Re Faint, J.L. v. Ex parte The Shell Company of Australia Ltd & Ors [1994] FCA 688

Federal Court of Australia|1994-07-01|Before: Cooper J

On 31 January, 1994 the Shell Company of Australia Ltd. ("Shell") filed a bankruptcy petition against Juanita Lee Faint and Gregory John Faint. The act of bankruptcy alleged was failure to comply before 17 January, 1994 with the requirements of a bankruptcy notice served on them on 18 and 20 December, 1993 respectively. On 26 May, 1994 the petition was dismissed as to Gregory Faint and adjourned as to Juanita

Faint. This occurred because the matter was resolved as between the Faints and Shell.

On 27 May, 1994 Westpac Banking Corporation ("Westpac") sought to be

substituted as petitioning creditor. In support of its application Stewart Anthony Meager deposed that Mrs. Faint was a guarantor of the indebtedness of a company Saflon Pty. Ltd. which guarantee had been called up by demand of 8 October, 1992. The indebtedness pursuant to the guarantee at 18 January, 1994 was deposed to as being $639,809.85. The claimed indebtedness on 27 May, 1994 was $659,341.76. The application for substitution was opposed and directions were given as to the filing of

material by all parties. The application was listed for mention on 21 July, 1994.

On 8 July, 1994 Mrs. Faint applied for a stay of the proceedings by Westpac for substitution pending determination of proceedings to be instituted by her and others in the Supreme Court of Queensland against Westpac for $45,382,500.00 for damages for negligence and other relief including relief under sections 82 and 87 of the Trade Practices Act 1974 (Cth). The relief claimed includes, on Mrs. Faint's part, the

setting aside of the guarantee relied upon by Westpac.

On 27 July, 1994 Australian Guarantee Corporation Limited ("AGC") applied to be substituted for Shell as the petitioning creditor. In support of the application, Michael John Flanagan deposed that Mrs. Faint guaranteed the performance of her husband Lloyd Errol Faint under finance facilities granted to him by AGC. He deposed that Mr. Faint defaulted under various motor vehicle lease agreements and various demands under the guarantee were made against Mrs. Faint in August, 1992. He deposed that Mrs. Faint was indebted to AGC on 18 January, 1994, the date of the

alleged act of bankruptcy, in an amount of $259,502.04 together with interest pursuant to

the guarantee. AGC obtained, in the Supreme Court of Queensland, judgment in default of appearance against Mrs. Faint and her husband on 20 July, 1994 in the sum of $259,502.04 together with interest of $100,148.53 and costs of $439.00 being a total of $360,089.57.

On 4 August, 1994 Mrs. Faint and others filed writ number 1158 of 1994 against Westpac and AGC in the Supreme Court of Queensland. The wnt seeks the relief foreshadowed in her material filed on 8 July, 1994 in support of the stay against Westpac. The wnt also seeks similar relief against AGC together with other substantial relief based

upon an alleged contravention of section 108 of the Credit Act 1987 and an alleged

compromise and release of the debt and secunttes given to support it.

On 26 August, 1994 Mrs. Faint and the other defendants in Supreme Court of Queensland action 1001 of 1993 filed a summons in the Supreme Court seeking that the default judgment obtained by AGC be set aside and that they be granted leave to

defend the action. At the time the applications for substitution were heard the summons

was listed for hearing in the Chamber fist on 12 September, 1994. The grounds relied

upon in the summons included a claim that the judgment was entered irregularly. On 29 August, 1994 Mrs. Faint filed an application to stay or dismiss the application of AGC for substitution as petitioning creditor pending determination of the

action commenced in the Supreme Court of Queensland by her against AGC.

On 12 September, 1994 the default judgment entered by AGC was set aside

by consent and Mrs. Faint and the other defendants were given unconditional leave to

The position therefore 1s that :- (a) Westpac claims to be a creditor of Mrs. Faint to the extent of $659,341.76

(b) AGC claims to be a creditor of Mrs. Faint for the sum of approximately

$359,650.57 under personal guarantees given by Mrs. Faint.

(c) Westpac has taken no steps to enforce its claim by legal proceedings. (d) Mrs. Faint has unconditional leave to defend the claim of AGC. (e) Mrs. Faint (with others) has imtiated litigation in the Supreme Court of

Queensland against both Westpac and AGC to set aside the personal guarantees and seeking other relief including damages and equitable

It was submitted on behalf of Westpac and AGC that it was sufficient to support their applications for substitution as petitioning creditors that each claimed to be a

creditor. Reference was made to the decision of a Full Court of this Court (Deane,

McGregor and Sheppard JJ.) in Dean v. Q.ULF. Industnes Ltd. (1981) 51 FLR 317. Their Honours said (at 321 - 322) :-

"If there is a genuine dispute between the appellant and the respondent as to whether the appellant is indebted to the respondent, the appropriate order, when the petition comes on for hearing, may be that the petition be dismissed. It was not, however, necessary that his Honour reach any conclusion in that regard on the application for substitution. While wt is necessary, as part of an application for substitution, that the person seeking substitution claim the existence of a debt of the requisite amount, it is not necessary that he should actually establish the existence of the debt at that stage.

In Hyams v. Elder Smith Goldsborough Mort Lid. (1976) 133 C.L.R. 637 it was held by the High Court of Australia that an order for substitution did not involve a finding that the respondent was indebted to the substituted petitioner in the requisite amount at the relevant time. Barwick C.J., with whom Gibbs J. and Mason J. agreed said: 'Although a creditor seeking an order of substitution must claim the existence of a debt of the required amount as at the date of the act of bankruptcy, it is not necessary, in my opinion, that the creditor should establish, as part of his application, that his debt was in fact in existence at that time. Of course, if it appears on the face of the material he produces in support of his application that his debt was not in existence at the appropriate time the Court should not order the substitution. McNamara v. Langford (1931) 45 C.L.R. 267, properly understood, decides no more than that. Whether or not the substituted petitioning creditor's debt is sufficient in point of time to support the petition will be decided when the petition is heard' (1976) 133 C.L.R., at p. 539.

The fact that the appellant disputed his indebtedness to the respondent was relevant to the question whether substitution should be permitted. His Honour expressly referred to the Jact that the appellant had delivered a defence to the claim in his oral reasons for judgment. There is no basis for assuming that his Honour disregarded that circumstance in concluding that an order for substitution should be made".

The decision in Dean is authority for the proposition that the fact that a debt 1s disputed does not mean that an application to be substituted as petitioning creditor

1s bound to fail. Rather, the pre-requisite to the making of an order for substitution is

that a creditor must claim the existence of a debt of the requisite amount as at the date of the act of bankruptcy. If the debt 1s disputed as a fact, that circumstance 1s relevant to the exercise of the court's discretion to order or refuse substitution. Where substitution 1s ordered notwithstanding that the debt is disputed, then the existence of the debt remains to

be proved as a fact on the hearing of the petition.

If Westpac and/or AGC are substituted as petitioning creditors, the issues taised in Supreme Court proceedings 1001 of 1993 between AGC and Mrs. Faint and others, and Supreme Court proceedings 1158 of 1994 between Mrs. Faint and others and Westpac and AGC, will have to be litigated in this court to determine whether at the end of the proceedings Westpac or AGC 1s in fact a creditor of Mrs. Faint and in what amount. The Supreme Court of Queensland is now seized of those issues. Additionally, the proceedings in that court involve parties additional to Mrs. Faint who are not and would not be parties in the proceedings in bankruptcy 1n this court. The duplication of proceedings in two superior courts with the attendant additional costs and the possibility of different conclusions being drawn by different tnbunals of fact makes it highly undesirable that the question of the existence of a debt be determined in this court rather than the Supreme Court. Further, the issues raised in the Supreme Court proceedings do not appear to be such as are capable of easy or quick determination in this court as part of the exercise of the bankruptcy jurisdiction. Nor is there anything mm the material to suggest that they are insubstantial and destined to fail. That Mr. and Mrs. Faint in a statement of affairs prepared for the purpose of a meeting of creditors to consider a composition under Part X of the Bankruptcy Act acknowledged Westpac and AGC as

creditors is not determinative of the issue when Mr. and Mrs. Faint seek to now set-off

against any money due by them or either of them the fruits of the Supreme Court

litigation or, now, so far as Mrs. Faint is concerned, seeks to set aside the basis upon

In all the circumstances I am satisfied that this 1s not a case for making an

order substituting either Westpac or AGC as petitioning creditor. Each application is

I certify that this and the preceding six (6) pages are a

true copy of the reasons for judgment herein of his Honour Mr. Justice Cooper.

Solicitors for the Applicants: Corrs Chambers Westgarth

Solicitors for the Respondent: Grasso Searles Romano

Trade Practices Act 1974(Cth)

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Judgment (45 paragraphs)

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