FEDERAL COURT OF AUSTRALIA

Charles v Parkinson [2000] FCA 1467

BANKRUPTCY – contested creditor’s petition – proof of judgment debt – discretion to go behind judgment of District Court – husband and wife were sole directors of company – wife held liable in District Court under personal guarantee of company’s contractual obligations – creditors initially obtained default judgment when husband and wife failed to appear at hearing – husband and wife applied to have default judgment set aside – judge set aside default judgment on condition that husband and wife pay costs thrown away – husband and wife failed to comply with costs order – judge refused wife leave to rely on amended defence

BANKRUPTCY – contract – personal guarantee – intention – non est factum

Bankruptcy Act 1966 (Cth) s 52

Cain v Whyte (1933) 48 CLR 639 referred to

Wren v Mahoney (1972) 126 CLR 212 referred to

Wolff v Donovan (1991) 29 FCR 480 referred to

Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 161 referred to

Deeks v Little Moreton Trading Pty Ltd (1995) 14 WAR 58 referred to

James Thane Pty Ltd v Conrad International Hotels Corp [1999] QCA 516 referred to

Hoylevans Pty Ltd v Weir [2000] WASC 144 referred to

Gibson v Manchester City Council [1978] 1 WLR 520 referred to

Zaknic Pty Ltd v Svelte Corporation Pty Ltd (unreported, Federal Court of Australia, Lehane J, 14 August 1996) referred to

EDWARD JOHN CHARLES AND KATHRYN ANN CHARLES v DAVID PARKINSON AND FIONA MARGARET PARKINSON (IN THE MATTER OF DAVID PARKINSON AND FIONA MARGARET PARKINSON)

N 7541 OF 1999

MOORE J

20 OCTOBER 2000

SYDNEY

IN THE MATTER OF DAVID PARKINSON AND FIONA MARGARET PARKINSON

THE COURT ORDERS THAT:

1.      The petition is dismissed.

2.      Costs are reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF DAVID PARKINSON AND FIONA MARGARET PARKINSON

REASONS FOR JUDGMENT

Introduction

1                     On 17 May 1999 Mr Edward Charles and Mrs Kathryn Charles lodged a creditor’s petition seeking an order under s 52(1) of the Bankruptcy Act 1966 (Cth) sequestrating the estate of Mr David Parkinson and Mrs Fiona Parkinson.  Mr and Mrs Parkinson filed notices of intention to oppose the petition.  On 16 May 2000, I made an order extending the petition for twelve months.  On 14 June 2000, in other proceedings, Spender J made an order sequestrating the estate of Mr Parkinson: see Driessen v Parkinson [2000] FCA 871.  Accordingly, I am dealing with the petition only as it concerns Mrs Parkinson.

2                     The alleged act of bankruptcy is the failure of Mrs Parkinson to comply with a bankruptcy notice served on 26 September 1998.  An application to set aside the bankruptcy notice was dismissed by a Registrar on 8 December 1998.  The amount claimed in the bankruptcy notice is $99,120.78.  This represents a judgment debt of $96,585.90, for breach of contract, entered against Mr and Mrs Parkinson and a company called Glenloch Pty Limited (ACN 002 144 872) (“Glenloch”) in the District Court of New South Wales on 18 June 1998 and $2,534.88 as interest on that judgment.  Mr and Mrs Parkinson were held liable in the District Court under a personal guarantee for the performance by Glenloch of its contractual obligations.

The basis of Mrs Parkinson’s opposition to the creditor’s petition

3                     Mr and Mrs Charles submit they have a prima facie right to a sequestration order: Cain v Whyte (1933) 48 CLR 639.  In Wren v Mahoney (1972) 126 CLR 212 at 225, Barwick CJ (with whom Windeyer and Owen JJ agreed) said:

“The Court’s discretion is in my view a discretion to accept the judgment as satisfactory proof of [the petitioning creditor’s] debt.  That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.”

4                     I accept Mrs Parkinson must show substantial reasons for the Court to go behind the judgment. In essence, the grounds on which she asks the Court to do so are, first, that she was denied a real opportunity to defend the proceedings in the District Court, and, second, that she did not agree to give the personal guarantee that formed the basis of the judgment against her.  The evidence concerning these grounds was as follows.

The evidence

5                     In order to consider the first ground relied upon by Mrs Parkinson it is in necessary to set out the course those proceedings took as evident from the parts of the District Court file tendered in these proceedings.

6                     On 15 April 1994, Mr and Mrs Charles commenced proceedings, by statement of claim, against Glenloch  and Mr and Mrs Parkinson.  Glenloch had carried on business delivering smallgoods though, on or about 31 January 1994, it ceased trading and was placed in voluntary administration.  Mr and Mrs Parkinson were directors of Glenloch and Mrs Parkinson was also its company secretary. Glenloch had its registered office at 109 Arcadia Road, Arcadia, which was (until some time in 1994) Mr and Mrs Parkinson’s home.  Glenloch also had office premises at 43 Wentworth Street, Greenacre.  Mr and Mrs Charles sued for breach of an agreement dated 20 August 1992 (“the Agreement”).

7                     I later consider (see par 31 below), the document tendered by Mr and Mrs Charles, in these proceedings, as the Agreement.  However for the moment it is sufficient to set out the relevant terms of that document.  The agreement was expressed to be:

“BETWEEN GLENLOCH PTY. LIMITED (A.C.N. 002-144-872), a Company duly incorporated and having its principal place of business at 20 George Street, Granville in the State of New South Wales (hereinafter called “Glenloch”) and DAVID PARKINSON and FIONA MARGARET PARKINSON both of 109 Arcadia Road, Arcadia in the State of New South Wales (hereinafter called “Parkinson”) of the one part, AND EDWARD JOHN CHARLES and KATHRYN ANN CHARLES both of 4 Fergusson Street, Glenfield in the State of New South Wales (hereinafter called “Charles”) of the other part:”

8                     It can be seen that the word "Parkinson" is intended to describe both Mr and Mrs Parkinson.  The recitals were as follows:

“WHEREAS:

(a)    Glenloch carries on business as a distributor of gourmet foods, small goods, delicatessen items and numerous other products within New South Wales.

(b)    Glenloch is a Company owned and controlled by Parkinson.

(c)    Charles wishes to acquire from Glenloch and Parkinson the right to distribute Glenloch products within a geographical area referred to in Schedule One.

(d)    Glenloch and Parkinson have agreed to grant to Charles the exclusive rights to distribute Glenloch products within a geographical area referred to in Schedule One.”

9                     Clauses one and two conferred on Mr and Mrs Charles the exclusive right to distribute Glenloch products in the area set out in Schedule One for five years (with an option exercisable by Mr and Mrs Charles to extend the right for another five years), for consideration of $35,000.  Clause four required Mr and Mrs Charles to acquire and maintain at their cost a suitable motor vehicle to deliver the products, to deliver the products to the best of their ability and in a proper and efficient manner from Monday to Friday in accordance with Glenloch’s established procedures and schedules, and to account to Glenloch for any money paid or payable to them for the products.  Clause three required Glenloch to provide certain things to Mr and Mrs Charles, including a weekly commission equivalent to sixty per cent of the delivery fee charged by Glenloch.  Clause ten provided that Glenloch guaranteed that commission would be no less than $1,300 per week and guaranteed to pay that amount plus any additional amount payable under clause three.  Clauses eleven and twelve provided as follows:

“11. Parkinson jointly and severally guarantees the due performance by Glenloch of all of Glenloch’s obligations under this Agreement.

12. This Agreement shall be binding on the parties, their legal and personal representatives and Assigns.”

10                  Schedule One contained a list of areas.  The document tendered also contains a map on which a line has been drawn in brown pen marking the boundary of those areas.  On the unchallenged evidence of Mr Parkinson, that map was added at Mr Charles’ request one evening in 1993.  What occurred that evening is referred to later (see par 36 below).

11                  The statement of claim filed on 15 April 1994 alleged that Glenloch and Mr and Mrs Charles breached or repudiated the agreement by failing to pay commissions in respect of the period 22 October 1993 to 18 November 1993.  Damages were claimed for wasted expenditure and loss of profits.  For purposes of these proceedings, it is sufficient to refer to only two paragraphs of the statement of claim.  Paragraph three alleged:

“On 20 August, 1992 the plaintiffs, first defendant and second defendants entered into an agreement in writing (called “the agreement”).”

Paragraph sixteen alleged:

“It was a term and condition of the agreement that the second defendants jointly and severally guaranteed the due performance by the first defendant of all of its obligations under the agreement.”

12                  On 15 June 1994 a defence was filed.  Paragraph three of the statement of claim was admitted but paragraph sixteen was denied.  The defence was signed by Mr Jonathan Abbott as “solicitor for the defendant”.  Also filed was an affidavit, sworn 9 June 1994, verifying the defence.  The affidavit was sworn by both Mr and Mrs Parkinson and was witnessed by Mr Abbott.

13                  The matter first came on for hearing before the District Court at Campbelltown on 19 September 1996.  Mr Parkinson appeared in person and applied for and obtained an adjournment.  The Parkinsons were ordered to pay Mr and Mrs Charles’ costs thrown away on an indemnity basis.  The matter then came on for mention before Judge Holt on 6 December 1996 at Campbelltown.  Mr Andrew Scotting of counsel appeared for Mr and Mrs Parkinson.  Judge Holt re-listed the matter for hearing on 17 March 1997 at Sydney.

14                  At the hearing on 17 March 1997 before Judge Garling, there was no appearance for Glenloch or Mr and Mrs Parkinson.  Judge Garling entered default judgment in the sum of $217,768.28, with an additional sum of $48,930.00 representing interest.

15                  On 24 December 1997, Mr and Mrs Parkinson filed a motion to set aside the judgment of Judge Garling.  The motion was heard by Judge Puckeridge on 24 April 1998.  At the hearing, Mr Parkinson was represented by Mr Scotting, and Mrs Parkinson by Mr Jean-Jacques Loofs of counsel.  In affidavits filed in support of the motion, Mrs Parkinson deposed to not having known of the hearing before Judge Garling, and to not having known of the personal guarantee relied upon by Mr and Mrs Charles.

16                  Judge Puckeridge delivered judgment on the motion on 27 April 1998.  As to Mrs Parkinson’s application to set aside the default judgment, Judge Puckeridge said:

“I am satisfied, as I indicated on Friday last, that so far as the second defendant, Fiona Margaret Parkinson, she was not informed by Mr Parkinson, her husband, of the impending court hearing date of 17 March 1997.  I am also satisfied that Mrs Parkinson, when she signed the agreement relied upon by the plaintiffs in 1992, was not aware of the personal guarantee that was referred to in that agreement.  I consider that Mrs Parkinson should most definitely be allowed in to defend on the grounds as stated in the grounds of defence which have been filed before this Court.”

17                  The order made by his Honour in Mrs Parkinson’s application was as follows:

“So far as Mrs Parkinson is concerned, I allow her leave to defend the claim in accordance with the grounds of defence attached to her affidavit of 11 February 1998 and to present a cross claim in accordance with paragraphs 20 and 21 of the draft grounds of defence as attached to the affidavit.  I do not allow Mrs Parkinson leave to rely upon an equitable set-off as claimed by the second defendant.”

18                  The orders made by his Honour for costs, and his reasons, were as follows:

“The respondents to this application, the prior judgment creditors are, as indicated, clearly prejudiced.  Part 3 rule 2 [of the Supreme Court Rules] allows us to abridge or extend time [for the filing of a motion to set aside a judgment] on terms.  In an endeavour to cure that prejudice, I order that the applicants pay the respondents’ costs in relation to the motion at present before this Court and pay all costs of the respondents thrown away and rendered nugatory in proceedings to enforce the judgment of 17 March 1997.  I also order that the applicants pay to the respondents’ solicitor before the hearing date a sum of $21,000 by way of security for costs and by way of costs generally. … I order that the amount of $21,000 referred to be paid to the respondents’ solicitor by 4pm on 22 May of 1998.”

19                  The draft amended defence relevantly differed from the filed defence in that the amended defence admitted paragraph three of the statement of claim but denied “that the document dated 20^th August, 1992 reflects the agreement of the parties”.  Various other paragraphs that had been admitted in the filed defence were denied in the amended defence.  There was also a draft cross-claim but it is not relevant.

20                  Judge Puckeridge listed the matter for hearing on 25 May 1998.  On that day, Mr Parkinson was represented by Mr Scotting and Mrs Parkinson by Mr Loofs.  On 26 May 1998 Mr and Mrs Charles filed in court an amended statement of claim. Paragraph three had been amended as follows:

“On 20 August, 1992 tThe plaintiffs, first defendant and second defendants entered into an agreement in writing (called “the agreement”), dated 20 August 1992.”

Paragraph sixteen had been renumbered as paragraph fifteen but its wording was unchanged.

21                  By the time of the hearing, Mr and Mrs Parkinson had not complied with the costs order of 27 April 1998.  Judge Puckeridge refused Mr and Mrs Parkinson leave to rely on the amended defence.  On 27 May 1998, Judge Puckeridge gave judgment in favour of Mr and Mrs Charles and on 3 June 1998, the judgment amount was determined as $96,585.90.  The judgment was entered on 18 June 1998.

22                  Mrs Parkinson gave evidence in these proceedings about the District Court proceedings.  It was to the general effect that she took no part in the management of Glenloch, and had little or no involvement in the litigation with Mr and Mrs Charles.  Rather, her husband had managed the company and had conducted the litigation, and did not keep her informed of its progress.  As to the defence filed in that court, Mrs Parkinson said that after Mr and Mrs Charles commenced proceedings she met once with her solicitor Mr Abbott and discussed with him in very brief terms her defence.  She could not recall what she instructed him to do.  She accepted that she had signed the affidavit verifying the defence, but stated that it did not mean anything to her.  As to her failure to appear before Judge Garling on 17 March 1997, Mrs Parkinson said she did not know of that hearing.  Her husband had not informed her of the progress of the Campbelltown proceedings.

23                  The draft amended defence was annexed to an affidavit sworn by Mrs Parkinson on 11 February 1998 and filed in support of the motion to set aside the default judgment.  In cross-examination, Mrs Parkinson sought to explain the circumstances in which she swore that affidavit.  She says she was telephoned at work by Mr Scotting who said he had sent the affidavit to Mr Abbott’s office and asked her to go there and sign it.  She said she attended Mr Abbott’s office and read the affidavit, but did not discuss it with Mr Abbott or Mr Scotting before signing it.

24                  As to her failure to comply with the costs order of Judge Puckeridge, Mrs Parkinson gave evidence that she was financially dependent on her husband at that time.  She worked two days per week and earned approximately $160 per week after tax.  Her only assets were household goods and a car worth $6000 to $8000.  Mr Parkinson gave evidence that he was unable to raise the security ordered by Judge Puckeridge.

25                  An issue arose in cross-examination of both Mr and Mrs Parkinson in these proceedings as to what became of the proceeds of sale of their house at 109 Arcadia Road, Arcadia in 1994 (“the Arcadia Road property”).  The immediate relevance of this issue is, as I apprehend it, whether Mr and Mrs Parkinson retained control of some proceeds that could have been used by them defend the proceedings brought by Mr and Mrs Charles.  Counsel for Mr and Mrs Charles also submitted that it was a factor favouring an exercise of the discretion to make a sequestration order, on the basis that a trustee of Mrs Parkinson’s estate should investigate the fate of those proceeds.

26                  The evidence of Mr and Mrs Parkinson concerning this issue was as follows.  The Arcadia Road property, which was jointly owned by Mr and Mrs Parkinson, was auctioned on 10 March 1994 but was not sold until some months later, for around $560,000 or $570,000.  Mr Abbott acted as the Parkinsons’ solicitor in the sale.  Both Mr and Mrs Parkinson said they believed the proceeds of the sale were paid into Mr Abbott’s trust account and that Mr Abbott was authorised to pay some of that money out to certain creditors.  As at 15 March 1994, $264,310.14 was owed by Mr and Mrs Parkinson to Westpac Banking Corporation under two mortgages over the Arcadia Road property (though until its demise, Glenloch had made the payments under the mortgage).  However, Mr Parkinson said that the bank was actually paid more than $350,000 out of the proceeds, representing amounts payable under the mortgage, “vehicle leases” and for “legal fees”.  Both Mr and Mrs Parkinson recalled two creditors of Glenloch being paid out of the proceeds, namely a trucking company (Mrs Parkinson at first volunteered the amount $18,000, though later appeared to suggest she did not know the amount) and a landlord of Glenloch’s premises at 43 Wentworth Street, Greenacre (no amount was volunteered by either Mr or Mrs Parkinson).  Mrs Parkinson also said that she and her husband were made bankrupt in Queensland around the time of the sale and some of the proceeds were used to fund litigation in Queensland to set aside the bankruptcy (Mrs Parkinson volunteered the estimate $22,000 to $25,000).  Also around the time of the sale, Mr and Mrs Parkinson intended to buy a property at Lot 5, Ridge Road, Arcadia (“the Ridge Road property”).  They paid a deposit of $30,000 but the Queensland bankruptcy intervened and they were unable to complete the transaction.  The property was ultimately purchased by a company called Holefan Pty Ltd (“Holefan”).  Mr and Mrs Parkinson now rent the property from Holefan.  Mrs Parkinson gave evidence that she knew one of the directors of that company, Mr Patrick Cunningham.  Mrs Parkinson said, when asked whether she or Mr Parkinson had provided Holefan with any money to assist in the purchase of the Ridge Road property, “Just I suppose the original $30,000”.  She denied a suggestion by counsel for Mr and Mrs Charles that the remainder of the proceeds from the sale of the Arcadia Road property had been lent to Holefan.  Mr Parkinson said that they lost their $30,000 deposit and denied that they provided any financial assistance to Holefan.

27                  A further issue that arose in cross-examination was the legal representation provided to Mr and Mrs Parkinson in the course of the proceedings in the District Court.  Mrs Parkinson gave evidence that she retained Mr Abbott as her solicitor when Mr and Mrs Charles commenced proceedings in the District Court.   It would appear from the evidence in pars 12 and 22 above that Mr Abbott settled the verified defence that was filed on 15 June 1994.  As noted in par 13 above, Mr Scotting appeared as counsel for Mr and Mrs Parkinson on 6 December 1996.  Mrs Parkinson said that from the end of 1994, she retained Mr Leon Nikolaidis, solicitor, though all correspondence from Mr Nikolaidis, while addressed to them jointly, was received and dealt with by Mr Parkinson.  There was no evidence before me concerning the circumstances in which Mr Abbott ceased to act, or as to whether or not Mr Scotting also ceased to act at the end of 1994.

28                  As to the nature of the representation provided by Mr Nikolaidis, the evidence is somewhat confusing.  The following appears in the judgment of Judge Puckeridge:

“At the hearing [before Judge Garling on 17 March 1997] there was no appearance for the defendants.  The action was called on for trial before Judge Garling and a transcript of those proceedings is now before the Court by way of exhibit 3.  It was noted when the matter came on for hearing that the defendant’s solicitors ceased to act on behalf of the defendants, and a letter had been written indicating that Mr Parkinson, one of the second defendants, had suffered a major heart attack on 5 February and was admitted to hospital where he remained for some time.  …

…

Mr Parkinson has indicated by way of affidavit evidence that whilst he was aware of the hearing on 17 March 1997 he spoke to his solicitor, Mr Leon Nikolaidis and he was advised not attend as he had a medical certificate.  He indicates that he made arrangements for the copy of the medical reports to be forwarded to Mr Nikolaidis and instructed him to forward them to the Court and apply for an adjournment.  He forwarded a cheque to Mr Nikolaidis on account of costs and sought an application for an adjournment.  According to his affidavit of 23 December 1997 a short time later he was advised that Mr Nikolaidis had ceased to act for him and he was later advised that he, Mr Nikolaidis, did not attend court on 17 March 1997 and had not presented the cheque that had been sent to him.”

In affidavits sworn 16 November 1998 and 18 June 1999 and read in these proceedings, Mr Parkinson makes no mention of forwarding a cheque to Mr Nikolaidis, nor any failure of Mr Nikolaidis to forward medical reports to the District Court or apply for an adjournment.  The only explanation proffered for the failure of anyone to appear at the hearing on 17 March 1997 is as follows:

“On 17 March 1997 when this matter was fixed for hearing there was no representation on my behalf either by way of seeking an adjournment or by way of appearance at the hearing as I could not afford the legal costs to run this litigation at the time.  I did not inform my wife of the impending Court date in this matter.”

It is apparent from each affidavit that when they were prepared Mr Nikolaidis’ firm was acting for Mr Parkinson once again.

29                  As noted in par 15 above, Mr Parkinson was represented in the proceedings before Judge Puckeridge by Mr Scotting, and Mrs Parkinson by Mr Loofs.  According to Mrs Parkinson, Mr Abbott was retained as a “mail box” during these proceedings, but that was the extent of his involvement.  Mrs Parkinson said that she was told to retain separate counsel because a conflict of interest would have arisen if she and her husband had been represented by the same counsel.  From the evidence referred to in par 23 above, however, it appears that Mr Scotting had some involvement in settling one of Mrs Parkinson’s affidavits.  She says that after Judge Puckeridge had ordered her to pay security for costs, she asked Mr Loofs whether there was anything she could do and was advised by Mr Loofs that there was nothing she could do about it.  Earlier in the proceedings before this Court, Mr and Mrs Parkinson were represented by Mr Nikolaidis.  Mrs Parkinson said that at no time has she been advised by Mr Nikolaidis or Mr John Chippindall of counsel, who was apparently also retained, that she could have appealed against the order of Judge Puckeridge.  When asked by counsel for Mr and Mrs Charles why she subsequently retained the same legal representatives as her husband, Mrs Parkinson stated that she could no longer continue to afford to retain separate counsel.  When asked why she did not apply for legal aid, she replied that she thought it was only available in criminal cases.

30                  The second ground Mrs Parkinson raises is that she did not agree to give the personal guarantee that formed the basis of the judgment.  The relevant evidence is as follows.

31                  It is first necessary to describe in more detail the document tendered by Mr and Mrs Charles as the Agreement.  The document has six pages.  The first sentence on page one reads “THIS AGREEMENT is made on the 20^th day of August One thousand nine hundred and ninety two”.  The sentence is typed, except for “20^th” and “August” which are handwritten. Page one contains the parties, recitals, clause one and the beginning of clause two.

32                  The clauses continue until page four.  Page four made provision for the execution of the document.  It also contains clauses eleven (the personal guarantee) and twelve. The attestation clause commenced: “IN WITNESS WHEREOF the parties hereto have set their hand and seals on the day and year first hereinbefore written”.  Below these words, there is provision for the execution of the agreement by Glenloch.  At that point the common seal of Glenloch has been affixed and over the seal Mr Parkinson has signed as a director.  Also at that point there is a signature, apparently that of Mrs Parkinson, of the secretary of the company.  Below that there is provision for the signing of the document by Mr Parkinson and the witnessing of the signature.  He has signed at that point.  Below that again is provision for the signing of the document by Mrs Parkinson and the witnessing of the signature.  A signature appears at that point which is apparently that of Mrs Parkinson and the same signature as that appearing for the secretary of Glenloch. Below that again are provisions for the signature of Mr and Mrs Charles and their witnessing. The signatures of Mr and Mrs Parkinson in their personal capacity are witnessed by Russell Jepson.

33                  Page five contains Schedule One, which is a list of areas.  It bears the common seal of Glenloch.  Page six is a map.  At the top of the page appear the handwritten words “Schedule One, The areas of:”.  An area of the map is marked out in brown pen.  Page six also bears the common seal of Glenloch.

34                  Across the foot of pages one to four are four sets of initials: “DP”, “EJC”, “KC” and “FP”.  Across the foot of page five the same initials appear, though in a different order: “DP”, “FP”, “EJC”, “KC”.  At the foot of page six, the initials “FP”, “EJC” and “KC” appear, together with the signature of Mr Parkinson.

35                  Mrs Parkinson’s gave evidence that the signatures “F. Parkinson” on page four of the agreement were not written by her.  Mr Parkinson admitted in evidence that he wrote those signatures.  However, Mrs Parkinson accepted that she initialled the foot of each page.  When asked by counsel for Mr and Mrs Charles whether she recognised the handwriting of the date at the top of page one, Mrs Parkinson said it looked like her husband’s.  Mr Parkinson said that he did not recall inserting the date.

36                  Mrs Parkinson’s evidence about the circumstances in which she wrote her initials on the document was as follows.  One evening Mr Charles came to the Arcadia Road property.  She was sitting in the kitchen nursing her youngest child who had recently been in hospital.  She heard her husband and Mr Charles arguing in raised voices in another room.  Her husband then entered the kitchen carrying the document.  He told her to initial the document because otherwise Mr Charles would refuse to work the next day and the business could not afford that.  She then initialled each page of the document without reading it.  Mr Charles was not in the room, nor did he ask Mrs Parkinson to sign the document.

37                  Mrs Parkinson said that when she initialled the document she did not understand that it could give rise to a personal liability.  She said that if she had been told she was giving a personal guarantee by initialling the document, she would not have agreed to do so.

38                  Mr Parkinson’s evidence about the document dated 20 August 1992 and that evening was as follows.  Mr Parkinson provided a “sample” contract to Mr Charles in or around June 1992.  Mr Parkinson explained that Glenloch had a practice of giving prospective drivers a sample contract, executed by him (company seals were held at the Arcadia Road property), and inviting them to then obtain independent advice on it.  The drivers would often come back with a proposed varied contract, which Mr Parkinson might or might not agree to, though most drivers commenced work before the contract was finalised.  Generally, sample contracts did not contain the annexures setting out the list of areas.  Mr Parkinson’s evidence was that the evening on which Mr Charles came to the Arcadia Road property was more than one year after Mr Parkinson had provided Mr Charles with the sample contract.  On that night, Mr Charles brought the annexures.  In his affidavits sworn 16 November 1998 and 18 June 1999 Mr Parkinson says that the document dated 20 August 1992 was never intended to have legal effect.  It is his evidence that to the best of his belief the document dated 20 August 1992 consisted of the execution page from the sample contract, with the other pages substituted by Mr Charles.

39                  Counsel for Mr and Mrs Charles tendered four photocopied documents headed “agreement”, between Glenloch, Mr and Mrs Parkinson, and various third parties, conferring exclusive delivery rights on the third parties.  All of these documents contained personal guarantees by Mr and Mrs Parkinson for the performance by Glenloch of its contractual obligations.   None contained annexures setting out delivery areas.  Some bear the signature “F. Parkinson” and the initials “FP”.  Mr Parkinson said that he believed he wrote that signature and those initials, and that Mrs Parkinson did not.  One of these documents was in the form of an agreement with Mr and Mrs Charles.  It consisted of three pages, all on Glenloch letterhead.  After the word “AGREEMENT” on the first page was typed “1. This agreement is dated 29 July 1992”.  The execution page bears only Mr Parkinson’s signature and the common seal of Glenloch, not “F. Parkinson”.  When shown these four documents by counsel for Mr and Mrs Charles, Mr Parkinson said that they were possibly samples, but were unlikely to be final contracts because they did not contain annexures, some were not fully executed, and he recalled in one instance that the identity of the parties changed before the final contract was executed.  However, when shown the document dated 29 July 1992 in the form of an agreement with Mr and Mrs Charles, Mr Parkinson appeared to deny that it was the sample provided to Mr Charles. Mr Parkinson estimated that between 1990 and 1993 Glenloch licensed approximately 22 or 23 people to deliver goods.  He stated that the agreements were all in substantially the same form, with slight variations, and Glenloch, himself and Mrs Parkinson were always parties to them.

40                  Counsel for Mr and Mrs Charles also tendered a photocopy of a file of proceedings brought in the Liverpool Local Court by Mr and Mrs Charles against Glenloch and Mr and Mrs Parkinson.  The statement of claim, filed on 18 November 1993, claimed “outstanding monies pursuant to the agreement between the parties dated the 20^th August 1992 at Glenfield, New South Wales.  Full particulars of which have already been supplied to the defendant.”  On 17 December 1993, default judgment was entered for Mr and Mrs Charles.  A writ of execution was issued and in early 1994 a sheriff seized goods from Glenloch’s premises at 43 Wentworth Street, Greenacre to satisfy the judgment debt.  When asked about these proceedings, Mrs Parkinson said she only became aware of them when told by her husband after Glenloch went into administration and the goods were seized.

41                  As noted in par 22, it was Mrs Parkinson’s evidence that she took no part in the management of Glenloch.  She stated that she was only a director because at that time a company was required by law to have two directors.  She said she was not paid a wage by Glenloch, though her husband was paid a wage, which went into their joint bank account.  She stated that she had only visited Glenloch’s premises on one occasion, “to help move a few things”.  Mrs Parkinson left school in 1973, having obtained her Higher School Certificate.  She then did a secretarial course and has held a number of part-time jobs.

Submissions

42                  The submissions of counsel for Mrs Parkinson were to the following effect.  First, the Court should go behind the judgment of Judge Puckeridge because Mrs Parkinson was prevented from raising a defence to the personal guarantee by a costs order that she was financially unable to meet.  She did not seek to have that order set aside because she was advised by her lawyer that she could not do so.  The order came about because Mrs Parkinson had not been kept informed of the proceedings by her husband.

43                  As to the question of the debt itself, it was submitted that Mrs Parkinson should not be taken to have intended to give a personal guarantee.  She cannot be regarded as having “executed” the document, because the document provided for formal execution whereas Mrs Parkinson merely initialled it.  If the effect of the document had been explained to her, and she truly intended to give the guarantee, she would have placed her signature on the execution page.  Initialling the pages can be explained as identifying or authenticating them.  More broadly, this was a not unusual situation where a wife and mother, who was nominally a director of a family company but took no part in its management and had at most a sketchy knowledge of its business, had signed a document at the request of her husband not understanding that it exposed her to personal liability.  Mrs Parkinson has given evidence that had she understood that she could be held personally liable, she would not have initialled it.  Regard should also be had to the view of Judge Puckeridge, expressed in his Honour’s judgment, that Mrs Parkinson was “not aware” of the personal guarantee when she initialled the agreement.  Last, any admissions made in the District Court should not be treated as admissions in these proceedings.  Additionally, the judgment in the Local Court should carry little weight because it was a default judgment.

44                  The submissions of counsel for Mr and Mrs Charles were to the following effect.  It is implausible to suggest that Mrs Parkinson knew nothing of the affairs of Glenloch.  Glenloch’s registered office, where the company seals were held, was the Parkinsons’ home in Arcadia Road.  Glenloch made the payments to Westpac under the mortgage.  Mr and Mrs Parkinson were Glenloch’s sole directors and Mrs Parkinson was its company secretary.  Glenloch routinely issued sample contracts containing personal guarantees.  Mrs Parkinson had completed her Higher School Certificate and secretarial training.  She was well able to read.

45                  As to the litigation in the District Court, counsel for Mr and Mrs Charles submitted that Mrs Parkinson was aware of the proceedings from 1994 because she swore the affidavit verifying the defence.  She had legal representatives.  Mr and Mrs Charles should not suffer the consequences of any failure by them to properly represent or advise Mrs Parkinson.  The approach taken by Mrs Parkinson to those proceedings was one of delay and acquiescence.  That approach was also taken in this Court, where several adjournments were sought to enable Mr and Mrs Parkinson to put on evidence of a handwriting expert that Mrs Parkinson had not signed the document dated 20 August 1992 and evidence of Mr Jepson, who apparently witnessed the execution of that document by Mr Parkinson.  Those things were never done.

46                  As to the giving of the guarantee, counsel submitted that Mr and Mrs Charles should not bear the consequences of any failure by Mrs Parkinson to read the document dated 20 August 1992.  Page one clearly named Mrs Parkinson as a party personally.  Mr Charles was not in the room and applied no pressure to Mrs Parkinson to initial it.  By initialling it, Mrs Parkinson should be taken to have executed it.

Findings of fact

47                  While I have some reservations about some of the evidence of Mrs Parkinson, I thought her evidence generally was credible.  Similarly much of the evidence of Mr Parkinson, at least on critical issues, was credible. However when giving evidence concerning the "sample" contracts, I think Mr Parkinson was keen to obscure what may well have been fraudulent conduct on his part, at least as it related to the Charles’ contract.  He was plainly prepared, on his own admission, to sign a document in his wife's name without any express authority from her.  The form of signature he adopted for his wife was different from his own and this suggests a desire to represent the signature as that of another person.

48                  As to Mrs Parkinson’s failure to appear before Judge Garling on 7 March 1997, I accept that, while Mrs Parkinson was plainly aware of the proceedings in the District Court from 1994, her husband did not tell her of the hearing.  As to the failure to comply with the costs order of Judge Puckeridge made on 27 April 1998 the evidence here is a little less clear.  I accept that Mrs Parkinson personally did not have the financial means to comply with that order and that she was financially dependent on her husband.  However, I also accept that there are some unanswered questions about the sale of the family home and the failed purchase of the Ridge Road property and its subsequent occupation by the Parkinsons.  However I not prepared, on the evidence as it stands, to find that in some way Mrs Parkinson knew that there were (if it be the fact) funds leftover from the sale of the family home or that the occupation of the Ridge Road property involved some collusion between the ultimate purchaser and the Parkinsons.  I am satisfied, on balance, that Mrs Parkinson was not able to satisfy the costs order made by Judge Puckeridge.

49                  There is also the question of Mrs Parkinson's failure to take steps to have Judge Puckeridge’s costs order varied or set aside.  Her explanation for failing to do so was that she asked her barrister whether she could do anything but was advised that she could do nothing about the order.  This explanation was not challenged and I accept it.  Indeed, her evidence suggests that she was entirely reliant throughout the proceedings in the District Court on both her husband and their legal advisers though I cannot discount entirely the possibility that some delays in the District Court were deliberately engineered.  However, there is no evidence to suggest that Mrs Parkinson herself has deliberately sought to delay those proceedings.

50                  I find that as a result of Mrs Parkinson’s inability to satisfy the costs order Judge Puckeridge refused her leave to rely on the amended defence.  Consequently, Mrs Parkinson was effectively precluded from maintaining a defence to the claim of the Charles based on what appeared to be a personal guarantee under which she was ultimately held liable (by default).

51                  In relation to the initialling and execution of the contentious document, I am satisfied Mrs Parkinson did not execute, in the sense of sign at the point on page four where her signature was contemplated, the document dated 20 August 1992.  Apart from her denial and Mr Parkinson’s evidence that he wrote his wife’s signature (not just on the document dated 20 August 1992 but on the other “agreements” in evidence), the signature is plainly different from the signature that appears on Mrs Parkinson’s affidavits.

52                  I am satisfied that Mrs Parkinson did initial each page of the document dated 20 August 1992.  I should note that in affidavits she has filed, she deposes to having “signed” the document, but in light of the distinction between signing and initialling she drew in her evidence before the Court I am prepared to treat that as a reference to having “initialled” the document.  Additionally, her account of events on the evening on which she initialled them, in par 36 above, has not been put in issue and I accept it.

53                  It is not necessary to delve into Mr Parkinson’s allegations about whether the document dated 20 August 1992 constituted a final contract.  In particular, I do not need to make findings about whether he wrote the date on the document, nor about Mr Parkinson’s allegation that the document was compiled by Mr Charles using the execution page from the sample contract and other pages supplied by Mr Charles.  That is because those questions are not relevant to the issue of whether Mrs Parkinson agreed to give the personal guarantee contained in the document dated 20 August 1992.  Whatever allegations Mr Parkinson might make about the terms of the final contract with Mr and Mrs Charles, it is highly probable, from the evidence referred to in par 39, that the contract contained a clause intended to create personal guarantees by Mr and Mrs Parkinson for the performance of Glenloch’s obligations.  The question is whether Mrs Parkinson agreed to give that personal guarantee.

Conclusions

54                  It is not the function of this Court to determine finally whether Mrs Parkinson is liable under the personal guarantee in the document dated 20 August 1992.  Rather, s 52 of the Bankruptcy Act requires that the Court be satisfied that the debt on which the petitioning creditor relies is owing.  The petitioning creditors bear the burden of proving that it is.

55                  I consider that substantial reasons have been shown to go behind the judgment of Judge Puckeridge.  Mrs Parkinson was effectively precluded from defending the allegation that she gave the personal guarantee by the costs order made on 27 April 1998: see Wolff v Donovan (1991) 29 FCR 480 at 486.  I accept that, in making the costs order, Judge Puckeridge was quite properly seeking to minimise the prejudice that would be visited on Mr and Mrs Charles by an order setting aside the judgment of Judge Garling.  However, I have accepted that Mrs Parkinson’s failure to seek to have the order set aside is explained by her reliance on her lawyer’s advice that she could not do so.  I have accepted that she failed to comply with the order because she personally lacked the financial means to do so.

56                   I now turn to consider the Agreement and whether it is to be treated as a guarantee binding Mrs Parkinson. There is some mention in Mrs Parkinson’s notice of opposition, as well as some argument at hearing, about the availability of defences at general law such as mistake or unconscionability, and of relief under the Contracts Review Act 1980 (NSW).  However, these arguments were not developed at any length and tend to obscure in generalities what I consider to be the real issues in the case.  Paragraph 16 of the amended defence likewise, in my opinion, probably did not articulate with sufficient precision the nature of the defence.

57                  In my opinion, the facts raise for consideration two related issues.  The first is whether the mere initialling of the Agreement by Mrs Parkinson (rather than executing it in the way the agreement contemplated) after (and probably a year after) it was first executed (probably fraudulently by her husband as to her signature) can, objectively, be taken to have manifested an intention by her to be bound by its terms.  The second is whether a defence of non est factum can be maintained assuming the initialling of the Agreement by Mrs Parkinson would otherwise evidence her agreement to its terms. As to the first issue, counsel referred to the decision of Giles J in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 161.  That case concerned an agreement which contained a term that two directors of Kiyose, Mr O’Sullivan and Mr Mould, guaranteed the performance by Kiyose of its obligations under the agreement.  However, the execution section of the agreement made no express provision for execution by Mr O’Sullivan and Mr Mould as guarantors.  Rather, that section said simply:

“SIGNED by R G O’Sullivan             )           (Signature of Mr O’Sullivan)

for an on behalf of KIYOSE                )           (Signature of Mr Mould)

HOLDINGS PTY LTD                        )

                                                            )

and duly authorised thereto in            )           (Common seal of Kiyose

the presence thereof:                          )           Holdings Pty Ltd)

S D Mould”

58                  It was contended by Mr O’Sullivan and Mr Mould that the agreement did not bind them as guarantors because it was executed by them only as attesting signatories to the execution by Kiyose under its common seal.  After reviewing a number of authorities, Giles J concluded (at 174) that:

“… the proper approach is to inquire whether there is to be found an intention that the signatory be personally bound to the contract evidenced in the document, meaning thereby not a subjective intention but an intention to be found objectively, notwithstanding a qualification attached to the signature.  That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in the light of the surrounding circumstances to the extent to which evidence thereof is permissible.  The inquiry is not limited to the consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound.”

59                  That approach has been followed in more recent cases: see, for example, Deeks v Little Moreton Trading Pty Ltd (1995) 14 WAR 58, James Thane Pty Ltd v Conrad International Hotels Corp [1999] QCA 516, Hoylevans Pty Ltd v Weir [2000] WASC 144.

60                  The Court should look both at the surrounding circumstances in which Mrs Parkinson initialled the document, as well as the formalities contemplated by the document itself: see Gibson v Manchester City Council [1978] 1 WLR 520 (reversed on appeal [1979] 1 WLR 294) at 523-4 per Lord Denning MR.

61                  In my opinion, the initials of Mrs Parkinson cannot, for the purposes of these proceedings, be taken to be evidence sufficient to establish that, as an objective fact, Mrs Parkinson agreed to be bound by the guarantee.  The document itself makes provision for its execution by Mrs Parkinson and it has not been signed by her according to its terms.  She has, of course, initialled it. In addition, the word “agreement” appears prominently in capitals three times on the front page, once underlined, once in bold type, and once both underlined and in bold type. However, the same cannot be said of the clause containing the guarantee.  Moreover the initialling of the document occurred at a time when the document had been executed, and that would have been apparent to Mrs Parkinson when she initialled it.  Though Mrs Parkinson is named as a party on the front page, the formatting of that part of the page is so dense (see par 7 above) as to make it unlikely that Mrs Parkinson would have appreciated that she was a party personally unless she had read the guarantee clause.  In addition, the initialling took place in circumstances where there was, I infer, a dispute (or potential dispute) about the territory assigned to Mr and Mrs Charles. The initialling of the document was part of a process designed to incorporate, as part of the original agreement, the designation or identification of the territory.  It was not as if the parties were intent upon novating the entire contract.

62                  Moreover I am not satisfied that any knowledge Mrs Parkinson might have had of Glenloch’s affairs extended to knowing that contracts with drivers routinely contained a personal guarantee given by her (at least in form though it is possible they were also fraudulently executed by Mr Parkinson).  The evidence suggests that the negotiation and execution of contracts with drivers was conducted exclusively by her husband, and that the circumstances in which she initialled the document dated 20 August 1992 were exceptional.

63                  I turn now to consider whether the principle non est factum might apply on the assumption (contrary to the conclusion expressed in the preceding paragraphs) that her initials can, objectively, be taken to evince an intention to provide a guarantee. On Mrs Parkinson’s evidence, which I have accepted, she initialled the document in the evening, while she was nursing her youngest child who had recently been in hospital, after having heard her husband arguing with Mr Charles, and being told by her husband that if she did not sign the document Mr Charles would refuse to work the following day and the business could not afford that to happen.  The applicable principles were conveniently summarised by Lehane J in Zaknic Pty Ltd v Svelte Corporation Pty Ltd (unreported, Federal Court of Australia, Lehane J, 14 August 1996):

“There is no room for doubt about the applicable legal principles: they are established by the unanimous judgment of the House of Lords Gallie v Lee [1971] AC 1004, followed and applied by the unanimous joint judgment of the High Court in Petelin v Cullen (1975) 132 CLR 355.

In the former case Lord Wilberforce said at 1026:

            ... a man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of ordinary education and competence, he chooses to sign it without informing himself of its purport and effect.

His Lordship added at 1027:

            In my opinion, the correct rule ... is that ... a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor.  I would add that the onus of proof in this matter rests upon him, i.e., to prove that he acted carefully, and not upon the third party to prove the contrary.

……………

Lord Reid said, at 1016:

            The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document.  Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisers without making any inquiry as to their purpose or effect.  But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different.  He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief.

Finally, in Petelin v Cullen, at 360, the Court said:

            It is now settled beyond any shadow of doubt that when we speak of negligence or carelessness in connexion with non est factum we are not referring to the tort of negligence but to a mere failure to take reasonable precautions in ascertaining the character of a document before signing it.  The insistence that such precautions should be taken as a condition of making out the defence is of fundamental importance when the defence is asserted against an innocent person, whether a third party to the transaction or not, who relies on the document and the signature which it bears and who is unaware of the circumstances in which it came to be executed.

64                  In my opinion, for reasons apparent in the preceding discussion about the status of the the initials of Mrs Parkinson, it can be said that Mrs Parkinson did not understand the nature of the document she was signing, at least in so far as it constituted a personal guarantee by her.  It may be accepted that there is a real question as to whether she took sufficient care when initialling the document.  However I rather think that, in the circumstances, she did and, for present purposes, the defence is made out at least in the sense that the petitioning creditors have not discharged the onus of proving the existence of the debt.

65                  In the result, I am not satisfied that the petitioning creditors have established a sequestration order should be made and I propose to order that the petition, as it concerns Mrs Parkinson, should be dismissed.

Costs

66                  The question of the costs of the proceedings is a troubling one.  My present, preliminary views are these.  Even though Mrs Parkinson has succeeded in resisting a sequestration order being made (and, at least prima facie, she would be entitled to her costs), her success has depended, at least in substantial part, on me accepting that what appeared or purported to be her signature, was a signature placed on the Agreement by her husband.  While Mrs Parkinson should not necessarily have visited upon her the consequences of her husband's acts, there is a potential injustice if Mr and Mrs Charles have to pay all or even some of the costs of Mrs Parkinson in these proceedings. The ultimate result has been determined by a combination of two factors.  The first is the estate of Mr Parkinson being sequestrated in other proceedings and the second is the finding that Mrs Parkinson had not executed the Agreement (but that her husband may have done so fraudulently) and her initialling of it did not evince an intention to be bound by the guarantee.  In the circumstances, my present view is that the appropriate result is that each party should bear their own costs.  In expressing this preliminary view I not intending to disturb any earlier order or agreement concerning costs.  However, if either party wishes to make further submissions on the question of costs, they should do so in writing within seven days of the publication of these reasons.

Associate:

Dated:              20 October 2000