Deputy Commissioner of Taxation v Perpetual Nominees Limited
[2013] FCCA 930
•29 July 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v PERPETUAL NOMINEES LIMITED | [2013] FCCA 930 |
| Catchwords: BANKRUPTCY – Creditors – application by third party to have creditor’s petition dismissed – where third party is the petitioning creditor in another matter against second respondent – where the matter has been adjourned nine times previously – where applicant aware of third party’s own petition – where applicant alleges that first and second respondent joint guarantors of debt owed to it – where third party present at each return date – where third party not a supporting creditor – where applicant a supporting creditor to third party’s petition – where third party made no application in present matter prior to current application – where applicant and third party engaged in correspondence in order to simplify positions but failed to do so – where those discussions included an offer that the applicant be substituted under s.49 of the Bankruptcy Act1966 (Cth) into the third party’s proceedings – whether applicant’s debt in existence at time of act of bankruptcy in third party’s petition – whether applicant entitled to be substituted – where substitution would result in two proceedings involving common questions of fact – where second respondent required to defend two proceedings – whether petition an abuse of process. |
| Legislation: Federal Circuit Court of Australia (Bankruptcy) Rules 2006 |
| Beneficial Finance Corp Limited v East Coast Printed Circuits Pty Ltd 7 ACSR 79 Commonwealth of Australia v Emanuel Projects Pty Ltd and Others [1996] 21 ACSR 36 Dewina Trading SDN BHD v Ion International Pty Ltd (1996) 141 ALR 317 Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 Gwenian Pty Ltd v Webb [2011] FMCA 903 Totev v Sfar (2006) 230 ALR 23 |
| Applicant: | DEPUTY COMMISSINER OF TAXATION |
| Respondent: | PERPETUAL NOMINEES LIMITED (ACN 000 733 700) |
| File Number: | SYG 83 of 2013 |
| Judgment of: | Judge Raphael |
| Hearing date: | 16 July 2013 |
| Date of Last Submission: | 16 July 2013 |
| Delivered at: | Sydney |
| Delivered on: | 29 July 2013 |
REPRESENTATION
| Counsel for the Applicant: | Ms S Foda |
| Solicitors for the Applicant: | ATO Legal Services |
| Counsel for the Respondent: | Mr A Zahra |
| Solicitors for the Respondent: | HWL Ebsworth |
ORDERS
Application of the Deputy Commissioner of Taxation dismissed.
Deputy Commissioner of Taxation to pay the Respondent to the motion Perpetual Nominees Limited’s costs, such costs to be taxed if not agreed pursuant to the Federal Circuit Court of Australia (Bankruptcy) Rules 2006.
Order 2 of these orders be stayed for a period of 14 days provided the Commissioner files and serves any affidavit within 7 days and the Respondent files and serves any affidavit within 7 days thereafter.
Petition in matter SYG83/2013 adjourned to 26 August 2013 for mention.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 83 of 2013
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| PERPETUAL NOMINEES LIMITED (ACN 000 733 700) |
Respondent
REASONS FOR JUDGMENT
Introduction
The issue to be determined by this application is whether the court should permit a second bankruptcy petition to remain on foot against Mr Barry Toomey QC who is the respondent to an earlier petition presented by the Deputy Commissioner of Taxation[1]. In order to appreciate the dilemma facing the court it is well to rehearse the history of the proceedings.
[1] “DCT”
On 12 July 2011 the DCT obtained judgment against the respondent debtor in the Supreme Court of New South Wales for the sum of $1,308,617.10. On 16 September 2011 the DCT issued a bankruptcy notice against Mr Toomey requiring payment of the judgment debt within twenty-one days. Payment was not made and a petition was issued on 13 April 2012. The proceedings were numbered SYG815/2012. The petition was served personally on the debtor on 24 April 2012.
The matter cannot be said to have proceeded with expedition. It first came before the court on 18 May 2012 and has been adjourned on nine occasions since that date. The adjournments required an extension of the life of the petition which will now expire on 12 April 2014. It is not necessary to go into any detail upon the reasons for these adjournments, suffice to say that Mr Toomey is now claiming that after certain tax returns are considered, far from the DCT being owed money, he would be entitled to a very substantial refund. The adjournments themselves were dealt with by the Registrar from which it would appear that any resistance to them by the DCT was minimal for otherwise they would have been referred to a Judge for determination either at first instance or on review.
On 17 January 2013 Perpetual Nominees Limited[2] commenced proceedings against Mr Toomey and Mr Ronald Pantlin by presenting a creditors petition which was numbered SYG 83/2013. There is no suggestion that there was any reason for Perpetual to be unaware of the existence of the DCT petition at the time of presentation of its own. There are available procedures for searching the court records to discover whether or not bankruptcy action has been commenced against a particular debtor. Indeed, in an affidavit of Michael Jonathan Bridge sworn on 2 July 2013 he states:
“3”On 10 January 2013, I conducted a search of the online “Federal Law Search” database for any applications made in relation to the First and Second Respondent Debtors. The search indicated that at that time the Second Respondent Debtor was the subject of a Creditor’s Petition filed with the Federal Circuit Court of Australia on 13 April 2012 by the Deputy Commissioner of Taxation (“DCT”) and that the Petition had been adjourned five times. Annexed and marked “B” is a copy of a more up to date search of the “Federal law Search” database referable to Barry Toomey dated 28 June 2013.
[2] “Perpetual”
Petitions may be issued against more than one debtor pursuant to s.46 of the Bankruptcy Act 1966 (Cth)[3]:
[3] “Act”
“46 Petition against 2 or more joint debtors
(1) A creditor's petition may be presented against 2 or more joint debtors, whether partners or not.
(2) Where there are 2 or more respondents to a creditor's petition, the Court may make a sequestration order against one or more of them and dismiss the petition in so far as it relates to the other or others.”
It is alleged by Perpetual that Mr Toomey and Mr Pantlin are joint guarantors of the debt of a company known as “Woodford Industrial Park Pty Limited”.
The first return date of Perpetual’s petition was 26 February 2013. The DCT had been informed by a third party of the hearing and attended as it has on every subsequent return date. However, up until the present proceeding no application was made by the DCT to dismiss, discontinue or stay the second petition. The present position is that Perpetual is a supporting creditor in the first petition but the DCT is not a supporting creditor in the second. The current application by the DCT seeks a number of orders, these are:
“1.In proceedings SYG83/2013 the petition in relation to Mr Toomey be dismissed.
2.Perpetual Nominees Ltd pay all costs incurred by Mr Toomey in relation to proceedings SYG 83/2013.
3.Perpetual Nominees Ltd pay the costs of the Applicant on the motion in relation to the motion and the proceedings generally.
4.The Court makes no order as to costs incurred by Perpetual Nominees Ltd in relation to proceedings SYG 83/2013 referable to Mr Toomey and/or this motion, such that Perpetual Nominees Ltd pay its own costs.
5.That pursuant to Part 34 rule 34.106 of the Federal Court Rules 2011, the Court grants the Applicant on the motion, leave to withdraw, as a party, from proceedings SYG 83/2013.
6.Any further order the Court deems fit.”
7.The Court notes these orders do not effect the application brought by Perpetual Nominees Ltd in relation to Mr Pantlin.”
During the course of the hearing I was taken to certain correspondence between the parties annexed to the affidavit of Mr Bridge. My consideration of that correspondence was objected to by the DCT but I made a finding that it did not constitute “without prejudice” correspondence and it is capable of being taken into account. Possibly as a result of that decision there was tendered to me an email from the DCT to the solicitors for Perpetual dated 11 July 2013. The correspondence reveals that as early as the first directions hearing the DCT was maintaining that the proceedings brought by Perpetual constituted an abuse of process. This was denied by Perpetual which noted that the petition had been presented against two people, one of whom was not the subject of the petition brought by the DCT. Perpetual’s solicitors also noted that the DCT’s petition had been presented and adjourned six times as at 27 March 2013. The letter of 27 March also states in its final paragraph:
“If the DCT does not proceed to the hearing of his petition which is before the Court today, 27 March 2013 or shortly afterwards (noting that our client’s petition is returnable on Monday, 15 April 2013) then we may be instructed to make an application for our client pursuant to section 49 of the Act to be substituted as creditor on the basis that the DCT has not prosecuted its petition with due diligence.”
On 21 May 2013 the DCT wrote to Perpetual’s solicitors inter alia:
“2.We note in the telephone conversation you advised that you would seek instructions from your client and advise whether your client will consent to a stay, dismissal or discontinuance of its Creditor’s Petition to the extent that it relates to Mr Toomey such that the DCT’s Creditor’s Petition against Mr Toomey is determined first in time.”
The letter was responded to on 21 May 2013. That letter states:
“Dear Ms Law
We refer to our letter dated 29 May 2013.
We are in receipt of our client’s instructions concerning your letter dated 21 May 2013.
We are instructed that our client will not consent to the stay, dismissal or discontinuance of its Creditor’s Petition against Mr Toomey.
However, we are instructed that our client is prepared to provide an undertaking to DCT that it will not take any steps or move on its Creditor’s Petition to the extent that it relates to Mr Toomey until the earlier of the determination of DCT’s Creditor’s Petition against Mr Toomey or 12 December 2013, whichever occurs first (“Undertaking”).
Our client’s preparedness to provide the Undertaking is conditional on the following:
1.DCT agrees to notify our client within 24 hours of a scheduled return date of DCT’s Petition as to the manner in which the DCT will proceed on that date.
2.DCT agrees to notify our client within 24 hours after a scheduled return date of DCT’s petition as to the outcome of the return date.
3.DCT agrees to consent to any order sought by our client to extend the life of our client’s Creditor’s Petition.
4.The acceptance of Mr Pantlin of equivalent conditions on the provision of the Undertaking. For the sake of simplicity an consistency, our client intends to provide an undertaking to the same effect as that above to Mr Pantlin.
Please let us know by 4.00p.m. this Friday, 14 June 2013 if DCT will accept the Undertaking and conditions 1 to 3 above. We will let you know the position of Mr Pantlin concerning the undertaking once it is known.
We await your reply.
David Richardson”
On 14 June 2013 the letter was responded to:
“Dear Madam
1.We refer to the above proceedings and to your letter dated 13 June 2013.
2.We do not accept your proposal. As we have clearly stated by way of oral submissions and in writing, the DCT maintains that his Creditor’s Petition should be heard first. Your proposal that from 12 December 2013 your client has the opportunity to firstly seek to have its application heard first and secondly to incur costs while our Creditor’s Petition remains on foot is unacceptable.
3.We propose the following orders be made within Proceedings No SYG83 of 2013:
(i)Proceedings No. SYG83 of 2013 in relation to Barry Michael Joseph Toomey, the Second Respondent only, be stayed until the final determination of Proceedings No SYG815 of 2012.
(ii)Liberty to restore on 3 days notice.
4.As you would be aware, your client is now a party within Proceedings No SYG815 of 2012. Therefore, as a party your client will be privy to all of the developments of these proceedings without the need for further undertakings from the DCT as you have suggested.
5.If necessary and appropriate the DCT will consent to an order sought by your client to extend the life of its Creditor’s Petition.
6.Noting Mr Pantlin and Mr Toomey are separate independent parties, Mr Pantlin’s position in relation to this proposal is irrelevant. Whether your client intends to progress its application in relation to Mr Pantlin is a matter for your client.
7.In addition, we put you on notice that the DCT reserves his position to take issue with the costs incurred by both your client and Mr Toomey arising from your client commencing and maintaining its application after the DCT had commenced his application.
8. We look forward to hearing from you.
…
Grahame Tanna”
On 24 June 2013 Perpetual’s solicitors wrote further to the DCT:
“Dear Colleagues
We refer to the letter of Ms Lisa Zhou dated 14 June 2013.
For all the reasons previously set out in our letter dated 27 March and submitted by Mr Andrew Zahra of Counsel for our client before the Court, we are instructed to decline the proposal outlined in Ms Zhou’s letter. There is no basis for a stay of our client’s Petition. There is no relevant abuse as appears to have been conceded to the Court by the DCT’s Counsel.
There is no utility in the application proposed by the DCT particularly in light of the undertaking offered by our client which was given as a genuine attempt to avoid unnecessary waste of costs. The approach by DCT is surprising, particularly given its model litigant status.
The proposal outlined in our letter dated 13 June 2013 remains open for acceptance by DCT.
Should DCT proceed to apply for a stay of our client’s Creditor’s Petition, please note that our client will be seeking its costs against DCT on an indemnity basis. It will also seek an order that such costs be paid forthwith.
David Richardson”
Finally, the email of 11 July 2013 sent by the DCT to Perpetual’s solicitors is in the following form:
“Dear Ms Talakovski
We refer to the above matter. Without admission we propose the following orders by consent:
In relation to proceedings SYG 815 of 2012.
1.Pursuant to section 49 of the Bankruptcy Act 1966 (Cth) Perpetual Nominees Limited be substituted as the petitioning creditor.
2.The costs of the Deputy Commissioner of Taxation be reserved to be determined at the conclusion of the substantive application.
3.Liberty to restore on 2 days notice.
The Court notes that the Deputy Commissioner of Taxation will continue as a supporting creditor.
In relation to proceedings SYG 83 of 2013:
1.The petition in relation to Barry Michael Joseph Toomey be dismissed.
2.The balance of the Deputy Commissioner of Taxation’s Interlocutory Application filed on 27 June 2013 be stood over until after the conclusion of proceedings SYG 815 of 2012.
3.Liberty to restore on 2 days notice.
These orders are proposed on the basis that your client prosecutes the Creditor’s Petition within proceedings SYG 815 of 2012 with due diligence.
We kindly request your response to the above offer by 4.00p.m. Thursday 11 July 2013.
Regards
Christopher Lee”
Discussion
The DCT’s position is that the presentation of the second petition and its continuation in existence is an abuse of process. In support of this proposition it draws from what fell from Young J, as he then was, in Beneficial Finance Corp Limited v East Coast Printed Circuits Pty Ltd 7 ACSR 79[4]. In that case a provisional liquidator had been appointed to a company upon its own summons to wind up and was proceeding to deal with the company’s affairs by way of proposing a scheme of arrangement. A creditor, who was aware of the appointment but who did not wish to be involved with the scheme, filed a winding up summons approximately six months later. The company moved to have the summons dismissed as an abuse of process. Young J pointed out firstly that the second creditor had not complied with the provisions of s.471(2) of the Corporations Law which required that after a provisional liquidator had been appointed no proceedings could be commenced against the company without leave of the court. He went on to say:
“Generally speaking, it is an abuse of process to have two claims before the court for the same relief. That principle is usually associated with the same person bringing more than one claim, but it seems to me that when one has a class right, such as the right to wind up a company for insolvency, it applies where there are two quasi representative actions to bring about the same result. Certainly over the years this court has never encouraged more than one petition and, indeed, the practice is that solicitors, before they file a summons for winding up, should search to see whether there is an existing summons on file. If there is, the new summons should not be filed, but the solicitor should attend on the return date of the process that is already before the court, watch carefully those proceedings and seek to be substituted if some “deal” is done with the petitioning creditor, or if otherwise the petition looks like it is going to fail.
In the present case there is no purpose at all in having a second summons to wind up on file. The company is clearly insolvent, if the evidence on the final hearing remains the same as it is at the moment, and either the scheme will be approved by the creditors or there will be a winding up. The present plaintiff will be fully aware as to the date on which the winding up summons already on file will be before the court. It is quite clear that its debt existed at the time when the company filed its own summons and there would be no bar at all for it to seek substitution should the directors seek to withdraw from the proceedings.
Accordingly, the only effect that this second summons, which was filed without leave, can have is to embarrass the creditors meeting, and it seems to me it is an abuse of process and these proceedings must be dismissed with costs against the plaintiff.”
[4] “Beneficial Finance”
His Honour’s views were echoed by Branson J of the Federal Court in Commonwealth of Australia v Emanuel Projects Pty Ltd and Others [1996] 21 ACSR 36. In that case orders for winding up and appointment of a liquidator had previously been made by a Judge of the Federal Court on 30 August 1995 although special leave to appeal against part of the orders of the Full Court on appeal was granted by the High Court. The application before her Honour sought leave pursuant to s.471B of the Corporations Law to proceed to obtain further orders winding up the respondent companies in insolvency. At [40] her Honour quoted the above passage from Beneficial Finance and then stated:
“I endorse his Honour’s remarks, and point out that it would be, in my view, an even more obvious abuse of process to apply to a court for relief already granted by an order of the court in full force and effect.”
In Dewina Trading SDN BHD v Ion International Pty Ltd (1996) 141 ALR 317 an application came before Moore J for the winding up of Ion International Pty Ltd. The matter was disputed and his Honour reserved his judgment. Before that Judgment was delivered a Registrar of the Supreme Court of New South Wales made an order winding up the respondent on the application of a third party. Moore J then brought the matter back before him for consideration of the current situation, i.e. the situation in which a winding up order had already been made prior to him coming to his decision on the first application:
“I invited counsel for Dewina to provide written submissions dealing with both my power to follow that course and why, if power existed, such an order should be made.”
His Honour noted that a second order winding up a company under the Corporations Law was unusual if not unprecedented. He made reference to some cases apparently supporting the making of such an order but then stated:
“However, the power of this court, and the manner in which it should be exercised, must be determined by reference to the legislative scheme embodied in the Corporations Law. The power to make an order winding up a company is plainly a discretionary one: see s 459A and, in particular, s 467(1)(a). Ordinarily a situation would not arise, once a court made an order winding up a company, in which another application could be pursued for the same purpose. The prosecution of the other proceedings would be prevented, subject to the grant of leave, by s 471B. In the present case, however, I had reserved judgment before the order was made in the Supreme Court of New South Wales.
The legislative scheme in the Corporations Law for the winding up of companies contemplates that any order made by a court inures for the benefit of not only the creditor making the application but for all creditors: see s 471(1). This suggests that the legislative scheme contemplates the making of only one order benefiting all creditors. Moreover, the scheme contemplates the appointment of a liquidator (see s 472), who then takes into his or her custody or control the company's property (see s 474), and thereafter causes the company's property to be collected and applied in discharging the company's liabilities: see s 478.
It is inconsistent with that scheme that two orders might be made winding up a company with the consequential appointment of two liquidators.”
All three of these cases share common factors. The first is that they are all brought under the Corporations legislation and not the Bankruptcy Act 1966 (Cth). Given the close ties between those two pieces of legislation this might not be important and it is certainly the case that the authorities show a clear mutual reliance on decisions in both jurisdictions. The second similarity is that in each case the matters have proceeded to finality (or in the case of Beneficial) almost finality by the appointment of a liquidator and the making of a winding up order. In Beneficial there was an appointment of a provisional liquidator. It could also be said that in all three cases the existence of the abuse was taken as a given and there was no analysis of what constituted it other than the existence of the second application.
The High Court considered in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589[5] the situation in which whilst a petition for a sequestration order by the DCT against Mr Clyne was being considered by appellate courts Mr Clyne presented his own petition by force of s.55(3) of the Act and whereupon became bankrupt. The DCT proceeded with its petition and orders were made by Beaumont J that were slightly amended by the Full Bench of the Federal Court making a second sequestration order deemed to have been made the day prior to the acceptance of the creditor’s petition. The High Court set aside those orders indicating that the Federal Court had no power to make a second sequestration order because the debt upon which the order was made had been substituted by a right to prove against the estate which had become vested in the trustee [at 594]. Thus there was no debt owing for which a petition could be presented. The court also held:
“The court has, in our opinion, no power to backdate a sequestration order to make it take effect either before, or contemporaneously with, the commencement of the bankruptcy resulting from the acceptance of the debtor’s petition.” [597]
[5] “Clyne”
The court then turned to consider whether or not the action of Mr Clyne in presenting his own petition had been an abuse of process so that it or another court might be able to say that it was a petition that should not have been accepted under s.154(1) of the Act. It concluded that it was because Mr Clyne had utilised the debtor’s petition procedure in order to abbreviate the relation back period finding:
“It is a purpose foreign to the bankruptcy laws, and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him.”
A situation more similar to the instant case was considered by Smith FM in Gwenian Pty Ltd v Webb [2011] FMCA 903[6]. In that case a creditor’s petition was filed on 5 May 2011 in Melbourne by Gwenian Pty Ltd. A sequestration order was made on 28 June 2011 by a Registrar. The respondent debtor made an application under s.104 of the Federal Magistrates Act 1999 for review of that order two weeks before an appointed hearing before a bankruptcy Judge of two other petitions against the debtor which had been filed in Sydney prior to the Gwenian petition. His Honour listed all three matters together. At [6] in his introduction the Judge said:
“[6]A second important lesson arising from the Gwenian petition, is to emphasise the public and general interests involved in the presentation of a creditor’s petition in bankruptcy. The Bankruptcy Act reflects a policy that only one petition should be actively pursued against a debtor at any one time. The provisions of the Act show clearly that a first filed outstanding petition should normally be brought to finality first, and that other creditors who will be able to prove in any resultant bankruptcy should normally await the outcome, or rely upon their right to apply to be substituted as petitioner in that proceeding. They can file another petition, but are at risk of never recovering their costs if the outstanding petition succeeds. Insolvency practitioners must be aware that a creditor’s petition is not just another example of debt recovery, in which creditors are free to steal the march from other creditors by a clever use of competing court processes. It is Gwenian’s failure to appreciate some elementary points of good bankruptcy practice, which results in it incurring unrecoverable legal expenses in the present case.”
[6] “Gwenian”
In a section of his decision entitled “abuse of process” [37 – 58] his Honour acknowledged that it was well established that the presentation of a creditor’s petition in circumstances that constituted an abuse of process may provide “other sufficient cause for dismissing the petition” under s.52(2)(b) of the Act. He made particular reference to the views expressed by Allsop J as he then was in Totev v Sfar (2006) 230 ALR 23 that:
“Central is the requirement that the party who has instituted proceedings has done so for a purpose, or to effect an object, beyond that which the legal process offers.”
His Honour found that the filing of the petition for the purposes of recovering the indebtedness alleged in the petition was consistent with the use of the process as a legitimate recovery option rather than indicative of an entirely illegitimate motive. He required to be satisfied that Gwenian, the later petitioner, had no intention of in fact making Mr Webb bankrupt. He found that at all times this was the sole purpose of Gwenian. He noted that the debtor’s counsel relied on the fact of bringing the petition and obtaining the order in circumstances where two other applications already existed and that this was oppressive to the debtor and contrary to the usually recognised procedures in bankruptcy matters. That in itself, he believed, would allow the presentation and pursuit of the petition to be characterised as an abuse of process:
“[42]Counsel for Mr Webb developed this ground by reference to the important feature of a creditor’s petition, in that it concerns the general interests of creditors and the public in relation to a debtor’s alleged insolvency, and is not only a remedy to assist a particular creditor to effect maximum recovery of a particular indebtedness. This feature supports the proposition that a later petition brought by a creditor who could have applied under s 49 should normally not be given priority over an outstanding earlier petition, particularly if the ensuing bankruptcy would prevent the debtor’s creditors from benefitting from an earlier relation back period.”
Smith FM came to the conclusion that the Registrar should have acceded to the application made by one of the other creditors who had commenced proceedings for the Gwenian petition to be transferred to Sydney for case management in the context of the imminent hearing before him.
Smith FM’s closing remarks in relation to the abuse issue in a case which has strong similarities with the one before me are worth setting out in full:
[56] Counsel for Mr Webb did not contend, correctly in my opinion, that it is an implication of s 49 or any other provision of the Act that a second petition is invalid when filed, or should summarily be dismissed under s 52(2) in all cases, if there was in existence at the time when it was filed, or is in existence at the hearing of the petition, a pending petition which would give the creditor the same remedy as is sought in the new petition.
[57]In the absence of such an implication, in my opinion, the Bankruptcy Act leaves to the bankruptcy court’s procedural discretions the manner in which it deals with a second petition. The principles which I have discussed above suggest that the second petitioner takes a clear risk, even probability, that the court will usually defer consideration of the second petition until the first petition has been disposed of. The second petitioner must anticipate that the court will normally allow the first petition to proceed first, both because it is likely to carry the earliest relation-back date and for that reason be most in the interests of creditors generally, and because allowing the first petition to proceed must usually be in the general interests of justice for an orderly case-management of duplicate proceedings. The second petitioner must also anticipate that if a sequestration order is made on a pending petition with priority, then the second petition must be dismissed and its petitioner cannot expect its costs to be paid from the bankrupt’s estate or otherwise by the debtor.
[58]I have sympathy with Mr Webb’s complaints that the filing of the third petition in the present case was oppressive to him and to his creditors generally, particularly in circumstances where Gwenian had full knowledge of the circumstances of the pending earlier petition and had intervened to support it. However, ultimately, I have concluded that these are complaints about procedure, which are appropriately remedied by the exercise of discretions available to me on review of the Registrar’s decision, short of the dismissal of the petition for discretionary reasons under s 52(2) of the Bankruptcy Act. In my opinion, the proper response to them is to recognise that Gwenian’s petition should not on 28 June 2011 have been permitted to proceed in priority to the earlier petitions, rather than to characterise the petition itself as an abuse of Gwenian’s remedies under Part IV of the Bankruptcy Act, and to refuse to exercise my de novo power to make a sequestration order on that petition in the light of the current situation.” [emphasis added]
His Honour’s decision was thoroughgoing and considered. His Honour would not appear to have been referred to the series of Corporations Law cases that I have discussed but I am of the view that they can be distinguished from the instant case not only by the fact that they refer to a different piece of legislation but also because in each of those cases the winding up orders were sought in circumstances where one already existed or where the company was under a process almost identical to it being in liquidation. The High Court in Clyne also dealt with a situation where a sequestration order had been made. This is not that case. There is no sequestration order against Mr Toomey. There are two petitions on foot. The first has been the subject of court proceedings for well over a year and it has still not been resolved some time after the presentation of the second petition. I have heard nothing that would indicate to me that a finding of an abuse of process should be made based upon the situation at the time the petition was presented. I would endorse the views expressed by Smith FM and set out in extenso in these reasons. Parties should be discouraged from issuing further process where a petition is already on foot. If they have concerns they should consider the operation of s.49. If they do present petitions then they should be well aware that they may be condemned in the costs should those petitions not proceed because an earlier petition has. But I would respectfully follow the view expressed by his Honour, which I do not consider to be clearly wrong, that there is no prohibition on issuing a second petition such that it must automatically be dismissed. The question I must ask myself, however, is whether any subsequent action on the part of the parties does render what I have found not be an abuse into an abuse.
An examination of the correspondence between the parties that has been extracted in these reasons reveals efforts being made on the part of the Commissioner to ensure that his petition was heard first. The two possible reasons for this, the advantage of the earlier relation back date and the protection of the Commissioner’s costs are both appropriate matters for concern and reveal no abuse. Perpetual’s response refusing to concede the abandonment of their application against Mr Toomey but offering to keep the proceedings in abeyance whilst the Commission moved with reasonable expedition also seems not unreasonable. I note that the first reaction of Perpetual was to ask to be substituted under s.49 but this was not a welcome prospect to the Commissioner. However, on 11 July that is exactly what the Commissioner proposed. Perpetual at this time declined to accept the offer. When I raised this with Perpetual’s Counsel he told me that there were good reasons for this. Firstly, the offer itself required a response the same day as it was sent. Counsel submitted that the offer had only been open for one hour and 58 minutes which was an unreasonable length of time. The Commissioner countered with the fact that there was no time limit on the offer, only a request that it be responded to the same day. The second matter raised by Perpetual was that Mr Toomey had not been asked whether or not he consented to the substitution which meant that there was a possibility that it would involve a disputed hearing. The third matter was perhaps the most serious. In its discussion of substitution under s.49 the Service says:
“A substituted petitioning creditor stands in the shoes of the original petitioning creditor and the petition proceeds as though the substituted petitioning creditor had always been the petitioning creditor. The original act of bankruptcy is relied upon. To satisfy the requirements of s.4(1) of the Act the substituted creditor’s debt must accordingly have been in existence liquidated and owing at the time of commission of the act of bankruptcy alleged in the petition. Though the substituted creditor need not necessarily hold a judgment in respect of the debt: McNamara v Langford (1931) 45 CLR 267; Dean v QUF Industries Ltd (1981) 51 FLR 317 at 332; Re Devy; Ex parte BBC Hardware Ltd (1996) 67 FCR 355; Howell v Rose [2002] FCA 1196 at [28].”
The act of bankruptcy alleged by the Commissioner took place on 17 October 2011. The Judgment that Perpetual relies upon as the basis of its bankruptcy notice in its case is dated 21 August 2012. The proceedings had been commenced by Perpetual on 15 December 2011. There is some evidence that a notice of demand may have been made against the guarantor debtors on 16 August 2011 that required payment within thirty days[7]. I have not seen this notice of demand so I must accept the submission made on behalf of Perpetual that I cannot be satisfied that there exists an entitlement to be substituted at this stage. Perpetual submitted that the current petition is against joint debtors so that a substitution would mean that it would still be fighting two petitions in which the opposition was the same. There would thus exist a multiplicity of proceedings involving common questions.
[7] “Annexure “D” to Affidavit of K McDonald filed 25 February 2013”
These matters should be taken into account in considering whether or not it could be said that after receipt of the email offering substitution by the DCT, Perpetual acted in a way that could be classed as an abuse of process. The Court is not being asked to make a substitution under s.49. In my view, given the matters set out, it could not be said that Perpetual acted in a manner that could be classed as an abuse. There are sufficient concerns around the offer and the possibility of substituting to negate such a finding.
The Commissioner argues that one indicator of an abuse of process is the fact that Mr Toomey is being made to defend two separate petitions at a cost to him which will in all probability result in a diminution of the value of his estate. This has been expressed as a concern in the authorities. But Perpetual has offered undertakings which would effectively cap those costs for the time being whilst the Commissioner proceeds with his petition; from what I have seen from the file the costs which have been incurred relate to the filing of a short affidavit in these proceedings by Mr Toomey and other material that was filed in the Perpetual proceedings, the costs of which would have been shared with Mr Pantlin.
Having come to the conclusion that the filing of a second petition, whilst generally to be frowned upon, does not in itself constitute an abuse of the court’s processes and that in the particular circumstances of this case the filing of the second petition and continuation of it was also not an abuse, the proper approach for the court to take is to dismiss the application of the DCT. It goes without saying that the court would be most reluctant to take any step that would see the second petition overtake the first particularly given the much earlier relation back date. Substitution under s.49 would be a far preferable course of action if the necessary requirements can be established. I make the following orders:
1)Application of the Deputy Commissioner of Taxation dismissed.
2)Deputy Commissioner of Taxation to pay the Respondent to the motion Perpetual Nominees Limited’s costs, such costs to be taxed if not agreed pursuant to the Federal Circuit Court of Australia (Bankruptcy) Rules 2006.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Raphael
Associate:
Date: 29 July 2013
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