Latona, Mary v Wattawa Constructions Pty Ltd

I N THE

FEDERAL

COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT

THE

STATE

No. P 793 of 1982

OF NEW SOUTH WALES AND THE

AUSTRALIAN

CAPITAL

TERRITORY

.-l

Re :	MARY LATONA

Ex parte :

WATTAWA CONSTRUCTIONS

PTY. LIMITED

O R D E R

JUDGE MAKING ORDER:

MORLING J.

WHERE

MADE:

SYDNEY

DATE OF ORDER:	30 MARCH 1983
THE COURT ORDERS THAT:

. 1.	Sequestration order made against the estate of the debtor.

2. The petitioning creditor's costs including any reserved costs to be paid out of the estate of the debtor.

3. The petitioning creditor to bring in a draft

of this order, as required by

rule 124(2) within

seven days of to-day's date.

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT OF THE STATE NO.

P 793 Of 1982

NEW

SOUTH

WALES

AND

THE

AUSTRALIAN CAPITAL TERRITORY

Re : MARY

LATONA

Ex parte : WATTAWA

CONSTRUCTIONS

PTY. LIMITED

MORLING J.

30 March 1983

RFASONS FOR JUDGMENT

As I have reached

a firm opinion on the issues

in this matter

I propose to give judgment immediately.

The petitioning creditor, Wattawa Constructions

Pty Limited, has filed

a creditor's petition against Mary

Latona (the debtor) seeking sequestration of her estate.

In its original form the petition, by paragraph

(2),

alleged that the debtor was justly and truly indebted to

the petitioning creditor

in the sum of $11,433.20, being

the amount due under

a final judgment recovered

in the

District Court at Sydney on

23 November 1981. However,

during the course

of the proceedings before me, counsel

for the petitioning creditor sought and obtained leave

to amend paragraph

(2) of the petition by reducing the

amount of the debtor's alleged indebtedness

to a much

smaller sum.

The reduction was occasioned,

so it

was said, by the crediting to the debtor's account

moneys received from the sale	of a boat, to which	I shall
later make reference.

The judgment upon which the petition

is based

was in respect of a claim for work alleged to have been

done and materials alleged to have been provided to the

debtor and her husband. Without going into all the

details of the matter, it appears that several parcels of land

at Vineyard are owned by Mr Latona and on one such parcel

there is erected

a dwelling house. That land is not the

site of the building work that gave rise to the District

Court judgment.

It should be pointed out that the debtor

is not the owner or part owner

of the land upon which the

building work which is relevant for the present proceedings

was carried out.

The judgment

in the District Court was obtained

./3

. ..

by default. Two applications have been made to that Court

to set aside the judgment, one before Judge Melville and

one before Judge Bowie. Both those applications have been

unsuccessful. However, in my view that does not disentitle

the debtor in these proceedings

to maintain that

in spite of

the District Court judgment she is not justly and truly

indebted to the petitionmg creditor.

I do not find it

necessary to refer to the authorities, but it

is clear that

under some circumstances

a debtor is entitled to go behind

the judgment obtained against him or her.

The first and the major question in the proceed-

ings before me

is whether the work, which was indubitably

done by the petitioning creditor, was done for

Mr and Mrs

Latona in their capacity as partners in

a bus ess known as

The Trees Service Centre, or whether it was done for

company known

as Trees Service Centre Pty Limited.

For some time prior to mid-1980 Mr and

Mrs

Latona had carried on

a substantial business at Vineyard.

That business was carried on by them

as partners under

the firm name of The Trees Service Centre.

A company was

_ .

brought into existence some time before mid-1980.

I can

readily appreciate that, as lay persons, Mr and

tl s Latona

may not have had

complete and perfect understanding of

the legal differences between the company (in which they

were the sole shareholders) and the firm which they had

carried on for some years. Indeed, having heard Mr Latona

t	.
I

4 .

in the box, I am quite convinced that even today he does

not fully appreciate the differences in the corporate and

non-corporate situations.

As is often the case with building contracts

which are not formally drawn up with legal assistance, the

contractual arrangements made for the doing of the work

which led to the District Court proceedings is shrouded

with a little uncertainty. Mr Butcher

a &rector of the

petitioning creditor says that the arrangement was that

he would do work

for Mr and Mrs Latona. For instance,

gave evidence at page

60 of the transcript in the present

proceedings that,

"I was working for Ray and Mary Latona."

He says (and

I have considerable doubt whether

he is correct in his recollection

of the sequence of events)

that he gave two quotations for the doing of the work after

it had been substantially carried out. Mr Latona says that

this is not

so and that the quotations preceded the doing

of the work. I think it is quite possible that

ELr Latona

is correct in his memory in this regard. However,	I do
not think much turns on this.

The quotations are in evidence. The first is

dated 27 July 1980.

The quotation was on the letterhead

of the petitioning creditor and was addressed to "The

Trees Service Centre". It should be said that The

Trees Service Centre used

a form of letterhead which

contained, inter alia, the following words: "The Trees

Service Centre" in large letters, "Founder Cyril Latona's" and beneath those words "Raymond Latona and Mary Latona".

There are also references to the nature

of the commercial

activities carried on by the firm.

NO person reading

that letterhead could believe that the business described

on the letterhead was carried on by	a corporation. There
is no reference to a company.

Mr and Mrs Latona said

in evidence that they

understood that, having formed

a company, the firm's

business had been taken over by

it. Indeed, Mr Latona

used the words "taken- over" specifically in relation to what

he thought had happened to the firm's business.

Mr Latona says that when he received the

quotation dated

27 July 1980 he drew Mr Butcher's attention

to the fact that he would be doing work for the company.

He says he gave him

a "with compliments" slip which had

endorsed on

it the company's corporate name.

A second quotation dated

20 August was furnished

to "Trees Service Centre" by the petitioning creditor. This

quotation was endorsed (as was the first) with the words

"Quotation accepted, Raymond Latona".

No reference is

made in the acceptance of the quotations to the fact, if

it were the fact, that the quotations were being accepted

on behalf of a corporation. It is true, as Mr Skiller has

pointed out, that only Mr Latona's name appears

on the

acceptances, but

I think the more important fact is that

the name of the corporate body does not appear anywhere

on the quotations or the acceptances.

These were not trivial matters. They were

formal quotations for the doing

f work worth some thousands

of dollars, and

I would have thought that had

it been Mr

Latona's intention not to involve the members of the firm in the transactions, he would have used the company's name, if not its seal, when accepting the quotations.

With the passage

of time, it is very easy for

persons, without meaning to be deliberately untruthful,

become confused about what actually happened.

I have no

doubt that it was not brought to Mr Butcher's attention that

the work he was going to carry out, or was then carrying out,

was to be carried out for Trees Service Centre Pty Limited.

I certainly would not have expected him to have agreed to such

an arrangement. The company did not

9m the land upon which

the building work was being carried out. It had

a capital

of only

$2, and (so far as the evidence shows) had

no ssets.

It is true that

Mr and Mrs Latona may have thought it owned

the assets of-the business, but there is no satisfactory evidence before me to indicate that at any time the business's assets were ever formally transferred to the company.

Two further matters confirm in

my mind that Mr

Butcher's arrangement was

not made With Trees Service Centre

l .

Pty. Limited. When the petitioning creditor brought

proceedings in the District Court against Mr and Mrs Latona,

they, through Mr Latona, sought legal advice. Mr Latona

gave instructions to solicitors whom he then retained to

put on a defence to the action. The instructions he gave

to his then solicitors were to defend the action on the

basis that certain work had been poorly or incompletely

performed by the petitioning creditor, and that that should

be relied upon as the defence.

He also raised the question of

a claim arising

out of the seizure of

a boat which he alleged he had.

shall come back to that matter. But it would have been the

most obvious thing for him, back in November 1981, to instruct

the solicitors to defend the action upon the basis that

neither he nor his wife were indebted to the petitioning

creditor, because it was the company's debt. Yet no such

instructions were given.

The second matter that

I regard as significant

is that, although Mr Latona gave an account in the witness-

box today of the conversations in which he says he drew to

Mr Butcher's attention the fact that he, Mr Butcher, would

be working for the company, this appears to have been the

first occasion when it has been asserted that such

conversations ever took place. Indeed, as late as December

1982 and the end of last week affidavits were filed in

these and other proceedings which do not refer to the

conversations which he now alleges took place.

8 .

I do not think that such critical conversations would have been overlooked as being of insufficient import-

ance to be worth mentioning in one or other of those

affidavits.

I have reached the firm conclusion that the

work was not done for the company.

In my opinion, it was

clearly done for the firm

of which the debtor was

a member.

At a later point of time Mr Butcher filled out

a bank deposit slip in which the company's name was referred

to as being the depositor of funds

to the creditor

of the

petitioning creditor. Quite apart from the account which

Mr Butcher has given of the conversations leading

up to the

filling out

of that slip

- and I would prefer his account

of it to any other - it seems to me that the mere fact that

he agreed to accept payment, if he could get it, from the

company in no way altered the contractual arrangements

which were made at or about the time of the carrying out

of the work.

1 should point out that no claim has been made

on behalf of the debtor that if the work was not done for the company then it was done for her husband alone and not for him and her jointly. In any event, I think that such

a claim would have failed because it

is clear that she was

a partner in the business and that the work was done for

the business. There is evidence, which was not refuted,

that she took an active part in the doing

of the work in

the sense that she gave instructions from time to time	as
to what should be done.

Indeed, in other proceedings she agreed in

evidence that the work was "carried out for,the purposes of the business" referrinq to the business of The Trees Service Centre.

In these circumstances,

I am of the opinion

that even if the judgment

is gone behind, as it has been

in these proceedings, no ground has been shown for not

accepting it as being evidence

of the indebtedness

the debtor to the petitioning creditor.

The next question which needs to be considered

is whether, in spite

of the existence of the debt, the

debtor has

a counter-claim, set-off or cross-demand equal

to or exceeding the amount of the judgment debt, in the

sense in which those words are used in section	40 (1)	(g)
of the Bankruptcy Act.

There is evidence which, for the purposes

the argument

I am prepared to accept, that Mr and Mrs

Latona had an interest

of some kind in

a boat, the

possession of which was taken by Mr Butcher.

I use the

expression "an interest of some kind" because the position

seems to have been that at the relevant time the beneficial

owner of the boat was Mutual Acceptance Pty Limited and

not the debtor and her husband.

The boat was taken from the possession of

and Mrs Latona

on-or

about 7 October 1981. It is clear that

any claim in respect

of the boat arose at that time, and

10.

indeed Mr Latona said that he gave instructions to solicitors his wife had in respect of the boat.

shortly thereafter and before judgment was obtained in the

In my view, if there was

a cross-demand or

claim in respect of that boat, it could have been raised in

answer to the District Court proceedings. This matter was

considered by Lockhart

J in matter

B 199 of 1982. I have

before me

a draft of his Honour's reasons of

24 June 1982

and	I respectfully agree with them. His Honour makes it

clear by reference to authority, which

I need not repeat,

that the words "that could not have been set up in the

action or proceeding in which the judgment or order was

obtained'' in section

40 (1) (g) have been held to mean "which

he could not, by law, set

up in the action".

The fact that

a solicitor fails to carry out

instructions does not mean that the cross-action could not

have been set up.

I am not to be taken as accepting the

statement that the debtor's then solicitors failed to carry

out their instructions. Far from it. I am merely stating

that even if that matter had been proved, it would not have

sufficed to establish that the claim could not have been

set up by way of cross-action in the District Court.

Howex?er, quite apart from this matter,

I am

of the opinion on the whole

of the evidence that the cross-

action, even if set up, would have failed. Because it is

11.

conceivable that Mrs Latona, or for that matter Mr Latona, may wish to bring proceedings outside this court in respect

of the boat and because it is unnecessary for my decision

I do not think

I should make any formal ruling on

the

claim. However,

I must say that

on the evidence before

me (and the matter has been exhaustively litigated)

I would

have thought that any such cross-action would have failed.

The evidence before me includes

a document dated 19 July

1980 on the letterhead of The Trees Service Centre, addressed

to Mr Roy Butcher, describing the boat and trailer and

engine which would be the subject

of any cross-action and

using the words "This boat is to be for part payment and

deposit on construction of The Trees Service Centre",

followed by the words "Agreed and accepted, Roy

T. Butcher,

company secretary", and then the words "Eileen	A. Stackpool".
This lady was an employee of the firm.

There is another document dated

21 July 1980,

again on the letterhead of The Trees Service Centre,

signed "For and

on behalf of R. and M. Latona, signed

Eileen Stackpool, sales representative", and reading in substance as follows:

Received the sum of

$6340 by way of value

received on labour and material supplied at

the above address. Items to the above value

are :

One only 6.1 metre (21-foot) aluminium

Crusader boat, serial number

A2100-30,

12.

fitted with Mariner

115 hp motor,

serial number

A8055498, installed on

the above boat. Taken with all faults

and as is.

No warranty.

In evidence before me Mr Butcher said, in effect,

that he took the boat not by way of purchase but by way	of
security for the work that he was doing. I accept his

evidence in this regard.

It seems to me that, not having

been paid for the work which he had done, he would have had

a right to dispose of the boat.

I am therefore of the

opinion that had any cross-action been brought in respect

of the boat, it would have failed.

In addition, had

cross-action been brought and

succeeded, the question would have arisen as to the amount of

damages to which the plaintiffs in any such action would have

been entitled. The only real evidence as to the value of the

boat is that the price which it might have obtained if sold in

the market was not much more than the price in fact obtained

for it.

It was sold for $5200.

Mr Butcher gave evidence

as to the circumstances in which the sale took place.

was not put

to him in cross-examination that he had sold it for

a price less than he could

or should have obtained. He was

not attacked in any way at all to suggest that the sale was

not a bona fide sale or that he took improper

or inadequate

steps to obtain the best possible price for the boat.

There is independent evidence from

a well-qualified

13.

valuer of boats which supports the view that the price

obtained for the boat, although perhaps

a little below

what might have been obtained if the boat had been sold

by a boat dealer, was no less than what might have been

obtained for it by

a person who had obtained it as

security for	a debt and who was selling it to recover his
money .

So that even if

I had found that the cross-

action was available to

Mrs Latona and even if

I had

found that it was

a good cross-action and would have

succeeded, I would not have found

it would have succeeded

to the extent of the amount of the debt recovered in the

District Court.

For those reasons

I find that the petitioning

creditor is entitled to

a sequestration order.

I am satisfied that the debtor has committed

the act of bankruptcy alleged in the petition as amended.

I am also satisifed with the other matters

of which the

Act requires proof. I note that Lindsay Robert Aitkin,

a registered trustee, has agreed to act as the trustee

of the estate

of the debtor.

I make a sequestration

order against the estate of the debtor.

I direct that

the petitioning creditor's costs

- including any reserved

costs and including the costs

Of the proceedings before

me this week

- should be paid out of the estate of the

L -

14.

debtor.

I direct the petitioning creditor to bring in

a draft of this order,

as required by rule

124 (2) within

seven days of today’s date.

The exhibits may be returned to the parties

producing them, upon their undertaking to return them to

the court forthwith if requested to do

so.

I certify that this and

t h e m -

6.3)

precedingpages areatrue copy ofthe

Reasons for Judgment herein

o f his Honour

Uk. Justice Morling.

[1983] FCA 55

30 Mar 1983