Wilcox v Cottrell [2000] FCA 1656

FEDERAL COURT OF AUSTRALIA

Wilcox v Cottrell [2000] FCA 1656 BANKRUPTCY – motion by bankrupt debtor to set aside sequestration order upon basis of improper purpose of petitioning creditor in obtaining such order – improper purpose said to be constituted by making of cost sharing agreement between petitioning creditor and defendants to legal proceedings being brought by bankrupt debtor – no improper purpose involved since debt of bankrupt to petitioning creditor undisputed and no counter-demand or counter-claim established.

Bankruptcy Act 1966 (Cth) ss 52(3) and 60(3) Rozenbes v Kronhill (1956) 95 CLR 407 applied. JOHN ALFRED WILCOX v DAVID MERVYN COTTRELL N 7880 of 2000 CONTI J SYDNEY 22 DECEMBER 2000

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY N 7880 OF 2000

BETWEEN: JOHN ALFRED WILCOX

APPLICANT

AND: DAVID MERVYN COTTRELL

RESPONDENT

JUDGE: CONTI J

DATE OF ORDER: 22 DECEMBER 2000

WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. The application of the Respondent to set aside the sequestration order be dismissed. 2. No order be made as to costs. 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 7880 OF 2000

BETWEEN: JOHN ALFRED WILCOX

APPLICANT

AND: DAVID MERVYN COTTRELL

RESPONDENT

JUDGE: CONTI J

DATE: 22 DECEMBER 2000

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 29 November 2000 the Respondent David Mervyn Cottrell ("Mr Cottrell") was made bankrupt on the petition of an unsecured creditor John Alfred Wilcox ("Mr Wilcox"). The basis of the sequestration order in bankruptcy was non-compliance with a bankruptcy notice related to a Wagga Wagga Local Court judgment for moneys lent by Mr Wilcox to Mr Cottrell and interest accrued thereon in the sum of $36,679.42, which judgment had been entered on 17 August 1999 and remained unsatisfied. The petition in bankruptcy brought by Mr Wilcox was supported by Goddard Elliott claiming as an unsecured creditor for legal services in the sum of $21,636. No counter demand or counter claim was ever sought to be established by Mr Cottrell in this Court, nor was any application ever made to this Court to set aside the preceding bankruptcy notice prior to the sequestration order being made. 2 A statement of financial position has been filed by Mr Cottrell in this Court on 19 December 2000, which disclosed that he had no assets other than two causes of action in proceedings instituted by him in a County Court in Victoria, together with a savings bank account in credit in the sum of merely $8.00. Such statement also disclosed as the sole source of Mr Cottrell's income a fortnightly disability support pension of $399.20. Mr Cottrell has informed me that such causes of action involved claims for interests in assets comprising real and personal property held by Marie Urjadkco, Anthony Ben Boer and two companies Sanders Way Pty Limited and Sertram Pty Limited. The hearing of the proceedings had already occupied some 20 days, and Mr Cottrell estimated the same to continue for at least a further forty hearing days whenever re-started. Mr Cottrell's case in chief in the County Court had not been closed at the time the sequestration order was made, and the presiding judge had adjourned the proceedings immediately upon becoming aware of the making of the sequestration order. There was no evidence to the effect that Mr Cottrell had made application to the trustee in bankruptcy to elect to continue the proceedings. The notice of motion brought by Mr Cottrell to "review" the making of the sequestration order by a Registrar of the Court was not apparently filed until noon on the day of hearing of this application. Mr Cottrell was unable to explain the delay taken to file the notice of motion, but doubtless he had first undertaken his own legal research upon prospective legal issues involved. He had originally been represented by Mr Norris of Counsel and Clayton Utz as solicitors in the Victorian County Court proceedings, apparently on some form of pro bono basis, but had ceased to do so, and Mr Cottrell had taken over the conduct of the case. 3 Mr Cottrell presented his case to me by telephone link, though not by video link. He had not been able to come to Sydney for the hearing, at least partly because of his physical disability. There was urgency involved in his application, because time was running out for the trustee in bankruptcy to make an election to continue the Victorian County Court proceedings (see s 60(3) Bankruptcy Act 1966 (Cth)). The Court had apparently been in touch with the Solicitors for Mr Wilcox (Kemp Strang of Sydney) and at the hearing, Mr Pignone of that firm appeared, accompanied by a solicitor in the firm's employ Ms Brand, who had had the conduct of the bankruptcy proceedings. All that Mr Cottrell had to say was heard by those present in Court by reason of a loud-speaker speaker, and Mr Cottrell also was apparently able to hear all that was said in Court. The proceedings commenced on the Friday afternoon and concluded on that day. I treated Mr Cottrell's two affidavits filed in support of his notice of motion, including a statutory declaration made by his sister, as evidence before me. Because of the urgency of the matter, and the informality of the convention of the hearing, I did not seek to distinguish between what Mr Cottrell said to me either as testimony or submission. It was not possible to administer the oath to him over the telephone. Ms Brand gave sworn evidence in the witness box and Mr Cottrell cross-examined her. She did not hesitate to disclose in her testimony that prior to the making of the sequestration order, an agreement was reached between Ms Brand on behalf of Mr Wilcox and the Solicitors for the Defendants to the Victorian County Court proceedings that such Defendants would share equally the legal costs of the sequestration proceedings, and that this agreement had been made within days prior to the making of the sequestration order. It was not disclosed by Mr Cottrell as to how he became aware of the making of the cost sharing agreement, and he cross-examined Ms Brand in relation thereto. 4 I think it is correct to say that the Court's staff and my Associate left no stone unturned to ensure that Mr Cottrell was given the opportunity to bring his application in the expeditious and informal manner I have described, and did so particularly because of the vulnerable situation in which he was placed by reason of his lack of financial resources and his physical disability. Mr Cottrell impressed me however as a person of not inconsiderable acrumen and intelligence, and as possessing sufficient rudimentary understanding of legal principles and court practices as to be able to present his contentions with vigour and emphasis. I regret to say however that when pressed upon vulnerable aspects of his contentions, he was as evasive as he was emphatic, particularly in relation to the issue as to whether he had available to him a cross demand or cross claim against the sum of money the subject of the Petition for Sequestration in Bankruptcy brought by Mr Wilcox. 5 The main basis upon which Mr Cottrell propounded the Notice of Motion before me was improper purpose falling within the scope of the dicta of the High Court of Australia (Dixon CJ, Webb and Fullagar JJ) in Rozenbes v Kronhill (1956) 95 CLR 407. The passage to which Mr Cottrell relied upon is to be found at page 417 of the Report, where principles as to abuse of process on the part of petitioners for sequestration orders are explained in the following terms: "The latest case is In re Majory [1955] Ch 600. The conclusions to be drawn from the cases are stated in a series of five propositions by Lord Evershed MR for himself, Jenkins LJ and Romer LJ. The case seems finally to establish that the ultimate principle involved is that a court will not allow its process to be abused. There is an abuse of process if a pending bankruptcy petition or a threat of proceedings in bankruptcy is used as a means of extortion. The word "extortion" is not a technical term and it has in bankruptcy law "no special and artificial significance divorced altogether from the ordinary implication of the word". The court will look strictly at the conduct of a creditor using or threatening bankruptcy proceedings and extortion may be held to have taken place if the creditor has used or attempted to use a pending petition or threat of a petition in order to extract from the debtor money which the debtor is not bound to pay or in order to obtain some secret or unfair advantage over other creditors. But extortion will not be held to have taken place "in the absence of mala fides or anything amounting to oppression in fact". There must be a real intention on the part of the creditor to use the process for some other end than its legitimate end, and there must be a real exertion of pressure." 6 As I have indicated earlier, Mr Cottrell was made bankrupt on a petition founded on non-compliance with a bankruptcy notice, which in turn was based upon the judgment of the Wagga Wagga Local Court in the sum of approximately $36,600. In one of Mr Cottrell's affidavits of 19 December 2000 filed in this court in support of the present notice of motion, he said as follows (in paragraph 5 thereof): "That the applicant has always had a viable counter-claim/cross-demand of equal value to the petitioning creditor's claim that has not been tested before the court because of the failure of the court to hear such a claim. However, the documents relating to the cross-claim have always been on the court file (see annexure D1)." However as I have also earlier indicated no such basis was articulated by the affidavits filed in support of the notice of motion, nor was explained orally before me in any satisfactory or comprehendible way, and nor did Mr Cottrell explain why such counter-claim etc had not been raised in Wagga Wagga Local Court proceedings. 7 Mr Cottrell furnished to me a handwritten piece of paper bearing the seal of the Local Court Wagga Wagga and the signature of the Court Clerk, a justice of the peace, headed Civil Claims, Wilcox v Cottrell WWLC 17 August 1999 and marked Annexure D1 which purports to record that Mr Cottrell's original defence dated 30 July 1992 is physically on the Court's file number 459/92, together with a cross-claim of Mr Cottrell said to have been received by the Local Court on 25 August 1992, but obviously any such defence and cross-claim were either not pursued or else were rejected, given that judgment was entered in that Court in favour of Mr Wilcox for moneys lent on 17 August 1999 (see [1] above). Paragraph 5 of Mr Cottrell's Affidavit attaching such Annexure D1 is at the very best equivocal. The material so provided by Mr Cottrell does not provide me with any hint as to the existence of a viable basis for any defence to or a counter-claim of equal value to or exceeding Mr Wilcox's claim in the bankruptcy proceedings, so that I am left in the position where Mr Cottrell, who as I indicated is not without a certain basic understanding of legal matters, has not established that he ever had any realistic or bona fide answer or defence to the subsequent petition of Mr Wilcox, unless he could establish his case as to improper purpose. As I have said, there is no notice of appearance on the Federal Court's file, nor any indication of any affidavit in opposition to the petition having been filed, existing prior to the order for sequestration made on 29 November 2000. The Registrar would have been entitled to assume that Mr Cottrell had no answer to the petition in bankruptcy. 8 Mr Cottrell's application to the Court therefore depended for success upon the existence of an improper purpose on the part of Mr Wilcox within the scope of the doctrine which is enunciated by the dicta in the High Court decision which I have already extracted. His claim is that the solicitors for Mr Wilcox had acted illegally in order to bring about the making of the order for sequestration of his estate, by reason of their role in negotiating an agreement with the Solicitors for the Defendants to the Victorian County Court proceedings whereby the costs of the bankruptcy proceedings would be shared between Mr Wilcox and these defendants in the Victorian County Court proceedings. I will shortly return to the significance of that agreement in terms of improper purpose explained in Rozenbes. I should first refer to another matter of complaint made by Mr Cottrell. 9 Mr Cottrell provided an account, orally on his part said to be supported by the statutory declaration of his sister (Ms Grant) as to why he did not appear at the Registrar's hearing of Mr Wilcox's petition for bankruptcy on 29 November 2000 when the sequestration order was made. There is some difference in the respective versions of Ms Brand on the one hand, and of Mr Cottrell and his sister Ms Grant on the other as to conversations which took place, but it did not seem to me to be necessary to determine the version which was the most accurate, or whether given Mr Cottrell's version to be the most accurate, why he failed to communicate with the Court to explain why he would not be appearing, once he found himself unable to further communicate with Ms Brand prior to the hearing. The objective fact remains that Mr Cottrell had no answer at any material time and still has no answer to the viability of the judgment debt in Mr Wilcox's favour, and Mr Cottrell never suggested that he had the financial capacity to satisfy the judgment debt. His case was only that he had some unspecified and unidentified cross claim (or cross demand) against Mr Wilcox, notwithstanding that he did not raise the same in the Wagga Wagga Local Court. 10 I return then to the case (or at least the principal case) mounted by Mr Cottrell for setting aside of the sequestration order. I am unable to see how the improper purpose for which Mr Cottrell contends, as exemplified in the doctrine enunciated in Rozenbes v Kronhill, supra at 417, can have any application to the circumstances of the impugned cost sharing agreement. Mr Wilcox did not use the pendency of the bankruptcy proceedings as a means of exacting money from Mr Cottrell which Mr Cottrell was not bound to pay. The circumstance that the defendants to the Victorian County Court proceedings stood to benefit at least in a temporary or practical sense from Mr Cottrell's bankruptcy, subject to what the trustee in bankruptcy might elect to do, does not seem to me to be material in relation to the issue of alleged improper purpose on the part of Mr Wilcox. No suggestion of champerty was made by Mr Cottrell, nor do I think could have been rightly made. Doubtless for their part, the defendants to the Victorian County Court proceedings considered themselves substantially burdened by the subsistence of those protracted court processes in which they had become embroiled at the instance of a determined litigant who was without the financial means to meet any adverse court order for costs made in their favour. 11 Section 52(3) of the Bankruptcy Act 1966 (Cth) provides that this Court has a discretion to stay the making of a sequestration order. The matters that seem to me to weigh sufficiently against the exercise of the Court's discretion in Mr Cottrell's favour is the reality that he has disclosed no viable basis for opposing the making of the sequestration order. He has deposed in one of his affidavits to the effect that he has a counterclaim against Mr Wilcox equal to the value of the amount upon which the bankruptcy petition of Mr Wilcox was based, but when Mr Cottrell was pressed to explain what was constituted by the counter claim, he could not particularise anything of substance or apparent reality. 12 For the foregoing reasons I do not find it necessary to make any findings as to the conversational differences that existed in relation to Ms Brand on the one part and Mr Cottrell and his sister, Ms Grant, on the other part as to the making of an agreement for adjournment and on what basis. Even if the version tendered by Mr Cottrell in particular was to be wholly accepted in contrast to Ms Brand's version to the extent that there is variation between them, there would not be any viable basis for Mr Wilcox to successfully oppose the making of a sequestration order in favour of Mr Wilcox because of the absence of any cross-demand or cross-action against Mr Wilcox. I should add that having regard to the apparent immensity of the issues and evidence involved in the Victorian County Court proceedings, it would be at least extremely difficult if not impossible to conceive how Mr Cottrell could establish the existence of value in his choses in action the subject of the Victorian County Court proceedings. 13 In all the circumstances, I dismissed the notice of motion, but made no order as to costs. Mr Wilcox's Solicitors who attended the proceedings were concerned to defend the accusation made against him as to involvement in impropriety of purpose in obtaining the sequestration order, and they did not seek to advance any closing submissions, nor to press for any costs order in favour of Mr Wilcox. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Conti.