Doyle v Hadfield
[2008] FMCA 997
•18 July 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DOYLE v HADFIELD | [2008] FMCA 997 |
| BANKRUPTCY – Creditor’s Petition – respondent debtor’s opposition to Creditor’s Petition – considerations relevant to review – whether the Court ought to exercise its discretion to go behind the judgment on which the Creditor’s Petition is based to see whether properly obtained – solvency – whether “other sufficient cause” exists – application opposing the Creditor’s Petition dismissed. |
| Bankruptcy Act 1966 (Cth), ss.43, 52 |
| Australia & New Zealand Banking Group Ltd v Prestia [2001] FCA 792 Cain v Whyte (1933) 48 CLR 639 Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 Commonwealth of Australian v Jeans [2005] FCA 978 Corney v O’Brien (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212 Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 Harrison v Charalambous [1999] FCA 902 Miles v Shell Company of Australia (1998) 156 ALR 133 Olivieri v Stafford & Ors (1989) 91 ALR 91 Re Conomo [1960] ALR 742 Re Huston; ex parte Kendall, McAdam and O’Dwyer (1985) 8 FCR 355 Re Longo; ex parte Longo (1995) 75 FCR 523 Re Mitchelson; ex parte Mitchelson (1979) 39 FLR 366 Re Poulson; ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54 Rozenbes & Ors v Kronhill & Anor (1956) 95 CLR 407 Sandell v Porter (1966) 115 CLR 666 Wren v Mahoney (1972) 126 CLR 212 |
| Applicant: | SUZANNE NERIDA DOYLE |
| Respondent: | JENNIFER DYSON HADFIELD |
| File number: | SYG 3863 of 2007 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 14 March 2008 |
| Delivered at: | Sydney |
| Delivered on: | 18 July 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr M. Winram (solicitor) |
| Solicitors for the Applicant: | Emil Ford & Co Lawyers |
| Counsel for the Respondent: | Mr T. Simpson (solicitor) |
| Solicitors for the Respondent: | Tony Simpson & Co Law Firm |
ORDER
The Notice Stating Grounds of Opposition to the Petition is dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3863 of 2007
| SUZANNE NERIDA DOYLE |
Applicant
And
| JENNIFER DYSON HADFIELD |
Respondent
REASONS FOR JUDGMENT
The proceedings
This is an application for review by Jennifer Dyson Hadfield (the respondent debtor) opposing the applicant creditor’s petition filed on
4 March 2007. The Notice Stating Grounds of Opposition to Petition states:
1. The Respondent Debtor requests that the Court go behind the judgment relied upon by the Applicant Creditor. The authority of the Court to do so arises from the ability of the Court to consider, in a bankruptcy matter, whether the judgment was founded on a real debt, the evidence of the judgment itself only constituting prima facie evidence of a debt: Corney v Brien, (1951) 84 CLR 343; Wren v Mahoney (1971-72) 126 CLR 212; Emerson v Wreckair Pty Ltd (1992) 109 ALR 539.
2. In her two affidavits, sworn on 30th January, 2008 and 28th February 2008 and filed in these proceedings, the Respondent Debtor gives evidence of the circumstances in which she came to give the personal guarantee of the debt of Itchenstoke Foundation Pty Ltd on which the judgment is based. The evidence of the Respondent Debtor having suffered a seizure the day before giving the personal guarantee of the debt of Itchenstoke Foundation Pty Ltd on which the judgment is based. The evidence of the Respondent Debtor having suffered a seizure the day before giving the personal guarantee, her own account of the effect of such a seizure upon her capacity to make a financial judgment, and the report of Bruce Paterson, her treating psychologist, are evidence that at the time of giving the personal guarantee the Respondent Debtor was in no proper mental condition to have properly considered the giving of a personal guarantee, and the personal guarantee ought to be considered invalid for that reason. If the Court is satisfied that the guarantee is vitiated, then the Court will not be satisfied for the purposes of section 52(1)(c) of the Bankruptcy Act, 1966 that the debt on which the Petition is based in fact exists.
3. Neither the Respondent Debtor, nor her present legal representatives know why such a defence was not run as part of her defence of the District Court proceedings, but the extent to which the occurrence of the seizure and its effect impacted on Ms Hadfield’s capacity to exercise financial judgment make it clear that the defence should have been run.
4. The Respondent Debtor has provided evidence of the progress of her application for a water extraction licence, and evidence despite the dispute of the Applicant Creditor concerning the facts, that the application is pending and a decision will be made soon. The Applicant Creditor has also provided evidence of the income that will flow to her from the granting of the water extraction licence and asks the Court to accept that as evidence relevant to section 52(2) of the Bankruptcy Act, 1966 that she is able to pay her debts.
4. The Court is also entitled to decline to make a sequestration order under section 52(2)(b) of the Bankruptcy Act, 1966 for other sufficient cause. The Full Federal Court held in Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1, 5 that the circumstances that constitute “other sufficient cause” are extremely variable and it is not appropriate to catalogue or circumscribe them. The Court is asked, on this ground of opposition, to take into account the totality of the circumstances of the Applicant Creditor:
(a) Her medical reports indicate she was born 25th September, 1958 and so she is 49 years of age.
(b) She suffered a brain injury that has affected her in a number of ways, including her capacity to make financial decisions unassisted.
(c) The evidence she has provided informs the Court that Ms Hadfield was abandoned by her legal team, then called upon to make a decision to give a personal guarantee at a time when the medical evidence says she was incapable of making that decision, vitiating the guarantee and therefore the judgment in the District Court relied upon by the Applicant Creditor.
(d) There is evidence given by Ms Hadfield to indicate that the Applicant Creditor is pursing her to bankruptcy for purely vindictive reasons.
(e) There is evidence given by Ms Hadfield that her personal financial circumstances will improve significantly when short, as seems likely, she is granted a water extraction licence, and that improvement will see her capable of paying all her debts.
(f) If a sequestration order is made now, and Ms Hadfield’s property is sold before the grant of her water extraction licence, the benefit of all her work in that regard will go instead to the purchaser of her property.
(g) At the same time, all of her efforts to secure a permanent fire fighting water source for her area, protected with covenants to be added to her land, will be lost or at least become dependant on the unknown goodwill of whoever ultimately buys her property.
(h) If a sequestration order is made before the determination of the water extraction licence, the Applicant Creditor will not be paid from Ms Hadfield’s bankrupt estate.
(i) The conduct of the Applicant Creditor and the special circumstances of the Respondent Debtor support the view that any discretion should be exercised in favour of Ms Hadfield, and not in favour of the unmeritorious Applicant Creditor.
The Creditor’s Petition was filed on 18 December 2007. Suzanne Nerida Doyle (the applicant creditor) applied to the Court for a sequestration order under s.43 of the Bankruptcy Act 1966 (Cth) (“the Act”) against the estate of Jennifer Dyson Hadfield. The claim being:
1. The respondent debtor owes the applicant creditor the amount of $754,399.51 for monies due in respect of which a judgment was obtained by the applicant creditor against the respondent debtor in the District Court of New South Wales, Sydney on 4 October 2006.
The amount of $734,779.47 comprises the following:
(a) Judgement $682, 029.62
(b) Interest for the period from 5 October 2006 to 31 December 2006 calculated pursuant to section 101 of the Civil Procedure Act 2005 (NSW) at the rate set out in Schedule 5 of the Civil Procedure Rules 2005 (NSW) being 9% per year. $14,630.94
(c) Interest for the period from 31 December, 2006 to 05 November 2007 calculated pursuant to section 101 of the Civil Procedure Act 2005 (NSW) at the rate set out in Schedule 5 of the Civil Procedure Rules 2005 (NSW), being 10% per year. $57,738.95
Total: $754,399.51
2. The applicant creditor does not hold security over the property of the respondent debtor.
3. At the time when the act of bankruptcy was committed, the respondent debtor:
(a) was personally present in Australia;
(b) was ordinarily resident in Australia; and
(c) had a dwelling house or place of business in Australia.
4. The following act of bankruptcy was committed by the respondent debtor within 6 months before the presentation of this petition:
The respondent debtor failed to comply on or before 16 October 2007, with the requirements of a bankruptcy notice served on her on 25 September 2007 or to satisfy the Court that she had a counter-claim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross demand that she could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained.
5. The applicant creditor provides the following information, to the extent it is known to the applicant creditor, for use by the Insolvency and Trustee Service Australia:
(a) the date of birth of the respondent debtor; 28 September 1958.
(b) the business address of the respondent debtor.
“At Last” 320 Mount Tootie Road, Bilpin NSW 2758
The Bankruptcy Notice, NN2981/2007, was issued on 24 July 2007. Federal Magistrate Raphael made the following orders on 17 September 2007:
3. Personal service to Bankruptcy number NN2981/2007 and dated 24 July 2007 is dispensed with.
4. An official copy of the Bankruptcy number NN2981/2007 and dated 24 July 2007 be sent by prepaid ordinary post addressed to the respondent at “C-Patrick Woods & Co, PO Box 611 Parramatta NSW 2124” and a copy of the Bankruptcy Notice faxed to Patrick Woods & Co on fax number (02) 9890 8663.
5. The Bankruptcy Notice number NN2981/2007shall be deemed to be served on the respondent eight days after service in accordance with order 4 above.
The Bankruptcy Notice was deemed to have been served on the respondent debtor on 17 September 2007. Ms Hadfield was required, within 21 days of that date, to pay Ms Doyle an amount of the debt or make arrangements to Ms Doyle’s satisfaction for settlement of the debt.
The following affidavits have been filed in these proceedings:
a)Creditor’s petition filed 18 December 2007;
b)Affidavit of service sworn by Michael Winram on 17 December 2007 (“affidavit of service”);
c)Affidavit of search verifying paragraph 4 of the Creditor’s Petition, sworn by Michael Winram on 17 December 2007 (“affidavit verifying paragraph 4”);
d)Affidavit of Jennifer Dyson Hadfield, sworn 30 January 2008 (“first affidavit Ms Hadfield”);
e)Affidavit of Michael Winram, affirmed 31 January 2008 (first affidavit of Mr Winram);
f)Affidavit of Michael Winram affirmed 4 March 2008 (second affidavit of Mr Winram);
g)Affidavit of Bruce Peterson, Consultant Clinical Psychologist, sworn 3 March 2008 (affidavit of Mr Peterson)
h)Affidavit of Suzannah Nerida Doyle, affirmed 31 January 2008 (affidavit of Ms Doyle);
i)Affidavit of Jennifer Dyson Hadfield, sworn 28 February 2008 (second affidavit of Ms Hadfield); and
j)Affidavit of Jennifer Dyson Hadfield, sworn 10 March 2008 (third affidavit of Ms Hadfield).
The parties did not require the deponents of the affidavits to be cross-examined. All the above affidavits were read into evidence.
Background information
I rely on the first affidavit of Ms Hadfield for the background to these proceedings:
2. The debt referred to in the Creditor’s Petition is a judgment debt of the District Court of New South Wales at Sydney given on 4th October, 2006 in the amount of $682,029.62. With interest calculated to 5th November, 2007 the amount sought by the Applicant Creditor is $754,399.51. Interest continues to accrue.
3. The judgment arose after “Itchenstoke”, a property next to mine which was then owned by the Applicant Creditor. I loaned Itchenstoke Foundation Pty Limited the option fee it paid to the Applicant Creditor ($42,000.00), and its deposit on the land once the option was exercised ($574,250.00). Both of those sums were lost to me when Itchenstoke Foundation Pty Ltd could not secure finance to complete its purchase. I also funded, approximately $180,000 in development application costs, a further sum of approximately $16,000 in interest on the deposit, which was not returned to me after the deposit was forfeited, and legal costs exceeding $70,000.00.
5. I purchased my property, “At Last”, Lot 11, 320 Mount Tootie Road, Bilpin in 1992 for $250,000 of which I provided $192,000.00 from sale of my old property, and a further $58,000 was provided via vendor finance over 8 years.
6. In about 1999 I received a brain injury compensation payment of $880,000.00 less around $120,000.00 repaid to Medicare $170,000.00 paid to my lawyer, and $58,000.00 repaid to my vendor finance lender (the arrangements were interest free). The net amount is approximately $532,000.00
7. From those remaining available funds, I purchased a property at 17 Mt. Tootie Road, Bilpin for $292,000 and spent approximately $80,000 on improvements, and conducted a Bed and Breakfast business there for around 4 years. I sold that property to obtain most of the deposit money that went to the Applicant Creditor on behalf of Itchenstoke Foundation Pty Ltd. The balance of my compensation available funds were spent on improvements and equipment at my property “At Last”, Lot 11, 320 Mount Tootie Road, Bilpin.
8. My brain injury as a result of a motor cycle accident in 1977. It took 22 years for my compensation to be secured. My residual disabilities are a lack of short term memory, damaged mid-term memory, very little long range memory, epilepsy and I suffer from a distractive disorder leaving me manic and needing to manage my own emotions, without my brain producing the appropriate inhibitor chemicals.
9. During those years I supported my two children as a sole parent, one attending Yanco Agricultural High School and the other Turramurra High, then Bradfield College at North Sydney. I also had significant medical expenses for my children – Pearl is 85% deaf, and suffered significant depression. Johnny suffered sleep apnoea and Attention Deficit Hyperactivity Disorder. I did not receive any financial support from my children’s father. I supported my family through farming, and through payment of some limited social security payments because of my status as a sole parent, and some part time work as a cleaner.
10. I should not have been personally exposed to the present judgment. The circumstances in which that happened arose from my position as one of two Directors of Itchenstoke Foundation Pty Limited, the other Director then Brian Mitchell. When the case came to Court, the lawyers we had engaged, and I was paying, decided during negotiations at the hearing that they would only act for the Foundation, and not for me. As part of the settlement discussions Short Minutes of Orders were prepared under which time to complete the Contract for Sale of Land was extended for three months. At that point Brian Mitchell assured me, with the lawyers present, that he had obtained finance approval from National Australia Bank to complete the purchase within the extended timeframe. On the basis of that assurance, I was persuaded, even though not represented, to give a personal guarantee concerning completion of the extended Contract for Sale of Land. As matters developed, there was a finance approval but only for 50% of the then current valuation of $12,000,000.00 leaving a gap between the $6,000,000 the bank was prepare to lend, and the actual sale price of $8,250,000.00 plus stamp duty, less the option fee and deposit. To meet that situation I arranged a second mortgage, and in fact managed to raise the necessary funds, except for the GST. As it was rural property, it was possible to apply for a GST exemption but the Applicant Creditor needed to make the GST application. She refused, until the day of settlement and then made the application knowing it would take six weeks to process. She also exercised her rights under the Contract for Sale of Land without granting any additional extension arsing from her own tardiness in processing the GST application, preferring to keep my deposit and option fee, and sue me for the judgment. My present solicitors have raised with me the question of whether or not, with my brain injury, I was competent to understand and give an effective personal guarantee. That was made even worse by th fact that the day before attending Court, effectively being abandoned by my legal advisers, and giving the personal guarantee I had suffered a severe epileptic fit. It takes around three days for me to recover from such an episode, and in that context I was asked the following day to make a judgment affecting my entire financial future. Pursuing the possible defence now is problematic having regard to the fact that the District Court gave judgment after a hearing on the merits during which that possible defence was not raised by my legal advisers. A copy of the Statement of Claim, Defence, and judgment in the District Court proceedings, along with the Short Minutes of Orders to which I have referred from the earlier proceedings, are annexed hereto and marked “A”.
11. My property “At Last”. Lot 11, 320 Mount Tootie Road, Bilpin is presently valued at $750,000 to $800,000. That valuation is held by my bankers, St George Bank, around October, 2007, such valuation on the basis of a quick sale. The property is mortgage to St George for around $850,000.00 and there is a second mortgage to M K M Capital Pty Ltd for a further $80,000 plus two years of interest, a total of about $130,000. Apart from the property, I have no other significant assets that will be available to the Applicant creditor. If I am made bankrupt, the two lenders are likely to take all of the proceeds of sale under their registered first and second mortgage security. A title search of the property, indicating the two mortgages and a caveat also on the title are annexed hereto and marked “B”.
12. The caveat to Isthmus Holdings Pty Limited supports an unregistered mortgage for $60,000.00. That company purchased $60,000 worth of shares in Wollimi Wilderness Water Pty Limited. I am a Director of that company and own shares. Other shares are owned by Isthmus Holdings Pty Limited.
13. Wollemi Wilderness Water Pty Limited is to be the licensee for commercial advantage of the water extraction from my land once a licence is issued by the Department of Environment and Conservation (formerly Department of Water & Energy). That application is pending, and is expected to be granted within the next three months. I am presently in discussions with the Department, and its Minister, Mr Koperberg. There is also a development consent presently being sought from Hawkesbury City Council, needed for the associated water extraction infrastructure. When the development consent, and licence, are approved of the property will increase to between $2,000,000.00 and $3,000,000.00 and it will then be possible to increase the borrowings and pay the judgment debt. The property, then significantly more valuable, would yield a sum more than the value of the judgment debt plus the mortgages if sold, and leave me with some net proceeds. I would also have the advantage of authorising others to commercially exploit my licence, or conduct the enterprise myself.
14. The licence being sought will enable me to extract 100 mega-litres per annum, producing a gross income of approximately $1,000,000.00 to $2,000,000.00 per annum.
15. Based on these emergent circumstances, it is clear to me that:
(a) If the property is sold at its current valuation of $750,000 to $800,000 the Applicant Creditor will not be paid any amount, all proceeds being paid to the secured creditors;
(b) If the property is sold at its water licence improved valuation of $2,000,000 to $3,000,000 there will be more than sufficient funds to pay the secured lenders and the judgment, and surplus funds for me, all likely to be achieved in the next three to four months; and
(c) If the water licence is granted I am likely to be able to borrow against the increased value of the property, and engage investors to take advantage of the stream of income that can be achieved, making it likely I can discharge the debts without having to sell the property at all.
16. Apart from lodging the development consent, and the application for the water licence, I have also arranged a pre-sale of at least 20 mega-litres, and that customer will likely commit to purchase the whole 100 mega-litres for which I expect to have the water extraction licence.
18. Prior to the Contract for Sale of Land, and the District Court proceedings with the Applicant Creditor I enjoyed a perfect credit reputation with no default. With a little more time I can clear my debts and reinstate my credit reputation.
Submissions and consideration
Mr Simpson, for the respondent debtor, contends in written submissions that there is little doubt that the personal guarantee given by Ms Hadfield to settle the Supreme Court proceedings (1665 of 2005) was vitiated by Ms Hadfield’s residual disability as a result of her brain injury. Further that Ms Hadfield’s epileptic seizure the day before the guarantee was sought led to the Short Minutes of Order being made. Mr Simpson submits that the abdication of her solicitors during the Supreme Court proceedings to focus solely on representing Itchenstoke Foundation Pty Ltd (using Ms Hadfield’s funds) left her defenceless. That vulnerability was exploited in the securing of the personal guarantee.
When Itchenstoke Foundation and the guarantors Ms Doyle and
Mr Mitchell failed to complete the contracts for sale, the vendors commenced proceedings in the District Court (No 4959 of 2005) to recover the contract monies. On 4 October 2006, Wolmsley J awarded the vendors $682,029.62, which with interest to 5 November 2007 totalled $754,399.51. It is on this aspect of vitiation of the personal guarantee as her defence to the present bankruptcy proceedings, that Ms Doyle invites this Court to go behind the District Court judgment.
The contracts for sale of land that led to the present proceedings dated 23 March 2004 were between:
a)Ms Doyle as vendor and Itchenstoke Foundation Pty Ltd as trustee for the Itchenstoke Unit Trust as purchaser of folios 1/129269, 1/328277 and 7/751628 and;
b)Corsair Investments Pty Ltd as vendor and Itchenstoke Foundation Pty Ltd as trustee for Itchenstoke Unit Trust as purchaser for volume 4469 folio 163.
On 26 October 2005, Itchenstoke Foundation failed to complete the contracts. Pursuant to Short Minutes of Order, Itchenstoke Foundation, in failing to complete the purchase by 26 October 2005, was liable to pay various amounts to the vendors together with interest from
26 October 2005until the payment date. Pursuant to the Short Minutes of Order, Ms Hadfield and Brian Stephen Mitchell guaranteed payment to Ms Doyle and Corsair by Itchenstoke Foundation for the amounts and interest referred to above. Mr Mitchell, whose task it was to secure finance for the purchase of Itchenstoke, assured Ms Hadfield that finance had been arranged to enable Itchenstoke Foundation to complete its purchase within the time frame extended by the Short Minutes of Order. Ms Hadfield, Mr Mitchell and Itchenstoke Foundation all defaulted on payment.
It is submitted that counsel and solicitors retained by Ms Hadfield to represent her and Itchenstoke Foundation Pty Ltd in the Supreme Court ceased advising her (although she provided funds for legal representation), preferring to represent Itchenstoke Foundation only. In Court, Ms Hadfield was required, along with Mr Mitchell, to give personal guarantees. Mr Mitchell’s representation that finance was in place turned out to be incorrect and he later avoided the consequences of giving the guarantee by becoming bankrupt.
Mr Simpson submits that Ms Hadfield was called upon to make her decision one day after suffering from an epileptic seizure. Her evidence and that of Dr Peterson (in his affidavit) makes it clear that she would not be capable of exercising proper financial judgment on a personal guarantee one day after a seizure which typically requires two to three days to recover from. Dr Peterson expressed the view in his affidavit that Ms Hadfield would need the services and intervention of a financial manager if she was to make significant financial decisions up to three days after a seizure. The first and second affidavits of
Ms Hadfield give uncontested evidence of the circumstances under which she gave personal guarantee to the debt to Itchenstoke Foundation.
Going behind the judgment of the District Court
Mr Simpson submits that the solicitors that acted for Ms Hadfield in the District Court proceedings (No 4959 of 2005) conducted her defence on the basis that there was no valid guarantee because there was no consideration for it. They did not claim that the guarantee was vitiated by her impairment, both on the basis of the disability generally or the epileptic seizure. Mr Simpson contends that it is only now that this Court exercising bankruptcy jurisdiction can go behind the judgment and examine:
a)the uncontested evidence of Ms Hadfield having a seizure the day before her entering the guarantee;
b)Ms Hadfield’s abandonment by her legal representatives;
c)the sudden requirement for Ms Hadfield to consider giving a personal guarantee;
d)the evidence of Ms Hadfield’s impairment and the effect of it on her judgment;
e)the representation about the finance made to Ms Hadfield by the now bankrupt Mr Mitchell; and
f)the evidence of Dr Peterson that Ms Hadfield needed a financial manager to make a proper judgment about the personal guarantee.
Mr Simpson argues that the fact that Ms Hadfield acted so unwisely in giving her personal guarantee in circumstances where she was not otherwise personally responsible for the debts of Itchenstoke Foundation, underscores the likelihood that she her decision was impaired.
Mr Winram, for Ms Doyle, submits that the judgment of the District Court was after a full trial on the merits. The central issue was whether Ms Hadfield was liable under the guarantee she gave as part of the settlement of the Supreme Court proceedings. Mr Winram argues that Ms Hadfield and her legal representatives was given an opportunity to appeal the decision but did not.
Mr Winram contends that the exercise of the Court’s power to go behind the judgment is that the making of a sequestration order affects not merely the parties to the judgment, but the rights of all creditors. He further submits that in this case, a majority of the known creditors (both in number and monetary value) support the petition. He submits that Ms Hadfield is bound by the way she conducted the District Court proceedings and the judgment obtained as a contested hearing ought to be challenged by appeal and not by inviting a Court exercising bankruptcy jurisdiction to reconsider the case.
The principles which apply in relation to a Court going behind a judgment are well-established. A Court can go behind a judgment, and indeed, can look to see whether the judgment is conclusive evidence sufficient to found bankruptcy proceedings. As it stands, a judgment is, of course, only prima facie evidence of a debt and not conclusive evidence of a debt: Corney v O’Brien (1951) 84 CLR 343; Wren v Mahoney (1972) 126 CLR 212.
To the extent that this Court should go behind the judgment of the District Court, it is possible for a Court of bankruptcy to do so, see Olivieri v Stafford & Ors (1989) 91 ALR 91 at [100] where Beaumont J stated:
It will be necessary, later, to consider the circumstances in which the power of a Court of bankruptcy to go behind a judgment should be exercised. But it is clear that, unless and until that power is exercised, the pre-existing obligation is merged in a new obligation in the form of a judgment debt. In that sense, it is said that “the existence of the judgment is…prima facie evidence of a debt”: per Lord Esher in Re Fraser; ex parte Central Bank of London [1892] 2QB 63 at [636].
In circumstances where the judgment was obtained by default His Honour said at [100]:
If the judgment in question is a judgment by default, the Court will always “go behind” the judgment if there is what it regards as a bona fide allegation that no real debt “lay behind” the judgment: Corney v Brien 84 CLR 343 per Fullager J at 357 - 358. An extension of this principle may be seen in Fraser’s case [1892] 2 QB 633 at p.636.
Courts are usually reluctant to go behind a judgment once the issues have been subject to adjudication even if there were problems with the debtor’s representation. In Re Huston; ex parte Kendall, McAdam and O’Dwyer (1985) 8 FCR 355, Pincus J stated:
6. The point is really a short one, and forming the view that my consideration of it is not likely to be greater assisted by further reflection, I have determined to state my view now. The record of many trials, if examined by the unsuccessful litigants later, may disclose rather unsatisfactory features; that circumstance in itself cannot justify a process of going behind the bankruptcy notice. The principal unsatisfactory feature to which Mr. Huston points is the late discovery and the lack of appreciation on his side of the precise significance of the computer print-outs. Also, of course, it is argued that the judgment debtors did not have a reasonable opportunity to appreciate the way in which the figure sought in the District Court was arrived at. I am of the view that those circumstances do not justify what must be an unusual course, and that is to treat as incorrect a judgment after trial given by another court of competent jurisdiction and from which no appeal was brought.
7. I can understand Mr. Huston's feeling that he has not had such an examination of the claim made by Messrs Kendall, McAdam and O'Dwyer as he would have desired. Nevertheless, it is an important principle that the processes of litigation must not be engaged in to such an extent as to bring the administration of justice into disrepute and it seems to me that, except in circumstances considerably stronger than those revealed by the material before me, the court should not be prepared to go behind such a judgment as this.
8. I would add that it is a matter of considerable importance that Mr. Huston, through his counsel, decided not to seek any adjournment of the trial before Judge Pratt. It appears to be admitted that had he done so the difficulty would not have arisen. That is the sort of decision which, when made, must ordinarily be regarded as having been finally made. What Mr. Huston would now desire to do is to reverse that decision, in effect, and have the matter tried after a proper consideration of the material which was discovered on the eve of trial.
In Commonwealth of Australian v Jeans [2005] FCA 978, Hely J considered opposition to a Creditor’s Petition based on a judgment debt. His Honour considered whether the Court ought to exercise its discretion to go behind the judgment to assess the existence of a real debt and declined for the following reason:
[18] In my view, the circumstances of this case are far removed from a case in which a judgment is entered by default. There was a fully contested hearing before Sackville J on the issue of the debtor’s liability under the guarantee, after the debtor had a reasonable opportunity to raise whatever grounds he wished to rely upon to resist the Bank’s case based upon the guarantee. As is always the case, the scope of the contest was determined by the respective cases put forward by the parties, who are ordinarily bound by the way in which they have chosen to conduct the proceedings.
However before a Court will exercise its discretion to go behind the judgment, there must be substantial reasons for questioning whether there is in reality a debt owing to the creditor: Re Longo; ex parte Longo (1995) 75 FCR 523. There is no suggestion in the present case that the judgment was obtained by fraud or collusion, or that there had been some other miscarriage of justice. Rather, it has been suggested by Mr Simpson that Ms Hadfield has a defence which should have been agitated in relation to whether she should have been granted the guarantee when her judgment was impaired.
Mr Simpson argues that the defence concerning her impairment ought to have been argued. Mr Simpson contends that there is strong evidence of Ms Doyle’s improper motivation through personal animosity and greed. He submits that there is also evidence of the diminished capacity and other brain injuries affecting Ms Hadfield which should have vitiated her consent. She had no personal responsibility for the consequences of Itchenstoke Foundation failing to complete, other than having loaned it funds and having an interest in that company as a shareholder, neither of which put her entire financial well-being at risk.
Mr Simpson further submits that the third affidavit of Ms Hadfield makes clear that Ms Doyle was not interested in providing Ms Hadfield with the opportunity to pursue discussions directly with independent backers in the development of the water extraction licence and the impact of that on her income, the value of her property her ability to pay her debts. The same affidavit gives evidence in respect of the conduct of Ms Doyle in dealing with a Mr Calphy, who purchased a nursery business formerly conducted on the Itchenstoke Foundation property. It stated that the nursery was sold to Mr Calphy without informing him that Ms Doyle and Corsair had entered into contracts to sell the land to Itchenstoke Foundation and without provision for a lease. Ms Hadfield deposed that this led to Mr Calphy blaming her and moving the nursery onto Crown land adjacent to hers, being land under which Ms Hadfield has a claim.
Mr Simpson argues that the conduct of Ms Doyle on all these transactions had been unmeritorious and unconscionable which is continued by these bankruptcy proceedings. Mr Simpson argues that Ms Doyle ought to have been refused bankruptcy relief for these reasons. If Ms Hadfield is made bankrupt it is unlikely that Ms Doyle will be paid and therefore Mr Simpson asks the Court to reject the judgment debt. Mr Simpson relies on the ability of the Court to consider whether the judgment was founded on a real debt or if the judgment itself is prima facie a debt, see Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at [26] per Morling, Neaves and Spender JJ:
26. It is not open to doubt that a court exercising jurisdiction in bankruptcy may, in an appropriate case, "go behind" a judgment and inquire whether it was founded on a real debt: Corney v Brien [1951] HCA 31; (1951) 84 CLR 343; Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212; Olivieri v Stafford (supra) per Beaumont J. at pp 422-3. Such a court, however, has no power to set aside a judgment but only to prevent the judgment creditor from having recourse to the provisions of the Bankruptcy Act: Re Vitoria (1894) 2 QB 387; King v Henderson (1898) AC 720. As between the parties the judgment remains unimpeached and may be enforced accordingly by whatever means may otherwise be available.
Mr Simpson submits that these authorities support the view, especially where there is evidence that Ms Doyle will get nothing on sequestration, that the discretion not to make an order ought to be exercised, with the benefit of that discretion accruing not just to
Ms Hadfield but to her other creditors including secured creditors.
Mr Simpson states that the evidence clearly indicates that those secured creditors are content to wait and to rely on their security while
Ms Hadfield has the opportunity to pursue her water extraction license.
My initial view on the material before me in applying the relevant principles is that it would be inappropriate to go behind the judgment of the District Court. It is clear that up until the time of that judgment there were solicitors acting on Ms Hadfield’s behalf. It is equally clear that no steps have been taken to set aside the District Court judgment entered on 4 October 2006.
Going behind the judgment of the Supreme Court
Mr Winram submits that this is not a case where the Court should exercise its discretion to go behind the Short Minutes of Order of the Supreme Court (proceedings No1665 of 2005) which were entered with the consent of all parties to those proceedings. Mr Winram argues that for the Court to do so Ms Hadfield must show that there was, in the circumstances of the compromise, such unfairness or impropriety as to justify enquiry into the consideration for the debt and the propriety of the compromise. The principles of whether a Court can go behind a judgment obtained by consent and used as the basis for a creditor’s petition was discussed by his Honour Finkelstein J in Harrison v Charalambous [1999] FCA 902 at [6]-[10]:
[6] It is accepted that a court does have jurisdiction to go behind a judgment to determine whether there is a debt owed to the petitioner: Wren v Mahony (1972) 126 CLR 212; Corney v Brien (1951) 84 CLR 343. That is to say, in bankruptcy proceedings the existence of a judgment is only prima facie evidence of a debt, it is not conclusive evidence.
[7] However, before a court will exercise its discretion to go behind a judgment debt, it must be established that there are substantial reasons for questioning whether there is in truth and reality a debt owed to the creditor: Re Longo: Ex parte Longo (1995) 57 FCR 523.
[8] It is well established that if judgment is obtained by fraud or collusion or there has been some miscarriage of justice, a court can inquire whether the judgment debt is a good debt. If a judgment has been obtained without any adjudication on the merits, for example in the case of a default judgment a court will more readily go behind that judgment to inquire whether there is a good debt.
[9] However, where a judgment has been entered under a compromise the position is not so straightforward. In Corney v Brien, Fullagar J said (supra at 357) that it must be shown that there exists grounds for challenging the compromise before the judgment will be reopened. This is, no doubt, because it is the compromise and not the claim that was compromised that is the foundation of the judgment. Moreover, as his Honour pointed out, where a party challenges a judgment entered on a compromise and that party has acted on the advice of counsel, the judgment will not generally be reopened. The presumption is that in such circumstances it is difficult, although not impossible, to impune the compromise.
[10] In Ex parte Banner; In re Blythe (1881) 17 ChD 480 the Court of Appeal dealt with circumstances in which a court would go behind a judgment based on a compromise. The court said that if the original claim was not bona fide, but was made for the purposes of extortion, the claimant knowing that he had no legal claim, then that would be sufficient. As Brett LJ said (at 489) if a judgment or compromise is obtained by dishonesty known to both parties it would be monstrous if the court could not go behind that judgment.
His Honour then considered the specific claims in that case to determine whether he should go behind the judgment:
[11] In this case the debtor alleges that he was pressured by his legal advisers to compromise the claim notwithstanding that he had a good defence to it. However, the evidence does not implicate the petitioning creditor or his legal advisers in the allegedly undue pressure that the debtor was placed under to compromise the claim. On the contrary, the evidence suggests that the petitioning creditor was not in any way implicated in what occurred between the debtor and his lawyers. That being the case neither the compromise nor the Magistrates' Court judgment is liable to be set aside: see Tresize v National Australia Bank Ltd (1994) 122 ALR 185.
[12] To my mind, what has occurred in this case is not a sufficient basis to go behind the judgment based on the compromise. Although the debtor may have been placed under undue pressure to enter into the compromise, I cannot discern any unfairness or impropriety of such a kind as would justify me in looking behind the judgment. The reality is that the debtor, perhaps through no fault of his own, was placed in a position where his commercial interests necessitated a compromise and he agreed to it in accordance with those interests. In one sense the position the debtor found himself in is not very different to the circumstances which other litigants have often had to confront. I do not doubt that litigants regularly compromise actions otherwise than in accordance with the true merits of the claims made, but that is not a sufficient reason to deny efficacy to the agreements to compromise that these litigants reach. It is certainly not a sufficient reason in this case.
Mr Winram submits that there was no unfairness or impropriety for Ms Hadfield to justify such an enquiry. He suggests that Ms Hadfield was represented by counsel however this is not correct because at the stage of the negotiation agreement and execution of the Short Minutes of Order, it appears that Ms Hadfield was no longer represented by either counsel or solicitors as they had limited their representation to Itchenstoke Foundation. In addition, it was argued that she benefited from the Supreme Court orders and, although this point was not developed in submissions, she would have benefited as a shareholder of that organisation because the purchase of the property was allowed to continue subject to finance being arranged. Importantly there is no evidence that Ms Hadfield was influenced by Ms Doyle to sign the Short Minutes of Order.
As the Short Minutes of Order were by consent, this Court’s power to go behind those orders is limited. While I acknowledge that Ms Hadfield was vulnerable in the circumstances, being required to enter a personal guarantee, there is no evidence or submission before this Court that there was any subsequent review of the orders. Ms Hadfield had legal representation and they did not seek to have those orders reviewed or raise the issue in the District Court proceedings. Further the medical reports of Dr Peterson seem to suggest that Ms Hadfield should have been assisted by a financial advisor in making any significant financial decisions. There is no evidence as to Mr Mitchell’s role. However, he appears to hold qualifications in the field of accounting and to have been responsible for seeking finance for this project. No evidence was led as to his function and role in this project other than that he appears to have failed to obtain finance and that he also defaulted on his guarantee. The existence of these issues should have alerted Ms Hadfield’s solicitors to pursue the circumstances surrounding her entering the guarantee but this appears to have been allowed to lie undisturbed. Therefore I do not believe it is appropriate for this Court at this stage to go behind the decision of the Supreme Court.
Insolvency
A substantial part of the affidavit material filed on behalf of
Ms Hadfield in these proceedings outlines her efforts to obtain a water extraction licence on which a decision is still pending, and the impact of that being granted on her income, the value of her property and her ability to pay all of her debts: second affidavit of Ms Hadfield.
A consultant geologist retained by Ms Hadfield valued the extracted water at between 1cent per litre and 3 cents per litre resulting in a total of $1,000,000 to $3,000,000 a year if all the water were sold. Her own business plan projections show her projected income rising to $1,789,000 in the third year of operation.
Ms Hadfield has filed a development application to support her intention in changing the lands usage with covenants to protect permanent water supply for bushfire fighting in the area with the covenant grant to the Rural Fire Service. Mr Simpson submits that the evidence shows that the improvement in the value of Ms Hadfield’s property and her income should the water extraction be granted shortly. This supports the view that it is in the interest of the creditors that she not face sequestration. He also submits that there is an accrued public benefit of the water being used by her to secure fire fighting water resources for the Rural Fire Service protected by appropriate covenants.
Mr Winram submits that the evidence does not establish that
Ms Hadfield is able to pay her debts and therefore cannot rely on s.52(2)(a) of the Act. He submits that Ms Hadfield’s affidavits do not show that she is solvent but rather that she is insolvent. Ms Hadfield is seeking to rely on a capacity to borrow money against the increasing value of her property. However, she has not demonstrated that she has assets capable of raising the money sought within a reasonably short time, see Sandell v Porter (1966) 115 CLR 666 at [15] per Barwick CJ (with McTiernan and Windeyer agreeing):
15. An essential step in making out that a payment is a preference within s. 95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due. (at p671)
Mr Winram argues that potential future economic prospects are not a reason to refuse making a sequestration order and refers to
Re Mitchelson; ex parte Mitchelson(1979) 39 FLR 366 at [21]:
21. The High Court considered the provisions of s. 56(2) of the Bankruptcy Act 1924, the predecessor of s. 52(2) of the 1966 Act, in Rozenbes v. Kronhill [1956] HCA 65; (1956) 95 CLR 407 in which Dixon C.J., Webb and Fullagar JJ. said: "In Cain v. Whyte [1933] HCA 6; (1933) 48 CLR 639 , this Court expressed agreement with a judgment of the Supreme Court of Queensland (Henchman J.) in which his Honour said: '. . . prima facie, on proof of the matters mentioned in s. 56(2), the Court will proceed to make an order for sequestration, and . . . 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' (1933) 48 CLR, at p 646 " (1956) 95 CLR, at p 414 . (at p371)
See also Australia & New Zealand Banking Group Ltd v Prestia [2001] FCA 792.
Ms Hadfield bears the onus of establishing that she is solvent and able to pay her debts within the meaning of s.52(2)(a): Re Poulson; ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54. I am not satisfied that the evidence before me establishes that Ms Hadfield is solvent or is able to achieve that position in the reasonably foreseeable future.
The subject of solvency is based firstly on her receiving approval to extract ground water from the property. Then there is the construction of infrastructure which has to be financed and undertaken. Further, this has to be subject to a successful marketing strategy to realise its potential. If the support of the government in relation to the provision of water to rural fire services is unsuccessful then the approval for water extraction may be subject to litigation in the Land and Environment Court to obtain the necessary approval. This would also need to be funded. In the circumstances, I am not satisfied that solvency can be established or is likely to be established in an appropriate time frame.
Other sufficient cause under s.52(2)(b)
Mr Simpson submits that the Court can also decline to make a sequestration order under s.52(2)(b) of the Bankruptcy Act 1966 (Cth) for “other sufficient cause”. In Clyne v Deputy Commissioner of Taxation (1985) 5 FCR 1 at [7], Fisher, Morling and Wilcox JJ stated:
7. The circumstances which may constitute "other suffficient cause" for dismissing a bankruptcy petition are extremely variable. It is not appropriate to attempt to catalogue or circumscribe them: see Cain v Whyte [1933] HCA 6; (1933) 48 CLR 639 at p 645. But we are not persuaded that the material relied upon by Mr Clyne is capable of constituting sufficient cause. It is true that the material relied upon by Mr Clyne, if accepted, established that he had no assets other than those now vested in Mr O'Brien and the identified three items. It is also true that it indicated that a deal of information had been supplied by Mr Clyne to the Deputy Commissioner. However, as Mr Clyne recognised, the Deputy Commissioner was not bound to accept the accuracy of his assertions as to his assets or the adequacy of his information. On its face the information leaves many matters unanswered. It was for this reason that Mr Clyne volunterred to be examined under s.264 but that section is a poor substitute for an examination of Mr Clyne under s.69 of the Bankruptcy Act and, perhaps, for the examination of others under s.80. The scope of the enquiry is more limited; s.264 is concerned only with a persons "income or assessment" whereas s.69 extends to "conduct, trade dealings, property and affairs". Section 69(2) provides that, unless the presiding officer otherwise directs, a bankrupt shall not be excused from answering questions by reason of the fact that the answer may incriminate him; it is not clear that a person would be denied this privilege in an enquiry under s.264. The sanctions for failing to provide material or to answer questions at a s.69 examination are more stringent than at a s.264 enquiry. Although Mr Clyne offered an undertaking that he would take no point at a s.264 enquiry on the ambit of questions or in relation to self incrimination and that he would co-operate in respect of documents and answers, this is not a satisfactory substitute for the wider provisions of the Bankruptcy Act. If the undertaking were broken the only redress for the Deputy Commissioner would be to renew his application for a sequestration order - supposing the petition to have been adjourned rather than dismissed - when arguments would arise, no doubt, as to the reasonableness of the debtor's conduct. Furthermore, Mr Clyne cannot bind others who may, properly, be required to give evidence or to produce documents.
Mr Simpson requests that the Court take into account the totality of the circumstances of Ms Hadfield in respect of the following:
a)Her medical reports indicating that she is 41 years of age.
b)She suffered a brain injury that has affected her in a number of ways, including her capacity to make financial decisions unassisted. The existence of other disabilities and the effect of them following a seizure are indicated in the affidavit of Dr Peterson and in reports attached to the third affidavit of Ms Hadfield. None of that evidence is disputed or in any way contested.
c)
Ms Hadfield’s evidence that she was abandoned by her legal team and called upon to give a personal guarantee when she was incapable of making such a decision, vitiating the guarantee and therefore the judgment of the District Court relied upon by
Ms Doyle.
d)
That there is evidence given by Ms Hadfield indicating that
Ms Doyle is pursuing her in bankruptcy for purely vindictive reasons.
e)That there is evidence given by Ms Hadfield that her personal financial circumstances will improve significantly in the near future when she is granted a water extraction licence.
f)If a sequestration order is made now and Ms Hadfield’s property is sold before the grant of the water extraction licence, the benefit of all her work in that regard will go to the purchasers of the property, not to her or her creditors.
g)At the same time, all her efforts to secure a permanent fire fighting water resource in her area, protected with covenants to be added to her land, would be lost or at least become dependent on the unknown goodwill of whoever offers to buy her property.
h)
If a sequestration order is made before the determination of a water extraction licence, Ms Doyle will not be paid from
Ms Hadfield’s bankrupt estate.
i)
The conduct of Ms Doyle and the special circumstances of
Ms Hadfield, support view that any discretion should be exercised in favour of Ms Hadfield, and not in favour of Ms Doyle.
Mr Simpson relies on the following authorities in support of these contentions:
i)Rozenbes & Ors v Kronhill & Anor (1956) 95 CLR 407 at [13] per Dickson CJ, Webb and Fullager JJ:
13. …In Cain v. Whyte [1933] HCA 6; (1933) 48 CLR 639 , this Court expressed agreement with a judgment of the Supreme Court of Queensland (Henchman J.) in which his Honour said: " . . . prima facie, on proof of the matters mentioned in s. 56 (1933) 48 CLR, at p 646 , the Court will proceed to make an order for sequestration, and . . . 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" (1933) 48 CLR, at p 646 .
ii)Wren v Mahoney (1972) 126 CLR 212 at [8] per Menzies J:
8. It appeared in the evidence before the Bankruptcy Court that Mr. William Alexander Goodall Swann, one of the taxpayers liable along with the respondent for the said amount of tax and the appellant each made application pursuant to s. 265 of the Income Tax Assessment Act 1936-1970 (Cth) for relief from the payment of that tax. The application to the Board made by Mr. Swann was current at the time the order for sequestration was made. The appellant sought an adjournment of the petition for the reason, amongst other reasons, that the fate of the application to the Board for relief from payment of the amount of tax was not yet known and that complete relief might be afforded. However, after an adjournment for some time the Bankruptcy Court on 21st April 1971 made an order for sequestration. (at p220)
Mr Simpson seeks to distinguish from the facts in Re Mitchelson which states at [21]:
21. The High Court considered the provisions of s. 56(2) of the Bankruptcy Act 1924, the predecessor of s. 52(2) of the 1966 Act, in Rozenbes v. Kronhill [1956] HCA 65; (1956) 95 CLR 407 in which Dixon C.J., Webb and Fullagar JJ. said: "In Cain v. Whyte [1933] HCA 6; (1933) 48 CLR 639 , this Court expressed agreement with a judgment of the Supreme Court of Queensland (Henchman J.) in which his Honour said: '. . . prima facie, on proof of the matters mentioned in s. 56(2), the Court will proceed to make an order for sequestration, and . . . 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' (1933) 48 CLR, at p 646 " (1956) 95 CLR, at p 414 . (at p371)
Mr Simpson submits that Re Mitchelson concerned a debtor who sought to establish that a sequestration order would deprive him of his real estate licence, and therefore his livelihood. That was held not to constitute “other sufficient reason” for not making a sequestration order. Mr Simpson argues that Re Mitchelson is clearly not similar to the situation of Ms Hadfield.
In Prestia at [22] Hely J said:
[22] The pending Supreme Court proceedings were relied upon as constituting "other sufficient cause" as well as on the issue of indebtedness. For the same reasons as earlier given, the pendency of those proceedings does not enliven the operation of s52(2)(b). It may be that the making of a sequestration order would have a prejudicial effect on Mr Prestia's ability to defend the claims made against him in those proceedings, but given my conclusion as to the absence of the triable issue on that question, that cannot constitute "other sufficient cause".
Prestia
examines “other sufficient cause”, futility, the effect of a loss of a commercial opportunity on a debtor and any litigation that might be conducted. Mr Simpson submits that Prestia turns on its own facts.
The Court in Prestia at [25] to [27] concluded that a sequestration order may not have been futile. Mr Simpson submits that this is completely different from the facts in this matter as there was a payment made before the order that very likely could be recovered as a preference. In Prestia the severing of the joint tenancy of the debtor’s property with his wife put half the net value of the property in the hands of the trustee for the benefit of the creditors. Evidence of the debtor’s income also made it likely that he would be required to contribute to his bankrupt estate. It is submitted that in Ms Hadfield’s case, she would be unable to make no such contribution. The evidence of futility in her circumstances is abundantly clear.
Cain v Whyte (1933) 48 CLR 639 is often relied upon for an existence of “other sufficient cause” and a Court declining to make a sequestration order. Apart from identifying the potential width of the term “other sufficient cause”, the Court in that case referred to the duty of the bankruptcy judge in examining in each case (if raised) whether there is “other sufficient cause” for refusing to make an order other than the fact that the debtor is able to pay his debts in full. The Court at 645 to 646 referred to the entitlement of the creditor to seek sequestration of the debtor on proof of matters mentioned in s.52(2):
The debtor showing some cause overriding the interest of the public in the stoppage of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due – something must be put to the Court to overweigh those considerations before it can be said sufficient cause has been shown against the making of a sequestration order.
Mr Simpson submits that apart from the fact that there is no evidence that Ms Hadfield engaged in unremunerative trading, the reference to the rights of creditors refers to the capacity of bankruptcy orders to distribute the estate of a debtor for the benefit of all creditors. It is submitted that the principle does not apply to this matter as there is clear evidence that Ms Doyle and any other unsecured creditor will receive nothing if a sequestration order is made. Mr Simpson further submits that the evidence of improvement in the value of
Ms Hadfield’s property and the improvements in her income that would arise if the water extraction were granted, all support the view that it is in the interest of the creditors that she not face bankruptcy.
47. Mr Winram submits that the mental health of Ms Hadfield is not an “other sufficient cause” and relies on the decision in Clyne at [9]:
Although Mr Clyne relied upon the medical reports he very fairly accepted that his state of health could properly be given little weight in the choice between a s.69 examination and an enquiry under s.264. It does not affect our view as to the course that ought to be taken.
The Court found that the debtor’s state of health was not evidence of matters capable of constituting “other sufficient cause” in those proceedings and within the meaning of s.52(2) of the Act to ground a refusal to make a sequestration order. Mr Winram submits that the evidence does not establish that there is a cause overriding the interest of the public in stopping individual creditors from having debts paid to them, see Rozenbes at [13]:
13…In Cain v. Whyte [1933] HCA 6; (1933) 48 CLR 639 , this Court expressed agreement with a judgment of the Supreme Court of Queensland (Henchman J.) in which his Honour said: " . . . prima facie, on proof of the matters mentioned in s. 56 (1933) 48 CLR, at p 646 , the Court will proceed to make an order for sequestration, and . . . 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" (1933) 48 CLR, at p 646 .
Mr Winram submits that Ms Hadfield’s age is not an “other sufficient cause”: Miles v Shell Company of Australia (1998) 156 ALR 133 per Sundberg J.
Mr Winram submits that Ms Hadfield was further represented by counsel in the District Court proceedings, giving her the opportunity to challenge the circumstances of the Short Minutes of Order and their execution. It is not clear at which stage counsel ceased to represent Ms Hadfield during the Supreme Court proceedings. However, it appears that this was prior to the discussion in respect of the proposed guarantee.
Potential future economic prospects are not a reason to refuse making a sequestration order: Re Mitchelson; Cain v Whyte; Prestia. The evidence tendered show that the development of the water allocation rights is not likely to be achieved in the near future. If the approvals are granted, the immediate benefit appears to be a possible increase in land value which could be used for further finance from lending institutions. If the value of the property increases, there is no suggestion that the trustees in bankruptcy would act imprudently and not realise the full value of the property including the benefit of water extraction rights: Cain v Whyte.
Mr Winram submits that whether Ms Doyle will receive a distribution from Ms Hadfield’s estate or not cannot be determined from the evidence presented. The Creditor’s Petition is for the benefit of the creditors generally and not the sole benefit of Ms Doyle: Re Conomo [1960] ALR 742.
I am not satisfied that the evidence presently before the Court is sufficient to establish that there is an “other sufficient cause” under the provisions of s.52(2)(b) of the Act. Although a number of issues have been raised by Mr Simpson, I am not satisfied that any of them outweigh the consideration that a sequestration order should be made. In the circumstances the Notice Stating Grounds of Opposition to the Petition is dismissed.
I certify that the preceding fifty-two (52) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
Date: 18 July 2008
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