The above approach was adopted in this Court by Olney J in Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No. 2) and applied by the Full Court of this Court in Ling v Commonwealth of Australia (1996) 139 ALR 159.
The above authorities do not, in our view, support the appellant's contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party.
The authorities also show that satisfaction that the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts may well provide a basis for a finding that there is a "sufficient cause" for a sequestration order not to be made (see, for example, Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303). But the authorities do not suggest that it is in the public interest to allow insolvent debtors to prosecute litigation generally. They only recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.
The above two categories of authorities should be distinguished from the decision of the Full Court of this Court in McLean v Biztole Corporation Pty Ltd (unreported, Full Federal Court, 30 August 1996). That case was principally concerned with the issue whether the primary judge erred in failing to go behind the judgment which supported the judgment debt. The debtor sought to challenge the appointment of the receiver whose actions had made the debts owed by the respondent to the judgment creditor immediately due and payable. In the sense in which the term was used by the primary judge in this case, the claim of the debtor in McLean's Case "impeached" the claim there made against the debtor. Nothing of that sort is asserted here.
In considering whether or not to exercise the discretion conferred by s52(2)(b) of the Act, the primary judge had regard to the appellant's claim against the Commonwealth and its history. He considered whether the petition before him could be extended for a sufficient time to enable the appellant to receive any fruits of his litigation against the Commonwealth. He also noted that a sequestration order need not prevent the debtor's action against the Commonwealth from proceeding. We see no reason to conclude that, in doing this, the primary judge overlooked s60(2) and (3) of the Act. Those subsections provide:
"60 (2) An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.
(3) If the trustee does not make such an election within 28 days after notice of the action is served on him by a defendant or other party to the action, he shall be deemed to have abandoned the action."
There is also no reason to conclude that the primary judge overlooked the provisions of s177(1) of the Act which are in the following terms:
"177(1) Subject to this Act, in the administration of the estate of a bankrupt, the trustee shall have regard to any lawful directions given by resolution of the creditors at a meeting of the creditors or by the committee of inspection."
While a trustee must have regard to directions of the creditors of a bankrupt, he or she is not necessarily bound to comply with them (Re Peters (1960) 18 ABC 213 at 216; Re Weiss; ex parte Official Trustee in Bankruptcy (unreported, Burchett J, 29 August 1986). A recognition of the proper operations of s60(2) and (3) and s177(1) of the Act is, in our view, to be read into the primary judge's statement that "[t]he making of a sequestration order need not prevent the negligence action from proceeding ...".
We do not consider that the appellant has identified any matters which the primary judge failed to take into account in the exercise of his direction which he ought to have taken into account. Subject to the issue of the Mareva injunction, to which we turn below, the appellant has not demonstrated that his Honour made any error of principle in the exercise of such discretion.
On 2 December 1993 in the proceeding in which the Commonwealth was the applicant and the appellant was the first respondent, Lockhart J made an order, the first three paragraphs of which are in the following terms:
"1. That until further order either in these proceedings or in any appeal therefrom the First Respondent be restrained from removing, or causing or permitting to be removed from Australia, any of his assets therein, or selling, charging or in any way dealing with, or causing or permitting any of those things to be done to any of his assets wherever situated, PROVIDED THAT this Order shall not prevent:-
(a) The First Respondent paying ordinary living and business expenses;
(b) The First Respondent paying reasonable legal expenses as incurred in these proceedings, proceedings G225 of 1992, G656 and G657 of 1993 or any appeal from any judgment in any of those proceedings.
(c) The First respondent satisfying any judgment in these proceedings G225 of 1992, G656 and No G657 of 1993;
2. That the First Respondent forthwith upon being notified of this Order direct the Office of the Public Trustee in the State of Queensland to continue to hold the sum of $850,000.00 and any interest which has accrued or will accrue thereon, referred to in the affidavit of Julie-Anne Vens sworn 7 April 1992 and filed in these proceedings and to deal with that money only in accordance with either:
(a) any further order of this Court; or
(b) a written direction signed by both the Commonwealth of Australia and Mr Ling (or their respective solicitors).
3. These orders shall continue in force after entry of judgment in this proceeding and proceedings G225 of 1992, G656 of 1993 and G657 of 1993 in aid of execution."
It is not disputed that the above order was in force when the bankruptcy notice was issued and served.
Section 40(1)(g) of the Act provides, so far as is here relevant, as follows:
"40 (1) A debtor commits an act of bankruptcy in each of the following cases:
...
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor ... a bankruptcy notice under this Act and the debtor does not ... comply with the requirements of the notice ..."
As Beaumont J pointed out in Re Solomon; Ex parte Reid (1986) 10 FCR 423 at 425-426:
"It is well established that, for the purposes of s41(3)(b), execution is deemed to have been stayed where a judgment creditor is not 'in a position to issue immediate execution upon it': per Bowen LJ in Ex parte Ide; Re Ide (1886) 17 QBD 755 at 760; Re Panwowitz; Ex parte Wilson (1975) 38 FLR 184 at 187-188; cf Re a debtor [1894] 1 WLR 1143 at 1153-1154. It is also trite law that a judgment creditor may not, without leave of the court which appointed the receiver, levy execution against the property comprised in the appointment of the receiver: see O'Donovan, Company Receivers and Managers (1981), at p 321; Meagher, Gummow and Lehane, Equity, Doctrines and Remedies (2nd ed 1983), at p 663. Any attempt to interfere with that property is an interference with an officer of the court in the performance of his function. If done without leave of the court, it is a contempt of court."
See also Penning v Steel Tube Supplies Pty Ltd (1988) 18 FCR 568 which approved Re Solomon and applied it in circumstances
in which a trustee had been appointed under s50 of the Act to take control of a debtor's property.
It is also well established that "conduct by a judgment creditor which prevents a judgment debtor from paying the debt may operate to disentitle the judgment creditor from proceeding to immediate execution" (see Wiltshire-Smith v Mellor Olsson at 585-586 and the cases referred to there).
The Court went on to say, at 586-7:
"Once it is recognised that a petitioning creditor may be disqualified from issuing a bankruptcy notice by reason of a restraint imposed by order of a court on all the property of the judgment debtor thereby removing his ability to make payment, there is no reason why a court order imposed on some only of the property of the judgment debtor which has the same practical effect should not be recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution. In our opinion, such an order will have this consequence where in practical reality, although not strictly in law, the order 'in any way prevent(s) the debtor from paying his debt' (Re Bond; Ex parte Capital and Counties Bank Ltd [[1911] 2 KB 988] at 991) or where it 'deprives or may well deprive the judgment debtor of assets which he could otherwise use to pay the judgment creditor and thus comply with the bankruptcy notice' (Wallace v Trade Credits Ltd [(1983) 72 FLR 252] at 254). To adapt the test proposed by Lord Esher MR in Re Sedgwick; Ex parte Sedgwick [(1888) 5 Morr 262] ... the factual inquiry to determine the practical effect of the order is whether in the eyes of ordinary fairness in business it will be said that the order has in a business sense prevented the debtor from paying."
Counsel for the appellant submitted that this passage established a "new jurisprudence" and that it was sufficient for a debtor, in answer to a claim based upon a bankruptcy
notice, to show that a circumstance had arisen which had deprived the debtor of assets which he could otherwise have used to pay the judgment creditor.
However, the comments of their Honours should be read in the context with which their Honours were dealing. Their Honours were considering a receivership. This had been brought about by a creditor other than the judgment creditor. Thus, no "equity" arose by reason of the conduct of the judgment creditor. However, as their Honours pointed out, once the receiver had been appointed, the judgment creditor could not levy execution upon the assets which were in the receiver's hands. The particular point with which their Honours dealt, in the passage we have cited, is that, although the receiver had not been appointed to take control of all the assets of the debtor, the receivership covered sufficient of the debtor's assets to prevent payment of the judgment debt.
No such circumstance arises in the present case.
The "restraint imposed by an order of a court" relied upon by the present appellant is the effect of Lockhart J's order of 2 December 1993. Its relevant terms are set out above. They are in the nature of a Mareva injunction. In considering this matter, Lehane J referred to the decision of Heerey J in Re Ousley; Ex parte Commissioner of Taxation (1994) 48 FCR 131. In that case his Honour expressed the opinion that a Mareva injunction does not impose on execution similar restrictions to those imposed by the appointment of a receiver or a trustee to control the debtor's property. Indeed, he pointed out that one of the functions of a Mareva injunction, which creates rights in personam but not in rem, is to aid execution (Stewart Chartering Co. Ltd v C & O Managements SA [1980] 1 WLR 460 at 461; Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd [1984] 1 WLR 1097).
We find the analysis of Heerey J in Re Ousley persuasive. We do not need to consider whether there is any conflict between the approach of the Full Court in the passage set out above from the Wiltshire-Smith Case and the views expressed by Heerey J in Re Ousley. The passage from Wiltshire-Smith on which the appellant placed reliance speaks of a court order which has "the same practical effect" as a court order "removing his ability to make payment" of the judgment debt. It thus assumes an ability to pay the debt absent the court order; or, put another way and in the language of the Full Court, that "the practical reality" is the "the order in any way prevent(s) the debtor from paying his debt". In this case there is no evidence that the Mareva injunction removed the appellant's capacity to pay the judgment debt and the appellant's counsel conceded that it could not be assumed that it did so.
In our view the appellant is unable to bring himself within the principle expressed by the Full Court in the Wiltshire-Smith Case upon which he placed reliance.