Re Vincent, Clifton George Ex Parte State Bank of NSW

[1996] FCA 285

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )

BANKRUPTCY DISTRICT OF THE           )  No. NP 1950 of 1995
STATE OF NEW SOUTH WALES                  )

RE:CLIFTON GEORGE VINCENT

Debtor

EX PARTE:STATE BANK OF NEW SOUTH WALES LIMITED

Petitioning Creditor

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    10 APRIL 1996

REASONS FOR JUDGMENT

The debtor, Clifton George Vincent, applies to the Court for an adjournment of the hearing of the petition presented against him by the State Bank of New South Wales Limited ("the State Bank").

It is necessary first to set out a chronology of the litigation between the parties.

*On 7 April 1995 judgment was delivered by Giles J in the Supreme Court of New South Wales in favour of the State Bank for $2,560,729.89.

*On 5 May 1995 Mr Vincent lodged a notice of appeal appealing from that judgment.  No attempt thereafter was made by the State Bank to have the appeal struck out on
the basis that it was frivolous or otherwise an abuse of process.

*In July 1995 the State Bank caused a bankruptcy notice to be issued out of this Court.  Attempts to serve that bankruptcy notice personally were apparently unsuccessful and an application was made to Foster J on 28 July 1995 for substituted service of it.

*An order granting substituted service was made with service deemed to be effected on 3 August 1995.

*Application was made to the Full Court of this Court for leave to appeal against the judgment of Foster J which application was heard on 20 September and leave to appeal was refused.

*On 16 August 1995 an application was made by Mr Vincent to set aside the bankruptcy notice or extend the time for its compliance.

*That application was heard on 26 September 1995 and rejected by Foster J who delivered judgment on 3 November 1995.  His Honour decided as a matter of discretion not to extend the time for compliance.  In so doing his Honour was influenced by the fact that no attempt had been made on the part of Mr Vincent to seek expedition of the appeal.  The creditor's petition was accordingly presented on 8 November 1995.

It appears interlocutory matters and directions were given by Lehane J in February of this year when it was indicated that Mr Vincent proposed to oppose the petition, not only on the basis that service was not validly effected but also on the basis that there was no true debt underlying the petition.  The interlocutory orders provided for Mr Vincent's sources to prepare indexed volumes setting out all relevant affidavits to be relied upon.  There has been no compliance with that order.  The matter went into the long matters callover list and to the apparent surprise of Mr Vincent's solicitor was given a date for hearing today and listed for a three day trial.  No attempt was made before Sheppard J to indicate that an adjournment would be applied for, although it may well be that the occasion did not really arise before his Honour for that course to be adopted.

The evidence before me is that an appeal, in respect of which no expedition has been granted, could be expected to take some thirty-two months between the time at which it is lodged and the time at which it is heard.  There is no evidence before me as to the time likely to elapse between the granting of expedition and hearing should an application for expedition be made.

For what it is worth, it is my understanding that that period would differ, depending on the nature of the matter in question.  The fact that a bankruptcy petition was pending would be a fact relevant to the grant of the exercise of discretion.  Also relevant would be that one might reasonably expect an appeal of the nature of the matter presently before me to be dealt with in something like three months.  However, as I say, there is no evidence of this.

Mr Vincent's solicitor relied before me upon the judgment of Giles J, the notice of appeal lodged against that judgment and a notice of contention.  He also sought to rely upon an affidavit which he himself had sworn and in respect of which an affidavit in substantially identical terms had been, it was said, read in the proceedings before Giles J.  The affidavit from the solicitor dealt with the computation of costs.

I should say right at the outset that I find Mr Conway's affidavit of no assistance one way or the other in deciding the issue of whether an adjournment should be granted.  It proceeds upon assumptions which may or may not be correct and in any event it is difficult to see what impact it had, if any, upon the judgement of Giles J.

There were various issues that were agitated before Giles J and which are reflected in the judgment delivered by his Honour on 7 April 1995.  The first of these issues was concerned with Mr Vincent's liability for or in respect of legal costs which had been incurred by a receiver and of which it was said that he was required to indemnify the receiver by virtue of a provision of the facility agreement between Mr Vincent and the State Bank.  The relevant clause of the facility agreement reads as follows:

"...all fees, costs, charges and expenses (including any legal costs, fees and expenses of Counsel and on a Solicitor/ Client basis of legal advisers) incurred in the enforcement by or preservation of the rights of the lender of or under this Agreement and/or the Securities."

The argument apparently presented on behalf of Mr Vincent was that he was not obliged to pay more than costs determined, either under a party/party basis, or costs determined under the relevant general order in the Conveyancing Act, assuming that the costs were not to be determined under a party/party basis.  The case of the State Bank was that, provided the costs were within the ambit of market costs charged by solicitors in the Central Business District, Mr Vincent could be obliged to reimburse the State Bank.

Giles J accepted the submissions put to him on behalf of the State Bank.  In so doing he equated the right of the bank to a right to indemnity in respect of market driven fees in the Central Business District, even if those fees were greater than the fees that were properly recoverable by the solicitors in question, whether they practiced in the Central Business District or whether they happen to practice in Dubbo.  (In so saying, I mean no disrespect to those solicitors who may practice in Dubbo in selecting that town.)

Counsel for the State Bank submits that an appeal on this point, like an appeal on all the other points that were raised before Giles J, would be absolutely futile.  It is said, indeed, that the appeal is doomed to fail and that it is in the sense in which the cases use the expression, frivolous and an abuse of process.  The State Bank says this notwithstanding that no application has been brought by it to the Court of Appeal to have the appeal struck out.

Other matters dealt with in the judgment of Giles J include an issue concerning whether the State Bank was liable as a mortgagee to Mr Vincent pursuant to a duty of care, or whether the liability was merely one of good faith in acting to sell various properties that were the subject of the State Bank's securities.  His Honour held that the proper test was good faith but, in any event, whichever test was adopted there had been no loss.

The question of the proper test to be adopted in relation to a mortgagee's duties is of course a matter of great contention, which will no doubt occupy an appellate court for some time in the future, but that question can hardly arise if no loss has in fact been suffered, whichever test is applied.  Hence it becomes necessary or will become necessary for Mr Vincent in the appeal to challenge the finding that in fact no different result would follow irrespective of whichever test was adopted.

Another matter at issue between the parties concerned whether an estate agent, who is now deceased, had been fraudulent in maintaining silence about a higher offer in order to secure for himself a higher commission as a commission agent.  The estate agent having died did not of course give evidence.  Evidence was given by a Mr Bart of submitting a higher offer but his Honour appears not to have accepted that evidence.  One reason he did not do so is because he thought it highly improbable that an agent would not pass on an offer merely for the purpose of securing to himself an additional $12,000 commission.

It is difficult and perhaps invidious for a court sitting in bankruptcy to give a considered opinion of the outcome of an appeal lodged to another court.  It does indeed invite a rather unpalatable task of passing in advance upon the chances of success of an appeal before that appeal has been properly and completely argued.  For my part I think there are difficulties in Mr Vincent's way in respect of the last issues which I have discussed, but certainly there is room for argument as to the proper construction of the clause in the mortgage and particularly as to the role which the general order plays in determining the reasonableness of fees.

I do not think it is right to say that Mr Vincent's case is one that is so hopeless that it can be said to be frivolous, nor do I think it is right to say that it is a case which is necessarily doomed to failure.  I think it is unnecessary for me to go beyond that in seeking to estimate what would be the chances of success or failure.

Mr Vincent's solicitor sought in essence that I adjourn the proceedings until the appeal was heard and determined.  Assuming that thirty-two months were to go by until the appeal was heard and some months thereafter for judgment it is clear that the petition would be well and truly stale if that course were to be adopted.

Granting an adjournment on this basis would be tantamount to dismissing the petition and that I am not prepared to do.  However, Mr Vincent's solicitor did, when pressed, indicate that his client was prepared to apply for expedition and to undertake with expedition to do all things necessary to have that application for expedition determined and the appeal prosecuted.  As I have already indicated there is no evidence yet before me as to the time that might be expected to elapse if expedition were granted.

It is my understanding that the Supreme Court deals with applications for expedition in chambers, on affidavit evidence and without hearing, and that there is every likelihood of expedition being granted if the matter is one where a bankruptcy petition is outstanding.  It is clear enough that it is a significant step to make a person bankrupt while that person has an appeal pending against the very judgment which founds the bankruptcy notice constituting the act of bankruptcy upon which a bankruptcy petition would be made.  Thus as a matter of general policy a court in bankruptcy will generally adjourn a petition to enable the appeal to proceed provided of course the appeal is one that is not trivial or insubstantial.

There are a number of cases which illustrate that principle and I have been referred to two; they are Adamopoulos v Olympic Airways SA (1990) 95 ALR 525, a judgment of the Full Court comprising Pincus, Burchett and Gummow JJ, and Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137. It is interesting to note that in Adamopoulos thirteen months had passed since the date of judgment which caused the trial judge to draw an inference that the appeal was not being pursued diligently.  Despite that inference drawn by the trial judge the Court on appeal set aside a sequestration order granted after an adjournment had been refused.

Of course, there will be cases where the granting of an adjournment might well be refused.  One example would be if to grant the adjournment would bring about the result that the petition would become stale.  In those circumstances it would be no simple matter then to balance the interests on the one part of the creditor with the interests of the debtor on the other.  It is relevant also of course that as the law presently stands at least the right to appeal would be an asset in the bankrupt's estate, which would vest in the Trustee in Bankruptcy who might very well not wish to proceed with the appeal, having regard to potential costs orders that might be made against him: cf Fuller v Beach Petroleum NL (1993) 43 FCR 60.

An application could perhaps be made for that right to appeal to be transferred to the bankrupt after the sequestration order is made, but that might not be a particularly useful course where the respondent to the appeal may require security for costs being lodged on behalf of the appellant.  Burchett and Gummow JJ in Adamopoulos, referring to a number of cases discussed in Ahern, then cite with approval the following passage from the judgment in that case (at 531):

"These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt.  Bankruptcy is not mere inter partes litigation.  It involves change of status and has quasi-penal consequences."

It seems to me in the present circumstances that provided an undertaking in appropriate form is given, I should adjourn the hearing of the present petition for a period to enable application for expedition to be sought.  The Court will then be in a position to decide whether it is appropriate for an adjournment to be granted for a longer period, or if no expedition is in fact granted, whether it is appropriate then to determine the petition.

What I would propose is to adjourn the matter for no more than two months, assuming the relevant undertaking is given, as it seems to me that that would be certainly sufficient to enable the Court of Appeal to determine whether to grant expedition, and to enable an estimate to be made then as to when the matter will get on for hearing.  It is my understanding that a matter of this kind would probably take three months between expedition and hearing, but we will see. 

I note the undertaking now given by the Debtor to lodge with the Court of Appeal no later than 17 April, a notice of motion seeking expedition of the appeal to that Court, and further that that appeal will be prosecuted with due diligence and expedition and in cooperation with the respondent to it.

I order the respondent to the petition to pay the petitioning creditors costs of today.

I certify that this and the
preceding eleven (11) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Justice Hill.

Associate:

Date:  24 April 1996

Solicitor for Debtor:       P Conway of Tribe Conway & Co

Counsel and Solicitors      J E Thomson instructed by

for Petitioning Creditor:    Minter Ellison

Date of Hearing:            10 April 1996

Date Judgment Delivered:         10 April 1996