Conlan v Mladenis
[2008] FMCA 1214
•29 August 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| CONLAN v MLADENIS | [2008] FMCA 1214 |
| BANKRUPTCY – Costs – Creditor’s Petition – Order for Judgment Debt set aside. |
| Bankruptcy Act 1966 Federal Magistrates Court Act 1999 Federal Court of Australia Act 1976 Federal Proceedings (Costs) Act 1981 |
| Hogg v J Isherwood-Hicks Pty Ltd [1992] NTSC 41; (1992) 108 FLR 62 Microsoft (International) Pty Ltd v Total Peripherals Pty Ltd [1998] VSC 50 Maxwell-Smith v S & E Hall Pty Ltd [2006] FCA 825; (2006) 233 ALR 81 Brunninghausen v Glavanics [1998] FCA 230 |
| Applicant: | GERARD ANTHONY CONLAN |
| Respondent: | CHRIS MLADENIS |
| File Number: | MLG 476 of 2005 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 17 April 2008 |
| Date of Last Submission: | 17 April 2008 |
| Delivered at: | Melbourne |
| Delivered on: | 29 August 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr Turner |
| Solicitors for the Applicant: | Law 554 |
| Counsel for the Respondent: | Ms Marks |
| Solicitors for the Respondent: | Tanya Cirkovic & Associates |
ORDERS
The applicant be granted a costs certificate in relation to the costs of the re-hearing on 17 April 2008 pursuant to Section 8 of the Federal Proceedings (Costs) Act 1981;
The respondent be granted a costs certificate in relation to the costs of the re-hearing on 17 April 2008 pursuant to Section 8 of the Federal Proceedings (Costs) Act 1981;
The respondent pay the appellant’s costs of the appeal to the Federal Court;
The respondent be granted a costs certificate in relation to the costs of the appeal pursuant to Section 6 of the Federal Proceedings (Costs) Act 1981 with respect to the costs payable to the applicant and the respondent’s own costs;
The respondent pay the applicant’s costs of the proceedings from the filing of the Creditor’s Petition (including drawing and engrossing the petition) (other than the costs dealt with in orders 1-4 above).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 476 of 2005
| GERARD ANTHONY CONLAN |
Applicant
And
| CHRIS MLADENIS |
Respondent
REASONS FOR JUDGMENT
This application concerns the question of costs in bankruptcy proceedings that were pending between the parties. The question was first considered by a Registrar of the Federal Magistrates Court, and was then the subject of a de novo hearing before another Federal Magistrate. Following a successful appeal before Sundberg J the matter was remitted to the Federal Magistrates Court for re-hearing in accordance with his Honour's reasons, together with a remittal of the question of costs with respect to the appeal.
The matter arose from a dishonoured cheque provided to a law firm, Law 554, in June of 2004. The cheque was a business cheque from a business conducted by the respondent and his son. On 14 July 2004 the applicant, trading as Law 554, brought proceedings in the Magistrates Court of Victoria. On 10 September 2004 the applicant obtained a default judgment against the respondent for the amount of the cheque together with interest and costs.
On 17 September 2004 the applicant wrote to the respondent advising of the judgment. On 27 November 2004 a letter was sent to the respondent by a firm, Anthony Peterson & Co, inviting him to enlist their assistance with respect to his judgment debt.
On 6 April 2005 the applicant filed a bankruptcy notice, which was served upon the respondent on 9 April 2005. The respondent, with the assistance of his daughter (as he has limited English), engaged a solicitor who wrote to the applicant advising that ‘our client is not aware of the alleged debt owing to you’ and requesting that the applicant
"refrain from taking further steps to enforce the judgment obtained, as it may be that our client will provide instructions to set aside the judgment that has been obtained against him. If you continue with bankruptcy proceedings despite our request, and an application is then made to set aside the judgment and set aside the bankruptcy proceedings, we will produce this letter on the question of costs"
In the same letter, service of the Bankruptcy Notice was acknowledged and copies of the complaint, judgment and invoices, upon which the judgment debt related, were requested. A short time before this letter the daughter of the respondent had telephoned regarding the same documents but had not received them.
On 14 April 2005 the applicant wrote to the then solicitors for the respondent enclosing the documents requested and advising:
We do not propose to refrain from taking any further steps to enforce the judgment as it was properly obtained
Thereafter nothing occurred between the parties until 3 May 2005 when the applicant filed a creditor's petition (the respondent having committed an act of bankruptcy on 2 May 2005 by failing to comply with the Bankruptcy Notice served on 9 April 2005). The creditor's petition was served on the respondent on 6 May 2005.
It was not until 25 May 2005 that the respondent applied to the Victorian Magistrates Court to set aside the default judgment. That application was given a return date of 6 June 2005. On 8 June 2005 the respondent filed and served a notice of intention to oppose the creditor's petition on three grounds:
a)that the complaint was not served;
b)that he was able to pay his debts as and when they fell due; and
c)that he had made application to set aside the default judgment.
In mid‑June 2005 the respondent and his accountant filed affidavits asserting that he was solvent, and that he had full-time employment, and real property that was unencumbered.
On 27 June 2005 the default judgment was set aside by the Victorian Magistrates Court. On 20 July 2005 the respondent filed a notice of defence in the Victorian Magistrates Court. As a result, on 25 October 2005 a Registrar of the Federal Magistrates Court dismissed the creditor's petition by consent reserving the question of costs.
On 8 December 2005 the applicant obtained a judgment against the respondent in the Victorian Magistrates Court, for the amount sought, and subsequently received payment in full.
As the costs of the bankruptcy proceedings had not yet been determined the matter ultimately came before a Registrar of the Federal Magistrates Court on 5 April 2006 who ordered that the applicant pay the respondent's costs to be taxed in default of agreement. This decision was the subject of a review by a Federal Magistrate on
5 October 2006who dismissed the review. On 25 October 2006 a notice of appeal was filed and subsequently on 3 August 2007 the appeal was allowed, with the matter being remitted to this Court for
re-hearing to determine the question of costs (including the costs of the appeal). There was some delay in hearing the matter as the first date provided by this Court (18/10/2007) was not suitable for the parties.
Factual issues
In this case there are three factual issues that must be resolved. The first is whether or not the respondent was served with the proceedings in the State Magistrates Court, the second is whether the respondent received the letter of the applicant of 17 September advising of the debt, and the third is whether or not the applicant received the letter of 27 November 2004 with respect to the judgment debt in the ordinary course of post, or at a time much later.
Service, of the respondent, with the complaint in the State Magistrates Court proceedings was attested to by a process server who swore that:
I served Chris Mladenis with a copy of this complaint (Instruments Act 1958) together with two applications for leave to defend by:-
* leaving it with *him/
herpersonally at 416 Edgars Road, Lalor....
on Friday the 16th day of July 2004 at 1.20 pm.
The process server was not called to give evidence before me. The respondent swore that he did not receive the complaint in the State Magistrates Court proceedings from the process server. The respondent's son swore that the process server attended at the house and that the son took the document and disposed of it in the hope of making arrangements with respect to the debt (which arose out of a business that was primarily operated by the son) in the hope that his father would not become aware of it.
Neither the respondent nor the son were cross-examined with respect to their versions of events on this issue. Having regard to the evidence on this topic, I accept that the respondent was not served with the State Magistrates Court proceedings. I also note that the events would not have given rise to any suspicion on the part of the applicant that the proceedings were not properly served.
The respondent also swore that he had not received the letter from Law 554 of 17 September 2004 which it was said was sent by Law 554. The affidavit evidence in this regard does not specifically attest to the letter having actually been posted or placed in a mail basket at Law 554. More significantly, the respondent was not cross-examined with respect to his denial of having received this letter from the applicant. Having regard to the state of the evidence before me and the way in which the matter proceeded, I accept the respondent's evidence in this regard.
With respect to the letter of 27 November 2004, the author of the letter, Mr Johnson, was called to give evidence. The respondent gave evidence and was cross-examined, as was his daughter.
Mr Johnson deposed to the fact that he was employed with a firm who sent letters to persons listed in gazettes as having been the subject of judgments, offering assistance in dealing with the judgment debt either by way of negotiations or attempts to set aside the judgment debt. He explained that he would send out 2 to 3 thousand letters a year to persons largely chosen at random from the published lists of persons the subject of judgments. The letters were prepared using a mail merge program from a pro forma. Mr Johnson gave evidence that he would prepare the letters, run them through a franking machine, and then take them down to the post office. He explained that he never delivered a letter personally and that when preparing the letters he would check the addresses and dates.
Mr Johnson presented in a professional and straightforward manner. The description of the way in which the letter writing was carried out had the ring of truth about it. Whilst his affidavit had an error (misstating the year in a relevant paragraph) this was clearly a typographical error and whilst it may tell a little against his attention to detail, it does not lead me to doubt the evidence that he gave. I accept the evidence of Mr Johnson. I therefore find that he in fact posted the letter from him to the respondent offering the services of the firm that he worked for on 27 November 2004. In the ordinary course of post one would expect it to have arrived one to three days later.
The respondent gave evidence that he did not receive the letter in the mail, but that a person unknown to him arrived at his home around 6.30pm one evening, hand delivering the letter to him. He said the person was not a neighbour. He gave few details as to the identity of the person, save that he described him as tall, in an earlier affidavit. In his affidavits on this point he stated:
[5] On or about 16 March 2005, I first became aware that judgment had been entered against me in these proceedings. I was personally hand delivered a letter by a tall man in his mid to late thirties. I immediately rang my daughter Helen, advising her that I had received a letter, and faxed the same through to her.
[7] I refer to paragraph 5 of my 2005 affidavit. I did not know about the proceedings issued against me which resulted in the default judgment until 16 March 2005 when the man hand delivered me the letter (the Peterson letter) from Anthony Peterson & Co. lawyers which is exhibit “CM-3” to my 2005 affidavit. I had not received any correspondence from anyone about the proceedings, or had any conversations with anyone about it. The Peterson letter was hand-delivered to me on 16 March 2005. It was not received by me in the post prior to 16 March 2005 (or at any time). I had never had any prior involvement with Anthony Peterson & Co. and had not received any letters from them before 16 March 2005. I did not ask the man why he hand delivered it. I was concerned about its contents and immediately set about sending it to my daughter Helen Dimitrijevski from the fax machine at the Commonwealth Bank of Australia, Epping branch, so she could deal with it. She deposes to this in her affidavit of 10 May 2005.
The respondent's evidence was modified when giving his oral evidence to the effect that he received the letter by hand delivery 6.30 the evening before he faxed it to his daughter. His evidence in the witness box as to the timing of the events (by reference to the intervening overnight, not simply by reference to the dates), appears to me to be at odds with the evidence that he gave in his affidavits. He gave evidence through an interpreter which made the assessment of his credibility somewhat more difficult than usual. It was submitted on his behalf that the general flow of his version of events remained largely the same and that the discrepancies should be considered the types of discrepancies that occur when persons are preparing documents when English is not their first language.
I accept that it is not impossible that the letter may have been delivered to the wrong address and that the person who received it had neither returned it nor passed it on until some months later when they dropped it around to his house. However, such a scenario appears to me to be most unlikely.
The respondent also provided evidence from his daughter to the effect that he telephoned her one evening and thereafter he faxed the documents to her. She was not able to say whether he had faxed the documents to her the next day or some days later. She confirmed that it was his practice to provide documents to her so that she could read them and explain the meaning of the documents to him in Greek.
I do not find that the daughter's evidence is of any real assistance on the question of when the respondent actually received the letter in question.
Having regard to the respondent's evidence, and my observations of him in the witness box, I have concluded that on the balance of probabilities I am not satisfied that he received this letter by hand delivery the day before he faxed it to his daughter. Having regard to the evidence of Mr Johnson with respect to posting the letter, I am satisfied on the balance of probabilities that the respondent would have received it in the ordinary course of post and would therefore have been in possession of it by early December 2004.
Having found that the respondent received the letter by early December 2004, it is important in the context of this case to nonetheless have regard to the terms of the letter, as it was not a letter from either the applicant nor the respondent's own solicitor. The letter was in the following terms:
This is a courtesy letter to inform you that Judgment was handed down against you in the Magistrates Court on 10/09/2004, for the amount of $4,000.00 plus costs.
Anthony Peterson & Co., Solicitors, is not involved in this matter other than to offer our services to you. We have vast experience in dealing with credit matters and providing solutions to businesses and individuals who have been affected by Court Judgments.
What does it mean to you?
It means that this entry will remain on your Credit File for at least 5 years. Should you wish to apply for any line of credit, be it for a loan, credit card, new phone line or any other service, the credit provider may conduct a credit check as part of their process to satisfy the loan or credit facility, and they will discover this entry. This may impact their decision to successfully process your application.
Given that some time has passed since the matter was brought before the Court, progress towards further legal action is now likely.
This will no doubt incur further legal costs.
Should you require assistance in this matter, or wish to discuss it further, do not hesitate to call Nick Johnstone on (03) 8602 0037.
Power to orders costs
The power to order costs in this case primarily arises as a result of s.32 of the Bankruptcy Act 1966 which is in the following terms:
32 The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
Additional powers to order costs are available pursuant to s.79 of the Federal Magistrates Court Act 1999, and with respect to matters remitted from the Federal Court pursuant to s.43 of the Federal Court of Australia Act 1976.
It is clear that the Court has an unfettered discretion with respect to orders for costs. However, that discretion must be exercised judicially having regard to the facts and circumstances relevant to the particular case. The success or failure of a party in litigation is a significant factor, as the successful party usually ought not bear the costs of litigation that is ultimately found to be without merit. This has led to what is sometimes described as the usual rule, that costs follow the event. However, it is important to recognise that this is not a rule in the legal sense, but merely a recognition of the fact that in most cases the outcome of the proceedings is a circumstance of such significance that it dictates the exercise of the discretion with respect to costs. In this case I must also have regard to the circumstances leading to the litigation and the conduct of the parties and determine what weight should be attached to those circumstances, and then consider what the most appropriate order as to costs ought to be.
The discretion with respect to costs is not fettered by a requirement that one party should pay all or none of the costs, but includes options such as orders that neither party pay the other's costs, or that one party pay a proportion of the other party's costs.
Exercise of the Discretion
Both parties made submissions that the ultimate outcome of the litigation in the State Magistrates Court is not a relevant consideration in determining the issue before me. As a result I do not have regard to the ultimate outcome of that litigation.
In his written outline of submissions counsel for the applicant lists a number of factors that he relies upon. First, he says that if the respondent had taken steps in the State Magistrates’ Court proceedings before default judgment or indeed after receipt of the applicant's letter of 17 September 2004 or the letter of 27 November 2004, the Bankruptcy Notice and petition would have been unnecessary.
On the facts as I have found them, the respondent was not served with the complaint, and therefore was unaware of the proceedings at the time that the default judgment was entered. I have found that there is no evidence that he received the letter of 17 September 2004. With respect to the letter of 27 November 2004 I have found that the letter was received by him, but must have regard to the terms of that letter which is from a third party. The letter was not a letter of demand, nor a copy of the relevant documents, but rather indirect notice of a judgment which appeared to have been entered against him. It appears that some time later he forwarded a copy to his daughter by fax, at which point she realised the significance of the document. The respondent’s daughter telephoned the applicant’ office seeking details of the judgment and says these documents were not forwarded to her.
The applicant says that clear warning was given to the respondent that he would proceed, in his letter of 14 April 2005, when supplying copies of documents and invoices to the respondent’s solicitors. That letter said:
Thank you for your facsimile of 13 April 2005. We enclose herewith:
1. Complaint pursuant to the Instruments Act 1958;
2. Affidavit of Service of Peter John Butler sworn 21st July 2004.
We do not propose to refrain from taking any further steps to enforce the judgment as it was properly obtained.
That letter enclosed the affidavit of service, which appeared to confirm that the respondent must have known about the proceedings. Of course, notice of the judgment was also provided by the Bankruptcy Notice served on 9 April 2007.
Counsel points to the fact that the letter from the applicant's solicitor did not say that he was in fact applying to set aside the default judgment, but rather that instructions were being taken to determine whether that course would be adopted. Nor did the respondent’s solicitors respond after receiving copies of the complaint and affidavit of service.
It is argued that the lack of response justified the issuing of the creditor's petition. Counsel submits that this conduct was lax and invited the litigation or unnecessarily prolonged the litigation, or indeed was conduct calculated to occasion unnecessary expense. With respect to the latter submission, I do not find that there is evidence that the respondent adopted a course calculated to occasion unnecessary expense, and indeed this was not put to him when being cross-examined. The extent to which his conduct was lax and unnecessarily protracted the proceedings must be taken in the context of the events.
It is submitted by the applicant that I should place weight on the failure of the respondent to file and serve an application to set aside the default judgment or communicate his intention to do so before the creditor's petition was filed, and a general failure to communicate with the applicant.
In addition, it is put that I should have regard to the conduct of the respondent's family in determining the costs question. In this regard it is the conduct of the son that is referred to. There is nothing to indicate that the respondent and his son were acting in concert, and this was not put to him in cross examination. Whilst the conduct of the son is no doubt a matter of much frustration for the applicant, and potentially exposes the son to an application for costs or proceedings in other jurisdictions, it does not appear to me that this conduct can be visited upon the respondent, in the circumstances of this case. There is no suggestion that the respondent's daughter did anything but provide appropriate assistance to her father. Whether the conduct of the respondent's son may have justified an application that he contribute to the cost of the proceedings is academic at this point as no such application has been made. The respondent does not suggest that he should not bear the consequences of any failures on the part of his lawyers to undertake proceedings with appropriate alacrity, nor however is there any specific criticism of a particular solicitor, rather a general criticism that no steps were taken between the letter of 13 April 2005 and the application to set aside the judgment.
Counsel for the respondent argued that the complaint was not served in the state court proceedings and that on the evidence the respondent had an absolute right to have the judgment set aside. On the findings I have made I accept that the respondent was not served and therefore had a right to have the judgment set aside as a result of the failure to serve him.
I have not accepted that the respondent received the letter of
17 September 2004, but only the letter of 27 November 2004. I accept therefore that he had some notice of the judgment debt, and despite his lack of English language skills, could have pursued interpretation of the letter sooner than he did. However, the letter, on its face, does not have the obvious appearance of being a significant legal document in the manner of a complaint or a Bankruptcy Notice. Similarly, it was not a letter from his solicitors nor a solicitor that had acted for him in the past. Ultimately I am satisfied that this is a factor of relevance and that the respondent was lax in not pursuing the inquiries related to the letter at an earlier time. However, this does not have the same weight as it would had he received a solicitor’s letter or service of court documents.
The respondent's counsel relies upon the letter of 13 April 2005 to the applicant wherein it is requested that the applicant refrain from taking further steps to enforce the judgment "as it may be" that the respondent would provide instructions to apply to set aside that judgment. The letter is lacking in three ways:
a)It does not say that an application will actually be made;
b)It does not explain why the respondent would have a right to set aside the judgment, (save to make the general claim that the respondent was unaware of the alleged debt); and
c)It provides no time frame within which the respondent would act.
The letter from the applicant on 14 April 2005 made clear that the applicant intended to take further steps to enforce the judgment. It is argued that the letter of 14 April 2005 ought to have provided the respondent with a time period within which to bring an application to set aside the judgment. It is surprising that the respondent would be critical of the applicant’s failure to provide a time frame for him to take a step when his own solicitor’s letter failed to do so, and time was running on the Bankruptcy Notice in any event.
It remained open to the respondent to respond with a specific time frame, once he had decided that he was actually applying to set aside the judgment. It was also open to the respondent to advise that the affidavit of the process server was in dispute.
It is also argued that the letter should have notified the respondent that it was intended the applicant would file a creditor's petition. It appears to me to be apparent that a creditor's petition was likely to be filed once a bankruptcy notice was served. Whilst no period of grace was provided for in the letter of 14 April 2005, nonetheless a period of two and a half weeks elapsed before the applicant took any further steps. Had the respondent filed an application to set aside the judgment in the intervening period and notified the applicant of that then the outcome may well have been different. The respondent could, at least, have notified the applicant of a reasonable period within which he would make an application to set aside the judgment and that the process server’s affidavit was disputed.
At some point between 15 April 2005 and 25 May 2005 (when the application to set aside the default judgment was filed) the respondent changed solicitors, although the date that that occurred is not apparent on the material. There is no detailed explanation of why it took such a period to bring an application to set aside the default judgment, nor why, at the point that it was decided that an application to set aside the default judgment would be brought this was not notified to the applicant, with a clear statement of the grounds of the application.
Counsel for the respondent argues that the bankruptcy notice was ‘precipitous and unwarranted in the light of all the circumstances of this case’. Counsel referred to Hogg v J Isherwood-Hicks Pty Ltd [1992] NTSC 41; (1992) 108 FLR 62 where Kearney J said:
[12] I should add that I consider that where, as here, a solicitor has entered an appearance, the practice of 'snapping on’ a default judgment, without notice, immediately upon the expiration of a period prescribed by the rules, should be strongly deprecated. It serves no useful purpose. It increases the costs of litigation unnecessarily. It should form no part of the practice of the law in Darwin.
In Microsoft (International) Pty Ltd v Total Peripherals Pty Ltd [1998] VSC 50 Beach J cited Hogg v J Isherwood-Hicks Pty Ltd with approval, pointing out that such conduct has no place in the practice of law in Victoria. I have no hesitation in recording that such practices have no place in the Federal Magistrates Court, regardless of which state or territory the Court is sitting in. However, the facts of this case are different to the facts in those cases.
The applicant must bear some responsibility for bringing proceedings in circumstances where a default judgment was not able to be sustained, even though it is not suggested that the applicant was aware of the likelihood of that outcome at the time that the bankruptcy proceedings were commenced.
I find that the respondent's conduct in this matter was lacking given the serious nature of the issues that he faced at that point. The respondent should have brought the proceedings to set aside the judgment, or at least definitively stated he would do so, within a limited timeline. At the least he could have notified the applicant that the affidavit of service was to be disputed.
Whilst the Creditor’s Petition was brought soon after the Bankruptcy Notice, it is common for a solicitor who has issued a Bankruptcy Notice to commence proceedings soon after the act of bankruptcy occurs. In the circumstances I am not persuaded that the applicant should be criticised for his conduct in this regard.
The final matter I must consider is the question of insolvency of the respondent and whether or not the applicant was utilising the proceedings in a way that would be an abuse of process.
In Maxwell-Smith v S & E Hall Pty Ltd [2006] FCA 825; (2006) 233 ALR 81 Jacobson J said:
[43] If it is apparent to the Court that the purpose of a bankruptcy notice is to put pressure on a debtor to pay a debt, rather than to invoke the Court’s insolvency jurisdiction, the issuing of the bankruptcy notice will be an abuse of process; Brunninghausen v Glavanics [1998] FCA 230; see also Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 at 166.
However, this is a difficult question as can be seen from the views expressed by Emmett J in Brunninghausen v Glavanics [1998] FCA 230 where his Honour said:
As I have said, the primary contention on the part of the debtor is that the bankruptcy notice is an abuse of process on the basis that it is no more than an attempt to collect the judgment debt which has resulted from the order made by Bryson J.
I was referred to the decisions of this Court in Re Sterling; Ex parte Esanda Pty Ltd (1980) 44 FLR 125 and Re Lentini v CSR Ltd (1991) 29 FCR 363 as to the inherent power of the Court to set aside a bankruptcy notice as an abuse of process. I did not understand counsel for the creditor to dispute the Court's jurisdiction to act in that way and I take it to be undisputed that if it is apparent that the purpose of the bankruptcy notice is to put pressure on a debtor to pay a debt rather than to invoke the Court's jurisdiction in relation to insolvency, then the filing of the bankruptcy notice is an abuse of process.
In Maxwell-Smith v S & E Hall Pty Ltd [2006] FCA 825; (2006) 233 ALR 81 Jacobson J summarised the evidence leading to an inference that the bankruptcy notice was an abuse of process, saying:
[45] In my view, it is to be inferred from the factual matrix set out above that S & E Hall’s purpose in issuing the bankruptcy notice was to put pressure on Mrs Maxwell-Smith to pay the debt rather than to genuinely invoke the Court’s bankruptcy jurisdiction. This inference arises from the following.
[46] First, the bankruptcy notice seeks payment of a debt for a small amount of money based on a judgment debt which is over 5 years old. No satisfactory explanation has been given as to why the notice was issued after such a lengthy delay. It is true that the debt is not statute barred, but the right to pursue it by invoking the Court’s processes must be subject to the operation of the principles respecting abuse of process; Batistatos at [62] – [65].
[47] Second, the observations made by Moore J in July 2004 make it plain that S & E Hall was aware at that time of the probability that Mrs Maxwell-Smith was solvent.
[48] Third, the letter from S & E Hall’s solicitors states in unequivocal terms that Mr and Mrs Maxwell-Smith owned assets the value of which greatly exceeded their debts. In my view it is clear from this letter that S & E Hall was aware of Mrs Maxwell-Smith’s ability to meet her liabilities in August 2004.
The evidence demonstrates that it was known to the applicant that the respondent held real property, and that his real property was unencumbered. The amount of the debt was only $4000. It would be unrealistic to think that an unencumbered real property in the greater Melbourne area would not be sufficient to meet a debt of $4000. There was nothing to indicate whether there were other creditors. The applicant was not aware of all of the details of the respondent's financial circumstances, and importantly, the respondent was involved in a business. The failure to pay modest business debts is often an indicator that heightens concerns about solvency among honourable business people.
On the evidence in this case I am not persuaded that the bankruptcy proceedings were an abuse of process.
However, the applicant's knowledge of the respondent's circumstances, and the amount of the debt are facts and circumstances that provide a background to this matter. The applicant chose to pursue bankruptcy proceedings in Court, proceedings of a nature that were likely to be more expensive and more significant to the respondent than simply attempting to enforce the judgment debt by executing against the respondent's unencumbered property, in circumstances where there appeared to be a significant asset and only a relatively small debt.
In this case the failure of the respondent to move more quickly to attempt to set aside the judgment has, in my view, contributed significantly to the costs incurred in these proceedings by the applicant. The respondent could easily have given clear notice to the applicant of his intention to file proceedings to set aside the judgment, providing a time frame within which he would have done that, and details of the grounds in order to demonstrate that he was genuine in this regard. Indeed, the response of 14 April 2005 from the applicant made clear that the letter from the respondent expressing only an intention to obtain the respondent's instructions about bringing proceedings to set aside the default judgment was insufficient.
In my view, the letter of 13 April 2005 did not make clear that the respondent had a genuine complaint rather than simply seeking to forestall a creditor. Indeed, the letter of 13 April 2005 is in terms likely to heighten the concerns of an astute insolvency practitioner about the need to act quickly.
In the circumstances of this case I am therefore persuaded that the appropriate order is that each party ought to bear their own costs of the proceedings until a reasonable period after the letter of the applicant of 14 April 2005, enclosing the relevant documents for the respondent’s consideration. A reasonable period for the respondent to have made a more specific response would need to allow for a solicitor to receive the documents, obtain instructions and write to the applicant. In a matter such as this around 14 days appears to me to have been reasonable for that task. As a result I find that the respondent ought to pay the costs of issuing the Creditor’s Petition and thereafter the respondent pay the applicant’s costs of the proceedings.
There remains the issue with respect to the costs of the appeal. The appellant was successful as a result of an error of law on the part of the Federal Magistrate who first heard and determined this application. In these circumstances it is appropriate for a certificate to be granted under the Federal Proceedings (Costs) Act 1981 with respect to the appeal and the re-hearing.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
Deputy Associate: Katherine Südholz
Date: 29 August 2008
1
5
4