FEDERAL COURT OF AUSTRALIA

Glew v Harrowell, in the matter of Glew [2003] FCA 373

BANKRUPTCY – application to set aside bankruptcy notice – bankruptcy notice based on judgment for solicitors’ costs and disbursements obtained upon registration in District Court of certificate of determination of costs under s 208J of the Legal Profession Act 1987 (NSW) – debtors allege counter-claim, set-off or cross demand against solicitors for damages for negligence – common ground that that claim could not have been made in District Court proceeding – discussion of what debtors must prove in order to “satisfy” Court of existence of counter-claim, set-off or cross demand – various formulations of test – effect of debtors’ delay in prosecuting their claim.

Bankruptcy Act 1966 (Cth) ss 40(1)(g),  41(7)

Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 followed

Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 followed

Gomez v State Bank of NSW Ltd [2002] FCAFC 101 followed

Re Gould; Gould v Day [1999] FCA 1650 followed

Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 followed

Guss v Johnstone (2000) 171 ALR 598 followed

Re Donkin; Ex parte AGC Advances Ltd (1994) 52 FCR 271 cited

IN THE MATTER OF JOSEPH GLEW

JOSEPH GLEW v JIM HARROWELL OF HUNT & HUNT LAWYERS

N 7350 OF 2002

IN THE MATTER OF PAUL TRESIDDER

PAUL TRESIDDER v JIM HARROWELL OF HUNT & HUNT LAWYERS

N 7351 OF 2002

LINDGREN J

1 MAY 2003

SYDNEY

THE COURT ORDERS THAT:

1.         The bankruptcy notice NN 2426/02 issued by the Official Receiver on 21 October 2002 and addressed to Joseph Glew and Paul Tresidder be set aside.

2.         The proceeding be fixed for a time and date to be advised for determination of the question of costs.

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

THE COURT ORDERS THAT:

1.         The bankruptcy notice NN 2426/02 issued by the Official Receiver on 21 October 2002 and addressed to Joseph Glew and Paul Tresidder be set aside.

2.         The proceeding be fixed for a time and date to be advised for determination of the question of costs.

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

REASONS FOR JUDGMENT

introduction

1                     The applicant in each proceeding applies for an order setting aside a bankruptcy notice which was served on him on 4 November 2002.  The bankruptcy notice was issued by the Official Receiver on 21 October 2002 addressed to both applicants (respectively “Glew” and “Tresidder”) and is numbered NN 2426/02.  The respondent, a partner of the firm of solicitors, Hunt and Hunt (“Hunts”), procured the issue of the bankruptcy notice.

2                     The final judgment or order on the basis of which the Official Receiver issued the bankruptcy notice was a judgment obtained by Hunts against Glew and Tresidder and a company of which they were both directors, LFOT Pty Limited, formerly called “Jagar Projects Pty Ltd” (variously “Jagar” and “LFOT”), in proceeding 6615 of 2002 in the District Court of New South Wales on 19 August 2002 for $81,370.14.  That sum represented the balance outstanding of legal costs and disbursements in respect of professional services rendered by Hunts.  According to the bankruptcy notice, Hunts claimed that the total debt owed was $82,433.5 – an amount representing both the judgment debt mentioned and $1,063.39 for interest on it 19 August 2002 to 10 October 2002.

3                     The ground on which Glew and Tresidder apply to have the bankruptcy notice set aside is that, at all material times, they had (and they still have) a counter-claim, set-off or cross demand against Hunts equal to or exceeding the amount of $82,433.53, which they could not have set up in the proceeding in which the judgment was obtained:  see par 40(1)(g) of the Bankruptcy Act 1966 (Cth) (“the Act”).

4                     The bankruptcy notice required Glew and Tresidder to pay the amount of the debt or to make an arrangement to Hunts’ satisfaction for settlement of the debt within 21 days after service of the notice.  That period expired on 25 November 2002.  On that day, these two proceedings were commenced.

5                     Subsection 41(7) of the Act provides that where, before the expiration of the time fixed for compliance with the requirements of the bankruptcy notice, the debtor applies to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter-claim, set-off or cross demand as is referred to in par 40(1)(g) of the Act (see below), that time is deemed to have been extended until and including the day on which the Court determines whether it is satisfied that the debtor has the counter-claim, set-off or cross demand propounded.  In support of their applications to set aside, Glew and Tresidder each filed and served an accompanying affidavit to which was annexed a draft cross-claim which had been prepared in an earlier District Court proceeding 10318 of 2000.  That proceeding, subsequently discontinued by Hunts, had been brought by Hunts against them and LFOT to recover the balance of costs and disbursements which were the subject of the judgment in the later District Court proceeding 6615 of 2002 on which the bankruptcy notice was based.  The draft cross-claim was sufficiently detailed to show that Glew and Tresidder’s claim against Hunts is for damages for the negligent provision of professional services by Hunts to three of them when Hunts were, allegedly, acting for them in connection with a transaction described below.  Hunts did not submit that the affidavits were insufficient to activate subs 41(7) of the Act:  see Re Donkin; Ex parte AGC Advances Ltd (1994) 52 FCR 271.

6                     I ordered that both proceedings be heard together and that the evidence in each be evidence in the other, subject to all just exceptions.

7                     Hunts obtained the District Court judgment in proceeding 6615 of 2002 upon and by registration of a Certificate as to Determination of Costs under s 208J of the Legal Profession Act 1987 (NSW).  It is common ground that Glew and Tresidder could not have set up the alleged counter-claim, set-off or cross demand in that proceeding.

8                     In order to avoid committing the act of bankruptcy identified in par 40(1)(g) of the Act, Glew and Tresidder must satisfy the Court that they have a counter-claim, set-off or cross demand against Hunts of the kind described in that paragraph.  What they must do in order to “satisfy the Court” for the purposes of par 40(1)(g) of the Act that they have the asserted counter-claim, set-off or cross demand has been variously described.  The descriptions do not necessarily purport to be comprehensive definitions.  To state that a debtor in receipt of a bankruptcy notice must show X does not necessarily imply that he or she need not also show Y, or that he or she will not be defeated if the creditor shows Z.

9                     There are authorities suggesting that Glew and Tresidder must satisfy me of the following interrelated and sometimes overlapping matters:

·        that they have a “prima facie case”, even if they do not adduce evidence which would be admissible on a final hearing making out that case (Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346 (“Ebert”) at 350;  Re Brink; Ex parte Commercial Banking Company of Sydney Ltd (1980) 44 FLR 135 (“Brink”) at 141;  Gomez v State Bank of NSW Ltd [2002] FCAFC 101 at [17], [18]);

·        that they have “a fair chance of success” or are “fairly entitled to litigate” the claim:  Brink at 141;  Re Gould; Gould v Day [1999] FCA 1650 at [27], [28];  Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 at [11]); and

·        that they are advancing a “genuine” or “bona fide” claim (Re Capsanis; Capsanis v The Owners – Strata Plan 11727 [2000] FCA 1262 at [11]).

It may be that the first and second formulations are intended to cover the same ground.  In Brink Lockhart J treated (at 141) the reference to a “prima facie case” in Ebert as a reference to “a fair chance of success”.

10                  In Brink Lockhart J said (at 141) that the Court is not required to “undertake a preliminary trial of the counter-claim, set-off or cross demand”.  But, clearly, the application of the criteria above requires the Court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross demand finally.  And in Guss v Johnstone (2000) 171 ALR 598, Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606):

“[40]  The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.”

11                  Plainly, in order to “satisfy” the Court for the purposes of par 40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor.  Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor’s claim was being finally determined, but by reference to the question whether the Court should be satisfied that the debtor has a claim deserving to be finally determined.

12                  Perhaps little more can usefully be said than that a debtor must satisfy the Court that there is sufficient substance to the counter-claim, set-off or cross demand asserted to make it one which the debtor should, in justice, be permitted to have heard and determined in the usual way, rather than be forced to comply with the bankruptcy notice by payment or to commit an act of bankruptcy.

BACKGROUND FACTS

13                  In 1992 Jagar purchased land at Leichhardt for the purpose of building a shopping centre.  Robert Speirs (“Speirs”), a partner in Hunts, acted for Jagar as purchaser.  Jagar constructed a building comprising seven shops.  Jagar agreed to lease shops Nos 1 and 2 to Barbara’s Storehouse Pty Ltd (“Barbara’s”), a company associated with Mr and Mrs Slatyer, for ten years commencing on 19 May 1993.

14                  Of course, there were negotiations leading to the making of the agreement for lease.

15                  A letter dated 3 November 1992 from Jagar (signed by Glew) to Barbara’s recorded that, in addition to “lessor’s works” specified earlier in the letter, Jagar was to pay “a fee of $60,000 on the day that the new store commences trading”.  The letter continued:

“This fee may take the form of a consultancy fee for assistance in the design process, a fitout allowance or in such other form as the parties may agree.”

The copy of the letter in evidence bears an endorsement “Agreement confirmed” and what purports to be a signature of Mr HJ Slatyer of Barbara’s.  Mr Slatyer and his wife were the directors of Barbara’s.

16                  On 4 November 1992 Jagar sent to Speirs a copy of that letter and asked him to prepare appropriate agreements as soon as possible.  The letter continued:

“The $60,000 should not be referred to in the agreement to lease but should be covered in a separate agreement which would be conditional on performance under the agreement to lease.”

There is a question whether, on its proper construction, this was an instruction to Speirs then and there to prepare the separate agreement.  The oral testimony of Tresidder before me was that, as far as he knew, Speirs was never instructed to prepare an agreement for payment of the $60,000, and that in fact such an agreement was never entered into.  I discuss this matter further below.

17                  There is in evidence a copy of an undated but executed deed of agreement for lease between Jagar and Barbara’s which I infer was prepared by Speirs.  Consistently with his instructions, it does not refer to the sum of $60,000.

18                  On 24 February 1993 Jagar wrote to George Geshos (“Geshos”) a letter confirming that Barbara’s was taking up occupation of the two shops and that “a fee” of $60,000 was payable as directed by Barbara’s.  The letter stated:

“I confirm that Barbara’s Storehouse Pty Ltd has directed that we pay the fee directly to you.”

This letter was not given to Hunts and was not discovered in the later litigation referred to below.  The letter informed Geshos that Jagar expected to give possession of the two shops for fitout in mid April 1993 and that the fee would be payable in mid May 1993. 

19                  By letter dated 24 April 1993 Barbara’s advised Glew as follows:

“This letter serves to confirm the telephone conversation regarding the $60,000.00 fitout contribution to be received from your company.

Contrary to our previous correspondence please make this amount payable to Barbara’s Storehouse Pty Ltd and not Mr George Geshos.

Barbara’s Storehouse Pty Ltd is responsible for any payments of funds to Mr Geshos or his company ... ”

This letter also was not given to Hunts and was not discovered in the later litigation referred to below.

20                  According to the affidavits of Glew and Tresidder, the building was “finished” in about May 1993.  The $60,000 was paid to Barbara’s by cheques drawn on RSM Pty Ltd (“RSM”), a company associated with Glew and Tresidder, in two instalments: $15,000 on 29 April 1993 and $45,000 on 12 May 1993.

21                  Subsequently, Jagar wrote to Speirs instructing him to “prepare an assignment of lease” from Barbara’s to Adelights Pty Ltd (“Adelights”).  Glew and Tresidder testified that the assignment was prepared by Speirs (and that at a later time he acted on a variation of the lease by way of reduction of the annual rent increase).  There was a registered transfer of lease from Barbara’s to Adelights.

22                  In 1994 Jagar decided to put the shopping complex up for sale and again instructed Speirs.  On 8 June 1994 Speirs sent a facsimile transmission to “The Secretary” of Jagar.  The fax bore the reference “Paul Tresidder” and was addressed “Dear Paul”.  It concerned the sale and enclosed “our updated special conditions”.  The letter was as follows:

“I refer to previous discussions and now enclose our updated special conditions.  Would you please note in particular special conditions 8 and 9 which deal with the rental adjustments which are to apply under the various leases.

Clause 9 in particular is a suggested method for collecting your entitlement to turnover rent for the year current at the time of settlement.

Please telephone the writer to discuss.”

23                  Special condition 8 of the enclosed “updated special conditions” assumes particular importance.  It was as follows:

8.         SALE SUBJECT TO COMMERCIAL LEASE OR LEASES

8.1       Lease Incentives

The Land is sold subject to the Lease or Leases particularised in Schedule 1 (“the Lease”).

8.2       The vendor warrants that the details of every guarantee given in support of the Lease are as set out below, provided that any guarantee, the terms of which are incorporated in the Lease, need not be particularised:

8.3       The vendor warrants that all incentives for the benefit of the tenant under or in connection with the Lease are either disclosed in the Lease or are as set out below:

[BLANK]”

In the present proceeding, Hunts rely on special condition 8.3 and their covering facsimile transmission to support a submission that they made it clear to Glew and Tresidder that the onus was on them to disclose, what was ultimately accepted to be an “incentive payment” of $60,000 paid by Jagar to Barbara’s.

24                  There is no evidence that Glew or Tresidder telephoned Speirs as Speirs had requested in the final paragraph of his letter.

25                  The next item of correspondence, a handwritten note dated 24 June 1994 from Tresidder to Speirs, referred to certain matters “with regard to completing the contract for Leichhardt” but did not refer to special condition 8.3.  In fact, although it referred to other tenants, it did not refer to Barbara’s at all.

26                  On 20 July 1994, following an auction the preceding day, Jagar contracted to sell the property to Hanave Pty Ltd (“Hanave”) for $2,555,000.  The contract of sale identified by registration numbers the Lease and the Transfer of Lease.  The evidence does not disclose the date of the transfer of the lease from Barbara’s to Adelights but obviously it predated the sale by Jagar to Hanave.  In the contract of sale, special condition 8 again appeared and special condition 8.3 was left blank.  That is to say, Jagar did not disclose to Hanave the payment of $60,000 which RSM had made to Barbara’s.

27                  The sale by Jagar to Hanave proceeded to completion on 17 August 1994.

28                  In September 1995, Hanave and William Robert Burke (“Burke”), a solicitor and principal of the firm Gilbert Mane Solicitors, and a director of Hanave, commenced proceeding G 721 of 1995 against LFOT, Glew and Tresidder in this Court, alleging that, in connection with the sale to it, Jagar had engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1976 (Cth).  Glew and Tresidder were sued as accessories.

29                  Hanave’s claim was, relevantly, that Jagar had represented that Barbara’s was an “established high quality tenant” and that this was not true.  A particular of the misleading or deceptive quality of the representation, which was introduced into the proceeding only in a further amended statement of claim filed on 2 May 1997, was the incentive payment of $60,000 made to Barbara’s.  By that document it was also pleaded that the non-disclosure in special condition 8.3 amounted to a representation that no incentive payment had been made to the tenant.  In relation to the liability of Glew and Tresidder as accessories in the light of s 75B of the Trade Practices Act 1976 (Cth), it was alleged that they knew of the terms of special condition 8.3 and of the payment of the $60,000 to Barbara’s.

30                  On 13 May 1997 Hunts wrote to the directors of Jagar seeking their instructions in relation to these new allegations.  On 16 May 1997, Glew wrote to Hunts as follows:

“There is not much to tell of the matter of the $60,000.

It was definitely a fitout allowance payment and could just have easily have been zero with us completing more of the works inside the store.

The money was all paid by the first month of trade and so far as I am aware, it or a similar sum, would have been invested in the store.  We gave Barbara’s the option as to how and to whom the money is paid to provide them with the best taxation outcome.  This is normal for us and is consistent with our recent agreement with Westpac where we contributed more than $300,000 towards their fitout and gave them the choice as to how it was to be recorded.

There was no thought in our mind that this money was needed to support the tenant as the rent was based on Barbara’s assertion that they were doing a turnover of $1.0m per annum in the existing store.  At that time we had a high level of optimism for the store.  Hence the 8% pa increases in rent.

As to why the $60,000 was not in the contract I cannot tell you.  Please bear in mind that I did not read or sign the contract and while Paul [Tresidder] signed the contract he would not have spent much time reading it as it was prepared by our lawyer (who had also acted for us in the purchase of the land, funding and all the leases) and the deal was a simple cash transaction; ie Deposit, Price, Payment Date would have been his focus.

Had we thought of our even remembered the $60,000 we would probably have argued that with the passage of time, assignment to a new tenant and reconstruction of the rent and rent adjustment mechanism this was not applicable in any event.”  (my emphasis)

It will be recalled that special condition 8.3 referred to “all incentives”, not only an incentive in the form of a payment.

31                  On 5 June 1997 Gilbert Mane, who were representing Hanave in the proceeding, sought discovery of any payment vouchers and cheque butts relating to payment of the $60,000 as well as personal and business diaries of Glew and Tresidder for 1994.  On 12 June 1997 Hunts wrote to the directors of Jagar enclosing a copy of Gilbert Mane’s letter seeking their instructions.  Glew told James Geoffrey Fulton Harrowell, solicitor, of Hunts (“Harrowell”), the solicitor representing Jagar, Glew and Tresidder in the litigation, that the $60,000 was irrelevant, that it was not an incentive, and that it was for fitout which Jagar could easily have done itself.

32                  On 8 July 1997, Hunts wrote to Gilbert Mane advising them in relation to the documents mentioned that material would be discovered in a “forthcoming Second Further Supplementary List of Documents”.  Such a document was filed on 24 July 1997, although the letter dated 24 February 1993 from Jagar to Geshos and the letter dated 24 April 1993 from Barbara’s to Glew were not discovered.

33                  The hearing before Moore J commenced on 15 September 1997 and extended, with interruptions, to 22 December 1997.

34                  On 31 August 1998, Moore J dismissed Hanave’s application ((1998) ATPR 41-658).  His Honour was not persuaded that Jagar was obliged to disclose the payment of $60,000 in special condition 8.3, although he had no difficulty in finding that it was an “incentive” which had been paid to Barbara’s, because he thought that the “tenant” to which the special condition referred was, in the circumstances, Adelights, not Barbara’s.  But, in any event, his Honour thought that even if the payment had been disclosed, Hanave would, nonetheless, have purchased.  That is, there was no causal link between the non-disclosure and Hanave’s decision to purchase.  His Honour observed that Burke had first learned of the payment in September 1995 but had introduced it as an element in the proceeding only in the further amended statement of claim filed on 2 May 1997.  Moore J made no order on a cross-claim brought by Jagar, Glew and Tresidder against Burke.

35                  On 1 April 1999 ((1999) ATPR 41-687) a Full Court, by majority (Wilcox and Kiefel JJ, Emmett J dissenting) allowed an appeal, entered judgment for Hanave against LFOT, and otherwise remitted the matter to Moore J.  The majority disagreed with his Honour on the two issued mentioned above.  Emmett J would have dismissed the appeal on the basis that on the evidence, Moore J had been entitled to find that in the absence of inquiry by Burke and evidence of his having even read special condition 8.3, reliance was not established.

36                  According to Harrowell, who was not cross-examined, following the Full Court judgment on 1 April 1999, Glew telephoned him asserting that Speirs should have disclosed the $60,000 in the contract and asked Harrowell whether he (Glew) should sue Hunts.  Harrowell replied that the argument had been put to the Court that there was no obligation to disclose the $60,000 because it was not an incentive payment and that Moore J had accepted that argument, but that, on the appeal, Wilcox and Kiefel JJ had not.  Harrowell also pointed out that if Glew wished to take the matter further, he would need to instruct other solicitors.  The matter was not taken further and Hunts continued to act for LFOT, Glew and Tresidder.

37                  Apparently Jagar, Glew and Tresidder unsuccessfully sought special leave to appeal to the High Court against the Full Court’s decision

38                  Following the further hearing before Moore J, on 11 November 1999 his Honour gave judgment for Hanave against Tresidder for $750,000 ((1999) ATPR 41-725).  Glew was not found liable on the basis that, unlike Tresidder, he had not known that Barbara’s had been described as a “high quality” tenant, and so any question of his knowledge relating to special condition 8.3 and the payment of $60,000 did not arise.  Moore J found that Tresidder had known that Jagar had paid an “incentive payment” of $60,000 to Barbara’s.  Finally, on the cross-claim, his Honour found Burke liable to make equitable contribution of one half of the amount for which Jagar and Tresidder were liable, on the basis of his having negligently acted for Hanave on the purchase.

39                  Burke and Hanave appealed, and LFOT, Glew and Tresidder cross-appealed, but both the appeal and cross-appeal were dismissed on 18 August 2000 ((2000) 178 ALR 161).

40                  Burke sought special leave to appeal to the High Court.  On 31 October 2000, the date on which submissions in response to those of Burke were due to be filed in the High Court in Burke’s application for special leave to appeal, Hunts’ retainer was terminated.  LFOT, Glew and Tresidder instructed their present solicitors, Horowitz & Bilinsky, to represent them in place of Hunts.  Apparently that firm has done so from then down to the present time.

41                  Special leave to appeal was granted, and on 18 April 2002, the High Court allowed Burke’s appeal, with the result that the cross-claim by LFOT and Tresidder against Burke for equitable contribution was dismissed ((2002) 187 ALR 612).

42                  Hunts commenced the first District Court proceeding against LFOT, Glew and Tresidder for recovery of costs (proceeding 10318 of 2000) by the filing of a statement of liquidated claim on 20 December 2000.  LFOT, Glew and Tresidder filed a notice of grounds of defence, apparently on or about 26 February 2001.  Generally, it consisted of admissions, non-admissions and denials.  But in par 26, the defendants alleged that the legal services provided to them by Hunts were “necessitated and brought about as a result of the negligence of the plaintiff as pleaded in the accompanying cross-claim”.

43                  In fact there was no “accompanying cross-claim”.  However, the affidavits of Glew and Tresidder in these proceedings show that a cross-claim was drafted in the District Court proceeding and was not filed because Hunts discontinued that proceeding.  The draft cross-claim alleged that Hunts have breached an implied contractual duty of care or general duty of care owed to LFOT, Glew and Tresidder, by including special condition 8.3 in the contract of sale to Hanave without ensuring that the payment of $60,000 to Barbara’s was disclosed in the special condition or otherwise.  (According to the draft cross-claim, Hunts’ retainer was terminated on 20 August 1999 but this date seems to be incorrect.)  Particulars of damages given in the draft cross-claim included all costs paid to Hunts and also those which LFOT, Glew and Tresidder had been ordered to pay.  Not only was no cross-claim actually filed in the District Court proceeding;  no copy of the draft cross-claim was ever provided to Hunts.  In fact, Hunts saw the draft for the first time in the course of the present proceedings.

44                  The evidence before me does not establish the date of Hunts’ discontinuance of District Court proceeding 10318 of 2000.  Hunts obtained judgment for the balance of their costs in the second District Court proceeding No 6615 of 2002 on 19 August 2002, upon registration on that date of the Certificate of Determination of Costs,.

45                  In all, Glew and Tresidder say they have paid Hunts more than $700,000 for legal costs and disbursements.  They agreed in cross-examination that their claim against Hunts is for more than $1.0 million.

46                  On the morning of the hearing before me, 17 April 2003, LFOT, Glew and Tresidder commenced against Hunts in the Supreme Court of New South Wales proceeding 20093 of 2003. The Supreme Court statement of claim is in terms substantially identical to the terms of the draft cross-claim which had been prepared for filing in the first District Court proceeding, N 10318 of 2000.

REASONING

47                  In the following paragraphs I do not purport to make any findings or to reach a final view as to whether the claim propounded by Glew and Tresidder against Hunts would succeed at trial.

48                  The letter dated 3 November 1992 from Glew to Mr Slatyer, a copy of which Glew supplied to Speirs under cover of his instructing letter dated 4 November 1992 would arguably have informed Speirs that the $60,000 was truly an incentive to Barbara’s.  This is so because it stated that the amount might “take the form” of a “consultancy fee” or “fitout allowance” or “such other form as the parties may agree”, and because the amount was to be paid on the day the new store commenced trading.

49                  The covering letter of 4 November 1992 instructed Speirs to prepare agreements (plural) as soon as possible, but later stated: “NB Desire to execute agreement [singular] ASAP”.  As noted earlier, it is unclear on the face of the letter what instructions, if any, were being given to Speirs in relation to preparation of an agreement relating to the incentive payment.  The meaning of “conditional on performance under the agreement to lease” is unclear and would call for further instructions before an agreement could be prepared.  Perhaps what was meant was that both agreements were to be entered into but that the obligation of Jagar to make the incentive payment was to be made conditional on Barbara’s entering into possession and commencing trading under the agreement for lease.

50                  No one seems to have regarded Speirs as having been instructed to proceed then and there to prepare the incentive fee agreement.  In addition to the matters already mentioned, there is the fact that Speirs would need to be instructed by Jagar as to the “form” which the parties ultimately agreed the payment should take.  Jagar never did give him those instructions.

51                  Importantly, the “Agreement confirmed” endorsement on the copy of the letter dated 3 November 1992 from Jagar to Barbara’s told Speirs that the parties were in agreement that the amount of $60,000 was to be paid.   The position was not simply one of Jagar unilaterally informing Speirs of Jagar’s instructions. Prima facie, the incentive of $60,000 would cease to be payable only if Barbara’s so agreed.

52                  The agreement for lease in evidence executed by Jagar and Barbara’s is undated except for the year 1992.  Accordingly, Speirs prepared it not long after receiving the instructing letter dated 4 November 1992 from Glew.  Speirs would or should have had in mind at the time, Glew’s reference to the incentive payment arrangement expressed only a month or two earlier.  So would or should Glew and Tresidder when they received the form of agreement for lease from Speirs for execution.  So far as the evidence reveals, no one raised the matter.  Perhaps Speirs was entitled to infer that Jagar was content for him not to draft any agreement in relation to it.  Perhaps Jagar and Barbara’s had agreed that the amount was no longer to be paid.  Perhaps Jagar and Barbara’s were still negotiating over certain aspects of the payment.  Perhaps Speirs was entitled to assume that, if he was to be further involved, he would be told so by Glew or Tresidder.

53                  Under cl 3.3 of the agreement for lease, Jagar was to give at least two weeks’ notice specifying the date from which the premises would be substantially completed and available for fitting out by Barbara’s, and Barbara’s was to have four weeks in which to complete the fitting out.  The lease was to commence on and from the date following the expiration of that four week fitting out period.

54                  By its letter dated 24 February 1993 to Geshos, Jagar (through Glew) estimated that shops 1 and 2 would be handed over to Barbara’s for fitout in mid-April 1993 and that the fitout period (of four weeks) would expire in mid-May 1993, when, according to the letter to Geshos, the incentive fee would be payable to him.  But Hunts knew nothing of this letter.  As noted earlier, the incentive fee was in fact paid to Barbara’s, not to Geshos, and it was paid, not by Jagar but by RSM, and not in one sum but by two instalments.  Again, Hunts were not informed of these matters.  The arrangement was being negotiated and implemented directly between Jagar and Barbara’s without Speirs being involved or informed.  The evidence does not reveal what agreement, if any, was reached between Jagar and Barbara’s as to the character or “form” which the payment was to be shown to “take” (consultancy fee, contribution to fitout or other form).

55                  On the evidence before me, Speirs knew as at 4 November 1992 that an incentive amount of $60,000 was agreed to be paid to Barbara’s when Barbara’s commenced trading, and would have understood subsequently that it would have been paid in May 1993, accordingly, or not if Jagar and Barbara’s had varied their agreement.

56                  Hunts’ letter dated 8 June 1994 enclosing Hunts’ “updated special conditions” came some eighteen months after the making of the agreement for lease.  By that time, Speirs was apparently entitled to think that if the $60,000 had in fact been paid more than a year earlier, he would need confirmation by Jagar that it had been.  After all, the lease transaction had proceeded to completion, without any further involvement of him on the incentive payment question subsequent to Glew’s instructing letter of 4 November 1992.

57                  Hunts’ letter of 8 June 1994 drew attention to special conditions 8 and 9 which it described as conditions “which deal with the rental adjustments which are to apply under the various leases”.  Arguably, special condition 9 might be seen to relate, in part, to rental adjustments, but it was special condition 10 that obviously did so and was headed “rent adjustments”.  Special condition 8, on the other hand, was not a provision for rental adjustment.

58                  Was it negligent of Speirs not to have done more than he did?  Perhaps he intended to raise the matter of the $60,000 when Tresidder telephoned him in response to the request in the final paragraph of the letter.  (Speirs did not give evidence before me.)  For Jagar to leave special condition 8.3 blank was consistent with its instructing Speirs that the incentive payment had not been made.  For all that Speirs knew, Jagar and Barbara’s had varied the terms of their agreement as stated in Jagar’s letter to Barbara’s dated 3 November 1992, and the payment had not been made.  After all, Speirs had not been instructed further in relation to the preparation of an agreement for the payment of it.  On the other hand, Speirs knew that as at 4 November 1992, there was an agreement in place for the $60,000 to be paid.

59                  The terms of Hunts’ letter dated 8 June 1994 were not calculated to focus a reader’s attention on special condition 8.3.  Indeed, the reference to “the rental adjustments which are to apply under the various leases” tended to distract attention from it.  Having regard to the fact that Speirs knew back on 4 November 1992 that Jagar and Barbara’s had agreed that an incentive payment was to be made to Barbara’s upon its commencement of trade, there is a triable issue as to whether his duty of care obliged him to do more on and after 8 June 1994 than he did, that is, than writing his letter of that date in the terms in which it was written and enclosing Hunts’ apparently standard form of special conditions.  I do not intend, of course, to express a final view that Speirs’ duty of care did indeed oblige him to do more than he did.

60                  In his letter dated 16 May 1997 to Hunts (set out at [30] above) Glew stated that if he and Tresidder had:

“thought of or even remembered the $60,000 [they] would probably have argued that with the passage of time [from April/May 1993 to 20 July 1994], assignment to a new tenant [Adelights] and reconstruction of the rent and rent adjustment mechanism this [the requirement of disclosure of payment of the $60,000] was not applicable in any event.”

I have no doubt that Jagar would not simply, and without qualification, have disclosed the payment of $60,000 by RSM to Barbara’s in the blank provided in special condition 8.3.  Perhaps, as a result of discussions between Glew and Tresidder and Speirs, Hunts’ “updated special conditions” would have been modified in the form of contract of sale which Hunts submitted to Hanave.  Perhaps special condition 8.3 would have been omitted entirely.  Perhaps the sale would not have proceeded.  Perhaps it would have gone ahead at a reduced price.  These are questions with which LFOT, Glew and Tresidder would have to grapple on the claim propounded against Hunts.

61                  Hunts rely on the failure of Glew and Tresidder to discover Glew’s letter dated 24 February 1993 to Geshos and Barbara’s’ letter dated 24 April 1993 to Glew, in proceeding NG 721 of 1995 brought by Hanave against them and LFOT in this Court.  Hunts suggest that the non-discovery arose from deliberate suppression of, or a wilful failure to search for, unfavourable documents, because Glew and Tresidder were determined throughout to conceal from Hanave the payment that had been made to Barbara’s.  I found the explanation offered by Glew and Tresidder less than entirely satisfactory, but I would not resolve the issue for decision on the present applications against them on this basis.

62                  Hunts rely on the considerable delay in the bringing of the propounded claim by Glew and Tresidder.  On the evidence before me, they could have brought it as early as April 1999 but did not do so until they commenced the Supreme Court proceeding on the morning of the hearing before me, 17 April 2003.  They explained the delay by saying that they were fed up with litigation and that LFOT employed few staff, who, it was implied, could not afford to be distracted by the need to pursue the claim.

63                  I can understand that a person might be prepared to “let sleeping dogs lie” by foregoing a possible right to recover money already paid, yet be prompted into action by the other party’s taking the initiative of seeking to recover yet further money.  In this case, however, the claim is, as Glew and Tresidder conceded, for more than $1.0 million – far more than the amount of the bankruptcy notice.  If Glew and Tresidder believed that they had a straightforward claim for more than $1.0 million with strong prospects of success, they probably would have sued Hunts much earlier than 17 April 2003.  They delayed because they understood that:

·        generally, the result of contested litigation is uncertain;

·        the particular claim proposed against Hunts would encounter several particular difficulties, only some of which have been referred to above;

·        to prosecute the claim would be costly in terms of expenditure of money and time.

I do not think the delay shows that the propounded claim against Hunts is not “genuine” or “bona fide”.

64                  With some doubt, I think that Glew and Tresidder have surmounted the relatively low threshold referred to at [9] above.  In particular, although their claim may well fail, I think it is one which they are “fairly entitled to litigate.”

65                  If the proceeding brought against Hunts were a proceeding in my docket, I would take steps directed to bringing it on for hearing as soon as practicable.  Glew and Tresidder should be required to prosecute their claim without further delay.  It is to be hoped that Supreme Court proceeding  20093 of 2003 can be heard and determined in the not too distant future.

66                  As to costs, there are several possibilities:

·        no order as to costs;

·        costs to abide the outcome of Supreme Court proceeding  20093 of 2003;

·        one or other party’s costs to abide the outcome of that proceeding.

The proceeding will be listed at a time to be fixed for determination of the question of costs.

conclusion

67                  For the above reasons the bankruptcy notice will be set aside.

Associate:

Dated:              1 May 2003