Anbar (in Bankruptcy) v Linfox Australia Pty Ltd
[2010] FMCA 717
•7 October 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ANBAR (IN BANKRUPTCY) v LINFOX AUSTRALIA PTY LTD | [2010] FMCA 717 |
| BANKRUPTCY – Procedure and evidence – Service. BANKRUPTCY – Proceedings in connection with sequestration – Petition and sequestration order – Other matters – Sequestration order set aside. |
| Bankruptcy Act 1966 Federal Magistrates Court Rules 2001, rr.16, 16.05(2)(a). |
| Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44; (2006) 5 ABC (NS) 330 |
| Applicant: | ABDULAHI ABDIRAHMAN ANBAR (IN BANKRUPTCY) |
| Respondent: | LINFOX AUSTRALIA PTY LTD |
| File Number: | MLG 1153 of 2010 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 2 September 2010 |
| Date of Last Submission: | 23 September 2010 |
| Delivered at: | Melbourne |
| Delivered on: | 7 October 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr Boden |
| Solicitors for the Applicant: | Starnet Legal Pty Ltd |
| Counsel for the Respondent: | Mr Kohn of Counsel |
| Solicitors for the Respondent: | Cornwall Stodart |
ORDERS
The sequestration order of 13 May 2010 be set aside.
There be no order as to costs.
Amended pursuant to Rule 16.05(2)(e) of the Federal Circuit Court Rules 2001 on 31 October 2018
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1153 of 2010
| ABDULAHI ABDIRAHMAN ANBAR (IN BANKRUPTCY) |
Applicant
And
| LINFOX AUSTRALIA PTY LTD |
Respondent
REASONS FOR JUDGMENT
The applicant was made bankrupt by order of a Registrar on 13 May 2010, based upon a judgment debt from the Victorian Magistrates’ Court for $9325.29 (inclusive of costs and interest). The judgment debt arose out of a motor vehicle collision between the applicant and a motor vehicle owned by the respondent.
At the hearing before me the applicant, through his solicitor, stated he was in a position to pay the debt. It appears from the material that the applicant is not actually insolvent.
The Issue of Service
The real issue in this case is whether or not the applicant was served with the bankruptcy notice or creditor’s petition, as alleged. The affidavit of service for the bankruptcy notice was sworn by the service agent, Mr Gunn, on 1 October 2009. It swears that the bankruptcy notice was served on the applicant personally at 14/33 Alfred Street, North Melbourne. It also swears to a brief conversation in which the service agent asked whether the person’s name was that of the applicant and, following an affirmative answer, asked whether they were the person referred to in the bankruptcy notice as the debtor, to which he also received an affirmative answer. The same process server swears that he served the creditor’s petition and supporting material on the applicant on 21 March 2010 at 6.15 pm at the unit 14/33 Alfred Street, North Melbourne, Victoria.
In support of the application the applicant swore a brief affidavit setting out that he did not receive any notice of the bankruptcy until he discovered that his bank accounts were frozen. He admits that he did not appear at the hearing of the State Magistrates’ Court case with respect to the motor vehicle collision and judgment was obtained in his absence. He says that in July 2009 he was served with a summons to attend for oral examination at the Melbourne Magistrates’ Court and intended to provide details of his income and assets. He says that after that he received no further notice.
Importantly, the applicant says that he left the flat at 14/33 Alfred Street in late November 2009, moving into a flat at 108/33 Alfred Street where he presently lives. He denies ever receiving a bankruptcy notice or creditor’s petition.
The applicant gave evidence and was cross-examined. Whilst it was apparent that English was not his first language, and that he had some difficulty in understanding the questions being asked of him, generally he appeared to be a credible witness. Whilst I accept his honesty as a witness, I had some doubts as to the clarity of his recollections and understandings of the various events. However, other evidence in the case convinces me that his evidence was honest and accurate.
The applicant swore that on Sundays he and a friend go out in the evening and do not come home until late. His friend was called to give evidence, and corroborated this part of his evidence. Neither could remember the specific night in question, which is some time ago. It appears to me that it is to their credit that they did not attempt to recall in detail what would otherwise have been an unremarkable Sunday evening. The applicant’s friend, Mr Farrah, also presented as a frank and straightforward witness.
Mr Sara, an officer from the Department of Human Services Victoria, was called to give evidence. Mr Sara is the officer who manages the units in which the applicant was residing, as part of the Department’s public housing responsibilities.
Significantly, Mr Sara swore that the applicant was given a new lease in November 2009 on moving to the premises at 108/33 Alfred Street. He explained that the new lease commenced officially on 29 November, and the relocation of the applicant was necessary as two raw sewerage blockages had made the unit at 14/33 uninhabitable from 29 November 2009 until 14 July 2010. Mr Sara said that the Department had replaced the carpet twice before and that after the applicant moved out the Department did not put down carpet again, for some time, leaving the carpet up to allow the premises to dry out. He explained in somewhat graphic detail the volume of raw sewerage that was in the premises, making it clear that it would have been uninhabitable and, indeed quite memorable, for anyone who would have attended. He said that he kept the keys and that it is the practice of the Department to change the locks to a builder’s key when work is first done on the unit and then to change to a new key when the new tenant arrives. However he was not able to say from personal knowledge when and if the locks on this particular unit were altered. I have no reason to doubt his evidence. He presented as a frank forthright witness without personal relationships to any of the parties in the case. I accept his evidence.
Mr Gunn, the service agent, was called to give evidence and said that he first went to the address in September 2009 and that when he went again to serve the petition in March of 2010 he was not sure of the apartment that he attended upon as he said that all of the apartments look the same. Mr Gunn has been a process server for five years, although this is the first time he has been called to give evidence. Unfortunately he could recall no specifics, other than saying that he recalled the applicant’s face and that he never entered into the premises. He recalled nothing peculiar about number 14/33 Alfred Street and had no notes or diary with respect to the event. Had the service been completely unremarkable it would not be surprising that he had little recollection, as he serves 20 to 30 documents per week.
It seems remarkable that he would not recall, or at least set out in the Affidavit of Service, that he had served the documents at a place other than 14/33 Alfred Street. I do not accept that he would have located the applicant at that apartment as the applicant had left that apartment due to the sewerage difficulties, and had an alternative apartment within the block. Indeed the service agent was not able to recall whether it was a ground floor unit or a unit up higher in the unit block.
I do not accept the evidence of the service agent as to service on the applicant on the second occasion as it appears that on the material, and in particular the independent evidence of Mr Sara, he could not have served the applicant in the manner that he claimed.
Having regard to the evidence as a whole and the demeanour of the witnesses I prefer the evidence of the applicant with respect to the service of the bankruptcy notice.
I therefore find that the applicant was not served with the bankruptcy notice or creditor’s petition in this matter.
Steps taken by the Trustee
On 28 May and 1 June 2010 the Trustee had conversations with the applicant. Importantly, on 1 June the Trustee notes a conversation wherein the applicant says that he is ready to pay seven to eight thousand dollars but not the $25,000 put to him. It seems that the Trustee estimated his fees conservatively at $20,000. On this occasion the applicant stated that he had not received any documents and the address that was used for him was wrong. The Trustee advised him that he had avenues to pursue if he believed he had unfairly been made bankrupt and provided him with some information in a package.
On 16 June, in a discussion with the lawyer of the applicant, the lawyer advised the Trustee that the applicant did not reside at the address specified in the affidavit of service for the creditor’s petition and that consideration was being given to bringing an application to set aside the sequestration order.
A report prepared by the Trustee indicates that the applicant’s property includes a cheque account with a balance of $21,878.94 and a motor vehicle valued at $2850; unsecured creditors of $10,695 and that there were no secured creditors. The report estimated the cost of examination at $20,000 and recommended an approval of maximum fees for the Trustee of $30,000 plus GST. It appears that the applicant is solvent and he says he can pay this debt.
Effect of failure to serve
The failure to effect service is a prima facie basis for annulling the bankruptcy and setting aside the order under r.16.05(2)(a) of the Federal Magistrates Court Rules 2001.
A significant issue in this case is whether or not the bankruptcy should be annulled or the bankruptcy order set aside. The practical consequence of the different paths is whether or not the applicant will be liable to pay the Trustee’s expenses in administering the estate.
It appears to me that, for the reasons set out in Vaucluse Hospital Pty Ltd v Phillips [2006] FMCA 44; (2006) 5 ABC (NS) 330, I have a discretion as to whether or not to make an order annulling the bankruptcy or setting it aside under r.16.05.
In this case there is only one creditor, who is responsible for the service agent who failed to effect service. The estate has not been administered, in that the estate effectively consists only of frozen bank accounts. The applicant notified the Trustee earlier of his lack of knowledge of the proceedings and at an earlier stage offered to pay the debt. Given the applicant’s background and understanding it appears to me that the application has been prosecuted in a timely manner.
I have regard to the small amount of the debt and the very large fees that would be involved in the administration of the estate. I accept the respondent’s submissions that it is not alleged that the Trustee acted inappropriately (see: para [37]). I also have regard to the fact that the debt is due and owing and that there were not circumstances upon which the applicant could rely to found a belief that he did not have to meet that debt to the respondent.
I also have regard to the fact that a significant purpose of the bankruptcy notice is to give a person fair warning to pay the debt or be considered to have committed an act of bankruptcy, from which a creditor’s petition is likely to follow. In the absence of such warning a fundamental step in the scheme of the Bankruptcy Act 1966 has not been effected on a practical level.
The failure to effect service of the bankruptcy notice and the creditor’s petition has resulted in a sequestration order being made in circumstances that reflect a fundamental failure of procedural fairness.
In the circumstances of this case I am persuaded that the appropriate order is to set aside the sequestration order under r.16.
I note that the application sought an annulment or such further or other order as the court deigned to meet. The potential of an order under r.16 was raised with the parties in final addresses, and the respondent’s counsel objected to the court considering making an order on the application. It appears to me that it must always have been considered a real issue in this case given that the whole case was founded upon the proposition that the applicant had not been served with the bankruptcy notice or creditor’s petition. Following the hearing of the matter I provided the parties with an opportunity to make further written submissions if they chose, and the applicant filed further submissions within 7 days. There were further submissions from the respondent in writing that I have considered.
In the circumstances the relief I will grant appears to me to be within the ambit of the application, and if it were not I would have granted leave to specifically include such a claim.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
Date: 7 October 2010