Re Malouf, Gregory John

[1996] FCA 978

IN THE FEDERAL COURT OF AUSTRALIA  )
GENERAL DIVISION  )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES           )             No NP 976 of 1996

RE:GREGORY JOHN MALOUF

TAMMY ANNE MALOUF

GEORGE TEWFIC MALOUF

Debtors

EX PARTE:COMMONWEALTH BANK OF AUSTRALIA

Creditor

CORAM:Lehane J

PLACE:Sydney

DATE:22 October 1996

MINUTE OF ORDERS

THE COURT ORDERS:

NOTE:           Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )
GENERAL DIVISION  )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES           )             No NP 976 of 1996

RE:GREGORY JOHN MALOUF

TAMMY ANNE MALOUF

GEORGE TEWFIC MALOUF

Debtors

EX PARTE:COMMONWEALTH BANK OF AUSTRALIA

Creditor

CORAM:Lehane J

PLACE:Sydney

DATE:22 October 1996

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J:   The application before me is one by the debtors, Gregory John Malouf, Tammy Anne Malouf and George Tewfic Malouf.  A petition has been issued by the Commonwealth Bank of Australia (the Bank) under the Bankruptcy Act 1966, for the sequestration of the estates of the debtors. The application of the debtors now before me is one seeking an order that the court stay legal process against the debtors and the property of the debtors pursuant to section 60(1)(b) of the Bankruptcy Act.

In the course of agreement before me today however, it became clear that more limited relief is sought: an order staying the operation of a writ of possession issued by the Supreme Court of New South Wales against real property owned by one of the debtors, George Tewfic Malouf (Dr Malouf), at 78 Osborne Road, Lane Cove.

The application arises in the following circumstances.  The Bank has obtained from the Supreme Court of New South Wales, in its Commercial Division, a judgment against the debtors for a very substantial sum of money.  An appeal to the Court of Appeal against that judgment was dismissed.  The debtors then sought to attack the judgment collaterally by commencing proceedings, again in the Commercial Division of the Supreme Court, in which they sought orders setting aside the judgment on the basis that it had been obtained by fraud.  That relief was refused.

An application by the debtors to the Court of Appeal for leave to appeal against that refusal was likewise dismissed.  Meantime, the Bank had commenced proceedings in this Court seeking sequestration orders against the debtors based on the judgment of the Supreme Court.  The debtors have given notice of intention to appear at the hearing of the petition and have stated in their notice, as the ground of opposition, that the judgment was obtained by fraud.  That is to say, the debtors seek, for the purposes of the bankruptcy proceeding, once again collaterally to attack the judgment of the Supreme Court: as it is described in proceedings of this kind, they seek to go behind the judgment.

Consent orders were made recently in these bankruptcy proceedings under which certain questions are to be decided separately from any other question.  The separate questions may be paraphrased sufficiently for present purposes by saying that they relate to the issue of whether the Court will go behind the judgment of the Supreme Court.

One of the orders made by the Commercial Division of the Supreme Court was (as I have mentioned) an order in favour of the Bank for possession of the property of Dr Malouf at 78 Osborne Road, Lane Cove.  The Bank holds a mortgage over that property: the mortgage is security for some relatively small debts of Dr Malouf and also for the judgment debt.

The Bank seeks to enforce its order for possession and has caused process to be issued for that purpose. By the present application the debtors seek an order under section 60 of the Bankruptcy Act staying that legal process.  Paragraph 60(1)(b) empowers the Court, at any time after the presentation of a petition, to stay any legal process against the person or property of the debtor in respect of the non-payment of a provable debt.

It was argued on behalf of the Bank that the section is inapplicable in the present circumstances because the secured debt owed to the Bank, or at least so much of it as could be paid from proceeds of the enforcement of the mortgage of the Lane Cove property, is not a provable debt within the meaning of that term as used in the Bankruptcy Act.  It is of course true, as counsel points out, that there are limitations under that Act on the extent to which a secured debt is provable in bankruptcy.  In my view, however, the secured debt is a provable debt.  That can I think be readily ascertained from the fact that secured property may be sold by a secured creditor for more than its estimated value and that, if that happens, the full amount of the net proceeds is properly applicable in reduction of the secured debt.  In other words, part of
the net proceeds in those circumstances may properly be applied in reduction of a balance of debt for which the secured creditor is unquestionably entitled to prove.

That being so, in my view I have a discretion under s 60 to grant the relief which the debtors seek and the question is whether, as a matter of discretion, I should do so. It has been put to me vigorously on behalf of the debtors that I ought to grant the relief sought. It is said, and I accept, that ejecting a person from his home, whether the person has a family or not will inevitably impose considerable hardship. It is said also that only a relatively short indulgence is sought, to maintain the status quo until this Court is, as it will shortly be, in a position to hear and determine the separate questions to which I have referred. Undoubtedly, those are powerful considerations.

Where the argument of the debtors encounters difficulty, however, is in the circumstance, which is conceded, that whether or not a sequestration order is made, and in particular whether or not the debtors obtain the answers which they seek to the separate questions, the Bank's right to insist upon enforcement of the order for possession, which it has obtained in the Supreme Court, remains standing and unimpaired.

In the face of that proposition, counsel for the debtors argued that, nevertheless, relief ought to be granted because if this Court were to accept his submission that it should go behind the Supreme Court judgment he would then have grounds more powerful than those presently available to him to make an application to the Supreme Court to stay or
set aside or, perhaps, grant time in respect of, the order for possession and process issued for the purpose of enforcing that order.

In my view it would not be appropriate to use the procedure under s 60 of the Bankruptcy Act for that purpose.  I accept that it is not for me to pre-judge, in these limited proceedings, the issues raised by the questions reserved for separate determination.  However, I cannot, in exercising my discretion, ignore the fact that an appeal against the judgment has failed, an attempt made to set aside the judgment in the Supreme Court on the ground of fraud has failed also, as has an application for leave to appeal against that later decision.

No doubt it is open to the debtors now, if they think they have prospects of success, to apply to the Supreme Court (as the Court which made the order and has issued the process), for interim relief of some kind.  Counsel for the debtors frankly conceded that the history of the proceedings in the Supreme Court to date suggests that such an application might have little prospect of success.  I can accept that that is probably so, but I think that it merely supports the proposition that I ought not to make an order staying the operation of an order or process of the Supreme Court in proceedings which, however they eventuate, will not affect the efficacy of the order for possession or process to enforce it.

A number of other discretionary matters were put to me by counsel for the Bank in support of his argument that I ought not grant the debtors the relief which they seek.  It
is, I think, in the circumstances unnecessary for me to deal with any of those other matters, except to say that I see nothing in the conclusion which I have reached which is at odds with the decision of the High Court in Storey v Lane (1981) 147 CLR 549; indeed, I think that the views which I have expressed are, if I may so, consistent with the effect and policy of s 60 as stated by Gibbs CJ at 556 ff. Mason, Wilson and Brennan JJ agreed with the judgment of the Chief Justice in that case; and Mason and Aickin JJ, who delivered separate concurring judgments, said nothing contrary to the observations made of the Chief Justice as to the effect, purpose or policy of the provision.

For those reasons the order which I make is that the debtors' application is dismissed with costs.

I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated:  22 October 1996

Heard:  22 October 1996

Place:  Sydney

Decision:  22 October 1996

Appearances:  Mr W G Hodgekiss of counsel instructed by Janus Lawyers appeared for the applicant.

Mr R G Forster SC instructed by L E Taylor, Solicitor, appeared for the respondent.