Re James John Lean Johnston Ex Parte: Mark Papadopoulos & Roy Albert Butler v the Official Receiver, Trustee of the Estate of the Bankrupt [1981] FCA 17 (5 March 1981)

FEDERAL COURT OF AUSTRALIA

Re: JAMES JOHN LEAN JOHNSTON
Ex parte: MARK PAPADOPOULOS & ROY ALBERT BUTLER
And: THE OFFICIAL RECEIVER, TRUSTEE OF THE ESTATE OF THE BANKRUPT
No. 220 of 1978
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.

CATCHWORDS

Bankruptcy - administration of bankrupt's estate - applicants formerly engaged in partnerships with bankrupt - correspondence between Official Receiver and applicants' solicitors concerning sale and purchase of bankrupt's interest in partnerships - whether correspondence can be construed as a binding agreement.

Bankruptcy Act, 1966 (Cth.)

HEARING

SYDNEY
5:3:1981

ORDER

1. The applications be dismissed.

2. The applicants pay the Official Receiver's costs, including reserved costs.

DECISION

These are two applications in the bankruptcy of James John Lean Johnston ("the bankrupt") which have been heard together by consent. The questions for determination are: -

1. Whether the respondent, the Official Receiver ("the Official Receiver"), as trustee of the estate of the bankrupt, agreed, on or about 17 July 1979, to accept from the applicant, Mark Papadopoulos ("Papadopoulos") and the applicant, Roy Albert Butler ("Butler"), the sum of $448.72 in full satisfaction of the bankrupt's interest in a partnership between the bankrupt, Papadopoulos and Butler trading under the firm name "Impala Engineering"; and

2. Whether the Official Receiver, as trustee of the estate of the bankrupt, agreed, on or about 17 July 1979, to accept from Papadopoulos the sum of $1785.35 in full satisfaction of the bankrupt's interest in a partnership between the bankrupt and Papadopoulos trading under the firm name "Archimedes Engineering".

The applicants also seek orders that two summonses issued under s. 81 of the Bankruptcy Act 1966 ("the Act"), one addressed to Papadopoulos and the other to Butler, and each dated 22 August 1980, be set aside on the grounds that they are vexatious, oppressive and an abuse of the process of this Court. It is common ground that, if I find for the applicants on the two questions already mentioned, the summonses should be set aside.

The answers to the questions turn on the construction of a chain of correspondence between the Official Receiver and the solicitors for the applicants, to whom I shall refer, for convenience, as "the solicitors".

The case for the applicants is that by letter dated 17 July 1979 from the Official Receiver to the solicitors, he accepted an offer said to have been made by the applicants to purchase the bankrupt's interest in the partnerships Impala Engineering and Archimedes Engineering for the price of $448.72 and $1,785.35 respectively.

The Official Receiver's case is that the letter of 17 July 1979 must be read in the context of all the correspondence which shows a state of continued negotiations, no offer, no acceptance and therefore no concluded agreement. An alternative argument for the Official Receiver was that, even if it is held that there was an agreement as alleged by the applicants, it was subject to the performance of a condition precedent namely, that an agreement would be entered into between the parties to provide for mutual releases and indemnities in respect of partnership liabilities; and, as this agreement was never made, the agreement relied on by the applicants has never come into operation.

It is necessary to examine the correspondence between the Official Receiver and the solicitors in some detail.

The initial negotiations between the parties were conducted on the assumption that, in both partnerships, liabilities exceeded assets at 29 March 1978, being the date on which the sequestration order was made against the estate of the bankrupt, and that the capital account of the bankrupt was overdrawn. Hence there was no prospect of any money being received by the bankrupt's estate for the disposition of his interests in the partnerships.

The negotiations appear to have commenced in about August 1978. On 22 August 1978, the solicitors sent to the Official Receiver draft deeds of release and indemnity. One draft provided for an acknowledgement by the bankrupt that on 29 March 1978, Papadopoulos acquired all of the assets of the business of Archimedes Engineering and that, since then, Papadopoulos continued to conduct the business on his own account and became entitled to all of the profits of the business (Clause 1); Papadopoulos indemnified the bankrupt with respect to all liabilities of the business of Archimedes Engineering and released him from any claims he may have with respect to moneys which may be owing by the bankrupt to the partnership on capital account or otherwise (Clause 2); the bankrupt released Papadopoulos from any debt that Papadopoulos may owe to him with respect to moneys paid by the bankrupt on behalf of the partnership (Clause 3); the bankrupt agreed to sign whatever documents were necessary to enable Papadopoulos to retain the ownership of the business name Archimedes Engineering (Clause 4); and the parties agreed to sign whatever documents were necessary to give effect to the indemnities and releases or to evidence the title of Papadopoulos to the business of Archimedes Engineering (Clause 5). There was a draft in substantially the same terms relating to the business of Impala Engineering.

It was not until 10 October 1978 that the question of the applicants paying money to the Official Receiver for an assignment of the bankrupt's interests in the partnership arose. On that day the Official Receiver wrote to the solicitors stating that the bankrupt considered the applicant should reimburse him for his interests in the partnerships; that the bankrupt was working out relevant details and that the Official Receiver would communicate further with the solicitors in due course.

Those details were given by letter of 9 November 1978 from the Official Receiver to the solicitors in which the Official Receiver asserted that the bankrupt claimed to have paid moneys to the National Bank of Australasia Limited for the benefit of both partnerships, that the capital accounts of the bankrupt should be altered to reflect those payments; so that, in the result, "the capital accounts of the bankrupt will change from being overdrawn to a surplus position." The Official Receiver said that there were other claims made by the bankrupt against the applicants which did not relate directly to the partnerships and:

" . . . as these do not directly affect the partnerships in question, I do not intend to deal with them in determining the bankrupt's interest in the partnership and for this reason any reference to realising (sic, releasing) of claims against the parties in any deed of release will have to be specific."

The Official Receiver gave details of those other claims made by the bankrupt.

The solicitors replied by letter of 4 April 1979 enclosing amended balance sheets of the partnerships, prepared by the accountants for the partnerships, showing $448.72 standing to the credit of the capital account of the bankrupt in the partnership of Impala Engineering and $1,785.35 standing to the credit of his capital account in Archimedes Engineering. The other claims made by the bankrupt were disputed. The last paragraph of the letter reads: -

"Our clients are anxious to finalise this matter as quickly as possible and are therefore prepared to pay to the bankrupt the amount standing to his credit in his capital account. We suggest that the Deeds of Release be amended accordingly. We look forward to your early reply. Balance sheets enclosed."

Further correspondence passed between the Official Receiver and the solicitors after which, on or about 25 June 1979, the Official Receiver sent notices to the creditors of the bankrupt convening a meeting of creditors to be held on 10 July 1979, in which, so far as material, the Official Receiver said: -

"Creditors are advised that the bankrupt was a member of two partnerships trading as Impala Engineering and Archimedes Engineering.

I attach copies of the balance sheets relevant to the partnerships. The bankrupt's ex-partners have made an offer to purchase the bankrupt's interest in the partnerships as follows: -

Impala Engineering $448.72
Archimedes Engineering 1,785.35

The offers correspond to the balance on the bankrupt's capital accounts at the date of bankruptcy.

I understand that Archimedes Engineering has not operated for some years and that Impala Engineering has been operating since the date of bankruptcy, namely 29th March, 1978, under the control of R. A. Butler and M. Papadopoulos.

If the offer is accepted, a deed of release is to be drawn up verifying that the bankrupt's ex-partners will indemnify the bankrupt and myself as trustee of the bankrupt's estate, with respect to all liabilities of the partnership business and that they will release the bankrupt and myself as trustee of the bankrupt's estate with respect to any moneys which may be owing by the bankrupt to the partnership.

Five creditors totalling $64,901.71 have lodged claims against the bankrupt's estate.

A dividend of 14.2056 cents in the dollar has been calculated and will be paid to creditors who have lodged claims, in the near future.

If the above offers to purchase the bankrupt's interest in the partnerships are accepted, a further small dividend will be paid to creditors.

The purpose of the meeting is to consider the offer made for the bankrupt's interest in the partnerships.

AGENDA

1. To consider and if thought fit to authorise the official receiver as trustee of the bankrupt estate of James John Lean Johnston, to accept an offer of $448.72 made by Roy Albert Butler and Mark Papadopoulos for the bankrupt's interest in the partnership trading as Impala Engineering.

2. To consider and if thought fit to authorise the official receiver as trustee of the bankrupt estate of James John Lean Johnston, to accept an offer of $1,785.35 made by Mark Papadopoulos for the bankrupt's interest in the partnership trading as Archimedes Engineering."

The meeting of creditors was held on 10 July 1979 and the creditors resolved: -

"The official receiver as trustee of the bankrupt estate of James John Lean Johnston be authorised to accept the offer of $448.72 made by Roy Albert Butler and Mark Papadopoulos for the bankrupt's interest in the partnership trading as Impala Engineering." and

"The official receiver as trustee of the bankrupt estate of James John Lean Johnston be authorised to accept the offer of $1,785.35 made by Mark Papadopoulos for the bankrupt's interest in the partnership trading as Archimedes Engineering."

Then came the letter of 17 July 1979 on which so much reliance is placed by the applicants. It reads: -

"I refer to your letter dated 19th June, 1979 and advise that at a meeting of creditors held on 10th July, 1979, creditors authorised me to accept an offer made by Mark Papadopoulos and Roy Albert Butler for the bankrupt's interest in the partnerships known as Archimedes Engineering and Impala Engineering. I would be pleased if you would provide me with any documents you require to be executed to finalize this matter.

I would also be pleased if you would forward to me a bank cheque for the sum of $1,785.35 and for the sum of $448.72 in due course."

Counsel for the applicants contended that this letter constituted an acceptance of the applicant's earlier offer and that the agreement thus created fell into the first or, alternatively, the second class of case mentioned in Masters v. Cameron [1954] HCA 72; (1954) 91 C.L.R. 353 at p. 360.

I reject this contention. I think it plain from the correspondence as a whole that the case falls into the third class mentioned in Masters v. Cameron namely, that it was the intention of the parties not to make a concluded bargain at all unless and until they executed a formal contrac.

I should add that I have considerable doubt whether there was an offer at all by the applicants. The strongest evidence in support of an offer is the last paragraph of the letter of 4 April 1979 which I have already mentioned. However in view of the construction I have placed on the correspondence as a whole, I do not think anything turns on the question whether the applicants made an offer or not.

What the Official Receiver said in his letter of 17 July 1979 was that he had authority from the creditors to accept what he construed as the applicants' offer, to acquire the bankrupt's interest in the two partnerships for $448.72 and $1,785.35, and that he wished the solicitors to send him whatever documents they thought appropriate embodying all relevant terms as to the assignment of the interests in the two partnerships together with mutual releases and indemnities. In the last paragraph, the Official Receiver is merely saying that, when the necessary deeds or other documents embodying the terms of the assignment, releases and indemnities have been sent to him and executed by all parties, he wishes to be paid the sums of $1,785.35 and $448.72 by bank cheque.

The earlier draft deeds of release and indemnity did not provide for the assignment of the bankrupt's interest in the partnership because, as I have said, there was no need for this to be done at that stage as the bankrupt's capital account was thought to be in debit. Now there was a need for the deeds to provide for the assignment as well as for releases and indemnities. The solicitors had prepared the earlier draft deeds, so the Official Receiver assumed that they would prepare either fresh draft deeds or amendments to the existing drafts.

It is not surprising that in their letter of 26 July 1979, which was in reply to the letter of 17 July, the solicitors said to the Official Receiver: -

"We refer to your letter of the 17th July last and enclose herewith draft deeds for your approval. If these are in order we shall then arrange for original deeds to be signed by our clients and then submitted to you together with cheques and any other documents such as forms relating to change of ownership of business name."

Plainly the solicitors did not regard the letter of 17 July as the acceptance of any offer.

The draft deeds enclosed with the letter of 26 July differed in important respects from the earlier drafts prepared by the solicitors. The later drafts made the Official Receiver a party; provided for the assignment of the bankrupt's interest in the partnerships to the applicants for the sums of $448.72 and $1,785.35; the releases and indemnities were confined to those relating to the partnership businesses, thus indicating the assent of the applicants to the Official Receiver's earlier statement that they did not intend to raise the question of the bankrupt's claims against the applicants outside the partnership affairs in respect of the assignment of his interest in the partnerships.

On 10 August 1979 the Official Receiver wrote to the solicitors informing them that he had sent the draft deeds to his solicitors and would be in touch in due course.

On 6 September 1979 the solicitors wrote to the Official Receiver saying that as soon as he told them that the deeds of release were signed, they would arrange for bank cheques to be delivered to him.

On 5 September 1979 (the letter presumably crossing in the mail with the letter of 6 September 1979), the Official Receiver wrote to the solicitors telling them that in view of objections raised by the bankrupt's solicitors, he was not in a position to proceed with the sale of the bankrupt's interest in the partnership. Those objections related to matters involving the partnership affairs and plainly had a direct bearing on the state of the bankrupt's capital accounts at the date of his bankruptcy.

It was not until 11 September 1979 that the solicitors, when writing to the Official Receiver, asserted that there had already been an offer made which had been accepted. They enclosed bank cheques for the two sums totalling $2,234.07. The cheques were returned under cover of letter of 14 September 1979 from the Official Receiver to the solicitors. The solicitors wrote to the Official Receiver on 3 October 1979 saying that the cheque for $2,234.07 had been deposited in their trust account on behalf of the Official Receiver and was available to him at any time. There the matter rested until the commencement of this litigation.

I am unable to conclude that the letter of 17 July 1979 was other than a step in the negotiations. The parties did not intend there to be any contract until appropriate deeds were prepared and executed providing for the assignment of the interests of the bankrupt in the two partnerships and for mutual releases and indemnities by the applicants on the one hand and the Official Receiver on behalf of the bankrupt on the other. This never happened.

I am satisfied that the two questions must be answered in favour of the Official Receiver.

The applications are dismissed. I order the applicants to pay the Official Receiver's costs, including reserved costs.