Winkler v Director of Public Prosecutions

[1990] FCA 194

1w 9a

JUDGMENT NO. . .. ... / ........ ......-

C A T C H W O R D S

BANKRUPTCY - review of rejection of proof of debt - principles governing review where no oral evidence - standard of proof required - whether deed of acknowledgment executed by one partner merged the liability of the other partx~er pursuant to a simple contract debt.

Bankruptcy Act 1966, s.104(2)

Re: Theo Theodotou & Anor
Ex parte: Fosscroft Pty Ltd & Anor

Qld Part X95 of 1988

PINCUS J.

BRISBANE

IS MAY 1990

IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION	) QLD Park X95 of 1988
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND

RE:	THE0 THEODOTOU and MARIA T H E O D ( E
EX PARTE :	FOSSCROFT PTY LTD

Applic~~nt

AND :  IVOR WORRELL

MINUTES OF ORDER

JUDGE MAKING ORDER:	PINCUS J.
DATE OF ORDER:	15 MAY 1990
WHERE MADE:	BR1 SBANE
THE COURT ORDERS THAT:

1.    time be extended so far as necessary to allow the application to be heard;

2.     the trustee's decision to reject the applicant's

proof of debt be set aside;

3.     the trustee pay the applicant's costs in {.he proceedings, to be taxed.

NOTE :	Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA	1
GENERAL DIVISION	1
BANKRUPTCY DISTRICT	1
OF THE STATE OF QUEENSLAND	1

RE:	THE0 THEODOTOU and MARIA THEODOTOU
EX PARTE:	FOSSCROFT PTY LTD

Appliciint

AND :  IVOR WORRELL

PINCUS J. 15 MAY 1990

REASONS FOR JUDGMENT

This is an application under s.104(2) of the Bankruptcy Act 1966 for a review of a rejection of a proof of clebt. With one exception, the issues raised are purely factual. The sums put in issue by the application and proof of debt may be grouped as follows:

A. Costs incurred in modifying shop

B. New door and guarding
C. Interest to 30 May 1987
D. Proportion of Outgoings

E. Costs and outlays in preparing lease

F. Costs of District Court action Total

L .

1.

A notice of intention to oppose was filed on 22 March, which said, among other things, that an amount for rent was admitted. However, that admission was withdrawn at the hearing so that in addition to the sums set out above, I have to consider a claim for rent amounting to $5,648.50.

It is common ground that the applicant company negotiated with the debtor, Mr Theodotou, and the latter's partner, M Michalas, with a view to the partne~ship taking a lease of a shop owned by the applicant. However, the conversations which preceded that are disputed and it is convenient to refer to the documentary evidence at t.he outset. In November 1986, the applicant's solicitors sent the prospective lesseesr solicitors (Messrs H. Drakos and Co.) a draft lease, and that was the subject of subsequent correspondence. No lease was ever executed. On 14 July 1987, the applicant's solicitors wrote to Theodotou referring to the fact that "You have vacated the demised premises" and claiming sums roughly equivaltsnt to, but not the same as, those presently claimed. There was no response to that, nor to a subsequent claim for $834.50, beinq the costs of

preparation of the lease.

On 8 September 1987, H. Drakos and Co. sent to the applicantrs solicitors a deed of acknowledgment of debt executed by Michalas admitting indebtedness in sums being much the same as those presently in issue.

On 26 April 1988, solicitors wrote on behalf of
Theodotou to the applicant's solicitors referring to the fact that

the applicant had decided not to sue Michalas and to the applicant's allegation that "our client is liable because Mr Michalas made certain commitments on behalf of the partnership". This letter seems to me to be of significance bc~cause at that stage, as I infer, Theodotours solicitor knew about the applicant's claims and did not dispute them other than by suggesting that the applicant should look to Michalas for recovery. On 16 May 1988, the applicant got judgment against Theodotou in a sum of $15,687.86, which appears to c:orrespond with the sums presently in question, except that the costs incurred in the District Court proceedings are not included in the amount of the judgment.

There is an affidavit by Mr A. Kakavas, a director of the applicant, saying that the work which was done was agreed to be paid for by Michalas on behalf of himself and Thc*odotou. There is an affidavit by the trustee explaining that he is not satisfied that the money claimed is due, and saying, among other things, that Theodotou said he paid all rent and outgoings up to the date he left the premises. Theodotouls affidavit says that the work in

question was to be done at the applicant's expense. He denies	having agreed to pay interest and denies liability Tor the rest of
the sums claimed except in a sum of $260.
At the hearing, counsel for the trustee suggested that the liability, if any, merged in the deed executed by Michalas, but, in my opinion, that is not so: Halsbury, 4th Ed., Vo1.32, para.979. He relied upon a passage in Lindley on Paltnership, 15th Ed. pp.421-422:

"There is authority for saying that if two parties are jointly indebted by simple contract, and one of them gives his bond for payment of the debt, the joint debt is at an end; but there are more recent authorities to the contrary, and they will probably prevail.

Both of Lindley and Halsbury cite Owen v. Homan 42 ER

307, which established as:

"a general rule of law, that a party by taking or requiring a security of a higher nature in legal operation than the one he already possesses, merges and extinguishes his legal remedies upon the minor security or cause of action, that is to say, the taking a bond or covenant or the acquiring a judgment for the simple-contract debt merges and extinguishes the simple contract." (318)

Here, as I have mentioned, Michalas has executed a deed of acknowledgment of the debt, and the contention of the trustee was that the deed constitutes a "security of a higher nature" within the meaning of this passage.

In Wegg Prosser v. Evans [l8951 1 QB 108, money was due on a joint guarantee of a liability for rent, and the landlord
obtained a cheque from one of the CO-guarantors.	On the cheque's

being dishonoured, the landlord got judgment which was unsatisfied, but was held entitled to sue the other CO-guarantor (who had not been party to the cheque or the judgment). Rigby L.J. expressed the view that there wa$ no merger of the joint cause of action in the judgment on the several cause of action against one of the guarantors because the one was essentially different from the other (116). His Lordship said that for the

!

doctrine of merger to apply, the causes of action must be the
same :

"not only must they be concerned with the same subject-matter, but the parties to them must be the same." (116)

It is of interest to note that Lopes L.J. referred in Wegg Prosser to Camberfort v. Chapman (1887) 19 QBD 229, which is authority for application of the rules stated in -- Owen v. Homan to such a case as this. Lopes L.J. said that Lindley L.J. had expressed the opinion that the Camberfort decision was wrong.

Here the matter was complicated by the fact that there was a judgment entered against Theodotou which is itself a "security of a higher nature" than a simple contract debt. The contention is, of course, that the judgment should lye ignored.

It appears to be accepted that the Court can go behind

the judgment: In Re Van Laun; Ex parte Chatterton 119071 2 KB 23. Further, as a practical matter, the judgment can have little

weight here; it was entered by default shortly before the deed of	assignment was executed on 3 June 1988.
The difficulty of deciding a case of this sort merely on the papers is obvious, but no doubt the parties wish to avoid the costs of trying the issues in detail.
There is authority which might be thouclht to suggest that where there is merely affidavit against affidavit and no oral evidence, the trustee's decision rejecting a proof should prima 1
facie be upheld:  Re Masters, 30 July 1985, and Re Payne, 23
September 1988, unreported, per Toohey J. Here, the trustee does not say that he conducted any sort of hearing and hc* seems to have relied, reasonably enough, mainly upon information from Theodotou. Whether or not he did so, it appears to me that this Court has a duty in conducting the review to act upon the evidence before it. If the parties, for practical reasons, decide, as they have here, not to have any oral evidence, then the Court must simply do the best it can. The matter has to be decided on the material before the Court and not on that before the trustee: Ile Hanifin; Ex parte Britchner (1955) 17 ABC 24; Re Kerr, unreported, 24 July 1986, per Foster J. Similarly, under s.178 (which is admittedly differently phrased), the Court's power of interference is not confined to instances in which the trustee has acted absurdly, unreasonably or in bad faith: Re Tyndall (1977) 30 FLR 6.
The onus is, in my opinion, on the applicant to satisfy the Court that the trustee's decision should be reversed, but the standard of proof is merely the balance of probabilities, and it
seems to me that there is sufficient in the material to enable one rationally to choose between the two versions of events.
To start with the rent, I see no reason to overlook the admission of liability for rent, although it was later retracted. There is no explanation for this change of front, nor is there any reason to think that the costs associated with the lease preparation ($834.50) are not properly due. The principal problem is whether to accept Kakavas or Theodotou as to the disputed

\

conversations. I have decided to accept the applicant's case, principally because of the tone of the letter referred to above dated 26 April 1988. It seems to me improbable that if Theodotou genuinely thought Michalas had not made the agreements alleged, the solicitor would have failed to mention that fact. I will order that time be extended so far as necessary and that the trustee's decision to reject the applicant's proof be set aside. It will further be ordered that the trustee pay the applicant's costs of the proceedings, to be taxed.

I certify that this and the six preceding

pages are a true copy of the reasons for
judgment herein of His Honour Mr. Justice

Pincus.

Dated '2 F'ny 1 7 7 0

Counsel for the applicant:	Mr G.C. Lee
Solicitors for the applicant:	Roberts h Kani?
Counsel for the respondent:	Mr F.W. Redmond
Solicitors for the respondent:	Crawfords
Date of Hearing:	6 April 1990