Cosic v Sellers - [2009] FMCA 748

FEDERAL MAGISTRATES COURT OF AUSTRALIA

COSIC v SELLERS & ANOR

[2009] FMCA 748

BANKRUPTCY – Application for annulment under s.153B of the Bankruptcy Act 1966 – sequestration order made on 4 December 2001 – whether debt has been discharged in full – whether Amadio or Garcia grounds apply – discretion to annul – costs of interim application on indemnity basis.

Bankruptcy Act 1966, s.153B

Citibank v Nicholson (1997) SASR 206
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Re Frank; Ex parte Piliszky (1987) 16 FCR 396
Re Williams (1968) 13 FLR 10
Rigg v Baker (2006) 155 FCR 531
The Commerical Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Yerkey v Jones (1939) 63 CLR 649

Applicant:

REFKA GRETA COSIC

First Respondent:

KENNETH STEWART SELLERS

Second Respondent:

COMMONWEALTH BANK OF AUSTRALIA

File Number:

MLG267 of 2009

Judgment of:

Riley FM

Hearing dates:

18, 19 & 29 June 2009

Date of Last Submission:

29 June 2009

Delivered at:

Melbourne

Delivered on:

14 August 2009

REPRESENTATION

Counsel for the Applicant:

Tony Hill until 19 June 2009, and then the applicant appeared in person

Solicitors for the Applicant:

McClusky’s, until 19 June 2009

Counsel for the First Respondent:

Michael Lhuede until 18 June 2009, and then the first respondent did not attend

Solicitors for the First Respondent:

Piper Alderman

Counsel for the Second Respondent:

Bart Carew

Solicitors for the Second Respondent:

Gadens Lawyers

ORDERS

The application filed on 10 March 2009 be dismissed.
The applicant pay the respondents’ costs of the interim application filed on 20 May 2009 on an indemnity basis.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG267 of 2009

REFKA GRETA COSIC

Applicant

And

KENNETH STEWART SELLERS

First Respondent

COMMONWEALTH BANK OF AUSTRALIA

Second Respondent

REASONS FOR JUDGMENT

Introduction

This is an application under s.153B of the Bankruptcy Act 1966

(“the Act”) for the bankrupt’s bankruptcy to be annulled. That section permits a bankruptcy to be annulled “if the Court is satisfied that a sequestration order ought not to have been made”. A sequestration order was made against the estate of the bankrupt on 4 December 2001. The bankrupt has remained bankrupt since then because she did not comply with all of her obligations to the trustee. The grounds of the application are that there was allegedly no debt owing at the time the sequestration order was made.
The application was opposed by the second respondent, who was the petitioning creditor (“the bank”). The first respondent is the bankrupt’s trustee in bankruptcy. The trustee neither consented to nor opposed the application. However, he did rely on two affidavits he had sworn on

4 May 2009
and 19 May 2009 and an outline of submissions. Otherwise, the trustee sought costs. On the basis that no one sought to cross examine the trustee, and on the basis that he would return to court if required, the trustee was excused at the commencement of the hearing from further attendance.
Mr Hill, who appeared for the bankrupt, sought leave to withdraw on the first day of the hearing. Leave was refused, on the basis that

Mr Hill had not given sufficient notice to his client before the hearing of his intention to withdraw, and on the basis that the bankrupt was alleged to be deaf and was alleged to have a severely limited ability to communicate in English. It seemed to me that it would have been very difficult to conduct a fair trial without Mr Hill’s assistance.
However, on the second day of the hearing, Mr Hill was given leave to withdraw, as he apparently had a conflict of interest with his client.

By that time, the bankrupt had been cross examined, and she had demonstrated that she was well able to communicate in court.

Background

In 1992, a company called Lana Nominees Pty Ltd ACN 055 698 943 (“Lana Nominees”) was incorporated to operate the bankrupt’s family trust. The bankrupt was a director and shareholder of Lana Nominees and at times was its secretary. In 1996, a property in Delegate in

New South Wales
(“the Delegate property”) was purchased in the name of the bankrupt’s adult daughter, Marie Lana Cosic, although it was intended that the Delegate property would be an asset of the family trust. The purchase was made with a loan from the bank to Lana Nominees. Marie Cosic gave the bank a mortgage over the Delegate property.
On 8 July 1996, the bankrupt and her husband signed a guarantee in respect of the loan and other monies advanced by the bank to Lana Nominees. The bankrupt said that she did not understand that she was signing a guarantee. She said that she did not receive any advice from the bank or any other person, except her husband, regarding the documents she signed. However, a few days before the guarantee was signed, the bank sent the bankrupt a letter in which the bank advised the bankrupt to obtain independent legal advice if she was at all uncertain about her position in relation to the guarantee. The bankrupt signed the letter under the words, “I have sought and obtained independent legal advice and fully understand my obligations in this matter”: exhibit CHT 13 to the affidavit sworn by Christopher Hugh Thorpe on 4 May 2009.
Lana Nominees leased the Delegate property to tenants. However, by 1998, Lana Nominees had defaulted on the loan. The bank as mortgagee sold the Delegate property on about 11 December 1998. There was a shortfall of about $110,000 on the Delegate property and a further amount of about $20,000 owing by Lana Nominees in relation to a Cash Management Account.
The bank issued a writ against the bankrupt as guarantor for the outstanding amounts on 3 June 1999. Orders were made for substituted service. On 10 October 2000, the bankrupt filed a notice of appearance. Judgment against the bankrupt was entered in default of defence on

16 November 2000
for about $160,000. There has been no application to set aside that judgment.
On 19 July 2001, a bankruptcy notice was issued against the bankrupt. It appears to have been personally served on the bankrupt on 25 July 2001. On 19 July 2001, a creditor’s petition was issued against the bankrupt. It appears to have been personally served on the bankrupt on 11 September 2001.
The bankrupt sent the bank a letter dated 8 October 2001 seeking an adjournment of the creditor’s petition because she was unwell and saying that she did not understand why the bank had sold the Delegate property for less than its market value: exhibit CHT 8 to the affidavit sworn by Christopher Hugh Thorpe on 4 May 2009. The bank consented to an adjournment but proceeded with its application on

4 December 2001
. On that date, a sequestration order was made against the bankrupt.
The bankrupt did not lodge a statement of affairs until shortly before the hearing of this matter began on 18 June 2009, and following the filing of an interim application by the trustee requiring her to do so.

In 2004 and 2007, she provided to her trustee incomplete statements of affairs which were not accepted. In 2007, the bankrupt provided incomplete income questionnaires for some of the required periods.

In 2007, the bankrupt provided answers to business and personal questionnaires.
In the personal questionnaire, the bankrupt referred to a property at

37 Wallace Street
Morwell (“the Wallace St property”). The bankrupt is the sole registered proprietor of the Wallace St property. She inherited it on about 20 December 2006 from a friend. It is tenanted. The bankrupt has lived in another house in Morwell for about 36 years. It is apparently owned by her family trust. It appears that the bankrupt’s only asset is the Wallace St property.
The trustee asked the bankrupt repeatedly to give him the certificate of title to the Wallace St property. She did not hand it over until shortly before the hearing in this matter began on 18 June 2009, and following the filing of an interim application by the trustee requiring her to do so. Previously, the bankrupt and her husband had been orally examined to ascertain the whereabouts of the certificate of title. The examination began on 26 November 2008 and was adjourned to 30 January 2009. The bankrupt and her husband appeared as required on 26 November 2008 but failed to appear on 30 January 2009. A warrant was issued on that day for the bankrupt’s arrest. When the police attempted to execute the warrant at the bankrupt’s home, the bankrupt’s husband told them that the bankrupt had gone to Queensland. She in fact was still in Morwell.

Grounds of the application

The applicant argued that the bankruptcy should be annulled because:
a)the debt had been satisfied before the bankruptcy commenced; and
b)the bank could not rely on the guarantee for the reasons stated in The Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and Garcia v National Australia Bank Ltd (1998) 194 CLR 395.

Whether the debt had been satisfied

A copy of the mortgage is contained in exhibit RG 8 to the affidavit of the bankrupt sworn on 3 March 2009. It shows that the mortgagor was Marie Lana Cosic, the debtor was Lana Nominees and the mortgagee was the bank. The mortgage is dated 8 July 1996. On that date, the bankrupt’s husband, as the secretary of Lana Nominees, signed an Australian Securities Commission form headed, “Notification of details of a charge”. A copy of that document is exhibit RG 5 to the affidavit of the bankrupt sworn on 3 March 2009. The charge was given the number 553979. The liability under the charge was described in the form as:
the payment to the mortgagee of all moneys without limit as to amount now or hereafter to become owing or payable by the debtor named in the charge and the mortgagor or either of them to the mortgagee on any account whether as principal or surety
On or about 5 March 2004, the bank lodged with the Australian Securities and Investments Commission a form headed, “Notification of discharge or release of property from a charge” in relation to charge number 553979. A copy of that document is contained in exhibit RG 6 to the affidavit of the bankrupt sworn on 3 March 2009. It said that the charger was Lana Nominees and the chargee was the bank. It said that the date of discharge or release was 5 March 2004 and, in relation to the extent of discharge, it said “paid or satisfied in full”. It said that the bank released from the equitable mortgage number 553979 the property in schedule 2. The property was described in schedule 2 as:
All the Mortgagor’s undertaking property and assets whatsoever and wheresoever including its uncalled capital, the subject of the Security.
However, the form of discharge expressly stated that the property in schedule 2 was released:
but reserving and without prejudice to the rights powers and remedies if any of the Mortgagee under the Security or otherwise as against:
a. the Mortgagor personally;
b. all sureties and other persons; and
c. the property comprised in or charged by any other security.
Clause 12 of the guarantee, a copy of which is contained in exhibit

RG 1 to the affidavit sworn by the bankrupt on 3 March 2009, states that:
The Bank may at any time … release the Debtor [Lana Nominees] … without discharging or affecting the liability of the Guarantor under this Guarantee
The bank noted that a bankruptcy may be annulled under s.153B of the Act if the court is satisfied that a sequestration order ought not to have been made. Fisher J in Re Frank; Ex parte Piliszky (1987) 16 FCR 396 at 403 held that:
a judge “ought” not to have made an order only if he was “bound” not to make the order.
In Re Williams (1968) 13 FLR 10 at 23, Gibbs J held that, in deciding whether a judge was bound not to make a sequestration order, the court may consider:
not only the case as disclosed at the time that the order was made, but as it would have been disclosed had all the true facts been before the court on the making of the order…. If the Court is satisfied that an order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances of the case whether the order ought to be annulled ….
However, French J, in the Full Federal Court, held in Rigg v Baker (2006) 155 FCR 531 at [61] that:
facts which have come into existence since the making of the order are not relevant to the question whether it ought to have been made (citations omitted).
The bank noted that the release was dated 5 March 2004 and the sequestration order was made on 4 December 2001. That means that the release had not been granted at the time the sequestration order was made. Accordingly, the existence of the release is not a relevant fact that the court may take into account in deciding whether the sequestration order ought not to have been made.
Moreover, the bank argued that the release only operated to release the Mortgagor’s property from the security. It did not release the guarantors, being the bankrupt and her husband, from their liability under the guarantee. That is undoubtedly correct.
However, the bankrupt’s point seems to be that the mortgagor’s property had been released from the security because the underlying debt had been satisfied in full. The bankrupt claimed in her affidavit sworn on 3 March 2009 that the debt owing to the bank had been wholly discharged on the sale of the Delegate property. The bankrupt did not produce any records such as bank statements, deposit slips, cheques or receipts, showing that the debt had been paid in full at the time of the sale of the Delegate property in December 1998.
However, the bankrupt produced a letter dated 24 April 2007 from the bank to her as the secretary of Lana Nominees. The letter is exhibit RG 13 to the affidavit sworn by the bankrupt on 3 March 2009. The letter was signed by Paul Spruhan and said:
We confirm that all amounts owing to the Commonwealth Bank of Australia were settled as at 7 March 2001, when the accounts for the above company were closed.
The date referred to in that letter, 7 March 2001, precedes the date of the sequestration order, namely, 4 December 2001. If the letter meant that Lana Nominee’s debt had been paid in full as at 7 March 2001, the bankrupt as guarantor, would have had no liability to the bank as at

4 December 2001 and the sequestration order ought not to have been made.
The bankrupt was asked in cross examination four times whether she had paid the bank any money after the sale of the Delegate property. The bankrupt gave evasive answers until finally saying that she did not have to pay anybody one cent. The bankrupt’s husband said in oral evidence that, after the sale of the Delegate property, neither the bankrupt nor anyone else paid any money to the bank. The bankrupt’s husband said the property should have been sufficient to cover the debt but the sale was rigged. However, the bankrupt’s daughter, Marie Lana Taylor nee Cosic, said under cross examination that, after the Delegate property was sold, the bank seized and sold a property in Churchill that was in her name and applied the proceeds of that sale to Lana Nominee’s debt.
The bank relied on an affidavit sworn by Christopher Hugh Thorpe on 4 May 2009. Mr Thorpe said that the release was lodged with ASIC because the bank had realised all of the assets available to it in relation to Lana Nominees and no further recovery from Lana Nominees appeared likely.
Mr Thorpe produced a statement of account as exhibit CHT 16 to his affidavit sworn on 4 May 2009. It showed that on 9 January 1998, Lana Nominees had a debit balance with the bank of $270,463.18. There were debits for interest and legal costs and no credits until

27 July 1998
, when there was a $100 deposit. There were then further debits for interest and legal costs and no credits until 9 January 1999 when there was a credit of $204,251.01, which reduced the then outstanding balance of $317,703.15 to $113,452.14. There was then another debit for interest and duty. On 3 February 2009 there was another credit of $11,681.06 which reduced the balance outstanding to $104,386.28. The statement continues to 3 May 1999 with more debits for interest and legal costs and ends with a balance of $110,599.13 outstanding. Mr Thorpe said that the bank no longer had any statements of account for Lana Nominee’s debt after 3 May 1999.

He said the bank disposed of its records after seven years.
Mr Thorpe explained in his affidavit that the $204,251.01 credit was the proceeds of sale of the Delegate property and the $11,681.06 credit was the proceeds of the deposit that had been paid for the purchase of the Delegate property. Mr Thorpe said in his affidavit, based on the bank's business records, that a substantial debt of Lana Nominees, and consequently, of the bankrupt, remained outstanding after the sale of the Delegate property and in fact increased up to the date of the sequestration order.
Mr Thorpe said in relation to the letter dated 27 April 2007 that the bank’s general practice was to close an account holder’s file when there was little chance of recovering funds. He said that the closure of an account did not eliminate the customer’s liability to the bank and the file could be reopened in appropriate circumstances. In the present case, Mr Thorpe said that the file was reopened in August 2007 after the bankrupt applied for a loan from the bank and offered the Wallace St property as security.
The court explained to the bankrupt that if she disagreed with anything that Mr Thorpe had said she needed to cross examine him about it, saying to him that what he had said was not true and telling him what she claimed was true. The bankrupt did not cross-examine Mr Thorpe about the release, or the statement of account, or the proceeds of sale of the Delegate property or the amounts outstanding.
Paul Anthony Spruhan swore an affidavit on 4 May 2009. He said that he worked for the bank at its Morwell office. He said that in about April 2007 the bankrupt had asked him for a letter stating that any matters involving her, Lana Nominees and the bank had been resolved. Mr Spruhan said he contacted the bank's legal department and was told that the computer system did not record that the bank was involved in any proceedings or dispute with Lana Nominees or the bankrupt and did not record any information at all in relation to Lana Nominees or the bankrupt. On the basis of that information, Mr Spruhan said that he provided the letter dated 27 April 2007 to the bankrupt. He said that the bankrupt had not told him that she was bankrupt.
The bankrupt cross examined Mr Spruhan. He agreed that the bankrupt had not twisted his arm to produce the letter. He said that it was his own decision to write the letter, after getting information and legal advice from head office.
The bankrupt’s claim that the Lana Nominee’s debt had been discharged as at 7 March 2001 was based on the letter dated 27 April 2007. That letter was inconsistent with the statement of account.

The statement of account was not challenged, except to the extent that it may have been contradicted by the letter.
I consider that the bankrupt knew at all times that the sale of the Delegate property did not discharge in full Lana Nominee’s debt. She and her husband said consistently that the property was sold by the bank at an undervalue. Their daughter said that the Churchill property was sold to make up the shortfall. There is no reasonable basis to doubt that the statement of account is accurate. I accept that it is accurate. The statement of account clearly shows that the debt of Lana Nominee’s was not discharged upon the sale of the Delegate property.
The bankrupt said she did not have to pay anyone anything after the sale of the Delegate property. I take that as an implicit confirmation that she did not pay anyone anything in discharge of the Lana Nominee’s debt after the sale of the Delegate property. The bankrupt’s husband said explicitly that no one paid anything in discharge of the Lana Nominee’s debt after the sale of the Delegate property.

Ms Taylor, however, claimed in oral evidence that the bank used the proceeds of the sale of a property in Churchill to make up the shortfall on the Delegate property. Ms Taylor swore two affidavits in this proceeding but did not mention the sale of the Churchill property in either of them. The bankrupt did not mention the sale of the Churchill property anywhere in her affidavit or her oral evidence. The bankrupt’s husband did not mention the sale of the Churchill property anywhere in his oral or affidavit evidence. There was no documentary support for Ms Taylor’s assertion that the bank had sold the Churchill property and applied the proceeds to the discharge of Lana Nominee’s debts.
In the circumstances, even if the bank did sell the Churchill property,

I am not satisfied that the proceeds, if any, were applied to the discharge of Lana Nominee’s debt. In the absence of any other evidence, I take it that the amount outstanding after the sale of the Delegate property has not been reduced by any payments since 1999.
I consider that the letter dated 27 April 2007 has been misinterpreted by the bankrupt. The letter is addressed to the Secretary of Lana Nominees. It says all amounts owing to the bank were settled on

7 March 2001
when the accounts for the company were closed.

The fact that the accounts were closed does not mean that the debt was paid. As explained by Mr Thorpe, the bank closed accounts for administrative reasons when there seemed to be no prospect of recovering any outstanding sums, but could reopen the accounts if required.
The reference to the amounts owing to the bank being settled on

7 March 2001
has apparently been interpreted by the bankrupt as a statement that the debt was settled on 7 March 2001 by being paid in full. However, it would have been very easy to say that if that was what was meant. The remainder of the sentence shows that all that was meant with the use of the word settled was that the matter had been finalised in the sense that the accounts had been closed. I consider that to be the objective meaning of the letter dated 7 March 2001.
However, even if the letter had operated as a release of Lana Nominees’ debt, the liability of the guarantors continued under clause 12 of the guarantee. That clause provided that a release of the debtor, Lana Nominees, did not affect the liability of the guarantors.
I am satisfied that the Lana Nominee’s debt grew with interest from

3 May 1999
onwards. I do not accept that the liability of Lana Nominees to the bank was discharged upon the sale of the Delegate property, or had been discharged at the time the sequestration order was made on 4 December 2001. Accordingly, subject to the matters discussed below, the bankrupt’s liability under the guarantee remained in existence as at the date of the sequestration order. Subject to the matters mentioned below, it cannot be said that the sequestration order ought not to have been made.

Amadio and Garcia

The Amadio and Garcia grounds were not clearly articulated. The court asked Mr Hill on the first day of the hearing if he would be running an Amadio case. He said he was, but withdrew before explaining in detail how the claim was put.
In Garcia, Gaudron, McHugh, Gummow and Hayne JJ identified two types of cases at [23]. The first was undue influence by a husband over a wife, such that her will was overborne. The second was unconscionability on the part of the creditor arising from inadequate information being given to the guarantor.
In the first type of case, Dixon J held in Yerkey v Jones (1939) 63 CLR 649 at 684 that “[n]othing but independent advice or relief from the ascendancy of her husband over her judgment and will would suffice”. In the second type of case, Dixon J held in Yerkey v Jones at 686 that:
if the wife has been in receipt of the advice of a stranger whom the creditor believes on reasonable grounds to be competent, independent and disinterested, then the circumstances would need to be very exceptional before the creditor could be held bound by any equity which might otherwise arise from the husband’s conduct and his wife’s actual failure to understand the transaction.
In Garcia at [31], the unconscionability in the second type of case was explained as the combination of the following circumstances:
… And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:
(a) in fact the surety did not understand the purport and effect of the transaction;
(b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);
(c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
(d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.
Accordingly, it can be seen that, in both types of cases discussed in Garcia, the fact that the guarantor obtained independent legal advice meant that the creditor did not behave unconscionably. The categories of unconscionability are obviously not closed. However, it is difficult to imagine any circumstances in which a creditor could be found to have acted unconscionably when the creditor reasonably believed that the guarantor had received independent legal advice. See, for example, Citibank v Nicholson (1997) SASR 206.
In the present case, the bankrupt signed a letter dated 2 July 1996 which had been sent by the bank to her: exhibit CHT 13 to the affidavit sworn by Christopher Hugh Thorpe on 4 May 2009. The letter stated:
Mrs Refka Greta Cosic
112 Helen Street
MORWELL VIC 3840
2 July 1996
Dear Mrs Cosic
Lana Nominees Pty. Ltd. ACN 055 698 943
The document(s) described below are provided herewith for your signature.
Your present maximum liability to the Bank under the document(s) is $210,000.00 plus interest, costs, charges and expenses as provided in the document(s).
Prior to signing the document(s) you should satisfy yourself that you understand the full nature and effect of your liabilities to the Bank and obtain appropriate advice, legal or otherwise, if you are at all uncertain of your position.
Your signature to the document(s) should be witnessed by an adult person who is not the borrower/debtor or a co-guarantor/mortgagor (if any) under the document(s).
Documents
Guarantee by you and Danko Cosic in respect of the indebtedness to the Bank of Lana Nominees Pty. Ltd.
Yours sincerely
P E Purtell
Senior Lending Manager
Traralgon Group
I have sought and obtained independent legal advice and fully understand my obligations in this matter.
…………………………………. …... /……/ …..
Under the long dotted line there was in pencil the handwritten word, “REFKA” and under the short dotted line there were in pencil the handwritten words, “Please Date”. The bankrupt had apparently signed in the place indicated and had apparently dated the document 8/7/96. The signed document was returned to the bank. A corresponding letter was provided by the bank to the bankrupt’s husband and he apparently signed and dated it: exhibit CHT 14 to the affidavit sworn by Christopher Hugh Thorpe on 4 May 2009.
On the face of the letter dated 2 July 1996, the bankrupt has admitted that she received independent legal advice in relation to the guarantee. The bank was entitled to rely on that admission, unless the circumstances were such that the bank should have reasonably known that it was not true.
The bankrupt said that she went to the bank and signed some documents on 8 July 1996. However, the bankrupt did not say specifically when she signed the letter dated 2 July 1996, or whether she signed it at the bank or elsewhere. The fact that it was sent to the bankrupt six days before the guarantee was signed, and the fact that there was a request for her to date the letter, suggest that it was anticipated that the bankrupt would sign the letter otherwise than at the bank or in the presence of a bank officer.
Nevertheless, the guarantee itself discloses that the bankrupt’s signature on the guarantee was witnessed by a bank officer, Patrick Purtell, on 8 July 1996. The bankrupt’s husband said in his affidavit that he and the bankrupt went to the bank and were told where to sign the documents. The bankrupt’s husband said that neither he nor the bankrupt were given any opportunity to read the documents and they were not explained to them by the bank officer.
The bank did not call Patrick Purtell to give evidence. A solicitor, Natalie Louise Pinto, swore an affidavit on 12 June 2009. She said she had been informed by a manager of the bank and believed that

Mr Purtell had left the employ of the bank on 8 September 2000.

Ms Pinto said that she was given a contact telephone number by the bank for Mr Purtell. She said she had telephoned him on that number on six occasions at various times of day without success. Ms Pinto said that she had not been able to contact Mr Purtell. In the circumstances, I accept that Mr Purtell’s absence is adequately explained.
I do not accept that the bankrupt and her husband were not given an opportunity to read the guarantee. A copy of the guarantee was sent to both the bankrupt and her husband on 2 July 1996, six days before the guarantees were signed. The bankrupt and her husband did not specifically dispute that. Accordingly, I take it that they were both given an adequate opportunity to read the guarantee.
I accept that the guarantee was not explained to the bankrupt and her husband by the bank officer. That is consistent with the letters dated

2 July 1996
in which the bank officer advised the bankrupt and her husband to obtain independent legal advice if they were at all uncertain about anything. Moreover, the bankrupt and her husband both signed letters saying that they had received independent legal advice about the guarantee.
As stated above, the bank was entitled to rely on the bankrupt’s admission, unless the circumstances were such that the bank should have reasonably known that it was not true. The bankrupt did not articulate any argument to this effect. However, the bankrupt’s husband did claim in his affidavit that, when he and the bankrupt went to the bank to sign the guarantee, he told Mr Purtell that the bankrupt was deaf and just to point where she had to sign.
This evidence, if true, would have meant that the bankrupt would not have heard any advice that Mr Purtell had purported to give the bankrupt about the effect of the guarantee. However, it does not detract from the bankrupt’s admission that she had been given independent legal advice. As a result, she did not need to hear any advice or explanation from Mr Purtell about the effect of the guarantee.
Moreover, in oral evidence, the bankrupt’s husband clearly stated three times that he had not told Mr Purtell just to point to where the bankrupt had to sign: transcript page 110, lines 5, 17 and 22 to 24. Those statements directly contradict the affidavit sworn by the bankrupt’s husband. I consider that the oral evidence of the bankrupt’s husband, being in his own words, is more likely to be true. The inconsistency tends to suggest that the affidavit evidence of the bankrupt’s husband, and possibly all of his evidence, is not reliable. That possibility is increased by the fact that the bankrupt, her husband and their daughter all admitted that they had participated in conferences with the solicitor, Mr Hill, for the purposes of preparing their affidavits. That evidence seriously detracts from the reliability of all of the evidence given by the bankrupt, her husband and their daughter.
The bankrupt said that she had heard her husband tell the bank officer that she was deaf and that the bank officer should just point to where the bankrupt was to sign: transcript page 102, line 7. The bankrupt’s evidence contradicted her husband’s oral evidence. He said three times that he had not told the bank officer to just point to where the bankrupt had to sign.
Moreover, the bankrupt admitted that she heard the husband tell the bank officer that she was deaf. This clearly means that she was not so deaf that she could not hear what her husband said. If she could hear him, she could presumably hear other people, even if they had to speak slowly or loudly, for example.
The bankrupt could certainly hear in court. She sought to explain this on the basis that she had a better hearing aid now than the one she had in 1996. There was no medical evidence to that effect. In the circumstances, I am not able to be satisfied that the bankrupt was functionally deaf in 1996. In view of the contradictions in the evidence, I am not able to be satisfied that the husband told the bank officer that the bankrupt was deaf. In view of the bankrupt’s husband’s evidence, stated three times, that he did not tell the bank officer to just point to where the bankrupt had to sign, I do not accept the bankrupt’s evidence about that matter. Her husband appeared to be absolutely sure.
In any event, I do not consider that, even if the bankrupt’s husband had told the bank officer that the bankrupt was deaf, that fact would reasonably have indicated to the bank officer that the bankrupt had not been truthful when she acknowledged receiving independent legal advice. She could have received independent legal advice in writing, for example.
Additionally, I do not consider that, if the bankrupt’s husband had told the bank officer that he should just point to where the bankrupt was to sign, that fact should have reasonably caused the bank officer to consider that the bankrupt’s admission that she had received independent legal advice was not true.
The bankrupt claimed that she always did what her husband told her to do, and she had done so in relation to the guarantee. However, the bankrupt did not say how the bank officer should have known that.

In any event, I do not believe it. The bankrupt presented in court as a quite forceful and canny woman. She acknowledged that she had gone to the bank in 2007, without her husband, and had asked for and obtained the letter dated 27 April 2007. The bankrupt acknowledged that she had kept the Wallace St property in her name alone, and would not allow it to be put into the joint names of herself and her husband.
The bankrupt is not a native speaker of English. However, she spoke reasonably well in court. Her solicitor did not arrange for her to have an interpreter present. She read some material to the court aloud in English. She did not deny that she had written the letter dated

8 October 2001
, when she sought an adjournment of the creditor’s petition: exhibit CHT 8 to the affidavit sworn by Christopher Hugh Thorpe on 4 May 2009. That letter is well expressed and persuasive.

I do not consider that the fact that the bankrupt is not a native speaker of English, in circumstances where she has a demonstrated ability to speak, read and write English, should reasonably have led the bank officer to believe that the bankrupt’s admission that she had received independent legal advice was not true.
I do not consider that any of the matters mentioned above, alone or in combination, should reasonably have led the bank officer to consider that the bankrupt’s admission that she had received independent legal advice was not true.
In the absence of any specific evidence to the contrary, I infer that the bankrupt signed the letter dated 2 July 1996 somewhere other than in front of a bank officer. I find that the bank officer had no reasonable grounds to not accept as true the bankrupt’s admission in that letter that she had received independent legal advice about the guarantee. Accordingly, the bankrupt’s implied claims that she signed the guarantee as a result of her husband’s undue influence or in circumstances of unconscionability on the bank’s part are not made out.

Discretion to annul

Even if Lana Nominee’s debt had been paid in full by 7 March 2001, and even if it had been found that the bankrupt had signed the guarantee under the undue influence of her husband of if it had otherwise been found that it would be unconscionable for the bank to rely on the guarantee, there are good reasons in this case to withhold the discretionary relief of annulling the bankruptcy. The bankrupt has been very sluggish in complying with her obligations to her trustee. Her excuses for her various failings in that regard are implausible. Most significantly, the bankrupt refused to hand over the certificate of title to the Wallace St property:
a)until after the trustee had repeatedly requested it;
b)until after the trustee had conducted an oral examination to ascertain the whereabouts of the certificate of title;
c)until after the trustee had obtained a warrant for the bankrupt’s arrest as a result of her failure to attend on the adjourned date of the oral examination;
d)until after the bankrupt had filed the application seeking an annulment of her bankruptcy;
e)until after the trustee had filed an interim application seeking that the substantive proceeding be stayed until the bankrupt delivered the certificate of title and a duly completed statement of affairs;
f)until after the interim application was adjourned to enable the bankrupt to comply with her promise to deliver the certificate of title and a duly completed statement of affairs; and
g)until after the interim application was relisted pursuant to liberty to apply and was about to be heard.
The bankrupt claimed that she had been unable to find the certificate of title. However, she eventually managed to find it at home. I can only infer that she produced the certificate of title when she understood that she would have to produce it if she were to have any hope of the bankruptcy being annulled. I do not accept that the bankrupt had previously been unable to find the certificate of title. She had simply been obstructive.
Moreover, the sequestration order was made nearly eight years ago. The bankrupt knew, or ought to have known, that the sequestration order was made at about that time. She sent the bank a letter asking for an adjournment of the creditor’s petition. Although she claimed to have had ill health at the time, no medical evidence was produced to that effect. I do not accept that the bankrupt was so unwell for so long that she could not have taken steps many years ago to have the bankruptcy annulled.
The bankrupt’s very poor level of compliance with her obligations to her trustee, together with the fact that more than seven years have passed since the sequestration order was made, would have been sufficient for the court to decline to annul the bankruptcy in this case.

Costs of the interim application

The trustee filed an interim application on 20 May 2009 seeking orders that the bankrupt’s annulment application be stayed until the bankrupt:
a)lodged a duly completed statement of affairs; and
b)delivered to her trustee the certificate of title to the Wallace St property.
The interim application came before the court on 25 May 2009. Counsel for the bankrupt advised the court that the bankrupt would lodge her statement of affairs and deliver the certificate of title to her trustee immediately. On that basis, orders were made listing the annulment application for final hearing on 18 and 19 June 2009 and adjourning the interim application to 18 June 2009. Liberty to apply on short notice was reserved.
The bankrupt again failed to comply with her obligations. The trustee used the liberty to apply to have the interim application relisted for

4 June 2009
. On 4 June 2009, before the matter came on for hearing, the bankrupt complied with her obligation to lodge a duly completed statement of affairs and delivered the certificate of title to her trustee.

On 4 June 2009, the parties agreed to adjourn the hearing of the costs application in respect of the interim application to the final hearing. Each party was ordered to file written submissions on the question of costs at the commencement of the final hearing. The respondents did so. The bankrupt did not, even though she still had solicitors acting for her at the time.
The trustee and the bank sought their costs of the interim application on an indemnity basis. They relied on the statement of principle set out in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at [24]. The basic rule is that the losing party pays the winning party’s costs on scale. That rule may be departed from, and costs may be ordered on an indemnity basis, where, for example, a party has acted in wilful disregard of known facts or clearly established law, has unduly prolonged the case by groundless contentions or has committed a contempt of court.
In the present case, the interim application was necessitated by the bankrupt’s failure, over an extended period of time, to comply with her statutory obligations to file a statement of affairs and to deliver to her trustee the certificate of title to the Wallace St property. The bankrupt said in oral evidence, at page 98 of the transcript on 19 June 2009:
a)
that it was 110 per cent correct that she deliberately avoided the police (when they attempted to execute a warrant for her arrest because of her failure to attend the public examination on

30 January 2009
);
b)that it was 110 per cent correct that she deliberately refused to give the trustee a statement of affairs; and
c)that it was 150 per cent correct that she refused to give up the certificate of title.
Notwithstanding that the bankrupt had failed to comply with her obligation to lodge a duly completed statement of affairs and deliver the certificate of title to the Wallace St property, she commenced the proceedings for annulment. Where there is an annulment, the trustee is entitled to his costs. The only asset from which the trustee could recover his costs appears to be the Wallace St property. It was therefore a fundamental necessity that the bankrupt delivered the certificate of title to her trustee before the annulment application was determined. Her complete failure to do so, without any justification, necessitated the filing of the interim application. Even after promising to file her statement of affairs and promising to deliver the certificate of title, the bankrupt again delayed and necessitated the interim application coming back to court for a second time.
I consider that the bankrupt’s actions in this case warrant an order against her and in favour of the trustee and the bank for indemnity costs in relation to the interim application. There will be orders accordingly.

I certify that the preceding eighty (80) paragraphs are a true copy of the reasons for judgment of Riley FM

Associate: Ashika Kanhai

Date: 14 August 2009