Cann v Commonwealth Bank of Australia (No.2)
[2011] FMCA 242
•12 April 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CANN v COMMONWEALTH BANK OF AUSTRALIA (No.2) | [2011] FMCA 242 |
| BANKRUPTCY – Application for review of sequestration order made by Registrar – practice and procedure on review – failure to comply with orders requiring service of notice of application for review on creditors – oral application for dismissal of review application – whether to exercise discretion to dismiss application for review for non-compliance with earlier orders – whether evidence of solvency – resolution of dispute by alternative means. PRACTICE AND PROCEDURE – Application for referral to a Registrar for referral to a pro-bono lawyer. |
| Bankruptcy Act 1966 (Cth), ss.6A, 43, 44, 47(1), 52(1), 52(2)(a), 54(1), 77, 153B(1), 265 Federal Court Rules (Cth), O.80 Federal Magistrates Act 1999 (Cth), ss.26, 104(2) and (3) Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr.3.02, 4.02, 4.04(1), (2), (3) and (4), 4.05, 4.06(2), (3) and (4), 7.04, 7.06 Federal Magistrates Court Rules 2001 (Cth), rr.12.03,13.03A, 13.03B, 20.03(a), (b) and (c), Division 27.1, 27.2 |
| Bartucciotto v Western Health Care & Ors (2007) 94 ALD 387; [2007] FMCA 26 Sandell v Porter (1966) 115 CLR 666 Wolff v Donovan (1991) 29 FCR 480 |
| M Steele (Ed.), Federal Magistrates Court Guidebook (Sydney: Thomson Legal and Regulatory Limited) |
| Applicant: | GAVIN MICHAEL CANN |
| Respondent: | COMMONWEALTH BANK OF AUSTRALIA |
| File Number: | PEG 2 of 2011 |
| Judgment of: | Lucev FM |
| Hearing date: | 22 March 2011 |
| Date of Last Submission: | 22 March 2011 |
| Delivered at: | Perth |
| Delivered on: | 12 April 2011 |
REPRESENTATION
| For the Applicant: | Mr G M Cann |
| Counsel for the Respondent: | Ms K McNally |
| Solicitors for the Respondent: | Clayton Utz |
ORDERS
That the application be amended to name the respondent as “Commonwealth Bank of Australia”.
Insofar as there is an application to set aside a Bankruptcy Notice said to have been served on the applicant on 21 December 2010, that application be dismissed.
That the respondent’s oral application to dismiss the application be adjourned with liberty to apply on 3 days notice.
That the applicant’s application under r.12.03 of the Federal Magistrates Court Rules 2001 (Cth) for referral to a Registrar of this Court for referral to a lawyer on the pro bono panel for legal assistance in relation to these proceedings be dismissed.
That the parties are to confer:
(a)forthwith in an attempt to resolve the matter; and
(b)if not resolved, with respect to future programming orders.
Otherwise, the matter is adjourned to 4.00pm on 21 April 2011 for further directions.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 2 of 2011
| GAVIN MICHAEL CANN |
Applicant
And
| COMMONWEALTH BANK OF AUSTRALIA |
Respondent
REASONS FOR JUDGMENT
Application for review
On 11 January 2011, the applicant, Mr Cann, filed an application for a review of a sequestration order made by a Registrar of this Court on 21 December 2010. The Registrar made the sequestration order on the application of the present respondent, the Commonwealth Bank of Australia.[1] In addition to seeking a review of the sequestration order, the application for review, curiously, also seeks to set aside a Bankruptcy Notice said to have been served on 21 December 2010. This is the same day that the sequestration order was made, and a copy of the Bankruptcy Notice is said to, but does not, accompany the application.
[1] “CBA”. See also para.52 below.
Rule 3.02 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth)[2] provides that:
(1) An application to set aside a bankruptcy notice must be accompanied by:
(a) a copy of the bankruptcy notice; and
(b) an affidavit stating:
(i) the grounds in support of the application; and
(ii) the date when the bankruptcy notice was served on the applicant; and
[2] “FMC (Bankruptcy) Rules”.
(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.
(2) If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter‑claim, set‑off or cross demand; and
(b) the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter‑claim, set‑off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
(3) The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed.
Rule 3.02 of the FMC (Bankruptcy) Rules has not been complied with. There is no affidavit with respect to the Bankruptcy Notice. There are no grounds specified with respect to the Bankruptcy Notice. In any event, there is no Bankruptcy Notice attached to the application.
It follows that insofar as this application seeks to set aside a Bankruptcy Notice said to have been served, it must fail for want of evidence, and it will be dismissed. This dismissal does not preclude another application to set aside the Bankruptcy Notice being made, if that course is otherwise still open to Mr Cann.
Practice and procedure on review
Under s.104(2) of the Federal Magistrates Act 1999 (Cth)[3], the Registrar’s exercise of power to issue the sequestration order may be the subject of an application for review. Under s.104(3) of the FM Act, this Court “may make any order or orders it thinks fit in relation to” the Registrar’s exercise of power in issuing the sequestration order.
[3] “FM Act”.
On an application for a review of a Registrar’s decision, the Court:
a)is engaged in a fresh proceeding;
b)does not scrutinise the original reasons to ascertain error;
c)makes its own decision on the merits of the case; and
d)in applications for review of a sequestration order, where a sequestration order is still sought, the petitioning creditor is required to prove all necessary matters, including those specified in s.52(1) of the Bankruptcy Act 1966 (Cth).[4]
[4] “Bankruptcy Act”;Pattison v Hadjimouratis (2006) 155 FCR 226 at 235 per Jacobson J and 251-252 per Lander J; [2006] FCAFC 153 at para.43 per Jacobson J and para.156 per Lander J (“Hadjimouratis”); O’Meara v Hitwise Pty Ltd (2007) 160 FCR 518 at 521 per Kiefel, Sundberg and Gyles JJ; [2007] FCAFC 114 at para.9 per Kiefel, Sundberg and Gyles JJ (“Hitwise”).
The review proceeds by way of a hearing de novo,[5] and the Court may receive as evidence any affidavit or exhibit tendered before a Registrar, and may, with leave, receive further evidence.[6] It is open to the Court to make an order for annulment of bankruptcy[7] when reviewing a sequestration order.[8]
[5] Hadjimouratis FCR at 230-231 per Nicholson J and 237 per Jacobson J; FCAFC at paras.10-11 per Nicholson J and para.59 per Jacobson J.
[6] Federal Magistrates Court Rules 2001 (Cth), r.20.03(a)-(c) (“FMC Rules”).
[7] Bankruptcy Act, s.153B(1).
[8] Hadjimouratis FCR at 230-231 per Nicholson J and 237 per Jacobson J; FCAFC at paras.10-11 per Nicholson J and para.63 per Jacobson J.
Because the application is a fresh proceeding, albeit by way of review, the respondent (as petitioning creditor) must prove all matters necessary for the making of a sequestration order.[9] Fresh affidavits of search and debt must be filed on an application for review, unless an order waiving compliance has been issued (which has not occurred here).[10] The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met. As petitioning creditor, the respondent is therefore obliged to put before the Court affidavits:
a)verifying the petition;[11]
b)of search of the records of the Court and the Federal Court as to any application in relation to the Bankruptcy Notice;[12]
c)of service of the Bankruptcy Notice;[13]
d)of service of documents required to be served under r.4.05 of the FMC (Bankruptcy) Rules;[14]
e)of search of the National Personal Insolvency Index no earlier than the day before the hearing date for the petition;[15] and
f)of debt on which the creditor still relies as owing.[16]
[9] Hadjimouratis FCR at 235 per Jacobson J and 251-252 per Lander J; FCAFC at para.43 per Jacobson J and para.156 per Lander J; Hitwise FCR at 521 per Kiefel, Sundberg and Gyles JJ; FCAFC at para.9 per Kiefel, Sundberg and Gyles JJ.
[10] Martin v Commonwealth Bank of Australia (2001) 217 ALR 634; [2001] FCA 87.
[11] Bankruptcy Act, s.47(1); FMC (Bankruptcy) Rules, r.4.02.
[12] FMC (Bankruptcy) Rules, r.4.04(1)(a) and (2).
[13] FMC (Bankruptcy) Rules, r.4.04(1)(b).
[14] FMC (Bankruptcy) Rules, r.4.06(2).
[15] FMC (Bankruptcy) Rules, r.4.06(3).
[16] FMC (Bankruptcy) Rules, r.4.06(4).
The Court has jurisdiction to go behind the judgment giving rise to a debt to determine if the debt really is owed, with the onus being on the debtor, in this case Mr Cann, to demonstrate that there exists a reason for questioning the debt.[17]
[17] Wolff v Donovan (1991) 29 FCR 480 at 481 per Davies J and 485-487 per Lee and Hill JJ.
Mr Cann’s application for review – grounds
Mr Cann swore an affidavit in support of the application for review on 11 January 2011.[18]
[18] “Mr Cann’s January 2011 Affidavit”.
There are two bases for the application for review:
a)an allegation that, essentially, the Registrar ignored relevant evidence and submissions concerning the effect of Mr Cann’s medical condition on his ability to appear before the Registrar on the date the sequestration order was issued; and
b)an assertion that a default judgment made in the District Court of Western Australia[19] on 17 March 2010 ought to have been set aside.
[19] “District Court”.
The gist of the first basis is contained in paragraph 1 of Mr Cann’s January 2011 Affidavit:
“I was unable to attend the Federal Magistrates Court on 21 December [2010] to put my case due to ill health. I filed a medical certificate and letter requesting an adjournment. This was not granted and a sequestration order and costs order were made against me.”[20]
[20] Mr Cann’s January 2011 Affidavit, para.1.
In relation to the second basis regarding the District Court default judgment, Mr Cann says that:
a)he successfully applied to have the default judgment set aside on two occasions, subject, ultimately, to him paying $65,000 as security into the Court; but that he submitted a personal guarantee which was not accepted by CBA’s solicitors;[21] and
b)he now has access to $200,000, as following the death of his step-father he is the final beneficiary of a trust,[22] and that before the end of February 2011 he will have accessed the $200,000 and made a payment into the District Court of $65,000 as previously required, and then will again apply for the default judgment against him to be set aside.[23]
[21] Mr Cann’s January 2011 Affidavit, para.4.
[22] “Trust”.
[23] Mr Cann’s January 2011 Affidavit, paras.5 and 8.
Mr Cann says that it will take him a little time to access the Trust funds as one previous trustee is out of the State.[24]
[24] Mr Cann’s January 2011 Affidavit, para.10.
The Court observes that in an affidavit by Mr Cann sworn on 5 December 2010[25] in District Court proceedings related to the default judgment it is indicated that Mr Cann is a joint signatory to the Trust account, which has a balance of in excess of $206,000, but that the other signatory is overseas and was unable to sign at that time, but that “it should be sorted by 15 January 2011”.[26]
[25] “Mr Cann’s December 2010 Affidavit” which is attached to an affidavit of Mr Greig, sworn 3 February 2011 (“Mr Greig’s February 2011 Affidavit”).
[26] Mr Cann’s December 2010 Affidavit, para.8.
In the sequestration order proceedings, an affidavit was filed on behalf of CBA after the sequestration order was made, so as to comply with a direction from the Registrar as to the status of the District Court proceedings. In that regard, Mr Greig’s 23 December 2010 Affidavit[27] provides as follows:
[27] “Mr Greig’s December 2010 Affidavit”.
2.I swear this affidavit in compliance with Registrar Jan’s direction on 21 December 2010, that the Applicant file an affidavit confirming that the default judgment dated 17 March 2010 (Default Judgment) made in District Court of Western Australia action No. 2915 of 2009 (District Court Proceeding) has not been stayed or overturned.
District Court, 28 July 2010
3.I refer to the orders of Principal Registrar Gething made on 28 July 2010 in the District Court Proceeding which relevantly provided:
“1.if by 17 August 2010 the defendant either:
a.pays the sum of $100,000 into Court; or
b.provides security sufficient to meet a judgment in the amount of $100,000 to the satisfaction of the plaintiff,
the [Default Judgment] be set aside;
2.if the judgment is not set aside pursuant to paragraph 1, the application filed 3 May 2010 be dismissed with the defendant to pay the plaintiff’s costs of the application to be taxed.”
4.Attached hereto and marked “TJG1” is a true copy of the orders (July Order).
District Court, 27 October 2010
5.Mr Cann did not provide security by 17 August 2010, or at all.
6.On or about 9 September 2010, Mr Cann filed a Notice of Appeal regarding the July Order.
7.On 27 October 2010, Justice Stone made orders, inter alia:
“2.Order 1 of the Order be varied such that if by 10 December 2010, Mr Cann:
(i) pays the sum of $65,000 into Court; or
(ii) provides security sufficient to meet the judgment debt in the sum of $65,000 to the satisfaction of the Bank,
the [Default Judgment] be set aside.
3.If the [Default Judgment] is not set aside pursuant to order 2, Mr Cann’s Chamber Summons be dismissed with Mr Cann to pay the Bank’s costs of the Chamber Summons to be taxed.
5.Execution of the [Default Judgment] be stayed until 10 December 2010.”
(October Order).
District Court, 13 December 2010
8.On or about 7 December 2010, Mr Cann filed a Chamber Summons seeking an extension of time to comply with the October Order from 10 December 2010 to 10 January 2011. Attached hereto and marked “TJG2” is a true copy of the Chamber Summons.
9.On 13 December 2010, I attended before Deputy Registrar Harman at the return date of this Chamber Summons. Deputy Registrar Harman said words to the effect that the Chamber Summons was dismissed and in relation to the Default Judgment:
“no orders are necessary with respect to setting aside the default judgment as Mr Cann failed to comply with order 3 of Justice Stone’s orders of 27 October 2010, being the payment of or the provision of security for $65,000 by the 10 December 2010. In effect, Mr Cann’s appeal application is dismissed and there is no stay on the default judgment”.
The Court observes that:
a)there is no evidence that Mr Cann’s medical condition affected him on the day, as noted in the Registrar’s reasons for decision; and, indeed, Mr Cann apparently hand-delivered the letter and medical certificate to the Registry shortly before the hearing;
b)information in Mr Cann’s January 2011 Affidavit concerning payments out of the Trust account are irrelevant to any issue of whether or not the District Court should set aside default judgment, as there is no evidence that there is now an extant application before the District Court to set aside default judgment; and
c)the District Court default judgment was in the amount of $100,000, plus interest of $6,621 and costs to be taxed.[28]
[28] Affidavit of Kathleen Marie McNally, sworn 5 October 2010, Annexure KMM1.
Proceedings on the application for review
The application for review came before this Court for the first time on 7 February 2011. The Court then made orders as follows:
1.The Applicant:
(a) file and serve the Application on the Trustee; and
(b) give notice to all creditors,
as required by Rule 7.06 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) by 21 February 2011.
2.The Applicant file and serve an affidavit of compliance with Order 1 by 28 February 2011.
3.The matter be adjourned to a further directions hearing at 9:00am on 4 March 2011.
Subsequently Mr Cann swore an affidavit on 15 February 2011 which has one operative paragraph, as follows:
“Today I served on (a) Insolvency and Trustee Australia and (b) Clayton Utz a copy of my Form 2 application for review which is listed for hearing on 4 March 2011 in compliance with Order 1. made 7 February 2011.”
At a directions hearing on 4 March 2011, the Court indicated that it was not satisfied that Mr Cann had notified creditors in the manner required by r.7.06 of the FMC (Bankruptcy) Rules which provides as follows:
(1) This rule applies in relation to an application for review of a decision by a Registrar to make a sequestration order against the estate of a debtor (the bankrupt).
(2) The application must be served on the trustee at least 7 days before the hearing date fixed for the application.
(3) The applicant must give notice of the application to each person known to the applicant to be a creditor of the bankrupt.
(4) The notice must be in accordance with Form 12.
(5) The applicant must serve the notice on each creditor at least 7 days before the hearing date fixed for the application.
(6) If directed by the Court, the trustee must prepare a report in relation to the bankrupt in accordance with rule 7.04.
Rule 7.06 of the FMC (Bankruptcy) Rules requires, as is evident from its terms, that the notice be given in the form of a Form 12 contained in Schedule 1 to the FMC (Bankruptcy) Rules.
The Court therefore ordered on 4 March 2011 that:
1.The time for compliance with Order 2 of the Court’s Orders of 7 February 2011 be extended to 18 March 2011.
2.The matter otherwise be adjourned to 9:30am on 22 March 2011.
3.If the applicant fails to comply with Order 1 the respondent has liberty to apply orally at the directions hearing on 22 March 2011 for summary dismissal of the application.
No affidavit of compliance in relation to notice to creditors was filed by Mr Cann. There is no evidence before the Court of notice to creditors in the correct form, or any form.
At the adjourned hearing on 22 March 2011, Mr Cann said that he had endeavoured to file a letter to the Court attaching a copy of a letter to one of his creditors, the National Australia Bank, but that the Registry of the Court did not accept the document for filing. As the Court observed in the course of the hearing, it is not an administrative tribunal but rather a judicial body which requires proper proof of matters, particularly when those matters are the subject of orders requiring the filing of an affidavit of compliance, not a copy of a letter to the Court attaching a copy of a letter to a creditor.[29] In any event, even if the letter was rejected, there is no evidence of any attempt to file an affidavit of compliance in the time that has since passed, and no affidavit was sought to be tendered in Court, and there is no application for an extension of time to now allow such an affidavit to be filed.
Consideration
[29] Transcript, 22 March 2011, page 3.
FMC Rules
Rule 13.03A(1)(a) and (b) of the Federal Magistrates Court Rules 2001 (Cth)[30] reads as follows:
[30] “FMC Rules”.
(1) For rule 13.03B, an applicant is in default if the applicant fails to:
(a) comply with an order of the Court in the proceeding; or
(b) file and serve a document required under these Rules;
Rule 13.03B(1) of the FMC Rules provides as follows:
(1) If an applicant is in default, the Court may order that:
(a) the proceeding be stayed or dismissed as to the whole or any part of the relief claimed by the applicant; or
(b) a step in the proceeding be taken within the time limited in the order; or
(c) if the applicant does not take a step in the time mentioned in paragraph (b) -- the proceeding be stayed or dismissed, as to the whole or any part of the relief claimed by the applicant.
Failure to comply with the Order of 4 March 2011 allows the Court, in the exercise of its discretion, to dismiss the application for review in whole or part, as foreshadowed by the 4 March 2011 Order, by reason of rr.13.03A(1) and 13.03B(1) of the FMC Rules.
Mr Cann has failed to comply with:
a)Order 1(b) of the Court’s 7 February 2011 Orders, requiring that Mr Cann give notice to all creditors, as required by r.7.06 of the FMC (Bankruptcy) Rules, by 21 February 2011;
b)Order 2 of the Court’s 7 February 2011 Orders, requiring that Mr Cann file and serve an affidavit of complicance with Order 1 by 28 February 2011; and
c)Order 1 of the Court’s 4 March 2011 Orders, which extended the time for compliance with Order 2 of the Court’s 7 February 2011 Orders to 18 March 2011.
Exercise of the discretion to dismiss
The question arises as to whether the discretion ought to be exercised to dismiss the application as foreshadowed in the Court’s 4 March 2011 Order.
In determining whether and how to exercise the discretion the Court must have regard to a number of factors:
a)first, that there is no basis for impugning the District Court default judgment which underpins the sequestration order. On the evidence as it presently stands the default judgment has not been set aside. There is no extant application to set it aside;
b)second, is the issue of whether or not there is any basis to impugn the sequestration order because of the Registrar’s refusal to adjourn the sequestration order proceedings on the basis of Mr Cann’s alleged medical condition. Whilst it was no doubt open to the Registrar to find that the medical certificate, in its terms, provided no basis for the adjournment sought on 21 December 2010 because it relates only to 20 December 2010, it is now irrelevant, in a practical sense, given that on review this Court will consider the matter afresh;
c)third, notwithstanding allegations made by Mr Cann concerning the impending payments from the Trust, there is:
i)no evidence that any payments have been made from the Trust; and
ii)no application, or amended application for review, or otherwise, for the sequestration order to be annulled on the basis that Mr Cann is solvent on account of his access to the Trust funds. However, in the course of these proceedings Mr Cann’s solvency has become an issue for reasons set out in more detail below;[31]
[31] See paras.31-35 below.
d)fourth, given the opportunity afforded to Mr Cann to:
i)get his application for review in proper order; and
ii)serve creditors with proper notice of the review, and file and serve an affidavit of compliance, which has not been done,
there is arguably no unfair prejudice to Mr Cann if the application were to be dismissed. Put differently, to the extent that there were to be prejudice by reason of the dismissal of the application for review, it would be a consequence of circumstances of Mr Cann’s own making;
e)fifth, there is ongoing prejudice to the CBA by reason of the CBA having to deal with these proceedings, with the attendant costs and inconvenience, in circumstances where they have already obtained:
i)default judgment in the District Court; and
ii)a sequestration order from this Court,
and where:
iii)the available evidence indicates that, at least so far as the default judgment is concerned, there is no present application to, or prospect of it, being set aside; and
iv)Mr Cann is in default of this Court’s Orders; and
f)sixth, Mr Cann’s non-compliance with the Court’s Orders, and the paucity of evidence put on by Mr Cann, leaves the Court with doubts as to whether Mr Cann would comply with a further order granting an extension of time to allow compliance with earlier orders.
Solvency becomes an issue
In the course of the hearing of this matter, the issue of Mr Cann’s solvency arose. He asserted that he was not a bankrupt, but a person who chose not to pay his debts.[32] It does not appear to be in dispute that Mr Cann is the registered proprietor of property, being a house, at 31 Bulimba Road in Nedlands,[33] a western suburb of Perth. It appears that the Nedland’s Property may be the subject of a mortgage to the National Australia Bank, but again the evidence with respect to that is very limited, and there is no mortgage document or any mortgage account in evidence.
[32] Transcript, 22 March 2011, page 8.
[33] “Nedlands Property”.
Legge v Mackinlays Solicitors[34] was a case where Mr Legge had been made bankrupt on a petition brought by Mackinlays Solicitors. The petition was founded upon a default judgment obtained by Mackinlays Solicitors against Mr Legge in respect of unpaid legal fees. An application to annul the bankruptcy was made to this Court and dismissed by this Court on 2 March 2007. Mr Legge appealed this Court’s judgment to the Federal Court. After the judgment of this Court, and before the appeal in the Federal Court was heard, Mr Legge succeeded in obtaining an order from the Western Australian Magistrates Court setting aside the default judgment which had been obtained by Mackinlays Solicitors and which had founded the earlier sequestration order. That was one unusual feature of the case.[35] Another unusual feature was that Mr Legge was:
… half-owner of a residential property which on the valuation which was in evidence before the Federal Magistrates Court was $500,000. There was, however, no evidence before the Federal Magistrates Court as to the value of Mr Legge’s interest in the property at the time of the sequestration order being made.[36]
[34] [2008] FCA 345 (“Legge”).
[35] Legge at para.3 per Siopis J.
[36] Legge at para.3 per Siopis J.
As a consequence of the unusual features of the case in Legge the Federal Court suggested at the hearing of the appeal that Mr Legge might benefit from the Court making a nomination under O.80 of the Federal Court Rules (Cth) so that he could be represented in the proceedings. Further, the Federal Court observed that “this was not a case where Mr Legge was hopelessly insolvent, if measured by reason only of debts against assets”.[37] Ultimately, following an adjournment, the appeal was determined on the same day by consent orders that the appeal should be allowed, the orders of this Court set aside, and the bankruptcy be annulled, with appropriate costs orders.[38]
[37] Legge at para.4 per Siopis J.
[38] Legge at para.7 per Siopis J.
Whilst Legge is probably an unusual case, it does highlight the potential dangers of refusing to quash a sequestration order or refusing to annul a bankruptcy in circumstances where there is a significant asset, and at least, on the face of it, the value of that asset might exceed any liabilities, or at least, the value of a judgment debt.
In this case, the Court can probably take judicial notice of the fact that a residential property in Nedlands, such as the Nedlands Property, is likely to be worth, at least, several hundred thousand dollars, and more likely, in excess of $1,000,000. In those circumstances, and in the present absence of any evidence of liabilities exceeding $106,621, plus costs in the District Court, this Court ought to be cautious before it dismisses an application for review of a sequestration order on what are essentially procedural grounds. To order dismissal might be a triumph of form over substance, and an invitation for Mr Cann to appeal any order of dismissal. In light of the judgment in Legge, such an appeal might have some prospects of success, particularly if new evidence were able to be led on the appeal of the value of, and Mr Cann’s interest in, the Nedlands Property.
For the above reasons, the Court ought not exercise its discretion to grant the CBA’s oral application to dismiss the application for review, at this time. It is more appropriate to adjourn the CBA’s oral application to dismiss the application for review, with liberty to apply to have that application re-listed in the future.
Further orders
It nevertheless remains the case that the Court has no evidence before it that Mr Cann has complied with the orders requiring that creditors be served with notice of the application for review. Given the situation concerning solvency outlined above, the Court considers it appropriate that orders be made that allow Mr Cann:
a)to file an amended application for review;
b)to file affidavits in support of the application for review, and in particular with respect to the issue of solvency;[39] and
c)yet a further extension of time in which to file an affidavit of compliance with respect to notice to creditors of the application for review.
[39] As to which see Ketch Nominees Pty Ltd v Hadden [2007] FMCA 8, a case of which it has been said that “The facts of the case, and [the] reasoning, provide useful assistance for litigants and legal advisors trying to apply the classic test as to solvency as laid down in the cases, such as Sandell v Porter (1966) 115 CLR 666.”: M Steele (Ed.) Federal Magistrates Court Guidebook (Sydney: Thomson Legal and Regulatory Limited) at para.BAN.1220 at page 6104.
Two observations are pertinent in this respect. The first, is that in order to prove solvency it will be necessary for Mr Cann to make full and frank disclosure of his financial affairs by way of affidavit.[40] Necessarily this will involve an accounting of assets and liabilities, disclosure of bank accounts (both credit and debit), credit cards, loans and mortgages, shares, real estate, motor vehicles and so on. Second, there should already be a Statement of Affairs filed by Mr Cann in relation to his bankruptcy disclosing such information.[41] On the assumption that Mr Cann has been fulfilling his duty to co-operate with his bankruptcy trustee[42] the Court proposes to make an order that there be a report provided by the Official Trustee to the Court as to the bankrupt’s affairs, under the provisions of r.7.04 of the FMC (Bankruptcy) Rules.
[40] Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531 per O’Loughlin J; Cheung v Maxims Entertainment Pty Ltd [2002] FMCA 348 at para.12 per Raphael FM; Darbyshire & Anor v Milner & Anor [2006] FMCA 179 at para.8 per Scarlett FM; Legge v Mackinlays [2007] FMCA 223 at para.34 per Lucev FM.
[41] Bankruptcy Act, s.54(1); as to the requirements for statements of affairs see s.6A.
[42] Section 77 of the Bankruptcy Act imposes a number of duties upon the bankrupt vis-à-vis the trustee, the essence of which is a requirement that they co-operate: Re Bond; Ex parte Ramsay (1994) 54 FCR 394 at 401 per Sheppard J. A breach of any of these s.77 duties may constitute an offence under s.265 of the Bankruptcy Act.
There will be corresponding orders allowing the CBA to respond to the materials filed by Mr Cann. There will also be an order that a copy of the orders be served on the Official Trustee in Bankruptcy. In order to properly facilitate this, the Court will order that service of a copy of these orders on the Official Trustee in Bankruptcy be effected by the CBA. Any costs incurred can be the subject of an appropriate costs order at an appropriate time. It is necessary to make that order in those terms, both substantively and as to costs, because the Court doubts that if an order were made that Mr Cann serve the order on the Official Trustee in Bankruptcy, that such an order would be complied with by Mr Cann.
Because of the passage of time, and because the relevant documents were filed in proceedings before a Registrar of this Court, it is, in the Court’s view, appropriate that fresh affidavits of verification, search, service, and debt be filed. There will also be orders which make provision for the CBA to file relevant materials as required by the FMC (Bankruptcy) Rules.
Having regard to the possible position with respect to solvency as a consequence of Mr Cann being the registered proprietor of the Nedlands Property, and bearing in mind the ultimate outcome in Legge, the Court considers it appropriate that before the matter comes back before a Federal Magistrate, there be discussions between the parties in an attempt to resolve the present dispute by alternative means, either by agreement between them, or by conciliation[43] or mediation.[44]
[43] FM Act, s.26.
[44] FMC Rules, Division 27.1 and 27.2.
In these circumstances, the Court considers it appropriate to allow a period of time for the parties to confer with a view to:
a)seeing whether it is possible to resolve the issues associated with the application for review, without the necessity for further proceedings in this Court; or
b)at the very least, seeing whether agreement can be reached with respect to consent orders reflecting the Court’s Reasons for Judgment herein under the sub-heading “Further orders”.
If the parties are unable to achieve resolution, or agreement on consent orders, then the matter will have to come back before the Court. In the circumstances, the matter will be adjourned to a directions hearing to be held at 4.00pm on 21 April 2011. There will be an order accordingly.
Pro bono referral application
Rule 12.03 of the FMC Rules provides as follows:
(1) The Court may refer a party to a Registrar for referral to a lawyer on the pro bono panel for legal assistance in relation to a proceeding before the Court, if to do so is in the interests of the administration of justice.
(2) The Court may take into account:
(a) the means of the party; and
(b) the capacity of the party to obtain legal assistance outside the scheme; and
(c) the nature and complexity of the proceeding; and
(d) any other matter that the Court considers appropriate.
(3) The Registrar must attempt to arrange for legal assistance to be provided to the party by a lawyer on the pro bono panel.
(4) However the party must not be referred to a lawyer for legal assistance without the agreement of the lawyer.
(5) If assistance is unavailable after the Court has referred a party for legal assistance, the Court may proceed to hear the matter.
At the hearing, Mr Cann made a request that the matter be referred to a Registrar of the Court for referral to a lawyer on the Court’s pro bono panel. As understood by the Court, that request was made on the basis that:
a)Mr Cann considered he would not have originally been made bankrupt had be been represented by a lawyer; and
b)he has been unemployed for some time, Centrelink payments do not cover his living costs, and he cannot afford a lawyer.
During the course of the hearing the Court put to Mr Cann that if he was in fact solvent, and his net worth included the value of the Nedlands Property less any mortgage owing and monies in the Trust, then it would be unlikely that he would be granted a pro bono referral on the basis that he had the capacity to raise funds by borrowing for the payment of legal fees. Mr Cann responded by reiterating that he was on Centrelink payments, and by indicating that he had endeavoured to raise money from a bank, and that a loan had been declined.
A significant difficulty for the Court in relation to this issue is that there is presently insufficient evidence to determine Mr Cann’s actual means, or solvency, before the Court. However, if he does have access to monies in the Trust and substantial equity in the Nedlands Property, one of the factors which would favour the appointment of a pro bono lawyer, namely a lack of means, would not easily be established.[45]
[45] Bartucciotto v Western Health Care & Ors (2007) 94 ALD 387 at 391 per Lucev FM; [2007] FMCA 26 at para.24 per Lucev FM (“Bartucciotto”).
There is also no evidence as to whether Mr Cann has the capacity to obtain assistance outside of the pro bono referral scheme. There was no evidence, for example, that he has been denied legal aid by Legal Aid Western Australia, or that he has sought assistance from community legal centres and been denied that assistance, or that he has approached lawyers in private practice who have declined to act for him on the application for review.[46] Furthermore, and in any event, if, as he claims, Mr Cann is solvent, and has a net worth of more than $1,000,000,[47] then there is no apparent reason why he cannot obtain private legal assistance.
[46] Compare Bartucciotto ALD at 391 and 393 per Lucev FM; FMCA at paras.24 and 32 per Lucev FM.
[47] Transcript 22 March 2011, page 8.
The nature and complexity of the proceedings is not such as to warrant pro bono assistance. At the end of the day, this matter might easily be resolved by Mr Cann proving that he is solvent.[48] That requires little more than an affidavit with full and frank disclosure of his financial position, so as to prove that he is solvent as he claims.
[48] Bankruptcy Act, s52(2)(a).
There may be an argument that the proceedings would run more smoothly if pro bono assistance were secured for Mr Cann.[49] However, in this matter there are no complex matters of law, and the matters to be determined are essentially of fact. In any event, even if the proceedings do not run entirely smoothly they ought to be able to be determined, and will be ultimately determined, on the basis of factual material put before the Court by the parties.
[49] Compare Bartucciotto ALD at 393-394 per Lucev FM; FMCA at paras.35-36 per Lucev FM.
In the circumstances, the application for pro bono referral will be dismissed. It is not in the interests of the administration of justice that there be such a referral.
Amendment to name of respondent
The respondent is named in the Application as “Commonwealth Bank”. In the documents filed by the respondent, the respondent is named as the “Commonwealth Bank of Australia” which is the correct name of the respondent. There will be a formal order that the Application be amended to name the respondent as “Commonwealth Bank of Australia”.
Conclusion and orders
For the reasons set out above the Court has concluded that:
a)the application ought to be amended to name the respondent as “Commonwealth Bank of Australia”;
b)Mr Cann’s application to set aside a Bankruptcy Notice said to have been served on him on 21 December 2010 ought to be dismissed;
c)the respondent’s oral application to dismiss the application ought to be adjourned with liberty to apply on 3 days notice;
d)the applicant’s application for pro bono referral ought to be dismissed;
e)the parties ought to confer forthwith in an attempt to resolve the matter and, failing resolution, agree future programming orders; and
f)the matter be otherwise adjourned to 4.00pm on 21 April 2011.
I certify that the preceding fifty-three (53) paragraphs are a true copy of the reasons for judgment of Lucev FM
Date: 12 April 2011
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