SpaCorp Australia Pty Ltd v Myer Stores Ltd

[2000] VSC 469

SUPREME COURT OF VICTORIA
COMMERCIAL & EQUITY DIVISION	Not Restricted
CORPORATIONS LIST

No. 6558 of 2000

SPACORP AUSTRALIA PTY LTD	Plaintiff
v
MYER STORES LTD	Defendant

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 October 2000
DATE OF JUDGMENT:	9 November 2000
CASE MAY BE CITED AS:	SpaCorp Australia Pty Ltd v Myer Stores Ltd
MEDIUM NEUTRAL CITATION:	[2000] VSC 469	Revised 16 November 2000

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Corporations Law, ss.459E, 459G and 459H; setting aside statutory demand – construction of agreement – whether monies owed – arguable case.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J. Nolan	Lewenberg & Lewenberg
For the Defendant	Mr D. Denton	Phillips Fox

HER HONOUR:

1. The proceeding is an appeal against an order of the Senior Master setting aside a statutory demand made under s.459H of the Corporations Law.  It proceeds before me, therefore, pursuant to Order 77 of the Rules as a hearing de novo.

1. The plaintiff ("SpaCorp") is engaged in the business of marketing and providing beauty products and services.  The defendant ("Myer") operates major department stores throughout the country.  An entity related to SpaCorp, Aroma Science Pty Ltd ("Aroma") is the Australian licensee and exclusive distributor of beauty products marketed under the name "Aveda".  Aroma licensed SpaCorp to conduct the business of providing Aveda products.

1. In June 1998 SpaCorp, Aroma and Myer entered into an agreement in writing ("the Agreement") for SpaCorp to establish facilities to retail Aveda products and services in nominated Myer stores and for Myer to license Spacorp allocated space in its stores for that purpose.  Included in the terms of the agreement was a requirement for Myer to provide funding to SpaCorp for the purposes of establishing the Aveda business in Myer stores. 

1. A dispute arose between SpaCorp and Myer over the sum of $1.2M paid by Myer to SpaCorp pursuant to the terms of the agreement. Myer claimed that it was entitled to repayment of those moneys by SpaCorp and, as a consequence, served a statutory demand pursuant to s.459E of the Corporations Law upon SpaCorp on 26 July 2000. SpaCorp denied that it was indebted to Myer for the sum of $1.2M as claimed and applied pursuant to s.459G of the Corporations Law to set aside the statutory demand.  The Senior Master ordered that the statutory demand be set aside.  Myer appeals against that order.

The Terms of the Agreement

1. Recitals D and E of the agreement provided:

"D.Myer, Aroma and SpaCorp wish to enter into an agreement for the establishment by SpaCorp of a business which will retail the Aveda Services in certain Myer stores (the 'Aveda Business').  Myer will licence SpaCorp certain space within some of its stores to conduct the Aveda Business.  SpaCorp will be responsible for all operational issues dealing with the Aveda Business.

E.Myer will provide funding as mutually agreed to SpaCorp to conduct the Aveda Business.  Myer and SpaCorp will each be entitled to a payment equal to 50% of the surplus of revenue after deduction of authorised expenses earned from the Aveda Business."

1. Clause 6.5 of the agreement set out the funding arrangements between the parties:

"6.5     Funding by Myer

(a)Myer agrees to advance to SpaCorp the sum of $1,200,000 for the purpose of establishing the Aveda Business.  This sum will be payable as follows:

(i)$850,000 payable within three days of signing this agreement or within three days of satisfaction of the pre‑conditions (which ever is the later); and

(ii)$350,000 payable by 30 June 1998.

(b)The parties acknowledge and agree that the sum of $1.2 million advanced pursuant to clause 6.5(a) is to be paid to Spa Corp and is only recoverable from Spa Corp:

(i)if SpaCorp fails to open for business the Aveda Business at the three Initial Store Locations other than for reasons not within its reasonable control by 31 December, 1998 (or such later date as Myer and SpaCorp agree); or

(ii)in accordance with clause 7.4, where prior to the calculation and distribution of any surplus revenue in excess of Authorised Expenses, Myer is to be reimbursed the $1.2 million advanced pursuant to this clause.

(c)Myer will advance to SpaCorp sums agreed upon from time to time between Myer and SpaCorp to fund the operations of the Aveda Business.  It is expected funding will initially be required to fund the commencement of operations but that over time the Aveda Business will be self funding and profitable.  It is acknowledged that Myer will fund all Authorised Expenses, to the extent necessary to cover any shortfall from the operation of the Aveda Business."

1. Clause 7.4 of the agreement set out the arrangements between the parties for repayment of moneys by Myer.  Essentially the arrangement between the parties was one whereby Myer was entitled to repayment of moneys advanced by it to SpaCorp and once those moneys were paid any surplus would be divided equally between Myer and SpaCorp.  Clause 7.5 of the agreement dealt with the payment of surplus revenue in this respect.  Clauses 7.4 and 7.5 provided:

"7.4     Repayment of Myer funding

(a)SpaCorp must on an ongoing basis repay to Myer any moneys advanced by Myer including the moneys contemplated to be advanced in accordance with clause 6.5.  The moneys must be repaid by SpaCorp from the surplus of revenue earned by, or in respect of the Aveda Business after deduction of Authorised Expenses.  Repayments will be made where reasonably possible on a monthly basis.  No interest will be payable to Myer on any advance made by it except in the case of Default Event.

(b)SpaCorp must repay to Myer all moneys advanced by Myer which are outstanding immediately upon the happening of a Default Event.  Interest will also be payable in the event of a Default Event.  Interest will be calculated at the rate of 10% pa, including accrued interest, calculated as from the time of default.  Interest will be deemed to accrue on a daily basis.

7.5     Payment of Surplus Revenue

After reimbursement to Myer of any and all moneys advanced by it to SpaCorp, Myer and SpaCorp will each receive payments equal to 50% of the surplus revenue derived in respect of the Aveda Business after deduction of Authorised Expenses."

1. Securities were provided also.  In addition to the agreement between SpaCorp, Aroma and Myer a charge was executed over the assets and undertakings of Aroma, SpaCorp, another company, and Aroma Science Retail Pty Ltd together with a guarantee by each of Aroma Science Retail Pty Ltd and Aroma.  The charge and the guarantee for the security to Myer for the agreement.  Clause 8 of the agreement dealt with the requirements in relation to the securities.  It provided:

"8.       SECURITY

(a)       The Proposed Security will comprise:

(i)a guarantee and indemnity of the obligations of SpaCorp to Myer from each of Aroma Science Retail Pty Ltd and Aroma;

(ii)first ranking charges over the assets and undertaking of each of Aroma, SpaCorp and Aroma Science Retail Pty Ltd (including any assets held as trustee).

such securities being in such form and obtaining such terms and conditions as Myer shall reasonably require and securing all moneys advanced by, and owing from time to time to Myer subject to clauses 8(b) and (c).

(b)The Proposed Security to be provided by Aroma Science Retail Pty Ltd will only secure, and need only be in place for the period of time to so secure, the amounts which may be payable by SpaCorp under Clause 6.5(b)(i).

(c)The Proposed Security to be provided by Aroma need only be in place for the periods of time, and to secure the different amounts, which are contemplated to be payable under clause 10.2 and clause 10.3 and to secure SpaCorp's obligations under clause 6.5(b)(i)."

1. The agreement was for a term of two years from the date of execution.  It expired on 2 June 2000.  Clause 11.4 of the agreement provided:

"11.4    Consequences of Termination of Expiry

All obligations under this agreement will cease upon the expiry or termination of this agreement, except all accrued obligations will continue.  Upon expire or termination SpaCorp must immediately repay to Myer any moneys owing to Myer".

1. Clause 16.6 of the agreement provided that the agreement constituted the entire agreement between the parties.  Clause 16.8 inserted a survival clause in the agreement whereby specified clauses survived the termination or expiry of the agreement.  As a consequence, clauses 6.5(b) and 7.4 survived the expiration of the agreement.

1. The case proceeded before me as largely a dispute over the construction of the terms of the agreement.  SpaCorp filed a number of affidavits dealing, among other matters, with the "understanding" of various employees of SpaCorp as to the nature of the arrangement between it and Myer.  These affidavits were not relied upon by Mr J. Nolan who appeared for SpaCorp.  Rather, Mr Nolan relied solely upon Exhibit "D" to the affidavit of Geoffrey Kempler sworn 21 August 2000 that consisted of the agreement between the parties.  He submitted that there was no default under the agreement but, in any event, argued that on the proper construction of the agreement there was an argument as to whether or not the moneys were owed by SpaCorp to Myer.  Mr Denton who appeared for Myer relied upon the agreement exhibited to the affidavit of Mr Kempler.  He relied also upon two documents produced pursuant to a notice to produce by SpaCorp and that were tendered in evidence.  The first document was an extract from the trial balance for SpaCorp up until 2 June 2000.  The document disclosed an entry of $1.2M being due to Myer.  The second document was the charge that was the subject of the security for the agreement provided by SpaCorp.  Hence, the hearing before me proceeded on a very different basis to that before the Senior Master.  On that occasion the controversy appeared to turn upon the parties' "understanding" of the agreement and their obligations thereunder.  Before me, the controversy was confined solely to the proper construction of the agreement.

1. The principles in relation to a statutory demand are well established.  The onus lay on SpaCorp to establish that there was a genuine dispute about the debt: see Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787-8. The test set out by McLelland J in Eyota is twofold.  First, the expression "genuine dispute" connotes a plausible contention requiring investigation raising similar considerations as the criterion of a serious question to be tried.  Second, a court should not, usually, embark upon an enquiry as to the credit of a witness in determining whether or not a genuine dispute exists concerning a debt.  More recently, the New South Wales Court of Appeal in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 24 ACSR 353 observed:

"In our view a genuine dispute requires that: the dispute be bona fide and truly existing fact; the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived."

1. I turn, therefore, to consider the true construction of the agreement in relation to the debt claimed.

The Construction of the Agreement

1. Clause E of the Recital to the agreement stated in unequivocal terms that Myer was to provide funding to SpaCorp "as mutually agreed" for the purpose of conducting "the Aveda Business".  What then was "mutually agreed"?

1. Clause 6.5(a) of the agreement provided for Myer to pay $1.2M to SpaCorp in a specified manner.  There was no dispute that the monies were paid to SpaCorp.  Clause 6.5(b) provided for the moneys to be recoverable only from SpaCorp in two sets of circumstances.  First, if SpaCorp failed to open the Aveda business.  There was no dispute that the opening occurred.  Second, and otherwise, Myer was to be reimbursed the payment of $1.2M before the distribution of any surplus moneys between Myer and SpaCorp.  Clause 6.5(c) described the provision of the sum by Myer as an "advance" and the purpose being to fund the commencement of the Aveda business.

1. Clause 7.4 imposed an obligation on SpaCorp to repay the advance to Myer in two sets of circumstances.  On the basis that the business proceeded, the advance was to be paid from the surplus earned from the Aveda business after the deduction of authorised expenses.  There was no issue between the parties that there was no surplus from the Aveda business.  That meant the second basis for repayment of the advance was triggered.  Clause 7.4(b) stipulated that SpaCorp must repay all moneys advanced by Myer that were outstanding "immediately upon the happening of a Default Event".  Clause 1.1 defined a "Default Event" as including a number of circumstances but there was no suggestion of such an event here.  Hence, the obligation, if any, to pay the advance arose under clause 7.4(a) after the payment of any surplus from the Aveda business. 

1. Significantly, clause 11.4 imposed an obligation on SpaCorp to repay to Myer any moneys owning to it immediately upon expiration or termination of the agreement.  There was no dispute that the agreement had expired and that the sum of $1.2M had not been repaid.

1. It was argued by Mr Nolan for SpaCorp that no obligation arose upon SpaCorp because there was no surplus.  He submitted that until there was a surplus that in turn provided the initial source of repayment to Myer no obligation arose at all.  So far as SpaCorp was concerned, he submitted that unless and until there was a surplus no obligation arose under the agreement.  On this basis Mr Nolan argued that SpaCorp had at least an arguable case upon the construction of the agreement and that as a consequence the statutory demand ought be set aside.

1. I do not accept the construction argument put on behalf of SpaCorp.  In my view the agreement is cast in unequivocal terms.  The agreement imposed a clear obligation upon SpaCorp to repay the moneys advanced by Myer.  The moneys were repayable if the Aveda business proceeded at first instance from any surplus.  The fact that the surplus may have been insufficient or non-existent did not reduce or remove the obligation on SpaCorp to repay the advance.  All that clause 7.4(a) did was provide a mechanism for the repayment of the advance while the Aveda business was in operation and the agreement was on foot.  The business is no longer on foot.  The agreement has expired and under clause 11.4 all moneys advanced by Myer are owing and must be repaid immediately.

1. In these circumstances, therefore, it is unnecessary for me to consider other aspects of the arrangements between the parties including the securities and the account documents of SpaCorp.  If it was necessary for me to consider those documents it follows in my view that the accounting records of SpaCorp of themselves reveal an admission that there was an obligation on its part to repay the advance of $1.2M to Myer.

1. In my view the terms of the agreement are clear and unambiguous.  I consider, therefore, that the construction I place on the relevant clauses is beyond controversy.  A further observation is to be made.  The agreement constituted a commercial arrangement between Myer and SpaCorp.  In such a commercial setting I consider it is apparent that SpaCorp and Myer intended the advance to be repayable either, from the surplus if the business progressed or, if not, at the expiration of the agreement.  Upon expiration the advance became repayable.  It is the only reasonable inference that can be drawn given that Myer and SpaCorp were "business people" in the position of a commercial transaction: see Schenker and Co (Aust) Pty Ltd v Malpas Equipment and Services Pty Ltd and Anor (1990) VR 834, 848; also, Vroon BV v Foster's Brewing Group Ltd (1994) 2 VR 32, 67-68. In my view, the commercial nature of the arrangement between Myer and SpaCorp was further borne out by the entries in the accounting records of SpaCorp demonstrating that there was acknowledgment of the obligation to repay the advance to Myer.

1. It follows from these reasons that the application to set aside the statutory demand fails.  It follows, further, that the appeal against the Senior Master is allowed.

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CERTIFICATE

I certify that this and the 7 preceding pages are a true copy of the reasons for judgment of Warren J of the Supreme Court of Victoria delivered on 9 November 2000.

DATED: this ninth day of November 2000.

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Associate