FEDERAL COURT OF AUSTRALIA

Heinrich v Commonwealth Bank of Australia [2001] FCA 661

Bankruptcy Act 1966 (Cth) s 86

Gye v McIntyre (1991) 171 CLR 609, distinguished

STEPHEN GLENN HEINRICH v COMMONWEALTH BANK OF AUSTRALIA

S 106 of 2000

HEEREY, BRANSON and LINDGREN JJ

ADELAIDE

28 MAY 2001

THE COURT ORDERS THAT:

1.         The appeal be dismissed.

2.         The appellant pay the costs of the respondent.

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

REASONS FOR JUDGMENT

HEEREY J:

1                     I invite Branson J to deliver the first judgment.

BRANSON J:

2                     On 6 September 2000 a judge of the court (Mansfield J) ordered that a sequestration order be made against the estate of the appellant, Stephen Glenn Heinrich.  A registered trustee, Alan Geoffrey Scott, was appointed as trustee of Mr Heinrich’s estate.

3                     By a notice of appeal dated 27 September 2000 Mr Heinrich purported to appeal from the judgment of Mansfield J.  The grounds of the appeal set out in the notice are as follows:

“The Federal Court of Australia Act section 5(2) states; The court is a superior court of record and is a court of law and equity.

1.                  Justice Mansfield;

a)                  denied in law and equity the right to an account of all mutual dealings between the parties before a sequestration order is made;

b)                  relied on a judgment debt obtained from [a] court below that was misled by fabricated evidence given by the bank;

c)                  relied on shadow accounts that the court below was misled into believing were correct;

ignored the evidence before him given from the senate inquiry transcript 16 August 2000 that prove the shadow accounts are incorrect;

d)                  failed to order production of the bank statements for the true accounts of the banks general ledger;

e)                  used evidence not before him to add weight to his decision;

f)                   made a decision contrary to the evidence before him;

g)                  he erred in fact in that the respondent has never denied the allegation that the mortgage number 7051412 was taken by Saunders without the consent of the appellant;

h)                  failed to weigh the misrepresentations of Saunders for the rate and fixing of interest to the Machinery Loan and Farm Loan; and

i)                    the only security given (the Aldgate property) was material to the transfer of Heinrich’s business.”

4                     There were certain additional grounds set out in the notice which may or may not have been intended to expand on the above grounds.  It is possible that they were intended to stand alone.  Irrespective of the answer to the issue of the proper construction of the notice, it is to be noted that the purported notice of appeal does not seek an order setting aside the sequestration order made by Mansfield J.  It does apparently seek an order staying his Honour’s order until certain steps are undertaken.

5                     By a notice of motion dated 4 October 2000 the respondent, the Commonwealth Bank of Australia (“the Bank”), gave notice that it would move the Court for orders that the appeal be dismissed as incompetent and that it be awarded its costs of the appeal.

6                     When the purported appeal was called on this morning, Mr Gargan was given leave to represent Mr Heinrich.  The Court indicated that it would hear the purported appeal and, to the extent necessary, the motion of the Bank together, with Mr Gargan addressing the Court first on Mr Heinrich’s behalf.

7                     Mr Gargan argued that this Court should, in reliance on s 86 of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), order that an account be taken of the mutual dealings of Mr Heinrich and the Bank.  Mr Gargan did not contend that the sequestration order made by Mansfield J should be set aside.  Mr Gargan frankly conceded that an order for the taking of an account was sought for the purpose of establishing that a judgment of the Supreme Court of South Australia, made after a contested hearing in that Court between Mr Heinrich and the Bank, was wrong.  No appeal from that judgment has been instituted.

8                     It is to be noticed first that s 86 of the Bankruptcy Act only has application where a person has become a bankrupt.  That is, any application under s 86 of the Bankruptcy Act assumes the validity of the sequestration order made against the bankrupt’s estate.  Secondly, s 86 is a provision governing the administration of a bankrupt estate.  This Court is not presently concerned with the administration of Mr Heinrich’s estate but with a purported appeal from the judgment of Mansfield J.

9                     It is not, for the above reasons, appropriate for this Court on this appeal to order the taking of an account under s 86 of the Bankruptcy Act.  The order for an account sought by Mr Gargan on Mr Heinrich’s behalf must be refused.

10                  No proper ground of appeal against the order of Mansfield J having been advanced, the appeal, in my view, must be dismissed.

11                  However, I note that had an appeal been properly instituted against the order made by Mansfield J on 6 September 2000, such appeal was bound to fail on the merits.

12                  His Honour exercised his discretion under s 30(3) of the Bankruptcy Act to decline to order a jury trial with respect to the creditor’s bankruptcy petition.  No error in his Honour’s approach to this question was identified in the purported notice of appeal or by Mr Gargan today.

13                  His Honour, having found that all formalities necessary for the making of a sequestration order had been satisfied, declined to go behind the judgment of the Supreme Court of South Australia on which the bankruptcy notice served by the Bank on Mr Heinrich had been based.  Mr Heinrich did not comply with the requirements of the bankruptcy notice, either within the time allowed by the notice or at all.  As a consequence, he committed an act of bankruptcy on 19 April 2000.

14                  The judgment of the Supreme Court of South Australia followed, as I have mentioned, a contested hearing before that court.  Mr Heinrich was represented by counsel before the Supreme Court.  Mansfield J found that Mr Heinrich had a proper opportunity before the Supreme Court to litigate the issues that he wished to rely on in opposing the making of the sequestration order.  His Honour noted that no appeal from the decision of the Supreme Court had been instituted and that, at the time of the hearing before him, the time for any appeal had expired.

15                  His Honour further noted that Mr Heinrich had already failed to satisfy another judge of the Court (O’Loughlin J) that he had a counterclaim, set‑off or cross‑demand against the Bank, or that the bankruptcy notice served on him should be set aside on the basis that the Court should go behind the judgment debt.  In addition, his Honour referred to the failure of Mr Heinrich to allege or to demonstrate that he had repaid in full the moneys advanced to him by the Bank.

16                  His Honour’s conclusion that there was no sufficient reason shown for the Court, on the hearing of the petition, to go behind the judgment of the Supreme Court of South Australia was plainly justified on the material before him.

17                  The order of this Court should, in my view, be that the appeal be dismissed and that the appellant pay the respondent’s costs.

HEEREY J:

18                  I agree with the orders proposed by Branson J for the reasons her Honour gives. 

LINDGREN J:

19                  I also agree with those orders and with her Honour’s reasons and add the following observation.  In support of his application for an order for the taking of an account, Mr Heinrich referred, in written submissions, to the judgment of the High Court in Gye v McIntyre (1991) 171 CLR 609 and, in particular, to certain statements made in the joint judgment in that case as to the broad and mandatory nature of s 86 of the Bankruptcy Act 1966 (Cth) (“the Act”).  That case concerned a composition rather than a bankruptcy but s 243 of the Act made s 86 applicable to compositions in the manner described in s 243.

20                  Nothing in the judgment of the High Court in that case is inconsistent with what Branson J has said.  I note, for example, that their Honours said (at 622) that s 86 is a statutory directive which operates as at the time the bankruptcy takes effect and produces a balance upon the basis of which the bankruptcy administration can proceed.  The role of s 86 as governing an aspect of bankruptcy administration is, of course, reflected by the heading (“Proof of Debts”) of Division 1 and the heading (“Administration of Property”) of Part VI of the Act in which the section occurs.

HEEREY J:

21                  The orders of the Court will be as proposed by Branson J.

Associate:

Dated:                                           4 June 2001