Re Giorgetti, W. Ex parte Australian and New Zealand Banking Group Ltd
[1992] FCA 198
•13 APRIL 1992
Re: WALTER GIORGETTI
Ex Parte: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
No. VB 629 of 1991
FED No. 198
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Heerey J.(1)
CATCHWORDS
Bankruptcy - application for annulment of bankruptcy - debtor's petition - presentation when creditor's petition pending - whether presented with wrongful or improper purpose - whether abuse of process - effect on relation back period - what in fact was subjective purpose of debtor.
Bankruptcy Act 1966: Ss.115(1) and 154
Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589
Deputy Commissioner of Taxation v Edelsten, Burchett J.
Federal Court of Australia, unreported, 10 March 1988.
HEARING
MELBOURNE
#DATE 13:4:1992
Counsel for the creditor: Ms G.A. Georgiou
Solicitors for the creditor: Darvall McCutcheon
Counsel for the debtor: Mr S.R. Horgan
Solicitors for the debtor: McKean and Park
ORDER
The application be dismissed with costs, including reserved costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
On 20 March 1991 Mr Walter Giorgetti (the debtor) presented a debtor's petition which was accepted by the Registrar. As a consequence the debtor became a bankrupt: s.55 Bankruptcy Act 1966 (the Act). The applicant Australia and New Zealand Banking Group Limited (the Bank), which had a creditor's petition pending at the time, applies to annul that bankruptcy. The Bank claims that the debtor's petition ought not to have been presented because it amounted to an abuse of process: s.154. If the Bank succeeds in its application and obtains a sequestration order on its creditor's petition, the relation back period under s.115(1) of the Act will extend back to 13 May 1990 and bring into the estate of the debtor the proceeds of a sale of a property at 12 Hope Street, Camberwell which was completed in June 1990. But, in my opinion, the Bank's application should be dismissed because it has failed to establish that the debtor's petition was presented with any wrongful or improper purpose or was otherwise an abuse of the process provided by s.55.
Judgment and attempted enforcement
The debtor was a guarantor of a loan advanced by the Bank to a company called Corby Court Pty Ltd secured by mortgage over a property at 60 Dawson Street, Brunswick. On 1 February 1990 the Bank obtained judgment in default of appearance against the debtor in the Supreme Court of Victoria for the sum of $1,893,274.94 inclusive of interest together with $780.00 costs. The Bank had already taken possession of the property in January 1990.
The debtor was the registered proprietor of a property at 12 Hope Street, Camberwell which was mortgaged to the Commonwealth Bank. On 3 March 1990 the Camberwell property was sold after auction for $194,500. The usual 10% deposit was paid and settlement was due on 4 June 1990. Mr Peter Shattock, a partner in the firm of solicitors acting for the Bank, was, to the knowledge of the debtor, present at the auction.
The Bank attempted to garnishee the balance of the purchase money owed by the purchasers of the Camberwell property. An application returnable on 6 June 1990 was served on the debtor and came on before Master Williams in the Supreme Court on that day. The sale had not been completed on 4 June and recision notices had been served on the purchasers on 5 June. Master Williams dismissed the application for a garnishee order on the ground that no debt was presently owing by the purchasers to the debtor.
Shortly afterwards however the sale was completed and an amount of $118,757.79 paid to the Commonwealth Bank. It is to be inferred that the debtor received the balance.
On 13 June 1990 a warrant of seizure and sale issued by the Bank was executed at the Brunswick premises and returned unsatisfied. It is this return which the Bank relies on as an act of bankruptcy for the purposes of its petition: s.40(1)(d)(ii).
On 13 November 1990 the Bank presented its petition. About a month later instructions were given to a process server to effect service. Unsuccessful attempts were made to effect service at an address in Balwyn on 22 December 1990, 23 January 1991 and 26 January 1991. On 1 February 1991 a further attempt at service was made at 16 Bellett Street, Camberwell. The process server was told by the debtor's mother that he lived at that address "but was not at home at that time and was difficult to catch as he drove a taxi." Further attempts were made at service at 16 Bellett Street on the evening of 1 February, in the morning and evening of 3 February and on the morning of 4 February. None were successful.
On 20 March 1991, as has been mentioned, the debtor presented his petition. On this date s.55(3A) of the Act, which requires the Registrar to refer a debtor's petition to the Court for directions when there is a creditor's petition pending against the debtor, was not yet in operation: see Law and Justice Legislation Amendment Act 1990 s.2(2) and (3) and s.10(b).
On 31 May an application by the Bank for substituted service of its petition was dismissed. The Bank took no further steps until 4 November when it was granted a 12 months extension of creditor's petition. Finally on 29 November the petition was served on the debtor. It was not until 17 December that the Bank was informed by the Registrar's Office of the presentation of the debtor's petition.
The Statement of AffairsAt the time of the presentation of his petition on 20 March 1991 the debtor submitted the statement of affairs required by s.55(2)(b) of the Act. Two features of the statement were relied on by the Bank in support of its application before me. First, the amount of the Bank's debt was understated. The statement listed four unsecured creditors. Two were for small amounts of a few hundred dollars. The remaining were as follows:
Name of Address of Year Nature of Amount Creditor Creditor Incurred Debt Owed State Bank Parkville 1989 Loan $220,000 plus interest ANZ Bank Moonee Ponds 1987 Loan $1,600 plus interest Mortgagee in possession of Building 60 Dawson Street, Brunswick
It is true that the Bank was an unsecured creditor in respect of a loan made through its Moonee Ponds branch, but the amount owed was some $1.8m. Secondly, in answer to the question in the printed form:
"Have you sold, given away or otherwise disposed of any real estate, property or goods worth more than $1,000 in the last six years?"
details were given of a property in Parkville which was sold in November 1986 for $195,000, those proceeds being used to buy a half-share in Corby Court Pty Ltd. There was no mention of the Camberwell property which had been sold in 1990. In his evidence the debtor said that he ran out of space on the form but put details of the Camberwell property on a separate piece of foolscap paper when he filled it out at home. He took the form to the Official Trustee's Office the next day. When asked whether he took the separate piece of paper on that occasion he said "I cannot remember. I presume it was stuck in there somewhere." He had not seen the paper since. He said that when he produced the statement to the officer at the Official Trustee's office "we went through it and discussed the situation, all the creditors. She in fact told me that she would write away to all the creditors, telling them what my situation was." As to the sale of the Camberwell property he said that "... it was not intentional not to disclose it, because we knew that the solicitors, a chap acting for Darvall McCutcheon, was at the auction of the house. So we know that the mortgagee's solicitors knew about it, so it was pointless not to put it in." None of this evidence was challenged.
It might be noted that the printed form of the statement of affairs appears to have been designed on the assumption that persons completing it will usually have sold only one item of real estate, property or goods worth more than $1,000 in the previous six years.
Abuse of ProcessIf the Bank could show that the debtor's purpose in presenting the debtor's petition was to prevent the relation back period extending to the sale of the Camberwell property there is not the slightest doubt that there would have been an abuse of process. The case would be squarely within the principle referred to by the High Court in Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 599 where Gibbs C.J., Murphy, Brennan and Dawson JJ. said:
"It is a purpose foreign to the bankruptcy laws, and an abuse of process, for a debtor to present a petition for the purpose of making it impossible for a creditor to obtain a sequestration order on a pending petition and with the further purpose of shortening the period of relation back, possibly placing beyond the reach of the trustee property which would otherwise vest in him."
However in Clyne, the debtor "frankly admitted" (see 154 CLR at 599) that this was in fact his purpose. The critical importance of establishing what in fact was the purpose of the debtor when a debtor's petition is alleged to be an abuse of process is shown by the following passage from the judgment of Burchett J. in Deputy Commissioner of Taxation v Edelsten (unreported, 10 March 1988) at p 11. His Honour said:
"... a purpose of the kind discussed in the Clyne case, and in the other cases concerned with abuse of process, is an actual purpose, and not a mere emanation of the terms of circumstances of documents or actions. An argument was mounted by senior counsel for the applicant on the basis of the well known passage in the judgment of the Privy Counsel in Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 at 8, where the view of Williams J. was adopted that the purpose of an arrangement caught by s.260 of the Income Tax Assessment Act 1936 must be what it effects. A similar view was taken of the meaning of "purpose", as used in a similar context, in the joint judgment of Gibbs and Mason JJ. in Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434 at 445, who referred to "the objective purpose of the agreement". But the construction adopted in those cases depended on the context. In other provisions of the same Act, purpose meant the subjective intention of an individual (see Commissioner of Taxation v Students World (Aust) Pty Ltd (1978) 138 CLR 251 at 266, 274; Commissioner of Taxation v Cooper Brookes (Wollongong) Pty Ltd (1979) 25 ALR 511 at 535-6. The notion of objective purpose is I think quite irrelevant to the doctrine expounded in Clyne's case."
A further analogy may be found in those authorities which hold that under s.45D of the Trade Practices Act 1974 the purpose to be established must be the operative subjective purpose of those engaging in the relevant conduct: see e.g. Tillmanns Butcheries Pty Ltd v AMIEU (1979) 42 FLR 331 at 348.
The Bank at the outset meets the formidable circumstance that the debtor is a taxi driver to whom banks have advanced in excess of two million dollars. His assets are some $200 and his earnings $300 per week after tax. In his affidavit the debtor deposes that "My intention in filing a debtor's petition was to allow my affairs to be put in order by my trustees so that I could restart my life following my discharge from bankruptcy. I had no way of repaying the considerable amount of debt that was outstanding." In cross-examination the debtor was not challenged as to this statement, which seems entirely consistent with the incontrovertible facts. The debtor presents as a paradigm of the person for whose protection the bankruptcy laws were enacted.
Counsel for the Bank relied on the errors in the statement of affairs to which I have already referred. Without of course wishing to minimise in any way the importance of accuracy in filling out a statement of affairs, it seems to me that these admitted errors do not assist the Bank in making out a case that the debtor had any purpose other than the one which he claims existed. The debtor knew that he owed the Bank some $1.8m and not $1600. He was told when he submitted the statement of affairs that the creditors would be informed of his situation. Since he identified the branch of the Bank from which the loan was obtained and the property over which the Bank had foreclosed, one can hardly infer that he had an intention to conceal the true amount of his debt from the Bank. Likewise, he knew from the presence of Mr Shattock at the auction and from the service of the garnishee application that the Bank was well aware of the sale of the Camberwell property in March 1990.
In any case, the two errors would only be relevant for present purposes if one could infer that the debtor believed that, had he included the true facts in the statement of affairs, the Registrar would not have accepted the petition. However one would think that disclosure of the true facts would, in one respect at least, have made the Registrar more likely to accept the petition. The disclosure of the true amount owed to the Bank would have shown the debtor's position to be even more financially hopeless. The disclosure of the sale of the Camberwell property would not, from the debtor's viewpoint, have made it less likely that his petition would be accepted. It was not put to the debtor in cross-examination that he made the misstatements in the statement of affairs because he believed that had the true facts been disclosed his petition would not have been accepted.
Nor does it seem to me that the difficulties the Bank had in effecting service of the petition assist its case. As might be expected of process servers, they did not leave their name or advise the purpose of their visit when they spoke to the debtor's mother. In his affidavit the debtor deposed that "I was aware that my mother had been approached by people looking for me but was not aware that they were intending to serve a creditor's petition upon me." When asked in cross-examination what reason people could have been looking for him other than to serve bankruptcy proceedings, he replied that he was "tied up in a football club", did part-time gym instructing, worked part-time as a taxi driver for different owners and also had friends.
The Bank's case requires one to disbelieve the debtor on all this and to infer that he knew that these unidentified people were not merely connected in some way with the Bank, but were attempting to serve a creditor's petition. Not only that, but it is to be inferred that the debtor then decided to take the step of presenting his own petition so as to prevent the relation back period extending to the proceeds of sale of the Camberwell property - a scheme requiring among other things knowledge by the debtor of the date on which the creditor's petition was presented and an understanding of the relation back provisions of the Act.
None of such matters were put to the debtor, nor was he challenged on his statement in his affidavit that "I have no knowledge of the Bankruptcy Law and presented a debtor's petition on the advice of my then solicitors Messrs Doyle and Kerr. I relied upon the advice of Mrs Holland from the Official Trustee's office in the preparation of my debtor's petition and I have relied upon the advice of their office from that date."
I conclude therefore that the Bank has failed to make out a case that the debtor's petition was filed with any wrongful or improper purpose. It was argued on behalf of the debtor that I also should take into account that as a further reason for not acceding to the Bank's application the fact that it would fail to make out the act of bankruptcy alleged because at the time execution was levied at the property at Dawson Street, Brunswick neither the debtor nor the company Corby Court Pty Ltd had been in possession of the property for some five months. In January 1990 the sheriff's officers changed the locks and told the debtor he was not allowed on the premises.
I do not think it is necessary to decide this point since I am satisfied the wrongful or improper purpose alleged has not been established. However there does seem to be some substance in the argument. If execution is returned unsatisfied from a property where a debtor could not reasonably be expected to have any goods, it is difficult to see how an act of bankruptcy would be committed. I do not see King v Commercial Bank of Australia Ltd (1921) 29 CLR 141 as assisting a creditor in those circumstances.
The Bank's application will be dismissed with costs, including reserved costs.
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