Re Martin; Ex Parte Amtron Australia Pty Ltd
[1996] FCA 112
•1 MARCH 1996
CATCHWORDS
BANKRUPTCY - Creditor's petition - sequestration order opposed by debtors - whether agreement on behalf of petitioning creditor not to pursue bankruptcy proceedings - conflicting evidence - objective evidence and documentation.
ISSUE ESTOPPEL - Interlocutory judgment - whether issue estoppel - question of fact put in issue and finally decided in interlocutory proceedings.
Blair v Curran (1939) 62 CLR 464 - Appl.
Whitemark Pty Ltd v Cann Australia Pty Ltd (Unreported, Federal Court of Australia, French J, 31 March 1993) - Not foll.
Schlieske v Minister for Immigration and Ethnic Affairs (1987) 79 ALR 554 - Cited.
Carl Zeiss Stiftung v Raynor & Keeler Ltd (No 3) [1970] Ch. 506 - Appl.
Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) - Appl.
Makhoul v Barnes (Unreported, Federal Court of Australia (FC), Hill, Cooper and Branson JJ, 24 November 1995) - Appl.
Re Colin Warwick Martin and Thomas Jeffrey Budgen; Ex parte Amtron Australia Pty Ltd formerly Eutech Pty Ltd (ACN 002 333 217)
No. QP188 of 1995
Cooper J, Brisbane, 1 March 1996
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
No QP188 of 1995
RE: COLIN WARWICK MARTIN and
THOMAS JEFFREY BUDGEN
Debtors
EX PARTE: AMTRON AUSTRALIA PTY LTD formerly
EUTECH PTY LTD (ACN 002 333 217)
Petitioning Creditor
JUDGE MAKING ORDER: Cooper J
WHERE MADE: Brisbane
DATE OF ORDER: 1 March 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The estate of Colin Warwick Martin be sequestrated.
The estate of Thomas Jeffrey Budgen be sequestrated.
The petitioning creditor's costs of and incidental to the petition, including reserved costs, be costs in the administration of the estates.
Trevor John Schmierer be appointed as the Trustee of each estate.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
No QP188 of 1995
RE: COLIN WARWICK MARTIN and
THOMAS JEFFREY BUDGEN
Debtors
EX PARTE: AMTRON AUSTRALIA PTY LTD formerly
EUTECH PTY LTD (ACN 002 333 217)
Petitioning Creditor
CORAM: Cooper J
PLACE: Brisbane
DATE: 1 March 1996
REASONS FOR JUDGMENT
On 30 March 1995 Amtron Australia Pty Ltd, formerly Eutech Pty Ltd ("Amtron"), petitioned the court for the sequestration of the estates of Colin Warwick Martin and Thomas Jeffrey Budgen based on the failure by them to comply with a bankruptcy notice served on each of them on 19 December 1994. The bankruptcy notice was founded upon a judgment entered against Mr Martin, Mr Budgen, Valiant Holdings (Singapore) Pte Ltd ("Valiant"), which is controlled by them, and others in the sum of $US393,106.00 after trial in the Supreme Court of Queensland before Dowsett J.
Mr Martin and Mr Budgen appeared on the hearing of the petition and opposed the making of a sequestration order. They alleged that on 24 August 1994 Amtron, by its legal representative, Peter Anthony Schmidt of Feez Ruthning, agreed not to proceed to bankrupt them pending the outcome of legal proceedings against an insurance broker, Rollins Hudig Hall Pty Ltd, formerly Frank B Hall & Co Australia Pty
Ltd ("Rollins Hudig") in consideration of Mr Martin and Mr Budgen agreeing to provide assistance in the prosecution of that action by Amtron.
Mr Hack of counsel for Amtron contended that no such agreement was made at that time or at all and submitted that a judgment of the Queensland Court of Appeal delivered on 4 July 1995 in relation to notices of motion filed by Amtron seeking to have Mr Martin's and Mr Budgen's appeals from the judgment of Dowsett J dismissed for want of prosecution, or alternatively seeking security for costs and directions for the future conduct of the appeals, created an issue estoppel as to the existence or otherwise of the agreement which Mr Martin and Mr Budgen sought to set up and rely upon.
Background
In early 1990, Amtron was introduced to a scheme to raise funds in the United States of America being fostered by Mr Martin, Mr Budgen, Valiant and others. As part of the scheme, Amtron advanced $US300,000 to Valiant as a deposit on total funds sought of $US7,000,000. In an attempt to protect the repayment of this deposit, Valiant entered into a professional indemnity insurance policy with CE Heath Underwriting & Agency Services Limited ("CE Heath"). The policy was arranged by the insurance broker, Rollins Hudig. The scheme did not proceed and the deposit was not repaid to Amtron. CE Heath refused to indemnify Valiant under the policy. As noted, on 8 April 1994 Amtron obtained judgment against Mr Martin, Mr Budgen, Valiant and others in the sum of $US393,106 (being the advance plus interest) and costs. A notice of appeal from that judgment were filed by each of Mr Martin and Mr Budgen on 5 May 1994.
On 22 June 1994 Mr Martin and Mr Budgen met with Mr Schmidt and a John Beckinsale, also of Feez Ruthning. At the meeting Mr Martin and Mr Budgen offered to assist Amtron in the pursuit of a claim against Rollins Hudig. A proposal was discussed involving the assignment by Valiant to Amtron of any interest in the professional indemnity policy arranged by Rollins Hudig in return for the assistance of Mr Martin, Mr Budgen and Valiant in the action against Rollins Hudig and a six (6) month moratorium on the enforcement of the judgment.
After obtaining instructions from Amtron, Feez Ruthning wrote to Mr Martin and Mr Budgen enclosing a proposed deed of assignment. A reply was received from Mr Martin and Mr Budgen on 20 July 1994 whereby the proposed arrangement was not accepted and an alternative was suggested. This alternative proposal was not acceptable to Amtron and on 25 July 1994 Feez Ruthning wrote to each of Mr Martin and Mr Budgen in the following terms :-
"We refer to your without prejudice letter of 20 July 1994.
The suggested alternative in paragraph 5 of that letter is completely unacceptable to our client.
Our client does not require your assistance in taking action against the insurance company, although that assistance would have saved our client time and money, which is why we approached you in the first place. In light of your response our client will proceed without your assistance.
The offer of a moratorium in relation to bankruptcy proceedings and an application for security for costs is hereby withdrawn."
Mr Budgen sent further correspondence to Feez Ruthning on 2 August 1994 seeking in one instance to have any moratorium period continue for such period of time as was necessary to achieve an outcome in the action by Amtron against Rollins
Hudig. A second memorandum also dated 2 August 1994 sought an agreement to stay the execution of the judgment of Dowsett J pending the outcome of the appeals. Feez Ruthning did not reply to this further correspondence and on 4 August 1994 a bankruptcy notice which had been applied for on 22 July 1994 was issued out of this court. The instructions given to and efforts of Control Investigations, the process server employed by Feez Ruthning to serve the bankruptcy notice, are relevant and are dealt with later in these reasons.
It is against this background that an agreement between Mr Budgen, on behalf of he and Mr Martin, and Mr Schmidt on behalf of Amtron is alleged to have been made on 24 August 1994.
According to Mr Budgen he met with Mr Martin in the afternoon of 23 August 1993 and determined to resolve the matter on a formal basis. As a result he diarised to telephone Mr Beckinsale, who worked under Mr Schmidt's supervision, on 24 August 1994. In cross-examination Mr Budgen agreed that he tried to contact Mr Beckinsale in preference to Mr Schmidt because he thought that he would "get a better result from Mr Beckinsale than [from] Mr Schmidt".
Mr Budgen's evidence was that Mr Beckinsale was unavailable and that he spoke to Mr Schmidt. Mr Budgen gave the following evidence of that alleged conversation :-
"THE WITNESS: He said, `I'm with a barrister at the moment,' or something to that effect, and I said, `I need to speak with you about getting this Valiant thing on track. I'm in a fairly unique position that I know what's required to get the insurance thing going. I want to really make this
thing - this thing work.' Peter Schmidt then said to me, `How can we make an arrangement or how can we make an a deal if you've still got an appeal running?' We then talked about the - very broadly about the appeal - I don't know what discussion we had on that. I then told him that we could - that I was willing to sort of - I didn't want to go down the bankruptcy track because it wasn't going to get anybody anywhere, and that I wanted to - I was in a fairly unique position to be able to do something about the insurance policy, particularly that we had to get this fraud and dishonesty thing organised. We also had to have another look at that characterisation of the deposits as being loans; we need to look at - look at that. And Mr Schmidt said to me that - he said something like, `Look, my client's only instructions are that he wants to get his money back,' and I said, `Fine, look, I'm happy that if we can just stop all other action and keep going on this insurance claim that we'll get a result, and everybody will be happy.' And he basically says, `I can accept the - the - what you're - what you're saying on that basis. Let's go,' and then I said, `Right, thanks a lot, we'll - we'll - I'll get straight on to it,' or whatever, and I did immediately."
Mr Budgen's diary was admitted into evidence and contains a relevant entry on 24 August 1994 which Mr Budgen said was made during or immediately after the alleged conversation with Mr Schmidt. The entry is difficult to read and Mr Budgen has helpfully sworn an affidavit which sets out the contents of the diary note :-
"The initial entry is `John Beckinsale - 83333333 Peter Schmidt x233'.
The top entry relative to the matter is `with a Barrister at the moment'.
Beneath that entry is the notation `are we prosecuting the appeal?'
The next entry is `PS how can we deal if you have appeal??'
The next relative entry is `VHS & CWM is different to TB - TB doesn't want B/R'.
The next entry is `1 PS - only instruction is to get $ back'.
The next entry is `2 accept no action on basis of keep on insurance claim'.
The final entry is `"accept on that basis"J'".
For his part, Mr Schmidt denied any conversation with Mr Budgen on 24 August 1994 and denied making any agreement with Mr Budgen that Amtron would not enforce its judgment against him. Mr Schmidt's evidence was that after sending the letter of 25 July 1994 withdrawing the proposed compromise, his instructions were to proceed
to enforce Amtron's judgment by bankruptcy proceedings against Mr Martin and Mr Budgen. According to Mr Schmidt, in all conversations with Mr Budgen after 25 July 1994, he made it clear that Amtron intended to enforce its judgment against him.
The bankruptcy notice was ultimately served on Mr Martin and on Mr Budgen on 19 December 1994.
On 16 January 1995 Mr Martin and Mr Budgen filed applications in the Supreme Court of Queensland seeking a stay of the judgment of Dowsett J pending the hearing of an appeal to the Court of Appeal. In circumstances not directly relevant, Byrne J dismissed the applications with costs on 20 January 1995.
The notices of motion filed by Amtron in the Court of Appeal seeking the dismissal of Mr Martin's and Mr Budgen's appeals for want of prosecution (or alternatively, for security for costs) were heard on 23 June 1995. Pincus and McPherson JJA gave judgment on 4 July 1995 which judgment, it was submitted, gave rise to an issue estoppel as to the existence of the agreement alleged to have been made on 24 August 1994 between Mr Budgen and Mr Schmidt.
Issue Estoppel
The starting point of any discussion of issue estoppel is the well known passage from the judgment of Dixon J in Blair v Curran (1939) 62 CLR 464 at 531-533 :-
"A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established
as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J. in R v Inhabitants of the Township of Hartington Middle Quarter (1855) 4 E & B 780 [119 ER 288, at p293], at p794, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.
In the phraseology of Lord Shaw `a fact fundamental to the decision arrived at' in the former proceedings and `the legal quality of the fact' must be taken as finally and conclusively established (Hoystead v Commissioner of Taxation (1926) AC 155). But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation."
In the instant case, the judicial determination in question is an interlocutory judgment. I do not agree with the proposition that an issue determined in interlocutory proceedings cannot give rise to an issue estoppel (cf Whitemark Pty Ltd v Cann Australia Pty Ltd, Unreported, Federal Court of Australia, French J, 31 March 1993 at 6).
Whilst it is clear that a decision which is "truly" interlocutory cannot found a relevant estoppel (eg. dismissal of a claim for interlocutory relief on the ground that there is not disclosed a serious question to be tried; see Schlieske v Minister for Immigration and Ethnic Affairs (1987) 79 ALR 554 at 574 per Beaumont J), there is authority that, in certain circumstances where an issue is finally determined in what are interlocutory proceedings, an issue estoppel may arise (see Carl Zeiss Stiftung v Raynor & Keeler Ltd (No 3) [1970] Ch. 506 at 538-539; Joseph Lynch Land Co Ltd v Lynch [1995] 1 NZLR 37 (CA) at 42-43; Makhoul v Barnes, Unreported, Federal Court of Australia (FC), Hill, Cooper and Branson JJ, 24 November 1995 at 24).
In Joseph Lynch Land Co, the New Zealand Court of Appeal said (at 42 -43) :-
"The purpose behind cause of action estoppel and issue estoppel is that litigants should not be twice vexed by the same claim or point and it is in the public interest that there be an end to litigation: see New Zealand Social Credito Political League Inc v O'Brien [1984] 1 NZLR 84 (CA) at p95 per Someres J, Gregoriadis v Commissioner of Inland Revenue [1986] 1 NZLR 110 (CA) at p114 per Richardson J and at p118 per Somers J and also the Carl Zeiss case cited above at p946 per Lord Upjohn.
While we acknowledge that points decided in interlocutory proceedings may in certain circumstances lead to an estoppel, the rationale is less powerful in an interlocutory context. Therefore the justice of the case must be compelling before a decision which is in substance interlocutory is held to prevent the later ventilation of an issue. We consider that the statement in Cross at para 12.9 (p317) that a decision on an interlocutory matter will not suffice for an issue estoppel is too widely expressed."
In my view, the correct approach is to consider whether in the
circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties wishes to raise again, rather than to restrict consideration to the nature of the earlier proceedings (Joseph Lynch Land Co at 43; Makhoul v Barnes at 24).
In this case the substantive issue which the Court of Appeal was called upon to determine on the hearing of Amtron's notices of motion was whether the delay by Mr Martin and Mr Budgen in pursuing the appeals from the judgment of Dowsett J was such that the appeals should be dismissed for want of prosecution. It is clear from a written outline of submissions filed in the Court of Appeal on behalf of Mr Martin that Amtron's application was resisted on the basis that any delay in the prosecution of the appeal was explained by the existence of a moratorium agreement between the parties, the effect of which would have been to "leave matters in abeyance pending the outcome of action commenced by the respondent to the appeal" against Rollins Hudig. Paragraph 5 of the written outline, which is in evidence in these proceedings, was in the following terms :-
"5. The existence of the moratorium agreement has already been raised on affidavit material as grounds to set aside bankruptcy notices issued by the plaintiff/respondent against the appellants, and to resist subsequent petitions based on those bankruptcy notices."
The reasons for judgment of the Court of Appeal are relatively short and can be set out in full :-
"There are two appeals on foot against a judgment of Dowsett J, given in favour of Amtron Australia Pty Ltd (formerly Eutech Pty Ltd), in a substantial sum. Two of the defendants, Valiant Holdings (Singapore) Pte Ltd and C W Martin have instituted an appeal against the judgment, and a third defendant T G Budgen has also instituted an appeal. The judgment of
Dowsett J was delivered on 8 April 1994 and the notices of appeal were filed and served on 5 May 1994. No further steps have been taken to pursue the appeals, and the applicant, the successful plaintiff below (Amtron) has applied to have each appeal dismissed for want of prosecution, or alternatively for security for costs.
A factual issue arises; it is argued that in a conversation between a Mr Schmidt, of the solicitors for Amtron, and Mr Budgen on 24 August 1994, what is described as a `moratorium' agreement was made, one term of which was that the appeals need not be pursued; it is unclear for what period it is alleged that the appeals would not be pursued.
An affidavit by Mr Budgen dated 22 June 1995 was read, apparently in support of the case set up by the appellants to resist dismissal, which swore to a conversation between Messrs Schmidt and Budgen on the relevant date, in these terms:
`On 24 August 1994 I telephoned Mr Schmidt and confirmed to him my continued commitment'.
The commitment referred to was to assist in a certain claim against an insurer and a broker; the sentence we have quoted could not possibly be thought to support the proposition that any agreement was made on 24 August 1994 relieving the appellants of an obligation to pursue the appeals expeditiously.
This having been pointed out during the hearing of the appeals, the appellants sought to rely upon a further affidavit, being one filed on 4 May 1995 in the Federal Court relating to bankruptcy proceedings. In that affidavit Mr Budgen gave a rather more elaborate version of the conversation of 24 August 1994. In summary, what is there said is that Mr Budgen telephoned Mr Schmidt and told him that he would help with the claim against the broker `if he would agree not to bankrupt me'. The affidavit went on:
`He said "my instructions from my client are simply to get his money back". He told me that my assistance would make the claim much easier and he said "I can accept that on that basis".'
This has nothing to do with pursuit of the appeals.
It being plain enough that the affidavits so far referred to could not assist the appellants towards a finding in their favour, in relation to the alleged moratorium, reliance was also placed on a draft deed which, at one stage, it was contemplated that the parties to the appeal might execute. Clause 5 of the draft deed contained an agreement on the part of Amtron not to issue bankruptcy notices based on the judgment for a period of six months and not to seek security for costs of the appeals for a period of six months;
there is, however, nothing in the deed to say that the steps the court ordinarily requires to be taken to pursue appeals need not be taken.
Lastly, the appellants relied upon a poor copy of what purports to be a diary note dated 24 August 1994, said to record a discussion on that date between Messrs Schmidt and Budgen. There is room for argument as to what the note says, but the critical parts of it seem to be as follows: Mr Schmidt said `How can we deal if you have appeal?'. Then the note says `Accept no action on basis of help insurance claim' and concludes `Accept on that basis'.
The note does not say the appeals are not to be pursued, but it is urged upon us in effect that an agreement that the appeals would not be pursued should be inferred or implied. It is quite improbable that any such agreement was made. On 20 January 1995, that is, well after the date of the alleged moratorium agreement, two of the appellants applied for a stay of proceedings under the judgment of Dowsett J, and an affidavit of Mr Budgen was filed in support of one of those applications. It must have been plain to those concerned that if the parties had agreed in August 1994 that no further steps would be taken in relation to the judgment given by Dowsett J, that would have been relevant to the question whether that judgment should be stayed. Yet that affidavit of Mr Budgen said nothing about such an agreement; it did, however, discuss the appeals and said in effect that there had been a conversation with the `appeal clerk of this Honourbale (sic) Court, regarding the listing of the appeal' and that it was arranged that the listing would be discussed further. The affidavit mentioned that a bankruptcy notice had been served and it argued that that had been done `for reasons of defeating the defendants' appeal' which `has merit and should be allowed to proceed'. These expressions are inconsistent with the allegation that it was agreed that the appeals should be treated as being in limbo. If that is not enough, in this affidavit Mr Budgen also swore that he had not heard from the solicitors for the plaintiff at any time after 2 August 1994, and prior to delivery of the bankruptcy notice (on 22 December 1994).
In these circumstances the argument that an agreement was made on 24 August 1994, one term of which was that the appeals would lie dormant, must be rejected. It seems evident enough that the real question is whether the appeals should be struck out or whether, on the other hand, the appellants should be given a last, limited, opportunity to pursue them. There is, against doing so, the circumstance that an inference is open that the appeals were begun merely to gain time; although the way in which the matter has been conducted to date gives support to that inference, it is our opinion that the more lenient course should be adopted. It is possible that, albeit unreasonably, the appellants persuaded themselves that Amtron was content to let the appeals remain dormant."
In each of Mr Martin's and Mr Budgen's appeal, the Court of Appeal ordered that :-
"1.The solicitors for the appellants lodge a written request for preparation of a record to be effected as soon as practicable and undertake to pay the costs of preparation of the record and of any associated work; and
2.An outline of argument on behalf of the appellants be filed and served.
3.The appellants give security to the satisfaction of the registrar for the respondent's costs of the appeal in the sum of $6500 or such lesser amount as will together with the amount provided by the appellant in Appeal No 86 [No 85] of 1994, come to $6,500.
4.If orders numbers 1, 2 and 3 are not complied with on or before 18 July 1995, the appeal is dismissed with costs."
On 19 July 1995 the appeals were dismissed for failure to comply with orders 1, 2 and 3.
The very issue which Mr Martin and Mr Budgen sought to raise in opposition to the making of a sequestration order, namely, the making of an agreement with Mr Schmidt in the terms set out in Mr Budgen's affidavit filed in the bankruptcy proceedings, was argued before the Court of Appeal and was, in my view, finally determined by that court. The agreement as alleged before me is the same agreement containing the same terms and was based on the same or very similar evidence as was before the Court of Appeal. Pincus and McPherson JJA considered that a factual issue arose as to the existence of the agreement and their Honours determined that factual issue against Mr Martin and Mr Budgen. That their Honours resolved to adopt "the more lenient course" and gave Mr Martin and Mr Budgen a final opportunity to progress the
prosecution of the appeals does not detract from the finality of the factual determination nor from its character as legally indispensable to the conclusion reached by their Honours.
The circumstances disclosed by this case are such that it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties wishes to raise again, notwithstanding that the issue was determined in interlocutory proceedings. Accordingly, Mr Martin and Mr Budgen are estopped from raising the alleged agreement in opposition to the making of a sequestration order.
Conclusion on the alleged agreement
In light of the view that I have taken in relation to issue estoppel, it is not necessary to consider for myself whether or not an agreement as alleged was made on 24 August 1994. Nonetheless the vast majority of the evidence and submissions were directed towards the existence or otherwise of an agreement and I intend to express my opinion.
Assuming, without deciding, that a telephone conversation took place between Mr Budgen and Mr Schmidt on 24 August 1994, the weight of the objective evidence leads to the conclusion that no agreement as alleged was in fact made. It should be noted that Mr Budgen and Mr Schmidt are at odds as to the fact or contents of various meetings and conversations in the period after the agreement was said to have been concluded. In this light the contemporaneous documentation and observable actions of the parties must be given considerable weight. I do not intend to examine the
conflicting testimony of Mr Budgen and Mr Schmidt in any detail.As noted above, Mr Martin and Mr Budgen filed applications in the Supreme Court of Queensland on 16 January 1995 seeking a stay of the judgment of Dowsett J pending the hearing of their appeals against it. Mr Budgen's affidavit in support of the application does not mention any moratorium agreement as to the enforcement of Dowsett J's judgment but refers to the pendency of the appeals and their merit and validity. Any agreement that Amtron would not enforce the judgment was certainly relevant to the stay application. Mr Budgen's reference to the bankruptcy notice being issued to defeat the appeals is inconsistent with his assertion that in a telephone conversation on 21 December 1994 Mr Schmidt assured him that the issue of the bankruptcy notice was "procedural" and did not affect him and that on 4 January 1995 Mr Schmidt, when told by Mr Budgen that he and Mr Martin intended to apply for stay, said, "We could have knocked out your appeal at any time, you know, but we have paid no attention to that side of it since we agreed to work on the claim against the broker".
On 16 January, the same day that the stay applications were filed in the Supreme Court, Mr Budgen wrote to Mr Schmidt via facsimile. The memorandum refers in some detail to negotiations between Mr Budgen and Amtron and to Mr Budgen's efforts in relation to the action against Rollins Hudig. However, there is no mention, directly or by inference, of any agreement of the kind now alleged. In fact, on its face, the memorandum would seem to support the conclusion that no such agreement had been reached as at 16 January 1995. This is borne out by the contents and emphasis of the following lines of the memorandum :-
"... By taking any action to `cement' your judgement, you will deny your Client his ability to claim against the policy permanently. This is not simply a matter of opinion between opposing lawyers. You must see the position your Client is now in, and it must be rectified as the first step in making the claim for the Deposit, interest, damages and costs.
Most people hate admitting that they are wrong and Solicitors have elevated that denial into an art form. I do hope that you are able to put the previous action behind you now and work together in the recovery process. We are both keen to work with you to un-do the incorrect position and `clean up' the existing matter into its correct form. You have made it clear that your Client `only wants his money back'. Despite everything that has happened, we have been doing very well for him in that regard."
Mr Budgen's explanation that this memorandum and other discussions were concerned with other matters to which the moratorium agreement was not directly relevant is simply not credible. The fact of the moratorium agreement would have been central to other or further discussions and correspondence between he and Mr Schmidt as to the progress that was being made to secure the money due under the judgment by other means.
On 4 April 1995 the creditor's petition was filed by Amtron and was originally set down for hearing on 3 May 1995. Mr Budgen's solicitors, Melvin & Co, wrote to Feez Ruthning by facsimile received on 2 May 1995. The contents of that letter stand in direct opposition to the claim now raised by Mr Budgen (and Mr Martin). The letter relevantly contained the following :-
"We have reviewed the materials provided to us by Budgen and it is our belief that, Budgen has a valid action against Martin for negligence, which would trigger a claim against Martin's professional indemnity insurance. This action would provide for amount of the judgement which Eutech holds against Budgen, together with Budgen's costs and damages. We are presently preparing a brief for counsel to obtain an opinion in this regard, we will advise you the outcome of the same in due course.
We have received instructions that Budgen is willing to assign an appropriate interest in such an action to your client, in consideration of the Bankruptcy Petition being stayed. It is suggested at this juncture that the petition be adjourned pending receipt of counsel's advice. Upon receipt of that advice and its proper appraisal we would then meet with you in conference to mutually determine the most beneficial manner to deal with the action - for the benefit of all parties involved.
.....
We also note that our client has been actively co-operating with your firm and your client in the action being undertaken by Eutech against the insurance brokers who arranged fidelity cover to the scheme. Also that Budgen's diary notes that, during that period of co-operation, record that he was advised that your client ...`had no interest in bankrupting him' ..., and that the ... `the bankruptcy proceedings meant nothing in reality'.
With regard to the bankruptcy petition, we draw your attention to the fact that Budgen has no assets of value and the possibility of your client recovering anything from Budgen in bankruptcy is negligible. Whereas, Budgen is prepared to continue to actively continue to support and co-operate with your clients, in their endeavours to recover their funds from viable sources, such as the insurer, and through this proposed action."
A moratorium agreement is not referred to. Rather, the letter raises the possibility of an action in negligence against Mr Martin as a source of funds from which to satisfy the judgment debt.
It is inconceivable, having regard to the pendency of the hearing of the creditor's petition and the likelihood of a sequestration order being made, that Mr Budgen would not instruct his advisers as to the existence of any agreement which might have prevented or delayed that event and that, so instructed, his advisers would not have raised any such agreement in correspondence. The letter is directed towards preventing, at any cost it would seem, the making of a sequestration order against Mr Budgen's estate. The submission made on behalf of Mr Budgen that the letter does not mention that the service of the bankruptcy notice and issue of the petition were contrary to the alleged agreement because Mr Budgen was trying to negotiate and did not want to bite the hand that might have fed him (to use counsel's expression) is not satisfactory. The terms of the letter received by Feez Ruthning on 2 May 1995 are inconsistent with the contention that a moratorium agreement had been concluded on 24 August 1994 in the terms alleged.
It is not without significance that the first mention of an agreement of 24 August 1994 appears in an affidavit prepared and sworn by Mr Budgen and filed by leave in court on 3 May 1995 when Mr Budgen appeared unrepresented to oppose the making of a sequestration order.
Counsel for Mr Budgen raised a number of matters which, he submitted, indicated that the alleged agreement was in fact made in August 1994.
First, it was submitted that the fact that Amtron, through its solicitors Feez Ruthning, had not attempted to serve the bankruptcy notice on Mr Martin and Mr Budgen between late August and mid-December 1994 indicated an intention on Amtron's part not to continue to pursue bankruptcy proceedings. However, the evidence shows that at no time did Feez Ruthning withdraw its instructions to Control Investigations, the process servers, to serve the bankruptcy notice on Mr Martin and Mr Budgen.
Instructions to serve were first given to Control Investigations by letter dated 8 August 1994. The final account rendered to Feez Ruthning by Control Investigations shows that service was attempted on each of Mr Martin and Mr Budgen at
their respective residential addresses on 12, 18, 22 and 24 August 1994. Interestingly, the final unsuccessful attempt occurred on the day that the agreement was allegedly made. It seems that the difficulty in serving the bankruptcy notice arose because Mr Martin and Mr Budgen would not identify themselves as the persons referred to in the notice.
On 29 August 1994 Mr Robson, the principal of Control Investigations, telephoned Feez Ruthning and spoke to Mr Schmidt's secretary informing her of the unsuccessful attempts to serve the bankruptcy notice. Mr Schmidt's secretary indicated to Mr Robson that Adam Pomeranke, an articled clerk at Feez Ruthning, would telephone him with further instructions. Mr Robson left Australia on 1 or 2 September 1994 for a period of four weeks.
There is in evidence a file note of Mr Pomeranke bearing the date 5 September 1994 which shows that Mr Pomeranke read the telephone message from Mr Robson and resolved to have Mr Schmidt contact Control Investigations and provide descriptions of the physical appearances of Mr Martin and Mr Budgen.
On 2 September 1994, Mr Schmidt wrote to a Mr Hastings of Amtron in the following terms :-
"1.Bankruptcy proceedings against Mr Budgen and Mr Martin
The bankruptcy notices have been issued and have been sent to process servers. However, Mr Budgen and Mr Martin have to date successfully avoided service. The process servers are still trying to catch them and as soon as we have further details we shall advise you accordingly."
Not only does the letter demonstrate that Feez Ruthning had not decided to cease their attempts to serve the bankruptcy notice, it also shows that as at 2 September 1994 Mr Schmidt had no instructions to do so. A conclusion that a moratorium agreement was reached on 24 August 1994 would therefore require a finding that Mr Schmidt acted contrary to or without instructions from his principal.
The evidence shows that Mr Schmidt did not attempt to contact Mr Robson again until 6 October 1994 when he left a message for Mr Robson to telephone him. In cross-examination, Mr Schmidt admitted that he had been "a bit slack" in not contacting Mr Robson earlier. Mr Robson and Mr Schmidt unsuccessfully tried to contact each other on 18 October and 11 November 1994 before Mr Robson received instructions on 13 December to attempt service again. The bankruptcy notice was finally served on 19 December 1994.
Whilst it is true to say that service was not vigorously pursued after 24 August 1994, there is nothing in this course of events to suggest that Feez Ruthning had ceased in their attempts to have the bankruptcy notice served after that date.
Second, counsel for Mr Budgen pointed to Mr Budgen's efforts to obtain and provide to Mr Schmidt information relevant to the action against Rollins Hudig, which efforts included a trip to the United States of America in November 1994, as being consistent with the agreement as alleged having been made. When viewed with the other evidence, Mr Budgen's efforts in this respect simply highlight his expressed strong desire to avoid bankruptcy. A successful action by Amtron against Rollins Hudig would have seen Amtron recover its money and obviate the need for Amtron to enforce its judgment against Mr Martin and Mr Budgen. By providing information to Mr Schmidt and attempting to assist him to achieve that result, Mr Budgen was simply acting in his own best interests, whether the alleged agreement had been made or not.
Finally, it was submitted that if Amtron had been seriously pursuing Mr Martin and Mr Budgen to bankruptcy, prompt action should have been taken in relation to Mr Martin and Mr Budgen's appeals from Dowsett J's judgment in order to remove any impediment to the making of sequestration orders based on failure to comply with the bankruptcy notice. Mr Schmidt conceded that, in retrospect, some action should have been taken at an earlier stage to have the appeals dismissed. Further, it seems that Mr Schmidt formed the view that the longer he waited, the prospects of having the appeals dismissed for want of prosecution were improved. In the face of the other evidence against the alleged agreement having been made, I am not persuaded to reject Mr Schmidt's explanation of and reasons for any delay in this respect.
The objective evidence is all against the agreement as alleged having been concluded on 24 August 1994 or indeed at any other time. The only evidence to support the agreement is that of Mr Budgen (and what Mr Budgen told Mr Martin). Mr Budgen's evidence is expressly contradicted in each significant aspect by that of Mr Schmidt. The contemporaneous documentation and the actions of the parties, viewed objectively, do not support the case put forward on behalf of Mr Martin and Mr Budgen. Even Mr Budgen's diary note does not unequivocally support the fact of an agreement in the terms alleged. In my view no such agreement was made on 24 August 1994 or at all.
Conclusion
I am satisfied that, in light of the above reasons, this is an appropriate case for the making of a sequestration order against the estates of Mr Martin and Mr Budgen. Amtron's costs of and incidental to the petition, including reserved costs, will be costs in the administration of the estates.
THE COURT ORDERS THAT:
The estate of Colin Warwick Martin be sequestrated.
The estate of Thomas Jeffrey Budgen be sequestrated.
The petitioning creditor's costs of and incidental to the petition, including reserved costs, be costs in the administration of the estates.
Trevor John Schmierer be appointed as the Trustee of each estate.
I certify that this and the preceding twenty (20) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.
Date:1 March 1995
Associate
Counsel for the Petitioning
Creditor:Mr P Hack
Solicitors for the Petitioning
Creditor:Feez Ruthning
Counsel for the Debtor Thomas
Jeffrey Budgen: Mr R Oliver
Solicitors for the Debtor Thomas
Jeffrey Budgen: Melvin & Co
Counsel for the Debtor Colin
Warwick Martin: Mr B Clarke
Solicitors for the Debtor Colin
Warwick Martin: Windsor Craig
Dates of Hearing: 14, 15 August 1995
Place of Hearing: Brisbane
Date of Judgment: 1 March 1996
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