Bhatti v White - [2010] FMCA 772

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BHATTI v WHITE

[2010] FMCA 772

BANKRUPTCY – Application to review a sequestration order made by a Registrar – application dismissed.

Bankruptcy Act 1966 (Cth), ss.44, 52
Federal Magistrates Act 1999 (Cth), s.104

Corney v Brien (1951) 84 CLR 343
Olivieri v Stafford and Others (1989) 24 FCR 413
O'Meara v Hitwise Pty Ltd and Another (2007) 160 FCR 518; [2007] FCAFC 114
Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153
Re Longo; Ex parte Longo (1995) 57 FCR 523
Wren v Mahony (1972) 126 CLR 212; [1972] HCA 5

Applicant:

SURBJIT KAUR BHATTI

Respondent:

PETER KENNETH WHITE

File Number:

SYG1283 of 2010

Judgment of:

Barnes FM

Hearing date:

28 September 2010

Delivered at:

Sydney

Delivered on:

28 September 2010

REPRESENTATION

Applicant:

In person

Respondent:

In person

Supporting Creditor:

Dibbs Barker

ORDERS

The application for review of the sequestration order made by Registrar Tesoriero on 4 August 2010 is dismissed.

The creditor’s costs (including any reserved costs) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG1283 of 2010

SURBJIT KAUR BHATTI

Applicant

And

PETER KENNETH WHITE

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

This is an application to review a sequestration order made by a registrar of this court on 4 August 2010. The application was filed by Ms Bhatti on 25 August 2010.
On an application for review of a registrar’s decision under s.104(2) of the Federal Magistrates Act 1999 (Cth) the hearing is conducted de novo and matters are considered afresh, not having regard to whether or not there was any error in the original decision. The court makes its own decision on the merits of the case. An application for review of a sequestration order requires the petitioning creditor to prove all necessary matters, including those specified in s.52(1) of the Bankruptcy Act 1966 (Cth) (see Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153 and O'Meara v Hitwise Pty Ltd and Another (2007) 160 FCR 518; [2007] FCAFC 114).
The application seeks simply that the sequestration and costs orders made by Registrar Tesoriero be set aside pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
Ms Bhatti relies on two affidavits sworn by her. In her affidavit affirmed on 25 August 2010 Ms Bhatti attested to the fact that a default judgment had been entered against her by the petitioning creditor, Mr White, in Blacktown Local Court on 25 March 2009. The certificate of judgment attached to the Bankruptcy Notice contains details of judgment in the sum of $10,401.82. This is the judgment (together with interest of $604.16) that forms the basis for the Bankruptcy Notice. Ms Bhatti provided an explanation for her failure to file a defence based on her personal circumstances, family situation and the ongoing stress of her involvement in proceedings in the Family Court and the Supreme Court. Ms Bhatti acknowledged receipt of the Bankruptcy Notice and the creditor’s petition, but claimed that she did not read the information therein or understand the its legal significance. She claimed that she was under the care of a doctor and was feeling overwhelmed. The sequestration order was made on 4 August 2010 in the absence of Ms Bhatti.
Ms Bhatti attested to receiving a letter from the Insolvency and Trustee Service Australia informing her that she had been made bankrupt. She claimed that she intended to lodge a notice of motion to have the default judgment set aside in the Blacktown Local Court, although she confirmed in oral submissions today that she had not done so.
While I gave Ms Bhatti the opportunity to file further affidavit evidence before the hearing (having regard to the absence of any evidence as to solvency), in her affidavit affirmed on 22 September 2010 Ms Bhatti did not address in any way her solvency, but rather the circumstances that led to the need for the services of a lawyer arising out of a family law dispute with her former husband. The petitioning creditor, Mr White, was formerly Ms Bhatti’s solicitor. Ms Bhatti recounted her recollection of conversations between them and payments she had made to Mr White. Some of these payments are evidenced by documents. Ms Bhatti attested to the fact that she was asked for further funds from Mr White.
In an attachment to the affidavit Ms Bhatti makes what I take to be submissions in relation to what she describes as “material facts” and “conclusions”. She claimed that Mr White reneged on what she understood to be his agreement that there would be a lump sum for legal fees in the sum of $8,000 to $10,000 and that he made further demands which she claimed were unsubstantiated. She claimed that she had paid him a certain amount but took issue with his charges, compared to the amounts claimed by other solicitors and a barrister who had acted for her. She also asserted that there were unexplained inconsistencies in the documents issued by Mr White. Ms Bhatti expressed concern about how her matter had been dealt with by Mr White.
Ms Bhatti claimed that there were extenuating circumstances which led to her inability to file a defence in the Blacktown Local Court or to competently deal with the creditor’s petition. She sought that such extenuating circumstances be taken into account, that the judgment be set aside and the sequestration order struck out, so that she could proceed with resolution of outstanding Family Court and Supreme Court matters.
In relation to the formal requirements of the Bankruptcy Act the creditor relies on a number of affidavits. I have had regard to whether I am satisfied of the matters required under s.52(1) of the Bankruptcy Act.
I note that the creditor’s petition was amended by order of the Registrar. I am satisfied on the basis of the creditor’s petition as amended, that the date of Ms Bhatti’s act of bankruptcy was 15 December 2009. I am satisfied with service of the petition (and the Bankruptcy Notice) which is not disputed by Ms Bhatti. In relation to the issue of whether the debt on which the petitioning creditor relies is still owing, it is not in dispute that there is a default judgment of the Local Court which forms the basis for the Bankruptcy Notice. That judgment has not been met. Nor has there been any application to set aside that judgment.
Ms Bhatti’s submissions give rise to an issue (although not expressed in those terms) of whether the court should accept the creditor’s judgment as proof of the debt relied on to found the creditor’s petition, or whether the court should go behind that judgment. I have borne in mind that the judgment was a default judgment and also that as stated in Wren v Mahony (1972) 126 CLR 212 at 224 – 225; [1972] HCA 5:
The Court's discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
Special circumstances must exist before the court will go behind a judgment. It will not be done as a matter of course and a court will not go behind a judgment if, while the amount of the debt might be affected it would not be reduced below the amount provided for in s.44 of the Bankruptcy Act (see Olivieri v Stafford and Others (1989) 24 FCR 413 and Re Longo; Ex parte Longo (1995) 57 FCR 523).
As the judgment is a default judgment the court will more readily look behind the judgment to see if, on investigation, it does represent a real debt (Corney v Brien (1951) 84 CLR 343). However it is relevant to have regard to whether the debtor has attempted to have the judgment set aside. In this case that has not occurred.
Ms Bhatti endeavours to provide an explanation for her inaction based on her personal circumstances. However I have also had regard to the considerable amount of time that has passed since the default judgment of 25 March 2009. On 25 August 2010 Ms Bhatti claimed that she intended to file a motion to set aside the judgment, but this has not occurred.
The debt that gave rise to the default judgment in this case is a debt for legal fees. Ms Bhatti did not, on the evidence before the court, take advantage of any of the avenues open to her to take issue with such costs under the Legal Profession Act2004 (NSW) by way of a costs assessment, application to set aside the costs agreement or mediation.
Notwithstanding that there are some issues raised by Ms Bhatti in relation to her understanding of her liability to Mr White and whether she had in fact paid him all that she thought she would be liable to pay him, this is not a case in which fresh evidence has come to light or in which it has been established that the judgment was obtained by fraud, collusion, or a miscarriage of justice. Indeed, the evidence before the court does not support in any way her assertion that there was an agreement between her and Mr White for a lump sum for his legal fees. Mr White has sworn an affidavit attaching details of his financial transactions with Ms Bhatti, including the costs agreement of 12 January 2008. It is not for a fixed amount.
On the evidence before me, particularly having regard to the affidavit of Mr White in relation to the accounts that his firm kept, the costs agreement entered into between the parties and the correspondence between the parties at the time Mr White acted for Ms Bhatti, I am not persuaded that this is a case in which substantial reasons have been shown such as to warrant going behind the judgment.
Much of Ms Bhatti’s concern relates to a failure to understand matters, including alleged inconsistencies, which in fact to a large extent appear to be a failure to understand the method of accounting used by Mr White’s firm. Her claims of overcharging are not properly substantiated. It is appropriate in the discretion of the court, to accept the creditor’s judgment as proof that there is a debt relied on to found the creditor’s petition which is at least in the sum of $2,000.
Ms Bhatti takes issue over precisely what amounts she paid Mr White, but her claims in that respect are not such as to establish that I should not be satisfied on the evidence before me that the debt on which the petitioning creditor relies is a debt within s.44(1) of the Bankruptcy Act. I am satisfied of the matters in s.52(1) of the Bankruptcy Act.
Insofar as Ms Bhatti raises these matters under s.52(2) as a basis on which for other sufficient cause a sequestration order ought not to be made, on the evidence before the court it has not been established that for other sufficient cause a sequestration order ought not to be made. I have had regard to all of the matters that Ms Bhatti raised in that respect, including the claim she makes about her personal circumstances. However it is well established that a petitioning creditor has a prima facie right to a sequestration order unless the debtor establishes some very special circumstances which would justify the court in departing from its usual practice. This is not a case in which there is any evidence to establish improper motive or abuse of process, notwithstanding the issues that Ms Bhatti raises in relation to the expenses she incurred by way of Mr White’s costs while he represented her in Family Court proceedings. Her claims do not constitute other sufficient cause on the evidence before the Court.
As to her non-appearance when the sequestration order was made, I am not satisfied on the explanations given by Ms Bhatti, in circumstances where she was aware, on her own evidence, of the Bankruptcy Notice and the creditor’s petition, that for other sufficient cause a sequestration order ought not to be made.
I note also that there is no evidence in relation to Ms Bhatti’s financial position and hence I cannot be satisfied that she is able to pay her debts within s.52(2)(a) of the Act. There is an appearance on behalf of another creditor in these proceedings. I am of the view that in all the circumstances this is not a case in which other sufficient cause has been established.
Accordingly I am satisfied that Ms Bhatti committed the act of bankruptcy alleged in the petition as amended. I am satisfied with proof of the other matters required by .s52 of the Act.
There is no basis to set aside the sequestration order made against the estate of Surbjit Kaur Bhatti by Registrar Tesoriero on 4 August 2010. The application for review should be dismissed with costs.

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Barnes FM.

Associate:

Date: 8 October 2010