Buyrite Steel Supplies Pty Ltd v Hart

[2018] FCCA 936

FEDERAL CIRCUIT COURT OF AUSTRALIA

BUYRITE STEEL SUPPLIES PTY LTD v HART & ANOR [2018] FCCA 936

Catchwords:
BANKRUPTCY – Creditors Petition – whether the debt payable was greater than $5,000 – s.44(1)(a) Bankruptcy Act – construction of contract between parties.

Legislation:

Bankruptcy Act 1966, s.44(1)(a)

Cases cited:

Andar Transport Pty Ltd v Brambles Ltd [2003] 217 CLR 242

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15

McCracken v Phoenix Constructions Pty Ltd [201] FCAFC 41

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37

Applicant: BUYRITE STEEL SUPPLIES PTY LTD

First Respondent: JOSEPH GEORGE LAWRENCE HART

Second Respondent: KATRINA MARGARET BOURNE

File Number: SYG 1383 of 2016

Judgment of: Judge Altobelli

Hearing dates: 20 July 2018 and 22 February 2018

Date of Last Submission: 22 February 2018

Delivered at: Sydney

Delivered on: 20 July 2018

REPRESENTATION

Counsel for the Applicant: Mr Simpson

Solicitors for the Applicant: Marino Law

Solicitor Advocate for the Respondents: Mr Ohlsen

ORDERS

1. The Amended Creditors Petition filed 29 March 2017 be dismissed.

2. The Applicant pay the Respondent’s costs as agreed or as assessed.

3. Order 2 above be stayed for 28 days, with such stay to continue pending further order of this Court if the Applicant files written submissions in relation to costs within 28 days.  In the event this occurs, the Respondents are to file their submissions in response within 28 days of receipt of the Applicant’s submissions.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1383 of 2016

BUYRITE STEEL SUPPLIES PTY LTD

Applicant

And

JOSEPH GEORGE LAWRENCE HART

First Respondent

KATRINA MARGARET BOURNE

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. By way of an Amended Creditor’s Petition filed 29 March 2017, the Applicant seeks and order that the estate of the Respondents be the subject of a sequestration order.  This is opposed by the Respondents. 

2. The Amended Creditor’s Petition describes the debt owed in the following terms:

   (1)The Respondent debtors owe the Applicant Creditor the sum of $25,250.16 for a debt payable pursuant to personal guarantees given by the Respondents in support of a contract for the supply of goods (“the contract”) between the Applicant Creditor and the Respondents’ company, J & K Homes Pty Ltd, ACN 133877809 (“the company”).

   (a)The debt payable to the Applicant Creditor is made up as follows:

   (i)The sum of $6594.59 being the total of the tax invoices rendered to the company and the Respondents for goods supplied between June 2015 and September 2015 pursuant to the contract;

   (ii)$930.77 for interest on the amount of $6594.59 calculated at the interest rate prescribed by the contract of 2 per cent per month ($3.95 per day) until 19 April 2016;

   (iii)$726.80 for interest calculated at the interest rate prescribed by the contract of 2 per cent per month ($3.95 per day) from 20 April 2016 until 19 October 2016;

   (iv)$17,000 for costs on an indemnity basis pursuant to the terms of the contract.

3. The petition alleges that the Respondents failed to comply on or before 22 May 2016 with the requirements of a Bankruptcy Notice served on them on 30 April 2016 by the former Applicant Creditor, Pandanus Sands Pty Limited.

4. By way of a Further Amended Notice stating grounds of opposition to application, interim application or petition filed 16 June 2017, the Respondents oppose the granting of the petition.  In effect, the Respondents ask the Court to make an order that the petition be dismissed and that costs be paid to them as agreed or as assessed.  This document is a complex one, as is the argument made on behalf of the Respondents by their solicitor, Mr Ohlson.  The arguments are multilayered.  The Respondents contend, for example, that the $25,252.16 claimed in the petition is not, in fact, “a debt payable pursuant to personal guarantees” which the Respondents agree they gave.

5. The Respondents contend, moreover, that the $17,000 claimed as indemnity costs was not, in fact, “pursuant to the terms of the contract”. In short, whilst the Respondents concede that an amount is payable to the Applicant, they assert it is well below the amount of $5,000 prescribed in s.44(1)(a) of the Bankruptcy Act 1966 (‘the Act’). The Respondents also contend that some part of the amount claimed does not come within s.44(1)(b) of the Act in that the sums in question are not “a liquidated sum due at law or in equity...”.

6. In short, the Respondents contend that the only liquidated debt that they owe to the Applicant amounts to $25.36.  The Applicant contends that the debt is $10,696.86.  Between the litigants, as at the commencement of the hearing on 20 July 2017, they had expended over $100,000 in legal fees.

Background

1. On 22 April 2009 the Applicant entered into a written contract with J & K Homes Pty Limited, a company operated by the Respondents, to supply goods in exchange for payment.  This company traded as Kirra Homes.  The contract in question will be henceforth described as the Credit Contract.  Pursuant to the Credit Contract, the Respondents provided a guarantee and indemnity in support of the payments by their company.  Between June 2015 and September 2015 the Applicant supplied goods to the company to the value of $6,594.59, which amount remained unpaid.

2. On 19 April 2016 the Applicant commenced proceedings against the Respondents for the sum of $12,452.24 together with interest and costs in the Queensland Magistrates Court.

3. On 28 July 2016 the Applicant substituted as a petitioning creditor (for Pandanus Sands Pty Ltd) in these proceedings.  On 29 March 2017 the Applicant filed an Amended Creditor’s Petition, which is the subject of the present proceedings.

4. There was little or no dispute that the $6,594.59 was, in fact, a claim in respect of goods supplied.  The Respondents contend, and the Applicant accepts, that payments subsequently made covered this component of the amount claimed in the petition.

5. There seems a dispute between the parties about the interest payable, but there is no need for this Court to adjudicate on this issue because it makes no difference to the outcome of the case.

6. In reality, this case is about the $17,000 claim for costs on an indemnity basis and purportedly pursuant to the terms of the Credit Contract. If this claim is upheld, then the Creditors Petition will comply with s.44(1) of the Act. If it is not upheld, the petition will fail.

7. There is no dispute in this case about service of the Bankruptcy Notice or of the Creditors Petition. 

8. There is no dispute that since 21 November 2016 the debt claim was reduced by a total of $7,500, being payments made by the Respondents between 1 December 2016 and 17 February 2017.

The applicable law

1. Both parties accept that the Applicant must prove the amount of the indebtedness of the Respondents as at the date of bankruptcy must still be outstanding, and if that amount has been reduced, as it has in this case, that the amount is greater than $5,000: McCracken v Phoenix Constructions Pty Ltd [201] FCAFC 41.

2. In order for the debt to be outstanding, the Court must be persuaded that the provisions of the Credit Contract have been activated, and cover the legal costs of recovery.  The determination comes down to a matter of construction of the terms of the Credit Contract.

3. The Credit Contract includes a guarantee and indemnity which must be interpreted in accordance with strict principles of construction which construe provisions in favour of the surety where there exists any ambiguity: Andar Transport Pty Ltd v Brambles Ltd [2003] 217 CLR 242; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15. The Credit Contract must be interpreted having regard to text, context and purpose and what a reasonable business person would have understood in the circumstances: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 at [46] – [49].

The credit facility and Directors’ guarantee and indemnity

1. The written agreement between the Applicant, Kirra Homes Pty Limited (which is now in liquidation) (called Kirra Homes) and the Respondents is constituted by one document signed 24 April 2009 that appears to have three distinct parts.  The first part is entitled:

   Application For 30-Day Credit Facility

   Buyrite Steel Supplies Pty Limited

2. The second part is entitled:

   Directors’ Guarantee and Indemnity

   Buyrite Steel Supplies Pty Limited.

3. The third part of the agreement is entitled:

   Buyrite Steel Supplies Pty Limited

   Conditions of Supply

4. The Respondents signed these agreements and it is quite clear that they signed on behalf of Kirra Homes and in their own right.  Their signature to the application for a 30-day credit facility is clearly on behalf of the company.  Their signature to the Directors’ guarantee and indemnity is on their own behalf.  There is no signature to the conditions of supply.

5. Other than issues of construction and interpretation, there are no issues between the parties to this case about the validity of this written agreement.

6. In the first part of the agreement, the credit facility, Kirra Homes agrees to do a number of things including:

   a)to pay all amounts on a 30-day term from statement date;

   b)to pay all costs associated with the recovery of any accounts, which exceed Buyrite Steel Supplies Pty Limited terms;

   c)to accept the terms and conditions of supply.

7. The Court observes that “all costs associated with recovery” would certainly include legal costs.  Whether these costs are assessed on an indemnity basis is unclear.  This Court believes that it is likely that a “reasonable business person” would interpret this to mean what lawyers would regard as indemnity costs.  Whether the reasonable business person is defined by reference to creditors and suppliers, or debtors and purchasers, the context of this commercial transaction is self-evident.  Even the reasonable debtor and purchaser would not expect that, as a result of his or her default, the supplier or creditor should be out of pocket.

8. As will become apparent from a consideration of the guarantee and indemnity, it is clear that the purpose of the agreement was that in the event of default, Buyrite Steel Supplies Pty Limited should not suffer any loss.  That loss included legal fees.  The complaint could be made, indeed was made by the Respondents, that an agreement to pay costs on an indemnity basis could not reasonably be inferred, and indeed, was potentially a licence for profligacy.  The Court does not accept this.  This was a commercial contract between the parties.  How is it possibly reasonable to expect that one party to a commercial contract who suffers the default of the other party should not be entitled to recover its loss in its entirety?  The question is not whether indemnity costs should be ordered in litigation, but whether it was reasonable to interpret the parties’ commercial arrangement in a way that ensures that the innocent party to the contract is not out of pocket as a result of the other’s breach.  The Court believes that a reasonable business person would expect just that.

9. In any event, the agreement is to pay costs associated with “recovery of any accounts” which exceed terms.  The concept of “account” is central to the business arrangement between the parties.  This is evident from a consideration of that part of the first part of the agreement entitled “Terms and Conditions”.  Thus, in (a) it is stipulated that payment must be made on a 30-day term from statement date.  A reasonable inference drawn from the totality of the Credit Contract is that the statement referred to is a statement of account.  The significance of the account is also apparent in (b) which says, in effect, the title to goods does not pass until payment of the account is received.  In (c) Buyrite reserves to itself the right to cancel “account facilities”.

10. The agreement thus contemplates that goods would be supplied on the basis that payment was made within 30 days of a statement of account being provided.  This is in strong contrast, for example, to the payment provisions set out at clause 7 of the Conditions of Supply, which requires payment on invoice which is on or prior to the delivery of goods.  In the same way, however, that an invoice triggers the need for payment in the Conditions of Supply, the statement of account triggers obligations in the 30-day credit facility.  Clause 6 is also important.  The company commits to “invoice the customer” in respect of “goods delivered” and, interestingly, “… and any related services provided …” 

11. This is the only way to make both commercial, and practical sense of the parties’ agreement which is, after all, a credit facility.  How, one might ask, would the company and its directors know how much and when it had to pay without a statement of account or an invoice?  This is particularly the case where the account is a running one, i.e. there are multiple purchases within any account period.

12. Thus, the first part of the agreement between the Applicant and Kirra Homes was that the latter would pay all costs of recovery of accounts actually rendered, in the sense of statements of account created and forwarded to the company.  The accounts, however, are not limited to the provision of goods, but also includes costs associated with recovery.  Thus, provided an account was rendered which included costs of recovery of costs of accounts unpaid, such an account would be covered by the agreement between the parties.

13. The second part of the agreement involved the Applicant and the Respondents personally.  The consideration is stated to be the provision of company credit facilities by the Applicant to Kirra Homes.  The Respondents agree to:

    Indemnify Buyrite Steel Supplies Pty Limited against any loss or non-payment of moneys and failure by your company to make punctual payments of all accounts due.

14. The reference to “your company” is clearly a reference to Kirra Homes.  The Respondents then also agreed that they, jointly and severally, “understand the guarantee and indemnity set out…”

15. How would the reasonable businessperson understand the parameters of the Respondent’s obligations?  It would certainly cover the unpaid goods supplied and the interest agreed to be paid.  But would it also cover legal costs of recovery on an indemnity basis?  The answer must surely be yes.  The indemnity refers to “any loss”.  Buyrite would suffer loss if, in the course of recovery of outstanding accounts, it had to meet its own legal fees.  The guarantee and indemnity, therefore, includes indemnifying Buyrite Steel Supplies Pty Limited for all costs incurred in recovery.

16. But are the costs associated with the recovery of any accounts limited to recovery proceedings against Kirra Homes, as opposed to the Respondents personally?  Such an interpretation would be plainly unreasonable and would defeat any purpose of the guarantee and indemnity.  The relevant question is whether the costs were “associated with the recovery of any accounts”, and there can be no doubt that legal action against the guarantors and indemnitors is caught by this description.

Deed of Settlement and Release dated 28 July 2016

1. The parties to this case, together with J&K Homes Pty Limited, entered into a Deed of Settlement and Release on the above date.  As at this time, Buyrite had commenced proceedings to recover its debt against the Respondents in the Queensland Magistrates Court.  In addition, a Creditor’s Petition had been filed against the Respondents seeking a sequestration order.  Buyrite was entitled to be substituted into the role of the petitioning creditor.

2. The parties entered into an agreement in the following terms.  The Respondents in this case (described in the Deed as the Defendants), or the company known as J&K Homes Pty Limited, was to pay the sum of $8,196.86 on or before 5:00pm on 30 October 2016.  It is possible for the Court to say, from other material in evidence, that this sum comprised of the unpaid invoice, inclusive of interest, but did not include a component of legal costs.

3. In addition, the Respondent, or the company referred to in the Deed, were to pay the sum of $10,000 by 5:00pm on 30 November 2016.  The precise nature of this payment is not apparent from the Deed.  A reasonable inference is that it related to the legal costs of recovery pursuant to the party’s 30 day credit facility and guarantee and indemnity.

4. The Deed also provided for the entering into of Consent Orders contemporaneously with the Deed itself.  The first Consent Order related to the Magistrates Court proceedings, and the second related to the present proceedings.

5. The Consent Order in the Magistrates Court of Queensland required the Respondents to pay to the Applicant the sum of $7,525.36, together with interest calculated at a daily rate of $3.95 from 19 April 2016 (the date of filing the Statement of Claim) until payment pursuant to the contract.  In addition, the order provides:

   3. Costs on an indemnity basis pursuant to the contract, to be agreed or assessed.

   The Consent Order was signed and was eventually made by the Magistrates Court on 24 November 2016.

6. A reasonable inference to draw is that the sum of $8,196.86, which was referred to in the Deed of Settlement, approximated to the payment required under the order of $7,525.36, together with interest.

7. As for order 3, which refers to costs on an indemnity basis, it is somewhat contradictory.  On the one hand, it refers to “the contract”, which must mean for present purposes, not the Deed of Settlement, but the original contract between the parties which comprised the credit facility and the guarantee and indemnity.  As discussed above, this agreement already stipulates for indemnity costs as between the parties.  The confusion arises from the words that follow “to be agreed or assessed.”

8. One supposes that even an agreement to indemnify another as regards costs of recovery can be the subject of an agreement or assessment.  An issue could arise, for example, as to whether the costs incurred, and in respect of which the indemnity is sought, properly arise pursuant to the agreement to this effect.

9. The Consent Orders in the present proceedings were likewise signed on 27 July 2016, and actually made in this Court on 28 July 2016.  This document provides for Buyrite Steel Supplies to be substituted as the Applicant Petitioning Creditor.  Leave was granted to file an Amended Creditor’s Petition no later than 1 December 2016.  The hearing of the Creditor’s Petition was adjourned and costs reserved.

10. The document contains a notation in the following terms:

    The Court notes the Respondents agree that they will not oppose any application for a sequestration order made against them following the filing of the abovementioned amended creditor’s petition by the supporting creditor.

    The Court also notes the adjournment stated in these orders is due to the Respondents having agreed to make the following payments for the debt and legal costs to the supporting creditor within the following timeframes:

    (a)    the sum of $8196.86 on or before 31 October 2016;  and

    (b)    the sum of $10,000 on or before 30 November 2016.

11. A number of matters arise.  The fact is that the Respondents did, in fact, oppose the Amended Creditor’s Petition.  They were not prevented from doing so by the notation.  The Court does not accept that it created an estoppel of any sort.  This Court’s jurisdiction in bankruptcy cannot be ousted by an agreement purporting to be a notation in a Consent Order, or, indeed, otherwise.  Specifically, in this case, how could the Respondents give up their right to oppose an Amended Creditor’s Petition that had not yet even been drafted?  What if the Creditor’s Petition was flawed?  Could this notation possibly estop them from asserting opposition to the same?  The answer is clearly no. 

1. The second notation refers to amounts payable, consistent with the deed of settlement.  This time, there is specific reference to “legal costs”, which strengthens the inference that the sum of $10,000 represented legal costs. 

2. The Respondents sought to impugn the validity of the Deed of Settlement.  They did so on a number of bases, none of which are borne out on the evidence.  The Court specifically rejects any contention made on behalf of the Respondents that the Deed of Settlement contained any false representations, or a mutual mistake based on some mistaken belief about the terms of the parties’ original agreement, or indeed any other basis.  In reality, the Respondents were represented by their present solicitor for most, if not all, of the relevant negotiations surrounding the Deed of Settlement.  If there was a period when the Respondents’ solicitor was not involved, it was after the agreement had been signed, and the role performed by the Respondents was a perfunctory and mechanical one only, i.e. returning the signed documents.

3. This Court is left in no doubt that the Respondents knew exactly what they were doing when they entered into the Deed of Settlement.  They were seeking, in effect, to compromise both the Magistrates Court proceeding, and the Creditor’s Petition, the latter in anticipation of Buyrite becoming petitioning creditor.  The Respondents knew exactly what they had to do, and when.  They also knew that if they performed their part of the bargain, as set out in the Deed, their total liability to the Applicant would have crystallised at $28,196.88, and the proceedings would have ended. 

4. There is no dispute between the parties to this case that payments were not made in accordance with the Deed of Settlement.

The Amended Creditor’s Petition filed 21 November 2016.

1. The Amended Petition refers to Buyrite Steel Supplies as the Applicant Creditor.  Paragraph 1 of the petition is in the following terms:

   a)The Respondent debtors owe the Applicant creditor the sum of $25,252.16 for a debt payable pursuant to personal guarantees given by the Respondents in support of a contract for the supply of goods (the contract) between the Applicant creditor and the Respondents’ company J&K Homes Pty Limited (the company).

   i)The debt payable to the Applicant creditor is made up as follows: –

   i)The sum of $6594.59, being the total of the tax invoices rendered to the company and the Respondents for goods supplied between June 2015 and September 2015 pursuant to the contract;

   ii)$930.77 for interest on the amount of $6594.59, calculated at the interest rate prescribed by the contract of two per cent per month ($3.95 per day) until 19 April 2016;

   iii)$726.80 for interest calculated at the interest rate prescribed by the contract of two per cent per month ($3.95 per day) from 20 April 2016 until 19 October 2016;

   iv)$17,000 for costs on an indemnity basis pursuant to the terms of the contract.

2. The Respondents do not put into contention the debt referred to at (a)(i), (ii) and (iii).  The Court notes that these items total $8252.16.

3. There is no dispute between the parties that this amount was reduced by $7,500, by way of payments made by the Respondents between 1 December 2016 and 17 February 2017. On one view, this would have meant the debt was only $752.16. Whether this amount is correct, or not, is not the point. The real issue in this litigation is that, putting aside the question of costs, the debt was below the amount of $5,000 prescribed in s.44(1)(a) of the Act.

4. It is interesting to note, the Court observes, that the Respondents did not cavil with the interest calculations at (a)(ii) and (iii) above.  There can be no doubt that the amount that they accepted as interest was significantly in excess of the rate of interest prescribed under the rules of the Queensland Magistrates Court, or of this Court.  One can only infer that the Respondents accept that their agreement with the Applicant, i.e. the 30-day credit facility and guarantee and indemnity obliged them to pay two per cent per month.  Of course, the same agreement also obliged them to pay indemnity costs, but this seems the focal point of their present contention about the Creditor’s Petition. 

5. The debt that is described at (iv) is $17,000 for costs on an indemnity basis pursuant to the terms of the contract.  As previously discussed in the context of the interpretation of that contract, the liability to pay is triggered by the rendering by the Applicant of an account for goods (or an invoice for services provided), and the non-payment of such. 

6. The Respondents contend that neither of them, nor indeed has the company Kirra Homes, ever been invoiced or received a statement of account in respect of the $17,000, and thus it could not be a cost pursuant to the terms of the contract.  Indeed, there is no statement in evidence that refers to the $17,000, though a series of invoices from the Applicant’s solicitors were in evidence that totalled in excess of $17,000.  There was no evidence, however, of any account or invoice from the Applicant for its legal fees. 

7. The evidence of Ms Bourne, in her Affidavit filed by leave on 20 July 2017, sworn on 17 July 2017, states that after the Respondents had paid a total of $7,500 by 17 February 2017, Buyrite Steel Supplies stopped sending statements until 4 May 2017.  On 4 May 2017, Ms Bourne deposes to receiving a statement addressed to Kirra Homes dated 4 May 2017, referring to a balance brought forward of $26,137.67.  On 7 April 2017, there was a charge of $1,232, taking the balance to $27,369.67.  The description for this charge on the invoice is  “SALE;  KIRRA HOMES (on stop)”.  There is, on 28 April 2017, a further charge of $5,917.29, taking the balance to 33,286.96.  This charge is described as:  “SALE;  Kirra Homes (on stop)”.

8. Ms Bourne deposes to receiving a final statement on 6 July 2017, in respect of the period 1 June to 30 June 2017, with a balance of $38,976.49.

9. The Amended Creditor’s Petition was, of course, filed 21 November 2016.  Ms Bourne’s evidence is that the last statement received prior to the 4 May 2017 statement was in fact undated, but covered the period 1 September 2015 to 30 September 2015, and had a balance due of $6,594.59.

10. Ms Bourne was challenged in cross-examination about her knowledge of the invoices for legal costs of the Applicant.  She was not challenged, however, about the evidence in the preceding paragraphs.

11. So where did the $17,000 referred to in (a)(iv) of paragraph 1 of the petition come from?  Moreover, is there any other evidence before the Court to establish that it referred to costs on an indemnity basis pursuant to the terms of the contract which, as the Court has stated, requires the rendering by the Applicant of a statement of account or invoice?  The absence of any statement between the one referred to above for $6,594.59 and the 4 May 2017 statement for $33,286.96, is probably not significant in the end result.  If there were statements or invoices by the Applicant in the intervening period, it is significant that in the extensive correspondence between the Applicants’ solicitors, and the Respondents and their solicitor, there is no reference to such statement.  Moreover, the strong inference is that the balance that existed in September 2015 of $6,594.59 did not change until May 2017.

12. It is hard to see any evidence, at this point, of the $17,000 for costs on an indemnity basis pursuant to the terms of the contract.  It is self-evident that the contract referred to at (a)(iv) in paragraph 1 of the petition cannot refer to the Deed of Settlement because there is no reference to $17,000, nor to how, somehow, the $10,000 that is referred to in the Deed somehow became $17,000 in the Petition.

13. The Affidavit of Debt in support of the petition is that of Andrew Taylor, the Applicant’s solicitor, and is sworn on 21 April 2017.  The debt is referred to at paragraphs 3-13.  Reference is made to the Consent Orders made in this Court on 12 December 2016 adjourning the petition to 31 March 2017, and containing a notation similar to the earlier order dated 27 July 2016.  The Respondents agreed that they would not oppose any application for a sequestration order against them in respect of the Amended Creditor’s Petition by the Applicant.  The Amended Creditor’s Petition was not, of course, filed until 29 March 2017, three months after the Consent Order was made.  Again, the Court asks rhetorically, how could the Respondents, as a matter of policy, be held to an agreement not to oppose an application for a sequestration order in respect of an Amended Creditor’s Petition that they have not seen, and the validity of which they could not possibly contest until seen?

14. The Consent Order also notes the Respondents having agreed to enter into a further payment schedule as follows:

    a)$3000 on or before 9 December 2016;

    b)The sum of $3000 on or before 31 January 2017;

    c)The sum of $5000 on or before 15 February 2017 and

    d)The sum of $6696.86 on or before 15 March 2017.

15. Again, there is no dispute that payments totalling $7,500 only were made by 17 February 2017.

16. The Affidavit of Debt, therefore, asserts that $17,696.86 was agreed to be paid, but only $7,500 was paid, and thus Mr Taylor deposes that $10,696 remained due and payable.

17. Mr Taylor’s Affidavit of Debt satisfies the Court that, in fact, the Respondents knew that the Applicant’s lawyers were incurring legal costs in relation to recovery and had, in fact, received statements of account from the Applicant’s lawyers as at 25 July 2016.  The Respondent’s lawyer submitted, at one point, that his clients (the Respondents) were not aware of these costs invoices, even though he was plainly aware of the same.  The Court does not accept this contention.  For all practical purposes, knowledge of the Respondent’s solicitor was knowledge of the Respondents.

18. But does any of this change what the Court considers to be the quite fundamental problem at paragraph 1(a)(iv) of the Creditor’s Petition that the $17,000 referred to could not be costs on an indemnity basis pursuant to the terms of the contract, because the contract required statements of account or invoices to be rendered by the Applicant to the Respondents, and there is no evidence of that taking place.  In any event, the Affidavit of Debt does not explain the $17,000 referred to.

Conclusion

1. It is hard to find, therefore, for the purposes of s.44(1)(a) of the Act, a debt owing to the petitioning creditor that exceeds $5,000, being “costs on an indemnity basis pursuant to the terms of the contract”. There might have been another basis on which the debt might have been articulated, but the Applicant moved on the Amended Creditor’s Petition filed 29 March 2017.

2. During closing submissions, Counsel for the Respondents sought to rely on a Further Amended Creditor’s Petition, in respect of which leave to file in Court would have had to have been granted.  This was, unsurprisingly, opposed by the Respondents.  The Court declined to grant that leave as it would have been prejudicial to the Respondents.  It is interesting to note, however, that the proposed Further Amended Petition did assert, in the alternative, that a sum was due pursuant to a Deed of Settlement and Release, in respect of which only part payment had been made.

3. The Respondents further argued that the debt claimed in paragraph 1(a)(iv) of the petition was not, in any event, a liquidated sum due at law or in equity for the purposes of s.44(1)(b) of the Act. There is no need to comment on this assertion.

4. It must follow that the Amended Creditor’s Petition filed 29 March 2017 be dismissed.  The Applicants may well consider this an unjust result, but the result is a consequence of the Respondents entering into a 30 day credit facility and indemnity and guarantee, which was prepared by the Applicant.  The outcome of this case is the result of a reasonable interpretation of their own document.  The parameters of the agreement were, in reality, set by the Applicant.  By extending a 30 day credit facility to the Respondents, the Respondents agreed to pay all amounts on a 30 day term from statement date or, in the alternative, on invoice. 

5. As discussed above, the statement of account or invoice was a fundamental component of their agreement, and, thus, the failure of the Applicant to render accounts for the costs it incurred associated with the recovery of the account is fatal to its claim in a technical jurisdiction such as bankruptcy.  It is hardly surprising, however, that such a technical approach would be adopted where the consequences of bankruptcy are so profound on the Respondents.

6. In the normal course, the Court would expect costs to follow the event.  The Applicant should, therefore, pay the Respondents’ costs as agreed, or assessed.  If either party wishes to make submissions in relation to costs, however, I will stay the costs order for 28 days to enable the filing of written submissions in opposition to costs, provided the same is filed within 14 days.  The Respondent will then have 14 days to reply.

I certify that the preceding seventy-two (72) paragraphs are a true copy of the reasons for judgment of Judge Altobelli

Date:         20 July 2018