FEDERAL COURT OF AUSTRALIA

Meehan v Alfaro [1999] FCA 832

BANKRUPTCY - application for review of sequestration orders made by Registrar - whether debtors committed act of bankruptcy by non-compliance with bankruptcy notice - whether bankruptcy notice a nullity because judgment relied on it not final - whether judgment of Local Court founded on order for costs made in the course of unconcluded Supreme Court proceedings a final judgment - whether sufficient cause why sequestration orders ought not to be made - whether creditor’s seeking to prevent debtors from pursuing Supreme Court proceedings against him constitutes sufficient cause.

Bankruptcy Act 1966 (Cth), ss 40(1)(g), 40(3)(b), 52(1), 52(2)

Legal Profession Act 1987 (NSW), ss 208J, 208K

Supreme Court Rules 1970 (NSW), Pt 52A, r 9(1)

Jageev Pty Limited v Deane (FCA, Davies J; unreported; 15 May 1998), cited

Gardiner v Gardiner (1992) 39 FCR 259, followed

Thorpe v Bristile Pty Ltd (FCA, Sundberg J; unreported; 1 August 1997), followed

Thorpe v Bristile Pty Ltd (1997) 80 FCR 330, cited

Stec v Orfanos (FCA, von Doussa J; unreported; 12 October 1998), followed

Stec v Orfanos [1999] FCA 457 (Beaumont, Branson and Sundberg JJ; unreported; 15 April 1999), followed

Re Litherland; Ex parte Showerama Products Pty Limited (1985) 5 FCR 137, followed

Kayo Contractors v Fernandez (1984) 71 FLR 34, applied

Bride v KMG Hungerfords (A Firm) (FCA, Carr, Branson and RD Nicholson JJ; unreported; 23 April 1998), followed

In re King; Ex parte Commercial Bank of Australia Ltd [No 2] [1920] VLR 490, followed

King v Commercial Bank of Australia Ltd (1921) 29 CLR 141, cited

IN THE MATTER OF PEDRO ALFARO AND SYLVIA GLADYS ALFARO; JOHN MEEHAN v PEDRO ALFARO AND SILVIA GLADYS ALFARO

NG 8337 OF 1998

KATZ J

SYDNEY

25 JUNE 1999

IN THE MATTER OF PEDRO ALFARO AND SILVIA GLADYS ALFARO

THE COURT ORDERS THAT:

1.                  The Registrar’s orders of 16 February 1999 be affirmed.

2.                  The petitioning creditor’s costs of the review (including reserved costs, if any) be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

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

IN THE MATTER OF PEDRO ALFARO AND SYLVIA GLADYS ALFARO

REASONS FOR JUDGMENT

1                     On 16 February 1999, a Registrar determined a creditor’s petition which had been presented by Mr John Meehan (“the creditor”) against Mr Pedro Alfaro and Mrs Silvia Gladys Alfaro (“the debtors”) under the Bankruptcy Act 1966 (Cth) (“the Act”). The Registrar did so by making sequestration orders against the debtors’ estates.

2                     The debtors now seek a review of the making of those sequestration orders. It is accepted by the creditor (correctly: see Jageev Pty Limited v Deane (FCA, Davies J; unreported; 15 May 1998) at 3-4) that the present review is to be conducted as a hearing de novo of his petition.

3                     The male debtor, who is not a lawyer, appeared in person before me. He sought leave also to appear on behalf of the female debtor and I permitted him to do so, there being no material difference between their respective positions. (The female debtor is the male debtor’s wife.)

4                     On the hearing of the review, the debtors, in effect, submitted: first, that, of the matters of the proof of which the Court is required, by subs 52(1) of the Act, to be satisfied before it can make a sequestration order, the Court would not be satisfied that the debtors had committed an act of bankruptcy; and, secondly, that, even if the Court was so satisfied, it would also be satisfied by the debtors that there existed sufficient cause why sequestration orders ought not to be made against their estates (see subs 52(2) of the Act).

5                     (I should add here that: so far as the debtors’ first submission was concerned, they did not dispute that I should otherwise be satisfied with the proof of the matters of which the Court is required, by subs 52(1), to be satisfied before it can make a sequestration order and I am so satisfied; and, so far as the debtors’ second submission was concerned, they did not seek to satisfy me that they were able to pay their debts (par 52(2)(a)), but only that there existed sufficient cause other than an ability to pay their debts why sequestration orders ought not to be made against their estates (par 52(2)(b)).)

6                     I deal first with the issue as to the commission by the debtors of an act of bankruptcy.

7                     The act of bankruptcy relied upon by the creditor against each of the debtors was non-compliance with the requirements of a bankruptcy notice which had been served on them. It was the debtors’ position with respect to that bankruptcy notice that the judgment expressed in it to be its foundation had not been a final one, as required by the Act, and that they had therefore committed no act of bankruptcy by not complying with the notice.

8                     It is, so far as I am aware, an unusual thing for a debtor not to seek to set aside a bankruptcy notice on the ground that it was founded on a judgment which was not final, but later to seek, on that very ground, to defeat the creditor’s petition based on non-compliance with that bankruptcy notice. However, I can see no reason why such a course cannot be taken. I note that in Gardiner v Gardiner (1992) 39 FCR 259, Northrop and Foster JJ held in joint reasons for judgment (see especially at 268 and 270) that a bankruptcy notice based upon a judgment or order which is not final is a nullity. If such a notice is a nullity, it follows that non-compliance with it could not be an act of bankruptcy and that a debtor could therefore defend the creditor’s petition on that basis.

9                     Before I refer to the judgment upon which the creditor’s bankruptcy notice was expressed to be founded, it is convenient to refer to certain proceedings brought by the debtors against (in the first instance) three persons, including the creditor, in the Supreme Court of New South Wales. In those proceedings, as in the present review, the debtors were not legally represented.

10                  On 1 August 1996, the debtors began, by statement of claim, the proceedings to which I have just referred. On 4 March 1997, that statement of claim was amended, pursuant to leave which had been granted on 26 February 1997. Then, on 13 March 1997, the debtors filed a further amended statement of claim, pursuant to leave which had been granted on that day. Two additional defendants were added to the proceedings by the 13 March 1997 statement of claim. All five of the defendants to the proceedings then sought the striking out of the 13 March 1997 statement of claim.

11                  On 7 May 1997, Master Greenwood acceded to that application, at the same time granting leave to the debtors to file a further amended statement of claim before 13 June 1997. He also ordered the debtors to pay the defendants’ costs of the strike out application, adding, “These costs may be enforced now”.

12                  On 10 June 1997, the debtors filed a further amended statement of claim, pursuant to the leave which had been granted to them by Master Greenwood. That further amended statement of claim provoked a further strike out application by the defendants.

13                  On 24 July 1997, Master Malpass acceded to that application. When doing so, he pointed out that the debtors had made no application to him for leave to file and serve yet a further amended statement of claim and said as well that he was not satisfied that such leave should be granted. As to the costs of the defendants’ application, he ordered the debtors to pay them, saying, “All defendants may proceed forthwith to a taxation of the costs”.

14                  The debtors appealed from Master Malpass’s decision.

15                  On 1 September 1997, Graham AJ dismissed their appeal from that decision. The debtors had also applied to Graham AJ, as a fall-back position, for leave to file a further amended statement of claim, which application Graham AJ also dismissed. He ordered the debtors to pay the costs of the proceedings before him, saying, “[T]hose costs may be taxed forthwith and proceedings brought for their recovery at any time”.

16                  The debtors purported to appeal without leave to the Court of Appeal from the decision of Graham AJ.

17                  On 9 March 1998, the Court of Appeal (Cole and Stein JJA), on the respondents’ application, struck out the debtors’ purported appeal with costs, because the necessary leave to appeal had not been obtained beforehand. On that day, the Court of Appeal also dealt with an application for leave to appeal filed that day by the debtors, refusing such leave with costs. The Court of Appeal also made an order that the debtors “not be permitted to file any further documents in these proceedings without leave of a judge being previously obtained”.

18                  There is no evidence before me that the debtors have, in the last fifteen months, sought leave to file any further documents in their Supreme Court proceedings.

19                  It will be noted that those against whom the debtors were proceeding in the Supreme Court, including the creditor, had obtained against the debtors orders for costs from Masters Greenwood (on 7 May 1997) and Malpass (on 24 July 1997) and from Graham AJ (on 1 September 1997), as to which costs the judicial officer concerned had in every case ordered, in substance, that they were payable before the conclusion of the proceedings (see the Supreme Court Rules 1970 (NSW), Pt 52A, r 9(1)). It is apparent that the creditor availed himself of the opportunity thus presented.

20                  There is in evidence before me a certificate by a costs assessor under s 208J of the Legal Profession Act 1987 (NSW), addressed both to the creditor and to the debtors and dated 18 September 1997. It certified that the costs assessor had assessed certain costs of the creditor in the Supreme Court proceedings at $3,306. (To which costs order or orders in the proceedings the certificate related was not set out in it, but given its date, it could in theory have related to any one or more of the costs orders to which I have referred in the preceding paragraph of these reasons for judgment.) There was noted at the foot of the certificate the fact that the effect of s 208J(3) of the Legal Profession Act was that, on the certificate’s filing in the office or registry of a court having jurisdiction to order the payment of the amount of money stated in the certificate, the certificate would, with no further action, be taken to be a judgment of that court for the amount of unpaid costs.

21                  (I should perhaps add here that there are also in evidence before me two further costs assessor’s certificates of the type which I have mentioned in the preceding paragraph, both in favour of defendants in the debtors’ Supreme Court proceedings. There is one dated 11 November 1998, also in favour of the creditor, for $2,961.50. There is another dated 11 December 1998, in favour of two others of the defendants, for $27,136.12. I ignore those two further certificates for present purposes, restricting myself only to a consideration of the certificate for $3,306.)

22                  There is no evidence before me to suggest that, after the issue of the costs assessor’s certificate for $3,306, the debtors sought to challenge the costs assessor’s determination: see the Legal Profession Act, s 208K and following.

23                  As well as the costs assessor’s certificate for $3,306, there are also in evidence before me: first, a back sheet which was attached to the certificate on its filing at the Downing Centre Local Court in Sydney, showing the payment of a fee of twenty-five dollars for the filing of the certificate at that court; and, secondly, a certificate of judgment issued by that Local Court, certifying a judgment in favour of the creditor against the debtors for $3,331 (that is, the $3,306 referred to in the costs assessor’s certificate, together with the twenty-five dollar filing fee), which judgment is said in the certificate to have been recovered on 9 April 1998.

24                  It was the judgment of the Downing Centre Local Court upon which the creditor’s bankruptcy notice was expressed to be founded.

25                  In arguing that they had committed no act of bankruptcy by not complying with the bankruptcy notice, the debtors submitted before me that their Supreme Court proceedings still remained on foot, a submission which appears technically to be correct, in spite of the debtors’ failure to take any step in the proceedings over the last fifteen months. As those proceedings remained on foot, there had been, so it was further submitted, no final judgment in respect of them, another submission which I accept. The debtors’ next submission was that, as there had been no final judgment in respect of their proceedings, no order for costs made in the course of them could itself be final within the meaning of the Act. It was for that reason that the debtors’ non-compliance with a bankruptcy notice founded on a judgment which was itself founded on one or more of such costs orders had not been an act of bankruptcy.

26                  I cannot accept the correctness of the debtors’ submission as to the effect of the fact that their Supreme Court proceedings have not been concluded by a final judgment.

27                  The submission which they make is, in substance, that which was rejected by, for instance, Sundberg J in Thorpe v Bristile Pty Limited (FCA; unreported; 1 August 1997). That was a case in which a debtor had unsuccessfully applied for an interlocutory injunction in proceedings in the Supreme Court of Western Australia and had had an order made against him for the costs of that application. Those costs were then taxed and allowed in a certain sum by the taxing officer and that sum, remaining unpaid, was made the subject of a bankruptcy notice.

28                  Under the Western Australian Supreme Court Rules, costs when taxed were deemed to be a judgment of the Court and were recoverable accordingly. In that connection, Sundberg J drew attention in his reasons for judgment to par 40(3)(b) of the Act, which provides that a judgment or order that is enforceable as, or in the same manner as, a judgment obtained in an action shall be deemed to be a final judgment so obtained and that the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained. He then said (at 8),

“The order for costs is an order that is enforceable as a judgment in an action, and accordingly the order is deemed to be a final judgment obtained in the action.

In Re Skinner’s and Smith’s Application (1982) 45 ALR 553 Skinner and Smith were the defendants in proceedings in which the court dismissed an application by the plaintiff for an interlocutory injunction and awarded costs to the defendants. The costs were taxed and the defendants requested the issue of a bankruptcy notice based on the costs order. The Registrar referred the matter to a judge. Fitzgerald J held that the defendants were entitled to a notice since, by operation of s40(3)(b), the order for costs was a ‘final order’. See also his Honour’s judgment in later proceedings between the same parties: Re Gould; Ex parte Skinner (1983) 72 FLR 393 at 407-408. To the same effect are Kayo Contractors v Fernandez (1984) 71 FLR 34, Re Smith; Ex parte Chesson (1992) 106 ALR 359 at 365-366 and Re Gibbs; Ex parte Triscott (1992) 133 ALR 718 at 724. The sole argument advanced by the applicant for the contention that the costs order was not ‘final’ was that it was ancillary to the refusal of the interlocutory injunction, and thus had the interlocutory character of the principal order. Skinner and Smith and Gould dispose of this argument. See also Gibbs at 729.”

29                  (Sundberg J’s judgment was affirmed on appeal (reported at (1997) 80 FCR 330), although the debtor had not included in his appeal an attack in respect of that aspect of his Honour’s reasons for judgment which I have set out above.)

30                  A similar issue to that in Thorpe arose subsequently in Stec v Orfanos (FCA, von Doussa J; unreported; 12 October 1998). Again, the Court was confronted with a bankruptcy notice following an order for costs made in Supreme Court proceedings, on that occasion, the Supreme Court of South Australia. The debtor sought to have the bankruptcy notice set aside, relying on the fact, as he asserted, that the Supreme Court proceedings were not yet concluded. As to that argument, von Doussa J said (at 8-9),

“For the purpose of s 40(1)(g), s 40(3)(b) provides that a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment.  In the present case the order for costs, and the quantification of those costs by the allocatur, which the creditor relies upon, in my opinion constitute a final order.  This is so even if Mr Stec is correct in his assertion that there are some issues in action no. 2045 of 1994 which remain to be determined.  An order for costs made on an interlocutory application is nonetheless a final order: Kayo Contractors v Fernandez (1984) 71 FLR 34 and Re Gibbs; Ex parte Triscott (1995) 65 FCR 80.”

31                  The debtor appealed from the judgment of von Doussa J: see Stec v Orfanos [1999] FCA 457 (Beaumont, Branson and Sundberg JJ; unreported; 15 April 1999). As to the point of present relevance, the Full Court said (at par 18) in its reasons for judgment,

“The next claim is that the Notice was invalid because the allocatur was not a final order.  An allocatur (‘it is allowed’) is the certificate of taxation of the allowance of costs by the taxing officer.  Mr Stec’s submissions do not disclose why he says that the allocatur is not a final judgment or final order.  Rule 101.18(1) of the Rules of the Supreme Court of South Australia provides that upon the completion of a taxation of costs a taxing officer or the Registrar may sign an allocatur.  Sub‑rule (2) provides that when duly signed in accordance with sub‑rule (1) and sealed by the Court, an allocatur has the effect of, and is enforceable in the same manner as, a judgment of the Court for the amount of the allocatur.  The allocatur determined in a final manner Mr Stec’s liability for costs.  It is thus a final judgment or final order for the purposes of s 41(3) of the Act”

32                  It is apparent that Sundberg J, one of the members of the Full Court in Stec, was adhering in that case to a view which he had earlier expressed, namely, that in Thorpe. As it happens, Beaumont J, another member of the Full Court in Stec, was also adhering in that case to a view which he had earlier expressed, namely, that in Re Litherland; Ex parte Showerama Products Pty Ltd (1985) 5 FCR 137. In the latter case, a bankruptcy notice had been based upon an order for costs made on the creditor’s successful summary judgment application against the debtor in proceedings in the Supreme Court of Queensland. Those costs concerned had afterwards been taxed. Beaumont J said (at 138),

“It is submitted on behalf of the petitioner that an order for costs is a ‘final judgment or final order’ for the purposes of s 40(1)(g) of the Bankruptcy Act, 1966 (Cth). By virtue of O 18, r 1 of the Supreme Court Rules (Qld), the judgment, although summary, is final. It follows, in my opinion, that the judgment dated 11 December 1981 was ‘final’ for present purposes. Further, in my view, even apart from the operation of s 40(3)(b) of the Bankruptcy Act 1966 (Cth) (see Re Skinner's and Smith's Application (1982) 45 ALR 553 at 555) a bankruptcy notice can be based upon an order for costs (see Re Cartwright; Ex parte Cartwright v Baker [1975] 1 WLR 573, cf Kayo Contractors v Fernandez (1984) 27 NTR 21 at 27). Further, the present case may be distinguished from Wilmot v Buckley (1984) 2 FCR 540, where it was sought to base a bankruptcy notice upon a certificate of taxation for costs rather than the judgment ordering the costs.”

33                  There is one potentially significant difference between the present situation and those which were involved in Showerama Products, Thorpe and Stec. It is that here the creditor did not purport to rely, in his bankruptcy notice, upon any costs order which had been made in the Supreme Court proceedings, the quantum of which costs had afterwards been determined, or upon an allocatur; instead, he relied upon the Local Court judgment which was consequential upon one or more of the costs orders which had been made in the Supreme Court proceedings.

34                  In that respect, the present case is similar to the case of Kayo Contractors v Fernandez (1984) 71 FLR 34 (NTSC; O’Leary J), which case was mentioned by Beaumont J in Showerama Products, by Sundberg J in Thorpe and by von Doussa J in Stec.

35                  In Kayo Contractors, the debtor had been an applicant in the Northern Territory Workmen’s Compensation Tribunal. He had been granted an adjournment of his proceedings in order to obtain further evidence and was ordered by the Tribunal to pay the employer’s costs of that adjournment. Those costs were afterwards taxed and allowed in a certain sum and a certificate showing that sum was issued and then filed in a Northern Territory Local Court. Section 6P(2) of the Workmen’s Compensation Act 1949 (NT) provided that, on the filing of such a certificate, judgment was to be entered for the sum certified in it. A bankruptcy notice was then issued in reliance upon the Local Court judgment.

36                  O’Leary J said (at 37-39),

“The question here in issue is whether the judgment upon which the judgment creditor relies as the basis for the bankruptcy notice is ‘a final judgment or order’ within the meaning of s. 40(1)(g) of the Bankruptcy Act 1966 (Cth)….

The question … I think … turns simply on the construction to be given to the provisions of s. 40(3)(b) of the Bankruptcy Act 1966 (Cth) which provides as follows:

‘(3) For the purposes of paragraph (1)(g)--

(a)   …

(b)   a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action shall be deemed to be a final judgment so obtained and the proceedings in which, or in consequence of which, the judgment or order was obtained shall be deemed to be the action in which it was obtained…’

That paragraph was inserted in the Bankruptcy Act 1966 (Cth) to alter the law as declared by the High Court in Opie v. Opie (1951) 84 C.L.R. 362. In that case the respondent wife obtained orders for maintenance for herself and child under the provisions of s. 7 of the Deserted Wives and Children Act 1901 (N.S.W.). Pursuant to s. 13A of that Act, she obtained a certificate from a stipendiary magistrate that a certain sum was due under the maintenance orders she had obtained. The certificate was then filed in the Supreme Court, and judgment was entered accordingly. On the basis of that judgment, the wife applied for the issue of a bankruptcy notice against her husband relying on that judgment as a final judgment in the Supreme Court of New South Wales. The husband applied to the Federal Court of Bankruptcy to have the bankruptcy notice set aside and, upon being unsuccessful, appealed to the High Court.

In allowing the appeal, the High Court held that a final judgment on which a bankruptcy notice could be founded was a final judgment obtained in an action by which a previously existing liability of the defendant to the plaintiff was ascertained or established, and a judgment entered in the Supreme Court pursuant to a certificate of a magistrate under s. 13A of the Deserted Wives and Children Act 1901 (N.S.W.) was not a judgment in an action. The words ‘in the action or proceeding in which the judgment or order was obtained’ as used in s. 52(j) (the predecessor of s. 40(1)(g)) meant ‘the action in which the judgment was obtained and the proceeding in which the order was obtained’. At 374 McTiernan J. said:

‘The entering of a judgment pursuant to s. 13A is an administrative act done by an officer of the court under the direction contained in the section. It is not the recording of any judgment, order or act of the court in which the judgment is entered. The duty of entering judgment is imposed by s. 13A when the certificate for which the section provides is filed in court. The entering of judgment is not incidental to anything in the nature of an action or any judicial proceeding begun in the court. The judgment is not a judgment in an action or an order in a proceeding in the court.’

The decision in Opie v. Opie (supra) was subsequently considered by the Committee Appointed (in 1956) by the Attorney-General of the Commonwealth to Review the Bankruptcy Law of the Commonwealth (the Clyne Committee). In its report dated 14 December 1962 (par. 58, p. 21), the committee recommended that:

‘… a judgment or order that is enforceable as, or in the same manner as, a final judgment obtained in an action should be deemed to be a final judgment so obtained and that the proceeding in which, or in consequence of which, the judgment or order was obtained should be deemed to be the action in which it was obtained. Such a provision will have the effect of altering the law as declared in the case of Opie v. Opie (supra) in which a judgment entered in the Supreme Court of New South Wales upon the filing of a certificate granted under s. 13A of the Deserted Wives and Children Act of that State (which was enforceable under State law as a final judgment obtained in an action) was held by the High Court not to be a judgment in an action for the purposes of the Bankruptcy Act and that a bankruptcy notice issued on the basis of the judgment must therefore be set aside. The committee takes the view that, if State law provides that a judgment is to be enforceable as a final judgment in an action, the bankruptcy law should treat the judgment similarly.’

In Re Morris (1979) 22 F.L.R. 460, Riley J considered this recommendation of the Clyne Committee in construing s. 40(3) of the Act. At 468 he said:

‘… I am entitled to conclude from the paragraph[ ] I have quoted from the Report that the object of the legislature in enacting par[ ] … (b) of s. 40(3) in 1966 was to ensure that, notwithstanding [Opie v Opie] …, it would be possible to found a bankruptcy notice on … a judgment obtained under legislation such as s. 13A of the Deserted Wives and Children Act.’

I think it is therefore clear that an order for costs under the Workmen’s Compensation Act 1949 (N.T.) which is ‘deemed to be, and may be recovered as, an award of the tribunal’ (s. 6B(1B)), and which, if it remains unsatisfied, may be entered ‘as if the award was a judgment of the local court’ (s. 6P) comes within the terms of s. 40(3)(b) of the Bankruptcy Act 1966 (Cth) and hence is a final judgment within the meaning of s. 40(1)(g) of that Act.”

37                  In my view, the reasoning of O’Leary J which I have just set out is equally applicable to the regime established by s 208J(3) of the Legal Profession Act for the enforcement of costs orders made by the Supreme Court of New South Wales.

38                  In the result, I conclude that the debtors did commit an act of bankruptcy by not complying with the bankruptcy notice served on them, the judgment upon which that notice was founded being a final judgment for the purposes of the Act.

39                  I turn now to the issue whether there exists sufficient cause why sequestration orders ought not to be made against the debtors’ estates, nonetheless though I am satisfied with the proof of the matters of which proof is required by subs 52(1) of the Act.

40                  In their notice of intention to oppose the creditor’s petition, the cause relied upon by the debtors as sufficient to justify the Court’s not making sequestration orders against their estates was that the creditor was, so they alleged, “intimidating” them by presenting the petition and was “abusing” the Act. As I understand the debtors’ position, it was that the creditor was seeking, by presenting his creditor’s petition, to prevent the debtors from pursuing their Supreme Court proceedings against him.

41                  There was no evidence in the debtors’ case before me of any admission by the creditor as to his state of mind in presenting the creditors’ petition. I assume, however, that what is desired is that I should infer the creditor’s state of mind, so far as his presentation of the creditor’s petition is concerned, from the very fact of the pendency of the debtors’ Supreme Court proceedings against him at the time of his presentation of the creditor’s petition.

42                  I am not prepared to draw the inference that the creditor was seeking, by presenting his creditor’s petition, to prevent the debtors from pursuing their Supreme Court proceedings against him and, even if I were, that would not assist the debtors.

43                  First, the creditor’s petition was not presented until 26 November 1998, by which time it had already been close to nine months since the Court of Appeal had refused the debtors leave to appeal from the decision of Graham AJ striking out their most recent statement of claim and had ordered that the debtors “not be permitted to file any further documents in these proceedings without leave of a judge being previously obtained”. Nor had the debtors sought such leave in the intervening period. In those circumstances, I am not prepared to infer that the creditor was motivated, in presenting the creditor’s petition, by a desire to prevent the debtors from pursuing their Supreme Court proceedings against him. The obvious inference to be drawn by anyone, including the creditor, at the time of his presentation of the creditor’s petition was that the debtors’ Supreme Court proceedings were effectively, even if not technically, terminated.

44                  In any event, as I have already said above, even if I were prepared to draw the inference about the creditor’s state of mind which the debtors wish me to draw, that would not assist them.

45                  In Bride v KMG Hungerfords (A Firm) (FCA, Carr, Branson and RD Nicholson JJ; unreported; 23 April 1998), an issue arose as to the significance of a creditor’s state of mind in presenting a petition. At 9, in the reasons for judgment of the Court, the following passage appears:

“Was the petition brought for an improper purpose, namely, to delay defeat and thwart the appellants’ two pending Supreme Court actions? 

Mr Bride [that is, one of the appellant debtors] submitted that the respondent [that is, the petitioning creditor] could have no other reason for seeking sequestration of the appellants’ estate.  There was, he said, no prospect of any distribution to creditors.  Furthermore, so he submitted, within days of the sequestration order being made, the respondent (together with the other parties to the pending Supreme Court actions) had applied to the Supreme Court for orders that the appellants (as plaintiffs in those actions) provide substantial security for costs.  In doing so, those defendants relied on the fact that a sequestration order had been made against the appellants.  Mr Bride suggested that this was a major reason why Master Sanderson had made orders for substantial security for costs.  A careful reading of Master Sanderson’s reasons dated 3 February 1998 shows that Mr Bride is not correct in that regard.  Master Sanderson did not base the making of those orders on the fact of the appellants’ bankruptcy (see in particular p 9 of those reasons).

In our opinion, the evidence does not establish the motive which the appellants claim.  In any event such an ulterior motive would not, in our view, in the present matter disentitle the respondent from obtaining a sequestration order.  As a reading of Master Sanderson’s reasons reveals, the appellants have not paid the respondent’s costs in the earlier Supreme Court proceedings.  There are substantial costs orders in other matters which remain unpaid.  We do not consider that, in those circumstances, a desire (had there been such a desire) to stifle the pending Supreme Court actions unless security for costs were provided, would disentitle the respondent from obtaining a sequestration order - see Re King; Ex parte The Commercial Bank of Australia Ltd [1920] VLR 490 at 510 (a decision of the Full Court of the Supreme Court of Victoria).”

46                  In King, just referred to, Irvine CJ and Mann J had said,

“[T]he appellant [that is, the debtor] … contends that the Court should draw the inference that the bank [that is, the petitioning creditor and respondent] has some malicious by-purpose in the matter, and he points to the fact that there is standing in the list for decision a case in which the appellant is plaintiff and the bank defendant, and suggests that the stoppage of that case is probably the purpose actuating the bank in the present petition. No evidence has been given on this head by the appellant, and no cross-examination was directed to it by the appellant’s counsel when the bank manager was in the witness-box.

We are of opinion that there is no evidence upon which we should be justified in finding that the bank’s motive in these proceedings is to stifle the litigation referred to; and secondly, that even if such a motive were, upon proper evidence, found to exist, it would constitute no ground for refusing the order absolute, if, apart from such a motive, the bank is entitled to the order.”

(King was afterwards appealed to the High Court, where the Victorian Full Court’s judgment was affirmed: see (1921) 29 CLR 141. The High Court (Knox CJ and Gavan Duffy and Starke JJ) said (at 153), after disposing of a particular ground of appeal argued by Mr Cohen KC, the appellant’s counsel, that it saw no reason to doubt that the Victorian Full Court’s judgment was correct “[w]ith regard to the other objections taken by Mr Cohen”. At 149-50 of the report was the reporter’s summary of Mr Cohen’s other objections to the Full Court’s judgment. As set out there, those objections do not appear to have included the ulterior motive point, but it is impossible to know whether they did in fact do so.)

47                  In my view, the reasoning in Bride and King would be equally applicable in the present matter, even if I had been prepared to infer an ulterior motive on the creditor’s part in presenting his petition.

48                  Although I have now dealt with the two matters which were, in substance, relied upon by the debtors in their notice of intention to oppose the creditor’s petition, I should mention that, in their submissions before me, the debtors sought to rely, as a basis for my dismissing the creditor’s petition, upon a great many other matters not mentioned in their notice of intention to oppose the creditor’s petition.

49                  Some of those additional matters were predicated upon the debtors’ apparent belief that, merely because they had made against the creditor allegations of a serious kind in a Supreme Court statement of claim, it was incumbent upon Graham AJ and Cole and Stein JJA (Masters Greenwood and Malpass were not mentioned), when dealing with an application by (relevantly) the creditor to strike out that statement of claim as contrary to the rules of pleading or when dealing with the debtors’ application for leave to appeal against the strike out order, to interrogate the creditor as to the truth of their allegations. In so far as the Judges concerned had failed to conduct such interrogations, the debtors submitted before me that their decisions “were made to obstruct and pervert the course of justice and to conceal serious offences” and (it presumably followed) their costs orders against the debtors should not be permitted to found orders for the sequestration of the debtors’ estates.

50                  Of course, given their respective dates, it is most improbable that it was the costs order made by Graham AJ in respect of which the relevant costs assessor’s certificate issued and impossible that it was the costs order made by the Court of Appeal. (In any event, the Court of Appeal had not ordered that the costs the subject of its costs order be payable before the conclusion of the proceedings.) However, even if it had been the costs order made by Graham AJ, that would not matter for present purposes. I am in little doubt that each of the Masters and Judges of the Supreme Court before whom the debtors came sought to explain to them the erroneous nature of their belief about the Court’s function on a strike out application or on an application for leave to appeal from a strike out order; indeed, the Court of Appeal’s reasons for judgment did so explicitly. It is apparent, however, that the debtors either cannot or will not understand what that function is and nothing I can say by way of further explanation in these reasons is likely to alter that position.

51                  Some of the additional matters relied upon by the debtors were predicated upon my acceptance of the correctness of the allegations of a serious kind which the debtors had made against the creditor in their Supreme Court statements of claim and yet there was no evidence before me which even established an arguable case that those allegations were correct.

52                  Some of the additional matters relied upon by the debtors appear to have been predicated upon a mistaken belief that the Local Court could not enter judgment against the debtors in respect of the creditor’s costs of the Supreme Court proceedings without first holding a hearing.

53                  Finally, some of the additional matters relied upon by the debtors were predicated upon alleged wrongdoing by the creditor’s solicitor and by an officer of the Insolvency and Trustee Service Australia, in circumstances in which the things done by those persons were, so far as the evidence goes, nothing more than the performance of their respective ordinary functions.

54                  I reject all of the additional matters relied upon by the debtors to which I have referred in the preceding five paragraphs as ones justifying a discretionary dismissal of the creditor’s petition.

55                  In the circumstances, I affirm the Registrar’s orders of 16 February 1999.

Associate:

Dated:              25 June 1999