Re George Kefalas Ex Parte: Hatziplis Investments Pty Limited [1981] FCA 4 (6 February 1981)

FEDERAL COURT OF AUSTRALIA

Re: GEORGE KEFALAS
Ex parte: HATZIPLIS INVESTMENTS PTY. LIMITED
No. B5267 of 1980
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 - bankruptcy notice - whether sum specified in bankruptcy notice exceeds amount due - whether payment by one joint debtor reduces amount due by other joint debtors - whether such payment can be identified with original joint debt - discussion on joint liability of co-guarantors.

Bankruptcy Act 1966 (Cth.) s. 41 (5).

HEARING

SYDNEY
6:2:1981

ORDER

1. The application be dismissed.

2. The order previously made by the court extending time for compliance with the requirements of bankruptcy notice B 5267 of 1980 until further order be terminated.

3. Time for compliance with the requirements of the said bankruptcy notice be extended up to and including 13 February 1981.

4. The applicant pay the respondent's costs of this application including reserved costs.

DECISION

George Kefalas ("the applicant") seeks to set aside a bankruptcy notice on the ground that the sum which it specifies as the amount due to the judgment creditor, Hatziplis Investments Pty. Limited ("the respondent"), exceeds the amount in fact due.

It is common ground that the applicant, within the time allowed by the bankruptcy notice for payment, gave notice to the respondent that he disputed the validity of the notice on the ground of mistatement of the amount due (see s. 41 (5)); and that, if the amount due is in fact overstated in the bankruptcy notice, it is invalid and should be set aside.

To determine whether the bankruptcy notice overstates the amount due it is necessary to set out the facts in some detail.

The bankruptcy notice was issued by a deputy registrar in bankruptcy on 2 October 1980. It claims the sum of $12,968.00 as the amount due under a judgment signed by the respondent against the applicant in the Supreme Court of New South Wales on 18 November 1974 together with interest thereon in the sum of $7,482.35 making a total of $20,450.35.

The judgment debt arose out of the liability of the appellant to the respondent pursuant to a guarantee. By memorandum of lease, which is undated but appears to have been executed in August 1973, the respondent leased to Pan Hellenic Sporting Club Limited premises in Parramatta Road, Leichhardt for a term of five years commencing on 1 September 1973 at a yearly rent of $17,160.00 payable by equal monthly instalments. The applicant, George Galanopoulos ("Galanopoulos") and Michael John Issakidis ("Issakidis") joined in the memorandum of lease as guarantors in these terms: -

"WE, GEORGE KEFALAS, GEORGE GALANOPOULOS and MICHAEL JOHN ISSAKIDIS

(hereinafter called "the Guarantors") in consideration of the demise hereinbefore contained having been made at the instance and request of the Guarantors do HEREBY agree with and guarantee to the Lessor that the Lessee will at all times during the continuance of this demise pay the rent hereby reserved and all other sums and payments agreed to be paid by the Lessee at the respective times and in the manner hereinbefore appointed for payment thereof and will also duly perform and observe and keep the several stipulations hereinbefore on the Lessee's part contained and the Guarantors will make good to the Lessor all losses costs and expenses sustained by the Lessor through the default of the Lessee in respect of any of the beforementioned matters PROVIDED ALWAYS that any neglect or forbearance of the lessor in endeavouring to obtain payment of any of the said several rents and payments as and when the same become due or its delaying to take any steps to enforce performance or observance of the several stipulations herein on the Lessee's part contained and any time which may be given by the Lessor to the Lessee shall not release or in any way lessen to affect the liability of the Guarantors under the guarantee hereinbefore contained."

On 18 August 1973 a deed was executed between the respondent of the one part, Pan Hellenic Sporting Club Limited of the second part, and the applicant, George Galanopoulos and Michael John Issakidis, therein referred to as "the Guarantors", of the other part which recited

" . . . . WHEREAS the said Lessor" (i.e. the respondent) "has agreed to lease to the said Lessee" (i.e. Pan Hellenic Sporting Club Limited) "the whole of the second and third floors together with the room at the rear of the first floor of the premises known as 267A Parramatta Road, Leichhardt upon the terms and conditions hereinafter appearing AND WHEREAS the said Guarantors" (i.e. the applicant, George Galanopoulos and Michael John Issakidis) "have agreed to be parties to the said Lease and shall guarantee all payments of rent together with due performance of the Lessee's covenants contained in the said Lease . . . "

The operative provisions of the deed merely provided that the respondent shall grant and Pan Hellenic Sporting Club Limited shall accept a lease of the said premises for five years at a monthly rent of $950.00 and that the lease shall contain the covenants and provisions therein set forth.

Pan Hellenic Sporting Club Limited fell into arrears with the payment of rent. On 15 August 1974 the respondent issued three statements of liquidated claim out of the Supreme Court of New South Wales, Common Law Division, one against Galanopoulos, (5986 of 1974), one against the applicant, (5988 of 1974), and one against Issakidis, (5989 of 1974). In each action, the respondent claimed from the defendant: -

"unpaid rent - December 1973 to August 1974 9 months at $1,430.00 per month

Total $12,870.00"

Default judgment was signed by the respondent against Galanopoulos and the applicant on 18 November 1974 in each case in the sum of $12,870.00 plus costs of $98.00. Judgment was signed by the respondent against Issakidis in the same sum on 12 August 1976.

Application was made by the applicant to the Supreme Court of New South Wales to set aside the judgment signed against him, by notice of motion filed on 5 April 1977. The motion was stood over generally but was restored to the list for hearing on 14 November 1980 when it was dismissed after a contested hearing.

During 1977 and 1978 Galanopoulos and Issakidis had discussions with one George Hatziplis on behalf of the respondent, and in the result a deed dated 6 April 1978 was executed by Hatziplis, the respondent, Issakidis and Galanopoulos. It is necessary to set out the material provisions of the deed, although they are rather lengthy: -

"WHEREAS:

A. Investments is the registered proprietor of property known as 267 Parramatta Road, Leichhardt (called "the premises")

B. In or about August 1973 there were negotiations between Hatziplis on the one part and Issakidis Galanopoulos and one George Kefalas on the other part for the grant to Pan Hellenic Sporting Club Limited (hereinafter called "the Club") of a lease of the said premises upon terms, inter alia, that Issakidis, Galanopoulos and Kefalas would guarantee the obligations of the Club under the said lease.

C. Following upon the said negotiations a lease of the said premises was granted by Investments to the Club the terms of which lease included such a guarantee.

D. Investments commenced proceedings against Galanopoulos and against Issakidis in the Supreme Court of New South Wales and in the District Court of New South Wales to recover from them as guarantors moneys alleged to be owning (sic) pursuant to the said lease.

E. Investments alleges that the Club and guarantors are indebted to it for a further amount

F. Issakidis and Galanopoulos claim that events occurring in the course of the aforesaid negotiations entitling them to avoid the said guarantee.

G. Galanopoulos as co-owner of the property known as 306-308 Victoria Road, Marrickville has entered into a contract for the sale of same.

H. Galanopoulos and Issakidis have agreed to make a joint payment to Investments of $35,000.00 upon the terms and conditions hereinafter appearing and Investments has agreed not to pursue any claim it may have against Issakidis and Galanopoulos for any further moneys.

I. Issakidis and Galanopoulos desire to settle for all times any liability they may have arising out of the aforesaid negotiations.

NOW THIS DEED WITNESSES as follows:

GALANOPOULOS and ISSAKIDIS HEREBY COVENANT AND AGREE

1. (i) From the proceeds of the sale of 306-308 Victoria Road, Marrickville referred to above Investments is to receive the amount of $11,000.00 upon payment of which Investments should hand over appropriate Withdrawal of Writ No. 81 of 1978.

(ii) On or before the 20th June, 1978 Galanopoulos and Issakidis shall pay to Investments a further sum of $24,000.00 together with interest thereon at the rate of fifteen per cent per annum calculated from the 1st March, 1978 until the date of payment or the 20th June, 1978 whichever is the earlier.

(iii) In the event that the amounts referred to in (i) and (ii) above are not paid by Galanopoulos and Issakidis on or before 20th June, 1978 then the whole of the balance of Investments claim shall become due and payable and Galanopoulos and Issakidis hereby agree to judgement being intered against them by consent for such balance.

2. Subject to the receipt of the payments referred to in 1 (i) and (ii) INVESTMENTS HEREBY COVENANTS AND AGREES

(i) That investments will not seek to pursue the claim and allegations made by it in proceedings in the Supreme Court of New South Wales, Common Law Division No. 5989 of 1974 against Issakidis whether by enforcing the judgment obtained in the said proceedings or otherwise.

(ii) That Investments will not seek to pursue the claim and allegations made by it in proceedings in the Supreme Court of New South Wales, Common Law Division No. 5986 of 1974 against Galanopoulos whether by enforcing the judgment obtained in the said proceedings or otherwise.

(iii) That Investments will not seek to pursue the claim and allegations made by it in proceedings in the District Court of New South Wales No. 043487 of 1974 against Issakidis whether by signing judgment or otherwise.

(iv) That Investments will not seek to pursue the claim and allegations made by it in proceedings in the Supreme Court of New South Wales No. 9678 of 1978 against Galanopoulos whether by signing judgment or otherwise.

(v) That Investments will not seek to pursue the claim and allegations made by it in proceedings in the District Court of New South Wales No. 43489 of 1974 against Galanopoulos whether by signing judgment or otherwise.

(vi) That Investments will not make any further claim whatsoever on or take any further proceedings against Issakidis and Galanopoulos arising out of the said lease or guarantee including any claim for proceedings for the recovery of the moneys referred to in recital E above.

3. Hatziplis and Investments severally warrant that in the negotiations between Hatziplis on the one part and Issakidis, Galanopoulos and Kefalas on the other part hereinbefore referred to Hatziplis was acting solely on behalf of Investments and save for the guarantee contained in the lease of the said premises to the Club, no guarantee has even been given to Issakidis and Galanopoulos in respect of the Club's occupancy of the said premises.

4. The parties hereto further covenant and agree that this Deed shall not operate to release the Club or Kefalas from their respective obligations or indebtedness to Investments.

5. The parties hereto further covenant and agree that this Deed shall confer no rights upon Issakidis or Galanopoulos to receive by way of contribution from Kefalas or the Club any part of the $35,000.00 hereinbefore referred to by way of subrogation or otherwise.

6. Hatziplis and Investments further covenant that Issakidis and Galanopoulos may plead this deed in bar of any actions claims or other attempts by Hatziplis or Investments to recover from Issakidis and Galanopoulos any moneys pursuant to the said guarantee or arising from the lease of the Club's occupancy of the premises."

Writ No. 81 of 1978 referred to in clause 1 (i) of the deed relates to Supreme Court action No. 5986 of 1974 against Galanopoulos and presumably is a writ of execution or some other process to enforce the judgment obtained in that action.

It is common ground that the sum of $11,000.00 referred to in clause 1 (i) of the deed was paid to the respondent in accordance with that Clause.

Clause 2 (iii) refers to District Court proceedings 043487 of 1974. Those proceedings were brought by the respondent against Issakidis in November 1974 in which the respondent claimed $4,290.00 from Issakidis as rent unpaid by Pan Hellenic Sporting Club Limited from September to November 1974.

Clause 2 (iv) refers to proceedings in the Supreme Court of New South Wales No. 9678 of 1978 against Galanopoulos. Those proceedings were brought by the respondent against Galanopoulos claiming $66,258.85. The particulars of claim state that the said amount comprises unpaid rent by Pan Hellenic Sporting Club Limited from September 1974 to December 1977 $57,200.00, loss of rent January to December 1978 $1,960.00, contribution to water rates, municipal rates and unpaid telephone accounts, unpaid electricity, cleaning, repairs to broken windows and a cash advance to Pan Hellenic Sporting Club Limited representing the balance making a total of $66,258.85.

It is common ground that a consent order was made by the Supreme Court joining Issakidis as a defendant to proceedings 9878 of 1978 and entering a verdict for the respondent in the sum of $66,258.85 together with interest against both Galanopoulos and Issakidis who agreed to pay the respondent's costs, assessed at $117.00, and that judgment was entered accordingly.

There is some doubt in my mind as to whether judgment was in fact entered because clause 2 (iv) of the deed of settlement provides that the respondent will not seek to pursue its claim in these proceedings against Galanopoulos whether by signing judgment or otherwise. As nothing was made of this by any party I shall not consider it further.

Clause 2 (v) of the deed of settlement refers to proceedings in the District Court of New South Wales No. 43489 of 1974. They were instituted by the respondent against Galanopoulos claiming $4,290.00 being rent unpaid by Pan Hellenic Sporting Club Limited from September to November 1974.

The applicant contends that the sum of $11,000.00 paid pursuant to the deed of settlement should have been credited against the applicant as it was in partial discharge or reduction of a joint liability of himself, Galanopoulos and Issakidis as guarantors; and, as payment of that sum was not taken into account as a credit in the bankruptcy notice, it is therefore bad.

I have set out earlier the relevant provisions of the deed of settlement fully as they provide the answer to the questions in this case. The recitals refer to the proceedings instituted by the respondent against Galanopoulos and Issakidis in the Supreme Court of New South Wales and in the District Court to recover moneys alleged to be owing as guarantors of the obligations of Pan Hellenic Sporting Club Limited under the memorandum of lease. Recital E is important. It states that the respondent alleges that Pan Hellenic Sporting Club Limited and the "guarantors" are indebted to it for a "further amount".

The sum of $11,000.00 mentioned in clause 1 (i) and the sum of $24,000.00 mentioned in clause 1 (ii) are sums agreed to be paid in consideration of the respondent not pursuing its claims against Issakidis and Galanopoulos in any of the Supreme Court or District Court proceedings and not making any further claim or taking any further proceedings against Galanopoulos and Issakidis arising out of the lease or guarantee including any claim or proceedings for recovery of the moneys referred to in recital E (clause 2 (vi)).

There is no suggestion that the deed of settlement is illusory or that it was not intended to operate or that it did not in fact operate according to its tenor. The $11,000.00 is an entire sum paid in respect of the claims of the respondent against Galanopoulos and Issakidis; and no part of it can be attributed solely to the claims propounded by the respondent against the applicant, Galanopoulos or Issakidis in Supreme Court actions 5986, 5988, or 5989 of 1974.

This is a complete answer to the applicant's claim: see Allsop v. Federal Commission of Taxation [1965] HCA 48; (1964) 113 C.L.R. 341; Simonius Vischer & Co. v. Holt & Thompson 1979 2 N.S.W.L.R. 322.

Even if the $11,000.00 could be attributed to the claims of the respondent against the applicant, Galanopoulos and Issakidis, as guarantors of the obligations of Pan Hellenic Sporting Club Limited, it would not necessarily follow that credit must be given for that sum to the applicant.

It was submitted by counsel for the applicant that the deed of settlement operated as a release by the respondent of Galanopoulos and Issakidis from their obligations as guarantors and that, as they were the joint obligations of themselves and the applicant, the applicant too was released. All I need say about this submission is that, although the obligations of the applicant, Galanopoulos and Issakidis as guarantors are joint, the deed of settlement does not constitute a release by the respondent of those obligations. It is a convenant not to sue or continue any existing proceedings or enforce any existing judgments against Galanopoulos or Issakidis. Agreements of this character are generally treated by the courts as promises not to sue rather than as releases.

Of course, it is trite law that a release of one debtor generally releases all the co-debtors, there being but one and the same debt for which all are liable: see Nicholson v. Revill 4A. & E. 675. But the original contract may expressly reserve to the creditor the right of releasing one co-debtor without discharging the others or the creditor may give a qualified release to one co-debtor by inserting an express reservation in the release of his right of action against the others: North v. Wakefield 13 Q.B. 536; Price v. Barker [1855] EngR 262; 4 E. & B. 760.

Even if the deed of settlement could be construed as a release, it is clear from the deed as a whole, and clause 4 in particular, that it is not to operate as a release of the applicant from his obligations to the respondent.

It is not necessary for me to consider further the law relating to joint obligations and its application to a rather confused set of facts set in motion by the respondent instituting separate proceedings against each of the guarantors rather than one proceeding against all three, apparently on the mistaken assumption that the obligations of the guarantors were several. Nor need I consider the relevance, if any, of s. 97 of the Supreme Court Act, 1970 (N.S.W.), and Part 8 of the Supreme Court Rules.

Finally, it was submitted by counsel for the applicant that the Court was bound, or alternatively in the exercise of its discretion ought, to set aside the bankruptcy notice on the ground that the applicant was solvent. Reliance was placed upon the judgment of the Full Court of this Court in Re Sarina, as yet unreported, judgment delivered 17 November 1980. Sarina's Case decided that if the Court is satisfied, on the hearing of a petition to sequestrate a debtor's estate, that he is able to pay his debts, generally this will result in the dismissal of the petition. The question of solvency arises on the hearing of a petition because s. 52 (2) (a) of the Act provides that, if the court is satisfied by the debtor that he is able to pay his debts, it may dismiss the petition. There is no equivalent provision with respect to the hearing of applications to set aside bankruptcy notices. Indeed, the issues that arise on the hearing of an application to set aside a bankruptcy notice are very different from those involved on the hearing of a petition for sequestration.

It is not necessary for me to decide whether the solvency of the debtor is a relevant consideration for the court on hearing an application to set aside a bankruptcy notice because, on the evidence before me, which is very general, I am not satisfied that the debtor is able to pay his debts. However, even if I were satisfied that he was solvent and were to have regard to this question in deciding the fate of this application, it would not lead me to set aside the bankruptcy notice.

I order that the application be dismissed. I terminate the order previously made by the court extending time for compliance with the requirements of bankruptcy notice B5267 of 1980 until further order. I extend time for compliance with the requirements of the said bankruptcy notice up to and including 13 February 1981. I order the applicant to pay the respondent's costs of this application including reserved costs.