FEDERAL COURT OF AUSTRALIA

Norilya Minerals Pty Ltd, In the Matter of Dean Edward Ireland v Adam Jonathon Ireland as named Executor of the Estate of Dean Edward Ireland [2006] FCA 1235

BANKRUPTCY – debts – provable debts – definition – requirement for leave to proceed – whether requirement survives discharge of bankruptcy – cause of action in respect of recovery of moneys previously in part by restitution orders following upon conviction of debtor – conviction quashed on appeal many years later – order for repayment of restitution moneys – whether leave should be conditional upon repayment of restitution moneys

Bankruptcy Act 1966 (Cth) s 58, s 82, s 153

Ireland v The Queen (unreported CCA Sup Ct of A, Library Number 9401656, 6 May 1994) cited

Easterday v R (2003) 143 A Crim R 154 cited

Easterday v State of Western Australia (2005) 30 WAR 122 cited

Easterday v State of Western Australia [2005] WASCA 202 cited

Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178 cited

Official Receiver v Todd (1986) 14 FCR 177 cited

Spain v Union Steamship Co of New Zealand Limited (1923) 32 CLR 138 cited

Cornelius v Barewa Oil and Mining NL (In liq) (1982) 42 ALR 83

Coventry v Charter Pacific Corporation Limited (2005) 222 ALR 202 cited

Australian Competition and Consumer Commission v Kritharas (2000) 105 FCR 444 cited Australian Competition and Consumer Commission v Black on White Pty Ltd (2004) 138 FCR 314 cited

Macquarie Bank Ltd v Bardetta (2005) 216 ALR 670 cited

NORILYA MINERALS PTY LTD v ADAM JONATHON IRELAND AS NAMED EXECUTOR OF THE ESTATE OF DEAN EDWARD IRELAND

WAD 158 OF 2006

FRENCH J

13 SEPTEMBER 2006

PERTH

IN THE MATTER OF DEAN EDWARD IRELAND

THE COURT ORDERS THAT:

1.                  If and to the extent that the proceeding issued by the applicant against Dean Edward Ireland and others in the Supreme Court of Western Australia numbered CIV 2232 of 1990 (Civil Action) constitutes or includes a claim provable in the bankruptcy of Dean Edward Ireland numbered WA 311 of 1995, the applicant have leave to take further steps in the Civil Action up to and including the entry of final judgment.

2.                  There is no order as to costs and the respondent’s solicitor is to forthwith pay to the applicant’s solicitors’ trust account the sum of $5,000 paid by way of security for costs.

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

in the matter of dean edward ireland

REASONS FOR JUDGMENT

Introduction

1                     In 1990 Norilya Minerals Pty Ltd, then known as Noranda Exploration Pty Ltd (Norilya) paid $6,013,808.21 to three prospectors to acquire mining tenements at Mt Gibson. It made that payment in the belief, said to have been induced by false representations made by the prospectors, that the tenements had significant gold mineralisation. It subsequently turned out that there was no gold in the tenements.

2                     The prospectors were charged and, in July 1993 were convicted in the District Court of Western Australia, on counts of conspiracy to defraud and false pretences in relation to the sale of the tenements. Restitution orders were made under which Norilya recovered over $5 million from the prospectors and associated entities. The company commenced an action for loss and damages for the remainder of the sum it had paid together with consequential loss in the Supreme Court of Western Australia. On 28 March 2003, nearly ten years later, the Court of Criminal Appeal quashed the convictions following the referral to the Court by the Attorney-General of a petition seeking the exercise of the Royal Prerogative of Mercy.

3                     On 10 June 2005 the Court of Criminal Appeal declared the restitution orders to be null and void and directed repayment by Norilya. Norilya wishes to proceed with its claim against all the prospectors in the Supreme Court of Western Australia. One of them, Mr Dean Ireland, became a bankrupt in 1995. He was discharged from that bankruptcy in 1998. He has since died. Norilya has two principal causes of action against the estate of the late Mr Ireland and the other prospectors. They are for misleading or deceptive conduct under the Fair Trading Act 1987 (WA) and for fraud. Norilya is concerned that the cause of action in fraud may be characterised as a cause of action in relation to a provable debt under the Bankruptcy Act 1966 (Cth) and thus require the leave of the Court before the proceedings can continue. The executor of the late Mr Ireland’s estate does not oppose the grant of leave but seeks to attach a condition that Norilya repay to the estate the restitution moneys which the Court of Criminal Appeal ordered be repaid following the quashing of Mr Ireland’s conviction.

4                     For the reasons that follow, I am satisfied that leave should be granted under s 58(3) of the Bankruptcy Act and that no condition should be attached to the grant of that leave.

Factual background

5                     This application for leave to proceed against a deceased and bankrupt estate concerns dealings between Norilya and three mineral prospectors, Dean Edward Ireland (now deceased), Leonard Lancelot Ireland and Clark Irvin Easterday (the prospectors).

6                     In 1988 the prospectors held mineral tenements comprising two prospecting licences and an exploration licence in respect of land located near Mt Gibson in Western Australia. They conducted two phases of drilling on the tenements in September 1988 and March 1990. Samples of the first drillings which were submitted for laboratory analysis recorded little in the way of gold mineralisation. Samples from the second drilling however indicated significant amounts of gold.

7                     On 1 June 1990 the prospectors entered into a Deed with Acarus Pty Ltd (Acarus). Under the Deed, for a sum of $130,000, Acarus acquired the option to purchase the tenements and the right to mine them for $6 million reserving to the prospectors a 5% royalty subject to certain terms and conditions.

8                     It was a term of the Deed that the prospectors would cause a confirmation drilling program to be carried out on the tenements including assaying of samples of material obtained from the drilling. Upon completion of the confirmation drilling they would obtain a detailed report on the tenements and the result of the drilling. The option could then be exercised by Acarus within 30 days of its receipt of the report and the sum of $6 million would be payable 14 days thereafter.

9                     On 8 June 1990 Norilya, which was then known as Noranda Exploration Pty Ltd (Noranda), made an agreement with Acarus under which it obtained an option to acquire a 30% interest in the tenements from Acarus. The company had the right under the agreement to be an on-site observer during the conduct of the confirmation program defined in the option deed and to have complete access to the report referred to in the option deed.

10                  A third phase of drilling was conducted by the prospectors in June 1990. Samples from this confirmation drilling were submitted for laboratory analysis and revealed significant gold mineralisation.

11                  Acarus exercised its option to acquire the tenements under its agreement with the prospectors. Norilya, in turn, exercised its option to acquire 30% of the tenements from Acarus. Pursuant to the terms of the latter option, Norilya paid the prospectors the sum of $6,013,808.21 on 9 July 1990 at the direction of Acarus. The payments made were broken up as follows:

Dean Edward Ireland $2,400,000

Clark Irvin Easterday $2,400,000

Leonard Lancelot Ireland $1,200,000

Interest $ 13,808.21

Total $6,013,808.21

On the settlement of the sale of the tenements the prospectors transferred all of their interests in them to Acarus. On the same day, 9 July 1990, Acarus transferred 30% of its interest in the tenements to Norilya. Upon registration of those transfers Norilya and Acarus became the registered proprietors of the tenements. Also on the same day Acarus and Norilya entered into a Deed of Assumption. This provided, inter alia, that Norilya would be jointly and severally liable together with Acarus to pay any royalties due to the prospectors by virtue of the terms of the Acarus deed. The prospectors were also parties to the deed of assumption.

12                  Between 22 July and 6 August 1990 Acarus and Norilya conducted a drilling program on the tenements. Samples from this program were submitted for laboratory analysis which revealed that there was no gold mineralisation of any significance on the tenements.

13                  On 31 July 1990 a complaint was made to the Western Australian Police. They conducted a further drilling program on the tenements which again revealed no gold mineralisation. The prospectors were arrested on 27 February 1991 and each charged with one count of conspiracy to defraud and ten counts of false pretences in relation to the sale of the tenements.

14                  The charges against the prospectors were heard in the District Court of Western Australia before his Honour Chief Judge Hammond and a jury in mid 1993. Each of the prospectors was found guilty on 28 July 1993 on each count against them.

15                  Norilya applied to the trial judge for restitution orders under s 717 of The Criminal Code (WA). Those orders were made on 20 August 1993. They took the form of orders directing the transfer of moneys and assets to Norilya from accounts and companies apparently controlled by the prospectors. The prospectors each lodged an appeal against their convictions to the Court of Criminal Appeal. Enforcement of the restitution orders was stayed. However the appeals were dismissed on 6 May 1994 – Ireland v The Queen (unreported CCA Sup Ct of WA Library Number 9401656, 6 May 1994). The restitution orders made were thereafter enforced. Norilya recovered $5,782,556.94 upon the execution of the orders.

16                  Norilya commenced proceedings in the Supreme Court of Western Australia on 14 August 1990 against the prospectors. In their defence to the civil action filed 3 December 1990, the prospectors denied that the samples submitted for assay from the phase 2 and phase 3 drillings contained gold which had been added to those samples. In August 1993 Norilya applied for summary judgment in the civil action in reliance on the convictions of the prospectors. Summary judgment, for damages to be assessed, was granted against each of the prospectors in August 1994. The calculation of the damages in that case would, of course, have had to take account of sums received under the restitution orders.

17                  In 1998 the prospectors lodged a petition for the exercise of the Royal Prerogative of Mercy. The petition was referred to the Court of Criminal Appeal by the Attorney-General pursuant to s 140(1) of the Sentencing Act 1995 (WA). Such a petition is to be heard and determined under the section as if it were an appeal against the convictions. Upon the hearing of the petition the Court quashed the convictions of each of the applicants on 28 March 2003 – Easterday v R (2003) 143 A Crim R 154. The result turned upon non-disclosure by the Crown of a document relating to share trading patterns in the market at the relevant time which might have pointed to other persons as responsible for the alleged salting of the assay samples.

18                  The failure by the Crown to disclose the report to the defence in a timely fashion was found by Scott J to have put the prospectors in the position where a relevant line of investigation could not be pursued. He was of the view that the Crown’s case was a very strong circumstantial evidence case but that notwithstanding that the appeal should be allowed.

19                  Steytler J observed (at [233]):

‘At the hearing of the appeal before us, the appellants sought to mount a case which was rather different to that advanced by them at trial. They acknowledged that salting had occurred. They conceded that the evidence was overwhelming in that respect. However, they advanced the proposition that it was not them who had salted the tenements and that the fresh or new evidence now available demonstrates that others had both the motive and opportunity to do so. They contend that the absence of this fresh or new evidence at the trial and at their previous appeal deprived them of a real chance of acquittal which would otherwise have existed.’

20                  Following the quashing of their convictions the prospectors applied for orders annulling the restitution orders which had been made by Hammond DCJ and ordering the payment to them of a sum of money equal to the value of the restitution which they had made to Norilya and interest. They also applied to join Noranda Inc as a respondent to the application, it being related to Norilya and the ultimate beneficiary of the restitution made to Norilya.

21                  The Court of Criminal Appeal, in a judgment published on 10 June 2005, declared the restitution orders to be null and void. It also held that it had a discretionary power to order the repayment of moneys paid pursuant to a restitution order. The Court gave the parties the opportunity to make submissions as to further orders that should be made – Easterday v State of Western Australia (2005) 30 WAR 122.

22                  On 28 October 2005, following submissions, the Court said it would further order that Norilya repay to each of the prospectors the amount received by it from that prospector pursuant to the making of the restitution orders. An application for a stay by Norilya was dismissed. Steytler J said:

‘It seems to me that in this case, too, the effect of a stay would be that the applicants would not be restored to all that was lost by them as a consequence of the erroneous judgment … Instead, Norilya would be allowed to benefit from the judgment by retaining money which it would not otherwise have held and to which it has yet to establish any entitlement … The position would, in reality, be no different than if the Court had declined to make orders for restitution pending the outcome of the civil action. That being so, and given the potential prejudice which that course might work upon the applicants (as a consequence, at least, of what would then be their inability to resort to any funds, which might otherwise have been repaid by Norilya, for the purpose of funding their defence of the civil action), and given also that no other basis has been put forward to support the imposition of a stay, it seems to me that it would be inappropriate to order a stay and I would decline to do so.’

Easterday v State of Western Australia [2005] WASCA 202 (at [16])

The formal order of the Court of Criminal Appeal required Norilya to repay to Mr Ireland the sum of $1,898,703.33. The judgment for damages which had been entered against each of the prospectors in the civil action in the Supreme Court was set aside by consent on 7 December 2005.

23                  Mr Dean Ireland had lodged a debtors petition on 13 March 1995 pursuant to s 55 of the Bankruptcy Act. He became bankrupt on that date. Norilya lodged a proof of debt in the bankrupt estate for the amount of $980,945. This was for the difference between loss and damage suffered by Norilya and the total amount recovered by it from the prospectors under the restitution orders. On 12 April 1996 Norilya received a distribution of $42,430.75 in the bankrupt estate. Mr Ireland was discharged from bankruptcy with effect from 14 March 1998.

The civil action in the Supreme Court of Western Australia

24                  The civil action in the Supreme Court of Western Australia was commenced between Norilya (then Noranda) and the prospectors on 14 August 1990 by writ of summons. The indorsement on the writ stated that:

‘The Plaintiff’s claim is for damages for fraudulent misrepresentation, alternatively damages for misleading or deceptive conduct pursuant to sections 10 and 77 of the Fair Trading Act 1987 arising out of representations made by the defendants in or about May, June or July 1990 concerning certain mining tenements near Mt Gibson.’

25                  The statement of claim filed with the writ alleged representations by the prospectors as to the assay results of the drilling programs in phase 1 and phase 2. It pleaded the making of the Acarus option and further representations concerning the third phase assay results. The representations were said to have been made in order to induce Norilya, then Noranda, to acquire an interest in the tenements. This had occurred with the creation of the Noranda option on 8 June 1990 and the subsequent exercise of that option in which the sum of $6 million was paid by Norilya to the prospectors and $150,000 to Acarus pursuant to the Noranda option. The representations were said to have been made by the prospectors fraudulently in that, when each representation was made, they knew that it was false or did not believe that it was true. The causes of action identified in the statement of claim were deceit and misleading or deceptive conduct in contravention of the Fair Trading Act. The amount of damages claimed was $6,163,808.21 together with consequential loss, particulars of which were to be rendered separately.

26                  In its proposed amended statement of claim Norilya maintains the plea that it was induced, by the false representations which it attributed to the prospectors, to enter into the Noranda option with Acarus and to exercise it by paying to the prospectors the purchase price for the tenements. Importantly, the plea does not rely upon any contract between Norilya and the prospectors. In particular, it does not rely upon any contract between Norilya and Mr Dean Ireland.

The present application

27                  Norilya now applies for an order in the following terms:

‘An order pursuant to s 58(3)(b) of the Bankruptcy Act 1966 that, if and to the extent that the proceeding issued by the Applicant against Dean Edward Ireland and others in the Supreme Court of Western Australia numbered CIV 2232 of 1990 (Civil Action) constitutes or includes a claim provable in the bankruptcy of Dean Edward Ireland numbered WA 311 of 1995, the Applicant have leave to take further steps in the Civil Action up to and including the entry of final judgment.’

Statutory framework

28                  Section 58 of the Bankruptcy Act provides, inter alia:

‘(1) Subject to this Act, where a debtor becomes a bankrupt:

(a) the property of the bankrupt, not being after-acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and

(b) after-acquired property of the bankrupt vests, as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.

…

(3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:

(a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or

(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.’

29                  The range of debts provable in bankruptcy is defined in s 82, which provides, inter alia:

‘(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.

…

(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.’

30                  Section 153 provides for the effect of a discharge thus:

‘(1) Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his security for the benefit of creditors generally.

(2) The discharge of a bankrupt from a bankruptcy does not:

…

(b) release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he was a party or a debt of which he has obtained forbearance by fraud;’

Whether leave is necessary and whether it should be granted

31                  The position is somewhat complicated in this case by the discharge from bankruptcy of Mr Dean Ireland. Having been discharged in March 1998 he was released from all debts provable in the bankruptcy. The question would arise whether that release operates as a defence to any proceedings brought in respect of such a debt and so makes the question of leave moot.

32                  Discharge of a bankrupt does not spell the end of the trustee’s duties to distribute to creditors such property as remains vested in the trustee. Property, including choses in action, which has vested in a trustee by reason of bankruptcy continues to be so vested after the discharge of the bankrupt. The release provision, s 153(1), does not revest in the bankrupt property previously vested in the trustee – Daemar v Industrial Commission of NSW (No 2) (1990) 22 NSWLR 178. In that case the Court of Appeal of New South Wales held that a right of action which the former bankrupt had to challenge certain orders of the Industrial Commission, remains vested in his trustee. It would seem to be implicit in the continuing responsibility of the trustee for the distribution of the former bankrupt’s estate to creditors, in respect of provable debts, that the leave requirement under s 58(3) remains in place to the extent that there is a dispute about the existence of such a debt. Such leave could authorise a resolution of that dispute in separate proceedings. The leave requirement is not expressly limited in time. Section 58(3) refers to the period ‘… after a debtor has become bankrupt’. It may be noted that the definition of ‘bankrupt’ in s 5 of the Act means a person:

‘(b) who has become a bankrupt by virtue of the presentation of a debtors petition;’

Provisions of the Act relating to ‘a bankrupt’ are not therefore temporally limited by that term – Official Receiver v Todd (1986) 14 FCR 177 in which it was held that liability to examination under s 81(1) of the Bankruptcy Act does not expire upon discharge. It would seem that in all but the most unusual cases, of which this is one, questions of the kind raised here would not arise in any practical sense.

33                  The release for which s 153(1) provides does not extend to release the bankrupt from a debt incurred by means of fraud. One of the claims made against Mr Dean Ireland was that he practiced a fraud upon Norilya.

34                  Norilya is concerned that the discharge of Mr Ireland from bankruptcy does not excuse it from the requirement to seek leave to prosecute its claim for fraud in the civil action. It is concerned, moreover, that the claim for fraud may arguably be a claim for liquidated damages comprising the purchase price paid by it to Mr Ireland at the direction of Acarus to acquire a 30% interest in the tenements. So the damages claim, albeit based in fraud, may give rise to a ‘provable debt’ within the meaning of s 82. To the extent that the claim seeks recovery of moneys paid by way of the purchase price for the tenements, it is arguably a claim for liquidated damages. As was said in Spain v Union Steamship Co of New Zealand Limited (1923) 32 CLR 138 (at 142 per Knox CJ and Starke J):

`As is well said by Mr Odgers (Pleading and Practice, 5^th ed, p 41), “whenever the amount to which the plaintiff is entitled … can be ascertained by calculation or fixed by any scale of charges, or other positive data, it is … liquidated”.’

On the other hand, in Cornelius v Barewa Oil and Mining NL (In liq) (1982) 42 ALR 83 Burt CJ observed that (at 84):

‘A claim for damages for fraudulent misrepresentation remains a claim or demand for unliquidated damages even if the relief as claimed is for a liquidated amount.’

35                  Norilya contends that by reason of the High Court’s decision in Coventry v Charter Pacific Corporation Limited (2005) 222 ALR 202, an action for unliquidated damages for misleading and deceptive conduct does not give rise to a provable debt. This is of course subject to the qualification that the claim arises ‘other than by reason of a contract, promise or breach of trust’. In Coventry the High Court was concerned with an action for misleading or deceptive conduct under s 995(2) and s 1005 of the Corporations Law (Qld). The Court held by majority that a statutory claim for unliquidated damages for misleading or deceptive conduct which induced the claimant to make a contract with some party other than the bankrupt but not with the bankrupt is not a provable debt for the purposes of s 82. In the joint judgment of Gleeson, Gummow, Hayne and Callinan JJ (at [6]) their Honours said:

‘These reasons demonstrate that a statutory claim for unliquidated damages for misleading or deceptive conduct which induced the claimant to make a contract not with the bankrupt but with a third party is not a debt provable in bankruptcy. It is a demand in the nature of unliquidated damages arising otherwise than by reason of a contract or promise. The bankrupt is not discharged from liability. The claim may be pursued by the claimant during the bankruptcy and after discharge from bankruptcy. By contrast, a claim for unliquidated damages for misleading or deceptive conduct by the bankrupt, which induced the claimant to make a contact with the bankrupt, would be a debt provable in bankruptcy.’

See also Australian Competition and Consumer Commission v Kritharas (2000) 105 FCR 444 at [29] – [34] (Katz J) and Australian Competition and Consumer Commission v Black on White Pty Ltd (2004) 138 FCR 314 at [25] – [34] (Spender J).

In this case it is not alleged that Norilya entered into any contract with the prospectors by reason of the misrepresentations alleged. Its contract was with Acarus, albeit its payments were made to the prospectors. It does not rely upon the Deed of Assumption in that respect.

36                  Counsel for Mr Dean Ireland’s executor conceded that, if leave be necessary, it should be granted but sought the attachment of a condition requiring that Norilya comply with the orders of the Court of Criminal Appeal of the Supreme Court of Western Australia made on 28 October 2005 and 8 February 2006 respectively. The executor would add a further requirement that payment of the moneys ordered to be paid to the various parties should be made forthwith.

37                  In this case leave is appropriate. The matter is plainly one of some complexity and the justice of the case requires that Norilya has the opportunity to pursue what may be in effect, a set-off against the obligation which it has to repay the restitution moneys under the orders of the Court of Criminal Appeal – Macquarie Bank Ltd v Bardetta (2005) 216 ALR 670 at [20] – [21] (Conti J).

38                  I am not disposed to attach any such condition to the grant of leave, which in this case will only be necessary in relation to the fraud claim. The question whether any stay of proceedings should be sought in the light of the unsatisfied orders of the Court of Criminal Appeal is a matter for the Supreme Court. The justice of such a condition is not immediately apparent.

Conclusion

39                  For the preceding reasons I propose to grant leave to Norilya to continue with the proceeding issued against the respondent and others in the Supreme Court of Western Australia. In my opinion the costs of this proceeding should be costs in the Supreme Court proceeding, but I will hear from the parties as to that.

Associate:

Dated: 13 September 2006