BMW Australia Finance Ltd v Richmond

Case •

[2008] FMCA 1431

•

25 September 2008

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BMW AUSTRALIA FINANCE LTD v RICHMOND [2008] FMCA 1431
BANKRUPTCY – Creditor’s petition – substituted creditor – opposition to petition on the ground that at the date of the original bankruptcy the debt was not in existence, liquidated and owing – debtor claims to be in a position to pay all debts he owes within a reasonable time – grounds of opposition dismissed – sequestration order made.
Bankruptcy Act 1966 (Cth), ss.5(2), 47, 52, 156A
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.4.02(3), 4.04(1), 4.05
Ahearn, Re; Ex parte Palmer (1906) 6 SR (NSW) 576
Australia & New Zealand Banking Group Ltd v Coutts [2003] FCA 968
Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400
Bell v Galynski & King Loft Extensions (1974) 2 Lloyd SLR
Commonwealth of Australia v Verwayen (1990) 170 CLR 394
Con-Stan Industries v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940) 40 SR (NSW) 598
General Motors Acceptance Corporation Australia v Marshall (2002) 124 FCR 210
International Alpaca Management Ltd v Ensor [1999] FCA 72
Little Creatures Brewing Pty Ltd v Bordin [2006] FMCA 302
Re Goldberg; Ex parte Law Society of New South Wales (1988) 82 ALR 271
Re Sarina; ex parte Wollondilly Shire Council (1980) 30 ALR 266
Sandell v Porter (1966) 115 CLR 666
Stankiewicz v Plata [2000] FCA 1185
Walton Stores (interstate) Ltd v Maher (1988) 164 CLR 387
Yorkshire Insurance Co Ltd v Craine (1992) 31 CLR 27

Odgers’ Principles of Pleading and Practice in Civil Action in the High Court of Justice, 20th edition, 1971

Applicant: BMW AUSTRALIA FINANCE LTD
Respondent: ROSS CAMERON RICHMOND
File number: SYG 2766 of 2006
Judgment of: Lloyd-Jones FM
Hearing dates: 24 September 2008 & 25 September 2008
Delivered at: Sydney
Delivered on: 25 September 2008

REPRESENTATION

Counsel for the Applicant: Mr S.J. Walsh
Solicitors for the Applicant: Bartier Perry Solicitors
Counsel for the Respondent: Ms L McBride
Solicitors for the Respondent: LJ Rickard Solicitor

ORDERS

  1. The Notice Stating Grounds of Opposition to Petition filed in Court on 24 September 2008 is dismissed.

  2. A sequestration order be made against the estate of Ross Richmond Cameron.

  3. The applicant creditor’s costs, including reserved costs if any, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

  4. Under the Bankruptcy Regulations 1996 (Cth) a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.

  5. The sequestration order made against the estate of Ross Cameron Richmond on 25 September 2008 be stayed for 21 days pursuant to s.52(3) of the Bankruptcy Act 1966 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2766 of 2006

BMW AUSTRALIA FINANCE LTD

Applicant

And

ROSS CAMERON RICHMOND

Respondent

REASONS FOR JUDGMENT

The proceedings

  1. By Creditor’s Petition, the substituted creditor, BMW Australia Finance Ltd (“BMW”), seeks a sequestration order against the estate of the debtor, Ross Cameron Richmond.  Mr Richmond opposes the making of the sequestration order firstly, that on the date of the original act of bankruptcy the debt was not in existence, liquidated and owing.  Secondly, that he was in a position to pay all the debts owed within a reasonable time.

History

  1. The original Creditor’s Petition filed on 25 September 2006 listed the applicant as Justin Kang & Ors (trading as Dibbs Barker Gosling) and being those persons named in Annexure “A” of the Petition, which is a partnership trading as Dibbs Abbott Stilman (formerly Dibbs Barker Gosling).  On 27 March 2007 Dibbs, Barker Gosling settled its case with Mr Richmond and as a result Bay Bon Investments Pty Ltd and Langley & Burley ATF Bag Bon Superannuation Fund was substituted as the creditor in these proceedings on 3 April 2007. On 28 August 2007, Hedge R made orders that the Deputy Commissioner of Taxation be substituted as creditor in the proceedings.  On 15 August 2008, I made orders substituting BMW as the applicant creditor. 

  2. On 6 May 2008, Hedge R referred the matter to this Court to hear a “Notice Stating Grounds of Opposition to Petition” filed on 29 April 2008 by Mr Richmond.  At that stage the Deputy Commissioner was the petitioning creditor.  The supporting affidavit filed by Mr Richmond indicated that he was in the process of preparing a notice of objection in respect of the income tax debts which the Australian Taxation Office (ATO) claimed her owed for 1999, 2000 and 2001.  The matter was adjourned to 17 June 2008 for argument.  The affidavit of John Rickard filed on 17 June 2008 sets out the background of the dispute between Mr Richmond and the ATO.  The nature of that application was that the proceedings be adjourned until there was a ruling in respect of the application for an extension of time to lodge the notice and the objection.  The extension of time was granted and the matter was adjourned to 15 August 2008 for directions.

  3. On 15 August 2008, solicitors for the Deputy Commissioner informed the Court that Mr Richmond had lodged an appeal with Administrative Appeals Tribunal in respect to the notice of decision which the Deputy Commissioner issued on 16 June 2008. Mr Le’s instructions were to withdraw and BMW sought to be substituted as the petitioning creditor pursuant to s.49 of the Bankruptcy Act 1966 (Cth) (“the Act”). The matter was adjourned to 24 September 2008, being the day prior to the expiry of the Creditor’s Petition, which was initially filed on 25 September 2006. On 28 August 2007, the Creditor’s Petition was extended to 25 September 2008, the maximum period for a Petition pursuant to s.52(5) of the Act.

New Notice of Opposition

  1. At the commencement of the hearing on 24 September 2008, Ms McBride appeared for Mr Richmond and sought to file a Notice Stating Grounds of Opposition to Amended Creditors Petition which stated:

    1. The requirements of section 44(1) of the Bankruptcy Act, 1966 have not been satisfied. On 27 June 2006, the date of the original act of bankruptcy, the debt to the applicant was not in existence, liquidated and owing. On the 26 June 2006 the applicant entered into another arrangement with the respondent and accepted and banked a payment of $500 on 27 June 2006 in composition of the debt.

    2. The court should exercise its discretion under section 52(2) of the Bankruptcy Act 1966 and not make a sequestration order because the original act of bankruptcy on which the Amended Creditors Petition is based occurred two (2) years and three (3) months ago and the Respondent is in a position to pay all the debts he owes within a reasonable time section 52(2)(a).

    3. The respondent is solvent within the meaning of section 5(1) of the Bankruptcy Act 1966.

  2. A supporting affidavit of Mr Richmond sworn on 23 September 2008 was also tendered which set out his financial affairs with supporting documentation. 

  3. No formal objection was raised to Mr Richmond’s application, however Mr Walsh appearing for BMW indicated that he had been taken by surprise and was not notified of the new application.  Consequently, I adjourned the hearing to the next morning to allow for the preparation of submissions.

Evidence

  1. The following evidence was filed by the creditors in these proceedings:

    a)Creditor’s Petition (filed 25 September 2006);

    b)Affidavit of Service of Bankruptcy Notice sworn by Kris Sabatino on 8 June 2006 (filed 25 September 2006);

    c)Affidavit of Service of Creditor’s Petition sworn by Kris Sabatino on 27 December 2006 (filed 19 January 2007);

    d)Amended Creditor’s Petition (filed 15 September 2008) and an Affidavit Verifying Creditor’s Petition sworn by Natasha Marchese on 11 September 2008;

    e)Affidavit Verifying Paragraph 4 of Creditor’s Petition sworn by Snezana Roskov on 15 September 2008;

    f)Affidavit of Search sworn by Snezana Roskov on 25 September 2008;

    g)Affidavit of Debt sworn by Natasha Marchese on 25 September 2008;

    h)Consent to Act and Trustee Declaration signed by Max Donnelly dated 6 September 2007;

    i)Affidavit of Cherrie Homer sworn 22 August 2008:

    Annexure “A” – Alphera Financial Services, Prestige Purchase Agreement BMW Group Financial Services

    Annexure “B” – BMW Group Financial Services – Transaction Inquiry, Loan 462912, Ross Cameron Richmond

    Annexure “C” – letter to Ross Cameron Richmond dated 14 September 2008

    Annexure “D” – Alphera Financial Services letter to Ross Cameron Richmond dated 6 August 2007

  2. The following evidence was filed by the respondent:

    a)Affidavit of Ross Cameron Richmond sworn 23 September 2008;

    b)Exhibit “R1” – file note of Roland George;

    c)Exhibit “R2” – letter from Alphera Financial Services to Mr Richmond dated 11 September 2007

    d)Exhibit “R3” – letter from Alphera Financial Services to Mr Richmond dated 5 December 2007 – final demand

    e)Exhibit “R4” – Alphera Financial Services, Prestige Purchase Agreement – Standard Terms and Conditions

    f)Exhibit “R5” – Annexure “E”, Choice Properties Pty Ltd liabilities

Consideration

No liquidated sum due and owing

  1. The act of bankruptcy relied upon by BMW is Mr Richmond’s failure to comply with the Bankruptcy Notice NN 1974/06 served on 6 June 2006. The date of the relevant act of bankruptcy was 27 June 2006, being 21 days after the service of the Bankruptcy Notice. For the purposes of s.44 of the Act, BMW must show that there was, as at the date of the act of bankruptcy:

    a)A debt of at least $2,000; and

    b)That the debt:

    i)is a liquidated sum due; and

    ii)is payable either immediately or at a certain future date.

    The debt was incurred pursuant to a hire purchase agreement entered into between the parties on 17 February 2005 and identified as a “Alphrera Financial Services, Prestige Purchase Agreement” (Exhibit “R4”).

  2. According to that agreement, Mr Richmond obtained possession of a BMW 735 Li E66 Sedan for an agreed total amount payable of $214,065, payable in 60 instalments of $3,042.64 and a final instalment of $33,000 (affidavit of Cherrie Homer, Annexure “A” – Agreement, clauses 3 and 4).  BMW claims that each month, the liquidated sum of $3,042.64 was due and payable.  Mr Richmond commenced making payments pursuant to the agreement from 28 February 2005 to 27 June 2006. However, payments were frequently late and only after telephone calls were made to Mr Richmond (affidavit of Ms Homer, Annexure “B” – BMW Group Finances – Transaction Inquiry).

  3. Mr Walsh argues that as at 27 June 2006 (the date of the relevant act of bankruptcy), Mr Richmond was in arrears for $7,542.62 and that sum was in accordance with the terms of the hire purchase agreement. It also complied with s.44 of the Act.

  4. Ms McBride opposed the Petition on the basis that at the date of bankruptcy, BMW as substituting creditor did not have a debt that was due, liquidated and owing as at 27 June 2006.  She submits that the claimed debt arose at a later stage after the date of bankruptcy and it was inappropriate for the petitioning creditor to seek to be joined to an action in bankruptcy.  Ms McBride submits that the debt was not owing at the date of bankruptcy as indicated by Item No 137 of the BMW Group Finances Transaction Inquiry (affidavit of Ms Homer, Annexure “B”).

  5. Ms McBride contends that Item No 137 reveals that on 26 June 2006 there appears to have been a telephone conversation between BMW and Mr Richmond. Mr Richmond advised BMW that payment would not be possible until 7 July 2006 but he agreed to make a small repayment of $700 on 27 June 2006.  He was told that if he did not do so, BMW would notify an agent and repossess the car.  On 27 June 2006, BMW received and banked a cheque for $500.  A side note reads “Other arrangement, review 29/06/06”.   

  6. Item No.140 of the Transaction Inquiry dated 29 June 2006 has an annotation stating “Other arrangement”.  Item No.151 dated 9 August 2006 shows a payment of $1,000 which was received and banked.  This is followed by Item No.154 on 11 August 2006 showing “Other arrangement”.  Ms McBride submits that although the Transaction Inquiry refers repeatedly to other arrangements, it provides no further explanation.  Mr Richmond’s account was in arrears at different stages, coming out of arrears for periods and then returning.

  7. A letter from BMW to Mr Richmond dated 11 September 2006 states (Exhibit “R2”, Transaction Inquiry No.152):

    With reference to recent discussions regarding the above contract we now enclose a statutory declaration to be completed by you and returned within the next seven (7) days.  This declaration will allow us to assess your position and see whether a mutually agreeable settlement or payment arrangement can be established.

    Ms McBride submits that this letter was sent well after the date of bankruptcy of 27 June 2006.

  8. Ms McBride then referred to clause 12(2) of the “Prestige Purchase Agreement” (Exhibit “R4”):

    Upon such repossession the Hiring shall terminate and the Hirer shall pay to the Owner as liquidated damages the amount by which moneys paid and value provided by the Hirer or on the Hirer’s behalf by way of Deposit and Rent Instalments together with the Value of the Goods at the time the owner takes possession is less than the Net Amount Payable.

    Repossession of the car which gives rise to a liquidated amount occurred on 5 September 2006.  Ms McBride submits that although Mr Richmond was in arrears at the date of bankruptcy, he had entered into another “arrangement” with BMW and continued to believe that this arrangement was valid even after the car was repossessed.  This belief was due to correspondence indicating that the vehicle would be held for 60 days.

  9. Subsequent to the letter of 11 September 2006 referred to at [16] above, Mr Richmond received two further letters from BMW requesting that arrangements be made for the debt. It is argued that those letters were dated well after 27 June 2006. Consequently, Mr Richmond opposes the substituting creditor on the basis that at the date of the act of bankruptcy, there was no debt due by him because of BMW’s own behaviour in agreeing to enter into compromise and further arrangements. Ms Marchese was unavailable for cross-examination on what the notations “Other arrangement”, “Other agreement” and “TRI review” meant. However, Ms McBride submits it would be reasonable to assume that Mr Richmond believed that there was not a liquidated amount that was due and owing to BMW Finance at the date of bankruptcy. Ms McBride argues that the amount actually owed has not been precisely stated.

  10. Item No.284 of the Transaction Inquiry gives the net amount of $99,069.37 which is the amount that has been entered against Mr Richmond with a credit reporting agency.  However, a letter of 14 September 2006 from BMW to Mr Richmond refers to an amount of $145,000 (Affidavit of Ms Homer, Annexure “C”).  Another letter from BMW to Mr Richmond dated 6 August 2007 states that the amount due and payable is $104,140.38 (affidavit of Ms Homer, Annexure “D”).  This is different from the amount noted by the credit reporting agency on 3 August 2007.  Item No 291 of the Transaction Inquiry refers to “wiping off” $10,000 from the debt if it can be settled.  As late as September 2007, arrangements continued to be made in an endeavour to settle the matter. 

  11. Ms McBride submits that a petitioning creditor must satisfy s.44(1) of the Act which provides:

    Conditions on which creditor may petition

    (1)  A creditor's petition shall not be presented against a debtor unless:

    (a)  there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000;

    (b)  that debt, or each of those debts, as the case may be:

    (i)  is a liquidated sum due at law or in equity or partly at law and partly in equity; and

    (ii)  is payable either immediately or at a certain future time; and

    (c)  the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.

  12. Ms McBride further contends that a debtor’s mere failure to pay a debt is not enough to entitle the creditor to petition for a sequestration order as the debtor must also have committed one or more of the acts of bankruptcy as defined in s.40 of the Act. A Petition cannot be presented merely on a cause of action against a debtor, for damages in tort, breach of a contract or even on the basis of a judgment if damages have yet to be assessed: Re Donovan (1972) 20 FLR 50.

  13. In Debtors, In re Debtor [1927] 1 Ch 19, the Court held that a debt must be liquidated not only at the date of presentation of the Petition but also at the date of bankruptcy relied upon: Re a Debtor (No.20 of 1953); ex Parte the Debtor v Scott & Anor [1954] 3 All ER 74; Mendonca (a debtor), Re; Ex parte Federal Commissioner of Taxation (1969) 15 FLR 256 (applied in Taylor v Deputy Commissioner of Taxation (Vic) (1987) 16 FCR 212); Australia & New Zealand Banking Group Ltd v Coutts [2003] FCA 968. “Liquidated sum” has been held to mean a specific sum of money, the amount of which is ascertained or is capable of being ascertained by a mere calculation: Ahearn, Re; Ex parte Palmer (1906) 6 SR (NSW) 576.

  14. Ms McBride submits that it was not until the vehicle was repossessed by BMW that clause 12(2) of the Prestige Purchase Agreement was effective and entitled BMW to make a liquidated claim against Mr Richmond.  She argues that it was not enough that the debt became liquidated after the act of bankruptcy and before the Petition.  In Re Debtor (No 20 of 1953) Ex Parte the Debtor v Scott & Anor the Court held that the debt for legal costs which the petitioning creditor sought to rely upon did not amount to a liquidated amount as they had not been taxed before the act of bankruptcy.  In this case, it was not until the vehicle had been repossessed and subsequently sold that the proceeds of sale were credited to Mr Richmond’s account with BMW.  On 3 August 2007, BMW was in a position to calculate a liquidated amount in accordance with the formula set out in clause 12(2) of the Prestige Purchase Agreement.

  15. Notwithstanding that Mr Richmond was in arrears with respect to his instalments under the Prestige Purchase Agreement, Ms McBride contends that BMW’s action of accepting “other arrangements” amounted to a composition of the debt in relation to the hiring.  In particular, its acceptance of $500 on 27 June 2007: Bell v Galynski & King Loft Extensions (1974) 2 Lloyd SLR.  Consequently, at the date of the act of bankruptcy Mr Richmond did not owe BMW a particular sum of money.  Ms McBride submits that by failing to terminate the lease when Mr Richmond first fell into arrears, allowing the hire to continue by entering into “other arrangements” and thereby varying the terms of the lease agreement, and failing to exercise its right to immediate possession of the vehicle and termination of the hire purchase agreement, BMW is estopped from asserting that Mr Richmond owes it “a liquidated sum due in law or in equity or partly in law and partly in equity at the date of bankruptcy”.

  16. Ms McBride submits that estoppel by convention, representation or conduct operates to prevent BMW asserting that at the date of bankruptcy Mr Richmond owed it a liquidated sum of $7,542.64.  Estoppel by convention is founded not on representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties and an agreed or assumed state of facts which both are estopped from denying.  There is no estoppel unless it can be shown that the alleged assumption has been adopted by the parties as the conventional basis of their relationship.  Estoppel by convention requires the assumed state of affairs to be an assumed state of facts: Con-Stan Industries v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at [22].

  1. Estoppel by representation prevents a person who, by a representation of fact, has led another to alter his position, and from denying that the fact is as represented: Discount & Finance Ltd v Gehrig’s NSW Wines Ltd (1940) 40 SR (NSW) 598 at 603. To make out common law estoppel by representation, the representation must relate to an existing fact, promise or representation: Yorkshire Insurance Co Ltd v Craine (1992) 31 CLR 27.

  2. Estoppel by conduct is expressed in terms of a reasonable expectation on the part of the promisor that his/her promise will induce action or forbearance by the promisee.  Circumstances where injustice arises from unconscionable conduct can only avoided by holding the promisor to his promise: Walton Stores (interstate) Ltd v Maher (1988) 164 CLR 387.

  3. Ms McBride argues that the words “other arrangement” in the BMW Finance Transaction Inquiry amount to a variation of the express terms of the Prestige Purchase Agreement and that Mr Richmond came to rely upon that variation. 

  4. Mr Walsh submits that the discussion of a liquidated sum must commence with the wording of the Prestige Purchase Agreement in order to determine the actual agreement that was reached between BMW and Mr Richmond.  The Agreement states:

    a)Clause 1 – Mr Richmond would be entitled to possession of a BMW E66 sedan

    b)Clause 3 – Mr Richmond agreed to pay a total of $214,065

    c)Clause 4 – Mr Richmond agreed he would pay that sum in the 60 hire instalments of $3,042.64 each, followed by a final instalment of $33,000.00

  5. Mr Walsh submits that the above is the basis of BMW’s case in relation to a liquidated demand. “Liquidated demand” simply means a specific sum of money, the amount of which is ascertained or capable of being ascertained. The liquidated sum that BMW relies on is the monthly instalment for which there is no need to calculate as it has been ascertained and is the amount of the monthly instalment. He submits that the monthly instalments exceed the $2,000 threshold for the purposes of the Act and BMW should succeed on that basis.

  6. A liquidated sum is a specific sum of money, the amount of which is ascertained or capable of being ascertained by calculation as opposed to an amount presently incapable of determination and requiring assessment: Butterworths Australian Legal Dictionary, p.697.  An amount fixed by agreement between the parties is a liquidated sum: Ahearn, Re; Ex parte Palmer.

  7. Mr Walsh submits that the mere fact that the words “other arrangement” appears in the Transaction Inquiry does not mean that the express terms of the Prestige Purchase Agreement were varied.  Further that Mr Richmond is attempting to convert the Prestige Purchase Agreement into an overdraft facility.  He submits that the Transaction Inquiry indicates that both parties continued to regard the monthly instalments as due and payable. 

  8. Leaving aside the numerous entries relating to communications, the Transaction Inquiry reveals the following:

    a)No.19 on 3 May 2005, Mr Richmond made a request to draw the arrears due on 28 April 2005 which he did on 6 May 2005 and the arrears were then paid.

    b)No.41 on 29 July 2005, BMW called Mr Richmond and the note states, “will redraw tonight insure money there and get payments back on track or loose the car”.  The next entry shows that Richmond made the payment on that day.

    c)No.62 on 23 December 2005, Mr Richmond advised that the next payment would be dishonoured and it should be drawn with the December instalment on 28 December 2005.

    d)No.102 on 8 March 2006, Mr Richmond called to say he would be paying that week.  He was told to speak to the recovery agent who had been appointed.

    e)No.126 on 31 May 2006, arrears outstanding had grown to $10,220.84.  Mr Richmond advised that he would pay $5,220.84 on 5 June 2006 and the balance of $5,000 the next week.  On 6 June 2006 Mr Richmond paid $5,222.84 but not the $5,000.

    f)No.131 on 7 June 2006, BMW agreed to the full payment on 20 June 2006 as “this is when 2nd stage of settlement will be through”.

    g)No.137 on 26 June 2006, Mr Richmond advised he could not make payment until 7 July 2006 and offered to pay $700.  BMW advised that if he did not, it would repossess the vehicle.  Mr Richmond paid $500 on 27 June 2006.

    h)No.140 on 29 June 2006, Mr Richmond claimed “someone bounced a [cheque] on him.  Should be able to clear full arrears on 7.7.06 as there is a property settlement going through”.

  9. Mr Walsh contends that insofar as there was an “other arrangement” it was one in which BMW agreed to postpone taking action to enforce the debt.  There was no agreement to waive the debt or any suggestion that the monthly instalment or arrears did not remain due and payable.  The fact that the arrears remained on the balance sheet and Mr Richmond continued to promise payment is inconsistent with the “other arrangement” being asserted.

  10. Mr Walsh contends that even if it was accepted that the Prestige Purchase Agreement was varied, that would make no difference to an application of s.44 of the Act whether the amount in arrears was payable as at 27 June 2006 or at a later date. For the purposes of s.44, the debt is payable either immediately or in the future: General Motors Acceptance Corporation Australia v Marshall (2002) 124 FCR 210 (overturned on appeal on other grounds).

  11. Mr Walsh further submits that the basis for an estoppel, whether by convention, representation or conduct has not been made out as Mr Richmond has not established the elements of detriment or reliance: Commonwealth of Australia v Verwayen (1990) 170 CLR 394.

  12. I agree with the submission of Mr Walsh that the objection that at the date of the original act of bankruptcy, the debt was not in existence, liquidated and owing depends on the interpretation of the liquidated demand or sum.  The liquidated sum that BMW relies on is the monthly instalment under the Prestige Purchase Agreement, which was due and payable each month.  There was no need for calculation as it had been ascertained.  Academics have indicated that the definition of “liquidated sum” is neither concise nor completely accurate however frequent reference has been made to Odgers’ Principles of Pleading and Practice in Civil Action in the High Court of Justice, 20th edition, 1971, which states at 44:

    When the amount to which a plaintiff is entitled can be ascertained by calculation, or fixed by any scale of charges or other positive data, it is said to be “liquidated” or made clear.  But when the amount to be recovered depends upon the circumstances of the case is fixed by opinion or by assessment or by what may be judged reasonable, the claim is generally unliquidated.

  13. The Prestige Purchase Agreement requires the hirer, Mr Richmond, to pay 60 hire instalments of $3,043.64 each, inclusive of $3,017.75 rent, $22.63 rental duty and $2.26 GST monthly commencing from the date of offer on 17 February 2005.  Under the heading “Agreement” the following appears:

    3. The execution of this agreement by the owner shall of itself and without notice thereof to the hirer constitute an acceptance of the offer creating a binding agreement.  Under the heading “Hirer’s Covenance” the following appears:

    3. No waiver or indulgence by the owner of any breach by the hirer shall be deemed a waiver of indulgent of any continuing or reoccurring breach and the rights of the owner shall not be affected in any way by any time or indulgence that the owner may grant to the hirer.  I am satisfied that the amount of $3.042.64 was payable by 17 day of each month for a period of 60 months commencing from March 2005 for a period of the agreement.

  14. As at 27 June 2006 the amount owing is the total of the arrears and the payment due on 17 June 2006 which is the sum of $7,542.62, a liquidated sum in excess of $2,000 and payable immediately. 

Ability to pay all debts owed within a reasonable time

  1. Ms McBride submits that given that it has been two years and three months since the original act of bankruptcy and that Mr Richmond’s financial position has changed significantly because of his acquisition of a company, he is in a position to raise money to pay his debts.  However, one difficulty in doing so has been Mr Richmond’s credit rating.  Ms McBride submits that Mr Richmond would be able to raise finance if the negative credit rating was lifted.

  2. Ms McBride submits that Mr Richmond is prepared to raise finance in order to pay out his creditors so is asking the Court under the provisions of s.52 of the Act to exercise its discretion not to impose a sequestration order.

  3. Mr Richmond contends that he is solvent for the purposes of s.5(2) of the Act as he is able to pay all his debts as and when they fall due. An ability to pay debts includes an ability to pay debts from the money of other people: International Alpaca Management Ltd v Ensor [1999] FCA 72. Ms McBride submits that as a general rule if a debtor is able to pay all the debts he or she owes within a reasonable time, a sequestration order should not be made: Re Sarina; ex parte Wollondilly Shire Council (1980) 30 ALR 266. However, a debtor is not required to have sufficient cash at hand to pay all creditors in full immediately if the debtor has other realisable assets. In Sandell v Porter (1966) 115 CLR 666 at 670, Barwick CJ (with McTiernan and Windeyer JJ agreeing) stated:

    Insolvency is expressed in s.95 as an inability to pay debts as they fall due out of the debtor’s own money.  But the debtor’s own money are not limited to his cash resources immediately available.  They extend to money which he can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature an amount of the debt and the circumstances, including the nature of the business, of the debtor.  The conclusion of insolvency ought to be clear from the consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.  It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they, fall due which dictate insolvency. 

  4. Ms McBride also referred to Little Creatures Brewing Pty Ltd v Bordin [2006] FMCA 302 at [54] per McInnis FM:

    [54]… Whilst removal of the words “from his own moneys” may provide at least the opportunity to adduce broader evidence in support of the claim of solvency, it does not relieve the court from its obligations to properly analyse the nature of the source of funds and the capacity of the debtor to either source and/or finance repayment of any new loan. The task remains in the same manner as the court’s assessment of the ability of a debtor to liquidate assets which may be claimed to be under his control or power. To the extent that there may be any inconsistency between the views expressed by the court in Lewis v Palmer and those expressed by Mandie J in Harrison v Lewis, I prefer the reasoning of Mandie J for the reasons stated in applying the principles to bankruptcy law.

  5. Ms McBride submits that Mr Richmond contends that he is solvent because he proposes to sell a property at Lot 323 Warnervale Road, Hamlyn Terrace, has other properties and proposes to obtain a loan from Bankwest.  Further that he is solvent but remains unable and unwilling to obtain refinancing to pay its debts until BMW Finance removes hi entry with the credit rating agency.  At the date of the hearing of the Creditor’s Petition, the amount owed by Mr Richmond to BMW remains in dispute.

  6. Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 per Hely J set out the criteria that a debtor has to establish for the Court to dismiss a Petition:

    [17] The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. If a debtor is able to pay his or her debts, but is recalcitrant, the creditors may resort to other remedies, such as execution against property and garnishee proceedings, but not to sequestration. Bankruptcy is not a proceeding designed for the recovery of debts: see Re Sarina; Ex Parte Wollondilly Shire Council (1980) 32 ALR 596, 599…

    [19] Under s.52(2)(a) the respondent must satisfy the Court that he is “able to pay his…debts”, including liabilities: s.5(1).  In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall (1907) 4 CLR 1514, 1527-1528 as well as debts which are presently due and payable.  However, whether that is so or not for the reasons explained by Katz J in International Alpacca Management Pty Ltd accounts need to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, or liabilities which will become payable in the reasonably immediate future.

  7. If a debtor states that he is able at any time but unwilling at this point in time to pay the monies listed in the creditor’s petition, he is entitled to provided he establishes solvency.  Justice Hely makes the following observation in Australia & New Zealand Banking Group Ltd v Foyster at [37]:

    [37] The respondent is perfectly entitled to adopt the role of a recalcitrant debtor, and to decline to pay a judgment debt if he wishes. But he will only be immune from the operation of the bankruptcy laws if he can establish solvency, it not being suggested that there is any other ground (apart perhaps from the abuse of process to which I have referred) on which the petition should be dismissed. The onus of establishing solvency lies on the respondent, and in my view, he has not discharged that onus.

  8. Mr Walsh submits that the evidence before the Court does not show that Mr Richmond’s assets are sufficient to cover his liabilities.  It is not enough for Mr Richmond merely to show that he has assets which exceed his liabilities as he must be able to establish that he is able to realise those assets within a relatively short time: Sandell v Porter at 670; Stankiewicz v Plata [2000] FCA 1185 at [30]-[32].

  9. Mr Walsh argues that Mr Richmond has not established his solvency which is evident from his fourth affidavit:

    a)Statement of personal assets:

    i)Mr Richmond states that his personal assets total $4,121,000 and liabilities of $2,423,000.  The assets almost entirely comprise of the value of his house at Wahroonga ($2,000,000) and shares in Choice Properties stated to be worth $2,010,000.  However, paragraph 9 of his fourth affidavit indicates that the amount secured on the Wahroonga property currently exceeds its current value by approximately $420,000.

    ii)There is no evidence to support the value of the Choice Properties shares and there are good reasons for questioning the value of those shares as it appears that the properties owned by the company may not be developed and may be worth less than stated.

    iii)Absent from the liabilities column of the balance sheet is the judgment against Mr Richmond in favour of Carl and Elizabeth Carlson for $2,026,000 (fourth affidavit, paragraph 11).  If the judgment were included, the liabilities would be $12,683,000 which is more than the assessed assets of $4,121,000.  Whilst the judgment in favour of the Mr and Mrs Carlson is under appeal, the outcome is unknown.  However, the appeal does not act as a stay on enforcement of debt.  In determining Mr Richmond’s present ability to pay his debts, it is submitted that no account should be taken of the appeal.  Further, there may be a costs liability in addition to the judgment debt in those proceedings.

    iv)The liability column does not contain Mr Richmond’s debt to BMW of $101,923.

    b)The Hamlin Terrace property:

    i)The agreement for the sale of the Hamlin Terrace property is dated 13 June 2008 yet there is no evidence of any progress towards settlement (fourth affidavit, Annexure “D”).  There is no evidence that the agreement with the purchaser is still on foot.  Mr Walsh asserts that the agreement to sell the property is inconsistent with the same property being used as security for the Bankwest loan (Bankwest financing proposal, 9 May 2008, clause 4.2).

    ii)As at 23 May 2008, the Hamlin Terrace property was subject to caveats by Egidio John Jobbo, Troy Turner and PSAL Ltd with a mortgage in favour of United Church (NSW) Trust (Land and Property Information search dated 23 May 2008, fourth affidavit, Annexure “E”).  There is no evidence of any action by Mr Richmond to have the caveats removed which would prevent the sale of the property.

    iii)The Hamlin Terrace property is encumbered to the value of $3,819,000 (fourth affidavit, Annexure “E”).  The expert valuation relied on estimates the current share market value and without development appears to be $3,250,000 (RPG Integrated Property Services valuation dated 1 August 2008, Annexure “C”).

    c)The Wadalba property:

    i)The MJD valuation (fourth affidavit, p.3, Annexure “C”) estimates a total gross realisation value of $4,905,000 if it is developed.  The property is encumbered to the value of $2,076,000 (Annexure “E”).

    ii)Mr Richmond’s company, Choice Properties, purchased the property on 23 December 2002 (paragraph 5 of MJD Valuation, Annexure “C”) and obtained development approval on 24 November 2003 (paragraph 6.01 of MJD Valuation, Annexure “C”).  Yet the property has still not been developed after almost five years.  Its development is contingent on a loan from Bankwest for $1,460,000 (Bankwest Finance Proposal, 9 May 2008 – Annexure “B”).  The property is subject to a mortgage in favour of Uniting Church (NSW) Trust and caveats by Egidio John Gobbo, Troy Turner and PSAL Ltd.  There is no evidence of any action by Mr Richmond to have the caveats removed.

    d)The Bankwest loan:

    i)Mr Richmond asserts that Choice Properties will loan from Bankwest $6,860,000 which he will guarantee (Bankwest Financial Proposal clause 4.1).

    ii)A loan to Choice Properties is not a loan to Mr Richmond.  Mr Richmond has not provided evidence by way of agreement, resolution or minutes that Choice Properties will provide him with any monies.

    iii)At present there is only a financing proposal but no binding agreement.  The proposal is heavily contingent on further enquiries by the bank and expressly states, “this is not an offer for finance – subject to due diligence and formal credit approval” (Bankwest Financing Proposal p.2).

    iv)The Bankwest proposal is expressed to be subject to the following conditions:

    ·That the bank receives the security set out in clause 4.2 of the proposal including the mortgages over the Wahroonga, Wadalba and Hamlin Terrace properties.  No mortgages can be registered while the caveats are on foot.

    ·Receipt of a valuation report confirming the value of Mr Richmond’s Wahroonga property at $2,500,000 on an “as is basis” (Bankwest Financial Proposal item 5).  The property was subsequently valued at $2,000,000 (Valuation dated 26 May 2008, Annexure “F”).  A valuation report confirming the value of the Wadalba property at $6,500,000 on an “as is basis” (Bankwest Financial Proposal item 6) while an evaluation subsequently valued the property at $4,900,000 (MJD valuation P3 – Annexure “C”).

    ·A valuation report affirmed the value of the Hamlin Terrace property at $3,300,000 (Bankwest Finance Proposal Item 7).  An evaluation subsequently valued the property at $3,250,000 (RPG Integrated Property Services valuation dated 1 August 2008 – Annexure “C”).

    v)If the loan is granted it appears that the entirety of the loan will either go towards meeting existing debts or fund development of the Wadalba Property, $2,000,000 to refinancing the Wahroonga property, $4,500,000 to refinance the Uniting Church loan, $1,460,000 to fund the Dwalba development and $900,000 in respect of the interest capitalisation (Bankwest finance proposal, p.1).  There is no provision for payment of the debts owed to BMW, the DCT or Mr and Mrs Carlson.

    vi)The loan is for a period of 12 months after which the principle is to be repaid.  There is no evidence of the interest rate to be applied or how Mr Richmond proposes to repay the principle or the interest at the end of the 12 month period.

    vii)Mr Walsh submits that the proposed loan would merely replace one debt with another and is unlikely to be repaid. Leaving aside the unsettled question of whether Mr Richmond can satisfy the requirements of s.52(2) of the Act, he has not demonstrated that he will be able to meet the proposed loan repayments any more than repaying his existing debt.

  1. I am not satisfied that Mr Richmond has demonstrated that he is solvent. The list of assets and liabilities contained in his fourth affidavit is subject to a number of major deficiencies as identified by Mr Walsh’s submissions which have been reproduced above. Those deficiencies were omitted from Mr Richmond’s statement of assets and liabilities. Ms McBride has submitted that Mr Richmond has been able to rearrange his financial position in the last two years and three months when the Creditor’s Petition was on foot and that it was only the credit rating agency entry that stood in the way of his refinancing arrangements. However, it has been demonstrated at [48] above that the securities required to be in place prior to Bankwest entering into refinancing arrangements will not be in the reasonably foreseeable future. No evidence has been tendered explaining what steps have been taken to remove the caveats in place over the properties. This coupled with a number of major omissions in Mr Richmond’s statement, such as his debt to BMW and Mr and Mrs Carlson, means that his claim of solvency cannot be accepted. Consequently this ground of objection must also fail.

Formal requirements for sequestration order

  1. The original Creditor’s Petition claims a debt of $19,392.40 being the balance outstanding from a final judgment entered against Mr Richmond in the North Sydney Local Court and dated 11 May 2005.  This is owed to Justin Keng & Ors trading as Dibbs Barker Gosling and those persons named in Annexure “A” to the Petition which was the partnership trading in the name of Dibbs Abbott Stilman (formerly Dibbs Barker Gosling).

  2. The Amended Creditor’s Petition claims a debt of $101,923.20 is owed by Mr Richmond to BMW being an obligation arising pursuant to a Prestige Purchase Agreement dated 17 February 2005 between BMW Finance and Mr Richmond.

  3. The Amended Creditor’s Petition alleges an act of bankruptcy was committed on 27 June 2006 when Mr Richmond failed to comply with the Bankruptcy Notice served on him on 6 June 2006, or to satisfy the Court he had a counter claim, set off or cross demand more than the sum in the Bankruptcy Notice which he could not have set up in the District Court proceedings and resulted in a judgment forming part of the debt.

  4. Section 47 of the Act requires the Creditor’s Petition to be verified by an affidavit of a person who knows the relevant facts. Paragraphs 1 to 4 in respect of compliance with the Bankruptcy Notice are verified by Scott Robert James Sloan, the managing partner of Dibbs Abbott Stilman. Paragraph 4 of the original Creditor’s Petition that Mr Richmond failed to satisfy the Court he had a cross claim, set off or cross demand more than the sum in the Bankruptcy Notice which he could not have set up in the District Court proceedings is verified by the affidavit of Richard Alexander Lyne sworn 25 September 2006 and filed on the same day.

  5. The affidavit verifying paragraph 4 of the Amended Creditor’s Petition was sworn on 25 September 2008 by Snezana Roskov, paralegal employed by Bartier Perry.  In accordance with r.4.02(3) and r.4.04(1) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (“the Rules”), the original Creditor’s Petition was accompanied by:

    a)An affidavit stating that no application was made to the Federal Court or the Federal Magistrates Court to set aside the Bankruptcy Notice, being the affidavit of Richard Alexander Lyne sworn on 25 September 2006; and

    b)An affidavit of service of the Bankruptcy Notice being the affidavit of Kris Sabatino, licensed commercial agent, sworn on 8 June 2006.

  6. Rule 4.05 of the Rules requires service of various documents on Mr Richmond including:

    a)An original Creditor’s Petition presented on 25 September 2006;

    b)A copy of an affidavit verifying the Petition required by s.47(1) of the Act being the affidavit of Richard Alexander Lyon on 25 September 2006; and

    c)If applicable, a copy of the Affidavit of Service of the Bankruptcy Notice required by paragraph 4.04(1)(b) being the affidavit of Kris Sabatino sworn on 8 June 2006; and

    d)A copy of any consent to act as trustee filed under s.156A of the Act being the consent signed by Robert William Whitton of Lawler Partners signed 25 September 2006.

  7. On 6 September 2007 a new Consent to Act and Trustee Declaration was signed by Max Donnelly of Ferrier Hodgson.

  8. In respect of the Amended Creditor’s Petition, r.4.05 of the Rules requires service of various documents on Mr Richmond being:

    a)Amended Creditor’s Petition filed on 15 September 2008;

    b)Affidavit verifying paragraph 4 of the Petition sworn by Szezana Roskov on 15 September 2008.

  9. The affidavit of Ms Roskov sworn on 23 September 2008 states that she served Mr Richmond with the relevant documents by:

    a)Faxing the documents to the attention of John Rickard of L J Rickard Solicitor on (02)9983 9896.  A copy of the facsimile transmission record is annexure “D” to her affidavit.

    b)Posting the originals of the documents referred to above to L J Rickard Solicitor at 6/1051-1055 Pacific Highway Pymble NSW 2073.

  10. Section 44 of the Act imposes conditions on the presentation of a Creditor’s Petition. As the Creditor’s Petition was presented on 25 September 2006, that is the relevant date for the purposes of the section. Section 52(5) of the Act permits that before the expiry of 12 months commencing on the date of presentation of the Petition, the Court may extend the period to 24 months. An extension of time was granted by Hedge R on 28 August 2007.

  11. The first requirement is that there is a debt owing by Mr Richmond to BMW that amounts to $2,000 or more: s.44(1)(a) of the Act. The second requirement is that the debt is a liquidated sum due at law or in equity and is payable either immediately or at a certain future time: s.43(1)(b) of the Act. The debt claimed in the Amended Creditor’s Petition consists of:

    a)The amount of $101,923.20, the consideration for such debt being an obligation arising pursuant to a Prestige Purchase Agreement dated 17 February 2005 between BMW and Mr Richmond.

    b)BMW does not hold security over the property of Mr Richmond.

    c)At the time when the act of bankruptcy was committed, Mr Richmond was ordinarily resident in Australia.

  12. The amount claimed in the Amended Creditor’s Petition is not a judgment debt, however, s.44(1)(b)(i) of the Act does not require it to be so. It requires it to be a debt due at law and/or in equity: Re Goldberg; Ex parte Law Society of New South Wales (1988) 82 ALR 271 per Wilcox J.

  13. The third requirement of s.44 of the Act is that the act of bankruptcy was committed within six months before the presentation of the Petition: s.44(1)(c). The act of bankruptcy occurred on 27 June 2006, being the 21st day after service of the Bankruptcy Notice on 6 June 2006 (affidavit of service sworn by Kris Sabatino on 8 June 2006).  The Creditor’s Petition was presented on 25 September 2006 which is within six months of 27 June 2006.

  14. The fourth requirement of s.44 of the Act requires particulars of any security held by the petitioning creditor. Both the original and amended Petition indicate that the “applicant does not hold security over the property of the respondent”.

  15. An Affidavit of Debt sworn by Natasha Marchese on 25 September 2008 and an Affidavit of Search sworn by Snezana Roskov on 25 September 2008 were tendered.

  16. I am satisfied that Ross Cameron Richmond committed the act of bankruptcy alleged in the petition.

  17. I am satisfied with the proof of other matters required by s.52(1) of the Act.

  18. I make a sequestration order against the estate of Ross Cameron Richmond.

  19. I order that BMW Finance be awarded costs and that any costs and reserved costs be taxed and paid in accordance with the Act.

  20. The Court notes that the date of the act of bankruptcy is 27 June 2006.

  21. I note that consent to act as a trustee has been signed by Max Donnelly of Ferrier Hodgson on 6 September 2007.

I certify that the preceding seventy (70) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.

Associate: 

Date:  16 October 2008

Most Recent Citation
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Richmond v BMW Australia Finance Limited (No 1) [2009] FCAFC 24
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Cases Cited

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Statutory Material Cited

2

Re Devy; ex parte BBC Hardware Ltd [1996] FCA 598
Australia & New Zealand Banking Group v Coutts [2003] FCA 968
Re Taylor; Ex parte Natwest Australia Bank Ltd [1992] FCA 296