Duncan Properties Pty Ltd v Neal, D.A.K

[1993] FCA 544

DUNCAN PROPERTIES PTY LTD v. DONALD ALAN KEITH NEAL and COLIN JOHN TAYLOR
No. QG84 of 1993
FED No. 544
Number of pages - 5
Bankruptcy - Bills of Exchange

COURT

IN THE FEDERAL COURT OF AUSTRALIA

STATE OF QUEENSLAND
GENERAL DIVISION
Sweeney(1), Wilcox(1) and Spender(1) JJ

CATCHWORDS

Bankruptcy - contractual stay of execution of Bankruptcy Notice in consideration of, in part, indorsement of foreign Bill of Exchange to creditor by associate of debtors - Deed required associate to facilitate assignment of Bill - Bill not paid - whether on proper construction the Deed required associate to ensure Bill paid.

Bills of Exchange - Bill not presented - whether associate discharged on Bill - whether debtors nonetheless liable for breach of Deed - whether duty to present Bill dispensed with.

Bankruptcy Act 1966 (Cth) s. 40(1)(g)

Bill of Exchange Act 1909 (Cth) ss. 50(1), 51(2)(c), 51(2)(d), 51(2)(e), 60(1).

HEARING

BRISBANE, 2 August 1993

#DATE 10:8:1993

Counsel for the Appellant: Mr Q.N. Chesterman QC and

Mr P.J. Dunning

Solicitors for the Appellant: Tobin and Co

Counsel for the Respondents: Mr B.J. Clarke

Solicitors for the Respondents: Hill and Taylor

ORDER

THE COURT ORDERS THAT:

1. The appeal be dismissed

2. The appellant pay the respondents' costs of the appeal.

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

JUDGE1

SWEENEY, WILCOX AND SPENDER JJ This is an appeal from a decision of a single judge of the Court setting aside a bankruptcy notice issued by the appellant, Duncan Properties Pty Ltd, on 11 January, 1993. It claimed payment by the respondents, Donald Alan Keith Neal and Colin John Taylor, of the sum of $143,615.09. This sum was said to be the balance of monies due under a final judgment obtained by the appellant against the respondents in the District Court of Queensland on 22 June 1992.

1. It appears that, shortly after the date of this judgment, in July 1992, the appellant issued a bankruptcy notice. The debtor did not comply with the terms of the notice whereupon the appellant filed a creditor's petition. Before the petition was heard, on 22 October 1992 the parties executed a Deed of Settlement in which they recited that they had agreed to resolve their differences. The parties to the deed included, in addition to the appellant and the two respondents, Amartec Pty Ltd (a company of which Mr Neal was a director) and Spyros Fallas, a person involved in Supreme District Court litigation involving both the appellant and the respondents.

2. It is not necessary to summarise the whole of the deed. The recitals referred not only to the District Court proceeding in which the 22 June judgment had been obtained, but also to an action in the Supreme Court of Queensland in which the appellant recovered judgment against the respondents in the sum of $476,200 and various court proceedings in which Fallas was involved. The intent of the deed was, inter alia, that all proceedings relating to the respondents, including the pending bankruptcy proceedings, would be terminated upon performance by them of three separate obligations.

3. The first obligation was the delivery by the respondents to the appellant's solicitors of a bank cheque for $50,000; delivery to be effected by 5 pm on 22 October. The second obligation was the payment by the respondents of the appellant's costs of the various court proceedings, the amount thereof to be assessed by a nominated firm of costs consultants. These obligations were duly met by the respondents. The third obligation is the matter underlying the present appeal.

4. Clause 1 of the deed defined certain terms, including the words "Due Bill". This term was defined as "the Due Bill bearing date the 16th day of December, 1992 being Number 92/103 drawn by Euro Scotia Funding Limited, addressed to The Montreal Trust Co. of Halifax, Nova Scotia, Canada, payable to the order of Amartec... for the sum of Seventy Two Thousand Five Hundred US dollars ($US72,500)." (The evidence shows that the bill was in existence before the execution of the deed. It follows, of course, that it was not drawn on 16 December. That was the due date for payment). Clause 2 of the deed required Amartec and the respondents, by 5 pm on 3 November 1992, to deliver the bill to the appellant's solicitors, with a copy of written advice by Amartec to Euro Scotia of the assignment of Amartec's interest in the bill and a letter of acknowledgment from Euro Scotia to Amartec agreeing that the proceeds of the bill would be paid to the appellant when due under the terms of the bill. Clause 3 required Amartec to endorse the bill for payment to the appellant.

5. Clause 4.2 is a provision of considerable importance to the present issue. It read:
   

"4.2 Amartec hereby assigns to Duncan Properties its interest in the Bill and shall sign all such documents and do all such acts as may be necessary from time to time for Duncan Properties to receive the full proceeds of the Bill when due."

1. Clause 7.3 of the deed read as follows:
   

"Upon the execution of this Agreement by all parties, the District Court proceedings, the Third Party District Court proceedings, the Supreme Court proceedings, and the Third Party Supreme Court proceedings shall be stayed and the parties hereto undertake not to take any further step or interlocutory proceedings in any or all of the proceedings referred to in this paragraph, nor to incur any further party and party costs and/or disbursements in respect of any or all of the proceedings referred to in this paragraph until Duncan Properties receives all of the monies owing to it under this Agreement, or until default by Amartec, Taylor or Neal of any of their obligations pursuant to the terms of this Agreement, whichever is the sooner."

1. Clause 9.2 contained a release. The condition of the release was expressed in these terms: "Subject to Amartec and Neal and Taylor carrying out their obligations under this Agreement".

2. Clause 10 provided for rescission. It read:
   

"10. In the event of default by Amartec, Taylor or Neal of any of their obligations pursuant to the terms of this Agreement then this Agreement may be rescinded by Duncan Properties and thereupon Duncan Properties and Fallas shall be entitled to continue with the Supreme Court proceedings and District Court proceedings and Duncan Properties shall be entitled to commence bankruptcy proceedings against Neal and Taylor."

1. Amartec endorsed the bill and delivered it, with the stipulated letters, to the appellant's solicitors. They delivered the bill to a bank for presentment and collection. But it was not presented to Montreal Trust on 16 December 1992, the due date. When it was eventually presented, on 22 December, the bill was not paid.

2. The solicitors for the appellant formed the view that Montreal Trust's refusal to pay had the effect of putting the respondents in breach of their obligation under cl. 4.2 of the deed, with the result that the release was inoperative and cl. 10 applied. On behalf of their client, the solicitors purported to rescind the deed. They issued a new bankruptcy notice, that dated 11 January 1993. The respondents moved to set aside that notice, contending that the deed remained in force and that its effect was to stay enforcement of the judgment on which it was based.

3. Many issues were argued before the learned primary judge. His Honour's decision on several matters was not challenged before us; at the same time counsel for the appellant sought to put to us some arguments not addressed to his Honour.

4. We find it unnecessary to canvass all the arguments raised in this case.

5. The first difficulty the appellant faces concerns the construction of the deed, and in particular the form of cl.4.2. Counsel for the appellant argued that this clause imposes upon Amartec an obligation to ensure payment to the appellant of the value of the bill. Counsel conceded that the clause did not directly require Amartec to pay the sum stated in the bill. But they said that, in a practical sense, this might be its effect. Amartec had an obligation to ensure that the bill was paid; if it appeared that neither the drawee (Montreal Trust) nor the drawer (Euro Scotia) would pay the bill, Amartec would have to find the money itself, if it was to avoid breach of its obligations under cl.4.2.

6. We do not accept this construction of cl.4.2. It seems to us that the clause has two functions. First, it effects an assignment of Amartec's interest in the bill, as payee. Secondly, it obliges Amartec to sign all documents and do all acts necessary to enable the appellant to receive the proceeds of the bill. The second part of the clause follows the form of a covenant of further assurance commonly inserted in assignments; a covenant designed to ensure that all necessary formalities will be attended to by the assignor, as required from time to time. We think it is significant that the obligation to do all necessary things is imposed in the context of an obligation to sign all necessary documents; it is concerned with machinery matters rather than the creation of a new substantive liability. The obligation to do this is recurrent ("from time to time") with the objective that the appellant will receive "the full proceeds of the Bill when due"; that is, whatever they may turn out to be.

7. The submission put by counsel for the appellant effectively makes Amartec a guarantor of the payment of the value of the bill. If that had been intended, it would have been easy to say so. When the parties wished to make a provision subject to the receipt by the appellant of the proceeds of the Bill, they said so in plain terms - for example, in cl. 6 -
   

"Provided Duncan Properties has received the proceeds of the Bill"

and in cl. 8.3

"Subject to Duncan Properties receiving the proceeds of the Bill and the payment of the costs pursuant to Clause 7, Duncan Properties shall discontinue the Supreme Court proceedings and the District Court proceedings against Fallas and Fallas agrees to consent to discontinue those and each of those proceedings against him (including the counterclaims) and Duncan Properties and Fallas shall each bear their own costs of and incidental to the Supreme Court proceedings and the District Court proceedings and neither Duncan properties nor Fallas shall have any claim against the other in respect of any matter or fact arising out of the Supreme Court proceedings and the District Court proceedings (including the counterclaims)."

1. We note that discontinuance by the appellant against Fallas was expressed to be conditional on the receipt of the proceeds of the bill and the payment of costs.

2. There are two considerations that might be thought to support the view that it was intended to impose a substantive obligation upon Amartec. First, it might be said that it is inherently unlikely that the appellant would have been content to compromise its claim to a sum as large as $666,065.09 without being assured of receiving more than $50,000 plus assessed costs. We agree that there is a large difference between the total claim and that which, under our conclusion, the appellant was certain to receive. But there was a large difference anyway. If the bill had been paid, it would have added only Aust $100,000 approx. to the amount received. The appellant's acceptance of such a large discount suggests that it believed that the respondents had few resources. The appellant might have taken the view that it was better to take whatever was available - including the bill of exchange, for what it was worth - than to press the larger claim with the prospect of recovering nothing at all.

3. Secondly, counsel correctly point out that Amartec would be liable to the appellant, as indorser, if the bill was dishonoured. Under those circumstances, they say, it is but a small step to construe the clause in such a manner as to impose upon Amartec an obligation to ensure payment. But, from Amartec's point of view, there were significant differences between the two obligations. Amartec would not be liable to pay the bill as indorser if it was not presented on the due date, unless presentment was excused. But, according to the appellant's argument, it would remain liable under cl.4.2. Furthermore, an indorser who is forced to pay a bill dishonoured on presentment is entitled to recover the value of the payment from the drawer: see s.60(1) of the Bills of Exchange Act 1909. (It is doubtful that the terms of this Act have any direct application to the bill involved in this case. The position of the drawer and drawee of that bill are probably governed by Canadian (or Nova Scotian) law. There was no evidence as to the content of that law. In those circumstances, the parties agreed, both at first instance and on appeal, that the case should proceed on the assumption that the relevant law is the same as Australian law. That assumption may be valid; the Australian Act is substantially modelled on the common law.)

4. In our opinion, as a matter of construction, cl.4.2 imposes no obligation on Amartec to ensure payment of the bill on presentment. The clause is intended to do no more than compel Amartec to sign such documents and do such acts as may be necessary, from time to time, the better to effectuate the assignment of the bill and entitle the appellant to recover whatever payment may be obtainable under it, having regard to its intrinsic limitations and worth. This conclusion is fatal to the appellant's case.

5. The second difficulty for the appellant arises out of the fact that the bill was not presented for payment on the due date, 16 December. The reasons for this omission do not clearly appear from the evidence but there is no doubt about the fact itself. The bill was not presented until 22 December. Section 50(1) of the Bills of Exchange Act provides that, subject to the provisions of the Act, a bill must be duly presented for payment. If the bill is not presented, the drawer and indorsers are discharged. Section 50(2) stipulates rules regarding presentation. The first of them is that, where the bill is not payable on demand, presentment must be made on the day it falls due. That is the present case. Section 51(2) provides that presentment for payment is dispensed with in certain circumstances.

6. Although counsel for the appellant invoked paragraphs (c), (d) and (e), none of these paragraphs was shown to be applicable. Paragraph (c) refers to dispensation, as regards the drawer, where the drawee or acceptor is not bound, as against the drawer, to accept or pay the bill and the drawer has no reason to believe that the bill would be paid if presented. In the present case, this ground would involve exploration of the relationship between Euro Scotia and Montreal Trust. There was no evidence about this. Paragraph (d) refers to dispensation, as regards the indorser, where the bill is an accomodation bill and the indorser has no reason to expect that the bill would be paid if presented. Neither of these factual matters was explored at first instance.

7. Counsel placed particular reliance on paragraph (e), which excuses non-presentment where presentment is waived. Waiver was not raised at first instance. Counsel nonetheless invited us to find waiver from the correspondence in evidence. We need not detail the course of correspondence; it is enough to say that it does not establish waiver. Presentment was not excused.

8. If, contrary to our view, Amartec came under an obligation, pursuant to cl.4.2, to ensure payment of the bill upon presentment, that obligation had no practical effect. There was no presentment. This also would have been fatal to the appellant's case.

9. The bankruptcy notice was not authorised by s.40(1)(g) of the Bankruptcy Act 1966. His Honour correctly ordered that it be set aside. The appeal must be dismissed with costs.