Bobb v Bey - [2005] FMCA 348

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BOBB & ORS v BEY

[2005] FMCA 348

BANKRUPTCY – Creditors’ petition – based on default judgment on claim never served on debtor – amendment of petition to assert lesser debt – reliance on affidavits verifying – Court not satisfied as to proof of debt – sufficient cause shown for dismissing petition.

Bankruptcy Act 1966 (Cth), ss.40(1)(c)(iv), 40(1)(g), 52, 52(1), 52(1)(a), 52(1)(c), 52(2), 52(5)

Cameron v Cole (1944) 68 CLR 571
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Craig v Kanssen (1943) 1 KB 256
Re Hanby; ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378
Re Prestia, in the matter of Australia and New Zealand Banking Group Ltd v Prestia [2001] FCA 792
Swain v Waverley Municipal Council [2005] HCA 4
Taylor v Taylor (1979) 143 CLR 1

Applicants:

RICHARD BOBB, KATHERINE CHOW, KEO CHUI & DAVID WOO, TRADING AS RICHARD A. BOBB

Respondent:

ELVIS BEY

File Number:

SYG1556 of 2004

Judgment of:

Smith FM

Hearing dates:

5 October, 15 November, 21 December 2004, 11 March 2005

Delivered at:

Sydney

Delivered on:

11 March 2005

REPRESENTATION

Counsel for the Applicants:

Mr A A Henskens

Solicitors for the Applicants:

Kemp Strang

Counsel for the Respondent:

Mr G Bateman

Solicitors for the Respondent:

Loukas & Co

ORDERS

Petition dismissed.
A copy of this order to be provided to the Official Receiver in Sydney within two days.
Applicants to pay the Respondent’s costs as agreed or taxed, not including the Respondent’s costs of legal representation on 21 December 2004.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1556 of 2004

RICHARD BOBB, KATHERINE CHOW, KEO CHUI & DAVID WOO, TRADING AS RICHARD A. BOBB

Applicants

And

ELVIS BEY

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

This case involves a protracted saga in two Courts in which a firm of accountants are attempting to recover fees for providing their services to the debtor, whom I shall refer to as the respondent from hereon, and to members of his family and a related company. In the course of the proceedings in both Courts, their claim has shrunk from $59,401.93 to $12,314.50 plus interests and costs. Their dispute has involved numerous interlocutory proceedings in the Local Court of New South Wales and in bankruptcy proceedings in this Court. A bankruptcy petition brought in this Court has occupied me on four hearing days between October 2004 and today and has occupied in total more than two days in Court time. Obviously, the parties’ costs by now far exceed the amount now being litigated.
In this situation, and for reasons which appear below, I consider that the proceedings in this Court should be brought to an end and that I should do so today without reserving to write a polished judgment on all the issues on which I have been addressed. In the course of revising my oral judgment I have added some references to the evidence and to authorities which were cited to me.
The short history of the matter is the following. On 29 January 2004 the applicants lodged a statement of liquidated claim in the Local Court (Civil Claims) Sydney, claiming the sum of $59,595.93. They pleaded their situation as a firm of accountants and tax agents “to” the respondent and other named members of his family and a company, Sam’s Power Tools Pty Ltd. They said that in that capacity they “provided at the request of the (respondent), all relevant professional accountancy and taxation services”, and that he “at all relevant times, acted as the authorised agent of the said” people. They claimed that “fully itemised accounts were rendered to the said entities and provided to” the respondent and that he “has not paid any of the outstanding fees and associated costs owed by him as agent for the business entities and on his own account”.
There was a clear lack of particularisation of the agreements under which it was alleged that work was done at the request of the respondent, and of the agreed or implied bases on which the fees were claimed to be owing by him as an agent for other people. Also, the invoices claimed to be outstanding were not identified, and it was impossible to tell from the statement of claim the basis on which the claimed fees had been calculated and how the total amount had been arrived at.
A further problem with the statement of claim was that it identified the respondent as living at an address at which he did not and had never lived. The sheriff’s officer attended at that address on 6 February 2004 and “duly served” a “male person, apparently not less than the age of sixteen years and apparently a resident at the time” at that address. His affidavit of service states: “At the time of service the person served was very aggressive and refused to provide me with his name or any details or identification, he also refused to accept statement. Statement was therefore placed at his feet”.
Plainly, in those circumstances, the default judgment that was entered subsequently on 5 March 2004 for $60,461.03 was liable to be set aside in the interests of justice, and may have been a nullity (see Craig v Kanssen (1943) 1 KB 256, Cameron v Cole (1944) 68 CLR 571 at 584, Taylor v Taylor (1979) 143 CLR 1 at 4, and authorities cited in Ritchie’s Supreme Court Procedure NSW at [s.81.1]). Such a setting aside eventually occurred on 9 September 2004 after the presentation of the bankruptcy petition to which I shall refer below.
I shall describe the course of the bankruptcy proceedings below. While they have been on foot and after the default judgment was set aside, the Local Court proceedings have been actively pursued by the applicants and defended by the respondent. At one stage, in November 2004, the proceedings were struck out due to the failure of a representative of the applicants to attend a call over. However, they were reinstated on the application of the applicants who persuaded the Local Court that they were interested in actively pursuing the Local Court litigation.
Full details of what has been happening in the Local Court are not in evidence before me. It seems that until recent times the applicants have maintained their claim to the full amount of fees originally claimed. However, today the respondent tendered a recently amended statement of liquidated claim that was filed in the Local Court on 10 February 2005 by the applicants. This document amounts to a total repleading of the claims against the respondent. It now claims a total of $18,375.34 which is based on an alleged debt of $12,314.50. The pleading claims that this debt was evidenced by five invoices served on the respondent between November 2000 and February 2004. Each of the debts relating to a particular invoice is pleaded separately. In all of them it is alleged that the respondent requested accounting services which were provided to the respondent and other persons, and was “jointly and severally” liable with various family members for the amounts described in each invoice and for interest. The claim in relation to each invoice also carries an alternative pleading that the plaintiffs are entitled to a payment of a reasonable sum from the respondent for the professional accounting services provided as described in the invoices.
As with the first pleading, the amended statement of claim itself does not contain particulars of the agreements which are alleged to establish the liabilities which are being claimed. The pleading also does not indicate the basis upon which the quantum meruit claims are calculated. It is reasonable to assume that the respondent has, or will be, seeking further and better particulars of the new pleadings.
I now return to the situation as it stood in March 2004, when the default judgment had been obtained and not set aside. A bankruptcy notice was issued on that default judgment on 23 March 2004 for the amount of the judgment debt: $60,461.03. The notice was not served personally on the applicant but was served under orders for substituted service made in this Court by a Registrar. The demand made in the notice was not satisfied by the time for payment under the notice.

A creditors’ petition was then taken out by the applicants based on the same judgment debt and, as with the bankruptcy notice, it was not served personally but under orders for substituted service.
The petition was accompanied by an affidavit by one of the applicants, Richard Bobb, swearing to the truth of paragraph 1 of the petition, which said:
The respondent debtor owes the applicant creditors the amount of $60,461.03 for a final judgment in the sum of $60,461.03 obtained by the applicant creditors in the Downing Centre Local Court of New South Wales. The consideration for the judgment is unpaid fees for the provision of professional accountancy and taxation services.
The respondent appeared on his own behalf in this Court on the return of the petition but at all times subsequently he has been represented in this Court by a solicitor. He has actively sought to oppose the making of the sequestration order. His notice of intention to oppose the petition was filed on 2 August 2004 and claimed that he was able to pay his debts, that the granting of the sequestration order would cause considerable hardship to his business, and that the proceedings in bankruptcy were grounded on a default judgment which had been stayed and a notice of motion to set aside was to be determined shortly.
In support, he filed an affidavit sworn on 31 July 2004 stating that he had never been properly served with the statement of liquidated claim, and also stating:
5.I now strongly dispute the amount claimed, and I also dispute whether I personally am responsible for payment of the sums alleged, noting that accounting services were provided by the respondents to a number of entities and not just to me personally.
In a further affidavit sworn by the respondent on 27 September 2004, he said, inter alia, after describing the claims made in the Local Court:
7.Accordingly, I dispute that I personally am responsible for payment of the sums alleged, noting that accounting services were provided by the respondents to a number of entities. I accept that in the past I have made offers of settlement to the respondents, however, same were not intended as admissions of my personal liability, but rather as ‘without prejudice’ attempts to resolve the family indebtedness in globo. I certainly do not accept that the entire debt – which has yet to be particularised – is owed entirely by me personally. I also seek particulars as to the quantum of the debt.
8.I dispute the amount claimed by the respondents and have requested that their claim be particularized [attaching a request for particulars made by his solicitor]. To date no response has been received.
9.On 9 September 2004 the Local Court set aside Default Judgement. Additionally, the Respondents (sic: Applicants’) solicitors were to file and serve an Amended Statement of Liquidated Claim by 23 September 2004. This has not been done.
When the matter came before me for the first time on 5 October 2004, the applicants filed in Court an amended creditors’ petition. It still maintained that the respondent owed the applicants the amount stated in the final judgment obtained in the Local Court in the terms of paragraph 1 which I have set out above. However, the amended creditors’ petition added a paragraph 4(b) which relied not only on the act of bankruptcy being the failure to comply with the bankruptcy notice based on the Local Court judgment, but also alleged an act of bankruptcy under s.40(1)(c)(iv) of the Bankruptcy Act 1966 (Cth) (“the Act”) that:
The respondent debtor, with the intent to defeat or delay his creditors, began to keep house on 28 March 2004.
No fresh affidavit verifying paragraph 1 of the petition was filed, but another applicant, Keo Chui, swore an affidavit of debt on 5 October 2004 which said:
2.The amount of $12,314.50, owing by the Respondent debtor to the Applicants, pursuant to various tax invoices, on which the Applicants rely in these proceedings, is still owing.
3.The Respondent is also indebted to the Applicants for other invoices totalling $38,772.25 plus interest and costs.
On that occasion, the applicants tendered copies of five invoices said to evidence the amount referred to in paragraph 2 of this affidavit. However, no evidence was led to explain how those amounts were calculated or the agreements under which they were alleged to have arisen, nor explaining why they differed from the debt alleged in the Local Court.
The matter was unable to proceed beyond the reading of affidavits on 5 October 2004, due to other commitments of the Court.
When the matter next came before me on 15 November 2004 there was evidence that the applicants’ statement of liquidated claim had been struck out in the Local Court, but was being sought to be reinstated. On that occasion, the applicants filed a further amended creditors’ petition. In that document, the previous paragraph 1 (set out above) was replaced with the following:
1.The respondent debtor owes the applicant creditors the amount of $12,314.50. The consideration for the debt is unpaid fees for the provision of professional accountancy and taxation services.
This was verified by a new affidavit by Richard Bobb sworn on 4 November 2004. A further affidavit by Mr Bobb sworn 15 November 2004 deposed to the following:
The amount of $12,314.50 owing by the Respondent debtor to the Applicants, pursuant to various tax invoices, on which the Applicants rely in these proceedings, is still owing.
It said that the sum:
… is comprised of the outstanding invoices contained in annexure “A” hereto.
The attached documents were the five invoices which had already been tendered. They are addressed to the respondent only, and narrate various claims for work and disbursements benefiting various members of the respondent’s family and their company, without specifying the agreements under which the services were provided. Mr Bobb did not attempt in his affidavit to put forward evidence addressing the basic contractual elements which would establish and quantify a liability by the respondent for the amounts claimed. He did not explain why his affidavit alleged a debt different (and significantly reduced) from the debts previously alleged in the bankruptcy proceedings.
The hearing on 15 November 2004 was adjourned part heard to 21 December 2004 when submissions were heard. At the end of his submissions, the respondent’s solicitor tendered evidence recently obtained by him which had a significant bearing on the existence of the debt claimed by the applicants. For reasons which I then gave, I admitted this into evidence and adjourned the hearing to allow the applicants a chance to respond to it. I will refer to the new evidence further below.
The matter was then adjourned to today. Further directions were made in February 2005 directing the parties to put further evidence on by affidavit. No affidavits were filed by the applicants in accordance with my directions, but the applicants today have filed in court two further affidavits. One is an affidavit of debt sworn by David Woo on 10 March 2005, which is in identical terms to the affidavit of debt of Richard Bobb sworn on 15 November 2004 to which I have already referred. It alleges a debt of $12,314.50 “comprised of the outstanding invoices” attached. I shall refer below to the second affidavit sworn on 10 March 2005 by Mr Woo.
The numerous affidavits of debt and verifying the petition which have been filed in these proceedings, some of which I have referred to above, have all purported to verify the applicants’ changing assertions in relation to a debt owing by the respondent, without putting forward evidence of agreements giving rise to the liability or allowing its quantum to be verified. None of them, nor any other evidence led by the applicants, attempt to explain why parts of the original assertions were withdrawn either in this Court or in the Local Court. The applicants have not denied that the respondent has throughout the proceedings in this Court and in the Local Court, after he had notice of them, been seeking to be provided with proper particulars about how the liabilities under the invoices asserted from time to time are alleged to arise. They have not denied that they have not yet provided such particulars.
The respondent has not filed amended objections in response to the two amendments to the petition. He has, however, filed affidavits identifying his objections and the proceedings have been argued before me on the basis that the debtor’s affidavits sufficiently raise the current basis of his opposition to sequestration. Given that the two amendments to the petition occurred in the course of the hearings, I think this is an appropriate approach to an assessment of the conduct of the proceedings on behalf of the respondent.
I have above referred to the first two affidavits filed by the respondent. A third affidavit is sworn on 9 November 2004. It has headings indicating what he describes as six “bases” on which he asks the Court to dismiss the petition. These are:
a)Local Court proceedings never served;
b)Personal liability for alleged debt denied;
c)Alleged debt not particularised;
d)Debt not proved – Local Court proceedings struck out;
e)Personal solvency;
f)Harsh and unjust consequence.
In relation to the allegations of debt made in the petition, the respondent’s affidavit says the following:
B.         Personal Liability for alleged debt denied
7.The Statement of Liquidated Claim on which these proceedings are based indicates that the debt is owed on the basis of personal accountancy services provided to members of my family and family‑related business entities, including:
·       Sam and Salam Bey
·       Elvis and Ranya Bey
·       Sam, Salam, Elvis & Ranya Bey
·       Sam’s Power Tools Pty Ltd
8.I dispute that I personally am responsible for payment of the sums alleged, noting that accounting services were provided by the respondents to a number of entities.

I accept that in the past I have made offers of settlement to the respondents, however, same were not intended as admissions of my personal liability, but rather as ‘without prejudice’ attempts to resolve the family indebtedness in globo. I certainly do not accept that the entire debt – which has yet to be particularised – is owed entirely by me personally. I also seek particulars as to the quantum of the debt.
C.         Alleged debt not particularised
9.I dispute the amount claimed by the respondents and have requested that their claim be particularized. I am aware that my Solicitor, Mr Loukas, forwarded a request for particulars to the respondents’ solicitor Mr Terry Sperber of Swaab Attorneys, on 23 August 2004. A copy of the request for particulars is attached hereto and marked with a letter “C”. To date no response has been received.
This affidavit was made at a time when the petition and applicants’ affidavits still suggested that the debt relied upon by the applicants was $60,461.03, or some lesser amount of at least $12,314.50. The amendment of the petition to rely only on the latter amount as the basis for the petition was made in the course of the hearing on 15 November 2004. Taking into account the way the matter proceeded on that occasion and on the subsequent occasions, since the applicants have contended that the $12,314.50 was part of the greater amount previously claimed, I am prepared to accept the above paragraphs 7, 8 and 9 as addressing the five invoices which are now currently relied upon. The respondent was cross‑examined by counsel for the applicants on that basis, as I shall indicate.

I am obliged to address the following matters set out in s.52(1) and s.52(2) of the Bankruptcy Act 1966 (Cth):
(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.
…
(2)If the Court is not satisfied with the proof of any of those matters, 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.
In relation to the alleged acts of bankruptcy now relied upon, I accept submissions of counsel for the applicants that an act of bankruptcy occurred under s.40(1)(g), based on non payment of the Local Court default judgment debt by the time stipulated in the notice. The fact of its subsequent setting aside and the ongoing contest to the basis on which its claims were made, does not remove the act of bankruptcy: Re Hanby; ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 at 381. The circumstances of the obtaining and setting aside of the default judgment are, however, very relevant to my satisfaction as to a debt upon which sequestration could be ordered, and to my consideration of whether a sequestration order should be made.
In relation to the alleged act of bankruptcy under s.40(1)(c)(iv), that the respondent, “with the intent to defeat or delay his creditors … began to keep house”, I do not accept that this occurred. My short reason is that the evidence relied upon does not establish to my satisfaction that the respondent was keeping house with the requisite intent. The evidence which is relied upon indicates some difficulties with serving the bankruptcy notice and petition personally on the applicant. This may have justified the making of orders for substituted service, but does not persuade me on all the circumstances set out in the relevant affidavits of the process servers that the respondent was keeping house with intent to defeat or delay his creditors. There is no suggestion that the applicant was not leaving his house, and he appears at all relevant times to have been conducting a business from premises away from his home. There is no evidence that any other creditor had difficulty locating or contacting him.
In relation to paragraphs 2 and 3 of the petition, it is not alleged that the petitioners hold security over property of the respondent nor that the respondent is not ordinarily resident in Australia.
In relation to paragraph 1 of the petition, s.52(1)(a) and (c) require me to consider the proof of the matter alleged in paragraph 1, being the debt in “the amount of $12,314.50”, and that “the debt or debts on which the petitioning creditor relies is or are still owing”.
For reasons which follow, I am not satisfied on all the evidence before me that the debt identified in the current affidavit verifying paragraph 1 or the current affidavit of debt which purports to identify the debt by reference to five attached invoices was owing at any relevant time, or that it is “still owing” today.
Making a determination as to proof of that debt has been complicated because both parties have taken tactical positions which avoided giving direct evidence concerning the agreements and relevant dealings between the applicants and the respondent and his family in relation to the engagement of the applicants for their accountancy services and payment of their remuneration. The applicants have relied upon the affidavits verifying the petition. Under s.52(1)(a) of the Act, the Court “may accept” this as sufficient, but is not bound to do so. I consider the Court should not do so unless it considers that this is appropriate in the circumstances of the matter before it. No doubt in most bankruptcy matters it will do this unless a debtor can show a good reason for the Court to require more evidence, but for the following reasons I decline to do so in the present case.
The applicants’ counsel sought to persuade me that it was sufficient for me to be satisfied that there is some unparticularised debt exceeding $2000 owing to the applicants by the respondent, and that it did not matter that I could not be satisfied in relation to the particular debt alleged in the petition and the affidavits verifying. No authority was cited to me for this and I do not accept it. I consider that the clear language of s.52(1)(a) and (c) requires me to be satisfied as to the debt which is identified and quantified in the petition.
For the same reason, I reject the submission that the debt has been established by vague admissions of indebtedness claimed to have been made by the respondent in the course of proceedings in this Court. Thus, for example, in cross‑examination on 15 November 2004, the respondent said:
Mr HENSKENS: I suggest to you that you well know that you owe Mr Bobb and his firm of accountants in excess of $2000 for their legal services, don’t you – for their accounting services, don’t you?
Mr BEY: I presume, yes.
Mr HENSKENS: You only deny that you do not personally owe them the full 60,000, don’t you?
Mr BEY: Yes.
I do not regard this statement by the respondent, or other similar statements that are attributed to the respondent in the course of appearances before the Registrar, as carrying an admission of the debt relied upon in the petition. Particularly, since his consistent and, in my opinion, reasonable position has always been that he has been unable to admit any particulars of indebtedness in relation to the amounts being pursued in the Local Court and in this Court, in the absence of proper particulars which he would be entitled to receive in the Local Court before being obliged to commit himself to a detailed defence.
I also do not accept the further submissions made on behalf of the applicants that they have sufficiently proved the debts based upon inferences from the manner in which the respondent has met the allegation of indebtedness made in the petition and in the affidavits verifying. It was submitted that I could draw the inference due to the failure of the respondent to cross‑examine the deponents of the affidavits of debt, and to specifically deny the debt asserted. However, as I have indicated, I consider that the affidavits of the respondent have consistently denied liability for the amounts claimed, including for the debts asserted in the five invoices currently relied upon.
Counsel for the applicants referred me to Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418, paragraphs E and F, as to the inferences that may be drawn from a failure to cross‑examine. However, I consider that I should weigh this consideration in the light of the way in which both sides have conducted their cases in this court. Another guide to the drawing of inferences is the statement of Lord Mansfield which Gleeson CJ has referred to recently on several occasions, including in Swain v Waverley Municipal Council [2005] HCA 4 at [17]:
All evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.
This cuts both ways in the present case. The persons who are best able to prove indebtedness and who have the burden of persuasion are the applicants. Their reluctance to lead direct evidence to establish the elements giving rise to a quantified debt, in the circumstances which developed in this case, is in my opinion just as significant as the respondent’s reluctance to turn this Court into the forum for presenting his defence to their assertions of indebtedness. Both parties have adopted the position of preferring that the full proof of indebtedness, and the defences to the full claim should best be litigated in the Local Court. There is good authority that supports this approach in a court of bankruptcy.
In Re Prestia, in the matter of Australia and New Zealand Banking Group Ltd v Prestia [2001] FCA 792, Hely J refers at [18] to authority supporting the proposition that the Federal Court “… is a court of bankruptcy, and not a court for determination of actions in debt”.
His Honour went on to say at [19]:
However, where, as here, there is evidence in conventional form as to the existence of a debt of $568,782.59, it is incumbent on Mr Prestia to establish that there is a triable issue as to his indebtedness which would justify the dismissal of the petition, or its adjournment pending resolution of the issue in the Supreme Court. As the petition expires on 28 June 2001, adjournment of the petition to enable finalisation of the Supreme Court proceedings is not a viable option.
In that case, a debt was put forward by a bank based on a demand under a bank guarantee. The liability asserted appears to have been well particularised and easily comprehended, and the affidavits filed by the debtor did not contest the allegations of indebtedness but relied on the fact that the debt was the subject of unresolved Supreme Court proceedings. His Honour did not consider that the respondent had raised a “triable issue”, and also took into account that the respondent admitted that he was insolvent.
In my view, the present is a different case. I consider that the respondent can point to elements in the history of the litigation in the Local Court and in this Court which I have recited above, and has also presented material to this Court, sufficiently suggesting there are triable issues as to the indebtedness now claimed by the applicants. I accept that in many situations the Act intends, and practice in bankruptcy courts requires, that the formal affidavit verifying indebtedness should be sufficient. However, in the present circumstances, including the matter to which I am about to refer, I decline to exercise my discretion to be satisfied on the affidavit of debt alone.
My lack of satisfaction on the affidavits verifying the debt is confirmed by the new evidence tendered by the respondent on 15 November 2004. This suggests that the applicants have made assertions inconsistent with their claims in the Local Court and in this Court that the respondent is entirely liable for the full amount of each of the five invoices now relied upon. Their inconsistent assertions were made in proofs of debt made by the applicants on the trustee of the bankrupt estates of the respondent’s parents. These proofs included two amounts claimed in each estate as owing by each of these persons under two of these invoices. The Schedule showing “Calculation of Proof of Debt” in each estate attached the same invoices now put to this Court and claimed: “These bills were issued to Sam, Salam, Elvis and Ranya Bey jointly and the share of the liability of the bankrupt is ¼^th of the total of the bill”.
I consider that this provides evidence suggesting that the applicants’ understanding of the underlying agreements for the payment of these accountancy fees did not make the family members severally liable for the full amounts but only proportionately liable. In my opinion, this evidence raises a material inconsistency and doubt as to the pleading of the indebtedness in the Local Court and the affidavits of debt filed in this Court.
In response to these documents, the applicants today relied upon the second affidavit by one of them, David Woo sworn 10 March 2005 and filed today. This does not attempt to establish the facts of relevant accountancy agreements, so as to establish whether there was a proportional or several liability for accounting fees incurred in relation to services benefiting various members of the respondent’s family. Rather, it baldly states that, after receiving legal advice and subsequent to the hearing on the last occasion, the applicants withdrew the previous proofs of debt (on which they had already received a substantial dividend) and “re‑submitted new Proofs of Debt, proving for the entire amount of each of the bills on the basis that the persons named in the bills were jointly and severally liable …”. No evidence was given as to the trustee’s response to this. This affidavit does not persuade me that this issue is not genuinely triable in the Local Court.
If I am wrong in failing to be satisfied on the current evidence of debt available to this Court that the debt as claimed in the further amended petition was and still is owing, I consider that the circumstances I have narrated above provide “sufficient cause” under s.52(2) for declining to make a sequestration order, and allowing me to allow the existence of the debt to be fully tested by the respondent in the Local Court. In forming this judgment, the following circumstances are particularly significant:
·The act of bankruptcy arises from a judgment which was improperly obtained.
·But for the improper judgment, the respondent would have enjoyed the right in the Local Court to obtain and consider proper particularisation of the claims before being obliged to make admissions and identify his defences to the claimed debts.
·Assuming that the debt has been sufficiently established, this was achieved by formal affidavit and inferences arising from the respondent’s conduct of his opposition in this Court, rather than by persuasive evidence of the indebtedness.
·The respondent can point to inconsistent evidence in relation to the debt relied upon so as to suggest he may have a defence in relation to at least part, and possibly the whole, of the particular debts now asserted in the petition, as well as to the other amounts which have in the past been claimed in the Local Court.
·Finally, the amount of the debt now relied on is relatively insignificant in commercial terms and also by comparison with the indebtedness which was originally raised and pursued until recent times.
I consider, in all the circumstances, the respondent should be allowed the opportunity to meet and defend in the Local Court the total amount of fees which are currently being pursued by the applicants.
I am fortified in the opinion that I should not make a sequestration order by the absence of evidence which suggests that there is a public interest in making the respondent bankrupt. Although the respondent has not established to my satisfaction that he is solvent in the sense of able to pay his debts as they fall due, this may well have been the result of imperfections in the preparation of his evidence. His evidence presented in relation to solvency certainly does not allow me to infer the opposite. He asserts that he is solvent and has led evidence that he has a credit bank balance, and net assets of possible substance. The applicants, who claim to have been his accountants, have not sought to establish his generally insolvency nor that it is generally in the interests of the respondent’s creditors that he be made bankrupt. There is no evidence of any other creditor having an interest in the present proceedings.
The applicants have today, for the first time, submitted that if I were dissatisfied as to proof of debt and concerned to allow the respondent his right to defend the claim in the Local Court, I should stand the petition over until the Local Court proceedings are concluded. Counsel for the applicants accepts that this would require me to extend the life of the petition by exercising the Court’s discretion under s.52(5) for another 12 months. That discretion requires the Court to be persuaded that it is “just and equitable to do so”.
I am not so persuaded. There is almost no evidence before me to allow me to assess the current state and the future course of the Local Court proceedings, and, in particular, as to when they are likely to be brought to finality. Moreover, in the history of the matter which I have described above, I consider the respondent has had this petition hanging over his head for long enough. There is no evidence suggesting any general threat to creditors or the community from allowing him to continue in business without that threat.
I consider that the applicants’ claims can and should be pursued in the Local Court without further complications and expenses arising from concurrent bankruptcy proceedings. I do not consider it is just and equitable to extend the life of the petition while that happens.

I consider, in all the circumstances, that these proceedings should be brought to a conclusion today and I consider that the appropriate order of the Court is to dismiss the petition.
I propose to order accordingly.
RECORDED : NOT TRANSCRIBED
I have now heard the parties in relation to what costs orders I should make.
The default judgment upon which the bankruptcy proceedings were commenced and relied until November 2004 was vitiated as a result of the applicants’ original failure to effect proper service due to erroneous identification of the respondent and his place of residence. Moreover, as is now admitted, they claimed an amount grossly exceeding what is now being pursued in the Local Court and was ultimately relied upon in this Court. For these reasons, I consider that it is fair and just that the applicants should carry their own costs of attempting to implement and enforce that default judgment through bankruptcy proceedings, and then of attempting to short‑cut the Local Court proceedings by taking advantage of the act of bankruptcy based on that judgment. So I do not propose to make any order for costs in favour of the applicants. I have taken into account their difficulties in effecting service of the bankruptcy notice and petition, but do not consider that they should recover their costs of these efforts.
In relation to the respondent, I think he is entitled to all of his costs of defending the proceedings except in relation to his costs incurred in relation to the hearing before me on 21 December 2004. I consider that the tender of the fresh material was belated on that day, and should have been foreshadowed by affidavit served at least a day or two before that hearing. If this had happened, an adjournment might not have been necessary (although this is highly speculative).
I shall order that the applicants pay the respondent’s costs as agreed or taxed, but not including the respondent’s costs of legal representation on 21 December 2004.

I certify that the preceding fifty‑nine (59) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Lilian Khaw

Date: 31 March 2005