Farrell v The Owners - Strata Plan No 64984
[2012] FMCA 999
•8 October 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FARRELL v THE OWNERS - STRATA PLAN NO 64984 | [2012] FMCA 999 |
| BANKRUPTCY – Application to review sequestration order made by a registrar – extension of time – service of originating process in proceedings leading to judgment on which bankruptcy notice was based – service of creditor’s petition. |
| Bankruptcy Act 1966 (Cth), ss.52, 153B Uniform Civil Procedures Rules 2005 (Cth), r.10.20 |
| Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 Skalkos v T & S Recoveries Pty Ltd (2004) 141 FCR 107; [2004] FCAFC 321 T & SRecoveries Pty Ltd v Skalkos, in the matter of Skalkos [2004] FCA 816 |
| Applicant: | DAVID HENRY FARRELL |
| Respondent: | THE OWNERS - STRATA PLAN NO 64984 |
| File Number: | SYG 667 of 2012 |
| Judgment of: | Barnes FM |
| Hearing date: | 8 October 2012 |
| Delivered at: | Sydney |
| Delivered on: | 8 October 2012 |
REPRESENTATION
| Applicant: | In person |
| Solicitor for the Respondent: | David Le Page, Solicitor |
ORDERS
The application for review filed on 8 August 2012 is dismissed.
The sequestration order made on 20 June 2012 in relation to the estate of David Henry Farrell is affirmed.
The applicant creditor’s costs of the sequestration order made on 20 June 2012 of $6,962.37 be paid from the estate of the respondent debtor.
The creditor’s costs of the application for review filed on 8 August 2012 be taxed and paid from the estate of the bankrupt in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 667 of 2012
| DAVID HENRY FARRELL |
Applicant
And
| THE OWNERS – STRATA PLAN NO 64984 |
Respondent
REASONS FOR JUDGMENT
(Revised from transcript)
This is an application for review of a sequestration order made by a registrar of this court on 20 June 2012 in the absence of the debtor, Mr Farrell, who is the applicant for review. The sequestration order was made on the application of the petitioning creditor, The Owners of Strata Plan No 64984.
Mr Farrell filed the application for review of the sequestration order on 8 August 2012. He sought an extension of time because his application was not brought within the 21 day time limit for review of sequestration orders made by a registrar of this court (see r.2.03 of the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth).
In support of his application for an extension of time and review Mr Farrell relied on an affidavit sworn by him on 8 August 2012 in which he attested that “at no time” did he receive any mail or any “paperwork” by way of personal service in relation to what he describes as “this bankruptice (sic) matter” referred to by reference to a number. He attested that the first time he was made aware of this bankruptcy matter was when he received a letter dated 20 July 2012 from Michael Gregory Jones, his trustee in bankruptcy on 27 July 2012. Mr Farrell’s evidence is that he did not receive an earlier letter from the Trustee dated 2 July 2012 notifying him of the sequestration order. On that basis he appears to contend that he took relatively prompt action after he became aware of the sequestration order.
I have had regard to the factors considered by Downes J in Grundy v Wattyl Australia Pty Ltd [2002] FCA 1480 in relation to determining an application for extension of time. There must be an acceptable explanation for delay. It is also relevant to consider whether it is fair and equitable in the circumstances to extend the time and to have regard to any action taken by Mr Farrell since the sequestration order, including whether he was aware of it, and any prejudice to the other party. Of itself, an absence of prejudice is not enough to justify an extension of time. Of particular relevance are the merits and likelihood of success of the substantive application for review. An applicant should be able to show that there is at least an arguable ground and that it would not be futile to grant the extension of time. The length of the delay is also relevant.
The explanation Mr Farrell has provided depends entirely on non-receipt of any mail, despite the evidence before the court of service of the bankruptcy notice and the creditor’s petition by leaving them in Mr Farrell’s letterbox as discussed further below. Mr Farrell was not required for cross-examination and I accept his evidence in this respect. However Mr Farrell has subsequently raised a number of grounds in opposition to the sequestration order in relation to service of at least one of the originating processes relied on as the basis for the bankruptcy notice. He also takes issue in relation to service of the creditor’s petition. The delay after his receipt of the letter of 20 July 2012 (on 27 July 2012) was not excessive. There is no evidence of prejudice to the petitioning creditor as the matter has been fully argued.
On balance, I am of the view that in the particular circumstances of this case the extension of time should be granted and that it is appropriate that I consider the substance of Mr Farrell’s application for review. I have borne in mind that an application for review is to be considered as on a de novo basis. In that context, the creditor relied on what might be referred to generally as the usual affidavits in relation to the creditor’s petition presented on 27 March 2012.
The creditor’s petition asserted that Mr Farrell owed the creditor the amount of $14,388.91. The amount of $4,129.13 was said to be due under a final judgment of the Local Court of North Sydney of 14 July 2010 while $4,341.23 was said to be due under another final judgment of the Local Court of 8 June 2011. Those amounts (plus interest) were claimed in the bankruptcy notice. In addition, the creditor’s petition stated that Mr Farrell owed further interest and an additional amount of $4,887.54 for outstanding strata levies and interest thereon and expenses payable under the Strata Schemes Management Act 1996 (NSW).
The petitioning creditor relied on an act of bankruptcy on 1 March 2012 said to consist of a failure by Mr Farrell to comply with a bankruptcy notice served on him on 9 February 2012. There is no suggestion that there is any counter-claim, set-off or a cross demand.
The creditor also relies on an affidavit of Phillip Frederick Rogers verifying paragraphs 1, 2 and 3 in the creditor’s petition and in respect of paragraph 4 sworn on 27 March 2012, an affidavit of search of Sudhir Lakshman sworn on 27 March 2012, and affidavits of debt sworn by Mr Rogers of 4 October 2012 and of final search sworn by Ms Lakshman of 5 October 2012.
In relation to service, the creditor also relies on an affidavit of service of the bankruptcy notice sworn on 13 February 2012 by Robert John Wright and two affidavits in relation to service of the creditor’s petition and accompanying documents sworn on 31 May 2012 by Mr Wright and on 18 June 2012 by Ellen Marina Zagas.
The petitioning creditor tendered correspondence from the Trustee about Mr Farrell’s bankrupt estate. The Trustee’s letter of 7 September 2012 is a short report to the court. The Trustee objected to any “termination” or annulment of the bankruptcy while unsecured creditors and his remuneration and expenses remained outstanding. A copy of Mr Farrell’s statement of affairs dated 25 August 2012 was provided to the court by the Trustee, although Mr Farrell relies on an affidavit sworn on 8 August 2012 and on three affidavits each sworn on 27 September 2012 in support of his application for review.
At the time the matter first came before me the only evidence from Mr Farrell was the affidavit of 8 August 2012 that asserted generally that he had not received documentation in relation to the bankruptcy notice. He was given leave to file further affidavit evidence. Two of the affidavits of 27 September 2012 take issue with service. I take them as seeking to raise these issues in opposition to the creditor’s petition as a basis on which the sequestration order should be set aside, or, in the alternative, the bankruptcy should be annulled. Mr Farrell failed to file an affidavit of service of notice to creditors of the application for review. Instead he filed a copy of such a notice with no indication of any recipients.
The first issue raised by Mr Farrell addressed what occurred on 2 February 2010. Mr Farrell explained that he was, in effect, responding to an affidavit of Mr Morrie Fahd. A copy of the affidavit of Mr Morrie Fahd is now before the court, although it was not initially relied on by the creditor. Such copy is annexed to the affidavit of Colin Cunio, sworn and filed on 11 May 2012. Mr Cunio’s affidavit was filed in connection with an application for an order for substituted service of the creditor’s petition. It attested to past service of Mr Farrell with the initiating process in the Local Court proceedings that resulted in judgments that formed the basis for the bankruptcy notice as well as unsuccessful attempts to serve him with the creditor’s petition. In the course of that affidavit, Mr Cunio referred to evidence that the statement of claim in one of the two Local Court matters (proceedings 2010/197531 in the Local Court of New South Wales) was served on Mr Farrell by delivering it to a male person apparently over the age of 16 years, apparently residing at Mr Farrell’s address. The statement of claim in the other Local Court matter was served by post. There is also an affidavit as to the method of service of that statement of claim annexed to Mr Cunio’s affidavit.
Mr Fahd is a licensed process server. In his affidavit of 5 February 2010 he attested to the fact that on 2 February 2010 at 6.45 pm, he duly served Mr Farrell with a sealed copy of the statement of claim in the Local Court proceedings by delivering it to a male person, apparently over the age of 16 years and apparently residing at the specified address, being Mr Farrell’s usual place of abode. At the time of service he asked, “Does David Henry Farrell reside here?” The male person accepting service replied, “Yes”.
Mr Farrell’s evidence in his affidavit of 27 September 2012 is that he was at work on 2 February 2010 and that he did not have such a conversation with Mr Fahd.
There are circumstances in which a failure to serve the initiating process that commenced the proceedings which led to the judgment on which a bankruptcy notice was based may be taken into account, for example in relation to whether or not there ought to be an annulment of a bankruptcy. In Rafaraci v Pearce & Heers [2003] FCA 1307 Tamberlin J considered that possibility in circumstances where the applicant denied service of a statement of claim and also of the bankruptcy notice and the creditor’s petition. In that context his Honour suggested that it was critical that the requirement of service of originating and other essential processes be established with sufficient certainty on the balance of probabilities to warrant the making of an order in an appropriate case and held that a failure to duly serve process went to the essence of the conception of due process. Tamberlin J stated that if the evidence established an absence of service, then that would go to show that someone had not had a hearing in the initial proceedings. It was suggested that in some circumstances a bankruptcy notice founded on a default judgment ought to be treated as invalid if it was proved or admitted that the originating process was not served. In the alternative in such a case the court should not, in the exercise of its jurisdiction, make a sequestration order. If an order had made been made without proper service, it should be annulled (at [24]).
However, it has not been proved or admitted that there was not proper service of the statement of claim in question. Mr Farrell did not address the rules in relation to service of originating process in the Local Court (see r.10.20(2)(b) of the Uniform Civil Procedures Rules 2005 (Cth)). Mr Farrell’s evidence about 2 February 2010 is that he was at work on that day and has provided a copy of evidence of his shifts. On that day the shift he worked was from 8 am to 4 pm. Service is said to have occurred at 6.45 pm. Even accepting for present purposes what are said to be schedules or timesheets printed out from Mr Farrell’s workplace, they do not establish that he could not have been at home at that time as he appeared to contend or that there could not otherwise have been service as attested to by Mr Fahd.
While Mr Farrell now attests that at no time did he speak to Mr Fahd because he was not home at that time, he does so on the basis of what he claims in an affidavit sworn on 27 September 2012 is his memory of what he did after he left work on 2 February 2010, on the basis that it was his normal routine to go to the gym and spend time training after 4 pm such that he would not get home until 8.45 to 8.50 pm.
Moreover, while Mr Farrell was not required for cross-examination, his affidavit does not address the specifics of the manner in which service occurred. Even if one accepts, taking at its highest, his evidence that he did not speak to Mr Fahd, this does not establish that there was not service by leaving the statement of claim with a male person as attested to by Mr Fahd.
I am not satisfied that it has clearly been established that there was no proper service of the initiating process in one of the matters relied on as the basis for the bankruptcy notice. Mr Farrell’s contentions in this respect are not a basis either to set aside the sequestration order or to annul the bankruptcy.
Insofar as Mr Farrell generally disputed having received any documents in relation to the bankruptcy notice or “matter”, the affidavit of service of the bankruptcy notice of Robert John Wright sworn on 13 February 2012 does not attest to personal service. It attests to service by sealing the envelope and leaving the envelope containing the bankruptcy notice and accompanying judgments in the letterbox at the address of Mr Farrell being his last known address, consistent with reg.16.01(1)(c) of the Bankruptcy Regulations 1996 (Cth).
Mr Wright was not required for cross-examination. It was open to the creditor in this case to rely on reg.16.01 in relation to service of the bankruptcy notice. This regulation applies to the method of service of bankruptcy notices because they are documents required or permitted to be served under the Bankruptcy Act. Personal service of a bankruptcy notice is not required if one of the methods prescribed in reg.16.01 is followed. See in that respect Recoveries Pty Ltd v Skalkos, in the matter of Skalkos [2004] FCA 816. An appeal was dismissed by the Full Court of the Federal Court in Skalkos v T & S Recoveries Pty Ltd (2004) 141 FCR 107; [2004] FCAFC 321. Regulation 16.01(2) provides that a document given, or sent to, or served on a person in accordance with subreg.(1) is taken “in the absence of proof to the contrary” to have been received by, or served on, the person. Service in accordance with paragraph (1)(c) is taken to have occurred when the document is “left, in an envelope or similar packaging marked with the person’s name, at the last-known address of the person”.
The Full Court in Skalkos considered an argument about proof of non-receipt, such as Mr Farrell makes in his general claim not to have received any mail in relation to the bankruptcy notice. However their Honours stated at [25]:
It is clear from Fancourt that proof of non-receipt as opposed to non-delivery is not permitted.
In other words the “proof to the contrary” referred to in reg.16.01(2) does not extend to proof of non-receipt of a document. Mr Farrell has not established that there was a failure to serve the bankruptcy notice in accordance with reg.16.01(1)(c).
Mr Farrell also took issue with what occurred on the dates on which Mr Wright attempted to serve him with the creditor’s petition and accompanying documents. Mr Wright’s affidavit in that respect was filed in relation to the application for substituted service. It was not initially relied on in support of the creditor’s petition as it did not attest to actual service. However it is now relied on by the creditor by way of response to Mr Farrell’s concerns in this respect.
Mr Wright’s affidavit was sworn on 5 April 2012 and filed on 11 May 2012. It relates to unsuccessful attempts to serve the creditor’s petition personally.
Mr Wright attested to an attempt to serve Mr Farrell with the creditor’s petition and accompanying on 30 March 2012 by delivering them personally to him. Mr Wright’s evidence is he pressed the intercom of Mr Farrell’s address, but there was no response. On 31 March 2012 he reattended and spoke with Mr Farrell over the intercom. He attested that he had a conversation in words to the effect:
Are you David Henry Farrell?
Yes, why?
I have a Creditor’s Petition and supporting Affidavits from the Federal Magistrates Court for you. Will you come down and accept service?
Leave it in the letterbox.
According to Mr Wright the male he spoke to then “hung up the intercom and terminated the conversation”. On 3 April at 7.15 Mr Wright reattended the premises. There was no response to the intercom. He left a contact card in the letterbox. He did not receive a phone call from Mr Farrell.
Mr Farrell, who was not required for cross-examination, attested in one of his affidavits of 27 September 2012 that he could not have answered the intercom as he had had the receiver intercom in his unit turned off for the entire time he had resided there due to his occupation as a correctional officer. He also gave evidence as to precisely what he did on 31 March 2012. Again this has to be seen in light of the fact that the affidavit was made some considerable time later. He claimed he went to the beach and went shopping before returning home on the basis that this was his normal routine (on a Saturday) from November 2011 to April 2012. He attested that he did not speak to Mr Wright on that day and that he lives by himself at that address. The fact that he lives by himself does not determine the issue of whether someone else may have spoken either to Mr Fahd, to Mr Wright, or any other process server.
In any event accepting for present purposes that Mr Farrell did not have his intercom on and that Mr Wright did not speak to him on that day, this affidavit was not relied on to establish service of the creditor’s petition on Mr Farrell.
The order for substituted service made by Registrar Tesoriero on 23 May 2012 dispensed with personal service of the creditor’s petition and provided for service of a sealed copy of the petition and accompanying affidavits and the consent of the trustee by sending them by prepaid ordinary post addressed to Mr Farrell at his (correctly) specified address and by leaving them in the letterbox at that specified address. The creditor’s petition was to be deemed to have been served on Mr Farrell seven days after service in accordance with whichever of those methods was the later. Hence, what is in issue is whether there was deemed service of the creditor’s petition, not actual receipt.
In the present proceedings there is no challenge as such to the order for substituted service. The challenge is to the sequestration order. What is critical is not the circumstances of attempted service but rather the circumstances of service of the creditor’s petition.
The evidence in relation to service of the creditor’s petition includes Mr Wright’s affidavit evidence of 31 May 2012 to the effect that on 30 May 2012 he served Mr Farrell with copies of the order for substituted service, the creditor’s petition and accompanying affidavits by leaving the documents in the letterbox at Mr Farrell’s address. In addition, Ms Zagas’ evidence in her affidavit of 18 June 2012 is that she posted such documents to Mr Farrell on 28 May 2012. However the documents and letters were returned to sender marked “RTS Unclaimed”. Apparently the envelope was too large to fit inside Mr Farrell’s letterbox and the documents were not collected from the post office. Ms Zagas then refolded and placed the documents and letter in a standard size envelope and posted it to Mr Farrell by ordinary prepaid post on 7 June 2012. A copy of that envelope, as well as a copy of the larger envelope that was returned to sender, is annexed to her affidavit. Neither Mr Wright nor Ms Zagas was required for cross-examination.
I am satisfied on the evidence before the court with service of the creditor’s petition in accordance with the orders for substituted service made on 23 May 2012, notwithstanding Mr Farrell’s claim that he did not receive any mail in relation to the bankruptcy matter.
In these circumstances, I am satisfied with proof of the matters specified in s.52(1) of the Bankruptcy Act1966 (Cth), including the matters stated in the petition (including the date of the act of bankruptcy), service of the petition and, on the basis of the most recent affidavit of debt, that the debts on which the petitioning creditor relies are still owing. The court may in such circumstances make a sequestration order, although, in this instance I am considering a review.
That brings me to whether there is any other basis on which Mr Farrell takes issue with the sequestration order such as whether the court can be satisfied by the debtor that he is able to pay his debts or that the circumstances are such that for other sufficient cause a sequestration order ought not to have been made (see s.52(2) of the Bankruptcy Act).
As indicated, Mr Farrell had the opportunity to file further affidavit evidence, including in relation to his financial position. The only evidence he has chosen to put before the court in relation to his financial position is in one affidavit of 27 September 2012. It annexes a copy of a letter from his accountant which states that Mr Farrell’s “income tax account shows a credit balance of $16,352.20. This is a result of multiple tax returns lodged and a 2010 tax return that was initially assessable for tax exempt foreign income which was finally resolved in Mr Farrell’s favour on 31 August 2012”. It appears that this is intended to address advice from the Trustee in Bankruptcy of receipt of a proof of debt from the ATO dated 31 July 2012 for an amount of $74,075.94, and a reference to subsequent verbal advice that the debt had been reduced to $982. There is no affidavit evidence from the accountant, who also stated that they had been advised by the ATO that Mr Farrell “should receive the refund in short course”.
However also tendered in evidence before the court is a copy of a letter of 2 October 2012 from the trustee in bankruptcy to the solicitor for the petitioning creditor indicating that it appeared unlikely that funds from the ATO would be refunded to Mr Farrell personally, that there had been some correspondence between the ATO and the trustee’s office and that if there was to be a refund, it would go to the trustee in bankruptcy.
Accepting for present purposes that Mr Farrell is now entitled to a credit from the ATO in relation to the situation in 2010, I also note that the proof of debt from the Australian Taxation Office indicates that tax returns have not been filed by Mr Farrell for the last two financial years. The present evidence does not address his current taxation situation.
Mr Farrell did not put evidence before the court such as to establish his ability to pay his debts at the time of the sequestration order. In the Statement of Affairs provided by the Trustee (and tendered by the creditor) Mr Farrell admitted to credit card debts to St George Bank of $10,000; Commonwealth Bank of $11,000 and council “fees” of $2,400. However, he also described his indebtedness to the Owners of Strata Plan 64984 as in the amount of $6,600 notwithstanding that it is apparent from the material before the court that his indebtedness is of a much more significant amount. The Local Court judgments exceeded this amount. The amount of $14,388.91 shown in the creditor’s petition included additional amounts. The petitioning creditor provided a proof of debt to the Trustee in the amount of $21,154.63 with supporting documents. Mr Farrell has not taken issue with the amount of the debt claimed in the creditor’s petition. It is apparent that there is not an insignificant indebtedness to unsecured creditors.
The onus is on the debtor to satisfy the court under s.52(2)(a) of the Act (Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders (2003) 1 ABC(NS) 408; [2003] FCA 1079). There is no evidence before the court of any repayments or planned repayments or amounts paid to any of those creditors. Nor is there evidence of a source of funds to pay them. The evidence in the statement of affairs is that Mr Farrell had cash of $400 and two bank accounts, one of which was a mortgage home loan account with a balance of $30 and one of which had a balance of either had $3.65 or $365. Even taking it to be $365, it is clear that there is no indication of available funds to meet Mr Farrell’s indebtedness that was over $37,700 at the time of the sequestration order, having regard to the debt claimed in the creditor’s petition and the other liabilities disclosed by Mr Farrell, even allowing for the clarification of the income tax situation. The manner in which Mr Farrell’s income and expenditure are described in the Statement of Affairs does not shown an ability to meet such debts.
Mr Farrell claimed in the Statement of Affairs to own a unit with an estimated value of $340,000 and a mortgage of $229,000. There is no valuation evidence before the court. In any event, it is not sufficient for a debtor to establish merely that he has assets exceeding in value the amount of his liabilities as might be perhaps argued to be the case (although in fact Mr Farrell did not make any such argument in this respect) (see Sandell v Porter and Another (1966) 115 CLR 666; [1966] HCA 28, Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 and Re Sanders. Accepting that he owns a unit, albeit it is encumbered, Mr Farrell has not put any evidence before the court as to presently available or realisable funds. He has not contended that he has or had assets that could be realised in a reasonably short time. Nor has he contended that he has a claim against anyone else that would realise an amount equal to or greater than his indebtedness either generally or to the petitioning creditor.
Of more general concern, Mr Farrell has not sought to put before the court proper evidence in relation to his financial position (see Ferella v Otvosi (2006) 197 FLR 451; [2006] FMCA 334). The Trustee has put before the court a copy of the statement of affairs completed by Mr Farrell on 25 August 2012. It is the only evidence in that respect other than in relation to the debt to the ATO. In the statement of affairs Mr Farrell stated that he expected his annual income over the next 12 months to be $64,384 per annum. He described a liability for child support and union fees. He stated that he would be moving from the property which he owned. However there is no evidence or suggestion that the property was to be sold, that Mr Farrell had any intention to sell it or that it was on the market in order to enable Mr Farrell to meet his debts. There is simply no evidence in that respect at all. This issue was raised from the bar table by the solicitor for the creditor and nothing to the contrary was suggested by Mr Farrell.
Nor is there any evidence to suggest that Mr Farrell would be able to raise money, having regard to the test in s.52(2) such that he could be said to be in a position to pay all the debts he owes within a reasonable time. There is nothing to suggest that he would be able to raise further funds on his property having regard to the estimated resale value, how much he concedes that he owes and the mortgage on that property and he has not made any such claim.
The evidence before the court is not such as to demonstrate that Mr Farrell is able to pay his debts within s.52(2)(a) of the Bankruptcy Act.
Nor is there anything to establish other sufficient cause such as would be within s.52(2)(b) either in the arguments made by Mr Farrell in relation to service or otherwise. On the evidence before the court I am not persuaded that the sequestration order should be set aside.
For the sake of completeness I note that where there is an application to review a sequestration order the court can proceed by way of an annulment. However the evidence before the court is not such as to satisfy me that the sequestration order ought not to have been made. Again I note that it is well established in the context of an annulment application that full and frank disclosure must be made by a bankrupt on the application (Re Papps; Ex parte Tapp (1997) 78 FCR 524; [1997] FCA 1031). It is incumbent on the bankrupt to place before the court all relevant material with respect to his or her financial affairs so that the court may be properly informed and make a judgement based on all the facts and circumstances. A failure to provide such proper disclosure may result in refusal of the annulment application. There has been such a failure in this case. On the evidence before the court and disclosure by the bankrupt I cannot conclude that he has established that the sequestration order ought not to be made within s.153B(1) of the Act.
The application for review should be dismissed.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Barnes FM.
Date: 5 November 2012
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