Verolme, Re Mrs H.E. Ex Parte Archonstruct Pty Ltd

[1986] FCA 398

CATCHWORDS

Application to set aside bankruptcy notice - time for compliance

with the bankruptcy notice enlarged until final determination -

Local Court judgment against debtor - court may go behind

judgment - whether debtor entered Into	a contract of	guarantee
with the creditor.
Bankrurstcv Act, s.41(5)

V. J. Removals ex parte Earl, Federal Court of Australia

unreported Pincus J. 26.6.85

Cornev V. Brien (1951) 84 C.L.R. 343

Re: MRS H.E. VEROLME Er Parte: ARCHONSTRUCT PTY LTD

No. 372 of 1986

FORSTER, J.

ADELAIDE

10 SEPTEMBER 1986

IN THE FEDERAL COURT OF AUSTRALIA )

1

SOUTH AUSTRALIA DISTRICT REGISTRY	1
)

DIVISION	GENERAL	1	No. 372 of 1986
1
BANKRUPTCY DISTRICT OF THE STATE	)
)
AUSTRALIA	OF SOUTH	)

Re :

MRS H.E. VEROLME

Judgment Debtor

Ex Parte:

ARCHONSTRUCT PTY LTD

Judgment Creditor

JUDGE MAKING ORDER	FORSTER J.
WHERE MADE	ADELAIDE
DATE OF ORDER	10 SEPTEMBER 1986
THE COURT ORDERS THAT:

1. The bankruptcy notice be set aside.

Note: Settlement and entry of order is dealt with in Bankruptcy

Rule 124.

IN THE FEDERAL COURT OF AUSTRALIA 1

1

SOUTH AUSTRALIA DISTRICT REGISTRY)

)

DIVISION	GENERAL	I	No. 372 of 1986
1
BANKRUPTCY DISTRICT OF THE STATE	1
)
AUSTRALIA	OF SOUTH	)

Re :

MRS H.E. VEROLME

Judgment Debtor

Ex Parte:

ARCHONSTRUCT PTY LTD

Judgment Creditor

REASONS FOR JTJDGMENT

FORSTER J. :

Archonstruct Pty Ltd (the creditor) caused to be issued

a bankruptcy notlce on 22 Aprll 1986 calling upon Mrs H.E.

Verolme (the debtor) to pay $26,845-29 said to be due by the

debtor to the creditor pursuant o a ~udgment of the Local Court

of Adelaide. Thls judgment was a default judgment.

The debtor has applied to the court for an order that

the bankruptcy notlce be set aside. The court has ordered that

the time for compliance with the bankruptcy notice be enlarged

until final deterrnlnatlon of the debtor's application to set the notice aslde. I heard the matter on 28 August 1986 and at the

end of the hearing, being in no doubt as to the proper

disposition of the debtor's appllcation, I ordered that the

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2 .

bankruptcy notice be set aside as being invalid because

notwithstanding the default ~udqment I was satisfied on the

evidence presented to me that the debtor owed nothing to the

creditor wlth respect to the transaction sald to be the basis for

the debtor's Indebtedness. Notice pursuant to s.41(5) of the

Bankruptcy Act was given on behalf of the debtor within time.

It was not disputed that a court exercising jurisdictlon

in bankruptcy may go behind a judgment where there are

substantial reasons for questioning whether there 1s a debt in

truth or reality (see re: V.J. Removals ex parte Earl, Federal

Court of Australia unreported 26 June 1985 Pincus J.) and the

court wlll more readily go behind a judgment when it 1 s obtained

by default (see re: Cornev v. Brien (1951) 84 C.L.R. 343).

The dlrectors of the creditor are Raymond John Carn and

Graham Richard Edwards. The name of one Byrne is included on

the writing paper of Carn Byrne and Associates P y Ltd but there

was no evidence as to whether or not he was a director of the

creditor. Both Carn and Edwards and also Eyrne are architects.

They carry on what might be called the architects side of the

business by means of a company Carn, Byrne and Associates Pty Ltd

(Carn Byrne). This company prepares plans and designs and

specifications and puts jobs out to tender and arranges for

builders to perform the jobs and supervlses their performance.

For ethical and other reasons it is not possible for what may be

called an archltects company to hold a buildlng licence and

3 .

engage in building. Messrs Carn, Edwards and probably Byrne are

also directors of the credltor which is a company formed for the

express purpose of obtalnlng a building licence and engaging In

building . Both companies carrled on business at and from the

same registered office at 42 King William Road, Goodwood. It is

clear to me from the evldence of Carn and Edwards that they at

least made no distinction between the two businesses. Each used

the pronoun "we" indlscriminately to descrlbe something which

must or most certainly should have been done by the architectural

company or the buildmg company as the case may be. The

creditor at relevant times had no writing paper with Its own

printed letterhead but used the paper of	Carn	Byrne wlth its
letterhead printed thereon.

A Mrs Passman was the lessee of shop premises at 9

Stephens Place, Adelaide and she wanted some remodelling and

refurbishment of the premises done. She employed Carn Byrne to do the work. She dld not give evidence and there is no evidence from elsewhere tendlng to prove that she had ever heard of the

creditor. The debtor 1s Mrs Passsman's mother and Mrs Passman

employed Carn Byrne because the debtor had previously employed

them in and about jobs of various sorts.

The work was done for Mrs Passman and she had

considerable dlfficulty in paying for it. Edwards approached

the debtor and asked her to pay on her daughter's behalf. At

this stage money was owed for design fees and disbursements and

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4.

also for construction costs. No suggestion was made by Edwards to the debtor that the amount for design fees and disbursements

was owing to Carn Byrne and the amount for construction costs to

the creditor. The debtor told Edwards that she could not pay

immedlately but that she would be responsible for the debts

incurred by Mrs Passman in connection with the design and

construction of the new shop in Stephens Place.

Eventually on or about 6 April 1982 a letter was written

on Carn Byrne's writing paper addressed to the debtor and signed

"Carn Byrne & Associates Pty Ltd, G.R. Edwards". Thls letter was also signed by the debtor in the presence of a witness whose

name appears to be Campbell. The letter recites that the debtor

has agreed to be responsible for Mrs Passman's debts in

connection with the shop for deslgn fees and disbursements and

for construction costs. The letter recites that "E will not

take further proceedings to recover the outstanding money".

Nowhere in the letter is there any mention of the creditor. The

letter is written, as I have said, on Carn Byrne's paper and is

signed by Edwards for Carn Byrne.

On 28 September 1983 the creditor caused to be issued a

special summons out of the Local Court of Adelaide against the

debtor claiming $22,144-65, the sum then said to be due by the

"defendant to the plaintlff pursuant to a contract of guarantee

entered into between the plaintiff and the defendant on or about

the 6th day of April 1982 and full particulars whereof the

5.

defendant has already had". On the same day Carn Byrne caused

to be issued a special summons out of the Local Court of Adelaide

against the debtor claiming $5 ,472-63 wlth precisely the same

endorsement. It is plain that the first summons is for money

owing wlth respect to the construction work and the second

summons for money owing wlth respect to design fees and

dlsbursements. The guarantee entered into on or about the 6th

day of April 1982 must be the letter to whlch I have referred

which I emphasise is between the debtor and Carn Byrne with	no
mention made of the creditor.

It seems to me that there is not and never was any

contract of guarantee between the creditor and the debtor and

even if the debtor may be taken as having guaranteed payment to

the unknown creditor thls promise is unsupported by any

consideration. The creditor has never agreed to forbear from

taking "further proceedings" agalnst Mrs Passman. I think that

the debtor may have Intended to guarantee payment of the

construction costs but the writing evidencing the guarantee she

gave is ineffective to do this. Had Carn Byrne signed judgment

In the proceedings for the design fees and disbursements and

caused a bankruptcy notlce to be issued against the debtor wlth

respect to that indebtedness then it 1s in my view probable that

the bankruptcy notice wuuld have been good.

It was sald by the dEbtur that she only signed the

letter of 6 April 1982 because she was subjected by Edwards to

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6.

"duress and undue influence" .	In her evidence she said that
Edwards came to her office armed	with the letter of 6 April and

told her that If she did not slgn he would have great difficulty

In restraining the sub-contractors who had worked on the shop

from returning to it and ripping out or destroylng the work they

had done and for which they had not been paid. Because of the

vlew I take of the effect of the letter it is unnecessary to

decide this pomt but I do not believe that Edwards made a threat

of this sort. I think he probably said that he was being

pressed hard by the sub-contractors for payment but I do not

believe there was any threat speciflc or implied in what he said.

I believed neither the debtor nor Mrs Claridge when they gave

evidence of the threat said to have been made by Edwards to

induce the debtor to sign the letter of 6 Aprll.

Because I have found that the creditor never had any

clam against the debtor notwithstanding the default judgment

entered In the Local Court I found that the bankruptcy notice was

without basis and should be set aside.

I certify that this and

the	preceding	pages are
Mr Justice

Forster.

Associate: