Re Stewart, K. v Ex parte Woorabinda Aboriginal Council

[1993] FCA 232

IN THE FEDERAL COURT OF AUSTRALIA	1	No. QP 1201 of 1992
GENERAL DIVISION	1
BANKRUPTCY DISTRICT OF	1
THE STATE OF OUEENSLAND	1

RE:  KEITH STEWART

Debtor

EX PARTE: - L

Petitioning Creditor

MINUTES OF ORDERS

JUDGE MAKING ORDER:	Drummond J
DATE OF ORDER:	17 March, 1993
WHERE MADE:	Brisbane
THE COURT ORDERS THAT:

1.        The petition is dismissed.

2.        The petitioning creditor pay the debtor's costs of and incidental to the petitioner, including reserved costs, to be taxed.

NOTE :	Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv  Rules.

IN THE FEDERAL COURT OF AUSTRALIA	1	No. QP 1201 of 1992
GENERAL DIVISION	1
BANKRUPTCY DISTRICT OF	1
THE STATE OF OUEENSLAND	1

RE :  KEITH STEWART

Debtor

EX PARTE: WOORABINDA ABORIGINAL COUNCIL

Petitioning Creditor

C O W :  Drummond J

PLACE: Brisbane

W: 17 March, 1993

EX TEMF'ORE REASONS FOR JUDGMENT

I have before me a petition for a sequestration
order based on non-compliance by Mr. Stewart, to whom I will

refer as the debtor, with a bankruptcy notice that called on

him to pay .a judgment debt.	The judgment was for $15,000.00
plus certain costs, the $15,000.00 being said to be the price	of a backhoe sold and delivered to the debtor. The petition
came before Heerey J on 30 June, 1992. At the invitation of the parties, Heerey J gave a determination limited to whether the debtor should be permitted to go behind this judgment.
His Honour ruled in favour of the debtor on that occasion.

.. . . -	The three main grounds upon which the debtor disputes that there was any debt owing to the Woorabinda Aboriginal Council ("WAC") when it obtained its judgment and that there is now any debt owing to WAC are as follows. Firstly, the debtor then had, and still has, claims against WAC that exceed the amount of the latter's claim in respect of which it obtained the judgment. Secondly, WAC received payment of the price for the backhoe the subject of the judgment debt from retention moneys it was entitled to withhold from the debtor under a building contract between them and so was not entitled to the judgment. Thirdly, title to the backhoe has never passed from WAC to the debtor and WAC was thus never entitled to payment of the agreed price of $15,000.00 and was not entitled to recover judgment for that price.
In early 1990, the debtor entered into a contract to refurbish 12 houses for the WAC. The contract price was $362,000.00. During the course of the job, WAC let a separate contract to the debtor to refurbish a further house at a contract price of $30,000.00. There is a factually complex
performed his obligations under those building contracts and dispute between WAC and the debtor as to whether the latter
as to whether WAC lawfully dismissed him from the site and had what it claims was the work left undone by the debtor completed by others; or whether, as the debtor contends, WAC wrongfully determined the contracts, which he says he fully completed in late November 1990. WAC asserts that the debtor
..
owes it $69,755.00, including $38,700.00 by way of liquidated damages, quite apart from the price of the backhoe. The

debtor, however, asserts that he has good claims arising out of these building contracts against WAC for over $210,000.00, which he is pursuing, although he has not yet commenced court proceedings.

The debtor appeared before me unrepresented. He sought an adjournment to obtain legal representation. I refused that adjournment. He then told me he had no papers in his possession concerning the matter. He sought an adjournment accordingly to obtain the file from his former solicitors, which he said included a lot of material relating to his claims on the contracts against WAC. At my suggestion, he then brought an application for an order that his former solicitors deliver up the papers he needed to deal with the matters relevant to the present hearing, which they had refused to hand over to him. This application was disposed of this morning when those solicitors voluntarily agreed to give the debtor access to the necessary material.

A perusal of the material relied on by WAC shows that there is a real question raised by the third point put forward by the debtor in opposition to the making of the sequestration order, namely, that there has never been any debt in respect of the price owing by him to WAC in respect of his purchase of the backhoe because, under the contract under which he agreed to buy it from WAC, title has not yet passed to him. With the agreement of both WAC and Mr. Stewart, I proceeded to deal with this issue, both parties acknowledging

that there was no further material that either wished to put
before me in this regard.

The evidence shows that on 9 August, 1990, the debtor lodged a tender with WAC for the purchase of a backhoe for $15,000.00 which the debtor required to carry out the works under the building contracts. On 22 August, 1990, WAC resolved to accept the debtor's tender. On 23 August, 1990, WAC, by its chairman, wrote to tell the debtor of this, saying:

"Council will accept cash, bank, or finance company cheque as full payment. The backhoe is located at the Woorabinda Aboriginal Council workshop depot, to be collected upon receipt of payment.

Full ownership transfer will be effected by Council's Solicitors as soon as payment transaction takes place."

By an undated letter sent on his behalf, the debtor

in reply wrote:

but the Bank's leasing practice states that the	"I proposed to lease the Backhoe through the Bank,
machine is too old being an '82 model.
As we are in the middle of a contract with yourselves, we need all our money for Cash Flow, and I would like to ask yourselves if we could pay for the Backhoe out of the retention money which you hold which is $18,100 and then the Council could hold a Bill of Sale over it until we get our retention money and this would ease our problem of hiring a backhoe on the jobs."

On 19 September, 1990, according to the minutes of its meeting, WAC resolved as follows:	:
I

Stewart requested that Council allow him to use his

retention moneys to purchase the backhoe under Bill	i
of Sale to Council.
Council agrees in principle as long as the situation is secured."

This was followed by the critical letter from WAC to the debtor dated 20 September, 1990 which constitutes the contract between them with respect to the backhoe. The letter reads as follows:

"Council acknowledges your letter regarding your $15,000 tender for the Case Backhoe and accepts your proposal in theory, regarding payment for the machine subject to the following:

1.        the WAC will still hold a Bill of Sale over the machine and buckets.

2.        the $15,000 full payment for this machine will be taken out of the retention moneys

Maintenance Contract. owing to you at the end of the House

when that occurs, transfer of the ,vehicle

will be effected to you and the Bill of Sale cancelled through normal solicitor's transactions.

You may use the machine from the receipt of this letter.

I, KEITH STEWART, of Mt. Larcom, agree to and will abide by all the above conditions and this letter will form THE AGREEMENT.

It was signed by the chairman of the WAC and is also signed on behalf of the debtor in acknowledgment of his acceptance of the terms therein set out.

~t is as well to turn for a moment to the second point taken by the debtor in opposition to the petition in which he asserts that WAC should be taken to have satisfied its entitlement to payment of the $15,000.00 for the backhoe from the retention moneys that included the $18,100.00 in respect of a contract for the 12 houses which WAC held back under the building contracts.

If, as WAC asserts is the case, the debtor was in breach of his obligations under the building contracts so as to give WAC a claim against him that exceeded the amount of the retention moneys, WAC was entitled, in my view, to apply those moneys to part satisfaction of its claims on the building contracts against the debtor. WAC was under no obligation to treat its entitlement to payment for the backhoe

as a first claim on the retention moneys. Under cl. 2 of the

backhoe contract of 20 September, 1990, it was only if there were retention moneys that remained "owing to (the debtor) at the end of the house maintenance contract" that the price of the backhoe was to be satisfied from those particular retention moneys.

.. The material before me shows that WAC has
long ago appropriated the retention moneys to part-satisfy its

claim against the debtor which it asserts it has in respect of the building contracts. It is after such appropriation that WAC arrives at its own claim against the debtor for the $69,755.00 to which I have referred. The debtor has not yet sought to attack this evidence that shows that WAC so appropriated the retention moneys, although he does, of course, contend that WAC has never had any legitimate claim on him in respect of the building contracts.

Even assuming that WAC had such a claim against the debtor, I cannot, on the incomplete evidence before me, make any finding as to whether WAC has applied the retention moneys to satisfaction of its entitlement to payment of the backhoe. Whether the second point relied on by the debtor, to which I have referred, is sound, must remain for determination on a later occasion, if it should become necessary to resolve the particular point.

However, I think that the third point taken by the debtor, the title to the backhoe has never passed to him and	that, in consequence, WAC never had any entitlement to be paid
the $15,000.00 price for it, is a good one.
Counsel for WAC accepted that WAC's entitlement to sue for and recover the judgment for the price is governed by
S. 50(1) of the Sale of Goods Act 1896 (Qld), which provides:

"When, under a contract of sale, the property and the goods has passed to the buyer, and the buyer

wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of

the goods. "

Mr. Justice Cooper has collected the authorities that support the correctness of the proposition conceded by counsel for WAC in Style Finnish (Old) Ptv. Ltd. v Abloy Securitv Ptv. Ltd., noted in (1992) Q.L.R. 18 April, 1992. His Honour, in that decision, demonstrates that, subject to one exception, where a vendor of goods cannot rely on S. 50 to recover the price, he is limited to an action for unliquidated damages for breach of the buyers contractual duty to pay the price within the period of credit granted by the contract. The exceptional case arises where the terms of the contract are such as to show that the price is a contractual debt unconditioned by any question of performance by the vendor of his obligation to pass title: see his Honour's reasons at pages 10 and 11.

Section 20 of the Sale of Goods Act provides:
"(l) ,	When there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such a time as the parties to the contract intend it to be transferred.
For the purpose of ascertaining the intention of the parties, regard is to be had to the terms of the contract, the conduct of the parties, and the circumstances of the case."

In S. 20(2) the expression "the circumstances of the

case" is a reference to the surrounding circumstances in which

the parties have bargained:	see Maine v Lvons (1913) 15
C.L.R. 671 at 677.

This contract was made in circumstances in which the debtor offered to buy the backhoe, which he needed to carry out the work for WAC under the building contracts, and which work was already well behind the scheduled contract completion date, but he could not then pay his offered price for it. Both parties were also aware that the machine was registered as a road vehicle under the Main Roads regulations. A reading of the terms of the contract of 20 September 1990 against these background circumstances indicates, in my view, that WAC was prepared to sell the backhoe to the debtor for the $15,000 offered, to agree to postpone the immediate payment of the price WAC initially required, and to meet the debtor's suggestion as to how that payment should be made, while allowing the debtor to use the backhoe in the meantime. The

contract works, which were then running well behind time, goes	fact that the debtor needed the backhoe to carry out the
to explain, in part at least, why WAC was prepared to agree to these arrangements. These background circumstances and, in particular, the fact that the debtor in his undated letter indicated that he was facing some financial pressure, indicate that while WAC was prepared to agree to all these arrangements, it was very much concerned to ensure that the debtor would have no rights of any kind with respect to the backhoe, except the mutually beneficial right to use it, unless and until WAC received the agreed payment of $15,000.00.
In my opinion, the intention of the parties revealed by the terms of their contract, construed against these relevant background circumstances, was that title for the backhoe was to pass to the debtor only after WAC had received payment of the price of $15,000.00.
The reference in cl. 3 to "transfer of the vehicle" is probably a reference to the transfer of the Main Roads registration of the backhoe. Even so, this provision is completely consistent with a reading of the contract as providing for the passing of title to the backhoe to the debtor only once WAC has received payment of the agreed price. It evidences WAC's concern to be fully protected against not receiving that payment.
Clause 4 serves no purpose at all if title passed to the debtor on the making of the contract, whereas it is entirely consistent with a contract of sale that preserves title in the vendor unless and until the vendor is paid.
The existence of these provisions in cl. 3 and 4 fits in with cl. 2, which records the parties' agreement that

. -- payment -for the machine is to be postponed for a time after

the date of the contract of 20 September, 1990 for its sale.

Counsel for WAC relied on cl. 1 in contending that title passed on the making of a contract on 20 September, 1990 and that it was, therefore, open to WAC to sue for the price when it did. This clause, it will be remembered, provides that WAC would "still hold a Bill of Sale over the machine and buckets". The parties by this clause, as is also apparent from the reference in cl. 3 to cancellation to the bill of sale, intended that WAC would hold a bill of sale over the backhoe to be granted by the debtor, given that the backhoe was, by cl. 4, to pass into the immediate possession of the debtor on 20 September, 1990.

The reference to the word "still" in cl. 1 is explained by the fact that WAC sold the machine to the debtor in WAC's capacity as grantee of a bill of sale over the machine from the original owner and in the exercise of WAC's default power of sale under that previous security. Counsel for WAC submitted that a bill of sale can only be granted over property by a person who has title to or at least a proprietary interest in that property and that the provisions	in cl. 1 and cl. 3 show that the parties intended the property	.
and the backhoe to pass to the debtor on the making of the contract.
It might be possible for the debtor to be able to grant to WAC what would amount to a bill of sale over the machine, given that the contract provided for the title to and possession of the machine to be in separate entities until the

price was paid. However, this was not the subject of argument, counsel for WAC fastening, for obvious reasons, on the submission I have just referred to.

Counsel was, however, unable to offer any explanation for how cl. 4 or the other provisions of cl. 3 fitted in with her primary submission. Her submission imputes to the parties an understanding of the juristic nature of a bill of sale as a mortgage by way of assignment with a covenant for reassignment. I think the submission ignores the fact that this contract was drawn by a lay person, WAC's building consultant, the terms of which reflected a suggestion by the debtor, another lay person, that WAC should hold a bill of sale over the machine while it was in his possession until the price was paid out of the debtor's retention moneys.

I think the submission also ignores the fact that one of the main objects of this contract, as revealed by its terms construed by reference to the relevant background

because the debtor was to have immediate possession ,of the	circumstances to which I have referred, was to ensure that,
fully as possible against any failure to receive the price.
machine without paying the price, WAC would be protected as machine until the price was paid was only one of a number of devices the parties agreed upon, which included retention of title by WAC and retention of Main Roads registration of the machine to achieve this object. Even if cl. 1 and the

provision in cl. 3 concerning cancellation of the bill of sale cannot be implemented, they nevertheless provide further evidence that this was one of the main objectives of the transaction.

Even if cl. 1 and the associated provision in cl. 3 concerning cancellation of the bill of sale cannot be given effect to, if the contract is read, as I think it should be, as postponing the transfer of title to the debtor until the $15,000.00 paid has been received by WAC, that does not stand in the way of a construction I favour being adopted. In

N.G.L. Pro~erties Ptv. Ltd. v Harlinaton Ptv. Ltd. [l9791 V.R.

92 at 95, it was said:

"It is a rule of construction moreover that whatever expression found in a written instrument is inconsistent with the real intention of the parties, as it appears from the language of the instrument, ought to be rejected as superfluous: Walker v Giles (1848) 6 L.B. 662; 136 E.R. 1407; Re O'Brien [l9751 1 N.Z.L.R. 688. The rule was stated by Sir John Romilly MR, in Re Strand Music Hall (1865) 35 Beav. 153 at 159, ... as follows: 'The proper mode of

construing any written instrument is to give effect to every part of it, if this be possible, and not to	strike out or nullify one clause in the deed, unless
it be impossible to reconcile it with another and more express clause in the same deed.'
In Gwvn v Neith Canal Naviaation Co. (1868) L.R. 3 Ex 209 at 215, Kelly CB expressed the rule in these words : 'When a court of law can clearly collect from the language within the four corners of a deed, or instrument in writing, the real intention of the parties, they are bound to give effect to it by supplying anything necessarily to be inferred from the terms used and by rejecting as superfluous

.. whatever is repugnant to the intention so
discerned.'"
The principles there stated were relied on in that

case to justify ignoring a phrase in the clause of a lease that fixed the quantum of the rent. If the clause, including that phrase, was read in isolation from the entire agreement, it would have produced a result that "would deny to the operation of the lease the intention of the parties manifest by its express terms": see p. 95. Another recent example of the application of this principle of construction, this time a will, is provided by the Court of Appeal decision in

O'Brien [l9751 1 N.Z.L.R. 688.

In my opinion this is one of those relatively rare cases in which it is right to ignore certain of its provisions, here the provisions of cl. 1 and cl. 3 referring to the bill of sale, in order to give effect to one of the main objectives of the agreement, here protection of the vendor against non-receipt of the price, in circumstances in which the buyer was to have immediate possession of the machine while not being bound to pay the price upon taking

possession.

In my view, the contract of 20 September, 1990

properly construed was governed by S. 50 of the Sales of Goods

&& and WAC was not entitled to sue for the agreed price of

$15,000 .OO because title to the machine had not passed to the debtor. I am therefore not satisfied in terms of section

... 52(l) (c) of the Bankru~tcv Act 1966 that the debt upon which

15   1

i

WAC relies to found its claim to a sequestration order against the debtor is owing.

I should say that counsel for WAC submitted that it was necessary to imply into the contract a term to the effect that if there were no retention moneys owing by the petitioning creditor to the debtor at the end of the building contract, the debtor would pay the sum of $15,000.00, being the agreed price for the backhoe, to the petitioning creditor.

Even if it is correct that some such term should be implied, it cannot assist WAC here. The existence of such an implied term in the contract could not alter the basic operation of the contract, which makes the passing of title to the debtor dependent upon the agreed price having first been received by WAC. Even if the debtor were in breach of such an implied term, WAC, who so far as the evidence before me reveals, still retains title to the backhoe, would never have had, and would not now have, any right to sue for the price.

WAC's only right would be to damages for non-payment of the	price by the time allowed by the contract, a right WAC has
never sought to exercise. I
Since WAC has failed, for the reasons given, to satisfy me that the alleged debt in respect of which it obtained the judgment, non-compliance with which is the foundation for its petition, is owing, its petition must, as I say, be dismissed and there is no point to be served in

deferring disposing of the petition until the other matters
are investigated.

Having now heard argument on the question of costs, I think that in the circumstances of this case there is a great deal of uncertainty as to just what occurred when WAC obtained its judgment. In the circumstances of this case, I propose to apply the general rule that the costs shall follow the event, and I will order the petitioning creditor to pay Mr. Stewart's costs of and incidental to the petition, including reserved costs.

I certify that this and the preceding

fifteen pages are a true copy of the

reasons for judgment herein of the

Honourable Mr. Justice Drummond.
Associate:	1 W~W
Date:	17 March, 1993

Debtor appeared i n person.

Counsel f o r Pe t i t i on ing

Creditor:  D.A. Mullins

S o l i c i t o r s f o r Pe t i t i on ing

Creditor:	Connolly,	Schirmer	&
Bat t s

Dates of Hearing:  1 6 and 1 7 March, 1993