McFarlane v Eastern Pastoral Co Pty Ltd

[1999] FCA 1221

FEDERAL COURT OF AUSTRALIA

McFarlane v Eastern Pastoral Co Pty Ltd [1999] FCA 1221

BANKRUPTCY – whether the petition should be dismissed because the Court is satisfied that the debtor is able to pay his debts or “for other sufficient cause”

WORDS AND PHRASES – “Bankruptcy” – “sequestration order”

Bankruptcy Act 1966 (Cth) ss 52(2) and 153A

Ling v Enrobook Pty Ltd (1997) 74 FCR 19 - cited

McFARLANE v EASTERN PASTORAL CO PTY LTD (TRADING AS AGRICULTURAL ASSESSMENTS)

V 103 OF 1999

JUDGES:      RYAN, MERKEL AND KENNY JJ
DATE:           16 SEPTEMBER 1999
PLACE:         MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 103 of 1999

BETWEEN:	MALCOLM JAMES MCFARLANE Appellant
AND:	EASTERN PASTORAL CO PTY LTD (TRADING AS AGRICULTURAL ASSESSMENTS) (ACN 007 440 593) Respondent
JUDGE:	RYAN, MERKEL AND KENNY JJ
DATE OF ORDER:	16 SEPTEMBER 1999
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.   The appeal be dismissed.

2.   The respondent’s costs of the appeal, including reserved costs, be taxed and allowed as the petitioning creditor’s costs in the administration of the bankrupt estate of the appellant.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 103 of 1999

BETWEEN:	MALCOLM JAMES McFARLANE Appellant
AND:	EASTERN PASTORAL CO PTY LTD (TRADING AS AGRICULTURAL ASSESSMENTS) (ACN 007 440 593) Respondent
JUDGE:	RYAN, MERKEL AND KENNY JJ
DATE:	16 SEPTEMBER 1999
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE COURT:

1. This is an appeal from a Judge of this Court (Finkelstein J) dismissing a motion by the appellant to review the decision of a Judicial Registrar, made on 14 November 1998 on the petition of the respondent, that the estate of Malcolm McFarlane be sequestrated.

2. The petition was based upon an act of bankruptcy by the appellant which occurred as a result of a failure to pay the amount of a judgment debt due by him to the respondent in the sum of $6,814.32 together with interest and costs which was the subject of a bankruptcy notice.

3. The appellant appeared in person before the primary Judge.  However, despite the difficulty under which the appellant laboured, it appears fairly clear that the primary Judge considered every point that could have been advanced by the appellant in opposition to the petition.  After giving careful and anxious consideration to all of the evidence before him, the primary Judge found that there was no proper basis upon which he could set aside the decision of the Judicial Registrar.

4. The appellant also appeared in person on his appeal although the Court permitted the appellant to be assisted in presenting his appeal by his adviser.

5. A number of issues were raised before the primary Judge.  However, only one issue was considered by his Honour to be a matter of substance.  That issue related to a proceeding of the appellant in the Supreme Court of Victoria instituted in 1995 against the National Australia Bank (“the Bank”), seeking to recover damages, interests and other relief against the Bank.  The Bank had sought to obtain possession of property that had been mortgaged to it and judgment for a debt due by the appellant which, inclusive of interest at the time of the hearing before the primary Judge, exceeded $600,000.  The appellant’s commenced a counterclaim in respect of allegedly negligent advice by the Bank and an alleged breach of fiduciary duty said to have been owed by the Bank to the appellant.  The appellant contends that this led to him suffering loss and damage which he contends exceeds the amount due to the Bank from the appellant, by more than $200,000.

6. The point of substance considered by his Honour was whether, pursuant to s 52(2) of the Bankruptcy Act 1966 (Cth), the Court ought to dismiss the petition because it was satisfied by the debtor that he is able to pay his debts or that “for other sufficient cause” an order should not be made. In reliance upon the decision of the Full Court in Ling v Enrobook Pty Ltd (1997) 74 FCR 19 at 25 his Honour said:

   “It is not enough in my view for a debtor to show merely that he has a claim on foot.  The debtor must demonstrate that the claim is a good claim or, at the very least, that it is an arguably good claim and that the damages that might be recovered will be, or are likely to be, sufficient to discharge his debts.”

7. His Honour then set about a detailed examination of the material placed before him by the appellant in order to determine whether the appellant had demonstrated an arguably good claim against the Bank which would, or was likely to, lead to the recovery of an amount sufficient to discharge his debts.

8. The primary difficulty confronting the appellant before his Honour was that there seemed to be no proper basis for contending that he was not indebted to the Bank in a sum likely to be around $600,000.  Thus, it was incumbent upon the appellant to persuade his Honour that the damages he was likely to recover pursuant to his counterclaim would exceed that sum.  We are satisfied that, in evaluating that matter, his Honour considered all of the material placed before him and that, in doing so, he did not err in fact in arriving at the conclusion which he expressed as follows:

   “Thus, on the evidence that I have, it does not appear that Mr McFarlane will be able to recover by way of damages, an amount that will be sufficient to discharge all his debts, even taking into account the value of his assets.  Of course I might be wrong in this regard.  But, Mr McFarlane has the onus of establishing that there is sufficient cause why a sequestration order should not be made and he has not discharged that onus.  In these circumstances, I cannot accede to Mr McFarlane’s application to discharge the orders made by the Judicial Registrar and dismiss the petition.”

9. We have considered the reasons advanced by the appellant as to why his Honour erred in fact in concluding that the appellant had not established that the amount he was likely to recover on his counterclaim against the Bank was likely to exceed the amount of his indebtedness to the Bank.  Although the appellant relied on particular aspects of the material before his Honour in an endeavour to persuade us that his Honour made some factual error, we are not persuaded that any error in fact was made by his Honour as was contended.  More importantly, we are not persuaded, either by the evidence adduced at first instance or the additional matters adverted to before this Full Court, that the appellant demonstrated that he has an arguably good claim against the Bank which is likely to result in his recovering damages on his counterclaim in an amount that exceeds his debt to the Bank and will enable him to discharge his other debts, including the judgment debt due to the petitioning creditor.  In those circumstances, in our view, his Honour was correct in concluding that the appellant had not demonstrated sufficient cause for dismissing the petition of the respondent.

10. Before us the submission was made that the material now available better puts the points the appellant was seeking to demonstrate to the primary judge.  Whilst we doubt that the additional material satisfies the test for “new evidence” on an appeal, we are satisfied that, even if that material had been before his Honour, it would not have affected the conclusion at which he arrived.  One additional matter should be mentioned.  The appellant relied upon a letter to the effect that there had been a “without prejudice” offer by the Bank to settle the proceeding and the counterclaim on the basis of a payment of $300,000 to the Bank.  The offer was rejected by the appellant and the matter was therefore left to proceed to trial.  In these circumstances, his Honour was not required to regard the Bank’s offer as remaining open or to treat the Bank’s claim as being for no more than $300,000 or to arrive at a conclusion that the outcome of the litigation was unlikely to result in an indebtedness to the Bank in a sum that does not exceed $300,000.

11. The appellant applied for an adjournment of the appeal before us on the basis that a mediation had been appointed to occur in respect of the Supreme Court proceeding on Monday, 6 September.  We indicated at the conclusion of that application that we would not adjourn the hearing of the appeal but would explain our reasons for refusing to do so in these reasons for judgment.  Putting to one side the considerable doubts we entertain as to the power of the Court to set aside or annul a sequestration order on the basis of new evidence, the application for adjournment encountered the significant difficulty that it was founded on the same issue proposed to be argued on the appeal itself, namely, whether there is a likelihood that the resolution of the Supreme Court proceeding will enable the appellant to pay all his existing debts.  For the reasons we have already given we are not so satisfied.  Accordingly, we were not persuaded that it was an appropriate exercise of our discretion to adjourn the hearing of the appeal.

12. After the hearing of the appeal the appellant filed an Affidavit which disclosed that the Bank had accepted an offer by the appellant and his wife to settle their dispute by the sale by the Bank, as mortgagee, of the properties mortgaged to the Bank with the net proceeds of sale being split, 80% to the Bank and 20% to the appellant and his wife.  The appellant and his wife agreed to consent to judgment for possession of the properties and provide vacant possession by 1 February 2000.  The sale is subject to the approval, if required, of the appellant’s trustee in bankruptcy.  According to the appellant’s affidavit, if his valuation of the properties is achieved on sale, he and his wife will receive an amount of $81,000 to $84,000 after payment of unpaid rates.  The respondent was not a party to the settlement.

13. Whilst we have some sympathy with the position of the appellant, as explained above, the material before the Court does not establish that Finkelstein J erred in law or in fact.  Accordingly we are not satisfied that the settlement has the consequence that the appellant is entitled to succeed on his appeal.

14. If the appellant’s expectations are realised and the properties are sold pursuant to the settlement for a sum that enables payment of the appellant’s debts, as defined in s 153A of the Act, he will be entitled to have his bankruptcy annulled pursuant to that section.

15. For the reasons already given the appeal must be dismissed.  We shall order that the respondent’s costs of the appeal, including reserved costs, be taxed and allowed as petitioning creditor’s costs in the administration of the bankrupt estate of the appellant.

I certify that the preceding thirteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Ryan, Merkel and Kenny JJ

Associate:

Dated:             16 September 1999

For the Appellant:	Mr MJ McFarlane in person
Counsel for the Respondent:	Mr J Nolan
Solicitor for the Respondent:	Barker Gosling
Date of Hearing:	2 September 1999
Date of Judgment:	16 September 1999