Commissioner of Taxation v Raymor (NSW) Pty Ltd
[1990] FCA 193
•4 May 1990
IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION
) QLD PET NO. 942 of 1989 BANKRUPTCY DISTRICT OF THE STATE OF ) QUEENSLAND 1
RE: JOHN D. EVANS
Judgment Debtor
EX PARTE: THE HEATHER THEIDEKE GROUP PTY LTD
Petitioning Creditor
MINUTE OF ORDER
JUDGE MAKING ORDER: SPENDER J .
DATE OF ORDER: 4 MAY 1990 WHERE MADE: BRISBANE THE COURT ORDERS THAT:
1. the Court makes a sequestration order against the estate of the debtor, John D. Evans ;
2 . all proceedings under the sequestration order are to be stayed pursuant to S.
5 2 ( 3 ) until 4 p.m. Friday, 18 May 1990; 3. the costs of and incidental to the petition, including reserved costs, except for the costs of 6 February 1990, to be taxed and paid in accordance with the Act;
Bankruptcy Rule 124. 4. the costs of 6 February 1990 to be paid by the petitioning creditor, to be taxed if not agreed.
NOTE : Settleme nt and entry of orders is dealt with by - a - .
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IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION
) QLD PET NO. 942 of 1989 BANKRUPTCY DISTRICT OF THE STATE OF ) QUEENSLAND )
RE: JOHN D. EVANS
Judgment Debtor
EX PARTE: THE HEATHER THEIDEKE: GROUP PTY LTD
Petitioning Creditor
SPENDER J.
BRISBANE
4 May, 1990
REASONS FOR JUDGMENT
This i6 a contested creditor's petition.
The judgment on which it is based and bankruptcy notice No. 443 of 1989, non-compliance with which is the basis of the creditor's petition, have both been the subject of dogged challenge by Mr, Evans but to no avail. An earlier bankruptcy
unsuccessfully challenged before me. The relevant judgment is a notice No. 236 of 1988, based on the same judgment, was also judgment by Williams J. in the Supreme Court of Queensland given on 24 December 1987 in favour of the petitioning creditor against Mr. Evans.
The Notice of Intention to Oppose Petition asserts:
1. That the Judgment relied upon in the creditor's claim for $57,409.70 was obtained by fraud and/or ought otherwise not to be enforced by the exercise of the powers conferred upon this
:
Honourable Court which having regard to the evidence ought to go behind that judgment to determine the issue.
. . . 11
In addition, Mr. Evans says that in all the circumstances there is sufficient cause for this Honourable Court to exercise its discretion under S. 52(2) of the Bankruptcy Act 1966 ("the Act") to dismiss the petition.
Section 52 of the Act provides:
!(l) 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 af f idavi t 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 saiisfied 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."
The certificate of the Registrar issued under r. 22 of the Bankruptcy Rules certifies that the provisions of the Bankruptcy Act 1966 and Bankruptcy Rules have been complied with in all respects (except that at the time of certifying the affidavits of debt and search had yet to be filed).
There are essentially two bases on 'which Mr. Evans contends that a sequestration order ought not to be made pursuant to S. 52(2)(b). The first of these is that he is conducting a successful practice as a solicitor and the making of a sequestration order would prevent him from continuing to earn money in that capacity. The making of an order would, he contends, be counter-productive in those circumstances. Alternatively, Mr. Evans submits that in the conduct of the hearing of the petition, the petitioning creditor has acted in a way that is contemptuous of the court: that also constitutes a sufficient cause for why a sequestration order not to have been made.
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As to Mr. Evansv first gtound of opposition to the making of a sequestration order, that the judgment debt was obtained by fraud, the question is whether the court should go behind the judgment debt as the debtor requests in order to determine the issue. The relevant facts follow.
As above, on 24 December 1987, Williams J. in the
Supreme Court of Queensland gave judgment in favour of the
petitioning creditor against Mr. Evans. That judgment followed a contested trial at which Mr. Evans was represented by both senior and junior counsel. An appeal was launched to the Full Court of the Supreme Court, where Mr. Evans was again represented by senior and junior counsel. It is fair to say that the Full Court of the Supreme Court in a number of respects had some reservations about the case which was presented against Mr. Evans and accepted by the primary judge. In the result, however, while
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making certain criticisms of the reasons of the primary judge, the Full Court dismissed the appeal. The reasons of the Full Court were given by Connolly J., who expressed his reservations in these terms:
"1 must say that this occasions me some concern but at the end of the day I cannot persuade myself that it is a sufficient reason for this Court, which did not have his Honour's advantage in seeing and hearing the critical witnesses, refusing to accept his preference for Mr. Heather, rather than the appellant and Mr. Crisp."
An application for special leave to appeal to the High Court from the Full Court of the Supreme Court of Queensland was unsuccessful.
On 16 May 1989 Mr. Evans brought proceedings before Pincus J. seeking to have bankruptcy notice No. 443 of 1989, non-compliance with which is the basis for the present petition, set aside. The basis of the application by Mr. Evans was that the court may go behind the judgment if there is evidence of fraud, the essence of which was said to be the dishonesty of Mr. Heather, the principal witness for the petitioning creditor, as
Honour, having referred to the principles which apply on such an to Mr. Evans' presence at a meeting on 12 November 1984. His application, including the observations of the High Court in Wren v. Mahoney (1971-1972) 126 C.L.R. 212 and also of the Court of Appeal in In Re Flatau; ex parte Scotch Whiskey Distillers Ltd (1988) 22 Q.B.D. 83 at 85-6, rejected that basis of setting aside
the bankruptcy notice. Pincus J. said of the reasons of the Full Court:
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"They seem to have thought, whether or, not he [the trial judge] was right about the meeting, there was sufficient in the case to support his judgment, or to put it the other way around, there was just sufficient to prevent them from interfering with his Honour's conclusion on the matter of credit."
He later commented:
"I do not see any ground on which I could sensibly
disagree with the views of the Full Court as to the findings of Williams J. although I share their Honoursf unease about the evidence of Heather. I hold that it is only in a very unusual case that a court exercising bankruptcy jurisdiction will go behind a judgment of the Supreme Court, upheld on appeal, concerning matters of credit."
From that judgment Mr. Evans appealed to the Full Court of the Federal Court, constituted by Morling, Hartigan and Lee JJ. For reasons given on 14 August 1989 in the course of dismissing the appeal the Full Court said:
"It is plain from a reading of the whole of his reasons that he recognized that, notwithstanding the appellant's lack of success in the Full Court and the High Court, he [Pincus J.] had a discretion to go behind the judgment if it was proper to do so."
It concluded that Pincus J. was not in error in failing to find
that such a prima facie case was established in that case, and that therefore he had correctly exercised the discretion not to go behind the Supreme Court's judgment. An application for special leave to appeal from the judgment of the Full Court of the Federal Court was made but the application for special leave to appeal was refused by the High Court on 17 November 1989.
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While a court exercising jurisdiction in bankruptcy has discretion to go behind the judgment if it is proper to do so, the full curial history of this matter underlines the difficulty of persuading a court exercising jurisdiction in bankruptcy that in this case it would be proper to do so. Mr. Evans seeks, at the petition stage, to advance the same contentions concerning the judgment as he advanced at his challenge to the bankruptcy notice, and which he pursued to the Full Court of the Federal Court and to the High Court in seeking special leave to appeal.
A detailed consideration of the basis for the invitation
to go behind the judgment and, in particular, an appreciation of the basis on which the Full Court concluded that the appeal to it from the judgment of Williams J. should be unsuccessful, fails to persuade me that it would be in the proper exercise of discretion to go behind the judgment. As such, subject to the bases sought to be advanced as sufficient cause under S. 52(2), there is no reason why a sequestration order ought not be made.
Mr. Evans applied pursuant to S. 30(3) of the Bankruptcy The first was the matter of the meeting on the morning of 12
Act - 1966 to have an enquiry by way of a jury into two issues.
November 1984. The second was the circumstances surrounding a payment of $20,000.00 made by him to Mr. Heather, as commission on the then estimated costs for the first stage of the development project for a retirement village in northern New South Wales, which was the context of the original litigation before Williams J.
Section 30(3) relevantly provides: ', "If in a proceeding before the court under this Act a question of fact arises that a party desires to have tried before a jury, the court may, if it thinks fit, direct the trial of that question to
be had before a jury ..."
In Re Carvill and McKean (1884) 1 Mor. 150, Cave J., when faced with the question of whether that particular bankruptcy action should be tried by a jury, thought the English Bankruptcy Act (1800) intended that the right to jury trial would only be taken away in special circumstances. He pointed out that, prior to the Bankruptcy Act of 1869, a High Court jury trial would have been held as a matter of course.
However, Walker J. in Re Allen (1905) 5 N.S.W.(S.R.) 55
disagreed with Cave J.'s approach, and reversed the test. He felt it was not the usual form of proceeding to have a jury trial of issues in a Bankruptcy Court; rather the normal mode was by judge alone. Hence the court would need to be satisfied of special circumstances where an application for jury trial was opposed.
The debtor presents no new evidence on which he could base his request for a jury trial into the issues he raises. Those matters were the subject of consideration on previous occasions. There must first be a prima facie case for impeaching a judgment before a court exercising jurisdiction in bankruptcy will go behind it. Lord Esher M.R. said in In re Hawkins.
ex parte Troup. 118951 1 Q.B. 404 at 412:
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"It is, therefore, I am of opinion, clear that the Court of Bankruptcy is not bound by a judgment at law, but is entitled to investigate all the facts of the case whenever, but not before, a prima facie case impeaching the judgment is made out. Otherwise a man might defeat all his just creditors by allowing judgment to be taken by default or consent. The principle appears to be that it would be unjust and impolitic to allow a man to be subjected to the pains and penalties of bankruptcy unless it was established that there were grounds for so doing by the existence of a good petitioning creditor's debt, and unjust to the general body of creditors to permit one creditor, by means of a judgment which had no solid foundation, to obtain an undue advantage over them, and obtain payment of his alleged debt in full to their prejudice."
I myself am not satisfied that such a case has been established here. It seems to me wrong therefore to permit an enquiry directed to establishing whether there might be a basis on which such a case existed. A fortiori, when buch an enquiry would involve the disruption necessarily attending the resolution of a question by a jury.
A s I understand the matter, Mr. Evans does not
unequivocally assert that he is able presently to meet his debts
and, in particular, the judgment debt and the interest thereon
him. What he says is that, since April 1988, he has been and the various orders for costs which have been awarded against practising as a solicitor at Nerang and, during the last financial year, this produced a gross income in excess of $113,000.00. He says that he expects his practice to grow and submits it would not be in the best interests of his creditors generally for a sequestration order to be made. There is no evidence before me on which I can conclude how much of his gross
income was net profit nor is there evidence to iuggest the extent
of his realisable assets.In an affidavit filed on 9 October 1989, which sought the adjournment of a hearing until the application for special leave to appeal to the High Court from the judgment of the Full Federal Court was heard, Mr. Evans also sought "time to enable your deponent to present evidence, presently being prepared, of financial and other circumstances which may influence this Honourable Court to exercise its discretion not to grant the creditor's petition herein".
On 10 October 1989, District Registrar Ramsey ordered:
(1)
that the further hearing of the petition be adjourned to 8 November 1989, to be listed for further directions before a judge, if necessary;
( 2 )
the creditor file and serve any further affidavit material on which it intends to rely within ten days of today;
( 3 ) the debtor file and serve any further material upon
which he intends to rely within ten days of today.(4) any affidavits in reply to be filed and served within
seven days thereafter.
On 8 November 1989 the matter was listed by Pincus J.
for hearing on 20 November 1989.
On 19 October 1989 Mr. Evans deposed that from April 1988 till the time of swearing of his affidavit, with his wife's assistance, he had built up a successful practice as a solicitor in Nerang, and he concluded the affidavit by saying:
"I seek leave to supply further information
concerning my current financial affairs should it
be necessary to do so for the purposes of S. 52(2) 1 and 206(l)(b) of the said Act."
At the hearing on 20 November 1989, I heard submissions from Mr. Evans and on behalf of the petitioning creditor in relation to the application under S. 30(3) for issues to be determined by a jury, and also in respect of whether I would go behind the judgment debt given the history of the matter. I indicated at the conclusion of proceedings that morning that I had tentative views in respect of the matters that had been raised.
However, having regard to the - shortness of time available to Mr. Evans from the refusal of special leave, and by way of a concession to him, I directed that any material he wished to rely on in relation to the matter referred to in (inter alia) paragraphs 27 and 28 of the affidavit filed on 19 October 1989, be filed and served by 4 p.m. on the next Thursday. I then said that, in the absence of objection, I would read it in relation to ground 3 of the notice of intention to oppose, - i.e., the ground which relied on S. 52(2). I further said that,
served by 4 p.m. on Tuesday, 28 November. I granted liberty to if there is to be any material in reply, it should be filed and apply on two working daysv notice and indicated that I would consider the matter and, in particular, when that material was filed, I would consider it as well.
Mr. Evans, in response to those directions, filed a further affidavit. This set out many personal details of his work and health history and the efforts in establishing his I solicitorrs practice and his motives in that regard. In particular, he deposed that from 1 July 1989 to 29 November 1989, the gross income of the practice was $52,563.00, an average of $11,405.00 per calendar month, and the average monthly outgoings were itemised. They totalled $7,930.00. He lists personal liabilities, other than those associated with the practice which total $13,650.00, as well as a number of other debts totalling approximately $130,000.00 from family and friends and companies associated therewith, as well as the judgment debt and the various orders for costs, which in the affidavit he estimates the latter to be in the vicinity of $85,000.00.
The gravamen of his most recent affidavit is contained
in paragraph 23:
"In the event that an order be made for the sequestration of my estate I will be unable to continue with the conduct of my legal practice in which I currently have instructions in over 80 different files and the fees payable therein will total not less than $50,000.00."
He also says that an order for sequestration of his estate will
have a detrimental effect on his health. This affidavit was faxed to the registry on 23 November 1989 but was only filed on 6 February 1990. On 16 January 1990, the solicitor for the petitioning creditor sent a letter addressed to my associate, which letter enclosed some submissions. The letter indicated that Mr. Evans objected to the making of those submissions, and concluded:
"Our view is that we are entitled to make submissions on Mr. Evansf affidavit material but by the same token we are happy to inform His Honour of the objection to those submissions."
I caused the matter to be relisted on 6 February 1990,
the first sitting day this year. I told the parties that:
"It seems to me that the directions that I gave in relation to the filing of further affidavit material by Mr. Evans did not cover the question of whether there ought to be given to the client of Messrs. Morris Pletcher & Cross the opportunity of making submissions in respect of that affidavit material. Notwithstanding that, it seems to me that the principle of natural justice should enable submissions to be made concerning that material and it is for that reason that I wanted to have discussed in open court that position."
Then I indicated, speaking to Mr. Evans:
"I think that you are right to say that what I had indicated did not cover the question of submissions and so the objection that is referred to in that letter was probably well taken but, as a matter of principle, I should permit a petitioning creditor to make submissions in respect of evidence that is submitted after the time of their primary submissions have concluded."
Mr. Evans indicated that he would not have objected to had been granted. However, he submitted that the making of a
the material being submitted by Morris Fletcher & Cross if leave
private communication constituted a serious contempt which is a
breach of the court's process. He said:
"I still do not object to that, your Honour, so
long as it is done properly."
Mr. Evans also said that he certainly wished to reply to the material that had been submitted and would like the opportunity
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of doing so. I indicated that I acknowledged! the concern that Mr. Evans had expressed in the correspondence that any suggestion of unilateral submissions ought not be countenanced but, equally, the parties were entitled to the right to be heard. I indicated that I gave leave to the petitioning creditor to make the submissions.
Counsel for the petitioning creditor then relied on a number of cases and, in particular, Re Sarina; ex parte Council of The Shire of Wollondilly (1980) 43 F.L.R. 163 and on appeal at 48 F.L.R. 372. At 376 the Full Court essentially said that the primary objects of bankruptcy proceedings was in effect to avoid preferences, voluntary settlements and fraudulent dispositions of property, so that all the creditors may achieve a fair and rateable division of the bankrupt's property amongst them. They then said that for obvious reasons the Act provided that a debtor should not be made bankrupt if he is able to pay his debts but is unwilling to do so.
M . Evans sought time and I adjourned the further
hearing of the petition until 16 February 1990 so that he mightmake submissions. On that day, Mr. Evans was granted leave to file an affidavit sworn on 15 February 1990. This enclosed a lengthy reply to the creditor's "written submissions". A careful perusal of that reply to the written submissions of the petitioning creditor, the effect of which was that the debtor was unable to pay his debts as they fell due, was primarily addressed to other discretionary bases.
Fundamentally, his position in relation to the discretionary basis of S. 52(2) was directed to the effect of the significance of a sequestration order on the estate of a sole legal practitioner. In particular, he deposed that it would be detrimental to all the debtor's creditors, and not the least to the petitioning creditor, if the debtor solicitor's practice were to be terminated due to the latter's inability on sequestration to conduct a trust account. It was suggested that a Part X arrangement with priority given to the petitioning creditor and to the minor creditors by the majority creditors (the major creditors being essentially the debtor's family and Mr. Crisp), would not interfere with the conduct of his practice and would enable him to become involved in the current opportunities to accumulate funds to meet his liabilities and for his eventual retirement. Furthermore, he said that having regard to his age of 68 years, the court should permit the debtor to do everything in his power to continue in practice and to save his creditors, his family (including his wife and teenage dependant children) and himself from unnecessarily heavy loss.
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On a fair view of the entirety of the material I am not his debts as and when they fall due. The other considerations
satisfied that the debtor has established that he is able to pay
urged by him excite genuine sympathy but I do not think that sufficient cause has been shown why a sequestration order ought not be made on the petition of the petitioning creditor. The position is as expressed in Cain v. Whyte (1932-33) 48 C.L.R.
639, where the High Court unanimously adopted the reasons of the first instance judge, Henchman J.. At pp.645-6 of the C.L.R.
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report, the following extract from Henchman J.'s judgment
appears:
"...I am fully entitled to examine the contention
put forward by Mr. Philp on behalf of the debtor that there is, in the present case, other sufficient cause sufficient to justify the dismissal of this petition. I approach that question with the full appreciation that, prima facie, on proof of the matters mentioned in
sec. 56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order."
This is far from a case of unremunerative trading, but I am not satisfied that sufficient cause has been shown why a sequestration order should not be made.
I certify that this rnd tho 1l-T preceaing pages are a true copy of thc reasons for
judgmcnt heroin of His Honour
Mr. Justice Spender
g c u r ~ ~ ~ s s o c i a t s L..
Dated it4"'my' 1490
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