Re Solomon, Eddie Ex parte Reid, John Ralph

CATCHWORDS

Bankruptcz - creditor'gpetition based on default judgment -

xhether Court should qo behind judgment to determine merits

xhether debtor liable to petitioner as manager and not trustee	of
trust fund - xhether liable in quasi-contract.
de pellai Ex parte Sewour (1983) 48 A.L.R. 420

Re Marshall: Elu parte James Hardie

& Cov. Ptv. Ltd., unreported,

Fincus J., 8 July 1985.

Re Bloomer; Ex parte Ford Credit Australia Limited, unreported,

Toohey J., 26 June 1985.

Bankruptcv - appointment by Supreme Court of interim receiver

property of debtor on application of Corporate Affairs Commission

- Companles 0I.S.W.)

Code, S . 324A - whether lnconslstent with

Eankruptcv

Act

1966.

PE: EDDIE SOLOMON;

EX PARTE J O H N RALPH REID

Eeaumont, J.

Sydney

7 March 1985

_ .

% l

Lrr THE FEDERAL COURT OF AUSTRALIA	-	1
1

GENERAL DIVISION	1
)

-BANKRUPTCY DIST~ICT	OF m SOUTH WALES	)	m. p1809 of 198s
1

$-M, THE AUSTRALIAN CAPITAL TERRITORY

)

, I

RE :

EDDIE SOLOMON

Ex PARTE:

JOHN RALPH REID

MINUTES OF ORDER

Judge maklng order: Beaumont, J.

Date order made:

7 March 1986

I4here made

Sydney

. .

THE COURT ORDERS

TI-AT:

Leave

be granted to the petitioner to amend the

petition by adding under the debtor's name the yards '' (also known as Ehmanuel Solomon) " .

7 -.

Petition adjourned to

10 March.1986 at 2.15 p.m.

3 .

'-Before 5.00. p.m.

7 March 1986. the petitioner

serve upon the Corporate Affairs Commission notice

the adjourned hearing date

this petition

together with a copy of these reasons.

Costs

reserved.

Note: Settlement and entry of orders is dealt with by

Bankruptcy Rule 124.

' -'If1 THE ETSERAL COURT OF'

AUSTRALIA

)

GENERAL DIVISION

)

BANKRUPTCY DISTRICT OF NEW SOUTH WALES	)	I	No. P1809 of 1985
)

.AND

THE AUSTRALIAN CAPITAL TERRITORY

)

.. RE

. EDDIE SOLOMON

I ' -

Ex PARTE:

JOHN RALPH

REID

* .

CORAM: Beaumont. J.

DATED:

7 March 1986

REASONS FOR JUDGMENT

The petitioner, Mr.

John Ralph Reid, has presented

petition for the making

sequestration order agalnst the

estate of

the debtor. Mr. Eddie Solomon. The petitioner claims

that the debtor is indebted

to him in the sum of $25.153.15

for

a judgment debt obtained in- the District Court

of New South Wales

on 14

May 1985.

The

petitioner further claims that the debtor

failed to comply

with the requlrements

of a bankruptcy notice

based on that ~udgment	and served on the debtor on	32 August
1985.

- 1

The

debtor seeks ' 'an adjournment of

the petition or,

alternatively, its dismissal on the.ground, shortly stated, that

. ,

I . .-	1 -	'
. I

2 .

. l - ,

, -

. ' . ,

' -

. - ,

. -

. l I

I , The-history of. the matter is

as follows.

'In January

1384, the petitioner, a resident of Toowoomba, Queensland, saw

advertisement in a magazine apparently placed

by the debtor. The

advertisement.

entitled

"How to

Achieve

Total

Financlal

> I

Independence" invited. readers to inspect the debtor's book

"Financial, Independence'

and, if interested, to purchase

it.

- >

According to a coupon i'n the advertisement, requests

for "l0 days

,free trial" of the book were to be addressed as follows:

I >

.. , .

_ .

' (

"To Eddie Solomon

Transphere Pty. Limlted

32 York Street,

Sydney

N.S.W.

2000"

The petitioner

sent

a coupon

the

debtor

and

received

' a copy of the book.

No further communication occurred between

the parties

until

t h e middle of September 1384 when the

petitioner

received a clrcular

letter

marked

"prlvate

and

confidential" from:

.. .	"TRANSPHEFE LIMITED

inc. in the Cayman Islands

Reg. Office Suite

3A, 6th Floor l

- 3 2 York Stree;,

SYDNEY,

m w

2000

- I

. . .

' - Telex:

75730 (Eddie)"

The letter

commenc;?d:

I _

. ..

, -

. .

'	~	, "Dear Sir/Ma.dam,	I ; ,
. . '

RE:

THE ,EDDIE SOLOMON TRUST FUND

NO. 6"

' handwriting above 'the typed words "EDDIE SOLOMON BANK & TRUST

. .

CORPORATION" below which was. typed

"TRANSPHERE LIMITED", invited

. -

- . -

subs'criptions to "The Eddie- Solomon Trust Fund No.

6 " . According

I _

L I .

to the letter, 'Transphere (?ayman Islands) Limited and the Eddie

Solomon Bank L Trust Corporation acted

trustees of the fund;

\ , I

the debtor was' the manager of, and major participant

in, the

'trust; and the guaranteed minimum income derlved from the trust

xas "25% p.a. compounded rate of return".

The letter also stated:

. - .

, --

, .

. .

- L

, .

"The --previous

trust' funds conducted by Eddie

-Solomon have shown

tremendous

success

and

popularity.

This is without doubt a reflection

on	the trust that my valued investors have

placed in

me.

Every participant in the Eddie

Solomon Trust Fund

No.

6 will be

allocated an

account number and

thus the participant can

deposit or withdraw any amount of

money-any tlme

by simply quoting the account number

....

Only 24

hours

notice

withdraw

funds

from

pour

account....

I, -

..' Pursuant 'to this invitation,

. ,

October

1984,

the

.petitioner invested,

use a

neutral word, amounts totalling

- . -

I -

. -

.. ,

$21,400.00

in- the trust fund. The investments were made by way

. ,

. . I

of cheques -dra& by

at the request

of the petitioner. The

- .

- 1

. first -investment-,-

in the sum of $7,400.00,

was made by cheque

forwarded'

.to

the

debtor

about

1 October 1984. In

accordance with the terms

of an application

form accompanying the

I -

circular letter, the cheques were drawn

in favour of the debtor.

1 , I

, .

_	I
'. ; L

. .

- _

L .-

. I ,

4. -

.	> l .	. ..	- '. .	..	. ,
I	.

. -.

. -

1. " ,

1_, I	Its 'r'eceipt was acknowledged by a letter dated 4 October 1904 in
I .

. .

_ .

I _

. m

~ . these terms:'

, .

.,I

I. ' .

I . .

< L

, . ,

- . '

.']TRANSPHERE'PTY. LIMITED

- .

. ,	.	I	1-1	I	~
. ,-

Telephone:

'. Telegraphic

Address

TRSNSPHERS SYDNEY

( 0 2 ) 2901920 ,

. ,

~' Telex:

75736

32.YORK

S T R k , SYDNEY

N.S.W.

2000

I	G.P.O. BOX 1681

% . < , ~

I SYDNEX NSW

2001

, L

AUSTRALIA

Ref:

' Your

Our Ref: '

- r .

-	4 October i904

. (

_-	PRIVATE L CONFIDENTIAL

EST 679

Mr John R Reid

1:32 Alderley Street

TOOWOOMBA ~ Q@

4350

~ Dear Mr Reid

L . ,

I acknowledge with thanks receipt of your application

for participation

in the

Eddie Solomon Trust Fund

together with your payment

for $7,400.00.

Pour

. application

has

been'

duly

considered

and

' accepted.

am pleased to announce that we guarantee

a-minimum of 25% p.a.

return on funds invested in

the

.Trust.

. A

cheque for

$166.50

will be sent to your

mailing address on the 2nd of every month.

I ,

lour	account reference number is the one appearing

- above your name and address.

. 1-wish-to

thank you for the trust you have placed in

me and which.1 shall seek at all times to justify. If

- 'you have

any

queries,

please

not

hesitate

contact me on

( 0 2 ) 290

1920.

. -

. I

Sincerely

. _

' iSGD) Eddle Solomon'	I
- (Eddie Solomon)

TRUSTEE

;

, -

( I - ,

I .

. I

The

second

investment',

€or

the

sum of $14.000.00, was

made,

on or about

5 October 1984. Its -receipt was acknowledged by

"a letter dated 16 October 1984

as follows:

' _

. _

: I

' .

"TRANSPHERE LIMITED

- .

. .

: I -'I

v	.	I	'inc.	' in the Capman' Islands
, I

, .

' Rep. Office:

SUITE 3A 6Tk FLOOR,

I .

32 YORK STREET SYDNEY NSW 2000

. . .

.. I- . , '_

GPO BOX 1681

.:.

I	TELEX 75730 (Eddie)

SYDNEY,

NSW. 2001

. -

b E P H O N E (02) 290 1920

1 .

- 1 ' _ . . I

, ,	PRIVATE & CONFIDENTIAL

16 October 1984

I Dear Mr. Reid

, _

I &knowledge with. thanks receipt' of your payment for

. $14,000.00 for

investment in the Eddle Solomon Trust

Fund.

I "

This amount

has been added

t b your previous balance.

I wish to thank

you once again for the trust you have

placed in

me and which L shall seek at all times to

justify.

I .

I _

. I

Sincerely

. _ -

.,'

'(SGD) L.-DUHEN-

. , I

. ~,

Leanne Dueen

EDDIE SOLOMON BANKING-CORPORATION

. .-,,.

PiS.

. A cheque

for

$428.30 will

sent to your

mailing address on 2/11/04 and then $481.50 will be

sent monthly thereafter."

. On 25

October. 1984, an officer of the New South Wales

Corporate Affairs Commission 'informed the petitioner that

in the

I -

- _

. .

- .

I .

I ' 1

I _ . <

course of

investigation of

the affairs of the debtor, the

Commission had 'discovered that'the petitioner's funds had "ended

I ..

> -

- ,

in .an account operated

in the name of Emmanuel Solomon at

, ..

. .

, I..

I _

Trust Fund.

After discusshu the -matter with

one of

Mr.

, .

I .

McIntosh's 'staffs

the, petitioner, on

26 October 1984, telephoned

~ ; ..

.the debtor's office

and' asked

t ? speak to the debtor.

He was

1 l r '

, informed tliat the debtor

' wouldrnot be in the off ice that day.

' The

petitioner requested the repayment of the monies

had

irrlested.

He was- iurther informed that, for this purpose,

, _.

should contact another member of the,staff, Leanne, although she

I _

gas npt, expected

in the-offfce until the following week.

, , . Q .

L . '

, I

\ ,

. .	, I . ,P>.\, ;

. - .

- .

'On' 11 December 1984, on the application of the Corporate

, . I '

Affairs 'Commission, the Supreme Court of

New South Wales ordered,

1 -

on an .interim basis, that Mr. Mcrntosh be appointed receiver of

I -

the proper'ty

of Transphere Pty. Limited, of Eddie Salomon Pty.

I .

. c .

_ I .

Limited and 'of the debtor.

' Under the terms of the order, the

I _

! .

receiver was aiven. ceriain powers and certain restraints were

* . . -

. . .

- .

, ..

: .-

I i I . I

impbsed upqn the debtor

and th; companies mentioned.

I-

_ I . . I

, I

,~,*

I .

I . ._

. .

I *

. - .

. I

I . I,

\ . I In-

.. abodt March '1985, the petitioner filed

in the

1 .

, - .

"District Court a statement of liquidated claim

agamst the debtor

. - .

- .

2 .

, .

and the two coinpanies mentioned, pleading

his cause of action as

r !

3 .

. ~.

. -I

"The 'Plairkiff pleads

, -,

his

cause of action as

. follows: I

I . .. 2

. .

. \

'. l:'''.''At all material times the Second and

Third

I ;

- I Defendants were companies

duly incorporated

I ,

and liabie to be sued in their corporate

I .

name

and

style.

, 2: .-"The Defendants were, at all-material times,

. -

I I

the Trustees

of- the Eddie Solomon Trust

, .

-., Fund No. 6 (the "Trust Fund"

1 .

- 3*- On -2nd

'October,

~ 1984 the

Plaintiff

, -

, '

subscribed

ta the 'Trust Fund the .sum of

. < .

..	$7,400.. . . .

. 4.

8th

October,' 1984 the

Plaintiff

' subscribed

ta the Trust Fund the sum of

. I 7

$14,000.

, ,' , , :.

It was' a.. term of

the' Trust Fund that

'interest at'the rate of $27 per centum per

annum would be

payable

any

monies

-subscribed to the Trust Fund.

6. It

vas

further term of the Trust Fund

' that

any monies subscribed to the Trust

Fund'would

be repayable by the Defendants

- to

the

Subscr'iber

upon the Subscriber

> ' .

giving to the Defendants twenty four ' (24)

hours notice

in writing or by telephone.

.?. The

Defendants acted as agents

for each

--.

other

performlng

their

,duties

1 Trustees of the Trust Fund.

8.'

' On 26th October, 1384 the Plaintiff -uave notice to

the Defendants of his intention

..	to-withdraw the $21,400 subscribed by him together wlth any interest which had
'accrued upon such a subscription.

9, The

Defendants,

and each of them, have

'.failed

pay

to the Plaintiff his

.- - Subscriptions of $21,400

together

with

interest accrued thereon.

-.'lO.. In the

alternative,

the

Defendants,

and

-	.:: each. of 'them received from the Plaintiff

. _

. ,,. ''

the subscription of $?,400 on 2nd October,

1 - ,

i. -	1384 and $14.000 on 8th October, L384 for

- .

I ,

-L* I , ._.

'the

use of the Plaintiff

and,have failed to

. .

L .

- .I

account 'to

the Plaintiff for the said

. . ~.

- _ I

I subscriptions. .

c c . .

.11. , Further,

and . in the

alternative,

the

1 - ,

. - . -,: ,Defendants.. 'and

' each

them. have

> ..i . . -

.. '...:.-'converted the said subscriptions

of. $21,400

~ .-

. '. 1'

. - :

- for their

own use and -have wrongfully

. .

, . _ I

. .

-deprived the Plaintiff of the same

- -.a ,

>.'

4 - ;.. .

,'whereupon the,- \Plaintiff-has suffered

loss

damage.	'and	X	>
. .

- 1

. . .

<. I _

I . .> .

- I

- >

I .

1 .

I .

.e ..

. I . -

I .

'- . .? ,

. .

' . ,

m .

- .

, ? _ . I ,

. I

-,-

. , .-

. 4 ' ,

I. - .

I (a), Subscription

$7,400

together

:.. I.

. , , .

. - . L. . _ .

... ,.,

, :.'.-with interest thereon accruing at

\ +

the rate of $27

per centum per

- .

.- annum frpm 2nd October,

1984 until

'_	, I	. , , ,
.. . - - I . the date of repayment.

, ,I.

. _

' . - I . % ,.(b)

Subscription of $14,000 together

, , . ',

.: :.- :with interest thereon accruing at

I .

. I

I. . L , ,

-. .

7 , , , . I . , .

the .'rate

$27

per centum per

~ .>

.	I	' t . ~ -,,	. - , annum from 8th October, 1984 until
. .

. I

the date

of repayment.

, .L.,

- 1

. ? h A

+ -

I .

L . - . .

,' 12.

In consequence of the

matters

afore6aid

the

; Plaintiff claims

from the Defendants:

, (a? Repayment of the

initial

._.

- .

1 .

--.

' -

,_,

V -. .a -subscription of $7,400 together

. I

. ~ ,

with-interest thereon at the rate

' L .

- .':%of '27 per

ceeum per

annum

from

.	'	the 2nd day of October, 1984 until
'	payment pursuant 'to the terms of

,the

Trust Fund.

) Repayment

second

the

. I

together

$14,000

subscription

with interest thereon at the rate

L .

, \

-. of 27 per centum per

annum from

i , <

I. I , - ,

' .,' the 8th day of October, 1984 until

I .

-, ~

payment pursuant to the terms of

1 . ,,the

Trust Fund.

I ,

- (c) Costs."

q On 14 May 1985,

- the petitioner obtained default judgment

. - .

in the' District Court against the debtor and the two companies

-mentioned in the sum

$25.153.15. On

2 0

September 1985, the

degtor filed an application in the District Court seeking to set

. .

' aside the default judgment.. . O n 4	October 1985, the application
. -

. I

- . ', ._

. .

, ,

.1 . .

was refused

bp Walsh, D.C.J .

on the ground that there was

_ -

. -) .

. I .

I . I .

- -

defencs on 'the meiits.

In November 1985 an akplication to set

. I , .

. ,

. f - '

- , I

.._

aside the .'bankruptcy notice was dismissed by Morling,

J. On 7

I - - '

.L .

-February 1986, Solomon D.C.J..,-.refused

a further application to

' - .

I .

' . L

7 .

5 .

' %set aside the default- judgment'.

. -The debtor now proposes to seek

. -

I '

. - .

an order in the 'nature of

certiorari from the Court of Appeal

-,- .

_ I

the Supreme Cburd.of

New South Wales to quash- the decision of

' Solomon D.C.J;

However, that application has not Yet been made

I because

,_ the

transcript -'of

' his

Honour'

S reasons. is not yet

available'and may not'

be available for:some weeks.

- .

-I

- .

_ .

, -

_ _ - -

,,:

I . 1,

' , .

. _

~. -__.,

- .

&en if the"debtor were

Lie, at some later date,

to set

. _

-&ide'the

' default judgment, on the expiration of the time fixed

- <

, ..

'for compliance

wiEh the requirements of the bankruptcy notice,

. ... .

,. . .

-the debtorhad

committed an act of bankruptcy which could not be

+ , .

retrospectively nullified.by

'the setting aside of the default

. .~ . :

jukgment' (see Re' Vella;

Parte Sewour - (1983) 48 A.L.R.

4 2 0 ) .

The real Guestion

, for determination now is whether

the Court

- .

should go behind -the

I judgment in the sense explained by the

authorities 'in this area '(see Re Marshal1 Ex parte James Hardie &

-	CO?. Ptv. Ltd'., unreported; Pincus; J., 8 July 1985; Re Bloomer;

.	. . 1 . .

I . :

I-	EA par-te Ford Credit Australia Limited, &reported, Toohey, J.,

I .

- .

26-June 2985).

, .

' .

- .

I, '

I _

' > ' '- .'

c - .

Upon the assumption that it were appropriate in the

circumstAces that

the Court go behind the jiudgment, the debtor

. l .-

advances two arguments to support

his contention that he is under

. < .

no 1-egal liability to

the petitioner.

-. . .

_ -

. .

1 I.

.. I

r '. _ I

. ,

. _

. . ..

- - .

. .

- ~ In 'the first 'place,' the debtor sub;its that

he was not a

, .

. ,._

, \ . ,

trustee of the trust -fund but

' rather only its manager.

Thus. it

I _.

. .

. ,

- 8

X. -

'is said,' even if the trust'ees of the

fund may have been liable to

I .

, I .

. _ .

refund. t.he , irivestments made, 'the' debtor, as mere manager,

incurred no personai liability on that account.

, ' I

. L - I . -

I I >

' . - 2

, , .

. .

1 . -.

' 'were paid t;o

the credit of.

his accbunt, assuming, as I do, that

the debtor is.also known-as

Emmanuel Solomon.

, ' .

L	.
I.

. i

. .

i. -.

, _

O n , this hyphothesis;-'the debtor must be taken

to have

I .

! .I I

I . .

- j /

I .

. .

.-I

~ failed .tp acco'At-

' , to the

, trustees for these proceeds in

< .

I - 1 ..

, _

.' .accordance: 'with

' I the -terms

~ -the investment contract.

Thus,

even if

it were appropriate that the Court

, . I .

b .

. ,

. . -

behind the default 'judgment.

. it would not assist the debtor

since, in m7 view, he 1s liable to the petitioner

for the amount

claimed. It is hardly n'ecessary

to add that nothing turns on the

fact that t&

debtor was sued jointly with other defgndants.

I .

~ , . - 1'

. I

> I

. ~

' . .-I -.

The 'debtor;

S second ar;qument concerns the effect

of the

I .

orders appointing a 'receiver of the property of the debtor. It

is suggested that the operation of these orders was to "freeze"

_ -

. .

the assets of the debtor

so as to make it impossible for him

personally

, -

to pay the judgment debt;

so that he should not now

, . . .

be made

bankrupt^ by reason of

his failure to pap such debt.

. .

-. .

The order made by the-Supreme Court

were expressed to se

. -

- Y

I .

"until' the hearing br-

fur:ther 'order".

, Apparently, the final

. I

-, *

-- hearing of the proceedings has not

yet occurred. However, para.4

. I

: ;

of the order reads

. _ . .

I .

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established