FITZGERALD J. CATCHWORDS BANKRUPTCY - application to reverse decision rejecting a proof of debt - debt under a guarantee - evidence to sustain a claim for rectification of the guarantee. Bankruptcy Act, 1966, s.178 RE: MALCOLM KENNETH BROWN; ex parte RAYMOND FREDERICK JAGO No. 543 of 1981 BRISBANE 12 OCTOBER 1983 IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) No. 543 of 1981 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: MALCOLM KENNETH BROWN EX PARTE: RAYMOND FREDERICK JAGO ORDER JUDGE MAKING ORDER: FITZGERALD J. DATE OF ORDER: 12 OCTOBER 1983 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. Time for the making of the application extended to 5 July 1983. 2. Decision of the Official Receiver in Bankruptcy dated 25 February 1982 rejecting the claim of Raymond Frederick Jago against the bankrupt estate of Malcolm Kenneth Brown be reversed. 3. The claim be admitted against the said estate. 4. The applicant to pay to the Official Trustee the reserved costs of and incidental to the directions hearing in these proceedings on 5 October 1983. 5. Subject to paragraph 4, the applicant's costs of and incidental to these proceedings including the reserved costs be taxed and paid out of the said estate. IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) No. 543 of 1981 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: MALCOLM KENNETH BROWN EX PARTE: RAYMOND FREDERICK JAGO FITZGERALD J. 12 OCTOBER 1983 REASONS FOR JUDGMENT. A sequestration order was made in respect of the estate of Malcolm Kenneth Brown by the Supreme Court of Queensland exercising federal jurisdiction in bankruptcy on 11 November 1981. On 14 January 1982, the applicant, Raymond Frederick Jago, lodged a proof of debt with the Official Trustee as trustee of the estate of the bankrupt. By the proof of debt, the applicant claimed that the bankrupt was indebted to him inthe sum of $53,500.00 under a guarantee dated 22 January 1980. The proof of debt was rejected on 25 February 1982. This application, which seeks orders that the decision rejecting the proof of debt be reversed and that the debt be admitted, was filed on 7 July 1983. In January 1980, the bankrupt, his father-in-law Jan Rubertus Cornelus Eimberts, and one Kenneth Charles Gartside were the directors of a company named Squashland Southport Pty Ltd which owed the applicant $53,500.00. On that day, the company executed a Bill of Mortgage in favour of the applicant whereby it agreed to pay that sum by 30 November 1980, together with interest. On the same day, Mr Gartside executed a guarantee in favour of the applicant in a form which had been prepared by the applicant's solicitor. Mr Gartside's signature was witnessed by the bankrupt. Guarantees in similar terms were intended from the bankrupt and his father-in-law. On 22 January 1980, the bankrupt informed the applicant and his solicitor that Mr Eimberts would not sign a guarantee. Further, the bankrupt informed them that he would not signa guarantee in the form which had been provided but would only sign 1f substantial alterations were made. The solicitor then made those alterations whereupon the bankrupt signed the document. There is nothing to indicate that Mr Gartside was present or had any knowledge then or later that Mr Eimberts had refused to sign a guarantee or that the form of guarantee signed by the bankrupt was different from the document which Mr Gartside had signed. It is not in dispute that the only amounts which have been paid to the applicant were payments by the bankrupt on account of interest owed by the company or that the full sum of bi $53,500 is due and owing to the applicant by the company. The sole argument now advanced to support the rejection of the proof of debt turns on the terms of the document of guarantee signed by the bankrupt, clause 1 of which provides: "The guarantor does jointly and severally with all his Co~Directors of the Mortgagor guarantee the due repayment to the Mortgagee of the said sum of FIFTY THREE THOUSAND FIVE HUNDRED DOLLARS (553,500.00)" A similar provision was contained in the document signed by Mr Gartside. It does not seem seriously open to doubt that, taken by itself, the effect of that provision was to make appropriate guarantees by each director's ca-directors conditions precedent to the director's liability as a guarantor. It is sufficient to refer to 4 Halsbury's Laws of England, Vol 20, para. 160. There is obvious siaqnificance to a co-surety in performance of such a condition because of the rights and obligations of co-sureties inter se. Nonetheless, there is a quite straichtforward answer to the proposition advanced to justify the rejection of the proof of debt in this case. The uncontroverted evidence shows that the document of guarantee in the form in which it was signed by the bankrupt did not reflect the intention of the applicant and the bankrupt at the time the document was siqned. Their mutual intention, unequivocally communicated, was that, Gartside having executed his guarantee the previous day, the bankrupt should execute a guarantee with variations which were acceptable both to him and to the applicant. By the time the bankrupt signed, there was no call to identify all directors. Whether or not Eimberts for example was a director, guarantees were to be siqned only by the bankrupt and Gartside. I have not overlooked that it could accurately be said that the document in fact signed by the bankrupt was, in a sense, in the form intended to be signed. But that is of itself no answer. It was only intended that the document should be signed in that form because 1t was overlooked that clause 1 as it stood in the document signed did not, on its true construction, reflect the real intention of the parties as to their bargain. That common mistake was the only reason why clause 1 was not further varied to accommodate the new arrangement between the applicant and the bankrupt. Although one might wish for more explicit evidence, what evidence there is was uncontroverted and it was not suggested that it was inappropriate to deal with all issues in these proceedings. The evidence would be sufficient, in my opinion, to sustain a claim for rectification of the document which was signed by the bankrupt. Clause 1 of the form of guarantee by the bankrupt would appropriately be rectified to provide: l. The guarantor does jointly and severally with his Co-Director of the Mortgagor, Kenneth Charles Gartside, pursuant to his guarantee of 21 July 1980 guarantee the due repayment to the Mortgagee of the said sum of FIFTY THREE THOUSAND FIVE HUNDRED DOLLARS ($53,500.00)" It was not disputed that, if the applicant would be entitled to rectification in suitable proceedings, he is entitled to have his proof of debt considered on the footing that the form of guarantee has been rectified. Rectification is, of course, merely an order to reform a document to its true effect, not an order which alters the parties' bargain. For similar reasons, rectification involves no conflict with any statutory requirement of writing in respect of such a transaction, a matter to which passing reference was made in argument. The need for this approach on the other hand, indicates that it was reasonable that the proof of debt should initially have been rejected. In the circumstances, there is no occasion to refer to other doctrines which might have been able to be called in aid by the applicant, e.g. waiver or estoppel. It was not suggested that it was or might be to the point that the common assumption of the applicant (and his solicitor) and the bankrupt that Mr Gartside was also liable as a guarantor may have been, and seemingly was, mistaken because, in the circumstances, the conditions precedent to Mr Gartside's liability were never fulfilled: Mr Eimberts did not sign any guarantee and the form of guarantee siqned by the bankrupt was materially different from that contemplated when Mr Gartside''s guarantee was signed. In these circumstances, there seems no possibility of any joint liability on the part of the bankrupt and Mr Gartside or of any contribution by Mr Gartside in respect of the bankrupt's several liability which is the liability made the subject of the claim in the proof of debt. Possibly, the point was not mentioned because it was perceived that there would be no substance in it if I am otherwise correct in the view which I have taken. On that footing, the only condition precedent to the bankrupt's several liability was the signature by Mr Gartside of his document of guarantee and that condition had already been fulfilled prior to the signature by the bankrupt of his quarantee on 22 January 1980. For the reasons which I have given, I am satisfied that the decision to reject the proof of debt should be reversed and the proof of debt should be admitted. No real objection was raised to the form of the orders sought in paragraphs 1 and 2 of the application. Further, no reliance was placed upon the fact that the application was considerably out of time and, accordingly, the necessary extension of time should be granted nunc pro tunc to enable the application to be heard and determined. The applicant is entitled to the costs of the proceedings, including reserved costs, excepting the reserved costs in respect of the final directions hearing which was necessitated by the applicant's failure to comply with directions which had previously been given. bane seers amet ee ee 7 finest The order of the Court is as follows: Time for the making of the application extended to 5 July 1983. Decision of the Official Receiver in Bankruptcy dated 25 February 1982 rejecting the claim of Raymond Frederick Jago against the bankrupt estate of Malcolm Kenneth Brown be reversed. The claim be admitted against the said estate. The applicant to pay to the Official Trustee the reserved costs of and incidental to the directions hearing in these proceedings on 5 October 1983. Subject to paragraph 4, the applicant's costs of and incidental to these proceedings including the reserved costs be taxed and paid out of the said estate. 1 certify that this and the & preceding pages are a true copy of the reasons for judgment herein of His Honour Mr Justice Fitzgerald tttK 2 Dear~for Associate Dated /2 Cctover, /TP2, PERMA ot?