Bank of Western Australia Ltd v David Lahood
[2013] FMCA 139
•14 February 2013
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| BANK OF WESTERN AUSTRALIA LTD v DAVID LAHOOD | [2013] FMCA 139 |
| BANKRUPTCY – Creditor’s Petition – request for adjournment denied – notice stating grounds of opposition not filed – no grounds made out at hearing – sequestration order made. |
| Bankruptcy Act 1966 ss.40, 43, 44, 52, 95 Federal Magistrates Court Bankruptcy Rules, r.4.05 |
| Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54 Sandell v Porter (1966) 115 CLR 666 Re Sarina: Ex Parte Wollondilly Shire Council (1980) ALR 266 Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 |
| Applicant: | BANK OF WESTERN AUSTRALIA LTD |
| Respondent: | DAVID LAHOOD |
| File Number: | SYG 365 of 2012 |
| Judgment of: | Altobelli FM |
| Hearing date: | 14 February 2013 |
| Date of Last Submission: | 14 February 2013 |
| Delivered at: | Sydney |
| Delivered on: | 14 February 2013 |
REPRESENTATION
| Solicitors for the Applicant: | Angus Begg |
| Solicitors for the Respondent: | Morgan Ardino & Co |
ORDERS
That a sequestration order be made against the estate of the respondent debtor, David Lahood.
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 Act.
That a copy of the sequestration order be given to the official receiver in Sydney within two days.
NOTATION
The act of bankruptcy is 3 January 2012.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 365 of 2012
| BANK OF WESTERN AUSTRALIA LTD |
Applicant
And
| DAVID LAHOOD |
Respondent
EX TEMPORE
REASONS FOR JUDGMENT
On 20 February 2012, the applicant creditor, who is now the Commonwealth Bank of Australia, but was originally the Bank of Western Australia Limited, filed a Creditor’s Petition in this Court against the respondent, David Lahood. This was pursuant to a judgment of the Supreme Court of New South Wales entered on 8 February 2010, of which the balance is $855,346.86. The matter has quite a long procedural history and it is necessary for me to briefly record this procedural history in these ex tempore reasons because it goes not just to whether or not a sequestration order should be made, but also to the question of why I declined to grant the adjournment that was sought on behalf of the respondent this morning.
I have noted the date of filing of the Creditor’s Petition. The matter appears to have come before the Court and to have been adjourned at least seven (7) times before today. It could be more, but in the short time I have had to prepare these ex tempore reasons I have been able to find seven (7). The dates of those adjournments appear to be 6 June 2012, 1 August, 22 August, 17 September, 22 October, 29 November, and I will not mention any mentions to deal with notices to produce, and then today. It is unusual for a Creditor’s Petition to be before the Court for so long and to have been adjourned on so many occasions.
What becomes apparent from observing the directions that were made, either by a Registrar or by a Federal Magistrate, looking over the history of this matter, is the inability of the respondent to comply with directions. So, for example, and this is not meant to be exclusive, on 17 September the respondent was directed to file and serve any evidence on the question of fitness to give instructions on or before 17 October 2012, and that did not happen. I note that one of the issues in this case raised by Mr Ardino on at least two occasions is the question of Mr Lahood’s fitness to give evidence.
On 22 August, there was a direction that any request for further adjournment be supported by an affidavit setting out the grounds, the facts and circumstances. That did not happen. On the same day, there was a direction for any notice of opposition to be filed and served by a certain date, and that did not happen. On 22 October 2012, Barnes FM made a direction about notices of objection and affidavit evidence, and again that was not complied with. On 29 November 2012, it being noted that on that day I had granted an adjournment of the hearing of the Creditor’s Petition until this morning, a number of further directions were made, which have not been complied with. Not only were the directions about filing affidavits not complied with, but something as simple as the respondent’s solicitor filing and serving a notice of appearance within seven days was not complied with.
So the matter has a long and somewhat unfortunate history of adjournments. True it is that probably more than half of the adjournments were by consent, but at least three of them were opposed. The significance of the procedural history I have given is not so much about whether adjournments were given by consent or opposed, but rather the singular inability of the respondent to comply with directions of the Court, the purpose of which were to facilitate him putting before the Court the matters that he considered to be important in his case. In any event, the hearing of the Creditor’s Petition again comes before me this morning.
On 29 November, the respondent filed an affidavit. There is still no notice stating grounds of opposition to the petition. Today, Mr Ardino, the respondent’s solicitor, also filed an affidavit. The applicant, Commonwealth Bank, sought to rely on the following evidence at the hearing this morning - an affidavit of Liam Nicholls of 15 February 2012, ie. Part 2 of the Creditor’s Petition, and it verifies the same. There is an affidavit of Liam Nicholls of 14 September 2012 as to correspondence with the respondent and the respondent’s solicitors. There is an affidavit of Mark Slater sworn 2 April 2012, an affidavit of Thomas James sworn 12 February 2012 as to debt, an affidavit of Colin Begg of 14 February of search, and an affidavit of Mark Slater of 23 December 2011 as to service. The various affidavits to which I have made reference represent the evidence that is sought to be relied on by the applicant and the respondent.
There are, of course, some formal requirements for the issuance of a sequestration order as is sought by the applicant. The Court can only make a sequestration order upon proof of the matters set out in s.52 of the Bankruptcy Act:
52(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
and subject to the jurisdiction to make sequestration orders under s.43 of the Act:
43(1) Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b) at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling-house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
The conditions on which the creditor may petition under s.44 state:
(1) A creditor's petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $5,000 or 2 or more debts that amount in the aggregate to $5,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $5,000;
(b) that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
(2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
(3) A secured creditor may present, or join in presenting, a creditor's petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
(4) Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
(5) Where a secured creditor has presented, or joined in presenting, a creditor's petition as if he or she were an unsecured creditor, he or she shall, upon request in writing by the trustee within 3 months after the making of a sequestration order, surrender his or her security to the trustee for the benefit of the creditors generally.
(6) A secured creditor to whom subsection (5) applies who fails to surrender his or her security when requested to do so by the trustee in accordance with that subsection is guilty of contempt of court.
The applicant is also required to comply with the Federal Magistrates Court Bankruptcy Rules and to put before the Court a number of affidavits, such as, for example, an affidavit verifying the petition; an affidavit as to search of the records of the Court, and of the Federal Court, as to any application in relation to the bankruptcy notice; an affidavit of service of the bankruptcy notice, an affidavit of service of the documents required under r.4.05, a search of the National Personal Insolvency Index, and an affidavit of debt.
The matters that are stated in the Creditor’s Petition are supported by the affidavits to which I have made reference. The debt upon which the applicant relies is still owing. The respondent has committed an act of bankruptcy, it would seem, on 3 January 2012, pursuant to s.40 of the Bankruptcy Act. At the time the act of bankruptcy was committed, the respondent was personally present in Australia, and ordinarily resided in Australia. The debt owed was more than $5,000. The debt was a liquidated sum payable immediately. The respondent failed to comply with the notice within the statutory timeframe for the requirements of a bankruptcy notice that had been duly served on him.
Searches of the records of this Court and the Federal Court have been made and no application has been made in either Court in relation to the bankruptcy notice. The bankruptcy notice was personally served on him, and then at least five days before the date fixed for the hearing of the petition, the various documents required under r.4.05 appear to have been served on the respondent. The Insolvency Index was searched and those details are before the Court, and there is an affidavit of final debt by Thomas James sworn 12 February, being a person with knowledge of the facts sworn.
The matter comes before me today. Mr Begg appears for the applicant, and Mr Ardino appears with the respondent. The Court wishes to record Mr Ardino’s persistent, indeed valiant, efforts to advocate on behalf of the respondent in circumstances that, he says, and which the Court accepts, may well have been difficult from time to time. The respondent’s application for an adjournment was declined, and the respondent’s opposition to the making of a sequestration order may be summarised as follows, and the following is based not just on the evidence contained in the affidavit of Mr Lahood and Mr Ardino, but also the submissions that have been made.
Clearly, Mr Lahood has struggled with medical, indeed mental health issues from time to time over the last few years. I think he himself told me that he continues to struggle at times with this. He questions the quantum of the debt and complains, indeed expresses significant frustration, about what he perceives to be the lack of cooperation that the applicant has extended to him in providing documents to satisfy him about the debt.
When the matter came before me today the question of the quantum of the debt had crystallised somewhat as an issue and it appeared to me that, on a best case scenario for the respondent, if his evidence were accepted and, of course, if he were given the opportunity to present that evidence, he would be able to establish that the debt in fact owed to the applicant was in fact as low as $430,000. He submitted that he ought to be given the opportunity firstly, to convince the applicant and the Court of that fact and secondly, and assuming the success of that exercise, to then be able to raise the moneys to fund a payment to the applicant.
Mr Ardino and indeed Mr Lahood submitted, and I have no reason not to accept, that there is an existing debt on a property owned by a company apparently controlled by the respondent which, when refinanced and then with a further borrowing to pay the applicant, would still leave some equity in the property.
A number of observations need to be made at this point. This judgment debt is several years old. No attempt has been made to seek to set aside or stay that judgment. No attempt has been made to attack the bankruptcy notice. These issues are raised purely in the context of opposing the Creditor’s Petition.
Given the long history of the matter, having regard to the dates that I have made reference to earlier in these reasons, it is hard to understand why these matters could not have been agitated at an earlier time. Whilst I accept what the respondent says about health struggles from time to time, it was never put that he was not able to act in his own interests for the entirety of the last two years or so. Because of that, the Court is somewhat sceptical about the respondent’s claim and not prepared to grant a further adjournment.
But there is another point and I think a very important point the significance of which has been missed on the respondent and that is that, even if I accept everything that he says, if I take his case at best, if I allow him the time to do the things he wants to do, if I exercise my discretion in his favour and accept everything that he says, even on his own case he is not solvent. He is not in a position where he could meet the debt to the applicant, whether it is $400,000 or $850,000, in a timely fashion. Given the history of this case, procedural and otherwise, it is difficult to understand why evidence of his solvency and his ability to meet the debt to the applicant, however it might be, has not been the subject of detailed evidence before this Court.
The respondent’s concerns evolved somewhat during the course of today and, in particular, the respondent expressed concerns about whether or not he was aware of and was party to or had signed various security documents and otherwise. He made reference to obtaining the services of a forensic document examiner which, he says, would establish that certain documents that appear to bear his signature in fact do not. Again, it is difficult to understand why matters such as this are being raised, firstly, in this manner and secondly, at this very, very late stage of the proceedings.
I fully accept that Mr Lahood has had a tough time, if I may speak plainly, and I fully accept the importance of the matter before the Court, from his perspective. There is only so much that the Court can do to assist people. And in this case, having regard to the procedural history of this matter, the Court felt that, at the end of the day, when everything was put in the balance, it was appropriate to decline the application for an adjournment on the basis that even taking his case at its highest it would not address the fundamental issue of Mr Lahood’s solvency in the context of these proceedings.
Mr Begg on behalf of the applicant contended that the matter should proceed, that there was nothing in the matters addressed raised by the respondent that should prevent the applicant obtaining that which, he says, it is entitled to obtain by law.
It is quite clear from a legal perspective that if the respondent’s case is that he was solvent, that he bore the onus of proof, to demonstrate to the Court that he was able to pay his debts as and when they fall due. This is trite law, Sandell v Porter (1966) 115 CLR 666, Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54, and any number of cases. In terms of inability to pay debt, in Sandell v Porter Barwick CJ, with whom McTiernan and Windeyer JJ agreed, in considering the words in s.95 of the Bankruptcy Act which was the predecessor to the current legislation described inability to pay debts as they become due in the following terms:
It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
As I have indicated, there has been ample opportunity for the respondent to demonstrate his solvency. I ask myself: is this a case where the respondent is in fact solvent but is simply recalcitrant? I note that this is not what was submitted on behalf of the applicant but it is nonetheless something that the Court takes into account. This issue was of course considered in Re Sarina: Ex Parte Wollondilly Shire Council (1980) ALR 266, but I think it is the Full Court’s decision in Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 that sets the scene. There the Full Court said at 48:
The principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not, in reality, at all likely to be compelled. Section 52(2)(a), envisages a situation which will probably bear fruit in payment. It is not easy to see any other reason why the legislature saw fit to make a demonstration of ability to pay only a discretionary ground of dismissal of a petition and not an absolute bar to its success.
And if I can pick up the words, with respect:
…the section envisages a situation which will probably bear fruit in payment.
There is no evidence before me to suggest that whether I grant an adjournment, decline to make the sequestration order or made it and then stayed it, there is no evidence to suggest that any of these things would “probably bear fruit in payment”. At the end of the day and perhaps unfortunately, there is no evidence before the Court to establish why a sequestration order should not be made. There is no sufficient cause for dismissal. The Creditor’s Petition is established on the evidence. Given that the applicant has established the matters required understanding s.52 of the Bankruptcy Act, the Court is obliged to, prima facie, make a sequestration order against an insolvent estate.
To the extent that the debtor could have argued that it is not in the public interest to proceed this way, there is simply no evidence before the Court that would suggest that the rights of the creditor should be subsumed to the rights of the respondent. There is no other sufficient cause not to make the sequestration order. In the circumstances and not without some regret and indeed, some sympathy for the respondent, the Court nonetheless concludes on the evidence before it that a sequestration order should be made against the estate of the respondent.
I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Altobelli FM
Date: 8 March 2013
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