Henry Wolf Sinclair (as trustee for the Maro Trust) v Westpac Banking Corp. [1997] FCA 144 (5 March 1997)

C A T C H W O R D S

BANKRUPTCY - creditor's petition based on return of warrant of execution, unsatisfied - warrant in respect of taxed costs in interlocutory proceedings in Supreme Court - Supreme Court proceedings stayed and then abandoned - debtor seeking to rely on claims made in those proceedings and related claims, in opposition to petition - whether "for other sufficient cause a sequestration order ought not to [have been] made" - whether trial judge's discretion miscarried - whether any procedural unfairness.

Bankruptcy Act 1966 (Cth) s.52(2)

Helvetic Investment Corporation Pty Ltd v. Knight (1984) 9 ACLR 773

Muir v. City of Glasgow Bank (1879) 4 App Cas 337

Re LHF Wools Ltd [1970] Ch. 27

HENRY WOLF SINCLAIR (AS TRUSTEE FOR THE MARO TRUST)

v. WESTPAC BANKING CORPORATION

VG 486 of 1996

FOSTER, CARR & TAMBERLIN JJ

5 MARCH 1997

MELBOURNE

IN THE FEDERAL COURT )

OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) VG 486 of 1996

GENERAL DIVISION )

On appeal from a single judge of the Court

B E T W E E N: HENRY WOLF SINCLAIR

(AS TRUSTEE FOR THE MARO

TRUST)

Appellant

- and -

WESTPAC BANKING

CORPORATION

Respondent

CORAM: Foster, Carr & Tamberlin JJ

DATE: 5 March 1997

PLACE: Melbourne

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondent's costs of the appeal.

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

IN THE FEDERAL COURT )

OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) VG 486 of 1996

GENERAL DIVISION )

On appeal from a single judge of the Court

B E T W E E N: HENRY WOLF SINCLAIR

(AS TRUSTEE FOR THE MARO

TRUST)

Appellant

- and -

WESTPAC BANKING

CORPORATION

Respondent

CORAM: Foster, Carr & Tamberlin JJ

DATE: 5 March 1997

PLACE: Melbourne

THE COURT

REASONS FOR JUDGMENT

Introduction

This is an appeal from a sequestration order made against the estate of the appellant, Mr Henry Wolf Sinclair. The question is whether the learned trial judge erred in the exercise of his discretion, under s.52(2) of the Bankruptcy Act 1966 (Cth) ("the Act"), not to adjourn or dismiss the respondent's petition.

Factual Background

On 10 October 1994 the appellant sued the respondent in the Supreme Court of Victoria in action No. 8224 of 1994 ("the Supreme Court proceedings"). Those proceedings were commenced by writ of summons to which was annexed a statement of claim. The Supreme Court proceedings were stayed by an order made on 10 May 1995 following a series of applications by the respondent to strike out the appellant's pleadings. The appellant was ordered to pay the respondent's costs in those proceedings. Those costs were taxed by the Taxing Master on 28 August 1995 and allowed at $10,209.90. On 18 October 1995 the respondent caused a warrant of seizure and sale to be issued in respect of the taxed costs. That warrant was returned by the Sheriff's Office of Victoria to the Court, unsatisfied, on 29 February 1996. On 15 April 1996 the respondent lodged a creditor's petition in this Court seeking an order for the sequestration of the appellant's estate. The act of bankruptcy upon which that petition was grounded was that execution had been issued against the appellant in the Supreme Court proceedings and had been returned unsatisfied - see s.40(1)(d)(ii) of the Act. The petition was heard on 24 July 1996. The appellant appeared in person to oppose the petition. The appellant did not contest his insolvency, or the fact that execution had been issued against him and had been returned unsatisfied, or the amount of the judgment debt in respect of which the warrant was issued.

Before the learned trial judge, and at the hearing of the appeal, the appellant relied upon four matters as the bases for contending that his Honour should have been satisfied for sufficient cause that a sequestration order ought not to have been made. Before turning to those matters, we set out below the relevant portions of s.52(2) of the Act:

"52(2) If the Court is not satisfied with the proof of any of those matters, [referred to in s.52(1), being the matters stated in the petition, service of the petition and that the debt on which the petitioning creditor relies is still owing], or is satisfied by the debtor:

(a) that he is able to pay his debts; or

(b) that for other sufficient cause a sequestration order ought not to be made;

it may dismiss the petition."

THE MATTERS UPON WHICH THE APPELLANT RELIES

1. The Judgment Debt

The appellant contends that the taxed costs owed by him as a result of the judgment and quantification of the costs in the Supreme Court proceedings do not constitute a debt owing by him personally but, so it is put, by the trust ("the Maro Trust") which he represented in those proceedings. In summary, the appellant says that as part of an agreement reached between the appellant and the respondent in 1986 in relation to certain financial arrangements, the respondent agreed that it would have recourse not to the appellant but only to the assets of the Maro Trust in relation to any financial obligations to which he became a party.

In respect of that contention, his Honour in the course of giving short reasons for judgment said this:

"The matter that no doubt concerns you very much, and would concern the Court, if there is any substance to it, is the arrangement that you say was made, and the statements that were made to you by bank officers in 1986. Whatever was said, and whatever the legal effect of what was said, it is to me inconceivable that any arrangement or agreement or understanding or undertaking by the bank would extend to comprehend costs incurred in litigation which you, yourself, instituted against the bank and accordingly, I find no basis on which to either adjourn the petition, or to dismiss the petition. You are on your own account unable to pay this debt, and the only proper course for the Court is to make a sequestration order."

In our respectful opinion, his Honour was quite correct in reaching the above conclusion. The appellant appears to be under the impression that he is not personally liable to the respondent for the taxed costs in the Supreme Court proceedings because:

. in 1986, during the course of a meeting with one of the respondent's managers in relation to certain financial arrangements, the respondent's legal department "affirmed" by perusal of the Deed of Trust constituting the Maro Trust that its terms limited the personal liability of the trustee;

. on 14 December 1992, by a Deed of Appointment bearing that date, the respondent became the trustee of that Trust;

. Clause 12 of the Trust Deed by which the Maro Trust was constituted is in common form and provides, amongst other things, that the trustees shall not be responsible for any loss or damage occasioned by the exercise of any discretion or power conferred on them by the Trust Deed or by law; and

. when he sued the respondent in the Supreme Court proceedings, he did so as trustee for the Maro Trust.

It is well established law that a trustee who enters into a contract will normally incur unlimited personal liability unless by appropriate language or express stipulation such liability is restricted. The mere description of the capacity in which a person contracts as that of trustee is not sufficient to exclude full personal liability. See Helvetic Investment Corporation Pty Ltd v. Knight (1984) 9 ACLR 773 at 774, per Glass JA; Muir v. City of Glasgow Bank (1879) 4 App Cas 337. In the absence of any agreement as to limitation the position is no different in principle where a named person sues as trustee and is ordered to pay the costs of the proceeding.

In our view, it was open to his Honour to find that there was no substance in any of the matters referred to above. The reference to the respondent's legal department having "affirmed" that the terms of the Trust Deed limited personal liability is simply an assertion in vague and general terms rather than evidence. It does not specify the time, place, identity of the manager or the terms of the affirmation. No complaint is registered that the "affirmation" was not included in the documentation. Reliance on clause 12 of the Trust Deed is misconceived because it cannot have effect to limit liability to the bank to the value of the trust assets even where the bank is aware of that provision. Nor is anything added to the appellant's case so far as personal liability for costs is concerned simply by virtue of the fact that he sued "as Trustee for the Maro Trust".

Accordingly, his Honour had to decide, at most, whether the appellant had demonstrated an arguable case that the respondent had agreed that the appellant would not be liable to it personally for costs of unsuccessful litigation brought against it by the appellant as trustee. The appellant submitted that, in the absence of direct countervailing evidence from the relevant officers of the respondent, his Honour should have made this finding.

We do not agree. His Honour was engaging in a discretionary judgment pursuant to s.52(2) of the Act. It was well within the ambit of the proper exercise of that discretion that he should have made the finding that he did. Of course, clause 12 of the Trust Deed for the Maro Trust was not binding upon the respondent.

In our opinion, the appellant's argument is misconceived and has no factual or legal foundation.

2. Counterclaim and set-off

Before the learned trial judge and again at the hearing of this appeal, the appellant maintained that he had a valid counterclaim and set-off which amounted to "other sufficient cause" for the petition to be dismissed. To understand this contention it is necessary briefly to recite some of the history of the appellant's dealings with the respondent. An essential element of the appellant's claim is the refusal by a Swiss Bank, Bank Leumi Le-Israel ("the Swiss Bank") to continue to provide overdraft facilities to the appellant or persons or entities associated with him. Those facilities were guaranteed by the respondent and in turn secured by a registered first mortgage to the respondent of property in Toorak owned by the appellant's sons ("the Security"). In February 1993 the Swiss Bank confirmed its earlier decision of November 1992 that it would not continue those overdraft facilities and that it would call upon the guarantees provided by the respondent, to repay the overdraft. The appellant attempted to persuade the Swiss Bank to extend the facility. When the Swiss Bank refused to do so, the appellant asked the Swiss Bank to tell him what was owing under the facility and also asked the respondent to release the Security to the extent that funds were no longer owing under the guarantee. The appellant alleges that the Swiss Bank was negligent in failing to advise him of the extent of his liability under the facilities and that the respondent was negligent because it failed to obtain information from the Swiss Bank as to the extent of its liability under the guarantees and then provide the appellant with that information. The appellant further alleges that the respondent contributed to the Swiss Bank's refusal to continue to extend the overdraft facilities to him by:

. agreeing with him in February 1993 to release such funds as were not required to support the guarantees, and then not doing so; and

. refusing to provide documentation (which it held) to the Swiss Bank or the Swiss Banking Ombudsman regarding its dealings with funds of the appellant and his associates.

His Honour dealt with that matter in the following terms:

"I can find nothing in the documents or in what you have told me to suggest that there is any cause of action of the kind - of any of the kind that you are indicating. That may be because you have not been able to put your complaint in a way that I have been able to understand."

Earlier in the course of the hearing the following exchange had occurred.

"His Honour: ... If it (the Court) thought that there was an arguable counterclaim, and if it thought that the debtor, a person in your position, had the willingness and the capacity to pursue the counterclaim in another Court, or in this Court, in another - in the exercise of another jurisdiction which this Court has, the Court might stand over the bankruptcy petition. But there is nothing shown to suggest that you could or would, take those steps. As you put it yourself, you are not in a financial position to do so.

Mr Sinclair: But I am not in a position to institute proceedings in another Court. Firstly I cannot afford legal assistance."

Annexed to the appellant's affidavit sworn on 9 July 1996 was a copy of a letter dated 26 May 1995 from him to the respondent's solicitors which relevantly reads as follows:

"Dear Sir,

Supreme Court proceeding No. 8224 of 1994

I have a parallel action on foot for loss and damage against Bank Leumi in Switzerland though on different grounds, which is in the process of settlement. I refer to enclosed copy of Telefax.

As such I do not intend to proceed with above proceeding.

I would appreciate to receive from Westpac the following information which would assist a final settlement with Bank Leumi:

. . ."

At the hearing of the appeal it became apparent that the appellant was under a basic misconception about what the learned trial judge had decided. In his submissions the appellant maintained that his Honour had "judge[d]" his counterclaim and "nullified" it so that he could not now pursue that counterclaim in any other Court. The appellant explained that he wanted to appeal against his Honour's adjudication upon the counterclaim. It is apparent from the transcript of proceedings that his Honour did no such thing. His Honour can be seen as having, in the context of bankruptcy proceedings, made an assessment of the appellant's alleged counterclaim for the purposes of exercising the discretion whether to grant, adjourn or dismiss the petition.

In our view, there was abundant evidence before the learned trial judge to justify the conclusion that the appellant had either abandoned his counterclaim against the respondent or did not have the means to prosecute it. Before us the appellant submitted that the counterclaim which he allegedly wished to bring in this Court was different in significant respects from the claim against the respondent which had been brought by him and abandoned in the Supreme Court. We were not persuaded by these submissions. In our view the abandoned proceedings and the foreshadowed proceedings were essentially similar, especially having regard to the fact that the appellant had repeatedly failed to formulate with precision the claims sought to be prosecuted in the Supreme Court. In those circumstances we do not consider that the appellant has shown that the learned trial judge's exercise of the discretion conferred by s.52(2)(b) of the Act miscarried. If there had been some evidence that the appellant was actively pursuing an alternative remedy against the respondent in the Swiss proceedings, that might have had a bearing on the exercise of the discretion - see Re LHF Wools Ltd [1970] Ch. 27 - but there was no such evidence. The onus was on the appellant to satisfy his Honour that the sequestration order ought not to be made by reason, amongst other things, of his counterclaim. His Honour was clearly not so satisfied and we cannot see any error in that conclusion.

3. Respondent's outline of argument

In this ground of appeal the appellant complains that the respondent did not serve him with its outline of argument before the hearing of the petition. The transcript of the proceedings shows that counsel for the respondent handed the outline to the appellant shortly after the hearing of the petition commenced and immediately before handing the original of that document to the learned trial judge. The appellant says that he only "glanced at the top page" of the respondent's outline and did not realise that there were four pages stapled together, until after the hearing. He says further that he and counsel for the appellant waited in the courtroom for several hours before the hearing started. The essence of the appellant's complaint seems to be that the respondent's outline of submissions took him by surprise. We have read the respondent's outline of submissions at first instance. They extend to thirteen paragraphs. The first four paragraphs deal with formal matters. The remaining nine paragraphs respond to the two broad bases upon which the appellant resisted the making of a sequestration order. We agree with the respondent's submission that the contents of the outline were for the most part responsive in nature. The appellant did not ask the Judge for time to read the outline and respond. Nor did he complain then about the timing of its delivery. In our view, there was quite clearly no injustice whatsoever done to the appellant in relation to the matter of the respondent's outline of argument. We reject this ground of appeal.

4. Summons to witness

The appellant lodged his notice of appeal on 5 August 1996. On 13 August 1996 the appellant lodged a document headed "Additional Ground to Notice of Appeal dated 5th August 1996". In this ground the appellant refers to the fact that on 18 July 1996 he caused a summons to witness to be issued, addressed to Mr Desmond Gerald Curtis, manager of the respondent's security liaison office, to give evidence and produce records and documents on return of the petition. The appellant complains that Mr Curtis did not appear in Court at the hearing of the petition and that the respondent offered no explanation or apology to the Court. The appellant says that the learned trial judge should have directed the respondent to cause Mr Curtis to appear in Court and give evidence. The appellant says further that had this course been taken, this may have changed the outcome of the hearing. Alternatively, the learned trial judge should have adjourned the hearing. The respondent took a procedural objection to our consideration of this matter. The respondent submitted that the appellant was attempting to raise a new issue, not canvassed at first instance, which might have been met by argument or presentation of evidence by the respondent below. We disagree with that submission. In essence, the appellant alleges a procedural unfairness at the hearing of the petition. We propose to treat the filing of the document referred to immediately above as an application to amend the notice of appeal by adding an additional ground. We allow the proposed amendment.

Nonetheless we can see no merit in this complaint. As counsel for the respondent points out in her submissions, the appellant did not call for the attendance of Mr Curtis or the production of the documents referred to in the summons to witness. He did not raise the matter with the learned trial judge. There is no evidence to suggest that anything which Mr Curtis may have said, or anything contained in any document which he may have produced, would have made any difference to the outcome of the proceedings.

Conclusion

From the documents before the Court, and in particular the transcript of evidence of the proceedings before the learned trial judge, it is in our opinion quite clear that the appellant did not discharge his onus of proving that there was sufficient cause for a sequestration order not to be made. The appeal will be dismissed with costs.

I certify that this and the preceding eleven

(11) pages are a true copy of the Reasons for

Judgment of the Court.

Associate:

Date: 5 March 1997

The Appellant appeared in person

Counsel for the Respondent: Ms Fiona McLeod

Solicitors for the Respondent: Dunhill Madden Butler

Date of Hearing: 4 March, 1997

Date of Judgment: 5 March 1997