Callaghan v Yiu-Hsiao T.

[1992] FCA 751

7 5 1 j9 . t

JUDGMENT No. ., .,.,.,....,.... .S.. -

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT

OF THE STATE OF VICTORIA No. VP 589 of 1992

RE :  DAVID JOHN CALLAGHAN and
LEIGH RONALD GRANT

Respondents

EX PARTE:  TANG YIU-HSIAO

Petitioner

Coram:	Olney J
Place:	Melbourne
Date:	2 October 1992

REASONS FOR JUDGMENT

On 29 May 1992 the petitioner presented a petition seeking the sequestration of the estates of the respondents. The petition alleges that the respondents were as at 2 March 1992 jointly indebted to the petitioner in the sum of $565,164 and that within 6 months before the presentation of the petition, they committed the following acts of bankruptcy namely:

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(a)	in or about February 1992, made conveyances and assignments of their properties for the benefit of their creditors generally;
(b)	further or alternatively, in or about February 1992, created charges on and made conveyances, transfers, settlements and other dispositions of their properties or

of part of their properties that would, if they became
bankrupt, be void against the trustee.

The provisions of the Bankruptcy Act upon which the petitioner relies are:

40(1)	A debtor commits an act of bankruptcy in each of the following cases:-
(a) if in Australia or elsewhere he makes a conve3ance or assignment of his property for the benefit of his creditors generally;

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(b) if in Australia or elsewhere -

(i) he makes a conveyance, transfer, settlement or other disposition of his property or of any part of his property;

(ii) he creates a charge on his property or on any part of his property;

(iii) ...

(iv) ...

that would, if he became a bankrupt, be void

as against the trustee;

44(1)	A creditor's petition shall not be presented against a debtor unless -
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to

$1,500 or 2 or more debts that amount in the aggregate to $1,500, or, where 2 or more cred~tors join in the petition, there is owing by the debtor to the several petitioning creditore debts that amount in the aggregate to $1,500;

(b)

that debt, or each of those debts, as the case may be -

(i)	is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii)	is payable either immediately or at a certain future time; and

(c)

the act of bankruptcy on which the petition is founded was committed within 6 months

, before the presentation of the petition.

In the petition the debt of $565,164 said to be owing by the respondents is described as "monies owing to me by reason of breaches of trust committed by the respondents sometime between 23 April 1991 and March 1992".

Each respondent has given notice of objection to the petition. The firstnamed respondent (Callaghan) opposes the petition on the grounds that:

1. H e denies t h a t he is e i t h e r j o i n t l y wi th Lee Ronald Grant

o r otherwise indebted t o t h e p e t i t i o n e r i n t h e sum of

$565,164 o r any p a r t thereof o r i n any o the r sum o r t h a t

he was indebted a s a t 2 March 1992 o r at any o t h e r time.

2. The p e t i t i o n e r is no t and never was a c r e d i t o r of h is .

3.          There 1s no debt t h a t is due and payable by him t o t h e p e t i t i o n e r .

4.	The p e t i t i o n e r has no t obtained any Court judgment
aga ins t him.

5.             H e denies t h a t he committed any breach of t r u s t between

23 Apr l l 1991 and March 1992 as a l l eged by t h e p e t i t i o n e r

or t h a t he committed any breach of t r u e t a t any o t h e r

time.

6.             H e denies t h a t he i n o r about February 1992 o r a t any o the r time made any conveyance and/or assignment of h i s

properties f o r t h e b e n e f i t of h i s c r e d i t o r s general ly.
7 .	H e denies t h a t he i n o r about February 1992 o r a t any
o t h e r t ime, crea ted any v a l i d charges and/or made any
v a l i d conveyances, t r a n s f e r s , se t t lements o r o t h e r
d i s p o s i t i o n s of h i s p r o p e r t i e s o r p a r t of h i s p r o p e r t i e s
t h a t would, i f he became bankrupt, be void aga ins t t h e

t r u s t e e .

8.          The presenta t ion of t h e p e t i t i o n by t h e p e t i t l o n e r aga ins t him i s vexatious, scandalous and an abuse of process i n t h a t t h e p e t i t i o n e r i n h i s p e t i t i o n has made

se r ious a l l e g a t i o n s aga ins t him but has not provided

s p e c l f i c o r adequate p a r t i c u l a r s of such a l legat ions .

The secondnamed respondent (Grant) denies the following statements in the petition:

1. That he is o r w a s a t any t ime t r u l y and - ~ u s t l y indebted

t o t h e p e t i t i o n e r i n t h e sum of $565,164.00 o r a t a l l

whether i n r e spec t of moneys a r i s i n g out of a l l eged

breaches of t r u s t o r otherwise.

2.          That he d i d a t any time wi th in 6 months before t h e presenta t ion of t h e p e t i t i o n commit t h e a c t of bankruptcy

r e f e r r e d t o i n sub-clause 4 ( a ) of t h e p e t i t i o n namely

t h a t he made conveyances and assignments of h i s proper ty

f o r t h e b e n e f i t of h i s c r e d i t o r s general ly.

and opposes the petition on the grounds that:

1.	The	p e t i t i o n e r	i s not	and	never	has	been	a	c r e d i t o r	of
h i s .

2. That he i s no t indebted t o t h e p e t i t i o n e r i n t h e sum of

$565,164.00 o r a t a l l i n r e spec t of moneys a l l eged ly

owing t o t h e p e t i t i o n e r by	reason of	a l leged breaches of
t r u s t .

3.          That he has not committed an a c t of bankruptcy as a l l eged i n sub-clause 4 ( a ) of t h e p e t i t i o n namely t h a t he made

conveyances and assignments of h i s property f o r t h e

b e n e f i t of h i s c r e d i t o r s general ly.

Upon the hearing of the petition counsel appearing for the respondents raised two preliminary issues.

First, it was said that the affidavits filed on behalf of the petitioner and relied upon in proof of the facts put in issue

by the petition are defective in form in that they merely	contain assertions of fact without either describing the means
of knowledge of the respective deponents or expressing the belief of the deponent in the truth of the facts asserted.
The second point taken by counsel is that even assuming that the affidavits are probative of the facts asserted in them, they do not establish that there is or was at the date of the petition a debt owing to the petitioner that is a liquidated sum due at law or in equity or partly at law and partly in equity and is payable immediately or at a certain future time.
I reserved consideration of both issues raised on the
respondents' behalf. After due consideration I am of the view
that there is some substance in the objection taken to the
form of the affidavits but it appears likely that such defects
as have been demonstrated could possibly be cured (depending

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of course upon whether the deponents are able to swear, to the necessary belief in the truth of the facts asserted) and accordingly I have dealt with the second point, which in my opinion is soundly based and is a complete answer to the petition.

The claimed debt of $565,164 which is relied upon by the petitioner to give him the status of a creditor represents the petitioner's accrued entitlement as at 2 March 1992 in a trust fund known as "Australian Sharemarket Fund" (ASF). On 8 March 1991 the petitioner paid $500,000 for 10 units in ASF which is

said to be constituted by a fund deed dated 25 August 1989

made between Australian Sharemarket Fund Pty Ltd (the fund trustee) as trustee and Australian Sharemarket Managers Pty Ltd (the fund manager) as manager. The respondents are directors of, and shareholders in, the fund trustee and the

fund manager. It is said by the petitioner that between 23 April 1991 and March 1992 inter alia, the respondents

fraudulently misappropriated or caused to be misappropriated

$2,500,000 from the trust fund. The petitioner and three

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other investors whose investments total $2,000,000 commenced proceedings in the Supreme Court of Victoria on 31 March 1992 against the respondents and 4 corporate CO-defendants. (The defendants in the Supreme Court proceedings in the order named are the fund trustee, the fund manager, Callaghan, Grant, Insurance Funding Pty Ltd (in liquidation) and Infund Australia Pty Ltd.) The indorsement on the writ describes the nature of the proceedings as:

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1.            A claim f o r damages aga ins t t h e Firstnamed, Secondnamed, Thirdnamed and/or Fourthnamed Defendants f o r breach of t r u s t .

2.             A claim f o r damages aga ins t t h e Firstnamed, Secondnamed, Th~rdnamed and/or Fourthnamed Defendants f o r conspiracy t o defraud t h e Plaintiffs and a claim f o r decei t .

3.            A claim t h a t t h e Defendants and each of them account a s

Construct ive Trustees f o r t h e moneys acquired d i r e c t l y o r i n d i r e c t l y from misappropriat ions by t h e Flrstnamed, Secondnamed, Thirdnamed and Fourthnamed Defendant o r any of them from Aust ra l ian Sharemarket Fund.

No statement of claim has yet been filed but the thrust of the plaintiffs' case in the Supreme Court action is that the funds invested by them in ASF were improperly invested in another

company, contrary (it is said) to the terms of the	'prospectus' which formed the basis of their investment.
Each respondent has filed an affidavit in reply to affidavits sworn by the petitioner and his solicitor in support of the petition. It is unnecessary to canvass the respondents* affidavits in detail except to say that each denies being a debtor of the petitioner and denies any breach of trust or other wrongdoing in his capacity as director 0.f the fund

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trustee.

There is some evidence before the Court to suggest that as at

2 March 1992 the fund trustee may have been indebted to the

petitioner in the sum of $565,164. Whether this be the case or not may depend upon the terms of the deed governing the trust fund and regulating the rights of the unitholders. The fund deed has not been put in evidence and it is idle to speculate about its provisions. But even assuming that the petitioner's investment in ASF is presently payable to him by the fund trustee, the directors of the fund trustee would not thereby be personally liable for that or any other amount. It is said however that in breach of trust the directors made unauthorised investments and that therefore they are personally liable. Counsel seeks to rely upon the authority of Barnes v Addv (1873-4) 9 LR Ch. App 244 for this proposition but in my opinion there are two reasons why the proposition advance must fail. First, in the absence of the fund deed it is not possible to reach any conclusion as to	whether or not the transfers of funds which are said to have	been in breach of trust were in fact contrary to the trusts
upon which the funds were invested and held by the trustee.
Second, Barnes v Addy is authority for the proposition that a
stranger who acts as the agent of a trustee in a transaction
legally within his power, but which leads to a breach of
trust, is not to be held responsible as a constructive trustee
unless some of the property passes into his hands, or unless
he is cognisant of a dishonest design on the part of the

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trustee. Counsel for the petitioner does not assert that any of the trust fund passed into the hands of either respondent but rather that the respondents were cognisant of a dishonest design on the part of the trustee. On the evidence adduced no such finding is open. It cannot be said either that there has been a breach of trust on the part of the trustee or that the trustee had a dishonest design.

However, even if it be the case that the respondents are	l
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liable to the petitioner as claimed in the Supreme Court proceedings, it cannot at this stage be said that they are liable for a liquidated sum which is payable either immediately or at a certain future time. Indeed, the manner in which the claim the Supreme Court action has been formulated demonstrates that the petitioner and his co- plaintiffs are not seeking to recover a liquidated sum. What the petitioner is attempting by his bankruptcy petition is to prove a case against the respondents which he has commenced in the Supreme Court but as yet has failed to proceed with. The

proceedings, but whatever it may be, it is not a claim for the	basis of that case has not been particularised in those	payment of a liquidated sum.
The petitioner has failed to establish his standing as a creditor of the respondents or either of them. The petitioner will be dismissed with costs.

I c e r t i f y that t h i s and the preceding 8 pages are a true copy of the Reasons f o r Judgment o f the Honourable M r Jus t i ce Olney

Associate: J w

Dated:  2 October 1992

Mr P. Santamaria (instructed by Wong & Lai) appeared for the

petitioner.

Mr P.C. Golombek (instructed by Dunhill Madden Butler) appeared for the firstnamed respondent.

Mr A. Serong (of Rigby Cooke) appeared for the secondnamed

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respondent.	!
Date of Hearing:	23 September 1992
Place:	Melbourne
Date of Judgment:	2 October 1992