High Court Upholds Sequestration Order Against Debtor Avoiding Creditors

OUTCOME: Dismissed

High Court of Australia Menzies, Gibbs and Stephen JJ. [NAME] v [NAME] (Cth) [1974] HCA 43

ORDER Appeal dismissed with costs.

Cur. adv. vult.

The following written judgments were delivered:—

Oct. 30 Menzies J.

I have read the judgment of [NAME]. and I agree with it.

Gibbs J.

The sequestration order in this case was rightly made and the appeal should be dismissed for the reasons given by my brother [NAME], with which I agree.

[APPELLANT].

On 23rd August 1974, the estate of the appellant, [APPELLANT], was sequestrated, the act of bankruptcy upon which the order was made being the act of the [NAME] in remaining out of Australia with intent to defeat or delay his [NAME].

[NAME] was [COMPANY]. (in liquidation) whose petition was filed on 28th August 1973, soon after it had gone into liquidation. It petitioned as a [NAME] of the appellant in the sum of $1,250, being money lent by it to the appellant between 5th and 17th April 1973. The grounds in the petition, three in number, each relied upon an intent on the part of the appellant to defeat or delay his [NAME] — see Bankruptcy Act 1966 Cth s. 40 (1) (c). Originally only two grounds were alleged, the [NAME]'s departure out of Australia and his departure from his dwelling house, in each case with this intent. By an amendment on 4th September 1973 a third ground, that upon which the sequestration order ultimately came to be made, was added; it read "with intent to defeat or delay his [NAME] the [NAME] remains out of Australia". It is undisputed that on 17th April 1973 the appellant left Australia, to which he has apparently not since returned.

On 23rd October 1973 the matter came before the learned trial judge upon an application by [NAME] for an order for substituted service and on that date there was paid to it the sum of $1,250 owed to it. However in the meantime, on 20th June 1973, a notice of assessment to income tax issued in respect of the assessable income of the appellant for the year ended 30th June 1972 under which over $77,000 became payable on 23rd July 1973 and on 10th December 1973 an order was made for the substitution of the [NAME] for [NAME]. It was on the petition of this substituted [NAME] [NAME] that the order for sequestration was eventually made in August 1974.

There is ample evidence that the appellant was at the relevant time, when the petition was filed on 28th August 1973, then remaining out of Australia and at the hearing before the learned federal judge in bankruptcy, Sweeney J., it was admitted on behalf of the [NAME] that he was then still overseas, apparently in Paraguay. The question for his Honour was, therefore, whether, in the absence of any direct evidence of the appellant's intention in remaining out of Australia, he could nevertheless be satisfied, as a matter of inference from all the surrounding circumstances, that it was with the intent to defeat or delay his [NAME] that the appellant had remained overseas. His Honour so held, relying upon what he regarded as conflicting accounts of the appellant's reasons for remaining out of Australia and upon the appellant's failure to give or call any evidence relating to his intention.

The only two [NAME] of whose existence there is any evidence are [NAME] and the [NAME]. If the circumstances of the appellant's indebtedness to the first of these two [NAME] are viewed in isolation they are not such as to lead, in my view, to any inference that either his departure from Australia or his subsequently remaining out of Australia was with intent to defeat or delay that [NAME]. The debt owed to [NAME] was incurred just before he left Australia on 17th April 1973 and was paid, by a third party on the appellant's behalf, a little over six months after it was incurred, albeit only after filing of the petition and the appointment of an interim receiver of the estate of the appellant; the amount of the debt was not large having regard to what is known of the appellant's income and was incurred to one of eighteen companies of which he was a director. The appellant left Australia by air, in the company of his father and two other persons, perhaps their respective wives. If one were to speculate on the matter one might surmise that the debt of $1,250 was incurred to meet expenses of this overseas journey. It could scarcely then be said, in the absence of any other indebtedness, that either his departure overseas or his remaining overseas was with intent to defeat a [NAME] who became such only by providing the funds for that journey. But even without indulging in any such speculation it does not appear to me to be proper to infer, in all the circumstances of this case but looking only at the indebtedness to [NAME], that when the appellant remained out of Australia he did so to defeat or delay that [NAME].

However the appellant's position, even at the date of his [NAME] departure from Australia in April, cannot be viewed in isolation from what came to be the indebtedness owed by him to the [NAME]. Although it first arose on 23rd July 1973 the notice of assessment, issued on 20th June 1973, was not a default assessment and must have been preceded by the lodging of a return of income by the taxpayer, as is shown by the fact that the amount of the tax notified in the notice of assessment included "additional tax for late return". The appellant's taxable income was shown in the notice of assessment as in excess of $66,000 and he was apparently entitled to no credit for any past provisional tax and to a credit of only $4,000 in respect of group certificates or tax stamps. Accordingly the appellant must have known when he left Australia that in the near future he would be assessed to tax in a very substantial sum. Even if the contention of appellant's counsel be correct and if, contrary to the finding of [COUNSEL] J., there was no evidence that the notice of assessment came to the appellant's knowledge during the weeks between date of issue of notice of assessment and date of filing of the petition on 28th August 1973, this is, I think, of little consequence. It may properly be assumed that on 28th August 1973 the appellant was aware at least of an impending liability to tax in a very substantial sum, if not of the fact that he had already been assessed to tax of some $77,000.

This awareness of an impending liability is sufficient for the purposes of s. 40 (1) (c). That paragraph employs language very similar to the reference, in the Statute 13 Eliz. c.5, to conveyances made "with intent to defraud, defeat or delay [NAME]" and it is well established that conveyances may fall within that Statute, although there existed no [NAME] at the date of conveyance, so long as the intent to defeat future [NAME] be made out — [NAME] v. [NAME] [1] ; [NAME] [2] . In Ex parte [NAME] [3] , in which Sir [NAME] decision in [NAME] v. [NAME] [1] was applied, the members of the Court of Appeal again referred to the Statute of Elizabeth as concerned with the protection of future [NAME]. In [NAME] v. [NAME] [5] , although the majority allowed the appeal, all the members of the Court treated the "intent to defraud [NAME]" to which s. 37A of the Conveyancing Act 1919 N.S.W. referred as capable of being established despite undoubted solvency at the time of the challenged alienation of property [6] . So too in the case of s. 40 (1) (c) there may, I think, be the requisite intent despite the absence of existing indebtedness. A fortiori, the intent may exist if the [NAME], unaware of his existing indebtedness, nevertheless believes in some impending indebtedness. Moreover an intent formed in relation to only one such existing or anticipated [NAME] will suffice, the combined effect of s. 23 (b) of the Acts Interpretation Act Cth and of s. 6 of the Bankruptcy Act producing this result.

1. (1872) L.R. 14 Eq. 106. 2. (1951) 16 A.B.C. 18, at p. 28. 3. (1882) 19 Ch. D. 588. 4. (1872) L.R. 14 Eq. 106. 5. (1934) 50 C.L.R. 341. 6. (1934) 50 C.L.R., at pp. 360-361, 372, 377.

Again, I am of the view that the requisite intent to which s. 40 (1) (c) refers need not be a [NAME]'s sole intent in leaving or remaining out of the country. The language of s. 40 (1) (c) does not appear to require such a construction, an act may be done with a number of intents in mind. The authorities have proceeded upon this view — Ramsbottom v. [NAME] [7] ; [NAME] v. [NAME] [8] ; Ex parte [NAME]; [NAME], best reported in [9] ; [NAME], per [NAME] M.[NAME]. [10] . The case of [NAME] , reported only in a note [11] , contains dicta to the opposite effect but is not, I think, properly to be regarded as authority to the contrary. In that case the evidence was not regarded as in fact presenting a choice between a number of intents to be inferred from the evidence; [NAME]. found only a single innocent intent and no intent to defeat or delay [NAME], there being "cogent evidence of an intention on the [NAME]'s part to pay his [NAME] as and when he could" [12] . Where the evidence discloses such an intent, there is no room for any second, and inconsistent, dishonest intent. However two or more intents may not be mutually exclusive, for instance an intent to defeat [NAME] and an intent to avoid the sanctions of the criminal law. In such a case I see no reason why the existence of the second such intent should prevent a [NAME] from relying upon s. 40 (1) (c).

1. (1808) 1 Camp. 279 [170 E.R. 957]. 2. (1814) 3 Camp. 530 [170 E.R. 1471]. 3. (1874) 22 W.R. 935. 4. [1950] 2 All E.R. 36, at pp. 39-40. 5. [1952] 1 All E.R. 519 n. 6. [1952] 1 All E.R., at p. 521.

Turning now to the circumstances of this case they are these; a [NAME], a director of a number of listed public companies, who, although born in Hungary, is an Australian citizen and has for many years made Australia his home, leaves Australia suddenly by air without having made any prior reservation, without providing any forwarding address and without any warning or the giving of any explanation to those officers of his companies, private and public, who had been accustomed to see him, almost daily, in the course of his regular attendance to the affairs of those companies. He describes his occupation in official documents as a company director yet he not only leaves in this fashion but appears ever since wholly to have abandoned this occupation, at least in relation to the Australian companies which previously provided him with the opportunity of engaging in it; instead he travels to Israel and then to South America and remains there without once himself communicating with those officers. At the time of his departure he completes and signs an outgoing passenger card, which by law he is required to do, stating on this card that the purpose of his departure is that of a temporary visit overseas mainly on business and of a duration of only fourteen days, the country where he next intends to stay for twelve months or more being stated to be New South Wales. Not only does he fail to return in fourteen days but in December 1973, some eight months later, his solicitor in Sydney states in evidence that the appellant's instructions to him are that he intends to return to Australia immediately after the result of certain litigation, then before the Privy Council, is known; yet, later in December when their Lordships' decision is known, the appellant nevertheless remains overseas.

These facts of themselves, if not explained by exculpatory circumstances, lead in my view to the inference that the appellant's departure and his subsequent absence from Australia are due to no ordinary reason but rather to some fear of consequences awaiting him in Australia. No exculpatory circumstances were ever put forward on the appellant's behalf, although the protracted proceedings in bankruptcy, involving a number of successful applications for adjournment followed by a lengthy hearing, afforded ample opportunity for an explanation consistent with absence of the alleged intent.

The evidence in the case in fact disclosed two matters relevant to intent, the first sufficient of itself to account for the appellant's conduct, the second perhaps capable of doing so with the aid of further evidence. The first was his indebtedness for tax, the second a visit made by inspectors of the New South Wales Corporate Affairs Commission to his father on 4th April 1973. Were there evidence that, as a result of this visit, the appellant himself had reason to fear prosecution or other adverse consequences it might then have been possible to attribute to that cause his departure and his remaining abroad and perhaps also to conclude that his conduct was unrelated to any intent to defeat his [NAME]; there was however no such evidence as would suggest that by August 1973 it was fear of prosecution that induced the appellant to remain overseas.

The absence of evidence of any honest reason for his remaining overseas is significant; there was here no question, as there was in so many of the reported cases relating to this particular act of bankruptcy, of the [NAME] going abroad to seek funds, to attend to an existing business or to return to his native country. Moreover when the only alternative inference open is that a [NAME] is staying abroad to escape the reach of the criminal law, the reluctance of courts to infer dishonest conduct by a [NAME] towards his [NAME], a reluctance to which [NAME] [NAME] [NAME]. refers in In re M. [NAME] [COMPANY]. [13] , scarcely arises, at least where the aspect of the criminal law which is in question is one likely to be of interest to the Corporate Affairs Commission, itself much concerned with financial dishonesty.

1. [1943] 1 Ch. 248, at p. 252.

The only explanation which the evidence suggests as accounting for the very unusual circumstances of the appellant's departure and continued absence from Australia is, in my view, the appellant's liability to Australian tax. The learned judge in bankruptcy was, I think, entitled to infer that the appellant's intent in remaining out of Australia was to defeat or delay his [NAME].

I would accordingly dismiss this appeal.