Re Boscolo, Sylvia Ex Parte Boscolo, Sylvia v Botany Council

[1996] FCA 699

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION                )    No. NB 1180 of 1996
BANKRUPTCY DISTRICT                  )
OF THE STATE OF NEW SOUTH WALES  )

Re:SYLVIA BOSCOLO

Bankrupt

Ex parte:SYLVIA BOSCOLO

Applicant

And:BOTANY COUNCIL

Respondent

REASONS FOR JUDGMENT

EINFELD J                 SYDNEY              24 JUNE 1996

The debt involved in this matter arose in consequence of an order of the Land and Environment Court made on 2 April 1992 that Mrs Boscolo pay the costs of the Botany Council of a matter before that Court, the costs eventually being certified on 11 August 1992 at some $3725 odd.  The debt not having been paid, a bankruptcy notice was served on Mrs Boscolo on 21 January 1995 by the Council.  It was a 28 day notice so that towards the end of February Mrs Boscolo, who did not respond to the bankruptcy notice or pay the debt contained in it, committed an act of bankruptcy.  On 16 August 1995 a creditor's petition was presented and on 5 December served on Mrs Boscolo.  At the end of quite a saga of events which I shall relate, Registrar Quinn made a sequestration order against the debtor's estate on 30 April 1996 but stayed the order to permit an application to be
made to a Judge of the Court for an annulment, suspension or review of the sequestration order.  An application for an annulment was filed but it was replaced by at least two other versions before it reached its present form before me today where the substantive orders sought are that the sequestration order of the Registrar be reviewed pursuant to sections 14(5) and 31A(6) of the Bankruptcy Act and be "set aside" on the grounds that the order ought not to have been made.  There then follows under a heading, Grounds for Review and Annulment, various grounds upon which it is said both that an adjournment should have been granted by Registrar Quinn on 30 April of the application for a sequestration order and that the sequestration order ought not to have been made at that time.

The circumstances of the bankruptcy hearing on 30 April before Registrar Quinn were these.  There was an appearance on behalf of the petitioning creditor but no appearance by or for Mrs Boscolo.  She had sent an affidavit to the Court on the previous day saying that she would not be able to be present at the hearing because her solicitor was no longer appearing for her and because she was required on 30 April to be present in the District Court at the Downing Centre to prosecute or be party to two appeals before that Court.  The record discloses that Registrar Quinn gave attention to that affidavit but refused the application for an adjournment of the petition before proceeding to make the sequestration order.

The history of the matter is quite extraordinary.  The matter first came before Registrar Quinn on 10 January 1996.  When the matter was called, there was no appearance by or for Mrs Boscolo and a sequestration order was made against her estate with costs.  Subsequently, Mrs Boscolo arrived at the Court and by consent the sequestration order was rescinded on the basis that her lawyer was unable to attend Court on that day.  The hearing was thereafter adjourned for a little over a month.  When the matter came back before Registrar Quinn on 13 February, Mrs Boscolo was present with a solicitor who sought an adjournment on the basis that Mrs Boscolo intended to pay the Council's debt by 16 February 1996. 

Although the adjournment was opposed, Registrar Quinn adjourned the matter to 27 February to permit the debt to be paid as promised.  When the matter returned to the Court on that day, Mrs Boscolo was present with another solicitor.  She had not paid the debt but her solicitor sought yet another adjournment on the basis that she would actually pay the debt that very day.  Despite opposition from the Botany Council's representative, Registrar Quinn adjourned the hearing to 1 March 1996 to permit the payment of the debt as promised.

Meanwhile, Mrs Boscolo obtained for herself the estimable legal services of Ms Sally Nash who served the Botany Council on 29 February with a notice of opposition to the petition, an affidavit in support, the debtor's written submission in relation thereto, and a notice to produce.  On the following day when the matter came back before Registrar Quinn again,  Ms Nash sought an adjournment so that Mrs Boscolo could file an application to have the hearing of the creditor's petition "cross-vested", as it was called, to the Family Court.  This application was opposed but the hearing of the petition was adjourned to 12 March. 

On 11 March a formal application to have the hearing transferred to the Family Court was served on the Botany Council's solicitors, and on 12 March, when the matter returned to Registrar Quinn, the application to transfer, which was opposed by the Council, was transferred to Justice Sackville, no doubt the Duty Judge at the time, for the hearing of the application. His Honour reserved his decision but on 15 March dismissed the application and ordered Mrs Boscolo to pay the Botany Council's costs.

A similarly tortured history applies to the present application.  I mentioned earlier that there was filed after the making of the sequestration order an application for an annulment.  There were actually two applications and there may even have been three.  One was called an application.  It was dated 21 May and sought an annulment, review and setting aside of the sequestration order.  The second was called an amended application (typed in italics in upper case) which was filed in Court on 23 May.  It left out the whole question of review and section 14(5), and merely sought an annulment.  On 23 May Whitlam J adjourned this application to 18 June but it was withdrawn on 17 June.  Meanwhile the application which has come before me today was filed on 24 May on which date there was also filed an amended application (with 'amended' in handwriting) which was expressed in somewhat similar terms to the one before me, in that it referred to a review of the Registrar's decision under section 14(5) which it said should be set aside on the grounds that the order ought not to have been made.  The grounds set out thereafter under the heading, Grounds of Review and Annulment, bear a considerable similarity to those which are now before me. I propose to ignore that application altogether as it adds and seeks nothing not embraced within the present application.

The application before the Court today, then, first seeks leave to file and serve this application out of time or an order for extension of time for its filing and service.  It seeks that the time for service be abridged and the staying of the sequestration order until its hearing.  I am not aware of what happened in regard to these interlocutory applications but without deciding the matter, I am prepared to proceed now on the basis that leave would be granted to file and serve the application out of time and that all other orders would be made sufficient to enable the matter to come before the Court today.

In support of the application, the bankrupt has relied upon some five affidavits of her own together with an affidavit of her former solicitor in the Family Court, Ms Suzanne Pigdon.  The substance of the case made is that by orders of the Family Court last made, apparently, on 19 December 1995, but made in similar terms on several previous occasions going back to September 1993, property which the debtor claims to be hers in Hamilton Hill, a suburb of Perth, Western Australia, has been the subject of a continuing injunction preventing her from transferring or otherwise acting in relation to it, or from depleting its substance in financial terms.  On the last occasion the order was made, the injunction restrained her from "transferring, assigning, or further encumbering by way of mortgage or charge or otherwise the property situate at and known as 328 Carrington Road, Hamilton Hill, Western Australia, being the whole of the land comprising certificate of title volume 1963 folio 164".

After the sequestration order was made, and indeed apparently after the withdrawal of the original application for annulment before Whitlam J, an application to the Family Court made on behalf of Mrs Boscolo by Ms Pigdon came on for hearing on 29 May 1996.  I have not seen the application which brought the matter before that Court but it appears that it was at least in part an application for release from the order of that Court restraining Mrs Boscolo from dealing with the Hamilton Hill property.  Upon being advised of the sequestration order and presumably of the application for annulment, the Family Court apparently held that it did not have any power to make any orders without notice to the trustee.  It therefore adjourned the matter to 29 July 1996 with leave to restore on an earlier date by arrangement, the Court taking the position that whilst the particular asset and other assets of the debtor were under sequestration, it had no power to deal with the matter  without the trustee being present.

If I assume, without deciding, that the sudden withdrawal of her lawyer and her need to attend to the matters in the District Court should have entitled Mrs Boscolo to an adjournment of the petition, and I shall come back to that matter in a moment, it would be necessary for me to consider whether the sequestration order should be annulled or stayed.  For if not, the bankrupt would make no progress by establishing that she should have had the adjournment.  If the sequestration order were annulled, it would also be necessary for me to either dismiss or adjourn the petition until the hearing in the Family Court could be reconstituted with the trustee present.  If not annulled but only stayed, the sequestration order would have to be stayed at least until the same event had occurred.

In my opinion there are many reasons why these courses should not be taken.  First of all as to the adjournment.  It seems to me that in the presence of the conduct of the bankrupt prior to the hearing of the petition, it would have been an extraordinarily patient and understanding court that would have granted yet another adjournment after so many earlier adjournments, particularly those granted as a result of two offers of the bankrupt to pay the debt, the last one to pay it on the very day of the application.  In particular would that be the case when the five affidavits filed in these proceedings do not once explain why and how those undertakings to pay were made and why they were not kept.  No apology is offered to the Court for having wasted its and the creditor's time by those two adjournments.
As the respondent suggests, a conclusion is open that these two adjournment applications were in the circumstances humbug, if not shams.  It is not necessary for me to conclude in favour of either such description because people simply cannot come to the Court time after time to ask for a discretion to be exercised in their favour when their own conduct in relation to the Court is not bona fide, genuine and co-operative.  It seems to me that the Registrar was extraordinarily patient with Mrs Boscolo and her problems, and all of it to no end.  The history of the matter, which led to the sequestration order on 30 April, indicates that Registrar Quinn's refusal of an adjournment then was not a miscarriage of her discretion or faulty in any other way.  I hold that there was no error in the Registrar's refusal of the adjournment on 30 April.

Secondly, the annulment.  The argument is in substance that the creditor's petition should have been dismissed, reliance being placed upon a line of authority which is usefully summarised in Wiltshire-Smith v Mellor Olsson [1995] 57 FCR 572 where a Full Court of this Court (Von Doussa, Moore and Nicholson JJ) said at 586-7:

Once it is recognised that a petitioning creditor may be disqualified from issuing a bankruptcy notice by reason of a restraint imposed by order of a court on all the property of the judgment debtor thereby removing his ability to make payment, there is no reason why a court order imposed on some only of the property of the judgment debtor which has the same practical effect should not be recognised as a relevant circumstance sufficient to disentitle a judgment creditor from proceeding immediately to execution.  In our opinion, such an order will have this consequence where in practical reality, although not strictly in law the order "in any way prevents the debtor from paying his debt" or where it "deprives or may well deprive the judgment debtor of assets which he could otherwise use to pay the judgment creditor and thus comply with the bankruptcy notice" (Wallace v Trade Credits Ltd at 254).

Those last two quotations are taken directly from cases cited in Wiltshire Smith.  The Full Court's judgment proceeds:

To adapt the test proposed by Lord Esher MR in Re Sedgwick ex parte Sedgwick, the factual inquiry to determine the practical effect of the order is whether in the eyes of ordinary fairness in business it will be said that the order has in a business sense prevented the debtor from paying.

The "business" circumstances here are that since 1992 the bankrupt has owed the Botany Council the costs incurred in the Land and Environment Court which must now total something in excess of $5000 with accumulated interest.  The Council has been promised payment of this amount at least twice in the face of the Court, and has on other occasions apparently been informed that if the bankrupt could only reverse the Family Court's continued refusal to permit her to deal with the property at Hamilton Hill, she would be able to pay the debt.  In other words, she claims to be in all relevant respects solvent except by the order of the Family Court, not only able to pay the debt of the Botany Council but presumably able to pay other debts.

There is very little evidence, or the evidence is very confused, as to what the bankrupt could actually achieve in the event that the Hamilton Hill property was released to her.  There are

various matters mentioned in the documentation; for example, in her affidavit of 15 May 1996 she says that she recently applied for a loan of $35,000 to be secured against the property.  Some entirely hearsay evidence, admitted subject to relevance, says that an unnamed lender from whom no direct evidence was led advised her that the loan was available to her and could be finalised within 28 days of her indication of an intention to proceed with it.  But there is no evidence as to whether this offer has been communicated to the Family Court or what that Court has been told about these bankruptcy proceedings.  Mrs Boscolo says in another of her affidavits that she is unable to go ahead with the loan because she is constrained by the orders of the Family Court restricting her capacity to further encumber the property.

It is, of course, still possible in the context of bankruptcy for Mrs Boscolo to make arrangements with the trustee which would actually permit the debts which the trustee has admitted as proved to be paid.  In other words, even in bankruptcy a bankrupt may negotiate with the trustee for the possible payment of debts by a loan mechanism, provided that the trustee, of course, can be satisfied of the bona fides of the whole transaction.  What view the Family Court might take of this approach is not known.

In fact the proceedings in the Family Court seem to have been quite complicated, not only concerning property but also custody and problems concerning earlier consent orders.  I need not go into the detail except to say that the Family Court has now had several opportunities to release the bankrupt in whole or in part from the orders and undertakings which have quarantined the Hamilton Hill property but has invariably refused to do so.  In those circumstances, it seems to me that the principles of law discussed in Wiltshire Smith have no application at all to this case and should not be allowed to prevent this petition from being successful.

There are a number of other grounds taken in the application.  There is no separation of those which apply to annulment and those which apply to review but it will suffice to say that in my view none of the grounds made out in the application support either review or annulment.

Finally, there would need to be a disposition of the creditor's petition if review and annulment were both granted.  The bankrupt argued that she should firstly obtain a dismissal on the principles set forth in Wiltshire Smith and other cases referred to there.  As I have said, I can see no basis for the dismissal of this petition on any such ground.  In substance no other ground is suggested although, in written submissions which have been helpfully supplied by the bankrupt's counsel, it is claimed that there was no act of bankruptcy because the debtor has not had access to the equity bound up in the Family Court's restraining orders.  Nothing in Wiltshire Smith seems to suggest that the existence of another order denies or destroys an act of bankruptcy.  What it says is that in an appropriate case and in appropriate circumstances proceeding to execution as a consequence of an act of bankruptcy may be prevented by an impossibility to pay through a Court order.

It is also argued that the petition should be dismissed for what is described in section 51 as "other sufficient cause".  The arguments put in the written submission here, which were not further expanded in oral argument, are also in my opinion without merit.  It seemed to be suggested that the delay sought by the applicant is not being requested for something other than genuine reasons and was not aimed just to defeat or delay payment to the creditor.  If that was being argued, I can only say that there is no satisfactory evidence to support the submission.

It was also argued that a greater benefit might be conferred upon the Council as creditor by allowing the applicant to first seek relief from the injunctive orders in the Family Court.  In my view that is a matter, at this stage in particular, for the Council itself to decide.  Two other arguments seem to relate to the public interest where it is suggested that a sequestration order might frustrate the husband of the bankrupt from obtaining any distribution of property to him.  I simply do not understand that submission.  From what I can see, the bankrupt is in a confrontational situation with her husband and it does not seem to me to come well from her lips that she should be enabled, by order of this Court, to protect the interests of her husband from anything.

The last submission is that where the welfare of a child is involved, it is in the public interest that a sequestration order not be permitted to frustrate the appeal of the bankrupt against the order granting child custody to the husband.  After argument this submission was not pressed, as in my opinion was entirely proper, because the sequestration order would have no effect at all on the custody appeal.

In all these circumstances it seems to me that there is no ground at all for the dismissal of the petition if the sequestration order were annulled.

Similarly, I cannot imagine why a stay of the order would be granted to the end of proceedings in the Family Court.  Indeed, according to the evidence of Ms Pigdon, it does not seem that the Family Court will deal with this matter while there are bankruptcy proceedings outstanding, certainly not without the intervention of the trustee, and there is no reason to believe that the trustee would consent to a release of the Family Court injunctions to assist the debtor.  That seems to me to be asking for somewhat too much and is none of the business of the trustee which is to realise the sequestrated property.  If the trustee considers it appropriate, an application to the Family Court concerning the property at Hamilton Hill might be made at an appropriate stage.

None of the orders sought would deal with the problem that faces the bankrupt.  There is thus no possible alternative order than that the application before the Court be dismissed.  The costs of the petitioning creditor will be paid by the bankrupt.