business without first obtaining the consent of Myer: (a) incurring any expenditure in excess of $5,000; and (b) significantly changing the Aveda Business."

Clause 7.7 provided that the appellant had to prepare audited accounts every six months and had to make available "for inspection by Myer all of its accounting information and records dealing with the Aveda Business" and to allow the respondent to conduct an audit of those records. Then by clause 7.8 the appellant was required to "prepare, and provide to Myer, monthly reports being a summary of the financial and trading position of the Aveda Business and such other information as is reasonably requested [by] Myer from time to time", including "any deviations in actual performance compared to budgeted performance".

Moreover by clause 9 the appellant and respondent were to "convene meetings at regular intervals ... to discuss the Aveda Business", and also "to meet monthly to review the expenditures and tracking of the business at which time Myer will review, and if appropriate, endorse such expenditures as reasonable within the meaning of clause 7.3 hereof". The clause continued by requiring that the appellant and respondent should "meet on a quarterly basis to discuss and set budgets for the Aveda Business", the budget strategies being prepared by the appellant who was obliged to submit them for consideration by the respondent.

Against these provisions which gave the respondent Myer a very significant place in the conduct of the Aveda business must be compared the following clauses. In the first place sole responsibility was placed by clause 6.3 on the appellant for establishing the business, which read:

"6.3 Responsibility for establishment SpaCorp is solely responsible for effecting the establishment of the Aveda Business. Myer must reasonably co-operate with SpaCorp for the purposes of establishing the Aveda Business."

More importantly in clause 5, upon which the respondent placed considerable reliance, it was provided:

"5. RELATIONSHIP OF PARTIES Nothing contained in this agreement will be construed so as to place any party in the relationship of principal, employee, agent, partner, joint venturer or legal representative of the other party. The parties expressly agree and acknowledge that each of the parties is an independent contracting party and does not, unless expressly provided, have the authority or power for or on behalf of any other party to enter into any contract, to incur debts, to accept money, to assume any obligations or to make any warranties or representations."

As to the clauses discussed in paras.[13]-[19], and before returning to the specific clauses relating to the advancing of moneys by the respondent to the appellant set out above, one may make the following comments and reach the following tentative conclusions. Notwithstanding the denial contained in clause 5, the relationship of the parties seems to have been far from that of mere borrower and lender; indeed the relationship appears far more closely bound up than that resulting from the mere licensing of space in a department store whose owner provides advances to the licensee solely for the purpose of the setting up of the latter's business in that space. Despite the denials of partnership and joint venture, the respondent Myer would effectively receive 50% of the profits of the Aveda business as run in its stores. Not only that but it seems to have had the power to determine the manner in which the financial affairs of the business would be carried on, by vetting budgets, obtaining regular reports and having the power to reject expenses to be incurred in the running of the business.

As counsel for the appellant pointed out to the Court, there are now many ways in which businesses are set up and by which capital (or whatever one wants to call moneys used to set up businesses) may be provided by one party to another. It is obvious that for many purposes the parties, or one party or the other, do not wish a business to be characterised as a partnership or a joint venture, whatever the latter may relevantly connote, as it is not a term of art. By referring to certain learned articles[10] written about the funding of oil and gas ventures, especially by limited recourse loans, counsel also sought to show that it does not follow, as the night the day, that moneys advanced for certain purposes from which each may profit should necessarily be the subject of an obligation to repay. In many cases there can be a conditional obligation (frequently called "limited recourse") but what the parties choose to do, if the venture does not succeed (and in the absence of a relevant default), largely depends upon the risk undertaken and the benefits, direct and indirect, which the "lending" party may fairly expect to obtain therefrom. Thus, even before returning to the clauses relating to the advances, one might have concluded that the present agreement was not substantially different in effect, the appellant hoping to set up businesses to sell its products and services in three branches, and possibly in the future in more branches, of a large established department store, while the respondent might be seen to have hoped to gain from the presence of businesses with some cachet intended to attract certain customers, which it expected would produce profits for it at the end of the day.

All this is not to say that an agreement, which contains a provision whereby one party agrees to advance money to the other and further agrees to repay that money in specified ways, will not be construed as one providing for the making and repaying of a conventional loan. If the terms used are of a conventional kind, such as "lend" or "advance", then, unless there be more to the relationship, moneys so lent will be repayable by the borrower at its end, regardless of the fact that the lender may in particular ways stand to gain some additional benefit from the venture. That may well turn out to be so in the present case. Nevertheless, it will always be a matter of construing the particular agreement, seeing what it specifically provides for and reaching conclusions based on a consideration of the whole of the parties' arrangements. So, as in this case, what looks, from a consideration of two or three clauses, to be a simple loan may in truth not be so and may be repayable only in certain limited circumstances.

It is therefore necessary to return to the specific clauses relied upon and in particular those which relate to the advancing and repaying of the sum of $1.2m. In the context, therefore, of the whole agreement and the parties' business arrangements, the provisions as to funding and repayment thereof may take on a light different, with great respect, from that perceived by the learned judge at first instance.

Thus it would seem necessary to view clause 6.5[11]

as to funding as part of the arrangements whereby the Aveda Business was established, which was indeed the subject of the rest of clause 6. So para.(a) of clause 6.5 identifies the purpose of the advance of $1.2m. as being "for the purpose of establishing the Aveda Business". The establishment of that business, although defined as being "conducted" by Spacorp, was one of the "parties initial objectives", in order to obtain "a commercial return on their investment"[12], as stated in clause 2.1. Not only that, but whether or not the parties viewed it as a partnership or joint venture or something less, it seems to have been a business which was intended in due course to produce net profits which would be divisible 50/50 between Myer and Spacorp: see clause 7.5. Admittedly those equal payments from "surplus revenue" could only be made "after reimbursement to Myer of any and all moneys advanced by it to SpaCorp", but, at least from that stage, the two principal parties to the agreement were intended to benefit equally, at least in monetary terms[13], or so it would appear on the face of the matter.

The specific provisions as to "funding by Myer" had, as will be seen from clause 6.5, two elements, the first being the specifically agreed advance of $1.2m. payable in defined instalments (see para.(a)), and the second being those advances made pursuant to para.(c) of sums "agreed upon from time to time between Myer and SpaCorp to fund the operations of the Aveda Business". For this purpose, although the lack of precision is obvious, the latter part of para.(c) contained an acknowledgment that the respondent would fund "all authorised expenses", so far as was "necessary to cover any shortfall" from the operation of that business.

Counsel argued that it was important to notice that the provisions for repayment of advances, although they had a common dependence on the availability of distributable profits, were different, according to whether the advance formed part of the $1.2m. or whether it formed part of the advances for the initial running expenses of the business. Thus although the latter advances were dealt with generally by the provisions of clause 7.4[14]

, the $1.2m. advance had a specific provision relating to repayment contained within clause 6.5 in para.(b). That paragraph commenced, significantly, in this way:

"The parties acknowledge and agree that the sum of $1.2 million ... is to be paid to SpaCorp and is only recoverable from SpaCorp: ..." (Emphasis added.)

The two sub-paragraphs which followed made provision for repayment, in the first place if the Aveda business was not opened in the three store locations "for reasons not within [the appellant's] reasonable control" or secondly, in accordance with clause 7.4. Why paragraph (ii) sought to paraphrase the requirements of clause 7.4 is not clear, as counsel for both parties acknowledged, for it seems a compendious description only of the basis upon which repayment was to be made under para.(a) of clause 7.4. The important point, however, to note about the whole of clause 6.5, and in particular para.(b), so it was said, is that the sum of $1.2m. was "only recoverable from SpaCorp" in the named circumstances.

Of course para.(b) of clause 6.5, in particular sub-para.(ii), takes one to clause 7.4, which in substance made provision for two modes of repayment of the advances to the appellant, including the advance of $1.2m. Its first paragraph (a) was broken up into four sentences but at present, although the division may have greater significance, I cannot see any reason not to read it as a whole. It was the paragraph which required the appellant "on an ongoing basis" to repay all moneys advanced, from the surplus of revenue arising from the Aveda business after deduction of authorised expenses. It seems likely that periodical repayments were intended, for they were to be made on a monthly basis "where reasonably possible".

It was pointed out that there was a specific and significant provision in paragraph (a) of clause 7.4 stating that "no interest will be payable to [the respondent] on any advance", "except in the case of a Default Event". The obligation to repay on the occurrence of a Default Event was then described in para.(b), which dealt generally with "all moneys advanced" and which required repayment of the "outstanding" amount of those advances upon the happening of a defined "Default Event". In contrast to para.(a), interest was payable "in the event of a Default Event" at the rate of 10% per annum compounding, accruing on a daily basis, but calculated from the time of a default. "Default Event" was defined comprehensively in the definition clause 1.1 and covered, if one may describe it in general terms, a series of events which included all circumstances in which the appellant might be in breach of its obligations but which appears to go wider and cover any event which could have led to the termination of the agreement for which the respondent was not responsible, and also, arguably, in some circumstances even where it might be not possible to determine who was to blame for an event leading to the determination of the parties' arrangements. I shall not set out each of the seven listed items contained in the definition, for it is sufficient to refer to para.(e) which included an event "which gives either party the right to terminate this agreement in accordance with clause 11.3" and to para.(g) which included "the engaging in of conduct which the other party reasonably believes is inconsistent with the active implementation of the agreement". The word "event" was also defined in the same clause as comprehending what were called "primary events" and "secondary events", which were in turn defined in clauses 10.2 and 10.3.[15] Primary events were defined to cover circumstances in which the appellant became unable to perform the agreement because it lost its right to perform the agreement, in particular by losing the right to use the Aveda name trademark and the like. "Secondary event" included circumstances in which some other person established a similar business and used the intellectual property rights of the Aveda corporation in that competing business, if conducted within five kilometres of a relevant store.

Consequently, although there were a wide range of circumstances in which the appellant might have become liable to repay the advanced sum of $1.2m. which were specifically dealt with in clauses 6.5(b) and 7.4, those clauses did not deal specifically with the circumstance in which the initial term of two years expired merely by way of effluxion of time, so bringing the parties' contractual arrangements to an end, otherwise than to the extent dealt with in clause 16.8, to which I shall turn in a moment. Naturally, the respondent, as did the learned judge, pointed to clause 11.4.[16]

That clause brought all obligations to an end, other than the accrued obligations referred to in clause 16.8, but it also required that upon termination the appellant should "immediately repay to Myer any moneys owing to Myer". It was said that because the sum in question had been advanced, it naturally followed that it formed part of the moneys owing in that event to the respondent and so there was no reasonable argument, as the learned judge had held, that the sum should not then have been repaid on demand.

On the face of it this might well have been seen as, and may well turn out to be, a compelling consideration, as it would be in a conventional lender-borrower relationship, but the question remained what was the significance of the restriction contained in clause 6.5(b) that the advance of $1.2m. was "only" recoverable from the appellant in the named circumstances, which included those directly described in clause 6.5 and those derivatively described there and contained in clause 7.4. It would (and will) be difficult to accept the contention that, because the word "only" appeared before the word "recoverable", it did not qualify the provisions in sub-paras.(i) and (ii) and thus, as was said to follow, it was merely intended to restrict the right to recover the advance "only from SpaCorp". That was not a view espoused by the learned judge. Moreover, though the word "only" was not placed immediately before the two sub-paragraphs, neither it was placed so as directly to qualify the expression "from SpaCorp", so that it seems unlikely that it should, by reason of its position, be read as meaning "only from SpaCorp". There was a third party to the agreement, but it would be hard to suggest that the sum could under any circumstance be recoverable from Aroma, so that the likely meaning of the expression is that the word "only" qualified what came subsequently, in other words, it qualified the expressions appearing after the colon and set out in the two sub-paragraphs.

Nevertheless it was argued on behalf of the respondent that the provisions as to repayment in clause 6.5(b) referred only to the rights of the parties during the life of the agreement and that clause 11.4 was directly concerned with what should occur after the agreement had terminated, with the result that, as might be expected in the case of a conventional loan, any moneys outstanding then became recoverable by the lender.

On its face, this contention is straightforward and still has much to commend it, but, as to clause 11.4, it was argued on the other side that it applies only to "moneys owing" to the respondent. The assumption is that the amount in question is not merely recorded as an advance or loan but that some event will have entitled the lender to treat it as owing. The word "owing" has been the subject of much authority, but one should be cautious about its interpretation, since more often than not the word takes on its meaning according to the context in which it is used. It ordinarily connotes that an obligation to pay has arisen. Thus in the High Court, in Bakewell v. Deputy Federal Commissioner of Taxation (S.A.)[17], Dixon and Evatt, JJ. said of the expression "due and owing" that, although it did not necessarily mean "due and payable", "the expression does require that an obligation to pay shall have accrued". So also in Re Australia and New Zealand Savings Bank Limited; Mellas v. Evriniadis[18], Pape, J. said, on behalf of Winneke, C.J. Crockett, J. and himself, that: "A `debt owing' is one for which the creditor could have immediately and effectively sued ...". On the other hand it may be, in many circumstances, that an obligation to repay can be inferred upon the termination of a certain arrangement if a loan made has not been repaid. Nevertheless, although that might be the natural inference from a simple loan transaction, where nothing has been agreed between the parties as to the duration of the loan or its repayment, the question is ordinarily resolved by the terms of the parties' agreement.

In the present case the provisions for repayment of the advance of $1.2m. are set out explicitly in the clauses to which I have already referred, namely clauses 6.5 and 7.4. There is a strong argument that clause 11.4 adds nothing to the relevant terms as to repayment, inasmuch as the clause refers to moneys which are in fact owing. So much would seem to follow from the fact that no event had occurred which rendered "owing" the sum of $1.2m. pursuant to clauses 6.5 and 7.4, unless that be the termination of the agreement itself. I would concede that the argument which I have just set out might have the consequence that not only was the $1.2m. not repayable, but neither was any other sum advanced pursuant to para.(c) of clause 6.5. For this purpose clause 7.4 might be seen to have a similar restrictive effect, so that again there would be no general provision making payable these other advances upon termination of the arrangement. It is not necessary to resolve that question, but it suggests that it may be necessary to look further in order to reach any degree of satisfaction as to whether or not the advance of $1.2m. became "owing" on termination. I might add that no authority was cited to the Court by either party as to the meaning of language of the kind used in clause 11.4.

There would appear, however, to be other indications in the agreement which might suggest that the money was not owing on the termination of the arrangement. I have referred already to the use of the word "only" in para.(b) of clause 6.5, to which I shall return. Clause 16.8 also seems to have significance in this respect. If all advances became due and owing at the moment of termination, such as at the expiration of the initial term, some of the "surviving" clauses would appear to have little effect. Of course the obligations under some clauses had to be preserved in order that existing rights would not fall with the agreement, but a number retain or maintain obligations to pay or repay moneys, especially moneys advanced to the appellant, in circumstances where there would be no point in the obligation surviving as such, if clause 11.4 ipso facto had already entitled the respondent to recover the moneys.

So it was argued that both clauses 6.5(b) and 7.4 are listed as surviving termination. Paragraph (b) of clause 6.5, confined as it is to the advance of $1.2m., is that clause which limits the recovery of that sum apparently only to the circumstances stated in the paragraph, whereas the "survival" of rights under clause 7.4, both paras.(a) and (b), preserves the liability to pay all moneys advanced, but in circumstances where clause 11.4 would, on the respondent's argument, have made all those moneys immediately due and payable. If the respondent be correct, there would have been little reason for the continuation of the rights and obligations described in those paragraphs after the termination of the agreement, or so the appellant argued. On the other hand, if the moneys had not in fact been repaid pursuant to those clauses but where an obligation to repay had accrued thereunder within the lifetime of the agreement, then the purpose of the survival provision in clause 16.8 permitted and continued to permit the respondent to sue for those moneys upon the basis of any rights already brought into existence under the clauses in question. If all advances became repayable under clause 11.4, then, so it was contended, there would be no point to the survival of any rights under clauses 6.5 and 7.4, unless clause 11.4 was completely misconceived.

One must be cautious about drawing conclusions about the enforceability of rights from what was, as at least the appellant concedes, an imperfectly drafted document. It is possible that there were some oversights and clause 16.8 may have been included to make assurance doubly sure, but its explicit reference to para.(b) of clause 6.5 would on its face appear to support the suggestion that the parties had in mind that the limited right to recover the $1.2m. must be preserved, if the conditions therein had been satisfied, notwithstanding that there might be some other general right to sue under clause 11.4 in respect of other moneys owing under the agreement. It is not necessary to examine the other clauses which survived, which indeed included clause 11.4, except for clause 3.3(b), to which no reference was made in argument, and which was yet another clause requiring advances to be repaid, in this case if certain pre-conditions contained in clause 3 were not satisfied. Again there would, on the face of it, seem to have been no point to its survival if the right to recover flowed automatically from clause 11.4. All that need be said, however, is that an argument based on this clause, as on the other provisions relied on by the appellant, cannot be dismissed out of hand. There was a plausible contention requiring investigation.

In the circumstances, therefore, I consider that there was a bona fide dispute that the moneys were not "owing" pursuant to the agreement. It can properly be argued that the word "only" in clause 6.5(b) meant what it said, namely that there was a limited right to recover the advance of $1.2m. and only in the circumstances explicitly specified in that clause or incorporated by reference from clause 7.4. Thereby it could be argued that there was no other right to recover that advance. In my opinion, on the present facts, it could be concluded that was because the parties did not treat it as a conventional loan but treated it as an advance directed to the establishment and building up of the business in the success of which they each had a joint interest, howsoever one should characterise the relationship between the parties. So it was arguable that clause 11.4 did not entitle the respondent to sue for the sum; nor did any other clause of the agreement. For present purposes it is not necessary to reach any final conclusions on the issues raised by the parties, other than that the learned judge was in error in saying that the terms of the agreement were "clear and unambiguous", that it imposed a "clear obligation" on the appellant, and that in consequence I consider there is a "genuine dispute" within the meaning of the section.

For two reasons I have examined the various contentions in greater detail than would normally be necessary or desirable. First, although it was necessary only to be satisfied that there is a "genuine dispute", this case has already been the subject of a decision of a judge of the Trial Division. Doubtless, the arguments were not presented in the same way, but I felt it desirable to demonstrate that the simple answer there given, which still has all the merits of simplicity, may not prevail because of the complex nature of the parties' arrangements. Secondly, the decision has already been reported in one way or the other[19] and it had to be shown, regrettably, why it ought not to be treated as authoritative on the present issue. Otherwise I would agree with the other members of the Court that the reasons for concluding that there is a "genuine dispute" should ordinarily be as brief and unspecific as practicable.

There remains the question whether leave to appeal was required, an issue directed to be heard together with the appeal. This is considerable conflicting authority on this point, the difficulty being to identify the litigation or dispute which lies behind applications of this kind. Applications are brought in relation to notices of demand before any application to wind-up is instituted, and, if a stay is obtained, no liquidation can be sought on the basis of the notice. On the other hand, realistically the failure of a stay application often leads inexorably to a winding-up order, an order of far-reaching consequence affecting the status of a corporation. The latter consequence, though not inevitable, is of such importance to the applicant corporation that, even if it does not have the right to appeal without leave, then it should be granted leave to appeal in ordinary circumstances such as here exist. I say nothing as to the different position of a party proposing to bring a winding-up application. Nor would I wish to encourage appeals by companies where the answer to a demand is fanciful or the justice of the case otherwise demands, for leave would there be refused on conventional grounds. In the present case I would, in so far as it is necessary, grant leave to appeal.

For the reasons appearing above I would also allow the appeal, set aside orders 1, 2 and 3 of the order of the learned judge made 9 November 2000, order in lieu that the appeal from the Senior Master's orders made 12 October 2000 be dismissed and restore his order, namely, that the "statutory demand" dated 26 July 2000 be set aside. Costs would ordinarily follow the event but I would hear counsel as to the precise terms of the necessary orders.

[1] The demand in fact comprehended a further sum of $1.053m. but it has been common ground that a genuine dispute exists in relation to the latter sum.

[2] In the first place: it was contemplated that more would be set up later.

4] See per McLelland, J. in Eyota Pty. Ltd. v. Hanave Pty. Ltd. (1994) 12 A.C.S.R. 785 at 787-788.

[6] See, e.g., the provision relating to "accrued obligations" in cl.11.4.

[7] The parties placed little reliance on them and they may tell only part of the story. In due course they may have greater significance, but on my present reading of them they would not favour the respondent's case.

[8] Aroma is stated to be the Australian licensee and exclusive distributor of the relevant products and services from Aveda International. SpaCorp is stated to be "a company associated with Aroma" which has been licensed by Aroma "to conduct a business providing the Aveda services".

10] See, e.g. Ladbury: "Recent Trends in Limited Recourse Financing ..." in (1979) 2 A.M.P.L.J. 68, esp. at 68, 73-74.

[11] For its full terms, see para.[[] above.

[13] Clause 7.5, which dealt with the right to share in the surplus revenue, contemplated that the reimbursement would be effected in the manner described in clause 7.4(a), which dealt with not only the repayment of the advance of $1.2m., but also with any other advances from respondent to appellant. As I understand it, although Myer would receive its licence fees pursuant to the licence agreement, which amounted to 10% of gross sales, SpaCorp received no other benefits, above the 50% share in profits, unless it could be said to have gained indirectly by reason of Aroma's sales and the fees payable to that company.

[14] For its full terms, see para.[[] above.

15] The definition was inaccurate in that it referred only to clause 10.2, but that clause in fact only defined "primary event" and the expression "secondary event" was defined in clause 10.3.

[16] For its full terms, see para.[[] above.

[19] Only in computer databases as either [2000] VSC 469 or BC 200006748.

At a glance

Court

Decision date

Before

Source

Judgment (80 paragraphs)

Parties