Re Cooper, E. & Ors v Ex parte First National Finance Ltd - [1987] FCA 252

(LIMITED DISTRIBJTION)

2.52

IN THE FEDERAL COURT OF AUSTRALIA	)
I

BANKRUPTCY DISTRICT	OF THE	)
1 NO. P 589 OF 1986
STATE OF VICTORIA	)

EDWARD

COOPER,

SHIRLEY

GLADYS COOPER,

KYM PAMELA

COOPER, CRAIG HENRY COOPER

and ALAN

EDWARD COOPER

EX PARTE:

FIRST NATIONAL

FINANCE

LIMITED (formerly CHASE NBA FINANCE LIMITED)

Judqe Maklnq Order: Ryan J.

Date of Order:	20 May 1987
Place :	Melbourne

MINUTES OF ORDER

THE COURT ORDERS THAT:

Upon it belng satlsfied that

each of the debtors

Edward

Cooper, Shirley Gladys Cooper, Kym Pamela Cooper, Cralg Henry

Cooper and Alan Edward Cooper on

1 Aprll 1986, 3 April 1986,

28 April 1986, 9 April 1986 and 1 April 1986 respectively

committed the act of bankruptcy alleged In the petition and

with the proof of the other matters of whlch s.52(1) of the

Act requlrea,

sequestration order be made against the estate of

each of the debtors.

2 . Costs, (lnzludlng any reserved costs) be taxed and pald accordlng to the Act.

3 .

By consent,

all

proceedlnqs

under

each

the

sequestration orders be stayed until

11 June 1987.

draft

this order be delivered to the Registrar

within 7 days

accordance

with

r.124(2)

of the

Bankruptcv Rules.

m: Settlement

and

entry

order

dealt

with In

Bankruptcy Rule 124.

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT	OF THE	)
I NO. P 589 OF 1986
STATE OF VICTORIA	1

M PARTE:

FIRST NATIONAL

FINANCE

LIMITED (formerlv CHASE

NBA FINANCE LIMITED)

W: Ryan J .

Date:

20 May

1987

REASONS FOR JUDCMENT

I have recounted the facts relevant to thls petitlon as

they exlsted at 17 December 1986 in a ~udqment glven on that date refuslnq an adjournment of the hearing of the petltlon. Since then there has been a further hearlnq of the petitlon

on 26 February 1987 when counsel for the parties consented to

an ad~ournment to 31 March 1987 upon counsel for the debtors undertaking that the first and second debtors would forthwith

offer

for

sale

the

stock

and

station

agency

business

conducted at 8 High Street

Bunylp

and

use

thelr

best

endeavours to procure

an unconditional sale of that business.

On 31 March 1987, after a hearlng which occupled the

mornlnq, the hearlnq of the petition was further adjourned by

2 .

consent

May

1987

upon

counsel

for the debtors

undertaklng on behalf of each of them not

to oppose at

the

resumed hearlng, the making of a sequestratlon order based on

a	failure to comply wlth the several bankruptcy notlces

referred

the

petltion

dated

June 1986. The

first-named debtor also undertook

in person to take all

necessary steps to facilltate the transfer of the extractive

Industries

llcence

respect

the

property

known

"Binalong" to

any purchaser from the petltionlng credltor

("Flrst National") at a forthcoming auction of that property.

On 7 May 1986, First National conducted

mortgagee's

auction of "Binalong" which realised $1,255,000 payable

by a

deposit of 10% on the fall of the hammer and the balance

on 6

July 1987.

In an

affidavit sworn 12 May 1987 Mr.

Berryman,

the National Manager of

First National, has deposed that the

balance of principal and interest due

to First National under

the

mortgage

Moowinnybah

Pastoral

Co.

Pty.

Ltd.

("Moowinnybah") of "Binalong" on 6 July	1987	wlll	be
approxlmately $1,736,394.18.

After providlng for the costs and expenses of the sale

and payment of $155,000

to Labertouche Sands Pty. Ltd.

( m

liquldation) In consideratlon of its

agreelng to withdraw

certain caveats over the title to "Blnalong" and

to surrender

Its extractive Industries licence In respect of the property,

the	net proceeds available to satisfy the princlpal and

Interest under the mortgage wlll be approrlmately $35e,ooo leavlng an estlmated zhortfall of $773,395. The propriety of paying S155,I)UO or any sum at a l l to Labertouche Sands Pty.

Ltd. 1s dlsputed by Moowlnnnybah and the debtors.

Each of the debtors 1s a surety for the performance by

Moowmnybah of Its obligatlons to pay prlnclpal and interest

under the mortgage over "Blnalong". As a result of

Moowlnnybah's default, First National obtained a judgment

the Supreme Court

of Victoria against each

of the debtors for

$1,327,748

together

with

interest

and

costs.

The

act of

bankruptcy of each debtor relied

on by the petitloner

non-compliance with a bankruptcy notice referring to

that

~udgment

debt and containing the following recitals:

"AND WHEREAS

the ~udgment creditor abandons Its

entitlement to all interest and costs payable

pursuant to the

said

judgment

and

also

interest payable pursuant to the Penalty Interest

Rates Act 1983 (No. 9967)

AND hIHEREAS since entry of the said judgment the

ludgment creditor

has

received a total sum

$144,278.00 in reduction of the said judgment

thereby making the balance

now due under the

said

judgment the sum of $1,183,470.00

AND WHEREAS the ~udgment credltor claims from you

no more

than

$1,183,470.00

under

the

sald

judgment

. . .

The guarantee under which each of the debtors is a surety for

Moowinnybah is annexed to the mortgage	over "Binalong" and
contains the following clauses:

4 .

1 .

The guarantors HEREBY JOINTLY AND SEVERALLY UNCONDITIONALLY GUARANTEE to the mortgagee the due and punctual payment of

all

princlpal

Interest

damages

and

all

other

moneys

payable

by or recoverable

from the Mortgagor under or pursuant to or in connexlon with the withln mortgage and

the due and

punctual

performance

and

observance of all

covenants

obligations

terms and conditlons contained or

lmplled

In the wlthln mortgage and on the part of the mortgagor to be performed or observed.

Thls guarantee is independent

and

addition

any

other

guarantee

securlty

held

or to

held

the

mortgagee for all or any of the Indebtedness or liability of the mortgagor and no guarantor will in any way or at any time claim the benefit of or seek or requlre the transfer of any such guarantee

or security or any part thereof.

7. This

guarantee

shall

a continuing

guarantee for the purposes

of securing the

payment of the whole of the moneys

and

damages as aforesaid and the performance of the whole of the covenants obligations terms and conditions as aforesaid

notwithstanding

any

partial

payment

performance thereof."

Mr. Tribe of counsel for the debtors has argued that the	sale
of "Binalong", if it has realized enough to satisfy the	debt

of $1,183,470.00

specified

the

bankruptcy

notlce,

has

removed the basis

the

Court's lurisdiction to make a

sequestration

order

against

the

estate

of each of the

debtors.

To satisfy the condition on whlch that proposition

1s premised, it would be necessary to leave out of account the sum of $155,000 which First National proposes to pay to Labertouche Sands Pty. Ltd. (In liquidatlon) and to show that the estimate of costs and expenses of the mortgagee's sale is

excessive by at least $70,470.

To endeavour to demonstrate

that excess, Mr. Trlbe sought leave to cross-examlne Mr.

Berryman

hls

affldavlt.

However,

I consldered It

approprlate

determlnp

flrst

whether,

making

all

the

assumptions of fact required to establish the basls For Mr. Tribe's argument, the Court's ]urlsdlctlon to make a sequestration order has been removed In the way for which he

has contended.

The contention

takes as Its

starting

polnt

the

proposition that a surety can insist

on a creditor, who holds

securlty over some property of the prlnclpal debtor, applylnq

the

proceeds

from

the

realization

that

securlty

reduction or elimination of the debt of whlch the surety has

guaranteed payment.

That

proposition is unexceptionable as

Far as It goes.

It applies mainly where two debts are owing

to the creditor, so

as to glve him

an election as to

whlch

wlll be reduced

or ellmlnated by recourse to some security

which he holds over the property

of the principal debtor.

Thus in Pearl v. Deacon (1857) 1 De G & J 461: 44 EX 802 the defendants had taken by way of security an assignment of,

amongst other things, furniture and effects at

a house

which the principal debtor was their tenant. The

defendants

thereafter seized the goods by way of distress for rent, and

on an action by the plaintlff who was

a surety for payment of

the secured debt it was held by

Slr John Romilly MR.

E(1857)

24 Beav.

186; 53

ER 3281 and afflrmed on appeal that the

defendants were precluded

as between them and the surety

from

applylng the goods, whlch were the sub~ect

of a securlty for

the debt for whlch the plalntlff was surety

to them, to

any

other purpose than that

of securlty. See

also Hancock v.

Wllllams (1342) 42 ;R

(NSW) 252 where the followlng passage

occurs in the ~oint	ludgment of	Jordan CJ and Halse Rogers
J., at 256:

“Again, if the contract of suretyshlp contains no

stipulatlon that there are to be co-guarantors or

that securities are to be taken by the obligee,

if he nevertheless in fact has or obtains other

guarantors or

securities

for

the

obligation

guaranteed, the fact of suretyship of itself and

notwithstanding the absence of any stipulatlon in

that behalf vests In the guarantor an equltable

right to contrlbution from every co-guarantor and

to the benefit

every security

obtained.

And, if the

obligee

releases

any

such

co-guarantor or security, the

guarantor

entitled in equity

released

from

his

guarantee - not in this case absolutely,

but only

- to the extent to whlch he

can prove that he has

been damnlfied by the release: Ward V . National Bank of New Zealand 8 App. Cas. 755 at 765-6; A.J.S. Bank v. Hetherinqton 14 NSWLR 503; Dale v.

Powell 105 LT 291 at 294.

Thus, where there are

two separate guarantors, each

of whom has assumed

the

same

liability,

the

release

of one will,

prima facle at any rate, release the other from

one half of his liability: Hodsson

v. Hodsson

Keen 704 at

711; and if

the obllgee reallses a

security which he subsequently obtained

from the

guaranteed obllgation and applles the proceeds In

satlsfaction of

a different obligation

the

obligor,

the

guarantor

is entitled

treat

himself as

dlscharged

the

extent

of the

proceeds: Pearl v. Deacon 24 Beav. 186 at 192.”

Roval Bank of Canada v. Dixon (1972) 33 DLR 332 to which

Mr.

Tribe also referred me

in thls context, was a

slmilar case In

which it was held that where a creditor realizes security for

a debt that is guaranteed by a surety, the credltor is bound

to apply the proceeds of the securlty to the beneflt of the surety, and may not approprlate them to other debts of the principal debtor.

In my new, those authorities have no application to the present case where there

1s only a slngle debt secured by

a mortgage for which the debtors

are sureties. Because there

is a single debt, there

1s no scope for the entitlement

of a

debtor to approprlate a

payment to one debt rather than the

other which was discussed by Lockhart

J. in Re Walsh ex parte

Commlssioner of Taxation

(NSW) (1982) 60 FLR 355;

ALR 727.

In that case his Honour went

on to say (at 357; ALR 7 2 8 ) that

if the debtor omits to make

the appropriatlon, "the credltor

may

make

the

appropriation.

If neither

makes

any

appropriation,

the law appropriates

the

payment

the

earlier debt."

Here there is one debt constituted by the

principal and interst accrued thereon from time to time In accordance with the terms of the instrument of mortgage and the guarantee given by the debtors. The fact that the debt

may be quantified in dlfferent amounts at different polnts

time does not give rise to the conclusion that there

are

separate debts to one	or other of	whlch a payment may be
appropriated.

Accordingly, I

not

prepared to hold that First

National IS bound to apply the proceeds from the realization of its security first in discharge of that part of the debt

of the principal debtor, Moowinnybah, amountmg to $1,193,470

which

specifled In the bankruptcy notlce. However, even

If the petltioning credltor were

bound, the prospect uf

receiving sufficient moneys on cj July 1987 to discharge the judgment debt specified in the bankruptcy notice of 4 February 1986 would not take away the lurlsdiction conferred

by s.52(1) of the Bankruatcv Act 1966.	That	sub-section
provides :

"At the

hearing

a creditor's petition, the

Court shall require proof of

(a)

the matters stated

the petition (for

which

purpose the Court may accept

the

affidavit

verifying

the

petition

sufficient)

;

(b)

service of

the

petition;

and

(C)

the fact that the debt

or debts on whlch

the petltioning creditor relies is	or are
still owing,

and, if it

1s satisfied with the proof

of those

matters, may make

a sequestration order against

the estate of the debtor."

Clearly, the reference in paragraph (c) to the "debt or debts on which the petitioning creditor relies" is to the debt or

debts specified in the petition,

which in this case is a debt

of $1,183,470.

Equally clearly, that is a liquidated debt

which had exlsted at the date of the

act of bankruptcy

required by the principle in Re Debtors C19273

1 Ch.19 to

which

Mr. Tribe referred.

See

also Re Mendonca ex parte

Commissioner of Taxatlon (1969) 15 FLR 256 at 258-9.

3 .

That debt, even If attention be confined to the amount

at which

it was quantifled when the petition was

~ssued,

still

exlsts

today.

Accordlngly,

the

~ur~sdlctional

requlrement

lndicated

s.52(1)(c)

satisfied.

The

sufficiency of the proceeds from the sale of "Binalong" goes

to the abillty of the debtors to pay their

debts, whlch

ralsed

for

consideration

s.52(2)(a).

That ablllty 1s

clearly to be measured by reference to debts exlsting

at the

hearing of the petltlon, and Mr. Trlbe dld not suggest that

the

ground

afforded

s.52(2)(a)

for

dismissal

the

petition is avallable to the

present

debtors.

He also

accepted, at least by implication, that the undertaklng given

on 31 March 1987 not to oppose the making

of a sequestration

order

based

a failure

comply

wlth the

several

bankruptcy

notices

referred

the

present

petition,

precluded him from invoklng the Court's dlscretion to refrain

from making sequestration orders or further to adjourn the

hearing of the petition. (Qulte apart from that self-imposed

limitation on what Mr. Tribe has been able to submit, I

consider that In all the circumstances nelther of those

courses would be

an approprlate exerclse

of discretion).

Accordingly, I am satisfied that each

of the debtors on

1 April 1986, 3 April 1986, 28 April 1986, 9 Aprll 1986 and 1

April 1986

respectively committed the

act

bankruptcy

alleged in the petltlon.

I am

satisfied with the proof of

the other matters of

which s.52(1) of the

Act requires.

10.

make a sequestratlon order aqamst the estate of each of

the

debtors.

I order that costs (lncludlng any reserved costs be

taxed and pald according to the

Act.

By consent, I order

that all proceedings under each of

the sequestration orders

be stayed until 11 June 1987.

I direct that a draft of this

order be delivered to the Registrar wlthin seven days in

accordance with r.124(2).

I certify that this and the preceding nine (9) pages are

a true copy

of the Reasons

for Judgment hereln of the Honourable Mr. Justice Ryan.

Dated: 20 5- /p27