JUDGMENT No, 2307.85. BANKRUPTCY - creditor's petition - discretion to dismiss on grounds of futility - debtor member of religious order - 12 years' standing - sworn vows of poverty - no assets - debt incurred on court order for costs. Bankruptcy Rules r.20 Lewis' Australian Bankruptcy Laws 8th Ed. pp.77-78 In Re Leonard.Ex parte Leonard. [1896] 1 QB 473 In Re Betts. Ex parte Betts. [1897] 1 QB 50 Bayne v Blake (1909) 9 CLR 360 Re Hay (1914) 110 LT 47 In Re Field (A Debtor) [1978] Ch. 371 PATRICK MICHAEL DARCEY and THE PRE-TERM FOUNDATION Appeal No. G520 of 1986 Fox, Wilcox and French JJ. Sydney 23 May 1988 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION eed Appeal No. G520 of 1986 BETWEEN: PATRICK MICHAEL DARCEY Appellant and THE PRE-TERM FOUNDATION Respondent MINUTE OF ORDER JUDGES MAKING ORDER: FOX, WILCOX AND FRENCH JJ. DATE OF ORDER: 23 MAY 1988 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. Note: Settlement and entry of orders is set out in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT ) OF AUSTRALIA ) NEW SOUTH WALES ) DISTRICT REGISTRY ) GENERAL DIVISION ) Appeal No. G520 of 1986 BETWEEN: PATRICK MICHAEL DARCEY Appellant and THE PRE-TERM FOUNDATION Respondent CORAM: FOX, WILCOX, FRENCH JJ. 23 MAY 1988 REASONS FOR JUDGMENT FOX J.: The Court will deliver judgment in this matter now. I will ask Mr Justice French to deliver the first judgment. FRENCH J.: This is an appeal from an order of a judge of this Court sequestrating the estate of the appellant on the petition of the respondent. The respondent's petition relied upon non-compliance with a bankruptcy notice wherein demand was made for payment of $4,076.96, being moneys due under a judgment obtained in the Local Court of New South Wales on 6 December 1985. Upon the hearing of the petition there was before the Court a notice of opposition filed by the appellant together with a supporting affidavit sworn by him. These had been filed on the day before the hearing and therefore two days outside the minimum time required by r.20 of the Bankruptcy Rules. However no point was taken on this account. In so much of his affidavit as was admitted into evidence, the appellant told the Court that on 1 January 1986 he had entered an order of Catholic religious known as the Mother of God Brothers. As appears from its rules, this is a voluntary association of Roman Catholic Laymen living in community. Its expressed objects are as follows:- ",..the glory of God; the sanctification of its Members, embracing freely the Gospel counsels of chastity, poverty, obedience; evangelisation; the charitable care of handicapped men and other wounded persons." The Order has received official recognition according to the Canon Law of the Roman Catholic Church as a "Private Association of Christ's Faithful in Accordance with Canon 322", such recognition having been bestowed by the Bishop of Wagga Wagga on 31 December 1984. Upon his joining the Order as a novice on 1 January 1976 the appellant took temporary vows of poverty, chastity, and obedience. On 7 August 1982 he made what he described as "Final and Perpetual Vows of Poverty, Chastity and Obedience" and became a fully professed member of the Order. The vow of poverty requires that the member have, and continue to have, no personal income or assets. According to the appellant he does not have and has not had any real or personal property or personal income of any kind whatsoever since he took his final and perpetual vow of poverty in 1982. His only occupation, he says, is that of the religious life and he is currently studying theology at a Catholic seminary in Sydney. The judgment debt arose by reason of a costs order made against the appellant following his attempt to have subpoenaed the records of the respondent in proceedings in which he was' involved in the Court of Petty Sessions. Certain paragraphs of the appellant's affidavit relating to his belief that the respondent carries out illegal abortions and as to its bona fides in these proceedings were excluded by his Honour. In the circumstances the evidence was rightly disregarded. It was in substance evidence only of the appellant's beliefs and not of the fact. The appellant was not cross-examined on his affidavit. The transcript reveals that counsel for the respondent declined to cross-examine as he was, he said, taken by surprise by the late filing of the affidavit. His Honour invited him to apply for an adjournment so that he might get instructions, but counsel declined saying as he did so:- "I am just saying the evidence before you has not been properly tested as would - if I could draw the example - as would if he were subject to an examination by the registrar, or something along those lines. That would enable the testing of that, your Honour. His affidavit, alone, that he has taken vows, in my submission, is not enough." The judge raised the question in the course of the hearing that there was no evidence that the respondent was a juristic person. No such point had been taken by the appellant but he indicated then that he wished to rely upon it. The judge however was informed by counsel for the respondent that his client 4. was at all material times an association registered as such in the Australian Capital Territory. It is not clear from the terms of the judgment that he actually based his conclusions on the statements from the bar table as contended by the appellant for his Honour concluded that "The Court is satisfied on the documents before it that the Pre-Term Foundation, being registered under the appropriate Ordinance, is a juristic person and has standing in the matter." And the documents lend support to that conclusion. The Foundation is referred to in the affidavit of continuing debt as a company and is so described by its executive officer. Its common seal appears affixed to the petition in the presence of two directors and a secretary. In my opinion his Honour was' entitled to draw the inference that he did. It appears also that his Honour accepted the contents of the appellant's affidavit so far as they went. Upon the submission that the bankruptcy would be a futile exercise, his Honour referred to authorities cited to him by the appellant and in particular the following passage from the 8th Ed. of Lewis' Australian Bankruptcy Law:- "A petition may be dismissed if the Court is satisfied the bankruptcy would not bring any benefit to creditors as for example, where it is positively satisfied that there are not and cannot be any assets in the estate or any assets available to a trustee." (pp.77-78) He concluded that "even though the admitted evidence ... as to the past and present positions is accepted, it is too early for the Court to be positively so satisfied especially as to the future". He concluded that it might well be that examination under 558.69 5. and 81 of the Act may "unearth some lead whereby assets may be revealed, assets of which Mr Darcey is presently unaware". The matters of the legal personality of the respondent and the rejection of some parts of the affidavit evidence have already been dealt with. His Honour, rightly in my opinion, held that there was no evidence to support the allegation that the respondent was not acting bona fide. The highest form in which the appellant sought to maintain that contention in this court turned out to be speculative, that is to say, he adverted to possible misuse that the respondent might make of the machinery of inquiry and control available under the Bankruptcy Act. But as was pointed out to him in the course of the argument, any such abuses are amenable to the supervision and control of the court which will not allow its processes to be used for collateral purposes. The real issue in this case was whether or not his Honour erred in refusing to exercise his discretion to dismiss the petition on the basis that bankruptcy would be a futile exercise given the continuing poverty of the appellant who by choice has dedicated himself to that condition. In this regard it is important to note just how far the evidence went. The core of it was the appellant's uncontested statement in para.12 of his affidavit that:- "There is no reasonable probability (and, in fact, no possibility at all) of my having any assets, real or personal property or personal income of any kind whatsoever in the future as this would be in complete violation of my said Final and Perpetual vows." Reliance was also placed upon the affidavit of Denis John Devcich, the Brother General of the Order who deposed to his belief that "in the terms of such Vows" the appellant had had no individual income or assets since his Final Vows on 7 August 1982. He also deposed that it is consistent with these vows that he will continue to have no individual income or assets. That belief of course may spring, as it most probably does, from a well founded confidence in the appellant's integrity. It does not follow that it is evidence of the fact following upon any investigation or inquiry into his affairs. The principles governing the discretion to dismiss a petition on the basis that a sequestration would be futile have been agitated ina number of cases - In Re Leonard. Ex_ parte Leonard. [1896] 1 QB 473, 475; In Re Betts. Ex parte Betts. (1897] 1 QB 50, 52, 53 and 54; Bayne v Blake (1909) 9 CLR 360, 364; Re Hay (1914) 110 LT 47, 48; and In Re Field (A Debtor) [1978] Ch. 371, 375. It is perhaps sufficient to refer to two of these authorities. In Bayne v Blake (supra) at 364, Griffiths CJ, with whom Barton and O'Connor JJ. agreed, said:- "We have been asked now to allow a further ground of appeal to be taken, viz., that there is no reason to think that there are any assets in the estate of either of the appellants. First of all, there is no evidence before us that that is the true state of the facts. But, if it were, that that is a ground for not making an order for sequestration is conclusively negatived by In Re Leonard; Ex parte Leonard ({1896] 1 QB.473). AS pointed out in that case, when a petition is presented t is impossible to say whether there will prove to be any assets or not. "All the petitioning creditor" said Lord Esher, MR [at 475) "then knows or need know is that 7. a debt is owing to him, and that, after taking the necessary steps to procure payment of that debt, he cannot get payment of it; and therefore he asks that the debtor may be made bankrupt. "The Court cannot at that stage tell whether the proceedings in bankrupty will have no result. If the debtor is made bankrupt, there will be a public examination of him, and then it may be ascertained whether he has any assets. At the time of the petition and adjudication the Court has not the proper materials for judging whether there are assets or not." So that the objection is really no objection at all." And in In_ Re Field (A Debtor) (supra) at 375, Megarry v.c. said:- "I turn, then, to the first of the propositions that I mentioned, on which Mr Kirsten's main submissions rested. Put shortly, he contended that where it was established that the debtor had no assets and no prospects of acquiring any, the court should dismiss the petition; for to make a_ receiving order in such circumstances would merely increase the costs, and would do no good. In the present case, he said, the debtor fell within this doctrine, and so the receiving order should be set aside. Now it is plain that there is considerable support for some doctrine of this sort; but it is equally plain that the doctrine is hedged about by important precautions. After all, if it were open to a debtor to avoid having a receiving order made against him simply by alleging utter destitution, both present and future, such pleas of destitution might become popular; and prospective bankrupts might hasten to rid themselves of any assets or prospects which might hamper them in making such a plea. A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy." The acceptance that the appellant did not have any "personal assets" in this case does not dispose of the question whether there might be property available for disposition to his creditors. The fact that assets which have or might yet come his way have been or would be disclaimed or assigned pursuant to his vows, does not provide a complete answer. I suspect that in the end this sequestration will prove to be a fruitless, time wasting and unmeritorious exercise which has little to do with the public interest. However on the principles established in the cases, I am unable to say that his Honour erred in the exercise of his discretion and I would therefore dismiss the appeal. FOX J. I agree. WILCOX J. I also agree. FOX J. The order of the Court is that the appeal be dismissed. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment of their Honours Justice Fox, Justice Wilcox and Justice French. Associate: fable Date: 2% NN \8F 9. Mr P.M. Darcey appeared on his own behalf Counsel for the Respondent: Mr B.W. Rayment Q.C. and Ms. H.A. Coonan Solicitors for the Respondent: Michael Roser & Co. Date of Hearing: 23 May 1988 Date of Judgment: 23 May 1988