Re Ousley; Ex parte Commissioner of Taxation

[1994] FCA 16

DAVID PATRICK OUSLEY
EX PARTE: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
No. VP416 of 1993
FED No. 16/94
Number of pages - 11
Bankruptcy
(1994) 48 FCR 131

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
GENERAL DIVISION
HEEREY J

CATCHWORDS

Bankruptcy - return of execution - endorsement on writ of execution irregular - whether act of bankruptcy established - Mareva injunction restraining debtor from disposing of property - presentation of petition within time - discrepancy between date of petition and date petition received by Registrar in Bankruptcy.

Bankruptcy Act 1966 ss.40(1)(d)(ii), 41(3)(b), 44(1)(c), 44(4)

Bankruptcy Rules r.141A

Caldwell v Hunter (1847) 10 QB 69, 116 ER 28

Deputy Commissioner of Taxation v Ousley (unreported, Hedigan J, Supreme Court of Victoria, 23 March 1992)

Orwell Steel (Erection and Fabrication Limited v Asphalt and Tarmac Pty Limited (1984) 1 WLR 1097

Penning v Steel Tube Supplies Pty Ltd (1988) 80 ALR 689

Purden Pty Ltd v Registrar in Bankruptcy (1982) 43 ALR 512

Re Huntington, ex parte Shire of Warringah (1935) 8 ABC 161

Re Worsley; ex parte Gill (1957) 19 ABC 105

Re Solomon; ex parte Reid (1986) 10 FCR 423

Re Zumtar; ex parte Deputy Commissioner of Taxation (Unreported, Ryan J, Federal Court of Australia, 25 November 1992)

Stewart Chartering Co Ltd v C and O Managements SA (1980) 1 WLR 460

HEARING

MELBOURNE, 17 November and 15 December 1993
#DATE 1:2:1994

Counsel for the debtor: Mr P K Searle

Solicitor for the debtor: Byrne and Clark

Counsel for the petitioning
creditor: Mr M Crennan

Solicitor for the petitioning
creditor: Australian Government Solicitor

ORDER

The Court Orders:
1. A Sequestration Order be made against the estate of the debtor.

2. The petitioning creditor's costs of and incidental to the petition in this matter, including reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 together with the sum of $2,500 ordered to be paid on 22 September 1993.

Date of Commission of the Act of Bankruptcy: 22 October 1992
NOTE: Settlement of orders is dealt with in the Bankruptcy Rules, Rule 124.

JUDGE1

HEEREY J The Deputy Commissioner of Taxation petitions for a sequestration order against the debtor David Patrick Ousley. The act of bankruptcy relied on is that "execution has been issued against (the debtor) under process of a court and has been returned unsatisfied": Bankruptcy Act 1966 s.40(1)(d)(ii).

1. In resisting the order sought the debtor claims
   

(a) the evidence does not establish that he committed the act of bankruptcy relied on;

(b) a Mareva injunction obtained by the petitioning creditor disentitled the creditor from issuing execution and prevented the debtor from applying his property towards satisfaction of the warrant;

(c) in contravention of s.44(1)(c) the petition was presented more than six months after the act of bankruptcy;

(d) the petitioning creditor is a secured creditor but the petition failed to set out particulars of the security: see s.44(4).

Proceedings in the Supreme Court
3. On 7 March 1991 the petitioning creditor commenced proceeding no. 5682 of 1991 in the Supreme Court of Victoria against the debtor claiming $770,506.20 for unpaid income tax and additional tax for late payment. In October of that year the petitioning creditor issued a summons for final judgment.

1. Pending the hearing of the summons for final judgment, the petitioning creditor became concerned that the debtor, one of his sons and companies associated with the debtor were seeking to dissipate assets of the debtor and other assets apparently owned by the companies and the son, but alleged to be beneficially owned by the debtor. The petitioning creditor obtained a Mareva injunction ex parte from Hedigan J on 6 March 1992. A contested hearing then took place extending over four days. On 23 March his Honour delivered reasons for judgment and continued the Mareva relief in substantially the same terms. In the meantime the petitioning creditor had, on 10 March 1992, commenced proceeding no. 5418 of 1992. The originating motion in that proceeding sought "until further order" restraining orders in much the same terms as the Mareva relief the subject of the then current interlocutory application.

2. Hedigan J's order of 23 March restrained the debtor for a period of three months or further order from "disposing of, transferring, charging or diminishing or dealing with any of his assets in any way whatsoever including any of the following property ..." There then followed some specific items of property including jewellery, motor boats, a Rolls Royce and a Range Rover. Paragraph 2 of the order provided for the use of assets or moneys for bona fide living, family or business expenses and legal expenses not exceeding $10,000. Paragraphs 3 and 4 of the order dealt with the debtor's family trust and the issuing of shares in companies controlled by him. Paragraphs 5 and 6 contained restraints on dealing with properties in Western Victoria and Queensland alleged to be beneficially owned by the debtor. Paragraphs 7 and 8 required the debtor and other defendants to provide details of assets held by them.

3. On 1 April 1992 Master Wheeler gave judgment in proceeding no. 5682 of 1991 in favour of the petitioning creditor for $769,389.20 together with interest in the sum of $108,514.84 and costs.

4. Subsequently a number of Supreme Court judges made orders in proceeding no. 5418 of 1992 either varying the terms of the Mareva injunction or amending the originating motion so as to include further claims. The three month term of Hedigan J's injunction of 23 March 1992 was progressively extended to 23 September 1992 (order of Tadgell J 19 June 1992), then to 25 January 1993 (order of Vincent J 22 September 1992), then until the hearing and determination of the originating motion in proceeding no. 5418 of 1992 (order of Ashley J 22 January 1993). The debtor was represented by solicitor or counsel on all except the last-mentioned occasion. Thus to the knowledge of the debtor the Mareva injunction remained in place after the date of the judgment in proceeding no. 5682 of 1991 and during the period between June and October 1992 when attempts were made to execute on that judgment, to which events I shall now turn.

The Warrant
8. On 10 June 1982 a warrant of seizure and sale was issued out of the Supreme Court in proceeding no. 5682 of 1991 at the request of the petitioning creditor. It was in the following terms:

"TO THE SHERIFF

In respect of the Judgment dated 1 April 1992 by which it was adjudged that the Defendant pay $769,389.20 to the Plaintiff, and interest fixed at $108,514.84 together with costs, Levy on The Property of the Defendant DAVID PATRICK OUSLEY which is authorised by law to be taken in execution for

(a) $877,904.04, being $769,389.20 now due and payable and interest fixed in the sum of $108,514.84;

(b) $22,163.39, being interest at the rate for the time being fixed in accordance with law, on $877,904.04 from 1 April 1992;

(c) $360.00 being the cost of this warrant, and

(d) your fees and expenses for this (and for any prior) warrant, And Pay the amount so levied other than your fees and expenses to the Plaintiff or otherwise as the law requires And Indorse on this warrant immediately after you have performed all your obligations under it a statement of the date, time and place at which you have executed or attempted to execute the warrant and the results of the execution and send a copy of the statement to the Plaintiff."

1. The warrant indicated that the last name and address of the defendant was 26 Lauricella Avenue, East Keilor.

2. On 25 July a Sheriff's officer visited that property but according to a report provided to the petitioning creditor's solicitor, "no contact was made with the debtor and no property of value was sighted." A further attempt at execution was made on 22 August at approximately 9.10 am. The Sheriff's officer called at the East Keilor address. According to a report from the officer
   

"an unsuccessful payment demand was made on debtor. I was refused peaceful entry and unable to locate any seizable external assets of value (including vehicle). Debtor denies owning a vehicle. No further action will be taken on this warrant unless further information is supplied. Until warrant expires it will be held and reactivated automatically if debtor's assets located by this office."

1. On 14 September the petitioning creditor's solicitor wrote to the Sheriff requesting the return of the warrant to his office as a matter of urgency. However it appears that the warrant was returned to the office of the Prothonotary of the Supreme Court on 22 October. The warrant had endorsed on its reverse the following:
   

"By virtue of this Warrant to me directed and delivered my Bailiffs were unable to find any real or personal estate upon which to make a levy. I now return this Warrant in accordance with the instructions of the within-named Plaintiff's solicitors.

(Sgd) T Button

Deputy Sheriff

Dated: 21/10/92"

Has the Warrant been "Returned Unsatisfied"?
12. A return to a writ is "a certificate from the proper person of what has been done under it": Stroud's Judicial Dictionary (4th edition) at 2387. In Re Worsley; ex parte Gill (1957) 19 ABC 105 at 107 Manning J said:

"A return to a writ is nothing else but the bailiff's answer touching those matters which the bailiff is commanded to do by the writ and the return is made to enable the court to ascertain the truth of the matter. Returns to a writ of execution are merely statements of fact."

1. But is the act of bankruptcy specified in s.40(1(d)(ii) concerned only with the return of the sheriff in the sense of the documentary endorsement or certificate of the sheriff? Or does it require proof of an event, the physical bringing back of the writ after an unsuccessful attempt at execution?

2. At first impression the language of the statute suggests the latter. Authority supports that view.

3. In Caldwell v Hunter (1847) 10 QB 69, 116 ER 28 the court was concerned with a negligence claim against a solicitor for failure to have a writ renewed to save the Statute of Limitations running. The relevant statute (2 and 3 Will.4 c.39, s.10) provided that the writ "shall be returned non est inventus, and entered within one calendar month next after the expiration thereof".

4. The defendant argued that because the plaintiff's declaration alleged the defendant's failure to "duly file" the writ no sufficient case was pleaded since this was not a duty imposed by the statute. Lord Denman CJ said (QB at 81, ER at 80)
   

"... the judge, adverting to the language of the statute, and pointing out that the word "filing" was not found in it, told the jury that he thought that word in the declaration might have the sense of bringing it to the office, and that, in that sense, filing was included under the word "returning", and was therefore a part of the attorney's duty. And to this we see no objection: the allegation has reference to the practice of the court; and the word "filing" in reference to matters of practice, is very commonly used to express the duty of bringing to the proper office, as the case may be, writs, pleadings, affidavits and other matters for safe custody, or enrolment. The duty of filing in this sense may be properly considered as included under the word "returning"; for an attorney merely to write "non est inventus" on the back of a writ, and put it in his desk, is not to complete the act of returning it, which properly means, in this case, to make such answer, touching the execution of the writ, as shall authorise the issuing of another in continuation of it, and connect the two together on the same record; and for this purpose a necessary step is the bringing to the office."

1. The evidence on behalf of the petitioning creditor (some of which was received, over objection of counsel for the debtor, under rule 141A of the Bankruptcy Rules) compels the conclusion at least that the Sheriff's officer went to the East Keilor property, attempted to seize property of the defendant but was not able to find any such property on which to levy execution. Moreover it is clear that the warrant was returned, in the sense of being physically brought back, to the Supreme Court. The debtor did not adduce any evidence to the contrary, or indeed any evidence at all. The debtor raised two points.

2. First, it was said that the warrant was returned in accordance with the instruction of the petitioning creditor's solicitors and was therefore not returned unsatisfied. Reliance was placed on Re Worsley; ex parte Gill (1957) 19 ABC 105 at 107. In that case Manning J dismissed a petition holding that the writ was "unexecuted" rather than unsatisfied. However that decision turned on its particular facts. The bailiff made a levy on a motor vehicle but subsequently a third party produced a receipt to the bailiff which on its face indicated that she had purchased the vehicle from the debtor ten days before the levy was made (although, as his Honour pointed out, after the date the writ had been delivered to the bailiff, thus binding the goods of the debtor: Sale of Goods Act 1923 (NSW) s.39).

3. In any event, Manning J noted (at 106) that after the purchaser of the vehicle made the claim
   

"The solicitors for the judgment creditor were advised of this development and thereupon instructed the bailiff to withdraw and to return the writ unexecuted and the writ was returned accordingly on 5 June 1957. Nothing further was done until 29 July 1957 on which date the bailiff made a notation that on 28 May 1957 he was informed (there was no indication of the source of his information) that the defendant owned no realty and thereafter on 1 August 1957 he made the final endorsement set out above (ie "writ returned unsatisfied").

In my view the proper inference to be drawn from the whole of the endorsements made on the writ, is that a levy was made upon a vehicle which, prima facie, belonged to the judgment debtor, but the bailiff withdrew from possession on instructions from the petitioning creditor's solicitors and that he obtained information from an unspecified source that the defendant owned no realty."

1. Therefore the case was treated by his Honour as one where the judgment creditor instructed the bailiff not to execute, or to cease attempted execution, as opposed to one where the bailiff executes the writ but finds no property to seize. But the present case is an example of the latter situation.

2. Secondly, counsel for the debtor argued that the return was irregular in that it did not state, as directed by the warrant, "the date, time and place at which execution or attempted execution took place." Reliance was placed on the statement in Worsley (at 107) that
   

"A statement by the bailiff that the writ is returned unsatisfied is merely a statement of his conclusion of the effect of what he has done, and is not a return of the writ at all. A return which does not answer the command of the court is at least irregular."

1. However, while accepting that the endorsement in the present case did not, as the warrant required, state the date, time and place of attempted execution, it did state that the bailiffs "were unable to find any real or personal estate upon which to make a levy". That is a statement of fact, albeit in general terms, as distinct from a conclusion.

2. In any case, the irregularity of the return (in the limited sense of what is written by the sheriff on the warrant) is not in my opinion fatal to the establishment of the relevant act of bankruptcy. In Re Huntington; ex parte Shire of Warringah (1935) 8 ABC 161 the petitioning creditor issued a writ of fi fa which commanded the sheriff that "of the goods and chattels, money and securities for money lands tenements and hereditaments equities of redemption and equitable interests of and belonging to" the respondent, he should cause to be made a sum specified. The writ was returned on 15 February 1935 endorsed "that there are no goods and chattels". The petition was presented on 20 June. On 15 August a second return was made by the sheriff, but not endorsed on the writ, certifying that at the date of endorsing the return on the writ there were no monies, or securities for moneys, lands, tenements, hereditaments, equities of redemption and equitable interests within his bailiwick of and belonging to the respondent whereof he could satisfy the writ or any part thereof.

3. Long Innes J held that the return of the writ was irregular in as much as the only return made by the sheriff prior to the presentation of the petition was that there were no goods or chattels on which execution could be levied - no written answer was made to the command of the court in respect of any of the other forms of property referred to in the writ. In the event, his Honour dismissed the petition on a different ground, viz that the petitioning creditor did not disclose in the petition a security which it held. For present purposes it is important to note that his Honour would have otherwise held the act of bankruptcy made out. His Honour said (at 163):
   

"In the present case a second return was made, as I have said, by the sheriff on 15 August 1935 and in writing and I am inclined to think that the irregularity has been cured by that second return. In this case I need not express any concluded opinion as to whether an act of bankruptcy was committed, or when, although I am inclined to the view that an act of bankruptcy was committed on the return of the writ on the first occasion prior to the presentation of the petition, notwithstanding the irregularity in the endorsement, and that the second return made by the sheriff on 15 August 1935, is merely evidentiary."

1. I would respectfully adopt the same approach in the present case. In determining whether the act of bankruptcy specified in s.40(1)(d)(ii) has been committed it should be remembered that fruitless attempts to enforce a judgment against a debtor is usually strong evidence of insolvency; for that reason I think the relevant act of bankruptcy is concerned with that event and not merely the "return" in the limited sense of the endorsement on the writ - relevant and important though that of course is.

Effect of Mareva Injunction
26. Counsel for the debtor relied on Re Zumtar; ex parte Deputy Commissioner of Taxation (Federal Court of Australia, unreported 25 November 1992) where Ryan J said (at p 4)

"A creditor who has obtained from a superior court of record an order restraining a debtor from paying any of his debts, other than those of a specified class, has disentitled himself to issue immediate execution upon his debt."

1. However, his Honour was speaking in the context of a petition based on non-compliance with a bankruptcy notice: s.40(1)(g)). The act of bankruptcy thus was said to be constituted by failure of the debtor to do an act which the petitioning creditor's injunction forbad him to do. By contrast, the return of process unsatisfied is an event which occurs irrespective of any voluntary act or inaction on the part of the debtor. The whole purpose of the process of execution is to confer power to seize property of the debtor in satisfaction of the judgment debt and, if need be, without the debtor's consent.

2. Counsel for the debtor relied on Re Solomon; ex parte Reid (1986) 10 FCR 423 (Beaumont J) and Penning v Steel Tube Supplies Pty Ltd (1988) 80 ALR 689 (Full Court). Both these cases dealt with alleged non-compliance with a bankruptcy notice and in particular s.41(3)(b) which prohibits the issue of a bankruptcy notice
   

"(b) if, at the time of the application for its issue, execution of the judgment or order to which it relates has been stayed."

1. In both cases it was held that s.41(3)(b) had been infringed. In Solomon a receiver had been appointed to control the debtor's property; therefore any attempt to interfere with that property would be an interference with an officer of the court in the performance of his functions and if done without leave of the court would be a contempt of court: 10 FCR at 426. In Penning a trustee had been appointed under s.50 and the Full Court treated that as indistinguishable from the appointment of a receiver.

2. The existence of a Mareva injunction does not in my opinion impose similar restrictions on execution. As to the nature and function of Mareva relief, I respectfully adopt what was said by Hedigan J in granting the injunction against the present debtor: Deputy Commissioner of Taxation v Ousley (Supreme Court of Victoria, unreported, 23 March 1992) at p11:
   

"The principle underlying Mareva injunctions is to prevent the court's process being frustrated or abused by the dissipation of assets so as to affect the enforcement of orders lawfully made by the court. This description emphasises the limited scope of the Mareva injunction which exists to enable a court to protect its process from abuse in relation to the enforcement of its orders and not to create additional rights. As Jackson v Sterling Industries Ltd (1987) 162 CLR 612 demonstrates, it is neither a species of anticipatory execution nor a method to give a form of security in advance for a judgment which might be ultimately obtained. Moreover the plaintiff does not obtain any rights in the assets, the subject of the order, as a consequence of any Mareva injunction granted, prior to the obtaining of judgment. A plaintiff may later acquire such rights if he obtains judgment and successfully levies execution upon them, but until that event occurs the plaintiff's only rights are against the defendant personally. Put another way, it creates rights in personam but not in rem."

1. It is well established that one of the functions of a Mareva injunction is the aid of execution. Thus an injunction can be continued in force in aid of execution after judgment has been obtained: Stewart Chartering Co Ltd v C and O Managements SA (1980) 1 WLR 460 at 461. This is what happened, to the knowledge of the debtor and without his protest, in the present case. An injunction can also be granted after judgment and before execution: Orwell Steel (Erection and Fabrication) Limited v Asphalt and Tarmac UK Limited (1984) 1 WLR 1097.

2. The debtor's argument may be tested by the following hypothesis. Assume that the debtor has other creditors, X, Y and Z who obtain judgments against him and issue execution. It could hardly be suggested that the existence of a Mareva injunction obtained by the Deputy Commissioner of Taxation could inhibit in any way execution on behalf of those creditors. But if the debtor is right, the present petitioning creditor, even though he obtained a remedy from the court which is said to be in aid of execution, would be the only creditor in all the world prevented from issuing execution.

Was Petition Presented out of Time?
33. The date of the act of bankruptcy was either 21 October 1992, the date of the endorsement of the warrant, or 22 October when the warrant was returned to the Supreme Court. For the reasons already mentioned, I am inclined to think that the latter of the two dates is correct. However on the assumption that the act of bankruptcy occurred on 21 October counsel for the debtor argues that the petition is dated 22 April 1993 and is therefore outside the six month period: s.44(1)(c). The short answer seems to be that the date 22 April 1993 was inserted by an officer of the staff of the Registrar in Bankruptcy whereas the court stamp shows that the document was received on 21 April. The latter is the relevant date. Presentation in this context means handing or delivering the petition to and acceptance by the appropriate court officer: Purden Pty Ltd v Registrar in Bankruptcy (1982) 43 ALR 512.

Is Petitioning Creditor a Secured Creditor?
34. Counsel for the debtor contended that the petitioning creditor was a secured creditor and that the petition was bad for failing to disclose his security: s.44(2). In support of this argument it was claimed that the Mareva injunction operated as a lien on the property of the judgment debtor.

1. This is plainly incorrect. I refer to the passage from the judgment of Hedigan J already quoted.

Orders
36. I will order that:

1. A Sequestration Order be made against the estate of the debtor.

2. The petitioning creditor's costs of and incidental to the petition in this matter, including reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 together with the sum of $2,500 ordered to be paid on 22 September 1993.

1. The date of commission as the Act of Bankruptcy is 22 October 1992.