Re Coyne, P.A. Ex Parte Binningup (South) P/L

[1992] FCA 859

Re: PETER ANTHONY COYNE
Ex Parte: BINNINGUP (SOUTH) PTY LTD
No. P863 of 1992 FED No. 859
Number of pages - 16
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)

CATCHWORDS

Bankruptcy - creditor's petition - return of writ of fi fa unsatisfied - judgment debt constituted by costs order of court - allegation that order obtained by fraud - discretion of court to go behind judgment - court making order the appropriate court to determine the issue - whether debtor able to pay his debts - allegation of collateral purpose on part of petitioning creditor - debtor representing himself - uncertainty about financial position - possibility of injustice if sequestration order made - petition adjourned.

Bankruptcy Act 1966 s.52(2)(a), s.40(1)(d)(2)

Corney v. Brien (1951) 84 CLR 343

Wren v. Mahoney (1972) 126 CLR 212

Re Wong; Ex parte Kitson (1979) 27 ALR 405

Re David; Ex parte Lahood (1979) 27 ALR 306

Re King; Ex parte Commercial Bank of Australia Ltd (No. 2) (1920) VLR 490

HEARING

PERTH

#DATE 10:11:1992

Counsel for the Petitioning Creditor: Ms A.S. Wong

Solicitors for the Petitioning Creditor: Bennett and Co.

The Debtor represented himself.

ORDER

The Court orders that:

1. The petition be adjourned to 2 February 1993 at 10.15 a.m.

Note: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

FRENCH J. Binningup (South) Pty Ltd is the registered proprietor of four lots of land known as Peppermint Lakes Estate, Binningup. On 6 June 1989 a caveat was registered on the title to the land to protect an interest by way of equitable lien claimed by Peter Anthony Coyne, a property developer of 2 Riviera Place, Binningup. The claim for the equitable lien was based upon work said to have been carried out by Mr Coyne for Wain Holdings Pty Ltd which owned one hundred percent of the shares in Binningup (South) Pty Ltd. An application by originating summons for an order to remove the caveat was heard by Commissioner O'Connor QC sitting in the Supreme Court of Western Australia on 16 August 1990. On that day the Commissioner made an order directing the Registrar of Titles to remove the caveat from the register and also ordered that Mr Coyne pay the costs of Binningup (South) Pty Ltd to be taxed. On 5 December 1990, the costs of the action were taxed and allowed at $2,853.60. On 14 December 1990, a writ of fi fa issued out of the Supreme Court for execution for the amount of the taxed costs together with costs of execution and interest at the rate of 14% per annum from 16 August 1990.

1. Execution of the writ of fi fa on both goods and land was unsuccessful. The fi fa was registered on the title to Mr Coyne's property at Binningup on 7 February 1991, again on 19 July 1991 and again on 11 October 1991. The property was advertised by the Sheriff for sale in the West Australian newspaper and the South West Times. An auction was conducted on 14 November 1991 but no genuine bid was obtained. Mr Coyne had an amount of cash on him at the time which could have been between $3,000 and $4,000. It was less than the full amount then required to satisfy the writ of fi fa. He offered it to the bailiff prior to the auction but was told that the bailiff would have to get instructions from the judgment creditor's solicitors. It appears that as it was on the morning of the auction that this discussion took place, no such instructions were or able to be obtained. Nor was any lesser amount subsequently accepted.

2. The writ of fi fa was returned with the following statements signed by the Sheriff and Acting Sheriff respectively, endorsed on it pursuant to O.47 r.11 of the Supreme Court Rules:
   

"STATEMENT UNDER ORDER 47 RULE 11

I certify that I am returning the Writ to Court unexecuted as it expired on the 13 December 1991. No monies were levied by me under the Writ. Dated the 18th day of December 1991 SHERIFF

STATEMENT UNDER ORDER 47 RULE 11

I certify that I attempted to execute this Writ against goods and land to no avail. No monies were levied by me under the Writ which remains unsatisfied.

Dated this 8th day of January 1992. Acting SHERIFF"

1. On 4 June 1992 a creditor's petition issued out of this Court on the application of Binningup (South) Pty Ltd. It asserted a total indebtedness of $3,426.06 comprised of $2,853.60 being the amount of the costs awarded in the Supreme Court and $572.46 being interest due on those monies calculated at 12% per annum from 16 August 1990 to 16 April 1992 pursuant to s.142 of the Supreme Court Act 1935. The act of bankruptcy relied upon was stated as follows:
   

"4. The debtor within 6 months before the presentation of this petition, committed the following act of bankruptcy on the 18th day of December 1991; alternatively, the 8th day of January 1992 namely that execution was issued against him in the Supreme Court of Western Australia by a Writ of Fieri Facias dated the 14th day of December 1990 and the said Writ of Fieri Facias was returned unsatisfied on the 18 day of December 1991 and/or the 8th day of January 1992."

The petition was served on Mr Coyne together with verifying affidavits on 15 June 1992. Eventually a notice of intention to oppose the creditor's petition was filed by him and particulars were subsequently supplied. The principal contentions underlying his opposition to the petition were first, that the costs judgment in the Supreme Court had been obtained by fraud and second, that he was in any event able to pay his debts within the meaning of s.52(2)(a) of the Bankruptcy Act 1966.

1. Some of the particulars relied upon to support the contention that the judgment of the Supreme Court had been obtained by fraud relied upon submissions made in the course of the hearing before Commissioner O'Connor by counsel for Binningup (South) Pty Ltd in answer to an objection taken by Mr Coyne that counsel and his instructing solicitors in that case had a conflict of interest and were in breach of their fiduciary duty to him by reason of having acted previously for Mr Coyne against persons connected with those behind Binningup (South) Pty Ltd. Commissioner O'Connor evidently decided that the question between Binningup's counsel and Mr Coyne was not one for him to determine. Mr Coyne contended in these proceedings, by the particulars which he provided, that things said by counsel in submissions to Commissioner O'Connor on this point were misleading. I invited him early on in the hearing of the petition to indicate how it was that the allegation of conflict of interest on counsel's part and submissions made to Commissioner O'Connor QC in that regard as set out in the particulars could constitute a fraud on the Court as alleged in his notice of intention to oppose the petition. On 27 October 1992 I ruled that having heard his submissions and having given consideration to the matter, those aspects of the particulars could not constitute a basis for impugning the judgment of the Supreme Court which underlay the creditor's petition. I therefore ruled that I would not have regard to any of the evidence which related to those particulars.

2. Mr Coyne also made submissions at some length and gave evidence on affidavit in relation to other aspects of the alleged fraud upon which he says the judgment of the Supreme Court was based. He relied specifically upon two matters, one of submission and one of evidence put before the Supreme Court at the hearing on 16 August 1990. The first was a statement made in paragraph 3 of the plaintiff's outline of submissions in support of the removal of the caveat when it was said, on behalf of Binningup (South) Pty Ltd:
   

"The First Defendant claims an equitable lien in the Land by reason of an alleged Agency agreement between himself and parties including Wain Holdings Pty Ltd (see Coyne's statutory declaration of 6 June 1989). However, Coyne was never an agent of the Plaintiff nor did he conduct any work on the land the subject of this application at the request of the Plaintiff (see affidavit of Linton John Scott sworn 10 May 1990 at paragraphs 6 and 7)."

Paragraphs 6 and 7 of the affidavit of Linton John Scott relied upon by Binningup (South) Pty Ltd in the Supreme Court proceedings were in the following terms:

"6. Mr Coyne has at no stage been an agent of Binningup (South) Pty Ltd and has conducted no work on the land the subject of the within application at the request of Binningup (South) Pty Ltd.

7. At all times to my knowledge, in so far as Mr Coyne acted in relation to the land the subject of the within application, Mr Coyne acted as agent of Sun Securities Limited and Citizen Finance Limited."

1. Mr Coyne himself filed two affidavits in the Supreme Court proceedings both sworn on 15 August 1990. One of these affidavits set out the reasons that the plaintiff's counsel and solicitors should not act in the matter. The other affidavit, comprising 19 pages and some 51 paragraphs, set out at least in part to support a contention that companies for which Mr Coyne had done work in relation to the development of the land had, from September 1987, beneficial interests in the land and that he had an equitable lien arising out of that work for which he had not been paid.

2. In his submissions in these proceedings, Mr Coyne made extensive reference to affidavits in the caveat proceedings and other litigation in the Supreme Court to support his contention that the work he had done was done for the benefit of companies with a beneficial interest in the Binningup land, and although this submission did not emerge with clarity, that he was in a sense an agent for Binningup (South) Pty Ltd. To a large extent his arguments were advanced on material which was before or could have been put before the Supreme Court in the caveat proceedings. Whether or not it could support his claim of fraud was in my opinion a question which this Court need not and should not explore further. This Court has the power, in the exercise of its bankruptcy jurisdiction, to go behind a judgment said to have been obtained by fraud or collusion. In Corney v. Brien (1951) 84 CLR 343, which is authority for that proposition, Fullagar J. said at 356-7:
   

"No precise rules exist as to what circumstances call for an exercise of the power, but certain things are, I think, clear enough. If the judgment in question followed a full investigation at a trial on which both parties appeared, the court will not reopen the matter unless a prima-facie case of fraud or collusion or miscarriage of justice is made out. In In re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 86, Fry L.J. said: "This power has never, so far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a court.""

Wren v. Mahoney (1972) 126 CLR 212 was a case involving a judgment in default of pleading. There a majority in the High Court held that the Federal Court of Bankruptcy should have examined the question whether the alleged debt was due. Even in that case Barwick C.J. (with whom Windeyer and Owen JJ. agreed) said at 224, after citing a number of dicta of Lord Esher M.R.:

"... if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor's debt is a mere matter of its own discretion. Nothing in Corney v. Brien... lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor's debt. The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner."

1. The present case is not one in which the judgment underlying the writ of fi fa is invoked to evidence an underlying debt. The judgment is itself the source of the debt upon which the creditor proceeds. What Mr Coyne seeks to do in this case is to impugn that judgment on the basis that it was obtained by fraud. In Re Wong; Ex parte Kitson (1979) 27 ALR 405 at 415, Lockhart J. observed that:
   

"Courts having jurisdiction in bankruptcy do not go behind or round judgments unless good reason is shown. It is not done as a matter of course and there are powerful reasons why this is so.

The courts have been reluctant to lay down inflexible rules as to the circumstances in which the power to go behind a judgment should be exercised. Instances of the exercise of the jurisdiction are where the judgment is obtained by default or where the circumstances tend to show fraud or collusion or miscarriage of justice or where the judgment is obtained by compromise and the compromise and the surrounding circumstances tend to show that the compromise was not a fair and reasonable one."

See also Re David; Ex parte Lahood (1979) 27 ALR 306.

1. In my opinion the issues upon which Mr Coyne seeks to impugn the judgment of the Supreme Court turn upon material which was for the most part before or which could have been put before the Commissioner. The Supreme Court was the court in which these issues were appropriately ventilated. The right of appeal available in that court was never exercised. In the circumstances I do not think that a case has been made for this Court to go behind the judgment of the Supreme Court reached after a contested hearing and in respect of which there has been no appeal. Nor do I consider that this Court should adjourn these proceedings on the basis that an extension of time may be sought to bring an appeal now some two years out of time.

2. The petition proceeded upon the basis that Mr Coyne had committed an act of bankruptcy in terms of s.40(1)(d)(2) of the Bankruptcy Act 1966 in that "execution has been issued against him under process of a court and has been returned unsatisfied". The fact that the writ of fi fa had expired before the returns were endorsed upon it does not, in my opinion, take the return outside the scope of the act of bankruptcy as defined in s.40. The act of bankruptcy having been proven and the continuing debt having been established, the question arises under s.52(2) of the Bankruptcy Act 1966 whether Mr Coyne is nevertheless able to pay his debts. He maintains that he can and sets up that contention as one of the grounds in his notice of intention to oppose the petition. He maintains that he declined to pay the debt in this case as a matter of principle, being of the view that it was obtained by fraud. He said in the course of argument (at transcript 96):
   

"I also say that I am not insolvent. I am able to pay my debts as and when they fall due but in relation to this issue because of the principles involved I have chosen not to pay this specific amount because in doing so I believe it would be unjust and would be carrying forward and magnifying a fraud in another court."

Nevertheless, following the suggestion by the Court that if he were in a position to pay the debt he should tender the amount claimed, he did so on the second day of the hearing. Initially he tendered a personal cheque but this was not accepted. After the luncheon adjournment on the second day he tendered a bank cheque for $3,426.06. Again, this was not accepted. In her closing submission, counsel for Binningup (South) Pty Ltd submitted that her client was not bound to accept a tender. There was evidence of another petition pending against Mr Coyne and a concern on the part of the petitioning creditor that acceptance of the tender might amount to a preference.

1. Mr Coyne's evidence on the issue of his solvency indicated a precarious financial position maintained at present by the expectation of the fruits of a judgment for libel against Citizen Finance Ltd. Forbearance by creditors and assistance from friends also seems to play a prominent role in his present affairs. On the asset side Mr Coyne has a judgment against Citizen Finance which, inclusive of the costs of appeals up to and including the High Court, amounts to some $300,000. The judgment arose from a libel action founded upon a newspaper advertisement placed by Citizen Finance and others. The first instance judgment of the Supreme Court was for a damages award of $150,000 but this was reduced on appeal to the Full Court to $50,000. The full award was reinstated by the High Court but in the meantime $50,000 was paid out of the Supreme Court to Mr Coyne. The sum of $300,000 said to be owing now represents the balance of the reinstated judgment, namely $100,000, plus $58,000 interest and costs on the case in the Supreme Court and the appeals.

2. The judgment against Citizen Finance has not been realised. The company, according to Mr Coyne, has a sum of $140,000 on account with the Commonwealth Bank of Australia in respect of which he obtained a garnishee order nisi. Before the order could be made absolute it appears that the company granted a debenture over its assets, including that fund, to another company called Lawford Investments which Mr Coyne says has common directors. The Supreme Court has evidently declined to make the garnishee order nisi absolute. Mr Coyne has obtained a winding up order against Citizen Finance but litigation in relation to the fund is still pending.

3. The liquidator of Citizen Finance has expressed the view, in a report to creditors, that the granting of the debenture in favour of the company called Lawford Investmetns Pty Ltd was effected to defraud creditors of Citizen Finance by securing its assets and thereby denying unsecured creditors the benefit of them. That contention has not been tested judicially. Further, it appears to be the liquidator's view that the legal costs of pursuing an application in that regard and the related evidentiary requirements are such that a proposed settlement offer which would have the ultimate outcome of a dividend of 2.5 cents in the dollar for unsecured creditors should be accepted. At the time of hearing it was not known what the outcome of the proposed settlement offer was.

4. Mr Coyne owns his own home at Binningup which is subject to two mortgages, one in favour of the National Australia Savings Bank Ltd, the other in favour of the National Australia Bank Ltd. He says the latter mortgage secures an amount of about $95,000. The amount secured by the first mortgage did not emerge in the evidence. It seems in fact that his total secured indebtedness to the National Australia Bank is of the order of $95,000. A letter to him from the Bank dated 16 September 1992 referred to an overdraft facility of $8,000 and a home equity loan of $86,306.40, both expiring on 30 September 1992 with review due prior to that time. Mr Coyne contends in any event that the house is worth $140,000 and that his equity in it is therefore of the order of $40,000. No bid was received for the home at the auction under the writ of fi fa. On the other hand that is not determinative of its market value given the restrictive terms of purchase available at auction.

1. Mr Coyne says he has about $4,000 in a cheque account with the National Australia Bank and that he drew on this in order to make the tender proffered in these proceedings. He also owns 400,000 shares in a company called Doveton Holdings Ltd. It is an unlisted public company of which he is a director and apparently the principal. He also says he is owed $200,000 which he advanced to that company. The company's major asset is a machine called a soil conservation plough. It was described by Mr Coyne as "basically a 30 tonne computer controlled hydraulically operated plough". He says it has a value of $700,000. There was no supporting evidence in relation to that valuation. Mr Coyne says that the valuation was put on the plant by the directors and confirmed by an independent firm whose name he could not remember. It was based on the cost of the machine plus modifications. The company has not carried out any contracts in the last twelve months and has earned no income in that time. It apparently owes $400,000 to the Commonwealth Bank which is secured by a debenture over its assets. Asked about other assets of the company, Mr Coyne said it has two units in West Perth. Both are being purchased by the company under deferred settlement arrangements. Settlement however has not yet occurred. The company has no up to date books of account. He says it has four contracts pending which are only oral at this stage. There was no evidence of the value or detail of those contracts. I am unable to conclude that his shares in Doveton Holdings Ltd have any realisable value. Nor can I be satisfied that the debt of $200,000 is able to be realised within the foreseeable future.

2. Mr Coyne's liabilities include a $21,000 overdraft which he owes to the Commonwealth Bank of Australia. There is, he says, no repayment arrangement in respect of that amount. The Bank is "secured in that respect and other respects by a payment from the judgment debts when they are made". He owes some $50,000 in respect of loans from family and friends. He is acquiring his motor vehicle under a hire purchase agreement with Esanda Limited. The total liability is of the order of $7,000 and involves monthly repayments of $336. He says he has an arrangement with Esanda under which that company is awaiting satisfaction of his judgment. There is a judgment debt of some $4,000 in favour of Kelvin Lord, a patent attorney. This is the subject of a petition to be heard later this month. Mr Coyne says he does not concede the debt.

3. Mr Coyne has engaged various solicitors from time to time in relation to aspects of his litigation which involve a number of proceedings in the Supreme Court. He produced evidence that he has paid an account of $1,508.50 to Phillips Fox on 14 August 1992 and that in respect of another matter the Legal Aid Commission has paid that firm $3,099 on 27 October 1992. There is an account for professional services claimed by another firm in the amount of $100,000 which Mr Coyne says he contests and there is no evidence of any pending proceedings in relation to such amount. Mr Coyne's present income is $675 each fortnight which he receives by way of special benefit. His wife receives family allowance and his eldest daughter is in receipt of Austudy payments. He says he pays $1,000 per month off his mortgage to the National Australia Bank.

4. Mr Coyne plainly has difficulty in paying his debts as they fall due. It appears that he has had to make special arrangements with some of his creditors. The major debt to the National Australia Bank is secured by mortgage over his house. That owed to the Commonwealth Bank appears to be unsecured but subject to a deferral arrangement pending realisation on the judgment. The prospects of recovery of the judgment against Citizen Finance are somewhat uncertain when regard is had to the report from the liquidator which promises a return of 2.5 cents in the dollar in the event that a settlement is reached in relation to the claims of the holder of the debenture over the assets of that company. There is other pending litigation between Mr Coyne and other companies and individuals which may hold the promise of some return but which is at best an uncertain quantity at this time.

5. In these proceedings the onus is upon the debtor to show that notwithstanding the act of bankruptcy he is able to pay his debts. It is not sufficient for that purpose for a debtor to show that he has assets which exceed his liabilities but which are not presently realisable or available. I am satisfied that Mr Coyne's refusal to pay the costs order which grounds the present petition did not arise from his inability to do so, but from his belief that it would be acceding to an injustice if he made that payment. Nevertheless by that refusal he has placed himself in the position in which he has committed an act of bankruptcy. He must therefore satisfy the Court of his solvency if he wishes to take advantage of s.52(2)(a) of the Bankruptcy Act 1966.

6. Mr Coyne's financial position is clearly marginal and his financial future depends upon his ability to realise on the judgment against Citizen Finance, the forbearance of the Commonwealth Bank and Esanda and the support of his family and friends. I can place no value on his shareholding in Doveton Holdings or the debt owed to him by that company. His equity in the house is speculative and supported by no independent evidence. It is, in any event, an asset which appears on the evidence not to be readily realisable. He is liable under an unsatisfied judgment for some $4,000 which is the subject of a pending creditor's petition although he says that judgment is contested.

7. Mr Coyne says that the present petition is brought for a collateral purpose evidenced by the petitioning creditor's refusal of the tender of the amount of the judgment sum. He points to the fact that the directors of Binningup (South) Pty Ltd have an interest in his being made bankrupt as it would stifle litigation he has pending against related companies. If there be some such motive, that is of itself not a reason for refusing the order sought if apart from such motive the creditor is entitled to the order - Re King; Ex parte Commercial Bank of Australia Ltd (No. 2) (1920) VLR 490. In any event it must be said that in this case the petitioning creditor has attempted to exhaust other remedies. It has attempted unsuccessfully to execute against both Mr Coyne's goods and land. I am not satisfied that the refusal of the tender indicates an improper purpose in bringing these proceedings. I take the tender into account in assessing Mr Coyne's overall solvency but notwithstanding that I am not satisfied by his evidence as it presently stands that he is able to pay his debts.

8. In spite of the above findings I am concerned that the making of a sequestration order in this case could work a real injustice. The fact that Mr Coyne presently faces this petition is a situation which arises in large part out of his own misguided approach to the costs order made against him in the Supreme Court. He appears to have had no legal advice in relation to the presentation of this case so far as it relates to his solvency. Indeed his principal efforts in the presentation of his case were directed to going behind the judgment made against him in the Supreme Court. There was little, if any, material in his affidavit evidence which bore on the question of solvency and it was at the invitation of the Court that he gave oral evidence upon that subject. In the circumstances it is not surprising that the picture that emerged was one of considerable uncertainty about his financial position at the present time. The debt the subject of this petition is small. It has been the subject of tender and there is the risk that an order made at this time would at least severely restrict Mr Coyne's ability to pursue his rights both in relation to the judgment debt and ancillary litigation. In my opinion the appropriate course in this case is to adjourn the petition for a period to enable the debtor and the creditor to bring further evidence on the question of solvency. It may be also that during this period some of the uncertainties attending his financial position may be resolved.