CFA v STEPHENS and STEPHENS v PATTISON and PATTISON v STEPHENS (No.2) - [2011] FMCA 905

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CFA v STEPHENS and STEPHENS v PATTISON and PATTISON v STEPHENS (No.2)

[2011] FMCA 905

BANKRUPTCY – Three inter-related proceedings – applicant seeking extension of time to review Sequestration Order made by Registrar in 2007 – inadequate explanation for delay – prejudice to trustee if order set aside – extension of time not granted.

Bankruptcy Act 1966, s.153B
Bankruptcy Regulations 1996, reg.8.12E

Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44
Rose & Smith v Smith Cabinets Pty Ltd & Anor [2011] FMCA 227
Sandell v Porter (1966) 115 CLR 666
Pattison v Bellin [2000] FCA 1167
Brake v Townsend [2006] FCA 1156

Applicant:

KENNETH LYLE STEPHENS

First Respondent:

COUNTRY FIRE AUTHORITY

Second Respondent:

PAUL ANTHONY PATTISON

File Number:

MLG 1128 of 2007

Applicant:

KENNETH LYLE STEPHENS

Respondent:

PAUL ANTHONY PATTISON

File Number:

MLG 1025 of 2010

Applicant:	PAUL ANTHONY PATTISON (AS TRUSTEE OF THE PROPERTY OF KENNETH LYLE STEPHENS, A BANKRUPT)
Respondent:	KENNETH LYLE STEPHENS, A BANKRUPT

File Number:

MLG 82 of 2010

Judgment of:

Burchardt FM

Hearing date:

26 September 2011

Date of Last Submission:

27 October 2011

Delivered at:

Melbourne

Delivered on:

2 December 2011

REPRESENTATION

Counsel for Mr Stephens:

Ms Knights

Solicitors for Mr Stephens:

Littleton Hackford & D’Alessandro

Counsel for the First Respondent:

Mr Yee

Solicitors for the First Respondent:

Norton Rose Australia

The Second Respondent:

In person

Counsel for the Receivers and Managers of Pattison Consulting Pty Ltd:

Ms Rhodes

Solicitors for the Receivers and Managers of Pattison Consulting Pty Ltd:

Norton Rose Australia

Counsel for the Official Trustee in Bankruptcy:

Ms Margeta

Solicitors for the Official Trustee in Bankruptcy:

Harris Carlson

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLG 1128 of 2007

KENNETH LYLE STEPHENS

Applicant

And

COUNTRY FIRE AUTHORITY

First Respondent

PAUL ANTHONY PATTISON

Second Respondent

MLG 1025 of 2010

KENNETH LYLE STEPHENS

Applicant

And

PAUL ANTHONY PATTISON

Respondent

MLG 82 of 2010

PAUL ANTHONY PATTISON (AS TRUSTEE OF THE PROPERTY OF KENNETH LYLE STEPHENS, A BANKRUPT)

Applicant

And

KENNETH LYLE STEPHENS, A BANKRUPT

Respondent

REASONS FOR JUDGMENT

Introduction

These are Reasons for Judgment in the matters of Country Fire Authority v Kenneth Lyle Stephens, MLG 1128 of 2007, and Kenneth Lyle Stephens v Paul Anthony Pattison, MLG 1025 of 2010, and Paul Anthony Pattison as trustee of the property of Kenneth Lyle Stephens, a bankrupt, v Kenneth Lyle Stephens, a bankrupt, MLG 82 of 2010.
These are three inter-related proceedings. It is common cause between the parties that matter MLG 82 of 2010 cannot proceed until the other two are determined. The Official Trustee in Bankruptcy, who took over the role of trustee of the estate of the bankrupt, Mr Stephens, in June 2011, submits that neither of the two other proceedings can be fully determined until the taxation of Mr Pattison’s costs, a process which I understand to be now underway.
The issues that arise in the proceedings, which are not without complexity, appear to me to be as follows:
a)
Should the Sequestration Order made by Registrar Luxton on

4 October 2007 be set aside (it follows that the time would need to be extended for this to occur)?;
b)Should the bankruptcy of Mr Stephens be annulled pursuant to s.153B of the Bankruptcy Act 1966 (“the Act”)?;
c)What, if anything, should happen in relation to the fees sought to be charged by Mr Pattison in relation to his administration of the estate of the bankrupt?; and
d)To what extent should c) impact upon the first two proceedings generally?

The Facts

From the materials filed in all three proceedings, certainly somewhat co-extensive in relation to the first two, it is clear that in 2005

Mr Stephens had the misfortune to be involved in a car accident with a vehicle owned by the Country Fire Authority. The Country Fire Authority sued him for the damage to its vehicle in the sum of just under $8,000.
Mr Stephens did not contest the proceeding. His affidavit material does not go into detail as to why this was so, save to indicate that he thought that since he was fully insured he would be covered.
The Country Fire Authority obtained judgment in a total amount including costs of $8,601.38 on 13 July 2007.
Thereafter Mr Stephens was served with a Bankruptcy Notice and, as I have indicated, on 4 October 2007 he was made bankrupt. He did not attend Court or in any way seek to formally resist the making of the Sequestration Order.
Mr Stephens’ affidavits suggest that by April 2008 he had paid out the Country Fire Authority and sought to be, in effect, released from his bankruptcy. It should be noted that at all times he has had very few creditors. Leaving aside a small debt to a firm of solicitors (since paid) and some rates (apparently paid but there is no direct evidence of this however, in any event, the amount was very small), his only debt ever was to the Country Fire Authority and of course, the fees engendered by the administration of his estate.
It should be noted that in material filed by Mr Pattison on 22 January 2010 in his application to sell Mr Stephens’ home (as I shall refer to it, although Mr Pattison is now on title as the former trustee) the debts exclusive of the Country Fire Authority amounted to $3,819.92.
When Mr Stephens sought to be discharged from bankruptcy in April 2008 he was informed that the fees engendered by the Trustee up to that point as at 31 March 2008 were $30,865.58 and that it was anticipated that a total sum of $46,198.08 would be necessary to discharge the bankruptcy. By November 2008 that figure had increased to over $58,500.
Mr Stephens says that the effect of the April 2008 communication from Mr Pattison made him so paralysed by worry and indecision that he was unable to act “for some months”.
Later in the same affidavit (filed 13 July 2010) at paragraph 12

Mr Stephens deposes to other health difficulties in 2009 and indeed before then (detailed at paragraph 11) which go to explain his relative inaction.
It should be noted that all these proceedings might be said somewhat to have limped along since they were filed in the Court, with a hearing set aside for a mediation which has been unproductive.
It should also be noted that an amended application in the annulment proceeding was expressly abandoned by counsel for Mr Stephens before the Court at the hearing on 26 September 2011.

Should there be an extension of time for the applicant’s application to review the decision of Registrar Luxton to make a Sequestration Order and if so, should the Sequestration Order be set aside?

The application filed in proceeding MLG 1128 of 2007 expressly seeks an extension of time to enable the review to take place. I have already referred to the affidavit in support and the material disclosed therein.
It should be noted at the outset that at the time Mr Stephens became bankrupt he was in relatively well-paid employment (about $85,000 per year), had a not insignificant amount of equity in his home

(it would appear in excess of $50,000) and that his debts, other than the costs of the administration of his estate, were little more than $10,000-$12,000.
The sticking point between all the parties is the substantial amount of remuneration that the administration of the estate has been said to engender.
It is not necessary, nor is it in my view appropriate, to trawl through in great detail the substantial amounts of correspondence between the parties that has been put on affidavit. They show, in my opinion, a relatively intermittent process of correspondence between Mr Stephens’ representatives from time to time and Mr Pattison.
The written submissions filed on behalf of Mr Stephens point to a number of considerations, set out at paragraph 9 of those submissions, in support of the application to set aside and, more importantly, to extend time. Whatever the force of the matters raised in paragraph 9, and I consider most of them to be at least in large part valid, it is noteworthy that none of the matters raised by Mr Stephens addresses in terms the delay between April 2008, when Mr Stephens was told what the costs of the administration to that point were, and the filing of the application itself on 13 July 2010.
I should note that I generally accept the propositions set out by Riethmuller FM in Vaucluse Hospital Pty Ltd v Phillips & Anor [2006] FMCA 44 and more particularly the matters at [51] and [76] referred to by counsel for Mr Stephens. Nonetheless, each case requires to be considered on its own facts. Here the following considerations seem to me to be relevant:
a)Mr Stephens became the subject of a debt to the Country Fire Authority in excess of four times the then limit of $2,000 for the making of a bankruptcy application.
b)Mr Stephens took no steps to defend the action brought by the Country Fire Authority, although I accept that he may well have been under a misapprehension as to his circumstances in the light of his insurance and the difficulties he was then having with his insurer.
c)Mr Stephens took no steps to resist the creditor’s petition, notwithstanding that he was validly served.
d)The debts were, as Mr Stephens rightly says, always small.
e)Had Mr Stephens’ full financial position been known at the time of the Sequestration Order, there may well have been a finding that he was solvent.
f)Mr Stephens’ financial position was not known at the time of the making of the Order nor for some considerable time thereafter.
g)
Mr Stephens failed to lodge his statement of affairs until

25 September 2008 (see Mr Stephens’ affidavit filed 13 July 2010) and it would appear that this delay only came to an end because he was threatened with prosecution proceedings by the Official Receiver (see affidavit of Mr Pattison filed 27 October 2011 and annexures).
h)Mr Stephens failed to cooperate with Mr Pattison in a number of ways detailed at paragraph 10 of Mr Pattison’s written submissions filed 27 October 2011, those submissions in my view being made out by the materials annexed to Mr Pattison’s affidavit.
i)
Notwithstanding periodic ill health which of course deserves sympathy, the fact is that Mr Stephens did not file his application for review until almost three years after he was made bankrupt.

It seems clear from the materials he has filed that he only decided to do this when he changed solicitors. Any complaints about that delay give rise to remedies against the former solicitors rather than anyone else.
j)There has been no prejudice caused to Mr Pattison by the delay in filing. Although Mr Pattison asserted that his records were in the hands of third parties when the matter was before the Court in September 2011, nothing appears to have turned upon this in the preparation of his affidavit in opposition. Mr Pattison has, of course, been prejudiced by the significant addition of costs that has occurred in the meantime (in the event that the Sequestration Order is to be set aside).
I should make it clear that I have had regard to all the materials filed and submissions made but the matters set out in the preceding paragraph seem to me to be those that are most directly relevant to this matter.
I should also note that no party has sought to cross-examine.

In particular, Mr Stephens has made no application to cross-examine

Mr Pattison nor has he otherwise sought to take any steps following the filing of Mr Pattison’s extensive materials.
A party is not entitled as of right to an extension of time in which to bring an application for review of a decision of a Registrar. In Rose & Smith v Smith Cabinets Pty Ltd & Anor [2011] FMCA 227, O’Dwyer FM dealt with a case in which, as his Honour recorded:
“The applicant moved almost without debate on the extension of time point to whether or not the setting aside order should be made.”
His Honour pointed out that the first step to be taken is to explain the reasons for the delay in making the application. His Honour noted that no such explanation had been provided and declined to extend time.
In my opinion, Mr Stephens has failed adequately to explain the delay in bringing his application. He would doubtless say, and indeed has said in his affidavits, that he was unwell from time to time. From April 2008 he was paralysed for some months so far as action was concerned and very regrettably, his health further declined in 2009. Nonetheless his affidavits do not, in my opinion, give an adequate explanation for his failure to have made his application in a timely way.
The fact is that Mr Stephens was legally represented, as far as I can see, throughout certainly the more significant periods of conflict with

Mr Pattison. Lawyers were writing on Mr Stephens’ instructions to

Mr Pattison by no later than November 2008 and the application for a re-exercise of the registrar’s discretion was not filed until mid-2010.
In the circumstances described, and notwithstanding the obvious prejudice to Mr Stephens that will result, it is in my opinion inappropriate to extend time for the application to be brought.
Even if I was wrong in this regard, I would not be minded to set aside the Sequestration Order. The fact is that at the time the order was made Mr Stephens was indebted to the Country Fire Authority in a sum of over $8,000 pursuant to a final order of the Victorian Magistrates Court. He says he was solvent at the time.
True it is that Mr Stephens had assets available to him which clearly outweighed the debts that he owed at that time. It is not, however, clear whether additional funds would have been reasonably readily available to him to pay those debts within the test in Sandell v Porter (1966) 115 CLR 666.
Furthermore, and even if Mr Stephens was solvent at the time, the Court retains an over-arching discretion as to whether or not to set aside the Sequestration Order. In my opinion, a person who so totally fails to conduct their affairs properly, as Mr Stephens ultimately has, must face the consequences of his own default. I appreciate that at one level this may seem a completely counter-intuitive finding.

Mr Stephens never owed very much money and always had insurance standing behind him (although he had a great deal of difficulty in impelling the insurer to step forward in the ultimate).
Nonetheless, people who fail to conduct their affairs properly do get themselves into precisely this sort of difficulty and, in my view, the prejudice that would be visited upon Mr Pattison in the event that he were not to receive the protection of the Bankruptcy Act in the event that a setting aside order was made outweighs the prejudice to

Mr Stephens.

Should the bankruptcy be annulled

Here in my opinion the annulment application should await the taxation of Mr Pattison’s costs. The submissions filed by the Official Trustee in Bankruptcy are in my view compelling. The decisions of the Federal Court in the matter of Pattison v Bellin [2000] FCA 1167 and Brake v Townsend [2006] FCA 1156 in my respectful view make it clear that this Court has no power to fix Mr Pattison’s remuneration. Rather, his remuneration can only be fixed in the circumstances extent in this case by a scrutiny pursuant to the regulations (s.162(4) of the Act) or alternatively, pursuant to a review initiated by Mr Stephens pursuant to reg.8.12E of the Bankruptcy Regulations 1996.
The parties have agreed that I should make an order extending the time for taxation of the former trustee’s remuneration and I made that order by consent on 26 September 2011. Mr Pattison has asserted that that process is underway.
In the circumstances, and given the various difficulties identified in the Official Trustee in Bankruptcy’s written submissions and in particular the matters set out at subparagraphs (a) to (f) on page 2 of those submissions, it is not appropriate to form a final conclusion as to whether the bankruptcy should be annulled at this time.

Conclusion

In the circumstances, I am minded to dismiss the application for an extension of time and the co-extensive application for review of the Registrar’s decision in matter MLG 1128 of 2007.
I will give the parties an opportunity to consider these Reasons for Judgment and hear the parties further as to the form of orders that it may be appropriate to make to bring all these matters to a conclusion.

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Date: 2 December 2011