Re Hankey; ex parte Kratzmann

[1986] FCA 280

Re: DONALD IAN HANKEY
Ex Parte: NOEL AUSTIN KRATZMANN
Nos. P489 and E507 of 1986
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Burchett J.

CATCHWORDS

Bankruptcy - costs of petitioning creditor where debtor's petition is presented during pendency of creditor's petition - Circumstances in which annulment of bankruptcy consequent upon debtor's petition refused but special costs order made upon dismissal of creditor's petition.

Bankruptcy Act 1966, s.32, s.154(1)(a), s.156A

Clyne v. Deputy Commissioner of Taxation (1984) 154 CLR 589

Clyne v. Deputy Commissioner of Taxation (1984) 6 FCR 418

Clyne v. Deputy Commissioner of Taxation (unreported, Sweeney J., 12 October 1984)

Re Cornish; Ex parte English (1984) 6 FCR 257

HEARING

BRISBANE

#DATE 3:7:1986

JUDGE1

In this matter, the applicant for annulment is the petitioning creditor in a bankruptcy petition based on a bankruptcy notice. The petition was served on 20 May, and was set down for hearing on 30 June. On 20 June the debtor presented his own petition, which was accepted by the Registrar, being in proper form. The petitioning creditor asked for an annulment of the automatic bankruptcy thereby produced, under s.154(1)(a) on the ground that the debtor's petition ought not to have been presented. Reliance is placed on Clyne's Case (1984) 154 CLR 589.

1. In the joint judgment of the Chief Justice and Murphy, Brennan and Dawson JJ. in that case, it was said at p.599 that the debtor, Mr. Clyne, frankly admitted the purpose of preventing the making of a sequestration order and thereby preventing his bankruptcy relating back to a time since when he had disposed of moneys to which the trustee's title might relate back.

2. Their Honours said:
   
   

"(A) distinction must be drawn between the pursuit of 'an ulterior private purpose' - which may not necessarily amount to an abuse of process - and a purpose foreign to the nature of the process in question."

After referring to the discussion in Dowling v. Colonial Mutual Life Assurance Society Limited 20 CLR 509 at pp 521 - 523, they went on:

"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."

1. It is conceded in the present case that there are no relevant consequences in respect of the period of relation back. But it is said, firstly, that the right of the petitioning creditor to costs has been frustrated, and secondly, that the debtor has gained the opportunity to select his own trustee. I do not think the presentation of the debtor's petition during the currency of the creditor's petition does deprive the Court of power to make an appropriate order in respect of costs - see s.32 of the Bankruptcy Act 1966, which provides:
   
   

"The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit."

1. It would be most unfortunate if s.32 were construed so narrowly as to permit the suggested consequence, since it is clear that the High Court in Clyne's Case (supra) did contemplate that some debtors' petitions could, in such circumstances, be properly presented. As to the selection of a trustee, if a petition is otherwise properly presented, the Act provides that the trustee whose consent has been filed becomes the trustee; thus it is the Act which produces the consequence which is the foundation of the argument. It seems to me it would be very hard to say that "a purpose foreign to the bankruptcy laws", to use the words of the High Court judgment in Clyne's Case at p.599, is demonstrated where a debtor, perhaps fearing the creditor has nominated a trustee in his camp, has as one object in filing his own petition to secure a wholly independent trustee.

2. There is no evidence here that the debtor, in fact, had any particular purpose, and certainly no evidence that his purpose was to secure an improper advantage in respect of his trustee. If a particular debtor chooses a trustee having some connection with himself, or otherwise unfit, a power of removal is provided by s.156A(4).

3. In Re Cornish 6 FCR 257, Morling J. took the view that it was insufficient to show merely the purpose of preventing the petitioning creditor succeeding on his petition. He drew attention to the language of the passage which I have cited from the joint judgment in Clyne's Case. In Clyne's Case, both in the High Court and later before Sweeney J., (unreported 12 October 1984), and on appeal from him to the Full Federal Court, (6 FCR 418), it was made clear that a most important factor, upon the facts of that case, was the effect upon the period of relation back.

4. The touchstone in point of principle is whether a purpose is shown which is foreign to the bankruptcy law. In the present case, I do not think it is. Accordingly, I dismiss the application for annulment and order the applicant to pay the costs of the respondent to the application.

5. It is a consequence of my refusal to annul the bankruptcy achieved by the debtor's petition that I must also dismiss the creditor's petition, as I do, but I hold that I can and should in these circumstances make an order, under s.32, that the costs of the petitioning creditor of and incidental to the petition, up to the date when his solicitors received notice of the presentation of the debtor's petition, and thereafter the costs which must have been incurred on the footing of the necessity to make an application for an order for costs, be taxed and paid as if I had made a sequestration order on the creditor's petition and had ordered that those costs of the petitioning creditor be taxed and paid in accordance with the Act. I so order.