Magafas v Carantinos
[2008] FMCA 1654
•11 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MAGAFAS v CARANTINOS | [2008] FMCA 1654 |
| BANKRUPTCY – Creditor’s petition – meaning of last known address – documents served at address given in previous proceedings and on driver’s licence – enquiries made at time of service revealed a connection between debtor and those premises despite non-residential character – solicitors undertakings – whether undertaking given personally or as an agent for the client – whether undertaking not to enforce judgment constitutes other sufficient cause. |
| Bankruptcy Regulations Bankruptcy Act 1966, s.52 Bankruptcy Regulations Amendment 1996 Dal Pont GE, Lawyers Professional Responsibility (3rd ed, Lawbook Co, 2006) |
| Carantinos v Magafas [2008] NSWCA 304 CSR Limited trading as CSR Construction Materials v Antonio Barillaro [2001] FMCA 23 Skalkos v T S Recoveries Pty Limited [2004] FCAFC 321 Drake v Stanton [1999] FCA 1635 Theodor Silvas (a bankrupt) v Maureen Silvas[1997] FCA 206 Troy & Company v Cameron [2002] FMCA 42 Deputy Commissioner of Taxation v Gadaletto (1999) FCA 923 Gorman v Norton (1887) 8 LR (NSW) L 479 Wade v Licardy (1993) 33 NSWLR 1 Council of the Queensland Law Society Inc v Tunn [2004] QCA 412 Bechara t/as Bechara & Co v Atie & Anor [2005] NSWCA 268 |
| Applicant: | ANTHONY MAGAFAS |
| Respondent: | PETER CARANTINOS |
| File number: | SYG 722 of 2008 |
| Judgment of: | Raphael FM |
| Hearing dates: | 24 & 25 November 2008 |
| Date of last submission: | 25 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 11 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Alexis SC Mr S Golledge |
| Solicitors for the Applicant: | Rockliffs |
| Counsel for the Respondent: | Mr B Skinner |
| Solicitors for the Respondent: | Bowles Lawyers |
ORDERS
A sequestration order be made against the estate of Peter Carantinos.
The applicant creditor’s costs (including any reserved costs) be taxed (in accordance with the Federal Magistrates Court Bankruptcy Rules) and paid from the estate of the respondent debtor in accordance with the Act.
THE COURT NOTES THAT
That the date of the act of bankruptcy is 13 March 2008.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 722 of 2008
| ANTHONY MAGAFAS |
Applicant
And
| PETER CARANTINOS |
Respondent
REASONS FOR JUDGMENT
Introduction
In this hearing of a creditor’s petition the court is required to consider the meaning of the term “last known address” for the purposes of Bankruptcy Regulation 16.01(1)(c) (the “Regulations”). The court is also required to determine whether an alleged arrangement evidenced in writing between solicitors concerning the enforcement of a judgment constitutes “other sufficient cause” for not making the sequestration order pursuant to s.52(2)(b) of the Bankruptcy Act 1966 (the “Act”).
The creditor and the debtor were partners in a property trading enterprise between April 1995 and 1 May 2006. The partnership did not end happily. There was litigation between the parties in the Supreme Court of New South Wales. The matter was heard by Justice Einstein who published reasons for judgment on 15 May 2007 and who made orders on 30 August 2007 including an order [11]:
“That the first defendant [the debtor] file and serve his accounts and verifying affidavits on or before 28 September 2007.”
His Honour’s judgment, which was significantly favourable to the plaintiff creditor, was appealed by the debtor to the New South Wales Court of Appeal. The appeal was dismissed on 14 November 2008; Carantinos v Magafas [2008] NSWCA 304. On the same day as he handed down judgment in the principal proceedings Einstein J handed down judgment in some associated proceedings that had commenced in the District Court of New South Wales. They had been transferred into the Supreme Court and were heard by Einstein J. His Honour’s Judgment in Matter No 2670/06 included orders that:
“1. That a verdict in judgment be entered in favour of the plaintiff (creditor) against the defendant (debtor) in the sum of $163,514.70 inclusive of interest pursuant to s.100 of the Uniform Civil Procedure Act.”
It was this judgment which formed the basis for a bankruptcy notice numbered NN0363 of 2008 and it is the failure to comply with that bankruptcy notice which forms the grounds for the petition. The debtor claims that the notice was not served upon him in accordance with Part 16.01(1)(c) of the Bankruptcy Regulations Amendment 1996 because the address at which it was served, namely 44 Princes Highway St Peters was not his “last known address”. Mr Carantinos says he did not receive the bankruptcy notice and was not aware that bankruptcy proceedings had been commenced against him until he received the petition also sent to him at that address. He says that he found the petition lying in a pile of papers in the dust in the property which had recently undergone some renovation.
Last known address
Mr Carantinos submits that as at 21 February 2008 there were three addresses available to the applicant as places at which he might be served. The applicant submits that the first of these places is the office of his solicitors who at the time were Munro Lawyers of Walsh Bay New South Wales. That firm had acted for Mr Carantinos in the partnership proceedings and continued to act for him at least up until 28 July 2008. In a number of affidavits filed in the partnership proceedings, some of which form part of exhibits in this matter, Munro Partners is given as the address for service. Mr Carantinos’ actual address is given as 44 Princes Highway St Peters or occasionally as 46 Princes Highway St Peters. It is accepted that 44 and 46 Princes Highway St Peters are adjacent properties both owned by entities associated with Mr Carantinos.
Mr Carantinos’ evidence is that he does not live at 44 Princes Highway St Peters, he lives at 4 View Crescent Tempe which is the third address put forward by his counsel. The court heard evidence from Mr Hill, the principal of the business known as Rapid Process Service (“Rapids”), who on 27 February 2008, had sworn an affidavit of service in the following form:
“I, MALCOLM HILL, of 2 Bligh Street, Sydney, in the State of New South Wales, a Process Server, being duly sworn make oath and say:-
1. On Thursday the twenty-first day of February 2008, at 5.15 o’clock in the afternoon, I served PETER CARANTINOS with the Bankruptcy Notice herein, by placing an official copy thereof signed by the Official Receiver for the Bankruptcy District of New South Wales in a sealed envelope marked “PETER CARANTINOS” and leaving it at 44 Princes Highway, St Peters, in the said State.
2. Service was effected by leaving the Bankruptcy Notice at his last known address at 44 Princes Highway, St Peters pursuant to Part 16.01(1)© of the Bankruptcy Regulations Amendment 1996.
3. This means by which I established that this is the last known address of the said PETER CARANTINOS included:-
(i) I had previously caused one Mark Slater, a licenced Process Server, to attempt to serve the said PETER CARANTINOS with the Bankruptcy Notice at 44 Princes Highway, St Peters NSW (“St Peters”)
(ii) The said Mark Slater has informed me and I believe that he has attended at the St Peters address on 14 February and spoke to an apparent female employee of the said PETER CARANTINOS. When asked “Is, PETER CARANTINOS here?”, she replied interalia, “He is not here at the moment…I don’t know when he will be in…He keeps odd hours…I don’t have a mobile for him…”
4. Annexed hereto and marked with the letter “A”, is a true copy of the said Bankruptcy Notice signed by the Official Receiver for the Bankruptcy District of New South Wales.
5. Annexed hereto and marked with the letter “B” is a copy of a letter which I sent to the said PETER CARANTINOS by facsimile to the number 02 9516 5235 on 21 February 2008 at 1314 hours.
6. I have attained the age of sixteen years.”
The letter referred to as Exhibit “B” is in the following form:
“Mr Peter Carantinos
By Facsimile to
02 9516 5235
RE: ANTHONY MAGAFAS v PETER CARANTINOS
Dear Mr Carantinos
We have been requested by Rockliffs Solicitors to effect service of a Bankruptcy Notice upon you in the above proceedings.
In an attendance was made at your place of business, 44 Princes Highway, St Peters on 14 February 2008 at 11.29A.M. We spoke to your apparent female employee there who said, of yourself, to our agent, “He is not here at the moment… I don’t know when he will be in…He keeps odd hours…I don’t have a mobile for him…”
An attendance was made at your residence at 4 View Street, Tempe on 17 February 2008 at 9.14 A.M. At that time we were unable to enter the property due to the high level of security you have adopted there, nor were we able to induce any one to respond to our efforts to attract the attention of any occupants there.
A further attendance was made at your St Peters work place on 19 February 2008 at 10.52 A.M. On that occasion your female employee said of yourself, “He is away on holiday.” The female was unable to say when you were expected to return.
A further attendance was made at your Tempe residence on 20 February 2008 at 6.53 A.M. Our agent saw lights illuminated in the dwelling and heard the sounds of apparent human occupation from within. However, despite persistent activation of the security intercom he was unable to induce any person inside to respond thereto.
We are satisfied that you are aware of the issue of the Bankruptcy Notice in these proceedings and are actively engaged in the evasion of service thereof.
Take notice, that if you do not telephone the writer by 3.30 P.M. today to arrange to accept service of the Bankruptcy Notice by 5.00 P.M. today; it will be served upon you today pursuant to Part 16.01(1)(c) of the Bankruptcy Regulations. That regulation provides for the Bankruptcy Notice to be left in an envelope or similar package marked with your name at your last known address.”
In his oral evidence Mr Hill said that he put the original bankruptcy notice in an envelope and wrote “Peter Carantinos” on it. He left it in a letter box affixed to the door of 44 Pacific Highway. A photograph of the door and the letter flap is Exhibit 2. He said there was no answer to a ring on the bell and immediately after he had placed the envelope in the letter flap he wrote up the report card in blue biro. The report card which constitutes a business record of Rapids is Exhibit 1. I am satisfied that if this was the last known address of the debtor service was effected in accordance with the requirements of Regulation 16.01(c) of the Regulations. There was some question raised by Mr Skinner for the debtor as to whether or not the original bankruptcy notice was placed in the envelope. Mr Hills responded that it was and I accept his evidence even though there seems to have been a number of other attempts at service and some suggestion that there was only one copy of the original document.
Rapids had been instructed by Messrs Rockliffs, solicitors for the creditor. They provided Rapids with the address at 44 Princes Highway. On or about 12 February 2008 they also provided Rapids with the address in Tempe. Mr Hills originally gave the service work on this case to his associate, Mr Slater. Mr Slater swore two affidavits but was not called to give evidence. His affidavits were tendered by the debtor. There is a glaring inconsistency between them. In one Mr Slater says that on 14 February 2008 at 11.29a.m. he attended at View Crescent and in the other he says he attended at Princes Highway at the same time on the same date. Looking at the form Exhibit 1 there is a notation:
“14.2.2008 11.29a.m. Not in S/P female claims debtor keeps very odd hours no mobile.”
Underneath that there is a notation:
“Tempe 17.2.2008 9.14a.m. Unable to get onto property locked gate and high fences Tempe.”
I am satisfied that the visit that took place on 14 February was a visit to 44 Princes Highway and not Tempe. In Mr Slater’s second affidavit he also deposes to the fact that on 19 February at approximately 10.52a.m. he attempted service of the bankruptcy notice at St Peters:
“After knocking at the door to the St Peters property, an elderly lady, the person referred to in sub-paragraph 4.1 above opened the door and during our conversation she made the following statement:
He is not in … he is away on holidays … I do not know when he will back.”
Mr Slater goes on to say at 4.5:
“On 20 February 2008 at approximately 6.57am, I attempted to effect service of the Bankruptcy Notice at the Tempe Property. Again I obtained no response to the intercom. The drapes of the window were open and I saw a woman and a child moving about inside the home. I also observed that the lights inside the home were on.”
Mr Slater had previously deposed in that affidavit to having gone to St Peters and spoken for the first time to the lady referred to and asked for Mr Carantinos. The lady replied:
“He is not here at the moment. I don’t know when he will be in. He keeps odd hours. I don’t have a mobile phone for him.”
Mr Hills did not go to the Tempe address. He said that as at 21 February 2008 he had information that the Tempe address was Mr Carantinos’ residential address but he did not know that it was. He was aware that Mr Slater had gone around to that property on several occasions but had not obtained any response from it. He did, however, have evidence from contact with the “elderly lady” that Mr Carantinos was known at the Princes Highway property. Mr Carantinos gave evidence that he utilised the Princes Highway property as a business address and that he attended there from time to time. He said it was the place from which he ran the business of managing that property and the next door property and other properties in his portfolio. He said that his mother (the elderly lady) and his cousin, Ms Kritikos worked at the premises. Ms Kritikos was the bookkeeper and the debtor’s mother helped out generally.
Apart from giving the Princes Highway address as his address in the partnership proceedings it was also the debtor’s address on his driver’s licence and an address that he had given to the St George Bank in relation to an application for a loan. I am satisfied that it was an address generally used by Mr Carantinos when he was required to give an address for any official purposes. He told Mr Alexis SC, counsel for the creditor, that he received bank statements there, rate notices and other important documents that would be required for his businesses. He indicated that some of these were brought to his attention by Ms Kritikos. Whilst Mr Carantinos did not display the temperament giving evidence that was discussed by Einstein J in his Judgment and which led his Honour to come to a negative view about his credibility, I gained the impression that his evidence was being given glibly and with an intention to promote his own cause. I am satisfied that Ms Kritikos would in all probability open every envelope that was delivered to the premises and would have forwarded on to Mr Carantinos anything of importance. I have little doubt that she would have made it quite clear to him that a bankruptcy notice had been received. Mr Harris’ evidence was that he had seen Ms Kritikos around the property in February near the time that service took place. I am satisfied that she would have found the bankruptcy notice within the time limited for its compliance.
Notwithstanding Mr Skinner’s heartfelt and understandable submissions concerning service of bankruptcy notices under s.16.01 of the Regulations there is no requirement that the notice be shown to have got into the hands of the debtor. Mr Skinner submitted that this is contrary to one of the fundamental principles of Australian jurisprudence namely that a party be aware of proceedings being brought against him. The courts have held that Regulation 16.01 applies to bankruptcy notices CSR Limited trading as CSR Construction Materials v Antonio Barillaro [2001] FMCA 23 approved in Skalkos v T S Recoveries Pty Limited [2004] FCAFC 321. The Regulations do not require evidence that the notice be brought to the attention of a debtor although Regulation 16.01(2) does give the debtor an opportunity to prove that he did not receive the document on the date it was served. I did not accept Mr Carantinos’ evidence that he did not receive the document at all and as he did not suggest an alternative date upon which he did receive it, I am satisfied that I have not been provided with proof to the contrary sufficient to negate the effect of 16.01(1) sub-paragraph of the Regulation.
Three cases were cited to me as providing assistance in the definition of the words “his or her last known address”. The first Drake v Stanton [1999] FCA 1635 was a decision of Tamberlin J. In that case an envelope was left at an address known as 396 Grey Street Glen Innes although the bankruptcy notice which it contained showed the address of the debtor as being 292 Grey Street Glen Innes. Evidence was given that 292 Grey Street Glen Innes was the usual place of abode of the debtor:
“[5] The references to "usual place of abode", of course, and to "resides", refer to the residential address of Mr Stanton. That is not the expression which is used in the relevant provision, as Mr Skinner points out for the judgment creditor. The relevant expression is "the last-known address of the person" and it does not matter whether the debtor currently lives or resides there or not. The expression is difficult on one view in the sense that it does not indicate to whom the address must be known in order to satisfy the requirements of the person. On one view of it, it could be taken to be the knowledge of the creditor. Alternatively, as advanced by Mr Skinner, the words could mean the last-known address of the person in an objective sense, namely that address at which the debtor could be said to be located.”
[6] The evidence which has been adduced by the judgment creditor in the matter indicates that a number of statements have been made by Mr Stanton himself as to his address. One of these is a statement in the Request to State a Case which is signed by Mr Stanton, to the effect that the address for service is J Stanton Enterprises Pty Limited at 396 Grey Street, Glen Innes.”
His Honour referred to other occasions upon which Mr Stanton had given his address as 396 Grey Street before saying at [8]:
“[8] In my view, on the language of reg 16.01(1)(c), the reference to "last-known address of the person" is to that address which has been made known by the applicant as at the time closest to the date in question. In the present case the evidence indicates clearly that the address which was last asserted by the applicant was the address at 396 Grey Street. The applicant has not been called to give any evidence to the contrary.”
In Skalkos the Full Bench Sundberg, Finkelstein and Hely JJ noted the views of the primary Judge referring with approval to the comments of Tamberlin J in Theodor Silvas (a bankrupt) v Maureen Silvas[1997] FCA 206 that the effect of Regulation 16.01 enables non personal service of a bankruptcy notice to be effected and then to the primary Judge’s view that:
“Even though those premises may have been occupied by the company, rather than Mr Skalkos personally, I am satisfied that he had such a degree of connection with the premises that they may properly be described as his last-known address.”
The Full Bench after quoting from Tamberlin J in Drake set out a number of factors which the evidence had established including that the debtor’s dwelling house was a place other than that at which the bankruptcy notice had been served. The court noted that the Alexandria address at which it was served was the registered office of a company of which the debtor was the director and secretary, that he worked in that office, that he had given that address as his address in High Court proceedings as his address for service, that his former solicitors had sent a notice indicating that correspondence should be addressed to Mr Skalkos at that address before saying:
“[36] … On that material it is clear that the appellant was not at the relevant time living at the Vaucluse address, though that was his usual dwelling house or residence; that his current residential address was not known to the respondent; that in various contexts he had given the Alexandria address as his address for service, and that the best prospect of getting a document to him was by sending it to that address.
[37] The primary judge said that although the debtor did not reside at the Alexandria address, he was using it for business purposes, and that although the premises were occupied by the company rather than the debtor personally, "he had such a degree of connection with the premises that they may properly be described as his last-known address". Drake v Stanton, Robertson v Banham & Co and the cases referred to in the latter establish, in our view correctly, that a business address can be a person’s "last-known address". The primary judge’s conclusion that the Alexandria address was the debtor’s last-known address was amply open to him on the evidence summarized at [36].”
The third case referred to was Troy & Company v Cameron [2002] FMCA 42, a decision of the Chief Federal Magistrate as she then was. Her Honour cited Drake and also Deputy Commissioner of Taxation v Gadaletto (1999) FCA 923 and accepted the temporal definition used by Tamberlin J and adopted it for service upon a firm of solicitors.
The phrase “last known” necessary implies a temporal constituent. But who is to be the recipient of this intelligence? It is to be the world at large or the creditor? I cannot see that it should be the creditor. There is no time limit upon when a bankruptcy notice may be taken out based upon a judgment other than that the judgment itself must not be stale. A debtor who has not heard from his creditor for several years is under no obligation to keep him appraised of his current address. It would hardly be good service to place a bankruptcy notice in an envelope addressed to an individual at a house which not only he has left but even the tenants or owners who came after him had left just because that particular house was the one last known to the creditor who had taken no further steps to discover if his debtor had since moved. Using the phrase “the last known address” to the world at large would include the last known address that a debtor might reasonably discover. In this particular case the evidence would point to that address being 44 Princes Highway St Peters. The process server’s evidence revealed that enquiries were made and it became clear that there was a connection between the debtor and those premises, that he was known at those premises even if he might not be immediately available there. On the other hand the premises at View Crescent were intimated to be his residence but there was no way of establishing that that intimation was correct. The process servers were unable to gain entrance or to speak to anybody there. Of the two addresses it would not be difficult to say that the best prospect of getting a document to him was by sending it to Princes Highway bearing in mind that the court is looking at the situation as it existed in February 2008 and not with the benefit of Mr Carantinos’ evidence at the hearing, that he actually lived at Tempe. I would also prefer the Princes Highway address to service upon the solicitors. True it is that those solicitors were acting in the partnership proceedings and that presumably they knew how to get in touch with Mr Carantinos. But these proceedings were separate and there is no guarantee that service would be accepted. The solicitor’s address might have been available for substituted service but I do not think that it betters the Princes Highway address for the purposes of service under the Regulations. As I have indicated that I am satisfied that service took place in accordance with the requirements of the Regulations I am satisfied that the bankruptcy notice was served as deposed to by Mr Hill in his affidavit and that the petition cannot be impugned on this basis.
I now turn to the discretionary ground under s.52.
Other sufficient cause
The debtor argues that a course of correspondence between his solicitor and that of the creditor culminated in an undertaking not to take steps to obtain a sequestration order against the debtor and the breach of this undertaking would constitute other sufficient cause within the meaning of s.52(2)(b) of the Act.
The correspondence referred to commences on 19 September 2007 after Einstein J had handed down his orders on 30 August. The letter makes reference to the Judgment of $160,000.00 upon which the bankruptcy notice was based and reads:
“We refer to your letter dated 31 August 2007 asking for a statement of Mr Carantinos’ intentions in relation to the District Court judgment of approximately $160,000.
We note that the process of taking accounts of our clients’ respective interests pursuant to order 8 of the orders made by Justice Einstein on 30 August 2007 is under way and that the mediation ordered by his Honour has been adjourned.
Mr Carantinos expects that the District Court judgment will be paid form the proceeds of the account, by way of set-off or alternatively, if our client’s appeal is allowed and the funds of Artesian Pty Limited are successfully preserved by the various orders and undertakings which have been made or given to date, from the moneys owing to our client on his loan account with that company. We are instructed that that loan account is in credit in a sum of approximately $1 million.
We are instructed to ask that your clients undertake not to take any steps to issue a bankruptcy notice or otherwise execute upon the District Court judgment pending completion of the accounts and the final hearing and determination of the appeal.
Please let us know if your clients are prepared to give that undertaking by return email.
If we do not hear from you in the affirmative, Mr Carantinos shall assume that Mr Magafas intends to execute on the judgment, whereupon our client shall take such steps as he may be advised.”
The letter was immediately responded to apparently as an attachment to an email. The creditor’s solicitors wrote:
“We refer to your letter of 19 September.
No evidence has been put to the Court to date to support the assertion that your client has a set off or that his loan account with Pac-Com Pty Ltd is in credit in the sum of approximately $1m.
If either proposition is to be taken seriously, please provide forthwith copies of the documentary evidence relied on by your client to make good either proposition, so our client may then be in a position to make an informed decision as to whether steps should be taken to enforce the judgment or give the undertaking as requested.
Please let us have a reply by midday, 20 September 2007.”
Again on 19 September Munro Lawyers referring to the email provided Rockliffs with a copy of the draft accounts prepared in relation to one of the companies, advised that the other accounts were in the course of preparation and asked for the undertaking by close of business. Upon the following day Rockliffs wrote again to Munro Lawyers responding to the letters of the 19th asking a series of questions about the accounts. On 21 September Rockliffs wrote again noting that at the time of writing they had not received a reply to that letter and advising:
“Unless we receive a satisfactory reply by close of business today we anticipate being instructed by our clients to proceed to enforce the judgment without further notice.”
I am satisfied that the judgment referred to was the District Court Judgment of approximately $160,000.00 referred to in the first Munro letter. On 21 September Munro Lawyers wrote again to Rockliffs informing them that the debtor was prepared to provide them with the documents requested as soon as he had completed the accounts and was working to do this by the date of 28 September but might need an extension. The final paragraph of the letter read:
“In response to your email please let us know your client’s position in relation to the requested undertaking by close of business on Monday next.”
On 24 September 2007 Rockliffs wrote again to Munro Lawyers:
“We refer to your letter dated 21 September 2007.
Your response is unsatisfactory in a number of aspects. However, as a gesture of goodwill, we are instructed by our client that the judgment will not be enforced provided that the verified accounts are furnished by 28 September 2007 and if not, we are instructed to proceed to enforce the judgment without further notice.”
Finally on 28 September 2007 Munro Lawyers provided the accounts in a letter which dealt with a number of matters. In relation to the accounts the letter read:
“3. Our client accepts the offer in your letter dated 24 September 2007. A copy of our client’s affidavit of todays date is enclosed. That affidavit annexes and verifies the accounts. Please let us know if the format of the accounts is acceptable and what documents, if any, you require from our client for the purpose of your client’s notice of surcharges and falsifications.”
The debtor argues that this correspondence constitutes an arrangement pursuant to which the creditor undertook not to enforce the judgment in the District Court. But it is to be remembered that the request of 19 September specifically referred to “Take[ing] any step to issue a bankruptcy notice.” The letter of 24 September refers to “The judgment will not be enforced.” The creditor, whilst submitting that it is for the debtor to persuade the court of the existence of the arrangement put forward a number of reasons why the court would not exercise its discretion in favour of the debtor. Firstly, the creditor says that the debtor had been ordered by Einstein J to provide the verified accounts by 28 September. Thus there could have been no agreement between the parties about enforcement because the performance of an existing legal duty is no consideration for a contract Wigan v Edwards (1973) 1 ALR 497 per Mason J at 512. In that case Mason J distinguished between a promise to perform an existing duty and a promise given by way of a bona fide compromise of a disputed claim. The Munro letter of 19 September bears close examination for the purposes of seeing whether it constitutes the former or the latter offer. That letter, after referring to the relevant District Court Judgment, suggests that the moneys due there under would be payable from the proceeds of the account or from the proceeds of a loan to Artisian Pty Limited should the Court of Appeal hold that company to have an obligation to the debtor. The request not to issue the bankruptcy notice is then made:
“Pending completion of the accounts and the final hearing and determination of the appeal.”
The letter of 19th from Rockliffs to Munro Lawyers extracted in these reasons seems to be a response to an offer and part of a negotiation. That negotiation continued with the letter from Munro of 21 September but it indicated that certain of the information that the creditor required in order to decide whether or not it proposed to hold up enforcement of the debt (by bankruptcy notice or otherwise) was still forthcoming. The letter of 24 September which makes the concession cannot be seen in isolation from the negotiations. I am not satisfied that those negotiations were ever concluded. In other words I am not satisfied that the promise made was anything more than a gratuitous gesture having no legal significance. If the debtor had been able to persuade the creditor that there was something in his claim that the judgment could be met from the set off or the balance due under the accounts or from the company loan then the creditor may have been prepared to make a formal arrangement. But this did not happen. As the creditor points out the verified accounts provided on 28 September failed to comply with the orders which required them and the underlying judgment of Einstein J. There is in the creditor’s affidavit, sworn on 3 September 2008 at [10], a lengthy recital on the ways in which those verified accounts were inconsistent with Einstein J’s decision and that evidence was unchallenged. I also refer to the uncontested evidence contained in paragraph 11 in Mr Magafas’ affidavit of 3 September 2008 in which he refers to the debtor failing to take into consideration a number of findings of fact in the Judgment of Einstein J when submitting the accounts. The debtor submits that if the creditor was obliged by conscience not to enforce the judgment following receipt of the debtor’s accounts he was entirely justified in withdrawing from any such arrangement when it became obvious to him that the debtor had not complied with the court’s findings, declarations, orders and directions when purporting to verify his accounts. I think the better view is that given the nature of the correspondence there existed some obligation upon the creditor not to issue a bankruptcy notice for a reasonable period of time whilst the debtor was given an opportunity to respond to the matters raised in the correspondence and attempt to convince the creditor that a compromise was capable of being found. But when the debtor did not do that (and there is no evidence that he did) then any such obligation ceased. In an ideal world the creditor would have given the debtor notice that any promise no longer applied but I do not think that the failure to give notice prohibits the issuance of the bankruptcy notice. It is to be remembered that the arrangements were made in September 2007 and the bankruptcy notice itself was not issued until February 2008. I believe this analysis puts the case at its highest so far as the debtor is concerned because if the provision of the accounts was not connected to an offer of compromise it could not constitute consideration for any form of agreement. If it was connected to a compromise then the creditor’s terms expressed in its correspondence would have to be complied with.
The debtor seeks to avoid these problems by indicating that there was an “undertaking” by the Respondent’s solicitor. He argues that it would be wrong to make a sequestration order when the Petition was filed in breach of the undertaking. But this requires an analysis of what constitutes a solicitor’s undertaking.
Generally, when speaking of undertakings by solicitors, what is meant is that the undertaking has been given by the solicitor personally, and not as an agent of the client.
An undertaking given ‘on behalf of’ another person may be interpreted as the personal undertaking of the lawyer giving it; Gorman v Norton (1887) 8 LR (NSW) L 479. However, there is limited case authority which considers when an undertaking is personally given by a solicitor in the context of a client’s matter and when the undertaking is made as an agent of the client. The facts usually make such consideration unnecessary. In Wade v Licardy (1993) 33 NSWLR 1, the defendant solicitor had received money from his client and had then himself sent a letter to the plaintiff solicitors in which he undertook to deposit that money on a certain date. The undertaking in this case was clearly made personally by the solicitor even though he was acting on behalf of his client.
Similarly, in Council of the Queensland Law Society Inc v Tunn [2004] QCA 412, the subject of the solicitor’s undertaking was a promise to deposit the entire proceeds of a sale of property after settlement and not to dispose or otherwise deal with those settlement proceeds without an order of the court. In breach of this undertaking, the solicitor deposited $85,230.30 from the sale of the property in his trust account and without any court order disbursed $6,656 to real estate agents for the balance of the commission on the sale of the property. The breach attracted disciplinary action by the Solicitors Complaints Tribunal.
Another common sort of undertaking which may be enforced against solicitors under a court’s summary jurisdiction is when they receive files from another solicitor on the basis that they undertake to pay that solicitor’s outstanding costs from any settlement or verdict; Bechara t/as Bechara & Co v Atie & Anor [2005] NSWCA 268.
Although general principles of contract law are not relevant to the court’s inherent jurisdiction to enforce solicitors’ undertakings, it may be that the principles of agency in contract law assist in determining whether or not an undertaking is personally given by a solicitor. In the current case, the defendant’s solicitors wrote to the plaintiff’s solicitors requesting:
“that your clients undertake not to take any steps to issue a bankruptcy notice or otherwise execute upon the District Court judgment pending completion of the accounts and the final hearing and determination of the appeal.”
In response, solicitors for the plaintiff wrote:
“…as a gesture of goodwill, we are instructed by our client that the judgment will not be enforced provided that the verified accounts are furnished by 28 September 2007 and if not, we are instructed to proceed to enforce the judgment without further notice.”
In considering whether the undertaking was by the plaintiff’s solicitor personally or in his capacity as agent, it may be relevant to consider whether the recipient of the undertaking could reasonably construe the undertaking as having been given personally.
“The courts closely scrutinise the terms of an undertaking to ascertain whether the lawyer has given it on the client’s behalf. As with the approach to contractual interpretation generally, it is the parties’ intention, informed by all the surrounding circumstances, that represents the courts’ inquiry.” – Dal Pont GE, Lawyers Professional Responsibility (3rd ed, Lawbook Co, 2006) at p 501.
I am of the view that this undertaking was requested of and given by the solicitor as agent for the client. As such I have already found it to be a gratuitous gesture of no significance. It cannot reach the height of an ‘other sufficient cause’ under s.52. Thus there is no impediment to my making the sequestration order.
I note that the debtor has not alleged solvency. The evidence in this case would indicate he is seriously indebted to the partnership whatever his other debts might be. I am satisfied that the debtor has committed the act of bankruptcy alleged in the Petition. I am satisfied with the proof of the other matters required by s.52 of the Act. I make a sequestration order against the estate of Peter Carantinos. I order that the applicant creditor’s costs (including any reserved costs) be taxed (in accordance with the Federal Magistrates Court Bankruptcy Rules) and paid from the estate of the respondent debtor in accordance with the Act.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
The Court notes the date of act of bankruptcy is 13 March 2008.
I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 11 December 2008
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