Zantiotis, M.A. v Andrew, W.E.

[1988] FCA 220

Re: MICHAEL ANTHONY ZANTIOTIS
And: WILLIAM EDWARD ANDREW and KATY ZANTIOTIS
No. W345 of 1987X
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.(1)

CATCHWORDS

Bankruptcy - proposed deed of assignment under Part X of Bankruptcy Act 1966 - Debtor's former wife claiming to be a creditor under approved maintenance agreement - whether entitled to vote at meeting of creditors in respect of particular claims - Bankruptcy Act, ss.82(1A), 198.

HEARING

SYDNEY

#DATE 17:5:1988

Counsel and Solicitors for Applicant: W. Haffenden instructed by Lawrence F. Tanna & Co.

Counsel and Solicitors for 1st Respondent: Appeared in person

Counsel and Solicitors for 2nd Respondent: Appeared in person

Counsel representing Attorney-General of the Commonwealth as Amicus Curiae: Mr. D.J. Rose

Solicitor for the Attorney-General of the Commonwealth: Australian Government Solicitor

ORDER

The Court Orders That the application is dismissed.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

Introduction

The background facts in this matter are outlined in the earlier reasons for judgment (18 December 1987) overruling an objection to competency. On 11 December 1987 the applicant, Mr. Zantiotis, filed an amended application seeking: (1) a declaration that the first respondent, Mr. Andrew, his trustee, incorrectly admitted the second respondent, Mrs. Zantiotis, his former wife, to be admitted to vote in respect of an amount of $l35,789.00 at a meeting of the applicant's creditors held on 9 September 1987 in respect of a motion that the applicant execute a deed of assignment under Part X of the Bankruptcy Act 1966 ("the Act"); (2) alternatively, a declaration that the second respondent's entitlement to vote at the said meeting was in respect of the sum of $5,199.96 only. The applicant also seeks (3) a declaration that the applicant's creditors passed a motion that he execute the deed of assignment, and consequential orders.

2. The substantive issue now to be decided is whether the debts claimed by the second respondent on 9 September were admissible for the purposes of voting at the Part X meeting.

3. In a letter written after the meeting from the second respondent's solicitors to the first respondent dated 30 September 1987 ("the solicitor's letter") the debts claimed by the second respondent were outlined as follows:

"1. Maintenance Agreement:-

Clause 3(a)

36 instalments of $433-33 (i.e. 3 yrs from 17/7/1985- 17/7/1988)

Arrears (as shown in Family Court Order of 31 March 1987) $4,766-63

Payments from April 1987 to July 1988 (18 instalments) $433-33 x 18 $7,799-94 $12,566-57

Clause 3(b) of Maintenance Agreement due 17/7/1988 $55,000-00

Clause 9 provision of motor vehicle up to value of $10,000 (car repossessed) say $9,000-00 (unable to obtain details of payments made from Citicorp)

2. Order of Family Court of Australia of 31 March, 1987

Order 2(b) $54,247-96 Plus interest at 19.5% - daily rate of $28-98 to 28/9/87, 182 days $5,274-68 $59,522-64

Order 5 - shortfall on sale of Hi-Surf, 150 The Esplanade Surfers Paradise Not yet ascertained

3. Our client has Judgment in the District Court Proceedings No. 26084 of 1986. The District Court Judgment is in the same amount as the Order for the Family Court made on 31 March

1987. Our client claims scale costs of Judgment on the third party notice $548-75

$136,637-96"

(The final figure claimed is slightly larger than the sum of $135,789.00 admitted for the second respondent at the Part X meeting, but nothing turns on this.)

1. It is convenient to deal with the debts claimed in their order in the solicitor's letter.
   
   Claim under cl.3(a) of the maintenance agreement.
   
   

2. The first two amounts claimed, namely, $12,566.57 and $55,000.00, arise from a maintenance agreement ("the agreement") made between the applicant and the second respondent and approved by the Family Court of Australia pursuant to s.87 of the Family Law Act 1975 on 17 July 1985. By cl.3(a) of the agreement:
   
   

"3. The Husband agrees to pay the Wife the sum of $70,600.00 as follows:

(a) The sum of $15,600.00 by equal monthly payments of $433.33, the first of such payment (sic) to be made in advance on the 17th day of July, 1985 and thereafter by 4 p.m. on the 17th day of each month until all such payments shall have been made."

1. On 31 March 1987, the Family Court ordered that, pursuant to cl.3(a) of the agreement, the applicant forthwith pay to the second respondent the sum of $4,766.63. This is the first amount mentioned in the solicitor's letter. No payments have been made under cl.3(a) of the agreement.

2. Entitlement to vote at the meeting is governed by s.198 of the Act. Subject to the section, "every creditor is entitled to vote at the meeting...." (s.198(1)). A creditor is not entitled to vote in respect of an unliquidated or contingent debt or a debt the value of which is not ascertained (s.198(2)). For the purpose of enabling a creditor to vote, a debt that is certain but is payable in the future shall be deemed to be payable at the time of the meeting (s.198(3)). A creditor is not entitled to vote unless he has made known to the chairman particulars of his debt (s.198(4)).

3. On behalf of the applicant, it is submitted that, on its true construction, s.198(l) confers a right to vote upon only those creditors who are entitled to "prove" under the deed of assignment. It is then contended that, by virtue of the provisions of s.82(1A)(a) of the Act, as applied here, the second respondent could only "prove" in respect of part only of the amount claimed, namely $5,199.96, being arrears of instalments for 12 months only (i.e. 12 x $433.33). By s.82(1A)(a) it is provided:
   
   

"Without limiting the generality of sub-section (1), debts and liabilities referred to in that sub-section shall be taken to include a debt or liability by way of the whole or a part of -

(a) a periodical sum that became payable by the bankrupt before, but not more than one year before, the date of the bankruptcy under a maintenance agreement or maintenance order..."

1. I cannot accept the applicant's primary contention.
   

2. It is true that it has been held that a reference in bankruptcy legislation to a "creditor" generally means a person entitled to prove in the bankruptcy (see Grave v. Bishop (1855) 25 LJ Ex 58; Wood v. De Mattos (1865) LR 1 Ex 91; In re Poland (1866) LR 1 Ch App 356; (but see Hoggarth v. Taylor (1867) LR 2 Ex 105); In re Ward: Ex parte Hammond and Son v. The Official Receiver and the Debtor (1942) 1 Ch 294). But the meaning of the term must depend upon its particular context.

3. In the present case, the context strongly suggests that, subject to the specific exceptions mentioned in s.198 (e.g. s.198(2)), a creditor is entitled to vote notwithstanding that, on technical grounds, the "proof" of his or her debt may be rejected in whole or in part. The evident object of s.198 is to establish a simple, practical procedure to enable the chairman to determine who can vote and, if so, for what amount. Because of time constraints, it was no doubt thought undesirable that the chairman should have to enter upon an investigation into the technical questions which could well surround such an inquiry into whether a debt should be admitted to "proof". By s.198(4), a creditor is not entitled to vote unless he or she has made known to the chairman particulars of his or her debt. This is a practical safeguard designed to ensure that, for instance, frivolous claims cannot give any right to vote. Moreover, by virtue of s.198(2), no vote is available in respect of unliquidated or contingent debts or in respect of debts the value of which is not ascertained. On the other hand, future debts, if certain, qualify under s.198(3). Thus s.198 reveals on its face a legislative intention to establish a code that, with certain defined exceptions, gives a creditor a right to vote notwithstanding that further investigation may reveal that his claim should not be admitted to "proof".

4. This conclusion is supported by contrasting the different language employed by s.66(1) of the Act in a similar context. In dealing with entitlement to vote at the first meeting of creditors in a bankruptcy, s.66(1) provides:
   
   

"Subject to this section, each creditor who is entitled to prove a debt in the bankruptcy is entitled to vote at the first meeting of creditors." (Emphasis added)

1. It must follow, in my view, that the second respondent was entitled to vote in respect of the whole of the arrears due under cl.3(a) of the agreement, irrespective of her right, if any, to prove for the whole of that amount.

2. In the circumstances, it is not necessary now to express any view on the applicant's second contention that the second respondent could prove for arrears for the period of one year only.

3. In my opinion, the second respondent was entitled to vote in respect of the sum of $12,566.57.
   
   Claim under cl.3(b) of the agreement
   
   

4. By cl.3(b) of the agreement:
   
   

"3. The husband agrees to pay the wife...

(b) The sum of $55,000.00 on or before 4 p.m. on the 17th day of July, 1988 and all such payments shall be made by Banker's Order as directed by the Wife."

1. The applicant here seeks to rely upon s.82(1A)(b) of the Act as follows:
   
   

"Without limiting the generality of sub-section (1), debts and liabilities referred to in that sub-section shall be taken to include a debt or liability by way of the whole or a part of -

....

(b) a lump sum (whether payable in one amount or by instalments) that became payable by the bankrupt before the date of the bankruptcy under a maintenance agreement...." (Emphasis added)

1. The applicant says that since the lump sum of $55,000.00 is not payable until 17 July l988, it fell outside s.82(1A)(b) because it was not payable before the date of the meeting. Therefore, the argument runs, this amount is not "provable" under the deed and cannot be voted under s.198(1).

2. For the reasons already given, in my view, it is not a condition of entitlement to vote under s.198 that a creditor demonstrate that his or her debt is "provable". It is true that the amount claimed is payable at a future date but, by virtue of s.198(3), its date of payment is deemed to have been accelerated. Again it is unnecessary to decide whether the debt could be proved.

3. In my opinion, the second respondent was entitled to vote this amount.
   
   Claim for $9,000.00 in respect of motor vehicle
   
   

4. This amount relates to a car purchased in July 1985 for $12,000.00 pursuant to paras. 9 and 10 of the agreement as follows:
   
   

"9. The Husband agrees, forthwith, to provide the Wife with a motor vehicle of her choice up to the value of $10,000.00, such motor vehicle is to be leased in the name of the Husband and in relation thereto the parties agree:-

(a) That such lease is to be for a period not exceeding 4 years.

(b) At the expiration of the said lease the Husband will pay out or cause to be paid out by the date specified in such lease, the whole of the residue due and owing in respect of such lease and transfer and/or assign or cause to be transferred or assigned, to the Wife the whole of the right, title and interest in the said motor vehicle.

(c) During the period of the lease the Husband agrees to indemnify the Wife in respect of any liability in relation to the lease and the Wife agrees to indemnify the Husband in respect of any claim in tort that might have occurred whilst she was driving the motor vehicle.

10. In relation to the leasing of the said motor vehicle referred to in paragraph 9 hereof, the parties agree -

(a) That the Husband shall take all necessary steps to cause the records of the Department of Motor Transport to be altered, so as to show that the Wife is the registered owner of the said motor vehicle and that the Wife shall sign all documents to give effect to this sub-clause.

(b) That the Husband will in respect of the initial registration and insurance period of l2 months, register and insure the motor vehicle at all times to its full market value and ensure that the motor vehicle is at all times covered by third party personal injury insurance and indemnify the Wife in relation thereto.

(c) That with the exception of the period referred to in sub-clause (b) above the Wife shall register and insure that said motor vehicle at all times to its full market value and ensure that the motor vehicle is at all times covered by third party personal injury insurance and indemnify the Husband thereto.

(d) The Wife shall be responsible for the costs of all maintenance and repairs of the said motor vehicle."

1. Lease payments were made by the applicant until 17 March 1987. The car was repossessed on 9 June 1987. The applicant claims that this sum is an unliquidated or contingent debt or a debt the value of which is not ascertained within the meaning of s.198(2) so that the second respondent was not eligible to vote for this amount.

2. In my opinion, the applicant's contention is correct. The vehicle having been repossessed, there is now no prospect of reinstatement of the leasing arrangement. The applicant has repudiated his contractual obligations in this regard but his only liability is for damages for breach of this promise. The measure of damages is the loss of the benefit of his promise. This is an unliquidated claim which is excluded from voting by s.198(2).

3. In my view, the second respondent could not vote this claim.
   
   Claim for $59,522.64 due under para.2 of Family Court order.
   
   

4. On 31 March 1987, the Family Court ordered, inter alia -
   
   "2. (a) That pursuant to paragraph 3(a) and paragraphs 7
   

and 13 of a Maintenance Agreement contained in a Deed dated 17th July, 1985 and approved by Order in this Honourable Court on that date the husband forthwith pay pursuant to paragraph 3(a) of the said Agreement the amount of $4,766.63 to the wife and further an amount of $54,257.96 to the Westpac Banking Corporation pursuant to paragraphs 7 and 13 of the said Deed together with interest thereon at 19.5% per annum from the date of this Order until payment.

(b) That in the event that the husband has failed to pay the said amount of $54,257.96 referred to in Order 2(a) above to the Westpac Banking Corporation pursuant to paragraphs 7 and 13 of the said Deed within 24 hours of this date then the husband forthwith thereafter pay that amount together with interest if any to the wife."

1. This order was made after the applicant had repudiated his promise in the agreement to indemnify the second respondent in respect of certain guarantees given by her in respect of debts incurred by a family company.

2. On behalf of the applicant, it is contended (1) this Court should go behind the judgment debt (see Wren v. Mahoney (1972) 126 CLR 212 at p 224); (2) until the second respondent pays the debt, she is a mere contingent creditor (see In re Fenton; Ex parte Fenton Textile Association, Limited (1931) 1 Ch 85; Re Bruce David Realty Pty. Ltd. (In Liq.) (1968-1969) 14 FLR 56; Day & Dent Constructions Pty. Ltd. (In Liquidation) v. North Australian Properties Pty. Ltd. (Provisional Liquidator Appointed) (1981) 34 ALR 595); (3) by virtue of s.198(2) or, alternatively, in accordance with the reasoning in Re Morris; Ex parte Morris v. Maroudas (1986) 11 FCR 145, (cf., on appeal Morris v. Maroudas (1986) 70 ALR 98 per Toohey J. at p 108) a contingent creditor cannot vote at a Part X meeting.

3. It may be accepted that, for the purposes of refusing to make a sequestration order, the Court may have a discretion to go behind a judgment to ascertain whether there is, in truth, a debt at all. But here the question is different: it is whether the debt was absolute or merely contingent. In my view, the relevant liability imposed upon the applicant here was absolute. Whatever its origins, by the date of the meeting, the applicant's liability derived from para.2(b) of the Family Court order. It follows, in my opinion, that the second respondent's debt was no longer secondary or contingent. It may have had its source in a relation of co-suretyship. But that relationship had been superseded by an express contract of indemnity which, in turn, had become merged in the judgment or order of the Family Court. The debt was thus no longer contingent for present purposes.

4. On behalf of the applicant, reliance was sought to be placed upon s.30 of the Act and upon s.43 of the Family Law Act. In my view, neither of these provisions bear upon the present question which depends upon the proper construction and operation of s.198 of the Act.
   
   Claim for District Court costs of $548.75
   
   

5. These are costs claimed in respect of a default judgment. The applicant submits that the exception in s.198(2) applies because the claim is unliquidated or its value cannot be ascertained (see Ex parte Ruffle: In re Dummelow (1873) LR 8 Ch App 997; Ex parte Kimber: In re Thrift (1879) 11 ChD 869; Re Hobbs; Ex parte Dutton (1938) 10 ABC 293).

6. In my opinion, the sum claimed was not "contingent" and the value of the claim could be ascertained for the purposes of s.198.

7. The relevant District Court scale of costs provided that an undefended judgment should carry costs of $548.75 - the amount now claimed - together with filing or other fees or disbursements.

8. Since the second respondent was entitled to scale costs, it was unnecessary to tax costs. It follows that the value of the claim was ascertainable for present purposes (cf. Re Spanney; Ex parte Holtzmann (1935) 38 WALR 13; Re Hobbs; Ex parte Dutton, supra).
   
   Result of the proceedings.
   
   

9. It must follow that, although the first respondent incorrectly admitted the second respondent to vote judgment of the claim for $9,000.00, he otherwise correctly permitted her to vote her claims. It is accepted by the applicant that, in those circumstances, the statutory majority of votes could not be achieved. For these reasons, the application was dismissed.