Re Pamela June Clark (Now Ellis) Ex Parte: Brian Henry Kahlefeldt; Pamela June Clark (Now Ellis); Dalgety-Winchcombe FGC Re Malcolm Albert Clark Ex Parte: Brian Henry Kahlefeldt; Malcolm Albert Clark; Dalgety-Winchcombe FGC [1985] FCA 489 (20 December 1985)

FEDERAL COURT OF AUSTRALIA

RE: PAMELA JUNE CLARK (Now Ellis)
EX PARTE: BRIAN HENRY KAHLEFELDT; PAMELA JUNE CLARK (Now Ellis);
DALGETY-WINCHCOMBE F.G.C.
RE: MALCOLM ALBERT CLARK
EX PARTE: BRIAN HENRY KAHLEFELDT; MALCOLM ALBERT CLARK; DALGETY-WINCHCOMBE
F.G.C.
Nos. W157 of 1985, P917 of 1984, W158 of 1985, P918 of 1985
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.

CATCHWORDS

Bankruptcy - contract by bankrupt - Claim by estate agent for commission in respect of sale of asset of estate - Auction agency agreement made by bankrupts before bankruptcy and orally adopted by trustee - Sale to purchaser not introduced by claimant - Whether auction agency agreement binding upon trustee - Effect of non-disclaimer of contract - Effect of oral adoption of contract - Whether recovery precluded by Auctioneers and Agents Act - Entitlement of agent to prove in the bankruptcy for contingent liability to pay commission.

Bankruptcy Act 1966 ss. 58, 82, 133, 134

Auctioneers and Agents Act 1941 (NSW) ss. 2O, 42AA

Luxor (Eastbourne) Limited v. Cooper (1941) A.C. 108, Alpha Trading Limited v. Dunnshaw-Patten Limited (1981) 1 Q.B. 290, Bentall, Horsley and Baldry v. Vicary (1931) 1 K.B. 253, Re Bastable; ex parte The Trustee (1901) 2 K.B. 518, Re Sneezum; ex parte Davis (1876) 3 Ch. D. 463, Titterton v. Cooper (1881) 9 Q.B.D. 473, Ellis and Company's Trustee v. Dixon-Johnson (1924) 1 Ch. 342 referred to.

HEARING

SYDNEY
20:12:1985

ORDER

It be declared that:

a) Dalgety - Winchcombe F.G.C. is not entitled to
be paid commission by the trustee of the estate
of Malcolm Albert Clark as part of the costs,
charges and expenses of the administration of
the bankruptcy pursuant to s.109 to (1) (a) of
the Bankruptcy Act 1966;

b) Subject to proof of compliance with s.42AA (1)
(d) and (e) of the Auctioneers and Agents Act
1941 (NSW) in respect of the Auction Agency
Agreement dated 13 February 1985 and made
between Malcolm Albert Clark and Pamela June
Clark on the one hand and Dalgety - Winchcombe
F.G.C. on the other, Dalgety-Winchcombe F.G.C.
is entitled to prove in the bankruptcy of
Malcolm Albert Clark in relation to the
contingent claim for commission arising under
that agreement and to the recovery of
advertising expenses incurred by
Dalgety-Winchcombe F.G.C. with the agreement of
Malcolm Albert Clark and Pamela June Clark given
before the making of the sequestration order
against Malcolm Albert Clark.

Brian Henry Kahlefeldt, as trustee of the estate of Malcolm Albert Clark pay

to Dalgety-Winchombe F.G.C. its costs of this application; such costs being part of the costs, charges and expenses of the administration of the bankruptcy of the said Malcolm Albert Clark within the meaning of s.109 (1)(a) of the Bankruptcy Act 1966.

The costs incurred by Brian Henry Kahlefeldt in relation to this application be paid as part of the costs, charges and expenses of the administration of the bankruptcy of the said Malcolm Albert Clark within the meaning of s.109 (1)(a) of the Bankruptcy Act 1966.

NOTE: Settlement and entry of orders is dealt with in Order

36 of the Federal Court Rules.

It be declared that:

a) Dalgety - Winchcombe F.G.C. is not entitled to be
paid commission by the trustee of the estate of Pamela
June Clark (now Ellis) as part of the costs, charges and
expenses of the administration of the bankruptcy
pursuant to s.109 (1)(a) of the Bankruptcy Act 1966;

b) Subject to proof of compliance with s.42AA(1)(d) and
(e) of the Auctioneers and Agents Act 1941 (NSW) in
respect of the Auction Agency Agreement dated 13
February 1985 and made between Malcolm Albert Clark and
Pamela June Clark on the one hand and Dalgety -
Winchcombe F.G.C. on the other, Dalgety - Winchcombe
F.G.C. is entitled to prove in the bankruptcy of Pamela
June Clark (now Ellis) in relation to the contingent
claim for commission arising under that agreement and
for the recovery of advertising expenses incurred by
Dalgety - Winchcombe F.G.C. with the agreement of
Malcolm Albert Clark and Pamela June Clark given before
the making of the sequestration order against Pamela
June Clark.

Brian Henry Kahlefeldt, as trustee of the estate of Pamela June Clark (now

Ellis), pay to Dalgety - Winchcombe F.G.C. its costs of this application; such costs being part of the costs, charges and expenses of the administration of the bankruptcy of the said Pamela June Clark (now Ellis) within the meaning of s.109(1)(a) of the Bankruptcy Act 1966.

The costs incurred by Brian Henry Kahlefeldt in relation to this application be paid as part of the costs, charges and expenses of the administration of the bankruptcy of the said Pamela June Clark (now Ellis) within the meaning of s.109(1)(a) of the Bankruptcy Act 1966

DECISION

This is an application for directions under 134(4) of the Bankruptcy Act 1966 made by Brian Henry Kahlefeldt as trustee of the bankrupt estates of Pamela June Clark (now Ellis) and Malcolm Albert Clark. The issue raised by the Application is whether Dalgety Winchcombe F.G.C. - hereafter "Dalgety" - is entitled to payment out of the assets of those estates of a commission as a result of the sale by the trustee to Mr. P.J. Matchett of a motel known as the "Cobra Motor Inn" at Dubbo. The issue has been argued, firstly, in relation to the question whether commission is payable by the trustee as a cost of administration and, secondly, whether Dalgety is entitled to prove in the bankrupt estates for the commission and advertising expenses said to have been incurred.

2. Mr and Mrs. Clark were each made bankrupt on 26 February 1985. At that time they were the owners of the land upon which the Cobra Motor Inn was constructed. However, the business itself was actually conducted by Cobra Motor Inn Pty Limited, which company was the owner of the fixtures, fittings and stock used in the motel.

3. About two weeks before the making of the sequestration orders Mr and Mrs Clark instructed Dalgety to auction the real estate. Apparently nothing was said about the business, fixtures, fittings and stock. On 13 February 1985 Mr and Mrs. Clark entered into an Auction Agency Agreement relating to the motel with Dalgety. They were named in the agreement as "the principal" and Dalgety as "the Agent". The agreement contained the following provisions:

" This agreement shall commence from the
date hereof until midnight on the thirteenth
day of July 1985 or such later date as the
Principal may notify in writing provided
however that any authority to sell given
under a Selling Agency Agreement between the
parties entered into prior to or on the same
date as this Agreement shall continue in
accordance with the terms of such agreement.

The Agent is authorised to sell the property
for the reserve price of not less than
$T.B.A. or such other price as the Principal
may agree to accept. ... The Agent or his
auctioneer is authorised:

(a) to submit the property to public
auction on the nineteenth day of April
1985 or as soon as practicable thereafter.

(b) to sign the Contract of Sale in the
terms to be provided by the Principal or
his Solicitor.

...

The Agent is granted exclusive selling
rights and shall be entitled to payment of
5% first $15,000 3% next $45,000 2.5% next
$40,000 2% thereafter as his selling fee if
during the period of this Agreement or any
extension, EITHER the property is sold:

(a) by the Agent, or

(b) by any other Agent or by any other
person, or

(c) by the Principal,

OR a purchaser is introduced to the
Principal or the property by any of the
people referred to in (a), (b) or (c)
above and he subsequently purchases the
property.

This fee is due and payable by the
principal on completion of the sale or
upon demand if the sale is not
completed owing to the default of the
Principal."

4. On the same day Mr and Mrs Clark and Dalgety also signed a document entitled "Sales Inspection Report and Selling Agency Agreement" which referred to the intention to offer the property at auction and which entitled the agent to commission, calculated at the same rate as in the auction agreement, "in the event that he effectively introduces to the Principal a purchaser of the property who enters into a contract." In this document Dalgety offered the opinion that a reasonable selling price would be $1,3OO,OOO.

5. Following these agreements Dalgety commenced an extensive advertising program. At some stage, which is not disclosed by the evidence, the auction date was changed to 22 March 1985. By that time, of course, the sequestration order had been made and Mr Kahlefeldt had been appointed as trustee. He decided that the auction should proceed. He attended the auction and concurred with a decision made by Mr and Mrs Clark, in conjunction with the agent, to fix a reserve price of $1,200,000. Mr Kahlefeldt indicated that, in the event of a sale, he would execute the contract as trustee. However, the property was passed in at $900,000. This was, apparently, a comprehensive bid for realty, business, fixtures, fittings and stock; nobody adverted to the different ownerships.

6. Subsequently, Mr P.J. Sparshott, an agent employed in the Dubbo office of Dalgety, entered into discussions with a Mr Tony Hocking, who was negotiating on behalf of Chantara Pty Limited. Mr Hocking offered $950,000 subject to finance within 28 days and contracts were prepared upon that basis. However, immediately before the proposed exchange of contracts, on 8 May 1985, Mr Don Olney, a Dubbo solicitor, rang Mr Sparshott to inquire whether contracts had been exchanged. Mr Sparshott told him that he was about to leave the office to effect exchange. When Mr Sparshott reached the office of Mr Ken Baker, the solicitor who had formerly acted on behalf of the bankrupts and who was acting on behalf of the vendor, the trustee, in this transaction he was told that an offer had been received from Mr Olney's client, Mr Matchett, in the sum of $980,000 subject to finance within 42 days. As a result of this new offer the prepared contracts were not exchanged. Negotiations with each of the prospects proceeded, during which Mr Sparshott learned for the first time of the interest of Cobra Motor Inn Pty Limited. Mr Matchett raised his offer to $985,000. Mr Hocking went to $965,000 and withdrew the condition relating to finance. Mr Kahlrfeldt decided to accept this offer. However, the sons of Mr and Mrs Clark - who were directors of Cobra Motor Inn Pty Limited - declined to execute documents of sale on behalf of that company; and this notwithstanding that Mr Hocking eventually raised his offer to $985,000. In the result the motel was sold to Mr Matchett for the sum of $985,000; apportioned as to $885,000 to the trustee for the real estate and $100,000 to Cobra Motor Inn Pty Limited for the business, fixtures, fittings and stock.

7. At no time after his appointment did the trustee execute any agreement with Dalgety. Mr Kahlefeldt held, and expressed to Dalgety, the view that he was bound by the terms of the Auction Agency Agreement signed by the bankrupts. He assured Mr Sparshott that he regarded himself as obliged to pay to Dalgety a commission on the sale to Mr Matchett.

8. Dalgety claims to be entitled to the sums of $18,800 for commission - an amount calculated at the rates set out in the Auction Agency Agreement on a consideration of $885,000 - and $8649.98 for advertising expenses. However there is no evidence before the Court as to the amount of advertising expenditure incurred or as to any authorization by any person of that expenditure. It is clear that the trustee never authorized any advertising expenditure. Mr and Mrs Clark may have done so but neither that fact nor the date or amount of the authorization has been proved.

9. Dalgety puts its claim for recovery upon three bases, which are alternatives: firstly, that the trustee was bound by the terms of the Auction Agency Agreement which he not only failed to disclaim but in fact orally adopted; secondly that - regardless of the Auction Agency Agreement - Dalgety is entitled to commission as the effective cause of the sale to Mr Matchett; and, finally, that if no commission as such is payable, an amount equal to the commission on a sale of $885,000 is payable because the trustee breached an implied term of the contract for the employment of Dalgety, namely that he would not frustrate the earning of the commission by unreasonably failing to enter into a contract with a suitable and willing purchaser.

10. The second and third submissions may be disposed of shortly. There is no evidence that Dalgety procured Mr Matchett as a purchaser. Mr Sparshott does not claim to have introduced him to the transaction. Counsel for Dalgety pointed out that the first mention of Mr Matchett was when Mr Olney telephoned Mr Sparshott and he suggests I think correctly, that this indicates that Mr Olney knew that Dalgety was involved in the matter. But mere knowledge by an ultimate purchaser, or his representative, that a particular real estate agent is acting in a particular prospective sale does not mean that the agent may be said to have introduced that purchaser. The ultimate purchaser may or may not have been attracted by the activity of the agent. If the interest of the ultimate purchaser had been attracted by an advertisement displayed by the agent, it might accurately be said that the agent introduced the purchaser. If the interest of the ultimate purchaser was excited by something told to him by the vendor, or by a friend of the vendor who knew of the property, it could not be said that he was introduced by the agent. In the present case there is no evidence - from Mr Matchett, from Mr Olney or from anyone else - as to the circumstances under which Mr Matchett learned of the availability of the property for purchase. There is evidence that a "For Sale" notice was exhibited at the motel and that, some six weeks before Mr Matchett's first appearance in the matter, there had been media advertisements with which, presumably, Dalgety's name was associated. But it would be mere speculation to assume that Mr Matchett - who did not live in Dubbo and who is not proved to have visited Dubbo prior to the offer - learned of the property through either the "For Sale" notice or the media advertisements. Introduction is not proved.

11. In any particular case there may be a question whether, as a matter of law, a principal is liable to his agent for damages for breach of contract in the event that he fails or refuses to enter into a contract with a suitable and willing purchaser found by that agent: see Luxor (Eastbourne) Limited v Cooper (1941) A.C. 108, Alpha Trading Limited v Dunnshaw - Patten Limited (1981) 1 Q.B. 290. See also Bentall, Horsley and Baldry v. Vicary (1931) 1 KB 253, a case where the principal put it out of the power of the agent to earn commission by finding his own purchaser. As these cases all show, everything depends upon the precise terms of the contract between the principal and agent. In the present case there was no written contract between Mr Kahlefeldt and Dalgety. I will deal later with the question whether Mr Kahlefeldt was bound by the agreements made by Mr and Mrs Clark. There is no evidence of any oral contract between any persons, except in so far as this may arise out of general conversations in which Mr Kahlefeldt assured Mr Sparshott that he regarded himself as bound by the Auction Agency Agreement and Dalgety as entitled to a commission on any sale actually made.

12. However, it is not necessary in relation to this submission to determine whether, and if so in what terms, a contract existed. Nor is it necessary to consider the enforceability of any such contract in the light of s.42AA of the Auctioneers and Agents Act 1941 (NSW) - to the terms of which I shall return. The short answer to this third argument is that Mr Kahlefeldt did not unreasonably decline to sell to the purchaser found by Dalgety, Chantara Pty Limited. He was most anxious to sell to Chantara Pty Limited but he rightly appreciated that his powers extended no further than the real estate. Unless Cobra Motor Inn Pty Limited was prepared to enter into an agreement with Chantara Pty Limited for the sale of the business, fixtures, fittings and stock no satisfactory arrangement could be made the two contracts were intended to be interdependent; The directors of the company refused to make such an agreement. The intent throughout was that the motel should be sold as a going concern. It was not unreasonable for Mr Kahlefeldt to maintain that position and to decline to sell to Chantara Pty Limited the real estate in isolation; even supposing - which was not proved and seems unlikely - that the company was willing to proceed upon that basis.

13. I return to the first - and principal - ground relied upon by Dalgety. This ground depends entirely upon the Auction Agency Agreement. The argument put by Dalgety is that, at the date of the sequestration order, the agreement between the bankrupts and Dalgety constituted an item of "property" within the meaning of the Bankruptcy Act and, therefore, became vested in the trustee who, unless he disclaimed, became bound to the obligations thereunder of the bankrupts.

14. Section 58(1) of the Act provides that, subject to the Act, where a debtor becomes a bankrupt "the property of the bankrupt ... vests forthwith in" the trustee. By s.5 the term "property" is defined to mean "real or personal property of every description, whether situated in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property". That a contract may constitute "property" is apparent from s.133 of the Act relating to disclaimer of onerous property. Subsection(1) of that section provides that, subject to the section, "where any part of the property consists of ... property ... that is unsaleable or is not readily saleable, the trustee may ... by writing signed by him at any time disclaim the property." Before the commencement of s.65 of the Bankruptcy Amendment Act 1980 on 1 February 1981 s.133(1) made express provision for disclaimer of "unprofitable contracts". By s.65 of the 1980 Act s.133(1) was amended so as to omit the reference to unprofitable contracts but to include subss.(1A) and (5A) dealing with contracts. Subsection (1A) provides:

"(1A) Subject to this section, the trustee may
at any time, by writing signed by him disclaim
any contract that forms part of the property of
the bankrupt ..."

Subsection (5A) provides that a trustee is not entitled to disclaim a contract (other than an unprofitable contract) without the leave of the Court. By subs.(5B) the Court is empowered to grant leave to disclaim a contract upon such terms, and to make such orders with respect to matters arising out of the contract, as it considers just and equitable.

15. Section 133(6) enables a person having an interest in a property - including a contract - to disclaim. It provides:

"(6) Where -

(a) an application in writing has been made to
the trustee by a person interested in
property requiring him to decide whether he
will disclaim the property or not; and

(b) the trustee has, for a period of 28 days
after the receipt of the application, or
such extended period as is allowed by the
Court, declined or neglected to disclaim
the property;

the trustee is not entitled to disclaim the
property under this section, and in the case of a
contract, he shall be deemed to have adopted it."

16. Subsections (7) and (8) deal with rescission of a contract by order of the Court. They provide:

"(7) The Court may, on the application of a
person who is, as against the trustee, entitled
to the benefit or subject to the burden of a
contract made with the bankrupt, make an order
rescinding the contract on such terms as to
payment by or to either party of damages for the
non-performance of the contract, or otherwise,
as the Court considers just and equitable.

(8) Damages so payable may be proved as a
debt in the bankruptcy."

17. The English Court of Appeal in Re Bastable; ex parte The Trustee (1901) 2 KB 518 held that the provision in the United Kingdom Act for disclaiming of unprofitable contracts did not extend to a contract for sale of land, pursuant to which the purchaser had acquired an interest in the land. But there would appear to be no other limitation upon the operation of the section in relation to contracts. I do not think that the agreement, as at the date of the sequestration order, could have been termed an "unprofitable contract". It may have been the means of obtaining a high price for the motel. It follows that the contract could not have disclaimed without leave but this might have been sought. No doubt leave would have been given only upon terms fair to Dalgety. But, of course, Mr Kahlefeldt made no such application.

18. The question arises as to the effect of that omission. Counsel for Dalgety submits that, in the absence of a disclaimer, the contract must be treated as binding upon the trustee in the sense that the costs of complying with its requirements are costs of the administration of the bankrupt estates.

19. In re Sneezum; ex parte Davis (1876) 3 Ch D 463 reference was made to the position in England in relation to contracts upon bankruptcy. It appears that before 1869 there was no provision for disclaimer. The contract remained on foot and the trustee in bankruptcy might continue to observe its requirements. If he failed to do so, he was not liable; either personally or on behalf of the estate. The only remedy of the other party was to bring an action for damages against the bankrupt. The 1869 Act changed the law so as to preclude an action against the bankrupt and to substitute a right to prove in the bankruptcy for the damages occasioned by the breach: see s.31 of that Act which is similar, although not identical, to our s.82. The 1869 Act also provided for disclaimer, although in terms somewhat different from those of s.133 of our Act. The effect of a disclaimer, under s.23 of the 1869 Act, was that the contract was deemed to be determined from the date of adjudication of bankruptcy but there was no provision, such as that contained in s.133(6) of our Act, that upon failure to disclaim after receipt of a notice to elect whether to disclaim the trustee was deemed to have adopted the contract. As Sneezum itself demonstrates, there was no basis upon which the trustee could be held liable, whether personally or on behalf of the estate, notwithstanding that he might have continued to observe the contract for some time after his appointment and notwithstanding that he failed to disclaim. This principle is confined to contracts; the position in relation to leases is different because there is in that case privity of estate between the lessor and the trustee as lessee: see Titterton v. Cooper (1883) 9 QBD 473 at pp 488, 493.

20. Section 133(6) of the Bankruptcy Act 1966 provides that, upon failure to disclaim after notice, the trustee "shall be deemed to have adopted" the contract. In discussing the similar provision in the current United Kingdom Act, Williams and Muir Hunter, "The Law and Practice in Bankruptcy" (19th ed. 1979) at p. 395, suggest that, notwithstanding these words, the trustee is not personally liable upon the contract but that the effect of the deemed adoption is that he is liable on the contract on behalf of the body of creditors, that is out of the assets of the estate as a cost of administration. The Sneezum position remains that in the absence of an adoption or a deemed adoption after notice there is no liability at all.

21. In the present case no notice to elect was given by Dalgety to the trustee. There was, therefore, no deemed adoption. However, Mr Kahlefeldt did expressly adopt the auction agreement in conversations with Mr Sparshott. Although I have located no direct authority on the point, it seems to me that a party whose contract has been expressly adopted should not be in any worse position than one in relation to whose contract there has ben a deemed adoption. But for one matter the express oral adoption should enable Dalgety to recover from the trustees the moneys payable under that agreement in the same way as if there had been a deemed adoption after notice; the trustee bearing the expense as a cost of the administration of the estates. The one matter is the terms of s.42AA(1) of the Auctioneers and Agents Act 1941 (NSW), which provides:

"42 AA (1) A licensee shall not be entitled to -

(a) any remuneration by way of
commission, fee, gain or reward for
services performed by him in his
capacity as licensee; or

(b) any sum or reimbursement for
expenses or charges incurred in
connection with services performed
by him in his capacity as licensee,
from the person for whom or on whose
behalf those services were performed
unless-

(c) the agreement pursuant to which
those services were performed is in
writing and signed by or on behalf
of -

(i) the licensee; and

(ii) that person;

(d) the agreement contains such terms
(if any) as may be prescribed; and

(e) a copy of the agreement was served
by the licensee on that person
within 48 hours of the agreement
being signed by or on behalf of that
person."

Dalgety is apparently the holder of a corporation license under s.20(3) of the Act, and so a licensee within the meaning of s.42AA(1): see s.3. It follows that s.42AA(1) would be effective to prevent recovery of either commission or expenses in an action brought by Dalgety against Mr Kahlefeldt as trustee; for there never was a written agreement between Dalgety and Mr Kahlefeldt. And this applies whether the claim was based upon an original contract said to have been made between Dalgety and Mr Kahlefeldt or whether it was based upon a contract between Dalgety and Mr and Mrs Clark said to have been adopted by Mr Kahlefeldt. In either case the appropriate recovery procedure would be an action in debt against Mr Kahlefeldt; he bearing the burden out of the assets of the estate. The action would be for the recovery of remuneration by way of commission and for reimbursement of expenses from a person, Mr Kahlefeldt, upon whose behalf services were performed. The case is covered by the section, which destroys the entitlement to recover in the absence of writing signed by Mr Kahlefeldt. It follows that Dalgety may not recover either commission or expenses out of the estate, as costs of administration.

22. It does not, however, follow that Dalgety is without remedy. Section 82(1) of the Act provides that, subject to certain exceptions, "all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his bankruptcy". Subsection(8) defines the word "liability" so as to include

"an express or implied engagement, agreement or
undertaking, to pay, or capable of resulting in
the payment of, money or money's worth, whether
the payment is -

(i) in respect of amount - fixed or
unliquidated;

(ii) in respect of time - present or future,
or certain or dependent on a
contingency; or

(iii) in respect of the manner of valuation -
capable of being ascertained by fixed
rules or only as matter of opinion."

That definition is wide enough to encompass the obligations of Mr and Mrs Clark to pay commission in accordance with the agreement, in the event of the satisfaction of the condition contained therein, and to pay to the agent such advertising expenses as they had in fact approved prior to the bankruptcy.

23. By way of alternative the trustee seeks a direction in relation to the payment of Dalgety's claim out of the bankrupts' estates upon the basis that Dalgety is an unsecured creditor. Although no proof of debt has yet been lodged, this alternative direction raises the question of principle as to whether the claim is provable in the bankruptcy. As the matter has been fully argued and will inevitably arise as soon as a proof of debt is lodged, it is convenient to deal with that matter in principle in this application rather than upon an appeal against any rejection of the proof. However, there is insufficient material to permit quantification of the claim; that must be a matter for the trustee to consider in the light of any claim which may be submitted to him. Upon the matter of quantification I merely observe that the value of a contingent claim has to be estimated as at the date of the sequestration order - see Ellis and Company's Trustee v Dixon - Johnson (1924) 1 Ch. 342 at pp.356-357 - and that the provable advertising expenses are limited to the amount authorized by Mr and Mrs Clark before the making of the sequestration order. Mr and Mrs Clark were not, of course, able to incur any liability provable in the bankruptcy for advertising expenses after that date.

24. Counsel for the bankrupts submit that s.42AA of the Auctioneers and Agents Act precludes recovery by way of proof of debt. That submission cannot be accepted. The lodgement of a proof of debt is an action to recover, in accordance with the procedure prescribed by the Bankruptcy Act, from the original debtors, now bankrupt. It is not an action to recover from the trustee. Provided that there has been a compliance with the requirements of s.42AA in relation to the original debtor, the licensee creditor will be entitled to recover upon the written contract by lodging a proof of debt against his bankrupt estate.

25. In the present case any proof of debt must necessarily be based upon the Auction Agency Agreement; an agreement complying with the terms of para (c) and - apparently, this has not been argued - para (d) of the sub-section. Subject to proof of compliance with the requirements of para (e), the requirements of the sub-section appear to be satisfied.

26. At the hearing of this application counsel for the trustee supported the claim made by Dalgety but, in subsequent written submissions forwarded in accordance with an invitation made to counsel by me, she changed tack. Her current submission is that there is no entitlement to commission. Nothing has been said about recoupment of expenses.

27. In relation to commission counsel for the trustee draws attention to the inconsistency between the Auction Agency Agreement and the Sales Inspection Report and Selling Agency Agreement. The former provides an entitlement to commission in the event of a sale of the motel on or before 13 July 1985 whether the sale be made by Dalgety, by any other agent, by any other person or by the principal i.e. Mr and Mrs Clark. The latter agreement provides for commission only where the agent has effectively introduced the purchaser. Under these circumstances it is submitted that the two agreements must be read together and that, as a matter of construction - they being mutually inconsistent - the Selling Agency Agreement must prevail. It is said that "the extreme effect of the latter (ie the Auction Agency Agreement) should not be presumed to have been intended to prevail over the more reasonable effect of the former (the Selling Agency Agreement), particularly when it is clear that the parties' minds were directed to sale by auction rather than ongoing endeavours to find a purchaser." But it is precisely because the parties minds were directed to sale by auction that effect should be given to the auction agreement. In the context of a proposed auction an agreement for payment of a commission in the event of a sale, however effected, is readily understandable.A competent agent, being retained to auction a property, will take steps to publicise its availability for sale; necessarily disclosing the location of the property and, at least usually, the identity of the vendor. If the property be passed in at the auction but shortly thereafter be sold directly by the principal, it may be that the sale was the direct result of the efforts of the agent. But, except with the assistance of the purchaser, it will usually be impossible for the agent to establish that fact in an action for commission against his principal, the vendor. No doubt it was for those reasons that Dalgety sought the acceptance by Mr and Mrs Clark of the terms of the auction agreement. They did accept those terms. The fact that they signed a further agreement, the printed form of which was not directed specifically to auction sales and which was intended to continue in operation after expiration of the auction agreement, providing for payment of a commission under more limited circumstances does not provide any reason for imputing to the parties an intention not to be bound by the terms of the auction agreement. In my opinion there is no reason in principle to reject any claim against the bankrupt estates for commission and advertising expenses which is based upon the Auction Agency Agreement.

28. On behalf of the bankrupts it is submitted that the trustee should personally bear any commission payable to Dalgety by reason of his failure to disclaim the contract. It is said that it was negligent of him to fail to disclaim a contract so obviously disadvantageous to the estate as the Auction Agency Agreement. However, as at the date of the sequestration order it is far from clear that it was disadvantageous to proceed to auction or that Dalgety would have been prepared to undertake the work necessary for an effective auction upon any other terms. It is not without significance that Mr and Mrs Clark had themselves agreed to these terms less than two weeks previously. It is true that the arrangement became less advantageous after the unsuccessful auction sale but it is highly improbable that the Court would have granted leave to disclaim at that stage. It would have been most unfair to Dalgety to allow the trustee to take the benefit of its efforts to attract attention to the motel but to deny to it the chance to profit by any sale which was effected in the subsequent period. I see no basis for a conclusion that Mr Kahlefeldt acted negligently in failing to disclaim. In any event I have held that the effect of the non-disclaimer, and oral adoption, of the contract under the circumstances is merely to give Dalgety a right to prove for the claim as at the date of bankruptcy. If Mr Kahlefeldt had disclaimed, Dalgety would have had that same right. No damage has been sustained by the estates as a result of the course which has been taken.

29. It is appropriate to dispose of the matter by making declarations. I propose to declare that Dalgety is not entitled to be paid commission by the trustee as part of the costs charges and expenses of the administration of the bankruptcy pursuant to s.109(1)(a) of the Act but that, subject to proof of compliance with the requirements of s.42AA(1)(d) and (e) of the Auctioneers and Agents Act, Dalgety is entitled to prove in the bankruptcies of each of the respondents in respect of the contingent claim for commission arising out of the auction agreement and in respect of all advertising expenses incurred by it pursuant to any authorization given by the bankrupts prior to the making of the sequestration order. The costs of the trustee and of Dalgety should be paid out of the bankrupt estates.