National Australia Bank Limited v Van Eps

[2014] FCCA 1899

FEDERAL CIRCUIT COURT OF AUSTRALIA

NATIONAL AUSTRALIA BANK LIMITED v VAN EPS [2014] FCCA 1899

Catchwords:  
BANKRUPTCY – Petitioning creditor seeks sequestration – debtor asserts likely capacity to pay debts from proceeds of Supreme Court litigation – action has been vigorously prosecuted and is listed for trial in November 2014 – hearing of petition adjourned to February 2015.

Legislation:

Bankruptcy Act 1966: s.52(1), 52(2), 52(b)

Ling & Enrobook Pty Ltd (1997)74 FCR 19

Applicant: NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937

Respondent: JULIE AND PETER VAN EPS

File Number: BRG 467 of 2014

Judgment of: Judge Baumann

Hearing date: 7 August 2014

Date of Last Submission: 7 August 2014

Delivered at: Brisbane

Delivered on: 28 August 2014

REPRESENTATION

Solicitor for the Applicant: Mr Grady

The Respondent: In person

ORDERS

1. This matter be adjourned to 9:30am on 9 February 2015 in the Federal Circuit Court of Australia at Brisbane.

2. By 31 January 2014 the Respondent Ms Van Eps shall file and serve an Affidavit deposing as to the results of the Supreme Court litigation.

3. The Costs of the Petitioning Creditor be reserved.

4. Exhibit 1 in these proceedings be sealed and shall not be inspected without prior leave of the Court.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRG 467 of 2014

NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937

Applicant

And

JULIE AND PETER VAN EPS

Respondent

REASONS FOR JUDGMENT

1. The petitioning creditor, the National Australia Bank Limited (“the Creditor”) filed a Creditor’s petition on 21 May 2014, which was founded on:-

   a)Final judgment against Peter Van Eps and Julie Van Eps (“the Debtors”) made on 7 March 2014 by the Supreme Court of Queensland for $169,894.85; and

   b)A Bankruptcy Notice issued on 31 March 2014, founded on that judgment, which has not been set aside or satisfied.

2. I am satisfied proper service of both the bankruptcy notice and the petition was effected. The debtors do not say otherwise, asserting in their Notice of Opposition to the Petition they filed on 23 June 2014 that: -

   “1.The Respondents are able to pay their debts; or

   2.There is other sufficient cause a sequestration order ought not be made.”

3. I should record that although the Debtors, who are an intact married couple with five infant children in their care, did not have legal representation, Mr Van Eps is a practising barrister at the Queensland Bar. The Affidavits filed on behalf of the debtors and the written submissions reflect a cogent understanding of the principles – shaped however by the emotional impact these proceedings and, no doubt, the litigation in the Supreme Court of Queensland has had on the debtors.

4. This was manifested by the difficulty demonstrated by Ms Van Eps in allowing her Husband to make his legal submissions and also the solicitor for the petitioning creditor, without interruption. This was most obvious when the issue of the Court receiving a copy of senior Counsel’s opinion was canvassed on 6 August 2014.

5. Procedurally, the petition came before Registrar Lynch on 25 June 2014, when the Registrar directed that the respondent debtors file “any material as to solvency by 14 July 2014” and otherwise adjourned the hearing of the petition to 16 July 2014. No further material as to solvency has been filed by the debtors, save that they rely upon the successful conclusion of the litigation in the Supreme Court which I deal with next, to establish from their perspective a prospect of satisfying their debts (including the petitioning creditor) as and when they fall due. For context, the judgment debt is the shortfall owed to the Bank, as a secured creditor, after the family home was sold. None of the evidence offered by the debtors, satisfies the Court that they have any sustainable defence, set off a counter-claim against the bank.

Whether to Further Adjourn the Creditors Petition

1. In circumstances where the evidence available to the Court on 6 August 2014 establishes that the petitioning creditor has satisfied the requirements of s.52(1)of the Bankruptcy Act 1966, the last avenue for the debtors in an attempt to avoid sequestration is either for the Court to dismiss the petition under s.52(2) or, for a period, to delay the hearing of the petition by adjourning its judicial determination.

2. In a finely balanced exercise of discretion, the Court has decided to adjourn the further hearing of the petition until 9:30 on 9 February, 2015. In coming to this conclusion the Court finds:-

   a)That debtor Julie Van Eps has been in control of a company called Boost Foods Pty Ltd, pursuant to a Deed of company arrangements dated 13 September 2010 (“DOCA”).

   b)Pursuant to clause 4.5.1 of the DOCA the sole purpose of vesting control in Ms Van Eps is to pursue legal proceedings against Blu Oak Pty Ltd and/or Bradley Wardrop-Brown, and to that end Ms Van Eps is responsible for funding those legal proceedings.

   c)Proceedings were commenced on 11 March 2011 in the Supreme Court of Queensland and have been actively and vigorously prosecuted and, it seems, defended. The Affidavit of Ms Van Eps filed 23 June, 2014 provides copies of a number of pleadings filed in that Court.

   d)The Plaintiff in the Supreme Court proceedings, Boost Foods Pty Ltd, through the efforts of Ms Van Eps, has secured legal representation on a contingent fee basis – essentially whilst Ms Van Eps must find outlays including, it seems, Counsel and experts’ fees, the solicitors on the record for the plaintiff will accept payment at the conclusion of the litigation.

   e)The pleadings and the advice from Counsel, reflect the complexity of the litigation, and the Court accepts that the debtor Ms Van Eps, has been joined as a third party against whom a contribution by the Defendants is sought.

   f)On 6 August 2014, when the matter was listed to consider the making of a sequestration order by the Court, the Court was asked to rule on an objection made by the solicitor advocate for the petitioning creditor, Mr Mitchell Grady, that paragraph 29 of the Affidavit filed 23 June 2014, be struck out. The objection was accepted as valid. Then Ms Van Eps produced at the bar table, a copy of some legal advice, said to be dated 20 June 2014. As the transcript will reveal, an exchange between the bench and both debtors took place, after which the debtor Ms Van Eps tendered the advice. It was marked “Exhibit 1”.

   g)The advice dated 20 June 2014 and signed by both Senior and Junior Counsel was 83 pages in length. I indicated to the debtors that the Court would need to read the advice – and that the solicitors for the petitioning creditor similarly were entitled to do so. A copy of Exhibit 1 was provided to the solicitor advocate for the petitioning creditor and the further hearing of the petition was adjourned until the following day, 7 August 2014.

   h)On 7 August 2014, before taking further submissions orally, I gave leave to Ms Van Eps to file a further Affidavit, which deposed to the fact that after the hearing on 6 August 2014, she had received an email from the Supreme Court of Queensland, civil list manager informing her that the matter of Boost Foods Pty Ltd v. Blu Oak & Wardrop-Brown had been listed for a two week trial commencing 17 November 2014 before Mr Justice Boddice.

3. I accept it could well be prejudicial to the position of the plaintiff in the Supreme Court case 2038/2011 if the full contents of the advice dated 20 June 2014 were canvassed in these reasons and then become available to the defendants in those proceedings. As a result, I propose to order that Exhibit 1 be sealed, and that the exhibit not be available for inspection by another person without leave of the Court.

The Petitioning Creditor’s Position

1. The position of the petitioning creditor was very vigorously and ably articulated by Mr Grady both in his written and oral submissions. When the matter returned to my list on 7 August 2014 the thorough dissection of the advice dated 20 June 2014 (Exhibit 1) by Mr Grady demonstrated he had carefully read the advice.

2. Although Mr Grady rejected the prospects of the plaintiff’s claim being in the region of $5.5 million which, on the payment as a priority of a success fee of 20% to Ms Van Eps, would compute to a gross payment in excess of $1 million, Mr Grady acknowledged that senior Counsel had summarised that some aspects of the claim has “reasonable prospects of success”. I accept that counsel, not surprisingly, relies upon the plaintiff’s witnesses and experts coming up to proof. It is clear this is quite complex commercial litigation.

3. However, the history of the litigation reveals that it has been actively prosecuted and is nearing a finalisation after over three years of litigation. Having said that there are some aspects of the claim which Mr Grady strongly contends would persuade the Court against adjourning his client’s application.

4. First, the action is against an unrelated party and by a company, although controlled by Mr Van Eps through the DOCA, and cannot result in any direct benefit to Ms Van Eps and certainly none at all to Mr Van Eps.

5. Secondly, the best that can be achieved by Ms Van Eps (assuming she does not incur a finding that she contribute to any success by the Plaintiff Company), is a gross payment of 20% of the award. Her lawyers have a right to be paid, such that the amount of any payment to Ms Van Eps is both tenuous and very uncertain as to quantum. Furthermore, as the Full Court in Ling & Enrobook Pty Ltd (1997) 74FR19  made clear, the Courts do not recognise a public interest in allowing litigation already commenced, to be prosecuted by an insolvent debtor. The Full Court, which was dealing with an appeal against a sequestration order made where the Appellant’s pending action in tort against the Commonwealth did not amount to “other sufficient cause” within the meaning of s.52(b) of the Act, did recognise that it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration.

6. Thirdly, even if the Supreme Court litigation was as successful as the debtor Ms Van Eps hoped, the only way that Mr Van Eps would benefit from the fruits of that litigation would be if Ms Van Eps discharged the debt due to the creditor bank (together no doubt with further interest and costs), in full. It is asserted that the debt is a joint and several liability. Nothing arises from the fact that the debtors are currently married, guarantees such relief for Mr Van Eps.

7. That even though the bankruptcy of Ms Van Eps would be a fact that could cause the current Supreme Court litigation to be no longer prosecuted, a Trustee in Bankruptcy might consider electing to continue the litigation. Although the impact of s.60(2) and (3) of the Bankruptcy Act, was not fully argued before me, as Ms Van Eps is not a “person” who commenced an action – the action being in the name of the company - in my view there are real doubts that a Trustee in Bankruptcy could elect to prosecute the action in the Supreme Court. In the unusual circumstances of this case, where Ms Van Eps has (through the DOCA) engaged in this complex litigation with the assistance of the solicitors, Counsel and experts, I take the view that a sequestration order against Ms Van Eps will cause the litigation to end.

8. I do not ignore of course, not only the public interest in not allowing insolvent persons to litigate but, also the real prejudice to the petitioning creditor in a delay in securing an order for sequestration which they have demonstrated they are entitled, absent an exercise of discretion judicially shaped by principle, to obtain.

Conclusion

1. I have taken into account the principles above, and whilst the petitioning creditor, I am assured does not regard these proceedings as a debt recovery exercise, I think the most just approach is to adjourn the hearing of the petition until a date in February 2015 to allow the well advanced litigation in the Supreme Court of Queensland to proceed to trial (or settlement) and judgment.

2. I will order in addition to the adjournment of the hearing of the petition that: -

   a)By 31 January 2014 the Respondent Ms Van Eps shall file and serve an Affidavit deposing as to the results of the Supreme Court litigation; and

   b)The Costs of the Petitioning Creditor be reserved.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Judge Baumann.

Associate: 

Date:  28 August 2014