George v Hamilton-Smith (No.2)

[2006] FMCA 1018

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GEORGE v HAMILTON-SMITH (No.2) [2006] FMCA 1018

BANKRUPTCY – Application for review of sequestration order − where judgement debt subject of application for declaration in Local Court − where debtor had requested an adjournment at the hearing before the SM following withdrawal of counsel, after which the debtor’s solicitor refused to open the case on grounds he would later be called to give evidence − where debtor has appealed SM’s decision not to grant adjournment − whether judgment debt satisfied − where insufficient evidence of debtor’s solvency − whether in such circumstances court should exercise its discretion not to make a sequestration order − whether court should adjourn hearing of petition until appeal of SM’s decision decided − whether “other sufficient cause” to dismiss petition under s.52(2) Bankruptcy Act.

Bankruptcy Act 1966, s.52

Rules of Professional Conduct and Practice (Law Society of South Australia) Rule 13.4

Heidi George v Tanya Hamilton-Smith [2006] FMCA 566
Cirillo v Citicorp [2001] SASC 349
State of Queensland v JL Holding Pty Ltd (1997) 189 CLR 146

Applicant: HEIDI GEORGE

Respondent: TANYA HAMILTON-SMITH

File Number: ADG 237 of 2005

Judgment of: Raphael FM

Hearing date: 5 July 2006

Date of Last Submission: 5 July 2006

Delivered at: Sydney

Delivered on: 19 July 2006

REPRESENTATION

Counsel for the Applicant: Mr M. Livesey QC

Solicitors for the Applicant: Minter Ellison

Counsel for the Respondent: Mr R. Sallis

Solicitors for the Respondent: McNamara Business & Property Lawyers

ORDERS

1. Matter adjourned until 2:15p.m. EST on 19 July 2006.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

ADG 237 of 2005

HEIDI GEORGE

Applicant

And

TANYA HAMILTON-SMITH

Respondent

REASONS FOR JUDGMENT

1. The proceeding to which these reasons relate is an application by Tanya Hamilton-Smith (the “Debtor”) for a review of a sequestration order made by Registrar Christie on 20 June 2006. In accordance with her usual practice the learned Registrar provided reasons for her decision which I have had the benefit of reading. This is not the first time that I have dealt with the petition seeking the bankruptcy of the debtor. On 21 April 2006 I reviewed a decision of Registrar Christie who had adjourned the hearing of the petition until 5 June 2006. In my decision: George v Hamilton-Smith [2006] FMCA 566, I adjourned the petition to 20 June 2006. In order to put the present matter in context, it is necessary to rehearse shortly the history of the dispute between the parties.

2. Judgment was obtained by the creditor against the debtor in the sum of $4079 by default in proceedings in the Adelaide Magistrates Court under Action Number 720 of 2002. The debtor maintains that some time after that judgment was entered the creditor and the debtor came to an agreement whereby the judgment was satisfied by the delivery of certain manchester items by the debtor to the creditor. This satisfaction of the judgment debt was raised by the debtor in her application to set aside the bankruptcy notice upon which the petition is based. The proceedings to set aside the bankruptcy notice were heard by Registrar Christie, who dismissed the debtor’s application and dealt with the manchester payments at length between [8] and [19] of her reasons for decision. At [18] the learned Registrar says:

   “Taking into account the whole of the evidence before me, on balance, I prefer the evidence of the respondent. In my view the applicant has not established, on the balance of probabilities, that the debt was satisfied before the issue of the bankruptcy notice, or at all. In addition, although there has been no explanation for the delay in issuing the bankruptcy notice, there is evidence from the respondent as to her reasons for issuing the notice. In the absence of any positive evidence of abuse of process, I am not willing to make any finding that the bankruptcy notice should be invalidated on that basis – indeed on my understanding of counsel’s submissions such a finding was, quite properly in my view, not urged upon the Court.”

3. Upon receiving this rebuff the debtor commenced proceedings in the Adelaide Magistrates Court seeking a declaration that the judgment debt had been satisfied, or alternatively claiming payment for goods sold and delivered by the debtor to the creditor. Those proceedings had not been heard at the time I reviewed the decision of Registrar Christie to adjourn the hearing of the petition. They were due to be heard prior to 20 June and the debtor had successfully fought off an application by the creditor that those proceedings be struck out. In addition the debtor had not once, but on several occasions, tendered to the creditor the amount of the judgment debt. The tender was not accepted by the creditor who was only prepared to accept payment on condition that it brought to an end the dispute about the “manchester payment”. This the debtor was not prepared to countenance.

4. There also exists another set of proceedings between the debtor and Bernsteen Pty Ltd (In Liquidation). Bernsteen Pty Ltd is a supporting creditor. Bernsteen Pty Ltd is represented by the same firm of solicitors as the creditor. The debtor says she has a very substantial cross-claim against Bernsteen that would more than exhaust that company’s claim against her. The Bernsteen action might assume some importance if that company seeks to be substituted for the current creditor but I have found in the judgment delivered by me on 21 April 2006 that the existence of these proceedings in themselves does not constitute “other sufficient cause” within the meaning of s.52(2) Bankruptcy Act 1966 (the “Act”) to dismiss the petition. The existence of those proceedings and the possibility that they might be heard before 20 June 2006 was a contributing factor to my decision in April to extend the adjournment by a short period beyond that which Registrar Christie had ordered.

5. Because the proceeding is not an appeal against the decision of the Registrar but a rehearing of the petition it is best that I deal with the matters which were presented to me in evidence, which differ slightly from the situation which subsisted at the time of the hearing before the Registrar.

6. The hearing before Ms SE O’Connor SM took place at the Adelaide Magistrates Court on 13 June 2006. On 9 June 2006 there had been filed in that court (and also in this court) an affidavit by one Michael Gawronski. The debtor and Mr Gawronski’s ex-wife were close friends and Mr Gawronski had known the debtor for approximately ten years. Mr Gawronski was aware of the dispute between the creditor and the debtor and deposed to a conversation which he stated took place in about late January/early February 2006 at the Woolworths Shopping Centre on Shepherds Hill Road at Blackwood, South Australia, between himself and the creditor. If the relevant parts of the affidavit had been admitted they would, to my mind, constitute evidence of admissions against interest by the creditor.

7. On the morning of 13 June 2006 the debtor was represented by counsel before O’Connor SM. Counsel sought an adjournment of the case and an order for discovery based upon the evidence obtained in the Gawronski affidavit. That adjournment was refused. It seems that the debtor herself was not present in court for that application. After the application was determined the barrister representing the debtor withdrew from the proceedings. His instructing solicitor was present in court. The learned Magistrate requested the attendance of the debtor at the hearing. The hearing was fixed for 2:15p.m. At 2:15p.m the learned Magistrate called upon the solicitor on the record, a Mr Viscariello to open the case. Mr Viscariello is the partner of the debtor. What then occurred is set out in the learned Magistrate’s decision:

   “[1] At the luncheon adjournment, having refused an application for an adjournment, having been addressed by the plaintiff, who suggested that I should disqualify myself and put her before another judge, and having refused to disqualify myself on the ground of bias or on the ground of preference from the plaintiff, I advised the parties that the trial would commence at 2:15p.m.

   [2] At that stage, Mr Viscariello was not in attendance and the matter has been delayed whilst his partner, who had only had recent lunchtime contact from the plaintiff in these proceedings, attempted to see where Mr Viscariello was so that my direction for this trial to commence at 2:15 could be complied with.

   [3] In any event, recently I have had two solicitors from the firm of McNamara Business & Property Law appearing in this matter. I have confirmed my view that the matter is not to be adjourned and the trial would proceed. I called upon the solicitor on record for that firm, Mr Viscariello, to open his case. He declined to do so. He made it clear, again, that what he wanted was an adjournment and that he wanted to brief counsel.

   [4] I called upon him as the solicitor on record, therefore with the obligation as both solicitor and counsel, to open his case. He protested and said that as he is a solicitor, maybe a witness in the trial, he could not appear as counsel.

   [5] I rejected that submission. In my view, it is both wrong in law and wrong procedurally. Whether or not a solicitor on record determines to call him or herself as a witness is not a matter for a court’s inquiry. After I insisted that Mr Viscariello open his case, he declined to do so.

   [6] As Mr Douglas has said, this is a very peculiar, may I say extraordinary situation. The plaintiff’s case has not been abandoned but the solicitor on record has determined not to open the case and not to present evidence.

   [7] Having made that determination, the inevitable outcome of that determination is that the plaintiff has failed to prove its case on the balance of probability and as there has been no evidence presented before me at trial in relation to this claim, the claim is dismissed.”

   Judgment was given against the debtor with orders for costs.

8. The debtor has sought to appeal the decision of O’Connor SM. This was done by lodging an application ex parte for leave to appeal, the debtor arguing that the decision of the learned Magistrate was in essence an interlocutory one for which leave was required. The debtor submits that O’Connor SM was wrong in refusing to grant the adjournment so that discovery could be obtained and was wrong to have required the solicitor on the record to open the case when he had indicated that he would be called as a witness in the proceedings. I was informed that the proceedings before the learned Magistrate were not based upon affidavits filed, so that the choice of witness and the evidence to be produced from such a witness was to be a matter that would be known only at trial. The debtor relied on a decision of the Full Court of the Supreme Court of South Australia, Cirillo v Citicorp [2001] SASC 349, which followed the views of the High Court in State of Queensland v JL Holding Pty Ltd (1997) 189 CLR 146. At first blush the facts in Cirillo are very similar to those that faced O’Connor SM. There was an application for an adjournment in a trial set down for a nine-week hearing where counsel had withdrawn on the morning of the trial. The appellant’s solicitor had applied for an adjournment but was unable to explain why counsel’s retainer was withdrawn and the adjournment was refused. The principle judgment in the case was given by Gray J whose views on the matter are encapsulated in his reasons between [42] and [44]:

   “[42] Neither counsel briefed for Mr Cirillo appeared before the trial judge on the morning of the trial. Rather, it was left to an inexperienced solicitor to inform the court about the end result of a problem that had apparently arisen. This state of affairs should not have occurred. As officers of the court, counsel should have attended court, and insofar as they were able, assisted to clarify the position. For counsel to have so acted would have accorded with long established practice. As officers of the court, counsel also had an obligation to assist the court in dealing with circumstances that could lead to unfairness or injustice. Had counsel attended at court that morning, the trial judge may well have been better informed.

   [43] The courts must give due weight to the need for efficiency. Against that must be balanced the need to ensure that Mr Cirillo was not prejudiced by finding himself unrepresented by counsel on the morning of trial.

   [44] I consider that the matters referred to by the trial judge were insufficient to justify refusing the application for an adjournment. In my view an intermediate option of an adjournment for one week would have enabled new counsel to be briefed and  an informed estimate to be made of whether part of the time set aside could still be used. No irreparable prejudice to Citicorp would have been occasioned. However, even if it transpired that the trial would be delayed for some months, it is my view that an adjournment should still have been granted.”

9. The debtor also argued that O’Connor SM had erred in requiring Mr Viscariello to open the case when he had indicated to her that he might be called as a witness. I was referred to the Rules of Professional Conduct and Practice issued by the Law Society of South Australia, based upon the model rules of the Law Council of Australia, which contain at Rule 13.4 a prohibition on appearing in those circumstances:

   “13.4 A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner’s considered opinion:

   13.4.1 appear for a client at any hearing, or

   13.4.2 continue to act for a client,

   in a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence material to the determination of contested issues before the court. Exceptional circumstances will not usually warrant otherwise unless the practitioner has also consulted a senior practitioner who has approved the proposed appearance or continued acting.”

   It is not clear from the transcript of the Magistrate’s decision whether or not exceptional circumstances were debated. The debtor argues that the decision of the learned Magistrate was so clearly wrong and so clearly appellable that I should exercise my discretion not to make a sequestration order so that what he describes as the “very real dispute between the parties” can be allowed to be litigated. He argues that given the small amount of the judgment debt this would be the appropriate course of action to take because of the lengthy delay that may occur between now and the final determination of the dispute, assuming that the Supreme Court of South Australia allows his appeal. Alternatively, he asks that the court adjourn the hearing of the petition until the matter is decided.

10. At this point I should note that both before Registrar Christie and myself the debtor sought to bring into evidence the affidavit of Mr Gawronski in support of a similar application for discovery of what was described as “the secret agreement between the liquidator of Bernsteen Pty Ltd and the creditor”. Registrar Christie allowed part of the affidavit but disallowed the effective parts describing the conversation between Mr Gawronski and the creditor found at [13.1] to [13.5]. I also disallowed those paragraphs for the reasons given in a separate judgment, which can be summed up as the paragraph not being in proper form because the conversations deposed to were not set out in direct speech but consisted of a summary of the conversation. Not having the relevant part of the affidavit in evidence I would not make orders for discovery or grant an adjournment on that ground. I can also only give very little weight to the allegations by the debtor of collateral purpose in relation to the bankruptcy proceedings. As things stand they amount to an assertion of such from the debtor, and a claim that her assertion is evidenced or corroborated by the fact that the creditor has consistently refused to accept her tenders for what is in effect a very small amount of money, and that both the creditor and the supporting creditor are represented by the same firm of solicitors. Mr Gawronski’s evidence would obviously be very important and I have difficulty in understanding why, it having been rejected by Registrar Christie, it was not put into proper form prior to the hearing before me.

11. Although the debtor has asserted that she is solvent and able to pay her debts as and when they fall due, she has provided no evidence about her assets or liabilities. This was the subject of a comment by me at [4] of my judgment of 21 April 2006 but no evidence has been tendered on this matter in this proceeding.

12. On 21 April I gave my reasons for granting the further adjournment at [13]:

    “[13] I have taken all these matters into account when considering whether or not to adjourn this petition.  As much as there is a public interest in bringing petitions to finality and thus preventing the possibility of insolvent trading or the incurring of debts a bankrupt is unable to repay there is also the fact that the making of a sequestration order has quasi criminal consequences: Re A Judgment Debtor [1908] 3 K.B. 474. It puts severe restraints upon a bankrupt’s freedom of movement and ability to do business and it is these effects which must be weighed by a court considering an adjournment rather than the prejudice to the debtor or the prejudice to the creditor as suggested by Registrar Christie at [27] of her judgment. In truth evidence on both of these matters is sorely lacking but I note that the debtor has not been totally unsuccessful in her previous litigious skirmishes, e.g. in reducing the CFS debt down to a manageable figure. I am of the view that whilst the current timetable for the forthcoming proceedings remains fixed with hearings in May and June the petition should be adjourned to allow those proceedings to be heard. But if the debtor is unable to mount her cross claim without a significant adjournment or if the claim against the creditor is delayed then the rationale for the adjournment of the petition (the speedy resolution of outstanding disputes) will no longer apply. Registrar Christie was unaware of the date of the hearing of the claim in the Magistrates Court between the creditor and the debtor but I have been informed that it is to take place on 13 June. I will adjourn the petition until 20 June 2006 but I will grant the parties liberty to apply so that in the event that these hearing dates are not kept to an application can be made for an earlier hearing. The petition and any such application will be returnable before Registrar Christie.”

    It is clear from those reasons if there was not to be a speedy resolution of the principle dispute concerning the manchester payment I was inclined to make the sequestration order. I had discussed the authorities on s.52(2). The views there expressed, which echoed those of the Registrar, indicated that the debtor had not satisfied the court of the existence of “other sufficient cause”. The dispute concerning the manchester payment has not been resolved. I am advised that the Bernsteen proceedings have also been put off for some months. Whatever views I may have concerning the possibility of success on the appeal against the decision of O’Connor SM not to grant an adjournment, such an appeal would not conclude the matter. At best the case would be referred back to the Magistrates Court to be heard. Registrar Christie has already heard some evidence about that dispute and came to a conclusion prejudicial to the debtor. Her decision does not bind me in any way but her analysis of the evidence that was before her at the time is a matter I think I can legitimately take into account when deciding whether or not to exercise my discretion to dismiss the petition.

1. On 10 July 2006 there was received in the court a letter from McNamara Business & Property Lawyers, a copy of which I understand was provided to the respondents. This letter indicated that Justice White had ruled that the judgment and orders made by Magistrate O’Connor on 13 June 2006 dismissing the action was a final judgment in respect of which the debtor had an appeal as of right and leave of the Supreme Court to bring the appeal was not required. However, the time within which to appeal (14 days) had then expired and so leave to appeal is required. I am told in the letter that the relevant applications will be made as soon as possible. I have, in the last few days, received from the debtor’s solicitors a series of facsimiles regarding and attaching the appeal. I have read them. I note the appeal will be actively pursued and that any adverse decision by a single Judge will likewise be taken further. But these activities will take time, perhaps much time. Rather than provide me with a ground for dismissing the petition the representations seem to point up the necessity of bringing this application to its conclusion.

2. I am of the view that the actions of the debtor are not consistent with my exercising my discretions in her favour. The provisions of s.52 have clearly been satisfied subject to the matter of affidavits to which I will later refer. Although it is clear there is a dispute between the debtor and the creditor about the manchester payment the manner in which the dispute has been litigated gives cause for concern. The case seemed to take quite a long time to come on for trial, and when it did we had the unexplained conduct of the debtor’s counsel in withdrawing when it must have been clear that there was a possibility that the adjournment application would be not be granted. We have the situation of the appeal against the decision of O’Connor SM being brought as an application for leave to appeal where no holding or protective appeal was lodged. We have the continued refusal of the debtor to provide the court with any indication of her solvency and her financial situation. We have the further delay in the Bernsteen proceedings, and we have the failure of the debtor to put into admissible form what she claims to be a vital affidavit. These matters weigh heavily against the exercise of discretion even though I am troubled by the smallness of the debt and the refusal of the respondent creditor to accept the tender.

3. In all the circumstances I am not satisfied as of today that there is “other sufficient cause” to dismiss the petition under s.52(2) and I would make a sequestration order against the estate of Tanya Hamilton- Smith. There is one problem however. Because a review of a Registrar’s decision is a hearing de novo it is generally considered that an applicant for a sequestration order must establish those matters required by s.52 of the Act as at the date of the review hearing. This would mean that the applicant should file affidavits of search and debt. I am not aware that they did so. I will adjourn the matter until 2:15p.m. Sydney time on 19 July 2006 so that those affidavits can be provided by fax to my associate prior thereto. If they are provided and the usual undertakings are given to file the originals, I would propose to make a sequestration order in the usual form against the estate of the debtor. The hearing will be by video link, which has been arranged.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Raphael FM.

Associate: 

Date: