Re Harrison, C.S. v Ex parte Harrison, C.S. Re Harrison, C.S. v Ex parte Arnold, M
[1995] FCA 55
•17 FEBRUARY 1995
CATCHWORDS
BANKRUPTCY - Debtor's Petition - creditor's petition pending against the debtor - presentation to shorten period of relation back
BANKRUPTCY - Creditor's Petition - validity of bankruptcy notice - going behind a judgment - real debt owing less than amount in bankruptcy notice
Bankruptcy Act 1966 ss 41(5), 44(1), 52(1)(c),(2)(b), 52(2)(b)
Credit Act 1987 (Qld) ss 7,48, 149(1), 150, 153
Wren v Mahoney (1972) 126 CLR 212 Refd
V & J Removals; Ex parte Earl & Williams unreported decision of Pincus J. 21.6.85 Refd
Re Marshall; Ex parte James Hardie and Coy Pty Ltd (unreported decision of Pincus J. 8.7.85) Refd
Re Bedford; Ex parte HC Sleigh (Qld) Pty Ltd (1967) 9 FLR 497 Cons
Re Carl Stevan Harrison Ex parte The Abovenamed
Debtor's Petition No. 2331 of 1994
Re Carl Stevan Harrison Ex parte Michael Arnold
Creditor's Petition No 1081 of 1994
Kiefel J Brisbane 17 February 1995
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT
OF THE STATE OF QUEENSLAND Debtor's Petition No. 2331 of 1994
RE: CARL STEVAN HARRISON
Debtor
EX PARTE: THE ABOVENAMED
Applicant
AND:
Creditor's Petition No. 1081 of 1994
RE:CARL STEVAN HARRISON
Judgment Debtor
EX PARTE:MICHAEL ARNOLD
Creditor
JUDGE MAKING ORDER: Kiefel J.
DATE OF ORDER: 17 February 1995
WHERE MADE: Brisbane
MINUTES OF ORDERS
THE COURT DIRECTS THAT:
The debtor's petition not be accepted.
THE COURT ORDERS THAT:
The debtor pay the petitioning creditor's costs of and incidental to the application to have the debtor's petition accepted.
A sequestration order be made against the estate of the debtor Carl Stevan Harrison.
Roger Walker of Ernst & Young Chartered Accountants be appointed trustee of the estate of Carl Stevan Harrison.
The petitioning creditor's costs of and incidental to the petition in this matter be taxed and paid in accordance with the Bankruptcy Act 1966.
NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT
OF THE STATE OF QUEENSLAND Debtor's Petition No. 2331 of 1994
RE: CARL STEVAN HARRISON
Debtor
EX PARTE: THE ABOVENAMED
Applicant
AND:
Creditor's Petition No. 1081 of 1994
RE:CARL STEVAN HARRISON
Judgment Debtor
EX PARTE:MICHAEL ARNOLD
Creditor
CORAM: Kiefel J.
DATE: 17 February 1995
PLACE: Brisbane
REASONS FOR JUDGMENT
On 11 February 1993 judgment in the sum of $108,714.00 was given by the District Court of Queensland against the debtor and in favour of the petitioning creditor. The creditor's action was brought upon an oral agreement for the repayment of monies loaned. Whilst the debtor appeared to the plaint and filed a defence in those proceedings he did not appear on the date set for trial and judgment was entered against him. No proceedings were initially brought to set that judgment aside and on 17 January 1994 a bankruptcy notice issued and was served on 28 February 1994. In March 1994 the debtor applied to have the judgment set aside on the basis, it appears, that the monies were advanced not to him personally but to a company
Acamar Pty. Ltd. for whom he acted. Whilst I do not have before me the reasons for that judgment it does appear from the material then filed that allegation was made in the background of a defence drawn and filed by the debtor's legal advisers and which did not suggest that the debt was other than personal to him. The material also showed that there had been an acknowledgment signed by the debtor in January 1991 confirming that arrangement. The application to set aside the judgment was dismissed. The matters then raised were not pursued before me.
On 19 May 1994 a creditor's petition was filed but service was not effected until 5 November 1994 and pursuant to an order for substituted service. The debtor now seeks to present his own petition and submits a sequestration order ought not be made in any event upon the creditor's petition.
The Debtor's Petition
The loan of $30,000.00 in 1989 is said to have been requested by the debtor for the purpose of the construction of or completion of a large entertainment tent. The company Acamar Pty. Ltd., for whom the judgment debtor says he acted in obtaining the loan, was placed in liquidation some time later. For reasons which do not appear the liquidators disclaimed the property in the tent (or sections of it). Two companies or firms remained in possession of sections of it and contend that a lien attached. In December 1993, on a date I take to be after 17 December 1993, those sections of tent were sold by those two entities to Austcorp No. 454 Pty. Ltd. for a sum in the order of $20,000.00. That company was incorporated on 17 December
1993 and the debtor's wife and son control it. The tent has considerable value as an asset and is also capable of generating substantial income. The source of the funds to enable that company to purchase the tent is not revealed and it may well be open to a trustee in bankruptcy to investigate that transaction, in the event of sequestration on the creditor's petition, it having occurred in the period of relation-back. The ownership of other assets, A-Frames said to be worth in the order of $400,000.00 together with extensive equipment by way or seating or signage platforms, and previously asserted to have been owned by the debtor, may also be the subject of an investigation.
The company Austcorp No. 454 Pty. Ltd. appears now to be providing financial support to the judgment debtor by making periodical payments with respect to a motor vehicle used by him, by making available a credit card for his use and by repaying certain debts which may be his. The judgment debtor for his part says that the company owes him money. The petitioning creditor also points to the purchase of a house property, that in which the judgment debtor and his family reside, in August 1994 by the judgment debtor's wife and a business associate of the judgment debtor.
The question of the funding of these various acquisitions and as to the person or company on whose behalf they were made, including in particular the transactions in December 1993, may well be the subject of investigations. The debtor points to no particular reason for the presentation of his own petition, save that he feels some form of pressure from the judgment creditor and other, unidentified,
creditors but I do not consider this provides a convincing explanation. The solicitor who appeared for the judgment debtor on the application made no submissions as to why the petition ought to be accepted given the earlier filing of the creditor's petition and confined himself to arguing against sequestration on the creditor's petition. There is, I consider, no good reason to accept the debtor's petition but there may be good reason to conclude that its purpose was to affect the period of relation-back. I therefore propose to direct that it not be accepted.
The Creditor's Petition
On the hearing of the petition the solicitor for the judgment debtor submitted that the debt founding the judgment and these proceedings is made up of interest charged at the rate of $2,000.00 per month since 1989 on a principal sum of only $30,000.00 which, he submits, establishes that the transaction was harsh or unconscionable under the Credit Act1987 (Qld). No notice had been given under r.20 although the petitioning creditor took no point as to it and sought no adjournment perhaps because, although the rule being couched in imperative terms, a failure to comply with it could not in any event overcome the level of satisfaction required by the Court under s.52(1)(c) as to the existence of a debt or to negate the Court's discretion under s.52(2)(b).
Although it was earlier threatened, no application has ever been made to set aside the bankruptcy notice. Further, no notice has been given under s.41(5) disputing the validity of the notice on the ground of misstatement of the amount in
fact due and no attempt was made to satisfy the Court at any time that the debtor had a counterclaim, set off or cross demand equal to or exceeding the amount of the judgment debt being one that could not have been set up in the District Court proceedings. Indeed the point now taken has not been raised at any earlier time. It was not, apparently, argued upon the application to set aside the judgment.
The judgment in question was one entered in default of appearance. To an extent however issues of law and fact then considered appropriate were ventilated on the application to set that judgment aside. The fact of the entry of judgment by default of itself does not conclude the question as to whether there are "substantial reasons" for questioning whether there is in truth and reality a debt (see Wren v. Mahoney (1972) 126 CLR 212, 222, 224-5; V & J Removals; Ex parte Earl & Williams (unreported decision of Pincus J. 21.6.85) and Re Marshall; Ex parte James Hardie and Co. Pty. Ltd. (unreported decision of Pincus J. 8.7.85)). On the same reasoning, the fact of the failure of the application will not preclude this Court from going behind a judgment where reason is shown for the exercise of the power.
Section 149(1)(Part 9, Division 3) of the Credit Act provides that, subject to a period of limitation, each Court (s.153) may reopen a transaction if in the circumstances relating to the contract at the time it was entered into it was unjust. Section 148 provides that such a contract is unjust if, inter alia, the annual percentage rate is excessive, having regard to the risk, the value of any security, the amount of the consideration, the time for repayment the amount financed and "any other relevant
circumstances", and it was this section upon which the judgment debtor relied. Section 150 lists matters to be taken into account by the Court otherwise as to the question as to whether a contract was in the circumstances pertaining unjust. At the outset it may be noted that here, apart from a conclusion that the rate of interest charged at $2,000.00 per month on $30,000.00 principal is high, other facts relevant to a full inquiry as to whether it was unjust are not touched upon in the material, save that one is able to infer that the contract was entered into in a business context and without security. These few facts would not, I consider, justify going behind the judgment. An enquiry, if it were open under the Credit Act and proper to be undertaken, could not be.
Part 9 of that Act is concerned, as it is entitled, with control of the practices of credit providers. The "Regulated Contracts" with which the relevant sections are concerned include, relevantly, loan contracts subject to regulation (see Part 3). Such loan contracts are defined by s.7 however as those by which a person, in the course of a business carried on by that person, provides credit. There is simply no evidence here that the petitioning creditor falls within that description. Further, the circumstances in which the "credit" is provided do not, by s.7, include its provision predominantly for the purpose of the carrying on or in connection with the carrying on of a business by the debtor, as here appears clearly to be the case. Leaving aside other questions as to the circumstances in which this Court might undertake such an investigation under legislation such as the Credit Act, the difficulties apparent in the application of the Act do not provide any reason to go behind the judgment.
There is yet another difficulty for the judgment debtor. It was submitted by the solicitor for the judgment debtor that the Court might, in the exercise of the power under s.149 of the Credit Act, find that the amount payable to be less, by applying a proper or reasonable rate of interest. It was not however suggested that a Court would set aside the whole of the agreement including the obligation to repay the monies in fact loaned and about which there is no dispute. Indeed it was conceded they would remain owing. Those monies well exceed the requirement for a debt necessary to found a petition (see s.44(1)). A similar situation arose in Re Bedford; Ex parte H C Sleigh (Qld) Pty. Ltd. (1967) 9 FLR 497, where Gibbs J. (as His Honour then was) found, upon investigation, that the real debt owing to the petitioning creditor to be less than the amount of the judgment and less than the sum appearing in the bankruptcy notice, but in excess of that required by the Act to found a petition. Whilst the amount stated in the bankruptcy notice was excessive, that did not, by reason of s.41(5), invalidate the notice and the act of bankruptcy was effective. Here, as I have mentioned, no notice under that sub-section was given.
The judgment debtor also pointed to some conduct on the part of the petitioning creditor towards the judgment debtor and his family and submitted that the creditor was thereby disentitled to an order for sequestration since "other sufficient cause" within the meaning of s.52(2)(b) had been shown for dismissal of the petition. For the most part the conduct is denied or placed in a different context by the petitioning creditor, although I have no difficulty in accepting that relations between the parties have become strained and communications, particularly in a period of
negotiation in 1994, may have become hostile. Taking the conduct at its highest however, it can not be said to constitute an abuse of process or otherwise to reflect upon the integrity of these proceedings. The debt is a real one and it is not suggested that the debtor is able to pay his debts. In these circumstances any privately held view on the part of the petitioning creditor as to whether the process of bankruptcy might prove difficult or unenjoyable for the debtor is not to the point, and in any event any Trustee appointed in the bankruptcy would be well aware of his or her obligations and duties.
There will be an order sequestrating the debtor's estate on the creditor's petition.
I certify that this and the preceding seven pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel.
Associate
Date:17 February 1995
Counsel for the applicant: Ms C E Holmes
Solicitors for the applicant: Primrose Couper Cronin Rudkin
Solicitors for the respondent: English & Co.
Date of Hearing: 15 December 1994
Place of Hearing: Brisbane
Date of Judgment: 17 February 1995
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