FEDERAL COURT OF AUSTRALIA

Dunn, in the matter of Dunn v Vangsnes [2000] FCA 1051

BANKRUPTCY – creditor’s petition – alleged error in order of Supreme Court upon which bankruptcy notice was based – argued by respondent that until issue of error was dealt with conclusively by Supreme Court, there was no debt currently due and payable by him – even assuming there was power to go behind the judgment entered in the Supreme Court, this was not a proper case for the exercise of the power – debt was currently due and owing - solvency proven by respondent - Court nonetheless possesses discretion to make a sequestration order – applicant not able to access asset by process of garnishment, execution or other legal remedy – claim that Supreme Court order was flawed had no realistic prospects of success – matter stood over with intention to make sequestration order, unless parties come to some arrangement beforehand

Bankruptcy Act 1966 (Cth) s52(2), 52(2)(a), 52(3)

Legal Profession Act 1987 (NSW)

Superannuation Industry (Supervision) Regulations 1994 (Cth) regs 6.22, 6.22(1)

Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 applied

Re Capel; Ex parte Caram Finance Australia Limited, unreported, Finn J, 9 April 1998 cited

IN THE MATTER OF TRYGVE VANGSNES

ROBERT DUNN v TRYGVE VANGSNES

N 8053 OF 1999

HELY J

27 JULY 2000

SYDNEY

THE COURT ORDERS THAT:

1.                  The matter be stood over until 9.30 am on 8 August 2000.

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

REASONS FOR JUDGMENT

1                     This is the hearing of a creditor's petition presented on 20 September 1999.  I am satisfied of the matters stated in the petition.  I am satisfied that the petition has been served in accordance with the rules and that the debt on which the petitioning creditor relies is still owing.  When I say I am satisfied as to those matters, I mean that I am satisfied subject to the grounds upon which the respondent relies in opposition to the petition.

2                     The act of bankruptcy on which the petition is based is non-compliance with a bankruptcy notice.  The bankruptcy notice was based upon a District Court Judgment for $67,095.52.  That judgment was in turn based upon an assessment of costs ordered to be paid pursuant to an order of Einstein J in the Supreme Court, which was made on 14 November 1997 and entered on 10 December 1997.  In terms of the order as entered, the present respondent was ordered to pay the liquidator's costs of various proceedings including (d) a Notice of Motion filed by the present respondent on 25 February 1997 and (e) a Notice of Motion filed by the present respondent on 4 September 1996.

3                     The respondent's case is that there is no warrant for inclusion in the order as entered, of the costs of the notice of motion filed on 4 September 1996, as Einstein J never made an order to that effect.  The notice of motion of 4 September 1996 sought an order, pursuant to s 382(1) of the Companies Code, that an auditor prepare a report of the accounts of the liquidator of KKL (Kangaroo Lion) Pty Limited a company then in liquidation.  On 13 November 1997, various motions came on for hearing before Einstein J.  On the second page of his Honour's judgment, his Honour said:

“The third issue raised in the proceedings is an application by Mr Vangsnes for an order that a report on the accounts of the liquidator be prepared by an auditor pursuant to s 382(1) of the Code (Motion 5).”

4                     Clearly enough, his Honour at this point identified as Motion 5 the Notice of Motion which had been taken out on 4 September 1996.  In an ex tempore decision given on 13 November 1997 his Honour decided the Court should not cause a report to be prepared pursuant to s 382(1) for a number of reasons which his Honour specified.  On page 86 of his Honour's judgment, it is said:

“The court dismisses Motion 5.”

5                     Again, clearly what was dismissed was the Notice of Motion filed on 4 September 1996.  On 14 November 1997, Einstein J addressed the question of costs.  Costs were sought to be ordered against Mr Vangsnes on an indemnity basis.  On page 5 of his Honour's reasons for judgment, he said:

“I therefore now order that Mr Vangsnes pay the liquidator's costs of motion one, two, three, four, five and six, of the Appeal and of the Summons on an indemnity basis.”

6                     Again, it seems to me to be clear that the Motion 5 to which his Honour referred is the motion pursuant to s 382(1) for the preparation of a report on the liquidator's accounts, which he had dismissed on the previous day.  The associate's record for 14 November 1997 states:

“I dismiss Motion 5 dated 4 September, 1997.

...

I order that Mr Vangsnes pay the Defendant's costs of Motions 1-6 inclusive and of the Appeal and of the Summons on an indemnity basis.”

7                     Although the associate's record refers to 4 September 1997, there is no suggestion that there was a motion taken out on that date, and 4 September 1997 appears to be an obvious error for 4 September 1996.  In a letter dated 1 February 1999, written by Mr Vangsnes to the cost assessor, Mr Vangsnes referred to Motion 5 as being the Notice of Motion filed on or about 4 September 1996 under s 382 of the Code.

8                     The problem, if there is a problem, arises in this way.  Einstein J delivered another ex tempore judgment on 13 November 1997, which was a short judgment concerned with procedural matters.  During the course of that judgment, his Honour referred to Motion 5 as being a motion dated 25 February 1997 and, in Mr Vangsnes' contention, the order made on 14 November 1997 should be understood as referring to a motion of that date, apparently on the basis that there are or may have been two motions of that date which were before Einstein J.

9                     The evidence does not establish whether or not there were two motions of that date before his Honour, but it is clear (as the formal order of the Supreme Court correctly reflects) that included in the motions, the costs of which were ordered to be paid by Mr Vangsnes by the orders made on 14 November 1997, is the s 382 motion of 4 September 1996.  The reference in the short ex tempore judgment of 13 November 1997 to Motion 5 as being a motion dated 25 February 1997 is either an inconsequential error or, in any event, it cannot detract from the self-evident fact that the costs ordered to be paid on 14 November 1997 included the costs of the s 382 motion.

10                  In February 2000, Mr Vangsnes raised with the Supreme Court an alleged error in the order as entered;  that is to say that the order as entered included an order for the costs of the 4 September motion without judicial authority.  On 16 March 2000, the Principal Registrar of the Supreme Court informed the present applicant's solicitors of the alleged error and inquired as to their attitude to the order being altered under the slip rule, by deleting reference to a motion of 4 September 1996 and substituting a reference to a motion of 25 February 1997. 

11                  On 27 April 2000 Registrar Berecry informed Mr Vangsnes that the orders as entered, particularly order 1(e), were prima facie correct and that there was no occasion for the operation of the slip rule.  He suggested, if the matter were to be pursued, that the parties should approach the associate to Einstein J to have the matter relisted.  That was not done.  This morning Mr Vangsnes filed an affidavit indicating that he has taken out, but has not yet served, a Notice of Motion returnable in the Supreme Court on 7 September 2000 which raises the discrepancy with respect to the date of Motion 5.

12                  Mr Vangsnes submits that until the Supreme Court decides that issue, there is no debt which is currently due and payable by him.  He says, and he is obviously correct at least in this respect, that the Supreme Court has inherent power to correct its records and that the entry of judgment after a hearing is such that the judgment is required to conform with the actual decision reached.  It seems to me, however, that there is no substance in the proposition that there is no debt due until the Supreme Court determines this matter.  There is an existing judgment of the District Court which is not sought to be set aside.  That is based on a cost assessor's certificate which is given effect by the Legal Profession Act 1987 (NSW), which is in turn based upon a decision of Einstein J, from which leave to appeal was sought but refused.

13                  There is power in the Bankruptcy Court to go behind a judgment and I am prepared to assume for present purposes that that extends to going behind not just the District Court judgment but also behind the judgment entered in the Supreme Court on 10 December 1997.  But I am not satisfied that this is a proper case for the exercise of such power.  It is clear to my mind that Motion 5 is the motion under s 382(1) which Mr Vangsnes took out on 4 September 1996, as the formal order of the Supreme Court correctly recognises, and as Mr Vangsnes himself recognised, in his letter which he sent to the costs assessor.  I am therefore satisfied that prima facie the applicant is entitled to a sequestration order. 

14                  Section 52(2) of the Bankruptcy Act 1966 (Cth) provides that if a Court is satisfied by the debtor that he is able to pay his debts, the Court may dismiss the petition.  Mr Vangsnes held a personal superannuation fund policy with the AMP.  As at 19 November 1999 the value of that policy was of the order of $263,000 and, according to a letter from the AMP of that date, Mr Vangsnes could access the value of that policy at any time.  On 2 June 2000 the AMP sent a cheque for $185,698.09 to Mr Vangsnes on the basis that Mr Vangsnes had requested, or at least it was thought by the AMP that Mr Vangsnes had requested, withdrawal from the plan. 

15                  On 22 June 2000 Mr Vangsnes wrote to the AMP asserting that its letter of 2 June 2000 had only been received by him on 21 June 2000.  He said that he had not made a request for withdrawal from the plan and that he would not cash the cheque which the AMP had sent to him, pending clarification of whether he was entitled to remain a member of the fund.

16                  In light of this evidence, it seems to me that Mr Vangsnes has established that he is solvent.  Whether one regards his asset as being in the nature of a chose in action on the cheque or whether one regards it as an entitlement arising from membership of the plan, in either case it is readily realisable and immediately available to him.

17                  The evidence indicates that Mr Vangsnes only has liabilities of the order of $7,000 in addition to the petitioning creditor’s debt.  I am therefore satisfied that Mr Vangsnes has made out a case that he is able to pay his debts.  However, the authorities establish that the Court nonetheless possesses a discretion to make a sequestration order.  See Trojan v The Corporation of Hindmarsh (1987) 16 FCR 37 at 46-48.  The Full Court said at page 48:

“The principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled.”

18                  Section 52(2)(a) envisages a situation which will probably bear fruit in payment.  It is not easy to see any other reason why the legislature makes demonstration of ability to pay only a discretionary ground of dismissal of the petition, and not an absolute bar to its success.  The decision of Finn J in Re Capel; Ex parte Caram Finance Australia Limited (unreported) 9 April 1998 is an illustration of a case in which, even if the Court had been satisfied that a particular asset was available to the debtor, it would have been appropriate nonetheless to exercise the discretion in favour of making a sequestration order, because the debtor had no assets or income that could be reached by execution or garnishment.

19                  On 18 February 2000 AMP wrote to Blake Dawson Waldron indicating that the effect of Regulation 6.22 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) was such that for the trustee to pay any of the member’s benefit to a judgment creditor pursuant to a garnishee order, would be a breach of those provisions, unless made at the direction of the member.  Regulation 6.22(1) provides that subject to Regulation 6.22(B), a member’s benefits in a regulated superannuation fund must not be cashed in favour of a person other than the member or the member’s legal representative, except in certain presently irrelevant circumstances.

20                  Accordingly, it seems to me that the present applicant is not able, by process of garnishment or execution or other legal remedy, to access the benefits to which Mr Vangsnes is entitled under his superannuation plan and that is a reason why the discretion should be exercised in favour of the making of a sequestration order.  As against that, Mr Vangsnes, points to the fact that in both his affidavit of 23 June 2000 par 12 and his affidavit of 27 July 2000 par 4, he reiterated a statement that he is able and willing to pay the costs if the Supreme Court comes to the conclusion that $68,000 is in truth the amount payable under its order.

21                  However, in my view, Mr Vangsnes’ claim that the Supreme Court order is flawed by some invalidating lack of judicial authority, is a hopeless claim that does not have any realistic prospects of success.  Accordingly, it seems to me that it would be appropriate in those circumstances for me to make a sequestration order notwithstanding the demonstration of solvency, subject to one qualification.  The qualification is that in view of the passages in Mr Vangsnes' affidavit to which I have directed attention, I think he should have, if he wishes, an opportunity to reconsider his position in the light of the decision which I have given. 

22                  If Mr Vangsnes requests, I would be prepared either to defer the formal pronouncing of a sequestration order or alternatively, to stay all proceedings under a sequestration order pursuant to s 52(3) in order to enable Mr Vangsnes to assess his position in the light of the decision which I have given.  As I have not heard argument on that question, I simply give that indication without indicating which of those two alternatives ought to be pursued so that anybody who wants to put any submissions upon that issue can do so.  Subject to that, it is my intention to make a sequestration order.

23                  Mr Vangsnes, I have come to the conclusion that your challenge to the District Court judgment does not have any realistic prospects of success.  I have also come to the conclusion that your solvency is not a reason for not making a sequestration order because of the particular nature of the only asset which you have.  What I have said is that I am prepared to consider either not formally pronouncing an order at this very moment, or alternatively, pronouncing an order but staying its operation so that you can have an opportunity of considering whether you want to come to some arrangements with the applicant or whether you do not wish to.

24                  I will stand the matter over until 9.30 am on Tuesday 8 August 2000, I indicate that unless some arrangement has been reached between the applicant and the respondent by that time, my present intention is that I will then pronounce a sequestration order.

Associate:

Dated:              2 August 2000