Skalkos, G. v Australia & New Zealand Banking Group
[1994] FCA 48
•15 FEBRUARY 1994
GEORGE SKALKOS v. AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
No. VP1277 of 1992
FED No 48/94
Number of pages - 15
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
OLNEY J
CATCHWORDS
Bankruptcy - Creditor's petition - debtor asserts damages claim against petitioning creditor - whether petition should be adjourned pending resolution of damages claim.
Transfer of Land Act 1958, s 77(1)
Pendlebury v Colonial Mutual Life Assurance Limited (1912) 13 CLR 676
Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 415
HEARING
MELBOURNE, 21, 22 September and 13, 14 December 1993
#DATE 15:2:1994
Mr R. Kendall and Miss A. Mendes da Costa (instructed by Dunhill Madden Butler) appeared for the petitioning creditor.
Mr D.H. Denton (instructed by Beaumont and Christianson) appeared for the debtor on 21 and 22 September 1993, and Mr H. Rapke (instructed by W.N. Kerridge) appeared on 13 and 14 December 1993.
ORDER
THE COURT ORDERS THAT:
1. A sequestration order be issued against the estate of the debtor.
2. Peter Robert Vince of 20 Mason Street Dandenong, Victoria be appointed as the trustee of the estate.
3. The petitioning creditor's costs of and incidental to the petition in this matter including any reserved costs be taxed and paid in accordance with the Bankruptcy Act 1966.
Date of commission of act of bankruptcy 16 October 1992.
NOTE: Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.
JUDGE1
THE PROCEEDINGS
OLNEY J On 22 October 1992 the Australia and New Zealand Banking Group Limited (the petitioning creditor) presented a petition seeking a sequestration order against the estate of George Skalkos (the debtor). The act of bankruptcy relied upon was the debtor's failure to comply with the demand contained in a bankruptcy notice issued on 15 September 1992 and served on the debtor on 2 October 1992. The act of bankruptcy was said to have been committed on 16 October 1992. The petition was served on 22 January 1993.
Subject to a minor matter referred to below, no issue has been raised in these proceedings challenging the validity of the bankruptcy notice, its service, the commission of the act of bankruptcy or the service of the petition. All of these matters have been adequately proved by affidavit evidence.
The petition has been amended by leave on a number of occasions, as have the debtor's grounds of opposition to the petition. It is unnecessary to detail all of these changes. For present purposes it will be sufficient to set out in full first, particulars of the debt said to be owing by the debtor to the petitioning creditor as detailed in the petition as finally formulated; second, the final form of the debtor's grounds of opposition to the petition; and third, paragraphs 2 and 3 of an affidavit of one Graham John Bloom sworn 21 September 1993 relating to the quantum of the debt claimed as at that date. (In these reasons the petition as finally amended is referred to as the petition).
1. From the petition:
2. The judgment debtor is and was justly and truly indebted to AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED in the sum of $1,400,871.12 calculated as follows:
(a) The sum of $428,867.55 (this sum includes $2,279.20 interest upon the claim and costs component of the judgment, namely $420,156.20, calculated at the rate of 13.2% per annum from September 1, 1992 to September 15, 1992 inclusive) being the amount due and payable by the judgment debtor to the petitioning creditor under a final judgment obtained in the Supreme Court of Victoria at Melbourne on August 31, 1992; PLUS
(b) The further sum of $975.00, being the amount due and payable by the judgment debtor to the petitioning creditor under a final judgment obtained in the Supreme Court of Victoria at Melbourne on August 31, 1992 in proceeding No 7233 of 1992;
(c) The further sum of $975.00 being the amount due and payable by the judgment debtor to the petitioning creditor under a final judgment obtained in the Supreme Court of Victoria at Melbourne on August 31, 1992 in proceeding No 7232 of 1992;
(d) The further sum of $970,053.57, being calculated as follows:
(i) the amount owing by the judgment debtor to the petitioning creditor (as at October 22, 1992) pursuant to documents in writing dated May 15, 1989 and May 17, 1989, signed by the judgment debtor by which he guaranteed loans, advances, credits and banking accommodation made by the judgment creditor to Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd, namely the sum of $1,948,928.44;
(ii) less the proceeds of sale of the judgment debtor's property situated at 64-68 Hotham Street, Collingwood in the State of Victoria, namely $254,329.17;
(iii) less the proceeds of sale of the property described in certificate of title volume 3727 folio 302, situate at and known as 25 King Street, Melbourne, which was owned by Salsburg Investments Pty Ltd and Sixth Larena Pty Ltd, namely $413,598.60;
(iv) less the payment which was received from David Lyons, namely $18,500.00;
(v) less the proceeds of sale of the judgment debtor's property situated at 53A Wattle Street, Haberfield in the state of New South Wales, namely $84,605.55;
(vi) less the proceeds of sale of the judgment debtor's property situated at 58 Rosstown Road, Carnegie in the state of Victoria, namely $207,841.55.
2. The grounds of opposition:
The grounds of opposition to the Further Further Amended Creditor's' Petition are:
1. The Debtor is not indebted to the Petitioning Creditor ("the ANZ") in the sum of $1,400,871.12 as alleged in paragraph 2 thereof or at all in that:
(a) the document in writing dated 15 May 1989 (being a guarantee) ("the Guarantee") was (and remains) the subject of dispute in proceeding number 4203 of 1992 in the Supreme Court of Victoria;
(b) the document dated 17 May 1989 (presumably a mortgage over the property situate and known as 58 Rosstown Road, Carnegie in the State of Victoria) ("the Mortgage") is the subject of proceeding number 2076 of 1993 in the Supreme Court of Victoria wherein it is alleged that the Rosstown Mortgage is limited in the amount which it secured.
2. Further, in proceeding number 2076 of 1993 the Debtor seeks relief against the ANZ that, inter alia, the ANZ pay to the Debtor substantial damages for the ANZ's negligence in the manner in which it conducted the sale of the property situate and known as 64-66 Hotham Street, Collingwood in the State of Victoria.
3. Further, the Debtor intends to make application to amend the statement of claim in proceeding number 2076 of 1993 to seek relief that the ANZ pay to the Debtor substantial damages for the ANZ's negligence in the manner in which it conducted the sale of the property situate and known as 53A Wattle Street, Haberfield in the State of New South Wales.
4. By reason of the matters set out in paragraphs 2 and 3 above,
(inclusive) the Debtor has a substantial claim for damages against the ANZ.
3. From the affidavit sworn 21 September 1993:
2. That having searched the records of the petitioning creditor, which records are the books of account of the petitioning creditor used by it in the ordinary course of business for recording financial transactions of that business and are the records relating to the petitioning creditor's business made in the course of that business and with which records I am familiar, I have verified that the sum of $1,411,383.42 owing by the judgment debtor, George Skalkos, has not been paid to the petitioning creditor or to any person acting on its behalf.
3. The sum of $1,411,383.42 referred to in paragraph 2 hereof is calculated as follows:
(a) The amount claimed in the Further
Further Amended Creditor's Petition $1,400,871.12 PLUS
(b) The amounts owing pursuant to
the orders of Master Bruce made on
September 1, 1993, copies of which
were annexed to my affidavit sworn
in these proceedings on September
17, 1993 $ 10,512.30 TOTAL $1,411,383.42
THE HEARING
4. The hearing of the petition commenced on 21 September 1993 after having been adjourned on two occasions. Mr R. Kendall and Miss A. Mendes da Costa appeared as counsel for the petitioning creditor and Mr D.H. Denton appeared as counsel for the debtor. The hearing continued throughout 21 September 1993 and continued on 22 September 1993. On the morning of the latter date counsel for the debtor sought and obtained an adjournment on the grounds that the petitioning creditor's discovery was inadequate. An order was made that the petitioning creditor give further and better discovery and the matter was stood over for mention on 28 September 1993. A further affidavit of documents was filed on 27 September 1993. On 28 September 1993 documents were produced in answer to several subpoenae and an order was made that the period at the expiration of which the petition will lapse be extended to the expiration of 24 months from the date of presentation of the petition.
Due to the unavailability of counsel and the Court's other commitments the hearing did not resume until 13 December 1993. On that occasion leading counsel for the petitioning creditor was unable to attend and the conduct of the petitioning creditor's case was handled by Miss Mendes da Costa. At the commencement of the proceedings on 13 December 1993 I was advised by Mr H. Rapke who then appeared as counsel for the debtor, that the debtor had changed his solicitors and that he (Mr Rapke) had only just been briefed. An adjournment was not sought, but I agreed to the matter being stood down for a short time to enable counsel to obtain further instructions. The hearing resumed shortly thereafter and continued throughout 13 and 14 December 1993 on which latter date I reserved my decision.
Counsel for the petitioning creditor required the debtor to be made available for cross-examination, a requirement which was duly complied with. At the outset, upon the debtor being called, his counsel submitted that he should give his evidence through an interpreter as it was said that he was not sufficiently fluent in English. No interpreter was immediately available and I ruled that the cross-examination should commence in order to give me the opportunity to judge whether an interpreter should be used. As it happened, a qualified interpreter did attend during the cross-examination but by then I had formed the opinion that the debtor had demonstrated an adequate capacity to communicate in English and his cross-examination, and later his re-examination, continued without the intervention of an interpreter.
It is difficult to judge the credibility of a witness whose evidence-in-chief has been given in the form of extensive affidavits which have no doubt been prepared on his instructions but which are obviously not the words of the witness and whose only oral evidence is in the form of cross-examination. In this case it is unnecessary for me to form a general view as to the debtor's credit. On the issues which are critical to the case the objective evidence is overwhelming and to the extent that objectively proved facts contradict what the debtor has said in evidence, I have accepted the former and rejected the latter.
THE BANKRUPTCY NOTICE
8. Earlier in these reasons I have indicated a minor qualification to the broad statement that no issue has been raised challenging the validity of the bankruptcy notice, its service, the commission of the act of bankruptcy or the service of the petition.
Whilst it is the case that none of these issues are raised in any of the several versions of the debtor's grounds of objection, counsel who first appeared for the debtor submitted that when the bankruptcy notice was issued on 15 September 1992, the petitioning creditor had already obtained judgment for the possession of several properties over which it held security and that the value of those properties exceeded the amount claimed in the bankruptcy notice. It was said that in those circumstances the bankruptcy notice was void as the petitioning creditor was not then a creditor of the debtor.
Quite apart from the fact that this matter was not at any stage raised as a ground of objection, the submission is obviously without foundation.
A creditor who seeks to issue a bankruptcy notice does not have to establish that the debtor is insolvent. All that is required is that the creditor has obtained against the debtor a final judgment or order the execution of which has not been stayed. The debtor does not assert that those criteria were absent at the time the bankruptcy notice was issued nor when it was served. Furthermore, the obtaining of an order for possession of property in respect of which the creditor has security does not eliminate or reduce the debt. In any event the security was not held in relation to the debt on which the bankruptcy notice was based.
The submission made in relation to the bankruptcy notice was quite obviously mis-conceived and it is not my understanding that it was persisted in by counsel who finally appeared for the debtor. THE FACTS OF THE CASE
It is common cause, and I find, that:
(a) As at 15 September 1992 (the date on which the bankruptcy notice was issued) the sum of $428,867.55 was owing by the debtor to the petitioning creditor pursuant to a final judgment obtained in the Supreme Court of Victoria on 31 August 1992 as alleged in paragraph 2(a) of the petition.
(b) The sum of $975 is owing by the debtor to the petitioning creditor pursuant to a final judgment obtained in the Supreme Court of Victoria in proceeding no 7233/1992 on 31 August 1992 as alleged in paragraph 2(b) of the petition.
(c) The sum of $975 is owing by the debtor to the petitioning creditor pursuant to a final judgment obtained in the Supreme Court of Victoria in proceeding no 7232/1992 on 31 August 1992 as alleged in paragraph 2(c) of the petition.
(d) The sum of $10,512.30 is owing by the debtor to the petitioning creditor pursuant to orders made by Master Bruce in the Supreme Court of Victoria on 17 September 1993 as alleged in paragraph 3(b) of the affidavit of Graham John Bloom sworn 21 September 1993.
(e) The petitioning creditor does not nor does any person on its behalf hold any security over the property of the debtor or any part thereof for the payment of any amount claimed to be owing by the debtor to the petitioning creditor.
The total amount of the debtor's liability to the petitioning creditor as found above is $441,329.85. The petitioning creditor claims that the debtor is liable to it in the further sum of $970,053.57 (making a total claimed liability of $1,411,383.42) in accordance with the particulars set out in paragraph 2(d) of the petition.
The further sum of $970,055.57 referred to in paragraph 2(d) of the petition (the guarantee claim) represents the net amount said to be due to the petitioning creditor in respect of the liability of two companies to the petitioning creditor (payment of which the petitioning creditor claims the debtor personally guaranteed) after crediting against the amount of that liability the proceeds from the sale of four properties over which the petitioning creditor claims to have held mortgages as security for the guarantee and a further sum paid to the petitioning creditor by a co-guarantor.
The validity of the guarantee claim is dependent upon the petitioning creditor establishing that:
(a) The debtor guaranteed the liability of Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd to the petitioning creditor.
(b) The petitioning creditor held mortgages over the several properties referred to in sub-paragraphs 2(d)(ii), (iii), (v) and
(vi) of the petition as security for the debtor's liability under the guarantee.
(c) The sum of $18,500 was received from David Lyons, a co-guarantor, in reduction of the liability guaranteed.
(d) The sums mentioned in sub-paragraphs 2(d)(ii), (iii), (v) and (vi) of the petition as having been received as the proceeds from the sale of the respective properties mentioned therein were received by the petitioning creditor and credited in reduction of the liability guaranteed.
Upon the affidavit and oral evidence adduced in these proceedings I make the following further findings:
i) In 1976 the debtor purchased properties at 64, 66 and 68 Hotham Street Collingwood. The land at 64 and 66 Hotham Street was under the Torrens system. The Certificate of Title number was then volume 6806 folio 824 but was later volume 9500 folio 341. The land at 68 Hotham Street was at all relevant times general law land.
ii) The debtor borrowed $20,000 from the petitioning creditor to assist him to purchase the Hotham Street properties and as security executed a Torrens system mortgage over 64-66 Hotham Street and a general law mortgage in respect of 68 Hotham Street. Both mortgages bear date 9 March 1976. The mortgage over 64-66 Hotham Street was registered against the title to 64-66 Hotham Street and is numbered G82491. Each of the mortgages was an "all accounts" mortgage in terms which secured all moneys then owing or thereafter to become owing by the debtor to the petitioning creditor of any account whatever.
iii) The loan of $20,000 was repaid to the petitioning creditor by about Februa ry 1989. The mortga ges and title docume nts were left with the petitioning creditor. Neither mortgage was discharged. iv) In about August 1979 the debtor purchased land at 53A Wattle Street Haberfield New South Wales and borrowed $25,000 from the petitioning creditor to assist with the purchase. The loan was secured by a mortgage executed by the debtor over the property purchased which was the land comprised in Certificate of Title volume 9485 folio 51. The mortgage bears date 2 August 1979 and is numbered R849339.
v) The loan in respect of the Haberfield purchase was duly repaid and the mortgage and title documents remained with the petitioning creditor. The mortgage was not discharged. vi) In May 1989 the debtor together with his employee Peter Economu and one David Lyons signed a guarantee in favour of the petitioning creditor, guaranteeing payment of the liability to the petitioning creditor of two companies namely Salsberg Investments Pty Ltd (of which Lyons was a director) and Sixth Larena Pty Ltd (of which the debtor and Economu were directors). The guarantee bears date 15 May 1989. It was signed in the context of the purchase of a property in King Street Melbourne by the two companies in respect of which the petitioning creditor had agreed to advance the sum of $1,400,000 which was secured by a mortgage over the property purchased.
vii) Shortly prior to settlement in relation to the King Street property an officer of the petitioning creditor informed the debtor that the petitioning creditor required further security to support its loan and the debtor executed in favour of the petitioning creditor mortgage P227880L over a property he owned at 58 Rosstown Road Carnegie
(Certificate of Title Volume 6327 folio 282). The mortgage bears dated 17 May 1989, and secures to the petitioning creditor advances made to Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd. The debtor says that he understood that his liability in respect of this security was to be limited to $150,000. viii) On 19 December 1990 the debtor executed two documents, the full text of which is reprod uced below:
Form S 148
(Letter depositing Documents in Support of Guarantee)
........ ........ ..19/12/1990
The Manager,
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
Dear Sir,
I/We acknowledge that the following documents have been deposited by GEORGE SKALKOS
with you in support of UNLIMITED guarantee
dated 15 May 1989 for the account of
SALSBERG INVESTMENTS PTY LTD and SIXTH LARENA PTY LTD.
SCHEDULE:
1ST REGISTERED MORTGAGE NUMBER: G 82491 OVER CERTIFICATE OF TITLE VOLUME 9500 FOLIO 341
BEING PROPERTY SITUATED AT 64-68 HOTHAM STREET, COLLINGWOOD
Yours faithfully,
GEORGE SKALKOS
Form S 148
(Letter depositing Documents in Support of Guarantee)
........ ........ ..19/12/1990
The Manager,
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
Dear Sir,
I/We acknowledge that the following documents have been deposited by GEORGE SKALKOS
with you in support of UNLIMITED guarantee
dated 15 May 1989 for the account of
SALSBERG INVESTMENTS PTY LTD and SIXTH LARENA PTY LTD.
SCHEDULE:
1ST REGISTERED MORTGAGE NUMBER: R 849339
OVER CERTIFICATE OF TITLE VOLUME 9485 FOLIO 51 BEING PROPERTY SITUATED AT 53A WATTLE STREET, HABERFIELD, NEW SOUTH WALES
Yours faithfully,
GEORGE SKALKOS
ix) On 14 January 1992 the petitioning creditor commenced proceedings against the debtor in the Supreme Court of Victoria (proceeding 4203/1992) seeking payment of loans and advances to Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd pursuant to the guarantee dated 15 May 1989. The debtor filed a defence on 11 February 1992 and on 3 April 1992 the petitioning creditor sought summary judgment. On 4 May 1992 the debtor was given leave to defend the action on condition that he pay $35,000 into Court within 30 days. The said sum was duly paid into Court and an amended defence was filed on 15 May 1992. By order made by Hayne J in the Supreme Court on 21 June 1993 the debtor was given leave to file an amended defence and counterclaim which he did on 8 July
1993. The proceeding was still pending at the date of the hearing of these proceedings.
x) On 26 May 1992 the petitioning creditor commenced two actions against the debtor in the Supreme Court of Victoria (proceedings 7232/1992 and 7233/1992) seeking orders for possession of 58 Rosstown Road Carnegie and 64-66 Hotham Street (respectively). On 31 August 1992 orders for possession were made in default of defence.
xi) In July 1992 the petitioning creditor commenced proceedings against the debtor in the Supreme Court of Victoria (proceeding 8420/1992) seeking payment of $426,588.25 in respect of two fully drawn advance accounts and an overdraft account conducted by the debtor. Judgment in default of defence was entered on 31 August
1992. This judgment (including interest and costs) is the judgment debt relied upon in the bankruptcy notice and is the amount referred to in paragraph 2(a) of the petition. xii) On 6 October 1992 notice was given to the debtor pursuant to s 103 of the Property Law Act 1958 in respect of the property at 68 Hotham Street.
xiii) The properties at 64-66 and 68 Hotham Street were auctioned by the judgment creditor on 15 December 1992 and were sold at auction. Settlement was effected on 13 February 1993. The petitioning creditor received net proceeds of $254,329.17 which sum the petitioning creditor has applied in reduction of the liability guaranteed by the debtor. xiv) The property at 58 Rosstown Road was auctioned by the petitioning creditor on 17 December 1992 and was passed in. It was subsequently sold by the petitioning creditor and settlement was effected on 4 May 1993. The petitioning creditor received net proceeds of $207,841.55 which it applied in reduction of the liability guaranteed by the debtor.
xv) The property at 53A Wattle Street Haberfield New South Wales was auctioned by the petitioning creditor on 7 April 1993 and was passed in. The petitioning creditor subsequently sold the property and received net proceeds of $84,605 which it applied in reduction of the liability guaranteed by the debtor. xvi) On 28 May 1993 the debtor commenced proceedings against the petitioning creditor in the Commercial List of the Supreme Court of Victoria (proceeding 2076/1993) in which he sought a variety of relief including damages for what the debtor alleges was the negligence of the petitioning creditor in the manner in which it conducted the sale of the property at 64-66 Hotham Street. On 7 June 1993 the petitioning creditor filed a summons seeking that the proceeding be struck out or stayed. On 8 June 1993 the debtor filed summonses seeking to set aside the judgments in proceedings 7232/1992 (possession of 58 Rosstown Road), and 7233/1992 (possession of 64-66 Hotham Street) and further seeking to have proceedings in 4203/1992 (the guarantee claim) entered in the Commercial List of the Supreme Court. These several matters were heard by Hayne J on 10 and 11 June 1993 and on 21 June 1993 judgment was delivered and orders made:
(a) Substantially striking out the debtor's statement of claim in proceeding 2076/1993 and removing the matter from the Commercial List.
(b) Dismissing the debtor's summonses in proceedings 7232/1992, 7233/1992 and 8420/1992.
(c) Granting the debtor leave to file an amended defence and counterclaim in proceeding 4203/1992.
xvii) On 8 July 1993 the debtor filed an amended defence and counterclaim in proceeding 4203/1992 and on 16 July 1993 he filed an amended statement of claim in proceeding 2076/1993.
THE ISSUES
18. The debtor's response to the petition is that he is not indebted to the petitioning creditor, and this because first, he denies that he is liable under the guarantee; second, because the proceeds from the sale of the several mortgages sales should have been credited to his account and not that of the two companies, thus extinguishing any liability he may otherwise have been under; and third, because he has a damages claim against the petitioning creditor for a substantial sum which if successful would exceed any liability to the petitioning creditor.
In re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 415, Gibbs J (sitting in the Federal Court of Bankruptcy) had occasion to deal with a case in which a debtor opposed a bankruptcy petition, inter alia, on the ground that he had a claim for damages against the petitioning creditor in respect of some property of the debtor's which it was said had been seized and sold by the petitioning creditor. At pp 115-116 His Honour said:
The second main contention of the debtor is that he is entitled to damages for the wrongful removal of his own property. On 10th March, 1968, he began an action in the Supreme Court of New South Wales claiming damages in respect of this alleged wrong and that action is still pending. The question immediately arises whether I should proceed to determine the existence and extent of the debtor's alleged claim. ... As a general rule this Court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is sufficient validity in the debtor's claims to justify a dismissal or adjournment of the petition. I agree in general with what was said in Re Player in relation to this question. Considerable evidence directed to this issue has been given before me and it seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed. If I am satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the judgment debt, I should not make a sequestration order. If, however, it appears that the debtor has a claim which is less than the amount of the petitioning creditor's judgment debt, the proper course would seem to be to require the debtor, if he desires to avoid a sequestration order, to pay the difference between the amount of the judgment debt and the amount which it seems probable to me that he will recover in the proceedings against the petitioning creditor. In many cases it would be more convenient, assuming that the debtor showed that he had a real claim to litigate, to adjourn the proceedings to enable his claim to be tried in the ordinary courts, but that course was not taken in the present case, partly because the existence of any valid claim was vigorously denied by the petitioning creditor and partly because the proceedings in the Supreme Court have been somewhat dilatory.
It seems to me that the principles expressed by Gibbs J are appropriate to apply in the present proceedings insofar as the debtor has asserted in opposition to the petition, claims for damages against the petitioning creditor. However, insofar as the debtor challenges the validity and effect of the contractual basis of a substantial part of the petitioning creditor's claim, namely the guarantee dated 15 May 1989, that is a matter going to the very heart of the case and it is a matter that is appropriate to be determined in this Court upon the evidence adduced in these proceedings.
The two issues raised in the debtor's grounds of opposition which are relevant to the guarantee claim are that the guarantee dated 15 May 1989 is the subject of dispute in proceeding 4203/1992 and that the mortgage of the Rosstown Road property is the subject of proceeding 2076/1993 wherein it is alleged that the mortgage was limited in the amount it secured.
As to the document dated 15 May 1989, I understand the debtor's case to be that it was part of the agreement that he would not be liable unless and until all four of the proposed guarantors signed it. The four proposed guarantors were himself and his employee Economu (who were directors of Sixth Larena Pty Ltd) and Mr and Mrs Lyons (who were directors of Salsberg Investments Pty Ltd). As it happened Mrs Lyons did not sign the guarantee but the other three did.
The evidence before the Court does not support the debtor's assertion. The guarantee document dated 14 May 1989 provides in paragraph 8:
Each Guarantor signing this Guarantee agrees that he shall be jointly and severally liable to the Bank hereunder notwithstanding that some one or more of the abovenamed Guarantors or any other person or persons intended to be a Guarantor or Guarantors in respect of all or any of the said indebtedness and liability shall refuse or fail tosign this or any other Guarantee in respect thereof.
Whilst such a provision does not necessarily foreclose our argument to the effect that some contrary agreement was made, the subsequent conduct of the debtor is consistent only with an acceptance by him of the fact that he was liable under the guarantee.
First there is the mortgage dated 17 May 1989 over the Rosstown Road property. The printed form of mortgage expresses the consideration for same as being:
... in consideration of all or any loans advances credits or banking accommodation whether made created or given on the signing hereof or that may hereafter be made created or given in its discretion by the Mortgagee hereinafter named to for or on account of the Mortgagor and/or to for or on account whatsoever and/or of forbearance on the part of the Mortgagee to immediately demand and sue for payment of any monies now owing by the Mortgagor and/or the Customer to the Mortgagee and/or for other valuable consideration moving from the Mortgagee to the Mortgagor and/or the Customer (as the Mortgagor does hereby admit) ...
and clause 1 of the Memorandum of Common Provisions imposes a liability on the mortgagor in respect of the liability to the mortgagee of the mortgagor and the "customer". The latter is identified as Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd. It is not without significance that the mortgage itself contains an additional clause 46 to this effect:
CLAUSE 46
Notwithstanding anything herein this Mortgage shall be deemed not to secure loans advances credits or banking accommodation as aforesaid, to for or on account of the Mortgagor but without prejudice to the security conferred by the Mortgage over any moneys advanced or expended and costs and liabilities incurred in or about the exercise of any power right or authority becoming exercisable upon any breach or non-observance of any covenant of the Mortgage or in any way connected with the enforcement protection stamping registration or validation or the Mortgage of the protection upkeep or management of the mortgaged property and interest thereon.
There can be no doubt that the debtor executed this mortgage for the sole purpose of providing security for the liability of the two companies to the petitioning creditor. The proximity of the dates of the guarantee and the mortgage, and the contents of the mortgage itself give rise to a compelling inference that the debtor regarded himself as liable to the petitioning creditor under the guarantee.
Other evidence which supports the existence of a liability pursuant to the guarantee includes the two notices dated 19 December 1990 in which specific reference to the guarantee document is made. To the extent that the debtor's evidence suggests that he was unaware of the contents or effect of these last mentioned documents, I reject it. The documents were signed in the context of negotiations with the petitioning creditor concerning the extension of the term of a fully drawn advance made by the petitioning creditor to the two companies. The debtor's conduct was consistent only with the fact that he accepted that he was liable under the guarantee.
The evidence establishes to my satisfaction well beyond the balance of probabilities that on 15 May 1989 the debtor guaranteed the liability to the petitioning creditor of Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd.
The second matter pleaded in respect to the Rosstown Road mortgage is in a somewhat different category. Evidence was given by the debtor that he had been requested by an officer of the petitioning creditor to provide additional security for the loan in respect of the King Street purchase to the extent of $150,000. No contradictory evidence was lead from the relevant officer of the petitioning creditor. In the Supreme Court proceedings in which Hayne J delivered judgment on 21 June 1993 His Honour recognised that on the face of it there was evidence which would justify the debtor pleading a claim for the rectification of the Rosstown Road mortgage. In these circumstances, and without making any judgment as to the prospects of the success of such a claim, it seems to me appropriate that if the question of whether or not there was a limit on the amount secured by the Rosstown Road mortgage becomes decisive in these proceedings, it would be appropriate for them to be adjourned pending resolution of the proceedings for rectification in the Supreme Court.
The second major issue raised by the debtor in opposition to the petition is his claim for damages in relation to the sale of the Hotham Street property. Although it is pleaded in the grounds of opposition that the debtor intends to seek leave to amend the statement of claim in proceedings 2076/1993 to seek relief against the petitioning creditor for negligence in the manner in which it conducted the sale of the property at 53A Wattle Street Haberfield, no such amendment had been made at the date of the hearing of these proceedings, nor had any application for leave been made.
So far as the Hotham Street property is concerned the debtor's case is that the purchaser at auction on 15 December 1992 paid $275,000 and in March 1993 resold same for $680,000. It is said therefore that the property was sold in December 1992 at a gross undervalue of $405,000.
Assuming the figures asserted by the debtor are correct (and there is only hearsay evidence to that effect) the conclusion sought to be drawn by the debtor does not necessarily follow. For one thing, there is some evidence (from the debtor) that the purchaser subdivided the property after acquiring it. No further details are provided but it is a fair assumption that if he sold the property in subdivided lots the purchaser may well have been able to maximise the return on his investment. Be that as it may, the obligation of the petitioning creditor when exercising the power of sale conferred by the mortgage is to act in good faith and not to wilfully or recklessly sacrifice the interests of the mortgagor. (Pendlebury v Colonial Mutual Life Assurance Limited (1912) 13 CLR 676; Transfer of Land Act 1958, s 77(1)).
Neither in these proceedings nor in the Supreme Court has the debtor supplied any particulars of lack of good faith, or the wilful or reckless disregard of the debtor's interests, on the part of the petitioning creditor in relation to the sale of the Hotham Street property. Given the time which has elapsed between the matter first being raised in the debtor's action in the Supreme Court (which was commenced on 28 May 1993) and the hearing of the petition in September and December 1993, it is fair to infer that the debtor is unable to support his claim against the petitioning creditor with any specific allegation of fact. In these circumstances it is not probable that his claim in the Supreme Court in relation to the Hotham Street property will succeed.
Similar considerations apply in relation to the foreshadowed claim in relation to the Wattle Street property. In this instance, the debtor complains that the petitioning creditor valued the property at $180,000 in its further amended petition filed in May 1993 but received only $84,605.55 by way of net proceeds. Those facts taken in isolation are not apt to establish the lack of good faith nor the wilful or reckless disregard of the debtor's interests. There being no other evidence proffered, it is not probable that the debtor's claim in relation to the sale of the Wattle Street property, if it is made, would succeed.
In the course of the hearing of the petition the petitioning creditor's main witness Bloom was cross-examined at some length and it was sought to attack his affidavit evidence as to the existence and quantum of the debtor's liability on the basis that he had no personal knowledge of the facts deposed to. I am satisfied that Bloom was a truthful witness and that the facts deposed to by him were ascertained from the business records of the petitioning creditor to which he had access. No evidence was called on the debtor's part to suggest that the amounts deposed to by Bloom were inaccurate, and this notwithstanding that the hearing was adjourned on 22 September 1993 to facilitate the giving of extensive discovery of documents by the petitioning creditor. A large quantity of documents was produced by the petitioning creditor on 28 September 1993 but no reference was made to any of them when the hearing resumed on 13 and 14 December 1993. It is worth commenting also in this context that the documents relating to the sale of the Hotham and Wattle Street properties were also discovered but no cross-examination was addressed to Bloom to suggest lack of good faith.
If it be the case that the debtor is successful in obtaining the rectification of the Rosstown Road mortgage so as to limit the liability of the debtor thereunder to $150,000, it would be appropriate that the proceeds from the sale of the property be apportioned as to $150,000 in reduction of the guaranteed debt and as to the balance (namely $57,841.55) in reduction the debtor's liability in respect of the debts referred to in paragraphs 2(a), (b) and (c) of the petition and paragraph 3(b) of Bloom's affidavit of 21 September 1993. The net effect would be to increase the amount of the liability under paragraph 2(d) of the petition by $57,841.55 and to decrease the liability under the other paragraphs by the same amount. The total liability would remain unchanged. There is accordingly no reason to adjourn the proceedings pending the disposal of the rectification proceedings in the Supreme Court.
CONCLUSION
39. The petitioning creditor has proved that the debtor committed an act of bankruptcy on 16 October 1992 and that he is indebted to it in the sums referred to in paragraphs 2(a), (b) and (c) of the petition and in paragraph 3(b) of Bloom's affidavit of 21 September 1993 being a total sum of $441,329.85.
As to the amount claimed under paragraph 2(d) of the petition, I have found that the debtor guaranteed the liability to the petitioning creditor of Salsberg Investments Pty Ltd and Sixth Larena Pty Ltd (the quantum of which is proved by Bloom's affidavit evidence), that the petitioning creditor held security for the debtor's liability under the guarantee in the form of the several mortgages to which reference has been made, that the petitioning creditor has exercised its power of sale under those mortgages and has received the net amounts referred to in the petition (including a sum received from a co-guarantor and the net proceeds from the sale of the King Street property) which have been credited against the liability guaranteed. In these circumstances the petitioning creditor has established that the debtor is liable to it in the sum of $970,053.57 pursuant to the guarantee.
The petitioning creditor has therefore established that the debtor is indebted to it in a total sum of $1,411,383.42.
The debtor's various damages claims against the petitioning creditor have not been shown on the evidence to be such that they will probably succeed if persued in the Supreme Court and accordingly I do not propose adjourning these proceedings pending the resolution of the proceedings in the Supreme Court. Nor has it been established that the debtor's claim for the rectification of the Rosstown Road mortgage, even if successful, could have any effect on the amount of the debtor's liability to the petitioning creditor.
In the circumstances, the petitioning creditor has established all facts necessary to justify the making of a sequestration order and I propose to order that a sequestration order be made against the estate of the debtor.
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