Stewart v White
[2012] FMCA 11
•13 January, 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| STEWART v WHITE | [2012] FMCA 11 |
| BANKRUPTCY – Application to set aside bankruptcy notice on ground that it was an abuse of process – no abuse of process made out – application dismissed. |
| Hubner v ANZ Banking Group Limited (1998) FCA 1779 Wilcox v Cottrell (2000) FCA 1656 Maxwell Smith v S and E Hall Pty Ltd; Re Maxwell Smith (2007) FCA 825 |
| Applicant: | DOUGLAS IAN STEWART |
| Respondent: | WARREN HOWARD WHITE |
| File Number: | BRG 1010 of 2011 |
| Judgment of: | Jarrett FM |
| Hearing date: | 24 November, 2011 |
| Date of Last Submission: | 24 November, 2011 |
| Delivered at: | Brisbane |
| Delivered on: | 13 January, 2012 |
REPRESENTATION
| Counsel for the Applicant: | Ms Skennar |
| Solicitors for the Applicant: | Morgan Conley |
| Counsel for the Respondent: | Mr C. Wilson |
| Solicitors for the Respondent: | Cogill Woods |
ORDERS
The application to set aside the bankruptcy filed on 15 November 2011 is dismissed.
The applicant pay the respondent’s costs of and incidental to the application to be assessed in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2001.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 1010 of 2011
| DOUGLAS IAN STEWART |
Applicant
And
| WARREN HOWARD WHITE |
Respondent
REASONS FOR JUDGMENT
(revised from the transcript)
This is an application to set aside a bankruptcy notice and for interim orders to extend time for compliance with the bankruptcy notice until 14 days after certain proceedings presently being prosecuted in the Supreme Court of Queensland have been finalised and any appeal wherefrom has been finalised.
The bankruptcy notice in this case arises from a judgment obtained by the respondent on 15 April, 2011 against the applicant and a company, Douglas Ian White Financial Services Proprietary Limited. The amount of the judgment is $297,336.89. There was an appeal from that judgment but the appeal was unsuccessful.
The bankruptcy notice in this case was served upon the applicant on 25 October, 2011.
On 10 September, 2009 the evidence suggests that the applicant commenced proceedings against Peter Barratt Proprietary Limited, Peter John Barratt, Allan Debtors Pty Ltd and subsequently, Michael Astle. Those proceedings are said to arise out of a partnership agreement between the applicant, Astle, and a company called Polydra Pty Ltd.
The litigation involving that partnership dispute is ongoing. It has not yet been finalised and the evidence permits of a determination that it may not be finalised for some time. The proceedings in the Supreme Court of Queensland have not yet been set down for trial according to the evidence, although there was an attempt made to dispense with the signatures of the defendants to the proceedings to a certificate of readiness or the equivalent document, but that application was not successful. The application was adjourned pending the completion of some further disclosure. Moreover, the pleadings have not yet been finalised and there has been the delivery of an amended pleading by the applicant, as I understand the evidence, recently.
The applicant estimates the value of the claim in the Supreme Court proceedings to be between $2.1 million and $4.2 million. There is no evidence which might suggest that those estimates are particularly accurate. It is suggested, however, that the applicant therefore has a contingent asset valued in the range of $2.1 million to $4.2 million. I have some very great difficulty in making a finding and I decline to find that the applicant in fact has a contingent asset valued in that range.
The present bankruptcy notice and the claim inherent in it for payment of the judgment debt owed by the applicant to the respondent was the subject of some correspondence between the applicant’s solicitors and the respondent’s solicitors. On 21 October, 2011 the applicant’s solicitors wrote to the respondent’s solicitors about the other Supreme Court proceedings to which I have referred. That correspondence contained an undertaking that the applicant would meet the judgment from the moneys recovered by the applicant in that proceeding. The offer was repeated in correspondence on 16 November, 2011.
It is important to note that the offer, such as it was, was to pay the outstanding judgment from moneys “recovered” in the other proceedings. Thus on any view of it the offer to compromise or meet the debt the subject of the bankruptcy notice in this application is somewhat illusory. It is dependent upon a whole string of variables: a successful judgment in the first place, the successful resistance to any appeal if there be one, and then the actual recovery of money from the respondents in that application.
The applicant applies to set aside the bankruptcy notice on the basis that it is an abuse of process. Relevant authorities were referred to in argument and my attention was drawn to Maxwell Smith v S and E Hall Pty Ltd; Re Maxwell Smith (2007) FCA 825 where Jacobson J, with respect, usefully set out the relevant principles. The real inquiry is whether there is any evidence which would allow the court to come to the conclusion that the purpose of the bankruptcy notice is to put pressure on the debtor to pay the debt rather than to invoke the court’s insolvency jurisdiction. If it is the former then there is an abuse of process, or arguably so, and if it is the latter there may not be.
As Jacobson J points out it is not an abuse of process if a creditor genuinely intends to pursue the matter if there is default in complying with the notice, and there is no evidence of collateral purpose or undue pressure. It has been also said that in respect of the question of abuse of process that it really requires the court to conclude that there is some form of inappropriate or otherwise improper conduct which might amount to – in the ordinary use of that term – extortion.
In Wilcox v Cottrell (2000) FCA 1656, Conti J observed:
There is an abuse of process if a pending bankruptcy petition or a threat of proceedings in bankruptcy is used as a means of extortion. The word “extortion” is not a technical term and it has in bankruptcy law no special and artificial significance, divorced altogether from the ordinary implication of the word. The court will look strictly at the conduct of the creditor using or threatening bankruptcy proceedings and extortion may be held to have taken place if the creditor has used or attempted to use a pending petition or threat of a pending petition in order to extract from the debtor money which the debtor is not bound to pay, or in order to obtain some secret or unfair advantage over other creditors. But extortion will not be held to have taken place in the absence of mala fides or anything amounting to oppression in fact. There must be a real intention on the part of the creditor to use the process for some other end than its legitimate end, and there must be a real exertion of pressure.
In this case the applicant points to the following facts as indicative of the abuse of process and suggests that those facts are sufficient for the court to draw an inference that the purpose of the bankruptcy notice in this case is to put pressure on the applicant to pay the debt:
a)the respondent did not make any demand for payment of the judgment debt on the applicant;
b)the respondent has lodged writs of execution against property where searches reveal that the applicant is the registered owner as a joint tenant with his wife;
c)there is no evidence of any attempt to pursue those writs;
d)there is no suggestion that the respondent has requested from the applicant any details of his asset position;
e)the respondent has not attempted to orally examine the applicant;
f)the respondent has ignored correspondence making offers of payment upon the conclusion of proceedings.
In respect of each of those matters I make the following observations. First, it is not incumbent upon the creditor to make a demand for payment. There is a judgment that the money be paid. It is incumbent on the debtor to seek out his creditor and pay him. There are many old authorities that bear on that point.
Secondly, the fact that writs have been lodged against property and in respect of which no further action has been taken, is not determinative or indeed even particularly to the point. I was taken to no authorities which suggested that a creditor needed to exhaust all other forms of enforcement of a judgment before resort can be had to bankruptcy proceedings. I know of no authorities myself.
Moreover, given that the properties are registered in the applicant’s name as a joint tenant with his wife, the difficulties in executing upon those properties are obvious.
Thirdly, that the creditor has not sought from the debtor any details of his asset position or attempted to orally examine the applicant is again neither here nor there. There is a clear obligation on the debtor to pay the judgment debt. It is not suggested that the bankruptcy notice is invalid or that the judgment has in some other way become unenforceable or the execution of it is stayed.
Finally, I have already remarked that the offers of payment dependent upon the conclusion of the pending proceedings in the Supreme Court are more illusory than real.
I am not satisfied that the purpose of the bankruptcy notice is to inappropriately put pressure on the defendant in this case to pay the judgment debt. In any event, one needs to be very careful, it seems to me about concluding that using bankruptcy proceedings to require a defendant to pay a judgment debt is an abuse of process. In Hubner v ANZ Banking Group Limited (1998) FCA 1779 Dowsett J said this:
The process prescribed by sub-section 40(1)(g) provides a formal system for demanding a judgment debt, with a clear outline of the consequences of non-compliance. Non-compliance will, itself, constitute a basis for bankruptcy, presumably because it provides evidence of insolvency. The tacit process of reasoning may be as follows:-
(a) The creditor has the benefit of a money judgment against the debtor.
(b) The debtor has been advised that unless he pays by a fixed date he may be bankrupted.
(c) He has not paid by the fixed date.
(d) The reasonable inference is that he cannot pay, ie he is insolvent.
(e) Therefore he should be bankrupted.
The statutory scheme is designed to facilitate both the recovery of debts and the administration of insolvent estates. Where an act of bankruptcy has been committed, any creditor qualified to present a petition may rely upon it. See Re Barker; Ex parte Mitchell (1958) 18 ABC 195. Thus the significance of a failure to comply with a bankruptcy notice goes beyond the relationship between the judgment creditor and the judgment debtor.
Having regard to those matters I am not satisfied that the bankruptcy notice is an abuse of process. The application to set it aside is dismissed. I order the applicant to pay the respondent’s costs of and incidental to the application to be assessed according to the Federal Magistrates Court (Bankruptcy) Rules 2001.
I certify that the preceding nineteen (19) paragraphs are a true copy of the reasons for judgment of Jarrett FM
Date: 23 January 2012
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