Medcalf v Crimeguard International Security Systems Sydney Pty Limited
[2011] FCA 963
•24 August 2011
FEDERAL COURT OF AUSTRALIA
Medcalf v Crimeguard International Security Systems Sydney Pty Limited [2011] FCA 963
Citation: Medcalf v Crimeguard International Security Systems Sydney Pty Limited [2011] FCA 963 Appeal from: Crimeguard International Security Systems Sydney Pty Ltd v Medcalf & Ors [2011] FMCA 258 Parties: JOHN LAWRENCE MEDCALF, LESLIE FORSYTH STOTT and GEORGE PATROUNGAS v CRIMEGUARD INTERNATIONAL SECURITY SYSTEMS SYDNEY PTY LIMITED File number: NSD 1114 of 2011 Judge: ROBERTSON J Date of judgment: 24 August 2011 Catchwords: BANKRUPTCY – appeal from sequestration orders – whether debt claimed in bankruptcy notice was overstated because of payment by appellants to respondent – deed of settlement of District Court proceedings to enforce an earlier deed – additional payment made by appellants to respondent for further time to pay – whether payment made pursuant to deed where made after judgment entered – merger – whether payment in reduction of judgment debt –– whether payment reduced statutory interest on judgment – Held: payment not made in reduction of judgment debt or statutory interest on judgment Legislation: Bankruptcy Act 1966 (Cth) s 41(5)
Civil Procedure Act 2005 (NSW) ss 101, 136
Trade Practices Act 1974 (Cth)Cases cited: Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 applied
Callisher v Bischoffsheim (1870) LR 5 QB 449 applied
Ex parte Fewings; in re Sneyd (1883) 25 Ch D 338 distinguished
Foakes v Beer (1884) 9 App Cas 605 applied
Hungerfords v Walker (1989) 171 CLR 125 cited
Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 cited
Taylor v Johnson (1983) 151 CLR 422 referred to
Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 appliedDate of hearing: 16 August 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 56 Counsel for the Appellants: Mr AW Smith Solicitor for the Appellants: Paul Bard Lawyers Counsel for the Respondent: Mr J C Giles Solicitor for the Respondent: TressCox Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1114 of 2011
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN: JOHN LAWRENCE MEDCALF, LESLIE FORSYTH STOTT AND GEORGE PATROUNGAS
AppellantsAND: CRIMEGUARD INTERNATIONAL SECURITY SYSTEMS SYDNEY PTY LIMITED
Respondent
JUDGE:
ROBERTSON J
DATE OF ORDER:
24 AUGUST 2011
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The appellants pay the respondent’s costs as taxed or agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1114 of 2011
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN: JOHN LAWRENCE MEDCALF, LESLIE FORSYTH STOTT AND GEORGE PATROUNGAS
AppellantsAND: CRIMEGUARD INTERNATIONAL SECURITY SYSTEMS SYDNEY PTY LIMITED
Respondent
JUDGE:
ROBERTSON J
DATE:
24 AUGUST 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
In this appeal from the Federal Magistrates Court, the appellants contended that the bankruptcy notices issued to them were invalid because the sum specified in the notices exceeded the amount due. The appellants gave the required notice under s 41(5) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”).
The issue in the appeal centred on a payment of $25,000 by the appellants to the respondent. The appellants submitted that that amount was a part payment of the debt while the respondent said that the amount of $25,000 was not a part payment of the debt but consideration for further time to pay being permitted in relation to principal amounts.
There was no dispute that the $25,000 amount was paid on 29 September 2010.
THE FACTS
The appellants had been in dispute with the present respondent since June 2009 over misrepresentations relating to the purchase by the appellants of a franchise concerned with a motor vehicle theft prevention business.
In August 2009 the present respondent instituted proceedings in this Court under the Trade Practices Act 1974 (Cth) (“Trade Practices Act”). The proceedings were resolved in early March 2010 in accordance with a deed of settlement by which the present appellants agreed to pay the respondent a total of $525,000. In consequence of the settlement, on 11 March 2010, this Court made orders dismissing the Trade Practices Act proceedings, with no order as to costs.
After making three payments, the appellants failed to make later payments in accordance with this first deed and there were further proceedings in the New South Wales District Court. Those proceedings were settled by a second deed.
The appellants were the second, third and fourth defendants in the District Court proceedings. The first defendant was Crimeguard International Security Systems Pty Limited. The plaintiff was Crimeguard International Security Systems Sydney Pty Limited, the present respondent.
Pursuant to the second deed the parties signed a consent to judgment for the outstanding balance of the settlement sum due under the first deed as at 23 September 2010. The parties agreed that the consent to judgment would not be entered provided that an initial payment of $33,672 was made, a further payment of $100,000 was made on 30 September 2010 and a final payment of the same amount made on 15 November 2010.
The second deed defined “Judgment Orders” to mean orders consenting to judgment as set out in Annexure B of the second deed.
Provision was made as follows:
4.1 . . .
4.2 The Judgment Orders shall be signed on the date of this deed by the solicitor for the [present appellants] and held in escrow by the solicitor for the [present respondent] to be thereafter dealt with in accordance with this clause 4.
4.3 . . .
4.4If, however, the [present appellants] fail to pay the Agreed Sum to the [present respondent] strictly in accordance with clause 2 above, the solicitor for the [present respondent] shall be at liberty to complete (in accordance with clause 4.5 below) and file the Judgment Orders in the registry of the District Court and enforce the judgment entered thereby without further notice to the [present appellants].
A consent judgment in the form of the Judgment Orders was executed by the present appellants on 16 September 2010.
The first payment of $33,672 due under the second deed, although not made on time, was in fact made.
On 20 September 2010 the present appellants told the present respondent that they a would not be able to meet the $100,000 payment due on 30 September 2010 under the second deed.
An email on behalf of the present respondent on 20 September 2010 proposed terms on which it would agree to the two payments being deferred. It proposed a payment of $25,000 in addition to the two payments of $100,000 plus a security. This proposal was not agreed to, at least in relation to the security.
The respondent filed the consent judgment with the District Court on 23 September 2010. The appellants were not aware that this had happened.
There was then an exchange of emails on 27 September 2010 in respect of the additional sum of $25,000 referred to in the 20 September 2010 email. The emails show that agreement was reached whereby the amounts of $100,000 were to remain payable but payment of the first $100,000 was delayed to 30 October 2010 (from 30 September 2010) and payment of the second $100,000 to 30 November 2010 (from 15 November 2010).
The email on 27 September 2010 from Mr Stott on behalf of the appellants stated that deferring the dates for payment was on the basis that the appellants paid an additional sum of $25,000 on 28 September 2010. The email said:
Subject: Re Interest Payment
Dear Laurie,
Thank you for deferring the date for payment of the final $200,000 to Ubet and Crimeguard Sydney provided we pay an additional sum of $25,000 tomorrow. As agreed, the final $200,000 will be paid by two equal payments on 30 October and 30 November and the additional $25,000 will be paid tomorrow into your bank account. Please send me your written confirmation of this agreement by return email. Thank you.
Regards
Les Stott
The reply from the present respondent was:
Subject: Re Interest Payment
Dear Les
I confirm that, provided the payment of $25,000 is made in cleared funds into my bank account tomorrow, I will agree to defer payment of the balance as set out below.
Regards
Laurie
It is likely that this correspondence together with the surrounding circumstances constituted the relevant evidence: Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd (2001) 117 FCR 424 at [280] and following. However oral evidence was given on these issues before the Federal Magistrate.
Answers given by Mr Stott in cross-examination before the Federal Magistrate confirmed what the emails showed, although there were disputes about terminology. At page 10 of the transcript the following exchange occurred:
Question: Did you accept that it was an interest payment or did you think it was just an amount?
Answer: No, he clearly stated. I want $25,000 interest up front for the extension of time.
At page 11 of the transcript Mr Stott’s evidence was that the payment of $25,000 was unrelated to the judgment of the District Court.
At pages 18 to 19 of the transcript there was the following exchange with reference to Mr Stott’s email of 27 September 2010:
Question: Additional to what?
Answer: Well, it’s additional – with the amount that he wanted additional to the fact that he was getting two more payments which were delayed for 30 September and 30 October – or 30 October, 30 November.
It had no – nothing – no relevance whatsoever to the principal owed.At page 22 of the transcript Mr Stott said of the payment of $33,000:
It had no reference whatsoever or relevance to the 25,000 that Laurie claimed personally from me, an extension of time for payments.
The appellants paid $25,000 to the respondent on 29 September 2010.
The appellants did not pay the further two instalments of $100,000.
On 17 December 2010 the consent judgment was stamped or certified. The judgment was dated 23 September 2010, the date on which it was filed, and it is stated to have been entered on that day.
This consent judgment formed the basis of the bankruptcy notice specifying a judgment sum of $194,109.93 and interest calculated at the daily rate of $55.84.
No steps were taken to enforce the debt until 21 December 2010 when the bankruptcy notices issued to the three appellants. The bankruptcy notices were served on the appellants on 29 December 2010.
A notice under s 41(5) of the Bankruptcy Act disputing the validity of the notices on the ground of misstatement was given in each case on 13 January 2011.
The bankruptcy notices stated claims for:
1. $194,109.93 as per the final judgment of the District Court of New South Wales;
2. No amount for legal costs: there was no order as to costs in the judgment;
3. $4,969.76 interest accrued since the date of judgment calculated at $55.84 per day pursuant to paragraph 3 of the judgment;
4. $199,079.69, being the total.
FEDERAL MAGISTRATES COURT PROCEEDINGS
The proceedings in the Federal Magistrates Court were on a creditor’s petition dated 27 January 2011 and filed on 28 January 2011. There was a notice stating grounds of opposition dated 16 March 2011.
The matter was heard on 29 March 2011 and 13 April 2011. Mr Les Stott was cross-examined. Mr Laurie Fisher was cross-examined. Judgment was given on 17 June 2011.
A sequestration order was made against the estate of each of the present appellants, with the petitioning creditor’s costs to be taxed and paid in accordance with the Bankruptcy Act.
The Federal Magistrate noted that the date of the act of bankruptcy in each case was 24 January 2011.
The essential reasons for judgment of the Federal Magistrate were as follows. Having identified the subject matter of dispute, what the payment of $25,000 made on 29 September 2010 was for, his Honour said:
[12]…the parties exchanged the second deed of settlement on 2 September 2010 and $33,672 was paid in two instalments apparently before settlement of that deed later that month. The second deed was an agreement between the parties as to an arrangement for payment of the debt according to a time schedule, in default of which the applicant creditor was entitled to enter the consent judgment in the District Court and execute that judgment. It soon became apparent to the respondent debtors, however, that they would not be able to meet the payment schedule required for the second and third payments of $100,000 under the second deed. The parties discussed the possibility of a collateral agreement whereby the payments would be deferred in return for a payment of $25,000. That payment was variously described as “interest” or “costs” but, regardless of what labels were attached to it, there is no doubt in my mind that the applicant creditor demanded the sum of $25,000 as the price for deferring the payment schedule under the second deed. It was not a payment of interest on the judgment obtained in the District Court because the judgment had not then been entered in accordance with the second deed and nothing was at that time due under the judgment. Money was due under the second deed and the respondent debtors knew that they could not pay it. The $25,000 sought and paid was the price of delay. It was the consideration for the collateral agreement varying the second deed.
[13]In my view, the respondent debtors got what they paid for. The parties agreed on 27 September 2010 to new dates for the payment of the amounts then remaining due pursuant to the second deed. However, no further payments were made and, following the failure of further discussions, the applicant creditor entered judgment in the District Court in accordance with its entitlement under the second deed and pursued payment of the principal due and interest in accordance with the judgment.
The appellants rely on the words I have italicised as establishing material error.
NOTICE OF APPEAL
The notice of appeal in this Court contained the following grounds supporting the contention that the creditor’s petition filed on 28 January 2011 should have been dismissed:
(a)The learned trial judge erred in finding (at paragraphs [5], [10], and [13]) that the judgment obtained by the Respondent in the District Court of New South Wales proceedings No 2010/144709 (“the Judgment”) which supported the bankruptcy notice NN6071 of 21 December 2010 issued by the Official Receiver (“the Bankruptcy Notice”) relied upon by the Respondent to found an act of bankruptcy was entered on 17 December 2010;
(b)The learned trial judge erred in finding (at paragraphs [12] and [13]) that at the time of a payment by the Appellants to the Respondent of the sum of $25,000.00 the Respondent had not entered the Judgment with the District Court of New South Wales;
(c)The learned trial judge erred in finding (at paragraph [12]) that the payment of $25,000.00 to the Respondent by the Appellants was “the price of deferring the payment schedule under the second deed” on the basis that the Judgment had not been entered.
(d)The learned trial judge erred in fact and in law in finding (at paragraph [12]) that the payment of $25,000.00 by the Appellants to the Respondent was made in reduction of the amount due under the second deed between the Appellants and the Respondent in circumstances where the amount owing by the Appellants to the Respondent under the second deed had merged into the Judgment entered on 23 September 2010.
(e)The learned trial judge erred in finding (paragraph [13]) that the payment of the sum of $25,000.00 by the Appellants to the Respondent was consideration for varying the second deed, the terms and interests of which had merged into the Judgment;
(f)The learned trial judge erred in finding that (at paragraph [13]) the $25,000.00 paid by the Appellants to the Respondent was not required to be credited to the debt the subject of the Judgment and the Bankruptcy Notice;
(g)The learned trial judge ought to have found that the Bankruptcy Notice was overstated and therefore void; and
(h)In the premise of (g), the learned trial judge ought to have found that the Appellants did not commit an act of bankruptcy to found a creditors petition against them.
CONSIDERATION
As may be seen from the notice of appeal, the major thrust of the appellants’ argument is that by the time of the agreement constituted by the exchange of emails, the terms of the second deed had merged in the judgment. The submission was that as at the date of the agreement on 27 September 2010 the second deed had ceased to have a separate legal existence. This was because the judgment had been filed and entered on 23 September 2010 and by virtue of the principle of merger as explained in Ex parte Fewings; in re Sneyd (1883) 25 Ch D 338. It followed that the agreement to pay $25,000 could not have been in relation to the second deed.
Then, in the appellants’ submission, the agreement of 27 September 2010 could not have been an agreement not to enforce the District Court judgment because they did not know about that judgment. It followed that the payment of $25,000 must have been referable to and reduced the amount of the judgment debt.
It was also argued that since Mr Fisher agreed in cross-examination in the Federal Magistrates Court that some of the $25,000 was referable to interest then some of that amount would have to be appropriated to judgment interest in respect of the same period: ss 101 and 136 of the Civil Procedure Act 2005 (NSW) (“Civil Procedure Act”).
The consequence, it was submitted, was that the amount specified in the bankruptcy notices was excessive and the bankruptcy notices were void: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 339. The result may have been different if judgment had not been entered on 23 September 2010 and the key error on the part of the Federal Magistrate was erroneously to find that judgment had not been entered by 27 September 2010.
In this regard I note that s 101 of the Civil Procedure Act provides for interest being payable on a judgment. But in my opinion it is not an exhaustive statement. The history of provisions such as these shows that they were intended to provide for interest where there was no other entitlement, such as by agreement: see generally Hungerfords v Walker (1989) 171 CLR 125. Thus the section does not prevent a payment in respect of a judgment or have the legal effect of characterising such a payment as interest. In addition, as a consequence of the Federal Magistrate’s finding that the $25,000 sought and paid was the price of delay, that amount was not either “interest” or “payable on so much of the amount of a judgment . . . as is from time to time unpaid” within the meaning of s 101 of the Civil Procedure Act.
In relation to s 136 of the Civil Procedure Act, by its terms it only operates where a payment is made on account of a judgment debt. Thus to rely on it in the present circumstances to characterise the payment of $25,000 begs the question.
The respondent submitted that the real issue was what the payment of $25,000 was for. The respondent submitted that the appellants were wrong to say that if a judgment been entered then the payment of $25,000 must have been in reduction of that judgment.
It is necessary to examine what it was that, objectively, the parties to the agreement intended: Taylor v Johnson (1983) 151 CLR 422.
In my view the essence of the bargain was that the present appellants got time to pay their debt to the respondent. As the Federal Magistrate held, the $25,000 sought and paid was the price of delay. Their bargain was to acquire an enforceable right against the respondent, that right being the respondent’s forbearance to sue for the outstanding amount for a specified period: see Foakes v Beer (1884) 9 App Cas 605.
The source of the respondents' liability did not lie at the heart of the bargain or, put differently, any mistake did not affect the substance of the obligation or the appellants’ motive for entering into it. That is, the appellants wished to acquire time to pay their debt whether the source of their liability lay in a covenant of the second deed or in a judgment.
Indeed, Callisher v Bischoffsheim (1870) LR 5 QB 449 indicates that the bargain here was good even if the appellants and the respondent were mistaken in their beliefs as to the legal correctness of the claim flowing from the second deed. If the claim were bad in law because of the principle of merger there was no suggestion that Mr Fisher knew that. See also Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691.
As it turned out there was a minor difference in the amount of the debt under the second deed and the amount under the judgment referable to a question of timing: judgment was entered before the date on which the amount was originally due under the second deed. But that did not alter the essence of the agreement or render it uncertain. What is clear, in my view, was that the parties to the agreement did not intend that the amount of $25,000 or any of it was to be paid in reduction of the appellants' debt.
It was not suggested by the appellants that any mistake affected the validity or enforceability of the contract. Thus the appellants did not submit that the contract was void or voidable or should be rescinded or required rectification. Their case was only that by operation of the law of merger the payment was in reduction of the amount of the judgment debt.
I do conclude that the Federal Magistrate was incorrect to find that the judgment had not been entered by 27 September 2010 and on that basis to reason by reference to a collateral agreement which did not merge in the judgment. However, these errors were immaterial because the parties to the agreement struck a bargain which did not involve the payment of $25,000 in reduction of the judgment debt. Neither, in my opinion, did any statutory provision operate to give the amount of $25,000 that effect. I note that the principle in Ex parte Fewings; in re Sneyd does not prevent a distinct independent agreement: see per Cotton LJ at 350. I also note that the covenant in that case and the present agreement are quite different.
The mistake as to the legal source of the obligation was not a vitiating factor. The respondent bargained away its entitlement to enforce the debt for a period. The bargain was performed in that no steps were taken to enforce the debt until 21 December 2010 when the bankruptcy notices issued.
In my opinion the answers by Mr Fisher in cross-examination do not affect the conclusion that the parties to the agreement struck a bargain which did not involve the payment of $25,000 in reduction of the judgment debt, and no statutory provision operated to give the amount of $25,000 that effect.
This is because evidence of this kind does not qualify the terms of the written agreement. In addition, the questions and answers went to the legal characterisation of the payment. Mr Fisher’s answers were that he wanted $25,000 “for interest and costs” in the sense of the “inconvenience for not having received the payments on time”.
Further, the agreement stood outside ss 101 and 136 of the Civil Procedure Act which, as I have indicated, do not operate so that by force of law a payment under the agreement must be attributed to interest so as to reduce the amount referable to interest under the judgment.
It follows that the sum specified in the bankruptcy notices as the amount due to the creditor did not exceed the amount in fact due and the bankruptcy notices issued in relation to them were not invalid.
CONCLUSION
For these reasons the appeal is dismissed with costs.
I certify that the preceding fifty-six (56) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. Associate:
Dated: 24 August 2011
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