Barker, A.V. v Yeomans, R.J
[1989] FCA 435
•09 AUGUST 1989
Re: ARNOLD VERDUN BARKER
And: ROBERT JOHN YEOMANS
No. ACT G17 of 1989
FED No. 435
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Northrop(1), Keely(1) and Pincus(1) JJ.
CATCHWORDS
Bankruptcy - compromise of action by trustee - mutual releases of claim and cross-claim in Supreme Court action - cross-claim as to breach of duty by receiver - whether cross-claim for personal injury or wrong - action dormant for 12 years - bankrupt produced little evidence concerning cross-claim - relevance of costs of litigating and trustee's personal liability - whether proper for trustee to settle.
Bankruptcy Act 1966, ss.60, 116(2)(g), 135(1)
HEARING
SYDNEY
#DATE 9:8:1989
For the appellant: Mr Barker appeared in person
Counsel for the respondent: Mr R. Refshauge
Solicitors for the respondent: Macphillamy Cummins Gibson
ORDER
The appeal be dismissed;
The appellant pay the respondent's costs of and incidental to the appeal to be taxed.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
JUDGE1
This is an appeal by a bankrupt from an order of a single judge of this Court, giving the trustee leave to enter into a compromise with Westpac Banking Corporation. The compromise relates to action no. 7036 of 1973, pending in the Supreme Court of New South Wales. The proposal is that the parties abandon their respective claims in that action.
The bank, which was then called the Bank of New South Wales, sued the appellant in 1973 and its statement of claim, delivered as long ago as 16 October 1973, alleged that the appellant had guaranteed payment of moneys owing to the bank by a company called Lithgow Smelters Pty Limited and made a similar allegation with respect to moneys owing by a company called AVB Holdings Pty Limited. The bank alleged that it had advanced moneys to the companies mentioned and claimed $89,344.78, plus interest, under the guarantees.
The defence did not admit that the sums alleged by the bank to have been advanced had become due, but that part of the defence was struck out by Yeldham J. on 11 April 1975, on application made by the bank.
His Honour refused, however, to strike out a plea by the appellant that the bank was under a duty of care in respect of dealings by one Davidson, as receiver of the companies, appointed by the bank; the plea asserted that the receiver sold assets of the companies at less than their real values. By a cross-claim, the appellant pleaded that the bank had represented to him, in July 1963, that it wanted the books of the companies and of the appellant inspected by an independent accountant, that if the affairs of the appellant and the companies were in order, the bank would continue the companies' overdraft and that to enable such inspection to take place, it was necessary that the overdraft be called up. The pleading went on to set up that, having been appointed receiver, Davidson inspected the books of the companies and found their affairs to be in order.
The bank's representations were alleged to be fraudulent and the appellant asserted that they caused him to fail to make arrangements for the discharge of the companies' overdraft prior to the appointment of the receiver. The pleading went on to say that this caused the appellant loss.
The appellant's pleading in the Supreme Court also alleged that the bank was under a duty to him so to deal with the assets of the company and his assets "which it took and over which it assumed control upon the appointment of a Receiver as aforesaid so as to maximise recovery thereof" and that the bank failed in that obligation.
In the reasons of Yeldham J., delivered in April 1975, his Honour explained that he declined to strike out that part of the appellant's defence which set up against the bank a breach of a duty to "maximise recovery" referred to above, because he accepted that it was arguable that such a plea could be raised in answer to the bank's claim, as a defence. In argument before us, the appellant appeared to assert that Yeldham J. had expressed a view as to the substantial merits of his case against the bank generally, but we can find nothing in the reasons to support such suggestion; his Honour was concerned only with points of law.
Under s.135(1):
"The trustee may, with the permission of the creditors granted by resolution passed at a meeting of the creditors, with the permission of the committee of inspection or with the leave of the Court, do all or any of the following things:-- ...
(f) make a compromise in respect of any debt exceeding $20,000 or such greater amount as is prescribed for the purposes of section 134 claimed to be due to the bankrupt, or any claim exceeding $20,000 or such greater amount as is prescribed for the purposes of section 134 by the bankrupt;
(g) make a compromise with a creditor or a person claiming to be a creditor in respect of a debt provable, or claimed to be provable, in the bankruptcy and claimed to exceed $20,000 or such greater amount as is prescribed for the purposes of section 134;
..."
The proposed settlement, as we have said, involves abandonment of both the bank's claim in the suit and the appellant's cross-claim. In our opinion, these mutual releases involve a "compromise" within the meaning of the provisions just quoted.
The evidence shows that nothing was done in the Supreme Court action, by either side, after 5 September 1977; that action has apparently lain dormant for nearly 12 years. On 19 October 1987, the bank gave the respondent notice under s.60(3) of the Bankruptcy Act 1966 in appropriate terms.
Relevant parts of s.60 are as follows:
"(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 upon him by a defendant or other party to the action, he shall be deemed to have abandoned the action.
(4) Notwithstanding anything contained in this section, a bankrupt may continue, in his own name, an action commenced by him before he became a bankrupt in respect of --
(a) any personal injury or wrong done to the bankrupt, his spouse or a member of his family; or
..."
There was some discussion at the hearing concerning the construction of these provisions. Section 60(4), in protecting the bankrupt's right to continue a suit for personal injury or wrong, harmonises with s.116(2)(g), which excludes from the category of property divisible among the bankrupt's creditors (amongst other things), the right to recover such damages, as well as any damages recovered. Mr Refshauge, for the respondent, helpfully pointed out that some claims relating to damaged property might possibly be within the description "personal injury or wrong done to the bankrupt": see for example Rogers v. Spence (1846) 8 ER 1586.
In Cox v. Journeaux (No. 2) (1935) 52 CLR 713, Dixon J. had to consider the construction of s.63(3) of the Bankruptcy Act 1924, the terms of which were in relevant respects identical to the present s.60(4). His Honour applied the test:
"... whether the damages or part of them are to be estimated by immediate reference to pain felt by the bankrupt in respect of his mind, body or character and without reference to his rights of property ..."
That was applied by the Court of Appeal in Daemar v. Industrial Commission of New South Wales (1988) 79 ALR 591, but we note that the test may be incomplete in one respect; there may be a right to apportion, where sums received in a single suit are partly attributable to injury to credit and reputation and partly to injury to property: Re Kavanagh (1949) 2 All ER 264.
Here, there is no question of any allegation of a wrong done to the bankrupt in his mind, body or character, and we are of opinion that the cross-claim was not within the description of an action in respect of a personal injury or wrong. It was therefore appropriate for the trustee, in response to the notice given by the bank, to make an election, which he did; on 23 November 1987 he elected to prosecute the "action in question", meaning the cross-claim: see s.60(5) of the Act. He did so, however, only to preserve his position. He then tried to obtain further information and evidence from which an assessment of the prospects of success could be obtained. His efforts were rewarded by the furnishing of a statement, which is in the record.
Without attempting to summarise it comprehensively, the substance of the statement is as follows.
The appellant built a smelter at Lithgow to make "basic pig iron" and received an order to supply that material to Japan. A representative of BHP told the appellant that BHP would ensure that the plant did not operate. The Menzies Government refused the appellant an export licence. Barker Mining Company (a company apparently controlled by the appellant) built a treatment plant to process silver lead zinc ores, but CRA refused to buy the product. The appellant devised a new process to produce metal directly from sulphide ores and that was publicised. Within three weeks of the publication of the process, the bank "installed a receivership in all of my businesses" on the false pretence mentioned above.
"In brief, two of Australia's major monopolies were under threat."
The appellant set up Barker Industrial Leases Pty Ltd, as a pioneer leasing company. The Federal Treasury, within a month, "closed me down ..." After years of effort and much expenditure, the appellant got leasing accepted as a financial concept, but it was a threat to established financial interests.
The bank rejected an offer, prior to appointment of receiver, to pay all the profits of Barker Motor Company to the bank.
When the receiver was appointed, the smelting plant mentioned above was cut up and converted into scrap; the plant was never offered for sale as a business. The mineral treatment plant mentioned above was sold off "one piece of plant at a time", instead of being sold more advantageously, as a whole.
After the receiver was appointed, Barker Industrial Leases was deprived of commission payable by AGC (two-and-a-half percent) because AGC, although it had "approved the business", dealt directly with the appellant's clients.
The receiver attempted to carry on the business of Barker Motor Company, which was then profitable, but some nine years later the return on the sale of all the assets and business operations was only $345.
In 1973, the appellant and his wife were evicted from their home. When it was auctioned, the appellant agreed to buy it, but his money was refused and the resident sold by private treaty.
AVB Holdings Pty Ltd (controlled by the appellant) owned land at Randwick "for which 128 flats had been approved by the Randwick Council". The mortgagee "took over the land" with the concurrence of the receiver and it was never offered for sale, although it could have realised twice as much as was due to the bank.
There was a large factory site on Parramatta Road containing buildings in good condition. The receiver did not offer the site for sale complete with building, but bulldozed it, auctioned it and received only a small sum.
It can be seen that the case desired to be advanced goes well beyond that pleaded and may have involved the suggestion that there was a conspiracy between the bank and other Australian companies to drive the appellant out of business, in the interests of the latter. As the appellant put it in his statement, "It was imperative for the monopolies threatened by my activities to s my mining and smelting operations before they became fully operational."
The respondent sought counsel's advice and a written memorandum dated 21 April 1988 was furnished. Counsel (Mr Biscoe) pointed out that, although the bank had appointed a receiver, its having done so would not necessarily make the bank liable for any wrongful acts of the receiver. He expressed the view, with which we agree, that assuming that under the security documents the receiver, when appointed, was made the agent of the mortgagor, it could not accurately be said that the bank dealt (through the receiver) with the assets of the principal debtors in the course of the receivership. Counsel's advice discussed what must be shown to make the bank responsible for the receiver's misdeeds (if any), but he was unable, on the facts before him, to arrive at any conclusion as to whether the claim against the bank would succeed.
The respondent discussed counsel's advice with the applicant at a meeting in June 1988 and asked him to produce all the documents that were available to him to enable the respondent to decide what further steps to take. The purpose was to enable the respondent to determine whether or not to accept the proposal for settlement, mentioned above. The appellant produced nothing further than has already been mentioned. Another counsel was briefed who conferred with both the appellant and the respondent as to the evidence that would be required and whether it was available. Counsel, in written advice, said that at that conference:
"... some material was said to be available and it was suggested that some material would be produced although there were difficulties because Mr Barker had much material stored.
Some limited material has been produced but nothing that I have seen would go anywhere near proving the matters which ... Mr Biscoe indicates needs to be proved if Mr Barker or his Trustee on his behalf is to have any chance of success in the proceedings."
A further approach was made to the appellant in September 1988 for documents to support his claim. The appellant replied by a letter in which he explained that he had reservations about giving the respondent the "evidence of the despicable actions" of the bank. That was so, it appears, because the respondent had been nominated as trustee by the bank. The appellant assured the respondent that he would produce the evidence at the right time and place. Subsequently, the appellant wrote to the respondent again, saying that he agreed that the respondent should apply to this Court for approval of the bank's settlement offer and that application would give the appellant "the opportunity to submit to the Court the evidence which I possess and you have sought to examine".
On December 5 1988, the bank's solicitors confirmed in writing that it was prepared to settle the action on the basis that both the claim and cross-claim be discontinued and that each party bear its or his own costs.
The respondent also made inquiries of the receiver (Davidson) in an effort to obtain his records, but the receiver claimed the records could not be found.
The respondent has given evidence as to the position of the estate and its effect is that, apart from cash of approximately $15,000, the estate consists principally of mines and mining leases and equipment worth between $100,000 and $200,000. The affidavit of the respondent said that one creditor has claimed $547,533.09, but that he believed that a substantial proportion of that claim would be rejected and that the other debts totalled about $50,000 (apart from the debt to the bank). We were told from the Bar table that the disputed claim just mentioned would probably not be pursued, it being contemplated that an arrangement would be made under which the creditor in question would buy some of the property in the estate.
The debt claimed by the bank in the Supreme Court suit is $207,000 and the amount of it is not in dispute.
It is difficult to see how, as a practical matter, the Court can accede to the appellant's wish to have the action fought to a finish. After repeated requests for information and documents, the responent has obtained nothing of substance from the appellant except the assertions summarised above and other similar statements. The respondent's costs of litigating the matter would be very substantial and there is nothing in the estate which could possibly meet them. Further, if the respondent were unsuccessful in the litigation, he would be personally liable for a large sum, perhaps some hundreds of thousands of dollars, assuming costs followed the event.
In his reasons for judgment, the primary judge noted that the respondent's application for the Court's approval first came on for hearing on 15 December 1988, when it was adjourned to 21 December to allow the appellant a further opportunity to produce material, which was said to be in a store at Belconnen in the A.C.T. On 21 December, the matter was again adjourned, to enable the making of a further attempt to obtain material. On 10 February 1989, after hearing submissions from the respondent's counsel and from the appellant, the judge made the order sought by the respondent, taking into account, inter alia, the lack of material (other than assertions by the appellant) to prove his allegations and the considerable period of time which had elapsed since the occurrence of the events on which the appellant's claim is based.
In his notice of appeal, apart from reasserting the allegations against the bank, the appellant relied upon an alleged failure on the part of the primary judge to accord him natural justice. The appellant was under the impression that the following events occurred: before adjourning before lunch, the primary judge received from the appellant a considerable quantity of material, undertaking to examine it and receive further submissions, but when the appellant returned to the court at about 3 p.m. he found that judgment had already been given against him.
It is clear from the record of the proceedings that the appellant's memory in this respect is at fault. What happened was that, having received material from the appellant before lunch, the learned judge adjourned the matter "until later in the day". There was a further substantial hearing in the afternoon, the record of which covers nine pages of transcript, and during it both parties made further submissions. The time at which the afternoon hearing began is not recorded, but it concluded at 4.19 p.m., according to the record, immediately after the judge made the order under appeal. The assertion of a breach of the rules of natural justice, although no doubt made in good faith, has no foundation in fact. That it was made, however, is a potent illustration of the sort of difficulty the respondent would face were he to attempt to pursue this litigation, relying on memories of occurrences, not merely some few months ago, but up to 26 years ago.
It has to be conceded that, in many instances, a bankrupt's trustee is in a weak position in contesting claims for and against the estate. Creditors are commonly loath to supply a trustee with funds for litigation, being unwilling to throw good money after bad. At one stage, the appellant obtained legal aid, but that was later withdrawn - he assumes, as part of the plot against him. Where a trustee is confronted (as here) with what appears to be a complicated and expensive piece of litigation, which he cannot possibly fund from the estate, his negotiating position is not strong; we are of opinion that it is a reasonable and proper course for the respondent to settle on the terms offered.
The appeal will be dismissed with costs.
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