Charles v Parkinson

Case [2000] FCA 1467

FEDERAL COURT OF AUSTRALIA

Charles v Parkinson [2000] FCA 1467

BANKRUPTCY – contested creditor’s petition – proof of judgment debt – discretion to go behind judgment of District Court – husband and wife were sole directors of company – wife held liable in District Court under personal guarantee of company’s contractual obligations – creditors initially obtained default judgment when husband and wife failed to appear at hearing – husband and wife applied to have default judgment set aside – judge set aside default judgment on condition that husband and wife pay costs thrown away – husband and wife failed to comply with costs order – judge refused wife leave to rely on amended defence

BANKRUPTCY – contract – personal guarantee – intention – non est factum

Bankruptcy Act 1966 (Cth) s 52

Cain v Whyte (1933) 48 CLR 639 referred to
Wren v Mahoney (1972) 126 CLR 212 referred to
Wolff v Donovan (1991) 29 FCR 480 referred to
Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 161 referred to
Deeks v Little Moreton Trading Pty Ltd (1995) 14 WAR 58 referred to
James Thane Pty Ltd v Conrad International Hotels Corp [1999] QCA 516 referred to
Hoylevans Pty Ltd v Weir [2000] WASC 144 referred to
Gibson v Manchester City Council [1978] 1 WLR 520 referred to
Zaknic Pty Ltd v Svelte Corporation Pty Ltd (unreported, Federal Court of Australia, Lehane J, 14 August 1996) referred to

EDWARD JOHN CHARLES AND KATHRYN ANN CHARLES v DAVID PARKINSON AND FIONA MARGARET PARKINSON (IN THE MATTER OF DAVID PARKINSON AND FIONA MARGARET PARKINSON)

N 7541 OF 1999

MOORE J
20 OCTOBER 2000
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7541 OF 1999

IN THE MATTER OF DAVID PARKINSON AND FIONA MARGARET PARKINSON

BETWEEN:

EDWARD JOHN CHARLES AND KATHRYN ANN CHARLES
APPLICANTS

AND:

DAVID PARKINSON AND FIONA MARGARET PARKINSON
RESPONDENTS

JUDGE:

MOORE J

DATE OF ORDER:

20 OCTOBER 2000

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.   The petition is dismissed.

2.   Costs are reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 7541 OF 1999

IN THE MATTER OF DAVID PARKINSON AND FIONA MARGARET PARKINSON

BETWEEN:

EDWARD JOHN CHARLES AND KATHRYN ANN CHARLES
APPLICANTS

AND:

DAVID PARKINSON AND FIONA MARGARET PARKINSON
RESPONDENTS

JUDGE:

MOORE J

DATE:

20 OCTOBER 2000

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Introduction

  1. On 17 May 1999 Mr Edward Charles and Mrs Kathryn Charles lodged a creditor’s petition seeking an order under s 52(1) of the Bankruptcy Act 1966 (Cth) sequestrating the estate of Mr David Parkinson and Mrs Fiona Parkinson. Mr and Mrs Parkinson filed notices of intention to oppose the petition. On 16 May 2000, I made an order extending the petition for twelve months. On 14 June 2000, in other proceedings, Spender J made an order sequestrating the estate of Mr Parkinson: see

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Charles v Parkinson [2000] FCA 1467
Case
[2000] FCA 1467
Decision Date

CaseChat Overview and Summary

The case of Charles v Parkinson involved a dispute between Mr and Mrs Charles, as creditors, and Mr and Mrs Parkinson, as debtors, over a personal guarantee provided by Mrs Parkinson for Glenloch's obligations under an agreement. The legal issues were whether Mrs Parkinson had a real opportunity to defend the proceedings in the District Court and whether she agreed to give the personal guarantee. The court considered the evidence provided by Mrs Parkinson, including her claim that she was denied a real opportunity to defend the proceedings and that she did not agree to give the personal guarantee. The court concluded that substantial reasons existed to go behind the judgment, as Mrs Parkinson was effectively precluded from defending the allegation due to a costs order made in the previous proceedings. Additionally, the court found that there was a high probability that the contract contained a clause intended to create personal guarantees by Mr and Mrs Parkinson for the performance of Glenloch's obligations, but the question remained whether Mrs Parkinson agreed to give that personal guarantee.

The court's reasoning focused on the burden of proof, which lay on the petitioning creditors to show that the debt was owing. The court accepted that Mrs Parkinson's failure to seek to have the costs order set aside was explained by her reliance on her lawyer's advice that she could not do so, and that she failed to comply with the order because she lacked the financial means to do so. The court also considered the Agreement and whether it was to be treated as a guarantee binding Mrs Parkinson. The court found that the mere initialling of the Agreement by Mrs Parkinson, rather than executing it in the way the agreement contemplated, could not objectively be taken to have manifested an intention by her to be bound by its terms. Furthermore, the court found that a defence of non est factum could not be maintained assuming the initialling of the Agreement by Mrs Parkinson would otherwise evidence her agreement to its terms.

The final orders of the court were that the petition was dismissed and costs were reserved. The dismissal of the petition meant that Mrs Parkinson's liability under the personal guarantee in the document dated 20 August 1992 was not finally determined by the court. The reservation of costs meant that the court would decide on the allocation of costs at a later stage.

Orders

Orders of the court

1. The petition is dismissed.

2. Costs are reserved.

Background

Background to the litigation

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Evidence

Evidence Before The Court

I accept Mrs Parkinson must show substantial reasons for the Court to go behind the judgment. In essence, the grounds on which she asks the Court to do so are, first, that she was denied a real opportunity to defend the proceedings in the District Court, and, second, that she did not agree to give the personal guarantee that formed the basis of the judgment against her. The evidence concerning these grounds was as follows.The evidence In order to consider the first ground relied upon by Mrs Parkinson it is in necessary to set out the course those proceedings took as evident from the parts of the District Court file tendered in these proceedings. On 15 April 1994, Mr and Mrs Charles commenced proceedings, by statement of claim, against Glenloch and Mr and Mrs Parkinson. Glenloch had carried on business delivering smallgoods though, on or about 31 January 1994, it ceased trading and was placed in voluntary administration. Mr and Mrs Parkinson were directors of Glenloch and Mrs Parkinson was also its company secretary. Glenloch had its registered office at 109 Arcadia Road, Arcadia, which was (until some time in 1994) Mr and Mrs Parkinson’s home. Glenloch also had office premises at 43 Wentworth Street, Greenacre. Mr and Mrs Charles sued for breach of an agreement dated 20 August 1992 (“the Agreement”). I later consider (see par 31 below), the document tendered by Mr and Mrs Charles, in these proceedings, as the Agreement. However for the moment it is sufficient to set out the relevant terms of that document. The agreement was expressed to be:“BETWEEN GLENLOCH PTY. LIMITED (A.C.N. 002-144-872), a Company duly incorporated and having its principal place of business at 20 George Street, Granville in the State of New South Wales (hereinafter called “Glenloch”) and DAVID PARKINSON and FIONA MARGARET PARKINSON both of 109 Arcadia Road, Arcadia in the State of New South Wales (hereinafter called “Parkinson”) of the one part, AND EDWARD JOHN CHARLES and KATHRYN ANN CHARLES both of 4 Fergusson Street, Glenfield in the State of New South Wales (hereinafter called “Charles”) of the other part:” It can be seen that the word "Parkinson" is intended to describe both Mr and Mrs Parkinson. The recitals were as follows:“WHEREAS:(a)Glenloch carries on business as a distributor of gourmet foods, small goods, delicatessen items and numerous other products within New South Wales.(b)Glenloch is a Company owned and controlled by Parkinson.(c)Charles wishes to acquire from Glenloch and Parkinson the right to distribute Glenloch products within a geographical area referred to in Schedule One.(d)Glenloch and Parkinson have agreed to grant to Charles the exclusive rights to distribute Glenloch products within a geographical area referred to in Schedule One.” Clauses one and two conferred on Mr and Mrs Charles the exclusive right to distribute Glenloch products in the area set out in Schedule One for five years (with an option exercisable by Mr and Mrs Charles to extend the right for another five years), for consideration of $35,000. Clause four required Mr and Mrs Charles to acquire and maintain at their cost a suitable motor vehicle to deliver the products, to deliver the products to the best of their ability and in a proper and efficient manner from Monday to Friday in accordance with Glenloch’s established procedures and schedules, and to account to Glenloch for any money paid or payable to them for the products. Clause three required Glenloch to provide certain things to Mr and Mrs Charles, including a weekly commission equivalent to sixty per cent of the delivery fee charged by Glenloch. Clause ten provided that Glenloch guaranteed that commission would be no less than $1,300 per week and guaranteed to pay that amount plus any additional amount payable under clause three. Clauses eleven and twelve provided as follows:“11. Parkinson jointly and severally guarantees the due performance by Glenloch of all of Glenloch’s obligations under this Agreement.12. This Agreement shall be binding on the parties, their legal and personal representatives and Assigns.”

Decision

Reasons for decision

MOORE J
It is not necessary to delve into Mr Parkinson’s allegations about whether the document dated 20 August 1992 constituted a final contract. In particular, I do not need to make findings about whether he wrote the date on the document, nor about Mr Parkinson’s allegation that the document was compiled by Mr Charles using the execution page from the sample contract and other pages supplied by Mr Charles. That is because those questions are not relevant to the issue of whether Mrs Parkinson agreed to give the personal guarantee contained in the document dated 20 August 1992. Whatever allegations Mr Parkinson might make about the terms of the final contract with Mr and Mrs Charles, it is highly probable, from the evidence referred to in par 39, that the contract contained a clause intended to create personal guarantees by Mr and Mrs Parkinson for the performance of Glenloch’s obligations. The question is whether Mrs Parkinson agreed to give that personal guarantee.Conclusions It is not the function of this Court to determine finally whether Mrs Parkinson is liable under the personal guarantee in the document dated 20 August 1992. Rather, s 52 of the Bankruptcy Act requires that the Court be satisfied that the debt on which the petitioning creditor relies is owing. The petitioning creditors bear the burden of proving that it is. I consider that substantial reasons have been shown to go behind the judgment of Judge Puckeridge. Mrs Parkinson was effectively precluded from defending the allegation that she gave the personal guarantee by the costs order made on 27 April 1998: see Wolff v Donovan (1991) 29 FCR 480 at 486. I accept that, in making the costs order, Judge Puckeridge was quite properly seeking to minimise the prejudice that would be visited on Mr and Mrs Charles by an order setting aside the judgment of Judge Garling. However, I have accepted that Mrs Parkinson’s failure to seek to have the order set aside is explained by her reliance on her lawyer’s advice that she could not do so. I have accepted that she failed to comply with the order because she personally lacked the financial means to do so. I now turn to consider the Agreement and whether it is to be treated as a guarantee binding Mrs Parkinson. There is some mention in Mrs Parkinson’s notice of opposition, as well as some argument at hearing, about the availability of defences at general law such as mistake or unconscionability, and of relief under the Contracts Review Act 1980 (NSW). However, these arguments were not developed at any length and tend to obscure in generalities what I consider to be the real issues in the case. Paragraph 16 of the amended defence likewise, in my opinion, probably did not articulate with sufficient precision the nature of the defence. In my opinion, the facts raise for consideration two related issues. The first is whether the mere initialling of the Agreement by Mrs Parkinson (rather than executing it in the way the agreement contemplated) after (and probably a year after) it was first executed (probably fraudulently by her husband as to her signature) can, objectively, be taken to have manifested an intention by her to be bound by its terms. The second is whether a defence of non est factum can be maintained assuming the initialling of the Agreement by Mrs Parkinson would otherwise evidence her agreement to its terms. As to the first issue, counsel referred to the decision of Giles J in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 161. That case concerned an agreement which contained a term that two directors of Kiyose, Mr O’Sullivan and Mr Mould, guaranteed the performance by Kiyose of its obligations under the agreement. However, the execution section of the agreement made no express provision for execution by Mr O’Sullivan and Mr Mould as guarantors. Rather, that section said simply:“SIGNED by R G O’Sullivan ) (Signature of Mr O’Sullivan)for an on behalf of KIYOSE ) (Signature of Mr Mould)HOLDINGS PTY LTD ) )and duly authorised thereto in ) (Common seal of Kiyosethe presence thereof: ) Holdings Pty Ltd)S D Mould”

Ratio Decidendi

Legal Principle Established

Established by: MOORE J

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