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[2000] FCA 1049
Federal Court of Australia
1996-06-26
Heerey J, Branson J
Original judgment source is linked above.
INTRODUCTION 1 The respondent appeared at the hearing of the creditor's petition to oppose the making of a sequestration order against his estate. 2 Section 52 of the Bankruptcy Act 1966 (Cth) ("the Act") relevantly provides as follows: "(1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. (1A) ….
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: (a) that he or she is able to pay his or her debts; or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition."
The Petition and Bankruptcy Notice 3 The petition is based on an act of bankruptcy committed by the respondent when he failed within twenty one days after the service on him of a bankruptcy notice to pay the creditor the amount of the debt stated in the notice or to make arrangements to the creditor's satisfaction for settlement of the debt. 4 The bankruptcy notice was based on a judgment of the Supreme Court of New South Wales ("the Supreme Court") by which the respondent was found liable to pay to the applicant the amount of $740,000 by way of damages together with interest. 5 Personal service on the respondent of both the bankruptcy notice and the petition was proved by unchallenged affidavit evidence. 6 The respondent argued that the petition was a nullity as it is undated. A creditor's petition is required to "be in accordance with Form 150" (s 47(1A) of the Act and O 77 r 16(1) of the Federal Court Rules). Form 150 provides for a petition to be dated. The petition does not bear a date. However, the petition is clearly stamped as having been filed in the New South Wales Registry of the Court on 3 March 2000. 7 Section 306(1) of the Act provides: "(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court." 8 I do not consider that the requirement of s 47(1A) of the Act that a creditor's petition be in accordance with the prescribed form is intended to override the general provision as to formal defects or irregularities contained in s 306 of the Act (cf ANZ Banking Group Ltd v Elferkh [1999] FCA 1049). The provision in Form 150 for a petition to be dated is, I consider, a matter of form. Failure to date a petition is therefore a formal defect or irregularity within the meaning of s 306(1) of the Act and the absence of a date does not invalidate the present proceeding. 9 It was further argued that the petition was a nullity as it gave the date of the judgment of the Supreme Court as "November 1999" rather than "3 November 1999". A Certificate of Judgment bearing the seal of the Supreme Court is attached to the bankruptcy notice. The certificate clearly shows the date of the judgment as 3 November 1999. Again, this defect in the petition is, in the circumstances, a formal defect or irregularity. During the course of the hearing of the petition I gave leave to the applicant to amend the petition by completing the date of the judgment. 10 It was faintly argued by the respondent that the petition had not been verified as required by s 47(1) of the Act in that paragraph 4 of the petition had not been verified. This argument is without substance. Paragraph 4 of the petition identifies the act of bankruptcy, namely the failure to comply with the requirements of the bankruptcy notice. William James Yuille ("Mr Yuille"), a director of the applicant, has by an affidavit dated 18 July 2000, deposed to the facts that the applicant has not, since the issue of the bankruptcy notice, received any payment from the respondent and that the respondent has not secured or compounded the debt to the satisfaction of the applicant (s 40(1)(g) of the Act). Jason Phillip Parry has by affidavit dated 14 July 2000 sworn that he has searched relevant indices maintained by the Federal Court of Australia and the Official Receiver and that the respondent has not filed any affidavit of counter-claim, set-off or cross demand as referred to in the bankruptcy notice, nor has he made any application to set aside the bankruptcy notice or to extend the time for compliance with the bankruptcy notice (Federal Court Rules O 77 r 18). By an affidavit dated 17 July 2000, Robyn Anne Fletcher ("Ms Fletcher") has sworn that on 17 July 2000 she searched the National Personal Insolvency Index maintained by the Official Receiver and that her search "revealed no details of any reference in the Index to the debtor." She further swore that her search "revealed no details of any debt agreement, in relation to the debt on which the Applicant relies, in the Index on the day when the Petition was presented, namely 3 March, 2000." Attached to Ms Fletcher's affidavit is a copy of the relevant extract from the Index (Federal Court Rules O 77 r 19(3)).
Other Sufficient Cause 11 The respondent advanced four arguments in support of his contention that there was, within the meaning of s 52(2) of the Act, other sufficient cause why a sequestration order ought not to be made. 12 First he placed reliance on the conduct of a particular solicitor. He suggested that the solicitor had, without the respondent's consent, acted against the respondent's interest in this proceeding when he was in a position to use information given to him in confidence by the respondent. The allegation that the solicitor had acted improperly "in this proceeding" was apparently made on the assumption that this proceeding is to be understood as incorporating the proceeding in the Supreme Court in which the applicant obtained judgment against the respondent. 13 The solicitor concerned has played no part in the conduct of this proceeding which was commenced by the filing of the petition. The situation is for this reason different from that which confronted Heerey J in Eterovic v Pavlovic (Federal Court, Heerey J, 26 June 1996, unreported) in which the solicitors for the petitioning creditor had acted for the debtor in the very proceeding which gave rise to the debt on which the petition was based. If the conduct before the Supreme Court of the solicitor concerned departed from accepted professional standards (about which I have formed no view), that was a matter which it would have been appropriate to raise before the Supreme Court either during the hearing of the proceeding or on appeal. No unprofessional conduct in the handling of a matter before this Court is alleged. I do not consider that it is appropriate for this Court to embark on consideration of the professional conduct of a solicitor in a proceeding before another superior court. 14 Secondly, the applicant contended that the making of a sequestration order will not benefit any of his creditors as he has no assets and is not likely to acquire any during the bankruptcy period. The applicant has sworn an affidavit in which he deposes to having no assets and to a belief that, due to his ill health, he does not have any prospect of acquiring assets. In the circumstances of this case I place no weight on the decision of the applicant not to cross-examine the applicant on his affidavit evidence. Medical evidence before the Court suggests that the respondent's ill health is such that it would not be appropriate for him to be cross-examined. 15 I accept that it would be appropriate to dismiss the petition under s 52(2) of the Act if I were satisfied that the making of a sequestration order would be an exercise in futility (Re Betts, ex parte Betts [1897] 1 QB 50; Radich v Bank of New Zealand (1993) 116 ALR 676 at 686). However, the applicant does not accept the assertion of the respondent that he has neither assets nor the prospect of acquiring assets. It may only be after the making of a sequestration order and the conduct of an investigation by a trustee in bankruptcy that the truth, or otherwise, of the respondent's assertion can be established (see ANZ v Elferkh at para 9). As Megarry V.C. observed in In re Field (a debtor) [1977] 3 WLR 937 at 940: "A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy." I am not willing to dismiss the petition on this ground. 16 Nor am I willing to dismiss the petition on the third ground pressed by the respondent, namely that a sequestration order would be oppressive. I accept that the respondent is in ill-health and that, in all likelihood, he presently has either limited assets or no assets. I also accept that his liability to the plaintiff arose as a result of his having exceeded his authority while acting as agent of the applicant: he did not derive any financial benefit from the circumstances which gave rise to the judgment against him. However, as Deane J pointed out in Kleinwort Benson Australia Ltd v Crowl (1988) 165 CLR 71 at 82: "Many, and possibly most, of the petitions in the bankruptcy lists of this country seek the bankruptcy of honest, albeit unbusinesslike or naive, people whose indebtedness springs from causes which invoke sympathy rather than indignation."
17 While the circumstances of the respondent are unfortunate and do invoke sympathy, it is to be remembered that, in contradistinction to those about whom Deane J wrote, he is a professional person who held himself out as being skilled in financial matters. He acted as accountant and financial adviser to the applicant. In that capacity he took it upon himself, as the learned trial judge found, in breach of the terms of his agency agreement with, and his fiduciary obligations to, the applicant to "invest" a large amount of the applicant's money. The money was lost. The circumstances of this case fall well short of constituting circumstances of oppression. 18 Finally, the respondent invited the Court to go behind the judgment of the Supreme Court. This Court will look behind the judgment of another court where there is reason to doubt whether behind that judgment there is in truth a debt due to the petitioning creditor (Wren v Mahony (1972) 126 CLR 212). 19 The principal criticism made by the respondent of the decision of the Supreme Court is that the learned trial judge based his decision on a cause of action not pleaded. However, his Honour, while acknowledging that it had not been expressly pleaded that the respondent had acted as agent outside the scope of his authority and was thus liable for any loss thereby occasioned to the applicant, concluded that such a plea had been implicitly included in the statement of claim. The respondent did not seek to argue to the contrary. In any event, I do not consider it appropriate for a judge of this Court to review a decision of the Supreme Court as to the proper construction of a pleading filed in the Supreme Court. 20 The applicant further contended that the applicant did not in fact exceed his authority while acting as the applicant's agent. I do not consider it appropriate to review the finding of the learned trial judge, made after a contested hearing, that the respondent dealt with funds of the applicant in a way which exceeded his authority. In any event, I note that the document upon which the respondent places reliance on the question of his authority to make the relevant investment on behalf of the applicant is entirely equivocal in this regard. The document acknowledges the fact of the investment and seeks written confirmation of it: it neither recognises the respondent's authority to make the investment nor ratifies his conduct in so doing. 21 The respondent also criticised the manner in which a Master of the Supreme Court assessed the damages payable by the respondent to the applicant. Although the respondent appeared at the hearing in the Supreme Court before the learned trial judge, he did not appear before the Master on the assessment of damages. It is not suggested that he did not have proper notice of the hearing before the Master. Nor is it suggested that the Master misunderstood the task that he was required to perform. Rather it is suggested that the Master determined the amount that the applicant would be able to recover from a defendant other than the present respondent on a basis which was not reliable. However, nothing before me suggests that the actual determination of the Master was wrong. Moreover no appeal against the decision of the Master has been instituted. 22 It has not been shown that the judgment of the Supreme Court was in any way obtained irregularly. Although the power of this Court in a bankruptcy proceeding to go behind a judgment of another court is undoubted, it will rarely agree to do so - particularly where the judgment is that of a superior court obtained following a contested hearing. This is not, in my view, a case in which it would be appropriate for the Court to go behind the judgment of the Supreme Court on either the question of liability or the issue of quantum. 23 There will be orders that a sequestration order be made against the estate of the respondent. As the hearing of the petition did not proceed smoothly, I will hear the parties as to the appropriate order for costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.
Associate: Dated: 4 August 2000 Counsel for the Applicant: Mr Johnson
Solicitor for the Applicant: The Argyle Partnership
Joan Freedom Rogers Pty Ltd
Prasad