Re Mirko Trepic Ex Parte: Arrowcrest Group Pty Ltd [1990] FCA 409 (19 October 1990)

FEDERAL COURT OF AUSTRALIA

Re: MIRKO TREPIC
Ex Parte: ARROWCREST GROUP PTY. LTD.
No. P219 of 1990
FED No. 583
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
GENERAL DIVISION
O'Loughlin J.(1)

CATCHWORDS

Bankruptcy - Notice of opposition to the making of a sequestration order on the grounds of abuse of process and "futility" - debtor failed to meet the onus of establishing either ground - application dismissed.

HEARING

ADELAIDE
19:10:1990

Counsel for the Creditor: Mr. T. Bryant

Solicitors for the Creditor: Messrs Sanderson and Co.

Counsel for the Debtor: Mr. I. Robertson

Solicitors for the Debtor: Messrs Piper Alderman

ORDER

1. The application be dismissed.

2. The creditor's petition for sequestration be listed for hearing before a Registrar of this Court on Monday 29 October 1990.

Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

DECISION

On 9 August 1990, Arrowcrest Group Pty. Ltd. filed a petition in this Court seeking a sequestration order against the estate of Mr. Mirko Trepic. The debtor has opposed the making of any such order, alleging that the petition is an abuse of the process of the court and that "the making of a sequestration order would be futile".

2. The facts that are relevant to these proceedings are within a short compass and, in the main, are not disputed. As an employee of the petitioning creditor, the debtor suffered a work-related injury. He successfully claimed compensation pursuant to the Workers Compensation Act, 1971 (S.A.) but only after protracted litigation, in the course of which he incurred an order to pay certain of the petitioning creditor's costs. In addition, the debtor is currently prosecuting a common law claim against his former employer in the South Australian Supreme Court. That matter was removed from the trial list on the application of the debtor but on terms that he pay all costs thrown away. The two sets of costs have been taxed and allowed at $9,220.15 and $4,828.48 a total of $14,048.63.

3. It is common ground that the debtor has not paid any part of these debts nor has he attempted to claim that he has a counter-claim, set-off or cross-demand equal to or exceeding either of the separate sums hereinbefore specified. The acts of bankruptcy relied on are the failures to comply with separate bankruptcy notices that were issued as a consequence of the orders for the payment of the two sets of costs.

4. The debtor claimed that the injury that he suffered to his left elbow (commonly known as "tennis elbow") combined with a subsequent neurotic or psychological overlay to render him totally incapacitated. Whatever may be the ultimate findings in the Supreme Court it is a fact that the debtor is now, and has for sometime been, in receipt of an invalid pension. It is his claim that he has no assets constituting property that would be divisible amongst his creditors and no likelihood of benefiting from any after-acquired property. It is accepted by the petitioning creditor that the compensation already received by the debtor and such damages (if any) as may be received as a result of the Supreme Court proceedings do not and will not constitute divisible property (para. 116(2)(g) of the Bankruptcy Act, 1966) ("the Act").

5. The argument in support of the proposition that the petitioning creditor's conduct amounts to "abuse" is based on the protracted history of the litigation that followed upon the debtor's injury. In short, the accident that caused the injury occurred in June 1983 and it was not until late April 1990 that the debtor received his compensation. In that time, it is reasonable to say that the petitioning creditor fought the debtor's claim at every level. It is true, as Mr. Robertson, counsel for the debtor argued, that "the court will always look strictly at the conduct of a creditor using or threatening" bankruptcy proceedings (In re Marjory, a debtor; Ex parte The Debtor v F.A. Dumont Ltd. (1955) Ch 600 at 624); that decision has been followed in Australia by the High Court in Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407 at 417 which was a case of alleged extortion. But as the Court pointed out (p 419), propositions that were advanced by the creditor to friends and relatives of the debtors that they (i.e. the friends and relatives) make some financial contribution to the creditor on behalf of the debtors did not establish "that he threatened bankruptcy proceedings in order to obtain a secret advantage over other creditors, or that in presenting his petition to the court he had any other object in view than the due administration of the estate in bankruptcy".

6. Mr. Robertson made it clear that there was no suggestion of extortion in the present proceedings but, as I understand him, he was seeking to apply the principles that are found in "extortion" cases to the conduct of the petitioning creditor. In my opinion there are two immediate answers to this proposition. The first is that the apparent extreme delay in the payment of the compensation was substantially occasioned without fault on the part of the petitioning creditor. In fact, the utilization, by the petitioning creditor of the appeal process was ultimately vindicated by a decision of the Full Court of the Supreme Court which (after some years of litigation in the Industrial Court, including the Full Court of that Court) reduced the petitioning creditor's ultimate liability by $14,000. The second answer follows, in a sense, from the first. Having obtained the order of the Full Court of the Supreme Court with respect to costs, the petitioning creditor did no more than exercise what is, prima facie, its legal right to present a petition in bankruptcy. There is not, within the ambit of the bankruptcy proceedings, any reason to question the creditor's conduct. In reality, Mr. Robertson's first point must be dismissed as no more than a complaint that his client's claim for compensation was strenuously resisted over an extended period of time.

7. Section 52 of the Act deals with proceedings on the hearing of a creditor's petition. The Court requires proof of the matters set out in sub-s. 52(1). None of them are disputed in this case; it is conceded that the petitioning creditor has proved the lawful existence of the two debts and the commission of the two acts of bankruptcy. If the Court is not satisfied with the proof of any such matters or if the Court is satisfied that the debtor is able to pay his debts or if the Court is satisfied by the debtor:-
"... that for other sufficient cause a sequestration order

ought not to be made"

the Court may dismiss the petition (para. 52(2)(b) of the Act). The power thus conferred upon the Court is permissive, not mandatory (Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596).

8. The initial onus that is cast upon the petitioning creditor does not extend to satisfying the Court that there are advantages for the creditors in making a sequestration order (Re Dolman; Ex parte Elder Smith Goldsborough Mort Ltd. (1966-1967) 10 FLR 384 at 390 per Gibbs J.). Subject to proving those matters required of him in sub-s. 52(1) of the Act, a petitioning creditor has "a prima facie right to a sequestration order (McDonald Henry and Meek: Australian Bankruptcy Law and Practice 5th Ed. para. 269). It is the debtor who carries the onus of establishing facts that amount to "sufficient cause" within para 52(2)(b).

9. The "futility" argument has been discussed in many cases; they were conveniently collected by French J. in the unreported Full Court decision of Darcey v The Pre-Term Foundation (23 May 1988: Judgment No. 280/88). His Honour there cited with approval the following passage from the 8th Ed. of Lewis' Australian Bankruptcy Law:-

"A petition may be dismissed if the Court is satisfied the
bankruptcy would not bring any benefit to creditors as for
example, where it is positively satisfied that there are not
and cannot be any assets in the estate or any assets
available to a trustee." (pp 77-78)

10. The reference in the above passage to the need for positive satisfaction accords with the views of Lord Esher M.R. in In re Betts, Ex parte Betts (1897) 1 QB 50 at p 52 to the effect that the Court has to be "clearly convinced, not merely by the statement of the debtor, but from all the circumstances of the case, that there cannot be any assets or any prospect of any coming into existence..." (emphasis added).

11. The difficulties that confront a debtor who presents the "futility" argument are well known. As Megarry V.C. said in Re Field (A Debtor), (1978) Ch 371 at 378:-

"The number of cases in which there is sufficiently cogent
evidence of there being no present or future possibility
whatever of any assets existing must indeed be small."

12. I have come to the conclusion that the debtor has not met the onus that is cast on him. Despite his sorry presentation in the witness box, his forlorn expression and air of despondency, he is only 33 years of age. There is a likelihood that his common law action will be disposed of inside the next twelve months and he will then be able to put this sad tale of continuous litigation behind him. No medical evidence was called to address the likelihood that there would never be a gradual recovery from his psychiatric condition once the litigious process was completed. In fact, even though I accept that he is in receipt of an invalid pension, I have only his word that he is incapable of any form of remunerative work. I am not therefore satisfied to the requisite degree that the debtor will remain incapable of performing remunerative work during the period of his bankruptcy. Hence the provisions of sub-s. 131(2) of the Act might be available and the Court might order that some part of his future wages be paid to the trustee for the benefit of his creditors. Furthermore, the debtor's public examination will be able to test the accuracy of his statement that there is no divisible property available for his creditors.

13. I have accordingly come to the conclusion that this application must be dismissed. Having determined the outcome of the debtor's opposition to the petition, I propose to list the hearing of the petition before a Registrar. It will be necessary for the petitioning creditor to ensure that it has, on the hearing date, duly complied with the provisions of Rule 21. Hence I further order that the petition in this matter be listed for hearing before a Registrar of this Court on Monday 29 October 1990.