Garrett v D.C.T. - [2005] FMCA 19

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GARRETT v D.C.T.

[2005] FMCA 19

BANKRUPTCY – Review of Registrar’s decision to make a sequestration order – extension of time required for review – prejudice to Trustee for work performed after expiry of time for review – no evidence that debtor solvent – application refused.

Federal Magistrates Act, ss.103, 104

Bankruptcy Act 1966, ss.52, 188

Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004 FCA 2338]
Harrington v Lowe (1996) 190CLR 311

Applicant:

ANDREW MORTON GARRETT

Respondent:

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

File No:

ADG 90 of 2004

Delivered on:

24 January 2005

Delivered at:

Adelaide

Hearing date:

7 December 2004

Judgment of:

Lindsay FM

REPRESENTATION

Counsel for the Applicant:

Self represented

Solicitors for the Applicant:

Self represented

Counsel for the Respondent:

Mr Ross-Smith

Solicitors for the Respondent:

Australian Government Solicitor

ORDERS

That the application for extension of time to bring an application to review the decision of Registrar Christie of 24 September 2004 is refused.
That the Review filed on 2 November 2004 is hereby dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
ADELAIDE

ADG 90 of 2004

ANDREW MORTON GARRETT

Applicant

And

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

REASONS FOR JUDGMENT

This is an application for extension of time in relation to an application for review of a decision of a Registrar of this Court in the exercise of its jurisdiction under the Bankruptcy Act.
The order sought to be reviewed is one made by Registrar Christie on 24 September 2004.
On that day Registrar Christie made a sequestration order against the estate of the respondent Garrett (the applicant in this application and hereinafter described as the applicant).
Registrar Christie on that day was exercising a power delegated to her pursuant to Section 103 of the Federal Magistrates Act and in particular a power set forth in schedule 4 of the Federal Magistrates Court Rules.
The review is brought to this Court pursuant to Section 104 of the Federal Magistrates Act. Sub-section 2 of that section provides that the review is to be applied for within the time prescribed by the rules or within any further time allowed in accordance with the rules.
Reviews from a Registrar’s decision are referred to twice in the rules. Rule 29.04 dealing with bankruptcy proceedings generally provides that an application for review of a decision of a Registrar must be made within 21 days of the date of the decision and that the decision must be reviewed by the Court. Rule 20.01 in dealing specifically with Registrar’s powers provides that for the purposes of Section 104(2) of the Act the application for review must be made within 21 days. Sub-rule 2 provides that the said time may be extended by the Court or a Registrar on any terms as the Court or Registrar thinks fit.
The application was first listed before me on 16 November 2004. On that day the applicant was directed to file and serve an affidavit in relation to the application for the review to be instituted out of time. It was adjourned to 29 November 2004.
The application for review before the Court on that day in the pro-forma part of the document under the heading of “Order(s) Sought” sought:
(1)The order for sequestration against the applicant be annulled.
(2)…
(3)…
An annexure to the application set forth the grounds of the review and under the heading of “Orders Sought” sought:
(1)Leave to “appeal” out of time.
(2)An annulment pursuant to Section 153B of the Act.
(3)Costs.
(4)Damages.
The above purports only to be a summary of the orders sought as described in that document.
On 16 November 2004 I raised with the applicant the distinction between an application to review and an application for an order for annulment. The applicant indicated he understood the distinction and confirmed that he wished the application to be treated solely as an application to review.
On the 29 November 2004 the application was further adjourned because the applicant had only recently been provided with the documents upon which the respondent was relying in opposing the application for extension of time.
I heard submissions from the applicant and from Mr Ross Smith of counsel on behalf of the respondent on 7 December 2004.
The applicant relied upon his affidavit filed in support of the review filed on 15 November 2004 and on his further affidavit filed on the

22 November 2004.
The respondent relied upon documents contained in a folder filed on

26 November 2004 which contained the transcript of three separate hearings before the Registrar and various affidavit material, together with an outline of submissions.
I have read carefully Registrar Christie’s Reasons for Decision.
As the matter was originally presented, the applicant pursued the Review in relation to her decision on that day both to grant a sequestration order and to refuse to adjourn further hearing of the creditor’s petition in the light of the applicant’s appointment of a controlling trustee pursuant to Section 188 of the Bankruptcy Act. Ultimately, the applicant indicated to me that he was not proposing to pursue the Review as it related to the failure to adjourn.
Pursuant to Section 52 of the Bankruptcy Act the respondent was required to furnish proof to the Court on the hearing of the creditor’s petition as to certain matters (see sub-section 1). No issue arose as to those formal matters.
Sub-section 2 provides that if the Court is satisfied that the debtor is able to pay his debts or that for other sufficient cause a sequestration order ought not to be made, the Court may dismiss the petition.
The hearing before Registrar Christie on 24 September 2004 and indeed the hearings on 14 September 2004 and 27 August 2004 were concerned with the applicant’s contention that he was solvent and it is this issue which is addressed at some length in Registrar Christie’s reasons. She concluded (paragraph 26):
“However, I simply have no evidence before me sufficient to find that is (sic) able to pay all his debts or indeed even the debts owed to the petitioning creditor. The fact that he appears to have today signed an authority pursuant to Section 188 of the Act may indicate that he has also come to that view.”
Registrar Christie was told at the outset of the hearing on 24 September 2004 that Mr Garrett had signed an authority appointing Stephen James Duncan, a registered trustee, as a controlling trustee pursuant to Section 188 of the Act on that very day.
The imposition of time limits in the context of the review of the exercise of delegated Commonwealth judicial power was discussed by the High Court in Harrington v Lowe (1996) 190CLR 311. The review discussed in that case was from the exercise of the power delegated to a Family Court Registrar by the Judges of the Family Court and involved a time limitation of 7 days with provision for extension of time. The High Court determined that the imposition of the time limit was not unconstitutional and similar conclusions as to constitutionality follow in relation to the review and time procedures in the instant case.
I approach the matter upon the basis that the three important matters to which I must have regard are:
a)The length of delay requiring extension.
b)The reasons for the delay.
c)The prejudice to the parties if the extension is granted or not granted in each case.
Related to the third matter is an evaluation of the prospects of success of the review. If the Court finds that the review is unlikely to succeed, then the prejudice to the applicant in not granting the extension of time would be illusory.
The review ought to have been filed and served by 16 October 2004 and was in fact filed and served on 2 November 2004. The delay is therefore 17 days.
The applicant in his affidavit of the 22 November 2004 explains the concurrent litigation in which he was participating during the relevant time periods. He is a party to or involved in, some eight Supreme Court actions. He explains that he was involved in shareholders meetings and in the appointment of a Mr John Jackson as sole director of two companies of which he had been director. He explains that he was involved in numerous meetings with the trustee and with the Major Fraud Squad of the South Australian Police. Toward the end of the

21-day period he says he was involved in research relating to various anomalies arising out of mortgage security taken by the National Bank over the property known as Springwood Park, which property had formerly been mortgaged to Bank SA. He says that he was assisting his wife in respect of the proceedings in which she is involved both in this Court and in the Supreme Court. He was pursuing complaints against his solicitors in the Supreme Court proceedings. He was involved in making various representations to his solicitors and to the Supreme Court in relation to what he suggests was a series of errors associated with the solicitors handling of certain aspects of the Supreme Court proceedings.
I have no doubt, having read all of the annexures to his affidavit filed on the 15 November 2004, that Mr Garrett would have been extensively occupied with the matters described above both during the 21 day period and in the 17 days following upon its expiry.
On the other hand the documentation to be filed in relation to the review is relatively straight forward. No affidavit is required by the rules to be filed with the application for review. Pursuant to Rule 20.03 the review, as it must do to preserve the constitutionality of the exercise of the delegated power, proceeds by way of a hearing de novo.
One of the affidavits relied upon by the respondent was an affidavit of John Calvin Groom sworn on 26 November 2004. Paragraph 10 of that affidavit refers to a telephone conversation the deponent had with the applicant on 28 September 2004 wherein it is alleged the applicant confirmed his intention to “file an appeal to the sequestration order”. That particular contention was not disputed by the applicant, although I do not think it carries the matter very much further. The delay is explained by the applicant in the sense that the facts he puts forth give rise to a reasonable basis for apprehending that the relevant period of time was a busy one for the applicant in which it is possible the time limitation was overlooked or given insufficient attention. In other words, I am far from having the view that the time has been allowed to expire through deliberate action or reckless disregard on the part of the applicant as to the time requirements.
In relation to the issue of prejudice to the respondent, Mr Groom in the same affidavit annexes a report he received from the trustee of Mr Garrett’s estate on 26 November 2004. This was sent in response to a request for same by Mr Groom on 24 November 2004. The response indicates the nature of the work undertaken by the trustee and persons delegated by him to assist in the period to 19 November 2004 and suggests that to that time the trustee has carried out work to the sum of $95,000 and that solicitors engaged by him have carried out unbilled work in progress in the amount of approximately $100,000. These costs, relating as they do to a period of less than 2 calendar months seem at first blush to be excessive, but it is inappropriate for me to express any view about that. Nevertheless, it is clear that the work would have a substantial value. I bear in mind that Mr Garrett had filed his review by 2 November 2004 and that any work carried out after the service of same was done by the trustee in contemplation of the possibility of the review being successful and the sequestration order being set aside.
These matters are raised by Mr Ross Smith having regard to the issues raised in the decision of Weinberg J in Kyriackou v Shield Mercantile Pty Ltd (No. 2) [2004 FCA 2338]. In that case, Weinberg J held that a trustee had no entitlement to recover remuneration for work done between the time of a sequestration order and the time of the setting aside of that order on review. The sequestration order having been set aside, there was no bankruptcy and no bankrupt estate from which the trustee could recover his remuneration. In that case the bankruptcy notice was set aside as invalid. No issue as to the timeliness of the appeal was raised. The remuneration was for work done following the sequestration order, but prior to its being set aside.
The trustee in that case was separately represented and urged the Court to make an annulment order rather than an order setting the sequestration order aside. The annulment was sought pursuant to Section 153B. If the bankruptcy is annulled, there must have been at the time preceding the annulment a bankrupt estate from which the remuneration could be recovered.
His Honour refused to annul the bankruptcy. His Honour considered two earlier Federal Court decisions which had left open the question as to whether the Court could choose to proceed by way of annulment rather than setting aside the sequestration order. Important to his Honour’s refusal to proceed by way of annulment was his belief that the trustee “must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain” (see paragraph 42 of the judgment). In the case before him, his Honour clearly thought the trustee should have modified the incurring of remuneration especially after the bankruptcy notice was the subject of attack as being invalid.
In the present case, costs have been incurred by the trustee both before and after the time by which a review ought to have been instituted. If the review were successful, Kyriackou’s case (supra) would suggest that a setting aside of the sequestration order would leave the question of the recovery of the trustee’s remuneration even up to the expiry of the 21-day period in doubt. That may be an incident of the risk associated with the performance of the trustee’s duties in the period between the sequestration order and the expiry of the 21 days. But here the trustee has carried out work, we know, for a period following upon the expiry of the 21-day period. If the sequestration order were to be set aside, so it is contended, it is an additional unfairness that the trustee may be in significant doubt about being remunerated for work carried out in a period when he was entitled to assume that no challenge to the sequestration order was afoot. This is said to be a prejudice that would arise from the extension of the time for the institution of the review.
Of course, if the extension of time were granted, but the review nevertheless failed, then no prejudice could be said to have arisen. The prejudice arises only if we contemplate a successful review. So I am being asked to take into account as a reason for refusing the extension of time, a prejudice that will arise on account of the review being successful.
From the point of view of the applicant, a failure to grant him an extension of time will be of little moment if the review is bound to fail.
The applicant in the affidavit he filed with the review application and in his submissions before me made it clear that he was relying upon his being able to satisfy the Court of his solvency in contending that his review would be successful. It was for this reason that he abandoned any intention to argue that the Registrar’s decision miscarried insofar as it related to his contention that an adjournment should be granted because he had filed a Section 188 Notice. It was obviously clear to the applicant during the course of his presentation of his argument before me that there was some difficulty in advancing that contention in a way that was consistent with a contention that he was able to pay his debts as and when they fell due.
The applicant was unable to persuade the Registrar that he was able to meet his debts as and when they fell due. I do not propose to recite in any detail the reasons she gave for his being unable to so persuade her.
The reliance by the applicant upon Bills of Exchange ultimately rejected by a Reserve Bank of Australia, as such reliance was developed by him over the three hearings which culminated in the Registrar’s decision, was unfounded and the Registrar was clearly entitled to reject any suggestion that the applicant, having been given a number of opportunities to bring to fruition his plans to present various Bills of Exchange to his creditors, was able to make payment of the debts described in the decision or even that debt which gave rise to the petition. Mr Garrett was unable to put anything to me relating to the Bills of Exchange which provided any basis for a challenge to the creditor’s entitlement to reject the mode of payment offered by Mr Garrett (see paragraph 7 of the Registrar’s reasons). Leaving aside the issue as to whether the Court can compel a creditor to receive payment of the debt after the act of bankruptcy has been committed, Mr Garrett was unable to point to any matter which would indicate that the petitioning creditor was acting unreasonably in accepting the advice of the Reserve Bank that the relevant Bill of Sale had any value. Counsel for the petitioning creditor informed the Registrar in the most unambiguous terms are the hearing on 24 September 2004 that his client rejected the proffered mode of payment as valueless.
Similarly, it seems to me that the Registrar was clearly correct in rejecting as evidence of solvency the applicant’s reliance upon the proposed success of his claim in another jurisdiction for damages against the National Australia Bank. I have read carefully the annexures to the applicant’s affidavit of 15 November 2004 and I understand the nature of that claim, but the documents fall very short of establishing that the claim is arguably good or that damages are likely to be recovered, let alone likely to be recovered expeditiously. This is so whether or not Mr Garrett will benefit directly from such an award or indirectly benefit in the sense that it will place the Trust from whom he can expect an indemnity in appropriate funds to make good that indemnity. Registrar Christie was not persuaded that Mr Garrett was able to pay his undisputed debts in any reasonably immediate time, even with the assistance of the indemnity from the Trust and, similarly, Mr Garrett has failed to persuade me of those same matters.
So, in summary, it seems to me, firstly, that the delay is explained.
If I assume that Mr Garrett’s review would be successful, then the failure to file the review within the time prescribed will visit prejudice upon the trustee in terms of a high risk of loss of reward for work done in the period following the expiry of the twenty-one day time limit up to 2 November 2004. If I were persuaded that the review had any prospect of success, then I would have been left with a finely balanced decision to make in such circumstances.
However, the fact that the applicant is in my view unable to provide any evidence of an ability to meet his debts as and when they fall due, being the position that was extant at the time Registrar Christie made her decision and being the position as at the date I heard the application for extension, is determinative of the application for extension of time. I bear in mind that the hearing of the Review, if allowed, would be conducted de novo. I am conscious that the applicant was at this stage focusing upon his application for an extension of time rather than the review proper, but his affidavit material and the submissions he made gave him every opportunity to at the very least adumbrate the matters that he would be relying upon to establish his solvency. It turned out they were the same matters that he relied upon before Registrar Christie and they were matters which in my view she very properly rejected as evidence of same.

For the foregoing reasons, the application for extension of time to bring an application to review the decision of Registrar Christie of 24 September 2004 is refused and consequently the application for review, having been instituted out of time, is dismissed.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of Lindsay FM

Associate: S.M. Smart

Date: