Re Carmichael, J.G. Ex Parte Pegasus Leasing Ltd

[1992] FCA 857

JUDGMENT No. .x.cz ,.... 1 -2.&

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF	)
THE STATE OF VICTORIA	) No. VX 193 of 1992

Re :  JOHN GERARD CARMICHAEL

Debtor

Ex Parte:  PEGASUS LEASING LIMITED
(A.C.N. 008 078 162)

Applicant

- and -
JOHN GERARD CARMICHAEL and

JOHN CRAVEN BARNES

Respondents

Coram:	Olney J
Place:	Melbourne
Date:	17 November 1992

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The composition accepted by the creditors of the debtor at a meeting of creditors held on 5 June 1992 be set aside;

2. A sequestration order be made forthwith against the

NOTE:	Settlement and entry of orders is dealt with in rule
124 of the Bankruptcy Rules.

estate of the debtor;

3.    The costs of the proceeding including any reserved costs and including the costs incurred by Christopher Martin Harford and/or the applicant's solicitors in attempting to answer the subpoena issued to the said Christopher Martin Harford on 13 November 1992 be taxed and paid in accordance with the Act.

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF	)
THE STATE OF VICTORIA	1 No. VX 193 of 1992

Re :  JOHN GERARD CARMICHAEL

Debtor

EX Parte : PEGASUS LEASING LIMITED
(A.C.N. 008 078 162)

Applicant

- and -

JOHN GERARD CARMICHAEL and

JOHN CRAVEN BARNES

Respondents

Coram:	Olney J
Place:	Melbourne
Decision:	17 November 1992

Reasons ~ublished: 20 November 1992

REASONS FOR JUDGMENT

On 17 November 1992 I made an order pursuant to section 239(2)

of the Bankruptcy A c t (the Act) setting aside a composition	accepted by the creditors of the debtor (the composition) at a
meeting of creditors called pursuant to Part X of the Act on 5 June 1992 (the meeting). At the time of making the order I did not give detailed reasons but undertook to prepare and publish same which I now do. I also indicated that I would when giving my reasons rule on an application for costs made on behalf of an employee of the applicant's solicitors (one Harford) to whom the debtor had caused a subpoena to produce documents to be issued.
By application filed on 26 June 1992 the applicant sought the following orders:

1.     A declaration that as at 5th June, 1992 when the meeting took place the debtor was indebted to the applicant in the sum of:

(a) $915,644.87; or alternatively (b) $301,875.14; or alternatively

2.    A declaration that at the meeting, the debtor's

indebtedness to the applicant for voting purposes should

have been admltted as:

(a) $915,644.87; or alternatively (b) $301,875.14; or alternatively (c) $136,989.50.

3.     A declaration that no or alternatively, no valld speclal resolution pursuant to section 204 of the Act was passed at the meeting.

4.     A declaration the composition is void and of no force or effect.

5.     An order, pursuant to section 239(2) of the Act, setting aside the composition.

6.     That a sequestration order be made against the estate of the debtor.

7.     That the applicant's costs of and incldental to the application be taxed and paid in accordance with the Act.

8.     Such further or other orders or relief as to the Court appears just and necessary in all the circumstances.

The applicant relied upon affidavits sworn by Christopher Martin Harford (Harford) on 26 June 1992, Richard Francis Curtis (Curtis) sworn on 3 July 1992 and Michael Durrant (Durrant) sworn on 8 July 1992. The debtor filed an affidavit in reply sworn on 30 July 1992. The second respondent who is the trustee of the composition did not take part in the proceedings. At the hearing the applicant was represented by counsel and the debtor appeared in person.

The debtor's affidavit in reply does not address any of the factual issues raised in the applicant's evidence and although the debtor cross-examined Harford briefly none of his questions were directed to the matters in issue. For the most part the facts deposed to in the applicant's affidavits are supported by documents exhibited to the affidavits and I find the facts asserted to be credible. In the circumstances, I have accepted the affidavit evidence adduced by the applicant as probative of the facts asserted. In particular I accept Harford's evidence concerning what took place at the meeting as factual.

The meeting was called pursuant to an authority given by the debtor to one Dov Silberman (Silberman), a solicitor, pursuant to section 188 of the Act.

Before entering upon a consideration of the evidence I propose	to canvass the relevant provisions of the Act and so far as
they apply in the facts of the case, some judicial authorities.
A debtor who is personally present or ordinarily resident in Australia who wishes that his affairs be dealt with under Part X of the Act without his estate being sequestrated may sign an authority authorising a solicitor to call a meeting of his creditors (S. 188(l)(f)). Such an authority is not effective unless the solicitor gives his written consent to call the meeting nor unless within 10 days before the authority is signed the debtor has given the solicitor a statement of his affairs and a statement indicating how he proposes that his affairs be dealt with under Part X (S. 188(2)). A solicitor who has consented to call a meeting of creditors is required to prepare a statement in writing containing certain prescribed information about each matter that may reasonably be expected to be dealt with or specified in a resolution by the debtor's creditors under section 204 passed at a meeting called under the authority (S. 189B). A solicitor who has consented to call a meeting is required to call a meeting of the debtor's creditors within specified time limitations (ss. 190(1) 194()). Notice of the meeting must be given to each person who is stated by the debtor to be a creditor and whose business or residential address is known to the solicitor (S. 194(2)) and such notice must be accompanied by copies of the debtor's statement of affairs and his proposal concerning his
affairs and the statement referred to in section 189B (S. 194(2A)). Failure to comply with subsections 194(2) and ( 2 A )
renders the meeting incompetent for the purposes of Part X unless the Court, on the application of a creditor or the solicitor who called the meeting, declares that the contravention is to be disregarded (S. 194(4)).
The Act provides as follows concerning the entitlement of a creditor to vote at a meeting:

198(1)	Subject to this section, every creditor 1s entitled to vote at a meetlng under this Division.
( 2 )	A credltor is not ent~tled to vote ln respect of an unliquidated or contingent debt or a debt the value of whlch is not ascertained.
(3)	For the purpose of enabling a creditor to vote, a debt that is certain but is payable in the future shall be deemed to be payable at the tune of the meeting.
(4 )	A creditor is not entitled to vote (otherwise than in respect of the electlon of a chairman of the meeting), unless he has made known to the chalrman partlculars of his debt.
( 5 )	Except as provided by subsection (K), a secured creditor is not entitled to vote in respect of a secured debt unless he surrenders his security.
(6)	A secured credltor may, if he has furnished to the chalrman, in writing, partlculars of the security and of the value at whlch he estimates lt, vote in respect of the balance (if any) of the secured debt after deducting the value at whlch he has estimated the security.
The spouse, or the de facto spouse, of the debtor is not entltled to vote at a meeting under this Div~sion.
Any question as to the right of a person to vote at a meetlng under this Dlvlsion, or as to the amount of the debt in respect of which a person is entitled to vote at such a meeting, shall be determ~ned by the chairman, who may, lf he thinks it necessary to do so, adjourn the meeting for a period, not exceeding 14 days, to enable him to investigate the matter.

The creditors may at a meeting called pursuant to an authority

under section 188 by special resolution accept a composition	(S. 204(l)(c)). ( A special resolution is one which has been
passed by a majority in number and at least three-fourths in value of the creditors present personally, by attorney or by proxy at a meeting of creditors and voting on the resolution.)
Where there is doubt, on a specific ground, whether a composition has been accepted by a special resolution of a meeting of creditors under section 204 a creditor may apply to the Court for an order declaring the composition void (S. 221(1)1 (2)). Where the Court on the application of a creditor is satisfied that the debtor has omitted a material particular from his statement of affairs or included an incorrect and material particular therein the Court may make an order declaring the composition to be void (S. 222(4)).
But the Court shall not make an order declaring a composition to be void on a ground referred to in subsection 222(4) unless it is satisfied that it would be in the interests of the creditors to do so (S. 222(5)). A creditor may include in an application under subsection 222(1) or (4) an application for a sequestration order against the estate of the debtor and if the Court makes an order under subsection (2) or (4) declaring the composition to which it relates to be void, it may, if it thinks fit, forthwith make the sequestration order sought ( S .
Section 239 deals specifically with the setting aside of a
composition and provides:

239(1)	A creditor may, within 21 days from the date on which the special resolution accepting a composition under thla Part was passed, apply to the Court for an order setting aside the
composition and may also apply for the making of
the sequestration order agalnst the estate of the debtor.
If the Court, on such an appllcatlon, consldere that the terms of the composltlon are unreasonable or are not calculated to benefit the creditors generally or that for any other reason the
composition ought to be set aside, it may make an
order setting it aslde and, if it thinks fit, may forthwith make the sequestration order sought.
The Court may, if lt th~nks flt, dlspense wlth service on the debtor of notice of an application under this section, either uncond~tlonally or subject to conditions.
The making of an applrcation for a sequestration order aga~nst the estate of a debtor under this sect~on shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of subsection 43(1), sections 44 and 47, subsections 52(1) and (2) and Part XIA do not apply
m relatron to such an applicatron.

Questions which arise concerning the application of the foregoing provisions to the facts of this case include the question of when a debt is to be regarded as contingent and the question of the role of the Court in relation to proceedings at such a meeting upon an application such as this.

In Zantiotis v Andrew (No. 21 80 ALR 299, Beaumont J said in respect of section 198 (at pp. 302-3):

It is true that it has been held that a reference in bankruptcy legislation to a "creditor" generally means a person entitled to prove in the bankruptcy: see Grave v Bishop (1855) 25 LJ Ex 58; Wood v De Mattos (1865) LR 1 Ex 91; Re Poland (1866) LR 1 Ch App 356 (but see Hoggarth v Taylor (1867) LR 2 Ex 105); Re Ward; Ex parte Hammond and Son v Offlclal Recelver and the Debtor [l9421 1 Ch 294. But the meanrng of the term must

depend upon its particular context.

In the present case, the context strongly suggests that, subject to the specrflc exceptions mentioned in s 198 (eg s 198(2)), a creditor rs entitled to vote notw~thstanding that, on technical grounds, the "proof" of his or her debt may be relected in whole or in part. The evident object of S 198 is to establmh a simple, practical procedure to enable the chairman to determine who can vote and, if so, for what amount. Because of tlme constraints, it was no doubt thought undesirable that the chairman should have to enter upon an

investigation into the technrcal questrons whrch could well

surround such an lnquiry lnto whether a debt should be admitted to "proof". By s 198(4), a credltor is not entrtled to vote unless he or she has made known to the cha~rman partlculare of his or her debt. This is a practrcal safeguard designed to ensure that, for instance, fr~volous clams cannot glve any rlght to vote. Moreover, by virtue of s 198(2), no vote is ava~lable in respect of unllquidated or contingent debts or in respect of debts the value of which 1s not ascertained. On the other hand, future debts, if certain, qualify under s 198(3). Thus s 198 reveals on its face a legislative intention to

establish a code that, wlth certaln deflned exceptions, glves a

creditor a rlght to vote notwithstanding that further lnvestlgatlon may reveal that his claim should not be admitted to "proof".

Notwithstanding the absence of any specific statutory provision for the review of a decision made by the chairman of a meeting pursuant to section 201 the Court has jurisdiction to determine questions concerning the rights of persons to vote at meetings of creditors under Part X (Forshaw v Thom~son

(1992) 106 ALR 633) and in considering a decision of the

chairman the Court is to determine whether the decision was correct having regard to all the facts in evidence before the Court, not merely the material before the chairman at the time (Re Treaonnina: ex Darte Friends' Provident Life Office (1983) 74 FLR 327; Zantiosis v Andrew (No.2); McLean: ex ~arte

Friends' Provident Life Office (1992) 108 FLR 360).

A debt is not contingent merely because, at the time of the meeting, it is the subject of uncompleted litigation. In &

50 FLR at 111 Bowen CJ said:

Some suggestion was made that because the claims were the	subject of proceedings in the Supreme Court, which had not been
finalised, they were both contrngent and unascertalned. This seems to me to misconceive the posltlon. On the vlew I take of the facts, the debts were due before the commencement of the
proceedings ln the Supreme Court. The proceedings in that
court were only a method provlded by law for the enforcement of the debts. To bring those proceedings did not change the debts rnto contingent debts.

And in Forshaw v Thom~son (at p. 644) Lockhart J expressed the same view: "A contingent debt for purposes of bankruptcy law

has a well settled meaning and it certainly does not mean
merely any debt which is in dispute."

In Zantiotis v Andrew (No. 21, in dealing with the question of whether a debt (in this case the payment of money ordered by the Family Court) should be treated as a contingent liability. Beaumont J said (at 305):

It may be accepted that, for the purposes of refusing to make a sequestration order, the court may have a discretion to go behind a judgment to ascertain whether there is, in truth, a debt at all. But here the questlon is dlfferent: it is whether the debt was absolute or merely contingent. In my n e w , the relevant liability imposed upon the applicant here was absolute. Whatever its origins, by the date of the meeting, the applicant's liability derived from para 2(b) of the Family Court order. It follows, m my opxnlon, that the second respondent's debt was no longer secondary or contingent. It may have had its source in a relatlon of CO-suretyship. But that relationship had been superseded by an express contract of Indemnity which, in turn, had become merged in the ]udgment or order of the Family Court. The debt was thus no longer contingent for present purposes.

On 18 May 1992 the debtor pursuant to section 188(1) signed an authority authorising Silberman to call a meeting of his creditors. On the same day, Silberman duly consented to call

his affairs and a statement of his proposal.

such a meeting and the debtor gave Silberman a statement of

By notice dated 18 May 1992 Silberman called a meeting of the debtor's creditors to be held on 5 June 1992. There is no evidence that Silberman ever prepared the statement required by section 189B nor that any such statement accompanied the notice of meeting given to the creditors. Indeed, such evidence as there is supports an inference that no such statement accompanied the notice of meeting sent to the applicant and if this be the case it would seem that in the absence of a declaration of the type referred to in section 194(4) the meeting held on 5 June 1992 was incompetent.

Be that as it may, this was not an issue specifically addressed in the material adduced in support of the application (although it was relied upon in argument) and in the circumstances of the case, it is unnecessary for it to be pursued any further.

The debtor's statement of affairs disclosed 14 unsecured creditors (but not including the applicant) in the total sum of $1,275,000, one secured creditor for $32,000 (in respect of which debt the security was said to be of an estimated value of $32,000) and 7 contingent liabilities (including 2 liabilities to the applicant). The only assets disclosed were cash ($200) and household furniture and effects ($2,000).

mentioned in respect of sums of $105,000 and $597,000 said in In the list of contingent liabilities the applicant is

each case to be a "guarantee on partnership".

The debtor's proposal as to how his affairs should be dealt with under Part X was that the creditors (including contingent creditors) accept the sum of $4,000 in full satisfaction of all debts and liabilities and that such sum be used first to pay the costs of the trustee and second be distributed pro rata to all proving creditors.

At the meeting Silberman was elected chairman. The applicant was represented by its proxy Harford who submitted a proof of debt in the total sum of $902,634.87. The proof of debt contained the following particulars:

1.	Judgment in the District Court of South Australia on 13 March 1992
2.	Judgment obtained in the Supreme

Court of South Australia on 2 April 1992 $122,532.76

3.	Stock mortgage made on 29 June 1990	$182,885.64
4.	Hire Purchase Agreement made on
30 June 1989

Total $920,634.87

Less estimated value of bloodstock

security $ 18.000.00

Debt

(As a matter of pure arithmetic, the 4 items in fact total

$933,644.87 and the debt (after deducting the estimated value

of the security) should have been shown as $915,644.87.)

Prior to the meeting namely on 2 June 1992, Curtis (the senior manager of the applicant) had written at length to Silberman giving details of the debts claimed by the applicant which particulars accord with those given in the proof of debt. In the letter he disputed that any of such debts were merely contingent. The letter contained a detailed explanation of the basis upon which each item was claimed. Curtis spoke to

Silberman by telephone on 4 June 1992 and on the same day, at Silberman's request, sent to him by overnight courier copies of:

(a)	the judgment obtained on 13 March 1992 (item 1 in the proof) ;
(b)	stock mortgage made on 29 June 1990 (item 3 in the proof); and
(c)	a draft of the judgment obtained on 2 April 1992 (item 2 in the proof).
At the meeting the reference in the debtor's proposal to contingent creditors was deleted. Silberman admitted proofs to the total sum of $1,211,706.83 for voting on the debtor's proposal as amended. The applicant who had made it known that it opposed the proposal and would vote against it was admitted to vote in respect of item 1 in the proof of debt ($14,456.74) but not in respect of the other 3 items claimed. Upon a vote being taken creditors representing a total sum of $936,973.92 (being a majority in number) voted in favour of the proposal,	and creditors representing $274,732.91 (including the
applicant) voted against it. The vote in favour of the
proposal represented 77.326% in value of the creditors voting and the resolution was declared passed as a special resolution.
It follows from the foregoing that had the applicant been admitted to vote for any one of the 3 items in the proof of debt that the chairman rejected the required 75% majority in value required for the adoption of a special resolution would not have been achieved. This can be tested by taking the smallest of the 3 rejected items ($122,532.76) and adding that sum to both the total of the value of creditors voting and to the total of the value of creditors voting against the proposal. In those circumstances the proportion of votes in favour would have been less than 75%, namely 70.225%. If items 1, 2 and 3 of the proof (less the $18,000) had been admitted the vote in favour of the proposal would have been
62.5% whereas if the total amount of the proof as lodged had
been admitted it would have been 44.345%, and if the error in addition had been detected and corrected the affirmative vote would have been 44.044%.
I turn to deal with the evidence in relation to the 3 items in the proof which were rejected by the chairman:
Item 2
the South Australian Supreme Court on 2 April 1992. The In the proof this claim is described as a judgment obtained in
amount claimed is $122,532.76. In proceeding 2630 of 1991 in the South Australian Supreme Court the applicant had claimed the sum of $105,554.44 and interest from a number of defendants including the debtor pursuant to a contract. On 2 April 1992 the applicant obtained leave to enter judgment against the debtor (and others) in default of appearance for the sum of $105,554.44 together with interest thereon at the rate of 25% per annum from 12 July 1991 and costs. On 19 June 1992, pursuant to the leave granted on 2 April 1992, the applicant entered judgment against the debtor in the sum of $130,234.06 and costs.
The "draft judgment", of which a copy was sent to Silberman by the applicant on 4 June 1992 refers to the sum of $122,532.76. A draft in this form had been lodged with the Registrar of the Court for sealing at sometime prior to 5 June 1992. The amount of the judgment shown in the draft included the interest due to the date of lodging the draft. The judgment as finally sealed on 19 June 1992 was in a slightly different form from that of the draft and the total sum reflected interest to the actual date of judgment.
At the meeting Harford gave Silberman a copy of the draft judgment. Silberman expressed some concern that a sealed copy of the judgment had not been provided and after Harford suggested that if he had any doubt he should adjourn the meeting to make appropriate inquiries, Silberman declined to do so, but nevertheless did adjourn the meeting for
approximately 5 minutes to consult with the debtor. Upon resumption, Silberman said he had discussed the matter with the debtor and been informed by him that he had a substantial defence to it, but had not applied to set aside the judgment as he had not been aware of it prior to the meeting. Silberman then said that on the basis of what the debtor had said (but without revealing the basis of the claimed defence to the proceeding), the claim was contingent and would not be admitted by him for voting purposes at the meeting. As a matter of law, Silberman's reasoning did not justify his conclusion.
The evidence discloses that by the date of the meeting the applicant had obtained leave to enter judgment against the debtor in a sum in excess of $105,544.44 in a proceeding in which the applicant claimed a liquidated sum of money pursuant to an agreement.
On the evidence before the Court Silberman's ruling that the applicant's claim was contingent was clearly wrong. Furthermore, the information provided to Silberman both before and during the meeting was clearly consistent with the fact that the applicant had obtained leave to enter judgment for a liquidated sum. No evidence has been proffered in support of the assertion that the debtor has a substantial defence to the claim nor has it been suggested that any step has been taken
to have the judgment set aside.
In my opinion Silberman was both wrong in law and acted quite unreasonably in rejecting the applicant's proof in relation to item 2 without first making relevant inquiries. Be that as it may, the applicant was quite clearly wrongly excluded from voting in respect of item 2. But for this the special resolution would not have been carried.
Item 3
Harford provided Silberman with a copy of a stock mortgage dated 29 June 1990 made between the applicant as mortgagee and various persons including the debtor as mortgagor to secure a principal sum of $180,000 and other moneys. At the date of the meeting Curtis had advised that the amount owing by the debtor under the stock mortgage was $182,885.64.
During the meeting, the debtor said he believed the stock mortgage debt to be a contingent debt by reason of the fact that the liabilities of each of the parties were joint and several. On the basis of that statement Harford requested Silberman to immediately admlt the stock mortgage debt for voting purposes as the debtor had acknowledged that the stock mortgage debt was and represented a joint and several liability on the part of those persons who had executed the stock mortgage but Silberman refused to do so. In my view, given the debtor's admission, Silberman's decision was wrong
in law.
Following the short adjournment referred to above Silberman said that on the basis of the documents he had been provided with (which included the stock mortgage), and from his discussions with the debtor during the course of the adjournment, he considered that there was a substantial defence on the merits to any claim which the applicant might make against the debtor in relation to the stock mortgage debt and that accordingly, the stock mortgage debt ought therefore to be regarded as contingent and/or non-liquidated. This conclusion again demonstrates a misapprehension as to the nature of a contingent liability.
In its proof in respect of item 3 the applicant estimated the value of its security as $18,000 and sought to vote in respect of the balance of the debt. This is entirely consistent with section 198(6).
The applicant has not sought to put in issue in these proceedings either the fact of the claimed liability under the stock mortgage nor the value placed upon the security. On the evidence before the Court the applicant should have been admitted to vote in respect of the stock mortgage debt less the estimated value of the security.
Item 4
During the course of the meeting, Harford provided Silberman
with a copy of a hire purchase agreement dated 30 June 1989 made between the applicant (as owner) and various persons including the debtor (as hirers). As at the date of the meeting he was informed by Curtis that $613,769.73 was outstanding and owing to the applicant under the hire purchase agreement. Harford also provided Silberman with a number of other relevant documents including a copy of the writ in proceeding number 5303 of 1992 in the Supreme Court of Victoria at Melbourne wherein the applicant is plaintiff and the debtor is one of the defendants and a copy of a defence dated 24 April 1992 filed on behalf of the debtor and others in that proceeding. Harford informed Silberman that the hire purchase debt was the subject matter of the applicant's claim in the proceeding.
Silberman said that he had formed the view that the hire purchase debt was contingent due to the fact that it was subject matter of a proceeding in which the debtor had filed a defence. This conclusion again did not follow from the known facts.
Following the short adjournment referred to above Silberman said that on the basis of the documents provided to him and the discussion he had had with the debtor during the adjournment, he had formed the view that there was a substantial defence on the merits in respect of the claim made against the debtor in the proceeding and as such, for voting
purposes, the hire purchase debt was to be regarded as contingent and/or non-liquidated.
The debtor has made no effort in these proceedings to support the assertions made in the defence and by Silberman that he has a substantial defence to the claim made under the hire purchase agreement. The only evidence of relevance is that a defence has been filed in the Supreme Court. This of itself cannot render an otherwise liquidated claim for money due
pursuant to an agreement a merely contingent liability. The only evidence before this Court, which is uncontested, is that at the date of the meeting the debtor was under a liability to the applicant pursuant to the hire purchase agreement of $613,769.73. The applicant should have been admitted to vote in respect of that sum.
Having regard to the findings of fact that I have made on the evidence in these proceedings I am of the opinion that in terms of section 239(2) there is "(an) other reason" for which the composition ought be set aside namely that at the meeting the applicant was wrongly deprived of the right to vote in respect of the total of items 2, 3 and 4 in the proof (less $18,000) and but for that fact the debtor's proposal would not have been adopted. Having regard to all of the circumstances of the case it is my view that it is appropriate that a sequestration order be made forthwith. Clearly the applicant is now, as it has throughout, determined to pursue the debtor to bankruptcy, and no useful purpose can be served by
to leave the applicant to take other proceedings to that end. declining to sequestrate the debtor's estate now rather than I have not found it necessary to deal with any issues which arise under section 222 and I refrain from making any finding as to the matters referred to in subsections (4) and (5) of that section. Nor is it necessary that I should make the declarations sought in paragraphs 1-3 of the application.
The debtor's sub~oena to Harford
On 13 November 1992 the debtor caused to be issued and served a subpoena addressed to Harford requiring his attendance to give evidence at the hearing of the application and for the production of documents identified in the subpoena as:

any *books/*and/*et/*documents in your custody or control in relation to the application for Part X number VX 193 of 1992 of John Gerard Carmichael to be set aslde pursuant to your affidavit dated 26th day of June, 1992, and, in particular, the following documents:

All documents, agreements, letters and correspondence between Arthur Robinson & Hedderwicks and Pegasus Leasing Limited (ACN

008 078 162). Beneficial Finance Limited, The Government

Managed Asset Div~slon (GMAD) of South Australia on the matters

of Billabong Breeders Partnership, Waratah Racing Synd~cate	and
John Gerard Carmxhael.

Harford attended in response to the subpoena. In fact he attended Court for the purpose of instructing counsel appearing for the applicant. In addition Harford had available in Court a large number of documents which his counsel said to some extent answered the description in the subpoena. It was however pointed out that the short notice of	the subpoena and the broad and imprecise description of the	documents sought made a proper response impossible. Upon the
application of counsel I ordered that such part of the subpoena as required the production of documents be struck out. The debtor did not call Harford to give evidence.
At the conclusion of the proceedings counsel sought an order that the costs incurred in attempting to answer the subpoena be made against the debtor.
Despite the form of the subpoena it was in reality a subpoena to the opposite party. Harford as an employee of the applicant's solicitors could not properly be regarded as having possession of the documents sought. In any event many were obviously the subject of legal professional privilege. What time and effort Harford put into attempting to answer the subpoena was clearly expended in his capacity as an employee of the applicant's solicitors. It is my view that the cost of his time in being so engaged ought to form part of the costs of the proceedings and I will so direct.
The Court's order is that:
1. The composition accepted by the creditors of the debtor at a meeting of creditors held on 5 June 1992 be set aside;
2. A sequestration order be made forthwith against the estate of the debtor;
3. The costs of the proceeding including any reserved costs and including the costs incurred by Christopher Martin Harford and/or the applicant's solicitors in attempting to answer the subpoena issued to the said Christopher Martin Harford on 13 November 1992 be taxed and paid in accordance with the Act.

I certify that this and the preceding 21 pages are a true copy of the Reasons for Judgment

of the Honourable Mr Justice

Olnev

Dated: 20 November 1992

Mr A. Garantziotis (instructed by Arthur Robinson and

Hedderwicks) appeared for the applicant.

The debtor appeared in person.

Date of Hearing:	17 November 1992
Place:	Melbourne
Date of Judcrment:	17 November 1992
Reasons Published:	20 November 1992