Eastwood v Lyttletons

BC 9704321

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(Judgment by: HEEREY J) Court:

Judge:
HEEREY J

Subject References:
BANKRUPTCY
debt of petitioning creditor together with interest paid in full
petition withdrawn
dispute as to whether compromise agreement as to payment by instalments made between petitioning creditor and debtor
liability for costs

Case References:
Sarina v The Council of the Shire of Wollondilly - (1980) 43 FLR 163
re Vikelis; Ex parte Deputy Commissioner of Taxation - (unreported), Jenkinson J, 4 November 1985
re Dan Horesh; Ex parte Edgewater Service Limited - (unreported), Olney J, 1 July 1992

Judgment date: 25 AUGUST 1997

MELBOURNE

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Judgment by:
HEEREY J

This difficult question as to costs arises in a context where the debtor has now paid all the amount of the judgment debt on which the petition was founded, together with interest. The petitioning creditor seeks an order that the petition be withdrawn, and of course there is no opposition to that. However, the petitioning creditor also seeks the costs of the petition. The judgment debt was for legal costs. The petitioning creditor is a firm of solicitors who acted on the debtor's behalf in family law proceedings.

On 28 October 1996 the petitioning creditor obtained judgment by default in the Dandenong Magistrates' Court for a claim, interest and costs amounting in all to $7,552.52. The debtor was apparently unaware of those proceedings, but shortly afterwards he received notice of them, and contacted the petitioning creditor's office. In an affidavit sworn in the present matter he says that he telephoned the petitioning creditor's office on 12 November 1996 and was referred to Ms Julie Millar, whom he was told was the accounts manager. He said he had a discussion with her and:

It was resolved that I would pay $2000 up- front and $500 per month to pay off the account. I also agreed, upon her insistence, to pay interest at the rate of 13.2 per cent per annum on the reducing balance. On 13 November 1996, the following day, I forwarded a letter to Julie Millar enclosing $2000 and indicating that I would pay $500 per month.

That letter was produced and is in these terms:

Julie Millar

Re Telephone conversation 12 November '96.

I am now in a position to offer a payment of $500 per month to reduce the account outstanding hoping that this will be acceptable and will avoid any further proceedings.

Enclosed is a bank cheque for $2000.

Yours faithfully,

J. Eastwood.

Ms Millar has sworn an affidavit in which she deposes:

I deny that it was resolved that the Debtor would pay "$2000 up-front and $500 per month to pay off the account." Rather I told the debtor that I had instructions from Lyttletons to pursue this matter, and he then made an offer to pay off the outstanding debt at $500 per month. This offer by the Debtor was rejected outright. I told him it would take some 14 months for the debt to be paid in full at that rate, and his offer therefore was totally unsatisfactory. I deny any suggestion that the matter was "resolved" or that any agreement was reached.

She further deposes that on 14 November the petitioning creditor wrote to the debtor acknowledging receipt of his letter of 13 November with the enclosed bank cheque and stating that the amount of the cheque had been offset against outstanding barrister's fees, costs on the judgment and the balance towards the outstanding costs. The letter continued:

We note the balance remaining outstanding is now $5552.52. As previously advised the offer to pay $500 per month to reduce the account is not sufficient and not acceptable to this office. We propose to issue Bankruptcy proceedings shortly.

The bankruptcy notice was issued on 10 December 1996. The debtor thereafter continued to make payments. It will be convenient if I summarise these now. Including the first payment of $2000 already mentioned, they were as follows:

The petition was issued on 21 March 1997. At the first hearing date, the debtor appeared and sought an adjournment. Registrar Agnew adjourned the matter to 23 June and gave directions to the debtor to file notice of opposition and affidavits, including an affidavit setting out his financial position, by 2 June.

The debtor in fact swore an affidavit on 3 June, and on 13 June the judgment creditor served affidavits in reply. On 23 June, before Sundberg J, the matter was not reached and was adjourned to 30 June. Although a notice of opposition had not been filed, the debtor stated then that his grounds for opposition were that an arrangement was made to pay by instalments and that moneys paid by him had not been acknowledged. His affidavit also raised matters which were apparently advanced in support of a claim that he was solvent.

The matter came on before me on 30 June. I adjourned the matter, indicating that I would be reluctant to make a sequestration order in view of the small amount of the debt which by then was owing, but adding that it would be in the debtor's interest to pay the balance prior to the adjourned hearing date.

Mr Broberg, who advanced a careful argument on behalf of the petitioning creditor, referred to a number of authorities, in particular the decision of the Full Court in Sarina v The Council of the Shire of Wollondilly (1980) 43 FLR 163 and to unreported judgments at first instance: re Vikelis; Ex parte Deputy Commissioner of Taxation , Jenkinson J, 4 November 1985, and re Dan Horesh; Ex parte Edgewater Service Limited , Olney J, 1 July 1992.

As I say, I found this quite a difficult issue. Competing considerations of fairness were advanced on both sides. It seems to me, however, that I should decline to accede to the petitioning creditor's request for an order for costs. I do that because, leaving aside for the moment the question of solvency, there is the issue of whether there was a binding agreement to compromise the petitioning creditor's debt made in November of last year.

It is true that, as Mr Broberg pointed out, the subsequent letters that I have quoted rather point against the existence of such an agreement. On the other hand, Mr Eastwood is not legally qualified and his letter may have been more a matter of defective expression than a true indication that what happened was as Ms Millar alleged. In any event, it does seem a little surprising that, if the debtor's offer had been rejected as peremptorily as Ms Millar suggests, he would have gone to all the trouble of forwarding a bank cheque for $2000.

But the fact remains that this issue, in the events that have happened, has not been resolved. In particular there has not been evidence and cross-examination of either the debtor or Ms Millar. If the debtor's contention were accepted, he would have a complete answer to the petition, because the petitioning creditor's debt would have been superseded by the compromise agreement.

I think it is also legitimate to take into account that there are no supporting creditors and no suggestion of any other debts owed by the debtor which have not been paid. The amount, even at the outset, was relatively small. There was real property registered in the debtor's name against which the petitioning creditor could have had recourse. One should view with caution, I think, the use of the mechanism of the Bankruptcy Act simply as a debt-collecting procedure. The petitioning creditor has received its debt in full within a relatively short time and, moreover, has received interest at more than double prevailing rates.

So for those reasons I will not make any order as to costs, and I will grant leave to withdraw the petition.