Blanche, M.M. v Glennen, G.P
[1990] FCA 269
•18 Jun 1990
2UDGILIENT No. &.?....'/...?h
IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIAN DISTRICT REGISTRY ) No. P289 of 1988 GENERAL DIVISION )
- RE: MICHAEL MANNING BLANCHE The Debtor
EX PARTE: GERARD PETER GLENNEN
Petitioning Creditor
CORAM : Jenkinson J. PLACE: Melbourne
DATE : 18 June, 1990 MINUTE OF ORDER
THE COURT ORDERS THAT:
1. The petition be dismissed.
2. The debtor's costs of the proceeding on the petition (including costs reserved) be taxed and paid by the petitioner.
AUSTRALIA
Settlement and entry of orders is dealth with in Order
(S: 36 of the Federal Court Rules)
FKDC24L COURT OF
IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIAN DISTRICT REIGSTRY ) NO. P289 of 1988 GENERAL DIVISION )
- RE: MICHAEL MANNING BLANCHE The Debtor
EX PARTE: GERARD PETER GLENNEN
Petitioning Creditor
CORAM : Jenkinson J.
PLACE : Melbourne DATE : 18 June, 1990
REASONS FOR JUDGMENT
Determination of grounds of opposition to a bankruptcy petition, and of an application by the petitioning creditor for adjournment of the hearing of the petition, and determination of the petition.
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The Legal Profession Practice Act 1958 [Vic.) provides that the Supreme Court may-appoint a receiver of property to which
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a solicitor stands in a defined relationship if the Court is satisfied that the Council of the Law Institute of Victoria has formed on reasonable grounds the opinion that any defalcation has been or may have been committed in relation to any trust account or trust fund of the solicitor. The word "defalcation" is so defined for the purposes of the provisions of that Act which are presently relevant as to comprehend any act in relation to money or other property which is punishable by imprisonment. By an order
made on 26 March 1986 the petitioning creditor was appointed
receiver."of all property as defined by Section 104A of the Legal Profession Practice Act 1958. which belonas to or is held bv GUY
MCLAUGHLIN & CO. or by any other person on behalf of the said resoondents or bv them under the business riame of BRAHA; McLAUGHLIN & CO. or would have beeTE'i7 by them or is recoverable by the said
| - | Respondents under the business name of BRAHAM MCLAUGHLIN & CO.". |
The respondent Michael Manning Blanche named in that order is the debtor. It is provided in Part V1 of the Act that a fund called the Solicitors' Guarantee Fund shall be applied for the purpose of compensating persons who suffer pecuniary loss from any defalcation committed by any of the members or servants of a firm of solicitors. Section 104GA(8) of the Act provides:
"Whenever a person who has suffered
pecuniary loss by reason of a defalcation has recelved payment of compensation from the Fund for the whole or any part of that loss, the receiver shall to the extent of the payment have all the rights and remedies against the solicitor or flrm or individual partners in the firm of solicitors which that person had in respect of the loss suffered by him from the defalcation immediately before he received compensation from the Fund".
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The petitioning credltor has alleged in an action pending in the Supreme Court of Victoria (No. 3603 of 1987) that each of the
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respondents named in that part of the order I have quoted has
become indebted to him in several amounts by virtue of the operation of s.l04GA(8) in re-latlon to defalcations by Jeffrey Stewart Cox, who is alleg-ed to have practised as a solicitor in partnership with the debtor from 1 July 1980 to 30 June 1982 and
to have been "employed . . . . . as a consultant solicitor" by the
firm, of which the debtor was a partner, from 1 July 1982 until
about October 1985. The aggregate of the amounts claimed against
the debtor in that action exceeds $1,000,000. The order by which
the petitioning creditor was appointed receiver included an order
that the respondents -pay the costs of the Law Institute of
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Victoria of the application for the order, which were taxed at $4803.75 and which were'paid after the debtor had committed an act of bankruptcy on 15 March 1988, by failing on or before that date to comply with the requirements of a bankruptcy notlce founded on that order for costs. Upon that act of bankruptcy was founded the.
petition whlch was presented by the petitioning creditor on 28 June 1988 and which came on for hearlng before me on 8 February 1990.
By notice filed 21 December 1988 the debtor specified the following grounds of opposition to the petltlon:
"1. The debt mentioned in the ~ankruptcy
Notice namely $4,803.75 was paid and
payment was accepted by the
Petitioning Creditor, by reason
whereof the Petitioning Credltor may
not rely on the act of bankruptcy
alleged in the Petition. -- 2. The debt of $50,000 alleged in the Petition is disputed by the debtor on the grounds set forth in the Debtor's Affidavit sworn the 19th day of December 1988. 3. The Petitioning Creditor is aware that the debtor disputes the creditor's clalm for the - last-mentioned debt and that the debtor has a good defence to the Petitioning Creditor's claim for payment thereof, by reason whereof the presentation of the Petition is an abuse of the process of this Honourable Court. 4. The creditor says that his assets exceed his liabilities and in all the circumstances he ought not to be
adjudged bankrupt. "
On 9 February 1990 I--heard argument for and against the grounds numbered 2 and 3.
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Although on 1 May 1989 the Court gave dlrectlons for the filing of affidavits on which the parties proposed to rely on the
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hearing of the petition, it could be inferred from a comparison of the affidavits flled and the contentions of fact advanced in the course of argument that both parties would desire to adduce oral evidence, on the hearlng of the petition, of facts to which no deponent had deposed.
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Mr. Bigmore, the petitioning creditor's solicltor, made it plain during argument that the petitioning creditor would seek to show compliance with the requirements of s.44il) (a) and s.44(1) (b) and s.52(1) (c) of the Bankruptcy Act 1966 only by proof of the debtor's indebtedness in respect of a particular payment of $50,000 by Denter Nominees Pty. Ltd. to the firm of solicitors in - early September 1983. He also declared his client's willingness, if proof of that indebtedness were accepted by the Court on the -
hearing of the petltion, to rely only on that debt, of all the debts alleged to have been created by the operation of s.l04GA(8), in any inquiry whlch the Court might make in pursuance of s.52(2) (a) of the Bankruptcy Act 1966 as to the debtor's solvency. Those declarations were made under the following circumstances.
The petltion came on for hearing before Spender J. on 1 May 1989. At the request of both parties Spender J. adjourned the
petition out of the list of petitions for hearing, gave the
petitioning creditor leave to amend the paragraph of the petition
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wherein was alleged the debtor's indebtedness, fixed tlmes for the filing of further affidavits to be used on the hearing of the petition and ordered, pursuant to s.52(5) of the Bankruptcy Act 1966, that the period at the expiration of whlch the petition will
^lapse should be the period of 24 months commencing on the - presentation of the petition. That paragraph of the petltlon,
numbered 2, at that time read:
"2(a)Pursuant to the operation of
- sub-section lO4GA(8) of the Legal petitioning creditor is subrogated Profession Practlce Act 1958, the to the rights and remedies against the debtor, MICHAEL MANNING BLANCHE, of certain persons who have suffered pecuniary loss by reason .of a - defalcation by the said MICHAEL MANNING BLANCHE (and by former partners of MICHAEL MANNING BLANCHE in the firm of solicitors formerly carrying on business under the name of BRAHAM McLAUGHLAN & CO and a former member and employee of the
said firm, one JEFFREY STEWART COX) -- and who have received payment of compensation from the Solicitors' Guarantee Fund. (b) The petitioning creditor was - appointed receiver of certain property of the debtor, the sald firm and the said Jeffrey Stewart Cox by orders of the Supreme Court of Victoria made in March 1986.
(c)
By virtue of the said right of subrogation, the debtor is justly and truly indebted to the petitioning creditor in the sum of
$50,000.00 being the total amount of
payments of compensation from the
Solicitors' Guarantee Fund in
respect of pecuniary loss suffered by the undermentioned by reason of a defalcation by the debtor, the said MICHAEL MANNING BLANCHE, particulars whereof are set out hereunder:-
$50,000.00 paid by Denter
Nominees Pty. Ltd. to BRAHAM -
MCLAUGHLIN & CO. on or about 2
-September 1983 wlth instructions for it to be paid at 17% per annum Interest to Goh Pty. Ltd. secured by first registered mortage; but in fact paid by the debtor to McPherson & Kelly apparently on account of the purchase price of the Essendon
-Private Hospital in which the debtor has or had a financial interest, or alternatlvelv otherwise misapproprlated by the
debtor." -
Spender J. was told by Mr. Bigmore, in the presence of counsel for
the debtor (not counsel now representing the debtor), that - "now that the debtor wishes to glve evldence of solvency we would need to put
-in all claims that we are going to run on. So far we have said $50,000 for the sake of convenience, and that being a relatively easy thing to prove, as against having 20 or 30 mini trials in relation to each of the individual claimants that we would put forward......
It is plainly a situation where it could not possibly- be resolved within the two days that we told the court would be necessary."
Pursuant to the order of Spender J. the petition was amended by
. -substituting for sub-paragraph 2(c) the following:
. .
"2(c)By virtue of the said rlght of subrogation, the debtor is justly and truly indebted to the petitioning creditor in the sum of $3,127,364.91 being the total amount of payments of compensation from the Solicitorsr Guarantee Fund in respect of pecuniary loss suffered by the undermentioned persons from the undermentioned defalcations committed by the debtor or one or more other members of the said firm:-
(i) $1,169,365.18 being the total amount (exclusive of interest and costs) claimed by txe petitioning creditor against the debtor in Victorian Supreme Court Actlon 1987 No. 3603, particulars whereof are set out in the Amended Statement of Clalm filed and
served in that action. - (ii) $50,000.00 paid by Denter Nominees Pty. Ltd. to Braham McLaughlin & Co. on or about 2
September 1983 with
. instructions for it to be paid at 17% per annum interest to Goh Pty. Ltd. secured by first
account records of Braham fact transferred in the trust registered mortage; but in McLaughlin & Co. from the credit of Denter Nominees Pty. Ltd. to the credit of 'C. R. & J. B. Lyne' and thpn to the credit of Strohn Nominees Pty. Ltd. whereupon the said sum of $50,000.00 was paid (as part of a cheque for $89,503.85) to
'MacPherson & Kelley'apparently on account of the purchase price of the Essendon Private Hospital in which the debtor has or had a financial interest, or
alternatively otherwise misappropriated by the debtor. On 25 February 1988, the said sum of $50,000.00 (together with interest in the sum of $19,610.00) was pald out of the Sollcitorsr Guarantee Fund to Denter Nominees Pty. Ltd. in respect of that claim. (iil) $1,907,999.73, the balance of the said sum of $3,127,364.91, particulars whereof are set out in the annexure marked 'Dr to the affidavit of the petitioning creditor sworn 20 June 1988 and filed herein, being the amounts (not including interest or costs) admitted and paid out of the Solicitors' Guarantee Fund in respect of the claims identified by the reference numbers:-
JSC 002 JSC 003 - JSC 004 ($3,000) JSC 005 ($65,000)
JSC 010 JSC 012 JSC 017 JSC 021 JSC 027 JSC 028 JSC 029 JSC 033 JSC 034 JSC 035 - JSC 036 JSC 038 JSC 039 JSC 041 JSC 043 JSC 044 JSC 045 JSC 048 JSC 049 JSC 050 . JSC 053 JSC 055 JSC 056 JSC 057 JSC 058 JSC 060
JSC 062 JSC 064 JSC -065 JSC 071 - JSC 075 JSC 077 JSC 078 JSC 081 JSC 086 JSC 088 (iv) Each of the said claims is the result of a defalcation committed by the said Jeffrey Stewart Cox or the debtor or other member of the firm of Braham McLaughlin & Co. during a period throughout the whole of which both the said Geoffrey Stewart Cox and the debtor were members of that firm and holders of a practising certificate. The said period began in or about
1980 and ended on 30 June
1982. "
No affidavit filed in this proceeding affords any proof of any
indebtedness other than that specified in sub-paragraph (ii) of
the amended sub-paragraph 2(c). Notwithstanding Mr. Bigmore's
statement to Spender J. concerning the length of the hearing, two
days were allocated for the hearing when the petition was on 24
November 1989 fixed for hearing on 8 February 1990. The two days
were spent in hearing and determining a ground of opposition not
disclosed by the debtor's notlce and in hearing the argument for
and against the grounds numbered 2 and 3 in the notice and in
hearing an application by the petitioning creditor for an
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adjournment of the hearing of the petition to a date after 20 February 1990. The ground of that latter application was the unavailability before that date of a witness whose evidence was required to prove the indebtedness alleged in paragraph Z(c)(ii) of the petition as amended and in paragraph 2(c) of the petition as presented. No affidvit had been sworn by that witness. The existence of the debt alleged in pargraph 2(c)(ii) and of each of the other debts, exceeding fifty in number, was denied by the
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debtor. The existence of none of those other debts had been
established in any curial proceeding; nor had any affidavit in
proof of any of them been filed in this proceeding. For proof of
those other debts in this proceeding much more hearing time would
in my opinion have to have been allocated by the Court than ought
reasonably be allowed a petition which would lapse in less than
six months, or allowed a petitioner who had failed for more than
six months to put on the file an affidavit in furtherance of thatptoof. Not only would substantial hearing time have been
required. The debtor would have to have been allowed a
substantial period for prepara-tlon to answer on the hearing of the
petition so many claims of indebtedness, after particulars of each
claim had been disclosed to him by the petitioning creditor. For
no su-fficient reason the petitioning creditor's solicltor had
failed to subpoena the unavailable witness. Accordingly I
indicated to Mr. Bigmore on 12 February 1990 that I would refuse
his application for adjournment of the hearing of the petition
unless he applied to amend the amended paragraph 2 of the petition
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by substituting for the amended paragraph that paragraph as it was when the petition was presented, and unless hls client were prepared to eschew reliance on any allegation of indebtedness
under s.l04GA(8) except that specified in that paragraph. It was - in those circumstances that such an application to amend the petitltlon was made and granted on that day, and the declaration to which I have referred was made, that the petitioning creditor would not allege an indebtedness to him not alleged in the petition on any inquiry Into the debtor's solvency in thls
proceeding. - In support of the grounds of opposition numbered 2 and 3 Mr. o v ~ r y a n of counsel for the debtor submitted that the principles in accordance with which an order is made staying the presentation, or the prosecution, of a petition for the windlng-up of a company by a person claiming to be a creditor by virtue of indebtedness of which- the existence is bona fide disputed on subtantial grounds are applicable to a bankruptcy petition. In - Re Lympne Investments Ltd [l9721 1 W.L.R. 523 at 527-528 Megarry J. observed:
" . . . .A real dispute, turning - to a
substantial extent on disputed questions of fact which require viva voce evidence, and involving charges of fraud or near fraud, cannot properly be decided on petition. Nor is it right, or in accordance=with the modern practice, to stand over the petitlon in order that the
-disputed issues may be resolved in other Droceedinas. That ~ractice. I mav sav.
keems to gtem from 1; re on don and paris Banking Corporation (1874) L.R. 19 Ea.444. The Com~anies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a-
company of the presentation of a wlnding up petition agalnst it are such that it would be wrong to allow the machinery designed for such petltlons to be used as a means of resolving disputes which ought to be setled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out. Further, Mann v. Goldsteln [l9681 1 W.L.R. 1091, clted wlth approval in the New Zealand Court of Appeal in Bateman
Television Ltd. v. Coleridge Finance Co.
authority for saylng that when a petitlon is based on a debt which is dlsputed on
substantial grounds, the petitioner is
not a 'creditor' within section 224(1) of the Act of 1948 who has the locus standi
. ~nsolvent. Again, the existence of a petition, even if the company is in fact requisite for the presentation of the - dispute on subtantial grounds as to the
existence of any debt defeats the contention that Lympne has, within the
- meaning of section 223(a), 'neglected' to pay the sum required by the statutory notice: see In re London and Paris Banking Corporatlon, L.R. 19 Eq. 444. In the context of a notice requiring a person to do some act, I do not see how it can be said that the person 'neglects1 to do that act if the reason for not dolng it is a genuine and strenuous - contention, based on substantial grounds, that the person is not liable to do the act at all. If there is liability, a . failure to discharge that liability may -
well be 'neglect' whether it is due to
inadvertence or obstinancy or
dilatoriness: but a challenge to a
llabillty is a challenge to the
foundation upon which any contention of
'neglect' in relation to an obllgatlon
must rest. All these conslderations
point in the same direction, and
accordingly I dismiss the petition.".
~t may be found that in the particular circumstances of a case convenience of curial organisation or the requirements of justlce will suggest a similar conclusion in bankruptcy proceedings founded on a debt the existence of which is bona fide disputed on substantial grounds. In such a case the power of a
court exercising the jurisdiction conferred or invested by the - -
Bankruptcy Act 1966 to stay or dismiss a petition may for present purposes be assumed. But-neither authority, sb far as disclosed in argument, nor any other consideration led me to conclude that what has been-ordained in respect of those who claim to be
creditors of companies as justification for the lnstitutlon and
prosecution of winding-up-proceedings ought to be applied as a matter of course in respect of those who claim to be creditors of natural persons as justification for the institution and
prosecution of bankruptcy proceedings. Courts exercising jurisdiction in bankruptcy will c%mmonly be as well able to determine disputes concerning indebtedness as other Australian courts exercising a general common law and equitable jurisdiction. The presentation of a bankruptcy petition must await the commission of an act of bankruptcy. The commission of an act of bankruptcy is some prima facie indication that the financial affairs of the debtor should in the public interest be considered by a court exercising bankruptcy jurisdiction. The failure of this Court to bring, of its own motion, to a prompt hearing the
- grounds of opposition numbered 2 and 3 is in my opinion to be
| - | regretted. During the 14 months which had elapsed since the notice stating those grounds was filed the parties had expended substantial costs in preparation for a hearing of a petition which |
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according to the submissions in support of those grounds ought not to be held unless and until the debt has first been proved in another court. The £allure of the debtor's solicitors to seek a judge's direction for prompt determination of those grounds is difficult to reconcile with the submission that presentation of the petltion was an abuse of process. He who proposes to advance such a submission in order to gain curial prot>ction against the abuse ought to seek the protection promptly, in my opinion. Evldence was adduced that various Registrars and Deputy Registrars "had on several occasions expressed the view that the grounds were appropriately to be raised on the hearlng of the petition." But in my oplnion the correctness of that view is so obviously open to question that the debtor's legal representatives might have been expected to have sought a judge's direction. In all the circumstances I concluded that the preferable course was to
proceed with the hearing of the petition, adopting procedural
means of protecting the debtor against disadvantages to which he
would not have been subjected if the pet_ltionlng creditor had sued to recover the debt in a court of competent jurisdiction before presenting the petition. To that end I directed on 12 February 1990 that the evidence in proof of the debt be adduced viva voce, that cross-examination of the witnesses who would afford that proof might be deferred, in whole or in part, until all the evldence had been adduced, and that the petitioning creditor give
discovery before the hearing was resumed. The grounds of opposition stated in paragraphs 2 and 3 of the notice were not
| - | . upheld. |
The petition was heard on 12 February, 19 March, 25 May, outlined, at my request, the ways in which-he would contend that the alleged indebtedness arose. In one of the alternative contentions the offence created by s.42(2) of the Legal Profession Practice Act 1958 was specified as the defalcation by Mr. Blanche by reason of which Denter Nomlnees Pty. Ltd. suffered pecuniary loss. Mr. OrBryan thereupon objected that the particulars given, in paragraph 2(c) of the petition, of the defalcation alleg-ed did not comprehend any such an offence as s.42(2) specifies. I upheld
- 1 June and 4 June. When the petitioner's case closed Mr. Bigmore
the objection. Section 42(2) provides: - "Any solicitor who fails to account for any security or moneys received for or on behalf of any person by the solicitor for any purpose whatsoever shall unless he gives a sufficient and satisfactory explanation of such failure be guilty of an indictable offence and shall
more than seven years." be liable to imprisonment for a term of not -
The sub-section has been considered in Law Institute of Vlctoria
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v. Cowan ~nvestment Survey Pty. Ltd. [l9731 V.R. 293. In my opinion the particulars given in paragraph 2(c) of the petition plainly do not refer to any of the constituent elements of the offence created by s.42(2). Mr. Blgmore then sought leave to amend the petition to include therein allegations of'defalcation by contravention of the sub-section. I refused leave. what was
in question was an allegation of serious crime, albeit in a civil proceeding, sought to be raised after the debtor's counsel had conducted h-is cross-examination of all the petitioner's witnesses upon the basis of a quite different allegation, the amendment being sought within less than a month of the lapse of the peti-tion, and being sought, not to comprehend some change of circumstances raised by the debtor to the petitioner's surprise, but to comprehend the petitioner's fresh perception of the legal significance of the facts proved by the petitioner.
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The person who at all material times controlled Denter Nominees Pty. Ltd. ("Denter"), Doctor Victor ~ennis Barnes, had for some time before September 1983 employed the firms of solicitors of which the debtor was from time to time a partner. - Dr. Barnes had from time to time money to lend and came to trust the debtor to choose a safe investment yielding high interest on the money lent. In August 1983 he authorised the debtor to place
$50,000 at 17 per centum per annum as a loan to be secured by
first mortgage of land. The money was paid into the firm's trust account in early September 1983 and within a few days transferred
with the debtor, purchasing a nursing home business. The $50,000 to-the credit of two persons named Lyne who were, in association was part of an aggregate sum paid out almost immediately in
settlement of the purchase of the business.The debtor's sworn explanation of these circumstances was that he arranged-with Jeffrey Stewart Cox at about the time the firm received Denter's $50,000 that the money would be advanced to a company called Goh Pty. Ltd. which Cox then controlled, and that repayment of the loan would be secured by first mortgage by Goh ~ t y . Ltd. of land on whlch stood a block of flats. The-debtor swore that he had viewed the land to satisfy himself of the adequacy of the securlty proposed. From 1980 until 1982 Cox had been a membex of the firm of solicitors of which the debtor was a member at material-times. Cox sold his interest in the firm in 1982 to the other partners, remaining as "a consultant" of the firm until about October 1985. Cox took up occupancy of rooms on the floor below the floor occupied by the firm and engaged in extensive business activities connected with land development and investment in land, as well as performing legal work as "a consultant". A close association between Cox and the firm continued until at least the end of 1985. The debtor swore that he gave his secretary instructions to carry out the legal work appropriate to effectuate what he and Cox had agreed about the $50,000, and that he believed until 1985 that his
instructions had been carried out. The secretary was, according
to the debtor's evidence, a woman in the fourth decade of her life who had had long experience of conveyancing and who had demonstrated to him her reliability and efficiency over several
yea-rs. After the suicide of Cox in February 1986 officers of the
Law Institute found in the firm's offlce a form of mortgage,
executed by Goh Pty. Ltd. and by Denter Nominees Pty. Ltd., undated except for the year : 1983. The document is expressed, in terms appropriate for registration in the Titles Office, to mortgage Goh Pty. Ltd's fee simple estate in part of the land which the debtor and -Cox had agreed should secure the loan of $50,000. The consideration is expressed to be $50,000 lent by Denter to Goh Pty. Ltd. and the interest rate is stated to be 17 per centum per annum. No mortgage of any part of the land to Denter was ever reglstered. From September until December 1983 the fee simple estate in the land was subject to a registered mortgage to another person and in December 1983 registration of transfers of the fee slmple estate in that part of the land to which the form of mortgage to Denter relates was effected, to persons free of any obligation to Denter or to Cox.
The nature of the relationship between the debtor and Cox is, as I find, narrated in an affidavit sworn by the debtor in
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these terms:
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I t
.... My firm operated Independently from
Cox's operations, the latter belng land transactions and property development. There was however a close association between our mortgage practice and Cox's
- operation because from time to time Cox would seek Braham, McLaughlin & Co. client monles to put towards his investments offering interest- at commercial rates and adequate security.
5. Shortly prior to Cox separating from Braham, McLaughlin & Co. in the second
- half of 1982 and until his death in February 1986, he employed a Bookkeeper
by the name of Graham Goudy and- generally at least two female Secretaries. During the period from about-July 1982 untll about April 1985, Cox would occasionally llalse with the
- partners in Braham, McLaughlin & Co. who had clients with money to invest. That was mainly myself and my partners, Guy Gregg and Max Marriott. I was essentially a public relations partner, meaning that I sat on the Board of various companies and brought new legal work into the firm. The work was then divided up amongst the partners and employees. 6. I did very little legal work myself and for conveyances and investments relied heavily upon my Secretary Joy McCutcheon who had a good deal of experience in this area and could do the work of a Law Clerk. Usually I would have initial contact with the client and then hand the matter over to Joy McCutcheon or another partner or employee. From time to time I became aware from Cox or McCutcheon that Cox wanted money from my clients for any of a number of investment projects that he had on foot and I would inform my clients who had money to invest what was available through Cox and seek their approval before then hending the matter over to Joy McCutcheon who was then to lialse wlth Cox and Goudy in arranging for necessary documents to be prepared, settlement to occur and then the ongoing payment of interest".
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Interest payments in respect of the $50,000 were made in
1983 and 1984, but interest fell into arrea~s and Dr. Barnescomplained to the debtor. The debtor's testimony was that either
- Cox or the bookkeeper Goudy responded to his enquiry with the
statement that the land by whlch Goh Pty. Ltd. had secured
Denter1s loan had been sold late in 1983 and that the $50,000 had
been thereupon lent to another company controlled by Cox, called
Sytom Pty. Ltd., which owned and was developing a piece of land in
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Queensland. The debtor persuaded Cox to cause Sytom Pty. Ltd. to
the aggregate of several sums lent, or said by Cox to have been execute a mortgage of that land to the debtor to secure payment of lent, to that company by persons who were, or had been, clients of - the debtor. The sum of $50,000 in respect of Dr. Barnesr payment to the firm in early September 1983 was included in that aggregate sum. After Cox's sulcide the debtor executed declarations that each of the constituent parts of the aggregate sum, including the
$50,000, was held by him on trust for the client who had, or who was to be treated as though he had, advanced to Sytom Pty. Ltd.
that constituent part.The crediting of the $50,000, in the flrm's trust
account records, to Mr. and Mrs. Lyne shortly after receipt of
that sum by the firm was explained in those records by a cryptic
- - note : "transfer of mortgage". There was no evidence to suggest that the Lynes had at that time any mortgage over the property of Goh Pty. Ltd. Neither petitioning credltor nor debtor propounded any explanation of the note, or called any evidence which explained the note. The transfer of the sum of $50,000 from the credlt of Denter to the credit of the Lynes appears to be a misappropriation. Because the debtor was the member of the flrm
to whom Denter had entrusted the money for investment, the
inference arises that the mlsappropriation was by a fraud to which
he was a party. In the submlssion of Hr. Bigmore the inference is
strengthened by the circumstance that the $50,600 was immediately
applied in the acquisition of property by a company in which the
debtor had an interest. The inference may the more confidently be
drawn, according to Mr. Bigmore's submlssion, by reason of the
debtor's unexplained failure to call his- secretary, to whom he swore that he had committed the responsibility of effectuating the - proposed investment : Jones v. Dunkel (1959) 101 C.L,R. 298. -
I bear in mind what was said in Rejfek v. McElroy (1965)
112 C.L.R. 517 at 521-522:
"that the degree of satisfaction for which the civil standard of proof calls may vary accordina to the aravitv of the fact to be proved :-see ~rigi'ns.haw -v. B r i g i ~ h a w (1938) 60 C.L.R. 336, per Dlxon J. at 36 ; Helton v. Allen (1940) 63 C.L.R. 691, per Staze J. at 701; Smith Bros. v. Madden [l9451 Q.W.N. 39,
per ~ i x o n 3 . at 42. But the standard of proof to be applied in a case and the relationship between the degree of persuasion of the mind according to the balance of probabilities and the gravity or otherwise of the fact of whose existence the mind is to be persuaded are not to be confused. The difference between the criminal standard of proof and the clvil standard of proof is no mere matter of words : it is-a matter of critical substance. No matter how grave the fact which is to be found in a civil case, the mind has only to be reasonably satisfied and has not with respect to any matter in issue in such a proceeding to attain that degree of certainty whlch is
indis~ensable to the s u ~ ~ o r t of a conviction - - upon a criminal charge : see Helton v. Allen (1940) 63 C.L.R. 691, per Dixon, Evatt and
McTiernan JJ. at 714." -
I am not persuaded that the debtor was party to any fraud committed in September 1983, whereby Denter's money was misappropriated. This is a case in which there 1 s involved in the transactions under consideration an employe of the firm - so I understand the word "consultant" in the context in which -it was used of Cox - who was engaging in fraudulent activities in relation to the moneys of the firm's clients. That is common
ground between the parties. The fraudulent activities of Cox were in ~eptember-l983 not suspected by other-employes or by members of the firm, so far as the evidence discloses. It would In those circumstances not be surprising if Cox;in order to conceal from his clients and associates Mr. and Mrs. Lyne unlawful despositions previously made of their funds, had caused the $50,000 to be transferred to their credit, while at the same time taking steps designed to satisfy the debtor's secretary that the debtor's instructions concerning the investment of Denterfs $50,000 were carried out. She, like other employes and like the partners, would be likely to accept as truthful whatever plausible lies Cox told her, and to carry out his suggestions as to the steps to be taken in implementation of her instructions from the debtor. ~ f ,
for example, he had on some pretext undertaken to her that he would see to the registration-of a mortgage by Goh Pty. Ltd. to secure repayment of the debt, why should she not acquiesce? The involvement of Cox in the projected transaction of loan by Denter to Goh Pty. Ltd. raises hypotheses consistent with the evldence and consistent with the debtor's evldence. It may be inferred that the secretary has no evidence to give which would advance the debtor's case. It may be that she simply has no memory of what may have been to her an unremarkable transaction.
It was submitted by Mr. Bigmore that the debtor's conduct in attempting to create in 1985 and 1986 a security in
favour of Denter over the land of Sytom Pty. Ltd. to the extent of the $50,000 paid to the firm by Denter in September 1983 suggested a consciousness of hls guilt of misappropriation in September 1983. Mr. Bigmore relied also on the debtor's sworn testimony, -
contained in affidavits filed from time to time in this - -
proceeding, concerning his beliefs in and after 1985 as to what Cox had done with the $50,000, as demonstrating a lack of frankness suggestive of his guilt. Lack of frankness there was, and the debtor's attempts to create the security suggest that he may have sought to conceal what he knew or suspected to have been fraudulent misapprop.yiatlon of the $50,000 in September 1983. But the concealment has the appearance of concealment of Cox's misappropriatlon, _rather than concealment of his own misappropriation. And the passages in the affidavits which Mr. Bigmore criticised are more easily explained as concealment of the fact that the debtor had discovered or suspected Cox's fraud months before that fraud was revealed to the world than as concealment of the debtor's misappropriation.
On the whole of the evidence I am not persuaded that the defalcation alleged was committed. Accordingly, there being no debt on which the petition may be grounded, the petition is to be dismissed.
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I certify that this and the 21 preceding pages are a true copy of the Reasons for Judgment of the Honourable Mr. Justice Jenkinson.
(-#-.-A- Associate
Dated: 18 June, 1990
Counsel for the Petitioner : Mr. G.T. Bigmore Counsel for the Debtor Mr. Stephen OrBryan
Solicitors for the Petitioner: J.M. Smith- & Emmerton -
Solicitors for the Debtor Sly & Weigall Dates of Hearing 8, 9, 12, 19 and 25 May and 1
and 4 June; 1990
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