FEDERAL COURT OF AUSTRALIA Saparas, in the matter of Touma v Touma [2000] FCA 308 BANKRUPTCY - application for sequestration order – whether debtor solvent – whether act of bankruptcy committed - whether discretion under s 52(2) of the Bankruptcy Act 1966 should be exercised not to make sequestration order Bankruptcy Act 1966 (Cth) ss 40, 43, 52(2), 306 Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596, followed Trojan v Corp of Hindmarsh (1987) 16 FCR 37, distinguished Stafford v Bank of New Zealand (Heerey J, 18 November 1992, unreported), distinguished Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145, considered Re Vikelis; Ex parte Deputy Commissioner of Taxation (Jenkinson J, 4 November 1985, unreported), considered IN THE MATTER OF DANIEL TOUMA CARMEN REGINA SAPARAS v DANIEL TOUMA N 7851 OF 1999 O'CONNOR J 17 MARCH 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N7851 OF 1999 IN THE MATTER OF DANIEL TOUMA BETWEEN: CARMEN REGINA SAPARAS AND: DANIEL TOUMA JUDGE: O'CONNOR J DATE OF ORDER: 17 MARCH 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The petition be dismissed 2. The applicant pay the respondent's costs in this proceeding 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 N 7851 OF 1999 IN THE MATTER OF DANIEL TOUMA BETWEEN: CARMEN REGINA SAPARAS AND: DANIEL TOUMA JUDGE: O'CONNOR J DATE: 17 MARCH 2000 PLACE: SYDNEY REASONS FOR JUDGMENT BACKGROUND 1 This is an application for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) ("the Act") against the estate of the respondent. The respondent debtor owes the applicant creditor the amount of $152,287.77 being made up of a District Court judgment entered on 29 March 1999 and accrued interest until 27 July 1999. 2 It is not contested that the applicant creditor does not have security over the property of the respondent debtor, that at the time when the act of bankruptcy was committed the respondent debtor was personally present in Australia, was ordinarily resident in Australia, had a dwelling house in Australia and a place of business in Australia. 3 The respondent debtor committed an act of bankruptcy in that he failed to comply with the requirements of the bankruptcy notice served on him on 20 June 1999, the execution of which had not been stayed (s 40(g)(1) of the Act). The respondent initially opposed the petition for the sequestration order on two grounds: (i) that he is solvent and able to pay his debts; and (ii) that he had an appeal pending in the New South Wales Court of Appeal against the creditor's judgment. 4 At the hearing in this matter the court was informed that the New South Wales Court of Appeal had dismissed the debtor's appeal. In these proceedings, therefore, he relied on provisions of s 52(2) of the Act, submitting that the court should dismiss this petition if it is satisfied that the debtor is able to pay the relevant debt. EVIDENCE IN THE PROCEEDINGS 5 The applicant filed in court the required affidavits and in addition, an affidavit of the applicant and one sworn by Geoffrey James Hinde, solicitor. 6 The respondent relied upon two affidavits: one sworn on 1 October 1999 and the other on 19 September 1999. He was cross-examined. However, during that cross-examination none of the facts deposed in the respondent's affidavit as to his assets and liabilities were challenged by the applicant. The evidence of the respondent was that he was able to pay the money now owing to the applicant but did not wish to do so because he did not agree with the correctness of the judgments which had created the debt. SUBMISSIONS OF THE PARTIES 7 The applicant submitted that the express unwillingness of this respondent to pay his debt (even though all avenues of appeal had now been exhausted and even though he has the resources to do so) was sufficient to persuade the court that it should not exercise its discretion to dismiss the petition under s 52(2)(a). 8 The applicant argued that the decision of the Full Federal Court in Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596, a case substantially similar to the case before the court where the respondent was at all material times capable of paying his debts but his failure to pay was his refusal to do so. The Full Court in that case held that the words "able to pay his debts" in section 52(2)(a) did not mean "willing and able to do so" and that there is no policy underlying the Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. They commented in the judgment that if a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The court confirmed that the power conferred by s 52(2) is permissive and not mandatory but they said the occasions on which the discretion not to dismiss the petition when solvency was established would not be frequent. Not surprisingly the respondent debtor relied upon these principles. The applicant referred the court to two cases whether the discretion or the permission under s 52(2) was exercised and sought to argue that this ease should be similarly treated. 9 In my view the two cases referred to by the applicant were markedly different from the present case. In Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 the assets relied on by the debtor to establish solvency were not easily available to the debtor being in joint hands and subject to a trust. The court decided that, as there was no straightforward legal access to these assets, the sequestration order would be made even though the debtor was technically solvent. 10 Secondly in Stafford v Bank of New Zealand (Heerey J, 18 November 1992, unreported) the assets purportedly relied on by the debtor to establish solvency included an expectation of money to flow from a judgment in favour of the debtor in a New Zealand court. That judgment had not at the time of the hearing of the creditor's petition been given and was characterised by the judge as an expectation only. 11 As was said in Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145, the onus to establish solvency and also that the discretion should be exercised in the favour of the debtor, is one placed on the respondent. Whether the onus has been discharged is a matter of fact for the court to determine. In this case the applicant offered no relevant evidence to challenge the respondent's evidence as to his solvency. An attack was made only on the bona fides of the respondent, in particular the history of the relationship between the applicant and respondent to date, and also on his acknowledged unwillingness to accept the judgment of the court and pay the debt. 12 The court was asked to infer from that, that his evidence was not to be believed. In my view this inference cannot be made on the material before me. Although counsel for the applicant made a number of comments concerning the list of assets and aborted attempts to recover the debt, nothing said from the Bar Table was supported by evidence. I find that the respondent is solvent. 13 Further, I do not consider that as a discretionary matter the fact that the debtor is solvent should be disregarded in considering this creditor's petition. The applicant argued that it should be disregarded because of the unwillingness of the respondent to pay and his course of conduct. I am bound to follow the decision in Re Sarina and so the unwillingness to pay is not relevant to solvency and in my view would not, unless particular circumstances were established of the kind existing in the Trojan case, amount to grounds for exercising the discretion of a sequestration order in spite of the established solvency. 14 The respondent also submitted that the affidavit verifying the creditor's petition did not comply with the provisions of s 47 because the amount verified in the affidavit differed from that in the petition. I was invited by the applicant to regard this deficiency as something which could be cured by recourse to s 306 of the Act. In my view s 306 cannot be used in this way. The defect is material. 15 I decline to make the sequestration order and dismiss the petition. 16 At the conclusion of the hearing of the matter yesterday, I indicated to parties that I would hear submissions from them on the question of costs in this matter. I have today been provided by the respondent debtor with an outline of submissions, an authority Re Vikelis in relation to the matter that was not actually referred to in submissions and a photocopy of a fax from the solicitor for the applicant which concedes that the evidence as to solvency, in particular, the valuation of property would not be challenged in the proceedings. 17 The applicant based its submission to resist the ordinary costs order which would be made, that the costs would follow the event, by referring again to the submissions it made in the course of the hearing that the court should have regard in relation to costs to what it described as the "moral position" or better described as the unwillingness of the respondent to pay this debt. He had relied upon that submission in relation to the discretion under section 52(2). I am not persuaded in relation to costs any more than I was persuaded in relation to the other matters. Those matters can properly be taken into account in awarding costs and so costs will follow the event. The applicant is ordered to pay the costs of the respondent. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor. Associate: Dated: 17 March 2000 Counsel for the Applicant: Mr M Abdul-Karim Solicitor for the Applicant: Jeffrey Hinde & Associates Counsel for the Respondent: Mr P Cook Solicitor for the Respondent: D Riggio & Associates Date of Hearing: 16 March 2000 Date of Judgment: 17 March 2000