Federal Court of Australia|1994-09-16|Before: Carr JJ

The application of s.60(1)(b)

14. We are of the opinion that s.60(1))b) does apply. In our view the case is covered by Storey v. Lane. We appreciate that in that case there was an order for payment. But it seems to us that the distinction between an order and a condition, suggested by counsel, is one of form rather than substance. Criminal law and bankruptcy law are concerned with very practical matters. In practical terms there is little difference between:

15. It seems to us that it does not matter for the purposes of s.60(1)(b) that the District Court did not impose an order for payment but, rather, made a condition to that effect in the recognisance. In either case the event which exposes Mr Lattouf to the prospect of sentence for the fraudulent conversion is his failure to make the compensation payments. That circumstance is sufficient to characterise the proceedings against Mr Lattouf in the District Court, insofar as they involve his breach of the recognisance condition concerning the monthly payments, as being legal process in respect of the non-payment of a provable debt.

16. Mr Mason QC, while conceding the width of the words "in respect of" relied upon a passage in Technical Products Pty Ltd v. State Government Insurance Office (Queensland) [1989] HCA 24; (1989) 167 CLR 45 at p 47 for the proposition that the words "in respect of" require the existence of some discernible and rational link. In our view, the circumstances to which we have just referred disclose a discernible and rational link or nexus with the non-payment of the debt. A similar conclusion was reached by Beaumont J in Re Sutherland-Cropper (1985) 11 FCR 156 at p 161, a decision with which we respectfully agree. The facts in Re Sutherland-Cropper were very similar to those in the present matter save that (a) Mr Sutherland-Cropper did not execute an acknowledgment of debt prior to entry into a recognisance which contained a condition that he pay compensation to the defrauded company, and (b) Mr Sutherland-Cropper was bankrupt when he entered into the recognisance.

17. In this case the nexus between the non-payment of the debt and the alleged breach of the compensation payment condition is demonstrated by the fact that each compensation payment automatically had the legal effect of reducing the amount of the provable debt. The provable debt is identical to the compensation sum. Accordingly, the legal process whereby Mr Lattouf is exposed to the possibility of being sentenced in respect of his conviction for fraudulent conversion because he stopped making the compensation payments cannot, in our opinion, be viewed as being independent of the non-payment of the provable debt. There is no independence of the one from the other to prevent one from being "in respect of" the other in the manner recently referred to by the High Court of Australia in Nintendo Company Ltd v. Centronics Systems Pty Ltd [1994] HCA 27; (1994) 121 ALR 577 at p 584. In our view the legal process which it is agreed will occur before Judge Gibson QC constitutes "legal process, whether civil or criminal" within the meaning of s.60(1)(b) of the Act. We have therefore come to the conclusion that there is sufficient nexus between the foreshadowed proceedings before Judge Gibson QC (being "legal process, whether civil or criminal") and the non-payment of the provable debt for the former to be "in respect of" the latter.

The constitutional validity of s.60(1)

18. In the event that we came to that conclusion, Mr Mason QC invited us to hold that s.60(1)(b), in what was described as this "extended context", was ultra vires the Constitution. He sought to distinguish the decision in Storey v. Lane on the basis that the High Court was there concerned only with the characterisation of the enactment. He submitted that the High Court's subsequent decision in Re Tracey; ex parte Ryan [1989] HCA 12; (1989) 166 CLR 518 makes plain that there is a separate principle independent of characterisation, derived from s.106 of the Constitution, that even federal laws falling within the scope of a placitum cannot be framed in such a form that they interfere with the exercise of the constitutional functions of State courts. Mr Mason said that principle was not considered in Storey v. Lane. The declaration made in that case "cannot be read as upholding the validity of the paragraph regardless of its proper interpretation". He submitted that the bankruptcy power, s.51(xvii) of the Constitution, does not support s.60(1)(b) in such "extended" application because it was not reasonably proportional to the purpose of that placitum. Its application in a case such as the present causes adverse consequences unrelated to the achievement of the objects of s.51(xvii). Reliance was placed on Nationwide News Pty Ltd v. Wills [1992] HCA 46; (1992) 177 CLR 1 and Polyukhovich v. Commonwealth [1991] HCA 32; (1991) 172 CLR 501.

19. Storey v. Lane was a unanimous decision of six justices of the High Court of Australia resulting in the following declaration:

"Declare that s.60(1) of the Bankruptcy Act 1966 as

amended by the Bankruptcy Amendment Act 1980 is a

valid law of the Commonwealth."

20. In essence, Mr Mason asked us to qualify that declaration so as to exclude from its scope one application of s.60(1)(b). It is not for us to take that step. If doctrinal developments since 1981 require any variation to the decision in Storey v. Lane, this step must be taken by the High Court itself.

21. For the above reasons we answer the first question "(a) Did the Federal Court have power to grant the application under s.60(1)(b) of the Bankruptcy Act 1966 (Cth)?," - yes. As previously indicated, the parties invited us not to answer the second question at this stage. They preferred that the issue between them regarding the proper exercise of the Court's discretion be referred back to a primary Judge before whom they might adduce further evidence, if they wish. We will accede to that request. It is important to emphasise that s.60(1)(b) confers a discretion on the Court. It ought not be thought that this power must be exercised in favour of a bankrupt in every case. To take that view would be to risk turning the paragraph into a "rogue's charter" whereby unmeritorious bankrupts could avoid the usual incidents of the criminal law. The exercise of the discretion must be carefully considered in each case.

22. The Director of Public Prosecutions should pay the bankrupt's costs. There should be no order in respect of the costs of the intervenor.

Re Noel Michael Lattouf [1994] FCA 1342; (1994) 52 FCR 147 (16 September 1994)

Bankruptcy Act 1966 (Cth) s.60(1)(b)

Crimes Act 1900 (NSW) s.558

Storey v. Lane [1981] HCA 47; (1981) 147 CLR 549

Technical Products Pty Ltd v. State Government Insurance Office (Queensland)

Nintendo Company Ltd v. Centronics Systems Pty Ltd [1994] HCA 27; (1994) 121 ALR 577

Re Sutherland-Cropper (1985) 11 FCR 156

Re Tracey; ex parte Ryan [1989] HCA 12; (1989) 166 CLR 518

Nationwide News Pty Ltd v. Wills [1992] HCA 46; (1992) 177 CLR 1

Polyukhovich v. Commonwealth [1991] HCA 32; (1991) 172 CLR 501

Re Noel Michael Lattouf [1994] FCA 1342; (1994) 52 FCR 147 (16 September 1994)

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Legislation Cited (1)

Cases Cited (12)

Re Noel Michael Lattouf [1994] FCA 1342; (1994) 52 FCR 147 (16 September 1994)