THE CONDUCT ISSUE
101 It should be reiterated that proof of Mr Shaw's solvency in the annulment proceedings would not have mandated the annulment of his bankruptcy by the primary judge. Even if Mr Shaw could show that a sequestration order "ought not to have been made," including by reason of his solvency, it remained within the discretion of the primary judge to refuse to order that the bankruptcy be annulled: Boles v Official Trustee in Bankruptcy [2001] FCA 639; (2001) 183 ALR 239 at 243. The circumstance that a bankrupt was solvent at the time of the sequestration of his or her estate may of course weigh heavily in the exercise of the discretion conferred by s 153B of the Bankruptcy Act, but it will not be determinative.
102 In the present case, the primary judge determined that he would not, in his discretion, annul Mr Shaw's bankruptcy even if it had been shown that a sequestration order ought not to have been made (Reasons [17]). His Honour should be understood as saying that he would not have annulled Mr Shaw's bankruptcy even if Mr Shaw had established that he was solvent at the time that the sequestration order was made.
103 We have identified no error in his Honour's determination that Mr Shaw had failed to establish his solvency or otherwise that the sequestration order ought not to have been made. Accordingly, the primary judge correctly determined that his discretion to annul Mr Shaw's bankruptcy had not been enlivened at all. Strictly speaking, it was unnecessary for the primary judge to go further.
104 It is nonetheless appropriate to consider the issue agitated by Mr Shaw concerning his conduct, if only on the assumption that we are wrong in determining that the other grounds of appeal are not made out. The task will be undertaken by reference to whether the primary judge would have erred in the exercise of his own discretion under s 153B, had it fallen to be exercised. As will be seen, even if it had it fallen to this Court on appeal to exercise the same discretion, we would have arrived at the same conclusion as that arrived at by the primary judge in any event.
105 In Re Sarina; ex parte Wollondilly Shire Council [1980] FCA 175; (1980) 32 ALR 596 the debtor, Mr Sarina, demonstrated on the hearing of a creditor's petition, that he had the means to pay the judgement debt on which the petition was founded. He simply refused to pay the debt. Counsel for the petitioner (the respondent on the appeal) submitted that the word "able" should be construed as meaning "willing and able" otherwise bankruptcy could not be resorted to by creditors of a debtor who is solvent but recalcitrant.
106 There were, the Full Court held, a number of considerations negating the existence of any policy underlying the Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. The considerations were expressed as follows (at 599):
An act of bankruptcy is the foundation of the doctrine of relation back which operates, upon the making of a sequestration order, retrospectively to vest title to the property of the bankrupt in the trustee of his estate. When a person becomes bankrupt his property is vested in the trustee for the benefit of his creditors generally. His property is realized and distributed amongst his creditors rateably, subject to priorities. The very notion of priorities postulates an insufficiency of assets to pay all creditors the full amount of their debts.
In bankruptcy, rights of creditors to sue the bankrupt are converted into rights of proof against his estate and he is protected from suit. The avoidance of preferences, voluntary settlements and fraudulent dispositions of property by the bankrupt is intended to restore the property or money of the bankrupt to his estate to achieve a fair and rateable division of the bankrupt's property among his creditors.
The bankrupt is disqualified from holding certain offices. Bankruptcy involves a change of status and quasi-penal consequences. Upon discharge from bankruptcy, the bankrupt is released from his debts subject to certain exceptions.
107 The Court continued (at 599):
If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The words 'able to pay his debts' in s 52(2) of the Act do not mean 'willing and able' to do so.
108 The Full Court upheld the decision of the primary judge to refuse to make the sequestration order (at 600). The Court said: "This case does not fall within the ambit of the discretion conferred by s 52(2). Nor does it call for the adoption of any course except dismissal of the petition".
109 In Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8 at [43], the Full Court (Allsop CJ, Dowsett and Besanko JJ) said at [43] - [44]:
Re Sarina demonstrates the centrality of the question of solvency to the jurisdiction of bankruptcy. Whilst one must recognise the permissive 'may' in s 52(2), the circumstances where a sequestration order would be made if the debtor satisfied the Court of his or her solvency are difficult to imagine. Proof of solvency may not necessitate dismissal of the petition; an adjournment may be the appropriate course.
Whilst it is legitimate for a creditor to proceed in bankruptcy for the purpose of recovering a debt, that does not mean that bankruptcy should be viewed in its essential character as part of the process of execution of judgment debts. It is the changing of the status of an insolvent person: O'Mara Constructions Pty Ltd v Avery [2006] FCAFC 55; 151 FCR 196 at [53] (and the cases there discussed) and see also O'Farrell v Palicave Pty Ltd [2009] FCAFC 64; 176 FCR 134 at [24]. A sequestration order, as demonstrated by Re Sarina, will not be made against the estate of someone who refuses to pay a debt if that person can prove (the onus being on him or her) that he or she is solvent.
110 The policy considerations to which the Full Court referred in Re Sarina and Culleton apply equally in an annulment context. As the Court in Culleton observed, it is "difficult to imagine" a circumstance where a bankrupt who could demonstrate his or her solvency at the time of sequestration should nonetheless be denied relief on a subsequent annulment application. The respondents submit that this is such a case.
111 Mr Shaw submitted that his unwillingness to pay the judgment debts was explained by his holding tight to a principle of considerable importance to him. In those circumstances, he submitted, the respondents should not have been permitted to invoke the bankruptcy jurisdiction in circumstances where they could have and should have resorted to ordinary enforcement processes. He was, he submitted, in an analogous position to Mr Marek, the appellant in Marek v Tregenza (1963) 109 CLR 1. Of Mr Marek, Kitto and Menzies JJ said (at 8):
With great respect to the learned Judge, we find ourselves driven to the conclusion that his Honour failed to give due weight to the considerations which were favourable to the application, and that without sufficient reason he withheld from the appellant the reward which the Act intends for such a case as his. Apart from the initial misguided but evidently quite honest opposition to the claim of Silver Top Taxi Service Pty. Ltd., which in the end caused that company no loss, the appellant's conduct has been exemplary. His bankruptcy was not caused or contributed to by extravagance, recklessness or reprehensible conduct of any sort, and we see no reason why, his debts which were small having all been paid, he should not be absolved from the stigma of bankruptcy. No purpose, so far as we can discover, is served by refusal of the application. All the circumstances being viewed in due proportion, it seems to us to be the proper conclusion that considerations of general policy and of particular justice combine to entitle the appellant to have the sequestration order annulled.
112 As the primary judge correctly observed, the conduct of the bankrupt is a relevant consideration in determining whether an order annulling a bankruptcy should be made, as is whether an annulment will be conducive of or detrimental to commercial morality and the interests of the public (Reasons [17]): Re Lawson (1939) 11 ABC 137 at [139]. Against those principles, his Honour made the following findings:
(1) Mr Shaw's belief in his cause and his determination to act in the protection of his own interests tended against the exercise of the discretion in favour of annulment;
(2) the annulment of Mr Shaw's bankruptcy would not result in the efficient use of judicial resources or in the resolution of the disputes at a cost proportionate to the importance and complexity of the matters in dispute;
(3) litigation had continued between the parties for more than 12 years in which Mr Shaw had attempted to re-agitate issues that had been decided against him in previous proceedings;
(4) Mr Shaw had not complied with orders of other judicial officers; and
(5) Mr Shaw had frustrated the respondents' attempts to enforce judgment by giving a false name to a process server, encumbering the Upwey Property which had been the subject of attempts to enforce execution, and otherwise frustrating attempts to have that property sold. His conduct revealed a disregard for the entitlements of others in pursuit of those he claimed for himself.
113 On this appeal, Mr Shaw contended that the primary judge erred in finding that he had previously breached orders (NOA [53]) and gave too much weight to "the irrelevant statements of the bankrupts [sic] intention to never give up & do his best to protect his own interests": NOA [48] (see, relatedly, NOA [5(u)], [52], [54] - [62]).
114 As to the question of whether Mr Shaw had previously breached court orders, that aspect of his Honour's reasons should be understood as a reference to Mr Shaw's refusal to pay the costs orders themselves (Reasons [17]) and also as a reference to the breach by Mr Shaw of an undertaking he had given to the Supreme Court not to encumber his property except for the purpose of discharging his indebtedness to the respondents (Reasons [18]). The finding that Mr Shaw had breached orders of other judicial officers was one that was open to his Honour to make, even if the undertaking given to the Supreme Court was not strictly in the nature of an order. To the extent that the primary judge failed to draw any distinction between breaching an order of a court and breaching an undertaking given to a court, the error is one that could not on any view have resulted in a different outcome in the annulment proceedings in all of the circumstances. We would not grant Mr Shaw relief on the appeal on that basis.
115 We reject Mr Shaw's submission that evidence of conduct he engaged in prior to his bankruptcy should have been rejected by the primary judge as irrelevant: contra NOA [52], [55], [56], [58] - [60]. Mr Shaw's conduct pre-dating bankruptcy was clearly relevant to the Court's determination of whether the respondents should have recourse to the kind of enforcement procedures that Mr Shaw had successfully evaded or frustrated.
116 As to the allegation of irrelevance more generally, Mr Shaw's statements of dogged determination and persistence were of critical importance in determining whether, in all of the circumstances, the respondents ought reasonably be expected to revert to other procedures for the recovery of the debts other than the enforcement of their rights as creditors in the administration of Mr Shaw's bankrupt estate. Mr Shaw's statements were also relevant in determining whether the annulment of his bankruptcy would be conducive to commercial morality and the interests of the public. The long history of proceedings between the parties demonstrated that the respondents had made reasonable attempts to enforce the costs orders, but that Mr Shaw had resisted and frustrated those attempts, including by means that were not legitimate. It is implicit in his Honour's reasons that Mr Shaw's past conduct was to be regarded as a reliable indicator that he would continue to frustrate any regular enforcement attempts in the future by whatever means he subjectively considered to be appropriate. That circumstance is sufficient to differentiate Mr Shaw's circumstances from those of the bankrupt in Marek.
117 It has not been demonstrated that the weight attributed to the relevant circumstances was so erroneous as to cause his Honour's discretion to miscarry, assuming the discretion properly fell to be exercised at all. The attribution of weight to the relevant considerations was a matter for the primary judge and should not be disturbed on appeal.
118 Mr Shaw then submits that the primary judge afforded too little weight to the respondents' "adverse conduct": NOA [48], [59]. He alleges that the respondents (without being exhaustive) wrongfully delayed enforcing judgment after obtaining freezing orders in the Supreme Court, wrongfully refused to provide evidentiary material to him until the sequestration hearing, wrongfully obtained an exorbitant costs order, and tendered "bogus" accounts in evidence (NOA [61]). Mr Shaw has not demonstrated that the evidence before the primary judge was sufficient to prove the adverse conduct he alleges, nor has he demonstrated that any error as to the attribution of weight should be disturbed in accordance with the principles enunciated in House v The King.
119 In the event that the same issues should have fallen for consideration in the disposition of this appeal, we would respectfully agree with the evaluation and conclusions of the primary judge. Mr Shaw's submissions on this appeal only served to justify the concerns expressed by his Honour. Mr Shaw confirmed, for example, that if his bankruptcy were to be annulled he would not pay any sum to either respondent nor to any entity connected with them, notwithstanding that he cannot dispute that NewQuay was the vendor of the New Quay apartment. As a vendor, NewQuay clearly had standing to claim damages in connection with the caveat that prevented its sale and was awarded costs in respect of that successful claim. Moreover, even if Mr Shaw was successful in having the substantive orders made in the damages assessment proceedings set aside in full or in part, it would not and could not follow that all of the costs orders previously made against him would fall away. It will be recalled, for example, that Mr Shaw did not take any objection to Yarranova's standing at the time of the damages assessment proceedings and Yarranova will not necessarily be disentitled to the costs of those proceedings if Mr Shaw succeeds in connection with a standing issue some 11 years later.
120 In addition, it became apparent in the course of submissions on the appeal that Mr Shaw's total costs liability now equals or exceeds the value of his alleged assets. In the circumstances, it is difficult to see how the interests of the public, including the interests of Mr Shaw's creditors and, indeed, Mr Shaw himself, might be served by the respondents attempting to invoke the same enforcement procedures that Mr Shaw has to date evaded or frustrated. Any further litigation between the parties would only serve to deplete the amounts lawfully owing not only to the respondents but to all of Mr Shaw's creditors. If his bankruptcy is annulled, it may be fairly predicted that Mr Shaw will not relent in the expenditure of legal costs until all of his financial means are exhausted. In any subsequent bankruptcy the prospects of Mr Shaw's creditors recovering their debts may be greatly diminished. The case is one in which the discretion to annul the bankruptcy should not be exercised, even assuming Mr Shaw could establish his solvency at the time that the sequestration order was made.