Bevan v Rake

[2013] FCCA 343

FEDERAL CIRCUIT COURT OF AUSTRALIA

BEVAN v RAKE [2013] FCCA 343

Catchwords:
BANKRUPTCY – Proposed amendment to Creditor’s Petition where applicant did not deliberately mislead court – where security held by the creditor – leave to amend granted.

Legislation:
Bankruptcy Act 1966, ss.33, 44, 306

Cases cited:
Re A Debtor [1943] 1 Ch 210
Allied Mills Pty Ltd v Mair & Ors (2010) FMCA 631
Re Desmond Gerald Nolan; ex parte Westpac Banking Corporation [1996] FCA 873
Re Florance; Ex parte Turimetta Properties Pty Ltd (No. 2) [1980] FCA 5
Re Michael Kwiatek and Karen Kanatell; Ex parte Big J Ltd v Pattison [1989] FCA 363

Applicant: WENDY ANN BEVAN

Respondent: PETER JAMES RAKE

File Number: SYG 378 of 2013

Judgment of: Judge Altobelli

Hearing date: 20 May 2013

Date of Last Submission: 20 May 2013

Delivered at: Sydney

Delivered on: 24 May 2013

REPRESENTATION

Solicitors for the Applicant: Castrission & Co

Solicitors for the Respondent: Beazley Singleton Lawyers

ORDERS

1. The applicant have leave to amend the Creditor’s Petition in the form of the Amended Creditor’s Petition annexed to the Affidavit of the applicant sworn 10 May 2013.

2. The respondent pay the applicant’s costs of the Interim Application.

3. The matter be remitted to Registrar Segal and listed before him on 24 June 2013 at 10.00am.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 378 of 2013

WENDY ANN BEVAN

Applicant

And

PETER JAMES RAKE

Respondent

REASONS FOR JUDGMENT

Procedural History

1. By way of a Creditor’s Petition filed 27 February 2013 the applicant petitions the court for a sequestration order against the estate of the respondent.  The applicant claims that the debtor owes her $66,634.38 based on a Local Court judgment dated 27 November 2009 together with interest.  At paragraph 2 of the said Creditor’s Petition the applicant claims that she “does not hold security over the property of the respondent debtor”.

2. On 19 April 2013 the respondent filed a Notice stating grounds of opposition to application alleging that, pursuant to s.44(2) of the Bankruptcy Act 1966 (“the Act”), the applicant is not a creditor for the purposes of s.44(1)(a) of the Act, but is in fact a secured creditor, and is in breach of s.44(4) of the Act in asserting that she does not hold security over the property of the respondent.  The respondent asks that the petition be dismissed as being invalid.

3. On 14 May 2013 the applicant filed an Interim Application seeking leave to amend the Creditor’s Petition so that the applicant discloses that she holds security over the respondent’s property but is willing to surrender this security for the benefit of creditors generally if a sequestration order is made.

4. On 16 May 2013 the respondent filed a Notice stating grounds of opposition to the Interim Application asking the court not to exercise its discretion to permit amendment, on the basis that the error was deliberate and not inadvertent, and the applicant misled the court.

Background facts

1. It is common ground that in June 2008 the applicant lent to the respondent $46,000 and the parties entered into a document entitled “Loan Agreement”.

2. It is common ground between the parties that clause 12 of the said agreement, which entitled the applicant to place a caveat on the respondent’s Tathra property, gave to the applicant an interest in the said property which was in the nature of an equitable charge.

3. It is common ground that the amount loaned remains unpaid.

The issues

1. In view of the agreed facts referred to in the preceding paragraph, both parties agree that the applicant does in fact hold security for the purposes of s.44 of the Act.

2. The respondent contends that the applicant deliberately breached s.44 and thus leave to amend should not be granted. The respondent seeks dismissal of the petition.

3. The applicant argues that she was at all relevant times mistaken about the security, but acted inadvertently.  In any event she asserts the respondent suffers no prejudice if the amendment is allowed.

Applicable Law

1. Section 44 of the Bankruptcy Act states:

   (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.

2. Section 306(1) states:

   Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.

3. Section 33(1)(b) of the Act also states:

   …at any time allow the amendment of any written process, proceeding or notice under this Act.

The evidence

1. The applicant relied on her affidavit of 14 May 2013, the respondent on his affidavits of 18 April 2013 and 15 May 2013.

2. The applicant gave oral evidence and was cross-examined.  Her state of mind at the time she swore the affidavit verify the petition is clearly an issue in this case.  Her evidence was clear and consistent – she did not believe that she held any form of security over the respondent’s property until this was first asserted by the respondent in his affidavit of 18 April 2013.  She was, of course, challenged on this in cross-examination.  She explained that the purpose of the caveat as to give her “some way of forcing him to pay me” and to “make him realise that he needed to pay me back”.

3. Based on the applicant’s own evidence, whether or not the applicant fully appreciated what it meant to be a secured creditor for the purposes of s.44 of the Act, the fact is that she was a secured creditor, at all relevant times from the date of the agreement.  The court finds that when she swore the affidavit verifying the Creditor’s Petition she should have known she was a secured creditor.  The evidence does not, however, lead to a finding that she acted deliberately.  She was guided at all times by her lawyers.  Her level of technical knowledge went nowhere near the point where it can be said she acted with intention to mislead.

Should leave be nevertheless granted?

1. The applicant contends that leave should be granted because the amendment was sought as soon as the problem became known, the applicant acted in good faith, and there was no prejudice to the respondent.  The court accepts these three propositions.  The respondent’s case was noticeably silent on the prejudice issue.

2. The applicant further contended that she would be otherwise entitled to bring the petition to the extent that the debt exceeded the value of the security.  There is no evidence before the court of either the value of the security or of any encumbrances on the property having priority over the applicant.  Exhibits A1 and A2 do not assist the applicant in this regard.

3. The respondent’s main argument against the exercise of discretion in the applicant’s favour stems from the submission that the omission was deliberate.  The evidence does not sustain such a finding.

4. Both parties referred the court to cases in support of their respective contentions.  Unlike in Re A Debtor [1943] 1 Ch 210 the applicant neither acted deliberately, nor sought to maintain a position that she held no security. Unlike Allied Mills Pty Ltd v Mair & Ors (2010) FMCA 631 there was no deliberate act. The applicant did not act with the same level of professional legal involvement that was clearly apparent in Re Michael Kwiatek and Karen Kanatell; Ex parte Big J Ltd v Pattison [1989] FCA 363. The present case is more akin to Re Florance; Ex parte Turimetta Properties Pty Ltd (No. 2) [1980] FCA 5 and Re Desmond Gerald Nolan; ex parte Westpac Banking Corporation [1996] FCA 873.

Conclusion

1. Leave to amend is granted.

I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Altobelli FM

Date:  24 May 2013