premenee arpare eee | se hemementn ee OF NEW SOUTH WALES AND THE IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE No. P 793 of 1982 ee at et et et ee ee AUSTRALIAN CAPITAL TERRITORY Re MARY LATONA Ex parte WATTAWA CONSTRUCTIONS PTY. LIMITED ORDER JUDGE MAKING ORDER: MORLING J. WHERE MADE: SYDNEY DATE OF ORDER: 30 MARCH 1983 THE COURT ORDERS THAT: » 1. Sequestration order made against the estate of the debtor. 2. The petitioning creditor's costs including any reserved costs to be paid out of the estate of the debtor. 3. The petitioning creditor to bring in a draft of this order, as required by rule 124(2) within seven days of to-day's date. B.. - - -- -- IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE No. P 793 of 1982 OF NEW SOUTH WALES AND THE ee ee ee ee ee AUSTRALIAN CAPITAL TERRITORY Re 3 MARY LATONA Ex parte 3 WATTAWA CONSTRUCTIONS PTY. LIMITED MORLING J. 30 March 1983 i REASONS FOR JUDGMENT As I have reached a firm opinion on the issues in this matter I propose to give judgment immediately. The petitioning creditor, Wattawa Constructions Pty Limited, has filed a creditor's petition against Mary Latona (the debtor) seeking sequestration of her estate. In its original form the petition, by paragraph (2), alleged that the debtor was justly and truly indebted to the petitioning creditor in the sum of $11,433.20, being the amount due under a final judgment recovered in the District Court at Sydney on 23 November 1981. However, during the course of the proceedings before me, counsel wee ere er —— for the petitioning creditor sought and obtained leave to amend paragraph (2) of the petition by reducing the amount of the debtor's alleged indebtedness to a much smaller sum. The reduction was occasioned, so it was said, by the crediting to the debtor's account of moneys received from the sale of a boat, to which I shall later make reference. The judgment upon which the petition is based was in respect of a claim for work alleged to have been done and materials alleged to have been provided to the debtor and her husband. Without going into all the details of the matter, it appears that several parcels of land at Vineyard are owned by Mr Latona and on one such parcel there is erected a dwelling house. That land is not the site of the building work that gave rise to the District Court judgment. It should be pointed out that the debtor is not the owner or part owner of the land upon which the building work which is relevant for the present proceedings was carried out. The judgment in the District Court was obtained .-./3 oe 3. by default. Two applications have been made to that Court to set aside the judgment, one before Judge Melville and one before Judge Bowie. Both those applications have been unsuccessful. However, in my view that does not disentitle the debtor in these proceedings to maintain that in spite of the District Court judgment she is not justly and truly indebted to the petitioning creditor. I do not find it necessary to refer to the authorities, but it is clear that under some circumstances a debtor is entitled to go behind the judgment obtained against him or her. The first and the major question in the proceed- ings before me is whether the work, which was indubitably done by the petitioning creditor, was done for Mr and Mrs Latona in their capacity as partners in a business known as The Trees Service Centre, or whether it was done for a company known as Trees Service Centre Pty Limited. For some time prior to mid-1980 Mr and Mrs Latona had carried on a substantial business at Vineyard. That business was carried on by them as partners under the firm name of The Trees Service Centre. A company was brought into existence some time before mid-1980. I can readily appreciate that, as lay persons, Mr and Mrs Latona may not have had a complete and perfect understanding of the legal differences between the company (in which they were the sole shareholders) and the firm which they had carried on for some years. Indeed, having heard Mr Latona eye ene ere ery 4. in the box, I am quite convinced that even today he does not fully appreciate the differences in the corporate and non-corporate situations. As is often the case with building contracts which are not formally drawn up with legal assistance, the contractual arrangements made for the doing of the work which led to the District Court proceedings is shrouded with a little uncertainty. Mr Butcher a director of the petitioning creditor says that the arrangement was that he would do work for Mr and Mrs Latona. For instance, he gave evidence at page 60 of the transcript in the present proceedings that, "I was working for Ray and Mary Latona." He says (and I have considerable doubt whether he is correct in his recollection of the sequence of events) that he gave two quotations for the doing of the work after it had been substantially carried out. Mr Latona says that this is not so and that the quotations preceded the doing of the work. I think it is quite possible that Mr Latona is correct in his memory in this regard. However, I do not think much turns on this. The quotations are in evidence. The first is dated 27 July 1980. The quotation was on the letterhead of the petitioning creditor and was addressed to "The Trees Service Centre". It should be said that The Trees Service Centre used a form of letterhead which contained, inter alia, the following words: "The Trees fm 2 =--- 5. Service Centre" in large letters, "Founder Cyril Latona's" and beneath those words "Raymond Latona and Mary Latona". There are also references to the nature of the commercial activities carried on by the firm. No person reading that letterhead could believe that the business described on the letterhead was carried on by a corporation. There is no reference to a company. Mr and Mrs Latona said in evidence that they understood that, having formed a company, the firm's business had been taken over by it. Indeed, Mr Latona used the words "taken- over" specifically in relation to what he thought had happened to the firm's business. Mr Latona says that when he received the quotation dated 27 July 1980 he drew Mr Butcher's attention to the fact that he would be doing work for the company. He says he gave him a "with compliments" slip which had endorsed on it the company's corporate name. A second quotation dated 20 August was furnished to "Trees Service Centre" by the petitioning creditor. This quotation was endorsed (as was the first) with the words "Quotation accepted, Raymond Latona". No reference is made in the acceptance of the quotations to the fact, if it were the fact, that the quotations were being accepted on behalf of a corporation. It is true, as Mr Skiller has pointed out, that only Mr Latona's name appears on the © pene ceegns 6. acceptances, but I think the more important fact is that the name of the corporate body does not appear anywhere on the quotations or the acceptances. These were not trivial matters. They were formal quotations for the doing of work worth some thousands of dollars, and I would have thought that had it been Mr Latona's intention not to involve the members of the firm in the transactions, he would have used the company's name, if not its seal, when accepting the quotations. With the passage of time, it is very easy for persons, without meaning to be deliberately untruthful, to become confused about what actually happened. TI have no doubt that it was not brought to Mr Butcher's attention that the work he was going to carry out, or was then carrying out, was to be carried out for Trees Service Centre Pty Limited. I certainly would not have expected him to have agreed to such an arrangement. The company did not own the land upon which the building work was being carried out. It had a capital of only $2, and (so far as the evidence shows) had no assets. It is true that Mr and Mrs Latona may have thought it owned the assets of-the business, but there is no satisfactory evidence before me to indicate that at any time the business's assets were ever formally transferred to the company. Two further matters confirm in my mind that Mr Butcher's arrangement was not made with Trees Service Centre ee ee ee eee 7. Pty. Limited. When the petitioning creditor brought proceedings in the District Court against Mr and Mrs Latona, they, through Mr Latona, sought legal advice. Mr Latona gave instructions to solicitors whom he then retained to put on a defence to the action. The instructions he gave to his then solicitors were to defend the action on the basis that certain work had been poorly or incompletely performed by the petitioning creditor, and that that should be relied upon as the defence. He also raised the question of a claim arising out of the seizure Of a boat which he alleged he had. I shall come back to that matter. But it would have been the most obvious thing for him, back in November 1981, to instruct the solicitors to defend the action upon the basis that neither he nor his wife were indebted to the petitioning creditor, because it was the company's debt. Yet no such instructions were given. The second matter that I regard as significant is that, although Mr Latona gave an account in the witness- box today of the conversations in which he says he drew to Mr Butcher's attention the fact that he, Mr Butcher, would be working for the company, this appears to have been the first occasion when it has been asserted that such conversations ever took place. Indeed, as late as December 1982 and the end of last week affidavits were filed in these and other proceedings which do not refer to the conversations which he now alleges took place. 8. I do not think that such critical conversations would have been overlooked as being of insufficient import- ance to be worth mentioning in one or other of those affidavits. I have reached the firm conclusion that the work was not done for the company. In my opinion, it was clearly done for the firm of which the debtor was a member. At a later point of time Mr Butcher filled out a bank deposit slip in which the company's name was referred to as being the depositor of funds to the creditor of the petitioning creditor. Quite apart from the account which Mr Butcher has given of the conversations leading up to the filling out of that slip - and I would prefer his account of it to any other ~ it seems to me that the mere fact that he agreed to accept payment, if he could get it, from the company in no way altered the contractual arrangements which were made at or about the time of the carrying out of the work. I should point out that no claim has been made on behalf of the debtor that if the work was not done for the company then it was done for her husband alone and not for him and her jointly. In any event, I think that such a claim would have failed because it is clear that she was a partner in the business and that the work was done for the business. There is evidence, which was not refuted, that she took an active part in the doing of the work in the sense that she gave instructions from time to time as to what should be done. 9. Indeed, in other proceedings she agreed in evidence that the work was "carried out for the purposes of the business" referring to the business of The Trees Service Centre. In these circumstances, I am of the opinion that even if the judgment is gone behind, as it has been in these proceedings, no ground has been shown for not accepting it as being evidence of the indebtedness of the debtor to the petitioning creditor. The next question which needs to be considered is whether, in spite of the existence of the debt, the debtor has a counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt, in the sense in which those words are used in section 40(1) (g) of the Bankruptcy Act. There is evidence which, for the purposes of the argument I am prepared to accept, that Mr and Mrs Latona had an interest of some kind in a boat, the possession of which was taken by Mr Butcher. I use the expression "an interest of some kind" because the position seems to have been that at the relevant time the beneficial owner of the boat was Mutual Acceptance Pty Limited and not the debtor and her husband. The boat was taken from the possession of Mr and Mrs Latona on or about 7 October 1981. It is clear that any claim in respect of the boat arose at that time, and 10, indeed Mr Latona said that he gave instructions to solicitors shortly thereafter and before judgment was obtained in the District Court to litigate the claim which he believed he and his wife had in respect of the boat. In my view, if there was a cross-demand or claim in respect of that boat, it could have been raised in answer to the District Court proceedings. This matter was considered by Lockhart J in matter B 199 of 1982. I have before me a draft of his Honour's reasons of 24 June 1982 and I respectfully agree with them. His Honour makes it clear by reference to authority, which I need not repeat, that the words "that could not have been set up in the action or proceeding in which the judgment or order was obtained" in section 40(1) (gq) have been held to mean "which he could not, by law, set up in the action". The fact that a solicitor fails to carry out instructions does not mean that the cross~action could not have been set up. I am not to be taken as accepting the statement that the debtor's then solicitors failed to carry out their instructions. Far from it. I am merely stating that even if that matter had been proved, it would not have sufficed to establish that the claim could not have been set up by way of cross~action in the District Court. However, quite apart from this matter, I am of the opinion on the whole of the evidence that the cross- action, even if set up, would have failed. Because it is 11. conceivable that Mrs Latona, or for that matter Mr Latona, may wish to bring proceedings outside this court in respect of the boat and because it is unnecessary for my decision I do not think I should make any formal ruling on the claim. However, I must say that on the evidence before me (and the matter has been exhaustively litigated) I would have thought that any such cross-action would have failed. The evidence before me includes a document dated 19 July 1980 on the letterhead of The Trees Service Centre, addressed to Mr Roy Butcher, describing the boat and trailer and engine which would be the subject of any cross-action and using the words "This boat is to be for part payment and deposit on construction of The Trees Service Centre", followed by the words "Agreed and accepted, Roy T. Butcher, company secretary", and then the words "Eileen A. Stackpool". This lady was an employee of the firm. There is another document dated 21 July 1980, again on the letterhead of The Trees Service Centre, signed "For and on behalf of R. and M. Latona, signed Eileen Stackpool, sales representative", and reading in substance as follows: Received the sum of $6340 by way of value received on labour and material supplied at the above address. Items to the above value are: One only 6.1 metre (21-foot) aluminium Crusader boat, serial number A2100~-30, er 12. fitted with Mariner 115 hp motor, serial number A8055498, installed on the above boat. Taken with all faults and as is. No warranty. In evidence before me Mr Butcher said, in effect, that he took the boat not by way of purchase but by way of security for the work that he was doing. I accept his evidence in this regard. It seems to me that, not having been paid for the work which he had done, he would have had a right to dispose of the boat. I am therefore of the opinion that had any cross-action been brought in respect o£ the boat, it would have failed. In addition, had a cross-action been brought and succeeded, the question would have arisen as to the amount of damages to which the plaintiffs in any such action would have been entitled. The only real evidence as to the value of the boat is that the price which it might have obtained if sold in the market was not much more than the price in fact obtained for it. It was sold for $5200. Mr Butcher gave evidence as to the circumstances in which the sale took place. It was not put to him in cross-examination that he had sold it for a price less than he could or should have obtained. He was not attacked in any way at all to suggest that the sale was not a bona fide sale or that he took improper or inadequate steps to obtain the best possible price for the boat. There is independent evidence from a well-qualified Ro ° — 13. valuer of boats which supports the view that the price obtained for the boat, although perhaps a little below what might have been obtained if the boat had been sold by a boat dealer, was no less than what might have been obtained for it by a person who had obtained it as a security for a debt and who was selling it to recover his money. So that even if I had found that the cross- action was available to Mrs Latona and even if I had found that it was a good cross~action and would have succeeded, I would not have found it would have succeeded to the extent of the amount of the debt recovered in the District Court. For those reasons I find that the petitioning creditor is entitled to a sequestration order. I am satisfied that the debtor has committed the act of bankruptcy alleged in the petition as amended. I am also satisifed with the other matters of which the Act requires proof. I note that Lindsay Robert Aitkin, a registered trustee, has agreed to act as the trustee of the estate of the debtor. I make a sequestration order against the estate of the debtor, I direct that the petitioning creditor's costs - including any reserved costs and including the costs of the proceedings before me this week - should be paid out of the estate of the 14. debtor. I direct the petitioning creditor to bring in a draft of this order, as required by rule 124 (2) within seven days of today's date. The exhibits may be returned to the parties producing them, upon their undertaking to return them to the court forthwith if requested to do so. I certify that this and the Zhe (13) preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Morling. W775 Tate cA Associa Dated: 3 0/3/82