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

[1990] FCA 419

Re: EDWARD JAMES BRIDE and WENDY MARGARET BRIDE
Ex Parte: BRYAN GUTHRIE STEWART
No. P 356 of 1990
FED No. 419
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALI

BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)

CATCHWORDS

Bankruptcy - creditor's petition - judgment debt - costs order on dismissal of civil proceedings - unsuccessful appeal against dismissal - pending application for special leave out of time - ongoing litigation between creditor and debtor - no resort by creditor to usual enforcement procedures - debtors' precarious financial position - refusal to pay on point of principal - some assets - reasonable possibility of ability to pay - no sufficient cause for dismissal of petition - petition adjourned for three months.

Bankruptcy Act 1966

Bride v Stewart (Fed Court of Aust. unret. 26 July 1988, French J)

Bride v Australian Bank Limited and Stewart (unrep. Fed. Ct. French J. 25/10/89)

HEARING

PERTH

#DATE 6:8:1990

Mr E.J. Bride appeared on behalf of the Debtors.

Counsel for the Petitioning Creditor: Mr K. Dundo

Solicitors for the Petitioning Creditor: Robinson Cox

ORDER

The petition is adjourned to 6 November 1990.

The costs of the petition are reserved.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

Bryan Guthrie Stewart petitions the Court for a sequestration order against the estates of Edward James Bride and Wendy Margaret Bride. The petition is based upon the Brides' failure to comply with a bankruptcy notice demanding payment of costs awarded in favour of Stewart and against the Brides in Action No. 62 of 1987 in this Court. The action, which was commenced in June 1987, claimed against Stewart and the Australia 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.

1. 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 Australia 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 taxed costs in the dismissed application came to $2,806 not including costs on the Full Court appeal.

2. 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 actions pending in that Court.

3. The Brides have taken no steps to pay the judgment debt arising out of the costs order in No. 62 of 1987. And Stewart has taken no steps to enforce it other than by way of demand, the issue of the bankruptcy notice and these proceedings. Mr Bride filed an affidavit in answer to the bankruptcy notice in which he said that he and his wife were unable to pay the debt at that time but would be able to do so at the completion of Action No. 191 of 1988. By this he meant, as he explained in his oral evidence on the hearing of the petition, that his present cash flow would not permit payment of the debt.

4. In an affidavit in opposition to the petition, Mr Bride indicated that he had certain items of plant being an extruder and dies valued at $22,500 and a tunnel oven valued at $22,000. He was cross-examined at some length on his affidavit and on the question of his liabilities generally. The broad picture that emerged was that he is unemployed and his wife works fulltime as a nursing sister. He owes the ANZ Bank $5,500 which he first described as a personal loan, but later as an overdraft on a cheque account. This money was borrowed in part to enable him to buy some secondhand machinery and vehicles and recondition them for resale. The advance is presently in arrears some 8 months but he has made arrangements with the Bank to sell two of the motor vehicles and apply the proceeds to reduction of the debt. The vehicles are a 1968 Isuzu Elf Truck and a 1954 Ford Fairlane. The car is registered in his son's name and the truck is unregistered. Other than the ANZ Bank, he has some small creditors. He owes about $600 to a tyre service, $250 to a building company and $180 to two auto electricians. He also owes some $4,600 to the Australia Bank Limited as the result of the unsuccessful proceedings against that Bank and Stewart in this Court. There is a further sum of $3,000 claimed by Peat Marwick and Mitchell in relation to an interlocutory application in the Supreme Court. However according to Bride, the defendant's solicitors there have agreed not to pursue it until the action is determined. He made reference to a further order having been made in relation to Supreme Court proceedings involving KMG Hungerfords which were the subject of a partly successful strike out application. It appears, though it is not clear from his evidence, that these costs have not yet been taxed and the liability not yet accrued.

5. On 19 January 1990 the Brides were ordered to give security in the amount of $4,000 in relation to the action against Stewart in this Court. That security has evidently been provided but there is no evidence which permits the conclusion that he owes money as a result of financing that exercise. Mr Bride has had some money incoming from his litigation. In particular, on providing discovery he made an arrangement with some of the law firms representing various defendants that he would photocopy the documents himself at a rate of 50 or 60 cents per page. He used a photocopier provided by his former trustee, Putnin, and paper for which he owes about $80. He was paid a total of $1,700 recently. This money he has deposited and will apply to pay off the small debts already mentioned.

6. Bride said he had acquired the tunnel oven for $3,000 just after his discharge from bankruptcy. He spent time on it and about $2,000 in cash reconditioning it. The $3,000 purchase price has not yet been paid, but he has not been pursued by the vendors whom he has not had contact with for about 12 months. He thought a sensible market price for a purchaser with a need for the oven would be $22,000. He had advertised it on 3 or 4 occasions. The advertisements attracted some interest, but no purchasers. The extruder was an item of equipment which he had owned before he became a bankrupt. He sold it for $6,000 in 1984 but repurchased it after his discharge for the same price. He had reconditioned this machine also and advertised it for sale with the oven, but had received no offers as it did not meet the specific requirements of the potential buyers.

7. The Brides financial position is clearly a precarious one. The question is whether in light of all the evidence I should make a sequestration order.

8. 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 Australia 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 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).

9. 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 Australia Bank Limited. I propose therefore to adjourn the petition for a period of three months to 6 November 1990.