Spottiswood v Combis

[2013] FCCA 1348

FEDERAL CIRCUIT COURT OF AUSTRALIA

SPOTTISWOOD v COMBIS & ANOR [2013] FCCA 1348

Catchwords:
BANKRUPTCY – Application for extension of time for compliance with bankruptcy notice – judgment issued in the Federal Court of Australia – appeal pending in the Federal Court of Australia – whether lodgement of the appeal could constitute a basis for an extension of time to comply with the bankruptcy notice – debtor unable to demonstrate prospective prejudice or damage if extension not granted – application dismissed.

Legislation:

Bankruptcy Act 1966 (Cth), ss.41, 41(6A)

Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264
Re Nguyen; Ex parte Commissioner of Taxation (1994) 54 FCR 403

Applicant: SUZANNE LESLEY SPOTTISWOOD

Respondent: NICK COMBIS AND PETER DINORIS AS TRUSTEES IN BANKRUPTCY OF THE ESTATE OF GRAHAM CLINTON SPOTTISWOOD (A BANKRUPT)

File Number: BRG 314 of 2013

Judgment of: Judge Burnett

Hearing date: 24 April 2013

Date of Last Submission: 24 April 2013

Delivered at: Brisbane

Delivered on: 26 April 2013

REPRESENTATION

Counsel for the Applicant: Mr C. Coulsen

Solicitors for the Applicant: QBM Lawyers

Counsel for the Respondent: Mr G. Handran

Solicitors for the Respondent: Tucker & Cowen Solicitors

ORDERS

1. That the application filed on 23 April 2013 is dismissed.

2. That the applicant pay the respondent’s costs of and incidental to this application pursuant to the Federal Court Rules 2011 to be assessed on the standard basis.

FEDERAL CIRCUIT COURT OF AUSTRALIA

AT BRISBANE

BRG 314 of 2013

SUZANNE LESLEY SPOTTISWOOD

Applicant

And

NICK COMBIS AND PETER DINORIS AS TRUSTEES IN BANKRUPTCY OF THE ESTATE OF GRAHAM CLINTON SPOTTISWOOD (A BANKRUPT)

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)

1. On 3 April 2013, Bankruptcy Notice 159388 issued by the official receiver at the request of the respondent judgment creditors Nick Combis and Peter Dinoris as Trustees in the bankruptcy of the estate of Graham Clinton Spottiswood, a bankrupt.  It was supported by a judgment that the creditor obtained against the judgment debtor Suzanne Lesley Spottiswsood.

2. Judgment was given by Logan J pursuant to orders of 19 March 2013 made following a trial of the issues between those parties. On 23 April 2013, the debtor made application seeking final and interlocutory orders.  The orders sought were that:

   “1. The Bankruptcy Notice BN 159388 issued 3 April 2013, which was served on 4 April 2013, be set aside. A copy of that Bankruptcy Notice accompanies this application.

   2. Costs.”

   By way of interim relief the applicant sought orders:

   “1. That pursuant to section 41(6A) of the Bankruptcy Act 1966, the time for compliance with the Bankruptcy Notice be extended up to and including 7 after the Federal Court delivers judgment in proceedings QUD 187/2013.”

3. The application has been made within time as required by the Bankruptcy Act 1966 (Cth) (the Act), and time for compliance can be enlarged. However, I consider that it is appropriate to deal with both aspects of the application today, that is the application made pursuant to s.41(6A)(a) and (b).

4. The debtor seeks to have the time for compliance with the Notice extended, pending her appeal against the orders made by Logan J in the judgment supporting the Bankruptcy Notice.  The debtor is the wife of the bankrupt whose affairs are presently being administered by the judgment creditors.  It seems plain that their financial affairs were connected.  Allegations were made by the Trustees that the debtor had been party to the transfer of property in which the bankrupt had an interest.  That was a matter which proceeded to trial.

5. Logan J at paragraph 3 of his judgment noted that in the proceeding before him the relief sought was for:

   “By their amended application the trustees claim the following relief against Mrs Spottiswood as respondent:

   (a) a declaration that the transfer of sums totalling $3,693,412.85 to her pursuant to sundry deeds of gift is void as against them pursuant to s.120 or s.121 of the Bankruptcy Act 1966 (Cth) (the Act); and, further or alternatively,

   (b) a declaration that she is liable to pay them the sum of $3,693,412.85 pursuant to s.139ZQ(8) of the Act;”  

6. They also sought judgment against her in the amount of $3,693,412.85, or alternatively, in some lesser amount on the basis of matters which are detailed in his Honour’s judgment.

7. At paragraph 7, his Honour noted that the deeds which were referred to in the broad summary of the relief sought were deeds all expressed in common form, and which dealt with the prospective transfer of properties. At paragraphs 17–19, his Honour explored the debtor’s view of the effect of the purported gifts.  He stated: 

   “[17] For Mrs Spottiswood, it is submitted that the Deeds of Gift “do not provide for simply the payment of money, but rather that there is a gift as reflected in an adjustment of rights in respect of certain loan accounts and to a particular extent.” This submission is made without prejudice to an alternative submission that the Deeds of Gift were affected by a common mistake on the part of Mr and Mrs Spottiswood.

   [18] Putting aside for the moment any question of mistake, the intention of the parties to the Deeds of Gift falls for determination by reference to the language which they have employed in those documents. The expression “assigned by way of gift the amount of $[X]” (clause 2.1) is not perhaps felicitous drafting but the construction which I prefer is that it means neither more nor less than “gives the amount of $[X].” In turn, my preferred construction of the Deeds of Gift is that the intention of the parties is that this gift is not to be satisfied by the physical tender of money one to the other but rather by an adjustment of accounts. Such an arrangement may be held nonetheless to constitute a payment of money, providing it is one made with the agreement of the appropriate parties, who necessarily in this case include the recipient, Mrs Spottiswood: In Re Harmony and Montague Tin and Copper Mining Company (Spargo's Case) (1873) LR 8 Ch. App. 407; Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 at 391; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 485–489 [43]–[56]; Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358 at 366 [26].

   [19] The Deeds of Gift evidence agreement on the part of Mrs Spottiswood to the payment to her being satisfied in this way and the concurrence of the respective trustees to this course of action. In her letter of 20 July 2011 to the Official Receiver in respect of the notice issued pursuant to s.139ZQ of the Act, Mrs Spottiswood asserted that she had “not been paid any of these amounts”. In the sense of her being the recipient of a physical tender of money this was true but nonetheless mistaken as to the effect in law of the Deeds of Gift and the consequential entries in the books of account of the trusts concerned. Having regard to the authorities mentioned, these consequential entries constituted in each instance a payment of the money gifted to her by her husband.”

8. After some subsequent discussion, his Honour continued:

   “[22] I reject Mrs Spottiswood’s contention that the Deeds of Gift were each effected by a mistake namely, that she and her husband mistakenly considered that it was Mr Spottiswood who had made the loans to the various trusts as recited in the respective Deeds of Gift, whereas the lender was in fact Willaire Pty Ltd. She gave evidence to this effect, as did, in his public examination, Mr Spottiswood. To accept this evidence, and I do not, would involve a substantial re-writing of history and of the contemporaneous, yearly balance sheets of the various trusts.”

9. Those matters led ultimately to his Honour’s conclusions in these terms:

   “[44] The result is that there have been under the Deeds of Gift what are to be taken as transfers of property namely, payments of money to Mrs Spottiswood by Mr Spottiswood for consideration of no value less than 5 years prior to the commencement of his bankruptcy. By operation of s.120 of the Act, these transfers are void as against the trustees. The operation of the Act in these circumstances is then as carefully summarised by Lindgren J in Anscor Pty Ltd & Others v Clout & Another (2004) 135 FCR 469 at 481-483, [43](e) to (k) (Anscor). The transfers occurred prior to the commencement of the bankruptcy and before any vesting of the property of the bankrupt in the trustees as a result of the making of the sequestration order. In the circumstances of this case, Mrs Spottiswood is liable to account to the trustees for the total of those transfers of money namely, $3,693,412.85 as money had and received.

10. The judgment also dealt with other defences mounted by the debtors, which also were rejected. However, the underlying facts were essential to most of the matters contended for by the creditor. It is against this judgment that the debtor now appeals. Her appeal is submitted to found a basis for an order for an extension of time to comply with the Bankruptcy Notice, and the debtor accordingly seeks an extension of time until seven days after the Full Court delivers its decision.

11. The debtor’s Notice of Appeal is included in the material, and it is in my view unnecessary to make observations beyond the fact that on its face it does not appear to be frivolous or vexatious, although there was a contest on the part of the creditors as to the prospect of its success. I am reluctant to embark upon any assessment of, its prospects. I note that except in the case if the most obvious case of good prospects on appeal, or a case of week prospects of appeal, assessing prospects on appeal is a matter which authority indicates is inappropriate for a court in an application of this kind.[1]

    [1] See generally: Byron v Southern Star Group Pty Ltd (1997) 73 FCR 264.

12. Although an arguable basis for appeal may arise, that is only one factor to be considered in the overall context of this application. The debtor’s submissions beyond the matter of prospects on appeal are that there is a proper appeal on foot, which, in her submission has substance and merit, but also that the appeal will be heard promptly, that is, in the August sittings when the matter has been listed.  If the appeal succeeds, there will be in effect no judgment supporting the Bankruptcy Notice.  The debtor also submits that no prejudice can be demonstrated against the creditor, such that any delay occasioned by an extension of time for compliance with the Notice will not occasion any harm to the creditor, although it is accepted that the creditor will be delayed in proceeding to apply for sequestration.

13. If no extension of time is permitted, the consequence to the debtor is said to be that an act of bankruptcy will then occur in circumstances where:

    i)there is an appeal on foot in respect to difficult matters of bankruptcy law;

    ii)if the appellant debtor is successful, there will be no judgment for a money sum; and

    iii)the applicant debtor is otherwise bound to comply with the Bankruptcy Notice to pay the $3.6 million in circumstances where she never received $3.6 million as money. Accordingly, the debtor does not have funds which would otherwise allow her to meet the judgment debt.

14. The creditors contend that the extension of time should not be allowed, for a number of reasons.  The first is that the debtor is insolvent.  In particular, this contention is founded upon the underlying submission that insolvency is particularly relevant in this instance because the debtor’s insolvent circumstances are such that the prospect of the appeal being resolved favourably will not resolve that general insolvency, and to that end the appeal is simply otiose. 

15. In this regard, the creditors identify another judgment which was recently entered against the debtor in the Supreme Court of Queensland.[2] On 8 April 2013, judgment was entered against her for a sum of approximately $3.9 million.  That judgment was entered following a summary judgment of application.  The Chief Justice, who heard the application (which at that time was subject to an application for adjournment), noted that the debtor acknowledged that the debt the subject of the application before him was due and owing. 

    [2] Supreme Court of Queensland No. 6570 of 2011 Anscape Pty Ltd v Suzanne Lesley Spottiswood, heard 8 April 2013 before de Jersey CJ.

16. There is also evidence that in August 2011, when a letter was written and the debt was significantly less than the debt in respect to which the application was then being sought there were further admissions made concerning indebtedness.  Again, that matter was identified by the Chief Justice in the course of debate in the Supreme Court.  The amount which was conceded in August 2011 was significantly less than the quantum of the judgment entered. The subsequent difference being largely caused by the interest.  In any event, no material suggests that the debtor’s situation has improved.

17. I note that one of the matters argued before the Chief Justice concerned the prospect of the sale of property with the prospect of the sale proceeds being available to be applied to the debt then being considered by his Honour. 

18. However, in the course of debate before the Chief Justice, other matters also came to the attention of the Court. They were in the nature of contentions made by creditors which remained unchallenged before the Court.  In particular it was noted that following the sale of the property there would be no surplus available to the debtor to apply to the judgment which was then to be entered.[3] When asked by the Chief Justice whether she could pay that amount, the debtor answered that she could not. 

    [3] See Transcript at 1-5 line 30

19. Thus it seems that the debt was not one which could be paid in any circumstances, either from the sale proceeds or other sums, having regard to the answer given to the Chief Justice.

20. The fact that a debtor is insolvent is a relevant consideration. On this point I refer to the decision of Re Nguyen; Ex parte Commissioner of Taxation (1994) 54 FCR 403, where, in a case not dissimilar to this, his Honour Heerey J, noted at page 408:

    The whole tenor of the debtor’s application of the Hardship Board makes it clear that the debtor is in fact insolvent and is not able to pay the judgment creditor’s debt unless granted an indulgence by the Board. Therefore, it seems to me this is not an appropriate case for interfering with the ordinary mechanism of the bankruptcy notice, which is a mode of proof designed to enable a creditor to prove that a debtor is insolvent.

21. I note that, although the circumstances are analogous, that was a case where the creditor’s judgment was not of itself being impugned, but the debtor was seeking to apply to the Taxation Hardship Board to have the debt either wiped or ameliorated. 

22. The next matter which was advanced by the creditor was that the applicant debtor had not applied to stay the judgment. Respectfully, I do not agree.  The relevant judgment supporting the Bankruptcy Notice is the judgment of Logan J.  That is the judgment which is presently under appeal.

23. The judgment which has not been appealed is the judgment of the Supreme Court. It seems plain from the observations at page 267 in Byron v Southern Star Group Pty Ltd (supra) that an appeal against the principal judgment is regarded as an appropriate form of stay.

24. In any event, as earlier noted, the application under s.41(6A) is prosecuted under both grounds (a) and (b), so this matter, in my view, is only of marginal assistance in the creditor’s submissions.

25. Perhaps more pertinent are the other matters advanced by the creditor, particularly that the applicant has a history of delay and avoidance, including her most recent efforts to resist the setting down of the appeal. 

26. I note that in the application before the Chief Justice an application was made to adjourn the proceeding for two months in circumstances where it could be seen that the application for summary judgment was itself one that was arguably indefensible. While the appeal courts can of course deal with delay as they so choose, the history of the applicant debtor in the proceedings ought to be taken into account.  I have indeed taken it into consideration. 

27. I note that the debtor has not paid or offered to pay any money, notwithstanding the fact that she challenges the nature of the judgment debt. I further note that the judgment that is the subject of appeal is one which does involve allegations of conduct on the part of the debtor which is directed at spiriting away assets in the face of her husband’s impending financial collapse, as was submitted by the creditor in its outline.

28. Finally, I note that there really is no evidence of any prejudice to the applicant debtor beyond the matters ordinarily associated with an act of bankruptcy.  There is certainly, in my view, no evidence or no prospect of irreparable damage to the debtor in the event of time not being extended. 

29. In summary, having regard to all the factors which I have addressed I am not persuaded that this is a case where an extension of time to comply with performance under the Notice is appropriate, and the application is dismissed. 

30. An application is made for indemnity costs. The application is refused. The application is one which must be brought on quickly, as it must be commenced and preferably, if not necessarily, determined before the expiration of the time for compliance with the Notice. I note that s.41 of the Act requires that the application be commenced within 21 days of the service of the Notice.

31. Although it is acknowledged that notice of the prospect of the application was given towards the end of the time allowed under the legislation, the fact remains that it was brought within time.  Notice was given within time and it was nigh impossible that the application would be heard and determined even within the time permitted by the legislation.

32. In my view, the application in all probability would have resulted in the filing of an application and the hearing of a contested application, as occurred in this instance.

33. I note that an offer to settle was made.  The offer required the debtor to pay into Court the full sum paid. However that offer denies the position which is advanced by the debtor in her appeal which is that there has been no transfer of funds and that is a material issue alive in the appeal.  To my mind that offer makes a nonsense of the appeal itself. 

34. On balance, this is not an appropriate case for the award of indemnity costs and that application too is refused. That application has failed. There is no reason why the applicant should not pay the respondents costs to be assessed on the standard basis.

I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Judge Burnett

Date:13 September 2013