Palais Imports Pty Ltd v Cooper (Trustee), in the matter of Jessup (Bankrupt)
[2023] FedCFamC2G 68
Federal Circuit and Family Court of Australia
(DIVISION 2)
Palais Imports Pty Ltd v Cooper (Trustee), in the matter of Jessup (Bankrupt) [2023] FedCFamC2G 68
File number(s): ADG 194 of 2021 Judgment of: JUDGE BROWN Date of judgment: 10 February 2023 Catchwords: BANKRUPCY – application to review Trustee’s decision to reject proof of debt – whether debt was legally enforceable – de novo hearing – matters to be considered Legislation: Bankruptcy Act 1966 (Cth) Pt VI, ss 77(1), 82, 83, 84, 102, 104, 120
Evidence Act 1995 (Cth) s140
Cases cited: Agresta v Trustee of the Bankrupt Estate of Agresta & Ors [2015] FCA 46
Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168
Bramble Holdings v Bathurst City Council [2001] NSWCA 61
Coulls v Bagots Executor & Trustee Co Ltd (1967) 119 CLR 460
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Fazio v Fazio [2012] WASCA 72
Jones v Dunkel (1959) 101 CLR 298
Official Trustee in Bankruptcy v Pastro [2004] FCA 713
Polis v Zambor [2019] FCA 69
Railpro Service Pty Ltd v Flavel [2015] FCA 504
Re Rogers; Ex parte CMV Parts Distributors Pty Ltd (1989) 20 FCR 561
Re Estate of Cook (1958) 18 ABC 162
Re Kongonis (1963) 19 ABC 96
Re Masters; Ex parte Gerovich [1985] FCA 354
Re Payne; Ex parte Hurst v Levi [1986] FCA 439
Re Van Laun; Ex parte Pattullo [1907] 1 KB 155
RPS v R (2000) 199 CLR 620
Something Better Pty Ltd v Pyramid Building Society (in liq) [1996] 2 VR 352
Division: Division 2 General Federal Law Number of paragraphs: 193 Date of hearing: 27 & 28 June and 19 August 2022 Place: Adelaide Counsel for the Applicant: Mr Kentish Solicitor for the Applicant: Georgiadis Lawyers Pty Ltd Counsel for the Respondent: Mr Gentry Solicitor for the Respondent: Cowell Clarke ORDERS
ADG 194 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: PALAIS IMPORTS PTY LTD
Applicant
AND: NICHOLAS DAVID COOPER, IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF CRAIG ANDREW MAXWELL JESSUP
Respondent
order made by:
JUDGE BROWN
DATE OF ORDER:
10 February 2023
THE COURT ORDERS THAT:
1.The decision of the respondent, the Trustee to reject the applicant’s Proof of Debt is affirmed.
2.The application filed 29 June 2021 is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE BROWN:
INTRODUCTION
Craig Jessup and Phillip Chehade[1] were childhood friends. In 2004, they went into business together, as partners, in a business which imported and sold craft beer. In 2013, they converted their partnership into a proprietary company – Palais Imports Pty Ltd,[2] in which they were equal shareholders.
[1] Hereinafter referred to as “Phillip” or “Mr Chehade”
[2] Hereinafter referred to as “Palais”. The date of incorporation is 23 January 2013. See Exhibit B.
In 2013, Palais was struggling to pay its creditors. In these circumstances, in December of 2013, Mr Chehade’s mother, Maria Chehade, advanced a sum of $415,000.00, via a company which she controlled with her now deceased husband – Amin Investments Pty Ltd[3] – to her son, Phillip. The sum was utilised in the business to keep it afloat financially.
[3] Hereinafter referred to as “Amin”.
In March of 2015, Palais entered into an agreement with a brewery recently established in South Australia – Pirate Life Brewing Pty Ltd[4] – to distribute its products throughout Australia. Pirate Life was a successful beer and, as a consequence, its custom became a key component of Palais’ business.
[4] Hereinafter referred to as “Pirate Life”.
In April 2016, Maria Chehade advanced a further sum of $200,000.00 to Phillip, which was utilised to pay Pirate Life for its product supplied to Palais. It is the nature of these two sums, advanced by Mrs Chehade, which is at the heart of the current controversy before the Court.
In its simplest terms, the issue is whether Mr Jessup, who became bankrupt on his own petition on 11 December 2018, is indebted to Palais in these sums and, as a consequence the relevant amounts should be included in his bankruptcy. The respondent in these proceedings is Mr Jessup’s bankruptcy trustee, Nicholas Cooper.[5]
[5] Hereinafter referred to as “the Trustee”.
On 8 February 2019, Palais submitted a proof of debt, executed on its behalf by Mr Chehade, to the Trustee, claiming it was owed an amount of $358,328.08. This sum was asserted to be 50% of the monies owed by Palais to its various creditors, including Amin and Mrs Chehade, as at April 2017, when it was alleged Mr Jessup and Mr Chehade had agreed that the former would be personally liable to reimburse one half of the monies advanced by Amin and Mrs Chehade. All concerned in the matter have referred to the April 2017 agreement as the Line in the Sand Agreement.
It is Mr Chehade’s position that the Line in the Sand Agreement, along with a related document dated 15 April 2017, signed by both Mr Jessup and Phillip, in which each of them acknowledged being personally liable for precisely half (50%) of the following monies previously loaned to Palais Imports Pty Ltd, which is delineated as being the sum of $415,000.00 advanced by Amin and the $210,000.00 advanced by Maria Chehade,[6] establish the debt from Mr Jessup to Palais.
[6] See Annexure PC-4 to the affidavit of Mr Chehade filed 30 August 2021.
On 21 May 2021, the Trustee wrote to the solicitors, who then and now act on behalf of Palais, informing them that Mr Cooper rejected Palais’ proof of debt on the following bases:
·The Trustee was not satisfied that at the commencement of Mr Jessup’s bankruptcy, he (the bankrupt) was subject to any legally enforceable obligation to make any payment to Palais;
·In particular, he was not satisfied that there was any arrangement between Mr Jessup and Palais pursuant to which the two individuals had agreed to a common set of identifiable terms; and
·The Trustee was not satisfied that any real consideration had been provided by Palais to Mr Jessup.[7]
[7] See Annexure WAG-1 to the affidavit of William Gray filed 29 June 2021.
Essentially, it is the Trustee’s position that there was no enforceable contract between Mr Jessup and Palais, as at April of 2017 or afterwards, pursuant to which the former agreed to pay the latter 50% of Palais’ debts, including the monies owed to Amin and Mrs Chehade. As such, with Mr Jessup’s bankruptcy, there is no debt owed to Palais, by him, which is subject to the bankruptcy.
This is the central legal issue which the court must resolve, in this matter. Was there a legally enforceable contract between Palais and Mr Jessup created in and around April of 2017, in which Mr Jessup voluntary assumed the obligation to pay one half of Palais’ debts. According to orthodox principles concerning the formulation of a contractual relationship between parties this requires the following prerequisites:
·An offer and acceptance between the parties concerned;
·A certainty of the terms of what has been accepted;
·An intention to create legal relations between the parties; and
·Consideration moving between them.
In these proceedings, the evidentiary burden to establish that there was an enforceable legal contract between Palais and Mr Jessup is on Palais. The standard of proof is the normal standard in civil proceedings, namely the balance of probabilities.[8]
[8] See Evidence Act 1995 (Cth) at section 140.
It is the contention of Mr Gentry, counsel for the Trustee, that Mr Jessup has not discharged this onus. In summary, he submits that the loans taken from Mr Chehade’s parents were never intended to be legally enforceable as they constituted a private family arrangement. As such, no legal obligation arose so far as Mr Jessup was concerned.
Further, no enforceable contract was created by the Line in the Sand Agreement, which is uncertain in its terms and was not given effect to by the execution of any deed. More significantly, it does not provide for any consideration to pass to Mr Jessup. In addition, Palais was not a party to this agreement and therefore cannot rely upon it.
On the other hand, it is the contention of Mr Kentish, counsel for Palais, that there was a concluded agreement reached between Mr Chehade and Mr Jessup, in the Line in the Sand Agreement that Mr Jessup would assume responsibility for one half of all Palais’ debt in existence as at April 2017, which included the two loans advanced by Amin and Mrs Chehade respectively.
It is his submission that there was consideration provided by Mr Chehade to Mr Jessup, which took the form of the former agree to trade on alone in Palais so that Mr Jessup could exit the business whilst avoiding the risk of being sued in respect of his personal guarantees provided in respect of various of the company’s trade creditors. He further contends that, given the commercial context of the relationship between them, the evidence indicates that both Mr Jessup and Mr Chehade intended the Line in the Sand Agreement to have legal consequences, notwithstanding its lack of detail.
The process through which the debts of a bankrupt are managed by the trustee appointed and, if sufficient funds are identified, paid, either in full or at a discount, with other accepted or proven debts of the bankrupt person, is mandated by the provisions of Part VI of the Bankruptcy Act 1966 (Cth).[9]
[9] Hereinafter referred to as “the Act”.
In particular, section 82(1) provides that all a bankrupt’s debts and liabilities, present or future, certain or contingent, as at the date of bankruptcy, are provable in the bankruptcy concerned. However, pursuant to section 83, no debt is to have proved until it is has been lodged in approved form and admitted.
Upon a proof of debt being submitted, it is the obligation of the trustee concerned, for the purpose of admitting or rejecting it to require some satisfactory evidence that the debt on which the proof was founded is a real debt.[10]
[10] See Re Van Laun; Ex parte Pattullo [1907] 1 KB 155 at 163.
A debt is provable if it is both legally enforceable and capable of being quantified including through an appropriate and fair process of valuation or estimation. Section 82 carves out a number of specific types of debt, including claims for unliquidated damages and unpaid fines.[11]
[11] See sections 82(6) & (8) and Re Kongonis (1963) 19 ABC 96.
In Polis v Zambor[12] Murphy J said as follows:
The purpose of s 82 is to capture and have proved in the bankruptcy a broad range of debts and liabilities. It is aimed at ensuring that the assets of the bankrupt are distributed rateably among creditors, that one creditor does not obtain an undue advantage over other creditors, and at bringing about the discharge of the debtor from future liability for his or her existing debts, so that the debtor may start afresh without lingering disabilities and with the immunities achieved through bankruptcy remaining in place…
[12] Polis v Zambor [2019] FCA 69 at [33].
In Agresta v Trustee of the Bankrupt Estate of Agresta & Ors (“Agresta”)[13] Gleeson J defined the concept of a legally provable debt, in the context of bankruptcy, in the following terms:
A debt is provable if there is a legally enforceable obligation upon which the debt is founded, being an obligation incurred before the date of bankruptcy.
[13] Agresta v Trustee of the Bankrupt Estate of Agresta & Ors [2015] FCA 46 at [30].
In Agresta Gleeson J applied comments made by Tadgell JA in Something Better Pty Ltd v Pyramid Building Society (in liq)[14] in which it was noted that the expression contingent debts and liabilities was not defined in the Act. As such the adjective contingent, when applied in the phrase was not likely to be capable of any precise connotation.
[14] Something Better Pty Ltd v Pyramid Building Society (in liq) [1996] 2 VR 352 at 370.
As previously indicated, this is the nub of the controversy in the current matter, namely whether Mr Jessup, prior to his bankruptcy, was subject to any legally enforceable obligation to pay monies to Palais or was otherwise liable to it. In addition, to be provable, it must be possible to quantify the amount of the debt.
Section 84 provides the manner in which any putative creditor is required to prove to the relevant trustee the proof of their indebtedness to the bankrupt. It requires that particulars of the debt be provided; along with any document through which the debt can be substantiated; and an indication as to whether the debt concerned is or is not secured. The section also provides a process through which any additional information can be provided by means of statutory declaration.
In the case of the proof of debt submitted in the present matter by Palais, it included a statement of Palais’ creditors and its asset and liabilities, as at 14 April 2017. This included both the Amin and Marie Chehade loans, which in net terms resulted in Palais being indebted in an amount in excess of $1m of which Mr Jessup was asserted to be responsible for 50%.
Pursuant to the provisions of section 102, a Trustee is required to examine each proof of debt sought to be proved and thereafter either:
·Admit the relevant debt in full;
·Admit or reject the debt in parts;
·Reject the debt in full; or
·Require further evidence from the putative creditor.
With Mr Cooper’s rejection of Palais’ proof of debt, section 104 of the Act is potentially engaged, which reads as follows:
(1)A creditor, or the bankrupt, may apply to the Court for review of a decision of the trustee under subsection 102(1), (3) or (4) in respect of a proof of debt.
(2)The Court may, upon the application, confirm, reverse or vary the decision of the trustee.
(3)Subject to the power of the Court to extend the time, an application under this section to review a decision shall not be heard by the Court unless it was made within 21 days from the date on which the decision was made.
Palais commenced the current proceedings on 29 June 2021, which is more than 21 days after its proof of debt was rejected. It seeks an order to set aside the adjudication made by the Trustee pursuant to the provisions of section 104, together with costs. More recently, on 26 November 2021, it has made an application to extend time pursuant to the provisions of section 104(3).
The explanation for the delay provided by Palais’ solicitors is that instructions were provided to seek the relevant review in early June of 2021 and the appropriate documents were prepared. Due to difficulties in accessing the Court’s electronic portal, which provides a facility for the digital transmission of documents, the application was sent by facsimile to the Court on 10 June 2021 at 6.07 pm.[15] However, for reasons undisclosed to me, the application went astray, leading to its late filing in a conventional manner.
[15] See affidavit of Sarah Holliday filed 30 August 2021.
In his written submissions to the Court, Mr Gentry, counsel for the Trustee has indicated that his client takes no position in relation to the application for an extension of time. In these circumstances, I am satisfied that the applicant has demonstrated a good cause for the delay, which is modest in its duration and not opposed by the respondent.[16]
[16] See Official Trustee in Bankruptcy v Pastro [2004] FCA 713 at [44].
THE NATURE OF PROCEEDINGS UNDER SECTION 104
The review of the Trustee’s decision, pursuant to the provisions of section 104 is heard de novo. In Re Payne; Ex parte Hurst v Levi[17] Toohey J said as follows, in respect of the section:
Section 104… empowers the Court to review a trustee’s decision and, in my view, that term carries with it the notion that the parties may place before the Court such material as they wish, provided of course that it is relevant and otherwise admissible. ... The function of the Court is not to consider the correctness or otherwise of the trustee's decision in the light of the material before him but to determine, in light of the material before it, whether the applicant has a debt that should be admitted to proof. Of course, inconsistencies in the material provided to the trustee and that offered to the Court may properly be taken into account.
[17] Re Payne; Ex parte Hurst v Levi [1986] FCA 439 at page 5.
The onus is on Palais to persuade the Court that the Trustee’s decision should be reversed. Section 104 requires the Court, on application, to review a decision of a trustee but it is for the alleged creditor to satisfy the Court that a decision rejecting a proof of debt should be reversed.[18]
[18] See Re Masters; Ex parte Gerovich [1985] FCA 282 at [5].
If such a creditor is not able to provide sufficient evidence, in this regard, the Court must affirm the relevant decision. It is not the duty of the Trustee (and in lieu thereof for the Court) to formulate a proof of debt for a creditor.[19] In Re Masters; Ex parte Gerovich Toohey J expressed the task in the following terms:
Counsel for the applicants submitted that the Court must make a decision, however unsatisfactory and inadequate the materials made before it may be. This is no doubt true but equally it is for an applicant to persuade the Court that a trustee's rejection of a proof of debt should be reversed. If an applicant fails to do this, the trustee's decision must be affirmed. As it is the applicant who claims to be a creditor of the debtor, this approach seems to me to be inevitable. On ordinary principles of evidence, one who seeks the intervention of the Court to alter an existing situation, in this case the rejection of a proof of debt, carries the burden of persuading the Court that it should intervene.[20]
[19] See Re Estate of Cook (1958) 18 ABC 162 at 169.
[20] Re Masters; Ex parte Gerovich [1985] FCA 354 at page 4-5.
The task of the Trustee is to examine every proof of debt presented to him and then decide whether to admit it; reject it; or seek further evidence. In this context, Mr Gentry asserts that, in these proceedings, Palais can only rely on the proof of debt which it submitted to the Trustee and which was rejected by him. It cannot seek to rework or recapitulate its claim in these proceedings.
The Court’s function under section 104 is to consider whether the alleged debts are provable, in the light of the material before it not whether the trustee made a correct decision on the basis of the material before him or her.[21]
[21] See Re Rogers; Ex parte CMV Parts Distributors Pty Ltd (1989) 20 FCR 561 at 562 – 563.
THE EVIDENCE
The applicant relies on the following affidavits:
·An affidavit of Phillip Chehade filed on 30 August 2021;
·An affidavit of its solicitor, William Gray filed 29 June 2021, to which was attached the relevant proof of debt and its rejection by the Trustee.
The respondent relied on the following affidavit:
·An affidavit of himself filed on 7 March 2022, to which was attached various emails passing between Mr Chehade and Mr Jessup between 7 & 27 September of 2018.
These emails relate to liability for various debts of Palais and, as I understand the Trustee’s case, go to refute the assertion that the Line in the Sand Agreement was concluded in its terms.
It is common ground between the parties concerned in this matter that there is a set of related proceedings, which have some relevance to the current matter. These arise between Mr Cooper and Mrs Chehade, in which the former is seeking a declaration that a payment of $212,000.00, which was made to Mrs Chehade, at the direction of Mr Chehade and Mr Jessup, is void pursuant to the provisions of section 120 of the Act. In this context, Mr Chehade was cross-examined about the contents of affidavits filed by him and his mother in those related proceedings.
The only witness required for cross-examination was Mr Chehade. As will be discussed in more detail subsequently, counsel for Palais, Mr Kentish is critical that the Trustee elected not to call any evidence from Mr Jessup particularly regarding his perception of the discussions and correspondence between him and Mr Chehade leading to the Line in the Sand Agreement.
It is Mr Kentish’s submission that it is open to the Court to draw an adverse inference that Mr Jessup’s evidence would not have assisted the Trustee’s case according to the principle delineated in Jones v Dunkel.[22]
[22] Jones v Dunkel (1959) 101 CLR 298.
The principle is well known and has fairly recently been restated by the High Court in RPS v R[23] as follows:
In a civil trial there will very often be a reasonable expectation that a party would give or call relevant evidence. It will, therefore, be open in such a case to conclude that the failure of a party (or someone in that party’s camp) to give evidence leads rationally to an inference that the evidence of that party or witness would not help the party’s case.…
[23] See RPS v R (2000) 199 CLR 620 at [26].
However, the rule is not absolute. In Railpro Service Pty Ltd v Flavel[24] Perry J said as follows of the principle in Jones v Dunkel:
….while the principle may make certain evidence or the inferences which may be drawn from the evidence more probable, it does not permit any further inferences that the untendered evidence would have been damaging the party who might have been expected to tender the evidence; nor can the failure to lead the evidence fill gaps in the evidence, or convert conjecture and suspicion into inference.
[24] Railpro Service Pty Ltd v Flavel [2015] FCA 504 at [95].
Essentially, Mr Kentish contends that it is open to the Court to infer that Mr Jessup’s evidence would have supported a finding that he and Mr Chehade had reached a concluded agreement in April of 2017 regarding his personal liability for one half of Palais’ debts, including the debts to Amin and Mrs Chehade.
In their respective written submissions to the Court, Mr Kentish and Mr Gentry have characterised Mr Chehade as being either a witness who gave his evidence in a straightforward and honest manner or one who was – at best – inconsistent, unclear and unconvincing or – at worst down right dishonest.
As indicated above, it is up to Palais to establish that there was a concluded agreement between it and Mr Jessup for the latter to pay one half of its debts at the time of the alleged agreement of April 2017. Palais has elected to call only one witness in this regard, namely Mr Chehade.
As a consequence, the primary focus of the Court’s forensic task is on its assessment of Mr Chehade’s credibility in the context of the dichotomy arising between the parties in respect of the issue. For the reasons that follow, I did find him to be a completely frank witness. In my assessment he was muddled about fairly rudimentary issues of corporate governance, such as the distinction between him and Mr Jessup and Palais.
However, the chief difficulty arising from his evidence arises from the fact of the significant amount of money borrowed from his mother, which was utilised to fund his corporate ambitions, which sum is now largely gone due to the failure of Palais. This is likely to be a source of personal embarrassment, regret and recrimination for him and for understandable reasons, he likely to feel morally obliged to do whatever he can to undo the financial harm he has inflicted on his mother. In my view, these factors have implications for the reliability of his evidence.
Overall, it is my view that Mr Chehade’s evidence was tailored by him in an attempt to secure his mother’s reimbursement to the maximum extent possible at the expense of the other creditors of Mr Jessup and/or Palais.
It is Mr Kentish’s submission that the failure of Palais to call Mr Jessup significantly weakens its case. I concede that Mr Jessup’s evidence may have buttressed some aspects of Mr Chehade’s evidence. After all, it was they who were the major protagonists in the circumstances leading to the Line in the Sand Agreement and what followed before and after it.
I also accept that, pursuant to the provisions of section 77(1) of the Act, as a bankrupt, Mr Jessup is required to provide to his Trustee such information about his conduct and examinable affairs as the Trustee requires of him. However, given the onus on Palais to establish that the Trustee’s determination should be reversed, in my view, the Trustee is not obliged to call any specific evidence.
In this case, Mr Cooper is entitled to stand by his decision and it falls to Palais to persuade the Court, on the basis of whatever evidence it seeks to call, that the Trustee’s decision, regarding the rejection of its proof of debt, should be reversed. In these circumstances, in my view, the submissions regarding the application of the rule in Jones v Dunkel is misconceived.
Initially, Mr Chehade deposed that Palais had been incorporated in 2011. He conceded that this was incorrect when the ASIC record was presented to him and the correct date was in 2013. He was unable to concede to Mr Gentry that the company had been created as a mechanism to shield him and Mr Jessup from personal liability for business debt. In my view, at least in part, this was its intention.
It was my overall impression of Mr Chehade’s evidence that he struggled to conceptualise the distinction between him and Mr Jessup, on the one hand and Palais Imports Pty Ltd, on the other, as distinct legal entities, particularly in terms of identifying the contracting parties to the two loans which are at the centre of this matter. In fact, in his cross-examination, he indicated that he did not necessarily differentiate, in his mind, between him and Mr Jessup, on the one hand and Palais on the other.
Mr Chehade has deposed that, after its incorporation, in early 2013, Palais utilised a factoring facility, which resulted in the company incurring excess interest and fees, which it struggled to pay, as well as meeting its regular trade payments. As a consequence, he asserted that he and Mr Jessup faced insolvency, as indeed did their company Palais.
It was in this context that the first loan, of $415,000.00, from Amin, was obtained in December 2013. Mr Chehade indicated that none of the principal had been repaid but Palais had made regular monthly payments of interest to Amin.
In cross-examination, Mr Chehade conceded that Amin was, in effect, his mother and late father. No documents have been produced to evidence the loan, particularly to identify the specific parties to it. However, Mr Chehade accepted that he negotiated the terms of the loan with his father and mother, who mortgaged their property portfolio through the ANZ Bank to obtain the necessary sum.
Mrs Chehade has not provided any evidence in these proceedings directly. With some reluctance, in my estimation, Mr Chehade accepted that the money had been advanced because Mrs Chehade had wanted to help her son with his business. In this context, he accepted that she had not taken any legal steps to enforce repayment of either of the relevant loans in these proceedings.
In his affidavit Mr Chehade deposed that this loan was made to him and Mr Jessup in their personal capacity. I doubt that this can be the case. It makes no sense given the recent incorporation of Palais and its utilisation as the mechanism through which the beer distribution business was going to operate.
I mean no disrespect but Mr Chehade did not present in the witness box as a sophisticated business person. This is surprising given the extent to which he was engaged in commerce. I would expect such a person to be readily able to distinguish between contracts in which he was engaged personally and those in which a corporate identity was engaged.
It is significant, I consider, that Mr Chehade was aware that many of Palais’ trade creditors required him and Mr Jessup to provide them with personal guarantees in respect of payment before providing services or goods. I consider it improbable that Mr Chehade was a financial/commercial ingénue.
In answer to the question as to whether the loans in question were advanced to Palais or to him and Mr Jessup, he indicated that he did not necessarily differentiate between the two entities, which were interchangeable in his mind. This seems extraordinary to me and smacks more of obfuscation rather than confusion.
In this same context, in my assessment, there was some level of ambivalence or diffidence as to whether Mr Chehade considered that he (and by necessary implication Mr Jessup) were bound by a legal obligation as opposed to some form moral obligation to repay his mother, if and when they were able to do so, in respect of the two loans.
Whether this uncertainty was due to a lack of certainty about the precise extent of his legal obligations or more motivated by a desire to secure his mother’s interests, come what may, is the moot point. For obvious reasons, relating to the obligations of blood ties, it seems more likely to be the case that Mr Chehade wanted to make sure his mother was not ultimately out of pocket, but in his mind he realised her loans were in a different category to debts relating to monies owed to the other formal trade creditors of Palais, which were either secured or would be enforced by litigation.
The evidence available to me indicates that Mrs Chehade was extremely forbearing in respect of the monies owed to her. No evidence has been provided to me as to why she was apparently so patient in respect of the sums due to her. It seems more likely than not that she wanted to assist her son with his business, which Mr Chehade has confirmed and, in this context, was prepared to wait until the business came good.
Whether Mr Chehade convinced her that this would be the case is unclear to me and was not an issue fully explored in the case. However, as will be expended upon in due course, it was the effect of Mr Chehade’s evidence that the arrangement between Palais and Pirate Life was initially an extremely lucrative one.
The distinction between an informal family relationship and a legally enforceable contract is central to whether the Trustee should have accepted the proof of debt presented to him by Palais. In this context, the following interchange occurred between Mr Gentry and Mr Chehade:
Would you agree – you want to ensure, to the extent that you can, that your mother gets repaid these amounts; do you agree with that? I have my – perhaps if I speak to my own makeup, I – I – my mother, my supplier, the warehouse: I consider money owed is money owed, and – and for me, the – if the money is owed, it’s regardless of – of there being a legal binding or not. I consider it a commitment, an obligation.
But your mother is in a different kettle of fish, isn’t she, to the arm’s length trading creditors who, for instance, have taken personal guarantees from you and Mr Jessup? Depends what the kettle of fish is, but as far as I’m concerned, they – all these people needed to be repaid.
But with your mother, again, I suggest to you it’s a different kettle of fish, and for you, it’s more a point of honour that your family is repaid an amount of money that was lent for your benefit? I wouldn’t – I wouldn’t say just honour, but then, conversely, it’s honour to pay anyone, even if you have a legal obligation. I – I – it’s the way I was brought up, that you – you – you make good. You don’t try and sneak your way out of paying back what you owe. I mean, I’m the first one to remember if I owe someone. I’m reminding them. “I was in here last week. I had a coffee. You didn’t pay me. I owe you $5.”
You know full well, I suggest, Mr Chehade, that your own mother has no expectation of receiving all of these moneys back? Expectation. At this time, it would be – yes, she wouldn’t be waking up with an expectation that she’s getting all this money back unless something – yes ...circumstances.[25]
[25] See Transcript at pages 14 & 15.
It is Mr Gentry’s submission that Mr Chehade was evasive in this aspect of his evidence and many others. It being Mr Chehade’s aim to ensure his mother was repaid through the mechanism of the proof of debt submitted to Palais, notwithstanding the fact that the monies were advanced in a familial context with no expectation that his mother would ever take any formal action to secure their recovery. Therefore, so far as Mr Jessup is concerned, the amount does not represent a debt or liability to which he was or is personally subject.
It is clear, I find, from the specific terms of the acknowledgement of debt form, executed by both him and Mr Jessup on 15 April 2017 that the loan was, in fact, made to Palais and Mr Chehade, more likely than not, was aware of this degree of legal formality.
This is undoubtedly the fact so far as the second loan of $200,000.00, advanced in April of 2016, which was supported by a General Security Agreement between Mrs Chehade and Palais.[26] Mr Chehade conceded this in his evidence. The agreement was not dated but evidence indicates that it was registered on the Personal Properties Security Register on 26 April 2016
[26] See General Security Agreement provided to the Court.
The agreement envisaged the principal being repaid on 6 April 2018 in regular increasing monthly instalments, with interest calculated at the rate of $500.00 per month. The agreement granted Mrs Chehade security over Palais’ assets. She has never sought to exercise any of the rights granted to her by this agreement.
Mr Chehade deposed that the purpose of the first advance from Amin was to release Palais from the burden of the factoring facility and to enable it to meet its various creditors’ demands. As indicated above, it was in March of 2015 that Palais entered into an agreement to become the sole Australian distributor of Pirate Life beer. Pirate Life was a new brewery, at the time, but its product was in high demand and it became the key component of Palais’ business.
In April of 2016, Mr Chehade deposes that Palais owed Pirate Life about $200,000.00 in respect of beer purchased by it for onward distribution. It was for this reason, he approached his mother, who had recently received an inheritance arising from the sale of her parents’ home, for an advance of $200,000.00, which was used to pay Pirate Life the monies owed to it.
Apart from some payments of interest, Mr Chehade accepted that none of the principal of either loan had been repaid and Mrs Chehade herself has taken no formal steps to secure repayment. In this context, he reluctantly conceded that his mother would have no intention of instituting recovery proceedings against him because of the familial relationship between the two.
It is the general effect of Mr Chehade’s evidence that he felt buoyant about Palais’ prospects at this time, as it was making approximately $500,000.00 per month from managing the full-time distribution of Pirate Life and anticipated further growth.[27] Why Palais had not hitherto been able to manage its credit relationship with Pirate Life better, given these circumstances, was not an issue fully explored in these proceedings.
[27] See affidavit of Mr Chehade filed 30 August 2021 at [16].
However, it is the submission of Mr Gentry that the evidence available, such as it is, indicates that Mr Chehade and Mr Jessup lived beyond their means and pulled too much cash out of the business to fund their respective lifestyles. In any event, there is no controversy that the positive outlook for Palais, as a consequence of its successful commercial relationship with Pirate Life, can to an abrupt halt shortly after Mrs Chehade advanced the second loan of $200,000.00.
At this time, Pirate Life assumed the right to distribute its product in Western Australia and in the space of a few weeks extended this right to the rest of Australia, leaving Palais high and dry. In these circumstances Palais and Pirate Life fell into dispute with one another in respect of issues relating to the breach of the distribution contract between them.
This dispute was resolved in July of 2016. Palais received a cash settlement of $800,000.00, which comprised forgiveness of monies owed by it to Pirate Life in an amount of approximately $500,000.00 with the remainder to be provided by 15 monthly cash instalments of $20,000.00 each. In addition, Palais was allocated 40 shares in Pirate Life.
At the time of issue of the shares, Mr Chehade deposes that he believes Palais owed an amount of about $900,000.00. Mr Gentry is critical that this sum is a guess, on Mr Chehade’s part and therefore its utilisation as the basis of calculating what was the extent of Palais’ debt in April of 2017 is flawed. As a consequence, the subsequent proof of debt submitted by Palais to the Trustee cannot be accurate and therefore cannot constitute any form of concluded agreement between Mr Jessup and Palais.
It is the tenor of Mr Chehade’s evidence that he considered the Pirate Life shares had the potential to have significant value, particularly as the company continued to thrive and ultimately was taken over by a larger brewer. No definitive evidence has been provided as to value of these shares, at the date they were received.
Mr Chehade estimates they were worth approximately $30,000.00 but with the potential to be a great deal more. The effect of his evidence is that he, at least, considered that the two men were sitting on a gold mine. This belief, which turned out to be erroneous, in my view, coloured how both men approached the discussions between them leading to the Line in the Sand Agreement.
Mr Chehade has deposed that he accepts that the Pirate Life shares were owned by Palais. However, he and Mr Jessup elected to divide them and distribute them to their respective family trusts, the trustees of which are proprietary companies controlled by each of them. Some level of controversy arises as to the prudence of how Mr Chehade and Mr Jessup elected to deal with the proceeds of the Pirate Life settlement and the implications of this for the repayment of the monies due to Mrs Chehade. Certainly no consideration was provided for the transfer of the shares to the relevant trusts.
Prior to its dispute with Pirate Life, Palais had been based at an office in the Pirate Life brewery. With the resolution of the dispute, it was no-longer tenable for Palais to remain there and it began to look for new premises and to re-shape its business in the absence of the Pirate Life distribution rights. In these circumstances, Palais secured new premises in Brompton, in September 2016, under a five year lease with an option for a further five year tenancy, at which it was planned to establish a tasting room and office. The rent was $27,000.00 per annum.
For a variety of reasons, the new business plans did not unfold with the degree of success envisaged. It is apparent to me that both Mr Chehade and Mr Jessup attribute the commercial failure of Palais, post the Pirate Life settlement, to the other’s omissions. This has been an on-going source of recrimination between them. It is in this context that the Line in the Sand Agreement must be considered.
In late 2016, Mr Chehade deposes that it had become apparent to him that Palais’ turn-over, notwithstanding the monthly cash injection it received from the Pirate Life settlement, was insufficient to support both him and Mr Jessup and one or both of them would have to seek other forms of income to supplement their income from Palais.
It is Mr Gentry’s submission that Mr Chehade’s evidence regarding the financial situation confronting Palais, at the end of 2016 and going on to period leading to the Line in the Sand Agreement is deeply unsatisfactory, being marked by either confusion and inconsistent, at best, or, at worst, an intent to mislead.
What is clear is that, due to the Pirate Life settlement, Palais was receiving a monthly cash injection of $20,000.00 per month. Mr Chehade conceded that this drastically improved the cash position of Palais, which was also relieved by the fact that it was no-longer indebted to Pirate Life. He also conceded that at least some of the monthly settlement was used to pay off Palais’ debts.
In December 2016, Mr Chehade’s father died. He took bereavement leave from Palais and, at its conclusion, decided to leave Palais’ employ. He ceased drawing a weekly salary of $1,700.00 but worked, in the showroom, from time to time, at an hourly rate. Mr Jessup continued to draw his weekly salary of $1,700.00. It is the effect of Mr Chehade’s evidence that in this period Palais was running at a loss, as no steps were taken to reduce its overheads. It also seems to be the case that Mr Chehade himself was unable to secure an alternative source of income for himself.
In April 2017, Mr Jessup informed Mr Chehade that he too wanted to leave the business. This presented a dilemma from Mr Chehade’s perspective because Palais was unsaleable in its then state and he and Mr Jessup faced bankruptcy on the basis of their inability to satisfy the debts owed to Palais’ trade creditors, which were secured by personal guarantees from them.
In these circumstances, it is the effect of Mr Chehade’s evidence that he was left with the unpalatable decision of having to give up his preference of leaving Palais and in lieu thereof, in the absence of Mr Jessup, attempt to turn the failing business around. He hoped that the Pirate Life shares could either be realised to provide a cash injection for the business or otherwise used as some form of income stream.
This was the context of Mr Chehade and Mr Jessup’s meeting, in April 2017, to discuss what should happen next, particularly how the on-going debts of Palais should be managed. Part of these discussions was the implications of the Pirate Life shares for their respective financial bottom lines. At the time, Mr Chehade deposes that he believed the shares would likely sell for somewhere between $700,000.00 and $1,000,000.00.
Clearly, this is a far cry from his earlier estimates of their worth, only a comparatively short period of time beforehand. I am unsure as the why he believed this was a realistic valuation other than his experience, in the past, had been that large corporate brewers were prepared to acquire small boutique-type breweries at a premium.
Mr Chehade prepared a spreadsheet of Palais’ debt as at 14 April 2017.[28] This document indicates that Palais owed its creditors approximately $1.2m, which included $627,000.00 owed to Amin and Mrs Chehade.
[28] See Annexure PC-3 to affidavit of Mr Chehade filed 30 August 2021.
As previously indicated, a similar spreadsheet was subsequently utilised by Mr Chehade, on Palais’ behalf, to submit the relevant proof of debt, in conjunction with the acknowledgement of debt dated 15 April 2017. This is the proof which has been disallowed by the Trustee. Mr Gentry is critical that the spreadsheet is artificial in its composition and the evidence indicates it was not formally adopted by Mr Jessup.
The spreadsheet provided to the Trustee and the one asserted by Mr Chehade to have been produced to Mr Jessup, in the context of the Line in the Sand Agreement meeting are different in many regards. The spreadsheet provided to the Trustee is said to be a list of creditors as at 14 April 2017. The spreadsheet said to have been provided to Mr Jessup compromises a list of creditors as at 14 April; 2 March; 31 January; and 2 January 2017. Significantly it differentiates between debts, which are subject to a personal guarantee and those which are not.
The spreadsheet (PC-3) provided to Mr Jessup calculates the debt to creditors with personal guarantees, signed by both Craig and Phillip to be $177,686.32. On purely arithmetical terms, this cannot include either of the amounts advanced by Amin and Mrs Chehade respectively. The total debt of Palais is calculated to be $1,207,883.00.
In his cross-examination of Mr Chehade, Mr Gentry drew attention between financial discrepancies arising between the first spreadsheet and the subsequent proof of debt spreadsheet.[29] In his evidence, Mr Chehade conceded that some of the debts in the first spreadsheet had been paid and replaced by other debts reflected in the poof of debt.
[29] See Transcript at page 39 – 42.
In addition, Mr Chehade conceded to Mr Gentry, in cross-examination that he had utilised some of the proceeds of his settlement of the action with Pirate Life to pay other of the debts owed by Palais.
I am satisfied that the evidence indicates that Mr Chehade discharged some of the debts reflected in the first spreadsheet, said to base the Line in the Sand Agreement, either from the regular monthly payment provided by Pirate Life or from the further advance of $80,000.00 made by his mother.
In these circumstances, Mr Gentry contends that there must be a lack of certainty regarding the terms of the agreement, which it is asserted Mr Jessup and Mr Chehade reached with one another in April of 2017. Essentially the debts in question have been paid and therefore cannot be included in the relevant proof of debt.
Although he does not put it in these exact terms, it would appear to be Mr Kentish’s contention that the debts recorded in the later proof of debt are to be regarded as contingent or arising from the Line in the Sand discussions.
It was in the context of the spreadsheet provided to Mr Jessup that Mr Chehade deposes the Line in the Sand Agreement was formulated and which justified the submission of the second spreadsheet to the Trustee to assert to personal indebtedness of Mr Jessup to Palais. The effect of his evidence was that it was to crystallise his and Mr Jessup’s liabilities in respect of Palais so that Mr Jessup could exit the business.
His affidavit evidence is as follows:
At this meeting, I offered to Jessup that if the sale of his Pirate Life shares was less than half of $627,000.00, he would pay the full amount to Maria, and the remaining debt would be forgiven. I stated my acceptance of this.
At the time I believed, and understood Jessup to believe, that each of our parcels of the Pirate Life shares could sell for between $700,000 and $1,000,000.
I recall that we shook hands on this agreement.
Jessup stated further that he would continue to bear responsibility for the half-payment of all other debts owed by Palais at that time, and I again stated my acceptance of this.
The reason for the simplicity of this agreement was due to the extreme urgency with which I needed to act.
I understood Jessup to accept the need for an urgent, simple agreement.
The advantage for him was the forgiveness of the remaining debt to Maria. [30]
[30] See Annexure PC-3 to affidavit of Mr Chehade filed 30 August 2021 at [67] – [73].
In his cross-examination of Mr Chehade, Mr Gentry questioned him as to why he believed that Palais’ debt had increased by about $270,000.00 in the period between the issue of the Pirate Life shares and April of 2017, a period of less than a year, during which Palais had been receiving the monthly settlement sum of $20,000.00 from Pirate Life.
Mr Chehade indicated that he could not specifically remember how this increase in debt had come about other than it was attributable to Palais’ general trade creditors. In this context, it is the submission of Mr Gentry that there was and is a lack of clarity in Mr Chehade’s evidence as to how the sum of $358,328.08, presented in Palais’ proof of debt is calculated, particularly in the context of Palais’ cash flow never previously having been so positive, given the monthly injection of cash from Pirate Life.
In these circumstances, it is Mr Gentry’s submission that the more interpretation of this situation is that both Mr Chehade and Mr Jessup were living beyond the means available to them in respect of the income generated by Palais in the expectation that all could be made good when the shares in Pirate Life, which they had allocated to themselves, rather than retaining in Palais, produced their expected bonanza.
The document signed by both Mr Chehade and Mr Jessup, following the Line in the Sand meeting acknowledges each to be indebted to Amin and Mrs Chehade respectively in an amount of $635,000.00. It does not indicate any specific benefit which would accrue to Mr Jessup as a consequence of such an acknowledgment. In my view, the tenor of Mr Chehade’s evidence is that he personally considered that he had a moral obligation to repay his mother.
It is the submission of Mr Kentish that there was an oral agreement reached between Mr Chehade and Mr Jessup, at the meeting of 15 April 2017, in the following terms:
·At the time, as Palais was in insignificant financial difficulties, both Mr Chehade and Mr Jessup were facing the prospect of imminent bankruptcy as a consequence of the personal guarantees each had provided to Palais’ various trade creditors;
·The respective Pirate Life shares would be subject to each of their potential bankruptcies;
·Both men believed that there was a very real prospect that the Pirate Life shares could be realised at some stage in the future to discharge Palais’ debt and possibly leave some surplus which could be distributed between them;
·In April 2017, the value of the Pirate Life shares was dependent on the company prospering and the value of its shares increasing;
·In these circumstances, it was in their mutual interest to keep Palais trading until such time as the shares could be realised on the best possible terms;
·It is in this context that the agreement of April 2017 must be considered. Mr Chehade agreeing only to keep on trading in Palais alone on the basis that Mr Jessup agreed to pay one half of the agreed level of indebtedness of Palais; and
·Thus the agreement was mutually beneficial to both men.
Accordingly, Mr Kentish contends that the consideration for the agreement in question was the benefit to Mr Chehade, Mr Jessup and indeed Palais being able to trade, so avoiding the personal guarantees applicable to Mr Chehade and Mr Jessup being called upon and the two men being deprived of being able to sit on their Pirate Life shares until the most advantageous time for their realisation.
In response, Mr Gentry contends that this submission is not congruent with the actual factual situation which was categorised by Palais being in its most advantageous financial position ever as a consequence of the regular injection of cash from Pirate Life and the fact that it had been freed from the debt of its major creditor, namely Pirate Life itself.
In this context, Mr Gentry points to the fact that Mr Chehade was not able to delineate with any precision the applicable creditors of Palais at that time and certainly was not able to point to any specific action which had been taken to secure payment. He also points to the concession in Mr Chehade’s evidence that Mr Jessup did not execute any actual document indicating the exact dollar amount which he would pay in respect of Palais’ creditors at the time.
In addition, in my view, it is difficult to ascertain what were the actual mechanics of the Line in the Sand agreement. In this context, Mr Gentry submits that the correspondence which took place between Mr Chehade and Mr Jessup, after 15 April 2017, is indicative not of a meeting of the minds in the form of the Line in the Sand agreement but is reflective of the two being involved in self-serving negotiations which resolved nothing and which broke down when Mr Jessup became bankrupt.
In these circumstances, Mr Gentry submits that the evidence does not support a finding that the either man intended to be legally bound by what was discussed at the Line in the Sand meeting, which was never formalised. In my view, this submission is supported by the contents of an email which Mr Jessup sent to Mr Chehade on 21 May 2017.[31]
[31] See Annexure PC-5 to affidavit of Mr Chehade filed 30 August 2021.
In this email, Mr Jessup queries whether the payment plan is realistic. He further proposes three options to deal with the situation confronting Palais. The first option is for him to pay a regular monthly figure to reflect 5.5% of loans from Amin and Mrs Chehade until the Pirate Life shares are sold. The figure of these loans is expressed as being $429.362.00.
The second option was that Mr Jessup would sell some or all of his Pirate Life shares to Mr Chehade and Mr Chehade would take over his share of the Palais debts up to this stage. The third option was that the two would continue to operate Palais together but Mr Jessup would be employed by an outside source.
Between April and October 2017, Mrs Chehade loaned Phillip a further sum of $80,000.00 to enable Palais to keep trading under the sole direction of Mr Chehade. During this period, Mr Chehade deposes that he continued to meet regularly with Mr Jessup to discuss the affairs of Palais.
At around this time, Mr Chehade deposes that, at a meeting between him and Mr Jessup, it was agreed Mr Jessup would begin to pay a regular amount to avoid incurring interest on the amount so agreed. In this context, on 19 September 2017, Mr Chehade sent Mr Jessup an undated statement of what he asserted were Palais’ debts. By this stage, it was asserted that Mr Jessup’s debt was $456,547.90.
This, in turn, was subject to an email from Mr Jessup to Mr Chehade dated 16 July 2018.[32] In this email, Mr Jessup challenges the amount asserted to be owed by him. More significantly, in my view, he wrote as follows:
When I exited Palais last March, I was of the clear understanding that I was stepping out of the business. I would get a job to maintain my portion of Palais Debts until such time that the Pirate Life Shares sold and all debts could be cleared. From March 2017 onwards I was to have no input on the runnings of Palais Import and that you would be the sole benefactor of the financial success (or otherwise) of Palais Imports.
So after some deliberation we agreed that I need to repay Palais/you $427,473 (tbc) and that I would pay a minimum of $2000 per month, but ideally $3027.94 per month. It was understood that the loan total covered my half of Palais Import debts and excluded the Palais ANZ Overdraft and credit card … Since June 2017, I have paid a total of $48,398.42 which is $6k (or $430/month) more than requested.
[32] See Annexure PC-8 to affidavit of Mr Chehade filed 30 August 2021.
In the email, Mr Jessup also confirmed his willingness to engage a solicitor jointly with Mr Chehade to uncover the real value of our Pirate Life shares. In my view, one obvious interpretation of this correspondence is that Mr Jessup agreed to make an on-going provision in respect of Palais’ debt until the jointly anticipated successful realisation of the two men’s Pirate Life share, which it was hoped would clear all remaining debts and enable a clean break.
Mr Chehade has provided a further email from Mr Jessup to him dated 26 July 2018.[33] In this email, Mr Jessup professes to personal difficulties regarding making decisions without figures in front of us. He further complains at his perception that Mr Chehade will retain all future profits from Palais, whilst it is assumed he will bear liability for half of its previous losses. Again, in my opinion, these comments are indicative of a lack of any concluded agreement so far as Mr Jessup is concerned.
[33] See Annexure PC-9 to affidavit of Mr Chehade filed 30 August 2021.
In November 2017, AB InBev a multi-national brewing company acquired all the shares in Pirate Life, other than the shares which had been earlier allocated to Palais. As a consequence, AB InBev commenced proceedings in the Supreme Court of South Australia to compulsorily acquire the remaining shares, whilst Mr Jessup and Mr Chehade answered with oppression proceedings.
These proceedings were resolved in September of 2018, but not on the advantageous terms hoped for by Mr Jessup and Mr Chehade. Each of them received the sum of $450,000.00. On 7 September 2018, Mr Jessup wrote bluntly to Mr Chehade you and I are bankrupt.[34]In my view, the obvious import of this communication is that Mr Jessup had reached the conclusion that the hope the sale of the Pirate Life shares would absorb the debts of Palais was forlorn.
[34] See Annexure PC-11 to affidavit of Mr Chehade filed 30 August 2021.
The settlement of the Pirate Life action was to be paid to Mr Chehade and Mr Jessup’s solicitor. In this context, Mr Jessup wrote as follows:
Regarding the money from Brenton, I’d rather wait until we’ve agreed on our plan.
That said, I’m ok with your mother receiving $212,000 … so why don’t we keep it simple and pay that first then just split the remainder 50:50 between us?[35]
[35] See Annexure PC-11 to affidavit of Mr Chehade filed 30 August 2021.
Following this correspondence, Mr Jessup and Mr Chehade agreed to meet on 23 October 2018. At the meeting, Mr Chehade deposes that he read a prepared statement, which summarised his views as to the factors which had brought Palais to its then situation.[36] It is Mr Gentry’s submission that this statement is illustrative of what was the actual situation between the two men, including vis-à-vis the monies owed to Mrs Chehade and Amin.
[36] See Annexure PC-13 to affidavit of Mr Chehade filed 30 August 2021.
In the statement, Mr Chehade refers to what is described as a gentleman’s agreement between him and his father in respect of the Amin loan. In response to Mr Jessup’s assertion that the two were bankrupt, Mr Chehade indicates his acceptance of this state of affairs but further indicates that as a consequence of his mother agreeing to being paid last and at a $50,000.00 discount, he may be able to avoid bankruptcy. He also concedes that the various debts accrued by Palais were, to some extent, the result of the fact that he and Mr Jessup had enjoyed an amazing lifestyle and has simply spent too much.
In this context, Mr Chehade urges Mr Jessup to take responsibility for the debt which remains. Mr Gentry submits that this statement and other similar to it is axiomatic of the fact that there was no concluded agreement between the two men and the monies advanced by Mrs Chehade and Amin were loose family arrangements.
On 1 November 2018, Mr Jessup wrote to Mr Chehade indicating his preferred option, at this stage, was to declare his bankruptcy, as his then debts exceeded the value of his Pirate Life settlement by about $170,000.00. At the same time he indicated his openness to being released from all exposure to Palais debts in exchange for a payment of $115,000.00 from the monies held in the solicitors’ trust fund from the Pirate Life settlement.[37]
[37] See Annexure PC-14 to affidavit of Mr Chehade filed 30 August 2021.
Neither proposal was acceptable to Mr Chehade, who viewed them as an attempt on Mr Jessup’s part to utilise his possible bankruptcy to Mr Chehade’s disadvantage. On 27 November 2018, Mr Chehade wrote to Mr Jessup in the following terms:[38]
You also fully understand that the only way I will have any chance to pay all creditors will be for my mother to be the final creditor that will be paid, and that she will end up receiving significantly less than what we owe her. She could very possibly end up receiving up to $100,000 less, but she will certainly be receiving at least $50,000 less than what we owe her, and it all depends on what I am able to negotiate with all other creditors, many of whom will definitely need to be paid 100 per cent. I will clarify here that whatever amount is not paid to my mother, will be added on to my debt to my family, and one way or another and as soon as I am able to, this debt will be paid back by me to my family.
[38] See Annexure PC-15 to affidavit of Mr Chehade filed 30 August 2021.
In cross-examination in respect of this passage, Mr Chehade conceded that it represented a true reflection of his situation in respect of the arrangement between him and his family and it was improbable that his mother would ever sue him to enforce payment.[39]
[39] See Transcript at page 16.
On 27 November 2018, Mr Chehade sent a formal letter to Mr Jessup demanding payment of $358,328.08 referrable to the latter’s alleged half share of the debts of Palais. On 11 December 2018, Mr Jessup declared bankruptcy on his own petition. As previously indicated, on 8 February 2019, Palais submitted the relevant proof of debt, which was rejected on 21 May 2021.
DISCUSSION
The proof of debt provided by Palais asserts that Mr Jessup is indebted to Palais in respect of the sum of $358,328.08. The proof of debt relies for its quantification on two further documents. Firstly the acknowledgement of debt executed by Mr Jessup and Mr Chehade on 15 April 2017 in which each indicates personal indebted to Amin and Mrs Chehade in a total amount of $615,000.00 (half of which is $307,500.00). Secondly, the spreadsheet of Palais’ debt, as calculated by Mr Chehade.
It is for Palais to prove on the balance of probabilities that Mr Jessup incurred a legally enforceable obligation to be personally liable for 50% of Palais’ debts as at mid-April of 2017, including the amounts advanced by Amin and Mrs Chehade respectively. If Palais is able to persuade the Court to this standard, it will be open to it to reverse the decision of the Trustee to reject the relevant proof of debt.
In my view, there can be no doubt that prior to April 2017, Mr Jessup was under no personal liability to repay the monies advanced by either Amin or Mrs Chehade. That obligation fell only on either Palais or on Mr Chehade himself. It is clear to me that Mr Chehade undertook the discussions, with his parents, which led to each of the advances in question.
The first loan does not seem to have been subject to any written agreement. None of the advance and, although Mr Chehade asserts interest has been paid in respect of it, no corroborative evidence has been supplied to support this assertion. The purpose of the advance was to prevent Palais from being liquidated by its creditors. It occurred within the context of a close inter-familial relationship between Mr Chehade and each of his parents, who wished to assist him in his business endeavours.
Clearly, Mr Jessup knew of the advance and its purpose but, in my view, this did not make him legally liable to repay the amount in his personal capacity. The fact that both he and Mr Chehade considered that they were under some moral obligation to repay the sum is not to the point.
In addition, following the incorporation of Palais in 2013, there can be no doubt that it (Palais), on the one hand and Mr Chehade and Mr Jessup, on the other hand, became distinct legal personalities. In my assessment, there can be no doubt that both men were well aware of this fact and this was one of the major factors leading to them electing to establish Palais as a corporation.
In addition, the evidence indicates that very many of Palais’ trade creditors, being aware of this obvious commercial reality, elected to secure personal guarantees from Mr Jessup and Mr Chehade before advancing goods and providing services to Palais on credit terms. That both men were aware of this reality is apparent from the terms of the spreadsheet provided by Mr Chehade prior to the Line in the Sand Agreement.
There was a written agreement in respect of the monies advanced by Mrs Chehade in April of 2016. However the agreement was with Palais, not with Mr Jessup and Mr Chehade, who executed it as directors of the company.
Again, in these circumstances, it cannot be said that Mr Jessup was unware of the advance. In addition, it must be the case that he was aware that its purpose was to sustain Palais financially, whilst it, on Mr Chehade’s account, was making significant profits in the light of its sole Australian distribution agreement with Pirate Life.
In these circumstances, I have no doubt that Mr Jessup’s understanding and intention in executing the loan agreement with Mrs Chehade was to bind Palais not him personally. It is also the case, as indicated above, that the evidence indicates that both he and Mr Chehade understood that Palais was indebted for a significant number of its trade debts, which involved them only if the personal guarantees were invoked.
Again, it may be the case that, by dint of his long personal association with Phillip and indeed his mother, Mr Jessup regarded himself as being under a moral obligation to repay the monies in order to preserve the bonds of friendship. However, in my opinion, in all the circumstances of this matter, that is not sufficient to transform the second loan agreement from an obligation on Palais to one which was personal to Mr Jessup.
In addition, its seems to me to be more probable than not that Mr Chehade approached the loan from his mother as being essentially a family arrangement, which was significantly different, in its quality, to that which Palais had entered with its other trade creditors. Essentially, both Mr Chehade and Mrs Chehade were of the understanding that Mrs Chehade would never seek to enforce against Palais to secure repayment but she would be repaid, in due course, if and when Palais prospered with the take-off of Pirate Life.
The essential question for the Court is whether this state of affairs changed to such a degree that there was a legal enforceable agreement that Mr Jessup would become personally liable for the various Palais debts, delineated in the relevant proof of debt, as a consequence of the various meetings and correspondence arising between him and Mr Chehade after mid-April of 2017.
The evidence indicates that this period marked a significant change of fortunes so far as Palais was concerned. The company went from, on Mr Chehade’s evidence, from having a monthly turn-over of $500,000.00 to one markedly less, with the withdrawal, by Pirate Life of firstly the Western Australia distribution rights and then secondly the Australia wide rights. In these circumstances, Palais was not in a position to make any principal payments to Mrs Chehade, who elected not to take any formal action against it.
The resulting dispute between Palais and Pirate Life was resolved expeditiously. Palais cleared its major trade creditor – Pirate Life itself – and was provided with a significant monthly cash flow to apply to its other trade creditors. In addition, it would seem from the perspective of both Mr Jessup and Mr Chehade, the settlement provided each of them with the prospect of reaping a lucrative payoff, when the shares allocated to Palais were realised.
The evidence indicates that both men took steps to insulate the shares from any potential claims of other creditors of Palais by transferring them to their respective family trust without any formal consideration being proffered. In addition, no active steps seem to have been taken to rationalise other of the trade creditors of Palais. Essentially, notwithstanding the significant change in the nature of Palais’ business, business continued as normal.
In these circumstances, it seems to me to be more probable than not that both Mr Jessup and Mr Chehade were content to make drawings from the business to fund their respective lifestyles notwithstanding the monthly settlement sum from Pirate Life had a finite duration. Certainly neither gave any great thought to the repayment of monies to either Amin or Mrs Chehade. In these circumstances, the most probable inference to be drawn is that each thought the ultimate realisation of the Pirate Life shares would result in a financial bonanza for them each.
In addition, in late 2016, with the end of the arrangement with Pirate Life, in conjunction with the death of Mr Chehade’s father, first he and subsequently Mr Jessup reached the position that they each wanted to extricate themselves from the business. It seems apparent that each realised that it would be impractical for them to both walk away at the same time. This, in turn, raised significant questions in respect of how the future of Palais was to be managed. In my view, the most significant financial consideration in respect of this issue was their shared view that the Pirate Life shares would ultimately be sold for a great deal of money.
It is in this context that the Court must examine whether the discussion of April 2017 and afterwards represented a significant departure from the pre-existing legal situation and, in particular, resulted in a new legally enforceable agreement between them in the form of the Line in the Sand Agreement or to put it another way, the two men agreed on mutually applicable contractual terms to recast the legal nature of the agreement between them in respect of Palais and its potential liabilities.
In addressing the questions which this formulation has posed, as was said by Edelman J, when he was a member of the Supreme Court of Western Australia, in Alonso v SRS Investments (WA) Pty Ltd[40] the Court is to look to:
… whether the parties’ conduct, viewed objectively, reveals a tacit understanding or agreement or a manifestation of mutual assent, which evinces an intention to create legal relations.
[40] Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 at [53].
It is the submission of Mr Gentry, counsel for the Trustee, that when the conduct of Mr Jessup and Mr Chehade is objectively assessed, it is clear that there was no mutual intent, shared by each of them and Palais, to create a legally enforceable contract that Mr Jessup would be liable for debts of Palais as delineated in the applicable proof.
As previously indicated, it is his contention that, from April 2017 onwards, the two were stuck in negotiations, which were never ultimately resolved and were derailed by the realisation that their hoped for aspirations, in respect of the Pirate Life shares were not to be realised.
In contrast, Mr Kentish, counsel for Palais, contends that there was a concluded agreement between Mr Jessup and Mr Chehade, which envisaged a variety of contingencies, including one which saw the Pirate Life shares not being realised on terms as advantageous as initially anticipated. It is his submission that notwithstanding the transfer of the shares to each man’s family trust, it was agreed between them that the proceeds of their realisation would be utilised to pay Palais’ debts and if there was a shortfall, Mr Jessup would meet on half of it. The consideration for this agreement is asserted to be the benefits accruing to Mr Jessup of allowing Palais to keep trading, from April of 2017 onwards, so the value of the Pirate Life shares could be preserved.
In my view, these competing submissions must be assessed in the light of the evidence available to the Court in the context of relevant authority germane to the issue of what are relevant indicia concerning when a contractual relationship is established between individuals.
Mr Gentry relies on various authority identified by Gleeson J in Agresta, which was a case, as is this one, concerned with the application of section 104 to the decision of a bankruptcy trustee to reject claimed debts said to be due by the bankrupt concerned. The relevant authority is Ermogenous v Greek Orthodox Community of SA Inc (“Ermogenous”)[41] and Fazio v Fazio (“Fazio”).[42]
[41] Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [24] – [26].
[42] Fazio v Fazio [2012] WASCA 72 at [189] – [190].
In Ermogeneous, the High Court enunciated three broad principles, which I have attempted to summarise as follows:
·For a legally enforceable duty to arise between parties there must be established the following;
·identifiable parties;
·the terms of the relevant agreement must be certain; and
·unless recorded as a deed, there must be real consideration.
·The nature of the inquiry into these matters is necessarily subjective in nature. Thus it is impossible to formulate clear rules to prescribe the kind of cases in which an intention to create contractual relations should or should not be found to exist. The required inquiry is an objective assessment of the state of affairs between the parties. This entails:
[w]hat it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties.
·It is not helpful to approach cases involving the intention to create legal relationships from any presumption concerning the nature of the relationship between the parties concerned, such as a familial one. If anything such contentions assist the Court to focus on who of the parties bears the onus of establishing whether a contract arose between the relevant parties.
In Fazio, Murphy JA set out the following relevant principles germane to the establishment of contractual relations:
·A contract may be inferred from the acts and conduct of the parties, as well as or in the absence of their words;
·In this context, the parties’ dealings with each are relevant both for what was said and not said;
·The question is whether the parties’ conduct, viewed objectively, reveals a tacit understanding or agreement, or a manifestation of mutual assent, which evinces an intention to create legal relations.
In what has been asserted by Mr Gentry to be an amplification of these principles, Mr Gentry relies on the following passage from Bramble Holdings v Bathurst City Council:
In the light of the above cases, it is relevant to ask: in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of [one party] and a reasonable person in the position of the [other party] think as to whether there was a concluded bargain?[43]
[43] Bramble Holdings v Bathurst City Council [2001] NSWCA 61 at [81].
It is Mr Kentish’s position that an agreement can be inferred from all the circumstances of the case. Mr Gentry asserts otherwise, pointing to the lack of any deed or concluded written agreement between the parties, setting out its precise terms; a lack of consideration moving from Palais to Mr Jessup; and a lack of certainty as to the quantum of the debts said to be assumed by Mr Jessup in respect of Palais, given the concession made by Mr Chehade that some of the debts in the original spreadsheet, said to have been assumed by Mr Jessup, had been paid and others substituted for them in the proof of debt.
It is Mr Kentish’s contention that there was a contract between Mr Jessup and Mr Chehade rests on the following contentions:
·The acknowledgement of debt signed by Mr Jessup and Mr Chehade on 15 April 2017 provides sufficient clarity as to the terms of the agreement arising between the parties.
·There was consideration provided. It was agreed that each man would ensure that Palais continued to trade until the Pirate Life shares could be realised. Mr Chehade provided consideration in this regard. Consideration can be provided by only one of two promisors to an agreement.[44]
·In addition, although the nature of Palais’ debts changed over time, it is possible to discern that the parties intended each to bear responsibility for the debts as they mutated from time to time.
·There is a rebuttable presumption that commercial agreements are intended to be binding.
[44] In this regard Mr Kentish relies on Coulls v Bagots Executor & Trustee Co Ltd (1967) 119 CLR 460 at 478-9 and 492
Mr Kentish places significant weight on the email dated 16 July 2018, which Mr Jessup sent to Mr Chehade and the comments made by him under the heading Palais Debt which have been quoted verbatim above.[45] Mr Kentish points to the absence of evidence from Mr Jessup to refute or recant this statement as providing the basis for an adverse inference to be drawn that this was his intention at the time.
[45] See paragraph 117 (supra).
I must bear in mind that I am standing in the shoes of the Trustee and on the basis of the material provided to me must determine whether to accept or reject the proof of debt proffered on behalf of Palais. In this context, Mr Gentry relies on Mr Chehade’s evidence that he (Mr Chehade) personally paid the debts discussed at the Line in the Sand Agreement in April of 2017 either from the monthly settlement sum received from Pirate Life or from the settlement of the minority shareholding dispute with Pirate Life.
In these circumstances, Mr Gentry contends that even if there was a contract between Mr Jessup and Mr Chehade, its subject matter has been satisfied and it did not include Palais as a party. In Mr Gentry’s blunt terms, a creditor is stuck with the formulation of the debt which they put forward in the relevant proof. In my view, this submission in all the circumstances of this case has considerable force.
Essentially, the debt as envisaged in the discussions between the two men is materially different to the proof submitted to the Trustee. In these circumstances, so far as the manner in which the relevant debt is formulated, Mr Jessup cannot be regarded as having agreed to pay it on the basis of the Line in the Sand Agreement, which cannot conceivably be interpreted as an agreement to reimburse Mr Chehade or Palais for monies which they had already paid to creditors.
Mr Gentry further characterises the debts alleged to be owed to Amin and Mrs Chehade as informal arrangements between family members. Certainly, in my view, these arrangements must be considered to be a very different category of debts to those which Palais had incurred in the course of its business and which were secured by personal guarantees provided by Mr Jessup and Mr Chehade.
In this context, Mr Chehade acknowledged that his parents had advanced money to assist his business. More significantly, he conceded that his mother would never take action against him to secure repayment. In addition, Mr Chehade indicated that he accepted that, if she was to be repaid, Mrs Chehade would be paid after the other commercial creditors of Palais and at a discount.
In these circumstances, Mr Gentry submits that, as determined by the Trustee, there can be no satisfaction that, at the date of Mr Jessup’s bankruptcy, Mr Jessup had any legally enforceable duty to make a payment to Palais to discharge a liability to either Amin or Mrs Chehade. It is not for the Trustee to attempt to formulate a proof of debt for any potential creditor.
The discussions between Mr Jessup and Mr Chehade in April of 2017 were not reduced to a deed, which each executed. In this context, it falls to Palais to demonstrate the terms of the agreement on which it relies and to specify the relevant consideration, which passed. Again, the relevant proof of debt relies on the acknowledgement of debt executed in April 2017. I agree with Mr Gentry’s submission that it is not to the Court’s role to seek to elaborate on the proof of debt.
In my view, in the circumstances of this matter, the acknowledgement of debt cannot be regarded as representating a concluded agreement, on Mr Jessup’s part, to be legally liable for the sums advanced by firstly Amin and secondly then to Mrs Chehade. At best, the acknowledgement represented a hope that the monies could be repaid if all went well with both the future trading of Palais and the realisation of the Pirate Life shares. As with Mr Chehade, Mr Jessup was aware of his moral obligations to provide recompense to Mrs Chehade, but this, in my view, is not analogous to a legal obligation.
In my opinion, in his email of 21 May 2017, particularly given the three options provided by Mr Jessup to Mr Chehade, in respect of what he characterises as a payment plan, there was no concluded agreement between Mr Jessup and Mr Chehade arising from what was discussed between them at the Line in the Sand meeting, for Mr Jessup to be legally bound to Palais from April 2017 onwards.
In my assessment, there was no final, certain or concluded agreement reached between Mr Chehade and Mr Jessup in respect of how much money was to be actually paid by Mr Jessup. Mr Gentry relies on the following concession made by Mr Chehade in his cross-examination, in respect of the absence of an agreed figure to be paid following the April 2017 meeting:
Yes, I agree that there was not a figure at that moment of time, but we agreed that the line in the sand makes reference to that moment in time. That we needed to get what the figure at that moment in time.[46]
[46] See Transcript at page 39.
Mr Gentry characterises what happened between Mr Jessup and Mr Chehade, in April of 2017, as being an agreement to agree or a gentlemen’s agreement. I agree with this assessment. On balance, the future of Palais and indeed their own prospective future prospects were unclear to both Mr Jessup and Mr Chehade. Each wanted to do the best for himself and to do the right thing, if possible, for Mrs Chehade.
This state of affairs coloured the future correspondence between them. In my view, this includes the email of 16 July 2018, on which Mr Kentish places significant weight. In the email, although Mr Jessup does indicate that in April 2017 he and Mr Chehade agreed that I (Mr Jessup) needed to repay Palais/you $427,473 this figure was to be confirmed.
Thereafter, Mr Jessup proposes his own plan and indicates his view that he needed to receive $600,000.00 for the shares to be able to cover all the debts. In my view, this indicates considerable ambivalence, on his part, in respect of what had been actually agreed, if anything. Any payment rests on the satisfaction of a future contingency – the successful sale of the Pirate Life shares. This eventuality did not occur as had been hoped.
In my view, this ambivalence is also reflected in the later email dated 26 July 2018 sent by Mr Jessup to Mr Chehade. From this correspondence it is clear that the two men were exchanging competing spreadsheets regarding their differing views as to what was the relevant level of indebtedness of Palais. This divergence of spreadsheets, in my view, supports the contention that no terms had been agreed.
In this context, I accept Mr Gentry’s submission that in April of 2017 and afterwards, Mr Jessup and Mr Chehade were engaged in a protracted and inconclusive process of negotiations regarding the future of Palais and its various debts. Essentially, they did not reach a concluded agreement as to what was going to happen. In my view, each was consumed by disparate personal agendas.
Even if there was a legal obligation to repay monies advanced by Amin and Mrs Chehade that obligation did not fall personally on Mr Jessup. It fell on Palais. Neither Amin nor Mrs Chehade were able to issue proceedings against Mr Jessup personally. Palais was not a direct signatory to any aspect of the Line in the Sand Agreement, which was between Mr Jessup and Mr Chehade alone. This confirms my view that the April 2017 acknowledgement of debt was informal in nature and, at best, constituted a gentlemen’s agreement. Yet it is Palais which relies on the agreement to base its claim that Mr Jessup is indebted to it.
Finally, I am not persuaded that any consideration passed between Mr Jessup and Mr Chehade, on the one hand and Palais, on the other, as a consequence of the Line in the Sand Agreement. In reaching this conclusion I must consider the nature of the benefit asserted to have come to Mr Jessup as a consequence of his alleged promise to assume 50% of the liabilities of Palais, as at April 2017.
The issue of consideration must be assessed at the time at which the contract under consideration was or was not completed, namely mid-April of 2017. In my view, both Mr Chehade and Mr Jessup were unclear as to what was going to happen in respect of Palais from April of 2017 onwards. The only issue on which they are likely to have agreed upon was their shared hope that each would be able to sell their Pirate Life shares at the best possible time and price, when Pirate Life was acquired by a larger corporation.
The concept of consideration is based on reciprocity. Essentially, I must consider what benefits accrued to Mr Jessup in exchange for him agreeing to take on the liabilities of a separate entity, namely Palais. I do not consider that the inchoate benefit of him feeling that he was doing the right thing, so far as Mrs Chehade was concerned can be sufficient in this regard, although it may explain his motive.
In any event, I am satisfied that Mr Jessup’s future conduct indicated that he walked back from such a motivation. Nor can his expectation that he might be able to sell his shares later at an advantageous price comprise any consideration provided by Palais, given that it had already transferred the shares. This occurred in June and July of 2016.
As a consequence I accept that if the Pirate Life shares are to be regarded as some form of consideration passing to Mr Jessup, it was consideration provided in the past, in a different context to the discussion relating to the Line in the Sand Agreement.
Mr Kentish submits that the consideration was provided by Mr Chehade in the sense that he agreed to trade on alone, at Palais, so none of its creditors would sue either him or Mr Jessup in respect of their personal guarantees provided in respect of Palais’ various trade accounts. In addition, as a corollary of this, the prospect of the men being able to sell their Pirate Life shares at the most advantageous time would be enhanced.
The veracity or otherwise of these proposition depends only on the Court accepting the veracity of Mr Chehade’s evidence. In his affidavit, Mr Chehade deposes that he believed that Palais could not have been sold, as it was, in April of 2017, as the new showroom was running at a small loss. He also asserts that Palais’ debts were increasing. In my view, this latter statement does not sit comfortably with other aspects of his evidence provided under cross-examination.
This evidence clearly indicates that Palais transferred the shares, received by it as a consequence of the settlement of its action with Pirate Life, to Mr Jessup and Mr Chehade in June/July of 2016. At the time of this transfer, I accept that Palais trading situation was materially better that it had been as a consequence of it receiving the sum of $20,000.00 per month from Pirate Life.
Mr Chehade has also deposed as to his view that if business improved, after April of 2017, the Pirate Life shares would either provide an income to Palais, or could be sold to provide Palais with a cash injection.[47]In my view this assertion does not fit comfortably with the joint decision of him and Mr Jessup to transfer the shares to their respective family trusts. In these circumstances, it seems more likely than not that the motivation for the transfer of the shares out of Palais was to benefit Mr Chehade and Mr Jessup.
[47] See Affidavit of Mr Chehade filed 30 August 2021 at [55].
It also does not sit comfortably with Mr Chehade’s evidence in cross-examination in which he conceded that none of Palais’ creditors had commenced proceedings to recover monies owed to him or were otherwise thumping at the door to receive payment.
Mr Chehade concedes that the purpose of the Line in the Sand Agreement was to facilitate Mr Jessup’s exit from Palais. As such, it significantly post-dated the receipt by Palais of the relevant shares and their subsequent transfer. As such, I do not accept that the transfer of the shares can represent any form of consideration provided by Palais, to Mr Jessup, in exchange for him ostensibly agreeing to assume 50% of Palais’ debts.
CONCLUSIONS
In all these circumstances, I am of the view that there is insufficient evidence available to me to confirm the proof of debt as submitted by Palais to the Trustee. In particular, as at the date of Mr Jessup’s bankruptcy, I do not consider that the evidence can support a finding that he was subject to a legally enforceable obligation to pay Palais one half of its debts, which would enable the proof of the debt claimed.
Certainly, I do not consider that there was a concluded agreement between Palais and Mr Jessup to this effect, which had terms which are capable of being properly identified by the Court from the relevant proof of debt. In addition, I am satisfied that Palais provided no consideration in reciprocation of Mr Jessup ostensibly agreeing to assume the company’s debts.
The Line in the Sand Agreement was, in my view, a representation of a discussion between Mr Jessup and Mr Chehade to which Palais was not formally a party. As such, in my view, there is no privity of contract between Palais and Mr Jessup. The two did not directly agree on anything.
At its highest, the Line in the Sand Agreement represented an agreement between Mr Jessup and Mr Chehade to continue to discuss how the affairs of Palais would be managed between them on the withdrawal of Mr Jessup from the day to day management of the business. There was no concluded agreement between them, certainly not one involving Palais.
I accept Mr Gentry’s submission that, at its highest, the Line in the Sand Agreement represented an understanding that Mr Jessup and Mr Chehade would continue to discuss arrangements in regards to Palais, which were far from concluded and, in fact, were never ultimately concluded.
Accordingly, in my view, the decision to reject Palais’ proof of debt should be confirmed. For all these reasons the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding one hundred and ninety-three (193) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Brown. Associate:
Dated: 10 February 2023
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