Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd

[1993] FCA 471

411   , \993

JUDGMENT NO. .......~~~~.~~e..e .Ie....n.rn

IN THE FEDERAL COURT OF AUSTRALIA

)

1

GENERAL DIVISION

1	Creditor Petition
)	No QP 7 4 8 of 1993

BANKRUPTCY DISTRICT OF THE

1

)

STATE OF OUEENSLAND

1

BETWEEN:  WILLIAM MURPHY

(Debtor)

AND :

(Applicant)

L a m :  Ryan J

W : Brisbane

Date:  09 July 1993

MINUTES OF ORDER

THE COURT ORDERS:

1.  That the creditor's petition No QP 748 of 1993 be referred to the Registrar for hearing and determination.

1. That the costs of both parties be reserved.

of the Federal Court Rules.
NOTE :	Settlement and entry of orders is dealt with in 0.36

IN THE FEDERAL COURT OF AUSTFWLIA

) )

GENERAL DIVISION

1	Creditor Petition
1	No QG 748 of 1993

BANKRUPTCY DISTRICT OF THE

1 1

STATE OF OUEENSLAND

j

BETWEEN:  WILLIAM MURPHY

(Debtor)

AND :  BILL ACCEPTANCE
CORPORATION LIMITED
(A.C.N. 000 488 3711

(Applicant)

Corm:	Ryan J
Place :	Brisbane
Date :	09 July 1993

REASONS FOR JUDGMENT

Rvan J: A creditor's petition has been presented on 05 April 1993 at the instance of Bill Acceptance Corporation Limited ("BAC") seeking a sequestration order based upon a judgment debt against the debtor, William Murphy. Judgment was entered in the Supreme Court of Queensland on 16 December 1992 in the sum of $16,058,342.68 together with interest of $366,760.34

and costs to be taxed. BAC had at first sought summary	judgment against the debtor, but, on 1 December 1992, Moynihan
J., in the Supreme Court, granted leave to defend and prosecute a counterclaim on condition that the debtor pay into Court by 15 December 1992 the sum of $83,800 by way of security for costs. That condition was not fulfilled as the debtor concededly was unable to pay the sum of $83,800 or anything like that amount. Judgment was entered accordingly. The debtor instituted an appeal against the order of Moynihan J in so far as it imposed a condition on the grant of leave to defend, but subsequently abandoned that appeal.
On 10 May 1993 an application was filed in this Court which is numbered QG 73 of 1993 and on 11 June 1993 an amended statement of claim was filed in those proceedings. By that amended statement of claim, Patricia Murphy the debtor's mother, was added as an applicant and it was pleaded that she and the debtor were variously directors of companies within what has been called "the Murphy Groupu. It is then pleaded that one of those companies, Userkaf Pty Ltd ("Userkaf")
borrowed from BAC $5m in about March 1989 and a further $3.5m in about October 1989 to finance the construction of a tourist attraction called "Underwater Worldw at Mooloolaba. Those borrowings were secured over land of which the debtor was the registered proprietor. It is further alleged that, in or about March 1989, the debtor and the Murphy Group retained BAC as a financial adviser. By about June 1990, according to the amended statement claim, Underwater World had been completed, had a value of $18.5111 and was operating as a tourist attraction with a positive cash flow to the point where BAC no
longer required the security for its advances of the mortgage granted by the debtor. The amended statement of claim then continues:

"11. Pursuant to the retamer, ln or about to June 1990, the Respondent advised and/or represented to the Flrst Appl~cant on behalf of himself and the Murphy Group of Companies:-

(a)	to proceed to stage two of Underwater World;
(b)	to borrow a further $5,000,000 from the Respondent;

(C)

if Userkaf proceeded to stage 2 of Underwater World the increased revenue occasioned thereby would be sufficient to meet:-

(i)	the interest payments on the existrng debt as pleaded in paragraphs 5 and 7 herein; and
(ii)	the interest payable pursuant to the increased borrowing pleaded in (b) herein (the advice and/or representations).

By particulars appended to that paragraph, it is alleged that the advice or representations were made orally by Mr Alan Knight who was then employed by BAC. Other relevant paragraphs of the amended statement of claim are in these terms :

"14. In reliance upon the advrce and/or representations the First

Applicant:-

(a)	caused Userkaf to proceed to stage 2 of Underwater World;
(b)	caused Userkaf to borrow the further funds as pleaded in paragraph ll(b) herein;

(C) executed a guarantee on 20th June 1990 (the guarantee) for the full amount of Userkaf's indebtedness as pleaded in paragraphs 5, 7 and ll(b) herein;

(d)	drd not, as he was entitled to do, rnsrst upon a release of the mortgage;
(e)	allowed the mortgage to remain in place to secure the
~ndebtedness pleaded in paragraph 5, 7 and ll(b) herern.

16. The advice and/or representations were negligent and/or constrtuted deceptive or misleading conduct withrn the meaning of section 52 of the Trade Practices Act 1974 (Cth).

PARTICULARS

(a)	The advice and/or representations were given and/or made without properly analysing projected cash flows for the business of Underwater World;
(b)	The advice and/or representations were given without taking into account the possibility of a recession;
(c)	The advice and/or representations were given without
tak~ng into account the possrbility of a down turn in the

tourism industry;

(d)	The advice and/or representations were given to induce Userkaf to borrow further funds from the Plaintiff when it was not in the best interests of Userkaf to do so;
(e)	The increased revenue occasioned by proceeding to Stage 2 of Underwater World was insufficient to meet the interest
payments pursuant to the increased borrowing as pleaded in paragraph ll(b) herem.

17. In so far as the representations are as to future matters the Applicants rely upon the provisions of section 51A of the Trade

Pract~ces Act 1974 (Cth).

18.   If not for the advice and/or representations the Fust Applicant:-

(a)	would not have caused Userkaf to proceed to stage two of Underwater World;
(b)	would not have caused Userkaf to borrow the further funds pleaded in paragraph ll(b) herein;
(c)	would not have executed the guarantee;
(d)	would have ins~sted, as he was ent~tled to do, on a release of the mortgage."

By the prayer for relief in the further amended statement of claim, the debtor seeks an order pursuant to s.87 of the Trade Practices Act that a guarantee executed by him in favour of BAC on 20 June 1990 is void and unenforceable. He also seeks damages pursuant to S. 82 of the Trade Practices Act quantified in the sum of $16,425,103.02 for which BAC obtained judgment against him in the Supreme Court of Queensland together with interest. (It is on the basis of the guarantee of 20 June

1990 that BAC obtained its judgment against the debtor).

The petition has been referred to a Judge of the Court for determination of the question whether the debtor can demonstrate sufficient reason for the Court to go behind the judgment on which BAC1s bankruptcy notice was based. The principles to be applied in determining that question have been outlined in numerous authorities.

In Wren v Mahoney (1972) 126 CLR 212, Barwick CJ described the

general nature of the discretion in these terms:

"Lord Esher in emphasizing that the Bankruptcy Court did not go behind a judgment as a matter of course but only if appropriate circumstances were shown to exist, said in Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD, at pp. 85-86:

"There is no statute which imposes any such oblrgation on the Court of Bankruptcy. Section 7 [of which s.52(1) is a counterpart] does no more than give a discretion."

His Lordship, in using this expression, was not intending, in my opinron, to weaken the emphasrs he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning credrtor's debt. Rather, if one reads all his

expressions in the several cases I have cited, he was pointing out
that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where rt resulted from a fully heard contest between partres but that it always had the power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent ltself as the relevant debt of the petitxoning creditor, even though under the general law, the prior exlsting debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitroning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questionrng whether behind the judgment or as it is said, as the consideration for rt, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exerclse its power, or if you will, its discretion to look at what is behind the judgment: to what is its cons~deration. It is not the law, in my opmion, that whether in any case the Court of Bankruptcy w ~ l l consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v Brien (1951) 84 CLR 343 lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt.

given for questioning whether behind that judgment there was in truth That discretion is not well exercised where substantial reasons are and reality a debt due to the petitioner."

The case has been argued before me on the basis that I should decide "as a preliminary question whether reason is shown for questioning whether behind the judgment [of the Supreme Court of Queensland] there is really a debt, before proceeding to determine the issue as to whether there was in truth a real

debt"; Wolff v Donovan (1991) 29 FCR 480 per Lee and Hill 33

at 486. I understand it to be accepted on both sides that,

should I decide the preliminary question favourably to the debtor, the determination of the final issue should be resolved by this Court in the proceedings numbered QG 73 of 1993.

The attack which the debtor makes on the foundational debt is essentially by way of counterclaim. It is not suggested that his execution of the guarantee was procured by fraud or was vitiated by some formal, or other, defect entitling him as of right to have it set aside. Rather, it is said that he was induced to execute the guarantee by reason of a representation made by Mr Knight that the future income of Underwater World would be sufficient to meet interest borrowings obtained by the Murphy Group to finance for construction of Stage 2 of that attraction. It is accepted by Counsel for BAC, for the purposes of the present argument, that Mr Knight made such a representation and that Mr Murphy was induced by it to execute the guarantee. As well, an affidavit by Mr Knight sworn 25 May 1993, filed on behalf of the debtor, contains the

following paragraph: 

"In or about April 1990 following a perrod of due drligence review of the operations of "Underwater World" I advised Mr Harrison and Mr Murphy that in my opinion the expected increase in turnover associated with stage 2 of Underwater World would be sufficient to meet the rncreased interest payments taking into account the further borrowings of $5,000,000.00. This advice was to be used to support a

credit application within BAC for a loan facil~ty	for the addrtional
$5,000,000,00."

There has been considerable argument before me as to whether the representation, concededly made by Mr Knight, was one to which s.51A of the Trade Practices Act applies. Sub-S. (1)

and (2) of that section provide:

"52A. (1) For the purposes of t h ~ s Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for mak~ng the representation, the representation shall be taken to be m~slead~ng.

relation to a proceeding concernmg a representation made by a	( 2 ) For the purposes of the appl~cation of sub-section (1) in
corporation with respect to any future matter, the corporation shall, unless it adduces ev~dence to the contrary, be deemed not to have had reasonable grounds for making the representation."

The debate as to the application of s.51A has centred on whether the representation was with respect to "a future matter" being the takings to be received from visitors to Underwater World during the life of the increased loan, or was

as to a present fact, namely that Mr Knight had formed an

opinion or made a prediction as to Underwater World's future receipts. In my view, it is unnecessary to resolve that controversy because implicit in the representation, on the latter analysis, was the assertion that Mr Knight had formed his opinion or made his prediction on the basis of relevant knowledge or expertise and after the exercise of an

appropriate level of skill and care. (See eg Inn L e i s u r e

I n d u s t r i e s P t y L t d v D.F. M c C l o y P t y L t d (1991) 28 FCR 151 at

167; B a t m a n v S l a t y e r (1987) 71 ALR 553 at 559; J a c g u e s v C u t

P r i c e D e l i P t y L t d [l9931 ATPR	46-102 at	53,436-7; P y r o t e k P t y
L t d v Ausco	I n d u s t r i e s P t y L t d [l9921 ATPR	46-085 at 53,323).

Whether adduced to demonstrate that implicit requirement, or to discharge the reversed evidentiary onus imposed by s.51A(2), I consider that the evidence presently before the Court tends to the conclusion that M r Knight's opinion or prediction was based on reasonable grounds and arrived at

after the exercise of his expertise with an appropriate level
of skill and care.

Mr Knight's professional qualifications were as a chartered accountant, and he had no special experience in the conduct or evaluation of tourist attractions like Underwater World. He based his financial projections on very detailed documentary studies entitled "Market Study with Financial Projections for a Proposed Underwater World Aquarium, Mooloolaba, Sunshine Coast, Australia" prepared in August 1988 by Horwath & Horwath Services Pty Ltd, an acknowledged authority on the assessment of tourist attractions. That study included estimates of the future cash flow from Underwater World based on assumed entry charges and the following projections of the numbers of visitors to the aquarium in future years:

PROJECTED TOTAL VISITATION UNDERWATER WORLD AQUARIUM

1989/90 - 1993/94

Year V i s ~ t a t i o n

As well, Mr Knight had actual figures for 1989/90 which	indicate that Horwath & Horwath's predictions had been
exceeded. That was confirmed in the Chairman's Review forming part of the Annual Report for 1990 of Murphy Corporation Ltd which was signed by the debtor and included the following extract :

"Vis~tations to Underwater World in the nine months to June 1990 far exceeded all Directors' expectations, as well as the forecasts orig~nally made by the independent tourism advisers, Horwath & Horwath. "

The same Review referred to an independent report prepared in August 1990 by another f i n of consultants, KPMG Peat Marwick which made even more optimistic projections of future "visitations" than those of Horwath & Horwath which Mr Knight had taken into account. That later report was even more voluminous than that of Horwath & Horwath and recited that "since its opening on 17 September 1989, Underwater World has attracted in excess of 375,000 visitors and is expected to pass 400,000 in its first year of operation". It reproduced the following projections of "visitations" to the extended facility:

Projected Visitation Extended Underwater World Facility

1991 to 1995

Resident Domestic International Total Projected

Year Populations V~sitors Visitors V~sitors

have referred, reproduced those projections in the form of a Significantly, the debtor in his Chairman's Review to which I graph but cautioned:

"KPMG Peat Marwick's project~ons below are based on representations and significant assumptions which are fully set out in their report which is available to be read In full at the off~ces of Murphy Corporation Limited.

As advised ln the independent report, shareholders should be aware

that projections of the future are by their nature uncertain and any changes in the underlying assumptions may materially affect the achievement of the projections."

- l0 -

It is clear from an affidavit sworn by Mr Murphy that the flow of visitors to Underwater World in all but one quarter in 1991 (when trade increased over the Christmas holiday season) generated insufficient income to pay the interest on the total borrowings of the Murphy Group. Mr Murphy has not, in his evidence to this Court, disclosed how the actual number of visitors during that time compared with the projections of Horwath & Horwath on which Mr Knight based his opinion ox prediction. However, the fact that a prediction or opinion can be shown, with hindsight, to have been wrong does not mean that when given it was misleading or deceptive or made without reasonable grounds. There is no indication in the evidence that Mr Knight misapplied his accounting or financial expertise in calculating the future liability of the Murphy Group for interest.

In so far as the so-called particulars appended to paragraph 16 of the amended statement of claim are properly particulars of that allegation, the closest they come to bringing Mr

Knight's representation within s .52 of the Trade Practices Act

is the suggestion that he failed to discount the projections

of numbers of visitors made by Horwath & Horwath to take account of a possibility of a recession or a downturn in the tourism industry. However, when cross-examined, Mr Knight acknowledged that he tested his assessment of the Murphy Group's to meet its liability for interest by assuming a cash flow of 25% less than that arrived at on the basis of the numbers of visitors assumed by Horwath & Horwath. Af ter

- l1 -

testing his calculations in that way, he deposed, he was still
"comfortable" that the liability could be discharged.

It is now obvious that the assumptions made, not only by Mr Knight, Horwath & Horwath and KPMG Peat Marwick, but by the debtor and the other directors of the Murphy Group, who were the actual operators of Underwater World, about its future ability to attract visitors, were over-optimistic. However, I am not able to find on the present state of the evidence that there is a reasonably arguable prospect of the debtor's fixing BAC with liability in the proceedings numbered QG 73 of 1993.

Moreover, even if some measure of success were achievable in those proceedings, I am far from persuaded that the debtor has any real prospect of securing a favourable exercise of the Court's discretion under s.87 of the Trade Practices Act to declare the whole of the guarantee of 20 June 1990 to have been void ab initio. Correspondingly, I consider that it also has some relevance to the discretion I am required to exercise

that this Court might be induced by considerations similar to

those which weighed with Moynihan J to condition the continued

prosecution of the proceedings numbers QG 73 of 1993 on the provision of substantial security for costs which the debtor could not make.

Accordingly, I rule that no reason has been shown for going behind the judgment entered in the Supreme Court of Queensland I shall refer the creditor's petition to the Registrar for hearing and determination and reserve the costs of both parties of the hearing on 7 July 1993.

This is to certify that this and the preceding eleven (11) pages are a true copy of the reasons for judgment of his Honour Mr Justice Ryan

Associate: W

Counsel for the Petitioning Creditor: Mr B O'Donnell Solicitor for the Petitioning Creditor: Feez Ruthning

Counsel for the Respondent Debtor:	Mr M Martin
Solicitor for the Respondent Debtor:	Franco de Pasquale & CO