Darbyshire v Milner
[2006] FMCA 179
•8 February 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DARBYSHIRE & ANOR v MILNER & ANOR | [2006] FMCA 179 |
| BANKRUPTCY – Annulment application. |
Bankruptcy Act 1966 (Cth) ss.153A, 153B
Cameron v Cole (1944) 68 CLR 571
| First Applicant: | PAMELA DARBYSHIRE |
| Second Applicant: | MAURICE DARBYSHIRE |
| First Respondent: | BRUCE PUTNEY MILNER |
| Second Respondent: | WORRELLS INSOLVENCY PTY LTD |
| File No: | SYG 2940 of 2005 |
| Delivered on: | 8 February 2006 |
| Delivered at: | Newcastle |
| Hearing date: | 8 February 2006 |
| Judgment of: | Scarlett FM |
REPRESENTATION
| Applicants: | In Person |
| Counsel for the Respondent: | Mr Jones |
| Solicitors for the Respondent: | Carroll & O’Dea |
ORDERS
The Application is dismissed.
The Applicants are to pay the Respondents’ costs on a party and party basis as agreed or taxed.
The injunction granted by Federal Magistrate Driver on 22 December 2005 is dissolved.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT NEWCASTLE |
SYG 2940 of 2005
| PAMELA DARBYSHIRE |
First Applicant
| MAURICE DARBYSHIRE |
Second Applicant
And
| BRUCE PUTNEY MILNER |
First Respondent
| WORRELLS INSOLVENCY PTY LTD |
Second Respondent
REASONS FOR JUDGMENT
Application
The application before the Court is threefold. Primarily, it is an application for annulment of a bankruptcy in respect of one of the Applicants, an order sought on a final basis is to seek compensation, and the other application is to stop the Trustee dealing in the property known as 16 Mirage Drive, Tuncurry.
It appears clear that the application to annul the sequestration order is the primary application and the other orders sought, insofar as they could be granted, depend on the fate of the application to annul the sequestration order.
The Respondents filed a Response seeking that the orders sought by the Applicants not be granted, that the compensation sought not be granted and seeking an order for costs.
The application is said to be made under both s.153A and s.153B of the Bankruptcy Act. As the Respondents submit the annulment of a bankruptcy can occur in one of two ways:
a)by operation of law under s.153A of the Bankruptcy Act, or
b)by order of the Court under s.153B.
Annulment pursuant to s.153A takes place automatically once the Trustee is satisfied that the Bankrupt's debts have been paid in full. The Respondents submit that there is no evidence, that the Applicant, Pamela Darbyshire, has paid the debts in full and that any application based on s.153A must fail.
Under s.153B of the Act sub-section (1) provides that:
If the Court is satisfied that a sequestration order ought not to have been made or in the case of a Debtor's petition, that the petition ought not to have been presented or ought to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
The only ground upon which an application under s.153B could succeed would be if the Court was satisfied that a sequestration order ought not to have been made. In any event, it should be clear that such an order is an order that is made at the discretion of the Court, even if an Applicant were to demonstrate that a sequestration order ought not to have been made, there may be discretionary factors that could result in the application being refused.
Clearly, full and frank disclosure is required to be made by a Bankrupt on the application and it is incumbent on the Applicant to place before the Court all relevant material with respect to the Applicant's financial affairs.
In this case the Applicants, who are husband and wife, submit that the sequestration order should not have been made because the debt has, in their submission, already been paid in full.
Background
The background to these proceedings can conveniently be set out by recourse to statements contained in the affidavit of Albert Craig Ray, which is one of two affidavits upon which the Respondents rely. The other affidavit is an affidavit of Raj Khatri.
The Applicants, I would comment, have provided a significant number of affidavits going to a variety of issues. Although objection has been taken to the receipt of these affidavits in evidence I have exercised my discretion to admit them, notwithstanding certain defects in form and in some cases significant query as to the relevance of the material.
The Applicant, Pamela Darbyshire, was made bankrupt on 12th March 2003. The Respondent, Bruce Putney Milner, was appointed as her Trustee. What had happened was that the sequestration order was made by the Federal Court at Brisbane, following the entry of default Judgment against Mrs Darbyshire in the Magistrates Court at Maryborough on 17th May 2002 in the sum of $22,083.42.
Those proceedings arose in March 2002 in respect of a debt said to be owing to Wongi Sawmill Proprietary Limited against three defendants. The First Defendant was a company entitled Tarpam Pty Limited, trading as Fascia Sales Australia. The Second Defendants were the Applicant, Pamela Darbyshire, and another defendant, not a party to these proceedings, Tara Brown, also known as Tara Brown Burnham.
The Statement of Claim issued out of the Magistrates Court of Queensland at the Maryborough Registry alleged that the Second Defendants, Mrs Darbyshire and Ms Brown, signed a written guarantee in favour of the Plaintiff, as part of a request to extend credit to the First Defendant company, Tarpam Proprietary Limited, and the Plaintiffs relied on this written guarantee that they claimed in seeking payment of the debt which they alleged Tarpam had failed to pay in the sum of $20,685.45.
It was claimed that the Plaintiff had made a demand on the First Defendant for that amount on 20th November 2001 and had similarly made a demand on the Second Defendants, pursuant to the terms of the guarantee, on 27th January 2002, and it was claimed that the payment had not been made.
A Notice of Grounds of Defence was not filed by the Second Defendant, Pamela Darbyshire. Indeed, it appears that the company, Tarpam Pty Ltd, did not file a Defence.
Judgment was obtained by default in the Magistrates Court of Queensland in the sum of $22,083.42, which included an amount of $270.32 by way of interests and costs in the sum of $1,127.65. Judgment was entered by default on 17th May 2002.
What then happened was that a Bankruptcy Notice was issued against Mrs Darbyshire and Ms Brown. A copy of that Bankruptcy Notice was served on Mrs Darbyshire on 25th July 2002. As payment had not been received, a copy Creditors Petition was filed in the Federal Magistrates Court at Brisbane on 22nd November 2002. That Petition, I note, contained a Notice of Address to the Debtor, Pamela Darbyshire, informing her that she should enter an appearance, file a Notice of Intention to Oppose the Petition and the application was listed for 9:30am on 20th December 2002.
On 18th December however, one Paul Hudson, solicitor, wrote to the solicitors for the Judgment Creditor, the Petitioning Creditor, advising that he was instructed to oppose the Creditors Petition and make an application to set aside the default Judgment. On 20th December 2002 the first named Second Defendant, Pamela Darbyshire, made application to the Magistrates Court of Queensland seeking that the default Judgment should be set aside.
That application was heard on 12th February 2003. Mr Hudson, solicitor, appeared for both of the Second Defendants and the application was unsuccessful. The Magistrate dismissed the application with costs in the sum of $1,600.00. On 12th March 2003 a sequestration order, which is the order the subject of the application before me, was made against Mrs Darbyshire in the Federal Magistrates Court. On
9th December 2003 Bruce Milner, who had been appointed Trustee in Bankruptcy, became the registered owner of Mrs Darbyshire's interests in the property at 16 Mirage Drive, Tuncurry.
Other proceedings took place which are not immediately relevant to the application before me. What is relevant is that Mrs Darbyshire applied to this Court to annul the bankruptcy order. That application was filed on 19th April 2004 and was discontinued on 15th June 2004. A different solicitor, one Daphne Kennedy, had acted for the Applicant, as she then was, in those proceedings.
The proceedings continued in the Supreme Court of New South Wales for a Writ of Possession and the Applicant and her husband, who is the other Applicant, Mr Maurice Darbyshire, were issued with a Notice to Vacate.
The Application before this Court
The proceedings before me were commenced on 13th October 2005. The Applicants have vacated the property at Tuncurry but seek an order for annulment of Mrs Darbyshire's bankruptcy and return to them of the property at 16 Mirage Drive, Tuncurry.
There is also a Claim for Compensation which is unnecessary to deal with at this stage.
The Court, as I said earlier, has a discretion as to whether it orders an annulment. It is submitted that that discretion should only be exercised cautiously and in special circumstances. The Respondents rely on the decision of the High Court of Australia in Cameron v Cole (1944) 68 CLR 571 at page 594.
The Respondents submit that the Applicants have not articulated any basis for the exercise of the Court's discretion and submit that the Applicants have not produced any admissible evidence to show that the sequestration order should not have been made. The Respondents also submit that the Applicants have not demonstrated any basis known to lawful award of compensation or damages in their favour.
The Applicants, as I have said, have produced a significant amount of evidence. They rely in particular on an affidavit of Mrs Darbyshire, to which is annexed a letter from Brian R Silvia, the liquidator of the company, Tarpam Pty Limited. The portion of the letter upon which they seek to rely is set out in a paragraph marked (iii) where Mr Silvia says:
Whilst I do not intend to commence a legal action against the Directors of the company for insolvent trading at this stage I cannot confirm that I will not do so at a later stage. I can confirm that I am considering commencing action against the Directors of the company for void dispositions authorised by the Directors totalling approximately $46,000, as well as an action pursuant to section 588FH of the Corporations Act of $70,000 in relation to a voidable preference payment made to a creditor by the name of Jenkin Timber Limited, who I understand had a personal guarantee against the Directors.
Additionally, a further claim arises by virtue of the company paying $64,709 to Wongi Sawmill Pty Limited which also had the effect of releasing the directors from a personal guarantee.
The Applicants submit that this letter shows that the payment of $64,709 to Wongi Sawmill Pty Limited meant that there was no amount of money owing to Wongi Sawmill which would have supported the claim brought in the Magistrates Court at Maryborough the amount of $20,685.45. It was this claim which became the subject of the default Judgment against Mrs Darbyshire.
In effect, the Applicants submit that the sequestration order should not have been made because there was no debt owing. In other words, they say that the default Judgment should not have been entered in the Magistrates Court at Maryborough because there was no debt owing.
The immediate question that arises is why the Applicant, Mrs Darbyshire, the Second Defendant to this claim for over $20,000, did not file a Notice of Grounds of Defence, if indeed the sum of $64,709 had been paid to Wongi Sawmill, which on the Applicants' submissions, would have paid Wongi Sawmill in full and would therefore have released Mrs Darbyshire and for that matter Tara Brown, from a personal guarantee.
The explanation given by Mr Darbyshire, the other Applicant, was that he had a verbal agreement with the solicitor Albert Craig Ray, the Deponent to the affidavits affirmed on 24th January 2006, upon which the Respondents rely, that Judgment would have not been entered before Mr Ray had read some documents provided by Mr Darbyshire.
With respect, this seems a most tenuous claim and it seems an imprudent way of dealing with a claim against a party for over $20,000, certainly relying on the good faith of the solicitor on the other side not to take further proceedings until certain documents had been read, is perhaps naïve but certainly imprudent.
The Applicants have had a number of solicitors acting for them at various parts of the proceedings. If there was a solicitor acting for them at the time when the statement of claim had been served it would seem to me to be negligent on the part of the solicitor not to advise the Applicants that they were relying on a very flimsy ground and why, for more abundant caution, a Notice of Grounds of Defence should not have been filed.
Default Judgment was obtained and it was once bankruptcy proceedings were commenced that the solicitor, Paul Hudson, was instructed to take action to prevent that eventuality occurring and indeed, it appears that he did do so by first, advising the solicitors for the Judgment Creditor of the actions which he was instructed to take, and second, by in fact applying to set aside the Default Judgment.
It is clear that there was an application to set aside the Default Judgment which was heard and dismissed by the Magistrates Court at Maryborough. The Applicants submit that the solicitor did not present certain evidence to the Court which led to the application to set aside the Default Judgment being unsuccessful.
The Respondents point out that no appeal was lodged against the decision of the Magistrate at Maryborough to refuse the application to set aside the Default Judgment. Instead and in due course there was an application for annulment of the order commenced by another solicitor on the part of the Applicants which was subsequently discontinued.
The Applicants submit that in effect they had been let down by not one, but by a number of solicitors, that there was no debt, that there never was a debt, and that they are being let down by solicitors because whatever evidence that there was never presented to the Court.
It is not a function of this Court to set aside a Judgment of another Court of competent jurisdiction. It is not a function of this Court to act in effect as an appellant Court from the Magistrates Court of Queensland to hear an appeal which presumably is well out of time.
In my view there is no evidence that the sequestration order should not have been made. There was a Default Judgment. There was a Bankruptcy Notice. There was evidence that the Bankruptcy Notice was not met by payment. There was a Creditors Petition. There was an application to set aside the Default Judgment which was unsuccessful, and it was not until after that decision that the sequestration order has been made.
There can unfortunately only be one answer and that is that the application is dismissed.
An injunction made on 22 December 2005 is dissolved. As far as an application for costs are concerned, whilst I am not at this stage prepared to go into the question of whether it should be on an indemnity basis, in my view the likelihood of recovery is probably not great. I am going to make an order for costs on a party and party basis, and the Applicants are to pay the Respondents' costs which I will set on a party and party basis and that can be agreed or taxed.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Scarlett FM
Associate: Virginia Lee
Date: 9 February 2006