New South Wales Supreme Court CITATION : Gemtaf P/L & Ors v Tradebanc International P/L [No 4] [2000] NSWSC 941 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 11419/98 19/05/99 11/06/99 HEARING DATE(S) : 17/07/00 18/07/00 16/08/00 JUDGMENT DATE : 10 October 2000 Gemtaf Pty Ltd t/as "El Paso Motor Inn" (1 Appel) PARTIES : Margaret Denise Pursell (2 Appel) Terence Edward Fitzgibbon (3 Appel) Tradebanc International Pty Ltd (Resp) JUDGMENT OF : Kirby J LOWER COURT Local Court JURISDICTION : LOWER COURT 13632/97 FILE NUMBER(S) : LOWER COURT Ms J Wahlquist JUDICIAL OFFICER : COUNSEL : D Knaggs, sol (Appels) A P Spencer (Resp) SOLICITORS : Douglas Knaggs (Appels) Tony Simons (Resp) CATCHWORDS : Stated Case from Magistrate - Corporations Law - prescribed interest - right to participate or interest - fraud LEGISLATION CITED : The Corporations Law - s9; s1063; s1064; s1065; s1073(2) Australian Softwood Forests P/L v Attorney General for NSW ex Rel. Corporate Affairs Commission (1982) 148 CLR 121 Corporate Affairs Commission v Australian Softwood Forests P/L (1978) 1 NSWLR 150 CASES CITED : Butterworth & Anor v Lezemo Pty Ltd & Anor (1983) 1 ACLC 1306 Streeter v Pacific-Seven Pty Ltd (1985) 9 ACLR 790 Hamilton v Casnot P/L (1981) 5 ACLR 278 DECISION : Ref para 78 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION KIRBY J Tuesday 10 October 2000 11419/98 - GEMTAF PTY LIMITED & ORS v TRADEBANC INTERNATIONAL PTY LIMITED JUDGMENT [No 4] HIS HONOUR: The Tradebanc System 1 This matter comes before the Court as a case stated by Ms J Wahlquist, a Local Court Magistrate. 2 Tradebanc International Pty Limited ("Tradebanc") operated what has been described as a "barter system". Businesses offering goods and services were encouraged to become members of Tradebanc. Once members, they were included in a catalogue which was circulated to other members. The catalogue was updated from time to time. By this means, members were encouraged to satisfy their needs for goods and services from each other. Rather than pay cash, they were permitted to use credit within limits which were set by Tradebanc in respect of each member. At the time of purchase, an inquiry would be made with Tradebanc to ensure that the purchaser was within the credit limit which had been fixed. At the end of each month, Tradebanc furnished each member with an account. The account identified each purchase from other members, and each sale of goods or services to other members. It struck a balance between debits and credits. The balance was required to be within the credit limit. The balance was expressed in trade dollars. A trade dollar was the equivalent of an Australian dollar. The Involvement of the Appellant Gemtaf 3 On 21 August 1992 Romar Homes Pty Limited became a member of Tradebanc. One of its businesses (and therefore a service offered to fellow members) was the El Paso Motor Inn at Port Macquarie. 4 In 1994, the proprietor of the El Paso Motor Inn at Port Macquarie was Gemtaf Pty Limited ("Gemtaf"). The relationship, if any, between Roma Holdings Pty Limited and Gemtaf is not clear. It is not explained in the Stated Case. Nor does it emerge from any evidence to which I have been directed, given before the Magistrate. 5 The credit limit for those trading as the El Paso Motor Inn was $5,000. However, in early 1994 the proprietors of the motel wished to install a neon light. The cost was something less than $40,000. It proposed to use the services of a member of Tradebanc (Dysanti Pty Limited) both for the purchase and installation. 6 In these circumstances, it approached Tradebanc seeking an increase in its credit limit. Tradebanc agreed, subject to the execution of a Deed. Under the Deed the proprietors of the motel, Margaret Denise Pursell, and Terence Edward Fitzgibbon, guaranteed Gemtaf's performance of its obligations. 7 The Deed was executed on 17 February 1994. By its terms, Tradebanc agreed to increase the credit limit of Gemtaf to $40,000 for a period of eighteen months, terminating on 17 August 1995. The Deed included the following provisions: "3. On or before the termination of the aforesaid term Gemtaf shall ensure that the credit limit is brought back to the limit approved by Tradebanc at that time with such new limit being at the sole discretion of Tradebanc. 4. In the event that the aforesaid credit limit is not reduced to the level as required by Tradebanc by the end of the said period then Gemtaf hereby agrees to pay to Tradebanc in cash Australian dollars the equivalent of the trade dollars currently in excess of the aforesaid agreed limit." 8 At about the same time, Tradebanc required Gemtaf to complete a Corporate Application for Membership (Exhibit 7). The application is undated. There is an issue as to precisely when Gemtaf became a member of Tradebanc. The date is relevant to an argument advanced by the defendants, to which I will shortly refer. There are a number of straws in the wind. Unfortunately, they point in different directions. The terms of the Stated Case, and the sequence it describes (in paras (h) and (i)), suggest that Gemtaf was already a member before the Deed was entered on 17 February 1994. That is consistent with a recital in the Deed itself, which is in these terms (Exhibit 2): " WHEREAS Gemtaf is a member of the Tradebanc system owned and conducted by Tradebanc (hereinafter referred to as "the System") AND WHEREAS Tradebanc had previously granted to Gemtaf a credit limit on its trading activities at Five Thousand Dollars ($5,000.00)." 9 Yet the application for membership by Gemtaf was signed at about the same time as the Deed. Were Gemtaf already a member, a further application would have been unnecessary. Doing the best I can, with information which is inadequate, I believe it probable that the El Paso Motor Inn at Port Macquarie was regarded both by Tradebanc and the proprietors (for the time being) as the relevant member of the bartering system. The invoice/statements, it will be noticed, were sent by Tradebanc to the El Paso Motor Inn (Exhibit 3). It appears to me likely that it was only when significant credit was required that the ownership of the Motor Inn was investigated, and the name of Gemtaf emerged. Tradebanc then required an application to be signed by Gemtaf. I believe, as a matter of probability, Gemtaf formally became a member of Tradebanc at, or about, the time of the Deed. 10 The application for membership completed by Gemtaf included the following declaration: "Upon acceptance of this application I/We shall be bound by the terms and conditions of the Membership Agreement appearing on the reverse side of this application." 11 The reverse side of the document set out the terms and conditions of membership. I will more fully describe those terms below when dealing with matters which are the subject of complaint. However, the terms included the following: " 9. Rules and Regulations of Systems: the member agrees to be bound by all the rules and regulations that may be imposed upon the membership in the System by Tradebanc in writing from time to time and as may be amended from time to time by Tradebanc at its discretion. It is agreed between the parties that such rules and regulations are deemed to form part of this agreement." 12 A two page document set out twenty-nine rules and regulations for trading within Tradebanc. They were incorporated into the agreement with each member (Ex 16 before the Local Court). 13 On 9 May 1995, some months before the expiry date under the Deed, Mr Pursell, on behalf of Gemtaf, sought an extension of the loan beyond the 17 August 1995 repayment date. On 15 May 1995, Tradebanc advised that the term would not be extended. By the terms of the Deed, therefore, Gemtaf was obliged to bring its credit limit back to the previously approved credit limit of $5,000 by 17 August 1995. The debit balance of Gemtaf at this time was approximately $27,000. 14 On 6 August 1995 (and again on 11 August 1995), Gemtaf wrote to Tradbanc asserting that the loan agreement involved the offer of a prescribed interest in circumstances which were not authorised by s1064 of the Corporation Law (Tradebanc not being a public company). The Deed, it was asserted, was therefore voidable under s1073(2) of the Corporation Law. Gemtaf purported to give notice avoiding the Deed. 15 Tradebanc, under the terms and conditions of membership, was given the following power: "6. Duties of Tradebanc: As to its part Tradebanc shall: (i) To grant to each Member a credit limit in the form of trade dollars and at the sole discretion of Tradebanc adjust the credit limit up or down on the original limit." 16 On 16 August 1995 (that is, the day before Gemtaf was due to bring its level of indebtedness within the credit limit which had previously operated), Tradebanc wrote to Gemtaf indicating that it had redetermined the credit limit which, henceforth, would be $1,000. 17 Gemtaf neither brought its credit limit within the limit specified, nor repaid cash to Tradebanc, as required by clause 4. Tradebanc therefore commenced proceedings in the Local Court. 18 In a reserved judgment, the Local Court Magistrate, Ms Wahlquist, determined those proceedings in favour of Tradebanc, and entered judgment for that company for $22,612.72 plus costs. The Issues in the Stated Case 19 Gemtaf, the appellant, has sought to raise the following matters by way of stated case: · First, that there was no evidence, or no satisfactory evidence, as to the level of indebtedness of Gemtaf to Tradebanc. A verdict, therefore, should have been entered for the defendants. · Secondly, that the arrangement (including the Deed of 17 February 1994) between Gemtaf and Tradebanc involved a "prescribed interest", in circumstances not permitted by law. The contract was voidable, and had been avoided. · Thirdly, the arrangements between Tradebanc and its members, including Gemtaf, involved Tradebanc securing secret profits from members. There was, so it was argued, a fraud on members. The profit was secured by Tradebanc in circumstances that a member was obliged to reduce its level of indebtedness by a cash payment. Once in receipt of the cash, Tradebanc was under no obligation to account to members for such monies. It was a windfall in its hands. 20 I will deal with each issue in turn. The Level of Indebtedness 21 In the Local Court two invoices were tendered by Tradebanc (Ex 3). They were admitted without objection. They were computer records. One showed the level of indebtedness of the El Paso Motor Inn as at 31 July 1995 (when the money was repayable under the Deed). The closing balance at that date was $27,429.94. The second invoice was issued in January 1997. The closing balance was $22,498.94, together with a closing cash balance of $113.78 (making a total of $22,612.72). 22 The appellant contended that these invoices were not enough to establish the alleged debt. They were self serving documents (in that they came from Tradebanc). The defendants had, after all, each entered a sworn defence that they were not indebted to Tradebanc. There was no sworn evidence that they were. There was, moreover, no evidence that the amount owing in January 1997 was still owing on 25 November 1997 when the matter was heard. 23 However, there being no objection to the computer records, when tendered, sworn evidence was unnecessary. The computer records established the level of indebtedness of Gemtaf as at January 1997. Tradebanc could rely upon the presumption of continuance to prove the level of indebtedness as at November 1997. That is a rebuttable presumption. There was, however, an evidentiary onus upon the defendants to introduce evidence which cast doubt upon the accuracy of the invoices (by establishing, for instance, payments made, or credits entered, after January 1997). No such evidence was introduced. 24 There is, in my view, no error disclosed in the first ground. The Prescribed Interest 25 Gemtaf asserted that Tradebanc was in breach of Div 5, Pt 7.12 of the Corporations Law. It alleged that the interest which was offered in the barter system was a "prescribed interest" (s9). A "prescribed interest" may only be offered by a public corporation (s1064(1)), as defined, and then must be accompanied by a statement in writing (a prospectus) (s1063(2)), in circumstances where there is an Approved Deed (s1065). Tradebanc was not a public corporation. There was no Approved Deed. The contract to subscribe (which Gemtaf characterised as including the Deed of 17 February 1994) was therefore, according to Gemtaf, avoidable at its option by notice in writing. That notice had been given. 26 Tradebanc denied any breach of the Corporations Law. The barter system did not involve a "prescribed interest". Alternatively, it was argued, that Gemtaf was already a member of Tradebanc at the time the Deed was entered. The Deed was a separate lending arrangement, not caught by any breach of the Corporations Law. 27 The alternative argument can be dealt with at once. I have already determined, as a matter of probability, that Gemtaf became a member of the barter system at, or about, the time it entered the Deed. The terms of the Deed, moreover, clearly contemplated participation in the barter system. I therefore do not believe that the alternative argument is available to Tradebanc. If the interest offered to Gemtaf was a "prescribed interest", the Deed was, in my view, part of the arrangement, and voidable. 28 The issue is, therefore, whether the barter system involved the offer of a "prescribed interest". That term is defined by the Corporations Law in these words (s9): "'prescribed interest' means: (a) a participation interest: or (b) a right, whether enforceable or not, whether actual, prospective or contingent and whether or not evidenced by a formal document, to participate in a time-sharing scheme; but does not include: (c) a right or interest, or a right or interest included in a class or kind of rights or interest, declared by the regulations to be an exempt right or interest, or a class or kind of exempt rights or interests, for the purposes of Chapter 7; or (d) an exempt prescribed interest in relation to this jurisdiction (as defined by section 68A);" 29 The term "participation interest" is also defined. The definition includes certain things, and excludes others. Both aspects are important to an understanding of the breadth of the interests identified (Australian Softwood Forests Pty Limited v Attorney General for New South Wales ex Rel. Corporate Affairs Commission (1982) 148 CLR 121, per Mason J at 130). However, concentrating, for the moment, upon those matters included in the definition, it is in these terms (s9): " 'participation interest' means any right to participate, or any interest: (a) in any profits, assets or realisation of any financial or business undertaking or scheme whether in Australia or elsewhere; (b) in any common enterprise, whether in Australia or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or (c) in any investment contract; whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, …" The Interest Offered by Tradebanc 30 To understand whether what was offered by Tradebanc was a "prescribed interest", it is necessary to enlarge upon the description of the barter system already provided. I do so by reference to the Terms and Conditions of Membership (Exhibit 7), and the Rules and Regulations of Trading Within Tradebanc International Pty Ltd ("The Rules") (Exhibit 16). 31 The Terms and Conditions begin with the following recitals: "WHEREAS Tradebanc has established in Australia a business which in the main, co-ordinates and manages the exchange of goods and/or services as between members of the said business (hereinafter referred to as 'the System') AND WHEREAS the Member is desirous of becoming a member of the System and has made application for such membership on the reverse side of this Agreement …" 32 Tradebanc owns the concept. The Rules include the following: "1. It is acknowledged that Tradebanc is the sole proprietor of and retains solely the interests and title of the System and that Tradebanc is a member of the System reserving unto itself credit in the form of trade dollars referred to in the Agreement at the discretion of Tradebanc." 33 The benefits derived by Tradebanc, through its co-ordination and management role, are identified in the Terms and Conditions as follows: "1. Once Only Registration Fee: Upon acceptance by Tradebanc of a member into the System the Member shall pay to Tradebanc a registration fee of $95.00 2. Once Only Advertising Fee: In addition to the registration fee and as a once only payment, the duly accepted member shall pay to Tradebanc an advertising fee of $1895.00. 3. Monthly Administration Charges: The Member will pay a cash fee of Ten dollars ($10.00) per month to Tradebanc as an administration charge, irrespective of the value of the trade for the respective month. In addition to the said administration charge, the Member's Account with Tradebanc will be debited with Fifteen dollars ($15.00) of trade value ('trade dollars') to be utilised at the discretion of Tradebanc as further administration charges and for the Debt Reserve Fund. 4. Transaction Fee: The Member shall pay to Tradebanc a cash fee equivalent to five per cent (5%) of the gross value of each transaction conducted by the Member in accordance with the procedures laid down in the System, whether or not the said transaction is 100% trade by trade dollars or part trade and part cash. Such fee is to be paid within seven (7) days of Tradebanc despatching to the Member a monthly invoice covering each transaction fee for that month." 34 According to Clause 3 (above), portion of the money received by Tradebanc may be committed to a Debt Reserve Fund. Clause 5 of the Terms and Conditions is as follows: "5. Debt Reserve Fund: Tradebanc agrees for the benefit of Members to commit to a Debt Reserve Fund and at its discretion, a proportion of all trade dollars credited to Tradebanc is provided for in Clause 3 of this agreement." 35 The Fund is established to deal with trade debits left by members who default. Presumably the objective is to ensure that there is, in broad terms, within the system, an equilibrium between trade credits and trade debits. The Rules make the following provision in respect of that Fund: "10. As provided for in Clause 5 of the Agreement Tradebanc shall maintain and deposit trade dollars into a Debt Reserve Fund. This Fund has been established for the principal purpose of meeting deficits of trade dollars by members due to the System. No guarantee is made by Tradebanc that at any one time there will be sufficient funds in the Debt Reserve Fund to meet the demands on the Fund for such purposes. The management and control of the Fund is strictly at the sole discretion of Tradebanc and from time to time Tradebanc can remove from the Fund excesses in trade dollars and transfer such excesses to its own account and for administration of the System without the need to Account therefore to the Members." 36 The Terms and Conditions also define the obligations of each participant in the barter system. Clause 7 sets out the obligations of the selling member. Clause 8 deals with the obligations of the buying member. There are obligations to seek and provide membership identification. The buyer must produce a card. The seller must seek authorisation, and create a record of the transaction, with a copy to Tradebanc. 37 More important, for present purposes, are the obligations of Tradebanc. The Terms and Conditions in Clause 6 define those obligations as follows: "6. Duties of Tradebanc: As to its part Tradebanc shall: (a) Keep proper records of the trading of goods and/or services between Members of the System and to assist Members to co-ordinate the exchange of goods and/or services as between them; (b) Co-ordinate and manage the exchange of goods and/or services as between Members of the System including the keeping of computer records of all transactions between Selling Members and Buying Members; (c) To assist its members by promoting goods and/or services offered by Members through Tradebanc's regular bulletins, membership directories and client brokering services; (d) To provide to each Member a monthly statement of the goods and/or services transacted for the previous month; (e) To continually seek new members and to provide details of such new members to existing members as soon as practicable; (f) To provide a telephone credit authorisation service; (g) To provide support from management and from trained consultants; (h) To provide a member, whose application had been accepted by Tradebanc, with a Tradebanc Membership; and (i) To grant to each Member a credit limit in the form of trade dollars and at the sole discretion of Tradebanc adjust the credit limit up or down on the original limit." 38 Gemtaf, in its submissions, gave some emphasis to Clause 6(c), and especially the provision of brokering services, as well as Clause 6(e). The Rules elaborate upon each obligation. In respect of the brokering services, Rule 6 provides as follows: "6. At the discretion of Tradebanc the Members in the System will gain from Tradebanc brokerage/consultancy services to assist them in trading within the System. Any such broker/consultant will be an independent contractor who will gain commission from Tradebanc by generating new sales between members. Any such broker/consultant can be contacted by the Member to receive advice on the availability of goods and/or services within the System but in so doing agrees not to hold Tradebanc in any way responsible for such advice or the consequence thereof." 39 Part of the obligation of Tradebanc in Clause 6(c) of the Terms and Conditions is the provision of a Membership Directory. The Rules elaborate upon that obligation in these words: "18. The Member hereby authorises Tradebanc to advertise, at the sole discretion of Tradebanc, in Tradebanc's Directory of Members or elsewhere, the nature of the goods and/or services of the member. …" 40 So far as the obligation in Clause 6(e) is concerned, the Rules make the following further provision: "9. Tradebanc shall use its best endeavours to seek new members who can provide goods and/or services for the benefit of all members of the System. In such endeavours Tradebanc will try and ensure that a variety of goods and services will be available to members." 41 Tradebanc is a private company. It is also a member of the barter system. It may therefore trade. The Rules make the following provision in respect of Tradebanc: "7. The Member accepts and acknowledges the fact that Tradebanc is not and will not be directly involved in any trade or transaction within the System as between any members of the System and except where it acts as a member in its own right, is acting only in administrative capacities to assist the members in the System in recording the transactions between them in accordance with the terms and conditions of the Agreement. The responsibility for the conduct of any trade within the System is that of the participating members and Tradebanc cannot be held responsible therefore or in any way guarantee the merchantable quality of fitness of use of any of the goods and services so traded." 42 Members are given no rights in respect of the assets of Tradebanc. Members, indeed, undertake in the Rules to indemnify Tradebanc in these terms: "21. All Members of the System shall indemnify and hold Tradebanc indemnified against any action, claim, demand, damages, suit, loss or expense of whatsoever nature or kind that may emanate from or be a consequence of any transaction conducted in the System and the Members acknowledge that Tradebanc shall only be acting within the System as an administrator and controller of the Accounts of the Members for the purposes of recording the transactions between them and to assist them in the introduction of one member to another to enhance trade within the System." 43 Clause 27 of the Rules deals with the position in the event of Tradebanc going into liquidation, or the system coming to an end. It makes the following provision: "27. In the event that the System is dissolved or terminated for any reason or should Tradebanc go into liquidation or dissolve its business then all Members agree that Members in a negative trade dollar position at that time will pay the appropriate and respective amounts that they are in deficit into a fund with such payments being made in cash (one trade dollar being equal to one Australian cash dollar). Such fund will upon completion of this arrangement, less proper expenses, be distributed, pro-rata, to all Members in the System who are at that time in a positive trade dollar position. As a consequence all Members having a positive balance at that time will receive cash payment for their respective trade dollars to the extent that the fund will permit. Tradebanc or its directors, officers or shareholders will not be in any way responsible to any Member for any payment to cover any deficit in their respective Accounts upon such dissolution or liquidation." 44 The Terms and Conditions permit either Tradebanc or a member, at any time, for any reason, to terminate the agreement upon one month's notice in writing. The Rules further provide Tradebanc with the right to terminate the agreement, without notice, in the event of there being any breach of any condition. There is an obligation upon termination to repay Tradebanc in cash that part of the credit limit utilised by the member. Should the member have a credit balance, it is cancelled, and is not to be refunded to the member as cash or otherwise. 45 Here, neither party gave the other one month's notice in writing under Clause 10. Nonetheless, Tradebanc clearly regarded the failure to repay the loan, and the purported repudiation of the Deed, as a breach of the agreement, entitling it to terminate the agreement under Clause 3 of the Rules without notice. A "Participation Interest" under Paragraph (a) 46 The parties filed written submissions both at the beginning of the case, and at the end. The submissions filed on behalf of Gemtaf at the outset identify s9(a) and (b) as the basis upon which it asserted there was a "participation interest". The more recent submissions appear to concentrate on s9(b). However, I should deal with both. 47 Section 9 (and previous sections in similar terms), has been considered on a number of occasions. On each such occasion the court has acknowledged the width of the definition. It should not be read down. Helsham CJ in Eq in Corporate Affairs Commission v Australian Softwood Forests Pty Ltd (1978) 1 NSWLR 150, in the context of previous legislation in similar terms, said this: (at 154/155) "… it seems that there must exist three elements, namely (1) a right to participate, or an interest (2) in any profits, assets or realization (3) of any financial or business undertaking or scheme." 48 In the same case in the High Court (Australian Softwood Forests Pty Ltd & Ors (supra), Mason J (with whom the Gibbs CJ and Stephen J agreed) (at 130) emphasised that a very wide meaning should be given to the word "interest". Nonetheless, the Court, in that case, carefully examined whether the scheme, which involved pine tree plantations, conferred an interest in the nature of a profit à prendre, or interest in land, or an interest in the timber on severance. 49 Here, Tradebanc operated the barter system, earning fees as specified in conditions 1 to 4. It had certain obligations under the agreement, including the provision of a directory, the co-ordination of promotion (Condition 6(c), Rules 6 and 21), and administration. Members (including Gemtaf) had no right to expect any share of its profit in managing the barter system. 50 Tradebanc, no doubt, had assets which it used to manage the system. Again members (including Gemtaf) had no interest in such assets. It could, no doubt, avail itself of Tradebanc's management services (confirming credit limits etc). In other words, it had the use of those services. 51 What is the position in respect of the barter system itself? By Rule 1, Tradebanc is expressed to have the sole interest in that system. It is the company's idea. It manages the system. In these circumstances, are the rights of members, to be characterised simply as a right to use that system? In Butterworth & Anor v Lezemo Pty Ltd & Anor (1983) 1 ACLC 1306, the Court was concerned with a franchise operation involving Chicken Spot outlets. The franchisee, upon payment of a sum of money, could use the logo and the paraphernalia of the chain. The franchisee had the right to use the services of the franchisor in advertising, marketing, advice on management, and training. Nicholson J, in that context, said this: (at 1316) "I am unable to accept that a mere right to use industrial property without more can amount to an interest in it. Similarly, I do not think that it can be properly regarded as conferring a right to participate in it unless mere user can be equated with participation. I think that participation goes beyond a mere right of use and bears a connotation that the participant, even if he has no proprietary interest in the asset, has an eventual right or expectation of receiving something in respect of it." 52 His Honour added: (at 1316) "In my opinion, the contractual rights conferred upon the plaintiffs by the agreement similarly do not confer upon them a right to participate or an interest in assets, for I consider that they confer a mere contractual right to use the services of the defendants for the various purposes set out in the agreement." 53 In Streeter v Pacific-Seven Pty Ltd (1985) 9 ACLR 790, the Court was concerned with another franchise, this time concerning the 7-11 chain. The franchisor provided manuals, forms, training and general institutional advertising. Against that background De Jersey J said this: (at 793) "I still do not consider that the mere right of user accorded the plaintiffs in relation to this industrial property gave them any 'interest' or 'right to participate' in it. I agree with the reasoning in that regard of Nicholson J in Butterworth & Anor v Lezemo Pty Ltd & Anor (1983) 8 ACLR 737 at 749; 1 ACLC 1306 at 1316. I do not consider that the concept of 'participation' in the assets of an undertaking extends to mere use of them. The word participate ordinarily means to share or take part. One uses assets by employing them for some purpose or other. It is in my view inapt to describe the mere use of assets as 'taking part' of or in them, or as 'sharing' them. Participation in assets would in short, involve something more than mere use. If the legislature had intended the definition to extend to mere use, one might surely have expected it to say so, directly and simply." 54 Does the involvement of Gemtaf in the barter system extend beyond mere use? Does a member have "the right or expectation of receiving something" (to use Nicholson J's words) from the barter system? The interaction between Tradebanc and its members in the operation of the barter system is far greater than in either of the franchise cases to which I have just referred. Membership of the barter system confers three benefits. First, the system creates a market of potential users, who may otherwise give no thought to the use of the members' services. Secondly, it permits access to goods and services which may be obtained on credit. Thirdly, and most significantly, members have the right to expect that their goods and services will be advertised by Tradebanc in the barter directory (Conditiion 6(c)), and that brokers, engaged and managed by Tradebanc, will promote their product (Rules 6 and 21). Working on commission such brokers, no doubt, seek to marry the needs of members with the goods and services available through members (Rules 6 and 21). Members pay a monthly fee to Tradebanc to assist in the fulfilment of these, amongst other, purposes. Membership of the barter system, in short, confers a right to share in the continuing benefits which arise from the system. Though there is no tangible asset, and no proprietary interest in the system, I believe, nonetheless, in the context of this legislation, that it is appropriate to say that Gemtaf had a right to participate or an interest in the asset constituted by the barter system. 55 Moving to the third aspect of s9(a), the "right to participate or any interest" in "any realization of any financial or business undertaking or scheme", again it seems to me that members had that right. The bartering system was, in truth, a self-contained financial system. Members were either in credit or in debit. The system operated with trade dollars, which were recorded by Tradebanc. No money changed hands. The debit was to the system. It appears not to be an asset in Tradebanc's hands. A credit, likewise, was to the system, and not a liability in Tradebanc's hands. A member had no right to look to another specific member for reimbursement. In the event of the system ceasing to operate, a fund was to be created (Rule 27). Those with debits were obliged to pay into the fund. Those in credit could then claim from the fund. 56 In these circumstances, I believe it is appropriate to speak of a right to participate, or an interest in any realization of the business undertaking or scheme. A "Participation Interest" under Paragraph (b) 57 In Australian Softwood Forests Pty Ltd & Ors (supra), Mason J provided the following description of "common enterprise": (at 133) "The argument is that in order to constitute a 'common enterprise' there must be a joint participation in all the elements and activities that constitute the enterprise. I do not agree. An enterprise may be described as common if it consists of two or more closely connected operations on the footing that one part is to be carried out by A and the other by B, each deriving a separate profit from what he does, even though there is no pooling or sharing of receipts of profits. It will be enough that the two operations constituting the enterprise contribute to the overall purpose that unites them." 58 Here, I believe there was a common enterprise. Both Tradebanc and members, including Gemtaf, had an interest in the success of the bartering system. In their separate ways, each made a contribution to that success, interacting with each other as they did so (cf Nicholson J in Butterworth (supra) at 1317). 59 However, there is a second requirement for a participation interest under s9(b). The holder of the right, or interest, must be "led to expect profits" from the efforts of the promoter. 60 Nicholson J, in Butterworth (supra) identified two matters which must be satisfied before it can be said that the promoter's role has led to an expectation of profits. First, the effort of the promoter must be of a continuing nature. He said this: (at 1317) "I think that the word 'efforts' used in conjunction with the expression 'common enterprise' suggests that the efforts contemplated by the definition are efforts of a continuing nature subsequent to the entering into of the original transaction." 61 Secondly, there must be a direct connection between the role of the promoter and the generation of profits. Nicholson J said this: (p 1318) "The use of the word 'from' in part (b) in connection with the phrase 'the efforts of the promoter of the enterprise' suggests some direct relationship between such efforts and the expectation of profit. Here, I do not regard the efforts of the promoter as being likely to have produced any more than a speculative possibility as distinct from an expectation of profit." 62 In rejecting the plaintiff's claim, in that case, Nicholson J made the following comment, which was repeated by Tradebanc in its submissions in this case: (at 1318/1319) "Any expectation of profit in this case was dependent upon the successful conduct of the business by the plaintiffs, and not upon the efforts of the defendants. The business may have been highly successful without the defendants, or either of them performing any of their continuing obligations under the agreement, or it may not have been successful. But the efforts of the defendants could be, at best, supportive, and were not, of themselves, calculated to lead to any expectation of profit." 63 In the 7-11 case (Streeter (supra)), De Jersey J likewise rejected the plaintiff's claim upon the same basis, saying this: (at 794) "Further, as in that case and as indicated above, the continuing involvement intended for this defendant is no more than supportive of the plaintiffs' profit making thrust. The efforts expected of the defendant are removed from the actual production of income which would lead to the derivation of profit. This agreement does not oblige the defendant to carry out any activity which would itself lead to the making of profit. Its intended involvement is no more than supportive of the plaintiffs. The plaintiffs were to run the business. It was their activity, of which they were in control (cl 33), which would have been expected to produce the profit. The basically administrative support expected of the defendant was apparently not intended to be a profit making activity in its own right." 64 In Hamilton v Casnot Pty Ltd (1981) 5 ACLR 278, the plaintiff purchased a business cleaning carpets. The agreement included the following term: "(v) to pay to Casnot 20 per cent of all gross income received from customers, together with $5 per customer whilst Casnot for its part would expend substantial sums of money in advertising and employ staff to locate customers." 65 Wallace J, in short reasons, said this: (at 281) "It is clear that both 'investor' and Casnot became engaged in a common enterprise pursuant to which the investor held the right to expect profits from the efforts of Casnot and thus came clearly within the definition of para (b) of s 76(1) of the Companies Act. Such a conclusion is in my opinion in accordance with the decision of the Full Court in W A Pines v Hamilton . See the reasons of Jones, Brinsden JJ." 66 Both Nicholson J (in Butterworth) and De Jersey J (in Streeter), distinguished that case upon the basis that the promoter was under an ongoing obligation to perform specific services which were likely to generate profit. De Jersey J in Streeter (supra) said this: (at 794) "The promoter of the scheme in Casnot bore a continuing obligation to 'expend substantial sums of money in advertising and (to) employ staff to locate customers': ACLC at 33,123; 5 ACLR at 280. Hence the conclusion that with regard to para (b) of the definition of ''interest'' the investor 'held the right to expect profits from the efforts of Casnot'. The continuing substantial activity intended for that promoter, especially the direct canvassing of customers, was clearly directly related to the making of profit, and not merely indirect and supportive as in this case." 67 Here, I believe, that the obligations upon Tradebanc were akin to those upon the promoter in Casnot. They were different from those in the franchise cases (Butterworth and Streeter). The directory, as Rule 18 makes plain, is advertising. It is paid for by Tradebanc out of its earnings (unlike the advertising in the Butterworth case). The bulletins issued by Tradebanc (Condition 6(c)) were, likewise, promotional material. As Nicholson J remarked in Butterworth: "Advertising is normally productive of additional customers and thus revenue" (p 1318). In that case, Nicholson J did not infer that a profit would have been made through advertising because there was a cost associated with that advertising which the plaintiff was required to bear. It was, therefore, not possible to say that the customers generated by this means would exceed the cost. Here, there is no direct cost to Gemtaf. It is a cost which must be borne by Tradebanc through the revenue stream which it receives from members. 68 Also important, in my view, are the promoters. They make their commission by matching the needs of members with the goods and services provided by members (Rules 6 and 21). Their efforts are likely to directly lead to revenue in the hands of members (cf De Jersey J in Streeter at 794 above). 69 On these facts, both requirements suggested by Nicholson J in Butterworth (paras 60, 61 above) are, in my view, met. I therefore also find that there was a participation interest within the meaning of s9(b). 70 I believe, accordingly, that the learned Magistrate was in error in determining that there was no participation interest, and that the Deed was therefore not voidable. It was, in my view, voidable, and had been avoided. Fraud on Members 71 Gemtaf, having signed the Deed on 17 February 1994, then received the neon sign. Their account was debited appropriately. Having received that benefit, Gemtaf seeks to avoid the obligation arising under the Deed upon the basis that the Deed constituted a fraud, not upon Gemtaf, but upon members. The fraud, as I understand the argument, is said to arise from the operation of Clause 4 of the Deed. I repeat that clause for convenience: (Exhibit 2) "4. In the event that the aforesaid credit limit is not reduced to the level as required by Tradebanc by the end of the said period then Gemtaf hereby agrees to pay to Tradebanc in cash Australian dollars the equivalent of the trade dollars currently in excess of the aforesaid agreed limit." 72 According to this argument, the requirement that Gemtaf repay cash to Tradebanc rather than trade its way out, using trade dollars within the system, is a fraud on members. A contrast is made with the situation arising where a member is terminated. In that circumstance, the member is required to repay the outstanding balance in cash. However, Tradebanc is obliged to use the cash for administration, and hence for the benefit of members. Rule 4(c) is in these terms: "4. Upon termination of the Agreement for any reason the following shall apply: (c) the member shall pay to Tradebanc in cash that part of the Credit Limit utilised by the Member of the System and which had not been reciprocated to the System by the Member in trade value. Any money so recovered from a Member to replace the lost trade dollars provided by Tradebanc in the Credit Limit provided to that Member shall be utilised by Tradebanc in its administration of the System and shall belong to and be the property of Tradebanc absolutely." 73 However, Clause 4 in the Deed of 17 February, to my mind, imposes a regime which is no different from that which operates in the ordinary course. The Term and Conditions give Tradebanc the power to which I have already referred, namely (Clause 6): "(i) To grant to each Member a credit limit in the form of trade dollars and at the sole discretion of Tradebanc adjust the credit limit up or down on the original limit." 74 It would have been open to Tradebanc to have provided Gemtaf with a credit limit of $40,000 at one point in time, and then to have adjusted that limit to $1,000 at a later point in time, at its discretion. It chose, instead, to arrange for a Deed (which incorporated Clause 4 above), presumably because it was a large sum, and there were guarantors involved. 75 I see no fraud on members. The Rules are silent, and arguably deficient, as to what Tradebanc is obliged to do once it receives cash by the adjustment of credit limits. However, fraud should not be inferred, in my view, simply from that fact. Whether, in a particular case, there was fraud, may depend upon the circumstances of that case, and Tradebanc's purpose. If Tradebanc were to systematically plunder the barter system, removing cash, leaving debits, and making more likely the need to resort to the Debt Reserve Fund, that may be one thing. If, however, having received cash, it reinstated the equilibrium between trade credits and trade debits, either through the Debt Reserve Fund, or by some other means, that would be another. 76 I do not believe that the issue can be considered in a vacuum, as Gemtaf invites in this case. I would therefore reject the third ground of appeal by Gemtaf. The learned Magistrate, in my view, was not in error in dismissing the defence based upon fraud. 77 Nonetheless, I believe that the Deed was voidable and avoided. The orders I make, therefore, are as follows: 78 Orders: 1. That the appeal is allowed. 2. A verdict should be entered for Gemtaf Pty Limited. 3. Tradebanc International Pty Limited should pay the costs of Gemtaf Pty Limited. ********** Last Modified: 10/11/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.