Re Coyne, P.A. Ex parte Binningup (South) Pty Ltd

[1993] FCA 119

Re: PETER ANTHONY COYNE
Ex Parte: BINNINGUP (SOUTH) PTY LTD
No. P863 of 1992
FED No. 119
Number of pages - 18
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Bankruptcy - creditor's petition - return of writ of fi fa unsatisfied - judgment debt constituted by costs order of Court - act of bankruptcy established - question whether debtor able to pay his debts - evidence of precarious financial position reinforced - sequestration order made.

Supreme Court Act 1935 s.142

Sandell v. Porter (1966) 115 CLR 666

HEARING

PERTH, 2, 11-12 February 1993

#DATE 10:3:1993

The Judgment Debtor represented himself.

Counsel for the Judgment Creditor : Ms. C Tan

Solicitors for the Judgment Creditor: Dwyer Durack

ORDER

The Court orders that:

1. The estate of Peter Anthony Coyne be sequestrated.

2. Anthony Hayes Douglas-Brown be appointed trustee of the estate.

3. The petitioning creditor's costs of the petition be taxed and paid out of the estate.

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

JUDGE1

FRENCH J On 4 June 1992 a creditor's petition issued out of this Court on the application of Binningup (South) Pty Ltd seeking a sequestration order against Peter Anthony Coyne. The act of bankruptcy relied upon was the return unsatisfied of a writ of fi fa. The petition asserted a total indebtedness of $3,426.06 comprising $2,853.60 being costs awarded against Mr Coyne in proceedings in the Supreme Court and $572.46 being interest due on those moneys pursuant to s.142 of the Supreme Court Act 1935.

1. The petition came on for hearing on 27 and 28 October 1992 and judgment was given on 10 November 1992 adjourning the petition to 2 February 1993. The act of bankruptcy relied upon by Binningup (South) was found to have been proven. The question then arose under s.52(2) whether Mr Coyne was nevertheless able to pay his debts. He had made tender during the hearing of the amount of $3,426.06 but that tender had been refused. I found at the time that Mr Coyne was in a precarious financial position and reliant in part upon his expectation of the fruits of a judgment for libel against a company called Citizen Finance Ltd, which is now in liquidation. The assistance of family and friends and forbearance by creditors also played a prominent role in his financial affairs. It is not necessary to repeat the various factual findings relating to his financial position which were canvassed in that judgment. The concluding paragraph however was in the following terms:
   

"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 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."

1. On 16 December 1992, at the request of the solicitors then acting for Binningup (South) Pty Ltd, a further directions hearing was listed before Lee J at which orders were made in the following terms:
   

1. Any affidavits upon which the judgment creditor intends to rely to be filed and served by 22 January 1993.

2. Any affidavits upon which the debtor intends to rely and any application to adjourn the hearing of the petition to be filed by 27 January 1993.

3. Costs in the cause.

1. On 2 February 1993 the petition came on for further hearing. The petitioning creditor tendered a certified copy of minutes of a meeting of creditors of Citizen Finance Ltd held on 22 October 1992. Considerable discussion ensued by way of submission and counter-submission and the petition was further adjourned until 11.30am on 11 February 1993. Orders were made that Binningup (South) file and serve on or before 5 February 1993 an affidavit exhibiting copies of documents from the Supreme Court upon which it wished to rely. Mr Coyne was to file and serve any affidavit evidence upon which he intended to rely on or before 10 February 1993 provided that he need not serve evidence which he maintained should be confidential as against the solicitors acting for Binningup (South). The question of the admissibility of such evidence would be considered on 11 February.

2. On 5 February 1993, Messrs. Dwyer Durack filed notice that they had been appointed as solicitors for Binningup (South) in place of Messrs. Bennett and Co. The adjourned hearing then proceeded on 11 and 12 February. At the close of the case, directions were given for the filing of written submissions. Both parties filed their written submissions on 18 February 1993.

The Further Evidence
6. In an affidavit sworn by Ms. Tan of the solicitors for Binningup (South) which was filed in Court on 11 February 1993, there were exhibited an order and three costs certificates issued in proceedings in the Supreme Court of Western Australia. The order related to garnishee proceedings in the Supreme Court mentioned in my reasons for judgment which were published on 10 November 1992. Citizen Finance Ltd (In Liquidation), against which Mr Coyne has a judgment inclusive of costs of around $300,000, had transferred a sum of $140,000 to the credit of a company called Lawford Investments into an account with the Commonwealth Bank Ltd. Mr Coyne obtained a garnishee order nisi against the Commonwealth Bank but that was discharged by order of Anderson J made on 5 September 1991. The discharge order had not been extracted by October 1992 and an application to recall it was made to Anderson J. His Honour dismissed that application and ordered that Mr Coyne pay Citizen Finance's costs of the application. The time limited for appealing against the original decision and the decision on the recall application has expired. Mr Coyne nevertheless said in his evidence that the decision of Anderson J would be appealed.

1. Also exhibited to Ms. Tan's affidavit were the following certificates of costs taxed pursuant to orders made by Master Adams in action number 2762 between Mr Coyne as plaintiff and Sun Securities Ltd and Commercial Equity Corporation Ltd as first defendants and a large number of parties as second defendants. The certificates, the dates and the amounts thereof were as follows:
   

1. Certificate dated 4 February 1993 pursuant to Order made on 5 March 1992 - $732.08

2. Certificate dated 29 January 1993 pursuant to Order made on 3 July 1992 - $1,245.76

3. Certificate dated 5 February 1993 pursuant to Order made on 3 July 1992 - $1,568.25

Each of the orders in respect of which the certificates issued was made in favour of different defendants in the same proceedings. Each related to a motion by Mr Coyne to extend the writ which had been filed in the proceedings more than 12 months previously and which had not been served on the defendants. An ex parte motion to that effect had come before the Master on 19 November 1991 and the court record was then endorsed "Order to be made upon plaintiff filing affidavit in support". An affidavit in support was not filed until 24 January 1992, it was not put before the Master and no further action was taken by the Court in respect of the ex parte motion. Mr Coyne maintained that an order had been made on 19 November 1991 and sought leave to extract it. The defendants sought orders setting aside the writ and service upon them. The Master held that no order had been made on 19 November 1991 and went on to effectively rehear the ex parte motion. In the event, the motion to extend was dismissed.

1. According to Mr Coyne's affidavit, he had instructed his then solicitors to file a writ against the various defendants for contraventions of the Trade Practices Act 1974 following the publication of material defamatory of him in November 1987. The writ was filed in November 1990 prior to the expiry of the time limit of three years for such actions for which s.82 of the Trade Practices Act 1974 provides. He evidently instructed his then solicitors that the writ was not to be served until the determination of his appeal to the High Court against the judgment of the Full Court of the Supreme Court of Western Australia which had reduced the amount of damages recoverable by him in the original proceedings. The High Court gave its judgment in April 1991 in favour of Mr Coyne and, he says, steps were immediately taken to recover the judgment damages. By November 1991 recovery action was still proceeding against Citizen Finance Ltd. At that time he instructed his solicitors to have the writ extended for a further twelve months. He says he was informed by them that Master Adams had extended the writ on 19 November 1991. However, early in 1992 the file was transferred to new solicitors. It was then found that the "order" extending the writ had never been perfected. Mr Coyne maintains that the costs orders made against him by Master Adams were caused by the negligence of his former solicitors. He said he had sent them a letter outlining his complaint and asked them to attend to payment of the respective costs orders. By a letter dated 8 February 1993, they responded advising him that they had referred the matter to their professional indemnity insurers for attention.

2. In relation to the sum of $732.08 which was awarded in favour of Commercial Equity Corporation Ltd and other defendants represented by Dwyer Durack, Mr Coyne said he had advised Dwyer Durack that the matter had been referred to his former solicitors to meet the liability. The sum of $1,245.76 had been awarded in favour of the defendants, Barry Granville Waller and Christine Margaret Waller but, according to Mr Coyne, he had never been advised of the taxation nor received a letter of demand from their solicitors, Messrs. Bennett and Co. The third sum of $1,568.25 was awarded in favour of Cedric John Green. Mr Coyne recalled that immediately following the taxation of those costs he was given a letter of demand by Mr Green's solicitors, Michell Sillar McPhee and Meyer. He advised them also that the matter was one for his former solicitors' insurers. His former solicitors were not represented in these proceedings and the Court does not have their side of the story. The fact remains however, that there are costs orders which are unpaid against a possibility that they may be recovered from the former solicitors.

3. In my reasons for judgment published on 10 November 1992, I referred to an unsatisfied judgment for $4,000 against Mr Coyne which was the subject of a pending creditor's petition. The petition is brought by Kelvin Ernest Lord and relies upon a summary judgment of $4,291.70 obtained in the Local Court for services performed in relation to a patent application and maintenance. Since November 1992, Mr Coyne has applied successfully to have that judgment set aside and for leave to defend although it was a condition that he pay $1,000 into court. The petition brought by Mr Lord has been adjourned to 6 April 1993. The only conclusion I am able to draw from that is that there is a claim against him for $4,291.70 and that it is contested on grounds which must be at least arguable having regard to the setting aside of the summary judgment.

4. At the previous hearing, Mr Coyne had given evidence, and it was found, that he 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 securing monies owed to each of them. In his affidavit filed on 9 February 1993, Mr Coyne said that on 5 February 1993 the borrowings had been amalgamated under the existing mortgage in favour of the National Australia Bank Ltd. Principal under the mortgage is not due for repayment until 5 February 1994 when, he said, it can be either discharged or rolled over. Mr Coyne tendered a Letter of Offer from the National Australia Bank Limited dated 29 January 1993 offering to lend him the sum of $95,600 as a fixed rate fully drawn advance, interest on which would be payable quarterly in advance. The security was the registered mortgage EO96575 over his house property at 2 Riviera Place, Binningup. In cross-examination he said that the amount of interest worked out at about $2,400 each quarter which would be paid from his savings account. He had been paying interest for the previous 12 months predominantly out of special benefit payments but also from money he had earned "of recent times". I find that the Bank has refinanced Mr Coyne as at 29 January 1993 in the amount of $95,600 repayable on 31 January 1994. I find also, by reference to the Letter of Offer, that the loan carries interest at the rate of 10.98% per annum, debited monthly and payable quarterly in advance.

5. As to the sum of $21,000 by way of overdraft with the Commonwealth Bank Limited, Mr Coyne last year told the Court that there was no repayment arrangement in respect of that sum. The Bank, he said, was secured in that respect and other respects against the judgment debts. In his affidavit filed at the resumed hearing, Mr Coyne said that the overdraft was still subject to "the arrangements previously notified". In his oral evidence in chief, he said that "the status quo is just being maintained on that although...that is likely to change in a positive way in a short space of time". He accepted in cross-examination that $21,000 was the amount owing as at October and that with interest it would have increased to something of the order of $22,000. He has not made any interest payments. The Bank is taking a wait and see attitude and not pursuing him for the money at the present time. I am satisfied on this evidence that the sum of $22,000 or thereabouts is owing to the Bank and that no repayments of principal or interest accruing are or are likely to be made in the short term. I am also satisfied that the Bank has not made demand for repayment of the debt or any part of it, but that there is no legal bar to it doing so at any time and that Mr Coyne would be unable to meet the payment if demand were made.

6. Family and friends have lent Mr Coyne about $50,000. He said in his affidavit that these loans have been renegotiated and will be discharged by the grant of equity in Doveton Holdings. This raises the question of the value of Mr Coyne's shareholding in the company. I was unable to conclude at the previous hearing that his shares had any realisable value. I referred then to the uncertainty of the value of the company's major asset, a soil conservation plough, which he valued at $700,000. According to Mr Coyne then, the company owed $400,000 to the Commonwealth Bank. There were, he said, four contracts pending which were oral at that stage but gave no evidence of their value or detail. He also said he was owed $200,000 by the company but I was not satisfied that this was realisable within the foreseeable future. At the resumed hearing, Mr Coyne asked that a transcript of proceedings before Master Bredmeyer in the Supreme Court of Western Australia on 13 January 1993 on a petition by the Commonwealth Bank for the winding up of Doveton Holdings be received and incorporated as part of his evidence to the extent that it included explanations he gave to the Supreme Court about the position of the company. On that occasion the petition was adjourned over the strenuous opposition of the Bank until 14 April 1993. The Master made it quite clear however that that was likely to be the last adjournment and that a winding up order would be made if the moneys owed to the Bank were not paid. There had already been an unusually large number of adjournments. The debt grounding the petition was evidently in the vicinity of $12,000. There, as in this case, Mr Coyne who appeared for the company, relied upon the possibility of a favourable outcome in one or more of his pending civil actions to support his request for an adjournment. The statements he made to the Master about Doveton Holdings are treated, at his request, as part of his evidence for the purposes of the present proceedings. But what he had to say to the Master does not leave me with any greater certainty as to the value of his shares in Doveton than I previously had. He said he had pledged to the Bank $100,000 out of the proceeds of the judgment in his successful proceedings against Citizen Finance "to get the company going again". It had basically been "sitting motionless and lifeless....". The machine itself was "two weeks away from working". It had worked in Kalgoorlie but had been "vandalised" and probably needed between $30,000 and $40,000 spent on it to get it operating again. The need for repair would dramatically affect the price people were willing to pay for the machine. And when repaired, there were, he said, only two or three people who knew how to use it. In its present condition it would fetch scrap metal value of between $10,000 and $30,000. Repaired and operating it was, he said, worth at least $500,000. Mr Coyne referred to two contracts, one of which was "a substantial million dollar contract in Queensland". It was supposed to have been started in December but there were environmental problems holding it up and it was probably "about ninety days away". This contract, he said, involved a profit margin of about $500,000 which would more than correct all of his personal financial problems and those of Doveton. The other contract mentioned was for work to be done for the Water Authority in Kalgoorlie. As Mr Coyne elaborated in his explanation to the Master, however, it emerged that the contracts so called had in fact been made by another company controlled by him called Agritech Pty Ltd. Had they been able to proceed, Doveton would have obtained the benefit of them. If the company were to be wound up the liquidator would not have the benefit of those contracts. Having regard to Mr Coyne's evidence on the resumed hearing and that given previously in this Court, I am unable to conclude that his shares in Doveton Holdings have now or are likely in the foreseeable future to have any realisable value. I nevertheless accept that his family and friends, who have evidently made loans to him totalling $50,000, are unlikely in the near future to press for their repayment.

7. Mr Coyne has a liability of some $7,000 under a hire purchase agreement with Esanda which requires monthly repayments of $336. At the previous hearing he said that he had an arrangement with Esanda under which that company was awaiting satisfaction of his judgment against Citizen Finance. In his affidavit, which was read at the resumed hearing, he said that he had paid $1,000 against that account and that the "payment moratorium" remained in place. He maintained that the value of the vehicle which stood as security for the debt was in the order of $8,000 in any event. He said in cross-examination that he had an arrangement with Esanda that payments could be made but that it was on a "wait and see" basis. There was, he said, no pressure on him to pay the arrears. I conclude that Mr Coyne is unable to meet the Esanda repayments as they fall due but that he has negotiated a temporary indulgence. I am unable to conclude on his bare assertion that there would not be a shortfall if the vehicle, the subject of the agreement, were repossessed and sold.

1. In his submission to Master Bredmeyer, Mr Coyne also indicated that Doveton Holdings was being sued for some $250,000 by the Commonwealth Bank. In cross-examination he said the figure was about $280,000. That amount represents his estimate of the company's overdraft with the Bank together with accrued interest. Mr Coyne was a guarantor of that debt. He says that he guaranteed only a portion of the debt to a limit of about $70,000. He claimed in cross-examination that the Bank's action against Doveton Holdings would be defended on the basis that other securities had been provided and on the basis of defects in the statement of claim in relation to claimed interest rates. He maintained that the guarantee would only be enforced if there were a shortfall between the realised values of the assets of Doveton Holdings and the amount of the loan and interest. This, he said, had been agreed in writing with the Commonwealth Bank. It is, however, apparent from the terms of a Deed of Guarantee dated 9 October 1990 provided to the solicitors for Binningup (South) by Mr Coyne after the close of the case and annexed to their submissions, that he was to be jointly and severally liable with his co-directors, Messrs. Lee and Marshall. There was no limitation of liability under the Deed to a shortfall after realisation of the company's assets. Mr Coyne said in cross-examination that, assuming the soil conservation plough owned by Doveton Holdings to be worth $500,000 in its restored condition it would amply cover the Bank's debt. As already indicated, I am not persuaded that his estimate of the value of the machine is realistic.

2. Mr Coyne accepted in cross-examination that he was being sued by solicitors, Claudio Russo Shaw for $2,000. The summons was issued in about October or November 1992. The claim, he said, was being disputed on the basis that that firm had drawn, filed and served writs for him in 1992 at an agreed price and that the balance of the moneys being claimed related to statements of claim which he said had never been produced. That action is proceeding. Other disputed claims have been brought against Mr Coyne by Codan Communications, A.M. Securities and United Development Corporation. The latter two in the District Court relate to a sum of $15,000. They were instituted in 1989 and no step has been taken on them since. There are outstanding accounts of $100,000 from his former solicitors, Corser and Corser in relation to the litigation against Citizen Finance. Mr Coyne says, however, that he had an arrangement with Corser and Corser that they would be paid on the basis of recovery in the action against Citizen Finance and related companies. Some support for this appears in a letter dated 10 August 1990 to Mr Coyne from Corser and Corser. There it was said, inter alia:
   

"...our agreement has always been that this firms outstanding costs would be met from any sums recovered through the taxation of costs in the abovementioned Supreme Court action, the Appeal thereof to the Full Court and the costs recovered in action number 1170 of 1988."

In relation to these accounts, I am unable to draw any conclusion that there is an amount presently due and owing. It is evident however that any recovery in the actions referred to would be reduced by the amount of this liability.

1. On the asset side, mention has already been made of the shares in Doveton Holdings Ltd. Mr Coyne's equity in the house at Binningup is an equally uncertain quantity. He argued that because the National Australia Bank had been prepared to advance him $95,600 on the security of a mortgage over the house, it must have regarded it as having a value of between $130,000 and $135,000. In addition there was, he said, a standing offer from the widow of a deceased friend to purchase the property for $140,000. It was an open offer which had been first made about 18 months ago. It had been renewed orally shortly prior to Christmas 1992. Mr Coyne said he had not accepted the offer because he had no reason to. He said that on the weekend of 30 January 1993 he had sold a house two doors down from his own for about $112,000. His evidence on these matters was vague and uncorroborated. It did not satisfy me that Mr Coyne has any equity at all in his house after satisfaction of the Bank's security.

2. Mr Coyne also placed reliance on a bill of costs for $34,000 lodged for taxation against William Robert Munro pursuant to the settlement of defamation proceedings brought by Mr Coyne in September 1989. It was a term of the settlement that he would be entitled to taxed costs against Mr Munro at least up until the date of a payment into court on 30 August 1989. On the evidence, however, I am unable to draw any conclusion that Mr Coyne will recover $34,000 or any proportion of it. I should add that the delay in filing a bill of costs was said to arise from the difficulty experienced in locating Mr Munro. Commercial Equity Corporation was also liable to pay costs under the settlement. There was no real explanation for the delay in proceeding against that company.

3. Finally, there is the question of the fruits of the judgment against Citizen Finance. The sum of $140,000 which was the subject of the unsuccessful garnishee application is still in an account to the credit of Lawford Investments. A proposed agreement between the liquidator of Citizen Finance Ltd and Lawford Investments for payment of some proportion of that amount has not been signed. If some proportion is recovered, it appears unlikely that Mr Coyne would receive more than 2 or 3 cents in the dollar from the liquidator.

4. Having regard to all the additional evidence which he has given, the impression I had previously formed of the precarious state of Mr Coyne's financial circumstances has been reinforced. Although he has negotiated some indulgences in the hope of a successful recovery under the judgment against Citizen Finance Ltd, he has failed to satisfy me that he is able to pay his debts as they fall due. In so concluding I have regard to the passage he cited from the judgment of Barwick CJ in Sandell v. Porter (1966) 115 CLR 666 at 670:
   

"Insolvency is expressed in s.95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor."

1. The amount of the debt which grounds the petition in this case is small and tender of it has been made and refused. There is a possibility that Mr Coyne's ability to prosecute his pending actions will be hampered if he is made bankrupt. In my opinion, however, and in spite of the time made available to him to establish his solvency since my order of 10 November 1992 he has failed to do so. His case for solvency has been built on foundations of contingency and speculation. He is entitled to sympathy for the difficulties he has experienced in trying to recover the fruits of his judgment against Citizen Finance. He has had sympathy in this and in the Supreme Court and considerable indulgence by way of time to present his case. He has not demonstrated that he is solvent and, with the accrual of interest on his various debts, his position is, if anything, deteriorating. In the circumstances I consider that a sequestration order should be made.