mie we WUD: Iq) ee CATCHWORDS BANKRUPTCY - Creditor's petition - Petition based on outstanding judgment debt ~ Notice of opposition - Whether judgment should be accepted as satisfactory proof of debt owing to petitioning creditor - Whether petitioning creditor estopped from asserting that debt due - Whether debtor entitled to set off certain amounts against judgment debt -~ Whether miscarriage of justice. Re: DAVZD MALCOLM REYNOLDS (Debtor) Ex Parte: PLAZA PRINT PTY LIMITED (IN LIQUIDATION) (Petitioner) No. P. 1422 of 1987 Neaves J. 14 April 1988 Canberra IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF _N SOUTH S_AND THE AUSTRALIAN CAPITAL TERRITORY ) ) ) ) No. P. 1422 of 1987 ) ) ) ) Re: DAVID MALCOLM REYNOLDS Debtor Ex Parte: PLAZA PRINT PTY. LIMITED CIN LIQUIDATION) Petitioner MINUTE OF ORDER JUDGE MAKING ORDER : Neaves d. DATE OF ORDER : 14 April 1988 WHERE MADE Canberra THE COURT ORDERS THAT: 1. 2. A sequestration order be made against the estate of David Malcolm Reynolds. The costs of the petitioning creditor, Plaza Print Pty Limited (In liquidation), other than the costs incurred in drawing, engrossing, filing and serving the amended and further amended petitions herein and the several affidavits verifying the same and the costs of the hearings before the Court on 27 November 1987, 3 and 21 December 1987 and 4 February 1988 be taxed and paid in accordance with the statute. Note: Settlement and entry of orders 1s dealt with in rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. P. 1422 of 1987 BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY wee ee Re: DAVID MALCOLM REYNOLDS Debtor Ex Parte: PLAZA PRINT PTY. LIMITED (IN LIQUIDATION) Petitioner CORAM: Neaves J. DATE: 14 April 1988 REASONS FOR JUDGMENT Before the Court is a creditor's petition presented on 15 July 1987 by Plaza Print Pty. Limited (In liquidation) ("the petitioner") against David Malcolm Reynolds ("the debtor"). The petition alleges that the debtor is justly and truly indebted to the petitioner in the sum of $42,261.89 being the amount due under a final judgment obtained by it against the debtor in the Supreme Court of the Australian Capital Territory on 23 February 1987 ($41,511.28) together with interest thereon at the rate of 15 per centum per annum from 23 February 1987 until 7 May 1987 ($750.61). The petition further alleges that, within six months before the presentatation of the petition, the debtor committed an act of bankruptcy by 2. failing on or before 24 June 1987 to comply with the requirements of a bankruptcy notice served upon him on 10 June 1987 or to satisfy the Court that he had a counter-claim, set-off or cross demand that was equal to or exceeded the sum specified in the bankruptcy notice and that he could not have set up in the action in which the judgment was obtained. The petition is opposed. Notices of opposition were Filed on behalf of the debtor on 20 October and 24 November 1987 raising two general grounds of opposition, namely - (a) that there had been a miscarriage of justice in the proceedings in the Supreme Court "due to failure by the debtor to advise all evidence and raise all defences"; and (b) that there had been a failure to comply "with the formal requirements and procedures of a creditor's petition as set out in the Bankruptcy Act and Rules". When the petition, which had been amended pursuant to leave granted by a Deputy Registrar in Bankruptcy on il September 1987, came on for hearing on 27 November 1987, a preliminary question was argued as to the validity of the petition. Ina reserved judgment delivered on 3 December 1987, the Court rejected the submissions advanced on behalf of the debtor that the petition was invalid but concluded that 1t was defective in a number of respects. In the circumstances, the petitioner was granted leave further to amend the petition and directions were given as to the course of procedure to be followed in the event that the petitioner exercised that leave. The further hearing of the petition was adjourned, the costs of the hearing on the preliminary question being reserved. The matter was listed before the Court on 21 December 1987. An amended petition had been filed on 4 December 1987 but that document was also defective and, on the application of the debtor, the hearing was adjourned until 4 February 1988. On the latter date, a further adjournment was granted primarily on the ground that a further amended petition had not been filed until 1 February 1988 and the debtor had not been served with that document until 2 February 1988. The petition came on for hearing on 12 February 1988. Before referring to the particular matters upon which the debtor relies in opposition to the petition, it is convenient to refer ina little detail to the proceedings berween the petitioner and the debtor in the Supreme Court. On 15 April 1983 that Court had ordered that the petitioner, which had been incorporated on 1 October 1976, he wound up. Mr James Clifford Carrick Warren was appointed official liquidator. It appears that Mr Robert Yeomans had, on 23 March 1983, been appointed receiver and manager of the petitioner. The debtor had been a director of the petitioner at all material times prior to its liquidation, as had his wife. The action which gave rise to the judgment debt on which the petition 1s based was commenced by the petitioner on 5 August 1986. It was claimed that certain moneys had been lent by the petitioner to the debtor over a period prior to its 4. liquidation and that those moneys had not been repaid. The claim was for $29,120.55 plus interest pursuant to s. 53A of the Australian Capital Territory Supreme Court Act 1933 (Cth). On 5 November 1986, a defence was filed on behalf of the debtor who was then represented by a firm of solicitors. By the defence, the debtor denied that any moneys had been lent to him by the petitioner. It was further alleged, by way of set-off, that in 1976, or alternatively in December 1978, the debtor and his wife had borrowed the sum of $28,000 from General Credits Limited and lent that sum to the petitioner on terms that it would make payments of principal and interest direct to General Credits Limited in discharge of the accruing indebtedness of the debtor and his wife to that company on account of the moneys borrowed by them. It was further alleged that, after it went into liquidation, the petitioner defaulted in making payments to General Credits Limited and that the debtor and his wife made payments (totalling $33,593.85) to that company in discharge of their indebtedness under the loan agreement. The debtor claimed that the petitioner was indebted to his wife and himself in the sum of $33,593.85 and sought to set off that sum against the amount claimed against him by the petitioner. The debtor also alleged that he had, from time to time, lent other moneys to the petitioner which had not been repaid. He also sought to set off those moneys against the petitioner's claim. The action came on for hearing before Miles C.J. on 23 February 1987. As from that day the debtor's solicitors ceased 5. to act on his behalf. The debtor appeared personally to conduct his defence on the hearing of the action. At the conclusion of the hearing, his Honour ordered that the debtor's set-off or cross-claim be dismissed and that judgment be entered for the petitioner in the sum of $41,511.28. The debtor was ordered to pay the petitioner's costs. In giving judgment in the matter, Miles C.J. said: "I am satisfied that the balance sheets, tendered in evidence, established that a loan account was opened in respect of a loan to a director and as at 30 June 1980 that loan account stood at $3,374. The cash book, also tendered in evidence, establishes, in my view, that it was the defendant who was in fact the director in respect of whom the loan account had been opened and I am satisfied that those records then establish that that sum of $3,374 had been lent to the defendant and was owing as at that date. The further records of the company, in particular the balance sheets, establish that by 30 June 1982 the amount lent and owing had grown to $28,467. There are otner documents before me, by way of cash book and receipt books, which establish further amounts advanced to a total of $657.38, and amounts paid by Mr. Reynolds of $2,172.84 leaving as at January 7, 1983, a balance owing of $26,947.71. I find, on the material before me, that that amount is still owing and that demand has been made for the outstanding amount, further that there has been no response to that demand. So accordingly, the plaintiff's case has been made out. The defendant's case is pleaded by way of set-off and it is to the effect that moneys were lent by the defendant, or by the defendant and his wife, to the company over a period of time and that that loan took the form of the defendant paying certain amounts on behalf of the company from time to time. However, Mr. Reynolds, who appears for himself, has not been able to obtain the documentation which he said would go to prove the matters alleged to support the set-off, and no evidence has heen adduced at all ain support of that set-off or counter-claim. Accordingly, the set-off or counter-claim will be dismissed. I find that the plaintiff has established its claim for $26,947.71. That amount is some few thousand dollars less than what was claimed in the liquidator''s statement of claim, but in my view that 1s of no consequence. Well, I have not said anything about judgment. I note that the interest is calculated at $14,563.57 being 14 per cent per annum from the date of liquidation, namely, 15 April 1983, and there will be judgment for the plaintiff for $41,511.28. I order the defendant to pay the plaintiff's costs." The debtor did not appeal the judgment. Various matters were canvassed 1n the course of the hearing before this Court as supporting the debtor's contention that there was no proper debt owing by him to the petitioner which would found the petition. However, in the light of the evidence adduced before the Court and discussions between the parties, some of those matters were not pursued. At the end of the day, two matters remain for determination. The first of those matters 1s whether the petitioner 1s estopped from asserting that the debtor is indebted to it in the amount claimed in the petition or, indeed, in any amount. The estoppel is said to arise by reason of a representation made to the debtor by Mr Warren, as liquidator, in the circumstances deposed to in the debtor's affidavit sworn 20 November 1987. Paragraphs 4-12 inclusive of that affidavit were admitted in evidence subject to objection but, as the argument has its foundation in what 1s set out in those paragraphs, they are, I think, admissible. It is, of course, another question whether the facts deposed to provide a sufficient foundation for the argument. The conversation relied upon, which 1s not denied or disputed, took place in relation to the settlement of legal proceedings brought by the liquidator on behalf of the petitioner against South British Insurance Company Limited. The proceedings involved a claim by the petitioner under a contract of insurance in respect of premises which had been occupied by the petitioner but which had been destroyed by fire. The insurance company had joined the debtor as a_ third party, claiming that the fire was due to his' intervention. Agreement was reached between the liquidator and the insurance company to settle the proceedings. A form of consent judgment was sent to the debtor with a request that he sign it. He did not do so despite a number of telephone discussions and meetings with the liquidator. In the course of one of those discussions, the debtor, after again informing the liquidator that he was not prepared to sign the document, said: "I am concerned by the claim against me and my wife". To this the liquidator replied: "Once the papers are signed that will be the end of the claim against you. You can get the document witnessed by a Solicitor in this building". Following that conversation the debtor signed the form of consent judgment. 8. In my opinion, the evidence falls far short of establishing that the liquidator represented to the debtor that, if he signed the consent judgment, no claim would be made by the liquidator against him in respect of moneys alleged to be owing by him to the petitioner. The conversation was Clearly directed to the matter then under discussion, namely the claim of the petitioner against the insurance company and, in particular, the third party claim of the insurance company against the debtor. It was not concerned with the subject matter which later formed the basis for the proceedings in the Supreme Court which resulted in the judgment debt on which the petition is founded. I, therefore, reject the ground of the debtor's opposition to the petition based on estoppel. The second matter for determination arises in this way. It is not disputed that, at the date of the commencement of the proceedings in the Supreme Court, the debtor was indebted to the petitioner in an amount (excluding interest) of $26,947.71, being a director's loan by the petitioner to the debtor. I say that that matter is not disputed notwithstanding that the debtor, in his affidavit sworn on 10 February 1988, states his belief to be that the director's loan account was a joint loan account with his wife and that he was only liable for half the loan account. No assertion to that effect was made in the proceedings in the Supreme Court and the matter was not pursued in the proceedings before this Court. Accepting then, that at the relevant date an amount of $26,947.71 was 9. owing by the debtor to the petitioner, the debtor claims that he was entitled to have set off against that indebtedness two amounts, one of 59,000.00 and the other of $16,652.46, which are alleged to have been due, at the relevant date, to the debtor by the petitioner on other accounts between them. It is submitted on behalf of the debtor that, because those amounts were not taken into account, the proceedings in the Supreme Court miscarried and that this Court, in the exercise of its discretion, should dismiss the petition. It is clear that, in the proceedings in the Supreme Court, the debtor did not seek to have either of the amounts referred to taken into account by the Court in determining the amount of his indebtedness to the petitioner notwithstanding that the debtor had access to all the records of the petitioner which were in the possession of the liquidator. It may be said that the amount of $9,000.00 was indirectly referred to in a general way 1m the defence by way of set-off which had been filed on the debtor's behalf by the solicitors but it was certainly not specifically mentioned. However, the other amount was not mentioned even in an indirect way. Nor were the circumstances adverted to in which that amount came to be paid. Further, no satisfactory explanation has been offered for the matters now relied upon not having been raised in the earlier proceedings. It has not, for example, been established that the material upon which the debtor now relies was not available at the time the proceedings were before the Supreme Court. 10. I shall refer, first, to the claim 1n relation to the smaller of the two amounts. The amount of $9,000.00 is said by the debtor to be an amount paid by him to the petitioner in circumstances which obliged the petitioner to repay an equivalent amount to him. The precise arrangements pursuant to which the amount was paid to the petitioner are not the subject of any evidence before the Court. In paragraph 8 of his affidavit, sworn 14 December 1987, the debtor asserts that the amount was paid into the bank account of the petitioner from the debtor's own bank account on 3 August 1982. The debtor did not himself give any other evidence in support of that assertion. In particular, he did not refer to any bank records or bank statements relating to his own or the petitioner's bank account which might support his claim. The matter is also referred to in the affidavit of Thomas Patrick Harding, Chartered Accountant, affirmed on 10 February 1988 and filed on behalf of the debtor. Mr Harding also gave oral evidence. In his affidavit, Mr Harding stated that he was the accountant acting for the debtor and his wife at the time the petitioner went into receivership and that he prepared a report as to the affairs of the petitioner as at 23 March 1983 for the receiver and manager, Mr Yeomans. Paragraphs 4, 5 and 6 of his affidavit read: "4. The amount owing on the loan account according to the previous balance sheet last prepared by Messrs Hungerfords was $28,467.00. ll. 5. I have been able to indentify payments made off that loan account in the following amounts: i On 3 August 1982 9,900.00 ii On 3 September 1982 1,165.00 iii On 23 December 1982 1,007.84 Totalling 11,172.84 6. In a telephone converstion with Elizabeth Goodbody an employee or staff member of the Liquidator of Plaza Print Mr Jim Warren she said to me: 'we have identified the two smaller amounts and allowed for them in the claim and we have found a receipt for 9000.00 in the joint names of the directors or words to that effect'." Annexed to the affidavit was a document identified as "a true copy of Report as to Affairs prepared by me showing calculations made by me and the offsetting amounts". He said (par. 9) that he believed the report to be accurate on the basis of the information available to him. The annexed document contains a handwritten note of moneys described as having been paid to the petitioner by the debtor or by the debtor and his wife. The note corresponds with the particulars set out in par. 5 of Mr Harding's affidavit, the note concerning the amount of $9,000.00 indicating that that amount was paid by the debtor and his wife. It is also to be noted that, contrary to the evidence of the debtor, Mr Harding, in par.5 of his affidavit, characterises that payment as being a payment in reduction of the amount due under the loan account. The basis for doing so is not made clear. 12. In his oral evidence, Mr Harding at first referred to the above document as a report upon the affairs of the petitioner which he prepared on information given to him by the debtor or supplied to him by the receiver, Mr Yeomans. Later, he said that the document was not the report itself but only a series of working papers which he had prepared and which had not been given to Mr Yeomans. The actual report was not, in fact, produced. Mr Harding said that he was able, at the time, through the books and records of the petitioner, to identify the three payments totalling $11,172.84. He later qualified that answer, stating that either he or the debtor's wife went through the bank deposit book of the petitioner to identify those payments. He was unable to say whether he had himself examined the relevant records and he was not prepared to say that each of the figures set out in the relevant part of his working papers was checked against the books of account or the primary records of the petitioner. No records of any sort were Produced to support the alleged payment of $9,000.00. In particular, the receipt referred to in par. 6 of Mr Harding's affidavit was not produced nor was any explanation offered for its non production. The petitioner relied on the affidavit of Michael John Empson sworn 11 February 1988. Mr Empson 18 a partner of Mr Warren, the official liquidator of the petitioner, and has been involved in the conduct of the liquidation. Paragraphs 2 and 3 of his affidavit read: "2. I refer to paragraph 8 of the Affidavit of the Debtor sworn 14 December 1987 and say in relation thereto that the amounts of $1,165.00 and $1,007.84 13. mentioned therein were taken into account by myself and His Honour the Chief Justice Mr Justice Males. The judgment was for $26,947.71 plus interest and that sum was the amount in the Statement of Claim Minus the two said amounts. 3. I refer further to paragraph 8 of the Affidavit of the Debtor sworn 14 December 1987 and say the following in relation to the amount of $9,000.00 referred to therein: The books and records of the petitioning Creditor do contain a receipt for $9,000.00 which purports to be from the debtor and his wife. I have however been unable to locate amongst the records of the company any documentation which corroborates such payment to the company and I have made enquiries of the relevant bank which has also been unable to provide any documentation corroborating such payment." The evidence before the Court does not satisfy me that the amount of $9,000.00 was in fact paid by the debtor, or by the debtor and his wife, to the petitioner or that, if 1t was so paid, the payment was made, as Mr Harding suggested, in reduction of the director's loan made by the petitioner to the debtor or, as the debtor asserted, 1n circumstances which required its repayment by the petitioner. I turn now to the material before the Court concerning the amount of $16,652.46. On or about 29 January 1982 The Commercial Bank of Australia Limited agreed to provide to the petitioner accommodation by way of an advance to a limit of $15,000 in an account styled "Plaza Print Pty. Limited Special Account". The advance was to be drawn to the full amount of the limit in one instalment and was to carry interest at the rate of 13.5 per centum per annum, that rate, however, being variable from time to time at the bank's discretion. The debt was expressed to be 14. repayable on demand but, until such demand should be made, it was to be repaid by monthiy instalments. The advance was to he secured by a guarantee in the sum of $20,000 to be given by four named persons including the debtor and his wife. That guarantee was to be supported, inter alia, by a third mortgage given by the debtor and his wife over the lease, which was in their joint names, of certain residential premises situate at 36 Knox Street, Watson in the Australian Capital Territory. The guarantee and mortgage to be given by the debtor and his wife were, in fact, given. At the date of liquidation, the petitioner owed moneys to the bank under the above arrangements. The effect of the debtor's evidence, which I accept, is that the residential premises were sold in September 1985 and that, on settlement, the sum of $16,652.46 was paid to Westpac Banking Corporation, the successor of The Commercial Bank of Australia Limited, in discharge of the liability of the debtor and his wife to the bank under the guarantee and mortgage. There is in evidence a copy of a bank statement relating to an account in the name of Plaza Print Pty. Limited with Westpac Banking Corporation showing a deposit to the account on 1 October 1985 of $16,652.46, that amount being equal to the then debt balance of the account. It may be accepted that, upon payment to Westpac Banking Corporation of the amount of $16,652.46 out of their joint estate, the debtor and his wife were subrogated to whatever rights the bank had as a creditor, unsecured, of the is. petitioner. Although the payment was made after the date of the winding up of the petitioner, that fact would not preclude the amount being set off against a debt due to the petitioner at the date of the winding up if set-off were otherwise available: Day & Dent Constructions Pty Ltd v. North Australian Properties Pty Ltd (1982) 150 C.L.R. 85. The debtor's claim to set off the amount, however, founders on the principle of mutuality - that a set-off may only be maintained where the claims to be set off against each other exist between the same parties and in the same right. Thus, there can be no set-off between joint and separate debts. In the present case what the debtor seeks to do is to set off a debt due by the petitioner to his wife and himself - a joint debt - against an amount due to the petitioner by himself alone. The second ground of the debtor's opposition to the petition based onan alleged miscarriage of justice arising from the proceedings in the Supreme Court is, therefore, also rejected. In the result, I am satisfied that the debtor has committed the act of bankruptcy alleged in the petition as amended and I am satisfied with the proof of the other matters ef which s.52(1) of the Bankruptcy Act 1966 (Cth) requires proof. I note that Mr Barry Anthony Taylor, a registered trustee, has consented to act as the trustee of the estate of the debtor. I make a sequestration order against the estate of the debtor. I order that the costs of the petitioner, other than the costs incurred in drawing, engrossing, filing and 16. serving the amended and further amended petitions herein and the several affidavits verifying the same and the costs of the hearings before the Court on 27 November 1987, 3 and 21 December 1987 and 4 February 1988, be taxed and paid in accordance with the statute. I direct that a draft of this order be delivered to the District Registrar within seven days in accordance with rule 124(2) of the Bankruptcy Rules. I certify that this and the preceding 15 pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Neaves. hh orb Associate Dated: 14 April 1988 Counsel for the petitioner Solicitors for the petitioner Mr D.S. Galbraith Abbott Tout Creer & Wilkinson Counsel for the debtor Solicitors for the debtor Mr I.J. Nicol Blake Dawson Waldron on oe Date of hearing : 12 February 1988