Viva Olives Pty Ltd v Origin Olives Australasia Pty Ltd

REASONS FOR JUDGMENT 1 The question in proceedings NSD 1825 of 2011 is whether a statutory demand issued by the Defendant to the Plaintiff should be set aside or varied. The parties are agreed that the fate of that statutory demand should also determine the outcome of the statutory demand the subject of proceedings NSD 1826 of 2011 and of that demand and of those proceedings no more need be said. 2 The statutory demand is dated 28 September 2011 and appears to have been served on 5 October 2011. It sought payment of the sum of $160,416.60. The present proceedings were commenced within the 21 day timeframe prescribed by s 459G of the Corporations Act 2001 (Cth) on 21 October 2011. The Plaintiff accepted that it owed $22,370.44 to the Defendant and has paid that amount. As such, according to the Defendant, $138,046.16 remains outstanding. 3 The Plaintiff and Defendant have had a commercial relationship extending at least as far back as 2005 at which time they reached an agreement under which the Plaintiff would distribute olives and olive oil using two trademarks of the Defendant each of which consisted of the word 'Viva'. The Defendant licensed the use of the marks to the Plaintiff and, in return, the Plaintiff agreed to pay the Defendant licence fees. 4 The agreement expired under its own terms on 13 December 2010. Although it contained an option to renew, this was not exercised. Despite the fact that the agreement had expired on 13 December 2010 the Plaintiff nevertheless continued to use the Defendant's trademarks. 5 There was no debate between the parties that after 13 December 2010 the Plaintiff continued to be authorised by the Defendant to use the two trademarks. Where they parted company was on the issue of the source of this right and, more importantly, the obligations which attended it. 6 For the Defendant the argument was that on the expiry of the old agreement on 13 December 2010 a new agreement had come into existence on the same terms that applied in the final year of the old one. One of those terms was the Plaintiff's obligation to pay the Defendant an annual licence fee of $175,000. For the Plaintiff it was denied that any such agreement had come into existence, there having been no concluded agreement between the parties as to the appropriate licence fee. Further, it was submitted that the Defendant's entitlement to be remunerated was restitutionary in nature and gave it no more than an unquantified right to reasonable remuneration for the use of the two marks. This, it was contended, could not be assumed to be the same as the licence fee of $175,000 that applied in the final year of the expired agreement. 7 A proceeding of the present kind does not provide the occasion for the resolution of that debate. Instead the question which arises is that posed by s 459H(1)(a), that is, whether 'there is a genuine dispute between the company and the respondent about the existence or the amount of [the] debt'. Various explanations have been proffered as to what such a dispute might entail: 'a sufficient degree of cogency to be arguable' (Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach (No 2) [2003] NSWSC 896 at [18] per Barrett J); a 'real' and not 'hypothetical' or 'illusory' claim (Spencer Constructions Pty Ltd v G & M Alderidge Pty Ltd (1997) 76 FCR 452 at 464 (FC)); or a claim disclosing 'a plausible contention requiring further investigation' (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 per McLelland CJ in Eq). For myself, I doubt the utility of asking more than the statutory question of whether there is a 'genuine dispute' but I do not, in any event, read any of the foregoing as advocating a contrary view. 8 The questions then are whether there is such a dispute and, if there is, whether it is genuine. 9 It is for the Plaintiff to demonstrate this. The way in which it sought to discharge that burden was to observe that the original agreement had expired; that it continued to use the two marks without any demur from the Defendant as to its right to do so; and that, absent agreement on the issue of appropriate remuneration, the Defendant had only an entitlement to reasonable remuneration and not the fee of $175,000 under the expired agreement. 10 The Defendant's response to this involved broadening the ambit of the events under consideration. There were two elements to this endeavour although they were by no means entirely distinct. The first was that the circumstances following the expiry of the agreement on 13 December 2010 showed that the parties had conducted themselves on precisely the same basis as they had before its expiry so that there was to be inferred from their conduct an implied agreement more or less on the same terms. To the extent that there was any lack of clarity about what took place, that uncertainty was to be resolved by a consideration of the subsequent correspondence between the parties which, so it was submitted, was consistent only with the implied agreement alleged. This was explicitly a contractual claim and did not, for example, invoke doctrines such as conventional estoppel. 11 The Plaintiff, on the other hand, denied that the conduct of the parties after expiry showed that they had put in place an agreement on the terms of the expired agreement. To the contrary, it pointed to the fact that at no time after the expiry of the original agreement had it paid any licence fees to the Defendant at all. To the charge that the surrounding correspondence showed that such an agreement had been reached the Plaintiff submitted that the contrary was the case. Indeed it contended that in one part of the correspondence which post-dated the expiry of the agreement the Defendant had itself explicitly suggested that that agreement was no longer on foot. 12 In my opinion, there is plainly a genuine dispute. I accept that where a contract expires by effluxion of time the parties may yet continue their relationship under an implied contract where they continue to act as though the contract still bound them. The Victorian Court of Appeal's decision in Brambles Ltd v Wail (2002) 5 VR 169 at [54]-[59] illustrates that proposition. In that case the Court approved this statement in Chitty on Contracts (28th ed, Sweet & Maxwell, 1999 at [1-034]): There may also be an implied contract where the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired. In such a case the court may infer that the parties have agreed to a newly expressed contract for another term. 13 What is required is conduct by the parties as if the contract remained on foot. But there was no dispute that the Plaintiff did not pay any licence fee and this is a strong indicator that no such implied agreement could arise. I do not accept, as Mr Di Francesco of counsel who appeared for the Defendant sought to persuade me, that this problem could be evaded because the Plaintiff was not paying the fee before the agreement expired either. What the principle requires is not conduct both before and after the expiry of the agreement which is the same; what is required is conduct which is the same as if the contract was still binding. In turn that would require evidence that the Plaintiff continued to pay the licence fee and not, as the submission necessarily entails, evidence that it was not paying the fee. The Defendant's submission, in that regard, has the curious consequence, were it to be accepted, that the implied agreement would be found to exist if the Plaintiff did not pay the fee (because it was not paying the fee beforehand) but would be found not to exist if it did pay the fee (because this differed from its pre-expiry conduct of not paying the fee). I do not accept the submission. 14 It follows that I regard the Defendant's proposed implied contract as, at best, problematic and, at worst, probably wrong. I do not think it is to be rescued from its difficulties by a resort to the surrounding correspondence or events. This is for two reasons, one short and one long. The short reason is that the fact of non-payment of the fee by the Plaintiff is so radically inconsistent with the existence of the proposed contract that no amount of contrary surrounding context can rescue the matter from giving rise at least to a genuine dispute. That dispute would be whether, although the parties had failed to behave as if the old contract somehow remained on foot, that historical reality was to be erased by the effusions of the parties' solicitors in correspondence or from other behaviours consistent with the agreement's existence (such as the fact that marks continued to be used by the Plaintiff or that the Plaintiff had not used anyone else's marks). 15 The long reason is that I do not think that the correspondence is as clear cut as the Defendant submits. There are no doubt some letters emerging from the Plaintiff's solicitors which do appear to have assumed that a licence was on foot after the expiry of the old contract. Perhaps the best of those is the email sent from the Plaintiff's solicitors to the Defendant's solicitors on 1 June 2011. That email proposed a settlement of a larger controversy of which the present debt debate is, regrettably, but an integer. The important features of that debate for present purposes was as follows: the Plaintiff was wholly owned by another entity, United Capital Agricultural Holdings Pty Ltd ('United'), the Plaintiff in NSD 1826 of 2011; United was controlled by a Mr Johnston, who is also a director of the Plaintiff; the Defendant was owned as to 50% by United (Mr Johnston) and as to the other 50% by an entity called Origin Australia Pty Ltd (not Origin Australasia Pty Ltd) an entity controlled by a Mr Kirkby; United also owned Australian Olives Limited which was the responsible entity for the Australian Olives Project, a managed investment scheme based in Yallamundi in Queensland; following events not necessary to describe Mr Johnston became relevantly a secured creditor of the Plaintiff. The security was a first ranking fixed and floating charge over all of the assets and undertakings of United. The debt secured by that charge was, at least by May 2011, in the vicinity of $4.478 million; the fact that neither the interests associated with Mr Johnston or Mr Kirkby had a majority stake in the Defendant led to a gridlock on its board; the interests of Mr Kirkby wished to see the Plaintiff pay the licence fees to the Defendant. Their focus was on the non-receipt of monies they believed were due to it under the licence agreement; and the interests of Mr Johnston, perhaps focussing more on the fact of that it was Mr Johnston's actions in lending United $4.478 million that was keeping both the Plaintiff and the Defendant in business, was more inclined to see the debate from that perspective. 16 It was in that context that the Plaintiff's solicitors wrote to the Defendant's solicitors on 16 May 2011 suggesting a proposed global resolution. The deal would be this: certain other statutory demand proceedings against United would be dropped; there would be no further statutory demands; the Plaintiff would pay the Defendant $20,000 towards unpaid licensing fees and, in the meantime, further negotiations would take place to resolve the status of the licence. The letter contained the following two statements: It is in your client's interests that [United] and [the Plaintiff] survive to ensure the ongoing viability of the relevant licence (and the preservation of any value in it) and The rationale driving the offer is to afford the parties time to renegotiate licensing arrangements, without prejudicing either parties' position in the [Federal Court of Australia] Proceedings (however without further considerable expenditure in legal fees). 17 The Defendants submit, not without some force, that these statements appear to assume that there is a licence. However, it is not self-evident that they necessarily refer to the licence upon which the Defendant now relies and are not instead simply referring to the relationship between the parties which, by then, existed; that is, the fact that with the Defendant's tacit permission the Plaintiff was continuing to distribute olives and olive oil using the Defendant's marks to their mutual benefit. One's view of that debate rather tends to be driven by one's view on the issue of whether there was any licence at all. But on that core issue there was plainly confusion. For example, a few weeks later on 21 June 2011 the Defendant's solicitors thought there was no licence: We note that as from 15 December 2010, [the Plaintiff] does not have a licence to use the intellectual property of [Origin Olives Australasia]. Therefore, please advise what action [the Plaintiff] is taking to account to [Origin Olives Australasia] for its revenue using the Viva brand since that date and to stop using the property of [Origin Olives Australasia] (the Viva brand). 18 This is not insignificant in the present context: it shows that at that time the Defendant's solicitors were asserting that the licence whose existence they now say is beyond argument did not exist. 19 What is presented therefore is a quagmire from which not much emerges and certainly nothing with clarity. In saying that I do not disregard the other correspondences relied upon by the Defendant dated 1 June 2011, 29 September 2011 or 14 October 2011 but they are unable to erase the consequences of the letter of 21 June 2011. 20 For reasons I have already given, however, I do not think that this issue in any event matters. There is at least a genuine dispute as to whether a fresh contract came into existence because the acts of the Plaintiff are not consistent with its terms. Subsequent conduct in correspondence cannot cure that problem. The only point of the above is to show that even if that correspondence could cure it (perhaps as part of a conventional estoppel case) they would not be sufficient in the context of an application under s 459H. 21 The Plaintiff contends that, because of the existence of a genuine dispute, the statutory demand must be set aside. Such a submission, however, ignores the fact that the Plaintiff accepted that $22,370.44 of the amount claimed in the statutory demand was 'due and payable pursuant to the Licence Agreement, being in respect of fees for the period 1 November 2010 to 12 December 2010'. That sum is therefore not subject to dispute and is an 'admitted' amount for the purposes of s 459H(5). Since the Plaintiff makes no offsetting claims, that sum is also the 'substantiated amount' for the purposes of s 459H(2). As the substantiated amount is greater that the statutory minimum of $2,000 (s 9), the appropriate course is to vary the demand: s 459H(4). 22 I will therefore order that the demand be varied to reflect the substantiated amount of $22,370.44. I will also declare that the demand, as varied, had effect from 5 October 2011. The operation of s 459F(2)(a)(ii) will mean that the Plaintiff will have seven days to pay this amount, though I note that it has already been paid. The Defendant must pay the Plaintiff's costs as taxed or agreed. Similar orders will be made in NSD 1826 of 2011. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.