Hamilton-Smith v George

Case [2006] FCA 1551

FEDERAL COURT OF AUSTRALIA

Hamilton-Smith v George [2006] FCA 1551

BANKRUPTCY – appeal against sequestration order made by Federal Magistrate – order made on creditor’s petition – where concurrent proceedings in State Court considering question of whether judgment debt satisfied – where appellant asserts accord and satisfaction in respect of judgment debt – where appellant elected not to prove accord and satisfaction before Federal Magistrate – whether Magistrate erred in finding debt still owing – where appellant’s counsel conceded in Federal Magistrates Court that appellant could not prove solvency – whether Magistrate erred in failing to find that debtor was able to pay debts – whether Magistrate erred in failing to find that petition issued for improper purpose – whether Magistrate should have exercised discretion pursuant to s 52 of Bankruptcy Act 1966 (Cth) to dismiss or adjourn petition.

EVIDENCE – direct speech – where evidence of contents of conversations given on affidavit – where evidence of conversations not evidence of actual words used – whether rule of practice that evidence of conversations be in the form of direct speech – whether evidence of conversations may be in the form of indirect speech where direct speech not possible – where witness did not directly state that indirect evidence represented best recollection – whether impossibility of evidence in the form of direct speech can be inferred from wording of affidavit – effect of s 56 of Evidence Act 1995 (Cth).

Held – open to Magistrate to conclude that proceedings in State court not sufficient cause for adjournment or dismissal of petition – Magistrate entitled to rely on counsel’s concession that solvency could not be proved – common law rule of practice that evidence of conversations be in the form of direct speech where available – where witness cannot recall exact words, substance or effect of conversation may be given – Court may infer that witness cannot recall exact words of conversation – evidence of conversations admissible by virtue of s 56 of Evidence Act 1995 (Cth) – Magistrate erred in rejecting evidence relevant to question of improper purpose – appeal allowed.

Federal Court of Australia Act 1976 (Cth) s 25(1A)
Bankruptcy Act 1966 (Cth) s 52
Federal Magistrates Act 1999 ss 102, 103, 104
Federal Magistrates Court Rules 2001 r 20.03
Evidence Act 1995 (Cth)
Extradition (Foreign States) Act 1966 (Cth) s 26

Commonwealth of Australia v Riley (1987) 5 FCR 8 referred to
George v Hamilton-Smith (No 2) [2006] FMCA 1018 referred to
George v Hamilton-Smith [2006] FMCA 566 referred to
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31 referred to
Makhoul v Barnes (1995) 60 FCR 572 referred to
Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163; 48 FLR 372 referred to
Rozenbes v Kronhill (1956) 95 CLR 407 referred to

J D Heydon, Cross on Evidence (7th ed, 2004) referred to
J H Wigmore, 3 Wigmore on Evidence § 766 (Chadbourn rev, 1970) referred to

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Details
AGLC
Hamilton-Smith v George [2006] FCA 1551
Case
[2006] FCA 1551
Decision Date

CaseChat Overview and Summary

The appeal in Hamilton-Smith v George before the Federal Court of Australia concerns the bankruptcy of Ms Tanya Hamilton-Smith, initiated by Ms Georgina George. Ms George obtained a judgment against Ms Hamilton-Smith in the Magistrates Court of South Australia for a debt of $4,079.80, which was affirmed on review. Unable to recover the debt, Ms George issued a bankruptcy notice and subsequently a creditor’s petition against Ms Hamilton-Smith. Ms Hamilton-Smith contests the bankruptcy by claiming that an accord and satisfaction occurred in December 2003, where she transferred items of manchester to Ms George in satisfaction of the debt. The legal issues before the court were whether the debt was satisfied by the transfer of goods, and if not, whether the bankruptcy notice was issued for an improper purpose or was an abuse of process.

The court examined the evidence and found that Ms Hamilton-Smith did not establish on the balance of probabilities that the debt was satisfied before the bankruptcy notice was issued. The Federal Magistrate had previously rejected the arguments that the bankruptcy notice was issued for an improper purpose or was an abuse of process. However, the court found that the Federal Magistrate had not considered all the evidence and misapplied the law. The court held that Ms Hamilton-Smith had demonstrated a good prospect of satisfying her defence at a trial, and thus, the appeal must be allowed. The sequestration order made by the Federal Magistrates Court was set aside.

The court ordered that the appeal be allowed, the sequestration order against Ms Hamilton-Smith be set aside, and that the parties be heard on other appropriate orders. This decision underscores the importance of thorough evidence evaluation and correct legal application in bankruptcy proceedings, highlighting the necessity for the court to consider all relevant evidence and arguments when making decisions regarding the propriety of bankruptcy notices and the satisfaction of debts.

Orders

Orders of the court

1. The appeal be allowed.

2. The sequestration order against the estate of Ms Tanya Hamilton-Smith made by the Federal Magistrates Court on 19 July 2006 be set aside.

3. The parties be heard on other appropriate orders.

Background

Background to the litigation

The Acting Chief Justice has directed that the appellate jurisdiction of the Court in relation to this appeal be exercised by a single Judge: Federal Court of Australia Act 1976 (Cth) s 25(1A).The facts This matter has a long history and it will be necessary for me to outline that history in some detail. The starting point is the judgment debt which forms the basis of the creditor’s petition. The respondent allegedly lent moneys to the appellant and those moneys were not repaid. On 12 November 2002 the respondent brought a claim in the Magistrates Court of South Australia to recover the moneys and on 25 August 2003 she obtained judgment against the appellant in the sum of $4,079.80. That judgment is the judgment debt. It was affirmed on review on 27 November 2003. The respondent could not recover the moneys from the appellant and on 24 June 2005 she issued a bankruptcy notice against the appellant. On 26 September 2005 the respondent presented a creditor’s petition against the appellant. The appellant claims that on 13 or 14 December 2003 she agreed to transfer to the respondent certain items of manchester (owned by the appellant) in satisfaction of the judgment debt. She claims that the items of manchester transferred to the respondent were valued at about $5,600. It is not clear why she transferred manchester items of that value having regard to the amount of the judgment debt, but the resolution of that question is not necessary for present purposes. The respondent denies that she reached any agreement or arrangement with the appellant and denies that she received any manchester items from her. On 25 October 2005 the appellant brought a claim in the Magistrates Court of South Australia in relation to the events she said occurred on 13 or 14 December 2005. In those proceedings she claims either a declaration that the judgment debt has been satisfied, or alternatively, payment for goods sold and delivered by her to the respondent. It is important to note that in the proceedings in the Magistrates Court of South Australia the appellant does not assert that there was no judgment debt but, rather, that there was an accord and satisfaction whereby the debt was satisfied. Alternatively, she claims that she is entitled to a money judgment against the respondent greater than or at least equal to the judgment debt. I will refer to these proceedings as the State Magistrates Court proceedings. I turn now to consider the proceedings which have taken place in the bankruptcy jurisdiction of the Federal Magistrates Court. A number of them took place before the commencement of the State Magistrates Court proceedings. On 24 June 2005 the respondent issued a bankruptcy notice against the appellant based on the judgment debt and that notice was served on the appellant on 1 July 2005. On 21 July 2005 the appellant applied for an order setting aside the bankruptcy notice: s 30 of the Act. She claimed that the judgment debt had been satisfied on the basis of the events which occurred on 13 or 14 December 2003. The application came on for hearing before Registrar Christie. After hearing evidence, Registrar Christie said that the appellant had not satisfied her on the balance of probabilities that the judgment debt was satisfied before the issue of the bankruptcy notice, or at all. It is not clear to me to what extent the appellant alleged before the Registrar that the bankruptcy notice was issued for an improper purpose or was an abuse of process but, in any event, the Registrar rejected both arguments. The Registrar made an order that the application to set aside the bankruptcy notice be dismissed and that the appellant pay the respondent’s costs.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

BESANKO J
The discretion point does not arise because I reject the petitioner’s debt point and the solvency point. The question of the discretion in relation to the improper purpose does not arise unless and until an improper purpose is found.Conclusions The appeal must be allowed and the sequestration order made by the Federal Magistrate must be set aside. I will hear the parties on other appropriate orders.

Ratio Decidendi

Legal Principle Established

Established by: BESANKO J

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