Dimitriou and Associates Pty Ltd v Sciberras - [2006] FMCA 764

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DIMITRIOU & ASSOCIATES PTY LTD v SCIBERRAS & ANOR

[2006] FMCA 764

BANKRUPTCY – Review of Registrar’s sequestration order – petition based on default judgment – complex dispute concerning unpaid legal fees – insufficient grounds for going behind judgment – sequestration order confirmed.

Bankruptcy Act 1966 (Cth), ss.51, 52, 52(1)(a), 52(2)(a), 52(2)(b), 52(3)

Wren v Mahony (1972) 126 CLR 212

Applicant:

DIMITRIOU & ASSOCIATES PTY LTD

(ACN 072 590 660)

First Respondent:

XAVIER SCIBERRAS

Second Respondent:

CHRISTINA SCIBERRAS

File Number:

SYG470 of 2006

Judgment of:

Smith FM

Hearing date:

3 May 2006

Delivered at:

Sydney

Delivered on:

3 May 2006

REPRESENTATION

Counsel for the Applicant:

Mr D Phair

Solicitors for the Applicant:

Proctor Phair Lawyers

Counsel for the Respondents:

Second Respondent in person

ORDERS

The orders made by Registrar Tesoriero on 30 March 2006 are set aside.
A sequestration order is made against the estate of XAVIER SCIBERRAS and CHRISTINA SCIBERRAS.
The applicant creditor’s costs, including reserved costs and costs in relation to the application for Review of the Registrar’s order, be taxed and paid from the estates of the debtors in accordance with the Bankruptcy Act 1966 (Cth).
The sequestration order be stayed under s.52(3) for 21 days.
The Court notes that the date of the act of bankruptcy is 12 January 2006.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG470 of 2006

DIMITRIOU & ASSOCIATES PTY LTD (ACN 072 590 660)

Applicant

And

XAVIER SCIBERRAS

First Respondent

CHRISTINA SCIBERRAS

Second Respondent

REASONS FOR JUDGMENT

(revised from transcript)

I have before me applications filed on 11 April 2006 and 13 April 2006 for review of orders made by Registrar Tesoriero on 30 March 2006. In that order, the Registrar ordered that a sequestration order be made against the estate of the two applicants in the present review application, and that the sequestration orders be stayed for 14 days. The Registrar was satisfied on the evidence before him as to the relevant matters required to be addressed under ss.51 and 52 of the Bankruptcy Act 1966 (Cth), after hearing submissions from both parties who were legally represented before the Registrar.
The applications for review have been brought by unrepresented applicants, and only Mrs Sciberras has appeared before me to support the application on behalf of herself and her husband.
The review applications were listed before Federal Magistrate Driver on 13 April 2006, where it appears the applicants were similarly unrepresented. His Honour stayed the orders made by the Registrar until 2 May 2006, being satisfied that this was appropriate “having regard to the statements made from the bar table”. His Honour did not give a judgment explaining his reasons. I do, however, note that his Honour ordered:
2.The review applicants are to inform the solicitors for the petitioning creditor in writing, no later than 28 April 2006, of the steps being taken to obtain finance upon the security of [their property].
It seems that Mrs Sciberras told Federal Magistrate Driver, as she has told me, that she may be able to obtain borrowings secured on their property to meet the debt claimed by the respondent petitioner and any costs that she would have to pay. However, the parties have not been able to settle the matter, and regrettably there appears to me no prospect that the matter will be settled unless and until a sequestration order is made. I shall return to this issue further below.
The evidence before the Registrar established the liability relied on in the petition, being a debt in the amount of $46,726.15 due under a judgment in the Local Court of New South Wales entered on 26 April 2005. The circumstances in which that judgment was obtained are revealed, albeit in a confused and incomplete way, by two affidavits filed by a director of the petitioner. Very briefly, they are as follows.
The judgment followed service on the review applicants of a statement of liquidated claim which pleaded over 22 closely typed pages numerous agreements to provide legal services to the review applicants and a company “Roll On Transport (NSW) Pty Limited”, those contracts being entered into over a period of months in the year 2000. The pleading refers to at least one payment being made by the applicants of $20,000, but particularises other amounts outstanding and costs totalling $30,500.52.
All those contracts are pleaded as having been entered into between the review applicants and “Debbie Jane Paton, formerly known as Paton Lawyers”. The pleading commences with the assertion that:
1.At all material times Debbie Jane Paton formerly known as Paton Lawyers traded as a Law Firm practising in New South Wales under the registered business name of Paton Lawyers (“the practice”).
The pleading narrated the appointment in March 2000 of A S Brown as solicitor manager to that practice by the Law Society of New South Wales, and the appointment in May 2000 of Philip Graeme Walton as agent for the practice to preserve the equity of the practice. It claimed that:
4.Mr Walton continued to be appointed as agent on behalf of A S Brown Solicitor until in or about 20 December 2000 when he allegedly purchased the practice of Debbie Jane Paton formerly known as Paton Lawyers.
5.It was a condition of the sale of the practice, that Debbie Jane Paton formerly known, as Paton Lawyers shall recover any monies outstanding to the practice formerly known as Paton Lawyers prior to 20 December 2000.
…
56.On 14 February 2002 a Deed of Assignment was entered into and executed between Debbie Jane Paton and Dimitriou & Associates Pty Limited, assigning the debts including the debts outstanding by the Defendants herein for valuable consideration to Dimitriou & Associates Pty Limited (hereinafter “the Assignee”).
Elaborate particulars of this assignment suggest that the assignment recognised a previous fee sharing arrangement between Ms Paton and her law clerk, Georgina Dimitriou. The pleading narrates that Ms Paton was made bankrupt on 27 August 2003, that her trustee consented to proceedings being continued in her name, and on 12 November 2003 made a further assignment of her debts to the present petitioner.
The progress of the proceeding in the Local Court was interrupted by two default judgments against the review applicants, which they successfully set aside. The circumstances in which those default judgments were entered appear to have been a matter of controversy, but the review applicants were able to persuade the Local Court that they should be allowed to defend the proceeding. They instructed a solicitor, Mr Patterson, to assist them in preparing a defence. A request for particulars was made and responded to, and it appears that the matter was then listed in the Local Court on 10 March 2005 for directions.
In a letter dated 14 March 2005 by Mr Patterson to the review applicants, he put them on notice of reasonable terms on which he was prepared to continue to act for them. In the course of his letter he referred to his inability to obtain instructions from them to assist the filing of an amended defence as ordered. He also put them on notice of further directions made by the Court including:
2.The parties are to exchange witness statements within fourteen (14) days, that is by 24 March, 2005.
3.Either party has permission from the Court to apply for the matter to be relisted on forty‑eight (48) hours notice if the Directions are not complied with.
4.The hearing date of 26 April, 2005 has been confirmed.
Mr Patterson did not, it would seem, receive a satisfactory response to his request for funds, and filed a notice of ceasing to act dated 14 April 2005. However, the review applicants did not instruct any further representatives, nor take any steps themselves to enable the matter to be prepared and defended at the appointed hearing.
The respondents filed a notice of motion in the Local Court seeking reinstatement of the default order based on non‑compliance, and a default order was entered on 26 April 2005, being the judgment debt upon which the present petition is based.
No steps were taken in the Local Court by the review applicants to have that judgment set aside until after the presentation of the present petition. A bankruptcy notice based on the judgment debt was issued on 8 December 2005, and was served on each of the review applicants on 22 December 2005. The petition was presented on 14 February 2006. It undoubtedly was received and came to the attention of the review applicants on 7 March 2006, although the circumstances of service are in dispute.
The review applicants have sought advice from legal sources, including it would seem a Chamber Magistrate and the Law Society, and have engaged at least one firm of solicitors to assist them in the bankruptcy proceeding, and were represented before the Registrar. However, they did not file a notice of opposition as required by the rules, and indeed none has been filed in the course of the present application for review of the Registrar’s order.
Before the Registrar, the only response to the petition was an affidavit filed on 30 March 2006 disputing that service of the petition was effected by personal delivery. Mrs Sciberras claimed that in fact she received it in a folder “sticking out under my front door” on the day of the claimed service. However, the Registrar appears to have held that the dispute as to the manner of service did not provide a sufficient reason for the Court to refuse the sequestration order. I am of the same opinion.
No evidence was presented to the Registrar by the review applicants raising issue with any of the technical requirements in relation to the petition, nor disputing the debt, nor establishing solvency, nor establishing any other sufficient reason for refusing to make a sequestration order.
Nor has such evidence been presented by way of affidavit to this Court in support of the application for review. Mrs Sciberras has only filed two brief affidavits in similar terms, the most recent one filed on 13 April 2006 asserting:
I believe that we are not liable to fees that Georgina Dimitriou has forward as Debra Jane Paton known as Paton Lawyers had her certificate cancelled by the Law Society 27 April 2000 and was struck off the roll.
In April 2000 Law Society of NSW appointed A S Brown and Phillip Walton. I did not attend to met Georgina Dimitriou until Sept 2000. In Dec 2000 Mr Phillip Walton purchased Paton’s practice. The law clerk Georgina Dimitriou claims she bought the debt from Debra Jane Paton but there is no debt to Debra Jane Paton as we did not see any legal advice prior to her in practice and Mr Walton claims we do not owe any money to his firm. Also she has been now looked at by Don Barton at Law Society NSW not to be able to work in any law firm again as she is doing this to others also. [some punctuation has been added]
The application came before me in the bankruptcy duty list yesterday where, due to the pressures of time and confused nature of the material, I adjourned its further hearing to this morning. I gave Mrs Sciberras considerable latitude in explaining to me why she opposed the making of a sequestration order.
Essentially, four grounds emerged from some documents she tendered and from her submissions.
The first ground of opposition is that she has sought to have the Local Court judgment debt set aside by making application to the Fairfield Local Court in recent times. However, evidence presented by the petitioner is that, after hearing both parties on 11 April 2006 and reading affidavits, “the Presiding Magistrate made Order that the Notice of Motion to set aside the judgment be dismissed”.
Mrs Sciberras has not presented any evidence to me to show, and indeed has not maintained, that she has any prospects of obtaining a further hearing of her defence to the statement of liquidated claim in the Local Court by procuring the setting aside of the default order. On the material before me, I do not consider that there is any future prospect of the review applicants’ various claimed defences being investigated in the Local Court.
The second ground of opposition is the manner of service of the petition which I have referred to above. However, there is no dispute that, in fact, the review applicants actually received the petition on the day claimed by the process server. I do not consider that the dispute as to the manner of service should cause me to set aside the Registrar’s order or refuse to make a sequestration order.
The third ground of opposition was obliquely raised by statements by Mrs Sciberras from the Bar table, suggesting that she could raise by borrowing on her property enough money to satisfy the debt and costs of the petitioner. In response to the order made by Federal Magistrate Driver which I have set out above, Mrs Sciberras provided the petitioner only with a copy of an unsigned application for finance indicating that a facility of $715,000 or 65% of valuation might be sought. However, there is no evidence as to the valuation of the property, nor that the application will be successful, although I note that Mrs Sciberras appears to be optimistic.
I have considered this issue by reference to s.52(2)(a) of the Bankruptcy Act, which would allow the Court to dismiss a petition if I were satisfied that the review applicants “[are] able to pay his or her debts”. However, I clearly cannot be so satisfied on the evidence before me. No attempt has been made by the review applicants to present to the Court a statement of their assets and liabilities, so as to allow the Court to assess their current financial position, and in particular whether they are generally solvent. I therefore do not consider that this ground can succeed.
The fourth and principal ground of opposition presented to me by Mrs Sciberras is that she has good defences to most, if not all, of the multitude of debts claimed in the statement of liquidated claim, upon which the judgment debt was obtained.
Taking her through that pleading, a whole series of different factual contentions were raised by her: disputing the making of various alleged contracts for legal services, the quantum of bills and disbursements, and the contents of various conversations and agreements relevant to the allegations in the statement of claim. However, no evidence has been presented to the Court to allow any assessment of the merit of these contentions at a factual level.
A general contention made by Mrs Sciberras was that she might have a complete defence to the whole of the statement of liquidated claim based on the conceded fact that Ms Paton did not possess a practising certificate at the relevant times of the claimed legal services provided to the review applicants, due to the fact that the Law Society had cancelled her practising certificate on 27 April 2000.
Mrs Sciberras was unable to present to me any supporting submissions referring me to any relevant legal or factual support for a defence based upon this contention. At a factual level, it would seem from Mrs Sciberras’ unsworn statements to me that the claimed services were in fact provided by Ms Paton’s clerk, Ms Dimitriou, who may well be able to maintain that they were properly entered into and performed under the supervision of the Law Society’s manager.
I was not taken by the representative for the petitioner to relevant legislation governing the continuance of Ms Paton’s legal practice subsequent to her loss of her practising certificate. He submitted that it appeared from correspondence in evidence before this Court concerning the appointment of the manager under the Legal Profession Act, that Ms Paton’s practice had in fact continued to function with the permission of the Law Society, and that it could be assumed that its employees were capable of continuing to provide services under new fee agreements.
I accept that submission, at least to the extent of finding that, on the evidence and submissions presented to me, I am not satisfied that the review applicants have established any real uncertainty as to the existence of the indebtedness which was asserted in the Local Court as the foundation for the default judgment.
In this respect, the Court is entitled by s.52(1)(a) of the Bankruptcy Act to accept the affidavit verifying the allegation of debt in the petition as sufficient proof of the existence of the debt. In the present case, it is undoubted that there is a final judgment debt in the amount relied upon in the petition. The issue for the Court is therefore whether the review applicant has made out grounds for going behind that judgment debt. In this respect I was referred to the well‑known statement of Barwick CJ in Wren v Mahony (1972) 126 CLR 212 at 224‑225:
Lord Esher in emphasizing that the Bankruptcy Court did not go behind a judgment as a matter of course but only if appropriate circumstances were shown to exist, said in Re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 Q.B.D.( at pp. 85‑86):
“There is no statute which imposes any such obligation on the Court of Bankruptcy. Section 7 [of which s. 52 (1) is a counterpart] does no more than give a discretion.”
His Lordship, in using this expression, was not intending, in my opinion, to weaken the emphasis he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning creditor’s debt. Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one, should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor’s debt is a mere matter of its own discretion. Nothing in Corney v. Brien (1951) 84 C.L.R. 343 lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.
In the present case, I do not consider that the review applicants have established “substantial reasons” for questioning whether there was in truth a debt due to the petitioner behind the judgment relied upon. I am not able positively to be satisfied that there was indebtedness as particularised in the statement of claim – to achieve such satisfaction in the present circumstances would require a substantial trial. My difficulty is finding a substantial doubt about the existence of the claimed indebtedness.

The circumstances of the claim and its pursuit in the Local Court explain why I am left in that doubt. It is a case where the truth of the allegations in the statement of claim could only be proved or disproved by a protracted hearing, in which the parties would lead evidence addressing a multitude of small factual issues. The review applicants have not presented to this Court, even in an informal way, evidence that they have substantial defences to the statement of claim. They have not persuaded me to go behind the Local Court judgment.
The history I have referred to above, in my opinion, shows that the review applicants had a full opportunity to investigate the statement of claim, and to present their defences with the assistance of legal representation at a final hearing which was appointed by the Local Court. They have then had a sufficient period before the presentation of the bankruptcy notice and petition to establish grounds for setting aside the default order. After the presentation of the petition they have tried to obtain that setting aside and have failed. On the evidence before me as to the course of proceedings in the Local Court, I do not consider a ground arises for my exercising a general discretion to refuse to rely upon the default order, nor to find other substantial cause for declining to make a sequestration order pursuant to s.52(2)(b).
For the above reasons, I consider that the decision of the Registrar was correct and is a decision which, on the material before me, I would also make. I am satisfied that the debtors committed the act of bankruptcy alleged in the petition and as to the proof of the other matters required by s.52 of the Bankruptcy Act.
However, rather than dismiss the application for review, I propose to set aside the Registrar’s sequestration order and to make a fresh sequestration order so as to allow me to stay proceedings under the order for the 21 days permitted by s.52(3). I do this in the hope that the parties will be able to avoid further expenses to themselves and in the bankruptcy, by reaching agreement as to an amount which would allow the sequestration order to be set aside or annulled by consent or some other satisfactory arrangement for shortcutting the bankruptcy to be agreed. This may, however, require both parties to put behind themselves what has obviously been a stressful dispute over many years.
I shall make the normal order as to costs.

I certify that the preceding thirty‑eight (38) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Lilian Khaw

Date: 30 May 2006