Re Neate, E.A. & Anor Ex parte Pegasus Leasing Ltd
[1995] FCA 179
•30 MARCH 1995
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY )
) No. SN 691 of 1994
GENERAL DIVISION )
)
BANKRUPTCY DISTRICT OF THE STATE )
)
OF SOUTH AUSTRALIA )
RE: ELIZABETH ANNE NEATE AND DAVID WILLIAM
NEATE
EX PARTE: PEGASUS LEASING
LIMITED
REASONS FOR DECISION
CORAM: O'Loughlin J.
30 March 1995
Application to set aside a bankruptcy notice.
On 19 September 1994 the judgment creditor, Pegasus Leasing Limited, obtained a judgment by default in the District Court of South Australia against Anne Elizabeth Neate and David William Neate ("the judgment debtors"). The judgment creditor applied to this court for leave to issue a bankruptcy notice directed to the judgment debtors jointly. A sealed copy of the judgment was attached to that application. The relevant passage in the judgment was in these terms:
"It is this day adjudged that the plaintiff" (i.e. the judgment creditor) "recover from the defendants" (i.e. the judgment debtors) "the sum of $648,673.99 (inclusive of interest) and its costs of action to be taxed."
Difficulties were experienced in effecting personal service of the bankruptcy notice and, ultimately, on 10 November 1994, a Registrar of the court ordered that personal
service of the bankruptcy notice be dispensed with; he authorised service of the bankruptcy notice on the judgment debtors by ordinary pre-paid post. It was the case for the judgment creditor that service by post had been effected on both debtors in accordance with the terms of the Registrar's order.
The bankruptcy notice, as amended, called on the debtors to effect payment "within fourteen days after the 24th day of November 1994" or to otherwise secure the payment of the judgment debt to the satisfaction of the judgment creditor by that date. Within that time, an application was filed in this court on behalf of the judgment debtors wherein they sought orders that the bankruptcy notice be set aside. In its final amended form their application contained, as the first ground, the following proposition:
"It is defective in that the bankruptcy notice is directed to debtors who are not joint debtors and is not authorised by and is contrary to the provisions of the Bankruptcy Act 1966."
The debtor David William Neate also sought a declaration that-
"... the purported service of the bankruptcy notice upon David William Neate is not service of the said bankruptcy notice upon David William Neate for the purposes of the Bankruptcy Act 1966."
Finally, it was claimed in the debtors' amended application that the bankruptcy notice was defective in that a
material amendment to the notice had not been initialled by the Registrar.
The application to set aside the bankruptcy notice was supported by the affidavit of Robert Bernard White, a partner of White Cleland, the solicitors for the judgment debtors. The major sections of his affidavit constituted inadmissible hearsay. He stated that Mr and Mrs Neate had informed him that, at the time of the purported service of the bankruptcy notice by post, Mr Neate was overseas. The deponent also said that he was informed that the letter addressed to Mr Neate did not contain the Registrar's order of 10 November 1994 plus a copy of the bankruptcy notice (as required by the order) but that it contained two copies of the bankruptcy notice.
But Mr Neate, who also filed an affidavit in these proceedings, did not address the subject of service of the bankruptcy notice; he made no complaint at all. In my opinion, in view of this surprising omission, the debtors have failed to satisfy the court that the service of the bankruptcy notice was deficient. I am not prepared to set it aside on that ground.
The bankruptcy notice, as originally issued contained the following passage:
"THEREFORE TAKE NOTICE that within 14 days after service of this notice on you, excluding the day on which this notice is served on you, you are required..."
That passage was amended as a result of the difficulties with service so that it read:
"THEREFORE TAKE NOTICE that within 14 days after the 24th day of November 1994 you are required..."
The court seal was affixed to this alteration but the Registrar did not initial it.
Subsection 41(1) of the Bankruptcy Act 1966 (Cth) ("the Act") prescribes that a bankruptcy notice shall be issued "by the Registrar" who, by definition, includes "a person acting as a Registrar". Sub-rule 7(5) of the Bankruptcy Rules states that " the Registrar shall sign and stamp" each copy of the bankruptcy notice. The original notice was duly signed and stamped with the seal of the court but the alteration was only stamped.
The submission that this omission was capable of misleading the debtors has no foundation. A similar argument was rejected by Sweeney J in Hussey v Tsai Pty Ltd (unreported: judgment delivered 14 June 1989). His Honour was of the opinion that the presence of the seal sufficiently authenticated the alteration. I respectfully agree. This is not a case where the debtors could have been misled: James v Federal Commissioner of Taxation (1955) 93 CLR 631 at 644.
It is common ground that the judgment creditor, as lessor, instituted proceedings against Mr Neate, as lessee, pursuant to contractual rights that were contained in a Livestock Leasing Agreement but that its proceedings against Mrs Neate arose under a Contract of Guarantee and Indemnity. In that latter contract, Mrs Neate guarantees the due payment of any moneys that were then or that may thereafter become owing to the judgment creditor by her husband and she further agreed to indemnify the judgment creditor against losses occasioned as a result of any default on her husband's part. Mr Townsend, counsel for the debtors, did not dispute the right of the judgment creditor to join Mr and Mrs Neate as defendants in the same proceedings; he acknowledged that this was permitted by r27.01 of the District Court Rules. That provision allows for two or more persons to be joined as defendants in any proceedings where (inter alia) "all rights to relief claimed in the proceedings, whether they are joint, several or alternative, are in respect of, or arise out of, the same transaction or series of transactions; ..." However, it was not suggested that there had been, by virtue of this rule or otherwise, a merger of the two different causes of action against the two debtors.
The Bankruptcy Court is, of course, entitled to look behind a judgment to discover the truth of the matter. In this case, the language of the judgment would suggest that the judgment debtors were joint debtors at least and, perhaps, joint and several debtors. But it is quite clear that the two debtors who are referred to in the judgment incurred their debts under different contracts.
As a general rule, the liability incurred by the principal debtor and the guarantor is several, unless, on a proper construction, the contracts are contained in a single promise. The promises that were made by the debtors to the judgment creditor in the present case were separate: one was contained in the Livestock Lease Agreement and the other in a Contract of Guarantee and Indemnity, thereby making their respective liabilities several.
Where liability is several, separate judgments are, in my opinion, required. While there is a dearth of authority the point was discussed by Megaw LJ in LEP Air Services Ltd v Rollowswin Investment Ltd [1971] 3 All ER 45 at 58:
"Counsel for LEP submitted that the general rule is that the contracts of the principal debtor and of the guarantor are several unless they are contained in a single promise. A single promise for this purpose is a promise such as was contained in Rawston v Parr (1827) 3 Russ 539, where two persons signed a promissory note saying 'We promise to pay'; after the signature of one of them the word 'surety' was added. It is purely a matter of form. In the present case, the promises were not 'a single promise'. Counsel for LEP relied, inter alia, on a passage in Halsbury's Laws of England (3rd Edn) 413, para 769, and note (r) thereto. In our judgment, counsel for LEP's submission is right. We think that the law is correctly stated in the passage cited from Halsbury's Laws. The official referee was correct in not giving a joint judgment against the principal debtor and the guarantor, but in giving several judgments."
The relevant extract from the 3rd ed: vol 18 of Halsbury was:
"The principal debtor, though sometimes bound by the same instrument as his surety, is not a party to the
latter's contract to be answerable to the creditor: there is no privity between the surety and the principal debtor, and they do not constitute one person in law, and are not as such jointly liable to the creditor, with whom alone the surety contracts."
The passage from Halsbury's 3rd ed has been reproduced with minor alterations in the 4th ed: (re-issue) vol 20 par103:
"Although sometimes bound by the same instrument as his guarantor, the principal debtor is not a party to the guarantor's contract to be answerable to the creditor: there is not necessarily any privity between the guarantor and the principal debtor; they do not constitute one person in law, and are not as such jointly liable to the creditor, with whom alone the guarantor contracts."
This case was the subject of an unsuccessful appeal to the House of Lords: Moschi v LEP Air Services Ltd [1973] AC 331 but nothing in the speeches of Law Lords affected this issue.
In my opinion, the District Court judgment is flawed. There should have been a judgment entered against each debtor separately. Because of this error the bankruptcy notice is a nullity and must be set aside. There will be an order accordingly. The judgment creditor must pay the judgment debtors' costs.
After the completion of the preparation of the above reasons, the court was informed that the debtors had unsuccessfully applied in the District Court on 8 March 1995 to have the judgment set aside; a copy of the learned judge's ex tempore reasons were supplied to the court. I note that his Honour referred to the debtors in the plural when he said:
"It is further to be noted that, whilst the particulars of claim referred (in para. 2) to a lease agreement between the plaintiff and the second defendant, and (in para. 3) to a guarantee between the plaintiff and the defendants, the particulars of claim referred (in para. 6) to the failure of both defendants, expressed in terms of 'the defendants have failed, refused and neglected to make payment of the said sum or any sums to the plaintiff', and the prayer for relief in the particulars of claim was expressed in terms of the plaintiff claiming 'from the defendants the sum of $438,668.58 together with interest thereon at the rate of 25 per cent per annum, plus costs and solicitors' fees'."
His Honour has correctly summarised the contents of the pleadings and also correctly concluded:
"... there is nothing in the particulars of claim to indicate that the plaintiff was alleging that it relied upon separate causes of action or other than something giving rise to a joint or joint and several liability."
Regrettably however, his Honour's attention was not drawn to the fact that the passages in the pleadings to which he referred and upon which he relied were wrong. The Contract of Guarantee and Indemnity was not signed by both debtors: Mrs Neate was the only debtor who was a party to that Contract. In these circumstances, having gone behind the judgment and having ascertained that the pleadings contained a material
error, I am compelled to adhere to the conclusion that I had earlier reached.
I certify that this and the preceding pages are a true copy of the Reasons for Judgment of Justice O'Loughlin.
Associate
Dated:
Counsel for the Debtor/Applicants : Mr Townsend
Solicitors for the Debtor/Applicants : Piper Alderman
Counsel for the Respondents : Mr Coppola
Solicitors for the Respondent : Kelly & Co
Hearing Date : 22 December 1994
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY )
) No. SN 691 of 1994
GENERAL DIVISION )
)
BANKRUPTCY DISTRICT OF THE STATE )
)
OF SOUTH AUSTRALIA )
RE: ELIZABETH ANNE NEATE AND DAVID WILLIAM
NEATE
EX PARTE: PEGASUS LEASING
LIMITED
MINUTES OF ORDER
JUDGE MAKING ORDER : O'LOUGHLIN J.
WHERE MADE : ADELAIDE
DATE OF ORDER : 30 MARCH 1995
THE COURT ORDERS THAT:
The Bankruptcy Notice be set aside.
The respondent, Pegasus Leasing Limited pay the applicants' costs to be taxed in default of agreement.
Note:Settlement and entry of order is dealt with in Bankruptcy Rule 124.
C A T C H W O R D S
BANKRUPTCY - bankruptcy notice - judgment against one party as primary debtor and against second party as guarantor - form of judgment - whether there should have been one judgment or two judgments.
Bankruptcy Act 1966 (Cth)
Hussey v Tsai Pty Ltd (unreported: judgment of Sweeney J delivered 14 June 1989).
James v Federal Commissioner of Taxation (1955) 93 CLR 631
LEP Air Services Ltd v Rollowswin Investment Ltd [1971] 3 All ER 45
Moschi v LEP Air Services Ltd [1973] AC 331
RE:ELIZABETH ANNE NEATE AND DAVID WILLIAM NEATE
EX PARTE:PEGASUS LEASING LIMITED
O'LOUGHLIN J.
ADELAIDE
30 March 1995
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