Westpac Banking Corporation v Paras
[2020] FCCA 1156
•22 May 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| WESTPAC BANKING CORPORATION v PARAS & ANOR | [2020] FCCA 1156 |
| Catchwords: BANKRUPTCY – Creditor proceeding with petition in 2017 – proceeding leading to deed of settlement – debtors not complying with deed of settlement – whether deed amounted to an accord executory or accord and satisfaction – whether creditor entitled to proceed to petition on basis of judgment debt allegedly compromised by deed of settlement – whether creditor precluded by its allegedly unconscionable conduct from proceeding to bankrupt debtors – debtors’ criticisms not made out – sequestration orders made. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52, 245. |
| Cases cited: Cain v Whyte (1933) 48 CLR 639 DCT v Hadidi (1994) 123 ALR 48 Harman v Secretary of State for Home Department [1983] 1 AC 280 McDermott v Black (1940) 63 CLR 161 Re A Debtor (1909) 16 Manson 205 Re Feast (1887) 4 Morr 37 Re HB (1904) 1 KB 94 Re Lomax ex parte City Bank (1892) 3BC (NSW) 66 Re Vogel; ex parte East Anglo Eastern Contract Company (1913) 10 LT 325 |
| Applicant: | WESTPAC BANKING CORPORATION |
| First Respondent: | JOHN PARAS |
| Second Respondent: | STEPHEN MATTHEW APPERLY |
| File Number: | MLG 2563 of 2019 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 17 April 2020 |
| Date of Last Submission: | 17 April 2020 |
| Delivered at: | Melbourne |
| Delivered on: | 22 May 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr Brown |
| Solicitors for the Applicant: | DLA Piper |
| Counsel for the Respondents: | Mr McEwen |
| Solicitors for the Respondents: | Patrick & Associates |
ORDERS
The parties are directed to confer and forward Minute of Orders to give effect to these Reasons for Judgment within 14 days.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2563 of 2019
| WESTPAC BANKING CORPORATION |
Applicant
And
| JOHN PARAS |
First Respondent
| STEPHEN MATTHEW APPERLY |
Second Respondent
REASONS FOR JUDGMENT
In this proceeding the applicant bank seeks sequestration orders. In respect of the first respondent, who tragically died during the currency of the proceeding, an order is sought against his estate pursuant to section 245 of the Bankruptcy Act 1966 (Cth) (“the Act”). In respect of Mr Apperly a sequestration order is also sought. The applicants submit, and this is not controversial, that the formal matters in section 52(1) are satisfied, and that the respondents have not put forward any evidence of solvency.
This is not, however, where the controversy ends, rather it is where it starts. The respondents (counsel appeared on behalf of both the estate of Mr Paras and Mr Apperly) submit that there are two bases upon which the respondents resist the making of sequestration orders. Although not articulated in terms, they seem to fall as a matter of analysis within section 52(2) of the Act and to amount to “other sufficient cause a sequestration order not be made”.
Although the matter has been expressed in a somewhat scattergun way from time to time by the respondents, they appear to me to advance two central matters which are:
(a)The judgment debt upon which the bankruptcy notice and, as a result, the creditor’s petition were based was extinguished when the parties entered into a deed of settlement, and accordingly, the original debt can no longer exist; and
(b)The conduct of the bank was unconscionable because the bank prevented the respondents (and more particularly Mr Apperly) from complying with the terms of the deed of settlement and the bank’s conduct in so doing was unconscionable.
For the reasons that follow, I do not think that any of the matters advanced by the respondents are made out on the materials, and I will make the sequestration orders that are sought.
Other Preliminary Matters
It should be noted that none of the various deponents in the proceeding were required for cross-examination. Both parties adopted the position that it would be open to the court to make appropriate determinations of fact on the (admittedly voluminous) materials filed. This presents the court with something of a forensic challenge, but in the end, I have formed a view that I am able to discharge that obligation.
I indicated during the currency of the proceeding that I would rule on two procedural matters raised at trial. The first is the admissibility of documents produced under subpoena issued by the bank to a Mr Frattin, who was a party to a wholly separate proceeding. The objections taken were in part the Harman restriction (see Harman v Secretary of State for Home Department [1983] 1 AC 280), and in part, and additionally, their relevance.
I indicated that I would rule on this matter in my judgment.
As I observed, I think in passing during the trial itself, the Harman objection was of really no moment. The respondents had not improperly sought to put the subpoenaed material before the court, but rather had sought my ruling to enable them to do so. The application may not have been made in an entirely appropriate way, but in the end, it was, in my view, a matter of no moment, albeit that the Harman rule is an important one.
The next matter is the question of relevance.
The documents were plainly sought by the bank to suggest that, contrary to his affidavit material, Mr Apperly was seeking to proceed with what the parties have referred to as the Doncaster Project well after the period he had sworn that he had desisted. While the weight to be given to these documents is a matter to which I will return, they are plainly of sufficient potential relevance that it is appropriate to allow their admission. So accordingly, my ruling is that the material obtained pursuant to the subpoena to Ernest Michael Frattin be received in evidence in this proceeding.
The next part of the procedural disputation refers to the application by the respondents to amend the relief sought to include declaratory and other relief. The respondents said that the applicant had been on notice of the substance of these matters for many months, and while counsel for the applicant did not perhaps in to take issue with that assertion, it was submitted that the notion of declaratory relief and the ancillary assault was raised far too late and without notice. It was put that there was prejudice to the applicant which might have sought to cross-examine a number of deponents in relation to the matters now sought to be raised.
In my view, the matter in this court is whether or not the creditor’s petition should be granted or not. If it is not granted, and the parties wish to pursue other proceedings, then that will be a matter for them. Save to the extent necessary to determine the respondents’ arguments in this proceeding, it is, in my view, wholly unnecessary and inappropriate to embark upon the wider exercise that the respondents, at what in my view is a very late stage in the proceeding, have endeavoured to introduce.
Formal Matters
I do not understand there to be any dispute, as I have already indicated, as to the matters in section 52(1) of the Act, save of course, that the matter of section 52(1)(c) (whether the debt upon which the creditor relies is still owing) is in issue in the sense I have described.
Further, I do not understand either of the respondents to suggest that they are solvent in the sense that they are able to pay their debts (section 52(2)(a)).
In the circumstances, the applicant is correct to submit, as is indeed submitted, that these matters having been satisfied, there is a presumption that the court will make an order for sequestration and that it is for the respondents to prove that a sequestration order ought not be made (Cain v Whyte (1933) 48 CLR 639 at 646).
In order to understand the matter substantively in issue between the parties, it is necessary to turn to the facts of the case.
The Facts Of The Case As Revealed By The Materials Filed
In or about December 2007 the respondents commenced a joint venture company called Epping Fresh Food Market Pty Ltd and each of the respondents signed personal guarantees to Westpac for the loan facility which enabled this to be financed (CB261 paragraph 9).
On 20 August 2015 Westpac commenced recovery of the funds owing under the guarantees and obtained judgment in default on 10 March 2016 (CB261 paragraph 12). Inclusive of interest and costs, the total payable on the default judgment, the debt, was in excess of $8 million (CB353).
In an unrelated venture, on around 22 March 2007, Mr Apperly executed a guarantee and indemnity in favour of Westpac in relation to what I will describe as the Sanctuary Townhouses Project (paragraph 19 CB363). In August 2016 the applicant served bankruptcy notices on each of the respondents in relation to the judgment debt (paragraph 15 CB543). On or about 1 February 2017, by which time the respondents had not complied with the bankruptcy notice, the bank filed a creditor’s petition against the respondents in the Federal Circuit Court (paragraph 16 CB543).
On 31 March 2017, Messrs R.B. Flinders, solicitors for Mr Apperly, wrote to the bank advancing various proposals to resolve the dispute (bearing in mind that the bankruptcy hearing was originally posited for 11 April 2017). Various proposals were put in the alternative. They were summarised at CB374. Relevantly for these purposes, however, what has become known as the Doncaster Project is at CB372. The proposal relevantly provided:
1)Mr Apperly provide Westpac with a monthly report detailing the progress of this project; and
2) Mr Apperly pays to Westpac $1 million from this project within seven days of its completion – but no later than 31 September 2019.
Additionally, Mr Apperly offered (CB374):
Finally, we’ve been instructed by Mr Apperly to include as a term in any deed of settlement reached with Westpac, that he will make a payment to Westpac of $25,000. This payment will be made on 28 April 2017.
Various negotiations followed, but on 10 May 2017 (the day before the, by then, further adjourned hearing of the petition was due) the parties entered into a deed of settlement and release. The proper construction of that the deed of settlement and release is at the heart of the respondents’ first argument.
It will be necessary to return to the facts in further detail when considering the second limb of the respondent’s defence. But for present purposes, the forgoing is sufficient to give an indication of how matters game to pass.
The Deed of Settlement (CB377)
It is necessary to have regard to the whole of the deed of settlement and I have done so. Perhaps, relevantly for these purposes, particular attention might be given to recital K, in which it was provided:
The parties to this Deed have agreed to settle the Claims, the Proceeding and the Bankruptcy Proceeding as between them in accordance with the terms of this deed.
The claims were the claims on the Paras and Apperly guarantees which gave rise to the debt of $835,000 (described as the debt) and the proceeding was the proceeding that led to that debt. The bankruptcy proceeding was the proceeding that was due to be heard on 11 May 2017.
By paragraph 1.1 under the heading Project Proceedings, it was provided that the respondents would appoint legal counsel at their own costs to advise them and assist them in relation to financial damages claims against a number of parties therein described.
By paragraph 1.2, subject to the legal advice, the respondents were to commence individual proceedings against those parties for damages, promptly and without delay (“the Project Proceedings”).
By paragraph 1.3:
During the term of this Deed, legal counsel appointed by Paras and Apperly, will on the 1st day of each month commencing on 1 June 2017, provide to Westpac a written update in relation to the progress of each of the Project Proceedings including a summary of the expenses incurred of each of the Project Proceedings, an estimate of the likely damages to be recovered in each of the Project Proceedings and the likely timing of recovery in each of the Project Proceedings.
By clause 2, Settlement, it was provided that:
2.1. In full and final settlement of the Claims, the Proceeding and the Bankrupt Proceeding insofar as it relates to the parties the subject of this Deed, Paras and Apperly agree to:
2.1.1 pay to Westpac the sum of $1,015,000 (“the Initial Settlement Sum”) by way of the following instalments:
2.1.1.1 the amount of $15,000 to be paid in cleared funds by 4:00pm on 10 May 2017 into Westpac BSB 033 002 Account Number 935 900;
2.1.1.2 the amount of $500,000 by 31 October 2018; and
2.1.1.3 the amount of $500,000 by 13 September 2019;
2.1.2 pay to Westpac 25% of the net proceeds received from each of the individual Project Proceedings within 7 business days of receipt of any settlement sum or judgment debt related to each of the Project Proceedings (“Final Settlement Sum”).
By clause 2.2, time was of the essence in relation to the pay of the amounts in clause 2.1.1. By paragraph 4, Withdrawal of Creditor’s Petition, the parties consented, upon the execution of the deed, to Westpac seeking orders in the bankruptcy proceeding granting leave to withdraw the creditor’s petition with no orders as to costs.
Under clause 5 Covenant Not to Sue, Paras and Apperly agreed to release Westpac from any claims arising out of the provision of loaned funds to the Epping Fresh Food Project.
Paragraph 5.3 should be set out in full:
5.3 Upon receipt of the Initial Settlement Sum and the Final Settlement Sum in full and subject to its retention by Westpac, Westpac agrees to:
5.3.1 forever release and discharge Paras and Apperly from all actions, claims, costs, demands, proceedings, suits and/or writs arising from or in connection with the matters the subject of the Claims;
A further release to Epping Fresh Food in clause 5.3.2 is not relevant.
By clause 6 “Default” it was provided:
6.1 If Paras or Apperly default on payment of any amount described in clause 2.1 above or fail to meet their obligations in clause 1 above, Westpac can immediately write to Paras and Apperly as follows:
6.1.1 setting out the nature of the default; and
6.1.2 demanding that any default be rectified by Paras and Apperly within five business days of the date of such notice from Westpac.
6.2 Should Paras and Apperly fail to rectify the defaults set out in a notice sent by Westpac in accordance with clause 6.1 above, Westpac will be entitled to proceed with bankruptcy proceedings against them and Paras and Apperly agree not to defend, contest or otherwise dispute a sequestration order being made against each of them. If Paras and Apperly do attempt to defend any such bankruptcy proceeding, Westpac may file an affidavit setting out the terms of this Deed to restrain them from doing so.
It is not controversial that the sum of $15,000 envisaged by clause 2.1.1.1 was paid but neither of the other sums were paid within the time stipulated within the deed of settlement or at all. It is, likewise, uncontroversial that following those defaults the bank issued a default notice dated 1 March 2019 because the sum of $500,000 was not paid by 28 February 2019 (CB597) and that default was not remedied.
It is not in issue, likewise, that this gave rise to further bankruptcy notices. An attempt by Mr Paras to set his bankruptcy notice aside did not proceed. In due course, the petition currently before the Court was issued.
The essential difference between the parties was whether the settlement deed properly construed amounted to an accord and satisfaction such that the original judgment debt merged in the settlement and was therefore no longer extant. This was the respondents’ position and if correct would mean that the original judgment debt upon which the petition is based was no longer a debt and therefore, axiomatically, the bankruptcy notice was not valid and the petition must be dismissed. The applicant’s contrary position was that this was an accord executory and that accordingly, the original debt was not extinguished. Following default, it was open to the bank, it was submitted to issue notice of default, and to issue a bankruptcy notice on the basis of the original debt.
The parties referred me to the judgment of the High Court in McDermott v Black (1940) 63 CLR 161 and the celebrated judgment of Dixon J, as his Honour then was. At 183-184, His Honour said:
The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one. The decision of the Court of Appeal in British Russian Gazette & Co. Ltd. and Talbot v. Associated Newspapers Ltd. (1), though doubt less some of the reasons display less zeal for principle than for reform, does not appear to me to be inconsistent with the received doctrine that no new cause of action is given by an accord executory. In that case, the agreement constituting the accord was made as a compromise of three several causes of action vested in three persons respectively. It was made by one of them purporting to act not only on his own behalf but also as agent for the other two. In fact he had no authority to do so, and he was held liable for damages for breach of warranty of authority. This result might perhaps be supported, even if the agreement were an accord executory, on the ground that, at all events, the opposite party had acted to some extent on his representation of authority, but the intention of the parties appears to have been that the agreement of compromise should itself have been accepted as in satisfaction of the causes of action, so amounting to an accord and satisfaction. The case, therefore, provides no more than a late illustration of the doctrine, finally established perhaps by Flockton v. Hall (2), that of accord and satisfaction there are two cases, one where the making of the agreement itself is what is stipulated for, and the other, where it is the doing of the things promised by the agreement. The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. 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. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.
Was the Deed of Settlement an Accord Executory or an Accord and Satisfaction?
In my view, the issue the court has to determine is, to paraphrase the words of Dixon J, the deed when properly construed one that suggests Westpac settle for a promise or settled on the basis that settlement was complete when certain things were done.
The first thing to be noted, of course, is that the recitals are described as “Background” and the actual agreement is then set out in paragraphs 1 to 12 of the deed.
Recitals A to F inclusive simply set out the manner in which Epping Fresh Food defaulted on their facility agreement and note the guarantees given by Mr Paras and Mr Apperly in respect of that agreement.
Recital G defines the proceeding whereby Westpac obtained judgment in the Supreme Court for in excess of $8 million dollars and the claims in that proceedings as the claims. Recital H notes the debt of over $8,350,000 and recital I notes the bankruptcy notice issued against both Mr Apperly and Mr Paras. Recitals J and K read:
J: On 1 February 2017, Westpac filed a creditor’s petition in Federal Circuit Court of Australia Proceeding No. MLG 210 of 2017 against Paras and Apperly seeking that (amongst other things) a sequestration order be made in relation to the respective estates of Paras and Apperly (“Bankruptcy Proceeding”).
K: The parties to this Deed have agreed to settle the Claims, the Proceeding and the Bankruptcy Proceeding as between them in accordance with the terms of this Deed.
The operative terms of the agreement, as they can be described, commence in paragraph 1 with a definition of what are described as project proceedings. It was noted that Mr Paras and Mr Apperly would appoint legal counsel at their own cost to advise of their chances of success in relation to various entities (clause 1.1) and that subject to that advice, they would issue proceedings against them promptly and without delay (clause 1.2). By clause 1.3, as already noted, it was provided:
During the term of this Deed, legal counsel appointed by Paras and Apperly, will on the 1st day of each month commencing on 1 June 2017, provide to Westpac a written update in relation to the progress of each of the Project Proceedings, including a summary of the expenses incurred in each of the Project Proceedings, an estimate of the likely damages to be recovered in each of the Project Proceedings and the likely timing of recovery in each of the Project Proceedings.
Clause 2 “Settlement” has already been set out in full.
By clause 4 it was provided:
Withdrawal of Creditor’s Petition
4.1 Upon execution of this Deed, the parties consent to Westpac seeking the following orders in the Bankruptcy Proceeding:
4.1.1 Leave to withdraw the creditor’s petition.
4.1.2 No order as to costs.
Paragraph 5 deals with releases (described as Covenant Not to Sue). By clause 5.1 and 5.2, Mr Paras and Mr Apperly effectively release Westpac. By clause 5.3 (and I appreciate this is repetitive), the following was said as to Westpac’s release of Mr Apperly and Mr Paras:
5.3 Upon receipt of the Initial Settlement Sum and the Final Settlement Sum in full and subject to its retention by Westpac, Westpac agrees to:
5.3.1 forever release and discharge Paras and Apperly from all actions, claims, costs, demands, proceedings, suits and/or writs arising from or in connection with the matters the subject of the Claims;
Clause 6 “Default” has already been set out in full.
The only other matter of note in the deed itself is clause 10, variation, which provided the parties could (as in fact they subsequently did) vary the deed in writing.
It should be noted that the phrase “the term of this deed” referred to in clause 1.3 is not defined but it seems to me, as a matter of construction, taking the terms of the deed as a whole, that it must have meant the time provided for in the deed for the various acts, matters and things to be done that would bring it to completion.
Looked at as a whole, the structure of the deed, in my view, can be relevantly summarised as involving possible proceedings by Mr Paras and Mr Apperly, called the project proceedings (clause 1), payment of funds amounting to $1,015,000 and 25 per cent of the proceeds of the project proceedings (clause 2), withdrawal of the creditor’s petition (clause 4) and mutual releases (clause 5) and provisions for default.
In my opinion, the critical clause in terms of whether or not this deed was an accord executory or an accord and satisfaction is clause 5.3, which relevantly states:
Upon receipt of the initial settlement sum and the final settlement sum in full and subject to its retention by Westpac…
In my view, this express term of the deed means that the parties did not settle on a mere promise to pay, extinguishing the prior debt and resulting in a wholly new one in the amounts of the settlement sums. Rather, the existing claims which were to be released were preserved until payment was made.
In this regard, this case is not dissimilar to DCT v Hadidi (1994) 123 ALR 48 (“Hadidi”) where, in circumstances where the facts were not so clear as they are in this instance, Beaumont and Heerey JJ noted that Sweeney J at first instance had determined the matter on the basis that “the Commissioner had agreed with the agent for the debtor and his wife that he would be content to accept their promises under the agreement in place of their liabilities under the judgments obtained against them” (at page 53).
Sweeney J had relied on Re A Debtor (1909) 16 Manson 205 where the Court relevantly found “the effect of that agreement was to extinguish the old debt and substitute for it a new contract” (at page 53).
At page 55, Beaumont and Heerey JJ said:
The next question is the proper construction of the settlement agreement itself. Was the applicant accepting, in satisfaction of his rights under the judgment, the mere promise of Mr and Mrs Hadidi or only the performance of that promise by payment of $75,000. As has been noted, Sweeney J was of the view that the best available evidence of the agreement was the letter dated 14 February 1990. Although, with respect, there is force in that view, the fact that it was not written until three months had elapsed from the time of the making of the agreement detracts from its reliability for present purposes. By the time the letter was written, three payments of $15,000 each had already been made by Mr and Mrs Hadidi. Moreover, although the letter referred to a bank cheque for the sum of $30,000, no such stipulation was noted in the contemporary file memorandum.
As Sweeney J pointed out, the letter was silent on the consequences, if any, of the failure to pay the final instalment of $30,000. On the other hand, the file note did address the contingency of “default (occurring) on any one payment of the arrangement” by providing that “legal proceedings will (then) be continued.”
The context of these documents was the signing of two separate default judgments in which, it appears, each debtor disputed at least part of the penalty tax component of the judgment debt. Although the judgments were in the sums of $50,000 and costs and $48,000 and costs, approximately speaking, thus a total of about $100,000, the overall compromise was in the amount of $75,000 only. It is common ground that upon payment of the total sum of $75,000, each debtor was entitled, both at law and in equity, to an unconditional discharge and release from liability under their respective judgments. It is an unlikely intention to impute to the parties that in November 1989 the appellant was agreeing to accept, in place of judgments totalling about $100,000, a bare promise by the respondent and her husband to pay instalments totalling $75,000, so that upon any default in payment the appellant would have to return to court and commence proceedings all over again on a fresh cause of action. Thus, we do not agree with the reasoning of the learned primary judge on the point which he found determinative.
Wilcox J, who dissented in part, expressly agreed with the conclusion of Beaumont and Heerey JJ at page 62 to 63:
I find it inconceivable that Mr South would have agreed to surrender the Deputy Commissioner’s right to enforce the judgments in return for mere promises to pay. I agree with Beaumont and Heerey JJ on this aspect of the case.
Here, the picture is far more stark than it was in the matter of Hadidi. The judgment debts were in excess of over $8 million dollars. The notion that the bank intended to give away forever all entitlements to the sums due for a mere promise to pay less than 1/8 of the sums outstanding is not, in my view, a likely contemplation of the creditor. In my view, the deed, properly construed, was an accord executory according to its plain terms.
The deed did of course require payment of $15,000 in cash effective immediately, but in my view this payment, which was plainly, as I think all parties agreed before me, merely a reimbursement of the costs of the creditors petition proceeding, is when viewed properly merely as with the discharge of the petition itself a machinery matter. It did not in any way compromise the pre-existing debt.
Was the bankruptcy notice bad in any event as not being founded on the judgment debt?
A subsidiary part of the respondent’s arguments was to the effect that the bankruptcy notice was bad because upon default it was incumbent upon the bank to issue further proceedings on that default, obtain judgment and then issue a creditor’s petition.
In part, this argument also was traversed in the Hadidi case.
Nonetheless, the first matters to be addressed are the parties’ countervailing positions as to what the deed itself provided. It was the applicant’s position that upon default in compliance with the terms of the deed, it was open to the bank to issue a further petition based upon the unsatisfied original debt of in excess of $8 million dollars. The respondent’s countervailing position was that the terms of the deed properly construed could not mean this, both of course because of the original debt had merged in the deed of release (the argument I have just rejected above) and because the terms of the deed did not contemplate such a course in any event.
It should be noted that the settlement of the pre-existing bankruptcy proceeding as defined in recital J was the subject of recital K “the parties to this Deed who agree to settle the Claims, the Proceeding and the Bankruptcy Proceeding as between them in accordance with the terms of this Deed.”
As earlier emphasised, in my view the release by Westpac to Mr Paras and Mr Apperly did not come into play until the financial obligations in clause 2 were satisfied.
Clause 6 “Default” provided that notices could be issued by the bank in the face of default and that:
Westpac will be entitled to proceed with bankruptcy proceedings against them and Paras and Apperly agree not to defend, contest or otherwise dispute a sequestration order being made against each of them.
Counsel for the respondents laid emphasis on the fact that the deed itself contemplated the entire disposition of the bankruptcy proceedings as defined and it was submitted that this could only mean that the bank would have to pursue separate and renewed proceedings. By way of contrast, counsel for the applicant submitted that in the event of default there was of course no compromise of the original $8 million dollar debt and it was open to the applicant bank to proceed as it did.
In Hadidi, Beaumont and Heerey JJ addressed this issue at page 57 to 60. They first dealt with the matter of section 41(3)(b) of the Act, a matter to which I shall return. At page 57 their Honours went on to say:
The second matter to be noted is that, in order to comply with s 41(2)(a), a bankruptcy notice must require payment in accordance with the judgment. The meaning of this provision has been considered in a number of cases.
Their Honours then embarked upon a review of authority on this point. Each of the cases examined turns upon its own facts. Re Feast (1887) 4 Morr 37 was summarised as follows:
In Re Feast (1887) 4 Morr 37, judgment for £438.12.0 and costs was recovered against a debtor. Costs were taxed at £37 and the creditor issued a bankruptcy notice in respect of the judgment debts and costs. An agreement was thereupon come to between the debtor and the creditor, by which the debt and costs were agreed at £500, and the debtor agreed to pay £100, at once, such £100 including the £37, taxed costs, £25, costs of the bankruptcy proceedings, and £38, part of the judgment debt, and the balance of the debt by monthly instalments of £20; in case any instalment was not duly paid the whole amount then unpaid to be due forthwith and payable. The £100, and some of the instalments were duly paid, but on default subsequently being made a bankruptcy notice for the unpaid balance was issued by the creditor. It was held that the agreement entered into was to the effect that upon default of judgment of any instalment, the unpaid balance was to become due under the judgment, and that the creditor was entitled to issue a bankruptcy notice in respect of the balance of the debt then due.
Beaumont and Heerey JJ noted that Re Lomax ex parte City Bank (1892) 3BC (NSW) 66 and Re Vogel; ex parte East Anglo Eastern Contract Company (1913) 10 LT 325 led to the same conclusion. Their Honours also dealt with Re HB (1904) 1 KB 94, and noted that at 59:
In Re HB (1904) 1 KB 94, the parties settled litigation on terms, inter alia, that the debtor consent to judgment in an amount to be payable by instalments. The debtor paid only the first instalment. The creditor issued a bankruptcy notice for the total payment of the instalments then in arrear as being “the amount due on the judgment.” It was held that the bankruptcy notice was bad.
Their Honours noted inter alia the observation of Lord Justice Sterling in that case to this effect:
It appears to me that in reality the creditor is requiring payment of the debt, not simply in accordance with the terms of the judgment, but in accordance with the terms of the judgment as varied by the collateral agreement. I think that this is a material departure from the terms of the statute. Also, I do not think that the legislator meant to make non-compliance with a judgment an act of bankruptcy so long as the terms of the judgment were controlled by an outside agreement which might be more or less difficult of construction. The result is that, in my opinion, the creditor will not be entitled to notice a bankruptcy notice until all the instalments provided for by the agreement have become payable.
I wish only to add that in expressing this opinion, I am not departing from anything that was laid down the case in the Court of Appeal of Re Feast … which was referred to in the argument, and by which we are bound. The agreement there contained a stipulation that, if default should be made in payment of any of the instalments, the whole debt should become payable; and there was nothing inconsistent with that agreement in requiring payment of the whole debt when an instalment was omitted to be paid.
Beaumont and Heerey JJ then continued at page 60:
Re HB was considered in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71, 79 ALR 161. In that case, Mason CJ, Wilson, Brennan and Gordon JJ said (at CLR 79; ALR 165):
It is clear enough from the terms of s 41(2)(a)(i) of the Act that a notice must require payment “in accordance with the judgment.” A notice specifying payment in accordance with some other arrangement does not satisfy this requirement. On one view, Re HB merely gives expression to this requirement, making it clear that a judgment debt will not found the issue of a bankruptcy notice whilst ever the obligation to pay in accordance with the judgment is suspended or qualified by operation of an agreement. With that proposition, we agree. But cf Pillai as to partial discharge by agreement of the obligation.
In Pillai v Controller of Income Tax (1970) AC 1124, Lord Diplock said (at 1130 – 1):
A judgment debt may, with the consent of the judgment creditor, be discharged in part, and where this has been done a bankruptcy notice may be issued for the balance remaining undischarged.
The default clause in the deed of settlement plainly contemplated that in default of payment of any of the settlement sums set out and/or indeed of default in compliance with the subsidiary provisions relating to the project proceedings, Westpac could immediately write to the respondent setting out the nature of the default and demanding rectification within five days. In default of rectification, Westpac was entitled to proceed with bankruptcy proceedings against them.
Given that upon default the settlement fell away, save to the extent with which it had been complied, it was open, in my view, for Westpac to issue a letter of demand seeking the entirety of the monies not paid. There is no material dispute in this matter that the bank did indeed issue letters of default and that there was no compliance.
It is plain that the bankruptcy notice issued to Mr Paras and Mr Apperly sought monies “as per the attached final judgment”. It is plain from CB153 to CB156 that the attached final judgment was indeed the in excess of $8 million judgment obtained in the Supreme Court (see CB155).
In these circumstances, and notwithstanding the arguments put by the respondents, I think that the deed construed properly meant that it was open to the bank to issue a bankruptcy notice in respect of so much of the settlement monies that had not been paid, which is what the bank did. Accordingly, this challenge fails.
Was the bank disentitled to issue the bankruptcy notices by virtue of its own conduct?
This argument, which brings into play the terms of section 41(3)(b) of the Act, to the effect that a bankruptcy notice shall not be issued if, at the time of the application for its issue, extension of the judgment or order has been stayed. Without going into the detail of the judgment, the judgment of Beaumont and Heerey JJ in Hadidi makes it clear at page 57 that:
First, to fall within the prohibition in 41(3)(b), it is not necessary that there be in existence a formal order staying execution. It is sufficient to bring the prohibition into operation if there exists circumstances under which the Court would, if applied to, prevent the issue of execution.
This way of putting the matter also encompasses, in my view, the substantive alternative argument run by the respondents to the effect that it was the conduct of the bank, wilful and knowing and therefore unconscionable, which as a matter of practical politics made it impossible for Mr Apperly to fulfil the bargain that the deed of settlement represented. As summarised by the applicant’s written submissions, this argument also, although not perhaps stated in terms, supported the respondent’s position that a sequestration order ought not be made for other sufficient cause.
There is no avoiding a relatively detailed analysis of the materials filed both to support and oppose this broad contention. The first direct response to this aspect of the matter in affidavit is set out in the affidavit of Mr Paras dated 25 September 2019. At CB271 he asserted that he had a counter‑claim setoff or cross‑demand pursuant to section 40(1)(g) of the Act and produced a true copy of a writ in the Supreme Court of Victoria filed by companies owned by the respondents against Westpac.
The statement of claim, which was not prepared by lawyers, can be characterised as complaints of negligence on the part of Westpac in giving Mr Paras and Mr Apperly advice in relation to what was described as the Epping project. The statement of claim which is dated 29 August 2019 made no reference to the matters which are now complained of.
Mr Apperly’s affidavit also dated 25 September 2019 makes no reference to matters now raised. At paragraph 13 (CB261), Mr Apperly deposed:
Paras and I could not afford to defend the Westpac proceeding given the legal costs involved and those incurred in fighting the VCAT proceeding where queens counsel had been retained. Further, there were promising settlement discussions with Westpac’s Simon Timbs from the time Westpac filed its recovery proceeding. There were for example some 85 email exchanges over the period until judgment, a few meetings, and sundry telephone calls. Put simply, we believed the recovery proceeding could be settled and it was best not to upset the bank as a party with a deep pockets, but to resolve the matter commercially.
In his next affidavit dated 4 October 2019, Mr Apperly expanded his position. This gave support the terms of the amended grounds of opposition (see CB256 to 257). The affidavit referred to alleged duress and possible other sources of funding from litigation, neither of which are presently relevant. At CB360 Mr Apperly deposed as to a written proposal sent by RB Flinders (his solicitors) on 31 March 2017 which contained a number of proposals for settlement including what has come to be known as the Doncaster project. That correspondence is exhibit SA4.
It should be noted that exhibit SA4 advanced a number of discrete proposals, of which the Doncaster project was only one. I note that at CB372 it was posited that:
This project will be concluded within 2 ½ years. Mr Apperly estimates that this project will return a profit of approximately $1.2 million to Longreach.
He went on to propose that:
Mr Apperly pays to Westpac $1 million from this project within 7-days of its completion – but no later than 31st September 2019.
It was also proposed that:
Mr Apperly provide Westpac with a monthly report detailing the progress of this project.
At paragraph 7 of affidavit (CB360), Mr Apperly deposed:
On or about 10 April 2017 in the course of a telephone conversation with Simon Timbs, Mr Timbs said to the effect that the bank was interested to know about my project in Doncaster, and asked me to explain how I calculated the projected profit for the development, which I then did. As a result of this conversation, the parties quickly moved towards formulating the terms of a Settlement Deed. I prepared an initial draft in early May 2017, which provided for my release from all monies previously owing to Westpac. This was included with the object of releasing me from a liability as one of two personal guarantors of a Westpac finance facility granted in 2006 for a project known as Sanctuary Townhouses at Point Cook where I had sold my interest to my partner, Larry Bowtell, in May 2007.
The affidavit goes on to note that (paragraph 8):
even though I was dismayed that the deed did not provide for my release from the personal guarantee of the Sanctuary Townhouses loan facility, I had no choice but to sign the deed in the circumstances.
The affidavit went on to detail at paragraph 9:
The first $500K payment was to be made from the progressive drawdown of project management fees payable to my company Thames Street Developments Pty Ltd, as the developer of the Doncaster project. These fees by 31 October 2018 would have comfortably accumulated a total sum more than sufficient to pay the first $500K due. The project was due to start in early 2008.
In paragraphs 11-12, Mr Apperly deposed:
11. Then, in the midst of such funding discussions, I received on 23 June 2017 by email from Minter Ellison on behalf of Westpac a Demand for Payment under Guarantee and Indemnity. This demand was made in respect to an alleged debt from my personal guarantee of Westpac funding obtained with my former business partner, Larry Bowtell, in the project known as the Sanctuary Townhouses at Point Cook.
12. After receipt of the Sanctuary demand, I had no option but to suspend, and then ultimately terminate, my involvement as developer of the Doncaster project for the following reasons:
a.each of the participation agreements with the three Doncaster landholders required me through Thames Street Developments Pty Ltd to arrange the financing for the project;
b.no financier would consider funding the project without my personal guarantee and any application for funding would require disclosure of the liability (contingent or otherwise) of the Westpac statutory demand, which would be fatal to the success of the application;
c.accordingly, the funding of the project by me was ‘dead in the water’ without the withdrawal of the Westpac Statutory demand.
At paragraph 15, which dealt with a meeting on 23 June 2017 with a solicitor for the bank and Mr McKillop:
In the course of the meeting I protested to the effect that the demand meant that I would be unable to develop the Doncaster project, with the Bank knew would be the sole source of my funds to meet the $1M payment obligation under the Settlement Deed. I said further to the effect that if the demand was not withdrawn, then the bank had acted to sabotage the Doncaster project and the ability of Mr Paras and I to meet the obligation to pay $1M under the Settlement Deed. Mr McKillop said little but to reiterate the Bank’s claim under the settlement deed.
The affidavit records Mr Apperly’s endeavours to salvage something from the wreck. Mr Apperly also took issue with his continuing liability under the Sanctuary Project guarantee.
Relevantly for these purposes, the next affidavit filed was that of Simon William Timbs dated 18 October 2019. That affidavit details the settlement negotiations that led up to the deed from Mr Timbs’ perspective. I note that an earlier draft of the deed at CB611 to 620 did not involve the provision of any actual cash but contemplated settlement out of proposed legal proceedings, and I further note that in the draft at clause 9 it was contemplated that in default by the respondents, Westpac would be entitled to recommence its then extant creditors petition at any time. At paragraph 21 (CB605) of the affidavit, Mr Timbs deposed:
At no time prior to 10 May 2017 or since did the Second Respondent tell me that the profit to be made from the Doncaster project (as referred to in the Second Apperly Affidavit) was the absolute limit of his financial capacity to pay any money to the applicant as alleged. As set out in the Deed of Settlement (as defined in paragraph 17 of the Hennessey Affidavit), it was expressly contemplated by the parties that the Respondents would use monies received from prospective litigation to be commenced against GIO, K&L Gates (formerly Middletons solicitors), Charter Keck Cramer, Luchio Nominees Pty Ltd and Floralpeak Pty Ltd to contribute to the amounts payable to the applicant under the Deed of Settlement.
Mr Apperly responded to that affidavit on 28 October 2019. At CB439 Mr Apperly traversed the initial offer of settlement on the basis of prospective legal claims. At paragraph 5(d) he deposed:
In these discussions Simon Timbs made it clear that he did not wish to settle the proceedings on the basis of prospective legal claims because he did not view them as likely to succeed, although he stated to the effect that he agreed with my view that the Epping lease was flawed.
At CB440 he deposed:
Mr Timbs by email letter to me of 30 March at 12.51pm stated –
“Negotiations have now ceased”.
The affidavit asserts:
Mr Timbs adopted this position by reason of the inability of the first respondent, I, to offer a significant cash payment –
but does not assert the source of knowledge upon which this assertion is made. It was this letter that led to exhibit “SA-4” to which reference has been made. Mr Apperly deposed (paragraph 5(h)):
this letter flagged for the first time the prospective profit from the Doncaster project of $1.2M as the source of monies to fund such a payment.
At paragraph 5(i) (CB440), Mr Apperly deposed:
the “without prejudice” letter of 31 March 2019 to Mr Timbs at page 4 clearly stated that the $1M payment to Westpac was to be sourced from the Doncaster project, proposing that –
“Mr Apperly pays to Westpac $1million from this project within 7 days of its completion–but not later than 31st (sic) September 2019”.
In the same paragraph Mr Apperly goes on to opine that he had calculated that his company would comfortably make from the progressive drawdown of project management fees a total sum more than sufficient to pay the first $500,000 due.
Mr Apperly went on to depose at paragraph 5(j) that in a conversation on or about 10 April 2017 Mr Timbs had stipulated that $500,000 was required by October 2018 and that Mr Apperly explained to him that this would be paid from project management fees, which would be an additional source of monies on the Doncaster project to the prospective $1.2 million profit. It should be noted that a number of paragraphs of this affidavit (and indeed others) are conclusionary and otherwise objectionable. He went on to disparage the significance of the sub‑part of the settlement involving possible legal recoupment (paragraphs 5(p)-(r) (CB 442).
John Gregory McKillop had also filed an affidavit dated 18 October 2019. He dealt with the Sanctuary loan facility. He denied (paragraph 22, CB746) that there was ever any agreement that Mr Apperly would not have to pay anything further to satisfy his Sanctuary guarantee and noted the letter of demand issued in respect of it on 23 June 2017. Mr McKillop deposed that he had met Mr Apperly on or about 1 August 2017 and had asserted that the bank was willing to have discussions regarding a settlement with respect to the Sanctuary facility. Any settlement needed to involve an upfront payment.
Mr McKillop deposed that he did not recall Mr Apperly saying at the meeting words to the effect that the demand meant that he would be unable to develop the Doncaster project which the bank knew would be the sole source of funds to meet his $1 million obligation under the settlement deed.
In his affidavit (CB444), Mr Apperly repeated his assertion that the demand under the Sanctuary guarantee sabotaged his ability to comply with the settlement deed.
On 2 December 2019 Mr Apperly swore another affidavit. This affidavit goes into greater detail about the conversations allegedly held with Mr Timbs about the Doncaster project. He goes on to detail how the project fees would have been obtained and how the project would have developed. In this affidavit, matters of inadmissible comment and interpretation and surmise, I regret to say, are somewhat more marked, and he goes on to opine that had the bank not sabotaged, then the project would have been successful.
On 3 December 2012, Chris Bailey swore an affidavit in support of the position of the respondents. Contrary to submissions made by the applicant, he is obviously an experienced banker. Leaving aside the possible non-independence of Mr Bailey, it is immediately obvious that his affidavit makes a number of assumptions favourable to Mr Apperly which, in my view, are not made out. Mr Bailey makes assumptions at paragraph 14 of his affidavit which are plainly critical to his conclusions and which in my view involve measures of impermissible speculation. This obviously undermines in major, if not total, part the weight that should be given to it.
Mr Timbs swore a further affidavit on 5 February 2020. Mr Timbs deposed that he had no recall that Mr Apperly had ever told him that the first $500,000 would come from project management fees relating to the Doncaster project but did depose (CB780) that he had received frequent phone calls from Mr Apperly leading up to the deed of settlement. Having referred to the deed of settlement in its terms, Mr Timbs deposed (paragraph 13 CB781):
For reasons including those outlined in paragraphs 10 to 12 above, it was never apparent to me, nor made apparent to me by Mr Apperly, that the Doncaster project was the only source of funds available to Mr Apperly as he deposes in paragraph 32 of the Fifth Apperly Affidavit.
Mr McKillop also swore an affidavit on 5 February 2020 and, relevantly, deposed (CB785):
Mr Apperly did not ever state to me, nor was it apparent to me, that the Second Notice of Demand (mentioned in paragraph 23 of the first McKillop Affidavit) issued in respect of the Sanctuary Loan Facility and Sanctuary Guarantee would “sabotage” or prevent Mr Apperly’s involvement in the Doncaster project.
Finally, on 21 February 2020 Mr Apperly swore a responding affidavit. Much of it is either repetitive or conclusionary, and the correspondence annexed to it, in my view, is in no way decisive.
It should be noted that no one was required for cross‑examination and the parties have firmly left it up to the Court to try and resolve the factual conflict between the parties on the papers.
Both parties in written and oral submissions sought to take the Court in detail to the court book with a view to establishing whether or not the conduct of Westpac was unconscionable in the fashion for which the respondents contended. I have had regard, obviously, to the detailed and helpful submissions made but in the end I have concluded that the conduct of the bank was not unconscionable and does not bring into play the qualification in section 41(3)(b) of the Act. The matters that lead me to this conclusion are as follows.
First, both the proposals made by the respondents to Westpac to settle the matter involved numerous different possible avenues by which it was asserted that the respondents would be able to pay a sum but, of course, nowhere near all of the money that they owed. The first proposal was posited to be entirely payable out of proposed court cases. The second proposal, Annexure “SA-4”, also proposed multiple legal proceedings. Notwithstanding his enthusiastic propounding in both offers of the legal avenue to recoupment of monies, Mr Apperly now says that he knew and that Mr Timbs also knew that there was little chance these would succeed. This inconsistency is obvious.
The first letter in which the Doncaster project was raised at CB372 asserts
This project will be concluded within 2 ½ years. Mr Apperly estimates that this project will return a profit of approximately $1.2 million to Longreach.
He went on to propose paying Westpac $1 million of that money.
There is no mention of project fees in this document. Were matters as advanced and certain as Mr Apperly now asserts, and given the vital nature of those proposed management fees, one would have expected to see strong emphasis in it throughout the various documents that were proposed.
Further, the payment of funds provided in clause 2 of the deed of settlement was not in any way qualified as to the source of those funds. If it was wholly contingent upon the Doncaster project, one would have expected to see this to be reflected, if nowhere else, in the recitals. I accept, of course, that Mr Paras and Mr Apperly were not, it would appear, necessarily legally represented at this stage (although exhibit SA4 shows that they had access to legal representation, at least to an extent, should they have wished it), but Mr Apperly and Mr Paras were well capable of formulating documents with some form of legal precision (see the admittedly flawed statement of claim filed in the Victorian Supreme Court) and this omission is a striking one.
The general tenor of Mr Apperly’s affidavit material only goes to support Mr Timbs’ recollection that he was receiving numerous phone calls from Mr Apperly in the time leading up to the execution of the deed. I see no reason to doubt Mr Timbs sworn non‑appreciation of the alleged assertion by Mr Apperly that the Doncaster project was his only potential source of funds. As late as 31 March 2017, Mr Apperly was advancing numerous potential avenues for funds.
It is further to be noted that the settlement was not just conditional on the payment of cash from whatever source. It was also conditional upon the project proceedings. I repeat, Mr Apperly through his solicitors was keen to propound the viability of these proceedings in his correspondence on 31 March 2017. The bank did not grant a release until inter alia the conclusion of those proceedings.
It should be noted that I have not seen anything in the materials to suggest that Mr Paras and Mr Apperly complied with their obligations pursuant to clause 1 of the deed to seek advice about and then commence legal proceedings in any event. It would seem to me they were likely in default from an early stage. However, the failure of the bank to proceed to serve notice of default as a result of that failure on their part is not a point that stands against the bank.
I further note that in the subpoenaed material from Mr Frattin, there is correspondence long postdating the point at which Mr Apperly has deposed that the Doncaster project had been well and truly sunk by the service of the Sanctuary guarantee demand. What that material suggests to me in its entirety is that Mr Apperly was, with commendable energy, seeking to advance his interests on a number of fronts.
Mr Apperly’s style seems to me to have about it an overly optimistic bent. This is consistent with the view that I take of the likely conversations that took place between him and officers of the bank. Mr Apperly in writing, and as I infer orally also, would have advanced any number of assertions as to how it was that he would be able to pay the bank the moneys he contracted to pay by the deed of settlement. It is no surprise to me that the bank concentrated upon what was actually agreed.
Indeed, the notion that the bank wilfully through Mr McKillop destroyed, as it were, the bank’s prospects of receiving $1 million only has to be stated to be rejected. The fact is that Mr Apperly owed the bank under the Sanctuary guarantee and was never in a position to pay any of it. He had raised the question of the Sanctuary guarantee in the lead up to the deed of settlement and, as he well knew, a release from the obligations that the Sanctuary guarantee imposed was not included in it.
If the assertions Mr Apperly now makes as to the near certainty of his project management fees of some half a million dollars were indeed as certain as he now says they were, it is inconceivable that the bank would have proceeded to destroy their receipt. I note that Mr Apperly has not deposed as to how he would have supported himself in the absence of those project fees, all of which or almost all of which, it would seem, were to go to the bank.
Mr Timbs, who is the relevant person for these purposes, has sworn that it was at no time clear to him that, as it were, the deed of settlement was dependent upon the Doncaster project. That is the substance of what he has sworn. He has not been cross‑examined. The evidence taken as a whole does not lead to my being satisfied that he is being untruthful. To the contrary, I think it is more probable than otherwise, taking the materials as a whole, that while Mr Apperly clearly mentioned the Doncaster project and then did give it a certain prominence, what the bank really did was to accept a promise of real cash within a given timeframe.
Had Mr Paras and Mr Apperly applied for a stay of the judgment order for the $8 million on unconscionability grounds, I do not think that they would have succeeded. Even within the most expanded view of section 41(3)(b), the original judgment debt could not be said to have been one that was stayed. As I have explained earlier, it was still a valid judgment and, accordingly, the Doncaster project would never have satisfied it in any event.
Even setting that matter aside and looking at the matter of unconscionability in a broader sense, it is not possible to see in what way the respondents were unfairly disadvantaged. Mr Paras and Mr Apperly owed the bank over $8 million together. Mr Apperly owed millions more himself. Mr Paras was never part of the Doncaster project in any event.
There is no evidence that Mr Apperly did anything of any moment to his detriment in advancing the Doncaster project before the actions of Mr McKillop, as he puts it, brought it to a complete end. The conduct of the bank was not unconscionable on any legal analysis.
I do not think that the respondents have shown that there is other sufficient cause why a sequestration order ought not be made.
Conclusion
In the end, the overarching position that emerges from all this welter of material and argument is, in my view, relatively clear. Mr Paras and Mr Apperly in 2017 owed the bank over $8 million. Additionally, Mr Apperly owed millions more. It is their position that that $8 million worth of debt should be comprised by the $15,000 that they have paid in respect of costs already incurred in the original creditors’ petition.
Insofar as their case rests on broader notions of equity and conscionability, the resolution of their undoubted debts by a complete setting aside of their enormous debt for what is wholly trivial in consideration is not one which in my view should obtain. A sequestration order will be made in respect both of the estate of Mr Apperly and the bankrupt estate of the estate of Mr Paras.
Given the additional complications arising from the death of Mr Paras, I will direct the parties to confer and forward Minutes of Orders to my chambers within fourteen days.
I certify that the preceding one hundred and twenty-two (122) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Associate:
Date: 22 May 2020