Goodman Law Pty Limited v Laloma (No.2)
[2014] FCCA 1835
•15 August 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| GOODMAN LAW PTY LIMITED v LALOMA (No.2) | [2014] FCCA 1835 |
| Catchwords: BANKRUPTCY – Application for review of sequestration order made by Registrar – whether there are grounds for going behind judgment debt on which creditor’s petition is based – whether creditor’s petition was properly served – application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52(1), 52(2) Bankruptcy Regulations 1996 (Cth), r.16.01 |
| Australian and New Zealand Banking Group v Daher [2014] FCCA 365 Goodman Law Pty Limited v Laloma [2013] FCCA 2094 Kuhadas v Gomez [2014] FCCA 1130 Wren v Mahony (1972) 126 CLR 212 |
| Applicant: | GOODMAN LAW PTY LIMITED (ACN 118 599 590) |
| Respondent: | JANE LALOMA |
| File Number: | CAG 6 of 2013 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 20 March 2014 |
| Delivered at: | Sydney |
| Delivered on: | 15 August 2014 |
REPRESENTATION
| Solicitors for the Applicant: | Mr Kay Goodman Law |
| Respondent in person |
ORDERS
The application for review is dismissed.
The respondent pay the applicant’s costs of the application for review, including the costs of the application for a stay of the sequestration order.
The applicant’s costs be paid out of the estate of the respondent, and have the same priority as the costs of the petition.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT CANBERRA |
CAG 6 of 2013
| GOODMAN LAW PTY LIMITED (ACN 118 599 590) |
Applicant
And
| JANE LALOMA |
Respondent
REASONS FOR JUDGMENT
Introduction
The respondent, Ms Laloma, applies for a review of a sequestration order made by a Registrar of this Court against her estate.
I must consider two things.[1] The first is whether the applicant (Goodman Law) has proved the matters specified in s.52(1) of the Bankruptcy Act 1966 (Cth) (Act). Second, if Goodman Law proves those matters, I must consider whether Ms Laloma has satisfied the Court of any of the matters set out in s.52(2) of the Act, and, if so, whether the Court should, in the exercise of its discretion, dismiss Goodman Law’s petition.
[1] Australian and New Zealand Banking Group v Daher [2014] FCCA 365 at [23] and [24]
Proof of matters described in s.52(1) of the Act
I am satisfied Goodman Law has proved the following matters:
a)The creditor’s petition filed by Goodman Law on 8 February 2013, and returnable before the Court on 7 March 2013, is in accordance with Form 6 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Rules).[2]
b)The matters stated in paragraphs 1, 2, 3, and 4 of Goodman Law’s petition are verified in accordance with Part 2 of Form 6 and those matters, therefore, are proved.[3] The creditor’s petition states that Ms Laloma owes Goodman Law $9,099.76. The creditor’s petition states that this is an amount owing under a bankruptcy notice “issued on 19 December 2013”. This is an obvious typographical error. The bankruptcy notice was issued on 19 December 2012. Further, the amount demanded under the bankruptcy notice is $15,858.84. That represented the sum of a judgment of $14,844.47 Goodman Law recovered from Ms Laloma in the ACT Magistrates Court and interest of $1,014.37.[4] The $9,099.76 referred to in the creditor’s petition is the amount owing after Goodman Law applied $6,759.08 to the $15,858.84 from funds it held in trust.[5]
c)The affidavit verifying the creditor’s petition also deposed to a search having been made of the records of the Federal Court and of this Court showing that no application had been made in relation to the bankruptcy notice.[6] The affidavit does not expressly state when that search was made; but I infer it was made on 8 February 2013, before the creditor’s petition was filed.
d)With the creditor’s petition there was also filed an affidavit of service of the bankruptcy notice issued on 19 December 2012.[7] The creditor’s petition was served by post on what was then the address of Ms Laloma last known to Goodman Law. Service by post is one of the means for service permitted under r.16.01 of the Bankruptcy Regulations 1996 (Cth).
e)The creditor’s petition and affidavit of service of bankruptcy notice were personally served on Ms Laloma on 7 March 2013.[8] That was not five clear days before the return date of the creditor’s petition. The hearing of the creditor’s petition, however, was adjourned to a later time and then again to 6 June 2013 when the Registrar made the sequestration order.
f)On 20 March 2014, being the day on which I heard Ms Laloma’s application for review, Goodman Law filed in Court an affidavit of debt, confirming that Ms Laloma owed Goodman Law $13,641.65.[9] This represented the sum of $8,070.15 and $5,571.50. The amount of $8,070.15 is the difference between the $9,099.76 referred to in the creditor’s petition and a further amount held in Ms Laloma’s trust account that Goodman Law applied towards the $9,099.76 referred to in the creditor’s petition. And the $5,571.50 is the amount of a judgment Goodman Law recovered in the ACT Magistrates Court against Ms Laloma.
g)Also on 20 March 2014 Goodman Law filed in Court an affidavit required by r.4.06(3) of the Bankruptcy Rules.[10]
[2] Rule 4.02(1).
[3] Rule 4.02(2)
[4] See Goodman Law Pty Limited v Laloma [2013] FCCA 2094 at [6]-[7]
[5] See Goodman Law Pty Limited v Laloma [2013] FCCA 2094 at [8]
[6] Rule 4.04(1)(a)
[7] Rule 4.04(1)(b). The affidavit is that of M L Bennie, affirmed on 7 February 2013.
[8] Rule 4.06(2). The affidavit is that of H J Kay, sworn on 8 March 2013.
[9] Rule 4.06(4). Affidavit of J Bettio, affirmed on 20 March 2014.
[10] Affidavit of M L Bennie, affirmed on 20 March 2014.
Accordingly, I am satisfied Goodman Law is entitled to obtain a sequestration order against the estate of Ms Laloma, subject to Ms Laloma persuading the Court a sequestration order should not be made.
Should a sequestration order not be made?
Ms Laloma submits Goodman Law is not entitled to a sequestration order for three reasons. The first is what she described as her concerns relating to “the originating order”. By this I understand Ms Laloma claims that the judgment on the basis of which the bankruptcy notice was issued against her ought not to have been granted because the judgment related to a claim for the payment of fees for legal services provided by Goodman Law to Ms Laloma that Ms Laloma asserts were not carried out according to her instructions.
In support of that assertion Ms Laloma relies on an affidavit that purports to set out the circumstances in which Goodman Law provided the legal services to her and obtained judgment in relation to fees it claimed for those services. In that affidavit, Ms Laloma deposes that the legal services Goodman Law provided related to a family law settlement; the services Goodman Law was to provide were discussed at a meeting held on 10 August 2010 resulting in the entry of two client agreements; there is attached to Ms Laloma’s affidavit a file note of the discussions held at the meeting; Ms Laloma made regular payments to Goodman Law during 2010 and 2011; Goodman Law did not carry out her instructions; Goodman Law withdrew as Ms Laloma’s lawyer on 14 November 2011; Ms Laloma was advised by the standards director of the ACT Law Society that he was unable to resolve the matter with Goodman Law; Ms Laloma wrote to Goodman Law outlining her concerns and proposing a way for resolving the dispute; and Ms Laloma made two visits to Goodman Law to resolve the dispute, but without success.
At the hearing, Ms Laloma made submissions that included a number of factual assertions. I informed Ms Laloma that unless her factual assertions were contained in the affidavit on which she relied, I would not treat the assertions as evidence. For completeness, however, I should set out here what I understood Ms Laloma to have asserted.
Ms Laloma said that the first of the two client agreements related to the separation of Ms Laloma’s financial affairs from those of her former husband’s affairs. Ms Laloma understood that this would involve the winding up of the trustee company of a superannuation fund in which Ms Laloma and her husband had an interest, and that the winding up of the trustee company would automatically result in the winding up of the superannuation fund it managed. Ms Laloma also understood there was to be an audit of the superannuation fund. Ms Laloma claims that she received a one-line letter from Goodman Law stating that the audit had been completed, but she was subsequently informed by RSM Bird Cameron, the accounting practice of whom the trustee in bankruptcy is a member, that no such audit had been done. More generally, Ms Laloma asserted that there had been a failure to implement the orders of this Court in relation to her family law matter, and that this has resulted in an accounting anomaly of over $100,000 being ignored.
The second of the two client agreements related to what the client agreement describes as “advice in relation to the Murrumbidgee Catchment Authority Draft Incentive Property Vegetation Plan proposed for Robin Creek”. At the hearing, Ms Laloma asserted that “none of that work was actually done”.
In addition, Ms Laloma deposes to the obtaining of default judgment against her on 18 April 2012 in the ACT Magistrates Court, being the judgment in relation to which the bankruptcy notice was issued and on the non-payment of which Goodman Law relied in obtaining the sequestration order against Ms Laloma’s estate. Ms Laloma deposed she was ineligible for Legal Aid in relation to her dispute with Goodman Law; Ms Laloma applied to set aside the default judgment, but, before the hearing, she was unable to locate in her home the client agreements that underpinned the debt Goodman Law claimed against her, resulting in the compromise of her ability to provide written submissions to the ACT Magistrates Court.
In substance Ms Laloma is inviting this Court to go behind the judgment debt on which Goodman Law relied for a sequestration order. A court of bankruptcy has power to go behind a judgment to determine for itself whether the debt is in truth owed by the judgment debtor. It will not do so, however, as a matter of course. It will only do so where “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[11]
[11] Wren v Mahony (1972) 126 CLR 212 at page 225. I previously discussed in a little detail the circumstances in which a court of bankruptcy may go behind a judgment in Kuhadas v Gomez [2014] FCCA 1130 at [19]-[26]
In my opinion, Ms Laloma has not demonstrated any substantial reason for questioning whether behind the judgment Goodman Law obtained in the ACT Magistrates Court there was in truth and reality a debt due to it. Ms Laloma’s affidavit did not rise above the level of an unparticularised assertion that Goodman Law did not carry out Ms Laloma’s instructions. And Ms Laloma’s explanation for not being in a position to apply to set aside the default judgment is in truth no explanation at all.
Further, the factual assertions Ms Laloma made at the hearing also do not disclose any substantial reasons for questioning the judgment. As to the assertions relating to the failure to audit the superannuation fund, even if I accept these as true, there is nothing before the Court to show that any part of the debt was for legal fees that Goodman Law incorrectly claimed it carried out in connection with an audit of the superannuation fund. Nor is there anything before the Court to indicate that Ms Laloma suffered any loss which was available to her to set-off against the fees Goodman Law claimed.
As to Ms Laloma’s assertions that this Court’s orders in the family law matter had not been implemented, these go no higher than unparticularised claims. In any event, from the affidavit Ms Laloma affirmed on 26 July 2013, and on which she relied for her application of a stay of the sequestration order, it appears that the orders of the Court had been implemented.[12]
[12] I summarise the evidence in Goodman Law Pty Limited v Laloma [2013] FCCA 2094 at [9]-[10]
Ms Laloma claimed at the hearing that there was “a lot more detail to the process that was followed with regard to the agreement for providing advice in the family law matter which I could outline in one or two pages”. Ms Laloma, however, did not provide any such details in her affidavit.
The second ground on which Ms Laloma relies for contending the Court should not make a sequestration order is difficulties Ms Laloma claims she had in satisfying herself that she had been properly served with the relevant documents on which Goodman Law relied for the making, and on which it continues to rely for the confirmation of the making, of the sequestration order.
At the hearing on 20 March 2014 Ms Laloma applied for an adjournment to provide her with what she claimed would be an opportunity to determine whether documents have been properly served on her. I refused the application. I informed Ms Laloma that she had a sufficient opportunity to consider these issues.
The only issue I understand Ms Laloma is concerned to raise is whether the creditor’s petition was properly served on her. The basis of that concern appears to be the circumstances in which the creditor’s petition was served on her as set out in the affidavit of Mr Kay sworn on 8 March 2013. Mr Kay there deposed that immediately after a directions hearing before Registrar Wall, he had a conversation with Ms Laloma during which Mr Kay discussed providing Ms Laloma with the creditor’s petition and the affidavit of service of the bankruptcy notice. Mr Kay said that there might be a problem with serving the creditor’s petition in the Court building. Ms Laloma, however, accepted from Mr Kay the creditor’s petition and affidavit of service of the bankruptcy notice after an officer from the Registry informed her there was no problem with Mr Kay serving Ms Laloma with the documents in the Court building.
In my opinion, service of the creditor’s petition and affidavit of service was effective. In any event, Ms Laloma actively participated in the proceedings after 7 March 2013. According to the Court file, Ms Laloma appeared before the Registrar on 11 April, 9 May and 6 June 2013, when the sequestration order was made. Thus, even if the service of the creditor’s petition on Ms Laloma on 7 March 2013 was defective, her subsequent active participation in the proceedings cured the defect.
The third matter on which Ms Laloma relies, or at least on which I understand she relies, is Goodman Law’s application from its trust account the amount of $6,759.08 towards the payment of the debt Ms Laloma owes Goodman Law. In my reasons for judgment dismissing Ms Laloma’s application to stay the sequestration order,[13] I concluded that Goodman Law’s treatment of that amount afforded no arguable grounds for the Court not making a sequestration order against Ms Laloma’s estate. I am still of that opinion.
[13] Goodman Law Pty Limited v Laloma [2013] FCCA 2094 at [23]-[27]
Conclusion and disposition
Goodman Law has proved the matters it requires to prove in order to obtain a sequestration order against the estate of Ms Laloma. Ms Laloma has not satisfied me there is any reason why the Court should not make a sequestration order against her estate.
I propose, therefore, to dismiss her application with costs. The order for costs will include the costs of the application for a stay I determined against Ms Laloma on 6 December 2013. I will also order that Goodman Law’s costs be paid out of Ms Laloma’s estate, and have the same priority as the costs of the petition.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 15 August 2014
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