Handberg v Smarter Way (Aust) Pty Ltd - [2002] FCA 469

FEDERAL COURT OF AUSTRALIA
Handberg v Smarter Way (Aust) Pty Ltd [2002] FCA 469
BANKRUPTCY - order for costs – joint and several debtors – where judgment debt set off in full as between insolvent co-debtor and creditor by operation of Corporations Act s 553C – applications by remaining debtors to set aside bankruptcy notices issued against them – whether statutory set off operates to extinguish creditor’s claims against remaining debtors – whether there was a debt existing to support the issue of bankruptcy notices against remaining debtors – proof of debts – double satisfaction
INSOLVENCY – where one joint and several debtor executes deed of company arrangement – Corporations Act s 553C – whether required mutuality – where debt set off in full by operation of law – whether creditor can seek to recover debt against remaining solvent co-debtors – scope and operation of s 553C
Bankruptcy Act 1966 (Cth), s 41(2)
Corporations Act 2001 (Cth), s 439C, s 444D(1), s 444H, s 444(4)(i), s 444A(5), s 553C, s 553E
Bankruptcy Regulations, reg 4.02
Corporations Regulations, Sch 8A, reg 5.3A.06
GM & AM Pearce and Co Pty Ltd v RGM Australia Pty Ltd [1998] 4 VR 888 followed
Gye v McIntyre (1991) 171 CLR 609 applied
Stein v Blake [1996] 1 AC 243 followed
Owen v Wilkinson (1858) 5 CB(NS) 526 referred
McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 referred
Goodwin v Duggan (1996) 41 NSWLR 158 referred
Ex Parte Wyldman (1750) 2 Ves Sen 113; 28 ER 74 cited
In Re Houlder [1929] 1 Ch 205 cited
Edwards v Hood-Barrs [1905] 1 Ch 20 cited
Midland Montagu Australia Ltd v Harkness (1994) 35 NSWLR 150 cited
Hill v Anderson Meat Industries Ltd [1971] 1 NSWLR 868 considered
Re Kolb, Ex parte England v Federal Commissioner of Taxation (1994) 51 FCR 31 cited
Re Last, Ex parte Butterell (1994) 124 ALR 219 cited
In Re Garner’s Motors, Ltd [1937] Ch 594 considered
Deanplan Ltd v Mahmoud [1993] Ch 151 cited
Johnson v Davies [1999] Ch 117 considered
Trocko v Renlita Products Pty Ltd [1973] 5 SASR 207 cited
Caratti v Hillman [1974] WAR 92 cited
Re Terri Co Pty Ltd (1987) 12 ACLR 457 cited
Re Applications of NRMA Ltd (2000) 156 FLR 349 cited
Kempe (as joint liquidator of Mentor Insurance Ltd) v Ambassador Insurance Co (in liq) [1998] 1 WLR 271 cited
Day and Dent Constructions Pty Ltd (in liquidation) v North Australian Properties Pty Ltd (1982) 150 CLR 85 referred
M S Fashions Ltd v Bank of Credit and Commerce International SA (in liquidation) [1993] Ch 425 considered
In Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 referred
Rory Derham, Set-off (Oxford, 2^nd ed, 1996)
Glanville Williams, Joint Obligations (London, 1949)
GEOFFREY NEILS HANDBERG v SMARTER WAY (AUST) PTY LTD (ACN 087 747 359)
V 7074 of 2001
ANTHONY D’ALOIA v SMARTER WAY (AUST) PTY LTD (ACN 087 747 359)
V 7075 of 2001
KENNY J
15…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2002] FCA 469
Decision Date: 15 APRIL 2002

CaseChat Overview and Summary

The Federal Court was called upon to decide whether the applicants, Handberg and others, owed a debt to the respondent, Smarter Way (Aust) Pty Ltd, in the sum of $43,426.10, as alleged in the bankruptcy notices served on them. The dispute arose from a written agreement entered into on 6 January 2000, whereby Smarter Way, an internet service provider, borrowed $132,525.70 from Waiviata International Limited. The applicants, who were later appointed as voluntary administrators of Smarter Way, contested the debt, leading to the present court proceedings. The applicants sought to set aside the bankruptcy notices, arguing that they were not creditors of Smarter Way in relation to the specified debt.

The primary legal issue before the court was whether the applicants owed Smarter Way the sum of $43,426.10, which would make them creditors under the Bankruptcy Act. This hinged on the validity of the debt as claimed by Smarter Way, and whether it was sufficiently founded to issue a bankruptcy notice. The court also needed to consider the implications of the January 2000 agreement and its clauses, particularly clauses 4 and 5, on the ownership and transfer of Smarter Way’s business and assets.

The Federal Court examined the January 2000 agreement and its clauses, which indicated that Waiviata was to become the owner of Smarter Way’s business and assets if the loan was not repaid. The court noted that there was no evidence Smarter Way had taken steps to transfer ownership as required by clause 5, nor had Waiviata demanded payment of the loan. Furthermore, an earlier Supreme Court decision by Mandie J found that Smarter Way was not entitled to appoint the applicants as administrators due to the absence of a valid charge. Given these findings, the court determined that the applicants did not owe Smarter Way the debt claimed, and thus the bankruptcy notices were set aside. The court ordered Smarter Way to pay the applicants' costs for the proceedings.

In conclusion, the Federal Court ruled in favor of the applicants, setting aside the bankruptcy notices and ordering Smarter Way to pay the applicants' costs. This decision was based on the lack of evidence supporting the existence of the debt as claimed and the previous findings that Smarter Way was not entitled to appoint the applicants as administrators.

Orders

Orders of the court

1. In proceeding V 7074 of 2001, the bankruptcy notice dated 20 August 2001 and numbered VN 1399/01 be set aside.

2. The respondent pay the applicant’s costs of and incidental to the application.

1. In proceeding V 7075 of 2001, the bankruptcy notice dated 20 August 2001 and numbered VN 1398/01 be set aside.

2. The respondent pay the applicant’s costs of and incidental to the application.

Background

Background to the litigation

The applications were made on the ground that the respondent is not a creditor of the applicants in relation to the debt alleged in the bankruptcy notices that was served on them. Each application raises the same question, namely, whether the applicant owed a debt to the respondent in the sum of $43,426.10 sufficient to found the bankruptcy notice that issued against him under s 41(2) of the Act and reg 4.02 of the Bankruptcy Regulations (“the Regulations”).background facts On 6 January 2000, the respondent, an internet service provider, entered into a written agreement (“the January 2000 agreement”) with Waiviata International Limited (“Waiviata”) and Phillip Jarvie, sole director and shareholder of the respondent, pursuant to which Waiviata lent $132,525.70 to the respondent. Clause 4 of the agreement provided that, if the respondent failed to meet the obligation to repay as set out in cl 3, then “by force of this document Waiviata will immediately become the full and beneficial owner of the [respondent’s] Business and the Assets and, to the extent possible without further act or documentation, the legal owner of the Business and the Assets”. Clause 5 of the agreement provided in effect that the respondent and Jarvie were to take steps to complete the transfer of the respondent’s business and assets to Waiviata “upon the change in beneficial ownership of the Business and the Assets” referred to in cl 4. Pursuant to cl 7, upon compliance by the respondent and Jarvie with obligations in cl 5, the respondent was to be “discharged from any obligation to repay or pay moneys to Waiviata under clause 3”. The respondent did not repay the loan as required by cl 3. There is no evidence (and the respondent does not assert) that it took the steps required by cl 5 of the January 2000 agreement. The administrators of Waiviata have not, however, demanded payment of the sum of $132,525.70 On 28 January 2000, Waiviata (later known as Waivcom Worldwide Ltd (“Waivcom”)) purported to appoint the applicants as voluntary administrators of the respondent pursuant to the January 2000 agreement and s 436C of the Corporations Law (“the Law”). Waiviata did so on the basis that it was a chargee of the respondent’s property, the charge having been created, it said, by the January 2000 agreement. On 31 January 2000, after accepting appointment as administrators of the respondent, the applicants commenced a proceeding in the Supreme Court of Victoria (No 4183 of 2000). In this proceeding, they made application, by notice of motion, for an order that Jarvie deliver up the respondent’s assets and books. Mandie J heard this application in the Supreme Court on 1 February 2000. Jarvie successfully opposed the application on the ground that the January 2000 agreement did not confer a charge over the respondent’s property on Waiviata and that Waiviata was not entitled to place the respondent into administration. Jarvie did not challenge the existence of the debt and, in reasons delivered on 2 February 2000, Mandie J found that “[t]he evidence shows that … the money [$132,525.70] was advanced”: [2000] VSC 16 at [6]. His Honour also held that “the applicants have failed to establish the existence of a charge within the meaning of the Law … [and] I conclude that, therefore, they have not demonstrated they were validly appointed as administrators”: [2000] VSC 16 at [17]. The motion, pursuant to which application was made, was dismissed with costs in favour of Jarvie, the question of non-party costs being reserved. On 4 February 2000, Mandie J ordered that Waiviata (a non-party) pay the present applicants’ costs of proceeding No 4183, including the order for costs of 2 February 2000.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

KENNY J

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Ratio Decidendi

Legal Principle Established

Established by: KENNY J

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