Re Kyle, E. v Ex parte Aboriginal & Torres Strait Islander Commission

[1995] FCA 597

CATCHWORDS

BANKRUPTCY - Creditor's petition - bankruptcy notice founded on Magistrates Court judgment debt for rent arrears - whether in truth and reality a debt due - exercise of discretion to go behind the judgment

Bankruptcy Act 1966 (Cth) - ss 44, 52 and 82

Corney v Brien (1951) 84 CLR 343 Applied
Re Skaff (1933) 113 ALR 715 Applied
Wren v Mahony (1972) 126 CLR 212 Applied

Re Eric Kyle; Ex parte Aboriginal and Torres Strait Islander Commission
QP 2743 of 1994

Drummond J
Townsville
3 August, 1995

IN THE FEDERAL COURT OF AUSTRALIA   )     No. QP 2743 of 1994
GENERAL DIVISION                   )
BANKRUPTCY DISTRICT OF             )
THE STATE OF QUEENSLAND            )

RE:ERIC KYLE

Debtor

EX PARTE:ABORIGINAL AND TORRES STRAIT ISLANDER

COMMISSION

Creditor

MINUTES OF ORDER

JUDGE MAKING ORDER:                Drummond J
DATE OF ORDER:  3 August, 1995
WHERE MADE:  Townsville

THE COURT ORDERS THAT:

1. The petition be dismissed.

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

IN THE FEDERAL COURT OF AUSTRALIA   )     No. QP 2743 of 1994
GENERAL DIVISION                   )
BANKRUPTCY DISTRICT OF             )
THE STATE OF QUEENSLAND            )

RE:ERIC KYLE

Debtor         

EX PARTE:ABORIGINAL AND TORRES STRAIT ISLANDER

COMMISSION

Creditor

CORAM:    Drummond J
PLACE:    Townsville
DATE:     3 August, 1995

REASONS FOR JUDGMENT

I have before me a petition by the Aboriginal and Torres Strait Islander Commission ("ATSIC") seeking a sequestration order against Mr. Eric Kyle.  The petition is founded on non-compliance by Mr. Kyle with a bankruptcy notice calling on him to pay the amount of a judgement debt for $4,338.75.

Mr. Kyle challenges ATSIC's entitlement to a sequestration order on two bases. Firstly, he contends that ATSIC was not entitled to recover this judgment because of his previous bankruptcy. The judgment on which the petition is based was given on 15 October, 1993. It was for arrears of what are described as rent in respect of a 66 week period commencing on 8 July, 1992, i.e., after the applicant was bankrupted in February 1991. Mr. Kyle's previous bankruptcy was therefore no bar to ATSIC obtaining this judgment against him: see s. 82(1) the Bankruptcy Act 1966 (Cth).

Secondly, Mr. Kyle has raised a more substantial argument against the making of a sequestration order by his contention that there is no debt truly owing by Mr. Kyle to ATSIC, despite the judgment debt.  I am invited to go behind the judgment.  The judgment here in question was obtained after a contested hearing in the Magistrates Court at Mount Isa, at which Mr. Kyle was legally represented.  The Bankruptcy Court will not automatically go behind such a judgment:  substantial reasons must be shown by the debtor to question the correctness of the determination that the debtor was indebted to the creditor in the respect reflected in the judgment.  See Wren v Mahony (1972) 126 C.L.R. 212 at 224-5.

ATSIC has put before me the reasons which the Magistrate gave for judging Mr. Kyle liable to pay the judgment debt on which the petition is founded.  It is what emerges from those reasons that has caused me to think that this is a proper case to go behind the judgment.

In early 1988 Mr. Kyle was president of the Balyanna Community Advancement Co-Operative Society Ltd. ("the Society") in Mount Isa.  This Society claimed ownership of a large number of houses, including the one at 63 Suter Road in which Mr. and Mrs. Kyle lived.  Mr. Kyle, in his affidavit, says that the board of directors of the Society made a decision to establish an office at 63 Suter Road and also decided that Mr. and Mrs. Kyle were to live at that address rent free, a decision bound up with the earlier one to make use of those premises as the Society's office.  Mr. Kyle has tendered the relevant minutes of the meeting of directors of the Society held on 17 May, 1986 which confirms what he has to say in this regard.

However, in proceedings in the Supreme Court of Queensland between the Aboriginal Development Commission ("the Commission"), the statutory predecessor of ATSIC, as plaintiff, and the Society and Mr. and Mrs. Kyle as defendants, de Jersey J declared on 4 November, 1988 that the Commission owned each of the properties, including 63 Suter Road, and made orders vesting those properties in the Commission.  By June 1989 the title was registered in the name of the Commission.

The complaint of ATSIC upon which the judgment debt is founded is set out in the Magistrate's reasons.  ATSIC sought, firstly, possession of the 63 Suter Road premises from Mr. and Mrs. Kyle, alleging that it was held by them under a periodic tenancy being a tenancy from fortnight to fortnight acknowledged by Mr. and Mrs. Kyle as commencing on 4 November, 1988, which was terminated on 30 September, 1992 by a notice to quit and demand for possession dated 15 September, 1992. 
Secondly, ATSIC claimed rent in respect of the whole of the period from 4 November, 1988. 

In the course of recording his findings on fact, the Magistrate said that it was discovered after November 1988 when the Commission became the owner of the 63 Suter Road premises that a tenancy agreement had not been entered into by the Commission and Mr. and Mrs. Kyle.  At this time the Commission arranged for a letter to be sent to the Kyles, as well as apparently to a large number of other persons in occupation of premises previously owned by the Society but which had been vested in the Commission by the Supreme Court order.  This general letter, as the Magistrate described it, was sent to Mr. and Mrs. Kyle and the other occupants in 1988 or 1989.  The Magistrate also found that in June 1992 a letter was forwarded to Mr. Kyle and on 8 July, 1992 a similar letter was sent to Mrs. Kyle.  Each informed them that a tenancy agreement had not been entered into and the Magistrate continued by finding that, as there was no response to either of these letters, ATSIC served a notice to quit on them in early September 1992 requiring them to quit the premises by 30 September, 1992.

Mr. Kyle has not put any evidence before me which puts into dispute any of these facts.  He says in his affidavit that at no time was a tenancy agreement drawn up or signed and the funding body, a reference I take to be to the Commission and its successor, ATSIC, were fully aware of this arrangement as this showed up on each quarterly rental report presented to them by the Society.  He relies, as I have said, on the decision of the Society's board of 1986 allowing him and his wife to occupy the premises rent free thereafter.  Because of this, Mr. Kyle continued, no pressure was put on the Society by the funding body to collect rent or even have a tenancy agreement signed.

ATSIC did not dispute what Mr. Kyle said about the position that existed as between the Commission and then ATSIC, from November 1988 until mid-1992, when ATSIC did take the action I have referred to aimed at recovering possession of 63 Suter Road from Mr. and Mrs. Kyle.  Given the period of time that appears to have passed between the Commission becoming owner of the premises in November 1988 and action being taken to eject Mr. and Mrs. Kyle, who never paid any rent in the whole of this period of nearly four years, there seems to be a deal of substance in what they have to say in that regard.

However, there is clear evidence that from well prior to the period in respect of which the Magistrate gave judgment against Mr. and Mrs. Kyle for rent due, viz., 8 July, 1992 to 15 October, 1993, when he pronounced his judgment, ATSIC or the Commission, and not the Society, was the landlord of the premises.  There is no evidence before me that raises any suggestion that the Society had any authority to bind either the Commission or ATSIC to give Mr. and Mrs. Kyle rent free occupation of the premises in question after November 1988, as Mr. Kyle says the board did, back in 1986.

That 1986 decision of the Society could not bind the landlord, the Commission or ATSIC, after November 1988.  It might be suggested that ATSIC's knowledge that Mr. Kyle was not paying rent in the period from 4 November, 1988, coupled with its inaction, at least until June 1992 in failing to demand payment, raised an estoppel against ATSIC demanding payment.  But ATSIC's actions in mid-1992 would be sufficient to prevent any claim that ATSIC was, from about that time on, estopped from demanding payment from Mr. Kyle for his occupation of the premises.

On any view of the evidence before me, it seems clear that Mr. Kyle was not a trespasser at any time during his occupancy of the premises from November 1988, at least until the notice to quit expired.  He was in occupation on 4 November, 1988, when in proceedings in which he was a party, orders were made declaring the Commission, not the Society, to be the owner of the premises.  The Commission clearly was aware of Mr. Kyle's occupancy.  However, neither it nor its successor took any action to remove Mr. Kyle until September 1992, when the notice to quit was issued.

That Mr. Kyle was not a trespasser was the view expressed by the Magistrate in his reasons.  He said that the only two competing explanations for the Kyles' occupancy of the premises were that they were in occupation under what he called a tenancy on sufferance or that Mr. and Mrs. Kyle were in the house illegally.  He concluded that some form of tenancy must have existed, whether it be oral or written, because, as he said, it would defy imagination for the defendants to be in occupation of the premises illegally.  As I have indicated I have no difficulty in accepting that Mr. and Mrs. Kyle were not on the premises illegally from 4 November, 1988.

But whether the only alternative to their being trespassers from November 1988 is that there must have been some form of tenancy between Mr. Kyle and the Commission and then ATSIC, as the Magistrate said was the case, is a questionable proposition.  There is no basis for thinking that ATSIC as landlord had legally bound itself to allow Mr. Kyle to use the premises free of charge.  As from June 1992, when ATSIC called on Mr. Kyle to execute a tenancy agreement, Mr. Kyle well knew he could only occupy 63 Suter Road if he did that.  I infer that rent was required to be paid under the terms of his agreement.

ATSIC was therefore entitled in my view to recover payment from Mr. Kyle in respect of his occupancy in the period 8 July, 1992 to 30 September, 1992 when the notice to quit expired.  The cause of action giving ATSIC that entitlement would be an action for use and occupation.  In Halsbury's Laws of England, 4th Ed., Vol. 27, paragraph 254, the circumstances in which such an action lies are described in this way:

"... wherever the landlord has permitted the defendant to occupy his land with the intention of creating [the relationship of landlord and tenant], the landlord may bring an action for use and occupation to recover a reasonable satisfaction for the land held or occupied by the tenant [even though no actual relationship of landlord and tenant ever comes into existence]."

As the author indicates, the basis for the cause of action for use and occupation is that the owner of the land allows a person to occupy his land even though no tenancy comes into existence or exists, but in circumstances in which it is understood that the occupation is not to be free of charge.

Upon expiry of the notice to quit on 30 September, 1992 Mr. Kyle would in my opinion have become a trespasser.  ATSIC's entitlement to payment from 30 September, 1992 was therefore a right to recover mesne profits.  In Halsbury's Laws of England, supra, paragraph 255, the basis upon which that action lies is explained in this way:

"The landlord may recover in an action for mesne profits the damages which he has suffered through being out of possession of the land  ...  In most cases the rent paid under any expired tenancy will be strong evidence as to the open market value.  Mesne profits, being a type of damages for trespass, can only be recovered in respect of the defendant's continued occupation after the expiry of his legal right to occupy the premises."

It seems to me that for the period from 8 July, 1992 to 15 October, 1993 Mr. Kyle was indebted to ATSIC in respect of his occupation of the premises.  This debt was due in part, in respect of use and occupation by Mr. Kyle of the premises and in part, in respect of mesne profits payable by Mr. Kyle as a trespasser.

However, ATSIC claimed payment of a much larger sum than that for which judgment was given as rent due under a fortnightly periodic tenancy ending on 30 September, 1992.  The Magistrate refused to find that there was such a tenancy.  He considered as I have indicated that there were only two possible explanations for the basis upon which Mr. Kyle continued in occupation and he rejected the notion that they were illegally in possession and held that they were in possession as tenants on sufferance.  He said:

"The defendants continue to be in possession of the premises after expiry of whatever tenancy the defendants may claim.  It could not be argued the defendants have the assent of the complainant.  In my view, the tenancy is one of sufferance."

In Halsbury's Laws of England, supra, paragraph 175, the nature of that tenancy is described in this way:

"A person who enters on land by a lawful title, and after his title has ended continues in possession without statutory authority and without obtaining the consent of the person then entitled, is said to be a tenant at sufferance, as distinct from a tenant at will who is in possession with the landlord's consent."

The essence of a tenancy of sufferance is that there is a valid tenancy initially in force which expires and the landlord allows the former tenant to remain in occupation of the land.  It is in only those circumstances that a tenancy on sufferance exists.  There is no basis in my opinion for concluding that Mr. Kyle held a tenancy at sufferance at any time.  There is no evidence to suggest he was ever a tenant to the Commission or to ATSIC and that he held over on expiry of any such tenancy.

The Magistrate gave judgment for $4,290 for what he treated as rent due for the period 8 July, 1992 to 15 October, 1993 under this tenancy on sufferance to which he made reference.  Simple arithmetic indicates that he adopted a weekly rental of $65 for this 66 week period.

It is true that a tenant on sufferance is not liable to pay rent but is liable to pay for use and occupation:  see Halsbury's Laws of England, supra, paragraph 176. So ATSIC's entitlement to that part of the debt that is reflected in the judgment which accrued from 8 July, 1992 to 30 September, 1992, when the notice to quit expired, i.e., a period of what appears to be 12 weeks at $65 or $780, was an entitlement to payment for use and occupation. The judgment, insofar as it was in respect of the period 8 July, 1992 to 13 September, 1992, was obtained on the basis that it was for money due to ATSIC by Mr. Kyle under a tenancy on sufferance, i.e., as money due for use and occupation. Mr. Kyle was thus truly indebted to ATSIC on that basis for the $780 that became due in that period even though the Magistrate wrongly identified it as rent. That of itself cannot entitle ATSIC to the sequestration order based on non-compliance with the bankruptcy notice here issued since the only true indebtedness congruent with the indebtedness reflected in the judgment was insufficient in amount to entitle ATSIC to present a petition and thus to obtain a sequestration order against Mr. Kyle: see ss. 44 and 52 the Bankruptcy Act 1966 (Cth).

The balance of the judgment debt was incurred not in respect of a claim for use and occupation or for rent but for mesne profits, i.e., as a form of damages for trespass.  The degree of congruity that must exist between the basis on which a judgment debt is owed on which a bankruptcy petition is founded and the basis on which a debtor may be seen to be actually indebted to the creditor is the subject of much authority.  In Re Skaff (1993) 113 A.L.R. 715, I said at 720:

"When the Bankruptcy Court goes behind a judgment on the hearing of a petition for a sequestration order ... that court is not concerned with questions as to the sufficiency of the pleading or of the proof of the debt in the court in which the judgment was given.  Its only concern is to be satisfied by proper proof before it that there in truth exists a debt and that that debt arose on the same basis upon which the judgment was obtained."

In Corney v Brien (1951) 84 C.L.R. 343, the judgment debt was founded on a claim for moneys due for the price of goods sold and delivered. The evidence indicated that the amount in question was due in respect of those goods but by way of instalments payable under a hire-purchase agreement under which the debtor acquired possession of the goods. The sequestration order was there set aside, it having been based on a judgment debt founded on a different basis from that on which the judgment debtor was truly indebted to the creditor.

In my opinion the judgment, insofar as it was in respect of the period from 30 September, 1992 to 15 October, 1993, was claimed by ATSIC and obtained on a different basis from that on which Mr. Kyle was truly indebted to ATSIC.  He was truly liable for damages for trespass, but the judgment debt in respect of this period was for rent.  Moreover, ATSIC made no attempt to show that $65 per week (the figure used by the Magistrate to measure ATSIC's entitlement to "rent" he considered it was entitled to be paid) was a fair measure of the value of its loss in respect of this period from 30 September, 1992.  The mere fact that ATSIC may have demanded payment by Mr. Kyle at this weekly rate, a demand never acceded to, is no evidence of the value of that loss.

The petition is therefore dismissed.

I certify that this and the preceding
11 pages are a true copy of the
reasons for judgment herein of the
Honourable Justice Drummond.

Associate:
Date:             3 August, 1995

Mr. Kyle appeared for himself.

Solicitor for the creditor:          Australian Government

Solicitor

Date of Hearing:  3 August, 1995