Federal Court of Australia|1993-03-26|Before: Burchett J, Drummond J

Re Alexandra Louise Skaff Ex Parte: Farrow Mortgage Services Pty Ltd (In Liquidation) Fed [1993] FCA 118; (1993) 113 ALR 715 (1993) 41 FCR 331 (26 March 1993)

Ex Parte: FARROW MORTGAGE SERVICES PTY. LTD. (in Liquidation)

Bankruptcy - Court going behind judgment debt - judgment creditor an assignee of guarantee and indemnity - pleadings indicated judgment creditor was party to guarantee - court must be satisfied that a debt of the kind of the judgment debt underlies judgment but not essential that causes of action be identical - that judgment may be liable to be set aside is not sufficient reason for refusing sequestration - judgment obtained on same basis as underlying debt. Bankruptcy Act - s. 52(1)(c) and (2)(b)

Re Ferguson (1969) 14 FLR 311

Re Gourlay (unreported, Federal Court, Burchett J., 16 August, 1989)

Re McCollum (1987) 71 ALR 626

1. A sequestration order be made against the estate of

Alexandra Louise Skaff.

2. The petitioning creditor's costs of and incidental to the

petition, including reserved costs, be taxed and paid in

accordance with the Bankruptcy Act 1966.

1. A draft of this order be delivered to the Registrar within

seven days, in accordance with rule 124(2) of the Bankruptcy

Rules.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

DRUMMOND J. I have before me a creditor's petition which is based on non-compliance with a bankruptcy notice demanding payment of a judgment debt. The debtor asserts that there is, in truth, no debt owing, notwithstanding the judgment.

2. When this matter was first before me on 17 February, 1993, I held that I should go behind the judgment upon which the petition was based for the following reasons:

(a) The judgment was obtained in default of defence on the

part of Mrs. Skaff. She explained that she abstained

from defending on what appears to be the wrong headed

advice of a solicitor friend and that when she later

attended on a court officer she was not told of her

entitlement to apply to have the judgment set aside

and therefore let the matter rest.

(b) Mrs. Skaff's allegations that Farrow Investment

Company Pty. Ltd. ("FIC") was in breach of its

agreement of 21 June, 1989 to make available a further

$165,000.00 to Snowvale Pty. Ltd., which breach was

said to have caused Snowvale Pty. Ltd. very

substantial losses, were unanswered and indeed it was

accepted by the legal representative for the judgment

creditor, Farrow Mortgage Services Pty. Ltd. ("FMS"),

that such a breach had occurred.

(c) There was also evidence that FIC had repudiated the

agreement of 21 June, 1989 by insisting in November

1989 upon the execution by Mrs. Skaff of a guarantee

that went well beyond anything that FIC might have

been entitled to require of her, by requiring her to

guarantee the performance of obligations undertaken on

his own account by Mr. Juric, a person associated with

Mrs. Skaff in the Wild Duck Island Resort project

operated by Snowvale Pty. Ltd..

3. The main attack made on the petitioning creditor's claim to a sequestration order was based on the fact that the statement of claim on which the petitioning creditor relied in the Supreme Court action to obtain the money judgment upon which the petition was founded was misleading. It was also said that the pleading failed to set out essential allegations, viz., those showing that FMS was the assignee of the Deed of Guarantee and Indemnity on which judgment was obtained against Mrs. Skaff, and that FMS was entitled to sue as assignee because an appropriate notice of the assignment had been given to her. Corney v. Brien [1951] HCA 31; (1951) 84 CLR 343 was relied on and it was submitted that there was no consideration for the judgment.

4. FMS sued the debtor in this action for nearly $2,500,000.00, which was said in the statement of claim to be "due and owing pursuant to a Guarantee in writing given by the (debtor) on the 15th day of February, 1989 together with interest thereon at the provided rate of 20% per annum from the 14th day of January, 1992 until judgment, pursuant to the Deed of Guarantee and Indemnity". This was accurate enough, so far as it goes. In paragraph 6 of the statement of claim, FMS alleged:

"The Plaintiff made demand upon the Defendant pursuant to

the Deed of Guarantee and Indemnity for all moneys including

and without limiting the generality thereof the principal

moneys, interest thereon, costs, charges and expenses which

were owing by the borrowing company (i.e., Snowvale Pty.

Ltd.) to the Plaintiff and which were guaranteed by the

Defendant pursuant to the Deed of Guarantee and Indemnity

dated the 15th day of February, 1989. The Defendant failed

and/or refused to pay the moneys to the Plaintiff pursuant

to the said Deed of Guarantee and Indemnity."

5. This too is accurate so far as it goes. However, in paragraphs 2 of the particulars of the claim in the pleading, FMS referred to a bill of mortgage and associated loan agreement, whereunder it alleged it had agreed to lend $1,300,000.00 to Snowvale Pty. Ltd., and to Snowvale Pty. Ltd.'s default. The complaint is that these allegations are untrue, that FMS had never agreed to lend anything to Snowvale Pty. Ltd. and was not a party to the bill of mortgage or the loan agreement referred to therein. I am satisfied that the true facts are that FIC was both lender to and mortgagee from Snowvale Pty. Ltd. and that FMS took an assignment of, among other things, this loan agreement, mortgage and Deed of Guarantee and Indemnity from FIC on 12 September, 1990. FMS was only entitled to sue on the Deed of Guarantee because its title to do so had been perfected by the notice of assignment given by FIC.

6. In Corney v. Brien the debtor successfully opposed the making of a sequestration order sought because of non-compliance with a bankruptcy notice that demanded payment of a judgment debt on the ground that no debt was truly owing by him to the petitioning creditor notwithstanding the judgment. The judgment was for the price of goods sold and delivered. The Bankruptcy Court found that there never was an agreement for sale between the creditor and the debtor (and his partner, Irvine) but that the creditor had provided the money whereby the debtor was able to obtain the goods pursuant to a hire purchase agreement and that, while the judgment was irregular and wrong in form, no injustice had been caused. In their joint judgment, Dixon, Williams, Webb and Kitto JJ. said, at p 350, that the crucial enquiry was whether any contract existed between the creditor and the debtor which resulted in the judgment having a real debt to support it and held that there was no evidence upon which such a finding could be made. The debtor's appeal was therefore allowed. However, at p 352-3, their Honours dealt with a second ground upon which they held that the debtor was entitled to succeed:

"Even assuming there was an agreement between Corney and

Irvine and Brien on the terms of the document, a further

objection exists to the proof of the judgment debt. Clause

9 of the document is in the following terms: 'If I shall at

all times duly comply with the terms and conditions of this

instrument and duly pay all moneys which may become payable

by me hereunder if this hiring continues for the full term I

may upon the expiration of the said term of hiring, elect to

purchase the goods by notifying you in writing of my

election ...'. Corney and Irvine did not at any time comply

with the terms and conditions of the document. They did not

pay any of the instalments of hire. They could not and did

not elect to purchase the tractor by notifying Brien of

their election. Accordingly the claim in the writ that they

were indebted to Brien for the purchase money was wrong.

They were indebted to Brien if at all for the instalments of

hire and for interest on the overdue instalments. It is to

be noted that in his reasons for judgment his Honour does

not refer to the freedom with which a Court of Bankruptcy

goes behind a judgment obtained by default. He refers only

to the Court enquiring into the consideration for a judgment

debt that has been obtained by fraud or collusion or where

there has been some miscarriage of justice. Unless there

was a sale of the tractor by Brien to Corney and Irvine,

there was no consideration for the purchase money. The fact

that Corney and Irvine may have been indebted to Brien in a

different sum for a different consideration, namely, for the

instalments for the hire of the tractor, is immaterial. It

is clear that there was no consideration for the judgment

debt. It was not a good debt irrespective of the judgment."

7. The second limb of the majority judgment was applied in Re McCollum (1987) 71 ALR 626 in which it was held that a sequestration order founded on non-payment of a judgment debt for goods sold and delivered should be annulled, where the creditor's entitlement to be paid was really on a guarantee given to secure payment by another, who had bought the goods in question. Pincus J., at p 629, said:

"Although there cannot be drawn from Corney v. Brien a rule

that any discrepancy between the claim as formulated and the

true nature of the debt as found is fatal, here the

discrepancy is very comparable with that which existed in

the High Court case.

In both cases, the liability was described in the writ as if

it arose under a contract for sale and purchase of goods.

The difference between the two cases is that in Corney v.

Brien the true liability, if any, was for hire; here it was

under a guarantee. If, as may be deduced from Corney v.

Brien, the rule is that the 'consideration' for the judgment

debt must be judged by reference to what was claimed in the

writ, it has to be said in favour of the judgment debtor

that the indebtedness, if any, was for an entirely different

consideration."

8. Corney v. Brien shows that it is not enough for a petitioning creditor to prove that he is owed an amount by the debtor equal to the amount of the judgment, but on an entirely different basis. In Re McCollum, Pincus J. clearly enough regarded the statements of Gibbs J. in Re Ferguson (1969) 14 FLR 311 at 320 as inconsistent with the second limb of the majority judgment in Corney v. Brien. The test is whether the debt upon which the judgment was founded is owing, not whether "the debtor was really indebted to the petitioning creditor in the amount for which the judgment was given", as suggested by Gibbs J.

9. Re McCollum was itself applied by Burchett J. in Re Gourlay (unreported, Federal Court, 16 August, 1989). There, on a debtor's application to set aside a bankruptcy notice requiring payment of a judgment debt, the Court went behind the judgment in order to determine "the fundamental question whether behind the judgment lay a real debt". The judgment creditor was a life insurance company which obtained judgment for an amount representing commissions paid by it, but which were recoverable by it, on the lapse of certain life policies procured by Mr. Gourlay. The default judgment was obtained in proceedings which included a claim for reimbursement of commissions in accordance with the terms of a written agreement under which the Gourlay Family Trust was appointed the company's agent. This agreement was executed only by Mrs. Gourlay as trustee of the trust, but it was alleged that she had signed the agreement on behalf of herself and Mr. Gourlay. There was a further count upon a guarantee signed by Mrs. Gourlay and there was also a count against Mr. Gourlay for money payable by him to the company as money had and received for the use of the company. Burchett J. held that the judgment against Mr. Gourlay, given in default of defence, could not be supported by the counts relying upon the agreement or the guarantee. He also rejected the submission by the company that the judgment could be sustained on the ground of a breach by Mr. Gourlay of a warranty that he had his wife's authority to propose on her behalf the contracts of agency and guarantee. His Honour said:

"There are several reasons why I cannot accede to this

submission. ... Secondly, no such claim was pleaded.

Finally, before I could uphold this contention, I would have

to decline to follow the considered judgment of a judge of

the court in Re McCollum; Ex parte The Bankrupt (1987) 71

ALR 626. There Pincus J., at 628-629, found authority in

Corney v. Brien (supra) for the principle that a judgment

which cannot stand upon the only cause of action pleaded is

not saved by the existence of a true debt upon a different

cause of action."

10. While his Honour went on to hold that the count alleging the receipt of money by Mr. Gourlay to the use of the company "was a correct legal formulation of the cause of action which arose against the debtor" and that "accordingly, the judgment reflects a real debt, and the bankruptcy notice is not liable to be set aside", the way his Honour interpreted the ratio in Re McCollum might, on one reading, be thought to take things a step further than it was necessary for Pincus J. to go in that case. If Burchett J.'s words are applied uncritically to the situation here, it can be said that there is a judgment obtained on a cause of action framed as a claim on a guarantee when the true position is that the only debt due to the creditor was as assignee of the guarantee. It could therefore be said that the judgment obtained "cannot stand upon the only cause of action pleaded", since it is essential to make out such a cause of action to plead and prove both the assignment and the giving of notice of the assignment.

11. However, I do not think Re McCollum or Re Gourlay provide any support for the proposition that, in a case in which there is in truth a debt owing on a particular basis, a judgment debt will not be regarded as sufficient to found a sequestration order because the material upon which the judgment was obtained failed to make reference to an essential element in the cause of action necessary to establish the existence of the debt on that particular basis. Pincus J., in Re McCollum at 629, rejected the proposition that any discrepancy between the claim as formulated and the true nature of the debt, as found, would be fatal. When Burchett J. identified the ratio in Re McCollum, I do not think he was suggesting that the Bankruptcy Court should sit, as it were, in review upon the Court giving the judgment to see whether that judgment could stand having regard only to the sufficiency of what was pleaded and proved at first instance to justify the giving of the judgment in question. He was not dealing with a debt shown to be owing on a cause of action that had been inaccurately pleaded in the Court in which the judgment was given. His remarks were directed only to the case in which the debt shown to be owing was owing on an entirely different cause of action from that relied on to obtain the judgment.

12. When the Bankruptcy Court is invited by a debtor, who is resisting the making of a sequestration order, to go behind the judgment debt on which the petition is founded, it does so because, in terms of s. 52(1)(c), it can only make a sequestration order if there is proof of the fact that the debt on which the petitioning creditor relies is still owing. Cf. Wren v. Mahony [1972] HCA 5; (1972) 126 CLR 212 at 223. It will never be enough for a creditor seeking to prove the matters required by s. 52(1)(c) to show that the debtor owes him an amount equal to the debt upon which the petition is founded, but on an entirely different basis: the sub-section requires proof that "the debt ... on which the petitioning creditor relies" is still owing. The second limb of the decision in Corney v. Brien does not indicate that it is appropriate for the Bankruptcy Court to refuse to make a sequestration order in reliance on s. 52(2)(b), even though it is satisfied as required by s. 52(1)(c) that the debt on which the petitioner relies is still owing (and owing moreover on the same basis on which the judgment was obtained), just because there was a deficiency in the creditor's case in the court in which the judgment was given in pleading the basis upon which the debt is owed or in proving fully its case in that regard even if the deficiency would have entitled the debtor to have the judgment set aside. The object of the Bankruptcy Act here relevant is to ensure that all the creditors of a particular debtor will only be deprived of their individual rights to seek to recover the debts owing to them, and instead be relegated to sharing equally in the debtor's estate, only upon clear proof that there is a debt in truth behind the judgment on which the petitioning creditor relies to produce that situation. See Wren v. Mahony at 221-223. That object is not advanced by requiring a creditor to show that the judgment based on the debt undoubtedly owing to him on a particular cause of action was regularly obtained.

13. When the Bankruptcy Court goes behind a judgment on the hearing of a petition for a sequestration order or when the Court has to decide whether a sequestration order ought not to have been made on an application under s. 153B to annul the bankruptcy or on an application under r. 102 for an order setting aside a bankruptcy notice, that Court is not concerned with questions as to the sufficiency of the pleading or of the proof of the debt in the court in which the judgment was given. Its only concern is to be satisfied by proper proof before it that there in truth exists a debt and that that debt arose on the same basis upon which the judgment was obtained. Mrs. Skaff is indebted to FMS on the Deed of Guarantee and Indemnity and the judgment was given in respect of just such an indebtedness.

14. As to whether there is consideration for the judgment debt here, Fullagar J. in Corney v. Brien traced the history of the use of the term "consideration" in the context of an enquiry by a Bankruptcy Court as to whether there is consideration for a judgment. He concluded that it does not have the sort of meaning it bears in contract law. Whether there is consideration for a judgment debt is a question that will only arise once the Bankruptcy Court has decided to go behind the judgment and the answer to the question, so Fullagar J. said, depends upon "whether there was, in fact and in law, a debt which could legally found the judgment - whether there was in 'Truth and Reality' an obligation not of record before there was an obligation of record ... The matter to be decided is the existence or non-existence of a debt antecedent to the judgment." See p 354-358. But it is clear from the passage that I have set out from the joint judgment in that case that their Honours, in dealing with the question whether there was consideration for the judgment debt, used the term "consideration" in a sense very like that which it has in contract law. It was I think in this sense that Barwick C.J., Windeyer and Owen JJ. agreeing, also used the term in Wren v. Mahony at 224. It follows that when the Bankruptcy Court goes behind a judgment, the enquiry is a narrower one than into whether the debtor owes a debt on any account at all to the creditor.

15. There is a debt owing by Mrs. Skaff to FMS pursuant to the Deed of Guarantee and Indemnity. As will appear later, I reject her attempt to put this in doubt. The judgment on which the petition was founded was sought and obtained on that same basis. It does not follow, for the reasons given, that because FMS's title to sue for the particular sum as FIC's assignee of that Deed was not accurately or correctly pleaded that the consideration for the judgment was different from that given for the debt for that same sum. The consideration for both the judgment debt and the debt proved before me was the assumption by Mrs. Skaff, pursuant to clause 1(b) of the Deed, of the obligation to make good any loss flowing to FIC or its assign from a failure by Snowvale Pty. Ltd. to repay the $1,300,000.00 advance and, pursuant to clause 2 of the deed, of the obligation to pay to FIC or its assign an amount equal to the advance (plus interest) in the event that that amount was not recoverable from Snowvale Pty. Ltd. or from Mrs. Skaff as guarantor under clause 1(a) of the Deed.

16. The debtor does not dispute the creditor's evidence that she was given notice of the assignment of the Deed of Guarantee and Indemnity. There is nothing in the evidence before me to suggest that, while the claim in the Supreme Court was made against her on that Deed of Guarantee and Indemnity, she was misled because the facts pleaded in the statement of claim in those proceedings were, in a number of respects, incorrect. There is no cause shown, because of this, sufficient to justify the refusal of a sequestration order under s. 52(2)(b) of the Bankruptcy Act.

17. It was submitted that the guarantee is unenforceable against Mrs. Skaff because, contrary to the terms of the loan agreement and the guarantee itself, the true position is that the loan moneys were not advanced to Snowvale Pty. Ltd. by FIC, but by Mr. Bill Farrow personally. Reliance was placed on what Mr. Juric had to say in his affidavit filed 22 March, 1993. I do not think there is anything in this proposition. It is in conflict with the terms of the security documentation: Mr. Juric himself says that "notwithstanding Bill Farrow's advice to me that he was the lender personally, I caused Snowvale Pty. Ltd. at about the time of settlement (28 November, 1988) to execute a debenture charge in favour of Farrow Investment Corporation (he plainly means "Company") Pty. Ltd. I did not attach much importance to the documentation because of my business relationship with Farrow." The agreement for loan executed on 15 February, 1989, in respect of the $1,300,000.00 advance which Snowvale Pty. Ltd. received in November 1988, is expressed to be an agreement between Snowvale Pty. Ltd. and FIC. The guarantee here in question is expressed to be a guarantee between Mr. Juric and Mrs. Skaff as guarantors and FIC, which company is described in the guarantee as the company which agreed to make the advance to Snowvale Pty. Ltd. Mr. Edge, the liquidator of FMS, in his affidavit filed 18 March, 1993 provides further evidence that the loan moneys were advanced by FIC, the making of the advance and subsequent activity in relation to the advance being recorded in FIC's books from 28 November, 1988 until 28 January, 1990, on which date the books show the transfer of the loan from FIC to FMS (although the formal assignment of the loan by the first mentioned company to the latter company, expressed to be made pursuant to an agreement to assign, was not made until 12 September, 1990).

18. It was also submitted that the guarantee is unenforceable against Mrs. Skaff because it was given to support a loan agreement which itself was unenforceable against Snowvale Pty. Ltd. because there was no consideration for that loan agreement. This agreement was executed on 15 February, 1989 and although it purports on its face to record an agreement between FIC and Snowvale Pty. Ltd. for an advance at some later time of $1,300,000.00 by the lender to the borrower, those moneys had been advanced back in November 1988. It was submitted in effect that since the loan agreement of 15 February, 1989 does not purport to be entered into in execution of a term of the earlier agreement under which the moneys were advanced, the loan agreement itself is not enforceable against Snowvale Pty. Ltd. for want of consideration (even though the original agreement under which the moneys were advanced to Snowvale in November would no doubt be fully enforceable according to its terms). FMS accepts that a guarantee of performance by one person of an obligation to another that is unenforceable against that person for any reason, including a want of consideration, cannot be enforced against the guarantor. But FMS answers this argument by submitting that the guarantee, which takes the form of a deed, is not merely a guarantee but an indemnity also and that insofar as it operates as an indemnity, it imposes on Mrs. Skaff severally, as well as jointly with Mr. Juric - clause 9(a) - the obligation to indemnify FIC "against any loss damage claim demand cash or expense or obligation direct or indirect which (FIC) has or may suffer incur or sustain by reason of the non-payment of any moneys hereby secured or the non-performance or non-observance of all or any of the obligations hereby secured": clause 1(b). Reliance is also placed on clause 2:

"Indemnity: Notwithstanding anything contained in this

Guarantee and notwithstanding that the whole or any part of

the moneys hereby secured are or may be irrecoverable from

the borrower (Snowvale Pty. Ltd.) by (FIC) ... whereby such

moneys or any part thereof are not recoverable from (Mr.

Juric and Mrs. Skaff) as sureties by (FIC) then and in such

case (Mr. Juric and Mrs. Skaff) hereby as a separate and

additional liability under this Guarantee indemnifies the

company in respect of such moneys and as a principal debtor

agrees with (FIC) to pay to (FIC) on demand a sum equal to

the amount of such moneys ..."

19. This clause I think contemplates that the guarantee may not be enforceable against Mrs. Skaff (FMS did not contend that it was enforceable here) and goes on to deal with the enforceability of the separate indemnity. It was accepted, on behalf of Mrs. Skaff, that the obligations imposed by the Deed of 15 February, 1989, including clause 1(b) and clause 2, on her were assignable by FIC to FMS. In this regard, I note clause 26.1 (which deals with the assignment of the benefit of "this Guarantee") and I also note that by clause 31.7 of the Deed, the term "Company" in clauses 1 and 2 of the Deed includes FIC and its assigns.

20. A combined "guarantee and indemnity" has, on occasion, been construed merely as a guarantee on the ground that if the creditor wishes to obtain from the third party not merely a guarantee but also an indemnity, he must do so in clear words - see O'Donovan and Phillips, The Modern Contract of Guarantee, at page 25, but cf. Wren v. Mahony at p 227. However, the language of these provisions of the document (which is entitled "Guarantee and Indemnity") is such, in my view, as to impose on Mrs. Skaff as well as Mr. Juric a primary obligation to keep FIC and its assigns secure against any loss or damage flowing from FIC having made the loan to Snowvale Pty. Ltd., which obligation is independent of Snowvale Pty. Ltd. being under any continuing liability to FIC in respect of the loan, and a primary obligation to pay to FIC or its assign an amount equal to the advance and interest in the event that that money was not recoverable from Snowvale Pty. Ltd. or from Mrs. Skaff and Mr. Juric as guarantors. It follows that even if the loan agreement of 15 February, 1989 was not enforceable against Snowvale Pty. Ltd. because, e.g., it was unsupported by consideration, Snowvale Pty. Ltd. having received the advance referred to in the Guarantee and Indemnity, Mrs. Skaff was bound to make good any loss or damage to FIC or its assigns flowing from non-payment of those loan moneys by Snowvale Pty. Ltd..

21. It was also submitted that no debt was owing to FMS because Mrs. Skaff had a set-off arising from the breach by FIC of its agreement of 21 June, 1989 to advance a further $165,000.00 to Snowvale Pty. Ltd.. It was said that this breach deprived Snowvale Pty. Ltd. of the funds necessary to effectively market the project, particularly in the period from about mid-1989 to August 1989, i.e., during the tail-end of the tourist boom and prior to the pilot's strike, which commenced in August 1989. In her affidavit of 5 November, Mrs. Skaff said that due to delays in receipt of the whole of the promised $165,000.00 further funding, "the project was unable to be marketed before the Airline Pilots Strike in August/September 1989 and the opportunities to on-sell the island became drastically reduced as the long-term tourist development market collapsed." As I have mentioned, it was conceded that FIC was in breach of this agreement insofar as it failed to advance a large part of the $165,000.00 promised and it was accepted that if this conferred on Snowvale Pty. Ltd. a set-off or counter-claim that overtopped the amount of the debt owing by Snowvale Pty. Ltd., then that would be a good answer to the assertion that Mrs. Skaff is indebted to FMS.

22. The set-off or counter-claim is put forward on the basis that breach of the agreement to make the further moneys available deprived Snowvale Pty. Ltd. of the chance of a profitable sale of the project. But the evidence before me provides no basis for concluding that the value of that lost chance is an amount that exceeds the amount repayable by Snowvale Pty. Ltd., or indeed any particular amount of any significance. There is nothing in the evidence before me to suggest that, while there may have been sales of island resorts in the general period with which I am concerned, the failure on the part of FIC to make available promptly the whole of the promised $165,000.00 in late June 1989 caused Snowvale Pty. Ltd. to lose the chance of a sale in the period of a month or so to August 1989.

23. Mrs. Skaff's own material shows that Essington Developments Ltd. was, as early as April 1989, discussing with her the prospect of acquiring the project, but there is no evidence before me to show that Essington Developments retained any interest in acquiring it after May 1989, i.e., after a date well prior to the making of the agreement for the further advance of $165,000.00 the breach of which Mrs. Skaff relies on to show that Snowvale Pty. Ltd. had a good set-off against FIC. Mrs. Skaff's evidence also shows that well after the full implications of the airline pilots strike would have been apparent, there were buyers still around who Snowvale lost for reasons that cannot be laid at FMS's door. In July and later in October 1990, the Dellsky organisation and people associated with it made offers to buy into the project. However, these offers were rejected by the receivers of Snowvale Pty. Ltd., not by FIC or FMS. No suggestion was made as to how the rejection of these offers by the receivers could go to support the argument that Snowvale Pty. Ltd. had a set-off or cross-claim against FIC flowing from the latter's breach of the agreement to make the further advance of $165,000.00.

24. I am not prepared to accept that the evidence with respect to the sale of Paradise Bay Resort and Orpheus Island in February and April 1989, respectively, shows that FIC's breach deprived Snowvale of a valuable chance. Essington Developments, Saunders and the Dellsky interests all became interested in the possibility of acquiring the project when it had none of the marketing benefits that Mrs. Skaff says it would have had but for FIC's breach. All lost interest in the project or were stopped from proceeding for reasons unconnected with that breach. The inability to market the project in a way that the funds withheld by FIC would have allowed was a matter of little moment that has not been shown to have caused any real problem for Snowvale Pty. Ltd..

25. Finally, Mrs. Skaff referred to what is said to be a fourth proposal to purchase the project that was put forward by one Keith Saunders in September 1989. In contrast to the proposals by Essington Developments and the Dellsky interests, she does not put anything before the Court by way of documentation or other confirmatory evidence to support what she says about this particular offer. All she relies upon is her bare assertion in this regard. She goes on to say that the offer to purchase the island at $7,800,000.00 made by Saunders "was never formally contracted as the notice appearing seemed to lessen his interest substantially". The notice she refers to is the notice which the solicitor for FIC caused to be published in the Queensland Government Gazette on 2 December, 1989 that Snowvale Pty. Ltd. was in default of its loan agreement and that FIC had gone into possession of the island. Her own evidence shows that the loss of this sale, assuming there was an offer by Saunders which, if accepted, he would have fulfilled, has nothing to do with the failure of FIC to advance of all the $165,000.00.

26. Counsel for Mrs. Skaff accordingly sought to develop an argument that by issuing this notice of default, FIC was in breach of its agreement with Snowvale Pty. Ltd. Although the particular term or terms of the agreement that were said to be so breached were not identified, the proposition advanced was that since the guarantee upon which the judgment creditor relies against Mrs. Skaff here was expressed to be given to secure repayment of the loan moneys advanced under the loan agreement of 15 February, 1989 and since the term of the loan was, pursuant to FIC's letter of offer of 21 June, 1989, which was accepted by Snowvale Pty. Ltd., described as "a further six to twelve months", the issue and the gazetting of the notice of default on 2 December, 1989 was premature and in breach of the loan agreement as then varied. It was also submitted that the letter of offer dated 21 June, 1989 should be read as an offer, among other things, to extend the term of the original loan by a period of from six to 12 months from 21 June, 1989. The loan moneys, on the evidence before me, were advanced on 28 November, 1988. The original term was to be for six months, i.e., for a term expiring on 27 May, 1989. The offer of 21 June, 1989 was an offer to provide a further advance of $165,000.00 in addition to the $1,325,000.00 advanced under the original agreement. This letter of offer, in providing: "Term of loan - the term of the loan is a further six months to twelve months", stipulated in my view for an extension of the original loan for a further six months from 27 May, 1989 making the term of the original loan, as extended, a period of 12 months overall from 28 November, 1988 to 27 November, 1989. On this construction of the agreements, the notice of default was not given until after the time for repayment had passed. There can therefore be no room for the submission that the giving of the notice constituted a breach of the agreement.

27. I propose to make a sequestration order against Mrs. Skaff.

Re Alexandra Louise Skaff Ex Parte: Farrow Mortgage Services Pty Ltd (In Liquidation) Fed [1993] FCA 118; (1993) 113 ALR 715 (1993) 41 FCR 331 (26 March 1993)

At a glance

Court

Decision date

Before

Source

Judgment (46 paragraphs)

Re Alexandra Louise Skaff Ex Parte: Farrow Mortgage Services Pty Ltd (In Liquidation) Fed [1993] FCA 118; (1993) 113 ALR 715 (1993) 41 FCR 331 (26 March 1993)

Cases Cited (6)