Fennell (Trustee) v Power
[2020] FCCA 3536
•10 June 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| FENNELL (TRUSTEE) v POWER & ANOR | [2020] FCCA 3536 |
| Catchwords: BANKRUPTCY – Application to review sequestration order – service of bankruptcy notice. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(2) Bankruptcy Regulations 1996 (Cth), regs.4.02, 16.01 |
| Cases cited: Anne v Ask Funding [2015] FCA 1111 Curtis v Singtel Optus Pty Ltd [2014] 225 FCR 458 Mbuzi v Favel (No 2) [2012] FCA 311 Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321 |
| Applicant: | JAMES D FENNELL AS TRUSTEE FOR THE TRINITY ASSET TRUST |
| First Respondent: | PAUL DAVID POWER |
| Second Respondent: | FIONA POWER |
| File Number: | BRG 1047 of 2019 |
| Judgment of: | Judge Jarrett |
| Hearing date: | 3, 4 June 2020 |
| Date of Last Submission: | 4 June, 2020 |
| Delivered at: | Brisbane |
| Delivered on: | 10 June 2020 |
REPRESENTATION
| The Applicant appeared in person. |
| The First Respondent appeared in person. |
| The Second Respondent entered a submitting appearance |
ORDERS
The orders made on 8 April, 2020 are confirmed.
The application for review of the decision of Registrar Buckingham made on 8 April, 2020, filed on 29 April, 2020 is dismissed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRG 1047 of 2019
| JAMES D FENNELL AS TRUSTEE FOR THE TRINITY ASSET TRUST |
Applicant
And
| PAUL DAVID POWER |
First Respondent
| FIONA POWER |
Second Respondent
REASONS FOR JUDGMENT
This is an application to review a decision of a Registrar to make a sequestration order against the estate of the applicant. Proceedings were commenced by a creditor’s petition on 5 December, 2019. The sequestration order was made on 8 April, 2020.
An application to review a decision of a Registrar is dealt with de novo, that is to say, the proceedings are argued afresh without reference to the Registrar’s decision. It is not an appeal and no question of determining whether the Registrar was right or wrong arises. The petitioning creditor must prove his or her case again and the respondent to the creditor’s petition can agitate all of the arguments that were agitated before the Registrar together with any additional arguments that he or she may wish to argue. It is for that reason that it is necessary for a creditor to file and serve affidavits of debt and search at the hearing of the review application.
In this case, there have been a great many number of documents filed. The file is replete with affidavits by the applicant on the review, Mr Paul Power, and affidavits by persons on behalf of the respondent, including the respondent, Mr Fennell. The volume of documents in this case, given the amount of time that it has been before the Court, is quite extraordinary.
The creditor’s petition asserts that the debtor or the applicant for review has failed to comply with a bankruptcy notice that was properly served on him. The creditor’s petition is verified in the way in which it is required to be verified by the Bankruptcy Act and the Bankruptcy Rules. Paragraphs 1, 2 and 3 are verified by affidavit as is paragraph 4 of the petition.
On 21 January, 2020 the applicant for review filed a notice stating his grounds of opposition to the creditor’s petition. The first was that he disputed the judgment debt. The second was that the petitioning creditor had failed to include in the creditor’s petition details of a security said to be held by the petitioning creditor in respect of the debt and, thirdly, that the amount of the debt was erroneous because it did not take into account the value of the security held by the petitioning creditor. As the matter has developed on the review, there has also been issue raised about service of the bankruptcy notice upon the applicant for review and, more generally solvency has now been raised by the applicant for review. I will deal with these matters in turn.
The judgment debt arises out of a consent judgment issued from the District Court of Queensland. The affidavit material before me demonstrates that there has been a long history of litigation between these parties. The genesis seems to have been some contracts for the sale and purchase of land entered into between the parties via their various entities, trusts and the like. The contracts were originally made, it seems, on 19 April,2017 and then subsequently on 19 June, 2017 one of the earlier contracts was rescinded and a fresh contract was entered into in its place.
There was then a loan agreement which enabled the applicant for review to complete some of the contracts on 21 June, 2017 via his corporate vehicle, Foxworth Pty Ltd. Settlement of some more of the contracts occurred on 5 July, 2017. One of the lots contracted to be bought and sold was not settled. District Court proceedings ensued on 24 November, 2017 over the failure to complete that contract. Those proceedings were settled on 2 May, 2018 by a deed of settlement.
The terms of the deed of settlement were not observed and subsequently proceedings were brought on that deed. The applicant on review and his corporate interest did not complete its terms. Judgment was entered against the applicant for review and some other parties, including this corporate vehicle, Foxworth Pty Ltd on 5 November, 2018 for $685,000. The judgment was a consent judgment, that is to say, there was no hearing on the merits of the application and the dispute between parties, but that dispute was merged in the consent judgment that the parties agreed be entered against the applicant for review. The evidence before me demonstrates that there is, in fact, a debt owed by the applicant for review to the respondent. The debt is evidenced by the District Court judgment for which the applicant for review agreed.
It is said that the petitioning creditor holds security for the judgment. How that comes about is not entirely clear from the evidence. The loan agreement that was made on 21 June, 2017 provides for the lodgement and registration of a mortgage in favour of the petitioning creditor’s corporate interests over the title to one of the parcels of land the subject of the sale and purchase contracts. What is referred to in the material as Lot 178 was to be the subject of that security and that, indeed, might provide security for the indebtedness of Foxworth, but it says nothing about providing security in respect of any debts owed by the applicant for review before me.
He stands as a separate legal entity apart from Foxworth Pty Ltd and the judgment in the District Court is a joint and several judgment. It was not demonstrated in the evidence or in the argument how whatever security might go against Foxworth Pty Ltd benefits the debtor in this case. The petition, in my view, is not bad because it does not disclose what is said to be a security interest. I am not satisfied on the evidence that such a security interest over the debt owed by the applicant on the review exists.
The applicant for review takes issue with service of the bankruptcy notice. It is trite, I think, that if service of the bankruptcy notice is ineffectual or invalid, then a creditor’s petition must fail. A validly served bankruptcy notice is essential to the making of a sequestration order where the creditor’s petition is based upon an act of bankruptcy constituted by failure to comply with the bankruptcy notice. Service of bankruptcy notices is provided for in reg.16.01 of the Bankruptcy Regulations 1996 (Cth). Service can be carried out personally, it can be carried out by posting the relevant bankruptcy notice to the debtor, or it can be carried out by sending it to the debtor electronically by email or facsimile.
A bankruptcy notice must be in the form prescribed: s.41(2) of the Bankruptcy Act 1966 (Cth). The Bankruptcy Regulations prescribe an approved form: reg.4.02. The prescribed form for a bankruptcy notice requires the bankruptcy notice to have attached to it the judgment relied upon by the creditor. The petitioning creditor relies upon evidence from a process server, Mr Matthew Penny to prove service of the bankruptcy notice. He has filed two affidavits that deal with service.
The first affidavit filed on 6 December deals with the bankruptcy notice served on 12 November, 2019. Mr Penny swears that he handed the document to Paul David Power at x xxx Court, xxx. He says that he delivered it to the address for service of Fiona Power at x xxx Court, xxx. He then says in paragraph 6(i) of his affidavit of service:
Now produced and shown to me marked with a letter A is annexed hereto and ..... a true copy of the bankruptcy notice B47349 which I served upon the respondents, Paul David Power and Fiona Power.
When one goes to the annexure, there is a copy of the relevant bankruptcy notice, but it consists of only two pages. The judgment upon which the petitioning creditor now relies was omitted from the annexure, the plain inference being that it was not attached in the bankruptcy notice when it was served by Mr Penny. When that issue was raised, the petitioning creditor sought to deal with it by leading some further evidence from Mr Penny. There is a second affidavit from him in which he describes having served the document on the debtors. That affidavit was filed on 18 February, 2020. In that affidavit he refers to his first affidavit and to annexure MP1. He then says this:
I can confirm that at the time of carrying out services as referred to in that affidavit, that the bundle of documents served on Paul Power on 12 November 2013 contained the bankruptcy notice BM247349 issued 11 November 2019 and that which was accompanied by the court judgment dated 5 November 2019.
Annexed to the affidavit of MP2 is a copy of the court judgment. Two things should be observed about this affidavit. The first is that it simply provides as the annexure, for reasons I do not understand, a copy of the affidavit that was filed on 6 December, 2019. That affidavit was deficient or, at least, demonstrated deficient service because there was no judgment attached to the bankruptcy notice. The second thing to observe is that a copy of the judgment that is annexed as MP2 is not attached to the bankruptcy notice either.
Moreover, Mr Penny does not swear that the judgment was attached to the bankruptcy notice when it was served. The requirement is that it be so attached. What he swears is that he handed over a bundle of documents. He does not identify the documents in the bundle, and simply says that the judgment was contained within the bundle, the bankruptcy notice was contained within it, and “was accompanied by the court judgment”.
Service of bankruptcy notices is something which needs to be strictly proved by creditors. There are a number of authorities which deal with this issue. They were conveniently summarised by Collier J of the Federal Court in Mbuzi v Favel (No 2) [2012] FCA 311. Strict proof of service of service of a bankruptcy notice is the keystone of the making a sequestration order based upon non-compliance with the bankruptcy notice.
The requirement to have the judgment attached to the bankruptcy notice is the focus of the judgment of Rangiah J in Anne v Ask Funding [2015] FCA 1111. In that case at [78] onwards, Rangiah J deals with the requirement for a properly constituted bankruptcy notice to have attached to it the judgment that is relied upon by the petitioning creditor and his Honour draws upon and applies in the judgment of the Full Court of the Federal Court in Curtis v Singtel Optus Pty Ltd [2014] 225 FCR 458.
The upshot of all of this is that I am not satisfied that the bankruptcy notice was personally served upon the debtor, the applicant for review, by Mr Penny. He may have been given a copy of the bankruptcy notice, but I am not satisfied on the balance of probabilities that it had attached to it, as it was required to be, a copy of the District Court judgment upon which the bankruptcy notice was based. A copy of that judgment might even have been given by Mr Penny to Mr Power, but there is no evidence to demonstrate that it was attached to the bankruptcy notice as is required by the prescribed form, regulation 4.02 and the Bankruptcy Act.
Regulation 16.01 of the Bankruptcy Regulations provides that service can be effected by email. Mr Fennell swears that he sent a copy of the bankruptcy notice and the judgment to the applicant for review by email. He says that the email was sent to the email address [email protected], and that attached or a part of that email was the bankruptcy notice and the relevant judgment. That is sufficient if I am otherwise satisfied that service was effected by email for the purposes of regulation 16.01(c), see Curtis v Singtel Optus Pty Ltd. But Mr Power swears that he closed that email address in early 2018 and that he did not receive any email at that email address from Mr Fennell.
He does swear that soon after the purported date of service on 13 November he received an email from Mr Fennell on 21 November, 2019 to another email address similar to, but not the same as, the earlier address. [email protected] was, according to Mr Power’s evidence, a current email address. Neither party sought to cross-examine the other about this issue of fact. Neither party sought to cross-examine any witnesses, in fact, about any of the matters where at issue between them. The uncontradicted evidence is that the [email protected] email address was closed a long time before Mr Fennell purported to send the bankruptcy notice to Mr Power by email.
There is no suggestion from Mr Fennell that he received a delivered receipt or a read receipt from Mr Power in respect of that email and, accordingly, I am not satisfied that the bankruptcy notice was properly served by Mr Power by email. Regulation 16.01 of the Bankruptcy Regulations was not complied with insofar as it permits email service.
RECORDED : NOT TRANSCRIBED
The next method of service is post. The Bankruptcy Regulations permit service by post. Here the petitioning creditor says that the bankruptcy notice was sent by post to the debtor. He says that the postal item was tracked using the Australia Post tracking system and the tracking number and the results are attached to his affidavit. He says that part of the mail that he sent was the bankruptcy notice together with the judgment. The debtor says this in his affidavit filed on 18 February, 2020:
I do not recall having received a bankruptcy notice being delivered in November 2019 and the court judgment dated 5 November 2010 by mail. I have undertaken a search of Australia Post using the tracking number in the Australia Post tracking report which is annexed as JF2 to the Fennell affidavit. The search results indicate that the envelope was never sent and the status is currently “pending”. Annexed as “TP-2” is a copy of the Australia Post search.
The bankruptcy regulations provide for service of a bankruptcy notice by post. Service is deemed to have occurred under the regulation unless the person to whom it was sent can prove that it was not delivered. That is the effect of cases like Fancourt v Mercantile Credit (1983) 154 CLR 87 and Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321. The test is not receipt of the documents, but, rather, posting and delivering. Here all that is proposed to by the respondent debtor is non-receipt. Non-receipt is not the same as non-delivery.
There is something of a conflict between the results of the Australia Post tracking searches that are annexed to Mr Fennell’s affidavit that demonstrates that documents were “delivered” whereas that attached to the debtor’s affidavit shows the status being “pending”, but neither party, again, was cross-examined about this issue, and there is no evidence before me about the significance of the “pending” tracking notification as opposed to the notification attached to Mr Fennell’s affidavit.
On the evidence, I am satisfied of the following: first, that the bankruptcy notice with the judgment attached to it was sent by post by Mr Fennell to Mr Power as he asserts. I am also satisfied that the letter was delivered in accordance with the Australia Post delivery information attached Mr Fennell’s affidavit. I make no finding as to whether it was received by Mr Power, because receipt is irrelevant. It is delivery which is important. And on that basis I am satisfied that he has been served with the bankruptcy notice for the purposes of regulation 16.01(a) of the Bankruptcy Regulations.
There is no dispute that he has not complied with the bankruptcy notice. Service of the bankruptcy notice is proved and the failure to comply with that notice is sufficient to support the creditor’s petition. All other matters have been dealt with by the petitioning creditor and there is no discretionary reason to refuse relief. As to the last matter, the debtor assets that he is solvent and were he to be given more time he would be able to prove his solvency. I reject his arguments about that. There is no evidence before me about his solvency.
There is, despite the extraordinary number of documents in this case, no reliable evidence about the value of any assets that might be owned by the debtor or the value of any securities that he might have granted over any of his assets. There are some assertions in the material about the value of his home at Tanawha, but little by way of probative evidence about what debts might be secured over that property. His case is that were he able to get access to certain books and records, he would be able to demonstrate his solvency. Those books and records include the books and records held now by the liquidator of Foxworth Pty Ltd or lawyers who had acted for the debtor in the past and had perhaps passed those documents to the administrators and then the liquidators of Foxworth.
There are also documents held by the receivers of the Paul Power Family Trust. Mr Power says that he has in the past engaged lawyers who have neither acted for him properly and done him a disservice in the way in which they have handled his affairs and those lawyers have retained and refused to provide to him his documents and financial documents in relation to the trust and the trustees of the trust from time to time, all of which would go to demonstrate his solvency.
However, even assuming all those things are correct, that these documents exist and that the lawyers have them, and have refused to hand them over, it would not prove solvency.
What it would prove is that the trust might have some assets and it might prove the financial circumstances of the trust, but it would not prove, and it is not demonstrated in the material anywhere, how the assets of the trust might filter through to Mr Power. Presumably, I say “presumably”, the Paul Power Family Trust is a discretionary trust. Mr Power is the appointor of the trust according to the evidence, but that means nothing more than, presumably, a power of appointment of the trustee of the trust. It is not a means by which the trustee can be controlled, and nothing is demonstrated in the material which would show that whatever trust assets might be available would become available to Mr Power.
Put shortly, there is no convincing evidence at all to demonstrate that an adjournment of the creditor’s petition would mean that there would be the production of documents that would demonstrate Mr Power’s solvency and there is no evidence before the Court amongst the plethora of material that has been produced which rises above a mere assertion of solvency.
In those circumstances, I am not satisfied that the applicant for review is solvent or is likely to be solvent. The petitioning creditor has satisfied the matters that require satisfaction under s.52 of the Bankruptcy Act. There is a current affidavit of debt and a current affidavit of search. The petitioning creditor is, prima facie, entitled to the making of a sequestration order and there is no reason not to make such an order.
There is already an order in place made on 8 April, 2020 by Registrar Buckingham. I confirm the sequestration order made on that date and otherwise all outstanding applications are dismissed.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Judge Jarrett delivered on 10 June, 2020.
Associate:
Date: 23 December, 2020.
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