Adelaide Bank Ltd v Buttigieg

[1999] FCA 462

FEDERAL COURT OF AUSTRALIA

Adelaide Bank Ltd v Buttigieg [1999] FCA 462

Bankruptcy - creditor’s petition - whether debt the subject of a judgment discharged by prior settlement - whether bankruptcy notice calculated to mislead or confuse a debtor - notice of opposition dismissed.

S 7103 of 1999

ADELAIDE BANK LTD v RONALD JOSEPH BUTTIGIEG

VON DOUSSA J
18 OCTOBER 1999
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 7103 OF 1999

BETWEEN:	ADELAIDE BANK LTD Applicant
AND:	RONALD JOSEPH BUTTIGIEG Respondent
JUDGE:	VON DOUSSA J
DATE OF ORDER:	18 OCTOBER 1999
WHERE MADE:	ADELAIDE

THE COURT ORDERS THAT:

1.        Notice of opposition to creditor’s petition dismissed.

2. Petitioning creditor has proved the matters required to be found by s 52(1) of the Bankruptcy Act 1966.

3.        Adjourned for further consideration of the creditor’s petition for seven days.

Note:    Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 7103 OF 1999

BETWEEN:	ADELAIDE BANK LTD Applicant
AND:	RONALD JOSEPH BUTTIGIEG Respondent

JUDGE:	VON DOUSSA J
DATE:	18 OCTOBER 1999
PLACE:	ADELAIDE

EX TEMPORE REASONS FOR JUDGMENT

1. The applicant seeks a sequestration order on a creditor’s petition dated 9 June 1999 which was duly served on the respondent on 10 June 1999.  The act of bankruptcy relied upon is a failure to comply on or before 10 May 1999 with the requirements of a bankruptcy notice served on the respondent on 19 April 1999.

2. The bankruptcy notice purports to be based on a consent judgment for the sum of $8,972.10 entered in the Adelaide Magistrates Court (Civil Division) on 22 February 1999. The schedule to the bankruptcy notice shows that interest has been added to the consent judgment after credit was given for the $1,000.00 that was paid on 22 February 1999.  The bankruptcy notice, and the creditor’s petition thus alleges an outstanding debt of $8,205.80.

3. The respondent has filed a notice of intention to oppose the petition dated 6 August 1999.  The grounds of that opposition are articulated as follows:

   1.The parties having settled the action, the purported consent to judgment was a nullity and the applicant creditor was not lawfully entitled to enter judgment.

   2.The bankruptcy notice, (in concert with the annexed court record) was reasonably calculated to mislead or confuse a debtor.

4. The court record annexed to the bankruptcy notice in this instance is a printout from the Adelaide Magistrates Court showing the various steps which occurred in the proceedings in that court.  The record shows that proceedings were commenced on 23 March 1998 claiming an alleged debt of $10,302.64.  The respondent’s affidavit shows the origins of that sum.  As a result of transactions with the petitioning creditor between 30 January 1998 and 18 February 1998 a bank debit of $10,297.64 accrued.  The bank statement shows that to be comprised of $4,477.79 Financial Institutions Duty and $6,433.98 interest.  The amount sued for includes an additional $5 collection fee.

5. The proceedings followed a convoluted course in the Magistrates Court.  There was a defence filed on 17 April 1998.  Various directions hearings followed.  There was a hearing date set for 3 July 1998.  The court record shows that a judgment was entered on that day for the full amount of the claim plus interest, there being no appearance of the defendant.  On 3 August 1998 the defendant applied to set aside that default judgment and his application to that end was heard on 12 August 1998.

6. The court record shows that the judgment by default was set aside.  There was a direction made for a defence to be filed within fourteen days and:

   “By consent judgment in favour of plaintiff $4,477.79”.

   There was a further order as to costs.

7. Further directions hearings followed designed to bring the matter to readiness for a trial, and a trial date was fixed for 8 October 1998.

8. In my opinion the inference arising from the papers before the Court is that on 12 August 1998 the judgment by default was set aside but as there was no dispute about the FID indebtedness of the respondent, judgment was recorded for that amount and it was intended that there be a trial about the claim for interest which was disputed.

9. The affidavits filed by the respondent and Ms Olsson on behalf of the petitioning creditor indicate that there were negotiations between the parties between 17 September and 25 September 1998 when offers and counter-offers were made.  The affidavit of Ms Olsson deposes that on 22 September 1998, the petitioning creditor offered:

   “To accept the sum of $7,000, the same by way of part-payment of $3,000 by 25 September 1998 and $4,000 by 15 October 1998.”

   That offer was initially rejected by the respondent but Ms Olsson’s affidavit continued (in paragraph 8) to depose that the respondent ultimately accepted the offer that had been made on 22 September 1998:

   “That he would pay the sum of $7,000 by part-payments of $3,000 on 25 September 1998 and $4,000 by 15 October 1998.”

10. It is common ground that $3,000 was paid on 2 October 1998 by bank cheque and it appears that the petitioning creditor accepted that as the first of the payments, notwithstanding that it was a few days late.

11. On 8 October 1998 the matter came on for hearing in the Magistrates Court in accordance with the earlier directions.  A copy of the magistrate’s notes of the hearing are attached to the respondent’s affidavit.  The magistrate recorded as follows”

    “Olsson for P, NAD [no appearance for the defendant] settled, payment to be made, ADJ to 23/10/98 at 9.15 FMO [for mention only] 2 B dismissed.”

12. It is also common ground that by 23 October 1998 the outstanding balance of the proposed settlement remained unpaid.  On 23 October 1998 the matter again came on for hearing.  Ms Olsson appeared for the petitioning creditor and the respondent was present in person.  The formal record of the court reads as follows for that day:

    “Defendant in default of settlement terms $300 to be credited.  Adjourned to 24/2/99 at 9.45 am for half day trial.  Costs in the cause.”

13. There is an obvious error in that recording as the amount that had been paid and was to be credited was $3,000.  Furthermore, the affidavit evidence shows that the amount of $3,000 was actually mentioned to the magistrate.

14. Shortly before the February hearing there were further communications between the parties.  On 11 February 1999 solicitors for the petitioning creditor wrote to the respondent referring to a telephone conversation of the preceding day.  In part the letter said:

    “Our client is prepared to settle this matter on the following basis:

    (5)Summary judgment to be entered in favour of our client for the sum of $8972.10;

    (6)Our client will accept the sum of $6000 in full and final settlement of the judgment sum subject to and conditional upon the following payments being made by you promptly on or before the due date:

    (a)       $1000 on or before 25 February 1999 -
    (b)       …”

    and then followed a series of other payments to be made on scheduled dates through to 22 August 1999.  The terms of the offer then recorded stated that in default of any payment the amount outstanding would automatically become due and payable.

15. The letter invited the respondent to sign and return a duplicate copy by way of confirmation of the terms of settlement set out in the letter.  The copy letter was duly signed by the respondent on 21 February 1999 and returned.  When the matter came on for hearing on 22 February 1999, it is reasonably clear from the papers that the letter itself was produced to the magistrate.  It seems that the respondent was not then present.  The court record states:

    “Sign judgment by consent.  Amount Offered/Accepted $8972.10.”

    It will be noted that that is the amount upon which the bankruptcy notice was based.

16. After the bankruptcy notice was served the respondent made an application to the Magistrates Court to set aside the judgment entered on 22 February 1999.  His initial application in substance asserted that he misunderstood the full import of the letter he had signed, although his supporting affidavit does say:

    “Though I did not agree that I had to pay any more and money to the Adelaide Bank, I agreed to pay $6000 because I had just lost my job and was not in a position both mentally and financially to cope with a trial.”

17. The application was unsuccessful.  It was then followed by another application to the Magistrates Court made on 4 June 1999.  The application reads, in the portion which requires the applicant to set out the order sought:

    “Due to financial hardship I request the court to allow me to pay the judgment debt of $8972.10 in instalments of $250 per month.”

    The accompanying affidavit deposed to financial hardships of the respondent.  That application was also unsuccessful.

18. I return to the first ground of opposition.  Counsel for the respondent puts the point in simple terms.  He submits that the consent judgment entered on 22 February 1999 is a nullity because there had earlier been a settlement of the claim, and thereby a merging of the debt into the settlement, as recorded in the court record at the hearing on 8 October 1998.  Counsel argues that either there was a settlement or there was not.  Plainly there was a settlement.  Therefore the matter should have rested at 8 October 1998 and it was simply a nullity for the petitioning creditor to go back to the court and seek some other judgment at a later date.

19. The argument involves the proposition that this Court should go behind the judgment of the Magistrates Court entered on 22 February 1999 and question whether there is in reality a debt of the kind claimed in the bankruptcy notice, and in turn in the creditor’s petition.  This Court undoubtedly has jurisdiction to go behind a judgment; see Corney v Brien (1951) 84 CLR 343. The purpose of going behind a judgment is to see whether in reality there is an underlying debt. Usually the Court will take that course if it is alleged that the judgment was obtained by fraud or collusion, or if in some other manner there has been a miscarriage of justice.

20. In this case it is said that there is a miscarriage of justice because the consent judgment entered on 22 February 1999 was a nullity.

21. In my opinion the basic argument that there was a settlement that put an end to the debt and thus to the action on or about 8 October 1998 cannot be accepted.  Where an accord and satisfaction is alleged it is necessary to analyse what was the satisfaction agreed to.  Did the parties agree that the debt would be exchanged for a mere promise to pay money in the future?  Or was it agreed that the debt would be exchanged for the actual payment of the amount agreed upon?

22. If on analysis the situation is of the former kind, then the argument advanced by counsel for the respondent would be of substance here.  On the other hand, if the situation is of the latter kind, the fact that payment was not made so as to provide the satisfaction means that the underlying debt, insofar as it was then outstanding, continues to be a debt enforceable by action.

23. In my view the terms of the settlement as deposed to by Ms Olsson indicate that the intended satisfaction was actual payment.  That construction of the settlement agreement is also borne out by what occurred on 8 October 1998.  If the matter had been finally settled in exchange for a promise by the respondent to pay at a future date, the matter should then have been struck out because there would no longer have been a debt to support the proceedings.  On the contrary, the matter was adjourned to enable payment to be made.  That, in my view, is clear confirmation that the terms of the settlement intended that actual payment be made.

24. It is plain on the papers that the respondent signed the letter of 11 February 1999 which is clear in its terms.  By the letter the respondent consented to judgment for the amount that was entered on 22 February 1999.  Moreover, once the first application to set aside that judgment had been denied, the second application that he made in substance acknowledged that judgment.  In my opinion there is no reason in the present case to go behind the judgment of the Magistrates Court on which these proceedings are based.  Firstly, there is no substance in the argument put forward that the settlement on 8 October 1998 disposed of the matter; secondly, the other information indicates that behind all the arguments the respondent puts there is a continuing debt which the respondent has himself acknowledged.

25. The second point raised concerns the validity of the bankruptcy notice.  If the bankruptcy notice were invalid by reason of a capacity for it to mislead a debtor, then the petition cannot succeed.  It is alleged that the bankruptcy notice was misleading, or capable of misleading, because although there was a precise sum claimed in the bankruptcy notice itself, the record from the Magistrates Court might be confusing to some people, is difficult to follow in some respects, and contains an error.  Where it shows a credit for $300, that should have been a credit for $3,000.

26. Court records of the kind that were annexed to the bankruptcy notice in this case may, in some circumstances, contain information which, when read with the petition, give a confusing result - that is, a result that, viewed objectively, might reasonably mislead a debtor.  In such a case that would be sufficient to invalidate the bankruptcy notice.  See generally Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 79 and 80.

27. However, in this case I do not think there was any potential in the documents to mislead or confuse.  The bankruptcy notice is plainly based on the last entry in the court record, namely the signing of judgment by consent for $8,972.10.  There are no later entries on the record.  All that went before that entry is irrelevant.

28. In my opinion the second ground of opposition also fails.

29. Neither ground of opposition is made out.  The petitioning creditor has established an entitlement to a sequestration order.  However, at the request of the respondent I adjourn the proceedings for one week before entering an order on the creditor’s petition as the respondent says that in the meantime he can arrange for his debts to be discharged.

I certify that the preceding twenty nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice von Doussa.

Associate:

Counsel for the Applicant:	Mr A S Clare
Solicitor for the Applicant:	Mellor Olsson
Counsel for the Respondent:	Mr W H Hall
Solicitor for the Respondent:	W H Hall
Date of Hearing:	18 October 1999
Date of Judgment:	18 October 1999