Re Chapman, A.J. Ex parte Lenehan, N.R

[1993] FCA 744

799- , 9 3

JUDGMENT No. .... , ........ .... ....

IN THE FEDERAL COIIRT OF AUSTmLA )

BANKRUPTCY DISTRICT OF THE STATE )	NO. NP 2144 of 1993
QF NEW SOUTH WALES	1

Re:  ALAN J CHAPMAN

~espondent/Debtor

Ex parte: NORMAN RUTBERFORD LENEHAN

~pplicant/Petitioning

&editor

EX TEMPORE JUDGMENT

EINFELD J SYDNEY 29 SEPTEMBER 1993

There is an application for what amounts to a further adjournment of the hearing of the creditor's petition for a sequestration order for failure to comply with a bankruptcy notice. The notice was founded in a District Court judgment given on 14 May 1993. The matter has been before the Court on several occasions, the first of which was 16 August 1993 when, at the request of the debtor, a Deputy Registrar ordered the filing of notice of grounds of opposition and of affidavits in support and in reply. A form of notice of intention to appear at the hearing was filed on that very day but not only were no grounds of opposition given, the particular paragraph providing for grounds to be inserted was struck through. Furthermore, no affidavits were filed in support of the opposition. The matter was again before the Court on 17 September when a Registrar adjourned it to 24

Registrar on 24 September, it was adjourned, over the opposition	September by consent. When the case came back before the
of the petitioning creditor, to today when it was already listed before me.
The case had originally come before me on 7 September when consent orders were made in accordance with a document signed by counsel for the parties. In those orders the Court noted that there had been an agreement between the parties that if the debtor carried out the agreement, the creditor would consent to the petition being dismissed with no order as to costs, but that if the debtor failed to carry out the terms, the debtor would consent to the orders sought in the petition. On the basis of that agreement, I agreed to the matter being adjourned to today.
The detail of the agreement indicates that the debtor acknowledges the debt which is the basis of the creditor's petition, agrees to pay the amount of the debt in two instalments, releases the creditor from any cross claims or other demands which the debtor may have had against him, and commits the creditor to an agreed adjournment of the proceedings until
today, effectively in order to permit the debtor to carry out his side of the bargain. In the event that he does not do so, the
debtor, by the agreement, undertakes to consent to a sequestration order. It seems to me a little doubtful that that agreement would have given rise to a right in the petitioning creditor to sue on the agreement because the contents of the agreement were not of the kind which counsel, especially counsel for the debtor, would ordinarily have the authority to undertake or acknowledge. However, I accept, there being no other evidence, that counsel for the debtor was signing it on the instructions and with the consent of his client.
In addition to the agreement, the parties entered into two deeds on 17 September, both of them signed sealed and delivered by each of the present parties. In the prefatory averments to one of the deeds, the debtor admitted his indebtedness to the petitioning creditor in respect of the subject debt. He averred that he has caused the creditor to incur costs, has executed a release of any claims which he had against the creditor, and has acknowledged or declared that he is bound by his agreement to consent to the sequestration order if there are any defaults in payment. By the deed itself the debtor acknowledged the debt, undertook to pay the amount of the debt by not later than 9.30 am on 27 September together with interest at 12 per cent, and undertook that if the debt is not paid in accordance with that undertaking, he would consent to a sequestration order. He also acknowledged that all payments were to be made by way of bank cheque.
By the seconddeed, the debtor again acknowledged an indebtedness for the judgment debt. He averred that he has raised an

allegation that the creditor is indebted to him and is subject to a defence or cross action by him. By this averment I understand him to mean a defence by way of cross action in the proceedings in which the subject judgment was obtained if the judgment could be set aside. The debtor noted that the creditor denies any indebtedness and stated that he has released his claims against the creditor and agreed to execute a deed of release. In the deed itself, the debtor acknowledged that he therefore has no claim or cross action, defence or bar at law or equity to the creditor's earlier judgment against him, and released the creditor from any right of action which he might have had of that kind.

There has also been made available to me a photocopy of a statutory declaration dated 17 September 1993 signed by the debtor in which he declared that arrangements were to hand for a "close relative to lend me moneys in excess of those claimed from me by" the creditor. He said that he would receive the funds immediately and would be able to negotiate the payment over of that money by 20 September. He then stated: "I irrevocably undertake to forthwith pay to M r Lenehan" the amount of the judgment debt, adding that if the sequestration order was made on 17 September, the loan would not be advanced.

That is the background under which the proceedings come before the Court today. Today the debtor is represented by a new counsel who has presented an affidavit from his client as a basis for seeking a further adjournment of the proceedings. Although

it stretches into the ninth page and consists of some 26 paragraphs, the affidavit does not deny the judgment debt. What it states is that the creditor owes the debtor almost $350,000 for moneys paid by the debtor to or for the creditor in the past. The affidavit states that the list of items which make up this sum was presented to the creditor in August 1991 and that the creditor, at a meeting on that day in the presence of a M r John Richards, chartered accountant and friend of the creditor, admitted that these moneys had been spent. There was no admission that these moneys were given to or spent on behalf or at the request of the creditor or that the debtor's funds had been used in their payment.

It is quite inconceivable to me that if the moneys on the list were genuinely owing by the creditor to the debtor, action would not have been commenced for the recovery of those amounts at some time between August 1991 and the issue and service of a bankruptcy notice on the debtor in June 1993. Moreover, an examination of the amount shows that almost all of the items on the list are figures that end in a round sum, to the nearest $10 in some cases, but often to the nearest $100, sometimes even to the nearest $1000 or $10,000. These are circumstances which make the amounts very much open to be proved and give extra weight to the fact that no action was taken for that very large sum in the nearly two years between the alleged acknowledgment of them by the creditor and the issue of the bankruptcy notice in the

present proceedings.

Moreover, although the matter has now been adjourned on the several occasions to which I have referred, and although the bankruptcy notice was served in June, the debtor has not moved to set aside the judgment in the District Court, nor has he mentioned on any one of the previous occasions on which the matter has been before this Court, that he wished, intended or would like to do so. Indeed, the signed or authorised documents

to which I have earlier referred show precisely the opposite, that not only did he not wish to take such proceedings, but that he acknowledged this particular indebtedness and conceded either that no moneys were in fact owing by the creditor to him, or that if there were moneys owing, they were and have been released.

This not particularly meritorious litany of the debtor's actions makes out absolutely no ground at all for a further adjournment of the proceedings. Of course, if the debtor wishes to move to set aside the judgment following upon a sequestration order he may do so although at present it is hard to see why the judgment would be set aside. Even in the affidavit dated today, there is no denial of the debt and there is multiple significant documentation, as I have outlined, indicating that the debt is in fact owing. I cannot imagine why the District Court would agree to set aside a judgment of debt when the debt is admitted. The debtor could also take action against the creditor in respect of the supposed cross claim although he will obviously be met by a defence that he is barred from suing because of his

creditor from any indebtedness if there were moneys owing. There	acknowledgment that no moneys were owing and his release of the
is thus nothing before this Court to suggest that there is much prospect of any success in the District Court in either of the proceedings suggested. These are additional powerful reasons for refusing the adjournment sought. In reality there is no truly alternative option.

I have not yet had specifically tendered and read the evidence which the petitioning creditor wishes to present for the making of a sequestration order, but the rule 22 certificate of the Deputy Registrar and my own quick reading of the documents suggest that there is nothing unusual about them such as might make the petition fail. I shall listen to the evidence and consider it in a few minutes.

One of the affidavits upon which reliance is or will be placed is an affidavit of debt by the petitioning creditor. It is or appears to be in the usual form for applications for a sequestration order. Counsel for the debtor has asked to cross- examine the creditor on this affidavit. He does not take any objection to its admissibility but wishes to ask questions of the creditor to support the cross claim evidenced in today's affidavit of the debtor to which I have earlier referred. I have made some observations about the possible merits of that cross claim in the light of the evidence presented today and of the failure of the debtor prior to now to do anything about this

creditor more than 2 years ago. As I have previously stated, the

supposed claim notwithstanding its alleged acknowledgment by the

debtor's affidavit does not put in issue the debt. Hence no cross-examination on the cross claim could in any way challenge the creditor's assertion of the existing unpaid judgment debt which is the subject of the bankruptcy notice and of the affidavit of debt. I can see therefore no basis for permitting cross-examination of the creditor on his affidavit of debt and refuse the application to cross-examine.

Counsel for the debtor also asks that a sequestration order either be refused or be not made today on the basis of the discretion provided for by the Bankruptcy Act in relation to sequestration orders. He has produced no authority to suggest that the circumstances set out in his client's affidavit of today and in the other documentation to which I have referred make out a basis for the exercise of a judicial discretion known to the law or authorised by precedent. There may be circumstances where the existence of a cross claim in the presence of an admission of debt may provide a ground for delaying a sequestration order but it is difficult to think that it could ever form a basis for refusing a sequestration order, at any rate without other more compelling evidence or facts than are present here.

Assuming therefore that the evidence to be presented on the sequestration order complies with the Rules and the Act, I would therefore decline the invitation to refuse the sequestration order on the basis suggested. I shall postpone until I hear the evidence whether the sequestration order should be delayed for

set aside the judgment or advance his cross claim.	a period of time to permit the debtor to take action either to
RECORDED	NOT TRANSCRIBED

The debtor does not object to any of the evidence presented in relation to and in support of the sequestration order, but argues that the sequestration order should be delayed to permit the presentation by him of a cross claim to the District Court against the creditor if he can get the judgment set aside. Presumably -- although this was not specifically mentioned -- if the judgment is not set aside, he would wish to delay bankruptcy until the issue and determination of separate proceedings against the creditor for the amount of approximately $350,000 which the debtor claims is owing to him by the creditor as referred to earlier. As I understand the position, the present jurisdictional limit of the District Court is $250,000 so this action would presumably have to be taken in the Supreme Court. In either event, a contested case would involve some years' wait for a hearing.

In support of his application for delay, the debtor has presented some evidence. One paragraph of an affidavit of Mr Lenehan of 10 October 1991 was produced, in which the statement was made that the debtor, Mr Chapman, was formerly the office manager of Mr Lenehan's legal practice and "as such attended to payment of my personal and business accounts, as well as arranging for collection, opening and sorting of mail forwardedto my practice,

tendered an affidavit of the creditor of 12 May 1993, to which which included my credit card accounts". The debtor also

was annexed a deed between him and American Express International Inc in respect of the proceedings in the District Court which commenced all this litigation. In those proceedings American Express sued Mr Lenehan for the basic amount of what has become the judgment debt, it being the apparent allegation that the charges to American Express were incurred by the debtor, but that the creditor had agreed to guarantee or otherwise meet such indebtedness.

- l0 -

From the annexures to that af fidavit, it can be seen that the creditor was certain that the American Express debt was incurred by the debtor and was actually payable by him in accordance with the arrangement between the debtor and the creditor to that effect. The creditor therefore agreed to the judgment sought by American Express against him, and terms of settlement acknowledging that debt were in due course entered in the District Court. The creditor joined the debtor as third party in those proceedings, in effect to pass on the American Express claim. These third party proceedings, which were undefended, formed the basis of the judgment obtained by the creditor against the debtor on which the bankruptcy proceedings are based.

In Mr Lenehan's affidavit of 12 May 1993, there is a statement by him that Mr Chapman as third party "is liable for the total amount", that is, the total amount of Mr Lenehan's debt to American Express. The aff idavit also speaks of "the amount owed by the third party" and at another point refers to the indebtedness of the debtor in terms of "total owed by Chapman".

provides a prima facie basis for suggesting that M r Lenehan is	It is suggested by counsel for the debtor that this evidence
indebted to Mr Chapman, apparently both for the amounts alleged to be part of the cross claim and perhaps for some other amounts as well. It is said that Mr Lenehan failed to assert that the amount of the American Express debt was in fact due by Mr Chapman to Mr Lenehan but merely that it was a liability against which ought to be set off the amounts alleged to be owing by Mr Lenehan
to Mr Chapman.	In my opinion, no such inference arises from the

evidence presented.

Moreover, there is nothing in the affidavit of 10 October 1991 which suggests that M r Chapman paid M r Lenehan's personal and business accounts out of his, Mr Chapman's, own money, but merely that he was responsible for ensuring that they were paid. Were it otherwise, it would add to my incredulity that as far back as 1991, substantial moneys were being paid by Mr Chapman on behalf of Mr Lenehan out of M r Chapman's own moneys and yet nothing at all has been done to recover those very substantial sums. It is beyond belief, on a prima facie basis at least, that Mr Lenehan has for that length of time been owing M r Chapman so much money, yet when Mr Lenehan took proceedings for the much smaller sum of approximately $65,000 in respect of the American Express debt, not only was no defence and cross claim filed when the matter was before the District Court, but nothing has been done since to bring this allegedly genuine dispute to a head until, effectively, today.

with arrangements for the payment of the debt and excluding

Even the previous adjournments in this Court were all taken up

action being taken elsewhere to resolve this supposed dispute. The notice of intention to appear at the hearing, for example, ordered by the Deputy Registrar to be filed on 16 August together with the grounds of opposition and the affidavits, did not produce any suggestion that the debt now claimed against the creditor was owing. The inescapable conclusion is that the debtor has waited to raise this claim right up until the moment when a sequestration order was inevitable, whilst right up to that moment, viz. today, acknowledging that either the supposed debt did not exist or had been released. For those reasons there is no basis at all for delaying the making of a sequestration order.

I am satisfied that the debtor has committed the act of bankruptcy alleged in the petition and with the proof of the other matters of which section 52(1) requires proof. I make a sequestration order against the estate of the debtor and order that costs, including reserved costs, be taxed and paid according to the Act. A draft of this order is to be delivered to the Registrar within seven days in accordance with rule 124(2). I appoint Gavin Frederick Crichton-Thomas of 270 Pitt Street to be the trustee of the estate of the debtor.

RECORDED NOT TRANSCRIBED

The affidavit of Mr Lenehan of 12 May 1993, to which is attached as annexure A, the deed, which in turn has attached to it

annexures A and B, will be marked exhibit D1. There was tendered, in addition, a set of correspondence which is also marked A, B and C. I have no idea where that correspondence fits in to the history of the matter but it was handed up at some stage and seems to relate to negotiations between the parties back in 1991. I shall mark that bundle of correspondence exhibit

D2. Paragraph 7 of the affidavit of Mr Lenehan of 10 October,

1991 will be marked exhibit D3. When marked, the exhibits may
be returned upon the substitution of photocopies.

RECORDED NOT TRANSCRIBED

I should have noted that objection was taken by counsel for the

creditor to the admission of all of the evidence so marked. I

admitted it all subject to relevance. I have read the material

and have taken it into account. I also admitted the debtor's affidavit of 29 September 1993, to which I have made reference in my observations today. That affidavit was, I think, also objected to but I have admitted it, read it and taken it into account.

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