CATCHWORDS

BANKRUPTCY -  stay of criminal proceedings against bankrupt for breach of condition of recognisance that he repay a provable debt - exercise of discretion - stay granted where effect of recognisance is to give advantage to one creditor over others.

Bankruptcy Act 1966 (Cth), ss 60(1)(b)(i), 149(2)

Crimes Act 1900 (NSW), s 558

Re Lattouf (1994) 52 FCR 147

Tarea Management (North Shore) Pty Ltd (in liq.) v Glass (1991) 28 FCR 93

Champion v R. (1992) 64 A Crim R 244

Storey v Lane(1981) 147 CLR 549

Re Lenske (1986) 9 FCR 532

Re Sutherland-Cropper (1985) 11 FCR 156

RE: NOEL MICHAEL LATTOUF; EX PARTE NEW SOUTH WALES DIRECTOR OF PUBLIC PROSECUTIONS v LATTOUF

NB 5251 of 1992

SACKVILLE J.

SYDNEY

20 SEPTEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA)

BANKRUPTCY DISTRICT OF THE STATE OF   )

NEW SOUTH WALES                       )  No. NB 5251 of 1992

BANKRUPTCY DIVISION               )

                             RE:  NOEL MICHAEL LATTOUF

                                  Bankrupt

                                  EX PARTE:

                                  NEW SOUTH WALES DIRECTOR OF PUBLIC PROSECUTIONS

                                  Applicant

                                  AND:

                                  NOEL MICHAEL LATTOUF

                                  Respondent

CORAM:    SACKVILLE J.

PLACE:    SYDNEY

DATE:         20 SEPTEMBER, 1995

                      MINUTES OF ORDER

THE COURT ORDERS THAT:

1.   The application filed by the New South Wales Director of Public Prosecutions on 14 May 1993 be dismissed, with costs.

NOTE:          Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

BANKRUPTCY DISTRICT OF THE STATE OF   )

NEW SOUTH WALES                       )No. NB 5251 of 1992

BANKRUPTCY DIVISION               )

                             RE:  NOEL MICHAEL LATTOUF

                                  Bankrupt

                                  EX PARTE:

                                  NEW SOUTH WALES DIRECTOR OF PUBLIC PROSECUTIONS

                                  Applicant

                                  AND:

                                  NOEL MICHAEL LATTOUF

                                  Respondent

CORAM:    SACKVILLE J.

PLACE:    SYDNEY

DATE:     20 SEPTEMBER, 1995

                    REASONS FOR JUDGMENT

The Present Proceedings

On 26 May 1992, Mr Noel Michael Lattouf was made bankrupt on a debtors' petition filed jointly by himself and his wife.  For reasons that will become apparent, I shall refer to Mr Lattouf as the respondent.  The other party to the proceedings is the New South Wales Director of Public Prosecutions, to whom I shall refer as "the DPP". 

In March 1993, the respondent sought an order, pursuant to s.60(1)(a) of the Bankruptcy Act 1966 (Cth) ("the Act"), discharging a condition of a recognisance imposed on him under s.558 of the Crimes Act 1900 (NSW) by the District Court at Parramatta.  The condition required him to pay compensation to

a company identified as Sun Corporation Insurance Company ("Suncorp") by monthly instalments.   The condition was imposed following the respondent's conviction in the District Court on 4 February 1992, on a charge of fraudulent conversion of a motor vehicle.

Section 60(1) of the Bankruptcy Act 1996 provides as follows:

     "The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit:

     (a)  discharge an order made, whether before or after the commencement of this subsection, against the person or property of the debtor under any law relating to the imprisonment of fraudulent debtors and, in a case where the debtor is imprisoned or otherwise held in custody under such a law, discharge the debtor out of custody; or

     (b)  stay any legal process, whether civil or criminal and whether instituted before or after the commencement of this subsection, against the person or property of the debtor:

          (i)  in respect of the non-payment of a provable debt or of a pecuniary penalty payable in consequence of the non-payment of a provable debt; or

          (ii)in consequence of his refusal or failure to comply with an order of a court, whether made in civil or criminal proceedings, for the payment of a provable debt;

          and, in a case where the debtor is imprisoned or otherwise held in custody in consequence of the non-payment of a provable debt or of a pecuniary penalty referred to in subparagraph (i) or in consequence of his refusal or failure to comply with an order referred to in subparagraph (ii), discharge the debtor out of custody."

The application by the respondent was heard unopposed by Sheppard J., on 20 April 1993.  Although the application had been served
on several parties, it had not been served on the DPP.  It is not entirely clear whether the application was formally amended or not.  In any event, his Honour made an order, not under s.60(1)(a), but under s.60(1)(b) of the Act.  His Honour ordered that the proceedings in the District Court

     "be stayed so far as such proceedings are based upon any alleged breach of the condition of the recognisance entered into by the bankrupt on 4th February 1992 that he pay compensation to [Suncorp]".

On 14 May 1993 the DPP applied to the Court for an order setting aside the order made by Sheppard J. and dismissing the application made by the respondent.  It is that application that gives rise to these proceedings.

In the course of the DPP's application, a special case was referred for the consideration of the Full Court.  The special case asked two questions:

     (a)  Did the Federal Court have power to grant the application under s 60(1)(b) of the Bankruptcy Act 1966 (Cth)?; and

     (b)  If the answer to (a) is in the affirmative, did the Federal Court err in the exercise of its discretion in granting the application?"

The Full Court (Wilcox, Einfeld and Carr JJ.) answered the first question in the affirmative: Re Lattouf (1994) 52 FCR 147.  In relation to the second question, the Full Court said this (at 153):

     "As previously indicated, the parties invited us not to answer the second question at this stage.  They preferred that the issue between them regarding the proper exercise of the Court's discretion be referred
back to a primary judge before whom they might adduce further evidence, if they wish.  We will accede to that request."

Before me, Mr De Buse, who appeared for the respondent, and Mr Aitken, who appeared for the DPP, agreed that the matter should be treated as a hearing de novo.  By that I understood them to mean that the issue should not be confined to whether Sheppard J. had erred in the exercise of his discretion, having regard to the material before his Honour.  Rather, it was to be approached by considering the question of discretion afresh, having regard to such material as the parties chose to adduce before me.  Accordingly, as the Full Court envisaged, affidavits were read by both the respondent and the DPP.  The respondent was cross-examined and some findings will be necessary in relation to his evidence.

I did not understand the agreement between the parties to alter the fact that Sheppard J.'s order, made on 20 April 1993, has remained in force.  If I find that the discretion conferred by s.60(1)(b) should not be exercised in favour of the respondent, it would be appropriate to grant the DPP's application to set aside the stay.  If I find that the discretion should be exercised in favour of the respondent, the appropriate order would be to dismiss the DPP's application.    These procedural matters are of some importance because of the respondent's discharge from bankruptcy after the date the Full Court gave its answers on the special case.

Discharge from Bankruptcy

At the time the Full Court dealt with the special case, the respondent had not been discharged from bankruptcy.  However, I was informed from the bar table that the respondent had been discharged from bankruptcy on 26 May 1995, by virtue of s.149(2) of the Act.  A question was raised by me in argument as to the effect of the discharge, if any, upon the power of the Court to make orders under s.60(1)(b) of the Act.  Mr De Buse submitted, and Mr Aitken accepted, that the respondent's discharge from bankruptcy created no barrier to the exercise of the power conferred by s.60(1)(b).  The reason given was that decisions of this Court had established that the fact that an respondent has been discharged from bankruptcy does not prevent the Court exercising the powers conferred by the sub-section.  I was referred to Re Rooney; Ex parte Rooney (1986) 13 FCR 175 (FCA/Pincus J.), approved in Tarea Management (North Shore) Pty Ltd (In liq.) v Glass (1991) 28 FCR 93 (FCA/FC), at 98-99.

After the hearing, I drew to the attention of the parties that the concession by the DPP as to the power of the Court under s.60(1)(b) might not have been correct.  I did so because of the observations made by Hill J., with whom the rest of the Court agreed, in Tarea Management v Glass, at 99:

     "It follows, therefore, that the decision of Pincus J. in Re Rooney was correctly decided.  On the circumstances of the present case, the mere fact that the bankrupt had been discharged did not preclude the making of an order by the court under s.60(1).  It would have been different had the debt, otherwise provable in the bankruptcy, been released." (Emphasis added.)

The last sentence of this extract suggests that the power to make an order under s.60(1)(b) cannot be exercised if a bankrupt has been discharged from bankruptcy and the debt in respect of which the power is sought to be exercised has been released.  In Tarea Management v Glass, the provable debt, which had been incurred as the result of fraud or a fraudulent breach of trust, had not been released by the bankruptcy, because of the operation of s.153(2) of the Act: 28 FCR at 99.  In the present case, it seems to be common ground that the respondent's debt to Suncorp, which the Full Court accepted was created by the respondent acknowledging his indebtedness (Re Lattouf, at 151), was released by the respondent's bankruptcy.  Since the issue concerns the power of the Court to grant relief, I invited further written submissions from the parties on the point.  These were duly provided.

Mr Aitken, in his written submissions resiled from the concession previously made and argued that, by reason of the respondent's discharge from bankruptcy, the Court lacked the power to make any order under s.60(1)(b) of the Act.  Mr Aitken did not direct attention to the procedural history of the matter.

Mr De Buse, in his submissions, pointed out that the matter remitted to me was not whether a stay should be granted under s.60(1)(b) of the Act.  The order made by Sheppard J., on 20 April 1993, had already stayed the proceedings in the District Court and that order had never been discharged.  Moreover, the order was made at a time when the respondent was an undischarged
bankrupt.  Therefore, no issue arose as to the power of the Court to make an order when an applicant has been discharged from bankruptcy.  Mr De Buse contended that the "matter" that had been remitted was question (b) in the special case, namely:

     "did the Federal Court err in the exercise of its discretion in granting the application [for a stay]?"

If the answer to that question were in the negative, there would be no occasion to make a fresh order for a stay, since Sheppard J.'s order would simply remain undisturbed.

Having regard to the way in which the proceedings were conducted before me I do not think that issue canvassed before me was strictly confined to question (b) in the special case.  Rather, as I have said, I have been required to exercise the discretion afresh.  But the fact remains that a stay under s.60(1)(b) was granted by Sheppard J. at a time when the respondent was an undischarged bankrupt.  As I have explained, no question arises in the proceedings before me as to whether an order should be made under s.60(1)(b) of the Act on the application of the respondent, who is now discharged from bankruptcy.  The question, in substance, is whether the DPP should succeed in his application to set aside the order made by Sheppard J. when the respondent was an undischarged bankrupt.  The present case therefore does not present the issue raised in the observations of Hill J. in Tarea Management v Glass.

I am accordingly satisfied that I have jurisdiction to deal with the matter debated before me.  There is no need to address Mr De Buse's alternative arguments that Hill J.'s comments in Tarea Management v Glass are, in any event, inapplicable to the circumstances of the present case and that, even if they were applicable, the orders of the Full Court confer jurisdiction to resolve the matter.

The Criminal Proceedings

The respondent was born in 1960 and educated in Melbourne.  In the mid 1980s he set up a hairdressing business in partnership with his wife.  At one stage the partnership conducted six salons, but it experienced financial difficulties.  By early February 1992, the partnership operated only three salons.

On 27 June 1991 the respondent was charged with fraudulently converting a motor vehicle, owned by Ms Helen Karam, to the use of another person.  Ms Karam is the respondent's aunt and the offence was said to have occurred between 1 April 1990 and 27 August 1990.

The respondent pleaded guilty to the charge at Parramatta Local Court and was committed to the District Court for sentence, pursuant to s.51A of the Justices Act 1902 (NSW).  On 4 February 1992, the respondent appeared before his Honour, Judge Gibson QC, at the District Court at Parramatta.  His Honour convicted the respondent, but deferred passing sentence on condition that the respondent entered into a recognisance in the sum of $1,000 to be of good behaviour for a period of three years. 

The recognisance was subject to two conditions.  The first was that he place himself under the supervision and guidance of the Probation and Parole Service and that he obey all reasonable directions of the Service.  The second was that the respondent pay to Suncorp, which was the insurer of the motor vehicle, the sum of $24,630 by monthly instalments of $1,000.  The respondent duly entered into a recognisance in these terms, except that the Community Corrections Service was substituted for the Probation and Parole Service.  As I have noted, the recognisance was entered into pursuant to s.558 of the Crimes Act 1900 (NSW).  The effect of a breach of the terms of a recognisance imposed under that section is to enliven the discretion of the Court to return to the original offences and, if so decided, to sentence for them: Champion v R (1992) 64 A Crim R 244 (NSW CCA), at 253-254, per Kirby P.

The course of the proceedings before Judge Gibson is of some importance to the present proceedings.  The Crown Prosecutor tendered a short statement of facts prepared by a police officer.  According to this statement, the respondent was asked by his aunt, who resided in Queensland, to supervise the repair (apparently including conversion to right hand drive) of the imported motor vehicle.  The respondent used the vehicle for his own purposes and it subsequently developed engine problems.  Because the respondent could not pay for repairs, he arranged for the vehicle to be hidden by a friend.  The respondent told his aunt that the vehicle was "missing", knowing that he hadgiven the vehicle to his friend.  The aunt reported the vehicle stolen
and subsequently received approximately $25,000 from Suncorp as the insurer.  In June 1991 the shell of the vehicle was recovered.  Two other men had been charged with disposing of the vehicle.

The Crown Prosecutor also tendered a brief of evidence, including a letter, dated 16 December 1991, from Suncorp.  This sought compensation in the sum of $24,638, presumably the amount paid out under Ms Karam's insurance policy.

The respondent gave evidence before Judge Gibson.  He stated that he had sold his family home in 1991, in order to meet his debts to the mortgagee bank.  All proceeds of the sale went to the bank.  When asked how the businesses were going "in terms of being able to cover expenses and the like", the respondent replied:

     "We're covering the costs of the business and we're living."

When asked if he was saving money, the respondent said

     "...it's hard saving money, but we're trying."

The transcript records the following evidence and interchanges between his Honour and Mr Clay, solicitor for the respondent:

     "HIS HONOUR:  Q. You still haven't paid back the twenty four thousand that you stole from this company?

     A.   No.

     CLAY:     So that your Honour's not pursuing on a misapprehension, there was no direct financial gain to this prisoner.

     HIS HONOUR:   There was twenty four thousand six hundred and thirty eight dollars that was defrauded from the insurance company directly by this prisoner.

     CLAY:     Indeed your Honour and I didn't--

     HIS HONOUR:   ---just so we don't misunderstand each other.

     CLAY:     Indeed your Honour.

     Q.   In relation to the period of time when this offence took place Mr Lattouf, April to August 1990, would you describe your financial situation?

     A.   I had great financial difficulty in that time, in that period.

     Q.   You had another store at that time at Hurstville, is that correct?

     A.   That's right.

     Q.   Which you'd closed down during that period?

     A.   Yes.

     Q.   Was it a financial success or otherwise?

     A.   I lost a lot of money out of that shop.

     ...

     Q.   Now in relation to the matter of compensation, it was raised with you by the officer from the Probation and Parole Service and I've raised it with you and His Honour has raised it, you've had no contact with the insurance company as yet, is that correct?

     A.   No, sorry, I haven't had any contact with the insurance company.

     Q.   But you are saying today on oath before this court that you undertake to either instruct my firm or yourself make contact with the insurance company to make a proposal to enter into an instalment arrangement as best you can, to pay the sum which they have lost, is that correct?

     A.   Yes.

     Q.   You do give that undertaking to the court today?

     A.   Yes

     HIS HONOUR:  Not good enough.

     CLAY: Q.  Have you had the capacity to borrow or pay the sum of twenty four thousand dollars between or in the last twelve months to the insurance company?

     A.   Have I had the capacity?

     Q.   Do you have the capacity to pay in cash or borrow the sum of twenty four, twenty five thousand dollars to pay to the insurance company?  Have you in the last twelve months been physically, financially able to do that?

     A.   If I can do it, I'll do it, I'll do what I can to pay it.  If I have to borrow I'll borrow.

     HIS HONOUR: Q.  Well let me put it to you this way Mr Lattouf, unless I get a concrete proposition to pay this twenty four thousand six hundred and thirty eight dollars back to the insurance company, you will be going to gaol.  Now do you understand?

     A.   Yes sir.

     HIS HONOUR:  Well, I suggest you go and discuss the matter with  your solicitor.  Mr Clay I'll give you an adjournment now and  you can come back and just let me know and I'm not talking about a hundred dollars a month.

     CLAY:     No your Honour.

     HIS HONOUR:   People that come in here owing large amounts of money to insurance companies and think they're going to float out because it's to an insurance company are entirely wrong.  Two o'clock.  Bail is continued during that period.

     ..."

After the luncheon adjournment, the respondent gave further evidence.

     "CLAY:  Q.    Mr Lattouf during the adjournment you gave me instructions to telephone Sun Corp Insurance, is that correct?

     A.   Yes.

     Q.   And following my conversation with Sun Corp Insurance, you've signed a document which to your knowledge has now been forwarded by facsimile to Sun Corp, is that correct?

     A.   Yes."

The document to which the respondent's solicitor referred was an acknowledgment in the following terms:

                       ACKNOWLEDGMENT

     To:  Suncorp Insurance and Finance

          Cnr Albert St and Turbot St

          BRISBANE  QLD.

     I, NOEL MICHAEL LATTOUF of 78 Victoria Road, Parramatta HEREBY:

     1.   Acknowledge a debt due by me to SUNCORP Insurance and Finance in the sum of $24,638.00 ("the Debt") arising in respect of the alleged loss of motor vehicle RFD-670.

     2.   I agree to repay the debt by monthly instalments of $1,000.00 payable on the fourteenth day of each month and the first payment to be made on 14 February 1992.

          (signed)                     (signed)

          N.M. LATTOUF                 WITNESS

          DATED: 4 February 1992

His Honour, having seen the acknowledgment, proceeded to the sentencing of the respondent.  I have already referred to the terms on which sentence was deferred.  His Honour's brief reasons included the following observations:

     "And I can assure you that if you had not made the arrangements to repay the money in the way that you did, you would have gone to gaol.  Because it is just not a situation that people can go around defrauding insurance companies in this State, and that is looking at it in the best light there was.  There are other ways one could look at what you did on this occasion, which reflect to a large extent on your honesty.

     However I am prepared to give you this opportunity, because of your age and your background, and in light of the fact that you have made these arrangements with appropriate insurance company to repay the sum of twenty four thousand odd dollars that they were defrauded of."

I pause to observe that it is not entirely clear what his Honour had in mind when referring to the "defrauding" of the insurance company.  The statement of facts (as the respondent's solicitor pointed out to his Honour) did not suggest that the respondent obtained a monetary benefit from the conversion of the motor vehicle.  Nor was there any suggestion that the owner of the vehicle was party to any fraud.  Clearly the respondent's acts resulted in the loss of the vehicle which, in turn, occasioned the payout by Suncorp, pursuant to the terms of the policy held by the owner.  No doubt Suncorp was entitled to recover from the respondent the amount paid to the owner of the vehicle, since Suncorp would have been subrogated to the owner's right to bring an action in conversion.  But the respondent's actions, although dishonest and occasioning loss to the insurer, would not usually be described as "defrauding" the insurer.  In any event, his Honour very clearly intended that the respondent should reimburse Suncorp for the amount paid out by it to the owner of the vehicle.

The Respondent's Financial Position

The respondent's affidavit evidence in these proceedings showed that, by the end of 1991, he owed creditors approximately $500,000 by reason of debts incurred in connection with the hairdressing business.  On 7 February 1992, three days after his conviction, the respondent filed an affidavit in civil proceedings which showed that his liabilities exceeded assets by $537,000 and that he had a weekly income of $405.  I infer that, on 4 February 1992, the respondent's financial position was substantially as was stated in the affidavit of 7 February 1992.

Subsequent Events

The respondent gave evidence before me that, during the adjournment in the proceedings before Judge Gibson, he contacted one of his sisters in law, Mary Rahme, and asked her if she could help out with the payments that had to be made to Sun Corp.  On the respondent's version, Ms Rahme said she would do what she could to help, and she duly made four monthly payments of $1,000 to Suncorp.  I shall refer to this evidence later.  However, it was common ground that, in fact, four monthly payments of $1,000 were made to Suncorp in reduction of the debt acknowledged by the respondent.  A further $2,000 was recouped by Suncorp from the disposal of the wreck and parts of the vehicle recovered by the police.

In the meantime, the respondent's financial position did not improve.  On 13 April 1992 a bankruptcy notice was issued by Schwarzkopf Pty Ltd, a creditor of the hairdressing business.  The notice was directed to the respondent and Ms Rahme, and required payment of a judgment debt of $8,492.  It was served on the respondent a short time after it was issued.

On 26 May 1992 the respondent and his wife presented a debtors' petition against their partnership, under s.56 of the Act.  The debtors' joint statement of affairs detailed liabilities totalling $627,101 against joint assets of $5,100.  The respondent's individual statement of affairs showed further unsecured creditors totalling $118,078, including the sum of $21,630 said to be due to Suncorp under a "court order".  The respondent was declared bankrupt by order of the Court on the day the debtors' petition was presented.

The respondent's statement of affairs revealed that a total of $3,000 had been paid to Suncorp.  The reason for the apparent disparity between the figure and the $4,000 actually paid was not explored in evidence.  The statement of affairs also required the respondent to state when he first became unable to pay his debts as and when they became due.  The respondent replied to this question as follows:

     "End of year '91. 

     Sick of creditors' harassment."

The respondent claimed in his affidavit that an officer of the Official Trustee had told him, shortly after he became bankrupt, that the court order to pay Suncorp (as he understood the effect of the recognisance) was in respect of a "provable debt" and that therefore he did not have to pay any further instalments to the company.  Whatever the truth of this account, no further payments were made to Suncorp by or on behalf of the respondent after his bankruptcy.

On 13 August 1992, Judge Gibson directed that the respondent be called up for breach of the recognisance.  The breach allegedwas an alleged failure to accept the supervision and guidance ofthe Community Correction Service.  On 16 October 1992 the respondent appeared before Judge Gibson in respect of the alleged breach.  The matter was stood over on that occasion and on several subsequent occasions.

On 19 March 1993 the respondent applied to this Court for a stay, which (as I have noted) was granted by Sheppard J. on 20 April 1993.  On 30 April 1993, the matter came before Judge Gibson and was stood over until a later date.  His Honour directed the DPP to investigate the sentencing options in view of the stay granted by Sheppard J.  As far as I am aware, this is where the matter stands as far as the sentencing process is concerned.

The Full Court Decision

Two issues were argued on the case stated before the Full Court.  The first was whether the notice calling up the respondent for alleged breach of his recognisance was "legal process...in respect of the non-payment of a provable debt" within the meaning of s.60(1)(b)(i) of the Act.  For this purpose the DPP accepted (as Mr Aitkin did before me) that the acknowledgment signed by the respondent on 26 May 1992 created a provable debt by the respondent to Suncorp.  The Full Court (at 151-152) rejected the DPP's argument that the callup was not legal process in respect of the non-payment of the debt, but was in respect of an alleged breach of condition.  The Full Court held, relying on Storey v Lane (1981) 147 CLR 549, that there was a sufficient nexus between the non-payment of the debt and the alleged breach of condition for the case to come within the subsection.

The second issue was whether s.60(1)(b) was ultra vires the Commonwealth Parliament.  The Court held, again following Storey v Lane, that the sub-section was a law with respect to bankruptcy, within the power conferred on the Commonwealth Parliament by s.51(xvii) of the Constitution.  I have already dealt with the orders made by the Full Court.

The Respondent's Evidence

Mr Aitken placed reliance on a passage near the end of the Full Court's judgment in Re Lattouf.  Their Honours said (at 153) that it

     "is important to emphasise that s 60(1)(b) confers a discretion on the  Court.  It ought not be thought that this power must be exercised in favour of a bankrupt in every case.  To take that view would be to risk turning the paragraph into a "rogue's charter" whereby unmeritorious bankrupts could avoid the usual incidents of the criminal law.  The exercise of the discretion must be carefully considered in each case."

Mr Aitken submitted that, on the evidence, the respondent had not acted in good faith at the hearing before Judge Gibson on 4 February 1992 and, indeed, had misled his Honour.  He contended that this was an important factor to take into account in exercising the discretion conferred by s.60(1)(b).  In particular, Mr Aitken invited me to find that the respondent had no bona fide intention of making the payments required under the acknowledgment; that he was fully aware that he was insolvent; and that Ms Rahme, at best, was only able to make monthly payments for a short time.  It is therefore necessary to consider the respondent's evidence on these issues in the proceedings
before me.

The respondent's evidence was by no means consistent, but the substance was as follows.  During the adjournment, after Judge Gibson emphasised to the need for a concrete repayment proposal, the respondent contacted Ms Rahme and was reassured by her that she would help out.  He relied on her assurances in agreeing to make the repayments.  If she had been unable or unwilling to help he would have gone to other relatives.  In the event, she made the four payments of $1,000 directly to Suncorp.  The respondent denied that he was aware on 4 February 1992 that he would shortly be filing for bankruptcy.  He acknowledged that he was "having problems", but said that he was still negotiating with creditors and hoping to avoid bankruptcy.  He filed a debtors' petition only after he was served with a bankruptcy notice and decided that there was nothing else he could do.  He stopped paying the instalments to Suncorp (through Ms Rahme) when he was told by an officer of the Official Trustee that the obligation to pay Suncorp was a provable debt which, as a bankrupt, he did not have to pay.

I formed the view that, generally speaking, the respondent was not a reliable witness and that, accordingly, I should treat his evidence with considerable caution.  There were a number of inconsistencies and improbabilities in his account.  His evidence that, on 4 February 1992, he had asked Ms Rahme to make the payments of $1,000 per month to Suncorp, and that thereafter she had paid the funds from her own resources, was not convincing. 
Ms Rahme was aged 26 in early 1992 and was employed by the respondent, earning (on his account) only about $400 per week gross.  It would seem improbable that she had the resources to make the monthly payments or that the respondent should rely on her to do so.  The respondent's version of what he was told by the Official Trustee's officer was contradicted by a letter from the officer who dealt with the respondent.  I would not be prepared to find that the respondent received the advice he described from the source he nominated.  Nor did I find convincing the respondent's explanation of the circumstances in which he came to swear an affidavit in the Local Court on 7 February 1992 (three days after his appearance before Judge Gibson), which showed that his liabilities exceeded his assets by some $537,000.

Despite my serious reservations about the respondent as a witness, I am not prepared to disbelieve his evidence that, on 4 February 1992, he intended to pay or cause to be paid the sum of $1,000 per month to Suncorp.  I accept his evidence that, at that stage, he did not intend to lodge a debtors' petition.  Nor do I think that the respondent intentionally misled Judge Gibson when he responded to his Honour's statement that "a concrete proposition" to repay the moneys due to Suncorp was required to avoid going to gaol.

It is quite clear that the respondent was perfectly well aware on 4 February 1992 that his liabilities greatly exceeded his assets and that he was unlikely to be able to pay the instalments
from his own resources (that is, without borrowing or receiving assistance from his family).  But it must be remembered that the respondent was confronted, without prior notice, with a stark choice by the sentencing judge: either put forward a "concrete proposition" to pay the debt to Suncorp or go to gaol.  The respondent's reply to a question from his solicitor as to whether he had the capacity to pay $25,000 was hardly an unequivocal assertion that he had the funds on hand to discharge the debt.  Nor was it an assurance that the debt ultimately would be paid in full:

     "If I can [do] it I'll do it, I'll do what I can to pay it.  If I have to borrow I'll borrow."

It is true that the evidence as to the respondent's financial position was left in a state of some uncertainty.  But that was largely because the issue, for quite understandable reasons, was not explored in depth. 

There is no evidence that the respondent was aware, in early February 1992, that bankruptcy would or might relieve him from the obligation to pay the instalments.  Indeed, he did not file the debtors' petition until after he had already been served with a bankruptcy notice by one of his many creditors.  More importantly, it is not in dispute that four of the monthly instalments were paid in reduction of the debt due to Suncorp.  Whether the funds were provided by Ms Rahme or by some other source, the fact is that the instalments were paid.  This suggests that, until a supervening event occurred, the respondent intended to pay them, if only because he believed (reasonably enough) that the alternative was gaol.

In my opinion, the likelihood is that the respondent ceased to make payments (or caused them to cease) because he discovered, several months after his conviction, that bankruptcy would or might relieve him from the obligation.  For this purpose, I think it matters little where he learned of this apparent benefit of a debtors' petition.  In my view, he became aware of the likely advantages of bankruptcy in relation to the Suncorp debt at about the time he filed the debtors' petition.

Findings

I make the following findings:

l    On 4 February 1992 the respondent was well aware that he faced a dire financial position and that, in particular, his liabilities greatly exceeded his assets.  He was also aware that it was unlikely he could pay Suncorp monthly instalments of $1,000 from his own resources.

l    At the time, the respondent hoped and believed that he could obtain the funds to meet the required monthly payments to Suncorp.  He intended to take steps to ensure that he could meet the payments, not because of any desire to pay his debts but because he believed that the payments were necessary to avoid gaol.  He did not intend at the time to use the bankruptcy laws to avoid or evade the
payments to Suncorp.

l    The respondent was aware on 4 February 1992 that there was a risk that he might not be able to raise the funds needed to meet the continuing payments to Suncorp, but considered that he had no alternative.

l    The respondent decided not to continue payments at about the time he filed the debtors' petition on 26 May 1992.  At about that time he was told that, as a bankrupt, he did not have to make the payments to Suncorp.  I cannot determine the source of this information.  I think the probabilities are that he was given this information shortly before filing the petition.

l    I think the likelihood is that the respondent's decision to file a debtors' petition was motivated in part by his desire to avoid continuing to make payments to Suncorp.  However, this was not the only reason for his decision.  He was also motivated by the desire to be relieved of his liabilities, which exceeded his assets by over $700,000.

Scope of the Discretion

The discretion conferred by s.60(1)(b) of the Act is to be exercised by reference to the scope and purpose of the legislation: Water Conservation and Irrigation Commission (NSW) v Browning (1947) 74 CLR 492, at 504-505; O'Sullivan v Farrer (1989) 168 CLR 210, at 216.  In Storey v Lane, at 556-557, Gibbs
CJ, with whom Mason, Wilson and Brennan JJ. agreed, set out the objects of s.60(1):

     "Stated shortly, the effect of the provision is to empower the court to relieve a debtor, against whom a petition has been presented, from process (civil or criminal) instituted against him because of his failure to pay a provable debt.  The objects of the paragraph are to ensure that if a sequestration order is (or has been) made against the estate of the debtor his assets will be available for administration in the interest of his creditors generally, to prevent one creditor, who has the right to enforce payment of his debt under some other law, from exercising that right so as to gain an advantage over other creditors, and to protect the debtor from punishment because he has not paid the debt when payment might be a breach of the bankruptcy law.

     ...

     As I have attempted to show, the provisions of s.60(1)(b) are designed to assist in ensuring that the assets of the insolvent debtor are distributed in the interests of creditors generally, to prevent one creditor obtaining an undue advantage over the others, and to prevent the scheme of the Bankruptcy Act from being defeated."

See also the explanatory memorandum accompanying the Bankruptcy Amendment Bill 1979, extracted in Tarea Management v Glass, at 97.

In Storey v Lane, the bankrupt (prior to his bankruptcy) was convicted under Queensland law of paying less than award wages and of failing to pay an employee holiday pay.  The bankrupt was fined and ordered to pay the underpaid wages and the holiday pay due and, in default, was to be imprisoned, in each case, for six months.  The bankrupt failed to make any payments and was taken into custody.  In the meantime he had filed a debtors' petition. Following his imprisonment he applied to the Supreme Court of
Queensland for an order under s.60(1)(b) discharging him from custody.  Gibbs CJ., after upholding the constitutional validity of s.60(1)(b), decided (at 558) that it was unnecessary to remit the application to the Supreme Court:

     "Of course, under s.60(1)(b) the court has a discretion to exercise, but it seems to me clear that in the circumstances of the present case, where the respondent is bankrupt, and unable to comply with the orders made by the industrial magistrate, the Court should exercise the power under s.60(1)(b) and discharge him out of the custody in which he has been placed as a result of the orders made on his conviction on the first and second charges."

It is perhaps not surprising that, in Re Lenske (1986) 9 FCR 532, at 535, Pincus J. observed that there was substance in the contention that the views expressed in Storey v Lane practically compelled an exercise of the discretion in favour of the bankrupt.  Re Lenske was a case in which a debtor who had been convicted of stealing as a servant was ordered to pay restitution, and had subsequently lodged a debtors' petition.  However, in Re Lattouf, at 153, in the passage already cited, the Full Court emphasised that the power should not be exercised in favour of a bankrupt in every case, and care must be taken to prevent unmeritorious bankrupts avoiding the usual incidents of the criminal law.

The Present Case

In the present case, the objects of s.60(1)(b), as stated in Storey v Lane, support the view that the discretion should be exercised in favour of granting a stay.  The effect of the condition attached to the recognisance, if the respondent had
complied with it, would be to give one creditor with a provable debt, Suncorp, an advantage over the respondent's other creditors with provable debts.  The evidence shows that, at least from late 1991 until the respondent's discharge from bankruptcy, his liabilities were substantial and far exceeded his assets.  Had the respondent used assets of his own, acquired prior to his discharge from bankruptcy, to pay Suncorp, those assets would not have been available for the administration of his estate in the interests of creditors generally.

If the respondent had deliberately misled Judge Gibson, or had given an undertaking to the Court intending to circumvent it immediately by reliance on the bankruptcy laws, I would have  regarded those factors as most material to the exercise of my discretion.  So much follows from the observations of the Full Court in Re Lattouf.  But, on the findings I have made, an exercise of discretion in the respondent's favour would not make s.60(1)(b), in its application to the present case, a "rogue's charter".  The respondent signed an acknowledgment of debt intending (for entirely non-altruistic motives) to adhere to its terms.  He subsequently changed course on learning of the likely operation of the bankruptcy laws on the debt due to Suncorp.  Since the respondent had been unable to pay his debts for a considerable period, the lodging of the debtors' petition was by no means an inappropriate course for him to follow.

Mr Aitken criticised the respondent for not revealing to Judge Gibson the full extent of his desperate financial situation, and suggested that he had made a "reckless" statement "as to his capacity to pay".  But, as I have explained, the respondent was confronted with a stark choice.  It was hardly surprising that he was prepared to enter the acknowledgment in favour of Suncorp.  In any event, the respondent's financial situation was not explored in depth in the evidence before Judge Gibson.  The respondent was not asked to give an unequivocal assurance that he had sufficient resources to ensure that Suncorp was paid in full.  I do not think this argument provides a basis for finding that the discretion should not be exercised in the respondent's favour.

I appreciate that the effect of allowing the stay granted by Sheppard J. to remain on foot is to interfere, to some extent, with the sentencing process.  However, as Beaumont J. observed in Re Sutherland-Cropper (1985) 11 FCR 156, at 161, the stated objective of s.60(1) is to interfere in, and even to frustrate, the ordinary criminal process in the circumstances there stated. The observations of the Full Court in Re Lattouf demonstrate that care must be taken not to interfere in a way that encourages convicted persons to mislead courts in relation to sentencing or to take advantage of their own dishonesty.  But I do not think that granting relief in the present case would have that effect.

If it were appropriate to take into account the heinousness or otherwise of the offence, as Pincus J. did in Re Lenske, at 535, the circumstances of the present case would favour the making of an order for a stay.  This is because the offence, although far from trivial, could not be characterised as especially heinous.  However, I think that these are matters more properly left for the consideration of the sentencing judge.  They should not be given significant weight by a judge applying the policy of bankruptcy law, as expressed in s.60(1)(b)(i) of the Act.

I did not understand Mr Aitken to argue that the respondent's discharge from bankruptcy justified me in concluding that the discretion should not be exercised in the respondent's favour.  The principle that creditors of a bankrupt should be treated rateably suggests that the discretion should be exercised in the respondent's favour, given that the debt to Suncorp was a provable debt that should have been dealt with in the course of administration of the respondent's estate as a bankrupt.  In any event, it is only because of the delay necessarily occasioned by the Full Court's determination of the special case that sufficient time has elapsed for the respondent to have been discharged from bankruptcy. It would be curious if the exercise of the discretion conferred by s.60(1)(b) should depend on the extent of delays in dealing with legal issues presented by the application.

Conclusion

Considering the matter afresh, I think that the discretion confirmed by s.60(1)(b) of the Act should be exercised in favour of the respondent.  Accordingly, the application by the DPP to discharge the orders made by Sheppard J. on 20 April 1993 should be dismissed.  The orders made by Sheppard J. do not prevent the District Court from dealing with alleged breaches of the recognisance insofar as they concern conditions other than that requiring the respondent to pay compensation to Suncorp.  Subject to any argument the parties wish to put on costs, the DPP should pay the respondent's costs of the proceedings before me.

                   I certify that this and the preceding 28 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.

                   Associate:

                   Dated:   20 September, 1995

Heard:             9 August, 1995

Place:             Sydney

Decision:          20 September, 1995

Appearances:       Mr L. Aitken, instructed by the New South Wales Crown Solicitor, appeared for the applicant.

                   Mr B. De Buse, instructed by T. Bouzanis, solicitors, appeared for the respondent.