Re Leitch, D.H. Ex Parte NZI Capital Corporation Ltd
[1992] FCA 488
•25 Jun 1992
t ,
4ss q2 I - -
JUDGMENT No. ..-,.,,-J r . l lmn . l ;
i
C A T C H W O R D S
BANKRUPTCY - application to set aside sequestration order - I review of Deputy Registrar's decision - prime facie right to sequestration order - debtor asserts unliquidated cross-claim ! I exceeding or equalling judgment debt - evidence of cross-claim - I quantum of cross-claim - debtor's right of action - solvency of
the debtor - debtor to show cause for exercise of discretion. I i Bankru~tcv Act 1966 S. 14, S. 31A Rozenbes v. Kronhill (1956) 95 C.L.R. 407
v. Whvte (1933) 48 C.L.R. 639
Harris v. Caladine (1991) 65 A.L.J.R. 280
Re Schmidt: Ex parte Analewood Ptv Ltd (1968) 13 F.L.R. 111
Voawell v. Vowel1 (1939) 11 A.B.C. 83
Re Player (1961-1962) 19 A.B.C. 277Re Rivett; Ex parte Edward Fav Ltd (1932) 5 A.B.C. 182
!,,
SPENDER J.
BRISBANE
25 JUNE 1992
RE DAVID HENRY LEITCH: EX PARTE NZ1 CAPIT- CORPORATION LIMITED ! No. QB 512 of 1992 l
.' ,'. ,
, , IN THE FE'DER~L COURT OF AUSTRALIA 1
GENERAT, DIVISTON 1 No. QB 512 of 1992 BANKRUPTCY DISTRICT OF THE 1 STATE OF OUEENSLAND 1
RE : DAVID HENRY LEITCH EX PARTE: NZ1 CAPITAL CORPORATION LIMITED
| I | MINUTES OF ORDER |
JUDGE MAKING ORDER: SPENDER J. DATE OF ORDER: 25 JUNE 1992 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The amended application filed on 9 March 1992 is dismissed.
2. The costs of the application, including all reserved costs, be taxed and paid as if they were petitioning creditors' costs.
3. The costs of the supporting creditor to be costs in the estate, to rank as if they were petitioning creditors' costs.
NOTE: Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv Rules. IN THE FEDERAL COURT OF AUSTRALIA 1 GENERAL DlVISlON
1 No. OB 512 of 1992 BANKRUPTCY DISTRICT OF THE
STATE OF OUEENSLAND
RE: DAVID HENRY LEITCH EX PARTE: NZ1 CAPITAL CORPORATION LIMITED
CORAM: Spender J. PLACE : Brisbane DATE : 25 June 1992
REASONS FOR JUDGMENT
By an amended application filed on 9 March 1992, David Henry Leitch seeks an order that the declsion of Deputy Registrar Allen to order the sequestration of the estate of David Henry Leitch, made on 28 February 1992, be reviewed and set aside pursuant to S. 14(5) of the Bankru~tcv Act 1966 ('the Act'). An application that that sequestration order be suspended was not pursued at the hearing.
Section 14(5) provides:
" An order or direction made or given, or an act done, by a Registrar or a Deputy Registrar under this Act is subject to review on summary application to the Court. "
It seems to me, however, that the relevant provision in these circumstances is S. 31A(6) of the Act.
Section 31A(l)(n)
provides : "
S u b j e c t t o s u b s e c t i o n ( 2 ) , the f o l l o w i n g powers o f
the C o u r t u n d e r t h i s Act may, i f a J u d g e o f the C o u r t , i n w r i t i n g , d i r e c t s , be e x e r c i s e d by a R e g i s t r a r o f the C o u r t i n r e l a t i o n t o a p r o c e e d i n g :
. . .
( n ) the power t o make a s e q u e s t r a t i o n o r d e r a g a i n s t
the e s t a t e o f a debtor u n d e r subsection 52(1)
and the power u n d e r s u b s e c t i o n 52 ( 2 ) t o d i s m i s s a c r e d i t o r ' s p e t i t i o n ; "
Section 3 1 A ( 6 ) p r o v i d e s :
"
A p a r t y t o a p r o c e e d i n g i n w h i c h the R e g i s t r a r h a s e x e r c i s e d
a n y
o f
the
powers
o f
the
C o u r t
u n d e r
s u b s e c t i o n ( l ) may, w i t h i n the t i m e p r e s c r i b e d by the r u l e s , or w i t h i n a n y f u r t h e r t i m e a l l o w e d i n
a c c o r d a n c e w i t h the r u l e s , a p p l y t o the C o u r t t o
r e v i e w t h a t exercise o f power. " Section 3 1 A ( 7 ) p r o v i d e s :
" T h e C o u r t may, on a p p l i c a t i o n u n d e r s u b s e c t i o n ( 6 )
or o f i t s own m o t i o n , r e v i e w a n exercise o f power
by a R e g i s t r a r p u r s u a n t t o th i s section and m a y
make s u c h o r d e r or o r d e r s a s it thinks f i t w i t h
r e s p e c t t o the m a t t e r w i t h r e s p e c t t o w h i c h the
power was e x e r c i s e d . "
I n S . 31A ' R e g i s t r a r ' i n c l u d e s a Deputy R e g i s t r a r or Deputy
Dis t r ic t R e g i s t r a r o f the F e d e r a l C o u r t o f A u s t r a l i a . There h a s
been a d e l e g a t i o n i n w r i t i n g by' a judge o f the court w i t h r e s p e c t
t o the power r e f e r r e d t o i n 3 1 A ( l ) ( n ) .
I n H a r r i s v. C a l a d i n e ( 1 9 9 1 ) 6 5 ALJR 280 the High C o u r t
was c o n c e r n e d w i t h the v a l i d i t y o f a d e l e g a t i o n o f power by a
judge o f the F a m i l y Court t o R e g i s t r a r s o f t h a t court. S e c t i o n 3 7 A ( 1 ) o f the F a m i l v Law Act 1975 a u t h o r i s e s the judges t o make rules : ... delegating t o the Registrars a l l or any o f the powers o f the Court..."
and S . 3 7 A ( 2 ) stipulates that a power so delegated - . . . when exercised by a Registrar, shall , for a l l purposes, be deemed t o have been exercised by the Court or a Judge, as the case requires. "
At the time o f that case 0. 36A r . 2 ( 1 ) o f the Family Law
Rules made pursuant t o the Familv Law Act delegated t o each Registrar specified powers o f the court, and r . 7 ( 4 ) o f 0. 36A provided:
" A court reviewing an exercise o f power by a . . .Registrar shall proceed b y way o f a hearing Le m o b u t may have regard t o the proceedings, including the evidence given and any a f f idav i t
f i l ed , before the.. .Registrar.. . " The High Court held tha t the delegation o f powers o f a
Chapter I11 court t o o f f i c e r s o f the court i s valid provided that
the court does not thereby abdicate i t s functions. The majority concluded that there were two conditions: f i r s t , the delegation must not be such that the judges can no longer be said t o
consti tute the court; and, secondly, the delegation must not be inconsistent with the obligation o f court t o act judicially and therefore the decisions o f delegates must be subject t o review
by a judge or judges o f the court.
In the joint judgment o f Mason C . J . and Deane J . , the ir
Honours said, at 283:
" I t seems t o u s that , so long a s two conditions are observed, the delegation o f some part o f the jurisdiction, powers and functions o f the Family Court a s a federal court t o i t s o f f i ce r s i s
p e r m i s s i b l e and consistent w i t h the control and
s u p e r v i s i o n o f the F a m i l y C o u r t ' s j u r i s d i c t i o n by
i t s judges . T h e f irst c o n d i t i o n i s t h a t the
d e l e g a t i o n m u s t not be t o a n extent where it c a n no
l o n g e r p r o p e r l y be s a i d t h a t , a s a p r a c t i c a l a s
w e l l a s a t h e o r e t i c a l m a t t e r , the judges c o n s t i t u t e
the c o u r t . T h i s means t h a t the judges m u s t
c o n t i n u e t o b e a r the m a j o r r e s p o n s i b i l i t y for the
exercise o f j u d i c i a l power a t l e a s t i n r e l a t i o n t o
the more i m p o r t a n t a s p e c t s o f c o n t e s t e d m a t t e r s .
The second c o n d i t i o n i s t h a t the d e l e g a t i o n m u s t
n o t be inconsistent w i t h the o b l i g a t i o n o f a c o u r t
t o a c t j u d i c i a l l y and t h a t the d e c i s i o n s o f the
o f f i c e r s o f the c o u r t i n the exercise o f their
d e l e g a t e d j u r i s d i c t i o n , powers and f u n c t i o n s m u s t
be s u b j e c t t o r e v i e w or appea l by a judge or judges
o f the c o u r t . F o r p r e s e n t p u r p o s e s i t i s
s u f f i c i e n t for u s t o s a y t h a t , i f the exercise o f
d e l e g a t e d j u r i s d i c t i o n , powers and f u n c t i o n s by a
c o u r t o f f i cer i s s u b j e c t t o r e v i e w or appea l by a
judge or judges o f the c o u r t on q u e s t i o n s o f b o t h
f a c t and h e a r i n g d e n o v o , l a w , we c o n s i d e r t h a t the d e l e g a t i o n w i l l
be v a l i d . i m p o r t a n c e o f i n s i s t i n g on C e r t a i n l y , i f the r e v i e w i s by way o f
the d e l e g a t i o n w i l l be v a l i d . The
the existence o f r e v i e w
by a judge or a n a p p e a l t o a judge i s t h a t this
procedure g u a r a n t e e s t h a t a l i t i g a n t may h a v e
r e c o u r s e t o a h e a r i n g and a d e t e r m i n a t i o n by a
judge. In other words , a l i t i g a n t c a n a v a i l h i m or
herself o f the j u d i c i a l i n d e p e n d e n c e which i s the
h a l l m a r k o f the c l a s s o f c o u r t p r e s e n t l y under
c o n s i d e r a t i o n . "
Their Honours, h a v i n g r e f e r r e d t o the p r o v i s i o n s o f
0. 36A r . 7 ( 4 ) s a i d a t 284:
" The d i r e c t i o n t h a t the r e v i e w i s t o be by way o f h e a r i n g d e novo p l a i n l y i n d i c a t e s t h a t the
j u r i s d i c t i o n o f the C o u r t on r e v i e w i s not
r e l e v a n t l y c o n f i n e d and e x t e n d s not only t o a n y
i s s u e which m i g h t h a v e a r i s e n before the Depu ty
R e g i s t r a r b u t a l s o t o a n y i s s u e which m i g h t
p r o p e r l y a r i s e i n the mean t ime . "
T h e r e i s no p r o v i s i o n p r e s e n t l y a p p l i c a b l e s i m i l a r t o
t h a t o f the then 0 . 36A r . 7 ( 4 ) i n t h i s c a s e b u t , c o n s i s t e n t w i t h
the r e a s o n i n g o f the m a j o r i t y i n H a r r i s v . C a l a d i n e ( s u p r a ) , it
seems t o me t h a t the r e v i e w o f w h i c h S . 31A(6) s p e a k s r e q u i r e s
t he court t o approach t h e matter t h e subject o f decision by t h e Registrar a f re sh , and it i s t here fore permissible fo r t h e court t o have regard t o matters which have arisen since any decision by t h e Registrar i n quest ion, and it can have regard t o material which was not before him.
The pe t i t ion wi th which Deputy Registrar Allen was
concerned i s number 2637 o f 1991. In it, NZ1 Capital Corporation
Limited ( ' N Z I ' ) asser ts t h a t M r Leitch i s jus t ly and t r u l y indebted t o it i n t h e sum o f $4,778,330.80, being the amount o f
judgment entered against t h e debtor on 19 March 1991 i n t h e
Supreme Court o f Queensland. The amount o f $4,778,330.80
consis ts o f damages o f $4,450,000 together wi th $328,330.87 f o r i n t e r e s t .
Paragraph 3 o f t h e pe t i t i on s ta t e s :
"
The pe t i t ion ing cred i tor holds secur i t y over part o f the property o f t h e debtor, being a mortgage over Miners' Homestead Perpetual Lease No. 9918 on Plan Cat. No. MP35066, F i e l d o f Mount I s a , County
Town o f Mount I sa , o f which property the registered o f Rochedale, Parish o f Haslingden and Heywood,
Lessees are G a r y David Leitch, the debtor and Robert Charles Ogilvie as tenants i n
common i n shares o f 25%, 25% and 50% respect ively ,
but the e n t i r e s e c u r i t y i s valued a t TWO MILLION DOLLARS ($2,000,000.00), leaving an unsecured balance orving t o the Pet i t ioning Creditor o f TNO MILION ( s i c ) S E W N HUNDRED AND SEVENTY-EIGHT THOUSAND, THREE HUNDRED AND THIRTY DOLLARS AND EIGHTY CENTS ($2,778,330.80). "
In respect o f t h e judgment debt o f $4.77 mil l ion , there
i s no challenge t o t h e exis tence o f t h a t debt by way o f appeal pending. It appears from the reasons of Deputy Registrar Allen that a bankruptcy notice for the judgment amount was issued on 15 April 1991 and served on 28 June 1991. An act of bankruptcy by Mr Leitch was committed on 12 July 1991. An earlier creditor's petition had been presented on 7 August 1991 but Deputy Registrar Allen in October dismissed that petition. The present petition was presented on 18 October 1991 and served on 2 January 1992 upon the solicitors for Mr Leitch pursuant to an order for substituted service that had been made on 17 December 1991.
The petition came before the Deputy Registrar on 28 January 1992, was heard on 14 February 1992 and a sequestration order was made on 28 February 1992 by Deputy Registrar Allen.
On 24 January 1992, that is to say, the first working day prior to the return date for the petition, Mr Leitch issued Writ No. 128 of 1992 out of the Supreme Court of Queensland against NZI, claiming damages for breach of contract and breach of duty, and seeking an injunction to restrain NZ1 from enforcing the
judgment of 19 March 1991. An amended statement of claim in those proceedings is exhibited to an affidavit of Mr Leitch's solicitor, Andrew Hewlett. The plaintiffs are Mr Leitch, a Gary David Leitch and Robert Charles Ogilvie. Mr Leitch and Gary Leitch are alleged to each hold a 25 per cent interest and Mr Ogilvie a 50 per cent interest in the Minersf Homestead Perpetual Lease No. 9918, Plan
Cat. No. MP35066, Field of Mt Isa, County of Rochedale, Parish of Haslington and Heywood, Town of Mt Isa.
It will be necessary to turn in some detail to that amended statement of claim.
Part of the difficulty facing M r Leitch lies in the fact that on that land was conducted a hospital business by Glandore Pty Limited ('Glandore'), a company now in liquidation. A winding up order was made against Glandore on 8 October 1991 by the Supreme Court of Queensland. The equipment associated with the hospital business was leased by Havenhead Pty Ltd. The position was that three natural persons owned the land and buildings, Glandore conducted the hospital business, and Havenhead Pty Ltdprovidedthe plant and equipment. Glandore had a licence issued under the Health Act 1937 (Qld), and the plant and equipment leased by Havenhead Pty Ltd was leased from NZ1 Leasing Corporation Ltd by a lease agreement dated 18 November
1988.
The gravamen of Mr Leitch'S claim is that acts by NZI, which are pleaded in paragraphs 9 and 9A of the amended statement of claim in the Supreme Court proceedings, caused the closure of the hospital business in about October 1991, which resulted in a reduction of the value of the land from in excess of five million to less than two million. These acts by NZ1 are said to be in breach of the express or implied terms of a deed made on 15 May 1990 or in breach of a general duty not to wilfully or recklessly sacrifice the mortgagor's interest in the property or, alternatively, in breach of the statutory duty imposed by S. 85 (1) of the Propertv Law Act (Qld) 1974.
More particularly, in the amended statement of claim Mr Leitch and the other plaintiffs allege that on a date unknown to them, but between May 1990 and September 1990 NZ1 terminated the appointment of the receivers, whom it had appointed, and thereafter entered into possession of the land as mortgagee. Paragraph 9 and 9A are in these terms:
" 9 . In o r about September, 1991 t h e Defendant gave
notice t o Glandore P t y . L t d . t o q u i t t h e l a n d , such
n o t i c e e x p i r i n g on 4 October, 1991.
9A. A t or about t h e same t i m e t h e Defendant:-
( a ) demanded rent from Glandore P t y . L t d .
( R e c e i v e r s and Managers Appoin ted) which
was t h e n o p e r a t i n g the h o s p i t a l b u s i n e s s ;
( b ) e n t e r e d ' o r a t t emp ted t o enter i n t o
pos se s s ion o f t h e h o s p i t a l b u s i n e s s . "
There is a pleading of implied terms of the deed of 15 May 1990, and paragraphs 11B and 11C of the amended statement
of claim assert: "
11B. The Defendant d i d by i t s a c t i o n r e f e r r e d t o i n
paragraph 9 and 9A, c a u s e the c l o s u r e o f the
h o s p i t a l b u s i n e s s on or abou t the 1 1 t h October, 1991.
1lC. I t was the intention o f the Defendant a t a l l
m a t e r i a l times t o sell the l a n d . " Paragraph 16 importantly pleads:
"
B y r e a s o n o f the c e s s a t i o n o f the h o s p i t a l b u s i n e s s on the l a n d the v a l u e o f the l a n d h a s been reduced
from a v a l u e i n excess o f $5m. t o a v a l u e o f less
t h a n $2111. and the P l a i n t i f f s have thereby s u f f e r e d loss. "
It is because of this claim that Leitch submits that
good cause has been shown why a sequestration order ought not be made. That claim has to be viewed in the context of other proceedings, being proceedings in the Federal Court6174 of 1991, where Mr Leitch is an applicant. The first respondent in those proceedings is Natwest Australia Bank Limited ('Natwest'), who is a supporting creditor in the hearing before me.
In relation to the amended statement of claim filed in those Federal Court proceedings it is pleaded in paragraph 24 that Natwest purported to appoint a receiver and manager of, inter alia, the assets of Glandore and in paragraph 26 this appears :
" I n purpor ted performance o f h is d u t i e s a s receiver and manager o f the Th i rd Respondent and i n reckless
d i s r e g a r d o f the r i g h t o f the Th i rd Respondent , the
Second Respondent h a s d e a l t w i t h the a s s e t s s o a s t o
cause l o s s t o the A p p l i c a n t s .
PARTICUMRS
(a) The Second Respondent was appointed as a receiver
and manager o f Selwyn P r i v a t e H o s p i t a l a t Mr
(s ic) I s a b e i n g owned and opera t ed by the Th i rd
Respondent , which, a t the t i m e o f appo in tment ,
was produc ing a net income o f $70,000.00 p e r month;
(b) Upon appointment t o the Selwyn P r i v a t e Hosp i t a l
the Second Respondent d i sm i s sed the management o f
s u c h h o s p i t a l and f a i l e d t o a p p o i n t a rep lacement manager o r , a l t e r n a t i v e l y , a competent
rep lacement manager, w i t h the r e s u l t t h a t the
h o s p i t a l t h e r e a f t e r opera t ed a t a l o s s and was
c l o s e d c o m p l e t e l y w i t h the l o s s o f the license
and the v a l u e o f the b u s i n e s s which, a t the t i m e o f appo in tment , was worth i n the o r d e r o f $A5
m i l l i o n ; "
That pleading is wholly inconsistent with the claim that the closure of the hospital was caused by the conduct of NZI. In the Federal Court proceedings Mr Leitch and the other applicants assert that the loss of the business worth then in the order of $5 million was the result of conduct by the receiver appointed by Natwest.
The position here is that NZ1 has established a prima facie entitlement to a sequestration order.
In Re Plaver 19 A.B.C. 277, Paine J said at 279:
" Now the p o s i t i o n a t th is s t a g e would be t h a t the
p e t i t i o n e r h a s f u l l y proved a prima f a c i e c a s e f o r
a s e q u e s t r a t i o n o rder ; t h a t i s t o s a y , he h a s
proved the d e b t i s due and h a s n o t been pa id , and
the onus therefore i s upon the d e b t o r t o show c a u s e why the c o u r t shou ld exercise i t s d i s c r e t i o n i n his favour . " In
v. Whvte (1933) 48 C.L.R. 639 the High Court was concerned with an appeal from a decision of Henchman J sitting
Henchman J, whose judgment is reported in that volume of the as a Judge in Bankruptcy for the District of Southern Queensland. Commonwealth Law Reports, said at 645: "
I r u l e then t h a t I am f u l l y e n t i t l e d t o examine the
c o n t e n t i o n p u t forward by Mr P h i l p on b e h a l f o f the
d e b t o r t h a t there i s , i n the p r e s e n t c a s e , other
s u f f i c i e n t cau se s u f f i c i e n t t o j u s t i f y the
d i s m i s s a l o f t h i s p e t i t i o n . I approach t h a t q u e s t i o n w i t h the f u l l a p p r e c i a t i o n t h a t , prima
f a c i e , on proo f o f the m a t t e r s ment ioned i n sec.
56(2), the Cour t w i l l proceed t o make an o r d e r f o r
s e q u e s t r a t i o n , and t h a t it i s f o r the d e b t o r t o show some c a u s e o v e r r i d i n g the interest o f the
p u b l i c i n the s t o p p i n g of unremunerat ive t r a d i n g ,
and the r i g h t s o f i n d i v i d u a l c r e d i t o r s who a r e
u n a b l e t o g e t their d e b t s p a i d t o t h e m a s they
become d u e . S o m e t h i n g h a s t o be p u t before the
C o u r t t o o u t w e i g h those c o n s i d e r a t i o n s b e f o r e i t
c a n be s a i d t h a t s u f f i c i e n t c a u s e i s shown a g a i n s t "
the m a k i n g o f a s e q u e s t r a t i o n o r d e r .
I n relat ion t o t h a t a p p e a l , R i c h J i n d i c a t e d t h a t he
agreed i n the judgment o f the l e a r n e d pr imary judge and d i s m i s s e d the a p p e a l , and the o t h e r j udges o f the High C o u r t agreed w i t h R i c h J.
A l a t e r High C o u r t e n d o r s e d wha t was s a i d i n U n v .
i n Rozenbes v. Kronhill ( 1 9 5 6 ) 95 CLR 4 0 7 . Dixon C J , Webb,
and F u l l a g a r J J s a i d , a t 414 :
" In v. rrrhvte ( 1 9 3 3 ) 48 C.L.R. 639, t h i s C o u r t
e x p r e s s e d agreemen t w i t h a judgment o f the Supreme
C o u r t o f Queens land (Henchman J . ) i n which h i s
Honour s a i d : ' . . . p r i m a f a c i e , on p r o o f o f the m a t t e r s m e n t i o n e d i n S . 56(2), the C o u r t w i l l
p roceed t o make a n o r d e r for s e q u e s t r a t i o n , a n d . . . i t i s for the d e b t o r t o show some c a u s e
o v e r r i d i n g the interest o f the p u b l i c i n the
s t o p p i n g o f u n r e m u n e r a t i v e t r a d i n g , and the r i g h t s
o f i n d i v i d u a l c r e d i t o r s who a r e u n a b l e t o g e t the ir
d e b t s p a i d t o t h e m a s they become d u e . Some th ing
h a s t o be p u t before the C o u r t t o o u t w e i g h those
c o n s i d e r a t i o n s before i t c a n be s a i d t h a t
s u f f i c i e n t c a u s e i s shown a g a i n s t the m a k i n g o f a
s e q u e s t r a t i o n o r d e r ' ( 1 9 3 3 ) 4 8 C.L.R. a t p. 646. "
As I h a v e e a r l i e r i n d i c a t e d , Mr L e i t c h ' s r e s i s t a n c e t o
the making o f a s e q u e s t r a t i o n o r d e r i s b a s e d on S . 5 2 ( 2 ) of the
A c t w h i c h p r o v i d e s : "
I f the C o u r t i s not s a t i s f i e d w i t h the p r o o f o f a n y
o f those m a t t e r s , or i s s a t i s f i e d by the d e b t o r -
( a ) t h a t he i s a b l e t o p a y h is d e b t s ; or
( b ) t h a t for other s u f f i c i e n t c a u s e a s e q u e s t r a t i o n
o r d e r o u g h t not be made ,
it may d i s m i s s the p e t i t i o n . " Mr Leitch asserts the right of an unliquidated cross-
claim against N Z I , exceeding or equalling that part of the petitioning creditor's judgment debt in excess of the value of its security.
As the observations of Paine J in Re Plaver (supra) indicate, the onus is on the debtor to show cause why the court should exercise its discretion in his favour. His Honour in g Plaver said at 282:
" Now b e f o r e the d e b t o r c a n s u c c e e d i n an o b j e c t i o n
r a i s e d u n d e r S . 5 6 ( 3 ) ( b ) [ t h e p r e d e c e s s o r o f
52 ( 2 ) 1, i n o r d e r t o m a i n t a i n h is o p p o s i t i o n he m u s t
a t l e a s t p r o d u c e some r e a l e v i d e n c e t o show t h a t there i s a r e a s o n a b l e ground f o r i n s t i t u t i n g an
a c t i o n by h i m , s u c h a n a c t i o n a s would r e s u l t i n
awarding h i m a c r o s s - c l a i m or a c o u n t e r - c l a i m equal
t o o r e x c e e d i n g the amount o f the judgment d e b t . "
And later:
" A mere s t a t e m e n t o f c l a i m made i n s u p p o r t o f s u c h
a n o b j e c t i o n by a d e b t o r i s not s u f f i c i e n t . Thak
h a s been d e c i d e d i n Re R i v e t t and Anor.: Ex p a r t e
Edward F a v L t d ( 1 9 3 2 ) , 5 A.B.C. 182 . "
In Re Rivett: Ex ~arte Edward Fav Ltd (1932) 5 A.B.C.
182, Lukin J said at 187:
" Under S . 5 2 ( j ) o f the B a n k r u p t c y A c t the d e b t o r s
m u s t s a t i s f y me t h a t they h a v e a c o u n t e r - c l a i m ,
s e t - o f f or cross demand w h i c h e q u a l s or e x c e e d s the
amount o f the judgment d e b t . T h e y s h o u l d s a t i s f y
me t h a t they h a v e s u f f i c i e n t prima f a c i e e v i d e n c e
t o e s t a b l i s h their c l a i m . "
And later, on the facts before him, he said:
" There i s no ' e v i d e n c e t o show me t h a t there i s a
r e a s o n a b l e ground for i n s t i t u t i n g s u c h an ac t ion . '
I t i s 'shadowy' and , i n m y o p i n i o n , not one t h a t
the d e b t o r s c o u l d f a i r l y l i t i g a t e : . . . "
In Voqwell v. Voqwell, 11 A.B.C. 83, Latham C. J. said at
" What the section c o n t e m p l a t e s i s a c l a i m t o the e n f o r c e m e n t o f a r i g h t s o u n d i n g i n money. I t m u s t be a r e a l c l a i m ; it i s i n s u f f i c i e n t t h a t the d e b t o r believes t h a t he h a s a c l a i m , and the a u t h o r i t i e s
show t h a t the m a t t e r t o wh ich the c o u r t looks i s
t h i s , - w h e t h e r it i s j u s t t h a t the c l a i m s h o u l d be
d e t e r m i n e d before the b a n k r u p t c y p r o c e e d i n g s a r e
a l l o w e d t o c o n t i n u e ; i n other words , w h e t h e r i t i s
a c l a i m wh ich it i s p r o p e r and r e a s o n a b l e t o
l i t i g a t e . T h a t i s the e f f ec t o f the d e c i s i o n s i n
Re R ive t t ; E x p a r t e Edward F a y L t d . ( ( 1 9 3 2 ) 5
A.B.C. 1 8 2 ) and Re Duncan; Ex p a r t e N o d l i n ( ( 1 9 1 7 )
1 7 S.R. (N.S.N.) 1 5 2 ) . Therefore, there m u s t
appear t o be some s u b s t a n c e i n the c o u n t e r - c l a i m ,
s e t - o f f or cross demand w h i c h i s r e l i e d upon. "
Finally, I refer to the observations of Gibbs J, as he
then was, in Re Schmidt: Ex parte Analewood Ptv Ltd (1968) 13
F.L.R. 111, where his Honour said at 116:
" Where.. . the d e b t o r c l a i m $ t o be e n t i t l e d t o
u n l i q u i d a t e d damages i n tort a g a i n s t the
p e t i t i o n i n g c r e d i t o r the p o s i t i o n seems to me t o be
d i f f e r e n t . As a genera l r u l e t h i s C o u r t i s not an
a p p r o p r i a t e forum t o d e c i d e s u c h a c l a i m and i s
l i m i t e d t o forming a v i e w a s t o w h e t h e r it a p p e a r s t h a t there i s s u f f i c i e n t v a l i d i t y i n the d e b t o r ' s
c l a i m s t o j u s t i f y a d i s n l i s s a l or ad journmen t o f the
p e t i t i o n . I a g r e e i n g e n e r a l w i t h what was s a i d i n
Re P l a y e r ( 1 9 6 2 ) 19 A.B.C. 277 i n r e l a t i o n t o this
q u e s t i o n . C o n s i d e r a b l e e v i d e n c e d i r e c t e d t o t h i s
i s s u e h a s been g i v e n before me and it seems t o me
t h a t I o u g h t t o c o n s i d e r this e v i d e n c e for the
purpose o f d e c i d i n g only w h e t h e r i t i s p r o b a b l e t h a t the d e b t o r h a s a g a i n s t the p e t i t i o n i n g
c r e d i t o r a c l a i m which i s l i ke ly t o s u c c e e d . I f I
an! s a t i s f i e d t h a t the d e b t o r h a s a c l a i m a g a i n s t the petitioning creditor equal t o or exceeding the amount o f the judgment debt, I should not make a sequestration order. I f , however, it appears that the debtor has a claim which i s less than the amount o f the petitioning creditor's judgment debt, the proper course would seem t o be t o require the debtor, i f he desires t o avoid a sequestration order, t o pay the difference between the amount o f the judgment debt and the amount which it seems
probable t o me that he w i l l recover i n the proceedings against the petitioning creditor. "
For NZ1 it was submitted that the Supreme Court proceedings are neither serious nor genuine, and that those proceedings are unmaintainable. It says that it was never at any stage mortgagee of the business of conducting the private hospital; that business was subject to security in favour of Natwest, granted by Glandore, the security being a floating charge which crystallised on about 20 August 1991 when Natwest appointed a Mr Walker as receiver of the assets of Glandore, including the business known as the Selwyn Private Hospital.
The submission by NZ1 is that the business was never an
asset of David Henry Leitch, it was an asset of Glandore, and inso far as there might be said to be any loss or damage to the
business of Glandore that only Glandore or its secured creditor, or its liquidator could be the proper claimant. In essence, M r Leitch's case is that the conduct of NZ1 caused closure of the hospital, and as a consequence he has suffered loss which is of such an order as to be greater than or equal to the claim of the judgment owed to NZI. The evidence in this respect is particularly scanty.
I accept tha t Mr Leitch has not had the bene f i t o f
discovery i n either o f the proceedings t o which I have made reference, but Mr Curran, counsel for Mr Leitch, has pointed, inter a l i a , t o the contents o f two l e t t e r s , the f i r s t a l e t t e r addressed t o Messrs CLeary and Hoare, the sol ici tors for M r Leitch, from the sol ic i tors for the receivers and managers o f
Glandore and Natwest. That l e t t e r dated 9 October 1991 says:
" I t i s correct that NZI served a Notice t o Q u i t upon our c l ient which expired on 4 October 1991. Extensive negotiations were conducted by our c l i en t , the Receiver and Manager o f Glandore, from the date o f issue o f that Notice until the expiration o f it; however, NZI expressed l i t t l e or no in teres t i n the proposals put forward b y our c l i en t , which would have enabled the Hospital business t o continue t o trade and/or t o be sold on a going concern basis. During th i s period, our cl ient also took extensive advice as t o the alternatives which were available t o him as Receiver and Manager. However, based on the information and documents available t o us, we advised our c l i en t that NZI was l i k e l y t o succeed i n ejection or eviction proceedings and that the Receiver and Nanager o f Glandore could be considered t o be trespassing i f he d i d not comply
with the Notice t o Q u i t . "
The second i s a l e t t e r from Messrs Holmans t o 1-lessrs
Cleary and Hoare, dated 10 October, 1 9 9 1 , where the sol ic i tors say:
" O u r c l ient ['our client ' being N Z I ] has made arrangements t o secure the hospital premises and equipment. 'l There i s no evidence as t o what were i n fact the
proposals put forward by the receivers, with which N Z 1 fai led t o agree. There i s no material i n particular t o say tha t the
conduct o f NZ1 was unreasonable or the i r demands were mala f i de .But even if it be accepted that there is an arguable case that the conduct of NZ1 caused the closure of the hospital, there are two further, and in my opinion insuperable difficulties facing
M r Leitch.
The first concerns the quantum of any claim he may have. In this respect a valuation by Robert Ian Lister is in evidence. Acting on instructions of Messrs Cleary and Hoare he made a valuation of the Selwyn Private Hospital on a going concern
basis. In that valuation Mr Lister said:
" A c t i n g on y o u r written i n s t r u c t i o n s , we have
rev iewed o u r mos t r e c e n t v a l u a t i o n o f the above named p r o p e r t y which was c a r r i e d o u t a s a t 3rd
February, 1990, and based on our a n a l y s i s of the
mos t recent t r a d i n g f i g u r e s provided t o u s t o g e t h e r w i t h other r e l e v a n t i n f o r m a t i o n , s u b j e c t t o o u r re-
i n s p e c t i o n o f t h e p r o p e r t y nd p r o v i s i o n o f d e t a i l e d
occupancy and usage r a t e s which would, i n o u r
o p i n i o n , suppor t y o u r clients c o n t e n t i o n t h a t ' i t (Selwyn P r i v a t e H o s p i t a l ) would have 100 t h e a t r e
c a s e s p e r weekend (we have assumed per week) by
June, 1992, and an occupancy r a t e o f 60% by 3lst
December, 1992'. we c o n s i d e r t h e marke t v a l u e o f
t h e above named p r o p e r t y a s a ' g o i n g concern' a s a
f o r t y ( 4 0 ) bed P r i v a t e H o s p i t a l , a s a t 1 1 t h
December, 1991, t o have been:
$4,880,000.
(Four I f i l l i o n E i g h t Hundred and E i g h t y Thousand D o l l a r s ) .
Such o p i n i o n v a l u e h a s been de termined by
c a p i t a l i s i n g the A d j u s t e d Est imated ( p r e t a x and
i n t e r e s t ) Main ta inab le N e t P r o f i t for the Hosp i t a l
a s c a l c u l a t e d by u s o f $854,200, a f t e r an a l lowance
h a s been deduc ted f o r a m o r t i s a t i o n o f l o s t income, a t t h e r a t e o f 17.50 pe r cent ( b e i n g the mos t
a p p r o p r i a t e r e t u r n h a v i n g regard t o t h e h o s p i t a l ' s t y p e o f r e g i s t r a t i o n . . .
It is clear that the valuation was of the business of the
Selwyn Private Hospital, and no attempt was made to differentiatethe value of the land and buildings, and the value of the business, or the value of the plant and equipment used in the conduct of that business.
As paragraph 16 of the amended statement of claim in the Supreme Court proceedings indicates, Mr Leitch asserts that the value of the land was reduced by at least $3 million by the closure of the business which, it is said, was caused by the conduct of NZI. The af f idavit of MI Lister lends no evidentiary support to that claim. The valuation does not attempt to value the land and improvements; it relies solely on a cash flow derivable by the business conducted on the premises. It has to be regarded, in my opinion, as a valuation of a business with tenure which could be conducted on the hospital premises, given the then-goodwill of the business conducted by Glandore, and the
equipment leased by Havenhead from NZ1 Securities Corporation
Limited, and the value of the license that Glandore held to
conduct the hospital. There is no consideration given to the
question of security of tenure and, as I indicated, no attempt to break down the valuation of the land and buildings or of the
equipment. i ! I.
I i < It seems to me that there is no basis in that valuation
for assessing the value of the land as ever having been any more
than $2 million, whether or not the hospital was conducted on it.
The business which was closed was not that of Mr Leitch, but of
Glandore, and that was charged to the benefit of Natwest
Australia Bank Limited. NZ1 has valued its security, which isover the land and buildings, at $2 million. M r Leitch in an
L 8
affidavit asserts that the value is of the order of half a million dollars. On any view, there is no evidence to support a contention that, as a result of anything that NZ1 may have done, the value of the land and buildings has been reduced to anything like an amount comparable to the $2.77 million which is the amount of the judgement debt, less the value which NZ1 has attributed to its security.
There is a further difficulty, and that concerns the nature of Mr Leitch's right of action. Natwest is ?he secured creditor of Glandore, Any claim that Glandore had in respect of conduct leading to the closure of the hospital is a right belonging to Natwest or, if the challenge to the securities which Natwest has were to be successful, it would be a right enjoyed by the liquidator of Glandore. Any claims that Glandore has do not inure to the benefit of Mr Leitch. It seems to me that in a very real way what Mr Leitch is seeking to do is to set off either Natwest's property or the liquidator's property against NZ1 in order to defeat the petition of NZI. Here I am not
diminution in the value of tlr Leitch's assets is anything like satisfied that there is any evidence to support a claim that a $2.77 million. Even accepting that there is an action maintainable, a matter on which I am far from satisfied, the damages will not be sufficient to go anywhere near the unsecured balance of the judgment debt.
The claim which Mr Leitch makes against NZ1 is quite
inconsistent with the allegations he makes in other proceedings,
and as a consequence, one has to be somewhat cautious in relationto the weight given to the claims that the closure was caused by the conduct of NZI. That caution is reinforced by the delay from October 1991 to the commencement of proceedings againstNZ1, those proceedings having been commenced, as 1 have indicated, immediately before the hearing of the petition brought by NZI.
There is a final matter to which I should refer and that concerns the question of solvency of Mr Leitch. Solvency was not a ground on which the petition was resisted, but the material in that area is inconclusive. An a£ f idavit by Dennis Teroxy who is the general manager, credit management, of Natwest, says that as at 31 January 1992 Mr Leitch as principal debtor owes Natwest $474,136.00, and that Glandore and Glen Pacific Pty Limited, receiver and manager appointed, owe Natwest the sum of $17,609,321.00 on which daily interest of $7,304.76 is accruing. Mr Leitch is a guarantor of the indebtedness of Glandore and Glen Pacific Pty Limited.
In an exhibit to an affidavit by Mr Hewlett, the assets and liabilities of Mr Leitch compiled by him are set out. 3k.
Leitch says he has assets of $3,427,000.00, but that includes shares in Glandore which are said to be worth $2,300,000.00. Since Glandore is in liquidation, it is unlikely, in my view, that any value can be attributed to those shares.
His liabilities to Westpac Banking Corporation are said to be approximately $370,000.00. If one has regard to the asset position after discounting the value of the Glandore shares to zero that statement of assets and liabilities shows that independently of the question of his obligations as guarantor to various associated companies, his solvency is very much borderline. He says in that statement:
" T h i s s t a t e m e n t h a s been prepared i g n o r i n g the
position o f the R e c e i v e r s and o f the L i q u i d a t o r o f Glandore P t y L t d . I h a v e s i g n e d u n l i m i t e d p e r s o n a l
g u a r a n t e e s f o r Glandore P t y . L t d . , Gude P t y . L t d . ,
A r g y l l Park Thoroughbreds P t y . L t d . and G l e n P a c i f i c
P t y . L t d . w i t h v a r i o u s Banks and l e n d e r s . "
And he says:
" I am one o f the P l a i n t i f f s i n a very s l l b s t a n t i a l
Damages C l a i m a g a i n s t N a t w e s t A u s t r a l i a Bank and
P e t e r Murray W a l k e r , o f F e r r i e r Hodgson. S u c c e s s i n
t h i s C o u r t a c t i o n would g r e a t l y enhance m y p e r s o n a l p o s i t i o n . "
Without knowing what security has been provided by the principal debtors of Glandore, Gude Pty Ltd, Argyll Park Thoroughbreds Pty Ltd and Glen Pacific Pty Ltd, it is not possible to say what would be the net result of the obligations as guarantor by Mr Leitch after taking into account the value of securities provided by the debtors whose obligations Mr Leitch has guaranteed. There are, however, no grounds for any confidence concerning the financial health of the present
applicant. For the reasons which I have earlier expressed, I decline to exercise the discretion which the court has in respect of the making of a sequestration order, and for those reasons I decline, too, the application to review the decision made by Deputy Registrar Allan to make a sequestration order against the estate of David Henry Leitch on 28 February this year. The amended application filed on 9 March 1992 is refused.
i
I order that the costs of this application, including all reserved costs, be taxed and paid as if they were petitioning
l-7
l I ! creditors' costs. ! It seems to me that I ought to award Natwest its costs.
i '
I
I will make them costs in the estate, to rank as if they were t I petitioning creditors' costs. i I -. I I
I cert i fy t h a t t h i s and the I
preced ing t w e n t y ( 2 0 ) pages a r e a i :
t r u e c o p y o f the r easons for I , .
judgment herein of the Honourable I M r J u s t i c e Spender. 1 ' I
/ A s s O c f
Date: 25 June 1992
Counsel f o r the a p p l i c a n t M r J Curran
i n s t r u c t e d by C l e a r y & Hoare
Counsel f o r the p e t i t i o n i n g c r e d i t o r : M r . A. P . F . Ryan i n s t r u c t e d by : Holmans
Counsel f o r the s u p p o r t i n g c r e d i t o r : M r . R. L i l l e y
i n s t r u c t e d by : S l y & Weiga l l ,
Cannan & Pe te r son
The O f f i c i a l Receiver, M r . S. E l e f t f i e r i o u , appeared.
Date o f Hearing : 24 June 1992
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