Re Condon, R.W.

[1992] FCA 917

I

JUDGMENT No. ...?	. ! ~ , . . . I ~ ? ~	I
l :

NOT FOR DISTRIBUTION i

IN THE FEDERAL COURT OF AUSTRALIA )

1

GENERAL DIVISION	i	1	No. P 2074 of 1992
BANKRUPTCY DISTRICT OF THE	i	\
STATE OF NEW SOUTH WALES	i

I

Re :  RICHARD WALTER CONDON L

First Judgment Debtor I I ,

and MAXIM FLAMER CALDERA

Second Judgment Debtor	1.
EX parte:	AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

Judgment Creditor i.

Coram:	Gummow J
Place:	Sydney
Date :	4 December 1992

REASONS FOR JUDGMENT (ORAL)

On 13 April 1987, a Monday, Messrs Condon, Caldera and Castorina executed a written guarantee in favour of Australia	1
and New Zealand Banking Group Limited ("the Bank") of the	!
obligations to the Bank of its customer Capricorn Meat and
i

Livestock Exporters Pty Ltd ("Capricorn Meat"). This company t

was a meat exporter. It was later named "Oz Foods Exports Pty Ltd" ( "Oz Foods"). Each of the guarantors signed an acknowledgment endorsed on the guarantee which read as

1;

follows:  - I I

"I hereby acknowledge that I have carefully read and

understand the purport of the within Guarantee. And

I hereby request the Bank to make such advances to

the within mentioned Customer as the Bank may from
time to time think proper."

Clause 1 is a widely drawn "all moneys" clause. Clause 13 was struck out and the alteration initialled by the 3 guarantors. Clause 13 provides for an express limitation to a specified sum of the liability of the guarantors under the instrument. The deletion of cl. 13 had the result that the instrument created what has been called in evidence an "unlimited guarantee".

On 15 February 1991 the Bank obtained against Mr Condon and Mr Caldera a final judgment in the Supreme Court of New South Wales in an action on the guarantee. The judgment was a default judgment.

No application had been made to set the judgment aside, before 5 May 1992. On that day the Bank caused to be issued a	Bankruptcy Notice against Mr Condon and Mr Caldera which was
based on the Supreme Court judgment. On the date of issue of the Bankruptcy Notice the sum of $173,874.33 was due under the judgment by each of the debtors.
No notice was filed by either debtor under sub-S. 41(5) of the Bankru~tcv Act 1966 ("the Bankruptcy Act"). Nor did either debtor assert any counter claim, set off or cross demand in a sum equal to or exceeding the amount of the judgment debt.
On 22 June 1992, the Bank presented against both judgment debtors a Creditor's Petition. The act of bankruptcy relied upon was failure to comply with the Bankruptcy Notice or to satisfy the Court of a counter claim, set off or cross demand in the necessary sum. It is this Petition which is now before me.
On 11 August 1992 Mr Condon and Mr Caldera consulted solicitors. They had previously been advised by an accountant that "our defence was impecuniosity." Instructions were now given to their solicitors to investigate the merits of any defence available to them "with a view to an application to set aside [the Supreme Court] judgment".
On the morning of 22 September 1992, the petition came before a Judge of this Court. After some discussion with the
whether anything had been done to set aside the default legal representatives for the parties, his Honour asked
judgment. His Honour stood the matter down to 2.15pm on that day. In the meantime, the appropriate motion was filed in the
Supreme Court. The petition was then adjourned in this Court
to 6 October 1992.
The application to set aside the Supreme Court judgment was heard by Master Greenwood on 1 October 1992. A transcript of the proceedings before the Master is in evidence before me, as is the judgment delivered that day. The motion was dismissed. Condon gave evidence and was cross-examined
before the Master. It will be necessary to refer later to the
Master's reasons for judgment.
The petition came before me on 3 November 1992. The resistance to the making of sequestration orders was based upon the proposition that even at this late stage, the Court should "go behind" the Supreme Court judgment and dismiss the petition under sub-S. 52(2) of the Bankruptcy Act on the footing that this would disclose sufficient cause for the Court not to make a sequestration order.
The solicitor for the debtors relied upon the well known principles laid down in Cornev v Brien (1951) 84 CLR 343 and v Mahonv (1971) 126 CLR 212, and applied in various
decisions in this Court.
The matter then proceeded on the footing that I should first be satisfied whether there was a prima facie case to go behind the judgment debt; see Wolff v Donovan (1991) 29 FCR
480.
The debtor's case on this issue was presented, with adjournments made necessary for the obtaining of further evidence, on 10, 18 and 20 November 1992.
One of the complaints is that the application in the Supreme Court was called on and disposed of in circumstances in which the solicitor for the debtor had not had adequate opportunity to inspect bank records which had been produced to that Court. Rather than have that sub-issue litigated in this Court, steps were taken to ensure that such opportunity was given here. The result is that I have before me and have been addressed upon much of the Bank documentation, in particular the manager's diary.
In addition to affidavit evidence, there has been cross- examination of 2 important actors in the dealings with the Bank at the time of the taking of the guarantee. They are Mr W A Horton, who during April 1987 was manager of the relevant branch (that at 275 George Street, Sydney) and the third signatory to the instrument of guarantee, Mr Castorina. Neither gave evidence before the Master.
The burden of the case now sought to be propounded by the unlimited guarantee, it was understood by the debtors when debtors is that whilst on its face the instrument creates an they signed it that the indebtedness of Capricorn Meat to be
secured by the guarantee was to be limited to the then overdraft facility with the Bank of $40,000 together with interest and charges. The Bank's position is that there was throughout a clear distinction drawn between the limit upon the amount of the facility provided to Capricorn Meat and the unlimited exposure of the guarantors under the guarantee.

The solicitor for the debtors contends that his clients executed the instrument under some misapprehension or confusion as to what it entailed for them, and that the Bank bears the responsibility for that state of affairs because it was the product of a contravention by the Bank of S. 52 of the Trade Practices Act 1974 ("the Trade Practices Act"). It is then submitted that the result of the misleading or deceptive conduct practised by the Bank should be an order under S. 87 of the Trade Practices Act having the effect of limiting the liability of the debtors under the guarantee to $40,000 plus interest and charges.

No submission in that form was put to the Master. In response to the Bank's submission before me that even if the point be conceded in favour of the debtors, that would still leave a substantial indebtedness in respect of which no payment has been proffered, the debtors suggest that there is a cross-claim in a liquidated sum against the Bank which would exceed the amount still remaining under the guarantee after

the administration of a remedy under S. 87.

There is a number of difficulties with this submission. One difficulty is that no such cross-claim has been pleaded by the debtors in the Supreme Court litigation. Another is that, as I have indicated, no such claim was propounded in this Court in response to the Bankruptcy Notice. Nor is the claim propounded with any specificity even at this stage.

On 1 April 1987, Messrs Condon, Caldera, Castorina and M r A W Austin executed in favour of the Bank a guarantee of the indebtedness of Capricorn Meat. This first guarantee was limited to $15,000. On that day an urgent overdraft of $10,000 was sought for Capricorn Meat to assist in its business as a meat exporter. Mr Horton agreed with the proposal but the overdraft was agreed to against the unsupported guarantees of all the directors and on a clear understanding that fresh arrangements would need to be made thereafter. Messrs Condon, Caldera, Castorina and Austin called at the Bank later in the day. Instead of signing an unlimited guarantee, as previously discussed with Mr Horton, a guarantee limited to $15,000 was executed. The Bank's

position thereafter was that on no account would any further facilities be granted without the execution of a fresh guarantee by all parties.

On 10 April the account was overdrawn some $21,000

through the presentation of a cheque of $9,041 relating to the

export of a shipment effected on 9 April by Capricorn Meat.

The Bank negotiated a letter of credit, approximately $26,000

of which went into the account to regularise the position. However, arrangements were made for the directors to call in the next week to rearrange their affairs with the Bank. In the meantime the Bank watched its position to ensure that the guarantee cover of $15,000 was not exceeded.

The Bank was told on 13 April that Mr Austin had resigned and wished to be excluded from the guarantee arrangement. The manager's diary for 13 April 1987 includes the following "Director Austin has now resigned from the company due to other pressing business commitments and wishes to be excluded from his guarantee arrangement. CO-guarantors and other directors called with Mr Austin today and a fresh unlimited guarantee by the other three was duly executed. The old account was also closed and a new one opened. To cover setting up costs until further production has been put in place the directors have asked that we provide facilities up to $40,000 on a combined overdraft/bills negotiated not under credit basis interchangeable and that this facility be recorded on a continuing basis. They have $34,000 worth of pre-shipment meat to pay for today and at the same time are lodging documents with us for shipment of $US15,000 which will need to be handled on a collection basis due to the overdraft line being almost fully used. Director Condon is the only guarantor with any substance to his assets and it was made

be relied on mainly through his assets if the need arose."	clear to them that the guarantee while joint and several would
The evidence includes a Bank diary note signed by Mr Horton and Miss Jerrett, who was the Security Clerk at the relevant time. The note states: -

"Richard Walter Condon and Maxim Flamer Caldera and Salvatore Anthony Castorina called to execute an unlimited guarantee in favour of Capricorn Meat and Livestock Exporters Pty Ltd.

The guarantee was explained in general terms to the three Guarantors by Mr W Horton (Manager) in the presence of Leanne Jerrett (Security Clerk). The guarantors were then given the opportunity to read the document in full or to take it away to seek legal advice. Both these invitations were declined with all parties stating that they were fully aware of the legal implications involved upon default of payment by the Company."

The note concludes by stating that the guarantee was then freely executed in the presence of Mr Horton and Miss Jerrett.

The diary note bears the date "1/4/87." The solicitor for the debtors sought to make good the proposition that the reference to the earlier date showed that this note had been prepared for the taking of the first guarantee on 1 April 1987. However, the note does not include Mr Austin as one of

the guarantors. He was one of the parties to the first	guarantee. As I have indicated, it was expected until shortly
before the execution of the second guarantee on 13 April that he would join in that instrument as well. I infer that the note was not prepared before the Bank was told on 13 April that Mr Austin had resigned and wished to be excluded from the guarantee which was about to be taken.
The most likely explanation is that the dating of the memorandum in question is a typographical error for "13/4/87." The evidence was that memoranda of this type were typed up several days after the events to which they referred. Further, in his cross-examination before me, Mr Castorina agreed that at the time when he executed the Guarantee dated 13 April 1987 he was asked whether he wanted to take the Guarantee away and get legal advice. He also gave evidence that the guarantors came into the room one by one to execute the instrument.

W Castorina was not contacted with a view to his

providing evidence for the hearing before the Master.

On 14 March 1989, after a receiver had been appointed to Oz-Foods, Mr Castorina, at a meeting at the Bank, claimed that his understanding of the liability was that it was limited to $40,000 "as discussed at original interview when he executed the guarantee. " Earlier, on 13 January 1989, when Mr Condon

had called at the Bank, Mr Horton had said to M r Condon that	he, Mr Caldera and Mr Castorina had signed an unlimited
guarantee in respect of which the guarantors were jointly and severally liable and that any of them could be called upon for the full amount of the company debt. There is no contemporaneous evidence of any protest by Mr Condon at that statement. On 29 December 1988 the indebtedness of Oz Foods to the Bank had reached $96,074.
In his judgment delivered on 1 October 1992, having regard to the evidence as it then stood, the Master concluded that there was nothing which was put forward which suggested that the debtors could not have examined the second guarantee more closely had they desired to do so or that they had been denied the opportunity of seeking legal advice if they had wished to do so. He concluded that the debtors had given a guarantee which they may have thought was limited but that there was nothing in the evidence to show that it was so limited, even on the evidence of M r Condon as to what had been said by the Bank officers. The Master described as little more than assertions the suggestion on behalf of the debtors that moneys which ought to have been available to Capricorn Meat to meet the debts for which they were guarantors "were appropriated by the Bank and as a result of this the account fell into debt and the guarantee has been called up." This is as far as the "cross claim" issue appears to have gone.

Finally, the Master dealt with the question of delay. He

the signing of judgment on 15 February 1991 and making of the	referred to the lengthy period (more than 18 months) between
application to the Supreme Court on 22 September 1992. He said that there was no evidence to suggest that the assertions now raised by the debtors were raised at any stage with the Bank. In addition to the delay, there was no evidence that even a plausible defence could be mounted to the action on the guarantee.
It is accepted by the present parties that on a petition for a sequestration order the onus of proof of establishing the existence of a debt lies on the petitioning creditor throughout, that a judgment debt should not be accepted as satisfactory proof of the petitioning creditor's debt if substantial reasons are giving for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor. Whilst the court more readily will look behind a judgment if it was obtained by default, it is relevant also whether any attempt has been made by the judgment debtor to have the judgment set aside, and the fate of that application. In an appropriate case, the court may proceed by first deciding whether sufficient facts have been shown to suggest that an investigation into the judgment should further be pursued: Wolff v Donovan supra at 487.
No case of non est facturn was sought to be made; see Petelin v Cullen (1975) 132 CLR 355. On the evidence before me it would not be shown that the Bank knew or had reason to
misapprehension as to its character as an unlimited guarantee. suspect that the second guarantee was executed under some
I am satisfied that in his dealings with the representatives of Capricorn Meat and the guarantors M r Horton was careful to distinguish between two issues. The first was the increase to $40,000 of the facility to be provided to Capricorn Meat by the Bank. The second was that after the failure to provide an unlimited guarantee on 1 April 1987, no
further facilities, including the increase to $40,000, would be granted to Capricorn Meat without the execution of a fresh guarantee.
Even if it be accepted that the 3 guarantors executed the second guarantee without an appreciation that the instrument committed them to the Bank in a sum which might be greater than the $40,000 facility then given to Capricorn Meat, together with interest and costs, that misapprehension was not the product of any sharp practice on the part of the Bank. Further, in a case of alleged contravention of S. 52 of the Trade Practices Act where a failure to speak is relied upon, the question is whether in the particular circumstances the silence constitutes or is part of such misleading or deceptive conduct: Demaaoaue Ptv Ltd v Ramensky (Full Court, 20 November 1992, unreported). Having regard to the whole of the material before me, which is more extensive than that which was before the Master in the Supreme Court, there is no real prospect of the debtors successfully maintaining the case (put
contravention of S. 52 they should have relief under S. 87 of for the first time at this late stage) that by reason of
the Trade Practices Act framed in such a fashion as, in substance, to limit the amount of the claim that might properly be made on the second guarantee.
As to the balance, which upon this hypothesis would still be secured by the second guarantee, I do not repeat what I have said earlier in these reasons.

In my view, sufficient facts have not been shown to suggest that further investigation into the Supreme Court judgment should be pursued in this Court.

It follows that sequestration orders should be made

against both of the debtors.

I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Gummow.

Associate:

Date:  4 December 199 U

Counsel and Solicitors	W J S Wheelhouse on 3
for the Creditor:	November and therearter Christine Adamson instructed by Norton Smith & CO
Solicitor for the Debtors:	M r S Thompson of Sparke
Helmore & Withycombe
Dates of Hearing:	3, 10, 18, 20 November 1992
Date of Judgment:	4 December 1992