Australian Independent Rural Retailers Pty Ltd v Kennedy

[2017] FCCA 159

FEDERAL CIRCUIT COURT OF AUSTRALIA

AUSTRALIAN INDEPENDENT RURAL RETAILERS PTY LTD v KENNEDY & ANOR [2017] FCCA 159

Catchwords:
BANKRUPTCY – Sequestration order – application to review a decision of a registrar – whether the petitioning creditor agreed to extend time for payment – whether the court should go behind the judgment – whether the bankrupts notified the petitioning creditor that one of them was now trading as a company rather than a partnership – whether the bankrupts had a counterclaim – whether the petitioning creditor was entitled to stop supply.

Cases cited:
Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616

Applicant:

AUSTRALIAN INDEPENDENT RURAL RETAILERS PTY LTD

ACN 112 308 835

First Respondent: JASON KENNEDY

Second Respondent: WARREN KENNEDY

File Number: MLG 853 of 2016

Judgment of: Judge Riley

Hearing date: 28 October and 14 November 2016

Date of Last Submission: 5 December 2016

Delivered at: Melbourne

Delivered on: 2 February 2017

REPRESENTATION

Counsel for the Applicant: Peter Fary

Solicitors for the Applicant: MCC Legal

Advocate for the First Respondent: Glenn Ping Kee

Solicitors for the First Respondent: APJ Law

Advocate for the Second Respondent: Glenn Ping Kee

Solicitors for the Second Respondent: APJ Law

ORDERS

1. The application filed on 13 July 2016 to review a decision of a registrar made on 23 June 2016 is dismissed.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 853 of 2016

AUSTRALIAN INDEPENDENT RURAL RETAILERS PTY LTD

ACN 112 308 835

Applicant

And

JASON KENNEDY

First respondent

And

WARREN KENNEDY

Second respondent

REASONS FOR JUDGMENT

Introduction

1. This is an application to review a decision of a registrar who made a sequestration order against the estates of two debtors on 23 June 2016.  The sequestration order was based on the failure of the two debtors to comply with a bankruptcy notice, which, in turn, was based on a default judgment from the Magistrates’ Court at Shepparton.  The debtors did not appear at the hearing of the sequestration order. 

2. The application for review requires a hearing de novo.  As such, it is a matter for the petitioning creditor to re-establish to the court’s satisfaction that it is appropriate for the estates of the two bankrupts to be sequestrated.  The petitioning creditor provided the formal proofs. 

3. The debtors appeared unrepresented at the final hearing on 28 October 2016.  On that day, the court determined, for reasons given orally at the time, that it was not appropriate to go behind the judgment.  The hearing was not able to be completed on that day, because the bankrupts had not given notice that they wished to cross-examine a witness, Ms Olivia Curtis, and she was not available on that day.  The matter was adjourned part-heard to 14 November 2016.  The debtors sought and were granted leave to appear by telephone on 14 November 2016, after some discussion about the limitations of conducting a cross-examination in that way.

4. On 14 November 2016, a solicitor, Mr Glenn Ping Kee, appeared on behalf of the debtors.  The hearing proceeded by telephone.  In addition, Mr Ping Kee sought and was granted leave to file and serve further affidavits and written submissions by 28 November 2016 on the question of whether the court should go behind the judgment to determine whether the debt was really owed by Warren Kennedy.  In effect, Mr Ping Kee was given leave to raise a new point about whether the court should go behind the judgment.  The petitioning creditor indicated that it did not wish to cross-examine on the further bankrupt’s further affidavits.  The applicant was given leave to file and serve further written submissions.  The decision of the court was otherwise reserved.

5. The oral reasons given by the court on 14 November 2016, somewhat revised, are incorporated in these reasons, at paragraphs 47 to 59.

Grounds of opposition

1. The debtors oppose the application for the sequestration order on three grounds.  The first is that they say that, following the service of the bankruptcy notices, the second bankrupt spoke to an officer of the petitioning creditor’s company and the officer of the petitioning creditor’s company agreed that they would do nothing for six months.  The petitioning creditor did, in fact, proceed to issue the creditor’s petition within that six month period.

2. The second ground of opposition is that it is said that the petitioning creditor sued the wrong party.  The bankrupts say they are brothers and had been in a partnership.  However, they say that they notified the petitioning creditor that they had formed a company and that the debt the subject of the bankruptcy notice, in fact, was a liability of the company rather than of themselves as individuals in partnership. 

3. The third ground of opposition to the sequestration order is that the bankrupts’ company, Jaswar Pty Ltd (“Jaswar”), ACN 164 471 078, is said to have a counter-claim against the petitioning creditor. 

Background

1. A complaint was lodged in the Magistrates Court of Victoria in Shepparton on 6 October 2015 by the petitioning creditors against the bankrupts. The amount claimed was $45,755.98 plus costs and interest.

2. Two affidavits of service were sworn by Robert Colin Lloyd on 22 October 2015 confirming personal service of the complaint on Jason Kennedy at lot 4 Brissett Street, Inverell NSW and service upon Warren Kennedy by leaving the complaint at the same address with Jason Kennedy.

3. Default judgment was entered on 6 January 2016 against the debtors in the amount of $49,291.13, consisting of the debt of $45,755.98 plus $1,107.55 in interest and $2,427.60 in costs.

4. There were two affidavits of service sworn by Rodney Smith on 26 February 2016 confirming personal service of bankruptcy notice no. 188221 on Warren Kennedy on 24 February 2016 at 4/164 Ashford Road, Inverell NSW and on Jason Kennedy on 24 February 2016 at 11 Brissett Street, Inverell NSW.

5. A creditor’s petition was filed in this court on 27 April 2016.

6. There were two affidavits of service sworn by Chris Farmer on 9 May 2016 confirming personal service of:

   a)the creditor’s petition;

   b)an affidavit of Mary Gareski;

   c)the two affidavits of service of the bankruptcy notice sworn by Rodney Smith; and

   d)the Trustee’s Consent to Act Declaration

   on Jason Kennedy and Warren Kennedy at 3/15 Byron Street Inverell, NSW.

7. A sequestration order was made by Registrar Caporale on 23 June 2016.

The current application

1. The current application to review the Registrar’s sequestration order made 23 June 2016 was filed on 13 July 2016. The debtors also filed two affidavits in support, one from Jason Kennedy, sworn on 12 July 2016, and one from Warren Kennedy, sworn on 14 July 2016.

2. The petitioning creditors filed a response on 6 September 2016 and relied on the affidavits of:

   a)Carol Angela Law, sworn on 6 September 2016;

   b)Olivia Curtis, sworn on 5 September 2016; and

   c)Bruce Morrison, sworn or affirmed on 7 September 2016.

3. Orders were made on 9 August 2016 with directions for filing material and adjourning the matter for final hearing on 28 October 2016.

The first ground: agreement not to proceed for six months

1. Warren Kennedy said that he spoke to an officer of the petitioning creditor’s debt collection agency, Olivia Curtis, who agreed that the creditor would take no action against him or his brother for six months.  In the affidavit sworn by Warren Kennedy on 12 July 2016, he stated that the following conversation took place between him and Ms Curtis on or about 22 February 2016:

   Warren“Is there anything we can do?”

   Olivia“The options you’ve got is pay the amount in full or make a payment arrangement. It would have to be paid by end of August because September is when it gets filed. So it doesn’t matter if it gets paid as a weekly thing or a monthly thing as long as it is paid by the start of September”

   Warren“I don’t even know why your chasing me for, I haven’t had anything to do with that company since 2013”

   Olivia“Doesn’t matter you signed the agreement”

   Warren“Don’t move anything forward, I will try and get this rectified as fast as I can. I will speak with Jason and get back to you”

2. Warren Kennedy further stated in his affidavit that he telephoned Ms Curtis about a week later, and they had the following conversation:

   Warren: “We haven’t figured out the amounts but we will try to have it all sorted out by the end of August.  Probably fortnightly payments.”

   Olivia: “No worries Warren, thanks for talking to me.  You have six months.  If you have any more questions or queries, give me a call.”

3. Warren Kennedy said that he received documents in relation to the sequestration order in May 2016.

4. Ms Curtis, in her affidavit sworn on 5 September 2016, stated that she had a conversation with Warren Kennedy on 2 March 2016 in which she said:

   I can hold the account for seven days but if you want to avoid a creditor’s petition, the balance of the account would need to be cleared within 6 months.

5. Ms Curtis further stated in her affidavit that she had another conversation with Warren Kennedy on 15 March 2016 which was as follows:

   WK:“I am still arranging finances and would be looking to make fortnightly payments”

   OC:“We would require any payment in full within 6 months and expect to have a payment arrangement in place by the end of the week.”

6. Ms Curtis exhibited to her affidavit computerised file notes relating to the debt the subject of this proceeding.  The notes had a number of abbreviations, but with the abbreviations expanded, the notes said:

   2/3/16… Advised [Warren] can hold the account 7 days – advised that to avoid a possible creditor’s petition we need the balance cleared within 6 months.

   15/3/16Debtor rang – confirmed with Warren we would require amount paid in full within 6 months.  … Warren advised still looking at finances – advised would expect a payment arrangement to be put forward by the end of the week so we can take to [the petitioning creditor] for their instruction – … Warren advised they would be looking at fortnightly payments … .

7. During cross-examination on 28 October 2016, Warren Kennedy accepted that Ms Curtis said, on or about 2 March 2016:

   I can hold the account for seven days but if you want to avoid a creditor’s petition, the balance of the account would need to be cleared within 6 months.

8. Warren Kennedy said in cross examination that he understood he was discussing with Ms Curtis in that conversation whether the debt would be paid in instalments or whether the whole debt would be paid in six months.  He initially agreed that he understood that he needed to come back to Ms Curtis with a proposal about how he would pay off the debt within the six month period.  However, he then expressed some doubt about that.

9. During cross-examination on 28 October 2016, Warren Kennedy said that he did not recall Ms Curtis saying, on or about 15 March 2016:

   We would require any payment in full within 6 months and expect to have a payment arrangement in place by the end of the week.

10. Ms Curtis said in cross-examination on 14 November 2016 by Mr Ping Kee that:

    a)she had worked in debt collection for nine years;

    b)the offer of six months to pay the total debt was subject to an acceptable payment arrangement being put in place by the end of the week of 15 March 2016;

    c)she did not believe that she said to Warren Kennedy that it did not matter if payments were made weekly or monthly provided that the total was paid off in six months;

    d)she would not have accepted a payment arrangement without going back to her client, the petitioning creditor.

11. I note that 15 March 2016 was a Tuesday and the end of the week was Friday 18 March 2016.

12. It was not put to Ms Curtis that her oral evidence was inaccurate or that the file notes exhibited to her affidavit were inaccurate.  However, she did explain that there had been some redactions. Another witness, the solicitor for the petitioning creditor, gave oral evidence that the redactions concerned legal advice to the petitioning creditor.

13. The bankruptcy notices were personally served on Jason Kennedy and Warren Kennedy on 24 February 2016. Their argument is that, before the time for compliance with the bankruptcy notices, being 16 March 2016, they entered into an agreement with the petitioning creditor that gave them six months to pay the debt.

14. The petitioning creditor submitted that Warren Kennedy unequivocally accepted in cross-examination that an agreement was not made during his first telephone conversation with Ms Curtis on 2 March 2016.  That submission does not entirely accord with the evidence.  What Warren Kennedy actually said in relation to the first conversation with Ms Curtis was (Tr. p.69, l.48):

    Can I suggest to you that you also understood that you needed to come back to Olivia with a proposal as to how the debt would be paid within the six month period? --- Yes.

    Did you understand that to be the case? --- … to a proposal as in whether we would do it weekly ---

    Timing, amounts? --- Timing, amounts – I’m just trying to recall the conversation. I don’t know.

15. Taking into account all of the evidence, including my observation of the witnesses giving their evidence, I consider that Warren Kennedy did understand on 2 March 2016, as he initially admitted, that he needed to come back to Ms Curtis with a proposal for the payment of the debt within the six month period.  Clearly, he did ring Ms Curtis again to speak about the debt on 15 March 2016, and said that he and his brother were still looking at finances.  It would be strange for him to have made that call and said that he was still looking at finances if he thought he already had an arrangement in place for the payment of the debt in six months time.

16. Also, it would have been strange for an experienced debt collector such as Ms Curtis to agree to the arrangement that Warren Kennedy now claims, especially without approval from the petitioning creditor.

17. Moreover, Ms Curtis’s version of events is supported by her file notes.  She gave her evidence in a clear and confident manner and appeared to have a good recall of the events in question.  Warren Kennedy’s version of events is only supported by his own recollection.  However, he said himself that he was under a lot of stress at the time, trying to establish a new business.  He said (Tr. p.72, l.22):

    … you could have told me there were pink elephants running down the street and I would have believed you.  I – I had that much on my mind and on my plate at the time.  And trying to remember – I just remember the name of the – of the – the lady that I spoke to, which was Olivia.  I recall parts of the first conversations and parts of the second conversation.  And I’m doing my best to recollect what was said.

18. On his own admission, Warren Kennedy’s recollection of the relevant conversations was not good. 

19. The bankrupts placed emphasis on the fact that Ms Curtis did not send any written confirmation of the arrangement.  However, that is consistent with there having been no concluded arrangement.

20. The bankrupts also placed emphasis on the fact that Ms Curtis did not advise Jason Kennedy of the requirement for an arrangement to be put in place by the end of the week.  However, it was up to Jason Kennedy to take such steps as he saw fit to ensure compliance with the bankruptcy notice.  As he apparently left it to Warren Kennedy to negotiate the payment, it was up to Jason Kennedy to satisfy himself that appropriate steps had been taken.

21. I consider that this ground is without substance.

The second ground: part a: wrong party sued

1. The first part of the bankrupts’ second ground of opposition is that they said that the petitioning creditor sued the wrong party.  The bankrupts said that they are brothers who had been in a partnership.  However, they say that they notified the petitioning creditor that they had formed a company and that the debt the subject of the bankruptcy notice, in fact, was a liability of the company rather than of themselves as individuals.

2. The second ground is, in effect, an attempt to go behind the judgment on which the bankruptcy notice was based.  The judgment was a judgment of the Magistrates Court of Victoria at Shepparton made on 6 January 2016.  It was against the two debtors trading as Inverell Rural Supplies.  Inverell, apparently, is a town in northern New South Wales.  The judgment also said that it was for goods sold and delivered. The debt was $45,755.98, plus $1,107.55 for interest, and $2,427.60 for costs, making a total of $49,291.13 owing.  The judgment was a default judgment.

3. There are two affidavits of service sworn by Robert Colin Lloyd on 22 October 2015 which show that the complaint giving rise to that judgment was personally served on one of the debtors, Jason Kennedy, on 21 October 2015 and was served on the second debtor, Warren Kennedy, by delivery to Jason at Warren’s place of business on 21 October 2015, Jason appearing to the process server to be a person over the age of 16 years. 

4. The debtors told the court that they had a relationship with the petitioning creditor which involved the petitioning creditor providing goods on credit to Inverell Rural Supplies, which the debtors initially operated as a partnership.  They said that they incorporated Jaswar Pty Ltd (“Jaswar”), which became the holder of the business name “Inverell Rural Supplies” and, consequently, Jaswar became the contracting party.

5. This second ground of opposition to the sequestration order is essentially saying that the judgment should not have been entered against the bankrupts, but against Jaswar.  Gordon J, sitting in the Federal Court, said in Yarranova Pty Ltd v Shaw (No 2) [2014] FCA 616 at paragraph 69:

   The principles for going behind a judgment were summarised by Robertson J in Xu v Wan Ze Property Development (Aust) Pty Ltd (in liquidation) [2014] FCA 61 at [55]ff. The applicable principles may be summarised as follows:

   1.The Court may, in an appropriate case, go behind a judgment to see whether in truth and reality a debt is due from the judgment debtor to the judgment creditor: Corney v Brien (1951) 84 CLR 343 and Wren v Mahony (1972) 126 CLR 212.

   2.An appropriate case may include where a judgment debt that has been obtained by fraud or collusion or where there has been some miscarriage of justice: Corney at 347-348 and 352-353 and Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 588.

   3.If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out: Corney at 356.

   4.The enquiry involved is a two stage process enquiring (1) as to whether there is sufficient reason to question the existence of a real debt behind the judgment and (2) if there is, determining that issue. These two steps may be determined together or independently: Makhoul v Barnes (1995) 60 FCR 572 at 584 and Wolff v Donovan (1991) 29 FCR 480.

6. The petitioning creditor asked the court to deal with the bankrupt’s second argument as a preliminary and separate issue. I accepted that submission and dealt with the preliminary issue on 28 October 2016. I delivered my reasons orally on that day, which are substantially as follows. 

7. The history of the matter is that the two bankrupts signed an account application with the petitioning creditor on 16 August 2009.  That included an agreement to a guarantee and an indemnity, a privacy statement and various conditions on which credit was to be provided. 

8. Inverell Rural Supplies later applied for an increased credit limit, on 29 October 2009, which was granted.  A further agreement between the bankrupts and the creditor was entered into on 17 August 2010.  It is a more substantial legal document than the first agreement and, again, it includes a guarantee and an indemnity.  It runs to over 20 pages and has all the appearance of an entirely formal legal agreement.

1. The bankrupts say that, notwithstanding that agreement, they, in effect, novated that contract by advising the petitioning creditor that they had commenced trading as a corporation.  The first bankrupt, Jason Kennedy, said in an affidavit filed in these proceedings that he had a conversation with a woman called Carol, who he understands to have been responsible for accounts receivable for the petitioning creditor, and who was married to the person in charge of the petitioning creditor.  Jason Kennedy claimed that he told Carol in early June 2013:

   We are changing into a company. It should be going from the first of July so we meet the new financial year.

2. Jason Kennedy said in his affidavit that he spoke to Carol again, somewhat later, and said:

   We’ve now formed into a company.

3. Carol, according to Jason Kennedy, replied:

   That’s good, keep on top of your cash flow and debtors. 

4. Jason Kennedy also said in the same affidavit that, in 2014, he attended a convention organised by the petitioning creditor where there was a person by the name of Bruce Morrison, who is possibly an agent of some description for the petitioning creditor.  Jason Kennedy said that he told Bruce Morrison that he was in one business and his brother Warren was in another.

5. The other item of evidence that the bankrupts rely upon is their purchase orders.  There are two in the court book.  One is dated 14 June 2013 (CB 80), prior to the incorporation of Jaswar, and is addressed to the supplier, being the petitioning creditor.  The purchase order says in large letters “Inverell Rural Supplies”, which was the trading name of the two bankrupts in partnership.  It then has a particular ABN number (62 192 303 122) in very small font under it and the address, telephone and fax number of the business.  The second purchase order (CB 81) is dated 17 July 2013, about one month later, and it looks almost identical.  It continues to have the name “Inverell Rural Supplies” in bold lettering.  It has the same address, telephone number and fax number, but it has a different ABN (86 164 471 078) and after a slash has another number (164 471 078), which I am told is the ACN of Jaswar, although it is not specified to be an ACN.

6. The bankrupts say that these matters amounted to sufficient notice that they were now a separate legal entity and that any stock ordered after no later than 17 July 2013 was the responsibility of their company, Jaswar, rather than the responsibility of themselves as individuals in a partnership.  The amount that is the subject of the judgment in this case I am told accrued from December 2014 onwards. 

7. Dealing with this issue as a preliminary question and taking the bankrupts’ evidence at its highest, the petitioning creditor submitted that two conclusions are available.  One is that the partnership continued as the contracting party and the other is the partnership continued to contract for an undisclosed principal, being Jaswar.  The bankrupts said that the petitioning creditor had the responsibility of sending them another credit application once they told Carol and Bruce that they were now a company.  The petitioning creditor said that it was really the responsibility of the bankrupts to formally notify the petitioning creditor that they were no longer conducting their business as a partnership and at least the retiring partner should have formally notified the petitioning creditor of that fact.

8. I am not persuaded by the bankrupts’ arguments.  It seems to me that, even dealing with this matter on a preliminary basis and taking the bankrupts’ case at its highest, they did not effectively notify the creditor that they were now doing business through a company structure and no longer doing business through their partnership.  The formality of the credit agreements that they had entered into is very striking.  It is clear that a reasonable expectation would have been that a new credit agreement would have been prepared by the petitioning creditor for any supplies to Jaswar, following an assessment of Jaswar’s credit worthiness.  Consequently, the doctrine of undisclosed principal cannot apply in this case to substitute a new purchaser.  In any event, the doctrine of undisclosed principal would mean that the bankrupts would be liable, as agents, in addition to Jaswar, as principal.

9. The bankrupts, it seems to me, were mistaken in thinking that it was entirely the responsibility of the petitioning creditor to arrange for the appropriate paperwork to be provided to them.  The fact is that they had a particular agreement in their personal capacities with the petitioning creditor.  To change that agreement, something clear and definite needed to be done by them.  In the absence of something clear and definite on their part, the petitioning creditor was entitled to assume that the previous arrangement was continuing.  I accept the petitioning creditor’s submission that, in a legal sense, the petitioning creditor was entitled to proceed on the basis that the partnership continued with the two bankrupts as the contracting parties.

10. Moreover, the contract between the petitioning creditor and the debtors could not have been novated because there was no express consent, and the circumstances do not support an implied consent. The circumstances are, particularly, that the contract was a credit contract that had been entered into with the debtors on a very formal basis. It is therefore not plausible that the petitioning creditor would have agreed to supply credit to a new entity without any formality at all.

11. Consequently, it seems to me that there is no need in this case for the bankrupts’ second ground to be further ventilated.  I reject it at this point.  The bankrupts’ second ground is not a sufficient reason to go behind the judgment.

The second ground: part b: dissolution of partnership

1. At the resumed hearing on 14 November 2016, Mr Ping Kee raised a further reason to go behind the judgment.  He argued that Warren Kennedy was not properly served with the Magistrates’ Court complaint.  That was because Warren Kennedy was not personally served, but was purportedly served by delivery of the documents to Jason Kennedy at Warren Kennedy’s supposed place of business, which, in Mr Ping Kee’s submission, was not in fact Warren Kennedy’s place of business.

2. However, there was discussion at the hearing on 14 November 2016 to the effect that issues concerning service of the underlying complaint do not warrant going behind the judgment.  That is because the question for the court to determine in deciding whether or not to go behind the judgment is whether there is sufficient cause to have a hearing on whether the debt exists in truth and reality.  Service issues are technical and procedural and do not go to the merits of whether there was in truth and reality a debt. 

3. The bankrupts appear to have accepted this, because their written submissions filed on 28 November 2016 did not press the service issue.

4. However, the bankrupts’ written submissions did contend that there were solid grounds for going behind the judgment against Warren Kennedy in this case.  Those grounds were said to be that:

   a)the partnership between Jason Kennedy and Warren Kennedy was dissolved in or around June 2013;

   b)its functions were taken over by Jaswar;

   c)Jaswar was conducted by Jason Kennedy and not Warren Kennedy; and

   d)the debt the subject of these proceedings accrued after December 2014.

5. Even if the court were to accept that the partnership had been dissolved, it does not overcome the problem that Warren Kennedy did not give adequate notice to the petitioning creditor.  The credit agreement dated 16 August 2009 stated that the customer, the bankrupts in this case:

   d/ Must notify AIRR in writing of any change which affects the trading address, ownership or management control of the customer, within 7 days of the change becoming effective (emphasis added)

6. The further agreement dated 17 August 2010 stated that:

   8.1 Termination by a party

   Either AIRR or the Associated Retailer may terminate this agreement by three (3) months’ written notice to the other, or such other period of notice as AIRR and the Associated Retailer may agree in writing. (emphasis added)

   …

   14.1 Notices

   Any notice given by a party pursuant to this agreement must be in writing … (emphasis added)

7. The bankrupts did not claim to have given any notice in writing to the petitioning creditor, except that the purchase orders began to have Jaswar’s ABN and ACN on them, in very small font.  The change in those details on the purchase orders was wholly inadequate as notice of a change in the entity with which the creditor was contracting.  The oral communications with Bruce and Carol did not meet the requirement of written notice.

8. Consequently, it is immaterial that the partnership may have dissolved.  There was no adequate notice to the creditor of the dissolution of the partnership. This point does not warrant the court going behind the judgment.

The third ground

1. The third ground of opposition to the sequestration order is that the debtors’ company, Jaswar, ACN 164 471 078, is said to have a counter-claim against the petitioning creditor.  That counterclaim was said to arise from the petitioning creditor ceasing to supply Jaswar, contrary to the supply agreement between the petitioning creditor and the bankrupts.

2. As discussed at the hearing, it is irrelevant that Jaswar might have a counterclaim against the petitioning creditor.  What is required is a counterclaim to which one or both of the bankrupts is entitled.

3. The bankrupts apparently accepted that.  However, in the post-hearing written submissions prepared by Mr Ping Kee, the bankrupts argued that, because the petitioning creditor stopped supplying the bankrupts, Jaswar had a cause of action against Jason Kennedy for:

   a)breach of contract;

   b)breach of directors duty;

   c)tort of misrepresentation;

   d)tort of negligence; or

   e)breach of agency and fiduciary obligations,

   and Jason Kennedy had a claim in the same amount against the petitioning creditor.

4. The petitioning creditor relied on the following terms of the agreements between it and the bankrupts:

   i)Clause 3f of the Terms and Conditions of Credit Application: [The] Customer acknowledges that AIRR may at any time in its discretion, decrease, withdraw or otherwise limit the amount or duration of credit extended to [the] Customer whether generally or for any other transactions;[1]

   ii)Clause 3.2 of the Terms and Conditions of Sale: Unless otherwise required by AIRR, all invoices must be paid by the 25th day of the following month in which the invoices were rendered;[2]

   iii)Clause 3 of the Associated Retailer Agreement Standard Terms and Conditions: Unless otherwise determined by AIRR payment for the Goods must be made in full by the 25th day of the month after delivery. The time within which the Purchaser must pay is of the essence of this contract. If payment is not made in accordance with this clause the Purchaser must pay to AIRR, in addition, the service fee (calculated by AIRR by reference to the loss to AIRR arising out of late payment) prescribed from time to time by AIRR, which service fee is payable by the Purchaser to AIRR on demand. The Purchaser must also pay all costs and charges incurred by AIRR for collection of overdue accounts.[3]

   iv)Clause 5 of the Associated Retailer Agreement Standard Terms and Conditions: Should default be made by the Purchaser in paying any monies due under this or any other contract with AIRR as and when they become due AIRR may suspend all further deliveries until the default has been made good or may terminate the contract with regard to future deliveries. AIRR reserves the right to amend its terms and conditions of supply to a COD basis until any and all defaults are remedied. [4]

   [1] CB27

   [2] CB27

   [3] CB58

   [4] CB59

5. The bankrupts accepted that they were in default in November 2014 and accepted that the petitioning creditor was entitled to suspend deliveries at that time.  It was common ground that the petitioning creditor suspended deliveries to the bankrupts on 1 December 2014.  However, the bankrupts claimed that on 12 December 2014, Jaswar made payment in full and “all accounts were made good.”

6. The petitioning creditor argued that the bankrupts had not brought their account out of arrears, and consequently, the petitioning creditor was entitled to stop supply.  The petitioning creditor said in its written submissions that:

   i)Each statement shows:

   1.opening balance for the current month, which is also the closing balance for the previous month;

   2.overdue charges from the previous month, which were due by the 25th day of the current month;

   3.current charges due by the 25th day of the following month;

   4.terms account charges for purchases which a supplier allows extended terms to pay.

   ii)The statement issued 30 November 2014 had:[5]

   1.opening balance of $63,850.45, also being the closing balance as at 31 October 2014;

   2.overdue charges of $23,850.45 due by 25 November 2014;

   3.current charges of $66,662.25 due by 25 December 2014 (or next business day);

   4.closing balance of $95,511.10.

   [5] CB92-94

   iii)The statement issued 31 December 2014 had: [6]

   [6] CB271-272

   1.an opening balance of $95,511.10, also being the closing balance as at 30 November 2014:

   2.overdue charges of $62,438.25 due by 25 December 2014;

   3.current charges of $26,451.10 due by 25 January 2015.

   iv)Payments totalling $63,850.45 were received in satisfaction of charges incurred in October 2014 and due by 25 November 2014, as follows:

   1.$40,000.00 on 29 November 2014; [7]

   2.$10,000.00 on 10 December 2014;[8]

   3.$13,850.00 on 12 December 2014.[9]

   v)The creditor continued to trade with the bankrupts in November and December 2014 however the bankrupts did not pay all arrears owed by 25 December 2014 to avoid a further stop trade.[10]

   vi)The aged receivables report is a snapshot of arrears at current and then at 30-day periods the account is overdue. The opening balance in each column is carried over from the previous month and the current charges (and interest) in the next column is due on the 25th day of that month. This report also shows the bankrupts did not bring the account out of arrears.[11]

   [7] CB94

   [8] CB272

   [9] CB272

   [10] CB184, 271-272

   [11] CB280

7. I accept the petitioning creditor’s submissions on this point.  In particular, the aged debts statement at CB280 shows that there was no point between September 2014 and June 2015 when the bankrupts did not have amounts outstanding in the 60, 90 or 120 day columns.  I take it from this that the bankrupts had not complied with the requirement to pay all accounts within 25 days.  Consequently, the petitioning creditor was entitled to stop supplying the bankrupts.  Therefore, the petitioning creditor would not be liable for any claim Jaswar might have against the bankrupts or either of them.

Conclusion

1. As none of the bankrupt’s grounds has been made out, the application to review the sequestration order against the bankrupts will be dismissed.  I will hear the parties on the question of costs.

I certify that the preceding seventy-five (75) paragraphs are a true copy of the reasons for judgment of Judge Riley

Date:     2 February 2017