Re Colin Patrick Holden Ex Parte: Maureen Holden [1989] FCA 339 (25 August 1989)

FEDERAL COURT OF AUSTRALIA

Re: COLIN PATRICK HOLDEN
Ex Parte: MAUREEN HOLDEN
No. P.827 of 1989
FED No. 486
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Burchett J.(1)

CATCHWORDS

Bankruptcy - creditor's petition - "final judgment or final order" - enforcement of Family Court order by sequestration of husband's estate - whether by reason of a Family Court order of sequestration to enforce earlier order the creditor was barred from issuing a bankruptcy notice - whether execution must be deemed to have been stayed - petition not signed - whether lack of signature is a fatal flaw or an irregularity or formal defect capable of being excused.

Bankruptcy Act, 1966 s.40(1)(g), 41(3)(b), 306

Family Law Act, 1975, ss. 86, 88, 123(1)(p)

Family Court Rules, Order 33 r.6

HEARING

SYDNEY
25:8:1989

ORDER

The creditor's petition be dismissed with costs.

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

DECISION

This is a creditor's petition for a sequestration order in which each of the parties, who are husband and wife, appeared in person.

2. The alleged act of bankruptcy on which the creditor relies is non-compliance with the requirements of a bankruptcy notice served on 2 November 1988. The petition, as presented, is dated 27 April 1989, and bears what purports to be the signature of a witness to its signing by the petitioner, but it is not signed by her. It will be necessary to return to this point. The bankruptcy notice recited the petitioner's claim "that the sum of $31,790.63 is due by (the debtor) to her as the balance of the original judgment debt of $32,290.63 under a final order obtained by her against (the debtor) in the Family Court of Australia at 36 Charles Street, Parramatta on the 30th day of March, 1988"; it then made the usual demand for payment, security, or compounding in respect of the sum specified, naming a period of 21 days for compliance. The usual notices were also given.

3. The circumstances which led to the Family Court order should be briefly told. The parties, who had been living together for a number of years, married on 12 August 1985. Each had been married before. In the previous February, Mr Holden suffered a knee injury which gave rise to workers' compensation rights and also to a claim for damages at common law. Perhaps the stresses induced by disability caused or exacerbated problems in the marriage; at any rate, relations became strained, and in September 1986 the parties separated. Mrs Holden commenced legal proceedings claiming an entitlement to a share of any damages recovered by Mr Holden for his injury. In December 1986, there was a reconciliation, a condition of which was the making of a deed entitled a "Maintenance Agreement", to be registered in the Family Court of Australia under the provisions of s.86 of the Family Law Act 1975. The terms of the deed were negotiated between solicitors representing each of the parties.

4. The deed recited the substance of what I have related, and included the following recital concerning Mr Holden's claim in respect of his injury:

"The Husband is presently the Plaintiff in
proceedings No. CW111 of 1985 in the Supreme
Court of New South Wales naming Transfield
Pty. Limited as the Defendant. Those
proceedings concern a work related accident
which occurred on 12 February, 1985 and the
Husband has represented to the Wife that he
believes that he is likely to receive a
substantial verdict or settlement at the
conclusion of those proceedings."

Among the operative provisions were the following:

"2. The parties shall do all acts and things
and execute all instruments authorities
documents and writings as may be
necessary to give effect to the terms of
the Agreement with diligence and expedition.
3. Upon the conclusion of the Husband's
Court proceedings concerning Transfield
Pty. Limited the Husband shall do all
things necessary for all damages or
settlement monies to be paid to his
solicitors, Messrs. Kenny Spring in the
first instance and shall instruct and
direct Messrs. Kenny Spring to disburse
the said damages or settlement monies in
the following order of priority:
(a) Firstly, (outstanding medical
expenses were referred to).
(b) Secondly, in payment of any payback
concerning Sickness Benefits, Social
Security or Workers' Compensation
properly payable.
(c) Thirdly, in payment of all legal
expenses incurred by the Husband in
preparation and furtherance of the
said legal proceedings against
Transfield Pty. Limited.
(d) Fourthly, (costs of both parties in
the Family Court were referred to).
(e) Fifthly, in payment of the nett
balance into an interest bearing
deposit account with the State
Building Society in the joint names
of the parties requiring both
parties as signatories for all
transaction (sic) thereon."

There followed a clause stipulating for a division, upon any future separation, of the moneys in the interest bearing deposit account in the ratio of two thirds to the husband and one third to the wife.

5. In February 1987, the deed was registered in the Family Court, as a maintenance agreement, under the provisions of s.86 of the Family Law Act. The reconciliation proved short-lived. The parties separated again on 4 July 1987, and the husband resumed life with the woman who had formerly been his wife.

6. Following this final separation of the parties, a settlement was concluded in respect of Mr Holden's claim for damages. The evidence before me did not elucidate the full circumstances of the settlement. It appears, however, that the ultimate result was the redemption of Mr Holden's workers' compensation rights for $90,000.00, and a separate settlement of the proceedings at common law for $30,000.00. As is, of course, well known, such an arrangement is often favourable to an insurance company, which is liable to meet claims arising out of employment injuries, by reason of recoupment arrangements in respect of the workers' compensation component involved; it is by no means a necessary inference that the method of settlement was initiated by Mr Holden or his solicitors in order to manipulate the situation to his advantage in relation to the maintenance agreement. However, when the settlement had been concluded in this way, Mr Holden's solicitors (who had acted for him in respect of both matters, the deed and the damages claim) appear to have adopted a high-handed attitude towards the obligations he had solemnly undertaken. Despite the generality of the reference in the deed to "all ... settlement monies", not tied narrowly to a settlement of the particular proceedings but (having regard to the earlier recital) embracing any "settlement at the conclusion of those proceedings", they took it upon themselves to presume their client, and they themselves, owed no duty in respect of the larger part of the settlement. According to Mr Holden, they specifically advised him to that effect. And they paid him the money without giving the other party any opportunity to obtain a ruling from a court before it was dissipated. The smaller part of the settlement was reduced, by payments in accordance with cl.3(a) to (d) inclusive of the deed, from $30,000 to $3,414.81, which was paid into a State Building Society account only after a delay of nearly three months.

7. Some time elapsed before Mrs Holden learned what had happened. When she did so, further proceedings were launched in the Family Court. By s.88(1) a "maintenance agreement that has been registered ... in a court may be enforced as if it were an order of that court". Mrs Holden, presumably in reliance on this provision, obtained on 12 January 1988 certain injunctions, the terms of which are not before me but were intended, as I understand, to preserve what was left of the money paid to Mr Holden pursuant to the settlement. Then, on 30 March 1988, an order (described as an "ex-parte" order) was made discharging the injunctions, and requiring:

"That the Husband, forthwith upon the service
of a sealed copy of the Orders herein upon
him, pay to the Wife the sum of thirty-two
thousand two hundred and ninety dollars and
sixty-three cents ($32,290.63)."

8. This is the order which founded the bankruptcy notice. I assume the notation on its face, showing it was made ex parte, means that Mr Holden had failed to appear after being duly served with process, and not that the application for it was made without notice to him. If it were otherwise, there would be a question whether the order could be described as "a final judgment or final order" within the meaning of s.40(1)(g) of the Bankruptcy Act 1966. See The Commissioner of Police v. Tanos [1958] HCA 6; (1958) 98 CLR 383 at 395-396, per Dixon C.J. and Webb J., and particularly at 397, per Taylor J.; and Hardie Rubber Company Pty Limited v. The General Tire & Rubber Company [1973] HCA 66; (1973) 129 CLR 521 at 527, per Gibbs J.

9. The sealed copy of the orders of 30 March 1988 was duly served on Mr Holden, but before the Bankruptcy Notice was issued there was a further proceeding in the Family Court. On 29 June 1988, Rourke J. made orders (inter alia):

"3. That the Husband, within 7 days of this
date, pay direct to the Wife by bank cheque
the sum of $500.00 on account of his
liability under the Orders herein now sought
to be enforced.
4. That the Husband is restrained from
disposing of, dealing with or otherwise
dissipating the sum of $500.00 now held by
him in cash otherwise than in accordance with
Order No. 3 herein.
5. That subject to Order No. 3 herein, the
balance of the Husband's estate be sequestrated.
6. That the Official Trustee in Bankruptcy,
be appointed, to be Receiver of the Husband's
estate with power to be reimbursed from the
Husband's estate of any necessarily incurred
costs and expenses of the sequestration.
7. That pending sequestration of his estate,
the Husband is restrained from dealing with,
disposing of or otherwise dissipating any
personal property in which he has an interest.
8. That a copy of the transcript, of this
date and of the Orders herein be referred
forthwith to the Official Receiver in Bankruptcy.
9. That the operation of Order No. 5 be
suspended for 7 days and that joint liberty
be granted to apply within that time to
discharge the Orders herein."

10. There is no suggestion in the evidence that these orders have ever been rescinded or varied. The sum of $500.00 referred to in certain of the orders was in fact paid, and it is apparent that the Bankruptcy Notice gives credit for this payment. The central issue in the present proceedings is whether I can make a sequestration order upon the ground of non-compliance with a Bankruptcy Notice issued and served at a time when, pursuant to enforcement proceedings taken by the creditor in the Family Court, the orders I have set out were in operation.

11. It cannot, I think, be suggested that the sequestration order made by Rourke J. was invalid. Section 123(1)(p) of the Family Law Act 1975 authorizes the making of rules of court of the Family Court "providing for and in relation to the enforcement and execution of the decrees of the Family Court ... ." By order 33 rule 6(1) and (3) of the rules of the Family Court it is provided as follows:

"(1) Where a decree has been made under the
Act and the person against whom the decree
has been made fails or refuses to comply with
the decree, the Registrar, a party to
proceedings that resulted in the making of
the decree, or another authority or person
entitled to take proceedings for enforcement
of the decree, may apply to a court for an
order that the estate of the person against
whom the decree has been made be
sequestrated.
. . .
(3) Where an application has been made under
sub-rule (1), the court may make an order -
(a) sequestrating the estate in part or
in whole;
(b) appointing the Marshal, an officer
of the court or other named person
as receiver of the estate; and
(c) as to the costs and expenses of the
sequestration."

12. The terms of the sequestration order of the Family Court in this case make plain its comprehensiveness. The judge saw a need to express it as "subject to" the order for payment to Mrs Holden of the sum of $500.00, and as limited to "the balance of the Husband's estate". That suggests a contemplation that otherwise the sequestration order would render Mr Holden powerless to comply with the order for payment. But once the sequestration order took effect, there was no provision relaxing its grip on the balance of his property, even for the purpose of a payment to his wife. Pending the sequestration taking effect, he was restrained by the seventh order from dealing with any of his personal property.

13. In Penning v. Steel Tube Supplies Pty Ltd (1988) 18 FCR 568, a full court of this court considered the position where a bankruptcy notice had been issued after the making of an order appointing a receiver "to take control of the property of the debtor" under s.50 of the Bankruptcy Act 1966. In a joint judgment of Woodward, Fisher and Spender JJ., reference was made to authorities according to which, once a court has appointed a receiver of the judgment debtor's property, it is a contempt of court to attempt to levy execution. Those authorities also deny that an attempted execution can be justified by questioning the propriety of the order under which the receiver was appointed. At 575 the joint judgment proceeds:

"The crucial matter for determination is
whether, during the currency of an order
under s.50 directing a trustee to take
control of the appellant's property, the
judgment creditor was barred by s.41(3)(b) of
the Act (ie the Bankruptcy Act) from issuing
a bankruptcy notice because execution on the
judgment had been stayed."

The court referred to the earlier decision of Beaumont J. in Re Solomon; Ex parte Reid (1986) 10 FCR 423, where the Supreme Court of New South Wales had appointed a receiver under the provisions of the Companies (New South Wales) Code of the property of the debtor, as well as of certain companies, and had made orders restraining the debtor from disposing of his assets. Beaumont J. held that execution must be deemed to have been stayed, since the judgment creditor was not in a position to issue immediate execution. This, His Honour pointed out, would be true even if the receiver was not yet in actual possession of the property concerned. The full court at 580 referred to a suggested distinction between the position of a receiver under the Companies Code and that created by the order under s.50 with which it was concerned - namely, that the s.50 order "vested in (the person appointed to receive the property of the debtor) nothing more than a bare right for him to take control." However, the court followed the decision of Beaumont J., holding that execution on the judgment, in the case before it, must be deemed to have been stayed at the time of issue of the bankruptcy notice, which accordingly was not validly issued.

14. In my opinion, it is not possible here to distinguish the effect of the sequestration order, made in the Family Court, from the effect of the orders under the Companies Code and s.50 of the Bankruptcy Act referred to in Re Solomon and in Penning v. Steel Tube Supplies Pty Ltd. Consequently, the petition must be dismissed.

15. I should refer further, however, to another difficulty in relation to the petition, which has already been mentioned. The creditor's petition, as presented, was not signed by the petitioning creditor. In Re Taylor; Ex parte Ryan (1986) 14 FCR 472, Pincus J. held that a failure to sign a petition was "neither a formal defect nor an irregularity and s 306 (of the Bankruptcy Act) therefore does not apply." He dismissed the petition. In doing so, his Honour said that "the most cogent argument against the validity of this petition is that courts have, on a number of occasions, troubled to determine whether or not deficiencies in execution were fatal." But, since that observation was penned, there have been two full court decisions concerning deficiencies in execution of petitions, the reasoning in which betrays no trace of a view that there is about a serious failure in this regard any fatal quality. On the contrary, such a defect was seen as clearly within the area covered by s.306 of the Bankruptcy Act. I refer to Russell v. Australia and New Zealand Banking Group Ltd (1987) 14 FCR 72 and Deputy Commissioner of Taxation (Vic) v. Boxshall (1988) 83 ALR 175. Also, since his Honour's decision, the operation of s.306 has been clarified by the High Court in Kleinwort Benson Australia Ltd v. Crowl [1988] HCA 34; (1988) 79 ALR 161 at 166. In the circumstances, I prefer to base my dismissal of the petition on the effect of the sequestration order made in the Family Court.