Demostine Nominees P/L v Osborne - [2002] FMCA 235

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEMOSTINE NOMINEES P/L v OSBORNE

[2002] FMCA 235

BANKRUPTCY – Review of Registrar’s decision – minutes of consent orders setting aside sequestration order – intervening creditor opposing consent orders – whether s.37(2) of Bankruptcy Act prevents court from setting aside sequestration order.

COSTS – Costs order against intervening creditor.

Adelaide Bank Ltd v Robert John Badcock [2002] FMCA 10

Bankruptcy Act 1966, s.37(2)

Applicant:

DEMOSTINE NOMINEES PTY LTD

Respondent:

RAMON THEODORE OSBORNE

File No:

WZ 93 of 2002

Delivered on:

26 September 2002

Delivered at:

Perth

Hearing Date:

24 September 2002

Judgment of:

McInnis FM

REPRESENTATION

Applicant:

No appearance

Solicitors for the Applicant:	Lewis Blyth & Hooper
Solicitor for the Respondent:	Mr C Stokes

Solicitors for the Respondent:

Chris Stokes & Associates

Solicitor for the Intervener:

Mr C Ko

Solicitors for the Intervener:

Brickhills

ORDERS

A sequestration order made by Registrar Jan on 20 August 2002 be set aside.
The creditor's petition be dismissed.
The respondent pay the applicant's costs of the appearance.
The costs of Ramon Ronald Theodore Osborne of the hearing of 24 September 2002 be paid pursuant to the Federal Court Rules, by Landpower Developments Pty Ltd, in liquidation, the intervener, in default of agreement, to be taxed in accordance with the Federal Court Rules.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

WZ93 of 2002

DEMOSTINE NOMINEES PTY LTD

Applicant

And

RAMON THEODORE OSBORNE

Respondent

REASONS FOR JUDGMENT

In this matter DEMOSTINE NOMINEES PTY LTD, (“the creditor”) commenced proceedings on 14 May 2002 relying upon a creditor's petition dated 3 May 2002. The petition in turn relied upon a bankruptcy notice dated 19 March 2002 served upon RAMON THEODORE OSBORNE, (“the debtor”). That bankruptcy notice claimed a total debt owing of $170,430.02 based upon a judgment entered against the debtor on 14 November 2001 in the Perth District Court.
The usual affidavits were filed by the creditor in support of its petition. The petition was listed for hearing on 18 June 2002 and adjourned to 2 July 2002. Further affidavit material was filed, and on 2 July 2002 the proceedings were again adjourned this time to 23 July 2002 when a further adjournment was granted to 30 July 2002. Another adjournment was allowed on 30 July and the matter listed for 6 August 2002, only to be adjourned again to 20 August 2002.
I mention the chronology of adjournments solely for the purpose of indicating that the proceedings would have been listed in the daily law list on at least six occasions. I do not suggest that the adjournments were inappropriate or that anything else arises from those listings other than the fact that the proceedings had been adjourned on those occasions and listed in the daily law list as indicated.
On 20 August 2002 the proceedings were listed before the registrar, and upon there being an appearance for the creditor and no appearance for the debtor, a sequestration order was made against the debtor. The debtor filed an application for review on 11 September 2002 seeking to set aside the sequestration order made on 20 August 2002. The debtor relied upon an affidavit sworn by him on 13 September 2002, (the debtor's affidavit), and an affidavit sworn 16 September 2002 by Brian Francis Stokes, (the Stoke’s affidavit). Relevantly, the debtor's affidavit explains the reason for his non-attendance at court on

20 August 2002 and describes the progress of negotiations with the creditor. The debtor otherwise refers to the judgment debt and challenges that debt.
In describing the progress of negotiations, the debtor refers to another claim by Landpower Pty Ltd, (Landpower), arising from Supreme Court proceedings in Western Australia whereby Landpower claimed $1,580,775.20 for alleged outstanding lease payments. The debtor notes that a summary judgment application had resulted in a partial judgment for $46,412.88 being entered on 28 March 2002. The debtor claims that as at the date of the sequestration order, he had a pending application for leave to appeal from that decision to the Full Court of the Supreme Court of Western Australia.
The Stokes affidavit recited the various adjournments and negotiations' history and otherwise sought to corroborate the evidence of the debtor. The application was listed before me on 24 September 2002. Prior to that time, minutes of consent orders were filed with the court which provided for orders as follows:
“1. The sequestration order made by Registrar Jan on 20 August 2002 be set aside;
2.The creditors' petition be dismissed, and
3.The respondent pay the applicant's costs of the appearance.
The court was prepared to consider making the orders sought in the consent minutes in open court in the absence of the parties. On the hearing date, however, before me, an affidavit was sought to be filed by solicitors acting for and on behalf of Landpower, being an affidavit opposing review of the sequestration order sworn by Calvin Chung Kee Ko on 24 September 2002. On the hearing date of 24 September, Mr Ko sought and was granted leave to appear and sought and was granted leave to file and rely upon the affidavit to which I have just referred.
The application by Mr Ko to intervene was based upon the affidavit material which of course refers to Landpower being a creditor of the debtor and in those circumstances, as I understood it, the application to intervene was not seriously challenged by the representative of the debtor before this court. Hence, I permitted Mr Ko to intervene, to make submissions and to otherwise rely upon the affidavit to which I have referred, again which was subject to leave being granted that day to file.
The affidavit of Mr Ko provides in part the following:
“4.I am informed by the liquidators of Landpower and verily believe that it is a creditor of the Respondent's estate in the sum of $1,508,775.20 plus interest and costs from

19 October 2001.
5.Landpower filed a creditor's petition against the Respondent in the Federal Magistrates Court, number WZ135 of 2002, which petition has yet to be determined.
6.On 23 September 2002 I spoke to Kevin Fraser, for the Official Receiver on behalf of the Official Trustee as trustee of the Respondent Debtor's bankrupt estate on the telephone and he informed me and I verily believe that:
(a)the Official Trustee had been orally informed by the Respondent that the creditor's petition in Federal Magistrates Court, number WZ93 or 2002, upon which a sequestration order was made against him on 20 August 2002, was being relisted on Tuesday, 24 September 2002 at 10.30 am in order to have the sequestration order reviewed;
(b)the Official Trustee, despite numerous requests and demands, had yet to be provided with the Respondent's statement of affairs;
(c)there are about 10 to 12 known creditors of the Respondent's estate.
7.Annexed hereto and marked with the letters CCKK1 is a true copy of a list of the Respondent's creditors provided by the Official Trustee. The list does not record the full extent of the Respondent's indebtedness to Landpower which I am informed by Landpower is the amount referred to in paragraph 4 above.
8.
I am informed by the staff of Brickhills and verily believe that at no time was anyone at Brickhills, being the solicitors for a creditor of the respondent's estate, informed that the creditor's petition was being relisted for Tuesday,

24 September 2002 at 10.30 am. This information was obtained through Brickhills own inquiries.
9.I am informed by Landpower and verily believe that at no time was it informed the creditor's petition was being relisted.”
The affidavit of Mr Ko states that Landpower opposes any review of the sequestration order made on 20 August 2002 and requires the sequestration order to remain.
When the matter was heard, I decided to stand the proceedings down given that the applicant creditor was not present at the time of the hearing and not present at the time when I granted leave to Mr Ko to intervene. Upon resuming, I was informed that the applicant creditor upon being made aware of the intervention of Mr Ko on behalf of Landpower had confirmed that it still sought orders according to the minutes by consent which had been filed earlier with the court.

I permitted a letter to be filed with the court and to be relied upon, which was a facsimile copy letter dated 24 September 2002 from Lewis Blyth and Hooper, solicitors for and on behalf of the creditor, which reads in part:
“Our client's position remains the same in that the applicant consents to orders made in the following terms …”
The letter then sets out the terms of the minutes which I have already recited.
At the resumed hearing, the debtor sought to file a further affidavit sworn by him on 24 September 2002. Leave was granted to the debtor to file that affidavit and the affidavit in particular then referred to parts of the affidavit of Mr Ko which I have already recited. In particular, paragraph 2 of the affidavit of Ramon Ronald Theodore Osborne states the following:
“2.I refer to paragraph four of the affidavit and say that:
a)    Landpower Developments Pty Ltd has only obtained judgment for the sum of $46,412.88 before Master Bredmeyer on 28 March 2002 and that I was granted leave to defend for the balance of the claim
b)    I had filed an application for leave to appeal from the Learned Master's decision and for a stay of the proceedings pending the determination of that appeal and those applications were listed for hearing on 11 October 2002 before the sequestration order against me was made
c)    The creditor's petition by Landpower Developments Pty Ltd (in liquidation) was last before the Federal Court on 20 August 2002. On 6 August 2002, I filed a Notice of Motion opposing the petition and seeking orders that the petition be set aside or stayed until the determination of my application for leave to appeal was determined in the Supreme Court.”
Paragraph 3 of the Osborne affidavit reads:
“3.I refer to the list of creditors set out in annexure A to Mr Ko's affidavit and say, in respect of each alleged creditor, as follows –
a)    Aggreko Generator Rentals Pty Ltd – this was debt jointly owing by Robin Crawford and myself and has been paid in full
b)    ANZ Bank - to my recollection there is a debt of approximately $170,000.00 that is secured by a first mortgage over a farming property located in Nungarin, Western Australia. The value of that property is approximately $220,000.00
c)    Broadway Management Pty Ltd. - I received no demand for this debt, no action has been taken against me and I do not owe the debt
d)    Hillgold Holdings Pty Ltd (in liquidation) - this debt is secured by a fi fa over the Waddi farm property located in Badgingarra, near Dandarigan in Western Australia
e)    National Australia Bank - the amount of $340,000.00 is secured by a first mortgage over the Waddi farm property, which has an estimated value of approximately $985,000.00
f)     Shire of Dandarigan: I have no idea what these debt of $1.00 relates to
g)    Stuart Yesner - this debt is disputed by me and is the subject of District Court of WA proceedings. The claim is in respect of an investment. Currently the plaintiff is required to provide further and better particulars by 28 September 2002”
It is clear from that affidavit that in the circumstances it has been hurriedly prepared and there may be some minor errors, both in description and detail, but overall I accept that that affidavit seeks to address the issue of other creditors and in general transfer the issue in part of solvency of the debtor.
It was submitted by Mr Ko, who had been permitted to intervene, that in this case his client is clearly an interested party and that, in all the circumstances, has a right to oppose the orders sought in this matter by consent. It was submitted that both his client and other creditors have an interest in matters of this kind where it is proposed to alter the current status of the debtor who at this stage is the subject of the sequestration order made by the registrar and which is the subject of the application for review.
It was submitted that the court, acting as a court of bankruptcy, ought to take into account and have regard to the interests of both Landpower and other creditors in relation to the orders sought in this application. Reference was made to proceedings number 135/02, which is an application by Landpower by way of a creditor's petition against the debtor. That petition has been listed for further hearing before the registrar on 8 October 2002. The petition had been filed on 9 July 2002 and is based on the partial judgment referred to earlier of $46,641.76. The petition is opposed, based on the appeal pending in the Full Court of the Supreme Court of Western Australia.
Mr Ko submitted that the court should have regard to the interests of all creditors, as I have indicated, including his client, who is a creditor of the debtor who, as I have said, is currently bankrupt. He submitted that in the present case there was no evidence of solvency. He relied otherwise upon his affidavit material and he further submitted that in any event, by virtue of the operation of subsection (2) of section 37 of the Bankruptcy Act 1966 (the Bankruptcy Act), the court does not have power to in fact interfere with the sequestration order.
Section 37(2) provides:
“37(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.”
Significantly, Mr Ko submits that in an application of this kind, in any event the court does not have the power to make the order that is being sought in the minutes of proposed orders by consent.
Mr Stokes, in reply, submitted that these are orders that are properly before the court by consent, that they should be made by the parties who have agreed, namely, the petitioning creditor, and the debtor and that the court should have regard and place significant weight upon the wishes of the parties who are indeed parties to these proceedings. He further submitted that the creditors, including Landpower, still had other rights available to them to either pursue the outstanding proceedings number 135/02 or to otherwise pursue rights which may be available to those creditors under the various provisions of the bankruptcy legislation. He submitted, in all the circumstances, that I should take note of and place significant weight upon the fact that the official receiver in the present case is aware of the desire on the part of both the creditor and the debtor in this application, to set aside the sequestration order made on 20 August 2002 and that in those circumstances, where the Official Receiver does not seek to intervene, that I should be persuaded that it is appropriate in all the circumstances to make the orders sought.
It is clear, in my view, that there is a public interest and general interest matter to be taken into account in allowing Mr Ko to appear in these proceedings and to represent the interests of his client. As I have indicated, there does not appear to be significant opposition to that course and, in my view, it was appropriate that counsel for the debtor did not oppose the intervention of Mr Ko and did not oppose the filing of the affidavit material on behalf of Landpower and nor did he oppose the right of that creditor to make submissions in this application, albeit in circumstances where the creditor, that is Landpower, has other proceedings currently before the court in proceedings number 135/02.
Having allowed, however, the intervention in this application, it is appropriate to consider whether or not the opposition to the orders being sought should be entertained. In my view, it is appropriate to deal in the first instance with whether or not the court has indeed power under section 37(2) of the Bankruptcy Act to in fact set aside the sequestration order made by the registrar on 20 August 2002.

In my view, there is no doubt that the court clearly does have that power in circumstances where this is a review by a Justice of the Commonwealth of Australia who has been given appropriate powers to undertake such a review of a registrar's decision. It would be nonsensical for this court to be convened and have power to review decisions of registrars as a de novo hearing but to be restricted in that power to the extent which was proposed by Mr Ko, that is, to be restricted in the sense of not being able to set aside the sequestration order.
The issue of the extent to which the court is restricted by the operation of section 37 has been considered by my colleague Raphael FM in Adelaide Bank Ltd v Robert John Badcock, [2002] FMCA 10. In that case His Honour had to consider the meaning of the words of section 37. A submission had been made in that case that that provision overrode provisions in the Federal Magistrates Act and the rules, and that there was no discretion in relation to the matter and the court was bound by the words of the provision. No authority was recited in that case in support of the proposition before the learned federal magistrate. His Honour in that case at paragraph 8 said the following:
“8.The clear words of section 37 are, on further examination, somewhat more opaque. Firstly, notwithstanding the prohibition on any power to suspend the operation of sequestration order found in section 37 there is a clear power to do so granted by section 52(3). That section puts a limit of 21 days on the stay of any sequestration but this limitation does not prevent the Court from granting a stay for longer pursuant to section 29 of the FCA and Order 52, rule 17 of the Federal Court Rules: Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424; Coleman v Lazy Days Investments Limited (1994) 55 FCR 297. Section 37 as it now is came into the Act by way of amendment in 1992. In March 1993 Burchett J considered the new section in Norman Young & Kristine Young v Hunter MMI Finance Limited (unreported, FCA, 23 March 1993, Burchett J). His Honour said:
My attention has been properly directed to section 37 which provides, as it has fairly recently been amended, a bar to the rescission by the Court of a sequestration order. However, it seems clear to me that section 37 has nothing to say to section 31A which is not a general provision about the powers of the Court in bankruptcy but a specific provision dealing with the delegation of powers to the Registrar and with the consequences of such a delegation, framed of course in terms designed to overcome the constitutional problem which was highlight in Reg v Davis (1954) 90 CLR 353.”
Raphael FM goes on to say:
“9.Section 31A was repealed by the Bankruptcy (Legislation Amendment) Act 1996, section 3 and schedule 1. Since then an identical power has been exercised pursuant to section 35A of the FCA. That section is identical to section 102 - 104 of the FMA.
10.The Full Bench of the Federal Court considered the amended sections in Trustees of the Franciscan Missionaries of Mary v Weir (2000) FCA 574. The Court approved the decision in Re Young and went on to say at paragraph 23:
In our opinion sections 37 and 52(3) of the Bankruptcy Act are provisions having general application to the exercise of jurisdiction in bankruptcy by the Court; but the exercise of that jurisdiction through a delegation satisfying the strict requirements in Harris v Caladine and other authorities to which we have referred is a special case, and it is governed by its rules.”
With respect, I adopt and apply what's said by my learned colleague in the Adelaide Bank v Badcock decision and further add, and as I have indicated, it seems to me that one should not seek to impose the restriction provided in section 37(2) at the expense of appropriate delegation and review powers, review powers being granted to Justices of the Commonwealth both in the Federal Court and the Federal Magistrates Court of Australia. To do so would be effectively to deprive the court of its constitutional power and delegated powers respectively to undertake a proper and thorough review of a decision of a registrar. I, therefore, find the court does have power to make the orders sought.

The next issue is whether or not in all the circumstances the opposition to the exercise of that power can be sustained. In my view, it is significant to consider the reality of the current application namely that it arises from a judgment debt of an amount of $170,430.02. It is not true to say that Landpower is currently a creditor of the debtor in the sum of $1,508.775.20 but rather that it is pursuing a claim for that amount of which it received the benefit of a partial summary judgment for the approximate sum of $46,000 which of course is the subject of the disputed creditors' petition in proceedings number 135/02.
Whilst it is true that the court is entitled to have regard to the intervening creditor's rights and indeed to consider the rights of other creditors, I do not think in the present circumstances, having regard to the matters before me, that it is appropriate that I should resist making the orders sought by consent. In the present case the creditors, including Landpower, have an ample opportunity to pursue the rights they no doubt have, both in proceedings number 135/02 and pursuant to any other provisions they may wish to pursue under the provisions of the Bankruptcy Act.
It is also relevant to take into account and rely upon the fact that in the present application the official receiver has been made aware of the orders sought and has chosen not to intervene and/or oppose the orders being made by this court.
I do not think it is appropriate in the circumstances of this case that I should give any opportunity to Landpower or other creditors to adduce further evidence before this court as sought by Mr Ko, as it seems to me that that opportunity, in relation to this debtor, is still very much available to both Landpower and the other creditors, as I have indicated, under the provisions of the Bankruptcy Act and, more particularly, in relation to proceedings number 135/02.
In circumstances of this kind where there is a dispute and where there is at least affidavit material explaining why a particular party was not present when the sequestration order was made or explaining why negotiations did not finalise prior to that sequestration order being made the Court should give the parties an opportunity, pending the determination of a review, to negotiate and resolve the differences between them in a manner which is appropriate in all the circumstances.
For those reasons, it is my view that it is appropriate therefore the make the orders sought by consent of the applicant and the respondent in this application and accordingly I propose making the following orders:
(1)A sequestration order made by Registrar Jan on 20 August 2002 be set aside.
(2)The creditor's petition be dismissed.
(3)The respondent pay the applicant's costs of the appearance.

Costs

In this matter, I have indicated the orders that I propose making and have given reasons for my judgment. An application has been made on behalf of the debtor that the court should make an order that the costs of the debtor of the hearing of 24 September 2002 should be paid by the intervening creditor. In support of that application, Mr Stokes has submitted that the costs have been incurred in circumstances where the intervening creditor has been unsuccessful in its opposition to the setting aside of the sequestration order and, as I take it, the submission that he has made is that costs therefore should follow the event, though confined to the costs of the day of the hearing, that is, 24 September 2002.
Mr Ko submits that in the circumstances I should not make an order for costs but should rather reserve the costs pending the outcome of the creditor's petition which has been brought by his client in proceedings number 135/02 on the basis that if that creditor's petition succeeds, then the position to be achieved is that the debtor will again become the subject of a sequestration order and be declared bankrupt.
In my view, it is not appropriate in a case of this kind to reserve the issue of costs pending what might be a possible outcome of another proceeding, albeit related to some extent in that it obviously affects both the intervening creditor and the debtor. To do so would be to create uncertainty. Where a creditor intervenes in proceedings of this kind and minutes of consent orders have been entered into, then the intervening creditor, having had the advantage of intervening, being heard, filing affidavit material, must of course be aware that at least potentially in the event that its intervention is unsuccessful, it may be exposed to the risk of a costs order.
I can see no reason why costs should not follow the event. Accordingly, in the present case I make an order:
(4)The costs of Ramon Ronald Theodore Osborne of the hearing of 24 September 2002 be paid pursuant to the Federal Court Rules, by Landpower Developments Pty Ltd, in liquidation, the intervener, in default of agreement, to be taxed in accordance with the Federal Court Rules.

I certify that the preceding thirty seven (37) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 26 September 2002