FEDERAL COURT OF AUSTRALIA

Carr v Swart [2008] FCA 1495

Bankruptcy Act 1966 (Cth)

Swart v Carr (No. 2) [2008] FMCA 1204 upheld

Wolff v Donovan (1991) 29 FCR 480 cited  

Wren v Mahony (1972) 126 CLR 212 cited     

MALCOLM DOUGLAS CARR v DANIEL VICTOR FREDERICK SWART

NSD 1404 of 2008

FOSTER J

3 OCTOBER 2008

SYDNEY

THE COURT ORDERS THAT:

1.                  The appeal be dismissed.

2.                  The stay granted temporarily on 10 September 2008 and renewed subsequently on 23 September 2008 be dissolved.

3.                  The costs of the estate of the late Kenneth Emmanual Dyers, including all reserved costs, be taxed and paid from the estate of the appellant in accordance with the Bankruptcy Act 1966 (Cth).

4.                  The exhibits be returned. 

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

REASONS FOR JUDGMENT

1                     This is an appeal from a judgment of Smith FM (Swart v Carr (No. 2) [2008] FMCA 1204) delivered on 20 August 2008, in which he made a sequestration order against the estate of the appellant and certain other orders ancillary to that order.  At the time he made the sequestration order, Smith FM stayed all proceedings under that order for 21 days on certain conditions. 

2                     The appellate jurisdiction of the Court in a matter such as this has to be exercised ordinarily by a Full Court.  In the present case, the acting Chief Justice, Justice Spender, made a direction on 15 September 2008 that the appeal be heard by a single judge of the Court.  Accordingly, the matter comes before me today pursuant to that direction. 

3                     The notice of appeal raises two broad groups of grounds.  The first group concerns a contention by the appellant that the learned Federal Magistrate failed to look behind the judgment which founded the petition upon which the sequestration order has been made.  The second group concerns the question of whether or not there are sufficient assets in the estate of the appellant to justify exercising the discretion of the Court not to make a sequestration order. 

4                     The learned Federal Magistrate considered the question of whether or not he should look behind the relevant judgment in some detail.  In particular, beginning at paragraph 16 of his Reasons for Judgment, he set out the relevant principles and moved on then to apply them in the circumstances of the present case. 

5                     It should be remembered that the judgment debt upon which the petition was founded was a judgment debt entered after a contested hearing in the Supreme Court of New South Wales before Palmer J, a contested appeal in the New South Wales Court of Appeal and an application for special leave to the High Court which was refused.  In the course of considering the question of whether or not he should look behind that judgment, the learned Federal Magistrate advanced several reasons for not doing so.  The first was that there was no evidentiary foundation before him that would support the defence of illegality which the appellant was submitting could be raised as a basis for going behind the judgment.  The second was that the learned Federal Magistrate had difficulty understanding what could be made of that defence even if it were able to be argued.  The final reason was that the appellant had abandoned in the Supreme Court the very point which he was now seeking to raise as a reason for going behind the judgment. 

6                     The appellant, in his submissions to me, has sought to explain this latter point by suggesting that he had let go the point prematurely and should have persisted in it but had failed to do so in the face of assertions from his opponent’s counsel that he would be unable to establish it on admissible evidence.  This explanation carries no weight since the appellant must take responsibility for the decisions which he made during the trial in the Supreme Court and, in any event, has never sought to re-agitate the point in that Court. 

7                     The point which the appellant seeks to raise seems to be that the funds which were invested by Mr Swart in the scheme of which the appellant was trustee were tainted with criminality in the sense that they had been expatriated from South Africa in breach of foreign exchange control regulations.  It seems to me that even if that allegation could be substantiated it does not necessarily provide any defence to the claim which has now been fully litigated in the Supreme Court of New South Wales. 

8                     The relevant principles were correctly applied by the learned Federal Magistrate.  That is to say, he directed himself in accordance with the well-known test in Wren v Mahony (1972) 126 CLR 212 at 224 and 225 and also at 236.  Reliance was also placed by the Federal Magistrate on the Full Court decision of this Court in Wolff v Donovan (1991) 29 FCR 480 at 481 and again at 486. 

9                     In my view, in circumstances where the judgment which founds the relevant petition was obtained after a contested hearing of the kind which occurred here and was the subject of two levels of appeal without success, the principles would require me to be satisfied on a strong evidentiary foundation that the judgment should be a judgment which the Court would look behind.  That would the case if I were exercising a discretion to do so, as it were, for the first time. 

10                  The matter becomes even more difficult for the appellant when consideration is given to the fact that the decision made by the learned Federal Magistrate was a decision not to exercise his discretion to go behind the judgment and thus was a discretionary judgment, was exercised upon a correct understanding of the relevant principles and finally, in my view, gave due weight to the contentions advanced by the appellant before the learned Federal Magistrate. 

11                  It seems to me that the appellant has not established before me that the learned Federal Magistrate fell into error in respect of the first group of matters being the matters said to support a need to look behind the relevant judgment.  I should add that if it were left to me to exercise that discretion on my own account and for the first time I would have come to the same view as the Federal Magistrate on these points. 

12                  The second group of matters concerns the question of whether or not an order should have been made in circumstances where the appellant contended below that he had sufficient assets to justify a postponement of his bankruptcy.  The history of the matter below was that the appellant sought an adjournment in which to place before the learned Federal Magistrate evidence of his assets in order to support that contention.  That adjournment was granted and the appellant filed an affidavit to support the contention which he proposed to make.

13                  The substance of the matter is that the appellant submits that there is significant value in legal proceedings which he has brought against his former lawyers in relation to their failure to argue a point in proceedings which he had brought in the English courts in connection with the failed investment.  The history of the investments in the present case and the attempts by the appellant to recover funds as a result of failure of those investments or the loss of funds occurring by reason of dishonesty on the part of those who held funds for a time is very complicated.

14                  The appellant submits to me that the case which he is currently pursuing in England is a simple one which will result in a significant sum of money coming to him.  The learned Federal Magistrate, with respect to him, carefully considered the evidence that was before him on this point.  That evidence has been supplemented in the appeal but the picture remains broadly the same.  The proceedings in England will involve legal and factual questions as to whether or not the funds which were lost could have been recovered in any event from the defaulting parties and thus whether or not the damages claim which the appellant has brought against his former lawyers will result in any actual recovery.  From the Reasons for Judgment of the learned Federal Magistrate and from the additional material tendered before me, it seems that limitation defences have been taken in the English proceedings and there are complexities in the proceedings concerning liability.  Further, it is not at all clear to me when these proceedings would be heard, assuming no bankruptcy.

15                  As with the other group of matters, it seems to me that the learned Federal Magistrate was exercising a discretion which he exercised with considerable care and by paying due regard to all of the matters raised before him.  As with the first group of matters, I see no error which should sound in any alteration in the decision which the learned Federal Magistrate made in relation to this group of matters.  As with the first group, I should add that were I to be considering the matter afresh, I would have come to the same view. 

16                  There is also a further matter which requires consideration and that is the position of the client for whom Mr Skinner appears.  That person is the executor of the estate of the late Kenneth Emmanual Dyers who, it is common ground, is a creditor of the appellant in a sum of money in excess of $236,000.

17                  The appellant submitted before me a technical basis for suggesting in some way that the debt which he owes to that estate was not a valid debt.  That basis was that the creditor had been misdescribed, either in the petition or in the probate or in some other relevant documentation.  This point seems to me to go nowhere and the appellant recognised this by ultimately conceding the validity of the debt.  It is therefore clear that there is a substantial debt owed to at least one other person which has not been paid and about which nothing can be said other than that it is due. 

18                  For all of the above reasons, it seems to me that the appellant has not made out a case for relief and that the appeal should be dismissed.  The orders which I propose to make are as follows:

(1)               Order that the appeal be dismissed;

(2)               Order that the stay which I granted temporarily on 10 September 2008 and renewed subsequently on 23 September 2008 be dissolved;

(3)               Order that the costs of the estate of the late Kenneth Emmanual Dyers, including all reserved costs be taxed and paid from the estate of the appellant in accordance with the Bankruptcy Act 1966 (Cth).

(4)               Order that the exhibits be returned.

Associate:

Dated:         7 October 2008