CATCHWORDS BANKRUPTCY - Application to set aside bankruptcy notice - Application for extension of time for compliance with a bankruptcy notice pursuant to s 41 (6A) - whether respondents waived their right to payment in accordance with the deed - whether respondents estopped from insisting on prompt payment of instalments by reason of implied representations - whether terms of deed provide for payment of a penalty - whether court should go behind consent judgement Bankruptcy Act 1966 (Cth) s 41 (6A) Grundt v Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641 at 675 Legione v Hateley (1982) 152 CLR 406 at 436 Olivieri v Stafford (1989) 24 FCR 413 at 424 Streimer v Tamas (1981) 37 ALR 211 McLean v Australia and New Zealand Banking Group Limited(1993) 42 FCR 300 No. SN 796 of 1994 RE: ALWYN HEALY Debtor EX PARTE: ALWYN HEALY Applicant - and - A.C. COMPONENTS PTY LTD and A.C. (WHOLESALE) COMPONENTS PTY LTD Respondents Branson J. Adelaide 21 March 1995 IN THE FEDERAL COURT OF AUSTRALIA) ) SOUTH AUSTRALIA DISTRICT REGISTRY) No. SN 796 of 1994 ) GENERAL DIVISION ) ) BANKRUPTCY DISTRICT OF THE STATE ) ) OF SOUTH AUSTRALIA ) RE: ALWYN HEALY Debtor EX PARTE: ALWYN HEALY Applicant - and - A.C. COMPONENTS PTY LTD and A.C. (WHOLESALE) COMPONENTS PTY LTD Respondents REASONS FOR JUDGEMENT CORAM: Branson J. PLACE: Adelaide DATE 21 March 1995 The applicant in this matter has applied for orders that the bankruptcy notice dated 24 November 1994 issued against him by the respondents be set aside and that the time for compliance with the bankruptcy notice be extended pursuant to s.41 (6A) of the Bankruptcy Act ("the Act"). BACKGROUND FACTS The bankruptcy notice recites that the respondents claim the sum of $25,170.79, being the balance due under a final consent judgment for $35,000 entered in the District Court of Adelaide. The agreed background to the bankruptcy notice is set out in a Deed of Settlement executed by the applicant, Healy Air Supplies Pty Ltd and the respondents. The important provisions of the Deed for present purposes are as follows:- "WHEREAS:- A. The A.C. Components Group have commenced proceeding against Healy and Healy Air Supplies claiming the sum of $36,795.84, interest and costs, being the proceedings in the District Court of South Australia Action No. 891 of 1991 ("the proceedings"). B. Healy Air Supplies has counterclaimed damages against the A.C. Components Group in the said proceedings ("the counterclaim"). C. Pursuant to an order of the Court made on the 16th day of March 1992, Healy was ordered to pay the sum of $5,000.00 into Court. D. The parties hereto have reached an agreement to resolve the matters in issue between them as hereinafter appears. NOW THIS DEED WITNESSETH as follows:- 1. Healy and Healy Air Supplies consent to a Judgement in favour of the A.C. Components Group in the said action in the sum of $35,000.00, such sum being inclusive of costs and interest ("the judgement sum"). 2. Healy and Healy Air Supplies will discontinue the counterclaim instituted by the Second Defendant in the said action, with no orders as to costs upon such discontinuance. 3. At the time of execution of this Deed Healy and Healy Air Supplies will:- 3.1 execute an Offer to Consent to Judgement, and the A.C. Components Group will endorse their acceptance of such offer, so as to record the Judgement referred to in paragraph 1 hereof. 3.2 execute of [sic] Notice of Discontinuance of the said counterclaim and the A.C. Components Group will endorse their acceptance of such discontinuance, so as to record the discontinuance of the counterclaim referred to in paragraph 2. 4. The A.C. Components Group will accept the sum of $20,000.00 paid by Healy and Healy Air supplies ("the settlement sum") in full and final satisfaction of the Judgement sum provided the settlement sum is paid in accordance with the following:- 4.1 Healy and Healy Air Supplies shall make payment of the sum of $5,000.00 to the A.C. Components Group, being the amount paid into Court referred to in recital A hereof, and Healy and Healy Air Supplies shall do all things necessary to ensure the said sum of $5,000.00 is paid to the A.C. Components Group. The A.C. Components Group shall be entitled to any interest accrued thereon, in addition to the settlement sum. 4.2 The balance of the settlement sum, namely the sum of $15,000.00 shall be paid by Healy and Healy Air Supplies to the A.C. Group by calendar monthly instalments on or before the first day of each month of not less than $2,000.00 commencing with the first such payment on or before the 1st October 1993. 5. In the event that Healy or Healy Air Supplies defaults ("the default") in any obligation to make any payment to the A.C. Components Group as required by this Deed:- 5.1 The A.C. Components Group shall be entitled to enforce the judgement sum, less any amounts paid, against Healy and/or Healy Air Supplies in such a manner as the A.C. Components Group sees fit in its absolute discretion. 5.2 Interest shall accrue on the Judgement sum less any amounts paid by Healy or Healy Air Supplies at the rate fixed by the District Court of South Australia from time to time, such interest to be calculated from the date of the default." The Deed of Settlement is not dated. The exact date upon which it was signed has not been established by the evidence but it may be presumed to have been signed no later than 7 October 1993, being the date upon which an Offer to Consent to Judgement and a Notice of Discontinuance of Counterclaim were filed on behalf of the defendants in the District Court proceedings. There is evidence that it was not signed on or before 1 October 1993. Upon the execution of the Deed the first payment of $2,000 was technically overdue. Understandably no point has been taken by the respondents in this regard. Payment of the first two monthly instalments of $2,000 each was made on 10 November 1993. It seems that the applicant delayed making any such payments until he received confirmatory advice and copy documents from his solicitors. He made the payment of $4,000 shortly after receiving such advice and documentation. Healy Airconditioning Pty Ltd is apparently a company related to Healy Air Supplies Pty Ltd. During the month of November 1993 efforts were made (it is unclear whether on the part of staff of the respondents or Healy Airconditioning Pty Ltd), to arrange for future $2,000 instalments to be paid on the day before the due date in each month by direct transfer from the account of Healy Airconditioning Pty Ltd. These efforts resulted in $2,000 being transferred into the account of Healy Airconditioning Pty Ltd on 30 November 1993. This transfer was reversed on 2 December 1993 following telephone contact by an employee of the respondents with an employee of Healy Airconditioning Pty Ltd. During the course of this telephone conversation it was agreed that a cheque would be sent by Healy Airconditioning Pty Ltd for the December payment as the staff member who could authorise the direct bank transfer was on annual leave. According to the affidavit of Ms Allison Patricia Pisani, who was at the relevant time Office Manager of the Respondents:- "The matter was left on the basis that in the New Year she [the employee of A C Components Pty Ltd] would coordinate with the appropriate officer of Healy Airconditioning Pty Ltd for the direct debit system to be put in place for future payments." On 23 December 1993 the December payment of $2,000 was sent to the respondents and accepted. On 9 February 1994 a further cheque in the sum of $2,000 was sent by Healy Airconditioning Pty Ltd to A.C. Components Pty Ltd. For reasons which are not disclosed by the evidence this cheque was not received by the respondents until 1 March 1994. On 17 February the respondents caused judgment to be entered in the District Court proceedings in accordance with the Offer to Consent to Judgement earlier signed on behalf of the applicant and Healy Air Supplies Pty Ltd by their solicitors. On 23 February 1994 the respondents issued a bankruptcy notice against the applicant. On 2 March 1994 the cheque dated 9 February 1994 which had been received by the respondents on 1 March 1994 was passed to their solicitors. A telephone conversation between an employee of the solicitors, a Ms McCarthy, and an employee of Healy Air Supplies Pty Ltd, Ms White, ensued. Each of them has sworn an affidavit concerning what was said during the telephone call. Ms McCarthy has sworn that she advised Ms White that the applicant was behind in payments and that she was instructed to issue proceedings because the payments were behind. Ms White has sworn to having been told that payments were behind and that Ms McCarthy wanted to speak to the applicant urgently. She makes no mention in her affidavit to any reference to the issue of proceedings. Ms McCarthy's affidavit was filed later than that of Ms White. It was not answered by a supplementary affidavit of Ms White. No application to cross-examine Ms McCarthy was made. I accept her evidence as to the content of the telephone call of 2 March 1994. On 3 March 1994 there was a conversation between Ms McCarthy and the applicant. Ms McCarthy deposes to having told the applicant on that day that "we [are] instructed to proceed". The applicant has not sought directly to contradict this evidence of Ms McCarthy. However, in his principal affidavit he refers simply to Ms McCarthy advising him that outstanding instalments were overdue. On the next day, that is 4 March 1994, the applicant sent the following facsimile transmission to the respondents' solicitors:- "Re: Remittances to A C Components As advised we established periodical payments through our bank at $2000.00 per month. Unfortunately the Banks transferred funds into (sic.) the opposite direction. These funds were redirected by the Bank. The P.P. was cancelled. Our accounts department have fowarded the following cheques. 10/11/93 No 836 $4000.00 23/12/93 No 1276 $2000.00 09/02/94 No 1127 $2000.00 Outstanding: 1st Feb $2000.00 1st March $2000.00 To Pay: 1st April $2000.00 1st May $1000.00 We have forwarded a cheque (No 1474) to your office to the value of $4000.00 to cover Feb/March. Please confirm the outstanding amounts and dates due. Regards [sgd] Alwyn Healy" Counsel for the applicant argued that the contents of the facsimile transmission suggest against Ms McCarthy's version of the telephone conversation of 3 March 1994. In my view the transmission is of no help in determining what was said on 3 March 1994. It might reflect a belief in the applicant that the overdue payments would be accepted: it might equally reflect a hope in the mind of the applicant that prompt payment of the arrears accompanied by an undertaking to make future payments on time would result in a change in Ms McCarthy's instructions. It is of note, however, that the applicant did not suggest either in his telephone conversation with Ms McCarthy or in the facsimile transmission that it was his understanding that the respondents had waived their right to insist upon payments on or before the first day of the month. As no application to cross-examine Ms McCarthy was made on behalf of the applicant, I accept her evidence that on 3 March 1994 she advised the applicant that her firm was instructed to proceed. On 10 March 1994 the applicant received a letter from the respondents' solicitors returning the cheque dated 9 February 1994 for $2,000 and a further cheque dated 4 March 1994 for $4,000. Nothing before me suggests that the applicant took any action as a consequence of the cheques being returned. He did not protest the nonacceptance of the cheques, nor did he tender any further payments to the respondents until after a bankruptcy notice was served upon him on 8 August 1994. Such inactivity, in my view, indicates that the applicant was indeed aware that the solicitors for the respondents held instructions to proceed and that the respondents were placing reliance on their right to prompt payment. Following the service of the bankruptcy notice on the applicant his solicitors made a written offer to A C Components Pty Ltd to pay forthwith the sum of $9,000 outstanding plus interest on that sum. The offer was not accepted. For reasons that are not presently material the bankruptcy notice issued on 23 February 1994 was set aside by this Court on 14 November 1994. As mentioned above, the notice presently under consideration was issued on 24 November 1994. CONTENTIONS Mr Bowler, counsel for the applicant, argued that the bankruptcy notice of 24 November 1994 should be set aside on one or both of two grounds. First, that the conduct of the respondents during November and December 1993 and January and February 1994 was such as to indicate a waiver on their part of the requirement in the Deed for payment of the instalments of $2,000 on or before the first day of each month. An alternative formulation of this argument was that the respondents were estopped from insisting on prompt payment of such instalments by reason of an implied representation made by them that they no longer required payments to be made within the time frame stipulated by the Deed of Settlement. Reference was made to such well known authorities as Je Maintiendrai Pty Ltd v Quaglia and Quaglia (1980) 26 SASR 101 and Legione v Hateley (1982) 152 CLR 406. Secondly it was argued, perhaps without great enthusiasm, that the Deed of Settlement was unenforceable as a penalty to the extent that it provided for the Consent Judgement for $35,000 to be enforced. WAIVER AND/OR ESTOPPEL The respondents did not expressly waive their right to insist upon strict compliance with the requirements of the Deed of Settlement. The question then arises of whether an implied waiver, or an implied representation as to the approach which the respondents would adopt to payments made other than in strict compliance with the terms of the Deed of Settlement, is established by the facts in this matter. In my view nothing one way or the other can be gleaned from the acceptance by the respondents of payment of $4,000 in November 1993. The Deed was signed later than the date envisaged by the drafter of it, and it seems that it was later again before the applicant received a copy of the executed Deed of Settlement and related documents. The efforts made during November 1993 to arrange payment of future instalments by direct bank transfer one day ahead of the due date, and the subsequent discussions between the parties as to those arrangements, seem to me to suggest against any possible waiver by the respondents of reliance on their right to payment in accordance with the Deed, or any representation by them that they would not insist upon such rights. Payment by direct bank transfer one day before the due date is a means of ensuring payment by not later than the due date. In fact, as set out above, the arrangements for payment by direct bank transfer failed to achieve the desired end. In the circumstances, and particularly having regard to the absence on leave of the employee of Healy Air Conditioning Pty Ltd authorised to put in place the direct bank transfer, it seems to me that no weight can be placed on the acceptance by the respondents of the late payment of the December instalment. As Ms Pisani stated, the matter was left on the basis that the direct debit system would be put in place in the New Year. There is no evidence that the applicant, Healy Air Supplies Pty Ltd or Healy Airconditioning Pty Ltd took any steps in the New Year to put in place a direct debit system. Indeed no instalment at all was paid in January 1994. On 9 February, 1994 a cheque for $2,000 was posted by Healy Air Supplies Pty Ltd to the respondents. By this date both the January and the February 1994 instalments were overdue. Without knowledge of the posting of this cheque the respondents issued a bankruptcy notice against the respondent on 23 February 1994. Upon receiving the cheque dated 9 February 1994 on 2 March 1994 the respondents passed it to their solicitors who promptly informed the applicant that they had instructions to proceed. That cheque and a later cheque were returned to Healy Air Supplies Pty Ltd. The circumstances surrounding each occasion on which the respondents accepted a late payment or payments provide an explanation for such acceptance. In my view the evidence is inconsistent with any suggestion that conduct of the respondents was such as reasonably to cause the applicant to believe that the respondents would not insist upon their strict rights under the Deed of Settlement. The applicant has deposed to the fact that he did assume that because late payments were accepted by the respondents they would not thereafter require strict compliance with the payment dates set out in the Deed of Settlement. However as Dixon J made clear in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at p 675:- "The justice of an estoppel is not established by the fact in itself that a state of affairs has been assumed as the basis of action or inaction and that a departure from the assumption would turn the action or inaction into a detrimental change of position. It depends also on the manner in which the assumption has been occasioned or induced. Before anyone can be estopped, he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it." The above passage was quoted with apparent approval by Mason and Deane JJ in Legione v Hateley at p 431. See also per Gibbs CJ and Murphy J at p 422 and per Brennan J at p 453. Their Honours went on to say in Legione v Hateley at p 436 that:- "The requirement that a representation must be clear before it can found an estoppel is, in our view, applicable to any doctrine of promissory estoppel". On the facts of this case it is my view that there was no clear representation (indeed I consider no relevant representation at all) which could reasonably be attributed to the respondents. The evidence, in my view, fails for the same reasons to establish an implied waiver. PENALTY The alternative case put on behalf of the applicant sought to characterise the terms of the Deed of Settlement as providing for payment of a penalty. I do not consider that the Deed of Settlement can be construed, as I was invited to construe it, as providing for the payment of $35,000 as damages on the breach of a condition to pay $20,000 by agreed instalments. As part of a compromise of legal proceedings the applicant consented, on legal advice, to the entering of judgement against him in the sum of $35,000. The respondents agreed not to enforce that judgement if they were paid a lesser sum in accordance with certain terms set out in the Deed. No case was cited to me which suggests that such an arrangement is appropriately characterised as providing for the payment of a penalty. As a matter of principle it would be undesirable for it to be so characterised. I conclude that the Deed of Settlement did not provide for the payment of a penalty in default of strict compliance with its terms. It was faintly argued on behalf of the applicant that I should go behind the consent judgement and find that the sum of $35,000 was at no time owing by the applicant or Healy Air Supplies Pty Ltd to the respondents. I decline to do so. First there is insufficient evidence before me upon which I could make any such finding. To make such a finding I would be required to consider all relevant dealings between the parties (see Olivieri v Stafford (1989) 24 FCR 413 particularly per Beaumont J at p 424). More significantly the consent judgement in this case was entered pursuant to an Offer to Consent to Judgement signed on behalf of the applicant by his then solicitors. The applicant agreed to the signing of the Offer to Consent to Judgement as one aspect of a compromise of existing litigation. No application has been made to the District Court to set aside the judgment. It would seem that any such application would be doomed to failure. I do not consider that in the circumstances it is permissible for the Court to speculate about the transactions between the parties which preceded the consent judgement. The obligations of the parties to that litigation, one to the other, have merged in the consent judgement. The application to set aside the bankruptcy notice will be dismissed. The time for compliance with the bankruptcy notice has been extended by the Registrar up to and including 20 February 1995. There is power in the Court to further extend the time for compliance notwithstanding the expiry of the time set by the Registrar (Streimer v Tamas (1981) 37 ALR 211; McLean v Australian and New Zealand Banking Group Limited (1993) 42 FCR 300). I was not addressed by counsel on whether or not it would be appropriate so to do in this case. In particular I was not addressed on the appropriateness of my doing so should I determine, as I have determined, that the bankruptcy notice should not be set aside. I will hear counsel on this issue and on the question of costs. I certify that this and the preceding pages are a true copy of the Reasons for Judgement of Justice Branson. Associate: Dated: Counsel for the Applicant : Mr B Bowler Solicitors for the Applicant: Hume Taylor & Co. Counsel for the Respondents : Mr J Neate Solicitors for the Respondents: Michell Sillar Lynch & Meyer Hearing Date : 13 March 1995