Warton v Warton
[2012] FMCA 825
•25 October 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WARTON v WARTON | [2012] FMCA 825 |
| BANKRUPTCY – Creditor’s petition based on judgment debt – negotiations during adjournment of hearing – offer by creditor to extinguish debtor’s liability in return for a transfer of a newsagency business – accepted by debtor – whether correspondence evidenced a binding contract – whether debt relied upon in petition was still owing – whether other sufficient cause not to make sequestration order – creditor bound by promise – petition dismissed with partial costs. |
| Acts Interpretation Act 1901 (Cth), s.36(2) Federal Magistrates Act 1999 (Cth), s.8(3) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.4.06(4) |
| Cain v Whyte (1933) 48 CLR 639 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 De Robillard v Carver (2007) 159 FCR 38 El-Mir v Risk [2005] NSWCA 215 Glew v Harrowell (2003) 198 ALR 331 Masters v Cameron (1954) 91 CLR 353 McDermott v Black (1940) 63 CLR 161 Rosenbes v Kronhill (1956) 95 CLR 407 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Totev v Sfar (2006) 230 ALR 236 |
| Applicant: | CRAIG ANTHONY WARTON |
| Respondent: | GARRY WARTON |
| File Number: | SYG 2200 of 2011 |
| Judgment of: | Smith FM |
| Hearing date: | 4 September 2012 |
| Date of Last Submission: | 15 October 2012 |
| Delivered at: | Sydney |
| Delivered on: | 25 October 2012 |
REPRESENTATION
| Counsel for the Applicant: | Ms S Nash |
| Solicitors for the Applicant: | Sally Nash & Co |
| Counsel for the Respondent: | Mr P J Macarounas |
| Solicitors for the Respondent: | Rowlandson & Co |
ORDERS
The petition is dismissed.
The respondent debtor must pay the applicant creditor’s costs incurred in the proceedings until and including 21 May 2012, as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
The applicant creditor must pay the respondent debtor’s costs incurred in the proceedings subsequent to 21 May 2012, as agreed or taxed pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
The applicant must give a copy of these orders to the Official Receiver within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2200 of 2011
| CRAIG ANTHONY WARTON |
Applicant
And
| GARRY WARTON |
Respondent
REASONS FOR JUDGMENT
Introduction
This creditor’s petition arises from arrangements between brothers as to the distribution and investment of their father’s estate. After many adjournments, the last of which occurred by consent on 26 June 2012, the petition was listed for hearing before me on 4 September 2012. The petition was due to lapse on 29 September 2012, and neither party could be confident that the Court would be persuaded again to adjourn or to extend the petition under s.52(5) of the Bankruptcy Act 1966 (Cth). However, in subsequent negotiations between the parties conducted by solicitors, the creditor proposed that he would receive a transfer of a newsagency business from the debtor and his wife, and promised that in return for the acceptance of this proposal the creditor “will extinguish all liabilities owing” to the creditor and that “the bankruptcy proceedings will have concluded”.
The creditor’s proposal was accepted within the stipulated period, but the transaction was still incomplete when the petition came on for hearing on 4 September. At the hearing, the creditor’s promise to extinguish the debt was relied upon by the debtor as grounds for resisting the making of a sequestration order. The legal representatives on both sides had little opportunity to prepare evidence and submissions as to the legal effects of the parties’ arrangement. However, both sides declined to seek a further adjournment and extension of the petition. Both parties urged the Court to determine whether the creditor could now prove that the debt upon which he relied was “still owing” for the purposes of s.52(1)(c). For the reasons which follow, I have concluded that the evidence establishes that the debt is now not relevantly “owing”, and that the petition should be dismissed for that reason.
When considering the contractual issues, I have been assisted by supplementary written submissions provided by the parties’ legal representatives after the hearing. These issues are to be decided by the application of well-established principles to the particular evidence and somewhat peculiar circumstances of the present case. Although I have considered the parties’ citation of authorities, I have not found it necessary to cite and discuss all of them in this judgment.
The parties’ background
The applicant, Craig Warton, who I shall refer to as ‘the creditor’, is the brother of the respondent, Garry Warton, who I shall refer to as ‘the debtor’. Their father died in 2004, appointing the debtor as his executor, with the assets to be divided equally between the two brothers and their sister. According to the debtor’s evidence, at that time the creditor said that he didn’t require his share of the father’s trust fund straight away, and said that he “knew he would receive it later”. He also agreed that the debtor and the debtor’s wife would “buy out their shares to purchase dad’s home at Beecroft to knock down and rebuild”. The debtor and his wife then proceeded to use the Beecroft property as security to invest in two home units.
The debtor claims that during 2006 payments were made to the creditor and their sister respectively of $115,000 and $314,500. The home units were sold in 2009, and I infer that any proceeds were probably applied to meet the financial commitments of the debtor and his wife, including in relation to a newsagency business at Carlingford which was conducted in partnership with his wife. Whatever the reason, the debtor was unable to pay the creditor an amount of $100,000, which he promised in a ‘deed of settlement’ made on 21 August 2009 and which was due by 31 December 2009. To meet his commitments to his siblings, the debtor and his wife placed the newsagency business on the market in 2010, and he borrowed some money which was paid to the creditor during 2010, totalling $180,000. However, according to the debtor’s affidavit filed on 15 March 2012:
12 March, 2011, ‘STATEMENT OF CLAIM’ was served on me at my business. I didn’t respond to this claim as I didn’t have a solicitor to represent me or spare funds separate from the business.
18 April, 2011, I received a letter from MBBF Solicitors stating that ‘JUDGEMENT’ had been awarded against me for the amount of $392,654.84.
The reason that my brother Craig has not been fully paid out is that our business has not sold after numerous enquiries by prospective purchases (7 day a week business long hours) but it is my intention to pay him as soon as the funds become available.
I also state that I believe that with the progressive payments I have made to Craig, I do not owe him the total amount claimed as I believe some payments have not been credited and taken into account.
The creditor’s “Statement of Claim” is not in evidence, nor is there evidence to show how the default judgment debt was calculated.
At the hearing before me, the creditor relied upon only the formal evidence filed in support of the petition, and gave no evidence as to the background to the matter.
The evidence filed by the creditor’s solicitors establishes that a default judgment was made and entered in favour of the creditor against the debtor in proceedings in the District Court on 13 April 2011, in the amount of $392,654.84 inclusive of costs. A bankruptcy notice relying on this judgment was served personally on the debtor on Sunday 28 August 2011, and demanded payment of $406,416.59 within 21 days. The validity and service of the bankruptcy notice, and the occurrence of an act of bankruptcy, are not contested by the debtor.
The creditor’s petition
The creditor’s petition was filed on 29 September 2011. It contained some formal imperfections, which were initially raised by the debtor in his amended grounds of opposition. However, in preliminary rulings, I did not consider that they could have resulted in any material confusion in the mind of the debtor and his advisors, and I directed that the petition be amended to clarify its wording. I also allowed an amendment to correct by one day, to Monday 19 September 2011, the date of the uncontested act of bankruptcy, so as to give effect to s.36(2) of the Acts Interpretation Act 1901 (Cth).
Paragraph 1 of the petition asserts:
1.The respondent debtor owes the applicant creditor the amount of $392,654.84 for which sum judgment was entered on 13 April 2011 together with interest in the sum of $13,761.75 making a total of $406,416.59 still outstanding.
As at the date of filing of the petition, I accept that this assertion was sufficiently verified in the affidavit by the creditor attached to the original petition, sworn on 29 September 2011.
Notwithstanding that the debtor’s affidavit filed on 15 March 2012 challenges the calculation of the debt, at the hearing of the petition the debtor’s counsel did not make any contentions challenging the asserted outstanding amount on the judgment debt as at the date of the petition, nor dispute its foundation upon a true liability of the debtor which was in existence at that date.
Under s.44(1) of the Bankruptcy Act:
(1)A creditor's petition shall not be presented against a debtor unless:
(a)there is owing by the debtor to the petitioning creditor a debt that amounts to $5,000 or 2 or more debts that amount in the aggregate to $5,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $5,000;
(b)that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c)the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
Section 52(1) then requires:
(1)At the hearing of a creditor's petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
In my opinion, the uncontested evidence now before me establishes the existence at the date of lodgement of the petition of a judgment debt and accrued interest as asserted in the petition, and I can see no reason for not accepting the affidavit verifying the petition to that extent. I am therefore satisfied in terms of s.52(1)(a), including the existence of the asserted act of bankruptcy at all material times, and as to the existence of the asserted debt at the date of lodgement of the petition.
I am also satisfied under s.52(1)(b) as to service of the petition. In this respect, the creditor’s current solicitor (who had accepted instructions only very shortly before the hearing), was not able to tender an affidavit of service, but was able to rely upon the debtor’s appearances before the Court on numerous occasions, and his recent filing of documents appointing a solicitor on the record (see De Robillard v Carver (2007) 159 FCR 38 at [86]).
What I am not prepared to do, is to exercise my discretion to accept the formal affidavits verifying the petition as sufficient to establish the continuing existence of the debt asserted in the petition as at the dates of hearing and judgment for the purposes of s.52(1)(c), in the sense that a debt which is “payable immediately or at a certain future time” within s.44(1)(b)(ii) is “still owing”.
Nor, for the reasons which follow, do I accept that the creditor’s affidavit sworn on 31 August 2012 for the purposes of r.4.06(4) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) establishes this requirement. That affidavit does not address that issue in its terms. Rather, it verifies only that the amount of the judgment debt “remains unpaid”, but this does not address the issue raised by the recent correspondence which is now relied upon by the debtor. This issue is whether by reason of a recent agreement made between the parties, the debt had ceased to be payable “immediately” as at the date of the hearing of the petition or at all, and whether, if it had any continuing existence as a future or contingent liability, it could be said to be payable at a “certain future time”.
The debtor’s amended grounds of opposition raised this issue, by his contention that the Court cannot be satisfied as to the current existence of the debt asserted in the petition as a liquidated debt payable immediately or at a certain future date, by reason of a recent agreement of accord and satisfaction made by the parties, or by reason of an estoppel arising from an arrangement which fell short of an effective contract to release the debt. In the alternative, the debtor presented the circumstances of the recent agreement or arrangement as providing “other sufficient cause” for the Court to be satisfied that a sequestration order ought not to be made, so as to support the discretion to dismiss the petition under s.52(2).
There was debate at the hearing whether the legal effect of the parties’ recent correspondence should be determined on a prima facie or provisional level, on reasoning analogous to that by which a bankruptcy court decides whether to ‘go behind’ a judgment debt relied upon in a petition, or, alternatively, on the (not identical) reasoning by which a bankruptcy court considers whether a debtor’s counter claims against the creditor provide ‘other sufficient cause’ for dismissing a petition (see Glew v Harrowell (2003) 198 ALR 331 at [9]-[12] and Totev v Sfar (2006) 230 ALR 236 at [37]-[51], and the authorities cited therein).
However, as I indicated in the course of the hearing, in my opinion, the correspondence tendered by the debtor clearly raised an arguable case for disputing his current liability to the creditor under the judgment debt, and the parties claimed to be in a position to address this issue on a final basis. It appears to me that it is unavoidable that I must do this, since I am bound by s.52(1)(c) to arrive at a clear finding as to my satisfaction as to the creditor’s case for the current existence of an asserted liability coming within s.44(1)(b), before addressing discretionary reasons for dismissing the petition under s.52(2).
It also appears to be convenient and just for me to determine this issue on a final basis as between the creditor and the debtor, even if there were latitude for me to address it only provisionally, since essentially the issue turns upon the application of principles of contract law to an objective assessment of documentary correspondence between the parties. The extrinsic circumstances surrounding the correspondence could, no doubt, have been explored in more detail if the parties had obtained an adjournment for this purpose, but neither of them sought this opportunity when I offered it to both of them, and at the end of the day I doubt whether the process of construction would have been materially assisted by additional backgrounding evidence.
The course of the bankruptcy proceedings
Before detailing the relevant correspondence, I should note some pertinent background which is known to the Court as to the course of the proceeding before it preceding the parties’ correspondence, and which also appears from the evidence tendered by the parties. This can be sketched shortly.
I have above outlined the debtor’s evidence of the family background in which he became indebted to his brother, and described the debt relied upon in the petition.
The petition was filed on 29 September 2011, and was returnable before a Registrar on 7 November 2011. Throughout the proceedings, the creditor was represented on the file and at listings by his solicitors known as MBBF, until they withdrew on 31 August 2012 shortly before the final hearing on 4 September 2012. The creditor then instructed a new solicitor, who appeared for him at the hearing. The debtor appeared at all listings in person until 21 May 2012, when he commenced to appear by counsel instructed by solicitors, Rowlandson & Co.
Some ambivalence in the mind of the creditor as to pressing the petition appears to be indicated by a series of consent adjournments before Registrars on 7 November 2011, 5 December 2011, 3 February 2012, and 16 March 2012, and again before me at the penultimate listing on 26 June 2012. There were other listings on 17 February 2012, 27 April 2012, 11 May 2012, and 21 May 2012, when adjournments were granted after contest. At all these listings, the Court was told by the debtor that he and his wife were endeavouring to sell the newsagency business, and that he had expectations of sales to interested purchasers. These sales never came to fruition, but it seems that, at least on many of these occasions, the creditor was satisfied as to there being some basis for the debtor’s expectations.
It also appears to me likely that, in the course of these adjournments if not by some other means, the creditor probably acquired some knowledge as to the nature of the newsagency business, including its financial position. In this respect, I note that the Court file contains a subpoena issued on 10 April 2012 at the request of the creditor, requiring the debtor to produce “all financial documents in relation to the newsagency business, namely ‘Carlingford Newsagency’ located at (address)”. The Court’s file shows that documents were produced to the Court, and that they were inspected and copied on 18 May 2012 on behalf of MBBF. None of the documents produced by the debtor were tendered in evidence, and I do not know their contents.
Eventually, the petition was referred to me by a Registrar on 21 May 2012, and I fixed the matter for hearing on 26 June 2012. I gave directions for the debtor to clarify his grounds of opposition and to file the evidence he relied upon. These directions were not observed, but at the appointed hearing on 26 June, I acceded to an adjournment application made by both parties, which I was informed was based on their joint expectations of a sale of the newsagency business. I appointed a one day hearing on 4 September 2012, and noted that the petition was due to expire shortly after that date under s.52(4)(a) of the Bankruptcy Act, and that the parties should not assume that the petition would be extended.
The recent correspondence
The relevant correspondence occurred between the two appointed hearing dates. It commenced with a letter dated 13 July 2012 from the creditor’s solicitors to the debtor’s solicitors. Although this letter, and some of the subsequent correspondence, was marked ‘without prejudice except as to costs’, I admitted the whole correspondence into evidence. I ruled that it came within the exception in s.131(2)(f) of the Evidence Act 1995 (Cth), because the proceeding had become one “in which the making of such an agreement (between the persons in dispute to settle the dispute) is in issue”.
The letter, which I shall call ‘the letter of offer’ said:
“WITHOUT PREJUDICE EXCEPT AS TO COSTS”
Dear Sirs
RE: WARTON & WARTON
We refer to our open letter of today’s date. On the assumption that you remain instructed my client has indicated that he wishes to make the following proposal in full satisfaction of all liabilities your client has towards him and for the purposes of concluding all proceedings.
My client is prepared to resolve the parties’ dispute on the basis that:-
(a)Your client and his wife transfer to Mr Craig Warton or his nominee all assets relating to the newsagency including but not limited to the following:-
i. Transfer of business name
ii. Consent and all other documents for the assignment of the Lease of the premises.
iii. All stock and equipment.
iv. All outstanding invoices.
Your client would be obliged to take full responsibility for all outstanding debts relating to the business.
It would seem that the abovementioned proposal is more than reasonable for the following reasons:-
(a)Your clients have indicated that they are about to enter into a contract to sell the newsagency for $100,000.00 and have proposed that money be paid to our client.
(b)My client’s proposal is that rather than sell the business he take over control and ownership of it the benefit of which would equate to $100,000.00.
(c)Your client’s liability to my client is in excess of $400,000.00.
(d)My client’s application to have your client placed into bankruptcy is listed for hearing in September. Your client has failed to comply with any directions made in relation to these bankruptcy proceedings and in our opinion has no defence to them.
In essence the benefit to your client accepting our client’s proposal is that he will extinguish all liabilities owing to his brother (who has suffered enormous financial hardship as a consequence of Mr Gary Warton’s continual defaults in paying his debt) and the bankruptcy proceedings will have concluded.
This offer remains open for 14 days. We await your response.
Yours faithfully,
MILNE BERRY BERGER FREEDMAN
(emphasis in original)
I note that neither party tendered the ‘open letter of today’s date’ to which the letter of offer refers, and I assume that its contents are not relevant. I shall consider below whether the terms of the offer made in the letter were objectively capable of giving rise to an immediately binding contract, if accepted.
The 14 days allowed for acceptance of the offer expired on 27 July 2012, without any communication from the debtor or his solicitors. However, after that date, the creditor’s solicitors wrote again to the debtor’s solicitors on 6 August 2012, keeping the offer alive. They said:
We refer to our Without Prejudice letter to you dated 13 July 2012.
To date we have not had the benefit of a reply.
Could you please provide your client’s response as soon as possible.
We note despite assurances from your client, no contracts for the sale of the newsagency were supplied to our office and we assume the contracts have not been exchanged.
Could you please also confirm whether or not you continue to act on behalf of Mr Gary Warton by close of business on Monday, 6 August 2012, otherwise could you please forward us your client’s details so that we can contact him personally.
This received a response on 15 August 2012 from the debtor’s solicitors:
Thank you for your letter/fax of 6 August, 2012. I apologise in not responding to your offer sent under cover of your letter of 13 July 2012 (“the offer”).
My client is in the process of giving careful consideration to the offer and I ask that you confirm in writing that he has until 4.00pm Monday, 20 August, 2012 to either accept or reject the offer.
I thank you for your time.
Yours faithfully
ROWLANDSON & CO
The creditor then personally responded to the debtor’s solicitors, by email sent on Friday 17 August 2012 at 12.21 pm. He said:
Dear Mr Rowlandson,
RE: WARTON & WARTON FEDERAL MAGISTRATES COURT OF AUSTRALIA PROCEEDINGS NO SYG 2200/2011
I am in receipt of your facsimile to MBBF Lawyers regarding the above matter between myself and my brother Garry Warton.
I wish to confirm that Garry has until 4:00pm Monday 20 August 2012 to accept or reject the offer made to him 13 July 2012. In the event that Garry does not respond or he rejects the offer I will proceed to Bankrupt him on 4 September 2012 without any further notice.
At this stage I request that all correspondence be sent to myself until further notice.
Kind regards,
Craig Warton
(contact details omitted)
The debtor’s solicitors responded on the same date both to the creditor’s former solicitors, who were still on the record of the bankruptcy proceedings, and also to the creditor personally. Their letter to MBBF said:
Without Prejudice Save As To Costs
URGENT
Dear Colleague,
RE: WARTON & WARTON
FEDERAL MAGISTRATES COURT OF AUSTRALIA PROCEEDINGS NO. SYG 2200/2011
I refer to your letter/e-mail of 13 July, 2012 and advise that my client accepts the offer contained therein. Accordingly, I would ask that you please forward a deed of release to me for my approval at your earliest convenience.
Yours faithfully
ROWLANDSON & CO
Mark Rowlandson
Partner
(emphasis in original)
Their email sent personally to the creditor at 1.26pm on 17 August said:
Dear Mr Warton,
I acknowledge receipt of your e-mail of even date.
I attach a copy of my fax of even date which was sent to your solicitors Milne Berry Berger Freedman advising that my client accepts your offer of settlement contained in your solicitor’s letter/e-mail to me of 13 July, 2012. Accordingly, I would ask that you instruct your solicitors to prepare the relevant deed of release in order that this matter may be finalised.
Yours faithfully
ROWLANDSON & CO
Mark Rowlandson
Partner
The debtor’s acceptance of the offer was acknowledged by the creditor personally in an email he sent later the same day at 2.20pm to a person in the office of the debtor’s solicitors. He said to her:
Dear Philippa,
Thank you for your email just now.
My email to you this morning was just prior to MBBF Lawyers advising me of Garry’s acceptance to the offer.
I am in receipt of your fax that Anne-Marie forwarded onto me.
Thank you and kind regards,
Craig Warton
The creditor’s acknowledgement of the acceptance of the offer was repeated in an email from the creditor to the debtor’s solicitor on 20 August 2012 at 9.36am. He said:
Dear Mr Rowlandson,
RE: AUTHORITY
I confirm here that I give complete authority to Mr Eric Bernard to act on my behalf in all matters legal and financial pertaining to the WARTON v WARTON FEDERAL MAGISTRATES COURT MATTER, the acceptance of the offer made to my brother Garry Warton on 17 August 2012 and the process in preparation for the Magistrates Court on 4 September 2012.
Eric has been my adviser for many years and holds Power of Attorney for all my affairs in business and the like. Due to my work with Qantas Airways, I am continually overseas. Subsequently, all contact and correspondence can be made direct to Eric as listed here:
(contact details omitted)
Kind regards,
Craig Warton
(emphasis in original)
The subsequent exchanges between Mr Bernard and the debtor’s solicitors do not need to be recited. They do not reveal any new agreement or event terminating or affecting the agreement which was arrived at on 17 August. They suggest that Mr Bernard, if not the creditor himself, might have had doubts whether the agreement to accept a transfer of the business was wise. There were demands for more information about the newsagency, and more accounts were provided by the debtor. There was also the unexplained withdrawal of the creditor’s former solicitors, MBBF.
For whatever reason, neither Mr Bernard nor the creditor ever proposed the terms of a release, nor took any steps to formulate and commence the necessary steps for a transfer of the business. However, there was no purported act of repudiation or termination of the 17 August agreement by or on behalf of the creditor. At least, not before the creditor’s new solicitor attended court on 4 September, and presented submissions that no enforceable agreement had been made which would discharge the liability relied upon in the petition. For his part, the debtor has never departed from the position that a binding agreement had been made on 17 August and appeared willing to complete the transaction.
The contractual issues
Neither party has suggested that there was any relevant oral communication between the parties or their representatives, and the case was argued on the basis that the above correspondence either did or did not contain evidence of a concluded and binding contract made on 17 August 2012. Considering the correspondence to determine the existence of a contract and ‘the presumed intention of the parties’ (cf. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 per Mason J at 353), my conclusions on the contractual issues can be explained shortly:
i)In the context of the pending bankruptcy proceedings and an exchange between the solicitors on the record aimed at reaching a settlement of those proceedings, an intention on both sides to give rise to contractual relations once agreement was reached appears clear. The exchange is obviously more than an informal proposal made between family members, not intended to have legal consequences.
ii)The creditor’s original offer made on 13 July 2012 was clearly revived and confirmed by the creditor’s email of 17 August 2012, and was capable of being accepted in accordance with its terms on that date.
iii)The language of the debtor’s solicitor’s acceptance of the offer on 17 August was, in my opinion, relevantly ‘unequivocal’. In this respect, I do not consider that the solicitor’s request in these and later communications that the creditor or his solicitors should propose the terms of a formal deed of release requires the contrary conclusion. These requests were framed as implementing, rather than qualifying, a concluded agreement reached on 17 August, and they also appear to have been so understood by the creditor. I conclude that they were not intended, and would not be understood by the offeror, to constitute a rejection of the offer, nor a counter-offer, nor a material qualification on the mutual promises which were identified in the confirmed letter of offer. As I shall explain below, the request for a draft deed of release was consistent with terms which are to be implied in the contract as reasonably necessary for the implementation of the parties’ intentions shown at the time of agreement.
iv)It is significant in my opinion that the terms of the offer and acceptance did not include any reservation of an intention by both parties to give rise to immediate contractual consequences upon the communication of an unequivocal acceptance of the offer. In particular, no statement was included in the offer suggesting that the obligations of either party arising upon acceptance would be “dealt with by a formal contract” or other document to be settled and agreed subsequently, nor that a binding agreement would not come into existence until such documents were prepared and agreed (cf. Masters v Cameron (1954) 91 CLR 353 at 360). Prima face, the terms of the offer showed an intention by the creditor upon acceptance within the specified time to be immediately bound by his promises to “extinguish all liabilities owing” by the debtor, and to bring about the “conclusion of the bankruptcy petition” in favour of the debtor at the imminent hearing on 4 September 2012. Prima facie, the terms of the offer expected the debtor and his wife to become immediately bound to implement in the future the promises to transfer “all assets relating to the newsagency” and to retain “all outstanding debts relating to the business”.
v)In my opinion, these mutual promises for future commitments were clearly capable of providing discernable mutual benefits and detriments exchanged between the parties, even considered only as promises to perform future actions and to endeavour to procure any necessary cooperation of third parties. I therefore consider that the promises made on both sides were capable of providing valuable consideration for a binding contract in the terms of the letter of offer. I accept the submissions in this respect made by counsel for the debtor, which relied upon McColl JA’s analysis in El-Mir v Risk [2005] NSWCA 215 at [48]-[66] of authorities on contracts by way of accord and satisfaction, which are made in the context of pending litigation, and which irrevocably create liabilities under new promises in substitution for liabilities which were previously the subject matter of the litigation.
vi)When considering whether the parties intended to be immediately bound by the terms of their agreement, it is significant that the creditor’s promise to discharge the judgment debt and withdraw the petition was expressed as being given in return for a promise of a future transfer of assets, rather than conditionally upon the completion of a transfer of assets. In my opinion, this construction of the offer is patent from the situation when the agreement was reached on 17 August, as well as from the language of the offer when read at that date. It is obvious that a completed transfer of all the relevant assets involved in the business, was unlikely to be achieved before the listed hearing of the petition less than three weeks after the extended date for acceptance of the offer. Yet, the offer and its extension were expressed to be open for only a limited period, and were, in my opinion, clearly intended to give rise to a binding agreement as to the outcome of that hearing on that date, immediately upon acceptance of the offer within the specified period. The offered contract should, therefore be understood as one where “a creditor accepts in satisfaction … merely his debtor’s promise and not the performance of that promise (so that) the original cause of action is discharged from the date when the promise is made”, and where “an executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability” (cf. McDermott v Black (1940) 63 CLR 161 per Starke J at 176 and per Dixon J at 184).
vii)On that analysis of the offered contract, and absent any event which subsequently terminated its operation, the creditor was bound upon the acceptance of his offer to recognise in the bankruptcy proceedings on 4 September 2012 that the existing liability upon which the bankruptcy petition was based had been discharged, at least to the extent that it was not ‘still owing’ on that date. Although the contract was not expressed to provide an immediate release of the liability relied upon in the petition, in my opinion the creditor’s promise gave the debtor rights in equity to compel the creditor to give that recognition at the hearing on 4 September 2012. This Court exercising its bankruptcy jurisdiction is a court of equity as well as law (see s.30(1)(b) of the Bankruptcy Act and s.8(3) of the Federal Magistrates Act 1999 (Cth)), and should give recognition to the creditor’s contractual promise. The Court should therefore find against the creditor on his petition as to its satisfaction in terms of s.52(1)(c).
viii)I accept that the lack of specificity in the offer as to the mechanics of implementing the promises on both sides might be regarded as pointing against an intention to be contractually bound immediately upon acceptance. However, in my opinion, the particular context in which the agreement was made, as well as the unqualified language of the offer, show otherwise. Not only was there the family background, there was also the probability that the creditor already had some knowledge of the newsagency business which he was offering to acquire from the debtor and his wife. More significant, is the nature of the proceedings which the offer was designed to settle: being proceedings which were likely to be brought to a conclusion on 4 September 2012 or soon thereafter, if not by agreement then by judicial determination or by lapse of the petition. On his side, the debtor was facing imminent insolvency. On the other side, the creditor was weighing up his likely dividend in a forced sale of the newsagency by a trustee in bankruptcy. In my opinion, the litigation context leads inevitably to a conclusion that the mutual promises formulated in the offer were intended to, and did, become immediately binding upon both parties upon the debtor’s acceptance of the offer on 17 August 2012. In particular, the creditor became bound by his promises as to an agreed outcome at the forthcoming hearing of the petition.
ix)As I have noted above, a reasonable construction of the offer suggests that there were implied terms as to reasonable steps to be taken by way of implementation of the promises given on both sides. In this respect, in my opinion, the contract might be regarded as one coming with the ‘first category’ illustrated by Dixon J in Masters v Cameron (supra), “in which the parties have reached finality in arranging all the terms of their bargain, and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect”. It is understandable that the debtor’s solicitor thought that the creditor’s promise for the benefit of the debtor would best be formalised in a deed of release, and suggested that it be implemented in that manner. It is unnecessary to decide whether, in law, there was an implied term to this effect. At least, in my opinion, the agreement was not expressly nor implicitly conditional upon such a release being executed, whether as a precondition to its existence, or as a condition for its enforcement.
x)Similarly, in my opinion, it is a reasonable and necessary implication of the debtor’s acceptance of the offer, that the nuts and bolts of a transfer of the newsagency from the debtor and his wife would be settled on usual or reasonable terms for the transfer of a business of the present type. However, contrary to the submissions of the creditor’s present solicitor, I do not regard the necessity for these further steps to be agreed as showing that the parties did not intend to be immediately bound by their general promises, nor as having the consequence that the general promises were incapable of recognition or enforcement, including by this Court at the imminent hearing.
xi)In my opinion, once the nature of the contract is analysed as above, and its context appreciated, the various points taken by the creditor’s solicitor in her submissions fall away. Essentially, these submissions were directed at pointing to uncertainties in the promise of the debtor that he and his wife would transfer the assets of the newsagency. She pointed to a possible lack of clarity as to the registered business name of the business, as to its secured creditors, as to its contracts with suppliers, as to liabilities to the Deputy Commissioner of Taxation, as to the consent of the landlord to a transfer of the lease, and as to the consent of the debtor’s wife and partner in the business. Whether any of these matters were, in fact, unknown to the creditor or of any real concern to him was not shown on any evidence of the creditor tendered on his behalf, nor any evidence elicited under cross-examination of the debtor. There are pointers in the evidence suggesting that, in fact, both parties probably had reason to think that there were no significant issues affecting a transfer being achieved within a reasonable time in accordance with the terms of the letter of offer.
xii)In this respect, it is highly significant that it was the creditor, and not the debtor, who proposed and formulated the unconditional terms of the debtor’s promise to transfer his business, and that the creditor had the assistance of a solicitor when he made his broadly worded and unconditional offer to accept a transfer of the business. As I have noted above, the offer was made after the creditor had access to information about the business. The inference is that none of the potential objections to the existence of a concluded contract which were pointed to in submissions by the creditor’s present solicitor were, in fact, of concern to the proposed transferee, or objectively of significant or material uncertainty at the time when the offer was made and accepted. The further inference is that, to the extent that there were uncertainties about whether and how the proposed transfer would be completed, the creditor chose to take the risks involved in accepting a promise expressed in terms formulated by himself. The creditor’s own offer accepted these risks, rather than requiring a completed transfer or more fully formulated contract, in exchange for his promises to withdraw the petition on 4 September. I am therefore unpersuaded that the contract made by the parties fails upon principles of uncertainty of its terms (see Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436-7).
xiii)I also do not accept the submission of the present solicitor for the creditor that the agreement should be found to be unenforceable in the absence of additional evidence that the debtor’s wife was a party to the agreement or had otherwise given irrevocable commitments to join in the proposed transfer of the partnership assets of the newsagency. A need for an overt act of agreement by the wife was, it seems, of no concern to the creditor prior to the instructing of the new solicitor. Rather, it appears to me that the letter of offer and other correspondence proceeded upon a mutual understanding that the debtor and his solicitor already had or would have the wife’s authority to commit her to join in the transfer of all the assets of the newsagency, including those which were partnership property. In this respect, it is significant that in the preceding adjournments of the creditor’s petition, the creditor had implicitly accepted that the debtor had the support and authority of his wife to sell those assets and to apply them to the discharge of his liabilities to his brother. In this context, and in the absence of any evidence suggesting otherwise, I infer that the creditor was satisfied as to the existence of sufficient authority on the part of the debtor and his solicitor to negotiate on behalf of and to bind his wife as well as himself. I infer that, in fact, such authority had probably been obtained by them before the acceptance of the creditor’s offer on 17 August 2012. I find on all the evidence that it is probable that the wife had given her authority to her husband and his solicitor to accept the offer on her behalf, to such extent as she was required to participate to give effect to the agreement. I consider that the debtor’s acts of acceptance of the offer should be construed to include acceptance on behalf of his wife. I do not consider that the absence of specific evidence of this given by the wife at the hearing requires an inference otherwise, particularly since this point was first taken in the course of the creditor’s submissions at the hearing. It is therefore unnecessary for me to examine principles of ostensible authority. I note, if necessary, that I would accept the submission of counsel for the debtor that these principles could operate beyond the terms of s.5 of the Partnership Act1892 (NSW).
Conclusions
For all of the above reasons, I have concluded that an immediately binding agreement was intended by the parties to the correspondence, and was made on 17 August 2012. I am satisfied that the meaning of its terms was “definite enough to warrant a court of equity restraining” the creditor from departing from his promises to release the liability relied upon in the bankruptcy petition and to procure the conclusion of that proceeding in favour of the debtor at the hearing on 4 September 2012 (cf. Dixon J in McDermott v Black (supra) at 189). I consider that the Court should recognise the debtor’s right to enforcement in equity of those promises, by finding that it is not satisfied in terms of s.52(1)(c) of the Bankruptcy Act that the debt relied upon in the petition is “still owing” in the sense required by s.44(1)(b).
It is unnecessary and inappropriate for me also to consider the manner in which the reciprocal promises of the debtor and his wife to effect a transfer of the assets of the newsagency in accordance with the terms of the letter of offer are currently enforceable or might be enforceable in the future. No party has applied to this Court for relief in this respect, whether by way of orders for specific performance, damages for repudiation, or any other relief. If these issues cannot be resolved by future agreement of the parties in the light of my findings, then they may need to be addressed by another court in further proceedings, which will also examine the contractual implications of the position taken by the creditor at the hearing of the creditor’s petition and any subsequent conduct of the parties.
In relation to the current bankruptcy matter, my conclusion that the creditor has failed to satisfy s.52(1)(c) means that I do not need to address the debtor’s alternative submissions based on estoppel or the exercise of discretion under s.52(2).
However, if I am incorrect in finding an enforceable promise by the creditor not to maintain the asserted liability at the hearing of the bankruptcy petition, I would have concluded that the circumstances in which the offered ‘proposal’ was made and extended by the creditor, and then accepted and relied upon by the debtor, and not clearly withdrawn or repudiated by the creditor prior to the hearing, demonstrates circumstances falling within s.52(2)(b) which now make it just and appropriate to dismiss the petition. While the debtor has not positively proved his solvency, if the judgment debt obtained by the creditor is put to one side, I am not persuaded that there is evidence that, in fact, the debtor is trading while insolvent, nor that there are any other creditors pressing for payment of current liabilities, nor that there are any of the countervailing public interests coming within the considerations pointed to by Henchman J in Cain v Whyte (see Cain v Whyte (1933) 48 CLR 639, and Rosenbes v Kronhill (1956) 95 CLR 407 at 414).
The circumstances shown in the correspondence which lead me to this conclusion might also be analysed under equitable principles of promissory estoppel, but in my opinion it is unnecessary for me to perform that exercise, since the discretion expressly available under s.52(2) allows as broad a consideration of the justice and equity in allowing the creditor to deny his promise not to press his petition, and in allowing him to obtain an immediate sequestration order based on his previously obtained judgment debt.
I would therefore, if necessary, uphold the grounds of opposition in so far as they invoke s.52(2)(b).
In this respect, I have taken into account the public interest in relation to the administration of possibly insolvent estates, and a judgment creditor’s ‘prima facie’ right to expect that outcome. However, I consider that justice between the parties requires that I should in the circumstances hold the present creditor to his promise as to the outcome of his present bankruptcy proceedings, which was offered, and accepted, and never clearly withdrawn or revoked. Considering the position of the parties, and the public interests broadly, I consider that any uncertainties as to the future execution or enforceability of the promise of the debtor to transfer his newspaper business to the creditor in return for the creditor’s promise, are best left to be resolved in the future by the parties themselves or in future litigation, without the involvement of a trustee in bankruptcy.
For all the above reasons, I would therefore dismiss the petition.
In relation to my discretions as to costs, I accept the submission of the creditor that the evidence allows me to conclude that the petition was properly brought, and that the creditor’s costs of repeated adjournments of the petition until and including the listing on 21 May 2012 were the result of either the creditor or the Court giving indulgence to the debtor in relation to an uncontested debt. I would therefore award costs in favour of the creditor until and including that date.
However, the subsequent course of events and the dispute which was litigated at the hearing of the petition on 4 September 2012 resulted from the actions of the creditor himself, when consenting to a further adjournment and negotiating with the debtor. These actions have led to the dismissal of the petition, upon contested issues in which I have preferred the case of the debtor. I consider that the debtor’s costs in the proceeding after 21 May 2012 should therefore follow the event.
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 25 October 2012
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