CostaExchange Limited v Shephard (No.2)
[2011] FMCA 545
•12 July 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COSTAEXCHANGE LIMITED & ORS v SHEPHARD (No.2) | [2011] FMCA 545 |
| BANKRUPTCY – Creditor’s petition – application to set aside sequestration order – operation of sequestration order stayed for 21 days on condition of payment by debtor to trustee – mistake affecting ability of debtor to comply – no grounds for setting aside sequestration order – no evidence of ‘fraud’ – sequestration order did reflect intentions of court – delay in applying for remedy – application refused. |
| Bankruptcy Act 1966 (Cth), ss.37(2), 52(3), 109(1)(a), 153A, 153B Federal Magistrates Court Rules 2001 (Cth), rr.16.05, 16.05(1), 16.05(2), 16.05(2)(b), 16.05(2)(e) |
| Austral Brick Co Pty Ltd v Daskalovsk [1998] FCA 782 CostaExchange Limited & Ors v Shephard [2010] FMCA 804 Doulman v ACT Electronic Solutions Pty Limited & Anor [2011] FMCA 232 |
| First Applicant: | COSTAEXCHANGE LIMITED ACN 002 687 961 (FORMERLY CHIQUITA BRANDS SOUTH PACIFIC LIMITED) |
| Second Applicant: | ANTHONY GEOFFREY HARTNELL |
| Third Applicant: | GARY WILLIAM WRIGHT |
| Fourth Applicant: | DAVID ANTHONY BARDON |
| Fifth Applicant: | PETER WOODS |
| Sixth Applicant: | RIDLEY BELL |
| Seventh Applicant: | MICHAEL TAMANI |
| Eighth Applicant: | SCOTT ROLAND WOLGAMOT |
| Ninth Applicant: | PETER JOHN MCPHERSON |
| Respondent: | DEREK GEORGE SHEPHARD |
| File Number: | SYG 1333 of 2010 |
| Judgment of: | Smith FM |
| Hearing date: | 12 July 2011 |
| Delivered at: | Sydney |
| Delivered on: | 12 July 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr J S Tobin |
| Solicitors for the Applicant: | Watson Mangioni Lawyers Pty Limited |
| Counsel for the Respondent: | Respondent in person |
ORDERS
The interim application filed on 24 June 2011 is refused.
The creditors’ costs in relation to that application be taxed and paid from the estate in the bankruptcy of Mr Shephard in the priority fixed by s.109(1)(a) of the Bankruptcy Act 1966 (Cth).
The creditors must give copies of this order to the Trustee and to the Official Receiver in Sydney within 2 working days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1333 of 2010
| COSTAEXCHANGE LIMITED ACN 002 687 961 (FORMERLY CHIQUITA BRANDS SOUTH PACIFIC LIMITED) |
First Applicant
| ANTHONY GEOFFREY HARTNELL |
Second Applicant
| GARY WILLIAM WRIGHT |
Third Applicant
| DAVID ANTHONY BARDON |
Fourth Applicant
| PETER WOODS |
Fifth Applicant
| RIDLEY BELL |
Sixth Applicant
| MICHAEL TAMANI |
Seventh Applicant
| SCOTT ROLAND WOLGAMOT |
Eighth Applicant
| PETER JOHN MCPHERSON |
Ninth Applicant
And
| DEREK GEORGE SHEPHARD |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
On 12 October 2010 I made a sequestration order against the estate of Mr Shephard on the petition of a number of people of whom the first named was CostaExchange Limited. Mr Shephard now, by interim application filed on 24 June 2011 in the same proceedings, seeks orders to set aside all the orders I made on 12 October 2010. In my opinion, his application is lacking in substance in relation to its grounds. Moreover, I would not be persuaded to exercise the discretion which Mr Shephard invokes.
The orders I made on 12 October 2010 were:
1.A sequestration order be made against the estate of Derek George Shephard.
2.All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days, on the condition that Mr Shephard before 5pm today shall pay the amount of $19,000 into the trustee’s bank account designated in Exhibit B in today’s proceedings, those funds to be administered as property vesting pursuant to s.58(1) of the Act.
3.The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
4.Note that the date of the act of bankruptcy is 26 May 2010.
5.Note that a consent to act as trustee has been signed by Phillip Kenneth Aggs.
6.The applicant must give a copy of this order to the Official Receiver within 2 working days.
I made those orders after a contested hearing, at the conclusion of which I gave ex tempore reasons which have been revised and published (see CostaExchange Limited & Ors v Shephard [2010] FMCA 804). At the end of my judgment, I referred to the power of the Court under s.52(3). That power is in the following terms:
52Proceedings and order on creditor’s petition
…
(3)The Court may, if it thinks fit, upon such terms and conditions as it thinks proper, stay all proceedings under a sequestration order for a period not exceeding 21 days.
…
In my judgment I said:
25.Taking into account all the material filed by Mr Shephard and his evidence to me today, I am not satisfied that he has made out any ground for resisting the making of a sequestration order today, and I am satisfied that it is appropriate to make that order.
26.I raised with both parties a stay of the operation of a sequestration order under s.52(3) of the Bankruptcy Act, which empowers the Court to give such a stay for 21 days but no longer. In view of Mr Shephard’s apparently belated recognition that he will have to pay this debt, and his raising of a fund of cash partly going towards that objective, there may be a possibility that he could escape from his bankruptcy without large expenses of administration being incurred. If he can achieve accommodation with his creditors in a short period, then with the assistance of his trustee, the bankruptcy will be able to be annulled under s.153A of the Bankruptcy Act.
27.To encourage Mr Shephard to explore that possibility with his trustee and creditors, it is in my opinion appropriate to stay the operation of the sequestration order for 21 days, so as to minimise administration costs during that period. I do accept, however, the submission of the creditors, that I should impose a condition requiring payment of most of the cash raised by Mr Shephard to his trustee within a short period.
After delivering my judgment the mechanics of the suggested stay were discussed between counsel, the Court and Mr Shephard. Mr Shephard indicated a willingness to take steps to pay an amount of cash which he had tendered at Court in part payment of the indebtedness relied on in the petition, that tender being refused (see [7] of my judgment). I accepted a submission on the part of the petitioners that any stay under s.52(3) should be conditional upon that money being made available to the trustee for potential future payment to creditors and for the purposes of the administration. After further exchanges, Mr Shephard indicated that he would accept that condition, and the solicitor for the petitioners tendered to the Court a handwritten notation of a bank account operated by the trustee, which was nominated for the receipt of the funds. Those details became Exhibit B which is referred to in Order 2, and a copy was given to Mr Shephard at the conclusion of the hearing.
There is no evidence before me as to what occurred during the 21 day period or subsequently, except as deposed to by Mr Shephard in an affidavit which he presents to the Court in support of his present application, affirmed on 3 June 2011. In that affidavit he says:
1.In matter number SYG1333/2010 His Honour, Federal Magistrate Smith, instructed me (words to the effect), ‘The Court officer will hand you details of a bank account shortly. Provided that you pay $19,000 into that bank account by five p.m. today, you will be able to take advantage of the provisions of s52(3) of the Act.’
2.The account number given to me by the Court officer was incorrect, and I was unable to pay the cash in by the time ordered, as the bank was unable to find the correct one. The trustee company has conceded that it gave the incorrect number to its representative for the Court.
3.A bank in Coffs Harbour was able to discover the correct bank account number, and the $19,000 was paid in at that bank. Notwithstanding that the instruction of the Court in respect of the reference “SHEPHARD” was complied with by me, the trustee company appears to have been able to mislay the cash. A copy of the details of the bank account supplied to me by the Court (as amended by the bank’s teller with the addition of the number “4” before the account number) is annexed hereto marked “A”.
4.It is unreasonable that I should be so severely disadvantaged by a grossly negligent act of the trustee: the harm done can be reduced, somewhat, by the granting of the order sought.
Mr Shephard based his present interim application upon the Court’s powers under Federal Magistrates Court Rule 16.05(2)(b) and (e) which provide:
16.05Setting aside
…
(2)The Court may vary or set aside its judgment or order after it has been entered if:
…
(b) the order is obtained by fraud; or
…
(e) the order does not reflect the intention of the Court; or
…
I note that it is necessary for him to invoke r.16.05(2), rather than r.16.05(1), since the orders I made on 12 October 2010 were entered on the same day, so to as allow service within the required period on the official receiver and trustee.
There is some uncertainty in my mind whether the Court has power to set aside a sequestration order under r.16.05, due to the presence of s.37(2) of the Bankruptcy Act 1966 (Cth), which says:
37Power of Court to rescind orders etc.
…
(2)The Court does not have power to rescind or discharge, or to suspend the operation of:
(a) a sequestration order; or
(b) an order for the administration of the estate of a deceased person under Part XI.
However, the judgment of Emmett J in Austral Brick Co Pty Ltd v Daskalovsk [1998] FCA 782, suggests that the Court would have the equivalent power when a sequestration order is made and entered in the absence of a debtor, where the invalidity of the proceedings is subsequently shown. His Honour did, however, say:
… However, it seems to me inappropriate to make an order under that rule where the estate has already been administered in bankruptcy, as is the case here.
The Act, and the rules made under the Act which have now been incorporated into the Federal Court Rules, provide for the protection of creditors in the event of an order being made under section 153B. There is no similar regime applicable specifically for the setting aside of an order or a judgment pursuant to Order 35 Rule 7. That is not to say that, in an appropriate case, the power contained in Order 35 Rule 7 ought not to be exercised. However, such a power would normally be exercised in circumstances where the matter comes before the Court very soon after the order has been made and before there has been any administration in bankruptcy pursuant to a sequestration order.
I recently accepted the possible relevance of the power under r.16.05, and explained its relationship with other powers to set aside or annul a sequestration order, in Doulman v ACT Electronic Solutions Pty Limited & Anor [2011] FMCA 232 at [50]‑[52].
In the present case, Mr Shephard has neither appealed from the making of the sequestration order, nor has he brought any application for annulment under s.153B of the Bankruptcy Act on the ground that the sequestration order “ought not to have been made”. His present application has certainly not been made “very soon after the order has been made”. Although there is no evidence as to what happened after the lapse of the 21 day stay period ordered by me, it is reasonable to assume that the trustee has embarked upon his administration.
It is reasonable to infer from Mr Shephard’s affidavit that he became aware of the erroneous bank account number immediately upon attempting to pay money into that account soon after I made my orders. In his submissions today, he did not deny that inference, and explained his delay in applying under r.16.05 on the basis that he was unaware that he could apply to the Court. However, that explanation would not, in my opinion, sufficiently justify the exercise of the power after a delay of eight months, in the face of the considerations referred to by Emmett J.
For that reason, being the lengthy delay in applying under r.16.05, it appears to me that it would be inappropriate to exercise a power to set aside the sequestration order and the other consequential orders I made on 12 October 2010, even if a ground for exercising that power was established.
Moreover, I am not satisfied that Mr Shephard has raised any ground for exercising the power under r.16.05(2), whether in relation to the sequestration order or any other of the orders made on 12 October 2010.
His affidavit does not persuade me that the error in relation to the bank account number shown on Exhibit B was an error resulting from any dishonesty or other species of fraud within the terms of r.16.05(2)(b).
The most reasonable inference which I would draw from the evidence, is that there was a mistake which was readily discoverable by Mr Shephard, and which either he could have sorted out with the trustee and the bank soon after discovering it, or which he could have brought to the attention of the Court speedily to gain a correction of Order 2, if that was required. However, he took neither of those steps, and has waited until long after the purposes of my making the order under s.52(3) have been spent.
I am also not satisfied that the sequestration order did not “reflect the intention of the Court” within r.16.05(2)(e). As my judgment indicated clearly, I was satisfied that it was appropriate to make a sequestration order on that day, without addressing the mechanics by which a s.52(3) stay could be sought or imposed. Order 2 made on 12 October 2010 was very much a consequential order formulated after I had announced my intention to make Order 1. In my opinion, even if the making of Order 2 was in any manner vitiated by the mistake in Exhibit B, and if this operated to the detriment of Mr Shephard, the mistake did not affect the intentions of the Court in relation to the making of the sequestration order.
Accepting that a mistake in Exhibit B could have affected the ability of Mr Shephard to comply with the condition attaching to the stay under Order 2 made on 12 October 2010, it appears to me that it is now far too late for Mr Shephard to be seeking a remedy in relation to that mistake and that Order. He has not shown any real detriment that followed from that mistake, in particular, affecting his ability to make speedy payments to his trustee and creditors so as to obtain an early discharge from bankruptcy under s.153A, and thereby to avoid the trustee’s commencement of his administration.
In all the circumstances, in my opinion, the appropriate order is to dismiss the present application.
I consider it appropriate that the creditors’ costs in relation to the present application should be treated as part of their recoverable costs as the petitioner.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Smith FM
Date: 20 July 2011
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