Gray v Oz North Food & Liquor Wholesalers (NT) P/L - [2016] SASC 165

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
GRAY v OZ NORTH FOOD & LIQUOR WHOLESALERS (NT) P/L
[2016] SASC 165
Judgment of The Honourable Justice Stanley
2 November 2016
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 - PURPOSIVE APPROACH - GENERAL PRINCIPLES
This is an appeal from a judgment of a magistrate who found the appellant liable to pay the respondent the sum of $100,000 pursuant to a guarantee.
The appellant was a director of Omnyx Pty Ltd (Omnyx) which traded as Kitty O’Sheas. On or about 11 November 2010 the appellant completed an application for credit on behalf of Omnyx and submitted the application to the respondent. As part of the application the appellant agreed to guarantee the payment of all monies which Omnyx owed to the respondent. The guarantee agreement was a continuing guarantee in respect of debts arising from the supply of goods to Omnyx by the respondent from time to time. The respondent supplied Omnyx with liquor products.
On 12 January 2012 the appellant executed a personal insolvency agreement in accordance with the provisions of Part X of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). He ceased to be the director of Omnyx at that time.
Between 11 April 2012 and 22 May 2012 Omnyx incurred trading debts totalling $87,292.30 for the supply of liquor products from the respondent.
Receivers and managers were appointed to Omnyx in late May 2012. Omnyx ceased trading in August 2012. The only payment made by Omnyx in respect of the debt incurred between 11 April 2012 and 22 May 2012 was a sum of $3,113.50 paid on 11 October 2013.
The respondent sought to recover the sum of $100,000 from the appellant pursuant to the terms of the guarantee agreement. It claimed that the balance of the unpaid debt, together with interest and other amounts payable, far exceeded that amount.
The appellant defended the claim on the sole basis that by reason of his entry into the Part X agreement he was protected from liability pursuant to the guarantee agreement by force of the provisions of the Bankruptcy Act.
The issue on appeal is whether there was a contingent liability to which the appellant was subject by reason of the guarantee agreement at the date of his execution of the personal insolvency agreement, namely, 12 January 2012.
Held, per Stanley J:
1. 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, there was a liability provable for the purposes of s 82 (at [36]).
2. As at the date of bankruptcy the contingency had occurred and the value of the liability could be calculated accurately. There is no room for the application of s 82(6) (at [42]).
3. Allow the appeal (at [43]).
4. Set aside the orders made by the magistrate (at [43]).
5. Dismiss the respondent’s claim (at [43]).
Bankruptcy Act 1966 (Cth) Pt X, s 82, s 98, s 153(1), s 187(2), s 230, s 231(3)(b), s 231(4)(b), referred to.
Coulthart v Clementson (1879) 5 QBD 42; Re John Campbell Nicholson [1989] FCA 182; Caltex Australia Petroleum Pty Ltd v Troost [2015] NSWCA 64, discussed.
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 222 CLR 194; Australian Education Union v The Department of Education and Children’s Services (2012) 248 CLR 1; Storey v Lane (1981) 147 CLR 549; Re McMaster; ex parte McMaster (1991) 33 FCR 70; Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd (2015) 297 FLR 1; Hardy v Fothergill (1888) 13 AC 351; In Re Northern Counties of England Fire Insurance Co; Macfarlane’s Claim (1880) 17 Ch D 337; Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455; Expile Pty Ltd v Jabb’s Excavations (2004) 22 ACLC 667; McDonald v Deputy Commissioner of Taxation (2005) 187 FLR 461; Re Walker & Anor (2007) 215 FLR 428; McClelland v Australian Stock Exchange (2005) 144 FCR 327; Forshaw v Thompson (1992) 35 FCR 329; Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd (1989) 21 FCR 19; Federal Commissioner of Taxation v Gosstray [1986] VR 876; Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd (2015) 297 FLR 1, considered.

GRAY v OZ NORTH FOOD & LIQUOR WHOLESALERS (NT) P/L
[2016] SASC 165
Magistrates Appeal
STANLEY J:
Introduction

This is 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.
The appellant was a director of Omnyx Pty Ltd (Omnyx) which traded as Kitty O’Sheas. On or about 11 November 2010 the appellant completed an application for credit on behalf of Omnyx and submitted the application to the respondent. As part of the application the appellant agreed to guarantee the payment of all monies which Omnyx owed to the respondent. The guarantee agreement was a continuing guarantee in respect of debts arising from the supply of goods to Omnyx by the respondent from time to time. The respondent supplied Omnyx with liquor products.
On 12 January 2012 the appellant executed a personal insolvency agreement in accordance with the provisions of Part X of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). He ceased to be the director of Omnyx at that time.
Between 11 April 2012 and 22 May 2012 Omnyx incurred trading debts totalling $87,292.30 for the supply of liquor products from the respondent.
Receivers and managers were appointed to Omnyx in late May 2012. Omnyx ceased trading in August 2012. The only payment made by Omnyx in respect of the debt incurred between 11 April 2012 and 22 May 2012 was a sum of $3,113.50 paid on 11 October 2013.
The respondent sought to recover the sum of $100,000 from the appellant pursuant to the terms of the guarantee agreement. It claimed that the balance of the unpaid debt, together with interest and other amounts payable, far exceeded that amount.
The appellant defended the claim on the sole basis that by reason of his entry into the Part X agreement he was protected from liability pursuant to the guarantee agreement by force of the provisions of the Bankruptcy Act.
There was no issue that by reason of his entry into the Part X insolvency agreement the appellant was released from all provable debts within the meaning of s 82 of the Bankruptcy Act. Section 187(2) of the Bankruptcy Act provides that in Part X of the Act a provable debt is to be understood as a reference to a debt or liability that would have been a provable debt in the debtor’s bankruptcy if the debtor had become a bankrupt on the day the personal insolvency agreement was executed. Section 231(3)(b) provides, inter alia, that s 82 applies in relation to a personal insolvency agreement as if a sequestration order had been made against the debtor on the day on which the debtor executed the agreement. Section 231(4)(b) provides that any reference to a provable debt in s 82 is to be read as a reference to a provable debt within the meaning of Part X.
Bankruptcy Act 1966 (Cth)
The provisions of the Bankruptcy Act relevant to the disposition of this appeal are s 82, s 153(1) and s 230.
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.
Section 153(1) provides:
Effect of discharge
(1)Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.
Section 230 is the analogous provision to s 153 in respect of a Part X arrangement. It provides:
(1)If a personal insolvency agreement provides for a debtor to be released from a provable debt, the agreement operates to release the debtor from that provable debt unless the agreement is set aside or terminated under this Part.
(2)Subsection (1) has effect subject to subsections (3), (4) and (5).
Exceptions
(3)Subsection (1) does not operate to release the debtor from a debt that would not be released by his or her discharge from bankruptcy if he or she had become a bankrupt on the day on which he or she executed the personal insolvency agreement.
(4)Subsection (1) does not affect the right of a secured creditor, or a person claiming through or under a secured creditor, to realise or otherwise deal with the creditor's security:
(a)     if the secured creditor has not proved under the agreement for any part of the secured debt--for the purpose of obtaining payment of the secured debt; or
(b)     if the secured creditor has proved under the agreement for part of the secured debt--for the purpose of obtaining payment of the part of the secured debt for which the creditor has not proved under the agreement;
and, for the purposes of enabling the secured creditor, or a person claiming through or under a secured creditor, so to realise or deal with the creditor's security, but not otherwise, the secured debt, or the part of the secured debt, as the case may be, is taken not to have been released.
(5) A personal insolvency agreement does not release from any liability a person who, at the date on which the debtor executed the agreement, was:
(a)     a partner or a co-trustee with the debtor; or
(b)     jointly bound or had made a joint contract with the debtor; or
(c)     surety or in the nature of a surety for the debtor.
Magistrate’s reasons
The magistrate rejected the proposition that the liability of the appellant under the guarantee agreement was a provable debt. The magistrate held that the purpose of s 82 is to quantify debt. That enables creditors to prove in the bankruptcy and the trustee to calculate the entitlement to each creditor. Pursuant to s 82 debts and liabilities refer exclusively to liquidated sums of money. It does not refer to legal liabilities or possible liabilities. A continuing guarantee cannot be proved in bankruptcy. In this case there was no obligation incurred before the date of bankruptcy by the entry into a continuing guarantee. An obligation only arose once a debt had been incurred upon which the guarantee could be called. A contingent liability did not arise until such time as Omnyx ordered goods. In this case that did not occur until after the date of bankruptcy. Accordingly the liability of the appellant under the guarantee agreement was not a future or contingent liability by reason of an obligation incurred before the date of bankruptcy. Because none of the goods were ordered prior to the appellant’s entry into the Part X arrangement, the sums claimed pursuant to the guarantee were not released.
Issue
The issue on appeal is whether there was a contingent liability to which the appellant was subject by reason of the guarantee agreement at the date of his execution of the personal insolvency agreement, namely, 12 January 2012.
Submissions
The appellant submits that the Court should give the widest possible construction to the debts and liabilities which are provable in bankruptcy. He submits that it has been the law since the origins of modern bankruptcy that a liability under a contract of guarantee is discharged by bankruptcy. Section 82 of the Bankruptcy Act prescribes what debts and liabilities are provable in bankruptcy. The section provides that all debts and liabilities, whether present or future, certain or contingent, are provable in bankruptcy. The relevant liability in this matter is a liability under a contract of guarantee that was entered into prior to the date of bankruptcy. The sum found payable by the appellant was a contingent liability under the guarantee agreement which antedated the appellant’s bankruptcy. Accordingly, it is a debt or liability that would be provable in bankruptcy, and as such, he is released from it by his execution of the personal insolvency agreement.
The respondent submits that as at the date of the appellant’s bankruptcy the guarantee agreement which provided for a continuing guarantee in respect of advances made from time to time was divisible and hence revocable as to future advances. Accordingly the revocable guarantee was no more than a standing offer or unenforceable promise. For a provable debt for the purpose of s 82 to exist there had to be a debt or liability to which the bankrupt was subject at the date of the bankruptcy by reason of an obligation incurred before that date. For a debt or liability to exist pursuant to a contract of guarantee there had to be an irrevocable promise which required consideration. The only relevant consideration was the making of a further advance in respect of which a guarantee could be called on. It was the making of the advances by the respondent to Omnyx between 11 April 2012 and 22 May 2012 which created the contingent liability pursuant to the guarantee agreement. That was not a liability that existed as at the date of the entry into the personal insolvency agreement on 12 January 2012. Accordingly, those advances were not a provable debt in the appellant’s Part X arrangement. In the alternative, the respondent submits that the application of s 82(6) means any liability under the guarantee could not be fairly estimated as at 12 January 2012 and accordingly, was not a provable debt or liability.
Consideration
The issue for decision in this appeal involves a question of statutory construction. Is the claim against the appellant pursuant to the guarantee a contingent liability within the meaning of s 82? The contemporary approach to statutory construction is purposive.[1] The meaning of the statute is to be considered in the context of the general purpose and policy of the statute. The statutory text is the surest guide to legislative intention. The general purpose and policy of a statute is to be identified from the statutory text and not by making an a priori assumption about its purpose.[2]
[1]    Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.
[2]    Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd [2005] HCA 9 at [21], (2005) 222 CLR 194 at 208; Australian Education Union v The Department of Education and Children’s Services [2012] HCA 3 at [28] – [29], (2012) 248 CLR 1 at 14.
The modern law of bankruptcy serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably amongst creditors. The second is to ensure that one creditor does not obtain an undue advantage over others. The third is to bring about the discharge of the debtor from future liability for the debtor’s existing debts so that the debtor may start afresh.[3]
[3] Storey v Lane (1981) 147 CLR 549 at 556 – 557; Re McMaster; ex parte McMaster (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.
A convenient starting point for the consideration of whether the claim made against the appellant pursuant to the guarantee agreement is a liability that would have been provable in bankruptcy is the rule in Hardy v Fothergill.[4]The rule enunciated by Lord Halsbury was considered in Thiess Infraco (Swanston) Pty Ltd v Smith[5] where Finkelstein J said:
Since 1869 it has never been doubted that if at the date of bankruptcy the bankrupt was bound by an executory contract the creditor could prove as a contingent creditor for any losses that he might suffer from a past or future breach of that contract. This accords with the evident purpose of bankruptcy which is to permit all creditors to share in the distribution of the assets of the bankrupt and to leave the debtor thereafter free from the liability of previous obligations. As Lord Halsbury observed in Hardy v Fothergill (1888) LR 13 AC 351, 355: “[T]he legislature has been engaged in the effort to exhaust every conceivable possibility of liability under which a bankrupt might be, to make it provable in bankruptcy against his estate and relieve the bankrupt for the future from any liability in respect thereof.” It would be most unfortunate if persons entitled to the performance of executory agreements on the parts of bankrupts were excluded from participation from bankrupt estates and the bankrupts themselves as a necessary corollary were left still subject to action for non-performance in the future although without the property or credit often necessary to enable them to perform those obligations. The categories of claims which are admissible should be as wide as possible so that the financial affairs of the bankrupt are dealt with comprehensively.
[4] (1888) 13 AC 351.
[5] [2004] FCA 1155, (2004) 209 ALR 694.

In In Re Northern Counties of England Fire Insurance Co; Macfarlane’s Claim[6] Sir George Jessel MR said:[7]
I should think the law in bankruptcy as to contingent liabilities was pretty plain, and that any liability contingent at the date of the adjudication which ripens into a debt during the bankruptcy is provable.
[6] (1880) 17 Ch D 337.
[7] (1880) 17 Ch D 337 at 340.
In Community Development Pty Ltd v Engwirda Construction Company[8] Kitto J, with whom Barwick CJ and Windeyer J agreed, considering the meaning of a “contingent or prospective creditor”, said:[9]
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.
[8] (1969) 120 CLR 455.
[9] (1969) 120 CLR 455 at 459.
In Expile Pty Ltd v Jabb’s Excavations[10] Palmer J distinguished between a “future claim” and a “contingent claim” as follows:[11]
A future claim is distinguishable from a contingent claim in that, while both are founded on an obligation existing as at the commencement of the winding up or the deed of company arrangement, a future claim will arise at some time thereafter while a contingent claim may arise. A typical example of a future claim is a claim for rent which will become due in the future under a lease which is in existence at the commencement of the winding up.
[10] (2004) 22 ACLC 667.
[11] (2004) 22 ACLC 667 at [37].
The meaning of a contingent liability was considered in McDonald v Deputy Commissioner of Taxation.[12] Barrett J said that the essential feature of a contingent debt or claim is its source in some existing obligation or state of affairs that may or may not mature into a present debt.
[12] (2005) 187 FLR 461 at [40].
In Re Walker & Anor[13] Barrett J said:[14]
A claim which is triggered by an event that occurs after the relevant date is admissible to proof, provided that the contract existed at the relevant date. Obvious examples include post-liquidation claims under pre-liquidation insurance policies. It is “the circumstances giving rise to” the debts or claims which must have “occurred before the relevant date”, not the debts or claims themselves.
An important element is the nature of the contract in question as one involving the company’s continuing obligation to supply or perform an ongoing service or benefit.
[13] (2007) 215 FLR 428.
[14] (2007) 215 FLR 428 at 432.
In McClelland v Australian Stock Exchange[15] Finkelstein J said[16] that in Australia it is accepted that for there to be a contingent liability there must be an existing obligation out of which on the happening of the contingency (an event that may or may not occur) there will arise a fixed obligation to pay a sum of money, which can be either liquidated or sounding only in damages.
[15] [2005] FCA 585, (2005) 144 FCR 327.
[16] [2005] FCA 585 at [9], (2005) 144 FCR 327 at 330.
While these observations were made in the context of company liquidations, much of the insolvency provisions in the Corporations Act have their genesis in bankruptcy law.[17]
[17] Thiess Infraco (Swanston) Pty Ltd v Smith [2004] FCA 1155 at [7], (2004) 209 ALR 694 at 698.
In Forshaw v Thompson[18] Lockhart J, with whom Black CJ and Sweeney J agreed, said:[19]
A guarantee is an example of a contingent debt; it remains contingent until demand is made by the guarantor upon the debtor, and in that sense it cannot be said with certainty that there will be any debt due by the debtor to the guarantor until demand is made. Until then there is a doubt if there will be any debt at all.
[18] (1992) 35 FLR 329.
[19] (1992) 35 FLR 329 at 340.
For a debt to be provable there must be a legally enforceable obligation upon which the debt is founded, being an obligation incurred before the date of bankruptcy. The above authorities support the proposition that a post-bankruptcy demand made pursuant to a contract of guarantee, pre-existing the guarantor’s bankruptcy, for payment of a debt incurred pursuant to the principal contract subsequent to the date of bankruptcy is a contingent debt or liability provable in the guarantor’s bankruptcy. This would be a legally enforceable obligation incurred before the date of bankruptcy.
In my view, this construction accords with both the text and purpose of s 82. Section 82 is a rehabilitative provision. It effects the third of the three purposes of the Bankruptcy Act. It is intended to give the debtor a fresh start. It should be given a wide, liberal construction consistent with the language of the section. That was the approach taken by the Full Federal Court in Official Trustee in Bankruptcy v C S & G J Handby Pty Ltd[20] where in a joint judgment Morling, Beaumont and Burchett JJ said:[21]
Section 82(1) and its precursors have been generously construed. In Re Hide; Ex Parte Llynvi Coal and Iron Co; Re Hide James LJ said (of s 31 of the Bankruptcy Act 1869 (UK)):
Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. 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.
[20] (1989) 21 FCR 19.
[21] (1989) 21 FCR 19 at 24.
That approach supports the conclusion that the liability of the appellant to guarantee Omnyx’s debt to the respondent pursuant to the guarantee agreement that pre-existed the appellant executing his personal insolvency agreement was an obligation provable in his bankruptcy as a contingent liability.
On the other hand, there is academic writing to the contrary. The respondent submits that the law on the issue on which the appeal is to be decided is correctly stated by the authors of O’Donovan & Phillips, Modern Contract of Guarantee who consider:
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 the bankruptcy.
The appellant submits that this passage wrongly states the law. He submits that this statement of the law is unsupported by authority. Certainly the authors do not cite any authority that supports the above proposition.
The respondent contends that the claim made pursuant to the guarantee agreement was not a provable debt or liability for the purpose of s 82 on the basis that there was not a binding obligation incurred before the date the appellant executed the personal insolvency agreement. The foundation for this submission is the proposition that the guarantee agreement, being an agreement for a continuing guarantee, was divisible as to each advance because each advance provides the consideration for the guarantee. In Coulthart v Clementson[22] Bowen J observed that “it has long been understood” that a continuing guarantee was liable to be withdrawn on notice, explaining:[23]
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… 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.
[22] (1879) 5 QBD 42.
[23] (1879) 5 QBD 42 at 46 - 47.
In Re John Campbell Nicholson[24] French J (as he then was) said:[25]
Generally speaking, a guarantee in respect of advances made from time to time by creditor to principal may be regarded as a standing offer which matures into a contract of guarantee as each new advance is made. It can therefore be revoked at any time in respect of future advances.
[24] [1989] FCA 182.
[25] [1989] FCA 182 at [19].
In Caltex Australia Petroleum Pty Ltd v Troost[26] Emmett JA, with whom Meagher and Barrett JJA agreed, said:[27]
The guarantee and indemnity obligation is qualified by the third clause, which provides that the guarantee is a “continuing” guarantee. The third clause does not refer in terms to the indemnity. Nevertheless, the liability of a signatory would be capable of determination, both as regards the guarantee and the indemnity. There would be nothing unusual in construing the provision as operating on the basis that, at any time, a signatory of the guarantee and indemnity could terminate his or her liability in futuro. It is well established that a continuing guarantee in which the consideration for the guarantee is divisible (such as when the creditor supplies goods or funds from time to time to the debtor) is capable of being revoked in respect of liability to accrue in the future. That is to say, a guarantor and indemnifier would be entitled to give notice to Caltex that he or she would not be responsible for obligations of the Company incurred after the giving of the notice or for damage or for loss resulting from default by the Company in the performance of an obligation that came into existence after the giving of the notice. Thus, when Mr Troost ceased to be a director of the Company, it would have been open to him to notify Caltex that the guarantee and indemnity was at an end, with the intent that he would continue to be liable for any extant obligations of the Company or any default thereafter by the Company in the performance of any extant obligations. That would have been the extent of his liability.
[Citations omitted].
[26] [2015] NSWCA 64.
[27] [2015] NSWCA 64 at [74].
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, there was a liability provable for the purposes of s 82. The flaw in the respondent’s submission is that while the guarantee was revocable, it had not been revoked. Accordingly, the guarantee was enforceable and, as a result, provable pursuant to s 82. As the Full Federal Court held in Forshaw v Thompson[28] 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.
[28] (1992) 35 FCR 329.
It follows that I cannot accept as correct, at least in these particular circumstances, the statement of the law upon which the respondent seeks to rely by the authors of O’Donovan and Phillips cited above.
Section 82(6)
That leaves the respondent’s alternative submission that the application of s 82(6) has the effect that the contingent liability under the guarantee was not provable because it could not be fairly estimated as at 12 January 2012.
In Federal Commissioner of Taxation v Gosstray[29] Tadgell J held[30] that where a claim is made for a contingent debt, if it is made the subject of a proof, it is to be stated as on the date of the bankruptcy. He said:[31]
If when the proof is lodged the contingency has not happened, the amount of the claim must be estimated as accurately as possible… See s. 82(4) of the Bankruptcy Act 1966. If the value of the claim cannot be fairly estimated, s. 82(6) provides that the debt or liability should be deemed not to be provable. Of course, it is open to the Court to assess the value of a claim at nil…
[29] [1986] VR 876.
[30] [1986] VR 876 at 878 – 879.
[31] [1986] VR 876 at 878 – 879.
This is consistent with the reasons of the majority of the Western Australian Court of Appeal in Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd[32] where Newnes and Murphy JJA, citing with approval a passage from Rowlatt, The Law of Principal and Surety,[33]held[34] that in the context of bankruptcy where a creditor is not bound to supply any goods, a creditor would technically have a right of proof, and the guarantor would be released by his discharge from bankruptcy but that, inasmuch as a creditor need not supply any goods, the quantification of the liability would be nil.
[32] [2015] WASCA 95, (2015) 297 FLR 1.
[33] 3^rd ed, 1936 at 315 – 316.
[34] [2015] WASCA 95 at [234], (2015) 297 FLR 1 at 49.
Accordingly, while the provable debt is to be adjudicated as at the date of the bankruptcy, the value of the debt provable in bankruptcy can be calculated by reference to the subsequent occurrence of the contingency if that has occurred. I am reinforced in this view by the provisions of s 98 of the Act which permits a creditor, with the consent of the trustee, to amend the proof of debt if the contingency occurs later or the value of the debt or liability becomes certain subsequent to the lodgement of the proof of debt in the bankruptcy.
In this case the contingency had occurred and the value of the liability could be calculated accurately. In these circumstances there was no room for the application of s 82(6).
Conclusion
I would allow the appeal. I would set aside the orders made by the magistrate. I would dismiss the respondent’s claim. I would hear the parties as to costs.