Lambros v First Capital Securities Limited
[2007] FMCA 1553
•14 September 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| LAMBROS v FIRST CAPITAL SECURITIES LTD | [2007] FMCA 1553 |
| BANKRUPTCY – Application to set aside bankruptcy notice – validity of bankruptcy notice – requirement to particularise amounts credited against judgment debt. BANKRUPTCY – Application to set aside bankruptcy notice – counterclaim, set-off or cross demand – entitlement of applicant guarantor to raise claims against creditor. |
| Bankruptcy Act1966, ss.30, 40, 41 Federal Magistrates Court (Bankruptcy) Rules 2006, Rule 3.02 |
| In re Miller; ex parte Furniture and Fine Arts Depositories Ltd [1912] 3 KB 1 Re Manion; ex parte Deputy Commissioner of Taxation (1978) 37 FLR 78 Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 St George Wholesale Finance Pty Ltd v Spalla (2000) 181 ALR 682 Re Kostezky; ex parte Milder Elfman Szmerling Krycer Pty (1996) 67 FCR 101 Re Walsh (1982) 65 FLR 88 Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122 GE Capital Australia v Davis [2002] NSWSC 1146 |
| Applicant: | CONSTANTINE VICTOR LAMBROS |
| Respondent: | FIRST CAPITAL SECURITIES LIMITED ACN 109 846 853 |
| File number: | BRG 595 of 2007 |
| Judgment of: | Wilson FM |
| Hearing date: | 27 July 2007 |
| Date of last submission: | 8 August 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 14 September 2007 |
REPRESENTATION
| Counsel for the Applicant: | N/A |
| Solicitors for the Applicant: | Bennett & Philp |
| Counsel for the Respondent: | Ms Conway |
| Solicitors for the Respondent: | Dibbs Abbott Stillman |
ORDERS
That the application filed 16 July 2007 be dismissed.
The applicant pay the respondent’s costs of and incidental to the application to be taxed, if not agreed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 595 of 2007
| CONSTANTINE VICTOR LAMBROS |
Applicant
And
| FIRST CAPITAL SECURITIES LIMITED ACN 109 846 853 |
Respondent
REASONS FOR JUDGMENT
On 25 June 2007, the applicant was served with a bankruptcy notice that required him to pay, or make an arrangement with the respondent for the payment of, the sum of $573,113.11.
The schedule to the bankruptcy notice referred to a judgment obtained by the respondent against the applicant of $2,180,449.90. It allowed a credit for “payments made and/or credits allowed since date of judgments or orders” in the amount of $1,607,336.79. The balance is the amount claimed in the bankruptcy notice.
The applicant seeks to set aside the bankruptcy notice on two grounds:
a)The bankruptcy notice is invalid because it fails to show how the amount claimed is calculated;
b)The applicant has a counterclaim, set off or cross demand equal to or exceeding the amount claimed in the bankruptcy notice.
The claim by the respondent against the applicant is pursuant to a deed of guarantee and indemnity, to which I will make more detailed reference in due course. The respondent commenced proceedings in the Supreme Court of Queensland against Conviction Developments Pty Ltd, the principal borrower; Anela Pty Ltd, a related company that provided security for the loan advanced by the respondent to Conviction; the present applicant and another director of Conviction, who is presumably also a guarantor of the obligations of that company. On 30 October 2006 a default judgment was entered against the present applicant for $2,180,449.90. It is that judgment that is referred to in the bankruptcy notice.
The respondent obtained certain monies from the sale of properties owned by either Conviction or Anela. In the respondent’s submissions it is said that the proceeds were from the sale of property owned by Anela, but this is not deposed to in the affidavit material. These monies were deducted from the judgment debt. It is plain that where part of a judgment debt has been paid (or where part of the indebtedness of a guarantor has been satisfied by a payment by a principal debtor) the creditor can only issue a bankruptcy notice for the balance: In re Miller; ex parte Furniture and Fine Arts Depositories Ltd [1912] 3 KB 1.
The applicant’s complaint is that the bankruptcy notice does not provide any particulars of the source of the payments for which credit has been given, nor any reconciliation of how the amount applied against the judgment debt was arrived at.
Whilst there is authority for the proposition that if a balance due under a judgment is claimed, that fact should be stated and the amounts paid or credited after the judgment should be specified (Re Manion; ex parte Deputy Commissioner of Taxation (1978) 37 FLR 78 at 84), I have been unable to find any authority as to the level of specificity required in a bankruptcy notice where allowance is made for payments received or a credit given. I consider that the question should be approached by applying the general principles attendant upon determining whether a bankruptcy notice is invalid for overstatement or understatement of the amount claimed.
In this regard, in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71, the majority justices said, at 76-77:
“Mis-statement of the amount due to a creditor is not necessarily fatal to the validity of a bankruptcy notice. Sub-section (5) and (6) of s.41 of the Act make specific provision for overstatement, providing that a bankruptcy notice will not be invalidated by reason only that the sum specified in the notice as due exceeds the amount in fact due, “unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis-statement”: sub-s. (5). Although no specific provision is made in relation to understatement, s.306(1) of the Act provides:
“Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”
The issue of a bankruptcy notice is a proceeding under the Act: Pillai v. Comptroller of Income Tax [1970] AC 1124, at p. 1131.
Three questions arise as to the validity of the bankruptcy notices in this case: are they defective or irregular; if so, is the defect or irregularity substantive or formal; and if it is formal only, has it occasioned substantial and irremediable injustice?
It may be accepted that a bankruptcy notice which mis-states the amount due to the creditor is defective or irregular.”
Their Honours continued, at 79-80
“The authorities show that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the Act, or if it could reasonably mislead a debtor as to what is necessary to comply with the notice: James v. Federal Commissioner of Taxation (1955) 93 CLR 631, at p. 644; Pillai v. Comptroller of Income Tax [1970] AC 1124, at p. 1135. In such cases the notice is a nullity whether or not the debtor in fact is misled: In re A Judgment Debtor, 530 of 1908 [1908] 2 KB 474, at p. 481.
If the amount specified in a bankruptcy notice is in fact due and payment is claimed in accordance with the judgment, the essential requirements of s.41(2)(a)(i) – the only requirements presently relevant – are met. Understatement of the amount due, whether it be an understatement of the judgment debt or of interest payable thereon, will thus constitute a defect which is substantive rather than formal only if the understatement is objectively capable of misleading the debtor as to what is necessary for compliance with the notice.
It may be that, in a given case, understatement is capable of misleading the judgment debtor particularly if the notice is capable of producing uncertainty as to whether the debtor is required to pay the amount in fact due or the amount specified in the notice. In such a case uncertainty arises, not merely from the understatement, but from the understatement in the context of the particular bankruptcy notice. No such uncertainty arises if it is clear that payment of the amount specified in the notice will constitute compliance with the notice.”
In the present case, the applicant does not say that he has been misled by the bankruptcy notice. In my view, the bankruptcy notice is not capable of misleading the applicant. It is clear how much he is required to pay, so as to comply with the notice. The applicant does not dispute that the amount received by the respondent has been applied against the judgment debt. What he is unsure of is where the monies have come from, and what properties were sold to give rise to the application of the proceeds. In that regard the court is entitled to look at facts extraneous the notice itself: St George Wholesale Finance Pty Ltd v Spalla (2000) 181 ALR 682. In the present case, the applicant is involved with both companies that are indebted to the respondent. He has some, perhaps incomplete, knowledge of what is going on in the receivership of those companies, and what properties are being sold. It is apparent that the applicant knows why a credit has been given. The onus rests on the applicant to assert whether too little has been given by way of credit, or that he has been misled by the form and content of the bankruptcy notice: Re Kostezky; ex parte Milder Elfman Szmerling Krycer Pty (1996) 67 FCR 101 at 103-4. He has done neither.
In my view, the evidence adduced on behalf of the applicant does not assert that there has been a mis-statement of the amount owing. Therefore, there is no defect in the bankruptcy notice and it should not be set aside on that ground.
I should add that, if the applicant is contending that the amount claimed to be owing by the respondent is overstated, there is no compliance with s.41(5) of the Bankruptcy Act1966. Therefore, the bankruptcy notice is not liable to be set aside by reason only of the overstatement: Re Walsh (1982) 65 FLR 88.
The applicant claims that the respondent has sold a secured property at an undervalue, that he has a claim against the respondent for an amount exceeding the amount claimed in the bankruptcy notice, and that such claim could not have been raised in the proceedings in which judgment was obtained.
This aspect of the applicant’s case rests on s.40(1)(g) of the Act, which provides:
(1) A debtor commits an act of bankruptcy in each of the following cases:
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia–within the time specified in the notice; or
(ii) where the notice was served elsewhere–within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
The applicant’s affidavit asserts
·A property owned by Anela Pty Ltd is worth $7 million;
·The respondent has contracted to sell the property, as mortgagee exercising power of sale, for $5.25 million;
·The respondent has breached the relevant provisions of the Property Law Act1974 (Qld) dealing with the duties of a mortgagee exercising power of sale;
·The sale at an undervalue gives the applicant a claim against the respondent the amount of which exceeds the amount claimed in the bankruptcy notice
The respondent, by its notice stating grounds of opposition, says that the application should be refused because:
a)The affidavit of the applicant does not establish a prima facie counterclaim, set off or cross demand;
b)The applicant has not applied in the Supreme Court to set aside the judgment;
c)The matters raised in the affidavit of the applicant are not relevant to the determination of the application to set aside the bankruptcy notice; and
d)The applicant has contracted out of any rights he may have against the respondent under the guarantee on which the judgment is founded.
It is clear from the language of s.40(1)(g) of the Act that the onus is on the applicant to persuade the court that he has the requisite counterclaim, set off or cross demand. The respondent says that the applicant’s affidavit does not comply with Rule 3.02 Federal Magistrates Court (Bankruptcy) Rules 2006 which provides:
(1) An application to set aside a bankruptcy notice must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b) an affidavit stating:
(i) the grounds in support of the application; and
(ii) the date when the bankruptcy notice was served on the applicant; and
(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(2) If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter‑claim, set‑off or cross demand; and
(b) the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter‑claim, set‑off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(3) The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed.
In my view, the application and affidavit filed by the applicant satisfy Rule 3.02(1). However, it could not be said that the applicant’s affidavit contains full details of the counterclaim. It arguably sets out the amount claimed ($1.75 million, being the difference between the asserted value and the asserted sale price) and the reasons why the claim could not have been raised in the proceedings in which judgment was obtained, namely that the property had not been sold at an undervalue by that date.
The applicant’s affidavit is lacking in much detail at all. Whilst the applicant has supported his assertion as to the value of the property by exhibiting a copy of a valuation, he simply says, at paragraph 11 of his affidavit “I am aware that the respondent had a contract to sell this property for $5.25 million.”
It is not clear whether the contract has been performed, is executory or has been abandoned. Further, the applicant makes assertions at paragraphs 13, 14, 15 and 16 of his affidavit without any evidence to support them. In my view, more is required to provide “full details of the counterclaim set off or cross demand” as required by Rule 3.02(2)(a).
In my view, there is nothing in the second and third grounds raised by the respondent. The applicant applied to this court to extend the time for compliance with the bankruptcy notice on the last day of the 21 day period allowed for compliance with the notice. He has satisfied s.41(6A)(b) of the Act. It is not necessary for the applicant to apply to the Supreme Court to set aside the judgment, before this court can decide whether to set aside the bankruptcy notice under s.30 of the Act. The failure to make such an application is a relevant fact to take into account, but the absence of such an application is not fatal. The matters raised at paragraphs 8 to 21 of the applicant’s affidavit, whilst in my view they do not go far enough, are relevant to the contention that the applicant has a counterclaim, set off or cross demand against the respondent.
In argument, and in their submissions, the parties focused on the fourth ground raised by the respondent.
The Deed of Guarantee and Indemnity relied upon by the respondent, provides:
a)in clause 3.2:
“If the Borrower does not duly and punctually pay the Guaranteed Amount, the Guarantor agrees to pay the Guaranteed Amount on demand at any time and from time to time to, or as directed by, the Lender.”
b)in clause 6.1;
“The Guarantor’s obligations under this Deed are principal obligations and are not ancillary or collateral to any other obligations.”
c)in clause 7.1 that the applicant’s liability as guarantor, principal borrower or indemnifier is not abrogated, prejudiced, discharged, impaired or affected by any conduct on the part of the respondent in a wide range of circumstances
d)in clause 7.4
“Notwithstanding anything to the contrary in this Deed or any Transaction Document, until the Guaranteed Amount has been paid in full, the Guarantor unconditionally and irrevocably:
(a) agrees that it may not, if an Insolvency Event occurs in relation to the Borrower or any other Relevant Person, directly or indirectly prove in claim or receive the benefit of any distribution, dividend or payment arising out of that Insolvency Event, in competition with the Lender;
(b) authorises the Lender (in its discretion) to prove on the Guarantor’s behalf (and, if the Lender desires, will permit the Lender to have the benefit of any Security Interest the Guarantor may hold) for all moneys which can be claimed by the Guarantor against a Relevant Person and to retain and place to the credit of a suspense account pursuant to clause 13 for as long as it considers desirable and appropriate at the direction of the Lender any amounts so received until the Lender, with the benefit of those amounts, has been paid the whole of the Guaranteed Amount;
(c) waives all rights as to contribution, indemnity, participation, marshalling, consolidation and subrogation or any other claim to be entitled to the benefit of a Security Interest or any other right, power or remedy relating to the Guaranteed Amount or any other moneys, which the Guarantor might otherwise be entitled to claim and enforce;
(d) agrees that, despite any presumption or principle of law to the contrary, the Lender may in relation to any other Relevant Person enter into a covenant not to sue, discharge any security, compound any liability, grant a full or partial or conditional release, issue process, sign judgment (and execute or commence bankruptcy proceedings against any one or more resultant judgment Borrowers), participate in any official management or administration, prove in any bankruptcy, scheme or liquidation, or do any other act, matter or thing in respect of that Relevant Person or the whole or part of that Relevant Person’s liability without in any way impairing or reducing the liability of any other Relevant Person to the Lender for the whole of the Guaranteed Amount;
(e) agrees that the receipt of any distribution, dividend or payment by the Lender from a Relevant Person, whether before or after an Insolvency Event, will not prejudice the right of the Lender to recover the whole of the remaining Guaranteed Amount from the Guarantor; and
(f) waives in favour of the Lender all rights, powers and remedies whatever which the Guarantor may at any time have against the Lender, any other Relevant Person, or any other person, estate or assets so far as necessary to give effect to this clause 7.4.”
e)in clause 9.4(d):
“No set off: raise any defence or counterclaim or set off any money owing by the Guarantor against any liability owing to the Guarantor by any other Relevant Person or raise any defence, counterclaim or set off any money against any liability owing to that Relevant Person by the Guarantor.”
The last mentioned clause, relied on by the respondent, is not applicable in this case. It prevents the applicant from raising defences and the like inter se with other persons liable to the respondent. It says nothing about the entitlement of the applicant to raise a counterclaim set off or cross demand against the respondent. That is, however, dealt with in clause 7.4 set out above.
The respondent argues, in particular reliance on clauses 7.4(c) and (f) that, until the monies have been paid by the applicant, he is precluded from bringing any action against the respondent.
In support of its argument, the respondent relies on Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122 and GE Capital Australia v Davis [2002] NSWSC 1146.
In the former case, Holmes J considered that a clause in a guarantee that provided:
“Guarantor must not exercise any right of set-off, withholding, deduction or counterclaim which reduces or extinguishes the obligation of Customer or Guarantor to pay the Money”.”
ousted any right to bring a counterclaim or set off. Her Honour relied on a line of cases commencing with Continental Illinois National Bank & Trust Company of Chicago v Papanicolaou (“The Fedora”) and concluding with the second case relied upon by the respondent.
In GE Capital Australia v Davis at [94] – [95] Bryson J said:
“[94] The guarantors’ counsel contended and the plaintiff’s counsel accepted that provisions of this kind are to be construed strictly against the interest of the plaintiff. Adopting this approach is significant if the language used yields an ambiguity, but not otherwise. Contractual provisions which limit the rights of guarantors and ensure the primary of recovery by the creditor have a long history in guarantee documents. In Credit Lyonnais Australia Ltd v Darling (1991) 5 ACSR 703 at 708 Kirby P after referring to the strict approach taken to the construction of such provisions said “But in the end, courts must five effect to the agreement of the parties as expressed in their written document, read in context … Courts should not seek to twist the words of an agreement which the parties have executed in such a way as to frustrate the achievement of the purpose of their agreement as expressed in those words.” The guarantors have unequivocally agreed to the effect that they will not make such claims as they now make in their cross-claim unless and until they have paid the whole of the guaranteed moneys, which they have not done.
[95] Counsel for the guarantors contended that provisions of the guarantee and indemnity, particularly cl8.1(a) are against public policy and hence unenforceable or invalid because they create a negative restriction upon the right of a person to invoke the jurisdiction of the court to determine a dispute. Counsel referred to Dobbs v National Australia Bank of Australasia Ltd (1935) 53 CLR 643 at 651-653 (Dixon, Evatt & McTiernan JJ). Their Honours considered at length, in the context of a clause in a guarantee making certification of indebtedness conclusive, the law relating to contractual ouster of jurisdiction, including case law relating to arbitration clauses. At 652 their Honours said “No contractual provision which attempts to disable a party from resorting to the Courts of law was ever recognised as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the court to enforce them.” Their Honours considered many authorities, largely relating to arbitration and the mechanism adopted in Scott v Avery (1856) 5 HLC 811; 10ER 1121; in that mechanism a contractual provision prevents any cause of action, and hence any right to resort to the courts, from arising until conditions have been fulfilled. In my opinion a party would be disabled from resorting to the courts by a colourable condition which produced a practically insurmountable obstacle to resort to the courts, for example, a condition which postponed resort indefinitely or for a length of time unrelated to the purposes of the agreement or on conditions which could not practically be met, or had no relation to the purposes of the agreement. A party would not be disabled from resorting to the courts by a provision which postponed his right to do so until he had met an obligation which was the main purpose of the contract.”
In the present case, clause 7.4 of the Deed of Guarantee and Indemnity is not in the clear language of the clause considered by Holmes J, nor that considered by Bryson J. However, in my view, the plain intent of clause 7.4 of the Deed is to defer any claim by the applicant until such time as the amount owing is paid to the respondent. The clause does not deprive the applicant of any right of action he may have against the respondent for sale at an undervalue, but suspends or defers that right of action until after payment has been made. The applicant has contracted out of his rights at law and in equity to raise claims prior to satisfaction of the claimed debt. The cases referred to make it clear that such a course is both permissible and effective.
Superficially, the conclusion that the applicant cannot bring a claim against the respondent for breach of its duties as mortgagee supports the applicant’s argument that the claim he now seeks to make could not have been raised in the proceedings brought against him, thereby satisfying one of the elements required to be demonstrated by s.40(1)(g) of the Act. However, the applicant’s submissions do not recognize that s.40(1)(g) of the Act also requires that the counterclaim, set off or cross demand must be one that is effective against the creditor at the time of the hearing of the application to set aside the bankruptcy notice: McDonald Henry & Meek, Australian Bankruptcy Law & Practice, at [40.1.345] and the cases there cited. As the applicant’s right to claim against the respondent is suspended until payment is made, this requirement cannot be satisfied in the present case.
I therefore conclude that the applicant had contractually waived any entitlement to bring proceedings against the respondent at the time the application to set aside the bankruptcy notice was heard.
The application must be dismissed.
I certify that the preceding thirty two (32) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 14 September 2007
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