Mobil Oil Australia Pty Ltd v Leamon - [2004] FMCA 518

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MOBIL OIL AUSTRALIA PTY LTD v LEAMON & ANOR

[2004] FMCA 518

BANKRUPTCY – Practice and procedure – leave to amend creditors petition.

BANKRUPTCY – Act of Bankruptcy – notice to suspend payment of debts.

Bankruptcy Act 1966 (Cth), ss.33(1), 40(1)(h)

Re Roberts: ex parte Bower (1994) 48 FCA 350
Re a Debtor (No. 31 of 1969), ex parte the Debtor v Triggs Turner & Co. [1970] 1 All ER 920
Conn v Hanks [2001] FMCA 62
Cropley's Ltd v Vickery (1920) 27 CLR 321
Ex parte Nickoll; Re Walker (1884) 13 QBD 469
Official Assignee of Simon v Arnold & Wright Ltd [1967] NZLR 552
Re Hewson; ex parte Sydney Stock Exchange Ltd (1967) 10 FLR 479

Applicant:

MOBIL OIL AUSTRALIA PTY LTD

Respondents:

BRIAN JOSEPH LEAMON & JENNIFER JOY LEAMON

File No:

BZ251 of 2004

Delivered on:

19 August 2004

Delivered at:

Brisbane

Hearing date:

16 August 2004

Judgment of:

Jarrett FM

REPRESENTATION

Counsel for the Applicant:

Mr. Lawson

Solicitors for the Applicant:

Porter Davies Lawyers

Counsel for the Respondents:

Mr. Oliver

Solicitors for the Respondents:

Mahoney & Hesford

ORDERS

Application dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BZ251 of 2004

MOBIL OIL AUSTRALIA PTY LTD

Applicant

And

BRIAN JOSEPH LEAMON & JENNIFER JOY LEAMON

Respondents

REASONS FOR JUDGMENT

This is an application to amend of a petition from the sequestration of the estate of Brian Joseph Leamon and Jennifer Joy Leamon ("the debtors") under the Bankruptcy Act 1966 (Cth) ("the Act").
The petition, as presented on 19 May, 2004 alleges:
"1. The respondent debtors owe the applicant creditor the amount of $319,092.04 pursuant to a guarantee dated 16 May 2003 provided by the respondent debtors to the applicant.
…
4. The following act of bankruptcy was committed by the respondent debtors within 6 months before the presentation of the petition:
That pursuant to section 40(1)(b)(iii) of the Bankruptcy Act 1966 the respondent debtors made payments totalling (sic) that would, if they become bankrupt, be void as against the trustee".
By notice of motion filed 12 August, 2004 the petitioning creditor seeks:
"1. That paragraph four of the creditors petition filed on 19 May 2004 be amended to read as follows:
"That pursuant to section 40(1)(h) of the Bankruptcy Act 1966 respondent debtors have given notice to the applicant that they have suspended or are about to suspend payment of their debts".
Thus, the petitioning creditor wishes to amend so as to substitute one act of bankruptcy with another.
There is no doubt that this court has power to allow the amendment of a creditor's petition: s.33(1) of the Act; rule 7.01 Federal Magistrates Court Rules2001. The power to amend proceedings under the Act is not limited to formal defects only: Re Roberts: ex parte Bower (1994) 48 FCA 350. In an appropriate case amendment may be allowed which substitutes one act of bankruptcy with another: Re a Debtor (No. 31 of 1969), ex parte the Debtor v Triggs Turner & Co. [1970] 1 All ER 920. The ability to amend a creditor's petition, so as to substitute one act of bankruptcy for another, does not appear to have been doubted in Australia: see for example Conn v Hanks [2001] FMCA 62.
In the present case, the debtors did not suggest that amendment, in the way pursued by the petitioning creditor, was not permissible under the Act or the FMCR. Rather, they contended that as a matter of discretion the amendment should be refused because on the evidence the petitioning creditor is not able to make out the putative act of bankruptcy and therefore, the amendment would be futile.

Background

The debtors are the sole directors and shareholders of Haltuli Pty Ltd. On 16 May, 2003 Haltuli entered into a franchise agreement with the petitioning creditor. Under the franchise agreement the petitioning creditor agreed to provide certain petroleum retail outlets to Haltuli, supply it with petroleum products and supply it with certain other services. Haltuli is obliged by the franchise agreement to pay a license fee to the petitioning creditor, the price of petroleum products supplied to it by the petitioning creditor and certain other fees and charges set out in the franchise agreement.
The debtors are parties to the franchise agreement, but only to the extent that they guarantee the performance of Haltuli under the franchise agreement and agree to indemnify the petitioning creditor against any defaults by Haltuli. The guarantee and indemnity is contained in clause 18 of the franchise agreement thus:
18.1 Guarantee and Indemnity
In consideration for Mobil’s entering into this Agreement at Guarantor’s request:
(a)Guarantor in its personal capacity and in its capacity as trustee of any trust (and if more than one person shall constitute the Guarantor, each and every one of them jointly and severally), unconditionally guarantees Franchisee’s due and punctual performance of all terms and conditions of this Agreement and of the Other RAF Agreements and any other agreement between Franchisee and Mobil whether or not any other person is a party to such agreement. Guarantor agrees to be personally liable for the performance of all of Franchisee’s obligations under this Agreement and any other agreement between Mobil and Franchisee.
(b)Guarantor (and if more than one person shall constitute the Guarantor, each and every one of them, jointly and severally) indemnifies Mobil and shall keep it indemnified immediately upon Mobil’s demand against all losses, damages, costs and expenses which it may incur by reason of the failure or failures of Franchisee in its performance of this Agreement and of the Other RAF Agreements or any other agreement between Mobil and Franchisee.
The fees and other money payable by Haltuli under the franchise agreement must be payed "at such times and in such a manner as [the petitioning creditor] specifies from time to time, including, but not limited to, a direct debit from [Haltuli's] bank account monthly in advance".[1]
[1] see clause 8.6 of the Franchise agreement which is exhibit JBP2 to the affidavit of John Barwick Porter filed 19 May, 2004
The evidence reveals that Haltuli habitually paid its fees and other amounts due to the petitioning creditor by electronic direct debit from Haltuli's banking account.
There is no dispute that on 13 April, 2004 Haltuli owed the petitioning creditor $249,320.56. On that day, Haltuli was given notice that it was required to pay that amount by direct debit from its banking account. The male debtor contacted the petitioning creditor and proposed "a payment of $150,000 to be made that evening, followed by $100,000 the next day."[2]
[2] see paragraph 3 of the affidavit of Brian Joseph Leamon filed 4 August, 2004
In accordance with a request from the petitioning creditor, the male debtor put the payment proposal in writing. He did that by means an e-mail[3] in the following terms:
From: "Haltuli" (e-mail address inserted)
To: (e-mail address of recipients)
Sent: Tuesday, April 13, 2004 11:32 AM
Subject: Cemtex
As discussed with Lee, could you please reduce our Mobil Cemtex tonight by $100,000.00 and debit the balance tomorrow, due to the fact that our Easter sales were not as good as predicted.
Regards
[3] exhibit "A" to the affidavit of Brian Joseph Leamon filed 4 August, 2004
Brian Leamon".
At about 1:30pm on 13 April, 2004 an officer of the petitioning creditor advised the male debtor that Haltuli's proposal was not acceptable. The direct debit was attempted, but failed for want of funds in Haltuli's banking account.
On 15 April, 2004 Mobil Oil New Zealand Ltd (not the petitioning creditor) sent a facsimile to "Jenny and Brian Leamon"[4]. Relevantly, the letter stated:
"Please be informed that your cemtex for Tuesday 13^th April, 2004 has dishonoured.
Total: $249,320.36 and an additional $22.00 dishonour fee have been debited back to your TAR account today."
[4] exhibit "B" to the affidavit of Brian Joseph Leamon filed 4 August, 2004
The letter also contained a demand that the dishonour be remedied in the way set out in the letter. It is plain from the language of the letter that, notwithstanding that it was addressed to the debtors, it was a demand upon Haltuli to remedy its default. No demand was made upon the debtors in their capacity as guarantors of Haltuli's performance under the franchise agreement.
Payment was not made and on 19 April, 2004 the solicitors for the petitioning creditor wrote to Haltuli making demand for the outstanding sum. The letter also added that a further sum of $69,027.48 was due and payable by Haltuli to the petitioning creditor that day and that an attempt to direct debit that amount from Haltuli's banking account would be made that evening[5].
[5] exhibit JBP8 to the affidavit of John Barwick Porter filed 19 May, 2004
On the same day, 19 April, 2004, solicitors acting for Haltuli and the debtors responded to the petitioning creditor's demand for payment[6]. That letter recorded that "certain unhappy differences have arisen between our clients and Exxon Mobil in respect in recent weeks". The letter suggested that it was only the possible for Haltuli to continue "the proper operation of the Sunnybank RAF if Exxon Mobil" agreed to certain conditions set out in the letter. In the event that the conditions were agreed, Haltuli promised to pay the dishonoured amount of $249,320.56, together with any dishonour fee on 21 April, 2004.
[6] exhibit "C" to the affidavit of Brian Joseph Leamon filed 4 August, 2004
The petitioning creditor did not accept the conditions Haltuli sought to impose upon it.
The attempt to directly debit the further sum of $69,727.48 on the evening of 19 April, 2004 failed and there was, at that time, owing by Haltuli to the petitioning creditor the sum of $319,092.04. The debtors take no issue with that fact.
On 4 May 2004 a notice of demand was served upon the female debtor pursuant to a deed of guarantee and indemnity dated 13 March 1997[7]. The notice concluded:
"TAKE FURTHER NOTICE THAT, if you fail to comply with the terms of this demand within the time limited for so doing, the [petitioning creditor] proposes to exercise its Rights under the Registered Mortgage."
[7] see the definition of "Deed of Guarantee and Indemnity" contained I the notice which is exhibit JBP12 to the affidavit of John Barwick Porter filed 19 May, 2004
A similar notice was issued and served upon the male debtor at about 7:15 a.m. on 5 May 2004. At the time the notice was served, the time for compliance had already expired. Under cover of a letter dated

7 May 2004 the time to comply with the demand was extended by the petitioning creditor[8]. Neither debtor complied with the demands, either within the original time stipulated in the notice or the extended time.
[8] exhibit JBP15 to the affidavit of John Barwick Porter filed 19 May, 2004
On 5 May 2004 and after the demands were served upon the debtors, a meeting took place between one Troy Saunders and the debtors at the McDonalds Restaurant at Beenleigh, Queensland. Mr Saunders is a "business analyst" employed by the petitioning creditor. He swears, and his evidence is not challenged, that the following conversation occurred:
"4.During the course of the meeting I said words to the effect of:
“I have been analysing the deposit books for all the sites and have noticed that none of the cash has been banked. Instead, cheques drawn on Haltuli’s account have been deposited. Furthermore, all of the cheque butts have recorded these payments as being for director’s fees. Where has all this money gone?”
5.In response to the above question Brian Leamon said words to the effect of:
“We personally owed a lot of money to other people and we have always vowed to pay them back no matter what. All of the money is gone and has been used to pay these people back.”
On 14 May, 2004 the debtors' solicitors wrote to the petitioning creditor's solicitors advising that the debtors had no opposition to the petitioning creditor moving under a mortgage given by them over their residence. They proposed a regime whereby the realisation of that security took place in an orderly way. The debtors did not dispute their liability to the petitioning creditor or its right to exercise its security.

Discussion

At the commencement of the hearing, the parties agreed that I should consider whether the act of bankruptcy sought to be substituted in the petition could, on the evidence before me, succeed. If so, I should grant leave to amend and if not, I should refuse leave. There was no request to cross-examine the deponent of any affidavit filed in the proceedings.
On the facts set out above, the petitioning creditor alleges that the debtors have committed an act of bankruptcy, specifically that provided for by section 40(1)(h) of the Act. That section is in the following terms:
40 Acts of bankruptcy
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(h) if he or she gives notice to any of his or her creditors that he or she has suspended, or that he or she is about to suspend, payment of his or her debts;
The act of bankruptcy provided for in paragraph 40(1)(h) of the Act will be committed when:
a)the debtor has an intention that he or she will voluntarily, that is, as his or her own act, refuse to pay his or her debts as they become due; and
b)the debtor communicates that intention to one of his creditors.
(See: Cropley's Ltd v Vickery (1920) 27 CLR 321.)
The notice may be given orally: Ex parte Nickoll; Re Walker (1884)

13 QBD 469. It must be interpreted in light of the surrounding circumstances known to the creditor at the time the notice is given: Official Assignee of Simon v Arnold & Wright Ltd [1967] NZLR 552; Re Hewson; ex parte Sydney Stock Exchange Ltd (1967) 10 FLR 479.
The petitioning creditor relies upon three events, which taken together, are said to evidence the relevant intention and also constitute communication of that intention. They are:
a)
the request for time to pay the $249,320.56 due on the evening

13 April 2004 made by the male debtor on that day;
b)the statements made by the male debtor to Troy Saunders set out above; and
c)the terms of the debtors' solicitors' letter of 14 May 2004.
I have no doubt that the communication made by the male debtor on

13 April 2004 by e-mail was made by the male debtor on behalf of Haltuli. There is no suggestion in the e-mail that it was made on behalf of the male debtor in his capacity as guarantor of Haltuli's obligations under the franchise agreement or on behalf of the female debtor in any capacity whatsoever. Moreover, at the time the e-mail was sent, Haltuli was not in default and therefore the debtors had no liability at that stage to the petitioning creditor.
In my view, the request made by Haltuli to pay the $249,000 by two instalments cannot be said to be an act of the debtors or either of them. Even if it was evidence of an intention on the part of Haltuli to suspend payment of Haltuli's creditors, it is not an act of the debtors that would lead to a finding that they have committed an act of bankruptcy provided for in s.40(1)(h) of the Act. It is relevant, however, as part of the overall circumstances of which the petitioning creditor was aware at the time it is said the debtors gave the relevant notice.
I turn now to the statements made by the male debtor to Saunders. It was not suggested that Saunders was not a person who could receive such notice on behalf of the petitioning creditor. At the time of the conversation Saunders knew and therefore the petitioning creditor knew that:
a)Haltuli was in default under franchise agreement;
b)Haltuli had indicated a willingness to pay the outstanding amount on 21 April, 2004, but only on certain terms;
c)the debtors had collected about $100,000 in cash from retail outlets conducted by Haltuli, but they had not banked any of that money to Haltuli's account;
d)the debtors had drawn cheques on Haltuli's banking account and applied them to the payment of some personal debt and accounts;
e)the petitioning creditor had issued and served notices of demand on the debtors pursuant to a deed of guarantee entered into between it and the debtors in March 1997.
The debtors told Saunders at the meeting that they had spent all of the money that they had received from Haltuli and that there was none left. By affidavits filed on 21 July 2004 the debtors set out the whereabouts of the money they took from Haltuli. That evidence revealed that of the $163,332.40 collected by them, $126,615.00 remained in their possession and they had expended the balance in various ways. All parties accept that the statements made to Saunders on 5 May, 2004 were false.
There is nothing in the statements made by the male debtor to Saunders that suggests that the debtors had decided to suspend payment of their creditors generally. At the very most, it can only be construed as a statement that implies that they were not going to pay the petitioning creditor, because they had no money. That statement needs to be seen against the letter from Haltuli's solicitor, sent on 19 April, 2004 offering to pay the outstanding amount on conditions.
Similarly, I cannot accept the submission that the letter sent by the debtors' solicitors to the petitioning creditor making a proposal for the orderly realisation of security held by the petitioning creditor was a relevant notice.
The three matters relied upon by the petitioning creditor, taken individually or together do not suggest an intention on the part of the debtors to suspend payment of their debts. At the very most, it seems to me that those matters indicate an intention on the part of the debtors not to pay the petitioning creditor.
The petitioning creditor was not the only creditor of the debtors. They owed money to ANZ Banking Group Ltd and Citibank Ltd. There is no suggestion that those creditors were not being payed.
Although it is not absolutely necessary for the purposes of my decision, I should also record that I am not satisfied that any liability has arisen pursuant to the franchise agreements in respect of the debtors. The notices of demand sent by the petitioning creditor to the debtors rely on a deed of guarantee executed on 13 March 1997. The debtors' liability to indemnify the petitioning creditor for Haltuli's defaults arises upon demand to indemnify being made. There is no evidence of such a demand. Moreover the Deed of Guarantee executed on 13 March 1997 is no in evidence before me.
In the circumstances, the application to amend the creditor's petition is dismissed.

I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Jarrett FM

Associate:

Date: 19 August 2004