Darwin Food Pty Ltd v Gray
[2018] SASCFC 84
•20 August 2018
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
DARWIN FOOD PTY LTD v GRAY
[2018] SASCFC 84
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Blue and The Honourable Justice Hinton)
20 August 2018
BANKRUPTCY - SCOPE AND POLICY OF LEGISLATION - APPLICATION OF BANKRUPTCY LAWS
BANKRUPTCY - ADMINISTRATION OF PROPERTY - PROOF OF DEBTS - WHAT DEBTS PROVABLE - DAMAGES AND CONTINGENT LIABILITIES - CONTINGENT LIABILITIES
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - GENERAL APPROACHES TO INTERPRETATION
Appeal to the Full Court from the judgment of a single Judge of the Court allowing an appeal from the judgment of a Magistrate who found the appellant liable to pay the respondent the sum of $100,000 pursuant to a guarantee agreement.
On 11 November 2010 Oz North Food and Liquor Wholesalers (NT) Pty Ltd, as the appellant was then known, entered into an agreement with Omnyx Pty Ltd (Omnyx), for the supply of goods on credit (the credit agreement). That same day the respondent, who was a director of Omnyx, entered into a guarantee and indemnity agreement with the appellant (the guarantee agreement) in which he guaranteed payment for any supplies made by the appellant to Omnyx under the credit agreement that Omnyx did not pay for in accordance with the terms and conditions of the credit agreement.
Between 1 April 2012 and 22 May 2012 the appellant supplied Omnyx with goods to the value of $87,293.30 inclusive of GST. On 28 May 2012 receivers and managers were appointed to Omnyx and on 14 August 2012 the company ceased trading. When a letter of demand was sent to the respondent, he did not pay. Proceedings were instituted in the Magistrates Court.
Before the Magistrate the respondent contended he was released from all obligations under the guarantee agreement by virtue of his having executed a Personal Insolvency Agreement on 12 January 2012 under Part X of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). In reply it was contended that the action taken by the respondent under the Bankruptcy Act only protected him from action taken in relation to provable debts within the meaning of s 82 of that Act. The debt incurred by Omnyx between 1 April 2012 and 22 May 2012 was not, the appellant submitted, a provable debt.
The issue on appeal to the Full Court was whether under the guarantee agreement the respondent was subject to a contingent liability by reason of an obligation arising before the date of execution of the Personal Insolvency Agreement. The relevant question was did the guarantee agreement impose an obligation in relation to a contingent liability absent a supply of goods? If the answer to that question was yes the debt incurred by Omnyx was a provable debt for the purposes of s 82.
Held, allowing the appeal:
1. As the guarantee agreement was divisible it gave rise to no obligation upon which a contingent liability was founded for supplies made after the date that the Personal Insolvency Agreement was entered (per Blue J at [32], Hinton J at [104], Kourakis CJ agreeing with both).
Bankruptcy Act 1966 (Cth) ss 82, 230, referred to.
Coventry v Charter Pacific Group (2005) 227 CLR 234; Ex parte Llynvi Coal and Iron Co; In re Hide (1871) LR 7 Ch App 28; Thiess v Collector of Customs (2014) 250 CLR 664; Certain Lloyd’s Underwriters v Cross (2012) 248 CLR 378; Foots v Southern Cross Mine Managements Pty Ltd and Others (2007) 234 CLR 52; Community Development Pty Ltd v Endwirda Construction Company (1969) 43 ALJR 365; Glenister v Rowe [2000] Ch 76; ACCC v Black on White (2004) 138 FCR 314; Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848; Federal Commissioner of Taxation v Gosstray (1986) VR 876; Gaffney v Commissioner of Taxation (1998) 81 FCR 574; McClellan v Australian Stock Exchange (2005) 144 FCR 327; Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2014] WASC 89, applied.
Proud v Brims Distributors Pty Ltd [1996] NSWCA 439, not followed.
DARWIN FOOD PTY LTD v GRAY
[2018] SASCFC 84Full Court: Kourakis CJ, Blue and Hinton JJ
KOURAKIS CJ: I would allow the appeal and restore the orders of the Magistrate. I agree with the reasons of both Blue J and Hinton J. I add the following observations.
There is a critical distinction for the purposes of s 82(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) between a future and/or contingent legal liability founded on a legal obligation existing at the date of bankruptcy and an obligation which may be imposed in the future on the happening of certain events or circumstances after the date of bankruptcy. A legal obligation is imposed by the operation of particular legal rules on the happening of factual circumstances prescribed by those rules. A contingent legal liability is one in which the incidents and scope of the liability arising out of an existing obligation are yet to be determined by future events or circumstances.
The relevant legal rules in this case are those general laws of contract and guarantees operating on Mr Gray’s guarantee. Mr Gray did not guarantee the punctual payment of the cost of an identified quantity of goods which the appellant was contractually bound to deliver, and Omnyx Pty Ltd (Omnyx) was reciprocally bound to receive and pay for. Nor did Mr Gray give an irrevocable guarantee of the payment of all goods which Omnyx might from time to time contract to purchase. As at the time of Mr Gray’s bankruptcy whether or not the terms of his guarantee would result in any legal obligation depended on the happening of the following events and circumstances:
·the placing of an order for goods by Omnyx;
·the contractual acceptance of that order by the appellant; and
·Mr Gray not revoking his guarantee before the occurrence of the first two circumstances.
Only on the occurrence of those factual circumstances would Mr Gray become subject to a liability, albeit one which would be contingent on Omnyx not paying all, or some proportion, of the price of the goods.
If, before his bankruptcy, Mr Gray had irrevocably guaranteed payment for all such goods as might be supplied to Omnyx from time to time, or had guaranteed the payment of the cost of a specified quantity of goods, he would have incurred a legal obligation to pay for the cost of goods supplied, but his liability under that obligation would have been contingent on both the supply of the goods by the appellant and non-payment by Omnyx.
In this case Mr Gray guaranteed the payment of the purchase price on the 19th of each month for such goods as may have been ordered and delivered in the preceding month but his guarantee was revocable. The supply of the goods which enlivened that obligation, on which the appellant claimed that Mr Gray was liable for the unpaid purchase price, did not occur until after Mr Gray’s bankruptcy. It was therefore not a contingent liability within the meaning of that term in s 82(1) of the Bankruptcy Act.
BLUE J: I agree with Hinton J that this appeal should be allowed.
The determination of the appeal turns on the construction of s 82 of the Bankruptcy Act 1966 (Cth) (the Act). Section 82 relevantly provides:
82Debts provable in bankruptcy
(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
(1A)Without limiting subsection (1), debts referred to in that subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy.
(2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
…
(4)The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.
(5)A person aggrieved by an estimate so made may appeal to the Court not later than 28 days after the day on which the person is notified of the estimate.
(6)If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.
(7)If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper.
(8)In this section, liability includes:
(a) compensation for work or labour done;
(b) an obligation or possible obligation to pay money or money’s worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and
(c) an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money’s worth, whether the payment is:
(i)in respect of amount—fixed or unliquidated;
(ii)in respect of time—present or future, or certain or dependent on a contingency; or
(iii)in respect of the manner of valuation—capable of being ascertained by fixed rules or only as matter of opinion.
Subsection 82(1) has two limbs referring to debts and liabilities. Debt is encompassed within liability and for ease of expression I refer only to liabilities. The two limbs are:
·liabilities to which a bankrupt was subject at the date of the bankruptcy; and
·liabilities to which a bankrupt may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy.
Several observations can be made at the outset concerning the two limbs. First, they are mutually exclusive. The first limb applies only to liabilities to which a bankrupt was already subject at the date of bankruptcy. The second limb applies only to liabilities to which a bankrupt was not subject at the date of bankruptcy but to which the bankrupt may become subject between the date of bankruptcy and the date of discharge.
Secondly the concept of an “obligation incurred” the subject of the second limb is broader than the concept of a “liability” to which a bankrupt is subject the subject of both limbs.
Thirdly in the first limb there is no reference to an obligation incurred and the sole enquiry is whether the bankrupt was subject to a liability at the date of bankruptcy.
Fourthly the subsection adopts the shorthand drafting technique of qualifying the reference to liabilities at the outset by clarifying that they can be present or future and can be certain or contingent. This is followed by the reference to the two limbs. However as a matter of logic the first limb is confined to present liabilities because by definition they must be liabilities to which the bankrupt was already subject at the date of bankruptcy. They may nevertheless be contingent liabilities. The reference to future liabilities at the beginning of the subsection is included for the purpose of the second limb.
Fifthly the term “liability” is “defined” in a non-exhaustive way by subsection 82(8) to include three specific categories.
In the present case, by virtue of subsection 30(3) of the Act, subsection 82(1) operates to define debts provable under a personal insolvency agreement by reference to the date or execution of the agreement in lieu of the date of the bankruptcy. In Mr Gray’s case, this was 12 January 2012. For ease of expression, because subsection 82(1) refers to the date of bankruptcy, I refer to 12 January 2012 as the date of bankruptcy, recognising that Mr Gray was not made bankrupt but entered into a personal insolvency agreement. I refer to 23 August 2012 as the date of discharge recognising that this was the date of termination of the personal insolvency agreement rather than discharge from any bankruptcy.
Mr Gray in his submissions tended to merge the two limbs and did not always articulate whether he was contending that the first or second limb applied in the present case. The Magistrate’s reasons for judgment address the second limb. The Judge in his reasons for judgment framed the issue as being whether there was a contingent liability to which Mr Gray was subject on the date of bankruptcy,[1] thereby framing the issue as whether the first limb applied. However, in finding that subsection 82(1) applied to the debts in question, the Judge concluded that there was an obligation incurred before the date of bankruptcy, being part of the criteria for the second limb.[2] It is critical to consider each limb in turn because they are mutually exclusive and because the inquiry mandated by each involves different concepts for the reasons given above.
[1] Gray v Oz North Food & Liquor Wholesalers (NT) P/L [2016] SASC 165 at [14].
[2] Gray v Oz North Food & Liquor Wholesalers (NT) P/L [2016] SASC 165 at [28], [33] and [36].
The first limb
The first limb applies to a liability to which a bankrupt was subject at the date of the bankruptcy. As observed above, the liability might be certain or contingent, but it must be one to which the bankrupt was subject at the date of the bankruptcy.
In the present case, pursuant to the agreement between Darwin Foods Pty Ltd[3] (Darwin Foods) and Omnyx Pty Ltd (Omnyx) made on 11 November 2010 (the supply agreement), no obligation was imposed on Omnyx to order goods from Darwin Foods. Omnyx had no liability to Darwin Foods as at the date of the supply agreement in respect of goods that might be ordered and supplied in future: a liability only arose upon an order for and the supply of goods. Each supply gave rise to a separate debt and hence a separate obligation. The agreement was divisible as to each debt arising as a result of each supply of goods by Darwin Foods to Omnyx.
[3] Then known as Oz North Food & Liquor Wholesalers (NT) Pty Ltd.
As at 12 January 2012, pursuant to the Guarantee and Indemnity Agreement (the guarantee agreement), Mr Gray had guaranteed to Darwin Foods the punctual payment of debts incurred by Omnyx from time to time in respect of supplies by Darwin Foods to Omnyx. Mr Gray had undertaken by way of indemnity to pay such debts himself if not paid punctually by Omnyx.
In respect of debts incurred by Omnyx on or before 12 January 2012 but not paid as at 12 January 2012, Mr Gray had a contingent liability pursuant to the guarantee agreement as at 12 January 2012 within the meaning of the first limb of subsection 82(1). The liability was contingent on Omnyx not making payment of the debts thereafter and (at least in the case of the guarantee) upon demand being made upon him. Such liabilities were therefore encompassed within subsection 82(1) and provable under the personal insolvency agreement.
In respect of debts incurred by Omnyx after 12 January 2012, Mr Gray did not have a “liability” as at 12 January 2012 within the meaning of subsection 82(1) pursuant to the Guarantee Agreement. No liability would or could arise unless and until goods were ordered by Omnyx and supplied by Darwin Foods. Omnyx itself had no liability (certain or contingent) to Darwin Foods unless and until goods were ordered and supplied.
It is sometimes said that, where there is an agreement providing for future supply of goods or services upon order, a separate contract comes into existence upon the placing and acceptance of each order.[4] However, the conclusion expressed in the previous paragraph does not depend on any such analysis. Assuming that the only contract that came into existence was the original supply agreement, no liability arose under that agreement unless and until goods were ordered and supplied.
[4] See for example In re Nicholson [1989] FCA 182 at [19] per French J.
The term “liability” is defined by subsection 82(8)(b) to include a possible obligation to pay money on breach of a contract whether or not the breach occurs before the discharge of the bankrupt. This is apposite to apply where the contract itself imposes a liability on a party to do or not do something and the party will be liable to pay damages for breach if the party subsequently fails to so act. It is not apposite to apply where the contract itself imposes no liability in the absence of future voluntary acts by the parties such as the ordering and supply of goods.
Likewise the term “liability” is defined by subsection 82(8)(c) to include an agreement to pay or capable of resulting in the payment of money whether the payment is present or future or certain or dependent on a contingency. Again this is not apposite to apply where the agreement itself imposes no liability to pay in the absence of future voluntary acts by the parties such as the ordering and supply of goods.
Although the definition of the term “liability” in subsection 82(8)(c) is non-exhaustive, there is no liability (whether contingent or otherwise) incurred by a guarantor under a guarantee of a revocable and divisible nature in respect of the purchase of goods such as in the present case unless and until the goods are ordered and supplied and the guarantee has not been revoked before that time.
The first limb had no application to goods supplied in April and May 2012 after the date of bankruptcy.
The second limb
The second limb applies to a liability to which a bankrupt may become subject before his or her discharge. As observed above, the liability might be certain or contingent, but it must arise by reason of an obligation incurred before the date of the bankruptcy.
In the present case Mr Gray became subject to a contingent liability to Darwin Foods by 19 June 2012 in respect of supplies to Darwin Foods in April and May 2012, which was before termination of the personal insolvency agreement on 22 August 2012. It is not in dispute that the first part of the second limb was satisfied.
It is not in dispute that, and in any event for the reasons given by Hinton J, the guarantee and indemnity given by Mr Gray to Darwin Foods in respect of debts due by Omnyx Pty Ltd to Darwin Foods was divisible as to each debt arising as a result of each supply of goods by Darwin Foods to Omnyx and was revocable by Mr Gray by notice to Darwin Foods.[5]
[5] See for example Coulthart v Clementson (1879) 5 QBD 42 at 46 per Bowen J; Caltex Australia Petroleum Pty Ltd v Troost [2015] NSWCA 64 at [74] per Emmett JA (with whom Meagher JA and Barrett J agreed).
As at 12 January 2012 Mr Gray had no “obligation” within the meaning of subsection 82(1) to pay Darwin Foods in respect of goods that might be ordered and supplied in future. Omnyx had no obligation to order goods in the future and, because the guarantee was revocable, Mr Gray had no obligation to pay for such goods unless he did not revoke the guarantee before the ordering and supply of such goods.
The position is analogous to that pertaining under a contract between a house owner and a cleaner for the cleaner to clean the house once a month for $100 terminable by either party on notice. If the house owner becomes bankrupt, there is no obligation as at the date of bankruptcy to pay for future house cleaning. If the house owner does not terminate the contract, the obligation to pay for future house cleaning only arises by reason of the house owner’s conduct in not terminating the contract. The cleaner could not prove in the house owner’s bankruptcy for cleaning beyond the first month. The same would apply to a contract between a hairdresser and client to cut the client’s hair once a month for $100 terminable by either party on notice. The position would be different if the cleaning or haircutting contract were for a fixed term and could not be terminated by the house owner or hairdresser.
After Mr Gray entered into the personal insolvency agreement in January 2012, he did not revoke the guarantee. His obligation to pay in respect of goods supplied in April and May 2012 arose only because he did not revoke the guarantee and his liability to pay only arose when goods were supplied pursuant to the supply agreement without his having done so. The second part of the second limb was not satisfied.
Authorities
The parties cite two cases in which the application of subsection 82(1) to a liability arising under a guarantee in respect of goods supplied has been considered by intermediate courts of appeal.
In Proud v Brims Distributors Pty Ltd[6] Mr Proud in May 1983 gave a guarantee to Brims Distributors Pty Ltd in respect of the indebtedness of Ilesower Pty Ltd for goods supplied from time to time, the guarantee being revocable by Mr Proud on one month’s written notice. In June 1983 Mr Proud became bankrupt and in June 1986 he was discharged. Between February and April 1987 Brims supplied goods to Ilesower for which it was not paid. Brims sued Mr Proud on the guarantee in the District Court of New South Wales and succeeded at first instance. This decision was reversed by the New South Wales Court of Appeal. The Court of Appeal held that Mr Proud had a contingent liability to Brims as at the date of bankruptcy within the meaning of subsection 82(1) because the guarantee fell within s 82(8)(b). Cole JA (with whom Mahoney P and Waddell AJA) agreed) said:
The guarantee…, in terms of s 83(8) constituted at least “a possible obligation to pay money … on the breach of an express or implied … contract...”. The contract was the contract by Ilesower to pay for goods delivered to it by Brims at any time in the future. Unless the guarantee was terminated by operation of law on the instant of bankruptcy, breach of the contract being failure by Ilesower to pay Brims for goods delivered, was capable of occurring before Mr Proud’s discharge from bankruptcy.
It follows, in my view, that the possible obligation to pay monies under the guarantee existing at the date of bankruptcy constituted a liability within the meaning of s 82(8), and a contingent liability within the meaning of s 82(1). It was a contingent liability to which the bankrupt was subject at the date of bankruptcy…
[6] Unreported New South Wales Court of Appeal 26 November 1996 No 5647 of 1996.
This Court should follow a decision of another intermediate court of appeal on the interpretation of Commonwealth legislation unless the decision was per incuriam[7] or this Court is convinced that the interpretation is plainly wrong.[8]
[7] Airservices Australia v Austral Pacific Group Ltd [1998] QCA 159 per McPherson JA.
[8] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89 at [135] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ.
Cole JA expressed the conclusion extracted above without any anterior reasoning and without identifying any opposing argument or addressing any of the constructional matters addressed above. In particular, Cole JA did not address the divisible nature of the supply and guarantee contracts nor the fact that the guarantee was revocable (on one month’s notice). Cole JA expressed the opinion that the reference in s 82(8)(b) to a “covenant, contract, agreement or undertaking” is a reference to a covenant, contract, agreement or undertaking to which the bankrupt is not a party without giving any reason for adopting such a construction.
In light of these matters and for the reasons given above in relation to the construction of s 82 from first principles, this is one of those exceptional cases in which the criteria are satisfied for this Court not to follow a decision of another intermediate court of appeal.
Some 11 years after the decision of the Court of Appeal in Proud, the High Court decided Foots v Southern Cross Mine Management Pty Ltd.[9] Ensham Resources Pty Ltd sued its chief executive officer Mr Foots and on 1 September 2005 obtained judgment against him for damages assessed at $2.46 million with costs reserved. On 15 September 2005 Mr Foots became bankrupt. On 3 February 2006 an order was made that Mr Foots pay Ensham’s costs of action. The High Court held that Mr Foot’s liability for costs did not fall within either limb of subsection 82(1) of the Act. Gleeson CJ, Gummow, Hayne and Crennan JJ said:
What, then of the appellant's first submission? This is, that his exposure to an adverse costs order arose from an "obligation" incurred prior to his bankruptcy. The submission should be rejected: no such obligation arose until the costs order was made…
The most that can be said, as Mummery LJ observed in Glenister, is that "[o]nce legal proceedings have been commenced there is always a possibility or a risk that an order for costs may be made against a party". But that risk is not a contingent liability within the sense of s 82(1). The order for costs itself is the source of the legal liability and there is no certainty that the court in question will decide to make an order.[10]
[9] [2007] HCA 56, (2007) 234 CLR 52.
[10] At [35]-[36].
The Court declined to follow nineteenth century authorities holding that when judgment for the principal sum had been obtained in a common law court before bankruptcy, there was a contingent liability within the meaning of predecessor bankruptcy legislation for costs even though the costs order post-dated the bankruptcy. This was because under pre-Judicature Acts procedure costs of action in common law courts were not discretionary. It was the interposition of a discretionary decision by the court that resulted in there being no liability or obligation unless and until the court made a decision to award costs. This is so notwithstanding that liability for costs only arises as a result of a judgment granted pre-bankruptcy and in some cases the exercise of the discretion to award costs may be virtually inevitable.
The present case may be regarded as a fortiori that in Foots. In Foots, there was the interposition of a decision by a court that ultimately gave rise to the relevant liability. In the present case, it is the interposition of a decision by the guarantor not to revoke the guarantee that ultimately gives rise to the relevant liability.
The second case in which the application of subsection 82(1) to a liability arising under a guarantee in respect of goods supplied has been considered by an intermediate court of appeal is Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd.[11]
[11] [2015] WASCA 95, (2015) 297 FLR 1.
The decision on appeal needs to be understood in the context of the decision at first instance. In Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd[12] Australian Gypsum Industries entered into a contract with Newglen Nominees Pty Ltd for the supply of building products and services. Dalesun by deed guaranteed payment by Newglen. The guarantee was expressed to be irrevocable. In March 2011 Dalesun entered into a deed of company arrangement and in June 2011 the deed of company arrangement was terminated. Between November 2011 and February 2012 Newglen supplied to Dalesun goods and services for which it was not paid. Newglen sued Dalesun pursuant to the guarantee. Dalesun relied on subsection 444D(1) of the Corporations Act 2001 (Cth) (the Corporations Act) which together with the terms of the deed of company arrangement barred claims arising on or before the relevant date (March 2011). This referred to claims provable in the winding up under subsection 553(1) which in turn referred to claims “the circumstances giving rise to which occurred before the relevant date”. In response, Newglen did not contend that the circumstances giving rise to the claim did not occur before March 2011 within the meaning of subsection 553(1). Rather Newglen relied on three other contentions. The first and second were reliance on two provisions of the Corporations Act which created exceptions to subsection 444D(1) which are not relevant in the present case and on which Newglen was unsuccessful. The third contention was that “a DOCA cannot operate so as to bar claims of creditors arising from a company's conduct after the operation of a DOCA”.[13] This contention was rejected by Le Miere J at first instance and not advanced on appeal. In the course of rejecting this contention, Le Miere J said:
The deed of guarantee generated a contingent liability to pay upon AGI providing goods or services to Newglen on credit. That event relevantly occurred after the date specified in the Dalesun DOCA but the 'basal fact' necessary to bring the obligation into being was the making of the deed of guarantee by the defendant. The making of the deed of guarantee by the defendant was the basal fact necessary to bring the defendant's obligation into being. At the specified date under the Dalesun DOCA there was an existing obligation, and out of that obligation a liability, on the part of the defendant to pay a sum of money that would arise in a future event, whether that was an event that must happen or only an event that may happen. The execution of the deed of guarantee gave rise to contingent or future claims. As that occurred before the date specified in the deed, all debts or claims under the deed of guarantee were provable under the Dalesun DOCA.[14]
[12] [2014] WASCA 89.
[13] At [12].
[14] At [23].
On appeal, Newnes and Murphy JJA noted that the application of subsection 444D(1) itself was not in dispute. They observed:
The appellants … accepted that their claims were 'claims arising on or before the day specified in the deed' within the meaning of s 444D(1) of the Act.
The acceptance of the latter proposition is consistent with authority …[15]
[15] (2015) 297 FLR 1 at [196]-[197].
Assuming without deciding that the effect of subsection 553(1) of the Corporations Act is relevantly the same as subsection 82(1) of the Act, the observations made in Australian Gypsum Industries do not assist Mr Gray. The guarantee in Australian Gypsum Industries was irrevocable and Newglen relied on that aspect of the guarantee in making its third contention at first instance (not advanced on appeal). As observed above, the result in the present case would be different if the guarantee given by Mr Gray had been irrevocable.
A consideration of previous authorities does not alter the conclusions reached above.
Conclusion
The appeal should be allowed. The orders of the single Judge should be set aside and the orders of the Magistrate should be restored.
HINTON J: On 11 November 2010 Oz North Food and Liquor Wholesalers (NT) Pty Ltd, as the appellant was then known, entered into an agreement with Omnyx Pty Ltd (Omnyx) trading as Kitty O’Sheas, for the supply of goods on credit (the credit agreement).[16] That same day the respondent, Mark Gray, who was a director of Omnyx, entered into a guarantee and indemnity agreement with the appellant (the guarantee agreement) in which he guaranteed payment for any supplies made by the appellant to Omnyx under the credit agreement that Omnyx did not pay for in accordance with the terms and conditions of the credit agreement.
[16] The appellant changed its name after the proceedings were instituted.
Between 1 April 2012 and 22 May 2012 the appellant supplied Omnyx with goods to the value of $87,293.30 inclusive of GST. On 28 May 2012 receivers and managers were appointed to Omnyx and on 14 August 2012 the company ceased trading. As at 14 August 2012 Omnyx still owed the appellant $87,293.30.
On 7 November 2014 the appellant sent a letter of demand to the respondent demanding payment under the guarantee agreement of the outstanding $87,293.30 owed by Omnyx. The respondent did not pay. Subsequently the appellant instituted proceedings in the Magistrates Court seeking the enforcement of the guarantee agreement in addition to interest and costs, amounting in total to in excess of $125,000. In those proceedings the respondent did not dispute that the amount owed fell within the terms of the guarantee agreement. He contended, however, that he was released from all obligations under the guarantee agreement by virtue of his having executed a Personal Insolvency Agreement on 12 January 2012 under Part X of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act).[17] In reply the appellant contended that the action taken by the respondent under the Bankruptcy Act only protected him from action taken in relation to provable debts within the meaning of s 82 of that Act. The debt incurred by Omnyx between 1 April 2012 and 22 May 2012 was not, the appellant submitted, a provable debt.
[17] Bankruptcy Act 1966 (Cth), s 230(1). Clause 3 of the Deed of Personal Insolvency Agreement executed by the respondent released him from all provable debts upon the payment contributions set out in clause 1 of the same agreement being made.
In the Magistrates Court the appellant succeeded. On appeal to a single Judge of this Court that decision was reversed. The appellant now appeals with permission to this Court. The sole question for the Court is whether the respondent’s liability under the guarantee agreement for any debt incurred by Omnyx after 12 January 2012 under the credit agreement constitutes a provable debt within the meaning of s 82(1) of the Bankruptcy Act.
I would allow the appeal and restore the orders made by the Magistrate. My reasons follow.
The Credit and Guarantee Agreements
It is convenient to commence with a consideration of the terms and conditions of the credit and guarantee agreements.
The credit and guarantee agreements constitute one document. The terms and conditions of the credit agreement include that all monthly accounts are due by the 19th day of the month following the month of purchase, that the appellant may charge interest at the rate of 20 per cent per annum on any overdue account, and that supply of an order will only be offered to customers who adhere to the appellant’s payment terms and conditions of trade. Clearly the credit agreement relates to supplies made from time to time with each supply being made in consideration for the payment of the purchase price by the 19th day of the following month.
I turn to the guarantee agreement. A guarantee agreement such as that in this case is to be construed strictly and, in the case of ambiguity, in favour of the surety.[18]
[18] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 560-561 (Mason ACJ, Wilson, Brennan and Dawson JJ); Chan v Cresdan PtyLtd (1989) 168 CLR 242 at 256 (Mason CJ, Brennan,, Deane and McHugh JJ); Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at [17]-[23] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ).
Clause 1 of the guarantee agreement and the opening recital provide:
To: Oz North Food & Liquor Wholesalers (NT) Pty Ltd.
This GUARANTEE & INDEMNITY AGREEMENT is made by the person whose names and signature are set out below (the Guarantor, each a guarantor) in favour of Oz North Food & Liquor Wholesalers (NT) Pty Ltd.
IN CONSIDERATION of Oz North Food & Liquor Wholesalers (NT) Pty Ltd (trading under its own name or trading under any other trading or business names, at my/our request agreeing to the supply and/or services to
Name: Mark Christopher Gray
Address: …
from time to time and extending credit to the applicant in connection with payment for supplies or (where supplies have been provided to the applicant) Oz North Food & Liquor Wholesalers (NT) Pty Ltd extending other valuable consideration to the guarantors and the applicant, I/we hereby jointly and severally covenant with Oz North Food & Liquor Wholesalers (NT) Pty Ltd as follows:
1. I/we guarantee to Oz North Food & Liquor Wholesalers (NT) Pty Ltd the punctual payment of all moneys which are now owing or may from time to time be owing by the Applicant to OZ North Food & Liquor Wholesalers (NT) Pty Ltd in respect of the supplies (the debt) and undertake, if the applicant is late in paying any part of the debt, to pay the full amount of the debt on demand to Oz North Food & Liquor Wholesalers (NT) Pty Ltd and to keep it indemnified against any loss in relation to the debt. I/We acknowledge that, this obligation on my/our behalf shall extend also to interest, any legal and other costs and expenses incurred by Oz North Food & Liquor Wholesalers (NT) Pty Ltd in seeking payment from the applicant or enforcing the guarantee and indemnity.
The agreement is signed by the respondent and dated 11 November 2010.
The first observation to make is that the agreement is purportedly a guarantee given by Mr Gray to the appellant for supplies made to Mr Gray. Despite this the parties have treated the agreement as one given by Mr Gray for supplies made to Omnyx.[19]
[19] Statement of Agreed Facts and Documents, [4].
Next the guarantee is provided in consideration of the appellant agreeing to supply Omnyx with goods or services from time to time and the appellant agreeing to extend credit to Omnyx with respect to payment for those supplies. Clearly it is a continuing guarantee. The consideration that moves from the appellant is not given once for all.
The guarantee provided by Mr Gray is in relation to “the debt”. It is the debt that Mr Gray must pay upon the demand of the appellant and it is in respect of any loss in relation to the debt that Mr Gray must indemnify the appellant. The debt is defined by the guarantee agreement as all moneys owed by Omnyx as at the date of execution of the agreement or owed from time to time for supplies made to Omnyx and in relation to which Omnyx is late in making payment in whole or in part. The debt then is the amount to be paid in consideration for any supply or supplies made that has not been paid by the 19th of the month following the supply or subsequently and in relation to which a demand is made of the respondent. Thus the guarantee is triggered by a demand made by the appellant after Omnyx has defaulted in paying the debt or any part of the debt after the debt has fallen due and may be triggered from time to time, assuming supplies continue to be made despite prior default and any prior necessity to trigger the guarantee. In this regard it may be accepted that the guarantee agreement is contingent in nature in that the obligation to pay the debt is contingent upon default and a demand being made.[20]
[20] Forshaw v Thompson (1992) 35 FCR 329 at 340 (Lockhart J, Black CJ and Sweeney J).
Clause 3 of the guarantee agreement states:
3. This Guarantee and Indemnity is a continuing agreement for the present and future from the time of the debt, binds the successors, assigns the guarantors shall not be affected by:
3.1the death, incapacity, bankruptcy, receivership or liquidation of the guarantor or the applicant;
3.2any right and any account whatsoever which the guarantor may have or acquired against the applicant, which then the guarantor hereby agrees not to enforce until the debt has been discharged.
Clause 3 makes plain that as the guarantee is continuing in nature it is engaged from the time the debt or debts arise (accepting that the guarantee agreement contemplates the possibility of more than one debt arising i.e. the debt arising and being satisfied, then the debt arising a second time and so on). Whether the time at which the debt arises be as at the date of non-payment in accordance with the terms and conditions of the credit agreement, or, as at the date the demand is made, need not be resolved. For present purposes it is sufficient to note that clause 3 contemplates that liability under the guarantee arises from the time of the debt arising which at the earliest is the 19th day of the month following the first supply in relation to which payment was not made.
Lastly, as a continuing guarantee it may be accepted that the guarantee:[21]
…is liable, in the absence of anything in the guarantee to the contrary, to be withdrawn on notice. Various explanations have been offered of this reasonable, though implied, limitation. The guarantee, it has been said, is divisible as to each advance, and ripens as to each advance into an irrevocable promise or guarantee only when the advance is made. This explanation has received the sanction of the Court of Common Pleas in the case of Offord v Davies. Whether the explanation be true or not, it is now established by authority that such continuing guarantees can be withdrawn on notice during the lifetime of the guarantor, and a limitation to that effect must be read, so to speak, into the contract.
[21] Coulthart v Clementson (1879) 5 QBD 42 at 46-47 (Bowen J). See also In re Crace; Balfour v Crace [1902] 1 Ch 733 at 738 (Joyce J); Caltex Australia Petroleum Pty Ltd v Troost [2015] NSWCA 64 at [74] (Emmett JA, Meagher and Barrett JA agreeing).
Nothing to the contrary is to be found in the guarantee agreement. Further, the divisible nature of the guarantee agreement is reflected in the fact that it may be resorted to in relation to indebtedness from time to time. That is to say, the guarantee agreement does not end if resorted to in relation to the debt and the debt satisfied by the guarantor before further supplies are made and a debt arises a second time. Further supplies may be made and the guarantee resorted to in relation to a future debt. In this regard the consideration provided by the guarantor may be said to be “fragmentary … and therefore divisible”.[22]
[22] Lloyd’s v Harper (1880) 16 Ch D 290 at 319 (Lush LJ).
The Bankruptcy Act
As mentioned the respondent contends that his liability under the guarantee agreement is a debt provable in bankruptcy. For a debt to be provable in bankruptcy it must be one falling within the ambit of s 82 of the Bankruptcy Act. Section 82 provides:
Debts provable in bankruptcy
(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
(1A)Without limiting subsection (1), debts referred to in that subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy.
(2)Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
(3)Penalties or fines imposed by a court in respect of an offence against a law, whether a law of the Commonwealth or not, are not provable in bankruptcy.
…
(3B)A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy.
(4)The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.
(5)A person aggrieved by an estimate so made may appeal to the Court not later than 28 days after the day on which the person is notified of the estimate.
(6)If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.
(7)If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper.
(8)In this section, liability includes:
(a) compensation for work or labour done;
(b) an obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and
(c) an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:
(i)in respect of amount--fixed or unliquidated;
(ii)in respect of time--present or future, or certain or dependent on a contingency; or
(iii)in respect of the manner of valuation--capable of being ascertained by fixed rules or only as matter of opinion.
If the guarantee agreement is a provable debt within the meaning of s 82(1), as the respondent contends, then, pursuant to s 230(1) of the Bankruptcy Act, the respondent having entered into a Deed of Personal Insolvency Agreement under Part X of that Act a term of which releases him from liability for all provable debts, the Personal Insolvency Agreement operates to release him from those provable debts unless the agreement is set aside or terminated under Part X.[23]
[23] See the Deed of Personal Insolvency Agreement, Clause 3.
Decisional History
In the Magistrates Court the respondent argued that his liability under the guarantee agreement was a liability within the meaning of s 82(1). That submission was rejected. The Magistrate considered that, subject to s 82(2), debts within the meaning of s 82(1) related to liquated amounts due for payment presently or in the future, whilst liabilities related to quantifiable liabilities being “broader legal obligations to pay ascertainable sums such as damages in accrued contractual rights” and not legal liabilities or possible liabilities. The Magistrate held that a continuing liability was “not to be regarded as an obligation in relation to debt not yet incurred and a liability (if it arises) in respect of a future advance, is not to be regarded as resulting from an “obligation incurred before the date of bankruptcy”.” In the present case, because none of the goods were ordered by Omnyx prior to the respondent entering into the Personal Insolvency Agreement, the Magistrate determined that the liability under the guarantee agreement did not fall within s 82(1) and thus no release in relation to such debt was effected. In bringing his judgment to a conclusion the Magistrate said:
There is nothing said in the [Pyramid Building Society] case which suggest[s] that s 82 applies to an obligation not in existence at the date of bankruptcy or that the section deals with anything other than sums of money liquidated or otherwise. To the contrary, a reading of the decision makes it reasonably clear that s 82 of the Bankruptcy Act is involved in the quantification of creditors’ claims.
For all of the above reasons, the plaintiff is entitled to a judgment in the sum of $100,000. …
On appeal to a single judge of this Court the Judge commenced by analysing the question whether the guarantee agreement provided by the respondent was a contingent liability. Having regard to a number of authorities including Hardy v Fothergill,[24] McClelland v Australian Stock Exchange,[25] and Forshaw v Thompson[26] the Judge concluded that a post-bankruptcy demand made pursuant to a contract of guarantee that was executed prior to the surety being bankrupt was a contingent liability provable in bankruptcy. The Judge considered this conclusion to be consistent with s 82 being a rehabilitative provision with the consequence that it was to be afforded a wide and liberal construction. It was also consistent with the third of the three purposes of the modern law of bankruptcy which the Judge identified as being, first, to ensure that the assets of the bankrupt are distributed rateably amongst creditors, second, to ensure that one creditor does not obtain an undue advantage over any other, and, third, to bring about the discharge of the debtor from future liability of existing debts so that he or she may start afresh.[27] The Judge considered the same approach to construction to have been taken by the Full Court of the Federal Court in Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd.[28] Such approach, the Judge considered, supported the conclusion that the respondent’s liability to guarantee debts incurred by Omnyx was provable in bankruptcy as a contingent liability.
[24] (1888) 13 AC 351.
[25] (2005) 144 FCR 327.
[26] (1992) 35 FLR 329.
[27] Gray v Oz North Food & Liquor Wholesalers (NT) Pty Ltd [2016] SASC 165 at [18] citing Storey v Lane (1981) 147 CLR 549 at 556-557; Re McMaster; ex parteMcMaster (1991) 33 FCR 70 at 72-73; Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95 at [211]; (2015) 297 FLR 1 at 44.
[28] (1989) 21 FCR 19.
The Judge observed that there was academic opinion to the contrary, quoting from O’Donovan & Phillips, Modern Contract of Guarantee, where it is written:[29]
Where there is a guarantee of advances to be made from time to time by the creditor to the principal debtor, the question arises as to the effect of the bankruptcy of the guarantor upon such a guarantee. After the date of the bankruptcy (that is, on the creditor’s petition, the making of the sequestration order), the creditor will not have the right to prove in the guarantor’s bankruptcy for any advances made after that date. These advances are new liabilities imposed upon the guarantor, and under s 82 of the Bankruptcy Act 1966 (Cth) the bankrupt is only liable for liabilities incurred before the date of bankruptcy.
[29] O’Donovan and Phillips, Modern Contract of Guarantee, 4th Ed, (2004 Thomsons) at [9.700].
Before this Court and before the single Judge the appellant embraced this view. The single Judge reasoned that such view for which support could be found in Coulthart v Clementson,[30] Re John Campbell Nicholson[31] and Caltex Australia Petroleum Pty Ltd v Troost,[32] was grounded in an understanding of a continuing guarantee as being divisible in the sense that it was enlivened by the making of each advance because each advance constituted separate consideration for the guarantee. However the Judge rejected the opinion expressed in O’Donovan & Phillips reasoning that if a continuing guarantee was not revoked liabilities would continue to accrue in the future as advances were made. He said:[33]
In my view, these cases are authority for the proposition that if a guarantee is a continuing guarantee and the consideration for the guarantee is divisible, the guarantee is revocable in respect of liability to accrue in the future. The corollary of that proposition is that under such a guarantee contract liabilities will continue to accrue in the future as advances are made or goods supplied pursuant to the principal contract unless and until the guarantor revokes the guarantee contract. In this case the guarantee agreement constituted a continuing guarantee. Unless the guarantee agreement was revoked the agreement remained a standing offer that was accepted by the conduct of the respondent in satisfying the order for supply of goods pursuant to the principal contract. Once that had occurred, the guarantee by the appellant in respect of that liability was legally binding. Accordingly, the guarantee was enforceable and, as a result, provable pursuant to s 82. As the Full Federal Court held in Forshaw v Thompson the claim on the appellant pursuant to his guarantee was a contingent debt. Before the execution of the personal insolvency agreement on 12 January 2012 the appellant incurred an obligation by entering into the guarantee agreement which made any liability he subsequently incurred pursuant to that agreement, including liabilities incurred after 12 January 2012, provable in his bankruptcy as a contingent liability, unless he had subsequently revoked the agreement. As there was no revocation the guarantee agreement constituted a legally enforceable obligation to guarantee Omnyx’s future debts to the respondent. That obligation at the date of adjudication, namely, 12 January 2012, was a contingent liability that ripened into a provable debt when Omnyx failed to pay for goods subsequently ordered which were the subject of the respondent’s claim under the guarantee.
[30] (1879) 5 QBD 42 at 46-47 (Bowen J).
[31] [1989] FCA 182 at [19].
[32] [2015] NSWCA 64 at [74].
[33] Gray v Oz North Food & Liquor Wholesalers (NT) Pty Ltd [2016] SASC 165 at [36].
The Judge allowed the appeal, set aside the orders made by the Magistrate and dismissed the appellant’s claim.
Submissions
The grounds of appeal are twofold; first, the appellant contends that the Judge had regard to policy considerations in his determination of what amounts to a provable debt within the meaning of s 82 of the Bankruptcy Act, and failed to have proper regard to the text. The first ground is, in effect, a symptom of the second. The second asserts that the Judge erred in concluding that a revocable continuing guarantee was a provable debt within the meaning of s 82 of the Bankruptcy Act with respect to future advances to be made from time to time and after the date of bankruptcy.[34]
[34] The date of bankruptcy is to be understood as the date of release effected by the Personal Insolvency Agreement.
The appellant’s argument in support of the second ground of appeal has two steps. First, to be provable under s 82 debts and liabilities must exist as at the date of bankruptcy, in which case the obligation upon which the debt or liability is founded must have existed prior to, or as at the date of, bankruptcy, or, arise after the date of bankruptcy but in relation to an obligation that was incurred before or as at the date of bankruptcy. So construed s 82 released the debtor from all operating debts and liabilities extant at the time of bankruptcy providing a point from which the bankrupt could start over. Second, the guarantee agreement in the present case, being a revocable continuing guarantee, was divisible as to each advance made to Omnyx with the consequence that no obligation arose as at the date of bankruptcy for any advance made after the date of bankruptcy. If this was accepted then the respondent’s entry into the Part X Personal Insolvency Agreement did not release him from the guarantee agreement insofar as it applied to supplies made after the date of bankruptcy.
Such construction, the appellant submitted, was consistent with ss 82(4), (5) and (6) of the Bankruptcy Act which required that a provable debt have a value capable of fair estimation. It was submitted that it is impossible for a liability to have value if there is no current enforceable liability.
The appellant further submitted that to construe s 82 as capturing only those continuing liabilities where an obligation to satisfy the liability existed prior to the date of bankruptcy was consistent with, and analogous to, the treatment by the authorities on costs liabilities in litigation,[35] compensation orders under the Trade Practices Act 1974 (Cth),[36] reparation orders made in the course of sentence,[37] refunds payable under the Health Insurance Act 1973 (Cth),[38] and taxation liabilities imposed under statute retrospectively.[39]
[35] Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2004] NSWCA 284.
[36] Australian Competition and Consumer Commission v Black and White Pty Ltd and Others (2004) 138 FCR 314 at [35]-[36] (Spender J).
[37] Gaffney v Commissioner of Taxation (1998) 81 FCR 574 at 581 (Mansfield J).
[38] Health Insurance Commissioner v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848.
[39] Federal Commissioner of Taxation v Gosstray [1986] VR 876.
The respondent submitted that in his approach to the construction of s 82 the Judge made no error in his understanding and use of the intention of the Bankruptcy Act. It was rehabilitative legislation, hence upon discharge from bankruptcy the bankrupt is restored to full legal capacity and released from liability under any contract ever entered. He contended that the guarantee agreement was an accessory contract creating a possible obligation to pay money dependent on the happening of a future event. It was then a liability and a contingent liability caught by s 82(1). Here rights came into existence at the time the guarantee was first granted as was evident in the application of the guarantee to “…moneys which are now owing or may from time to time be owing…”.
The respondent added that the analogous cases to which the appellant referred were distinguishable; the costs cases because they involved the exercise of an independent discretion, and compensation and reparation orders and retrospective taxation liabilities because they are excluded by s 82(2). By contrast assistance was to be gained from the treatment in Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd at first instance and on appeal of debts owed by a company in administration pursuant to a guarantee given prior to the company entering administration.[40] In that case under the Corporations Act 2001 (Cth) debts arising after administration but subject of a guarantee given prior to administration were extinguished by the administration. The Western Australian Court of Appeal added that insofar as it was necessary to determine the value of the obligation at the time of administration, there being no call upon the guarantee, it could be valued at nil.[41]
[40] [2014] WASC 89 (Le Miere J); (2015) 297 FLR 1 (Court of Appeal).
[41] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95 at [234].
Consideration
The origins of s 82 of the Bankruptcy Act 1966 can be traced to s 31 of the Bankruptcy Act 1869 (UK) (the 1869 Act).[42] In each instance the breadth of the concept of a provable debt is informed by the history of the bankruptcy legislation preceding the 1869 Act and the cases considering the application of the progenitors to s 31.[43] That history:[44]
…reflected the shifting accommodation made from time to time between a number of competing considerations. What debtors could take advantage of the legislation? Was it to be available only to traders or to debtors more generally? Was there to be official control of the bankrupt’s estate or were creditors to have control? What was to be done about contingent obligations or unliquidated claims? These questions provoked great public debate and considerable public controversy.
[42] Coventry v Charter Pacific Group (2005) 227 CLR 234 at [22]-[27] (Gleeson CJ, Gummow, Hayne and Callinan JJ).
[43] Coventry v Charter Pacific Group (2005) 227 CLR 234 at [22] (Gleeson CJ, Gummow, Hayne and Callinan JJ).
[44] Coventry v Charter Pacific Group (2005) 227 CLR 234 at [23] (Gleeson CJ, Gummow, Hayne and Callinan JJ). See also George Hardy and Another v Fothergill (1888) 13 AC 351 at 355 (Lord Halsbury LC), 363-364 (Lord FitzGerald).
Of the 1869 Act James LJ said in Ex parte Llynvi Coal and Iron Co; In re Hide:[45]
A great number of cases occurred before the passing of the late Act, in which the bankrupt was left liable to several claims of various kinds, and the persons who had those claims were entirely excluded from any participation in the general division of the assets. Then came the Act of Parliament, which – dealing in express terms with almost every one of these cases which had ever previously occurred, and excluding nothing but demands for damages for personal torts – provided that there should be nothing whatever for which a right to proof should not be given. Every possible demand, every possible claim, every possibility liability, except for personal torts, is to be subject of proof in bankruptcy…The broad purview of this Act is that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.
[45](1871) LR 7 Ch App 28 at 31-32.
This statement, often repeated in the authorities, must be treated with some caution. Section 82(1) does not provide that all debts and liabilities of every kind are provable debts.[46] The “broad purview” of s 31 cannot be allowed to obscure “the controlling force of the current statutory description of what is and is not provable in bankruptcy.”[47] The same applies in relation to the use made of the history of the development of the law of bankruptcy to account for contingent liabilities.[48] The question being one of statutory construction the approach mandated by the High Court in Thiess v Collector of Customs is to be applied:[49]
Statutory construction involves attribution of meaning to statutory text. As recently reiterated:
This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text'. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text.
Objective discernment of statutory purpose is integral to contextual construction. The requirement of s 15AA of the Acts Interpretation Act 1901(Cth) that "the interpretation that would best achieve the purpose or object of [an] Act (whether or not that purpose or object is expressly stated ...) is to be preferred to each other interpretation" is in that respect a particular statutory reflection of a general systemic principle. For:
…it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.
(footnotes omitted)
[46] Coventry v Charter Pacific Group (2005) 227 CLR 234 at [70] (Gleeson CJ, Gummow, Hayne and Callinan JJ).
[47] Foots v Southern Cross Mine Managements Pty Ltd and Others (2007) 234 CLR 52 at [12] (Gleeson CJ, Gummow, Hayne and Crennan JJ).
[48] Referred to in George Hardy and Another v Fothergill (1888) 13 AC 351; Something Better Pty Ltd v Pyramid Building Society (1996) 128 FLR 146.
[49] (2014) 250 CLR 664 at [22]-[23] (French CJ, Hayne, Kiefel, Gageler and Keane JJ).
As to the determination of the purpose of a provision:[50]
[50] Certain Lloyd’s Underwriters v Cross (2012) 248 CLR 378 at [24]-[25] (French CJ and Hayne J).
Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect, as in others, to recognise that to speak of legislative "intention" is to use a metaphor. Use of that metaphor must not mislead. "[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have" (emphasis added). And as the plurality went on to say in Project Blue Sky:
"Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning."
To similar effect, the majority in Lacey v Attorney-General (Qld) said:
"Ascertainment of legislative intention is asserted as a statement of compliance with the rules of construction, common law and statutory, which have been applied to reach the preferred results and which are known to parliamentary drafters and the courts." (footnote omitted)
The search for legal meaning involves application of the processes of statutory construction. The identification of statutory purpose and legislative intention is the product of those processes, not the discovery of some subjective purpose or intention.
A second and not unrelated danger that must be avoided in identifying a statute's purpose is the making of some a priori assumption about its purpose. The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions. As Spigelman CJ, writing extra-curially, correctly said:
"Real issues of judicial legitimacy can be raised by judges determining the purpose or purposes of Parliamentary legislation. It is all too easy for the identification of purpose to be driven by what the particular judge regards as the desirable result in a specific case." (emphasis added)
And as the plurality said in Australian Education Union v Department of Education and Children's Services:
"In construing a statute it is not for a court to construct its own idea of a desirable policy, impute it to the legislature, and then characterise it as a statutory purpose." (footnote omitted)
(footnotes omitted)
Section 82(1) limits provable debts by subject matter (the debt or liability must answer the description of being a present or future, certain or contingent debt or liability) and temporally (the debt or liability must also be one to which the bankrupt was subject at the date of the bankruptcy, or, one to which he or she becomes subject before his or her discharge from bankruptcy by reason of an obligation incurred before the date of the bankruptcy).[51] Any liability actually existing as at the date of bankruptcy falls within the first of the temporal categories, and those which come into existence after the date of bankruptcy fall within the second, provided that such liability exists by reason of an obligation, which is not limited to a contractual obligation but must be one recognisable by law,[52] incurred before the date of bankruptcy.[53] A debt or liability that does not fall within these categories is not provable.[54]
[51] Foots v Southern Cross Mine Managements Pty Ltd and Others (2007) 234 CLR 52 at [10], [65] (Gleeson CJ, Gummow, Hayne and Crennan JJ).
[52] Ex parte Peacock; In Re Duffield (1873) LR Ch App 682 at 686 (Mellish LJ), 689 (James LJ); Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim [2003] FCA 848 at [51] (Marshall J).
[53] Ex parte Peacock; In Re Duffield (1873) LR Ch App 682 at 689 (James LJ); Jones v Deputy Commissioner of Taxation (1998) 157 ALR 349 at 354 (Branson J).
[54] Foots v Southern Cross Mine Managements Pty Ltd and Others (2007) 234 CLR 52 at [11] (Gleeson CJ, Gummow, Hayne and Crennan JJ).
Neither party disputes that the guarantee agreement may in its operation give rise to a contingent liability within the meaning of s 82(1). Where they part company is on the question of whether under the guarantee agreement the respondent was subject to a contingent liability by reason of an obligation arising before the date of bankruptcy. The appellant’s case is that any contingent liability arising under the guarantee agreement could only arise upon a supply being made to Omnyx prior to the date of bankruptcy. This conclusion, it was said, necessarily followed from the divisible nature of the guarantee agreement. The question becomes, does the guarantee agreement impose an obligation in relation to a contingent liability absent a supply?
I did not understand the respondent to cavil with the submission that Kitto J’s understanding of a contingent creditor in Community Development Pty Ltd v Endwirda Construction Company applied equally to a contingent liability as that expression is used in s 82(1).[55] Kitto J, with whom Barwick CJ and Windeyer J agreed, said:[56]
In Re William Hockley Ltd [1962] 2 All ER 111 at p.113 Pennycuick J suggested as a definition of ‘a contingent creditor’ what is perhaps a definition of ‘a contingent or prospective creditor’, saying that in his opinion it denoted ‘a person towards whom, under an existing obligation, the company may or will become subject to a present liability on the happening of some future event or at some future date’. The importance of these words for present purposes lies in their insistence that there must be an existing obligation, and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen.
[55] (1969) 43 ALJR 365.
[56] Community Development Pty Ltd v Endwirda Construction Company (1969) 43 ALJR 365 at 366.
The application of this understanding of a contingent creditor to s 82(1) was approved by the majority in Foots v Southern Cross Mine Management Pty Ltd[57] (Foots) in their approval of Mummery LJ’s approach in Glenister v Rowe.[58] Thus there must be an obligation upon which the contingency can operate and, for the purposes of s 82(1), that obligation must exist as at the date of bankruptcy.
[57] (2007) 234 CLR 52 at [36] (Gleeson CJ, Gummow, Hayne and Crennan JJ). The approach of Kitto J in Community Development Pty Ltd v Endwirda Construction Company (1969) 43 ALJR 365 was also considered applicable to s 82 in Lyford v Casey (1985) 3 ACLC 515.
[58] [2000] Ch 76.
At this juncture I turn to consider the analogous cases referred to in argument by the parties.
In Foots the issue was whether a costs order made against Mr Foots after the date of bankruptcy was a provable debt under s 82(1).[59] The costs order was made in relation to litigation that resulted in a judgment adverse to Mr Foots delivered before the date of bankruptcy. The High Court held that no obligation to pay the adverse costs order arose prior to the date of bankruptcy. Gleeson CJ, Gummow, Hayne and Crennan JJ said: [60]
The most that can be said, as Mummery LJ observed in Glenister, is that “[o]nce legal proceedings have been commenced there is always a possibility or a risk that an order for costs may be made against a party”. But that risk is not a contingent liability within the sense of s 82(1). The order for costs itself is the source of the legal liability and there is no certainty that the court in question will decide to make an order. It should be remarked that in support of this reasoning in Glenister, Mummery LJ referred to what had been said by Kitto J in Community Development Pty Ltd v Egwirda Construction Co and by Tadgell J in Federal Commissioner of Taxation v Gosstray. …
[59] (2007) 234 CLR 52.
[60] Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [36] (Gleeson CJ, Gummow, Hayne and Crennan JJ). See also Glenister v Rowe [2000] Ch 76. The same approach has been taken in relation to ss 444D(1) and 553(1) of the Corporations Act 2001; see Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2004) 22 ACLC 667.
In ACCC v Black on White Spender J similarly concluded that compensation orders made under the Trade Practices Act 1974 (Cth) after the date of discharge from bankruptcy did not arise from an obligation existing before that date.[61] The order may have been compensatory in nature and in that regard compensate for conduct engaged in before the date of bankruptcy, but no obligation arose until a judicial determination occurred.[62]
[61] (2004) 138 FCR 314.
[62] ACCC v Black on White (2004) 138 FCR 314 at [34]-[35].
In Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou (Alekozoglou) the question was whether the Trustee in Bankruptcy was right to admit as a provable debt a determination made by the Health Insurance Commission under the Health Insurance Act 1973 (Cth) that the bankrupt owed $168,054.10 in Medicare benefits paid for inappropriate services.[63] The date of bankruptcy was 23 June 1997, the inappropriate services were provided between 1 July 1994 and 30 June 1995, and the determination was made by the Commission on 5 September 1997 in the amount referred to above having provided a draft determination on 26 March 1997 in a greater amount. The determination took effect on 9 October 1997 at which time it became a debt due to the Commonwealth under s 129AD of the Health Insurance Act 1973. Marshall J agreed with the submission that the obligation to satisfy the debt did not arise until 9 October 1997. He hastily added that such conclusion did not, however, determine whether the debt was a contingent debt. Marshall J commented that it was difficult to see how the tax debt could amount to a contingent liability as at 23 June 1997 when “that sum was in no-one’s contemplation”.[64] Having regard to the authorities Marshall J concluded:[65]
In my view, the following pertinent matters can be discerned from a number of the cases referred to by counsel:
·A debt need not be due and payable at the date of bankruptcy to be provable in the bankruptcy, but there must be an obligation upon which the debt is founded, being an obligation which was incurred before the date of bankruptcy: Jones v Deputy Commissioner of Taxation (1998) 157 ALR 349 at 354, per Branson J (at first instance).
·For a debt to be "contingent", "there must be an obligation upon which the contingency can operate", being an obligation which "must exist as at the date of bankruptcy": Lyford v Carey (1985) 3 ACLC 515 at 518, per Franklyn J.
·Where discretion is required to be exercised, in a way which impacts on or is relevant to a debt, there is no obligation to pay until the discretion is exercised: Lyford at 519.
·For a debt to be provable in bankruptcy, in the current context, there must be: "... existing circumstances which (give) rise to a contingent debt or liability, and which would crystallise by the happening of some future event": Gaffney v Commissioner of Taxation (1998) 81 FCR 574 at 578, per Mansfield J.
·A contingent liability within s 82 of the Act can include a potential liability arising from an obligation: Lofthouse v Commissioner of Taxation [2001] VSC 326, per Warren J.
·"The questions for determination must be decided by reference to the language of the relevant statutes, rather then (sic) by resort to consequences which ... would appear to produce injustice ...": Re Kavich; Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82 at 86-87 per Hill J (at first instance).
[63] [2003] FCA 848.
[64] Health Insurance Commission vTrustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848 at [48].
[65] Health Insurance Commission vTrustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848 at [50].
And applying those principles he concluded:[66]
I accept the submission of senior counsel for the HIC that an obligation must be a recognisable one created by law and must not be some amorphous vulnerability to a possible debt. I also accept that the obligation in this case arose from the final determination. As at the date of the final determination, a contingent liability existed in Dr Alekozoglou to the HIC for a debt in the amount specified in the final determination, made on 5 September 1997. That obligation crystallised when the final determination became effective on 9 October 1997.
[66] Health Insurance Commission vTrustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848 at [51].
The debt was not a contingent debt provable in bankruptcy.
The outcome in Alekozoglou is consistent with Foots. The determination in Alekozoglou performed the same function as the order in Foots. That is to say, the source of the obligation was the determination made under s 106TA of the Health Insurance Act 1973 (Cth). Preceding the making of that determination all that existed was a possible liability, a risk, but no obligation.
The question that arose for determination in Federal Commissioner of Taxation v Gosstray (Gosstray) was whether a tax liability imposed by a statute enacted after the date of bankruptcy to recover overdue company tax avoided using a “bottom of the harbour” scheme was a provable debt from which the appellant was released upon entering an approved composition under the Bankruptcy Act.[67] Tadgell J held that a contingent debt within the meaning of s 82(1) was one in relation to which an obligation existed prior to the date of bankruptcy. Here the taxing statute did not exist as at the date of bankruptcy and up to the date of annulment.
At that time, therefore, there could have been no tax liability at all under the statute. When the liability arose it was irrelevant that it was imposed in relation to a time before the date of bankruptcy because, ex hypothesi, when the debt arose it could not have been provable in bankruptcy.[68]
[67] (1986) VR 876.
[68] Federal Commissioner ofTaxation v Gosstray (1986) VR 876 at 880.
In Gaffney v Commissioner of Taxation the issue was whether a reparation order made under the Crimes Act 1901 (Cth) after the date of bankruptcy in consequence of the respondent being found guilty of offences against the Income Tax Assessment Act 1936 (Cth) was a provable debt within the meaning of s 82(1) of the Bankruptcy Act.[69] The charges to which the bankrupt pleaded guilty were laid in relation to the non-payment of tax deducted by companies of which the bankrupt was a director from the wages of employees. The reparation order reflected the amount of taxation owed by the companies. The conduct subject of the charges occurred prior to the date of bankruptcy. Relying upon the approach taken in Lyford v Carey and Corporate Affairs Commissioner v Karounos, where liabilities derived from orders made consequent upon conviction for offences against the Companies Act 1961 (WA) but after the date of bankruptcy were held not to be contingent liabilities, Mansfield J held:[70]
On the assumption that all unremitted tax instalment deductions related to a period prior to 16 June 1993, I have concluded that the reparation order was not a debt provable in the applicant's bankruptcy. As at the date of his bankruptcy, he had no personal liability to the respondent in respect of those deductions by reason of their non payment by the companies concerned. There were at that time no existing circumstances which gave rise to a contingent debt or liability, and which would crystallise by the happening of some future event. That is so whether one adopts the test that there must be a real or realistic possibility of that future event occurring: cp. Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd (1989) 21 FCR 19; Vale v TMH Haulage Pty Ltd (1993) 31 NSWLR 702, or whether it is necessary simply that the future event should occur during the bankruptcy.
The critical issue, in my view, is whether the reparation order arose or was made "by reason of an obligation incurred" by the applicant to the respondent prior to his bankruptcy. If so, then the debt or liability created by it would fall within s 82 as a contingent debt or liability, even though its enforcement may have required certain further procedural steps under s 21B, Crimes Act.
…
…Consistent with the views of Franklyn J in Lyford (above) and Prior J in Karounos (above), I consider that the circumstances as they existed at the date of bankruptcy did not give rise to any obligation incurred by that time. I have set out above the process by which the reparation order was made. Whatever the expression "obligation" might encompass, I do not think it can properly be used to describe what was no more than a vulnerability to a criminal prosecution and conviction which in turn might give rise to a reparation order. The need for critical decisions to be made both to prosecute the applicant, and to convict him (I do not see that the outcome would be different depending upon whether the conviction was by plea or after a trial), and then to make a reparation order, in my view all remove the circumstances at the bankruptcy of the applicant from constituting at that time an obligation by the applicant to the respondent in respect of the liability which the bankruptcy notice now seeks to recover.
[69] (1998) 81 FCR 574.
[70] Gaffney v Commissioner of Taxation (1998) 81 FCR 574 at 578-579, 581.
The outcome in this case squares with that in Foots, Alekozoglou and Gosstray.
In McClellan v Australian Stock Exchange a fine imposed by the ASX upon a participating stockbroking firm pursuant to rules which enjoyed contractual status, after the firm was placed into administration, was held to be a contingent liability.[71] Finkelstein J considered the underlying legal liability to pay the fine was to be found in the statutory contract with the ASX being an obligation to pay damages suffered by the ASX if the fine was not paid. The fine was imposed for breaches of the statutory contract that occurred prior to the firm being placed into administration. Finkelstein J added:[72]
Re Pickering; Ex parte Thornthwaite (1854) 5 De GM & G 367 supports this result. An action for an account was resolved by agreement. An arbitrator was directed to take the accounts and the costs were to abide the result of the award. In due course an award was made in favour of the plaintiff, but before there was any judgment for costs, the defendant committed an act of bankruptcy. The costs were provable in the bankruptcy. Turner LJ (at 372) said that the underlying liability for the costs was to be found in the “valid agreement for valuable consideration, that the amount to be found due by the arbitrator should be the amount to be recovered in the action, and for which judgment should be entered up, and that such judgment, when entered up, should be binding on both parties.
[71] (2005) 144 FCR 327.
[72] McClellan v Australian Stock Exchange (2005) 144 FCR 327 at 333. See also Thiess Infraco (Swanston) Pty Ltd, In the Matter of National Express Group Australia (Swanston Trams) Pty Ltd v Smith [2004] FCA 1155.
The amount of the fine fell within the range which the firm had agreed under the statutory contract to pay if it breached the terms of that contract (being the rules of the ASX). Finkelstein J held that that liability pre-existed the firm entering administration.
In Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd (Dalesun) the question was whether a deed of company arrangement entered into by the defendant in March 2011 protected it from suit for money owed under guarantee and indemnity agreements entered into in 2007 and 2008 in respect of advances made between November 2011 and February 2012.[73] Section 444D(1) of the Corporations Act 2001 (Cth) provided that a deed of company arrangement binds all creditors of the company so far as concerns claims arising on or before the day specified in the deed. The trial Judge considered that authority indicated that claims falling within s 444D(1) were those caught by s 553 of the Corporations Act 2001, namely, debts or claims which may be proved should the company be wound up. That is to say, all debts payable by and all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date. The plaintiff’s third argument, its primary argument, was as follows:[74]
Thirdly, the claims made by the plaintiffs in this action concern the provision by them of goods from November 2011 for which the first payments by the principal debtor (Newglen) were due on 31 December 2011, approximately twelve months after the relevant 'claims date' in the Dalesun DOCA and six months after the termination of the DOCA. A DOCA cannot operate so as to bar claims of creditors arising from a company's conduct after the operation of a DOCA. If the plaintiffs' claims are barred, this must mean the Dalesun DOCA had the effect of terminating the deeds of guarantee and indemnity executed by Dalesun. This cannot have occurred because the termination would have been unilaterally effected by Dalesun and would be contrary to the express terms of the deeds, which provide that their operation is irrevocable and continuing, and that the plaintiffs' rights remain enforceable notwithstanding that Dalesun has come under external administration.
[73] [2014] WASC 89.
[74] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2014] WASC 89 at [12].
At first instance Le Miere J rejected this argument:[75]
The AGI deed of guarantee provides that the defendant guarantees the performance of the terms and conditions of the contract by Newglen. Clause 4 of the deed of guarantee provides that the defendant must indemnify and keep indemnified AGI against all costs and expenses incurred by AGI in respect of any breach by the Debtor Newglen of the AGI contract. The deed of guarantee created, as soon as it was entered into, an obligation upon the defendant to pay the price of the goods or services provided by AGI to Newglen upon the goods and services being provided and Newglen failing to pay for them. The payment is to be made on a future event, that is, the provision of the goods and services and Newglen failing to pay for them. The event or events may not happen, but if and when they do the defendant, by force of the obligation created by the guarantee, must pay AGI a sum of money. The deed of guarantee generated a contingent liability to pay upon AGI providing goods or services to Newglen on credit. That event relevantly occurred after the date specified in the Dalesun DOCA but the 'basal fact' necessary to bring the obligation into being was the making of the deed of guarantee by the defendant. The making of the deed of guarantee by the defendant was the basal fact necessary to bring the defendant's obligation into being. At the specified date under the Dalesun DOCA there was an existing obligation, and out of that obligation a liability, on the part of the defendant to pay a sum of money that would arise in a future event, whether that was an event that must happen or only an event that may happen. The execution of the deed of guarantee gave rise to contingent or future claims. As that occurred before the date specified in the deed, all debts or claims under the deed of guarantee were provable under the Dalesun DOCA.
[75] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2014] WASC 89 at [24].
The plaintiff’s argument focussed upon the terms of the Deed of Company Arrangement. The argument proceeded on the understanding that the relevant guarantees were irrevocable. No argument was mounted to the effect that the relevant guarantees could not have given rise to an obligation upon which the contingent liability operated prior to a supply being made and prior to the deed of company arrangement being entered. Le Miere J did not decide this question.
On appeal Newnes and Murphy JJA observed:[76]
The appellants:
(a) Did not contend that their claims in the primary court were not “Claims” within the meaning of that term for the purposes of the Dalesun DOCA; and
(b) Accepted that their claims were “claims arising on or before the day specified in the deed” within the meaning of s 444D(1) of the Act.
The acceptance of the latter proposition is consistent with authority including, Brash Holdings, referred to with evidence approval in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; Lehman; BE Australia WD Pty Ltd v Sutton (2011) 82 NSWLR 336; 256 FLR 67; Henaford Pty Ltd v Strathfield Group (2009) 72 ACSR 240.
(footnotes omitted)
[76] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd (2015) 297 FLR 1 at [196]-[197].
The cases which Newnes and Murphy JJA cite and the particular references given are authority for the proposition that by virtue of s 444D(1) of the Corporations Act 2001 a deed of company arrangement binds all those who on the date specified in the deed had debts or claims that would have been provable in a winding up under s 553 of that same Act.[77] None of the cases cited decide the question raised in the present appeal.
[77] BE Australia WD Pty Ltd v Sutton (2011) 82 NSWLR 336 at [120]-[144] (Campbell JA, McColl JA agreeing), [223] (Young J); Lehman Brothers Holdings Inc v City ofSwan (2010) 240 CLR 509 at [38] (French CJ, Gummow, Hayne and Kiefel JJ); Henaford Pty Ltd v Strathfield (2009) 72 ACSR 240 at [11] (White J); IATA v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at [42] (Gummow, Hayne, Heydon, Crennan and Kiefel JJ); Brash Holdings Ltd v Katile PtyLtd [1996] 1 VR 24 at 33, 36 (Brooking, J D Phillips and Hansen JJ).
Lastly in Proud v Brims Distributors Pty Ltd the New South Wales Court of Appeal had to determine the same question as is raised in this Court, namely, whether a surety’s bankruptcy released the surety from liability for the indebtedness of another pursuant to a guarantee executed before the date of bankruptcy arising from supplies made after the date of bankruptcy.[78] The guarantee included:
TO: BRIMS DISTRIBUTORS PTY LTD IN CONSIDERATION of you having at our request agreed to supply and/or continue to supply Ilesower Pty Ltd of Unit 6/108 Percival Road, Smithfield 2164.
(hereinafter called “the debtor”) with goods and/or services from time to time we Mr C Proud director of 5 Chadwick Cres, FAIRFIELD WEST 2165 HEREBY JOINTLY AND SEVERALLY agree with you as follows:-
1. To guarantee to you the payment by the debtor for all goods and/or services as you may have hitherto supplied or as you may hereafter supply from time to time at his request and notwithstanding that we shall not have notice of any neglect or omission on the debtor’s part to pay for such goods and/or services according to the terms agreed between you and him.
2. The guarantee shall be a continuing guarantee to you for the whole of the debtor’s indebtedness or liability to you in respect of goods and/or services supplied or to be supplied to the debtor as aforesaid or upon any other account howsoever or whenever arising.
…
6. This guarantee shall be revocable at any time as to further transactions by one month’s notice in writing given to you by us or in case of death by our personal representatives.
[78] [1996] NSWCA 439.
Cole JA, with whom Mahoney P and Waddell AJA agreed, considered that clauses 1 and 2 constituted a guarantee by the surety of payment by Ilesower for goods that may be supplied from time to time to Ilesower “on any other account howsoever or whensoever arising”. The guarantee was then “a possible obligation to pay money … on the breach of an express or implied … contract …” within the meaning of s 82(8), the contract being the contract by Ilesower to pay for goods delivered to it at any time in the future. Accordingly, the possible obligation to pay money pursuant to the guarantee agreement was a liability within the meaning of s 82(8) and a contingent liability within the meaning of s 82(1). The Court of Appeal did not address the question of whether the guarantee was divisible. If the issue was argued, no reasons are provided for rejecting the argument. Rather Cole JA appears to have operated on the basis that the guarantee was not divisible. If the analysis undertaken earlier in these reasons of the guarantee in the present case is correct, and it is divisible, it must follow from the outcome in Foots, Alekozoglou, Gosstray and Gaffney that absent a supply no obligation exists under the guarantee agreement giving rise to a contingent liability. In the circumstances, respectfully, I conclude that Proud v Brims Distributors Pty Ltd is plainly wrong and decline to follow it.[79]
[79] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).
The resolution of this case turns on the nature of the guarantee agreement. In my view, for the reasons given above, clause 3 of the guarantee agreement in particular reflects its divisible character. The reference to the guarantee being unaffected by bankruptcy cannot be construed as having an operation contrary to the Bankruptcy Act. The parties could not contract out of the Act. In any event, the guarantee agreement being divisible and the guarantee contract ripening with each supply, the Bankruptcy Act has no application to those supplies made after the date that the Personal Insolvency Agreement was entered. That is to say, whatever application clause 3(a) may have upon the application of the Bankruptcy Act, if any, it does not purport to have any application where, as here, the debt is not provable.
Whilst it may be said that as at the date the Personal Insolvency Agreement was entered the respondent was subject to a possible liability under the guarantee agreement, in my view no obligation with respect to that possible liability could be said to exist. It is only upon a supply being made to Omnyx that an obligation giving rise to a contingent liability arose. Accordingly, respectfully, I disagree with the Judge.
Implicit in this conclusion is the acceptance of the expanded definition of liability contained in s 82(8) as effecting only the subject matter limitation contained in s 82(1) and not the temporal limitation. Thus any possible obligation to which s 82(8)(b) refers must be one in relation to which, relevantly, the bankrupt becomes subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy.
The fact that the guarantee agreement was not revoked prior to the supplies being made between 1 April 2012 and 22 May 2012 is of no consequence to the application of s 82. No obligation existed in relation to those supplies prior to the date of bankruptcy.
I do not consider that to construe and apply s 82(1) as not capturing supplies made after the date of bankruptcy that are subject of a continuing divisible guarantee agreement executed before the date of bankruptcy inconsistent with the general purpose of the Bankruptcy Act or the modern law of bankruptcy. In relation to supplies made after the date of bankruptcy the surety does not need the protection of the Bankruptcy Act. He or she may simply revoke the guarantee.
Conclusion
The appeal should be allowed, the orders of the single Judge set aside and those of the Magistrate restored.
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