Re Fing, T. v Ex Parte Time Sportswear Pty Ltd

[1990] FCA 673

Re: TREVOR FING
Ex Parte: TIME SPORTSWEAR PTY LTD
No. P1904 of 1990
FED No. 673
Bankruptcy - Construction

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
Davies J.(1)

CATCHWORDS

Bankruptcy - "going behind" the judgment - creditor's petition founded upon judgment debt - whether judgment sufficient proof of debt - whether debtor personally gave guarantee for company's debts.

Construction - whether agreement could be interpreted having regard to deleted clause.

HEARING

SYDNEY

#DATE 29:11:1990

Counsel for the debtor: Mr G.J. Tabuteau

Solicitors for the debtor: Messrs Turnbull Hill

Counsel for the petitioning creditor: Mr G. Curtin

Solicitors for the petitioning creditor: Messrs Andrews

ORDER

The petition be dismissed with costs.

NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is a petition for the sequestration of the estate of the debtor, Trevor Fing. The petition is founded upon a judgment entered in the District Court of New South Wales on 1 June 1989. The judgment, for $41,000 plus costs of $477.75, a total of $41,477.75, was entered in default when Mr Fing's solicitors failed to file in the Court a notice of grounds of defence and an affidavit in support thereof which Mr Fing had sworn. Mr Fing did not become aware of the judgment until February 1990. He then applied promptly to the District Court for an order setting aside the default judgment. On 23 March 1990, an order was made that, conditional upon payment into Court of the sum of $41,000 by 30 March 1990, judgment would be set aside and leave granted to file notice of grounds of defence. Mr Fing was, however, financially unable to make the payment into court. On 9 April 1990, he sought an order varying the conditional leave. On 4 May 1990, a judge of the District Court refused the application on the ground that he had no power to vary the order already made. In the result, the merits of Mr Fing's defence were not considered by the District Court.

1. For bankruptcy purposes, a judgment is only prima facie evidence of a debt. As Linley L.J. said in Ex parte Lennox: In Re Lennox (1885) 16 QBD 315 at p 329:-
   

"The Court will not allow bankruptcy proceedings to be had recourse to for the purpose of enforcing debts which are fictitious, and not real, even although they are in the form of judgment debts."

See also Corney v. Brien (1951) 84 CLR 343, Wren v. Mahony (1972) 126 CLR 212 and Olivieri v. Stafford and Others (1989) 91 ALR 91. Particularly is this so when the judgment was obtained, not after a trial in which the facts and the law were investigated but by default. In Corney v. Brien at pp 357-8, Fullagar J. went so far as to say:-

"But, wherever the judgment in question is a judgment by default, it appears that the court will always `go behind' the judgment if there is what it regards as a bona-fide allegation that no real debt `lay behind' the judgment."

1. In the present case, as Mr Fing has contended that he was not liable for the debt on which the judgment was founded, and as he has acted promptly and properly, both in seeking to defend the proceedings in the District Court and in seeking to have those proceedings set aside once judgment had come to his notice, this is an appropriate case not to accept the judgment as sufficient proof for bankruptcy purposes but to examine whether there was in truth a debt owing by Mr Fing to the petitioning creditor as alleged.

2. The issue is a narrow one and turns solely upon the question whether Mr Fing guaranteed debts incurred by a company, Stoned Pty Limited.

3. On 10 September 1985, Mr Fing and his wife, Mrs Lynette Fing, attended at the office of Mr David Silvester, an agent for the petitioning creditor, Time Sportswear Pty Limited, with a view to making purchases for their company, Stoned Pty Limited, of which they were directors. Mr Silvester knew Mr and Mrs Fing as he had dealt with them in his capacity as agent for other companies. Mr Silvester handed Mr Fing a document entitled "Application for Credit Account" and requested that it be completed. While Mrs Fing inspected the range of Time Sportswear clothing, Mr Fing completed the application form and returned it Mr Silvester.

4. The form completed was an application for credit. The credit terms were specified as 5% discount if payment was made within 15 days of invoice date, 2.5% discount if payment made within 30 days of invoice date and interest at the rate of 1.5% per calendar month on money not paid within that time. The applicant named was Stoned Pty Limited and the business address, telephone number etc of the company were completed. The name and home addresses of the directors, Mr and Mrs Fing, were completed. A form for the applicant's banker was left blank. The names of trade referees and their addresses were given. The number of years the owners had been in business was stated as 13 years. To this point the form as filled out was an application by Stoned Pty Limited to Time Sportswear Pty Limited for the abovementioned credit terms.

5. Thereafter, the form contained the following printed section:-
   

"FORM TO BE COMPLETED WHERE APPLICATION BY COMPANY OR BUSINESS NAME I/WE ........ ........ ..... and ........ ...... as proprietors/directors of the above applicant in consideration of your company granting credit to the said applicant warrant as follows: 1.We have authority to enter into this

agreement on behalf of the said applicant and ourselves.

2.Notwithstanding the provisions of the

Business Names Act or any similar legislation or any documents registered pursuant thereto, I/we hereby jointly and severally guarantee that I/we shall be liable for the due payment by the said applicant of all debts and charges incurred to your company. 3.The said applicant is able to pay its

debts as they fall due.

4.This agreement shall be a continuing

guarantee to your company for all debts whatsoever and whensoever contracted by the said applicant with your company.

5.Your company's rights against me/us shall

not be affected by any of the following:

(a) Any indulgence or extension of time by your company to the said applicant;

(b) The death or bankruptcy or winding up of the said applicant or one of the guarantors;

(c) The liability of the said applicant being or becoming invalid, illegal or unforceable, through any act, omission or legislation."

Mr Fing completed this section of the form by crossing out the word "I" and inserting the names Trevor Fing and Lynette Fing, by crossing out the word "proprietors" and by crossing out clause 2.

1. Mr Fing then dated the completed form 10 September 1985 and signed it. He returned the completed form to Mr Silvester who accepted it.

2. The sole issue is whether, notwithstanding that clause 2 was deleted, Mr Fing nevertheless guaranteed payment of any debts incurred by Stoned Pty Limited.

3. Mr G. Curtin, counsel for the petitioning creditor, submitted that, in interpreting the agreement, no regard should be had to clause 2 or its deletion. Mr Curtin referred to a number of authorities, many of which were referred to by Mr Justice Bingham in The "C. Joyce" (1986) 2 Lloyd's Rep 285 where his Lordship said at 291:-
   

"In the course of the hearing a brief but interesting discussion took place whether I could properly look at the standard bill of lading clause deleted from the charter-party form in this case as showing the intention of the parties. The charterers argued that I could, relying on the dicta (to my mind highly persuasive) of Lord Reid in London and Overseas Freighters Ltd v. Timber Shipping Co. S.A., (1972) AC 1 at p 15 and Lord Cross (with whom Lords Hodson and Wilberforce agreed) in Mottram Consultants Ltd v. Bernard Sunley and Sons Ltd, (1975) 2 Lloyd's Rep 197 at p 209. The owners argued that I could not, relying on Inglis v. Buttery and Co (1878) 3 App Cas 552 at pp 596 and 576, Sassoon and Sons Ltd v. International Banking Corporation, (1927) AC 711 at p 721 and Compania Naviera Termar S.A. v. Tradax Export S.A., (1965) 1 Lloyd's Rep 198 at 204."

Mr Curtin referred to the following additional authorities on the same point: Louis Dreyfus and Cie. v. Parnaso Cia. Naviera S.A. (1959) 1 QB 498; Mobil Oil Australia Ltd v. Kosta (1969) 14 FLR 343; T.J. Watkins Ltd v. Cairns Meat Export Company Pty Ltd (1963) Qd R 21 and Harrod v. Palyaris Construction Pty Ltd (1973) 8 SASR 54.

1. I accept that, as a general rule, documents should not be interpreted having regard to clauses which have been deleted. Documents should be interpreted according to the words used, not by words that were not adopted. But, the present task is to determine whether or not the document signed by Mr Fing constituted a personal guarantee by him of the company's debts. The question is whether the application, which was signed by Mr Fing on behalf of the company, Stoned Pty Ltd, also gave a personal guarantee by Mr Fing for debts contracted by the company. In determining the question, namely, whether Mr Fing personally gave a guarantee, Mr Fing's conduct, insofar as it bears upon the substance and nature of the transaction, may be taken into account.

2. The action of deleting the clause which provided for a personal guarantee made it clear that Mr Fing did not give any such personal guarantee. The act of crossing out clause 2 was an unequivocal act showing that the substance of the transaction was that of application by the company for credit and not the giving of a personal guarantee.

3. Mr Curtin relied upon clauses 4 and 5 which contained provisions which were ancillary to or in assistance of the provision of a personal guarantee. They were not changed. Once clause 2 had been deleted, these clauses were somewhat equivocal, suggestive that a guarantee had been in mind. But they did not clearly express a personal guarantee. The nature of the transaction was thus not that of guarantee for Mr Fing had made it clear by deleting clause 2 that he was not giving such a guarantee.

4. As Mr Silvester accepted the form as amended by Mr Fing, there was no contract of guarantee as between Mr Fing and Time Sportswear Pty Limited. Mr Fing did not offer as personal guarantee and Time Sportswear Pty Ltd therefore did not contract for one.

5. It follows that there was no true debt as between Mr Fing and Time Sportswear Pty Limited and that the proof of debt should be rejected.

6. The petition will be dismissed with costs.