Re Wilby, Christopher Lancelot Ex Parte Australian Guarantee Corp Ltd
[1996] FCA 1116
•18 DECEMBER 1996
CATCHWORDS
BANKRUPTCY - bankruptcy petition - failure to comply with bankruptcy notice - judgment debt - opposition to petition seeking to go behind judgment debt - substantial reasons to do so not established - whether liability of debtor exists on same basis as that on which judgment obtained - sequestration order made.
Bankruptcy Act 1966 s 52
Re Longo; Ex parte Longo (1995) 57 FCR 523, applied
Re Skaff; Ex parte Farrow Mortgage Services Pty Ltd (1993) 41 FCR 331 at 335
Corney v Brien (1950-1951) 84 CLR 343
Re McCollum; Ex parte The Bankrupt (1987) 71 ALR 626
Wren v Mahony (1972) 126 CLR 212
No SP 18 of 1996
Re: CHRISTOPHER LANCELOT WILBY
Ex parte: AUSTRALIAN GUARANTEE CORPORATION LTD
(ACN 000 015 485)
Mansfield J
Adelaide
18 December 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY )
)
GENERAL DIVISION ) No SP 18 of 1996
)
BANKRUPTCY DISTRICT OF THE )
)
STATE OF SOUTH AUSTRALIA )
Re: CHRISTOPHER LANCELOT WILBY
Debtor
Ex parte: AUSTRALIAN GUARANTEE
CORPORATION LTD
(ACN 000 015 485)
Petitioner
MINUTES OF ORDER
CORAM: Mansfield J
PLACE: Adelaide
DATE: 18 December 1996
THE COURT ORDERS THAT:
A sequestration order be made against the estate of Christopher Lancelot Wilby.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY )
)
GENERAL DIVISION ) No SP 18 of 1996
)
BANKRUPTCY DISTRICT OF THE )
)
STATE OF SOUTH AUSTRALIA )
Re: CHRISTOPHER LANCELOT WILBY
Debtor
Ex parte: AUSTRALIAN GUARANTEE
CORPORATION LTD
(ACN 000 015 485)
Petitioner
REASONS FOR JUDGMENT
CORAM: Mansfield J
PLACE: Adelaide
DATE: 18 December 1996
Creditor's petition by Australian Guarantee Corporation Ltd ("the petitioner") for sequestration order over the estate of Christopher Lancelot Wilby ("the debtor"), by petition dated 29 January 1996. The act of bankruptcy specified in the petition is the failure to comply within the permitted time with a bankruptcy notice served on the debtor on 3 August 1995. The bankruptcy notice was in respect of an unsatisfied debt of $64518.34 due under a final judgment obtained by the petitioner against the debtor in the District Court of Adelaide on 17 January 1990 ("the judgment"). The evidence explains the long delay between the judgment and the
bankruptcy notice as being due to the petitioner having been unaware of the whereabouts of the debtor for a considerable period of time.
I am satisfied that, subject to the issues raised in the notice of opposition to the petition filed by the debtor, the matters which the petitioner must prove under s52 of the Bankruptcy Act 1966 ("the Act") and under the Bankruptcy Rules ("the Rules") have been established.
On 24 April 1996 the debtor filed notice of intention to oppose the petition upon the following grounds:
"1.The Bankruptcy Court should not accept that the default judgment entered against the debtor in the District Court of South Australia on 17 January 1990 in Action No. 2863 of 1989 establishes a debt as the judgment does not represent a debt supported by consideration.
2.The Bankruptcy Court should not accept that the said judgment entered against the debtor establishes a debt as the judgment does not represent judgment for a debt to which the petitioning creditor was entitled.
3.The liability of the debtor as guarantor which the said judgment seeks to enforce was extinguished by agreement between the debtor and the petitioning creditor made in or about January 1988.
4.Further, and in the alternative, by reason of the conduct of the petitioning creditor after the said agreement it would be unconscionable for the petitioning creditor to obtain a sequestration order based on the alleged liability of the debtor arising under the guarantee given on 6 December 1986."
The first three grounds all seek to assert that, despite the judgment, the debtor was not in fact indebted to the petitioner for the amount claimed at that time. As explained in submissions and evidence, the fourth ground goes to the same point as it is said in essence that the petitioner sought and procured the judgment when it knew that the alleged debt was not outstanding and, in effect, had mislead the debtor that following certain transactions between the petitioner and the debtor during 1988 no further indebtedness existed.
The principle of law
I refer to, and adopt, the summary of the relevant principles from the judgment of Cooper J in Re Longo; Ex parte Longo (1995) 57 FCR 523 at 527:
"The existence of a judgment is prima facie evidence of a debt (Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633 at 636). However a judgment is never conclusive in bankruptcy and the court has a discretion to go behind a judgment to determine whether there is in truth and reality a debt due (Wren v Mahony (1972) 126 CLR 212 at 224-225). Before the court will exercise the discretion there must be established substantial reasons for questioning whether there is in truth and reality a debt owing to the creditor; the court will not inquire into the validity of a judgment debt as a matter of course (Simon v Vincent J O'Gorman Pty Ltd (1979) 41 FLR 95 at 111; Re David; Ex parte Lahood (1979) 26 ALR 306 at 307). The requirement may more readily be met where there has been no adjudication on the merits, for example a default judgment and there exists a bona fide allegation that no real debt lies behind the judgment (Corney v Brien (1951) 84 CLR 343 at 357-358; Petrie v Redmond [1943] QSR 71 at 76; Re Vojnovski; Ex parte Malcolm [1970] ALR 355 at 359; Olivieri v Stafford (1989) 24 FCR 413 at 422)."
They provide a clear and concise summary of the relevant approach to be adopted. It was not submitted that they were incorrect, nor that they were inapposite.
The reason such rules have been developed arises from the obligation of the Court under s52(1)(c) of the Bankruptcy Act under which the Court is directed to require proof of the fact that the debt or debts on which the petitioning creditor relies is or are still owing. Drummond J in Re Skaff; Ex parte Farrow Mortgage Services Pty Ltd (1993) 41 FCR 331 at 335 made the point as follows:
"When the Bankruptcy Court is invited by a debtor, who is resisting the making of a sequestration order, to go behind the judgment debt on which the petition is founded, it does so because, in terms of s 52(1)(c), it can only make a sequestration order if there is proof of the fact that the debt on which the petitioning creditor relies is still owing: cf Wren v Mahony (1972) 126 CLR 212 at 223. It will never be enough for a creditor seeking to prove the matters required by s 52(1)(c) to show that the debtor owes him an amount equal to the debt upon which the petition is founded, but on an entirely different basis: the subsection requires proof that "the debt ... on which the petitioning creditor relies" is still owing."
In Corney v Brien (1950-1951) 84 CLR 343 a debtor successfully opposed the making of a sequestration order sought because of non compliance with a bankruptcy notice that demanded payment of a judgment debt. The judgment was for the price of goods sold and delivered. The Court found that no contract for the sale and purchase of the goods had been entered into, but rather that the goods in question were the subject of hire to the debtor under a hire purchase agreement. It also found that there had not been, and could not have been any election under that agreement for the purchase of the goods. Consequently there was no debt as alleged, irrespective of the judgment, and the sequestration order was set aside. The Court (at 353, per Dixon, Williams, Webb and Kitto JJ) observed:
"The fact that Corney ... may have been indebted to (the judgment creditor) in a different sum for a different consideration, namely for the instalments for the hire of the tractor is immaterial."
A similar consequence occurred in Re McCollum; Ex parte The Bankrupt (1987) 71 ALR 626. The judgment debt on which the bankruptcy notice was wrongly founded was for goods sold and delivered to the bankrupt, but the creditor's claim should have been on a guarantee given to secure payment of moneys due by a company in respect of goods sold to that company. Pincus J at 629 made the point that Corney v Brien (above) does not prescribe a rule that any discrepancy between the claim as formulated and the true nature of the debt as found is fatal, but of course followed and applied it given the "very comparable" facts in the two cases.
In Skaff (above), Drummond J was confronted with an attack on a judgment debt based upon a guarantee given in support of an alleged loan by the petitioner to a company. The loan to the company had not been made by the petitioner, but by another entity, and the petitioner's entitlement to sue arose from it having taken an assignment of the loan agreement and guarantee from that entity. His Honour made the sequestration order and (at 335-336) observed that any deficiency in the creditor's case in the Court in which the judgment was given in pleading the basis upon which the debt is owed or in proving fully its case in that regard would not be sufficient to refuse a sequestration order. He added:
"The object of the Bankruptcy Act 1966 (Cth) here relevant is to ensure that all the creditors of a particular debtor will only be deprived of their individual rights to seek to recover the debts owing to them, and instead be relegated to sharing equally in the debtor's estate, only upon clear proof that there is a debt in truth behind the judgment on which the petitioning creditor relies to produce that situation. See Wren v Mahony (supra) at 221-223. That object is not advanced by requiring a creditor to show that the judgment based on the debt undoubtedly owing to him on a particular cause of action was regularly obtained.
... (the) Court is not concerned with questions as to the sufficiency of the pleading or of the proof of the debt in the court in which the judgment was given. Its only concern is to be satisfied by proper proof before it that there in truth exists a debt and that that debt arose on the same basis upon which the judgment was obtained."
I make those observations in the context of one of the debtor's submissions. It is that his acknowledged liability as guarantor of the performance of a company under a certain agreement (which was the agreement on which the debt giving rise to the judgment was based) had merged into a new refinancing agreement which related to the same debt and to other debts of the company which he also acknowledges having guaranteed, so that the judgment was based on a debt which no longer existed.
Background
The petitioner is engaged in business as a finance company. At material times, Mr Dennis Robinson ("Robinson") was a senior credit manager of the petitioner. In that capacity, between 1986 and 1988 he had extensive dealings with the debtor and others regarding certain business activities in which the debtor was engaged.
Ecroct Pty Ltd ("Ecroct") was at material times a company engaged in the business of operating helicopters for contract work. It operated from time to time during 1987 under the name Air Tech-Helicopters and sometimes the name Air Tech-Aviation was used in relation to its activities. The principals of Ecroct, its directors and shareholders, were the debtor and Tracey Anne Wilby.
By an agreement entitled Asset Purchase Agreement dated 5 December 1986 between the petitioner and Ecroct, Ecroct agreed to hire from the petitioner a used Bell 206B helicopter including its blades for a period of five years. Ecroct's performance of its obligations under that agreement was guaranteed both by the debtor, and by Tracey Anne Wilby. The account relating to that agreement was designated by the petitioner V 650-0507-010, and the helicopter had the designation VH-CWO ("helicopter CWO"). Ecroct had entered into at least three other similar arrangements with the petitioner, all guaranteed by the debtor and by Tracey Anne Wilby, including one relating to another helicopter designated VH-BLR ("helicopter BLR") and a Flir, under account V 601-0509-274. Flir is an acronym for 'forward looking infra-red', and is a camera designed for night use. The Flir was used by Ecroct by special fittings to the underbellies of the two helicopters for that purpose.
During 1987 the several accounts had fallen into default. Robinson had taken that matter up with the debtor on a number of occasions, including in writing, and on at least one occasion Robinson had raised the prospect of the petitioner making use of its recovery rights under the relevant agreements.
It is convenient at this point to note that on 21 January 1987 the debtor caused the business name Air Tech-Helicopters to be registered. The evidence does not disclose whether the proprietor of that name was Ecroct or the debtor, but it is clear that that was used as a trading name for Ecroct. That name was deregistered on 29 June 1987, when the company Air Tech-Helicopters Pty Ltd was registered. The debtor and Tracey Anne Wilby were its directors at all material times. On 21 January 1987, the business name Air Tech-Aviation was also registered, and remained so until 21 January 1990. Again the evidence does not disclose its initial proprietors, but from 29 June 1987 it was owned by Air Tech-Helicopters Pty Ltd. That information is significant only because, during at least June and July 1988, the debtor signed certain letters on the letterhead Air Tech-Helicopters, on some occasions with the words Air Tech-Aviation over his signature. His evidence suggested, and I find, that such correspondence was undertaken by the debtor on behalf of Ecroct. There is, of course, nothing sinister in that conduct. I make that finding at this point simply as a matter of convenience, so that when later in my judgment I refer to that correspondence, it will be plain that it was for and on behalf of Ecroct. The debtor's recollection in his evidence was that the name Air Tech-Aviation was associated mainly with events from early 1988 when one Eric John Griggs, ("Griggs") partly through his company Heli Aviation Pty Ltd, became involved with Ecroct's business and its dealings with the petitioner. The date of its first registration tends to indicate that he was in error in his evidence. I do not need to make a finding on the topic. Nor do I use any uncertainty about the use of the names, or the timing of the use of the names, in any way adversely to the debtor on the issue of his reliability as a witness.
On 6 January 1988 Ecroct, under the hand of the debtor, and the two guarantors including the debtor, put forward to the petitioner a settlement proposal in relation to all accounts involving refinancing and the release of the guarantees. As is abundantly clear, and despite the debtor's assertion to the contrary, that offer was neither accepted nor implemented, although some of its suggestions were adopted in the petitioner's counter-proposal. The clearly rejected terms were that the debtor should be released from all guarantees and that he should have "no further liability" under any of the agreements.
On 11 January 1988 the petitioner responded by putting forward a proposal in relation to the several accounts, which was accepted by Ecroct and by the two guarantors. At that time, and for a little period earlier, Ecroct and the debtor had had dealings with a company Heli Aviation Pty Ltd ("Heli Aviation"), a company associated with Griggs. He was a person who had been introduced to the petitioner by the debtor and who was apparently giving Ecroct and the debtor financial advice and assistance. Heli Aviation had offered to buy helicopter BLR for $210000 and to refinance that acquisition. In respect of the subject account, it proposed:
"2.ACCOUNT NO. V650-0507-010 (Helicopter VH-CWO)
This account is to be transferred to an
Escrow Agreement together with the following:
$ 000
(i)Helicopter VH-CWO 206
(ii)Balance of account V601-0509-274
to be transferred to Escrow after
the sale of Helicopter VH-BLR for
$210,000. 251(iii) Account V601-0509-522 to be
transferred to Escrow 16(iv) Repairs/Service costs owing
on VH-BLR 11
SUB TOTAL: 470
LESS:
(i) Funds received from Cross Hire with
Heli-Aviation Pty Ltd on 22/12/87 4(ii) Funds received from Ecroct Pty Ltd
on 24/12/87 10
OPENING BALANCE ON ESCROW: 470
When the following occurs, reductions on the
principal Opening Balance of the Escrow account
can be made.
Sale proceeds of Pasadena property with
net to AGC of approximately 62
With anticipated sale proceeds on Flir
approx. 130
Sale of Rolls Royce with net proceeds to
AGC after account M606-0562-553 has been
paid in full. Equity approx.
$10,000.00, however will accept say 5APPROX. CLOSING BALANCE: 273
The following conditions apply:
(1)All the above figures are estimates only and rounded off to the nearest thousand.
(2)The approximate Closing Balance of $273,000.00 to be re-financed to Ecroct Pty Ltd or its appointed Nominee Company with the guarantees of C L Wilby (and Ecroct Pty Ltd if written under Nominee Company).
(3)The $273,000.00 is to be secured by the Helicopter VH-CWO and the guarantees as mentioned in Point (2) above.
(4)Mr C L Wilby and Ecroct Pty Ltd to agree that the guarantee of Mrs T A Wilby is to be waived on the re-write of this account.
(5)Escrow account to covert to P & I based on the approximate Closing Balance of $273,000.00. Term to be 60 monthly instalments with a Balloon repayment of 50% at the current interest rate of the day. The payments to be structured with the first 12 instalments being $4,000.00.
(6)The cross hire with Heli-Aviation Pty Ltd with monthly rental of $4,000.00 is to be paid direct to AGC Ltd.
(7)The sale proceeds of the Flir are estimated at approximately $130,000.00 and are based on current indication of market value from original supplier. Should the Flir not realize $130,000.00 then the shortfall will be added to the approximated "Closing Balance of Escrow" and re-written on a Principal and Interest basis, with repayments adjusted accordingly.
(8)Rolls Royce account M606-0562-553 to be auctioned with a Reserve of $32,000.00 by no later than 22/1/88. After M606-05620553 has been paid out, we will require a minimum of at least $5,000.00 with Mr Wilby retaining a maximum of $5,000.00.
(9)C L Wilby, T A Wilby and Ecroct Pty Ltd to sign the Voluntary Surrender forms for the Mitsubishi Van C601-0021-647 and VH-BLR Helicopter, account number V601-0509-274. The Voluntary Surrender form for the Flir and Helicopter VH-CWO will be required if the re-write is to be in any other name than Ecroct Pty Ltd."
The terms and conditions of that letter followed discussions between Robinson and the debtor, and reflect arrangements largely promised by the debtor.
To implement that arrangement, Ecroct and the guarantors including the debtor then on 13 January 1988 wrote to the petitioner acknowledging an inability to make payments under the agreement, repudiating that agreement, and requesting that the petitioner take possession of helicopter CWO. It added:
"In the event of your accepting this letter as a repudiation by me of my hire with you, my liability to you shall be as set out within the Asset Purchase Agreement.
This letter is being signed at your request to effect the overall agreement referred to in your letter to us dated the 11th January 1988."
Helicopter CWO was then and had been since at least December 1987 on cross-hire, also to Heli Aviation, and the cross-hire monthly rental of $4000 was being paid direct to the petitioner.
The matters proposed in the letter of 11 January 1988 did not happen. In particular, no "Escrow Agreement" or escrow account was created, no sale proceeds of $62000 or at all from the sale of a Pasadena property were received either within a reasonable time or at all, no sale proceeds of $130000 from the sale of the Flir were received, and no sale proceeds of $5000 from the sale of a Rolls Royce were received, and no closing balance of $273000 or thereabouts was fixed. Furthermore, and importantly, no refinancing through Ecroct was undertaken, and no guarantee from the debtor in respect of any refinancing of the collective liability of Ecroct was offered or obtained. It was, as a deed of 12 August 1988 shows, clearly understood that Tracey Anne Wilby remained as a guarantor until then.
After 11 January 1988 the direct role of the debtor in his control of the affairs of Ecroct and in his dealings with the petitioner diminished. That occurred partly as Griggs and on occasions one Brenton Mauriello, were apparently largely handling Ecroct's affairs (although both of those persons also were involved with Heli Aviation) and the need for the debtor's involvement was much diminished while helicopter CWO was on cross-hire.
In February 1988, the cross-hirer requested that helicopter CWO be provided with new blades. The petitioner was asked by Ecroct to finance that purchase, but initially declined to do so. At that time it was still hoping for the overall exposure on the accounts to be reduced by the inflow of funds contemplated by realisation of assets referred to in the 11 January 1988 letter. It became apparent, however, that in the absence of new blades, the helicopter would become unusable. The regular monthly payment of $4000 from the cross-hire arrangements would then cease. On 25 February 1988 Ecroct, under the letterhead "Air Tech-Helicopters", sought that financing. It added:
"It is not our desire that the cross hire be terminated as the helicopter has been beneficial to our operations and has therefore enabled us to meet the repayments to yourselves on a regular basis."
The petitioner agreed. Consequently, on 6 April 1988, the petitioner and Ecroct entered into a further Asset Purchase Agreement of that date ("the blades Agreement") executed for Ecroct by the debtor, and guaranteed by the debtor and Griggs, for the price of $57000.
The Ecroct accounts remained in default.
Efforts on the part of Ecroct to reduce or manage that indebtedness continued. In June and July 1988, Ecroct reported directly, and by copying to it relevant correspondence in writing, under the hand of the debtor, to the petitioner of its ongoing attempts to procure increased usage of the Flir. On 29 July 1988 Ecroct under the hand of the debtor wrote to the petitioner in the following terms:
"RE:ACCOUNTS NUMBERED v650-0507-010, V601-05090274 and V601-0509-522.
We refer to the agreement entered into pursuant to your letter of the 11th of January, 1988 and confirm that we, or our Nominee, intend to retain the helicopter VH-CWO indefinitely."
The Pasadena property referred to in the letter of 11 January 1988 was in the name of the debtor. It was subject to a first mortgage to Citibank Savings Ltd. Possession of that property was taken by the first mortgagee in June 1988 and was sold by it. The sale price at settlement on 5 August 1988 was not sufficient to pay out the first mortgagee, and no moneys from that sale became available to be given to the petitioner in reduction of its debt.
Contrary to the debtor's asserted expectation, based upon the 11 January 1988 letter, no merged escrow account had been created, and the petitioner during 1988 maintained its separate accounts for Ecroct including that relating to the Agreement. In early August 1988, Heli Aviation offered to buy both helicopter CWO including the blades for $210000 and the Flir for $86000. The petitioner agreed, but also negotiated with Ecroct and the debtor on that matter. The proposal included the proposed release of Tracey Anne Wilby from her guarantee as part of its offer. On 5 August 1988 the petitioner accepted Heli Aviation's offer for the helicopter including the blades, and for the Flir, with the purchase to be financed by it under proposed new Asset purchase agreements to be guaranteed by Griggs. Its acceptance was conditional, inter alia, on Ecroct's and the debtor's agreement, upon them each acknowledging the shortfall on the then current accounts with the petitioner and acknowledging that the petitioner may pursue them for outstanding amounts. On 10 August 1988, by letter to Ecroct and one which the debtor has acknowledged having seen, the petitioner wrote in the following terms:
"RE:CURRENT ACCOUNTS
The amount claimed in the original Draft Deed was $218,018.38, however this did not include legal costs and was a rebated payout figure and does not include additional interest AGC could claim. Details are as follows:
ACCOUNT NUMBER
GOODS
PAYOUT
BALANCE OUTSTANDING
V601-0509274
V650-0507010
V601-0512179
Less: Sale of
Flir
Less: Sale of
Helicopter
and Blades
Flir
Helicopter
BladesTotal
Total
253,066.60
205,687.71
55,264.07$154,018.38
86,000.00
210,000.00
$218,018.38
473,964.90
297,648.29
84,712.40$856,325.59
86,000.00
210,000.00
$560,325.59
We would advise that the $218,018.38 is the amount claimed by AGC as the shortfall on the accounts after disposal of the said goods. The $210,000 tendered to AGC on the Helicopter and Blades has been accepted by AGC, but no funds have been received by AGC at this point in time.
We would appreciate meeting with your solicitors urgently, as AGC's offer to release Mrs Wilbys [sic] guarantee (as per document prepared by our solicitors and currently in your possession) will be retracted if the situation is not resolved by 12.00 noon on Thursday 11th August, 1988. We will then hold all parties to our Agreement liable for any shortfall.
Yours [sic] urgent attention is requested."
The document referred to in the penultimate paragraph is the draft of a deed dated 22 August 1988.
By deed dated 22 August 1988, executed by Ecroct (signed by the debtor), the debtor, Tracey Anne Wilby and the petitioner, Tracey Anne Wilby was released from her guarantees with the specific proviso in that clause that that release did not in any way prejudice or effect the petitioner's rights against the debtor under his guarantees. The parties to the deed acknowledged that the sales were at the best price reasonably available. Settlement took place.
It is important to note that the recitals to that deed, which the parties acknowledged as correct, referred to the Agreement and the guarantees of both the debtor and Tracey Anne Wilby in respect of it as well as to his guarantee of another security relating to the Flir. His execution of that deed expressly acknowledged that he remained liable under his guarantee of Ecroct's liability under the Agreement.
In respect of the Agreement, the amount of shortfall was $61503.40 after allowing for rentals paid and rebate of interest charges, and for credit for the proceeds of sale of the helicopter of $154735.93. That credit amount was arrived at from the $210000 sale price after applying $55264.07 pay out in respect of the blades Agreement (the figure nominated in the letter of 10 August 1988). That amount of $61503.40 was claimed from both Ecroct and the debtor by letters each dated 22 September 1988.
At the outset of the trial, counsel for the petitioner submitted that I should decline at that point the invitation through the notice of opposition to go behind the judgment. I declined to do so then, as it seemed to me that in this instance it was desirable to hear the evidence relevant to that issue at the same time as I heard the evidence on whether in truth and in substance there was a debt owing of the nature upon which the petitioner relied.
It is necessary now to address both those steps.
The judgment
As the observations of Cooper J in Longo (above) indicate, the Court is more readily disposed to go behind a judgment where it did not result from an adjudication on the merits. The judgment was a default judgment, but thereafter it has a history which may be relevant to whether in the present circumstances I should accept it on its face.
On 28 July 1989 proceedings were issued against the debtor as guarantor for $61503.40 in respect of the outstanding liability of Ecroct under the Agreement. On 17 January 1990, judgment in default was entered for $64518.34 (the amount in the petition) being the claim plus costs and interest to the date of judgment. The debtor was aware of the claim. He deposes to the following, as his reason for not defending those proceedings on the basis of his present opposition:
"By virtue of the fact that the proceedings were so vague, ambiguous, imprecise, uncertain, inconsistent, inadequate, lacking in particularity and objectionable, I believe it was not possible for me to set up any counterclaim, set-off or cross-demand in the action in the District Court of Adelaide."
and because he was not given notice of the petitioner's intention to seek a default judgment:
"By virtue of the failure or omission to give any such notice I believe it was not possible for me to have set up my counterclaim, set-off or cross-demand in the application by AGC to the Court for default judgment."
Those reasons do not sit too readily together, nor with the opposition to this petition; the affidavit evidence discloses that the debtor's solicitor at the time such decisions were taken was his solicitor on the record in this matter until 21 November 1996.
However, it was not a judgment procured after a trial on the merits.
Following the service on him of the bankruptcy notice, the debtor applied for time within which he could comply with that notice to be extended. He also applied in the District Court of South Australia to set aside the judgment. Time to comply with the bankruptcy notice was extended, without a hearing, until 23 November 1995 when that application was dismissed. In the meantime, on 4 October 1995 his application in the District Court to set aside the judgment had also been dismissed, but it is fair to say for relevant discretionary considerations without any adjudication on the merits of the issues he now raises. His failure to take any step to set aside the judgment between 1990 and 1995 after service of the bankruptcy notice on him was not explained to that Court, nor is any explanation offered in the evidence in this matter. He appealed from that decision. On 3 January 1996 that appeal was dismissed. This petition was presented following that event.
On that appeal, Judge Lee of the District Court did address the merits on issues apparently much the same as contended for in opposition to this petition. Judge Lee concluded:
"In these circumstances, I am satisfied that the plaintiff properly allocated portion of the overall proceeds of sale to the blades account. The amount of the allocation was clearly identified by the plaintiff in a letter dated 10 August 1988 to Ecroct Pty Ltd. There is no evidence that either then, or at any subsequent time, either Ecroct or any person on its behalf made any complaint about the allocation.
Counsel for the defendant submits that his client requires further time to make enquiries in response to the plaintiff's affidavit evidence concerning the sale of the helicopter and the blades. In my firm assessment, the defendant has had ample opportunity to make his enquiries and to put any further evidence before me. The time has arrived when I am not prepared to allow any further delay. In short, the defendant has failed to satisfy me that there is any possibility of his having a defence to the claim on the merits. In the result the appeal will be dismissed."
Thus, the case is not one where there has been simply no adjudication on the merits. In fact, as the evidence shows, that appeal was heard extending over three separate occasions and in the light of affidavit evidence of both the debtor and Robinson.
My conclusion from that history is that, as there has been no specific allegation of fraud or collusion on the part of the petitioner, this is a matter where the debtor should not be permitted to revive the defences which he elected not to pursue (for reasons which I do not find satisfactory) when he was first aware of those proceedings, and in circumstances where he has since elected to pursue and has received a hearing and adjudication on the merits of those issues in the context of his application to set aside the judgment. To adopt the wording of Barwick CJ in Wren v Mahony (1972) 126 CLR 212 at 225, there do not appear to me to be "substantial reasons" for questioning whether behind the judgment there was in truth and reality a debt due to the petitioner.
I do not rest my decision on that ground only. The evidence adduced enables me to review the merits in any event.
The liability of the debtor
The background referred to above is really uncontested. It is confirmed by contemporaneous documentation. What remained in dispute in substance was whether (as the debtor asserted in evidence) the agreement of 11 January 1988 led to a new merged escrow account under which he was no longer liable as a guarantor, or whether the partial application of the $210000 received for the sale of helicopter CWO to pay out the blades Agreement (of which the debtor is also a guarantor) was such as to make the debt non-existent in truth and substance. There are some less central matters in dispute, including when the petitioner took possession of helicopter CWO, whether after January 1988 it was ever in the possession of Ecroct and what access to it the debtor had during 1988.
From his evidence, it was obvious that Robinson, and others from the petitioner, had had extensive dealings with the debtor at least during the years 1986-1988; his office meant that he was responsible for the accounts with which the debtor was involved, and he clearly had a good recollection of relevant events. I accept his evidence as reliable. It was given in a frank and forthright manner and reflects and fills out the events as disclosed by contemporaneous documents. It appeared that he was somewhat intolerant of suggestions put to him in cross-examination that the debt upon which the judgment was based did not in fact exist, but that form of response in the circumstances to my mind simply confirmed his credibility and reflected his genuineness, and to some extent a sense of disappointment that the debtor might suggest that he or the petitioner had acted unfairly or improperly toward the debtor.
The debtor also gave evidence.
I am prepared to find that he believes he is not indebted to the petitioner, but I have no confidence in his evidence that that belief reflects the real state of affairs.
The debtor is obviously a man of considerable energy and enthusiasm, but I suspect that his substantial removal from the operations of Ecroct during 1988, as Griggs seems to have assumed a larger role, has led to him believing a state of affairs which does not accord with the facts, even to the point of failing now to recognise matters which were obvious at the time. In addition, there was I think some confusion in dealings between the petitioner and the debtor as to who had technical and practical possession of helicopter CWO from time to time during 1988. There are expressions in letters from Ecroct under the debtor's own hand which on that topic are quite inconsistent with his adamant position that he did not have access to the helicopter in any way during June and July 1988. His letter for Ecroct of 29 July 1988 specifically refers to the separate accounts of Ecroct with the petitioner, even though he is now adamant that no such accounts continued to exist sometime after the 11 January 1988.
There was no complaint whether the same picture was presented in the letter of 10 August 1988, although it was part of the process leading to the deed of 22 August 1988. That deed itself makes the position clear. His "release" by acceptance of the letter of 11 January 1988 is quite unrealistic; it expressly contemplated his ongoing guarantee. His execution, for Ecroct and as guarantor, of the blades Agreement does not fit well with his claimed release from his liability as guarantor to the petitioner. There were a number of other features of his evidence I found unsatisfactory, but it is unnecessary to innumerate them all. Overall, I do not place any weight on his evidence, where it is contradicted by contemporaneous documents and I generally prefer the evidence of Robinson where it contradicts that of the debtor. I do accept that, during 1988, he felt excluded to a large measure from the affairs of Ecroct, and that the issue of possession of helicopter CWO during all the period from January to July 1988 was unclear; certainly until sometime after April 1988 it was on cross-hire and he had no access to it. I also accept that his efforts during 1988 were directed to what he called "the common good" of getting the best revenue flow from hire of helicopter CWO and the Flir and of getting the best possible price for their realisation.
I find therefore that, despite or following the agreement reflected in acceptance of the letter of 11 January 1988, the several accounts of Ecroct with the petitioner were continued, and that the guarantee of the debtor of those several accounts remained effective. I further find that the application of the sale proceeds of helicopter CWO was in accordance with the communications, including oral discussions involving the debtor, in August 1988 and was neither unauthorised nor improper.
On its proper construction, the agreement reflected in the letter of 11 January 1988 was not intended to, and did not, upon its acceptance extinguish the petitioner's rights against Ecroct or the debtor under the Agreement. It was clearly the common intention of the parties that those rights would persist until a consolidated liability under the several agreements was determined following realisation of the assets referred to, and Ecroct and the debtor entered into a refinancing agreement with the petitioner for that consolidated liability to be guaranteed by Ecroct. That stage was never reached. The debtor acknowledges that. Until it was reached, in my judgment the petitioner's rights against Ecroct, and against the debtor as guarantor, continued to exist. They were the rights under which the judgment was obtained. It was a judgment based upon a debt in truth and in substance owing by Ecroct, and by the debtor as guarantor. As mentioned above, the allocation of the sale price of helicopter CWO by applying it in part to the pay out of the blades Agreement reflected the arrangements between the parties at that time.
There is an additional conclusion I would make which enhances the conclusion that the debt upon which the judgment was procured was in truth and in substance a real one.
The agreement of 11 January 1988 was not performed. I accept that some steps towards its performance were undertaken, but in fact those steps would have been taken in any event and were equally part of the ongoing dealings between the petitioner and the debtor for Ecroct in relation to the delictual accounts. I find, based on the events subsequent to that letter and on Robinson's evidence that all parties treated that agreement as at an end about the end of April 1988 or within a month or so thereafter. None of the assets to be sold had been sold (except perhaps the Rolls Royce) and no substantial funds in reduction of the liabilities under the several agreements had been paid. The documents referred to above, in particular Ecroct's letter of 29 July 1988, the petitioner's letter of 10 August 1988 and the deed of 22 August 1988 all clearly proceed on that basis. See generally DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423.
I would also find, in any event, that the deed of 22 August 1988 for reasons referred to above manifests an implied intention on the part of all parties to extinguish the agreement of 11 January 1988 (if it were still in force): cp Morris v Baron & Co [1918] AC 1. It is unnecessary to decide whether, if contrary to my findings, the petitioner was not part of the arrangement at settlement for the blades Agreement to be paid out, nevertheless the debt would still exist for the purposes of s52(1)(c) of the Bankruptcy Act. I incline to the view that it would. At August 1988, Ecroct's liability to the petitioner, guaranteed by the debtor, in relation to helicopter CWO arose under the Agreement and the blades Agreement. There is no dispute that helicopter CWO was sold with the blades. There was no other suggested entity to maintain hire payments under the blades Agreement. The two documents were, in a practical sense, united. The outstanding liability under them both, following the sale of helicopter CWO, would have to be met by Ecroct. The debt which exists is, in the sense described by Drummond J in Skaff (above), one which arises on the same basis as that upon which the judgment was obtained.
For those reasons, I reject the opposition to the petition. My findings lead to the conclusion that the grounds of opposition are not made out, and indeed that the contrary is the case. I find that the petitioner has made out the grounds necessary for the making of a sequestration order and I would order accordingly.
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 and Solicitor : Mr P J Geyer
for the Petitioner
Debtor appears in person
Hearing Dates : 5 & 6 December 1996,
12 December 1996
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