Re Pfeiffer, Josef Ex parte Brooks, Roger

[1997] FCA 513

IN THE FEDERAL COURT OF AUSTRALIA )
  )
SOUTH AUSTRALIA DISTRICT REGISTRY )
  )
GENERAL DIVISION                 )    No SG 7067 of 1997
  )
BANKRUPTCY DISTRICT OF THE       )
  )
STATE OF SOUTH AUSTRALIA             )

Re:      JOSEF PFEIFFER

Debtor

Ex parte: ROGER AND ELIZABETH
  BROOKS

Petitioning Creditors

REASONS FOR DECISION

CORAM:    Mansfield J
PLACE:    Adelaide
DATE:        2 June 1997

In this matter the petitioning creditors have not been paid the debt in respect of which the petition was issued and, subject to the clearance of the cheque effecting that payment, I am requested now to dismiss the petition.  I will do so, but I direct that that order lie in the Registry for seven days to enable the cheque to be cleared.

The remaining issue is the question of costs of the petition. I have read the affidavit material filed in support in this matter.  The petition was instituted on 24 March 1997 and on 17 April 1997 the debtor gave notice of intention to appear at
the hearing of the petition and specified grounds of objection. One of the grounds of objection was that, within the period specified in a bankruptcy notice served upon him, he had made an arrangement to the satisfaction of the petitioning creditors of the settlement of the debt.

If that ground were made out, then the petition would normally be unsuccessful.  In the events which have happened it is unnecessary to decide that question except in so far as it touches upon the question of costs because, independently of what was said to have been the arrangement entered into for the payment of that debt at that time, the debtor has subsequently paid the debt in any event.  It is however upon the prospects of the debtor succeeding in opposing the petition on that ground that the question of costs is to be determined.  The petitioning creditors seek costs as they submit that that ground of opposition would not succeed, and the debtor takes the attitude that there should be no order for costs on the ground that that ground would succeed.

I have had limited argument on the question but I have read the affidavits, and more importantly the correspondence, relating to that question.

In my view on this petition it is appropriate that there should be no order as to costs.  The reason that I have that view is that, having reviewed the extensive correspondence between the parties in which attempts - and I should say sensible attempts on both sides - were made to arrange payment of the amount outstanding, there are certain letters which record the terms of the arrangement which was entered into and which go to resolving that issue.  That question falls into a series of steps which would have had to have been established if the petition were to have succeeded.  The first is whether or not there was an accord or arrangement of the nature asserted by the debtor.  If there was, secondly, was there a term of that accord or arrangement that the land at Goolwa which was to be conveyed as part of the arrangement had a particular value.  The third step is, if such a matter was a term of that arrangement, whether it has been proved that the land did not have that particular value.  The fourth step is whether, assuming those matters have been made out, the breach of that term necessarily means that there was no accord at all, that is that the agreement has been properly rescinded.  It does not seem to me that it could be argued that establishing the value of the Goolwa land at $32000 was a condition precedent to the coming into existence of contractual obligations at all.  Any rescission is not expressed, it would have to be implied or inferred from the institution of the petition, and it must then have the effect of establishing that there was no accord of the nature asserted.

In my view each of those questions is a difficult one for the petitioning creditors.  The only reference to value in the correspondence is in a letter from Winters, the debtor's solicitors, of 10 January 1997 in which it was put in the following terms:

"As a way of immediately settling the matter, however, we are instructed to offer to your client the right title and interest in a block of land at Goolwa.  This land is conservatively valued by local agents as being worth $32,000 and is presently owned by Mr Pfeiffer's wife."

It is apparent that that offer was rejected.  After further communications, settlement negotiations appeared to have been reactivated by a letter of 18 February 1997 from Lynch & Meyer, solicitors for the petitioning creditors, to the debtor's solicitors in which a different offer was put from that already rejected referred to above.  That offer was in the following terms:

"We are instructed to repeat that our client will accept a transfer of the land at Goolwa plus an immediate payment of the sum of $10,000.

If this offer is not acceptable to your client, we would be grateful if you would convey to Mr Pfeiffer our instructions to proceed with bankruptcy proceedings."

That offer was accepted by Winters on behalf of the debtor by letter of 21 February 1997, subject to indicating that the amount in question of $10000 would not be available until during the course of the week of 24 February 1997.  Acceptance on that basis was expressly conveyed by letter from Lynch & Meyer to Winters on 24 February 1997.  In none of those three letters was the question of the value of the Goolwa land raised.

Subsequently on 26 February 1997 the sum of $10000 was tendered by way of bank cheque, and a transfer of the Goolwa property in registrable form was also tendered to solicitors for the petitioning creditors.  As Mr Battiston for the petitioning creditors indicated, it was only after inquiries were made after that arrangement had been entered into that his clients perceived that the land may not be worth or realise anywhere near $30000.  On 7 March 1997 Lynch & Meyer on behalf of the petitioning creditors wrote in the following terms:

"Our client accepted that proposal upon your representation as to the value of the land.

We have received the sum of $10,000, which sum we are holding in our trust account.  We forwarded the Memorandum of Transfer to our client for signature.  However, our client has contacted a firm of land agents at Goolwa, and has been informed that the land in question is not valued at more than about $12,000 and it would be unlikely to sell for anything greater than about $10,000 in the present market.

In these circumstances our client is not prepared to proceed further with the proposed settlement of this matter."

It was following that letter that the petition was issued.

I have referred at a little length to what I regard as the critical correspondence.  In my view there are serious questions as to whether, in respect of the ultimate agreement which was reflected in the exchange of letters between 18 and 26 February 1997, there was any term as to the value of the land.  On the material before me, the only occasion upon which that issue arose was in the letter of 10 January 1997 in which it was asserted that the land was conservatively valued by local agents as being worth $32000.  At its best, that is not a warranty as to the
value of the land but an assertion as to a value placed upon the land by local agents.  Whether or not it was a term of the agreement for payment entered into, and I doubt that it was, I do not think it is a warranty of value.  Furthermore there is no proper material before me which indicates that that assertion as to the debtor having received or seen such a valuation was or was not correct.  The fact that some other local agent, or perhaps even the same agent, has informed the petitioning creditors that the land in question has a different value, does not prove the untruth of that initial assertion, even accepting that it constituted a contractual warranty.  However, for reasons which I have expressed, I have doubt as to whether it was a contractual warranty, and on the material before me there is no evidence to prove that in any event it was untrue.  Accordingly, whilst I am conscious of not finally deciding such questions in case they need to be ventilated later and in other proceedings, it seems to me that the petitioning creditors had significant hurdles to overcome in the light of that correspondence in succeeding on the petition.  On the material before me, the particular reason why I reject the claim for costs and rule as I do is because I do not think it has been proved that the assertion by the debtor through his solicitors in the letter of 10 January 1997 was untrue.

In accordance with the request of the parties I order that the petition be dismissed by consent but I direct that that order do lie in the Registry for seven days before sealing.  I give liberty to the petitioning creditors to apply within that period in the event that the cheque in payment of the debt is not
cleared within that period.  I make no order as to the costs of the petition.

I certify that this and the preceding        pages are a true copy of the Reasons for Judgment of the Honourable Justice Mansfield.

Associate:

Dated:

Counsel for the Debtor      :    Mr A Battiston

Solicitors for the Debtor        :    Lynch & Meyer

Counsel for the                  :    Mr P Winter
     Petitioning Creditors

Solicitors for the          :    Winters
Petitioning Creditors

Hearing Date                :    2 June 1997