Re Solomon, Eddie Ex parte Reid, John Ralph

[1986] FCA 60

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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.

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Bankruptcv - appointment by Supreme Court of interim receiver of

property of debtor on application of Corporate Affairs Commission

- Companles 0I.S.W.) Code, S . 324A - whether lnconslstent with

Eankruptcv Act 1966. *

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PE: EDDIE SOLOMON;

EX PARTE J O H N RALPH REID

Eeaumont, J.

Sydney

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7 March 1985 I

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Lrr THE FEDERAL COURT OF AUSTRALIA	-	1
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GENERAL DIVISION	1
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-BANKRUPTCY DIST~ICT	OF m SOUTH WALES	)	m. p1809 of 198s
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$-M, THE AUSTRALIAN CAPITAL TERRITORY )

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. RE : EDDIE SOLOMON

Ex PARTE: - JOHN RALPH REID

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MINUTES OF ORDER

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Judge maklng order: Beaumont, J.

Date order made: 7 March 1986

I4here made : Sydney

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THE COURT ORDERS TI-AT:

1. 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. on 7 March 1986. the petitioner

serve upon the Corporate Affairs Commission notice

of the adjourned hearing date of this petition

together with a copy of these reasons.

4. Costs reserved.

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Note: Settlement and entry of orders is dealt with by

Bankruptcy Rule 124.

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' -'If1 THE ETSERAL COURT OF' AUSTRALIA )

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GENERAL DIVISION l

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BANKRUPTCY DISTRICT OF NEW SOUTH WALES	)	I	No. P1809 of 1985
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.AND THE AUSTRALIAN CAPITAL TERRITORY )

.. RE : . EDDIE SOLOMON

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Ex PARTE: JOHN RALPH REID

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CORAM: Beaumont. J. l

DATED: 7 March 1986

REASONS FOR JUDGMENT

The petitioner, Mr. John Ralph Reid, has presented a

petition for the making of a sequestration order agalnst the

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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.

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The debtor seeks ' 'an adjournment of the petition or,

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

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I , The-history of. the matter is as follows. 'In January

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

advertisement in a magazine apparently placed by the debtor. The

advertisement. entitled "How to Achieve Total Financlal

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.	Independence" invited. readers to inspect the debtor's book
"Financial, Independence' and, if interested, to purchase it.

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According to a coupon i'n the advertisement, requests for "l0 days

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

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"To Eddie Solomon

Transphere Pty. Limlted

32 York Street,

Sydney N.S.W. 2000"

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l The petitioner sent a coupon to 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

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. . . ' - Telex: 75730 (Eddie)"

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The letter commenc;?d: . I _

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'	~	, "Dear Sir/Ma.dam,	I ; ,
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RE: THE ,EDDIE SOLOMON TRUST FUND NO. 6"

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

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CORPORATION" below which was. typed "TRANSPHERE LIMITED", invited

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subs'criptions to "The Eddie- Solomon Trust Fund No. 6 " . According

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

Solomon Bank L Trust Corporation acted as trustees of the fund;

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the debtor was' the manager of, and major participant in, the

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

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

The letter also stated:

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"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

r deposit or withdraw any amount of money-any tlme

by simply quoting the account number .... Only 24

hours notice to withdraw funds from pour

account.... I, -

..' Pursuant 'to this invitation, . , in October 1984, the

.petitioner invested, to use a neutral word, amounts totalling

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$21,400.00 in- the trust fund. The investments were made by way . , -

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of cheques -dra& by or at the request of the petitioner. The

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. first -investment-,- .. in the sum of $7,400.00, was made by cheque

forwarded' .to the debtor on or about 1 October 1984. In

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accordance with the terms of an application form accompanying the

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circular letter, the cheques were drawn in favour of the debtor.

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

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, . , - . ' .']TRANSPHERE'PTY. LIMITED

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Telephone:	'. Telegraphic	Address
.	TRSNSPHERS SYDNEY I ( 0 2 ) 2901920 ,

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- ' ~' Telex: 75736 32.YORK S T R k , SYDNEY N.S.W. 2000

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I G.P.O. BOX 1681

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AUSTRALIA Ref: ' Your .>

Our Ref: '

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- 4 October i904

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_- PRIVATE L CONFIDENTIAL

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EST 679

Mr John R Reid

1:32 Alderley Street .

TOOWOOMBA ~ Q@ 4350

~ Dear Mr Reid

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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. I 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. .

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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 do not hesitate to

contact me on ( 0 2 ) 290 1920.

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Sincerely . _ -. .-

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

- I TRUSTEE

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. I The second . investment', €or the sum of $14.000.00, was

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made, on or about 5 October 1984. Its -receipt was acknowledged by I.

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"a letter dated 16 October 1984 as follows: .

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5 ' . . -" "TRANSPHERE LIMITED - .

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v	.	I	'inc.	' in the Capman' Islands
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' Rep. Office: SUITE 3A 6Tk FLOOR,

I . , 32 YORK STREET SYDNEY NSW 2000 I -

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GPO BOX 1681 .:.

I TELEX 75730 (Eddie)

SYDNEY, NSW. 2001 . . - b E P H O N E [phone]

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, , PRIVATE & CONFIDENTIAL

16 October 1984

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I Dear Mr. Reid	'	L
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I &knowledge with. thanks receipt' of your payment for

. $14,000.00 for investment in the Eddle Solomon Trust

Fund. -

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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. /

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Sincerely . _ -

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'(SGD) L.-DUHEN- . , I

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Leanne Dueen

EDDIE SOLOMON BANKING-CORPORATION

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PiS. . A cheque for $428.30 will be 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 .

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Corporate Affairs Commission 'informed the petitioner that in the

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course of n i investigation of the affairs of the debtor, the

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

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up in .an account operated in the name of Emmanuel Solomon at

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Trust Fund. After discusshu the -matter with one of Mr. .

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McIntosh's 'staffs the, petitioner, on 26 October 1984, telephoned

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.the debtor's office and' asked t ? speak to the debtor. He was

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, informed tliat the debtor ' wouldrnot be in the off ice that day.

' The petitioner requested the repayment of the monies he had

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irrlested. He was- iurther informed that, for this purpose, , _. he

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

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gas npt, expected in the-offfce until the following week.

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

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Affairs 'Commission, the Supreme Court of New South Wales ordered,

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

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the proper'ty of Transphere Pty. Limited, of Eddie Salomon Pty. I .

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Limited and 'of the debtor. ' Under the terms of the order, the

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receiver was aiven. ceriain powers and certain restraints were , * . . - . . . ~ - . _.

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impbsed upqn the debtor and th; companies mentioned.

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.. \ . I In- .. abodt March '1985, the petitioner filed in the

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"District Court a statement of liquidated claim agamst the debtor

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and the two coinpanies mentioned, pleading his cause of action as

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. ~. . -I "The 'Plairkiff pleads , -, his cause of action as

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

. -= , > . I ; - I Defendants were companies duly incorporated

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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

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.. $7,400.. . . .

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. 4. On 8th October,' 1984 the Plaintiff

.. , I. . , ' subscribed ta the Trust Fund the sum of ~

' . I 7 $14,000. , ,' , , :.

.. 5. It was' a.. term of the' Trust Fund that

,	'interest at'the rate of $27 per centum per
annum would be payable on any monies
-subscribed to the Trust Fund.

, . 6. It vas a 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

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giving to the Defendants twenty four ' (24)

hours notice in writing or by telephone.

.?. The Defendants acted as agents for each

--. . other in performlng their ,duties as

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 to 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

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

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

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'the use of the Plaintiff and,have failed to

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- .I .. account 'to the Plaintiff for the said

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,, .11. , Further, and . in the alternative, the

1 - , . - . -,: ,Defendants.. 'and ' each of them. have

> ..i . . - .. '...:.-'converted the said subscriptions of. $21,400

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, . _ I - . . -deprived the Plaintiff of the same

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>.' . 4 - ;.. . ,'whereupon the,- \Plaintiff-has suffered loss

damage.	'and	X	>
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. 4 ' , I. - . , I (a), Subscription of $7,400 together

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- . .- annum frpm 2nd October, 1984 until

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. _ ' . - I . % ,.(b) .~ Subscription of $14,000 together

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-. . 7 , , , . I . , . . the .'rate of $27 per centum per

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.	I	' t . ~ -,,	. - , annum from 8th October, 1984 until
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the date of repayment.

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,, ,' 12. In consequence of the matters afore6aid the

; Plaintiff claims from the Defendants:

, (a? Repayment of the initial

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- - .':%of '27 per ceeum per annum from

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

- I ,the Trust Fund.

~ Lb ) Repayment second the of

. I together $14,000 subscription of

with interest thereon at the rate

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-. of 27 per centum per annum from

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I. I , - , I - ' .,' the 8th day of October, 1984 until r

.> I . -, ~ I payment pursuant to the terms of

1 . ,,the Trust Fund.

I , - (c) Costs." ..

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q On 14 May 1985, - the petitioner obtained default judgment

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in the' District Court against the debtor and the two companies . . I , I - ..

-mentioned in the sum of $25.153.15. On 2 0 September 1985, the

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degtor filed an application in the District Court seeking to set . .

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' aside the default judgment.. . O n 4	October 1985, the application
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was refused bp Walsh, D.C.J . on the ground that there was no

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, defencs on 'the meiits. In November 1985 an akplication to set

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aside the .'bankruptcy notice was dismissed by Morling, J. On 7

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. -February 1986, Solomon D.C.J..,-.refused a further application to

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' %set aside the default- judgment'. . -The debtor now proposes to seek

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an order in the 'nature of certiorari from the Court of Appeal of

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I the Supreme Cburd.of New South Wales to quash- the decision of

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' Solomon D.C.J; However, that application has not Yet been made r

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I because ,_ the ., transcript -'of ' his Honour' S reasons. is not yet

available'and may not' be available for:some weeks.

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- . . &en if the"debtor were Lie, at some later date, to set

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-&ide'the ' default judgment, on the expiration of the time fixed

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'for compliance wiEh the requirements of the bankruptcy notice,

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-the debtorhad committed an act of bankruptcy which could not be -

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retrospectively nullified.by 'the setting aside of the default

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jukgment' (see Re' Vella; Ex Parte Sewour - (1983) 48 A.L.R. 4 2 0 ) .

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The real Guestion , for determination now is whether the Court

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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;

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

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26-June 2985).

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Upon the assumption that it were appropriate in the

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circumstAces that the Court go behind the jiudgment, the debtor

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advances two arguments to support his contention that he is under

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no 1-egal liability to the petitioner.

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, - - ~ In 'the first 'place,' the debtor sub;its that he was not a

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trustee of the trust -fund but ' rather only its manager. Thus. it

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'is said,' even if the trust'ees of the fund may have been liable to

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

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incurred no personai liability on that account.

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' 'were paid t;o the credit of. his accbunt, assuming, as I do, that

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- the debtor is.also known-as Emmanuel Solomon.

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

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~ failed .tp acco'At- ' , to the , trustees for these proceeds in I .

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.' .accordance: 'with ' I the -terms of ~ -the investment contract.

Thus, even if it were appropriate that the Court 40

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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

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fact that t& debtor was sued jointly with other defgndants.

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I . The 'debtor; S second ar;qument concerns the effect of the

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

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

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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

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be made bankrupt^ by reason of his failure to pap such debt.

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~ -' The order made by the-Supreme Court were expressed to se

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"until' the hearing br- fur:ther 'order". , Apparently, the final

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-- hearing of the proceedings has not yet occurred. However, para.4

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of the order reads :

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as