Re Newington, J.E.A. Ex Parte The Official Trustee in Bankruptcy Genman P/L & anor v Beneficial Finance Corporation Ltd

[1992] FCA 655

JUDGMENT No. .... 452 .../ %L,..

NOT FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA	)
i
NEW SOUTH WALES DISTRICT REGISTRY j	NO. NB 107 of 1988

)

GENERAL DIVISION 1

RE: JEAN EDELWEISS AtAINE

NEWINGTON

EX PARTE:

THE OFFICIAL TRUSTEE IN

BANKRUPTCY

IN THE FEDERAL COURT OF AUSTRALIA	)
)
NEW SOUTH WALES DISTRICT REGISTRY )	NO. NG 213 of 1990

1

GENERAL DIVISION 1

BETWEEN: GENMAN PTY LIMITED

First Applicant

JACOUES BONNET

Second Applicant

AND :  BENEFICIAL FINANCE
CORPORATION LIMITED

CORAM :	GUMMOW J.
PLACE :	SYDNEY
DATE :	19 AUGUST 1992
private contract the right of action in relation to any claim	she may have against Beneficial Finance Corporation Limited
("BFC"), such claim having arisen prior to the commencement of her bankruptcy.
In the second application, orders are sought varying the order for security made in proceeding G213 of 1990 by Davies J on 23 April 1992. That order for security called for compliance within three months of the date of that order. As matters now stand, the relevant extension for compliance expires today. The proposed assignment would be effectuated by a deed, a draft of which is Exhibit A. The deed recites that on 1 February 1988 a sequestration order was made against the estate of MS Newington pursuant to the provisions of the Act and that she was discharged from her bankruptcy by virtue of S. 149 of the Act on 2 February 1991.
The subject matter of the deed is defined as the chose in action. That term is treated as meaning the rights and title of MB Newington existing immediately prior to the date of the sequestration order to bring and maintain an action for
damages without limit against BFC, for loss suffered resulting from the alleged negligence or fraud of BFC and its officers
in dealing with various properties assigned by deed to BFC, and consequent failure by BFC's mortgagee in possession to give a proper accounting of all moneys expended in the renovation of those properties and the failure by BFC's
mortgagee in possession to comply with certain orders of this court dated 22 December 1983 and 27 April 1984.
The result of these acts and omissions on the part of BFC was said to be the failure by BFC to obtain proper prices on the sale of the properties over a three year period from 27 April 1984. This is said to have resulted in financial loss and alleged subsequent indebtedness of MS Newington to BFC. The rights wrapped up in the definition of the chose in action, which I have summarised, are stated as including: first, the right to have set aside or rescinded orders of this court in matter 413 of 1983 being orders dated 22 December 1983 and 27 April 1984; secondly, the right to have set aside Supreme Court orders in matter number 16871 of 1983; and thirdly, the right to seek to have joined as respondents in the proceedings such other companies and individuals as seem proper to the Court.
Clause 3 of the proposed deed, Exhibit A, states that within 28 days after receipt by MS Newington or her solicitors of any verdict or other moneys payable to her by way of compromise or agreement consequent upon any action taken
against BPC in respect of the chose of action, she will pay or
cause to be paid to the official trustee an amount equivalent
to 50 per cent of the net proceeds to which she is entitled of any such verdict or other moneys, the said amount not to exceed the amount of indebtedness of her bankrupt estate.
In matter number 213 of 1990 the present applicants are Genman Pty Limited and Jacques Bonnet. Mr Bonnet and MS Newington are husband and wife. Genman Pty Limited is a company controlled by them. The position appears to be that that company has not filed an annual return since 1981. The evidence also indicates that all three parties are impecunious such that they would not have available to them at present the necessary means to pursue on any appropriate scale the litigation which is contemplated by exhibit A.
The background to their dealings with BFC is summarised in the judgment in matter number 213 of 1990, delivered by Davies J on 2 July 1991.
The consequences of granting leave sought in relation to exhibit A would not be merely the continuation of certain other litigation presently on foot in this court, namely that in proceeding 213 of 1990. What would be involved as the
recitals to the exhibit A make plain is the institution of what in substance would be fresh proceedings both in the Supreme Court and in this court seeking to set aside the 1983 orders.
It is said that the basis would be the fraud attendant upon the consent given by MS Newington and her spouse and company to the orders that were made. The need for fresh proceedings is underlined by the recent decision of the New South Wales Court of Appeal in v ~ommonwealth Bank of
(1991) 24 NSWLR 691, and the decision of the Full Court delivered in Perth on 31 July 1992 in Nonroe Schneider Aeeociates Inc v No. 1 Raberem Ptv Ltd.
The course of the conduct of proceeding 213 of 1990 is detailed in the material before me. It has involved numerous interlocutory applications; the result of these is that the respondent BFC now has in its favour costs orders which the Registrar estimates at $27,350. On 17 August 1990 Davies J made a costs order in the sum of $15,000 as to provision of security. On 23 April 1992 his Honour made a further order that the applicants in 213 of 1990 provide security in the sum of $15,000 within three months of the date of that order. I have indicated the time for compliance with that order expires today.
There have been two fundamental problems in the conduct of matter 213 of 1990 in this court to date. Firstly, there has been a want of parties by reason of the absence of MS Newington. Secondly, the matters sought to be ventilated in the litigation have been of such a nature as to attract the operation of the Anshun principle.
The application of the principle to the particular allegations is analysed in the judgment of Davies J, to which I have referred, delivered on 2 July 1991. Essentially, what is sought is to reagitate many of the complaints against BFC which were the subject of the 1983 proceedings. They in turn were brought to an end by the orders which stand until set aside. Hence, as I have indicated, the need for further litigation to strike at the root of the 1983 orders. The position of the official trustee is indicated in the affidavit of Mark George Edgar Finlay sworn 28 July 1992. Annexed to that affidavit are certain of the affidavits also tendered and read this morning by counsel for MS Newington in the other application.
Mr Finlay says that during the currency of the bankruptcy, that is to say, after the sequestration order of 1 February 1988, five creditors apart from the petitioning creditors lodged proofs of debt. No proofs of debt have been admitted by the official trustee in bankruptcy and no creditor has proved in the estate within the terms of S. 83 of the Act. One of the proofs is that of BFC in the amount of $952,669.45. It was lodged with the official receiver on or about 4 October
1990. Although the proof has been stamped with the word
"Processed", this indicates no more than that details of the claimed debt have been entered on the computer records of the official receiver. It does not indicate that the proof has been allowed.
The position is that the material provided to date is insufficient for the official receiver to have the proof. Mr Finlay has perused the annexed affidavit material to which I have referred and formed the view that it is appropriate for the official trustee to sell to the former bankrupt the right of action against BFC defined in the way I have earlier indicated. The opinion also has been formed that it is appropriate, pursuant to S. 135 of the Act to seek approval of the court for sale of the said right of action. The
applicable principles as to the construction of the legislation are discussed by French J in Re Nauven: ex Darte

REASONS FOR JUDGMENT

Before the court today are two applications, one in proceeding W107 of 1988, the other in proceeding G213 of 1990. In the first of these, the applicant is the official trustee. Leave is sought pursuant to section 135 of the Bankru~tcv Act 1966 ("the Act") to sell to Jean Edelweiss Alaine Newington by

1 Trustee in Bankru~tcv (1992) 107 ALR 424.

There is some variance between the conclusions there reached with some of the views expressed in the present litigation by Davies J at earlier stages. However, I am persuaded that I should accept what is said by French J. This includes his Honour's remarks as to the application in a case such as the present of the set-off provision of S. 86 of the Act.

In his cogent outline of argument, counsel for BFC submitted that leave should not be granted. He points to the institution of proceedings by MS Newington without consent of the trustee and to the fate that fell upon various formulations of the statement of claim, giving rise, as I have indicated, to the cost orders in the estimated sum of $27,350.

The cost orders in question were made on 6 June, 17 August, 18 October, 31 October 1990 and on 2 July and 3 December 1991. As will be apparent they largely post-date the making of the order of 17 August 1990 for security. It would appear that whilst that order was complied with, the amount would long ago have been consumed. As Davies J pointed out in his judgment of 2 July 1991, MS Newington appears to have been the moving party in the events the subject of matter 213 of 1990 and, indeed, those proceedings were commenced by her.

Unless the order is for other reasons modified or set aside, it appears to me to be a proper exercise of discretion in granting any leave to implement exhibit A, that such leave be contingent upon compliance with the outstanding order for security made by Davies J in April 1992.

Counsel for BFC points to the circumstance that the best that so far has been done to put a case together is that which appears form the affidavits read this morning. Whilst these suggest some ground for concern and suspicion as to the conduct of affairs by or under the aegis of BFC in a period which is now almost 10 years ago, they do not rise sufficiently high to substantiate the allegations of fraud that are, as I understand it, at the heart of any application that now has to be made to unravel the court orders of 1983. On the other hand, counsel for M8 Newington points out that what there is before the court is sufficient to underline the need for adequate discovery to flesh out what he says does have the bare bones of a case in his client's favour.

In all the circumstances I would be of the view that leave should be given but before parting with the matter it is necessary to look more closely at the other application. It is asserted in the motion filed 14 July 1992 that the cost

order of 13 April 1992 should be set aside. It is said that his Honour made an order for security influenced by considerations first of the impecuniosity of the corporate applicant and the consideration that the second applicant, Mr

Bonnet was in truth representing the interest of an absent party, MS Newington.

Then it is said that the impecuniosity alleged is the product of the conduct of BFC. That is said to be a crucial factor to be taken into account in exercising the discretion of the court under S. 56 of the Federal Court of Australia Act

1976. As is well-established the power of the court under

that section to award security is extensive, in particular it is not limited to the circumstances specifically envisaged in

0. 28. That was established by the Full Court in

-sale CO Limited v Gates EX DO^^ Cor~oration (1984) 2 FLR On the material before me I would not attribute the impecuniosity of the parties in the sense of any direct connection at this stage. That indeed is bound up in the very questions that require resolution by seeking to impeach the 1983 court orders. In my view the order of Davies J was, if I	1.
may say so, abundantly supportable and remains supportable in particular if one has regard to what is now even more clearly
the position as to costs that have been run up during these prolonged forensic futilities since the institution of G213 of 1990. Accordingly I will not vary the order of Davies J. I would however extend time for compliance with it.
The joinder of Miss Newington is also sought by this notice of motion. It seems to me that the joinder should be
something that must await the perfection of the assignment which must itself be contingent upon the performance of the subsisting obligation of the first and second applicants in G213 of 1990 to meet the requirement of provision of security for costs. In attaching such a condition to the approval of exhibit A and the granting of leave, I bear in mind that the beneficiary of the grant of such leave would be the party, Ms Newington, who, as Davies J has said, has been in substance the moving party in the litigation which has given rise to the need for the presently unsatisfied order.
Accordingly the orders that will be made involve some interaction between the two matters, the bankruptcy proceeding number W107 of 1998 and proceeding G213 of 1990.

I make the following orders. In W107 of 1988:

1. Grant leave to the Official Receiver to sell to Me Newington by private contract the right of action defined in the draft deed that is exhibit A.

2. Suspend the operation of order 1 until there has been

compliance with order 1 made by Davies J on 23 April 1992 in
matter G213 of 1990.
3. Stand over the application filed 31 July 1992 to 6
October 1992 at 10 am before the Judge taking the bankruptcy
list.

4. BFC's costs of the application filed 31 July be its costs

in G213 of 1990.
And in G213 of 1990:

1. Extend time for compliance with orders 1 and 3 made by Davies J on 23 April 1992 to 28 September 1992.

2. Stand over the notice of motion filed 14 July 1992 to the

bankruptcy list at 10 am on 6 October 1992 before the
bankruptcy list Judge.

3.    Costs of today be costs in the cause.

I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr Justice Gummow.

Associate: 54
Date: 19 August 1992

Counsel and solicitors	M r B Skinner instructed by
for the Official Trustee:	Australian Government Solicitor
Counsel and solicitors	Mr E Strasser instructed by
for the Applicants in	R A Licardy
G213 of 1990 and for the debtor in W107 of 1988:
Counsel and solicitors	Mr M Dempsey instructed by
for the respondent in	Bruce & Stewart Turton
G213 of 1990: