Glass v Demarco

EX TEMPORE REASONS FOR JUDGMENT 1 On 1 April 1999, I adjourned the hearing of the bankruptcy petition to 21 April 1999 at 10.15 am. I also gave leave to the debtor to file a notice of motion returnable on 21 April 1999 before me and directed the debtor to file and serve no later than 12 April 1999 any further affidavits on which he seeks to rely on the hearing of the motion. 2 I ordered that, as a term of granting the adjournment, the sum of $50,000 be paid into court on or before 12 April 1999. I indicated that, if that sum was not paid on or before that date, I did not propose to entertain any application to amend the notice of grounds of opposition by the debtor based on the debtor's ability to pay his debts. I reserved to the creditor liberty to restore the matter for mention on 14 April 1999 if the sum of $50,000 was not paid into court on or before 12 April 1999. 3 The matter has now come before me again on the application of the creditor because of the failure by the debtor to pay the sum of $50,000 into court.

ADMISSIBILITY OF EVIDENCE OF SETTLEMENT NEGOTIATIONS 4 On the matter being called on, counsel for the debtor sought leave to read an affidavit sworn by the debtor on 13 April 1999. Objection was taken to paragraph 7 of the affidavit in which the debtor says that another party in an equity suit in the Supreme Court of New South Wales to which the debtor is a party made an offer of compromise which is still open to acceptance. A copy of the offer is annexed to the affidavit. 5 The objection is based on section 131(1) of the Evidence Act 1995 (Cth) which provides that: "Evidence is not to be adduced of: (a) a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or (b) a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute." 6 However, under subsection (2), subsection 131(1) does not apply in certain circumstances. Subsection (2) relevantly provides: "Subsection (1) does not apply if: …………………. (g) evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence; ……………………………… (i) making the communication, or preparing the document, affects a right of a person." 7 The debtor first contended that paragraph (g) applied because a question will arise on the hearing of the bankruptcy petition as to whether or not I should make a sequestration order. It was suggested that an inference may have to be drawn as to whether or not the debtor can pay his debts. However, I do not consider that that is the correct analysis. 8 An act of bankruptcy has been committed by reason of failure to comply with a bankruptcy notice. That is sufficient to ground a sequestration order. The Court, of course, has the discretion to decline to make a sequestration order if it considers that one ought not to be made. One ground on which I could conclude that an order ought not to be made is that the debtor is in fact able to pay his debts as and when they fall due, if he chooses to do so. That is one of the grounds which the debtor seeks leave to raise. 9 Another ground might be that there is pending litigation between the parties which might result in a set-off. That is another ground which the debtor seeks to raise. However, I do not consider that the correct analysis is that an inference would be drawn which the paragraph in the affidavit seeks to rebut. Rather, the onus is on the debtor to persuade me that an order ought not to be made. I do not consider, therefore, that s131(2)(g) has any application. 10 Alternatively, the debtor relied on s131(2)(i). The contention, as I understand it, is that a right of the debtor is affected by the offer because the debtor, by reason of the offer, has a right to accept it and thereby create a contract of compromise. I consider that the reference to a right in s131(2)(i) is to an existing right and it is not satisfied by reason of a right coming into existence upon the making of an offer. If it were given such a construction, paragraph (i) would constitute a most significant exception to the operation of section 131(1). I do not consider that s131(2)(i) affords the debtor any assistance in this case. 11 It may be that section 131 has an operation in the present circumstances which it was not intended to have. The general rationale for a provision such as section 131 and the similar principle which applied under the general law was that there should be no adverse consequences for a party who makes a communication intended to result in compromise of a proceeding. To that end, a party ought not to be exposed to tender against it of a communication that might constitute an admission if the communication was genuinely intended to result in settlement or compromise of a dispute. In the present circumstance, the use intended to be made by the debtor is simply to demonstrate his possible ability to pay his debts. 12 Nevertheless, one of the issues which would arise on the hearing of the petition, if the debtor is given leave to raise further grounds, is whether or not the debtor is in fact in a position to meet his debts. Until such time as the offer is accepted, it would be impossible to form any view as to whether or not the making of the offer gives rise to a possible asset on the part of the debtor without in fact treating the offer as an admission that there is some sum of money owing. 13 In the circumstances, it seems to me that the paragraph is made inadmissible by the operation of section 131(1) and it is probably evidence which should not be admitted even under the general law. I reject the first two sentences of paragraph 7 of the affidavit and I allow the last sentence of paragraph 7. I make it clear that by rejecting the first two sentences of paragraph 7, I also reject the annexure.