FEDERAL COURT OF AUSTRALIA

Bankruptcy – bankrupt required to pay compensation as condition of recognisance – bankrupt failed to pay – application for stay of criminal proceedings – discretion to stay proceedings in respect of non-payment of a debt – whether to exercise discretion – whether bankrupt deliberately misled District Court as to his financial situation.

Bankruptcy Act 1966, s 60(1)

Storey v Lane (1981) 147 CLR 549, considered

Re Sutherland-Cropper (1985) 11 FCR 156, considered

Lenske; Ex parte Lenske (1986) 9 FCR 532, considered

Keogh; Ex parte Keogh v DPP (1995) 61 FCR 591), considered

Lattouf (1994) 52 FCR 147, considered

Noel Michael Lattouf; Ex parte New South Wales Director of Public Prosecutions v Lattouf, Sackville J, 20 September 1995, (unreported), considered

HAROLD CHARLES TATT V THE NEW SOUTH WALES DIRECTOR OF PUBLIC PROSECUTIONS

NG 7353 of 1998

JUDGE:          BEAUMONT J.

PLACE:          SYDNEY

DATE:            12 AUGUST 1998

ORDERS:

1.      The proceedings in the District Court the subject of the notice of listing for call-up dated 9 February 1998 be stayed so far as such proceedings are based upon a breach of the condition of the recognisance entered into by the bankrupt on 11 April 1996 that he pay compensation to Keltari Pty Ltd (trading as Truck Art).

2.      Reserve liberty to the applicant to apply for further relief on such notice, if any, as a judge may allow.

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

REASONS FOR JUDGMENT

INTRODUCTION

Before the court is an application under s 60 of the Bankruptcy Act 1966 (“the Act”) to stay sentencing proceedings against the applicant in the District Court of New South Wales.  The application arises in the following circumstances.

In 1991, the applicant purchased a second hand White Road Boss prime mover (“the truck”) for about $34,500, which he used to conduct a small trucking business. He decided in August or September 1994 to have some repairs and alterations done to the truck. The applicant engaged Truck Art to perform the work. The final account for the work was more than double the amount quoted to the applicant, who was unable to pay it.

Civil proceedings were commenced against the applicant for recovery of the debt owing.  It appears that he feared that the repairer intended to sell the truck. On 21 February 1995, the applicant went to the Truck Art premises, entered the shed and took the truck. He was later charged with break enter and steal. The truck was impounded, and later released to the applicant on 5 April 1995. On 11 April 1996, the applicant pleaded guilty in the District Court to the charge against him.  Twigg J deferred sentencing conditional upon the applicant entering into a bond to be of good behaviour, and to pay the sum of $44,000 to Truck Art in monthly instalments of $4,000.

The applicant was not able to make these payments. In August 1996, Backhouse J reduced the monthly payments to $1,500. Three payments were made by the applicant.  The applicant was in financial difficulty.  He tried, unsuccessfully, to sell the trucking business. As a result of advice from financial and insolvency consultants, the applicant was made bankrupt on his own petition on 4 September 1997.

THE DISCRETION CONFERRED BY SECTION 60

Section 60 provides, relevantly:

“60.     (1)        The Court may, at any time after the presentation of a petition, upon such terms and conditions as it thinks fit:

            …

(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.” [emphasis added]

The purpose and effect of this provision was described by Gibbs CJ in Storey v Lane (1981) 147 CLR 549 (at 556) as follows:

“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”.

(See also, Re Sutherland-Cropper (1985) 11 FCR 156, Re Lenske; Ex parte Lenske (1986) 9 FCR 532, Re Keogh; Ex parte Keogh v DPP (1995) 61 FCR 591).  The objective of s 60(1) “is to interfere in and even to frustrate the ordinary criminal process in the circumstances there stated”, (Re Sutherland-Cropper, (at 162), above).

The present application relates to the applicant’s failure, contrary to his recognisance, to pay compensation as ordered by the District Court to Truck Art. A distinction may be drawn between a direction to pay compensation, and a situation where the payment of compensation is framed as a condition of the recognisance. A direction to pay compensation would fall squarely within the language of s 60(1)(b)(ii). Proceedings arising from the breach of the compensation condition of a recognisance are properly characterised as proceedings for the sentencing of the offender, not for the payment of a debt.  However, this situation also has a sufficient nexus with the non-payment of a debt owed to justify its description as a process against the person of the debtor “in respect of” the non-payment of the debt for the purposes of s 60(1)(b)(i).  As I said in Re Sutherland-Cropper (at 161):

“True it is, as the respondent contends, that the offence involved is one of obtaining property by false pretences and the process now in train is for sentence for that offence. But the breach of the condition of the recognisance to pay compensation is the circumstance which has activated the sentencing process. Without that breach, the question of sentence would not have now arisen for consideration, and it must follow that the current process should be seen as something instituted against the bankrupt “with respect” to that debt.”

Similarly, in Re Lattouf (1994) 52 FCR 147 (at 151), the Full Court of this Court regarded the distinction the distinction between an order and a condition as “one of form rather than substance”, and in their view it “does not matter” for the purposes of s 60(1)(b) that the District Court in that case did not impose an order for payment, but instead made a condition to that effect in the recognisance.  Here, as in Re Lattouf, the applicants compensation payments were clearly connected with the debt. In my opinion, s 60(1)(b)(i) applies.

THE APPLICANT’S CONTENTIONS

On behalf of the applicant, it is submitted that the present application is “of a very similar nature” to Re Sutherland-Cropper, Re Lattouf and Re Keogh, all of which involved breaches of bonds given under s 558 of the Crimes Act 1900 (NSW). The following factors were further identified as supporting an exercise of the discretion in favour of the applicant: (a) the sentencing judge in the District Court did not see the offence as one requiring a custodial sentence, which therefore removed the case from the potential exception to the exercise of the discretion in relation to cases involving a degree of heinousness (Re Lenske, Re Keogh); (b) the applicant has made attempts to pay the victim, and has attempted to borrow money to do so, and sold a trailer and given part of the proceeds to the victim; (c) the bankruptcy application was not initiated with a view to defeating the victim’s claim or the order of the District Court, with the applicant being made bankrupt seventeen months after the order was made; (d) the loss of the truck while being repaired and impounded by the police, and the effect of the applicant’s conviction, “seriously affected” his business; and (e) when the monthly payments were reduced “to a more manageable amount”, the applicant was able to make some of the payments.

CONCLUSIONS ON THE APPLICATION

With respect to the exercise of the discretion under s 60(1)(b), Gibbs CJ said in Storey (at 558):

“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 applicant 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 …”

As Burchett J noted in Re Keogh (at 596), this statement suggests that the emphasis in the exercise of the discretion is on the bankruptcy and the inability to pay. Justice Pincus went further still, and said in Re Lenske (at 535) that there was substance in the notion that the views expressed in Storey v Lane “practically compel an exercise of the discretion in [the applicant’s] favour”. There was some suggestion in the written submissions filed on behalf of the applicant that these comments effectively removed the court’s discretion. I do not accept this. Each application must be considered on its merits.

Although s 60(1)(b) does not require the existence of some further positive basis for the making of an order in addition to the bankruptcy, there nevertheless will of course be factors “tending to negate the justice of an order [which] (if present) would have to be taken into account” (as Burchett J noted in Re Keogh (at 596)). As the Full Court observed in Re Lattouf (at 153):

“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.”

Burchett J in Re Keogh (at 599) referred to a “special feature”, the presence of which suggests that the discretion should not be exercised in favour of the applicant. One such special feature suggested by Pincus J in Re Lenske is where a case is “inherently of great heinousness”, as where “compensation or restitution is ordered by reason of some truly vicious crime”. The present case is not of such an exceptional kind.

Another special feature is where there has been some form of serious deception of the court.  Burchett J said in Re Keogh (at 599):

“I think the reference to a “rogue’s charter” in Re Lattouf is a reference to a case raising some special feature, such as the “heinousness” to which Pincus J referred, or a case where a debtor might be  shown to have inveigled a criminal court into granting a bond upon representations made without any intention of honouring them and, perhaps, in circumstances of gross deception of the court.”

Sackville J adverted to deliberate deception as a factor to be considered in Re Noel Michael Lattouf; Ex parte New South Wales Director of Public Prosecutions v Lattouf, 20 September 1995, unreported at 26, observing:

“If the bankrupt had deliberately misled Judge Gibson, or had given an undertaking 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.”

Any suggestion that the applicant may have misled the District Court arises from evidence he gave that Court in relation to his financial position. It might then be inferred that the applicant had no bona fide intention of making any payments as required by his recognisance, or even that he intended to use the bankruptcy laws to escape imprisonment.

Mr Tatt gave the following evidence in chief, before Twigg J on 11 April 1996:

“HIS HONOUR:         Q.        You said that you could earn, earlier on, $5000 a week?

A.                                                                                                     That’s right.

Q.                                         How much are you earning per week from it now?

A.       Only about around the $3000 mark.  I’ve done a lot of my work through what I’ve done.

BURGESS:               Q.       That $3000, is that a gross figure?

A.                                                                                                     That’d be gross, yeah that’s right.

HIS HONOUR:         Q.       Well what’s the nett you earn from the use of this truck per week?

A.                                                                                                     Probably about – oh, it sort of fluctuates, it depends on the loads and how busy it get, sometimes—

Q.                                         Of course it does, but over an average, what nett per week do you earn from this truck?

R.                                          Probably about 3000.

BURGESS:               Q.       This is after tax?

A.                                                                                                     Probably about—

HIS HONOUR:         Q.       It was a difficult question.  An unwise question to ask Mr Burgess.

BURGESS:                         Well I know—

WITNESS:                          Probably about two and a half you could say, safely anyway.

BURGESS:               Q.       You say $3000 nett anyway?

A.                                                                                                     That’s right.”

He said that he has had discussions with his legal representatives about his capacity to pay this amount off, and affirmed that he was capable of paying $3,000 a month if required.

In cross-examination, the applicant stated that he owned no assets that were not subject to finance. He was unclear on the exact extent of his debts, but they exceeded $60,000. Similarly, he was unsure of exactly what monies were owed to him, but estimated $5,000 to $10,000. When questioned on his failure to pay Truck Art anything further, given that $10,000 was realised on the sale of a trailer, he stated that he “had to spend [his money] on the truck to keep it going”. When asked about his earnings from his truck, he admitted that they fluctuated. In re-examination, he acknowledged that earnings could be as low as $1,500 per week; but, as to the regularity of work, he said “generally you pick up something”.

The prospect of him instituting bankruptcy proceedings was raised in cross-examination:

 “LERVE:               Q.        Do you propose to institute bankruptcy proceedings in respect of yourself?

A.                                                                                                     I’m sorry, I don’t understand.

HIS HONOUR:      Q.        Are you going to seek your own bankruptcy, on your own petition he’s asking you?

                              A.         No, I don’t have any plans to do it, no.”

The applicant also gave evidence on the hearing of this application as follows:

“Can you tell the court what you meanwhen you said, ‘That would be after fuel and expenses?’--- Well, that would be – if I had a good week, that would be what I’d earn in a top week would be $3000, but when this all went – when I got the truck back and things got around that I was a thief, well, my work dropped right off just after that.  I think it was about the same time.

…

So, at the time you told the court on 11 April 1996 that you were earning between $1500 and $3000 per week net, in fact, what you were earning was less than $200 per week net.  Is that right?--- Myself, yes.  I thought they were talking about the truck – what the truck was earning each week.  This is what I’ve actually earned for myself.

Very well.  You do understand the difference between net and gross?---Yes, I do, yes.

When you were answering the court on 11 April 1996, you were answering questions about your net income, did you understand then what net income meant?--- Yes.  I think they were asking what the truck was capable of earning each week at that stage.  That’s why I said---

They were not the questions asked?--- I might have misunderstood.  I might have thought they were – I’m nearly sure they were asking what the truck earned each week… with the cost of running it.

Why do you think you were being asked questions about your earning capacity at that stage?--- I suppose ability to paid the debt off---

Whose ability to pay that debt off would the court have been concerned with?--- Mine, I guess, yes.

So why would you think it was the truck’s earning capacity rather than your own that the court would be concerned with?--- I never used to take much money for myself at all.  It was always put back into the business.”

In Re Lattouf, Sackville J dealt with a similar issue. Mr Lattouf was required, as a condition of his recognisance, to pay compensation to an insurance company under s 558 of the Crimes Act 1900 (NSW). He failed to meet that condition, but as he was bankrupt he made an application under s 60(1)  and a stay was granted, unopposed. The application had not been served on the DPP. The DPP then sought to challenge the orders made, so that the question before Sackville J was whether the discretion had been properly exercised.

One of the issues raised during the proceedings was whether Mr Lattouf had misled the District Court. Sackville J made the following findings (at 22-23).  Mr Lattouf was well aware of the dire nature of his financial position, that his liabilities exceeded his assets, and that it was unlikely he could pay the requisite monthly instalments from his own resources. Nevertheless, he hoped and believed that he could obtain funds to make those payments, and intended to take steps to ensure he could do so in order to avoid gaol. He did not intend at that time to use the bankruptcy laws to avoid or evade his obligation to make the compensation payments. Mr Lattouf was aware at the time that there was a risk that he might not be able to make the payments, but considered that he had no alternative. The motivation, in part, for Mr Lattouf’s filing of a debtor’s petition was his desire to avoid making the compensation payments, but he was also motivated by a wish to be relieved of his liabilities. He became aware that, as a bankrupt, he did not have to keep making the payments shortly before he filed for bankruptcy.

Sackville J (at 26) said:

“… 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 debtor’s 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 discertion should not be exercised in the respondent’s favour.”

Returning to the present application, it does not appear that Mr Tatt misled the District Court.  The facts that the applicant gave evidence that the debt could be repaid, and then subsequently failed to meet the compensation conditions of his recognisance are themselves not sufficient grounds to refuse to exercise the statutory discretion to grant a stay.  There has not been demonstrated any deliberate or conscious deception, or any attempt to inveigle the sentencing court. The applicant was unduly optimistic in his assessment of his financial situation, but there was no conscious intention to employ the bankruptcy laws to circumvent or defeat the sentencing process.  Although it now appears, from his own affidavit sworn 19 March 1998, that Mr Tatt was “at no time … in a position to make the payments ordered”, it nevertheless seems that at the time he decided that he could (somehow) make the repayments.  Moreover, some repayments were made once the monthly sums were reduced to $1,500. The applicant sold a smaller truck and made a $10,000 payment prior to his recognisance. He also attempted to sell his trucking business in the hope at least of repaying more.

The applicant did not file his debtor’s petition until, some seventeen months after the District Court imposed the recognisance. The petition was only filed on the advice of an insolvency consultant. It appears that the applicant did not become aware of the possibility of obtaining a stay until August 1997 when his financial consultant raised it with him and referred him to the insolvency consultant.

In all the circumstances, the discretion should be exercised in favour of the grant of the stay.

ORDERS

As I noted in Re Sutherland-Cropper, it is appropriate that the stay order not restrain the prosecution from proceeding upon any breach of the condition that the applicant be of good behaviour. Accordingly, I make the following orders:

1.      The proceedings in the District Court the subject of the notice of listing for call-up dated 9 February 1998 be stayed so far as such proceedings are based upon a breach of the condition of the recognisance entered into by the bankrupt on 11 April 1996 that he pay compensation to Keltari Pty Ltd (trading as Truck Art).

2.      Reserve liberty to the applicant to apply for further relief on such notice, if any, as a judge may allow.

Associate:

Dated:              12 August 1998