Capital Finance Australia Ltd v Nathan (No.2)

[2006] FMCA 1051

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CAPITAL FINANCE AUSTRALIA LTD v NATHAN (No.2) [2006] FMCA 1051

BANKRUPTCY – Creditor’s petition – application for leave to amend petition to make reference to security held by the applicant – failure to verify estimated value of security – leave to amend petition declined – creditor’s petition dismissed.

Bankruptcy Act 1966, ss.33, 47(1), 306, 307
Bankruptcy Regulations 1996, r.16.01

Abignano & Anor v Wenkart [1998] FCA 1468
Australia & New Zealand Banking Group Ltd v Hubner [1999] FCA 1346
Bryant v Commonwealth Bank Of Australia [1995] FCA Unrep7956
Capital Finance Australia Ltd v Nathan [2005] FMCA 1974
MacDonald v Official Trustee in Bankruptcy [2001] FCA 140
Over 50s Mutual Friendly Society Ltd & Anor v Jennings [2005] FMCA 1778
Re: Desmond Gerard Nolan; ex parte: Westpac Banking Corporation [1996] 873 FCA 1
Re Florance; Ex parte Turimetta Properties Pty Ltd [1979] FCA Unrep90; (1979) 36 FLR 256
Re Kwiatek; ex parte Big J Ltd v Pattison [1989] FCA Unrep3897;(1989) 21 FCR 374
Romano v Peldan & Ors [2003] FMCA 152
Romano v Peldan [2003] FCA 767
Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321
Theodore Silvas (a bankrupt) v Maureen Slivas [1997] FCA 206
Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574

Applicant: CAPITAL FINANCE AUSTRALIA LTD (ACN 069 663 136)

Respondent: KAILAI NATHAN

File Number: MLG 899 of 2005

Judgment of: Riethmuller FM

Hearing dates: 8 & 16 December 2005, 24 January 2006

Date of Last Submission: 12 April 2006

Delivered at: Melbourne

Delivered on: 28 July 2006

REPRESENTATION

Counsel for the Applicant: Mr Robinson

Solicitors for the Applicant: Cyngler Kaye Levy Lawyers

Counsel for the Respondent: In person

ORDERS

1. That the creditor’s petition be dismissed

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 899 of 2005

CAPITAL FINANCE AUSTRALIA LTD (ACN 069 663 136)

Applicant

And

KAILAI NATHAN

Respondent

REASONS FOR JUDGMENT

1. These proceedings arise as a result of a default by the respondent in meeting his obligations under a motor vehicle finance agreement.

2. The respondent is a psychiatric nurse.  On 28 May 2001 he entered into a finance agreement with Capital Finance Pty Ltd to finance the purchase of a Mercedes Benz E280 motor vehicle.  The agreement provided for 59 monthly instalments of $1034.19. 

3. Mr Nathan failed to make those payments and has retained the motor vehicle. 

4. The applicant petitioning creditor commenced proceedings against the respondent in 2004 in the County Court of Victoria.  Judgement was obtained by the applicant on 2 July 2004 in the sum of $70,181.44, and thereafter interest accrued at the rates prescribed under the relevant legislation.

5. On 1 June 2005 the applicant issued a bankruptcy notice (number VN1034/05) and served the respondent by post on 29 June 2005.

6. On 2 July 2005 the applicant issued the current creditor’s petition seeking a sequestration order.  The creditor’s petition relies upon the failure of the respondent to comply with the bankruptcy notice issued on 1 June 2005 (number VN1034/05).

7. The respondent filed a notice of appearance on 26 October 2005, together with a notice of intention to oppose the petition and a supporting affidavit.

8. The grounds of opposition were:

   1.The Respondent does not owe the applicant creditor the amount of $72,598.26 for the hire purchase of a Mercedes Benz, Registration QVE 499 on which the applicant creditor obtained Judgement in the County Court of Victoria, as stated in paragraph 1 of the Creditor’s petition.

   2.The Respondent did not commit an act of bankruptcy on or before the date of 22 July 2005 as stated in paragraph 4 of the Creditor’s Petition.

9. At the hearing of the creditor’s petition the respondent was unrepresented and raised many issues.  The hearing process was difficult due to the respondent representing himself and the numerous issues raised by a variety of errors and defects in the creditors material.  As a result the hearing proceeded less formally than would otherwise have been usual.  Ultimately the issues raised by the respondent were:

   a)A dispute as to whether the respondent was served with the bankruptcy notice;

   b)Whether the bankruptcy notice could be relied upon on the grounds that another notice had been issued earlier;

   c)Whether the bankruptcy notice was defective as it did not refer to any security held over the motor vehicle by the applicant;

   d)Whether the bankruptcy notice was defective because it was signed in the firm name of the solicitors issuing the notice;

   e)Whether the petition was defective for failing to set out the number of the bankruptcy notice in paragraph 4;

   f)Whether the petition was defective for referring to the wrong motor vehicle;

   g)Whether there was in fact money owing to the applicant as referred to in the judgement; and

   h)Whether the respondent had a set-off or counterclaim.

(a)   Whether the respondent was served with the bankruptcy notice

1. At the commencement of the proceeding the issue of whether the applicant had been served was dealt with as a separate issue as it was a limited part of the proceedings, which would have brought the proceedings to an end if it was found that service had not been effective.

2. There was considerable confusion in the initial material attesting to service as a result of a typographical error in the bankruptcy notice number (referring to number VN1035/2005 rather than VN 1034/2005, although annexing a copy of the correct notice).  An affidavit attempting to resolve this confusion annexed a copy of a previous bankruptcy notice (issued by the applicant with respect to the respondent), number VN2057/2004. 

3. The respondent maintained that he had received the bankruptcy notice VN1035/2005 in the mail.  That notice was issued by a creditor unrelated to these proceedings, with respect to a debtor unrelated to these proceedings.

4. I found, as a matter of fact, that the respondent was served with the bankruptcy notice (number VN1034/2005) by post pursuant to r.16.01 of the Bankruptcy Regulations 1996.  The judgement on that question is Capital Finance Australia Ltd v Nathan [2005] FMCA 1974.

5. The respondent maintained that service of a bankruptcy notice must be by way of personal service.  The regulations provide for service by post.  The regulations have been considered and applied in the Federal Court in Theodore Silvas (a bankrupt) v Maureen Slivas [1997] FCA 206 and Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321. There is no reason to doubt the validity of the regulations.

6. I therefore find that the bankruptcy notice was served by a method provided for under the regulations.

(b)  Whether the bankruptcy notice could be relied upon on the grounds that another notice had been issued earlier

1. In this case the applicant had issued an earlier bankruptcy notice with respect to the same debt, notice VN2057/2004.  That notice had been the subject of challenge by the respondent.  The applicant had issued the notice presently relied upon rather than pursue a case on the challenged notice from 2004.

2. In Abignano & Anor v Wenkart [1998] FCA 1468 the Full Court said:

   We … consider that, where the same creditor issues two bankruptcy notices, one after the other, the creditor is required to make an election as to which bankruptcy notice it is with which the debtor is required to comply. The possibility of successive bankruptcy notices has been adverted to in several authorities including a judgment of the Court of Appeal in the United Kingdom in Re Fredericke and Whitworth Ex parte Hibbard [1927] 1 Ch 253. In that case, Sargant LJ, in agreeing with the judgment of Lord Hanworth MR, said at page 261:

   If, while an earlier bankruptcy notice were still available for a petition, a second notice were given in bad faith or to embarrass the debtor, the Court could prevent oppression by declining to act. But in my view there has been nothing of this sort here. The first bankruptcy notice had been withdrawn, objections had been taken to the second notice which had not been conclusively satisfied, and I think that the third notice was served to escape from those objections, and to place the petitioning creditors in a stronger and less challengeable position than they had previously occupied. The failure to comply with this third notice was attributable not to the existence of the second notice, but to the entire inability of the debtors to pay the remainder of the their debt. The petitioning creditors have complied with the statutory formalities necessary to establish the insolvency of the debtors; and I see no sufficient reason for refusing the statutory consequences of the insolvency so established.

   In our view, his Lordship in that passage recognised that it is open to a creditor to issue a fresh bankruptcy notice for the purpose of circumventing or overcoming a challenge or a possible challenge to an earlier notice.

3. The law in this regard appears well settled: see also Romano v Peldan & Ors [2003] FMCA 152; Over 50s Mutual Friendly Society Ltd & Anor v Jennings [2005] FMCA 1778; and Romano v Peldan [2003] FCA 767.

4. There is nothing in this case to show that the second notice was issued in bad faith or to embarrass, nor that it confused or embarrassed the respondent.

(c)   Whether the Creditor’s petition is defective as it does not refer to any security held over the motor vehicle by the applicant

1. The creditor’s petition, at item two sets out that:

   2.  The applicant creditor does not hold security over the property of the respondent debtor.

2. The respondent says that the applicant does hold security as the motor vehicle is the subject of a hire purchase agreement, thus title to the vehicle remains with the applicant, although the respondent has possession of the vehicle.  Under a hire purchase agreement the legal title to the motor vehicle is held by the applicant until the last payment or instalment.  The applicant’s solicitor says that the applicant remains fully possessed of the legal title to the vehicle and that this is different to holding a security over the vehicle.  However, the most common form of security, at least historically, was the transfer of legal title to property, with an equity of redemption. 

3. The purpose behind the question on the creditor’s petition form is to ensure that the value of the security is able to be deducted from the debt, in order to determine if the net amount of the debt is sufficient to support a sequestration order.  Alternatively, the creditor may forego the security. 

4. An essential element of security is that the amount of the debt can be met by the creditor exercising pre-existing rights over property.  In the case of this hire purchase agreement the amount of the debt will be reduced as a result of recovering and selling the vehicle.  It is possible that the value of the vehicle is such that there will be little or no debt owing, or even a surplus that must be paid to the respondent (the hirer: see clause 8 of the hire purchase agreement). 

5. It appears to me that a hire purchase agreement falls within the term ‘security’ as it is used in this context in the Bankruptcy Act1966 and the rules and forms.

6. As Lockhart J said in Re Florance; Ex parte Turimetta Properties Pty Ltd [1979] FCA Unrep90; (1979) 36 FLR 256

   … if the petitioning creditor is in fact a secured creditor of the debtor, either the petition must be dismissed or the petitioning creditor must seek leave to amend the petition to comply with the requirements of the Act and the rules relating to the presentation of petitions by secured creditors including the requirements of

   
   

   s. 44 (3) and (4).

7. As a result this creditor’s petition, in its original form, is defective.  The defect is substantive. 

8. In order to overcome this defect, the applicant seeks to amend paragraph 2 of the creditor’s petition to read as follows:

   2.The applicant creditor security holds security over the property of the respondent to the value of  $22,500 (estimated) and consisting of a motor vehicle, namely a Mercedes Benz E280 and the value of the property is $22,500, which leaves an unsecured debt of $50,098.26

9. It is beyond doubt that there is power to allow an amendment to the creditor’s petition, if the justice of a particular case requires it: see s.33 Bankruptcy Act 1966.  It is also clear that the creditor’s petition was not a nullity:  see the detailed discussion of the Full Court in MacDonald v Official Trustee in Bankruptcy [2001] FCA 140 with respect to amendments. Indeed, in Re Florance; Ex parte Turimetta  Properties Pty Ltd (No. 2) [1980] FCA Unrep343; (1980) 39 FLR 400 Lockhart J allowed a similar amendment (in the circumstances of that case), however did require the creditor’s petition to be re-verified and reserved (see paragraph [28]).

10. The use of an estimated value in a creditor’s petition was discussed in Bryant v Commonwealth Bank Of Australia [1995] FCA Unrep7956, where the Full Court said:

    25.    … The requirements of s 44 were explained by Lockhart J in Re Wiggins; Ex parte Credit Assistance Pty Ltd (1979) 36 FLR 182. In that case his Honour rejected a submission that s 44(2) required a petitioning creditor to state in its petition not its estimate of the value of its security, but the actual value thereof. His Honour held that a petitioning secured creditor may in its petition estimate the value of its security, provided the creditor acts in good faith, and that, in the event of a sequestration order being made, it is not bound by the estimate when it seeks to prove its debt. This construction is consistent with the prescribed form of petition required by s 47(1)(a) of the Act, which envisages a global value being placed on a creditor's security and not a separate value for each mortgage, charge or lien. See too the definition of "secured creditor" in s 5(1) of the Act. Once it is appreciated that the "value" referred to in s 44(2) is an estimated value, there is no difficulty in calculating the excess (or "unsecured balance" as it is termed in the prescribed form) in respect of which a secured creditor is deemed to be a creditor. Such an amount is plainly a "liquidated sum" within the meaning of s 44(1)(b)(i) of the Act. Of course, as Sheppard J observed in Re O'Leary; Ex parte Bayne (1985) 61 ALR 674 (at 682), the petitioning creditor's estimate "must bear a close relationship to the realities of the matter ... (and) not be arbitrary or capricious". But, it could not, in our view, be said that, in this sense, there was a mis-statement in this petition. (See also Re Vassis; Ex parte Leung (1986) 9 FCR 518 per Burchett J at 528-531.)

11. The creditor’s petition in the amended form complies with the Act and rules. 

12. The amount of the security is estimated to be less than the debt.  However, there remains nothing in the affidavit material relied upon by the applicant to provide an evidentiary basis for the estimate in the proposed amendment.

13. Section 47(1) of the Bankruptcy Act 1966 provides that a ‘creditor's petition must be verified by an affidavit of a person who knows the relevant facts.’ The fact that a creditor’s petition is not verified in every respect does not mean that it will necessarily fail provided there is evidence before the court verifying all of the elements required: see MacDonald v Official Trustee in Bankruptcy [2001] FCA 140 at [32].

14. There is an affidavit of the Collections Manager of the applicant sworn 2 December 2005 verifying paragraphs 1 to 3 of the creditor’s petition executed on 25 July 2005.  However, the affidavit seeks to verify the creditor’s petition without reference to the security.  I can find no evidence to verify or support the estimate in the amendments sought by the applicant.  This is an appropriate basis for refusing leave to amend, particularly in a case where the proceedings generally are in somewhat of a state of disorder: per Keifel J in Re: Desmond Gerard Nolan; ex parte: Westpac Banking Corporation [1996] 873 FCA 1, referring to Re Kwiatek; ex parte Big J Ltd v Pattison [1989] FCA Unrep3897;(1989) 21 FCR 374. In Kwiatek’s case there was similarly no evidence with resect to the value of the security.

15. As a result I decline to give leave to amend the creditor’s petition as the amendment is not verified by affidavit, and there is no evidence as to the estimate from the applicant.

(d)  Whether the bankruptcy notice and Creditor’s petition were defective because it was signed in the firm name of the solicitors issuing the notice

1. In this case the bankruptcy notice and creditor’s petition were not signed by the solicitor with his personal signature, but signed in the solicitor’s firm name.  The applicant says that this means that the bankruptcy notice is defective and can not be relied upon in the present proceedings to establish an act of bankruptcy.

2. Section 307 of the Bankruptcy Act 1966  provides:

   307.  [Proceedings in firm name]   Any person or persons carrying on business under a firm name may take proceedings or be proceeded against under this Act in the firm name, but in that case the Court may, on the creditor’s petition of an interested person, order the name of the person or the names of the persons so carrying on business to be disclosed and verified in such manner as the Court directs.

3. The same issue with respect to a petition arose in Australia & New Zealand Banking Group Ltd v Hubner [1999] FCA 1346. In that case Spender J found:

   38.  In the case before this Court, the evidence is plain that the original petition was signed by a solicitor, Mr Garry Hamilton, who was then and is now a partner in the firm of Minter Ellison, which firm was acting for the Australia and New Zealand Banking Group Limited in relation to that bank's dealings with Mr and Mrs Hubner. In those circumstances, it seems to me right, and such as not constituting any prejudice to Mr and Mrs Hubner, to permit the amendment of the petition by Mr Hamilton, instead of having written in his own hand "Minter Ellison" as the solicitor for the applicant creditor, writing the name "G J Hamilton, PARTNER" as the solicitor for the applicant creditor.

   39.  All of the cases which touch on the question of whether there has been compliance with the requirement that the actual name of the person who should have signed a document appear on that document, or whether a document by reference to a firm is sufficient, have regarded the error (if it be error) as one of a formal kind, capable of amendment. There is no case of which I am aware which suggests that it is unfair to make such an amendment, or in which such an amendment has not been permitted where there has been no evidence of any misleading or injustice.

4. In this case, for the same reasons, I would have been prepared to grant leave to amend if this had been the only defect in the petition.

5. To the extent that the notice may be irregular, as it is signed in a firm name and not by the solicitor personally, it would only be a formal defect or irregularity under s.306 of the Bankruptcy Act: see Trustees of the Franciscan Missionaries of Mary v Weir [2000] FCA 574. There appears to be no prejudice to the debtor in this case as a result of the signature being in the firm name rather than the solicitor’s name.

(e)   Whether the petition was defective for failing to set out the number of the bankruptcy notice in paragraph 4

1. There appears to be no requirement to specify the number of the bankruptcy notice that is relied upon.  In cases where there are multiple notices it may be necessary to avoid confusion to identify the notice being relied upon.  However, in this case the description of the act of bankruptcy accurately identified the correct notice, and could not apply to the earlier notice.

2. As a result I do not accept that this is a proper basis for resisting the creditor’s petition.

(f)   Whether the petition was defective for referring to the wrong motor vehicle

1. In the creditor’s petition the applicant described the debt (at paragraph 1) as follows:

   1. The respondent debtor owes the applicant creditor the amount of $72,598.26 for amount owing on agreement for the hire purchase of a Mercedes Benz E280, Registration QVE-499 on which the applicant creditor obtained Judgment in the County Court of Victoria consisting of debt of $65,054.58, interest of $3,282.06 and costs of $1,844.80.

2. It transpired that the registration number of the vehicle is ‘QVF-499’ and not ‘QVE-499’.  This error was said to have arisen as a result of an unclear facsimile that was relied upon by the applicant’s solicitors, resulting in the error in the registration number in the County Court proceedings, and these proceedings.

3. The applicant seeks to amend the creditor’s petition by deleting the reference to the registration number.  It is apparent that there is only one Mercedes E280 motor vehicle in issue, and clear that all of the references in the proceedings in this court and the County Court relate to that vehicle.  There is no prejudice to the respondent. 

4. In the circumstances I would allow this amendment to the creditor’s petition, if there were not other defects.

(g)   Whether there is in fact money owing to the applicant as referred to in the judgement

1. Considerably time and energy was devoted to this point by the parties.  There are two issues that arise.  This first is an error with respect to the registration number of the vehicle, the subject of the hire purchase agreement which founded the debt relied upon in the bankruptcy notice.  The second issue relates to a document produced by the respondent indicating that the debt had been written off. 

2. Whilst the wrong registration number is referred to in the proceedings that lead to the judgement, it is apparent that there is only one vehicle that is being referred to in the proceedings.  The judgement is valid on its face, and the respondent has not succeeded in having it set aside.  This error does not appear to me to make the judgement a nullity.

3. The second issue relates to a document from the creditor to the applicant referring to a different agreement number, and therefore does not appear to be relevant.

h)    Whether the respondent has a set-off or counterclaim

1. This issue relates to a claim by the applicant that oral representations were made to him at the time of the hire purchase agreement that if he was unable to make the payments he would be covered by an insurance policy that would meet the payment amounts. 

2. He gives no evidence of any conditions attached to such a policy, such as illness, or unemployment.

3. The circumstances were relied upon in a defence filed by the respondent in the County Court in attempting to have the judgement set aside.  This was rejected by that court.

4. On the limited material put forward by the respondent in this case I am not satisfied that he has an arguable case for a set-off or counterclaim.

Conclusion

1. The proceedings in this matter have been characterised by a large number of errors.  Ultimately, the creditor’s petition, if amended to overcome defects on its face, would nonetheless remain unverified with respect to the estimate of the amount of security held by the applicant.  In addition, there are other defects that require amendment to regularise the proceedings.  In the absence of evidence as to the estimate of the value of the security, an amendment alone cannot cure all of the defects.

2. In the circumstances I therefore dismiss the creditor’s petition.

I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Riethmuller FM

Associate: 

Date: