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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Bankruptcy: Application for annulment of sequestration order - whether an agreement made between the bankrupt and the petitioning creditor for payment of judgment debt by instalments - whether bankrupt able to pay his debts - whether overstatement of interest claimed in bankruptcy notice renders it invalid, when the amount of such overstatement is reflected in the total amount claimed in the notice, and debtor gave no notice pursuant to S 41(5).Bankruptcy Act 1966 (C'th): SS 41 (5), (6); 52(2); 154(1).
HEARING
MELBOURNEORDER
1. The application is dismissed.2. The costs of the respondent of and incidental to the application including reserved costs are to be paid by the bankrupt, such costs to be taxed if not agreed.
3. Liberty to apply is reserved to either party.
DECISION
By application dated 28 January 1982, David Silberman (the bankrupt) seeks the following orders: 1. An order annulling the bankruptcy on the ground that the sequestration
order ought not to have been made for the following
reasons:
(a) That the petitioning creditor ought not to have moved the Court for a
sequestration order.Co. (Australia) Limited (the respondent) in the Supreme Court of Victoria on 11 April 1979 against Paren Nominees Pty Ltd, Ben Milder and the bankrupt in the sum of $25,061.62, together with costs of $450.00. A bankruptcy notice was issued on the application of the respondent on 18 June 1980 claiming that a sum of $26,097.93, being the amount outstanding under the judgment, inclusive of interest in the amount of $2,186.31, calculated at the rate of 8% per annum from 11 April 1979 to 30 May 1980, less the amount of $1,600.00 paid to the judgment creditor by the judgment debtors on 17 August 1979, was due to it. The bankrupt was served with a copy of the bankruptcy notice on 19 August 1980.
(b) That if the Court had been made aware of the facts set out in the accompanying affidavits it would have either dismissed or adjourned the petition.
(c) That the allegation contained in paragraph 2 of the petition namely that the debtor is indebted to the respondent in the sum of $26,097.93 for goods sold and delivered is incorrect.
(d) That at the time of the making of the sequestration order and at the time of the making of this application the bankrupt was and is able to pay his debts.
(e) That the debtor had not committed any act of bankruptcy.
2. An Order that Petition No. P151 of 1981 be dismissed.
3. Such further or other orders directions or relief as to the Court may seem fit.
Judgment for goods sold and delivered was obtained by Goodyear Tyre & Rubber
A creditor's petition dated 17 November 1980 was presented by the respondent on 9 February 1981 alleging a debt of $26,097.93. A copy of the petition was served upon the bankrupt on 18 August 1981. The petition came on for hearing on 13 October 1981. At the hearing there was no appearance by or on behalf of the bankrupt. A sequestration order was made by a judge of this Court, the act of bankruptcy being the failure of the bankrupt to comply with the requirements of the bankruptcy notice on or before 2 September 1980.
Mr Irlicht, for the bankrupt, abandoned paragraph 1 (c) of the application. Mr Irlicht indicated that the principal ground of the application was that, prior to the making of the order of sequestration on 13 October 1981, there was an arrangement made between Mr David Samuel Teed, acting as solicitor for the bankrupt, and Mr Ben Milder and Miss Mary Mangan, acting as solicitor for the petitioning creditor, by which she agreed to accept a down-payment and payment of instalments. The particulars of that arrangement were said to be those set out in paragraph 7 of Mr Teed's affidavit and in his letter to Messrs Purves & Purves, Miss Mangan's principals, dated 23 March 1981. Mr Teed and Miss Mangan both made affidavits and were cross-examined. Paragraph 7 of Mr Teed's affidavit reads as follows:
"That on or about the 17th of March 1981 I negotiated an out of court settlement of the disputes between Goodyear of the one part and the applicant and the said Milder of the other part. The agreement consisted of a conversation between myself and Miss Mangan an employee of Messrs Purves & Purves who had the conduct of this matter on behalf of the respondent. The terms of the settlement were as set out in my letter to Messrs Purves & Purves dated 23rd March 1981. - - - -"
The letter of 23 March 1981, omitting formal parts states as follows:
"We refer to various telephone conversations and confirm that this matter is settled on the basis that Messrs David Silberman, Joshua Silberman and
Ben Milder will pay to your client:-1979, shortly before the judgment was obtained. At that time a settlement was reached between Mr Sol Cetnar, who then acted for the judgment debtors, and Messrs Purves & Purves, acting for the judgment creditor, providing for the repayment of the amount claimed by instalment payments. It is common ground that the terms of this settlement were not carried out by the bankrupt. By letter dated 21 August 1980 Mr Teed wrote the following letter, omitting formal parts, to Messrs Purves & Purves:
(i) a sum of $26,000.00, less whatever amounts have already been paid against this account, plus
(ii) $7,335.52, less such amount as may be allowed by an independent valuer for the plant and equipment left at the leased premises, plus
(iii) costs,
on the basis of a further down-payment in the sum of $2,000.00 and the balance by equal monthly instalments of $1,000.00.
We confirm the adjournment of the hearing of the Summons for Final Judgment in this matter from the 19th March 1981 to a date to be advised.
We advise that our clients' Accountant, who is experienced in liquidation work, has recommended to us the names of a Mr Mason or a Mr Nankervis as valuers suitable for the valuation of the equipment in this case."
The relevant history leading up to the alleged agreement commenced in April
"We refer to previous correspondence and discussions in relation to
various matters between our respective clients.debt by way of a second mortgage over the bankrupt's jointly owned home was the first time that the provision of security had been mentioned. He realised that such security may have been necessary in light of the failure of the April 1979 agreement, which had been due to the default of the bankrupt.
Outstanding at the present time are the following matters of which we are aware:
1. Judgment against Paren Nominees Pty. Ltd., Ben Milder and David Silberman for $26,097.93 in respect of goods sold and delivered-
2. Demand for rents, insurances, rates and taxes against David Silberman for $7,335.52.
3. Claim by David Silberman against your client for damages for failure to consent to an assignment of lease causing financial loss on proposed sale of business,
4. Costs on Writ No. 756 of 1980.
In relation to item 3 we advise that we are at present preparing a Writ of Summons for issue.
We are instructed to approach you with a proposal for a roundtable conference with you and your client and ourselves and our client with the purpose of discussing all outstanding matters. It is our client's desire to reach mutually acceptable figures on the claims and cross-claim and then to secure a final amount by way of second mortgage over our client's home, for the duration of an instalment repayment agreement.
Such a course of action would obviate the need of proceeding on the various Supreme Court matters and the Bankruptcy Notice and avoid substantial further legal costs.
We look forward to hearing your client's response to this proposal."
In his evidence, Mr Teed said that the offer in that letter to secure the
Messrs Purves & Purves replied to the letter of 21 August 1980 by their letter dated 29 August 1980, in the following terms:
"We refer to your letters dated 21st August, 1980 and have received our
client's instructions.that it was made clear to Mr Teed that due to the bankrupt's failure to comply with the earlier instalment payment arrangement the respondent, not surprisingly, would not contemplate or accept any instalment payment proposal from the bankrupt unless adequate security was provided for the payment of the instalments. The provision of such security was in the words of Miss Mangen, a "condition precedent" or an "accepted starting point" to any negotiations entered into on behalf of the respondent concerning an instalment payment proposal.
Our client is not prepared to agree to an instalment repayment plan. You will recall this type of arrangement has already been attempted and your client found wanting.
We are instructed to proceed with a petition for sequestration."
Miss Mangan stated in both of her affidavits and also when cross-examined
Miss Mangan stated in her affidavit sworn 20 April 1982 that the proposal in August 1980 to provide security by way of a second mortgage over the bankrupt's home was rejected at that time because the property was the subject of a proposed sale to be conducted by the sheriff of the Supreme Court of Victoria in satisfaction of a writ of fi fa.
Mr Teed said in evidence that the debt relating to the proposed sale by the sheriff was subsequently paid in full and that by letter dated 7 November 1980 he informed Miss Mangan of this fact. Miss Mangan, in paragraph 4 of her affidavit sworn 20 April 1982 states that she was so informed in "early 1981".
In the meantime, in December 1980, Mr Milder himself approached Miss Mangan. Miss Mangan sets out the particulars of her negotiations with Mr Milder in paragraph 3 of her affidavit sworn 24 February 1982 as follows:
"On or about the 18th day of December, 1980 I received a telephone call from Mr Ben Milder. The said Mr. Ben Milder was a co-judgment debtor with the applicant herein for the judgment debt referred to in the Bankruptcy Notice filed in proceedings No. P. 151 of 1981. Mr Milder informed me that he would advise Mr David Silberman to drop all evasive action in respect of the moneys owed to Goodyear and that he was anxious to resolve all outstanding matters in relation to debts owed to Goodyear Tyre & Rubber
Co. (Aust.) Limited.place between Mr Milder, Miss Mangan and the respondent. His only knowledge of these negotiations was what Mr Silberman had told him of them. Mr Teed said that he had never received any instructions directly from Mr Milder to act professionally for him.
I advised Mr Milder that Goodyear Tyre & Rubber Co. (Aust.) Limited would not accept instalments from him in settlement of all claims but that payments from him would be accepted and held in trust as an indication of his bona fides pending finalization of all outstanding matters between himself, Mr David Silberman, Mr Joshua Silberman and Goodyear Tyre & Rubber Co. (Aust.) Limited. Mr Milder paid an amount of $10,000.00 to Purves & Purves on the 22 December, 1980 and further payments of $800.00 per month were received to be retained in trust while proceedings to execute the judgment against Mr Silberman continued and execution proceedings against Mr Milder were stayed. Mr Milder was to return again to Australia in February 1981 and to contact us regarding the matter. The office of Purves & Purves was not contacted by Mr Milder, however every month a bank cheque was received by Purves & Purves in the sum of $800.00 which was paid into and held in trust."
In his evidence Mr Teed said that he had no personal knowledge of what took
Mr Teed next wrote to Messrs Purves & Purves by letter dated 25 February 1981. This letter stated as follows:
"We refer to previous discussions and advise that we now have further
instructions.following terms:
We understand that Mr Ben Milder on behalf of all defendants has arranged direct with your client to pay the debt of $26,097.93 by instalments. Please confirm that your client is satisfied with this arrangement.
In respect of the claim for rentals amounting to $7,335.52 we refer you to our client's cross-claim detailed in the affidavit of David Silberman in opposition to the Summons for Final Judgment. We are instructed that the second-hand value of the fixtures and fittings presently in the premises and used by the present tenants amounts to approximately $10,000.00. In addition, there is the matter of the loss of the value of the sale of the business by reason of the breach of the terms of the sub-lease by your client in refusing its consent. We are instructed that on the basis of the $26,000.00 figure being paid by instalments and on the basis of the foregoing, our clients are prepared to exchange mutual releases.
In the event that this proposal of compromise is unacceptable solely by reason of a lack of security, we advise that our clients are prepared to provide some security to the instalment repayment agreement. We look forward to hearing from you."
The reply of Messrs Purves & Purves by letter dated 2 March 1981 was in the
"We refer to your letter of 25th February, 1981. There is no arrangement between our client and Mr Ben Milder in relation to the moneys owed pursuant to Supreme Court action number 8537 of 1978. Mr Milder has paid some moneys into our trust account, however, the specific arrangement made with Mr Milder was that we were not accepting his repayment proposal until such time as all matters pertaining to himself, your client and our client were finalised. Further, when we saw Mr Milder prior to Christmas 1980 he advised us after considering our intentions that he would contact us early in February 1981 after he had endeavoured to seek settlement of the
matters with the Silbermans.preceeding the receipt of this letter had been predicated upon the basis that the bankrupt would provide a second mortgage security.
Mr Milder has not contacted us to date and accordingly we are not satisfied with his proposed "arrangement". We have been instructed by our client to pursue all matters vigorously.
In relation to the third paragraph of your letter of 25th February, we advise that the fittings and fixtures have absolutely no relation to our client. The Australian Mutual Provident Society is the owner of the premises and accordingly they receive the benefit (if any), from the fixtures. Further, we deny that our client is in any way in breach of the terms of the Sub-Lease and having considered your client's affidavit in opposition to our Summons for Final Judgment we intend to proceed with our Application on 19th March, 1981.
Please note that we are instructed to proceed with recovery actions on all matters outstanding."
When cross-examined, Mr Teed agreed that the settlement negotiations
There were several other telephone conversations between Mr Teed and Miss Mangan before that of 17 March 1981. Two conversations took place on 10 March 1981. When cross-examined, Mr Teed, referring to his file note relating to the first of the conversations on that day, said that during that conversation he suggested an instalment repayment proposal of $1,000.00 per month plus a second mortgage for $26,000.00 plus costs. Mr Teed said that the second mortgage had been offered as an "enticement" to pursuade the respondent to enter into further negotiations because the letter from Messrs Purves & Purves of 2 March 1981 had indicated that they would be pursuing all matters vigorously and that they were "no longer prepared to talk at all". Miss Mangan was to get back to him when she had received instructions concerning his proposal.
Mr Teed said that after 10 March 1981 no further mention was made of any mortgage or security.
Mr Teed forwarded a letter dated 12 March 1981 to Messrs Purves & Purves which read:
"We refer to recent discussions and confirm that we are instructed that Mr Milder has paid a sum of $10,000.00 to your client as part of a proposal
for settlement of outstanding matters.an arrangement in the terms set out in Mr Teed's letter of 23 March 1981 was reached. Under cross-examination Mr Teed said that no mention of a second mortgage security was made during that conversation, and that there was no common understanding between him and Miss Mangan that the provision of such security was a condition precedent upon which the conversation was based.
We confirm that our client is prepared to offer $26,000.00 plus costs in full settlement of all claims on the basis that the lump sum of $10,000.00 is accepted together with monthly instalments thereafter of $1,000.00 until the full amount of the debt is extinguished. We look forward to hearing from you in relation to this offer at your earliest opportunity."
Then followed the conversation of 17 March 1981 in which it is alleged that
Miss Mangan, on the other hand, denied that any such arrangement was reached. In paragraph 5 of her affidavit sworn 24 February 1982 she stated as follows:
"5. That I crave leave to refer to paragraph 7 of the said affidavit of David Samuel Teed. I deny that an agreement for settlement in the terms set out in the letter referred to therein and marked with the letters "DST 6" was agreed to during a telephone conversation on or about the 17th March, 1981 or at all. It had been indicated to Mr Teed that due to the failure of the applicant herein to comply with earlier arrangements for instalment payments any proposal for settlement by payment of instalments would not be contemplated unless adequate security was provided for payment of those instalments. Negotiations were only entered into after assurances from the said David Samuel Teed that security for an instalment plan would be provided."
Under cross-examination Miss Mangan said that she did not have a totally clear recollection of the 17 March 1981 conversation. However she said that she was sure that she had made it clear to Mr Teed that the provision of security was a condition precedent to any discussion of an instalment repayment plan. Furthermore, she said that the conversation of 17 March 1981 and Mr Teed's letter of 23 March 1981 did not amount to an agreement but merely indicated that they were reaching acceptable figures. These figures were only the first step towards an agreement, or in her words "the shell of an agreement", as other matters such as the provision of security, the amount of the costs to be paid by the debtors, the selection of the independent valuer for plant & equipment, who was to bear the costs of such valuation, and interest on the monies outstanding were yet to be agreed upon.
Following Mr Teed's letter of 23 March 1981, Messrs Purves & Purves wrote to Messrs Cetnar Teed & Hale by letter dated 9 June 1981 in the following terms:
"We refer to this matter and advise that our client is prepared to settle
this matter on the following basis:-dated 1 July 1981:
1. That your clients repay the judgment obtained against them in Supreme Court Action No. 8537 of 1978 by repayments of $1,000.00 per month to be received on the 1st day of each consecutive month plus interest on the amounts outstanding at 10.5 per cent per annum.
2.(a) That a valuation of the equipment held by Goodyear at its Elizabeth Street Store be carried out by Styles & Co. and the costs of such valuation be borne by your client's solely.
(b) That the valuation figure arrived at by Styles & Co. be deducted from the amount of $7,335.35.
(c) The remaining amount is then to be repaid by an initial down-payment of $2,000.00 within 14 days of receipt of the valuation.
(d) The remaining balance is then to be added to the amount then outstanding pursuant to the judgment in Action No. 8537 of 1978 and repaid by instalments of $1,000.00 per month together with interest at 10.5 per cent per annum.
3. Your client, David Silberman, once the final figure has been arrived at, is to then provide Goodyear with a Mortgage over his property at 74 Tambet Street, Bentleigh to secure the repayment plan. The Mortgage shall provide for repayments in accordance with the attached schedule, however it is to be noted that the final instalments will have to be altered having regard to the final figure relating to the $7,335.35 debt. The Mortgage costs, including registration fees are to be borne by your client.
4. Your clients are to pay our client party/party costs involved in all proceedings. These amount to $1,711.35 and are made up as follows:-
(i) Initial Action No. 8537 of 1978 $450.00
(ii) Costs on fife $53.75
(iii) Bankruptcy $282.80
Bankruptcy Disbursements $135.10
(iv) Action re Milder $220.00
(v) Action No. 756 of 1980 $466.25
Action No. 756 Disbursements $103.45
---------
$1,711.35
---------
---------
Costs are to be paid within a further 14 days after the payments referred to in paragraph 2(c).
We advise that the total debt as at 30th May, 1980 in Action No. 8537 of 1978 was $25,647.93 plus costs $450.00. As at the 22nd December 1980 the amount owing was $27,160.45.
Since the 22nd December 1980 we have received from Ben Milder the sum of $14,800.00 which is currently held in our trust account. You will see that the payments made by Milder have been accounted for in the enclosed Schedule.
Please note that this proposal is open for 14 days from the date hereof and failing acceptance we are instructed to proceed with the bankruptcy petition and arrange for the Summons for final judgment to be re-fixed for hearing."
Mr Teed's reply was made by letter dated 23 June 1981, in the following terms:
"We acknowledge receipt of your letter of 9th June 1981.
This matter was settled in March of this year on the terms set forth in our letter to you of 23rd March 1981. Insofar as your letter of 9th June repeats those terms of settlement, our client agrees and accepts the same. Insofar as your letter of 9th June 1981 purports to introduce further terms to the settlement our client rejects same.
Your costs in the sum of $1,711.35 are accepted and will be paid at the time requested.
Mr David Silberman will not provide a mortgage over his property at 74 Tambet Street Bentleigh. A mortgage was offered to your client during initial negotiations but did not form part of the settlement made in March of this year.
As to the valuation of equipment held by Goodyear, our client is happy for you to arrange for Styles & Co. to carry out the valuation. We shall arrange for a second independent valuer to also value the equipment and ask that valuer to confer with Styles & Co. as to a final figure. We have recommended to our client that he pay the costs of his own independent valuer. We can see no reason why Mr Silberman should also pay the costs of Styles & Co. This aspect is in fact a claim by Mr Silberman for the value of equipment held by your client and the costs should therefore be borne equally by the parties. Please provide us with a copy of the valuation by Styles & Co. in due course.
Our client will increase the amount of monthly payments to the sum of $1,000.00 in accordance with the schedule attached to your letter of 9th June 1981 and in anticipation of the conclusion of the $7,335.35 debt. The further down-payment of $2,000.00 will be paid at the time set forth in your letter.
We look forward to hearing from you."
This letter in turn prompted the following reply from Messrs Purves & Purves
"We advise that the alleged settlement was considered by us as a result of David Silberman's proposal to guarantee the instalment repayment plan by securing the amounts outstanding by a Mortgage over his property. We were under the impression that this was clear as your client's readiness to
provide security by way of a Mortgage was an accepted starting point.letter of 1 July 1981 as follows:
We are not prepared to agree to a repayment plan without security as you are well aware of the problems encountered by our client in the past.
Further our client requires the cost of valuation of equipment to be paid by your client.
Unless your client is prepared to provide the required security we are instructed to proceed with the bankruptcy petition within seven (7) days."
By letter dated 26 August 1981 Mr Teed replied to Messrs Purves & Purves
"We refer to your letter of the 1st July 1981.the Petition on 13 October 1981. Following the making of the sequestration order Mr Teed wrote a letter dated 26 October 1981 to Messrs Purves & Purves in the following terms:
Settlement of this matter was reached by agreement in March. Our client is not prepared to accept your attempts to vary the terms of that settlement. Moneys have been paid pursuant to the agreed terms which are binding as much upon your client as ours.
We therefore advise that any attempt to proceed with Bankruptcy proceedings will be opposed on the basis of the settlement agreement and this letter will be shown to the Court on the question of all costs incurred by reason of continued action."
There was no appearance by or on behalf of the bankrupt at the hearing of
"We refer to our recent telephone conversation and make the following comments as a result of our genuine amazement at the manner in which this
matter has been handled.follows:
This matter was settled on the 17th March, 1981 following lengthy discussions between our Mr Teed and your Mrs Mangan. We enclose a copy of our letter of the 23rd March in case you have mislaid the original.
Extraordinarily, the next communication we received from you was a letter on the 12th June, 1981 wherein you repeated the terms of settlement as we understood them to be, save that you introduced a requirement that the instalment repayment agreement be secured by a mortgage. Nevertheless, your letter confirmed that you had received in excess of $14,000.00 towards the total amounts outstanding and were continuing to receive a sum of $800.00 per month.
We admit that the suggestion of securing an instalment repayment agreement by a mortgage had been discussed between us. A mortgage was first raised as a basis for settlement in our letter to you of the 21st August, 1980.
On that occasion you rejected any possibility of settlement. It was further discussed in our letter of the 7th November, 1980 however, Supreme Court proceedings were continued.
A further settlement proposal was raised in our letter to you of 25th February, 1981. It did not involve the giving of security, although the availability of security was discussed. By your letter of 2nd March, 1981 this proposal was also rejected.
Thereafter negotiations were established which led to settlement. At no time throughout these negotiations was the possibility of a mortgage security raised by either you or us and no mention of such appears in our letter of the 23rd March, 1981 confirming terms of settlement.
Nevertheless, common to both your understanding of the agreement and ours was the preliminary requirement of a valuation of our client's equipment in your client's possession. It was agreed that the amount of this valuation be deducted from the amount of $7,335.35, and the balance, if any, would be paid by our client by way of an initial deposit of $2,000.00 and monthly payments thereafter.
On the 23rd June, 1981 we sent an explanation of our client's understanding of the position to you and confirmed various ancillary aspects of the settlement. We enclose a copy of that letter in case you have mislaid the original. You will note in our letter that we were waiting to hear from you, in relation to the valuation, before proceeding with the next stage of settlement. As you were already receiving monthly payments of $800.00, no attempt to commence paying at the higher rate of $1,000.00 was made by our client pending receipt of the results of the valuation. It has always been our client's view that the set off would wipe out this particular claim.
On the 26th August, 1981 we confirmed our client's position and indicated that we would oppose any continued action in the matter on the basis of an existing settlement. We heard nothing further from you nor our client and assumed that the matter was finalized.
On the 22nd October, we were contacted by our client and advised that a Sequestration Order had apparently been made against him on the 13th October, 1981. A check of the Court file confirmed this to be so.
We must protest against what we consider to be your gross misconduct not to mention professional discourtesy. Apart from all else, you have been aware of our involvement in this matter for a considerable period. Given the dire consequences of a Sequestration Order you might at least have had the courtesy to contact us and indicate your intentions.
Much worse however, is your apparent conduct or rather misconduct in proceeding at all, in light of the settlement agreement - or if you continue to dispute the finality of the settlement, in light of the substantial sums paid to you since the issue of the Petition and the continuing monthly payments being made to extinguish the debt. We suggest that deliberately or not, you have misled the Court as to the present circumstances, for otherwise no Order should have been made.
Your Petition and Verifying Affidavit hold out that a a sum of $26,097.93 is due and owing by our client to your client and that no arrangements have been made to pay or secure the debt. In truth, over $14,000.00 has already been paid against the debt and the balance is being paid off at a rate of $800.00 per month. Your own correspondence to us confirms receipt of such payments. Accordingly, where such an arrangement exists for the payment of money in the future, no presently due debt exists and no Sequestration Order should be made.
If you did not rely on the abovementioned Verifying Affidavit but instead introduced fresh material relating to the $7,335.52 claim for rental (no such material was served on us) then you are equally guilty of misleading the Court in that you cannot have referred to the set-off against the value of our client's equipment in the possession of your client.
Our client's instructions, communicated to you on several occasions in the past are that this equipment is worth in the order of $10,000.00. A set-off against the amount claimed by your client would therefore result in your client owing our client money. In the circumstances therefore, a Sequestration Order made on the basis of this aspect of your client's claim should not have been made at all.
Given the generally (sic) policy of the Bankruptcy Court to look behind the allegation of debt, we consider that you have misled the Court;
1. In failing to inform the Court of arrangements made to pay by instalments the sum of $26,097.93 which is in the course of being honoured.
2. In failing to inform the Court of arrangements made to conduct a valuation of our client's claim for plant and equipment held by your client.
3. In failing to inform the Court that subject to a valuation of equipment, a set-off had been arranged, and if necessary, an arrangemant for the payment of any balance of debt by instalments had been reached.
4. In failing to inform the Court that in relation to the $7,335.35 claimed, in the absence of any other arrangements there was a Supreme Court action on foot, in which the Defendant, our client, was disputing the claim and seeking to set up a counterclaim or set-off.
The consequences of your action are disasterous (sic). The embarrassment to our client which must flow from this, both in his business and personal life cannot be avoided. To apply to have the Sequestration Order annulled, our client is first required to complete a Statement of Affairs for the official Receiver. Thereafter, copies of an application and supporting Affidavits must be served on all creditors. For a man in his own business, this could well result in substantial loss and damage.
As such an Application cannot be simply done "by consent" the entire circumstances must be examined by the Court. We therefore request that you respond to this letter at your earliest opportunity with some explanation for your conduct.
We shall set out the foregoing matters by Affidavit in support of our client's application. We believe that it may further assist if we can show the Court that the matter is truly resolved. Whilst our client is now bankrupt and cannot reach any binding agreement in relation to moneys owed there is no reason why we cannot reach an agreement subject to approval of the Court. That being so, we would suggest that you arrange a valuation of our client's equipment as soon as possible, as previously agreed. We can then quantify the set-off and arrive at final figures for agreement. Please let us know when your valuer will be inspecting the equipment in order that our client can attend and identify what is his.
In the meantime, we shall prepare the Application and supporting materials."
Messrs Purves & Purves reply by letter dated 10 November 1981 stated as
"We acknowledge your letters of the 26th October including that addressed
to the writer.Teed and Miss Mangan arising during their telephone conversation of 17 March 1981. Mr Irlicht conceded that there were still "some minor matters" to be settled after that conversation. The existence of such an agreement depends upon Mr Irlicht establishing that there was a consensus between Mr Teed and Miss Mangan.
We categorically reject your allegations of misconduct or professional discourtesy. We invite you to submit the matter to the Law Institute of Victoria if you wish to persist in those views or to the Court upon your client's prospective application.
We do not propose to set off on a step by step analysis of the history of this matter as revealed by our file and advised by our Miss Mangan. Suffice to say that your client has been indebted to our client over a considerable period, he has not made any payments over that period and remains in our client's debt even if one were to allow in full his claimed set-off which our client certainly does not agree. A long winded series of negotiations have taken place which your client has apparently been prepared to believe our client would continue for yet some further period despite possession of a substantial judgment by it against your client, and where your client maintained a refusal to offer security for repayment to our client.
Miss Mangan has pointed out to the writer that there was never any "settlement" of this matter principally because of your client's said refusal confirmed in your letter of the 23rd June although her earlier letter of the 9th June required this. There were other outstanding details unagreed. Further, the sums paid were paid only by Mr Milder and held in our trust account by agreement with him pending resolution of a total arrangement in relation to the debts including interest and costs with both debtors, and such an arrangement never occurred.
The circumstances of the payment of these funds by Mr Milder were briefed to our Counsel who advises us that he specifically referred this fact of payment by Mr Milder of the funds and that such were held in trust, to the Court.
Miss Mangan has further pointed out to the writer that we advised an intention to proceed within seven days in our letter of the 3rd July, 1981 to which you have not referred, and in the absence of response to that letter the Petition was issued and served on the 18th August. Your letter thereafter of the 26th August informed us that the Petition would be opposed. You now say, having not attended at the Court, that you are of the opinion that the matter was previously finalized.
We suggest that these facts speak for themselves. We can only further suggest that the content of your letter, far from diminishing the conduct of this office, only diminishes the author.
In the event your client does intend to proceed with an application for annulment, we would be obliged to know what proposal he has for payment of the balance owing to our client including interest and costs before that application is made."
Mr Irlicht's first contention was that there was an agreement between Mr
The evidence of Mr Teed is the basis upon which Mr Irlicht sought to establish his claim that there was an agreement. I cannot regard Mr Teed as a reliable witness. One illustration may be seen in his evidence relating to the question of his retainer to act for the bankrupt in relation to the petition. When cross-examined Mr Teed initially said that he had a general retainer to act on behalf of the bankrupt but that he had not received express instructions to act in the bankruptcy proceedings nor did he recall seeing the bankruptcy petition. He said that the bankrupt and he "never discussed the bankruptcy proceedings at all." However, Paragraph 2 of the affidavit of the bankrupt sworn 15 January 1982 reads as follows:
"That when I was served with the Bankruptcy Petition herein I took the same to the said Mr Teed and requested that he look after it. He informed me that he would do so. In reliance of that assurance I took no steps to
oppose the said Petition or to appear on the return date. - - - - - - "Purves dated 26 August 1981 reads as follows:
Paragraph 9 of Mr Teed's affidavit reads:
"That in reliance of (sic) the settlement I took no steps to defend the Bankruptcy Petition and I did not appear for the debtor on the hearing of same."
Furthermore, the final paragraph of Mr Teed's letter to Messrs Purves &
"We therefore advise that any attempt to proceed with Bankruptcy proceedings will be opposed on the basis of the settlement agreement and this letter will be shown to the Court on the question of all costs incurred by reason of continued action."
When Mr Teed was referred to the paragraph of the bankrupt's affidavit set out above in cross-examination he said that he could not contradict the bankrupt's evidence. Although Mr Teed could not recall having received the bankruptcy petition, he said that he knew the return date of the petition.
Mr Teed offered a number of explanations for his deliberate non-attendance or failure to arrange representation on the return date of the petition. Firstly, he did not expect the Respondent to proceed on the day because of the arrangement which had been reached for the payment of the debt. He regarded the whole bankruptcy proceedings as a bluff. If the respondent intended to proceed on the return date he expected to be so notified by telephone. Secondly, he thought that on the hearing of the petition the respondent would have a duty to inform the court of the arrangement and upon being so informed the court would not have allowed the petition to proceed. Thirdly, he said that he did not appear as a matter of tactics. The arrangement for the payment of the debt made it impossible for the respondent to proceed on the day. It was not necessary for him to appear because of the duty of the respondent to inform the court, and he did not appear because he felt that his presence would have in some way made things easier for the respondent. However, Mr Teed went on to say that if he had been told by telephone that the respondent intended to proceed on the return day he would have appeared and opposed the petition. This statement appears to overlook the fact that in order to oppose the petition it would have been necessary for Mr Teed to file and serve an affidavit in which he deposed to the facts upon the basis of which he contended that there had been a settlement agreed upon between himself and Miss Mangan.
Mr Teed's inconsistent explanations for his deliberate non-attendance at court, and his unimpressive accounts of the state of his knowledge of the petition and on the question of his retainer by the bankrupt in relation to it are fatal to his credit as a witness.
On the other hand I am satisfied that Miss Mangan is a witness of truth, whose evidence can be safely relied upon. I do not hesitate to prefer the evidence of Miss Mangan to that of Mr Teed wherever there is any conflict between them. Miss Mangan has said that the provision of security was a vital pre-condition to any discussion by the respondent of an instalment repayment proposal. She said that this was made clear to Mr Teed. It is plain that Mr Teed was aware of the importance of the provision of security to the negotiations. He was the one who first suggested the provision of security, by letter dated 21 August 1980.
It is also plain that no settlement agreement would be entered into by Miss Mangan on behalf of the respondent without the provision of security. In her follow up letter dated 9 June 1981 to Mr Teed's letter recording the alleged agreement she referred to security in the paragraph numbered 3. Having seen Miss Mangan in the witness box and having heard her evidence I am satisfied that she included this paragraph because she genuinely believed that it was common ground between her and Mr Teed that the bankrupt was to provide security. I am satisfied that she did not at any time represent to Mr Teed that there had been any change in her client's insistence upon security.
Had I been satisfied that a consensus in terms of Mr Teed's letter of 23 March 1981 had been reached, considerations as to whether those terms were sufficiently certain to amount to an enforceable agreement would have arisen.
For example, who would be the parties to the agreement? Mr Teed said that he entered the agreement on behalf of Mr Milder as well as the bankrupt. The passage in his letter "and confirm that this matter is settled on the basis that Messrs David Silberman, Joshua Silberman and Ben Milder will pay to your client: - - - - " shows a claim that he was acting for Milder. Mr Teed said that he claimed to act for Mr Milder not because of any authority given to him by Mr Milder directly but on the strength of instructions which he had received from the bankrupt concerning Mr Milder. It is common ground that the monthly instalments of $1,000.00 referred to in the "agreement" were inclusive of the payments of $800.00 per month already being made by Mr Milder since December 1980. In other words the monthly payments of $1,000.00 would be reached by adding an extra $200.00 per month to be provided by the bankrupt to the existing payments of $800.00 per month being made by Mr Milder.
Miss Mangan, on the other hand, said that she thought that Mr Teed was acting only for the bankrupt and not for Mr Milder. In evidence, she said that she would not have negotiated with Mr Milder personally in December 1980 if she thought that Mr Teed acted for him. And again, when Mr Milder was to return to Australia in February 1981 Miss Mangan expected to be contacted by him directly. I am not satisfied that Mr Teed had any authority to act for Mr Milder.
Mr Murdoch, of counsel for the respondent, raised various other matters relating to the question of sufficient certainty.
Firstly, no date had been determined for the payment of the further down-payment of $2,000.00, nor one for the commencement of the monthly instalments of $1,000.00. Secondly, the parties had not agreed who would be the independent valuer for the purposes of valuing plant and equipment left at the leased premises. Thirdly, no agreement had been reached concerning who would bear the costs of such a valuation. Fourthly, the question of interest to be paid on the monies outstanding had not been provided for. And finally, the method of quantifying the "costs" referred to in paragraph "(iii)" of the letter had not been decided.
It is unnecessary to decide these other matters raised by Mr Murdoch, as I am not satisfied that the respondent, or Miss Mangan on its behalf, ever indicated to Mr Teed a willingness to accept payment by instalments without the provision of security. After its earlier experience with the bankrupt, it is not surprising to find that, to the respondent, security was always a necessary prerequisite to the possible acceptance of any proposal for payment by instalments.
The applicant has, in my opinion, failed to establish its primary contention of the existence of an agreement between the bankrupt and the respondent. Mr Irlicht conceded that failure on this point would be fatal to his contention that the bankrupt was able to pay his debts at the time of the making of the sequestration order, and at the time of making his application.
Mr Irlicht's third contention was that the bankrupt had not committed an act of bankruptcy because the bankruptcy notice was defective in that the reference in it to the interest claimed upon the judgment overstated the amount of interest due and that it was reasonably capable of misleading a hypothetical debtor.
The relevant part of the bankruptcy notice read as follows:
" - - - - The sum of $26,097.93 is due by you to it being the amount outstanding under a final judgment obtained by it against you and Paren Nominees Propietary Limited in the Supreme Court at Melbourne on the 11th day of April 1979, inclusive of interest in the amount of $2,186.31 calculated at the rate of 8% per annum from 11th April, 1979 to 30th May, 1980 less the amount of $1,600.00 paid to the judgment creditor by the judgment debtors on 17th August 1979, the execution of which has not been
stayed:"him under S41(5) to give notice.
Sub-sections (5) and (6) of Section 41 of the Bankruptcy Act 1966 provide as follows:
"41 (5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the mis-statement.
(6) Where the amount specified in the bankruptcy notice exceeds the amount in fact due and the debtor does not give notice to the creditor in accordance with sub-section (5), he shall be deemed to have complied with the notice if, within the time allowed for payment, he takes such action as would have constituted compliance with the notice if the amount due had been correctly specified in it."
It is common ground that the bankrupt did not exercise the right given to
It is also common ground that the amount of the overstatement of the interest due was $9.09. This error was precisely reflected in the amount claimed in the bankruptcy notice as that amount claimed was expressed to be inclusive of interest. In other words the amount claimed of $26,097.93 and the interest claimed of $2,186.31 were both overstated by $9.09.
Mr Irlicht's attack upon the bankruptcy notice related only to the amount of $2,186.31. He conceded that the reflected error in the amount of $26,097.93 was saved by the provisions of S41(5), but contended that the overstatement of the amount of interest, which produced the error in the amount claimed, was fatal to the validity of the notice. I reject this contention. It is plain from the language of S41(5) that the bankruptcy notice is saved by that sub-section.
In para 1(b) of the application, it was contended that, if the Court had been made aware of the facts set out in the affidavits filed in support of it, it would have either dismissed or adjourned the petition.
Mr Jolson, who appeared as counsel for the respondent on the hearing of the petition, in paragraphs 4 - 6 of his affidavit sworn in February 1982 gave the following account of the proceedings:-
"4. I also informed his Honour that an amount of money had been paid to my instructing Solicitors and retained in trust by them pending resolution of the dispute, by a person other than the said David Silberman. Although I believe I mentioned a sum of $17,800.00 I did say that the sum was not sufficient to satisfy the judgment debt, and was not accepted by the
Petitioner in reduction of any part of the debt.hearing of the petition corroborates his evidence.
5. I further informed Mr Justice Lockhart that there was a dispute between Solicitors for the Bankrupt and for the Respondent herein as to whether or not there was an agreement for payment of the judgment debt by instalments. I informed his Honour that I was instructed by my instructing Solicitors that no such agreement existed.
6. I further informed Mr Justice Lockhart that my instructing Solicitors had received correspondence from Messrs Cetnar, Teed & Hale, the Solicitors who at that time acted for the said David Silberman, which stated that if the bankruptcy proceedings were continued they would be opposed. I also informed Mr Justice Lockhart that I was instructed that the said Solicitors had knowledge of the proceedings."
Mr Jolson was not cross examined on his affidavit and the transcript of the
I deal with the grounds relied upon in the application as follows: 1. paragraph 1(a): I am not satisfied upon the evidence before me that the petitioning creditor ought not to have moved the court for a sequestration
order.
2. paragraph 1(b): I am not satisfied of the facts relied upon by the bankrupt in support of this paragraph.
3. paragraph 1(c): This ground was abandoned.
4. paragraph 1(d): The bankrupt has failed to established this reason, as it was dependent upon the success of the allegation of an arrangement between the petitioning creditor and the bankrupt, amongst others, which has not been substantiated on the evidence.
5. paragraph 1(e) was based upon an attack on the form of the bankruptcy notice which has failed.
6. paragraph 2: No basis has been established for the annulment of the bankruptcy and the dismissal of the petition.
The Court makes the following orders:
1. The application is dismissed.
2. The costs of the respondent of and incidental to the application including reserved costs are to be paid by the bankrupt, such costs to be taxed if not agreed.
3. Liberty to apply is reserved to either party.
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