Swart v Carr (No.2)
[2008] FMCA 1204
•20 August 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SWART v CARR (No.2) | [2008] FMCA 1204 |
| BANKRUPTCY – Sequestration order – judgment debt based on contested Supreme Court proceedings – bankruptcy notice not invalid for referring to debtor’s business name – no grounds for going behind judgment – debtor’s current litigation against third persons not sufficient to establish ability to pay debts – no other sufficient cause to dismiss petition – public interests in not adjourning petition – sequestration order made. |
| Bankruptcy Act 1966 (Cth), ss.52(1), 52(2), 52(2)(a), 52(3), 52(5), 306 |
| Adams v Lambert (2006) 228 CLR 409 Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 Cain v Whyte (1933) 48 CLR 639 Carr t/as Forshaws Neill v Swart [2008] HCASL 355 Carr t/as Forshaws Neill v Swart; Lawcover Pty Ltd v Swart [2007] NSWCA 337 Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 Ling v Enrobook Pty Ltd (1997) 74 FCR 19 Matheson v Scottish Pacific Business Finance Pty Ltd [2005] FCA 670 Sandell v Porter (1966) 115 CLR 666 Stankiewicz v Plata [2000] FCA 1185 Swart v Carr [2008] FMCA 795 Swart v Carr; Swart v LawCover Pty Ltd [2006] NSWSC 1302 Totev v Sfar [2006] FCA 470 Wolff v Donovan (1991) 29 FCR 480 Wren v Mahony (1972) 126 CLR 212 |
| Applicant: | DANIEL FREDERICK VICTOR SWART |
| Respondent: | MALCOLM DOUGLAS CARR T/AS FORSHAWS NEILL SOLICITORS |
| File Number: | SYG 250 of 2008 |
| Judgment of: | Smith FM |
| Hearing date: | 20 August 2008 |
| Delivered at: | Sydney |
| Delivered on: | 20 August 2008 |
REPRESENTATION
| Counsel for the Applicant: | Applicant in person |
| Counsel for the Respondent: | Respondent in person |
| Counsel for the Supporting Creditor: | Mr B Skinner |
| Solicitors for the Supporting Creditor: | Heckenberg Associates |
ORDERS
A sequestration order be made against the estate of MALCOLM DOUGLAS CARR.
All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days, on the following conditions:
(i)that Mr Carr shall deliver all his current passports to his trustee before 4 pm on 21 August 2008, and shall not leave Australia without the permission of his trustee.
(ii)that Mr Carr shall not enter into or incur any new liability exceeding the amount of $5,000, or such other amount as is agreed upon by his trustee.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 21 January 2008.
Note that a consent to act as trustee has been signed by Gavin Frederick Thomas and has been lodged with the Official Receiver in Sydney.
The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 250 of 2008
| DANIEL FREDERICK VICTOR SWART |
Applicant
And
| MALCOLM DOUGLAS CARR T/AS FORSHAWS NEILL SOLICITORS |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
This bankruptcy petition comes at the end of lengthy litigation between the parties. They have appeared today self represented, but in the past both of them have been represented by Senior Counsel.
In Swart v Carr [2006] NSWSC 1302, Palmer J published his reasons on 1 December 2006, giving judgment in favour of Mr Swart against Mr Carr in the sum of $1,145,460.30, after a hearing which had occupied many days. His Honour found that Mr Carr was in breach of an agreement with Mr Swart, in which he undertook the management of an investment fund which included an amount of US$500,000 transferred to him by Mr Swart. He was in breach, because he transferred the money to a solicitor in the United Kingdom, and then agreed to its disbursement by the solicitor out of his trust account, without first obtaining certain guarantees which Palmer J found were required under the terms of the agreement. The whole fund disappeared in a “wire fraud” perpetrated in the course of its transmission. The transactions had occurred in 1998. The judgment debt compensated Mr Swart’s loss, with added interest.
Mr Carr practised as a solicitor in New South Wales. In separate proceedings which were also decided by Palmer J in his judgment, Mr Swart sought to clarify whether Mr Carr was entitled to indemnity from LawCover for his liability up to the cap of $1.5 million under his compulsory legal practitioner’s policy. Palmer J held that Mr Carr would be entitled to an indemnity, and made a declaration to that effect.
However, Mr Carr and LawCover both appealed to the Court of Appeal. In a judgment delivered on 27 November 2007, the Court of Appeal dismissed Mr Carr’s appeal, thereby confirming the judgment obtained by Mr Swart. However, it allowed LawCover’s appeal and set aside the declaration of Mr Carr’s entitlement to an indemnity.
The above four paragraphs are taken from a judgment I gave on 5 June 2008, when deciding to adjourn the bankruptcy petition (see Swart v Carr [2008] FMCA 795). The central reason for the adjournment sought by Mr Carr was to allow him to pursue a special leave application to the High Court of Australia against Mr Swart’s judgment. I had doubts about his prospects, but I thought that there might be some prospects for Mr Swart’s application for special leave to appeal against the Court of Appeal’s reversal of Palmer J’s conclusions in relation to Mr Carr’s professional indemnity policy. Moreover, the outcome of the two special leave applications would simplify arguments in this Court, concerning the effect of the establishment by LawCover of an interest‑bearing deposit pursuant to an interim order made by Basten JA in the Court of Appeal.
I adjourned the petition until today based on predictions that the High Court might have arrived at its conclusions by today. As it happens, the High Court addressed both special leave applications in a judgment which they published on 12 June 2008 without receiving oral submissions from the parties or their representatives. The High Court refused both applications (see Carr t/as Forshaws Neill v Swart [2008] HCASL 355).
At today’s resumption of the hearing, Mr Swart pressed for a sequestration order to be made, and this position was supported by a supporting creditor, the executrix of the estate of Kenneth Emmanual Dyers, also known as Kenneth Emanuel Dyers. The executrix has a claim against Mr Carr under a District Court judgment for the amount of $238,194.26, including interest, and has brought a separate bankruptcy petition against Mr Carr which is listed today.
Mr Carr opposed the making of a sequestration order. He relied upon most of the grounds in his amended notice of opposition, while withdrawing some of them. He also submitted that, if the Court would not dismiss the petition, it should adjourn the petition to await further events in litigation which Mr Carr has commenced or hopes to commence in the United Kingdom, to which I shall refer below.
Mr Carr does not dispute that there is a judgment against him in the amount of $1,145,460.30, plus further interest accruing since that judgment was entered on 1 December 2006, pursuant to the judgment of Palmer J, nor that a bankruptcy notice claiming this amount was served on him, nor that he failed to comply with it on or before the date when compliance was due under extensions arising from an application in this Court, being 21 January 2008. The other matters allowing the Court to make a sequestration order as set out in s.52(1) of the Bankruptcy Act 1966 (Cth) and other bankruptcy laws have been established on the evidence before me, and I need only to discuss two aspects of Mr Swart’s prima facie entitlement to a sequestration order.
The first arises from Ground 1A of the amended notice of grounds of opposition. This contends that the bankruptcy notice was invalid because it identified the debtor as “Malcolm Douglas Carr T/A Forshaws Neill Solicitors”. Mr Carr argued that it was inappropriate and prejudicial for him to be identified in the bankruptcy processes as a debtor conducting a solicitor’s business.
He does not dispute that he has, and continues, to trade as a solicitor in the name Forshaws Neill Solicitors, nor that he was originally sued by Mr Swart on a contention that he was liable to damages for actions performed in the course of his practice. However, Mr Carr argues that as a result of the Court of Appeal’s setting aside of Palmer J’s declaration concerning the LawCover policy, he has been found by the Court of Appeal not to have been trading as a solicitor in the relevant conduct giving rise to the judgment debt, and therefore should not have been so described in the bankruptcy notice and petition.
In my opinion, there is no merit to this contention, insofar as it argues that his description in the bankruptcy notice with reference to his solicitor’s practice goes to the validity of the bankruptcy notice, and is irremediable.
As Mr Swart points out, there has never been any doubt about the identity of the debtor named in the bankruptcy notice, nor as to his personal liability under the Supreme Court judgment, nor that the judgment entered against Mr Carr made reference to his business name. Moreover, the Court of Appeal judgment repeated that description, as did Mr Carr’s own application to the High Court.
On one view, it was appropriate, even necessary, for the name of the debtor in the bankruptcy notice to replicate the name of the judgment debtor shown in the certificate of judgment attached to the notice. I am of that opinion. Even if there was a misnomer of some sort, it was not a defect going to any essential requirement of a bankruptcy notice. It gave rise to no ambiguity or uncertainty in its description of the debtor, nor as to the liability relied upon (compare Matheson v Scottish Pacific Business Finance Pty Ltd [2005] FCA 670 at [10]).
If there was any irregularity under the prescribed form of bankruptcy notice, then at most there was an irregularity which, in my opinion, could and should be addressed under s.306 of the Bankruptcy Act. I do not accept the submission of Mr Carr that to apply that provision would be inconsistent with Adams v Lambert (2006) 228 CLR 409. Indeed, in my opinion that judgment supports my opinion that the description of the debtor gave rise to, at most, a formal defect or irregularity, and that considering all the circumstances it is appropriate to conclude that the defect would not cause substantial injustice in the sense recognised under authorities concerning s.306. I, therefore, do not accept that the bankruptcy notice was invalid, nor that Mr Carr’s failure to comply with it cannot be relied upon by Mr Swart in this petition.
The second group of contentions in Mr Carr’s amended notice of opposition to the petition going to the Court’s satisfaction as to a matter required to be addressed under s.52(1), invites the Court not to accept proof of Mr Swart’s debt by reliance upon the formal affidavit of debt, nor the judgment entered in the Supreme Court and upheld by the Court of Appeal and High Court. Mr Carr contends that despite the full hearing on the merits of Mr Swart’s entitlement, the Court should, in terms of the well‑known test suggested in Wren v Mahony (1972) 126 CLR 212 at 224-225, conclude that there are “substantial reasons” for “questioning whether behind that judgment there was in truth and reality a debt due to the petitioner” (see also Wolff v Donovan (1991) 29 FCR 480 at 481 and 486).
Mr Carr withdrew the contention in ground 5 of his amended notice which repeated an argument put to the Court of Appeal and to the High Court, that Palmer J’s conclusion that Mr Carr was in breach of the investment agreement failed to consider the effects of United Kingdom legislation governing solicitor’s investment rules. In my opinion, this contention was properly withdrawn, if only, due to the High Court’s positive conclusion:
We are not persuaded that the conclusion reached both at trial and on appeal that Mr Carr breached his contractual obligations to Mr Swart is attended by doubt.
Mr Carr, however, maintains other contentions that he had a defence to Mr Swart’s claim for damages for breach of the investment agreement which was never addressed by Palmer J, nor on appeal. This defence is explained in several ways in paras.6, 7, 8, 9, 10 and 11 of the amended grounds of opposition. I do not propose to quote these grounds. They allege that the derivation of the funds, which were directed by Mr Swart to be transferred to Mr Carr for investment in accordance with the investment agreement, was tainted in a manner giving rise to a defence of illegality available to Mr Carr when sued for his breach of contract. The amended notice of opposition, and some of Mr Carr’s other documents and affidavits contain unparticularised allegations accusing Mr Swart of “money laundering”, having funds of “criminal origin”, and investing “proceeds of crime”. These allegations were made, in my opinion, without any substance being shown in the evidence which is before me.
The only evidentiary foundation for a defence of illegality which Mr Carr attempted to identify relied upon evidence given by Mr Swart before Palmer J concerning the funds which he directed to be disbursed from a bank account in his name in Jersey. Mr Carr suggested that Mr Swart’s title to the funds had in some, unidentified, way involved a breach of South African foreign exchange controls. Mr Swart did not admit this before Palmer J, but he did admit consulting a solicitor in South Africa in relation to South African foreign exchange controls, and their impact on his desire to liquidate his assets in South Africa in the course of migrating to Australia.
I am not persuaded that there is evidence before me giving any substance to Mr Carr’s submissions. Certainly, his submissions have not descended to the level of detail with which such a serious contention should have been supported before the Court could give it serious attention. Even less well developed were further contentions by Mr Carr that, if there was a breach of South African law, there would have been further breaches of foreign exchange and “money laundering” legislation in the United Kingdom and Australia. I am, therefore, not satisfied that there is any evidentiary basis for the starting factual premise, with which Mr Carr invited the Court to go behind Palmer J’s judgment.
A further reason for declining to do this is that these very contentions of illegality were apparently pleaded by Mr Carr in defences in the Supreme Court, and were expressly abandoned by him at the end of a lengthy trial. In the course of final submissions, Palmer J was told by Mr Glisson, appearing for Mr Swart:
I am advised by my learned friend Mr Carr this morning that he does not propose to proceed further with that part of his evidence predicated on the criminality of the funds.
Mr Carr confirmed this to Palmer J by saying:
There is one other point your Honour, I am not pursuing that illegality of funds point.
There is, therefore, an excellent explanation why this point was not addressed by Palmer J in his judgment, nor raised on appeal. In my opinion, this is a circumstance which points very strongly against a bankruptcy court allowing the defence now to be raised in answer to a bankruptcy petition based on Palmer J’s judgment.
A third reason for thinking that the suggested defence has insufficient merit to warrant the bankruptcy court looking behind the judgment is that Mr Carr was unable to identify the principle of law he relied upon with any clarity, even assuming that he could establish a breach of South African exchange controls relating to Mr Swart’s funds in the Jersey Bank. Principles of illegality were usefully addressed by the High Court in Fitzgerald v FJ Leonhardt Pty Ltd (1997) 189 CLR 215 at 218‑220, and also in the judgment of McHugh and Gummow JJ at 229, and in the judgment of Kirby J at 247. Applying those principles, it does not appear to me that the investment agreement between Mr Swart and Mr Carr could have been forbidden by South African law, nor could it have required performance by any action which was unlawful under South African law. It was not, in fact, performed in a manner which could have been forbidden by South African law. Moreover, it could not even be said that “something illegal [was] done in the course of its performance”. All that is alleged is that there had been an antecedent breach of South African law when Mr Swart acquired title in the funds which he later attempted to invest lawfully, relying upon Mr Carr’s management under the investment agreement. I am not persuaded that this allegation, if proved, could have provided a defence against Mr Swart’s claim for damages arising from Mr Carr’s breach of his agreement. In the absence of a possible defence, I do not consider that the allegation, even if proved, would provide justification for a bankruptcy court to decline to allow Mr Swart to rely upon the judgment entered in the Supreme Court.
I, therefore, do not accept the grounds of opposition which challenge Mr Swart’s judgment debt, and I decline to refuse to accept the affidavit verifying the petition as sufficient proof of the debt he relies upon.
Grounds 1B, 2, and 3 of the amended notice of opposition made contentions arising from the existence of the LawCover fund to which I have referred, on an assumption that Mr Swart still had some interest in it while his special leave application was pending. However, those arguments are no longer pressed by Mr Carr, as a result of the High Court’s refusal of special leave to both applicants.
Ground 4 of the amended notice of opposition addressed a paragraph in Mr Swart’s petition, in which he alleged an act of bankruptcy by reason of the return of a writ of execution unsatisfied. However, Mr Swart does not now rely upon such an act of bankruptcy, but has indicated to me that he relies only upon the act of bankruptcy arising from Mr Carr’s failure to comply with the bankruptcy notice.
For all the above reasons, I am not satisfied that any of the grounds in the amended notice of opposition to the petition have been made out.
In addition to those grounds, Mr Carr has today relied upon matters set out in an affidavit by him sworn on 15 August 2008. This was filed in response to my previous order, which directed that if he wished to seek a further adjournment of the petition he should file an affidavit setting out a full statement of his financial affairs. Some criticisms of his attempt to do this were made by Mr Swart, but I need not address them.
Mr Carr’s affidavit undoubtedly establishes that he currently has no assets able to satisfy Mr Swart’s judgment debt and the debt of the supporting creditor, unless he can call upon assets of a substantial nature, which he describes in his affidavit as:
(a)Chose in action. US $5 million Restitution order United States District Court, Middle District Florida, Tampa Division. Copy annexed hereto and marked annexure “A”.
(b)Chose in action. Claim filed in Queens Bench Division of English High Court for £3.75 million plus damages against Stephen Moverley Smith and Dowse Baxter solicitors for negligence in failing to bring a claim for breach of FSA against Bower Cotton. Copy annexed hereto and marked annexure “B”.
(c)Chose in action. Claim filed in Chancery Division for £2.75 million claim plus damages against Bower Cotton. Although dismissed for failing to satisfy security of costs, I have judicial advice that I can appeal on earlier order of Master in Chancery. I was recently approached by a Julie Eagle, the former secretary and co director of Paul Simms the person who paid away the joint venture fund, who said that she had documents which would help me prove this case. Julie Eagle has recently provided documents to assist another former Bower Cotton investor and the documents although illegally obtained were ruled admissible by the English High Court. The judgment is lengthy and I will produce a copy in court.
His evidence in relation to these assets appears to relate to the Court’s discretion to dismiss the petition under s.52(2) of the Bankruptcy Act, on the grounds that Mr Carr is “able to pay his or her debts”, or that they provide “other sufficient cause” why a sequestration order ought not to be made.
In relation to the first question, in my opinion, undoubtedly Mr Carr’s evidence about these three “assets” does not establish that he is a debtor able to pay his debts which are currently owing and which fall due “in the reasonably immediate future” (compare Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 at [19]; also Sandell v Porter (1966) 115 CLR 666 at 670; and Stankiewicz v Plata [2000] FCA 1185 at [30]).
The first “asset” consists of Mr Carr’s entitlement under a restitution order made in an American court in 2001 when sentencing one of the fraudsters responsible for the loss of the funds which Mr Carr had undertaken to invest securely. An American court sentenced that person to 21 months imprisonment, and ordered him to pay restitution in the sum of US$15,386,500 to a number of people, including Mr Carr in the amount of US$5 million. The order directed the defendant to “begin payment immediately and continue to make payments to the best of his ability until his obligation is satisfied”. However, notwithstanding the defendant’s release several years ago, Mr Carr told the Court that he has received no instalments, and he could provide no evidence suggesting that there is any prospect of this asset producing money available to Mr Carr’s creditors.
The second “asset” is a chose of action, being a claim in damages against Mr Carr’s legal representatives in his previous litigation in England against Bower Cotton, the firm which included the English solicitor who disbursed the investment fund to the fraudsters. The proceedings claiming damages against Mr Carr’s lawyers were commenced in the High Court of Justice, Queens Bench Division, on 29 October 2007. The particulars of claim allege that they were negligent in the course of their acting for Mr Carr in his proceedings against Bower Cotton. Those proceedings had been commenced in 2000, and were dismissed on 19 December 2001 after an eight day trial. An appeal was dismissed on 18 December 2002.
Mr Carr explained to me how he has formed the opinion from at least 2006, that his action against Bower Cotton could have included a claim based on a breach of the United Kingdom Financial Services Act, and that his lawyer’s negligence caused that claim not to be raised even at a late stage during the trial in that matter.
To give substance to his prospect of success against his lawyers, Mr Carr referred me to a judgment of Etherton J, given on 15 March 2006 in the course of Mr Carr’s unsuccessful attempt to raise this claim afresh in new proceedings against Bower Cotton. In particular, he pointed to a passage where Etherton J, when explaining why he was not satisfied under the Henderson v Henderson test on whether to allow the new claim to be brought in second proceedings, said:
… it remains a mystery, at least to my mind, as to why in the circumstances the point was not taken by or on behalf of Mr. Carr at the trial before Mr. Justice Blackburne, even at a late stage at the beginning of the trial.
Mr Carr points to this statement as lending support to his own opinion, which he expressed very strongly and confidently, that he had good prospects of success in suing his own solicitors and counsel in his new 2007 proceedings. However, he has not put before this Court any evidence indicating how those people are defending the proceedings, although he informs me that they are defending the proceedings. He expressed great optimism that their professional insurers would be keen to settle the claim, but has given me no substance to support that optimism. Mr Carr’s record of optimistic predictions about success in English litigation which he has been actively pursuing over the years since 1998 is not good. It is therefore difficult to give much weight to his opinions on the prospects of the present litigation.
On the material before me, it is quite possible that the defendants might have good defences going to the circumstances of their taking of instructions from Mr Carr, or the merits of the alleged claim against Bower Cotton, or under English limitation Acts. On the evidence before me, I am not satisfied that this chose of action can be given any quantifiable value at present, nor am I satisfied that it is possible to predict when, if it were pursued, that claim might be finalised so as to produce a dividend available to pay Mr Carr’s creditors.
Mr Carr has given evidence that a case management conference has been appointed for 26 September 2008, with prospects of the appointment of a hearing for “next year”. He also hopes that directions for mediation would also be made, and suggests that this is likely to produce an early settlement in his favour in a large sum. But every optimistic litigant usually feels similarly about his case.
I accept that the claims against Mr Carr’s lawyers have been genuinely put forward, and have been given serious content, but I am not satisfied that the proceedings have any real prospects of producing funds in the immediate or near future with which Mr Carr would pay Mr Swart and his other creditors. I, therefore, do not consider Mr Carr’s chose in action establishes solvency for the purposes of s.52(2)(a) of the Bankruptcy Act. I shall address further below whether it provides “other sufficient cause” for declining to make a sequestration order, or at least, grounds for adjourning the petition.
The third “asset” referred to by Mr Carr in his affidavit relies upon his optimistic belief that he could revive his second action against Bower Cotton, as a result of fresh evidence. As I have indicated, his first action was dismissed in 2001, and an appeal was unsuccessful in 2002. His second action was commenced in 2005 and was addressed in a series of interlocutory applications during 2006. As I have noted, Etherton J refused to allow an amendment raising an allegation under the United Kingdom Financial Services Act. The action then continued in relation to allegations that the first judgment had been obtained by fraud and perjury. However, it came to an end against all defendants later in 2006, when Mr Carr failed to lodge security for costs under orders which were upheld in various appeals. Mr Carr has not made any new application in the matter in the English court, and at present prospects of this claim producing a fruitful outcome in the reasonably immediate future appear slim, to say the least.
For all the above reasons, and considering all of Mr Carr’s evidence as to his financial position, I am not satisfied that Mr Carr has established that he is able to pay the debt relied upon in the petition or his other debts, so as to be satisfied in terms of s.52(2)(a) of the Bankruptcy Act.
Turning to question of “other sufficient cause”, Mr Carr essentially relied upon his desire to pursue his current Queens Bench Division action against his former lawyers, as a reason for the Court at least to adjourn the petition until its expiry in February, and then to extend the petition under s.52(5) if the action has not settled before then.
There are principles in bankruptcy which allow the Court to consider whether a debtor’s pending litigation provides sufficient cause for declining to make a bankruptcy order, or for adjourning the petition. The authorities are helpfully extracted and discussed by Allsop J in Totev v Sfar [2006] FCA 470 at [37] and subsequently. As his Honour points out, the established principle under Cain v Whyte (1933) 48 CLR 639, is that:
On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations. (citation omitted)
Allsop J referred to authorities which allow the bankruptcy court to recognise a debtor who has “pending before a court a legitimate claim to funds sufficient to satisfy the petitioning creditor’s debt”, and suggest that “the circumstance that the legitimate claim of the debtor is one against the judgment creditor is likely to be a significant circumstance” (quoting from Ling v Enrobook Pty Ltd (1997) 74 FCR 19). The Full Court’s discussion in Ling is somewhat ambiguous whether the bankruptcy court should recognise a pending claim which is not against the petitioning creditor, but against a third party who is not a creditor. However, it is clear from Ling and other authorities that the bankruptcy court should at least be satisfied that “the debtor is well advanced with litigation likely to result in the debtor being in a position to pay his or her debts” (emphasis added). All the circumstances of the pending litigation and of the debtor also need to be considered. The debtor’s desire to continue the litigation, and the merits of that litigation, need to be weighed against countervailing interests of the creditors and the public interest in relation to insolvent trading (see Totev at [44]).
In the present case, I have arrived at a firm conclusion that Mr Carr’s pending proceedings in the Queens Bench Division against his former lawyers do not provide “other sufficient cause” justifying withholding the making of a sequestration order today. As I have indicated, there is inadequate evidence before me as to the merits of that proceeding and its prospects of relieving Mr Carr from his very substantial insolvency. In particular, the absence of evidence as to the defences pleaded by the defendants results in it being impossible for the Court to even attempt to form an objective view of the prospects of the proceedings. I am certainly not able to form a view that it is “likely to result” in the sums of money which Mr Carr needs to meet Mr Swart’s debt and that of the supporting creditor.
Nor, in my opinion, is the test of “well advanced” satisfactorily met in relation to this proceeding. This test suggests that the Court should assess whether the claim has been made without unreasonable delay. In the present case, even on the assumption (which is difficult) that Mr Carr only became aware at the time of the proceedings before Etherton J in March 2006 of the matters to which Etherton J referred, the subsequent delay in commencing the proceedings is not satisfactorily explained.
Moreover, assessing the countervailing considerations in allowing Mr Carr’s insolvency to continue without sequestration, it appears to me that it is in the public interest for Mr Carr not to be free to accrue further costs orders and liabilities in relation to further litigation, whether in Australia or England, without the intervention of a trustee in bankruptcy. I accept that Mr Carr has bona fide committed himself over nearly 10 years to attempting to recover the funds which were lost in 1998. I accept that he has pursued a great deal of litigation in England with that object, but this has all been unsuccessful and at great expense to himself and others. I am concerned that some of that litigation may have been funded by other people, who may have been given overly optimistic impressions by Mr Carr of his prospects. I cannot be confident that Mr Carr’s current or prospective supporters might not be given overly optimistic impressions as to his current litigation if he continues unchecked. These concerns point towards the desirability that any further litigation pursued by Mr Carr should be dispassionately assessed at this point in its history. They confirm me in my opinion as to the desirability of not further adjourning this petition, and of making a sequestration order today.
Taking into account all of Mr Carr’s circumstances, I am not satisfied that the Court’s discretion not to make a sequestration order should be exercised. I am satisfied as to all the matters required for the making of a sequestration order pursuant to the Bankruptcy Act. I shall therefore make that order.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Smith FM
Associate: Lilian Khaw
Date: 3 September 2008
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