Pitman v Pantzer (Trustee of the Bankrupt Estate of Thomas Richard Wenkart)

[2001] FCA 957

FEDERAL COURT OF AUSTRALIA

Pitman v Pantzer (Trustee of the Bankrupt Estate of Thomas Richard Wenkart) [2001] FCA 957

BANKRUPTCY –  claim for an order reversing decision of Trustee to reject proofs of debt – where claim based on indemnity chain – whether benefits of certain judgments assigned by Deed – whether rights to lodge proofs of debt assigned – whether applicant under an obligation to pay – whether a promise to indemnify is capable of proof – consideration of rule against double proofs (or double dividends) – whether rule against double dividends relevant in particular circumstances.

Bankruptcy Act 1966 (Cth)

Day & Dent Constructions Pty Ltd (in Liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85 cited
Re Oriental Commercial Bank;  Ex parte European Bank (1871) 7 LR Ch App 99 followed
Re Fenton;  Ex parte Fenton Textile Association Ltd (1931) 1 Ch 85 followed
Staples v Milner (1998) 83 FCR 203 followed
Neville Loeskow v Avokah Irrigation Pty Ltd (Full Federal Court (Lockhart, Ryan and Foster JJ), 24 April 1996, unreported, followed
Barclays Bank Ltd v T.O.S.G. Trust Fund Ltd (1984) AC 626 cited
Western Australia v Bond Corporation Holdings Ltd (No. 2) (1992) 37 FCR 150 cited
Lumley v Oceanfast Marine (2000) NSWSC 1178 cited
Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 followed
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 followed
Brown v Heffer (1967) 116 CLR 344 followed
Ex parte Ford (1885) 16 QBD 305 followed
Hardy v Fothergill (1888) 13 AC 351 followed
In re Moss;  ex parte Hallett [1905] 2 KB 307 followed

ALAN PITMAN V WARREN PANTZER (TRUSTEE OF THE BANKRUPT ESTATE OF THOMAS RICHARD WENKART)

N7752 OF 2000

JUDGE:        BEAUMONT J
DATE:          13 JULY 2001
PLACE:        SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N7752 OF 2000

BETWEEN:

ALAN PITMAN
APPLICANT

AND:

WARREN PANTZER (TRUSTEE OF THE ESTATE OF THOMAS RICHARD WENKART)
FIRST RESPONDENT

THROVENA PTY LIMITED, HAPDAY HOLDINGS PTY LIMITED AND MACQUARIE HEALTH CORPORATION LIMITED
SECOND RESPONDENTS

JUDGE:

BEAUMONT J

DATE OF ORDER:

13 JULY 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The matter be stood over to a date to be fixed, in accordance with these reasons for judgment.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N7752 OF 2000

BETWEEN:

ALAN PITMAN
APPLICANT

AND:

WARREN PANTZER (TRUSTEE OF THE ESTATE OF THOMAS RICHARD WENKART)
FIRST RESPONDENT

THROVENA PTY LIMITED, HAPDAY HOLDINGS PTY LIMITED AND MACQUARIE HEALTH CORPORATION LIMITED
SECOND RESPONDENTS

JUDGE:	BEAUMONT J
DATE:	13 JULY 2001
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(ON FINAL HEARING OF CLAIM 1 IN FURTHER AMENDED APPLICATION)

BEAUMONT J:

INTRODUCTION

1. This litigation arises in the administration of the bankrupt estate of Thomas Richard Wenkart, who was made bankrupt by sequestration order on 28 October 1999. The matter has had a complicated history, some of which is described in my interlocutory reasons dated 4 May 2001 and which need not be further explained here. There is now before the Court, for final determination, a claim by the applicant, Mr Alan Pitman, for an order under s 104 of the Bankruptcy Act 1966 (Cth) (“the Act”) reversing a decision of the first respondent (the trustee of the bankrupt estate) made under s 102 of the Act to reject certain proofs of debts lodged by Mr Pitman.

2. As noted in par 5 of my reasons dated 4 May 2001, the trustee has now withdrawn from the proceedings, but the intervening creditors, Throvena Pty Limited, Hapday Holdings Pty Limited and Macquarie Health Corporation Limited (the second respondents), all of whom are controlled by Wenkart family interests, have been joined as parties to, and have opposed, Mr Pitman’s claim.

3. There is no real dispute about the history of the events which led up to the present controversy.  They are described in the document entitled “Chronology of Events” annexed to these reasons for ease of reference.

4. Mr Pitman’s proof of debt document is also annexed to these reasons for ease of reference.  The rejection by the trustee of items 1B, 1C, 1F, 1G, 2, 3, 4A, 4B, 4C, 4D, 4E, 5, 6, 7, 11 and 12 only is in issue in this proceeding.

5. It will be seen from the chronology, and from the proof of debt document, that Mr Pitman’s claim is based on an indemnity chain.  That chain is illustrated in the diagram also annexed to these reasons.

6. Mr Pitman’s claim is based upon the allegations which, relevantly, are reproduced in his document entitled “amended points of claim”, also annexed.

   THE FACTUAL BACKGROUND

7. As has been noted, there was no real dispute about the factual background.  It will be convenient to state this background (by reference to the facts pleaded in the amended points of claim, none of which was substantially challenged) as follows:

   ·By cl 18.02 of a lease from Sandtara Pty Limited (“Sandtara”) to Cenrin Pty Limited (“Cenrin”) (“the Lease”), Abigroup Limited (“Abigroup”) agreed to indemnify Sandtara against all costs and expenses which Sandtara suffered or incurred consequent upon, or arising directly or indirectly out of, any breach or non-observance by Cenrin of any covenant or term of the lease (par 7) (“the Abigroup Indemnity”).

   ·By agreement dated 20 December 1985, Abigroup was indemnified by Genallco Pty Limited (“Genallco”) and Mr Gennaro Abignano (“Abignano”) against liability under the Abigroup Guarantee (par 8) (“the Abignano/Genallco Indemnity”).

   ·As held by Hunter J on 25 September 1997, in proceeding CD 50057/95 in the Supreme Court of New South Wales, prior to 17 September 1987, as a result of a series of dealings between Mr Pitman and Dr Wenkart, Dr Wenkart assured Mr Pitman that he would stand behind Mr Pitman in relation to obligations to be entered into by Mr Pitman under the “Comserv Deed” (see below), which included an obligation to indemnify Abignano and Genallco against their liability under the Abignano/Genallco Indemnity;  and that Dr Wenkart would see to it that Mr Pitman suffered no loss on account of entering into those obligations.  As Hunter J held, Dr Wenkart thereby indemnified Mr Pitman against his obligation under the Comserv Deed to indemnify Abignano and Genallco against their liability under the Abignano/Genallco Indemnity (The “Wenkart Indemnity”).

   ·By deed made between Comserv No. 49 Pty Limited, Cenrin, Sesete Pty Limited and Mr Pitman on 17 September 1987 (the “Comserv Deed”), Mr Pitman indemnified Abignano and Genallco against their liability under the Abignano/Genallco Indemnity (the “Pitman Indemnity”).

   ·Sandtara, Abigroup, Abignano, Genallco and Mr Pitman were parties to Supreme Court proceeding ED 5183/91.  On 14 September 1992, Brownie J held that Abigroup was liable to pay $668,493.91 to Sandtara under the Abigroup Guarantee;  that by reason of the Abignano/Genallco Indemnity, Abignano and Genallco were jointly and severally liable to indemnify Abigroup in respect of any liability which it had to Sandtara under the Lease;  and, that by reason of the Pitman Indemnity, Mr Pitman was liable to indemnify Abignano in respect of any amount for which he may be liable to indemnify Abigroup in respect of any liability which it had to Sandtara.

   ·Sandtara, Abigroup, Abignano, Genallco and Mr Pitman were parties to Supreme Court proceedings ED 2317/94 and ED 2318/94.  On 14 September 1992, Hodgson J held in ED 2317/94 that Abigroup was liable to pay $112,184.27 to Sandtara under the Abigroup Guarantee;  and that by reason of the Abignano/Genallco Indemnity, Abignano and Genallco were jointly and severally liable to pay Abigroup the amount of $112,184.27.

   ·Sandtara, Abigroup, Abignano, Genallco, Mr Pitman and Dr Wenkart were parties to Supreme Court proceeding CD 50057/95 referred to above.  Hunter J held in CD 50057/95 that the Lease carried Abigroup’s guarantee of Cenrin’s performance of the Lease;  that the Abigroup Sale Agreement contained an indemnity from Abignano and Genallco in respect of Abigroup’s liability under the Abigroup Guarantee;  that the Comserv Agreement contained an indemnity by Mr Pitman of Abignano’s liability under the Abignano/Genallco Indemnity;  that Abignano and Genallco were entitled to have the Pitman Indemnity enforced notwithstanding that they were not parties to the Comserv Agreement;  that (as has been noted), as a result of a series of dealings between Mr Pitman and Dr Wenkart prior to 17 September 1987, Dr Wenkart had assured Mr Pitman that he would stand behind Mr Pitman in relation to obligations to be entered into by Mr Pitman under the Comserv Deed, which included an obligation to indemnify Abignano and Genallco against their liability under the Abignano/Genallco Indemnity;  and that Dr Wenkart would see to it that Mr Pitman suffered no loss on account of entering into those obligations;  and that, prior to 17 September 1987, Dr Wenkart had indemnified Mr Pitman against his obligation under the Comserv Deed to indemnify Abignano and Genallco against their liability under the Abignano/Genallco Indemnity.

   ·Cenrin failed to pay Sandtara the rent reserved by the Lease in the period 1 November 1988 to March 1996.

   ·By cl 3.09 of the Lease, Cenrin agreed to pay to Sandtara all the costs, charges and expenses (including reasonable costs between solicitor and client) incurred in relation to, or in consequence of, any breach of covenant by Cenrin and any litigation commenced by or against Cenrin.

   ·Cenrin was ordered to be wound up on 9 November 1992.  Abignano and Genallco claim to have incurred legal costs and expenses in the sum of $3,502.80 in, and in connection with, proving in the winding up of Cenrin.  (This is Item 5 in Mr Pitman’s proof of debt document.)

   ·Sandtara commenced and/or was a party to the following proceedings in consequence of, arising out of and in relation to the failure of Cenrin to pay the rent reserved by the Lease:

   (a)Supreme Court proceeding CLD 6189/91 brought by Sandtara against Abigroup to recover from Abigroup the rent then due from Cenrin under the Lease;

   (b)Supreme Court proceeding EC 5183/91 brought by Abigroup seeking orders, inter alia, setting aside the demand made by Sandtara on Abigroup for the rent due to it from Cenrin under the Lease;

   (c)Supreme Court proceedings ED 2317/94 and ED 2318/94 brought by Sandtara to recover further rent payable by Cenrin under the Lease and further amounts agreed to be paid by Cenrin under the rent increase clauses;

   (d)NSWCA appeals CA 40207/95 and CA 40208/95 brought by Sandtara from the decision of Hodgson J in proceedings ED 2317/94 and ED 2318/94;

   (e)Supreme Court proceeding CD 50057/95 brought by Sandtara to recover the rent payable in respect of the period after 12 February 1993, the date of disclaimer of the Lease by the liquidator of Cenrin, which involved the following:

   (i)The determination by Bainton J of a separate question in the proceeding;

   (ii)NSWCA appeal CA 40530/95 brought by Sandtara from the decision on the separate question by Bainton J;

   (iii)High Court application S 99/96 for special leave to appeal from the decision of the Court of Appeal in CA 40530/95;  and

   (iv)The hearing of the balance of proceeding CD 50057/95 before Hunter J.

   (f)NSWCA appeals CA 40673/97, 40718/97, 40760/97 and 40068/98 brought from the decision by Hunter J in proceeding CD 50057/95.

   (g)District Court (at Sydney) proceeding 6477/98 brought by Sandtara to recover costs incurred in the proceedings set out in sub-paragraphs (a) to (f) above from Abigroup, together with interest on those costs.

   ·In the conduct of the proceedings pleaded in pars (a) – (g) above, Abigroup claims to have incurred costs as between solicitor and client in the amount of $750,000.00 (“Item 11” of Mr Pitman’s proof of debt).

   ·In the conduct of the Supreme Court proceedings CLD 6189/91 and ED 5183/91, Abignano and Genallco claim to have incurred costs as between solicitor and client of $46,647.95 (“Item 2” of Mr Pitman’s proof of debt).

   ·In the conduct of the Supreme Court proceedings ED 2317/94 and ED 2318/94, Abignano and Genallco claim to have incurred costs as between solicitor and client of $41,768.70 (“Item 3” of Mr Pitman’s proof of debt).

   ·In the conduct of the NSWCA appeal CA 40530/95, Abignano and Genallco claim to have incurred costs as between solicitor and client of $38,209.15 (“Item 1B” of Mr Pitman’s proof of debt).

   ·In the conduct of the High Court application S 99/96, Abignano and Genallco claim to have incurred costs as between solicitor and client of $39,492.40 (“Item 1C” of Mr Pitman’s proof of debt).

   ·In the conduct of the NSWCA appeals CA 40673/97, 40718/97, 40760/97 and 40068/98, Abignano and Genallco claim to have incurred costs as between solicitor and client of $172,024.21 (“Item 1F” of Mr Pitman’s proof of debt).

   ·In the conduct of the High Court applications S 160/98 and S 162/98, for special leave to appeal from the decisions of the Court of Appeal in CA 40673/97 and CA 40068/98, and application S 60/99, for special leave to appeal from the decision of the Full Federal Court in appeal NG 1229/98, Abignano and Genallco claim to have incurred costs as between solicitor and client of $21,749.50 (“Item 1G” of Mr Pitman’s proof of debt).

   ·On 29 September 1997 in Supreme Court proceeding CD 50057/95, Hunter J ordered, inter alia, that (a) upon the undertaking to the Court by Mr Pitman to pay to Abignano and Genallco the amount of $1,307,537.10 without deduction therefrom, immediately upon payment of that amount by Dr Wenkart to Mr Pitman, and so long as he holds such sum or any part thereof to receive and hold the same on trust for Abignano, Dr Wenkart pay Mr Pitman the amount of $1,307,537.10;  and (b) upon the undertaking to the Court given by Abignano and Genallco to pay the amount of $1,307,537.10 to Abigroup without deduction therefrom, immediately upon payment of that amount to Abignano and Genallco by Mr Pitman, Mr Pitman pay Abignano and Genallco the amount of $1,307,537.10.

   ·In breach of the Wenkart Indemnity, the bankrupt failed to pay Mr Pitman the amount of $1,307,537.10 or any part thereof.

   ·As a consequence of that breach of the Wenkart Indemnity, Mr Pitman was unable, and failed, to pay Abignano and Genallco the amount of $1,307,537.10 in breach of the Pitman Indemnity.

   ·As a consequence of that breach of the Pitman Indemnity, Abignano and Genallco claim to have incurred costs as between solicitor and client of $24,097.50 in examining the bankrupt and taking steps to enforce the judgment given by Hunter J in Supreme Court proceeding CD 50057/95 (“Item 4A” of Mr Pitman’s proof of debt).

   ·As a consequence of that breach of the Pitman Indemnity, Abignano and Genallco claim to have incurred costs as between solicitor and client of $27,826.75 in issuing a bankruptcy notice to the bankrupt and defending that notice in Federal Court proceeding NG 7080/98 (“Item 4B” of Mr Pitman’s proof of debt).

   ·As a consequence of that breach of the Pitman Indemnity, Abignano and Genallco claim to have incurred costs as between solicitor and client of $60,330.81 in issuing a bankruptcy notice to the bankrupt and defending that notice in Federal Court proceeding NG 7336/98 (“Item 4C” of Mr Pitman’s proof of debt).

   ·As a consequence of that breach of the Pitman Indemnity, Abignano and Genallco claim to have incurred costs as between solicitor and client of $30,710.50 in the conduct of Federal Court appeal NG 1229/98 brought by the bankrupt against the decision of Hill J to dismiss the bankrupt’s application to set aside the bankruptcy notice in Federal Court proceeding NG 7336/98 (“Item 4D” of Mr Pitman’s proof of debt).

   ·As a consequence of that breach of the Pitman Indemnity, Abignano and Genallco claim to have incurred costs as between solicitor and client of $30,773.90 in the conduct of a creditor’s petition brought against the bankrupt in Federal Court application NG 8467/98 (“Item 4E” of Mr Pitman’s proof of debt).

   ·Dr Wenkart brought Supreme Court proceeding ED 4937/97 against Mr Pitman alleging that Mr Pitman was indebted to Dr Wenkart as a result of the bankrupt taking an assignment of debts allegedly owed by Mr Pitman to Business and Professional Leasing Pty Limited.

   ·Prior to 28 October 1999, Abignano and Genallco paid the judgment debt of $668,493.91 ordered by Brownie J in Supreme Court proceeding ED 6189/91 and the judgment debt of $112,184.27 ordered by Hodgson J in Supreme Court proceeding ED 2317/94, less credits of $63,614.37 and $43,872.77 received from the liquidator of Cenrin, resulting in a net balance of $693,191.04 having actually been paid (in the sense of being out-of-pocket to that extent).

   ·Abignano and Genallco brought Supreme Court proceeding ED 3120/98 against Mr Pitman seeking to recover under the Pitman Indemnity the balance thus paid.

   ·Judgment was entered in Supreme Court proceedings ED 3120/98 with the consent of Dr Wenkart’s trustee (the first respondent) in favour of Abignano and Genallco against Mr Pitman in an amount of $1,280,487.19, being the said balance of $693,191.04 (“Item 8” of Mr Pitman’s proof of debt) and interest on that amount from 15 September 1992 of $530,984.25 (“Item 9” of Mr Pitman’s proof of debt).  (As has been seen, Items 8 and 9 are not the subject of this proceeding.)

   ·In the conduct of the Supreme Court proceedings ED 3120/98 and ED 4937/97, Abignano and Genallco claim to have incurred costs as between solicitor and client of $35,292.14 (“Item 6” of Mr Pitman’s proof of debt).

   ·In the conduct of  the Supreme Court proceeding 90614/99, brought by Sandtara to obtain a taxation of its costs in Supreme Court proceeding ED 50057/95, Abignano and Genallco claim to have incurred costs as between solicitor and client of $57,717.20 (“Item 7” of Mr Pitman’s proof of debt).

   ·Prior to 28 October 1999, Abignano and Genallco had paid each of the amounts specified in Items 5, 2, 3, 1B, 1C, 1F, 1G, 4A, 4B, 4C, 4D, 4E, 6 and 7.

   MR PITMAN’S CASE

8. In essence, Mr Pitman’s case is that, in the above premises, as at the date of the sequestration order (28 October 1999) –

   (a)Abignano and Genallco were liable under their indemnity to indemnify Abigroup in respect of Item 11 ($750,000);  and

   (b)Mr Pitman was liable under his indemnity to indemnify Abignano and Genallco in respect of:

   (i)The amounts respectively specified in Item 11 ($750,000);  Item 5 ($3,502.80);  Item 2 ($46,647.95);  Item 3 ($41,768.70);  Item 1B ($38,209.15);  Item 1C ($39,492.40);  Item 1F ($172,024.71);  Item 1G ($21,749.50);  Item 4A ($24,097.50);  Item 4B ($27,826.75);  Item 4C ($60,330.81);  Item 4D ($30,710.50);  Item 4E ($30,773.90);  that part of Item 6 which relates to proceeding ED 3120/98;  Item 7 ($57,717.20);  and

   (ii)Loss of use of the monies used by Abignano and Genallco to pay Items 1A to 7 (to be calculated);  and

   (c)Dr Wenkart was liable under his indemnity to indemnify Mr Pitman in respect of the amounts specified in Items 11, 5, 2, 3, 1B, 1C, 1F, 1G, 4A, 4B, 4C, 4D, 4E, that part of Item 6 mentioned above, 7 and 12.

   THE RESPONSE OF THE INTERVENING CREDITORS

9. The Intervening Creditors (now the second respondents) raise several responses to Mr Pitman’s claims in this proceeding, and pleaded as follows in their points of defence:

   “61.In reply to the whole of the points of claim the intervenors say that the respondent trustee has obligations which prevent him from admitting two claims in respect of the same debt and that the claims sought to be made by the applicant fall within such class.  [The “double proof” defence.]

   …

   63.In further reply to the whole of the points of claim the intervenors say that by a deed dated 10th December 1997 the applicant assigned benefit of a certain judgment to the assignees referred to in that deed absolutely and is not entitled to lodge any claim for any monies payable (if any) otherwise than in pursuance of the said assignment.  The intervenors crave leave to refer to the deed when produced to the full effect and say that the said deed released the applicant from certain rights and claims therein contained including the right to prove in the bankruptcy of Wenkart and accordingly the applicant is not entitled to lodge a proof in the bankruptcy of Wenkart.  [The “1997 deed of assessment” defence.]

   64.In further reply to the whole of the statement of claim the intervenors say that the only parties entitled to lodge proofs of debt in the estate of the bankrupt Wenkart are the interests associated with Abignano/Genallco Pty Limited and such parties have assigned rights to lodge proofs of debt to the intervenors.  The intervenors crave leave to refer to the deed which is exhibit ‘1C’ [Throvena Deed dated 22 December 2000, see below] in the proceedings when produced to the full effect thereof.  [The “Throvena Deed” defence.]

   65.In further reply to the whole of the points of claim the intervenors say that the applicant is under no obligation to pay any sums in respect of the indemnities pleaded in the points of claim and say further that the applicant has not suffered any loss provable in the estate of the bankrupt and will not suffer such loss.  [The “no payment” defence.]”

1. In addition, the intervenors say that a proof should not be admitted until its quantum is established.  This is accepted by Mr Pitman.  Accordingly, I have by consent of the parties deferred consideration of any quantum issues at this stage.

   CONCLUSIONS ON THE PRESENT CLAIMS BY MR PITMAN

2. As has been seen, the existence of the chain of indemnity (as claimed by Mr Pitman) is not (and could not be) seriously disputed in principle at least, although the quantum of any indemnity remains in issue at this stage.

3. It will be convenient to consider next the several special defences raised by the intervenors, as follows:

   (a)        The double proof (or double dividend) argument

4. On behalf of the intervenors it is submitted that Mr Pitman’s claims to prove are defeated by the rule of bankruptcy that an insolvent estate ought not to pay two dividends in respect of the same debt (see, e.g., Day & Dent Constructions Pty Ltd (in Liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85 per Mason J at 100).

5. The relevant principles in this area are well settled.  As Mellish LJ (with the agreement of James LJ) pointed out in Re Oriental Commercial Bank;  Ex parte European Bank (1871) 7 LR Ch App 99 (at 103), if this were not the rule –

   “… a creditor could always manage, by getting his debtor to enter into several distinct contracts with different people for the same debt, to obtain higher dividends than the other creditors, and perhaps get his debt paid in full. ….  [T]here is only to be one dividend in respect of what is in substance the same debt, although there may be two separate contracts.”

6. In Re Fenton;  Ex parte Fenton Textile Association Ltd (1931) 1 Ch 85, Romer LJ said (at 119 – 120):

   “In the present case, if Fenton, not having paid the banks anything under his guarantee, were entitled to prove in the winding-up of the Association, or if, having paid them less than the amount due to them, he were to prove for the amount so paid, and the banks were also to prove in the winding-up of the Association for the full sum due to them, as they would be entitled to do, the estate of the Association would be subjected to more than one proof in respect of the same debt, and this is not permissible. The claim of Fenton against the Association in either case would be a claim in respect of the same debt as that claimed by the banks. In both cases the claim of Fenton would come within the definition of debts provable in bankruptcy contained in s. 30 of the Bankruptcy Act. But so does the claim of the banks, and the only reason why Fenton is prevented from proving his claim is that his claim is in respect of the same debt as is that of the banks, and as between him and the banks the latter have the prior right of proof.

   I am accordingly of [the] opinion that the claim of Fenton’s trustee cannot be proved in the liquidation of the Association, there being no evidence that the banks have in any way renounced their right to prove.  We are indeed told that in the case of the bank with the largest claim a proof has actually been lodged.”  (Emphasis added.)

7. These observations were applied by Cooper J in Staples v Milner (1998) 83 FCR 203 (at 212). See also Neville Loeskow v Avokah Irrigation Pty Ltd (Full Federal Court (Lockhart, Ryan and Foster JJ), 24 April 1996, unreported, at par 24).

8. Fenton was considered by the Court of Appeal in Barclays Bank Ltd v T.O.S.G. Trust Fund Ltd (1984) AC 626 (an appeal to the House of Lords was dismissed). Oliver LJ said (at 643):

   “The basic rule is that the proof of a surety cannot displace the proof of the principal creditor unless and until the surety has fully discharged all his liabilities to the creditor.  A fortiori it cannot do so where no payment has been made and the liability to the surety remains contingent:  In re Fenton:  ex parte Fenton Textile Association Ltd [1931] 1 Ch. 85. So long as any liabilities of the surety are outstanding the creditor remains entitled to prove for the full amount of the debt due to him at the date of commencement of the winding up or the receiving order and the surety’s proof is excluded.”

9. It will be appreciated that Abignano/Genallco are not before the Court and have not taken the present point.  It is taken by other creditors, namely, Dr Wenkart’s family companies. 

10. It will further be appreciated that the proofs of both Abignano/Genallco and Mr Pitman are in identical terms.

11. In order to consider whether the rule against double dividends is applicable here in any respect, it will be necessary to consider the circumstances of each of the relevant debts sought to be proved by Abignano/Genallco as follows:

    (i)        Item 1B

12. By Abignano/Genallco’s proof of debt dated 30 January 2000, a debt is claimed, as Item 1B, as follows:

    “costs incurred and paid by [Abignano/Genallco] for legal fees in connection with legal proceedings in … proceedings No. 40207 of 1995 [appeal from decision of Bainton J (in No. 50057 of 1995)] in the sum of $38,209.15.”

13. (In Supreme Court proceeding CD 50057/95, Bainton J was asked to determine a separate question and held that the disclaimer of the Lease by Cenrin’s liquidator discharged Abigroup.  However, Sandtara successfully appealed to the Court of Appeal and Abignano/Genallco, as second respondents to the appeal, were ordered to pay the costs of the first respondent, including costs ordered to be paid by the first respondent to the appellant.  Nobody was ordered to pay Abignano/Genallco’s costs.  Dr Wenkart was not a party.)

14. By letter to Abignano/Genallco dated 28 July 2000, the trustee rejected this proof.  The trustee stated, correctly, that this claim relates to costs of an appeal in which Abignano/Genallco were unsuccessful and that Mr Pitman was not a party.  In my view, the trustee was correct in rejecting this proof by Abignano/Genallco.  As between Abignano/Genallco and Mr Pitman, it follows, in my view, that the rule against double proofs (or dividends) has no application here.

15. However, on behalf of the intervenors, reliance was sought to be placed upon the observations of Oliver LJ in the T.O.S.G. Fund case (at 636) that the test in this area is a “broad[]” one “which transcends a close jurisprudential analysis of the persons by and to whom the duties are owed”.  (See also Western Australia v Bond Corporation Holdings Ltd (No. 2) (1992) 37 FCR 150 (at 164); Lumley v Oceanfast Marine (2000) NSWSC 1178 at pars 71, 78 – 81).

16. But, in my view, even if a broad approach is taken and regard is had to what Oliver LJ described (at 642) as “the reality of the position”, there can be no scope for the rule to apply here, because the Abignano/Genallco proof was correctly rejected.  It is a fortiori of the case of a renunciation by a principal creditor, in which event, as was decided in Fenton, the surety may prove.  Here, Dr Wenkart was liable to Mr Pitman on the Wenkart Indemnity in respect of Item 1B.  Dr Wenkart was not liable to Abignano/Genallco on this account.

    (ii)       Item 1C

17. This Item raises the same issues in principle as Item 1B.  It is a claim for the costs of an unsuccessful application to the High Court for special leave to appeal from a decision of the Court of Appeal (see Item 1B).  Again, the trustee, correctly in my view, rejected Abignano/Genallco’s proof.  Again, the rule against double proofs (or dividends) can have no application.

    (iii)      Item 1F

18. Abignano/Genallco seek here to prove for their costs incurred in four appeals from the decision of Hunter J brought to the Court of Appeal as follows:

    (A)      The first appeal

19. This appeal (CA 40673/97) was brought by Dr Wenkart against Mr Pitman.  Abignano/Genallco were not parties to the appeal.  Not only was no order made that Dr Wenkart pay their costs, but Dr Wenkart was ordered to pay Mr Pitman’s costs.  It follows, in my view, that Abignano/Genallco are not entitled to prove for these costs in Dr Wenkart’s estate.

    (B)The second appeal

20. This appeal (CA 40718/97) was brought by Abigroup against Sandtara.  Neither Abignano/Genallco nor Dr Wenkart was a party to the appeal.  It follows, in my view, that Abignano/Genallco cannot prove for costs in this connection.

    (C)The third appeal

21. This was an unsuccessful appeal (CA 40760/97) by Abignano/Genallco brought against Sandtara and Abigroup.  Abignano/Genallco were ordered to pay the costs of the respondents to the appeal.  No order was made in respect of the costs of Abignano/Genallco.  Dr Wenkart was not a party to the litigation.  It follows, in my view, that the claim of Abignano/Genallco for their costs cannot be admitted to proof in Dr Wenkart’s estate.

    (D)The fourth appeal

22. This appeal (CA 40068/97) was brought (by leave) by Dr Wenkart against Mr Pitman and Abignano/Genallco.  Dr Wenkart was ordered to pay the respondents’ costs.  It is accepted, on behalf of Mr Pitman that, accordingly, Abignano/Genallco may prove for these costs.

    (iv)       Item 1G

23. Here, Abignano/Genallco seek to prove for costs incurred in three applications to the High Court for special leave:-

    (A)The first application

24. This application (S 160/98) was brought by Dr Wenkart against Mr Pitman.  Abignano/Genallco were not parties to the application, and hence cannot prove for these costs.

    (B)The second application

25. This application (S 162/98) was brought by Dr Wenkart against Mr Pitman and Abignano/Genallco.  The application was refused with costs.  Hence, as is accepted on behalf of Mr Pitman, Abignano/Genallco are entitled to prove for their costs.

    (C)The third application

26. This application (S 62/99), brought by Dr Wenkart against Abignano/Genallco, was refused, with costs, which may be admitted to proof accordingly.

    (v)        Item 2

27. These are costs in proceedings ED 5183/91 and 6189/91, which culminated in the judgment of Brownie J on 14 September 1992.  However, Dr Wenkart was not a party to either proceeding.  Hence, in my view, Abignano/Genallco cannot be admitted to proof on this account.

    (vi)       Item 3

28. The same position as that set out in relation to Item 2 obtains here in respect of the judgment given by Hodgson J on 9 March 1995 in proceedings No. 2317/94 and 2318/94.

    (vii)      Item 4A

29. Abignano/Genallco here claim the costs of examining Dr Wenkart under Part 43 of the Supreme Court Rules.  No costs were, however, ordered.  Accordingly, in my view, no basis for this proof is established.

    (viii)     Item 4B

30. Abignano/Genallco seek to prove for costs incurred in opposing an application by Dr Wenkart to set aside a bankruptcy notice issued at their request.  However, the notice was set aside.  Since there was no order that Dr Wenkart pay their costs, Abignano/Genallco cannot prove for these costs.

    (ix)       Item 4C

31. In the case of this application to set aside another bankruptcy notice issued at the request of Abignano/Genallco, Dr Wenkart was not successful.  However, since the Court (Hill J) made no order for their costs, Abignano/Genallco cannot prove for these costs.

    (x)        Item 4D

32. Here, on the appeal from Hill J’s judgment, Dr Wenkart was ordered to pay Abignano/Genallco’s costs.  Hence Abignano/Genallco are entitled to prove for these costs.

    (xi)       Item 5

33. Here, Abignano/Genallco seek to prove for costs in dealing with Cenrin’s liquidator.  Since there were no legal proceedings, no Court order for these costs was, or could be, made.  Accordingly, they cannot be admitted to proof by Abignano/Genallco.

    (xii)     Item 6

34. Abignano/Genallco seek to prove for the costs in two Supreme Court proceedings as follows:

    (A)      Proceeding ED 4937/97

35. In November 1997, Dr Wenkart sued Mr Pitman, claiming that Mr Pitman was indebted to Dr Wenkart in the sum of $18,125,830.00 by virtue of a purported assignment of debts claimed to be owed by Mr Pitman to Business and Professional Leasing Pty Limited.  The deed of assignment to Dr Wenkart bore the date 25 September 1997 – the date of the judgment of Hunter J in the principal poceedings.  In January 1998, Mr Pitman moved for summary dismissal of the proceeding as an abuse of process.  On 1 April 1998, Master McLaughlin so ordered.  Dr Wenkart appealed from this order.  On 1 October 1998, Windeyer J ordered that the appeal be allowed and, in essence, that part of Dr Wenkart’s suit proceed to trial, and the balance of Dr Wenkart’s claims be stayed.  Mr Pitman was ordered to pay Dr Wenkart’s costs before the Master and on the appeal.

36. Since then, of course, Dr Wenkart has become bankrupt (in October 1999). It seems that these proceedings have laid dormant since Windeyer J’s orders. By virtue of the provisions of s 60(2) of the Bankruptcy Act, the action is stayed until the trustee makes an election to prosecute, or discontinue, it.  No election has been made to date.  Section 60(3) provides that if the trustee does not make an election within twenty-eight days after notice is served upon the trustee by a defendant or other party to the action, the trustee shall be deemed to have abandoned the action.  However, Mr Pitman has not yet given such a notice.

37. It must follow, in my opinion, that neither Mr Pitman nor Abignano/Genallco may prove for these costs.

    (B)      Proceeding ED 3120/98

38. Here, Abignano/Genallco sued Mr Pitman for (a) $668,493.91, the judgment debt ordered by Brownie J in ED 6189/91;  and (b) $112,184.27 ordered by Hodgson J in ED 2317/94;  less (c) credits for $63,614.37 and $43,872.77 received in Cenrin’s liquidation.  Whilst Dr Wenkart was not a party to this claim, he was joined by Mr Pitman on a cross-claim.  However, since each party was ordered to pay his or its own costs of the proceedings, neither Mr Pitman nor Abignano/Genallco may prove.

    (xiii)    Item 7

39. Abignano/Genallco seek to prove for their costs in Supreme Court proceeding 90614/99 brought by Sandtara to obtain an assessment of its costs in Supreme Court proceeding ED 6189/91.  Since Dr Wenkart was not a party to the proceedings, or the assessment, Abignano/Genallco cannot, in my view, prove.

    (xiv)     Item 11

40. In Supreme Court proceedings CLD 6189/91, ED 5183/91, ED 2317/94 and ED 2318/94 and in appeals CA 40207/95, 40208/95, 40530/95 40718/97 and 40760/97, Abignano/Genallco were ordered to pay Abigroup’s costs, for which they now seek to prove.  However, since Dr. Wenkart was not a party, he was not ordered to pay those costs.  Accordingly, in my view, Abignano/Genallco cannot prove.

    (xv)     Item 12

41. This is a claim to prove for interest on each of Items 1A and 7.  To the extent that some of these proofs should be allowed, but not otherwise, a claim for interest should be admitted to proof.  The question of its quantum will, as earlier mentioned, need to be addressed.

    (a)       Potential for the application of the rule against double dividends

42. It follows from this analysis that the rule has the potential to apply in only these instances:

    ·The part of Item 1F referable to the costs of CA 40068/98.

    ·The part of Item 1G referable to S 162/98 and S 62/99.

    ·Item 4D.

    ·The part of Item 12 which is referable to interest on these costs.

43. Subject to any agreement (or other determination if necessary) on any remaining issues as to quantum, I will hear the parties, at a date to be fixed, on the question of the form of the appropriate relief in these circumstances and, specifically, whether a declaration should be made in the form submitted by counsel for Mr Pitman (see par 9.8 of counsel’s submissions dated 21 March 2001).

    (b)       The relevant effect, if any, of the Deed of Assignment dated 10 December 1997

44. This Deed was in the following terms:

    “DEED OF ASSIGNMENT made 10 December 1997 between:

    (1)ALLAN PITMAN of 13A Bungong Street, Prestons, NSW ('Pitman’) and

    (2)GENNARO ABIGNANO of 5 Munderah Street NSW and GENALLCO PTY LTD ACN 002 069 392 of Unit 4, 3 Kelray Place Asquith, NSW (‘the Assignees’).

    1.        RECITALS:

    1.1In Supreme Court Proceedings Commercial Division Number 50057 of 1995 (‘the Proceedings’) the Assignees have obtained judgment against Pitman in the amount of $1,307,537.10 plus interest and costs (‘the Abignano Judgment’).

    1.2In the Proceedings Pitman has obtained judgment against Thomas Richard Wenkart (‘Wenkart’) in the sum of $1,307,537.10 plus interest and costs (‘The Pitman Judgment’).

    1.3Pitman has agreed to assign the benefit of the Pitman Judgment to the Assignees by way of a partial distribution of his assets to a creditor in the form of the Assignees, in exchange for a release from the Assignees of the debt owing to them by Pitman.

    2.ASSIGNMENT

    2.1Pitman hereby assigns to the Assignees absolutely all of Pitman’s rights, title and interest in the Pitman Judgment and all interest accrued and to accrue thereon, and all rights and entitlements which Pitman has against Wenkart under the Pitman Judgment.

    2.2The Assignees accept the assignment of the Pitman Judgment and in full satisfaction and discharge of the debt owing by Pitman to the Assignees under the Abignano Judgment, and hereby release Pitman from that debt.

    3.COVENANTS

    3.1Pitman covenants with the Assignees (and their successors and assigns) as follows:

    3.2.1The Pitman Judgment is unsatisfied;

    3.2.2Pitman has full power to assign the debt to the Assignees;

    3.2.3The Assignment of the Pitman Judgment under this deed shall be taken by the Assignees (and their successors and assigns) free and clear of any mortgages, pledges, liens. charges or other encumbrances or claims or interests of any other person; and

    3.2.4Pitman shall do all acts and things, including without limitation the execution of all such further documents, as may be reasonably required by the Assignees to give effect to the assignment provided for in this deed.

    4. POWER OF ATTORNEY

    4.1Pitman irrevocably appoints the Assignees the attorneys of Pitman in the name of Pitman to:

    4.1.1demand, sue for, receive and give effectual discharges for the Pitman Judgment;

    4.1.2conduct any legal proceedings in relation to the Pitman Judgment, including proceedings on appeal and proceedings for enforcement of the Pitman Judgment, as effectually as Pitman could or might;  and

    4.1.3for any purpose from time to time, appoint any substitute, delegate for sub-attorney.

    4.2Pitman agrees to ratify and confirm anything done by the Assignees in his name pursuant to the power of attorney granted by clause 4.1.

    4.3The Assignees shall indemnify Pitman against all costs and expenses incurred in connection with anything done by the Assignees as the attorneys of Pitman pursuant to clause 3.2.

    5.GOVERNING LAW

    5.1This deed shall be governed by and construed in accordance with the laws of New South Wales and the parties submit to the non‑exclusive jurisdiction of its courts.”

45. Although Mr Pitman does not seek to prove for the amount of the judgment debt (of $1,307.537.10 plus interest and costs), it will be recalled that it is submitted for the intervenors (see par 63 of their points of defence) that this Deed operates so as to merge in Hunter J’s judgment in the principal proceedings the whole of Mr Pitman’s underlying contractual right to indemnity under the Wenkart Indemnity.

46. I cannot accept the argument.  From its express terms, including its recitals, it is plain that the subject matter of the Deed is the judgment of Hunter J in the principal proceedings.  In my opinion, the operation of the Deed did not extend beyond this, given its specific language.  Even if general words had been used, their operation would still have been limited to the contemplated subject matter, that is the judgment debt arising under Hunter J’s judgment.  (See Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112.)

    (c)        The effect of the Throvena Deed dated 22 December 2000

47. This Deed, which is relied upon by the intervenors so as to deny any proof by Mr Pitman (see par 64 of their points of defence, above), is annexed to these reasons.

1. In my opinion, this Deed cannot operate so as to deprive Mr Pitman relevantly of his right to prove, for several reasons.

2. First, the Deed was entered into after the bankruptcy, and neither the trustee nor Mr Pitman was a party, or assented to it.

3. Secondly, the relevant operation of this Deed (specifically cl 1.2, cl 1.4) is expressed to be dependent upon completion occurring.  This event is specifically deferred (see cl 1.3;  cf.  Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537). It is said for the intervenors that equitable rights flow from the Deed. That may be so, but it does not follow that property passes, even in equity (see, e.g. Brown v Heffer (1967) 116 CLR 344).

   (d)       Should Mr Pitman’s proof be rejected because he has not (yet) paid money under the Wenkart Indemnity?

4. This is the general defence raised in par 65 of the points of defence (see above).  In my view, it is not an answer to Mr Pitman’s present claim.

5. Section 82 of the Bankruptcy Act provides that:

   “all debts and liabilities present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy are provable in his or her bankruptcy.”  (Emphasis added)

6. The authorities establish that the principle underlying this provision is this:

   “Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury.  The broad purview of this Act is that the bankrupt is to be a freed man – freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind.  On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets.”  See Ex parte Llynvi Coal and Iron Company;  in re Hyde (1871) LRCh App 28 at 31 – 32 per James LJ.

7. Hence, a promise to indemnify is capable of proof:  see Ex parte Ford (1885) 16 QBD 305; Hardy v Fothergill (1888) 13 AC 351;  In re Moss;  ex parte Hallett [1905] 2 KB 307.

   ORDERS PROPOSED

8. The matter is accordingly stood over to a date to be fixed, in accordance with these reasons.

I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont.

Acting Associate:

Dated:            27 July 2001

Counsel for the Applicant:	Mr A Ogborne
Solicitor for the Applicant:	The Bruce & Stewart Commercial Practice
Counsel for the Intervening Creditors:	Mr J K Chippindall
Solicitor for the Intervening Creditors:	Andersen Legal
Date of Hearing:	3 and 4 July 2001
Date of Judgment:	13 July 2001