Treasury Wine Estates Vintners Ltd v Garrett - [2015] FCA 797 - FCA 2015 case summary — Zoe

Treasury Wine Estates Vintners Ltd v Garrett - [2015] FCA 797 - FCA 2015 case summary — Zoe

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Section 459H of the Act 5 The principles governing the application of s 459H of the Act were recently summarised in First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654; [2013] FCAFC 108. These principles include: (1) For there to be a genuine dispute, there must be a "plausible contention requiring investigation". It raises the same sort of considerations as the "serious question to be tried" criterion applicable to interlocutory injunctions. The Court is not called on to determine the merits of, or to resolve, the dispute. (2) The threshold is not high or demanding; however the claim must have some merit and be genuine. That requirement has been described variously as the claim must be "real and not spurious", the claim must have "a real chance of success", there must be "a serious question to be tried". (3) A useful analogy to the burden on the party asserting the claim is that of an alleged debtor resisting an application for summary judgment. If the Court sees any factor that, on rational grounds, indicates an arguable case, it must find that a genuine dispute exists even where any case apparently available to be advanced to the contrary seems stronger. 6 In Panel Tech Industries (Australia) Pty Ltd v Australian Sky Reach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18], Barrett J stated: … the task faced by a company challenging the statutory demand on the "genuine dispute" ground is by no means at all a difficult or demanding one. The company will fail in that task only if it is found upon the hearing of its s 459G application that the contentions upon which it seeks to rely in mounting its challenge are so devoid of substance that no further investigation is warranted. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger. The same principles apply to the company demonstrating that it has an offsetting claim.

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the DEED OF SETTLEMENT 9 Before turning to the statutory demands, it is appropriate to set out relevant parts of the Deed of Settlement made on 26 July 2000 between Mr Garrett and associated parties on the one hand and TWEV and related entities on the other hand, on which the debts claimed in the statutory demands are founded. 10 Clause 9.1 provided: In consideration of the assignment by the Trustees of the Australian trade mark application number 634077 and registered marks set out in Part B of Schedule 2 to this Deed: (a) MBL shall pay the Trustees $1.8 million on the Commencement Date…. (b) Subject to clause 9.2, MBL shall pay to the Trustees a fee of $2.00 for each Case of Product sold by MBL in the MBL territory or Japan or overseas wine clubs in the period commencing 1 July 2000 and ending 30 June 2010. MBL shall not be required to make any further payments to AMG for sales of Product after 1 July 2010. Sales to any associated company of MBL shall be ordered sales for the purposes of this clause. Payment shall be made by telegraphic transfer as set out in clause 9.1(a). "MBL" is an abbreviation for Mildura Blass Ltd, the former name of TWEV. "The Trustees" are Mr Garrett and his wife as trustees of the Garrett Family Trust. "AMG" is an abbreviation for Mr Garrett and "Commencement Date" is 27 July 2000. Clause 9.2 provided: Regardless of the value of actual sales made by NBL in accordance with sub-clause 9.1(b): a) Subject to 9.2(b), MBL shall pay AMG a minimum of $75,000 in each quarter from 1 July 2000; and b) The maximum MBL shall be liable to pay AMG in any 12 month period from 1 July 2000 shall be $600,000. 11 Clause 9.3 provided: The amounts set out in Clause 9.1(b) and 9.2 above shall be payable on sales made during each quarter commencing on 1 July, 1 October, 1 January, and 1 April in each year and shall be paid within thirty (30) days of the last day of each such quarter. 12 Clause 17 contained various warranties and indemnities of the parties. Clause 17.2 provided: The AMG Entities jointly and severally indemnify MBL against all actions, proceedings, claims, demands or prosecutions of any kind or nature and howsoever arising by whomsoever and whenever brought or commenced against or incurred by MBL (or its agents and employees) and also against all costs and damages and expenses which MBL may pay or be made liable to pay in defending or settling the same arising directly or indirectly out of the registration or use by AMG of the Andrew Garrett Trade Mark, the Garrett Trade Mark, the Garrett Family Trade Mark or the Stylised Script outside the MBL Territory or arising directly or indirectly from any act or omission from the AMG Entities or any of their agents, representatives, employees or servants in relation thereto. 13 Clause 17.3 provided: MBL indemnifies the AMG entities against all actions, proceedings, claims, demands or prosecutions of any kind or nature and howsoever arising by whomsoever and whenever brought or commenced against or incurred by the AMG Entities (or their agents and employees) and also against all costs and damages and expenses which the AMG Entities may pay or be made liable to pay in defending or settling the same arising directly or indirectly out of the registration or use by MBL of the Andrew Garrett Trade Mark, the Garrett Trade Mark, the Garrett Family Trade Mark or the Stylised Script Trade Mark in the MBL Territory or arising directly or indirectly from any act or omission of MBL or any of its agents, representatives, employees or servants in relation thereto.

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EVIDENCE 42 Mr Jason Ryan, the Deputy General Counsel of Treasury Wine Estates Limited ("TWE"), the parent company of TWEV, swore an affidavit in each proceeding in which he deposed to the matters set out below. 43 For the quarterly periods from 26 July 2000 to 1 April 2005, TWEV made payments in the manner provided for under Clause 9 of the Deed of Settlement. 44 On 24 September 2004, a sequestration order was made against Mr Garrett and Mr Peter Ivan Macks ("Mr Macks") was appointed trustee of Mr Garrett's bankrupt estate. 45 In mid-2005, TWEV commenced interpleader proceedings in the Supreme Court of Victoria concerning the quarterly payments due under Clause 9 of the Deed of Settlement. The claimants to the payments included Mr Macks, and a Mr Shu Mu Tseng, under a Deed ("the Tseng Deed") entered into with Mr Garrett and his wife in their capacity as trustees of the Andrew Garrett Family Trust. By orders of the Supreme Court made on 26 July 2005 and 19 August 2005, TWEV was granted leave to pay the amounts due under Clause 9 into the Supreme Court until the determination of the proceeding or further order. 46 On 16 December 2005, orders were made in the Supreme Court proceeding cross-vesting the proceeding to the South Australian Registry of the Federal Court of Australia and directing that future quarterly payments by TWEV due under Clause 9 were to be paid into the Federal Court. 47 On 27 March 2009, Lander J in the cross-vested proceeding (SAD 5 of 2006), made orders by consent that out of the monies held in Court, $112,500 was to be paid to the Australian Taxation Office, $100,000 was to be paid to the Commercial & General Law Trust Account on account of Mr Garrett in his capacity as trustee of the Andrew Garrett Family Trust No. 3, and the balance was to be paid to Mr Macks in his capacity as trustee of the bankrupt estate of Mr Garrett. The Court further ordered TWEV to pay future amounts payable pursuant to Clause 9 to the Lipman Karas Trust Account (being the trust account of a South Australia law firm). 48 Mr Ryan exhibited a table to his affidavit which he believed accurately summarised the documents evidencing the payments made under Clause 9 for the quarterly periods from 30 July 2004 to 30 July 2010. The Tseng Deed was also put into evidence. Clause 1 of that deed contained a warranty from Mr Garrett that TWEV had paid the quarterly payments due for the quarters from 1 January 2003 up to 1 April 2004. 49 On 1 May 2014, Mr Garrett filed a proceeding in the Federal Court against TWEV and other related entities. The claims made by Mr Garrett against TWEV included: (a) an allegation that, on the proper construction of Clause 9 of the Deed of Settlement, in addition to the amounts payable by TWEV to the trustees, quarterly payments were also due and payable by TWEV to him personally "in perpetuity" and none of those payments had been made; (b) an allegation that TWEV had breached the terms of Clauses 14 and 15 of the Deed of Settlement in relation to the exercise by Mr Garrett of certain option rights; (c) an allegation that Clause 17.3 of the Deed of Settlement operated as an indemnity in Mr Garrett's favour in respect of the 2014 proceedings instituted by him and all other proceedings he had taken against TWEV.

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The 2014 Federal Court proceeding 50 This proceeding was the subject of a judgment: Garrett v Make Wine Pty Ltd [2014] FCA 1258. Mortimer J held that the proceeding was an abuse of process, falling within the definition of "vexatious proceeding" in s 37AM(1)(a) of the Federal Court of Australia Act 1976 (Cth) ("the FCA"). Mortimer J gave judgment for the respondents and made an order pursuant to s 37AO of the FCA in the following terms: Andrew Morton Garrett is hereby prohibited from: (a) instituting in his own name; or (b) causing others to institute; or (c) being concerned, whether directly or indirectly, in the institution of - any proceedings in any registry of the Federal Court of Australia against Make Wine Pty Ltd, VOK Beverages Pty Ltd, Treasury Wine Estates Vinters Ltd or any related body corporate, employee, agent or advisor of Make Wine Pty Ltd, VOK Beverages Pty Ltd, Treasury Wine Estates Vinters Ltd without the leave of this Court. 51 Significantly, for present purposes, Mortimer J held that Mr Garrett had no standing to bring claims against TWEV based on alleged breaches by TWEV of Clauses 9.2 and 17.3 of the Deed of Settlement by reason that any right to make those claims vested in his trustee in bankruptcy. Her Honour stated at [107]: Mr Garrett's causes of action in relation to alleged breaches of the 2000 Deed, and any interests he had to be paid, or rights he had available for exercise, under that Deed which could have resulted in additional funds being available for creditors vested in his trustee in bankruptcy. Having been divested of that property on bankruptcy, he does not reacquire it after his discharge and is not able to issue proceedings in relation to the 2000 Deed. 52 Mortimer J also held that Mr Garrett's claim to payments under Clause 9 of the Deed of Settlement was Anshun estopped as such a claim could have been, and should have been, agitated in proceeding SAD 5 of 2006. Her Honour further held that the ground of abuse of process was "fatal to all of Mr Garett's claims" in the proceeding, finding that "it is clear that Mr Garrett has engaged in substantial re-litigation of issues, having been unsuccessful to date in obtaining the outcome he desired from other proceedings". At [195] to [201], her Honour said: The impression which is created, attempting to characterise this behaviour as favourably as I can for Mr Garrett, is that he is so firmly persuaded in his own mind that he has not received any "justice" that he simply refuses to accept any outcome, including a judicially imposed outcome, that does not give him what he believes he is entitled to. I consider that Mr Garrett has continued many of those features in the proceeding before me. First, the subject matter of the proceeding is once again the 2000 Deed, which has featured, directly or indirectly, in many previous proceedings brought by Mr Garrett. Likewise, the disputes over ownership of wine labels and trade marks have been raised in other proceedings. There is no doubt that what Mr Garrett seeks to do in this proceeding is to revisit yet again the bargain struck by the 2000 Deed, and his complaints about the performance of that bargain. It should not be overlooked that the 2000 Deed itself was a compromise of proceedings brought by Mr Garrett in No 2244 of 1996 in the Supreme Court of South Australia. He appears never to have accepted the terms of that compromise as binding upon him in any realistic sense. The consequences of the performance (or alleged non-performance) of the parties' obligations under the 2000 Deed have been worked out in many of the subsequent proceedings brought by Mr Garrett. The interpleader proceedings transferred from the Victorian Supreme Court to the South Australian Registry of the Federal Court and which became SAD 5 of 2006 concerned payments under the 2000 Deed. The interpleader proceeding was settled by consent orders, to which Mr Garrett was a party. Notwithstanding that fact, Mr Garrett has this year sought to reopen those proceedings. In the Victorian Registry, Mr Garrett now has proceedings which seek directly to interfere with the consent orders made by Lander J in Mr Garrett's proceeding against Mr Macks, in circumstances where Mr Garrett was party to a deed of settlement with Mr Macks (and others) in respect of that proceeding (VID 304 of 2014). The proceedings before Layton J in Mildara Blass [2009] SASC 19 concerned, amongst other things, the first attempt by Mr Garrett to reopen the proceedings in No 2244 of 1996, which had resulted in the 2000 Deed. The basis on which Mr Garrett sought to reopen those proceedings was first, that the 2000 Deed had been breached and, second, that he had terminated it. He relied on several affidavits sworn by him and, as Layton J noted at [62] of her Honour's judgment, six volumes of annexures. I note of course (as Layton J did at [64] in the context of the application before her), that the second allegation made by Mr Garrett (of termination) is wholly inconsistent with his subsequent conduct in seeking to issue proceedings to enforce payments made under the 2000 Deed, including in this proceeding. The extract of Layton J's judgment at [119] above clearly indicates that Mr Garrett's determination to re-agitate and re-litigate many aspects of the 2000 Deed and its consequences for him (which have included his bankruptcy, the loss of assets and the sale of properties with which he was connected directly or indirectly) is not, and never has been, accompanied by any substantive legal arguments which can be said to have sufficient force for his numerous proceedings to survive even preliminary examination by a variety of judges in a variety of courts. The subject matter of these proceedings - the 2000 Deed and its consequences - has been directly or indirectly the subject now of several proceedings brought by Mr Garrett. Since Mr Garrett seems incapable of exercising any self-discipline in relation to drawing a line under his wholly unsuccessful attempts to litigate his complaints about the 2000 Deed and its consequences, the Court must take action itself to prevent any further abuse of its processes by Mr Garrett. 53 Mr Garrett's application for leave to appeal that decision was refused: Garrett v Make Wine Pty Ltd [2015] FCA 593. Relevantly, for present purposes, Beach J held that Mortimer J had been correct to hold that, by reason of his bankruptcy, Mr Garrett had no standing to bring the claims for alleged breaches of Clause 9 and Clause 17.3 of the Deed of Settlement. His Honour also held that each of the other proposed appeal grounds raised by Mr Garrett were misconceived, untenable or too nebulous to be meaningful.

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The 2014 statutory demands 54 As part of the chronology of events, it is also relevant that during the period from 18 June 2014 to 29 July 2014, Mr Garrett (and related parties) had served statutory demands on each of TWE and TWEV in respect of alleged debts said to arise under the Deed of Settlement. The creditor's demands were for the following amounts: (a) $56,8326,123.74 (sic) for "the amount of money payable" under Clauses 9.1(b), 9.3 and 17.3; (b) $56,836,123.74 for "the amount of money payable" under Clauses 9.1(b), 9.3 and 17.3; (c) $8,250,000 "for the amount of money payable to [Mr Garrett]"; (d) $8,250,000 for "the amount of money payable" under Clauses 9.2(b) and 9.3; (e) $112,500 for "the amount of money payable" under Clause 17.3 as a loss subject to indemnity pursuant to orders of the Federal Court on 27 March 2009 (two copies of this notice were served); (f) $219,269.60 for "the amount of money payable" under Clause 17.3 to reimburse expenses in SAD 5 of 2006 (two copies of this notice were served); (g) $5,300,000 for "the amount of money payable" under Clause 17.3; (h) $150,000 for "the amount of money payable" under Clauses 9.2(b) and 9.3 as at 1 July 2014; and (i) $677,000 "for the amount of money payable" under Clause 17.3 "pursuant to demands for payment made on 5 July 2014 for $347,000 and on 6 July 2014 for $330,000". 55 During a case management conference held on 9 July 2014 in the 2014 proceedings, Mr Garrett withdrew all but five of the statutory demands served by him. The withdrawals were without prejudice to any rights Mr Garrett may have after the determination of the 2014 proceeding to serve similar statutory demands on TWE and TWEV. TWE and TWEV subsequently commenced five separate proceedings to have the remaining statutory demands set aside. At a case management conference before a Registrar of the Court on 1 August 2014, Mr Garrett provided an undertaking to the Court that he would withdraw the remaining five statutory demands upon provision of material from TWEV demonstrating solvency. Such material was provided to Mr Garrett and on 5 August 2014, orders by consent were made for those five statutory demands to be set aside.

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consideration 56 The first issue for consideration is whether the statutory demands the subject of the current proceedings were served by Mr Garrett in contravention of s 37AQ(1) of the FCA. Section 37AQ relevantly provides: (1) If the Court makes a vexatious proceedings order prohibiting a person from instituting proceedings, or proceedings of a particular type, in the Court: (a) the person must not institute proceedings, or proceedings of that type, in the Court without the leave of the Court under section 37AT; and (b) another person must not, acting in concert with the person, institute proceedings, or proceedings of that type, in the Court without the leave of the Court under section 37AT. (2) If a proceeding is instituted in contravention of subsection (1), the proceeding is stayed. 57 The word "proceeding" is defined by s 37AM of the FCA Act to have the meaning in s 4 of the FCA Act as follows: proceeding means a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal. Example: Discovery is an example of an incidental proceeding. 58 The word "institute" is defined in s 37AM of the FCA Act and includes relevantly: … for civil proceedings - the taking of a step or the making of an application that may be necessary before proceedings can be started against a party. 59 TWEV submitted that the service of the statutory demands constituted the institution of a proceeding within the meaning of s 37AQ because the purpose of a statutory demand is to facilitate proof of a company's inability to pay its debts (see s 459C(2)(a) of the Act) and thus, it was said, the service of the statutory demands was the taking of a step that may be necessary before commencing wind up proceedings. I am not aware of any reported decision on point and none was cited to me. However, I am assisted by HWY Rent Pty Ltd v HWY Rentals (in liq) (No 2) [2014] FCA 449, in which Perry J held that a request to issue a bankruptcy notice under s 41(1) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") constitutes the taking of a step necessary before proceedings in a court may be started against a debtor by way of a creditor's petition. 60 I have reached the view that the service of a statutory demand can properly be regarded as the institution of proceedings within the meaning of s 37AQ. The legal effect of a statutory demand is to set up a presumption of insolvency of the company in winding up proceedings of the company if the company has failed to comply with a statutory demand within the three months ending on the day when the application for winding up was made. By force of s 459C(2)(a) of the Act, the Court must presume in winding up proceedings that a company is insolvent if the company is taken to fail to comply with the demand. The company is taken to fail to comply with the demand if the company does not, within a strict 21 day period after service of the demand, either pay or compound the debt, or initiate court proceedings to set the demand aside: s 459F of the Act. As the presumption of insolvency arises by force of statute for the purposes of a wind up application, it can therefore be said, in my view, that the service of a statutory demand is the taking of a step that may be necessary before wind up proceedings can be instituted against the company. 61 The consequence is that the statutory demands were served by Mr Garrett in contravention of s 37AQ(1) and are stayed by operation of s 37AQ(2). It follows that the statutory demands could not be relied upon by Mr Garrett for the purpose of commencing wind up proceedings against TWEV. In any event, the period for compliance with those statutory demand has not yet ended by reason of TWEV's applications under s 459G for orders setting aside the demands: s 459F. 62 For the following reasons the statutory demands should all be set aside. 63 First, as to the statutory demands that are based upon Mr Garrett's construction of Clause 9.2 (see VID 159 and 164 of 2015), a genuine dispute will exist if there are plausible competing constructions of that clause. TWEV argued that a separate payment is not due to Mr Garrett personally under Clause 9.2. It was argued that Clause 9, on its proper construction, only obliged it to make the quarterly payments prescribed in Clause 9.1(b) for the term of the agreement: that is, for ten years, not "in perpetuity". Such a construction is plausible, given that Clause 9.1(b) is "subject to Clause 9.2". It is open to construe Clause 9.2, when read with Clause 9.1(b), as prescribing the minimum and maximum amounts payable by TWEV pursuant to clause 9.1(b) each quarter for the period 1 July 2000 to 1 July 2010. Such a construction is tenable. It is unnecessary to reach any final conclusion on the proper construction as it is sufficient that there is a reasonable argument to the contrary of the construction that Mr Garrett advanced. 64 Secondly, I am also satisfied that a genuine dispute exists about the proper construction of Clause 17.3 upon which the "debts" in the statutory demands that are the subject of VID 158, 160, 161, 162, 163, 165 and 166 are founded. On TWEV's construction, the clause only operates to indemnify Mr Garrett from claims made by third parties against him. That construction is open simply on the wording of the clause. Furthermore, read as a whole, the clause limits the indemnity to liabilities "arising … out of the registration or use by" TWEV of certain trademarks "or acts or omissions" of TWEV "in relation thereto". There is in my view clearly a dispute as to whether the indemnity operates to entitle him to recover from TWEV the amounts claimed in those statutory demands. 65 Thirdly, there is the further and insurmountable difficulty that any claim made under Clause 17.3 is not a "debt" which can properly be made the subject of a statutory demand. Contingent or prospective liabilities and unliquidated claims for damages cannot be the subject of a statutory demand: First Line Distribution Pty Ltd v Whiley (1995) 18 ACSR 185; Re Elgar Heights Pty Ltd (No 1) [1985] VR 657. 66 Fourthly, a further insurmountable difficulty for Mr Garrett is that if the debt claims exist, they were all claims that had vested in the trustee in bankruptcy: Garrett v Make Wine Pty Ltd [2014] FCA 1258 [100]-[107]; Garrett v Make Wine Pty Ltd [2015] FCA 593 at [44]. 67 Mr Garrett argued that s 129AA of the Bankruptcy Act operated to revest in him rights in respect of the alleged breaches. For the reasons given by Beach J in Garrett v Make Wine at [48]-[50], s 129AA does not assist him: First, on the applicant's own submissions, if s 129AA of the Act operated to revest in him rights in respect of breaches of cll 9.2 and 17.3 of the 2000 Deed, such revestment would not occur until 22 April 2015 (see [10.13.2.8] of the applicant's submissions before me). Consequently, at the time the applicant commenced the proceeding before her Honour, at the time of the hearing before her on 5 August 2014 and at the time her Honour gave judgment in the proceeding on 21 November 2014, the relevant rights had not revested in the applicant. He did not then have standing. But now that we are beyond 22 April 2015, it is appropriate to address the following further arguments that dispose of the point other than on the temporal aspect. Second, the applicant has not even now established that s 129AA of the Act applies to the breaches of cll 9.2 and 17.3 of the 2000 Deed. He has not established that those rights were disclosed in his statement of affairs or were after acquired property which were disclosed in writing to his trustee within 14 days after he became aware that the property devolved on, or was acquired by, him. Third, the applicant did not rely on s 129AA in the hearing before her Honour or refer to s 129AA in the context of a potential later trigger. Further, and as a consequence, he did not adduce evidence at the hearing that those rights were relevantly disclosed in his statement of affairs or were after acquired property which were disclosed in writing to his trustee within 14 days after he became aware that the property devolved on, or was acquired by, him. The applicant only made a more general and untenable point to her Honour that as he had been discharged from his bankruptcy, every asset now revested in himself. I adopt and agree with His Honour's reasons. 68 Fifthly, further compounding the difficulty is that even if s 129AA operated as Mr Garrett claimed, all of the statutory demands were served before 22 April 2015 when such rights had not revested in him. That is fatal to his claim of standing. 69 Sixthly, Mr Garrett's reliance on the document described as a Deed of Settlement and Release made on 4 May 2015 is misconceived. That deed could not cure his lack of standing, by reason that such rights as he had against TWEV vested in the trustee in bankruptcy, and s 129AA of the Bankruptcy Act has no operation. 70 Seventhly, the description of the debt in each of the statutory demands is so vague as to the basis and calculation of the debt that they should be set aside under s 459J(1)(a). 71 Additionally to all these reasons, it is reasonable to infer that Mr Garrett served these statutory demands for an improper purpose. Mr Garrett deposed in relation to each of the statutory demands that no allegation of dispute had been made to him and that he believed there was no genuine dispute about the existence or amount of the debt. That deposition cannot be accepted as correct in light of the history of litigation between the parties over numerous years and most recently in 2014. The very basis upon which TWEV sought summary judgment against him in the 2014 proceedings was that TWEV disputed any liability to him as alleged under Clause 9.2 or Clause 17.3: Garrett v Make Wine Pty Ltd [2014] FCA 1258. Mortimer J held that the proceeding was an abuse of process and a vexatious proceeding. Mr Garrett was clearly on notice when he served the demands that there is a dispute between him and TWEV as to whether any amount is due to him under Clause 9.2 or Clause 17.3. In the circumstances, it is untenable that Mr Garrett genuinely believed that there was no dispute when he served the statutory demands.