Clark v Clark-Ugle

[2019] FCCA 1482

FEDERAL CIRCUIT COURT OF AUSTRALIA

CLARK & ORS v CLARK-UGLE [2019] FCCA 1482

Catchwords:
BANKRUPTCY – Sequestration order – application to review a registrar’s decision – whether to go behind the judgment – whether applicant solvent.

Legislation:

Bankruptcy Act 1966, s.52

Wren v Mahony (1972) 46 ALJR 163; (1972) 126 CLR 212; [1972] ALR 307
Corney v Brien (1951) 25 ALJR 133; (1951) 84 CLR 34; [1951] ALR 525
Ramsay Health Care Australia Pty Ltd v Compton (2017) 91 ALJR 803; (2017) 261 CLR 132; (2017) 345 ALR 534; (2017) 122 ACSR 115; [2017] HCA 28

First Applicant: AARON CLARK

Second Applicant: JEREMY CLARK

Third Applicant: TIM CHATFIELD

Respondent: GEOFFREY (POSSUM) CLARK-UGLE

File Number: MLG 3254 of 2018

Judgment of: Judge Riley

Hearing date: 23 May 2019

Date of Last Submission: 23 May 2019

Delivered at: Melbourne

Delivered on: 23 May 2019

REPRESENTATION

Counsel for the Applicants: Tim Greenway

Solicitors for the Applicants: Shayne Daley & Associates

Advocate for the Respondent: Stephen Byrne

Solicitors for the Respondent: Stephen Peter Byrne, Lawyer

ORDERS

1. The application for review filed on 5 March 2019 be dismissed.

2. The orders made by the registrar on 21 February 2019 be confirmed.

3. The petitioning creditors' costs of the application for review be taxed and paid from the bankrupt estate.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLG 3254 of 2018

AARON CLARK

First Applicant

JEREMY CLARK

Second Applicant

TIM CHATFIELD

Third Applicant

And

GEOFFREY (POSSUM) CLARK-UGLE

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)[1]

[1] Reasons for judgment were given orally on 23 May 2019. The respondent emailed chambers on Sunday 26 May 2019 that he intended to file a notice of appeal. Chambers ordered a transcript of the reasons for judgment on Monday, 27 May 2019 on same day turnaround. Auscript provided the transcript of the reasons for judgment on Thursday 30 May 2019. The reasons for judgment were settled and sent to the applicants and the respondent by email and post on Thursday 30 May 2019.

1. This is an application for review of a sequestration order made by a registrar of this Court. The petitioning creditors are three people, Aaron Clark, Jeremy Clark and Tim Chatfield. The bankrupt is Geoffrey (Possum) Clark-Ugle, who is the father of Aaron and Jeremy.

2. The petitioning creditors obtained a costs order against the bankrupt in the Victorian Court of Appeal. That court awarded costs to the petitioning creditors jointly and severally. A taxation occurred, with the result that the bankrupt was ordered to pay the petitioning creditors costs of $43,969.43.

3. The registrar set out the background to this matter in reasons which have been reduced to writing as follows:

   The act of bankruptcy relied upon by the applicants is non-compliance by the respondent with a bankruptcy notice served upon him on 11 August 2018. The bankruptcy notice referred to a debt of $43,969.43 relating to a judgment obtained by the applicants against the respondent in the Costs Court of the Supreme Court of Victoria on 28 February 2017.

   The dispute between the parties arises from their involvement in the Framlingham Aboriginal Trust (the Trust). The Trust was established by the Aboriginal Lands Act 1970. The respondent was a former Chairman of the Committee of Management of the Trust and the first and third respondents were former Committee members.

   Geoff Clark, the first and second applicants’ father, was the registered shareholder of 2000 shares in the Trust. The second applicant has deposed that his father transferred 1900 of these shares to him in May 2002. The second applicant also claims that in August 2011, he transferred 900 of those shares to the first applicant, his brother. Geoff Clark was declared bankrupt on 1 June 2009 and Daniel Juratowitch was appointed as his trustee in bankruptcy. Mr Juratowitch investigated his purported transfer of shares in 2002 but no proceedings were commenced by him in relation to the transfers under the Bankruptcy Act 1966 (the Act).

   A dispute arose between various parties concerning, among other things, the ownership of shares in the Trust. A settlement deed was entered between the parties to this proceeding on 23 April 2013 in which the parties acknowledged the shareholdings of Geoff Clarke and the first and second applicants subject to any claim by Geoff Clark’s trustee in bankruptcy.

   An annual general meeting of the Trust was held on 16 December 2013 and a new Committee was appointed. The respondent excluded the first and second applicants from the meeting and denied their entitlement to nominate and vote at the meeting as a result of the dispute between them and the trustee in bankruptcy concerning the shares. At the time of this meeting, Mr Juratowitch had not asserted that any of the shares had vested in him under the Act (although his investigations were continuing) and did not purport to exercise the voting rights attached to the shares.

   The applicants commenced proceedings in the Supreme Court of Victoria alleging oppression in relation to the manner in which the respondent and the Trust conducted an annual general meeting on 16 December 2013. On 6 August 2014, Justice Robson held that the first and second applicants were entitled to enjoy the rights attaching to the shares until the trustee had established any claim in relation to them which had not at that stage been pursued. His Honour held that the respondent was not entitled to deny the first and second applicants the right to attend or vote at the meeting on 13 December 2013 and that his conduct in relation to them had been oppressive. Further, Justice Robson found that the Committee appointed at the meeting had not been validly appointed under the Aboriginal Lands Act. On 20 August 2014, Justice Robson declared the purported annual general meeting held on 16 December 2013 to be null and void and appointed Receivers to supervise a fresh election for the members of a new Committee.

   The Receivers convened an annual general meeting on 24 September 2014 but it did not proceed as a quorum was not achieved.

   On 1 October 2014, Justice Sifris ordered that a further annual general meeting be convened and that it proceed even if a quorum was not present.

   A further annual general meeting was convened on 10 November 2014. The meeting proceeded notwithstanding the absence of a quorum and a new Committee was elected.

   On 16 December 2014, Justice Sifris declared that the meeting on 10 November 2014 was valid notwithstanding the absence of a quorum and that the new Committee had been validly elected. His Honour held that the Court had a broad discretionary power under the Aboriginal Lands Act to waive the requirement for a quorum and that the power had been enlivened in the circumstances.

   On 17 March 2016, the Court of Appeal dismissed the respondent’s appeal against the orders of Sifris J made on 16 December 2014 and ordered that the respondent pay the applicants’ costs of the appeal. These costs were taxed by Costs Registrar Deviny in the Costs Court on 28 February 2017 in the sum of $43,969.43. It is the order of the Costs Court which is the foundation for the bankruptcy notice.

   The petition was served upon the respondent on 5 November 2018.

   On 6 December 2018, the first return of the petition, the matter was adjourned to enable the respondent an opportunity to prepare a potential opposition to the petition on the basis of an investigation by Victoria Police into the Trust and also on the basis of solvency.

   On 24 January 2019, the second return of the petition, the respondent’s solicitor Mr Byrne filed a Notice of Opposition and a supporting Affidavit sworn by the respondent. Mr Byrne advised the Court that the first applicant had been charged with various offences by Victoria Police relating to the Trust which, depending on their outcome, may have an impact upon the lawfulness of the transfer of shares from Geoff Clark to the first applicant and the orders which provided the foundation for the bankruptcy notice. Accordingly, Mr Byrne submitted that the petition ought to be adjourned pending the outcome of the criminal proceedings. I adjourned the petition until today to enable the applicants to file any responding material to the Notice of Opposition.

   On 1 February 2019, the Court issued a Subpoena at the request of the respondent directed to a member of Victoria Police seeking production to the Court of documents relating to the criminal proceedings brought against the first and second applicants. The documents are required to be produced to the Court by 4pm today.

   On 15 February 2019, the applicants filed an Affidavit affirmed by the first applicant on 14 February 2019.

   On 18 February 2019, the first applicant filed a Notice of Objection in relation to the Subpoena. The Objection is listed to be heard on 27 February 2019.

   Mr Greenway of counsel appears today for the applicants and Mr Byrne appears for the respondent. The applicants seek to proceed today and obtain a sequestration order against the respondent’s estate. I have considered the Affidavits of Debt and Search filed this afternoon by the applicants.

   Mr Greenway and Mr Byrne are not aware of the precise nature of the charges and whether any of them relate to the transfer of the shares to the first and second applicants. For the purpose of argument today, I am prepared to assume that some of the charges do relate to the share transfer.

   Going behind the judgment

   The Court has a discretion to go behind the judgment providing the foundation for a bankruptcy notice where substantial reason is shown for questioning whether there was in truth and reality a debt due to the creditor: See Wren v Mahony (1972) 126 CLR 212; Ramsay Health Care Australia Pty Ltd v Compton (2017) 345 ALR 534 (Ramsay). Such circumstances would include where there was a prima facie case of fraud or collusion or miscarriage of justice: See Corney v O’Brien (1951) 84 CLR 343.

   …

   Adjournment

   The authorities support the position that in general, the Court should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings where it is satisfied that the appeal is based upon genuine and arguable grounds: See Ahern v DCT (1987) 76 ALR 137 (Ahern).

   There is no appeal on foot against the orders of the Costs Court or any appeal against the orders of the Court of Appeal…

4. The application to review is a hearing de novo. That means that I must consider for myself whether s.52 of the Bankruptcy Act 1966 (“the Act”) is satisfied. Subsection 52(1) of the Act provides that:

   At the hearing of a creditors' 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 satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.

5. There is before the court an affidavit verifying the matters stated in the petition. There is also material proving service of the petition.

6. That leaves the statutory requirement for evidence that the debt on which the petitioning creditor relies is still owing. The petitioning creditors did not bring such an affidavit to court today. They assure the court that they can provide one later today if the court requires it.

7. In addition, the court does not today have before it an affidavit containing a search of the National Insolvency Index. However, previous searches have been provided to the court. The reality is that the bankrupt is presently bankrupt. It is sufficient for me to dispense with the requirement for the affidavit containing a search of the index.

8. Subsection 52(2) of the Act provides that:

   2.If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor: 

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

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

   it may dismiss the petition.

9. The bankrupt relies on s.52(2)(b) of the Act and says that, in this case there is another sufficient cause. The matter first came before me on 11 April 2019. For some reason, on that occasion, there was no appearance by the applicants. The matter was adjourned to 17 May 2019. On that date, the matter was further adjourned until today.

10. The crux of the applicant's argument on 17 May 2019 was that the court should adjourn the creditors' petition pending a criminal investigation into Aaron and Jeremy Clark. It appears that charges have been laid against them for perjury in proceedings in this court. It is said that they falsely claimed that particular shares had been transferred to them. The court pointed out on 17 May 2019 that, if the matter were adjourned pending the outcome of those criminal proceedings, the bankrupt would remain bankrupt while the criminal proceedings ran their course. At that point, the bankrupt said that, rather than being adjourned, the creditors’ petition should be dismissed on the material then before the court. However, it did not seem to me that there was a reasonable basis to dismiss the creditors' petition on that date, and the matter was adjourned until today.

11. The bankrupt asked the court to go behind the judgment on the basis of authorities such as Wren v Mahony (1972) 126 CLR 212, Corney v O’Brien (1951) 84 CLR 343 and Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132. The court on 17 May 2019 discussed with the parties that going behind the judgment would involve conducting a hearing on whether the debt was a true debt, and that such a hearing could probably not occur until after the criminal proceeding had ended, because the civil hearing might interfere in some way with the proper conduct of the criminal proceeding. Again, the bankrupt argued that the court should simply dismiss the creditors' petition and not go behind the judgment in that way. The bankrupt argued that there is sufficient material before the court now to conclude that the debt is not owing in truth in reality.

12. The basic information that is before the court is the fact that there are criminal charges pending against Aaron and Jeremy Clark. The fact that there are charges pending suggests that sufficient material has been put before the police to justify such charges. However, obviously, charges are a long way from a conviction or a finding that Aaron and Jeremy have, in fact, perjured themselves. The police generally lay charges without hearing any defence. The mere fact of charges having been laid does not establish that Aaron and Jeremy Clark did perjure themselves or that their evidence about the share transfer was false.

13. The petitioning creditors' principal argument today was that, even if there was something seriously untoward in relation to Aaron and Jeremy Clark, the fact remains that there is a third petitioning creditor, Tim Chatfield, who was also the third plaintiff in the proceedings in the Supreme Court. The decision of the Court of Appeal, at paragraphs 49 and 50, shows that the issue that Mr Chatfield had raised, namely, whether the elections of the Framlingham Aboriginal Trust (“the Trust”) could not be staggered, was decided in his favour, by Robson J in the Supreme Court.

14. However, it was not Robson J’s decision that gave rise to the costs order that is the subject of the bankruptcy notice in this case. There was a second hearing in the Supreme Court by Sifris J that flowed from Robson J’s judgment. The second hearing dealt with the question of whether there needed to be a quorum for a particular meeting. It was from the judgment of Sifris J that the Court of Appeal heard the matter which resulted in the costs order that is the subject of the bankruptcy notice.

15. In any event, the petitioning creditors' argument is that, even if there were something untoward in relation to Aaron and Jeremy, the decision of the Court of Appeal would still stand in relation to Mr Chatfield, and therefore the costs order to which he is jointly and severally entitled would also still stand. I accept that argument in broad terms. I accept, also, that, in general, fraud unravels everything. However, it does not seem to me that any fraud that Aaron and Jeremy Clark may be found to have committed could have any impact on the issues relating to the staggering of the elections of the Trust.

16. There is an issue about whether the costs order made by the Court of Appeal would have been in the same amount if the only point that had been run in the proceedings in the Court of Appeal was the point run by Mr Chatfield.  However, I do not doubt that Mr Chatfield would have got a costs order of a substantial amount if he had been the only plaintiff in the Court of Appeal. By “substantial amount”, I mean an amount of at least $5,000. That is, I am satisfied that, in truth and reality, the bankrupt would owe Mr Chatfield an amount for the costs of the Court of Appeal proceedings.

17. This brings us to the question of solvency. The bankrupt has asserted that he is able to pay his debts.  He says that he is on a Centrelink allowance and has an income of $282.25 per week, and weekly expenses of $285 per week. As such, his expenses slightly exceed his income.  He also claims that he has an asset of 100 shares in the Trust. He says that they are worth $51,500.  He also says that he has household goods worth $10,000. He acknowledges that there is an allegation that he owes $10,000 to the Trust for rent and $29,000 to the Trust for legal costs in a separate matter.

18. There is also an affidavit from the solicitor for the petitioning creditors containing a communication from a representative of the Trust confirming that those amounts are still outstanding.  

19. When considering solvency, the question is whether a person is able to pay their debts as they fall due or within a reasonable time thereafter.  There is some dispute between the parties about whether the shares in the Trust are able to be sold. They are not shares on the stock market.  There are restrictions on who the shares can be sold to.  They are described by the petitioning creditor as illiquid.

20. I am not persuaded that the applicant has the ability to pay his debts as they fall due, or within a reasonable time thereafter. The debt of $10,000 to the Trust for rent speaks volumes about the bankrupt's financial circumstances. 

21. I am not persuaded that there is another sufficient cause such that the applicant’s bankruptcy should not be confirmed. It seems to me that there would be a substantial costs debt owed to Mr Chatfield by the bankrupt, even if it could be said that the Court of Appeal hearing would have been briefer or less costly if Mr Chatfield had been the only one of the three plaintiffs involved in that case. I am also not satisfied that the applicant is solvent, even if the costs debt the subject of the bankruptcy notice is left out of the calculation.

22. In the circumstances, it seems to me that the appropriate order is to confirm the orders made by the registrar. The orders will not be entered unless and until an affidavit of continuing debt is filed by the applicant.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Riley

Associate: 

Date:  30 May 2019