Hilellis v Mobil Oil Australia Limited

REASONS FOR JUDGMENT 1 I have before me a Notice of Motion seeking that the Creditor's Petition filed on 12 January 2000 be dismissed or, alternatively, that the petition be stayed pending the determination and disposal of some proceedings which are pending in the Supreme Court. 2 The matter arises in this way: the respondent, Mr Hilellis, entered into guarantees of the indebtedness of a number of companies in which he was a shareholder. The companies were Bow-Bowing Service Centre Pty Limited, Smithfield Service Centre Pty Limited and Kenridge Pty Limited. Those companies entered into retail area franchise agreements with the applicant, Mobil Oil Australia Limited ("Mobil"), and pursuant to those franchise agreements Mobil supplied the companies with goods and services. The amounts owing to Mobil for goods and services were the subject of the guarantees given by the directors of the three companies, including Mr Hilellis. On 17 July 1998 Mobil instituted the Supreme Court proceedings against Mr Hilellis seeking to enforce his liability under those guarantees. 3 Those proceedings came on for hearing before Justice Rolfe on 4 August 1999 and his Honour entered judgment against Mr Hilellis in the sum of about $970,000. There was a cross claim brought by Mr Hilellis against Mobil which was not the subject of determination on 4 August and I have been informed that execution was stayed on the judgment entered on 4 August, pending resolution of that cross claim. On 24 September 1999 application was made to Justice Rolfe to set aside the judgment entered on 4 August, which application was dismissed. 4 On 15 October 1999, Mobil applied to strike out the cross claim which had been brought against it by Mr Hilellis. That application was dismissed but his Honour refused to continue the stay of execution of the judgment of 4 August 1999. On 11 November 1999 Mr Hilellis discontinued the cross claim which he had brought against Mobil, in the expectation that the companies (which were the principal debtors) would institute their own proceedings against Mobil with respect to the matters that were originally the subject of the cross claim brought by Mr Hilellis. 5 I infer that this course was taken because of financial problems which Mr Hilellis was suffering and because the natural cross claimant was the companies rather than the guarantors. On 16 December 1999, the three companies to which I have referred instituted their own proceedings against Mobil, which replicated the cross claim brought initially by Mr Hilellis and which he later discontinued. 6 In very broad terms the companies' claim is that they were induced to enter into the relationship with Mobil by misleading and deceptive conduct on its part. They also say that they suffered damage as a result of price discrimination conducted by Mobil during the course of the relationship. One therefore has a claim against the companies and against the guarantors based upon the supply of goods and services, and a counter claim by the companies against Mobil for damages for improperly inducing entry into the relationship and misconduct during the course of its subsistence. 7 On 24 November 1999 a bankruptcy notice was served on Mr Hilellis. There was no application to set aside that notice nor was there any extension of time for compliance with it. The petition is listed for hearing today. The basis on which Mr Hogg seeks to support his client's motion is that in terms of s 52(2)(b) of the Bankruptcy Act 1966 (Cth) ("the Act"), the institution of the proceedings by the company against Mobil in the Supreme Court provides a sufficient cause for not making a sequestration order. 8 It seems to me that there are a number of problems with that submission as Mr Hogg frankly recognised. First, there is no evidence as to the prospects of success of the claim which the companies have brought against Mobil. The principles applicable in a case such as the present were summarised by Justice Sundberg in St George Bank Limited v Helfenbaum [1999] FCA 1337. At par 13 of that decision his Honour said, and I quote, but omitting citations: "It is for the debtor to establish the existence of 'sufficient cause'. He must establish that he has a real claim against the creditor that is likely to succeed. If the Court is satisfied that there is such a claim, and that its quantum is likely to equal or exceed the creditor's claim, it will not make a sequestration order. If the claim is likely to be less than the creditor's claim, the Court will require the debtor, if he is to avoid a sequestration order, to pay the difference between the judgment debt and the amount he is likely to recover on his claim. A debtor does not establish a real claim that is likely to succeed merely by producing a statement of claim in an action against the creditor, or by pointing to the existence of current litigation against the creditor. While the Court does not try the cross-claim in advance, the debtor must adduce sufficient evidence to show that it is a real claim which is likely to succeed." 9 Not only is there no evidence as to the prospects of the companies succeeding in their claim, there is simply no evidence as to the quantum, of any likely recovery. 10 The debt on which the petition is based, when interest is taken into account, is $1,004,983.70 and I simply have no idea whether any recovery which the companies might make against Mobil Oil will equal or exceed that sum. 11 In those circumstances, it seems to me that even making every assumption in favour of the debtors which it is legitimate to make, they have not established the existence of sufficient cause against the making of a sequestration order. It may be that the proceedings in the Supreme Court will come on for hearing some time next year - I do not know - but that factor is not of itself adequate to constitute sufficient cause, given the deficiencies in the debtor's case which I have identified. Justice Rolfe refused to extend the stay of execution on the judgment. That provides a further reason for not granting an adjournment of the petition. 12 I would therefore propose to dismiss the Notice of Motion and to proceed to hear the petition. 13 I am satisfied as to the matters stated in the petition. I am satisfied as to service of the petition. I am satisfied that the debt on which the petitioning creditor relies is still owing and for the reasons indicated earlier, I am not satisfied that the debtor has established sufficient cause why a sequestration order ought not to be made. In those circumstances, I order that a sequestration order be made against the estate of Ignatios Hilellis and order that the applicant creditor's costs, including reserved costs if any, be taxed and paid from the estate of the respondent debtor in accordance with the Act. I note that the date of the act of bankruptcy is 16 December 1999. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.