Fintax Ltd, Re [1992] QSC 380

c c: c ATTACHMENT C. 2 IN THE SUPREME COURT OF QUEENSLAND APN No. 696 of 1992 Brisbane Before The Hon. Mr. Justice K.W. Ryan [Re: Fintax Limited]] IN THE MATTER of the "The Corporations Law" - and - IN THE MATTER of FINTAX LIMITED (ACN: 011 032 018) REASONS FOR JUDGMENT - RYAN J. Judgment delivered on 20/10/1992 Counsel: Solicitors: Mr. P.E. Hack for Applicant Mr. F.L. Harrison Q.C. and Mr. K. Varley for Respondent Bowdens, Solicitors for Applicant Kenny & Co., Solicitors for Respondent Hearing Date: 30 September, 1992. -- 1 of 11 -- c c c c IN THE SUPREME COURT OF QUEENSLAND APN No. 696 of 1992 IN THE MATTER of the "The Corporations Law" - and - IN THE MATTER of FINTAX LIMITED (ACN: 011 032 018) REASONS FOR JUDGMENT - RYAN J. Delivered the Twentieth day of October, 1992. Application has been made by Tyndall Life Assurance Company Limited ("Tyndall") for an order that Fintax Limited be wound up and that a liquidator be appointed to conduct the winding up. Mr. Wilkins a director of the applicant has filed an affidavit in which it is deposed that on 31 July 1992 the company was indebted to the applicant in the sum of $300,000, being the amount payable by the company to the applicant in respect of agreements dated 10 August 1983 and 4 November 1991 entered into between the applicant and Fin tax Limited. A demand requiring the company to pay this sum was served on the company on 3 August 1992. The company failed to pay the said sum for three weeks after service of the demand. It is deposed that it is unable to pay its debts. Objection was taken to the allegations of indebtedness and inability to pay debts but I consider that they are admissible. In a subsequent affidavit Mr. Wilkins states that the agreements between the applicant and the respondent were dated 26 November 1990, 4 November 1991 and 4 June 1991. The notice pursuant to s. 460(2)(a) of the Corporations Law states that the amount of $300,000 was due and payable under the terms of an agreement dated 4 June 1991. -- 2 of 11 -- 2 Tyndall 1 s business is that of a life insurance company. For that purpose it appoints agents for the purpose of selling policies of insurance. Fin tax was one of Tyndall 1 s agents. Fintax approached Tyndall with a new insurance policy which it proposed to market on behalf of Tyndall and Tyndall 1 s agent. It is deposed by Mr. Wilkins that by agreement between Tyndall and Fintax, Tyndall was to advance moneys to Fintax for the purpose of it marketing the new insurance package, Variable Life Plan. Tyndall was to advance the sums of money by way of $60,000 a month for a total of $720,000. It was agreed that Fin tax would make use of the loan to market the package. Mr. Pearson, a director of Fintax, has deposed that during the negotiations with Tyndall, he told its representatives that in order to establish and market the policy properly there would have to be financial support from which ever life insurance company he ultimately agreed to go into a joint venture with; that the level of such support would need to be $720,000 to be paid in equal monthly instalments over a 12 months period; and that he required that such sum was not to be repayable to Tyndall but was simply Tyndall 1 s provision of support for the launching of the project. He states that the Tyndall representative said that they would provide that level of support in the terms he sought. On 26 November 1990 Fintax entered into an agency agreement with Tyndall. By it Tyndall agreed to pay commission to be determined according to the then current schedule of rates of commission and conditions. Mr. Pearson states that by December 1990 Fintax Limited had already expended $224,850.74 on computer time, wages, marketing (J 0 (J -- 3 of 11 -- 3 and establishment costs. This was expended in anticipation of $60,000 per month financial support from Tyndall but it did not make any such payment. The costs to May 1991 in developing, promoting and marketing the policy and purchasing the requisite computer equipment amounted to $488,441.16. The cost from then until the present are $139,321.47 in the form of computer, time and wages. In addition Fintax leased computer equipment to the value of $225,000 for the sole purpose of use in marketing and C'" producing the policy throughout Australia. Mr. Pearson estimates c c c he lost between $450,000 and $600,000 income he would otherwise have earned in his general insurance business if he had not devoted his time solely to the project. These expenses of the company were as agreed with Tyndall to some extent funded by the $60,000 per month received in the initial stages from Tyndall. Mr. Pear son states he was told by represen ta ti ves of Tyndall that the initial instalment of $60,000 was to be paid by Tyndall in December 1990. However Tyndall provided the first instalment of $60,000 to Fintax only on or about 11 February 1991. On 8 February 1991 Fintax forwarded a letter to Tyndall. This stated that Mr. Hunwick, the Managing Director of Tyndall at a meeting with Fin tax "has confirmed the arrangement of $60, 000 per month draw to Fin tax with a constant review of performance and a wash up after 12 months". On 11 February 1991 Tyndall wrote to Fintax stating that the letter was to confirm that it had telegraphically transferred $60,000 to the account as per Fintax's letter dated 8 February 1991. This was stated to be an advance of commission as discussed between Mr. Vanderberg of Fintax and Mr. Hunwick. -- 4 of 11 -- 4 Mr. Pears on deposes that he rang Mr. Evans, a Tyndall representative and author of the letter and told him that the agreement was for $720, 000 advance to be Tyndall' s share of development promotion costs relating to the policy and that such sums were not repayable in any way. He states that Evans did not dispute the suggestion. A further instalment of $60, 000 was then received by Fintax in late February 1991. By a letter dated 1 March 1991 Mr. Hunwick wrote to Mr. Pearson stating his understanding of matters they had discussed. It referred to the commission structure and then added:- "The commission advance arrangements will commence from March 1991. We have already advanced two amounts of $60,000 in anticipation of this system. Our understanding is that we are to advance to Fintax $60,000 per month (assuming the product continues to have whole significant prospects for profit) against commissions earned by the Fin tax Group. If commissions in any month exceed $60,000 we would first deduct the excess from previous advances then pay any excess to Fintax in the normal way. The advance is to be interest free. If any amount remains unpaid at the end of one year (say 31 March 1992) you have personally guaranteed to pay it forthwith." (J 0 0 Mr. Pearson deposes that after receiving this letter he telephoned Mr. Hunwick and said that he disputed that any such Q instalments were repayable by him or Fintax. Hunwick did not dispute this but said that the status of the sum of $720,000 would be reviewed in the future. The third instalment of $60, 000 was received by Fintax in April 1991. In mid-April a launch of the policy was organised by Pearson and Hunwick to take place at the Hyatt Coolum. After the launch the fourth instalment of $40,000 was not forthcoming from Tyndall. -- 5 of 11 -- 5 On 8 May 1991 a meeting was held at the offices of Fintax to discuss the progress of the package. At the time of the meeting Tyndall had advanced to Fintax $300,000. On 10 May 1991 Fintax requested that "as an alternative to the existing arrangement of advancing $60,000 per month for a further eight months totalling $480,000 that the alternative arrangement be made that Tyndall will advance a letter of credit to our bankers · for $300,000 excisable on 1 October 1991". On the same day C Fintax sent a further letter to Tyndall advising that it would c c c be sending a revised version of its variable life plan which would greatly improve the profitability of Tyndall. On 24 May 1991 Tyndall' s Sydney's solicitors forwarded correspondence to the solicitors for Fintax in which it is alleged that Fin tax had committed breaches of the agreement between Tyndall and Fintax Limited. On 29 May 1991 Fintax's solicitors replied denying breaches of the agreement. On 30 May 1991 Fintax forwarded a letter to Tyndall requesting that a further $60,000 Fintax advance be made. On 4 June 1991 Tyndall forwarded an offer to Fintax which it was stated remained open for acceptance until 7 June 1991. It was signed on behalf of Fintax on 6 June 1991. The terms included the following: " ( i) that Tyndall would make a further advance to Fintax in the sum of $60,000 to be repayable in the following manner:- (a) by setting off the amount owing against commissions earned by Fintax from 1 June 1991 to 31 May 1992. (b) any amount outstanding in respect of the $60, 000 advance after 1 -- 6 of 11 -- 6 June 1992 would be immediately repaid by Fintax. (ii) that the existing loan of $240,000 to Fintax would be repaid by Fintax to Tyndall on 30 June 1992 if Fintax had failed to sell more than $5m worth of the package." Mr. Pearson has deposed that the letter of 4 June 1991 was an ultimatum which Fintax had no alternative but to accept. Had it not accepted the terms proposed by Tyndall it would have been financially ruined. A deed of release was executed by Tyndall, Fintax and Mr. Pearson which contains recitals that Tyndall and Fintax entered into an agency agreement dated 26 November 1990 (the Agency Agreement); that they entered into an agreement (the Funding Agreement) whereby Tyndall agreed upon certain terms and conditions to provide Fintax with $720,000 of funding by way of monthly instalments of $60,000 each; that Fintax and Pearson were to develop a variable life plan; that Fintax had made claims alleging that Tyndall failed to perform its obligations under the funding agreement which allegations Tyndall denied; and that Tyndall, Fintax and Pearson had agreed to settle the matter upon the terms set out in a letter agreement dated 4 June 1991. A final payment of $60,000 was paid to Fintax in accordance with the agreement. As at 30 June 1992 Fintax had failed to sell $5,000,000 worth of the package. By the agreement of 4 November 1991, Tyndall appoints Fintax as its agent within Australia for the purpose of arranging applications for policies of life insurance sold by Tyndall from time to time and for the purpose of recruiting and proposing prospective agents of Tyndall within Australia. Clause 4 deals 0 0 0 0 -- 7 of 11 -- c c 7 with remuneration. It provided that Tyndall was to pay to Fintax over-ride in accordance with the Schedule of Rates of Over-ride. By cl. 8.2 it is provided that the Agreement contains the entire understanding of Tyndall and Fintax in respect of its subject matter. Mr. Pearson deposes that the policy began to be marketed publicly from August 1991 but that Tyndall refused to accept policies and returned the premiums. He states:- "In October of 1991 the company Fintax provided Tyndall with the first two applications for policies which had been sold together with the premiums thereon. Tyndall refused to accept the policies and returned the premiums. Despite my making numerous telephone calls to the offices of Tyndall in order to ascertain the reason why Tyndall had apparently resiled from the agreement, my telephone calls were not returned. By letter dated 11 March 1992 and forwarded by the company to the solicitors for Tyndall I· generally voiced the company's concerns as to Tyndall's breach of the agreement as aforesaid." The letter of 11 March 1992 by Fintax to the solicitors for Tyndall states: "As your client is fully aware policies were offered and have been rejected without explanation. Further there were considerable difficulties in communicating with the officers of Tyndall in relation to any ongoing business. Indeed there appears to be a personal hostility which has grown up between Mr. Hunwick and Mr. Pearson. In the circumstances it was impossible to do business notwithstanding the clear commitment by Tyndall that there would be an ongoing business relationship and that it would accept proposals for the variable life plan." It is alleged by Fintax that it has a substantial claim against Tyndall for damages which far exceeds the quantum of the alleged debt claim by Tyndall. It also disputes that a debt exists between it and Tyndall. It was submitted for the respondent that no winding up order should be made since there was a bona fide and substantial dispute as to the existence of the whole of the debt. -- 8 of 11 -- 8 For the applicant reliance was placed upon the cl. 3 (b) in the letter of 4 June 1991 which states that:- "If Fintax has not sold more than $5M of the variable life plan by 30 June 1992 all amounts outstanding on account of the loan shall be immediately repaid by Fintax." It appears from the material that until the agreement was signed in June 1991 the dispute between the parties had been whether the sum of $720,000 was required to be paid by Tyndall to Fintax to enable it to develop and market the new policy or was an advance to be repaid out of the commission. But the only bases upon which it can be alleged that the sum of $300,000 was 0 not owing pursuant to the agreement of 4 June 1991 were that the 0 agreement was entered into under economic duress and that Tyndall had made it impossible for the respondent to do business as contemplated by the parties. I am unable to see anything in the material before me which would sustain a claim of economic duress. It has been recognised \ ('~ that commercial pressure may constitute duress. In Universe Tank 0 Ships v. ITF (1983) A.C. 366 at p. 400 Lord Scarman said that there were two elements in the wrong of duress: (1) pressure amounting to compulsion of the will of the victim and (2) the illegitimacy of the pressure exerted. It was that second element which is lacking here. The material indicates that an agreement was made between parties in dispute as to the nature of their contractual obligations in order to settle points in contention but while it may be that the respondent accepted the offer because it thought that it was commercially necessary to have access to funds from the applicant and that delay would have been fatal, there is nothing to suggest that the action of the o I I -- 9 of 11 -- 9 applicant was anything other than the compromise of a genuine dispute. It was submitted that Tyndall had made it impossible for the respondent to do business as contemplated by the parties and that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. That there is such an implied obligation is well established. See Secured Income Real Estate Australia Limited C v. St. Martin's Investments Pty. Ltd. (1979) 144 CLR 596 at p. 607. It was submitted that Tyndall breached this implied c obligation with the consequence that the respondent was unable to sell the requisite amount of insurance to avoid repayment of amounts outstanding on account of the loan. There is evidence that Tyndall refused to accept some policies and that it gave no reason for this to the respondent when asked for an explanation and that it made it difficult for C the respondent to maintain a business relationship with the applicant. In my opinion that evidence does have the consequence that the debt is bona fide disputed on a substantial ground. The c contract contained an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. See Secured Income Real Estate (Australia) Ltd. v. St. Martin's Investments Pty. Ltd. (1979) 144 CLR 596 at p. 607. The evidence indicates a breach of that implied obligation, and has the effect, in my opinion, that the debt is bona fide disputed on a substantial ground. I am not satisfied that there is substantial ground for the alleged counter-claim by Fintax against Tyndall for damages. It -- 10 of 11 -- 10 is based mainly on allegations in the affidavit by Mr. Pearson which I consider to be inadmissible. A letter was sent by Tyndall's solicitors on 3 August 1992 which enclosed the demand under s. 460 of the Corporations Law. On 21 August solicitors for Fintax required withdrawal of the notice before 21 August and asserted that there was a real and substantial dispute in respect of the alleged indebtedness claimed in the notice. It was alleged that the agreement of 4 June 1991 referred to in the notice was entered into in :) \.._____/ circumstances of economic duress imposed by Tyndall and that if the agreement had binding effect Tyndall had fundamentally breached it by failing to honour its obligations thereunder 0 causing detriment and harm to Fintax. The reply stated that at no stage till then had Fintax ever suggested that the agreement was signed in circumstances of economic duress and that no allegation of breach had been previously made. I note however that an allegation of breach had been made by the letter of 11 0 March 1992. On 28 August 1992 the present application was served on the respondent. No response was received from it until 22 September c=) 1992. There is no evidence that Fintax is insolvent apart from failure to pay the amount in the statutory demand. However as the debt is disputed this provides no proof that it is unable to pay its debts. In the circumstances as I am satisfied that there is a bona fide and genuine dispute as to the indebtedness of the respondent I dismiss the application and order the applicant to pay the respondent's costs. -- 11 of 11 --