Capital Finance Australia Pty Ltd v Nathan
[2008] FMCA 1363
•7 October 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CAPITAL FINANCE AUST PTY LTD v NATHAN | [2008] FMCA 1363 |
| BANKRUPTCY – Creditor’s petition based on fresh act of bankruptcy where earlier creditor’s petition dismissed in prior proceedings – whether principles of res judicata, issue estoppel or Anshun estoppel apply – whether proceedings an abuse of process – whether creditor’s petition meets the requirements of the Bankruptcy Act in relation to description and value of security – whether Court should go behind the judgment – whether incorrect car registration number made petition defective – whether incorrect amount of debt in creditor’s petition – whether for other sufficient cause sequestration order ought to be made. |
| Bankruptcy Act 1966 (Cth), ss.43, 44, 47, 52, 86, 306 County Court Act 1958 (Vic) Penalty Interest Rates Act 1983 (Vic) |
| Blair and Others v Curran and Others (1939) 62 CLR 464 Re Kwiatek and Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374 Re Larard; Ex parte Yeomans and Heap (1896) 3 MANS 317 Rozenbes and Others v Kronhill and Another (1956) 95 CLR 407 Saffron v Commissioner of Taxation (1991) 30 FCR 578 Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10 |
| Applicant: | CAPITAL FINANCE AUSTRALIA PTY LTD |
| Respondent: | KAILAI NATHAN |
| File Number: | SYG 978 of 2008 |
| Judgment of: | Barnes FM |
| Hearing date: | 21 August 2008 |
| Delivered at: | Sydney |
| Delivered on: | 7 October 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr S Golledge |
| Solicitors for the Applicant: | Bartier Perry |
| Respondent: | In person |
ORDERS
A sequestration order be made against the estate of Kailai Nathan.
The applicant creditor’s costs (including any reserved costs) be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.
Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within two (2) days.
THE COURT NOTES:
The date of the act of bankruptcy is 21 February 2008.
A consent to act as trustee has been signed by Paul Burness and Morgan Lane and lodged with the Official Receiver on 8 May 2008.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 978 of 2008
| CAPITAL FINANCE AUSTRALIA PTY LTD |
Applicant
And
| KAILAI NATHAN |
Respondent
REASONS FOR JUDGMENT
Background
On 21 April 2008 the applicant creditor Capital Finance Australia Pty Ltd (Capital) presented and filed a creditor’s petition seeking that a sequestration order be made against the estate of the respondent debtor Kailai Nathan. The petition is said to be founded on the failure by the debtor to comply with a bankruptcy notice issued on 15 November 2007 and served on him on 1 December 2007.
That bankruptcy notice required the debtor to pay the creditor within 21 days the sum of $70,181.44 said to be due to the creditor under a default judgment of 2 July 2004 of the County Court of Victoria at Melbourne.
The debtor filed a notice of intention to oppose the creditor’s petition on 10 June 2008. Before considering the notice of opposition and the matters required under the Bankruptcy Act 1966 (Cth) it is relevant to refer to earlier proceedings between the creditor and the debtor.
The judgment debt claimed by Capital arises out of an individual motor term purchase agreement that was entered into by the parties on 28 May 2001 to finance the acquisition of a Mercedes Benz E280 V6 Elegance motor vehicle registration no. QVF 499, vin/chassis no. WDB2100632A753430, engine no. 11292130204505 (the vehicle) by the debtor. The agreement provided for Mr Nathan to make 59 monthly payments and a final payment. Mr Nathan defaulted on these payments. He has retained the vehicle.
Capital commenced proceedings in the County Court of Victoria on 21 January 2004 and on 2 July 2004 obtained the default judgment referred to above in the sum of $70,181.44, including costs and interest. On 11 August 2004 Capital entered judgment against Mr Nathan in the County Court proceedings. On 2 March 2005 Mr Nathan filed an application seeking to have the default judgment set aside in the County Court. On 4 May 2005 the County Court refused that application.
In the meantime, on 21 December 2004, a bankruptcy notice was issued to the debtor in relation to this debt. On 9 February 2005 the debtor filed an application in the Melbourne Registry of this Court seeking that the bankruptcy notice be set aside. That application was dismissed on 21 March 2005.
On 1 June 2005 a second bankruptcy notice was issued in relation to this debt. The creditor subsequently presented a creditor’s petition in July 2005 seeking a sequestration order on the basis of the debtor’s failure to comply with the second bankruptcy notice. On 16 December 2005 Riethmuller FM found that the bankruptcy notice was served on the debtor in accordance with the Bankruptcy Regulations (see Capital Finance Aust Ltd v Nathan [2005] FMCA 1974).
However on 28 July 2006 Riethmuller FM dismissed the creditor’s petition (see Capital Finance Australia v Nathan (No.2) [2006] FMCA 1051). His Honour found that Capital was a secured creditor of the debtor. As there was no reference to the security in the creditor’s petition, the petition was defective. In the absence of an evidentiary basis for the creditor’s estimate of the value of the security in a proposed amended creditor’s petition or verification of the estimate of the amount of security, leave to amend the creditor’s petition was refused and the creditor’s petition dismissed.
Federal Magistrate Riethmuller considered all the grounds of opposition, finding that some alleged defects in the creditor’s petition could have been dealt with by leave to amend the petition, had it not been for the absence of evidence as to the estimate of the value of the security and that other grounds were not made out.
Despite the fact that the creditor’s petition was dismissed, Mr Nathan applied for an extension of time in which to file a notice of appeal from the decision of Riethmuller FM to the Federal Court of Australia. That application was dismissed by Jessup J on 27 October 2006 (see Nathan v Capital Finance Australia Ltd [2006] FCA 1623). His Honour found at [12] that the points sought to be raised by Mr Nathan were “entirely moot” and observed at [8]:
… it is clear that the order made by the Federal Magistrate dismissed the petition, and that no finding or ruling by him in relation to the petition could be used against the applicant on a future occasion. Any further proceedings which might expose the applicant to bankruptcy would be required to be based upon a fresh petition in relation to which the Federal Magistrate’s rulings and findings would be irrelevant.
There have been other proceedings between the parties. In particular, in January 2006 Capital unsuccessfully brought proceedings in the Victorian Civil and Administrative Tribunal seeking possession of the vehicle. Mr Nathan also unsuccessfully brought proceedings in this Court in 2007 alleging that Capital had contravened the Trade Practices Act 1974 (Cth). His appeal to the Federal Court and application for special leave to appeal to the High Court were dismissed.
Relevantly, a further bankruptcy notice was issued on 15 November 2007 and served on Mr Nathan on 1 December 2007. On 13 December 2007 Mr Nathan filed an application in the Melbourne registry of this Court seeking that this bankruptcy notice be set aside. The time for compliance with the bankruptcy notice was extended until 21 February 2008. On that day Mr Nathan’s application was dismissed with an order that he pay Capital’s costs on an indemnity basis. On 11 March 2008 Mr Nathan filed a second application in the Melbourne registry of this Court to set aside this bankruptcy notice, which was dismissed on 14 April 2008 with an order that he pay Capital’s costs on an indemnity basis. A creditor’s petition was then presented and filed in the Sydney registry of the Court on 21 April 2008. It is that petition that is before the Court.
The debtor’s notice of opposition to the creditor’s petition relies on the following grounds:
1. The applicant is re-agitating the subject-matter rendered res judicatae in proceeding number MLG 899/2005 in the Federal Magistrates’ (sic) Court of Australia at Melbourne.
2. The validity and enforceability of the judgment debt relied upon in the bankruptcy notice has been finally and conclusively determined on the merits by the earlier judgment.
3. Creditor’s petition in proceeding number MLG 899/2005 was finalised and dismissed on 28 July 2006.
4. The applicant had it wished to challenge the validity and enforceability of the judgment debt, should have appealed the decision.
5. The applicant elected not to appeal and therefore acquiesced to the judgment delivered on 28 July 2006.
6. It is now not open to the applicant to contradict or reassert the position it adopted in the earlier judgment – cause of action estoppels and issue estoppels.
7. In reasons for judgment of Federal Magistrate Reithmuller (sic) delivered on 28 July 2006 at [c], his Honour stated the amount of the debt will be reduced as a result of recovering and selling the vehicle and the unsecured balance is plainly a ‘liquidated sum’ within the meaning of section 44(1)(b)(i) of the Bankruptcy Act 1966.
8. The applicant must make available to this Court all books and accounts relied upon by Mr Cabassi to swear to the truth of those matters stated in this petition.
9. Mr Kenneth Rook, solicitor for the applicant, has not explained why the vehicle registration in this petition is the same as in the earlier petition.
10. On 18 May 2007, Mr Cabassi testified in proceeding number MLG 1427/2006 that the loan had been written-off as bad debt.
11. The respondent should not be harassed twice for the same cause of action which is an abuse of process.
However at the start of the hearing of the creditor’s petition Mr Nathan asked the Court to determine as a preliminary point whether or not Capital was estopped from proceeding or from challenging the findings that had been made by Riethmuller FM in the proceedings in relation to the first creditor’s petition. He contended that principles of res judicata, issue estoppel or Anshun estoppel applied and also that the creditor’s petition should be dismissed pursuant to s.52(2) of the Bankruptcy Act 1966 (Cth)) on the basis that the petitioning creditor sought to re-agitate the same matter in the Court on the same issue that had already been heard and determined by the Court.
Mr Nathan suggested for the first time (notwithstanding that the matter had been before the Court for directions on earlier occasions) that if he were not to succeed in the estoppel argument he would then seek leave to amend his notice of opposition. He explained the basis on which he wished to amend his notice of opposition. As the creditor did not oppose leave being granted, I gave Mr Nathan leave to make an oral amendment to the notice of opposition to include the following proposed additional grounds:
· That the Court should go behind the default judgment of the County Court on which the bankruptcy notice was based.
· That the creditor’s petition did not comply with s.44(2) the Bankruptcy Act.
· That the creditor’s petition was defective on the basis that the estimate of value of the creditor’s security in the creditor’s petition had to be an estimate of the value of the vehicle in question and must not be capricious.
· That the creditor’s petition was defective because the registration number of the car described in the creditor’s petition was incorrect.
In addition, in submissions Mr Nathan took issue with the fact that the amount of the debt specified in the creditor’s petition differed from the amount specified in the bankruptcy notice.
In all the circumstances I was not persuaded that it was appropriate to determine the issues of estoppel as a separate question given the time and manner in which the suggestion was made (cf Part 17 of the Federal Magistrates Court Rules), the nature of the proceedings (see Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141 – 142 and Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 at [8] – [9] per Branson J) and the interests of efficient case management (Olbers v Commonwealth of Australia (No 3) [2003] FCA 651 at [8] per French J). Nonetheless it is convenient to consider first the grounds in the notice of opposition that raise such issues.
Res judicata and estoppel
The first ground in the notice of opposition is that the applicant was “re-agitating the subject matter rendered res judicatae” in the proceeding in Federal Magistrates Court of Australia in Melbourne MLG899/2005 (that being a reference to the proceedings before Federal Magistrate Riethmuller). In submissions Mr Nathan referred to Blair and Others v Curran and Others (1939) 62 CLR 464 and Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589.
Mr Nathan contended that the Court had exercised its jurisdiction and that there was a final decision from which the creditor had not appealed or otherwise challenged any of the findings, so that it could be said to have acquiesced in the judgment. He contended that the present hearing was on the same question, given that the creditor was claiming the same amount (apart from interest) based on the same default judgment that was relied on in the earlier proceedings.
Several of the grounds in the notice of opposition as set out above address aspects of the debtor’s estoppel contention. Mr Nathan contended that the “validity and enforceability of the judgment debt … has been finally and conclusively determined” and that the creditor’s petition was dismissed and submitted that it was not open to the creditor to “contradict or reassert” the position it adopted “in the earlier judgment (sic)”. Issue was also taken with the fact that the vehicle registration number in this petition was the same as in the earlier petition presumably on the basis that the “defect” had been addressed by Riethmuller FM as well as on the basis that this fact rendered the petition defective. It was also contended generally that the respondent should not be “harassed twice for the same cause of action”, which was said to be an abuse of process.
In effect the respondent contended that any or all of the estoppel doctrines applied or that the Court should exercise its discretion not to make a sequestration order because a previous creditor’s petition was dismissed by Riethmuller FM which relied on the same judgment debt, albeit not the same bankruptcy notice.
I have considered whether any of the doctrines relied on are applicable and also more generally whether it can be said that the present proceedings are an abuse of process or otherwise, such that the sequestration order ought not be made.
A final judgment (such as the decision of Riethmuller FM dismissing the earlier creditor’s petition) may affect subsequent proceedings between the same parties in a number of ways, as summarised by Weinberg J in Hamersley Iron Pty Limited v The National Competition Council [2008] FCA 598.
Under the doctrine of res judicata an earlier judgment may extinguish any cause of action which is the subject of the decision. As Weinberg J stated in Hamersley at [56]:
If the cause of action is established, it is said to merge in the judgment. If the cause of action is rejected, the parties are estopped from claiming that it continues to exist. Consequently, no further proceedings may be brought as between the parties (or their privies) to enforce that particular cause of action. This effect is sometimes described as cause of action estoppel or res judicata: Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502.
Thus, if an action has been brought and judgment entered in that action: “no other proceedings can thereafter be maintained on the same cause of action” (Jackson v Goldsmith (1950) 81 CLR 446 at 466 per Fullagar J). This can be seen as reflecting the public policy interest in the finality of litigation.
To establish res judicata it must be shown that the cause of action in these proceedings is identical to that which was litigated in the prior proceeding as a matter of substance (see Co-ownership Land Development Pty Ltd v Queensland Estates Pty Ltd (1973) 47 ALJR 519 at 522 per Walsh J). In other words it is necessary to establish that there has been a final decision on the same question and between the same parties.
In Blair and Others v Curran and Others (1939) 62 CLR 464 Dixon J described the principles underlying issue estoppel and res judicata as follows at 531 – 532:
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J. in R. v. Inhabitants of the Township of Hartington Middle Quarter (1855) 4 E. & B. 780, at p. 794 [119 E.R. 288, at p. 293], the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous. (Emphasis added)
For an issue estoppel to arise the issue ruled upon must be indispensable or fundamental to the ultimate decision, the earlier judgment capable of giving rise to an issue estoppel, the precise issue decided by the first proceeding identical with what the party is seeking to litigate in the second proceeding and the parties to be in controversy on the issue in question (see Blair at 510 Starke J and 532 per Dixon J, Stack v Brisbane City Council [2004] FCA 354 at [21] – [22] per Cooper J and Yap v Granich and Associates [2001] FCA 799 at [28] per RD Nicholson J).
In addition, the earlier decision may preclude the parties from raising in subsequent proceedings causes of action or issues that properly belonged to the earlier proceedings which they could and should have raised in those earlier proceedings exercising reasonable diligence, unless there are special circumstances such that a party should be permitted to raise the issue in subsequent proceeding (see Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589). Anshun estoppel arises where an issue raised in the subsequent proceedings properly belonged to the subject of the earlier proceeding but was not raised in those proceedings, whether by negligence, omission or accident. As the Full Court of the Federal Court (Emmett, Conti and Selway JJ) stated in Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 146 FCR 10 at [37]: “In essence, where the issue was so relevant to the subject matter of the earlier action that it would be unreasonable not to have raised it at that time, it is an abuse of process to endeavour to raise that issue for the first time in a subsequent proceeding between the parties” (see Anshun at 602 per Gibbs CJ, Mason and Aiken JJ and R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 232 at [19] per Bryson AJ).
As Weinberg J observed in Hamersley Iron at [59] the term res judicata is sometimes used more broadly to encompass both cause of action estoppel and issue estoppel, insofar as it is considered to be a rule which precludes one party as against the other party “from denying in subsequent litigation the correctness of the decision in the earlier litigation”, (but see Effem Foods Pty Limited v Trawl Industries of Australia Pty Limited (Receivers and Managers Appointed – In Liquidation) [1993] FCA 342 at [2] – [7] per Northrop and Lee JJ).
Mr Nathan’s primary submission is to the effect that once a creditor has presented a creditor’s petition based on a particular judgment debt and has failed on that petition for whatever reason it is thereby precluded from ever presenting another petition on the basis of the same judgment debt. No authority in relation to presentation of a second creditor’s petition was cited by Mr Nathan in support of this proposition. To the contrary is the long-standing English authority of In re Vitoria; Ex parte Vitoria [1894] 2 QB 387 which was referred to with approval by the Privy Council in King v Henderson [1898] AC 720 in relation to the 1887-8 New South Wales Bankruptcy Acts and more recently by Beaumont J in Re Gye and Perkes v McIntyre [1992] FCA 235 at [25].
In Vitoria a registrar in bankruptcy had declined to make a receiving order (the equivalent of a sequestration order) against a judgment debtor being of the opinion that the debt for which judgment had been obtained did not constitute a good petitioning creditor’s debt. The English Court of Appeal held that the decision of the registrar did not operate as res judicata with respect to the sufficiency of the petitioning creditor’s debt. Hence it did not prevent the creditor from serving a second bankruptcy notice on the debtor in respect of the same judgment debt or from thereafter presenting and relying on a second petition based on the fresh act of bankruptcy consisting of the debtor’s failure to comply with the second bankruptcy notice. As Lord Esher MR stated at 590 “There was no res judicata as regards the judgment debt.” Thus the Court had jurisdiction to entertain the second creditor’s petition.
Counsel for the applicant referred Re Gye and Perkes v McIntyre in which Beaumont J considered an argument that estoppel arose from the dismissal of a creditor’s petition. The creditor’s petition had been dismissed at first instance by Einfeld J and an appeal dismissed because until accounts of mutual dealings between the parties were taken, the petitioning creditor had not established the existence of the requisite debt for the purpose of the making of a sequestration order (at [16]). The debtor submitted that the earlier proceedings had finally determined, as between the debtor and creditor, the question of fact as to whether any amount was owed by the debtor to the creditor and that the creditor was estopped from asserting the existence of any debt due from the debtor to the creditor. As in this case, the argument was put on the basis of issue estoppel by reference to Blair v Curran and on the basis of Anshun estoppel.
Beaumont J pointed out (at [23]) that the material issue in the previous decision of Einfeld J and before the Full Court on appeal had been whether at the time of presentation of the creditor’s petition and at its hearing the creditor had established that a debt of the kind described in s.44(1) of the Bankruptcy Act “then existed”. Both courts had held that it was premature and impossible to determine what, if anything, would be owed between the parties in the absence of the taking of accounts pursuant to s.86 of the Act. On that basis the creditor’s petition had been dismissed.
However Beaumont J found (at [24]) that it had not been finally decided by either court in the prior proceedings how much, if anything, was actually owed by one party to the proceedings to the other on a final balance of account. That was left for other proceedings. Indeed it was the ultimate issue in the proceedings before Beaumont J, which were applications made in compositions entered into under Part X of the Act by each of the applicants, that an account be taken of certain mutual dealings between themselves and the respondent.
Relevantly, his Honour stated at [25] – [26]:
[25] Moreover, the dismissal of a creditor's petition in bankruptcy does not, in any final or conclusive sense, create an estoppel on the issue whether the petitioner's claim is a good debt (see In Re Vitoria Ex parte Vitoria (1894) 2 QB 387; King v Henderson (1898) AC 720 at 729-30; Dowling v Colonial Mutual Life Assurance Society Ltd. [1915] HCA 56; (1915) 20 CLR 509 per Isaacs J. at 518-9). As Isaacs J. pointed out in Dowling, whatever be the position at common law, a bankruptcy court, as a court of equity, has a discretion to look behind a judgment in a proper case "even if the existence of the debt as a matter of law may be undoubted and unchallengeable" (see also Wren v Mahoney [1972] HCA 5; (1972) 126 CLR 212 per Barwick C.J. at 224-5).
[26] Put differently, there is no issue estoppel here because the present question is not the same question as that before Einfeld J. (see O'Donel v The Commissioner for Road Transport and Tramways (NSW) [1938] HCA 15; (1938) 59 CLR 744; Lizzio v Ryde Municipal Council [1983] HCA 22; (1983) 155 CLR 211 per Deane J. at 232; Marr (Contracting) Pty. Limited v White Constructions (ACT) Pty. Limited, Neaves, Beaumont and Burchett JJ., 15 November 1991, unreported). Nor, in my view, can it be appropriate here to apply any Henderson extension of the issue estoppel principles. In the Bankruptcy Court, the question for determination, depending on a finding of insolvency, actually inferred or assumed, is whether the Court, in its discretion, will make a sequestration order. If the Bankruptcy Court declines to exercise that discretion, it does not follow that the Court has finally determined that no debt actually exists. That is a different question.
Beaumont J found that the dismissal of the creditor’s petition did not raise an estoppel preventing the creditor from seeking that an account be taken.
On these principles the decision of Riethmuller FM does not create an estoppel of any kind in relation to the issue of whether the petitioning creditor was entitled to rely on a fresh creditor’s petition in relation to a fresh bankruptcy notice based on the same judgment debt. Nor does the doctrine of res judicata apply to prevent the creditor proceeding on the fresh creditor’s petition in relation to the same judgment debt. Contrary to Mr Nathan’s contention the earlier proceedings did not finally and conclusively determine the validity and enforceability of the judgment debt.
Moreover, as Latham CJ pointed out in O’Donel v The Commissioner for Road Transport and Tramways (New South Wales) (1938) 59 CLR 744 at 758 – 9 a judgment relating to an earlier period of time cannot be said to have made any “determination as to any matter or state of affairs whatever which existed at a later date.” While the creditor (as the unsuccessful party in the prior proceedings) is bound as against the successful party, by the determination by Riethmuller FM of every fundamental issue “when a distinct and separate issues arises subsequently, [it] is not bound to submit to the second issue being established by the combination of a former issue with additional evidence, no matter how strong such evidence may be” (Evatt J in O’Donel at 763).
Counsel for the applicant conceded that the decision of Riethmuller FM probably did determine the issue of whether the contractual arrangement that existed between Capital and Mr Nathan meant that Capital was a secured creditor in a manner such as to raise the doctrine of issue estoppel. I accept that the determination that the individual motor term purchase agreement between Capital and Mr Nathan created a security in favour of Capital cannot be revisited in these proceedings.
The main other issue that was determined in the proceedings before Riethmuller FM was that the creditor’s petition in issue in those proceedings was not in accordance with the prescribed form. There is no issue raised in this case by the applicant inconsistent with that finding. The first creditor’s petition is not relied on in these proceedings. The creditor does not challenge the findings made about the earlier creditor’s petition or seek to re-litigate the issue of whether Capital was a secured creditor.
A number of other matters were determined or addressed by Riethmuller FM in the earlier proceedings. The issue of whether the respondent was served with a different bankruptcy notice is not a matter that is sought to be raised in these proceedings. The question of whether the earlier creditor’s petition was defective because it did not refer to security held over the motor vehicle by the applicant is not in issue in these proceedings. The creditor’s petition relied on in these proceedings is a fresh creditor’s petition. As already indicated, it is not disputed that the contract between the applicant and the respondent was such as to mean that the applicant was a secured creditor as held by Riethmuller FM.
Issue was also taken in the prior proceedings as to whether the earlier bankruptcy notice and first creditor’s petition were defective because they were signed in the name of the firm of solicitors issuing the notice. No such issue arises in this case in relation to the different bankruptcy notice and different creditor’s petition. Nor is the applicant seeking to re-litigate the issue of whether the earlier petition was defective for failing to set out the number of the earlier bankruptcy notice.
An issue also arose in the earlier proceedings as to whether the earlier petition was defective because it referred to the wrong motor vehicle. It referred to registration number QVE-499 when the registration number was QVF-499. The only finding by Riethmuller FM in that respect was that he would have allowed an amendment to the creditor’s petition to delete the reference to the incorrect registration number were there not other defects, because it was “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” (at [44]). The outcome of the present case does not depend upon the creditor asserting any claim inconsistent with that finding. Issue estoppel principles do not prevent an issue from being raised by Mr Nathan in relation to the identification of the goods over which the creditor holds security in a different creditor’s petition.
Federal Magistrate Riethmuller also considered an issue in relation to whether there was in fact money owing to the applicant as referred to in the judgment of the County Court. Again the creditor does not assert a right or claim inconsistent with Riethmuller FM’s finding (at [47]) that it was apparent that there was only one vehicle referred to in those proceedings, that the judgment was valid on its face and that Mr Nathan had not succeeded in having it set aside, so that the description of the wrong car registration number in the proceedings that led to the judgment did not make the judgement a nullity (see Re Gye and Perkes v McIntyre [1992] FCA 235).
As discussed above, there is a judgment for the debt relied on to found the present creditor’s petition this is still standing. It had not been set aside or satisfied. There is no res judicata as regards the judgment debt (see In re Vitoria per Lord Esher MR at 390). Riethmuller FM did not determine as between the parties that there never was a debt due.
In the earlier proceedings Riethmuller FM considered a document produced by Mr Nathan indicating that the debt had been written off, but found that it referred to a different agreement number and therefore did not appear to be relevant (at [48]). Again the creditor does not seek to raise any argument inconsistent with this finding. It was not suggested that this finding was such as to prevent Mr Nathan raising a fresh argument in relation to the debt having been written off in these proceedings which I have considered below.
The outcome of the present proceedings does not depend on the creditor asserting a right or claim inconsistent with any earlier finding by Riethmuller FM. The creditor does not seek to raise any matters cardinal to the later creditor’s petition which would necessarily involve any assertion that the judicial determination of Riethmuller FM was erroneous. I note in that respect that as Dixon J stated in Blair v Curran at 532 – 533 (and see J F Keir Pty Limited v Sparks [2008] FCA 611 at [58]): “Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation.”
Federal Magistrate Riethmuller also considered whether the respondent had a set-off or counter-claim, but found that the circumstances raised by Mr Nathan had been relied on in a defence he filed in the County Court attempting to have the default judgment set aside and that that had been unsuccessful. His Honour found (at [52]) that he was not satisfied “on the limited material” before him that Mr Nathan had an arguable case for a set-off or counter-claim. However, the creditor has not suggested that Mr Nathan is estopped from relying on any of the grounds on which he opposes the petition by the decision of Riethmuller FM.
Insofar as there is any room for the application of principles of Anshun estoppel in this context (cf Re Gye and Perkes v McIntyre at [26]) this principle can have no relevance to circumstances which occurred after the date of determination of the earlier proceedings. Riethmuller FM’s decision of 28 July 2006 preceded the creditor’s petition presented on 21 April 2008 seeking a sequestration order based upon an act of bankruptcy committed on 21 February 2008 by virtue of non-compliance with a bankruptcy notice issued on 15 November 2007. Clearly the doctrine of Anshun estoppel cannot apply to such matters which post-dated the earlier decision.
It was contended generally that the creditor could and should have raised all issues between the parties in the former proceedings. This argument appears to be put on the basis that had the creditor taken issue with what Riethmuller FM found in relation to the absence of any evidence as to the value of the security, then it could not raise that issue now, as it should have raised it in the prior proceedings or by appealing from the decision of Riethmuller FM. However the finding in the earlier proceedings that there was nothing in the affidavit material relied on by the creditor in those proceedings to provide an evidentiary basis for an estimate of the value of the security contained in a proposed amended creditor’s petition related to the evidence before that Court in relation to a different creditor’s petition. The deficiency in evidence before the Court on that occasion does not mean that the creditor could not in these proceedings put evidence before the Court in relation to the fresh creditor’s petition, including evidence as to the value of the security referred to in that petition. No estoppel arises in these circumstances.
More generally, the finding that the first creditor’s petition was defective, in that it did not refer to any security held over the motor vehicle by the applicant, dealt with the particular creditor’s petition before Riethmuller FM. The issue of the treatment of any security in the present creditor’s petition (which is discussed further below) is not a matter which could and should have been raised in the former proceedings. It has not been established that the issue of the estimate of security in a creditor’s petition which was not in existence at the time of the earlier proceedings was unreasonably omitted from the earlier proceedings or that the creditor is in some way estopped from relying on a second creditor’s petition.
In effect what Mr Nathan seeks to suggest is that if the applicant did not succeed in relation to the creditor’s petition considered by Riethmuller FM then it should not be permitted to in effect attempt to remedy any defects which were found to exist in the first creditor’s petition by issuing and proceeding on a further creditor’s petition based on a different act of bankruptcy. However the doctrines of res judicata, issue estoppel and Anshun estoppel do not preclude the creditor from proceeding in this way. None of grounds one to six in the notice of opposition are made out.
Abuse of process
Ground 11 in the notice of opposition is that the respondent “should not be harassed twice for the same cause of action which is an abuse of process”. I have considered generally whether it can be said that there was an improper motivation for the present proceedings or whether they otherwise constitute an abuse of process, or whether the proceedings are vexatious or for any other reason such that the court is satisfied by the debtor that for other sufficient cause a sequestration order ought not to be made (s.52(2)(b) of the Bankruptcy Act).
As French J (as he then was) stated in Spalla v St George Motor Finance Limited (No 6) [2004] FCA 1699 at [66] the doctrines of res judicata, issue estoppel and Anshun estoppel do not exhaust the circumstances in which a proceeding may be regarded as amounting to an abuse of process by way of attempted re-litigation of a dispute already judicially determined (see Coffey v Secretary, Department of Social Security (1999) 86 FCR 434 at 443). The Court has a discretion to dismiss a creditor’s petition and I have considered whether the debtor has established that the circumstances are such that I should exercise my discretion under s.52(2) of the Act.
The onus of proof under s.52(2) is on the person alleging abuse of process. As Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ stated in Williams v Spautz (1992) 174 CLR 509 at 529 that onus is a heavy one. It has not been met in this case.
In that respect I note that the fact that a petitioning creditor has or is pursuing two different remedies for securing repayment of a debt has been held not to be sufficient cause for dismissing a petition, provided the creditor still has a debt of the amount prescribed by s.44(1)(a) due to him or her (In re a Debtor (1929) 1 Ch 170). Insofar as Mr Nathan contends that there was an alternative available to the petitioning creditor (to recover and sell the vehicle) that possibility does not of itself establish an abuse of process, an improper motive or other sufficient cause. While in some circumstances it may be sufficient cause for dismissing a petition that the creditor has other equally good facilities for enforcing his or her judgment, that depends on the particular circumstances of the case. I am not persuaded on the evidence before me in this case that Mr Nathan has established that this is such a case (see Re Noye; Ex parte Deputy Federal Commissioner of Taxation (1956) 18 ABC 77).
Mr Nathan seemed to suggest that at least at some time in the past it might have been possible for the vehicle to be sold and hence the loan repaid. However this did not happen. Mr Nathan has retained possession of the vehicle. The evidence before the Court is not such as to establish that the fact that a sale might theoretically have occurred, but did not is other sufficient cause. I note in that respect that a letter from the Manager, Asset Recovery of the creditor to Mr Nathan dated 20 January 2005 annexed to Mr Nathan’s affidavit of 8 June 2008 filed on 10 June 2008 stated that in January 2003 the applicant had advised that he was unable to make repayments and wished to return the vehicle and that Capital made arrangements for that to occur, but that he did not return the vehicle. I also accept Mr Cabassi’s evidence that the vehicle has not been offered up by Mr Nathan since late 2003.
There is nothing in the circumstances of this case to suggest that there is any extortion by the creditor amounting to an abuse of process in the sense considered in Rozenbes and Others v Kronhill and Another (1956) 95 CLR 407 or that the creditor otherwise intended to use the process for some improper motive or illegitimate purpose or that there is extortionate conduct on the part of the creditor (and see King v Henderson at 731).
While it has been held to be vexatious and an abuse of process to add another petitioner and to present a second petition alleging the same act of bankruptcy and the same debt as in a previous petition already dismissed (see Re Larard; Ex parte Yeomans and Heap (1896) 3 MANS 317; cf In re Ell; Ex parte Austin & Haskins (1886) 4 NZLR 114) in this case the creditor’s petition does not allege the same act of bankruptcy. An abuse of process or other sufficient cause is not established merely because the fresh bankruptcy notice relies on the same judgment debt. It does not amount to harassment for the same cause of action as contended for by Mr Nathan.
Nor, as discussed above, has it been established that the creditor is seeking to re-litigate the issues decided by Riethmuller FM in such a manner as to constitute a collateral attack on his Honour’s judgment and thereby an abuse of process (cf Hunter v Chief Constable of the West Midlands Police [1982] AC 529; Saffron v Commissioner of Taxation (1991) 30 FCR 578 and Coci & Ors v Nilant & Ors [1998] FCA 65).
In particular, contrary to the debtor’s contention that the validity and enforceability of the judgment debt relied on in the bankruptcy notice was finally determined by the earlier judgment, Riethmuller FM did not determine whether the debt was “valid and enforceable”. Rather he rejected Mr Nathan’s contentions that the error with regard to the vehicle registration number and that the debt was “written off” made the judgment a nullity. As Beaumont J stated in Re Gye and Perkes v McIntyre at [26], the fact that a Bankruptcy Court declines to exercise its discretion to make a sequestration order does not mean that the Court has “finally determined that no debt actually exists”. Moreover, Riethmuller FM did not in the earlier proceedings go behind the judgment relied on to determine whether “in truth and reality” there was a debt due to the petitioning creditor as considered in Wren v Mahoney (1972) 126 CLR 212.
None of the grounds that allege or relate to the contention that the creditor is estopped from relying on the creditor’s petition presented on 21 April 2008 in these proceedings (including ground 11) are made out.
Whether debt due and still owing
Insofar as Mr Nathan submitted that the creditor had not proved there was an adequate debt at the date of commission of the act of bankruptcy and issue of the petition or at the time of the hearing, such contention is not made out.
As discussed further below, the creditor has presented evidence to satisfy me of the existence of a debt owing to it by the debtor that exceeds $2000 at all relevant times, that is a liquidated sum within s.44(1)(b)(i) of the Act.
Under s.52(1)(c), at the hearing of a creditor’s petition the Court is to require proof by the creditor of the fact that the debt on which the petitioning creditor relies is still owing. While Mr Nathan stated in his affidavit of 8 June 2008 that he did not owe the applicant $99,042.19 as claimed in the petition, in cross-examination he admitted that the vehicle in question was still in his possession and that he was aware of the 2004 judgment against him for just over $70,000. The following exchange then occurred:
Mr Gollege: Have you paid a singe cent of that debt in the last four years?
Mr Nathan:I offered to --
Mr Gollege: Sir, have you paid any amount at all off that judgment debt in the pat four years?
Mr Nathan:I was going to pay by disbursing the vehicle.
Mr Gollege:Is the answer to my question, no, you have not paid anything off that debt in the last four years?
Mr Nathan:I was prevented from paying that amount.
Mr Gollege:Is the answer to my question that you have not paid a single dollar off that judgment debt in the last four years?
Mr Nathan:I was prepared to pay.
In re-examination Mr Nathan stated: “That there was negotiation with Capital Finance that the vehicle had values to it and that it will be paid but it is – their delay and their reluctance to enter into any agreement.”
The evidence is not such as to establish either that the debt was not due or that any part of it has been repaid.
Contrary to Mr Nathan’s contention that there is no proof that the debt is still owing is the affidavit of debt sworn by Dominic Cabassi on 21 August 2008 and filed in Court which states that the debt of $99,042.19 relied on in the creditor’s petition remains outstanding to the applicant from the respondent. I accept this evidence. The affidavit refers to the amount of the debt specified in the creditor’s petition as owing at 21 February 2008. Further, Mr Cabassi gave a certificate dated 22 July 2008 pursuant to clause 10.4 of the individual motor term purchase agreement between the parties in which he verified that the total balance due to Capital under the agreement with Mr Nathan as at 12 July 2008 was $93,548.83 and that interest continued to accrue on the sum of $70,181.44 (the amount of the judgment debt) at the rate of 12 per cent per annum (See County Court Act 1958 (Vic) and Penalty Interest Rates Act 1983 (Vic)).
Clause 10.4 of the agreement provided that a certificate signed by any class of manager of Capital containing statements as to an amount due by the hirer “will be sufficient evidence of same unless Hirer proves them to be false”. Mr Nathan (the hirer) has not proved this evidence to be false (and see Dobbs v The National Bank of Australasia Limited (1935) 53 CLR 643). I am satisfied that Capital was and remains a creditor of the debtor.
The debt of $70,181.44 on which the bankruptcy notice was based is the amount of the default judgment of the County Court of Victoria of 2 July 2004. The Court has a discretion to accept such a judgment as satisfactory proof of the petitioning creditor’s debt, albeit as Barwick CJ, with whom Windeyer and Owen JJ agreed, stated in Wren v Mahoney (1972) 126 CLR 212 at 224 – 225: “That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.” Special circumstances must, however, exist before the Court will go behind a judgment as Barwick CJ pointed out in Wren v Mahoney at 224 (also see Makhoul v Barnes (1995) 60 FCR 572 at 581). For the reasons that follow I accept the judgment debt as satisfactory proof of the petitioning creditor’s debt.
Whether to go behind the judgment of the County Court of Victoria
As the Full Court of the Federal Court pointed out in Wenkart v Abignano [1999] FCA 354 the Bankruptcy Court does not go behind a judgment as a matter of course, although it is entitled to do so, for example where there has been fraud, collusion or a miscarriage of justice. Their Honours also pointed out that default judgments were viewed “with suspicion”, as Philp J stated in Petrie v Redman (1943) 13 ABC 44 at 48 – 49 (and see Corney v Brien (1951) 84 CLR 343 at 348).
In this case the judgment in question was a default judgment. However no fraud, collusion or miscarriage of justice or any reason for questioning whether there was in truth and reality a debt due to Capital has been demonstrated by Mr Nathan. Nor are special circumstances apparent on the evidence before the Court such as to warrant going behind the judgment. In that respect I have had regard to the fact that while the judgment was obtained by default, Mr Nathan applied to have it set aside in March 2005. That application was unsuccessful. It appears that there has been no appeal in respect of that decision. The evidence before the Court is not such as to establish that there are substantial reasons for doubting whether there is really a debt due to the creditor such as to warrant going behind the judgment.
The amount of the debt specified in the creditor’s petition
Mr Nathan took issue with the fact that the amount referred to in the creditor’s petition included amounts of interest that were not contained in the bankruptcy notice. This does not establish that the petition is defective. The debt relied on in the creditor’s petition must have accrued before the date of the act of bankruptcy on which it is intended to found the petition (which in this case was non-compliance with the bankruptcy notice by 21 February 2008). It is also well established that where a petitioning creditor’s debt is founded on a judgment carrying interest, accumulations of interest may be added to the debt (see Re Wilson (1877) 3 VLR(I) 95; Re Merrington; Ex parte Monds & Affleck Limited (1929) 2 ABC 154 and Re Laycock; Ex parte Burton [1929] QWN 32, County Court Act 1958 (Vic) and Penalty Interest Rates Act 1983 (Vic)). Indeed, there is no requirement that the debt relied on to support a creditor’s petition be the same debt or the same amount as the debt relied on to give rise to the act of bankruptcy, for example by founding the bankruptcy notice, provided it was a liquidated debt at the date of the act of bankruptcy (see Emerson and Another v Wreckair Pty Limited (1992) 33 FCR 581 at 588).
Failure to claim interest in the bankruptcy notice
Associated with the contention about the amount of the debt relied on in the creditor’s petition, Mr Nathan took issue with the fact that interest was claimed in the creditor’s petition notwithstanding that interest accrued since the date of judgment was not claimed in the bankruptcy notice. This factor does not establish that the bankruptcy notice or the creditor’s petition is defective. The creditor was not obliged to claim interest in the bankruptcy notice (see Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 and Filler v Haskell [2003] FCA 121 at [10] – [13] per Wilcox J), although if interest is claimed in the bankruptcy notice it must be calculated and specified in the manner provided for in the Act and Regulations.
The effect of “writing off” the loan
Mr Nathan contended (in ground ten of the notice of opposition) that it was relevant that Mr Cabassi has testified in the prior proceedings that the loan had been written off as a bad debt. However Mr Cabassi gave evidence in these proceedings that this was an entirely internal administrative arrangement whereby, in effect, responsibility for collection of the debt was transferred from one division of Capital to another. There has not been an assignment of the debt. Rather administrative responsibility for it has been transferred and from an accounting perspective the books of the creditor record the debt as bad and thus potentially irrecoverable. That does not however establish that the debt does not remain due and owing as between the creditor and the debtor. There has been no discharge, release or abandonment as is apparent from Mr Cabassi’s evidence in these proceedings.
Whether the debt is a “liquidated sum”
Section 44(1) of the Bankruptcy Act provides that a creditor’s petition shall not be presented against a debtor unless there is owing by the debtor to the petitioning creditor a debt that amounts to $2000 that is a liquidated sum due in law or in equity or partly in law and partly in equity, payable either immediately or at a certain future time.
Mr Nathan contended that because Capital was a secured creditor at the time the petition was presented and the security had not been realised it was not entitled to present the creditor’s petition because the debt which it claimed against him could not be said to be a liquidated sum.
The debt relied on by the creditor must be a liquidated sum as at the date of the act of bankruptcy as well as at the time of presentation of the petition. However it is not the case that a debt owed to a secured creditor cannot be said to be a liquidated sum because the security has not been realised. That is clear from subsections (2) – (6) of s.44 which deal with the position of a secured creditor as a petitioning creditor.
As the Full Court of the Federal Court stated in Bryant v Commonwealth Bank of Australia [1995] FCA 1687 at [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".
On this basis, provided the creditor has met the requirements of s.44 in relation to disclosure and the value of its security, the unsecured balance is a liquidated sum within s.44(1)(b)(i). It is not clear whether ground seven in the notice of opposition was intended to address this issue or was an elaboration on the issue estoppel contentions. In any event it is not made out. As discussed below, I am satisfied that the creditor has met the requirements of s.44.
Section 44 and the creditor’s security
Mr Nathan contended that Capital had not complied with the requirements of s.44 as to what had to be specified in the creditor’s petition in relation to its security.
Subsections (2), (3) and (4) of s.44 are relevant to this contention. They are as follows:
(2) Subject to subsection (3), a secured creditor shall, for the purposes of paragraph (1)(a), be deemed to be a creditor only to the extent, if any, by which the amount of the debt owing to him or her exceeds the value of his or her security.
(3) A secured creditor may present, or join in presenting, a creditor’s petition as if he or she were an unsecured creditor if he or she includes in the petition a statement that he or she is willing to surrender his or her security for the benefit of creditors generally in the event of a sequestration order being made against the debtor.
(4) Where a petitioning creditor is a secured creditor, he or she shall set out in the petition particulars of his or her security.
In paragraph one of the creditor’s petition it is claimed that the debtor owed the creditor $70,181.44 under the final judgment of the County Court of Victoria together with interest up to 21 February 2008 (the date of the act of bankruptcy relied on) making a total of $99,042.19, the consideration for such debt being obligations arising pursuant to an Individual Motor Term Purchase Agreement between the creditor and debtor.
Paragraph two of the creditor’s petition is as follows:
The applicant creditor holds security over a Mercedes Benz E280 V6 Elegance, with registration number QVE499, (sic) Vin/chasis (sic) number WDB2100632A753430 and engine number 11292130204505 (“the Vehicle”) the value of which is currently not ascertainable. The applicant creditor is the owner of the Vehicle and the respondent debtor has the Vehicle in his custody, possession and/or control.
Mr Nathan submitted that the amount claimed was not in liquidated form because the creditor’s petition did not comply with ss.44(3) and (4) and more generally that the requirements of s.44(2) were not met. It was pointed out that the creditor had not included a statement in the petition that it was willing to surrender the security and submitted that it had not “set out in the petition particulars of [its] security” in accordance with s.44(4), because it had not included an estimate of the value of its security.
It was submitted that the affidavit evidence of Ahmet Ozcelik as to an estimated value of a 1998 Mercedes Benz E 280 V6 Elegance Sedan was something “plucked from thin air”, given that there was no evidence that Mr Ozcelik had sighted the particular vehicle in issue and that his evidence was that he was responsible for assessing the values of repossessed vehicles.
As Mr Nathan contended and as Sheppard J stated in Re O’Leary; Ex parte Bayne (1985) 61 ALR 674 at 682 an estimate of the value of security “must bear a close relationship to the realities of the matter. It must certainly not be arbitrary or capricious”.
Counsel for the creditor contended that the creditor had met the requirements of s.44. It was submitted that in paragraph two the creditor had attempted to identify the motor vehicle (I will return to the question of the registration number) and, in effect, estimated its value as “nil” on the basis that the value was not presently ascertainable, the vehicle being in the possession or control of the debtor.
Reliance was placed on what was said in Re O’Leary at 682 – 683 to the effect that if a secured creditor values security as worthless or “nil” then he or she is not obliged to include a statement to the effect that he or she is prepared to surrender it for the creditor’s petition to be in an appropriate form.
Mr Gollege submitted that in all the circumstances the creditor had acted in good faith and was not arbitrary or capricious in its disclosure in the creditor’s petition. It was noted that no proposition had been put to Mr Cabassi (who was the person who verified paragraph two of the petition) that the statement in paragraph two was capricious or made in bad faith or deliberately wrong or that it was otherwise than a bona fide statement of the creditor’s understanding of the value or of the security of its ability to make an estimate of the value of the security.
It was pointed out that in this case the debtor was holding on to the vehicle which was security for the debt and suggested that it would be a peculiar result if he could, by that wrongful act alone, deprive the creditor of an entitlement to bring the petition. Capital was said to have satisfied s.44 by what it had done, given that it had made an attempt to estimate the value of the security but indicated that it was unable to ascertain the value in the absence of the vehicle. This was said to distinguish the case from the circumstances considered by Riethmuller FM in the previous litigation, where there had been no disclosure of the security and then (when there was a proposed estimate) no evidence to support the estimate of value proposed by Capital at that time.
The affidavit of Ahmet Ozcelik sworn on 2 July 2008 and filed on 17 July 2008 provided an estimate of the value of a 1998 Mercedes Benz E 280 V6 Elegance Sedan motor vehicle assuming it to be in average condition based on used car prices in Glass’s Guide and Mr Ozcelik’s knowledge of the used car market gained from his employment with Capital in asset re-marketing. His estimate of the value of such a car as between $13,000 and $16,000 was said to assume it was in average condition and was based on an assumption as to its mileage. Mr Ozcelik attested that if the vehicle was in poor condition the value would be less than $13,000.
The creditor did not rely on this affidavit as evidence of an estimate of the value of the particular vehicle that comprised the security disclosed in the creditor’s petition. Rather, as in Biron Capital Ltd v Anstee [2005] FMCA 1100 at [21] per Driver FM, there was said to have been an estimate of “nil” value of the security based “more upon an absence of knowledge than knowledge”, given that the actual vehicle in question remained in the possession or control of the debtor who had not provided any evidence of valuation to the creditor.
I accept that the statements in the creditor’s petition that the value of the security “is currently not ascertainable” and that the debtor had the vehicle in his custody, possession and/or control, amount to an estimate of the value of the security at “nil” given the creditor’s inability to make a reliable estimate in the absence of the vehicle. The evidence is not such as to establish that such a “nil” valuation is capricious, contrived, false, intentionally illusory or excessively low such that the creditor’s petition should be dismissed (see Re Burgess; Ex parte Council of the Shire of Snowy River (1962) 19 ABC 139 and Re Kwiatek and Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374). As Driver FM indicated in Biron v Anstee at [28], it is not necessary to determine whether the petitioning creditor’s estimate is more likely to be correct than any valuation by the debtor (and here there is no evidence of value from the debtor). Rather, it is only necessary that the Court be satisfied that the estimate is “a genuine one” (ibid). If it is, the Court will not inquire into its correctness. The estimate can be revised later for proof of debt purposes (see Re Wiggins; Ex parte Credit Assistance Pty Ltd (1979) 30 ALR 443).
In Biron v Anstee a secured creditor valued its security at nil. This was stated expressly in paragraph two of the creditor’s petition. The statement by Driver FM at [21] that: “The assertion as to the nil value of the petitioning creditor's security is based more upon an absence of knowledge than knowledge” was based on the fact that there was evidence before the Court that, despite several attempts, the creditor had been unable to obtain a copy of any valuation of the land that was in issue from the first mortgagee who had not co-operated. There was also information that it was unlikely that there would be funds available for the applicant creditor after payment of the first and second mortgagees. It was said to be apparent why Biron formed the view that its security had a nil value.
Similarly in this case, in circumstances where the value of the vehicle would (as Mr Ozcelik attests), depend on factors such as kilometres travelled and its actual condition and where the vehicle is in the possession of the debtor who has not co-operated with the creditor to make it available to, it is apparent why the creditor formed the view that its security had an unascertainable and hence “nil” value. There is no evidence that the “nil” valuation was contrived to avoid the obligation to make the security available for the benefit of creditors generally such as to give rise to a reason to dismiss the petition. In this case I am satisfied on the evidence before me that the estimate is a genuine one in the absence of the vehicle and given the information that the creditor had at the time it filed the petition. I am satisfied that the creditor acted reasonably in making the statement in paragraph two of the petition and it has not been shown to be contrived, arbitrary or capricious.
The creditor’s petition does not expressly state that the petitioner estimated the value of the security as “nil”. If, despite the fact that s.44 does not expressly require the creditor to give an estimate of the value of its security, the absence of an express reference to “nil” as the estimate of value can be said to be an omission in relation to the particulars of security, in the circumstances of this case I would grant leave to the creditor to amend the petition (see s.306(1) of the Act; Re Finn and Another; Ex parte Finn and Another v Amoco Australia Ltd and Another (1982) 58 FLR 54 at 60 – 65; Re Florance; Ex parte Turimetta Properties Pty Ltd (No.2) (1980) 39 FLR 400 at 404 – 4 per Lockhart J and; Re Basil William Vassis Ex Parte: Leo Leung [1986] FCA 21). Consistent with the earlier decision of Riethmuller FM the petitioning creditor stated in the creditor’s petition that it was a secured creditor. It did not falsely allege that it was an unsecured creditor. There is no suggestion that the debtor was prejudiced or misled. No evidence of any prejudice to the debtor has been adduced (save of course what would flow from the making of a sequestration order).
I have borne in mind that even if the subsequent affidavit evidence of Mr Ozcelik were to be taken as a reasonable basis on which to estimate the value of the vehicle (notwithstanding the lack of evidence about the actual vehicle’s condition and mileage) such evidence would confirm that the creditor remains a creditor for more than $2,000 (on the basis that it would be deemed to be a creditor to the extent by which the amount of its debt exceeded the value of its security under s.44(2)). It is clear that the petitioning creditor is an unsecured creditor to the extent of a considerable sum over and above the amount of any value of the security and that realisation of the security would not yield sufficient for it to be paid in full. Hence by virtue of s.44(2) Capital is deemed to be a creditor in relation to an unsecured debt that exceeds $2,000. In that respect, as Shepard J stated in Re O’Leary at 678 – 679:
It is important to bear in mind the distinction between the purposes served by the relevant sub-sections of s 44, on the one hand, and the provisions of ss 90 to 94 inclusive, dealing with proofs of debt by secured creditors, on the other. The only purpose of s 44 is to specify the conditions upon which a creditor may present a petition. One of the conditions is that the petitioning creditor must have a debt which amounts to [what is now $2,000]. If the creditor is secured he may not petition, unless he surrenders his security or shows that the realization of his security will not yield sufficient to enable him to be paid in full. If he establishes that to be the case, provided other requisite conditions are satisfied, he is entitled to a sequestration order. When he comes to prove his debt in the ensuing bankruptcy, none of what has gone before binds him. He proves in accordance with s 90 of the Act and the succeeding sections provide for the various eventualities which may occur. In short then, the provisions of s 44 determine whether or not a creditor may successfully present a petition; the provisions of ss 90 to 94 determine how the amount of his debt is to be quantified when he comes to prove in the bankruptcy.
The creditor has established the condition on which it may petition in s.44. The contentions of Mr Nathan in this respect do not establish that the creditor’s petition was defective in that it did not comply with s.44(2) or on the basis that the estimate of value was not of the vehicle in question or was capricious.
Vehicle registration number
Mr Nathan also opposed the petition on the basis that the registration number of the vehicle in the creditor’s petition was incorrectly recorded as QVE 499 when in fact it was QVF 499. He referred to the fact that the same mistake had been made in the earlier petition and that the mistakes had not been explained and contended that the petition was defective.
The creditor conceded that the registration number was incorrectly recorded in the petition (although the other details of the vehicle, including vin/chassis number and engine number and the make and model of the vehicle were correctly recorded). The same mistake appeared in the first petition.
However Mr Nathan clearly was under no misapprehension as to which Mercedes Benz motor vehicle was being referred to in paragraph two of the petition. Importantly, the petition contains the correct chassis number and engine number and in the absence of some other error (or evidence or statement by Mr Nathan that he was misled in any way) or evidence to satisfy me that any injustice arises or could arise from the reference to the incorrect registration number I am satisfied that this is a defect which can be cured under s.306 of the Act. There is no evidence that the debtor has been or could be misled or unfairly prejudiced (see Re Collier; Ex parte Dan Rylands Limited (1891) 8 MOR 80). The failure to insert the correct registration number in the creditor’s petition is not such as to establish that substantial injustice has been caused.
There is no suggestion that there is more than one Mercedes Benz motor vehicle that was subject to an agreement between Capital and Mr Nathan such that an error of this nature might confuse or mislead him as to which item of property security was claimed over, as to the value of that item or whether there was a residual unsecured debt sufficient to support the petition. Mr Nathan did not suggest that the mistake led to any injustice or confusion or error on his part. No possible prejudice is suggested by him. If leave to amend the creditor’s petition were to be regarded as necessary I would grant such leave. The proceedings under the creditor’s petition in its present form are not invalidated by this defect.
The fact that the same error appeared in the original creditor’s petition is unfortunate. However it is not the basis for opposition to this petition.
Section 47
Mr Nathan also took issue with the verification of the creditor’s petition by Mr Cabassi. Insofar as this ground of opposition was intended to contend that Mr Ozcelik’s affidavit contained a fresh estimate of the value of the vehicle such that the petition had to be amended and then re-verified, as indicated above, that was not the purpose of such affidavit evidence. Insofar as any other issue is taken with the verification of the petition by Mr Cabassi, I am satisfied in light of his further affidavit of 1 July 2008 filed on 4 July 2008 and cross-examination that the necessary evidence of verification of the petition is before the Court (see Daly v Watson and Another (1994) 50 FCR 544; Re Cirillo; Ex parte Commissioner of Taxation (1992) 36 FCR 279; MacDonald v Official Trustee in Bankruptcy (2001) 107 FCR 72 and; Bryant v Commonwealth Bank).
Debt or damages claim
In concluding submissions MrNathan raised for the first time a suggestion that the judgment of the County Court was a claim for damages, not for a debt and hence only an interlocutory judgment rather than a final judgment. There is no evidence before the Court to support the contention that the judgment of the County Court was not a final judgment. I note that Mr Nathan unsuccessfully sought to have it set aside. Neither this nor any of the other grounds of opposition are made out.
Formal requirements
None of the grounds of opposition to the petition are made out. I am satisfied that the formal requirements for the making of a sequestration order have been met. I am satisfied that Mr Nathan committed the act of bankruptcy alleged in the creditor’s petition consisting of a failure to comply with bankruptcy notice NN4630/07 issued on 15 November 2007 and served on him on 1 December 2007. The date of the act of bankruptcy was 21 February 2008 (having regard to the extension of time for compliance in relation to the proceedings to set aside the bankruptcy notice). It is not disputed that at that time the debtor was personally present or ordinarily resident in Australia. The Court has jurisdiction to make the sequestration order sought (s.43).
The conditions in the Bankruptcy Act on which a creditor may petition and the requirement as to a petition (see ss.44 and 47) are met. The petition has been presented for a debt of which is more than $2000 (even on Mr Nathan’s view of the value of the creditor’s security) within six months of the date of the act of bankruptcy signed. The petition was signed by the solicitor for the creditor.
The debtor’s contentions about the form, verification and content of the petition (in particular in relation to the manner in which the particulars and estimate of value of the security are set out) are not such as to establish that the requirements of s.44 are not met or that the petition is defective or a nullity. I am satisfied that the creditor’s petition has been sufficiently verified in accordance with s.47.
I am satisfied with proof of the matters required under s.52(1) of the Act based on the creditor’s petition and the affidavits filed by the creditor as required under the Bankruptcy Rules. The creditor relied on the petition, an attached affidavit of Dominic Cabassi verifying the petition; an affidavit of Snezana Roskov sworn on 17 April 2008 verifying paragraph four of the petition, an affidavit of Graham Jones of 4 December 2007 as to service of the bankruptcy notice; an affidavit of Ahmet Ozcelik of 2 July 2008; an affidavit of Graham Jones of 21 April 2008 as to the service of the creditor’s petition and other documents; an affidavit of debt sworn by Dominic Cabassi on 21 August 2008 and an affidavit of search sworn by Snezana Roskov on 21 August 2008.
Under s.52(2) of the Act if the Court is not satisfied with proof of any of the matters in s.52(1) or if it is satisfied “by the debtor” that he is able to pay his debts or that for other sufficient cause a sequestration order ought not to be made it may dismiss the petition.
Mr Nathan contended that the creditor has not established that he is not solvent. However the debtor bears the onus of proving that his assets are sufficient to pay his debts within the meaning of s.52(2)(a) (Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54 and Knudsen & Yates trading as The Hargreaves Practice, in the matter of Sanders v Sanders [2003] FCA 1079). He has not established that he is able to pay his debts within s.52(2), despite being given the opportunity to put oral evidence before the Court in relation to his ability to do so, given the absence of affidavit evidence to that effect.
The only debts disclosed by the debtor are the debt to the creditor (which at the time the creditor’s petition was presented amounted to $99,042.19 and continues to accrue interest) and a debt to the ANZ Bank of $15,000. There is no evidence that he has made any payments towards the debt to the petitioning creditor in the last four years.
He works as a registered nurse for an agency. His income fluctuates. He claimed (without any documentary evidence), that he took home “close to” $60,000 in the last financial year and about $73,000 the year before that, although he claimed he could earn more. He made an unsubstantiated assertion that there “should be” no problem borrowing to pay the debt given the amount he said he earned. This is not established on the evidence before the Court. Mr Nathan suggested in oral evidence that the vehicle was worth “more than $30,000 odd”. However while it remains in Mr Nathan’s possession this vehicle is the security held by the creditor (see Capital Finance Australia Pty Ltd v Nathan (No 2) [2006] FMCA 1051 at [20] – [24]).
The only asset Mr Nathan claimed in oral evidence was the home that he lived in which he said was of such a value that a further loan could be obtained (in addition to the existing loan of $15,000 from the ANZ Bank). There was no evidence from Ms Nathan before the Court. However in cross-examination Mr Nathan conceded that his partner, Ms Linda Nathan, was the sole registered proprietor of the property in which he lived (consistent with the Land Title Search tendered for the applicant).
The evidence before the Court is not such as to satisfy me that Mr Nathan is able to pay his debts. The only asset he identified belongs to another person. His suggestion that he could borrow money contains an inference that he does not have sufficient liquid or realisable assets to pay his debts (see Re Sarina; Ex parte Wollondilly Shire Council (1980) 30 ALR 266) and nothing has been paid to the creditor in the last four years. He has not established that he has assets or resources such that he would be capable of borrowing money to pay his debt within a relatively short time (see Sandell v Porter and Another (1966) 115 CLR 666 at 670). Indeed there is no evidence before the Court that he could obtain funds to pay the debt from any other person, insofar as that may be relevant (see Lewis and Another v Doran and Others (2004) 208 ALR 385 at [116] and cf International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 and Harrison v Lewis (2001) 19 ACLC 566 at 579). I am not satisfied on the evidence before me that the debtor is able to pay his debts within s.52(2)(a).
Nor am I satisfied that for other sufficient cause a sequestration order ought not to be made. In this respect I have considered all the grounds of opposition both individually and cumulatively. I have had regard to the fact that there is only evidence before the Court of one creditor (see Re Hecquard; Ex parte Hecquard (1889) 24 QBD 71) and to all the evidence before the Court and the contentions of Mr Nathan. While Mr Nathan suggested in cross-examination that he had been prepared to and was “prevented” from paying the debt from the proceeds of a sale of the vehicle this is not such as to constitute “other sufficient cause”. Nor is his suggestion that there were other remedies available to the creditor (see Re Poulson) or the fact that the debt has been “written off” in the sense considered above.
As set out above the debtor’s claims of res judicata or estoppel are not made out. No abuse of process or improper motive has been established.
The circumstances the debtor relies on either individually or cumulatively are not such as to satisfy me that the sequestration order ought not to be made. Accordingly I make a sequestration order against the estate of Kailai Nathan. The creditor’s costs should be taxed and paid from the estate of the debtor. I note that a consent to act as trustee has been signed by Paul Burness and Morgan Lane.
I certify that the preceding one-hundred and twenty (120) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 7 October 2008
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