Re Nichols, P.J

[1990] FCA 711

JUDGMENT No. .c).!.! .... :I...%!-

NOT SUITABLE FOR DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA )

RE: PETER JOHN NICHOLS

CORAM: Burchett J.

PLACE: Sydney	18 DEC 1990
DATE : 3 December 1990	FEDERAL COURT OF

AUSTRALIA

PRINCIPAL

EX TEMPORE REASONS FOR JUDGMENT REGISTRY

BURCHETT J. :

In this matter, I have before me applications to set aside what is described as a deed of composition, and also to annul a bankruptcy on the footing that the sequestration order was made (on a creditor's petition) after the entry of the debtor into the deed. There is, too, an application, in the event that I set aside the deed, to make a sequestration order forthwith under the power which would then arise. Counsel, finally, as I understand their submissions, were agreed in submitting that if I came to that polnt, it would be open to me, as a matter of discretion, to decline to annul the bankruptcy. I could do so on the footing of futility, in that: I could hold I would, if I were to set it aside, immediately make a fresh sequestration order, either upon the creditor's petition or pursuant to the other power which I have mentioned.

First, I should say something about the deed, and about

the circumstances under which it came to be entered into. The deed of composition is executed by Mr Nichols, the debtor, and by the trustee, Mr Ward, who has since ceased be a trustee, so that the current trustee of the deed is the Official Trustee. The deed is dated 10 July 1989, and purports to be made in pursuance of Part X of the Bankruptcv Act 1966. The first clause provides that "the Trustee of this Composition shall be COLIN GEORGE WARD ... ." The second clause provides:

"m the Debtor pay into the Part X Estate an

amount calculated at 10C in the dollar of Creditors

[&l Claims admitted by the Trustee in the Estate.

Payments to be made by equal monthly instalments over a period of thirty (30) months, the first payment to be made one (1) month after the period of six (6) months from the date of this Deed."

The third clause then provides:

"m the Composition is based on the Chairman

rejecting the amount of $131,506.92 being the amount disputed by the Debtor in relation to the claim by the G.I.O. Holdings Limited in its Proof of Debt lodged in the sum of $144,007.70."

There follows a provision for the application of moneys to be received in the order prescribed by S. 109 of the Bankruptcy

1966, as if upon a bankruptcy, and a provision which reads

as follows:

"(T)his composition is made pursuant to Part X of

the Bankruptcy Act 1966."

The matter raised in cl. 3 was the subject of

considerable debate, apparently, at the meeting of creditors which led to the execution of the deed. At that meeting, the debtor denied he had signed the mortgage and, in particular, the guarantee pursuant to the mortgage, and certain other documents out of which the claim for one hundred and thirty- odd thousand dollars arose. He did not deny that he had agreed to the borrowing which those documents reflect, but he did not only deny his signature, but point to what he alleged was a discrepancy between that signature, on some of the documents, and his true signature on certain other documents. The chairman of the meeting apparently accepted the debtor's contentions, and accordingly ruled that G10 Holdings Limited could not vote in respect of a debt of the amount it claimed, but only in respect of a much smaller debt of something a little in excess of $10,000 (which the debtor acknowledged) upon a separate account.

A number of the documents involved, perhaps all of them, have been tendered before me. In fairness to the debtor, I think I should say that a comparison of the signatures does	raise a doubt in my mind, which, however, I have not resolved	one way or the other. I do not think it is necessary to
resolve it. Plainly I could not do so wlthout hearing some more evidence that I have heard, and prolonging this hearing considerably. I do not think it is necessary to do that because of the view I have formed on other issues, and it would appear to me that, if the question remains in contest, it will have to be resolved in the normal way in which issues of the correctness of proofs of debt fall to be resolved. It,
of course, may not follow that the debtor would necessarily not have owed the money, even if a determination came to be made that he did not sign these particular documents. Other issues, which have not been explored before me at all, might then arise.
Turning back to the deed, cl. 3 is somewhat inartistically expressed, but it does purport to state the very basis of the composition, and to state it as being the rejection by the chairman of the full voting right claimed - which is expressed in the deed as a rejection of the amount of $131,506.92. I have great difficulty in seeing how that can be understood other than as a firm covenant in the deed, expressing its basis as being the rejection, which in fact the chairman had expressed, and as being that rejection on the footing that it involved more than the vote, but also the actual owing of the amount of the debt. On this footing, the basis of the composition is the exclusion of the very large
sum claimed.
The debtor, in argument, pointed out that if that sum be ultimately found not to be owing by him, the rejection of the amount would be appropriate enough. It is true that, in a sense, this is so, but it is not appropriate, and in my opinion profoundly af fects the validity of the deed, for the deed of composition (entered into at a time when the legal means of determining whether the debt is owed or not have not

been availed of) to determine, at that stage, that the composition is to be on the footing that the claim can never be advanced. That is the effect of the construction I have given to cl. 3. It would seem to me that, on that footing, the composition is unreasonable. It could not properly be said to be a composition for the benefit of the creditors generally.

In the alternative, if cl. 3 does not have this effect, then cl. 2, whlch provides for payment of an amount calculated at 10 cents in the dollar of the claims admitted, becomes quite uncertain in its operation. Furthermore, that clause provides for the payments to be equal monthly instalments over a substantial period, the first payment to be made one month after the period of 6 months from the date of the deed. On the face of it, it would have been very unlikely that the dispute about the large debt which has been discussed could have been resolved within that period of a total of 7 months, so that it must always have been extremely uncertain what was

the amount due by the debtor under cl. 2 at any given time.

As has been pointed out by counsel, if cl. 3 were to be declared void, the deed would plainly be other than what was intended, for it is obvious that a sharing of the meagre amounts, which might be thought available to be shared between the creditors, after the total amount of their debts had been reduced by some one hundred and thirty-odd thousand dollars, would be very different from a sharing which had to include

that amount. Counsel cited Re Leeb (1972) 20 FLR 384 as an illustration of the proposition that the deed should not be re-formulated, in the way that would be involved in declaring cl. 3 void but leaving the rest on foot, so as to bind the parties to an arrangement significantly different from that upon which they agreed.

Having regard to these considerations, I think the deed is fundamentally at odds with the requirements of Part X, and I think that, in any event, it is unreasonable. It is liable to be set aside, either under S. 222 or S. 239.

It has been pointed out that the deed is not void until it is set aside. Reference has been made to Bridae v. Great Western Portland Cement & Lime Ltd (1932) 48 CLR 522 at 526- 527; Re Cope (1947) 16 ABC 113 at 115-116; and Re Cohn (1954) 16 ABC 150 at 152.

Consequently, the sequestration order which has been made is an order of which it could be said, within S. 154(l) (a),

that it ought not to have been made (see ss. 233, 238). That, however, does not mean that the sequestration order must necessarily be set aside. I have a discretion under S. 154, and it is a discretion which can take account of the fact that the deed was at all times liable to be set aside, and that I now propose to set it aside. The discretion was asserted in a number of cases which were cited by counsel: Ddph Sins v.

Wood (1918) 25 CLR 497; Marek v. Tresenza (1963) 109 CLR 1 at

4; Re Anasis: ex parte Total Australia Ltd (1985) 63 ALR 493
at 499; Re Nowland: ex Darte Nowland (1906) 6 SR (NSW) 286;
Zero-Po~ulation-Growth (Formerlv David ROV Huqhes 1
(unreported, Burchett J., 30 May 1990); and on appeal, Zero
Po~ulation Growth v. Official Receiver in Bankruptcy
(unreported, Lockhart, Wilcox and Gummow JJ., 30 July 1990);
and Boral Johns Perm Industries Ptv Limited v. Piccardi
(unreported, Nilcox, Burchett and Hill JJ., 23 June 1989).

In exercising my discretion, I should, I thlnk, take the view that the court ought not to make a futile order, and that the court can and should avoid unnecessary circuity of orders. If I were to annul the bankruptcy first, and were then to set aside the deed, it would, according to the series of decisions in Clvne's case (Clvne v. Deputv Commissioner of Taxation (1984) 154 CLR 589; De~utv Commissioner of Taxation v. Clvne (1984) 4 FCR 156; Clvne v. Deputv Commissioner of Taxation (1984) 6 FCR 418, and Clvne v. Deputv Commissioner of Taxation (1985) 5 FCR l), plainly be open to me to make a fresh

could make a sequestration order forthwith upon setting aside	sequestration order upon the same petition. Alternatively, I
the deed.
In those circumstances, I think thS appropriate course is to set aside the deed, and to decline, in the exercise of my discretion, to annul the bankruptcy under the sequestration order which has already been made. That is the course that I
shall adopt. I make an order that the costs of the applicant,

G10 Holdings Limited,	be paid ou t of	t h e e s t a t e of	t h e
bankrupt.

I c e r t i f y t h a t t h i s and t h e preceding seven ( 7 )

pages are a t r u e copy of t h e Reasons	f o r Judgment
here in of	h i s Honour M r

Dated: 3 December 1990