Hill v James (No 2)

[2006] FMCA 484

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HILL & ANOR v JAMES (No 2) [2006] FMCA 484

BANKRUPTCY – Application for sequestration order – whether certain affidavits should be admitted for filing – where there has been a failure on the part of the respondent to comply with certain orders – whether the admission of the affidavits will effect a continued delay of the hearing – whether admission of the affidavits will cause considerable prejudice to the applicants.

Bankruptcy Act 1966, ss.120, 121, 122

State of Queensland & Anor v J L Holdings Pty Ltd [1977] HCA 1

First Applicant: TERRY DONALD HILL

Second Applicant:	PETER DAVID RODGERS
Respondent:	DAVID ANTHONY JAMES

File Number: SYG 1872 of 2005

Judgment of: Raphael FM

Hearing date: 30 March 2006

Date of Last Submission: 30 March 2006

Delivered at: Sydney

Delivered on: 30 March 2006

REPRESENTATION

Counsel for the Applicants:

Mr. M. Aldridge SC and

Mr R Glasson

Solicitors for the Applicants: Eakin McCaffery Cox

Counsel for the Respondent: Mr. D. Allen

Solicitors for the Respondent: Catalyst Legal

ORDERS

1. Affidavits of

   (i)          Respondent dated 16 March 2006

   (ii)        

   Mr Brooks dated 24 March 2006

   
   

   (iii)      Respondent dated 27 March 2006

   (iii)       Respondent dated 28 March 2006

not admitted.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 1872 of 2005

TERRY DONALD HILL

First Applicant

PETER DAVID RODGERS

Second Applicant

And

DAVID ANTHONY JAMES

Respondent

REASONS FOR JUDGMENT

1. This proceeding is an application for a sequestration order.  A petition was presented on 15 July 2005 alleging a debt of some $415,000 odd.  On 15 August 2005 the debtor filed a notice of intention to oppose the petition.  In paragraph 2 of his notice he alleged that he had off setting debts and in paragraph 4 of his notice he alleged that he was solvent.

2. A respondent who files a notice of intention to oppose and raises matters such as this carries the onus of establishing that those grounds for opposition are made out.  In relation to off setting debts he would normally be required to file an affidavit establishing those debts and that they were capable of being off set against the claims made in the petition. In relation to solvency the debtor would be obliged to file evidence which the court could use to decide whether or not he was a person who could pay his debts as and when they fell due from his own moneys or from moneys readily available to him other than moneys provided by way of overdraft or other substituted debt.

3. The matter first came before the court on 8 August 2005 when it was adjourned till 10.15 on 16 August 2005.  It came before the court again on 16 August when the respondent's notice of motion (presumably the notice of intention to oppose) was set down for hearing on 30 August.  The matter was further adjourned and on 28 October a further notice of motion was filed.  On 4 November 2005 that notice of motion was adjourned for hearing at 2.15 on 9 November 2005.  It was on that day that Federal Magistrate Barnes made a number of orders in relation to the proceedings. The first of those orders relating to the joinder of Peter David Rodgers as an applicant in the proceedings has been the subject of a judgment given by me earlier today.

4. The second order that her Honour made was that the respondent file and serve any affidavit or other material relied on by 19 December 2005.  The third order was that the applicants file and serve any material in reply on or before 13 February 2006 and the fourth order was that the matter be listed for hearing before me as a three day matter commencing at 10.15 on Wednesday 29 March 2006.

5. No affidavits were filed by the respondent pursuant to that order by the due date. On 20 February 2006 a letter was written by the solicitors for the petitioning creditor to the solicitor for the respondent.  The letter is in the following form:

   We refer to the directions made by Federal Magistrate Barnes on 9 November 2005.  We note that any further of material upon [which] your client seeks to rely was to be filed and served by 19 December 2005.

   That date has come and gone some months ago.

   Kindly be advised that strenuous objection will be taken to any attempt to rely on evidence filed otherwise than in accordance with the court's directions.

6. That letter received no response.  But as at that date at least the respondent was on notice that the filing of late affidavits was going to be met with strenuous objection. The respondent had always had the opportunity to apply to the court for some extension of time or other indulgence.  He did not take it.

7. On 16 March 2006 the first of a number of affidavits appeared.  There was an affidavit of the respondent.  It gives a history of the proceedings between the parties and then makes reference to an injurious claim before making other claims.  The first was in relation to an assignment of a costs order in its favour.  The second in relation to an assignment of a debt due by Mr Hill to Ferrier Hodgson to the debtor.  The third relating to the appointment of Mr Rodgers as trustee.  The fourth as to sets offs and the fifth as to the applicant's financial status.  It now appears that the allegations as to the injurious falsehood claim have been abandoned. The other matters are not.  The debtor argues that the costs assignment should come as no surprise neither should the assignment of the Ferrier Hodgson debt or the set offs.

8. He says that in relation to the financial status of the debtor these matters are all contained in a voluminous bundle of documents which was exhibited to the affidavit.  It is not clear to me whether that voluminous bundle of documents was sent to the applicants with the affidavit or not.  Mr Aldridge appropriately advised the court that if the affidavit of 16 March 2006 was the only affidavit that had been filed he would have been prepared to deal with it. But it was not.  On 24 March a Mr Brooks swore an affidavit.  Mr Brooks used to be the respondent's solicitor.  He was a party to certain litigation between the respondent and the applicant and as a result of certain views expressed about his conduct has lost his practising certificate.  He is appealing this matter.  The burden of his affidavit is to refer to the existence of certain fresh evidence and fresh proceedings which the respondent proposed to take to set aside the judgment of Bergin J which grounded the bankruptcy petition. The affidavit itself deals with correspondence and communication with a man in Switzerland and allegations that he would be prepared to give certain evidence, some details of which are contained in the exhibits.

9. The third affidavit is one of 27 March 2006 sworn by the respondent.  That deals with his solvency in some detail.  It includes matters relating to properties owned by him and other assets which he would hope to realise in order to pay his debts as and when they fell due.  One of those assets appears to be the interests of the company controlled by the respondent in some bulk wine.

10. There are 62 paragraphs of this affidavit before some 40 paragraphs which have now been abandoned.  But Mr Aldridge and his client were not expected to know that this abandonment would take place when the document was served upon them on the first day of the hearing.  Paragraphs 108 to 122 then deal with the reasons for non-payment of the judgment debt and the lateness of evidence.  I will return to that matter in due course.

11. Finally, there was an affidavit of 28 March from the respondent.  This is an affidavit attempting to establish the value of certain properties. 

    
    

    It contains valuation summaries and what would appear at first sight to be hearsay evidence of the availability of credit based upon the security of some properties.

12. In making a decision was to whether or not these affidavits should be admitted I can take into account the failure of the respondent to comply with the orders of Barnes J but not utilise that fact as a reason in itself.  I am obliged to consider the authority of the High Court in State of Queensland & Anor v J L Holdings Pty Ltd [1977] HCA 1 that cases should be decided on all the relevant facts and arguments that are available at the time of the hearing and so, in order to effect that state of affairs, adjournments should be given for the purposes of filing new evidence provided that the party against whom the evidence is to be filed does not thereby suffer a disadvantage that cannot be cured by an order for costs.

13. J L Holdings and the cases which support the view expressed therein are in general cases involving a dispute between parties that is being heard. The situation with regard to an application for a sequestration order is to my mind subtly different. The purpose of the sequestration order is to place the affairs of a person who is unable to pay his debts into the hands of a trustee so that all that person's creditors can be found and can participate in such assets as the debtor then has by way of distribution and dividend. There is frequently little advantage to a creditor in continued delay in the hearing and obtaining of sequestration orders. Delay also affects memories and thus the position of a trustee who might wish to exercise his rights under ss.120, 121 or 122 of the Bankruptcy Act 1966 (Cth) (“the Act”). There are good reasons for avoiding any unnecessary delay in relation to the hearing of a petition.

14. With those thoughts in mind I turn to the excuses put up by Mr James for his non-compliance with her Honour's orders.  He tells in his affidavit that prior to February 2006 he had engaged Brooks and Co, Business Lawyers, as his solicitors.  He tells that that firm had also acted in relation to an application by a company controlled by him to set aside the personal insolvency agreement by which Mr Rodgers comes in to these proceedings.  This application was taken out prior to the hearing before Federal Magistrate Barnes.  At that time it was expected that the hearing would be completed prior to the date set down for the proceeding currently before me.  There can be no doubt that the existence of that matter was in the mind of those representing the debtor on 9 November.

15. Mr Brooks has had his practising certificate removed from him but he still acts as an adviser to the debtor and his businesses.  In February 2006 Mr Brooks was engaged as legal counsel to those firms.  It was Mr Brooks who suggested in February 2006 that the debtor ought to comply with the orders of her Honour and put on some evidence in relation to this proceeding.  Mr James tells that prior to that date he was under the understanding from the solicitors who were acting for him that:

    “The petition could not be determined or prepared for until such time as any application to set aside the personal insolvency agreement had been determined.”

16. That advice was clearly wrong.  But if it was the belief of these solicitors that it was correct then why did they consent to the orders made by her Honour on 9 November at a time when they knew that the personal insolvency agreement attack would certainly not take place before the date upon which her Honour had ordered that the affidavits be filed?  I do not know what advice was given to Mr James.  He has waived such legal professional privilege as he may have had in regard to that firm of solicitors and of course it would have been open for Mr Aldridge to extend this already painfully long proceeding by subpoenaing documentation from that firm, cross-examining Mr James and possibly discovering that no such advice was ever given or received.

17. The fact remains that no affidavits were filed and that the only reason given therefore is this advice in respect of which Mr James would have his own recourse should he wish to take it.  I do not believe that the existence of this advice is sufficient excuse for the failure to comply with her Honour's orders.

18. What is the effect of the late filing of these affidavits?  It clearly is that Mr Aldridge must seek an adjournment in order to deal with them.  The respondent argues that this is not the case.  That all the necessary evidence concerning the matters raised in the affidavits is provided in the exhibits.  That may well be right but it does not mean that Mr Aldridge cannot challenge that evidence.  In order to do so he would have to read it.  He would have to consider the employment of valuers.  He would have to consider the situation regarding the solvency or business dealings of all the companies involved.  He would even have to prepare detailed cross-examination of Mr James.  Even in a case set down for three days I cannot expect Mr Aldridge to do that in this time.

19. There is therefore considerable prejudice to the applicants in allowing these affidavits to go in.  The next time I have available for a three day hearing would be some time in August 2006.  That would mean that the bankruptcy petition will have to be extended (not that that is a particularly difficult order to make) and that thereby the debtor has obtained a forensic advantage from his failure to comply with the orders of the court.

20. That is not appropriate in bankruptcy proceedings.  An order for costs against a potential bankrupt is hardly an order of some value.  At the moment we have the situation whereby Mr James owes Mr Hill some $415,000.  He has not paid that money.  He has done everything in his power to resist paying it.  He may not be able to pay it.  What is the benefit to the applicants of an order for costs against such a person?

21. I am of the view that the applicants should not be put to the expense of dealing with these affidavits.  If Mr James was truly solvent he could have made that plain both to the applicants and to this court some considerable time ago.  The petition has been in existence for nine months and the notice of opposition has been in existence for some eight months.  The respondent raised other questions such as the alleged set offs in an application to set aside a bankruptcy notice.  He failed and he failed again on appeal.  It is not difficult to draw an inference that Mr James is one of those people who, perhaps not unnaturally, would do anything to avoid the stigma of a sequestration order and will delay matters as long as possible.

22. I decline for the reasons given above to admit these affidavits.

I certify that the preceding Raphael twenty-two (22) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date:  6 April 2006