Roussi v Perpetual Nominees Ltd
[2007] FMCA 1994
•5 December 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ROUSSI v PERPETUAL NOMINEES LTD | [2007] FMCA 1994 |
| BANKRUPTCY – Application to set aside bankruptcy notice – whether Perpetual as agent is entitled to sue the applicant on the contract – Perpetual a party to the contract – Perpetual as agent entitled to sue the applicant on the contract – no discrepancy between the amount owing in the judgment debt and the amount stated in the bankruptcy notice – no requirement for the Court to go behind the default judgment – no grounds to set aside the bankruptcy notice – application dismissed. |
| Bankruptcy Act 1966, s.41(5) |
| Olivieri v Stafford & Ors (1989) 91 ALR 91 Irani v Hollyburton UK Limited [2005] FMCA 109 |
| Applicant: | MISAGH ROUSSI |
| Respondent: | PERPETUAL NOMINEES LIMITED |
| File Number: | SYG 103 of 2007 |
| Judgment of: | Nicholls FM |
| Hearing dates: | 13 March 2007, 22 March 2007 |
| Date of Last Submission: | 22 March 2007 |
| Delivered at: | Sydney |
| Delivered on: | 5 December 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Zammit |
| Solicitors for the Applicant: | Gary Cassim & Associates |
| Counsel for the Respondent: | Mr T D Castle |
| Solicitors for the Respondent: | Gadens Lawyers |
ORDERS
The application made to this Court on 11 January 2007 is dismissed.
The parties have liberty to apply to the Court on three (3) days notice for the hearing of the respondent’s application for costs. Submissions initially to be in writing.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 103 of 2007
| MISAGH ROUSSI |
Applicant
And
| PERPETUAL NOMINEES LIMITED |
Respondent
REASONS FOR JUDGMENT
I have before me an application filed in this Court on 11 January 2007 seeking to set aside Bankruptcy Notice No. NN4301 of 2006 (“the bankruptcy notice”) served on Mr Misagh Roussi (“the applicant”) on 21 December 2006 by Perpetual Nominees Limited (“the respondent”), described as the creditor.
Background
The bankruptcy notice was issued on 25 October 2006 and relies on a default judgment obtained against the applicant in proceedings No. 12773 of 2007 in the Supreme Court of New South Wales (“the Supreme Court proceedings”). The default judgment was entered on 11 October 2006. It relates to two loan agreements in which the applicant was named as the “borrower” and the respondent as the “lender.”
Grounds of application
The applicant seeks to set aside the bankruptcy notice on the grounds that:
“(a)There has been an overstatement in the Bankruptcy Notice.
(b)The Bankruptcy Notice has failed at the date of issue of the Bankruptcy Notice to include credits that Perpetual has received by way of rents from the Huskisson Property; and
(c)Perpetual is not the creditor entitled to issue the Bankruptcy Notice.”
Representation
The parties were represented before the Court by Mr M Zammit of Counsel for the applicant, and Mr T D Castle of Counsel for the respondent.
The Evidence Relevant to the Issues
While a number of affidavits with annexures were filed in this matter, the material relevant to the issues and their disposition before the Court are in large part contained in a bundle of relevant documents tendered by the respondent:
1)Copy of a loan agreement between the respondent (Perpetual) and the applicant dated 12 August 2004 involving a loan amount of $1,647,000 (“the first loan agreement”) (at pages 6 to 28 of the bundle of documents) (Respondent’s Exhibit 1 – “RE 1”)).
2)Copy of a loan agreement between the respondent (Perpetual) and the applicant dated 12 August 2004 involving a loan amount of $332,000 (“the second loan agreement” (at pages 29 to 48 of the bundle of documents) (Respondent’s Exhibit 2 – “RE 2”)).
3)Letter of offer dated 21 May 2004 (“the letter of offer”) to lend money to the applicant from McLaughlin’s Financial Services Limited (“MFS”) (at pages 49 to 61 of the bundle of documents) (RE 1).
4)Copy of mortgage documents in relation to the Huskisson property, The mortgagor is described as the applicant, The mortgagee is described as the respondent (“the mortgage document”) (Respondent’s Exhibit 6 – “RE 6”).
5)Document headed: “Reconciliation between Murray’s calculations and the amounts claimed in the Bankruptcy Notice in respect of loan 1 ($1,647,000)” (Respondent’s Exhibit 3 – “RE 3”). (In this regard and for the purpose of understanding the context from which this document derives, see the affidavit of Michael Murray, accountant, made on 19 February 2007, and annexures.)
6)Document headed: “Amounts charged by the respondent not taken into account by Michael Murray” (Respondent’s Exhibit 4 – “RE 4”).
7)Document headed: “Aide Memoire for Loan 1 – Interest Calculations” (Respondent’s Exhibit 5 – “RE 5”).
8)The affidavit of Michael Murray, accountant, made on 19 February 2007, with annexures (subject to objections generally as to relevance by the respondents).
9)The affidavit of Misagh Roussi, the applicant, made 11 January 2007, with annexures.
10)The affidavit of Gary Nicholas Cassim, solicitor, made on 19 February 2007, with annexures.
It was not in dispute that the default judgment arising from the Supreme Court proceedings resulted in orders that:
1)The applicant pay the respondent the amount of $2,439,174.56.
2)That Perpetual be given possession of land in Huskisson which was apparently purchased over by the applicant with funds provided under the loan agreements (see [5.1] and [5.2] above). (See also item 3 at page 50 of the respondent’s bundle of documents.)
While a number of affidavits with annexures were filed in this matter (and objections noted) they were relevant to issue 4 below (at [7]) and given the disposition of this matter do not require further consideration.
The Issues
The applicant contends that the bankruptcy notice should be set aside because:
1)Perpetual was not the relevant creditor who was entitled to issue the bankruptcy notice.
2)That there is an overstatement as to the amount due in the bankruptcy notice and this serves to invalidate the notice.
3)This overstatement includes a failure by the creditor to allow amounts received from the debtor in reduction of the debt. These amounts are said to be rent payments in relation to the Huskisson property.
The respondent’s position is that:
1)Perpetual is the “true” creditor.
2)In relation to the applicant’s claim that the amount in the bankruptcy notice is overstated, s.41(5) of the Bankruptcy Act 1966 (Cth) (“the Act”) does not assist the applicant.
3)There are no specific features in this case to merit this Court going behind the default judgment to examine the applicant’s assertions in relation to the alleged overstatement of the debt.
Is Perpetual entitled to issue the bankruptcy notice?
The applicant argues that Perpetual is not the creditor in the relevant relationship with him and that the bankruptcy notice issued by Perpetual should be set aside as it relies on a default judgment obtained by Perpetual as a result of the Supreme Court proceedings. In short, the submission is that Perpetual Nominees is not the creditor entitled to issue the bankruptcy notice.
Can this Court go behind the default judgment?
To the extent that the applicant’s submission relies on the proposition that this Court should go behind the judgment of the Supreme Court, it is possible for a Court of Bankruptcy to do so. See Olivieri v Stafford & Ors (1989) 91 ALR 91 (“Olivieri”) per Beaumont J at 100:
“It will be necessary, later, to consider the circumstances in which the power of a court of bankruptcy to go behind a judgment should be exercised. But it is clear that, unless and until that power is exercised, the pre-existing obligation is merged in a new obligation in the form of a judgment debt. In this sense, it is said that ‘the existence of the judgment is … prima facie evidence of a debt’: per Lord Esher in Re Fraser; Ex parte Central Bank of London [1892] 2 QB 633 at 636.”
Specifically, in relation to the judgment in the case before the Court now which was obtained by default, in Olivieri, again per Beaumont J at 100:
“If the judgment in question is a judgment by default, the court will always “go behind” the judgment if there is what it regards as a bona fide allegation that no real debt “lay behind” the judgment: see Corney v Brien [(1951) 84 CLR 343 (“Corney v Brien”)], per Fullagar J at 357–8. An extension of this principle may be seen in Fraser's case [[1892] 2 QB 633 at 636], supra.”
Relevant to this issue again in Olivieri, Beaumont J cited Corney v Brien (1951) 84 CLR 343 per Fullagar J (at 358), at 101:
“The question whether the judgment is to be reopened or ‘gone behind’ at all will, of course, often involve some preliminary investigation of the merits of the attack on the judgment. But when once the court decides that it will ‘go behind’ the judgment, the cases which I have cited show, in my opinion, that the whole matter is open.”
Applicant’s submission: Perpetual could not sue the applicant
In addressing what Counsel for the applicant described as the “threshold issue” the applicant relies on the following documents:
1)The first loan agreement.
2)The second loan agreement.
3)The letter of offer in which MFS is referred to as “lender,” and Mr Roussi as the “borrower.”
4)The mortgage document (in which Mr Roussi is described as the “mortgagor” and Perpetual Nominees Limited is the “mortgagee”).
In short, the applicant’s argument is that based on the documents before the Court, Perpetual cannot sue Mr Roussi for any debt said to arise because of its engagement as the agent for MFS. The applicant’s position is that based on clear principles of agency, the loan agreements (the subject of the bankruptcy notice) were entered into be Perpetual as the agent for MFS, and only as the agent for MFS. Therefore, in applying relevant principles of agency, the proper person to sue is MFS, and not Perpetual. Perpetual is not the creditor, MFS is creditor. Given that the bankruptcy notice describes Perpetual as the creditor, that is a misdescription, and the bankruptcy notice should be set aside on this basis.
The applicant specifically relies on:
1)The letter of offer (at page 49 of RE 1):
“LENDER:McLAUGHLINS FINANCIAL
SERVICES LIMITED
ACN 088 647 796
BORROWER: ROUSSI; M
SECURITY/PROPERTY/IES: 35 OWEN STREET, HUSKISSON, NSW
LOAN AMOUNT: $1,647,000
McLaughlins Financial Services Limited as responsible entity MFS Premium Income Fund ARSN NO. 090 687 577 (‘the Lender’) is pleased to advise that your application for a loan facility has been given preliminary approval on the terms and conditions set out in this letter and on the terms of any other letter or document issued by or at the direction of the Lender in the future.
The loan and security documentation (“Loan Documentation”) which is to be prepared by the Lender’s solicitors and which will be entered into on behalf of the Lender by Perpetual Nominees Limited ACN 000 733 700 in it’s capacity as custodian for the Lender will include the Lender’s standard requirements relating to representations and warranties, covenants and events of default.”
2)The loan agreement (subclause 17.1 at pages 23 and 43 of RE 1):
“17. Perpetual Nominees Limited Limitation of Liability
17.1The Lender enters into this Agreement only as an agent of McLaughlins Financial Services Limited ACN 088 647 796 (‘Responsible Entity’). The Lender can only act in accordance with the terms of the Agreement under which it is appointed as the Responsible Entity’s agent and is not liable under any circumstances to any party under this Agreement. This limitation of the Lender liability applies despite any other provision of this Agreement and extends to all liabilities and obligations of the Lender in any way connected with any representations, warranty, conduct, omission, agreement or transaction related to this Agreement.”
3)The loan agreements (subclause 18.1 at pages 24 and 44 of RE 1):
“18. McLaughlins Financial Services Limited limitation of liability
18.1Each party acknowledges that McLaughlins Financial Services Limited ACN 088 647 796 (MFS) enters into this Agreement and each Security (through its agent Perpetual Nominees Limited) and incurs the obligations in them (Obligations) solely in its capacity as responsible entity of the MFS Premium Income Fund ARSN 090 687 577 and in no other capacity.”
4)The first loan agreement (subclause 9.1 at page 18 of RE 1):
“9. Administrative Provisions
9.1 Costs and expenses
(a) The Borrower must pay all:-
costs (including legal costs on a full indemnity basis) as between Solicitor and client;”
5)To be read with relevant items in RE 5 where reference is made to clause 9 (particularly “legal fees”).
6)Letter from Gadens Lawyers to MFS (not Perpetual concerning payment of legal fees in relation to the “Loan to Misagh Roussi”) (page 64 of RE 1).
7)Letters of 6 July 2006 from David Legal to Gadens Lawyers (page 12 of RE 2), and response from MFS of 10 July 2006 (not Gadens or Perpetual) (page 11 of RE 2) regarding debt owed by Mr Roussi.
The applicant’s position is that the letter of offer and the loan agreements make it clear that in the relationship between the three parties, the borrower is Roussi, and Perpetual is acting as agent only of MFS.
Further, this is reinforced by clause 9 of the first loan agreement and the subsequent documents at 5, 6 and 7 above (at [16]). Clause 9 of the first loan agreement requires the borrower to pay (amongst other things) relevant legal fees. When read with relevant correspondence MFS emerges as the “true lender.” This is further reinforced by correspondence ([16.7] above) where correspondence relating to the debt is responded to by MFS (and not Perpetual or even relevant solicitors).
In short, therefore, the loan agreements which were the subject of the bankruptcy notice were entered into by Perpetual as agent only for MFS. MFS acted as the entity to whom the debt was owed. With regard to the principles of agency, therefore, the proper person to sue Mr Roussi is MFS, and not Perpetual. The bankruptcy notice described Perpetual as the “creditor.” This misdescription leads to the bankruptcy notice being set aside on that basis.
Mr Zammitt relied, in part, on Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103 (“Hansmar”). This case involved an application pursuant to s.459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The statutory demand was served by Perpetual Trustee Co Ltd (“Perpetual”) on Hansmar Investments Pty Ltd (“Hansmar”). The demand was in relation to payment of a debt said to have arisen, and due, out of a contract for the sale of land.
This contract described the vendor as (at [3]):
“Permanent Trustee Australia Limited (ACN 008 412 913) in its capacity as custodian/mortgagee for Challenger Managed Investments Limited (ACN 002 835 592) as responsible entity for the Howard Mortgage Trust (ARSN 090 464 074) As Mortgagee exercising Power of Sale”
Hansmar subsequently defaulted under the sale of land contract and Permanent terminated the agreement. The involvement of Permanent and Perpetual is explained (at [6]):
“The explanation for the vendor under the contract being Permanent, whereas the person claiming the debt under the statutory demand being Perpetual, is that, as contract of sale itself states, Permanent held the mortgage as ‘custodian’ for Challenger Managed Investments (‘Challenger’), which was in turn the responsible entity of a managed investment scheme known as the Howard Mortgage Trust.”
Following the sale of the subject land, Perpetual (as it now had been appointed as custodian by Challenger) sought to obtain the difference in the sale between the purchase price and the price for which the property was sold on the market. The statutory demand was in the name of Perpetual and not Permanent because between the termination and the sale of the land, there had been a change in custodian.
Mr Zammit submitted that the second of the grounds on which Hansmar sought to challenge the statutory demand is relevant to the issue before the Court now. This ground was that Hansmar argued that it was Permanent, not Perpetual, who was the creditor. His Honour, White J, considered Perpetual’s standing as a creditor (at [62] to [73]) and concluded, ultimately (at [74]), that there was a “genuine dispute” that Hansmar was not indebted to Perpetual. On that basis he made orders setting aside Perpetual’s statutory demand.
Mr Zammit particularly relied on his Honour’s relevant focus on the question as to whether there was a genuine dispute as to whether Hansmar was indebted to Perpetual. This was with particular reference to:
“[63]There is no evidence that Permanent or Perpetual was appointed as Challenger’s agent. The contract for sale does not describe Permanent as selling as agent for Challenger. The Custodian Agreement between Permanent and Challenger was not in evidence. Permanent was the registered mortgagee. Whilst I can readily infer that it held the mortgage on trust for Challenger (which in turn held it on trust for the members of the Howard Mortgaged Trust), there is no evidence that it was acting as agent, as distinct from acting as trustee.
[64]If Permanent were acting as agent for Challenger, it would be Challenger, not Perpetual, who would be the creditor to whom the debt under the contract for sale was owed.”
Mr Zammit described the above as a “crucial finding” for the purposes of the case before the Court. He saw what his Honour said (at [64]), that as between agent and principal it is the principal, and not the agent, to whom the debt would be owed. This is to be distinguished from the situation where a trustee has been appointed and where the trustee has the powers to act as the principal. But those powers are not given to an agent. Mr Zammit agreed with various references on this issue (principal, agent or trustee) from Bowstead and Reynolds on Agency (17th edn.) (London: Sweet & Maxwell, 2001), to which the Court was taken by Mr Castle.
The applicant (amongst similar references) also relied on:
1)Law of Agency by G E Dal Pont (Sydney: Butterworths, 2001) at [19.1]:
“The general legal principle in this context is that where an agent makes a contract with a third party on behalf of an existing disclosed principal pursuant to the agent’s actual authority, the principal alone can sue, and be sued by, the third party on that contract. In such a case a direct contractual relationship is created between principal and third party by the acts of the agent, who does not become a contracting party, this being the ‘very purpose and rationale of agency law’. Signing by an agent acting within his or her authority is a signing by the principal. So if, for example, an agent is induced by a fraudulent misrepresentation to contract on the principal’s behalf, this is actionable by the principal. This rule represents an exception to the doctrine of privity of contract, for where a contracting party is an agent for a principal, the principal is not actually a party to the contract but can nonetheless directly sue and be sued on the contract; the agent is ‘the mere conduit for the principal and for that reason, the contract is that of the principal and not the agent’.” (Citations omitted; Emphasis original)
2)Campbell v Pye (1954) 54 SR (NSW) 308 (“Campbell v Pye”) as authority for the proposition that where a person sues as representative of another person, as was the case in Campbell v Pye, it is not competent for them to maintain the action (at 309.5).
Respondent’s position
The respondent’s position is that the question for the Court now was not whether MFS could sue but whether Perpetual could not sue. In this regard the respondent does not dispute that there is an agency relationship between Perpetual and MFS. This with reference to:
1)Clauses 17.1 and 18.1 in the loan agreements (see pages 23, 24, 43 and 44 of RE 1; see also [5.1] above), and
2)Pages 43 and 44 of the mortgage document (RE 6; see also [5.4] above).
Mr Castle submitted that on the relevant question for the Court now, however, what was said by White J in Hansmar does not assist. The respondent’s view of what was said at [64] of Hansmar is that if Permanent were acting as the agent for Challenger, it would be Challenger not Permanent who would be the creditor to whom the debt was owed. This however, needs to be seen in context of the facts and circumstances before that Court, and the issue for consideration before the Court in that matter. Mr Castle emphasised that the Court did not say that if Permanent were acting as agent for Challenger that Permanent could not sue.
Mr Castle submitted that the facts before the Court were that Permanent was replaced by Perpetual as custodian for Challenger. In these circumstances, therefore, this is what the Court was addressing at [64] when it said that it would be Challenger, and not Perpetual, who would be the creditor. That is, it is Challenger who is the creditor, Permanent was the agent, and there was nothing before the Court to show that Perpetual had any contractual arrangement with Challenger so as to be said, in an evidentiary context, to have replaced Permanent in that capacity. Mr Castle’s analysis was that this shows that Challenger could sue, but that the Court did not say that Permanent, if it was still there as agent, could not sue as an agent.
Consideration
Mr Zammit summarised the applicant’s position on the question as to whether Perpetual can sue by relying on authority that he said stated, in effect, that Perpetual cannot sue because of its engagement. That is, that it was an agent of MFS as provided for in the loan agreement.
I do not agree with Mr Zammit that this on its own precludes Perpetual from being able to sue in relation to the loan agreement. I am guided in this by what was said by a Full Court of the Federal Court in Australian Trade Commission v Goodman Fielder Industries Ltd (1992) 36 FCR 517 at 521:
“Before turning to the particular statutory provisions which have given rise to the questions of law that are before us, it is appropriate to refer to some settled propositions of the law of principal and agent. In Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 53 at 59-60 Donaldson J said that an agent can conclude a contract on behalf of his principal in one of three ways:
(a) By creating privity of contract between the third party and his principal without himself becoming a party to the contract.
(b) By creating privity of contract between the third party and his principal, whilst also himself becoming a party to the contract.
(c) By creating privity of contract between himself and the third party, but no such privity between the third party and his principal.
In considering the issues which arise on this appeal it will be important to bear in mind, in particular, category (b). Donaldson J's decision, as regards questions of agency, was affirmed by the Court of Appeal: see Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545. Earlier, in Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370 at 372 Wright J said, describing it as an important proposition, that:
‘[I]n all cases the parties can by their express contract provide that the agent shall be the person liable either concurrently with or to the exclusion of the principal, or that the agent shall be the party to sue either concurrently with or to the exclusion of the principal.’
The effect of the authorities was summed up by Mr F M B Reynolds in Chitty on Contracts (25th ed, 1983), Vol 2, Ch 1. Mr Reynolds wrote (par 2274):
‘The fact that a person is an agent and is known to be so does not, however, of itself necessarily prevent him incurring personal liability. Similarly he may be entitled to sue. Whether this is so is to be determined by the construction of the contract, if written, and by its nature and the surrounding circumstances. When the agent does contract personally the scope of the contract which he makes requires careful analysis. He may undertake sole liability to the exclusion of his principal: conversely he may undertake joint liability on the main contract together with his principal. He may act as surety for his principal, or enter into a collateral contract with its own terms. The possibilities shade into one another, and there is no general rule.’
See also the commentary by the same author on Art 105 of Bowstead on Agency (15th ed, 1985), pp 426-429, and Scott v Geoghegan & Sons Pty Ltd (1969) 43 ALJR 243 at 245, per Taylor J.”
To the extent therefore that the applicant’s argument rests simply on an agent not being able to sue, then I do not agree with this proposition given what is set out above.
The issue is, with reference to the relevant material, whether even if it did create some privity of contract between Mr Roussi and MFS, Perpetual also became a party to the contract thus fulfilling a basic necessity to subsequently enable it to sue Mr Roussi on the agreement.
The parties before the Court agreed that the relevant documentation, on the applicant’s part at least, was the loan agreement made between the parties. The issue is in determining the relationship between parties, that the contract itself will provide the answer as to what basis the relevant parties are entering into the contract.
I am persuaded by Mr Castle’s submissions that as a result of what is contained in the agreement Perpetual could sue on the agreement. First, Perpetual is described by the plain terms of the loan agreement as the “lender,” with Mr Roussi as the “borrower” (see pages 8 and 31 of RE 1 and items one and two in the schedules to the loan agreements at pages 26 and 46 of RE 1). Importantly, MFS is not described as a party to the agreement. The terms of the agreement dealing with the granting of a loan facility by the lender to the borrower, that is, each relevant term as reproduced at pages 3 to 8 and pages 32 to 38, all make reference to the “borrower” defined as “Mr Roussi,” and the “lender” defined as “Perpetual.”
MFS, relevantly, is referred to in the agreement in two parts. First, clause 17.1 (page 23 of RE 1, the first loan agreement, and pages 43 to 44 of RE 1, the second loan agreement) provides that Perpetual, who is described as the “lender,” enters into the agreement only as an agent of MFS. Second, MFS is said to enter into the agreement through its agent, Perpetual.
Given what is set out above the description of Perpetual as agent in both of these clauses, which establish that Perpetual has entered the contract as the agent of MFS, does not dispose of the question of whether Perpetual cannot sue Mr Roussi as it has done, and to therefore subsequently base a bankruptcy notice on the default judgment that it obtained.
Further, both clauses 17 and 18 seek to limit the liability of Perpetual and MFS, respectively, in the event of any action against them as it arises out of the agreement. That there is such a limitation of liability in relation to Perpetual does not exclude it from being a party to the contract. If that logic were to apply, then given the provisions of clause 18, and in particular, the provisions of 18.1 where it is stated that MFS incurs obligations pursuant to the contract “solely in its capacity as responsible entity of the MFS premium income fund … and in no other capacity” may therefore be seen as similarly not having obligations under the contract. This is clearly not the case.
To the extent that the applicant relies on events which occurred after the entering into of the agreements, that is to whom legal fees were paid, by whom, and on other documents subsequent to, but which were said to be part of the surrounding circumstances of the agreement, then I agree with Mr Castle, that this material does not assist with the construction of the contract before the Court now.
While the matter is not entirely free from some doubt in Australia, see the commentary at para.712 at pp.241-243 of J W Carter and D J Harland, Contract Law in Australia (4th edn.) (Sydney: Butterworths 2002) and in particular the reference to Hide and Skin Trading Pty Ltd v OceanicMeat Traders Ltd (1990) 20 NSWLR 310 at 327-8, White v Australian & New Zealand Theatres Limited (1943) 67 CLR 266, Spunwill Pty Ltd v BAB Pty Limited (1994) 36 NSWLR 290, but contrast Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 116, FAI Traders Insurance CoLtd v Savoy Plaza Pty Ltd [1993] 2 VR 343, for the proposition that Australian law does not permit reliance on subsequent conduct as either a general aid to construction or under an exception to the parole evidence rule as applied in cases where ambiguity exists.
Further, nor do I agree with Mr Zammit that Perpetual by entering into the contract has done its job, and therefore “drops out,” and MFS emerges as the entity with the sole right to sue and be sued on the contract. As Mr Castle in my view correctly submits, the loan agreement stands until discharged, and on the best evidence before the Court now, the mortgage (RE 6) is a continuing security. Perpetual who is the mortgagee continues to have an active role both in relation to the mortgage, and the loan agreement.
Mr Zammit also relied on the letter of offer (see p.49 of RE 1) for the proposition that it was MFS who was the lender, that is, the real lender, and that Perpetual had nothing more to do than to enter into the loan agreement on behalf of the lender; that plainly in the letter of offer, “lender” refers to MFS.
In this regard, I take the view that the letter of offer was part of the negotiations between the various parties prior to entry into the loan agreements and is not of assistance in interpreting the loan agreements themselves in the face of the plain terms of the loan agreements. In any case, as Mr Castle submitted, the letter of offer itself stated (page 49 of RE 1):
“In the event of any conflict or discrepancy between this Letter of Offer and the Loan Documentation the terms and conditions contained in the Loan Documentation will prevail.”
Clearly, the letter of offer itself envisaged the loan agreements as being central, and in relation to discrepancies with the letter of offer, comprehensive, in determining the terms of the agreement between the parties. This includes the determinations of the relationship between each of Perpetual, MFS and Mr Roussi.
In all, therefore, while there is evidence that Perpetual entered into the contract as agent for MFS, this alone did not mean that it was not a party to the contract with rights for itself arising from that contract. On the agreement’s plain terms, Perpetual was the lender and was in my view a party to the contract (albeit, separately, with some limited liability), but nonetheless able to sue on the agreement. As Perpetual was the contracting party it was entitled to sue on the contract. The applicant’s complaint in this regard does not succeed.
Overstatement of the amount due in the bankruptcy notice
The applicant also argues that the bankruptcy notice should be set aside because there has been an overstatement in the bankruptcy notice including a failure to take into account credits (rent presumably in relation to the Huskisson property) of the amount to which the creditor is entitled.
The applicant referred to Walsh v Deputy Commissioner of Taxation of the Commonwealth of Australia (1984) 156 CLR 337 (“Walsh”) at 339:
“There is no doubt that a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s. 41(5) of the Bankruptcy Act 1966 (Cth), as amended, that he disputes the validity of the notice on that ground.”
The unchallenged submission was that such notice was provided by the applicant through his solicitors pursuant to s.41(5) of the Act in a timely way.
Section 41(5) provides:
“The act of bankruptcy specified in paragraph (1)(l) shall be deemed to be committed on the day after the day on which the period within which the agreement is required to be executed by the debtor or the period within which the petition is required to be presented, as the case may be, expires.”
In submissions, Mr Zammit relied on:
1)Olivieri v Stafford & Ors at 91 per Sweeney ACJ, for the proposition that when a court was satisfied that the notice pursuant to s.41(5) of the Act had been given by the debtor, and there was a dispute about the validity of the bankruptcy notice on the ground of alleged misstatement of the amount due, then the question which arose in these circumstances was whether the amount specified in the notice exceeded the amount in fact due. In circumstances where there was an overstatement, the creditor was deprived of the benefit arising from s.41(5), and the validity of the bankrupcty notice should be determined apart from it.
2)Irani v Hollyburton UK Limited [2005] FMCA 109 (“Irani”) for its reliance on the line of authority (at [14]) on Re Prossimo; Ex parte De Marco (1952) 16 ABC 86 (Re Murray (1959) 18 ABC 152 (“Re Murray”), Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552, Re Greenhill; Ex parte Myer (NSW) Ltd (1984) 5 FCR 84), for the view that if a notice is given under s.41(5) of the Act within the time allowed for compliance with a bankruptcy notice which overstates the amount owing to the creditor, the bankruptcy notice is fatally defective. What was asserted before the Court in Irani was that there was an error in the calculation of the interest said to be payable on the amount stated in the judgment debt, and included subsequently in the bankruptcy notice.
3)Croker v Commissioner of Taxation [2005] FCA 127 (“Croker”). The facts before the court in that matter were that following certain litigation the Tax Commissioner was given costs. These costs were tax assessed and to which he added a $30 registration fee. The Court found that the bankruptcy notice overstated the debt by $30, and agreed to set aside the bankruptcy notice. The Court also rejected the argument that bankruptcy notices should only be set aside where the overstatement could reasonably mislead the debtor (see [14]-[16]).
4)That what was said in In the Matter of Wilson v Official Trustee in Bankruptcy [1999] FCA 1760 (Wilson”) at [39]:
“It may well be that there would be good grounds for setting aside a judgment that was entered for an excessive amount.”
proceeds on the proposition that a court of bankruptcy can go behind the bankruptcy notice.
5)Although the majority in Olivieri said that in the circumstances before that Court it should not go behind the judgment, nonetheless, the principle was established that there were circumstances when the court could go behind the judgment and that a court is more inclined to do so where the judgment in question is obtained by default.
6)The amount of the overstatement is said to be as set out in the affidavit of Michael Murray of 19 February 2007 (at paragraph 15). That is, in particular calculations as to the applicable interest and other costs arising from the loan agreements.
7)The applicant also complains that there has been a failure on the part of the creditor to include, and allow for, in the bankruptcy notice amounts received from the debtor as reducing the debt. This is said to be a failure at the date of issue of the bankruptcy notice to deduct from the alleged debt the full rents received by Perpetual from the Huskisson property in relation to which Perpetual received possession by orders made by the default judgment. (In this regard, see the affidavit of Mr Murray at paragraph 17).
8)Mr Zammit submitted that a bankruptcy notice which fails to allow a credit for part payments as at the date of the bankruptcy notice is invalid. The applicant relies on In Re Miller; Ex parte Furniture and Fine Arts Depositories Limited [1912] 3 KB 1 and Re Murray as summarised and cited in Walsh at 340.
In all, therefore, the applicant asserts that the respondent applied the wrong interest rate to the amount of the debt that was due and that secondly, no credit was given for rents received by the applicant. He relies on Olivieri for the proposition that a court of bankruptcy can go behind the judgment debt. Mr Zammit (in an issue on which there was no disagreement from the respondent) submitted that if the Court does decide to go behind the judgment debt, then the whole matter becomes open for explanation (see Olivieri at 101).
The Response
In relation to s.41(5) of the Act, the respondent relies on Wilson at [36]-[37] and [39] for the proposition that s.41(5) is concerned “with a claim of a bankruptcy notice for an amount greater than is in fact owing under a judgment.” That is, for the applicant to succeed, not only is there the requirement to give the s.41(5) notice (there was no issue as to this point), but that what was claimed under the bankruptcy notice exceeded the amount owing in the relevant default judgment.
The parties did not disagree as to the issue of whether a court of bankruptcy could go behind the judgment relied on for the bankruptcy notice. Mr Castle argued however, that this should be done for a more limited purpose than that asserted by Mr Zammit. That is, for the purpose where there was no debt owed, and not, as was put, “to tinker with dollars and cents.” He relied on Olivieri, per Beaumont J, for the proposition (which was that put by Emmett J in Wilson) that the pre-existing obligation of the debtor to pay the debt merges in a new obligation created by the judgment. (This was the situation in Olivieri (at 100), and a judgment debt which was the situation in Wilson (see at [39]). See also the reference to Corney v Brien at 353-354.)
The respondent also relied on Olivieri, per Gummow J, for the proposition that a court should not go behind a judgment debt if what is being asserted by the debtor leaves a substantial sum still owing but not paid (at 107). Further, that the court of bankruptcy should not reconsider a judgment merely with the view to reduce the judgment debt, but should do so in circumstances to ascertain whether the creditor had a debt upon which the bankruptcy proceedings could be founded (at 108).
In short, the respondent’s position is that there will be circumstances where a bankruptcy court will go behind a default judgment, but that the current case does not contain such circumstances. The respondent’s position is that this is not a situation where there was no debt owed by the debtor to the creditor. That, at its highest, the evidence of Mr Murray was that there was a discrepancy between the computing of interest and what is claimed in the judgment, and an assertion of an alleged failure to allow credits by way of payment of rent (both matters which the respondent disputes as to their factual accuracy), but that importantly, both these complaints would still leave a substantial debt owing to the creditor by the debtor. Mr Castle also submitted that the approach taken by the majority in Olivieri was also taken by the majority in Rigg v Baker [2006] FCAFC 179.
Consideration
The applicant relies on what was said in Walsh that there is no doubt that a bankruptcy notice will be invalid if the sum specified in the notice as the amount due to the creditor, exceeds the amount for which the creditor is entitled to issue execution, provided that the debtor gives timely notice under s.41(5) of the Act. That is, that he disputes validity of the notice on that ground. This is plainly acknowledged in Wilson (at 36) and Olivieri (at 99).
In the circumstances of the case before the Court, I am persuaded by Mr Castle’s submissions that this must be understood in light of the reasoning in Wilson, and the majority in Olivieri. The amount claimed in the bankruptcy notice is $2,439,174.56 (see annexure A to the applicant’s affidavit of 11 January 2007). This is the same amount stated in the default judgment (see paragraph 4, and annexure D of the affidavit of Gary Nicholas Cassim, of 19 February 2007). Applying the reasoning in Wilson, and the majority in Olivieri, the bankruptcy notice in this matter does require the debtor to pay the judgment debt in accordance with the amount stated in the default judgment. As was the case in Wilson, the pre-existing obligation which the default judgment was intended to enforce was merged in the new obligation created by the judgment itself. When understood in this way, I agree with Mr Castle that there was no overstatement of the amount said to be owing and that was in fact due. As was said (at 39) in Wilson, “by reason of the judgment itself the amount of the judgment is due.”
In my view, Irani, one of the cases relied on by the applicant, can be distinguished on its facts from the situation before the Court now. In Irani, the amount in the judgment debt and the amount in the bankruptcy notice differed because the creditor added interest on the amount stated in the judgment debt. The Court agreed with the applicant in that matter that there had been an error in the calculation of the interest on the amount stated in the judgment debt, which led to an overstatement in the bankruptcy notice. In that case, her Honour plainly did not go behind the judgment debt, but accepted on what was before her that there had been an overstatement of the amount owing in the bankruptcy notice. In the case before the Court now, the amount said to be the debt owing in the judgment debt is identical to the amount stated in the bankruptcy notice.
Again, in the matter of Croker there was a difference between the amount stated and the amount owing arising from a determination of costs payable, and consequent to proceedings previously dismissed before the Supreme Court of New South Wales, and the amount stated in the bankruptcy notice which added an amount said to be costs of registration to the amount which was previously determined to be the costs payable. Also added was an amount said to be interest accrued since the date of relevant orders made. In that case the Court found errors in the amount of the calculation of the amount subsequent to the amount which was the quantum of the debt as initially determined and following dismissal of the proceedings before the Supreme Court. Again, in the case before the Court now, this situation is not comparable.
Nor does the applicant’s reliance on what was said in Wilson (in part at [39]) assist the applicant in the matter before the court now:
“It may well be that there would be good grounds for setting aside a judgment that was entered for an excessive amount.”
This is so given the reasoning that surrounds that statement and the context in which it appears. In my view, with respect, the Court was plain in its statement that a bankruptcy notice must require the debtor to pay the judgment debt in accordance with the judgment, and that any pre-existing obligation which the judgment is intended to enforce will have merged in the new obligation thereby created. Remembering also that in Wilson that the judgment was a default judgment as in the matter before the Court now.
I did not read the sentence quoted above, relied on by the applicant, as authority for the proposition that where a judgment has been entered for an excessive amount that immediately meant that a court of bankruptcy would move to set aside that judgment. In my view, that sentence was directed to the setting aside of a judgment, presumably in circumstances by a court that would stand as a court of appeal from a court originally making that judgment. Plainly, this Court does not sit on appeal from the Supreme Court of New South Wales.
I am further persuaded to this view by what immediately follows in Wilson (at [39]):
“Further, it may be that this Court, as a Court of Bankruptcy, would go behind a judgment in order to determine whether there was, in fact, anything due.”
This is plainly directed to the circumstances of when this Court would go behind a judgment not for the purpose of setting aside that judgment but for the purpose of determining whether the bankruptcy notice should be set aside. Ultimately, from Wilson, and by the majority in Olivieri, where a bankruptcy notice claims that amount that is the amount stated in the default judgment, it cannot be said that the bankruptcy notice claims an amount that exceeds the amount in fact due.
I am also further persuaded by Mr Castle’s submission in relation to the issue of this Court going behind a judgment on which a bankruptcy notice is based as to the following.
The parties were not in dispute that it was possible for this Court to do so, particularly in circumstances where the relevant judgment was obtained by default, but differed as to the circumstances when this could, or should, be done. The applicant’s position in essence is that the “wrong” interest rate was applied to the amount due, and that no credit was given for rents received by the respondent from the Huskisson property. As I understood the applicant’s position in this regard he relied on Olivieri for the proposition that the Court can go behind the default judgment, and that further, if the Court does decide to go behind, the whole matter becomes open for explanation.
I am persuaded by Mr Castle’s submission, per Beaumont J in Olivieri with reference to Corney v Brien and Fraser’s case and Wren v Mahony (1972) 126 CLR 212 at 222, that the situation before the Court now is not one that requires the Court to go behind the default judgment (which Beaumont J said this Court should always do if there is what is regarded as a bona fide allegation that there is no real debt that lay behind the judgment). Plainly, this is not the case before the Court now. There is a real debt. The applicant does not rely on any contrary assertion. Nor with reference to Gummow J in Olivieri (at 107) does the applicant contend that the creditor does not have a debt upon which bankruptcy proceedings can be founded. Even in circumstances where the applicant’s claims to the alleged failure to take into account the rents paid, or the alleged errors in calculation as to interest and fees, would “still leave outstanding a substantial indebtedness” (with reference to Gummow J in Olivieri at 107).
In all, therefore, for the reasons set out above, Perpetual does stand as the creditor with whom Mr Roussi entered into loan agreements. A default judgment was obtained by the creditor. In relation to the debtor/borrower (Mr Roussi) the amount stated in the bankruptcy notice is identical to the amount said to be the amount in the judgment debt. In these circumstances s.41(5) does not assist the applicant, and nor are there such circumstances before the Court now to go behind the judgment giving rise to the debt. For these reasons, therefore, I dismiss the application made to this Court on 11 January 2007 seeking that the relevant bankruptcy notice be set aside.
I certify that the preceding sixty-seven (67) paragraphs are a true copy of the reasons for judgment of Nicholls FM
Associate: A Douglas-Baker
Date: 5 December 2007
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