Loustas, C.A. v Hama Pty Ltd
[1990] FCA 147
•9 Apr 1990
JUDGMENT No. 1 F..?. I .... 2.0..
IN THE FEDERAL COURT OF AUSTRALIA
) )
VICTORIA DISTRICT REGISTRY GENERAL DIVISION
I Nos VB 275 Pt X and BANKRUPTCY DISTRICT OF THE STATE ) OF VICTORIA )
RE: CONSTANTINE LOUSTAS AND - ARTHUR LOUSTAS
(Debtors)EX PARTE:
HAPlA PTY LTD (Applicant) PAUL A. PATTISON
(Firstnamed Respondent) AND : CONSTANTINE LOUSTAS
(Secondnamed Respondent)AND : ARTHUR LOUSTAS
(~hirdnamed Respondent)
Judge Making Order: Ryan J
Date of Order: 9 April 1990
RECEIVED
Where Made: Melbourne
19 APR 1990
FEDERAL COURT OF
MINUTES OF ORDER AUSTRALIA PRINCIPAL REGISTRY
Bankruptcy Rule 124.
THE COURT ORDERS:
1. That clause 14 of the deed of arrangement be declared void on the ground that its inclusion was not authorised by the special resolution of the meeting of 21 December 1989.
2. That the costs of the firstnamed respondent be retained or paid out of the estate administered pursuant to the deed of arrangement dated 21 December 1989, and that otherwise there be no order as to costs.
NOTE: Settlement and entry of orders is dealt with by
IN THE FEDERAL COURT OF AUSTRALIA )
)
VICTORIA DISTRICT REGISTRY 1 ) Nos VB 275 Pt X and GENERAL DIVISION
) VB 276 Pt X of 1989 \ BANKRUPTCY DISTRICT OF THE STATE ) OF VICTORIA 1
- RE : CONSTANTINE LOUSTAS AND
ARTHUR LOUSTAS(Debtors) EX PARTE: HAMA PTY LTD
(Applicant)
PAUL A. PATTISON(Firstnamed Respondent)
AND : CONSTANTINE LOUSTAS
(Secondnamed Respondent)AND : ARTHUR LOUSTAS
(Thirdnamed Respondent)
Coram: Ryan J Date : 9 April 1990 Place: 14elbourne
EX TEMPORE REASONS FOR JUDGMENT
On 21 December 1989 each of the abovenamed debtors, Constantine Loustas and Arthur Loustas, entered into a deed of arrangement with the firstnamed respondent, Paul Pattison ("the Trustee"). Each deed contained recitals that:
"A. A meeting of creditors of the debtor called pursuant to
an authority under Section 188 of the Act was held on the
18th day of December 1989, being a date within the time
specified in Section 194 of the Act and being not more
than 21 days prlor to the date hereof which meeting of
creditors is hereinafter called 'the proposal meeting1.
B.
The proposal meeting was held in accordance with the provisions of the said Section 194 of the Art.
C.
By Special Resolution the creditors resolved that the Debtor be required to execute a Deed of Arrangement under Part X of the Act.
D.
The Trustee was nominated by the proposal meeting to be the Trustee of such Deed of Arrangement."
Pursuant to the deed executed by him, each debtor conveyed and assigned to the Trustee all his divisible property within the meaning of Part X of the Bankruptcy Act 1966, and covenanted to pay $25,000, by quarterly instalments of $2083.33 each, commencing on the day being three months after the date of execution of the deed.
The applicant, Hama Pty Ltd, seeks relief in substantially the same terms in respect of each debtor including:
"1. DECLARATION that the Respondent at a Meeting of
Creditors held on the 18th day of December, 1989
improperly -
(a) Treated a vote of the Applicant a Creditor of the Debtor cast by his Proxy against the resolution that the Debtor be required to execute a Deed of Arrangement providing for payment of $25,000 ("the Resolution") as a vote in favour of the Resolution;
(b)
Failed to permit the Applicant and another Creditor, Mr. S. Matko, to examine the Debtor as to the affairs of various Companies with which he was associated;
(C) Ordered that the ballot to determine whether the
Resolution be passed be held in secret, the amounts.
2. DECLARATION that the Resolution was not passed.
3. THAT the Resolution and the resolutions concerned with the appointment of the Respondent as Trustee, his remuneration and dispensing with appointment of a Committee of Inspection be declared null and void."
Each application was amended by leave granted on 14 February 1990 to seek also that the deed of arrangement made on 21 December 1989 between the debtor and the Trustee be declared to be void or terminated.
From affidavits deposed by Miss Dowler, a solicitor for the applicant who attended the meetings of 18 December 1989 as proxy for the applicant, it appears that the meeting in respect of Constantine Loustas commenced at 10 a.m. and was followed by that in respect of Arthur Loustas which commenced at about 11.30 a.m.
At the first meeting Constantine Loustas, whose statement of affairs disclosed liabilities of $1,841,908 and no assets, was questioned about how he came to be in that position which had apparently been brought about by the failure of fur trading businesses in which he had been engaged. The debtor was questioned in some detail about particular liabilities including those arising from personal loans from relatives. Many of those questions were asked by Mr Lenczner of Counsel for the applicant who was present at
ballot on the question of whether the debtor should be the meeting instructed by 14iss Dowler. The Trustee then conducted what he called a secret required to enter lnto the proposed deed of arrangement. To facilitate the conduct of the ballot, the Trustee distributed printed documents conforming with Form 44 in Schedule 1 to the Bankruptcy Rules. The spaces in those forms were left blank and each creditor or proxy was invited by the Trustee to identlfy on the form the name of the creditor and the amount of the debt claimed by that creditor, and to indicate in item (c) on the form whether a vote was cast for or against the proposed resolution requiring the debtor to execute a deed of arrangement.
Hiss Dowler filled the form supplied to her by writing on it the name of the applicant, $105,000 being the amount of the debt claimed by the applicant and the word "against" opposite item (c). However, the Trustee indicated that, because of the terms of the proxy held by Miss Dowler, he would treat the applicant's vote as belng for the resolution. After counting the ballot, he then announced that seventeen votes with a monetary value of $1,268,800 had been cast for the resolution and four votes with a monetary value of $317,164 had been cast against it. The Trustee also ascribed percentages of 80.0018% and 19.9982% to the monetary value of the debts claimed by the creditors respectively voting for and against the resolution which was declared carried.
The meeting in respect of Arthur Loustas, who had disclosed liabilities of $1,967,449 and no assets, followed a
similar course. The same creditors were in attendance with
the addltion of a Mr Caillard representing the ANZ Bank. When conducting the ballot at the second meetlng, the Trustee indicated that if I.llss Dowler, as proxy for the applicant, were to case a vote he would treat that as a vote for the resolution. However, he further expressed the oplnion that the applicant, through Miss Dowler, could abstain from voting. The applicant, in fact, did abstain from votlng.
After counting the ballot, the Trustee announced that sixteen votes representing a total of $1,163,800 or 78.16% had been cast for the resolution and four votes representing $325,135 or 21.83% had been cast against the resolution, which was accordingly declared carried.
The forms of proxy entitling Miss Dowler to a vote on behalf of the applicant at each meeting were subtantially identical. The operative part of that referable to the meeting in respect of Constantine Loustas was in these terms:
"I, PAUL SO, a Director of HAMA PTY LTD, a creditor of Street, Melbourne, to be my proxy at the meeting of creditors of the debtor on the 18th day of December 1989 (or at any meeting of those creditors) to vote on each of the following kinds of resolution under Section 204 of the Act in the manner specified:
Manner of voting
(specify, in each case,
;forr, ;against1 or 'abstain').
Iiind of Resolution:
(a) a resolution that the debtor's property be no longer subject to control under
Division 2 of Part X of the Act: AGAINST (b) a resolution requiring the debtor to
execute a deed of assignment: FOR (C) a resolution requiring the debtor to
execute a deed of arrangement: FOR (d)
a resolution accepting a composition: FOR (e) a resolution requiring the debtor to
present a debtor's petition within 7 FOR days:
Other conditions:
(Specify any conditions in accordance with which the proxy
is, on any matter, required to vote.)I am an unsecured creditor and the total amount owed to me is $105,000.00"
It has been conceded by Mr Beach of Counsel for the Trustee, and tlr Bigmore who appears as solicitor for the debtors, that the Trustee was in error in treating the applicant as having voted for the resolution in respect of Constantine Loustas. However, Mr Lenczner of Counsel for the applicant sought to go further than that concession and argued that the Trustee should have counted the applicant as having voted against the resolution at each meeting.
I am unable to accept that argument. Section 2 0 0 ( 3 A ) of the Bankruptcy Act provides:
"A person is not entitled to vote as proxy of a creditor on
a proposed resolution under section 204 unless the
instrument by which the person is appointed authorises the
person to vote in a specified manner on each of thefollowing kinds of resolution under that section:
(a)
a resolution that the debtor's property be no longer subject to control under this Division;
(b) a resolution requiring the debtor to execute a deed of assignment; (c)
a resolution requiring the debtor to execute a deed of arrangement;
(d) a resolution accepting a composition; (e)
a resolution requiring the debtor to present a debtor's petition within 7 days after the passing
of the resolution; and the person votes on the proposed resolution in
accordance with the instrument."In my view, that sub-section requires the proxy instrument to authorise the proxy to vote in a specified manner on each of the five kinds of resolution indicated in paragraphs (a) to (e). The specification of the manner of voting need not confine the proxy to voting for or against each kind of resolution. It may, for example, specify that
the proxy holder may vote for or against a particular kind of resolution as he or she thinks fit. However, the specification must be sufficiently precise to enable the chairman of the meeting to determine, when the vote has been cast, whether it is in accordance with the proxy instrument.
Mr Lenczner invited me to construe s.200(3A) as permitting an instrument of proxy which, on its face, authorises a vote for a particular kind of resolution to be read as permitting a vote for a resolution of that kind if the proxy holder should think fit.
In my view, Mr Lencznerrs contention requires the Court to straln the interpretatlon of s.ZOO(3A) far beyond the bounds indicated by the language used. I have already indicated that a measure of discretion can be conferred on a proxy holder by authorising him to vote in a specified manner which admits of a vote in one of at least two ways. Alternatively, the specified manner could also include stipulation of specified conditions subject to which a vote may be cast for or against a particular kind of resolution.
s.200(1), in person or by an attorney lnstead of by proxy. is open to the creditor to vote, as is contemplated by If those alternatives are thought insufficiently flexible it It was next argued by #r Lenczner that the Trustee should have regarded Miss Dowler as entitled to vote as attorney for the applicant. I accept for the purpose of the argument that a company may constitute a natural person as its attorney wlthin the meaning of the Bankruptcy Act without authorising that person in writing. However, the short answer
to Mr Lenczner's contention is that aiss Dowler did not at any stage of either meeting clalm to be entitled to vote as attorney for the applicant. Her claimed entitlement to vote was squarely based on the presentation of proxies in the form specifled in Forms 43 and 44 in Schedule 1 of the Bankruptcy Rules. Since voting by attorney and voting by proxy are clearly indicated by s.200(1) to be mutually exclusive methods of voting, it was not open to the Trustee in the circumstances to be satisfied, as required by s.200(4)(b),
that Miss Dowler was the applicant's duly authorised attorney to vote in a manner contradictory of the written proxies which she had presented.
A third complaint on behalf of the applicant has been that the Trustee should have adjourned the meeting, or at least that in respect of Arthur Loustas, to enable the applicant's attitude to the resolution to be ascertained. Section 201 of the Act provides:
"Any question as to the right of a person to vote at a
meeting under this Division, or as to the amount of thedebt in respect of which a person is entitled to vote at
may, if he thinks it necessary to do so, adjourn the such a meeting, shall be determined by the chairman, who meeting for a period, not exceeding 14 days, to enable him to investigate the matter."
I do not consider that an express desire of the applicant's proxy holder to vote in a manner contrary to that indicated in its proxy raised a question as to the right of the applicant to vote at the meeting within the meaning of that section. Nor, as thlngs stood at the meeting, was there any matter related to the right of the applicant to vote at
the meeting for the chairman to investigate during the period of an adjournment. In reality the adjournment was sought for the purpose of enabling Miss Dowler to ask the applicant for a new, and different, form of proxy.
I regard the present case as distinguishable from - Re
Segal (1975) 9 A.L.R. 154 where Riley J., at 161, expressed a doubt whether a certain vote had not been rejected simply for the reason that the person seeking to exercise it did not have a proxy. In that case, the person seeking to exercise the vote had, as his Honour pointed out, "never claimed to have a proxy but had only claimed to be an authorised representative".
His Honour went on to say that:
"Certainly the chairman of the meeting did not take the
opportunity afforded him by s.201 of adjournment todetermine the right of Ryan to vote."
In the second place, even if, contrary to the view
which I have just expressed, a question did arise whicharguably warranted an adjournment to enable the chairman to
discretion whether or not to adjourn the meeting. In the investigate the matter, the Trustee as chairman clearly had a clrcumstances, which included hls taking the sense of the meeting, I am not persuaded that the exercise of that discretion miscarried.
Nor do I conclude that the Trustee, as chairman, misconducted himself by receiving votes for and against the special resolution in writing instead of requiring them to be
cast by show of hand. The procedure adopted, I consider, was within the general discretion implicitly conferred on a chairman appointed in accordance with s.196(1) of the Act.
The applicant also contended that the Trustee had improperly restricted its right and that of another creditor, Mr Matko, to ask questions of the debtors. Section 195(3) of the Act provides:
"The debtor shall, at the meeting, answer, to the best of
his knowledge and ability, all questions put to him by
the controlling trustee or by a creditor with respect to
his conduct and examinable affairs."
The phrase "examinable affairs" is defined in s.5(1) of the Act as meaning, in relation to a person:
"(a) the person's dealings, transactions, property and
affairs; and(b) the financial affairs of an associated entity of the person, in so far as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs;"
"Associated entity", in turn, is defined in the same subsection as meaning, again in relation to a person:
"(a) an entity (other than a company) that is, or has
been, associated with the person; or(b) a company that is, or has been, associated with the person at a time when the company is, or was, as the case may be, a private company;"
The evidence discloses that Mr Constantine Loustas refused to answer certain questions from Mr Lenczner about the activities of Sebastian Furs Pty Ltd and East Coast Pty Ltd to which the debtors had lent moneys and some of the
debts of which they had guaranteed. Each debtor refused to answer some of those questions on the ground that the answers might tend to incriminate him.
After a similar refusal to answer another question from Plr Lenczner about the extent of the liabilities of the two companies at the time when a new store was opened, the Trustee, as chairman of the meeting, in respect of Constantine Loustas ruled that he would not allow any further questions in relation to the activities of the two companies. He further indicated that the meeting was only concerned with the affairs of the debtor and questions would have to be limited to those which concerned the liabilities of the companies to the debtor. A slmilar ruling was given when Mr Matko, the other credltor to whom I have referred, sought to ask the debtor about his involvement with the companies and the cause of their losses.
In the course of the meeting in respect of Arthur
Loustas, the debtor gave some information as to hisrelationship with the two companies but the Trustee, as
companies would be restricted in the same way as they had chairman, indicated that questions in respect of the during the earlier meeting.
In my m e w , the facility provided by s.195(3) for
questioning a debtor about his examinable affairs is directed to ensuring that the meeting of creditors is adequately informed about all matters relevant to the adoption or rejection of each of the proposed resolutions which it is
asked to consider. Obviously, the expeditious conduct of the meeting may require the chairman to impose some constraints of time and relevance on the right of creditors to question the debtor. I do not consider that the Court, on an application of this kind under s.222, should substitute its own view for that of the chairman on the propriety of each of his rulings. In this sense, I adopt what was said by Beaumont J. in Zantiotis v Andrew and Another (1987) 80 A.L.R. 23 where his Honour observed at 28:
"In such a situation, there may be much to be said for the view that, in the interests of expedition, the chairman's ruling should not be examined."
His Honour then went on to indicate that the case with which he was concerned was not of that character,' and continued:
"Here the issues, which are essentially legal in their arise. Those questions are real and not hypothetical: their determination may affect the legal result of the proceedings which took place at the meeting of creditors already held, or, alternatively, at any future meeting."
nature, are suitable for judicial resolution. Indeed, Mr
Rather, in my view, the Court should consider whether, debtor was such that the participants in the meeting were in substance, the alleged curtailment of questioning of the
deprived in a significant way of factual material necessary
to make an informed decision on whether to vote for or
against one of the resolutions proposed to it.I conclude, on the evidence available, that the creditors who participated in these meetings were not so deprived. In coming to this conclusion I have taken account
of the fact that no motion of disserit from the chairman's ruling was moved at the meeting. Nor has the evidence relied on by the applicant disclosed any facts or presumed facts which answers to the questions whlch #r Lenczner unsuccessfully sought to have answered, might have revealed, which could have affected the attitude of creditors to the resolution requiring the debtor in each case to execute the deed of arrangement.
Another fact relevant, at least to the discretion reposed in the Court by the terms of s.222(2) of the Act, is that, as Ar Beach pointed out, creditors who are bound by resolution for the execution of the deed of arrangement have available to them subsequently, by force of s.237(1), the facillty for examining the debtor pursuant to s.81 of the Act.
Finally on the question of discretion in this context, I have been influenced to some extent by the fact that no attempt has been made to show, pursuant to s.222(4), that either debtor gave false or misleading information in answer
particular from his statement of affairs, or had included any to any question put to him, or had omitted any material incorrect and material particular in that statement. By leave granted today, the applicant amended each of its applications to include the following new ground:
"That the Deed, or alternatively clause 14 thereof, be
declared void on the ground that the Deed did not comply
with the resolution of the meeting as contained in the
certificate of the chairman in that the resolution did not
authorise the inclusion of clause 14 of the said Deed."
It has been conceded by Counsel for both the Trustee and the debtors that clause 14 was not authorised by resolution of the meeting and should not have been included in the deed. However, it is contended that clause 14, when the deed is construed as a whole, is severable. Clause 14 is in these terms:
"That in the event of the Debtor having made all the payments set forth in Schedule B hereto and having complied with all the covenants on his part to be performed, the Trustee shall
reassign to the Debtor all the property assigned by virtue of
the operation of this Deed."
Section 222(2)(b) of the Act clearly contemplates that the Court may declare void a provision of the deed without striking down the deed as a whole. That course, I consider, should ordinarily be followed where the provision complained of is severable, as I consider clause 14 to be. I take that view, particularly in the light of clause l(£) of the deed and the operation which can be given to it, having regard to the requirements of s.216(1). That view has been reinforced by my conviction that to sever clause 14, which is inconsistent with clauses 2, 4, 5 and 15 of the deed, would not make the deed different in character from that on which the creditors voted pursuant to the special resolution; c-p. Re Venetoulis (1976) 13
A.L.R. 625. Accordingly, I confine myself to an order on each application, declaring clause l4 void on the ground that its inclusion was not authorised by the special resolution of the meeting of 18 December 1989. There is no evidence before the Court which warrants an order under s.236 that the deed, on the assumption that, with the exception of clause 14, it is valid, should be terminated.
Although, as I have indicated, the concession has been made by both Counsel for the Trustee and Counsel for the debtors, that the Trustee, as chairman of the meeting, in respect of Constantine Loustas was in error in treating the applicant as having voted for the special resolution proposed to that meeting, I do not consider now that any purpose would be granted by founding a declaration on that concession. I therefore decline to make a declaration as sought in paragraph l(a) of the application set out at p.2 of these reasons. I shall hear Counsel on the question of costs.
[After receiving submissions in respect of costs, his Honour made
the following ruling]Although the applicants have succeeded on only one of the issues which have been the subject of substantial argument, it has been conceded that another matter which, at least in part, prompted the bringing of the application, resulted from an error by the Trustee as chairman of the meeting of 18 December 1989. There is no suggestion that the Trustee acted otherwise than bona fide or that the nature of his error was such that he should
personally bear the costs of resisting this application. The debtors, for their part, have exercised their right to appear by Counsel and oppose the application. In so doing they have very properly adopted in large measure the submissions made by Counsel for the Trustee and have not adduced any further evidence in support of their opposition to the application.
In all the circumstances, I consider that the appropriate exercise of the Court's discretion is to order that the costs of the firstnamed respondent in each matter be retained or paid out of the estate administered pursuant to the deed of arrangement dated 21 December 1989 and that otherwise there be no order as to costs.
I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment of His Honour Mr Justice Ryan.
Associate:
Date: 4 1990
Solicitors for Debtors : J M Smith & Emrnerton counsel for Applicant : Mr J Lenczner solicitors for Applicant : Messrs F E OrBrlen & CO Counsel for Respondents : Mr J Beach Solicitors for Respondents : Sly & Weigall
Dates of Hearing : 6 and 9 April 1990 Date of Judgment : 9 April 1990
Solicitors for Applicant : Blake Dawson Waldron
| , Counsel for Applicant | : Mr C.M. Maxwell |
Solicitors for Respondent : Freehill, Hollingdale & Page
| ' | Counsel for Respondent | : Mr S.W. Kaye |
| / Date of Hearing | : 29 March 1990 |
Date of Judgment : 29 March 1990
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