Australia & New Zealand Banking Group Ltd v Foyster

Federal Court of Australia|2000-03-31|Before: Emmett J, Hely J

REASONS FOR JUDGMENT 1 By a creditor's petition filed on 3 August 1999 Australia & New Zealand Banking Group Ltd ("the Bank") applies to the Court for a sequestration order against the estate of Lloyd Foyster ("the respondent"). The petition is based upon a debt of $47,899.52 being an unsatisfied judgment of the Supreme Court of New South Wales issued on 7 September 1998 for unpaid costs. 2 On 17 May 1999 Registrar Quinn made an order for substituted service of the Bankruptcy Notice 1924 of 1998 addressed to the debtor. The affidavits of Clive Phillip Carpenter sworn 24 May 1999 and David Anderson of 26 May 1999 prove that service of the bankruptcy notice was effected upon the debtor within the time, and in the manner fixed by this order. 3 On 25 June 1999 the respondent filed an application N 7702 of 1999 to set aside the bankruptcy notice. On 27 July 1999 Emmett J ordered that the application to set aside the Bankruptcy Notice should be dismissed with costs. The Bankruptcy Notice specified that compliance with it was required within 21 days after 7 June 1999. Time for compliance with the Bankruptcy Notice was extended pursuant to s 41(7) of the Bankruptcy Act 1966 (Cth) ("the Act") until 27 July 1999. 4 I am satisfied that the respondent remains indebted to the Bank in the sum of $47,899.52, that the Bank does not hold any security over the respondent's property and that the respondent was both personally present in Australia and resident in Australia on 27 July 1999 when the act of bankruptcy was committed. 5 As earlier indicated, the Bank presented its creditor's petition on 3 August 1999. The act of bankruptcy was thus committed within six months before the presentation of the petition. On 13 October 1999 Registrar Quinn made orders that personal service of the petition be dispensed with, and for substituted service of the petition, and copies of the affidavits verifying the petition. The affidavits of Thomas Anthony Irwin sworn 1 November 1999, and Victor Walter Keller sworn 22 October 1999 and 26 October 1999 establish service of the petition and of copies of the affidavits verifying the petition in accordance with the Registrar's order, except that Order 2(a) required that a notice be attached to the creditor's petition asking that the creditor's petition be passed on to Mr Lloyd Foyster, and brought to his attention. There is no evidence that this was done. However, it is clear that these documents came to the respondent's attention as solicitors acting on his behalf filed a notice of intention to oppose the petition sworn on 5 November 1999. I was informed by the respondent's counsel that no issue was taken in relation to the service of the petition. 6 The notice of intention to oppose the petition specified as the grounds of opposition: 1. the respondent is solvent and able to pay his debts as and when they fall due; 2. the respondent offers to pay the sum referred to in the petition into Court.

Offers to pay 7 If and insofar as the offer referred to in ground 2 was made to the applicant, I was informed by counsel for the applicant when the matter was called on for hearing that the applicant did not accept the offer. At the commencement of his submissions in reply, counsel for the respondent offered (on behalf of the respondent) to pay the sum of $47,899.52 to the Bank forthwith and to consent to an order that the respondent pay the Bank's taxed costs of the petition. That offer was also not accepted. Whilst the respondent's counsel submitted that the applicant was obliged to accept the offer, and the fact of its being made deprived the applicant of the status of a creditor in terms of s 52(1)(c) of the Act, no authority was cited in support of either proposition. McIntosh v Shashoua (1931) 46 CLR 494, 505, 508, 521 decides that a petitioning creditor is entitled to refuse a tender of payment of the debt and to proceed with the petition. At p 508 Starke J said: "It would be quite contrary to the spirit of the Bankruptcy Act to compel a creditor to receive payment of the debt after an available act of bankruptcy had been committed." (Citations omitted) See also International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at [43].

Solvency - Assets: 8 The respondent filed affidavits sworn on 5 November 1999 and 11 November 1999 in support of his opposition to the making of a sequestration order. According to those affidavits: - the respondent has no other liabilities, apart from a liability to pay his own legal expenses.

Proceedings No 21004/95 instituted by the respondent against the Bank in the Supreme Court of New South Wales in October 1995 remain current in that Court, pending a reserved decision of Hidden J in respect of various interlocutory matters. These proceedings were the subject of consideration by Emmett J in his judgment delivered on 27 July 1999. The respondent states that he has no intention of withdrawing the claims made in those proceedings.

The respondent has not paid the moneys upon which the petition is based because he is engaged in ongoing litigation with the Bank in the Supreme Court. He is a recalcitrant debtor, but not insolvent.

· $50,000 - cash; · $25,000 - in the form of cheques drawn by Tasmanian Titanium Pty Ltd; · $20,000 - Patek Phillipe wristwatch; · $30,000 - two Caulfield Cups won by Ming Dynasty and Mighty Kingdom given to the respondent by members of his family; · $15,000 - various pieces of prospecting and mining laboratory equipment, situated at King Island, Tasmania; · shares representing 44 percent of the issued capital of Foyster Holdings Pty Ltd, which in turn holds 70 percent of the issued capital in Tasmanian Titanium Pty Ltd ("TT"). 9 According to the affidavit evidence, TT purchased mining tenements, real property, plant and equipment and other assets which constitute the King Island Project from Australian Titanium Minerals Ltd pursuant to an agreement made on 19 August 1999. The purchase price was $500,000. A draft report by Mr John O'Neill suggests that the realisable value to TT of the tailings deposits, which constitute part of the project, may lie somewhere between $4.35 million and $12.4 million, depending on the means selected for their exploitation. In addition there are mining reserves at Naracoopa and Cowper Point for which could be expected to generate an operating profit of about $77 million, (or $60 million after capital expenditure). Buildings erected on the property owned by TT have been insured for the sum of $154,000. Plant and equipment has been insured in the sum of $750,000. 10 The shares held by Foyster Holdings in TT were issued for nominal consideration because the respondent identified the potential of the project, and in particular the potential of the offshore area. The 30 per cent of the capital of TT issued to subscribers other than Foyster Holdings Pty Ltd was issued in return for subscriptions totalling $535,000. 11 On the hearing of the petition, oral evidence was adduced from the respondent in relation to his cash position, to the following effect: - the $50,000 cash which the respondent had brought to Court on 10 November 1999, was subsequently paid into bank accounts of the applicant and Foyster Holdings Pty Ltd, with the Commonwealth Bank ("CBA"). - The $25,000 in the form of cheques drawn by TT was paid into the applicant's account with the CBA. - As at 20 March 2000, the amount standing to the credit of the applicant's account with the CBA was $44,902.77. The amount standing to the credit of the account maintained by Foyster Holdings Pty Ltd was $37,845.35. - Shortly prior to the hearing on 22 March 2000 the respondent withdrew $40,000 from his personal account, and $10,000 from the account of Foyster Holdings Pty Ltd. He had $50,000 cash with him, in Court, in his briefcase. 12 No evidence was given by the respondent as to the basis on which $10,000 was withdrawn from the account of Foyster Holdings Pty Ltd. There was no evidence of any prior entitlement to that sum. In the absence of evidence from the respondent as to any prior entitlement on his part to payment of that sum, I think that I should infer that the $10,000 was advanced by Foyster Holdings Pty Ltd to him. There is no basis for an inference that the payment was a gift. The respondent's present cash position thus does not rise above the $44,902.77 standing to the credit of his bank account prior to the withdrawal made to fill his briefcase with cash. Whether some or all of that $44,902.77 belongs to other family members, or whether they have claims against the respondent in relation to payments which have been made into the respondent's account with CBA, are matters to which it will be necessary to return later in these reasons. 13 No specific evidence was adduced as to the value or realisability of the respondent's share in Foyster Holdings Pty Ltd. In his oral evidence the respondent said that Foyster Holdings has reduced its interest in TT from 70 per cent to 65 per cent by the sale of a 5 per cent interest to a newly incorporated company, Tasmanian Titanium Holdings Pty Ltd, for the sum of $148,000, part of which was paid on 21 March, and the balance of which was expected to be paid on 22 March 2000. 14 The only income of which the respondent gave evidence was receipt of a pension. On the respondent's evidence he has: - $44,902.77 cash, or its equivalent; - goods consisting of the Patek Phillipe wristwatch, the two Caulfield cups and the mining equipment; - 44 per cent of Foyster Holdings Pty Ltd which holds 65 per cent of TT and has $148,000 in cash or receivables.

Liabilities: 15 The respondent has debts and liabilities consisting of: - $47,899.52 the subject of the bankruptcy notice. - $10,000.00 sundry debtors, including legal expenses. - Liabilities under orders for costs made in favour of the Bank in proceedings before Harrison M on 8 December 1997 (claim: $17,662.63) and Emmett J on 27 July 1999 (claim: $31,789.85) totalling $49,452.48. - An order for costs made by Windeyer J in favour of the Bank on 22 March 2000. - Claims by some family members of unspecified amounts payable in unspecified circumstances, to which it will be necessary to return.

Principles 16 The Bank has made out the elements which prima facie entitle it to the making of a sequestration order. However, s 52(2) of the Act provides that if the Court is satisfied that the debtor is able to pay his debts, or that for other sufficient cause a sequestration order ought not to be made, then the Court may dismiss the petition. 17 The onus of proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. If a debtor is able to pay his or her debts, but is recalcitrant, the creditors may resort to other remedies, such as execution against property and garnishee proceedings, but not to sequestration. Bankruptcy is not a proceeding designed for the recovery of debts: see Re Sarina; Ex Parte Wollondilly Shire Council (1980) 32 ALR 596, 599. 18 Although a sequestration order will not be made against the estate of a debtor who is recalcitrant but plainly solvent, the Bank submitted, on the basis of Trojan v Corporation of Hindmarsh (1987) 16 FCR 37, 46-48, that the discretion under s 52(2)(a) should not be exercised unless the debtor demonstrates that the petitioning creditor will be satisfied from the ordinary remedies such as execution and guarantee. Trojan decides that even if a debtor establishes solvency, the Court retains a discretion whether or not to dismiss the petition. The Full Court said, at p 48: "... the principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled. Section 52(2)(a) envisages a situation which will probably bear fruit in payment. It is not easy to see any other reason why the legislature saw fit to make a demonstration of ability to pay only a discretionary ground of dismissal of a petition, and not an absolute bar to its success." 19 Under s 52(2)(a) the respondent must satisfy the Court that he is "able to pay his ... debts", including liabilities: s 5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall (1907) 4 CLR 1514, 1527-1528 as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpaca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future.

The quantum of liabilities 20 The respondent is under an existing obligation to the Bank in relation to the costs orders made by Harrison M and Emmett J referred to in par 15 above. The bill of costs in relation to the proceedings before Emmett J was sent to the respondent on 16 February 2000. A certificate in relation to those costs is expected to issue on 27 April 2000. The bill of costs in relation to the proceedings before Harrison M was sent to the respondent on 21 March 2000. There is no specific evidence as to when a certificate in relation to those costs is likely to issue. No material was put before me in order to establish that the claimed costs of $49,452.48 are excessive, or that for some other reason the respondent is unlikely to become indebted to the Bank in the reasonably immediate future in a sum of the order claimed. Accordingly, the respondent must satisfy me that he is able to pay his present debts of $57,889, and a liability of the order of $49,452 which will fall due in the reasonably immediate future: a total exposure of about $107,000. I leave out of account the costs order made by Windeyer J on 22 March 2000, because I have no information as to the likely quantum of those costs, or when they will fall due for payment. 21 The respondent submitted that the decision of Sundberg J in St George Bank Ltd v Helfenbaum [1999] FCA 1337 required that the untaxed costs should be left out of account. There is nothing in his Honour's decision which supports that submission. 22 There is a complication in assessing the liabilities to which the respondent is subject. The balance which stood to the credit of the respondent's account with the CBA on 20 March 2000 reflected (amongst other things): (a) the monies returned to that account after the court hearing on 10 November 1999: and (b) the cheques of $10,000 and $15,000 drawn by TT. 23 The monies referred to in par 22(a) derived from the repayment to the respondent of the $50,000 deposit paid under the Project Purchase agreement for the King Island Project. According to the Information Memorandum that deposit was repayable "to members of the Foyster family". Whilst the respondent's evidence on this point was a little confused, some $35,000 of this deposit appears to have been paid by family members other than himself. 24 The cheques from TT referred to in par 22(b) above are said to represent a payment of disbursements incurred by the respondent on behalf of TT. The Information Memorandum dated 23 September 1999 disclosed that $10,000 of the funds which TT was in the process of raising would be spent on an agreed reimbursement to Lloyd and David Foyster. David is Lloyd's son. That explains the cheque for $10,000. The respondent accepted in evidence that part of this sum belonged to David, and when pressed for details, contended that maybe $500 or $1,000 of that sum belonged to David. 25 The respondent accepted that some part of the $15,000 cheque represented disbursements incurred by David, but not more than $1,000. The respondent's bank statements tendered in evidence cover part only of the period between 23 September 1999 (the date of the Information Memorandum) and 10 November 1999 (the date of the $15,000 cheque). Such statements as have been tendered would not support disbursement of $15,000 from the account in the period covered in the statements on behalf of TT. That notwithstanding, I accept the respondent's evidence that $25,000 was paid to him by TT by way of reimbursement of expenses which he and his son had incurred on behalf of TT, and I accept that only a small part of that expenditure was incurred by David. 26 I am not prepared to infer any impropriety on the part of the respondent in banking to the credit of his account monies on which, in a loose sense, other members of his family may have had some claim. Whilst the evidence does not directly address the issue, I would infer from all the circumstances that this was done pursuant to a family arrangement. But other members of the family do have a claim against the respondent in relation to his receipt of the repayment of the deposit although the amount of the claim may be uncertain. Whether the family members are pressing their claims, or are prepared to wait until fortune favours the respondent, does not appear from the evidence. There is simply no reference to this aspect of the matter in the respondent's affidavit evidence. 27 Counsel for the respondent accepted, to use his words, that other members of the family "have a claim to the repayment of some moneys at some indeterminate time in the future". But he contended that there was no evidence of a demand being made, and no cross examination directed towards establishing that the family claim would fall due for payment in the reasonably immediate future. 28 The problem which exists in relation to the approach adopted by the respondent's counsel is that the respondent bears the onus of proving either that no monies will become due to other family members in the reasonably immediate future, or that the respondent will be able to pay them. The respondent's evidence did not directly address either of these matters.

The realisable value of assets 29 Notwithstanding the attack which was made on the credibility of the respondent, particularly in relation to the ownership of the Caulfield cups and the wristwatch, I accept his evidence that he is the owner of the Caulfield Cups, the Patek Phillipe wristwatch and the mining equipment. There is no evidence as to the value and realisability of those assets other than that given by the respondent. The respondent's evidence, in this respect, was skeletal in nature, and except perhaps in relation to the mining equipment, did not address the time frame within which realisation of those assets could be expected to occur. 30 The cups were won by Ming Dynasty and Mighty Kingdom in 1979 and 1980. The respondent bred, and was a part owner of these horses. The cups are made of gold. One is the original, the other a duplicate, which the respondent commissioned at a cost of $18,000 in the early 1980's. Whilst the respondent says there is a market in the cups, the only evidence which he gives as to the operation of that market is that a cup attracted $15,000-$20,000 "in the way of an offer or payment". 31 The Patek Phillipe wristwatch was purchased for ₤10,000 in 1967. In 1989 it was sold to the respondent's brother for $10-15,000 and given back to the respondent in 1992. The respondent values that watch at $20,000. 32 The mining equipment has been acquired over a period since 1992. The respondent says there is a market for secondhand equipment of that type. No information is given as to how the valuation of $15,000 is reached, nor are the facts on which the conclusion that the equipment "could be easily sold in the near future" exposed. 33 The values ascribed to these chattels in the respondent's affidavit total $65,000. I was invited by the respondent's counsel to take judicial notice of the fact that it is usually possible to turn a valuable into a third of its face value "by walking up the bottom of William Street", but that is not a conclusion which I would be entitled to reach without evidence. It was then submitted by the respondent's counsel that I should ascribe a value of between $8,000 and $10,000 to each item, producing a total value for the chattels of $32,000 to $40,000. 34 I am not satisfied on the evidence that the chattels could realise a sum of $65,000 if it were sought to realise them within a relatively short period of time. The evidence does not enable an assessment to be made of the sum likely to be received in these circumstances. The respondent's counsel conceded that it would not be appropriate to give the full value attributed by the respondent to the chattels in question without some discounting. It may be that the figure of $32,000-$40,000 suggested by the respondent's counsel, although without evidentiary foundation, is not too far wide of the mark. But even if realisations of that order could be derived from the sale of the chattels, the respondent's financial position would be: Liabilities Assets $ 10,000 - Sundries Cash: $45,000 $ 47,889 - Bankruptcy notice Chattels: $32,000-$40,000 $ 49,452 - Untaxed costs $77,000-$85,000 $107,341 even leaving out of account the unquantified claims of family members. Even if the view were taken that the costs of the proceedings before Harrison M would not be payable in the reasonably near future, the liabilities would be about $89,678, leaving out of account claims of family members. 35 As I have said, there is no direct evidence as to the value of, or realisability, of the respondent's shareholding in Foyster Holdings Pty Ltd. It is a 44 per cent interest in a private company, the balance of which is held by family members and/or their associates. I do not think that I can, or that I should, make some estimation of the value of a 44 per cent interest in the company based upon the sums for which certain of its assets have been insured. Nor can I, or should I make some estimation of the value of that interest by reference to the fact 5 per cent of the shares which it held in TT realised $148,000. Still less could I assume that the shareholding could be realised, or borrowed against so as to raise any particular sum of money within a comparatively short time frame. Whilst TT has acquired the King Island Project, the evidence does not establish that it has, as yet, substantially commenced to exploit that project. Thus the respondent's shareholding in Foyster Holdings Pty Ltd cannot be relied upon to overcome the shortfall to which I have referred, or to establish solvency. 36 The respondent's counsel submitted that the presentation and prosecution of the petition was an abuse of process. I reject that submission. There was an offer made by the respondent on 29 October 1999 to pay $48,000 into a trust account. The offer made in the notice of opposition was to pay the money into court by way of security. It was not until the respondent's counsel commenced his submissions in reply that any offer was made to pay the $48,000 to the Bank unconditionally. The rejection of these offers made after the presentation of the petition cannot establish that the presentation or prosecution of the petition is an abuse of process. 37 The respondent is perfectly entitled to adopt the role of a recalcitrant debtor, and to decline to pay a judgment debt if he wishes. But he will only be immune from the operation of the bankruptcy laws if he can establish solvency, it not being suggested that there is any other ground (apart perhaps from the abuse of process to which I have referred) on which the petition should be dismissed. The onus of establishing solvency lies on the respondent, and in my view, he has not discharged that onus. 38 I therefore: - make a sequestration order against the estate of Lloyd Foyster; - order that the petitioner's costs of and incidental to the petition be taxed and paid in accordance with s 109(1)(a) of the Act. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Counsel for the Applicant: Mr R W White SC and Ms J E Stuckey-Clarke

Solicitor for the Applicant: Blake Dawson Waldron

Counsel for the Respondent: Mr L Aitkin and Ms R Sofroniou

Bankruptcy Act 1966(Cth)ss 5(1), 41(7), 52(1)(c), 52(2), 52(2)(a), 109(1)(a)

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (6)