Close Finance (CL) Ltd v Kountouris
[2003] FMCA 188
•23 May 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CLOSE FINANCE (CL) LTD v KOUNTOURIS | [2003] FMCA 188 |
| BANKRUPTCY – Whether a petition should be amended where the debt upon which it is based is not a debt which would fall within s.44(1)(b)(i) and (ii) of the Bankruptcy Act – where the creditor sought relief against a guarantor – where there was an application to set aside judgment in the District Court – where orders were made to amend the Statement of Claim – where bankruptcy notice had been issued – where there was a notice of intention to oppose the petition due to irregularity – where debtor had committed an act of bankruptcy by not complying with the bankruptcy notice – whether the petitioning creditor has to be a judgment creditor – whether the debt is a liquidated sum – whether the current petition based on a judgment which has been set aside should be allowed to remain outstanding. |
Bankruptcy Act 1966 (Cth), ss.5, 43, 44
Federal Court of Australia Act 1976 (Cth)
Federal Magistrates Court Rules, Pt 16 R16.01
Garrard v Email Furniture Pty Ltd (1993) 32 NSWLR 662
Walsh v Deputy Commission of Taxation (1984) 156 CLR 337
Dean v Q.U.F Industries Ltd (1981) 51 FLR 317
Moschi Appellant v Lep Air Services Ltd and Ors [1973] A.C 331
O’Dea and Others v Allstates Leasing System (WA) Pty Ltd and Others (1983) 45 ALR 632
| Applicant: | CLOSE FINANCE (CL) LTD T/AS EQUIPMENT RENTAL FINANCE |
| Respondent: | GEORGE ALEXANDER KOUNTOURIS |
| File No: | SZ 97 of 2003 |
| Delivered on: | 23 May 2003 |
| Delivered at: | Sydney |
| Hearing date: | 13 May 2003 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Mr R D Marshall |
| Solicitors for the Applicant: | Marshalls Solicitors |
| Counsel for the Respondent: | Mr R A Parsons |
| Solicitors for the Respondent: | Peter Bouzanis & Associates |
ORDERS
Application dismissed.
Bankruptcy petition dismissed.
Applicant to pay the respondent’s costs pursuant to the Federal Court Act and Rules to be taxed if not agreed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SZ 97 of 2003
| CLOSE FINANCE (CL) LTD T/AS EQUIPMENT RENTAL FINANCE |
Applicant
And
| GEORGE ALEXANDER KOUNTOURIS |
Respondent
REASONS FOR JUDGMENT
This matter came before me for the hearing of a notice of motion for leave to be granted to the applicant creditor to amend paragraph one of the creditors petition filed, on 29 January 2003. Although there was not a cross-application filed the respondent debtor argued that if I did not grant the leave sought then the petition should be dismissed.
History
On 15 November 1999 a company associated with the debtor and known as KWL Advertising Ltd of Guernsey, Channel Islands entered into an agreement entitled “Equipment Rental Agreement” with a company known as KC Finance (Jersey) Ltd. Pursuant to that agreement a large quantity of photographic equipment, computer equipment and furniture was rented to KWL which had a total value of approximately £150,000.00. The agreement provided that the equipment would be rented for 48 monthly rental payments of £3,812.50 and after the expiry of the primary period there would be one annual rental of £50.00. The agreement was guaranteed by the debtor by way of an agreement of guarantee also dated 15 November 1999. The guarantee is in short form and after the formal particulars it states:
“I hereby guarantee that payment by the Hirer of all sums due under the agreement and the due performance of all the Hirer obligations thereunder, and I further agree and declare that my liability under this guarantee shall not in any way be discharged, diminished or affected by
(a)the granting of time or indulgence to the Hirer
(b)the effecting of any compromise
(c)the variation of any term or terms of the agreement or the substitution of any new goods for goods comprised in the agreement which are damaged, lost, stolen or destroyed.
PROVIDED that I shall not be liable by reason of such variation of [or] substitution of payment of any sum greater than the total amount for which I would have been liable if such a variation had not been made. I hereby abandon any right which at any time I would have had under the existing or future law of the Island whether by virtue of the “Droit de Discussion” or otherwise to require that recourse be had to the assets of the Hirer before any claim is enforced hereunder. I hereby undertake that if sued here under by you and the Hirer is not sued also, I shall not claim that the hirers be made party to the proceedings. I further agree to be bound hereunder whether or not a party to legal proceedings for the recovery of the amount due by the Hirer and whether the formalities required by any local Law or Statute whether existing or future in regard to the rights or obligations of securities shall or shall not have been observed.
This guarantee shall be governed by the laws of the Island mentioned in the guarantors address below and shall hereto be subject to the non-exclusive jurisdiction of the Courts of that said Island.”
The Island in question was Guernsey.
On 17 April 2001 KC Finance (Jersey) Ltd sold its business and assets to Close Finance (CL) Ltd, the current petitioning creditor. Included in the business was:
“The benefit (subject to the burden) of the contracts, licences, HP agreements and orders relating to the business.”
HP agreements were defined as
“any hire purchase credit sale, leasing and other similar agreements in connection with the business to which the transferor is party at the transfer date and which was then current.”
On 18 July 2000 a firm of advocates in Guernsey advised the agent of KC Finance that KWL Advertising Ltd had been put into compulsory liquidation. Thereafter the creditor sought relief against the guarantor. A quantity of the goods subject to the agreement were sold.
The guarantor was discovered in Australia and proceedings were commenced in the District Court of New South Wales by way of a statement of claim which was issued on 7 March 2002 and served upon the debtor on 24 April 2002. Default judgment was obtained on that Statement of Claim on 22 August 2002. The respondent debtor filed an application to have that judgment set aside in the District Court on
20 December 2002. The original statement of claim alleged that the plaintiff, Close Finance (CL) Ltd agreed to hire the equipment to KWL Advertising Pty Ltd and that the defendant had guaranteed to the plaintiff payment of all sums due and payable by the company under the rental agreement. The statement of claim sought judgment in the sum of £132,882.95 or $363, 333.20. The statement of claim was entitled “ Statement of Liquidated Claim”.
Mr Kountouris made an application to the District Court pursuant to Part 31 Rule 12A of the District Court Rules to set aside the judgment. Part 31 Rule 12A relevantly provides:
“A judgment or order of the Court in any proceedings may, on sufficient cause being shown, be set aside, on terms, by order of the Court, if the judgment was given or entered up, or the order was made, irregularly, illegally or against good faith.”
The matter was heard Judge Balla on 11 April 2003. I have read Her Honour’s judgment. Although it is not completely clear, it appears that the plaintiff in the case appreciated that the statement of claim was inaccurate in so far as it pleaded a direct contractual relationship between Mr Kountouris and itself. In its affidavit the plaintiff sought to advise the court of the true situation, which I have described above, and asked for leave to amend the statement of claim after judgment so that the affidavits and the statement of claim would reveal the same history. Her Honour refused citing as authority Garrard v Email Furniture Pty Ltd (1993) 32 NSWLR 662 at 667. She held that:
“Applying these principles I am satisfied that the factual inconsistency between the pleading and affidavits on which the judgment was entered amounts to a lack of requisite candour and is an irregularity within the meaning of the rule.”
Her Honour set aside the judgment and made orders concerning an amendment to the statement of claim, the filing of a defence and other interlocutory matters. An amended statement of claim has now been filed. As at the date when I heard this matter the defence had not been filed but I was supplied with a copy of an unverified defence which I was told was about to be filed. The matter has been listed for call over on 12 June 2003 to obtain a hearing date.
In the meantime, and relying upon its original judgment, the applicant creditor issued a bankruptcy notice No.2101/02 of 2002 dated
11 September 2002. This document was served on 31 October 2002. It may have been the service of this document which prompted the debtor to seek to set aside the default judgment. In any event it is not suggested that there was anything irregular about the bankruptcy notice at the time it was issued.
The debtor did not comply with the bankruptcy notice. On 29 January 2003 the applicant creditor issued a creditors petition of which the relevant parts are as follows:
“The applicant creditor CLOSE FINANCE (CL) LTD trading as EQUIPMENT RENTAL FINANCE of Barclays Court Les Echelones South Esplanade, St Peter Port, Guernsey GY1 4HN applies to the court for a sequestration order under section 43 of the Bankruptcy Act against the estate of GEORGE ALEXANDER KOUNTOURIS of KWL Advertising (Australia) Pty Ltd, Level 3, 1 Hickson Road, Sydney NSW 2000 unknown.
1) The respondent debtor owes the applicant creditor the amount of $420,982.14 under a judgment obtained in the District Court of New South Wales at Sydney on 22 August 2002 in Number 1271 of 2002 in that court.
2) …
3) …
4) The following act of bankruptcy was committed by the respondent debtor within six months before the presentation of this petition;-
4.1 Respondent debtor failed to comply on or before 21 November 2002 with the requirements of the bankruptcy notice served upon the respondent debtor on 31 October 2002 or to satisfy the court that the respondent debtor had a counter-claim set-off or cross demand equal to or exceeding the sum specified in paragraph 1 of the bankruptcy notice being a counter-claim, set- off or cross demand that the respondent debtor could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.”
On 25 February 2003 the debtor filed a notice of intention to oppose the application or petition on the grounds that:
“(1) The judgment referred to in paragraph 1 of the said petition was entered irregularly, fraudulently or against good faith
(2) The statement of claim in proceedings numbered 1271 of 2002 of the District Court of New South Wales Sydney contained statements which are
(a)Essential to the cause of action pleaded against the respondent and to the debt alleged by the applicant to be owed by the respondent;
(b)Materially false;
(c)Materially false to the knowledge or within the means of knowledge of:-
i. The Applicant;
ii. The Applicant’s legal advisors.
The notice of objection continues with the matters that were discussed before Judge Balla. The petition and the objection had not been heard at the time of the hearing before Judge Balla. After her order had been made the applicant creditor was no longer able to swear to the truth of the matters in the petition because the judgment referred to in paragraph 1 thereof had been set aside. It therefore sought by way of notice of motion to amend the petition so that paragraph 1 would read as follows:
“The respondent debtor owes the applicant creditor the amount of $363,333.20 in respect of his obligation to the applicant creditor under a written guarantee dated 15 November 1999 (“guarantee”) which the respondent debtor gave to KC Finance (Jersey) Ltd (“Jersey”) to secure the payment to Jersey of the amount due to Jersey by KWL Advertising Ltd (“KWL”) under a written agreement dated 15 November 1999 Numbered 90214880317 made between Jersey and KWL. The benefit to Jersey of the guarantee was assigned to the applicant creditor on 17 April 2001.”
The submissions of the parties
The applicant argued that it was still a creditor of the respondent even though it no longer had a judgment against him. The debtor had committed an act of bankruptcy by not complying with the bankruptcy notice. It was not argued by the debtor that the bankruptcy notice itself was unsound; nor should it be as a bankruptcy notice speaks as at the date of its issue; Walsh v Deputy Commission of Taxation (1984) 156 CLR 337 at 340. Under s.43 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) a petitioner only has to be a creditor, not a judgment creditor. Such a creditor need only claim the existence of a debt and is not obliged at the stage of issuing the petition to establish the existence of the debt. That is something which has to be done at the hearing of a petition; Dean v Q.U.F Industries Ltd (1981) 51 FLR 317. The applicant argued it was open to me to allow the amendment and then to adjourn the hearing of the petition until after the hearing of the District Court claim so that if that claim then established that Mr Kountouris was indeed the debtor of the applicant there would be no impediment to the petition going forward. The advantage for both the petitioning creditor and creditor’s generally would be that the relation – back date would be the original act of bankruptcy and not some subsequent act of bankruptcy based upon a later judgment. The applicant also argued that the debtor had not put on any evidence that he was solvent and such evidence as there was, which consisted of correspondence annexed to the affidavit of Steven Pateman dated 9 May 2003, indicated that he was a man without means.
Respondent’s submissions
The respondent submitted that the debt which the applicant alleges is available to keep alive the petition is not a debt which would give the applicant standing to present a petition and therefore the leave to amend should be refused and the petition should be dismissed. The respondent argues that there are no supporting creditors and there is no evidence that the respondent is otherwise insolvent.
Findings
I accept that a petitioning creditor does not have to be a judgment creditor. But s.44 of the Bankruptcy Act has other requirements. Firstly, the debt must amount to $2,000 or more (s.44(1)(a)). Secondly, the debt must be a liquidated sum due at law or in equity or partly at law and partly in equity and is payable either immediately or at a certain future time (s.44(1)(b)(i) and (ii)).
I accept that as at the date of hearing the application for amendment I do not have to decide the issue of whether the applicant is indeed a creditor or not. The claim to be a creditor is sufficient provided that the requirements of s.44 have been made out. It would be wrong of me, sitting in bankruptcy, to decide the very issue which is to be decided by the District Court of New South Wales. However, I note the debtor’s argument that any assignment that took place was an assignment of a bare chose in action which is unassignable at law and that I have seen no evidence of a notice of assignment addressed to the debtor nor any suggestion that the original agreement was novated.
The real question is whether or not the debt claimed by the applicant creditor is a liquidated sum. The debt is claimed under a contract of guarantee the terms of which have been set out at [2]. The legal nature of the obligation of the guarantor is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor does something. The creditor’s remedy for the failure to perform that obligation lies in damages for breach of contract only; Moschi v Lep Air Services Ltd and Ors [1973] A.C 331 at 348 per Lord Diplock; at 345 per Lord Reid. The form of guarantee found in Moschi was very similar to the form of guarantee found in this case.
I am satisfied that the findings of the House of Lords that the breach by the principal debtor of its obligations gave the creditor no more than a claim in damages against the guarantor apply in this case. The problems associated with this type of guarantee have long been recognised and are usually avoided by the expediency of making the guarantor also a principal debtor.
The respondent argued that debt “included a liability” (s.5 Bankruptcy Act). This is undoubtably the case but s.5 states that the definitions there given are given “unless the contrary intention appears.” Section 44(1)(b) of the Act clearly excludes the general type of liability which I have found the applicant’s claim to be.
I would also note that any claim which might have existed against the principal debtor under this agreement would itself not be a liquidated claim but a claim in damages; O’Dea and Others v Allstates Leasing System (WA) Pty Ltd and Others (1983) 45 ALR 632.
The debt which would be the subject of the petition if I granted the applicant leave to amend, would not be a liquidated sum due at law or in equity or partly at law and partly in equity. The debt would therefore not be capable of founding a petition in bankruptcy. It would not be appropriate to give leave to amend a petition so as to base it upon a debt which is not capable of founding that petition even if the petition itself is not to be heard until after the debt becomes liquidated. Likewise it is not appropriate that the petition in its current form based as it is upon a judgment which has been set aside, should be allowed to remain outstanding. The existence of a bankruptcy petition against a person is a matter which is on the public record. It could affect the ability of such a person to obtain credit or otherwise carry out his normal business activities. The applicant has conceded that the petition as it stands cannot be sworn to. It could never be sworn to because the judgment, referred to paragraph 1 as being obtained on a particular date, has been set aside.
I dismiss the application. I also dismiss the petition pursuant to Part 16 Rule 16.01 of the Federal Magistrates Court Rules. I order that the applicant pay the respondent’s costs pursuant to the Federal Court Act 1976 (Cth) and rules to be taxed if not agreed.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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