Arbalis v Roth
[2009] FMCA 183
•11 March 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ARBALIS & ORS v ROTH & ANOR | [2009] FMCA 183 |
| BANKRUPTCY – Creditor’s petition – whether interest provision wrongly described in bankruptcy notice. |
| Bankruptcy Act 1966 (Cth), ss.41, 43, 44, 46, 52, 306 District Court Act 1973 (NSW), s.85 Supreme Court Act 1970 (NSW), s.95 Local Courts (Civil Claims) Act 1970 (NSW), s.39 Civil Procedure Act 2005 (NSW), s.101 |
| Adams v Lambert (2006) 228 CLR 409 Australia and New Zealand Banking Group Limited v Coutts (2003) 201 ALR 728 Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 Re Debtor [1937] Ch 181 Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 Rozenbes and Others v Kronhill and Another (1956) 95 CLR 407 |
| Applicants: | JOHN ARBALIS, JULIE VANESSA ARBALIS & DAVID ARBALIS |
| Respondents: | ANDREW CHARLES ROTH & TERESA STARCEVICH |
| File Number: | SYG 2332 of 2008 |
| Judgment of: | Barnes FM |
| Hearing dates: | 9 December 2008, 5 February 2009, 6 February 2009 |
| Delivered at: | Sydney |
| Delivered on: | 11 March 2009 |
REPRESENTATION
| Counsel for the Applicants: | Mr D. Ash |
| Solicitors for the Applicants: | Joe Weller Solicitors |
| Respondents: | In person |
ORDERS
That a sequestration be made against the estate of Andrew Charles Roth.
A copy of this order is to be provided to the Official Receiver in Sydney within two (2) days.
NOTES
The Court notes that the date of the date of the act of bankruptcy is 12 July 2008.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2332 of 2008
| JOHN ARBALIS, DAVID ARBALIS, JULIE VANESSA ARBALIS |
Applicants
And
| ANDREW CHARLES ROTH, TERESA STARCEVICH |
Respondents
REASONS FOR JUDGMENT
(As corrected)
These proceedings
The applicants, John, David and Julie Arbalis, presented and filed a creditor’s petition on 8 September 2008 seeking that sequestration orders be made against the estates of Andrew Charles Roth and Teresa Starcevich, the respondents. As discussed below, after adjournments the matter was listed for hearing on 6 February 2009. On that day the hearing in relation to Ms Starcevich was further adjourned until 2 March 2009 but, on the application of the creditors, the hearing in relation to Mr Roth proceeded.
Under s.46 of the Bankruptcy Act 1966 (Cth) a creditor’s petition may be presented against two or more joint debtors, whether partners or not. Where there are two or more respondents to a creditor’s petition a Court may make a sequestration order against one or more of them and dismiss the petition insofar as it relates to the other or others. I have considered whether orders should be made against each of Mr Roth and Ms Starcevich separately as sought in the creditor’s petition. It was not disputed that they were “joint debtors”.
Because the petitions in relation to Mr Roth and Ms Starcevich were heard separately, as I foreshadowed with counsel for the creditors and with Mr Roth, the proceedings in relation to each respondent are dealt with in separate judgments. No objection was taken to such a procedure. This judgment relates to the sequestration order sought against the estate of Mr Roth (see Arbalis v Roth (No 2) [2009] FMCA 184 in relation to Ms Starcevich).
The creditor’s petition was before a Registrar of this Court on three occasions before I listed it for hearing on 9 December 2008. On each occasion the respondents sought an adjournment. Mr Roth swore affidavits on 12 November 2008 and 5 December 2008 in support of adjournment applications.
On 18 November 2008 Mr Roth and Ms Starcevich were ordered to file and serve any notice of opposition and supporting affidavits on or before Friday, 5 December 2008. No notice of opposition or affidavit supporting any notice of opposition was filed by either respondent.
The respondents’ application for a further adjournment on 9 December 2008 was unsuccessful and the matter was ultimately adjourned part-heard until 5 February 2009 so that issues raised by me in relation to the validity of the bankruptcy notice (discussed further below) could be addressed by all parties.
The creditors filed an affidavit of Joe Weller affirmed on 26 January 2009 in relation to these matters, which were also addressed in oral and written submissions by counsel for the creditors. Neither debtor addressed these issues.
When the matter came before the Court on 5 February 2009 Ms Starcevich did not appear. She had sent a facsimile letter to the Court indicating that she was unable to attend as she had an ongoing back injury which she had aggravated in an incident and seeking an ajournment. Mr Roth appeared. Both matters were adjourned until 6 February 2009 on the basis that Ms Starcevich and Mr Roth (who live outside Sydney) could appear by way of telephone link.
On 6 February 2009 the Court received, by facsimile, copies of further medical documents in relation to Ms Starcevich. The creditors sought to proceed in relation to Mr Roth and the hearing of the petition in relation to Mr Roth took place on 6 February 2009. He was given the opportunity to file written submissions on or before 23 February 2009. He did not do so. The hearing in relation to Ms Starcevich was adjourned until 2 March 2009.
Insofar as Mr Roth sought to rely on his affidavits sworn and filed in support of earlier adjournment applications, successful objection was taken to parts of these affidavits and Mr Roth conceded that other parts were not of relevance. He maintained in oral submissions that he was solvent. In particular, at the hearing on 6 February 2009 he asserted that he and Ms Starcevich were in a position to and had offered to pay the debt on which the creditor’s petition was based. He took issue with what he perceived as the creditors’ apparent unwillingness (or the unwillingness of their solicitor) to accept such payment. He made a general and unsupported allegation of improper motivation or conduct on the part of the creditors’ legal representatives. These matters are discussed further in relation to s.52(2) of the Bankruptcy Act.
The petition is founded on the failure by Mr Roth and Ms Starcevich to comply with the requirements of a bankruptcy notice served (relevantly) on Mr Roth on 20 June 2008. The creditors have filed and rely on the requisite affidavits, including as to service of the bankruptcy notice and the creditor’s petition, verification of the petition, debt and search.
Validity of the bankruptcy notice and section 52(1) of the Bankruptcy Act
Notwithstanding that no notice of opposition was filed by the debtors, at the hearing on 9 December 2008 I raised a number of issues about the validity of the bankruptcy notice relevant to the question of whether I could be satisfied that the Court had jurisdiction and with proof of the matters stated in the creditor’s petition and required under s.52(1) of the Bankruptcy Act, in particular, whether there was an act of bankruptcy committed within six months before presentation of the petition consisting of a failure by the debtors to comply with a valid bankruptcy notice, (as to which see s.43(1)(a) and s.44(1)(c) and In re a Debtor; Ex parte Debtor [1935] Ch 353).
The date on which the bankruptcy notice was issued was indistinct on the copies before the Court in December 2008. The solicitor for the creditors subsequently obtained a fresh copy of the bankruptcy notice from ITSA (annexed to the affidavit of Joe Weller affirmed on 26 January 2009) from which it is clear that (as discussed further below) the bankruptcy notice was issued on 6 June 2008.
The bankruptcy notice was said to be based on a judgment of the Local Court of New South Wales at Queanbeyan entered on 28 January 2003. The original copy of the certificate of judgment before the Court bore an indistinct seal. The copy of the certificate of judgment on the bankruptcy notice obtained from ITSA was clearly marked with the seal of the Local Court at Queanbeyan (see s.41(2) and reg.4.02 and Clancy v Robinson [2002] FMCA 47 at [13] – [26]). I am satisfied that a sealed certificate of the judgment or order relied on in the bankruptcy notice was annexed to the bankruptcy notice (see reg.4.01 and Schedule 1 to the Bankruptcy Regulations).
The main issue that I raised with counsel for the creditors that arose on the face of the bankruptcy notice related to Annexure A to the bankruptcy notice showing interest claimed as follows:
1. Interest on the judgment debt of $10,084.90 is claimed at the rate of 9% per annum pursuant to Section 101 of the Civil Procedure Act (NSW) as follows; on $10,084.90 from and including 29 January 2003 to and including 31 December 2006, being 1432 days at 9% per annum interest being $3,560.90, AND,
2. Interest on the judgment debt of $10,084.90 is claimed at the rate of 10% per annum pursuant to Section 101 of the Civil Procedure Act (NSW) as follows; on $10,084.90 from and including 1 January 2007 to and including 15 May 2008, being 1432 days at 9% per annum interest being $1,381.40,
3. Together such amounts of interest being, a total of $4,942.30, as follows;
Para 1. $3,560.90
Para 2. $1,381.40
Total $4,942.30
The certificate of judgment annexed to the bankruptcy notice indicated the then rate of interest on the judgment (9%). It is well established that interest on a judgment debt carrying interest may but need not be included in a bankruptcy notice (see Filler v Haskell [2003] FCA 121 at [10] – [13] per Wilcox J). If a judgment creditor demands payment of interest he or she must calculate and specify in the notice the amount required to be paid (see s.41(2), reg.4.02 and Form 1 and Re Davis; Ex parte Deputy Commissioner of Taxation (1963) 19 ABC 100). The judgment in issue was a NSW Local Court judgment entered on 28 January 2003. In Annexure A interest was claimed pursuant to s.101 of the Civil Procedure Act 2005 (NSW) which did not come into force until 15 August 2005. Section 101 provides for interest to be payable on so much of the amount of a judgment as is from time to time unpaid at the prescribed rate or such other rate as the court may order from the date the judgment takes effect. The rate of interest is prescribed by the Uniform Civil Procedure Rules (see r.36.7 and Schedule 5).
In this case the creditors obtained judgment in the sum of $10,084.90 (exclusive of costs to be assessed). Interest was claimed in Annexure A to the bankruptcy notice from 29 January 2003 (the day after the judgment was entered) pursuant to s.101 of the Civil Procedure Act. There is no doubt that s.101 of the Civil Procedure Act is the relevant provision for a New South Wales Local Court judgment entered after 2005, but an issue arises as to whether or not the reference to s.101 of the Civil Procedure Act is correct insofar as the interest provision applicable at the time the judgment was entered was s.39 of the Local Courts (Civil Claims) Act 1970 (NSW).
The table of interest rates in Schedule 5 to the Uniform Civil Procedure Rules 2005 replicates the table previously prescribed for the purposes of s.95(1) of the Supreme Court Act 1970 and contains interest rates applicable from the beginning of July 1972.
Counsel for the creditors pointed to the fact that Schedule 6, Part 2, Clause 5 to the Civil Procedure Act relevantly provides that the Act and the Uniform Rules apply to proceedings commenced before the commencement of this Act in the same way as they apply to proceedings commenced on or after that commencement. It was submitted that proceedings were pending notwithstanding that judgment had been entered if there was anything outstanding under the judgment (see Salt v Cooper (1880) 16 Ch D 544 at 551 and Ex parte 121 Pitt Street Limited; Re Perpetual Trustee Co Limited (1934) 35 SR (NSW) 30 at 34 – 35) so that it was correct to rely on s.101 of the Civil Procedure Act as the source of liability for interest on the judgment in this case.
In O’Farrell v Network Entertainment Pty Ltd [2005] FMCA 1936 Raphael FM considered the validity of a bankruptcy notice which, as in this case, claimed interest under s.101 of the Civil Procedure Act 2005 (NSW) in relation to a judgment (in that case of the District Court of New South Wales) which preceded the enactment of the Civil Procedure Act. It had been submitted in that case that the interest provision was wrongly described in the bankruptcy notice, in that it should have referred to the applicable provision in the District Court Act 1973 (s.85) up to the date on which the Civil Procedure Act came into force (15 August 2005) and thereafter to s.101.
Federal Magistrate Raphael referred to clause 5 in Schedule 6 to the Act but did not think that it had any relevance to such a case given that the District Court proceedings in question had concluded (at [4]). Whether or not this is so (cf Bank of WA Ltd and Another v Loiterton (2006) 197 FLR 232 at [20] per Smith FM), as both Raphael FM and Smith FM suggested, clause 10 in Schedule 6 to the Civil Procedure Act is of more immediate relevance to the identification of the source or sources of liability for interest accruing on a judgment prior to the commencement of the Civil Procedure Act (see Bank of WA v Loiterton at [20]).
Clause 10 is a general savings provision which is as follows:
Subject to this Schedule and the Regulations:
(a) anything begun before the commencement of this Act under a provision of the old legislation for which there is a corresponding provision in this Act or the uniform rules may be continued and completed under the old legislation as if this Act had not been enacted, and
(b) subject to paragraph (a), anything done under a provision of the old legislation for which there is a corresponding provision in this Act or the uniform rules (including anything arising under paragraph (a)) is taken to have been done under the corresponding provision of this Act or the uniform rules, as the case requires.
Relevantly Raphael FM stated at [5] in O’Farrell:
… schedule 5 to the new Uniform Rules is the interest rate schedule and that commences on 1 July 1972. So there must have been an intention in the drafters of this legislation that a successful party in proceedings could claim interest under s.101 of the Act for a period well before the commencement of the Uniform Rules and Procedures. To adopt a purposive approach which is that preferred by the Acts Interpretation Act and the High Court, it seems this legislation was intended to smooth the path of transfer between three separate Acts, those of the Supreme, District and Local Courts into one and I am satisfied that “general saving 10” achieves the object of ensuring that the description of the basis upon which the interest is calculated and the calculation thereof is not misdescribed in the notice.
In Bank of WA Ltd v Loiterton Smith FM suggested that “interest calculation” documents attached to bankruptcy notices will not reveal error by identifying either the relevant provision from the legislation formerly applicable to the Local Court, District Court or Supreme Court or s.101 or both of them as the source of the continuing right to interest accruing both before and after 15 August 2005 on a judgment entered prior to that date.
In neither of those cases was it seen as necessary to consider the possible application of s.306 of the Bankruptcy Act to cure a defect in the bankruptcy notices in issue. Similarly in this case, the calculation of interest by reference to s.101 of the Civil Procedure Act does not constitute a misdescription of the source of liability for the interest claimed.
For the sake of completeness I note that if that were not the case, any “defect” of this nature would not be such that it could reasonably have misled a debtor as to what was necessary to comply with the notice and can be cured under s.306 in accordance with the principles in Adams v Lambert (2006) 228 CLR 409.
The other issue that arose in relation to Annexure A to the bankruptcy notice is that in paragraph 2 the correct interest rate of 10 per cent and the correct period from 1 January 2007 to and including 15 May 2008 is stated, but the number of days between 1 January 2007 and 15 May 2008 is misstated as 1432 days and then an incorrect reference is made to interest at 9 per cent for that period. There is no suggestion that the amount of interest specified for this period is in fact miscalculated in Annexure A.
This is not a case in which it has been left up to the debtor to calculate the amount of interest claimed or in which the amount of interest specified is an incorrect amount. I note that in George v Tricontinental Corporation Ltd (1994) 53 FCR 284 the Full Court of the Federal Court considered a bankruptcy notice in which the correct amount (including interest) was claimed as being due on the judgment on which the bankruptcy notice was based, but in which there was an incorrect reference to interest at 10.05 per cent instead of the correct percentage rate of 10.5 per cent. The bankruptcy notice was held to be valid on the ground that the misdescription would not have been capable of misleading the debtor.
In this case I am of the view that there has been no failure to meet a requirement made essential by the Act and nothing that would mislead the debtors or a debtor about what was necessary to comply with the notice. Such defect should be cured under s.306 of the Bankruptcy Act (see Adams v Lambert). In Adams v Lambert the defect in question was that the bankruptcy notice misdescribed the statutory provision under which an amount of interest ($66.58) on a judgment debt was claimed by referring to s.83A of the District Court Act 1973 (NSW) when it should have referred to s.85 of that Act. The High Court observed that there was no suggestion that any substantial injustice had been caused (and the same may be said in this case) so that the question was whether the error was a formal defect or an irregularity. As in this case, there was no contention that the amount of interest claimed was erroneous.
Consistent with the reasoning in Adams v Lambert (at [23] – [34]) I am satisfied that these defects are not such that could reasonably mislead a debtor as to what was necessary to comply with the notice such that they could not be characterised as mere formal defects or irregularities. The misdescription of the number of days and the percentage rate as set out above do not constitute a failure to meet a requirement made essential by the Act such as to invalidate the notice. (Also see and compare Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71). The defects in this case fall within the terms of s.306 of the Act and do not invalidate the bankruptcy notice.
I note that as their Honours pointed out in Adams v Lambert at [15], where there is an overstatement of the amount owed by the debtor s.41(5) of the Act provides that the bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement. There was no such notification in this case and no issue raised as to any possible overstatement.
I am satisfied on the affidavit evidence before me as to service of the bankruptcy notice on Mr Roth on 20 June 2008. I am satisfied that the debtor committed an act of bankruptcy within s.40(1)(g) of the Act by failing to comply with the requirements of the bankruptcy notice within the time specified in the notice. There was no suggestion of any counter-claim, set-off or cross demand. I am satisfied that, as stated in the creditor’s petition, the date of the act of bankruptcy was 12 July 2008 which is within six months of presentation of the petition.
The debtor did not dispute that the creditors had satisfied the Court of the matters required under s.52(1) of the Bankruptcy Act. On the material before the Court consisting of the creditor’s petition and the requisite affidavits under the Bankruptcy Act and Rules, including the most recent affidavits of debt and final search, I am satisfied with proof of the matters stated in the petition, that the creditor’s petition was presented in correct form for a debt of more than $2,000 (see s.44(4)) within six months of the date of the act of bankruptcy and that the debt on which the creditors rely is still owing. I am satisfied with proof of the matters required under s.52(1) of the Bankruptcy Act.
Section 52(2)
Notwithstanding the absence of any notice of intention to oppose the creditor’s petition I have considered the operation of s.52(2) of the Bankruptcy Act. It provides that if the Court is not satisfied with proof of any of the matters in s.52(1) or is satisfied by the debtor (a) that he or she is able to pay his or her debts, or (b) that for other sufficient cause a sequestration order ought not to be made; it may dismiss the petition.
Mr Roth submitted at the hearing that he and Ms Starcevich were in a position to and had sought to pay the creditors’ solicitor the debt on which the petition was based. There was no affidavit evidence before the Court at the hearing in this respect. In any event, a petitioning creditor cannot be required to accept payment of a debt after presentation of a bankruptcy petition, but may proceed with the petition (see In re Gentry [1910] 1 KB 825 at 836; In re Ell; Ex parte Austin & Haskins (1886) 4 NZLR 114 and Re Debtor [1937] Ch 181 and MacIntosh v Shashoua (1931) 46 CLR 494).
The evidence before the Court is not such as to satisfy me that at the time of the hearing that Mr Roth is able to pay his debts within s.52(2)(a) (as to which see generally Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 and Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372). The onus of proving that his assets and income are sufficient to pay his debts within the meaning of s.52(2)(a) lies on the debtor. Mr Roth’s assertion of solvency does not satisfy this onus. There was not proper evidence before the Court as to his assets and liabilities at the time of the hearing. Moreover, it would not be sufficient for a debtor to establish merely that he or she had assets exceeding in value the amount of liabilities, but not presently available or realisable. I note the difference between the wording of s.52(2)(a) and the definition of “solvency” in s.5(1). As Katz J stated in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 to make a finding under s.52(2)(a) the Court should be satisfied “either that no debts of [the debtor’s] will become payable in the reasonably immediate future or that, if they will [the debtor] will be able to pay them” (at [31]). I cannot be so satisfied on the evidence before the Court.
Nor am I satisfied that for any other sufficient cause a sequestration order ought not to be made. The submissions by Mr Roth at the hearing about his attempts to tender payment of the debt of which the petition was based were not supported by evidence, but in any event, even if the debtor had, after presentation of the petition, tendered or attempted to tender to the petitioning creditors the whole or a part of the debt, that is not of itself “sufficient cause” within s.52(2)(b). The creditors are entitled to refuse such tender (see McIntosh v Shashoua at 505, 508 and 521; International Alpaca Management Pty Ltd v Ensor at [43] and Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 at [7] affirmed on appeal in Foyster v Australia & New Zealand Banking Group Ltd [2000] FCA 1254 and cf Australia and New Zealand Banking Group Limited v Coutts (2003) 201 ALR 728).
There was no suggestion that the solicitor for the creditors actually received payment, whether as agent for his clients or otherwise. Rather it was contended that he refused to do so. In such circumstances it could not be said that there had been any receipt in discharge of the debt by a solicitor acting with apparent authority (cf Re Buckley and Another; Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496 and Australia and New Zealand Banking Group Limited v Coutts at [15] and also see In re Gentry [1910] 1 KB 825).
Mr Roth made an unsubstantiated allegation of improper motive on the part of the creditors and/or their legal representatives. In the absence of evidence, such claim is not made out.
For example, it has not been established that the petition was presented, not with a bona fide view of obtaining an adjudication, but for a collateral purpose and with a view to putting pressure on the debtors (see Rozenbes and Others v Kronhill and Another (1956) 95 CLR 407). More generally, the heavy onus borne by a person who alleges an abuse of process is not made out by the unsubstantiated assertions in this case (see Williams and Others v Spautz (1992) 174 CLR 509 at 529).
I appreciate that Mr Roth, a self-represented litigant, may have difficulty accepting that a creditor or creditors may be able to proceed with a creditor’s petition notwithstanding an asserted willingness and ability on the part of a debtor to pay the debt on which the creditor’s petition was based. In the context of what appears from his oral submissions to have been a long-standing dispute, he may have failed to heed the need for proper substantiation of any claim that he was able to pay his debts within s.52(2)(a) at the time of the hearing of the creditor’s petition, notwithstanding the time that passed before the hearing in this matter and the opportunity he was given to file any notice of opposition and supporting affidavit prior to the hearing.
However, in light of proof of the matters set out in s.52(1), the creditor’s prima facie right to a sequestration order and the absence of proof of matters within s.52(2) these factors are not such as to persuade me that a sequestration order ought not to be made (see Re Dolman and Others; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 384).
In all the circumstances, given that I am satisfied that the respondent debtor Andrew Charles Roth committed the act of bankruptcy alleged in the petition and with proof of the other matters required under s.52 of the Bankruptcy Act, a sequestration order should be made against the estate of Andrew Charles Roth.
The creditor’s petition related to two debtors. Given the manner in which the hearings proceeded, while the applicant creditors’ costs (including reserved costs) should be taxed and paid from the estates of the respondent debtors it is appropriate that I hear submissions in relation to the drafting of orders for costs.
I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 11 March 2009
CORRECTIONS
Paragraph 32 line 3 – delete s.46(1)(g) insert s.40(1)(g)
18
5