Savva, A v Belltread P/L

ANDREW SAVVA (A Bankrupt) v. BELLTREAD PTY LIMITED AND MAX DONNELLY (Trustee
in Bankruptcy)
No. NB287 of 1993
FED No. 313/94
Number of pages - 9
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
GENERAL DIVISION
HILL J

CATCHWORDS

Bankruptcy - Proof of Debt - dispute as to amount owing - decision on the facts.

Bankruptcy Act 1966 (Cth): S.99(1).

HEARING

SYDNEY, 5 and 6 May 1994
#DATE 25:5:1994

Counsel and Solicitors CJ Hockey instructed by
for Applicant: Konstan and Associates

Counsel and Solicitors MR Alridge instructed by
for First and Second Respondents: Appleby and Nilson

ORDER

THE COURT ORDERS THAT:

1. Application dismissed.

2. The applicant pay the first and second respondent's costs.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

HILL J Mr Andrew Savva, the applicant, a bankrupt, applies to the Court, pursuant to s.99(1) of the Bankruptcy Act 1966 (Cth) ("the Act"), for an order that a proof of debt lodged by Belltread Pty Limited ("Belltread"), the first respondent, with Mr Donnelly, the trustee in bankruptcy of Mr Savva's estate, ("the Trustee") be reduced by $61,915.58.

Mr Savva became a bankrupt by virtue of a sequestration order made in respect of his estate on 9 February 1993 on a petition filed by Belltread. That petition was based upon a bankruptcy notice founded upon a judgment debt obtained by Belltread against Mr Savva in the sum of $113,671.14. The judgment was obtained by default against Mr Savva, who entered no defence in respect of it. No application was ever made by Mr Savva to have the judgment set aside. Nor was there ever any attempt made, at the time the bankruptcy petition was before the Court, to challenge the debt. As will shortly be seen, the judge hearing the petition was told by Mr Savva's daughter that the debt owing to Belltread would be paid upon the sale of certain property. That did not eventuate and Mr Savva was made bankrupt.
In due course Belltread lodged a proof of debt on 12 July 1993 claiming an indebtedness of $124,244.08. The difference between that figure and the judgment obtained represents the sum of $625, being Belltread's costs of obtaining the judgment and presumably interest accruing thereafter. Of the amount claimed in the proof, approximately $50,000 is admitted and has actually been paid. No doubt Mr Savva's interest in the matter is made more acute because it appears that all creditors of his estate will be paid 100 cents in the dollar, irrespective of the amount ultimately admitted to proof as a result of the claim lodged by Belltread, with the result that there will be a surplus in the estate available to be repaid to Mr Savva.
Belltread's proof is based upon a claim for tread rubber supplied by Belltread to Mr Savva for use in a tyre service business that had been conducted by Mr Savva at 639 Canterbury Road, Belmore, New South Wales. Mr Savva claims that some of the tread rubber supplied was defective, a claim which is denied by Belltread. There is also a dispute as to whether some part of the moneys claimed was for 20 CRTS rings which Mr Savva alleges he never contracted to purchase from Belltread.
There is no dispute between the parties that in determining whether the proof should be reduced, the Court can go behind the judgment debt obtained by Belltread to determine whether there was a real debt owing by Mr Savva to Belltread, although counsel for Belltread disputes that the present is an appropriate case so to do.
Mr Savva and his wife purchased, in June 1989, a tyre service business known as Alert Tyre Service. For relevant purposes, at least, that business was concerned with retreading tyres. Belltread had been the main supplier of tread rubber to the vendor of that business to Mr and Mrs Savva and continued to be so after Mr Savva commenced operations on 30 June 1989.
According to Mr Savva's evidence he first experienced difficulty with the tread rubber received from Belltread in July of 1989. The rubber in question was approximately the width of a tyre moulded on one side into the profile of a tyre tread, the other side being coated with an adhesive and covered by a plastic sheeting of approximately the same width as the tread. In retreading tyres the plastic is removed from the back of the rubber leaving the adhesive surface exposed so that that surface can be attached to a sheet of matting referred to as "cushion gum" which in turn is attached to the tyre casing to be retread. The tyre with the rubber affixed is then "cooked" to fuse the profile to the tyre casing and thus create a retreaded tyre.
The tread rubber in question is delivered by Belltread in rolls weighing between 7-12 kilos of different widths and lengths, the widths presumably corresponding to the widths of tyres to which the tread rubber is to be attached. There are about 35 rolls on a pallet and Mr Savva customarily obtained deliveries of between 8-10 pallets per month. Deliveries occurred, on average, at least weekly.
According to Mr Savva, he inspected the rubber on the first shipment when it arrived and noticed that it was very dirty, the dirt being embedded between the tread rubber and the adhesive on it. There appeared to be, so Mr Savva said, sawdust between the glue and the rubber. The result was, he said, that the tread would not adhere to the casing through the medium of the cushion gum.
Mr Savva's evidence was that he immediately contacted Mr Sambrook, the General Manager of Belltread, who resided and was ordinarily stationed in Perth, and complained that it was not possible, because of the quantity of dust on the rubber, to glue the tread to the casing. Mr Sambrook is said to have replied that he would visit Mr Savva in Sydney in the next week to check the rubber.
The next week, according to Mr Savva, Mr Sambrook came to Sydney and inspected the rubber. Mr Sambrook is said to have expressed the view that there must have been a problem with the storage of the rubber after it came off the production line in Perth. He suggested that Mr Savva apply more glue to the rubber. Mr Savva said that he attempted to do this but that the rubber would still not adhere. He then, in accordance with his evidence, contacted Mr Sambrook again and told him that the suggested solution had not worked. Mr Savva said he asked Mr Sambrook whether he wanted the rubber back in Perth but that Mr Sambrook had said that it would cost more to send the rubber back to Perth than to dump it. Mr Sambrook agreed, so Mr Savva said, to replace the delivery. Thereafter, according to Mr Savva's evidence on oath, 35% of that delivery was dumped at a tip at Lucas Heights.
According to Mr Savva, further deliveries comprised in invoices numbered 19425, 19460, 19489 and 19506 were similarly affected. He said that he called Mr Sambrook, after checking each delivery, and told him of the problem. Mr Sambrook is said to have replied that he would be coming to Sydney and that Mr Savva should put the rubber aside so that Mr Sambrook could inspect it.
According to Mr Savva, a week later Mr Sambrook came to Sydney, inspected the rubber and told Mr Savva to dump it. According to Mr Savva, about 30% of the rubber comprised in the deliveries recorded in the invoices referred to above was then dumped at the Lucas Heights tip.
Mr Savva's evidence is that he complained to Mr Sambrook about rubber delivered in each month from September 1989 to May 1990, being rubber delivered on invoices numbered 19571, 19606, 19699, 19749, 19823, 19853, 19867, 19970, 20026, 19930, 20202, 20267, 20379 and 20316. After each delivery, Mr Savva said he had a conversation with Mr Sambrook. In December 1989, in one of these conversations, Mr Sambrook is said to have said that he would speak to his production people to see what the problem was and asked Mr Savva to put the rubber aside and told him that it would be replaced. In January Mr Sambrook is said to have inspected the rubber and told Mr Savva to dump it. Mr Sambrook is said again to have inspected the rubber in the period from February to May 1990 and told Mr Savva to dump it. According to Mr Savva, 25-30% of the deliveries from September 1989 to May 1990 were dumped at the Lucas Heights tip.
Mr Savva said that he complained monthly to Mr Sambrook that his account had not been credited for the defective rubber. He said that when Mr Sambrook asked for money for unpaid accounts, Mr Savva told Mr Sambrook that when the account for the defective rubber was fixed, he would send the balance.
Subsequently, according to Mr Savva, he spoke to Mr Sambrook in September 1990 and asked that Mr Sambrook come to Sydney. It is said that a conversation then took place concerning the account and that Mr Savva gave to Mr Sambrook a reconciliation showing a credit of $38,210.62 due for delivery of the defective rubber. Mr Sambrook is alleged to have agreed that the credit would be given and Mr Savva is said to have agreed that when this had been attended to he would pay the account.
From January 1990 Mr Savva's business experienced cashflow problems due, he said, to a significant drop in the sale of tyres. From June 1990, Belltread suspended credit sales and required cash to be paid on delivery. According to Mr Savva, in January 1991 he had a conversation with Mr Peter Brown, the Divisional Finance Manager, of Boral Masonry and Road Services, who attended to accounting matters for Belltread. Mr Savva's evidence was that Mr Brown asked when the account was to be attended to and that Mr Savva had then told him that Belltread had not credited him in respect of the defective rubber. Mr Savva said that he told Mr Brown that he would pay the difference once the credit had been given and that Mr Brown had said that he would discuss the matter with Mr Sambrook. An affidavit, sworn on 13 October 1993 by Mr Savva, says that some of the rubber was still in his possession and stored at Punchbowl and had a value of $13,000.
A minor matter in the dispute concerned an invoice for 20 x 22.5" curing rings which Belltread had invoiced Mr Savva. I shall return to deal especially with that matter later.
The evidence of Mr Sambrook and Mr Brown was diametrically opposed to that of Mr Savva.
Mr Sambrook denied there had ever been any discussions between Mr Savva and himself concerning defective rubber. He denied that any of the discussions, to which Mr Savva had deposed, had taken place. Rather, he said, at no time had Mr Savva made any complaint to him concerning the quality of the rubber supplied. A field report of Mr Sambrook, dated 22 September 1989, prepared at the time contained no reference to any complaints about the quality of the tread rubber. It suggests that Mr Savva had cleaned up the operations and attempted to improve the quality of his business and that the only problem with the account was that Mr Savva had been a little slow with money for the first 4-6 months.
According to Mr Sambrook, he again visited Mr Savva in December 1989 as part of an extensive series of visits to Belltread dealers throughout Australia. A written report by Mr Sambrook of that visit again contained no reference to complaints about the quality of the tread rubber.
The account of Mr Savva with Belltread was, by October 1989, trading beyond the credit terms of net 30 days. An accountant employed by Mr Savva wrote on 11 October 1989 to Belltread enclosing a cheque of $10,000 for part payment of the July 1989 account and saying that further amounts would follow over the month. The letter says that it is expected that by November the August and part of the September accounts would be paid. The letter says, relevantly:

"Due to unforeseen expenditure and Debtors collection problems, this has created a Short-term liquidity problem."

The letter contains no reference to any complaints about the quality of rubber.
According to Mr Sambrook he visited Mr Savva again in mid-February 1990 with a Mr Drerupt, an American representative of the company which manufactured the curing rings, to which reference will later be made. Again, according to Mr Sambrook, no complaint was made about the quality of the rubber.
A further visit by Mr Sambrook, according to him, took place in September 1992 and again no complaint was raised by Mr Savva about the quality of the rubber. A written report concerning the visit, prepared by Mr Sambrook at the time, likewise contained no reference to the quality of the tread rubber. According to Mr Sambrook, Mr Savva's outstanding account was discussed on this visit and Mr Savva had promised to settle the account in mid-October when the premises upon which the business was carried on were sold.
Mr Sambrook, in his evidence, pointed to the payment of numerous invoices said to be the invoices now the subject of queries by Mr Savva.
Mr Brown also gave evidence in which he denied the telephone conversation to which Mr Savva had deposed. According to Mr Brown he had a telephone conversation with Mr Savva in February 1993 concerning the outstanding debt owing by Mr Savva to Belltread. His version of this conversation is that Mr Savva said:

"I've got some money to pay, not the full amount. One of our properties has been sold for $115,000.00 settlement is six weeks away I can pay you some more."

He says that no arrangement was concluded for the final payment of the outstanding amount.
Finally, evidence was led on behalf of Mr Savva from a Mr Gregoriou, a truck driver who had been employed by Mr Savva. He said that approximately once a week he had visited the tip to discard rubber, discarding an average of two or three rolls of new rubber on each occasion. He says that in November 1990 when Mr Savva relocated his factory from Belmore to Riverwood, he discarded between 25 and 30 rolls of new rubber which Mr Savva had told him was defective. He produced two invoices and a cash sale docket, covering the period 14 August 1989 to 26 November 1989, prepared while Mr Gregoriou was carrying on his own business, for the cost of removing scrapped rolls to the tip. One of these refers to a quantity of 1.280 tonnes, one to a quantity of 1.910 tonnes and one to a quantity of 1.320 tonnes.
Each of the witnesses were cross-examined. Counsel for Belltread pointed out to Mr Savva, contradictions between the statement Mr Savva had given to the Trustee in connection with the proof of debt and his evidence on oath. In the statement to Mr Donnelly, Mr Savva had referred to different invoices and claimed to have dumped 70% of the July 1989 delivery, 60% of an August delivery and 70% of deliveries in November, December, January and February.
Mr Savva conceded that while the rubber continued to be defective month after month, he kept ordering more of it. Indeed, orders continued over 11 months with sometimes 4 deliveries a month. Mr Savva's evidence was that he had problems with the rubber every day and dumped it every second Saturday when other material was also dumped. Mr Savva conceded that he had no sample of the rubber to demonstrate its faulty character. Mr Savva had denied his accountant's authority in writing the letter in October 1989, accusing the accountant of having stolen money from him. Mr Savva agreed that he never held any money back because of the rubber.
Mr Savva was cross-examined also as to what had happened in the bankruptcy proceedings, in which initially Mr Savva had been represented by a solicitor. Ultimately the solicitor had not appeared at the bankruptcy hearing at which Mr Savva had attended with his daughter. The daughter had apparently sought a two week adjournment. Mr Savva denied knowing that the daughter had asked the Court for the time in order that certain properties could be sold by her to enable the debt to be paid. A transcript of the proceedings of that day in evidence revealed that no comments were made about any dispute as to payment for alleged defective rubber. Mr Savva's daughter indicated that money was coming through to enable the debt to be repaid. His Honour made a comment that the debt was not contested and received no adverse reply from Mr Savva's daughter.
Counsel for Belltread raised the question of a dust extractor which had apparently given Mr Savva some problem for some three months because the exhaust was not working. Mr Savva denied that this had any connection with the problem, that there had been smoke but not dust and that in any event the extractor was far away from the place where the rubber was being used. Examination of an affidavit lodged in other proceedings suggested that there had been dust problems with that extractor. Mr Savva explained that as relating to rubber dust not dust of the kind to be found on the tread rubber.
I should say that Mr Savva's English was very poor. He could not read the language, although he was able to make himself understood in spoken conversation. Although at some times his answers were confused, the confusion arose, in my opinion, not from any state of mind of Mr Savva but from his lack of command of the English language.
Mr Sambrook was also cross-examined. He reiterated the evidence which he had given on affidavit that at no time had he ever heard Mr Savva make a complaint concerning wood, wood dust or sawdust in the glue on the rubber in the shipments of rubber for the 11 months period. He said further that no other customer had made such a complaint. He produced the company's register of complaints which also revealed that no such complaint had been recorded. It was the company's practice to record complaints in that register.
Mr Sambrook explained the process by which the rubber was produced to rule out the possibility that dust could have adhered to the rubber in that process. He admitted that on occasions an external plastic wrapping on rubber sent by road from Perth could get damaged and some of the rubber might become dusty, but said in such a case it would be a simple matter to apply a solvent, remove the glue that had been fixed at the factory and give the rubber a new coating of glue. He said no other customer had complained of such a problem. At any rate, as I understand his evidence, dust which entered a load in such a way would not settle between the rubber and the glue as was alleged by Mr Savva to have happened.
Mr Sambrook said that in the event that any rubber was beyond repair he would have requested Mr Savva to return it to Perth rather than dump it because it would be necessary for the production team in Perth to see what the problem was. He said the cost of cartage would have been around 26-29 cents a kilogram and that in those circumstances he would never have permitted Mr Savva to dump the rubber. He said that cleaning the rubber and recoating it with adhesive would be a quick and inexpensive procedure which Mr Savva could have undertaken.
At the end of the day the question is whether Mr Savva has satisfied the onus of proof upon him to show on the balance of probabilities that a specified quantity of rubber was defective. For him to succeed, I must disbelieve Mr Sambrook. The difficulty for Mr Savva is that while I have no reason to disbelieve him, I also have no reason to disbelieve Mr Sambrook.
A consideration of the objective facts, rather than supporting Mr Savva's case casts doubt upon it. No sample of the alleged dust infected rubber has ever been produced. No witness, other than Mr Savva, gave evidence that they had ever seen the dust on the rubber. Mr Savva had some employees but did not call them. The complaints' register of Belltread contained no record of any complaints. There was an inherent improbability that Mr Savva would continue to order rubber that was impregnated with dust when there were other suppliers who could have supplied him. It seem unlikely that Mr Savva would have allowed the problem to continue for some 11 months without ensuring that some letter of protest was written. Further, even at the stage of the bankruptcy petition, no attempt was ever made by Mr Savva to raise the issue which is now raised. The statement he made to the Trustee in connection with Belltread's proof of debt differed, in some respects, from that which he gave on oath.

The only evidence that in some way corroborated Mr Savva was the evidence of Mr Gregoriou who had operated his own business of removing scrap rubber and had for a year been employed by Mr Savva as a salesman.
Mr Gregoriou did not impress me as a witness. He seemed to want to answer questions in the way most favourable to Mr Savva, even when the question asked required only a "yes" or a "no" answer.
Mr Gregoriou's evidence, however, conflicts with Mr Savva's evidence in that the number of rolls said to have been tipped a week by Mr Gregoriou was minuscule in comparison with the numbers Mr Savva said were tipped. Further, at no time did Mr Gregoriou ever say he inspected the rubber and noticed the dust adhering to it. In cross-examination he agreed that rubber was routinely tipped by other retreaders for whom he had worked.
At the end of the day the only conclusion I can come to is that Mr Savva has not satisfied the onus of proof.
There remains the question of the 20 CRTS rings.
The letters CRTS stand for "Cure Reduction Time System". The rings are in two parts made of moulded aluminium, which clamp on to each bead of a tyre when it is put for curing in the chamber or oven.
It seems that some time prior to Mr Savva's purchase of the Alert Tyre Service business, an agreement was entered into between Belltread and Malvina Properties Pty Limited, the prior proprietor, for the sale of 20 CRTS rings. The contract provided that the rings were to remain the property of Belltread until whichever was the sooner of either the date upon which Belltread received payment for them or the date upon which the purchaser dealt with them in the ordinary course of business, provided the purchaser was not at that time in breach of his obligations. Under the agreement, payments, which were to be on an instalment basis, were to commence on 1 March 1989.
There is no clear evidence whether any payments were made by Malvina Properties Pty Limited under the agreement. Mr Millgate, a director of Malvina Properties Pty Limited, discussed the matter, it would seem, with Mr Sambrook on the basis that he had placed his business on the market for sale and agreed with Belltread that, in essence, the agreement should be novated to Mr Savva. Nothing is known of any discussions between Mr Millgate and Mr Savva. Accordingly, Belltread forwarded a new agreement for execution by Mr Savva. That agreement was never signed.
Belltread invoiced Mr Savva by invoice dated 30 June 1989 for $892.08, being what was said to be the fourth of 12 instalments (possibly Mr Millgate had paid three instalments). A stocktake of the business was done when Mr Savva took over and not surprisingly the 20 curing rings are shown on that stocktake as being part of the inventory of the business. It seems quite possible, although the evidence does not permit me to make a finding on the matter, that Mr Savva paid the prior owner of the business an amount for stock and other items which included the curing rings.
A further invoice dated 19 September 1989 number 19637 for $10,704.96 was forwarded by Belltread to Mr Savva, noting that a first instalment of $743.40 plus 20% tax was due on September 1989 and directing Mr Savva to deduct $892.08 per month until the total of the invoice amount was in fact received. Mr Savva claims that the $10,704.96 amount is included in the proof of debt lodged by Belltread.
Belltread's records of outstanding accounts and payments made show that the invoice numbered 19637 for $10,704.96 was paid by Mr Savva as to $10,000 by a payment of that amount on 5 January 1990 and as to the balance by a payment on 20 February 1990. It was put to Mr Sambrook that Belltread automatically credited amounts received by it in payment off of the oldest account. This Mr Sambrook denied saying that the company's ordinary practice was to credit amounts in accordance with customer's directions in writing. If no direction in writing was received, the customer would be telephoned and asked to nominate the invoice being paid where less than the total amount owing was tendered. Mr Sambrook was unable to say in this case whether Mr Savva had or had not directed payment of invoice number 19637.
No evidence was given by Mr Savva on the matter one way of the other, nor was any evidence given by Mr Savva's accountant who presumably would have been the person in communication with the accounts department of Belltread. The evidence is, to say the least, quite unsatisfactory. The questions posed are whether there was no agreement between Mr Savva and Belltread in respect of the rings, whether there was a novation (by express or implied agreement) of the arrangements between the former proprietor and Belltread, pursuant to which Mr Savva became liable and whether invoice number 19637 has, in fact, been paid so that the Belltread proof does not relate to it. Overall Mr Savva retains the onus of proof.
It seems clear enough that an agreement was entered into between Mr Savva's accountant and Belltread to pay amounts of $10,000 or $5,000 in reduction of outstanding accounts. At least on one occasion there was an allocation. Thus, as has been seen, on 11 October 1989 Mr Savva's accountant wrote to Belltread enclosing a cheque for $10,000 indicating that this was for part-payment of the July account and expressing the hope that as further amounts followed over the month, by November the accounts of August and part of September would be paid. This letter reinforces Mr Sambrook's evidence that generally payments made were directed against specific accounts. On this basis Mr Savva has not satisfied me that any of the amount claiming to be owed by Belltread referred to the rings. This is particularly so as no complaint seems ever to have been advised by Mr Savva until the proof of debt was lodged. I am also left uncertain whether there was a novation of the original Malvina Properties Pty Limited/Belltread agreement or not.
Accordingly I would dismiss the application and order Mr Savva to pay the first and second respondents' costs of it.

[1994] FCA 313

25 MAY 1994