¢ CATCHWORDS Application to set aside bankruptcy notice with the bankruptcy notice enlarged until Local Court judgment against debtor - judgment - whether debtor entered into a with the creditor. Bankruptcy Act, s.41(5) V. id. Removals ex parte Earl, Federal unreported Pincus J. 26.6.85 Corney v. Brien (1951) 84 C.L.R. 343 - time for compliance final determination - court may go behind contract of guarantee Court of Australia Re: MRS _H.E. VEROLME Ex Parte: ARCHONSTRUCT PTY LTD No. 372 of 1986 FORSTER, J. ADELAIDE 10 SEPTEMBER 1986 IN THE FEDERAL COURT OF AUSTRALIA SQUTH AUSTRALIA DISTRICT REGISTRY ) ) ) ) GENERAL DIVISION ) No. 372 of 1986 ) BANKRUPTCY DISTRICT OF THE STATE ) ) ) OF SOUTH AUSTRALIA Re: MRS _H.E. VEROLME Judgment Debtor Ex Parte: ARCHONSTRUCT Pry LTD Judgment Creditor = JUDGE MAKING ORDER FORSTER J. WHERE MADE ADELAIDE DATE OF ORDER 10 SEPTEMBER 1986 THE COURT ORDERS THAT: 1. The bankruptcy notice be set aside. Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124. IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY) GENERAL DIVISION No. 372 of 1986 ) ) ) BANKRUPTCY DISTRICT OF THE STATE ) ) ) OF SOUTH AUSTRALIA Re: MRS H.E. VEROLME Judgment Debtor Ex Parte: ARCHONSTRUCT PTY LTD Judgment Creditor REASONS FOR JUDGMENT FORSTER J. : Archonstruct Pty Ltd (the creditor) caused to be issued a bankruptcy notice on 22 April 1986 calling upon Mrs H.E. Verolme (the debtor) to pay $26,845-29 said to be due by the debtor to the creditor pursuant to a judgment of the Local Court of Adelaide. This judgment was a default judgment. The debtor has applied to the court for an order that the bankruptcy notice be set aside. The court has ordered that the time for compliance with the bankruptcy notice be enlarged until final determination of the debtor's application to set the notice aside. I heard the matter on 28 August 1986 and at the end of the hearing, being in no doubt as to the proper disposition of the debtor's application, I ordered that the 2. bankruptcy notice be set aside as being invalid because notwithstanding the default judgment I was satisfied on the evidence presented to me that the debtor owed nothing to the creditor with respect to the transaction said to be the basis for the debtor's indebtedness. Notice pursuant to s.41(5) of the Bankruptcy Act was given on behalf of the debtor within time. It was not disputed that a court exercising jurisdiction in bankruptcy may go behind a judgment where there are substantial reasons for questioning whether there 1s a debt in truth or reality (see re: V.d. Removals ex parte Earl, Federal Court of Australia unreported 26 June 1985 Pincus J.) and the court will more readily go behind a judgment when it 1s obtained by default (see re: Cornev v. Brien (1951) 84 C.L.R. 343). The directors of the creditor are Raymond John Carn and Graham Richard Edwards. The name of one Byrne is included on the writing paper of Carn Byrne and Associates Pty Ltd but there was no evidence as to whether or not he was a director of the creditor. Both Carn and Edwards and also Byrne are architects. They carry on what might be called the architects side of the business by means of a company Carn, Byrne and Associates Pty Ltd (Carn Byrne). This company prepares plans and designs and specifications and puts jobs out to tender and arranges for builders to perform the jobs and supervises their performance. For ethical and other reasons it is not possible for what may be called an architects company to hold a building licence and 3. engage in building. Messrs Carn, Edwards and probably Byrne are also directors of the creditor which is a company formed for the express purpose of obtaining a building licence and engaging in building. Both companies carried on business at and from the Same registered office at 42 King William Road, Goodwood. It is clear to me from the evidence of Carn and Edwards that they at least made no distinction between the two businesses. Each used the pronoun we indiscriminately to describe something which must or most certainly should have been done by the architectural company or the building company as the case may be. The creditor at relevant times had no writing paper with its own printed letterhead but used the paper of Carn Byrne with its letterhead printed thereon. A Mrs Passman was the lessee of shop premises at 9 Stephens Place, Adelaide and she wanted some remodelling and refurbishment of the premises done. She employed Carn Byrne to do the work. She did not give evidence and there is no evidence from elsewhere tending to prove that she had ever heard of the creditor. The debtor 1s Mrs Passsman's mother and Mrs Passman employed Carn Byrne because the debtor had previously employed them in and about jobs of various sorts. The work was done for Mrs Passman and she had considerable difficulty in paying for it. Edwards approached the debtor and asked her to pay on her daughter''s behalf. At this stage money was owed for design fees and disbursements and 4. also for construction costs. No suggestion was made by Edwards to the debtor that the amount for design fees and disbursements was owing to Carn Byrne and the amount for construction costs to the creditor. The debtor told Edwards that she could not pay immediately but that she would be responsible for the debts incurred by Mrs Passman in connection with the design and construction of the new shop in Stephens Place. Eventually on or about 6 April 1982 a letter was written on Carn Byrne's writing paper addressed to the debtor and signed "Carn Byrne & Associates Pty Ltd, G.R. Edwards". This letter was also signed by the debtor in the presence of a witness whose name appears to be Campbell. The letter recites that the debtor has agreed to be responsible for Mrs Passman's debts in connection with the shop for design fees and disbursements and for construction costs. The letter recites that "We will not take further proceedings to recover the outstanding money". Nowhere in the letter is there any mention of the creditor. The letter is written, as I have said, on Carn Byrne's paper and is signed by Edwards for Carn Byrne. On 28 September 1983 the creditor caused to be issued a special summons out of the Local Court of Adelaide against the debtor claiming $22,144-65, the sum then said to be due by the "defendant to the plaintiff pursuant to a contract of guarantee entered into between the plaintiff and the defendant on or about the 6th day of April 1982 and full particulars whereof the 5. defendant has already had". On the same day Carn Byrne caused to be issued a special summons out of the Local Court of Adelaide against the debtor claiming $5,472-63 with precisely the same endorsement. It is plain that the first summons is for money owing with respect to the construction work and the second summons for money owing with respect to design fees and disbursements. The guarantee entered into on or about the 6th day of April 1982 must be the letter to which I have referred which I emphasise is between the debtor and Carn Hyrne with no mention made of the creditor. Tt seems to me that there is not and never was any contract of guarantee between the creditor and the debtor and even if the debtor may be taken as having guaranteed payment to the unknown creditor this promise is unsupported by any consideration. The creditor has never agreed to forbear from taking "further proceedings" against Mrs Passman. I think that the debtor may have antended to guarantee payment of the construction costs but the writing evidencing the guarantee she gave is ineffective to do this. Had Carn Byrne signed judgment in the proceedings for the design fees and disbursements and caused a bankruptcy notice to be issued against the debtor with respect to that indebtedness then 1t 1s in my view probable that the bankruptcy notice would have been good. It was said by the debtur that she only signed the letter of 6 April 1982 because she was subjected by Edwards to cs 6. "duress and undue influence". In her evidence she said that Edwards came to her office armed with the letter of 6 April and told her that if she did not sign he would have great difficulty in restraining the sub-contractors who had worked on the' shop from returning to it and ripping out or destroying the work they had done and for which they had not been paid. Because of the view I take of the effect of the letter it is unnecessary to decide this point but I do not believe that Edwards made a threat of this sort. I think he probably said that he was being pressed hard by the sub-contractors for payment but I do not believe there was any threat specific or implied in what he said. I believed neither the debtor nor Mrs Claridge when they gave evidence of the threat said to have been made by Edwards to induce the debtor to sign the letter of 6 April. Because I have found that the creditor never had any claim against the debtor notwithstanding the default judgment entered in the Local Court I found that the bankruptcy notice was without basis and should be set aside. I certify that this and the preceding pages are a true copy of ,the Reasons for Judgment off|Mr Justice Forster.