IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY } No.310 of 1986 ) GENERAL DIVISION ) BETWEEN: Re: ERIC TROJAN and RUTH (formerly RUTH ARNDELL) Debtors Ex Parte:CORPORATION OF THE TOWN OF HINDMARSH Judgment Creditor CORRIGENDA CORAM: Fisher J. 5 November 1986 Page 5 - 9 lines from bottom of page : The City of Woolongong This should read : Wollondilly Shire Council Page 11 - 14 lines from bottom of page: 'argument' mis-spelt Page 20 - 9 lines from top of page : 'Defendant' mis-spelt 3 lines from bottom of page : 'Rollodrome' mis-spelt WO leap Associate to Fisher J. avo? Seale me ahlloere soot wee ye wrens we tone te cane : ari > car pope -'¢ ale mae ice ok ena lanl ve ") wos - pee ~ ony reed iC mre ayer q . : svt ys" 5. undertook to obtain funds from the trustee company and pay the amount of the judgment debts into a joint account in the names of the solicitors for each party, where they were to abide the order of the Court. The proceedings were then adjourned. Prior to the date of the adjourned hearing the parties agreed that the amount of the judgment debts would be paid into Court, which was done. The matter came again before the Court on 15 July 1986 for directions and on Friday 18 July when the debtors were, as they were thereafter, unrepresented. The debtor Mr. Trojan on behalf of the debtors informed the Court, in answer to a question, that the debtors abandoned item 4 of their notices of opposition. He also indicated that, subject to presenting an argument on solvency, he would seek a further adjournment to call witnesses and perhaps issue subpoenas in respect of the counter-claim. He called Ruth to give further evidence and then made submissions on the question of solvency. He relied in this regard upon the decisions of this Court in Re Sarina Ex parte Wollondilly Shire Council (1980) 30 A.L.R. 266 and (1980) 32 A.L.R. 596. He then offered to pay into Court a further $500 which with the amount already paid in was said, as in Re Sarina, to total the amount of the judgment debts and costs. The matter was then adjourned to Friday 8 August 1986 to enable the debtors to bring to Court all evidence which they wished to tender upon all grounds of opposition. The debtors were also directed that if they wished to rely upon their appeal against the Local Court judgment, which ground had earlier been abandoned by their pene ee wore wet eee ore ATT ee a 11. real estate and improvements at Cherry Gardens in the Adelaide Hills. She deposed to the fact that the value was $150,000 but subject to mortgages totalling $60,000. The net value of the one half interest to which she contended she was entitled was therefore $45,000. However the property was at the time subject to proceedings in the Family Court and her capacity to realize or borrow on her interest to meet her debts as they fall due was Matter of considerable doubt (Re D'Qnofrio Ex parte Biyth (1986) 65 A.L.R. 545). Subsequently and just prior to the conclusion of this hearing there was evidence that the Family Court had approved a settlement of the property interests of Ruth and her former husband under which her husband would within 90 days purchase for $25,000 her interest in the Cherry Gardens property. If he failed to do so, the settlement agreement provided that the property was to be sold and from the proceeds of sale she would receive $25,000 plus interest and her former husband the balance thereof. No doubt to meet the argument that the sum of $25,000 was not readily available to meet her debts, Ruth then made application to the trustee company for a loan as follows: "Dear Trustees, I request a variation of the conditions upon which the Trustees of the Eric Trojan Investment Trust agreed to advance the sum of $20,000 to myself, as set out in your letter received on 21st May, 1986. I now ask that the loan be made available for a period of 90 days from the making of an order by the Family Court of Australia in No. AD 2808 of 1985, provided that Mr. Craig meets his obligation to pay within that time. Should he fail to meet that obligation I request that the term of the loan be extended to coincide with Be i 20. opportunity and herein clain damages not exceeding the sum of $40,000.00. 23. Further,, notwithstanding the eviction of the Defendants, the Defendants seek an order for specific performance of the Agreement to lease, and seek an immediate injunction preventing the Plaintiff from committing any act which might frustrate the execution of such an order. AND the Defendants claim the sum of $40,000.00 and costs and interest. DATED the day of 1986." Two aspects of this claim are immediately apparent. The debtors claim damages as trustees for and on behalf of the unincorporated Co-operative referred to in the pleading and the basis of their claim was that the creditor improperly terminated their lease contrary to the terms of an oral agreement. If I was satisfied that the debtors had a real claim to litigate the counter-claim with prospects of success I would he prepared to refrain from making a sequestration order and adjourn these proceedings to enable the counter-claim to be adjudicated on in the Local Court. This Court exercising jurisdiction in bankruptcy is not the appropriate Court to deal with claims for unliquidated damages. However there are a number of grounds upon which I am of opinion that there is little if any validity in the debtors' clain. The question whether the creditor wrongfully terminated the debtors' occupation of the Rollodrome premises has already been litigated before a Master of the Supreme Court. He found that the premises were leased to the debtors on a weekly Been wee on ese atu? AUT toe ease oe ee cera re ete TT rp eee oo - = Pn id a SL et 2 Dy CATCHWORODS BANKRUPTCY - creditors petitions - joint debtors - notices of opposition - solvency - meaning of "able to pay their debts as they fall due" - principles to be considered - relevance of appeal and counter-claim - relevant considerations - whether debtors claim has prospect of success - whether Court is entitled to go behind judgment to enquire whether it is founded on a real debt. BANKRUPTCY ACT 1966 s.52 Re: ERIC TROJAN and RUTH (formerly RUTH ARNDELL) Debtors Ex Parte: CORPORATION OF THE TOWN OF HINDMARSH Judgment Creditor FISHER J. ADELAIDE 5 NOVEMBER 1986 oe -7 -~f ve wey, So com tp more le eg cae eee Sage 4 a "4, IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY No.310 of 1986 wwe eww GENERAL DIVISION BETWEEN: Re: ERIC TROJAN and RUTH (formerly RUTH ARNDELL) Debtors Ex Parte: CORPORATION OF THE TOWN OF HINDMARSH Judgment Creditor MINUTE OF ORDER FISHER J. JUDGE MAKING ORDER ADELAIDE WHERE MADE DATE OF ORDER 5 NOVEMBER 1986 THE COURT ORDERS THAT: 1. The creditor's petition against the debtor, Ruth, he dismissed. 2. Further consideration of creditor's petition against the debtor Eric Trojan be adjourned to a date to be fixed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. ws Ve ma oes re, Tt sry rem erg wok re pro. seen we ea uu _ t ai nema ee re rt ere te eg ee as vet ~ -—y- IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY BANKRUPTCY DISTRICT OF THE STATE } } ) ) GENERAL DIVISTON ) No. 310 of 1986 ) ) ) ) OF SOUTH AUSTRALIA Re: ERIC TROJAN and RUTH (formerly RUTH ARNDELL) Debtors Ex Parte: CORPORATION OF THE TOWN OF HINDMARSH Judgment Creditor REASONS FOR JUDGMENT FISHER J. : 5 November 1986 This has been a difficult and exasperating matter, not merely because of the amount of Court time and the number of adjournments involved but also because of the determination of the debtors to delay or otherwise, by any means, defeat the petitioning creditor's attempt to obtain payment of its judgment debts or alternatively sequestration orders. The debtors are obviously both highly educated. Each gave his or her occupation as that of a consultant but there was evidence that the debtor Mr. Trojan was a psychologist and the debtor Ruth an anthropologist working during at least part of the — eam WOT ee Spor tala wo. wn preset se nape ar) tees ant te eee ce worse rs sror-p os 2. relevant time on a thesis for a Doctorate of Philosophy. They both learnt very quickly the ways and means by which the final conclusion of the matter could be delayed and also to identify the relevant authorities. The actual matter before this Court concerned the hearing of a notice of opposition filed by the debtors against a petition presented by the creditor. The debtors had earlier been involved in a number of related proceedings in the Supreme Court. Before turning to the relevant facts it is appropriate to deal with the course of the proceedings in this Court. On 14 April 1986 the creditor presented a petition based on failure by the debtors to comply with the requirements of a bankruptcy notice issued by the creditor, which petition alleged that the debtors were indebted to the creditor in two sums. The amount of $1,672.15 was due under a Supreme Court judgment obtained on 25 July 1985 and judgment for the amount of. $15,838.47 was obtained in the Local Court of Adelaide on 13 February 1986. The creditor sought payment of $17,510.62 being the total amount due under the two judgments. On 22 May 1986 solicitors filed a notice of opposition on behalf of each debtor to the petition in the following terms: "TAKE NOTICE that RUTH intends to oppose the petition of CORPORATION OF THE TOWN OF HINDMARSH dated the 14th day of April 1986 upon the following grounds:- 1. She is able to pay her debts as they fall due. — eA eee tae _ wv Nt sn inal aahieat aks - te t ele ie? ental ie fan Sanita Ladiereonal ts taaeemnar ance Meee a toy 3. 2. The Debtor has a counterclaim against the Creditor exceeding the amount of the debt alleged in the Petition. 3. The Debtor has issued an application for leave to appeal in the Supreme Court of South Australia against the Judgment obtained by the Petitioning Creditor. 4, The Petitioning Creditor is not empowered under the Local Government Act 1934 to 1975 to issue a Creditor's Petition in Bankruptcy." The debtor Eric Trojan's notice of opposition was in similar terms. Prior to filing the notices of opposition the creditor's petition had been before the Court on 12 May 1986 and adjourned at the request of the debtor Ruth to enable them to obtain advice and, if so advised, to file notices of opposition. These were filed as abovementioned. On 26 May the debtors were directed, when the matter was again before the Court, to file affidavits in support of their notices of opposition. These affidavits were filed on their behalf by solicitors on 29 May but were limited to facts relating to their contentions that they could pay their debts as they fell due. Considerable attention will have to he given eventually to this contention but it suffices to say at this stage that with the exception of an interest as tenant in common in land which Ruth held, neither had assets of any worth. However each relied on the fact that he or she could borrow $20,000 from a company E.J.T. Nominees Pty. Ltd. (the name of which was subsequently and appropriately changed to Nest Egg Yer meg ees irene re aye toy een = a eee ee mee , ' ert qt os aa, " he 01 marten we eo 4. Nominees Pty. Limited) which company was trustee of the Eric Trojan Investment Trust. A balance sheet of this trust was exhibited, showing net assets of $245,550 including cash on deposit of $51,500. When the matter came before the Court on 2 June 1986 it was adjourned again to 16 June because applications had allegedly heen made in the Local and Supreme Courts to set aside the creditor's judgments. However when the matter came before the Court on 16 June 1986 there was evidence to the effect that these applications were not being actively pursued. The debtors' notices of opposition were adjourned to 8 July 1986 for hearing. On that day counsel appearing for the debtors indicated that they each wished to give oral evidence concerning their alleged counter-claim (item 2 in notice of opposition), that they would not be pursuing the ground of opposition based on pending appeals (item 3), that they wished to contend that they were solvent (item 1) and that they wished to argue that, as a matter of law, the creditor was not empowered to issue a petition (item 4). There was at that stage no evidence before the Court concerning the value of Ruth's interest as tenant in common in land. After each debtor gave evidence on the topics of solvency and the counter-clain, their counsel sought an adjournment' to obtain further evidence to be produced on the counter-claim. This adjournment was opposed by counsel for the creditor but his opposition was withdrawn when the debtors through their counsel eure e * - ama " sire meres steleaheneatinmelinsiods aihdeie odeeies waant memenet a bades aise eabenmemnteaiation da niatei et atte aay — t . 5. undertook to obtain funds from the trustee company and pay the amount of the judgment debts into a joint account in the names of the solicitors for each party, where they were to abide the order of the Court. The proceedings were then adjourned. Prior to the' date of the adjourned hearing the parties agreed that the amount of the judgment debts would be paid into Court, which was done. The matter came again before the Court on 15 July 1986 for directions and on Friday 18 July when the debtors were, as they were thereafter, unrepresented. The debtor Mr. Trojan on behalf of the debtors informed the Court, in answer to a question, that the debtors abandoned item 4 of their notices of opposition. He also indicated that, subject to presenting an argument on solvency, he would seek a further adjournment to call witnesses and perhaps issue subpoenas in respect of the counter-claim. He called Ruth to give further evidence and then made submissions on the question of solvency. He relied in this regard upon the decisions of this Court in Re Sarina Ex parte The City of Woolongong (1980) 30 A.L.R. 266 and (1980) 32 A.L.R. 596. He then offered to pay into Court a further $500 which with the amount already paid in was said, as in Re Sarina, to total the amount of the judgment debts and costs. The matter was then adjourned to Friday 8 August 1986 to enable the debtors to bring to Court all evidence which they wished to tender upon ali grounds of opposition. The debtors were also directed that if they wished to rely upon their appeal against the Local Court judgment, which ground had earlier been abandoned by their ae ae poe ee em meray ~t Ye Sr Tye ee rer es any te : rer —o we ge eres ic ulated - 6. counsel, they should take all necessary steps in the interim to get that appeal on foot. When the matter was next before the Court on 8 August 1986 Ruth alone appeared and advised the Court that Mr. Trojan was unwell and could not attend Court. She also indicated that little if anything had been done to pursue the appeal against the judgment of the Local Court. On that occasion counsel for the creditor gave at my suggestion an outline of the arguments which he proposed to put as a matter of law for the purpose of alerting the debtors to what they had to meet and to indicate to them the desirability of obtaining legal representation. The matter was then adjourned to 1 September 1986. On 1 September the debtors each gave further evidence primarily directed to their counter-claim and the matter adjourned to the following day for addresses. At the commencement of that day the debtors again sought an adjournment. Their application was refused and counsel for the creditor addressed throughout the day. The debtor Mr. Trojan addressed during portion of the following afternoon on the topic of insolvency. When he concluded on the following morning, Thursday, the debtor Ruth asked for an adjournment on the ground of exhaustion. She was granted leave to put her submissions in writing to be delivered to the Court by 5.00 p.m. on the following Monday 8 September 1986 and counsel for the creditor was directed to reply in writing to both addresses by the ms prsapesce = 7. following Friday evening. Ruth's submissions were not received in accordance with this direction or before counsel for the ereditor had delivered his reply. On 15 September 1986 Mr. Trojan filed an application supported by an affidavit, for the case to be re-opened to enable him to present further evidence and argument. The supporting affidavit contained evidence concerning the health of Ruth and a medical certificate was exhibited. The application to eall further evidence was refused. However Mr. Trojan was granted until 24 September to make submissions in writing and counsel for the creditor was directed to lodge his submissions in reply by the evening of 26 September. In this instance these directions were adhered to. Turning from procedural matters to matters of substance there were originally four but ultimately three grounds upon which the debtors based their opposition. Each of these grounds falls for consideration as matters of discretion under s.52 of the Bankruptcy Act 1966 ("the Act"). However if I find that the debtors or either of them are solvent, that is, able to pay their debts as they fall due, it is inappropriate that I make a sequestration order. This is so even if, as in this matter, the solvent debtor or debtors are unwilling to discharge the liability to the judgment creditor, Re Sarina supra at p.266. It is therefore necessary that I deal first of all with the question of solvency. wr neni y a. Barwick C.J. referred to the test of solvency in the following terms in Sandell v Porter and Another (1966) 115 C.L.R. 666 at p.670 as follows in relation to preferential payments: "Insolvency is expressed in 5.95 as an inability to pay debts as they fall due out of the debtor's own money. But the 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 hy 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 Jack of liquidity. Itis 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." As previously related both the debtors deposed in their affidavits in support of the notices of opposition to the fact that the sum of $20,000 was available by way of loan from the trustee company. Mr. Trojan in his affidavit stated that his only other asset was a holding of 10 shares each valued at $1 in that company and that his only liability was the sum of $17,510.62 owing to the creditor under the two judgments. He gave oral evidence to the effect that he had a few shares in the Broken Hill Proprietary Company Limited to the value of some $800. In these circumstances it appeared at the time that he was plainly insolvent in that by borrowing from the trustee company oad > ¥ wR oS At PNT ioes Ub be aa yek Tee Tay INI AE i aha fe ' - 9. to meet his debt to the creditor he was substituting one creditor for another. When this was pointed out to him in argument, arrangements were made for the amount of the judgment debts to be advanced by the trustee company apparently to him and Ruth and this was the amount ultimately paid into Court. The sum was in the first instance paid into a joint account in the name of himself and Ruth. As previously related there are substantial assets held by the trust which was established on 26 July 1979 by a third party with, inter alia, Mr. Trojan and his children, his grandchildren and their spouses as discretionary beneficiaries. The trust deed was in evidence and there was much discussion on the question whether the trustee company had power to make such a sum available to Mr. Trojan otherwise than by way of loan. It was also doubtful whether Ruth was a potential beneficiary. The directors of the trustee company were the two debtors, Ruth's daughter and one Stephen Bariltrop. I am satisfied that the trustee company was empowered to advance to Mr. Trojan absolutely and not by way of loan the sum of $20,000 on account of his presumptive share in the capital of the trust fund. However this amount was made available to the debtors in accordance with the following resolution of the directors of the trustee company on 14 July 1986: we z Armaan, Sry a eee - le " a3 spon en 10. - Advance to E. Trojan and Ruth IT WAS RESOLVED: that the Trustees in their absolute and unfettered discretion, make an advance of $17,510.62 to E. Trojan and Ruth, to be paid into their joint personal account at the Commonwealth Bank - Hillcrest; and approved a further advance up to 6§5,000 on the same terms to meet any other debts or costs in the above action." The question whether the advance, in so far as it was made to Ruth, was in breach of trust may well not be a matter for this Court at least at this stage. However, when it was raised, it was argued that Ruth was an object of the trustee company's discretion being a possible beneficiary under Item C(viii) of the schedule which named the class of beneficiaries. Item C(viii) was as follows, to the extent relevant: "Any charitable institution person or persons hody corporate or incorporate or howsoever constituted whom the Trustee in the Trustee's absolute discretion considers worthy of receipt of funds either for charitable or educational purposes or for the relief of poverty..." Tt was contended that Ruth was a person whom the trustee company was entitled to consider worthy of funds for the relief of poverty. The position therefore as far as the debtors are concerned is that they are jointly entitled to the funds in Court which are sufficient to discharge at least the judgment debts if the debtors consent to this course of action. Turning to Ruth's position she has, as related, an interest as tenant in common with her former husband in certain ll. real estate and improvements at Cherry Gardens in the Adelaide Hills. She deposed to the fact that the value was 6150,000 but subject to mortgages totalling $60,000. The net value of the one half interest to which she contended she was entitled was therefore $45,000. However the property was at the time subject to proceedings in the Family Court and her capacity to realize or borrow on her interest to meet her debts as they fall due was matter of considerable doubt (Re D''Onofrio Ex parte Blyth (1986) 65 A.L.R. 545). Subsequently and just prior to the conclusion of this hearing there was evidence that the Family Court had approved a settlement of the property interests of Ruth and her former husband under which her husband would within 90 days purchase for $25,000 her interest in the Cherry Gardens property. If he failed to do so, the settlement agreement provided that the property was to be sold and from the proceeds of sale she would receive $25,000 plus interest and her former husband the balance thereof. No doubt to meet the argum ent that the sum of §25,000 was mot readily available to meet her debts, Ruth then made application to the trustee company for a loan as follows: "Dear Trustees, I request a variation of the conditions upon which the Trustees of the Eric Trojan Investment Trust agreed to advance the sum of $20,000 to myself, as set out in your letter received on 2lst May, 1986. I now ask that the loan be made available for a period of 90 days from the making of an order by the Family Court of Australia in No. AD 2808 of 1985, provided that Mr. Craig meets his obligation to pay within that time. Should he fail to meet that obligation I request that the term of the loan be extended to coincide with { | t i ' 12. settlement from the sale of the Cherry Gardens property as set out in a document signed by myself and solicitor for the husband on the 26th August, 1986. Yours faithfully, RUTH." The Chairman of directors, Ruth's daughter, replied as follows: "Dear Ruth, At a meeting of trustees held on the 26th August, 1986, it was decided to vary the terms of a loan referred to in your letter of he 25th August, 1986. The terms will now be that the loan will be repaid 90 days from the making of an order by the Family Court of Australia in No. AD 2808 of 1985 or, at settlement of the Cherry Gardens property as referred to in your letter, whichever applies. Yours sincerely, JANCY CHAIRMAN OF DIRECTORS." The crucial question now arises, especially in the case of Mr. Trojan, whether the debtors are in these circumstances able to pay their debts as they fall due. Mr. Trojan has a debt of $17,510.62 in respect of which Ruth is also liable and he and Ruth are jointly entitled to the money in Court. His other assets can be ignored for the purpose of the assessment of this difficult question. I have however come to the conclusion that I should accept the well researched argument of counsel for the creditors that Mr. Trojan is not entitled, in establishing his solvency, to set off to the full amount of the funds in Court we mee nee 13. - against his liability to the creditor. Mr. Trojan is only beneficially entitled to one half of the monies in Court whereas he is liable for the full amount of the judgment debts. The creditor was and is entitled to pursue either debtor for the full amount of the debts and the creditor pursued is insolvent unless he or she can pay the full amount out of his or her separate assets. Ruth however is in a somewhat different position. Accepting the documentation at face value, which I am persuaded to do by virtue of the fact that the trustee company did make funds earlier available in accordance with its agreement and has the necessary monies available it seems to me that she is solvent. The crucial question as far as she is concerned is whether in the words of Barwick C.J. in Sandell v Porter set out above, it can fairly be said that she is able to "pledge her assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances...". It is my opinion that Ruth is able to comply with the tests as indicated by the former Chief Justice. She has prima facie an immediate capacity to borrow the sum of $20,000, notionally charged on her interest in the Cherry Gardens property or the proceeds of sale thereof, and one half of the amount in Court, to meet a debt of $17,510.62. My findings therefore are that the debtor Mr. Trojan is not able to pay his debts as they fall due but that the debtor . ee mm 14, Ruth is so able as she is solvent. As far as Mr. Trojan is concerned I should be prepared to make a sequestration order unless, in accordance with para.52(2)(b) of the Act, I consider that there are other sufficient reasons why an order should not be made. This brings me to the matter of the counter-claim and also the appeal which is said to have been launched against the decision of the Local Court. The debtors' opposition based on its appeal against the judgment in the Local Court arose in the following circumstances. The creditor issued proceedings in that Court on 27 May 1985. The debtors filed a defence and counter-claim on 14 June to which the creditor filed a reply and defence to counter-claim on 3 July .1985. It is not necessary on this ground of opposition to recite the substance of these pleadings. On or about 30 January 1986 the creditor applied for summary judgment in respect of portion of its claim. On the hearing of this application on 13 February 1986 a Judge of the Local Court granted leave to the creditor to enter judgment for portion of the amount claimed in the proceedings, namely the sum of $15,837.47. This amount represented the liquidated portion of the claim, namely rent and mense profits. On 20 February 1986 a solicitor issued out of the Supreme Court a summons wherein the debtors sought leave to appeal against the judgment. This summons came on for hearing before a Judge of the Supreme Court on 14 March 1986 on which day tor we ieee nae eg ste sey 15. _ it was adjourned sine die. No further steps have been taken in the Supreme Court in respect of the application for leave to appeal or any appeal. When this matter came before me on the first day of hearing, counsel for the debtors formally abandoned this ground of their notice of opposition. Thereafter the debtors from time to time referred to this ground and on the adjournment granted on 18 July 1986 I informed them that unless they took some steps to further the appeal in the ensuing 3 weeks I would doubtless assume that again they had again abandoned it. No steps were taken during this period and no submissions were made by either of them in their addresses, written or oral, in relation to this ground. My view that I should not refrain from making a sequestration order against Mr. Trojan on this ground is confirmed by the fact that there a further judgment against hin, for $1,672.15 which remains unsatisfied and was not alleged to be the subject of an appeal. The remaining ground of opposition was based on the counter-claim which the debtors filed in the Local Court. It was contended that in the exercise of my discretion and in reliance on the reasoning of Gibbs J. (as he then was) in Re Schmidt (1968) 13 F.L.R. 111 I should refrain from making a sequestration order. In that case the present Chief Justice of the High Court said at page 116: "{I)t seems to me that I ought to consider this evidence for the purpose of deciding only whether it is probable that the debtor has against the petitioning creditor a claim which is likely to succeed. If Iam satisfied that the debtor has a claim against the petitioning creditor equal to or exceeding the amount of the tee ww x eye - f 16. . judgment debt I should not make a sequestration order." The actual grounds upon which the debtors have based their counter-claim were very confused. During the proceedings in this Court they gave me a document which they said more Clearly indicated the basis of this claim. As originally filed in the Local Court the counter-claim read as follows: PARTICULARS OF COUNTER-CLAIM On about the 19th day of March, 1984 representatives of an Association which proposed to incorporate known as The Hindmarsh Youth Co-operative met with representatives of the plaintiff council and agreed to tenant the plaintiff's premises and operate the business of roller skating rink and youth entertainment centre. At the same time the plaintiff agreed to grant security of tenure to the Hindmarsh Youth Co-operative over the subject premises at 4 Milner Street, Hindmarsh for a term of five years subject to payment of rent and certain other conditions. At the same time the plaintiff agreed to accept the defendants herein named as the trustees for the Hindmarsh Youth Co-operative pending the election of officers in accordance with the Constitution of the Hindmarsh Youth Co-operative upon incorporation. From about the 19th day of March, 1984 the Hindmarsh Youth Co-operative paid its rental in the sum of $780.77 per week without fail. From about October 1984 the plaintiff refused to accept rental moneys although the same was tendered weekly during October, November and December. From about the 19th day of March, 1984 the Hindmarsh Youth Co-operative carried on the business of roller skating rink and youth entertainment centre managers and built up' the business to an average weekly gross income of about $2,000.00 per week. = oe Be re ee ee rere, 17. When the business was built up and was viable and stable the plaintiff advised that it would no longer be bound by its agreement and purported to evict the defendants. As a rsult of the plaintiff's breach of its agreement the Hindmarsh Youth Co-operative suffered loss and by its trustees the defendants herein claim damages not exceeding the sum of $40,000.00 being the value of the goodwill of the business of roller skating rink and youth entertainment centre. AND the Trustees claim the sum of $40,000.00 and costs and interest. DATED the 14th day of June 1985." The document tendered during evidence in this Court which allegedly restated the counter-claim set out the following facts: PARTICULARS OF COUNTER-CLAIM On the 19th day of March, 1984, the Defendants, in their capacity as trustees for an unincorporated association known first as The Staff Co-operative and later as the Hindmarsh Youth Co-operative (hereinafter called 'the Co-operative' ) concluded an agreement (hereinafter called 'the Agreement') with the Plaintiff to tenant the premises known as the Hindmarsh Rollodrome (hereinafter called the 'Rollodrome') and therein operate (sic) the business of rollerskating rink and youth entertainment centre. The Plaintiff agreed to grant a lease to the Defendants and ali the essential terms of the lease were agreed. The promised lease was known to both parties as "the Spinners lease" under which the Rollodrome was tenanted for four and one half years prior to the Agreement the lessee being Spinners Entertainments Pty. Ltd. of which the Defendants were the directors. The Agreement provided for variations to some of the terms of the Spinners lease and these variations were specified. The Agreement further provided that either party Woyoreee wor Ce toate 7 ote see wes eee as ome wn pom eee ve 10. il. 12. 13. 18. - could rescind the Agreement if the Rollodrome was not viable within a year. The Agreement further provided for administrative procedures to monitor and assess the progress of the business towards viability or otherwise, one of these procedures being a term of review, the trading term to coincide with the public school term. At the first of the meetings described in Paragraph 6 which was attended by representatives of the Plaintiff, by the Defendants and by a Member of the Co-operative, the Agreement was re-stated and re-affirmed. In reliance upon the Agreement, the Co-operative and its trustees between the time of the Agreement and about the end of September, 1984 built the business up from one which failed and went into liquidation to a business which was viable and stable. At about the end of September, 1984 the Defendants sought to bind the Plaintiff to the Agreement by notifying the Plaintiff that viability had been reached and that the Defendants sought execution of the lease following the second term review. At the same time, the Plaintiff agreed ta notify the Defendants of a convenient time at which to hold the second term review. The Plaintiff failed to notify the Defendants as agreed but instead served the Defendants with Notice to quit, relying on written instruments which only partially express the Agreement, thereby unilaterally varying the Agreement and breaching it. ° The Plaintiff has deposed to reasons for evicting the Defendants and has expanded on these reasons in an official press release to the community at large and in statements to individual members of the community, and in an interview on State television claimed that the Defendants were being evicted for breaching the Agreement. The Plaintiff did not inform the Defendants of the abovementioned reasons, nor give the Defendants the opportunity to dispute the allegations against them upon which the reasons were based. a mae eres cree ee Ne ce ny aewee = tee eer 14. 1s. 16. 17. 18. 19. 20. 21. 22. 19. The allegations are untrue, or if true immaterial, and did not give the Plaintiff cause to terminate the Agreement. The Defendants were not at any time in breach of the Agreement and have been damaged by the Plaintiff's public announcements to that effect. The Plaintiff purported to remove the Defendants in the interests of the community, specifically to provide the community with a better entertainment facility than that provided hy the Defendants and the Co-operative. The Plaintiff and the Defendants disagreed on the fundamentals of Management philosophies and practice which would provide the best facility for the community, the Plaintiff demanded that the Defendants follow certain of its management guidelines, the Defendants refused and predicted to the Plaintiff that if these guidelines were followed the business would fail. Following the eviction of the Defendants, the Rollodrome was operated for about five months by the Hindmarsh Recreation Association, and the Mayor of the Plaintiff was a member of the Association's management committee. The Hindmarsh Recreation Association failed to operate the Rollodrome successfully and the facility has now been closed fron about September, 1985 to the present, thereby depriving the community of a much needed benefit. The Plaintiff was negligent in its duty to the community and has in the same acts damaged the Defendants, by not properly investigating the allegations of mismanagement against the Defendants. ~ Further, the Plaintiff knowingly allowed the Defendants and the Co-operative to take the risks of building up the business in reliance on the Agreement to lease to their detriment and, when the Defendants declared the business successful the Plaintiff conspired with vested interests to deprive the Defendants of rightful possession of the premises and therefore that business. As a result of the Plaintiff's breach of the Agreement, the Defendants have suffered loss, specifically loss of business goodwill and profits, loss of reputation and loss of we we me oy Y mpeg ee We awe 20. opportunity and herein claim damages not exceeding the sum of §40,000.00. 23. Further,, notwithstanding the eviction of the Defendants, the Defendants seek an order for specific performance of the Agreement to lease, and seek an immediate injunction preventing the Plaintiff from committing any act which might frustrate the execution of such an order. AND the Deferfants claim the sum of $40,000.00 and costs and interest. DATED the day of 1986." Two aspects of this claim are immediately apparent. The debtors claim damages as trustees for and on behalf of the unincorporated Co-operative referred to in the pleading and the basis of their claim was that the creditor improperly terminated their lease contrary to the terms of an oral agreement. If I was satisfied that the debtors had a real claim to litigate the counter-claim with' prospects of success I would be prepared to refrain from making a sequestration order and adjourn these proceedings to enable the counter-claim to be adjudicated on in the Local Court. This Court exercising jurisdiction in bankruptcy is not the appropriate Court to deal with claims for unliquidated damages. However there are a number of grounds upon which I am of opinion that there is little if any validity in the debtors' claim. The question whether the creditor wrongfully terminated the debtors' occupation of the Rollordrome premises has already been litigated before a Master of the Supreme Court. He found that the premises were leased to the debtors on a weekly af pot va net: ined h ' - 21. rental basis and that nothing other than a weekly tenancy was agreed between the creditor and the debtors. These findings, even if they do not raise an issue estoppel against the debtors, are powerful support for my opinion that there is little validity in the debtors' claim and that they have little or no prospect of establishing it. Moreover, even if they did establish it, their entitlement to damages would he as trustees and as such could not be set-off against the judgment debts. It is not necessary for me to say more except that I do not see this as a ground for dismissing or adjourning the petition against Mr. Trojan. I should add that the evidence on this aspect of the proceedings indicated that the debtors are very resentful and deeply antagonistic towards the creditor. Many statements by them concerning the alleged attitude of the creditor and its officers were highly critical and most intemperate. As these statements were irrelevant to the matters before me the creditor very properly did not join issue and present contrary evidence. In so far as there was any evidence on the matters the subject of their comments it was insufficient to support their attitude and I wholly disregard their comments and this evidence. A further matter which the debtors raised in their closing submissions was a contention that I should go behind the judgments and enquire whether each of them is founded ona real debt. However this ground was not raised in the debtors' notices Sete ma rosy ee iprace. rn os Awe arene eee X 'ee we Srtiaretta Iaebe icone na Bele ead ie at 22. of opposition and in fact raised for the first time by Mr. Trojan in his final written submissions. 'There was no evidence indicating such an enquiry could be justified and not a tittle to suggest that either of the judgments had been obtained by fraud or collusion or that there had been some other miscarriage of justice (In Re Fliatau Ex Parte Scotch Whisky Distillers Ltd. (1889) 22 Q.B.D.83). The proper conclusion of this matter is that I should make a sequestration order against Mr. Trojan. This I propose to do when the petitioning creditor files the required affidavits of debt and search. At that time I can consider what should be done with the monies in Court. I dismiss the petition against Ruth. I certify that this and the 2! preceding pages are a true copy of the Reasons for Judgment of Mr Justice Fisher. Associate Mth As Dated: 5% Monte (776 ry oer ee eee wes ee mwory ' L yore or is me ates eae y 7 een gaeesy, ree