Aulsebrook v Ant Projects Pty Ltd
[2020] FCCA 2211
•13 August 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| AULSEBROOK v ANT PROJECTS PTY LTD | [2020] FCCA 2211 |
| Catchwords: BANKRUPTCY – Review of decision of registrar to order sequestration order – matters requiring proof pursuant to s52(1) of the Bankruptcy Act not in issue and proved in any event – bankrupt not asserting solvency – onus on bankrupt to establish other sufficient cause why a sequestration order should not be made – bankrupt’s appeal to the Queensland Court of Appeal not pursued by trustee – whether the appeal if reinstated would have sufficient prospects of success such that a sequestration order should not be made – appeal prospects poor – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52(1). |
| Cases cited: Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460 DCT v Cumins (2008) 101 ALD 78 Kyriackou v Shield Merchantile Pty Ltd (No.2) [2004] FCA 1338 Totev v Sfar [2008] FCAFC 35 Toyota Finance Australia Limited v Singh, in the matter of Singh [2020] FCA 949 |
| Applicant: | RICHARD WILLIAM AULSEBROOK |
| Respondent: | ANT PROJECTS PTY LTD |
| File Number: | MLG 115 of 2020 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 8 July 2020 |
| Date of Last Submission: | 8 July 2020 |
| Delivered at: | Dandenong |
| Delivered on: | 13 August 2020 |
REPRESENTATION
| Counsel for the Applicant: | Self-represented |
| Solicitors for the Applicant: | Not applicable |
| Counsel for the Respondent: | Mr Schultz |
| Solicitors for the Respondent: | McLachlan Thorpe Partners |
ORDERS
The interim application and the application for review both filed 12 June 2020 be dismissed.
A sequestration order be made against the estate of Richard William Aulsebrook.
The applicant’s creditor’s costs be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
THE COURT NOTES THAT:
A. The date of the act of bankruptcy is 19 December 2019.
B. A consent to act as trustee signed by Mark Julian Robinson and David Solomons has been filed under s 156A of the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT DANDENONG |
MLG 115 of 2020
| RICHARD WILLIAM AULSEBROOK |
Applicant
And
| ANT PROJECTS PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introductory
This is an application for review of a decision of Registrar Ryan made on 28 May 2020 whereby the registrar relevantly made a sequestration order against the estate of Mr Aulsebrook. It is, of course, a hearing de novo (see Totev v Sfar [2008] FCAFC 35 at [9]-[15]). The Court is required to be satisfied of the matters contained in section 52(1) of the Bankruptcy Act 1966 (Cth), but it should be noted that, not only were these matters proved by appropriate affidavit material in any event, but Mr Aulsebrook, who was self-represented, expressly indicated that he had no challenge to make under this heading.
In summary, Mr Aulsebrook’s position is that an appeal he had commenced in the Supreme Court of Queensland challenging judgment given against him in the District Court of Queensland by Andrews DCJ on 27 May 2019 was likely to succeed so that there would be no underlying debt owing by him to the petitioning creditor.
For the reasons that follow, I do not think that Mr Aulsebrook’s position, which is seeking to persuade the Court that for other sufficient cause a sequestration order not be made, is made out, and accordingly, the orders of Registrar Ryan will be affirmed.
The Relevant Law
In substance, Mr Aulsebrook is seeking to persuade the Court that it should go behind the judgment of Andrews DCJ by reference to the matters in his proposed appeal. There is no shortage of relevant recent authority but, in my respectful view, a helpful summary is set out in the judgment of Gleeson J in Toyota Finance Australia Limited v Singh, in the matter of Singh [2020] FCA 949 at [14]-[16], where His Honour said:
14. In Cristavao v Tan and Tan Lawyers Pty Ltd [2018] FCAFC 41 at [34], the Full Court explained the correct approach to deciding whether to “go behind” a judgment debt as follows:
As was recently explained by Kiefel CJ, Keane and Nettle JJ in Ramsay Health Care Australia v Compton [2017] HCA 28; (2017) 91 ALJR 803, in considering the requirement under s 52(1)(c), a Bankruptcy Court has a paramount need to have satisfactory proof of the debt owed to the petitioning creditor to ascertain the “true state of accounts between the parties”: at 814 [63]. This means that a court should go behind a judgment where there is sufficient reason for questioning whether behind that judgment there is “in truth and reality” a debt owing. When considering to go behind the prima facie evidence of the debt constituted by the judgment, a two-stage process inquiry arises: first, as to whether there is sufficient reason to question the existence of a real debt behind the judgment; and secondly, if there is, determining that issue (although these two steps may be determined together: see Makhoul v Barnes (1995) 60 FCR 572 at 584 per Hill, Cooper and Branson JJ and Wolff v Donovan [1991] FCA 222; (1991) 29 FCR 480).
15. In Kitay, in the matter of Frigger [2018] FCA 817 at [14], Colvin J stated:
It is well established that on the hearing of a creditor’s petition, that the Court must be satisfied that there is a reason to go behind any judgment said to give rise to the debt on which the petition is based before it then considers matters that might be raised if the judgment is not accepted on its face. In effect, only if such a reason is demonstrated will the Court go behind the judgment. These principles were most recently considered by the High Court in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28.
16. In Totev v Sfar [2006] FCA 470 at [37]-[39], Allsop J (as his Honour then was) explained the operation of s 52(2)(b) as follows:
[37] On proof of the matters in s 52(1) of the Act, the Court will generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations: Cain v Whyte [1932] HCA 6; (1933) 48 CLR 639 at 645-6 and 648.
Further authority has been referred to in the parties’ written submissions about the relevance of the pending appeal against a judgment debt. In DCT v Cumins (2008) 101 ALD 78, Gilmour said relevantly at [17]-[18]:
17. The mere fact that an appeal has been lodged does not without more, give rise to a duty to postpone the hearing of the petition: in Re Flatau: Ex Parte Scotch Whisky Distillers (1882) 22 QBD 83 (CA) at 84-85; nor will the court as a matter of course inquire into the validity of a judgment debt: Wren v Mahony (1972) 126 CLR 212 at 222-223; (1972) ALR 307 at 312-314.
18. The test to be applied has been described variously. The judgment debtor must point to grounds having "a real chance of success on appeal": Re Lewin: Ex Parte Milner (1986) 11 FCR 312 at 318; or ensure "that substantial reasons are given for questioning" whether there was in truth a debt: Wren at CLR 225; ALR 314-315. It is not enough to rely upon mere assertion. The onus is on the creditor for a stay to show the existence of a genuine dispute by adducing evidence establishing the substantial nature of the grounds of challenge.
Mr Aulsebrook’s Position
Mr Aulsebrook’s written submissions, given his self-representation, should be approached, in my view, benevolently. He raises the question of amendments made during the trial. He raises the question of going behind the judgment of the District Court.
It is clear from the materials that Mr Aulsebrook has filed from time to time that he has at no point sought to suggest that he is solvent and able to pay his debts (section 52(2)(a)).
In his oral submissions, Mr Aulsebrook indicated that he sought to set aside the orders of Registrar Ryan permanently, or at least until his appeal is heard. He referred to the stay decision given by Judge Rinaudo in the District Court of Queensland. He referred to Registrar Ryan’s finding that there was a real doubt there would be enough evidence for the appeal to succeed. In response, Mr Aulsebrook said Registrar Ryan had overlooked his bond of $67,000 paid to the creditor and rent received of $35,000 from a subtenant, and Airbnb monies admitted by Mr Yeung.
He went on to say that the application for leave to appeal in Queensland was not solely concerned with quantum. Registrar Ryan had overlooked the second point of his appeal, which was that he was taken by surprise at trial. He referred to pages 17 to 21 of his affidavit and noted that the claims before the Court had gone from $516,000 increased by $200,000 at trial. Judge Andrews had said there was some surprise. He said that the creditor was fully aware of his tenuous position because of the lockout. He was 11 days out of time in paying rent. The trustee chose, on 17 June 2020, to elect to discontinue his appeal. Notice was given to the trustee of this application on 18 June.
The reference to Mr Aulsebrook’s affidavit is a reference to his affidavit sworn 12 June 2020. This sets out the somewhat convoluted history of the proceedings in Queensland, and indeed in this court. The reference to pages 17 to 21 of the affidavit is concerned with matters put under the heading Surprise on page 17 of the materials attached to Mr Aulsebrook’s affidavit. I only have excerpts from the transcript set out in Mr Aulsebrook’s documentation. The extracts he sets out do not, in fact, provide me with any great information as to what the amendments, in fact, were, save that they would appear (page 17) to involve amending the name of the plaintiff.
The Position of the Respondent, the Petitioning Creditor
The creditor’s written submissions suggest that the requirements of section 52(1) of the Act were met and that the creditor therefore had a prima facie right to the making of a sequestration order (paragraph 15). As earlier indicated, that submission is plainly correct as far as it goes.
The submissions go on to assert that it is for Mr Aulsebrook to satisfy the Court that a sequestration order not be made against him, and note that Mr Aulsebrook had deposed to being impecunious. The submissions go on to assert that the appeal and stay on enforcement is no longer in place, and refer to the affidavit of Mr Kohler in this regard. They go on to assert that furthermore, in any event, Mr Aulsebrook has failed to produce any evidence that would satisfy the court there was a genuine dispute that he owes the creditor the judgment debt, or alternatively, that in any event, the only matters in issue on appeal are the quantum of damages to be awarded to the creditor. In these circumstances, it was submitted that the sequestration order should be made.
An ancillary point related to service has not been pressed before the Court. I note that Registrar Ryan dealt with the question of service, in my view, comprehensively, in his judgment in any event. Some aspects of the matter was not agitated in any material way by Mr Aulsebrook, either in his written or oral submissions.
The Relevant History of the Matter in Queensland
The Judgment of Deputy Chief Judge Andrews
The judgment of Deputy Chief Judge Andrews runs to 42 pages and I have, of course, read all of it and have regard to it. In the light of the way the matter has developed before me, it is perhaps appropriate to draw attention to the following particular paragraphs. At paragraph 103 through to paragraph 113, His Honour dealt in detail with matters going to the way in which the plaintiff in that proceeding (the creditor in this one) had sought to re-lease the property once Mr Aulsebrook and those associated with him had been locked out of the property. I note that at paragraph 103, an experienced property agent and property developer gave evidence that it would be very challenging for the plaintiff to find a tenant at any time between the trial and September 2020.
It is sufficient to say that in the paragraphs I have mentioned, through to paragraph 123, the judgment traverses significant efforts made by the landlord to find other tenants. I note that in paragraphs 121 to 122, the Court dealt with Airbnb rentals, which had only produced approximately $1000 clear of expenses.
At paragraphs 126 and following, the judgment deals with what is described as overpayment of a security deposit. It emerges that the landlord accepted the security paid by the lessee, (an entity which I can describe as associated with Mr Aulsebrook), had paid $67,000, a sum over $26,000 more than the deposit required. I note that at paragraph 128, the judgment noted the defendant’s combined submissions, relevantly, that, “Alternatively all $67,439.84 should be brought into account so that the lessee was not in arrears at any relevant date.”
The judgment noted earlier at paragraph 127 that there was no pleading in the defences to the effect that the plaintiff was obliged to bring the deposit into account in the lessee’s favour when giving notice to remedy a breach. Andrews DCJ went on to say at paragraph 129:
The defendants may not raise the argument. Further, the plaintiff’s liberty to use any security to compensate itself for loss due to the lessee’s breach did not oblige the plaintiff to treat the security as a pre-payment for rent, or for outgoings or for GST. If the lessee has paid $26,194.84 under a mistaken belief that it was to be retained by the plaintiff as security and if the plaintiff had accepted it on that basis, the plaintiff would have been obliged to hold the sum as security and would not have been at liberty to treat it as rent or outgoings or GST unless the lessee was first in default. If the lessee was in default for failure to pay rent, outgoings and GST, the plaintiff would not have been obliged to apply that sum to any shortfall of rent, outgoings or GST.
At paragraph 130, the judgment continued:
I do not accept that the lessee paid more by way of security than was agreed. I do not accept the $26,194.84 or $67,439.84 must be brought into account when considering whether the lessee was in arrears at any relevant date.
At paragraph 186, the judgment noted:
I am satisfied that rent in the sum of $14,162.50 and outgoings in the sum of $2,522.63 were payable in advance on 26 December 2016 for the period 26/12/16 to 25/01/17. I am satisfied that the lessee was liable to pay GST on those items in the amounts claimed in the tax invoice bringing the total to $18,353.64.
I note that at paragraph 190 a similar finding was made in relation to the failure to pay in advance on 26 January 2017, such that the sum total, including GST payable, was $36,707.28. The judgment said, “I find it is payable as money owing pursuant to the lease, (emphasis in the original).”
At paragraph 187, the Court had earlier said:
I am satisfied that the sum claimed was due. In making that finding, I rely upon my findings above that the plaintiff was not obliged to apply the security deposit to payment of the demand and that any adjustment in respect to the outgoings was to be made at the end of the financial year.
The judgment of Morrison JA
On 30 October 2017, Morrison JA, in the Court of Appeal in Brisbane, gave judgment on an application to strike out the then extant notice of appeal. Only ground 21 of the 25 grounds of appeal was not struck out.
Morrison JA held at [25]-[26]:
25. Further, as will appear the rent was due and payable on 1 December 2016, or 26 December 2016 at the latest. It was not paid on time, and it was not paid in the time required by the s 124 notice. That meant the lessee was in fundamental breach of its obligations as at 1 December or 26 December, and the default provisions of the lease were engaged 30 days later. That meant the lessor was entitled to re-take possession subject to giving the s 124 notice.
26. In the light of the findings set out in paragraphs [17] to [19] and [21] to [24] above, and the admitted failure on the part of the lessee or the guarantors to pay the outstanding $18,353.64, the finding that the failure to pay by 5:00pm on 10 February 2017 entitled the lessor to terminate the lease is unassailable.
I note that ground 21, which was allowed to stand, was simply expressed as, “That his Honour erred in finding the Plaintiff did not fail to mitigate its loss.”
The judgment of Rinaudo DCJ
On 18 February 2020, Rinaudo DCJ gave judgment in an application for a stay of enforcement. At paragraph 20, the decision reads:
The three appeal grounds are:
The trial judge erred in finding:
(a)that the loss of rent to the end of the trial totalling $305,430.84 and the post-trial loss was in the sum of $396,280;
(b) that the defendants were not taken by surprise by the plaintiff’s changes to their pleadings after the commencement of the trial; and
(c) the plaintiff did not fail to mitigate his loss.
I note that at paragraph 22, the decision records:
The plaintiff further states that there is no evidence before the court that the defendants will suffer irremediable harm if a stay is refused. It is noted that while there are bankruptcy proceedings on foot against the defendants, the fact there is an appeal of the judgment creating the debt on foot would be taken into account in the Federal Court in deciding whether to order sequestration. In conclusion, counsel for the plaintiff states:
The third defendant’s application should be dismissed, as there being no appeal on foot the court has no power to grant the application. The second defendant has not put on any evidence in support of his application. The refusal of the stay would not render the appeal nugatory as the original orders are just a judgment debt. The second defendant will not lose any other rights if the stay is not granted. The second defendant has poor prospects on appeal, and he cannot show he would suffer irremediable harm if a stay is refused.
It should be noted that Mr Aulsebrook was the second defendant. I note that Rinaudo DCJ assessed the chances of success of the appeal at [27], and said this:
In this case, it would appear Mr Aulsebrook is on the verge of being bankrupted. It is likely that if he is bankrupted the appeal which he has now been granted leave to pursue would in all likelihood be abandoned by the trustee in bankruptcy. However, it seems reasonable that even if the appeal was successful, it would only be successful to a limited extent. It would not reverse the decision under appeal, but may, at best, reduce the amount of judgment debt payable by the first and second defendants to the plaintiff, such that creditor’s petition would irresistible in any event.
The outcome is at paragraph 30, where the Court said:
Ultimately, Mr Aulsebrook has been granted leave to appeal on limited grounds. In all the circumstances, it seems that a stay would enable him to pursue his appeal to its ultimate end without undue harm to the plaintiff, who at the end of the appeal, will have the right to enforce any judgment debt then owing in the usual way or as it considers appropriate. In those circumstances, I grant the stay until the determination of the appeal or further order.
It should be noted that the appeal was then likely to be held within a fairly short time.
The conduct of the creditor following the sequestration order
From the affidavit of Christopher Leslie Kohler, sworn 23 June 2020, it is apparent that following the sequestration order made by the Registrar on 28 May 2020, Mr Kohler as solicitor for the petitioning creditor emailed the trustee requesting whether the trustee would elect to prosecute or discontinue the appeal proceedings. The trustee replied on 2 June noting that there did not appear likely to be any funds in the estate and accordingly declined to elect to continue. By 8 June 2020, Mr Kohler prepared a memorandum of agreement to dismiss the appeal, which was then signed by the trustee on 10 June 2020 and filed with the Court, so that by 17 June 2020 the appeal was dismissed by agreement.
Bearing in mind that Mr Kohler, and no doubt the trustee in bankruptcy, were well aware that Mr Aulsebrook had 21 days in which to file his application for review, this hurried scuttle to dispose of the appeal reads very poorly, in my view. While the trustee’s decision not to elect to pursue the appeal is understandable given the financial situation, the haste with which Mr Kohler sought, no doubt on his instructions, to dispose of the appeal has a very unattractive, hurried scuttle of an appearance to it.
Consideration of the matters in dispute
As will immediately be apparent from what I have just said above, the argument by the creditor that there is no appeal on foot and that this is a salient point is one I reject in its entirety. In Kyriackou v Shield Merchantile Pty Ltd (No.2) [2004] FCA 1338, Weinberg J cautioned against trustees who act precipitately. That was in a different context, but in my view the same applies here. The creditor well knew, through its lawyers, that it was wholly open to Mr Aulsebrook to review the decision of the registrar within 21 days, and indeed he lodged his application on the 21st day, in time.
The speed and alacrity with which Mr Kohler moved to effectively dispose of the appeal, thereby obviously seeking to strengthen the creditor’s position in the event of any review, is extremely unattractive. I am not prepared to give it any weight whatever. While it would undoubtedly be a matter of some difficulty, perhaps, for Mr Aulsebrook at this stage to resuscitate his appeal in the event that the sequestration order is not made, I have little doubt, given that the matter was otherwise on foot, that one way or the other he would have at least some chances of success in reinstating it, whether by a fresh appeal out of time or otherwise.
Where I have far greater difficulty with Mr Aulsebrook’s position is the underlying strength of the appeal itself. The written submissions do not really address in terms in any specific way the matters that are said to make the appeal one likely to be successful. As Kirby J pointed out in Bryant v Commonwealth Bank of Australia (1996) 134 ALR 460, at [466], “It is therefore necessary that, in every case, some estimate should be made of the utility and possible outcome of the appeal.”
The first of the appeal grounds goes to the quantum of the damages found by Andrews DCJ. In oral submissions, Mr Aulsebrook submitted that Registrar Ryan had overlooked the $67,000 deposit paid to the creditor and rent of $35,000 received by a subtenant, together with Airbnb receipts admitted by Mr Yeung. The difficulty I have with that argument is that, insofar as it raises the question of the deposit of $67,000, this matter was well and truly before the Court and Andrews DCJ comprehensively rejected it. His Honour’s reasons for doing so appear to me to be entirely cogent, with respect, and that means that on any view of the matter, as Andrews DCJ found, there was a debt in terms of rent of some 36 thousand-odd dollars at the relevant time, which would ground a petition in the event.
Furthermore, the Court was apprised of the lease to a subtenant and appears to me to have taken both that and the Airbnb revenue fully into account in its calculation of damages. The chances of complete success in the sense of the judgment debt being reduced below the $5,000 limit for a petition are, in my view, negligible. Indeed, Morrison JA has already made a finding to this effect as well.
The second ground raised is the question of whether or not Mr Aulsebrook was taken by surprise by the amendments to the pleadings at the start of the trial. As I have indicated, the only reference I can find is that to a change of name, which was of no great moment. Mr Aulsebrook says that the quantum of the claim went up by $200,000 at the start of the trial but has not put any evidence to support this. It should be noted that I gave Mr Aulsebrook several weeks in which to file any further submissions or evidence that he wished, and I emphasised to him that he was not restricted in this regard merely to responding to the copies of judgments that the creditor was permitted to forward to the Court. He has not elected to take advantage of that opportunity. There is nothing on the materials before me that suggests the question of surprise and late amendment is of any moment.
The final point in the grounds of appeal is an alleged failure on the part of the creditor to mitigate its loss. I have already referred in some detail, albeit by no means exhaustively, to the considerable body of evidence that was called by the creditor in the case before Andrews DCJ. It is clear that that material grounded his Honour’s decision.
Accepting that the sort of analysis of the prospects of the success of the appeal is necessarily a somewhat impressionistic one, in my view the chances of success are nowhere near good enough for this Court to be satisfied that Mr Aulsebrook has established other sufficient cause why sequestration ought not be made. I note that in the judgment of Morrison JA at [65], His Honour stated, “As for the period between retaking possession and the trial, the evidence was thoroughly canvassed by his Honour. No challenge is made to that evidence in the appeal, nor is there any suggestion that every reasonable effort was not made to obtain alternative tenants, without success.”
While, in a sense, in his oral submissions Mr Aulsebrook has sought to, as it were, cavil at that proposition, what he has put does not, I repeat, suggest that the chances of success on appeal are nearly good enough to amount to other sufficient cause why a sequestration order not be made.
Conclusion
The requirements of section 52(1) of the Act are clearly made on the affidavit materials filed, and in any event are not disputed. Mr Aulsebrook is impecunious and there is no evidence that he can pay his debts as and when they fall due. He has failed to establish, and the onus is on him, that there is other sufficient cause why a sequestration order not be made. Notwithstanding the unattractive conduct of the creditor in relation to the removal and extinction of Mr Aulsebrook’s appeal, bearing in mind the stay ordered by Rinaudo DCJ, the creditor is entitled to the relief that it seeks. There will be orders accordingly.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Associate:
Date: 13 August 2020
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