Metalflex Pty Ltd v Tovey
[2004] FMCA 77
•20 February 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| METALFLEX PTY LTD v TOVEY | [2004] FMCA 77 |
| BANKRUPTCY – Creditors petition – whether bankruptcy notice invalid – reference to higher amount due – failure to refer to instalment payments – payments not identified sufficiently – sequestration order. |
Bankruptcy Act 1966, ss.41(5), 43, 52, 306(1)
Yu v Barrow Mortgage Services Pty Ltd (1995) 60 FCR 300
Northam v Commonwealth Bank of Australia (1999) FCR 544
Re Shekeloff; Ex parte Shekeloff v Hopkins Group Pty Ltd (1989) 22 FCR 407
Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71
National Australia Bank Ltd v Pollack (2001) 186 ALR 44
McDermott v Black (1940) 63 CLR 161 at 183-4
Osborn v McDermott (1998) 3 VR 1
| Applicant: | METALFLEX PTY LTD |
| Respondent: | RICHARD TOVEY |
| File No: | MZ 1170 of 2003 |
| Delivered on: | 20 February 2004 |
| Delivered at: | Melbourne |
| Hearing Date: | 16 February 2004 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr J Catlin |
| Solicitors for the Applicant: | Matthew Shaw & Associates |
| Counsel for the Respondent: | No appearance |
| Solicitors for the Respondent: | Frenkel Partners |
| Solicitor for the Supporting Creditors: | Ms C Dwyer |
| Solicitors for the Supporting Creditors: | Abbott Stillman & Wilson |
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MZ 1170 of 2003
| METALFLEX PTY LTD |
Applicant
and
| RICHARD TOVEY |
Respondent
REASONS FOR JUDGMENT
This is a creditor's petition filed by Metalflex Pty Ltd (the applicant creditor) on 23 October 2003 seeking a sequestration order under s.43 of the Bankruptcy Act 1966 (the Act) against the estate of Richard Tovey (the respondent debtor).
The applicant creditor has relied upon an act of bankruptcy in that the respondent debtor has failed on or before 14 August 2003 to either comply with a bankruptcy notice served on him on 23 July 2003 or to satisfy the court he had a counterclaim, set-off or cross-demand equal to or exceeding the sum specified in the bankruptcy notice. In the bankruptcy notice the applicant creditor has referred to an amount owing of $16,954.42 arising from a judgment and order made in default in the Melbourne Magistrates Court on 5 June 2002.
It is conceded at the outset that the amount of $16,954.42 referred to in the bankruptcy notice is different to the sum referred to in the creditor's petition where the applicant creditor claims that the respondent debtor owes the amount of "$19,284.46". It is clear that the amount of "$19,284.46" was the amount of the judgment or order made in the Melbourne Magistrates Court on 5 June 2002 but does not include interest and nor does it take into account payments made or credits allowed since the date of the judgment or order. Whilst the bankruptcy notice refers to interest in the sum of $1669.96 making a subtotal of $20,954.42 and makes reference to a deduction for payments made and/or credits allowed since the date of judgment or order of $4000 leaving a balance of $16,954.42, it was further conceded that there is in addition a deduction of a further $1000 which had been paid by the respondent debtor to the applicant creditor.
The amount of $1000, according to the affidavit material relied upon by the applicant creditor, was paid prior to the issue of the bankruptcy notice but had been unidentified as coming from the respondent debtor until after the bankruptcy notice had been issued. Making due allowance for the sum of $1000 claimed to be unidentified and paid prior to the issue of the bankruptcy notice, the applicant creditor now claims that the debt owed by the respondent debtor to the applicant creditor, excluding interest from the date of 11 March 2003, is $14,454.42.
When the matter was heard before this court on 16 February 2004 counsel announced their appearances. Mr Catlin appeared for the applicant and Mrs Dwyer appeared for supporting creditors. Mr Pirrie of counsel announced to the court that as a matter of courtesy he appeared so that he could inform the court that he no longer had instructions to continue to represent the respondent debtor. He simply reiterated that the application was opposed and referred to the affidavit material of the respondent debtor. Once counsel indicated he no longer had instructions to act for and on behalf of the respondent debtor Mr Pirrie was excused from the further hearing of the matter.
The respondent debtor's name was then called and no appearance was noted. Solicitors on record for the respondent debtor, namely Frenkel Partners, remain on record and there has been no notice of change of lawyer pursuant to Rule 9.02 of the Federal Magistrates Court Rules and nor has any withdrawal as lawyer notice pursuant to Rule 9.03 been filed or served. A lawyer may withdraw from the record in a proceeding by filing a notice of withdrawal and serving the notice on each other party. However, Rule 9.05 provides that a lawyer may not file or serve a notice of withdrawal without leave of the court, unless the lawyer has not less than seven days before filing a notice served a notice of intention to withdraw on the party for whom the lawyer is acting.
In the present case counsel simply advised the court that his instructions to act for and on behalf of the respondent debtor had been withdrawn. In my view, the matter having been properly called and listed, meant that it should proceed and I could see no reason why the applicant creditor should be further prejudiced by any delay. My conclusion was strengthened by the fact that a brief analysis of the court file reveals that the matter was originally listed for hearing on 25 November 2003. On that date both parties were represented and the application was adjourned to 9 December 2003. Prior to the adjournment the respondent debtor by notice of intention to oppose application or petition filed on 18 November 2003 had stated that he intended to oppose the petition on the following grounds:
“1.My former company Premium Overalls Pty Ltd incurred the subject debt, the company being now in liquidation. I did not incur this debt personally.”
In the same notice the respondent debtor stated:
“An affidavit supporting the grounds of opposition will be filed.”
A notice of intention to oppose petition dated 5 December 2003 relied upon the following ground:
“The debt did not exist at the date of the commission of the act of bankruptcy which founds the petition.”
It is fair to record that a note on the report of listing for 25 November 2003 states that counsel for the respondent debtor raised with the court at that stage a further issue, namely, that the debt had been "compromised". On 25 November 2003 the court made the following orders:
“1.Adjourn the further hearing of the petition to 9 December 2003 at 10.30 am.
2.The respondent file and serve Notice of Appearance, Notice of Opposition and affidavit or affidavits in support by 4 pm on 5 December 2003.
3.Costs of the applicant of today be reserved.”
As I have already indicated, the respondent debtor had filed a notice of intention to oppose the petition, although of course that set out a ground which did not include any reference to a suggestion that the debt had been compromised.
Despite the fact that the respondent debtor had been ordered to file affidavits by 5 December 2003 it appears that an affidavit, although sworn that day by the respondent debtor, was not in fact filed until 8 December 2003. On 9 December 2003 the court made the following orders:
“1.The further hearing of the petition be adjourned to 9 February 2004 at 9.45 am.
2.Applicant file and serve any affidavits in reply by 16 December 2003 to the respondent's affidavit dated 5 December 2003.
3.The respondent file and serve any further affidavits by 23 December 2003.
4.Costs of the parties be reserved.”
In fact, despite the order made by the court on 9 December 2003 the applicant did not file any affidavit in reply until 18 December 2003, namely an affidavit sworn by Matthew William Shaw on 17 December 2003.
On 9 February 2004 the court made the following orders:
“1.The further hearing of the petition be adjourned to 16 February 2004 at 9.45 am.
2.Costs be reserved.”
It is noted on the report of listing that the applicant had arrived late for the hearing on that day, although counsel then acting and appearing for the respondent had requested the matter be heard by a Federal Magistrate and hence arrangements were made for the court to hear this matter on the adjourned date, namely 16 February 2004.
The chronology of events taken from the court file, in my view, clearly indicate that the respondent debtor and/or his representatives at all material times were aware of the hearing date. In my view, in the circumstances without any application being made by either the respondent debtor in person or by the solicitors still on record for an adjournment it was proper for the matter to proceed. I further directed that another affidavit filed 9 February 2004 and sworn the same date by the respondent debtor should only be relied upon if leave were granted by the court. In the absence of the respondent debtor or his representative seeking leave to rely upon the affidavit, which is clearly filed beyond the time provided in the orders of the court made on 9 December 2003, I declined to rely upon that most recent affidavit material.
I am prepared to permit both parties, however, to rely upon earlier affidavit material despite noncompliance with orders, and to the extent that it is necessary, grant leave to do so given that at least from the applicant creditor's point of view a reply has been filed and served to the affidavit of the respondent debtor which had been sworn on 5 December 2003 and filed on 8 December 2003.
The respondent debtor in his affidavit sworn 5 December 2003 referred to the applicant creditor as being a supplier of ducting and associated fittings to the airconditioning industry. The respondent debtor refers to his occupation as being "refrigeration mechanic". He denied any liability to the applicant creditor and states the following after reciting the history of the judgment and issue of the bankruptcy notice:
“11. However, on or about 18 November 2003 I entered into an agreement with Metalflex in settlement of all claims then asserted by Metalflex against me (‘the Settlement Agreement").
Under the Settlement Agreement, I promised to pay Metalflex the sum of $22,837.22 by weekly instalments each in the sum of $500.00.
Now produced and shown to me at the time of swearing this my affidavit and marked "RT-2" are the following letters and documents identifying, inter alia:
(a) The settlement agreement; and
(b) The performance of the settlement agreement.
(i) Letter of Metalflex's solicitor, Matthew Shaw & Associates, dated 18 November 2002;
(ii) Document headed ‘Debt Repayment Plan Metalflex Pty Ltd’ identifying, inter alia, payments made in performance of the settlement agreement to 2 May 2003.”
Exhibit "RT-2" comprises in part a copy of a facsimile message dated 18 November 2002 from Matthew Shaw & Associates, the applicant creditor solicitors, to the respondent debtor which states the following:
“We refer to the above matter and confirm that your offer to pay the sum of $19,066.46 with costs of $2674.30 and interest of $1096.46 by way of weekly instalments of $500.00 has been accepted by our client, subject to you paying your instalments to this office by direct debit transfer from your bank and making your first payment by the 22 November 2002.
Please confirm your offer by return facsimile.”
Further, part of exhibit RT-2 is a document entitled "Debt Repayment Plan Metalflex Pty Ltd". In that document reference is made to the balance owing being $22,837.22 and the following appears on the document:
“AGREEMENT: Deposit $500-00 each WEEK direct into account until debt is cleared - beginning from Friday 22/11/02.
Arrangement confirmed via correspondence from Matthew Shaw & Associates, Suite 16/545 St Kilda Road Melbourne 3004 ...”
In the same document account details are referred to and a table appears which purportedly sets out details of amounts paid including date, amount paid, balance owing and cheque number. Although the dates are set out for each week it would appear that cheque numbers are only recorded next to 15 entries, the last of which appears to be 23 May 2003.
In his affidavit the respondent debtor after referring to exhibit "RT-2" then goes on to state the following:
“12.As I have deposed, I am informed by my solicitor, which I believe, that the bankruptcy notice, the subject of the Creditor's Petition commenced by Metalflex, was issued on 20 March 2003.
However, the claim identified in the Bankruptcy Notice did not exist at the date of the issue of the Bankruptcy Notice, or at any later date - all of the then claims which Metalflex alleged it had against me having been settled by my promise to pay to Metalflex the sum of $22,837.22 by weekly instalments in the sum of $500.00, the acceptance by Metalflex of the promise and the payments made pursuant to the promise.
I am currently conducting a search of my records to locate all other documents which identify and establish the settlement agreement.
13.I am further informed by my solicitor, which I believe, that Metalflex has not, either in the Bankruptcy Notice, nor in the Creditor's Petition, made any reference whatsoever to the settlement agreement, its terms and its performance.
14.As I have deposed, I am not indebted to Metalflex under either the Bankruptcy Notice or the Creditor's Petition and the debts as claimed in each of those documents did not exist, whether at 20th March 2003 or 20 October 2003 and I humbly ask this Honourable court to make orders dismissing the Petition herein.”
It is noted that the solicitors on record for the respondent debtor filed a notice of address for service dated 5 December 2003, which I presume was filed on 8 December 2003.
In the affidavit of Matthew William Shaw filed 18 December 2003 and sworn 17 December 2003 the deponent refers to the respondent debtor's affidavit sworn 5 December 2003 and states the following:
“3.The current debt owed by Mr Tovey excluding interest from the date of 11th March 03 is $14,454.42.
4.This sum is calculated by subtracting from the sum of $16,954.42 (being the amount referred to in the Bankruptcy Notice) sums paid by Mr Tovey after the date of the Bankruptcy Notice of $1,500.00 and the sum of $1,000.00 paid prior to the issue of the Bankruptcy Notice but unidentified as coming from the Debtor until after the said Notice in addition to the sum of $4,000.00 which has been noted in the schedule to the Bankruptcy Notice.
5.Otherwise the debt owed at the date of the Bankruptcy Notice was correctly calculated as $16,954.42 and correctly stated in said Notice.
6.After the date of issue, however, two payments of $500.00 which had been paid directly into the Trust Account of James Mercantile Agency Pty Ltd, with whom my firm is associated, at National Australia Bank were identified as being from the Debtor. Those payments had been made on 13th January 2003 and 28th February 2003. James Mercantile Agency Pty Ltd receives many debtor payments in this manner and the mere fact that the dollar sums were $500.00 is insufficient to immediately identify them as coming from the Debtor.
7.The only further payments made during 2003 were those made after the date of the Bankruptcy Notice being those on 26th March, 11th April and 1st May 2003 each of $500.00 respectively. Total payments made in reduction of the judgment debt, before or after the Bankruptcy Notice total $6500.00.
8.Mr Tovey is incorrect in his statement at paragraphs 11 and 12 of his affidavit that the "claim" did not exist on 20th March 2003 by reason of an agreement with Matthew Shaw and Associates dated 18th November 2003 by which, presumably, he means the agreement made 18th November 2002.
9.That agreement was no more than an opportunity for him to pay the sum owed and thus avoid the hearing of a Creditor's Petition against him which was listed for hearing on 12th December 2002. While the Debtor made payments my firm was not given instructions to enforce the judgment. No release from judgment was given. The Debtor had previously failed to honour an agreement to pay the debt by way of instalments of $4000.00 a month. It was the Debtor's failure to adhere to this agreement that resulted in Court judgment being obtained. The Creditor gave me no instructions to release the Debtor on a further, mere, promise of payment because of the Debtor's record of default.
10.Accordingly, when the Debtor failed to adhere to the second agreement of the 18th November 2002 I received instructions to proceed to issue a Bankruptcy Notice.
11.At no time has the Creditor communicated to the Debtor that the receipt of further payments would stay execution of judgment or substitute an agreement for the judgment and the Creditor's associated rights.
12.The debt stated as owing to the Creditor's Petition should be amended to read $14,454.42 to reflect the further payments received. This is a lessor sum than the $16,337.22 that would be owing if the second agreement was on foot.”
It is clear from the affidavit material that the respondent debtor has made an error in the date. There is no agreement dated "18 November 2003" referred to in paragraph 11 of the respondent debtor's affidavit as the "settlement agreement". I prefer the evidence of the applicant creditor, and in particular, rely upon the affidavit of Matthew William Shaw, to which I have already referred.
Counsel for the applicant creditor had relied upon submissions in writing dated 15 February 2004 entitled "Submissions of the Petitioning Creditor". It was submitted that the court, pursuant to s.306(1) of the Act, has a discretion to proceed despite the error in the bankruptcy notice. Reliance was placed upon the decision of
Yu v Barrow Mortgage Services Pty Ltd(1995) 60 FCR 300 at 306 which had been referred as one of the authorities by Weinberg J in Northam v Commonwealth Bank of Australia (1999) FCR 544. It was submitted that purely technical defects should not avoid a proceeding. Reliance was placed upon s.41(5) of the Act which provides:
“A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.”
It was submitted that by a combination of both ss.306(1) and 41(5) of the Act the applicant creditor is entitled to proceed with the creditor's petition. It was further noted the respondent debtor had not disputed the validity of the notice in time but at the last possible moment.
It was submitted in the present case that the court should take note the failure of the respondent debtor was meant to make payments of amounts of $500 from his own sources and being from his own sources had the ability to track them. There is no affidavit evidence to suggest that the respondent debtor had any difficulty tracking the payments made from his own sources. The schedule to the bankruptcy notice refers to payments made since the date of judgment is $4000 and should read $5500. That is clearly a matter where the error is evident and could easily have been the subject of correspondence or communication from the respondent debtor. The sums paid and to be paid were easily calculable as evidenced by the applicant's exhibit RT‑2 to his affidavit of 5 December 2003. Error has arisen because of the dilatory nature in which the respondent debtor had made payments and further error occurred due to the anonymous nature of payments of $1000.
It was therefore submitted by the applicant that applying the principles of law to which reference has been made the court should exercise its discretion to make a sequestration order. In the written submissions further reference has been made to the issue of whether the judgment had been stayed by reason of the agreement. It was submitted that the judgment itself has never been the subject of any suspension and any purported stay by the agreement would have no effect (see Re Shekeloff; Ex parte Shekeloff v Hopkins Group Pty Ltd (1989) 22 FCR 407).
The principles in Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 operate only in relation to a stay in force at the time of the application. It was submitted a stay could only exist by reason of the agreement being satisfied and this does not accord in satisfaction and the creditor's rights to proceed are preserved (see National Australia Bank Ltd v Pollack (2001) 186 ALR 44). In that case the debtor did not perform certain acts in circumstances where the bank had agreed not to prosecute bankruptcy proceedings if the debtor had performed those certain acts. The failure of the debtor to do so meant the bank was permitted to proceed with a sequestration order. It was found that until satisfaction is given for any agreement, then the accord remains executory and cannot lay a claim. The High Court in that case had applied the leading authority on the question, namely McDermott v Black (1940) 63 CLR 161 at 183-4.
Further reliance was placed upon the category of accord and conditional satisfaction recognised by the Victorian Court of Appeal in Osborn v McDermott (1998) 3 VR 1.
In the present case it has been submitted that there has been no release provided and at best the claimed agreement is nothing more than an "arrangement". Non-performance by the respondent debtor, in any event, would make any agreement, if there be one, no longer effective as the agreement lapsed by reason of the fact that it has not been performed by the respondent debtor.
It is noted the supporting creditor's representative supported the application for a sequestration order.
Reasoning
In my view, the chronology of events clearly indicates that there had been at one point an arrangement to pay what was allegedly owed by the respondent debtor to the applicant creditor by instalments of $500 per week, the amount due and payable.
I am satisfied that although the bankruptcy notice claims a higher amount than the amount actually owing there could not by reason thereof be any confusion in the mind of the recipient of the bankruptcy notice in circumstances where he was aware of the payments made from his own sources and on his own affidavit material was able to trace the payments accurately. The fact that a payment is made in what may be described as an anonymous fashion making it difficult to track for the applicant creditor is relevant, in my view, in determining whether the consequent omission in the bankruptcy notice should be an error which could then be relied upon by the respondent debtor in order to prevent the applicant creditor from relying upon the bankruptcy notice.
I am satisfied in the circumstances that a combination of ss.306(1) and 41(5) of the Act are sufficient in the circumstances to enable the application to proceed. Although the respondent debtor through his solicitors on record had filed a notice of objection, which in general terms may be said to raise an objection of a kind contemplated by s.41(5), it is clear that the raising of that objection in that manner has not been made within the time allowed for payment of the sum due in the bankruptcy notice and indeed has been made somewhat belatedly through the course of proceedings where I conclude there has been considerable delay primarily as a result of the conduct of the respondent debtor.
Despite the absence of the solicitor on record for the respondent debtor and indeed the absence of the respondent debtor himself in circumstances where instructions have been withdrawn from counsel, it is appropriate that in making my assessment of the evidence I consider all the matters required to be proved pursuant to the provisions of the Bankruptcy Act. Apart from accepting the fact that the chronology of events permits me to allow the applicant creditor to rely upon the bankruptcy notice in the absence of a notice objecting to the sum specified pursuant to s.41(5), I am otherwise satisfied that the other requirements of the Act, including those set out in s.52, have been complied with in the present application.
I otherwise accept the submissions made for and on behalf of the applicant creditor that in effect there has been no formal agreement between the parties and the offer to desist from pursuing bankruptcy proceedings could only be regarded as a conditional offer, namely conditional upon payments being made. In the circumstances on the evidence before me it is clear that there has been a default in payments leading to a significant delay in the matter. The default in payments under what I would properly regard as an arrangement should not be now regarded as providing a basis upon which the respondent debtor can claim an agreement is in place of a kind which would prevent prosecution of proceedings based on the bankruptcy notice.
The availability of payments of the kind described was no more than an indulgence by the applicant creditor to the respondent debtor. It may be true to say that had the payments continued, then the bankruptcy proceedings would not have not been pursued, but that does not, therefore, mean that the existence of the arrangement for the payment of the debt by instalment operated as a stay of the judgment or precluded in default of payment the applicant creditor from pursuing bankruptcy proceedings. In the absence of performance of any arrangement, or indeed if it be found to be agreement, I am satisfied that there is no accordant satisfaction or indeed any bar to the applicant creditor in commencing and continuing with the bankruptcy proceedings.
Having found that the requirements of the Bankruptcy Act have otherwise been satisfied, and in particular the requirements set out in s.52, it is my view that the notice of opposition now relied upon should not be upheld and accordingly it is appropriate to make a sequestration order.
As indicated at the hearing of this matter, when counsel for the applicant creditor raised the prospect of there being an application for indemnity costs against the respondent debtor's solicitors personally,
I have deferred the issue of costs in order to give the respondent debtor's solicitors an opportunity to be heard on that issue. Accordingly, I will hear argument in relation to the issue of costs before making a final order in this matter.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 20 February 2004
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