518 FEDERAL COURT REPORTS [(1986)

Re V ASSIS; Ex parte LEUNG

General Division: Burchett J
Bankruptcy District of Victoria
27-28 August 1985; 10 February 1986
Bankruptcy - Creditor's petition - Act of bankruptcy - Departing from
and remaining out of Australia - Proof of intent to defeat or delay
creditors - By circumstantial evidence - Jurisdiction to make
sequestration orders - Whether "ordinarily resident in Australia" -
Debtor two years hiding in Greece - Inquiry as to his settled and
usual place of abode - Whether "carrying on business in Australia"-
Debtor, a solicitor - Forged mortgages and unauthorised investing of
clients'funds - Whether these defalcations created a debt which was a
liquidated sum - Bankruptcy Act 1966 (Cth), ss 5(1), 40(lXcXi),
43(lXbXi), 43(lXbXiii), 44 - Legal Profession Practice Act 1958 (Vic),
ss 52, 104GA(8).
Evidence - Affidavit filed by a party - Whether statements therein could
be tendered by opposing party as an admission.
Held: (I) Where a petition is founded on the act of bankruptcy specified in
s 40(I)(c)(i) of the Bankruptcy Act (the Act) and no reason is evidenced by the
debtor for his departing from or remaining out of Australia or where the evidence
proffered by the debtor of a reason is rejected by the Court, circumstantial evidence
may well provide the necessary intent, as in this case, where all the surrounding
circumstances spoke clearly enough of what the reason in fact was.
Barton v Deputy Commissioner of Taxation (Cth) (1974) 131 CLR 370; Re Cook
(1946) 13 ABC 245; Re Smith; Ex parte Kern Corporation Ltd (unreported, Federal
Court of Australia, Pincus J, 19 June 1985); Re Cohen (a Bankrupt); Ex parte The
Bankrupt v Inland Revenue Commissioners [1950) 2 All ER 36; Noakes v J Harvey
Holmes & Son (1979) 37 FLR 5; Re Williams (1968) 13 FLR 10, referred to.
(2) It is a question of fact and degree at what point a temporary absence of a
debtor might, if sufficiently prolonged, prevent its being proper to continue to
regard him as "ordinarily resident in Australia" within s 43(1)(b)(i) of the Act. The
words "ordinarily resident" in that paragraph refer to a person's settled and usual
place of abode. Here, notwithstanding a debtor-solicitor's two year stay in Greece in
hiding following a sudden departure from Australia by reason of his wish to defeat
and delay his creditors and to avoid criminal prosecution for his many defalcations,
he was in fact "ordinarily resident in Australia", the evidence demonstrating that
Australia was his settled and usual place of abode_ Accordingly the requirements of
s 43(1)(b)(i) of the Act had been satisfied, vesting the Court with jurisdiction to
make a sequestration order. In any event, as the winding up of the business of the
debtor's practice and the payment of business debts had not been concluded in the
debtor's absence, it could be said that the debtor was carrying on business in
Australia at the relevant time and accordingly s 43(1)(b)(iii) of the Act had also been
satisfied.
Levene \I Commissioners of Inland Revenue [1928) AC 217; Commissioners of
Inland Revenue v Lysaght [1928) AC 234; Akbarali v Brent London Borough
Council [1983) 2 AC 309; Re Mendonca; Ex parte Commissioner of Taxation
(1969) 15 FLR 256; Theophile v Solicitor-General [1950] AC 186, referred to_
9 FCR 518] Re VASS IS; Ex parte LEUNG (Burchett J) 519

(3) The rights and remedies that a client and, by subrogation pursuant to
s ID4oA(8) of the Legal Profession Practice Act 1958, a receiver has against a
solicitor by reason of pecuniary loss suffered by that client arising out of a
defalcation by the solicitor consisting of either the unauthorised investing of sums
received by that solicitor on behalf of the client or the receiving" of money by the
solicitor by means of his having forged mortgages while in possession of the client's
title deeds, include liquidated claims and accordingly contrary to the debtor's
submissions, the conditions of s 44(l)(b)(i) of the Act had been fulfilled. In each case,
the pecuniary loss suffered must have included the very sum received by the
solicitor.
Mann v Hulme (1961) 106 CLR 136; Emma Silver Mining Co v Grant (1880) 17
Ch D 122; Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual
Trustee Co Ltd [1966]2 NSWR 211; Law Institute of Victoria v Cowan Investment
Survey Pty Ltd [1973] VR 293; Barewa Oil and Mining NL (In Liq) v Isim Mineral
Development Pty Ltd (1981) 59 FLR 451, referred to.
(4) A statement by a party in an affidavit filed by him may be tendered by the
opposing party as an admission though the tenderer could not prevent reference to
other statements in the affidavit which provided a qualifying context.
Price v Hayman (1838) 4 M & W 8; 150 ER 1321; Wimpole v McJlwraith [1923]
VLR 553, referred to with approval.
Re O'Leary; Ex parte Bayne (1985) 61 ALR 674; Re Small [1934]1 Ch 541; Re
Gershon and Levy [1915]2 KB 527, also referred to.

TRIAL
Trial of a creditor's petition under the Bankruptcy Act 1966.
G T Bigmore, for the petitioning creditor.
T lrlicht, for the debtor.
Curadv vult
10 February 1986
BURCHETT J. This is a creditor's petition under the Bankruptcy Act 1966
(Cth) on the ground provided by s 40(l)(c)(i) that the debtor, within six
months before the presentation of the petition, remained out of Australia
with intent to defeat or delay his creditors. The petitioning creditor is the
receiver of certain property of the debtor, appointed by an order of Gobbo J
of the Supreme Court of Victoria, made 19 January 1983. He claims,
pursuant to s 104GA(8) of the Legal Profession Practice Act 1958 (Vic), to
be subrogated to the rights and remedies against the debtor, who was a
solicitor, of a large number of former clients of the debtor who suffered
pecuniary losses by reason of his defalcations, and have received compen·
sation from the Solicitors' Guarantee Fund referred to in the Legal
Profession Practice Act. The total amount of the indebtedness alleged in the
petition is $3,039,560.12, and the evidence indicates that further payments
subsequently made by way of compensation have increased this amount to
some $3.5 million.
The creditor's petition has been defended and the debtor has given
evidence. On his behalf, it was submitted that the ground alleged in the
petition had not been made out, that at the time that the act of bankruptcy
was claimed to have been committed the debtor was not "ordinarily resident
in Australia" as alleged in the petition, that the provision of the Legal
ProfeSSion Practice Act relied upon, s 104GA(8), did not create a debt for the
520 FEDERAL COURT REPORTS [(1986)

purposes of the Bankruptcy Act, and that the petitioning creditor was a
secured creditor who had failed to comply with the statutory requirements
to enable him to maintain his petition.
The first problem in this matter arose during the petitioning creditor's
case. His counsel tendered certain paragraphs of an affidavit sworn by the
respondent and filed on his behalf. It was objected that, a party not being
bound to read his affidavit, this tender should be regarded as an indirect
subversion of the respondent's right to withhold it, and not permitted. I
ruled against the objection, and allowed the tender of the paragraphs as
admissions. In the event, the respondent was thereafter called to give
evidence in his own case. I allowed the tender upon the basis of authorities
which are conveniently collected in [1985) Australian Current Law at
p 36055, stemming from Price v Hayman [1838)4 M & W 8; 150 ER 1321.
Those cases (and especially Wimpole v Mellwraith [1923) VLR 553)
establish, in my opinion, that a statement by a party in an affidavit filed by
him may be tendered by the opposing party as an admission, though the
tenderer cannot prevent reference to other statements in the affidavit
providing a qualifying context. They also support the use in other ways of
affidavits not filed by the party seeking to rely on them, but it is
unnecessary for present purposes to examine the limits of the rules
applicable in this situation: in my view they at least justify the petitioning
creditor's tender in the present case.
The evidence establishes to my satisfaction the following circumstances.
Mr Vassis, who had been admitted as a barrister and solicitor of the
Supreme Court of Victoria on I April 1970, practised the profession of a
solicitor under the name "B W Vassis and Associates", at 232 King Street
Melbourne, from 1 February 1976. In the course of his practice Mr Vassis
received, on behalf of clients, substantial sums of money, either for
investment, or to be applied to specific purposes, or to be paid to clients. He
also received and held title deeds on behalf of clients. He invested
substantial sums, for clients, in a company, Bemva Credits Corporation
Proprietary Ltd (Bemva), of which until 1981 he was a director. Bem\..l
became hopelessly insolvent, and over the period from early 1981 to
January 1983, and particularly during 1982, Mr Vassis, without authority,
used the funds of clients to make unsecured deposits with the company so
that it could effect repayments and interest payments due to other clients.
He also, on more than one occasion, forged mortgages of properties of
clients, in respect of which he held the title deeds on their behalf, to raise
money for the same or associated purposes. In effect he kept the company
hazardously afloat by, in the proverbial phrase, robbing Peter to pay Paul.
By December 1982, Mr Vassis' affairs had reached a situation it was
impossible to maintain, even by the methods to which he was resorting.
Clients were pressing him for money due to them, which was not available.
Legitimate means of obtaining funds had been exhausted (he had pursued a
large debtor of Bemva to the point where there was nothing more to be
obtained, and he had mortgaged heavily all available assets). A complaint
had been received by the Law Institute of Victoria, which in the
circumstances must have made disclosure of the true position but a matter
of days or weeks away.
Mr Vassis closed his office for the Christmas/New Year period on 22
December 1982, and it was due to reopen on 25 January 1983. He then
9 FeR 518) Re VASSIS; Ex parte LEUNG (Burchett J) 521

expected, according to his evidence, and I have no reason to doubt this

statement, that on 25 January "there would be even more people asking for
money". In December, the situation was already beyond remedy. Mr Vassis
had settled the sale for $43,000 of a house, on behalf of a client, Mr G
Bakopoulos, and the price had been swallowed up by Bemva.
Mr Bakopoulos several times about Christmas endeavoured to obtain his
money, only to be put off with statements that Mr Vassis was not in the
office. Such a state of affairs could obviously not continue. Another client,
Mr P Laspatizos, had entrusted to Mr Vassis two transactions, one the sale
of a property for $40,500, the other the purchase of a property for $67,000.
When the sale was completed on 17 December 1982, Mr Vassis appropri-
ated the proceeds. But the purchase was also due for completion, which
could not be staved off for long. In view of the enormous amount of the
defalcations and the deficiency in the trust account of Mr Vassis and in
Bemva, it is clear that the examples I have given would have to be
multiplied many times in order to represent the desperate plight in which
Mr Vassis was placed.
At this juncture, a client's complaint led to a visit to Mr Vassis by a
representative of the Law Institute of Victoria. Mr Vassis learned that a
receiver was about to be appointed. He left Australia the next day, which
was 8 January 1983. In his own words, at that stage: "It just did not seem
possible any further." When he used those words, he was referring
specifically to obtaining money from the one large debtor whom he
identified, but the magnitude of the impossibility consisted in the total
absence of any other source of funds.
Approximately two years later Mr Vassis returned to Australia, having
lived in hiding until then somewhere in Greece, and pleaded guilty to an
indictment of fifty counts, involving a deficiency in or payable into his trust
account as a solicitor of $727,681.71, and also the stealing of clients'
moneys, dishonest obtaining of moneys by deception, forgery with intent to
defraud, and uttering, in numerous individual sums varying from about one
thousand dollars to ninety-four thousand odd dollars. He is now serving
sentences which on 26 July 1985 were increased on appeal by the Crown to
the Court of Criminal Appeal of Victoria, so that the aggregate sentences
amount to imprisonment for eight years, with a minimum of five years
before he will be eligible for parole.
The first question of substance is whether I should be satisfied that
Mr Vassis did remain out of Australia, during the period alleged in the
petition, with intent to defeat or delay his creditors. His original departure
on 8 January 1983 is outside the period of six months covered by the
petition, but if I should find that he left Australia with the relevant intent
this would, in my opinion, provide a strong basis for an inference that he
remained away with the same intent. Of course, the drawing of such an
inference in fact would be by no means automatic.
Mr Vassis does not allege a change of intention during the period of his
absence from Australia. On the contrary, his defence is that at all times his
departure, and his remaining away, were motivated by fear for his personal
safety and that of his family. He does, however, assert that the period of his
absence was somewhat prolonged, even after those fears had been allayed,
by a shortage of cash with which to pay his fare home.
There was no evidence to support this defence other than the evidence of
522 FEDERAL COURT REPORTS [(1986)

Mr Vassis himself. He asserted that he had been subjected to threats against

his life, if moneys were not paid. He gave no evidence of any threat uttered
to him in respect of his family, but only of threats in respect of himself.
However, he asserted that, after he left, his family also had been threatened,
and he claimed that a motive of his departure was to draw the blame away
from his family for its protection. His statement that the family had been
threatened after his departure was not supported by any evidence from his
wife or adult son, though both were available to give evidence.
In the circumstances, the extent to which I give credence to the evidence
of Mr Vas sis is a vital matter. There are several considerations which make
it difficult to accept his assertion that the only substantial reason for his
flight from Australia was the threats to which I have referred. In the first
place, when he was asked by his own counsel to elaborate upon the alleged
threats, the first threat which he mentioned, and the only one of which he
specified any details, was a threat alleged to have been uttered by a client
expert in karate, some eight months before his departure. He had made no
complaint to the police, and had not paid the claim or any part of the claim
of the person who threatened him. Indeed, he had filed defences to
proceedings brought by that person. If any threat had been uttered, it seems
clear that the person concerned had afterwards decided to enforce his rights
by legitimate means through the courts. I do not accept that, eight months
later, any threat made by this man remained a matter of serious concern to
Mr Vassis. No circumstances were stated in respect of other threats alleged
to have been made shortly before Mr Vassis left. It seems reasonable to
conclude that Mr Vassis himself did not put them forward as having the
serious impact he claimed for the threat of which he did furnish details.
If strong language was used by someone seeking a payment from
Mr Vassis, it would be easy to understand that Mr Vassis might later be
tempted to justify his flight by asserting that he had been threatened. There
are a number of indications in his evidence of a proneness to self-
justification and a failure, even after all that has happened, to accept fully
the realities which led to his present situation. Under cross-examination, he
declined squarely to accept that in December 1982 the company Bemva
could not repay the moneys of Mr Bakopoulos which he invested in it.
Even more tellingly, he attempted to justify the unsecured and unauthorised
investment of the proceeds of Mr Laspatizos's sale, which he knew were
required for his purchase. He was asked the question: "But you knew that
they were to be paid toward the purchase price ... didn't you?" He
answered: "Because the settlement was to take place in the New Year we
organised a bit of interest for him in the interim period and I did not get an
authority in writing." This answer dishonestly suggests that the purpose of
the unauthorised investment was to obtain interest for Mr Laspatizos, and
even hints that the offence consisted merely in not having written authority.
On the evidence of Mr Laspatizos, which I accept, his money must have
been invested, contrary to his instructions, in the company Bemva late in
December 1982, at a time when Mr Vassis could not possibly have believed
that this investment would be for his benefit and would actually result in his
receiving interest. There was no suggestion in cross-examination of
Mr Laspatizos that he had authorised the investment, but not in writing;
indeed the cross-examiner put to him, "What happened, did it not, is that
you gave instructions to your solicitor, Mr Vassis, to apply the proceeds of
9 FeR 518) Re V ASSIS; Ex parte LEUNG (Burchett J) 523
the sale of one property to the purchase of the other, is that correct?" to
which he replied: "That is right."
I have given careful consideration to the evidence of Mr Vassis, including
his assertion that a number of years earlier he had been the victim of a knife
attack by a client's tenant, but I reject the proposition that he was
motivated solely or substantially by fear of personal attack, or attack upon
his family, to flee from Australia. He left the day after he learned of the
appointment of a receiver. Till then, he had, by desperate expedients,
bought time to get in money from a large debtor of Bemva, but he now
realised that the balance of about $700,000 was irrecoverable, and in any
case there was no more time. The "continual pressures", as he called them,
of his creditors' pursuit of him, by legitimate means, could no longer be
escaped except by flight from Australia. Having regard to his long struggle
with financial adversity, in which disastrously for himself and others he had
resorted to dishonest means, and the existing and impending circumstances
immediately before his departure, which I infer precipitated it, I conclude
that when Mr Vassis fled from Australia he did so with intent to defeat or
delay his creditors. I think, despite his denial, concern about steps which
would inevitably be taken by the Law Institute of Victoria and about
criminal prosecution were also significant factors.
In the absence of any suggestion from Mr Vassis himself of a change of
intention after his departure, or of any supervening reason to remain away
other than the assertion that return became financially difficult, I further
conclude that, at least until shortly before his return, and within the period
alleged in the petition, Mr Vassis remained out of Australia with the intent
to defeat or delay his creditors.
Section 40(1)(c) of the Bankruptcy Act does not require that the intent in
question _hould be a debtor's sole intention. As Stephen J put it in Barton v
Deputy Commissioner of Taxation (Cth) (1974) 131 CLR 370 at 375:
"(T)wo or more intents may not be mutually exclusive, for instance an
intent to defeat creditors 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 creditor from relying upon
s 40(1)(c)."
See also Re Cook (1946) 13 ABC 245 at 270-271 where the desire to pursue
overseas an emotional entanglement with a mistress was not inconsistent
with the co-existence of the statutory intent. In Barton s case the High
Court placed reliance upon "the absence of evidence of any honest reason
for (the debtor) remaining overseas". In the present case I have rejected the
evidence proffered of a reason. As in a case where no reason is evidenced,
so also in a case where a reason is evidenced but rejected, the surrounding
circumstances may speak clearly enough of what the reason in fact was.
Barton s case was applied by Pincus J in Re Smith; Ex parte Kern
Corporation Ltd (unreported, Federal Court of Australia, Pincus J, 19 June
1985), where also the petitioning· creditor relied upon circumstantial
evidence. Pincus J said:
"There may have been other reasons for his departure, but it has
certainly had the effect of delaying the creditors and that was probably
an intended outcome.
I am strengthened in my conclusion by the apparent approval, given
in Barton v Deputy Commissioner of Taxation (Cth) (1974) 131 CLR
524 FEDERAL COURT REPORTS [(1986)

370 at 375, to the discussion by Evershed MR in Re Cohen [1950] 2

All ER 36 at 39-40. That case evinces a readiness to draw the inference
that the intention to defeat or delay has been proved, un the basis that
the debtor must have known that the likely result of his absenting
himself would be to delay creditors."
Even without this consideration, in the present case, as I have already
indicated, I have concluded that the proper inference from the circum-
stances is that the requisite intent was involved.
But that it is proper to take into account the inevitable result of an
action, in order to assist in drawing an inference as to the intent with which
it was performed, is also confirmed by the decision of the Full Court in
Noakes v J Harvey Holmes & Son (1979) 37 FLR 5 at 10 (per Brennan J).
See too per Gibbs J (as he then was) in Re Williams (1968) 13 FLR 10
at 21. In Re Cohen (supra) at 39 Evershed MR treated the circumstances
that the debtor had "gone suddenly to France", that the time when he left
was "at a time when he was financially embarrassed to a serious extent",
that his whereabouts in France were at a place where it was "not ... at all
easy to find him", and that there was "something surreptitious about the
conduct of the bankrupt at or shortly after the time of his departure", as
circumstances which in that case were significant indications of the requisite
intent. What should be concluded in a particular case is of course a question
of fact, and the same circumstances may be more or less compelling in a
different context. In the present case, each of the circumstances which I
have drawn from the judgment of the Master of the Rolls is also present,
and is part of a total situation which I find leads compellingly to the
conclusion I have indicated. The fact that the departure was outside the
period of six months before the petition does not matter, since the act of
bankruptcy is a continuing one which did continue into that period: Re
Cook (supra) at 270; Re Smith (supra).
The next question is whether the Court has jurisdiction, pursuant to the
terms of s 43 of the Bankruptcy Act, in the circumstances of the present
case. In the petition it is alleged that the debtor was, at the time that the act
of bankruptcy was committed, "ordinarily resident in Australia". These
words are found in s 43(1)(b)(i). On behalf of Mr Vassis, it is submitted that
although he was ordinarily resident in Australia immediately before his
departure on 8 January 1983, by 28 December 1983 when the six month
period before the presentation of the petition commenced to run, he could
only be properly described as ordinarily resident in Greece.
The question where a person is ordinarily resident is a question of fact:
Levene v Commissioners of Inland Revenue [1928] AC 217. It is obviously
not to be answered, in respect of any particular time, by asking where that
person was then resident. Otherwise, the word "ordinarily" would have no
meaning. But even the unqualified concept of residence is not tied to the
accidents of a day; for, as Viscount Sumner said in Commissioners of Inland
Revenue v Lysaght [1928] AC 234 at 245: "One thinks of a man's settled
and usual place of abode as his residence." At the same time, his Lordship
pointed out that "in many cases in ordinary speech one residence at a time
is the underlying assumption and, though a man may be the occupier of two
houses, he is thought of as only resident in the one he lives in at the time in
question". In s 43 of the Bankruptcy Act, the phrase is not "resident in
Australia", but "ordinarily resident in Australia", and it expresses an
9 FeR 518] Re V ASS IS; Ex parte LEUNG (Burchett J) 525

alternative to "personally present ... in Australia". In such a context, it

must convey the former of the meanings which I have quoted from
Viscount Sumner's speech rather than the latter. If a man's home is in
Australia, a merely temporary absence will not prevent his being "ordinarily
resident in Australia". It is a question of fact and degree at what point a
temporary absence might, if sufficiently prolonged, prevent its being proper
to continue to regard him as ordinarily resident in Australia. In Akbarali v
Brent London Borough Council [1983] 2 AC 309 at 344, Lord Scarman
said: "For if there be proved a regular, habitual mode of life in a particular
place, the continuity of which has persisted despite temporary absences,
ordinary residence is established provided only it is adopted voluntarily and
for a settled purpose."
In the present case, Mr Vassis flew from Australia to Greece via New
Zealand. Upon leaving New Zealand, he completed a departing passenger's
card which gave his nationality or citizenship as Australian, the reason for
his journey as a holiday, and the state and country in which he next
intended to live for twelve months or more as Victoria, Australia. He also
stated that the country in which he would spend the longest time on his
overseas trip was Greece. When he gave evidence, Mr Va!isis did not resile
from the implications of the card to which I have referred. He did not deny
that his settled place of abode had at all times continued to be in Victoria.
He admitted that he had signed the departing passenger card in January
1983, and said: "I just felt that I would be away for a short time and come
back to Australia to live." He added: "I intended to come back to Australia
and Victoria ... I just did not know where I was going to live, but Victoria
for sure." He said that overseas he stayed in Greece, but that while he was
staying there he did not intend to stay permanently. He had lived in
Australia virtually all his life, though he was born in Greece. His wife and
son, who was then still at school, remained in Victoria.
Having regard to this evidence, it seems to me that the proper conclusion
of fact is that Mr Vas sis was ordinarily resident in Australia, both at the
time that he departed, and throughout the period until his return two years
later in February 1985, or at least until the crucial date, 28 December 1983,
which was barely a year from his departure. There is no suggestion that
during his absence he established any other ordinary residence at any
particular place in Greece. His own evidence, to which I have referred,
clearly indicates that he regarded his journey overseas, desperate flight
though it was, as no more than a temporary interruption of his ordinary
residence in Victoria. I do not think the law requires it to be regarded in
any different light. It may be compared, for example, to an absence overseas
by a Melbourne university lecturer upon sabbatical leave at Athens
University who would, in my opinion, still be correctly described as
ordinarily resident in Australia if at the conclusion of his sabbatical leave he
intended to resume life here.
If it had not been the proper conclusion that Mr Vassis was ordinarily
resident in Australia, the question might have arisen whether within
s 43(1 )(b)(iii) he "was carrying on business in Australia, either personally or
by means of an agent or manager". In Re Mendonca; Ex parte Com·
missioner of Taxation (1969) 15 FLR 256 at 260-261 GibbsJ, as he then
was, referred to "the somewhat wide understanding of those words (that is,
"was carrying on business") that has come to be established in bankruptcy
526 FEDERAL COURT REPORTS [(1986)

law". Gibbs J cited Theophile v Solicitor-General (1950) AC 186; and Re

Bird v Inland Revenue Commissioners; Ex parte The Debtor (1962) 1 WLR
686. In Theophile's case Lord Porter at 201 said: "(T)rading does not cease
when, as the expression is, 'the shutters are put up,' but continues until the
sums due are collected and all debts paid." In this sense, it seems clear that
at the relevant time Mr Vassis "was carrying on business in Australia",
since the winding-up of the business of his practice and the payment of its
debts had not been concluded. The payment of the debts of a business, in
order to conclude its carrying on, is to be understood in no narrow sense, as
the second case cited by Gibbs J shows. Furthermore, I do not think the
additional words, "either personally or by means of an agent or manager",
should be regarded as cutting down the broad meaning of "was carrying on
business in Australia"; for I think they are words of extension, not
limitation: cf Commissioner of Taxation (Cth) v Lutovi Investments Pty Ltd
(1978) 140 CLR 434 at 444; Bank of New South Wales v Commonwealth
(1948) 76 CLR I at 383.
I now turn to the question whether the petitioning creditor has, within
the meaning of s 44 of the Bankruptcy Act, shown a debt owing to him by
the debtor that amounts to $1,000, "is a liquidated sum due partly at law or
partly in equity", and "is payable either immediately or at a certain future
time". I note that by s 5( I) "debt" includes "liability".
By s 104GA(8) of the Legal Profession Practice Act 1958 (Vic) it is
provided:
"Whenever a person who has suffered pecuniary loss by reason of a
defalcation has received payment of compensation from the Fund for
the whole or any part of that loss, the receiver shall to the extent of the
payment have all the rights and remedies against the solicitor or firm or
individual partners in the firm of solicitors which that person had in
respect of the losses suffered by him from the defalcation immediately
before he received compensation from the Fund."
The word "defalcation" used in this section is defined in s 51 as follows:
'''Defalcation' means any larceny embezzlement failure to account fraudu-
lent misappropriation or other act punishable by imprisonment of or in
relation to any money or other property." The fund referred to in the
subsection is the Solicitors' Guarantee Fund provided for by s 52. It was not
disputed that the petitioning creditor was a receiver within this provision, or
that persons suffered pecuniary loss by reason of actions of the debtor
which would fall within the definition of a defalcation, nor was it disputed
that such persons had received payments of compensation from the fund for
the whole or part of their losses. But those former clients who were called to
give evidence were cross-examined with a view to establishing that the
compensation received by them somewhat exceeded the amounts received
by Mr Vassis as their solicitor on their behalf, because the receiver also paid
interest. It was submitted that neither the rights and remedies which the
clients originally had against their solicitor, in respect of the losses suffered by
them from the defalcations, nor the statutory right of the receiver pursuant
to the subsection, could be regarded as creating debts. It was argued that
these were not rights to liquidated sums.
In my view, the pecuniary losses referred to in the subsection must
include the sums received by Mr Vassis in his capacity as a solicitor, on
behalf of his clients, and lost by his unauthorised investments. Mr Vassis
9 FeR 518) Re Y ASSIS; Ex parte LEUNG (Burchett J) 527
was a trustee: Mann v Hulme (1961) 106 CLR 136 at 141. Moneys
obtained in fraud by forged mortgages, which Mr Vassis was enabled to
enter into because he held title deeds on behalf of clients, would also, in my
opinion, fall within the scope of the subsection. In such cases, it seems to
me that the rights and remedies of the clients, to which the subsection
subrogates the receiver, included liquidated claims. In Williams and
M Hunter, Law and Practice in Bankruptcy (19th ed, 1979), p 161 it is
stated:
"A breach of trust, although supporting an action for unliquidated
damages, was always held to create a debt in equity, and is now
provable."
I think such a debt is equally provable under s 44 of the Bankruptcy Act. In
Jacobs', Law of Trusts in Australia (4th ed, 1977), at 510 it is said, of the
liability to make good the loss of trust property caused by the wrongful act
or omission of the trustee: "In view of equity, this obligation of restitution is
but a species of equitable debt unless the trustee has in any way bound
himself by covenant so that the breach of covenant gives rise to a specialty
debt." In Emma Silver Mining Co v Grant (1880) 17 Ch 0 122 at 130,
Jessell MR was concerned with a claim in a bankruptcy for· moneys paid by
way of a secret commission and received in breach of fiduciary duty. He
rejected an argument that the claim was for unliquidated damages, saying:
"I do not consider this sum of money to be in the nature of
unliquidated damages at all; because it is the sum received by (the
fiduciary in breach of his duty) for which he is liable to account."
The liability of a trustee to account for the very sum lost by his breach of
trust is also emphasised by Street J (as he then was) in Re Dawson
(deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd
[1966] 2 NSWR 211. See also Law Institute of Victoria v Cowan
Investment Survey Pty Ltd [1973] VR 293 at 299.
Under s 44(1)(b) the petitioning creditor's debt may be "a liquidated sum
due at law or in equity or partly at law and partly in equity". I think such a
debt was owed in respect of moneys received by Mr Vassis and not
accounted for congruently with the basis upon which the moneys had been
received.
Furthermore I think that moneys received by the device of forged
mortgages, once received, were held in law on behalf of the clients in
question, and could have been claimed by them at their election as moneys
had and received to their use: see Cheshire and Fifoot, The Law of Contract
(4th Aust ed, 1981), pp 78-79; and see Barewa Oil and Mining N L (In Uq)
v Isim Mineral Development Pty Ltd (1981) 59 FLR 451 at 456).
The petitioning creditor limited his case to that portion (in any event by
far the largest portion) of each claim upon the Solicitors' Guarantee Fund
which represented the actual moneys of the client lost by the breach of trust
or fraud of his solicitor. In other words, no claim was made to include
interest added to payments. On this footing, and without pausing to
consider whether the interest could have been included (cf Re Dawson,
supra), the whole of the amounts alleged did in my opinion constitute
liquidated sums, which by virtue of s 104GA(8) of the Legal Profession
Practice Act were due from Mr Vassis to the petitioning creditor. Of the
amounts due at the presentation of the petition, the bulk was also due at the
earliest date falling within the act of bankruptcy which I have found. This is
528 FEDERAL COURT REPORTS [(1986)

so becau,,~ the bulk of the sum is represented by payments of compensation

which were made prior to that date, so that s 104GA(8) had already
operated. (Thus no problem is caused by the principle of bankruptcy law
that a petitioner's debt should have been in existence at the date of the act
of bankruptcy, a principle which in any event may not bar reliance upon a
subrogation, by virtue of a subsequent event, to a right in respect of a debt
that was in existence at that date.) For the purpose of this finding, I have
regard to the documentary evidence. In view of the admissions which were
implicit in '.the pleas of guilty entered by Mr Vassis to the counts in the
indictment, and in the light of his own evidence, as well as that of the
petitioning creditor, I do not think I should limit my findings to the sums of
which individual clients gave oral evidence before me, but should find, as I
do, that the petitioning creditor has established to my satisfaction his
entitlement concerning the full sum paid in respect of moneys lost, as
disclosed by the computer printouts which were tendered and received in
evidence.
But it was argued, for the debtor, that the petitioning creditor was a
secured creditor.
In the petition it was stated:
"3. The petitioning creditor does not, nor does any person on his
behalf, hold any security over the property of the debtor or any
part of it for the payment of the amount specified in the last
preceding paragraph or any part thereof. However, the petitioning
creditor in his capacity as receiver of certain property of the debtor
pursuant to the said Order of the Honourable Mr Justice Gobbo,
has received certain property and moneys the total value of which
does not exceed $29, 100.00 in addition (sic.), the sum of
$139,485.69 is held by Pourvie Nominees Pty. Ltd. (a company in
the control of Messrs. Purvis & Purvis) pursuant to a stakeholder
agreement made the 10th day of August, 1983 between the
petitioning creditor. the said Pourvie Nominees Pty. Ltd. and one
Christine "Vassis to abide the outcome of Supreme Court action
No. 4834 of 1983 by the petitioning creditor against the said
Christine Vassis (from which action the petitioning creditor cannot
hope to receive more than the said sum of $139,485.69 and interest
thereon. and then only in his capacity as a trustee for the creditors
of the debtor generally). Even in the unlikely event that the
petitioning creditor should ultimately become entitled to credit
against the total amount referred to in paragraph 2 hereof, the
total of all amounts already received by him as aforesaid and the
moneys held by Pourvie Nominees Pty. Ltd., there would be not
less than $2,000.000.00 due and payable by the debtor to the
petitioning creditor pursuant to his right of subrogation as afore-
said."
In the course of cross-examination of the petitioning creditor, it was
suggested that there might be further properties in respect of which he
might have rights to recoup some part of the moneys claimed. He had
lodged caveats against properties registered in names including the name of
Mr Vassis, or otherwise connected with him, though there was no evidence
before me to establish that he in fact had an entitlement in respect of those
properties. It was submitted on behalf of Mr Vassis that the petition ought
9 FeR 518) Re V ASSIS; Ex parte LEUNG (Burchett J) 529

to be dismissed on the ground that the petitioner was a secured creditor who
had not complied with s 44 of the Bankruptcy Act.
In Re O'Leary; Ex parte Bayne (1985) 61 ALR 674 the petitioning
creditor stated in the petition that he had a security but estimated its value
at nil. Sheppard J referred to s 44 of the Bankruptcy Act, subsections 2, 3
and 4, which I also set out as follows:
"(2) Subject to sub·section (3), a secured creditor shall, for the
purposes of paragraph (I)(a), be deemed to be a creditor only to the
extent, if any, by which the amount of the debt owing to him exceeds
the value of his security.
(3) A secured creditor may present, or join in presenting, a creditor's
petition as if he were an unsecured creditor if he includes in the
petition a statement that he is willing to surrender his security for the
benefit of creditors generally in the event of a sequestration order being
made against the debtor.
(4) Where a petitioning creditor is a secured creditor, he shall set out
in the petition particulars of his security."
Sheppard J commented:
"At first sight it might appear that the provisions of s 44(2), (3) and (4)
operate to require a secured creditor who petitions in bankruptcy to
surrender his security, notwithstanding that the value of his security is
less by $1000 or more than the amount of the debt owed to him. This
is not, however, the case. In Re Wiggins; Ex parte Credit Assistance
Pty Ltd (1979) 36 FLR 182 Lockhart J held that s 44 of the
Bankruptcy Act permitted a petitioning creditor who held security,
either to estimate the value of his security, in which case he would be
deemed to be an unsecured creditor of the debtor for the amount by
which the value of the debt exceeded the value of the security, or state
his willingness to surrender his security for the benefit of creditors
generally in the event of a sequestration order being made, in which
case he might prove for the full amount of his debt. His Honour
rejected a submission that s 44(2) and (3) were cumulative so that a
petitioning creditor must both value his security and include in the
petition a statement as to his willingness to surrender it. His Honour
referred to the former provisions of s 55 of the Bankruptcy Act 1924
(Cth) and to the provisions of s 4(2) of the Bankruptcy Act 1914 (Imp).
Both these provisions made it clear that the two courses were
alternative. It was the absence of any such statement in the 1966 Act
which was the foundation for the debtor's argument in Re Wiggins.
Nevertheless, his Honour rejected it.
I am in respectful agreement with his Honour's views. No other
conclusion would give effect to the true intendment of the Act which
appears to have been to allow a secured creditor, not wishing to
surrender his security, to retain his security in order to obtain as much
as possible as a secured creditor, and, at the same time, to petition in
respect of the balance which was unlikely to be yielded upon the
realisation of the security, provided, of course, that the balance
amounted to at least $1000. It is important to bear in mind the
distinction between the purposes served by the relevant subsections of
s 44, on the one hand, and the provisions of ss 90 to 94 inclusive,
dealing with proofs of debt by secured creditors, on the other. The only
530 FEDERAL COURT REPORTS [(1986)

purpose of s 44 is to specify the conditions upon which a creditor may

present a petition. One of the conditions is that the petitioning creditor
must have a debt which amounts to $1000. If the creditor is secured he
may not petition, unless he surrenders his security or shows that the
realisation of his security will not yield sufficient to enable him to be
paid in full. If he establishes that to be the case, provided other
requisite conditions are satisfied, he is entitled to a sequestration order.
When he comes to prove his debt in the ensuing bankruptcy, none of
what has gone before binds him. He proves in accordance with s 90 of
the Act and the succeeding sections provide for the various
eventualities which may occur. In short then, the provisions of s 44
determine whether or not a creditor may successfully present a petition;
the provisions of ss 90 to 94 determine how the amount of his debt is
to be quantified when he comes to prove in the bankruptcy.
Lockhart J followed Re Wiggins in Re Florance; Ex parte Turimetta
Properties Pty Ltd (No 2) (1980) 39 FLR 400 at 403-404. Fitzgerald J
followed both Wiggins and Florance in Re Finn; Ex parte Finn v
Amoco Australia Ltd (1982) 58 FLR 54 at 60-61."
In the present case it is clear, on my findings, that the petitioning creditor
is an unsecured creditor to the extent of an extremely large sum over and
above any amount in respect of which any argument is raised that there is a
security. In the words of Sheppard J, therefore, he has shown "that the
realisation of his security will not yield sufficient to enable him to be paid in
full .... [P]rovided other requisite conditions are satisfied, he is entitled to a
sequestration order." One such condition, of course, is that the amount in
respect of which he is an unsecured creditor is $1,000. In this case, I hold
that it is. But counsel for the petitioning creditor, against the eventuality
that I should find in favour of the argument presented on behalf of the
debtor that any alleged security was in fact a security, sought leave to
amend in order to include in the petition a statement of willingness to
surrender such a security, for the benefit of creditors generally, in the event
of a sequestration order being made against the debtor: see s 44(3). I heard
argument on this matter, and I have concluded that if that leave is required,
it should be granted: cf the remarks of Farwell J in Re Small [1934] I Ch
541 at 546-548.
However, I am not satisfied that the petitioning creditor has any security
beyond such securities, if they should both properly be regarded as
securities, as are set out in the petition. There is nothing to suggest that
higher values should be put upon these than the values indicated by the
petitioner. It may indeed be that each is valueless: as to the claim involving
Christine Vassis, because it may not be established on the facts, or because
the proceeds may belong in equity to the creditors generally; and as to the
property obtained as receiver, because the order appointing him may not
have effectively empowered him to do more than receive property: cf Re
Gershon and Levy [1915] 2 KB 527. As regards the lands the subject of
caveats lodged by the petitioner, the curious position is that Mr Vassis, by
his counsel, argues these constitute securities within s 44(4), while Mr Vassis
in evidence denied there was any basis for the caveats. There was no
evidence to enable me to make a finding that there exist securities over
these properties, of which the petitioner ought to have set out particulars in
his petition, or that, if any security existed, any value should be ascribed to
9 FeR 518) Re VASSIS; Ex parte LEUNG (Burchett J) 531

it, bearing in mind the difficulties of proof, and the evidence presently
available to the petitioner to support it. That being so, I do not find it
necessary to decide whether the respondent is entitled to approbate and
reprobate in the manner evinced by the submission and his denial of the
validity of the caveats. I hold the petitioner is justified in pursuing the
petition as presently framed.
For these reasons, I am satisfied that the debtor has committed the act of
bankruptcy alleged in the petition, and I am satisfied of the proof of the
other matters of which s 52(1) of the Act requires proof. I note that David
Anthony Bradshaw, a registered trustee, has consented to act as trustee of
the estate of the debtor. I make a sequestration order against the estate of
the debtor. I order that the costs (including reserved costs) of the petitioner
be taxed and paid according to the Act. I direct that a draft of this order be
delivered to the Registrar within seven days in accordance with r 124(2) of
the Bankruptcy Rules.
Sequestration order made against the estate of the debtor
Solicitor for the petitioning creditor: G T Bigmore.
Solicitors for the debtor: lrlicht & Broberg.
CMH