Westlawn Finance Ltd v Bennell
[2009] FMCA 915
•18 September 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WESTLAWN FINANCE LTD v BENNELL | [2009] FMCA 915 |
| BANKRUPTCY – Creditor’s Petition – respondent debtor’s opposition – considerations relevant to review – Notice of Opposition to the Creditor’s Petition is dismissed. |
| Australian Securities & Investment Commission Act 2001 (Cth) Bankruptcy Act 1966 (Cth), ss.43, 44, 52 Conveyancing Act 1919 (NSW), s.12 Federal Magistrates Act 1999 (Cth), s.64 Federal Magistrates Court Rules 2001 (Cth), r.15.29A Trade Practices Act 1974 (Cth), s.87 |
| American Express International Inc v Bennell [2008] FMCA 1415 American Express International Inc v Bennell (No.2) [2008] FMCA 1551 Australia & New Zealand Banking Group Ltd v Prestia [2001] FCA 792 Bennell v Netlink Australia Pty Ltd [2002] NSWSC 822 Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 Howell v Rose [2002] FCA 1196 McIntosh v Shashoua (1931) 46 CLR 494 McNamara v Langford (1931) 45 CLR 267 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 |
| Applicant: | WESTLAWN FINANCE LTD (ACN 096 725 218) |
| Respondent: | SUSAN JANE BENNELL |
| File Number: | SYG 2884 of 2007 |
| Judgment of: | Lloyd-Jones FM |
| Hearing dates: | 9, 10 and 11 September 2009 |
| Delivered at: | Sydney |
| Delivered on: | 18 September 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr JD O’Connor |
| Solicitors for the Applicant: | Gilles Delaney Lawyers |
| Counsel for the Respondent: | Mr JT Svehla |
| Solicitors for the Respondent: | Holding Redlich Lawyers |
| Solicitors for Supporting Creditor for the respondent: | Clark McNamara Lawyers |
ORDERS
The Amended Notice Stating Grounds of Opposition to the Creditor’s Petition filed on 9 July 2009 is dismissed.
The respondent, Susan Jane Bennell, is to pay the applicant’s costs of the proceedings.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2884 of 2007
| WESTLAWN FINANCE LTD (ACN 096 725 218) |
Applicant
And
| SUSAN JANE BENNELL |
Respondent
REASONS FOR JUDGMENT
The proceedings
This is an opposed Creditor’s Petition for a sequestration order. The petitioning applicant creditor, Westlawn Finance Ltd ACN 096 725 218, presented an amended Creditor’s Petition filed in Court on
9 September 2009 for a sequestration order under s.43 of the Bankruptcy Act 1966 (Cth) (“the Act”) of Susan Jane Bennell’s (the respondent debtor) estate on the following bases:
1. The respondent debtor owes the applicant creditor the amount of $7,511,733 in respect of a debt due pursuant to a personal guarantee given by the respondent to Westlawn Factors Pty Ltd dated 16 February 1999 and pursuant to a Deed of Assignment entered into between Westlawn Factors Pty Ltd and Westlawn Finance Ltd (ACN 001 493 634) dated 31 May 2000 and a Deed of Assignment entered into between Westlawn Finance Limited (ACN 001 493 634) and the applicant dated 30 October 2002.
2. The applicant creditor does not hold security over the property of the respondent debtor.
3. At the time when the act of bankruptcy was committed, the respondent debtor
(a) was personally present in Australia
(b) was ordinarily resident in Australia
(c) had a dwelling house or place of business in Australia.
4. The following act of bankruptcy was committed by the respondent debtor within 6 months before the presentation of this petition;
The respondent debtor failed to comply on or before 31 August 2007 with the requirements of a bankruptcy notice served on the respondent debtor on 10 August 2007 or to satisfy the Court that she had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or a cross demand that they could not have set up in an action in which the judgment referred to in the bankruptcy notice was obtained.
5. The applicant creditor provides the following information, to the extent it is known to the applicant creditor, for use by the Insolvency and Trustee Service Australia:
(a) any alias used by the respondent debtor:
N/A
(b) the date of birth of the respondent debtor:
SUSAN JANE BENNELL – date of birth 17.10.1959
(c) the business name of the respondent debtor:
Not applicable
(d) the business address of the respondent debtor:
Not applicable
Note: completion of paragraph 5 is optional.
Background
In setting out the following background summary I have quoted directly or paraphrased from various affidavits and written submissions provided to the Court and I do not make any further attribution as this would make the summary unwieldy. The information is provided to assist in the understanding of the nature of the application and not to establish any evidentiary point.
Litigation history
A brief summary of the litigation history follows. On 1 August 2007, American Express International Inc (“American Express”) obtained a judgment against Mrs Bennell in the Local Court for $57,712.40. On 10 August 2007, the Bankruptcy Notice was served on behalf of American Express and on 31 August 2007, Mrs Bennell committed an act of bankruptcy. On 19 September 2007, a Creditor’s Petition was filed by American Express.
Mrs Bennell filed a Notice Stating Grounds of Opposition to the Petition of American Express on 18 October 2007 and an Amended Notice of Opposition on 11 January 2008. That application was heard on 30 January and 4 March 2008. On 17 October 2008, the Amended Notice of Opposition to the Creditor’s Petition was dismissed in the decision American Express International Inc v Bennell [2008] FMCA 1415.
On 27 August 2008, Teseraro R extended the period of the Creditor’s Petition to 24 months from the date of presentation and this expires on 19 September 2009.
On 24 October 2008, American Express informed the Court that it did not intend to proceed with the application for a sequestration order against Mrs Bennell. Solicitors for Westlawn Finance requested that the matter be stood over to allow it to file a motion to be substituted as the Petitioning Creditor. A Notice of Appearance was originally filed in these proceedings by Westlawn Finance on 27 November 2007 as a supporting creditor. On 4 November 2008, Westlawn Finance filed its application for substitution and on 18 November 2008 in a judgment of this Court (American Express International Inc v Bennell (No.2) [2008] FMCA 1551), orders were made pursuant to s.49 of the Act substituting Westlawn Finance as the Petitioning Creditor in the place of American Express.
On 28 November 2008 Westlawn Finance filed an amended Creditor’s Petition and a further amendment on 9 September 2009. Mr Bennell filed an Amended Notice Stating Grounds of Opposition to the Petition and Response to the Applicant’s Reply on 9 July 2009.
Total equity and Mrs Bennell
Mrs Bennell established a company now in liquidation called Total Equity Pty Ltd (ACN 082 192 041) on 2 April 1998. At time of its creation, Mrs Bennell was the sole director and the sole shareholder of Janile Pty Ltd (ACN 001 618 051), the holding company of Total Equity, which is now also in liquidation. Mrs Bennell was a shareholder of Janile Pty Ltd. Total Equity was a media buying business for advertising space on television, radio and print media. Mrs Bennell’s husband, Ian Bennell, ran the day-to-day media buying business and was appointed the second director of Total Equity on 24 June 1998. In February 1999, Mr and Mrs Bennell entered into a factoring facility arrangement with Westlawn Factors Pty Ltd (ACN 081 493 263). In addition to Total Equity’s media buying business, Mrs Bennell acted as an agent and managed individuals such as Kostya Tszyu, a world boxing champion. Mr Tszyu sought to terminate Total Equity’s management arrangement which led to Court proceedings where Total Equity was unsuccessful in recovering any significant amount of money which would have been utilised to discharge Total Equity’s liability to Westlawn. Those proceedings were conducted by Total Equity’s administrator.
Mrs Bennell claims that Total Equity ultimately failed because its largest customer, BBC Hardware, was acquired by Bunnings which removed the media buying account for BBC Hardware from Total Entity in late 2001.
Westlawn Group of Companies
Westlawn Factors was a member of the Westlawn Group of Companies with its head office in Grafton, New South Wales. On 16 February 1999, Westlawn Factors and Total Equity entered into a Factoring Facility Deed. On about 31 May 2000, Westlawn Factors entered into a deed of assignment of securities (“first deed of assignment”) with Westlawn Finance Ltd (ACN 001 493 634). On 14 June 2001 Westlawn Finance changed its name to Westlawn Holdings Ltd and retained the ACN number 001 493 634. On 30 October 2002, Westlawn Holdings Ltd entered into a deed of assignment (“second deed of assignment”) with Westlawn Finance Ltd (ACN 096 725 218).
In 1999, Don Artindale was initially employed by Westlawn Factors as a consultant to expand its financing operations in the Sydney market. Mr Artindale was initially responsible for assessing applications for finance and factoring facilities made for and on behalf of potential clients of Westlawn Factors. After initial assessment these were sent to the Head Office in Grafton for final assessment. Any offer to provide factoring facilities to a client of Westlawn Factors would have been referred by Mr Artindale to Grafton for approval. In about January 1999, Mr Artindale was negotiating the facility with Total Entity. In about February 1999, he recommended to Mr Dougherty that the factoring facility offered to Total Entity should be approved. All of the face-to-face negotiations, communications and representations in respect of the factoring facility were between Mr Artindale and Mrs Bennell (and to a very limited extent, Mr Bennell).
When Westlawn Factors and Total Equity entered into their financial arrangement the following documents were executed:
a)A factoring facility deed between Westlawn Factors and Total Equity dated 16 February 1999.
b)Fixed and floating charge number 691454 over Total Equity dated 14 April 1999.
c)A deed of guarantee and indemnity dated 16 February 1999 between Westlawn Factors, Mrs Bennell, Mr Bennell and Janile Pty Ltd.
These documents were subsequently assigned from Westlawn Factors to Westlawn Holdings and Westlawn Finance by the first and second deeds of assignment referred to above. Westlawn Finance is the Applicant Creditor in these proceedings.
Operation of Factoring Facility Deed
In February 1999, Westlawn Factors paid the sum of $170,000 to Total Equity pursuant to the arrangements between them. In April 1999, Total Equity sought an increase from $170,000 to $500,000. In March 2001, Total Equity applied for a limit increase on the facility from $500,000 to $5,000,000. In 2001, Total Equity applied for a further increase in the limit of the facility from $5,000,000 to $7,000,000. A further increase of $750,000 took the facility to $7,750,000.
At various stages during this process, further securities were provided by Total Equity, Janile Pty Ltd and Mr and Mrs Bennell to include the following:
a)Property at 48A Bay Street, Mosman NSW (“the Bay Street property”);
b)Property at 4 Preston Place, Helensvale (“the Helensvale property”);
c)Property at 38 Redan Street, Mosman NSW (“the Redan Street property”);
d)Units 6 and 7 Norberry Terrace, 177-179 Pacific Highway North Sydney NSW (“the North Sydney properties”);
e)S3 Bentley motor vehicle.
Administration and liquidation
In January 2002, Total Equity indicated that it intended to terminate the facility and negotiations in respect of the reduction of the facility which took place in January and February. However, throughout 2002 Total Equity did not reduce the debt it owed pursuant to the facility. On 16 November 2002, Hugh Jenner Wily of Armstrong Wily & Co. was appointed as administrator to Total Equity (subject to a Deed of Company Arrangement).
On 16 January 2004, Westlawn Finance issued a Notice of Intention to enforce its security over the Helensvale Property which was owned by Janile Pty Ltd. On 21 June 2004, Total Equity was placed into liquidation by way of creditors voluntarily winding up and Andrew Wily was appointed as liquidator replacing his father, Hugh Wily. During the period 2004 to 2007, various properties at which security was provided by Total Entity to Jenile Pty Ltd and Mr and Mrs Bennell were sold and money was paid in respect of the facility liabilities. Further in accordance with the terms of a Factoring Deed, interest was charged on the monies paid to Total Equity. After the appointment of Janile’s administrator, Janile sold this real property and other assets and after discharging Janile’s liability to the National Australia Bank, the first secured creditor, amounts were paid to Westlawn to reduce Total Equity’s liability to Westlawn. On 5 July 2007, a letter of demand was sent to Mrs Bennell on behalf of Westlawn Finance for a payment of $8,308,953.34.
Supreme Court of New South Wales proceedings
On 13 February 2009, Mrs Bennell commenced proceedings 1491 of 2009 in the Supreme Court of New South Wales, Equity Division, against Westlawn Factors Pty Ltd (ACN 081 493 263), Westlawn Holdings (ACN 001 493 634) and Westlawn Finance Ltd (ACN 096 725 218). The Supreme Court summons was first returnable before a Registrar on 22 April 2009. On that date, Atkinson R adjourned the proceedings by consent until 30 July 2009 for directions. The proceedings were then stayed until the proceedings before this Court are resolved.
The summons filed for Mrs Bennell seeks declaratory relief and orders including that the guarantee signed by her on 16 February 1999 is void and unenforceable. She also seeks relief pursuant to s.87 of the Trade Practices Act 1974 (Cth) and the Australian Securities & Investment Commission Act 2001 (Cth). Mrs Bennell seeks to have the guarantee declared void ab initio on the basis of misleading and deceptive conduct or unconscionable conduct on the part of Westlawn Factors Pty Ltd. Mrs Bennell has sworn the following affidavits in support of her claim:
a)Dated 9 July 2009 in these proceedings;
b)Dated 13 February 2009 in the Supreme Court proceedings;
c)Dated 29 June 2009 in the Supreme Court proceedings.
Evidence
Westlawn Finance filed and read the following affidavits at the hearing:
a)Affidavit of Mark Dougherty sworn on 11 February 2008 with Exhibit Folder “MD1” (first affidavit of Mr Dougherty);
b)Affidavit of Mark Dougherty sworn on 14 May 2009 with Exhibit Folder “MD2” (second affidavit of Mr Dougherty);
c)Affidavit of Mark Dougherty sworn on 31 July 2009 with Exhibit Folder “MD3”, Volumes 1, 2, 3 and 4 (third affidavit of Mr Dougherty);
d)Affidavit of Mark Dougherty sworn on 7 September 2009 with Annexures “A” to “G” (fourth affidavit of Mr Dougherty);
e)Affidavit of Mark Stephen Tierney sworn on 9 September 2009 with Annexures “A” to “C”;
f)Consent to Act as Trustee Declaration of Bruce Gleeson signed on 7 September 2009 and filed in Court on 9 September 2009;
g)Affidavit of Search sworn by Mark Stephen Tierney dated 9 September 2009.
Westlawn Finance also filed the following exhibits:
a)Exhibit “A1”: Australian Securities and Investment Commission Historical Personal Name Extract of “Susan Bennell” and “Susan Jane Bennell”.
Mrs Bennell filed and read the following affidavits:
a)Affidavit of Susan Jane Bennell sworn on 13 February 2009 with Exhibit “SJB-1A” (108 pages) (first affidavit of Mrs Bennell);
b)Affidavit of Susan Jane Bennell sworn on 29 June 2009 with Exhibit “SJB-1B” (113 pages) (second affidavit of Mrs Bennell);
c)Affidavit of Susan Jane Bennell, sworn on 9 July 2009 with Exhibit “SJB-1” (162 pages) (third affidavit of Mrs Bennell);
d)Affidavit of Mary Anne Chapel sworn on 31 July 2009 with Annexure “A” (27 pages);
e)Affidavit of James Angus Hamilton sworn on 8 September 2009 (“Affidavit 1”) including Annexures “A” to “C”.
f)Affidavit of James Angus Hamilton sworn 8 September 2009 (“Affidavit 2”) including Annexures “A” to “J”.
Mrs Bennell filed the following exhibits:
a)Exhibit “R1” – medical certificate of cause of death of Maurice Hacche;
b)Exhibit “R2” – medical certificate of Dr Trevor RB Tingate;
c)Exhibit “R3” – file notes of James Hamilton made at the adjournment hearing on 30 June 2009;
d)Exhibit “R4” – liquidator of Total Equity’s list of contents of the boxes in the liquidation;
e)Exhibit “R5” – letter from Westlawn Finance dated 30 May 2000 to directors of Total Entity regarding the Notice of Assignment of Securities and Debt effective 31 May 2000.
Application for Interim Orders
Mr Svehla, for Mrs Bennell, formerly tendered the application which is in the following terms:
On the grounds stated in the supporting affidavit, the Respondent, Susan Jane Bennell seeks the following interim orders:
1. An order under section 64 of the Federal Magistrates Court Act that in the circumstances where the applicant has not given any notice to:
(a) the respondent; and
(b) Mary Anne Chappell
that they are required for cross examination in respect of their affidavits sworn in this proceeding, that their affidavits sworn in this proceeding which the respondent seeks to tender (subject to any rulings on objections to them, if any) be received into evidence.
2. An order pursuant to Federal Magistrates Court Rules 2001, Rule 15.29A that in the circumstances where the applicant has not given any notice to:
(a) the respondent; and
(b) Mary Anne Chappell,
that they are required for cross examination in respect of their affidavits sworn in this proceeding, that their affidavits sworn in this proceeding which the Respondent seeks to tender (subject to any rulings on objections to them, if any) be received into evidence and the Court dispenses with the requirement of the attendance of the above persons for cross examination in this proceeding.
3. Alternatively, by reason of the matters set out in the order sought in 2 above and because of the personal circumstances of the death of the father of the respondent, notified to the applicant last evening, an order pursuant to Federal Magistrates Court Rules 2001, rule 15.29A that the affidavits of
(a) the respondent
sworn in this proceeding, which the respondent seeks to tender (subject to any rulings on objections to them, if any) be received into evidence and that the Court dispenses with the requirement of the attendance of the above persons for cross examination in this proceeding.
Mr Svehla read paras.1-8 and Annexure G to the affidavit of Mr Hamilton sworn on 8 September 2009 (Affidavit 2). He also tendered Exhibit “R1”, being a facsimile from Dr Stewart Lydiard of Tauranga, New Zealand to Mr Hamilton attaching a copy of a Medical Certificate of Cause of Death and a medical certificate prepared by Dr Trevor Tingate (Exhibit “R2”).
The application is brought in respect of s.64 of the Federal Magistrates Act 1999 (Cth):
Evidence may be given orally or by affidavit
(1) Testimony in a proceeding in the Federal Magistrates Court is to be given orally or by affidavit.
(2) However, the Federal Magistrates Court or a Federal Magistrate may:
(a) direct that particular testimony is to be given orally; or
(b) direct that particular testimony is to be given by affidavit.
(3) Subsections (1) and (2) have effect subject to:
(a) any other provision of this Act; and
(b) the Rules of Court; and
(c) any other law of the Commonwealth.
Cross‑examination of person who makes an affidavit
(4) If:
(a) a person makes an affidavit; and
(b) a party to a proceeding in the Federal Magistrates Court adduces, or proposes to adduce, evidence by the affidavit;
a party to the proceeding may request the person to appear as a witness to be cross‑examined with respect to the matters in the affidavit.
(5) Subsection (4) has effect subject to the Rules of Court.
(6) If:
(a) a request under subsection (4) is given to a person who has made an affidavit; and
(b) the person does not appear as a witness to be cross‑examined with respect to the matters in the affidavit;
the Federal Magistrates Court is to give the matters in the affidavit such weight as the Federal Magistrates Court thinks fit in the circumstances.
Rule15.29A of the Federal Magistrates Court Rules 2001 (Cth) states:
Use of affidavit without cross-examination of maker
The Court may:
(a) dispense with the attendance for cross ‑examination of a person making an affidavit; or
(b) direct that an affidavit be used without the person making the affidavit being cross‑examined on the affidavit.
Mr Svehla submits that the absence of a person who has prepared an affidavit, if it is established that a request under s.64(4) for the deponent to attend for cross-examination has been made, does not preclude the affidavit from being tendered and received into evidence under s.64(6) of the Federal Magistrates Act. It is then a matter for the Court to give the affidavits such weight as it thinks fit in the circumstances. The matter in issue is whether or not a request within the meaning of s.64(4) has been given so as to activate s.64(6) and the consequence of such a request. Section 64(5) of the Federal Magistrates Act states that s.64(4) has effect subject to r.15.29A of the Federal Magistrates Court Rules. If the request to attend Court for cross-examination is not made, then s.64(6) has no effect. That result is a mandatory exercise of discretion to dispense with attendance for cross-examination because the relevant notice has not been given and the affidavits go into evidence without issue as to their weight. Mr Svehla advised the Court that he had been unable to find any authority on this issue.
Mr Svehla also indicated that the structure of the Federal Magistrates Court Rules are different to those of the New South Wales and other Federal Courts because s.64(6) is a more liberal beneficial power than those of the other Courts. Under the other Rules, if the person is requested but does not attend, the affidavit goes into evidence unless leave is granted whereas under the Federal Magistrates Court Rules the affidavit automatically goes in subject to weight. The debate on whether the affidavit will be allowed into evidence does not exist in the Federal Magistrates Court or under the Federal Magistrates Court Rules.
Submissions
Mr Hamilton, solicitor for Mrs Bennell, and Mr Tierney, solicitor on the record for Westlawn Finance, were both cross-examined. Mr Svehla submits that the evidence is that there was no oral or written request by the applicant for Mrs Bennell to attend Court for cross-examination. Acting prudently, solicitors for Mrs Bennell obtained instructions from her (Exhibit “R3”) as soon as the adjournment hearing date was made on 30 June 2009. On 2 July 2009 (Annexure G), they emailed Mr Tierney seeking express clarification on whether Mrs Bennell and Ms Chapel would be required for cross-examination. There was no response to that enquiry. That email was issued in the context where, on 24 June 2009, there was express communication in very similar terms for the scheduled hearing of 30 June 2009. This requirement was superseded by the agreed adjournment and there was a need to issue a further request which was done promptly.
There was clearly discussion during the adjournment of 30 June 2009, as both sides agreed on whether or not Ms Chapel would be required for cross-examination. A number of issues arose because it was not possible to contact her at the time of the adjournment application and, as she was not a party to the proceedings and lived in Perth, a subpoena would need to be issued to ensure her attendance. With respect to Mrs Bennell, it seems unlikely that her attendance was discussed because of the contents of the email forwarded by Mr Hamilton on 2 July 2009.
Mr Svehla submits that the inference is that Mr Tierney thought he had raised Mrs Bennell’s attendance because he expected her attendence, being a party to the matter. Mr Svehla also submits that on the proper construction of the provisions of the Federal Magistrates Act and the Federal Magistrates Court Rules, the affidavits and exhibits should be admitted into evidence subject to any rulings. The basis being that the deponent was present and there was no requirement for cross-examination. In other words, s.64(6) is not satisfied. Mr Svehla submits that this is one reason for the requirement of formal notification.
Mr O’Connor submits that there was an oral but no written request from Mr Tierney to Mr Hamilton on 30 June 2009 as described in his affidavit sworn on 9 September 2009 at [6]. The conversation between Mr Hamilton and Mr Tierney according to Mr Tierney’s recollection was:
Mr Hamilton: Our client is on business in the Middle East for most of August so we’ll have to be a date in early September. Will you also require Mary Anne Chapel for cross examination at the hearing?
Mr Tierney: We will obviously require Mrs Bennell, but I’m not sure about Mary-Anne Chapel.
Mr O’Connor submits that this is Mr Tierney’s evidence of an oral request. In cross-examination, Mr Hamilton indicated that he did not recall that part of the conversation. However, this does not mean that Mr Tierney’s evidence should not be accepted. Mr Tierney was cross-examined on the application but not asked about that part of the conversation. Mr O’Connor submits that his evidence of what was said in that conversation should not be accepted.
Mr O’Connor submits that the applicant has, pursuant to s.64(4)(b) of the Federal Magistrates Act, requested Mrs Bennell through her solicitors to be available for cross-examination at the hearing. It therefore means that under s.64(4), the affidavits would be accepted into evidence and given as much weight as the Court thinks fit in the circumstances. Mr O’Connor submits that Mrs Bennell has known about the hearing since Westlawn Finance was substituted in November 2008 as the petitioning creditor. On the evidence, notice was given orally by Mr Tierney to Mr Hamilton and this was not challenged. Therefore, Westlawn opposes the application. Mr O’Connor submits that if the affidavits are allowed in, minimal weight should be given to them given the prejudice suffered by the applicant as he is unable to cross-examine Mrs Bennell on that evidence.
Consideration in respect of the application for interim orders
I indicated to the parties that I was in a difficult position because of the deadline of Friday, 18 September 2009 for the overall decision to be handed down. As there is no authority to guide the Court in respect of this issue, I would prefer the opportunity to consider the evidence and go to the transcript. But time does not permit that. Consequently I had formed the view that s.64(6) of the Federal Magistrates Act does apply to this matter and I will allow the affidavits into evidence giving them the appropriate weight. Such weight will have to be assessed in the time before 18 September 2009 in the preparation of this written decision.
The application on behalf of Mrs Bennell is based on the claim that there was no oral or written request made by the applicant’s solicitor for her to be available for cross-examination. No evidence has been placed before me to support a claim that a request was made in writing. I note the evidence given by Mr Tierney in which he believes that during the conversation with Mr Hamilton during the brief adjournment on 30 June 2009 he did indicate that Mrs Bennell was required for cross-examination. However, this does not place Mr Tierney’s evidence in doubt as I am not in a position to form the view that either solicitor is to be disbelieved, although there is an obvious difference in their recollection. The relevant notice has not been issued and, as a matter of construction, the affidavit which has been filed and served is read into evidence.
The alternative view is that there has been no written request (but an oral request) from Mr Tierney to Mr Hamilton on 30 June 2009 as described in his affidavit of 9 September 2009 at [6]. The fact that Mr Hamilton does not recollect that part of the conversation does not mean that Mr Tierney’s evidence should not be accepted because this was not challenged during cross-examination. Pursuant to s.64(4)(b) of the Federal Magistrates Act, the solicitors of Westlawn Finance requested through the solicitors of Mrs Bennell that she would be required for cross-examination at the hearing. Therefore, by the operation of s.64(6) the affidavits I accepted are subject to weight. I am not satisfied in light of the evidence and on the basis of the construction of s.64 that there is a sound argument for the affidavits to be totally excluded.
Consequently the Court must consider what weight should be given to the affidavit evidence. I note that Mrs Bennell has known about these proceedings since Westlawn Finance was substituted as the petitioning creditor in November 2008. The significant issue raised in her affidavits concerns her credit and the applicant has been denied the opportunity to cross-examine her in these proceedings. Significantly, a substantial aspect of the evidence contained in her affidavits challenges the application for a sequestration order on the basis that under s.52 of the Act, there are other grounds upon which the order should not be made.
However, Mrs Bennell’s non-appearance at the hearing due to the recent death of her father is accepted. I am fully aware of the very difficult and unfortunate circumstances of the death of her father. Having recently experienced a similar loss of a close family member, I would not expect Mrs Bennell to be in any state to attend Court, give evidence and be cross-examined. The Court’s sympathy is extended to her at this time. However, Westlawn Finance should not be penalised for Mrs Bennell’s misfortune such that because of her father’s death she is entitled to rely on her affidavits to the same extent as if she had been cross-examined. This must be considered when I allocate weight to any particular piece of evidence.
I note that Mr O’Connor advised the Court that he did not propose to object to the contents of Mrs Bennell’s affidavits on the understanding that they are read and the Court would apply appropriate weight to their contents.
Submissions of Heka Capital Pty Ltd in support of the respondent
HEKA Capital Pty Ltd (ACN 131 129 710) (“HEKA”) as a creditor of the respondent, supports the respondent and opposes the applicant’s application on the following grounds:
1. On 24 October 2008 Mr R D Marhsall (SC) appeared for HEKA in these proceedings and provided a cheque to the petitioning creditor, American Express International Inc (“American Express”) who indicated that they would accept the payment and consent to the dismissal of the Petition presented by American Express. At that point, American Express was excused from participating in the proceedings and the applicant was granted leave to file an application seeking to be substituted as petitioning creditor: American Express International Inc v Bennell [No 2] [2008] FMCA 1551 at [7].
2. Clark McNamara Lawyers, who act for HEKA, by letter dated 30 October 2008 to Gillis Delaney, solicitors for the applicant, informed the applicant that HEKA supported the applicant and that if the applicant persisted with its asserted claim against the respondent, HEKA would assist the respondent to ensure that the applicant’s claim was opposed or defended as required.
3. HEKA has maintained its support for the respondent at significant expense including legal fees and disbursements. HEKA did not appear in the hearing on 30 June 2009 as that hearing was to be vacated by consent. HEKA, through Clark McNamara Lawyers, appeared on the first day of the hearing on 9 September 2009 and informed the Court that HEKA supported the respondent. Clark McNamara have remained on call for the hearing of this application on 9 and 10 September 2009. HEKA has had a representative in Court during the hearing. HEKA and Clark McNamara Lawyers have reviewed the respondent’s written submissions and they adopt them in support, save any submission by the respondent that the applicant is a secured creditor of the respondent.
Evidence in support of Creditor’s Petition
Mr O’Connor moved on the amended Creditor’s Petition filed on 28 November 2008 pursuant to an order of this Court made on 18 November 2008, granting Westlawn Finance leave to amend the Creditor’s Petition (SYG2884 of 2007) by substituting Westlawn Finance Ltd as the petitioning creditor. A further amended Creditor’s Petition was filed in Court at the commencement of the hearing of 9 September 2009. Mrs Bennell committed an act of bankruptcy on 31 August 2007: American Express International Inc v Bennell [2008] FMCA 1415. The Creditor’s Petition was filed by American Express on 19 September 2007 satisfying s.44(1)(c) of the Act.
There is no judgment debt that Westlawn Finance can rely upon to obtain a sequestration order. However, there is no requirement for a judgment debt for a substituting creditor, see McNamara v Langford (1931) 45 CLR 267 at [271] and Howell v Rose [2002] FCA 1196 at [28] where Wilcox J stated:
[28]…the effect of s49 of the Bankruptcy Act, read with s44(1), is that it must be established that, at the date of the petition, the debtor owed the substituted creditor a liquidated debt of at least $2,000. However, the Act does not require that the substituted creditor (or a petitioning creditor) hold a judgment at that date. Although it is commonplace for creditors to obtain judgment against the debtor before instituting bankruptcy proceedings, this is not essential…
Mr O’Connor submits that Westlawn Finance is able to demonstrate that it was a creditor of Mrs Bennell as at the date of bankruptcy on 31 August 2007. Westlawn Finance is also able to demonstrate a liquidated sum owed by Mrs Bennell as at that date and which continues to be owed as at 9 September 2009. Mr O’Connor submits that a sequestration order should be made against Mrs Bennell unless she can demonstrate that there is a sufficient cause under s.52 of the Act not to do so.
Documents relied upon by the applicant
Mr O’Connor relied on the following documents to demonstrate that Westlawn Finance is a creditor and the debt has been proved:
a)The Factoring Facility Deed dated 16 February 1999 between Westlawn Factors Pty Ltd and Total Entity Pty Ltd (affidavit of Mark Dougherty sworn 18 February 2008, Exhibit “MD1”, Tab “A”). Mrs Bennell signed that document as a director of Total Entity. The document clearly provides for the nature of the facility sought. Clause 9.1 of the definition section for fees that can be charged under the facility explains any interest fees.
b)The Deed of Guarantee and Indemnity dated 16 February 1999 between Westlawn Finance Factors Pty Ltd and Total Entities Pty Ltd (the customer) and Susan Jane Bennell, Ian Robert Bennell and Janile Pty Ltd) (the guarantors): affidavit of Mr Dougherty sworn on 18 February 2008 (Exhibit “MD1”, Tab C). That document was signed by Mrs Bennell as an individual and a director of Janile Pty Ltd. Paragraph 6 of that agreement explains the basis upon which the guarantors guarantee the payments made by Westlawn to Total Entity. Paragraph 7 defines what the guarantors have guaranteed and agreed to remain liable for. Paragraph 8 refers to the guarantors indemnifying Westlawn. The effect of that document is that any of the guarantors – being Mrs Bennell, Mr Bennell or Janile Pty Ltd – were holding themselves liable in respect of the monies paid by Westlawn to Total Entity under the Factoring Facility Deed.
c)Deed of Assignment of Securities from Westlawn Factors Pty Ltd to Westlawn Finance Ltd dated 31 May 2000 between Westlawn Factors Pty Ltd and Westlawn Finance Ltd (affidavit of Mark Dougherty sworn 18 February 2008, Exhibit “MD1”, Tab D). Rights that are assigned include the rights held by Westlawn Factors in respect of the Factoring Facility it held with Total Entity: affidavit of Mr Dougherty sworn 31 July 2009, Exhibit “MD3”, Volume 4, p.86. The Notices of Assignment (pp.84-86) were signed by Mrs Bennell, Mr Bennell and Janile Pty Ltd respectively. It is submitted that the Notice of Assignment from Westlawn Factors to Westlawn Holdings was given in accordance with s.12 of the Conveyancing Act 1919 (NSW).
d)The second Notice of Assignment is contained in the letter of demand dated 5 July 2007 sent by Gordon & Johnstone Solicitors, who were as at July 2007 the solicitors acting for Westlawn Finance (second affidavit of Mr Dougherty, Exhibit “MD2”, pp.203-204). The applicant relied on the last words of the fourth paragraph of that letter:
…which were subsequently assigned to your client…
It is argued that those words satisfied the requirement of s.12 of the Conveyancing Act. Mr O’Connor submits that the effect of the express Notice in writing given to Mrs Bennell on 5 July 2007 is that the applicant obtained the legal right and remedy to the debt which is claimed by Westlawn Finance in these proceedings.
e)Affidavits of Mr Dougherty – the affidavits list various documents sought, which are both source documents and documents that have been created to enable the review summarising draw downs made from the companies from 1999 to 2003 pursuant to the Factoring Facility Deed. This includes debtors’ receipts recovered from payments of monies from Total Equity and/or its debtors. Those monies were repaid to Westlawn under the Facility. Interest and charges were claimed pursuant to the Factoring Facility Agreement. Annexure “A” to the third affidavit of Mr Dougherty includes a table incorporating all movements from 1 February 1999 to 31 October 2008. Mr Dougherty confirmed this evidence in para.4 of his fourth affidavit and in oral evidence. He prepared the summary from source documents in his possession from 1999 to 2001. Those documents are contained in Exhibit “MD3”, Volume 1. Exhibit “MD2”, Volume 2 are the documents provided by the liquidator of Total Entity which commenced in April 2001 and proceeded through to March 2003.
Westlawn is not a secured creditor
The Deed of Guarantee and Indemnity dated 16 February 1999 (see [42](b) above) identifies Janile Pty Ltd, Mr Bennell and Mrs Bennell as guarantors. Since that date, Janile Pty Ltd was placed in liquidation on 21 June 2009 and Ian Bennell was made bankrupt. The security provided by the three guarantors at the time of execution were mortgages and charges over the following properties:
a)48A Bay St, Mosman NSW
b)4 Preston Pl, Helensvale QLD
c)28 Redan St, Mosman NSW
d)Units 6 and 7 Norberry Terrace, 177-179 Pacific Highway North Sydney NSW
e)1953 Bentley Motor Vehicle (second affidavit of Mr Dougherty, para.20)
The following amounts have been paid to Westlawn Finance following the sale of the above properties:
a)$1,229,353.00 in May 2003 from the sale of 48 Bay St Mosman (fourth affidavit of Mr Dougherty, para. 7);
b)$1,683,664.00 in September 2006 from the sale of Norberry Terrace (fourth affidavit of Mr Dougherty, para.19);
c)$111,000 in May 2007 for the sale of the Bentley Motor Vehicle (fourth affidavit of Mr Dougherty, para.11);
d)$331,489.00 in November 2007 from the sale of the Helensvale Property (fourth affidavit of Mr Dougherty, para.17).
The property located at Raglan St, Mosman has been sold but Westlawn Finance has not received any monies from that sale (fourth affidavit of Mr Dougherty, para.17). As a result of the above sales Westlawn is not a secured creditor and there is no breach of s.44(3) and s.44(4) of the Act.
Assignments
The Factoring Facility Deed and the Deed of Guarantee and Indemnity have been assigned twice since their original execution:
a)On 30 May 2000 correspondence was forwarded to Total Equity by Westlawn Finance Ltd (ACN 001 493 634), enclosing various Notices of Assignment pursued for the purposes of s.12 of the Conveyancing Act to Mrs Bennell, Mr Bennell and Janile Pty Ltd as guarantors named in the assignment of all of Westlawn Factors Rights pursuant to the factoring agreement and guaranteed to Westlawn Finance Ltd (ACN 001 493 634) (third affidavit of Mr Dougherty para.11, Exhibit “MD3”, pp.82-86). Each Notice of Assignment was executed by Mrs Bennell as acknowledgment of receipt. The originals of the Notices of Assignment sent to Total Equity Pty Ltd and received by Mrs Bennell on 1 June 2000 are in the documents produced under subpoena from the liquidator of Total Entity Pty Ltd.
b)A letter of demand issued by Gordon & Johnstone Solicitors on behalf of Westlawn Finance dated 5 July 2007, giving notice for the purposes of s.12 of the Conveyancing Act to Mrs Bennell of the assignment of all of Westlawn Finance Ltd ACN 001 493 634 (rights pursuant to the Factoring Agreement and guarantee to Westlawn Finance Ltd ACN 096 725 218). The letter of demand informed Mrs Bennell that Gordon & Johnstone acted for Westlawn Finance at that time, referred her to the Factoring Facility Deed and Deed of Guarantee and Indemnity executed on 16 February 1999, referred to the Deed of Assignment between Westlawn Factors Pty Ltd and Westlawn Finance Ltd dated 31 May 2000 and gives notice that Mr Bennell’s liability due and owing by her in respect of the guarantee was assigned to Westlawn Finance Ltd. Mrs Bennell admits to receiving this letter on 5 July 2007 (third affidavit of Mrs Bennell, para.89).
Mr O’Connor submits that the Notice of Assignment contained in the letter of demand sent on 5 July 2007 to Mrs Bennell (and acknowledged by her) satisfies the notice requirements under s.12 of the Conveyancing Act on the following bases:
a)A Notice of Assignment does not have to be given to the debtor as s.12 of the Conveyancing Act provides that it may be given to “the person from whom the assignor would have been entitled to receive or claim such debt”. Mr O’Connor relies on the guarantee dated 16 February 1999 signed by Mrs Bennell and says that as Mrs Bennell received the letter of demand dated 5 July 2007, the Notice of Assignment was given to “the person from whom the assignor would have been entitled to receive or claim such debt”.
b)The Notice of Assignment may be given at any time so long as the debt remains a debt: Bateman v Hunt [1904] 2 KB 530.
c)The issue of a statutory demand on a debtor has been held to be express notice in writing for the purpose of giving notice of the assignment to the debtor pursuant to s.12 of the Conveyancing Act as the demand informs the debtor that the creditor had become its creditor: Bennell v Netlink Australia Pty Ltd [2002] NSWSC 822 at [42] and [43].
d)It is not necessary that the Notice disclosed that the assignment itself is in writing. It is sufficient if the effect is that it conveys to Mrs Bennell sufficient certainty the fact that the obligation to pay the debt has been transferred to Westlawn Finance Ltd: Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439.
e)The words “which was subsequently assigned to our client” in the letter of demand gave effective notice to Mrs Bennell as they indicate an express intention – in the nature of a definite and direct statement – that the debt has been assigned to Westlawn Finance, as distinct from supplying material from which that may be inferred: Consolidated Trust Co Ltd v Naylor (supra) at 439.
f)The words “which was subsequently assigned to our client” satisfy the notice requirement of s.12 of the Conveyancing Act as it is not necessary to give Mrs Bennell particulars of the assignment or to state that the assignment is a written one: Consolidated Trust Co Ltd v Naylor (supra) at 439.
g)The words “which are subsequently assigned to our client” in the letter of demand give effective notice to Mrs Bennell with certainty in rem when the legal right to sue her is vested: McIntosh v Shashoua (1931) 46 CLR 494 at 515.
Mr O’Connor submits that as express notice in writing of the assignment of the debt was given to Mrs Bennell on 5 July 2007, Westlawn Finance obtained the legal right and the legal remedy to the debt at that time: McIntosh v Shashoua (supra) at 514. Westlawn Finance therefore became a creditor of Mrs Bennell on 5 July 2007.
Mr O’Connor indicated to the Court that he relied on Mr Dougherty’s evidence and the exhibits to his affidavits to prove that Westlawn Finance was a creditor of Mrs Bennell as at the date of bankruptcy on 31 August 1997, and that the liquidated debt remains due and payable by Mrs Bennell to Westlawn Finance Ltd pursuant to the Deed of Guarantee. Mr O’Connor submits that Mr Dougherty’s evidence distinguishes this matter from that in St George Wholesale Finance Pty Ltd v Spalla [2000] FCA 1094 where Heerey J held at [40] that St George had failed to provide a “demonstrable reconciliation and explanation” of the debt contained in the Petition. Whereas in this case, Westlawn Finance has proved the debt that is owing by Mrs Bennell exceeds $2,000 for the purposes of s.44(1)(a) of the Act. He further submits that Westlawn Finance has proved that the debt is a liquidated sum due in law or equity for the purposes of s.44(1)(b)(i) of the Act and that it is payable immediately for the purposes of s.44(1)(b)(ii). Consequently in respect of s.52(1)(a) and s.52(1)(c) of the Act, Westlawn Finance Ltd has proved the matters stated in the Petition and the debt on which it relies is still owing.
Grounds of opposition to Petition
Mrs Bennell filed a Notice stating Grounds of Opposition to the Petition on 13 February 2009 indicating that she intended to oppose the amended Creditor’s Petition. An amended Notice was filed on 9 July 2009 containing 14 grounds of review. Mr Svehla provided the Court with detailed written and oral submissions in support of the grounds of opposition. This included the respondent’s submissions of 80 pages supported by a précis with reference to sections of the submissions, a chronology of events and a separate analysis of the operation of the Factoring Deed read in conjunction with the written submissions.
The substantial grounds of opposition raised in the amended Notice are:
1. The underlying debt relied upon by the applicant in its Petition is based upon a Deed of Guarantee dated 16 February 1999 between Westlawn Factors Pty Ltd ACN 081493 263 (as principal creditor) (“WF”), the respondent and others (as a surety), whose benefits were allegedly assigned by WF, to Westlawn Holdings Limited ACN 001 493 634 (“WH”) and then from WH to the applicant (“the guarantee”), where the guarantee is in respect of the debts or other liabilities of Total Entity Pty Ltd (now in liquidation) ACN 082 192 041 (“TE”) arising under a factoring facility TE entered into on or about 15 and / or 16 February 1999 with WF (“Factoring Facility”).
2. The applicant is not a creditor of the respondent, at the alleged date of the act of bankruptcy of the respondent.
(a) as no entity has executed any express notice(s) in writing of the two assignments of the alleged debt and benefits of the Factoring Facility and the Guarantee which the applicant now relies upon in asserting it is a creditor in the Petition and in the Reply;
(b) if such notice(s) were executed, the applicant did not give to the respondent and other affected persons any express notice in wiring of the two assignments of the alleged debt and benefits of the Factoring Facility and the Guarantee, the applicant now relies in asserting it is a creditor in the Petition and in the Reply;
(c) the letter from Gordon & Johnstone Lawyers to the respondent dated 5 July 2007 (“the letter”), further relied upon as notices of the alleged assignments, is not a valid and effective notice of the assignment(s) as that document did not comply with section 12 of the Conveyancing Act 1919 (NSW), contrary to the applicant’s contentions in reply;
(d) as any liability of the respondent (which is denied) is not to the applicant;
(e) as any liability of the respondent (which is denied) does not in any event arise under any purported assignment(s) and notice(s) of the alleged debts and benefits upon which the applicant relies to base its entitlements to have standing to maintain the Petition;
(f) as the alleged debts and benefits upon which the applicant relies to maintain the Petition were and are not assignable;
(g) by reason of the matters in paragraphs 3 to 13 below.
Mr Svehla submits that the Factoring Deed is an extremely complex legal instrument with onerous provisions which require many hours of reading in order to be understood. He submits that the sub-stratum of the Factoring Deed is that:
a)Total Entity must offer for sale to Westlawn Factors all debts (invoice issued to Total Entity’s clients) each calendar month;
b)Westlawn Factors at its absolute discretion may accept or refuse the offer;
c)Upon acceptance by Westlawn Factors, equitable (not legal) title in the debts (the assigned debts) passes to Westlawn Factors and Total Entity retains legal title, as bare trustee, which legal title passes to Westlawn Factors if and when notice is given to the debtor (Total Entity’s client) of the assignment.
d)Westlawn Factors pays the assigned debts by crediting Total Entity’s availability account for the purchase price of those assigned debts (payment was not a pre-condition to assignment and transfer of equitable title). The credits and debits of Total Entity’s available account and exposure account are premised upon:
i)The fact of assignment of the debts;
ii)The purchase price of the assigned debts;
iii)The time by which the assignment debts are to be paid by Total Entity (90 days); and
iv)A mix of values of assigned debts amongst a spread of the customers of Total Entity.
e)Total Entity collects payments from its debtors (its clients) as agent for Westlawn Factors and holds those monies in trust for it;
f)Total Entity indemnifies Westlawn Factors for the amount of deficiency for all debtors (Total Entity’s clients) who do not pay the invoiced amount of assigned debts within 90 days;
g)After Westlawn Factors receives payment of the full face value (the invoice amount) of the assigned debts from Total Entity under this indemnity, equitable title to the assigned debts remains in Westlawn Factors and does not revert to Total Entity;
h)Upon determination of the Factoring Deed, Total Entity must re-purchase all assigned debts (their equitable title), which are re-assigned in equity to it upon it paying all amounts due to Westlawn Factors under the Factoring Deed;
i)Their onerous interest obligations are imposed upon Total Entity.
Mr Svehla indicated that his written submissions contain detailed analyses of documents and terms of the contractual instruments and their legal effect, with particular attention paid to execution of the guarantee and other matters. He submits that the issues are so legally and factually complicated that they should not be argued in this Court. (Transcript of hearing of 10 September 2009, p.49.40)
Mr Svehla later states in oral submissions:
the notion that the factoring deed is a simple document is not a proposition that I can accept. It has taken me a considerable amount of time and effort to try to deconstruct it and the factoring deed analysis is my attempt to do so. It is not a document in which anyone other than a competent and skilled finance lawyer or experienced commercial lawyer is likely to deconstruct. That is obviously relevant at many levels in this case. (Transcript of hearing of 11 September 2009, p.65.30)
Mr Svehla also advised the Court that:
The Supreme Court proceedings are on foot. They have been on foot since 13 February this year, being the day that Mrs Bennell was required to file the notice of grounds of objection in this proceeding and what it highlights also is why this proceeding is an inappropriate forum to determine those matters where Westlawn Finance has no judgment. We are not talking about some simple claim for money, you know, haven’t received on invoice. We are talking about a complex legal relationship arising out of restructuring of a financial group over a number of years involving complex areas of law.
It has been brought to the Court’s attention on a number of occasions in oral submissions that this Court is not the appropriate venue for the issues raised and should be addressed in the Supreme Court.
In this respect, I note Australia & New Zealand Banking Group Ltd v Prestia [2001] FCA 792 at [18]-[19] per Hely J:
[18] The machinery by which one petitioner can be substituted for another enables a creditor to seek a sequestration order even though the debt which it claims has not been established by judgment. I readily accept that this Court is a court of bankruptcy, and not a court for determination of actions in debt: Vee H Aviation Pty Ltd v BP Australia Ltd (1995) 58 FCR 73 at 76: Kostezky, ex parte Milder Elfman Szmerling Krycer Pty (1996) 67 FCR 101 at 106.
[19] However, where, as here, there is evidence in conventional form as to the existence of a debt of $568,782.59, it is incumbent on Mr Prestia to establish that there is a triable issue as to his indebtedness which would justify the dismissal of the petition, or its adjournment pending the resolution of the issue in the Supreme Court. As the petition expires on 28 June 2001, adjournment of the petition to enable finalisation of the Supreme Court proceedings is not a viable option.
The argument advanced on behalf of Mrs Bennell is that the guarantee entered into by her on 16 February 1999 was void ab initio on the grounds that Mr Artindale and/or Westlawn Finance were guilty of misleading and deceptive conduct or acted unconscionably prior to and at the time signed the guarantee. However, the Supreme Court proceedings seeking to pursue this issue were not commenced until 2009, which is approximately:
a)Ten years after Mrs Bennell signed the guarantee on 16 February 1999;
b)Ten years after Gordon & Johnston sent a copy of the Deed of Guarantee to Mrs Bennell on 28 June 1999 (third affidavit of Mr Dougherty, Exhibit “MD3”, p.60)
c)Nine years after Mrs Bennell was sent and received the Notice of Assignment dated 13 May 2000, which referred to her liability pursuant to the guarantee dated 16 February 1999 (third affidavit of Mr Dougherty, Exhibit “MD3”, pp.82-84)
d)Seven years after Mrs Bennell sent a facsimile to Mr Artindale of Westlawn Finance on 10 January 2002 where she stated:
I would like to draw your attention to the security documents you require me to sign. You have guarantees and indemnities from Ian and myself – the directors of Total Entity plus Janile Trust as trustees for Janile Pty Ltd – so I think you will see from the A&L your position is well and truly covered. (second affidavit of Mr Dougherty, para.25, Exhibit “MD2”, pp.124-126)
e)Nineteen months after Mrs Bennell received a letter of demand dated 15 July 2007 in which Westlawn Finance referred to the guarantee of 16 February 1999 (second affidavit of Mr Dougherty, para.57, Exhibit “MD2”, pp.203-204);
f)Three months after this Court ordered on 18 November 2008 that Westlawn Finance is to be substituted as petitioning creditor in these proceedings.
Besides the significant delay in the commencement of the Supreme Court proceedings, Mr O’Connor brought the following issues to be considered in conjunction with that delay:
a)Mrs Bennell signed the guarantee on 16 February 1999 knowing that it contained contractual terms by which the guarantors would be bound. It is submitted that it is immaterial that she elected not to read the guarantee: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
b)For the purposes of seeking relief pursuant to s.87 of the Trade Practices Act and given the delay in commencing the proceedings to have the guarantee declared void, Mrs Bennell’s own evidence is that she was aware of the guarantee from 2002 (third affidavit of Mrs Bennell, paras.122-123).
c)Mrs Bennell has acted as a director of various companies since 1993 and is an experienced business woman. She is not a person who was placed in a disadvantaged or vulnerable position in February 1999 by others taking advantage of her at the time of the document execution.
d)Mrs Bennell was appointed a director of Total Entity on 2 April 1998, being 20 months prior to her signing the guarantee (third affidavit of Mrs Bennell, para.3)
e)Gordon & Johnstone’s letter to Mrs Bennell on 15 February 1999 invited her to approve the Factoring Agreement and guarantee and advised her to obtain independent legal advice as a guarantor (third affidavit of Mr Dougherty, Exhibit “MD3”, Volume 4, p.24).
f)In order to obtain increases in the limit of the Factoring Facility, at various times from 1999 to 2002 Mrs Bennell signed a number of letters of offer sent to her by Westlawn Factors and Westlawn Finance. They referred to the fact that the offers to increase the facility limit were subject to the existing terms and conditions of the factoring agreement, including the guarantee provided by Mrs Bennell.
g)Mrs Bennell signed a Notice of Assignment on 30 May 2000 which makes specific reference to the guarantee.
h)In Mrs Bennell’s letter to Mr Artindale of 10 January 2002, she acknowledged and relied on the guarantee in order to convince Westlawn Factors to approve a further increase in the limit of the Factoring Agreement.
i)Mrs Bennell was an experienced business woman who managed the business affairs of Total Entity and Janile Pty Ltd in relation to the Factoring Agreement until each company was wound up. Thereafter, she negotiated and managed the sale of Total Entities and Janile’s assets (The applicant relies on numerous letters and emails sent by Mrs Bennell to Westlawn Factors Pty Ltd, Westlawn Finance Ltd ACN 001 493 634, Westlawn Finance Ltd ACN 096 725 218 and Mr Dougherty from 1999 to 2006: Exhibits “MD-2” and “MD-3”, Volume 4).
j)Mrs Bennell only commenced Supreme Court proceedings to have the guarantee declared void after this Court ordered the substitution of Westlawn Finance as petitioning creditor.
Consideration
There is a substantial body of evidence that various members of the Westlawn Group of Companies advanced monies to Total Entity commencing shortly after 16 February 1999; and that repayment of part of that is still outstanding. The parties participated in this financial arrangement on the understanding that it operated pursuant to the Factoring Facility Deed executed on 16 February 1999. However, detailed arguments supported by written and oral submissions suggest that the financing accommodation did not strictly comply with the structure of the Deed and further complications arose from assignment of that facility to other companies within the Westlawn Group.
Detailed written and oral submissions have been presented by Mr Svehla for Ms Bennell, arguing that the commercial relationship between the parties was not conducted strictly in accordance with the executed documentation. He submitted that a forensic analysis of the material will show that there are a material number of ways in which the actual provision of the financial accommodation to Total Entity was not in accordance with the terms of the Deed. However, it was acknowledged that there is no doubt that financial accommodation was provided. Mr Svehla also emphasised the complexity of the obligations upon Total Entity to accept or not to accept offers and keep particular accounts and books in a certain way. Mr Svehla submits that Total Entity never had the ability to enter into this arrangement to assign existing debts as it needed immediate money to pay its obligations. All it could do was enter into a facility on the basis of projected bookings.
I accept the submission that it is not this Court’s function or responsibility to carry out an investigation into the legalities of the Factoring Arrangement or its subsequent transfer to other group companies. This is a task more appropriately undertaken in the proceedings commenced in the Supreme Court of New South Wales to rationalise the contractual instruments and their legal effect.
McNamara v Longford (supra) is authority for the proposition that a creditor who seeks to be substituted as a petitioning creditor must be a person whose debt was in existence at the time of the act of bankruptcy alleged in the original Petition. That clearly existed in this instance. As indicated above, the amount owing was in the vicinity of $7,800,000 as at 23 September 2002 on Mrs Bennell’s estimate, whereas the act of bankruptcy in the original Petition filed by American Express was on 31 August 2007. Although the quantum of that debt has changed it remained far in excess of the $2,000 threshold as required in s.52 of the Act.
Irrespective of the outcome of the Supreme Court proceedings, the Westlawn Group of Companies provided a financial facility which began at $170,000 and, by various subsequent arrangements, increased to $7,750,000. Although the precise quantum of the current debt is in dispute, it appears to be at least $6,000,000. The existence of debt has not been denied by Mrs Bennell, who acknowledged that the amount owing was in the vicinity of $7,800,000 as at 23 September 2002 (third affidavit of Mr Dougherty, Exhibit “MD3”, Volume 4, p.129).
There is no judgment debt on which Westlawn Finance can rely in seeking a sequestration order. However there is no requirement for a substituting creditor to have judgment debt, as is the case with Westlawn Finance Ltd by order of this Court on 18 November 2008: American Express International Inc v Bennell (No.2) (supra). The authorities support this view: Howe v Rose (supra).
If the outcome of the Supreme Court proceedings is that the financial accommodation provided by members of the Westlawn Group did not occur according to the provisions of the Factoring Facility Deed or its subsequent assignment to different companies within the group, both parties clearly demonstrated a willingness to proceed on the assumption that the arrangement was being undertaken pursuant to that Deed. Monies were advanced which were subject to a fee structure and Total Entity acknowledged that arrangement by repaying some of those monies. Westlawn Group retains the right to recover on a quantum meruit, which does not depend on the existence of an implied contract but on a claim of restitution or one based on unjust enrichment: Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 245 per Deane J.
In O’Mara Constructions Pty Ltd v Avery [2006] FCAFC 55 at [56] per Heerey, Dowsett and Conti JJ their Honours stated:
[56] It must also be kept in mind that insolvency proceedings are generally thought to be for the benefit of all creditors. Thus, pursuant to s 49 of the Bankruptcy Act, if a petitioner does not prosecute the petition with due diligence or if, for any other reason, the court considers it proper to do so, it may order substitution of another creditor for the petitioner. This strongly suggests that the issue at the heart of the petition is the debtor’s insolvency and not any individual debt. The debt is relevant only to the petitioner’s standing. This view is re-inforced by those cases which suggest that substitution may be permitted even where the original petitioner’s debt is disputed. See 2000 Olympic Games Pty Ltd v Daly [2000] FCA 1286 at [3] (per Burchett J) and Re Hughes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 217 (per Street J). (emphasis added)
The availability of substitution of creditor under s.49 of the Act demonstrates that in some circumstances, something other than a debt relied on in the Creditor’s Petition may form the basis of a sequestration order in reliance of the act of bankruptcy alleged in the Petition, and notwithstanding that the substituted creditor does not necessarily hold a judgment in respect of the debt: McNamara v Langford at 271; Dean v QUF Industries Ltd (1981) 51 FLR 317 at 323; Re Davy ex parte BBC Hardware Ltd (1996) 67 FCR 355 at 356 and Howell v Rose (supra) at [28]. The fact that a debt on which an amended Creditor’s Petition is based is not the subject of a judgment does not mean it cannot be relied on as a basis for a Creditor’s Petition: Re Emerson & Anor; Ex parte Wreckair Pty Ltd & Ors (1991) 101 ALR 315.
I note in the submissions that there is no express charging clause in the factoring deed and there has been an attempt to assign debts in that instrument. There is a question about whether the absence of an a charge has the effect that the otherwise expressed terms of creating a charge in this charging clause means there is no charge. It is submitted that the objective intent of the document was to create a charge with the ability to have it enforced in a Court. However, this does not mean that there is no security over the property. It is argued that the effect of clause 9.2 of the Deed is the even if there is no charge referred to in the “Security” a charge is created over the assets of Mrs Bennell. Clause 9.3 prevents disposal or creation of an encumbrance over any property charged under the Deed and that the parties will enter into all further documents to enable further registration of the charge. That clause seeks to incorporate provisions of the Conveyancing Act that create powers as appropriate.
The verification of the amended Creditor’s Petition that was made by Mr Dougherty was challenged because of the assertion that there is no charge when in fact there is. I note the sworn oral and affidavit evidence of Mr Dougherty that Westlawn Finance Ltd does not hold any security. There is evidence before the Court that all of the real estate originally subject to these arrangements has been disposed of and various creditors, including Westlawn Finance, were provided with the benefit of that disposal. I also note the argument that there is property belonging to Mrs Bennell which could be charged. In the absence of any evidence as to the existence of such assets, I am satisfied that the statement of Mr Dougherty should be accepted that Westlawn Finance does not hold any security in respect of Mrs Bennell.
I acknowledge the submissions made in respect of certain assets of Mrs Bennell that were the subject of previous proceedings before me. However in the absence of Mrs Bennell being available for cross-examination on this issue, I am not satisfied that Westlawn Finance either holds or has sought charges over any assets of Mrs Bennell. Consequently, I accept the evidence of Mr Dougherty that no security is held.
In the circumstances, I am satisfied that the Amended Notice Stating Grounds of Opposition to the Creditor’s Petition filed on 9 July 2009 should be dismissed, with an order of costs to be paid by Mrs Bennell.
I certify that the preceding seventy-one (71) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
Date: 18 September 2009
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