Spencer v Lane Rowin Pty Ltd and Perovich v Lane Rowin Pty Ltd
[2007] FMCA 940
•18 June 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SPENCER v LANE ROWIN PTY LTD and PEROVICH v LANE ROWIN PTY LTD | [2007] FMCA 940 |
| BANKRUPTCY – Bankruptcy notice – application to set aside as ground of overstatement. |
| Bankruptcy Act 1966, ss.41, 306 |
| Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 |
| Applicant: | RICHARD WILLIAM SPENCER |
| Respondent: | LANE ROWIN PTY LTD |
| File number: | BRG 228 of 2007 |
| Applicant: | SILVANA PEROVICH |
| Respondent: | LANE ROWIN PTY LTD |
| File number: | BRG 229 of 2007 |
| Judgment of: | Wilson FM |
| Hearing date: | 25 May 2007 |
| Date of last submission: | 25 May 2007 |
| Delivered at: | Brisbane |
| Delivered on: | 18 June 2007 |
REPRESENTATION
| Counsel for the Applicants: | Mr A Nase |
| Solicitors for the Applicants: | Queensland Law Group |
| Counsel for the Respondent: | Mr P Hay |
| Solicitors for the Respondent: | QBM Lawyers |
ORDERS
That the applications filed 26 March 2007 by Richard Spencer and Silvana Perovich are dismissed.
That each applicant pay the respondent’s costs of and incidental to the application, to be agreed or failing agreement to be taxed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 228 of 2007
| RICHARD WILLIAM SPENCER |
Applicant
And
| LANE ROWIN PTY LTD |
Respondent
BRG 229 of 2007
| SILVANA PEROVICH |
Applicant
And
| LANE ROWIN PTY LTD |
Respondent
REASONS FOR JUDGMENT
The court has before it two applications, pursuant to s.41(5) Bankruptcy Act 1966, to set aside bankruptcy notices served on each of the applicants on 5 March, 2007. The grounds of each application are identical, and the material filed in support of each application is the same, so the applications may conveniently be dealt with together. In substance, the applicants contend that each bankruptcy notice overstates the amount due, and is accordingly invalid.
At the conclusion of argument I dismissed each application with costs, and indicated that I would give my reasons later. These are those reasons.
The background facts are not in dispute. Proceedings were commenced by the respondent against each applicant on 21 October 2005 in the District Court of Queensland, at Southport. In each action the sum sued for was $201,754.44, said to be owing by each applicant pursuant to the terms of a guarantee.
The respondent creditor brought an application for summary judgment in each action. Those applications were listed for hearing on 22 May, 2006.
It is contended that the parties reached an agreement, as a result of which the applications for summary judgment were adjourned. The terms of the agreement are the subject of controversy. The applicants accept that the agreement is a written one, recorded in correspondence between the parties’ respective agents. None of the deponents of affidavits was cross examined, and therefore I am left to resolve the application on the affidavit evidence.
The applicants each depose that they instructed their agent to put a proposal to the respondent creditor whereby, in consideration of the respondent adjourning the application for summary judgment, and extending the time for repayment of the total amount then owing, the applicants would sign a consent to judgment, and pay $10,000 “to be deducted from the capital owing to the respondent”.
The applicants’ agent did not give evidence before me, nor swear an affidavit. It is not known therefore whether he agrees or disagrees with the evidence of the respondent’s solicitor, or whether he put the proposal accurately in terms of the applicants’ instructions.
The respondent’s solicitor deposes to a conversation with the applicants’ agent on 17 May 2006. He has produced a file note of the conversation in which the telephone discussion is recorded:
“Att Andrew Smith – he represents debtors – had discussion. Wants to defer – will agree to signing consent judgment subject to calculation & will pay $10,000 as consideration for deferred payment. I said I would send proposal”
The respondent’s solicitor was not cross examined, and his evidence was not challenged. There is no material from the applicants contradicting the terms of the conversation between the parties’ respective agents.
In reliance on his file note, the respondent’s solicitor swears that the payment of $10,000 was not to be deducted from the total amount owing to the respondent creditor.
The respondent creditor’s solicitor sent a letter dated 17 May, 2006. The creditor’s proposal was that each of the applicants execute forthwith a consent judgment for the full amount, which would not be filed until there was a breach of the agreement. The proposal also contained the following obligations on the part of the applicants:
i)that you pay the sum of $10,000 by cleared funds to my client to be received by me before the close of business on the 24th May 2006;
ii)that all further monies payable are to be paid by cleared funds on or before 20th July 2006.
It is not clear from the terms of this letter alone whether the payment of $10,000 was in consideration of the respondent’s forbearance from proceeding with the summary judgment application and allowing additional time for payment, or whether it was part payment of the sum already owing. On the one hand, if the payment of $10,000 was to be offset against the amount owing, it does not explain why the applicants were prepared to and did sign a consent to judgment for the full amount. One would have expected that the judgment would have been for the amount owing less $10,000. On the other hand the use of the word “further” in subparagraph (g) is also ambiguous. It might refer to the balance of the monies after the $10,000 is taken off or it might refer to the full judgment sum, in addition to the $10,000. It could be argued that the $10,000 was paid as the consideration for the forbearance and adjournment of the summary judgment application. The payment of the $10,000 was not necessary for there to be adequate consideration; the signing of the consent to judgment would have been sufficient, in circumstances where the applicants had filed defences, and the signing of the consent removed any uncertainty as to the fate of the summary judgment application.
The applicants’ agent accepted the respondent’s proposal with one requested variation that the payment of $10,000 be made on 26 May rather than 24 May. That was agreed to, and the $10,000 was paid on 26 May.
The applicants were unable to pay the amount required of them on
20 July. On 19 July their agent wrote to the respondent’s solicitor:
“ . . . in exchange for a further indulgence of two months, they will pay to your clients the sum of $10,000 on or before 4.00 pm this Friday.”
The respondent’s solicitor sent an email on 19 July advising that the respondent was not agreeable to any extension of time for payment. This led the applicants’ solicitor to write on the due date for payment offering to pay $15,000 for an extension in time to pay the monies owing.
On 21 July the solicitor for the respondent wrote to the applicants’ solicitors in the following terms:
“In consideration of your client paying to my clients account by 4:00pm this day the sum of $15,000 in cleared funds my client will withhold registering the judgment for a further period of ten weeks.”
The amount of $15,000 was paid on 24 July. This payment was accepted. There is a dispute now raised by the applicants as to whether this payment of $15,000 was also to be set off against the amount owing to the respondent, or whether it was paid as the price for further time to pay.
On 25 September, 2006 the solicitor for the respondent wrote to the solicitors for the applicant, noting that settlement of the outstanding debt was due on 29 September, 2006, and advising that the amount owing was $282,318.69. In calculating this sum, the respondent’s solicitor has included interest. Importantly to the present application, in his calculation, he has deducted both payments made by the applicants of $10,000 and $15,000 respectively from the amount said to be owing. This letter followed on a schedule provided by the respondent creditor to its solicitors, that it now says was in error.
No further payment was made by the applicant. As a result the creditor filed the consent judgment on 26 October, 2006. The judgment was entered for the full amount sued for, together with interest.
The amount claimed in the bankruptcy notice is $340,512.51, based on the consent judgment of $201,754.44, and interest of $138,758.07. The basis of calculation of interest is set out in a schedule to the bankruptcy notice. Putting aside the two payments the subject of the present dispute it was not otherwise argued that the calculation of interest was not in accordance with the judgment or the agreement made in May 2006. That is, there is no challenge to either the rate of interest used or the time periods for which interest has been calculated.
In compliance with s.41(5) Bankruptcy Act each applicant gave notice on 20 March, 2007 disputing the amount claimed in the bankruptcy notice. It is worth noting that in this letter each applicant only complained that the payment made on 26 May 2006 was not taken into account. No complaint was made about the failure to deduct the subsequent payment of $15,000.
The applicants now contend that the total amount of overstatement, including interest, is $34,333.95.
In their affidavit, the applicants say that the amount calculated is incorrect because the two payments made were not properly deducted from the capital owing, with the result that interest was also incorrectly calculated
The applicants submit that an overstatement of the amount due is a substantive defect that renders a bankruptcy notice a nullity. That submission is supported by Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 at 339. Such a substantive defect cannot be saved by s.306 of the Act.
So much was not gainsaid by the respondent. Rather, the respondent submitted that the evidence clearly supported a conclusion that neither payment was to be deducted from the amount owing, but rather each was a payment made to secure an indulgence. If the respondent is correct in that submission, the issue raised by the applicants is rendered hypothetical, because the bankruptcy notice would not incorrectly state the amount owing, there being no challenge to the correctness of the figure claimed, other than the failure to take into account the two payments admittedly made (with a consequential flow on effect to the calculation of interest).
The position with respect to the second payment is, in my view, overwhelmingly clear. The terms on which the $15,000 was paid are referred to in the latter extracted at paragraph [16] above, which followed on from the request by the applicants for further time to pay. It is plain that the payment was required to secure an extension of time within which to perform the obligation to pay the monies owing. I do not think the letter of 21 July (accepted by the applicants) can be construed in any other way.
The applicants’ only answer to this was to point to the letter of
25 September 2006, and the schedule prepared by the respondent, each of which show the sum of $15,000 being deducted from the principal debt. However, these documents cannot be used to either construe the contract between the parties, nor to constitute an admission that the payment should be deducted. The letter and schedule each post date the agreement. I am satisfied, from the unchallenged evidence of the solicitor and the director of the respondent that the schedules were created in error.
The position with the first payment is not as clear. As I have said, the contemporaneous documents exchanged between the parties do not expressly state how the payment of $10,000 is to be applied. Accordingly, parol evidence would be admissible to assist the court in determining the intent of the parties.
To this end, the evidence of the respondent’s solicitor is unchallenged. By reference to his file note, the solicitor has given evidence that the parties agreed that the payment of $10,000 would be made to secure a forbearance, and would not be deducted from the amount otherwise owing. This is consistent with what occurred when a further indulgence was sought. The applicants were facing an application for summary judgment, and wanted to secure further time to pay. This indulgence came at a price; initially $10,000 and subsequently $15,000. Neither of the applicants could contradict the solicitor’s evidence. They did not speak to him. As I have said, the applicants’ agent, who did speak to the respondent’s solicitor, did not give evidence. In the absence of any contradiction, there is no reason why I should not accept the solicitor’s evidence. It is not glaringly improbable, or even doubtful. In fact, it is consistent with what occurred subsequently so far as the $15,000 payment is concerned. Further, the failure to call the applicants’ agent entitles me to infer that his evidence would not have assisted the applicants.
The applicants were unable to point to any evidence prior to the making of the two agreements that supported their contention that the two payments were to be offset against the amount otherwise owing. As I have said, recourse to the subsequent, erroneous, schedules, does not assist them.
In those circumstances, it seems to me that the facts underlying the applicants’ dispute of the bankruptcy notice cannot be made out. There was no agreement to set off either $10,000 or $15,000 against the judgment sum. Accordingly, the amount stated in the bankruptcy notice is not overstated.
Both applications should be dismissed, with costs.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Wilson FM
Associate: Lynnette Chin
Date: 18 June 2007
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