International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 (10 February 1999)

Last Updated: 11 February 1999

FEDERAL COURT OF AUSTRALIA

INTERNATIONAL ALPACA MANAGEMENT PTY LTD v

ENSOR [1999] FCA 72

BANKRUPTCY - creditors' petition - discretionary "defences" - whether debtor "able to pay his ... debts" - meaning of requirement that debtor satisfy Court of ability to pay debtor's debts - whether "other sufficient cause" why sequestration order ought not to be made - whether creditors' refusal after served petition to accept tender of amount presently payable to them can constitute "sufficient cause" - whether need to satisfy Court of "sufficient cause" if debtor not a trader and petitioning creditors able to be paid presently payable debts - test of when existence of monetary claim by debtor amounts to "sufficient cause".

Bankruptcy Act 1966 (Cth) - ss 5(1), 5(2), 52(2)

Ensor v International Alpaca Management Pty Ltd (1996) 13 Leg Rep SL 2, cited

International Alpaca Management Pty Ltd v Ensor (1995) 133 ALR 561, cited

Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, applied

Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459, cited

Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666, applied

Lyford v Commonwealth Bank of Australia [1995] FCA 1261; (1995) 130 ALR 267, cited

Re McVey;Ex parte Carswell and Company (Cooper J, 22 May 1996, unreported), followed

Re Eather; Ex parte Palada, (Cooper J, 30 May 1996, unreported), followed

Re Capel; Ex parte Caram Finance Australia Ltd (Finn J, 9 April 1998, unreported), followed

Sarina v Wollondilly SC (1980) 48 FLR 372, cited

Cain v Whyte [1933] HCA 6; (1933) 48 CLR 639, applied

Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407, cited

McIntosh v Shashoua (1931) 46 CLR 494, followed

Re Svir (1998) 154 ALR 710, followed

Ling v Enrobook Pty Ltd (1997) 74 FCR 19, applied

INTERNATIONAL ALPACA MANAGEMENT PTY LIMITED & ORS v

BENJAMIN K E ENSOR

NG 7337 of 1998

KATZ J

SYDNEY

10 FEBRUARY 1999

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7337 of 1998

BETWEEN:	INTERNATIONAL ALPACA MANAGEMENT PTY LIMITED ACN 052 412 867 First Applicant TEXTILE FINANCE LIMITED Second Applicant COOLAROO ALPACA GENERAL PARTNERS PTY LIMITED ACN 056 453 411 Third Applicant
AND:	BENJAMIN K E ENSOR Respondent
JUDGE:	KATZ J
DATE OF ORDER:	10 FEBRUARY 1999
WHERE MADE:	SYDNEY

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The estate of Benjamin KE Ensor be sequestrated.

2. The petitioning creditors' costs be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7337 of 1998

BETWEEN:	INTERNATIONAL ALPACA MANAGEMENT PTY LIMITED ACN 052 412 867 First Applicant TEXTILE FINANCE LIMITED Second Applicant COOLAROO ALPACA GENERAL PARTNERS PTY LIMITED ACN 056 453 411 Third Applicant
AND:	BENJAMIN K E ENSOR Respondent

JUDGE:	KATZ J
DATE:	10 FEBRUARY 1999
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 There is before the Court a creditors' petition for the making of a sequestration order against the estate of Mr Benjamin Ensor ("the debtor"). The petition was presented by three of the debtor's creditors, International Alpaca Management Pty Limited ("IAM"), Textile Finance Limited and Coolaroo Alpaca General Partners Pty Limited ("the creditors").

2 The creditors (as successful respondents) had obtained against both the debtor and Garrymere Farms Limited (as unsuccessful applicants) an order in the High Court of Australia for the costs of an application for special leave to appeal to that Court against an appellate decision of a Full Court of this Court. (The decision of the High Court (Brennan CJ and Gaudron and Gummow JJ) on the special leave application is reported at (1996) 13 Leg Rep SL 2 and the decision of the Full Court of this Court (Davies, Beaumont and Carr JJ), on a successful appeal from a decision of a single Judge of this Court, is reported at (1995) 133 ALR 561.) Those special leave application costs were subsequently taxed and allowed at slightly less than $7,500. The act of bankruptcy alleged in the creditors' petition to have been committed by the debtor was non-compliance with the requirements of a bankruptcy notice, that notice having required the debtor to pay to the creditors the amount of their taxed special leave application costs. (Although the creditors had also obtained from the Full Court of this Court (see 133 ALR at 598) an order for the costs of the Full Court proceedings, as well as an order for the costs of the proceedings below, those costs had not yet been taxed at the time of the issue of the bankruptcy notice and so could form no part of the amount demanded in that notice.)

3 The debtor does not dispute that I should be satisfied with the creditors' proof of the matters set out in pars (a)-(c) of subs 52(1) of the Bankruptcy Act 1966 (Cth) ("the Act"), including, obviously, the act of bankruptcy alleged in the petition, and I am so satisfied. However, the debtor seeks the petition's dismissal in reliance upon subs 52(2) of the Act, which provides (relevantly):

"If the Court ... is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition."

4 The debtor submits that he has satisfied me either of his ability to pay his debts or of the existence of other sufficient cause why a sequestration order ought not to be made against his estate or of both and that I should therefore dismiss the creditors' petition.

5 I will deal first with the debtor's claim that he is able to pay his debts.

6 The first question which appears to me to arise in connection with that claim is what exactly is that of which par 52(2)(a) of the Act requires the debtor to satisfy the Court.

7 One thing that can be said immediately is that, since, according to the definition of "debt" in subs 5(1) of the Act, "debt" includes "liability", the debtor must satisfy the Court that he is able to pay his liabilities, to the extent to which he has liabilities which would not otherwise have been included within his debts.

8 Turning now to other aspects of the question which I posed in the next preceding paragraph of these reasons, I point out that the words of par 52(2)(a) of the Act, which words I have already set out, differ from those used in other related phrases in the Act.

9 For instance, the Act provides in subs 5(2) that a "person is `solvent' if, and only if, the person is able to pay all the person's debts, as and when they become due and payable". Many operative provisions of the Act then use the word "solvent". Thus many operative provisions of the Act, instead of simply using the language of a person's ability to pay that person's debts, in effect use the language of a person's ability to pay all that person's debts, as and when they become due and payable.

10 Nothing seems to be added to the former language by the use in the latter language of the word "all". However, something of substance may be thought to be added to the language of an ability to pay one's debts by a reference to an ability to pay them "when they become ... payable". (I omit the words "as and", which add nothing to the word "when", and the words "due and", which add nothing to the word "payable".)

11 In Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, at 1527, Griffith CJ construed the phrase "unable to pay his debts as they become due" as it appeared in certain provisions of the Insolvency Act of 1874 (Qld). (In the context, the word "due" in that phrase seems plainly to have meant "payable".) His Honour (with whom Barton J agreed (see at 1531)) said that "the debts referred to [in the phrase] are not his debts `then' payable, but his debts `as they become due' -- a phrase which looks to the future", as well, obviously, as to the present. His Honour added that it was only the "reasonably immediate" future which was looked to in that connection. That construction was given to the phrase in repelling an argument that "only debts then actually payable and the amounts of which were then actually ascertained should be taken into consideration" in deciding whether, on a particular day, a person was unable to pay his debts as they became due. (For a case expressly applying the approach of Griffith CJ to similar words, although in a corporate, rather than an individual, insolvency context, see Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 466 (Federal Court of Australia, Sackville J).)

12 Yet other provisions of the Act (see, for example, par 124(3)(a)) speak of a person's having been unable to pay that person's debts as they became due from that person's own money. That formulation is different again from those already mentioned, because it expresses the idea of the (in)ability of a person to pay that person's debts as they become due (which, in the context, seems plainly to mean payable, as I have already pointed out in connection with the similar Queensland provisions under consideration in the Bank of Australasia Case) from that person's own money.

13 A question arises what is a person's own money in the context of provisions like those referred to in the preceding paragraph of these reasons. In Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666, Barwick CJ (with whom McTiernan J agreed (at 672)) said (at 670-71), when dealing with s 95 of the 1924 federal bankruptcy legislation, which was a provision like those referred to in the preceding paragraph,

"[T]he debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due."

(See also the Bank of Australasia Case at 1528 (Griffith CJ) and 1542-43 (Isaacs J).)

14 However, although the notion of a person's own money is to be treated in the expansive way just described (subject to what I say in the next paragraph of these reasons), it does not extend, most obviously, to money borrowed without security for the purpose of paying one's debts; for a discussion of the relevance to the question of corporate insolvency of the ability to pay one's debts only with borrowed, as opposed to one's own, money, see, for example, Lyford v Commonwealth Bank of Australia [1995] FCA 1261; (1995) 130 ALR 267 at 276 (Federal Court of Australia, RD Nicholson J).

15 A question arises whether the expansive notion of a person's own money referred to in the next preceding paragraph of these reasons was intended to be applicable only in the case of debtors who are traders, which was the context in which that expansive notion was developed, or applies equally to non-trading debtors. In "Insolvency: The Regular Payment of Debts" (ALRC 6, 1977), the Australian Law Reform Commission argued (par 161),

"In determining whether a non-business debtor is insolvent, regard should not be had to the possibility of realising assets which are usually regarded as necessary to a reasonably comfortable and dignified existence, nor to those which cannot be realised without significant loss and consequent disruption. On this basis, a [non-business] debtor would be insolvent if his only means of paying his debts were by selling household goods, his motor vehicle or his home."

16 There seems to be much in favour of such an argument, acceptance of which would not appear to me to be inconsistent with what was said in, for example, the Bank of Australasia Case or Sandell's Case, given that both of those cases involved traders.

17 In spite of the legislature's failure to include, in terms, in par 52(2)(a) of the Act the language either of "when those debts become payable" or of "from the debtor's own money", the debtor nevertheless treated the paragraph before me as requiring that he prove an ability to pay, from his own money, his debts when they become payable. He did so by submitting: first, that, at the time of the hearing, he was required to and did satisfy the test of solvency set out in subs 5(2) of the Act; and, secondly, that the test of solvency set out in subs 5(2) of the Act "simply adopts the earlier test in Sandell v Porter".

18 For the purpose of determining the present petition, I propose to act upon that construction of par 52(2)(a) of the Act upon which the debtor proceeded before me. I do so, not only because of the debtor's approach, but also because two other Judges of this Court have also relied, in whole or in part, upon that construction and I have found no authority which is opposed to that construction. (The two other Judges of this Court to whom I am referring are Cooper J (see Re McVey; Ex parte Carswell and Company, unreported, 22 May 1996, at p 11; Re Eather; Ex parte Palada, unreported, 30 May 1996, at p 19) and Finn J (see Re Capel; Ex parte Caram Finance Australia Ltd, unreported, 9 April 1998, at p 8).)

19 (I add, however, that even if par 52(2)(a) of the Act were to be construed as only requiring the debtor to prove an ability to pay his debts presently payable and that from any money, whether his own or other people's, it is clear that proof of the matter set out in par 52(2)(a) of the Act does not entitle the debtor to the dismissal of the petition; it only enlivens the Court's discretion under subs 52(2) of the Act to dismiss the petition: Sarina v Wollondilly SC (1980) 48 FLR 372 at 376-77 (Bowen CJ and CA Sweeney and Lockhart JJ). On the narrower construction of par 52(2)(a) of the Act which I am hypothesising in this paragraph of my reasons, relevant considerations in the exercise of the discretion under subs 52(2) of the Act would, in my view, nevertheless be whether the debtor also has the ability to pay debts becoming payable in the reasonably immediate future and whether the debtor has the ability to pay the debtor's debts from the debtor's own money. That being so, the two matters which I have just mentioned would remain of importance in the determination of the present petition, even on a narrow construction of par 52(2)(a) of the Act. I will make further reference to the topic of this paragraph in par 31 below.)

20 I turn now to the evidence on the question of the debtor's ability to pay, from his own money, his debts when they become payable.

21 I begin in that respect with an affidavit which the debtor swore on 5 May 1998 for the purpose of the present proceeding. In that affidavit, the debtor deposed to having certain assets "[a]t the present time". They consisted of $37,702.28 in a bank account and of various items of furniture and personal effects, said by the debtor to have a total value of $7,755. The total value of the debtor's assets at that time was thus said to be over $45,000. The debtor also deposed to having certain debts, again "[a]t the present time". They consisted of $8,991.91 owing to the creditors (which itself consisted of the taxed special leave application costs, together with interest thereon to the date of the creditors' petition) and of "approximately $7,758.00" owing to Westpac MasterCard. The total value of those debts at that time was thus under $17,000. In addition to the above assertions about his then-current assets and debts, the debtor also deposed to receiving income of $750 net per week on average from Garrymere Farms Australia Pty Limited and to having average weekly expenses of approximately $735, which included repayments of his credit card debt.

22 In the affidavit, the debtor also deposed to his not having received a bill of costs in taxable form in relation to the earlier Federal Court proceedings which had terminated adversely to him.

23 Apart from one paragraph thereof (to which I have not referred above), the affidavit to which I have referred above was read before me at the hearing of the creditors' petition on Monday, 9 November 1998. Apart from reasons for judgment in a certain matter in the Supreme Court of New South Wales to which I will come later in these reasons, that affidavit was the only evidence relied upon by the debtor in order to satisfy the Court (relevantly) of his ability to pay his debts. No attempt was made before me by the debtor to update the situation described in his affidavit, sworn over six months earlier. Thus the affidavit was being put forward by him as representing, not only his financial position at the time at which it was sworn, but also his financial position at the date of the hearing. However, as the debtor knew and as transpired during his cross-examination, his financial position as of 9 November 1998 was actually much different than it had been represented to be as of 5 May 1998. Furthermore, the representation of his financial position as of 5 May 1998 had, in any event, been misleading.

24 First, far from having $37,702.28 or some such amount in a bank account on Monday, 9 November 1998, the debtor admitted under cross-examination that he had in substance a nil balance in that account and that that had been achieved only by dint of depositing into the account $876 on the Friday before the hearing and depositing into the account a further $245 on the very morning of the hearing.

25 Secondly, the position as it had been represented in the affidavit to be as of 5 May 1998 was one of a person who, on that date, had assets which exceeded his debts by about $28,000, by reason of his having $37,702.28 in a bank account. While it was true that the debtor had had $37,702.28 in a bank account on the date of the swearing of his affidavit, bank records tendered by the creditors and admitted into evidence at the hearing showed that that account had hovered around $3,000 in debit between 2 July 1997 (which was the earliest date for which records were tendered) and 2 February 1998 and had then been in substance in balance between 2 February 1998 and 29 April 1998. Then, within a week before the swearing of the affidavit of 5 May 1998, there had been three deposits, one of $5,000, one of slightly more than $30,000 and one of $2,700, which together had led to the credit balance deposed to on 5 May 1998. Then, by two days after the swearing of the affidavit, the credit balance had declined to about $22,000, within one month of the swearing of the affidavit, the credit balance had declined to under $4,000 and, by 17 June 1998, the account was in debit again. It returned the next day to being in substance in balance and stayed that way for about a month (apart from one day, when there was a $4,000 deposit, followed immediately by an equivalent withdrawal). It then returned to being in debit, being about $1,000 in debit on 21 October 1998 (which was the latest date for which records were tendered). It was a debit balance of that amount which had been reduced in substance to nil by the last-minute deposits of $876 and $245.

26 The obvious inference from those bank records is that the three substantial deposits made in the week before the swearing of the affidavit had been made specifically in order to permit it to be sworn in the affidavit that the debtor had almost $38,000 in the bank and that, after they had served that purpose, the amount involved was relatively speedily paid away.

27 The debtor was cross-examined about the state of his account, including the movements into and out of it around the time of the swearing of his affidavit and, although the inference I have referred to in the preceding paragraph of these reasons was not put to him in terms, the purport of the cross-examination could not have been plainer. The debtor offered no explanation in cross-examination for the "coincidence" concerned in his account's having had almost $38,000 in it at the time of the swearing of his affidavit and having been either significantly in debit or in substance in balance for most of the rest of the time for which records were tendered, nor did he explain the circumstances of the three substantial deposits or of the subsequent withdrawals equalling those deposits. He was not re-examined (whether on those matters or any other). In the absence of any such explanations, I draw the obvious inference referred to in the preceding paragraph.

28 Given the debtor's reading of the affidavit of 5 May 1998, knowingly misleading as to his financial position on 9 November 1998 and knowingly misleading as to his financial position even on 5 May 1998, it appears to me that it would be sufficient, in order to deal with the debtor's claim of an ability to pay his debts, simply to say that the burden of persuasion in that respect was on him, that he sought to shoulder it by his own evidence only and that I am not prepared to accept that evidence as credible.

29 I will, however, also deal with his claim by accepting the contents of his affidavit to be accurate as of 9 November 1998, apart from the assertion about the amount of money held in the bank account, which amount I will treat as nil.

30 Doing so, I look first at the debtor's ability to pay his debts presently payable. There is at least one debt which falls into that category, namely the debt to the creditors for the amount of the taxed special leave application costs. (I leave out of account the credit card debt, which is apparently being paid in instalments.) I am not satisfied that the debtor is able to pay that debt from his own money. He has no cash to do so and, even assuming in the debtor's favour that it is appropriate for the purpose to take into account his furniture and household effects (see par 15 of these reasons) and that they are readily convertible into cash (something as to which there is no evidence) at the values put forward by the debtor (he not professing any valuation expertise), still the cash realised would be inadequate to pay the debt, on which, incidentally, interest has continued and will continue to accrue. Nor is his average weekly surplus of income over outgo ($15) adequate to make up the deficiency. It does appear, however, that he is able to pay the debt from the money of other people, a matter to which I will return below in connection with his "other sufficient cause" claim, but which is of no assistance to him on this aspect of his case.

31 Turning now to the debtor's ability to pay any debts becoming payable in the future, it is, in my view, incumbent upon the debtor, who bears the burden of persuasion on the question of his ability to pay his debts, to satisfy the Court either that no debts of his will become payable in the reasonably immediate future or that, if they will, he will be able to pay them. In that connection, there was evidence before the Court of at least one debt becoming payable by the debtor in the future. However, the debtor did not seek to establish either that it would not become payable in the reasonably immediate future or that, if it did, he would be able to pay it. His position in that respect was self-contradictory. Having expressly acknowledged in one breath an obligation to prove an ability to pay his debts when they become payable, he then submitted in the next that that obligation was one only to prove an ability to pay his debts presently payable, a proposition contrary to the highest authority (see par 11 of these reasons). In any event, however, he did concede that the existence of debts becoming payable in the future was "a general discretionary matter" for the Court, by which I infer he was referring to the Sarina discretion and, in particular, to one of the considerations which I have said in par 19 above to be relevant to the exercise of that discretion if par 52(2)(a) of the Act were to be given a narrower construction.

32 The debt which I have referred to in the preceding paragraph of these reasons as becoming payable in the future is the costs of the earlier Federal Court proceedings, which, so far as I am aware, still remain untaxed. There was evidence before me in the creditors' case, neither cross-examined upon by the debtor nor otherwise contradicted by him in his case, that the creditors' solicitor-client costs had exceeded $570,000 and that those costs would be allowed at not less than $350,000. I accept that evidence.

33 In addition to the debt to the creditors which is presently payable and the debt to the creditors in respect of which the debtor has neither established that it will not become payable in the reasonably immediate future nor established that, if it does, he will be able to pay it, there is yet a further debt about which I have thus far said nothing in these reasons. For part at least of the earlier Federal Court and High Court proceedings, the debtor's solicitors had been the firm of Mallesons Stephen Jaques. Evidence was admitted before me without objection that that firm had at one time asserted that the debtor owed it $22,977.64 for its professional fees (as well as owing very substantial amounts to counsel who had appeared for him, with which amounts I am not concerned for present purposes). Also admitted into evidence were various bills rendered to the debtor by the firm. Additionally, evidence was admitted of faxes from the debtor to the firm after it had claimed to be owed $22,977.64, assuring it that he wanted to pay its fees and would do so as soon as possible, with no demur being made in those faxes about the quantum of those fees. Then, during submissions before me, counsel for both sides announced that they had agreed that I was to proceed on the basis that the amount of $22,977.64 "remains outstanding" to the firm. Subsequent, however, to that announcement of agreement, counsel for the debtor submitted to me about that amount that it,

"... is not presently payable.... There is in none of the memoranda of costs that have been rendered anything that fits the description of the bill of costs for the purposes of section 192 of the Legal Profession Act [1987 (NSW)].

Shortly, one will see that there is no reference in any of those memoranda of fees of a narrative nature explaining the amount of work that was done in each particular case and disclosing the time that work took to be completed and at the rate at which that work was charged for. That, therefore, is not a bill of costs, and the result of section 192 of the Legal Profession Act is that at present Mallesons cannot sue for their money or press, enforce payment against my client. So ... on the question of solvency, it is not a debt, but is a general discretionary matter."

34 In my view, that treatment of the matter of the firm's fees suffers from the same defect as the debtor's treatment of the creditors' costs of the earlier Federal Court proceedings. It was for the debtor to persuade me either that the $22,977.64 (assuming it was not a debt presently payable) would not become a debt payable by him in the reasonably immediate future or that, if it did, he would be able to pay it. He sought to do neither. That being so, I need not trouble myself to consider whether the debtor's argument about the effect of s 192 of the Legal Profession Act in the circumstances was, in any event, correct. (Of course, if that argument was incorrect, then the $22,977.64 is a debt presently payable by the debtor and is to be added to the amount of the taxed special leave application costs in order to calculate the total amount of the debts presently payable by the debtor.)

35 In the result, the debtor has not sought to satisfy me that he will not become indebted in the reasonably immediate future for a debt of not less than $350,000 or that, if he does, he will be able to pay that debt when it becomes payable. Nor am I satisfied of either of those matters. (In particular, I add that although it appears that the debtor is able to pay the debt presently payable to the creditors from the money of other people, there is nothing to suggest that he would be able to do the same in respect of an amount, not of about $9,000, but of not less than $350,000.) Further, if the amount claimed by Mallesons Stephen Jaques and expressly acknowledged before me by the debtor as remaining outstanding to that firm is treated as falling into the category of debts payable in the future, rather than presently, then almost $23,000 is to be added to the amount of not less than $350,000 in order to calculate the total amount of the debts payable in the future by the debtor. (I should add that whether the amount of almost $23,000 is treated as a debt presently payable or as one payable in the future, not only can it not be paid from the debtor's own money, but I am not satisfied that it can be paid from the money of other people.)

36 For the reasons given above, the debtor has not satisfied me that he is able to pay his debts within the meaning of par 52(2)(a) of the Act and I therefore have no power to dismiss the creditors' petition on that ground.

37 I move now to the "other sufficient cause" for which the debtor claims a sequestration order should not be made, on the basis of which claimed sufficient cause he seeks the dismissal of the creditors' petition.

38 At the forefront of that claim, the debtor placed a statement of Henchman J sitting as a Judge in Bankruptcy for the District of Southern Queensland, the High Court of Australia having, on appeal from Henchman J's judgment, agreed with the judgment in which that statement appeared. (The decision of the High Court is Cain v Whyte [1933] HCA 6; (1933) 48 CLR 639. Henchman J's reasons for judgment appear in that report at 640-47 and the relevant passage appears at 646.) Henchman J had said,

"[P]rima facie, on proof of the matters mentioned in sec. 56(2) [of the 1924 federal bankruptcy legislation], the Court will proceed to make an order for sequestration, and ... it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order."

(In Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407 at 414, the High Court drew attention to its having in Cain v Whyte agreed with the judgment in which that statement appeared. I add here also that subs 56(2) of the 1924 federal bankruptcy legislation, referred to by Henchman J, was the predecessor to subs 52(1) of the Act and that par 56(3)(b) of the 1924 federal bankruptcy legislation was the predecessor to subs 52(2) of the Act, that paragraph having also used the language of "other sufficient cause".)

39 It will be noted that Henchman J referred in the passage which I have just quoted to the necessity for the debtor to put before the Court something which outweighs two "considerations", the first being "the interest of the public in the stopping of unremunerative trading" and the second being "the rights of individual creditors who are unable to get their debts paid to them as they become due". Relying upon that reference, the debtor argued that if,

"... those two concerns [that is to say, the public interest in stopping unremunerative trading and the rights of individual creditors who are unable to get their debts paid to them as they become due] can be assuaged then it may be in the particular circumstances that sufficient cause is shown against the making of the sequestration order."

40 The debtor then argued in substance that, in the particular circumstances of the present case, no question arose of the public interest in stopping unremunerative trading, because the presently payable debt to the petitioning creditors did not "arise from improfitable [sic] trading"; it was instead a debt arising from a costs order in litigation. He then further argued in substance that, in the particular circumstances of the present case, no question arose of the rights of individual creditors who are unable to get their debts paid to them when they become payable, because the only creditors seen to be actively seeking payment from the debtor of a presently payable debt were the petitioning creditors and they could be paid from other people's money, but had refused to be so paid. If those arguments were accepted, it followed that the debtor had shown "sufficient cause" why a sequestration order ought not to be made.

41 (I have now referred a number of times in these reasons to the debtor's ability to pay the debt presently payable to the petitioning creditors from other people's money. I should now say that there was evidence before me of the debtor's having tendered to the petitioning creditors, after the presentation of their petition, cheques, both from a bank and from another person, which cheques were for the amount of the taxed special leave application costs, with the petitioning creditors being invited to choose whichever payor they preferred. That tender was refused. The tender was then renewed at the hearing before me and was again refused.)

42 As to the debtor's argument that, in the particular circumstances of the present case, no question arose of the public interest in stopping unremunerative trading, because the presently payable debt to the petitioning creditors arose from a costs order in litigation, rather than from unremunerative trading, I have difficulty in seeing how the source of a particular debt is relevant to the question whether in a particular case there exists a public interest in stopping unremunerative trading by the debtor. However, on the assumption that it be relevant, there seems much to be said in favour of the argument that the source of the debt in the present case was trading, since it was a dispute in trade which gave rise to the litigation in which the costs order was made. However, there is a separate question, not raised by the debtor, as to whether the debtor is a trader, the answer to which is not easy to give. The debtor did assert in his affidavit of 5 May 1998, "I have been an importer of Alpacas to Australia since the industry began in the late 1980's", but perhaps I should assume in his favour that that statement was false and that it is not he, but Garrymere Farms Australia Pty Limited, that is the trader concerned. Of course, if the debtor is not a trader, then the public interest in stopping unremunerative trading is not relevant in this case.

43 As to the debtor's argument that, in the particular circumstances of the present case, no question arose of the rights of individual creditors who are unable to get their debts paid to them when they become payable, that argument obviously seeks to use against the petitioning creditors their refusal to accept his tender of the amount owing for the taxed special leave application costs. However, reliance upon that refusal in an argument of "other sufficient cause" appears to me to be foreclosed by the High Court's decision in McIntosh v Shashoua (1931) 46 CLR 494. That case was decided when par 56(3)(b) of the 1924 federal bankruptcy legislation was in force, that paragraph being, as I have already mentioned above, the predecessor to subs 52(2) of the Act. In that case, the petitioning creditor had refused to accept payment of the amount owing after the presentation of her petition and that refusal was made, at the hearing of the petition, part of the debtor's argument of "other sufficient cause" why no sequestration order ought to be made against his estate (see at 496-97). The order was, however, made and the debtor then appealed to the High Court, including as one of his grounds of appeal that the trial Judge ought not, in the exercise of his discretion, to have made the order, for reasons which included the petitioning creditor's refusal to accept payment (see at 499). The Court in effect rejected that reason as a sufficient cause for not making a sequestration order: see at 505 (Gavan Duffy CJ and Dixon J); at 508 (Starke J); and at 521 (McTiernan J).

44 However, even accepting (in spite of what I have said above) the debtor's argument that the two considerations identified by Henchman J are not relevant in the present case, I still do not accept that the debtor has shown, in this part of his argument, "other sufficient cause" why a sequestration order ought not to be made. I do so because I reject the debtor's underlying argument quoted in par 39 above. In effect, it is an argument that if, in a debtor's particular case, the two considerations identified by Henchman J are not relevant, then there are no considerations in favour of the making of a sequestration order which it is necessary for the debtor to outweigh in order to show "sufficient cause" why such an order ought not to be made. The defect in that argument was identified by this Court in Re Svir (1998) 154 ALR 710 at 712 (Burchett J). The Court there set out Henchman J's statement and then said of it,

"This exposition of the law emphasizes the width of the discretion conferred by the Act upon the Court. At the same time it points to a fundamental limitation imposed by the nature of the jurisdiction in bankruptcy, which requires the Court to keep in mind, not only the interests of the individual parties before it in the particular case, but also the public interest, which may be adversely affected by the propping up of insolvency. However, in the present case that factor does not provide the bar to an exercise of discretion in the debtor's favour that it would provide in many cases, since the debtor has a paucity of creditors, other than the petitioning creditor, who would be likely to have any reason for concern. Of course, that merely removes a bar; it does not provide a positive ground constituting `other sufficient cause' why a sequestration order ought not to be made."

45 Leaving aside now the debtor's argument based upon the statement of Henchman J, the debtor did put something forward as a positive ground constituting "other sufficient cause" why a sequestration order ought not to be made, namely, the existence of a defamation claim by him.

46 (I should perhaps record here for the sake of completeness that the defamation claim was not relied upon by the debtor as part of his argument that he was able to pay his debts, but only as part of his argument that there existed "other sufficient cause" why a sequestration order ought not to be made.)

47 It is convenient, in order to deal with this aspect of the debtor's case, to say something first about the evidence relating to it.

48 It was on 5 August 1996 that the High Court of Australia dismissed with costs the special leave application brought by the debtor and Garrymere Farms Limited. Then, on 22 November 1996, it would appear, there came into existence a letter addressed to "Alpaca Breeders of Australia", which letter may have been sent to the members of a body called the Australian Alpaca Association. It was apparently signed by Janie Hicks as Manager of Coolaroo Alpaca Stud. Under the heading "BUYER BEWARE", part of that letter said,

"... there is a possibility members may be invited to participate in an importation of animals in which a Mr Ben Ensor is involved. Coolaroo, or more particularly our management company, International Alpaca Management Pty Ltd (IAM) believes that it should stress, as a result of its own experience, `caveat emptor', (buyer beware).

Coolaroo/IAM shared an Importation Permit with Mr Ensor in 1991. After Coolaroo had expended considerable capital to purchase the alpacas Mr Ensor attempted to remove them from our possession during the process of importation. We were able to regain our rightful title to these alpacas only after the expenditure of in excess of $500,000.00 in legal costs. The final judgement in favour of Coolaroo was delivered on 24 November 1995 in the Federal Court of Australia, some four stressful years later."

49 That letter appeared on letterhead which said "Coolaroo" at the top and had the names of three businesses at the bottom, one of which was that of IAM, the first of the three petitioning creditors. The names of the other two petitioning creditors were not mentioned.

50 A chronology of relevant events after 22 November 1996 is as follows: on 24 December 1996, a firm of solicitors then acting for the debtor wrote to "International Alpaca Management Pty Ltd Trading as "Coolaroo", complaining of the letter referred to above as defamatory and saying that it had instructions to commence proceedings against IAM and Ms Hicks. On 8 January 1997, solicitors for IAM and Ms Hicks replied to that letter in predictable terms. On 10 June 1997, a certificate of taxation issued in respect of the special leave application costs. On 1 October 1997, a bankruptcy notice was issued in respect of those costs. On 13 October 1997, the bankruptcy notice was served on the debtor. On 3 November 1997, a new firm of solicitors then acting for the debtor wrote to the solicitors for IAM and Ms Hicks, referring to the earlier expression of intention to commence proceedings against them for defamation and saying, "We are about to do so, but wish to proceed against all parties responsible for the letter." The letter then sought the names of all persons who had written, approved or published the letter. (I add that the request made in that letter was not complied with.) That letter was, incidentally, the first communication about the alleged defamatory letter which IAM and Ms Hicks had received on the debtor's behalf since receiving the letter of 24 December 1996. Also on 3 November 1997, the debtor filed an application in this Court for an order setting aside the bankruptcy notice, together with a supporting affidavit sworn that day expressing an intention to file as soon as possible in the Supreme Court of New South Wales a statement of claim in the form annexed to the affidavit. That draft statement of claim named as defendants IAM and Ms Hicks. Contrary to the expression of intention in the letter and affidavit of 3 November 1997, no such proceedings were commenced, either as soon as possible or at all; instead, on 20 November 1997, an application for preliminary discovery was lodged in the Supreme Court of New South Wales against Ms Hicks alone. On 1 December 1997, that application for preliminary discovery was heard and judgment reserved. On 2 December 1997, the application to this Court for an order setting aside the bankruptcy notice was dismissed by consent. On 21 August 1998, an order for preliminary discovery was made against Ms Hicks by the Supreme Court of New South Wales, naming no date, however, upon which Ms Hicks was required to attend before the Court for the purpose of her examination.

51 It is also relevant that, according to an affidavit sworn by the creditors' solicitor and read in their case, on which affidavit the solicitor was not cross-examined and as to which there was (relevantly) no contradictory evidence in the debtor's case, "Mr Ensor (through his current solicitors, RH Curry & Co) does not wish the examination [of Ms Hicks] to take place until after the hearing of these proceedings."

52 Having now mentioned certain evidence which I do have in relation to the debtor's defamation claim, I mention also that the debtor put before me no evidence of a number of matters which would be relevant in any proceedings actually commenced on that claim. In truth, the only evidentiary material of any substance which I have in connection with such proceedings is the alleged defamatory letter itself.

53 I turn now to the approach to be taken in determining the question whether the debtor's defamation claim may amount to "other sufficient cause" why a sequestration order ought not to be made.

54 I begin my discussion of that approach with the proposition that "it is not in the public interest for a debtor to be forced into bankruptcy by reason of a state of insolvency likely to be of only short duration": Ling v Enrobook Pty Ltd (1997) 74 FCR 19 (Davies, Wilcox and Branson JJ). When, therefore, an insolvent debtor, in order to demonstrate "sufficient cause", relies upon the existence of a monetary claim against the petitioning creditor which the debtor alleges means (leaving out of account the debtor's possible bankruptcy) that the debtor's state of insolvency is likely to be of only short duration, an assessment of that claim must be made in order to determine whether it is likely to terminate shortly the debtor's state of insolvency. That assessment will involve a consideration of the strength of that claim on liability, the strength of that claim on quantum and the stage, if any, which the prosecution of that claim has reached. If, after consideration of those matters, an assessment is made that (leaving out of account the debtor's possible bankruptcy) the existence of that monetary claim against the petitioning creditor means that the debtor's state of insolvency is likely to be of only short duration, then the existence of that claim may amount to "sufficient cause" why a sequestration order ought not to be made.

55 (In the preceding paragraph, I have discussed the situation where the debtor alleges a monetary claim against the petitioning creditor. Where the alleged monetary claim is not against the petitioning creditor, but against a third party, it would appear that, prima facie, that claim will not amount to a "sufficient cause" why a sequestration order ought not to be made, regardless of the state of the three matters I have mentioned above. In Ling, the Court said (at 25), "The circumstance that the legitimate claim of the debtor is one against the judgment creditor is likely to be a significant circumstance for the purposes of s 52(2)(b)." It then said that the trial judge had "rightly" said that "there is no apparent reason why a petitioning creditor should not be entitled to have a sequestration order made, if the requirements of s 52 are otherwise satisfied, simply because the debtor may have a counter-claim or cross-demand against some other creditor." Then, after referring (at 25-26) to certain authorities, the Court said (at 26),

"The above authorities do not, in our view, support the appellant's contention that the courts recognise a public interest in allowing a debtor to prosecute litigation commenced by the debtor. The public interest recognised by such authorities is that which, in broad terms, is reflected also in s 40(1)(g) of the Act; that is, that a sequestration order ought only to be made on the basis of an indebtedness which is not counterbalanced by a claim by the debtor against the petitioning creditor. Such authorities provide no comfort to a debtor who asserts a claim, not against his or her creditor, but against a third party."

56 Applying the approach discussed above to the debtor's defamation claim, the debtor has not satisfied me, for a number of reasons, that its existence constitutes "sufficient cause" why a sequestration order ought not to be made.

57 First, I deal with the matter of the stage which the prosecution of the debtor's claim has reached. The debtor became aware of the alleged defamatory letter before 24 December 1996. On that date, a letter was written on his behalf to IAM, the first petitioning creditor, and Ms Hicks about the alleged defamatory letter. However, no further contact was made with IAM and Ms Hicks about the alleged defamatory letter until over ten months later and that on the day before the expiration of the time for compliance with the bankruptcy notice which had been served on the debtor. That communication asserted that proceedings were about to be commenced on the defamation claim. On the same day, an application was made for the setting aside of the bankruptcy notice, supported by an affidavit by the debtor asserting an intention to commence proceedings on the defamation claim as soon as possible. However, that did not occur and instead the debtor began the preliminary discovery proceedings some weeks later. Having obtained a preliminary discovery order about two and one half months before the hearing of the creditors' petition before me, the debtor nevertheless did not wish that preliminary discovery to occur until after the hearing of the creditors' petition.

58 Thus, over two years after the date of the alleged defamatory letter, the debtor has still not commenced defamation proceedings with respect to it, although asserting on a number of occasions his intention to do so forthwith, at least against (relevantly) IAM, the first petitioning creditor. The inference which I draw from the matters to which I have referred above is that the debtor's conduct has been calculated to avoid commencing defamation proceedings with respect to the alleged defamatory letter, but, in any event, I am not satisfied that his defamation claim, not even being the subject of substantive proceedings yet, is at all likely to bring his state of insolvency to an end shortly.

59 I turn now to the strength of the debtor's claim, both as to liability and quantum. In the present circumstances, this matter is closely connected with the matter of the stage which the prosecution of the debtor's claim has reached. First, I mention that, because the debtor has not actually commenced proceedings on his claim, I have no statement of claim which I can use to see what is claimed. (It is true that there is in evidence before me a draft statement of claim, but, given the debtor's conduct thus far with respect to his claim, I am not prepared to assume that any statement of claim which he might actually file would be in the same form as that draft.) Nor, it necessarily follows, do I have any defence from those who might be sued, although I do know that the solicitors for IAM and Ms Hicks, when writing to the debtor's then-solicitors on 8 January 1997, referred to potential defences under ss 15 and 24 of the Defamation Act 1974 (NSW), dealing with truth and with protected reports respectively. In any event, as I have already mentioned above, the only evidentiary material of any substance which I have in connection with such potential proceedings is the alleged defamatory letter itself. I do not, for instance, have the results of any discovery or interrogatories which might have established such matters as whether the defendants published the alleged defamatory letter, if so, their role in such publication and the extent of such publication. With no more material than I presently have, I would be unable to do anything more than speculate about the strength of the debtor's claim, both as to liability and quantum, an inability for which the debtor must bear the consequences, given the burden of persuasion upon him under subs 52(2) of the Act: see the Capel Case, (referred to in par 18 above) at pp 5-6.

60 (Of course, if I were to speculate about the strength of the debtor's claim, I might speculate that the issue of the debtor's conduct in the events which were the subject both of the earlier Federal Court proceedings and of the alleged defamatory letter would be litigated in any defamation proceedings brought by him. I might further speculate that the trier of fact in any such proceedings would make the same finding about the debtor's conduct in the course of those events as was made by Beaumont and Carr JJ in the Full Court, namely, that it had been "reckless conduct to the point of dishonesty" (see 133 ALR at 597). I might further speculate that such a finding by the trier of fact in such proceedings would have a significant adverse effect on the debtor's claim. However, I do not propose to engage in such speculation for present purposes.)

61 Finally, I mention the distinction which I referred to above between claims by the debtor against a petitioning creditor and claims by the debtor against a third party. It will be recalled that there are three petitioning creditors. It will also be recalled that the alleged defamatory letter purports to be written on behalf of the first petitioning creditor and that the debtor has asserted from the outset a claim against it. However, there is nothing in the alleged defamatory letter which mentions the second and third petitioning creditors and, during submissions before me, counsel for the debtor conceded that, "at present there is not evidence ... that ropes them into it", in other words, into publication of the alleged defamatory letter. At the same time, the debtor deliberately chose not to attempt to discover from Ms Hicks before the time of the hearing before me whether there was anything to suggest that the second and third petitioning creditors had participated in any way in any publication of the alleged defamatory letter. In those circumstances, any claim against the first petitioning creditor which, as against it, could amount to sufficient cause, would not, in the ordinary course, amount to sufficient cause as against the second and third petitioning creditors. The first petitioning creditor would be, so far as the second and third petitioning creditors are concerned, a third party for the purpose of the distinction between claims against petitioning creditors and claims against third parties. No reason was offered by the debtor why his claim against the first petitioning creditor ought to amount to "sufficient cause" as against the second and third petitioning creditors. Instead, what was submitted was that preliminary discovery might show that it was appropriate to make claims against them as well, a submission which I reject because of the debtor's deliberate choice to postpone the preliminary discovery until after the hearing of the creditors' petition. The effect of the above is that even if I had been satisfied that, as against the first petitioning creditor, the defamation claim provided "sufficient cause" why a sequestration order ought not to be made, that would not have availed the debtor as against the second and third petitioning creditors.

62 For the reasons given above, the debtor, as I have already said, has not satisfied me that the existence of his defamation claim constitutes "sufficient cause" why a sequestration order ought not to be made and, given the conclusion which I have already expressed about the debtor's sufficient cause argument relating to the statement of Henchman J, the outcome is that the debtor has not satisfied me of any matter which amounts to sufficient cause why a sequestration order ought not to be made against his estate; I therefore have no power to dismiss the creditors' petition on the ground mentioned in par 52(2)(b) of the Act.

63 In the circumstances, I grant the creditors' petition, ordering that the estate of the debtor be sequestrated and that the petitioning creditors' costs be taxed and paid in accordance with the Act.

I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katz.

Associate:

Dated: 10 February 1999

Counsel for the Applicant:	D.J. Durston
Solicitor for the Applicant:	Michell Sillar
Counsel for the Respondent:	P.B. Walsh J. Conomy
Date of Hearing:	9 November 1998
Date of Judgment:	10 February 1999