International Entertainment Corporation Pty Ltd v Soccer Australia Ltd [2002] FCA 879

FEDERAL COURT OF AUSTRALIA

International Entertainment Corporation Pty Ltd v Soccer Australia Ltd [2002] FCA 879 INTERNATIONAL ENTERTAINMENT CORPORATION PTY LTD (ACN 091 532 660) v SOCCER AUSTRALIA LTD (ACN 008 540 770) N 3020 OF 2002 EMMETT J 11 JUNE 2002 SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 3020 OF 2002

BETWEEN: INTERNATIONAL ENTERTAINMENT CORPORATION PTY LTD

APPLICANT

AND: SOCCER AUSTRALIA LTD

RESPONDENT

JUDGE: EMMETT J

DATE OF ORDER: 11 JUNE 2002

WHERE MADE: SYDNEY

THE COURT NOTES THE FOLLOWING UNDERTAKINGS TO THE COURT: 1. That the applicant shall not file or institute any proceedings for the winding up or other form of external administration of the respondent up to 4 pm on 3 July 2002; and 2. That each party will, up to and including 3 July 2002, use its best endeavours to resolve all disputes by mediation.

THE COURT ORDERS THAT: 1. the application for leave to proceed pursuant to s 459P(2) of the Corporations Act 2001 (Cth) be refused at this stage; 2. the matter (including the respondents' application for injunctive relief) be stood over for directions before Emmett J on 3 July 2002 at 9.30 am; and 3. costs be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 3020 OF 2002

BETWEEN: INTERNATIONAL ENTERTAINMENT CORPORATION PTY LTD

APPLICANT

AND: SOCCER AUSTRALIA LTD

RESPONDENT

JUDGE: EMMETT J

DATE: 11 JUNE 2002

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 I have before me an application under s 459P(2) of the Corporations Act 2001 (Cth) ("the Act"), for leave to commence an application to wind up Soccer Australia Limited ("the Company"). Section 459A of the Act provides that, on an application under s 459P of the Act, the Court may order that an insolvent company be wound up in insolvency. Section 459P(1)(b) provides that a creditor (even if the creditor is only a contingent or prospective creditor) may apply to the Court for a company to be wound up in insolvency. However, s 459P(2) provides that an application by a person who is a creditor only because of a contingent or prospective debt may only be made with the leave of the Court. Section 459P(3) provides that the Court may give leave if satisfied there is a prima facie case that the company is insolvent but not otherwise. 2 The Company is the national body for soccer in Australia endorsed as such by the Fédération Internationale de Football Association("FIFA"). The Company coordinates all national soccer programs, high performance institutes, coaching and referee bodies, and numerous affiliated federations and associations spread across Australia. It is primarily responsible for organising Australian national teams for soccer competitions at both senior and junior levels. It is also primarily responsible for organising the national soccer league, which is the premier soccer competition in Australia. 3 The Company is a company limited by guarantee. Its members are state soccer federations. The Company is controlled by its executive committee, who are, for the most part, elected by the members. There are approximately 400,000 players registered with the Company and its member associations. According to the latest census material published by the Australian Bureau of Statistics, approximately 515,000 players participate in organised soccer games in Australia. The Company depends on the support of various organisations to be able to meet its operating costs. Those organisations include its members, major sponsors, the Australian Sports Commission and FIFA. 4 The applicant is a party to several arrangements with the Company, which are evidenced by a number of separate agreements. As a result of those arrangements, the applicant claims that the Company is indebted to it in a sum in excess of $3,000,000. The Company disputes those claims and also asserts claims of its own against the applicant. The applicant has formulated, for the purposes of this application, some thirteen different claims that are not properly characterised as contingent or prospective. It has also formulated a claim that is the basis for its application to the Court. 5 An application under s 459P(2) relevantly raises three issues. The first is whether an applicant can be said to be a creditor, albeit a contingent or prospective creditor. The second is whether the applicant can satisfy the Court that there is a prima facie case that the Company is insolvent. The third issue is whether the Court should exercise the discretion to give leave, even if satisfied that there is a prima facie case that the Company is insolvent. 6 I consider that there is an inter-relationship between the first and the third of those questions. If a dispute is straight-forward and simple, it may be appropriate to resolve such a question in the course of an application. However, it would be inappropriate in most applications of this nature, where there was a dispute as to whether or not an applicant is a contingent or prospective creditor, to resolve that question. 7 The applicant claims to be a contingent or prospective creditor of the Company as a result of certain entitlements that it has under an agreement entered into between the applicant and the Company on 17 February 2002 ("the NSL Agreement"). 8 By clause 2.1 of the NSL Agreement, the Company appointed the applicant to act, during "the Term [as defined] as its sole and exclusive representative for the development, negotiation and organisation of opportunities for the commercial exploitation of the Rights" [as defined]. "[T]he Rights" are defined by reference to other defined terms, namely, "Available Rights" and "Conditional Rights". "Available Rights" are defined as meaning: "all of the rights in respect of the Competitions and New Competitions including but not limited to those rights as set out in Schedule One but excluding the Conditional Rights." 9 "Conditional Rights" means the rights listed in Schedule 3. The term "Competition/s" is defined as meaning "the National Soccer League and the National Youth League". The "National Soccer League" is in turn defined as meaning "the premier national league of male soccer matches organised by Soccer Australia in the [Commonwealth of Australia and New Zealand] and known prior to the commencement date of the agreement as the "National Soccer League" or the "Ericsson Cup" including the Final Series". The "Final Series" is defined as meaning: "the series of Matches between the highest placed Teams in the Competitions and New Competitions in the final weeks of the Season to determine the winner of the respective Competitions and New Competitions." 10 The expression "term" is defined by reference to other defined terms being the "Initial Term" and the "Additional Term". The "Initial Term" means: "the period commencing on the Commencement Date and ending immediately prior to the first day of the 2002/2003 Season Competition." "Competition" means "the National Soccer League and the National Youth League", which, as I have said, are defined by reference to the league of matches. 11 The applicant agrees under clause 5.1 to pay to the Company a sum of money in consideration for the appointment of the applicant under the NSL Agreement. Under clause 5.2 in consideration of the applicant performing services under the NSL Agreement, the Company agrees to pay the applicant a fee for the applicant's services under the NSL Agreement in each year of the initial term. The fee is calculated as a proportion of revenue as defined. Revenue is defined as meaning "all income, received by Soccer Australia…as a result of the exploitation of the Available Rights and the Conditional Rights". 12 On 16 February 2001, the Company entered into an agreement with Qantas Airways Limited ("Qantas"). By clause 4.1 of that agreement, in consideration of certain benefits to be provided by the Company and associated organisations to Qantas, Qantas agreed to pay to the Company the sum of one million dollars no later than 1 July 2002. The applicant claims that any such payment would constitute revenue within the meaning of the NSL agreement. That question is not in dispute. 13 The applicant contends that it is a contingent creditor in respect of the sum of one million dollars together with any goods and services tax that might be payable in respect of the receipt, the contingency being the receipt by the Company of that sum from Qantas. The Company however, contends that, although that sum might be revenue within the meaning of the NSL agreement, if it is received by the Company, it will not be received in a year of the initial term. If it is received in a year of the initial term, then it would fall to be brought to account as revenue. Whether or not it would be received within a year of the initial term turns on the meaning of that expression. 14 The Company refers to the definition of season in the NSL agreement, which is defined as meaning "the twelve month period which encompasses a specific preseason period and the season of Matches in the Competition and/or New Competitions up to and including the weekend on which the grand final… is played". The grand final of the competition for the 2001/2002 season was played on 12 May 2002. The Company contends that the initial term ended on that day, in effect being the day immediately prior to the first day of the 2002/2003 season. 15 There is little contention concerning the period of a season. That is to say, it is probably clear that the first day of the 2002/2003 season would be the day after the weekend on which the grand final was played. However, the definition of initial term does not refer to the first day of the 2002/2003 season but to the first day of the 2002/2003 season competition. As I have said, the term "competition" is defined by reference to a league of matches. The evidence suggests that such matches for the 2002/2003 season have not yet begun to be played and would not in the ordinary course begin until September or October 2002. 16 The applicant contends that the initial term will end immediately prior to the first day on which matches are played for the competition to be conducted during the 2002/2003 season. As a matter of language, the definition of "Initial Term" shows there is considerable substance in that contention. There would be a rationale for making the term coincide with a season: "Season" is clearly defined as a twelve-month period. It is difficult to see a rationale for providing for a term with revenue being derived for a part of the season being the subject of the applicant's entitlement but not for the balance of a season. 17 One question is whether it is desirable for me to determine that question in the course of this application. I should say something about the circumstance in which the application has been brought on. The matter came before me for the first time only last week, when I was informed by the parties that the matter was of some urgency. I therefore indicated that I would hear the matter last Friday, but on the basis that the matter would have to be completed on that day because of a commitment I have to leave the country tomorrow. 18 In the event, by 5pm last Friday the matter was not completed. Whilst I am not intending to offer criticism of any person for that, it is a circumstance that has to be taken into account. I therefore stood the matter over to today and resumed the hearing at 8 am. Again, because of my commitment to leave the country tomorrow, it was necessary for me to adjourn at about 11.30 am and I could not resume until 4 pm. The hearing then proceeded until about 8.15 pm tonight when I adjourned for a brief time before resuming to give judgment. 19 It is in a sense unfortunate that the parties have been subjected to such hours, but as I have said, it is a consequence of my having taken on the hearing of the matter in the belief that it would finish in a day. The limited time available and the limited nature of this application, I think, is a relevant consideration in determining whether I should resolve an issue where it is bona fide in dispute. 20 Added to that consideration are two matters. The first arises out of clause 12 of the NSL agreement, which deals with mediation as follows: "12.1 If any dispute arises in relation to this Agreement, the parties must endeavour to first settle the dispute by discussions between their nominated representatives. 12.2 If the dispute is not resolved within 14 days…the party may refer the dispute to mediation to be conducted in accordance with the Australian Commercial Dispute Centre mediation guidelines…. 12.3 If the dispute has not been settled within 28 days after the appointment of the mediator, then a party may take whatever action it chooses to enforce its rights." 21 The matter has, in fact, been referred to mediation and there has been considerable correspondence relating to the willingness of the parties to engage in mediation. At this stage, while neither party has said that it will not engage in mediation, for various reasons a mediation has not been completed. Clause 12.3 would, of course, be no impediment to the resolution of a dispute. However, the existence of that clause and of at least provisional arrangements for mediation are a relevant consideration. 22 The second matter to which I wish to refer is the general principle that, where an applicant to the Court for a winding-up order in respect of a company is a party to a dispute as to the indebtedness claimed against that company, or where that company establishes that a set-off or cross-action could be supported on substantial grounds the Court may, in its discretion, restrain a winding up application or dismiss an application once made. Alternatively, the Court may adjourn the winding up application pending resolution of the dispute between the parties. The rationale for such a principle is clear. A winding up application is not the appropriate proceeding to determine a genuine dispute between the parties as to the indebtedness of a company to an applicant. It is only if a dispute is within small compass that it may be possible to resolve that dispute on a winding up application in an appropriate case. 23 The question of whether or not the initial term of the NSL agreement has expired is essentially one of construction, although there may well be background material that is relevant to that question. I shall come back to the question of whether or not I can form a view as to whether the applicant is a contingent creditor of the Company. 24 The financial position of the Company is not entirely clear. As I have said, under s 459P(3), the Court may only give leave if satisfied that there is a prima facie case that a company is insolvent. Under s 95A of the Act, a person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. In order to determine whether a company is solvent at a given time, it would be relevant to consider a number of matters as follows: 1. all of that company's debts as at that time: in order to determine when those debts are due and payable; 2. All of the assets of that company as at that time: in order to determine the extent to which those assets are liquid or are realisable within a time frame that would allow each of the debts to be paid as and when it became payable; 1. that company's business as at that time: in order to determine its expected net cash flow from the business by deducting from future revenue the cash expenses that would be necessary to generate that revenue.