Aluma-Lite Products Pty Ltd v Reynolds
[2010] FMCA 122
•25 February 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALUMA-LITE PRODUCTS PTY LTD v REYNOLDS & ANOR | [2010] FMCA 122 |
| BANKRUPTCY – Acts of bankruptcy – defective enforcement process – service provisions under the Bankruptcy Act – service in compliance with the Uniform Civil Procedure Rules. |
| Bankruptcy Act1966 (Cth) |
| Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 Re Moore (a bankrupt) (1969) 113 S.J. 791 Re Peddler Volume XV11 The Australian Law Times 17 August 1895 |
| Applicant: | ALUMA-LITE PRODUCTS PTY LTD |
| First Respondent: | ROSS MACKENZIE MAX REYNOLDS |
| Second Respondent: | MARGOT LOGAN REYNOLDS |
| File Number: | BRG 146 of 2008 |
| Judgment of: | Burnett FM |
| Hearing date: | 17 February 2010 |
| Date of Last Submission: | 17 February 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 25 February 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr B O’Donnell QC |
| Solicitors for the Applicant: | Ellison Moschella & Co |
| Counsel for the First Respondent: | Mr K Fleming QC with Mr Evans |
| Solicitors for the First Respondent: | Shand Taylor |
| Counsel for the Second Respondent: | Mr K Fleming QC |
| Solicitors for the Second Respondent: | Shand Taylor |
ORDERS
A Sequestration Order be made against the estate of ROSS MACKENZIE MAX REYNOLDS and MARGOT LOGAN REYNOLDS.
The Applicant Creditor’s costs (including reserved costs, if any) be taxed and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
That pursuant to s.52(3) Order 1 be stayed until 4.00pm on 10 March 2010.
That the respondent file any application for stay pending appeal, if any, by 4.00pm 5 March 2010.
That the matter be adjourned to 9.30am on 10 March 2010.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 146 of 2008
| ALUMA-LITE PRODUCTS PTY LTD |
Applicant
And
| ROSS MACKENZIE MAX REYNOLDS |
First Respondent
| MARGOT LOGAN REYNOLDS |
Second Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
Background
In about March 1996 Aluma-Lite Products Pty Ltd (the creditor) obtained a judgment against Ross Mackenzie Max Reynolds and Margot Logan Reynolds (the debtors) for the sum of $1,750,000.00. Shortly after, on about 29 March 1996, the debtors granted a Bill of Sale in favour of RWL Wilson Pty Ltd over various chattels alleged to be owned by them.
Subsequently the creditor obtained possession of the debtors’ real property being a farming property described as Condamine Ponds after obtaining a Writ of Possession. In exercise of its power of sale it sold various property of the debtors during the course of 1997.
The debtors were unhappy with the creditor’s conduct in the exercise of its powers of sale and sued the creditor, initially in the Federal Court and then following transfer of the proceedings, in the Supreme Court of Queensland (the Proceeding).
The Proceeding was amended in 2004 to include a claim for detinue in respect of the non-return to the debtors of various chattels particularised in the pleadings and which will be discussed later in these reasons. The Proceeding went to trial in October 2008, and the result, the action in the Proceeding was dismissed following reasons for judgment being delivered in November 2009 with final orders for judgment being entered in December 2009.
Before these events, on 15 August 2003, the creditor sought leave, and leave was granted, to proceed to enforce its judgment. An enforcement warrant issued on 2 January 2008. Pursuant to the enforcement warrant a bailiff, Patrick Roach, attended the property Kingsley, a part of Condamine Ponds and seized an electric motor and gearbox which he subsequently sold at auction.
On 10 March 2008 the creditor presented its petition against the debtors (the Petition). The act of bankruptcy relied upon in the Petition was an act pursuant to section 40(1)(d)(i). That is execution had been issued against the debtor under process of a court and property had been sold by the bailiff.
The creditor submits these facts demonstrate the commission of an act of bankruptcy pursuant to section 40(1)(d)(i) Bankruptcy Act in support of the Petition. Subject to two matters the creditor submits it is entitled to a sequestration order against the debtors as all other matters required to be established under section 52 of the Bankruptcy Act have been satisfied.
Two issues arise in this case. The creditor accepts that if it fails on either issue the Petition must fail. They are:
a)Was the electric motor and gearbox the property of the debtors; and
b)Were those chattels unencumbered or did they form part of a chattel subject to the AWL Wilson Pty Ltd Bill of Sale (the Wilson Bill of Sale).
Was the electric motor and gearbox owned by the debtors?
The issue here is whether the electric motor and gearbox constituted a discrete chattel or had it originated from a bale stacker and was property part of it.
At the time the creditor entered into possession of the property, Condamine Ponds, there were many chattels upon the property. As His Honour Justice Martin noted in his judgment there were chattels on the property which were not the subject of the creditor’s security. His Honour noted:
“[88] When the [creditor] entered into possession there were chattels left on Condamine Ponds (some grain, cattle and horses) which were not subject to [the creditor’s] securities. There was also machinery and associated items which had been left on either the road reserve or the mortgaged land. The [debtors] claim that they were the owners of all those items or were entitled to immediate possession of them. They further claim that adequate demands for the return of those items were made, but they were not so returned, and that, as a result they have suffered damage.”[1]
[1] Affidavit Ross Moschella filed 16 February 2010 Exhibit RNM24 page 364
It appears that after the creditors took possession of Condamine Ponds a significant inventory of chattels remained on or about the property. In particular some machines including valuable farm machinery was left on a road reserve abutting the property. The creditor caused these chattels to be moved onto the property. It appears the machines, and by inference other chattels, remained on Condamine Ponds for a couple of years. Subsequently in time as parts of the property were sold those chattels or what remained of them eventually ended up on the Kingsley property.[2]
[2] Affidavit Ross Moschella filed 16 February 2010 Exhibit RNM24 page 364 para[92]
John Williams is an engineer and brother of the director of the creditor. He has been involved in this matter since 1994. In 2006 he inspected items along a fence line of Condamine Ponds. He took a series of photographs[3]. In these photographs and particular JW3 to his affidavit was a photo of an electric motor with adjoining gearbox and sprocket.
[3] Affidavit John Williams filed by leave Annexures JW2, JW3 and JW4
He noted that he initially attended the property in 1996 after the creditor had obtained possession. He did so to inspect the property and cross check items in the Wilson Bill of Sale and items contained in the Bill of Sale granted to the creditor. He said the Wilson Bill of Sale attached an annex of equipment which included a reference to a “Taylor bale stacker” and a “bale stacker”. He recalls seeing two bale stacker/loaders on the property, one was in the hay shed and the other in the paddock near the hay shed.
It is worth noting that in the Wilson Bill of Sale three items of bale equipment were identified. They were described as a “Taylor bale stacker”, an “International bale loader” and a “bale stacker”. It was agreed by each of Williams and Reynolds that the term “loader” and “stacker” in this context were interchangeable.
Under cross examination Williams deposed that the bale loader identified in the photograph JW4 as being similar to the bale stacker he saw in the shed. It was suggested that this bale stacker was the
Taylor bale stacker and that the bale stacker outside was the International bale stacker. Williams could not recall. However he was clear that the bale stacker shown at annex JW4 was similar to the bale stacker he saw in the shed and that the bale stacker in photograph Exhibit 1, A and C was similar to the bale stacker he saw in the paddock. The motorised bale stacker was subsequently delivered across to a Mr Angus McDonald who is alleged to have made a claim upon it. It follows from his evidence that he saw what appears to have been the International bale stacker in the field. It was the one that did not need a motor. He saw the Taylor bale stacker in the shed and it had a petrol fuelled motor.
It was put to Mr Williams that a third bale stacker remained but was in parts with the motor removed and the chassis outside. That was denied. It was further suggested that exhibit 1 photograph C was the chassis to which the electric motor in photograph JW3 was previously attached. Mr Williams did not accept this proposition.
Mr Reynolds gave evidence for the debtor. In his affidavit in response to the Petition he swore that he believed the one horse power electric motor and gearbox were part of the chattels left behind on Condamine Ponds in October 1996 and that “it was likely to be part of a piece of farming equipment called a bale stacker which was subject to the Wilson Bill of Sale”. In oral evidence at the hearing he expanded upon this. He swore that there were three bale stackers on the property at the time possession was delivered up. The first was that shown in exhibit 1. He described it as the International bale stacker. It was a bale stacker driven by “ground force”. That is as it was wheeled along the ground that motion drove the chain drive put on the machine. Next was the Taylor bale stacker. He swore it was driven by a three horse power Briggs and Stratton engine. He said that that bale stacker was passed on to the McDonalds. The third bale stacker was one similar to the Taylor bale stacker, i.e. the one in photograph JW4 except it was a yellowish green and about a foot shorter than the Taylor. It had a steel platform to mount a motor and used an electric motor. He identified the electric motor in photograph JW3 as the electric motor used on that bale stacker.
It seems at least the evidence of both witnesses was consistent in respect of the Taylor bale stacker and the International bale stacker.
Mr Reynolds stated that the third bale stacker was one he had purchased second hand a few years earlier in reasonable condition. He swore that it was used inside the shed and he would take the motor off when it was not in use and store the motor in the shed to keep it out of the weather. He said the third stacker (absent its electric motor) was evident in photograph exhibit 2 “D” and “C”. That observation was made only by Mr Reynolds. When Mr Williams was cross examined about the photos he stated that they depicted only piles of “junk”. Close examination of exhibit 2 “C” and “D” does not reveal anything of fixed form. As was suggested to Mr Reynolds in cross examination the photograph merely exhibited a heap of scrap metal. That factor is in my view significant when considered against his evidence that the third bale stacker was one similar to the Taylor bale stacker depicted in exhibit JW4.
The debtors’ case was not assisted by its conduct of the Proceeding. There were pleadings delivered in the Proceeding. In particular the further amended statement of claim (FASOC) served 3 November 2005 at paragraph 7 alleged that on or about 5 October 1996 there were, inter alia, equipment and chattels not subject to the Bill of Sale to the creditor being various pieces of machinery used for farming, harvesting and earthmoving. The chattels were particularly set out in Annexure B to that statement of claim.[4] Materially the items in Annexure B to the FASOC included item 26 – 1 bale stacker[5]; item 75 – 1 HP electric motor and gearbox[6]; and item 193 – 1 bale stacker[7].
[4] Moschella, Annexure RNM14 at page 221
[5] Page 230
[6] Page 231
[7] Page 233
Mr Reynolds accepted the FASOC claimed that these were items to which he claimed he was entitled to possession and which the creditor had not returned. In particular he acknowledged that item 75, the 1 HP electric motor and gearbox was the one seized and sold by the bailiff.
Subsequently by order made 31 October 2006 a more detailed list was directed to be prepared. A responsive list was forwarded under cover of letter of 29 November 2006. Mr Reynolds conceded that the list must have come from information and knowledge possessed only by him provided by him to his solicitors by way of instructions. Item 75 on that list[8] described a 1 HP electric motor and gearbox. In the column entitled “F” “Photos at C.Ponds 3.11.06” was the numeral “7”. Mr Reynolds agreed the item had been identified as an item on the property at the time it was vacated and was depicted in photo 7 of the photos dated 3.11.2006. The 1 HP engine and gearbox featured on a sheet of four photos collectively numbered 7. The photo on the top left hand corner shows the electric motor and gearbox. A photo from the reverse angle is at Annexure JW-3[9]. (It was taken subsequent to November 1996.)
[8] At page 244
[9] Affidavit John Williams filed by leave 17 February 2010
Significantly the column marked “H” was titled “Wilson’s Bill of Sale Def Doc.1177”. Item 75 did not contain any notation suggesting it was subject to the Wilson’s Bill of Sale. Mr Reynolds stated the fact of its omission was a mistake.
The document was in any event enlightening of other matters. Item 26, one bale stacker, described as a “18’ bale elevator for moving hay bales (s/h approx 1986)” did feature on list “H”. Likewise item 193 in the list was also a “bale stacker” particularly described as “steel 20’ for moving small bales (s/h approx 1986)”. They were the only two bale stackers described in the annexure.
Mr Reynolds conceded in cross examination that items 26 and 193 were the Taylor bale stacker and the bale stacker as listed in the Wilson Bill of Sale. However as discussed below, even this evidence is not what it seems.
The allegation at paragraph 7 of the FASOC was subsequently varied by amendment of annexure B by repleading the total value of the chattels listed in it. Subsequent to the FASOC a copy of further and better particulars was supplied by the debtors’ solicitors on or about 11 July 2006. It sought to link the items listed in annexure B to the FASOC which were alleged to be used for the larger pieces of machinery detailed in annexure D. Paragraph 23(b) of the FASOC alleged loss being suffered by the debtors because of the creditor retaining possession of the machinery and its failure to return parts that were missing or damaged. It was alleged that during the period that the creditor was in possession of the larger items of machinery the absence of those missing parts was in part responsible for the loss. The relationship between the various chattels to the itemised losses were particularised in the table at RNM-15.
The only reference to the 1 HP electric motor and gearbox in RNM-15 is contained in line 39 which stated the electric motor relates to the electric motors claim detailed in annexure D. Significantly no relationship was alleged between the one horse power electric motor and loss associated with the bale loaders.
The items in the third column entitled “ ‘Annexure B’ (items needed for Annexure D)” were the items pleaded in annexure B to the FASOC as being needed from annexure B to produce the claim alleged in annexure D to the FASOC. For instance in the FASOC annexure D the bale elevators at item 28 therein were pleaded as producing a weekly profit of $560.00 per week. The required items from annexure B comprising the bale elevators included item 26 (1 bale stacker); item 77 (parts for BNS engine); items 106-140 (various bolts and washers). The fourth column in RNM-15 identified other items from annexure B used in conjunction with the earlier listed items from FASOC annex D for the bale elevators.
The point of these annexures was that nowhere within the debtors’ claim against the creditor in their claim for damages for detinue or bailment did they allege the loss occasioned by the withholding of the bale elevator incorporated, at least in part, the creditor holding over the 1 HP electric motor and gearbox.
In fact item 39 of RNM-15 puts the debtors’ position concerning the electric motor and gearbox clearly in context. That item noted the claim in FASOC annexure D item 39. That was a claim for electric motors at $600.00 per week and was premised upon the 1 HP electric motor and gearbox, annexure B item 75, being incorporated into that matter[10].
[10] At page 240
Mr Reynolds’ only explanation for this matter was that because he did not get the bale elevator back he did not know the electric motor was missing.
A third amended statement of claim (3rd ASOC) was delivered on 14 June 2007. Again that document was prepared on the instructions of the debtors. Paragraph 7 of the 3rd ASOC was amended to particularly plead, inter alia, equipment and chattels not subject to security. It set those matters out in some detail in annexure B with the introduction of Lists 1, 2 and 3 which particularly alleged the equipment in Lists 1 and 2 as being subject to the Wilson Bill of Sale and the equipment in annexure B List 3 being subject to no security. Annexure B List 1 identified items 203 and 204 as “1 bale stacker” and “1 bale stacker”[11]. Of particular significance in annexure B List 3 at item 20 it particularised a 1 HP electric motor and gearbox. That is the debtors alleged the 1 HP electric motor and gearbox was not only not subject to the Wilson Bill of Sale but was also, by inference, not part of any bale stacker. Again when Mr Reynolds’ attention was directed to the apparent inconsistency between this evidence and that of his earlier testimony his only response was that he was initially mistaken and that his later evidence was more reliable.
[11] Page 277
Subsequent to the production of annexure B further particulars were provided in respect of annexure B. Again this was a document prepared on the instructions of Reynolds in response to an application brought in relation to the particulars of annexures B and D to the debtors’ amended statement of claim. The further schedule relating to annexures B and D which incorporated where possible expanded descriptions of the machines and other equipment together with dates of acquisition and whether the equipment was new or second-hand were forwarded under cover of letter by the debtors’ solicitors of 26 October 2006[12].
[12] Affidavit Moschella RNM-28
Of further moment were the descriptors for this equipment more particularly provided in Annexure “D” attached to the debtors’ solicitors letter of 26 October 2006; RNM-28. Item 14 was identified as the “bale loader and bale stacker (purchased s/h [second-hand] approx 1986 – International bale loader and 18’ bale stacker”. Given its description lacked any reference to how it was procured its description accords with the International bale loader identified by the debtor in his oral testimony. Item 28 referred to “hay elevators / purchased second-hand 1986 and new 1984) – 18’ hay elevator with 4 H.P.. Briggs and Stratton engine, 21’ Taylor hay elevator with 4 H.P. Briggs and Stratton engine”. According to the debtors’ oral evidence the larger of these two was the Taylor bale stacker. It was the one said to have been returned to Mr McDonald. It follows that the third bale stacker referred to in Schedule D, that is the 18’ hay elevator with 4 H.P. Briggs and Stratton engine differed from that described in his oral evidence. That is a bale stacker about a foot shorter than the Taylor bale stacker, but powered by an electric engine.
In evidence Mr Reynolds said the second bale stacker was bought by him at a clearing sale in reasonable condition. He said it was about 1’ shorter than the Taylor bale stacker. He said the second bale stacker was chain driven and had an electric motor. While I accept he was reasonably in error in describing the second-hand bale stacker as being about 1’ shorter than the Taylor bale stacker he was clearly in error in his description of the engine. It is plain from the particulars that he provided that each of the two bale elevators referred to in the pleading were powered by Briggs and Stratton engines, that is petrol engines rather than electric engines. Of this inconsistency he said it was merely a mistake.
Another anomaly apparent in the evidence relates to the number of bale stackers. Three bale stackers were covered by the Wilson Bill of Sale. Mr Williams and Mr Reynolds agree from their evidence that in 1992 the International bale stacker was given to the Reynolds.[13] Both Mr Williams and Mr Reynolds also agree that a bale stacker was given to the McDonalds. Although Mr Williams was not able to be particular about the description of the bale stacker he agreed that the bale stacker was similar to that shown in photograph JW4. That bale stacker was similar to the Taylor bale stacker. Mr Reynolds contended the Taylor bale stacker was given to Mr McDonald. Although not spoken of, there must have been a fourth bale stacker on the property for two to be in existence at the time of the preparation of annexure B.
[13] Affidavit John Williams filed by leave 17 February 2010 at paragraph 7
More recently I was informed of the 4th amended statement of claim (4th ASOC) which proved to be the final pleading in the Proceeding. In the annexures to that pleading the damages claim for the electric motors appears to have been abandoned. Annexure E to the pleading which alleged to particulars of the machinery damaged by the creditor while in its possession and was unusable without its return did not make any reference to the electric motors, either discretely or as part of the bale loader and stacker.
It follows it is difficult to reconcile the evidence of Mr Reynolds with the facts as he pleaded them through the course of the various iterations of pleadings and particulars provided in the Proceedings. All of these matters were agreed by him to have been matters within his knowledge and he was the source of instructions for the pleadings. It is also inconsistent with his oral testimony. I have no confidence in the reliability of anything he has told me of and I reject his evidence on these matters unless otherwise stated.
The question remains whether the electric motor and gearbox form part of the bale stacker which Mr Reynolds says is now in pieces and shown in photograph Exhibit 2-C. I do not accept it is. First I do not accept the material shown in photo Exhibit 2-C is a bale stacker disassembled or otherwise. As Mr Williams said the photograph shows “just a pile of junk”. Mr Reynolds said in his evidence he could see a bale stacker from within the material depicted in the photograph. I think Mr Reynolds was being both wishful and fanciful in the expression of his evidence. I have no reason to doubt Mr Williams’ evidence on this point. From the evidence it appears he has the least to gain personally from the outcome of these proceedings and accordingly less interest in that outcome. The same cannot be said for Mr Reynolds.
Even if I were wrong on that point, in my view, the weight of the documentary evidence relied upon and pleaded in the Proceedings supports a finding that the electric motor and gearbox was not part of a bale stacker but a discrete item of equipment. On the balance of probabilities I am satisfied that that was so.
For the debtors it was submitted that despite the matters pleaded it was clear that the debtors always contended the electric motor and gearbox form part of and belonged to a bale stacker. Those matters were asserted in correspondence dated 11 February 2008 in an email of 15 February 2008. That is approximately nine months before trial and before the 4th ASOC.
However as the letter of 11 February 2008 noted it followed the commencement of enforcement proceedings by the bailiff advertising the electric motor by notice of sale. That matter appears to have precipitated the debtors’ apparent reversal of instructions from its pleaded position on this point and in particular the matter pleaded in RNM-15 forwarded July 2006. In my view the clear motivation for this change of position was the obvious risk to the debtors that the sale or the warrants return unsatisfied would constitute an act of bankruptcy and thereby potentially frustrate their intention to litigate. I do not accept the debtors’ assertions in February 2008 as manifesting a truthful position. In any event the manner in which the debtors then proceeded to trial did not proceed on the premise that the 1 HP electric motor and gearbox did form part of any bale stacker. By that time it had fallen away as an issue.
Neither do I accept that there were in fact two electric motors as was submitted.
In this case the chattels were exhaustively catalogued, pleaded and cross referenced. If there had been a second motor fitting the description of the unencumbered electric motor and gearbox it would have been recorded. In any event the assertion that a second motor existed and formed part of the bale stacker is inconsistent with RNM-15.
Insofar as Mr Reynolds has given evidence that the electric motor and gearbox was part of a bale stacker I am of the view that his evidence on those matters is unreliable. I do not accept his explanation of the various tables prepared as annexures to the pleading and to explain the pleading simply incorporating a mistake which has been compounded through the course of the proceedings. Various documents came into existence after the creation of annexure B to explain annexure B. The preparation of those documents such as the document evident at annexure RNM-21 at page 273, the contracting rates document, annexure B List 2 and List 3 to the 3rd ASOC and particulars provided under cover of letter of 28 October 2006 each afforded Reynolds an opportunity to correct any errors. None were corrected. The 4th ASOC only served to limit the issues. It did not radically alter the course of the Proceeding. Undoubtedly the 4th ASOC was designed to limit the expense of the Proceeding by abandoning those allegations which would not have justified their prosecution on a costs/benefit analysis. I am satisfied those documents more reliably reflect the true position than Mr Reynolds’ oral testimony and the recent affidavit prepared for this application.
It follows by reason of those matters that the 1 HP electric motor and gearbox referred to in the warrant did not form part or was ever part of the bale stacker referred to in the Wilson Bill of Sale.
Was the electric motor and gearbox subject to encumbrance?
The debtors contend that in any event the electric motor, even if it were not part of the bale stacker was included and covered by the Wilson Bill of Sale.
The argument progressed that by clause 3 that the Bill of Sale effected a transfer by the debtor in favour of the creditor, the “Mortgaged Property”. That is, it was an old system mortgage with title having passed from the debtor to Wilson. In clause 1.1, the definitions clause Mortgaged Property was defined to mean the chattels set out in Item 3 of the Schedule. The Schedule to the Bill of Sale identified in Schedule Item 3 noted the “Chattels secured” being “as set out at Annexure A”. Clearly if the electric motor formed part of the bale stacker it would have been incorporated in the Bill of Sale by operation of those provisions. However for reasons I have earlier identified it was not and on that basis it was not subject to the Bill of Sale. It follows the grantors covenants provided for in clause 7 did not apply to it as I am satisfied on the balance of probabilities that it never did form part of a bale stacker and accordingly those covenants did not apply.
It was further submitted that in the definition clause 1.1 chattels were defined to mean “the property described in Items 3 and 4 of the Schedule and where the Grantor and/or Debtor carries on a Business it shall be deemed to include:
…
(g) all other assets whatsoever and wheresoever of the Business; and
…”
It was contended that the electric motor and gearbox fell within this class of chattel.
Finally it was submitted by the creditor that the debtor could find no relief under sub clause (g) of the definition of chattel because by reference to the Schedule the debtors’ Business was not identified. In the schedule the item relevant to the carrying on of a “Business” was noted “not applicable”. Item 6 “Grantors Business” was not defined. Business was defined to mean a grantors business described in Item 6 of the Schedule. I agree the debtors’ occupation is not his business. Innumerable instances of occasions where an occupation bears no relationship to the subject business exist and this point does not require illustration or explanation. The Bill of Sale was silent on this matter. No ambiguity arises. Accordingly it is not for the Court to intervene on this point between the parties.
Finally it was submitted by the debtors that the electric motor and gearbox was captured by clause 1.1 definition of chattel, item 4, as an “after acquired asset”. It was submitted for the creditor that Item 4 of the Schedule being “Chattels to be acquired” was noted as “not applicable”. It follows this clause also did not apply. That is even if the electric motor was subsequently acquired it was still not covered by the Bill of Sale. I accept that submission.
It follows then as a matter of proper construction that the Bill of Sale only related to those chattels identified in Annexure A. It did not include any relevance to the electric motor and gearbox and thus it was not subject to the Bill of Sale.
Finally on this point it was submitted on behalf of the debtors that the matter was the subject of finding by His Honour Justice Martin in the Proceeding. Respectfully I do not agree.
In his judgment His Honour noted at [90] that the debtors had granted a Bill of Sale over a large number of chattels. As was discussed above, this observation was clearly premised upon the very detailed pleadings alleged by the debtors in its various iterations. At para [91] His Honour continued:
“By the Wilson Bill of Sale the [debtors] effectively used all their otherwise unsecured property as security for a loan from Wilson. The only other similar items of any worth were the subject of another Bill of Sale to the defendant [to the creditor].”
In view of the broad statements noted above His Honour did not descend into any detailed analysis, explanation or findings as to the matters alleged by the debtors in their pleadings. His Honour clearly did not descend into such detail as was unnecessary in the context of the debtor’s claim. As His Honour noted the claim was for damages for detinue and/or bailment particularly in respect of five large items of equipment said by the creditor to be subject to the Wilson Bill of Sale. The matter of title to the electric motor and gearbox was not the subject of any express claim for damages so His Honour did not focus upon or specifically address the matter of its title.
This matter is confirmed by the subsequent amendment of pleadings at the commencement of the trial and the opening by counsel at the trial. Transcript of the opening, attached to correspondence forwarded to my chambers after the close of submissions addressed this issue. By way of explanation for the amendment to the statement of claim the following exchange took place:
“Mr Fleming QC:…What we are doing is limiting the claim entirely to those pieces of equipment that were returned but were returned with parts missing.
His Honour: Say that again.
Mr Fleming QC: We are limiting the claim to those pieces of equipment that were returned but were returned with parts missing or were damaged while they were in the possession of the defendant.”
A close review of paragraphs 90 and 91 demonstrate that His Honour dealt only with the substantive matters. The focus of the proceeding before His Honour was upon five machines which do not include the electric motor and gearbox. It is plain from His Honour’s reasons particularly at [91] that His Honour was only concerned with matters of “worth”. It is self evident given the sum realised on the sale of the electric motor and gearbox that it was not a matter of “worth”. In any event the action failed without need for His Honour to descend into any particular findings about title to the electric motor and gearbox. As is evident at paragraph [102] the focus of His Honour’s attention was principally upon the five pieces of machinery.
Defective enforcement process
The debtors submit that no act of bankruptcy was committed because the enforcement warrant and report was not returned to the registrar as required by the enforcement warrant. In particular the debtors rely in support of that contention upon the report exhibited to the affidavit of the enforcement officer Mr Roache. It bears a date stamp marked “Sheriff of Queensland, Brisbane – received 6 MAR 2008”. It was submitted that given the Sheriff is not the registrar there has been no report in compliance with the rules. However as was submitted for the creditor Rule 889(2) does not require service on any particular officer of the Court but merely filing in “the registry”. In his affidavit Mr Roache swore that on 22 February 2008 he returned the enforcement warrant along with his report to the Supreme Court in Toowoomba.
The Toowoomba registry is not a defined district as provided for in Part 16 of the Supreme Court Act 1995. That is the Central, Northern or Far Northern District. By regulation the Toowoomba registry of the Supreme Court falls within the Toowoomba Supreme Court district and a Supreme Court registry continues at that place; section 286 Supreme Court Act 1995. The registrar of that registry is for the purposes of Supreme Court proceedings a registrar of the Supreme Court. The proximity of the office of registrar and sheriff is apparent and recognised in the Supreme Court Act 1995. Indeed, in the regions the registrar of a Magistrates Court for a Magistrates Court district in which the Supreme Court sits performs both the functions of registrar and deputy sheriff: s.286 Supreme Court Act 1995. The Act does not prescribe the manner in which the business of the registry is arranged although some of that detail can be found in the UCPR. However I an content to take judicial notice of the fact that in district registries their size dictates that all courts business is administered through a common shopfront known as the “registry”, that is the business of both registrars and the sheriff.
As the registry is the shopfront for multiple offices within the court all the enforcement officer was required to do was file the return of the enforcement warrant and his report with the court’s registry to satisfy the requirements provided in the warrant that he “report in writing to the registrar”. The only reasonable inference of fact open is that the enforcement warrant and report were filed at the Toowoomba registry of the Court before being forwarded internally to the Sheriff’s office in Brisbane. Accordingly, filing of the enforcement warrant and report in the Toowoomba registry of the Supreme Court did satisfy the direction to him in the enforcement warrant.
In this instance the warrant of execution is in accordance with the prescribed form. Arguably an inconsistency arises between both Rules 822 and 889 UCPR and the form concerning the person to whom the enforcement officer must report and the manner of report. The direction in the enforcement warrant to report to the registrar is not inconsistent with the direction under the Rules to file a copy of the statement in the registry as usually any report would be forwarded to the registrar through his registry. For instance Rule 980 UCPR requires a registrar to make available a “document filed under these rules”. It follows that if the rules required the return to be filed in the registry the direction in the enforcement warrant to report in writing to the registrar could only be properly satisfied by filing in the registry a copy of the report and from there, it being provided to the registrar. In my view it follows that in fact there is no inconsistency between the direction to the enforcement officer in the enforcement warrant and the Rules in practice both matters can be satisfied by the enforcement officer filing his report in the court at Toowoomba. I accept that occurred in this instance.
It follows that for reasons addressed above I am satisfied there has been compliance with Rules 822 and 889 UCPR and that there has been a “return” of the warrant. Execution has been issued against the debtors under process of the Court and the property of the debtor has in consequence been sold by the Sheriff on 16 February 2008. I am satisfied that an act of bankruptcy has been committed on that date pursuant to section 40(1)(d)(i). In reaching that conclusion I note the submissions of the debtor that bankruptcy requires “proof [that] should be clear and convincing; a person should not be made bankrupt on an ambiguity.”; in Re Moore (a bankrupt)[14] I am satisfied that the facts in this case are indeed clear and convincing and no basis for ambiguity arises.
[14] (1969) 113 S.J. 791.
Service upon Mrs Reynolds
The next matter raised by the debtor is that the warrant of execution was not served upon the female debtor Mrs Reynolds.
The evidence is that the warrant of execution was issued from the Brisbane Registry of the Supreme Court. On 21 January 2008, Patrick Roache, a bailiff of that Court attended premises at 4 Kruiswick Court Middle Ridge Queensland and served the warrant of execution upon the male debtor, Ross Reynolds. He says that Mr Reynolds then informed him that the female debtor, Margot Reynolds was away and would be back in two weeks. He says that at that time he left a copy of the Warrant of Execution and a Notice to Vacate with Mr Reynolds. He subsequently returned and retrieved the Notice to Vacate. In any event the debtors contend there has not been proper service of the Warrant of Execution upon Mrs Reynolds.
For the debtor it was contended that service had to be personal. I agree with the creditor’s submission that in this instance it did not have to be personal. Section 40(1)(d)(i) Bankruptcy Act relies upon execution under the UCPR. That is proper execution in accordance with prescribed processes.
The relevant rule, Rule 828(3) UCPR merely requires the enforcement officer to have the warrant in his possession when enforcing the warrant and to “show the warrant to any person claiming an interest in the property to be seized”.
The enforcement process is governed by Chapter 19, Part 3 UCPR. Rule 817 provides the procedure for applying for an enforcement warrant; Rule 820, the issue and enforcement of the enforcement warrant; Rule 822, the return of the enforcement warrant; and Rule 828 for the seizure of property under the enforcement warrant and Rule 889 then deals within the return of the warrant.
The Court approved form, Form 75 makes provision for notice to the enforcement debtor. It provides no guidance on this issue. The presence of the “Notice to Enforcement Debtor” is clearly to notify an enforcement debtor claiming a legal or beneficial interest at the time of enforcement of his rights; Rule 828(1) and (3)(b) UCPR. Nowhere within the rules is there any rule expressly relating to the service of the enforcement notice.
The notes to Rule 817 UCPR at 817.15 observes[15]:
“[Rule 187.15] Enforcement warrant may be personally served or served by post. Once an enforcement warrant is issued by a court or registrar, the enforcement creditor must attempt to serve the enforcement warrant on the enforcement debtor. The enforcement debtor may be served with the enforcement warrant either personally or by post. This differs from the general position under the previous rules of Court where personal service of the execution process was required.”
[15] Civil Procedure Queensland, Butterworths, 1996, Vol 1, p21, 112.
It does not state any such rule in support of this contention. However the clear inference to be drawn, especially by the observation that service may be effected by post, is that if service is required then service need not be personal. It follows that if service is in part required Rule 112 UCPR applies.
In any event the creditor submits that in fact in order to constitute an act of insolvency or an act of bankruptcy it is not necessary that a debtor should have notice of the seizure made under the execution. In Re Peddler[16] the Victorian Full Court held:
“The next question is whether the Insolvency Act, s.37(v) requires that before an act of insolvency is complete, notice of the seizure should be conveyed in some way expressly to the debtor. We think that is not so. The very object of that section appears to be to protect the general body of creditors against any contrivance of the insolvent not to be aware of the seizure. The debtor knows that there is a judgment against him, and that if he does not satisfy it his goods may be seized. If the notice were required, the debtor might keep out of the way and thus defeat the very object of the subsection. We think, therefore, that the notice in question is not necessary, and that the act of insolvency might be complete though the debtor had no notice of the seizure.”
[16] Volume XV11 The Australian Law Times 17 August 1895
It follows that I am satisfied the enforcement warrant need not be served.
In any event even if service was required it need not be personal. It is clear from the evidence of Mr Roache that a copy of the enforcement warrant concerning Mrs Reynolds was left with Mr Reynolds. Accordingly Rule 112 UCPR applies. It provides that in the instance of service not being required to be personal service it may be served by being left with someone who “is apparently an adult living at the relevant address”; Rule 112(1)(a) UCPR. That is what occurred in this instance.
For present purposes it would appear that the provisions of section 37 of the Insolvency Act broadly parallel those at section 40(1)(d)(i) of the Bankruptcy Act. It follows that I do not consider personal service of the warrant of execution was necessary. But in any event if it was I am satisfied that it has been effected in accordance with the UCPR.
Appeal
The debtors have sought to appeal the dismissal of the Proceeding in the Supreme Court. Notwithstanding the pendency of an appeal based on “genuine and arguable grounds” the creditor is entitled to have its petition heard and determined before it lapses pursuant to section 52(4) and (5) even if the decision in the appeal has not been handed down by the last practicable date for the petition to be determined prior to it lapsing. See Deputy Commissioner of Taxation v Wong (Unreported Federal Court of Australia, Emmett J 12 June 1998 at pages 5 and 6). Ordinarily the Court, without good reason, would not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as a foundation of the bankruptcy proceedings. It could exercise its discretion to allow an adjournment to allow for the debtor to prosecute the appeal against the judgment where there are substantial grounds or “genuine and arguable” grounds against the judgment. This is particularly so where success would bring the debt below the threshold level for the issue of a bankruptcy notice. See Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 at 147 – 149.
A common theme in all these cases concerns the prospect of matters being prosecuted with reasonable expedition. The Proceeding is not a claim which demonstrates an expeditious approach to litigation. The Proceeding was commenced in 1997. It appears to have a long and turgid history before proceeding to trial in 2008 and judgment in 2009. Although in the context of this application the court only has the benefit of a general overview of the Proceeding below a review of the judgment demonstrates that the debtors’ case was one which the outcome was significantly effected by the court’s assessment of their reliability as witnesses together with other witnesses called in their case. The Notice of Appeal seeks to challenge a significant number of those factual findings. Although not impossible there are significant hurdles to a successful appeal against findings of fact. Although I cannot comprehensively assess the prospects on appeal the fact remains the notice of appeal itself raises many issues a significant number of which arise out of findings of fact and the manner in which the case was prosecuted in the course of the Proceeding. The history of the Proceeding itself does not engender confidence that the appeal will be prosecuted expeditiously. This is not a case such as commonly comes before the court where the act of bankruptcy was the failure to pay a sum of money required pursuant to a judgment which is now itself the subject of an appeal. The Petition premised upon an act of bankruptcy commissioned because of the sheriff exercising his powers to sell. On balance I am not satisfied that in these circumstances despite the pendency of the appeal there is other sufficient cause demonstrated as to why a sequestration order ought not be made.
Summary
The petition in this instance is founded upon an act of bankruptcy committed on 16 February 2008 pursuant to section 40(1)(d)(i) entailing the execution against the debtors under process of a court against their property in consequence of which it was sold by the sheriff. The matters stated in the petition have been verified by affidavit. Service of the petition is established as is the fact that the debt remains owing. The other matters required pursuant to the bankruptcy rules have been addressed. In all the circumstances the court being satisfied of the proof of those matters it is appropriate to make a sequestration order against the estate of the debtors.
Order
A Sequestration Order be made against the estate of ROSS MACKENZIE MAX REYNOLDS and MARGOT LOGAN REYNOLDS.
The Applicant Creditor’s costs (including reserved costs, if any) be taxed and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
That pursuant to s.52(3) Order 1 be stayed until 4.00pm on 10 March 2010.
That the respondent file any application for stay pending appeal, if any, by 4.00pm 5 March 2010.
That the matter be adjourned to 9.30am on 10 March 2010.
I certify that the preceding eighty-three (83) paragraphs are a true copy of the reasons for judgment of Burnett FM
Associate: B Schmidt
Date: 25 February 2010
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