Dean v Q.U.F. Industries Ltd

[1981] FCA 76

Re: GEOFFREY HARDING DEAN
And: Q.U.F. INDUSTRIES LTD. (1981) 51 FLR 317
No. G5 of 1981
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Deane(1), McGregor(1) and Sheppard(1) JJ.

CATCHWORDS

Bankruptcy - Appeal from Supreme Court of Queensland - Petition against joint debtors - substitution of petitioner under s.49 of the Bankruptcy Act - exercise of discretion - where substituted debt against one debtor only - where substituted debt disputed - where more than six months since the act of bankruptcy.

Bankruptcy Act, 1966: ss.40(1), 44(1)(c), 46 and 49

Bankruptcy - Appeal - Petition against joint debtors - Substitution of petitioner pursuant to s. 49 of Bankruptcy Act 1966 - Exercise of discretion - Party seeking substitution alleged indebtedness of one debtor only - Disputed debt - Substitution sought more than six months after act of bankruptcy - Bankruptcy Act 1966 (Cth), ss. 40 (1), 44 (1) (c), 46, 49.

HEADNOTE

In December 1980 a bankruptcy petition was presented against the appellant and his wife as joint debtors by a creditor. By the return day the creditor's debt had been paid in full and the respondent sought to be substituted as petitioner. The respondent claimed to be a creditor of the appellant alone pursuant to a written guarantee. In July 1980 the respondent had issued a writ against the appellant which had not been served, but a defence had been prepared relying upon a number of defences to the proceedings. An order for substitution of the respondent as petitioner was made.

On appeal.

Held: (1) By s. 49 of the Bankruptcy Act 1966 the court was empowered to permit the respondent to be substituted as petitioner against the appellant notwithstanding the respondent had no claim against the debtors jointly.

(2) A party seeking to be substituted as petitioner need only claim the existence of a debt and is not obliged at that stage to establish the existence of the debt.

Hyams v. Elder Smith Goldsbrough Mort Ltd. (1976), 133 CLR 637, followed.

(3) There is no principle of Australian bankruptcy law or practice which requires that the power to order substitution pursuant to s. 49 of the Bankruptcy Act 1966 is limited to the period within six months of the act of bankruptcy relied upon in the petition. Provided that the debt upon which any sequestration order was sought to be based was in existence at the time of the relevant act of bankruptcy the six-month rule does not apply.

Re Grahame; Ex parte Douglass (1939), 11 ABC 112, referred to.

Re Conomo (1960), 18 ABC 174; Re Peterson; Ex parte Charles Hope Ltd., (1960) QWN 11; Re Amos; Ex parte Australian Factors (Queensland) Ltd. (1965), 7 FLR 86; Re Noble; Ex parte The Bankrupt, (1965) 1 Ch 129; Re Buckley; Ex parte James Hardie & Co. Pty. Ltd. (1976), 27 FLR 496, referred to with approval.

Appeal dismissed with costs.

HEARING

Brisbane, 1981, June 3. #DATE 3:6:1981

APPEAL.

Appeal from an order made by the Supreme Court of Queensland (W. B. Campbell J.), exercising federal jurisdiction in bankruptcy, that the respondent be substituted as petitioning creditor against the appellant in bankruptcy proceedings instituted by a petition presented on 2nd December, 1980.

J. A. Griffin, for the appellant.

G. L. Davies Q.C. and V. F. Green, for the respondent.

Solicitors for the appellant: M. J. Heatherington & Co.

Solicitors for the respondent: Lippiatt & Co.

D. LEVIN

ORDER

Appeal be dismissed with costs.

Appeal dismissed with costs.

JUDGE1

This appeal is from an order made by the Supreme Court of Queensland, exercising Federal jurisdiction in bankruptcy, that the respondent Q.U.F. Industries Limited be substituted as petitioning creditor against the appellant Geoffrey Harding Dean ("the appellant") in bankruptcy proceedings instituted by a petition presented to the Supreme Court on 2 December, 1980. Each of the members of this Court has reached a firm view on the various matters involved in the appeal. In the circumstances, it is preferable that we give our decision immediately rather than take time to formulate our reasons with the added detail and precision that is possible in a reserved judgment.

The petition was originally presented to the Court by A.R.C. Engineering Pty. Limited ("A.R.C.") against the appellant and the appellant's wife, Betty Lorraine Dean, as joint debtors. I shall refer to them both as "the joint debtors". The joint debtors were alleged by the petition to be indebted to A.R.C. in the amount of $3049.07 under a judgment obtained in the District Court of Queensland. The petition alleged that, within six months before its presentation, the joint debtors had committed the following acts of bankruptcy:

(i) That on or about 25 July, 1980, the joint debtors had, in Australia, made a conveyance, transfer, settlement or other disposition of their property which would, if they became bankrupt, be void against the trustee (Bankruptcy Act, 1966, s.40(1)(b)(i));

(ii) That, with intent to defraud or delay their creditors, the joint debtors had, in or about the month of June or July, 1980, departed from their dwelling house and/or departed from their usual place of business and/or otherwise absented themselves (Bankruptcy Act, 1966, s.40(1)(c)(ii) and (iii)); and

(iii) That the joint debtors gave notice in or about July, 1980, to their creditors, the respondent Q.U.F. Industries Limited, that they "had suspended payment of its" (sic) debt (cf. Bankruptcy Act, 1966, s.40(1)(h)).

The return day of the petition was 19 February, 1981. On that day, it came before the Supreme Court (W.B. Campbell J.). The petition had not been served. The joint debtors and A.R.C. were, however, represented by counsel. His Honour was informed that A.R.C.'s debt had been paid in full.

An application was then made on behalf of the respondent Q.U.F. Industries Limited ("the respondent") to be substituted as petitioning creditor. The respondent claimed to be a creditor of the appellant alone (as distinct from a creditor of the joint debtors) in the amount of $13,170.96 being an amount alleged to be owing by the appellant under a written guarantee. A writ claiming that amount with an endorsed statement of claim had been issued out of the Supreme Court of Queensland in July, 1980, but had not been served. The appellant was, however, aware of the writ. Notwithstanding that the writ had not been served, a Defence February, 1981. This Defence claimed that the written form of guarantee was void for uncertainty, was insufficient memoranda for the purposes of s.56 of the Queensland Property Law Act, 1974 and had been discharged by unauthorized alteration made by or on behalf of the respondents. His Honour, after hearing argument, gave an ex tempore judgment and, as has been indicated, ordered that the respondent be substituted as petitioning creditor against the appellant.

Section 49 of the Bankruptcy Act, 1966 ("the Act") provides:
"Where a creditor's petition is not prosecuted with due diligence or where for any other reason the Court considers it proper to do so, the Court may permit to be substituted as petitioner or petitioners another creditor or other creditors to whom the debtor is indebted in the amount required by this Act in the case of a petitioning creditor, and the petition may be proceeded with as if the substituted creditor or creditors had been the petitioning creditor".

Mr. Griffin of counsel who appears for the appellant has, in the course of a careful and helpful argument, attacked the order for substitution on the ground that, in the exercise of his discretion under s.49 of the Act, his Honour should have refused to make the order for the following reasons:

(1) That the debt asserted by the respondent was against one only of the joint debtors;

(2) That, the debt alleged by the respondent to be owing to it was disputed; and

(3) That, having regard to the provisions of s.44 of the Act which require that the act of bankruptcy relied on must be committed within six months before the presentation of the petition, the respondent could not, at the date of the order for substitution, have issued a petition on the grounds asserted in the original petition.

Each of the first and third reasons is advanced on the basis that, because of it, his Honour had no jurisdiction to make the order for substitution which he made and on the further basis that it represents a matter relevant to the exercise of his Honour's discretion under s.49 of the Act. The second reason is advanced on the basis that it is a matter which was relevant to the exercise of his Honour's discretion. We shall consider them in the order in which we have mentioned them.

1. RESPONDENT'S CLAIM IS AGAINST ONE JOINT DEBTOR ONLY

Section 46(1) of the Act provides that a creditor's petition may be presented against two or more joint debtors whether partners or not. Section 46(2) provides that where there are two or more respondents to a creditor's petition, a court may make a sequestration order against one or more of them and dismiss the petition so far as it relates to the other or others. Thus, if a petition is presented against two persons who are alleged to be joint debtors and it appears that the debt is owing by one alone, a sequestration order may be made against that person alone and the petition dismissed against the other.

The presence of s.46 in the Act is to be explained by an intention on the part of the Legislature to overcome the decision in Re Myers ((1932) 5 A.B.C. 128) in which it had been held that a petitioning creditor might not, on one petition, obtain a sequestration order against two or more joint debtors who were not partners (see Re Pepper (1969) 14 F.L.R. 282 at p. 283).

The fact that a bankruptcy petition is presented against two or more debtors jointly does not involve any essential difference, as regards each debtor, in the nature of the bankruptcy proceedings against him. A sequestration order in respect of the estate of the particular debtor can only be made upon proof that a debt in the requisite amount is owed by that debtor, whether jointly or otherwise, and upon proof that that debtor has committed an available act of bankruptcy. The substantial issue between petitioning creditor and particular debtor will be the same regardless of whether the particular debtor is the sole respondent or one of a number of respondent. In this regard, the provisions of s.46 of the Act empowering the presentation of a petition against more than one debtor can properly be described as procedural.

Section 49 empowers the Court to permit substitution, as petitioner or petitioners, of "another creditor or other creditors to whom the debtor is indebted in the amount required by this Act". The section serves a number of important practical purposes. It helps avoid multiplicity of petitions in that it reduces the circumstances in which it is necessary for another creditor to file an independent petition to protect his position against the possibility that the petitioner in a pending petition may be paid out or may otherwise fail to proceed. It gives to other creditors a degree of protection against dilitariness on the part of a petitioner or collusion between petitioner and debtor to defeat or delay other creditors.

Once it is appreciated that the provisions of s.46 of the Act are of a procedural character and do not affect the nature of the issues which are involved between the petitioner and the individual respondent, it is apparent that there is no reason in principle why, in an appropriate case, a creditor whose claim is against one only of two or more respondents should not be substituted, as against that particular respondent, for an original petitioner who had alleged that the respondents were all jointly indebted to him. The provisions of s.49, in their application to a petition against two or more respondents, are plainly open to a distributive construction in the sense that the words "to whom the debtor is indebted" can be read as referring to the relevant debtor and as including, as against the particular debtor or debtors, all or any one or more of them. Such a construction of s.49 is supported by reference to the important practical purposes which the section was intended to serve and should, in our view, be accepted as correct. It follows that, on its proper construction, s.49 authorised his Honour to permit the respondent to be substituted as petitioner against the appellant notwithstanding that the claim of the respondent was against the appellant alone and not against the joint debtors.

2. RESPONDENT'S CLAIM DISPUTED

If there is a genuine dispute between the appellant and the respondent as to whether the appellant is indebted to the respondent, the appropriate order, when the petition comes on for hearing, may be that the petition be dismissed. It was not, however, necessary that his Honour reach any conclusion in that regard on the application for substitution. While it is necessary, as part of an application for substitution, that the person seeking substitution claim the existence of a debt of the requisite amount, it is not necessary that he should actually establish the existence of the debt at that stage.

In Hyam v. Elder Smith Goldsborough Mort Limited ((1976) 133 C.L.R. 637 at p. 639), it was held by the High Court of Australia that an order for substitution did not involve a finding that the respondent was indebted to the substituted petitioner in the requisite amount at the relevant time. Barwick C.J., with whom Gibbs J. and Mason J. agreed said:
"Although a creditor seeking an order of substitution must claim the existence of a debt of the required amount as at the date of the act of bankruptcy, it is not necessary, in my opinion, that that creditor should establish, as part of his application, that his debt was in fact in existence at that time. Of course, if it appears on the face of the material he produces in support of his application that his debt was not in existence at the appropriate time the Court should not order the substitution. McNamara v. Langford, properly understood, decides no more than that. Whether or not the substituted petitioning creditor's debt is sufficient in point of time to support the petition will be decided when the petition is heard".

The fact that the appellant disputed his indebtedness to the respondent was relevant to the question whether substitution should be permitted. His Honour expressly referred to the fact that the appellant had delivered a defence to the claim in his oral reasons for judgment. There is no basis for assuming that his Honour disregarded that circumstance in concluding that an order for substitution should be made.

3. THE RESPONDENT COULD NOT HAVE ISSUED A NEW PETITION ON THE SAME ALLEGED ACTS OF BANKRUPTCY

Section 44(1)(c) requires that the act of bankruptcy upon which a petition is founded be committed within six months before the presentation of the petition. The acts of bankruptcy upon which the petition in the present case was founded were alleged to have been committed prior to August, 1980. Consequently, at the time when substitution was ordered, namely 19 February, 1981, the substituted petitioner could not have presented an original petition founded on those alleged acts of bankruptcy. It is submitted on behalf of the appellant that, in these circumstances, an order for substitution under s.49 could not be, or ought not to have been, made.

There are statements to be found in the judgments in some English decisions which support the appellant's argument. Thus, in In re Maund; Ex parte Maund ((1895) 1 Q.B. 194 at pp. 197-198, Vaughan Williams J. commented as follows on a previous judgment of Cave J.:
"In In re Maugham; Ex parte Maugham (21 Q.B.D. 21), a somewhat similar question to this was raised under s.107, which provides that "where the petitioner does not proceed with due diligence on his petition the Court may substitute as petitioner any other creditor to whom the debtor may be indebted in the amount required by this Act in the case of the petitioning creditor". It is true that in that case, at the time of the application to substitute new names for the names of the original petitioning creditors, the petition had been dismissed; but it is perfectly plain from Cave J's., judgment that he was of opinion that the power ought not to be exercised after the lapse of three months from the date of the act of bankruptcy".
(See, also In re Noble; Ex parte The Bankrupt (1965) 1 Ch. at p. 141 and pp. 144-145; re a Debtor (1970) 1 All E.R. 920).

It is an established principle of bankruptcy law that the debt upon which a sequestration order is based must have been in existence at the time of the relevant act of bankruptcy and this principle has been accepted in the High Court of Australia (see McNamara v. Langford (1931) 45 C.L.R. 267; Hyams v. Elder Smith Goldsborough Mort Ltd. supra, at p. 639). It has not, however, been accepted in Australia that the power to order substitution under s.49 of the 1966 Act or its predecessor in the 1924 Act (s.35) is or was limited to the period within six months of the act of bankruptcy relied upon in the petition. In our view, notwithstanding the great respect which must be accorded to the English authorities, such a limitation of the provisions of s.49 is neither necessitated by any basic principle of bankruptcy law nor warranted by any principle of statutory construction.

At the time the provisions of s.49 of the Bankruptcy Act, 1966 were enacted, the established practice in the Australian Courts was to allow substitution more than six months after the commission of the act of bankruptcy upon which the petition was based. In Re Graham; Ex parte Douglass ((1939) 11 A.B.C. 112), Long Innes J. pointed out that the actual decisions in In re Maugham (supra) and in Re Maund (supra) could be explained on grounds other than that the relevant period had elapsed since the date of the alleged act of bankruptcy. In re Conomo ((1960) A.L.R. 742), Clyne J. held that, under s.35 of the Australian Act of 1924, the Court had power to substitute a petitioner notwithstanding that more than six months had elapsed since the date of the act of bankruptcy on which the petition was founded. His Honour's decision in that regard was followed in Re Peterson ((1960) Q.W.N. 11) and Re Amos ((1965) 7 F.L.R. 86). It is relevant to mention that in Re Amos (supra), Lucas J. considered whether he should decline to follow the established Australian practice of allowing substitution notwithstanding that more than six months had elapsed since the date of the act of bankruptcy in the light of the views expressed by the members of the Court of Appeal in Re Noble (supra). His Honour concluded that he should not.

In the view we take, s.49 of the Act should be construed in accordance with the established construction which had been given in Australian courts to the corresponding provisions of s.35 of the 1924 Act. It follows that we are of the view that his Honour was entitled to order substitution notwithstanding the fact that more than six months had expired since the date of the alleged acts of bankruptcy. We note that our conclusion, in that regard, is supported by the comments of Riley J. in Re Buckley ((1976) 27 F.L.R. 496 at p. 510).

CONCLUSION

In the result, it has not been shown that there was any substantive ground which precluded W.B. Campbell J. from making the order for substitution which he made. Nor has any ground been shown for interfering with the exercise by his Honour of the discretion to permit substitution which s.49 conferred upon him. It has not been demonstrated that his Honour paid regard to irrelevant matters or disregarded relevant matters. Nor has it been shown that the exercise of his Honour's discretion miscarried for any other reason.

The appeal should be dismissed with costs.