C P Venture Management P/L v Taylor, B.K.

[1992] FCA 766

) JUDGMENT ...266,,J a-

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY	)	VG 3069 of 1992
CORPORATIONS DIVISION

BETWEEN:

(Respondent)

m a - : Ryan J

Date : 5 October 1992

Place: Melbourne

EX TEMPORE REASONS FOR JUDGMENT

Rvan 3:	This is an application pursuant to section 1321 of the
Cor~orations	Law 1989 for:

"1. An order settlng a s ~ d e the deterrnlnation of the Respondent made the 2nd day of March, 1992 disallowing the Applicant's formal proof of debt or claim of $528,429.00 made on the 28th January 1992.

A contract existed between CP Ventures ("CPV") and CP Venture

2. A declaration that the Applrcant's proof of debt lodged w ~ t h the

Respondent on the 28th of January 1992, be accepted rn the adrninlstratlon of Venture Management Assocrates Proprietary Limited (In Liquidation)."

On 2 January 1992, the liquidator of the applicant company lodged a proof of debt with the liquidator of Venture Management Associates Pty Ltd ("VMA"). The proof of debt was in the following terms:

"1. This rs to state that the company was on 21 August 1991, and still rs, justly and truly indebted to CP VENTURE MANAGEMENT PTY LTD (IN LIQUIDATION) for FIVE HUNDRED AND TWENTY EIGHT THOUSAND FOUR HUNDRED AND TWENTY NINE DOLLARS ($528,429).

2. Part~culars of the debt are:

Management ("CPVM") whereby CPV was to pay CPVM fees for management servrces on an ongoing basis. The fee was to be paid quarterly in advance and was calculated as 3.5% of the value of CPV's assets at any point in tlme. CPV asset valuatrons were performed at the end of each financral year and so for interlm perlods, an estimated fee was calculated based on the prevlous year's valuation. An approprrate adjustment was made at the end of each year.

CPVM subcontracted the provis~on of management services to VMA. As such, all management fees should have been mrtrally pard by CPV to CPVM, who would then pay a fee to VMA.

Appendrx A (attached) is a copy of an Affidavit of Rrchard Long dated 18 October 1991 clarmlng that CPVM owes CPV $528,429 for over pald management fees of which:

- an unspecrfied proportion related to payments for management fees for services never performed due to the termination of the

contract two-thrrds of the way lnto the prepa~d	quarter end~ng
September 1990; and
- the balance related to the end of year ad]ustment	for the value

of CPV assets at the tlme of the cancellatron of the contract.

It rs my contention that management fees that should rightly have been recelved by CPVM were ln fact forwarded by CPV directly to VMA as an admrnrstrative convenience. I therefore claim a return [of] these fees to CPVM. My clarm is supported by the following documents:

Appendices 'B' to 'F' are copies of cheque requisrtrons made out by CPV directly to VMA for management fees. The dates and amounts ~nvolved are as follows:-

Appendlx B 2. 1.90 $330,000 Appendrx C 28. 3.90 $150,000 Appendrx D 9. 4.90 $150,000 Appendlx E 3. 5.90 $ 72,740 Appendlx F 28. 6.90 $100,000.

Appendix G 1s an extract of the CPV group 1990 annual report. Note 23 thereof lists CPVM as a debtor of CPV for a total of $828,000

comprising $528,000 for overpald management fees and $300,000 for

prepaid management fees.

It is clear that VMA 1s rndebted to CPVM for the amount claimed by CPV

as bemg owed to it by cPVM."

That proof was rejected on 2 March 1992 by the liquidator of VMA,

invoking these grounds:

"The payment of $528,429.00 in respect of management fees (whrch you clam to be an overpayment) is based on an arbitrary valuatron of the

assets of C P ~entu;ei ~ t d	by rts directors as at the 30th June, 1989,
and 31st December, 1989.

The directors of C P Ventures Ltd have never justified their view or the basls of arrrving at the major decllne in the value of assets of C P Ventures Ltd as at the 30th June, 1990, leadrng to their clarm of over payment of management fees for the 1989/1990 year. Accordingly, your clam is rejected."

It is clear that CPVM's entitlement to management fees from CPV depended on the application of a formula to the net assets of CPV at the end of a given year. As I understand it, the liability of CPVM to remit moneys to CPV arises from a substantial writing down of the value of CPV's net assets at the end of the 1990 financial year. It is the extent of that writing down which Mr Taylor, as liquidator of VMA, takes leave to doubt in hrs rejection of the proof from which I have quoted.

However, there is a deficiency of evidence as to the terms of the agreement pursuant to which VMA succeeded to the functions of CPVM in providing management services to CPV. The fact that CPV made payments on account of management fees directly to VMA, apparently calculated in accordance with the formula specified in the head agreement between CPV and CPVM as amended, provides some support for the inference that CPV had assented to the assignment to VMA of CPVM's rights, and that those rights were, mutatis mutandis, the same as those of CPVM under the head agreement.

In an affidavit sworn on 27 April 1992, Mr Taylor, the liquidator

of VMA, has deposed:

"THAT I f m d no evidence a t t h i s s t a g e i n t h e books and records of Venture Management Assoc ia tes Ltd o f any agreement by t h a t company t o repay any debt due by C . P . Venture Management Pty Ltd t o C . P . Ventures Ltd. "

Mr Buckeridge, who was a director of CPVM and VMA until each of those companies went into liquidation, has deposed, so far as is relevant :

"3. THAT rn additron t o disputrng t h e accounts re ferred t o by letter

to CPV's auditor as deposed to by the said Barry Kelth Taylor I disputed the accounts verbally durlng drscussion between that Company's Secretary and myself.

4 . THAT if procedures set out ln the agreements had been followed the

debt of CPVM to CPV would have been substantrally reduced rf not
extinguished.

5.    THAT there 1s a subcontract agreement ln writrng between CPVM and

VMA. It deals with work to be performed by VMA for CPVM on behalf of belleve that same are held by the respectrve liquidators." CPV. I do not have the sard agreement or any copy of same but I

To an affidavit in reply to, amongst others, that of Mr Buckeridge, Mr White, the liquidator of CPVM, has exhibited a letter from M r Buckeridge, dated 9 January 1992 to him ( M r White) dated 9 January 1992. That letter contains the following relevant assertions:

"2. All papers and records of the company rn my possession,

(~ncludlng minute book, certif~cate of incorporation, memorandum

and art~cles, statutory registers) have been supplied at December 20, 1991 to Mr D Hutchings of your offlce. To my knowledge, other records (~ncludrng accounts, a u d ~ t reports and selected correspondence) are held by B K Taylor & CO, the llqurdator for Venture Management Associates Ltd (in l~quldatron) which in turn is trustee of the Venture Management AssocLates Unrt Trust. This Trust holds beneficial ownership of C P Venture Management Unit Trust. The sole business actlvrty of C P Venture Management Pty Ltd was to act as trustee for C P Venture Management Unlt Trust and to hold a management contract wrth C P Ventures Ltd. Thrs contract was repudiated by C P Ventures Ltd by resolutrons of no confidence in July 1990 and by notice of termination m September 1990.

. . .

4.   Under 8.590, you requlre drsclosure of any transactions of property of CP Venture Management Pty Ltd during the last 5 years. Untll June 1988, CPVM was an operating managment company for CP Ventures Ltd. At that date, the VMA group was established and CPVM subcontracted all operating responsibilltres of the management contract with CP Ventures Ltd to Venture Management Assocxates Ltd. Leases for offlce premises, plant and equipment were novated to VMA. CPVN became a passive recrpient of management fees from CP Ventures Ltd, that were immediately paid to VMA under the terms of the sub-contract. A bank account at the Bank of New Zealand, 395 Collins St, Melbourne ( # 211755-00) was ma~ntained for the purpose of such transactions and for paylng minor CPVM expenses such as audrt, tax frlrngs and NCSC/ASC fil~ngs and fees. I understand that the account has been closed, during 1991."

In the course of his submissions opposing the application Mr Dean, of Counsel for the liquidator of VMA, drew attention to the absence of direct evidence of the terms of the agreement between that company and CPVM. I stood the matter down shortly before the luncheon adjournment to allow enquiries to be made as to whether any document could now be located embodying those terms. I have now been informed that there has been found an undated, unexecuted copy of an agreement whereby CPVM and another company, Austech Venture Management Pty Ltd ( " A V M " ) , delegated to VMA their respective obligations under two distinct management agreements. The operative provisions of that agreement, so far as relevant, provlde:

"1. CPVM hereby delegates to VMA all rts obllgatrons and

responslbllit~es	under the CPV Management Agreement.
...

3. The perlod of delegation shall be indefrnite, but may be terminated by the delegating party on giving to VMA six months notlce in wrrting.

4. VMA hereby covenants severally with each of CPVM and AVM that lt will undertake all the obligat~ons and responsrbrllties delegated to it in such manner as to fully satisfy those obligations and responslblllt~es, and in partrcular ~t will provlde such tralned personnel and such financial and other resources as may be reasonably necessary to satisfy this covenant.

5. VMA shall be ent~tled to a fee (not exceedrng any fee due and payable under elther of the Management Agreements aforesa~d) for providrng servrces In sat~sfaction of lts obl~gat~ons under the

delegations set out herein, respectively from CPVM and AVM."

In the light of all the evidence and the circumstances which I

have just recounted, I consider the proper inference to be drawn	is that VMA's entitlement to fees for its services under the
so-called subcontract with CPVM was the same, mutatis mutandis, as that of CPVM against CPV. Accordingly, if the fees paid in advance to VMA are reducible by application of a formula in the head contract, VMA is obliged to account to CPV for the excess.
It follows, as Counsel for the liquidator of CPVM accepted, that
VMA is entitled by right of subrogation to contend, as against
CPV, that the value of the net assets of CPV at the end of the
1990 financial year was greater than that which has been adopted
in calculating the overpayment of $528,429. If that contention

'

be successful, the amount repayable by CPVM to CPV and, in turn, by VMA to CPVM would be reduced pro tanto. For these reasons I allow the application and order that the decision of the liquidator of VMA to reject the proof of debt lodged by the liquidator of CPVM be set aside.

I conslder it inappropriate, In light of the conclusion which I have reached, to make a declaration of the kind sought by paragraph 2 of the application. I shall hear Counsel on the question of costs.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment of his Honour Mr Justice Ryan

Associate: y&

ate: S O&be/ \qsr

Counsel for the Applicant:  Mr Cameron

Solicltor for the Applicant: Coadys

Counsel for the Respondent:  Mr Dean

Solicitor for the Respondent: Irllcht and Broberg