Montgomerie v Montgomerie
[2020] NZHC 3282
•11 December 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001380
[2020] NZHC 3282
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of A L Montgomerie
BETWEEN
JAMES LESTER MONTGOMERIE
Judgment Creditor
AND
ANDREW LAURIE MONTGOMERIE
Judgment Debtor
Hearing: 1 October 2020 Appearances:
S Robertson QC for the Judgment Creditor A Gilchrist for the Judgment Debtor
Judgment:
11 December 2020
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 11 December 2020 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Brookfields, Auckland
S Robertson QC, Auckland A Gilchrist, Auckland
MONTGOMERIE v MONTGOMERIE [2020] NZHC 3282 [11 December 2020]
Introduction
[1] James Montgomerie is a businessman based in the United States. Andrew Montgomerie is a property developer based in Auckland. They are brothers. Around nine years ago, James lent Andrew a substantial sum of money, which Andrew has not repaid. Two years ago, James called up the loan and then obtained summary judgment of the debt. Still, Andrew did not pay. James issued a bankruptcy notice and then, when Andrew did not comply, applied to have Andrew declared bankrupt.
[2] Andrew does not deny that a debt is owing to James, nor that he committed an act of bankruptcy in failing to comply with the bankruptcy notice which had been served on him. Instead, Andrew says that he and James, through their counsel, agreed a settlement of the debt, and that such a settlement forms an absolute defence to James’ application for adjudication.
[3] James denies that he and Andrew concluded a settlement agreement. James maintains that Andrew has committed an act of bankruptcy and, as such, should be adjudicated bankrupt.
[4] At the hearing, counsel referred to the parties by their first names in view of their common surname. I do the same in this judgment.
Issues
[5] I need to view the evidence objectively and decide whether it shows that James and Andrew reached an agreement, that is, whether a contract was formed. This involves considering:
(a)Whether there was an intention to be immediately bound; and
(b)Whether all the essential terms were agreed.
Factual background
[6] Andrew fell into financial difficulty because of the global financial crisis in 2008. James agreed to lend Andrew some money. On 26 August 2011, they entered
into a loan agreement (“the Loan Agreement”).1 Andrew did not repay the loan. The Loan Agreement was varied, first, on 25 May 2016 and, again, in July/August 2016.2 Andrew again did not pay. A further agreement was signed on 9 March 2017 (“the 2017 Agreement”).3 Again Andrew did not repay the loan (although he did reduce it by $200,000 in March 2017).4
[7] In October 2018, James called up the amount owing under the Loan Agreement (USD 865,123.72 plus interest and costs). He commenced summary judgment proceedings in December 2018. Associate Judge Smith entered summary judgment against Andrew on 8 May 2019.5 Andrew appealed; the Court of Appeal dismissed his appeal on 28 January 2020.6
[8] On 22 July 2019, James issued a bankruptcy notice demanding payment of the judgment debt of USD 908,973.53 and costs of $16,218. James was unable to serve Andrew. On 30 January 2020, time for service of the bankruptcy notice was extended to 21 April 2020, and an order for substituted service was made.7 Finally, on 3 February 2020, a bankruptcy notice was served on Andrew. Andrew failed to comply with the notice, and, on 6 March 2020, James applied to the court for an order adjudicating Andrew bankrupt on that basis.
[9] The bankruptcy adjudication application was first called on 2 July 2020. Counsel for Andrew, Mr Hamilton, had filed a notice of appearance under protest to jurisdiction on the understanding that the bankruptcy adjudication application had not been served on Andrew within time. That morning, Mr Hamilton accepted that the application had been properly served. The application was adjourned to 23 July 2020 for Andrew to make a settlement proposal. Associate Judge Smith recorded: “The judgment debtor should appreciate that there are unlikely to be any further
1 See Montgomerie v Montgomerie [2019] NZHC 989 at [6]–[10].
2 At [12].
3 At [16].
4 All references to dollar amounts ($) are in New Zealand dollars unless otherwise specified.
5 Montgomerie v Montgomerie (HC), above n 1.
6 Montgomerie v Montgomerie [2020] NZCA 3, [2020] NZCCLR 16.
7 Montgomerie v Montgomerie HC Auckland CIV-2018-404-2745, 30 January 2020 (Minute of Associate Judge Bell).
adjournments given the lengthy delays since the debt was incurred, judgment given in this Court, and judgment subsequently given by the Court of Appeal.”8
[10] Between 20 and 23 July 2020, James and Andrew, through their lawyers, Mr Woodhouse and Mr Hamilton/Mr Burgess respectively, corresponded about a potential settlement, as follows:
(a)On 20 July 2020 at 12:28 pm, Andrew’s solicitor, Mr Burgess, emailed Mr Woodhouse a letter dated 17 July 2020 which contained a settlement proposal from Andrew. The letter refers to discussions between James and Andrew earlier in the year where they had been “on the cusp” of settling the underlying judgment debt for a payment by Andrew of
$400,000, but the brothers were unable to agree on the timing of payments. Mr Burgess restated Andrew’s offer of $400,000 in full and final settlement of the judgment debt, to be paid by July 2021. Andrew would fund this from property development projects coming to fruition and/or the sale of his home in Ponsonby over the 2020/2021 summer. Mr Burgess said the offer was open for written acceptance until 10 am on 23 July 2020, and subject to:
(i)Full and final settlement of all claims James has against Andrew (including for costs) arising out of or in any way connected to the subject matter of the Court of Appeal proceeding;9
(ii)The Ponsonby property being listed for sale by 30 January 2021;
(iii)The settlement sum of $400,000 including GST if any;
(iv)The parties to bear their own costs;
(v)The parties doing all things necessary to make a joint application for an adjournment of the hearing in the High Court
8 Montgomerie v Montgomerie HC Auckland CIV-2018-404-2745, 2 July 2020 (Minute of Associate Judge Smith).
9 Montgomerie v Montgomerie (CA), above n 6.
at Auckland (CIV-2019-404-1380) scheduled for 10.45 am on 23 July 2020 to a date in March 2021 to monitor progress;
(vi)Andrew and/or his agent paying the settlement sum of $400,000 into the trust account of Woodhouse Law on or before 1 July 2021; and
(vii)The agreement being governed by the laws of New Zealand, with the New Zealand courts having exclusive jurisdiction.
(b)Mr Burgess stated that the offer was not confidential and that the letter had been deliberately sent on an open basis. He acknowledged that the offer was short of James’ entitlement of over USD 1,000,000 under the summary judgment, but said that it was the best that Andrew could do and noted that “the stark reality is that if the Court bankrupts Andrew on 23 July, James will get nothing.”
(c)On 20 July 2020 at 12.38 pm, Mr Woodhouse, on behalf of James, replied to the letter. In his reply, Mr Woodhouse noted that he would forward the letter to James and obtain instructions. He added that, “I think an impediment to James accepting the offer in your letter is the lack of any interim payments”. Mr Woodhouse queried why the letter was endorsed “without prejudice save as to costs” if it was intended to be open. Mr Burgess resent the letter at 12.55 pm with the endorsement removed. It was otherwise identical to the version sent earlier that day.
(d)On 20 July 2020 at 4.55 pm, Mr Woodhouse emailed Mr Hamilton, Andrew’s barrister (who had by that stage called Mr Woodhouse), copying in Mr Burgess, with James’ response. That email said that James’ email to him was, “If Andrew’s offer does not include an immediate cash payment, and then some regular interim payments, I am just not interested in the continued chat.”
(e)On 20 July 2020 after 5.00 pm, Mr Woodhouse received a call from Mr Hamilton, on behalf of Andrew. Mr Hamilton made a verbal offer, which he confirmed in an email at 7:35 pm, to pay the $400,000 by
(i) an initial payment of $5,000 within 14 days of “the parties entering into an agreement” plus (ii) instalments of $20,000 each of four and eight months’ time; and (iii) the balance of $355,000 by July 2021. Mr Hamilton said that “all other terms in Doug Burgess’ letter [of] 17 July apply, other than the extent that they have been varied above.” Mr Woodhouse relayed this to James.
(f)On 21 July 2021 at 9.39 am, Mr Woodhouse, having received James’ instructions, emailed Mr Hamilton setting out James’ without prejudice “counter-offer”: (i) payment of $15,000 before the next court date, 23 July 2020; (ii) $5,000 per month on the 23rd of each month for 11 months; and (iii) final payment of $330,000 on the 12th month. Mr Woodhouse related that James had made it clear that he would not accept any adjournment/delay without cash being paid prior to 23 July 2020. As an aside, Mr Woodhouse objected to Mr Burgess’ reference to earlier without prejudice conversations in his open letter of 17 July 2020 and said it was debatable anyway whether his letter would be regarded by the court as “open”.
(g)On 21 July 2020 at 10.03 am, Mr Hamilton called Mr Woodhouse and explained that Andrew was simply not able to pay $15,000 to James before the next court date or commit to regular monthly payments of
$5,000 (which he did not know if he would have the funds to pay), but he could borrow and pay $5,000 by 23 July and commit to $20,000 in four months’ time and the same in eight months. In his email to James at 10.19 am, Mr Woodhouse reports that he said to Mr Hamilton that if Andrew could not commit to $5,000 each month perhaps he could at least offer $2,500 per month, or even $1,000 (to come off the $20,000 in four months) to keep the payments coming in rather than James waiting four months for potential default. According to Mr Woodhouse’s note, Mr Hamilton said that if James insisted on
regular monthly payments, Mr Woodhouse should go back to him and he would convey that to Andrew.
(h)A short while later, at 10.51 am, Mr Hamilton sent Mr Woodhouse an email (copied to Mr Burgess) responding to Mr Woodhouse’s email of the previous day about the “open” nature of Mr Burgess’ 17 July letter. He reiterated that Andrew’s offer contained in that letter was not intended to be confidential. He reiterated Andrew’s “varied” offer that he had made on the phone: an initial payment of $5,000 on or before 23 July 2020, with further payments of $20,000 in four months’ time, another $20,000 in eight months’ time and the balance of $355,000 in 12 months’ time.
(i)On 21 July 2020 at 11.24 am, Mr Woodhouse emailed Mr Hamilton stating that, “James is not impressed with the complaints about inability to pay $5k. James thinks that Andrew would likely have paid more than that to attorneys over recent weeks. The offer is rejected.” Mr Woodhouse responded to Mr Hamilton’s comments about “without prejudice” communications and reiterated that he did not consider it open to Mr Burgess/Mr Hamilton to unilaterally waive privilege over earlier “without prejudice” communications.
(j)Later that day, at 1.24 pm, Mr Burgess sent Mr Woodhouse a further version of his 17 July 2020 letter, containing the offer that had been made by Mr Hamilton at 10.51 am that day (i.e. an initial payment of
$5,000 on or before 23 July 2020; a payment of $20,000 four months later; a payment of $20,000 four months after that; and a final payment at 12 months of $355,000). The offer was stated to expire at 10.00 am on 23 July 2020. Mr Woodhouse did not respond to this letter. His evidence is that he considered this unnecessary as he had already communicated James’ rejection of it to Mr Hamilton.
(k)On 22 July 2020 at 2.53 pm, Mr Hamilton served on Mr Woodhouse Andrew’s notice of opposition to the application and affidavit sworn on
that day. Mr Woodhouse reported to James, including advising him that the court may refuse to hear Andrew’s opposition and adjudicate him bankrupt, as the notice had been filed out of time (after 1 pm). Mr Woodhouse gives evidence that James instructed him to proceed with the application and that he began preparing submissions, including opposing Andrew’s late opposition being heard.
(l)Later, James instructed Mr Woodhouse that if Andrew made an immediate payment of something more than $5,000 he would “reconsider”. At 4.50 pm, Mr Woodhouse emailed Mr Hamilton copying to him James’ latest instruction:
Please object to Andrews [sic] latest tactics as best as possible (and as drafted in your message) … if he does make some new offer on the steps of the courthouse tomorrow, that involves the immediate payment of some amount greater than 5k, then we will reconsider … It strains credibility for him to claim that he doesn’t have 5K, I am sure his legal team has cost him more than that in the last few weeks … On top of that I believe he is funding a very serious claim against my late father’s estate, which I am sure it [sic] is not free.
(m)Mr Woodhouse’s evidence is that he continued preparing for the call of the application the next day. His instructions from James (confirmed overnight) were to proceed with the bankruptcy. He prepared some brief submissions objecting to the late filing of the opposition; arguing for immediate adjudication and including a draft order; or, if the Court preferred to set down the application for a formal hearing, asking that it be heard as soon as possible.
(n)On 23 July 2020 at 9.54 am, Mr Hamilton phoned Mr Woodhouse offering an increased immediate payment of $6,000. Mr Woodhouse said that he did not think that increase would “cut it”. Mr Hamilton sought further instructions from Andrew and returned at 10:03 am to offer an increased immediate payment of $7,500. Mr Hamilton’s file note records: “made an offer of $7,500 to be paid today. I said we would vary the offer so it was $7,500 now, with $352,500 due in July
2021. He said he would get instructions and if accepted we might seek an adjournment.”
(o)Mr Woodhouse emailed James the proposal of an initial payment of
$7,500 to be paid to Andrew’s solicitors’ trust account “today” (23 July 2020), with the “[r]est of the proposal as before”. Mr Woodhouse said to James, “My suggestion/recommendation – get the $7,500 and then haggle over the other terms – adjourn application one week? $7,500 still better than nil – with potential 400k total?”
(p)James replied at 10.13 am, saying, “Yep, let’s take the $7500 and ask for a one week adjournment.”
(q)At 10.17 am, Mr Woodhouse telephoned Mr Hamilton and read James’ email to him verbatim. Mr Hamilton’s file note says: “told me ‘miracles happen’ as his client agreed to $7,500. We would seek a one week adjournment. I agreed and said I would let my client know.”
(r)At 10.23 am, Mr Hamilton texted Mr Woodhouse, “Andrew instructs that he is paying $7,500 into Doug Burgess’ trust account now”.
(s)At 10.45 am, the application was called in the bankruptcy list before Associate Judge Bell. Mr Hamilton, who addressed the Court first, said that there was a “settlement”. Mr Woodhouse informed the Court that there was a “provisional settlement.”
(t)Outside court, Mr Hamilton asked Mr Woodhouse whether a deed was necessary, to which Mr Woodhouse apparently said no.
(u)At 11.32 am, Mr Hamilton emailed Mr Woodhouse and said:
I confirm my instructions that:
1)Andrew will make payment of $7,500 into Doug Burgess’ today. Confirmation of the same will be provided, and the payment made in the event that there are cleared funds in Mr Burgess’ trust account by close of business.
2)There will be further payments as agreed of $20,000 in each of 4 months’ and 8 months’ time.
3)There will be a final payment of $352,500 by July 2021;
4)The terms in paragraphs 7.1 to 7.7 of Doug Burgess’ letter to 21 July 2020 apply.
The Court has adjourned today’s hearing until 30 July 2020 at
10.00 am but if today’s payment is made, then the parties agree to seek a further adjournment to monitor compliance by joint memorandum.
Please confirm the above by return.
(v)Mr Woodhouse responded at 11:39 am to say that he had forwarded Mr Hamilton’s email to James for instructions. He provided his trust account deposit slip for the payment of $7,500.
(w)On 24 July 2020 at 11.38 am, Mr Woodhouse responded, advising that James did not accept Andrew’s “re-iterated offer”. He said his best offer in response was immediate payment of $7,500, 11 monthly payments of $5,000 and a final payment of $337,500 in 12 months. Mr Woodhouse said:
[M]y understanding of the arrangement, which is reflected in the email from James that I read to you over the phone at 10:17 am yesterday was that if Andrew paid $7,500 then we would adjourn and discuss the balance. Accordingly, James understood, as did I, that the
$7,500 was to be paid to James immediately regardless of any agreement on the balance.
(x)Mr Hamilton responded by letter on 27 July 2020 setting out Andrew’s position that the parties had entered into a settlement agreement prior to court on 23 July 2020.
(y)From there, communications continued about whether or not a settlement had been agreed, with Messrs Woodhouse and Hamilton eventually stepping aside so they could give evidence.
Legal framework
Insolvency Act 2006
[11] The criteria for when a creditor may apply for the debtors’ adjudication are set out in s 13 of the Insolvency Act 2006 (“the Act”):
13 When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a)the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and
(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c)the debt is a certain amount; and
(d)the debt is payable either immediately or at a date in the future that is certain.
[12] Under s 17, a debtor commits an act of bankruptcy (as required under s 13(b)) if a creditor has obtained a final judgment/order against the debtor for any amount, the execution of which has not been halted by a court, and the debtor, having been served with a bankruptcy notice, has not complied with the requirements of the notice or otherwise satisfied the Court that he or she has a cross-claim against the creditor.
[13] Section 36 provides that the Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in s 13. It has been said that once the s 13 requirements are made out, the judgment creditor is prima facie entitled to an adjudication order.10 However, the Court may, in its discretion, refuse adjudication for the reasons set out in s 37 of the Act. Section 37 provides:
37 Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a)the applicant creditor has not established the requirements set out in section 13; or
10 See Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 5 and 8; and Re Epirosa HC Wellington B498/91, 6 March 1992 as cited in Insolvency Law & Practice (online looseleaf ed, Thomson Reuters) at [IN37.01].
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the court does not make an order of adjudication; or
(d)for any other reason an order of adjudication should not be made.
[14] The Court of Appeal has observed that s 37 confers a “wide discretion” informed by various factors.11
[15] Andrew opposes the application for adjudication on the single ground that he and James agreed a settlement of the judgment debt. Originally, Andrew also maintained that it is just and equitable that the Court does not make an order of adjudication, as this would prevent him being able to work as a property developer. As such, he would not be able to earn an income sufficient to maintain himself and his family. However, he has since withdrawn that ground of opposition, pursuing only the opposition based on a settlement.
[16] While counsel did not address me on this point, I see the question of settlement as going to whether the requirements of s 13 are met. If settlement of the judgment debt has been agreed, the judgment debt is no longer owing (although new obligations arise through the settlement agreement). If the requirements of s 13(a) and/or (d) are not met, the Court does not have jurisdiction to make an order for adjudication under s 36. In terms of s 37, an agreed settlement would provide grounds for refusing to order adjudication pursuant to s 37(a) or the general discretion under s 37(d).
Contract formation
[17] The issue for determination is whether a settlement agreement was reached between the parties. In other words, whether a contract was concluded.
[18] The Court of Appeal recently summarised the legal principles in relation to contract formation in the following way:12
11 Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [15].
12 Croser v Focus Genetics Ltd Partnership (2548500) [2020] NZCA 367.
[50] Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd identified the prerequisites to formation of a contract as:13
(a)an intention to be immediately bound at the point when the bargain is said to have been agreed; and
(b)an agreement, express or found by implication, or the means of achieving an agreement, on every term which was legally essential to the formation of the agreement or which was regarded by the parties as essential to their agreement.
[51] Whether the parties intended to enter into a contract and had succeeded in doing so are to be determined objectively.14
[52] Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd also discussed the evidence that was relevant when considering whether a contract has been formed. In contrast with when the Court is interpreting a formed contract, when deciding whether a contract has been formed the matrix of facts includes the statements the parties made in their negotiations and the drafts of the intended contractual document.15 It is also permissible to consider that “one party told the other that the otherwise apparently binding contract was not in fact to be binding” and “to look at subsequent conduct of the parties towards one another, including what they have said to each other after the date of the alleged contract”.16 The Court expressed reservations about whether direct expressions of subjective intent were relevant, but did not reach a firm view about that.17
[53]Subsequently, in Tower Insurance Ltd v Nicon Ltd, this Court said:18
[33] It is settled law that the determination of whether parties have intended to enter into a contract requires an objective assessment. It is not a question of deciding the credibility of their competing claims as to their actual intentions. It is also settled law that in undertaking that objective assessment, the Court may have regard to the context or purpose of the document, its wording and the subsequent conduct of the parties as well as what they said both before and after the document was signed.
Discussion
Andrew’s position
[19] Mr Gilchrist, for Andrew, maintains that a settlement was agreed at 10.17 am on 23 July 2020. Mr Gilchrist submits that the two key documents are the letter from
13 Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] 2 NZLR 433 (CA) at [53].
14 At [54].
15 At [54]–[55].
16 At [55]–[56].
17 At [56].
18 Tower Insurance Ltd v Nicon Ltd [2019] NZCA 332, [2020] NZCCLR 7 at [33].
Mr Burgess of 21 July 2020 and Mr Hamilton’s file note of his telephone conversations with Mr Woodhouse on the morning of 23 July, prior to the call in the bankruptcy list.
[20]Mr Gilchrist says that:
(a)All the essential terms of a settlement agreement were contained in the letter from Mr Burgess dated 21 July 2020.
(b)When Mr Hamilton said to Mr Woodhouse during the 10.03 am call that “we would vary the offer so it was $7,500 now, with $352,000 due on July 2021”, the “offer” that was being “varied” was the offer made in Mr Burgess’ letter.
(c)When Mr Woodhouse responded to Mr Woodhouse at 10.17 am and said, “miracles happen”, he was accepting the offer that had been put to him only 15 minutes prior, namely Mr Burgess’ offer of 21 July 2020 with the initial payment varied from $5,000 to $7,500 (and consequential reduction to the final payment).
[21]In support of this, Mr Gilchrist says that:
(a)It would lack commercial sense for Andrew to agree to pay $7,500 on 23 July 2020 if all that he was receiving in return was a one-week adjournment, when the proceeding would have been adjourned for a defended hearing anyway.
(b)When Mr Hamilton said after the call that he would prepare a deed, Mr Woodhouse did not dispute that a settlement had been reached.
(c)Mr Woodhouse also did not dispute the follow-up letter from Mr Hamilton.
Analysis
[22] I agree that the essential elements of a settlement agreement were contained in Mr Burgess’ letter of 21 July 2020. But viewing the contemporaneous evidence objectively, I do not consider that James intended to, or did, agree to a settlement on those terms (as varied) on the morning of 23 July 2020.
[23] Mr Gilchrist’s submission relies on two conclusions: first, that Mr Hamilton’s statement during the 10.03 am call that “we would vary the offer” was referring to the comprehensive settlement offer contained in Mr Burgess’ letter; and secondly, that Mr Woodhouse’s statement during the 10.17 am call that “miracles happen” was an acceptance of that comprehensive settlement offer. In my view, when these conversations are seen in context, they take on a different meaning.
[24] The backdrop was that James, in his 11.24 am email on 21 July 2020, had already rejected an offer on the terms contained in Mr Burgess’ letter. In any event, Mr Burgess’ offer was stated to expire at 10.00 am on 23 July 2020. Mr Gilchrist contends that Mr Hamilton effectively re-made that over the phone on 23 July 2020 at
10.03 am, but varied it to increase the upfront payment, with the final payment reduced accordingly.
[25] Yet the preceding communications between Mr Hamilton and Mr Woodhouse were focused on the amount of the upfront payment only. On 22 July 2020 at
12.29 pm, Mr Hamilton called Mr Woodhouse and said that Andrew could only pay
$5,000 upfront. On 23 July at 9.54 am, Mr Hamilton phoned Mr Woodhouse offering to increase the immediate initial payment to $6,000. Mr Woodhouse said that he did not think that increase would “cut it”. Mr Hamilton sought further instructions from Andrew and returned at 10.03 am to increase the upfront payment to $7,500. Seen in that context, Mr Hamilton’s statement that “we would vary the offer” could mean to vary the upfront amount offered from $6,000 to $7,500 (increased from the previous day’s offer of $5,000). In fact, Mr Hamilton’s file note records: “I said we would vary the offer so it was $7,500 now, with $352,500 due in July 2021”. Relevantly, there is no reference by Mr Hamilton to Mr Burgess’ offer of 21 July 2020.
[26] Equally, Mr Woodhouse’s response to Mr Hamilton 12 minutes later that “miracles happen”, rather than indicating agreement to a comprehensive settlement being agreed as Mr Gilchrist contends, could have been referring to James agreeing to a further delay based on an increase in the initial payment of only $2,500. In fact, Mr Hamilton’s file note says: “told me ‘miracles happen’ as his client agreed to
$7,500” (emphasis added). Again, there was no reference to Mr Burgess, the letter, any settlement, or any other such terms.
[27] In my view, the evidence shows reasonably clearly that James/Mr Woodhouse considered that all they were agreeing was that Andrew would make an immediate initial payment of $7,500 in return for James agreeing to adjourn the proceedings for one week so that negotiations on the balance of the settlement, including the frequency and amount of the interim payments, could continue. I also note the following:
(a)In an email to James on the morning of 23 July 2020, Mr Woodhouse recommended that James “get the $7,500 and then haggle over the other terms”.
(b)James’ response of “Yep, let’s take the $7500”, which Mr Woodhouse says he read verbatim to Mr Hamilton, is plainly only concerned with the initial payment amount (being $7,500).
(c)The fact that Mr Woodhouse and Mr Hamilton sought and obtained a one-week adjournment only supports James’ position. Had a comprehensive settlement agreement been reached, they would have sought a longer adjournment. Indeed, in Mr Burgess’ letter of 21 July 2020, he proposed that they “apply jointly for an adjournment of the next mention in the bankruptcy proceeding to a further date to monitor progress”. Mr Woodhouse proposed the same arrangement in his email of 23 July 2020 following the call. Had a binding agreement been reached on all essential terms, the parties would have sought an adjournment along those lines, for longer than one week.
(d)The fact that Mr Woodhouse sought instructions from James in response to Mr Woodhouse’s email of 23 July 2020 and indicated to Mr Hamilton that that was what he was doing.
[28] Mr Hamilton has given evidence that he considered that he and Mr Woodhouse had concluded a settlement agreement on the telephone on the morning of 23 July 2020. That may be so, but viewing the contemporaneous evidence objectively, there are aspects of his conduct that suggest that he did not consider that an immediately binding contract was formed on all essential terms:
(a)In his email to Mr Woodhouse after the call of the application on 23 July 2020, Mr Hamilton sought to set out the terms for agreement (by way of a deed). He did not say “I confirm the settlement we have agreed” or similar. Instead, he said, “My instructions are”, and then asked for Mr Woodhouse’s “confirmation by return”.
(b)Mr Hamilton did not raise any issue with Mr Woodhouse when he said he would obtain instructions from James on the contents of the email.
(c)While the $7,500 was paid into Mr Burgess’ trust account, Mr Hamilton did not arrange for that money to be paid to James. This suggests that Mr Hamilton considered that something more needed to happen before a binding agreement was reached.
[29] Mr Gilchrist submitted that it is inconceivable that Andrew would pay $7,500 simply to secure an adjournment when there might be no agreement to other terms, and thus no settlement. Particularly when the matter would have been adjourned for a hearing anyway, as Andrew had filed a late notice of opposition the afternoon prior.
[30] I do not accept that submission. There was no guarantee that the application would be adjourned. The notice of opposition was filed late, in breach of r 24.16 of the High Court Rules 2016. Mr Woodhouse attested to the fact that his instructions were to proceed on 23 July 2020. At the previous call, the Court expressed impatience with the protracted nature of the dispute. Associate Judge Smith recorded: “The
judgment debtor should appreciate that there are unlikely to be any further adjournments given the lengthy delays since the debt was incurred, judgment given in this Court, and judgment subsequently given by the Court of Appeal.”19 The basis for opposition set out in the notice and affidavit in support were weak — namely, that if Andrew could not work as a property developer, he could not support himself or his family; Andrew has since withdrawn that ground of opposition.
[31] In these circumstances, Andrew would have been taking a considerable risk assuming that the Judge would accept his late opposition and adjourn it to be heard. It is possible that, even if his opposition was accepted, the Judge would have stood it down and heard it later that morning.
[32] The evidence indicates that Mr Hamilton knew this. He was highly focused on securing James’ agreement to an adjournment, as evidenced by the increasing urgency of his calls and emails to Mr Woodhouse as the call approached. Between 20 and 23 July there were 15 interactions between he and Mr Woodhouse. On the morning of the call in the bankruptcy list, he called Mr Woodhouse at 9.54 am to increase the offer and again at 10.03 am. He then texted at 10.23 am to confirm that the $7,500 had been paid in Mr Burgess’ trust account.
[33] Mr Burgess also knew that there as a possibility that Andrew could be bankrupted on 23 July 2020. He referred to this in his 21 July 2020 letter and the offer of settlement was stated to expire at 10.00 am, just prior to the call.
[34] Further, Andrew did not lose anything by paying $7,500 without having a settlement agreed. Any settlement was inevitably going to involve him paying an upfront amount, somewhere in the order of $7,500 (he had previously offered $5,000). He was unlikely to secure a settlement involving a lesser initial payment, so he lost nothing by agreeing to pay $7,500 that day; and he gained more time. Securing a reprieve of a week and the opportunity for further negotiation based on a $7,500 payment (in the context of a judgment debt of some USD 909,973) could be viewed, objectively, as a very good outcome for Andrew.
19 Minute of Associate Judge Smith (dated 2 July 2020), above n 8.
Result
[35] Mr Gilchrist acknowledged that should I find that Andrew and James had not agreed a settlement, the inevitable consequence of that, following Andrew’s withdrawal of his opposition on other grounds, was that I would adjudicate him bankrupt. However, he submitted that I should make that order in open court so that that Andrew could consider my reasons before being adjudicated bankrupt.
[36] An order for adjudication does not need to be made in open court; it can be made in a reserved judgment. Mr Gilchrist was very clear that Andrew’s only grounds for opposition to James’ application was that a settlement had been agreed. Before the hearing he filed a memorandum withdrawing Andrew’s opposition based on the “just and equitable” grounds. At the hearing, I specifically confirmed with Mr Gilchrist that Andrew’s only basis for opposing the bankruptcy application was the alleged settlement agreement. Mr Gilchrist confirmed that it was. Andrew has had his opposition heard and I do not consider that there is any need for me to hear from him again before making my orders.
[37] I have concluded that the judgment debt has not been the subject of a concluded settlement agreement. The jurisdictional requirements for an order under s 36 of the Act are met. Andrew has not asserted or established any other ground for opposition. Accordingly, I make the following orders:
(a)Andrew Laurie Montgomerie is adjudicated bankrupt. The time of order is 3.30 pm.
(b)Andrew Laurie Montgomerie is to pay the costs, on a 2B basis, and the disbursements of James Lester Montgomerie associated with this proceeding. The parties are to confer and file a joint memorandum by 12 February 2021. Failing agreement, James is to file a memorandum by that date and Andrew two weeks later.
Associate Judge Gardiner
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