Australia & New Zealand Banking Group v Coutts

REASONS FOR JUDGMENT The circumstances giving rise to the present interlocutory proceedings 1 The applicant creditor ('the Bank') has made application for leave to amend its creditor's petition so as to incorporate an increase in the indebtedness in its favour which is claimed to have occurred since the Bank's creditor's petition was issued against the respondent. The respondent ('the debtor'), being a guarantor in respect of that indebtedness, has opposed the application. The issue arising in this interlocutory application is whether I should allow the amendment and if so, upon what terms. This application has been made in a context which raises issues of importance concerning the amendment of a creditor's petition, where an indebtedness is interest bearing, where there has occurred a purported tender thereof, and where an additional sum is claimed by a creditor after the day of the act of bankruptcy. 2 On or about 9 May 2003, the debtor was served with a bankruptcy notice based upon the liability of the debtor to the Bank as a guarantor in the sum of $36,553.19, for which a default judgment had been earlier entered in the Downing Centre Local Court on 14 March 2003. Although not particularised in the bankruptcy notice, it is apparent from the affidavit of Sandra Campagna (a manager in the Small to Medium Business Division of the Bank), deposed on 20 August 2003 in support of the Bank's application to amend the petition, that the judgment debt comprised the Bank's claim for outstanding principal and interest of $35,289.10, plus further interest (accrued since the calculation of the last mentioned sum) of $565.59 together with court costs of $147.00, service fees of $60.50 and legal professional costs of $491.00. 3 The judgment debt was founded on the debtor's failure to meet his obligations under an instrument provided to the Bank on 27 July 1998 and styled 'Standard Guarantee and Indemnity', whereby he undertook to guarantee, and to provide an indemnity in relation to, the obligations of Diamond Air Pty Limited ('Diamond Air') the subject of an overdraft facility previously held by Diamond Air as debtor with the Bank ('the Guarantee and Indemnity'). Diamond Air is now in liquidation by order of the Supreme Court of New South Wales made on 27 May 2003. The potential liability of the debtor to the Bank under the Guarantee and Indemnity was unlimited. A form of security was held by the Bank from Diamond Air. There is not in evidence the documentation of that security, being apparently an equitable charge granted by Diamond Air over its assets and undertaking. At the time the Guarantee and Indemnity was executed, the respondent was a director and the secretary of Diamond Air. On about 17 May 2001, he resigned from that office, and the company's shareholding was sold to a third party. The incoming shareholder undertook by the share sale agreement to indemnify the debtor in respect of his liabilities under the Guarantee and Indemnity. The Court was informed that the indemnity of the third party has been called upon, though with what result thus far there is no evidence. 4 On 26 June 2003 the Bank presented a creditor's petition for a sequestration order against the estate of the debtor. It was thereby claimed that '[t]he debtor owes the Bank the amount of $36,553.19 for a final judgment in the sum of $36,553.19 obtained by the Bank in the Local Court of New South Wales at Downing Centre, Sydney on 14 March 2003'. The creditor's petition continued as follows: 'The debtor failed either to comply on or before 31 May 2003 with the requirements of a bankruptcy notice duly served on the debtor on 9 May 2003 which bankruptcy notice was founded upon a judgment obtained in the Local Court of New South Wales, or to satisfy the Court that the debtor had a counter-claim set-off or cross demand equal to or exceeding the amount of the judgment debt, set out in the bankruptcy notice.' 5 In the meantime on or about 28 May 2003, the debtor had filed an application in the Downing Centre Local Court requesting leave to pay the judgment debt by instalments of $700 per month commencing 16 June 2003. By notice dated 5 June 2003, the Registrar of the Downing Centre Local Court refused to grant the debtor leave to pay the judgment debt by instalments, and listed the matter for final hearing before the Court on 4 July 2003. That application appears however to have been subsequently abandoned by the debtor. 6 On 25 July 2003, the creditor's petition presented by the Bank against the debtor came on for hearing in this Court. On the Bank's application, Registrar Tesoriero adjourned the hearing of the creditor's petition for a period of about three weeks, in response to the debtor's request for an adjournment of eight weeks, to enable the debtor to realise the value of the home of himself and his wife at Greenacre. The debtor and his wife subsequently entered into a contract on 9 August 2003 for the sale of their Greenacre home, which provides for a settlement date of '70 day[s] after the contract date'. The contract for sale was still on foot at the time of the hearing, and that period of '70 day[s]' would not yet have elapsed. It is not suggested otherwise than that the contract for sale was entered into at arms length, the sale having been arranged by a firm of real estate agents. However the Bank has not been prepared to await completion of the sale of the debtor's home for the satisfaction of its indebtedness. 7 By letter dated 12 August 2003, the debtor's solicitors Tress Cocks & Maddox tendered to the applicant their trust account cheque in the sum of $37,914.17 in purported settlement of the judgment debt of $36,553.19, the former amount being inclusive of interest calculated on the latter amount from 14 March 2003 (ie the date of entry of default judgment in the Local Court) to 12 August 2003. Also on 12 August 2003, the debtor filed in this Court a notice of intention to oppose the creditor's petition on the grounds that the judgment debt founding the Bank's petition had been satisfied, or the debtor was otherwise able to pay his outstanding debts, doubtless I would observe only with the assistance from the proceeds of the pending completion of the sale of his home. 8 The debtor's tender of the above amount of $37,914.17 was not accepted by the Bank, as appears from its solicitor's letter of 14 August 2003. It was a lengthy letter, written with an awareness since 4 June 2003 of the applicant's one-half interest in his home property, and of that property having been placed on the market for sale, though not by then sold, in the sense of acceptance of an offer to purchase subject to documentation by a contract in writing. That interest had been earlier described to the Bank as a one-half equity in the home property having an alleged value of $500,000.00, and being the subject of a mortgage indebtedness to another entity (Suncorp Metway Limited) of about $250,000.00. The terms of the Bank's letter of refusal included the following: 'You have provided to us a cheque in the sum of $39,914.17 "in settlement of the judgment your client recovered against our client on 14 March 2003 in the Sydney Local Court". Our client does not accept that payment in satisfaction of the debt owed by your client to our client. We have not forwarded that cheque to our client. We are holding it and it is open to our client to proceed to present the Creditor's Petition: Rigby v Beames [2002] FMCA 101 at [18]-[25]. Your client is presently indebted to our client in the sum of $55,000.00 ("the Debt"), comprising the judgment debt of $36,553.19 ("the Judgment Debt"), interest accrued since the date of the judgment, as well costs and disbursements incurred by our client. Your client is liable for the Debt pursuant to clauses 5 and 9.1 of the guarantee dated 27 July 1998 given by him to our client ("the Guarantee"). Under the latter clause, your client agreed to pay our client "on a full indemnity basis" both all expenses which our client incurs as a result of taking action to recover money owing by Diamond Air Pty Ltd ("Diamond Air") and expenses that it incurs in connection with the Guarantee, including any expenses that our client incurs in enforcing it against your client. … We request that by 5:00 pm on 14 August 2003, you provide a bank cheque in the sum of $55,000.00 in favour of our client, in full satisfaction of the Debt. Our client will, however, accept such payment of $55,000.00 at any time up until the commencement of the proceedings listed for 9:15 am on 15 August 2003 before the Federal Court. If payment of $55,000.00 is not received by that time, we will on 15 August 2003 either: (i) present our client's Creditor's Petition and seek a sequestration order in respect of your client and recover the Debt out of your client's estate, or (ii) apply to the Court for leave to amend our client's Creditor's Petition to claim the debt as at the date of act of the bankruptcy on 31 May 2003 (which amount will not be significantly less than the Debt of $55,000.00) and seek an adjournment in order for service of the amended Creditor's petition to occur on your client.' 9 I would infer that the notification by the Bank to the debtor of the increase by approximately $10,500 in his indebtedness to the Bank of up to $55,000.00, without any detailed break-up or calculation of such a relatively substantial increase above the amount of the judgment debt, would have occasioned the debtor substantial concern, as would have been also the threat of the Bank to proceed with the bankruptcy proceedings, failing payment of the unitemised or unparticularised sum totalling $55,000.00. Particularly would that have been so, bearing in mind, as may well have already been the case, of the Bank's awareness of the home having been recently sold, in the sense of contracts for sale with an arms length purchaser having been exchanged (post). 10 The amount of $37,914.17 tendered by the debtor's solicitors to the Bank's solicitors was sufficient to satisfy the judgment debt entered in the Local Court. Since however that payment had not been tendered prior to expiry of the time for compliance with the Bank's bankruptcy notice on or before 31 May 2003, the act of bankruptcy constituted by the debtor's non-compliance with the bankruptcy notice remained on foot, and the Bank continued to be entitled to proceed with the creditor's petition filed in Court on 26 June 2003 upon the basis of that act of bankruptcy (McIntosh v Shashoua (1931) 46 CLR 494), subject of course to an exercise of the Court's discretion in favour of the debtor in the light of that tender of payment. 11 Nothing would appear to turn on the circumstance that the tender of $37,914.17 was made otherwise than in cash or by bank cheque. I would observe in any event that the trust account cheque of a longstanding reputable firm of solicitors such as Tress Cocks & Maddox, would doubtless be characterised as the equivalent of cash, being a situation which would doubtless have been apparent to the Bank. Yet notwithstanding having retained that trust account cheque unbanked, the Bank has continued to pursue a course which has prima facie added significantly to the debtor's exposure to ongoing interest on the judgment, and to ongoing increases in the legal costs of the Bank for which the Bank claims an entitlement to indemnity. 12 The relevant obligations of the debtor under the Guarantee and Indemnity are asserted by the Bank to arise in particular from clauses 5, 9.1 and 11 thereof which, together with certain other provisions related to the operation of those clauses also referred to below, read as follows: '1. Interpretation … "this guarantee" means the agreement constituted by the guarantee [clause 4] and the indemnity [clause 5] and the other provisions of this contract. "guaranteed money" means at any time all money which: (a) the customer owes to ANZ at that time for any reason; or (b) any other person owes to ANZ at that time because of something that ANZ does or does not do at the request of the customers and for which the customer is or may become liable to pay to ANZ; or (c) when ANZ makes a demand under this guarantee or the question of payment arises, it is reasonably foreseeable that the customer or another person will owe to ANZ arising out of some earlier transaction; (i) with the customer; or (ii) with that other person at the request of the customer and for which the customer is or may become liable to pay to ANZ, in each case whether or not with anyone else; or (d) is money that ANZ has received for credit to any of the customer's accounts but that: (i) must not be paid out of the account in which it is because of a legal requirement; or (ii) ANZ has to pay to someone else because of a legal requirement; or (iii) ANZ has in its discretion paid to someone else; or Note This covers, for example, payments to a receiver, liquidator or trustee in bankruptcy and amounts "frozen" under injunctions or court orders. (e) ANZ pays, voluntarily or not, because some payment of, or transaction or arrangement relating to, money previously paid to it by or on account of the customer is or claimed to be void, voidable or a preference. Money which is described in each of the above paragraphs will be guaranteed money: · whether or not the money is due for payment at that time; and · even if the money is only owing on a contingency; and · whether the customer or other person owes the money: - alone or jointly, or jointly and severally or in common with any other person; or - as principal or as surety; and · whether the money first became owing before or after the guarantor executed this guarantee. For example, the "guaranteed money" includes money which the customer owes or may owe ANZ: · because ANZ issues a letter of credit, or gives a guarantee or other undertaking, for the customer or at the customer's request; or · because ANZ draws, issues, accepts, endorses, purchases, discounts or pays any bill of exchange or promissory note for the customer or at the customer's request; or · under any bill of exchange or promissory note which the customer issues, accepts or endorses (including, for example, one issued, accepted or endorsed by a partnership of which the customer is a member) and which ANZ holds in any capacity; or · under any leasing arrangement which the customer enters into with ANZ; or · under any arrangement that ANZ enters into for the customer or at the customer's request to manage movements in foreign currency exchange or interest rates or other costs of obtaining financial accommodation. … 4. The guarantee I guarantee that ANZ will be paid all the guaranteed money when it should be paid. Note "guaranteed money" is defined in clause 1.1. 5 The indemnity I agree to indemnity ANZ against any loss that it suffers because: (a) [guaranteed money not paid] the guaranteed money is not paid to it when it should be; or (b) [ANZ can't recover guaranteed money] ANZ cannot recover the guaranteed money from the customer because: (i) the law prevents it; or (ii) of some legal disability or limitation that the customer is subject to; or (iii) the customer does not have the legal power to pay it to ANZ; or Note For example, if the customer is a body corporate, its powers may not include the power to make the payment. (iv) the customer acted without power, or misused or exceeded its power or someone appearing to act on behalf of the customer acted without authority, or misused or exceeded that person's authority; or (c) [void transactions] some payment, transaction or arrangement concerning the guaranteed money is or is claimed to be void or voidable or a preference under the law; or (d) [insolvent customer] the customer is insolvent. … 7. The guarantor is principal debtor under the indemnity I agree that ANZ may enforce its rights under the indemnity [clause 5] against me as principal debtor. 8. The guarantee and the indemnity are separate obligations 8.1 Separate obligations I agree that my obligations under the guarantee [clause 4] are separate from my obligations under the indemnity [clause 5]. 8.2 Additional obligations I agree that each obligation is independent of and additional to, the other. 8.3 The indemnity is enforceable even if the guarantee is not I agree that my obligations under the indemnity [clause 5] bind me even if ANZ cannot recover the guaranteed money under a guarantee. 9. I will pay ANZ's costs, charges and taxes 9.1 I will pay ANZ's recover costs. I agree to pay ANZ, on a full indemnity basis, for all expenses: (a) that are not included in the definition of guaranteed money, but which ANZ incurs as a result of taking action to recover money owing by the customer; and (b) that ANZ incurs in connection with this guarantee, including any expenses ANZ incurs in enforcing it against me; and (c) that ANZ incurs as a result of court proceedings in which a claim is made that some payment, transaction or arrangement concerning the guaranteed money is void, voidable or a preference. … 11. Payment must be made as soon as ANZ demands it I agree that an amount that I am liable to pay under this guarantee becomes payable as soon as ANZ gives me a written demand for payment, and I agree to pay ANZ the amount immediately.' 13 The significance of the above extracted lengthy and complex provisions of the Guarantee and Indemnity, which purport to secure of course for the Bank the advantages of both a guarantee and an indemnity, despite the nature of certain juridical differences in principle in those kinds of transactions, will be later addressed. 14 By letter dated 18 August 2003 addressed to the Bank, the debtor's solicitors purportedly renewed the debtor's so-called offer of settlement of the bankruptcy proceedings contained in their previous letter of 12 August 2003. On the same day, they provided to the Bank's solicitors a copy of the essential pages of the contract for the sale of the debtor's home property entered into on 9 August 2003. The Bank's reply to that offer of settlement, communicated by the letter of 19 August 2003 of the Bank's solicitors, was in the following terms: 'We refer to your letter dated 18 August 2003 renewing your client's offer of settlement contained in your letter dated 12 August 2003. Your letter dated 12 August 2003 provided a trust account cheque in the sum of $37,914.17. Our client does not accept that payment in satisfaction of the debt owed by your client to our client. We have not forwarded that cheque to our client. We are holding it and are presently preparing a Notice of Motion seeking orders for the amendment of the amount claimed in our client's creditor's Petition.' 15 The retention of the unbanked trust account cheque of Tress Cocks & Maddox by the Bank's solicitors, instead of returning the same to the debtor's solicitors, is of legal significance. The tender of payment to an agent implicitly authorised to receive the same, as may readily be inferred in those circumstances involving the Bank, would normally amount to a tender of payment to the principal (re Buckley ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496 (Riley J), which would have implications adverse to the Bank in terms of the Bank's claims to the ongoing accrual of interest. Moreover if a creditor (or its agent) retains a tendered sum for an unreasonable period, a court may nevertheless hold that the tender has been accepted. If there has been a valid tender, which I think to be the case, interest may cease to accrue in favour of the Bank upon the amount tendered. 16 On 20 August 2003, the Bank filed its application for leave to amend its creditor's petition by the addition of the sum of $10,599.80 referred to at the commencement of these reasons. By that application, it was asserted that the debtor owed the Bank the sum of $47,152.99, comprising the Local Court Judgment of $36,553.19 plus an additional $10,599.80, said to be 'pursuant to a Guarantee provided by the respondent debtor to the applicant on 27 July 1998'. Those two sums doubtless form part of, but in the aggregate still fall well short of the sum of $55,000.00 for which the solicitors for the Bank, by their abovementioned letter of 14 August 2003, had required payment 'in full satisfaction of the Debt'. Principles and findings 17 The issue arising as to the Bank's entitlement or otherwise to amend its creditors petition against the debtor, in the circumstances presently prevailing, is one of potential importance to the parties. From the perspective of the Bank, an interest bearing indebtedness in its favour the subject of a bankruptcy notice by the Bank given to a borrower, or the guarantor of a borrower, in the absence of any subsequent payment, will of course continue to increase in quantification between the time of issue of the bankruptcy notice, and the filing of a creditor's petition based on non-compliance with that notice, and further again up to the time of hearing of the creditor's petition. On the other hand, in the case of an interest bearing indebtedness the subject of a bankruptcy notice, particularly at a rate compounding on periodic rests, such as is usually involved with a bank loan, a debtor and a guarantor of a debtor is confronted with the difficulty, if not impossibility, of determining, at the time of any purported tender of payment of the amount due, to satisfy the indebtedness for the time being accrued due to the lender. 18 Particularly in the case of bank borrowings, that difficulty is increased in circumstances where the precise rate of interest, and the periodic rests for the bank's calculation of interest, may well not be susceptible to determination upon information available to the borrower. Unlike most other mortgage transactions, it has been the tradition of bank lending to make no such disclosures in the instrument itself. The difficulty in determination confronting a guarantor or a borrower is magnified, in circumstances, such as here, where the interest bearing indebtedness to the bank extends to its legal costs of loan enforcement procedures. An itemised break-up of the Bank's legal costs and disbursements purportedly for the period from 3 January 2003 to 28 May 2003 was not disclosed to the debtor until 20 August 2003. The circumstances of the present case exemplify the dilemma which may attend a borrower from a bank of an interest bearing loan in default, or alleged default, and also a guarantor in respect of any such borrowing, in endeavouring to establish by independent verification the quantification of a bank secured indebtedness, and the potential for unfairness of any lender's conduct in maintaining its security on foot, pending the determination of the precise amount of an indebtedness the subject of default proceedings in circumstances where the borrower would be dependent upon an alternative borrowing to make a tender. 19 The power of the Court to allow an amendment for instance to a creditor's petition derives, in part, from s 33 of the Bankruptcy Act 1966 (Cth) ('the Act'), which provides as follows: '(1) The Court may: … (b) at any time allow the amendment of any written process, proceeding or notice under this Act.' 20 Order 13 rules 2(1) and (2) of the Federal Court Rules additionally provide as follows: '2(1) Subject to the following provisions of this rule, the Court may, at any stage of any proceeding, on application by any party of its own motion, order that any document in the proceeding be amended, or that any party have leave to amend any document in the proceeding, in either case in such manner as the Court thinks fit. 2(2) All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.' Attention may be drawn in particular to the expression 'the real questions' in rule 2(2) above. 21 In Pukim Investments Pty Ltd v Johnson [2000] FCA 615 at [33], in the context of an application for leave to amend a creditor's petition generally, Carr J observed in relation to the scope of operation of Order 13 rule 2 as follows: 'I appreciate that a bankruptcy petition may not technically be a pleading. However Order 13 rule 2 is not confined in its application only to pleadings but refers to "any document in the proceeding". In any event, a bankruptcy petition can be regarded as analogous to an originating application. In my view, the principles and guidelines relating to the amendment of originating applications and pleadings generally are broadly applicable to amendment of a bankruptcy petition. An important factor, of course, is whether the debtor may be prejudiced…' 22 It is well established that ordinarily, so long as an amendment is arguable, and any prejudice occasioned thereby is recompensed by an appropriate award of costs, a party should be permitted to amend a Court process (Queensland v J L Holding Pty Ltd (1997) 189 CLR 146). However the difficulty facing the debtor, in the context of the Bank's present application to amend, is not confined to legal costs, but also to the absence of a detailed calculation of the principal and interest outstanding to an appropriately recent date, and the daily rate of interest accrual thereafter. There is no evidence as to the interest rate for the time being accruing on the Bank's indebtedness, and as to the periodic rests for calculation of interest in the presumably interest compounding circumstances here involved. 23 Section 44 of the Act provides, so far as is presently material, as follows: '44. Conditions on which creditor may petition (1) A creditor's petition shall not be presented against a debtor unless: (a) there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000; (b) that debt, or each of those debts, as the case may be: (i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and (ii) is payable either immediately or at a certain future time; and (c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition. The above references in the sub-section to 'is owing', 'liquidated sum' and 'is payable' may be observed. 24 It is settled law that the debt relied upon by a petitioning creditor must exist at the time of the act of bankruptcy relied upon (Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256). The question which arose for determination in Re Mendonca was whether the debtor owed to the Commissioner of Taxation, as at the alleged dates of certain acts of bankruptcy, income tax in accordance with notices of assessments which had stipulated both the time for payment and the amount payable. Although the time for payment had not arrived as at the dates of acts of bankruptcy of the taxpayer, it was held that the taxpayer's debts for income tax were already in existence as liquidated sums due as at those dates within s 44(1)(b) of the Act. Gibbs J observed (at 259) as follows: 'The well-settled rule that the debt of the petitioning creditor must be a debt which existed at the date of the act of bankruptcy… has survived many legislative changes and is not altered by the Bankruptcy Act 1966-1968.' 25 The rule has been subsequently applied in reported authorities such as Hyams v Elder Smith Goldsbrough Mort Ltd (1970) 19 FLR 232 (at 639) (Barwick CJ), Dean v QUF Industries Ltd (1981) 51 FLR 317 at 323 (Deane, McGregor and Sheppard JJ), and in more recent times, Re Tait; Ex parte Commissioner of Taxation (1996) 65 FCR 592 at 595 (Lockhart J). In the latter instance, Lockhart J formulated the principle to the effect that '…the debt, upon which a petition and a sequestration order are based, must be a debt which existed at the date of the relevant act of bankruptcy' (my emphasis). That principle can be traced, in the United Kingdom, to Lord Ellenborough's decision in Moss v Smith (1808) 1 Camp 489, which concerned a petitioning creditor's debt for goods sold upon credit for a period of time not expiring until three days after the date of the act of bankruptcy. 26 In the present proceedings, there is a potential obstacle in the way of the Bank maintaining on foot its existing bankruptcy proceedings, if the debtor can establish that its tender of $37,914.17 was valid and effective, such as to put an end to the further accrual of interest in favour of the Bank. As foreshadowed earlier, that may well be an issue for another day. The critical issue presently arising is of course whether the Bank should have leave to amend its petition for the debtor's bankruptcy. 27 The Bank has not established to my satisfaction that the further moneys, which the Bank additionally seeks to rely upon as a ground for the sequestration order still sought, under the aegis of the petition as is presently proposed, comprised a liquidated sum due and payable, either immediately or at a future time, at the time of the act of bankruptcy being 31 May 2003. The Bank's letter of 14 August 2003, extracted partially in [8] above throws no, or no sufficient, light on that subject. Moreover I do not think that it suffices for the Bank's solicitors to belatedly place before the Court an itemised list of their legal costs and disbursements implicitly forming part of the Bank's demand for the 'global' sum of $55,000.00. Included in the applicant's tender of $37,914.17 to the Bank was of course the Bank's costs of obtaining judgment in the Local Court (see again [2] above). In any event, it became necessary for the Bank, in the context of its present application to amend the petition in bankruptcy, to prove the point in time when its additionally asserted indebtedness of $10,599.80 crystallised as a liquidated sum due and payable to the Bank by the debtor under and pursuant to the Guarantee and Indemnity. That circumstance does not constitute the Bank's only obstacle to be overcome in the context of its present application. 28 It is apparent that clause 11 of Part 5 of the Guarantee and Indemnity, which I have earlier extracted, requires that a written demand be given by the Bank to the debtor for payment of any guaranteed moneys. That requirement would appear to be a condition precedent to crystallisation of the debtor's liability to pay any moneys the subject of the Guarantee and Indemnity. An illustration of the significance of a payment obligation of that kind may be found in Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833 where (at 840), Pickford LJ stated as follows: 'It was argued on behalf of the defendant that the words "on demand" should be neglected because the money was due, and therefore a demand was unnecessary and added nothing to the liability. This proposition is true in the case of what has been called a direct liability - for example, for money lent. There the liability exists as soon as the loan is made, and a promise to pay on demand adds nothing to it, as in the case of a promissory note for the amount payable on demand, and the words "on demand" may be neglected. It has, however, been held that this doctrine does not apply to what has been called a collateral promise or collateral debt, and I think a promise by a surety to pay the original debt is such a collateral promise, or creates a collateral debt … The only question, therefore, is whether, on the construction of the guarantee, the parties meant by the words "on demand" to mean what they say. I cannot doubt that they did.' That and other authorities supportive of the principle as to the need for a demand on the part of a creditor upon a guarantor are referred to in The Modern Contract of Guarantee (3rd ed) (O'Donovan and Phillips) LBC 1996. But of course the Bank would doubtless seek to rely on its rights of indemnity additionally or alternatively to those of a surety. 29 In determining whether the obligations assumed by the debtor under the Guarantee and Indemnity were primary or secondary, and thus in the nature of an indemnity or guarantee, regard must be paid of course to the words in which those respective obligations of the debtor are expressed. Lord Diplock cautioned in that regard in Moschi v Lep Air Services Ltd [1973] AC 331 at 349 as follows: 'Even the use of the word "guarantee" is not conclusive. It is often used loosely in commercial dealings to mean an ordinary warranty. It is sometimes used to mis-describe what is in law a contract of indemnity and not of guarantee.' A reverse observation may be made of an obligation purportedly expressed to be an indemnity, which, on true analysis of the circumstances, might instead constitute in law a guarantee. And as Lord Reid postulated earlier in Moschi (at 344): '… I think that it is necessary to see what in fact the appellant did undertake to do. I would not proceed by saying this is a contract of guarantee and there is a general rule applicable to all guarantees. Parties are free to make any agreement they like and we must I think determine what this agreement means.' Whilst the operation of an indemnity and a guarantee in the case of a single instrument may sometimes overlap, this cannot reasonably be said to be always the case. The drafting of legal documentation for moneylenders has for decades persevered in endeavours to provide for the operation of both notions in a single instrument, whilst endeavouring to avoid inconsistency. 30 In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254, Mason CJ described a guarantee as '… subject to any qualifications made by the particular instrument, a collateral contract to answer for the debt, default or miscarriage of another person who is or is compelled to be or to become liable to the person to whom the guarantee is given'. His Honour distinguished an indemnity (at 254) as 'a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party'. 31 In Re Taylor; Ex parte Century 21 Real Estate Corporation (1995) 130 ALR 723 Burchett J considered whether a clause described as an indemnity, but which conditioned the guarantors' liability as attaching upon the default by the principal debtor, should be characterised instead as a guarantee. At 727, his Honour said as follows: 'But cl 2 has been drafted as an obligation to indemnify against costs, damages, expenses and loses "arising out of or in consequence of" a failure, and that failure is expressed by the words, "in the event of South Pacific in any respect failing to discharge its obligations under the promissory note". The word "indemnify" is used, but the obligation is only to attach in the event of a failure by South Pacific to discharge its obligations. This looks very like the language of a collateral contract to answer for the default of another, who is contemplated as liable in the first place to the promisee. It does not appear to express a primary obligation undertaken by the guarantors.' 32 In the above cited textbook entitled The Modern Contract of Guarantee, the authors state at p 494 as follows: 'Although a contract of indemnity is usually viewed as a primary obligation and does not come within the definition of a collateral agreement, liability under an express indemnity in this context will usually arise as a result of a breach of another transaction or events affecting the transaction, and in that sense the liability is collateral.' 33 Clauses 5 and 9 of the Guarantee and Indemnity, which are the provisions, primarily agitated on behalf of the Bank, are collateral in character, in that the indemnity thereby expressed is 'collateral' to the guarantee the subject of Clause 4 thereof. Clause 5(a) requires the debtor to 'indemnify the ANZ against any loss that it suffers because… the guaranteed money is not paid when it should be'; clause 5(b) identifies the circumstances where ANZ is unable to recover the guaranteed money from the customer. Similarly framed is clause 9.1, which obliges the debtor to pay the Bank, 'on a full indemnity basis', for all expenses it incurs in relation to recovery proceedings against Diamond Air as 'the customer' and against the Bank as guarantor. 34 However clause 7 of the Guarantee and Indemnity purportedly 'entitles' (my emphasise) the Bank to enforce its rights under clause 5 as a principal debtor. A valuable exposition of the effect or operation of such a clause, in the context of indemnity provisions such as clause 5, was traversed by Burchett J in Re Taylor (at 730): 'It has been suggested that the presence, in a contract of guarantee, of a "principal debtor" clause will obviate the need for a demand, where it would otherwise be required: Phillips and O'Donovan, The Modern Contract of Guarantee (2nd ed, 1992), pp 28 and 420, citing Esso Petroleum Co Ltd v Alstonbridge Properties Ltd [1975] 1 WLR 1474 at 1483, per Walton J. However, Walton J did not really commit himself to this proposition. He said (at 1483), referring to the fact that the guarantee he was construing stipulated for payment "on demand" but also entitled the creditor to treat the sureties as principal debtors: [W]here the character in which payment is required is that of surety, a demand is, in general, necessary; but I assume for present purposes (without finding it necessary so to decide) that the provisions … equating the liability of the sureties to that of principal debtors, [are] effective to obviate the necessity for a demand merely on this ground. This statement was discussed by Lloyd J in General Produce Co v United Bank Ltd [1979] 2 Lloyd's Rep 255 at 259. Lloyd J made it clear that the extremely guarded dictum, if that is what it really is, in the earlier decision could offer little guidance for a different case. He also made it clear that a "principal debtor" clause "does not necessarily mean [the guarantor] is to be regarded as the principal debtor for all purposes from the inception of the guarantee but only that the creditor is entitled to treat him as a principal debtor in certain events". To my mind, this comment refutes the statement made in Phillips and O'Donovan. No generalisation is possible; the question must always be one of construction of the particular guarantee. Bearing in mind the comments of Lord Denning MR to which I have referred earlier, if the general tenor of the document indicates that it is a guarantee, it will often be appropriate to read a "principal debtor" clause as having effect only for the purposes expressed in it. Generally, if the contract is a collateral contract, the reasoning of the Court of Appeal in Bradford Old Bank would require a conclusion contrary to that so tentatively suggested in Esso Petroleum. ' 35 Burchett J found in Re Taylor (at 729) that clause 1 of the guarantee and indemnity there involved, which required that a demand be served on the guarantor, survived 'unscathed', notwithstanding the principal debtor clause contained in that instrument, and that accordingly if there was ever any doubt as to the true import of the equivocal remark by Walton J in Esso Petroleum referred to by his Honour, the same was duly exposed by his Honour as unsound in principle. In my view, that a conclusion that a similar result should follow in the light of the present Guarantee and Indemnity is even more persuasive. Clause 7 of the Guarantee and Indemnity does not purport to transpose the debtor into a principal debtor for all purposes, but rather provides the Bank with the right to treat the debtor as a principal debtor for the purpose of enforcing the terms of clause 5 of the Guarantee and Indemnity. That is a right which has not been purportedly availed of by the Bank, to my understanding, in the present case. Unlike the provisions in both Esso Petroleum and Re Taylor, clause 7 reflects a position which the debtor does not automatically assume until the Bank makes an election to treat him as such. As in Re Taylor however, the language of provisions such clause 7 cannot be relied upon as a truly alternative procedure relevantly to clause 11, which stipulates for the Bank's obligation to serve upon the debtor a written demand for payment prior to crystallisation of entitlement of payment. 36 It follows that the evidence adduced in this application is consistent with the conclusion that the additional amount of $10,599.80 claimed by the Bank did not accrue as a liquidated sum in whole or in part until after the date of the act of bankruptcy on 31 May 2003. Although it may be said, in accordance with clauses 5 and 9.1 of the Guarantee and Indemnity, that the debtor was liable to the Bank for recovery costs in respect of any default by Diamond Air, that liability did not crystallise as a liquidated sum until 14 August 2003, being the day upon which the Bank first made a written demand for payment pursuant to clause 11 of the Guarantee and Indemnity. The very fact that a written demand was served on the debtor for both the amount claimed in the Local Court proceedings, and the amount sought to be claimed the subject of the proposed amendment to the creditor's petition, provides implicit testimony for this conclusion. 37 The intractable language of s 44 of the Bankruptcy Act necessitates that a liquidated sum is required in order to found a creditor's petition, and I am unable to appreciate how the liabilities under the Guarantee and Indemnity crystallised as a liquidated sum until clause 11 of the Guarantee and Indemnity was engaged. That occurred well after the date of the alleged act of bankruptcy. 38 In the result the present application must fail on the grounds, first, that the sum of $10,599.80 was not in existence as a liquidated sum at the time of the act of bankruptcy relied upon, and secondly, because of the absence relevantly of a written demand for the amount payable pursuant to the Guarantee and Indemnity at or before that time. 39 For completeness, I would add the observation that s 47(1) of the Bankruptcy Act provides that the 'creditor's petition … be verified by an affidavit of a person who knows the relevant facts'. In this respect, the Bank relies upon the earlier mentioned affidavit of Sandra Campagna. In paragraph 15 of her affidavit, Ms Campagna deposed that '[t]he amount of $55,000 was comprised of the debit balance of the Overdraft of $52,538.18 as at 13 August 2003 and further enforcement expenses incurred by the bank in respect of the legal action referred to in this affidavit taken both against Diamond Air and Coutts up to and including 13 August 2003' (the highlighted date is my emphasis). Although the Bank's solicitor has attached to his affidavit of 20 August 2003 a series of spreadsheets that tend to suggest that specific amounts in respect of the enforcement costs accrued prior to 31 May 2003, that evidence does not persuade me that the additional amount of $10,599.80 crystallised as a liquidated sum on or before 31 May 2003. Since Ms Campagna was apparently the person best placed in the Bank to opine on the relevant facts from the Bank's perspective in the present proceedings, I would rely on her evidence to the effect that the amount of $10,599.80 included enforcement expenses up to and including as late as 13 August 2003. 40 The very circumstance therefore that the total amount claimed on behalf of the Bank to be payable by the debtor is referable to a date subsequent to the date of the act of bankruptcy is sufficient of itself to also make the proposed amendment to the creditor's petition ineffective, such that the Bank's application for leave to amend the creditor's petition should be declined. 41 Finally, I think that it is appropriate that I say something about a certain matter of prejudice conceivably bearing upon the exercise of my discretion to allow the amendment sought to the creditor's petition. Here, the Bank declined the debtor's tender of an amount of money which may conceivably have extinguished the debtor's indebtedness owed to the Bank the subject of the preceding bankruptcy notice. The Bank's refusal to accept the debtor's tender of $37,914.37 occurred on 14 August 2003 being almost two months after the presentation of the creditor's petition. It was not until 14 August 2003 that it would appear that the debtor was given notice of additional indebtedness for which liability was asserted. True it is that a debtor may only be held to account for a liquidated sum as at the date of the act of bankruptcy, but there would seem to me to be a point in time where, as in the present case, an amendment if allowed, would substantially alter the position of the debtor to his or her detriment, in which case leave to amend the creditor's petition should, in the discretion of the Court, be in principle refused. 42 If the amendment to the creditor's petition was to be allowed the debtor would be required to defend the creditor's petition in respect of a 'dormant' debt in the sense of a pecuniary obligation crystallising, as due and payable at a relevantly considerable time after the date of the act of bankruptcy originally relied upon. That amounts in my view to considerable prejudice which, together with the belated notice of the additional claim, cannot be sufficiently compensated for by an award of costs. 43 In the result, the Bank's application for leave to amend the creditor's petition is refused with costs. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.