Sutherland v Sutton
[2008] FMCA 1736
•10 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SUTHERLAND & ANOR v SUTTON | [2008] FMCA 1736 |
| BANKRUPTCY – Application to proceed against bankrupt personally – trustee opposing – consideration of utility of proposed action. |
| Bankruptcy Act 1966, s.58(3) Corporations Act 2001, s.588U |
| First Applicant: | STEPHEN ROBERT DAMIAN SUTHERLAND T/AS SOUTHERN LIVESTOCK NUTRITION |
| Second Applicant: | SOEDJIHARTI SUTHERLAND T/AS SOUTHER LIVESTOCK NUTRITION |
| Respondent: | WILLIAM CRAIG SUTTON |
| File Number: | MLG 1347 of 2008 |
| Judgment of: | Burchardt FM |
| Hearing date: | 10 December 2008 |
| Date of Last Submission: | 10 December 2008 |
| Delivered at: | Melbourne |
| Delivered on: | 10 December 2008 |
REPRESENTATION
| Counsel for the Applicants: | Mr P. Cahill |
| Solicitors for the Applicants: | Peter Cahill |
| Counsel for the Respondent: | Mr O. Bigos |
| Solicitors for the Respondent: | Clarke & Barwood |
ORDERS
The application be dismissed.
There be no order as to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1347 of 2008
| STEPHEN ROBERT DAMIAN SUTHERLAND T/AS SOUTHERN LIVESTOCK NUTRITION |
First Applicant
| SOEDJIHARTI SUTHERLAND T/AS SOUTHERN LIVESTOCK NUTRITION |
Second Applicant
And
| WILLIAM CRAIG SUTTON |
Respondent
REASONS FOR JUDGMENT
(Revised on transcript)
In this matter the application filed by the Sutherlands on 3 November 2008 seeks leave pursuant to s.58(3) of the Bankruptcy Act 1966 (“the Act”) to continue proceedings against Mr Sutton.
The relevant history is convoluted. The Sutherlands provided goods to a company called Colac Stockfeeds. Mr Sutton was a director of that company. The company was placed in liquidation in June 2003. In December 2003 Mr Sutton went bankrupt, and he was in the ordinary way of things discharged from bankruptcy on 23 December 2006.
The liquidators of the company sued the Sutherlands in the County Court for preferences. On 9 May 2006 Judge Stott gave judgment in favour of the liquidators for approximately $100,000.00. That was, as Mr Cahill counsel for the Applicants rightly points out, the first time a formal finding of insolvent trading was made.
The Sutherlands appealed Judge Stott's decision and on 18 September 2007 the Court of Appeal reduced those amounts said to have been preferential payments to the sum of $16,000.00.
Colac Stockfeeds still owed the Sutherlands $43,000.00 from a course of trading between the parties, set out in what is in effect their proposed statement of claim, which all took place in 2002.
Counsel for the Sutherlands says that the Sutherlands knew Mr Sutton was bankrupt. They were initially of the view that the matters they now seek to proceed with were not a provable debt in Mr Sutton's bankruptcy but following a decision of the Federal Court in December 2007, it became clear that that apprehension was wrong.
In August 2008 the Sutherlands sued Mr Sutton for $43,000.00 in the Magistrates' Court in Geelong, and it is that proceeding which now seeks to continue. The defence, putting the matter in the round, pleaded the Bankruptcy Act. So now the matter comes to me.
The Sutherlands say first, that for all practical purposes they had no opportunity to prove their debt in Mr Sutton's bankruptcy. This is because there was no ruling until the decision of Judge Stott in May 2006, and of course at that point they owed the liquidators, not the other way round. That of course was not the same as the trustee in bankruptcy of Mr Sutton.
Secondly, there was no final ruling until the Court of Appeal's decision in 2007 gave them a relatively positive position in which they might proceed. They say second, this is a point of principal, not commerce; and, once again putting the matter in the round, they undertake to pay any winnings in the proceeding in the Geelong Magistrates' Court to the trustee.
Thirdly, the trustee is aware of these proceedings and this is an action against Mr Sutton personally. They seek, if successful, that the order be made nunc pro tunc and were I to make the order, I would do so.
Mr Sutton says first, the action should be against the trustee.
Second, perhaps more importantly, that the action is contrary to the scheme of the Bankruptcy Act.
Third, the action is said to be pointless anyway.
Counsel for Mr Sutton told me from the bar table, without objection, that Colac Stockfeeds' creditors were in millions and Mr Sutton's very substantial also, that there were no assets and no payments made in Mr Sutton's bankruptcy to creditors and if the Sutherlands succeed, there will be very little or no benefit to creditors and/or the trustee.
Conclusion
In the ultimate, I think the points made by counsel for Mr Sutton about the scheme of the Bankruptcy Act are correct, as are the arguments about the futility of the ultimate proceeding. That means it is not necessary for me to deal with what is obviously a relatively complicated issue to do with s.588U of the Corporations Act 2001 which, I may say on brief study, got no immediately easier than it was posited by counsel from both sides.
I should make it clear, however, that it is impossible not to sympathise with the Sutherlands. Their position was scarcely clear before the decision of Judge Stott, nor finally known until after the decision in the Court of Appeal.
It is easy to see why they did not lodge an unliquidated, as it were, conditional proof of debt with the trustee of Mr Sutton, even leaving aside the question of the issue of the state of the law as it was perceived to be before the Federal Court decision to which I have referred; and secondly, it is clear that the Sutherlands are acting essentially as a matter of principle, I presume to clear their own name.
I think I just said that in my view it is clear in the ultimate that leave will not be granted, but I wish to make reference to the following passage from the standard work on bankruptcy now edited by McQuade and Gronow. At paragraph 58.3.50:
“In determining whether to grant leave to proceed under section 58.3 the court should consider whether the objectives of the Bankruptcy Act in ensuring fair and rateable distribution of the bankrupt's assets among creditors preventing one creditor from gaining undue advantage over other creditors and releasing the bankrupt from further liability in respect of provable debts will be subverted by allowing the proceeding to go ahead.”
There is then authority quoted in support of that proposition.
Ultimately, I am persuaded that the exercise of the Court's discretion properly applying those general principles should lead to the dismissal of the application. In doing so, could I, while thanking both advocates for very helpful submissions, pay particular tribute, at the risk of sounding sycophantic, to the skill with which Mr Cahill advanced an argument that, as he himself conceded, was not without its difficulties.
I will dismiss the application.
Ordinarily, costs would follow the event in a matter like this but there are two things that perhaps impact. First, I will never know of course what the answer to the application in the Geelong Magistrates' Court would have been but I note that the Applicants brought that case through no desire to have financial gain themselves. That suggests, as a matter of ordinary inference, that they were really aggrieved by the things that they say happened to them and that they were not seeking any kind of personal benefit out of it. It is most unusual.
But looking at the materials as a whole, and looking at them, if I may say so, with the eye of somebody who has been involved in litigation for decades, I cannot help but feel, to put the matter at its lowest, there might have been something in it. In my view, the proper order is that there should be no order as to costs in this application, bearing in mind those matters, and particularly the position adopted by the Applicants that they were not pursuing for personal gain. So I will simply dismiss the application.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Burchardt FM
Associate: Ms B. Evans
Date: 10 December 2008
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