CARTER v Kennedy - [2012] FMCA 1229

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CARTER & ORS v KENNEDY

[2012] FMCA 1229

BANKRUPTCY – COSTS – Creditors’ petition issued – respondent paid sum claimed into a controlled monies account – funds released after District Court appeal decision handed down – petition not pursued and subsequently dismissed – issue of costs, including various reserved costs – related proceedings already finalised where costs awarded to creditors – respondent to pay costs up to day before creditors’ petition and related proceedings heard together.

Bankruptcy Act 1966, ss. 43, 44, 47, 52
Legal Profession Act2004 (NSW), ss. 384, 385
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), rr. 4.02, 4.07

First Applicant:

LOUISE CARTER

Second Applicant:

ESTATE OF THE LATE SHIRLEY WATTS CARTER

Third Applicant:

ANNABELLE IVY CARTER

Respondent:

JOHN F. KENNEDY

File Number:

SYG 150 of 2011

Judgment of:

Lloyd-Jones FM

Hearing date:

2 November 2012

Date of Last Submission:

5 December 2012

Delivered at:

Sydney

Delivered on:

20 December 2012

REPRESENTATION

Solicitors for the Applicant:

Mr P. Raupach of Russo & Partners

Counsel for the Respondent:

Mr C. Bolger

Solicitors for the Respondent:

Mr T. Weissel

ORDERS

The respondent debtor pay the applicant creditors’ costs of the proceedings up to and including 2 March 2011.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 150 of 2011

LOUISE CARTER

First Applicant

ESTATE OF THE LATE SHIRLEY WATTS CARTER

Second Applicant

ANNABELLE IVY CARTER

Third Applicant

And

JOHN F. KENNEDY

Respondent

REASONS FOR JUDGMENT

Introduction

On 31 January 2011 the applicants filed a creditors’ petition (the “Petition”) against the respondent in this Court. The life of the Petition was extended by the Court to 24 months on 7 December 2011. On 2 November 2012 orders were made dismissing the Petition and for the filing of brief written submissions in respect to costs.

Applicants’ Submissions

The applicants submit that the petition was lodged based on the respondent’s failure to comply with a bankruptcy notice in the amount of $235,504.15. On that day the respondent lodged an application (SYG149/2011) seeking that the bankruptcy notice issued against him be set aside until final determination of costs in the proceedings leading to the issue of the bankruptcy notice were determined and the normal appeal period of 28 days had passed from the determination. The respondent then sought to file an amended application in those proceedings seeking orders that the bankruptcy notice be stated or, alternative, time for compliance be extended.
The applicants submit that proceedings SYG149/2011 came before this Court and were dismissed on the basis that they had been filed out of time, and costs orders against the respondent (the applicant in those proceedings). On the same day the following orders were made in these proceedings:
1. The adjournment application, in respect to the Creditor’s Petition, is granted subject to the instruction that the respondent transfer the sum of $235,504.15 into the trust account of Russo & Partners.
2. Russo & Partners is to transfer the sum of $235,504.15 into a controlled money account held in the name of the respondent as soon as reasonably practicable after receipt of the sum of $235,504.15 into its trust account.
3. The sum of $235,504.15 plus interest accrued on that amount from time to time, shall be held in the controlled money account and not disbursed or drawn on by any person or for any reason till further order of this Court.
4. Costs be reserved.
These orders were made pending determination of an appeal lodged by the respondent in the District Court of NSW (Proceedings 2011/70291). That appeal was then dismissed on 31 May 2011.
The applicants submit that there were then no further avenues for the respondent to appeal the judgment underlying the bankruptcy notice and petition and the matter was relisted before the Court on 23 June 2011. On that day the following orders were made:
1. The sum of $235,504.15 referred to in Order 3 of the Orders made on 4 March 2011 together with interest accrued thereon be paid to the Applicant Creditors forthwith.
2. Costs of today are reserved.
As there were other matters between the parties at that time, the petition was not dismissed.
The applicants submit that:
a)They were entitled to bring these proceedings;
b)They were, at all relevant times, able to satisfy the Court of the matters listed in ss.44 and 47 of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) and rules 4.02 to 4.07 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) in order for the Court to make a sequestration order;
c)By virtue of the Court ordering the release of the monies in the controlled account to the applicants (i.e. the applicants would have been successful on their application but for the indulgence granted to the respondent by the Court) the respondent should pay the applicants’ costs in the proceedings, including disbursements; and
d)Costs should follow the cause and the respondent should pay the applicants’ costs in this matter, including disbursements.

Respondent’s Submissions

The respondent relies on the affidavits of John Francis Kennedy sworn 4 March 2011 (in proceedings SYG 149/2011) and Timothy William Weissel sworn 4 March 2011 (in proceedings SYG 150/2011). The respondent contends that these affidavits set out the history of the proceedings up to 3 March 2011.
The respondent submits that the Petition was a method of debt recovery utilised by the applicants against the respondent. The respondent was not insolvent and had the capacity and means to pay the debt sought in the bankruptcy notice by the applicants. The respondent contends that he had lodged an appeal in the District Court of NSW under ss. 384 and 385 of the Legal Profession Act 2004 (NSW) and had related proceedings on foot in the Supreme Court. The appeal was not determined until after 7 March 2011. The respondent submits that the significance of this is that if the appeal was successful, the judgment that predicated the bankruptcy notice and the Petition would have been a nullity.
The respondent contends that he offered to pay the sum of $235,504.15 into a controlled monies account, pending resolution of the appeal proceedings. By letter dated 3 March 2011, the applicants accepted the proposed course and orders (noted at [3] above) were made accordingly. The proceedings seeking to set aside the bankruptcy notice were dismissed on 4 March 2011 and costs were awarded to the respondents in those proceedings. The respondent submits that no additional costs have been incurred by the applicant in these proceedings after 3 March 2011 and at the listings on 3 and 4 March 2011 both proceedings were listed and the applicants cannot double recover their costs.

Consideration

On 31 January 2011, the applicants filed a the Petition which was returnable before a Registrar of this Court on Tuesday 3 March 2011. On that occasion, the matter was referred to my list and adjourned for hearing the following day. On 4 March 2011, this matter, together with SYG 149/2011 being an application by John Francis Kennedy seeking that the bankruptcy notice, relevant to these proceedings, be set aside. The Court was advised that the application had been resolved so an order dismissing those proceedings was made, together with the appropriate costs order relevant to that action.
In respect to the Petition, the following orders were made:
1. The adjournment application, in respect to the Creditor’s Petition, is granted subject to the instruction that the respondent transfer the sum of $235,504.15 into the trust account of Russo & Partners.
2. Russo & Partners is to transfer the sum of $235,504.15 into a controlled money account held in the name of the respondent as soon as reasonably practicable after the receipt of the sum of $235,504.15 into its trust account.
3. The sum of $235,504.15 plus interest accrued on that amount from time to time shall be held in a controlled money account and not disbursed or drawn upon by any person or for any reason until further orders of this Court.
4. Costs be reserved
5. The matter be listed for hearing on 7 December 2011 at 10.15am.
6. The parties have liberty to apply on seven (7) days notice.
The Court notes that the sum in Order 1 has been paid by the respondent.
Correspondence was received from the parties in early June 2011, with a request that the Petition be dismissed and consent orders were attached. The Court’s Registry advised the parties that consent orders cannot be made in chambers in respect to the dismissal of a creditor’s petition and an appearance in open court is required because of the possibility there may be a supporting creditor seeking to be substituted. Consequently, the matter was relisted for hearing on 23 June 2011 and, after submissions by both parties, the following orders were made:
1. The sum of $235,504.15 referred to in order 3 of the orders made on 4 March 2011, together with interest accrued thereupon, be paid to applicant creditor forthwith.
2. Costs of the day are reserved.
3. Liberty to apply on seven (7) days notice.
The matter was next before the Court on 7 December 2011 in accordance with Order 5, made on 4 March 2011. After brief submissions, the following orders were made:
1. The period at the expiry of which the Petition will lapse be a period of 24 months from the date of presentation.
2. A signed and sealed copy of this order be served on the respondents.
3. A copy of these orders be provided to the Official Receiver, Sydney, within 2 days.
4. Costs be reserved.
5. There be liberty to apply on 3 days notice.
As the life of the Petition was approaching expiry, the matter was listed on 2 November 2012, for directions. At that date, the following orders were made:
1. The Creditor’s Petition filed 31 January 2011 be dismissed.
2. Parties file brief written submissions in respect to costs by 16 November 2012.
3. Judgment on the issue of costs be reserved.
The Petition details the act of bankruptcy committed by John F. Kennedy, the respondent debtor, within six months before the presentation of the petition as follows:
The respondent debtor failed to comply on or before 5 January 2011 (date of act of bankruptcy) with the requirements of a bankruptcy notice served on him on 15 December 2010 (date of service of bankruptcy notice) or to satisfy the court that he had a counter-claim, set-off or cross-demand equal to or more than the sum claimed in the bankruptcy notice, being a counter-claim, set-off or cross-demand that he could not have set up in the action in which the judgment referred to in the bankruptcy notice was obtained, said judgments being judgments entered in the Supreme Court of New South Wales on 30 March 2009 in matter number 13092/2009 in the sum of $100,000.00 and on 1 October 2010 in matter number 2010/00317126 in the sum of $144,294.12, both judgments obtained pursuant to the filing of costs assessment certificates together with interest.
Mr Kennedy filed an application on 31 January 2011 seeking the following orders:
1. That the Bankruptcy Notice NN5828 (of 10 December 2010) issued against John F Kennedy of “Kurrajong Park”, [Uralla, NSW] be set aside until a final certificate of determination regarding costs is issued and the normal time period for appeal of 28 days has elapsed from the time of that determination.
As indicated above, that application was dismissed on 4 March 2011 together with a costs order made against Mr Kennedy. Consequently, the bankruptcy notice was unchallenged and provided a legitimate basis for the Petition to proceed.
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act, subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act, and the conditions on which a creditor may petition under s.44 of the Bankruptcy Act being met. Section 52(1) of the Bankruptcy Act provides that at the hearing of a creditor’s petition the Court shall require proof of:
a)The matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
b)Service of the petition, verified by an affidavit of service; and
c)The fact that the debt or debts on which the petitioning creditor relies is or are still owing.
If the Court is satisfied with the proof of those matters it may make a sequestration against the estate of the debtor. In this matter it has not proceeded to a hearing of the Petition. However, except for the affidavit of debt and the affidavit of search, material has been filed, but not read, that satisfies the above requirements. The affidavits of debt and search are not filed, but should be tendered on the date that the Court hears a creditor’s petition as those documents have a time critical element.
Section 43 of the Bankruptcy Act provides that the Court may make a sequestration order when:
a)A debtor has committed act of bankruptcy; and
b)Relevantly, at the time when the act of bankruptcy was committed, the debtor was personally present or ordinarily resident in Australia.
Section 44 of the Bankruptcy Act provides that a creditor’s petition is not to be presented, unless;
a)The debt is more $5,000.00;
b)The debt is a liquidated sum due at law and payable immediately; and
c)The act of bankruptcy on which the petition is founded was committed within six months before the presentation of the petition.
The applicant creditor is also obliged by the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) to put before the Court affidavits:
a)Verifying the petition;
b)Of service of the bankruptcy notice.
On the material currently filed, but not yet formally read, the above requirements have been met. It is acknowledged that there are further requirements that would have to be met at a formal hearing of the petition, but as the matter never progressed to that point, it is not expected that those documents be present.
Filed in Court on 23 June 2011 is an affidavit of Peter Bruce Raupach sworn the same day, being the solicitor representing the applicant creditors in the Petition proceedings in this Court and proceedings in the District Court of NSW proceedings 2011/70291, being initiated by Mr Kennedy against Mr Raupach’s clients. In his affidavit Mr Raupach states:
3. I was in attendance at the hearing of the Summons when it was heard by His Honour Curtis DCJ on 31 May 2011, at which time the following orders were made:
a) The Plaintiff’s Summons [Mr Kennedy] be dismissed;
b) The Plaintiff pay the Defendants’ costs of the summons.
4. The Applicant Creditors seek the release of the monies lodged on security in accordance with the Orders made by this Honourable Court on 4 March 2011 in accordance with the proposed Consent Orders, a copy of which is annexed hereto and marked with the letter “B” (reproduced at [11] above).
The letter from Tim Weissel to Russo & Partners dated 3 March 2011 (Exhibit 1 to the Affidavit of Timothy William Weissel sworn 4 March 2011, Annexure “F”) contains the following:
Further I am instructed that my client will pay the amount sought in the Bankruptcy Notice to $235,504.15 to be held on trust or in a controlled monies account pending resolution of the District Court Proceedings (or Appeal). My client will enter into an agreement that a third party provide an undertaking that the money will only be released after 28 days from the finalisation of the District Court proceedings and or on the direction of both parties and such direction will not be improperly or unreasonably withheld.
On 4 March 2011 orders were made by this Court (see [10] above) that provided for the sums sought in bankruptcy notice to be paid to the applicants’ solicitor’s trust account. In compliance with those orders Mr Kennedy paid the money on 7 March 2011. It is acknowledged that the proceedings on 4 March 2010 principally concerned the application by Mr Kennedy in SYG149/2011 to set aside the bankruptcy notice. That application was unsuccessful and Mr Kennedy was ordered to pay the Carters’ (the applicants in these proceedings) costs. I agree with the written submissions prepared and filed by Mr Weissel on behalf of Mr Kennedy that contend that no additional costs orders should be made against him in proceedings SYG150/2011 from 3 March 2011, being the date of the letters in respect to the payment of the sums sought in the bankruptcy notice. It is noted that on 3 March 2011 at the Registrar’s bankruptcy list both proceedings were listed and subsequently transferred to this Court for resolution. On the following day, 4 March 2011, the matters were substantially resolved although there was the request that the petition, although not moved upon, should not be dismissed until other peripheral issues were resolved. I am satisfied that as at 3 March 2011 no further costs in relation to proceedings SYG150/2011 should have been incurred by Mr Kennedy. Consequently, I believe an order for costs should be made, in these proceedings (SYG150/2011), against Mr Kennedy up to and including 2 March 2011 and that after that date each party should bear their owns costs.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM

Date: 20 December 2012