Yeo v Weeden
[2015] VSC 156
•1 JUNE 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 05106
| ANDREW REGINALD YEO (AS TRUSTEE OF THE PROPERTY OF PHILIP CHARLES WEEDEN, A BANKRUPT) | Plaintiff |
| v | |
| PHILIP CHARLES WEEDEN (A BANKRUPT) | Defendant |
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JUDGE: | RIORDAN J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 20 APRIL 2015 |
DATE OF JUDGMENT: | 1 JUNE 2015 |
CASE MAY BE CITED AS: | YEO v WEEDEN |
MEDIUM NEUTRAL CITATION: | [2015] VSC 156 |
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CROSS-APPLICATIONS FOR SUMMARY JUDGMENT AND PERMANENT STAY – Allegation that proceeding by trustee against bankrupt beyond power and abuse of process – Duties of trustees under Bankruptcy Act 1966 (Cth) - Allegation of ulterior motive – meaning of collateral advantage considered – Whether proceeding inutile - Application of Jones v Dunkel principle where failure to file an affidavit or lead other evidence in chief as to the propriety of motives in filing proceeding – Summary judgment for the plaintiff.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Galvin QC Mr P Fary | SBA Law |
| For the Defendant | Mr D Ryan QC Ms C Rome-Sievers | Tisher Liner FC Law |
HIS HONOUR:
By a writ filed on 22 September 2014, the plaintiff claims from the defendant a total of $910,624.13 plus interest and costs pursuant to s 139ZG(3) of the Bankruptcy Act 1966 (Cth) (‘the Act’) in accordance with the following assessments made pursuant to s 139W of the Act:
(a) First contribution assessment period dated 26 May 2011:
$ 13,917.90 6 July 2011 $ 13,917.90 6 August 2011 $ 13,917.90 6 September 2011 $ 13,917.90 6 October 2011 $ 13,917.90 6 November 2011 $ 13,917.90 6 December 2011 $ 13,917.90 6 January 2012 $ 13,917.90 6 February 2012 $ 13,917.90 6 March 2012 $ 13,917.90 6 April 2012 $ 13,917.90 6 May 2012 $ 13,917.98 6 June 2012 $167,014.88
(b) Second contribution assessment period dated 14 October 2008:
$ 11,821.85 10 November 2008 $ 11,821.85 10 December 2008 $ 11,821.85 10 January 2009 $ 11,821.85 10 February 2009 $ 11,821.85 10 March 2009 $ 11,821.85 10 April 2009 $ 11,821.85 10 May 2009 $ 11,821.85 10 June 2009 $ 11,821.85 10 July 2009 $ 11,821.85 10 August 2009 $ 11,821.85 10 September 2009 $ 11,821.88 10 October 2009 $141,862.23
(c) Third contribution assessment period dated 26 May 2011:
$ 21,012.74 6 July 2011 $ 21,012.74 6 August 2011 $ 21,012.74 6 September 2011 $ 21,012.74 6 October 2011 $ 21,012.74 6 November 2011 $ 21,012.74 6 December 2011 $ 21,012.74 6 January 2012 $ 21,012.74 6 February 2012 $ 21,012.74 6 March 2012 $ 21,012.74 6 April 2012 $ 21,012.74 6 May 2012 $ 21,012.74 6 June 2012 $252,152.88
(d) Fourth contribution assessment period dated 26 May 2011:
$ 12,803.32 6 July 2011 $ 12,803.32 6 August 2011 $ 12,803.32 6 September 2011 $ 12,803.32 6 October 2011 $ 12,803.32 6 November 2011 $ 12,803.32 6 December 2011 $ 12,803.32 6 January 2012 $ 12,803.32 6 February 2012 $ 12,803.32 6 March 2012 $ 12,803.32 6 April 2012 $ 12,803.32 6 May 2012 $ 12,803.36 6 June 2012 $153,639.88
(e) Fifth contribution assessment period dated 19 February 2013:
$195,954.26 being in respect of the income contribution assessment period from 7 February 2011 to 6 February 2012 pursuant to s 139Q of the Act.
By summons filed 29 October 2014, the plaintiff seeks summary judgment against the defendant for the contribution assessments.
By summons filed 17 December 2014, the defendant seeks that this proceeding be permanently stayed.
The relevant facts
The relevant facts, which are not in contest, are as follows.
On 7 February 2007, the defendant became bankrupt by operation of s 57A of the Act by the Official Receiver accepting a debtor’s petition presented under s 55 of the Act.
On 19 March 2007, the plaintiff was appointed as the sole trustee of the defendant’s bankrupt estate.
On 30 June 2008 and 24 March 2010, the plaintiff filed notices of objection to the defendant’s discharge from bankruptcy pursuant to s 149B of the Act.
By letter dated 8 April 2013 to the defendant’s solicitors, the plaintiff’s solicitors stated as follows:
We refer to the decision of Justice Bromberg delivered on 29 May 2012 and the decision of the Full Court of the Federal Court delivered on 12 February 2013. We also refer to your ongoing involvement in this matter, both on behalf of the bankrupt and on behalf of the Weeden family generally.
You have provided us some time ago, a copy of the last will and testament of Mrs Betty Weeden. It is common knowledge that Mrs Weeden is suffering from advanced dementia and is not and will not be in a position to alter that document. Accordingly, it stands as the irrevocable position in relation to the distribution of her assets that will fall within her estate upon her death.
As you are aware from our past conversations with you, our client has felt it necessary to explore whether, if Mrs Weeden were to pass away during a period in which Mr Weeden was an undischarged bankrupt, the assets which would ordinarily be available to him under Mrs Weeden last will and testament would ultimately be recoverable by our client as an asset of the bankrupt estate of Mr Weeden.
We understand that both the bankrupt and the Weeden family generally has held the view that, upon the death of Mrs Weeden (and on the assumption that Mr Weeden was still a bankrupt at that time) a trustee in bankruptcy would not be entitled to any funds from the deceased estate.
Our client has sought and obtained advice in relation to that position. Our client sought that advice from Mr Alan Goldberg AO QC and Mr Michael Galvin of counsel. Having received that advice, our client firmly takes a different view from that adopted by your clients. Indeed, our client takes the view that, once Mrs Weeden dies, and given that Mr Weeden has to date shown no interest in discharging his bankruptcy, our client will stand to benefit from the estate of Mrs Weeden to a large extent.
Mr Weeden’s bankruptcy currently stands to be discharged in 2015, subject to any further petition for his bankruptcy. We have no doubt that our client will be funded to petition for your clients further bankruptcy.
It appears to us that it would be useful for our client on the one hand and the bankrupt, his wife and the relevant members of the Weeden family (including Mrs Goldstone and Mrs Weeden) on the other to have a roundtable and without prejudice meeting so as to discuss the effect of our client’s potential claim over the estate. We are of that opinion because:
(a)your client’s income contribution assessments currently stand at over $900,000. It is not fanciful to suggest that, by the end of your client’s bankruptcy, the income contribution assessments payable will be between $1,100,000 - $1,200,00 [sic]. Now added to that is the costs order in respect of the recent appeal proceeding;
(b)if your client procures payment of that income contribution assessment amount and the amount payable pursuant to the recent costs order at the end of the bankruptcy period, he will be discharged from bankruptcy and there will be no further claim against him. However, the payment of such an amount will pay out the trustees fees and disbursements and largely satisfy the creditors of the bankrupt estate;
(c)as indicated above, if your client does not pay out those income contribution assessments and the costs order, it will undoubtedly follow that he will be made bankrupt again based on that debt which survives bankruptcy. Further, more income contribution assessments will be made in the newly created estate and his bankruptcy will continue ad infinitum;
(d)for the period that he is bankrupt (whether that is pursuant to the current bankruptcy or pursuant to a subsequent bankruptcy) the trustee in bankruptcy stands to benefit from the assets of the estate of Mrs Weeden for the reasons set out in the advice obtained by our client from senior counsel;
(e)our client is confident, that upon the death of Mrs Weeden, he will be fully funded to seek the benefit of the assets available to your client in Mrs Weeden’s estate and to issue proceedings and conduct litigation to obtain that result if necessary;
(f)if our client’s position in relation of the estate of Mrs Weeden is found to be correct and our client obtains sufficient funds from the assets of the estate of Mrs Weeden to satisfy his fees and expenses and all creditors as a result, your client will have spent an unnecessary period of time in bankruptcy without having achieved his goal of ensuring that the creditors remain unpaid; and
(g)if our client’s position in relation to the estate of Mrs Weeden is ultimately found to be correct but the funds available to our client as a result are not sufficient to pay out the fees and expenses of our client and all creditors as a result, your client faces ‘the worst of both worlds’ being that some funds will be available to our client and the creditors of the bankrupt estate but he will remain in bankruptcy as the estate will not be fully satisfied.
Please do not hesitate to let us know whether your client, his wife and the relevant members of the Weeden family are interested in meeting with our client so as to discuss a proper and commercial resolution. If they are interested and a meeting is arranged, we are instructed that our client is willing to provide your office with a copy of counsels joint memorandum of advice, on a without prejudice basis.
Please provide us with your response within the next 7 days.[1]
[1]Emphasis in original.
In April 2014, the defendant separated from his wife and moved out of his family home and into a rental property.
By letter dated 30 June 2014 to the defendant, the plaintiff stated as follows:
I refer to the above bankrupt estate.
In accordance with Section 77(1)(g) of the Bankruptcy Act 1966, you have an obligation to aid to the utmost of your power in the administration of your bankrupt estate. Drawing on this power, I direct you to advise me, within seven days of the date of such an event, of the passing of your mother, Mrs Betty Weeden.
On 22 September 2014, the plaintiff filed the writ in this proceeding.
By a telephone conversation to the defendant on 24 November 2014, the plaintiff referred to the defendant being ‘unwilling to make a realistic offer to resolve the issue’, and reiterated his own ‘determination to attack the testamentary trust’ and assured the defendant that the plaintiff had ‘very good advice on this outcome’.
By letter dated 27 November 2014 to the defendant, the plaintiff referred to the defendant’s application to review the plaintiff’s contribution assessments and an alleged failure to inform the plaintiff of the fact that the defendant had separated from his wife. The plaintiff made reference to the obligation on a bankrupt to tell the trustee of any change in the bankrupt’s principal place of residence and then stated:
Failure to provide these details to me in writing can result in me referring the matter to Fraud Investigation, AFSA for review and possible prosecution. If you are prosecuted the penalty is imprisonment for 6 months.
On 8 February 2015, the defendant was discharged from bankruptcy.
As at the date of the defendant’s affidavit sworn on 1 December 2014, the defendant’s 85 year old mother was still alive; but she has since died.
The defendant’s submissions
The defendant admits his liability to pay the amounts under the contribution assessments but contends that:
(a)the institution of this proceeding was not within the powers conferred on the plaintiff by the Act and the plaintiff’s decision to take this proceeding was not consistent with his duties under the Act; and
(b)the institution of this proceeding and the application for summary judgment each constitutes an abuse of the process of the Court.
Both of these contentions were premised on an allegation that this proceeding was advanced solely or predominantly for an ulterior purpose.
Mr Ryan QC, who appeared for the defendant with Ms Rome-Sievers, submitted in summary that, as a trustee, the plaintiff was subject to the following duties:
(a) He must act justly.[2]
[2]Inspector-General, Practice Direction 14 – Proper Performance of Duties of a Bankruptcy Trustee, March 2010, [4.4].
(b)He should act fairly and reasonably in determining the time for payment of the contributions pursuant to s 139ZG;[3] and this duty is more pronounced on a trustee considering taking proceedings against his own bankrupt for unpaid contributions.
[3]Macchia v Nilant (2001) 110 FCR 101, 122 [55] (French J), quoting Insolvency and Trustee Service Australia, Personal Insolvency National Standards – New Directions in Bankruptcy, July 1999, [5.8].
(c)He has a duty to act honestly and impartially in relation to the administration of the estate of a bankrupt.[4]
[4]Bankruptcy Regulations 1996 (Cth) sch 4A cl 2.2.
(d) The trustee, in exercising his or her powers and discretions under the Act, should not only consider the interests of creditors. In support of this, the defendant relies on the following statements of principle:
(i) A trustee ‘is under a general duty to exercise the powers committed to him in such a fashion that the objects of the Act, including those of equality between creditors and fairness to bankrupts and debtors, are served’.[5]
[5]Re Lamb; Ex parte Registrar in Bankruptcy (1984) 1 FCR 391, 396 (Sweeney J) cited with approval in Lamb v Registrar in Bankruptcy (Vic) (1984) 4 FCR 269, 270-1 (emphasis added); Inspector-General, Practice Direction 14 – Proper Performance of Duties of a Bankruptcy Trustee, 22 June 2008, [4.19].
(ii) The trustee is bound to administer the estate in accordance with the Act and the Bankruptcy Rules 1968 (Cth). ‘The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; secondly, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act.’[6] The defendant referred to Practice Direction 14 of the Inspector-General published by the Australian Financial Security Authority, which quotes the principle above from Adsett v Berlouis.[7]
[6]Adsett v Berlouis (1992) 37 FCR 201, 208 (Northrop, Wilcox and Cooper JJ) (emphasis added).
[7]Inspector-General, Practice Direction 14 – Proper Performance of Duties of a Bankruptcy Trustee, March 2010, [4.21].
(iii) ‘An essential feature of any modern system of bankruptcy law is that provision is made for the appropriation of the assets of the debtor and their equitable distribution amongst his creditors, and for the discharge of the debtor from future liability for his existing debts’.[8]
(iv) ‘The modern bankruptcy law serves three purposes. The first is to ensure that the assets of the bankrupt are distributed rateably among creditors. The second, which is interrelated to the first, is to ensure that one creditor does not obtain an undue advantage over other creditors. The third, is to bring about the discharge of the debtor from future liability for his existing debts, so that the debtor may start afresh’.[9]
[8]Storey v Lane (1981) 147 CLR 549, 556 (Gibbs CJ) (emphasis added).
[9]Re McMaster; Ex parte McMaster (1991) 33 FCR 70, 72-3 (Hill J) citing Storey v Lane (1981) 147 CLR 549, 556 (emphasis added).
Beyond power
The defendant submits that the plaintiff’s powers as trustee under s 134 of the Act is limited to the institution of legal proceedings ‘relating to the administration of the estate’ and that this proceeding does not relate to the administration of the estate for the following reasons:
(a)The plaintiff instituted the proceeding for an ulterior purpose (referred to in more detail below).
(b)The proceeding ‘had no present utility’ because the bankrupt’s liability to pay the contributions would not be affected by his discharge.
Ulterior purpose
The principles applicable to the determination of an abuse of process were not in dispute and are referred to in [23] below. In substance, the submission was that if a proceeding has been brought for the predominant purpose of obtaining a collateral advantage, the proceeding is an abuse of process and is liable to be stayed.
The defendant contended that the predominant purpose of the proceeding was to pressure the extended Weeden family, directly or indirectly through the defendant, to discharge the defendant’s contribution assessments. In summary, the defendant submitted as follows:
(a) The letter of 8 April 2013 included the following:
(i)If the defendant was to ‘procure payment’ of the contribution assessments, he would be discharged from bankruptcy. The use of the word ‘procure’ was consistent with the plaintiff having the intention that the payment would come from a party other than the defendant.
(ii)The letter asserts that the plaintiff will be able to recover amounts due to the defendant by virtue of the defendant’s entitlement under his mother’s will.
(iii)The letter makes reference to the prospect of further bankruptcies and the possibility that ‘his bankruptcy will continue ad infinitum’.
(iv)The letter suggests a meeting to be attended by ‘all relevant members of the Weeden family (including Mrs Goldstone and Mrs Weeden)’.
(b) In substance, the threats of further action in the letter were intended to place pressure on the defendant’s family to pay the contribution assessments because the plaintiff was aware that:
(i) the defendant’s solicitor also acted for the defendant’s family; and
(ii) the defendant was unable to pay the contribution assessments from his own resources.
(c) The purpose of the proceeding was in furtherance of these threats and pressure, which constituted an ulterior and improper purpose such that it made the filing of this proceeding and the application of summary judgment an abuse of process.
(d) The defendant relied upon a decision of Gardiner AsJ in IMO DW Marketing Pty Ltd (in liq).[10] In summary, in that case Gardiner AsJ found that the filing of summonses for examination of directors and the company accountant by a liquidator under ss 596A and 596B of the Corporations Act 2001 (Cth) was an abuse of process. The abuse of process consisted of the resumption of the examinations being for the predominant purpose (as found by Gardiner AsJ) of causing expense and inconvenience to the examinees if a demand, which included amounts that could not have been recoverable against the directors, was not met.[11]
(e) Although if this proceeding was stayed the plaintiff could issue a fresh proceeding, the Court should nonetheless stay the proceeding, in the exercise of its discretion, to emphasise the Court’s lack of preparedness to tolerate abuses of its processes.
(f) The timing of the filing of the proceeding, being near the end of the 8 year period of the bankruptcy, was indicative of the improper purpose.
[10][2009] VSC 663.
[11]Ibid [47].
The plaintiff’s submissions
The plaintiff submitted as follows:
(a)The plaintiff, as the trustee of the bankrupt estate, had not only a right but a duty to recover the contribution assessments, which were debts due to the estate of the bankrupt.[12] In particular, Mr Galvin QC, who appeared for the plaintiff with Mr Fary, referred to s 19 of the Act which provides that the duties of a trustee of the estate of a bankrupt includes ‘taking appropriate steps to recover property for the benefit of the estate’.[13] He submitted that if the plaintiff failed to take proceedings to recover the debts, the plaintiff could be liable to the estate because it was ‘the trustee’s obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditor’s claims and any possible surplus for the bankrupt’.[14]
[12]The Act s 139ZG.
[13]The Act s 19(1)(f).
[14]Adsett v Berlouis (1992) 37 FCR 201, 206 (Northrop, Wilcox and Cooper JJ).
(b)The contribution assessments were made pursuant to div 4B of pt VI of the Act which were part of the amendments introduced in 1992 and are sometimes referred to as the ‘Skase amendments’. Counsel for the plaintiff submitted that the reason for the amendments was accurately described in an article by Mr Peter Agardy as follows:
The amendments were inspired by frustration on the part of the authorities over the apparent ineffectiveness of the Act to control some bankrupts who were perceived to be able to publicly flout the system. In a media release issued 8 August 1991, the then Minister for Justice and Consumer Affairs, Senator Michael Tate, had foreshadowed tougher laws for ‘high flyer bankrupts who seem to be able to maintain a lavish lifestyle without making any effort to repay their creditors’.[15]
[15]Peter Agardy, ‘Bankruptcy: A Legal Practitioner’s Perspective’ (1996) 4 Insolvency Law Journal 127, 129.
(c)Pursuant to these provisions, the contribution payable by a bankrupt may be referenced to income, which is defined to include the value of a benefit provided by a third party to the bankrupt.[16] Accordingly, it was submitted that it is a necessary corollary to the enactment of div 4B of the Act that a bankrupt may be indebted to the estate for an amount referenced to ‘income’, which he had not in fact received as a monetary payment. In this case, the contribution assessments were substantially based on ‘income’ the bankrupt received by reason of him residing in a valuable house in Toorak. Accordingly, it was submitted that:
(i)the Act necessarily contemplates the bankrupt incurring a debt, which he may not be able to repay; and
(ii)the enforcement of this statutory debt by the trustee could not be improper by reason of the fact that the bankrupt did not have the capacity to repay the debt.
(d)The defendant does not contend that he is not indebted to the plaintiff or that he has a defence to the plaintiff’s claim on the merits. Accordingly, the defendant’s application amounted to an application to review the trustee’s conduct in carrying out his duties under the Act and that this Court does not have the necessary supervisory jurisdiction.
(e)The plaintiff disputed the defendant’s contention that he was aware that the defendant was, and would be, unable to satisfy any judgment because the defendant may well have an entitlement to an amount under the will of his late mother. Further, if the defendant did not currently have the necessary resources the judgment would be capable of being enforced for 15 years by a variety of means other than bankruptcy proceedings.
(f)The stay of the proceeding would serve no purpose because the plaintiff could simply file a fresh proceeding.
(g)It was necessary, in fulfilment of the plaintiff’s duty to the creditors of the bankrupt’s estate, to file the proceeding at this time because of the impending expiration of the limitation period for the earlier contribution assessments.
[16]For example, s 139L(l)(v) of the Act.
Abuse of Process
The principles to be applied by a court in determining whether there has been an abuse of process are not in dispute. I summarise them as follows:
(a)The Supreme Court may order a stay of any proceeding, which is an abuse of process, pursuant to its inherent jurisdiction.[17]
(b)The categories of abuse of process are not closed. However, many cases of abuse of process will exhibit at least one of the following three characteristics:
(i)the invoking of a court’s processes for an illegitimate or collateral purpose;
(ii)the use of the court’s procedures would be unjustifiably oppressive to a party; or
(iii)the use of the court’s procedures would bring the administration of justice into disrepute.[18]
(c)There is a ‘heavy’ onus on the party seeking to establish an abuse of process and the power to grant a permanent stay will only be exercised in the most exceptional circumstances.[19]
[17]Williams v Spautz (1992) 174 CLR 509, 518.
[18]PNJ v The Queen (2009) 252 ALR 612, 613 [3].
[19]Williams v Spautz (1992) 174 CLR 509, 529.
In this case, the defendant alleges that the plaintiff has filed this proceeding for an illegitimate or collateral purpose. In this context, it has been held that it is an abuse of process if the predominant purpose is ‘other than that for which [the proceeding] was designed’.[20]
[20]Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 469 (Slade LJ).
The notion of ‘collateral advantage’ has been recently considered by the Court of Appeal in Treasury Wine Estates Ltd v Melbourne City Investments Pty Ltd where Maxwell P and Nettle JA said as follows:
The authorities distinguish between two types of case. On the one hand, a proceeding will not be regarded as an abuse of process by reason only that it is brought for the purpose of taking collateral advantage of any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding. On the other hand, if a proceeding is brought for the predominant purpose of obtaining collateral advantage from the existence of the proceeding as such, as opposed to collateral advantage flowing from any judgment or settlement in vindication of legal rights or immunities which might be obtained in the proceeding, it will be an abuse of process and liable to be stayed.[21]
[21][2014] VSCA 351 [11].
The case law is replete with authorities where the Court has determined that the facts of that particular case put it on one or other side of the line identified by the majority in the Court of Appeal. I do not consider that a recitation of these cases, determined as they are on their own facts, assists in the determination of this application.
In my opinion, the plaintiff’s proceeding has not been filed for an ulterior or collateral purpose and is not an abuse of process for the following reasons:
(a)The plaintiff has a claim against the defendant for a debt, which is undisputed, and all of the actions taken by the plaintiff, which are relied upon by the defendant, including the letter of 8 April 2013, the filing of this proceeding and the application for summary judgment, have been directed to the vindication of that right, being the payment of the undisputed debts. This circumstance is readily distinguishable from IMO DW Marketing Pty Ltd (in liq)[22] because in that case examination procedures were to be used, not for the predominant purpose of obtaining information from the examinee; but for the purpose of encouraging payment of a debt by the examinees to avoid the trouble, expense and inconvenience, which would be caused to them by the examinations. In this case, the plaintiff is attempting to vindicate his right to recover the debt through the usual and proper means of a letter of demand, the filing of a proceeding and an application for summary judgment.
[22][2009] VSC 663.
(b)The letter of 8 April 2013 does not, in my opinion, include any improper threats. The letter does set out the potential consequences of the failure by the defendant to satisfy the debt; but it does not suggest any steps would be taken to vindicate the plaintiff’s rights other than usual and proper steps.
(c)I do infer, and it is not disputed by the plaintiff, that the letter does suggest that the defendant may wish to procure associated persons or entities to assist him in satisfying the debt; and further, asks ‘whether your client [the defendant], his wife and the relevant members of the Weeden family are interested in meeting with our client so as to discuss a proper and commercial resolution’. However, I do not consider that the letter contains any threat, much less an improper threat, against the associated persons or entities; and the fact that the Act allows contribution assessments to take into account benefits provided by associated entities of the bankrupt strongly implies that such associated entities may also be the source of funds to satisfy such contribution assessments. The explanatory material to the amendments support this proposition by the following statements:
8. Many bankrupts earn quite large incomes after bankruptcy and for all practical purposes are not required to make any repayment to creditors from that income. In a case where the bankrupt has few if any divisible assets, the creditors will get nothing out of the process at all, notwithstanding that the bankrupt may have considerable capacity to pay. Further, some bankrupts manage to put their assets out of the reach of creditors, and to channel income away from themselves through the use of associated individuals, companies, partnerships or trusts, which are referred to in the Act as ‘associated entities’ of the bankrupt. These associated entities may, and usually do then provide the bankrupt with substantial non-cash benefits, such as free or low cost housing, motor vehicles, boats, and payment of expenses. …
9. The Bill tackles these difficulties. The term ‘income’ is defined to include not only income according to ordinary conceptions and usages, but also to include benefits, which, if they were provided by an employer to an employee would be taxable as fringe benefits under the Fringe Benefits Tax Assessment Act 1986.[23]
(d)Further, the reference to the consideration that ‘Many bankrupts earn quite large incomes after bankruptcy’ implies that parliament intended that the trustee in bankruptcy could ultimately recover the debts arising from the contribution assessments after the bankrupt’s discharge from bankruptcy. Accordingly, I do not consider that it was improper for the plaintiff to file this proceeding shortly prior to the defendant’s discharge from bankruptcy, even if at the time of filing the proceeding the plaintiff had reason to believe that the defendant did not have the means to satisfy the debt claimed in the proceeding. The propriety of the plaintiff so acting, and the prospect of him being found in breach of his duties to the creditors of the bankrupt estate if he did not file the proceeding, is supported by the fact that it was arguable that, if the proceeding had not been issued promptly, part of the claim would become statute barred.
(e)A further factor in support of the propriety of the plaintiff filing the proceeding was the real prospect that, on the death of the defendant’s aged mother, the defendant could have a substantial entitlement under her will.
(f)Even if it was considered that the letter of 8 April 2013 was improper for the reasons contended by the defendant, I would not find that the filing of a writ nearly 18 months later simply claiming the undisputed debt, nor the application for summary judgment for such a sum, to be an abuse of process. Further, in my opinion, if the plaintiff had made improper threats to third parties or otherwise, such action would not require the Court to stay a claim made by the plaintiff for the recovery of an admitted debt in the proper manner (namely, by the filing of a proceeding).
(g)The defendant has undoubtedly been an undischarged bankrupt for an extended period of time and the letter of 8 April 2013 specifically suggests the prospect of a further bankruptcy. If the reliance on the judgment sought by the plaintiff in support of a creditor’s petition for bankruptcy is inappropriate, I consider that to be a matter for the Federal Court to consider, in the exercise of its discretion under s 52(2)(b) of the Act, on the application for sequestration.[24] I do not consider the fact that a judgment entered in this proceeding may be used as a ground for a subsequent bankruptcy application is a reason for staying this proceeding. The judgment may be enforced in a variety of ways other than by the making of an application for bankruptcy.
[23]Explanatory memorandum, Bankruptcy Amendment Bill 1991 (Cth), [8]-[9].
[24]As to the discretion of the Federal Court see Re Ditfort; Ex parte Deputy Federal Commissioner of Taxation(1988) 19 FCR 347, 366-7 (Gummow J).
Failure to call evidence
Counsel for the defendant submitted that a Jones v Dunkel[25] inference should be drawn against the plaintiff for his failure to file an affidavit or lead other evidence in chief as to the propriety of his motives in filing the proceeding. On the other hand, counsel for the plaintiff submitted that any inference should be drawn against the defendant for his failure to cross-examine the plaintiff, who had filed an affidavit and was not required to attend for cross-examination.
[25](1959) 101 CLR 298.
The principle in Jones v Dunkel[26] extends to a case where a party fails to ask questions of a witness in examination in chief.[27] Accordingly, it was submitted on behalf of the defendant that I could infer that the plaintiff’s evidence on this issue would not have assisted his case and the Court is entitled to be bold in drawing inferences against the plaintiff. In the present case, I do not consider the availability of the inference is determinative for the following reasons:
(a)As stated above, there is a heavy onus on the person asserting the abuse of process; and I would not consider that the surrounding circumstances are sufficient to support the defendant’s contention even in the absence of evidence from the plaintiff.
(b)It is likely that the self-serving evidence of the plaintiff as to his subjective motivation in filing the proceeding would be of as little assistance in determining this issue, as would have been formal puttage by the defendant in cross-examination of improper motives.[28]
(c)The application of the Jones v Dunkel[29] principle in the failure to lead particular evidence in examination in chief is an esoteric point and I do not consider that the failure to lead evidence from the plaintiff on this point was, in the circumstances of this case, motivated by concern about his ability to give favourable evidence about his intentions.
(d)In my opinion, the issue is somewhat ameliorated by the fact that the defendant did have the capacity to cross-examine the plaintiff if it was considered desirable to do so.
[26]Ibid.
[27]Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418 [F] (Handley JA).
[28]See eg, Riley v Penttila [1974] VR 547, 572; AWB Riskassist Ltd v Barlow [2011] VSC 258 [17] (Pagone J).
[29](1959) 101 CLR 298.
Orders
Accordingly, I propose to make the following orders:
1.The defendant’s summons filed 17 December 2014 be dismissed.
2.On the plaintiff’s summons filed 29 October 2014, judgment be entered for the plaintiff against the defendant for the sum of $910,624.13 plus interest pursuant to the Supreme Court Act 1986.
I will hear the parties on interest and costs.
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