Housing Guarantee Fund Ltd v Toumazou - [2006] FMCA 73

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HOUSING GUARANTEE FUND LTD v TOUMAZOU

[2006] FMCA 73

BANKRUPTCY – Creditors petition – whether bankruptcy notice a nullity by reason of omission of number or signing page or failure to attach order – allegation of fraud/conspiracy – whether cogent evidence – whether reason to go behind judgment.

Bankruptcy Act 1966, ss.41, 52

Jones v Dunkel (1959) 101 CLR 298
Wren v Mahoney (1972) 126 CLR 212
McDonald v McDonald (1965) 113 CLR 529

Applicant:

HOUSING GUARANTEE FUND LTD

Respondent:

KYRIACOS TOUMAZOU

File Number:

MLG 167 of 2005

Judgment of:

McInnis FM

Hearing date:

3 October 2005

Date of Last Submission:

7 October 2005

Delivered at:

Melbourne

Delivered on:

31 January 2006

REPRESENTATION

Counsel for the Applicant:

Mr. M. Black

Solicitors for the Applicant:

Michael Sandor & Associates

Counsel for the Respondent:

Mr. P. Franzese

Solicitors for the Respondent:

Franzese & Associates

ORDERS

A sequestration order be made against the estate of Kyriacos Toumazou.
The Applicant Creditor’s costs including reserved costs be taxed in accordance with the Federal Court Rules and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.

The Court notes the date of the act of bankruptcy is 1 September 2004.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 167 of 2005

HOUSING GUARANTEE FUND LTD

Applicant

And

KYRIACOS TOUMAZOU

Respondent

REASONS FOR JUDGMENT

Housing Guarantee Fund Ltd (“the Applicant”) has presented a creditor's petition filed 14 February 2005 seeking a sequestration order against the estate of Kyriacos Toumazou (“the Debtor”). The petition relies upon a bankruptcy notice issued on 30 June 2004 and claimed to have been served on 11 August 2004.
The Applicant has relied upon affidavits verifying the petition. Orders were made by a Registrar of the Court on 9 May 2005 upon application of the Applicant for substituted service upon the Debtor.
That order was based upon affidavit material which included an affidavit of attempted service sworn by a licensed inquiry agent who identified the Debtor who at the time was in a building apparently occupied by the Victorian Civil and Administrative Tribunal (VCAT). The deponent states in his affidavit that he asked the Debtor to come outside to collect documents and the Debtor replied:
“No, speak to my solicitor.”
Other attempts were made to serve the Debtor which had failed. Hence the order made for substituted service provided that the petition be served by a letter addressed to the ordinary mail address of the Debtor.
Orders were made on 28 June 2005 adjourning the hearing of the petition to 1 August 2005 and amongst others, ordering the Debtor to file and serve any affidavits by a certain date.
It is noted that in this instance the debt relied upon in the petition is based upon consent orders made in VCAT which were then subsequently registered in the Melbourne Magistrates Court. The Debtor had made an application previously to set aside the bankruptcy notice upon which the current petition is founded and that application was dismissed by a Registrar on 4 November 2004. An application was then made by the Debtor to review the Registrar's decision by a Judge in the Federal Court. That application for review was dismissed on 30 May 2005 (see V1077 of 2004).
Further orders were made by the Court on 22 July 2005 providing for substituted service of affidavit material upon the Debtor.
When the matter first came before this Court on 12 September 2005, orders were made adjourning the hearing of the petition and further providing an opportunity for the parties to file and serve additional affidavit material. The Debtor then appeared on his own behalf. The Applicant filed and served further affidavit material and likewise the Debtor also filed further material. The matter was then further adjourned.
When the matter came before the Court on 15 September 2005, there was some concern regarding solicitors who had been on record for the Debtor though who appeared to wish to be removed from the record. An issue was then raised concerning material on the solicitor's file of the Debtor which the Debtor wished to access. It became clear that more time was required for the hearing as the parties indicated that evidence would need to be adduced in relation to some of the material set out in the affidavits.
At that time the Debtor seemed to identify three issues which supported his opposition to the petition; namely that the petition was out of time, that the judgment obtained by consent followed a settlement made without instructions and without authority, and thirdly that the Debtor was not served with a certified extract of the judgment attached to the bankruptcy notice. When the matter was further adjourned for hearing on 3 October 2005, the Debtor was then represented, and the issues sought to be raised have been categorised as follows:
1.The bankruptcy notice is a nullity in that:
(a) a copy of the order or judgment on which the creditor relied upon was not attached to the bankruptcy notice;
(b) the Bankruptcy Notice was not in the prescribed form in accordance with section 41 of the Bankruptcy Act 1966 (“the Act”) in that it did not contain the signing page of ITSA; and;
2.The Court ought to go behind the judgment which is relied upon in the bankruptcy notice in that it has been obtained by fraud and by consent to terms of settlement not authorised by the Respondent.

The issues

The bankruptcy notice was a nullity

It is common ground that the issue of whether the bankruptcy notice lacked the final two pages being those signed by the Official Receiver and the extracts of judgment is one fact to be determined on the balance of probabilities.
The Applicant relied upon the process server, Mr Pryor, who gave evidence that he received two copies of the bankruptcy notice, one attached to the affidavit of service and another to serve upon the Debtor. During the course of his evidence he indicated that he looked at the two notices that were given to him and ultimately in his evidence agreed that he compared the two bankruptcy notices. It is perhaps relevant to set out from the transcript the evidence‑in‑chief of the witness as follows:
“You're instructed to serve the respondent, Kyriacos Toumazou?---That's right.
When you were given the instructions to serve the document what were you, if anything, were you given?---I was given a bankruptcy notice together with the insolvency and trustee certificate and the certificate of extract.
How many copies of that bankruptcy notice were you given?---I'd be given two: one attached to the affidavit of service and one to serve.
Did you compare the bankruptcy notice for service with the bankruptcy notice attached to the affidavit of service?---No, definitely not. I had that attached to my header sheet which I received from my principal.
Did you look at the two notices that were given to you?---Definitely.
HIS HONOUR: I'm not sure I understand what you're saying. What did you say "Definitely not" to before? Definitely not what?---Well, I get two copies:
one is attached to the affidavit of service, which is attached to a header sheet which I receive from my principals, which in this case is Process All‑Over, who are acting as agents for Michael Sandor.
You get two: one you put on the header sheet ‑ ‑ ‑?---Yes.
- - - and the other one - I think what you're being asked was do you look at them and see that they're the same thing?---Well, they're the same thing.
Do you look at them?---But the affidavit of service is attached to one copy which is attached to my header sheet which is separate from the copy that I have to serve.
(Transcript pages 5 and 6)
The affidavit referred to by Mr Pryor was an affidavit of service sworn 7 September 2004 where relevantly he deposes as follows:
“2. That on the 11th day of August 2004 at 4.35 o'clock in the afternoon I served KYRIACOS TOUMAZOU with a sealed copy of the Bankruptcy Notice No. VN 983/2004 with Certified Extract of order made 6 December 2002 annexed thereto and signed by the Official Receiver issued on the application of HOUSING GUARANTEE FUND LTD (ACN 006 258 233) by leaving it on the ground in front of him at 32 St James Avenue, Springvale.
3. That I identified the person served by me as KYRIACOS TOUMAZOU by reason of the following statements made at the time of service:
I said, "Is your name KYRIACOS TOUMAZOU?"
He said, "Yes."
4. Now produced and shown to me at the time of swearing this my Affidavit and marked with the letter "A" is a sealed copy of the said Bankruptcy Notice No. VN 983/2004 with Certified Extract of order made 6 December 2002 annexed thereto signed and sealed by the Official Receiver.”
The annexure marked with the letter "A" referred to in that affidavit contains the certified extract of the judgment relied upon together with the page signed by the Official Receiver or delegate or authorised officer, which in this instance happens to be "John Keys, for Official Receiver, Victoria."
During the course of evidence Mr Pryor was asked to look at a copy of a document which the Debtor alleged he received as the bankruptcy notice (exhibit R1). Mr Pryor denied serving that document upon the Debtor. During the course of cross-examination the following exchange occurred:
“I'd like to show the witness this document which - Mr Pryor, Mr Toumazou in his evidence will say that that is the bankruptcy notice that was served on him by yourself and he will say that ‑ ‑ ‑?---The certificate of extract is not there.
That's correct. His evidence will be that it was served without the certificate of extract and without the signing page of ITSA, the last page of the bankruptcy ‑ ‑ ‑Definitely not. To me that feels light anyhow.
What do you mean it feels light?---It feels short.
Of course. That's his evidence, it was short by two pages?---No, that's not ‑ ‑ ‑
He will also say that it had no bankruptcy number on the bankruptcy notice you served on him?---Definitely not, it did have the number.
(Transcript pages 11 and 12)
In re‑examination Mr Pryor was asked to examine further what became exhibit R1 and it is noted that that exhibit has a black triangle in the corner consistent with a photocopy being made of a stapled document. The following exchange occurred:
“Mr Pryor, the document that you've just been handed by my learned friend?
---Yes.
Is that an original or a photocopy?---It's a photocopy.
If you take a look in the top left-hand corner of the first page?---Yes.
You'll see a black ‑ ‑ ‑?---That's right
- - - triangle. Was the document that you served on Mr Toumazou an original or a photocopy?---I'd say a photocopy but the thing is that - the photocopy of the original but the original document's on it. You can see that - like, I mean to say that this isn't the copy that I served. That's all there is to it. Like, I mean to say, you know, you're going back a long, you know, quite some time ago when it was served but, you know, to me this isn't the copy that I served.
(Transcript page 13)
In addition to the evidence of Mr Pryor, the Applicant also relied upon evidence from Ms Hanrahan, a law clerk. She gave evidence that the copy of the bankruptcy notice on the solicitor's file was complete and also gave evidence as to the office procedures in relation to making a copy of the bankruptcy notice and forwarding instructions to the process server. It is noted that the file copy of the bankruptcy notice (exhibit A2) was complete and Ms Hanrahan gave evidence that the Official Receiver would not issue an incomplete bankruptcy notice and accordingly the filed version would be complete.
The Debtor gave evidence that the bankruptcy notice served on him did not contain the execution page and did not have a copy of the certified extract.
The photocopy of the bankruptcy notice comprising five pages then became what has been referred to earlier as exhibit R1. He denied having been served with the complete bankruptcy notice which had become exhibit A2.
Under cross-examination the Debtor agreed that this was the second bankruptcy proceeding that the Applicant had taken against him. He otherwise claimed, however, that he did not understand the whole process. He claimed not to know that if there was any defect in a bankruptcy notice or that those defects might prevent a bankruptcy order being made against him.
During the hearing, when represented, the Debtor had asserted in support of the claim that the bankruptcy notice was a nullity and that the notice served upon him did not have a bankruptcy number on the notice. As a result of that contention the Debtor was cross-examined in relation to an affidavit sworn by him on 6 September 2004 in Federal Court proceeding number VID1077 of 2004 where the Debtor deposes as follows:
“I was served with bankruptcy notice number VN983/2004 on approximately the 15th day of August 2004.”
That affidavit was in support of the Debtor's application to set aside the bankruptcy notice. It was noted that the affidavit of service by Mr Pryor relied upon by the Applicant was not sworn until 7 September 2004 and correctly submitted by counsel for the Applicant that the Debtor could not have had access to that affidavit of service when swearing his own affidavit of 6 September 2004. The Debtor was cross-examined in relation to this issue and the following exchange is relevant:
“Paragraph 1 says, "I was served with bankruptcy notice number VN 983/2004." Do you see that?---Yes.
Your evidence is that you didn't get the number, VN983/2004, until 1 November when you came into court. That's correct, isn't it? That was your evidence?---Yes.
You swore this affidavit on 6 September 2004 and you know the number there?
---I tell you the truth, what is coming in this one ‑ ‑ ‑
You were lying before, weren't you, Mr Toumazou?---I tell you, this one, and I never come into this number and I didn't know about the number. I engaged the retired solicitor. He was acting as a solicitor and on the matter of fact I know later on where they find - and he typed it up. He give it to me. I couldn't understand it. That's the reason I didn't understand. That's what the bankruptcy I did get on my hand and I held it in my hand. Whatever he finds the number and he writes the number on this one, and I have sworn the affidavits eventually - I didn't really understand it - he did write it to me but I wasn't aware of the number. If I was aware of the number or whatever I wouldn't go and ask ITSA to write me the number. I wouldn't chase up when the case start.
Mr Toumazou, when you swore this affidavit on 6 September 2004, you knew the VN number that was on the bankruptcy notice, didn't you?---No.
So you say that someone took a stab and just picked a number out and got it right. Is that what you're saying?---I don't know if he did take it from the court or if he had any communications with you and put it on.
It came off the bankruptcy notice that you were served with and it was written on the bankruptcy notice that was served with, wasn't it, Mr Toumazou---No, you're wrong.”
(Transcript pages 27 and 28)
He gave evidence that he did not know how the bankruptcy notice came to be in his affidavit sworn 6 September 2004. He referred to it being drawn by a retired solicitor, Zoltan Vaseeki.
It was submitted in relation to this issue by the Debtor that the court should find that the bankruptcy notice was a nullity due to the defects alleged by the Debtor. It was argued the evidence of Ms Hanrahan should not be admitted as it was hearsay and that she only referred to the standard office practice and was not the person who compiled the instructions to the process server. Reference was made to evidence from Ms Hanrahan that another person at the office compiled the copies of the bankruptcy notice sent to the process server and that person was not called to give evidence, even though he had previously sworn an affidavit in the proceedings.
It was argued for the Debtor the combined evidence of Ms Hanrahan and the process server, Mr Pryor, does not dispute that one of the copies sent to the process server may have been lacking in the certified extract and execution page. Reference was made to the evidence of the Debtor whereby he denied receiving a bankruptcy notice containing the execution page or certified copy of the extract. Accordingly it was submitted that this court should find it more probable than not that the bankruptcy notice served did not follow the prescribed form as it did not have the certified copy of the order attached or the execution page.
It was submitted for the Applicant that the court should accept the evidence of the process server who rejected the suggestion that the copied bankruptcy notice claimed to be served upon the Debtor was the same as the one served upon the Debtor, and further should accept the evidence of the process server, adopting his affidavit of service, that he swore that affidavit after checking the contents of the document served.
It was further submitted that the court should reject the evidence of the Debtor concerning the claimed absence of a bankruptcy notice number and further should draw an adverse inference against the Debtor for failing to call the solicitor claimed to be responsible for the insertion of the bankruptcy notice number in the affidavit of the Debtor sworn 6 September 2004. That inference should be drawn in accordance with the principles set out in Jones v Dunkel (1959) 101 CLR 298.
It was submitted that there is simply no evidence of any other source of information setting out that number apart from the Debtor himself. It is argued that as the solicitor referred to was not acting in an official capacity for and on behalf of the Debtor then that solicitor, pursuant to regulation 4.03 of the Bankruptcy Regulations, would not have obtained details of the bankruptcy number by searching the Official Receiver’s file. It was argued that the inference to be drawn was that the bankruptcy number was inserted in the document served on the Debtor. It was submitted that if that were the case then the document produced by the Debtor which became exhibit R1, is not the document served upon him on 11 August 2004.
The Applicant referred to the other affidavit material relied upon by the Debtor in his application to set aside the bankruptcy notice where no mention was made that there were missing pages of the bankruptcy notice if the bankruptcy notice were incomplete. It was conceded it would be invalid and liable to be set aside and the court should draw the inference that the Debtor did not seek to rely upon that ground because the bankruptcy notice served upon him was complete.
Reliance was placed upon the evidence of Ms Hanrahan referred to earlier in this judgment. It was argued that the original bankruptcy notice attached to exhibit A2 is complete and a copy of the bankruptcy notice on the applicant's solicitor's file is also complete. Reference was made to the claim that a bankruptcy notice would not be issued if it were incomplete. It was submitted on the balance of probabilities the document served on the Debtor was a complete, original bankruptcy notice containing the page signed by the Official Receiver and the certified extract of order.
In my view, on the balance of probabilities I prefer the evidence of the Applicant’s witnesses. The affidavit of the process server combined with his evidence tested in cross-examination, though at times appearing to be unsatisfactory from the extract referred to earlier in this judgment, nevertheless persuades me on the balance of probabilities that the complete bankruptcy notice was served upon the Debtor as claimed.
I am further strengthened in this conclusion by the inconsistency in the Debtor's evidence concerning the inclusion of the bankruptcy number, which had clearly been referred to in his earlier affidavit sworn 6 September 2004. I do not accept his evidence explaining the source of that number. Further, I have doubts about the document now claimed to have been served upon the Debtor which became exhibit R1, which appears to me to be a photocopy prepared in a somewhat hurried fashion with black in the corner and note further that no further evidence has been called for and on behalf of the Debtor to corroborate his claim that the bankruptcy notice number may have been inserted by a solicitor apparently helping him with the preparation of documents.

I accept the Applicant’s evidence in relation to service of the complete bankruptcy notice in the circumstances particularly where in support of his application to set aside the bankruptcy notice in earlier proceedings, the Debtor failed to refer to the alleged incomplete bankruptcy notice at a time when at the very least he was receiving assistance from a solicitor.
I conclude therefore that the bankruptcy notice was properly served and was complete and should not be regarded as a nullity.
I am satisfied that the evidence of the process server is sufficient in this instance, combined with the inferences which I have been invited to draw by the Applicant’s counsel, to enable me to reach a conclusion on the balance of probabilities in relation to the bankruptcy notice as indicated.
While some criticism can be made of Ms Hanrahan's evidence in terms of her own direct knowledge of the procedures and whilst the court has some reservation about the adequacy of those procedures, I nevertheless find on the evidence of the process server and having regard to the other matters referred to in this judgment that the bankruptcy notice was served in a complete form and is not a nullity.

Going Behind the Judgment

By way of background to this claim it is relevant to note that the Debtor had applied to VCAT to set aside its own order and that application was dismissed in March 2005. An application to the Magistrates Court to set aside the judgment registered in December 2002 was also dismissed. The VCAT order was made by consent following terms of settlement signed on behalf of the Debtor by solicitors then acting on his behalf.
It is noted that instalment payments indeed were made pursuant to those terms of settlement. Those instalment payments according to the affidavit evidence were made over a period of 10 months and there are no proceedings outstanding by the Debtor against his former solicitor claiming any breach of authority or retainer.
It is common ground that the court can look behind a judgment to determine whether in fact a debt exists from a debtor to a creditor (see Wren v Mahoney (1972) 126 CLR 212).
In this instance it is noted that there has been an assertion of fraud and collusion. The Debtor gave evidence that he did not consent to the terms of settlement and had never signed or seen an original copy of a guarantee and indemnity relied upon.
He further asserts that there was a "conspiracy" between the Applicant and his former business partner to establish the liability. It was submitted that accordingly it was open to the court to exercise its discretion and go behind the judgment given that the Debtor has raised issues that the judgment was obtained through fraud and collusion.
The Debtor has submitted that in this instance there is no evidence beyond the mere assertion by the Debtor in relation to allegations of fraud and collusion. No cogent evidence has been provided to establish a basis for going behind the judgment. The allegations, it was correctly submitted by the Applicant, do not equate to evidence. No attempt has been made by the Debtor to call his former solicitor or the person who witnessed his signature on the guarantee and indemnity referred to in detail in the affidavit of Mr Mackwell sworn 13 September 2005 which is before the court.
In my view the Applicant’s submissions in relation to this issue are correct. The fraud must not simply be alleged but should be ‘definitely alleged and proved’ (see McDonald v McDonald (1965) 113 CLR 529 at 540). In this case there is only a mere assertion in relation to the judgment and attempts have been made unsuccessfully by the Debtor to set aside the order and the registered judgment of the Magistrates Court.
It is not appropriate in the absence of any cogent evidence for this court to go behind the judgment in the exercise of a discretion it undoubtedly has upon the hearing of a creditor's petition. In my view there is no reason why the court should not accept the judgment as satisfactory proof of the debt in this instance. There is no sufficient reason in this instance not to exercise a discretion to treat the judgment as satisfactory proof of the debt.
The mere assertion by the Debtor in this instance, having regard to the failure of the Debtor in earlier proceedings to set aside the order and/or the registered judgment, lead me to conclude that it would be inappropriate for this court in the exercise of its discretion to go behind the judgment.

Conclusion

It follows for the reasons given that subject to any further necessary proofs supporting the requirements of the Bankruptcy Act including s.52 of that Act, that a sequestration order should be made against the estate of the Debtor.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 31 January 2006