Bride, E.J. v Stewart, B.g

[1991] FCA 444

Re: EDWARD JAMES BRIDE and WENDY MARGARET BRIDE
And: BRYAN GUTHRIE STEWART
No. WA G136 of 1990
FED No. 444
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Neaves(1), Lee(1) and Olney(1) JJ.

CATCHWORDS

Bankruptcy - Sequestration order made on hearing of creditor's petition - Appeal - Creditor's petition adjourned to permit debtors to effect sale of assets and make appropriate arrangements to meet their obligations - Sale of assets not effected but debtors claimed to have funds available to them to pay creditors in full - No tender of payment made to creditors before adjourned date - Whether further short adjournment should have been allowed to enable tender to be made.

HEARING

PERTH

#DATE 2:8:1991

Edward James Bride appeared on his own behalf and on behalf of Wendy Margaret Bride.

Counsel for the respondent : Mr N. Billington

Solicitors for the respondent: Robinson Cox

ORDER

The appeal be allowed.

The sequestration order made on 6 November 1990 be set aside.

The creditor's petition herein be listed for further hearing before a single judge of the Court on a date to be fixed by that judge.

Subject to order 5, there be no order as to the costs of the appeal.

In the event that a sequestration order is made upon the further hearing of the creditor's petition herein, the respondent's costs of the appeal be taxed and paid out of the estates of the appellants as being part of the respondent's costs as petitioning creditor.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

On 6 November 1990, a Judge of this Court, exercising jurisdiction under the Bankruptcy Act 1966 (Cth), made a sequestration order against the estates of the appellants, Edward James Bride and Wendy Margaret Bride, his wife. The order was made upon a creditor's petition presented by the respondent, Bryan Guthrie Stewart. The appellants now seek a reversal of that order.

1. The petition was presented on or about 10 April 1990. It alleged that the appellants were justly and truly indebted to the respondent in the sum of $2,806.00. That sum represented the taxed costs of the respondent of an application to this Court (No. WA G62 of 1987) in which the present appellants were the applicants and Australian Bank Limited and the present respondent were respondents. The order requiring the appellants to pay the present respondent's costs of that application was made on 26 July 1988. Those costs were subsequently taxed in the sum of $2,806.00 as appears from the taxing officer's certificate dated 30 October 1989. Pursuant to Order 62, rule 45(3) of the Federal Court Rules, a Deputy District Registrar of the Court, at the request of the respondent, drew up, signed and sealed an order in favour of the respondent for the sum shown in the certificate of taxation and entered the same on 5 January 1990.

2. The petition further alleged that the appellants had committed an act of bankruptcy consisting in the failure to comply with the requirements of a bankruptcy notice served upon them. The bankruptcy notice, which was issued on 18 January 1990, required the appellants, within 14 days after service of the notice, to pay the sum of $2,806.00 to the respondent or to secure the payment of that sum to the satisfaction of this Court or the respondent or compound that sum to the satisfaction of the respondent. The bankruptcy notice was served on Mr Bride on 30 January 1990 and on Mrs Bride on 5 February 1990.

3. The petition came on for hearing on 5 June 1990 and was then adjourned. The hearing proceeded on 1 and 6 August 1990. On the latter date, the hearing was further adjourned until 6 November 1990. In reasons for judgment delivered on 6 August 1990, the learned primary judge referred to the history of the proceeding in this Court numbered WA G62 of 1987 (to which reference has already been made) and to certain other proceedings commenced in this Court by the appellants against the respondent. His Honour said:
   

"The action, (No. WA G62 of 1987) which was commenced in June 1987, claimed against Stewart and the Australian Bank Limited, damages and an order setting aside the sale of property previously owned by the Brides or businesses associated with them. In broad terms the statement of claim alleged that the Bank had made substantial advances to the Brides in connection with their stock and other food manufacturing businesses peaking at a figure of some $3 million in 1983. Stewart, then an employee of the accounting firm, KMG Hungerfords, was said to have engaged in some supervision of the cash flow of one or more of the Bride businesses. In July 1984 when he was in practice on his own account he was, it was said, appointed by the Bank as a kind of unofficial receiver to protect the Bank's interest. Various improprieties were alleged against both him and the Bank including misleading or deceptive conduct contrary to s.52 and associated provisions of the Trade Practices Act 1974.

Mr and Mrs Bride became bankrupt in 1984 and were discharged in 1986. On 26 July 1988 their action No.62 of 1987 was dismissed on motions by Stewart and the Australian Bank. The dismissal was based on a finding that their cause of action, if any, had vested in their former trustee in bankruptcy, a vesting not affected by their subsequent discharge - Bride v Stewart (Fed Court of Aust. unrep 26 July 1988, French J.). An appeal against that decision was brought to the Full Court, but the appeal was dismissed on 5 December 1988. An application has recently been filed for leave to apply to the High Court out of time for special leave to appeal against the decision of the Full Court. Stewart's legal costs in the dismissed application came to $2,806 not including costs on the Full Court appeal. On 21 December 1988 the Brides instituted further proceedings against Stewart in this Court in Action No.191 of 1988. They contended that the action was brought by them as trustees of their family trust. A lengthy statement of claim was filed on 1 March 1989 and a defence on 20 March. Stewart moved to strike out the statement of claim and on 25 October 1989 an order was made in those terms but allowing the Brides leave to file and deliver a further pleading. An amended statement of claim was filed on 15 November and a defence on 11 December. A motion to strike out the statement of claim was dismissed on 18 January 1990. Security for costs in the sum of $4,000 was ordered on 19 January 1990 and the matter thereafter progressed to a point where it was ready for trial and was transferred to the Supreme Court of Western Australia. There are a number of related motions pending in that Court."

1. In addition to the debt of $2,806.00 referred to in the creditor's petition, the appellants owed further amounts by way of taxed costs to the respondent and to Australian Bank Limited in respect of the proceedings No. WA G62 of 1987 and proceedings (No. WA G112 of 1988) on appeal therefrom. The precise amount of such taxed costs is not disclosed in the material before the Court. It appears, however, that the appellants' total indebtedness in that regard, including the debt the subject of the creditor's petition, is of the order of $9,400.00.

2. There was evidence before the primary judge that Mr Bride owed an amount of $5,500.00 to the Australia and New Zealand Banking Group Limited, being money that had been borrowed in part to enable him to buy secondhand machinery and vehicles and recondition them for resale. Arrangements satisfactory to the Bank had apparently been made in respect of this debt. His Honour noted that Mr Bride had a number of other small creditors, the amounts owing to them totalling $1,030.00. Mr Bride had, so his Honour found, been paid a total of $1,700 shortly before the hearing which amount was to be applied to pay off those small debts. Mr Bride had also been concerned in other transactions giving rise to contingent debts.

3. There was also evidence before his Honour that Mr Bride was unemployed and that Mrs Bride worked full time as a registered nursing sister. Mrs Bride was said to have no debts other than those due by way of taxed costs to the respondent and Australian Bank Limited.

4. His Honour noted that the appellants had taken no steps to pay the judgment for costs on which the creditor's petition was founded and that the respondent had taken no steps to enforce payment other than by way of demand, the issue of the bankruptcy notice and the filing of the creditor's petition. After referring to evidence before him to the effect that the cash flow of Mr Bride would not permit payment of the petitioning creditor's debt at that time, his Honour referred to the evidence concerning the ownership by Mr Bride of certain assets described as an extruder and dies and a tunnel oven. These assets were said to have a total value of $44,500.

5. After reviewing the whole of the evidence before him, his Honour concluded that the appellants' financial position was clearly a precarious one. He then turned to consider the question whether, in the light of all the evidence, he should make a sequestration order. His Honour said:
   

"I have serious reservations about the use of the bankruptcy procedure to collect small debts. Its principal objective must be to ensure rateable distribution of assets among the various creditors. The petition in this case is supported by Stewart who brings it and the Australian Bank Limited which intervened at short notice on the adjourned hearing. In my opinion and despite my general reservations, this is not a case which discloses sufficient cause for dismissing the petition under s.52(2)(b). Mr Bride argued that the petition should be adjourned until the disposition of his pending application for leave to apply out of time for special leave to appeal to the High Court against the judgment of the Full Court in December 1988. That application being however so far out of time, I am not prepared to regard it as a factor which should be given any significance in relation to the Court's discretion to decline to make a sequestration order or to adjourn. Nor am I prepared to accede to Mr Bride's invitation to go behind the judgment debt. The judgment debt arises from a judgment of this Court which has been tested on appeal. And in relation to which (sic) I understand is the basis upon which Mr Bride now seeks to challenge it, similar considerations were put before the Court on his motion to stay execution of the costs order which was dismissed on 25 October 1989 - Bride v Australian Bank Limited and Stewart (unrep Fed Ct French J. 25/10/89).

There does remain a basis upon which however I can properly consider adjournment of the petition. It seems to me that notwithstanding the rather speculative and optimistic assessments of the value of the extruder and oven, there is a reasonable possibility that Bride could dispose of these for a price which would enable him to satisfy the outstanding costs orders without prejudice to the generality of his creditors. His failure to satisfy or compromise the debt to this point arises principally, in my opinion, out of a misguided belief that he should not do so as a matter of principle. The bankruptcy notice and the petition have been brought a considerable time after the debt upon which they are based and in circumstances in which the petitioning creditor has taken no steps to resort to the usual enforcement procedures. It is also of some relevance that there is continuing litigation between Bride and Stewart. In the circumstances, it seems to me that the public interest would not be served by immediately responding to this petition with a sequestration order. On the other hand, if the Brides cannot make appropriate arrangements to meet their obligations there would seem little alternative but to make the order which is sought. I propose to give him a realistic period in which to take the necessary steps to satisfy this claim and that of the Australian Bank Limited. I propose therefore to adjourn the petition for a period of three months to 6 November 1990."

1. On 5 November 1990, Mr Bride swore an affidavit in which he stated that he was able "if ordered to pay out the creditor in full from moneys available by way of a guarantee". The document referred to as a guarantee was annexed to the affidavit. As appears from its text, the "guarantee" was to extend to the total amount owing by way of taxed costs to the respondent and to Australian Bank Limited. The document, which bears date 31 October 1990, was in the following terms:
   

"THE HONOURABLE JUDGE FRENCH PRESIDING

OVER THE FEDERAL COURT OF

AUST. ON THE 6TH NOVEMBER 1990. MATTER P 356 OF 1990 YOUR HONOUR,

WE THE UNDER SIGNED HEREBY OFFER TO GARANTEE

(sic) TO YOU AND YOUR COURT THE AMMOUNT (sic) UP TO $10,000-00 TO COVER THE COSTS AWARDED TO THE JUDGEMENT CREDITOR B G STEWART AND THE AUSTRALIAN BANK LTD AGAINST THE JUDGEMENT DEBTORS EDWARD JAMES AND WENDY MARGARET BRIDE. WE UNDERSTAND THE DEBTORS HAVE AN APPEAL BEFORE THE HIGH COURT OF AUSTRALIA IN RELATION TO THE COSTS AWARDED AND HEREBY ASSURE YOU OF OUR INTENTION TO EXECUTE THE GARANTEE IN THE CREDITORS FAVOUR ON: -

A/. INSTRUCTIONS FROM YOURSELF.

B/. THE UNSUCCESSFUL APPEAL TO THE HIGH COURT OF AUSTRALIA BY THE DEBTORS AT A DATE TO BE SET. WE UNDERSTAND THE MONEYS WILL BE REFUNDED TO OURSELVES BY THE JUDGEMENT DEBTORS BY WAY OF PROCEEDS FROM OTHER LEGAL ACTIONS AND OR A VERBAL GARANTEE (sic) TO THE JUDGEMENT DEBTORS FROM ONE W D A ADAMSON WHO IS PRESENTLY OVERSEAS."

The document was signed by Thomas Andrew Cameron and Betty Florence Cameron, being respectively the brother-in-law and sister of Mr Bride. Their respective signatures were witnessed by the Manager of the Commonwealth Bank of Australia at North Beach, Western Australia.

1. On the adjourned date, namely 6 November 1990, his Honour made the sequestration order against which the present appeal is brought. In reasons for judgment delivered on that date, his Honour referred to the history of the matter as set out in his reasons for judgment delivered on 6 August 1990, to the circumstance that there was continuing litigation between the appellants and the respondent, and to the application by the appellants to the High Court for special leave to appeal from the judgment of the Full Court of this Court given on 5 December 1988, an application which had not been brought on for hearing by the appellants for more than 21 months. His Honour continued:
   

"On the last occasion I noted that, in the circumstances, it seemed to me that the public interest would not be served by immediately responding to the petition with a sequestration order. But as I said then, if the Brides could not make appropriate arrangements to meet their obligations there would seem little alternative but to make the order which was sought. And I adjourned the petition for a period of three months on the basis that this was a realistic period within which Mr Bride could make the necessary steps to satisfy the claim by Mr Stewart and also that of the Australian Bank Limited, that intervened in the proceedings the last time they were before this Court. The matter has come back today. Mr Bride has filed an affidavit and it is apparent from that and common ground, that the judgment debt remains outstanding. There is exhibited to the affidavit, a memorandum signed by a Mr and Mrs Cameron - I understand them to be his sister and brother-in-law - who offer to guarantee to pay the amount of up to $10,000 to cover costs awarded to Stewart and the Australian Bank against the Brides. The signatories to the letter say they understand the debtors have an appeal before the High Court of Australia in relation to the costs awarded and assure the Court of their intention to execute the guarantee in the creditors' favour on instructions from the Court or the failure of the appeal to the High Court by the debtors at a date to be set. They understand, evidently, that the moneys would be refunded to themselves by the judgment debtors by way of proceeds from other legal actions and/or a verbal guarantee from another person by the name of Adamson. Mr Bride has also exhibited other material to this affidavit indicating the progress of his application to the High Court.

The delay in that progress arose by virtue of the requirement for legal representation and a pending application for legal aid to the Legal Aid Commission of Western Australia, which is subject to internal appeal within that body and an application for legal aid to the office of Legal Aid and Family Services within the Attorney-General's Department. Unfortunately these matters, in my opinion, do not evidence any material change in the position since I adjourned the petition on 6 August. A guarantee is not a tender and even if it were, the petitioning creditor might have serious cause to consider whether it might not constitute a preference at this stage in relation to other creditors. It would not be a proper exercise of my discretion to further adjourn the petition and in the circumstances the only course that is open to me, in my opinion, is to make the order that is sought."

1. Section 52 of the Bankruptcy Act, so far as material for present purposes, provides:
   

"(1) At the hearing of a creditor's petition, the Court shall require proof of -

(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);

(b) service of the petition; and

(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing, and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor -

(a) that he is able to pay his debts; or

(b) that for other sufficient cause a sequestration order ought not to be made,

it may dismiss the petition.

..."

1. On the hearing of the appeal, Mr Bride appeared on his own behalf and on behalf of his wife. In support of the appeal, he directed the Court's attention to the circumstance that on 6 August 1990 the primary judge had concluded that the public interest would not be served by making a sequestration order against the appellants at that stage and that they should have an opportunity to make "appropriate arrangements to meet their obligations". It was submitted that, prior to 6 November 1990 when the sequestration order was made against them, the appellants had made such "appropriate arrangements" and that his Honour ought to have dismissed the petition. It was said that, apart from the debts by way of taxed costs owing to the respondent and Australian Bank Limited, all other debts owing by the appellants had been paid in full or were the subject of an arrangement satisfactory to the creditor concerned. It was also said that the appellants were in a position on 6 November 1990 to make immediate payment in full of the debts due to the respondent and Australian Bank Limited out of the moneys being made available to them by Mr and Mrs Cameron under the document dated 31 October 1990 and referred to as a guarantee. Mr Bride agreed that no tender of the amounts due had, in fact, been made because he contended that the orders for the payment of the costs in question had been obtained as a result of improper conduct on the part of those creditors and he wished to bring the situation to the notice of the Court so that any payment to those creditors could clearly be seen to be a payment under protest. He further said that immediate payment of the debts would have been made had the primary judge ordered the appellants to do so.

1. It is clear that Mr Bride was under a misapprehension as to what was required of the appellants if they were to avoid the making of a sequestration order. The primary judge had adjourned the further hearing of the petition for a period of three months so as to enable the appellants to take the necessary steps to satisfy the claim of the respondent and the Australian Bank Limited. To satisfy those claims it was necessary that the appellants, within the period of three months allowed to them, make payment in full of the amounts owing or make some other arrangement or compromise acceptable to those creditors. Further, the appellant's obligation to pay those debts did not depend upon an order being made to that effect by the primary judge. That obligation was already imposed by the orders of the Court pursuant to which the costs had been taxed.

2. It must be said that the meaning of the document dated 31 October 1990 is obscure and its legal effect far from clear. If, however, as Mr Bride asserts, Mr and Mrs Cameron were prepared to make an immediate advance to the appellants of an amount sufficient to enable the debts of the respondent and Australian Bank Limited to be paid in full, the fact that no tender of the amount due to each of those creditors had been made prior to 6 November 1990 would not have made it inappropriate for the Court to have further adjourned the hearing of the petition for a short period to enable a tender to be made to them. This would have been particularly appropriate in the case of Mrs Bride as the evidence before the Court was to the effect that she had no other creditors. It has been suggested so far as Mr Bride is concerned, that the respondent and Australian Bank Limited may have declined to accept such a tender as to do so might have amounted to a preference in relation to other creditors. However, in the light of the whole of the evidence before the Court, we think it unlikely that, if properly advised, they would have refused such a tender.

3. We have reached the conclusion, though not without considerable hesitation, that the exercise of the discretion vested in the primary judge by s.52 of the Bankruptcy Act miscarried. We have serious doubts whether his Honour was adequately informed that an amount of up to $10,000.00 was then immediately available to the appellants from Mr and Mrs Cameron, an amount sufficient to pay in full the debts of the respondent and Australian Bank Limited, that Mrs Bride had no other creditors and that the other debts owing by Mr Bride had been paid in full or had been the subject of an arrangement satisfactory to the creditor concerned. We have also taken into account that Mr and Mrs Bride did not have the benefit of legal assistance in the preparation of the document, called a "guarantee", dated 31 October 1990 and were not legally represented at the hearing of the petition. Had Mr Bride been informed that it was not a matter for the Court to order that the debts owing to the respondent and Australian Bank Limited be paid but that, unless they were, a sequestration order would be made, we are reasonably confident that, the position being as represented to us by Mr Bride, a tender of payment in full would have been made. It would, in those circumstances, have been appropriate for a further short adjournment of the hearing of the petition to have been granted.

4. In all the circumstances, we think it appropriate to allow the appeal and to set aside the sequestration order made on 6 November 1990. We are, however, not prepared to order that the creditor's petition presented on behalf of the respondent on or about 10 April 1990 be dismissed. We think it appropriate to direct that that petition be listed for further hearing before a single judge of the Court on a date to be fixed by that judge. The appellants should be left in no doubt, however, that the further hearing will almost certainly result in the making of a sequestration order against them unless, before the date of the adjourned hearing, payment in full of the amounts owing to the respondent and Australian Bank Limited is tendered to them. We make no order as to the costs of the appeal. However, in the event that a sequestration order is made against the appellants upon the further hearing of the petition, the respondent's costs of the appeal are to be taxed and paid out of the estates of the appellants as being part of the respondent's costs as petitioning creditor.