JUDGMENT No. 2.0 2S.) Ot CATCHWORDS BANKRUPTCY - agreement to compromise petitioning creditor's debt - purported withdrawal from agreement by creditor - bank cheque tendered several days later - whether enforceable agreement CONTRACT - compromise agreement - whether agreement concluded prior to formal execution - promise to pay less than debt due in context of compromise of creditor's petition - whether consideration - whether time of the essence - whether waiver Briggs v FCT (1986) 12 FCR 310 Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 Foakes v Beer (1884) 9 App Cas 605 Gray v Hedigan (unreported, Federal Court of Australia, Full Court, 7 October 1994) Kerrison v Martin & Heyward [1975] VR 401 Masters v Cameron (1954) 91 CLR 353 McDermott v Black (1938) 63 CLR 161 Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 Vincent v Premo Enterprises Ltd [1969] 2 QB 609 Re: George Maroun_and Josephine Maroun ex parte; Mineral & Chemical Traders Pty Ltd (No. VP 694 of 1994) Judge: Heerey J Date: 11 November 1994 Place: Melbourne RECEIVED 14 NOV 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA No.VP 694 of 1994 ~~ SS Sw RE: GEORGE MAROUN and JOSEPHINE MAROUN Debtors - and - Ex parte MINERAL & CHEMICAL TRADERS PTY LTD Creditor JUDGE: Heerey J DATE: 11 November 1994 P. E: Melbourne MINUTE OF ORDERS The Courts Orders that: iq. The application dated 13 September 1994 be dismissed with no order as to costs. 2. The creditor's petition be adjourned to 9.30 am Monday 21 November 1994. 3. Costs of the creditor's petition be reserved. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE DE T OF AUSTRALIA ENERAL BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA No.VP 694 of 1994 ~~ SS RE: GEORGE MAROUN and JOSEPHINE MAROUN Debtors - and - Ex parte MINERAL & CHEMICAL TRADERS PTY LTD Creditor JUDGE: Heerey J DATE: 11 November 1994 PLACE: Melbourne REASONS FOR JUDGMENT The debtors resist the making of a sequestration order on the ground that the petitioning creditor's debt has been compromised. Alternatively, they seek an adjournment to enable a meeting to be held to consider a Part X arrangement. The Facts On 12 February 1992 the petitioning creditor obtained a judgment in the County Court at Melbourne against the debtors. On 16 May 1994 a bankruptcy notice was issued in respect of the judgment, the total amount claimed including interest and costs being $124,358.41. The notice was served on Mr Maroun on 22 May and on Mrs Maroun on 25 May. The first return of the creditor's petition was on 18 August. The petitioning creditor was represented by its solicitor Mr Jeffrey Salinger and the debtors by their solicitor Mr Jeffrey Willetts. Mr Salinger, according to Mr Willetts, suggested that he wait until after Mr Salinger adjourned the proceeding and they could then "talk settlement". The Court's Report of Listing records that at 9.55 am the petition was adjourned by consent to 19 September. Discussions then took place between Mr Willetts and Mr Jeffrey Salinger. Also present was another solicitor, a Mr Paul Seddon. Mr Seddon had been acting on behalf of the debtors in relation to some Supreme Court proceedings and was himself a creditor for an amount exceeding $90,000. Prior to the return date of the petition, Mr Seddon had spoken to a number of other creditors, although not to the petitioning creditor. Mr Seddon told the other creditors that if the debtors were made bankrupt very little could be recovered from their assets and the trustee might not continue some legal proceedings on which the creditors were relying for payment of their debts. Those proceedings were a claim seeking losses from the debtors' former accountant upon an insurance claim and proceedings involving a debenture debt. Mr Seddon and the other creditors agreed that it was in their best interests to allow the debtors to negotiate the debt due to the petitioning creditor on terms that would allow the continuation of the proceedings. On 11 August the debtors had signed an authority to Mr DR McVeigh under s.188 of the Bankruptcy Act 1966 (Cth) (the Act) for the calling of a meeting on 14 September. They proposed a composition of $30,000 payable within 60 days in full settlement of joint and several debts. To return to the discussions of 18 August, it appears Mr Willets put to Mr Salinger an offer that the whole of the petitioning creditor's claim including interest and costs be settled by payment of $45,000, made up of an initial payment of $30,000 on or before 28 August and the balance of $15,000 to be paid within 12 months of the initial payment, and that upon the initial payment being made the proceeding be withdrawn with no order as to costs. Mr Salinger agreed to those terms subject to obtaining instructions from his client. Mr Willetts told Mr Salinger that he would wait in the Four Courts coffee lounge with his clients. Mr Salinger said he would meet Mr Willetts there with his client's instructions in half an hour. Mr Willetts waited at the coffee lounge for about an hour and a half. Mr Salinger did not appear so Mr Willetts departed leaving his clients together with Mr Seddon. At about noon Mr Salinger returned. Mr Maroun told Mr Salinger that Mr Willetts had had to leave but Mr Salinger could leave any message with him. Mr Salinger then said that he had been instructed by his client to accept the offer put to him by Mr Willetts. On 19 August Mr Salinger sent a fax to Mr Willetts in the following terms: "Mineral & Chemical Traders Pty Ltd v _ George and Josephine Maroun. We refer to the above and confirm that the petition in this matter has been adjourned until 19 September 1994. We also understand that a Part X meeting is to be heard [sic] on 11 September 1994. 4. We confirm with you our client's acceptance of the following proposal :- (a) A bank cheque for $30,000 to be received by 28 August 1994; and (b) A further bank cheque for $15,000 on or before 12 months from 28 August 1994." Mr Salinger also sent a fax to Mr Seddon in the same terms except that it added: "We further confirm that you are to provide us with details as to the insurance action you are currently proceeding with and as discussed yesterday." Mr Willetts replied to Mr Salinger by fax on the same day: "Re Maroun ats Mineral & Chemical Traders Pty Ltd We refer to your facsimile transmission of even date and subsequent telephone conversation of today. We confirm settlement of this matter in the terms of your facsimile transmission. We are drawing terms of settlement. We shall have same with you early next week." On Wednesday 24 August Mr Willetts sent by fax to Mr Salinger proposed terms of settlement. Also on 24 August Mr McVeigh forwarded to creditors notice of the Part x meeting (the notice for the meeting fixes the date as 14 September although all affidavits filed in the present proceeding speak of 11 September). The notice was accompanied by a statement of affairs which disclosed unsecured creditors of $636,043.26 and assets of $15,000 consisting of household furniture and effects. A contingent asset was stated to be a professional negligence claim against a former accountant for $1.8m subject to a counter-claim of $33,000. 5. On Monday 29 August, not having heard from Mr Salinger, Mr Willetts telephoned him and asked whether the terms of settlement were acceptable. Mr Salinger said that he had sent them off to his client and would get back to Mr Willetts. Later that day Mr Salinger phoned Mr Willetts and said that he had received by fax the terms of settlement executed by his client without amendment. Mr Willetts said he would get his clients to execute the terms of settlement and get their money in. On 30 August Mr Willetts sent a fax to Mr Salinger: Re Maroun ats Mineral & Chemical Traders Pty Ltd We refer to our telephone conversations of yesterday and confirm that you hold a part of the compromise agreement executed by your client. We have received a cheque from our client. We enclose herewith a copy of same. We will be meeting with clients until [sic] tomorrow evening to execute the agreement and receive a bank cheque to replace the cheque held by us. We shall arrange for the agreement and bank cheque to be delivered to you on Thursday." The cheque of which a copy was enclosed was drawn by Devonmore Pty Limited in favour of J Salinger & Associates Trust Account for $30,000 and dated 28 August. At about 10.00 am on 1 September Mr Salinger phoned Mr Willetts. According to Mr Willetts' affidavit, Mr Salinger "said his client had 'withdrawn' from the 'agreement'". Mr Willetts immediately forwarded a fax: "Re Maroun ats Mineral & Chemical Traders Pty Ltd We refer to our telephone conversation of this morning and confirm that your client has purported to resile from the agreement in this matter. 6. Our clients do not accept your client's purported reciscion of the contract. Unless by 12.00 noon today we receive your confirmation that your client will proceed with the agreement herein we shall attend at your office and make formal tender in this matter." Shortly after 1.00 pm the same day Mr Willetts attended Mr Salinger's office and tendered a bank cheque for $30,000 together with the terms of settlement executed by the debtors. Mr Salinger refused to accept the cheque or the executed part of the terms of settlement. He also refused to exchange the terms of settlement executed by the judgment creditor. Mr Salinger deposed that after that telephone call of 1 September he spoke to the managing director of his client who said that the copy of the terms of settlement sent to Mr Salinger had been signed by a Mr Turnbull who was an accountant of the company but not a director and was not authorised to execute the terms of settlement. As to the discussion on 18 August, Mr Salinger deposed: "I made it clear that (Mr Willetts') clients' obligations would only be discharged in the event that the initial payment was made on or before the specified date, otherwise the judgment creditor would maintain its rights against the judgment debtors." In reply, Mr Willetts deposed that "at no time during the conversation ... did Salinger make any precondition that time was of the essence and that the payment of $30,000 had to be paid by 28 August 1994 failing which the agreement would be at an end. On the contrary, at all times during the said conversation Mr Salinger was off-hand and apparently uninterested in the precise date of payment." Mr Seddon corroborated Mr Willetts' version. He also deposed that when Mr Salinger accepted the offer in the Four Courts coffee lounge he "made no reference to any strict necessity for the initial payment to be made on 28 August." None of the deponents were cross-examined. The circumstances lead me to conclude that it is more likely that Mr Salinger did not make any express stipulation as to time being of the essence. His fax of 19 August contains no such stipulation. Moreover, he does not dispute Mr Willetts' account of the conversations on 29 August in which, according to Mr Willetts, no complaint was made by Mr Salinger about non-payment on the previous day. At the Part X meeting on 11 September the trustee confirmed that the offer of compromise made to all creditors had been withdrawn by the debtors as a settlement had been reached with the judgment creditor. The creditors, including the judgment creditor, voted for the debtors' property to be no longer subject to control. The Contract I find there was a concluded agreement constituted by the conversations on 18 August and the exchange of faxes on 19 August. Contrary to the submissions of the petitioning creditor, that agreement fell within the first of the categories referred to in Masters v Cameron (1954) 91 CLR 353 at 360 and was not to be binding only when formal terms of settlement were executed. This was a simple and straightforward compromise of a kind very commonly made in litigation. All the necessary terms were agreed upon. In Gray v Hedigan (7 October 1994, unreported, at 11-12) 8. a Full Court of this Court rejected a similar contention to that advanced by the petitioning creditor in the present case. That being so, it becomes unnecessary to consider the question of the validity of the execution of the terms by the petitioning creditor or the question whether actual exchange was necessary (see Vincent v Premo Enterprises Ltd [1969] 2 QB 609 at 619). The petitioning creditor contended that there must be accord and satisfaction and that here there had been no satisfaction, merely accord executory; reference was made to McDermott v Black (1938) 63 CLR 161. However, the terms of the agreement obliged the petitioning creditor to withdraw the petition on payment of the first amount. The tender of that amount was, I find, wrongfully rejected by the petitioning creditor. If there was a valid compromise of the petitioning creditor's debt, it would be appropriate that the petition be dismissed under s.52(2)(b). Apart from anything else, there would be no continuing debt owed to the petitioning creditor: see r.21(1)(b). There were no supporting creditors. Consideration The petitioning creditor contended that any agreement between it and the debtors was not binding because of lack of consideration. It was said that a promise to pay less than the amount of a debt due provides no consideration: Foakes v Beer (1884) 9 App Cas 605. That is without doubt true, but in the present case there are other circumstances which lead to a different conclusion. The agreement was made in the context of a creditor's petition and a proposed Part X meeting. The promise of the debtor to pay $45,000 was, if performed, Plainly to the benefit of the petitioning creditor because it would receive far more than it might have expected either under a sequestration order or under a Part X arrangement. Quite apart from the particular amounts involved, this was not a case of a creditor being promised a smaller amount than the debt due. Rather it was a promise of a sum certain in substitution for the prospect of obtaining a sequestration order and proving in the bankruptcy for some unspecified amount. Time of Performance The debtor did not pay the agreed amount of $30,000 on 28 August. But was time of the essence? At common law performance had to be carried out on the exact date specified in the contract. A party could treat the contract as repudiated if the other party's performance was not completed on the fixed date: Chitty on Contracts (25th Edition) para.1390. Equity was less strict. Time was not of the essence except where (i) the parties had expressly so stipulated, (ii) the circumstances of the contract or the nature of the subject-matter indicated that the fixed date must be complied with, or (iii) where time was not originally of the essence, but one party had been guilty of undue delay and the other party gave notice requiring the contract to be performed within a reasonable time: Chitty para.1391, United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at 940-942. 10. Since the Judicature Act, the rules of equity have prevailed. The applicable provision for present purposes is s.41 of the Property Law Act 1958 (Vic): "Stipulations in a contract, as to time or otherwise, which according to rules of equity are not deemed to be or to have become of the essence of the contract, shall be construed and have effect at law in accordance with the same rules." In the present case I have found there was no express stipulation making time of the essence. Nor was there any post-contractual notice to that effect. Thus categories (i) and (iii) above have no application. As to (ii), the circumstances point against any conclusion that the date fixed for Payment was to be met strictly. First there is the fact that 28 August was a Sunday. Since the petitioning creditor was a company, presumably neither its place of business, nor that of its solicitor, would be open. More importantly, there was no other need or circumstance which, from the petitioning creditor's point of view, made it essential that payment be received on the 28th, rather than the 29th or the 30th. The present case is to be contrasted with, for example, that of a buyer who has contracted to re-sell the goods or a seller who requires a fixed period of notice by the buyer so as to nominate a port for loading: Bunge Corporation v fradax Export SA [1981] 1 WLR 711 at 729. Here nothing affecting the petitioning creditor could happen until the Part x meeting or the adjourned date of the petition, both events being well past 28 August. In any case, Mr Salinger's conduct on 29 August when he advised 11. that the terms of settlement had been sent to his client and (later that day) that the terms had been executed amounted to a waiver of that requirement. His conduct amounted to a "failure to insist upon strict performance, coupled with a continued assertion of a readiness to accept performance out of time": Greig and Davis The Law of Contract, 1243. The petitioning creditor could only insist on strict performance thereafter by giving reasonable notice to the debtors: Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 348-349, Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 459, Kerrison v Martin & Heyward [1975] VR 401 at 405 Conclusion By an application dated 13 September 1994 the debtors applied to set aside the bankruptcy notice or alternatively extend time for compliance. This application was misconceived. A bankruptcy notice can only be set aside on grounds relating "to the form or content of the notice itself, service of the notice or the existence of the debt upon which the judgment and in turn the notice is founded": Briggs v FCT (1986) 12 FCR 310 at 312 per Toohey J. Here the debtors' case, which I uphold, depends on facts which occurred after the service of the notice and the expiration of the time fixed thereby. Nor does any question of extending that time arise; such an order must have been sought by mistake since the debtors' case now is that the judgment debt has been validly compromised. The application dated 13 September 1994 will be dismissed with no order as to costs. Otherwise the petition should be dismissed with costs including reserved costs. 12. I shall however adjourn the petition until 9.30 am on Monday 21 November when that formal order will be pronounced. In the meantime the debtors' solicitor will, pursuant to an undertaking given to the Court, hold the bank cheque for $30,000 in his possession. If on the adjourned date the petitioning creditor indicates its intention to appeal, further arrangements can then be made for the retention of the cheque, or the proceeds thereof, pending appeal. Otherwise the cheque can be paid to the solicitors for the petitioning creditor. I certify that this and the preceding eleven (11) pages are a true copy of the reasons for judgment of his Honour Mr Justice Heerey. Dated: // Niorvbr— (Hoe Associate Appearances Counsel for the creditor: H Fraser Solicitor for the creditor: Salinger & Associates Counsel for the debtors: M Goldblatt Solicitor for the debtors: Willetts & Associates Date of hearing: 26 October 1994