Federal Court of Australia

Psevdos v Macko Corporation Pty Ltd as Trustee for the Macko Corporation Trust [2024] FCA 520

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondent’s costs, to be assessed by a Registrar of the Court unless otherwise agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’SULLIVAN J:

INTRODUCTION

1    On 12 April 2022, a Registrar of the Federal Circuit and Family Court of Australia (FCFCoA) made a sequestration order against the appellant. On 2 May 2022, the appellant applied for a review of the Registrar’s decision before the FCFCoA.

2    Before the primary judge, the appellant advanced two grounds of review:

(a)    He is not personally liable to the respondent, Macko Corporation Pty Ltd as Trustee for the Macko Corporation Trust, for the judgment debt the subject of the creditor’s petition, as his personal liability was excluded pursuant to the terms of the relevant Loan Agreement; and

(b)    The bankruptcy proceedings were an abuse of process.

3    The primary judge found that neither of the grounds of review were made out and on 27 January 2023 affirmed the orders of the Registrar made on 12 April 2022 dismissing the application for review: Macko (Trustee), in the matter of Psevdos (Bankrupt) v Psevdos [2023] FedCFamC2G 13 (Reasons). The appellant appeals against that judgment.

4    It is for the reasons which follow that the appeal is dismissed.

Background

5    The appellant is an undischarged bankrupt, having been made bankrupt on 6 June 2016 on a creditor’s petition filed by the Commonwealth Bank of Australia. The appellant appealed, unsuccessfully, against the sequestration order made in those earlier proceedings: Psevdos v Commonwealth Bank of Australia (No 2) [2017] FCA 19 (Psevdos v CBA (No 2) (Charlesworth J).

6    On or about 18 January 2019, the appellant wrote a letter addressed to Better Lending Pty Ltd. There seems to be no issue that the letter which commences “Dear Andrew” was directed to Mr Andrew Malecki (referred to in the letter as ‘Andrew’) one of the potential borrowers and which was apparently executed by Mr Christopher Macko, Mr Malecki and the appellant (18 January 2019 letter). The letter contained an acknowledgement that the appellant was an undischarged bankrupt and consequently he would not agree to enter into any agreement to borrow money in his own right, but was prepared to borrow as Trustee for the Orio Investment Trust and that if a claim is brought, it is limited to the trust fund and not brought against him personally. The terms of the letter are set out in [31] of the Reasons.

7    On 30 January 2019, the appellant (as Trustee for the Orio Investment Trust), Mr Malecki (in his own right and as Trustee for Bare Trust – Famechon Crescent Land) and Macko Corporation entered into a Loan Agreement pursuant to which Macko Corporation agreed to loan the sum of $160,000 to the borrowers, being Mr Malecki in his own right and as Trustee (Bare Trust – Famechon Crescent Land) and the appellant as Trustee for the Orio Investment Trust, in exchange for the granting of security for the repayment of the principal sum and accrued interest payable under the Loan Agreement.

8    The loan attracted a rate of interest of 8.8% and was to be repaid in 12 months. The security was described in the Schedule to the Loan Agreement as an interest in a mortgage as tenants in common in the proportion of 28 undivided 100 parts of mortgage 10185917 which was secured over land at Modbury North (the Land).

9    The Loan Agreement contains the usual terms, including:

(a)    A purpose clause for the principal sum, which was a commercial purpose (clause 4);

(b)    A payment clause (clauses 5.1 and 7);

(c)    An interest clause (clause 5.4);

(d)    A default clause (clause 8); and

(e)    An entire agreement clause (clause 13.1).

10    Item 1 of the Schedule to the Loan Agreement indicates that the relevant mortgagor was Mr Malecki. Further, Item 9 of the schedule provides that the borrower agreed that Macko Corporation, i.e. the lender, only acts in its capacity and character as a trustee for the Macko Corporation Family Trust and any claims, liabilities, expenses, costs or litigation was limited to the trust fund the “Macko Corp Trust”. There is no similar limitation for any of the borrowers.

11    The funds the subject of the Loan Agreement were never repaid. Macko Corporation issued proceedings against the appellant and Mr Malecki, both as trustee and in his own right, naming them as respondents in the District Court of South Australia.

12    The appellant was named as third respondent in the District Court proceedings and identified as “Spiros Psevdos as Trustee for the Orio Investment Trust”.

13    On 18 January 2021, judgment was entered by consent against all three respondents in the District Court in the amount of $182,419.02 (being the loan amount of $160,000 plus accrued interest) (District Court judgment).

14    On 1 February 2021, the District Court made a costs order against the three respondents for the costs of the proceedings. The District Court judgment and the costs order found the bankruptcy notice and creditor’s petition the subject of this appeal.

15    On 13 August 2021, Macko Corporation served on the appellant a bankruptcy notice (BN 252404) issued on 3 May 2021 (bankruptcy notice) under s 41(1) of the Bankruptcy Act 1966 (Cth) (the Act). The bankruptcy notice demanded payment of $202,419.02, such sum comprising:

(a)    The District Court judgment in the amount of $182,419.02; and

(b)    The costs order in the amount of $20,000.

16    The appellant failed to comply with the requirements of the bankruptcy notice thereby committing an act of bankruptcy: s 40(1)(g) of the Act.

17    On 28 October 2021, Macko Corporation filed a creditor’s petition in the FCFCoA seeking a sequestration order against the appellant’s estate. On 12 April 2022, a Registrar of the Court made orders sequestrating the appellant’s estate: s 52 of the Act.

18    On 2 May 2022, the appellant filed an application to review the Registrar’s decision in the FCFCoA. On 27 January 2023, the primary judge delivered judgment and made orders affirming the Registrar’s decision.

The primary judge’s consideration

19    The primary judge noted that the FCFCoA’s authority to make a sequestration order arises pursuant to the provisions of s 43(1) of the Act, which is a discretionary power only exercisable if the Court is satisfied that the relevant respondent has committed an act of bankruptcy and is a resident of Australia or carries out business in this Country.

20    His Honour noted that s 40 of the Act provides an exclusive list of circumstances which constitute acts of bankruptcy, including the ground relied upon by the respondent at s 40(1)(g), which is the failure to satisfy the requirements of a bankruptcy notice issued as a consequence of a judgment debt.

21    Since the application sought a review of a sequestration order and Macko Corporation still sought the sequestration order, the primary judge observed that the petitioning creditor was required to establish all necessary matters, including those specified in s 52(1) of the Act.

22    The primary judge set out the factual background of the District Court proceedings (a summary of which appears above).

23    The primary judge summarised the appellant’s grounds of opposition filed on 16 March 2022 as follows:

(a)    There is no debt owed by the appellant in his own right by operation of the Loan Agreement;

(b)    The debt is a secured loan and notwithstanding that the appellant elected not to exercise their power to realise their security at any material time;

(c)    The bankruptcy notice is unfounded and as a result the creditor’s petition is ‘inert’; and

(d)    The bankruptcy proceeding is an abuse of process.

24    Before the primary judge, the appellant relied on his affidavit filed 16 March 2022 in support of his application to have the petition dismissed (Psevdos affidavit). The appellant deposed to the circumstances surrounding the creation of the 18 January 2019 letter, a copy of which is annexed to the Psevdos affidavit.

25    The primary judge noted that the appellant contended, as he did before the Registrar, that he is not personally liable for the debt claimed by the respondent because he was acting in his capacity as a Trustee for Orio Investment Trust.

26    The primary judge proceeded on the basis that the matter would proceed by way of hearing de novo before outlining the relevant principles and reminded himself that a hearing de novo requires a complete rehearing of the facts and the law as they exist at the time the judge reviews the order made by the Registrar: Totev v Sfar [2008] FCAFC 35; (2008) 167 FCR 193 (Emmett J).

The appellant’s main ground of review in the Court below

27    When considering the appellant’s grounds of review, the primary judge summarised the appellant’s contention as being that the relevant Loan Agreement is clear in its terms and stipulate that the appellant agreed to enter the Loan Agreement only on the basis that his personal liability was limited to assets controlled by Orio Investment Trust. The appellant contended the Loan Agreement did not impose any personal liability on him.

28    Before the primary judge, the appellant submitted that Muir v City of Glasgow Bank and Liquidators (1879) 4 AC 337 represents the law in Australia, namely that a trustees’ prima facie personal liability for all contracts entered into can be varied such that any liability is limited to the trust assets. The appellant referred to Jacobs Law of Trusts in Australia, 8th ed, Butterworths, (2016), [21-03].

29    The appellant also relied on Helvetic Investments v Knight (1984) 9 ACLR 773 in support of his contention that his personal liability had been excluded.

30    Referring to Helvetic, the primary judge noted that the majority of the Full Court of the Supreme Court of New South Wales did not accept that the defendant’s liability should be limited to the assets of the trust notwithstanding the fact that the relevant guarantee had been described in its execution as a family trust which was signed by the defendant as a trustee.

31    The primary judge also noted that in Helvetic (at 474) Glass JA accepted that Muir was applicable in Australia and supported the following two propositions:

•    A trustee who enters into a contract will normally incur unlimited personal liability unless by appropriate language or express stipulation such liability is restricted;

•    A mere description of the capacity in which a person contracts as that of trustee is insufficient to exclude full personal liability;

And that the controversy in that matter concerned the proposition that:

•    Upon the proper construction of the guarantee no language could be found in it to limit the normal unlimited liability of the contracting trustee.

32    So too, the controversy before the primary judge concerned whether there is such a limitation, given the explicit stipulations in the Loan Agreement.

33    The primary judge turned to consider the appellant’s submissions in relation to the application of Helvetic. The appellant contended before the primary judge that the Loan Agreement had used language of sufficient precision to restrict his personal liability and was more than a “mere description’” of him (as referred to in Helvetic).

34    The appellant submitted before the primary judge that the 18 January 2019 letter (which pre-dated the Loan Agreement) should be considered a collateral contract to the Loan Agreement on the basis that he would never have entered into the Loan Agreement if his personal liability to repay the loan amount was not limited in accordance with the 18 January 2019 letter.

35    The primary judge noted the appellant’s submissions that the Court is entitled to look at circumstances surrounding the making of both documents, i.e. the letter dated 18 January 2019 and the Loan Agreement, in assessing whether he is personally liable for the debt in question.

36    To that extent, the primary judge observed that the appellant relied on statements in the High Court in Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, [22] and Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, [35] that the meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. That exercise requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or object to be secured by the contract.

37    The primary judge summarised the appellant’s contention that there was sufficient uncertainty surrounding the entry of the judgment debt, for the Court to go behind the underlying judgment debt upon which the bankruptcy notice and creditor’s petition is based: s 52 of the Act.

38    The primary judge summarised the circumstances as being that the appellant contended that he was ultimately not indebted to the respondent “… and therefore the proof required by s 52 of the Act had not been provided by the petitioning creditor.”

39    Before the primary judge, the appellant also submitted that in Psevdos v CBA (No 2) at [59] Charlesworth J had mistaken the seminal principle established in Gordon v Campbell (1842) 1 Bell App 428 and Muir, where her Honour held:

Insofar as the decision in Gordon stands for the proposition that trustees may avoid personal liability for debts incurred in the performance of the trust (including debts arising under contract) by expressly making it known that they covenant in the capacity as trustees (or qua trustees, as that phrase was used in Gordon), that proposition is not good law.

(Citations omitted)

40    Gordon concerned a matter in which the trustee of a deceased estate entered into a bond. The House of Lords held that the bond evinced an intention that the trustee’s liability to repay the bond was limited to the extent of trust property.

41    The appellant asserted before the primary judge that Gordon was good law in Australia and was applicable to his circumstances.

42    In its submissions before the primary judge, the respondent referred to the Loan Agreement which had been signed by the appellant and submitted there was no differentiation made between the appellant personally and his capacity as trustee such as to support the appellant’s contention that his personal liability had been excluded. The primary judge summarised the respondent’s submissions as: Reasons [63]

(a)    The Loan Agreement makes no reference to the personal liability of Mr Psevdos or expressly differentiate between Mr Psevdos personally and in his capacity as trustee of the Orio Investment Trust.

(b)    The only reference in the agreement to any trust limitation is that referrable to Macko Corporation in Item 9 of the Schedule. This is the obvious place in which to make reference to a similar limitation referable to Mr Psevdos. It does not appear.

(c)    Clause 13.1 – the whole agreement clause – explicitly excludes any antecedent agreement such as the earlier letter of 18 January 2019.

(d)    Even in the event that there was some prior agreement, the clear reading of the Loan Agreement indicates that it has been superseded by the later comprehensive document.

(e)    The agreement in question is a commercial document, which has a plain and comprehensible meaning – a sum of money has been advanced to the named individuals, which is intended to be repaid in twelve months at a specified rate of interest. As such it is not permissible for the Court to examine any other evidence to contradict the clear meaning of the relevant contract.

(f)    A mere description of a person as a trustee is insufficient to exclude personal liability of a trustee. Appropriate language or an express stipulation of limited liability is required in the relevant agreement. There is no such language in the agreement which is the subject of the current proceedings.

(g)    In these circumstances, the normal law relating to the liability of trustees to pay the debts of trusts as delineated by Charlesworth J in Psevdos v CBA (No 2) apply and the authorities commencing in Gordon v Campbell as cited by Mr Psevdos have no application given the clear terms of the relevant Loan Agreement.

(h)    This Court is bound by the authority of the Federal Court and it cannot be said that Psevdos is manifestly incorrect.

43    The respondent also contended before the primary judge that there could be no basis for the Court to go behind the District Court judgment because: Reasons [50]

(a)    Mr Psevdos has not sought to challenge the judgment by appeal or any form of cross action.

(b)    The court record indicates that Mr Psevdos consented to the judgment.

(c)    As indicated above, a trustee who contracts normally incurs unlimited personal liability unless such liability is expressly restricted by appropriate language. A designation or description of trustee alone does not suffice.

(d)    There was no collateral contract as contended for by the appellant. Further, a collateral contract cannot be inconsistent with the terms of the main contract; within case the Loan Agreement: Hoyts Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133, 146.

44    In considering the above submissions, the primary judge referred to the observations of Charlesworth J in Psevdos v CBA (No 2) at [54] that:

(a)    A trust itself is not a separate legal entity to its trustee;

(b)    A trust can only contract through its trustee; and

(c)    A trustee is personally liable for debts they incur in performing the trust.

45    His Honour stated, correctly, that he was bound to follow Psevdos v CBA (No 2) such that Gordon was not good law in Australia.

46    The primary judge found that first, while the common law in Australia recognises that a trustee may limit their personal liability in any given contract, on a fair and objective reading of the Loan Agreement it was not evident that the parties had agreed to limit or exclude the appellant’s personal liability.

47    Next, in adopting Glass JA’s decision in Helvetic, the primary judge determined that the Loan Agreement was an unambiguous, conventional Loan Agreement. His Honour considered there was no basis for the Court to examine the surrounding circumstances or have regard to extraneous materials. His Honour rejected the appellant’s submission that the 18 January 2019 letter was a collateral contract to the Loan Agreement, as its terms were inconsistent with the main agreement (in particular the whole agreement provision contained in cl 13.1).

48    Finally, the primary judge rejected the appellant’s assertion that the bankruptcy proceedings arising from the judgment debt were an abuse of process. His Honour held that the District Court judgment and the costs order upon which the creditor’s petition relied remained outstanding and owing for the purposes of s 52 of the Act. The primary judge found that the appellant had not demonstrated sufficient cause as to why a sequestration order should not be made.

49    On this basis, his Honour affirmed the Registrar’s orders of 12 April 2022 sequestrating the appellant’s estate and dismissed the review application with costs.

The notice of appeal

50    On 17 February 2023, the appellant filed a notice of appeal in this Court from the primary judge’s decision.

51    The appellant filed an amended notice of appeal on 2 May 2023.

The parties’ submissions and consideration

52    The appellant’s amended notice of appeal sets out 11 matters which he contends ought to have been found by the primary judge. The first eight of these matters appear beneath the heading “Ground 1”, while the remaining three appear following the heading “Ground 2”. Both of the appellant’s grounds of appeal are reproduced below in their entirety:

Ground 1

The learned review Judge ought to have found [67-78] that:

1.    When a natural person gives notice, that they engage as a trustee only the conduct is distinguishable from a trustee’s conduct when no notice is given (sic).

2.    When a trustee takes care to expressly make it known that they deal in their capacity and character as trustee only and not personally, that conduct should not be construed as being the conduct of one of the same persons.

3.    The distinction is therefore not between separate legal entities but the capacity and character in which a person represents themselves when dealing and contracting.

4.    The Australian common law follows the English position with respect to the limitation of a trustee’s personal liability and what indicia are applied when determining whether a trustee has limited their personal exposure.

5.    The opinions witnessed by the reasons for Judgment in Psevdos v Commonwealth Bank of Australia are predisposed to imposing liability on the trustee personally in all circumstances. With respect, the understanding of the principles (i.e., the exception to the general rule – a trustee’s liability) which informs the application of the common law indicia is fundamentally defective and should not be followed.

6.    The evidence, circumstances, and conduct of the parties leading up to the making of the subject main contract inform the intended and agreed meaning of the terms Spiros Psevdos as trustee for the Orio Investment trust in the context of a trustee’s liability. The terms are not mere descriptors or indicators.

7.    The terms of the collateral contract are expressly consistent with the main contract.

8.    A whole agreement provision in the main contract does not operate to impose liability on the trustee personally when contracting as trustee only.

Ground 2

The learned review Judge ought to have found [79-91] that:

9.    Secured debt is a debt tied to a particular asset. The subject loan is a secured loan, and that security was pledged and controlled by Mr Andrew Malecki (borrower) at all material times.

10.    The security does not only better secure the repayment of the Respondent’s loan advance, but it also affords an additional borrower protection against default and this type of prosecution.

11.    It is an abuse to prosecute for a person to be made bankrupt when there is security underwriting the indebtedness. That affords this Honourable Court the power to go behind the judgment debt and set aside the sequestration order.

53    The appellant’s two grounds of appeal may be reduced to the following propositions:

(a)    The primary judge erred in law and fact in affirming the sequestration order because the appellant entered into the Loan Agreement only in his capacity as trustee and as such was not personally liable for the judgment debt; and

(b)    The bankruptcy proceedings brought by Macko are an abuse of process as the judgment debt is secured and the appellant is able to pay his debts.

54    During the course of the hearing, the appellant made a number of submissions which comprised evidence from the bar table. While counsel for the respondent did not object to this during the course of the appellant’s submissions, counsel did draw the Court’s attention to it during the course of Macko Corporation’s submissions. In considering this matter, I have not given weight to any evidence from the bar table and have only considered matters disclosed in the evidence that was before the primary judge.

Ground one – whether the primary judge erred in law or fact

Appellant’s submissions

55    It appears from the appellant’s amended notice of appeal that he asserts that the primary judge erred in fact and law in respect of all the legal and factual findings made in paragraphs [67]-[78] of the Reasons, namely that:

(a)    The common law in Australia recognises that a trustee may limit their personal liability in any given contract, but this can only be done through the use of explicit language in the contract itself;

(b)    The Loan Agreement does not disclose any clear and unambiguous words that indicate that the parties agreed that the personal liability of the appellant would be excluded;

(c)    The Loan Agreement comprehensively details the terms of the agreement between the borrowers and lenders concerned;

(d)    The 18 January 2019 letter does not represent a collateral contract to the main agreement of 30 January 2019 – it is inconsistent with the Loan Agreement and the ‘whole agreement’ clause contained in cl 13.1 of that agreement;

(e)    There is no warrant for the Court to examine extraneous circumstances as an aid to the interpretation of the Loan Agreement;

(f)    The Loan Agreement was a commercial agreement;

(g)    The meaning of the Loan Agreement (and its clauses) is to be determined by what a reasonable business person would understand it to mean; and

(h)    Any objective reading of the Loan Agreement indicates that Macko Corporation understood it was dealing with the appellant and Mr Malecki, each of whom designated himself a trustee, on the basis that it would advance a sum of money to them jointly which would be repaid in full within 12 months’ time.

56    The appellant submitted that the proposition in Gordon properly understood is that, where a party contracts as a trustee, their liability is to be confined to the extent of the assets in the trust fund. The appellant submitted that Gordon remained “good law” in Australia and that in Psevdos v CBA (No 2), Charlesworth J misunderstood the principle established by Gordon.

57    The appellant submitted that the decision of Mahoney JA in Helvetic is to the effect that where there is a divergence or a misunderstanding or the need to add some light to what the terms in a particular contract mean, it is necessary to assess the conduct of the parties to interpret the meaning of the Loan Agreement. In his written submissions, the appellant referred to Gordon, Muir and Lumsden v Buchanan (1865) 4 Macq 950 as authority for this proposition.

58    The appellant also referred to cl 13.1 of the Loan Agreement, which is an entire agreement clause and submitted that the primary judge’s construction that the 18 January 2019 letter was inconsistent with the Loan Agreement was incorrect since cl 13.1 does not extend to “vary” the capacity in which a party to the agreement contracts.

59    As I understand that submission, the appellant contended that since he signed the Loan Agreement in his capacity as “Spiros Psevdos as Trustee for the Orio Investment”, confusion could arise. He contended it should be implied that he entered into the Loan Agreement only in that capacity (i.e. as trustee), even though this is not explicit in the document and that his liability was limited accordingly.

60    The appellant submitted (as he did before the primary judge) that the 18 January 2019 letter was essential to the formation of the Loan Agreement and should have been considered a collateral contract to the Loan Agreement.

61    The appellant also submitted that the primary judge should have relied on the 18 January 2019 letter to inform the interpretation of the Loan Agreement pursuant to the exceptions to the Parol Evidence Rule: Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 29; (1982) 149 CLR 337, in particular the intention of the parties at the time they entered into the Loan Agreement.

Respondent’s submissions

62    Macko Corporation submitted that the appellant has misconstrued both Charlesworth J’s decision in Psevdos v CBA (No 2), and the primary judge’s decision to follow that authority.

63    First, Macko Corporation submitted that the primary judge accepted that the common law of Australia recognises that a trustee may limit their personal liability in any given contract and referred to Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78 and Helvetic as authority for that proposition.

64    I accept that submission.

65    In Psevdos v CBA (No 2) at [59], Charlesworth J stated that insofar as Gordon stands for the proposition that trustees may avoid personal liability for debts incurred by the performance of the trust by expressly making it known that they covenant in the capacity as trustees, that proposition is not good law.

66    Her Honour referred to various English and Australian authorities which stated that where a trustee intends to enter into a contract as a trustee only, more is required than the trustee simply “making it known that they covenant as trustee”: Psevdos v CBA (No 2), [59]-[61].

67    In Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 603; (1987) 78 ALR 193, 253 Gummow J said:

It is fundamental that the common law does not recognise a trustee as having assumed an additional or qualified legal personality. This means that the liability of the trustee for debts he incurs includes those incurred in the course of performance of the trust. His liability to creditors is not limited or quantified by reference to the extent of the trust assets: Re Johnson (1880) 15 Ch D 548 at 552. The debts are his debts: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 at 324,325; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; 27 ALR 129 (CLR at 367; ALR at 134–5). However, the law does permit a trustee to contract with third parties on the basis that his personal liability is limited, for example, to the extent of his right to resort to and apply trust funds for the discharge of liabilities incurred by him in the authorised conduct of the trust. Nevertheless, third parties may, in a given case, not be prepared to deal with a trustee on such a basis and, in any event, clear words are necessary to achieve a result whereby what is prima facie the unlimited personal liability of a trustee is so qualified: Helvetic Investment Corp Pty Ltd v Knight (1984) 9 ACLR 773.

68    Second, Macko Corporation contended, as it did before the primary judge, that the 18 January 2019 letter is not a collateral contract because:

(a)    The letter does not contain a statement of fact, promissory in effect, that was intended to be relied upon by the parties, nor did the appellant identify one;

(b)    There was no intention by Macko Corporation (it was not a party to the letter) to make any statement of fact or to guarantee the truth of any statement made by another;

(c)    The letter was impermissibly inconsistent with the Loan Agreement (the “main contract”) when considering the entire agreement clause contained in cl 13 of the Loan Agreement and therefore could not take effect; and

(d)    The appellant did not depose in his affidavits filed in support of the Review and in opposition to the creditor’s petition (nor raise in his submissions) that the consideration for the collateral contract in this case was the entry into the Loan Agreement.

69    Macko Corporation referred to Hoyts at 139 (Knox CJ) and 147 (Isaacs J) as authority for the longstanding principle that a collateral contract “… cannot impinge on [the Main Agreement], or alter its provisions or the rights created by it.” In order for a collateral contract to subsist alongside the Loan Agreement, it must therefore be consistent with the main agreement.

70    I accept those submissions. In Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; (1953) 89 CLR 507, 517 (Dixon CJ, Fullager and Taylor JJ), the High Court said if the collateral contract “… sought to modify, control or restrict the principal agreement it would detract from the very consideration which is alleged to support the promise.”

71    The primary judge was correct to find the 18 January 2019 letter does not comprise a collateral contract.

72    Third, Macko Corporation submitted further that the primary judge was correct to reject the appellant’s argument that the 18 January 2019 letter should be accepted as evidence of surrounding circumstances because:

(a)    The language of the Loan Agreement is not ambiguous or susceptible of more than one meaning;

(b)    The entire agreement clause contained in cl 13.1 operates to exclude all prior conduct and representations relevant to the subject matter of the Loan Agreement; and

(c)    As the language of the Loan Agreement has a plain meaning, evidence of surrounding circumstances which contradict the language of the agreement is not admissible: Codelfa at [352].

73    I accept that submission. The meaning of the terms of the Loan Agreement is readily understandable by a reasonable business person and in particular, there are no clear and obvious words in the Loan Agreement limiting the appellant’s liability and qualifying the usual position that a trustee has an unlimited personal liability.

74    Accordingly, there is no reason to refer to surrounding circumstances to assist in the interpretation of the document. The entire agreement provision at cl 13.1 also operates to exclude all prior conduct and representations relevant to the subject matter of the Loan Agreement.

75    The primary judge was correct to find that the Loan Agreement is an unambiguous commercial contract which is not susceptible of more than one meaning: Codelfa at 352.

76    Fourth, Macko Corporation submitted that the appellant did not point to any express provision of the Loan Agreement in which he clearly sought to exclude his personal liability.

77    I accept that submission.

78    The appellant contended that the reason there was not a specific clause included in the Loan Agreement which expressly limited his liability in Item 9 of the Schedule was because he entered into the Loan Agreement based on the terms of the 18 January 2019 letter. He contended further that the description of terms in the Loan Agreement (and Macko Corporation’s later conduct) was consistent with his position that his liability was limited to his capacity as trustee and not personally.

79    I do not accept that submission.

80    It is clear from the Loan Agreement and as found by the primary judge (correctly) that:

(a)    It details comprehensively the terms of the agreement between the borrowers and lenders concerned;

(b)    There is no limitation of liability clause;

(c)    It contains an entire agreement clause at cl 13.1, which precludes any recourse to what is set out in the 18 January 2019 letter; and

(d)    Macko Corporation sought to, and did, limit its liability under the Loan Agreement, yet the appellant did not.

81    Accordingly, the primary was correct to find that the appellant had not in any way limited his personal liability when entering into the Loan Agreement. The approach of the primary judge in dealing with the appellant’s contention as to limiting his personal liability when entering the Loan Agreement is not indicative of any error.

82    Further, there appears to have been no claim by the appellant for rectification.

83    It is for these reasons that ground one is not made out.

Ground two – whether the creditor’s petition brought by Macko Corporation Pty Ltd is an abuse of process

84    The second ground of appeal is directed to the primary judge’s conclusion as to the basis of the bankruptcy proceedings brought by the respondent, namely:

(a)    That it was incontrovertible that Macko Corporation was entitled to bring the proceedings when the loan monies advanced by it remained unpaid by the appellant or his co-respondents; and

(b)    That the appellant had not demonstrated sufficient cause as to why a sequestration order should not be made.

Appellant’s submissions

85    The appellant contended that he is able to pay the debt on the basis that the security referred to in the Loan Agreement could discharge the debt.

86    On that basis, the appellant submitted that he is able to pay the debt the subject of the bankruptcy proceedings (albeit indirectly) and should not be made bankrupt on the respondent’s petition.

87    The appellant relied on Re Sarina; Ex parte Wollondilly Shire Council [1980] FCA 175; (1980) 32 ALR 596, 599, and the Court’s discussion there as to the meaning of ‘able’ in the context of s 52(2)(a) of the Act.

88    The appellant also asserted that it is an abuse of process to institute bankruptcy proceedings where there is an existing security.

Respondent’s submissions

89    Macko Corporation submitted that the appellant’s reliance on Re Sarina is misplaced as that authority has no relevance to this present case. It notes that the respondent in Re Sarina had proved that he was able to pay his debts and simply refused to pay the debt the subject of the petition.

90    Macko Corporation also submitted that at no time prior to the filing of the appellant’s amended submissions had the appellant told Macko Corporation or the Court that he is able to pay the debt. Such an assertion was not a ground of opposition to the creditor’s petition, nor was it raised before the primary judge.

91    Macko Corporation submitted that prior to the issue of the bankruptcy notice, it had reasonable grounds to believe that the purported security either did not exist or had been placed out of its’ reach which caused Macko Corporation’s solicitors to write to the appellant on 1 May 2020 seeking information about the security, to which they received no substantive response.

92    In its’ submissions, Macko Corporation directed the Court to [80] of the Reasons which records that when considering whether the issue of the creditor’s petition was an abuse of process, the primary judge considered the appellant’s submission that it was open to Macko Corporation to exercise its’ rights in relation to the security over the Land to secure repayment of the loan.

93    Macko Corporation submitted that the appellant bears the onus of proof in establishing an abuse of process in the presentation of a creditor’s petition and that such an onus is “a heavy one”: Williams v Spautz [1992] HCA 39; (1992) 174 CLR 509 at 529. The circumstances which may constitute an abuse of process are varied, and the High Court has previously warned against limiting such circumstances into fixed categories, or confining the concept by way of discussing particular instances where proceedings have been stayed on such a basis: Aon Risk Management Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175, [33], French CJ citing Mason CJ in Rogers v The Queen [1994] HCA 42; (1994) 181 CLR 251.

94    I accept the respondent’s submissions.

95    In Aon at [33], French CJ observed that “courts have an inherent power to control their processes and prevent their application in a way which would be unfair to a party or would otherwise bring the administration of justice into disrepute among right-thinking people.”

96    The appellant put no evidence before the primary judge that there was an intention on the part of Macko Corporation to use the process for some illegitimate purpose, or the existence of some real exertion of pressure: Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407, 417 (Dixon CJ, Webb and Fullagar JJ) accepting the five propositions detailed by the Court of Appeal in Re Majory; Ex parte Debtor v FA Dumont [1955] Ch 600.

97    Further, in general terms it is not an abuse of process to commence bankruptcy proceedings without having first sought to enforce the third-party security (if it exists) or undertaken some other type of recovery action.

98    The appellant put forward no evidence before the primary judge to support his assertion that he is able to pay the debt the subject of the petition. In restricting his submission to payment of the debt the subject of the petition, the appellant also misconstrues the requirements of s 52(2)(a) of the Act. For the Court to consider exercising its discretion to dismiss a petition pursuant to that provision, it must be satisfied by the debtor that he or she is able to pay his or her debts. It is not an analysis restricted solely to the debt the subject of the petition, but rather the debts owed to the debtor’s broader body of creditors.

99    So too, the appellant provided no evidence of his solvency or the solvency or otherwise of the Orio Investment Trust.

100    The primary judge did not err in finding that there was no basis upon which a sequestration order should not be made against the appellant.

101    The primary judge was correct that the bankruptcy notice and subsequent bankruptcy proceeding are the pursuit of a legal entitlement available to the respondent. There is no abuse of process in it having done so.

102    It is for these reasons that ground two is not made out.

Conclusion

103    The appeal must be dismissed with costs.

Associate:

Dated:    17 May 2024