Chaouk v Sellers and Beadle
[2017] FCCA 2915
•30 November 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| CHAOUK v SELLERS AND BEADLE | [2017] FCCA 2915 |
| Catchwords: BANKRUPTCY – Application to set aside/annul sequestration order – long delay – no matters of principle. |
| Legislation: Bankruptcy Act 1966, ss.153A, 153B, 254, 154(4) Acts Interpretation Act 1901, s.29 |
| Cases cited: Chaouk v SMK Developers Pty Ltd [2016] FCCA 591 James v Commissioner of Taxation (1955) 93 CLR 631 |
| Applicant: | HAZZAH CHAOUK |
| Respondent: | KENNETH STEWART SELLERS AND KRISTEN JENNIFER BEADLE |
| File Number: | MLG 2209 of 2016 |
| Judgment of: | Judge Riethmuller |
| Hearing date: | 1 September 2017 |
| Date of Last Submission: | 1 September 2017 |
| Delivered at: | Melbourne |
| Delivered on: | 30 November 2017 |
REPRESENTATION
| Solicitors for the Applicant: | Verduci Lawyers |
| The Respondents did not appear |
ORDERS
The application be dismissed.
The costs of the Respondents be paid from the Applicant’s estate.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 2209 of 2016
| HAZZAH CHAOUK |
Applicant
And
| KENNETH STEWART SELLERS AND KRISTEN JENNIFER BEADLE |
Respondent
REASONS FOR JUDGMENT
The applicant seeks orders setting aside a sequestration order made on 19 July 2012 and in the alternative, an order that the bankruptcy be annulled pursuant to s.153B of the Bankruptcy Act 1966.
The matter has had a significant history which is recounted in an earlier judgment in this matter by Wilson J delivered on 10 March 2016 and reported as Chaouk v SMK Developers Pty Ltd [2016] FCCA 591. In those proceedings, Wilson J dismissed an application to review the decision of the Registrar to make the sequestration order. That application sought review pursuant to r.20.01 of the Federal Circuit Court Rules 2001 which provides for de novo review of a Registrar’s decision if that review is sought within seven days of the date on which the Registrar made the order. The time limit expired on 26 July 2012 and the application before Wilson J was made on 23 November 2015, over three years out of time.
In substance, his Honour found that there was no proper explanation for the delay, nor sufficient evidence of the debt not, in fact, being owed to justify extending time or setting aside the order. His Honour dismissed the application with costs.
To the extent that the applicant could be seen to be applying before me on the same basis, it appears to me that it would be an abuse of process and that the proper course would have been to lodge an appeal. The applicant, however, relies upon different facts and circumstances in this application, in order to seek that the order be set aside or, alternatively, annulled. The question of annulment was not raised before his Honour in Chaouk v SMK Developers Pty Ltd. In addition, it appears that there is a power to set aside orders under r.16.05, which allows the Court to vary or set aside a judgment or order after it has been entered if it is made in the absence of a party.
History of the matter
On 10 September 2009, SMK Developers Pty Ltd issued a complaint in the Magistrates Court of Victoria at Melbourne against the applicant suing for a debt based upon an invoice. The statement of claim is a simple one in the form commonly used in debt recovery work in the Magistrates Court, based upon monies owing for “work and labour done and for materials supplied by the plaintiff to the defendant at the request of the defendant”, referring to a tax invoice dated 27 July 2009.
The amount claimed is in excess of $43,000, together with interest in excess of $500. The Magistrates Court proceedings were listed for trial on 14 July 2010 and adjourned. On 16 September 2010, the applicant sought orders for summary dismissal on the basis that he had had no dealings in his personal capacity with the claimant, only as a director of a company of which he was the sole director. Further directions were made and the matter was re-listed for trial on 4 April 2011. On 4 April 2011, the applicant’s legal representatives did not attend and an order was made against him, based upon the claim, and for interest and costs. On 8 April 2011, the applicant applied for a rehearing in the Magistrates Court, based upon the fact that his lawyer made a diary error and believed the proceedings were on 14 April 2011, not 4 April 2011.
On 2 May 2011, consent orders were made setting aside the order of
4 April 2011 on the condition that the applicant pay the costs thrown away by SMK Developers Pty Ltd and that the applicant file a Notice of defence within 21 days.
Within the 21 days, the applicant filed a Notice of defence (on 8 June 2011). Unfortunately, he did not pay the costs, as ordered, on or before 26 May 2011. Rather, his lawyer sent a trust account cheque under cover of a letter dated 27 May 2011, which, allowing for the time for post, would not have arrived before 28 May 2011 at the earliest.
On 25 July 2011, judgment was again entered against the applicant, this time, for a total of $48,699.10.
On 14 November 2011, a bankruptcy notice was posted to an address at 16 Julius Street, North Coburg. This was the address that was used for the applicant in the proceedings in the Magistrates Court. The applicant says that he was overseas at this time and cannot remember receiving the bankruptcy notice. Needless to say, he did not comply with the notice, nor pay the debt the subject of the Magistrates Court judgment.
On 10 April 2012, SMK Developers Pty Ltd filed a creditors petition returnable in the Federal Magistrates Court (as it then was) at Melbourne based upon the act of bankruptcy and failing to pay the debt the subject of the bankruptcy notice.
On 24 May 2012, the bankrupt opposed the sequestration order on the basis that he had applied for a rehearing of the Magistrates Court case that led to the judgment debt, and asserted that he was solvent. The day before, a representative of the company had deposed to the fact that he was still indebted for the whole of the sum set out in the creditor’s petition.
The Registrar made orders allowing the bankrupt until 6 June 2012 to pursue his claims and adjourned the proceedings on the creditor’s petition until 14 June 2012. On 1 June 2012, the order of the Magistrates Court made on 25 July 2011 was set aside, with costs ordered against the applicant and an order that in default of payment of the costs, any defence was to be struck out. The applicant filed a defence but failed to pay the costs as ordered.
On 5 July 2012, an order was made in the Magistrates Court, entering judgment again. This time, in the total of $57,976.23.
On 14 June 2012, when the matter came before a Registrar of the Federal Magistrates Court, the applicant had not filed any material to support his opposition to the creditor’s petition. However, he was given another opportunity to put evidence before the court (no doubt on the basis of oral statements concerning the proceedings in the Magistrates Court), and the proceedings adjourned to 19 July 2012.
On 19 July 2012, the Registrar of the Federal Magistrates Court made a sequestration order against the estate of the applicant.
Amount of judgment debt
The applicant argues that the amount of the judgment debt set out in the bankruptcy notice is incorrect. The order in the Magistrates Court was for a principal sum of $48,699.10. Whereas, the amount stated in the bankruptcy notice was $48,669.10. This also resulted in a miscalculation of the interest payable, resulting in an understatement of the interest payable of 80 cents. As the applicant points out, the Courts have long insisted upon strict compliance with the requirements for a bankruptcy notice: see, for example, James v Commissioner of Taxation (1955) 93 CLR 631 at 644.
The Act, at s.41, requires the notice to be in accordance with the judgment. The key question is whether or not it could reasonably mislead the debtor as to what is necessary to comply with the notice: see Kleinwort Benson Australia Ltd v Crowl [1988] HCA 34 at [15]. In this case, I am not persuaded that the amount involved, $30.80, was such as to result in an understatement that is objectively capable of misleading the debtor. In simple terms, had the debtor paid the amount set out in the bankruptcy notice (which was slightly less than the total due) the remaining debt (if any did, in fact, remain in circumstances where the creditor was not estopped from pursuing the amounts) was certainly far too small to found a further bankruptcy notice, and on a practical level, far too small to warrant any enforcement proceedings.
Effect of judgment debt being set aside
It was argued in this case that the underlying judgment debt was set aside on 1 June 2012 by the Magistrates Court, although, it was later replaced by another judgment in default on 5 July 2012. The sequestration order was made on 19 July 2012. The applicant argues that the bankruptcy notice ought to be treated as having fallen at the point that the underlying judgment debt was set aside, even though the judgment debt in a greater amount was entered prior to the sequestration order being made. The argument overlooks the fact that the scheme of the Bankruptcy Act 1966 (“the Act”) is to provide a system for making demand in a bankruptcy notice for the payment of a judgment debt, and the failure to comply with the demand in the bankruptcy notice results in an act of bankruptcy (see Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378).
As a result, I am not persuaded that the bankruptcy notice was invalid, nor that no act of bankruptcy was committed at the time that the bankruptcy notice expired. Had the judgment been set aside and no further judgment entered, a more serious and arguable issue may have arisen. However, in circumstances where the bankruptcy notice was based upon a judgment validly entered, an act of bankruptcy occurred. That the judgment was subsequently set aside and then entered again on the same cause of action, and in a sum greater than the amount of the bankruptcy notice, does not alter the fact that an act of bankruptcy occurred. I am not persuaded that this would provide other good cause for not making a sequestration order.
Service of the bankruptcy notice
The applicant deposes to having left the country and being overseas at the time the bankruptcy notice was served. The notice was served by way of postal service to an address in North Coburg, which is the same address nominated on the proceedings in the Magistrates Court action and the bankruptcy proceedings. Whilst the Regulations require that service by post be to the person’s “last known address”, there is no evidence before the court to indicate that this was not the last known address of the bankrupt.
Regulation 16.01 of the Bankruptcy Regulations 1996 state:
(1) Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:
(a) sent by post, or by a courier service, to the person at his or her last-known address; or
(b) left, in an envelope or similar packaging marked with the person's name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility; or
(c) left, in an envelope or similar packaging marked with the person's name, at the last-known address of the person; or
(d) personally delivered to the person; or
(e) sent by facsimile transmission or another mode of electronic transmission:
(i) to a facility maintained by the person for receipt of electronically transmitted documents; or
(ii) in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.
(2) A document given or sent to, or served on, a person in accordance with subregulation (1) is taken, in the absence of proof to the contrary, to have been received by, or served on, the person:
(a) in the case of service in accordance with paragraph (1)(a) or (b)--when the document would, in the due course of post or business practice, as the case requires, be delivered to the person's address or document exchange facility; and
(b) in the case of service in accordance with paragraph (1)(c), (d) or (e)--when the document is left, delivered or transmitted, as the case requires.
On the evidence before this Court it appears that the bankruptcy notice was posted to the last known address of the bankrupt. Service by post is governed by the provisions of the Acts Interpretation Act 1901, which relevantly provides at s.29(1):
(1) Where an Act authorizes or requires any document to be served by post, whether the expression “serve” or the expression “give” or “send” or any other expression is used, then the service shall be deemed to be effected by properly addressing, prepaying and posting the document as a letter and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.
In order to avoid the presumption in the Acts Interpretation Act, evidence of non-delivery must be provided. Non-receipt of itself, whilst it may be circumstantial evidence of non-delivery, is not often a complete answer to the provision. In this case, the applicant is not able to attest to non-delivery, simply that he does not recall having received it. In these circumstances, the applicant has not discharged the onus upon him proving non-receipt: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 In any event, it was open to him to pursue these issues when opposing the creditor’s petition, which was not done so at the relevant time. I am not persuaded that these matters form the basis for concluding that the sequestration order should not have been made or should be set aside.
Looking behind the judgment
It is open to a bankruptcy court to look behind a judgment in order to determine whether the sum is truly owing, as explained by the High Court in Wren v Mahony (1972) 126 CLR 212 at 224, and more recently in Ramsay Health Care Australia Pty Ltd v Adrian John Compton [2017] HCA 28.
In Corney v Brien (1951) 84 CLR 343 at 358, Fullagar J said:
The question whether the judgment is to be reopened or “gone behind” at all will, of course, often involve some preliminary investigation of the merits of the attack on the judgment. But, when once the court decides that it will “go behind” the judgment, the cases which I have cited show, in my opinion, that the whole matter is open. When once it is considered proper to “reopen”, the only question will be whether there was, in fact and in law, a debt which could legally found the judgment – whether there was in “Truth and Reality” an obligation not of record before there was an obligation of record. If the case should be one of those rare cases (I have not actually found one in the Reports since 1888, when Fry L.J. said that he knew of none) where it is legitimate to “go behind” a judgment entered after trial in court, there would be, I think, no alternative but to re-try the whole case. The matter to be decided is the existence or non-existence of a debt antecedent to the judgment. It has been said on several occasions that the judgment is prima-facie evidence of the antecedent debt. But, when once the inquiry is undertaken, I think that the ultimate burden of proof rests on the person claiming to be a creditor. As Lord Esher M.R. said in In re Fraser; Ex parte Central Bank of London (1) : “The existence of the judgment is no doubt prima-facie evidence of the existence of a debt; but still the Court of Bankruptcy is entitled to inquire whether there really is a debt due to the petitioning creditor.”
In this case the applicant has done nothing to challenge the underlying debt for many years. The creditor is no longer a registered company. The applicant merely alleges that it was his company, not himself, who was the true debtor. The applicant has not produced any documents or evidence to show that his claim in this regard is correct and not that as reflected in the orders made by the Magistrates Court. That is, he has produced no detailed evidence that may be a basis to displace the presumption that he was acting in his personal capacity rather than as an agent of his company which appears to be the basis of his defence: see Aitkin Transport Pty Ltd v Voysey [1990] 1 Qd R 510. Of course, the delay makes this difficult, but he is responsible for the delay.
The conduct of the applicant at the time the judgment was entered, and the period leading up to the entry of judgment, together with the delay and the obvious prejudice to all involved as a result of the delay in making this claim, is such that I am not persuaded that it is appropriate to embark upon an inquiry as to whether or not the debt is truly owing. I therefore dismiss this ground.
Annulment of bankruptcy
In pursuing an annulment of the bankruptcy, the applicant says that he was solvent at or around the time of the making of the sequestration order and receiving income from his business as a registered builder. Therefore, he argues, there was nothing to suggest he was not otherwise able to pay his debts as and when they fell due. Insolvency is a situation where a person is unable to meet their debts as and when they fall due. Solvency is not merely an excess of debt over assets: see generally Sandell v Porter (1966) 115 CLR 666 at 670, and in this regard it is the reasonably immediate future that is to be looked to: see Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527-1528.
The applicant provides evidence of a bank statement showing what was said to be the result of an income stream from earnings on the part of his company, Chazz International Pty Ltd, which had a positive bank balance of over $4,000 at 31 January 2011, and personal bank statements showing a positive bank balance in January 2011 through to March of over $200. However, it is apparent from those statements that there had been no transactions (apart from account keeping fees) since October 2009, and that the last transactions were cash withdrawals or transfers of some $21,200 in early October. This material does not demonstrate that the applicant was in fact solvent at the time of the bankruptcy notice or sequestration order or, more importantly, at the time that the sequestration order was made.
The report from the trustee indicates to the contrary, showing that the estimated creditors of the estate at the time of the bankruptcy were somewhere between $77,000 and $167,000 (depending upon the status of one particular debt), and that more recently Citigroup Pty Ltd have made a claim with respect to unpaid credit card debt of $42,874.
As at the date of the sequestration order there is no evidence of income on the part of the applicant, but there is evidence of significant debt. I am not persuaded on the material that the applicant was solvent at or around the time of the making of the sequestration order. As the debts remain outstanding and unpaid, I am not persuaded that the debts have been discharged or that he is now solvent.
Whilst it was said that there may be some difficulties in paying the debt to the petitioning creditor, given that it has now been deregistered as a company, this presents no legal difficulty, as these amounts can be paid to the appropriate holder of unclaimed monies, pending notification to the appropriate persons potentially entitled: see s.254 and reg.12.01 which provide:
254. Payment of unclaimed moneys to the Commonwealth
(1) In this section, trustee means:
(a) a trustee of the estate of a bankrupt; or
(aa) the administrator of a debt agreement; or
(b) a trustee of a personal insolvency agreement; or
(c) a trustee of a composition or a scheme of arrangement; or
(d) a trustee of the estate of a deceased person in respect of which an order has been made under Part XI of this Act;
and includes the Official Trustee.
(2) Where a trustee has under his or her control:
(a) any dividends or other moneys that have remained unclaimed for a period exceeding 6 months; or
(b) any moneys that it is proposed not to distribute or pay to any person;
he or she shall forthwith pay those moneys to the Commonwealth.
(2A) Where:
(a) the Court has, after the presentation of a creditor's petition against a debtor, directed the Official Trustee, an Official Receiver or a registered trustee to take control of the property of the debtor;
(b) the petition has been withdrawn or dismissed;
(c) the Official Trustee, Official Receiver or registered trustee, as the case may be, has moneys under its control in pursuance of the direction; and
(d) it is not reasonably practicable to pay those moneys to the person entitled to them;
the Official Trustee, Official Receiver or registered trustee, as the case may be, shall pay those moneys to the Commonwealth.
(3) A person who claims to be entitled to any moneys that have been paid to the Commonwealth by a trustee in pursuance of subsection (2) or (2A) may apply to the Court for an order under this subsection declaring him or her to be so entitled and, if the Court is satisfied that the applicant is entitled to those moneys or a part of those moneys, it may make an order accordingly.
(4) Upon receipt by the Official Receiver of an office copy of an order under subsection (3), the Official Receiver shall pay to the person in whose favour the order was made the amount specified in the order out of moneys lawfully available for the purpose.
Regulation 12.01:
Statement where moneys are paid to the Commonwealth
(1) Where a trustee pays moneys, under subsection 254(2) of the Act, to the Commonwealth , he or she must, at the time of payment, give to the officer to whom the moneys are paid a statement setting out the name and address of:
(a) the trustee; and
(b) the relevant bankrupt, debtor or (subject to subregulation (2)) deceased person, as the case requires; and
(c) each person who, so far as the trustee is aware, is entitled to the moneys or any part of the moneys.
(2) For the purposes of paragraph (1)(b), where the relevant person is a deceased person, the address to be stated is that person's address at the date of his or her death.
(3) Where the Official Trustee or Official Receiver, or a registered trustee, pays moneys, under subsection 254(2A) of the Act, to the Commonwealth , that person must, at the time of payment give to the officer to whom the moneys are paid a statement setting out the name and address of:
(a) the trustee; and
(b) each person who, so far as the Official Trustee, Official Receiver or registered trustee is aware, is entitled to the moneys or any part of the moneys.
(4) A registered trustee who gives a statement to an officer in accordance with subregulation (1) or (3) must, within 7 days, give a copy of the statement to the Official Receiver.
(5) An offence against subregulation (4) is an offence of strict liability.
It is clear that for the purpose of annulment proceedings, payment to the official receiver is sufficient: see s.153A(4) of the Act which provides:
(4) For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the Official Receiver and, if so paid, is taken for the purposes of this section to have been paid in full to the creditor.
Conclusions
In the circumstances, I am not persuaded that the applicant is now solvent, nor was he solvent at the time of the sequestration order. Having regard to the case as a whole, I am not persuaded that even if there had not been such significant delay, the applicant has raised sufficient facts and circumstances to justify annulling the bankruptcy under s.153B of the Act.
With respect to the application to set aside the sequestration order (presumably made under r.16.09) the delay in this case has been so significant as to cause considerable prejudice. The applicant’s case is particularly weak. Considering all of the facts and circumstances, I am not persuaded that it is appropriate to exercise the discretion to set aside the order made by the registrar sequestrating the bankrupt.
I therefore dismiss the application and order that the trustee’s costs be paid from the estate.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of Judge Riethmuller
Date: 30 November 2017
Key Legal Topics
Areas of Law
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Civil Procedure
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Administrative Law
Legal Concepts
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Judicial Review
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Procedural Fairness
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Natural Justice
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Abuse of Process
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Standing
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