Re Fletcher, J.C.G Ex parte Lack, P.R. Re Lack, R.I. Ex parte Lack, P.R

[1993] FCA 511

51 I 1993

JUDGMENT No. ,........ ....,.,,, / ,..,,,..,,..

IN THE FEDERAL COURT OF AUSTRALIA	)	1
VICTORIA DISTRICT REGISTRY BANKRUPTCY DIVISION

RE:  JOHN CARI, GEORGE FLETCHER

(Judgment Debtor)

PARTE :  PETER RAYMOND LACK

(Creditor)

3 0 JUL1993

AND No VP 1270 of 1992

PEI'FIC'"AL

..'. RUTH IRENE LACK

I- /'

L ----C* (Judgment Debtor)

EX PARTE:  PETER RAYMOND LACK

(Creditor)

Coram:  Ryan J

U: Melbourne

Date:  7 April 1993

EX TEMPORE REASONS FOR JUDGMENT

Rvan JI On 2 March 1990, Peter Raymond Lack, who applies to

be substituted as a petitioning creditor in the first of these Irene Lack ("the debtorsw) in the sum of $111,336.55 with costs fixed in the sum of $980. That judgment was entered in default of defence.
proceedings, entered judgment in action No 11 of 1989 in the

Harrietville of which the debtors were the registered

Supreme Court of Victoria at Wangaratta against John Carl

After referring to a mortgage granted by the debtors to the
Westpac Banking Corporation, ("Westpac"), over certain land at

proprietors, the statement of claim in the action contained,
so far as is relevant for present purposes, the following

paragraphs:

"3.	The defendants made default under the said mortgage and the mortgagee proceeded to exercase its power of sale under the said mortgage and offered the said land for sale at a
mortgagee's auction held on Saturday, 27 June 1987.
4.	The defendants requested the plaintiff and the plaintiff agreed to bid on their behalf for the sard land if necessary, up to
the sum of $400,000. And the defendants further requested the
plaintiff, and the plaintiff agreed, that if he were the successful bidder, he would enter anto a contract to purchase the land on the defendants' behalf but without disclosing to the auctioneer or the mortgagee on the day of the said action that he was bidding and purchasing on their behalf.
5.	The defendants agreed with the plaintiff to provide him with the money necessary to pay the deposit which would become payable if he were the successful bidder at the said auction and to place him in funds to enable the cheque which he would have to wrrte for the deposit to be met on presentation.
6 .	The plaintiff was the successful bidder at the said auction and on 27 June 1987 he entered rnto a contract in hrs own name with the mortgagee for the purchase of the sard land for the price
of $385,000 and he gave to the auctroneer hrs personal cheque for the deposrt payable under the said contract, namely $38,500.
7.	At all material times in enterrng into the s a ~ d contract and
giving the said cheque for the said deposrt the plaintiff was acting as agent for the defendants.
8 .	At all material times the defendants agreed with the plaintiff that they would indemnrfy him against all personal liability which he might incur by entering into the said contract and by his givang the said cheque for the deposit to the auctaoneer.
9.	Further or in the alternative, at was an implied term of the
by the defendants against all losses and liabilities and be said agency agreement that the plaintiff would be indemnified
reimbursed in respect of all expenses incurred by him as a result of the execution of his authority.
10.	The defendants failed to provide the plaintiff with the moneys necessary to pay the said deposit and failed to place him in funds to enable his cheque for the said deposit to be met on presentation and the plaintiff was unable to pay the deposit due under the said contract.
11.	Pursuant to notice of rescission dated 2 July 1987 the mortgagee rescinded the said contract pursuant to condrtion 6 subcondition 2 of table A of the seventh schedule of the Transfer of Land Act 1958 on the ground that the plaintiff was in default in payment of the said deposit in that his cheque in payment thereof had been dishonoured.
12.	By reason of the rescission of the said contract the plaintiff has incurred personal liabzlity to the mortgagee and to the payee of the said cheque, has suffered and will suffer losses and expenses incurred as a result of the execution of his said authority.

PARTICULARS

(i)    Amount of judgment entered against the plaintiff in County Court actlon MC880542 on 6 December 1988 brought by the mortgagee, $72,060.55;

three days after the auction that lf he withdrew hrs
deposit cheque and did not continue as purchaser, he
would not be the subject of any further action from the statement of claim, informed the judgement cred~tor that assurance, the judgement creditor stopped payment of his cheque.

(il) Interest payable on such judgment;

(iii) The amount claimed against the plaintiff in action 880542 in the County Court being an action in respect of the plaintrff's dishonoured cheque for the said deposit, $39,271;

(iv)  Interest payable by the plaintiff on the claim made against him in County Court action 880553;

(V) Legal costs and expenses.

13.    Further or in the alternative in breach of the said agency agreement the defendants have failed to indemnify the plaintiff against the liability, losses and expenses incurred by him as a result of the execution of his authority by reason whereof the plaintiff has suffered and will suffer loss and damage.

PARTICULARS

The plaintiff refers to and repeats the particulars given under paragraph 12 hereof."

And the plaintiff claimed, amongst other things:

"(a) The said sums of $72,065.55 and $39,271 and all interest

payable by him in respect of such sums1

(b) Damages."

In opposition to the petition against him, the male debtor has sworn:

"3.	I have read the statement of claim endorsed on writ number 11 of 1989 rssued out of the Supreme Court of Victoria at
Wangaratta. I deny that there was ever any agreement between myself and the judgement creditor as alleged. The judgement
creditor was not instructed by me or by any person on my behalf
to purchase the land as my agent at the auction. I made no
agreement with the judgement creditor to indemnify him for any
contract or to provide him with money to pay the deposit or balance of the purchase price. I say further, that I did not even attend the auction as I was ill with the flu at the time.
expense or liability he would incur in entering into the was my son, Michael, who proposed to bid to a certain figure on his own behalf.

4.  My recollectron of events concerning the writ issued by the judgement creditor against myself and Ruth Irene Lack is

unclear. I do however believe that upon receipt of the writ an appearance was filed on my behalf. I did not delrver a defence

as I was informed by the 1udgement creditor that he would not
take the matter any further and would not pursue the action

against me. I was further informed by the judgement credrtor

and verily believe as follows: 

(a)  That Westpac Banking Corporation, the vendor, as

mortgagee in possessi~n of the property referred to in

(b) That subsequently, Westpac went back on their agreement and took legal act~on against the judgement creditor in respect of which they obtained judgement as set out in

the statement of claim.

(C) That the judgement creditor did not defend that action.

(d)	That subsequently the judgement creditor commenced makrng payments to Westpac by instalments but could not continue those payments. He was then advised by Westpac that if
he took action in his name against myself and Ruth Irene against him, save and except for the amount that he recovered from this action against myself and Ruth Irene

Lack. Westpac further stated that they would pay all his legal expenses in connection with the action against myself and Ruth Irene Lack and that falling his obeying their instructions, Westpac would selze all his assets and put him out of business."

The male debtor has also suggested, in his affidavit, that the petitioning creditor has been supported in his petition by the Westpac Banking Corporation in the hope of frustrating the

prosecution by the debtors of a defence and counter claim in

an action against the debtors by Westpac, which is pending in

the Supreme Court of Victoria. Both Mr Lack and Mr Fletcher

have been orally examined in the course of today's hearing.

When each body of evidence is viewed as a whole there are some	discrepancies between the evidence on affidavit and that given
whether the male debtor, M r Fletcher, was present on Friday 26 June 1987, when instructions were given by Miss Lack to Mr by oral testimony. For example, there is a conflict as to the property for the debtors.
However, I am satisfied, on the whole of the evidence, that Miss Lack had the ostensible authority of Mr Fletcher to give the instructions, which she did, to Mr Lack, to act on behalf of herself and Mr Fletcher. That ostensible authority was ratified on Monday 29 June 1987, when, as is common ground, both Mr Fletcher and Miss Lack attended outside the National Australia Bank at Wangaratta and provided Mr Lack with two certificates of title to be deposited by him with the Bank as security for a loan to enable his cheque for $38,500, by way of deposit at the auction, to be honoured.
It has been suggested that Mr Lack subsequently indicated to Miss Lack and Mr Fletcher that he would not proceed with any action to enforce his claim to be indemnified by them against
any claim by Westpac arising out of the abortive auction sale. effect was only made shortly after the auction sale when Mr Lack believed that Westpac would sell the property to the underbidder and would not seek any recourse against him. Clearly, when that expectation was disappointed, Mr Lack instituted his action in the Supreme Court at Wangaratta. Any
comments made thereafter by Mr Lack were, I find on the
balance of probabilities, to the effect that Mt Lack was reluctant or unwilling to enforce his rights against his aunt, Miss Lack, and Mr Fletcher.
That reluctance or unwillingness continues to this day and extends to the prosecution of the present creditor's petitions which Mr Lack acknowledges, has been undertaken on the advice of his solicitors as being necessary to forestall the enforcement by Westpac of its judgment against him for $72,060.55 in County Court action number MC880542. In the light of the findings of fact which I have already made, I conclude that even if this Court were, in the exercise of its discretion, to go behind the judgment debt, it could not be persuaded that a debt of at least $38,500 is not owing by either or both of the debtors.
I indicate, parenthetically, that I do not regard it as a proper exercise of this Court's discretion to go behind the judgment of the Supreme Court of Victoria at Wangaratta in action No 11 of 1989 because the debtors have not demonstrated substantial reasons for questioning, whether, behind the default judgment, there was in truth a debt due to the petitioning creditor; see for example, Wren v Mahoney (1972) 126 CLR 212. The point which weighed with Barwick CJ in that case, namely that no debt arose on breach of a contract of indemnity, does not avail the present debtors because, in my view, their breach of the agreement to put Mr Lack in funds to
pay the deposit immediately, created a debt for a liquidated
amount due from them to M r Lack.
Nor am I satisfied, on the evidence, that the debtors have discharged the onus which they bear of showing that they are
able to pay their debts as they fall due. In essence, Mr
Fletcher has deposed that he owns, either in his own name or jointly with Miss Lack, some seven rural properties valued at $1,478,000 on which some $683,000 is owing under various mortgages. There is no satisfactory evidence before the Court of the nature or extent of the debtors' liabilities. All that Mr Fletcher has said is:

"I am not able to grve a precise figure as to my l~abilities	as they
are subject to a number of contingencies.	For instance, I have a

liability for costs to Messrs Kenyons for work on the cattle stealing
case at Bairnsdale whrch is dependent on the outcome of the appeal
lodged. However, my total liabilities would not exceed $350,000 at
the most (apart from secured creditors) and are amply covered by the
net equity m real estate owned by me."

The evidence as to the income of the debtors from which they might discharge their current liabilities is equally

unsatisfactory.	M r Fletcher has contented himself with
deposing :

"7. I intend to engage in lucerne production on our properties and

anticipate a return of $120,000 net per year from that engagement.
The first return of income will be in February 1993 with a more

substantral return in May, June and through the winter months.	I had
been oblrged to go into the lucerne productron operation due to a
loss of my breedrng stock for w h ~ c h	a case has recently been

concluded in the County Court of Vrctorra at Barrnsdale. That case
is currently the subject of an appeal lodged by us.

8.   Ruth Irene Lack and myself also have a clarm for damages against

the S h ~ r e of Brrght which we estimate would quant~fy at approximately

$170,000.	Thrs arises from works carried out by the shire, the
effect of which was to create cuttings into land owned by us.	The
claim is for compensation for the diminished value of the land.

9.   If a sequestration order were made against me, it would mean the

loss of all my farming properties and the end of the livelihood that

I have followed 58 years, srnce I was ten years old. It would also

mean the end of gainful employment for myself, for Ruth Irene Lack
and for my son, Michael Fletcher, together with the persons employed

in the operation. I verily believe that I will be able to trade out

of my present difficulties with the expected income from lucerne

production over the next 12 months."

Despite the indication in paragraph 7 which I have just quoted from an affidavit sworn on 11 December 1992, that a first return of income from lucerne production would be received in February 1993, no information has been placed before the Court of the extent of any income generated by lucerne production during the early months of this year.

I have also been invited to exercise the Court's discretion

not to make a sequestration order. However, I am not
satisfied that sequestration orders are sought at the
instigation of Westpac to gain some collateral advantage in
the pending litigation between it and the debtors.

I£ that were Westpac's intention, it could readily be frustrated by payment of the amount of the judgment debt if

the debtors were able to make that payment. I accept that the

prosecution of these petitions has been a response by Mr Lack to pressure applied to him by Westpac for payment of his debt to that Bank. However, that does not, in my view, warrant an exercise of the discretion adversely to a creditor who has a

prima facie entitlement to a sequestration order. For these
reasons the grounds taken in the notice of opposition in each
matter are not made out and since I am satisfied by the proof
of the statutory requirements, a sequestration order will be

made in each matter.

Accordingly, I order in matter No VP 1167 of 1991:

(1) that a sequestration order, be made against the estate of

the debtor;

(2) that the petitioning creditor's costs including any

reserved costs be taxed and paid in accordance with the

statute;

(3) that the date of the act of bankruptcy be noted as 20

March 1991;

(4) that there be a stay of proceedings under the

sequestration order for 21 days from this day.

In matter VP 1270 of 1992 1 order:

(1) that the petition be amended by deleting Car1 John

Fletcher as a judgment debtor;

(2) that a sequestration order be made against the estate of

the debtor;

(3) that the petitioning creditor's costs including any

reserved costs be taxed and paid in accordance with the

statute;

(4) that the date of the act of bankruptcy be noted as 15

October 1992:

(5) that there be a stay of proceedings under the

sequestration order for 21 days from this day.

I certify that this and the preceding eight (8) pages

reasons for judgment of his	are a true copy of the % kkp-
Honour M r Justice Ryan

Counsel for the applicant:	M r Rodbard-Bean
Solicitors for the applicant:	Stewart Thompson Francis and Purbrick
Counsel for the respondent:	Mr Irlicht
Solicitors for the respondent:	Irlicht and Broberg