Hall and Wilcox (A Firm) v O'Meara - [2005] FMCA 1838

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HALL & WILCOX (A FIRM) v O’MEARA

[2005] FMCA 1838

BANKRUPTCY – Adjourned to allow supporting creditors to appear – costs.

McAuliffe v Pecoult (2003) FMCA 278

Applicant:

HALL AND WILCOX (A FIRM)

Respondent:

HEDLEY NED O'MEARA AKA NED O'MEARA

File Number:

MLG 985 of 2005

Judgment of:

Riethmuller FM

Hearing date:

14 November 2005

Date of Last Submission:

14 November 2005

Delivered at:

Melbourne

Delivered on:

14 November 2005

REPRESENTATION

Counsel for the Applicant:

Mr Gardiner

Solicitors for the Applicant:	Hall & Wilcox
Counsel for the Respondent:	In person

Solicitors for the Respondent:

Counsel for the Trustee in Bankruptcy:

Ms Dewhurst

Solicitors for the Trustee in Bankruptcy:

Piper Alderman

Counsel for Tuscany Lights Pty Ltd:

Mr Jones

Solicitors for Tuscany Lights Pty Ltd:

KCI Lawyers

ORDERS

The formal orders of the court will be that:

The respondent pay the applicants costs of or incidental to the proceedings on the creditor’s petition and application for review as agreed or failing agreement as assessed or taxed.
The applicant given leave to withdraw.
The matter be adjourned to 25 November 2005 at 9:15.
Any supporting creditor do file and serve all further affidavits and other material to be relied on by them not later than 18 November 2005.
Leave granted to respondent to appear by telephone on 25 November 2005.
The Sequestration order be stayed until 25 November 2005.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 985 of 2005

HALL AND WILCOX (A FIRM)

Applicant

And

HEDLEY NED O'MEARA AKA NED O'MEARA

Respondent

REASONS FOR JUDGMENT

(Revisited from transcript)

This is an application by the bankrupt to set aside a decision of a registrar of the Federal Magistrates Court to make a sequestration order on 27 September 2005. The application comes before me by way of a review of the registrar's decision.
In the time between the sequestration order being made and today, another Federal Magistrate stayed the operation of the sequestration order and subsequently the bankrupt applied to the Magistrates Court of Victoria and obtained orders setting aside the judgment upon which the creditor's petition and bankruptcy notice were based. The proceedings in the state Magistrates Court are now currently pending. As a result, the petitioning creditor, Hall and Wilcox, no longer has a judgment debt upon which to pursue the proceedings and seeks their costs of these proceedings.
The bankruptcy notice in this matter was served on 11 May 2005. That followed a hearing in the state Magistrates Court on 4 April 2005, in which the petitioning creditor obtained a judgment as a result of the failure of the respondent to attend in person or by counsel.
On 20 June 2005 the bankrupt made application for a rehearing in the Magistrates Court of Victoria which was set down for 18 July 2005. The bankrupt did not attend on that date and the application was struck out. On 11 August 2005 the petitioning creditor then issued its petition.
I pause here to note that the petitioning creditor did not proceed with a petition for a sequestration order until such time as the respondent bankrupt was allowed an opportunity to make application, and have that application heard, for a setting aside of the original judgment upon which the proceedings were based. This was clearly appropriate conduct by the petitioning creditor, so as to avoid potentially wasted costs and expenses of bankruptcy proceedings if it transpired that the judgment was set aside, thus removing the basis for the creditor's petition.
The creditor's petition was served on 29 August 2005 and the sequestration order made on 27 September 2005. The review application was made on 11 October 2005. On 13 October 2005 the bankrupt then made further application for a rehearing in the Magistrates Court of Victoria proceedings. As a result, on 24 October 2005, Federal Magistrate Connolly made orders staying the operation of the sequestration order and adjourning the bankruptcy matter to the bankruptcy duty list today.
On 10 November 2005, Mr Smith, a Magistrate of the Magistrates Court of Victoria, heard the application by the bankrupt, set aside the judgment and ordered that an amended defence to the claim be filed within 21 days. Whilst there is no formal material before me, I note that the bankrupt says that the reason that the first hearing and the first application to set aside the judgment in the state Magistrates Court were events that he did not attend was because of illness, in that he says he suffers from a bipolar disorder. He therefore, in substance, says that for reasons of ill health outside of his control he did not attend and the proceedings continued in his absence.
Mr Gardiner, counsel for the petitioning creditor, points out that the petitioning creditor has conducted itself reasonably in the proceedings. The chronology of the matter shows that it did not race forward to a creditor's petition or proceedings in this court until such time as the bankrupt had had an opportunity to attempt to set aside the judgment upon which the creditor's petition was based.
There is, in his submission, nothing about the conduct of the creditor which shows that they should have to incur these costs, which it seems clear would not have been incurred, had the judgment been set aside on the first application by the bankrupt to set aside the judgment in the state Magistrates Court.
The bankrupt also argues that the question of the applicant’s costs should await determination of the case in the state Magistrates Court on the basis that if he is ultimately successful he should not have to pay the petitioning creditor's costs.
It seems to me that in this case had the bankrupt properly defended the matter on the first occasion, or participated properly in the application for a rehearing on the second occasion in the state Magistrates Court, none of the subsequent costs of these proceedings would have been incurred by the petitioning creditor. Just as much of the costs that they incurred in the state Magistrates Court would not have been incurred had he appeared on the previous occasion.
It appears to me that this is substantially the same situation as was referred to in McAuliffe v Pecoult (2003) FMCA 278 and as a matter of principle no doubt similar to the reason that the state magistrate ordered that the respondent pay the petitioning creditor's costs or part thereof of the proceedings that would have been wasted by his non‑appearance on previous occasions.
In this case I am satisfied that the appropriate exercise of the discretion with respect to costs is to order that the respondent bankrupt pay the petitioning creditor's costs of and incidental to the application for a sequestration order. I also give the petitioning creditor leave to withdraw from these proceedings given that they are no longer a judgment creditor, should they not wish to further proceed.
This morning a further creditor has appeared, the creditor referred to as Tuscany Designs, represented by their solicitor, Mr Jones. That creditor wishes to be substituted in the proceedings in order to pursue a case to support the sequestration order made by the registrar in this matter. Mr Jones' client has not obtained a judgment as yet against the bankrupt and he is presently in the course of litigation in another court, as against the bankrupt.
There is material showing that there are a number of other judgments from other parties against the bankrupt for not inconsequential sums however, none of the other judgment creditors have appeared in the proceedings today. There has been, however, a very short time between the judgment in the state Magistrates Court being set aside and the appearance this morning: only a matter of a couple of days in terms of business days. Those judgments, however, are not judgments that were obtained within the last few weeks but obtained some months ago.
In substance the supporting creditor needs an adjournment of the matter in order to be able to put an application and proper supporting material for which the bankrupt can then answer. The bankrupt opposes any further adjournment of the matter on the basis that the sequestration order has a significant impact upon him and his ability to trade and conduct his affairs. The sequestration order in the matter was made some weeks ago on 27 September 2005.
I have considered the circumstances and whilst the lack of a judgment on the part of Mr Jones' client appears to me to place him in a somewhat weaker position than a judgment creditor, potentially to the extent that if he is the only supporting creditor there may be some real difficulties confronting him in the application, I must also bear in mind that only a short period has passed since the default judgment was set aside and there are some substantial judgment debts owing to a number of other parties, which I understand from argument this morning remain outstanding. Those judgment debts would exceed $20,000.
In all of the circumstances I propose adjourning the further hearing of the application to 25 November 2005 at 9.15 am. I order that any supporting creditor who seeks to make application to support the sequestration order file their application and any material to be relied upon and serve same on or before 18 November 2005.

I certify that the preceding eighteen (18) paragraphs are a true copy of the reasons for judgment of Riethmuller FM

Associate:

Date: