Workout Gym Pty Ltd v Crackerjack Investments Pty Ltd
[1997] FCA 751
•16 JULY 1997
FEDERAL COURT OF AUSTRALIA
CORPORATIONS LAW - application to set aside statutory demand - whether there existed a genuine dispute as to existence of a debt - relevance of potential claim for rectification agreement where no proceedings presently on foot.
Corporations Laws 459H, s 459J
Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601
Chadwick Industries (South Coast) Pty Ltd v Condensing Vapourises Pty Ltd (1994) 13 ACSR 37
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Rush & Tompkins Ltd v Greater London Council (1989) AC 1280
Prenn v Simmonds (1971) 1 WLR 1381
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
WORKOUT GYM PTY LTD v CRACKERJACK INVESTMENTS PTY LTD
No VG 3070 of 1997
GOLDBERG J
MELBOURNE
16 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 3070 of 1997 ) GENERAL DIVISION )
IN THE MATTER OF SECTION 459H OF
THE CORPORATIONS LAW OF VICTORIA
BETWEEN: WORKOUT GYM PTY LTD
(ACN 056 174 038)
ApplicantAND: CRACKERJACK INVESTMENTS PTY LTD
(ACN 005 328 192)
Respondent
JUDGE: GOLDBERG J PLACE: MELBOURNE DATE: 16 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The statutory demand dated 19 February 1997 served on the applicant by the respondent is set aside.
The Court makes no order as to costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG 3070 of 1997 ) GENERAL DIVISION )
IN THE MATTER OF SECTION 459H OF
THE CORPORATIONS LAW OF VICTORIA
BETWEEN: WORKOUT GYM PTY LTD
(ACN 056 174 038)
ApplicantAND: CRACKERJACK INVESTMENTS PTY LTD
(ACN 005 328 192)
Respondent
JUDGE: GOLDBERG J PLACE: MELBOURNE DATE: 16 JULY 1997
REASONS FOR JUDGMENT
By application filed on 17 March 1997 the applicant applied for an order that the Court set aside a statutory demand dated 19 February 1997 served on it by the respondent on 24 February 1997. The application seeks that the demand be set aside pursuant to s 459H and s 459J of the Corporations Law but the argument proceeded essentially on the basis that there was a genuine dispute between the applicant and the respondent about the existence or amount of the debt to which the demand relates, thereby enlivening only s 459H of the Corporations Law.
The demand claimed that the applicant owes the respondent $244,499.90 being the amount of a judgment of the County Court of Victoria on 15 April 1996 in favour of the respondent against the applicant.
The applicant and the respondent executed an agreement dated 24 April 1996 whereby they agreed to settle proceedings issued in the County Court of Victoria by the respondent against the applicant. In those proceedings the respondent claimed from the applicant rental and outgoings due and payable under a lease of the premises known as Tenancy Five 93‑98 Maroondah Highway, Ringwood which the applicant had leased from the respondent. In those proceedings the applicant had denied the respondent’s claims and had filed a counterclaim claiming damages for breach of certain terms of the lease and damages in respect of representations which the applicant said induced it to enter into the lease which were false. In the counterclaim the applicant claimed damages not exceeding $200,000.00 and in its defence sought to set off so much of its counterclaim as was necessary to extinguish the respondent’s claim. The respondent had filed a defence to the counterclaim denying the allegations in it.
By the Settlement Agreement the respondent released the applicant from any further obligations under the lease and the applicant surrendered the lease which surrender was agreed to have taken effect as of 29 February 1996. By clause 2 of the Settlement Agreement the respondent granted the applicant a licence to occupy and use the premises from 1 March 1996 to 31 July 1996 on payment of a licence fee which was specified and the respondent reserved the right to grant further monthly licences.
The Settlement Agreement (relevantly) contained the following terms:
“3 CONSENT ORDERS
3.1In consideration of this Agreement and the granting of the licence contained in this Agreement the firstnamed defendant consents to judgment being entered against it in the County Court of Victoria in the sum of $244,499.90 and that its Counterclaim be dismissed.
3.2The plaintiff agrees that its claim against the secondnamed defendant be dismissed.
3.3The parties each agree that they will bear their own costs of and incidental to the claim, the counterclaim and of this Agreement.
4. STAY OF EXECUTION
4.1In consideration of this Agreement and the consent to judgement referred to in clause 3.1 above the plaintiff agrees that it will not take any steps to execute the judgment during the term of the licence created by this Agreement or any extension of that licence under clause 2.4 above.
5. MUTUAL RELEASES
5.1In consideration of the matters detailed above the parties to this Agreement each RELEASE AND FOREVER FULLY DISCHARGE each of the other of them from all actions, suits, claims and demands whatsoever which each of them now or at any time hereafter may have or but for the execution of this Agreement could or might have against the other of them for or in respect of or in any manner whatsoever arising out of the lease, the guarantee, the claim, the counterclaim and any other associated rights and causes of action arising out of or in any way connected with the matters referred to in the recitals to this Agreement.
5.2Each of the parties to this Agreement absolutely and unconditionally undertakes to each of the other parties hereto not to advance, institute, cause procure, finance or support either directly or indirectly any proceeding of whatsoever nature against any of the other parties to this Agreement in respect of or in any manner whatsoever arising out of the lease, the guarantee, the claim, the counterclaim or any other issues arising out of or connected with the matters referred to in the recitals hereto.
5.3The parties hereby covenant and agree with each other that by their execution of this Agreement the covenants, agreements and declarations herein expressed bind and are intended to bind each of their respective successors, assigns and legal representatives jointly and severally.
5.4The parties hereby expressly agree that none of the releases contained in this clause effect the ability of any of the parties to enforce any of their rights which may arise under the licence created by this Agreement.”
As a result of the Settlement Agreement Judge Hanlon in the County Court on 16 April 1996 ordered by consent that the applicant pay the respondent $244,499.90, that the respondent’s claim against the secondnamed defendant in the proceedings (the guarantor of the applicant’s obligations under the lease) be dismissed, that the applicant’s counterclaim against the respondent be dismissed and that there be no order as to costs.
The applicant continued in occupation of the premises pursuant to the licence granted under the Settlement Agreement and subsequently vacated the premises. On 21 August 1996 the respondent’s solicitors wrote to the applicant and demanded payment of $244,499.90 within seven days. That amount was not paid and the statutory demand was served.
The respondent contends that clause 4.1 of the Settlement Agreement provides that execution on the judgment would not take place during the applicant’s occupation by way of licence and that the releases contained in clause 5.1 of the Settlement Agreement do not affect or limit the ability of the respondent to enforce the judgment. The applicant contends that the combined effect of clauses 4.1, 5.1, 5.2 and 5.4 precludes the respondent from taking any steps to enforce the consent judgment and that although clause 4.1 refers only to a stay of execution during the term of the licence the clear intent of the clause was to exclude the application of the release contained in clause 5.1 until the applicant completed its obligations under the terms of the licence. The applicant says that it complied with the licence agreement (which is not in issue) and that accordingly, the judgment debt is subject to the release contained in clause 5.1.
Each party seeks to rely upon extrinsic circumstances to support its interpretation of the Settlement Agreement. Mr Leonard Samuel a director of the applicant says that had it been suggested to the applicant that the respondent considered that it was entitled to pursue recovery of the amount for which the respondent entered judgment at the expiration of the licence period the applicant would not have entered into the Settlement Agreement.
Mr Siebel, the solicitor for the respondent, says that prior to final agreement on the terms of the Settlement Agreement and its execution there was an exchange of correspondence between him and Mr Phillips in which Mr Phillips sought Mr Siebel’s approval to the following arrangement:
“My client allowed judgment to be entered against it with such judgment not to be enforced for the duration of the licence term hereunder sought.
...”
Mr Siebel’s reply was in the following terms:
“Your client will agree to judgment being entered against it, such judgment will not be enforced for the duration of the licence term agreed between the parties or any extension of that licence term as contemplated under Point 3 below.”
(Point 3 is not relevant for present purposes).
That correspondence was headed “without prejudice”. The applicant has not waived the privilege which accordingly attached to the correspondence and precluded its admissibility in evidence. In my view that correspondence is inadmissible in this proceeding and I have therefore not taken it into account in these reasons: Rush & Tompkins Ltd v Greater London Council (1989) AC 1280. In any event such evidence could not be used as evidence of the intentions of the parties: Prenn v Simmonds (1971) 1 WLR 1381, 1384; Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.
Mr Siebel says that Mr Phillips telephoned him on 16 April 1996 and stated that his client was prepared to execute the Settlement Agreement but they had some concerns about the stay of execution and they were asking that the right to execute on the consent judgment be limited only to the time during which they were in occupation of the premises and that once they had complied with the obligations under that licence the mutual releases would take effect. Mr Siebel says that he informed Mr Phillips that this was not acceptable and that his client was only prepared to settle on the basis that it be open to it to execute on the judgment following expiry of the licence. Mr Siebel denies that he confirmed to, or advised, Mr Phillips that the sole purpose of clause 4 was to secure the obligations of the applicant during the term of the limited licence.
Mr Phillip’s recollection of the conversation with Mr Siebel on 16 April 1996 is different as he recalls expressing concern about the drafting of the Settlement Agreement and that Mr Siebel “confirmed the intent of the consent judgment was to protect his client during the term of the licence period and in the event that the applicant complied with its obligations during the licence period then the mutual releases would take effect and the respondent would have no right to execute on the consent judgment.”
Mr Phillips says that after the applicant executed the Settlement Agreement he forwarded it to Mr Siebel under cover of a letter dated 17 April 1996 in which he stated that:
“I refer to previous correspondence and discussions and to my telephone discussion with Mr Siebel last evening.
As discussed, my client did have some concerns with the Terms of Settlement as drafted, however, I have explained to my client that the Judgment being given is for your client’s protection during the term of the Licence granted thereunder. In other words, should there be a default under the Licence as set out in the Terms of Settlement, then your client will be entitled to exercise its rights pursuant to the Judgment. Once the Licence period is finished, with my client complying with the terms of the Licence, then the mutual Releases take final effect.”
The question to be resolved is whether the material before the Court demonstrates that there is a “genuine dispute” between the applicant and the respondent about the right of the respondent to execute in respect of the judgment debt. There have been numerous decisions in recent times defining and explaining the content of the expression “genuine dispute” in s 459H(1)(a) of the Corporations Law. The cases make it abundantly clear that a court will not attempt to determine contested issues of law or fact in respect of which there is a substantial basis underlying them. In Mibor Investments Pty Ltd v Commonwealth Bank of Australia (1993) 11 ACSR 362 Hayne J said:
“...at least in most cases, it is not expected that the Court will embark upon any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there was a dispute and that it is a genuine dispute.”
See also Moyall Investments Services Pty Ltd v White (1993) 12 ACSR 320.
In Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787 McLelland CJ in Eq said:
“In my opinion that expression [genuine dispute] connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the Court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently and probable in itself, it may be’ not having ‘sufficient prima facie plausibility to merit further investigation as to (its) truth’ ... or ‘a patently feeble legal argument or an assertion of facts unsupported by evidence’...”
In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605 Thomas J said:
“There is little doubt that Div 3 is intended to be a complete code which prescribes a formula that requires the court to assess the position between the parties, and preserve demands where it can be seen that there is no genuine dispute and no sufficient genuine offsetting claim. That is not to say that the court will examine the merits or settle the dispute. The specified limits of the court’s examination are the ascertainment of whether there is a ‘genuine dispute’ and whether there is a ‘genuine claim’.
It is often possible to discern the spurious, and to identify mere bluster or assertion. But beyond a perception of genuineness (or the lack of it) the court has no function. It is not helpful to perceive that one party is more likely than the other to succeed, or that the eventual state of the account between the parties is more likely to be one result than another.
The essential task is relatively simple - to identify the genuine level of a claim (not the likely result of it) and to identify the genuine level of an offsetting claim (not the likely result of it).”
In Chadwick Industries (South Coast) Pty Ltd v Condensing Vapourises Pty Ltd (1994) 13 ACSR 37 Lockhart J thought it an arguable question whether the serious question to be tried test was common to a number of earlier judgments. His Honour said (at 39):
However, what appears clearly enough from all the judgments that the standard of satisfaction which a Court requires is not a particularly high one. I am for present purposes content to adopt any of the standards that are referred to in the cases ... the highest of the threshold is probably the test enunciated by Beazley J, though for myself I discern no inconsistency between that test and the statements in the other cases to which I have referred. However, the application of Beazley J’s test will vary according to the circumstances of the case.
Certainly the Court will not examine the merits of the dispute other than to see if there is in fact a genuine dispute. The notion of a ‘genuine dispute’ in this context suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance”.
See also Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR 229.
I therefore approach the matter on the basis of asking, consistently with these authorities, whether there is a genuine dispute about the proper construction of and inter-relation between clauses 4.1 and 5.1 of the Settlement Agreement. According to accepted principles of construction evidence of prior negotiations leading up to the making of an agreement may be admissible for the purpose of establishing objective background facts known to the parties but are not ordinarily admissible as evidence of the intention of the parties. In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Mason J said at p 352:
‘Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of the actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”
For these reasons the correspondence between Mr Phillips and Mr Siebel prior to the execution of the Settlement Agreement is not admissible as evidence of what either the respondent or the applicant intended.
Can it be said that the contention of the applicant as to what it says is the proper construction of clause 4.1 and clause 5.1 raises a genuine dispute? Assertion of the construction is not sufficient to raise a genuine dispute. The construction advanced must be examined to see if it can be said to raise a genuine dispute. In my view the wording of clause 4.1 is clear and unambiguous in that the respondent is agreeing that it would not take any steps to execute the judgment during the term of the licence or any extension of it. If clause 4.1 stood by itself it would not be arguable that on the termination of the licence that clause precluded the respondent from executing on the judgment. However regard must be had and some content must be given to clause 5.1. It contains a release which is not qualified or limited in any way nor is it expressed to be subject to any rights of the respondent or for that matter the applicant. If clause 5.1 stood on its own it might be said that the applicant is released from any obligation to pay the judgment debt. However, the release does not, in terms, cover a release in relation to the judgment. It is true that it relates to the lease, the guarantee, the claim, the counterclaim and any other associated rights and causes of action arising out of or in any way connected with the matters referred to in the recitals to the agreement but upon judgment being entered any rights the respondent had in relation to those matters merged in the judgment. Mr Percy who appears for the applicant submitted that clause 5.1 was very comprehensive and that if it was not intended to cover the judgment debt one would have expected to have found a provision to that effect in clause 5.4 which provided for an exclusion from the releases. However, clause 5.1 does not refer to the judgment debt at all which is specifically provided for in clause 3.1 and the release in clause 5.1 does not refer to a release from the judgment debt at all. Clause 5.2 does not take the matter any further as it uses similar expressions to clause 5.2. Mr Percy also submitted that clause 5.1 covered associated rights and causes of action arising out of the matters referred to in the recitals but the recitals do not refer to the judgment debt. I therefore do not consider that it is arguable that clause 5.1 releases the applicant from being obliged to discharge the judgment debt after the termination of the licence or any extension of it. Putting the matter more correctly, I do not consider that there is a genuine dispute about whether clause 5.1 so releases the applicant.
However that does not end the matter because Mr Samuel says, in effect, that it was a term of the agreement which the applicant accepted that the granting of the right to enter the judgment and execute on it was provided as security in respect of the performance by the applicant of its obligations under the licence. Mr Siebel says that this proposal was put by Mr Phillips to him on 16 April 1996 and that he rejected it. However, Mr Phillips says that in that conversation he expressed concern about the drafting of the Settlement Agreement and that Mr Siebel confirmed:
“the intent of the consent judgment was to protect his client during the term of the licence period and in the event that the applicant complied with its obligations during the licence period, then the mutual releases would take effect and the respondent would have no right to execute on the consent judgment.”
Mr Phillips says that his record of the conversation is recorded in a letter he wrote to Mr Siebel on 17 April 1996 enclosing the Settlement Agreement executed by the applicant. That letter states:
“As discussed, my client did have some concerns with the Terms of Settlement as drafted, however, I have explained to my client that the Judgment being given is for your client’s protection during the term of the Licence granted thereunder. In other words, should there be a default under the Licence as set out in the Terms of Settlement, then your client will be entitled to exercise its rights pursuant to the Judgment. Once the Licence period has finished, with my client complying with the Terms of the Licence, then the mutual releases take final effect.”
On the same day Mr Siebel sent a facsimile to Mr Phillips acknowledging receipt of the Settlement Agreement executed by the applicant and he does not respond to, or otherwise disagree with, that part of Mr Phillips’ letter to which I have already referred.
Although this correspondence is not admissible as evidence of the intentions of the parties, it is admissible in any proceeding which may be brought for rectification of the Settlement Agreement: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (supra) 352.
If the statement referred to in Mr Phillips’ letter of 17 April 1996 accurately records what Mr Phillips discussed with Mr Siebel and if Mr Phillips’ recollection that Mr Siebel confirmed that the intent of the consent judgment was to protect his client during the term of the licence period and if the applicant complied with its obligations during the licence period, then mutual releases would take effect and the respondent would have no right to execute under consent judgment, is accepted, then it is arguable that the applicant has a claim for rectification of the Settlement Agreement which, according to Mr Phillips’ evidence, does not accurately embody or record the intention of the parties prior to the execution of the Settlement Agreement which was apparently executed by the respondent on 24 April 1996.
I have already noted that Mr Siebel had said that a proposal put by Mr Phillips that it was a term of the agreement that the granting of the right to enter the judgment and execute on it was provided as security in respect of the performance by the applicant of its obligations under the licence was rejected by him. It is no part of my task on this application to determine whether Mr Siebel’s version should be accepted or whether Mr Phillips’ version should be accepted. Suffice it to say that there is a contested issue on that matter which, in my opinion, is relevant in relation to a proceeding for rectification of the settlement agreement.
If the Settlement Agreement does not accurately embody or record the intention of the parties and if there is accordingly, a basis for the applicant to seek rectification of the Agreement in the terms set out by Mr Phillips then I consider that there is a genuine dispute, consistently with the interpretation of that expression to which I have referred earlier, as to whether the respondent is entitled to enforce or seek to execute upon the judgment debt. Mr Booth who appears for the respondent submitted that, notwithstanding the proposition that there may be a basis for seeking rectification of the Settlement Agreement (which proposition he rejected), there was no “genuine” dispute about the existence of the judgment debt as the applicant had not instituted rectification proceedings nor had it indicated that it had contemplated any such proceedings. Mr Booth submitted, in effect, that until a rectification proceeding had been instituted there was no genuine dispute about the judgment debt as the Settlement Agreement in its terms, did not deny the respondent the right, in the events which had occurred, to execute on the judgment debt.
It is true that rectification proceedings have not been issued. Mr Percy submitted that the applicant is not obliged to have issued rectification proceedings in order for the genuine dispute to exist. However if no such proceedings are instituted the Settlement Agreement is to be construed as its terms presently exist. In such a case the Settlement Agreement does not preclude execution on the judgment by the respondent. The respondent denies there is any basis for rectification proceedings but the evidence discloses that such a basis exists which, in my view, gives rise to a genuine dispute on that issue. When I say such a basis exists I am saying that there is evidence before the Court from which it might be said that there is a claim for rectification. Ultimately that depends upon a final view of evidence. It is no part of my task to have that issue of contested fact resolved. Suffice it to say that, consistently with the principles relating to rectification, the material before me discloses, in my view, a genuine dispute about whether or not such a basis exists.
In all the circumstances it seems to me that the existence of the basis to seek rectification, if pursued, goes to the root of the respondent’s ability to enforce the judgment debt and to that extent there is a genuine dispute about the existence of the debt.
It therefore follows that the statutory demand should be set aside pursuant to s 459H of the Corporations Law and I so order. Mr Percy submits that costs should follow the event. Mr Booth submits that having regard to the basis upon which the application has been determined, namely the matter primarily advanced by the applicant being rejected in my reasons and the basis upon which I have decided in favour of the applicant being one based on very late material and matters agitated between the bench and counsel, either the respondent should have its costs or each party should bear their own costs.
Costs are very much in the discretion of the Court. There are no hard and fast rules, although the usual rule is that costs follow the event. Having regard to the nature of the arguments before the Court, the manner in which the arguments were raised, the arguments which were rejected and the submission or the propositions finally accepted, in my view each party should bear their own costs. I accordingly make no orders as to costs.
I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg
Associate:
Dated: August 1997
Counsel for the Applicant: Mr P Booth Solicitor for the Applicant: Brendan J Archer Counsel for the Respondent: Mr I Percy Solicitor for the Respondent: Phillips Fox Date of Hearing: 16 July 1997 Date of Judgment: 16 July 1997
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