Re Basil William Vassis Ex Parte: Leo Leung [1986] FCA 21 (10 February 1986)

FEDERAL COURT OF AUSTRALIA

Re: BASIL WILLIAM VASSIS
Ex Parte: LEO LEUNG
No. P608 of 1984
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA
Burchett J.

CATCHWORDS

Bankruptcy - creditor's petition - "Ordinarily resident in Australia" - Whether solicitor who had committed defalcations and fled to Greece for two years before returning was ordinarily resident in Australia during a period after his departure - Whether he was carrying on business in Australia not having wound up his practice and paid all its obligations - Admissibility of tender of paragraphs of opponent's affidavit as admissions - Whether debtor remained out of Australia with intent to defeat or delay his creditors - Defence that he left in fear of his life - Whether liability of solicitor as a trustee to account for monies entrusted to him and misapplied gave rise to a liquidated sum due in equity - Whether proceeds of forged mortgages gave rise to a debt - Effect of partial security for petitioning creditor's debt - Whether petitioning creditor was a secured creditor.

Bankruptcy Act 1966, s.5(1), s.40(1)(c)(i), s.43(1)(b)(i) and (iii), s.44.

Legal Profession Practice Act 1958 (Vic), s.104GA(8)

Price v. Hayman (1848) 4 M. & W. 8; 150 E.R. 1321

Wimpole v. McIlwraith (1923) VLR 553

Barton v. Deputy Federal Commissioner of Taxation [1974] HCA 43; (1974) 131 CLR 370

Re Cook (1946) 13 ABC 245

Re Smith; Ex parte Kern Corporation Ltd., Pincus J., unreported, 19/6/85.

Re Cohen (1950) 2 All E.R. 36

Commissioners of Inland Revenue v. Lysaght (1928) AC 234

Akbarali v. Brent London Borough Council (1983) 2 AC 309

Re: Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256

Mann v. Hulme [1961] HCA 45; (1961) 106 CLR 136

Emma Silver Mining Co. v. Grant (1880) 17 Ch.D. 122

Re Dawson (dec'd); Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. (1966) 2 NSWR 211

Re O'Leary; Ex parte Bayne (1985) 61 ALR 674

In re Small; Westminster Bank v. Trustee (1934) 1 Ch. 541

HEARING

SYDNEY
10:2:1986

ORDER

A sequestration order be made against the estate of the debtor.

The costs (including reserved costs) of the petitioner taxed and paid according to the Act.

A draft of this order be delivered to the Registrar within seven days in accordance with Rule 124(2).

NOTE: Settlement and entry of orders is dealt with in Rule 124
of the Bankruptcy Rules.

DECISION

This is a creditor's petition under the Bankruptcy Act 1966 on the ground provided by s.40(1)(c)(i) that the debtor, within six months before the presentation of the petition, remained out of Australia with intent to defeat or delay his creditors. The petitioning creditor is the receiver of certain property of the debtor, appointed by an order of Gobbo J. of the Supreme Court of Victoria, made 19 January 1983. He claims, pursuant to s.104GA(8) of the Legal Profession Practice Act 1958 (Vic), to be subrogated to the rights and remedies against the debtor, who was a solicitor, of a large number of former clients of the debtor who suffered pecuniary losses by reason of his defalcations, and have received compensation from the Solicitors' Guarantee Fund referred to in the Legal Profession Practice Act. The total amount of the indebtedness alleged in the petition is $3,039,560-12, and the evidence indicates that further payments subsequently made by way of compensation have increased this amount to some $3.5M.

2. The creditor's petition has been defended and the debtor has given evidence. On his behalf, it was submitted that the ground alleged in the petition had not been made out, that at the time that the act of bankruptcy was claimed to have been committed the debtor was not "ordinarily resident in Australia" as alleged in the petition, that the provision of the Legal Profession Practice Act relied upon, s.104GA(8), did not create a debt for the purposes of the Bankruptcy Act, and that the petitioning creditor was a secured creditor who had failed to comply with the statutory requirements to enable him to maintain his petition.

3. The first problem in this matter arose during the petitioning creditor's case. His counsel tendered certain paragraphs of an affidavit sworn by the respondent and filed on his behalf. It was objected that, a party not being bound to read his affidavit, this tender should be regarded as an indirect subversion of the respondent's right to withhold it, and not permitted. I ruled against the objection, and allowed the tender of the paragraphs as admissions. In the event, the respondent was thereafter called to give evidence in his own case. I allowed the tender upon the basis of authorities which are conveniently collected in 1985 Australian Current Law at p.36055, stemming from Price v. Hayman (1838) 4 M & W 8; 150 ER 1321. Those cases (and especially Wimpole v. McIlwraith (1923) VLR 553) establish, in my opinion, that a statement by a party in an affidavit filed by him may be tendered by the opposing party as an admission, though the tenderer cannot prevent reference to other statements in the affidavit providing a qualifying context. They also support the use in other ways of affidavits not filed by the party seeking to rely on them, but it is unnecessary for present purposes to examine the limits of the rules applicable in this situation: in my view they at least justify the petitioning creditor's tender in the present case.

4. The evidence establishes to my satisfaction the following circumstances. Mr. Vassis, who had been admitted as a barrister and solicitor of the Supreme Court of Victoria on 1 April 1970, practised the profession of a solicitor under the name "B.W. Vassis and Associates", at 232 King Street Melbourne, from 1 February 1976. In the course of his practice Mr. Vassis received, on behalf of clients, substantial sums of money, either for investment, or to be applied to specific purposes, or to be paid to clients. He also received and held title deeds on behalf of clients. He invested substantial sums, for clients, in a company, Bemva Credits Corporation Proprietary Limited ("Bemva"), of which until 1981 he was a director. Bemva became hopelessly insolvent, and over the period from early 1981 to January 1983, and particularly during 1982, Mr. Vassis, without authority, used the funds of clients to make unsecured deposits with the company so that it could effect repayments and interest payments due to other clients. He also, on more than one occasion, forged mortgages of properties of clients, in respect of which he held the title deeds on their behalf, to raise money for the same or associated purposes. In effect he kept the company hazardously afloat by, in the proverbial phrase, robbing Peter to pay Paul.

5. By December 1982, Mr. Vassis' affairs had reached a situation it was impossible to maintain, even by the methods to which he was resorting. Clients were pressing him for money due to them, which was not available. Legitimate means of obtaining funds had been exhausted (he had pursued a large debtor of Bemva to the point where there was nothing more to be obtained, and he had mortgaged heavily all available assets). A complaint had been received by the Law Institute of Victoria, which in the circumstances must have made disclosure of the true position but a matter of days or weeks away.

6. Mr. Vassis closed his office for the Christmas/New Year period on 22 December 1982, and it was due to re-open on 25 January 1983. He then expected, according to his evidence, and I have no reason to doubt this statement, that on 25 January "there would be even more people asking for money". In December, the situation was already beyond remedy. Mr. Vassis had settled the sale for $43,000 of a house, on behalf of a client, Mr. G. Bakopoulos, and the price had been swallowed up by Bemva. Mr. Bakopoulos several times about Christmas endeavoured to obtain his money, only to be put off with statements that Mr. Vassis was not in the office. Such a state of affairs could obviously not continue. Another client, Mr. P. Laspatizos, had entrusted to Mr. Vassis two transactions, one the sale of a property for $40,500-00, the other the purchase of a property for $67,000-00. When the sale was completed on 17 December 1982, Mr. Vassis appropriated the proceeds. But the purchase was also due for completion, which could not be staved off for long. In view of the enormous amount of the defalcations and the deficiency in the trust account of Mr. Vassis and in Bemva, it is clear that the examples I have given would have to be multiplied many times in order to represent the desperate plight in which Mr. Vassis was placed.

7. At this juncture, a client's complaint led to a visit to Mr. Vassis by a representative of the Law Institute of Victoria. Mr. Vassis learned that a receiver was about to be appointed. He left Australia the next day, which was 8 January 1983. In his own words, at that stage: "It just did not seem possible any further". When he used those words, he was referring specifically to obtaining money from the one large debtor whom he identified, but the magnitude of the impossibility consisted in the total absence of any other source of funds.

8. Approximately two years later Mr. Vassis returned to Australia, having lived in hiding until then somewhere in Greece, and pleaded guilty to an indictment of fifty counts, involving a deficiency in or payable into his trust account as a solicitor of $727,681-71, and also the stealing of clients' monies, dishonest obtaining of monies by deception, forgery with intent to defraud, and uttering, in numerous individual sums varying from about one thousand dollars to ninety-four thousand odd dollars. He is now serving sentences which on 26 July 1985 were increased on appeal by the Crown to the Court of Criminal Appeal of Victoria, so that the aggregate sentences amount to imprisonment for eight years, with a minimum of five years before he will be eligible for parole.

9. The first question of substance is whether I should be satisfied that Mr. Vassis did remain out of Australia, during the period alleged in the petition, with intent to defeat or delay his creditors. His original departure on 8 January 1983 is outside the period of six months covered by the petition, but if I should find that he left Australia with the relevant intent this would, in my opinion, provide a strong basis for an inference that he remained away with the same intent. Of course, the drawing of such an inference in fact would be by no means automatic.

10. Mr. Vassis does not allege a change of intention during the period of his absence from Australia. On the contrary, his defence is that at all times his departure, and his remaining away, were motivated by fear for his personal safety and that of his family. He does, however, assert that the period of his absence was somewhat prolonged, even after those fears had been allayed, by a shortage of cash with which to pay his fare home.

11. There was no evidence to support this defence other than the evidence of Mr. Vassis himself. He asserted that he had been subjected to threats against his life, if monies were not paid. He gave no evidence of any threat uttered to him in respect of his family, but only of threats in respect of himself. However, he asserted that, after he left, his family also had been threatened, and he claimed that a motive of his departure was to draw the blame away from his family for its protection. His statement that the family had been threatened after his departure was not supported by any evidence from his wife or adult son, though both were available to give evidence.

12. In the circumstances, the extent to which I give credence to the evidence of Mr. Vassis is a vital matter. There are several considerations which make it difficult to accept his assertion that the only substantial reason for his flight from Australia was the threats to which I have referred. In the first place, when he was asked by his own counsel to elaborate upon the alleged threats, the first threat which he mentioned, and the only one of which he specified any details, was a threat alleged to have been uttered by a client expert in karate, some eight months before his departure. He had made no complaint to the police, and had not paid the claim or any part of the claim of the person who threatened him. Indeed, he had filed defences to proceedings brought by that person. If any threat had been uttered, it seems clear that the person concerned had afterwards decided to enforce his rights by legitimate means through the courts. I do not accept that, eight months later, any threat made by this man remained a matter of serious concern to Mr. Vassis. No circumstances were stated in respect of other threats alleged to have been made shortly before Mr. Vassis left. It seems reasonable to conclude that Mr. Vassis himself did not put them forward as having the serious impact he claimed for the threat of which he did furnish details.

13. If strong language was used by someone seeking a payment from Mr. Vassis, it would be easy to understand that Mr. Vassis might later be tempted to justify his flight by asserting that he had been threatened. There are a number of indications in his evidence of a proneness to self-justification and a failure, even after all that has happened, to accept fully the realities which led to his present situation. Under cross-examination, he declined squarely to accept that in December 1982 the company Bemva could not repay the monies of Mr. Bakopoulos which he invested in it. Even more tellingly, he attempted to justify the unsecured and unauthorised investment of the proceeds of Mr. Laspatizos's sale, which he knew were required for his purchase. He was asked the question: "But you knew that they were to be paid toward the purchase price... didn't you?" He answered: "Because the settlement was to take place in the New Year we organised a bit of interest for him in the interim period and I did not get an authority in writing." This answer dishonestly suggests that the purpose of the unauthorised investment was to obtain interest for Mr. Laspatizos, and even hints that the offence consisted merely in not having written authority. On the evidence of Mr. Laspatizos, which I accept, his money must have been invested, contrary to his instructions, in the company Bemva late in December 1982, at a time when Mr. Vassis could not possibly have believed that this investment would be for his benefit and would actually result in his receiving interest. There was no suggestion in cross-examination of Mr. Laspatizos that he had authorised the investment, but not in writing; indeed the cross-examiner put to him: "What happened, did it not, is that you gave instructions to your solicitor, Mr. Vassis, to apply the proceeds of the sale of one property to the purchase of the other, is that correct?" to which he replied: "That is right".

14. I have given careful consideration to the evidence of Mr. Vassis, including his assertion that a number of years earlier he had been the victim of a knife attack by a client's tenant, but I reject the proposition that he was motivated solely or substantially by fear of personal attack, or attack upon his family, to flee from Australia. He left the day after he learned of the appointment of a receiver. Till then, he had, by desperate expedients, bought time to get in money from a large debtor of Bemva, but he now realized that the balance of about $700,000-00 was irrecoverable, and in any case there was no more time. The "continual pressures", as he called them, of his creditors' pursuit of him, by legitimate means, could no longer be escaped except by flight from Australia. Having regard to his long struggle with financial adversity, in which disastrously for himself and others he had resorted to dishonest means, and the existing and impending circumstances immediately before his departure, which I infer precipitated it, I conclude that when Mr. Vassis fled from Australia he did so with intent to defeat or delay his creditors. I think, despite his denial, concern about steps which would inevitably be taken by the Law Institute of Victoria and about criminal prosecution were also significant factors.

15. In the absence of any suggestion from Mr. Vassis himself of a change of intention after his departure, or of any supervening reason to remain away other than the assertion that return became financially difficult, I further conclude that, at least until shortly before his return, and within the period alleged in the petition, Mr. Vassis remained out of Australia with the intent to defeat or delay his creditors.

16. Section 40(1)(c) of the Bankruptcy Act does not require that the intent in question should be a debtor's sole intention. As Stephen J. put it in Barton v. Deputy Federal Commissioner of Taxation [1974] HCA 43; (1974) 131 CLR 370 at 375:

"(T)wo or more intents may not be mutually
exclusive, for instance an intent to defeat
creditors and an intent to avoid the
sanctions of the criminal law. In such a
case I see no reason why the existence of the
second such intent should prevent a creditor
from relying upon s.40(1)(c)."

See also Re Cook (1946) 13 ABC 245 at 270-1 where the desire to pursue overseas an emotional entanglement with a mistress was not inconsistent with the co-existence of the statutory intent. In Barton's Case the High Court placed reliance upon "the absence of evidence of any honest reason for (the debtor) remaining overseas". In the present case I have rejected the evidence proffered of a reason. As in a case where no reason is evidenced, so also in a case where a reason is evidenced but rejected, the surrounding circumstances may speak clearly enough of what the reason in fact was. Barton's Case was applied by Pincus J. in Re Smith; Ex parte Kern Corporation Ltd. (unreported, 19 June 1985), where also the petitioning creditor relied upon circumstantial evidence. Pincus J. said:

"There may have been other reasons for his
departure, but it has certainly had the
effect of delaying the creditors and that was
probably an intended outcome.

I am strengthened in my conclusion by the
apparent approval, given in Barton v. Deputy
Commissioner of Taxation [1974] HCA 43; 131 CLR 370 at
p 375, to the discussion by Evershed M.R. in
Re Cohen (1950) 2 All ER 36 at pp 39-40.
That case evinces a readiness to draw the
inference that the intention to defeat or
delay has been proved, on the basis that the
debtor must have known that the likely result
of his absenting himself would be to delay
creditors."

Even without this consideration, in the present case, as I have already indicated, I have concluded that the proper inference from the circumstances is that the requisite intent was involved.

17. But that it is proper to take into account the inevitable result of an action, in order to assist in drawing an inference as to the intent with which it was performed, is also confirmed by the decision of the Full Court in Noakes v. Harvey Holmes & Son (1979) 26 ALR 297 at p 303 (per Brennan J.). See too per Gibbs J. (as he then was) in Re Williams (1968) 13 FLR 10 at p 21. In Re Cohen (supra) at p 39 Evershed M.R. treated the circumstances that the debtor had "gone suddenly to France", that the time when he left was "at a time when he was financially embarrassed to a serious extent", that his whereabouts in France were at a place where it was "not... at all easy to find him", and that there was "something surreptitious about the conduct of the bankrupt at or shortly after the time of his departure", as circumstances which in that case were significant indications of the requisite intent. What should be concluded in a particular case is of course a question of fact, and the same circumstances may be more or less compelling in a different context. In the present case, each of the circumstances which I have drawn from the judgment of the Master of the Rolls is also present, and is part of a total situation which I find leads compellingly to the conclusion I have indicated. The fact that the departure was outside the period of six months before the petition does not matter, since the act of bankruptcy is a continuing one which did continue into that period: Re Cook (supra), at p 270; Re Smith (supra).

18. The next question is whether the Court has jurisdiction, pursuant to the terms of s.43 of the Bankruptcy Act, in the circumstances of the present case. In the petition it is alleged that the debtor was, at the time that the act of bankruptcy was committed, "ordinarily resident in Australia". These words are found in s.43(1)(b)(i). On behalf of Mr. Vassis, it is submitted that although he was ordinarily resident in Australia immediately before his departure, on 8 January 1983, by 28 December 1983 when the six month period before the presentation of the petition commenced to run, he could only be properly described as ordinarily resident in Greece.

19. The question where a person is ordinarily resident is a question of fact: Levene v. Commissioners of Inland Revenue [1928] UKHL 1; (1928) AC 217. It is obviously not to be answered, in respect of any particular time, by asking where that person was then resident. Otherwise, the word "ordinarily" would have no meaning. But even the unqualified concept of residence is not tied to the accidents of a day; for, as Viscount Sumner said in Commissioners of Inland Revenue v. Lysaght (1928) AC 234 at p 245: "One thinks of a man's settled and usual place of abode as his residence". At the same time, his Lordship pointed out that "in many cases in ordinary speech one residence at a time is the underlying assumption and, though a man may be the occupier of two houses, he is thought of as only resident in the one he lives in at the time in question." In s.43 of the Bankruptcy Act, the phrase is not "resident in Australia", but "ordinarily resident in Australia", and it expresses an alternative to "personally present... in Australia". In such a context, it must convey the former of the meanings which I have quoted from Viscount Sumner's speech rather than the latter. If a man's home is in Australia, a merely temporary absence will not prevent his being "ordinarily resident in Australia". It is a question of fact and degree at what point a temporary absence might, if sufficiently prolonged, prevent its being proper to continue to regard him as ordinarily resident in Australia. In Akbarali v. Brent London Borough Council (1983) 2 AC 309 at 344, Lord Scarman said: "For if there be proved a regular, habitual mode of life in a particular place, the continuity of which has persisted despite temporary absences, ordinary residence is established provided only it is adopted voluntarily and for a settled purpose."

20. In the present case, Mr. Vassis flew from Australia to Greece via New Zealand. Upon leaving New Zealand, he completed a departing passenger's card which gave his nationality or citizenship as Australian, the reason for his journey as a holiday, and the state and country in which he next intended to live for twelve months or more as Victoria, Australia. He also stated that the country in which he would spend the longest time on his overseas trip was Greece. When he gave evidence, Mr. Vassis did not resile from the implications of the card to which I have referred. He did not deny that his settled place of abode had at all times continued to be in Victoria. He admitted that he had signed the departing passenger card in January 1983, and said: "I just felt that I would be away for a short time and come back to Australia to live." He added: "I intended to come back to Australia and Victoria ... I just did not know where I was going to live, but Victoria for sure." He said that overseas he stayed in Greece, but that while he was staying there he did not intend to stay permanently. He had lived in Australia virtually all his life, though he was born in Greece. His wife and son, who was then still at school, remained in Victoria.

21. Having regard to this evidence, it seems to me that the proper conclusion of fact is that Mr. Vassis was ordinarily resident in Australia, both at the time that he departed, and throughout the period until his return two years later in February 1985, or at least until the crucial date, 28 December 1983, which was barely a year from his departure. There is no suggestion that during his absence he established any other ordinary residence at any particular place in Greece. His own evidence, to which I have referred, clearly indicates that he regarded his journey overseas, desperate flight though it was, as no more than a temporary interruption of his ordinary residence in Victoria. I do not think the law requires it to be regarded in any different light. It may be compared, for example, to an absence overseas by a Melbourne university lecturer upon sabbatical leave at Athens University who would, in my opinion, still be correctly described as ordinarily resident in Australia if at the conclusion of his sabbatical leave he intended to resume life here.

22. If it had not been the proper conclusion that Mr. Vassis was ordinarily resident in Australia, the question might have arisen whether within s.43(1)(b)(iii) he "was carrying on business in Australia, either personally or by means of an agent or manager". In Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at p 260-1 Gibbs J. (as he then was) referred to "the somewhat wide understanding of those words (i.e., "was carrying on business") that has come to be established in bankruptcy law". Gibbs J. cited Theophile v. The Solicitor-General (1950) AC 186; and In Re Bird v. Inland Revenue Commissioners; Ex parte The Debtor (1962) 1 WLR 686. In Theophile's Case Lord Porter at p 201 said: "(T)rading does not cease when, as the expression is, 'the shutters are put up,' but continues until the sums due are collected and all debts paid." In this sense, it seems clear that at the relevant time Mr. Vassis "was carrying on business in Australia", since the winding up of the business of his practice and the payment of its debts had not been concluded. The payment of the debts of a business, in order to conclude its carrying on, is to be understood in no narrow sense, as the second case cited by Gibbs J. shows. Furthermore, I do not think the additional words, "either personally or by means of an agent or manager", should be regarded as cutting down the broad meaning of "was carrying on business in Australia"; for I think they are words of extension, not limitation (cf. Federal Commissioner of Taxation v. Lutovi Investments Pty. Ltd. [1978] HCA 55; (1978) 140 CLR 434 at p 444; Bank of New South Wales v. The Commonwealth [1948] HCA 7; (1948) 76 CLR 1 at p 383).

23. I now turn to the question whether the petitioning creditor has, within the meaning of s.44 of the Bankruptcy Act, shown a debt owing to him by the debtor that amounts to $1,000-00, "is a liquidated sum due partly at law or partly in equity", and "is payable either immediately or at a certain future time". I note that by s.5(1) "debt" includes "liability".

24. By s.104GA(8) of the Legal Profession Practice Act 1958 (Vic) it is provided:

"Whenever a person who has suffered pecuniary
loss by reason of a defalcation has received
payment of compensation from the Fund for the
whole or any part of that loss, the receiver
shall to the extent of the payment have all
the rights and remedies against the solicitor
or firm or individual partners in the firm of
solicitors which that person had in respect
of the loss suffered by him from the
defalcation immediately before he received
compensation from the Fund."

25. The word "defalcation" used in this section is defined in s.51 as follows: "'Defalcation' means any larceny embezzlement failure to account fraudulent misappropriation or other act punishable by imprisonment of or in relation to any money or other property." The fund referred to in the sub-section is the Solicitors' Guarantee Fund provided for by s.52. It was not disputed that the petitioning creditor was a receiver within this provision, or that persons suffered pecuniary loss by reason of actions of the debtor which would fall within the definition of a defalcation, nor was it disputed that such persons had received payments of compensation from the fund for the whole or part of their losses. But those former clients who were called to give evidence were cross-examined with a view to establishing that the compensation received by them somewhat exceeded the amounts received by Mr. Vassis as their solicitor on their behalf, because the receiver also paid interest. It was submitted that neither the rights and remedies which the clients originally had against their solicitor, in respect of the loss suffered by them from the defalcations, nor the statutory right of the receiver pursuant to the sub-section, could be regarded as creating debts. It was argued that these were not rights to liquidated sums.

26. In my view, the pecuniary losses referred to in the sub-section must include the sums received by Mr. Vassis in his capacity as a solicitor, on behalf of his clients, and lost by his unauthorised investments. Mr. Vassis was a trustee: Mann v. Hulme [1961] HCA 45; (1961) 106 CLR 136 at 141. Monies obtained in fraud by forged mortgages, which Mr. Vassis was enabled to enter into because he held title deeds on behalf of clients, would also, in my opinion, fall within the scope of the sub-section. In such cases, it seems to me that the rights and remedies of the clients, to which the sub-section subrogates the receiver, included liquidated claims. In Williams and Muir Hunter on Bankruptcy, 19th Edition at p.161 it is stated:

"A breach of trust, although supporting an
action for unliquidated damages, was always
held to create a debt in equity, and is now
provable."

I think such a debt is equally provable under s.44 of the Bankruptcy Act. In Jacobs' Law of Trusts in Australia, 4th Edition at p.510 it is said, of the liability to make good the loss of trust property caused by the wrongful act or omission of the trustee: "In view of equity, this obligation of restitution is but a species of equitable debt unless the trustee has in any way bound himself by covenant so that the breach of covenant gives rise to a specialty debt." In Emma Silver Mining Co. v. Grant (1880) 17 ChD 122 at p 130 Jessell M.R. was concerned with a claim in a bankruptcy for monies paid by way of a secret commission and received in breach of fiduciary duty. He rejected an argument that the claim was for unliquidated damages, saying:

"I do not consider this sum of money to be in
the nature of unliquidated damages at all;
because it is the sum received by (the
fiduciary in breach of his duty) for which he
is liable to account."

The liability of a trustee to account for the very sum lost by his breach of trust is also emphasised by Street J. (as he then was) in Re Dawson (dec'd); Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. (1966) 2 NSWR 211. See also Law Institute of Victoria v. Cowan Investment Survey Pty. Ltd. (1973) VR 293 at 299.

27. Under s.44(1)(b) the petitioning creditor's debt may be "a liquidated sum due at law or in equity or partly at law and partly in equity". I think such a debt was owed in respect of monies received by Mr. Vassis and not accounted for congruently with the basis upon which the monies had been received.

28. Furthermore I think that monies received by the device of forged mortgages, once received, were held in law on behalf of the clients in question, and could have been claimed by them at their election as monies had and received to their use (see Cheshire and Fifoot, Law of Contract, 4th Australian Edition, pages 78-9; and see Barewa Oil and Mining N.L. (in Liquidation) v. Isim Mineral Development Pty. Ltd. (1981) 59 FLR 451 at 456).

29. The petitioning creditor limited his case to that portion (in any event by far the largest portion) of each claim upon the Solicitors' Guarantee Fund which represented the actual monies of the client lost by the breach of trust or fraud of his solicitor. In other words, no claim was made to include interest added to payments. On this footing, and without pausing to consider whether the interest could have been included (cf. Re Dawson, supra), the whole of the amounts alleged did in my opinion constitute liquidated sums, which by virtue of s.104GA(8) of the Legal Profession Practice Act were due from Mr. Vassis to the petitioning creditor. Of the amounts due at the presentation of the petition, the bulk was also due at the earliest date falling within the act of bankruptcy which I have found. This is so because the bulk of the sum is represented by payments of compensation which were made prior to that date, so that s.104GA(8) had already operated. (Thus no problem is caused by the principle of bankruptcy law that a petitioner's debt should have been in existence at the date of the act of bankruptcy, a principle which in any event may not bar reliance upon a subrogation, by virtue of a subsequent event, to a right in respect of a debt that was in existence at that date.) For the purpose of this finding, I have regard to the documentary evidence. In view of the admissions which were implicit in the pleas of guilty entered by Mr. Vassis to the counts in the indictment, and in the light of his own evidence, as well as that of the petitioning creditor, I do not think I should limit my findings to the sums of which individual clients gave oral evidence before me, but should find, as I do, that the petitioning creditor has established to my satisfaction his entitlement concerning the full sum paid in respect of monies lost, as disclosed by the computer print-outs which were tendered and received in evidence.

30. But it was argued, for the debtor, that the petitioning creditor was a secured creditor.

31. In the petition it was stated:

"3. The petitioning creditor does not, nor
does any person on his behalf, hold any
security over the property of the debtor
or any part of it for the payment of the
amount specified in the last preceding
paragraph or any part thereof. However,
the petitioning creditor in his capacity
as receiver of certain property of the
debtor pursuant to the said Order of the
Honourable Mr. Justice Gobbo, has
received certain property and moneys the
total value of which does not exceed
$29,100.00 in addition (sic.), the sum
of $139,485.69 is held by Pourvie
Nominees Pty. Ltd. (a company in the
control of Messrs. Purvis & Purvis)
pursuant to a stakeholder agreement made
the 10th day of August, 1983 between the
petitioning creditor, the said Pourvie
Nominees Pty. Ltd. and one Christine
Vassis to abide the outcome of Supreme
Court action No. 4834 of 1983 by the
petitioning creditor against the said
Christine Vassis (from which action the
petitioning creditor cannot hope to
receive more than the said sum of
$139,485.69 and interest thereon, and
then only in his capacity as a trustee
for the creditors of the debtor
generally). Even in the unlikely event
that the petitioning creditor should
ultimately become entitled to credit
against the total amount referred to in
paragraph 2 hereof, the total of all
amounts already received by him as
aforesaid and the moneys held by Pourvie
Nominees Pty. Ltd., there would be not
less than $2,000,000.00 due and payable
by the debtor to the petitioning
creditor pursuant to his right of
subrogation as aforesaid."

32. In the course of cross-examination of the petitioning creditor, it was suggested that there might be further properties in respect of which he might have rights to recoup some part of the monies claimed. He had lodged caveats against properties registered in names including the name of Mr. Vassis, or otherwise connected with him, though there was no evidence before me to establish that he in fact had an entitlement in respect of those properties. It was submitted on behalf of Mr. Vassis that the petition ought to be dismissed on the ground that the petitioner was a secured creditor who had not complied with s.44 of the Bankruptcy Act.

33. In Re O'Leary; Ex parte Bayne (1985) 61 ALR 674 the petitioning creditor stated in the petition that he had a security but estimated its value at nil. Sheppard J. referred to s.44 of the Bankruptcy Act, sub-sections 2, 3 and 4, which I also set out as follows:

"(2) Subject to sub-section (3), a secured
creditor shall, for the purposes of paragraph
(1)(a), be deemed to be a creditor only to
the extent, if any, by which the amount of
the debt owing to him exceeds the value of
his security.

(3) A secured creditor may present, or
join in presenting, a creditor's petition as
if he were an unsecured creditor if he
includes in the petition a statement that he
is willing to surrender his security for the
benefit of creditors generally in the event
of a sequestration order being made against
the debtor.

(4) Where a petitioning creditor is a
secured creditor, he shall set out in the
petition particulars of his security."

34. Sheppard J. commented:

"At first sight it might appear that the
provisions of s 44(2), (3) and (4) operate to
require a secured creditor who petitions in
bankruptcy to surrender his security,
notwithstanding that the value of his
security is less by $1000 or more than the
amount of the debt owed to him. This is not,
however, the case. In Re Wiggins; Ex parte
Credit Assistance Pty Ltd (1979) 30 ALR 443;
36 FLR 182 Lockhart J. held that s.44 of the
Bankruptcy Act permitted a petitioning
creditor who held security, either to
estimate the value of his security, in which
case he would be deemed to be an unsecured
creditor of the debtor for the amount by
which the value of the debt exceeded the
value of the security, or state his
willingness to surrender his security for the
benefit of creditors generally in the event
of a sequestration order being made, in which
case he might prove for the full amount of
his debt. His Honour rejected a submission
that s 44(2) and (3) were cumulative so that
a petitioning creditor must both value his
security and include in the petition a
statement as to his willingness to surrender
it. His Honour referred to the former
provisions of s 55 of the Bankruptcy Act 1924
and to the provisions of s 4(2) of the
Bankruptcy Act 1914 (UK). Both these
provisions made it clear that the two courses
were alternative. It was the absence of any
such statement in the 1966 Act which was the
foundation for the debtor's argument in Re
Wiggins. Nevertheless, his Honour rejected
it.

I am in respectful agreement with his
Honour's views. No other conclusion would
give effect to the true intendment of the Act
which appears to have been to allow a secured
creditor, not wishing to surrender his
security, to retain his security in order to
obtain as much as possible as a secured
creditor, and, at the same time, to petition
in respect of the balance which was unlikely
to be yielded upon the realization of the
security, provided, of course, that the
balance amounted to at least $1000. It is
important to bear in mind the distinction
between the purposes served by the relevant
sub-sections of s 44, on the one hand, and
the provisions of ss 90 to 94 inclusive,
dealing with proofs of debt by secured
creditors, on the other. The only purpose of
s 44 is to specify the conditions upon which
a creditor may present a petition. One of
the conditions is that the petitioning
creditor must have a debt which amounts to
$1000. If the creditor is secured he may not
petition, unless he surrenders his security
or shows that the realization of his security
will not yield sufficient to enable him to be
paid in full. If he establishes that to be
the case, provided other requisite conditions
are satisfied, he is entitled to a
sequestration order. When he comes to prove
his debt in the ensuing bankruptcy, none of
what has gone before binds him. He proves in
accordance with s 90 of the Act and the
succeeding sections provide for the various
eventualities which may occur. In short
then, the provisions of s 44 determine
whether or not a creditor may successfully
present a petition; the provisions of ss 90
to 94 determine how the amount of his debt is
to be quantified when he comes to prove in
the bankruptcy.

Lockhart J. followed Re Wiggins in Re
Florance; Ex parte Turimetta Properties Pty
Ltd (No. 2) (1980) 39 FLR 400 at 403-4.
Fitzgerald J. followed both Wiggins and
Florance in Re Finn; Ex parte Finn v. Amoco
Australia Ltd (1982) 41 ALR 487; 58 FLR 54 at
60-1."

35. In the present case it is clear, on my findings, that the petitioning creditor is an unsecured creditor to the extent of an extremely large sum over and above any amount in respect of which any argument is raised that there is a security. In the words of Sheppard J., therefore, he has shown "that the realization of his security will not yield sufficient to enable him to be paid in full... (P)rovided other requisite conditions are satisfied, he is entitled to a sequestration order." One such condition, of course, is that the amount in respect of which he is an unsecured creditor is $1,000. In this case, I hold that it is. But counsel for the petitioning creditor, against the eventuality that I should find in favour of the argument presented on behalf of the debtor that any alleged security was in fact a security, sought leave to amend in order to include in the petition a statement of willingness to surrender such a security, for the benefit of creditors generally, in the event of a sequestration order being made against the debtor (see s.44(3)). I heard argument on this matter, and I have concluded that if that leave is required, it should be granted (cf. the remarks of Farwell J. in In re Small; Westminster Bank v. Trustee (1934) 1 Ch 541 at 546-8).

36. However, I am not satisfied that the petitioning creditor has any security beyond such securities, if they should both properly be regarded as securities, as are set out in the petition. There is nothing to suggest that higher values should be put upon these than the values indicated by the petitioner. It may indeed be that each is valueless: as to the claim involving Christine Vassis, because it may not be established on the facts, or because the proceeds may belong in equity to the creditors generally; and as to the property obtained as receiver, because the order appointing him may not have effectively empowered him to do more than receive property (cf. In re Gershon and Levy (1915) 2 KB 527). As regards the lands the subject of caveats lodged by the petitioner, the curious position is that Mr. Vassis, by his counsel, argues these constitute securities within s.44(4), while Mr. Vassis in evidence denied there was any basis for the caveats] There was no evidence to enable me to make a finding that there exist securities over these properties, of which the petitioner ought to have set out particulars in his petition, or that, if any security existed, any value should be ascribed to it, bearing in mind the difficulties of proof, and the evidence presently available to the petitioner to support it. That being so, I do not find it necessary to decide whether the respondent is entitled to approbate and reprobate in the manner evinced by the submission and his denial of the validity of the caveats. I hold the petitioner is justified in pursuing the petition as presently framed.

37. For these reasons, I am satisfied that the debtor has committed the act of bankruptcy alleged in the petition, and I am satisfied of the proof of the other matters of which s.52(1) of the Act requires proof. I note that David Anthony Bradshaw, a registered trustee, has consented to act as trustee of the estate of the debtor. I make a sequestration order against the estate of the debtor. I order that the costs (including reserved costs) of the petitioner be taxed and paid according to the Act. I direct that a draft of this order be delivered to the Registrar within seven days in accordance with Rule 124(2).