Angus Property Development v Dwyer

[2007] FMCA 528

FEDERAL MAGISTRATES COURT OF AUSTRALIA

ANGUS PROPERTY &DEVELOPMENT v DWYER & ANOR [2007] FMCA 528

BANKRUPTCY – Review of Registrar’s decision − where a bankruptcy petition against the respondent debtors was dismissed − where the District Court awarded a default judgment − where the judgment was set aside conditionally on terms − where the amended defence filed in the District Court alleges fraud on the part of the creditor by his agent − where an act of bankruptcy has been committed − where a trial in the District Court of the substantive issues is due to be listed in the reasonably near future − whether in the event of an appeal against the original judgment the petition should be adjourned until the appeal is finalised.

Bankruptcy Act 1966

Martin & Anor v Commonwealth Bank of Australia (2001) 217 ALR 634
Re Vella; Ex parte Seymour (1983) 67 FLR 287 at [290]
Re Hayes; Ex parte Thomas Borthwick and Sons (A/asia) Ltd (1970) 18 FLR 216
Re: Zagoridis and Maria Anne Zagoridis Ex parte: Q’Plas Group Pty Ltd 27 FCR 108
Byron v Southern Star [1997] 151 FCA
Re Geard Ex parte Reid (1994) 217 ALR 191
Ahern v DCT (1987) 76 ALR 137
Re Sarikaya; Ex parte Victorian Workcover Authority (1997) 80 FCR 262

Applicant: ANGUS PROPERTY & DEVELOPMENT PTY LTD
ACN 065 469 392

Respondents: PARIS DWYER AND GEOFF DWYER

File Number: SYG2781 of 2006

Judgment of: Raphael FM

Hearing date: 2 April 2007

Date of Last Submission: 2 April 2007

Delivered at: Sydney

Delivered on: 16 April 2007

REPRESENTATION

Solicitors for the Applicant: Sally Nash & Co

Counsel for the Respondent: Mr R M Jefferis

ORDERS

1. Orders of Registrar Tesoriero made on 6 February 2007 set aside.

2. The petition be adjourned into the registry to be brought on on five working days notice with liberty to apply. 

3. The creditor’s costs of the application be reserved.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2781 of 2006

ANGUS PROPERTY & DEVELOPMENT PTY LTD

Applicant

And

PARIS DWYER AND GEOFF DWYER

Respondents

REASONS FOR JUDGMENT

1. This proceeding is an application by the creditor for review of a decision of Registrar Tesoriero made on 6 February 2007 where the learned Registrar ordered that the bankruptcy petition against the respondent debtors be dismissed and that the respondent debtors pay the applicant creditor’s costs (including reserved costs, if any) as agreed or taxed.  The creditor’s application is that I should set aside the orders of the learned Registrar and then adjourn the hearing of the petition so that the substantive proceedings in the District Court which have been the subject of a default judgment can be heard.

2. On 22 November 2005 the creditor issued proceedings in the District Court of New South Wales making a claim of $139,618.95 against Grant Dwyer, Paris Dwyer and Geoff Dwyer.  The claim represented arrears of rent due under a lease of certain premises between the creditor and a company known as Paris Jade International Pty Limited ACN 101 440 920 of premises at 204 Crown Street Darlinghurst.  The three defendants to the District Court proceedings were alleged to be guarantors of the obligations of the company and were individually either directors or shareholders of that company.

3. On 27 January 2006 a defence was lodged on behalf of Paris Dwyer which included allegations that she had signed the guarantee without having read it, she was not aware that she was signing a guarantee, that she had not received or been advised to receive independent legal advice and that the landlord had terminated the lease by its own action on 31 August 2005 and failed to mitigate its losses.  The first defence which was filed on 27 January 2006 was struck out.  A second defence dated 30 May 2006 was also struck out.  The debtors blame their solicitors for non-attendance at mention dates for these occurrences. There was a similar history of defences for Geoff Dwyer.

4. On 26 and 28 July 2006 bankruptcy notices were served by post on the two debtors.  On 28 July 2006 a notice of motion to set aside the judgments was filed in the District Court.  This application was also unsuccessful and that lack of success is also blamed upon the debtors’ solicitors.

5. In the meantime, on 24 August 2006, an application to set aside the bankruptcy notices came before Federal Magistrate Smith.  That application was dismissed, although I have not been provided with any reasons for judgment.  On 12 December 2006 there was a further notice of motion filed to set aside the judgment.  The court ordered that the judgment be set aside on terms.  Those terms were not complied with and so the order had no effect.  On 27 February 2007 a further notice of motion was filed but in the meantime the creditor had continued with the bankruptcy proceedings by presenting a petition which was required to be served by way of substituted service.  The petition came on for hearing before Registrar Tesoriero on 6 February 2007 having been adjourned to that date on 13 December 2006.  The District Court had meanwhile set aside the judgment on terms which included a term as to the filing of an amended defence.  That term was not complied with.  On 27 February 2007 a further notice of motion was filed in the District Court requesting further time in which to file the amended defence.  The amended defence was filed on or around 3 March 2007.  The amended defence alleges that the creditor, by its agent, fraudently induced the second and third defendants to sign the guarantee and raises the questions of the landlord voluntarily retaking possession of the premises and mitigation of loss raised in the first defence.  The setting aside of the judgment by the District Court was subject to an additional term that the debtors paid the creditor’s costs as assessed or agreed within twenty-eight days of assessment or agreement.  The costs have not yet been assessed or agreed.

6. The situation as it existed when this matter came before me on 2 April 2007 was that the judgment upon which the bankruptcy notice rested had been set aside conditionally almost a year after it had been obtained.  An act of bankruptcy had been committed and a trial of the substantive issues was likely to be held in the reasonably near future.  I was advised by Ms Nash who appeared for the creditor, that she fully expected a hearing date in the District Court prior to July of this year.  The debtors blame their tardiness upon their legal advisors.  They have now obtained some pro bono assistance through the Bar Council scheme but it is not at all clear who will be representing them at the hearing in the District Court.  They are father and daughter.  They are both pensioners and in receipt of rent assistance.  They claim indigence and there is no evidence before the court that they have any assets other than shares in the company “Paris Jade International Pty Limited” which is operating under a Deed of Company Arrangement.  It is not suggested that they would be financially disadvantaged by the orders sought by the creditor.  On the other hand the creditor wished to have the Registrar’s decision reviewed so that it, (and presumably any other creditors who might appear), has the benefit of a relation back to an earlier act of bankruptcy, as the one relied on in the petition would no longer be available if a new petition had to be presented.

Discussion

1. A review of a Registrar’s decision in these circumstances is a hearing de novo and not an appeal: Martin & Anor v Commonwealth Bank of Australia (2001) 217 ALR 634 per North, Mansfield and Katz JJ at [6]-[7]. I am entitled to take into account the facts as they exist as the date of the hearing. As at that date an act of bankruptcy had been committed by both debtors and the fact that the judgment upon which the bankruptcy notice was based had subsequently been set aside does not nullify the consequences of non compliance with the notice Re Vella; Ex parte Seymour (1983) 67 FLR 287 at [290]; Re Hayes; Ex parte Thomas Borthwick and Sons (A/asia) Ltd (1970) 18 FLR 216. These cases were considered by Spender J in  Re: Zagoridis and Maria Anne Zagoridis Ex parte: Q’Plas Group Pty Ltd 27 FCR 108 where, in a case the facts of which were remarkably similar to this one, his Honour ordered that he would adjourn the hearing of the petition to the registry to be brought on on five working days notice with liberty to apply:

   “[55]  As to the creditor’s petition founded on that act of bankruptcy, there is a dispute as to whether there is in truth and reality a debt owing by the defendants to the petitioning creditor, in respect of which the District Court is presently seized.

   [56]  In all the circumstances it is my view that I ought to adjourn the hearing of the petition ….   This is to accommodate the possibility of the proceedings in the District Court not being pursued with despatch by either party.  I should extend the life of the petition, lest it lapse before the resolution of the District Court litigation.”

2. I quite accept that the judgment upon which the bankruptcy notice was founded having been set aside I should not make a sequestration order against the debtors.  But I am not being asked to do that.  I am being asked only to adjourn the matter pending what appears to be a fairly speedy hearing in the District Court.  It is clear that the balance of convenience favours the creditor for the reasons which I have earlier given and there is no evidence of any disadvantage said to be suffered by the debtors.  There is considerable authority for the proposition that where there is an appeal against the original judgment petitions should be adjourned to await the result, whereas in the case of an application for extension of time for compliance with a bankruptcy notice for the same reason, there is no such compulsion Byron v Southern Star [1997] 151 FCA; Re Geard Ex parte Reid (1994) 217 ALR 191. In Ahern v DCT (1987) 76 ALR 137 at 148:

   “It is also well-established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) 14 ZBD 49; Bayne v Bailieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181.

   These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences.”

   In Re Sarikaya; Ex parte Victorian Workcover Authority (1997) 80 FCR 262 Merkel J considered whether the adjourn a creditors petition in circumstances where an appeal was pending and summarised the authorities as follows:

   “The cases are fairly clear as to the manner in which the Court's broad discretion to adjourn a petition in such circumstances ought to be exercised. In Re Verma; Ex Parte Deputy Commissioner of Taxation (1985) 4 FCR 181 at 187-188, Beaumont J made it quite clear that the onus is on the debtor to show the existence of a genuine dispute based on substantial grounds by adducing evidence establishing the substantial nature of the grounds of challenge and not merely by relying on assertions contained in the notice of objection. In the present case a solicitor has sworn an affidavit stating the grounds for adjournment but, in my view, that affidavit goes no further than a statement of mere assertion.

   There is a well established jurisdiction in the Court to exercise a discretion to adjourn a petition to enable a substantive dispute to be determined elsewhere if one exists as to the debt. In some circumstances the dispute might be determined in this Court. In Olivieri v Stafford (1989) 91 ALR 91 at 102, Beaumont J said:

   "As has been said, a Court of Bankruptcy is concerned to inquire into the 'reality' of the matter in hand. Here, the 'reality' of the matter is that the merits of the respondents' claim have been demonstrated to the satisfaction of one judge of the District Court and another judge of that court has declined to disturb the judgment. As a matter of substance, it is appropriate, in all the circumstances, for a Court of Bankruptcy to treat what happened in the two hearings in the District Court as a trial of the merits of the respondents' claim. That is to say, a Court of Bankruptcy should, I think, accept that a process of adjudication in the District Court has established that the underlying transactions created a true debt which could, in turn, provide a proper foundation for the entry of a judgment in respect of which a bankruptcy notice could properly issue."

   The Court does have a broad jurisdiction to go behind a judgment: see generally Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at 147-8 and Wren v Mahoney (1972) 126 CLR 212 at 224. The Full Court in Ahern at 148 said that it is:

   "... well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds."”

3. I am of the view that if the appropriate course of action to take where there is an appeal against a primary judgment pending is to adjourn the petition, a similar course of action should be taken when there is yet to be a first hearing.  I do not think it is appropriate at this stage to make any attempt to “go behind the judgment” or assess the debtors’ defence.  An allegation of fraud is a very serious one to make and one which is not easy to prove.  If it cannot be made out then the creditor should be entitled to rely on the original act of bankruptcy.

4. I would set aside the decision of Registrar Tesoriero and in its place order that the petition be adjourned into the registry to be brought on on five working days notice with liberty to apply.  I order that the creditor’s costs of the application be reserved.

I certify that the preceding ten (10) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date: