Oz North Food & Liquor Wholesalers (NT) P/L v Gray

[2017] SASCFC 1

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court: Permission to Appeal in Private)

OZ NORTH FOOD & LIQUOR WHOLESALERS (NT) P/L v GRAY

[2017] SASCFC 1

Judgment of The Full Court

(The Honourable Chief Justice Kourakis, The Honourable Justice Vanstone and The Honourable Justice Doyle)

18 January 2017

BANKRUPTCY - ADMINISTRATION OF PROPERTY - PROOF OF DEBTS - WHAT DEBTS PROVABLE - DAMAGES AND CONTINGENT LIABILITIES - CONTINGENT LIABILITIES

STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - GENERAL APPROACHES TO INTERPRETATION - PURPOSIVE APPROACH - GENERAL PRINCIPLES

Application for permission to appeal in private.

The respondent was a director of a company and on behalf of that company entered into a guarantee with the applicant for debts incurred when the applicant supplied products to the respondent’s company from time to time. Later, the respondent entered into a personal insolvency agreement pursuant to Part X of the Bankruptcy Act 1966 (Cth).

At first instance the Magistrate found that the applicant was liable to pay the respondent $100,000 pursuant to the guarantee.

The issue on appeal to a Judge of this Court was the status of the guarantee once the respondent entered into the Part X agreement. It was found that the guarantee agreement constituted a continuing guarantee that was provable per s 82 of the Bankruptcy Act 1966 (Cth). The appeal was allowed, and the orders of the Magistrate were set aside.

The applicant applies for permission to appeal on the basis that the law surrounding this area is uncertain and of general importance.

Held per Curiam:

1. Permission to appeal granted.

OZ NORTH FOOD & LIQUOR WHOLESALERS (NT) P/L v GRAY
[2017] SASCFC 1

Full Court:  Kourakis CJ, Vanstone and Doyle JJ

1. THE COURT:      On the day that Mr Gray entered into the personal insolvency agreement pursuant to Part X of the Bankruptcy Act 1966 (Cth) (the bankruptcy day), he was not indebted to Oz North Food for the goods later supplied to, and not paid for by his company Omnyx Pty Ltd, because the goods had not yet been ordered.

2. Mr Gray could only be said to be contingently indebted on the bankruptcy day on the basis that Omnyx might, after he had entered into the Part X agreement, make further orders.  The difficulty with that construction is that the authorities are clear that until Omnyx placed its order Mr Gray could revoke the guarantee he made to Oz North Food.  It necessarily follows that Mr Gray was not under a continuing legal obligation on which the contingency of the company making an order could operate.  It is therefore arguable that only on the subsequent ordering of goods by Omnyx did Mr Gray become indebted to Oz North Food subject only to the contingency of non-payment by Omnyx.  That is the view of the authors of O’Donovan and Phillips, Modern Contract of Guarantee.[1]  

   [1]    O’Donovan J and Phillips J Modern Contract of Guarantee 4^th ed, Thomsons, Sydney, 2004 at [9.700].

3. The purpose of the Bankruptcy Act is arguably not reason enough to take a contrary approach because on bankruptcy a guarantor can revoke the guarantee and prevent it applying to debts not paid on future ordered goods. A guarantor like Mr Gray does not need the assistance of a bankruptcy scheme to extricate himself from the possibility of future indebtedness.

4. This is yet to be authoritatively decided.  That reason alone warrants a grant of leave.