CBA v Just
[2002] FMCA 174
•16 August 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CBA v JUST | [2002] FMCA 174 |
| BANKRUPTCY – Contested creditor’s petition – compromise agreement alleged. |
Bankruptcy Act 1966 (Cth) ss. 35A, 41(5), 43, 44, 52(1)
Deputy Commissioner of Taxation v Hadidi (1994) 123 ALR 48
Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337
McDermott v Black & Anor (1940) 63 CLR 161
| Applicant: | COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) |
| Respondent: | PETER ROBERT JUST |
| File No: | MZ313 of 2002 |
| Delivered on: | 16 August 2002 |
| Delivered at: | Melbourne |
| Hearing Date: | 25 July 2002 |
| Judgment of: | Hartnett FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Glacken |
| Solicitors for the Applicant: | G. S. Ray |
| Respondent appeared on his own behalf: | Peter Robert Just |
ORDERS
IT IS ORDERED BY THE COURT:
A sequestration order be made against the estate of PETER ROBERT JUST.
The Petitioning Creditor’s costs, including any reserved costs, be taxed pursuant to Order 62 of the Federal Court Rules and paid from the estate of the respondent in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES:
The date of the act of the bankruptcy is 5th of March 2002.
FEDERAL MAGISTRATES |
MZ313 of 2002
| COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) |
Applicant
And
| PETER ROBERT JUST |
Respondent
REASONS FOR JUDGMENT
Procedural history
A Creditor's Petition was filed by the Applicant on 28 March 2002 seeking a Sequestration Order under s 43 of the Bankruptcy Act 1966 (Cth) against the estate of PETER ROBERT JUST. The Applicant creditor claimed the Respondent debtor owed it the amount of $385,558.78 for monies due and in respect of which a Judgment or Order was obtained in the Supreme Court of Victoria at Melbourne on 5 March 2001. The amount of $385,558.78 comprised the amount of $350,400 for which the Judgment or Order was obtained and which amount was reduced by way of payment to the Applicant creditor, totalling $5000, such payment being made on 18 May 2001, and interest amounting to $40,158.78, calculated at that time at the rates of interests prescribed pursuant to s 2 of the Penalty Interest Rates Act 1983 (Vic), on the balance of the Judgment or Order debt outstanding and payable from 6 March 2001 to 5 March 2002 inclusive.
The Applicant claimed that when the act of bankruptcy as alleged was committed the Respondent debtor was personally present in Australia and was ordinarily resident in Australia. The alleged act of bankruptcy was that the Respondent debtor failed on or before 5 March 2002 either to comply with the requirements of a Bankruptcy Notice, numbered VN718/01, duly served on him on 12 February 2002.
On 28 March 2002, the Applicant filed an Affidavit verifying paragraphs 1, 2 and 3 of the said Petition and relies upon same. On
28 March 2002, the Applicant filed an Affidavit verifying paragraph 4 of the said Petition and relies upon same.
On 28 March 2002, the Applicant filed a Consent to Act as Trustee by Kenneth Stewart Sellers upon which the Applicant relies. On 1 May 2002, the debtor entered an appearance. An Affidavit of Personal Service of the Petition was filed on 8 May 2002 and the Applicant relies upon same. I am satisfied as to the matters deposed to in the foregoing affidavits.
On 9 May 2002, the Respondent debtor filed an Application seeking that the proceedings be transferred to the Family Court pursuant to s.35A of the Bankruptcy Act 1966 (Cth). He filed an Affidavit in support of that Application sworn 8 May 2002 and filed 9 May 2002. On the same date, 9 May 2002, the Respondent debtor filed a Form 149 Notice of Intention to Oppose Petition on the grounds that:
(1) The Bankruptcy Notice, dated 23 April 2001, misstated the amount due by the Respondent debtor in the following way:
(a)The Notice failed to give credit in respect of a compromise agreement (the "compromise agreement") entered into by the Applicant creditor with the Respondent debtor in March/April 2001 and confirmed thereafter whereby the amount due to the Applicant creditor was agreed at $80,000;
(b)The Notice failed to give credit for the benefit derived by the Applicant creditor in respect of the compromise agreement namely, the payment of the sum of $5000.
And further —
(2) The Petition misstated the amount due by the Respondent debtor to the Application creditor by reason of the matters referred to in (1) above.
An Affidavit in support of that Notice of Intention to Oppose the Petition was filed on 9 May 2002. That Affidavit alleges that the Respondent entered into a compromise agreement with the Applicant in March/April 2001 whereby the amount due to the Applicant was agreed at $80,000 and that that compromise agreement was confirmed (by the Applicant) on a number of occasions subsequent to March/April 2001. Further, the Respondent made a payment of $5000 pursuant to the compromise agreement which was accepted by the Applicant creditor. Accordingly, on 5 March 2002 the Respondent served the Applicant creditor's solicitors with a Notice pursuant to s.41(5) of the Bankruptcy Act 1966 detailing these matters.
A further Affidavit was filed by the Respondent on 17 May 2002 in relation to the Respondent debtor's Application to have the proceedings transferred to the Family Court of Australia. Another Affidavit in support of that same Application was filed 12 June 2002 by the Respondent debtor.
In opposition to that Application to transfer the proceedings, the Applicant filed an Affidavit on 20 June 2002, by Mr John Doherty.
On 27 June 2002, Phipps FM dismissed the Respondent Application filed 8 May 2002 to transfer the proceedings to the Family Court of Australia. He adjourned the Sequestration Application to a date to be fixed.
On 4 July 2002, the Respondent debtor filed an amended Form 149. The amended grounds being as follows:
"(3) At the time of the Applicant creditor's applying for the issue of the Notice, execution of the Judgment or Order to which the Notice related had been stayed by reason of the Compromise Agreement.
(4) The Notice required payment in accordance with the Judgment or Order to which the Notice related but at the time at which the Notice was issued, the obligation to pay in accordance with the Judgment or Order was suspended or qualified by operation of the Compromise Agreement."
In support of that Amended Application, the Respondent debtor filed Affidavits on 4 and 11 July 2002.
On the hearing of the matter, the Applicant filed an Affidavit of Search conducted on 24 July 2002 in the National Personal Insolvency Index maintained by the Insolvency and Trustee Service Australia; an Affidavit of Debt sworn by John Patrick Doherty on 25 July 2002 deposing to the amount of $385,558.78 owing by the Respondent to the Applicant creditor and that that amount being still wholly due and unsatisfied.
Background history
In 1996 the Applicant commenced Supreme Court proceedings numbered 6725 of 1996 against the Respondent claiming debts payable. On 18 March 1999, the Supreme Court proceeding was compromised and the Applicant and the Respondent executed a Deed of Settlement. The Respondent agreed that he was indebted to the Applicant in the sum of $350,000 and that the Applicant could enter Judgment for that sum. The Applicant agreed that if the Respondent made the payment (amounting to $70,000) on the dates set out in the Deed of Settlement, it would not enter Judgment against the Respondent. The compromise was thus an Accord Executory (see Deputy Commissioner of Taxation v Hadidi (1994) 123 ALR 48 at 53,255; and Cl. 3 and 5.2 of the Deed of Settlement).
Provisions of the Deed of Settlement for the amount and times for payment of the settlement sum (increased to $80,000) were varied by correspondence exchanged on 5 December 2000 and after the Applicant had taken steps to enter Judgment. The Applicant obtained Judgment against the Respondent on 5 March 2001 as detailed in paragraph 1 of these reasons. The Bankruptcy Notice was issued on
23 April 2001. On 18 May 2001 the Respondent debtor made a payment of $5000, it being the only payment that has ever been made to the Applicant by the Respondent. The categorisation of the payment remains in issue between the parties. By letter dated 29 May 2001 to the Respondent, the Applicant undertook not to execute the Supreme Court Judgment until 30 June 2001.
The Bankruptcy Notice was served on the Respondent debtor on 12 February 2002. Although a Notice alleging an overstatement in the Notice was served on the Applicant on 5 March 2002 pursuant to s.41(5) of the Bankruptcy Act1966, no application was made to set aside the Bankruptcy Notice. A Creditor's Petition was issued on 28 March 2002.
The issue in the present proceedings is whether a Sequestration Order should be made on the Creditor's Petition. This involves my determining whether the debtor has committed an act of bankruptcy and if so, whether a Sequestration Order should be made (ss.43and 52(1) of the Bankruptcy Act). The facts underlying that issue which I must consider concern the Deed of Settlement dated 18 March 1999, the Supreme Court Judgment obtained on 5 March 2001, and the act of bankruptcy alleged by non-compliance with the Bankruptcy Notice. It is also necessary for me to be satisfied that the conditions as set out in section 44 of the Bankruptcy Act have been met and that there is proof of the matters to which subsection 52(1) of the Bankruptcy Act require the Court to be satisfied. Those requirements include matters that have to be proved by way of affidavit evidence (see Rule 31 of the Federal Magistrates Court Rules 2001). I am satisfied in these proceedings that the necessary affidavits have been filed containing those matters of which the Court requires proof pursuant to s.52(1) of the Bankruptcy Act. These affidavits are referred to elsewhere in these reasons.
The Notice of Opposition to the Creditor's Petition claims that the Bankruptcy Notice misstated the amount in fact due because of the compromise agreement entered into in March/April 2001 to the effect that the amount due was $80,000 and because it did not give credit for the subsequent payment of $5000. As to the payment:
(a)it was made after the issuing of the Bankruptcy Notice and before its service;
(b)a Bankruptcy Notice:
"…speaks as at the date which it bears, that is the date of its issue..." (see Walsh v The Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337).
Its validity is therefore to be determined as at that date. A payment made after that date does not result in an overstatement of the amount in fact due.
In Walsh v The Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337 at 340, Gibbs CJ said:
"In form the Notice speaks as at the date which it bears, that is the date of its issue, and although service is essential to make
non-compliance an act of bankruptcy, and although the time fixed for compliance runs from the date of service, the Notice must be understood as speaking as at the date of its issue and the requirements of the Notice, for the purposes of s 40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount which must be correctly stated is the amount of the Judgment debt owing at the date of issue. This conclusion is satisfactory from a practical point of view since it is ordinarily within the knowledge of the debtor whether or not any payments have been made since the issue of the Notice and the ability to invalidate a Notice on the ground that payments were subsequently made opens the way to evasion.
Although the Notice in form requires payment to be made after service, it is apparent that a payment made before service, but after the issue of the Notice, must be taken into account in deciding whether there has been a compliance with the requirements of the notice under s 40(1)(g). "
As to the assertion of the Respondent debtor that a compromise agreement was entered into:-
(a)the evidence that is before me is that there was a Deed of Settlement of 18 March 1999 varied by letter of 5 December 2000 and then subsequently the obtaining of a Judgment on 5 March 2001 with the Applicant undertaking in May 2001 not to execute on this Judgment until 30 June 2001. Save for a payment of $5,000 made post the issue of a Bankruptcy Notice no payment in satisfaction of the judgment debt and/or the Deed of Settlement and/or the extension terms proffered by the Applicant has even been made by the Respondent.
The Respondent debtor, in his Affidavit of 11 July 2002, gave evidence that:
(a) On 5 March 2001, Mr Doherty, acting on behalf of the Applicant creditor, indicated that despite the Commonwealth Bank of Australia’s (hereafter “CBA”) entering of Judgment against him, the “CBA” was still agreeable to the $80,000 settlement amount remaining on foot and that when paid by the Respondent debtor the Judgment or Order could easily be set aside. Consequent to that telephone conversation, the debtor forwarded correspondence dated 5 March 2001 to the Applicant's Mr Doherty;
(b) Mr Doherty and the debtor met on 24 April 2001 wherein Mr Doherty again confirmed the “CBA’s” willingness to accept $80,000 over a period of time. It is alleged that Mr Doherty said at that time that he would need $5000 to keep the “CBA” happy and that he would need to be kept regularly up-to-date on the financial progress of the Respondent debtor. In accordance with this arrangement, on 8 May 2001, the Respondent delivered a letter to Mr Doherty enclosing a postdated cheque for $5000, albeit that he did not know at that stage that the Applicant had issued a Bankruptcy Notice against him on 23 April 2001. On 18 May 2001, Mr Doherty banked the $5000 cheque and on 17 May 2001 the Bankruptcy Notice was amended by the Applicant to show an amount allegedly owed but that such amendment did not take into account the $5000 delivered to Mr Doherty with the covering letter of 8 May 2001.
(c) The debtor disputes the basis upon which Mr Doherty suggests the $5000 payment was accepted, ie. as interest penalties.
It is useful at this point to examine in part the Deed of Settlement placed before me in evidence. The Deed of Settlement made 18 March 1999 between the Commonwealth Bank of Australia and the Commonwealth Development Bank of Australia and Peter Robert Just provided, in particular, the following terms:-
(1) That the Respondent acknowledged and agreed that at the date of signing he was indebted to the Applicant creditor for the sum of $350,000;
(2) The Respondent debtor agreed that the Applicant creditor could enter Judgment against him for the sum of $350,000 but that if the Respondent debtor paid the Applicant creditor the sum of $70,000 as follows:
(a)$50,000 on or before 31 March 2000; and
(b)$20,000 on or before 30 September 2000;
then the Applicant creditor would not enter Judgment against the Respondent. The Applicant could elect to have the proceeding reinstated in the event that one or more of the payments were not made and upon reinstatement, apply for the entry of Judgment against the debtor for the sum of $350,000 less any sum paid by the debtor in reduction thereof together with costs of the Application fixed at $400. Time was of the essence in respect of compliance of the obligations of the debtor under the Deed of Settlement.
In response to the July affidavits of the Respondent the Applicant filed an affidavit sworn by John Patrick Doherty on 17 July 2002. I accept as factually accurate those matters deposed to by Mr Doherty on
17 July 2002. Mr Doherty is a manager of the Applicant creditor, the Commonwealth Bank of Australia Group Credit and Market Risk, Credit Management Unit, and as such was authorised by the Applicant creditor to swear Affidavit material on its behalf. Mr Doherty was cross-examined as to the contents of his affidavit by the Respondent.
I found him to be a truthful and reliable witness and his evidence was unshaken in cross-examination.
Those factual matters which I accept are as follows:
(i)By correspondence exchanged on 5 December 2000, the Applicant and the Respondent agreed that the amounts and time for payments under the Deed of Settlement be altered but that the default clauses in the said Deed of Settlement remain the same. At the time of that exchange of correspondence, the Applicant had made an Application in the Supreme Court of Victoria for Judgment against the Respondent because of non-compliance with the Deed of Settlement. That Application was returnable on 7 December 2000. In the correspondence exchanged on 5 December 2000, the Bank agreed to adjourn the hearing of that Application until a date after 28 February 2001 and further agreed that if the Respondent made the first payment of $30,000 by 28 February 2001, the Bank would again adjourn the Application.
(ii)On 7 December 2000, the Application in the Supreme Court was adjourned to 5 March 2001. The Respondent did not make the payment required pursuant to the Deed of Settlement and the 5 December 2000 correspondence by the due date of 28 February 2001. Thus on 5 March 2001, the Supreme Court gave Judgment for the Applicant against the Respondent in the sum of $350,000. A copy of the sealed Form of Judgment is annexed to the Bankruptcy Notice, UN718/01. Bankruptcy Notice VN718/01 was issued by the Official Receiver on 23 April 2001.
(iii)On 5 March 2001, the Respondent corresponded with the Applicant indicating an inability to have made the anticipated payment by the end of February. Further, the Respondent stated that he noticed the Summons for the obtaining of Judgment was set down for that morning.
(iv)On 8 April 2001, the Respondent wrote to the Applicant indicating that he was having a few days away and that he would contact it immediately after Easter to discuss the matter further.
(v)The next communication was a telephone call from the Respondent on 24 April 2001. A reference in a diary note prepared by Mr Doherty of 27 April 2001 refers to a meeting wherein the Respondent sought more time. It was discussed between the Applicant and Respondent, and put as a term required by the “CBA”, that the Respondent would pay $5000 by 14 May and that this payment would be regarded as an interest/costs payment and that the $80,000 principal that was to come under the earlier agreement would be in addition to interim deposits in the order of $5000 each month after the first payment by 14 May. Unbeknownst to the Respondent, a Bankruptcy Notice had been filed but was not, at that point in time, served upon the Respondent.
(vi)The next step in this scenario was that the Respondent delivered a postdated cheque for $5000 which was received by Mr Doherty on 10 May 2001. This remains the only payment that has ever been made by the Respondent.
(vii)It is uncertain at the meeting of 24 April 2001 whether in fact the Respondent was advised of the issue of the Bankruptcy Notice. The cheque was banked on 18 May 2001, which was the day after the Bankruptcy Notice filed was amended.
(viii)At no time between 29 May 2001 and 17 July 2002 did the Respondent contact the Applicant to challenge the terms upon which the $5000 payment was accepted by the Bank as set out in its letter to the Respondent dated 29 May 2001. That letter advised the Respondent that the payment of $5000 was accepted as covering interest/penalties for the extension of the terms compromise until 30 June 2001. The Bank undertook not to execute the Supreme Court Judgment during the period to 30 June 2001 and that a holding payment of $5000 was required by 30 June 2001 and in the event of any request beyond that date, similar payments would be looked for on a monthly basis.
(ix)On 20 June 2001, the Respondent wrote to the Applicant keeping the Applicant up-to-date on recent business developments of his. He concluded that he would call in the next day or so to make a brief appointment to see Mr Doherty next week to discuss matters pertaining to the monies owed to the “CBA”.
(x)By diary note of 29 June 2001, the Applicant indicated that the Respondent telephoned the day previously to update on progress with his financial matters and to seek a further extension of time with respect to payment. Mr Doherty's diary note reveals that he indicated to the Respondent that with a new pay-out date of 30 September 2001, another $5000 would be needed to appease the bank, again, for interest/costs and not in reduction of the $80,000 principal. He indicated agreement to allow an extension until 31 July 2001 when the Bank would require $5000 for interest and costs for the extended period 30 June 2001 to 30 September 2001; information as to the business activities of the Respondent; and an assurance that final settlement would be completed by 30 September 2001.
(xi)On 1 August 2001, the Respondent wrote to the Applicant indicating that he would call the following day to make an appointment to discuss the matter further.
(xii)By letter of 26 August 2001 the Respondent then wrote to the Applicant referring to continuing discussions and indicating that he was organising the next payment of $5000 to be paid by mid-September. On 25 September 2001, the Applicant wrote to the Respondent requesting a meeting and indicating that a holding of $5000 had become a requirement given the various term extensions that the Bank had allowed.
(xiii)By reply dated 30 September 2001, the Respondent indicated that he would give the Applicant a call to discuss matters referred to in the Applicant’s letter of 25 September 2001.
(xiv)By letter of 2 October 2001, the Applicant contacted the Respondent indicating its anxiety to resolve the issue of the Respondent's long outstanding commitments to the Bank and requesting that it be contacted as a matter of urgency. The response to that correspondence was a phone call as evidenced by diary note dated 10 October 2001 wherein the Bank indicated that they required to be paid by 30 November 2001.
(xv)On 29 November 2001, the Applicant wrote to the Respondent stating that it was imperative for a major payment to emerge to avoid the Bank, before the middle of December was reached, executing under the Judgment it held. The Bank's:
"… acceptance of deferments subject to promises for future payments, has reached its end."
(xvi)By letter of 11 February 2002 from the Respondent to the Applicant, reference was made to the Bank's letter of
29 November 2001 with an advice to the Bank that the hoped-for transaction involving Monash University and Singaporean investors had fallen through and that the Respondent would be in touch again as soon as possible. That correspondence was followed by service of a Bankruptcy Notice upon the Respondent on 12 February 2002, as evidenced by the Affidavit of Service filed by Mr Thomas Ganon, sworn 25 February 2002.(xvii)At no time throughout this exchange of correspondence, and the telephone calls as evidenced by diary notes of Mr Doherty, did the Respondent claim that any agreement had been reached between the Bank and he for the Bank to accept a promise to pay or a payment of a sum of $80,000 in total in satisfaction of the Judgment debt. What is apparent is that the Applicant was prepared to give the Respondent more time on numerous occasions to put forward a payment proposal. No payment proposal was ever put forward nor any payment made, save for the sum of $5000 accepted by the Bank in the terms as set out in the Bank's letter of 29 May 2001.
Conclusion
There is nothing in the factual history of this matter to indicate that an agreement was reached consequent upon the obtaining of the Judgment debt between the Applicant and debtor.
If any agreement was reached, it was merely for the Bank to give the Respondent further time to pay on certain terms; or alternatively, that if he paid the sum of $80,000, together with instalments for interest/costs, that might be performance resulting in satisfaction and accord.
The Bank gave many indulgences to the Respondent without the compromise of the Judgment debt.
As at the date of the issue of the Bankruptcy Notice there was, at best, a promise to pay. That is putting the Respondent's case at its highest. In McDermott v Black & Anor (1940) 63 CLR 161, Dixon J said (at
p. 184):
"It may be a promise or contract or it may be an act or thing promised. But, whatever is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord in satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one."
I refer further to the decision of the Full Court of the Federal Court of Australia in Deputy Commissioner of Taxation v Hadidi (1994) 123 ALR 48 where Beaumont and Heerey JJ, referring to the decision at trial and the comments of Sweeney J, said (at p. 53 of the Report):
“I am satisfied that before the issue of the Bankruptcy Notice, the Commissioner had agreed with the agent for the debtor and his wife that he would be content to accept their promises under the agreement in place of their liabilities under the Judgments obtained against them. If that agreement has been broken, it is for him to seek a Judgment to enforce it and, if successful, to issue a Bankruptcy Notice."
The Full Court then went on to say:
"On behalf of the Appellant, it is now submitted that, on the true construction of the agreement of compromise, only the making of the final payment of $30,000 and not merely the giving of the promise to make the payment, could operate to discharge the liability of Mrs Hadidi to pay the full amount due under the Judgment obtained against her”
and further —
"Was the Appellant accepting, in satisfaction of his rights under the Judgments, the mere promise of Mr and Mrs Hadidi or only the performance of that promise by payment of $75,000?"
The Full Court held, at page 55:
"It is common ground that upon payment of the total sum of $75,000, each debtor was entitled, both at law and in equity, to an unconditional discharge and release from liability under their respective Judgments. It is an unlikely intention to impute to the parties that in November 1989 the Appellant was agreeing to accept, in place of Judgments totalling about $100,000, a bare promise by the Respondent and her husband to pay instalments totalling $75,000, so that upon any defaults in payment the Appellant would have to return to Court and commence proceedings all over again on a fresh cause of action."
The Respondent has paid only a sum of $5,000 to the Applicant and engaged in a lengthy process of delay with ongoing dialogue suggestive of some future attempt by him to meet his financial obligations. The Applicant’s Judgment obtained has not been waived by this process.
For all of the foregoing, I am satisfied as to those matters necessary for me to make a Sequestration Order on the Creditor’s Petition.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Associate:
Date:
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