Argyll Park Thoroughbreds Pty Ltd v Glen Pacific Pty Ltd

[1993] FCA 464

ARGYLL PARK THOROUGHBREDS PTY. LTD. v. GLEN PACIFIC PTY. LTD. (RECEIVER AND
MANAGER APPOINTED) and PETER MURRAY WALKER
No. QG99 of 1993
FED No. 464
Number of pages - 5
Contract - Corporations
(1993) 11 ACSR 1

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Drummond J(1)

CATCHWORDS

Contract - loan between two companies both of which were members of group of family companies - understanding that borrowing company will not be required to repay loan until its directors considered it financially able to do so - whether understanding intended to have contractual force - even if so intended, term void as being illusory - loan repayable without demand.

Corporations - application to restrain presentation of a winding up petition - jurisdiction to grant injunction not conditional on proof of applicant's solvency - applicant company insolvent - no evidence that applicant will suffer damage as a result of the mere presentation of petition - applicant must show debt disputed on substantial grounds - no substantial grounds on which debt disputed - injunction refused.

Bailes v Modern Amusements Pty. Ltd. (1964) VR 436

Community Development Pty. Ltd. v Engwirda Constructions Company (1969) 720 CLR 455

Godecke v Kirwin (1973) 129 CLR 629

Head v Kelk (1963) 63 SR(NSW) 340

L. and D. Audio Acoustics Pty. Ltd. v Pioneer Electronics Australia Pty. Ltd. (1982) 1 ACLC 536

Mine Exc Pty. Ltd. v Henderson Drilling Services Pty. Ltd. (1989) 1 ACSR 118

Mooloolaba Development Corp. v Evans Harch Constructions Pty. Ltd. (1991) 33 FCR 524

Argyll Park Thoroughbreds Pty. Ltd. v Glen Pacific Pty. Ltd. (Receiver and Manager Appointed) and Anor.

HEARING

BRISBANE, 25 June 1993

#DATE 25:6:1993

Counsel for the applicant: J.F. Curran

Solicitors for the applicant: Cleary and Hoare

Counsel for the respondents: W. Sofranoff QC and

R. M. Lilley

Solicitors for the respondents: Sly and Weigall Cannan and

Peterson

ORDER

The Court orders that:

1. The application is dismissed.

2. The applicant pay the respondents' costs of and incidental to the application to be taxed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

DRUMMOND J An application is brought by Argyll Park Thoroughbreds Pty. Ltd. ("Argyll") for an injunction to restrain the first and second respondents, Glen Pacific Pty. Ltd. ("Glen Pacific") and Mr. Walker, its receiver and manager, from presenting a winding up petition against Argyll until final judgment in the trial of action in proceedings numbered QG 174 of 1991 is delivered. The second respondent, Mr. Walker, was appointed receiver of Glen Pacific by Natwest Bank.

1. Glen Pacific and Argyll are members of what can be called the Leitch group of companies. Mr. D.H. Leitch, who has sworn an affidavit in these proceedings, was the moving spirit of the group. The action referred to in the application is one between companies other than Argyll in the Leitch group and Natwest Bank and others. It will come to trial in October next.

2. On 11 May last the respondent receiver demanded that Argyll pay $975,327.00 said to be owing to Glen Pacific. In making this demand, the receiver relied on what was revealed in the books of Argyll. The demand was not complied with. It was followed with a s. 460 notice on 26 May, 1993. It is to restrain the institution of the winding up proceedings threatened by the service of that notice that the application is brought.

3. It is not suggested on behalf of Argyll that it has not received from Glen Pacific moneys totalling the amount demanded, but it is said that repayment is not yet due. The basis for this contention, which is the foundation for the claim for the injunction, appears from Mr. Leitch's affidavit. He refers to the acquisition by Leitch family members, including himself, of control of Argyll and of the operation by Argyll of a horse stud at Murgon, which appears to be its sole business. In paragraph 24 of his affidavit he refers to the accounts of Argyll for the period 1 July, 1986 to 30 June, 1990 (which are, presumably, some of the records of Argyll to which the receiver has had regard in deciding to make the demand now challenged) and sets out what he says were the balances of the loan owing by Argyll to Glen Pacific at the end of each of those four financial years. For the 1990 financial year it was $955,943.00.

4. In paragraph 26 he says:
   

"The purpose of the loans made by the First Respondent to the Applicant since 1986 have been for maintenance and development of the property at Murgon."

1. Then in paragraph 27 he says:
   

"It was always a term of the borrowing arrangements between my family companies, including the Applicant, that the creditor company could not call for repayment, nor could it enforce payment of the loans from the borrower company if the debtor company lacked the capacity to pay the debt. The purpose of the loans at all times was to acquire and develop assets for the benefit of my family interests. The loans were only repayable in part or in whole when the directors of the debtor company felt the debtor company was in a position to make repayment in part or in whole."

1. The applicant read affidavits by other directors of Argyll dealing with the basis on which the loans by Glen Pacific to Argyll are repayable. Those affidavits are in similar terms to that of Mr. Leitch.

2. I doubt very much whether what Mr. Leitch and the other directors of Argyll say goes beyond describing arrangements between members of a group of companies owned and operated by the one family that were never intended to have any legally binding force. But even if the brief evidence put before me dealing with this matter is taken as evidence as to the terms of what was intended to be a binding contractual arrangement governing repayment by Argyll of the moneys it borrowed from Glen Pacific, I do not think that that would provide any answer to the demand for payment of the $975,327.00 which the receiver has made on behalf of Glen Pacific on Argyll.

3. In Head v Kelk (1963) 63 SR (NSW) 340, in a claim for money lent, the plaintiff demurred to a plea in the defence that the money was lent upon the terms and conditions as to repayment that the defendant would be bound to repay the same when he was financially able to do so, and not before, on the ground that the agreement alleged in the plea did not constitute a contract as it was so vague and uncertain as to be unenforceable. The plaintiff's demurrer was overruled. This decision was distinguished in Bailes v Modern Amusements Pty. Ltd. (1964) VR 436. That case involved an agreement between a company and a shareholder that a loan by the shareholder would be repaid by the company when the company considered it was in a position to repay it. Sholl J held that that agreement was void for uncertainty. At 441, his Honour said:
   

"Notwithstanding Head v Kelk and the other authorities referred to, I have come to the conclusion, after careful consideration of the wording of this alleged term, that I ought not to hold it to be valid. Either it is illusory, or it is not sufficiently certain to be enforceable. If it confers on 'the company' an arbitrary discretion to determine whether and to what extent (if at all) the moneys are to be repaid, it is an attempt to cut down to an illusory obligation what would otherwise, as I have held, be an obligation to repay on demand. If, however, it is to be understood as imposing an obligation to repay whenever, acting bona fide, the company . . . is bound properly to consider itself in a position to repay, nevertheless in my opinion it is still too uncertain to be valid. It appears to me to admit a number of alternative meanings."

1. It may be that the true distinction between Head v Kelk and Bailes is that if the question whether the agreed time for repayment has arisen can be determined objectively, then the term will be valid; but, if the agreed time for repayment operates in a subjective way by leaving it to the borrower to decide for himself when, if ever, he will repay, the term will be void as illusory: see Bailes at 440 and cf. Godecke v Kirwin (1973) 129 CLR 629 at 645-6.

2. Having regard to what Mr. Leitch says in paragraph 27 of his affidavit, if there was an agreement between Argyll and Glen Pacific that was intended to have contractual effect and under which the moneys now demanded were loaned, it seems clear, and counsel for Argyll was not able to make any countervailing submissions, that the stipulation as to repayment is such as to leave it to the subjective determination of Argyll when, if ever, it will repay. This would be enough to make the whole agreement of loan void. But it is quite clear that the moneys in question were loaned by Glen Pacific to Argyll. That is how so much of the amount now demanded as had been advanced by 30 June, 1990 was treated in Argyll's accounts and how it was treated by Mr. Leitch himself in paragraph 24 of his affidavit. Although the term as to repayment contended for has gone as an illusory stipulation, there remains an agreement for a loan. In Bailes at 442, Sholl J stated:
   

"In those circumstances I consider that the term limiting the right to repayment is void for uncertainty, but that in its absence there remains an agreement for a loan."

1. The law is that where there is an agreement for a loan and the time for repayment is not fixed by the agreement, any money advanced will be repayable on demand: Bailes at 441 or perhaps, more accurately, without any previous demand. See Chitty on Contracts, 26th Ed., at paragraph 3582. It follows that the main ground relied on in support of the application for the injunction is without substance.

2. It seems to me clear that this application is, on any view, a hopeless one. In Mine Exc Pty. Ltd. v Henderson Drilling Services Pty. Ltd. (1989) 1 ACSR 118, Ipp J stated at 120-1:
   

"(T)he court's jurisdiction to grant an injunction is not conditioned upon proof of the plaintiff's solvency. The standing of a company to restrain a creditor from proceeding with winding up is established upon proof that the creditors' claim is genuinely disputed on substantial grounds. However, that standing alone, is not sufficient to entitle the company to relief. The ordinary elements of an injunction must be established. One of those elements is, of course, that irreparable damage, or at least significant and substantial damage . . . must be shown to be the likely consequence of the mere presentation or advertisement of the petition. For the reasons expressed in General Welding and Construction Co. (Qld.) Pty. Ltd., it is unlikely that the likelihood of the requisite degree of damage will be able to be established by an insolvent company."

1. In Mooloolaba Development Corp. v Evans Harch Constructions Pty. Ltd. (1991) 33 FCR 524, I adopted the approach of Ipp J in the passage set out above as indicating the correct approach to be applied when application is made to restrain the presentation of a winding up petition.

2. There is no challenge to the receiver's standing to petition for a winding up of Argyll. Even accepting that what Mr. Leitch says is sufficient to establish an agreement for loan on special terms as to repayment, Glen Pacific is clearly a contingent creditor of Argyll. See Community Development Pty. Ltd. v Engwirda Constructions Company (1969) 120 CLR 455 at 459. I have already given my reasons for concluding that, far from Glen Pacific being a contingent creditor only of Argyll, there is a debt now due and owing in respect of the $975,327.00.

3. Argyll has failed to show that Glen Pacific's claim is disputed on substantial grounds. I think that the assertion that Mr. Leitch makes in paragraph 27 as to the repayability of the loans by Glen Pacific to Argyll falls far short of what would be necessary to demonstrate the existence of grounds that would qualify as substantial ones upon which the creditors' claims are disputed. Even if the other difficulty for Argyll that flows from the illusory nature of any obligation as to repayment did not exist, it would require a rather more detailed explanation of the nature of the arrangements between Argyll and Glen Pacific than the assertions of Mr. Leitch and his former fellow directors before grounds of disputing the debt could be said to be substantial ones.

4. Moreover, unlike the position that obtains on the hearing of the petition, it is Argyll, as the applicant for injunctive relief, who has the onus of showing what its financial position is, if it wishes to rely on that as providing discretionary grounds in aid of the relief sought. Argyll has not attempted to prove that it is solvent. The reason is clear. There is every indication in Argyll's own material that it is insolvent. Argyll commenced trading in 1986. Mr. Leitch, in paragraph 21 of his affidavit said: "The financial results of the Applicant's trading at the property up to 31 December, 1986 were very poor."

5. That Argyll's fortunes have not improved under the Leitch family control is clear from what Mr. Leitch says, and what is revealed by the financial records he attaches to his affidavit, as to the continuous decline in Argyll's financial position since the family acquired control of it. The last financial records available, those for the year ended 30 June, 1990, show that it had an operating loss for the year of $228,000.00; accumulated operating losses of $976,000.00 and a capital deficiency of $816,000.00. As I have said, the position as at 30 June, 1990 was reached as a result of a continuous decline in Argyll's financial situation from the time of its acquisition in 1986. The reason that more recent accounts are not available is that it appears none has been prepared since 1990. The evidence shows that the ASC recently commenced deregistration action against Argyll, presumably for that reason, although that action is now not being pursued. In any event, Argyll has not, as I have already noted, made any attempt to put evidence before the court to show what its financial position is now, as it could easily have done, if that would have assisted it. Quite the reverse. Mr. Leitch, in paragraph 32, says:
   

"In February, 1993 Westpac Banking Corporation, as mortgagee, sold all of the real estate assets of the Applicant. The only assets of any value of the Applicant remaining are one stallion and a number of mares, whose combined estimated value would not exceed $30,000."

1. It is also acknowledged that the applicant cannot pay the $975,327.00 demanded. The picture is of a company that is in a parlous financial position. There is no evidence as to whether it is currently trading and, if so, whether it is managing to meet its current trade debts. That is something which, of course, is within the knowledge of Argyll, but the evidence here justifies a conclusion that if the present demand by the receiver on behalf of Glen Pacific is ignored and the company is not now insolvent, it is practically in that position. Quite apart from the inference of insolvency to be drawn from non-compliance with the s. 460 notice, there is good reason for thinking that this is a company that it will be perfectly appropriate to wind up as insolvent.

2. It follows that Argyll has not shown that it is likely to suffer any significant damage from the presentation of a petition. In general, for the reasons listed in L. and D. Audio Acoustics Pty. Ltd. v Pioneer Electronics Australia Pty. Ltd. (1982) 1 ACLC 536 at 538, it is only a solvent company that is likely to suffer damage sufficient to attract injunctive relief from the presentation of an unjustified winding up petition.

3. I should here record the submission of counsel for Argyll that the petition was presented for an improper purpose. He identified that as part of a strategy by Natwest Bank, which appointed the receiver of Glen Pacific, to embarrass and destroy the Leitch group. I do not think there is any foundation for such a finding. The receiver is not seeking to destroy by the winding up action a prosperous company whose trading operations are a source of substantial financial support for the Leitch group. The contrary is the case on the evidence before me. Having regard then to the strength of Glen Pacific's claim against Argyll and to the absence of any enforceable defence to it, there is no ground for reaching the conclusion as to the receiver's motives which counsel for Argyll contends for.

4. Mr. Sofronoff, QC, counsel for the respondents, submitted that another discretionary factor against intervention is that any undertaking as to damages that Argyll would have to give to obtain relief would be worthless. Despite the limited form of the relief sought, I think that the claim here is for final relief, albeit of limited duration, and not a claim for interlocutory relief. The question of the worth of an undertaking by Argyll therefore does not arise.

5. However, for the reasons given, I dismiss the application. I will order that the applicant pay the respondent's costs of and incidental to the application.