Bicheno Investments Pty Ltd v David John Winterbottom

1. [1]

   HIS HONOUR: The plaintiffs (the secured creditors) lent money to a company known as DSG Holdings Australia Pty Ltd (DSG). They held a charge over the assets of DSG to repay the amount lent. On 30 June 2014, DSG then being in some financial distress, the secured creditors appointed the defendant (the receivers) as receivers and managers of the assets secured by the charge.

2. [2]

   The receivers were to be remunerated for their services by a combination of a capped time-based fee and an incentive fee. They claimed to have become entitled to an incentive fee, and deducted what they said was its proper amount from the proceeds of the receivership that they paid to or at the direction of the secured creditors.

3. [3]

   The secured creditors say that, on the proper construction of the relevant provisions of the fee agreement (being a deed – the fee deed – also made on 30 June 2014), the receivers had and have no entitlement to an incentive fee. Thus, they sue to recover the amount retained, together with interest.

The real issues in dispute

1. [4]

   The parties agreed that the real issues in dispute were as follows:

Relevant provisions of the fee deed

1. [5]

   Clauses 2 and 3 of the fee deed deal, respectively, with the capped time-based charge and the incentive fee. They read as follows:

2. [6]

   For the purposes of clause 2, the Capped Amount was $1.2 million plus GST. The Appointment Date was 30 June 2014.

3. [7]

   It is not necessary to set out all the defined terms used in clauses 2 and 3. The definitions that are relevant are of “Appointment Cash”, “Appointment Stock”, “Cash Difference”, “Recovered Amount” and “Stock Difference”. I set out those definitions:

Background to the receivership

1. [8]

   DSG operated a number of what are apparently called “discount variety stores”. In June 2014, there were some 143 such stores, trading under various names, across Australia. It is common ground that, as at 30 June 2014, DSG’s stock on hand numbered in excess of 15 million individual items (across those 143 stores, in warehouses, and in transit from suppliers) with an average unit value of less than $2.

2. [9]

   DSG and the secured creditors were related corporations. Each was controlled by one person, Ms Jan Cameron.

3. [10]

   In the first half of June 2014, Ms Cameron, on behalf of DSG rather than the secured creditors, engaged KordaMentha (KM), the firm of which the receivers are partners, “to provide assistance to [DSG] in regard to reviewing, evaluating and assisting with the implementation of, the strategy to be adopted by [DSG] going forward”. That engagement was effected by KM’s letter of 13 June 2014, accepted by Ms Cameron on behalf of DSG on the same day.

4. [11]

   The engagement letter defined the scope of the engagement as follows:

5. [12]

   KM’s review was undertaken, under the supervision of the first defendant, Mr Winterbottom, by the second defendant, Mr Goyal, and others. It led to a “[DRAFT] Option analysis” dated 26 June 2014. That analysis summarised a number of “options” available to DSG, and recommended receivership as the “option” likely to achieve the best return to the secured creditors.

6. [13]

   Mr Winterbottom, and no doubt others, met Ms Cameron and discussed what I shall call the “options analysis” with her. The topics discussed included the fees to be charged, and the possible structure of an incentive fee.

7. [14]

   Thereafter, as I have said, the secured creditors appointed the receivers to be receivers and managers of DSG, and executed appropriate documents including the fee deed.

8. [15]

   I should note that Mr Weber of Senior Counsel, who appeared with Mr Potts of Senior Counsel and Mr Reynolds of Counsel for the secured creditors, objected to evidence of the background to the making of the fee deed, on the grounds that it was inadmissible as an aid to construction of, in particular, clause 3 of the fee deed, and was otherwise irrelevant. Mr Williams of Counsel, who appeared with Mr Burnett of Counsel for the receivers, submitted that this material (and much other, upon which he founded lengthy submissions) was admissible pursuant to what he called the “true rule in Codelfa” (a reference to the judgment of Mason J in Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1] ). Mason J said [2] :

First issue: the proper construction of clause 3.1

1. [16]

   Mr Weber submitted that if the receivers were to be entitled to an incentive payment, it was necessary that they should have conducted a stocktake as at 30 June 2014. That followed, he submitted, from the definition of the somewhat unfortunate acronym “FA”, which incorporated the defined term “Stock Difference”. The definition of “Stock Difference” in turn drew attention to the definition of “Appointment Stock”. Mr Weber submitted that there could be no determination of the Appointment Stock unless the receivers had undertaken a stocktake.

2. [17]

   Mr Weber submitted that, in the absence of a stocktake, the integer “Appointment Stock” could not be fixed and thus the integer “Stock Difference” could not be fixed. If they could not be fixed then, he submitted, the integer “FA” could not be quantified, and the formula for calculation of the incentive fee could not be worked out.

3. [18]

   Mr Weber submitted that there was no functional distinction between the expression actually used in the fee deed – “stock take” – and the more usual expression “stocktake”. The former, he submitted, meant the same as the latter, and the latter, he submitted, should have its ordinary dictionary meaning.

4. [19]

   Mr Weber relied on definitions in the Oxford English Dictionary and the Macquarie Dictionary, each of which equates a “stocktake” to the process of “stock-taking” (in the case of the Oxford English Dictionary) or “stocktaking” (in the case of the Macquarie Dictionary). Those words were defined, respectively, as:

   1. (1)

      “a periodical examination, inventorying and valuation of the stock or goods in a shop, warehouse, etc” (Oxford English Dictionary); and

   2. (2)

      “1. the examination and listing of goods, assets, etc, in a shop, business, etc. 2. a reappraisal or reassessment of one’s position, progress, prospects, etc” (Macquarie Dictionary).

5. [20]

   Mr Weber submitted that some form of physical examination of stock was necessary, if there were to be a “stock take” or a “stocktake”. That is crucial to the secured creditors’ case, because (as is common ground) the receivers did not themselves undertake, nor did they cause to be undertaken, any physical stocktake or counting of stock. Instead, having satisfied themselves of the reliability of DSG’s record-keeping systems for and records of inventory, they relied on what was shown by those records as at 30 June 2014.

6. [21]

   Mr Weber submitted that the words in question were not ambiguous, and thus that there was neither need nor justification for resorting to extrinsic material known to both parties at the time the fee deed was made. If there were ambiguity, he submitted, it was appropriate to have reference to DSG’s Stocktake Procedure Manual. That Manual said, among other things, that:

7. [22]

   That definition, Mr Weber submitted, accorded with the ordinary (dictionary) meaning of “stocktake”, and was conclusive. Mr Weber submitted that the parties could not have intended that the receivers should be able to rely upon the book value of stock on hand as recorded in DSG’s inventory records, because the very purpose of a stocktake was to check, by a physical count, the accuracy of those records.

8. [23]

   Mr Weber relied, further, on what was said to be expert evidence given by a witness, Mr Quentin Olde. Mr Olde (whose expertise is not in question) purported to give evidence of what he said was the meaning of the expression “stocktake” (not the words actually used in the fee deed, “stock take”) in the insolvency industry. Mr Williams objected to that evidence, and it was received subject to a resolution of that objection. Mr Olde’s cross-examination and re-examination were conducted on the voir dire. I dealt with Mr Olde’s evidence in that way so that a possibly important element of the secured creditors’ case would not be decided by a ruling on admissibility of evidence, whilst at the same time protecting the receivers’ position.

9. [24]

   Mr Olde gave further evidence to the effect that it was standard or normal practice for a receiver appointed to a retail business to conduct a physical stocktake of all stores, as an incident of performance of the receivership. Mr Olde expressed the opinion that it was insufficient, and inappropriate, to rely upon the inventory records of the business.

10. [25]

    Mr Williams submitted that there was ambiguity in the language of clause 3 (more particularly, in the definitions of the expressions “Appointment Stock” and “Stock Difference”). Thus, he submitted, on any view of the “true rule”, it was open to the court to rely on extrinsic evidence of matters known to both parties at the time the fee deed was made. However, Mr Williams submitted, reference to such material was permitted in any event, because that material enabled the court to understand the genesis and, objectively, the object of the transaction [3] .

11. [26]

    Mr Williams referred to a large number of what he said were relevant matters of background, being matters known to the parties at the time they made their fee deed. Those matters showed, he said, that the parties could not have intended the receivers to undertake, or commission from an external service provider, a full stocktake. The conduct of a full stocktake, he submitted, would have been expensive; would have delayed the receivership and thus reduced the likely returns; and would have been pointless because DSG itself had recently conducted stocktakes of the great majority of its stores, and the results demonstrated clearly (and the parties knew) that DSG’s inventory systems and records were reliable.

12. [27]

    Mr Williams submitted that the crucial or primary definition to be considered was the definition of Stock Difference. That definition refers to the amount by which the book value of the Appointment Stock is more or less than the amount of $37.4 million. In determining what was the “book value” of that stock, it was appropriate, so Mr Williams submitted, to have regard to the books in which that stock was recorded. Mr Williams submitted that the definition of Appointment Stock was a secondary definition, and in effect that the reference to “stock take” in that definition signified nothing more than that the receivers should determine what was the stock on hand as at 30 June 2014 by whatever process they thought was appropriate.

13. [28]

    Mr Williams submitted that the construction for which the secured creditors contended would lead to commercial absurdity. That was so, he submitted, because the stock records on which the receivers relied were (and were known to be) accurate; because any variation from those records would be (as the parties well understood) downward – the phenomenon of “shrinkage”; and because any further reduction in the value of Appointment Stock would reduce the threshold or trigger amount for calculation of the incentive fee without producing any increase in the return to the secured creditors. It followed, he submitted, that to deprive the receivers of their incentive fee because they had failed to carry out a lengthy and time-consuming process that could only have increased their return was commercially absurd.

14. [29]

    The submissions for each side, including Mr Weber’s submissions in reply, were both more detailed and more subtle than I have summarised them. However, what I have said is enough to give content to the debate, and to provide some background to my decision on this issue.

15. [30]

    At the risk of generating yet more paper on a topic that has been the subject of numerous judgments of binding authority, I shall set out the approach to construction that I propose to follow. I do so by reference to the judgment of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [4] . Their Honours said [5] (excluding citations):

16. [31]

    I add two points. First, (in self-defence) the practice of bulk citation rather than succinct summary has been deprecated, and rightly so. However, in this particular area of legal discourse, I do not think that there is anything to be achieved by my attempting to summarise what their Honours said.

17. [32]

    Secondly, their Honours’ reference to the observations of Kiefel and Keane JJ makes it appropriate to set out the following paragraphs of the separate reasons of Kiefel and Keane JJ [6] :

18. [33]

    I add that Bell and Gageler JJ expressed very similar views in their Honours’ joint reasons [7] . I do not propose to set out those paragraphs.

19. [34]

    I do not understand there to be any principle that requires a court attempting to construe a contract (commercial or otherwise) to ignore the context within which that contract was made. So much appears from the decision of the High Court in Victoria v Tatts Group Ltd [8] . In that decision, when considering the proper construction of a clause of a contract, the Court said [9] that “the text, context and purpose” of the agreement in question “all support the conclusion that” the phrase in issue had a particular meaning. That point was picked up in the Court of Appeal in this State in Zhang v ROC Services (NSW) Pty Ltd [10] by Leeming JA [11] , with whom Sackville AJA relevantly agreed.

20. [35]

    In an earlier decision, Mainteck Services Pty Ltd v Stein Heurtey SA [12] , Leeming JA, with whom Ward and Emmett JJA agreed, made the point [13] that the statement that a legal text has a clear meaning reflects the outcome of the process of interpretation. His Honour added [14] that:

21. [36]

    Of necessity, the statement that the language of a legal text is ambiguous must be a conclusion following from, and not the starting point of, the process of construction of that text [15] .

22. [37]

    The final point I wish to make is that the legal meaning of a text is not always the sum of the ordinary English meanings of the words that the text employs. In many cases, the two will be the same. However, there may (and in cases that come to court, usually will be) contestable legal meanings of words, the grammatical or literal meaning of which is clear. So much was pointed out by Leeming JA in Mainteck [16] , and was not in any way a novel or radical proposition at the time. As Mahoney JA said in Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd [17] :

23. [38]

    I start by observing that I do not regard Mr Olde’s evidence, as to the industry understanding of the expression “stocktake”, as relevant. In truth, he was doing no more than stating what in his view was the ordinary English meaning of that word. That is not an appropriate subject of expert evidence.

24. [39]

    Mr Weber submitted that Mr Olde’s evidence as to industry understanding of the word “stocktake” was not intended to do anything more than show that there was some special or technical meaning different from whatever might be the ordinary English meaning of that word. That is, if I may say so, a somewhat strained interpretation of the words used by Mr Olde. Further, it is scarcely relevant, since the receivers have never suggested that there is some such special or technical meaning.

25. [40]

    Further, in my view, Mr Olde’s evidence, as to the usual practice of receivers of retail businesses conducting stocktakes, is irrelevant. What a receiver is required to do, in any particular receivership, must reflect both the instructions (if any) given to the receiver and the particular circumstances of the receivership.

26. [41]

    Further, there was evidence of receiverships of retail businesses where no stocktake had been conducted. Indeed, Ms Cameron (or DSG) acquired the business from a failed company known as Retail Adventures, of which Ms Cameron was a director. Mr Goyal worked on that receivership (he was then employed by another firm). He said, and there was no challenge to this evidence, that no physical stocktake of Retail Adventures’ stock was undertaken.

27. [42]

    The secured creditors relied also on the evidence of Mr Ryan Baugh. He is an operations manager employed by a company known as RGIS Australia. RGIS, Mr Baugh said, is the largest professional stock taking firm in Australia, and the parent or group entity is, he said, the largest professional stock taking firm in the world. Mr Baugh has worked for RGIS for some 20 years, and has been involved in, or supervised, more than 2,000 stocktakes over that time.

28. [43]

    Mr Baugh gave evidence that, had RGIS been instructed to undertake a full stocktake of each of the 143 stores, that could have been done within 18 days. That estimate was based on a number of assumptions, one of which was that all the staff of DSG would have been available to assist in the conduct of the stocktake. It follows, necessarily, that each of the stores would have to be closed for the duration of the stocktake.

29. [44]

    There were some difficulties with Mr Baugh’s evidence. One is that it assumed the availability of RGIS’ staff to carry out the stocktakes in a particular order that Mr Baugh described. However, that order was inconsistent with the order in which the receivers planned to close the stores. It follows, again necessarily, that one or the other would have to be adjusted, and that this in itself would be a source of delay.

30. [45]

    Further, if the stocktake were to be conducted for stock on hand at each store as at 30 June 2014, one of two courses would have to be adopted:

    1. (1)

       the store would have to remain closed until the stocktake had been completed; or

    2. (2)

       if the store remained open and trading, the stock determined by the stocktake would have to be reconciled by reference to records of sales and deliveries to produce a figure as at 30 June 2014.

31. [46]

    If the first course were taken, then again the conduct of the receivership and realisation of assets would be delayed. If the second course were taken, the only delay would be that referable to the closure of the store for the duration of the stocktake. However, the necessity for a reconciliation suggests another problem, to which I shall return.

32. [47]

    Mr Baugh also gave evidence that it would have been possible to conduct a stocktake of selected stores in a much shorter period: he said, three days. Mr Weber relied on this evidence to suggest that the receivers need not have conducted a full stocktake. It would have been sufficient, he submitted, if they had conducted a limited stocktake for the purpose of satisfying themselves that DSG’s inventory records were materially accurate (or, at least, did not overstate stock on hand), so as to justify them in relying on those records for the remainder of the stores. Mr Olde gave evidence to the effect that it might have been appropriate for the receivers to proceed in that manner. Again, those matters suggest the problem to which I have just referred.

33. [48]

    In short, the great bulk of the expert evidence on which the secured creditors relied was either irrelevant or, if marginally relevant, of at best minimal utility. The same may be said, in my view of much of the evidence of alleged background facts on which Mr Williams relied. However, since in my view the answer to the question of construction can be resolved without going through the detail of those facts, I do not propose to elaborate.

34. [49]

    It is self-evident, and Mr Weber accepted, that clause 3 of the fee deed was intended to give the receivers an incentive to achieve a better outcome for the secured creditors than had been forecast. It is equally self-evident, and again Mr Weber accepted, that the forecast return was $6 million, and that this was based on the cash and stock figures set out in the definitions of “Cash Difference” and “Stock Difference”. Of necessity, those assumed cash and stock figures, and the forecast return, had been calculated at some time prior to 30 June 2014. It is thus understandable that the parties would want to update them, and to make them at least approximate, if not correspond exactly to, reality, as at the date of commencement of the receivership.

35. [50]

    If it matters, the assumed figure for cash and the assumed figure for stock on hand come from the options analysis. The forecast return falls within a range set out in that document. Mr Winterbottom said, and if it is relevant I would find, that when he discussed the options analysis with Ms Cameron, he told her that $6 million was his best estimate of the likely return that a receivership would procure for the secured creditors.

36. [51]

    The process of construction must start, I think, by recognising that the relevant primary integer for the calculation of FA is not “Appointment Stock” but “Stock Difference”. That latter expression requires a consideration of the difference between the book value of the Appointment Stock with the assumed figure of $37.4 million. In other words, it requires the receivers to make a determination of the book value of the Appointment Stock. The way in which they are to do that is set out in the definition of Appointment Stock. Nonetheless, the fact remains that it is the book value of that stock – its value as recorded in the inventory records of DSG – that is relevant to the calculation of Stock Difference.

37. [52]

    When one turns to the definition of Appointment Stock, it requires the receivers to determine what that stock is; what is DSG’s stock on hand as at 30 June 2014. (The verb “requires” may be inappropriate; there is no absolute need for the receivers to make any such determination. However, if they wished to make a claim for an incentive fee pursuant to clause 3.1, they must do so to enable the amount of that fee to be calculated.)

38. [53]

    The determination of DSG’s stock on hand as at 30 June 2014 is to be made by the receivers, and, as a matter of language, “by a stock take undertaken by” them. The dictionary meanings of “stocktake” to which I have referred earlier [18] suggest that the process of stocktaking (with or without a hyphen) involves some form of examination of the stock of the business, and requires that stock to be listed and (at least so far as the Oxford English Dictionary is concerned) valued.

39. [54]

    However, as I pointed out to counsel in the course of submissions, there are other dictionary definitions to which reference may be made. Specifically, the Oxford Australian Dictionary defines “stocktaking” as:

40. [55]

    There is no suggestion in that definition that some form of physical examination or count is required. The variance between that definition and the others is an indicator of ambiguity; perhaps more accurately, of a range of connotations.

41. [56]

    As I have noted already, Mr Weber accepted – indeed, he submitted – that the receivers could have satisfied the requirements of the definition of Appointment Stock by undertaking, or commissioning, a limited stocktake, of selected stores and locations, for the purpose of satisfying themselves of the material accuracy of the inventory records; and then, being so satisfied, by relying on those inventory records to determine DSG’s stock on hand as at 30 June 2014. Mr Olde agreed, in the course of his evidence, that this could have been an appropriate way to proceed.

42. [57]

    The question immediately arises: why is it necessary for any physical examination or count to be undertaken if, on all the material available, the receivers are properly able to satisfy themselves of the material accuracy of DSG’s inventory systems and records? To put it another way, if it had been open to the receivers, upon satisfying themselves by only a limited physical stocktake of the accuracy of DSG’s listing of stock on hand as at 30 June 2014, to rely on that listing to make the determination for which the definition of Appointment Stock calls, why was it not open to them to reach that state of satisfaction by means other than some limited physical stock count?

43. [58]

    Those considerations are particularly relevant if one takes into consideration the Australian Oxford Dictionary definition of stocktake. What is required, according to that definition, is the making of an inventory of stock. Why is it, in a particular case, that that process cannot be completed by an analysis of inventory records kept by the business?

44. [59]

    To my mind, what is required by the definition of Appointment Stock is no more than that the receivers satisfy themselves, and thus determine, what is DSG’s stock on hand as at 30 June 2014. The fact that the definition uses the words “stock take” rather than the usual expression “stocktake” lends some support to this, although it is not a factor of conclusive significance. The same can be said of the range of dictionary meanings.

45. [60]

    It is at this point that considerations of commercial common sense, or (conversely) commercial absurdity, become relevant. The parties to the fee deed must be taken to have known, at the time that deed was made, that it would be time consuming and expensive to undertake a full physical stocktake (I do not suggest that they would have known precisely how long that would take, or precisely what it would cost). They must be taken to have understood (because the point had been made very clearly in the options analysis that KM presented to DSG and Mr Winterbottom discussed with Ms Cameron) that delaying implementation of the receivership would reduce, and perhaps wipe out, the expected returns.

46. [61]

    The parties must also be taken to have known at that time that DSG’s physical stocktakes over at least the two preceding years had shown that the inventory records kept by DSG were accurate to within a low and (as Mr Olde agreed) acceptable tolerance. In substance, those records showed that the variance between stock recorded in the inventory records and stock actually counted was less than two per cent. That variance, which as I have said was known as shrinkage, was expected in the retail industry.

47. [62]

    Further, the parties must be taken to have known at that time that there had been a program of stocktakes conducted over more than 80 per cent of DSG’s stores in the five or so months preceding 30 June 2014. It may be accepted that the earlier of those stocktakes would not of themselves provide an accurate guide as at 30 June 2014 to the stock then on hand in any particular store. However, there was no suggestion that DSG’s records of goods sold from particular stores and goods delivered to them after the stocktake were inaccurate or deficient. Those records could have been used to produce the store’s stock on hand “as at” 30 June 2014.

48. [63]

    Unless all the stores were to be closed until the full physical stocktake had been completed (leading to delay which, as I have said, would be likely in itself to diminish the returns from the receivership), a process of reconciliation between the physical stocktake and the accounting records of goods sold and goods delivered would be required in any event. In short, unless the commercially unattractive (I am tempted to use the word, “absurd”) course of closing the stores down completely, pending completion of the stocktake, had been adopted, any determination of Appointment Stock would have required resort to and reliance upon the accuracy of DSG’s books and records.

49. [64]

    Of course, as Mr Weber submitted, some of those problems could have been avoided by undertaking only a limited stocktake. However, his acceptance of that point necessarily means that the crucial words “as determined by a stock take undertaken by the Receivers” cannot be understood literally (as meaning “physical stock count”) and exclusively (as meaning only that). On that approach, those words must be construed to mean “as determined in part by a stock take undertaken by the Receivers and in part by an analysis of DSG’s books and records undertaken by the Receivers”.

50. [65]

    In my view, full application of the supposed requirement to undertake a full physical stocktake would lead to commercial absurdity. It would increase substantially the cost of the receivership (because, on the likely assumption that the receivers contracted the stocktake out to a firm such as RGIS, the cost would be a disbursement payable by the secured creditors). It would delay the selling-down of DSG’s stock and the closing of its shops. It would diminish the returns to be expected from the receivership. Nor would it achieve anything of practical utility, given what the parties knew as to the (recently confirmed) reliability of DSG’s inventory systems and inventory records.

51. [66]

    Further, and as the parties must be taken to have known, the likely result of a physical stocktake would have been to reduce slightly the book value of Appointment Stock. That in turn would lower the dollar value of FA (because it would increase the negative value of Stock Difference). And that in turn would increase the dollar value of AP. Thus, the incentive fee would be higher. Yet, because no more cash would be recovered through the receivers’ labours, the return to the secured creditors would be diminished, to the extent of the increase in the incentive fee.

52. [67]

    If on the other hand some form of partial stocktake were sufficient, the necessary corollary would be that the definition of Appointment Stock should not be read literally. It must be read as though it leaves to the discretion of the receivers a decision on the mechanism by which they should determine what was DSG’s stock on hand as at 30 June 2014.

53. [68]

    In those circumstances, to construe the definition of Appointment Stock as requiring a physical stocktake, rather than the making (by whatever means) of an inventory of stock, would produce an uncommercial and absurd result. As I have said, the clear fundamental purpose of the words is that the receivers should determine what is the stock on hand of DSG as at 30 June 2016, so that they can move to, and determine, the book value of that stock on that date. In my view, the reference to “stock take” does not prescribe the sole or immutable mechanism by which the receivers were to make their determination of stock on hand as at 30 June 2014.

54. [69]

    I add two more points. First, there was neither a requirement (dehors the definition of Appointment Stock) nor a reason for undertaking a physical stock count. And secondly, there was no benefit from doing so; the receivers could not sell more than the stock on hand, whatever that might have been.

55. [70]

    The approach for which Mr Weber contended treats the process of construction as concluded by the ascertainment of the literal effect of the aggregated meanings of the words used. More importantly, it elevates a machinery provision in a subordinate definition to a condition of entitlement. That, quite apart from what I have just said, is a surprising outcome of the process of construction.

56. [71]

    In this case, the receivers did make the requisite determination. They satisfied themselves of the material accuracy of DSG’s stock listing as at 30 June 2014. That listing, printed out, was in evidence. It occupied about 770 pages in volumes 2 and 3 of the court book, in which were listed, by number and value, the number of units in various locations of such essential or desirable products as “healthy pet treat puppy porky clod bone”, “epoxy gel stickers ladybirds”, “drumstick pop van maple” and many thousands of other items of irresistible consumer appeal.

57. [72]

    There was a wealth of evidence to suggest that DSG’s stocktaking procedures were rigorous (its recent stocktakes had been supervised by internal, and occasionally external, auditors), and were accurate to within less than two per cent. In my view, when the receivers satisfied themselves as to the material accuracy of those stock records, and determined that DSG’s stock on hand as at 30 June 2014 comprised the millions of items so painstakingly listed, they performed the task of determination for which the definition of Appointment Stock calls.

58. [73]

    I do not propose to take up time in recounting and analysing the other matters of background on which Mr Williams relied. Factually, they are non-contentious (that is to say, there is no dispute as to the actual facts on which Mr Williams relied). Their relevance and significance were very much disputed, as was their utility, but there is no point to be served in dealing with those matters.

59. [74]

    It follows, in my view, that the two questions constituting the first issue should be answered:

Second issue

1. [75]

   This issue does not require decision. Since its resolution (were resolution required) does not require the decision of any disputed question of fact, and since the parties’ submissions have been recorded in detail, I do not propose to address it.

Conclusion and orders

1. [76]

   The secured creditors’ claim for repayment of the incentive fee, together with interest, fails.

2. [77]

   The appropriate orders are that:

   1. (1)

      The further amended summons be dismissed.

   2. (2)

      Subject to any existing costs orders, the plaintiffs pay the defendants’ costs of the plaintiffs’ claim.