Re Beckwith
[1993] FCA 447
•07 JULY 1993
IAN REGINALD BECKWITH v. POWER and POWER (A firm)
B.N. No. 190 of 1992
Creditor's Petition No. 633 of 1992
FED No. 447
Number of pages - 22
Bankruptcy
(1993) 43 FCR 256
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
GENERAL DIVISION
Cooper J(1)
CATCHWORDS
Bankruptcy - creditor's petition - bankruptcy notice - application to set aside bankruptcy notice - application for summary judgment in Magistrates Court - judgment entered - application to set aside judgment dismissed - whether or not the Court will go behind the judgment - whether there was an adjudication on the merits - whether in truth and reality there was a debt due by the judgment debtor to the petitioning creditor - considerations - adequacy of the bill of costs - joint and several liability of company directors under s.592 Corporations Law.
Costs Act 1867 (Qld.) s.8, s.22, s.229
Corporations Law s.460, s.592, s.592(1)(b)(i), s.592(1)(b)(ii)
Corney v. Brien (1951) 84 CLR 343
Wren v. Mahoney (1972) 126 CLR 212
Re V. and J. Removals Ex parte Earl (BN 963 of 1985, Pincus J, Unreported 21.6.85)
Re David Ex parte Lahood (1979) 27 ALR 306
Petrie v. Redmond (1942) 13 ABC 44
Re Vojnovski (1970) ALR 355
Olivieri v. Stafford (1989) 24 FCR 413
Currie and Ors. v. Robinson (1968) QWN 25
Re Flower and Hart's Bill of Costs (1991) 2 QdR 20
Re Walsh Halligan Douglas' Bill of Costs (1990) 1 QdR 288
Coburn v. Colledge (1897) 1 QB 702
In Re Lawler (1878) 4 VLR 8 (IP and M)
Rema Industries and Services Pty. Ltd. v. Coad (1992) 10 ACLC 530
Taylor v. Darke (1992) 10 ACLC 1516
Hussein v. Good (1990) 8 ACLC 390
Group Four Industries Pty. Ltd. v. Brosnan (1991) 9 ACLC 1,181
Martin v. Hogan (1917) 24 CLR 234
Plaimar Ltd. v. Waters Trading Co. Ltd. (1945) 72 CLR 304
Minister for Supply and Development v. Servicemen's Co-Operative Joinery Manufacturers Ltd. (1957) 82 CLR 621
Hawkins v. Bank of China (1992) 10 ACLC 588
Russell Halpern Nominees Pty. Ltd. v. Martin (1986) 4 ACLC 393
Shapowloff v. Dunn (1981) 148 CLR 72
Re Walsh Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727
Sherry's Case (1884) 25 ChD 692
Deeley v. Lloyds Bank (1912) AC 756
HEARING
BRISBANE, 27 July 1992
#DATE 7:7:1993
Solicitors for the Applicant: Mr. P. Hackett of Stokes and
Panettiere
Counsel for the Respondent: Mr. Paul Howard
Solicitors for the Respondent: Power and Power
ORDER
The Court orders that:
1. The petition is dismissed.
2. The bankruptcy notice issued on 17 February, 1992 be set aside.
3. The petitioning creditor to pay the judgment debtor's costs of and incidental to the petition and the application to set aside the bankruptcy notice to be taxed if not agreed.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
COOPER J On 28 February, 1992 the judgment debtor, who was then acting on his own behalf, filed an application to set aside a bankruptcy notice issued against him on 17 February, 1992 in Woodlands, Western Australia. The application of the judgment debtor was filed before the expiration of the compliance period stated in the notice. The judgment debtor alternatively sought an extension of time to comply with the notice.
On 10 March, 1992 a creditors petition was filed alleging non-compliance with the bankruptcy notice as the act of bankruptcy relied upon. The petition was served on 25 March, 1992. The judgment debtor gave notice of intention to appear and oppose the petition.
After a number of adjournments the application and petition were returned on the same occasion for hearing before a judge of the court.
In his application to set aside the bankruptcy notice, the judgment debtor denies that he is justly and truly indebted to the petitioning creditor in the sum of $15,016.78, the amount of the judgment, and disputes that he committed the act of bankruptcy alleged in the petition, namely failure to comply with the requirements of the bankruptcy notice. It is common ground that there arises on the application and the petition the issue whether or not the court will go behind the judgment and whether, if it does so, there is revealed in truth and reality a debt due by the judgment debtor to the petitioning creditor.
The petitioning creditor is a firm of solicitors practising in Brisbane. On 12 October, 1991 the solicitors filed a plaint and summons in the Magistrates Court in Brisbane claiming $13,516.56 as money due and payable to the solicitors. The pleaded facts relied upon to prove the claim were:-
"1. At all material times: 1.1 The Plaintiff was a firm of solicitors; 1.2 The Defendant was:-
(a) a director of LFB Australia Pty Ltd ACN 010 969 034 ("LFB") a company duly incorporated according to law and having its registered office at C/- Level 25, Central Plaza One, 345 Queen Street, Brisbane in the State of Queensland.
(b) further and alternatively, a person who took part in the management of LFB within the meanings of that expression in Sub-Section 592(1) of the Corporations Law.
2. During the period January, 1990 to February, 1991 ("the said period") the Defendant on behalf of LFB requested the Plaintiff to provide professional services to LFB.
3. During the said period the Plaintiff performed the professional services requested by the Defendant and expended moneys on LFB's behalf and the Defendant's behalf at the Defendant's request.
4. The Plaintiff subsequently rendered accounts to the Defendant and to LFB Australia in respect of the said provision of services and expenditure of moneys particulars whereof are as follows:- Date Amount 27/04/90 $3,698.50 29/05/90 $2,285.00 17/08/90 $2,038.00 19/10/90 $2,406.60 26/10/90 $5,914.56 30/11/90 $616.70 31/12/90 $1,187.00 21/02/91 $2,355.90 TOTAL $20,502.26
5. The amounts charged were at the relevant dates fair and reasonable for the services performed.
6. The Plaintiff has received $6,985.70 in part payment of the amounts outstanding.
7. By letter of 24 May, 1991 from the Plaintiff to the Defendant, the Plaintiff demanded payment of the outstanding amount.
8. The company and the director has failed, neglected or refused to pay the said outstanding sums or any part of it to the Plaintiff.
9. At the time when the debts referred to in paragraph 4 hereof were incurred by the company, there were reasonable grounds to expect that the company would not be able to pay all of its debts, (including the company's debts to the Plaintiff) as and when they became due.
10. In the premises, the Defendant is liable to the Plaintiff in respect of the company's debts referred to in paragraph 4 hereof.
11. Despite demand, the Defendant has failed, neglected or refused to pay to the Plaintiff the outstanding amount of THIRTEEN THOUSAND FIVE HUNDRED AND SIXTEEN DOLLARS AND FIFTY SIX CENTS ($13,516.56) or any part thereof".
The judgment debtor filed an entry of appearance and defence on 19 November, 1991 wherein he admitted he was a director of LFB Australia Pty. Ltd. and admitted that the company had incurred debts with the solicitors on 5 April, 1990 in the sum of $750.00, which debt he pleaded had been paid, and $1,187.00 on 2 January, 1991. The judgment debtor pleaded that at the time the debts were incurred he had reasonable grounds to expect that the company would be able to pay all its debts when they became due and expressly denied liability for the $13,516.56 claimed.
On 9 December, 1991 the solicitors filed a judgment summons. In support of the summons the solicitors filed an affidavit of Peta Gwen Stilgoe which stated, so far as is presently relevant:-
"5. During the period January 1990 to February 1991, the Defendant, on behalf of LFB Australia Pty Ltd ("LFB") requested the Plaintiff to provide professional services to the said LFB.
6. During the said period, the Plaintiff performed professional services requested by the Defendant and expended monies on behalf of both LFB and the Defendant at the Defendant's request.
7. The Plaintiff subsequently rendered accounts to the Defendant and/or the company LFB in respect of work performed and monies expended referred to in the last preceding paragraph. Particulars of the said accounts are as follows:- Date Amount
27/04/90 $ 3,698.50 29/05/90 $ 2,285.00 27/08/90 $ 2,038.00 19/10/90 $ 2,406.60 26/10/90 $ 5,940.56 30/11/90 $ 616.70 31/12/90 $ 1,187.00 21/02/91 $ 2,355.90 $20,502.26
8. Now produced and shown to me and marked with the letter "A" and annexed to this my Affidavit are true and correct copies of the accounts rendered by the Plaintiff to the Defendant. I believe that the accounts rendered are fair and reasonable in the circumstances.
9. The Plaintiff has received $6985.70 received in part payment of the amount outstanding. The outstanding debt owed by the Defendant to the Plaintiff is therefore the sum of $13,516.56.
10. For the purpose of this Summary Judgment Application, the Plaintiff seeks to enter Judgment in the amount of THIRTEEN THOUSAND FIVE HUNDRED AND SIXTEEN DOLLARS AND FIFTY SIX CENTS ($13,516.56) (as claimed in the Plaint and particularised therein).
11. In my belief, immediately before the time the debts referred to in paragraph 7 hereof were incurred, the Defendants would have had reasonable grounds to expect that the company would not be able to pay all of its debts as and when they became due.
12. In my belief, there is no Defence to this action and the Entry of Appearance and Defence has been given for the purposes of delay only".
Attached to the affidavit were copies of accounts dated 27 March, 1990, 29 May, 1990, 17 August, 1990, 19 October, 1990, 26 October, 1990, 30 November, 1990, 2 January, 1991 and 21 February, 1991. On 3 January, 1992 the judgment debtor did not appear and the matter was adjourned to 10 January, 1992. When the judgment debtor did not appear, judgment was entered for the solicitors in the sum of $13,516.56 for claim, $1,158.05 for costs and $342.17 for interest, giving a total of $15,016.78.
The judgment debtor deposes that on 8 January, 1992 he executed an affidavit as to the merits of his defence, which he faxed to the Clerk of the Court at Brisbane, the judgment debtor living in Western Australia, and faxed the material to the solicitors on 9 January, 1992. He exhibited a facsimile journal transmission printout in support of his contention. In the affidavit he forwarded to the Magistrates Court he exhibited a copy of a notification from the Australian Securities Commission dated 29 November, 1991 that de-registration action had been discontinued against LFB Australia Pty. Ltd., and deposed that the company LFB Australia Pty. Ltd. continued to operate at the date of the affidavit. He also deposed in that affidavit that the accounts of 27 April, 1990, 29 May, 1990, 27 August, 1990, 19 October, 1990, 30 November, 1990 and 21 February, 1991 related to work carried out by the solicitors for Fremantle Slipways Ltd. in relation to corporate structure, lease documentation, licenses and agreements with the Fremantle Port Authority. Likewise he claimed that the accounts of 26 October, 1990 and 31 December, 1990 related to work performed for Fremantle Slipways Ltd.
On 10 February, 1992 the bankruptcy notice issued.
By letter dated 21 February, 1992 Messrs. Friedman and Lurie, Barristers and Solicitors of Perth, wrote to the petitioning creditor on behalf of the judgment debtor enquiring as to how judgment was obtained in the face of the judgment debtor's material forwarded to the Magistrates Court. The letter included the following:-
"Upon receipt of such Notice our client inquired again from the Clerk of the relevant Magistrates Court why a judgment had been granted against him in the above matters and was advised that the affidavits which he had forwarded to the Court had not been presented to the Court. Our client is in the process of preparing documentation to enable him to apply to set aside judgment".
On 24 February, 1992 the petitioning creditor wrote to the judgment debtor's solicitors and said, inter alia:-
"As to the Judgment Summons heard 3 January 1992, your client's Affidavits were brought to the attention of the court by our own Counsel, so that the so called 'abuse' did not occur. Your client's affidavits were noted by the Magistrate and placed on the court file. Our Mr Fernicola confirms that a telephone conversation occurred on 21 January 1992. Your client's objections to the Plaints were noted. However, no 'undertaking' was given by Mr Fernicola to 'investigate' your client's objections. Mr Fernicola stated that he would raise your objections with the Partner responsible and advise the Partner of your client's claim to set aside judgment. If your client is desirous of setting aside the judgments entered against him, we require his application and affidavit in support of the Application to be filed and served upon us by Monday 9 March 1992, failing which we will file the Creditors Petition".
On 2 March, 1992 the Magistrates Court at Brisbane received an application to set aside the judgment. As the application did not comply with the Court forms, blank copies of forms were sent by the court to the judgment debtor to be filled out and returned. This was done and the new forms were filed on 13 March, 1992. On 10 March, 1992 the petitioning creditor had presented the bankruptcy petition.
The application to set aside the judgment was heard on 8 May, 1992. The application was opposed by the petitioning creditor. The petitioning creditor argued at the outset that the Magistrate had no jurisdiction to set the judgment aside as it had been regularly entered after a determination on a judgment summons. The Magistrate adjourned the application to 11 May, 1992 because the judgment debtor contended that the judgment was not regularly entered in that his affidavit had not been placed before the Magistrate on 9 January, 1992. The adjournment was to enable the contention to be investigated. On 11 May, 1992 the judgment debtor's application was dismissed. The Magistrate concluded his reasons:-
"I am of the opinion that the only submission from Mr. Hackett which would come within the term of 'irregularity' is the non consideration of the Defendant's affidavit by my brother Magistrate Mr. Webster. It seems to be common ground that the affidavit was received in the Registry and by the Plaintiff and I note the following in the affidavit of Mr. Fernicola:- 'However, he was not willing or prepared to take any notice of the Defendant's affidavit because no representative appeared on behalf of the Defendant to read the affidavit and nor had the affidavit been filed in accordance with the Rules of the Magistrates Court.' Because the affidavit of Mr. Fernicola was only filed this morning, I gave Mr. Hackett the opportunity of investigating this assertion but the offer was eventually declined. The matter of formally reading an affidavit is referred to in paragraph 650/4 of Morley and Martin's work on the Queensland Magistrates Courts. Whilst I do not wish to sit in judgment of another Magistrate's decision I would say with respect that Mr. Webster is clearly correct. I can see no other point which would raise the question of irregularity. The applications are dismissed".
Whether or not the position taken by the Magistrate is correct can be put to one side. The fact remains there has never been a consideration as to whether he had a defence on the merits, having regard to the facts he deposed to in the affidavit material which he provided to the Magistrates Court prior to the application for summary judgment. His original attempt to defend the action and his application to set aside the judgment have been dismissed for non-compliance with the court rules, not on their merits.
The discretion of the court to go behind a judgment requires that there be substantial reasons for questioning whether there is a debt in truth and reality owing to the judgment creditor (Corney v. Brien (1951) 84 CLR 343 at 358; Wren v. Mahoney (1972) 126 CLR 212 at 225; Re V. and J Removals Ex parte Earl (BN 963 of 1985, Pincus J, Unreported 21.6.85) at 7; Re David Ex parte Lahood (1979) 27 ALR 306 at 307. The reason the court will more readily go behind a default judgment is that there has been no adjudication on the merits and there exists a bona fide allegation that no real debt lay behind the judgment (Petrie v. Redmond (1942) 13 ABC 44 at 49; Corney v. Brien at 347, 357-358; Re Vojnovski (1970) ALR 355 at 359; Oliveri v. Stafford (1989) 24 FCR 413 at 422). That reasoning is applicable to the present case which, although not a default judgment, is one which has never been the subject of adjudication on the merits and one where the judgment debtor has attempted to obtain a hearing on the merits in the Magistrates Court.
The judgment debtor raises three matters which he contends would justify going behind the judgment on the basis that there are substantial reasons for questioning whether there is in truth and reality a debt due to the petitioning creditor.
The first is that the debt incurred was that of the company Fremantle Slipway Ltd. and not that of LFB Australia Pty. Ltd.
The second is that, even if the petitioning creditor was retained by LFB Australia Pty. Ltd., the solicitors were by section 8 of the Costs Act 1867 (Qld) barred from bringing suit against the company, the solicitors having failed to deliver bills of costs in the form contemplated by the section. In consequence it was submitted the petitioning creditor had no cause of action under section 592 of the Corporations Law against the judgment debtor.
The third is that there was no evidence that if LFB Australia Pty. Ltd. retained the solicitors, there existed immediately before the time the debt was incurred by the company reasonable grounds to expect either that the company will not be able to pay all its debts as and when they become payable (section 592(1)(b)(i)) or that if the company incurs the debts it will not be able to pay all its debts as and when they become due (section 592(1)(b)(ii)). It was further submitted that LFB Australia Pty. Ltd. was not a company to which section 592 of the Corporations Law applied.
There are annexed to the affidavit of Mr. Michael Hawkins, filed on behalf of the petitioning creditor, two letters which touch upon the liabilities of Fremantle Slipways Ltd. for the legal costs incurred. The first is a letter written on 24 January, 1991 to Ms. Julie Le Franc, a director of LFB Australia Pty. Ltd. It stated in part:-
"In relation to the account outstanding in respect of the Fremantle Port Lease, we advise that the file was opened in the name of Fremantle Slipways Limited and continues to carry that name. On the instructions of the directors of Fremantle Slipways Limited, we directed our accounts to LFB Australia Pty Ltd whom it was said, would pay those accounts as the Manager and whom would claim those costs for tax purposes against the management fee received by it from Fremantle Slipways Limited. As you are aware, LFB has continued to refuse payment of that account and accordingly, we have the right to pursue the non payment of that account against our client, Fremantle Slipways Limited, the instructing party".
The second is a letter dated 21 January, 1992 to the Secretary, Fremantle Slipways Ltd., L.F.B. Australia Pty. Ltd. The letter stated:-
"Dear Sir,
We refer to your letter of 15 January, 1992 requesting us to forward to your office all property of the company including the Minute Book and Members Register. As you would be aware, until all outstanding accounts owed by either company to this firm are paid in full, this firm will continue to exercise a solicitors lien over all files and their contents.
Accordingly, when all outstanding costs are paid, we will cheerfully forward to you all files and contents.
Yours faithfully,"
On 13 May, 1992 the petitioning creditor filed by leave an affidavit of Jose Fernicola, an articled clerk in the employ of the petitioning creditor. Exhibited to the affidavit was a notice of demand under section 460(2)(a) of the Corporations Law directed to LFB Australia Pty. Ltd. Mr. Fernicola deposed that the notice was forwarded to the company on 24 May, 1991. The notice is for an amount of $10,493.26. On 28 May, 1992 a further affidavit of Mr. Fernicola was filed. It exhibited a Notice of Demand to the same company claiming an amount of $13,516.56. Mr. Fernicola deposes to this notice having been forwarded to the company on 24 May, 1991. The difference in the amounts claimed is $3,023.30.
A perusal of the copy memorandum of fees and the correspondence attached to the affidavit of Hawkins shows that the matter entitled "Corporate Structure" was identified as "468616/M. Hawkins"; the matter entitled "Fremantle Port Lease" was identified as "500982/M. Hawkins". On this basis the accounts can be identified into two groups:-
(a) "Corporate Structure" Accounts
(i) Date: 27 March, 1990 Amount: $3698.50
For: "INTERIM ACCOUNT" "To our professional costs" and outlays
(ii) Date: 29 May, 1990 Amount: $2285.00
For: "INTERIM ACCOUNT" "Professional fees" and outlays
(iii) Date: 26 October, 1990 Amount: $5914.56
For: "FINAL ACCOUNT" "To our professional costs of and incidental to acting on your behalf in this matter since 29 May, 1990 including the drafting of the Memorandum and Articles of Association of Fremantle Slipways Limited, attending to lodging and preparation of all documents necessary to convert the status of the company from a no liability company to a limited comapny, effecting the change of name, preparing all documentation necessary to issue shares to you at discount, amend the same as necessary, to numerours (sic) attendances on the Commissioner for Corporate Affairs in relation to the status of the application, and to care and consideration generally"
(iv) Date: 2 January, 1991 Amount: $1187.00
For: "INTERIM ACCOUNT" "To our professional fees" and outlays
(v) Date: 21 February, 1991 Amount: $2355.90
For: "INTERIM ACCOUNT" "ACCOUNT FOR PERIOD:" 1 January, 1991 to 20 February, 1991
To our professional fees" and outlays
(b) "Fremantle Port Lease" Accounts
(i) Date: 17 August, 1990 Amount: $2038.00
For: "INTERIM ACCOUNT" "ACCOUNT FOR PERIOD: Up to and including 17 August, 1990
To our professional costs of and incidental to acting on your behalf in relation to this matter including receiving preliminary instructions in telephone conversation with you, to perusing the lease documentation and preparing various letters of advice and to communicating with the solicitors for the Port Authority and yourself generally" and outlays
(ii) Date: 19 October, 1990 Amount: $2406.60
For: "FINAL ACCOUNT" "To our professional costs of and incidental to acting on your behalf including receiving further instructions from you from the 17th of August, 1990, to attending to the settling of the terms of the Lease, Jetty Structure Licence Agreement and Seabed Licence Agreement, to negotiating terms with the Fremantle Port Authority and corresponding with the solicitors for the Fremantle Port Authority and to acting on your behalf generally in relation to the Fremantle Port Lease" and outlays
(iii) Date: 30 November, 1990 Amount: $616.70
For: "FINAL ACCOUNT" "To our professional fees of and incidental to acting on your behalf since our last account and to finalising the Lease documentation generally" and outlays.
The difference in amount between the two notices of demand under section 460 of the Corporations Law served on LFB Australia Pty. Ltd. ln 24 May, 1991 represents the total of the "Fremantle Port Lease" accounts of 19 October, 1990 and 30 November, 1990.
Fremantle Slipways Limited was incorporated as a public company in Queensland on 20 April, 1990 under the name "All Mine Mining NL" and changed its name to Fremantle Slipways Limited on 2 October, 1990. The incorporation of a no liability company under the name "All Mine Mining NL" was procured by the petitioning creditor as appears from a letter dated 26 March, 1990 from Mr. Hawkins addressed to:-
"Mr. Ian Beckwith and Ms. Julie Le Franc Directors
LFB Australia Pty. Ltd. PO Box 10
NORTH FREMANTLE 6159"
Having regard to the letter of Mr. Hawkins of 24 January, 1991 to Ms. Le Franc, the letter to Fremantle Slipways Limited of 21 January, 1992, the file coding assigned to the "Fremantle Port Lease" matter and the difference between the two notices, it is reasonable to conclude that Fremantle Slipways Limited was the client giving the instructions in that matter and the party liable to pay the account. Those accounts total $5,061.30.
The total of the accounts claimed in the plaint was $20,502.26. If the "Fremantle Port Lease" accounts are excluded, there remains accounts to the value of $15,440.96. The plaint pleads that $6,985.70 was paid in relation to the outstanding accounts. That payment is reflected in the section 460 demand for $10,493.26 and accordingly would not appear to have been made on account of at least two of the "Fremantle Port Lease" accounts. On the material before me it is impossible to reconcile the payments to any particular account rendered in the period. When credited against the sum of $15,440.96 it leaves in dispute $8,455.26.
In his defence filed in the Magistrates Court on 19 November, 1991 the judgment debtor admits that LFB Australia Pty. Ltd. did incur the debt of $1,187.00 reflected in the account dated 2 January, 1991. This was not paid, he pleaded, because his co-director refused to sign a cheque notwithstanding that money was available to pay the debt. He also pleads another account of 5 April, 1990 in the sum of $750.00 which he pleads was paid. Otherwise he denies that LFB Australia Pty. Ltd. incurred the debts claimed.
In my opinion if the Magistrate had considered the material in the debtor's affidavit, it would have revealed that there was a contested question of fact which entitled the debtor to defend as to all of the monies claimed. The additional material filed in this court further demonstrates that there is a real question as to whether LFB Australia Pty. Ltd. was liable to the petitioning creditor for the whole or a substantial part of the sum claimed or whether, after incorporation of Fremantle Slipways Limited as it ultimately came to be called, that company was itself liable for changes to its corporate structure and the obtaining of the Fremantle Port Lease and all matters incidental thereto. For this reason alone I would be prepared to exercise the discretion to go behind the judgment.
I turn to the second ground argued by the judgment debtor.
Section 22 of the Costs Act of 1867 (Qld) provides:-
"Bills to be delivered. 6 and 7 Vic c. 73 s. 37. No attorney nor any executor administrator or assignee of any attorney or the trustee of his estate shall commence or maintain any action or suit for the recovery of any fees charges or disbursements for any business done by such attorney until the expiration of one month after such attorney or executor administrator or assignee of such attorney shall have delivered unto the party to be charged therewith or sent by the post to or left for him at his counting-house office of business dwelling-house or last known place of abode a bill of such fees charges and disbursements and which bill shall be subscribed by such attorney in his proper handwriting (or in the case of partnership by any of the partners either with his own name or with the name and style of such partnership) or by the executor administrator or assignee of such attorney or the trustee of his estate".
The interim accounts and the final accounts, dated 27 March, 1990, 29 May, 1990, 2 January, 1992 and 21 February 1992 contain no detail of the work performed. Rather, a lump sum is claimed against an item for "professional fees". The final accounts and the interim accounts of 17 August, 1990 are in a narrative form with some description of the work done against which a lump sum is claimed.
The accounts, both interim and final, are not in a form sufficient to constitute a bill of costs for the purpose of section 22 of the Costs Act (Qld). In Currie and Ors. v. Robinson (1968) QWN 25, Douglas J considered the adequacy of a narrative bill for the purpose of the section. His Honour said (at pages 51-52):-
"The Bill of Costs was exhibited to the first defendant's affidavit and consists of a statement of account which contains a claim for various lump sums in respect of individual matters dealt with by the plaintiffs on the defendants' behalf. It also contains an itemized account of outlays and shows various payments made by the defendants from time to time. The lump sum amounts shown in the statement of account are further itemised in other sheets of the Bill of Costs, a sheet or sheets of the Bill of Costs being devoted to every such item. However, these sheets show the various services performed by the plaintiffs for the defendants in an itemized manner factually but without any allocation of costs to any particular action taken by the plaintiffs. The lump sum shown in the first sheet of the statement of account in every case appears opposite the itemized list in the further sheets of the Bill. This is not a Bill of fees, charges and disbursements such as is contemplated in s.22 of The Costs Act of 1867. A very similar matter was dealt with by Mann J in the case of Malleson, Stewart, Stawell, and Nankivell v. Williams (1930) VLR 410, and I can do no better than adopt his phraseology: 'But action having been brought upon this bill, the point is raised by Mr. Duffy for the defendant that it is not such a bill of fees, charges and disbursements as is contemplated by sec. 92 of the Supreme Court Act 1928, and he has referred me to several authorities supporting that position. These authorities show that the Courts have repeatedly held that a bill of costs must contain such details as will enable the client to make up his mind on the subject of taxation, and will enable those advising him to advise him effectively as to whether taxation is desirable or not. In the present bill, unlike some of the bills which formed the subject of the reported cases, the services rendered have been set out in complete detail; but what it lacks is the carrying out into the money columns of the appropriate charges for each of those details, the only sums which are carried out being the actual outgoings, and at the end of the items relating to the particular matter a lump sum of varying amounts as I have indicated. I have examined carefully the authorities cited to me, and also other cases, in particular the cases of In re Pomeroy and Tanner (1897) 1 Ch 284, and In re Pomeroy and Tanner (No. 2) (1897) 76 LT 149, to see whether the circumstances to which I have referred, the setting out the details of the services, will enable me to distinguish this case from those authorities; but I have come to the conclusion that it cannot be distinguished; having regard to the reasons by which those decisions have been supported. The result, I think, is that, in accordance with the law as there laid down, this bill is not such a bill as is contemplated by sec. 2, and is not therefore apparently one on which the plaintiffs are entitled to sue'".
The same approach as to the requirement of section 22 of the Costs Act (Qld) was taken by Ryan J in Re Flower and Hart's Bill of Costs (1991) 2 QdR 20 at 24, and by Dowsett J in Re Walsh Halligan Douglas' Bill of Costs (1990) 1 QdR 288 at 293-294.
The reason behind the requirement is that a client who receives a bill of costs from its solicitor should have before it sufficient detail to enable the client to obtain independent advice as to whether the charges are proper for the work claimed and whether taxation is desirable or not. A bare claim to a lump sum for "professinal costs" or "professional fees" is totally inadequate. Likewise, a narrative bill while it may give a description of the work done, is insufficient to enable the judgment to be made as to the quantum claimed and whether taxation is desirable.
The petitioning creditor relied heavily on the decision in Re Walsh, Halligan Douglas' Bill of Costs to contend that the accounts in the form in which they were tendered were adequate for the purpose of section 22 of the Costs Act (Qld). However, the bill of costs was regarded as sufficient in Re Walsh Halligan Douglas' Bill of Costs because there was an agreed basis of charging per hour and the bills as rendered summarised the number of hours spent in doing the professional work particularised and applied the agreed charge out rate to that work. That is not this case.
On the assumption that LFB Australia Pty. Ltd. was the proper client, the failure to render a bill of costs in proper form means that by virtue of section 22 of the Costs Act (Qld) the petitioning creditor could not sue the company for the fees claimed and any judgment against it would be set aside (Currie v. Robinson at 52). The petitioning creditor would, however, be at liberty to deliver a bill of costs in proper form (Currie v. Robinson at 52). This raises the question whether the judgment debtor could be sued on the statutory cause of action created by section 592 of the Corporations Law if LFB Australia Pty. Ltd., of which the debtor was a director, could not be sued by the petitioning creditor because of the operation of section 229 of the Costs Act (Qld).
Section 592 of the Corporations Law so far as it is presently relevant, provides:-
"592(1) Where:
(a) a company has incurred a debt;
(b) immediately before the time when the debt was incurred:
(i) there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or
(ii) there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and
(c) the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies; any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt.
.....
592(3) Proceedings may be brought under subsection (1) for the recovery of a debt whether or not the person against whom the proceedings are brought, or any other person, has been convicted of an offence under subsection (1) in respect of the incurring of that debt. 592(4) In proceedings brought under subsection (1) for the recovery of a debt, the liability of a person under that subsection in respect of the debt may be established on the balance of probabilities. ....."
It is central to any statutory cause of action arising under section 592 that the company "incurred a debt". In the instant case there are four possibilities, assuming that LFB Australia Pty. Ltd. retained the solicitors to do the work. The first is that the company "incurred a debt" at the date of the retainer. The second is when the work was done. The third is when the accounts were rendered. The fourth is at the expiration of one month after delivery of a bill of costs drawn and delivered in accordance with section 22 of the Costs Act (Qld).
The petitioning creditor submitted that the debt was incurred for the purposes of section 592 of the Corporations Law when the work was done and the accounts rendered. No authority was cited in support of this contention. The judgment debtor submitted that no debt was incurred because no debt was owed by the company in the absence of bills of costs which complied with the Costs Act (Qld). Again no authority for this contention was cited.
The operation of the English equivalent of section 22 of the Costs Act of 1867 (Qld.) was considered by the Court of Appeal in Coburn v. Colledge (1897) 1 QB 702. The Court of Appeal also had for consideration the question of when the cause of action of a solicitor to sue for his fees was complete. Lord Esher MR said (at 705-706):-
"The action is brought by the plaintiff in respect of work done by him as a solicitor. In the case of a person who is not a solicitor, and who does work for another person at his request on the terms that he is to be paid for it, unless there is some special term of the agreement to the contrary, his right to payment arises as soon as the work is done; and thereupon he can at once bring his action. Before any enactment existed with regard to actions by solicitors for their costs, a solicitor stood in the same position as any other person who has done work for another at his request, and could sue as soon as the work which he was retained to do was finished, without having delivered any signed bill of costs or waiting for any time after the delivery of such a bill. Then to what extent does the statute alter the right of the solicitor in such a case, and does the alteration made by it affect or alter the cause of action? It takes away, no doubt, the right of the solicitor to bring an action directly the work is done, but it does not take away his right to payment for it, which is the cause of action. The Statute of Limitations itself does not affect the right to payment, but only affects the procedure for enforcing it in the event of dispute or refusal to pay. Similarly, I think s.37 of the Solicitors Act, 1843, deals, not with the right of the solicitor, but with the procedure to enforce that right. It does not provide that no solicitor shall have any cause of action in respect of his costs or any right to be paid till the expiration of a month from his delivering a signed bill of costs, but merely that he shall not commence or maintain any action for the recovery of fees, charges, or disbursements until then. It assumes that he has a right to be paid the fees, charges, and disbursements, but provides that he shall not bring an action to enforce that right until certain preliminary requirements have been satisfied. If the solicitor has any other mode of enforcing his right than by action, the section does not seem to interfere with it. For instance, if he has money of the client in his hands not entrusted to him for any specific purpose, there is nothing in the section to prevent his retaining the amount due to him out of that money. If that be the true construction of the section, it does not touch the cause of action, but only the remedy for enforcing it."
His Lordship continued (at 707):-
"...If the plaintiff alleges the facts which, if not traversed, would prima facie entitle him to recover, then I think he makes out a cause of action. Applying that to a case like the present, when the plaintiff had completed the work, under the old course of pleading, alluded to by my brother Lopes, he could have brought his action, declaring for money payable for work and labour done at the request of the defendant; and, if the defendant made no anaswer to that claim, he would have been entitled to recover. The defendant could not have demurred to the plaintiff's declaration, which would have shewn a perfectly good cause of action, and, unless the defendant set up something to defeat the claim, the action would have been maintainable. Therefore, as soon as the solicitor had done the work, he could have maintained his cause of action for work and labour. The defendant might plead that no bill of costs had been delivered, but that would only be by way of answer to a case which constituted a good cause of action. For these reasons I think that the cause of action in this case, to use the language of the statute of Anne, was 'given, accrued, fallen or come' the moment that the work which the plaintiff was retained to do was completed".
Lopes and Chitty LLJ. expressed a similar view (at 708-709 and 710-711 respectively).
It follows that depending upon the terms of the retainer, the company would be liable for the cost of work as it was performed (if there was a prior agreement to render interim accounts) or upon completion of the work (if the retainer was for an entire contract). The rendering of a bill of costs in accordance with section 22 of the Costs Act (Qld) is not a necessary step before such liability would arise. The debt thereby incurred becomes enforceable by action or suit upon the expiration of one month after delivery of a bill of costs in accordance with section 22.
The judgment debtor further submitted that section 22 of the Costs Act (Qld) "would preclude any action by the Judgment Creditor against the Judgment Debtor until a Bill of Costs in accordance with that section has been delivered and a period of one month expired". This submission was without the benefit of authority.
The effect of section 592(1) of the Corporations Law is that the director of the company, if the requirements of the section are otherwise met, becomes jointly and severally liable with the company for the debt. Whereas section 22 of the Costs Act (Qld) operates to postpone the petitioning creditor from bringing action against the company until delivery of the required bill of costs and the expiration of one month, the section does not in terms operate in respect of the statutory cause of action which the petitioning creditor may have against the director. Section 22 of the Costs Act (Qld) only operates as between solicitor and client; it is not available to third parties. This was recognised in In Re Lawler (1878) 4 VLR 8 (IP and M) where Molesworth J rejected the contention now made where a guarantor of the client's liability sought to take advantage of the Victorian equivalent of section 22 of the Costs Act (Qld).
If the petitioning creditor can satisfy the conditions of section 592(1) of the Corporations Law, the judgment debtor, in the absence of making out the defence in section 592(2) would be liable to be sued to judgment on his joint and several obligation upon completion of the work in accordance with the terms of the retainer.
I turn to the third ground argued by the judgment creditor.
The second element of the statutory cause of action is that it be established that the debt was incurred at a particular time and that immediately before that time either of the conditions specified in section 592(1)(b)(i) or (ii) existed.
In Rema Industries and Services Pty. Ltd. v. Coad (1992) 10 ACLC 530, Lockhart J said:-
"The time when a debt is 'incurred' will vary from case to case, depending principally upon the terms of the agreement between the parties, express or implied".
With respect, I agree with that observation. Those decisions in respect of the sale of goods which have held that the debt is incurred upon delivery of the goods (Rema Industries; Taylor v. Darke (1992) 10 ACLC 1516; Hussein v. Good (1990) 8 ACLC 390 and Group Four Industries Pty. Ltd. v. Brosnan (1991) 9 ACLC 1,181, for example) are explicable on the basis that, in the absence of an agreement to pre-pay the price or for payment on a day certain, until delivery is taken and property passes the seller has no action for debt - the price - and is limited in the event of a refusal to take delivery to an action for damages (Martin v. Hogan (1917) 24 CLR 234 at 261-262; Plaimar Ltd. v. Waters Trading Co. Ltd. (1945) 72 CLR 304 at 318; Minister for Supply and Development v. Servicemen's Co-Operative Joinery Manufacturers Ltd. (1957) 82 CLR 621 at 636, 642).
In Hawkins v. Bank of China (1992) 10 ACLC 588 the New South Wales Court of Appeal had to determine if and when the granting of a guarantee constituted the incurring of a debt within section 592(1). Gleeson CJ said (at 595):-
"'Debt' is capable of including a contingent liability. The word was used in that sense in s 291 of the Companies Act 1961, which referred to 'debts payable on a contingency'. That expression did not involve a contradiction in terms. Dictionaries define 'debt' as a liability or obligation to pay or render something. Such a liability may be conditional as well as present and absolute. In Williams v. Harding (1866) LR 1 HL 9, there was an issue as to the effect of a statute dealing with insolvency which made a debt incurred by a non-trader insufficient to found an adjudication of bankruptcy unless it was contracted after a certain date. The debt in question in that case was a liability to pay calls made by a joint stock company. The question was whether the appellant's debt was contracted when he signed the deed of settlement making him a shareholder, or when the calls were made. It was held that the former was the case. Lord Cranworth LC said (at 21) that the date of the appellant's debt was when he executed the deed, and Lord Chelmsford (at 24) referred to the amount of the calls as a debt to which the appellant was 'antecedently liable'.
Similarly, the word 'incurs' takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Once it is accepted that 'debt' may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time. This is such a case".
Kirby P. and Sheller JA. expressed a similar view.
In Russell Halpern Nominees Pty. Ltd. v. Martin (1986) 4 ACLC 393, the Full Court of the Supreme Court of Western Australia had for consideration the question of when a debt was incurred for the purposes of section 556(1) of the Companies (Western Australia) Code (which section was a predecessor of section 592(1) of the Corporations Law and for present purposes in the same terms) when a lease of real property was entered into by a company. It was submitted to the court that a debt was incurred on each and every rent day throughout the term. Burt CJ, with whom Smith J agreed, rejected the submission. His Honour said (at 396):-
"Whatever the expression 'incurs a debt' might mean, it is clearly descriptive of an act which when done by the company in the stated circumstances exposes a director of the company and a person who took part in the management of the company when the debt was incurred, sic when the act was done, to a criminal liability. The incurring of the debt by the company in the stated circumstances is the act which constitutes the offence created by the subsection and that act is done at a particular and identifiable point of time, sic 'when the debt was incurred'. In a case such as this, when the term of the lease has not expired and when the landlord is holding the tenant to the agreement so that the tenant, whether in occupation of the leased premises or not, becomes liable to pay rent on the agreed rent days, I do not think that any relevant act on the part of the tenant beyond his entering into the lease in the first instance can be identified. And that being so, I do not think that it can be said that a tenant company 'incurs a debt' within the meaning of the subsection whenever a present liability to pay rent is created by the tenant's covenant in the lease operating upon the passage of time. To hold otherwise would be to say that if a company when in all respects financially sound were to enter into a lease for a term of years and at some time thereafter and for reasons which could not be anticipated it were to fall on bad times and be unable to pay its debts, the directors would thereafter and on every rent day within the remainder of the term be guilty of an offence for the reason that on that rent day the company 'incurs a debt'. I am unable to accept that".
The essential consideration which led to the decision in each of these cases was that upon execution of the document the company had subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time. The debt has been incurred because the company by entering the agreement had created an unavoidable obligation.
Although the term under consideration by the High Court in Shapowloff v. Dunn (1981) 148 CLR 72 was "contracting of a debt", the point is made by Stephen J with whom Gibbs CJ, Murphy and Aickin JJ agreed, that where a stockbroker was engaged to buy shares for a client, the debt was contracted "on the date when the broker bought the shares..." (at 78). At that time the client became liable to indemnify the broker for the purchase price, such liability being contingent only upon the seller's broker delivering the share script. In Shapowloff the debt was not contracted when the purchase order was given because at that time until the order was executed it lay within the power of the client to rescind the order and terminate the agency; that is, there was no unavoidable obligation to pay the price. Such action on the part of the client may expose the client to damages for breach of contract for loss of the opportunity to earn commission but that is not the incurring of a debt for the purposes of the section.
The best evidence of the basis of the retainer between the client and the petitioning creditor in the present case is contained in the letter of 26 March, 1990 to the directors of the company from Mr. Hawkins. After reviewing the work he has done he states:-
"7. Accounts
As we previously discussed, rather than give you a fright at the end of the various matters, we agreed that it was prudent to send to you interim accounts. Accordingly, I enclose a couple of accounts for your attention. The first is in relation to the tender documentation that incorporated the draft preliminary lease. That account is in relation to our perusal of that documentation and advice to you. The second account is headed generally 'Corporate Structure'. It is in relation to our general advice, the drafting of the necessary loan and security documentation, the drafting of the Management Agreement, our advice to you in relation to LFB's interest in Gladstone Slipways and your dealings with your friends in Mooloolaba, but mostly to our preparation of our brief to Counsel and to meeting with him and preparing the necessary subsequent documentation and advices. The firm here does tend to enforce a strict payment of its accounts so please do not be either surprised or offended should you be contacted in the event of late payment".
Putting aside for the moment the identity of the parties to the retainer, I find that the retainer contained an agreement by the client to make future periodic payments conditional upon the petitioning creditor performing the work the subject of the retainer. When and as the work was done it required no further act on the part of the company to entitle the petitioning creditor to payment of the cost of that work as a liquidated sum. The position was different to that faced by a seller where, generally, delivery is required. In the present case no question of damages arose because the right to payment was only conditioned upon performance of the work. The terms of the retainer were such that the client incurred a debt due to the petitioning creditor when it commenced to perform the work the subject of the retainer. At that point the client became unavoidably liable for the proper cost of the work and the amount of the liability increased thereafter as further work was done.
Before the Magistrates Court on the hearing for summary judgment the issues arising under section 592(1) of the Corporations Law going to the petitioning creditor's right to recover under the section had by the entry of appearance and defence been put in issue. In support of the application there was filed an affidavit of Peta Gwen Stilgoe, the relevant parts of which are set out earlier in these reasons. Besides swearing to the issue in paragraph 11, the material does not address the relevant time that the debt was incurred by reference to a particular date. If, as I consider it does, paragraph 11 means that each of the dates of the accounts particularised in paragraph 7 is a relevant date for the purpose of section 592(1), then an incorrect test has been applied. There was no evidence before the Magistrates Court which would have enabled the Magistrate to form an objective view as to the requirements of section 592(1)(b)(i) in January, 1990 when Ms. Stilgoe deposed the solicitors commenced the work which was central to the cause of action pleaded in the petitioning creditors plaint.
There are, in my opinion, on the basis of the first and third grounds advanced by the judgment debtor substantial reasons for questioning whether there is a debt in truth and fact owing to the petitioning creditor. Accordingly, I propose to exercise my discretion to go behind the judgment.
Once the court decides to go behind the judgment, the whole matter is open and the ultimate burden of proof rests on the person claiming to be a creditor to prove the existence of a debt due to the creditor (Corney v. Brien at 358; Olivieri v. Stafford at 423, 424).
I am satisfied that the original retainer of the solicitors was that of LFB Australia Pty. Ltd. I am further satisfied that the terms of the retainer were to devise and implement a corporate structure that would enable a corporate entity to obtain a lease from the Fremantle Port Authority together with all necessary permits and licenses to operate a commercial enterprise on the site. It was also part of the instructions that LFB Australia Pty. Ltd. was to be the manager of the commercial enterprise and that its position as such was to be secured in the arrangements devised by the solicitors. The retainer was given before the incorporation of Fremantle Slipway Limited in its original form as a no liability company and the work undertaken was done for and on the instructions of LFB Australia Pty. Ltd. The letter from Mr. Hawkins to the directors of LFB Australia Pty. Ltd. of 26 March, 1990 sustains such a conclusion.
The question remains, what was agreed or occurred between the petitioning creditor, LFB Australia Pty. Ltd. and Fremantle Slipways Limited after its incorporation as to liability for legal fees for work done by the solicitors covering steps taken within the corporate structure and outside it to achieve the commercial ends the structure was intended to serve?
After incorporation of Fremantle Slipways Limited on 20 April, 1990, as appears from the letter of Mr. Hawkins dated 24 January, 1991 when the petitioning creditor acted on the instructions of the directors of that company eg. in relation to the Fremantle Port lease, it treated that company as the client and liable for the cost of the work done. It is reasonable to infer that this situation was not limited to the instructions relating to the lease. Mr. Hawkins prepared a draft management agreement the parties to which were Fremantle Slipways Limited and LFB Australia Pty. Ltd. A copy of the draft agreement was exhibited to Mr. Hawkins' affidavit. By clause 20 of the agreement, whether or not the transactions contemplated by the agreement came to pass, each party was to pay "its own fees and expenses of and incidental to the negotiation, preparation and execution of this Agreement, including the fees and disbursements of its lawyers and accountants..." There is no suggestion on the evidence that any other solicitors acted for Fremantle Slipways Limited in the period covered by the accounts rendered by the petitioning creditor or that LFB Australia Pty. Ltd. had any authority to bind Fremantle Slipways Limited (see clause 4 of the draft agreement). It is clear that the agreement was executed by the parties although there is no evidence on what date this occurred.
Although preparation of the documentation contemplated by the corporate structure Mr. Hawkins devised would come within the terms of the original retainer, the implementation of the steps after incorporation required the instructions of Fremantle Slipways Limited. Steps falling into the latter category included registration in the Office of the Commissioner of Corporate Affairs of the name change, the change in public company status, the alteration of the memo and articles of association and the issuing of shares. The final account issued on 26 October, 1990 shows that work in this category was done in the period 29 May to 26 October, 1990. As appears from the letter accompanying the account of 26 October, 1990 the petitioning creditor treated this work as the finalisation of the work contemplated by the original retainer. On the other hand, LFB Australia Pty. Ltd. has treated the cost of work done after incorporation of Fremantle Slipways Limited as wholly or partly a liability of that company. The letter from LFB Australia Pty. Ltd. dated 30 July, 1990 to the petitioning creditor is headed:-
"ACCOUNTS DUE - LFB AUSTRALIA PTY. LTD. - FREMANTLE SLIPWAYS LTD."
The letter refers to cheques having been sent to the solicitors. The only accounts sent by the solicitors prior to 30 July, 1990 were the accounts of March and May, 1990 relating to corporate structure. Whether the cheques were those of LFB Australia Pty. Ltd. alone, or a cheque from it and Fremantle Slipways Limited, it is clear that LFB Australia Pty. Ltd. was contending that some of the work charged for was properly the liability of Fremantle Slipways Limited alone. Such a contention is consistent with the terms of the management agreement and the reality of the incorporation of Fremantle Slipways Limited.
The account of 27 March, 1990 was, I find, a liability of LFB Australia Pty. Ltd., as was so much of the account of 29 May, 1990 as represented work performed up to and including incorporation of the no liability company on 20 April, 1990. Thereafter so much of the work as was not performed on the instructions of Fremantle Slipways Limited which is contained in the accounts of 29 May, 1990 and 26 October, 1990, and which properly fell within the terms of the original retainer was the liability of LFB Australia Pty. Ltd. Such other work in those accounts and the accounts relating to the Fremantle Port Lease (reference 500982/M. Hawkins) being performed on the instructions of Fremantle Slipways Limited was the sole liability of that company.
Having regard to the way the accounts have been drawn, it is not possible to isolate and value the work contained in the May and October, 1990 accounts for which LFB Australia Pty. Ltd. is liable.
The account dated 2 January, 1991 for $1,187.00 was admitted by the judgment debtor in his entry of appearance and defence, as being a debt incurred by LFB Australia Pty. Ltd., although he subsequently denies this. On 6 December, 1990 the judgment debtor on the letterhead of LFB Australia Pty. Ltd. wrote to Mr. Hawkins. The letter in part states:-
"Dear Michael,
I believe it is time for you to open a new file titled I. Beckwith/L.F.B. Australia. The position between myself and fellow Director JJ. Le Franc has reached a situation whereby the Management Agreeent (sic) between this Company and Fremantle Slipways particularly in relation to Performance item 3 is now untenable. Furthermore as of 3/12/90 Le Franc has refused to sign any cheques in relation to outstanding accounts payable by this Company or Fremantle Slipways Ltd. .....
Michael, it appears to me that the best and only course of action here is to have this Company wound up and the Management Agreement assigned to someone, preferably myself, so that the business of completing the project is not denegrated (sic) by the actions of my fellow Director. Could you please advise at your earliest the possible implications of this action given the charge that Julie has over the Company. Also would you consider if the assignment of the lease went to myself how the assingment (sic) would be processed in view of both Companies having to agree to such an assignment. I look forward to your early response".
Having regard to the admission and the contents of the letter the probability is that the January, 1991 account relates to work undertaken in consequence of this letter. I find that LFB Australia Pty. Ltd. was liable for this account.
It is not possible to make any findings as to the nature of the work claimed in the account of 21 February, 1991 or on whose instructions it was undertaken. The account is devoid of any details. The material filed by the petitioning creditor does not assist. On 24 January, 1991 by letter to Ms. Julie Le Franc, Director, LFB Australia Pty. Ltd., the petitioning creditor by Mr. Hawkins gave to Ms. Le Franc certain advice as to the shareholding in Gladstone Slipways Limited, Mooloolaba Spit Marine Pty. Ltd. and Fremantle Slipways Limited. He also included copies of proxies in relation to a meeting of shareholders of Fremantle Slipways Limited to be held on 25 January, 1991. Ms. Le Franc, whilst a director of LFB Australia Pty. Ltd., was also in some way associated with Fremantle Slipways Limited. It was on 10 December, 1990 on the letterhead of that company, and prima facie on its behalf, that she advised the petitioning creditor the accounts would be paid. It is possible that the advice was given to Ms. Le Franc as a director of LFB Australia Pty. Ltd. It is also possible that the advice was given to her in some capacity for Fremantle Slipways Limited in relation to the upcoming shareholders meeting. It is also possible that the advice forms part of the work, the subject of the account of 21 February, 1991. Likewise it is possible that some, or all of the work, the subject of the account, flowed from the letter of the judgment debtor of 6 December, 1990 set out above. The evidence does not take the matter beyond a range of possibilities.
Because no attempt has been made in the material filed by the petitioning creditor to segregate out the separate affairs of LFB Australia Pty. Ltd., and Fremantle Slipways Limited, and particularise in sufficient detail the work done in terms of its nature and date and value, to hold that the work performed in the account of 21 February, 1991 was wholly or partly on the instructions of LFB Australia Pty. Ltd., would be merely to speculate.
The accounts which I am satisfied relate to work performed on the instructions of LFB Australia Pty. Ltd. are:-
27 March, 1990 $3,698.50 2 January, 1991 $1,187.00 $4,885.50
Further work was done on the instructions of LFB Australia Pty. Ltd. and is included in the accounts of May and possibly October, 1990. However, for the reasons stated above this work cannot be identified or valued, notwithstanding that I am satisfied that LFB Australia Pty. Ltd. is liable to pay for it.
The material filed in the Magistrates Court by the petitioning creditor acknowledges payment of the sum of $6,985.70. However, no details are given as to the date or dates of payment, from whom it was received or in respect of which account, if any, it was tendered in payment.
No submission was addressed by either side as to how the payment of the sum of $6,985.70 ought to be treated.
As Lockhart J said in Re Walsh Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727 (at 728-729):-
"A debtor who owes two debts to a creditor is entitled to appropriate a payment which he makes to his creditor to one debt rather than to the other. If he omits to do so, the creditor may make the appropriation. If neither makes any appropriation, the law appropriates the payment to the earlier debt."
There is no evidence of any appropriation of the payment by the payer to the payment of any particular account. Save for the crediting of $467.00 held in the Trust account to the memo of fees of 26 October, 1990, there is no evidence that the petitioning creditor consciously appropriated payment to any particular account. In conformity with the principle stated above, appropriation of the payment would discharge the debts due on the March and May, 1990 accounts. If any inference is to be drawn from the fact that the petitioning creditor sued for a balance due on account, it must be that by setting off the credits against the debits the petitioning creditor prima facie appropriated the credit according to the priority of the debts on the debit side. That is, in discharge of the earlier debts in the order of their creation (Sherry's Case (1884) 25 ChD 692 at 702; Deeley v. Lloyds Bank (1912) AC 756 at 783). Whichever approach is taken, the effect is the same; the payment operated to discharge the indebtedness of the company to the extent of $5,983.50 being the total of the first two accounts charged to LFB Australia Pty. Ltd. It is unnecessary to determine whether the balance, after crediting the $5,983.50 ought to be credited against the account of 26 October, 1990, or, save for $467.00, against the earlier accounts for the Fremantle Port Lease which the petitioning creditor treated as part of the striking of the balance claimed.
The only other account that I am satisfied on the evidence was incurred by LFB Australia Pty. Ltd. was the January, 1991 account of $1,187.00. That account should not receive the benefit of any payment made because the payments in all probability will be exhausted by being set-off against the prior accounts when the true liability of LFB Australia Pty. Ltd. under those accounts is exposed.
Even if I were satisfied that all accounts other than the accounts payable by Fremantle Slipways Limited in relation to the Fremantle Port Lease were payable by LFB Australia Pty. Ltd., there is no evidence as to the financial situation of that company such that an objective finding could be made that immediately before the debt was incurred there were reasonable grounds to expect that the company would not be able to pay all its debts as and when they became due. On the evidence, the petitioning creditor commenced work under the retainer in January, 1990. The first suggestion on the material that there was any difficulty in paying the accounts was in July, 1990 when cheques were not met upon presentation. The letter of 30 July, 1990 from LFB Australia Pty. Ltd. asserts that there were in place financing arrangements against which it was intended to draw to make the payments. However, according to the letter, access to the funds was dependent upon Fremantle Slipways Limited being registered in Western Australia and the Fremantle Port lease issuing which it was contemplated would have occurred by that time. There is no basis to draw the conclusion that in January, 1990 it would not have been reasonable to expect that matters would have progressed to a stage where there was access to the funds to enable debts, including the petitioning creditor's debt, to be paid as and when they fell due.
It was submitted by the petitioning creditor that the evidence necessary to support a finding that LFB Australia Pty. Ltd. was unable to pay its debts was contained in Exhibits "D", "L", "O", "P" and "U" to the affidavit of Mr. Hawkins.
Exhibit "D" is the letter of 30 July, 1990 from the company to the petitioning creditor explaining why the cheques had not been met on presentation and explaining that access to substantial funding was dependent upon the port lease being obtained and Fremantle Slipways Limited being registered in Western Australia.
Exhibit "L" is a copy facsimile on the letterhead of Fremantle Slipways Limited. It is dated 10 December, 1990 and is from Ms. Le Franc to Mr. Hawkins. The letter in part says:-
"Michael I am sorry that your account is pending payment. I believe from Ian that we only have about $4,000 - $5,000 left in our bank account to see us through our final negotiations. If this be the case, then I am a bit reluctant to pay bills. Ian has told me the car, computer, and overdraft account which was used for the Company use will not be paid this month, or accounts be brought up todate, I need to reconcile the financial books so that I am abreast of the financial commitments. .....
Your account will be paid as soon as further funds become available, which is not in the too distant future.
I appreciate your understanding and patience".
Exhibit "O" is a copy memorandum dated 26 February, 1991 from Ms. Le Franc to Paul Summers of Fatharly Summers. The memorandum reads:-
"As discussed, please find enclosed a list of creditors that I have to hand, please bear in mind, this list is incomplete. Telecom (FSL Office) 701.33 Northmore, Hale, Davy and Leake 9,469.16 (includes Stamp Duty)
Power and Power 11,942.86 Ingrilli and Associates 325.00 Elite Secretarial Services 353.70 Longley and Associates 3,600.00 Fremantle Herald 112.00 KPMG Peat Marwick 9,188.94 Snap Printing 198.10 Butterworth 116.00 Port and Harbour Consultants 10,000.00 $46,007.09"
There is no evidence as to the circumstances surrounding the creation of the list or whose creditors the list refers to. Nor is there any evidence as to how a copy of the list came into the possession of the petitioning creditor.
Exhibit "P" is a copy letter from Ms. Le Franc to Mr. Hawkins dated 9 June, 1991. The letter was written in response to a letter of demand from the petitioning creditor claiming the unpaid fees against her personally to which Ms. Le Franc took objection. The letter concludes:-
"Any discussion at Company level should be directed to:
Mr. Jim Hodges
Manager
Fremantle Slipways Ltd
C/- 5/10 Shields Crescent Booragoon WA 6154
PO Box 206
Kalamunda 6076".
Exhibit "U" is a copy of a notice of intention to de-register a company published in the Australian Newspaper by Ms. Le Franc. The two companies named in the notice are Fremantle Slipways Ltd. and LFB Australia Pty. ltd. The notice is dated 20 September, 1991 and states in part:-
"3. The companies are not in operation or carrying on business.
4. At the date of this application, the companies have no assets".
The petitioning creditor also points to correspondence from the petitioning creditor asking for payment of the fees, particularly in late 1990 and early 1991.
Exhibits "L" and "P" on their face show Ms. Le Franc as treating the accounts as being properly payable by Fremantle Slipways Limited and speaking of the affairs of that company.
Exhibit "O" in terms does not relate to LFB Australia Pty. Ltd and standing unexplained as it is, carries no evidential value.
Exhibit "U" relates to a period long after the delivery of the last account in February, 1991 and there is in the material notification from the Australian Securities Commission that the de-registration did not proceed.
What cannot be overlooked is that $6,985.70 was in fact paid inferentially after 30 July, 1990 when the first cheques were returned unpaid.
As I have stated above, the evidence relied upon does not support a finding that there was no reasonable expectation in January, 1990 that LFB Australia Pty. Ltd. would not pay all of its debts as and when they fell due. Further, the material relied upon by the petitioning creditor relates more to the financial position of Fremantle Slipways Limited than it does to LFB Australia Pty. Ltd. So far as the material reveals anything, it shows that by November/December, 1990 Fremantle Slipways Limited was unable to meet its debts as they fell due.
It follows that the petitioning fails to make out against LFB Australia Pty. Ltd. as at January, 1990 an essential element necessary to a cause of action against the judgment debtor under section 592 of the Corporations Law.
For the above reasons I am not satisfied that the petitioning creditor has in truth and reality a debt due to it from the judgment debtor in the sum of $1,500.00 or more. Accordingly, I order that the petition be dismissed. For the same reasons the bankruptcy notice will be set aside. The petitioning creditor must pay the judgment debtor's costs of and incidental to the petition and the application to set aside the bankruptcy notice to be taxed if not agreed. The Court orders that:
1. The petition is dismissed.
2. The bankruptcy notice issued on 17 February, 1992 be set aside.
3. The petitioning creditor to pay the judgment debtor's costs of and incidental to the petition and the application to set aside the bankruptcy notice to be taxed if not agreed.
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