Shannon v Official Receiver
[2011] FMCA 462
•21 June 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SHANNON v OFFICIAL RECEIVER & ANOR | [2011] FMCA 462 |
| BANKRUPTCY – Creditor’s petition – judgment debt – Deed of Settlement – instalment agreement – bankruptcy notice – application to set aside bankruptcy notice – whether judgment upon which bankruptcy notice issued stayed by virtue of Deed – whether Deed constituted a novation – accord without satisfaction – application dismissed. |
| Bankruptcy Act 1966, s.40(1)(g) |
| Hows v Richmastery Limited [2007] FMCA 1606 Lindholdt v Merritt Madden Printing [2001] FMCA 59 Penning v Steel Tube Supplies Pty Limited (1988) 18 FCR Perkes v McIntyre (1991) FCA 338 Fightvision Pty Ltd v Onisforou [1999] 47 NSWCA 323 Chief CMR of State Revenue v ALH Group Property Holdings Pty Ltd [2011] NSWCA 32 Morris v Baron & Co [1918] AC 1 Commissioner of Taxation v Hadidi [1994] 51 FCR 453 Re Feast, Re: Ex part Feast (1887) 4 Morr 37 Re Lomax: Ex parte City Bank (1892) 3 BC (NSW) 66 Re Vogel; Ex parte Anglo-Eastern Contract Co (1913) 109 LT 325 Reasonable Endeavours Pty Limited v Dennehy [2002] FCA 1472 |
| Applicant: | GEOFFREY ANTHONY SHANNON |
| First Respondent: | OFFICIAL RECEIVER |
| Second Respondent: | ADVANCE BUSINESS FINANCE PTY LTD (ACN 114 212 672) |
| File Number: | SYG 438 of 2011 |
| Judgment of: | Raphael FM |
| Hearing date: | 7 June 2011 |
| Date of Last Submission: | 7 June 2011 |
| Delivered at: | Sydney |
| Delivered on: | 21 June 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Jacobs QC |
| Solicitors for the Applicant: | GWM Lawyers & Conveyancers |
| Solicitors for the First Respondent: | Sally Nash & Co |
| Counsel for the Second Respondent: | Mr P Barham |
| Solicitors for the Second Respondent: | McKays Solicitors |
ORDERS
Application dismissed.
Applicant to pay Respondent’s costs to be taxed, if not agreed, in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 438 of 2011
| GEOFFREY ANTHONY SHANNON |
Applicant
And
| OFFICIAL RECEIVER |
First Respondent
| ADVANCE BUSINESS FINANCE PTY LTD (ACN 114 212 672) |
Second Respondent
REASONS FOR JUDGMENT
Mr Geoffrey Anthony Shannon, the debtor, was a guarantor of certain advances made by Advance Business Finance Pty Limited, the creditor, then known as BFL Capital, to a company known as
C2C Investments Pty Limited. The loan was for the purchase of a vessel. On 10 September 2009 Advance obtained judgment against the company and the guarantors in the sum of $254,407.91.
On 6 November 2009 Advance received $114,147.90 in partial satisfaction of the judgment debt from the net proceeds of the sale of the vessel. The balance of the judgment outstanding was $140,265.01. By way of enforcement of the judgment Advance procured the issue of a writ for levy of property from the District Court of New South Wales. Prior to the writ being executed
Mr Shannon entered into an agreement with Advance dated 8 March 2010 entitled “Deed of Settlement and Release”.
The recitals of that Deed refer to the matters set out above and in Recitals L and M state:
“LWithout admission of liability Advance and Shannon have agreed to settle the Claim, as between each of them, upon the terms and conditions set forth in this deed.
MWithout admission of liability Advance has agreed to cease any action executing the Writ against C2C Investments as trustee for the Geoff Shannon Family Trust, C2C Investments, and/or Shannon, upon the terms and conditions set forth in this deed.”
The operative part of the provisions of the Deed commence:
“1Without any admission of liability, Shannon agrees to pay Advance the amount of AUD$153,260.00 (“the Settlement Amount”) by instalments, set out as follows, in full and final settlement of the claim, the Dispute, the Judgment and all legal and any other costs and expenses incurred by Advance of and incidental thereto:
(a)The first instalment of $25,543.33 is to be paid on or prior to 9 March 2010 (“the First Instalment”);
(b)The second instalment of $25,543.33 is to be paid on or prior to 8 April 2010;
(c)The third instalment of $25,543.33 is to be paid on or prior to 8 May 2010;
(d)The fourth instalment of $25,543.33 is to be paid on or prior to 8 June 2010;
(e)The fifth instalment of $25,543.33 is to be paid on or prior to 8 July 2010; and
(f)The sixth instalment of $25,543.33 is to be paid on or prior to 8 August 2010.
(“the instalments”)
2Time is of the essence in respect of each of the payments referred to in paragraph 1.”
Paragraph 8 of the Deed states:
“8.Advance hereby agrees that, upon receipt of the Settlement Amount in accordance with Clause 1 above, it will not claim or maintain any claim against C2C Investments as trustee for the Geoff Shannon Family Trust, C2C Investments or Abode, or lodge any proof of debt with any administrator or liquidator of C2C Investments as trustee for the Geoff Shannon Family Trust, C2C Investments or Abode in respect of monies said to be owing pursuant the Claim, the Dispute, the Judgment or any legal and any other costs and expenses incurred by Advance of and incidental thereto.”
but is subject to the provisions of Clause 11
“11.The operation of clauses 8 and 10 and the release in clause 9 of this deed are subject to and conditional upon the payment of the Settlement Amount by Shannon to Advance and also subject to payment of the Settlement Amount not being or becoming the subject of any clawback or other legal obligation imposed on Advance to repay in any bankruptcy of Shannon.”
On 15 March 2010 Advance’s solicitors wrote to the Registrar of the District Court of New South Wales in regard to the levy of property stating:
“The Judgment Creditor has reached agreement for settlement with the judgment debtor for payment of the judgment debt. We have therefore requested the Sheriff’s office to take no further action in execution of the Writ and return to the Writ to the court. We request the Writ be withdrawn upon its receipt by you.”
It is not disputed that Mr Shannon paid or caused to be paid the first instalment pursuant to the Deed or that he did not thereafter comply with the terms of the Deed. On 22 April 2010 the solicitors for Advance wrote to the solicitors for Mr Shannon:
“22 April, 2010
Dear Sirs
Advance Business Finance -v- Geoffrey Anthony Shannon
We refer to your recent correspondence to us seeking to vary the terms of the settlement agreement between the parties. We also note that the second instalment due under the deed of settlement remains wholly unpaid.
Our client does not wish to renegotiate the agreement with your client. To the extent that time is no longer of the essence in respect of payment of the second instalment of $25,543.33, we give your client notice remaking time of the essence and requiring payment of that amount to occur on or prior to Tuesday, 27 April, 2010.
If your client fails to pay the required instalment by the nominated date, our client will exercise its rights under the settlement deed.
Yours faithfully
GEOFF MATHESON (Partner)
McKAYS”
On 28 April 2010 Advance’s solicitors wrote again to Mr Shannon’s solicitors:
“28 April, 2010
Dear Sirs
Advance Business Finance -v- Geoffrey Anthony Shannon
We refer to our letter dated 22 April, 2010 remaking time of the essence in relation to the payment of the second instalment under the settlement agreement between our respective clients. We note that your client failed to pay the second instalment on the due date and he failed to pay it by the nominated dame on remaking time of the essence.
Your client is now in default under the terms of the settlement. Time is of the essence in relation to the outstanding payment.
We advise that our client accepts your client’s default and elects to terminate the settlement agreement.
Yours faithfully
GEOFF MATHESON (Partner)
McKAYS”
On 15 February 2011 the Official Receiver issued a bankruptcy notice against Mr Shannon requiring him to make payment of a total of $94,405.76 being the amount of the original judgment plus interest less payments received. On 11 March 2011 Mr Shannon commenced an application in this court seeking orders setting aside the bankruptcy notice numbered BN1017 together with an affidavit which relevantly stated:
“I respectfully submit that in the premises, and having regard to the documents contained in the bundle, subsequent to the judgment referred to in the Bankruptcy Notice being entered, the dispute between myself and C2C Investments Pty Ltd on the one hand, and Advance Business Finance Pty Ltd on the other was settled, and having regard to the provisions of the Deed, the settlement constitutes a complete and absolute bar to Advance Business Finance Pty Ltd proceeding against me under the aforesaid judgment.
When the matter came before me for hearing Mr Shannon was represented by Mr M Jacobs QC. He had provided the court with an outline of submissions on 24 May 2011. Those submissions set out the fact of the agreement and the fact of the letter of 15 March 2010 to the District Court extracted in these reasons. The submissions noted that certain payments had been made pursuant to the Deed of Settlement and then stated:
“Whatever else the second respondent’s remedies may be, it is respectfully submitted that the above facts establish that the second respondent cannot proceed in reliance on the aforesaid bankruptcy notice which accordingly falls to be set aside with costs.”
The respondents understood that document to constitute a submission that the bankruptcy notice was invalid because the judgment upon which it was based had been stayed by virtue of the letter of 15 March and the existence of the deed. Section 40(1)(g) of the Bankruptcy Act 1966 (the “Act”) provides that a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor a final judgment or order, the execution of which has not been stayed has served upon the debtor a bankruptcy notice and the debtor does not comply with the notice or satisfy the court that he has a counter claim, set off or cross-claim as there specified.
The applicant argued, clearly correctly, that it is not necessary that there be in existence a formal order staying execution. He referred to two Federal Magistrates Court decisions Hows v Richmastery Limited [2007] FMCA 1606 at [9] and Lindholdt v Merritt Madden Printing [2001] FMCA 59 at [11] but the matter was put beyond doubt several years before this court came into existence by the Full Bench of the Federal Court, Woodward, Fisher and Spender JJ in Penning v Steel Tube Supplies Pty Limited (19880 18 FCR 568 at [575 – 576] which case was applied in Perkes v McIntyre (1991) FCA 338 per Burchett J. I am satisfied that the judgment in this case was not stayed either by virtue of the letter of 15 March 2010 or by the existence of the agreement. The letter of 15 March does no more than withdraw a writ of execution that had been issued. The withdrawal of a writ of execution does not effect a stay on the judgment, another writ may be issued at any time. Insofar as it might be argued that the agreement constituted an effective stay I would agree that it did whilst it remained in existence but the letter of 28 April 2010 clearly terminated the agreement for breach.
On the day of the hearing Mr Jacobs QC provided the court with a supplementary submission and authorities in support. The essence of that submission was that the agreement of 8 March 2010 constituted a novation which was described by the Court of Appeal of NSW; Shellar Stein & Gyles JJA in Fightvision Pty Ltd v Onisforou [1999] 47 NSWCA 323 at [78] as:
“A transaction by which all parties to a contract agree that a new contract is substituted for one that has already been made: Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 at 388, per Windeyer J, which Bainton J referred to. Novation involves the extinguishment of one obligation and the creation of a substituted obligation its place. Intention is crucial to show a novation see, eg, Vickery v Woods (1952) 85 CLR 336 at 345 per Dixon J.”
Mr Jacobs also made reference to the decision of the New South Wales Court of Appeal; Allsop P, Tobias JA and Handley AJA in Chief CMR of State Revenue v ALH Group Property Holdings Pty Ltd [2011] NSWCA 32. I do not believe that either of these cases are of assistance. They merely confirm that novation is the substitution of one contract for another. They do not indicate that an agreement to settle a judgment debt which arose out of a contract the breach of which is now merged into the judgment constitutes such a substitution. What that later agreement was intended to be was an accord and satisfaction but in this case there was an accord without satisfaction and that, as indicated by Lord Atkinson in Morris v Baron & Co [1918] AC 1 at [35]:
“Has no legal affect and the original cause of action is not discharged as along as the satisfaction agreed upon remains executory.”
It is disappointing that neither party who appeared in this case had chanced upon the decisions of the Full Bench of the Federal Court Beaumont, Wilcox and Heery JJ in Commissioner of Taxation v Hadidi [1994] 51 FCR 453 or that of Reasonable Endeavours Pty Limited v Dennehy [2002] FCA 1472 as the facts of those cases are almost identical to those before me. Mr and Mrs Hadidi had both incurred debts to the Commissioner of Taxation, the former in the sum of $50,760.44 plus $85.00 and the latter in the sum of $48,419.49 plus $85.00. Through their tax agent the Hadidi’s put an offer to the Commissioner of payment by three instalments of $15,000.00 and a balance of $30,000.00 in full settlement of the entire debt of each of them. That offer was accepted and the three instalments were paid but the balloon payment was not made. The Commissioner then issued a bankruptcy notice which the debtors resisted at first instance before Sweeney J successfully. His Honour concluded:
“I am satisfied that before the issue of the bankruptcy notice the Commissioner had agreed with the agent for the debtor and his wife that he would be content to accept their promises under the agreement in place of their liabilities under the judgments obtained against them. If that agreement had been broken it is to him to seek judgment to enforce it and if successful to issue a bankruptcy notice.”
This was not a view accepted by the Full Court. Their Honours referred to Re Feast, Re: Ex part Feast (1887) 4 Morr 37; Re Lomax: Ex parte City Bank (1892) 3 BC (NSW) 66 and finally Re Vogel;
Ex parte Anglo-Eastern Contract Co (1913) 109 LT 325:“Creditors having obtained a judgment against a debtor the debtor paid part of the debt under the judgment. Subsequently an arrangement was entered into under which the debtor agreed to pay the balance of the debt together with interest at a later date. The balance of the debt was not paid on the stipulated date and further time to pay was granted and thereafter an additional sum was paid in reduction of the judgment debt. Subsequently the creditors issued a bankruptcy notice for the amount of the balance debt. It was held that the creditors had not waived their judgment but merely postponed their recourse to it and that on the debtor’s default in payment of the balance due on the stipulated debt the creditor’s rights revive so that the creditor was entitled to issue a bankruptcy notice for the balance of the judgment debt.”
In my view the settlement agreement in the instant case constitutes a similar postponement of the creditor’s recourse to its judgment until the accord had been satisfied. When it was not satisfied and when the agreement was terminated the creditor was entitled to return to his judgment and enforce it in the manner that it did giving credit for the amounts paid. Wilcox J in Hadidi said:
“The major question argued at the hearing of this appeal was that decided by the learned primary Judge Sweeney J the nature of the agreement made between Ali Oygur, on behalf of Mr and Mrs Hadidi, and Ray South, of the Australian Taxation Office, in November 1989. In particular the question was whether Mr South agreed that the Deputy Commissioner would abandon his claim to enforce the default judgments he had obtained against Mr and Mrs Hadidi in return for their mere promise to pay a total sum of $75,000, or whether the agreement to abandon the judgment was conditional upon actual payment of $75,000.
Sweeney J held that the abandonment was made in return for a mere promise to pay. I agree with Beaumont and Heerey JJ in preferring the alternative view. It seems to me inherently unlikely that an informed creditor, holding judgments for about $100,000 against two debtors, would agree to abandon those judgments in return for a mere promise to pay $75,000. That promise might be broken immediately; the debtors might fail to make even the first payment. Yet, according to the view of the case adopted by Sweeney J, the creditor would be precluded from enforcing either judgment. He would have to start the litigation again; commencing fresh proceedings, presumably only for $75,000. From a creditor’s point of view, there is little advantage in that type of arrangement.”
In my respectful opinion the same concerns would apply here.
It follows from the above that I cannot be satisfied that either this is a judgment whose execution has been stayed or that the agreement constituted no more than a bare promise by the debtor to pay the instalments set out in paragraph 1. These findings lead inevitably to the dismissal of the application and an order that the Applicant pay the Respondent’s costs to be taxed, if not agreed, in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006.
I certify that the preceding twelve (12) paragraphs are a true copy of the reasons for judgment of Raphael FM
Date: 21 June 2011
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