Duddy v Murray
[2008] FMCA 1594
•19 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DUDDY v MURRAY & ANOR | [2008] FMCA 1594 |
| BANKRUPTCY – Contested creditor’s petition – bankruptcy notice challenged by the debtors – discussion between the parties about payment of the debt – challenges to the bankruptcy notice withdrawn and dismissed – payment subsequently tendered but not accepted – whether acts of bankruptcy committed considered – whether the tender and its rejection is a reason for the Court not to make a sequestration order considered. |
| Bankruptcy Act 1966, ss.41, 52 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) |
| McIntosh v Shashoua (1931) 46 CLR 494 |
| Applicant: | ERIC KEITH DUDDY |
| First Respondent: | WENDY JILL MURRAY |
| Second Respondent: | ROBERT ORMISTON MURRAY |
| File Number: | SYG 1696 of 2008 |
| Judgment of: | Driver FM |
| Hearing dates: | 24-25 November 2008 |
| Delivered at: | Sydney |
| Delivered on: | 19 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Johnson |
| Solicitors for the Applicant: | Sally Nash & Co |
The Respondents appeared in person
ORDERS
The estates of Wendy Jill Murray and Robert Ormiston Murray be sequestrated.
The applicant creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that the date of the acts of bankruptcy is 23 June 2008.
The Court notes that a consent to act as trustee has been signed by Scott Darren Pascoe.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1696 of 2008
| ERIC KEITH DUDDY |
Applicant
And
| WENDY JILL MURRAY |
First Respondent
| ROBERT ORMISTON MURRAY |
Second Respondent
REASONS FOR JUDGMENT
Introduction and background
Mr Duddy presented a creditor’s petition in this Court on 2 July 2008. He now proceeds on an amended creditor’s petition filed on 6 August 2008. The petition is opposed by Mr and Mrs Murray on various bases. They rely upon a further amended notice of intention to oppose the amended creditor’s petition filed on 19 November 2008.
The parties formerly conducted contested litigation in the NSW District Court, the NSW Supreme Court and the NSW Court of Appeal. The present bankruptcy proceedings arise out of costs orders in those proceedings. Mr Duddy obtained a judgment and a costs order in the Supreme Court in proceedings 12555 of 2001 on 19 April 2004. On 17 February 2005 Mr and Mrs Murray obtained a judgment on appeal in proceedings number 40532 of 2004 and costs orders including a suitors fund certificate in the Court of Appeal. On 2 August 2008 Mr Duddy obtained a further judgment in the Supreme Court in proceedings number 12555 of 2001 following a rehearing. He also obtained a costs order. Costs were assessed on 15 January 2008 in favour of Mr Duddy in the following amounts:
a)$13,503.95 and $966.25 in respect of proceedings number 40526 of 2006;
b)$3,935.10 and $833.19 in proceedings 12555 of 2001; and
c)$14,448.39 in proceedings 27 of 2005 in the District Court.
On 11 February 2008 Mr Duddy registered a costs certificate and judgment was entered in District Court proceedings number 27 of 2005 at Tamworth for $14,448.39.
A bankruptcy notice[1] was issued against Mr and Mrs Murray on 8 April 2008 and purportedly served on 21 April 2008. On 8 May 2008 Mr and Mrs Murray filed separate applications to set aside the bankruptcy notice[2]. The challenges to the bankruptcy notice came before Federal Magistrate Barnes on 3 June 2008 who made procedural orders, including an interlocutory costs order. There was a further adjournment granted on 11 June 2008 with an additional interlocutory costs order. The challenges to the bankruptcy notice were listed to be heard by Barnes FM on 23 June 2008. She made orders on that day dismissing the application with costs, including costs against Mr Murray on an indemnity basis.
[1] Bankruptcy notice NN1173 of 2008
[2] Federal Magistrates Court proceedings SYG1182 of 2008 and SYG1183 of 2008
Following the filing of the amended creditor’s petition, the amended petition was purportedly served on 15 August 2008. On 29 August 2008 Mr and Mrs Murray were unsuccessful in further proceedings in the Court of Appeal (proceedings number 40526 of 2006) and they suffered a further costs order.
The petition was heard by me on 24 and 25 November 2008.
Evidence and submissions
Mr Duddy relies upon his own affidavit verifying the amended creditor’s petition, as well as two affidavits of personal service by Daniel John Cini filed on 21 October 2008. The petition is also supported by an affidavit of Louise Harper filed on 2 July 2008 verifying paragraph 4 of the petition, two affidavits of debt by Timothy Duddy filed on 24 November 2008, four affidavits by Louise Harper filed on 24 November 2008 being affidavits of final search, and dealing with the payment of money by Mr and Mrs Murray (and attempted return of that money by Mr Duddy’s solicitor), and an affidavit by Duncan McLean made on 24 November 2008 dealing with an asserted set off in favour of Mr and Mrs Murray in respect of the costs order in their favour made in the Court of Appeal. Only Ms Harper was required for cross‑examination.
I also have before me a consent to act as trustee signed by Scott Darren Pascoe on 14 May 2008.
Mr and Mrs Murray rely upon affidavits by themselves filed on 4 November 2008 (two affidavits), 10 November 2008, 19 November 2008 and 24 November 2008 (the last affidavit had been originally filed on 20 August 2008 but was refiled in court by leave on the first day of the trial of the matter).
I permitted counsel for Mr Duddy to lead oral evidence from his instructing solicitor concerning her recollection of any discussions between her and counsel for Mr and Mrs Murray during the earlier proceedings in this Court over the bankruptcy notice. I took that course in the light of oral evidence from Mr and Mrs Murray about what they recalled being told by their barrister at the time of those proceedings.
On 12 December 2008, while judgment was reserved and after my associate had advised (by letter dated 1 December 2008) that judgment would be handed down on 19 December 2008, Mr and Mrs Murray filed additional affidavits and annexures by facsimile to the Court registry. I had not given any leave for further evidence to be filed. It would have been necessary to re-open the hearing of the matter if the affidavit evidence was to be received and tested. I have read the additional material and formed the view that the evidence, if accepted, would not affect the outcome because:
a)Mr and Mrs Murray were unaware of a letter from Ms Nash to their counsel dated 20 June 2008 in which Ms Nash refused an extension of time for compliance with the bankruptcy notice;
b)that lack of knowledge may reflect a breakdown of communication between them and their counsel but it could not prove the existence of an agreement for an extension of time for compliance with the bankruptcy notice; and
c)Mr and Mrs Murray were aware that the tender through their daughter of the amount due on the bankruptcy notice had been rejected.
Annexed to the affidavit material faxed to the registry on 12 December 2008 is an unfiled affidavit by Mr Donnelly[3] (counsel for Mr and Mrs Murray in the proceedings before Barnes FM) in which he annexes what purports to be a contemporaneous file note of his conversation with Ms Nash on 20 June 2008. I have taken that file note into account but not the affidavits.
[3] sworn before himself as a JP on 11 December 2008
Submissions
Counsel for Mr Duddy made both written and oral submissions. Relevantly, those submissions are:
There is no genuine dispute in the proceedings that the Applicant is a creditor pursuant to Judgments. The Judgments have not been set aside. No stay exists.
There is no dispute that the Bankruptcy Notice was served. There was an application to set it aside by each Respondent. Each application was dismissed with costs. An Act of Bankruptcy was committed by each Respondent.
The Bankruptcy Notice is not invalid and there is no challenge to the form of the Bankruptcy Notice.
There is no dispute in relation to the service of the Amended Creditor’s Petition on 15 August 2008 nor any suggestion that service has not been effected. Each Respondent appeared by telephone on 12 September 2008.
There is no evidence on the part of the Respondents that they are “solvent”. The Respondents have filed no financial evidence.
The Applicant is therefore, prima facie entitled to a Sequestration Order: Cain v Whyte (1933) 48 CLR 639 … .
The burden is upon the Respondents to make out the matters which are set forth in the Notice of Grounds of Opposition. They fail to do so.
They previously sought to appeal from the application judgment. On 29 August 2008 the NSW Court of Appeal refused the appeal.
The Respondents have appeared on two occasions without success. There is no counter claim, cross demand or set-off, the amount of which must be for a specific sum.
The order of the Court of Appeal made on 17 February 2005 includes an “Order that the Respondent to pay the Appellant’s costs of the appeal on the basis of an appeal lasting one day, but to have a certificate under the Suitor’s Fund 1951, if so entitled”. The Order in this matter is only [in favour of] Mrs Murray and Mr Murray has no such costs order. Therefore the amount payable is the subject of a reimbursement by the New South Wales State Government from the Suitor’s Fund. The Respondents have provided no evidence as to the status of this reimbursement.
The Respondents have made no attempt nor is there any evidence of the quantum of the amounts properly due and owing nor of any attempt by the Respondents to have the costs of Mrs Murray assessed from 17 February 2005, being in excess of 3 years. This is despite the fact that the Applicant has had his costs assessed and registered as a judgment.
The mechanism for determination of costs is pursuant to the Legal Profession Act, 2004 whereby the Respondents are to make an application to the Supreme Court costs assessment division for assessment of party and party costs and an application for a certificate under the Suitor’s Fund. The amount is unquantified and there is no reason not to make a sequestration order against each Respondent.
The Applicant’s claim arose well before the Respondent’s claim and she did not seek nor obtain any set-off order before Associate Justice Harrison on 26 August 2006 and she has not proceeded to assessment of her costs. The Applicant had the opportunity on 26 August 2006 to obtain an order for set-off relating to costs order of 17 February 2005 but did not do so.
On 18 September 2008, the Applicant issued a request for further and better particulars of the submissions made by the Respondents at the second return date of the Petition on 12 September 2008. …
Refusal of Tender
On 18 July 2008, a payment in the amount of $14,664.02 was tendered by the Respondents to the Applicant.
On 5 September 2008, on the basis that the tender was refused, the amount of $14,664.02 was returned to the Respondents.
On the authorities, a creditor has a right to refuse and is not bound to accept the payment from the debtor of the amount of the debt claimed in the Creditor’s Petition and may proceed with the Petition. In this matter the current debts exceed the amount tendered (See Affidavit of Debt and Creditor’s Petition). Refusal of the tender is not using the bankruptcy jurisdiction for the purposes of anything illegitimate and is seeking no collateral disadvantage: McIntosh v Shashoua (1931) 46 CLR 494; Taylor v DCT (1999) 42 ATR 220; Foyster v ANZ Banking Group Ltd [2000] FCA 1254.
The fact that, after the commission of an act of bankruptcy and the presentation of a Creditor’s Petition, the debtor tenders the whole of the debt, is not of itself sufficient cause within Section 52(2)(b) and the creditor is entitled to refuse such tender: Quinn & Scattini v Menso [2007] FMCA 1956 at 12.
While tender of a cheque for a disputed amount to the creditor’s solicitor was as good a tender to the creditor, the solicitor was entitled time to consider and take instructions. Where the solicitor had banked the debtor’s cheque but a short time later returned a bank cheque for the same amount to the debtor, the tender was not complete because the cheque had not been accepted and so the creditor did not lose his/her status as creditor: Australian Mid-Eastern Club Limited v Yassim (1989) 1 ACSR 399; 8 ACLC 46; AMP Finance Ltd v Burns (No. 1) [2005] FMCA 646.
In any event the creditor remained a creditor in this matter due to additional costs orders.
Mr and Mrs Murray made oral submissions. They maintained a strong sense of grievance against Mr Duddy (which is not surprising given the protracted litigation history between the parties). Their submissions were somewhat distracted by their sense of grievance and did not focus on all of the grounds of opposition to the creditor’s petition. However, at the heart of Mr Murray’s submissions is the proposition that the debt claimed in the bankruptcy notice allegedly served upon him was compromised by agreement prior to the dismissal of his challenge to the bankruptcy notice in the earlier proceedings in this Court before Barnes FM, and that it was that agreement which led to the tender of the amount sought in the bankruptcy notice following that dismissal. Mr Murray submits (with support from Mrs Murray) that the tender of the amount due on the bankruptcy notice completed an alleged agreement between the parties and that no act of bankruptcy was committed. Alternatively, Mr and Mrs Murray submit that the tender of that amount provides a reason for the Court to refrain from making a sequestration order pursuant to s.52(2)(b) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”).
Reasoning
At the outset of the trial of this matter on 24 November 2008 Mrs Murray challenged the capacity of Mr Duddy to bring or maintain the creditor’s petition because of assertions as to his state of health. I ruled that there was no issue as to Mr Duddy’s capacity as I had before me no evidence that he was incapable of conducting the proceedings and indeed, no evidence as to his state of health.
Prima facie, I am satisfied that Mr Duddy has proved the matters stated in the petition and I am also satisfied (notwithstanding denial by Mr and Mrs Murray) that the petition and the amended petition were served on the debtors and that the creditor’s petition was notified to the Official Receiver. I am also satisfied that the debts stated in the amended petition are still owing. I am satisfied with compliance by the petitioning creditor with the formal obligations in the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
There is no substance in most of the matters raised by Mr and Mrs Murray in opposition to the creditor’s petition. Mr Murray denies service of bankruptcy notice NN117 of 2008 in accordance with the Rules of this Court but he initially admitted service in the earlier proceedings before Barnes FM. Neither Mr nor Mrs Murray succeeded in their challenge to the bankruptcy notices in those proceedings. The petitioning creditor presented affidavits of service which were unchallenged. Mr and Mrs Murray also claim a set-off against the debt claimed by Mr Duddy (as they did in the earlier proceedings before Barnes FM) but they have (it appears intentionally) not obtained an assessment on the costs order in their favour made in the Court of Appeal. That costs order remains objectively unquantified and the amount claimed by Mr and Mrs Murray is contested by Mr Duddy. I am not satisfied that the existence of an inchoate costs order in favour of Mr and Mrs Murray, which they have not sought to have quantified by assessment, provides a reason for the Court to refrain from making a sequestration order.
There has been no finding in the earlier proceedings in this Court that the bankruptcy notice preceding the creditor’s petition was invalid and there is nothing before me to persuade me that there is any invalidity. Mr and Mrs Murray assert solvency but they have not presented any evidence of solvency apart from bare assertions in their affidavits. Mr Murray gave evidence that he arranged for his daughter to tender the amount due on the bankruptcy notice but, on the basis of his account, the funds so advanced were a family loan and would be repayable on demand. That tender does not support a conclusion of solvency. Mr and Mrs Murray are an elderly couple of limited means and obtained fee relief in the proceedings in this Court.
The issue of substance is whether the proceedings on the bankruptcy notice were compromised prior to the dismissal of the challenges to the bankruptcy notice (so that no act of bankruptcy was committed) or whether the tender of the funds due on the bankruptcy notice (following dismissal of the challenges to the notice) provides another reason for the Court to refrain from making the sequestration order. That tender was refused. I accept counsel for Mr Duddy’s submission that a creditor is entitled to refuse a tender following the commission of an act of bankruptcy but the questions are whether acts of bankruptcy were committed and, if they were, whether the circumstances should nevertheless support an exercise of the Court’s discretion to refrain from making a sequestration order.
I accept from the evidence of Ms Nash that she had a telephone conversation with counsel for Mr and Mrs Murray between 4.00pm and 4.20pm on 20 June 2008. She could not recall the details of that conversation but she made a contemporaneous file note. That records an apparent undertaking by Mr Donnelly that Mr and Mrs Murray would pay the amount due on the bankruptcy notice. There was some discussion about the automatic commission of an act of bankruptcy pursuant to s.41(7) of the Bankruptcy Act and the issue of a discretionary extension of time for compliance with the bankruptcy notice pursuant to s.41(6A) of the Bankruptcy Act. It is apparent that Mr Donnelly sought on behalf of his clients an extension of time for payment of their debts. In correspondence dated 20 June 2008 (following the telephone conversation) Ms Nash[4] identified debts additional to that due on the bankruptcy notice and stated specifically that her client did not agree to an extension of time. It appears from her letter that there was nevertheless an agreement that each application to set aside the bankruptcy notice would be dismissed on the following Monday and that no further preparation would be done (presumably to reduce costs). Ms Nash stated that she would be seeking an order for costs. She agreed to Mr Donnelly contacting the chambers of Barnes FM to advise that “the matters are to be withdrawn on Monday”.
[4] Exhibit C3
Mr Donnelly’s handwritten notes of the conversation with Ms Nash are more detailed but, like Ms Nash’s, are just rough notes. His notes confirm that:
a)they discussed payment of the debt due on the bankruptcy notice;
b)they discussed payment of other debts due to Mr Duddy from Mr and Mrs Murray;
c)they discussed the costs order made in favour of Mr and Mrs Murray;
d)they discussed the “withdrawal” of the applications to set aside the bankruptcy notice and payment of “costs” within 28 days.
Curiously, Mr Donnelly wrote to Mr and Mrs Murray by letter dated 23 June 2008 concerning the “withdrawal” of the applications to set aside the bankruptcy notice in which he stated[5]:
As you know I spoke with Ms Nash who agreed payment of the filed debt within 28 days. Normal solicitors costs still apply.
[5] annexure F to the affidavit of Wendy Jill Murray filed on 4 November 2008
That statement is incompatible with the letter from Ms Nash dated three days earlier and apparently faxed to Mr Donnelly on that day.
I find that there was no agreement, prior to the dismissal of the challenges to the bankruptcy notice, for an extension of time for compliance with the notice. It is possible that there was an understanding that Mr Duddy would accept payment of all debts then due to him (including the amount due on the bankruptcy notice and the additional amounts identified by Ms Nash in her letter of 20 June 2008 and costs awarded by Barnes FM) but that would be at the discretion of Mr Duddy following the commission of an act of bankruptcy. Acts of bankruptcy were committed by both Mr and Mrs Murray when their challenges to the bankruptcy notices were dismissed by Barnes FM on 23 June 2008.
In the event only the amount due on the bankruptcy notice was tendered. Further, it was not tendered by Mr or Mrs Murray but by their daughter by direct credit into Ms Nash’s bank account. Mrs Murray gave evidence that she opposed that step. It had been arranged by Mr Murray and his daughter. Ms Nash was instructed not to accept the tender. A cheque was drawn on her trust account and forwarded to Mr and Mrs Murray’s daughter. The cheque was not presented. A further cheque was drawn and sent to Mr and Mrs Murray’s daughter. That was also not presented. Mr Murray gave evidence that this was a deliberate decision based upon discussion between him and his daughter. It appears to have been a tactical move in order to support the proposition that the debt due on the bankruptcy notice had been paid as the funds remained in the trust account of Ms Nash.
Not only was Mr Duddy entitled to reject the tender[6] but in the circumstances of this matter it was reasonable for him to do so. First, only part of the debts due to him had been paid. The amount tendered was approximately half the total amount due. Secondly, the money had not been tendered by Mr and Mrs Murray but by their daughter. That gave rise to the risk that the daughter may be a creditor of Mr and Mrs Murray and the amount tendered might have to be disgorged in a bankruptcy as a preference.
[6] McIntosh v Shashoua (1931) 46 CLR 494
I find that the tender of the amount due on the bankruptcy notice does not provide a reason from the Court to refrain from making a sequestration order.
I am satisfied that the debtors committed the acts of bankruptcy alleged in the petition as amended. I am satisfied with the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof. I am not satisfied that any of the matters raised by the debtors in their notice of intention to oppose the petition either prevent the making of a sequestration order or provide a reason for the Court to refrain from doing so in the exercise of discretion.
I will make the orders set out in the statement of orders preceding these reasons.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 19 December 2008
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