Global Television Pty Ltd v Sportsvision Australia Pty Ltd (in liq)

[2000] NSWSC 960

Reported Decision: [2000] 35 ACSR 484

New South Wales

Supreme Court

CITATION:	Global Television v Sportsvision Australia (in liq.) & 2 Ors [2000] NSWSC 960
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 3055/99
HEARING DATE(S):	17/08/00, 18/08/00
JUDGMENT DATE:	16 October 2000
PARTIES :	Global Television Pty Limited (ACN 010 122 611) (Plaintiff/First Cross-Defendant/Second Cross-Defendant) Sportsvision Australia Pty Limited (in liquidation) (ACN 068 170 945) (First Defendant) Kenneth John Rennie (Second Defendant/First Cross-Claimant) Optus Vision Pty Limited (Third Defendant/Second Cross-Claimant)
JUDGMENT OF:	Santow J

COUNSEL :	B A Coles, QC/M J Leeming (Plaintiff/First Cross-Defendant/Second Cross-Defendant) J C Sheahan, SC/P Russell (First and Second Defendants/First Cross-Claimant) I M Jackman (Third Defendant/Second Cross-Claimant)
SOLICITORS:	Speed and Stracey (Plaintiff/First Cross-Defendant/Second Cross-Defendant) Blake Dawson Waldron (First and Second Defendants/First Cross-Claimant) Minter Ellison (Third Defendant/Second Cross-Claimant)
CATCHWORDS:	CORPORATIONS LAW — Does recourse to guarantee survive liquidator’s disclaimer of contract guaranteed taking into account s568D(1) of the Corporations Law — Effectiveness of disclaimer — Meaning of "unprofitable contract" — Challenge to disclaimer on basis of disproportionate prejudice.
LEGISLATION CITED:	Bankruptcy Act 1869 (Imp) s23 Bankruptcy Act of 1883 s55(2) Corporations Law Division 7A of Pt 5.6; s568(1), (1A); s568B(2), (3); s568D(1), (2); s568F; s1321
CASES CITED:	Arthur Hill v East & West India Dock Co (1884) 9 App Cas 448 Christopher Moran Holdings Ltd v Bairstow [1999] 2 WLR 396 Dekala Pty Limited (in liq) v Perth Land and Leisure Ltd (1989) 17 NSWLR 664 Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70 McDonald v Dennys Lascelles (1933) 48 CLR 457 Manning v Flight (1832) 3 B & Ad 211, 110 ER 29 Re Middle Harbour Investments Limited [1977] 2 NSWLR 652 Re the Nottingham General Cemetery Co [1953] Ch 683 Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq) [1995] 2 VR 457 Rothwells Ltd v Spedley Securities Limited (1990) 20 NSWLR 417 Sandtara Pty Limited v Abigroup Pty Limited (1996) 14 ACLC 888 Smith v North (1872) LR 7 Exch 242 Stacey v Hill [1901] 1 QB 660 Stubbs Investments Ltd v Thorp [1997] 1 NZLR 310 [CA1955(NZ) S243 1992] Transmetro Corporation Ltd v Real Investments Pty Ltd (1999) 17 ACLC 1314 Ex parte Walton in re Levy (1881) 17 ChD 746 Yeoman Credit Ltd v Latter [1961] 1 WLR 828
DECISION:	Guarantee survives though disclaimer effective.

IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 3055/99
GLOBAL TELEVISION PTY LIMITED (ACN 010 122 611)
Plaintiff
SPORTSVISION AUSTRALIA PTY LIMITED (in liquidation) (ACN 068 170 945)
First Defendant
KENNETH JOHN RENNIE
Second Defendant
OPTUS VISION PTY LIMITED
Third Defendant
KENNETH JOHN RENNIE
First Cross-Claimant

GLOBAL TELEVISION PTY LIMITED (ACN 010 122 611)
First Cross-Defendant

OPTUS VISION PTY LIMITED
Second Cross-Claimant

GLOBAL TELEVISION PTY LIMITED
Second Cross-Defendant

JUDGMENT

16 October 2000

Table of Contents
Page

INTRODUCTION — THE CENTRAL ISSUES
AGREED OR NON-DISPUTED STATEMENT OF FACTS
The OB Agreement and the Guarantee
The Liquidation
RESOLUTION OF LEGAL ISSUES
Question 1:
Conclusion
Question 2:
Conclusion

ORDERS AND COSTS

INTRODUCTION — THE CENTRAL ISSUES

1 In both Australia and the United Kingdom, it is again resolved that guarantees, absent wording expressly to the contrary, survive the liquidator’s disclaimer of the contract guaranteed. That follows from the statutory effect of disclaimer as stated in s568D(1) of the Corporations Law and its predecessor and as settled in recent appellate decisions. These were decisions both in Australia (Sandtara Pty Limited v Abigroup Pty Limited (1996) 14 ACLC 888) and in the United Kingdom (HindcastleLtd v Barbara Attenborough Associates Ltd [1997] AC 70), which restored the reasoning that had been adopted in a series of 19th century cases. Those decisions corrected that seductive diversion into error perpetrated by the Court of Appeal in Stacey v Hill [1901] 1 QB 660. They returned the law to its 19th century orthodoxy, though by an analysis more discerning than a simple reversion to Victorian notions of sanctity of contract. 2 That orthodoxy was declared in a series of cases. They start with Manning v Flight (1832) 3 B & Ad 211, 110 ER 29, and then, on the predecessor s23 of the Bankruptcy Act 1869 (Imp) Smith v North (1872) LR 7 Exch 242 and Ex parte Walton in re Levy (1881) 17 ChD 746 at 754 and 756-7, Arthur Hill v East & West India Dock Co (1884) 9 App Cas 448 at 454-5 and 458. 3 The end result is that to-day it can no longer be argued that because the obligation guaranteed had been terminated, the guarantee has nothing left to work upon, so necessarily ceasing of effect. Statute allows the guarantee continued effect, unless its actual terms preclude that efficacy. 4 That much indeed was common ground. What the present case does, is pose precisely that question of interpretation of the guarantee. This is on the assumption that any challenge to the present disclaimer fails, a matter to which I return. 5 Here the guarantor is the Third Defendant Optus Vision. It gives both a guarantee and indemnity for the performance of a contract (“the OB Agreement”) to pay money and take services from its subsidiary, the First Defendant, now in liquidation. The contract is to pay money to the Plaintiff for outside broadcasting services provided by the Plaintiff, whether or not those services are taken. 6 I start with the question of the continuing effect of the Third Defendant’s guarantee and indemnity, assuming an effective disclaimer. The answer to that question affects the answer to the next, namely whether the disclaimer is effective. The challenge to its effectiveness is that leave of the Court should have been obtained to disclaim, was never obtained and cannot now be obtained retroactively. This is on the basis that the contract guaranteed was not an “unprofitable contract” within s568(1A) of the Corporations Law. Only if it were, is Court leave not required to disclaim. The Liquidator contends that the contract was unprofitable obviating need for leave. But in any event, if leave were required, it is sought by the liquidator retrospectively, nunc pro tunc. Finally, the Plaintiff seeks to have the disclaimer if effective set aside as giving rise to grossly disproportionate prejudice; see s568B(3) of the Corporations Law. But that is only if the effect of the disclaimer, working on the terms of the guarantee, renders it ineffective. 7    These issues can therefore be broken out into a series of questions to be answered in the following order.

Question 1: Does the guarantee and indemnity of the OB Agreement survive the Liquidator’s purported disclaimer of it, assuming that disclaimer to be effective and taking into account the effect of that disclaimer under s568D of the Corporations Law as not affecting third party rights, except as necessary to release the company and its property from liability?

Question 2: Having regard to the answer to Question 1:

(a) Was the disclaimer effective as an “unprofitable contract” within the meaning of s568(1A) of the Corporations Law obviating the need for leave of the Court to disclaim, or,

(b) If the disclaimer were not effective without the Court’s leave as an unprofitable contract, could and should such disclaimer be made effective with the Court’s leave, nunc pro tunc , taking into account such matters as bear upon the granting of such leave including, if applicable, disproportionate prejudice?

(c) (i) If the guarantee and indemnity would not survive the disclaimer, can and should the disclaimer be set aside pursuant to s568B(2), of the Corporations Law , on the basis that the disclaimer would cause the Plaintiff, which relies on the guarantee and indemnity from the Third Defendant, prejudice for the non-survival of the guarantee and indemnity that “is grossly out of proportion to the prejudice that setting aside the disclaimer would cause the Company’s creditors” under s568B(3) of the Corporations Law ?

(ii) Alternatively, is s1321 of the Corporations Law available by way of an appeal from a decision to disclaim by the Liquidator as a basis for setting aside the disclaimer, and, if so, should such appeal be allowed or is s568B an exclusive regime for the determination of such questions or otherwise provides the criteria for the application of s1321?
AGREED OR NON-DISPUTED STATEMENT OF FACTS

8    What follows are the agreed or non-disputed facts. 9    Each of the plaintiff ("Global"), the first defendant ("SportsCo") and the third defendant ("Optus Vision") are companies duly incorporated and are able to sue and be sued. 10    SportsCo conducted the business of producing sports television programming services for Optus Vision for use in Optus Vision's subscription television (pay television) broadcasting services business. 11    The second defendant ("Rennie") was appointed by order of the Federal Court of Australia:

(a) to be the provisional liquidator of SportsCo, on 29 June 1998;

(b) to be the liquidator of SportsCo, on 31 July 1998.

12    SportsCo is, and has been since 31 July 1998, in the course of being wound up in insolvency under the Corporations Law. 13    By order of the Supreme Court of New South Wales made on 12 October 1999, Global was granted leave nunc pro tunc to commence and continue this action against SportsCo.

The OB Agreement and the Guarantee

14    On 27 April 1995 Global and SportsCo entered into a written contract entitled "Outside Broadcasting Services Agreement" dated 27 April 1995 (called the "OB Agreement"). The "Commencement Date" (as defined in the OB Agreement) was on or before 31 December 1995. 15    On 27 April 1995 Global and Optus Vision entered into a deed entitled "Guarantee and Indemnity" dated 27 April 1995 (called the "Guarantee"). 16    From the commencement of the OB Agreement until June 1998, SportsCo either paid to Global Outside Broadcasting Fees (as defined in the OB Agreement) for each quarter which exceeded the Minimum Quarterly Fee (as defined in the OB Agreement, called "MFQ"), or where the Outside Broadcasting Fees paid were less than the MFQ, paid an additional amount to Global equal to the deficiency. 17    Prior to 1 September 1998, services provided by Global under the OB Agreement to SportsCo were used by SportsCo in the course of its business described in paragraph 2 above.

The Liquidation

18    On 31 July 1998, the Federal Court of Australia ordered that SportsCo be wound up. 19    SportsCo is insolvent and has been so since at least 31 July 1998. 20    Global has lodged a proof of debt in the liquidation of SportsCo with Rennie, whilst provisional liquidator of SportsCo, dated 21 July 1998 for an amount of $8,595,709.05 ("the proof of debt"). The proof of debt claimed:

(a) $605,465.05 for Outside Broadcasting Fees and MQF shortfall to 29 June 1998.

(b) $7,990,244 for MQF payments from 29 June 1998 to 26 April 2003.

21    On 31 August 1998 SportsCo ceased to conduct its business of providing sports television programming services to Optus Vision. 22    Since 31 August 1998:

(a) SportsCo has not conducted any business;

(b) SportsCo has had no staff or facilities to conduct a business;

(c) SportsCo has not provided any programming services (or any other services) to Optus Vision (or any other person);

(d) SportsCo has not required, has had no need for and does not intend to request the provision of outside broadcasting services, including the services described in the OB Agreement, from Global or any other person;

(e) Global has not provided any outside broadcasting services or other services to SportsCo under the OB Agreement or otherwise;

(f) In Mr Rennie's opinion the contract has been, and is, of no benefit to SportsCo.

23 On 24 June 1999 Rennie gave notice to Global of his disclaimer of the OB Agreement under cover of a letter to Global dated 24 June 1999. It was since the subject of an application by Global filed in time on 8 July 1999 for an order under s568B and/or s1321 of the Corporations Law for the disclaimer to be set aside, and a declaration that Optus vision remains liable under the Deed of Guarantee and Indemnity for the payment of all remaining MQF payments. 24    On 29 June 1999 Rennie lodged a written notice of disclaimer with the Australian Investments and Securities Commission in Sydney. 25    The only prejudice which the plaintiff says is or would be caused to it by a disclaimer of the OB Agreement is the possibility that the third defendant may claim to be entitled to be discharged from its obligations under the Guarantee and thereby not be liable for payment of the Minimum Quarterly Fees (as described in the OB Agreement) which otherwise would become payable by it under the Guarantee. The Plaintiff is not and would not be caused any other prejudice (pecuniary or otherwise), or any loss or damage (pecuniary or otherwise), by a disclaimer of the OB Agreement. 26    The state of affairs of the winding up of SportsCo is:

(a) Rennie has realised all tangible assets of SportsCo;

(b) Rennie has dealt with most of the proofs of debts lodged by unsecured creditors in the liquidation of SportsCo, other than the proofs of debt lodged by its shareholders and Global;

(c) Rennie has not dealt with Global's proof of debt in so far as it relates to debt in respect of the period after 24 June 1999 (the date of the notice of disclaimer);

(d) Rennie has completed preliminary investigations into the affairs of SportsCo;

(e) Rennie currently holds an amount of $11,468,857.90 as funds available for distribution to the creditors of SportsCo subject to the costs and expenses of the conclusion of the winding up;

(f) The total amount of the proofs of debt received and lodged with Rennie is $64,842,994.26.

(g) Rennie has admitted proofs of debt to the amount of $29,438,257.86 although, depending on the outcome of these proceedings, it may be necessary to review some of these proofs, so that the total is increased or decreased.

RESOLUTION OF LEGAL ISSUES

Question 1:

Does the guarantee and indemnity of the OB Agreement survive the Liquidator’s purported disclaimer of it, assuming that disclaimer to be effective and taking into account the effect of that disclaimer under s568D of the Corporations Law as not affecting third party rights, except as necessary to release the company and its property from liability?

27 First, some common ground. But for the disclaimer, it is accepted by Optus Vision that it remains liable under the guarantee. Global, for its part accepts that the only prejudice on which it relies to set aside the disclaimer is if, contrary to its contention, disclaimer would cause the guarantee to cease to be effective. If the guarantee remains effective despite disclaimer, Global does not press its arguments against the disclaimer. 28 It is trite to say that a guarantee must operate in accordance with its terms, properly interpreted. However, here the statutory regime dealing with the disclaimer of onerous property in Division 7A of Pt 5.6 of the Corporations Law mandates the effect of that disclaimer. It says (s568D(1)) that disclaimer shall not affect third party rights or liabilities in respect of the disclaimed property (save as necessary to give effect to the release of the company and its property). But statute mandates the guarantee’s efficacy, following disclaimer, in a way which still leaves room for that third party contract by its own terms to discharge or release the guarantee. Concededly it can only do so expressly; not by such implication as flows merely from disclaimer of the property to which the third party rights or liabilities relates. That much is accepted by all parties as settled by Sandtara (supra). 29 I turn first to the effect of statute as affecting the guarantee’s continued efficacy. Section 568D(1) provides:

“ 568D (1) [Termination of company’s rights etc in disclaimer property] A disclaimer is taken to have terminated, as from the day on which it is taken because of subsection 568C(3) to take effect, the company’s rights, interests, liabilities and property in or in respect of the disclaimer property, but does not affect any other person’s rights or liabilities except so far as necessary in order to release the company and its property from liability.”

30 Section 568D(2) provides:

“A person aggrieved by the operation of a disclaimer is taken to be a creditor of the company to the extent of loss suffered by the person because of the disclaimer and may prove such a loss as a debt in the winding-up.”

31 The typical operation of these provisions can be illustrated by the example of a lease. Assume that the liquidator inherits a lease. Assume that the liquidator is able properly to be satisfied that the lease is an “unprofitable contract” within the meaning of s568(1A) of the Corporations Law so it can be disclaimed by giving the necessary notice and without leave of the court. Assume finally that this is in circumstances where the disclaimer could not be resisted pursuant to s568B of the Corporations Law; that is to say, the Court could not be satisfied that the disclaimer would, within the meaning of s568B(3), cause, to persons who have or claim to have interests in the property, prejudice that is grossly out of proportion to the prejudice that setting aside the disclaimer would cause to the Company’s creditors. 32 In those circumstances, the lessor as a party to the lease disclaimed may prove in the winding-up for the estimated damages it will suffer as a result of the disclaimer. Proof for “future rent” will be discounted for accelerated payment as well as the contingency that the lease might have proved unprofitable at one point or another; s568D(2). However, relevantly here, that disclaimer is by s568D(1) not to affect any third party rights or liabilities, such as a guarantor in relation to the lease. Assume there were a third party guarantee of the lease disclaimed. That guarantee can still be sued upon by the lessor, leaving the guarantor in turn to prove for any loss so suffered by it from the disclaimer. But what if the guarantee expressly provides that disclaimer of the lease would discharge the guarantee? Then it would be the terms of the guarantee that caused defeasance of the guarantor’s rights, doing so in consequence of the disclaimer but not brought about by it save in a “but for” sense; compare Stubbs Investments Ltd v Thorp [1997] 1 NZLR 310 [CA1955(NZ) S243 1992]. 33 It is therefore necessary to construe the express terms of the guarantee. If these are ambiguous, the statutory regime is part of the matrix of surrounding factual circumstances to which resort may be had in resolving ambiguity. 34 The primary provision of the guarantee is contained in clause 2.1. It appears under the heading “Guarantee and Indemnity” in these terms:

“2.1 Vision unconditionally guarantees to Global the due and punctual performance and observance by SportsCo of SportsCo’s obligations under the OB Agreement.”

35    That unconditional guarantee is preceded by a recital B in these terms. “Vision is a shareholder of SportsCo and has agreed to guarantee SportsCo’s obligations under the OB Agreement until SportsCo is an established business.” It is not however suggested that SportsCo has achieved that condition of becoming an established business and Optus Vision does not rely on recital B to escape its liability. There is also common ground that the obligations guaranteed include the payment of the Minimum Quarterly Fees or “MFQ’s”. 36    But then clause 2.3 provides also for indemnity against loss from breach or default:

“Subject to clause 4, Vision indemnifies and must keep indemnified Global for all cost, loss, damage or expense suffered or incurred by Global arising out of any breach or default or attempted breach or default by SportsCo to perform or observe any of the obligations or undertakings to be observed or performed by SportsCo under the OB Agreement.”

37    In so doing and in the title of the document as “this guarantee and indemnity”, cl 2.3 reflects the dual character of the obligations undertaken; obligations of guarantee and obligations of indemnity. The earlier guarantee is thereby supplemented by the indemnity obligations which follow. In the absence of provision to the contrary, it is “a contract by one party to keep the other harmless against loss” (Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 830-1). Such an indemnity obligation to hold harmless against loss is not dependent, save to the extent the contract otherwise provides, on the continuing liability of the principal debtor. Thus the word “default” in clause 2.3, in contrast to “breach”, is wide enough to include a simple failure to perform to which the indemnity applies, even such a failure as follows from release by disclaimer. 38 Clause 2.4 provides that Global “is entitled to make demand under this guarantee without having recourse to any other remedy against SportsCo”. This is preceded by confirmation that “Vision’s obligations under this guarantee are principal obligations and are not ancillary or collateral to any other obligations”. The expression “guarantee” can be taken here, as elsewhere, to include the indemnity. 39 Those provisions thus mean that Global does not have to rely upon the OB Agreement in asserting its rights, as the Guarantee and Indemnity are principal obligations which stand independently of the OB Agreement. That militates against interpreting the Guarantee and Indemnity as not intended to survive disclaimer of the OB Agreement. 40 That interpretation is reinforced by clause 3 which I quote in full:

“3. NATURE OF GUARANTEE
3.1 Vision’s liability under this Guarantee is not affected by anything which might release it or will otherwise affect it at law or equity.
3.2 The guarantee contained in clause 2 is an irrevocable and continuing obligation of Vision and continues in force and effect until completion of all SportsCo’s obligations under the OB Agreement or until the completion of the undertakings of that guarantee by Vision.
3.3 Vision shall not be exonerated in whole or in part, and nor shall Global’s rights, remedies or recourse against Vision be in any way prejudiced or limited by any one or more of the following matters:
(a) the granting of any time, concession or indulgence, or the waiver of any breach or default on the part of SportsCo by Global;
(b) the fact that the OB Agreement has been released, varied, modified, renewed or replaced at any time after the date of this guarantee (provided that if as a result of such release, variation, modification, renewal or replacement SportsCo’s obligations under the OB Agreement are altered, Vision shall only be required to guarantee those altered obligations from the time when the alteration is made);
(c) the insolvency or liquidation of SportsCo or Vision (whether or not Global assents thereto or receives any dividend therein) or the dissolution of SportsCo or Vision;
(d) any time or other indulgence given to or compromise, composition or arrangement made between SportsCo and Global; and
(e) any payment by SportsCo which would reduce or operate in satisfaction or partial satisfaction of Vision’s liability hereunder to the extent that such payment is void or avoided for any reason (irrespective of when such avoidance operates) to the intent that such liability may be enforced to the amount thereof as it existed prior to such payment as if it had never been made.”

41 Were there no other provision of the guarantee with its included indemnity which might affect the conventional interpretation of these clauses, there would be no basis for construing it as countermanding the effect of s568D(1); that is construing it as a denial of the guarantee’s survival, following disclaimer. Clause 3 makes clear that the guarantee is to survive release of the OB Agreement, as well as insolvency, liquidation and dissolution of SportsCo. Cole JA in Sandtara at 499 refers to the counterpart provisions in that case. They too were to the effect that the guarantee and associated indemnity continued notwithstanding that the party whose obligations were guaranteed may be wound up. He concluded that subject to the effect of s568(3), now s568D, “that contractual provision must be upheld and enforced”. 42 Nor do I consider it stretching the guarantee’s language too far to treat the OB Agreement as “released” as between its parties for purposes of clause 3.3(b), this being by force of the statutory disclaimer. That statutory provision (s568D(1)) does release SportsCo’s rights and liabilities under the OB Agreement in the sense of terminating them as against Global. In order so to release SportsCo, Global must be released also, as the concluding words of s568D(1) contemplate. Global’s rights are thus replaced by a right to prove for loss under s568D(2). Clearly enough, the saving words “but not so as to affect any other person’s rights or liabilities” are governed by the concluding words “except so far as necessary to release the company and its property from liability” [emphasis added]. But here the guarantor’s position is that of a third party whose liability can be preserved without interfering with the intended release of SportsCo. What this entails is that the guarantor’s consequential right of recourse upon meeting its guarantee must be released and replaced by a right to prove for loss in SportsCo’s liquidation under s568D(2). 43 Moreover, clause 3.2 refers to the continuance of the obligations under the guarantee “until completion of all SportsCo’s obligations under the OB Agreement ….”. Had it been intended that the guarantee and associated indemnity would not so continue following disclaimer, it would have been expected that the guarantee would rather have expressly said so. It does not. This is more especially when the obligations are continuing ones still to be completed requiring the payment of a sum of money, the Minimum Quarterly Fees. 44    In Sandtara the New South Wales Court of Appeal clarified the way third party rights are preserved from statutory affectation by virtue of disclaimer. It declined to follow the UK Court of Appeal in Stacey v Hill (supra) but rather followed the earlier decision of Jessel MR in Re Levy; ex parte Walton [1881] 17 ChD 746 at 754. Sir George Jessel MR concluded (at 754) that the deemed surrender of a lease following disclaimer under the then s23 of the Bankruptcy Act 1869 (UK) had a limited operation. That is disclaimer operates inter se “so far only as is necessary in order to relieve the bankrupt and his estate and the trustee from liability” and “so as not to interfere with the rights of third parties”. Section 23 provided on execution of the instrument of disclaimer:

“… the property disclaimed shall, if the same is a contract, be deemed to be determined from the date of the order of adjudication, and if the same is a lease be deemed to have been surrendered on the same date, and if any other species of property it shall revert to the person entitled on the determination of the estate or interest of the bankrupt, but if there shall be no person in existence so entitled, then in no case shall any estate or interest therein remain in the bankrupt.”

45    Indeed the UK Parliament adopted the very language of Jessel MR in Re Levy (supra) when enacting the successor provision to s23, namely s55(2) of the Bankruptcy Act of 1883:

“disclaimer shall … not, except so far as necessary for the purpose of releasing the bankrupt and his property and the trustee for liability, affect the rights and liabilities of any other person.”
That origin should have led to a judicial interpretation comporting with the judicial authority that led to s55(2). Yet that authority was ignored in Stacey v Hill , as Handley JA points out in Sandtara .

46    However, that error was decisively corrected in the United Kingdom in Hindcastle Ltd v Barbara Attenborough Associates Ltd where Lord Nicholls said, at 92, that the reasoning of the Court of Appeal in Stacey v Hill “flies in the face of the plain language of the statute”. At 88 he said:

“The starting point for attempting to solve this puzzling conundrum is to note that the Act clearly envisages that a person may be liable to perform the tenant’s covenants even after the lease has been disclaimed. A vesting order may be made in favour of such a person: see section 182(3), and see also section 181(2)(b). The proper legal analysis has to be able to accommodate this conclusion. The search, therefore, is for an interpretation of the legislation which will enable this to be achieved as well as fulfilling the primary purpose of freeing the insolvent from all liability while, overall, doing the minimum violence to accepted property law principles.
If the problem is approached in this way, the best answer seems to be that the statute takes effect as a deeming provision so far as other persons’ preserved rights and obligations are concerned. A deeming provision is a commonplace statutory technique. The statute provides that a disclaimer operates to determine the interest of the tenant in the disclaimed property but not so as to affect the rights or liabilities of any other person. Thus when the lease is disclaimed it is determined and the reversion accelerated but the rights and liabilities of others, such as guarantors and original tenants, are to remain as though the lease is not permitted to affect the rights or liabilities of other persons. Statute has so provided.” [emphasis in original]

47    Indeed as Handley JA points out, Stacey v Hill has never been endorsed in Australia and is contrary to the statement of principle of Dixon J in McDonald v Dennys Lascelles (1933) 48 CLR 457 at 480. There Dixon J referred to the principle that the liability of the surety is co-extensive of that of the principal debtor and said that,

“… It does not extend to a discharge of the principal debtor’s personal liability by operation of law when the discharge is for the purpose of liquidating his affairs or transforming the rights of the creditor against him into rights against or in respect of his assets. The doctrine should be understood to look rather to the continuance of a just claim in the creditor to receive payment in respect of the principal debtor’s obligation than to the latter’s relief from actual personal liability.”

48    Thus the reasoning of the House of Lords in Hindcastle aligns with the reasoning in Sandtara. That reasoning ensures that s568D(1), and its UK equivalent:

(a) have the effect of bringing the primary transaction to an end on disclaimer as between its immediate parties, but

(b) still deems the primary transaction to continue when it comes to ascertaining the obligations and rights of third parties whose transaction is not directly the subject of disclaimer though relating to the primary transaction disclaimed.

49    That reasoning affirms that unless a provision of the guarantee expressly excludes liability of the guarantor (and indemnifier) in the event of disclaimer, that liability continues when it comes to ascertaining the guarantor’s obligations. The only provision of the guarantee which could conceivably exclude liability is clause 4: its earlier cited provisions rather affirm liability. It is that provision which the guarantor Optus Vision relies upon. It needs to be quoted in full.

“4. LIMITATION OF LIABILITY UNDER THE GUARANTEE
4.1 The liability of Vision under this Guarantee and Indemnity is limited to:
(a) until the date that SportsCo’s paid up capital exceeds $20,000,000.00 the liability of SportsCo under the OB Agreement as that liability of SportsCo is limited under clause 16 of the OB Agreement (“Primary SportsCo Liability”); and
(b) after the date that SportsCo’s paid up capital exceeds $20,000,000.00, that part of the Primary SportsCo Liability calculated by multiplying the Primary SportsCo Liability by the greater of 50% and the percentage that Vision’s shareholding in the paid up capital of SportsCo bears to the total paid up capital in SportsCo as at the date of the relevant breach of the OB Agreement by SportsCo.
4.2 For the avoidance of doubt, the parties agree that vision shall not be:
(a) liable under this Guarantee for any obligation that SportsCo does not or would not have under the OB Agreement; or
(b) obliged to make any payment for any cost, loss, damage or expense or perform any obligation under this Guarantee unless and until SportsCo has such an obligation under the OB Agreement.”

50    Optus Vision argues that clause 4.2 amounts to an express provision precluding liability in circumstances such as follow a disclaimer, where SportsCo no longer has any obligation under the OB Agreement. 51    The first difficulty in the way of that interpretation is that clause 4.2 is prefaced by the words “for the avoidance of doubt”. This is not the explicit language one would expect, if it were directed to overriding the effect of the earlier provisions of clause 3 confirming the continuing nature of the guarantee and thus its survival following disclaimer. If clause 4.2 were intended to override those earlier provisions one would have expected words such as “notwithstanding the earlier provisions of this guarantee” rather than a reference to doubt, when no doubt is evident in relation to those provisions. 52    Furthermore, the language of clause 4.2 is not directed at terminating an existing obligation of SportsCo, one which would otherwise have been preserved by statute from the effect of disclaimer. Rather it is directed to an obligation that has yet to arise. Thus clause 4.2(a): “any obligation that SportsCo does not or would not have …” and 4.2(b), “any obligation … unless and until SportsCo has such an obligation …”); likewise clause 4.2 is directed at express limitations applicable to SportsCo under the OB Agreement of the kind referred to in clause 4.1. It is that which provides the context for clause 4.2 and its intended operation. 53    Clause 4.1 likewise has a different purpose. It is directed at ensuring the liability of the guarantor Optus Vision does not go beyond that contemplated by clause 16 of the OB Agreement. Clause 16.7 provides that if Global terminates the agreement under clause 17.5 (repudiation by SportsCo of the agreement) Global is precluded from any right to claim damages from SportsCo, provided SportsCo continues to pay to Global the Minimum Quarterly Fee. Thus, clause 4.2, essentially by way of reinforcement of clause 4.1 and in that sense for avoidance of doubt, makes clear that Optus Vision’s liability under the guarantee is correspondingly limited to SportsCo’s liability under clause 16 or otherwise under the formula in clause 4.1(b). It does not appear to have a wider operation to alter the effect of clause 3 or to reverse the effect of s568D(1) in protecting third party rights. 54 That interpretation is supported by clause 17.7. It makes clear that “termination of this agreement by Global under clause 17.5 will not affect the obligation of SportsCo” to make the Minimum Quarterly Fee payments. It would be surprising indeed if termination by disclaimer, with its statutory preservation of third party rights, discharged Optus Vision from liability, whereas termination for repudiation did not. To attribute that intention to the parties would be absurd.

Conclusion

55    There is nothing in the guarantee and associated indemnity which precludes it surviving disclaimer and retaining its continued effect. The guarantee operates as if the OB Agreement had not been terminated, so far as the obligation on the guarantor pay the Minimum Quarterly Fees is concerned. 56    I now turn to Question 2. For convenience I quote it below.

Question 2:

2. Having regard to the answer to Question 1:

(a) Was the disclaimer effective as an “unprofitable contract” within the meaning of s568(1A) of the Corporations Law obviating the need for leave of the Court to disclaim, or,

(b) If the disclaimer were not effective without the Court’s leave as an unprofitable contract, could and should such disclaimer be made effective with the Court’s leave, nunc pro tunc, taking into account such matters as bear upon the granting of such leave including, if applicable, disproportionate prejudice?

(c) (i) If the guarantee and indemnity would not survive the disclaimer, can and should the disclaimer be set aside pursuant to s568B(2), of the Corporations Law, on the basis that the disclaimer would cause the Plaintiff, which relies on the guarantee and indemnity from the Third Defendant, prejudice for the non-survival of the guarantee and indemnity that “is grossly out of proportion to the prejudice that setting aside the disclaimer would cause the Company’s creditors” under s568B(3) of the Corporations Law?

(ii) Alternatively, is s1321 of the Corporations Law available by way of an appeal from a decision to disclaim by the Liquidator as a basis for setting aside the disclaimer, and, if so, should such appeal be allowed or is s568B an exclusive regime for the determination of such questions or otherwise provides the criteria for the application of s1321?

57 Given that I am satisfied that the guarantee and indemnity does survive, it follows that Global is not in a position successfully to challenge the disclaimer under s568B(1) of the Corporations Law. This is because Global could not under s568B(3) show disproportionate prejudice if the disclaimer were not set aside. Indeed Global does not contend otherwise. However, there remains the question whether the disclaimer could have taken place without leave of the Court as an “unprofitable contract”, pursuant to s568(1A) and, if not, whether the Court’s leave should be given as necessary nunc pro tunc. 58    Clearly, if the contract were not an “unprofitable contract” the disclaimer is a nullity in the absence of court order. 59    In defining what an unprofitable contract means, I am content to adopt the approach of Young J in Dekala Pty Limited (in liq) v Perth Land and Leisure Ltd (1989) 17 NSWLR 664. At 667 he speaks of a contract which “would involve the liquidator in at least eight months’ of work and in taking the chance the purchaser would obtain finance on terms and conditions … satisfactory to it”. Young J understandably concluded that: “This would seem to be a contract which cannot satisfactorily be carried out by a liquidator whose interest is to realise the company’s property and to pay a dividend to creditors at the earliest possible time.” 60 To say that an unprofitable contract is one the performance of which cannot satisfactorily be carried out still leaves the need for further elaboration of what is meant by “unsatisfactory”. What is important in that context is whether the contract could be satisfactorily carried by a liquidator or trustee in bankruptcy, compatibly with the liquidator’s duty to realise the company’s property and pay a dividend at the earliest possible time. Consistent with that approach a contract must be more than merely financially disadvantageous as Hayne J concluded in Old Style Confections Pty Ltd v Microbyte Investments Pty Ltd (in liq) [1995] 2 VR 457 at 466—7. Thus if a liquidator could perform a contract without prejudicing his obligation to realise the company’s property and pay a dividend to creditors at the earliest possible time, he could not turn around and disclaim that contract merely on the expedient ground that he substitute a more profitable one. Such a notion of comparative financial disadvantage is not the applicable test. Indeed I do not understand Hodgson J in Rothwells Ltd v Spedley Securities Limited (1990) 20 NSWLR 417 at 423 to have concluded otherwise. 61 The history of the liquidator’s power to disclaim unprofitable contracts has recently been usefully traced by Chesterman J in Transmetro Corporation Ltd v Real Investments Pty Ltd (1999) 17 ACLC 1314 at paras [15]-[20]. 62 Para [21] extracted the following principles which, subject to the caveat earlier expressed, I would be prepared to adopt also: · “A contract is unprofitable for the purpose of s568 if it imposes on the company continuing financial obligations which may be regarded as detrimental to the creditors, which presumably means that the contract confers no sufficient reciprocal benefit. · Before a contract may be unprofitable for the purposes of the section it must give rise to prospective liabilities. · Contracts which will delay the winding-up of the company’s affairs because they are to be performed over a substantial period of time and will involve expenditure that may not be recovered are unprofitable. · No case has decided that a contract is unprofitable merely because it is financially disadvantageous. The cases focus upon the nature and cause of the disadvantage. · A contract is not unprofitable merely because the company could have made or could make a better bargain. 63    Given that, with any necessary leave, every contract may now be disclaimed by a liquidator, but only unprofitable contracts avoid the need for the court’s leave, and given the consequences for a party contracting in good faith if disclaimer does occur, I find this a further reason not to construe “unprofitable contracts” unduly broadly. 64    Turning to the present contract, I am satisfied that it was an “unprofitable contract” for reasons which I will elaborate. The Plaintiff’s argument to the contrary is based on two grounds:

(a) In the first three months after Mr Rennie’s appointment as liquidator, Global continued to perform work under the contract which considerably exceeded the Minimum Quarterly Fee otherwise payable ($526,465.65); see affidavit of Mr Pearson of 8 July 1999, para 12;

(b) In subsequent months Mr Rennie did not require Global to perform work under the contract and indeed the contract did not require him to do so, as the only obligation imposed on the liquidator was to pay the Minimum Quarterly Fee; that was according to the Plaintiff hardly an obligation which could not be carried out by the liquidator.

65    But I consider this argument fails adequately to grapple with the reality faced by this liquidator. Clearly, for the liquidator to assume a continuing obligation till 2003 to make payments under a take or pay arrangement and for a service from Global which SportsCo evidently no longer requires, and can no longer use, must be incompatible with SportsCo’s beneficial winding-up and would delay any early dividend. Very obviously, the disclaimer provisions are intended to enable insolvency administrators to relieve themselves of ongoing liabilities which so prolong the administration and delay the dividend; see generally Ex parte Walton; Re Levy (supra) at 751-2 and 757, Re the Nottingham General Cemetery Co [1953] Ch 683 at 695, Re Middle Harbour Investments Limited [1977] 2 NSWLR 652 at 657 and Transmetro Corporation Limited (supra) at para 21. 66 To the extent it is relevant, were disclaimer permitted, the amount for which Global may prove under s568D(2) is not the present value of the future MQF payments. Rather that is to be calculated on the footing of termination of the contract by repudiation; see Christopher Moran Holdings Ltd v Bairstow [1999] 2 WLR 396 at 399-403. That means that it is necessary to take into account the benefit to Global of being relieved from its ongoing obligations under the OB Agreement. These include an obligation to maintain resources and staff, for example under clauses 7.3, 7.4, 10.3(a) and 11.1. Global would need to mitigate its loss and thus would be able to employ elsewhere in its business the capital and resources for which is to be compensated by the take or pay clause. However, I do not consider these factors affect the issue before me. I am concerned with whether the contract is unprofitable, not whether disclaimer would be more profitable.

Conclusion

67    The liquidator, Mr Rennie, was entitled to disclaim without leave of the court under s568(1) on the basis that the contract disclaimed was an “unprofitable contract” within the meaning of that section. It follows that no leave is required from the Court. So the issue of leave nunc pro tunc does not arise. Any challenge to the disclaimer must fail under s568B(2) and (3) and I would not allow, if it were otherwise available, any appeal pursuant to s1321. 68 In those circumstances I do not need to consider whether the Plaintiff can appeal independently of s568B(2) pursuant to s1321 of the Corporations Law.

ORDERS AND COSTS

69 Optus Vision asserts that if, contrary to its earlier submissions, it is held liable under the guarantee, then it seeks an order pursuant to s568F of the Corporations Law that the OB Agreement vest in it. 70 As I understand matters, that application would not be opposed, given my conclusion that Optus Vision is liable under the guarantee and assuming that that matter does not proceed further on appeal. The basis upon which Optus Vision seeks that vesting order is as follows. If Optus Vision is liable under its guarantee of SportsCo’s obligations under the OB Agreement, then it is, within the meaning of subsection 568F(2), “under a liability in respect of the property that this Law has not discharged”. 71 The appropriateness of a vesting order within the meaning of s568F(1)(b) lies in the fact that:

(a) Optus Vision will be paying the MQF payments until the year 2003, but will receive no benefit other than a right to prove in SportsCo’s liquidation, and

(b) SportsCo existed only for the purpose of producing television programme services for Optus Vision and had no other business or customers (affidavit of K R Rennie of 1 June 2000, para 4(a)).

72 In the circumstances I would, subject to hearing from the parties, be content to making a vesting order under s568F as sought by Optus Vision. 73 Costs ordinarily should follow the event and thus be paid by Optus Vision but I am willing to hear submissions on costs if the parties so desire. 74 I direct the parties within fourteen days to submit orders giving effect to this judgment.

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Last Modified: 10/17/2000