GR Finance Limited v Waldron (No.2)
[2010] FMCA 168
•9 March 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| GR FINANCE LIMITED v WALDRON (No.2) | [2010] FMCA 168 |
| BANKRUPTCY – Sequestration order – other sufficient cause for refusing relief – creditor partially recovered losses in tort claims against third parties – effect of deed of settlement – whether debtor discharged from full indebtedness – whether proceedings became an abuse of process – acceptance of affidavit of debt – no discretionary reason for refusing relief – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.52, 52(1)(a), 52(2), 52(2)(b) |
| Bakamovic v Investec Bank (Australia) Limited [2008] FMCA 1513 China and South Sea Bank Ltd v Tan [1990] 1 AC 536 Farrow Finance Company Ltd (in liquidation) v ANZ Executors and Trustee Company Ltd [1998] 1 VR 50 GR Finance Limited v Waldron [2010] FMCA 133 Petratos v Provident Capital Limited [2009] FMCA 1168 Re Bank of Credit and Commerce International SA (No 8) [1997] 4 All ER 568 Rozenbes v Kronhill (1956) 95 CLR 407 Williams v Spautz (1992) 174 CLR 509 |
| Applicant: | GR FINANCE LIMITED ACN 093 594 305 |
| Respondent: | JOSEPHINE CARMEL WALDRON |
| File Number: | SYG 2254 of 2009 |
| Judgment of: | Smith FM |
| Hearing date: | 9 March 2010 |
| Delivered at: | Sydney |
| Delivered on: | 9 March 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr F Salama |
| Solicitors for the Applicant: | Marsdens Law Group |
| Counsel for the Respondent: | Ms K Balendra |
| Solicitors for the Respondent: | Bowles Lawyers Pty Limited |
ORDERS
A sequestration order be made against the estate of Josephine Carmel Waldron.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 9 June 2009.
The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2254 of 2009
| GR FINANCE LIMITED ACN 093 594 305 |
Applicant
And
| JOSEPHINE CARMEL WALDRON |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
On 18 February 2010, I gave a judgment in this matter, explaining the adjournment of a bankruptcy petition against Mrs Waldron consequent upon ordering discovery of a deed of settlement which appeared critical to her grounds of opposition (see GR Finance Limited v Waldron [2010] FMCA 133). I shall not repeat the background events recited in that judgment.
The orders I made on 18 February 2010 gave Mrs Waldron further time to file additional affidavits and written submissions. However, she filed neither submissions nor lists of authorities nor any additional evidence in accordance with my directions. Counsel for Mrs Waldron forwarded to the Registry, but not to my associate, an outline of written submissions late yesterday, but this did not reach me in time to digest it before coming into Court. I have, however, heard counsel’s submissions fully, and have arrived at a firm opinion that Mrs Waldron’s grounds of opposition should not be accepted, and that a sequestration order should be made today.
Some additional evidence was admitted by consent, being the deed of settlement which was the subject of my previous judgment. To understand my reasons, it is necessary for me to refer to its critical terms.
The “Deed of Settlement and Release” between GR Finance Limited (“GR Finance”) and the three valuers was entered into on or about 5 November 2009. That date is the defined “settlement date”. The deed identifies a “settlement sum” in the amount of $790,000. It contains clauses, which it is unnecessary for me to set out, providing releases and procedures for finalising the litigation between those persons, upon payment to GR Finance of the settlement sum on the settlement date.
The provisions relevant to the present matter are contained in clauses 2, 3 and 10. They refer to CBP and WFW, who were respectively the solicitors for the valuers and for GR Finance.
2.PAYMENT
2.1Langshaw Valuations, Rural Valuations and O’Dea agree to jointly and severally pay GR Finance the Settlement Sum on or before the Settlement Date.
2.2Payment of the Settlement Sum shall be made by telegraphic transfer to an account as directed by WFW.
2.3GR Finance agrees to accept the Settlement Sum in full and final settlement of the Principal Proceeding inclusive of all and any interest and costs.
3.SETTLEMENT
3.1Exchange of this Deed shall be effected by way of CBP and WFW faxing a signed counterpart of the Deed to each other and also forwarding by email to the practitioners having the care and conduct of the matter from both CBP and WFW. The parties agree that the Deed shall have been exchanged upon both parties having provided either via facsimile or via email a true copy of their clients’ duly executed counterpart and Deed. CBP and WFW shall then also send the original counterpart to each other by ordinary post.
3.2Settlement as provided under this Deed shall take place upon payment of the Settlement Sum pursuant to clause 2.2 on or by the Settlement Date.
3.3The Settlement Sum comprises:
3.3.1$425,000.00 in respect of damages claimed by GR Finance in the Principal Proceeding
3.3.2$225,000.00 in respect of interest claimed by GR Finance in the Principal Proceeding, and
3.3.3$140,000.00 in respect of costs claimed by GR Finance in the Principal Proceeding.
3.4The Settlement Sum is provided by the Principal Proceeding Respondents with a denial of liability.
…
10.RIGHTS OF SUBROGATION
10.1GR Finance retains its rights under the loan to the Waldrons (as described in paragraph 16 of the Amended Statement of Claim dated 20 February 2009 in the Principal Proceeding) (Loan) to seek payment of the full outstanding amount due to it by Francis Gerard Waldron and Josephine Carmel Waldron (Waldrons). This clause imposes no duty upon GR Finance to commence legal proceedings or take other action to enforce its rights or otherwise seek payment under the terms of the Loan. Whether to pursue such claim or action is at the sole discretion of GR Finance. Subject to the priorities set out in clause 10.2 below, the parties agree that Rural Valuations and O’Dea are entitled to recovery of the amount of up to $650,000 plus interest at the rate applicable to judgments of the Supreme Court of Victoria from the Settlement Date to date of final payment (together the Subrogated Amount).
10.2Any amounts received from or pursuant to the Loan are to be divided between:
10.2.1GR Finance; and
10.2.2Rural Valuations and O’Dea (jointly)
on the following basis:
10.2.3first to GR Finance up to the full amount of GR Finance’s entitlement under the Loan inclusive of any and all accrued interest under the Loan outstanding at that date;
10.2.4next, to the extent not already included in the amount recovered under GR Finance’s entitlement under the Loan, GR Finance’s legal costs and disbursements calculated on a solicitor/own client basis, and reasonable expenses incurred by GR Finance in connection with or related to the obtaining of payment of the Loan or any part thereof by the Waldrons;
10.2.5the Subrogated Amounts to Rural Valuations and O’Dea;
10.2.6any remaining amounts to GR Finance.
10.3Pending payment to Rural Valuations and O’Dea in accordance with this clause, the Subrogated Amount or any part thereof shall be held on trust for Rural Valuations and O’Dea by GR Finance and GR Finance hereby undertakes to inform CBP immediately on receipt of the settlement amount or any part thereof.
In effect, cl.3.3 apportioned the ‘settlement sum’ paid to GR Finance as partial compensation for its capital and income losses under the financing agreement with Mr and Mrs Waldron, resulting from the inadequacy of the security which had been over‑valued by the valuers, together with a payment in respect of GR Finance’s costs in the litigation against the valuers. There is no submission made to me that the latter amount, identified in cl.3.3.3, should be regarded as an artificially determined figure. In effect therefore, the settlement provided GR Finance with compensation for losses on its financing agreements with the Waldrons in the amount of $650,000. On the evidence before me, its losses, in fact, exceed that amount by more than $100,000.
That compensation amount of $650,000 is then the defined “subrogated amount” referred to in cl.10 of the deed. The clarity of the drafting of this clause might have been improved, and I think that in cl.10.3 the reference to “settlement amount” in the second last line probably should be read as a reference to “the subrogated amount”. However, at least in relation to the proceedings between Mrs Waldron and GR Finance today, there was no disagreement about the effect of cl.10. This was that any amounts recovered from Mr or Mrs Waldron in relation to their indebtedness to GR Finance under their financing agreement were to be held by GR Finance and applied by them:
i)towards recovery of the balance of the amounts owing by the Waldrons to GR Finance exceeding $650,000;
ii)then as indemnification of GR Finance of its legal costs incurred in seeking recovery from Mr and Mrs Waldron;
iii)then, and only once those two amounts were fully recouped, on trust for the valuers pursuant to cl.10.3, up to the amount of $650,000;
iv)then “any remaining amounts to GR Finance”.
Thus understood, cl.10 appears to be a comprehensible contractual arrangement between the valuers and GR Finance, which addressed issues which would otherwise be dealt with under principles of equity. That is, addressing an implied obligation on GR Finance to indemnify the valuers or account to them for the compensation recovered from the valuers, in the event that its future recoveries from Mr and Mrs Waldron, plus the amount of the damages which it received from the valuers, left it more than fully compensated for all its losses and expenses arising under its loans to Mr and Mrs Waldron.
It is notable that Mr and Mrs Waldron were not parties to the claims and litigation which this deed settled, and they were not parties to the deed. It is impossible to distil from the terms of the deed any waiver or discharge by GR Finance of its rights against Mr and Mrs Waldron to recover their principal indebtedness. Clause 10 manifestly is to the contrary of such an understanding of the settlement with the valuers.
Nor is the deed able to be construed as containing any implication that the payment of the settlement amount by the valuers to GR Finance would be a payment by or on behalf of Mr and Mrs Waldron, in discharge of all or any part of their loan account or other indebtedness to GR Finance. The terms of the deed, read in the light of the litigation which it settled, is obviously to the contrary of such a construction.
No surrounding circumstances are shown in any evidence to dispel the construction of the deed which I have arrived at above.
Also admitted in evidence by consent was a letter from the solicitors for GR Finance confirming the receipt of the settlement amount of $790,000. I was invited, and would draw the conclusion, that that amount was the total amount dissected in cl.3.3 of the deed, and that it was paid on or about the settlement date of 5 November 2009. Clause 10 therefore came into effect.
It will be recalled that the settlement date occurred subsequent to GR Finance’s Supreme Court judgment being entered against Mr and Mrs Waldron on 15 May 2008, subsequent to the service of the bankruptcy notice and the commission of an act of bankruptcy by Mrs Waldron on 9 June 2009 in relation to an indebtedness under that judgment of $759,194.30, and also subsequent to the filing of the present creditor’s petition on 16 September 2009 which relied upon the same indebtedness. Counsel for Mrs Waldron disclaimed any challenge to the validity of the bankruptcy notice, or the commission of the act of bankruptcy, or the existence of the indebtedness identified in the petition as at the date of the petition.
An affidavit of debt filed today in Court asserts the continuing existence of that debt owed by Mrs Waldron to GR Finance. There is certainly no evidence that either she or Mr Waldron have made any payments in reduction of their indebtedness, nor that there is any prospect of it being reduced by realisation of the security they gave, or from any other property of Mr or Mrs Waldron. However, counsel for Mrs Waldron appeared at times to invite me to reject the affidavit of debt under the discretion given to the Court under s.52(1)(a) of the Bankruptcy Act 1966 (Cth), on the ground that the payment of the settlement amount to GR Finance had reduced Mrs Waldron’s indebtedness below the amount currently asserted in the affidavit of debt.
Counsel was unable to identify any principle of law or equity which would cause the settlement deed and payment to have that effect. As I have indicated above, there is no evidence of any discharge by agreement, nor can I identify any circumstances of waiver or estoppel, which would require GR Finance to be bound to accept a lesser payment. As I have held above, the terms of the settlement deed themselves are plainly inconsistent with any such discharge being intended. To the extent that an equitable principle of indemnity or subrogation or other principle against unjust enrichment would apply to the situation I have outlined, in my opinion, it would operate in favour of the valuers and not Mrs Waldron.
I therefore reject the submission that the indebtedness relied upon in the petition, and asserted in the affidavit of debt still to be owing at the date of the hearing of the petition today, should not be accepted. I do not accept that she is liable, at most, to a lesser amount as a consequence of the payment of the settlement amount to GR Finance.
No challenge, either express or implicit, was made by Mrs Waldron to the other requirements upon which a sequestration order can be made, as identified in s.52 and other provisions of the Bankruptcy Act and Regulations. I am therefore satisfied on all the evidence before me that an entitlement to the making of a sequestration order in relation to that indebtedness has been made out by GR Finance.
Counsel for Mrs Waldron maintained reliance upon the notice of opposition which I extracted in my previous judgment, which contends that the circumstances of the payment of the settlement amount provide “other sufficient cause” why “a sequestration order ought not to be made” within s.52(2)(b) of the Bankruptcy Act.
In her submissions, counsel focused Mrs Waldron’s contentions to two arguments. The first was that the judgment debt relied upon by GR Finance had “either fully or partially been satisfied due to the settlement of proceedings against the valuers”. Her written submission argued: “as the damages claimed in those proceedings are the same as those payable under the judgment debt against the Respondent, the Respondent submits that the judgment debt has either fully or partially been satisfied”. She also submitted that: “the petition should be dismissed on the basis that the court cannot be satisfied that the amount of the debt that the Applicant relies upon at the date of the hearing of the petition is in fact owed by the Respondent”.
However, for the reasons set out above, I am satisfied that the debt asserted in the affidavit of debt should be accepted. It is plain that the payment of the settlement sum by the valuers was not in discharge of the indebtedness of Mrs Waldron. It was not made in respect of a common debt, that is, a debt owed equally or jointly either in law or equity by Mrs Waldron and the valuers. On the evidence before me, the settlement amount was paid only in settlement of a claim by GR Finance to compensation. The claim proceeded – and was answered by the valuers – on an assumption that Mr and Mrs Waldron lacked the means to satisfy the judgment debt, and that therefore GR Finance had suffered a financial loss equal to or exceeding its judgment against Mr and Mrs Waldron. Whether that assumption reflected a correct understanding of the current and future financial position of Mr and Mrs Waldron is not a matter in which I need to determine. However, plainly the settlement sum was not paid by the valuers upon an assumption that Mrs Waldron had been or would be discharged from her principal indebtedness to GR Finance. Nor was it paid upon an assumption that GR Finance’s rights to recover the full amount of her indebtedness had passed to the valuers. Rather, cl.10 reflected an intention that GR Finance, in its discretion, could continue to pursue full recovery against Mr and Mrs Waldron, albeit subject to its defined obligations to account to the valuers in relation to amounts recovered.
I therefore do not consider that the first contention of Mrs Waldron’s counsel, whether seen as a challenge to the affidavit of debt, or as the basis for an exercise of discretion pursuant on the ground of “other sufficient cause” under s.52(2)(b), has been made out.
Counsel’s alternative argument was that the discretion should be exercised upon principles of abuse of process. She did not argue that service of the bankruptcy notice, or service of the petition itself, amounted to an abuse of processes of the Court. This could not be contended, in circumstances where the indebtedness was undoubtedly present at those times, and where GR Finance was plainly entitled to pursue recovery of its losses through any means it chose to pursue, including by debt proceedings against Mrs Waldron and proceedings in tort against perceived contributors to its loss. In these circumstances, there is no evidence suggesting the present proceedings were commenced with any other purpose in mind than a legitimate business objective, fully consistent with the provisions of the Bankruptcy Act.
In this respect, I note that it is well established that a lender is entitled to pursue all remedies for the recovery of moneys owed by a debtor, including remedies in relation to personal indebtedness, realisation of security, or recovery from guarantors, “at any time or times simultaneously or contemporaneously or successively or not at all” (see China and South Sea Bank Ltd v Tan [1990] 1 AC 536 at 545, cited in Re Bank of Credit and Commerce International SA (No 8) [1997] 4 All ER 568 at 572, applied by me in Bakamovic v Investec Bank (Australia) Limited [2008] FMCA 1513 at [11], and Petratos v Provident Capital Limited [2009] FMCA 1168 at [25]). In my opinion, the creditor is similarly free to pursue recovery of its losses from a contributory tortfeasor, and it is open to it to arrive at a settlement with that person before exhausting all avenues of recovery from the debtor or other person principally liable. As the present settlement deed illustrates, any such settlement will usually not itself amount to a discharge of the principal debtors, and is likely to be subject to obligations of accounting in the event that later recoveries from the principal debtors occur.
Counsel for Mrs Waldron identified the abuse of process in the present situation as having occurred or commenced upon the receipt of the settlement sum by GR Finance in November 2009, during the pendency of the current petition. She submitted:
Abuse of Process
19.The Respondent submits that in seeking the full amount of the judgment debt as opposed to the amount that is actually due, the Applicant is attempting not simply to recover payment of the debt but is attempting to discharge a potential liability to a third party.
20.The Respondent submits that the Applicant is therefore using these proceedings to obtain a collateral advantage to itself and not for the purpose for which these proceedings are designed and exist (Williams v Spautz (1992) 174 CLR 509).
21.The Respondent further submits that the Applicant’s conduct in pursuing the full value of the debt as opposed to a lesser sum, and in not providing the Respondent an opportunity to repay that lesser amount, is oppressive.
22.Accordingly the Respondent submits that the Applicant’s pursuit of these is extortionate and amounts to an abuse of process and therefore the petition should be dismissed (Rozenbes v Kronhill (1956) 95 CLR 407).
However, I am unable to identify in the present circumstances any abuse of process which could cause me to decline to make a sequestration order upon the present petition. Unlike the circumstances of Rozenbes v Kronhill (supra) and the authorities which were discussed by the High Court in that case, GR Finance’s reliance upon Mrs Waldron’s full indebtedness, and its pursuit of that amount as the ground for a sequestration order, does not amount to ‘extortion’ as discussed by the High Court. It is not an attempt to recover money which would not otherwise be legitimately owed to GR Finance. It does not seek to obtain an unfair advantage over the entitlements of other creditors of Mrs Waldron.
I am unable to identify any ‘illegitimate’ collateral objective in the present petition, nor in GR Finance’s reliance upon the full amount of that indebtedness, notwithstanding its receipt of the settlement sum which was intended partially to compensate its losses under the financing agreement. In circumstances where cl.10 of the deed would prevent GR Finance from obtaining windfall benefits, in the event that recovery was able to be made from Mr and Mrs Waldron of the full amount of their indebtedness to GR Finance, I cannot see any principle of abuse of process which should cause the bankruptcy court not to make a sequestration order.
In this respect, counsel for GR Finance referred me to Farrow Finance Company Ltd (in liquidation) v ANZ Executors and Trustee Company Ltd [1998] 1 VR 50, in which Hansen J examined the effects of a more complicated settlement, where some creditors had received compensation for financial losses in tort proceedings against a third party. Hansen J was required to consider the implications of those receipts for the insolvency administration of the principal debtor. In my opinion, his Honour’s reasoning in that case at page 73 and following, although going further than it is necessary for me to go in the present case, explains fully why in the present situation there was no implied release of the debtor, why the settlement amount did not amount to a payment in relation to a common debt, and why principles of double satisfaction would not apply so as to require the settlement amount to be brought into account when considering Mrs Waldron’s indebtedness and the management of her estate in bankruptcy.
Unlike that case, the terms of GR Finance’s settlement with the valuers does not suggest any possibility of a windfall payment being received by GR Finance, which it would not be obliged to account for to either the valuers or to Mr and Mrs Waldron. To the extent that concepts of unjust enrichment might have a bearing on my exercise of discretion under s.52(2)(b), in my opinion the consequences of accepting Mrs Waldron’s submissions would be to give her, rather than GR Finance or the valuers, an undeserved benefit or windfall advantage.
For all the above reasons, I am therefore unpersuaded that the circumstances shown in the evidence before me establish grounds for the discretionary refusal of a sequestration order pursuant to s.52(2). I note that today, as on the last occasion, no case was sought to be made on behalf of Mrs Waldron that she was “able to pay her debts”, including the amount which I have found above is owing to GR Finance.
In my opinion, it is irrelevant to my exercise of the discretion under s.52(2) that she has only in recent weeks discovered the terms of the settlement deed with the valuers, particularly, since she has led no evidence that she had any expectation of procuring from that settlement a discharge from her principal obligations as a debtor under her financing agreement with GR Finance and under the judgment entered against her in the Supreme Court.
In all the circumstances, in my opinion the creditor has a ‘prima facie right’ to the making of a sequestration order in the present case, and I should give dominant weight to that right when exercising my discretion (see Rozenbes v Kronhill at page 414 and 419). As I have indicated above, I am satisfied as to all the formal requirements that need to be established before the making of that order.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 16 March 2010
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