Re I.T.F. Robertson Ex Parte I.V. Robertson v I.T.F. Robertson

[1989] FCA 168

Re: IAN THOMAS FRANCIS ROBERTSON
Ex parte: IVOR JAMES ROBERTSON AND IAN THOMAS FRANCIS ROBERTSON
No. 1617 of 1988
FED No. 168
Bankruptcy - Costs

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
Fisher J.(1)

CATCHWORDS

Bankruptcy - dismissal of creditor's petition - debtor "able to pay his debts".

Costs - bankruptcy - creditor entitled to institute bankruptcy proceedings - notice of debtor's defence of solvency.

Bankruptcy Act 1966 para.52(2)(a)

HEARING

ADELAIDE

#DATE 21:4:1989

Solicitor for Debtor: Mr. B.F. Beazley

Poveys

Solicitor for Petitioning Creditor: Mr. AC Bampton

Olssons

ORDER

The petition be dismissed.

The debtor pay the creditor's costs up to the date of filing of the application to have the creditor's petition dismissed, the same to be taxed if not agreed.

The creditor pay the debtor's costs thereafter including costs of the hearing, the same to be taxed if not agreed.

Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

JUDGE1

In this matter the debtor Ian Thomas Francis Robertson has applied for the dismissal of a creditor's petition issued against him by the creditor Ivor James Robertson. In support of his application the debtor states that he is solvent, that is, able to pay his debts.

1. The creditor and debtor are brothers. This matter is part of a long running dispute over the estate of their late father. In the Supreme Court of South Australia, a matter involving the estate was compromised on the basis inter alia that the debtor pay to each of them the creditor and another brother the sum of $20,000. Those sums remain outstanding.

2. The creditor took proceedings in the District Court of Adelaide over the $20,000 owing. The debtor entered an appearance but failed to file a defence within the prescribed time limit and judgment was signed against him. The creditor then issued a bankruptcy notice in this Court, which notice was served upon the debtor on 16 June 1988. The debtor did not comply with the bankruptcy notice and the creditor issued the creditor's petition the subject of this hearing.

3. Paragraph 52(2)(a) of the Bankruptcy Act (1966) provides that upon the hearing of a creditor's petition, the Court may dismiss the petition if satisfied by the debtor that he is able to pay his debts. The expression "able to pay his debts" has been considered in a number of cases. In Sandell v Porter (1966) 115 CLR 666, the High Court considered s.95 of the Bankruptcy Act (1924-1960) the predecessor of s.120 of the Bankruptcy Act 1966. Although the particular phrase in s.95 varies slightly from that in para.52(2)(a) of the present Act, the remarks of Barwick C.J. at p 670 are relevant.
   

"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. It is clear that a debtor's unwillingness to pay his debts does not preclude the Court from being satisfied by the debtor that he is "able" to pay his debts within the meaning of para.52(2)(a). See Sarina v Council of the Shire of Wollondilly (1980) 43 FLR 163, (1980) 48 FLR 373.

2. In this matter the debtor has clearly indicated that he is at present unwilling to pay to the creditor the disputed sum. The debtor's view is that the $20,000 sums payable to each of his brothers were in full satisfaction of transfer to the debtor by the trustee of an item of farm machinery. That transfer has not been effected.

3. Is the debtor able to pay his debts? The debtor states by way of affidavit that his assets include farming land in Victoria and South Australia valued at 4.17 million dollars, 7,000 merino wethers valued at $450,000 and machinery valued at $250,000. The stated values are approximate. In addition the debtor states that he is the proprietor of a hairdressing business with a "lease" value of $70,000.

4. The debtor stated that his only liabilities are an overdraft to Westpac Banking Corporation fluctuating from $60,000 to $120,000, certain liabilities arising in respect of contracts entered into by his late father for the purchase of various blocks of land, and the contingent liability to his brothers of $20,000 each.

5. As to income, the debtor states that the annnual income derived from his various properties exceeds $200,000. By further affidavit the debtor states that whilst he generally elects to re-invest those funds in developing his properties, he is able to apply any of his income to debts which might arise. The debtor has offered to pay the disputed sum in these proceedings into Court.

6. The creditor did not cross-examine the debtor. The only means by which the above statement of the debtor are disputed is the affidavit of the creditor, which takes the matter little further. The creditor states that he is aware that his brother has assets but that he is not nor has ever been in a position to comment on the extent to which those assets are encumbered, or in regard to any unsecured loans, or in regard to his brother's income. In these circumstances I have no reason not to accept the debtor's statement of his assets, liabilities and income.

7. I am thus satisfied that the debtor is able to pay his debts within the meaning of para.52(2)(a). I dismiss the petition.

8. The remaining matter is the issue of costs.

9. The case principally referred to in argument was Sarina (supra). In that case the debtor succeeded in his application for dismissal of the creditor's petition. However, Deane J. ordered the debtor to pay the petitioning creditor's costs up to the 28th April 1980. That was the date on which the petitioner first became in consequence of the debtor's offer to pay the alleged debt into court, of the debtor's claim of solvency (although an affidavit of solvency was not filed until 3 June 1980). Deane J. remarked at p 166 -
   

"Notwithstanding a submission by the debtor to the contrary, there is nothing at all in the material before me to suggest that the petitioning creditor acted other than with complete propriety in presenting its petition. The debt upon which the petition was based was plainly owing to it. The debtor had committed the act of bankruptcy alleged in the petition. The petitioning creditor can scarcely be criticized for failing to anticipate a defence that the debtor was solvent and had the means available to him to pay all his debts including that owing to the petitioning creditor which he had failed to pay."

Deane J. made no order for costs subsequent to 28 April 1980. In doing so he considered "all the circumstances, including the fact that the debtor has failed completely on the issues to which the bulk of the material before me was directed". In any case the debtor apparently represented himself and so could not be entitled to an order for costs in his favour.

1. By contrast to that case is the decision of Smithers J. in Re Boris Beljajev Ex parte Diners Club Limited (unreported decision dated 15 August 1984). The debtor in that case succeeded in his application for dismissal of the creditor's petition. Smithers J. ordered the petitioning creditor to pay the costs of proceedings up to but not including 30 May 1984, the first day of the hearing, with parties otherwise bearing their own costs. Smithers J. commented,
   

"I have considered whether the debtor should be deprived of his costs. The debtor has certainly indicated by the affidavit to the petitioning creditor that he claimed to have the ability to pay his debts. The contents of the affidavits did not accurately set forth his true position. But I think that the petitioner proceeded with the petition at his own risk as to the costs should the defence be made out. Nevertheless the debtor failed in respect of two grounds of alleged defence. He succeeded on the third only after an adjournmment and a further hearing which took place over two days, which adjournment would not in my opinion have been necessary had the debtor's case been frankly put and covered the reality of the situation at the hearing on 30 May 1984."

1. These two cases involve slightly different approaches. In the latter (Re Boris Beljajev), the bankruptcy proceedings were considered as a whole. As the debtor successfully defended the proceedings, he was prima facie entitled to his costs from the commencement of those proceedings to judgment.

2. In Sarina however, Deane J. considered that a creditor who institutes bankruptcy proceedings in a situation where he has no reason to doubt that they are appropriate, should not be penalised by an award of costs, at least up until the time that he is on notice of the debtor's intended defence. He thereafter proceeds at his risk as to costs if the debtor successfully opposes the petition.

3. The approach of Deane J. finds support in Re Murray v. Vilkelis-Curas Ex parte Deputy Commissioner of Taxation (unreported decision of Jenkinson J. dated 4 November 1985). In that case the debtor owed income tax, which he had stated he was unwilling to pay so long as public funds were being applied to subsidize abortion programmes. The debtor had suggested that he make an equivalent payment to a charity and had in fact deposited (by way of loan) the outstanding sum with the Mildura Parish Provident Fund. Evidence was given that Tax Officers had been informed by the Parish priest of this action. The debtor argued that the subsequent initiation of bankruptcy proceedings was unwarranted, as the Deputy Commissioner had no reason to doubt his solvency. It was further submitted that the Deputy Commissioner could easily take steps to satisfy himself of the debtor's solvency, by employing his powers under s.264 of the Income Tax Assessment Act 1936. At p 5 Jenkinson J. remarked,
   

"But the failure of the petitioner to expend time and money in determining whether the judgment debtor was able to pay his debts before deciding to institute these proceedings ought not in my opinion to be considered conduct disentitling the petitioner to an award of costs in the proceedings. Apparently frank and apparently solvent the debtor was, at the time the bankruptcy notice was issued. But the petitioner as judgment creditor, ought not in my opinion to be required, at the risk of being denied his costs of bankruptcy proceedings, either to trust the debtor's word, or to expend money in procuring testimonial verification, that the debtor is solvent and that accordingly payment of the judgment debt may be enforced without fear that bankruptcy at the suit of some other creditor may supervene. I do not intend to deny that the institution of bankruptcy proceedings against a debtor whose solvency is either obvious or susceptible of reliable verification at a cost substantially less than that of bankruptcy proceedings may be unreasonable, or that such unreasonableness may influence the exercise of the discretion as to costs. But it was not, as I think, unreasonable of this petitioner to form no opinion concerning this debtor's solvency upon the information which he had..."

1. With respect, I agree with the above remarks and find them of assistance in this matter. The creditor pointed out that he was perfectly entitled to take out a petition on the basis of the unsatisfied bankruptcy notice, which itself was based upon the District Court judgment referred to above. Furthermore, although the creditor admitted to living nearby the debtor, he stated (in his affidavit) that he could not be sure of the debtor's other liabilities. As the Full Court in Sarina (1980) 48 FLR 372, at 378 noted, knowledge of a person's assets gives no ground for a conclusion as to solvency in the absence of knowledge of liabilities, income and expenditure.

2. On the other hand, the debtor argued that a single check by the creditor of the Victorian Lands Titles Office would have indicated the unencumbered status of the debtor's land. Even if land could not be quickly sold by the debtor it would represent substantial security for the purpose of raising a loan.

3. Whilst it is apparent from the evidence now before the Court that the debtor is and was at all relevant times overwhelmingly able to pay his debts, I am not of opinion that the creditor acted unreasonably in instituting bankruptcy proceedings. The simplicity of a Lands Title check makes the debtor's argument attractive; but if for example the land had been found to be heavily encumbered, would the creditor then be expected to also enquire as to the existence of charges over the debtor's sheep or machinery? I think the proper approach is that a creditor should not be penalized as to costs for initiating bankruptcy proceedings where they are prima facie appropriate. However once he receives notice of grounds upon which the debtor asserts his solvency, he should consider testing or verifying those grounds and proceed at his risk.

4. In this case then, I order that the debtor pay the creditor's costs up to the date of filing of the application to have the creditor's petition dismissed, and that the creditor pay the debtor's costs thereafter, including costs of the hearing the same to be taxed if not agreed.