Re Staples, Bryan Douglas & Anor v Ex Parte Baker, P. J.
[1995] FCA 824
•6 Oct 1995
IN THE FEDERAL COURT OF AUSTRALIA )No QX 40 of 1994
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF )
THE STATE OF QUEENSLAND )
RE:BRYAN DOUGLAS STAPLES and
SUSAN JANE STAPLES
Debtors
EX PARTE:P.J. & N.M. BAKER and D.S. FIRTH
Applicants
MINUTES OF ORDER
JUDGE MAKING ORDER: Drummond J
DATE OF ORDER: 6 October, 1995
WHERE MADE: Brisbane
THE COURT ORDERS THAT:
The respondents pay the applicants' costs of and incidental to today's hearing, to be taxed.
THE COURT DIRECTS THAT:
The respondents file and serve all material upon which they intend to rely at the hearing by 27 October, 1995.
All parties make discovery on oath by 27 October, 1995.
Mutual inspection be complete by 10 November, 1995.
By 17 November, 1995 the solicitors for Firth & Baker shall deliver a letter to the District Registrar, such letter accompanied by written confirmation from all other parties that the matter is ready for trial. If the District Registrar receives the letter by the specified date the matter is to be set down for hearing on a date to be fixed by the District Registrar. If the District Registrar does not receive the letter by the specified date then the matter will be re-listed at 10.15 am on 1 December, 1995.
NOTE:Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) No. QX 40 of 1994
GENERAL DIVISION )
BANKRUPTCY DISTRICT OF )
THE STATE OF QUEENSLAND )
RE:BRYAN DOUGLAS STAPLES and
SUSAN JANE STAPLES
Debtors
EX PARTE:P.J. & N.M. BAKER and D.S. FIRTH
Applicants
CORAM: Drummond J
PLACE: Brisbane
DATE: 6 October, 1995
REASONS FOR JUDGMENT
This is an application by Mr. and Mrs. Baker, who in June 1994 brought proceedings to set aside a composition entered into by Mr. and Mrs. Staples ("the debtors") with their creditors, for directions that the debtors file and serve the material upon which they intend to rely in response to the Bakers' material challenging the composition. Directions were given long ago which should have ensured that the debtors' material would have been filed and served well before this.
The material before me indicates that until very recently the debtors long proceeded on the basis that, in
consequence of directions given last year, they had to file and serve the material that I have referred to, upon which they propose to rely. However, very recently, in a letter of 3 October, 1995, the debtors' solicitors put Mr. and Mrs. Baker on notice that they proposed applying to the court for orders that make it inappropriate for them to file material defending the composition until the application for their own foreshadowed orders has been disposed of.
What they foreshadowed in this letter of 3 October, 1995 was an application to have the Baker's own application challenging the validity of the composition struck out on the ground that they lacked standing, not being creditors of the debtors. They also there said that they intended to bring an application that another applicant, Mr. Firth, who was joined by my direction on 28 September, 1994 when this question of standing was first raised and who is undoubtedly, as I understand things, a creditor of the debtors, be prevented from continuing the action on the basis that Mr. and Mrs. Baker are unlawfully maintaining him; the debtors say that they will seek an injunction to restrain the Bakers from maintaining Mr. Firth, in circumstances where it is likely that that will bring the proceedings by Mr. Firth challenging the composition to an end.
Counsel for the debtors indicated from the bar table that his clients also wished to make an application against Mr. and Mrs. Baker that they give security for the debtors' costs of the application attacking the composition on the ground that Mr. and Mrs. Baker are insolvent. Counsel also indicated that consideration might be given to bringing an application for security against Mr. Firth on the ground that he is a mere nominal plaintiff.
The first thing to be observed is that, as I have indicated, the question as to the Bakers' standing to maintain the proceedings was raised long ago, on 28 September, 1994, when I joined Mr. Firth. On that day I also gave directions requiring the debtors to file material defending the attack made on the composition, directions which have not been complied with. The change in direction which the debtors now, very late in the day, seek to give to the litigation stems, according to the material before me, from a telephone conversation that took place between the debtor, Mr. Staples, and Mr. Firth a few days after I gave the directions on 28 September, 1994; yet it has taken until 3 October, 1995 for the debtors to indicate that they wish to rely upon the information they claim then to have obtained from Mr. Firth to justify the proposition that they should not be required to file material defending the composition until their own foreshadowed applications have been determined. I take into account the delay, unexplained, it seems to me, by the debtors in foreshadowing the making of these new applications, against a background of a long history of indications that they were going about complying with the directions to prepare and file their material in answer to the attack on the compositions.
The challenge to Mr. and Mrs. Baker's standing which was sought to be avoided by joining Mr. Firth as an undisputed creditor to challenge the composition depends, having regard to what I have been told without dispute, upon the proposition that, although Mr. and Mrs. Baker and the debtors were in partnership, and although that partnership has been dissolved with substantial partnership creditors unpaid, the fact that Mr. Baker has paid $80,000 or thereabouts in discharge of partnership debts does not give rise to any right in him and his wife to contribution from the debtors, so that they cannot for that reason be creditors of the debtors. The proposition advanced is that it is only when the Bakers, as co-debtors with the debtors to the partnership creditors, have paid one half of the partnership debts that they can then assert an entitlement to contribution from the debtors. The validity of that proposition, advanced on behalf of the debtors to show that Mr. and Mrs. Baker lack standing to attack the competition, is very doubtful.
If, however, the debtors succeed in establishing that Mr. and Mrs. Baker lack standing, that does not mean that they would be entitled to the restraint they seek. They still have to establish that Mr. and Mrs. Baker, as people without standing as creditors to challenge the competition, are guilty of the tort of maintenance, in providing funds to Mr. Firth to continue the attack on the composition. There is, according to what I have been directed to, limited evidence only which would justify a finding that the Bakers are indeed funding Mr. Firth in this endeavour, in circumstances which would amount to unlawful maintenance on behalf of the Bakers, if they lack a legitimate interest in doing that. But counsel for the Bakers points out that they have a good argument that they have such an interest in maintaining Mr. Firth, if that is indeed what they are doing, as would prevent any finding being made against them that they are guilty of the tort of maintenance. He says that one of the bases upon which the composition is challenged is that the debtors failed to disclose the true extent of their assets to the creditors when the composition was entered into, in so far as they engaged in what is described as "a sham divestiture of valuable property." If the composition is set aside and bankruptcy against the debtors ensues, a very substantial amount of money is likely, so it is submitted, to be recouped by the Trustee in Bankruptcy, which will be distributed for the benefit of the debtors' creditors. The debtors' creditors include creditors of the former partnership to whom the Bakers are jointly indebted, and it follows that, in so far as former partnership creditors are satisfied by payments in any bankruptcy of the debtors, that will procure a discharge to that extent of Mr. and Mrs. Baker's liability to those same creditors: it is then submitted that that shows that the Bakers have such an interest in maintaining the attack on the composition (if that is indeed what they are doing) as to prevent any charge of maintenance being proven against them.
The argument is sufficiently substantial, to my mind, when one adds it to the unexplained delay on the part of the debtors in seeking to change the direction of the litigation from that with which they have been, until very recently, content to go along, as to lead me to the conclusion that the proper course is to ensure that the challenge to the composition proceeds without any further delay. I will therefore give directions requiring the debtors to file the material that they are in default of filing.
I certify that this and the preceding
five pages are a true copy of the
reasons for judgment herein of the
Honourable Justice Drummond.
Associate:
Date: 6 October, 1995
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