Re Saario, Erik
[1998] FCA 380
•15 APRIL 1998
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 7091 of 1997
RE:
ERIK SAARIO
EX PARTE:
GEMAIR PTY LTD ACN 010 700 802 TRADING AS FLIGHT MAINTENANCE
JUDGE(S):
SPENDER J
DATE OF ORDER:
15 APRIL 1998
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
The costs of and incidental to the creditor’s petition including reserved costs to be paid by the debtor and to be taxed if not agreed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 7091 of 1997
RE:
ERIK SAARIO
EX PARTE:
GEMAIR PTY LTD ACN 010 700 802 TRADING AS FLIGHT MAINTENANCE
JUDGE(S):
SPENDER J
DATE:
15 APRIL 1998
PLACE:
BRISBANE
REASONS FOR JUDGMENT
In these proceedings a creditor’s petition was presented to the Court on 18 March 1997. An amended notice of intention to oppose the making of sequestration order was filed on 30 June 1997. By force of s 52(4) of the Bankruptcy Act 1996 the petition lapsed on 18 March 1998. Section 52(4) provides:
“A creditors petition lapses at the expiration of:
(a)subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or
(b)if the court makes an order under subsection (5) in relation to the petition - the period fixed by the order;
unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.”
Section 52(5) provides:
“The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of the creditor’s petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.”
No such extension under s 52(5) has been made by the Court. The lapsing of the petition is the fault of the Court. No application to extend time was made by the petitioner pursuant to s 52(5) and in fact the transcript does record at p 29 in relation to a discussion as to how long the matter might take in the Magistrates Court the following:
“Spender J: ‘...if the matter in the Magistrates Court were to be prosecuted properly, having regard to the number of parties, when is it likely to be heard?’”
To which Mr Jones said:
“Your Honour, I have just been told six months.”
And Mr Looney said:
“Your Honour, I probably would not have been that optimistic in the Brisbane Magistrates Court; six to - between 6 and 12 months. I think, your Honour, that the 24 month deadline under the Act would still be met.”
That is a reference to the period during which the petition might be extended from the date of its presentation. Notwithstanding those two matters, the oversight is entirely the Court's. This matter, short as it is, simply got lost without any realisation for the need to avoid the petition lapsing. In those circumstances, it would have been a convenient solution to dismiss the petition under s 52 for other cause, namely, the existence of the cross-claim which the debtor propounds, thus avoiding the present embarrassment.
However, on the whole of the material, I would not have concluded that other cause "sufficient to decline to make a sequestration order had been made out." And, further, I would not have adjourned the petition so as to enable the cross-claim to be prosecuted in the Magistrates Court. The reasons for those views are as follows. In Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd (No 2) (1994) 51 FCR 14, Olney J at p 18 held that:
“...In an appropriate case, the Court may treat the existence of a claim by the debtor to a set-off or cross-demand against the petitioning creditor as a sufficient cause to decline to make a sequestration order.”
He further held that that was the position notwithstanding that the debtor may previously have unsuccessfully raised the claim set-off or cross-demand in an application to stay or set aside the bankruptcy notice.
Section 52(2) of course provides:
“If the Court is not satisfied with the proof of [any of the matters referred to in s 52(1)], or is satisfied by the debtor:
(a)that he or she is able to pay his or her debts; or
(b)that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.”
In Cain v White (1933) 48 CLR 639 the Full Court of the High Court expressed its agreement with the judgment of the primary judge in that case (which is recorded at pp 640-647 of the report) which contains the following passage at 646:
“... prima facie, on proof of the matters mentioned in sec 56(2), [the predecessor of 52(2)] the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.”
That passage was quoted with approval by the High Court in Rozenbes v Kronhill (1956) 95 CLR 407 at 414 and applied by the Full Court of the Federal Court in Re Burlock; Ex parte Burlock v Commissioner of Taxation (1994) 49 FCR 522.
Olney J in James's case at 20 referred to the nature of the inquiry that a court exercising jurisdiction in bankruptcy will make concerning a claim by a debtor. His Honour said at 20:
“The extent of this Court's enquiry into a claim by a debtor in this context was considered by Gibbs J (in the Federal Court of Bankruptcy) in Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111, where his Honour said in a case in which a debtor claimed to be entitled to unliquidated damages in tort against the petitioning creditor (at 116):
‘... As a general rule this Court is not an appropriate forum to decide such a claim and is limited to forming a view as to whether it appears that there is sufficient validity in the debtor’s claims to justify a dismissal or adjournment of the petition. I agree in general with what was said in Re Player (1962) 19 ABC 277 in relation to this question. Considerable evidence directed to this issue has been given before me and it seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed. If I am satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the judgment debt, I should not make a sequestration order. If, however, it appears that the debtor has a claim which is less than the amount of the petitioning creditor’s judgment debt, the proper course would seem to be to require the debtor, if he desires to avoid a sequestration order, to pay the difference between the amount of the judgment debt and the amount which it seems probable to me that he will recover in the proceedings against the petitioning creditor. In many cases it would be more convenient, assuming that the debtor showed that he had a real claim to litigate, to adjourn the proceedings to enable his claim to be tried in the ordinary courts, but that course was not taken in the present case, partly because the existence of any valid claim was vigorously denied by the petitioning creditor and partly because the proceedings in the Supreme Court have been somewhat dilatory.’ ”
Olney J said at 22:
“...it is fair to say that even on the most favourable view of the facts, [in that case], it is far from clear that the debtors’ claim will succeed and that they will receive an award of damages.”
His conclusion was:
“Having regard to the foregoing, I am unable to say (in the words of Gibbs J) that ‘it is probable that the debtor(s) (have) against the petitioning creditor a claim which is likely to succeed.’ That being the case, I am not satisfied that there is any ‘other sufficient cause’ to justify the exercise of the Court's discretion to decline to make a sequestration order and to dismiss the petition.”
In James's case (supra) there had not been an earlier assessment of the cross-claim, at least on the merits, because of the inadequacy of the affidavit filed by the debtor which sought to attract the operation of s 41(7) of the Bankruptcy Act. On the question of adjournment, Olney J said:
“It seems to me that Gibbs J has distinguished between a claim of the debtor against the petitioning creditor that is likely to succeed (which would justify the Court refusing to make a sequestration order) and the existence of a ‘real claim’ which presumably the Court has been unable to classify as one that is likely to succeed, but nevertheless is thought to have sufficient integrity to warrant the debtor being given an opportunity to have it litigated. In such a case Gibbs J thought that it would be appropriate to adjourn the petition pending resolution of the litigation.”
Olney J concluded on the question of adjournment:
“Even assuming that the debtors have ‘a real claim to litigate’ I do not think that adjournment is in this case an appropriate alternative, and this for the reason that it is not said by the debtors that given a favourable outcome of the trade practices proceeding they would not only be able to extinguish the petitioning creditor's judgment but would also then be solvent.”
It is necessary in the light of the detailed submissions that were made on the application to oppose the making of a sequestration order, to have regard to the chronology of litigation between the debtor and the creditor in this case. The creditor commenced proceedings in the Magistrates Court on 31 March 1995. An entry of appearance, defence, and counter-claim was filed by the debtor on 1 September 1995.
On 29 January 1996 on the application of the creditor, the debtor's defence was struck out. On 19 March 1996 there was an amended entry of appearance, defence, and counter-claim delivered by the debtor. On 20 March 1996 an order was made that the action be set down for hearing and it was set down for hearing on 7 May on 27 March 1996.
In a letter of 30 April 1996, that is to say, seven days before the matter was to be heard, the solicitors for the debtor wrote to the solicitors for the creditor. That letter commenced as follows:
“Our client has no money or assets and is not in a position to defend your client's claim. He has on even date discontinued his counterclaim. He has instructed us to offer $4,000.00 in full and final settlement of your client's claim to be paid within 3 months.
The offer is contingent upon the Judgment being obtained but not taken out unless default occurs. This will assist in protecting what is left of our client's credit rating.”
On 3 May 1996 the debtor consented to a judgment being entered in the action in favour of the creditor for $11,083.74, and on 31 May, judgment was entered in the action against the debtor for that amount. That is the judgment debt on which the bankruptcy notice was founded; the notice issued on 17 July 1996 and was served on the debtor on 26 September 1996.
No application was made pursuant to the provisions of s 41(7) seeking to have the bankruptcy notice set aside, or under s 41(7) seeking to demonstrate a cross-claim greater than the amount of the judgment. On 19 March 1997, a creditor's petition issued and was served on the debtor on 29 April 1997. Shortly after that on 12 May 1997, the debtor commenced proceedings in the Magistrates Court claiming damages as originally claimed in the debtor's counter claim in the action.
On the same day, 12 May 1997, the debtor applied to pay the judgment debt by instalments. That application was refused by the Registrar of the Magistrates Court and referred to a hearing before a Magistrate. On 28 May, the debtor's application for payment by instalments was refused, and, on the same day, the petition was set down for a defended hearing on 30 June 1997.
On 4 June 1997, an entry of appearance and defence was filed on behalf of the creditor and others in the debtor's action in the Magistrates Court. On 30 June 1997, the hearing of the petition occurred, and judgment was reserved. I have already referred to the discussions that occurred concerning the likely time frame of the Magistrates Court proceeding. I am told that nothing has been done in prosecution of the Magistrates Court claim since 4 June 1997 and Mr Scott, solicitor for the debtor, indicates that that was because they were awaiting judgment on the petition.
On the material before me, I am satisfied that there is in truth and reality a debt which the debtor owes to the judgment creditor, and that the quantum of that debt is in excess of the requirement of the Bankruptcy Act. That conclusion is confirmed by the offers made by the debtor to pay the judgment debt by instalments. There are a number of relevant considerations leading to my conclusion that I am not satisfied that the cross claim is a claim which, in the words of Gibbs J, is ‘likely to succeed’. It is relevant to note that the cross claim was discontinued on 30 April 1996, although I acknowledge that it was said that the reason for this was impecuniosity.
No attempt was made to set up the cross claim under s 41(7) of the Bankruptcy Act within the time limited for compliance with the Bankruptcy Notice. The cross claim was reasserted by the debtor on 12 May 1997 after service of the creditor’s petition on him on 29 April 1997, and no step has been taken by the debtor to prosecute that claim. As I indicated, I am not satisfied that the cross claim is one which is ‘likely to succeed’.
As to quantum, it is relevant to note some of the items in the cross claim which appears in the material before me as an attachment to a letter of 13 May 1997 from the solicitors for the debtor to the solicitors for the creditor and which is GBP 19, the annexure to Mr Porter's affidavit. In paragraph 13, the particulars of damage alleged include, first of all, an item for $4950 for aircraft hire. It includes items for fuel. It includes three days’ work by the debtor at $180 a day. It includes a normal insurance excess of 1 per cent in the event of accident, being an amount of $1400. There are three items. There is an item in respect of 6.8 hours of flying time in the relevant aircraft with wheels down at $260 a hour, being a total of $1768. There is a claim which is in the following terms:
“Aircraft was out of action for approximately three months, loss of revenue $6000.”
Having regard to that material, the Court would not be able to be confident that even if there were a valid claim as alleged in the pleadings that the quantum would exceed the amount of the judgment debt. The repairs to the vehicle from Hawker Pacific was $3170. Even with some other proved items, there is at least doubt whether the claim would be likely to exceed the judgment debt.
However, further, given the absence of evidence of solvency on the part of the debtor; the evidence which the debtor relied on in respect of the application to pay by instalments which appears in the same Exhibit GBP 19, in an affidavit sworn by the debtor on 7 May 1997, namely, that his present income from all sources is based on unemployment benefits of $175 a week and commission with respect to a pyramid scheme called Pentagono producing an income of $50 a week, the receipt of which was said not to be certain from week to week; the inference of insolvency that flows from the offer to pay the judgment debt by instalments; the earlier admission by the solicitors for the debtor that the cross claim was being discontinued because of the impecuniosity of the debtor; the dilatoriness of the prosecution of the cross claim, the close temporal connection between the service of the creditor's petition and the initiation of the most recent proceedings in the Magistrates Court I think that the cross claim is being used as means of avoiding the making of a sequestration order and is not genuinely being pursued.
In those circumstances, but for the lapsing of the petition on 18 March, I would have declined to find other sufficient cause under s 52(2), and I would have declined to adjourn the hearing of the petition so as to permit the determination of the cross claim. However, I am not able to do that by virtue of the operation of the Act as I have indicated earlier. What I propose to do, other than note that the petition has lapsed, is to order that the costs of and incidental to the petition be paid by the debtor, including reserved costs, to be taxed. I indicate to the solicitors for the petitioning creditor that, having regard to the reason for the creditor’s petition lapsing, in respect of the issuing of a further bankruptcy notice and a creditor's petition in the event the bankruptcy notice is not complied with, the registry of this court will offer its closest assistance and help, both in relation to expedition and what it can do by way of cost, including the cost of filing fees.
As I say, it is a matter of regret that the position is as I have indicated, but apart from making the order as to costs which I have made, I can see no other way of dealing with the problem.
I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.
Associate:
Dated: 15 April 1998
Solicitor for the Debtor: Mr K D Scott of Goodfellow & Scott Solicitor for the Petitioning
CreditorMr G B Porter of Mahoney & Hesford Date of Hearing: 15 April 1998 Date of Judgment: 15 April 1998
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