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[2010] FCA 528
Federal Court of Australia
2010-05-28
Mr P, Cowdroy J
Original judgment source is linked above.
REASONS FOR JUDGMENT 1 By application filed on 11 March 2010, the applicant ('Westpac') seeks an order setting aside a composition agreement ('the composition agreement') entered into by the first respondent ('Hingston') on 2 October 2009 under s 73 of the Bankruptcy Act 1966 (Cth) ('the Act'). The application is made pursuant to s 222(1), s 222(2) and s 222(5) of the Act. Westpac also seeks pursuant to s 222(10) of the Act that a sequestration order be made against the first respondent. Westpac claims to be a creditor of Hingston for an amount in excess of $2,000,000. 2 Westpac had sought an order under s 222(C) of the Act that the composition agreement entered into by Hingston under s 73 of the Act be terminated, but such claim is not now pressed. 3 The application has been supported by an affidavit of Dominic Francis Perrottet, sworn 11 March 2010 ('the Perrottet affidavit'). The affidavit, in summary, alleges that the composition agreement entered into by Hingston with certain creditors may not have been validly entered into because of, inter alia, a lack of voting entitlement on the part of the creditors who supported the agreement. It is further alleged that assets which are either owned or controlled by Hingston through a trust and which are located in New Zealand were not disclosed by Hingston in his Statement of Affairs, nor at the creditors' meeting; that insufficient opportunity was allowed to fully investigate Hingston's affairs; that Hingston transferred a property to his wife which may prove to properly be an asset of his estate; and that Hingston failed to disclose a possible interest in a Porsche motor vehicle. 4 The second respondent ('Mr Wily') is the registered trustee in bankruptcy and has filed a submitting appearance. 5 By Order of the Court made on 20 April 2010 Westpac was ordered to file and serve its Points of Claim by 5.00 pm on 21 April 2010 and to serve upon Hingston categories for discovery by that time. Hingston was ordered to provide verified discovery by 12 May 2010 and was also ordered to file and serve any affidavits upon which he intended to rely by the same date. 6 Points of Claim were duly filed by Westpac. The Points of Claim rely upon several grounds, including an allegation that insufficient time was allowed to investigate the true extent of Hingston's financial position, and that the composition agreement failed to make adequate provision for creditors in view of Hingston's assets and earning capacity. 7 Westpac also alleges that Hingston had transferred a property located at 67 Jonas Absalom Drive, Port Macquarie, New South Wales to his wife shortly before his bankruptcy. It is alleged that such transfer would have been void under s 121 of the Act because it would have become part of Hingston's estate and the main purpose of the transfer was to prevent such property from becoming divisible amongst Hingston's creditors. Alternatively it is alleged that the composition agreement was made when there was insufficient time to investigate whether the transfer of the property should be set aside under ss 120 to 122 of the Act. 8 It is also alleged that Hingston had been a director of companies in New Zealand, namely HDL Limited, HDL Publishing Limited and Coastjet (NZ) Limited within five years preceding his compromise; that Hingston was the sole director of HDL which was the trustee of the Hingston Family Trust; and that HDL Limited was the registered proprietor of numerous parcels of land located in New Zealand. Westpac alleges that there was no disclosure either in Hingston's Statement of Affairs or at the creditors' meetings of such interests. 9 Lastly, it is claimed by Westpac that a Porsche motor vehicle may be an undisclosed asset of the Hingston estate. 10 On the same day as serving their Points of Claim (21 April 2010), Westpac also identified to the first respondent 13 categories of documents to be discovered. 11 Hingston responded by letter dated 12 May 2010, being the last day for compliance with the Court's order made on 20 April 2010. Such letter raised objections to various categories of documents required to be produced. On the same day, an 'Interim Application' was filed by the first respondent seeking the following orders: 1. that the claim pursuant to section 222(2) of the Bankruptcy Act 1966 contained in the Applicant's points of claim be struck out;
12 The proceedings came before the Court on 14 May 2010 for directions. On that day the Court was apprised of the dispute between the parties in relation to the categories of documents and the directions hearing was subsequently adjourned until 18 May 2010. On that date the Court heard the submissions of Westpac and of Hingston in relation to the dispute over discovery and issues relating to the first respondent's Interim Application. The Court will now address such issues.
Objections and Findings 13 During the directions hearing counsel for Hingston submitted that the categories for discovery proposed by Westpac were excessively broad and that elements of Westpac's claim had not been clearly identified in Westpac's points of claim. In particular, it was claimed that no particulars had been provided by Westpac in respect of s 222(2) of the Act. 14 Westpac submits in response that the letter dated 12 May 2010 from Hingston's solicitors to Westpac's solicitors did not suggest any need to first particularise the claim before discovery would be provided but instead simply objected to discovery on several grounds unrelated to the allegation now raised. Westpac submits that the absence of such claim in this letter undermines Hingston's submission that particulars were required before discovery could be given. Westpac also refers to the fact that the Perrottet affidavit provides extensive details of Westpac's claims. 15 Counsel for Hingston makes a number specific objections to Westpac's categories of discovery. The first objection relates to the category of documents establishing the indebtedness of Hingston to Lydia Pursell, Helen Hingston, Brian Singh and Bruno Lopreato ('the voting creditors'). Objection was made to the production of these documents on the ground that there was no allegation made against any one of such persons. Hingston submits that the request for such documents is merely a 'fishing expedition' and should be disallowed. 16 In their application Westpac has put in issue the question as to whether the voting creditors were bona fide creditors. Further, paragraph 7(f) of the Points of Claim also raises the question of whether, inter alia, the second respondent had insufficient time to investigate whether there had been any transactions entered into by the first respondent that should be set aside under ss 120-122 of the Act. Section 121(1)(a) renders void any transfer of property where the property in question probably would have become part of the transferrers estate or probably would have been available to creditors if the property had not been transferred. 17 In a report to the creditors dated 21 September 2009, Mr Wily, in his capacity as trustee, states under the heading of 'Recommendation' as follows: I am of the view that substantial further investigation is still required to be undertaken in respect to the transfer of the Bankrupt's property and into the Bankrupt's affairs, accordingly, it is my opinion that creditors should not accept the Section 73 Composition as proposed.
18 Minutes of the creditors meeting held on 2 October 2009 reveal that Mr Wily subsequently reiterated such advice, yet the voting creditors each voted in favour of the special resolution, thereby defeating the contrary votes of the remaining creditors in attendance. 19 Order 15 rule 1 of the Federal Court Rules authorises a party to the proceedings, with leave of the Court, to require another party to give discovery. The use of the procedure has been described as 'an invasive procedure': see Austal Ships Pty Ltd (ACN 079 160 679) v Incat Australia Pty Ltd (ACN 051 556 855) [2009] FCA 368 at [129]. It has been held that discovery is available to ensure that litigation is decided on the merits and not without ambush or surprise: see Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd [2005] FCA 242 at [5]. The procedure of discovery however is not to be used for the purpose of a 'fishing expedition': see Associated Dominions Assurance Society Pty. Ltd. v John Fairfax & Sons Pty. Ltd. (1955) 72 WN (NSW) 250 at 254. 20 The amounts claimed by each of the creditors are substantial and Mr Lopreato's alleged debt was not disclosed in the Statement of Affairs of Hingston. Given that the trustee did not have sufficient time to investigate whether such claims were genuine, the validity of the voting creditors' claims is a matter properly the subject of investigation and is not a 'fishing expedition'. The Court rejects the objection to the first category of documents. 21 Secondly, objection is taken in relation to the production of documents relating to the ownership of aircraft VH-GUY on the ground that no allegation is made in the Points of Claim in regard to such aircraft. However the evidence discloses that the aircraft is one which possibly should have been included as an asset in Hingston's estate. The only reason for the non-inclusion of such aircraft apparently results from an alleged agreement pursuant to which it was transferred to Hingston's wife. 22 Objection is taken to production of documents relating to the establishment and terms of the Hingston Family Trust until the Interim Application has been determined. The Court will consider such application later in this decision. The Perrottet affidavit establishes that Hingston did not disclose in his Statement of Affairs the fact that HDL Limited was the trustee of the Hingston Family Trust. According to the company search of HDL Limited, Hingston was the sole director and HDL Limited is recorded as owning numerous properties in New Zealand. Such facts are clearly a matter for investigation and consequently such documents are discoverable in view of the allegation made by the trustee that he had insufficient time to investigate the affairs of the bankrupt. 23 Objection is also taken to documents relating to the Hingston Family Trust as set out in Categories 4, 5, 6, 7 and 8. For the reasons referred to above, added to the fact that no mention was made of Hingston's involvement in HDL Limited during any creditors' meeting, discovery by Westpac is justified. 24 Category 9 seeks documentation relating to a Porsche motor vehicle. Objection was taken to production of such documents on the ground that the Points of Claim make no allegation concerning this vehicle. Such claim however arises pursuant to the allegation that Mr Wily had insufficient time to investigate the extent of the assets of the bankrupt. Accordingly the Court considers that such documents are discoverable. 25 Category 10 of the documents sought to be discovered relate to any agreement between Hingston and Graham Keith Marshall of 87 Rossall Street Merivale, Christchurch, New Zealand concerning the companies HDL Limited, HDL Publishing Limited, Coastjet (NZ) Limited, the Hingston Family Trust, and any other property in which Hingston had an interest in the period from 4 August 2004 to date. It is possible, by reason of the facts considered earlier, that Hingston directly, or indirectly through the Hingston Family Trust, had a financial interest in such companies and of the assets therein. For the same reason referred to above, namely the allegation that inadequate time was given to the trustee to investigate the bankrupt's affairs, these documents are properly discoverable subject to the question of the application. 26 Category 11 of the documents sought to be produced relates to documents evidencing any interest which Hingston had in the shares of any company in the period from 4 August 2004 to date. This is again a proper matter for investigation and the documents are discoverable. 27 Category 12 requires production of documents relating to the transfer of the property at 67 Absalom Drive, Port Macquarie to Helen Hingston on or about 24 March 2009. Such documents are clearly relevant to the investigation of the trustee in view of the allegation made by him concerning the lack of time to investigate Hingston's affairs. 28 The final category, number 13, refers to documents evidencing any interest that Hingston had in land. For the reasons referred to above, such documents are also discoverable. 29 The Court finds that the 13 categories of documents referred to in Westpac's list are discoverable. Upon production and inspection of the discovered documents, Westpac may be able to provide further particulars of the claims. However such documents will first have to be inspected by Westpac.
Interim Application 30 The Interim Application filed 12 May 2010 raises the issue whether the claims made in Westpac's application pursuant to s 222(2) and s 222(5) of the Act should be struck out. Counsel for the first respondent provided to the Court on 18 May 2010 a copy of an affidavit of Guy Richard Hingston sworn on 14 May 2010. The affidavit refers, in particular, to the issue relating to the transfer of the Port Macquarie property to his wife. 31 The affidavit in support of the application made by Phillip James Beazley sworn 12 May 2010 refers to payments made in the apparent satisfaction of the resolution that was passed at the meeting of creditors held on 2 October 2009. Such resolution was to the following effect: That the Bankrupt's proposal for a Composition under Section 73(1) of the Bankruptcy Act 1966 dated 17 September 2009 for payment of an amount of $50,000 in full and final satisfaction of all debts be accepted.
32 Westpac's application, if substantiated, would invalidate the composition agreement agreed to by the creditors on 2 October 2009. Alternatively, if Westpac's application should be rejected, Hingston, prima facie, should be entitled to the relief sought in his Interim Application. However, since Westpac's application is directed to the fundamental question whether the composition agreement relied upon by Hingston is valid, it follows that Westpac's application must first be determined. 33 The Interim Application filed by Hingston does not in any way impact upon the critical matters to be raised by Westpac's application. The two applications are entirely separate yet have a common substratum, namely whether the composition agreement should be set aside and a sequestration order made instead, or whether Hingston has properly fulfilled his obligations under the composition agreement. 34 In these circumstances the Court is satisfied that the Court should not hear the Interim Application at this stage. It will be listed to be heard with Westpac's application so that all issues can be resolved at the one hearing. 35 The Interim Application is accordingly no bar to the inquiries to be made by way of discovery on Westpac's application. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.
Westpac Banking Corporation
Hingston