Westpac Banking Corporation v Wakim
[2011] FMCA 443
•7 June 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| WESTPAC BANKING CORPORATION & ANOR v WAKIM | [2011] FMCA 443 |
| BANKRUPTCY – Creditor’s petition – liability of business guarantor under bank guarantees – default judgment of Supreme Court and refusal to set aside – no grounds of opposition with prospects of success – no grounds for going behind judgment debt – adjournment applications refused – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.52, 52(3) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.4.06 Uniform Civil Procedure Rules 2005 (NSW), rr.51.9, 51.9(3) |
| Adamopoulos v Olympic Airways SA & Anor (1990) 95 ALR 525 Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd; HGT Investments Pty Ltd (2004) 218 CLR 471 Rozenbes v Kronhill (1956) 95 CLR 407 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Westpac Banking Corporation & Anor v Simon Wakim [2011] NSWSC 414 Wren v Mahony (1972) 126 CLR 212 |
| First Applicant: | WESTPAC BANKING CORPORATION ABN 33 007 457 141 |
| Second Applicant: | ST GEORGE FINANCE LIMITED ABN 99 001 094 471 |
| Respondent: | SIMON WAKIM |
| File Number: | SYG 2530 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 7 June 2011 |
| Delivered at: | Sydney |
| Delivered on: | 7 June 2011 |
REPRESENTATION
| Counsel for the Applicants: | Mr D Robertson |
| Solicitors for the Applicants: | Henry Davis York |
| Counsel for the Respondent: | Ms B Nolan |
| Solicitors for the Respondent: | Deutsch Partners |
ORDERS
A sequestration order be made against the estate of Simon Wakim.
All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days, on the following conditions:
(a)that Mr Wakim shall deliver all his current passports to his trustee before 4 pm on 9 June 2011, and shall not leave Australia without the permission of his trustee, and
(b)that Mr Wakim, by his counsel, continues during that period the undertaking to the Court given on 17 May 2011 that he will not dispose of his assets other than in the ordinary course of business.
The applicant creditors’ costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 16 October 2010.
Note that a consent to act as trustee has been signed by David John Kerr.
The applicant must give a copy of this order to the Official Receiver within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2530 of 2010
| WESTPAC BANKING CORPORATION ABN 33 007 457 141 |
First Applicant
| ST GEORGE FINANCE LIMITED ABN 99 001 094 471 |
Second Applicant
And
| SIMON WAKIM |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
Westpac Banking Corporation and St George Finance Limited petition the Court for a sequestration order against Mr Wakim, in relation to an indebtedness of $3,177,170.90 owing under a default judgment made in their favour on 30 April 2010 in proceedings in the commercial list of the Supreme Court of NSW. I shall refer to the judgment creditors collectively as “Westpac”, except where it is necessary to distinguish the two corporations. In those proceedings, Westpac had contended that Mr Wakim was liable under two bank guarantees in relation to the indebtedness of his company Wakim Prestige Proprietary Limited (in Liquidation).
The petition was listed for hearing today after a history of adjournments. At the commencement of the hearing, Mr Wakim’s counsel applied for a further adjournment. This was opposed, and I indicated that I would consider the adjournment application in the course of the hearing on the petition and the grounds of opposition. This judgment explains why I decided to refuse any further adjournment, and to make a sequestration order today.
The petition relies upon non‑compliance with a bankruptcy notice based upon the same Supreme Court judgment debt, which was served on Mr Wakim on 25 September 2010. An affidavit of debt deposing to continued indebtedness in relation to the judgment debt was filed in Court today, sworn by Richard Kellaway, who asserts that he is “a Manager, Automotive Finance of the applicant creditor and am authorised to swear this affidavit on behalf of the applicant creditor in these proceedings”. The affidavit was filed pursuant to r.4.06 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) without objection, and no application to cross‑examine the deponent was made when the affidavit was read by counsel for Westpac. The other evidence relied upon by both parties was then read, and counsel for both parties completed their submissions, which had commenced before the luncheon adjournment.
At the conclusion of submissions, and after I had announced that I proposed to give an ex tempore judgment in favour of Westpac, counsel for Mr Wakim applied to cross‑examine Mr Kellaway. She indicated that the matters she wished to cross‑examine on were his authority, the records he consulted in relation to the existence of the debt, the possibility that amounts had been received which might or might not reduce the debt, and factual matters relating to the pleaded grounds of defence to the petition which I shall identify below. I refused her application to re‑open her case, and indicated that I would include my reasons in this judgment.
Apart from the last suggested topic of cross‑examination, none of the suggested matters related to Mr Wakim’s grounds of opposition which I shall set out below. At no stage in the proceedings had he previously given notice of any challenge to the continued existence and quantification of the indebtedness relied upon in the petition. As I shall indicate below, during the currency of the petition Mr Wakim applied to the Supreme Court to set aside the default judgment. His draft commercial list response dated 5 May 2011 admitted that the amount claimed by Westpac had not been paid by the principal debtor, and made no assertion that it had been paid in any part by Mr Wakim as guarantor or by any other person. No such assertion or other denial of the indebtedness is found in Mr Wakim’s affidavits relied upon in the present proceedings. Counsel for Mr Wakim had not filed any written submissions, and at no earlier stage had foreshadowed any challenge to the debt, other than as pleaded in the grounds of opposition and explained in the affidavits.
For reasons which I shall explain below, Mr Wakim’s pleaded grounds of opposition which challenged his liability under the guarantees can be rejected for reasons based on the terms of the documents executed by him, and which do not require exploration of his factual allegations. The suggested cross‑examination to show the possible existence of evidence in the possession of the Westpac Bank in support of the proposed defence could not, in my opinion, have had any material effect on how I proposed to decide the matter.
Taking into account the above matters, the belated circumstances in which the application to call Mr Kellaway for cross‑examination was made to the Court, and the history of the matter generally, I was not disposed to delay my proceeding to give judgment, so as to allow Mr Wakim’s counsel to engage in the projected cross‑examination of Mr Kellaway and then re‑opening her submissions. I consider that I made abundantly clear to Mr Wakim’s counsel at the commencement of today’s hearing that I proposed to conduct and complete the hearing on all issues, including the substantive hearing of the petition and the grounds of opposition, before addressing the Court’s discretions in relation to adjournment of the petition.
Mr Wakim’s indebtedness to Westpac Bank arises from various commercial documents executed by him in September 2007 when obtaining finance of $3m from a “financier”, which was identified in the documents as St George Bank Limited and St George Finance Limited, in relation to his conduct of a second‑hand car dealership in the name of his company, Wakim Prestige Proprietary Limited. The documents included a bailment agreement executed by Mr Wakim and another person, presumably his wife, on behalf of the company. The documentation also included securities by way of guarantees granted by Mr Wakim and other persons, and a first registered fixed and floating charge over all assets and undertakings of the company.
Under the bailment agreement dated 20 September 2007, goods acquired in the company’s business using the funding provided by the financier were owned by the financier, and the business held possession and traded them as bailee only, being required to account immediately for any purchases and being subject to other obligations in relation to its possession of the bailed goods. Relevant clauses of the bailment included: 4.1 and 4.2, 8.4, 14.1 to 14.4, 21.1 to 21.4, 25.1 and 25.2.:
Ownership and bailment
Extent of your interest
4.1The bailed goods are obtained by you as our bailee for safekeeping and for the purpose of display on terms of this agreement. The bailed goods always remain our property during the term of their bailment under this agreement. You do not have any interest in, or option over, the bailed goods. You do not have any licence to use the bailed goods in any way, other than as contemplated by this agreement.
4.2You may deliver the bailed goods to us at any time. We may demand possession of, or take possession of, the bailed goods at any time. We may do this without notice to you and even though there has not been any default by you under this agreement or the facility agreement.
…
Declarations and acknowledgements
…
Reliance
8.4Your acknowledgements contained in this agreement take effect as representations and warranties made to us, and you acknowledge that we rely on them to enter into this agreement.
…
Things we may do at any time
14.1We may assign or otherwise deal with our rights under this agreement in any way we consider appropriate. If we do this, you may not claim against any assignee (or any other person who has an interest in this agreement) any right of set‑off or other rights you have against us.
14.2We may enter land and buildings owned or occupied by you, any place where the bailed goods are located, your places of business and your registered office to:
(a)inspect and test the bailed goods; or
(b)take possession of the bailed goods; or
(c)find out whether you are complying with this agreement; or
(d)carry out our rights under this agreement; or
(e)inspect and copy records relating to you, your subsidiaries or the bailed goods; or
(f)investigate your financial affairs or business or the financial affairs or business of your subsidiaries.
You must also obtain for us the right to enter for these purposes land and buildings owned or occupied by your subsidiaries, any place where your subsidiary’s property is located and your subsidiary’s registered office.
14.3Unless there is an emergency, we must give you reasonable notice before entering under clause 14.2. You must help us to enter, such as by getting any consent necessary.
14.4We may do anything which you should have done under this agreement but which you have either not done or, in our opinion, have not done properly. If we do so, you must pay our costs when we ask.
…
General
…
How we may exercise our rights
21.1We may exercise a right or remedy or give or refuse our consent in any way we consider appropriate, including by imposing conditions.
21.2If we do not exercise a right or remedy fully or at a given time, we can still exercise it later.
21.3We are not liable for loss caused by the exercise or attempted exercise of, failure to exercise, or delay in exercising, a right or remedy, whether or not caused by our negligence.
21.4Our rights and remedies under this agreement:
(a)are in addition to other rights and remedies given by law independently of this agreement; and
(b)may be exercised even if this involves a conflict of duty or we have a personal interest in their exercise.
…
Variation and waiver
25.1A provision of this agreement, or right created under it, may not be waived except in writing signed by the party or parties to be bound.
25.2We may vary any provision of this agreement as we choose. If we do, we must notify you and the change takes effect from the time we specify in the notice.
…
At the same time as signing the bailment agreement, Mr Wakim signed a guarantee in favour of St George Bank Limited and St George Finance Limited in relation to the liabilities of Wakim Prestige Proprietary Limited. That guarantee is also dated 20 September 2007. A maximum amount which was recoverable under the guarantee was specified as $3 million plus interest and other amounts due under identified clauses. Relevant clauses in the guarantee include:
Purpose of this guarantee and indemnity and extent of your obligations
1.1This guarantee and indemnity is entered into in consideration of us providing or continuing to provide financial accommodation to the customer or not immediately enforcing rights against the customer at your request.
1.2By signing this guarantee and indemnity, you could become liable to pay us:
(a)under the guarantee in clause 2
(b)under the indemnity in clause 3
(c)costs and other expenses under clause 4
(d)interest under clause 5.
However, the maximum amount we can recover from you is set out in the special conditions attached to this guarantee and indemnity.
1.3You are liable for all the obligations under this guarantee and indemnity both separately on your own and jointly with any one or more other persons named in this guarantee and indemnity as guarantor.
1.4This guarantee and indemnity takes effect as a cross‑guarantee and cross‑indemnity when one or more of the customers are the same as one or more of you. In those circumstances it is a separate guarantee and indemnity in relation to each customer as if that person were:
(a)the only person included in the definition of “customer”; and
(b)excluded from the definition of “you”.
What you undertake in giving this guarantee and indemnity
Guarantee
2.1You unconditionally and irrevocably guarantee payment to us of the guaranteed money. If the customer does not pay the guaranteed money on time and in accordance with any arrangement under which it is expressed to be owing, then you agree to pay the guaranteed money to us on demand from us (whether or not we have made demand on the customer).
2.2The guarantee in clause 2.1 is a continuing obligation and extends to all of the guaranteed money.
2.3Except to the extent you have a right conferred by the Code of Banking Practice, you cannot otherwise withdraw from, end or limit this guarantee and indemnity.
…
Changes to rights
…
Our rights are protected
8.1Rights given to us under this guarantee and indemnity and your liabilities under it are not affected by any act or omission by us or by anything else that might otherwise affect them under law or otherwise, including:
(a)the fact that we vary or replace any arrangement under which the guaranteed money is expressed to be owing, such as by increasing the credit limit or extending the term; or
(b)the fact that we release the customer or give them a concession, such as more time to pay; or
(c)the fact that the customer opens another account with us; or
(d)the fact that we release, lose the benefit of or do not obtain any security; or
…
Your rights are suspended
9.As long as any of the guaranteed money remains unpaid, you may not, without our consent:
(a)reduce your liability under this guarantee and indemnity by claiming that you or the customer or any other person has a right of set‑off or counterclaim against us; or
…
General
…
Payment in full
13.1You must pay us the guaranteed money in full without set‑off, counterclaim or deduction.
…
How we may exercise our rights
19.1We may exercise a right or remedy or give or refuse our consent in any way we consider appropriate, including by imposing conditions.
19.2We may claim against you under this guarantee and indemnity before we enforce other rights or remedies:
(a)against the customer or any other person; or
(b)under another document such as a guarantee or mortgage, charge or other security.
If we have more than one guarantee and indemnity or security, we may enforce them in any order that we choose.
19.3If we do not exercise a right or remedy fully or at a given time, then we can still exercise it later.
19.4We are not liable for any loss caused by the exercise or attempted exercise of, failure to exercise, or delay in exercising, a right or remedy, whether or not caused by our negligence.
…
Dealing with rights under this guarantee and indemnity
20.We may assign or otherwise deal with our rights under this guarantee and indemnity in any way we consider appropriate. If we do this, you may not claim against any assignee (or any other person who has an interest in this guarantee and indemnity) any right of set‑off or other rights you have against us.
However, you may not assign or otherwise deal with your rights under this guarantee and indemnity unless we consent.
…
Variation and waiver
23.A provision of this guarantee and indemnity, or right created under it, may not be waived or varied except in writing signed by the party or parties to be bound.
…
Meaning of words
…
guaranteed money means all amounts that:
at any time;
for any reason or circumstance in connection with any agreement (including a loan agreement, guarantee, indemnity, lease or other facility document), transaction, engagement, document, instrument (whether or not negotiable), event, act, omission, matter or thing whatsoever;
whether at law or otherwise;
and whether or not of a type within the contemplation of you, of us or of the customer at the date of this guarantee and indemnity:
·are payable, are owing but not currently payable, are contingently owing, or remain unpaid, by the customer to us; or
·we have advanced or paid on the customer’s behalf or on the customer’s express or implied request; or
·we have paid or are liable to pay as a result of the customer’s act or omission; or
·are reasonably foreseeable as likely, after that time, to fall within any of the above paragraphs.
This definition applies:
·irrespective of the capacity in which we or the customer became entitled to the amount concerned;
·irrespective of the capacity in which we or the customer became liable in respect of the amount concerned;
·whether we or the customer are liable as principal debtor, as surety, or otherwise;
·whether the customer is liable alone, or together with another person;
·even if the customer owes an amount or obligation to us because it was assigned to us, whether or not:
-the assignment was before, at the same time as, or after this guarantee and indemnity is executed; or
-we or the customer consented to or were aware of the assignment; or
-the assigned obligation was secured;
·even if this guarantee and indemnity was assigned to us, whether or not:
-you consented to or were aware of the assignment; or
-any of the guaranteed money was previously not guaranteed;
·if you are a trustee, whether or not you have a right of indemnity from the trust fund.
…
we means the person or persons named in the details as financier. If there are more than one, we means each of them separately and every two or more of them jointly. We includes our successors and assigns.
you means each person named in the details as guarantor. If there are more than one, you means each of them separately and every two or more of them jointly.
…
A subsequent guarantee was also executed by Mr Wakim on 31 January 2008. This contains the same terms as are set out above, but was not confined to any specified maximum amount. The maximum amount recoverable under that guarantee was “all amounts payable by any of the customer in connection with each of the facility agreements dated 19 October, 2007 between the customer and us”, plus interest and other charges.
A demand for payment on the customer, Wakim Prestige Proprietary Limited, was made on 10 September 2009. It demanded repayment by 5pm on 11 September 2009 of $2,825,600, which is described as “balance owing to St. George in respect of the Vehicles, as at 10 September 2009”, but not including other amounts. A schedule to the letter set out various defaults by the customer under the bailment agreement by reference to a list of vehicles, in relation to which it was alleged there were failures to pay purchase prices immediately, to keep bailed goods in possession, and to advise that bailed goods had been stolen, disposal of bailed goods without consent, and parting with the possession of bailed goods without consent.
Based upon that demand on the company, a demand under the guarantees was made on Mr Wakim dated 23 November 2009. The making of that demand and the fact that it was not satisfied were pleaded in the Commercial List Statement filed on 16 December 2009, in proceedings 50211 of 2009. The Statement alleged an indebtedness by Mr Wakim under the guarantees of 2007 and 2008 totalling $3,069,753.75. It identified the plaintiffs as St George Bank Limited and St George Finance Limited. On the evidence before me, at no time in the course of those proceedings did Mr Wakim deny the making of the asserted demand, nor the quantification of the debt under the demand, nor its non‑payment. Nor has he made any such denials in a document or affidavit filed in the present proceedings.
A default judgment against Mr Wakim in the Supreme Court proceedings was made on 30 April 2010 and was entered on 7 May 2010 in favour of the Westpac Banking Corporation and St George Finance Limited as first and second plaintiffs. Judgment was entered for $3,177,170.90, presumably including an amount of interest accruing during the pendency of the proceedings. The judgment was entered upon a motion for summary judgment brought by Westpac Banking Corporation and St George Finance Limited. The full evidence in support of the entry of that judgment, in particular explaining the substitution of Westpac Banking Corporation is not before me.
It is reasonable to assume that Westpac Banking Corporation satisfied the Supreme Court that it had received an assignment of the rights of the St George Bank entity which had previously been the first plaintiff. Mr Wakim has never challenged that substitution in the Supreme Court proceedings, including in his recent application to set aside the judgment. I am told from the Bar table by counsel for Westpac that this occurred pursuant to a statutory assignment, and I am prepared to assume that this was the case. In any event, if there was an assignment other than by statute, there is no evidence before me suggesting that it might now be challengeable by Mr Wakim. I shall return to that issue further below.
Based upon the judgment entered in favour of Westpac, it procured the issue of a bankruptcy notice based upon that judgment on 15 September 2010, the bankruptcy notice being served on 25 September 2010. No issue has been raised in the present proceedings in relation to its service on Mr Wakim, nor his non‑compliance with its requirements giving rise to an act of bankruptcy occurring on 16 October 2010.
That act of bankruptcy is relied upon in the present petition, which was filed on 23 November 2010. The circumstances of service of the petition are unclear, but service was confirmed by order of the Registrar on the first return date on 2 February 2011, and on that occasion, as on all subsequent occasions, Mr Wakim has appeared by way of legal representatives.
The hearing of the petition was adjourned on several occasions on the application of Mr Wakim, and in the face of opposition from Westpac Bank on some occasions. It is unnecessary to explore the circumstances in which those adjournment applications were made and decided by the Registrars. In short, they occurred because Mr Wakim wished to bring a notice of motion in the Supreme Court to set aside the default judgment. His notice of motion was filed on 2 March 2011, and was supported by an affidavit by Mr Wakim which is in evidence before me, and was also supported by affidavits by his current solicitors.
In short, Mr Wakim claimed that he was poorly served by previous solicitors which led to there being an absence of an appearance on the hearing of Westpac’s motion for summary judgment. His affidavit deposed to the grounds of his asserted defence and attached and verified a proposed Commercial List Response. The motion was eventually listed and heard by Einstein J in the Supreme Court on 6 May 2011, the creditor’s petition being adjourned to await its outcome.
Mr Wakim’s proposed Commercial List Response contained the following contentions:
17It was an express term of the Bailment Agreement that the Plaintiffs may enter the land and buildings owned or occupied by the Company being any place where the bailed goods are located and do certain things permitted by that term (“the Entry Term”).
Particulars
Clause 14.2 of the Bailment Agreement
18It was a further express term of the Bailment Agreement that unless there was an emergency, the Plaintiffs were obliged to give the Company reasonable notice before entering under clause 14.2 (“the Reasonable Notice Term”).
Particulars
Clause 14.3 of the Bailment Agreement
19It was an implied term of the Bailment Agreement that the Plaintiffs and the Company would conduct themselves in good faith in the performance of their obligations under the Bailment Agreement (“the Good Faith Term”).
Particulars
The term is implied as a matter of law.
20It was an implied term of the Bailment Agreement (among the Facilities) to do nothing of their own motion to put an end to the state of circumstances, under which, alone, the financial accommodation arrangements between the Plaintiffs and the Company could be operative (“the Business Efficacy Term”).
Particulars
The term is implied by reason of business efficacy.
21It was an express term of the Guarantees that in consideration for the Plaintiffs continuing to provide financial accommodation to the Company and not immediately enforcing rights against the Company at the Defendant’s request the Defendant gave certain undertakings and indemnities (“the Guarantee Term”).
Particulars
Clauses 1.1 and 2.1, 2.2, and 3.1 of the Guarantees.
22On or about 1 and 2 September 2009, in the early hours of the morning, the Plaintiffs entered the Premises of the Company (“the Company Premises”) without affording the Company or the Defendant any notice at all of their intention to enter (“the Entry”).
23Upon the Entry the Plaintiffs seized all the motor vehicles, being some 50 motor vehicles, which were housed on the Company Premises (“the Seizure”). Among the some 50 vehicles seized only 2 were the subject of the Bailment Agreement.
Particulars
Particulars will be given after discovery.
24By the Entry and the Seizure the Plaintiffs were in breach of the Reasonable Notice Term, the Good Faith Term and the Business Efficacy Term.
25By the breaches of the Reasonable Notice Term, the Good Faith Term and the Business Efficacy Term the Plaintiffs indicated an intention no longer to be bound by the Bailment Agreement or only to fulfil it in a manner which was substantially inconsistent with its obligations under it.
26The breach of the Reasonable Notice Term, the Good Faith Term and the Business Efficacy Term was such that it fundamentally and substantially deprived the Defendant of the rights accrued to him under the Guarantees.
27Further, by the Entry and the Seizure the Plaintiffs were also in fundamental breach of the Guarantee Term.
28The breach of the Guarantee Term was fundamental such that it substantially deprived the Defendant of the rights accrued to him under the Guarantees and materially altered that which he bargained for.
29The breach of the Guarantee Term was such that it entitled the Defendant to terminate the Guarantees such that he was discharged from the future performance of his obligations under the Guarantees.
30In or about August 2009, the Defendant elected to terminate the Guarantees and gave notice of his election to the Plaintiffs.
Particulars
Particulars will be provided in due course.
31The Defendant is not liable under the Guarantees.
Einstein J gave judgment in relation to Mr Wakim’s motion on 10 May 2011 (see Westpac Banking Corporation & Anor v Simon Wakim [2011] NSWSC 414). He refused to set aside the default judgment, and addressed whether the default judgment was irregularly obtained, whether Mr Wakim had adequately explained his absence from Westpac’s motion for summary judgment, and whether the default judgment should be set aside in the discretion of the Court based on “a legitimate explanation for his defaults and for his delay in seeking to set aside the default judgment and he has a good defence on the merits to the proceedings”.
Einstein J had before him evidence tendered by Westpac which is now before me, including the various commercial documents which I have referred to above. I also appear to have in front of me all the evidence from Mr Wakim which was before his Honour, being Mr Wakim’s affidavit in support of his motion. I have some additional evidence from Mr Wakim and his solicitor.
In relation to Mr Wakim’s suggested defences to Westpac’s claim, his Honour concluded that there was no arguable defence shown by Mr Wakim to the commercial list statement of Westpac Bank. His reasoning was:
No arguable defence
17The bailment agreement has already been referred to. Clause 4.2 was in the following terms:
You may deliver the bailed goods to us at any time. We may demand possession of, or take possession of, the bailed goods at any time. We may do this without notice to you and even though there has not been any default by you under this agreement or the facility agreement.
18Turning to the defendant’s contention set out in the defendant’s response at paragraph 20, that response read as follows:
It was an implied term of the Bailment Agreement (among the Facilities) to do nothing of their own motion to put an end to the state of circumstances, under which, alone, the financial accommodation arrangements between the Plaintiffs and the Company could be operative (“the Business Efficacy Term”).
19Mr Robertson, counsel for the plaintiff took the court to BP refinery where their Lordships put the matter as follows:
“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied:
(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that ‘it goes without saying’;
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract.”
20I accept that the implied term set out in paragraph 20 of the defence is utterly inconsistent with and fails immediately by reference to the fifth requirement. It is directly contradictory of clause 5 (4.2). That is, St George can take possession of the bailed goods at any time and without notice and without default.
21Clause 21.1, 21.2, 21.3, and 21.4 could not have been clearer:
We may exercise a right or remedy or give or refuse our consent in any way we consider appropriate, including by imposing conditions.
If we do not exercise a right or remedy fully or at a given time, we can still exercise it later.
We are not liable for loss caused by the exercise or attempted exercise of, failure to exercise, or delay in exercising, a right or remedy, whether or not caused by our negligence.
Our rights and remedies under this agreement :
(1) are in addition to other rights and remedies given by law independently of this agreement; and
(2) may be exercised even if this involves a conflict of duty or we have a personal interest in their exercise.
22Nor is there any substance in paragraph 21 of the proposed defence. The relevant rights bargained for have already been clearly set out.
23Nor is there any substance in the defendant’s contention seeking to draw in aid the concept of repudiation by a creditor of a guarantee.
24The defendant’s contention is sought to suggest that there was an ambiguity in the terms of relevantly clause 1.1 of the Guarantee which has already been set out. That contention was expressed in the following fashion:
Now the consideration is posited in the alternative, but I would say that the alternative in this case should be read inclusively as opposed to an exclusively. It is just a question of construction, but that would be a matter of substance to be dealt with at the trial. The contention is that more particularly about the second alternative for consideration, which is the Guarantee and indemnity is entered into in consideration of us, not immediately enforcing rights against the customer at your request
25In my view this contention is unsubstantiated by authority and in the context of these proceedings must be rejected out of hand.
26The consideration referred to in clause 1.1 of the guarantees was provided at the moment of execution of the guarantees and was not an ongoing consideration.
His Honour addressed Mr Wakim’s explanations for a long delay in seeking to set aside the default judgment, in effect, until the eve of a hearing on a creditor’s petition. His Honour drew adverse conclusions on Mr Wakim’s credit in relation to his evidence about this, and concluded that the explanation for Mr Wakim’s delay was “insufficient”. His Honour’s judgment concluded:
31The critical question is whether or not the defendant has put forward a reasonable or arguable defence. In my view the defence put forward by the defendant is simply not arguable on any assessment.
Decision
32The defendant has neither a legitimate explanation for his default and delay in seeking to set aside the default judgement [nor] does he have a good defence to the merits of the proceedings.
The further evidence filed in this Court shows that Mr Wakim has exercised a right under the Uniform Civil Procedure Rules 2005 (NSW) to serve Westpac Bank with a notice of intention “to commence appeal proceedings within 3 months after the material date, that is on or before 10 August 2011”. His notice is not accompanied by any draft grounds of appeal nor affidavits which will be relied upon in relation to the obtaining of leave to appeal. Under Uniform Civil Procedure Rule 51.9(3): “the filing and service of a notice of intention to appeal does not operate to commence proceedings in the Court”. Proceedings in the Court of Appeal in relation to an appeal will only be commenced, if an application for leave were filed and was accompanied by the necessary documentation. That has not occurred before today, and no draft documentation in relation to an appeal or grounds of appeal has been shown to this Court in support of today’s application for adjournment.
Following Einstein J’s dismissal of the application to set aside the default judgment, the present petition was listed before the Registrar on 17 May 2011. On that occasion there was a further contested adjournment application. There is disagreement about what happened on that occasion, but I accept, as appears on the court file, that the Registrar made orders in the following terms which were passed up in the handwriting of one of the representatives and amended by her:
THE COURT ORDERS THAT:
1.The Respondent file and serve any affidavit in support of any further adjournment application on or before 23 May 2011.
2.Adjourn the petition to 9.45 am on 24 May 2011.
3.By consent, the Respondent to pay the Applicants’ costs of today.
THE COURT NOTES THAT:
4.The undertaking of the Respondent to serve on or before 23 May 2011 an affidavit fully setting out his assets and liabilities.
5.The undertaking of the Respondent that pending determination of the petition he will not dispose of assets other than in the ordinary course of business.
There was subsequently filed by Mr Wakim an affidavit purporting to set out his assets and liabilities. However, it is unnecessary for me to examine that material. Contrary to the submission of Mr Wakim’s counsel, I do not understand the affidavit to dispute the existence of the indebtedness under the default judgment, except on the grounds raised in the notice of opposition. It also plainly does not assert an ability to pay his debts, if they include the indebtedness relied upon in the petition. Plainly, if I accept the affidavit of debt, Mr Wakim is very much insolvent.
Nor do I read Mr Wakim’s affidavit as indicating that he is not trading, and the undertaking he gave on 17 May 2011 suggests that he may be continuing to trade “in the ordinary course of business”.
I note also that a supporting creditor has entered an appearance today, being Suncorp Metway Insurance Limited, which has an outstanding creditor’s petition filed subsequently to the present petition.
At the commencement of today’s proceedings, counsel for Mr Wakim applied for a further adjournment of at least three weeks or longer. As I have indicated, I ruled that I would consider that adjournment application, but only in the context of a full hearing of the petition. I took that position, since I considered that I would not be able to assess the merits of the adjournment application without addressing the merits or potential merits of the grounds of opposition to the petition.
Mr Wakim’s grounds of opposition filed on 8 April 2011 make two contentions:
1.These proceedings are brought pursuant to the applicants’ reliance upon the respondent’s failure to comply with a bankruptcy notice. The respondent disputes the debt underlying the default judgment on which the bankruptcy notice is based. The Court will be asked on this occasion to go behind the judgment on the basis that there is a bona fide question as to whether the respondent is in reality indebted to the petitioner.
2.The judgment debt in favour of the first applicant is not effectual. Any assignment of chose in action which saw the substitution of the first applicant for St George Bank Limited ABN 92 005 513 070 in New South Wales Supreme Court Proceedings no. 50211 of 2009 is not effective as against the respondent as the respondent never received actual notice of any assignment.
I can deal shortly with the second contention. In my opinion, even assuming that no statutory assignment was relied upon by Westpac Bank in relation to its substitution as the first plaintiff in the Supreme Court proceedings, I am not persuaded that a sufficient foundation for going behind the default judgment, in so far as it was expressly in favour of the Westpac Banking Corporation and St George Finance Limited, has been shown on the evidence and arguments presented by Mr Wakim today. Indeed, no substantive submissions in support of Ground 2 were presented to me by Mr Wakim’s counsel.
Moreover, it appears to me that any complaint of a lack of notice of an assignment from St George Bank Limited to Westpac Banking Corporation of its rights under the guarantees would be precluded by the terms of the guarantee signed by Mr Wakim. As I have noted the financier was defined as “we” which included assignees of the original financier, and cl.20 allowed assignment “in any way we consider appropriate”. The indebtedness which was then recoverable by the “financier” from the guarantor included amounts owing by the customer covered by the guarantee “even if this guarantee and indemnity was assigned to us, whether or not you consented to or were aware of the assignment”.
I am not persuaded that Ground 2 has been shown to have any substance sufficient to raise a ground for going behind the default judgment relied upon in the bankruptcy notice and in the petition.
I am also not persuaded that Ground 1 is shown to have sufficient substance, either to justify an adjournment of the petition for any reason, or for the purpose of embarking upon a full investigation of the underlying indebtedness of Mr Wakim to Westpac, that is by “going behind” that judgment under principles explained in Wren v Mahony (1972) 126 CLR 212, and applied in Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 147 and 148 and other cases.
The grounds upon which the Court was invited to go behind the Supreme Court judgment, and to adjourn the proceedings to allow further discovery and investigation of factual matters relevant to the suggested defences, were set out in an affidavit by Mr Wakim’s solicitor sworn on 7 April 2011:
7.I am informed and verily believe that the Respondent denies that he is liable under those Guarantees on the following bases:
(i)On or about 1 and 2 September 2009 the Plaintiffs in purported accordance with the Bailment Agreement to re‑enter the Premises of WPPL (“the WPPL Premises”) without affording WPPL any notice at all of their intention to re‑enter, despite being under an obligation to provide reasonable notice of re‑entry under the Bailment Agreement (“the Re‑entry”).
(ii)Upon the Re‑entry the Plaintiffs seized a substantial number of motor vehicles, which were housed on the WPPL Premises, presumably in purported reliance on the terms and provisions of the Bailment Agreement (“the Seizure”).
(iii)Among the some 50 vehicles seized only 2 were the subject of the Bailment Agreement.
(iv)By the Re‑entry and the Seizure the Plaintiffs breached an implied term of the Bailment Agreement (among other agreements the subject of the Guarantee Proceedings) to do nothing of their own motion to put an end to the state of circumstances, under which alone the arrangement between the Plaintiffs and WPPL could be operative.
(v)By reason of the breach of the implied term WPPL was rendered unable to trade from that date.
(vi)WPPL went into liquidation in November 2009.
(vii)The Plaintiffs’ breach of the Bailment Agreement was such that it prejudiced the Respondent’s rights and increased his risk as Guarantor and thereby was detrimental to his position as Guarantor. The Plaintiffs by breaching the Bailment Agreement altered the Guarantor’s rights without consulting him though he had an interest in the Bailment Agreement by reason of the Guarantees.
(viii)As a result of this breach he is discharged from the Guarantees and is not liable under them for the amount claimed.
(ix)Further and or in the alternative, on 10 September 2009 the Plaintiffs purported to make written demands under the Bailment Agreement and other pleaded arrangements with respect to alleged liabilities of WPPL in the sum of $2,825,600 (“the WPPL Demand”). Annexed and marked “E” is a copy of the WPPL Demand.
(x)The WPPL Demand was premised on a number of alleged defaults. These alleged defaults relied on a strict construction of the Bailment Agreement.
(xi)By reason of the conduct of both the Plaintiffs and WPPL in the mutual performance of obligations under the Bailment Agreement, the Plaintiffs endorsed by their conduct a mode of performance of the Bailment Agreement in a manner not according to its terms.
(xii)Acting in reliance upon the mutual course of conduct and induced thereby, WPPL assumed that the course of conduct was an acceptable course of conduct such as to constitute a due performance of its obligations under the Bailment Agreement (“the acceptable conduct”).
(xiii)On the basis of this assumption of the acceptable conduct the WPPL carried on business and day to day trading in used prestige vehicles.
(xiv)The allegations by the Plaintiff in the WPPL Demand are contrary to the assumption of the acceptable conduct.
(xv)By reason of the WPPL Demand WPPL suffered detriment.
(xvi)The Plaintiff is estopped from relying on the WPPL Demand and is precluded from maintaining an assertion of liability under the Guarantees on that basis.
(xvii)Further and in the alternative, by reason of the reliance on the course of acceptable conduct and the Plaintiffs’ acquiescence thereto, the issue of WPPL Demand was an unconscionable and unreasonable exercise of the Plaintiffs’ asserted rights under the Bailment Agreement and constituted a breach of the implied term of good faith.
(xviii)The Plaintiffs’ further breach of the Bailment Agreement was such that it prejudiced the Respondent’s rights and increased his risk as Guarantor and was detrimental to his position as Guarantor. The Plaintiffs by breaching the Bailment Agreement altered the Guarantor’s rights without consulting him though he had an interest in the Bailment Agreement by reason of the Guarantees and is not liable under them for the amount claimed.
(xix)As a result of this further breach he is discharged from the Guarantees and is not liable under them for the amount claimed.
Mr Wakim’s counsel today endeavoured to explain and show merit in these suggested defences to the indebtedness asserted by Westpac in the Supreme Court.
On my understanding of the contentions made in subparagraphs (i) through (viii), they repeat the case which was put to Einstein J, and was dealt with him shortly in the manner which I have extracted above. I have endeavoured to find greater substance than his Honour was able to find in them, but I was unable to do so. With respect to his Honour, I would reach the same conclusions on the same evidence that was before his Honour.
The assertion of implied terms in the bailment, confining or limiting the rights of the financier under the bailment agreement in cl.4.2 to take possession “without notice to you and even though there has not been any default by you under this agreement”, is, with respect, plainly contrary to principles governing the implication of terms in a commercial agreement such as the present.
I would understand that Einstein J probably also dealt with an argument which was presented to me, that the terms of cl.4.2 of the bailment agreement were qualified by the presence of cl.14.3 in the bailment agreement, requiring the financier to “give you reasonable notice before entering under clause 14.2”. Clearly, his Honour did not consider that the plain language of cl.14.2 was qualified. In my opinion, a proper construction of the bailment agreement must be that cl.4.2 is intended to give a right of immediate possession of the bailed goods without notice, and does not intend this right to be subject to cl.14.3. The requirement of reasonable notice before entry except in “an emergency” may be understood as imposing a general obligation on the financier in relation to the actions described in cl.14.2, but in my opinion at most a breach of such an obligation would sound only in damages or injunctive relief, and even then it might be difficult to identify what rights to damages could survive the preclusion of liability under cl.21.3.
Considering the position of the dealer under the bailment agreement, I might assume that the factual circumstances alleged in relation to the taking of possession of 48 vehicles which were not “bailed goods”, might give rise to a cause of action for the benefit of the dealer in damages or conversion. However, taking into account all the terms of the bailment agreement this conduct would not render the exercise of the right of possession under cl.4.2 itself contrary to the agreement in any way which would vitiate the whole agreement nor any unrelated transaction.
Moreover, assuming the truth of the alleged wrongs in relation to the taking of possession of the trading stock of Mr Wakim’s company, they occurred after the various defaults of the dealer which were presented in the letter of demand on the company, which crystalised the indebtedness and which was then the basis for the demand on Mr Wakim. It is therefore difficult to see how the contended wrongs could provide the company with any defence in relation to the demand on it.
It is even more difficult to see how they could provide Mr Wakim with any defence in relation to the demand made on him under the guarantees, since the terms of the guarantees expressly preclude reliance upon any defences or counterclaims which might have been available to the principal debtor. In my opinion, the terms of the guarantees clearly precluded the guarantor from relying upon any rights in the customer arising from the alleged wrongful seizure of the customer’s trading stock. As I have extracted above, both guarantees include provisions which expressly preclude the guarantor from relying upon any defences available to the customer, and from raising any claim of set‑off, counterclaim or deduction - see in particular cl.8.1 in its opening terms, cl.8.1(d), cl.9(a), cl.13.1, and cll.19.2 and 19.4.
In my opinion, even assuming that the facts asserted in relation to the wrongful seizure of vehicles were established upon a fuller exploration of evidence in a hearing which went behind the Supreme Court judgment, this could not overcome the basic difficulties facing the contended defences and foreshadowed defences, which arise from the express terms of the documents executed by Mr Wakim. For that reason, in my opinion, neither the evidence before me now in relation to the suggested defences, nor the suggested additional evidence which might become available under outstanding subpoenas to the liquidator of Wakim Prestige Proprietary Limited, nor any cross‑examination of Mr Kellaway on his affidavit of debt in relation to these allegations, could establish “substantial reasons for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor” (see Wren v Mahony (1972) 126 CLR 212 at 225).
Counsel for Mr Wakim also elaborated an argument which she appears also to have put to Einstein J, in relation to the consideration clauses of the guarantees. Her submission was difficult to understand, but I understood it to contend that there were implied continuing obligations on the financier under cl.1.1 of the guarantees, which precluded it from relying on an indebtedness of the customer if it ceased to provide continuing financial accommodation. Counsel cited no authority in relation to such a construction, which seems commercially absurd. This appears to be the argument which Einstein J considered and was unpersuaded by in [20], [22] and [23] of his Honour’s judgment. I agree with his Honour’s interpretation of cl.1.1.
I am unpersuaded that there was any argument which was presented to Einstein J in support of the suggested commercial list response which his Honour’s judgment did not address, and in so far as I can understand his Honour’s reasons, I am unable to detect any reasonably arguable error which could give rise to grounds of appeal with substantial prospect of success, or even an arguable prospect.
The additional defences contended in Mr Wakim’s solicitor’s affidavit found in subparagraphs (7)(ix) through (xix) are not shown to have greater substance, in my opinion, on the evidence and submissions made to me today. In effect, it is alleged that after the entry of the financing agreements in September 2007, there was conduct giving rise to some sort of waiver or estoppel preventing Westpac Bank from enforcing the “strict terms” of the bailment agreement against the customer, Wakim Prestige Proprietary Limited.
The evidence before me does not point to any factual basis for that contention, nor does the suggestion that the proof of it might be assisted by getting discovery from the St George and Westpac Banks or from documents in the possession of the liquidator of Wakim Prestige Proprietary Limited. Mr Wakim’s affidavits in the Supreme Court and in this Court do not set out any of the particulars of the conduct which he alleges gave rise to such an estoppel or waiver. I am satisfied that Mr Wakim has had ample opportunity in the course of the present proceedings to put better evidence in that respect before this Court.
Moreover, in relation to these suggested defences, there is also in my opinion a short answer to the asserted defence that there was the adoption of a “mode of performance of the Bailment Agreement in a manner not according to its terms”. This is that reliance on such a defence is expressly precluded by the terms of the guarantee, in particular cll.8.1, 13.1 and 23 of both guarantees. In my opinion, those terms took effect according to their language, upon his signature of that document, and they now prevent his reliance upon the suggested defences of variation, estoppel or waiver. There is no assertion by Mr Wakim that at the time he entered into the bank documents containing these written terms, he was under any impediment which could give rise to any defence against his being bound by the terms which he signed (cf. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [57], Equuscorp Pty Ltd v Glengallan Investments Pty Ltd; HGT Investments Pty Ltd (2004) 218 CLR 471 at [33]).
I therefore am not persuaded that there is sufficient substance shown in the evidence before me, or in the submissions in support of the contended grounds of opposition to the petition and in support of an adjournment for the purposes of going behind the judgment debt, to cause me to desist from upholding the petition today.
The adjournment application today was made, as I understood it, not only so that the Court could embark on a full trial going behind the judgment debt, after allowing Mr Wakim to pursue further investigations by way of discovery in this Court and in the Supreme Court, but also upon the basis of a suggested pending appeal from the orders of Einstein J.
Ahern’s case, which I have cited above, provides authority for the principle (at page 148):
It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: … (citations omitted)
That proposition has been considered in numerous later cases, including Adamopoulos v Olympic Airways SA & Anor (1990) 95 ALR 525 where it was applied by their Honours. I note, that Pincus J’s judgment in that case also refers to the broad discretionary considerations bearing on a decision to adjourn a creditor’s petition on the ground that an appeal has been instituted.
There are several reasons why, in my opinion, that principle does not apply or should not be followed in the present case.
The first is that, in fact, there has been no appeal proceeding yet commenced in the Supreme Court, and certainly no appeal which is on foot or well advanced (compare Ahern at 149). Moreover, the bankruptcy court has not been shown what the possible grounds of an appeal would be. I have endeavoured to consider Einstein J’s judgment, in the light of the submissions of Mr Wakim’s counsel today, to consider whether she has shown that there might be grounds of appeal “based on genuine and arguable grounds”. With respect to her efforts, I have not been able to identify any such ground, for the reasons I have explained above, in which I arrived at the same conclusions as his Honour in relation to the defences which were submitted before his Honour.
In support of the adjournment application, counsel for Mr Wakim referred to evidence that a subpoena was issued by the Supreme Court and directed to the liquidator of Wakim Prestige Proprietary Limited, which required it to produce records which might have a bearing on the bailment agreement with St George. The subpoena had not been answered by the time the proceedings were heard by Einstein J. After his judgment, there had been continuing pressure on the liquidator to comply with the subpoena, apparently on an assumption that the Supreme Court proceedings were still on foot, and the liquidator has in recent times identified various documents in his possession which he is prepared to produce. Counsel for Mr Wakim suggested that production of these documents will occur in the next three weeks, and might then allow Mr Wakim better to support his defences, both for the purposes of an appeal to the Court of Appeal, and also in support of going behind the judgment debt in the course of bankruptcy proceedings.
I have carefully considered these submissions, but for the above reasons I am not satisfied that any records which might be produced by the liquidator could overcome the difficulties facing the suggested defences, which arise from the terms of the bank documents executed by Mr Wakim. I am not persuaded that the circumstances in relation to that outstanding subpoena should result in the adjournment of the petition today.
When declining to adjourn the petition today I have also taken into account the submissions of counsel for Mr Wakim invoking, in effect, the concerns which were referred to in Ahern’s case in the paragraph following the paragraph I have extracted above:
These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi‑penal consequences.
I appreciate that the making of a sequestration order today will involve a change of status of Mr Wakim, and may impact on his ability to conduct further litigation, including any litigation which might explore the past financial dealings of his company with the Westpac and St George Banks. However, I have not been persuaded that there is any “genuine dispute” about his liability under the guarantees upon which the judgment debt is based.
I am not persuaded that there are sufficient grounds not to accept the authority of the Supreme Court judgment and the affidavits of debt which support the petition. I am satisfied that Westpac is a creditor who has a prima facie right to expect the Court to proceed to make a sequestration order (cf. Rozenbes v Kronhill (1956) 95 CLR 407 at 414). I am not satisfied that other creditors might not suffer by Mr Wakim continuing to trade while insolvent.
In my opinion, and balancing all the considerations, including the public interests reflected in the Bankruptcy Act and the hardships which may face Mr Wakim as a result of a sequestration order, I have concluded that my discretions should be exercised today by declining to adjourn the petition and by making a sequestration order.
I am satisfied on the evidence before me that all the requirements of s.52 and the other provisions of the Bankruptcy Act and Regulations have been established, and that no sufficient grounds for declining to make the order or for dismissing the petition have been established.
I therefore shall make a sequestration order, but I shall entertain an application for a short stay on the operation of the order under s.52(3) of the Bankruptcy Act, if only to allow Mr Wakim to receive my revised judgment and to take further advice. Any further applications for stay can only be made to the Federal Court.
I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 21 June 2011
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