Driver, R.L. v Lomaris Pty Ltd
[1990] FCA 198
•16 May 1990
JUDGMENT NO.
IN THE FEDERAL COURT OF AUSTRALIA )
1
VICTORIA DISTRICT REGISTRY i
1 No VP 177 of 1989 GENERAL DIVISION
) )
BANKRUPTCY DISTRICT OF THE STATE ) OF VICTORIA 1
- RE: R.L. DRIVER
(Judgment Debtor)EX PARTE: LOMARIS PTY LTD
(Petitioning Creditor)
Judge Making Order: Ryan J
Date of Order: 16 May 1990 where Made: r?elbourne MINUTES OF ORDER THE COURT ORDERS:
1. That the petition be dismissed with no order as to costs.
NOTE: Settlement and entry of orders is dealt with by
RECEIVED 6
Bankruptcy Rule 124.
m
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE ) OF VICTORIA )
RE: R.L. DRIVER - (Judgment Debtor) EX PARTE: LONARIS PTY LTD
(Petitioning Creditor)
Coram: Ryan J
Date: 16 May 1990
Place: Melbourne
REASONS FOR JUDGMENT
By its petition presented on 31 March 1989 the petitioning creditor seeks a sequestration order. The petition is based on a ludgment debt founded on an order of the Magistrates' Court at Sandringham made on 10 May 1988 and has
been amended pursuant to an order of Sweeney J. so that it now recites the existence of that judgment debt. Mr Irlicht who appeared for the judgment debtor has Indicated that he no longer persists in the grounds specified in the debtor's original notice of opposition but relles solely on the following grounds appearing In an amended notice dated 1
September 1989: -
"1. That the debtor is and has at all material
times been solvent.
2. That the debt payable by the Debtor to the Petitlonlng Creditor was not payable at the time of the presentation of the Petltlon either immediately or at certain future time by reason of the operation of section 6 (8) of the Judgment Debt Recovery Act (1984) VIC."
It is clear that s.52(2) of the Bankruptcy Act 1966 casts on the debtor an onus of proving that he is able to pay his debts. (See also Trojan v Corporation of Hindmarsh (1987) 16 F.C.R. 37.) In the present case, the debtor is a director or managing director of a company, R.L. Driver Pty Ltd, whlch carries on business as a roofing contractor. The debtor actlvely works in that business and draws from the company a wage or salary of $400 a week. He has a personal bank account wlth a negligible amount standing to its credlt. The company owns a utility which the debtor and hls wife drive in the course of its business. As well, the debtor is purchasing under a hire purchase agreement another motor vehlcle, a "Cellca" sedan, in respect of whlch instalments and running expenses are paid by the company.
Debts are owed to trade suppliers, including about $35,000 to K.H. Stramlt Pty Ltd, between $15,000 and $18,000
to R.W. NcKinna & CO Pty Ltd and about $15,000 to Nelbourne Fibre Glass. Whether those debts, which were described as the "main" trade debts, are owed solely by the company, or whether the debtor has assumed some liability for them as guarantor or
otherwise is unclear.
The debtor and his wife are registered as the jolnt proprietors of a strata title unlt at Brindlsi Street, nentone, which was left to the debtor's wife and her two brothers by thelr mother. The debtor and his wife bought out the shares of her brothers wlth the aid of a bank loan of
$38,000. Some relatively small amount is owlng as arrears of
municipal rates on that property. The debtor values that
property at about $80,000 and says that it is "negatively geared", which I take to mean that he and hls wife receive from it less by way of rent than they are obliged to pay as interest and instalments under the bank loan of $38,000. As well, the debtor and his wlfe are the joint registered proprietors of a matrimonial home at 10 Lyons Court, Nentone, sald by the debtor to be worth at least $215,000. That property is mortgaged to secure a loan of $38,000.
The debtor conceded under cross-examnation that his accountant did all the bookwork for R.L. Driver Pty Ltd and determined the amount whlch the debtor could draw each week by way of wages or salary from that company. Despite the debtor's
evidence was adduced from the accountant. Nor was there any further concession that he is "no good with figures", no evidence, apart from the debtor's own unqualified oplnion, as to the value of the two residential properties in which he is interested, or how readily they could be sold.
Although on 4 Aprll 1989, the Magistrates' Court at Sandringham made an instalment order permitting the debtor to repay the judgment debt by weekly instalments of $120.00 each, none of those instalments has been paid. The debtor indicated when cross-examlned about it that he has a strong objection in principle to paylng any part of the judgment debt and "would rather put a bullet through my head" than pay it.
Reference was made by Mr Irlicht to the fact that the debtor had a bank cheque for $12,027.00, being the amount of the judgment debt which he was willing to pay into Court as an earnest of good faith in support of his contention that he is able to pay hls debts. That course was sald to be sanctioned by the practice followed in Sarlna v Councll of the Shire of Wollondilly (1980) 48 F.L.R. 372. However, it is clear that in that case the money was paid Into Court as a condition, suggested by the debtor himself, of the grant of an adjournment. I did not find it necessary to adjourn the hearing of the present petltion and, accordingly, did not make any order for payment into Court of the proceeds of the bank cheque for $12,072.
Nor does the debtor's possession of that cheque afford any assistance on the question of hls ability to pay his debts, because it became clear that the cheque was obtained by debiting the account of R.L. Driver Pty Ltd. There was no evidence which would permit the inference that the company gave the bank cheque to the debtor in whole or part satisfaction of some pre-existlng liability from it to him.
If the only impediment to payment of the judgment debt were the debtor's unwillingness, I would be bound by the judgment of the Full Court in Sarlna's Case (supra) to hold that a sequestration order should be refused. However, in the llght of the paucity of evidence, to which I have drawn attention, as to the debtor's liability for debts incurred in the course of his company's business, and as to whether the residential properties are readily saleable or for what price, I consider that he has not discharged the onus imposed on him by s.52(2). In reaching that conclusion, I have accepted, as an appropriate test of present ability to pay debts, that formulated as follows by Isaacs J. in Bank of Australasia v Hall (1907) 4 C.L.R. 1514 at 1543, to which I was referred by #r Irlicht:
"The Act requires the debtor to be able to pay his debts as they become due. Thls does not mean that he is always bound to keep by him in cash a sum sufficient to meet all his outstanding indebtedness however dlstant the date of payment may be. If at the time he makes the assignment, the debtor's position is such that he has property elther in the form of assets in possession or of debts, which if realised would produce sufflclent money to pay all his indebtedness, and if that property is in such a position as to tltle and otherwise that it could be realized in time to meet the indebtedness as the clalms mature, with money thus belonging to the debtor, he cannot be said to be unable to pay his debts as they become due from his own moneys. In other words, if the debtor can, by sale or mortgage of property whlch he owns at the time of the assignment change the form of the property into cash wholly or partly but sufficient for the purpose of paying his debts as they become due, that requirement of the sectlon is satisfied."
The second ground relied on by the debtor raises questions of fact and matters of statutory Interpretation of the Judgment Debt Recovery Act 1984. It is common ground that an order was made in the Magistrates' Court at Cheltenham on 10 May 1988 that the debtor pay to the petitioning creditor the sum of $8,345 together wlth costs of $3,073.80 and Interest of $608.48. ~t the same time, the Magistrates' Court granted a stay of execution of its order for one month.
By an application dated 21 February 1989, the debtor
applied to the Magistrates' Court at Cheltenham pursuant to
s.6 of the Judgment Debt Recovery Act for an instalment order
permitting him to pay the judgment debt by instalments of $120 each per week. Notice of that application was fllled up by the Clerk of the Magistrates' Court at Cheltenham and addressed to "Lomaris Pty. Ltd. c/O W.J. Morley 749 Centre Rd. East Bentlelgh". (The petitlonlng creditor's address for service which appeared on the Special Summons on which the order which formed the judgment debt had been made was "C/- W.J. Morley, Solicitors, 749 Centre Road, East Bentleigh".)
By an affidavit of service sworn 21 February 1989
annexed to the application under the Judgment Debt Recovery
~ c t , it was deposed that:
"I served a true copy of the withln application and statement of affairs dated 21/2/89 in relation to the above matter on the within named respondent by posting such copies to W. J. MORLEY, 749 CENTRE RD. EAST BENTLEIGH on the 21 day of 'FEB 1989 at the hour of 5 PM o'clock in the afternoon at the Post Office at C/HAM 3192."
Section 6 of the Judgment Debt Recovery Act is in these
terms :
"6. (1) A judgment creditor or judgment debtor
may at any time after judgment is given apply to
the proper officer of the court-
(a)
where an instalment order has not been made under section 5, for an order that the judgment debt or the balance of the judgment debt then owing to the judgment creditor be paid by instalments; or
(b)
where an instalment order has been made under sectlon 5, for another Instalment order in substitution for the order under section 5.
(2) An application under sub-section (1)
shall-
(a) be in or to the effect of the prescribed form; (b) specify the amount of the judgment debt then owing to the judgment creditor; and (C) specify the amount of each instalment proposed to be pald and the times at which instalments are proposed to be paid.
(3) Subject to and in accordance with the rules, the proper officer of the court may without notice to the judgment creditor or judgment debtor and whether or not the judgment creditor or judgment debtor is before the proper officer-
(a)
order that the judgment debt or the balance of the ludgment debt then owlng to the judgment creditor be paid by the instalments and at the times specified in the application; or
(b) refuse to make such an order.
(4) The proper officer of the court shall cause the judgment debtor and judgment creditor to be notified of an order or refusal to make an order under sub-section (3).
(5) A ludgment creditor or judgment debtor may withln the prescribed period after receiving notice under sub-section (4) file with the proper offlcer of the court notice of objection and the proper offlcer shall set the matter down for hearing by the court.
(6) The proper officer of the court shall cause the ludgment debtor and judgment creditor to be notlfied of the time and place of the hearing.
( 7 ) The court may- (a) where the proper officer has refused to make an order under sub-section (3)- (i) order that the judgment debt or the balance of the judgment debt then owlng to the ludgment creditor be paid by the
instalments and at the times
specified in the order; or
(ii) refuse to make such an order; or
(b)
where notice of objection to the order under sub-section (3) (a) has been filed under sub-section (5), confirm vary or cancel the order of the proper offlcer of the court-
and shall cause the judgment creditor and the
judgment debtor to be notified accordingly.
( 8 ) where an application under sub-section
( 1 ) is made-
(a)
the applicant shall serve a copy of the application on the judgment creditor or
and judgment debtor (as the case may be) ; (b) from the time of service the appllcatlon shall operate as a stay of enforcement or execution of the ludgment in respect of which the application is made until the proper officer of the court or the court (as the case requires) deals with the matter.
(9) Where a ludgment debtor has applied under this section for an instalment order and the proper offlcer of the court or the court (as the case may be) has refused to make the instalment order, the judgment debtor may not make another application under thls sectlon withln three months after that refusal."
Mr Lenczner of Counsel for the petitioning creditor argued that there had been no effective service on his client of any application under the Judgment Debt Recovery Act as requlred by s.6(8) of that Act. The application under that Act, it was said, was a separate and distinct proceeding from the proceedings instituted by Special Summons out of which the judgment debt arose. Consequently, Mr Lenczner contended, service of the application at the office of a solicitor given as the address for service on the Special Summons was not effective servlce to operate as a stay of enforcement or execution of a judgment entered after the hearing and determination of that summons.
mr Irlicht, on the other hand, argued that service on the sollcltor named in the judgment credltorfs Speclal Summons was good service by virtue of r.37(1) of the Magistrates' Court Rules. That rule provldes:
"Where a solicitor acts for any party, service of any process or document upon the solicitor by delivering it to him personally or leaving it at his office or sending it to him by post shall be deemed to be sufficient service upon the party for
whom he acts."
Section 22 of the Judgment Debt Recovery Act provldes for the maklng of rules governing service of documents under that Act by stipulating that:
"The power to make rules under the Supreme Court Act 1958, the County Court Act 1958 and the Magistratesr Courts Act 1971 extends to and applies in relation to the making of rules for and with respect to-
(a)
prescribing forms for the purposes of this Act;
(b) the procedure of the court under this Act;
(C) the functions of the proper officer of the
court under this Act;
(d)
the costs of parties to proceedings under this Act;
(e) the manner of service of any documents;
(f)
requiring fees to be paid in relatlon to proceedings under this Act;
(g) prescribing fees; and
(h) any matter or thing requlred or necessary to be prescribed for the purposes of this Act."
That power was exercised after the enactment of the Judgment Debt Recovery Act by the making of the Judgment Debt Recovery (Magistrates' Courts) Rules 1985 (S.R. No 4 3 of 1985). Those rules prescribe forms for use in applications under the Act but do not exhaustively describe the manner of service of applications under s.618). By r.9 it is provided that:
"An applicant under sectlon 6 (1) of the Act shall
within a reasonable tlme after serving a copy of the application on the ludgment debtor or judgment credltor (as the case may be) give notice to the
proper officer of the court of that service."
The only specific prescription of a manner of service which the rules contain is the statement in r.21 that:
"Where any document is required to be served under the Act, it shall be sufficient compliance if the document is served by post."
The point is not free from difficulty, but I have concluded that service on the solicitor on the record for a party to proceedings in a court to which the Judgment Debt Recovery Act applies is good service for the purposes of s.6(8) of that Act. In my view the Judgment Debt Recovery Act impinges on the working out of a judgment in, amongst others, a Magistrates' Courts. In terms it is made applicable by 5.4 to any judgment made or glven before or after its commencement. As well I refer, in addltion to s.6 reproduced above, to 5.9 which provides:
"While an lnstalment order is ln force and is being complled with, the instalment order shall operate as a stay of enforcement or execution of the judgment in respect of whlch the lnstalment order was made. "
In Lady de la Pole v Dlck (1885) 29 Ch.D 351 Cotton L.J., with whom Bowen and Fry L.J.J. agreed, observed at 356:
"In the present case, however, I think it clear that, the fruits of the judgment not havlng been obtained by the Plaintiff, there still was a duty imposed on the Defendant's solicitor on the record as between himself and his client, so far as the client had not discharged him, and also as regards the other side, so as to make service upon him
when he ceases to act does not discharge him. good service. The neglecting to change a solicitor Rolle, C.J., lays down in Lawrence v. ~arrison l ~ h e only question is, whether fhe warrantof attorney be determined by the judgment glven in the suit wherein he was retained; and I conceive it is not, for the suit is not determined, for the attorney after the judgment is to be called to say why there should not execution be made out agalnst his cllent, and he is trusted to defend his client as far as he can from the execution.' According to that principle, until the judgment has been worked out, there is a duty imposed on the solicitor on the record to defend his cllent agaznst any improper steps taken for the purpose of enforcing the judgment. Until that time, therefore, the solicitor on the record must be taken, as between
hlm and the opposite party, to represent the cllent, unless the client not only discharges him but substitutes another solicitor on the record. Therefore, without declding whether the representation continues so long as the r ~ g h t of appeal exists, we hold that in the present case the Defendant's solicitors on the record did contlnue to represent him, and that the service was good."
That passage was applled by Legoe J. in Milera v Wilson
(1980) 23 S.A.S.R. 485 at 486. See also Callow v Younq (1886) 55
L.T. 543 and Bagley v Maple and Co. (Limited) (1911) 27 T.L.R. 284 where Scrutton J. held that there had been good service of a notice of motion under the Married Woman's Property Act 1893 in respect of the costs of an action for recovery of certain chattels where the n o t ~ c e of mot~on had been served on the solicitors on the record for the married woman who had been the plaintiff in the action.
It follows from my conclusion that from the time of its service on the solicitor, W.J. Morley, on or about 23 February
1989, the application under the Judgment Debt Recovery Act
operated as a stay of enforcement or execution of the judgment
debt. That stay continued in force at the time of the
presentat~on of the petition on 31 March 1989. Consistently with the observat~ons of Riley J. in Re Agrillo (1977) 29 F.L.R. 484,
which I followed in Re Faulkner; Ex parte Deputy Comm~ssioner of Taxation (unreported 1 February 1989) a judgment debt, the enforcement of which has been stayed by operation of s.6(8) of the Judgment Debt Recovery Act, is not, at the time of presentation - of the petition, payable elther immediately or at a
certain future t ~ m e as required by s.44(l)(b) of the Bankruptcy
Act. In Re Agrillo, Riley J. observed, at 487:
"The question in this case is whether the debt must answer the description contained in s.44(1)(a) and (b) not only at the date of presentation of the petitlon (cf. Sophian v. A.-J. Clifford & Son [l9471 K.B. 212) and at the date of the act of bankruptcy but also at the date of the hearlng of the petition. Lord Evershed, in the ludgment to which I have referred, took it for granted that it must.
In Re Snowden; Ex parte Deputy Commissioner of Taxation (Vic.) [l9701 A.L.R. 229, at pp. 229-230 Gibbs J. held that the terms of s.44[l)(a) and s.52(l)(c) 'leave no doubt that a petitioning creditor who seeks a sequestration order must prove that a debt amounting to at least $500 was owing at the date of the presentation of the petition and remains owing at the date of the hearlngr; in other words, that the debt must answer the description contained in s.44(1)(a) at the date of the hearing. If that is so I see no reason why it should not at the same time have to answer the description contained in s.44(l)(b)."
In the present case, an Instalment order was not made by the proper officer of the Magistrates' Court until 4 April 1989. Thus from about 23 February until the latter date, the judgment debt was not payable either immediately or at a certaln future time. Since the petltlon was presented during that period on 31 March 1989, the requirements of s.44(l)(b) were not satlsfled and the petition must be dismissed. I shall
hear Counsel on the question of costs.
I certify that this and the preceding twelve (12) pages are a true copy of the Reasons for Judgment of His Honour Mr Justice Ryan.
Associate:
Date: 6 MW I f 9 0
Counsel for Debtor : Mr T. Irlicht Solicitors for Debtor : Irlicht & Broberg Counsel for Petitioning Creditor : Mr J. Lenczner
Solicitors for Petitioning Creditor : Eugene Wawer & CO
Date of Hearlng : 13 September 1989 Date of Judgment : 16 May 1990
0