Re Weiss, Zdenek

[1980] FCA 122

Re: ZDENEK WEISS
No. 293 of 1978
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
McGregor J.

CATCHWORDS

Bankruptcy - application for discharge - principles to be considered - Litigation pending against bankrupt - Proofs of alleged Debts the subject of such litigation not yet admitted or rejected - appeals against suspension and cancellation of practising certificate of bankrupt not yet heard - litigation and appeals may provide information bearing on relevant conduct of bankrupt.

Bankruptcy Act 1966 (Cth.) ss. 55 150

Legal Practitioners Act 1898 (N.S.W.) -ss. 61, 71.

HEARING

SYDNEY

#DATE 3:9:1980

ORDER

1. The application for discharge is refused.

2. The bankrupt is to pay the Official Receiver's costs of and incidental to this application.

JUDGE1

On 28 April 1978 ZDENEK WEISS pursuant to his own petition presented under Bankruptcy Act 1966 (the Act) s.55 became a bankrupt (and is referred to thus hereafter). On the 11 October 1979, he, relying on s.150 of the Act, made application for an order for discharge.

It will be convenient shortly to trace the history of the bankrupt to date of sequestration relying on bankrupt's evidence for this purpose, but with reference to other sources.

The bankrupt was born in Czechoslovakia in approximately the year 1929. He was brought up there on farming property. He came to this country as a migrant in January 1948. He followed various avocations including that of textile mechanic, a supplier of firewood by contract and timber cutting in this country. He became eventually a registration clerk for a firm of Solicitors in Sydney. He successfully completed his matriculation in 1956 or 1957. He enrolled in the Solicitors Admission Board course. He completed this course and was admitted as a Solicitor of the Supreme Court of the State of New South Wales about 1967 and has worked as a Solicitor continuously up to the time of his suspension, to be referred to hereafter. His practice has been mostly conveyancing and has included working for developers of real estate.

Eventually he had working for him some ten or twelve employees and by 1970 himself had acquired not inconsiderable real property and some motor vehicles. He acquired knowledge and had experience personally as a land developer. He became acquainted with a Mr. Pheloung, a Real Estate Agent trading in the Dee Why area. In 1969 or 1970 and apparently to carry on the business of a land developer, a Company, Omnipol Pty. Ltd. (Omnipol) was incorporated by W.B. Pheloung and the bankrupt. Subsidiary companies were also formed or acquired by Omnipol. The bankrupt and Pheloung were the only directors of the company. The bankrupt and Pheloung and his family were the sole shareholders. The object of this company was, as the Official Receiver's affidavit stated, to build home units at Collaroy, Dee Why and Narrabeen. Later, it undertook this kind of activity in Orange. Generally it was to engage in the business of a real estate developer. The bankrupt thereafter made advances or loans to the company which, according to what the Official Receiver was told, totalled $100,000. Mr. Pheloung had the day to day management of the company. A financial manager was employed and there was also on the staff an architect and an accountant. The bankrupt himself acted as the Company's Solicitor in, e.g. conveyancing transactions and on at least one occasion, in negotiating a mortgage.

Surfside Constructions Pty. Ltd. was formed in 1969 with the bankrupt and Pheloung being shareholders and directors. According to the Official Receiver's report of the 27 July 1978, this company built home units for Omnipol.

The bankrupt married in 1965. Later he was divorced. This was finalised in 1972. His wife has custody of their four children.

Omnipol carried on its business by finding land suitable for development, doing in respect of this land a feasibility study as to its suitability therefor. Assuming a financial institution became interested in a project, it would take a mortgage over the land and thereafter make money available from time to time as the development went ahead. Such an institution frequently involved with Omnipol or its subsidiaries was United Development Corporation Ltd. (UDC). One way in which money was provided was by Bills of Exchange being drawn by UDC on Omnipol (or its subsidiaries) accepted by Omnipol (or them) and then negotiated by UDC to "Martins Corporation". Bankrupt and Pheloung jointly and severally guaranteed the repayment of lendings to Omnipol or subsidiaries and also of certain other debts incurred, e.g. to General Credits Ltd. and to Pioneer Concrete (N.S.W.) Pty. Ltd. It was pursuant to ordinary business practice that, when lending to private companies, guarantees would, as a matter of course, be required from Directors. On such occasions, financial statements were sought by Omnipol and given by the guarantors.

For the first two or three years of its existence, Omnipol traded profitably though no dividend was declared. Part of the finance available to Omnipol was money deposited at short call by private depositors. These amounts were small compared to funds from institutional lenders, which "normally" took a mortgage over the relevant land. In 1974 the interest rates increased markedly; such was the nature of some borrowings that interest rates increased each time the borrowings had to be renewed, which might have been monthly; and interest, on occasions, was payable in advance. These rates of interest were very high. Omnipol's borrowings at these high rates were of the order of $1,500,000. The bankrupt gave this evidence -

"When did the 1974 credit squeeze come on?----I think that the hardest times were towards the end of the first half of 1974, say, April, May, June where the short term money market rocketed. The highest interest we paid was about 28 per cent.

. . . . . . . . . . . . . . . . . . . . .
You have told us when you first realised the company was probably encountering or going to encounter difficulties you said about the end of the first half of 1974?----From that time we started to look at the situation. For instance, we have not bought anything more from that time. We did not venture into anything."

Contemporaneously, there was a big increase in building costs. The projections of feasibility studies were falsified by these events, and projects could not be completed on bases anticipated; yet it was not possible to abandon a project once started. Meanwhile, the demand for completed projects ceased. Purchasers could not get finance or would not by the cheap home units which Omnipol provided. The combination of these factors brought about the "downfall" of Omnipol. It went into liquidation on 10 June 1976. The bankrupt and Pheloung were called upon to pay, under their guarantees, debts incurred by it. The subsidiaries, all wholly owned by Omnipol, "ceased to exist". Bearing upon this and the bankrupt's own conduct, the Official Receiver's report of 23 November 1979 quotes from the report of the Liquidator dated 22 November 1977 where the cause of the (Omnipol) Group's failure is ascribed to, inter alia, collapse in land values, and increase in costs. There is reference also to financing by maximum borrowing with interest charges then exceeding any surplus.

In the same report the Official Receiver wrote -

In my opinion the following factors contributed to the bankruptcy:-

1. Losses incurred by the bankrupt in a farming venture.

2. The liability of the bankrupt as a guarantor for debts incurred by the Omnipol Group of companies, associated with the failure of those companies.

3. The failure of the bankrupt to properly manage his business and financial affairs."

Creditors whose claims, to be referred to later, were based on guarantees, are as follows and for amounts stated -

General Credits Ltd. $8,543.00

United Dominions Corporation
Ltd. $1,206,681.00

Pioneer Concrete (N.S.W.)
Pty. Ltd. 5,890.00

MR. ALAN DODD

One of the debts for which payment was sought from bankrupt was for $33,000.00 said to be owing in respect of a transaction with Dodd. According to the Official Receiver's Report of 27 July 1978, Fielding Street Projects Pty. Ltd. (Fielding) agreed to sell to Dodd two units, Nos. 5 and 8, 8-12 Fielding Street, Collaroy, for $33,000. The Contract was entered into on Dodd's behalf by the bankrupt pursuant to power of attorney dated about 3 July 1973 from Dodd. The bankrupt said in evidence that the contract was signed on 25 July 1973. On or about the same day, as I understand bankrupt's evidence (and Official Receiver's Report of 27 July 1978) there was paid to Fielding (or Omnipol) $24,000 (also said to have been paid on exchange of contracts) as part of a pre-purchase (and therefore discounted) price. The payment was made either on the advice of bankrupt to Fielding (acting as legal adviser at least) for Dodd or part of it was credited to that company at the direction of the bankrupt, from moneys deposited by Dodd with Omnipol. The bankrupt agreed in evidence that the $24,000 was made up half of moneys already deposited with Omnipol and half provided by Dodd from a refinancing transaction. The bankrupt said also that he thought $5000 or $6000 may have been provided ("come from") refinancing effected by him; and $19,000 from moneys on deposit with Omnipol. It was paid to Fielding in anticipation of the purchase. The bankrupt, however the payment was made, had some part in the making available of the $24,000. Bankrupt said that Dodd had made other prepurchases "as far as I can recall".

On the 1 August 1973, Fielding mortgaged to UDC the real property upon which the units were constructed. The balance, being a further sum of $9,000, was paid to Omnipol in September 1973, by the bankrupt on Dodd's behalf. On another view of the evidence, it was paid or may have been "credited" as being paid in September 1973 to Fielding then or later. This, added to $24,000, made up a total of $33,000. The $9,000, or as I understand the bankrupt's evidence, was "from refinancing a property" or it was deposited with Omnipol and he was told to transfer it. He said "I think it was provided from monies on deposit" and that he had a general instruction from Dodd to pay money over to Omnipol and transfer it.

As to how the $9,000 came to be paid, bankrupt's evidence is vague, but he did say "I do not think it was done by me". But he acted for Omnipol as well as for Dodd in the transaction. The mortgage from Fielding to UDC dated 1 August 1973 contained the following special clauses -

"Fortyfirstly - That Omnipol Pty. Limited will duly and punctually perform all of the provisions stipulations and covenants on its part contained in an agreement dated the 26th day of July 1973 between Omnipol Pty. Limited of the first part, Surfside Constructions Pty. Limited of the second part and the Mortgagee of the third part, (herein called "the said Deed").

Fortysecondly - That the expression "the principal sum" when used in this Mortgage shall have the same meaning as when used in the said deed and it is hereby expressly agreed and declared that the whole of the principal sum from time to time is intended to be secured by this Mortgage.

Fortythirdly - That the Mortgagor (if not Omnipol Pty. Limited) will duly and punctually perform all of the provisions stipulations and covenants on its part contained in guarantee dated 1 August 1973 in respect of the obligations of Omnipol Pty. Limited under the said deed to the intent that the liability of the Mortgagor under the said guarantee, in addition to the principal sum, is intended to be secured by this Mortgage.

Fortyfourthly - That the Mortgagee hereby agrees that if a strata plan shall be registered in respect of the Mortgaged land with the prior consent of the Mortgagee then the Mortgagee will grant partial discharges of this mortgage in respect of lots in such strata plan on the terms and conditions hereinafter appearing:

(a) If a lot in such strata plan shall be sold for a price approved in writing by the Mortgagee then the Mortgagee shall grant a discharge of that lot upon payment to the Mortgagee of $13,000, if a one bedroom unit, or $16,000, if a 2 bedroom unit.

(b) The Mortgagor hereby expressly agrees that the payment to the Mortgagee of a sum of money pursuant to subclause (a) hereof as consideration for a discharge of a lot in a strata plan shall ipso facto constitute a first fixed charge on such sum of money in favour of the Mortgagee as security for the payment to the Mortgagee of the whole of the Principal Sum from time to time.

(c) The Mortgagor hereby expressly declares and acknowledges that the Mortgagee shall be entitled to apply the whole or any part of any sum or sums paid to it as consideration for a discharge pursuant to sub-clause (a) hereof in payment of satisfaction of the whole or any part of the Principal Sum as and when the same shall become due and payable by the Mortgagor to the Mortgagee and in this respect the Mortgagee shall have a full and complete right to set off such sum or sums against the Principal Sum.

The mortgage, on its face, was

". . . . . for the purpose of securing to the mortgagee the payment of the Principal Sum (as herein defined).

Agreement of 26 July 1973 and the terms of "principal sum" were not tendered.

By mortgaging the property to UDC when already it included units already subject to contract for sale, the mortgagee was giving a competing interest with bankrupt's client, Dodd. The payment of $24,000 and $9,000 was made towards the purchase without it being provided that completion - in the sense of transfer of title with release from the security by any mortgagee of units subject to a contract to Dodd - was ensured. Settlement anyway could not be required until six months after the issue of the s.317A certificate, i.e. not before January 1975.

Dodd's Contract was not tendered in evidence before me. However, the bankrupt said or agreed in evidence that there was no written agreement between the finance company and Dodd; and by the terms of its mortgage the finance company was to discharge the mortgage on being repaid the total amount it had spent on the building; thus partial discharge, in the sense of one unit holder's purchase price being fully paid would not enable Fielding to require UDC to release the unit from its securities.

So Dodd's money was able to be used by the building owner to further the construction and at the same time the building owner was apparently able to mortgage the uncompleted block of units without there being provision for release to Dodd of his units, though he was contributing, by way of prepurchase moneys towards the improvement and completion of the mortgagee's security. The sequence and proximity of dates is of some significance. It is noted that, according to the bankrupt's evidence, Dodd, on 3 July 1973, (or about that date) gave the bankrupt a power of attorney pursuant to which he, on 25 July 1973, signed the contract on Dodd's behalf, Dodd not being in Australia. Dodd's $24,000 was paid over. A few days later still, viz. on 1 August 1973, the Fielding company entered into the mortgage with UDC which apparently left Dodd, in the events that followed, without any legal entitlement to insist on transfer. Other evidence of the bankrupt was that already, i.e. before purchase contract, the land was mortgaged. On another view of the evidence, when Dodd paid over $24,000 one would expect it would be known to him that there might happen what did in fact happen, viz. that there would be a mortgage of the property within the next few days. The bankrupt's evidence was that he acted not only for Dodd but on the mortgage transaction also for UDC. Later his evidence was that he did not act for UDC though this evidence may be referrable to a later stage in the mortgage transaction, possibly after execution. Whether he acted or not for UDC is less important when other evidence of his is considered. He agreed that the mortgage when executed on 1 August 1973 was the product of negotiations extending over some weeks. Thus, these negotiations would have commenced before Dodd's money was paid. He was concerned in those negotiations. (He is quoted in the Official Receiver's Report of 27 July 1978 as having stated that his activities in the companies were mainly in respect of obtaining finance and legal services. He said in evidence -

". . . . . . . on all borrowings I was consulted").

The effect of the bankrupt's evidence is that the whole transaction was discussed with the bankrupt and Dodd, including the "procedures which were adopted". The bankrupt, according to his evidence, disclosed fully his interest in Omnipol with Dodd, who gave the impression he was familiar with prepurchasing. But no evidence was adduced as to his actual knowledge or that Dodd was told the terms of the mortgage being negotiated with UDC; or that by reason of its terms he could in certain eventualities, be at risk; or that there was to be a mortgage.

It seems that finance companies had given thitherto partial discharges in return for partial payments and on one view of the evidence UDC was obliged to do so. However, Fielding could not pay out UDC. UDC did not discharge its mortgage to allow Dodd to secure title to the Units. So Dodd lost his money and did not receive the strata title though he may have been paid for a time some rentals of the units. Dodd brought a suit in Equity against bankrupt. His allegations are set out in Official Receiver's Report of 27 July 1978. They include that the bankrupt had failed to act honestly and with due care and skill; that he had failed to advise him (Dodd) of the risks involved in paying over the $33,000; to tell him of the bankrupt's role and interest in Omnipol, i.e. as a Director and shareholder of it; and to take steps to ensure Dodd's interest in the units was not postponed to the mortgage by UDC.

Dodd's total claim was initially $43,000. The Law Society of New South Wales (to be referred to hereafter as the Law Society), on the 19 January 1979, paid out Dodd and have claimed, pursuant to the Legal Practitioner's Act 1898 s.61, a right of subrogation against the bankrupt. The sequence of dates to which I have referred suggest money was paid over without adequate safeguard for Dodd. The bankrupt's evidence does not enable me to decide if Dodd was properly advised; or whether his interests were overlooked. The Equity suit remains pending. It appears that Dodd's proof of $43,000 will be withdrawn and that the only claim in respect of any right he had against the bankrupt, will be by the Law Society now; and in respect of the sum of $33,000. Its proof has neither been admitted or rejected.
MRS. IRENE LENGSFELD

Another proof lodged against the bankrupt's estate is for $36,187. This refers to an action for damages commenced by a Mrs. Lengsfeld in respect of losses said to have been sustained by her by reason of the bankrupt's professional negligence. On 29 November 1977, interlocutory judgment was obtained against the bankrupt by Mrs. Lengsfeld. Bankrupt had met Mrs. Lengsfeld ten to fifteen years before he was admitted as a Solicitor in 1967. He stated that advice about lending only arose after 1967; from that year she was in his office probably once a month and "still is".

On his advice, two amounts of money were deposited with Omnipol, in December 1971 and January 1974. She has claimed, according to his evidence, that her instructions in 1967 were that any money which he invested on her behalf was only to be invested on first mortgage. Because the deposits with Omnipol were not on first mortgage, and Omnipol collapsed, she has alleged a breach of contract or professional misconduct by the bankrupt in investing otherwise than on first mortgage. However, he said in evidence that her instructions were "You do whatever you think is best with my investment". He said, in effect, that the type of activity Omnipol undertook and his interest in the company, were disclosed to Mrs. Lengsfeld.

He alleges that she has never complained about what he did with the money or as to how he advised her.

It is at least arguable that the judgment (even though interlocutory) has some evidentiary value against the bankrupt; i.e. as to the truth of the allegations made by her. As to a judgment being prima facie evidence of matter alleged, see General Medical Council v. Spackman 1943 A.C. 627 at 635. Also a solicitor might be expected, by filing a defence, to deny (if he could) charges which include matters of professional misconduct; particularly when current during a period of suspension. His failure to do so might be regarded as "silence" amounting to an admission in the sense referred to in Young v. Tibbits (1912) 14 C.L.R. 114 at pp. 122 and 128; Lustre Hosiery Limited v. York (1935) 54 C.L.R. 134 at p.143.

The bankrupt denied, in effect, any breach of duty to Mrs. Lengsfeld. The action remains pending. The Law Society has lodged a Proof in the bankrupt's estate based on the alleged right by way of subrogation it has against him, having paid out Mrs. Lengsfeld. See Legal Practitioner's Act 1898 s.61. The Proof has not yet been admitted or rejected. It is neither appropriate nor could I, on the evidence before me, resolve the issue of liability, nor have I been invited to do so.

In the action against the bankrupt, he has now, about a week before the hearing in this matter and therefore since the application for discharge was lodged, applied to have the interlocutory judgment set aside. I note his evidence in cross examination about this matter -

"I take it that you have read the statement of claim filed on behalf of Mrs. Lengsfeld some time ago in the Supreme Court?----Yes.

Did you cause a defence to be filed in respect of that statement of claim?----I do not recall.

Did you instruct any solicitor, Mr. Weiss, to file a defence to that statement of claim?----

I had a solicitor acting for me. I do not recall to what extent instructions were carried - what sort of instructions they were and what was carried out.

You do not recall what instructions you have given that solicitor?----

I know what instructions I gave him but what actually was done I do not recall.

Did you give him instructions to file the defence?----Yes.

And for the purpose of giving those instructions I take it that you had cause to peruse the statement of claim?----

That is so.

. . . . . . . . . . . . . . . . . . . . . . . . . "

THE BRAIDWOOD PROPERTY

In September or October 1974 (Official Receiver's Report 23 November 1978 places this in 1973) bankrupt bought for $206,505 property at Braidwood suitable for depasturing cattle and, to a lesser extent, I gather, for grazing sheep. It was in area 620 acres. He had good advice before purchasing it and as to stock he acquired. Referring to the "credit squeeze" in 1974 he gave evidence which is referred to in pages 4 and 5. His total overall expenditure for the property, stock and otherwise might have been of the order of $249,000. He employed a manager for the property and improved it consistent with sound advice. A year after he bought the property there was drastic fall in cattle prices. Beasts previously worth more than $200 were worth less than $200. The wool market also collapsed. The property was sold in 1976/1977 for $190,000. Part of the purchase price he provided from monies in his loan account with Omnipol. This apparently so reduced his funds with that company that no money remained of his with it. He did receive a sum of money from the proceeds of sale; and had some taxation advantage whilst owner.
THE LAW SOCIETY

In July 1976 there was a reference to the Statutory Committee of the Law Society in relation to the bankrupt. Some hearing took place. The Committee suspended the bankrupt from practice from 24 March 1977 to 31 December 1977. The Sequestration Order referred to earlier was made on 28 April 1978. On 15 June 1978 the Law Society cancelled his practicising certificate pursuant to Section 71 (bl) of the Legal Practioners Act 1898, viz. -

"71. The council may refuse to issue a certificate and may cancel a certificate when issued under the foregoing provisions of this Part if the applicant for or holder of such certificate, as the case may be, shall -

(a) . . . . . . .

(b) . . . . . . .

(b1)have become bankrupt or made any arrangement or composition with his creditors, and have committed in the conduct of his affairs prior to the bankruptcy, arrangement or composition any act which, in the opinion of the council, amounts to conduct unbefitting a solicitor and contributed to the bankruptcy or the need to make an arrangement or composition;
. . . . . . . . . . . . . . . . . . . . . . . . . ."

It is common ground that the reason ascribed for the cancellation, is that -

". . . . . . the Solicitor had committed an "act which, in the opinion of the Council, amounts to conduct unbefitting a solicitor and contributed to the bankruptcy".

Further, I am informed that particulars showed that the Law Society relied on the "matters before the Statutory Committee" and the matter of Mrs. Lengsfeld. Each year the Society has refused to issue a practicising certificate on the same ground.

Bankrupt has appealed against the cancellation and refusals; an appeal so operates pending its disposal that appellant is deemed to be the holder of the certificate held by him immediately before the date of cancellation so bankrupt is able to continue practice as a Solicitor.

I have not been informed as to what were the "matters before the Statutory Committee". I was told in discussion from the Bar table, and possibly referring to the payment of $9,000 to Fielding, that the Statutory Committee did find a "degree of professional misconduct (i.e. by the bankrupt), and one of the cases in which they imposed the penalty was Dodd's case". Counsel for the Law Society, which did not pursue its objection at this hearing, told me without disagreement i.e. from the Bar table that the Society and the bankrupt are engaged in negotiations as to what particulars in relation to the appeal should be supplied by each to the other. The Society, "a month or so ago" made a renewed application to the New South Wales Supreme Court to have the matters listed for hearing. There has not yet been any determination of the appeals; and presumably will be no hearing until the matter of the particulars is resolved some time in the future.

MRS. KARPIN (formerly Mrs. Weiss)

Bankrupt married in 1965 and, as I have said, there are four children of the marriage. There was a divorce in 1972 and she has retained custody of the children. By reason of his bankruptcy the bankrupt claims that he has been unable to maintain his children or to take them on outings; that he is anxious to remedy that situation and wants his children back with him. Their ages are from 11 to 16.

In his Statement of Affairs dated 28 April 1978, the bankrupt listed as one of his unsecured creditors, Angela Jeanne Karpin in the sum of $1600.00 arrears of maintenance. Under the heading "secured creditors" and in respect of the same lady, he made these notes -

"(1) Debt due under Bill of Sale. Some items still remain to be sold and the balance, if any, cannot yet be established.

(2) I have also guaranteed a mortgage over 8 Hastings Road, Turramurra, and this may be a secured debt."

In respect of these matters the Official Receiver in his report of the 27 July 1978, commented -

"The mortgage over the house property at Turramurra appears to be held by the Rural Bank of New South Wales and at the 31st December 1977 an amount of $25,000 was owing under the mortgage."

He also said that the bankrupt was required to pay her $60.00 per week for the children's support; and the bankrupt admitted he had not paid the maintenance since approximately November 1977. Particulars of her claim as set out in the Proof of Debt include -

1. $15,600 said to be a minimum sum due under a Court Order of the Supreme Court of New South Wales. It is claimed to be a "secured debt".

2. $5,000 also said to be a minimum sum for "accrued interest, legal cost of default".

3. $7670 (as at 30 June 1978) for a Court Order (the Supreme Court of New South Wales Family Court division) that bankrupt repay a mortgage over premises at 8 Hastings Road, Turramurra, It includes a statement that the last payment made was in April 1976, that it is accruing at the rate of $295 per month, and "may be a secured debt".

There was also an item as to arrears of child maintenance being, no doubt, that which was mentioned by the bankrupt to the Official Receiver and to which I have referred above.

It is agreed without argument that I would not take assertions in this Proof of Debt as any evidence tending to establish their truth as facts; but merely I am asked to note that such claims as it refers to have been made.

The item as to child maintenance in the Proof, possibly because not supported by a judgment, is not claimed to be a debt provable in bankruptcy consistent with Re Morris 1973 22 F.L.R. 460; but two of the items in the Proof are recognisable in the Statement of Affairs of the bankrupt which I have referred to earlier.

As set out in the report of the Official Receiver dated the 3 July 1980 the situation about Proofs of Debt was dealt with as follows -

"At this stage eleven proofs of debt remain in the estate as follows:-

Name of Creditor Amount

1. General Credits Limited 8,543.00

2. United Dominions Corporation
Limited 1,206,681.00

3. Alan Spencer Dempsey Dodd 43,000.00

4. The Law Society of
New South Wales 3,000.00

5. Sly & Russell 5,226.00

6. Angela Jeanne Sterling Karpin 30,550.00

7. Pioneer Concrete
New South Wales Pty. Limited 5,890.00

8. Deputy Commissioner of
Taxation 49,115.00

9. Australian Telecommunications
Commission 148.00

10. The Law Society of
New South Wales 36,187.00

11. Alan Spencer Dempsey Dodd 33,000.00"

To some of these amounts I have already referred. It seems that Item 3 has, in effect, been replaced by Item 11 in the sense that the Law Society paid out Dodd's claim for a sum less than he had attempted to prove. Item 4 is a sum for costs incurred by the Society in the proceedings against the bankrupt which was followed by a suspension period which I have referred to earlier. Item 5 is for the balance of Solicitor's costs incurred by the bankrupt in the divorce proceedings. Items 6 to 9 need no further mention. Item 10 is the amount said to be due to Mrs. Lengsfeld but to whose rights the Law Society, having paid her out, claim to be subrogated.

I understand from statements made from the Bar table and from Official Receiver's Report of 3 July 1980, that the only debts in respect of which proofs have been admitted are to -

UDC $1,201,840 AND $4,841.

Deputy Commissioner
of Taxation $34,838 and $14,277.

The Law Society
of N.S.W. $3,000.

Principles which should guide a court in dealing with the question of a bankrupt's application for discharge have been referred to in authorities under legislation preceding the present Bankruptcy Act 1966 and also since its enactment. In Re Haines 10 A.B.C. 83 at page 87 Haslam A.J. of the Supreme Court of South Australia, said -

"In considering the question of a bankrupt's discharge the Court is bound to have regard not merely to the interests of the bankrupt or the creditors, but also to the interests of the public and of commercial morality."

In the case Re David Howard Prince ex parte the Bankrupt 19 A.B.C. 39 Clyne J. was dealing with an application made during the currency of the Bankruptcy Act 1934-1960. He said (p.41) -

"In an application for discharge the Court has a very wide discretion qualified to some extent by the proof of certain facts set out in s.119 (7) of the Bankruptcy Act. (That Act) subjects a bankrupt to many handicaps and a dishonest bankrupt to serious penalities, but it also provides benefits to a bankrupt, particularly to the unfortunate bankrupt. One of these benefits is his discharge from the debts, with a few exceptions, which he owed at the time when he became a bankrupt.

It has been laid down repeatedly that in the exercise of its discretion the court must have regard to the interests of the public, not those only of the debtor and his creditors. In the exercise of its discretion it must also consider such conduct and affairs as have relation to his bankruptcy."

See also his Honour's remarks in Re Forbes 20 A.B.C.8 at p.10. More recently propositions to the same effect were referred to by Lockhart J. in Re Reilly; ex parte the Debtor, 36 F.L.R. 268 at p. 278.

No argument has been addressed to me that I am either bound to grant a discharge or to refuse it; or that I am entitled or not entitled to impose conditions were I to grant the discharge. I accept anyway what Lockhart J. stated in the last mentioned case at p.277 -

"In my opinion sub-s.(7) of s.150 does not limit the court's power when considering an application for an order of discharge where none of the facts specified in sub-s.(6) is established. Subsection (7) has nothing to say about the matters to which the court may have regard in considering whether a bankrupt should receive a discharge.

In considering whether a bankrupt should receive a discharge it has been laid down repeatedly that the court must have regard not only to the interests of the bankrupt and his creditors but also to the interests of the public and of commercial morality. In the exercise of its discretion the court must also consider the conduct of the bankrupt relevant to his bankruptcy. See Re Prince; Ex parte the Bankrupt (11); Re John Maxwell Gray (12); Re Mallan (13).

In my opinion, the principles expressed in the authorities apply to an application for discharge where none of the matters specified in sub-section (6) is established."

I take from this case that even if such matters in the sub-section are not established I may still withhold or grant either subject to conditions or generally,a discharge.

The sequestration here was brought about by the bankrupt presenting his own petition in respect of debts including guarantee debts. He could not, so far as evidence informs me, at any stage of his career, have expected to be able to pay the debt to UDC or the guarantee debts in total if they fell due. During the currency of the contingency he moved into pastoral activities which failed when adverse conditions arose.

Bankrupt has advanced reasons for wishing to be discharged. They are understandable though I do not regard them as compelling. Issues have been raised as to failure to keep or produce records. The evidence does not enable me to form a view on this topic.

The findings, reasons for or facts found, whereafter the Statutory Committee suspended the bankrupt from practice and the Law Society cancelled his practising certificate, may well have dealt with matters which bear on e.g. commercial morality. These findings, reasons or facts have not been fully explored before me. Issues there cannot, anyway, until the appeals against the suspension and the failure to renew the practising certificate have been heard be regarded as resolved. What does emerge may throw light on the bankrupt's conduct relevant to the task of a Court considering an application for discharge.

Proofs of Debt for quite significant amounts have at this stage not been admitted or rejected.

The Dodd and Lengsfeld matters are also unresolved. In both instances, the allegations made by the bankrupt show that serious issues are raised.

I note the judgment in the Lengsfeld matter signed in November 1977, remained undisturbed until after this application was presented nearly two years later. In the latter case, even an application to set the judgment aside (which I am told has been taken out) has not been heard. Even if the judgment is set aside (and as I do not know on what grounds the application is based therefor, it is not possible to assess the chance of success) the issues in case will still have to be decided at a hearing.

In the Dodd matter, it was put to me that on the evidence before me "there was no misconduct qua Dodd; no improper conduct with regard to him; Dodd knew precisely what he was doing and that there was no misconduct or reprehensible conduct on the part of (the bankrupt)."

In my view this proposition, having regard to the dates relating to purchase, contract payments and mortgage and the evidence by the bankrupt as to what Dodd did know or was told has not been made out. It is not appropriate that I should try to reach any explicit finding.

Senior Counsel's final submission was that the proper order was that the bankrupt should be granted his discharge; that there was neither point nor justification in either suspending or attaching a condition because of what he said, i.e that any such contribution would be "pitiful" as compared with the extent of the liabilities.

Counsel for the Official Receiver opposed the application. He submitted that the application was premature. He said also that no reasons have been put before me which would suggest an overwhelming urgency in relation to an order of discharge. I do not accept the last statement as being a fair summary of how I should approach the matter i.e. that there should be an overwhelming urgency. However, he points to the very large amount - over $1,000,000 having regard only to proved debts and realizations - of the deficiency and that the bankrupt has some ability to make contributions and that that is a reason for refusing to shorten the statutory period.

At this stage of the application by the bankrupt, who himself brought about the present state of his estate being sequestrated, there are far too many unresolved matters in relation, not merely to the admission of Proofs of Debt, but also as to the bankrupt's conduct which have not and perhaps could not have been properly and fully explored before me. Nor is the size of the deficit compared to possible contributions a reason for not receiving or seeking them. The amount of the deficit cannot yet be ascertained.

Decisions or findings on unresolved matters would, in my view, provide information which would assist a Court to consider properly the application for discharge, in conformity to the principles set out above. In the absence of such decision and information I am not so adequately informed as to be able to make a proper decision. The application is, as has been submitted, premature.

For these reasons I refuse to make the order of discharge.

The bankrupt is to pay the Official Receiver's costs of and incidental to this application.

I make no order in respect of the costs of the Law Society of New South Wales.

Exhibits may be returned.