Hughes Trueman Pty Ltd v Young
[2017] FCCA 468
•23 March 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| HUGHES TRUEMAN PTY LTD & ANOR v YOUNG | [2017] FCCA 468 |
| Catchwords: BANKRUPTCY – Bankruptcy Act 1966 (Cth) – creditors petition – application for adjournment of hearing of petition based on foreshadowed applications to High Court to reopen previous dismissal by High Court of special leave applications based on alleged failure of High Court to give proper and sufficient reasons for previous dismissals – High Court not bound to give reasons when dismissing special leave applications – application to reopen special leave applications doomed to fail and unmeritorious – no reason to adjourn hearing of creditors petition – debtor unable to pay debts and insolvent – sequestration order made. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 52 Federal Court Rules 2011 (Cth) |
| Cases cited: Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 331 ALR 1 Coulter v The Queen (1988) 164 CLR 350 D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711 Young v Hones [2017] HCASL 27 Young v Hones [2015] HCASL 73 Young v Hones [2014] NSWCA 337 Young v Hones (No.2) [2013] NSWSC 1429 Young v Hughes Trueman Pty Ltd [2016] FCA 1176 Young v Hughes Trueman Pty Ltd [2016] FCCA 989 Young v King [2017] HCASL 28 | ||
| First Applicant: | HUGHES TRUEMAN PTY LTD | |
| Second Applicant: | MR STEPHEN JOHN PERRENS |
| Supporting Creditor: | MR IAN HEMMINGS SC |
| Respondent: | MS MARGO YOUNG |
| File Number: | SYG 1345 of 2016 |
| Judgment of: | Judge Dowdy |
| Hearing dates: | 9 December 2016 and 3 March 2017 |
| Date of Last Submission: | 13 March 2017 |
| Delivered at: | Sydney |
| Delivered on: | 23 March 2017 |
REPRESENTATION
| Counsel for the Applicants: | Mr S Gray of Counsel |
| Solicitors for the Applicants: | Kennedys |
| Solicitors for the Supporting Creditor: | Moray & Agnew |
| Counsel for the Respondent: | Mr R Newell (solicitor) |
| Solicitors for the Respondent: | L C Muritini & Associates |
THE ORDERS OF THE COURT ARE AS FOLLOWS:-
A sequestration order be made against the estate of Ms Margo Young.
The Applicant Creditors’ costs, including any reserved costs and the costs of the hearings before the Court on 14 October 2016, 9 December 2016 and 3 March 2017, be taxed and paid from the bankrupt estate of Ms Margo Young according to the Bankruptcy Act 1966 (Cth).
A copy of this sequestration order be given to the Official Receiver in Sydney within two days.
The Court Notes that the date of the act of bankruptcy is 1 May 2016.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1345 of 2016
| HUGHES TRUEMAN PTY LTD |
First Applicant
| STEPHEN JOHN PERRENS |
Second Applicant
| MR IAN HEMMINGS SC |
Supporting Creditor
And
| MARGO YOUNG |
Respondent
REASONS FOR JUDGMENT
By a Creditors Petition presented on 26 May 2016 the First and Second Applicants (collectively creditors) seek a sequestration order as judgment creditors against the estate of the Respondent (debtor) pursuant to a judgment of the Supreme Court of New South Wales in their favour for lump sum costs in the amount of $110,000 given in Young v Hones (No.3) [2014] NSWSC 499 (Young v Hones (No.3)) by Garling J on 1 May 2014 (the judgment debt).
The Second Applicant is a hydrological engineer and at all material times has been the employee of the First Applicant.
The act of bankruptcy relied upon was the debtor’s non-compliance on or before 1 May 2016 with the requirements of a bankruptcy notice issued on 23 July 2015 and served on her on 15 August 2015 (bankruptcy notice).
The creditors relied upon a body of formal affidavit evidence which is, in my opinion, prima facie sufficient to prove their entitlement to a sequestration order against the debtor’s estate. The debtor’s Written Submissions admitted that an act of bankruptcy had been committed by her when she failed in her application to set aside the bankruptcy notice later referred to below in these reasons. Mr Newell, who appeared for the debtor, did not submit that there were any defects in this affidavit evidence but rather relied upon the Notice of Opposition to Creditors Petition (notice of opposition) filed without leave on 11 October 2016.
I grant leave to the debtor to rely upon the notice of opposition.
It is sufficient for immediate purposes to state that the notice of opposition in effect relied upon three grounds in opposition to the making of a sequestration order, namely:
a)An assertion at [1]-[9] that the debtor intended within a further 14 days to seek special leave to appeal to the High Court of Australia from the decision of Garling J of 1 May 2014 ordering the judgment debt in the sum of $110,000 in Young v Hones (No.3) which, with accrued interest, amounted to the sum of $128,838.63 and was the amount specified in the bankruptcy notice as due to the creditors. If the High Court were to grant special leave in the subsequent appeal, for which it was claimed there were strong prospects for success, the debt of $128,838.63 would be extinguished and the debtor would consequently be in a position to litigate a negligence claim against the creditors and others to judgment on the merits.
b)At [10] there was an assertion of solvency in that the debtor was able to discharge all of her financial obligations as and when they fell due.
c)At [11] there was an assertion that the bringing of the Creditors Petition was maintained for a purpose “other than the recovery of money or to secure legitimate protection for a body of creditors”.
For the reasons that follow, I propose to make a sequestration order against the debtor’s estate. She is unable to pay her debts as they become due and payable and thus she is insolvent and there is no other sufficient cause for not making a sequestration order.
Background Facts
The relevant background facts have been set out at length in a number of judgments, and in particular the judgment of Judge Smith in this Court in Young v Hughes Trueman Pty Ltd [2016] FCCA 989 (Young v Hughes Trueman P/L) which dismissed the debtor’s application to set aside the bankruptcy notice and most fully in the judgment of Bromwich J in the Federal Court of Australia in Young v Hughes Trueman Pty Ltd [2016] FCA 1176. His Honour set out in considerable detail the relevant factual background going back to 2001 and refused leave to the debtor to extend the time to file a notice of appeal against Judge Smith’s refusal to set aside the bankruptcy notice.
The core facts are that the debtor brought litigation in April 2003 against her neighbours, Mr and Mrs King (the Kings), in the Land and Environment Court of New South Wales in relation to excavation and building works carried out on the Kings’ property adjoining the debtor’s. The litigation was settled in February 2004 by consent orders (2004 settlement), seemingly in the debtor’s favour, and the costs of the litigation were ordered to be paid by the Kings to her. However, the debtor soon repented of this settlement and ever since has been bringing litigation against the Kings, her former solicitor and barrister and her expert witnesses, including the creditors who gave expert engineering evidence for her in the original Land and Environment Court proceeding against the Kings.
The litigation brought by the debtor has raged in the Land and Environment Court and the Supreme Court of New South Wales, the Federal Court, this Court and the High Court, but in every instance she has been unsuccessful. Her central claim was an allegation that numerous parties, including the Kings, her former solicitor and barrister, the creditors as expert witnesses and Warringah Shire Council were all involved in collusion and conspiracy to effect the 2004 settlement.
It is unnecessary for the purpose of this judgment to again traverse the background facts considered in significant detail by Bromwich J and for present purposes it is sufficient to reproduce the more abbreviated summary of Judge Smith in Young v Hughes Trueman P/L at [1]-[8]:
[1]The background facts in these proceedings have been set out in a number of judgments. The following is taken from the judgment of Ward JA in Young v Hones [2014] NSWCA 337 at [41] – [43].
[41] Ms Young is a pensioner who lives in Forestville. She was involved in Land and Environment Court proceedings in 2003/4 in relation to her complaint as to building works carried out on her neighbours’ property. Those works included excavation on the boundary of Ms Young’s property, the construction of a granny flat on the neighbours’ land and a “massed footing” and retaining wall on the boundary. Ms Young’s complaint was as to the impact of the works on drainage from her property, which is up slope from her neighbours’ property.
[42] The Land and Environment Court proceedings were resolved in 2004 following a settlement reached by the parties shortly after the hearing commenced. The only issue left outstanding in that settlement was as to who should bear the costs of the proceedings. That issue was determined in favour of Ms Young (Young v King [2004] NSWLEC 93) by McClellan CJ at [the Land and Environment Court] (as his Honour then was) following a short hearing in the course of which evidence was given by expert engineers called by each of the parties.
[43] Settlement of the substantive dispute involved the acceptance by Ms Young of an undertaking by her neighbours to lodge a development application for works to their property that the experts for the respective parties had agreed needed to be done in order to rectify the environmental problems caused or likely to be caused by what were conceded, at least in part, to have been unauthorised works on the neighbours’ property.
[2]Ms Young soon became disillusioned with the terms of the settlement. She eventually took a number of steps intended, she thought, to ameliorate her position. First, in 2008, she applied to the Land and Environment Court to set aside the consent orders. The application was based on allegations of collusion, fraud and conspiracy. At the heart of the complaint was the assertion that a document (“Exhibit A”) agreed to by the experts for the parties as the basis for the settlement was fraudulent: see Young v King (No.6) [2015] NSWLEC 111 at [221] – [223].
[3]That application was summarily dismissed by Sheahan J in 2012: Young v King (No.4) [2012] NSWLEC 236. Ms Young successfully appealed that decision and the matter was remitted to Sheahan J for determination: Young v King [2013] NSWCA 364. After a further hearing in September and October 2014 Sheahan J gave judgment on 9 July 2015, again dismissing the application: Young v King (No.6). It may be noted that the only respondents to this point in the proceedings were the neighbours.
[4]By this time Ms Young had also commenced proceedings in the District Court of New South Wales seeking damages against her neighbours and the local council.
[5]In February 2010 she commenced proceedings in the Common Law Division of the Supreme Court of New South Wales against her solicitors, barrister, the expert engineering firm engaged by her in the original Land and Environment Court proceedings as well as the employee of that firm who had given evidence in those proceedings. The last two of the defendants are the respondents in these proceedings.
[6]On 27 September 2013 Garling J determined those proceedings by way of separate questions: Young v Hones (No.2) [2013] NSWSC 1429. Ms Young’s appeal from that decision was dismissed with costs: Young v Hones [2014] NSWCA 337. Ms Young’s application to the High Court for special leave to appeal from that decision was refused on 6 May 2015: Young v Hones [2015] HCASL 73.
[7]On 1 May 2014 Garling J made further orders in the proceedings including that Ms Young pay the costs of the respondents to these proceedings fixed in the sum of $110,000.
[8]On 23 July 2015 after a number of further hearings in the Land and Environment Court and special leave being rejected by the High Court, bankruptcy notice BN 183071 was issued at the request of the respondents on the basis of the order for costs made by Garling J in their favour.
At the time that Judge Smith and Bromwich J were considering the debtor’s application to set aside the bankruptcy notice, judgment was pending but undelivered by the New South Wales Court of Appeal in relation to the debtor’s appeal and application for leave to appeal in connection respectively with the dismissal by Sheahan J in Young v King (No.6) [2015] NSWLEC 111 (Young v King (No.6)) of her application to set aside the 2004 settlement and the dismissal by Sheahan J in Young v King (No.9) [2016] NSWLEC 4 (Young v King (No.9)) of the debtor’s extraordinary claim for costs against Mr and Mrs King and some sixteen other parties.
On the basis of this pending appeal in the Court of Appeal, the debtor’s grounds for setting aside the bankruptcy notice before Judge Smith and Bromwich J were that:
a)She had a counter-claim, set-off or cross-demand equal to or exceeding the judgment debt in the amount of $3,000,000 for costs to which she would be entitled against the creditors and others if she were successful in the Court of Appeal in relation to her application for leave to appeal the decision of Sheahan J in Young v King (No.9).
b)The bankruptcy notice was issued for improper and collateral purposes designed to prevent the debtor from pursuing other legal proceedings and the exposure of misconduct by the creditors and others.
As recited at [8] above, Judge Smith refused to set aside the bankruptcy notice. In short, he found that there was no basis whatsoever for the allegation of conspiracy, which was the central claim underpinning all the litigation. He stated that the application to set aside the bankruptcy notice had no basis and he accordingly dismissed it.
Before Bromwich J, the debtor had to seek an extension of time to file a notice of appeal from the orders made by Judge Smith. His Honour rejected utterly the theory of conspiracy and collusion continuing to be espoused on behalf of the debtor, of which he stated at [42] that there was not a single scrap of evidence available capable of demonstrating their existence. His Honour thus dismissed the debtor’s application for an extension of time to appeal.
Bromwich J delivered his judgment on 30 September 2016. Subsequently, on 19 October 2016 the Court of Appeal delivered its judgment in Young v King [2016] NSWCA 282. The debtor lost in every respect. The Court of Appeal found that there was “not a skerrick of evidence” for the alleged conspiracy involving Mr and Mrs King, the debtor’s former advisers and Warringah Shire Council and that there was no basis to interfere with or grant any relief with respect to the decisions of Sheahan J in Young v King (No.6) or Young v King (No.9).
Hearing of Creditors Petition in this Court
The Creditors Petition was referred to me by Registrar Segal and first came before me for directions on 14 October 2016. Mr Newell, who has been the solicitor advocate for the debtor in all previous litigation (except for the initial proceeding commenced by the debtor against the Kings in April 2003) then advised that the debtor intended to file a second application for special leave to appeal to the High Court of Australia from the previous decision of the New South Wales Court of Appeal in Young v Hones [2014] NSWCA 337 (Young v Hones) which had dismissed the debtor’s appeal from the judgment of Garling J in Young v Hones (No.2) [2013] NSWSC 1429 and which was referred to in [5]-[7] of Judge Smith’s judgment extracted at [11] above. It was the second application for special leave because on 29 October 2014 the debtor had applied for special leave to the High Court to appeal the decision of the Court of Appeal in Young v Hones and this special leave application had been dismissed on 6 May 2015 in Young v Hones [2015] HCASL 73.
The debtor’s asserted justification for the proposed second application for special leave seeking to set aside the judgment of Garling J was that the High Court, in refusing the first special leave application on 6 May 2015, had found that the procedural course adopted which had led to the decision of Garling J meant that the case did not provide a suitable vehicle for the High Court to reconsider the test for legal advocates’ immunity and witness immunity as stated in D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1. However, it was argued by the debtor that the High Court had subsequently in Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 331 ALR 1 limited the scope of immunity in relation to settlement of legal proceedings, and it therefore should reconsider granting special leave to appeal from Young v Hones. I merely note at this point that the asserted justification for the second application for special leave completely ignored the principle of the finality of litigation.
Consistently with the proposed application for special leave to the High Court to appeal from Young v Hones the debtor had filed an Application in a Case in this proceeding on 11 October 2016, the same day as she filed her notice of opposition. The Application in a Case sought adjournment of the Creditors Petition for 14 days to enable the debtor to file the proposed second application for special leave and a further adjournment until the special leave application had been determined by the High Court.
In the result, at the directions hearing of 14 October 2016 I set the Creditors Petition, the application to file the notice of opposition and the Application in a Case down for consideration and hearing on 9 December 2016.
The hearing on 9 December 2016 was not concluded on that date and it was adjourned to 3 March 2017.
In the interim, as it happened, the second application for special leave to appeal from Young v Hones was refused by the High Court on 1 March 2017: Young v Hones [2017] HCASL 27.
At the resumed hearing on 3 March 2017 Mr Newell confirmed that the High Court had dismissed the second application for special leave to appeal and had also dismissed a further application for special leave to appeal from the decision of the Court of Appeal of the Supreme Court of New South Wales in Young v King [2016] NSWCA 282 referred to in [16] above: Young v King [2017] HCASL 28.
That being the position one might be forgiven for thinking that the only remaining grounds of opposition were the debtor’s assertion of her solvency and that the Creditors Petition was brought for improper and collateral purposes. However, according to Mr Newell the position was not as simple as that because the debtor now intended to bring:-
a)Further applications for special leave to appeal each of Young v Hones [2017] HCASL 27 and Young v King [2017] HCASL 28 on the basis that the High Court had breached the judicial obligation and duty to give adequate reasons and sufficient content for those reasons in refusing special leave but rather that these High Court dispositions were “singularly devoid of proper reasons”; and
b)An application for special leave to appeal the decision of Bromwich J based on a submission that his Honour had breached the judicial “duty to give reasons of a certain kind”. This special leave application with respect to the judgment of Bromwich J was apparently to be in substitution for a show cause application already pending in the High Court with reference to his Honour’s decision.
Adjournment Application Made on 3 March 2017
On the basis of these three foreshadowed special leave applications to the High Court, Mr Newell sought an adjournment of the hearing of the Creditors Petition, which I refused. Later in the hearing he renewed his application for an adjournment, which I again refused.
I refused the adjournment applications on the basis that the creditors were entitled to have their petition finally determined and that the foreshadowed further applications for special leave to appeal to the High Court of Australia were manifestly hopeless. I considered that it was in the interests of justice that the hearing of the Creditors Petition not be adjourned.
Insofar as the special leave applications foreshadowed in connection with Young v Hones [2017] HCASL 27 and Young v King [2017] HCASL 28 were concerned, I did not consider that there were any prospects that the High Court would grant special leave. Of course, it is a defining characteristic of a Court that it generally gives reasons for its decision: Wainohu v State of New South Wales (2011) 243 CLR 181 at 209 [44]. However, it is clear that a special leave application in the High Court is not normal litigation between parties. As McHugh J said in North Ganalanja Aboriginal Corporation v Queensland (1996) 185 CLR 595 at 643:-
Refusal of special leave creates no precedent and is binding on no one. An application for special leave is merely an application to commence proceedings in the Court. Only when the Court grants leave does it commence to exercise its appellate jurisdiction. Until that time, there are no parties whose rights can be the subject of a binding determination.
(citation omitted.)
Similarly, Kirby J said in Re Sinanovic's Application (2001) 180 ALR 448 (Re Sinanovic) at 450 [7(1)]:-
A decision on a special leave application is not res judicata as between the parties, equivalent to a judgment that finally decides a legal dispute between them. The application is in the nature of an interlocutory proceeding by which a party seeks to engage the jurisdiction of this court. … At the stage of the special leave application, it has been said, the appellate jurisdiction of this court has not been engaged, it is simply a process by which a party seeks to persuade the court to enter upon that jurisdiction.
(citations omitted.)
The nature of a special leave application is such that the High Court is not obliged to give reasons for either refusing or allowing special leave. The following was said of special leave applications in Smith Kline & French Laboratories (Aust) Ltd v Commonwealth (1991) 173 CLR 194 at 217-218 by Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ:-
From time to time statements have been made which draw attention to the unusual character of an application for special leave to appeal. Such an application has special features which distinguish it from most other legal proceedings. It is a long-established procedure which enables an appellate court to control in some measure or filter the volume of work requiring its attention. Ordinarily, it results in a decision which is not accompanied by reasons, or particularly by detailed reasons … The procedure calls for a hearing, whether orally or on written materials, and a determination in the form of a curial order.
(emphasis added and citation omitted.)
To similar effect, Deane and Gaudron JJ in Coulter v The Queen (1988) 164 CLR 350 at 359-360 stated as follows:-
On the other hand, the application for leave or special leave to appeal commonly possesses a number of special features which set it apart from at least some other judicial proceedings. First, it involves the exercise of an extremely wide judicial discretion. Secondly, and notwithstanding that refusal of the application ordinarily involves the final determination of the particular litigation, that wide discretion can commonly be exercised without the provision of detailed or, sometimes, any reasons.
(emphasis added.)
Accordingly, I consider that the foreshadowed special leave applications in relation to Young v Hones [2017] HCASL 27 and Young v King [2017] HCASL 28 are wholly lacking in merit and doomed to failure. They are not based on genuine and arguable grounds and have no reasonable prospects for success. They could not possibly satisfy the basis for the reopening of a special leave hearing or application which was stated by Kirby J in Re Sinanovic at 451 [7(4)] as follows:
The only basis for ordering the reopening of a special leave hearing would, in my opinion, be where it is affirmatively shown that exceptional circumstances exist and new circumstances have arisen that require a reopening to prevent a serious miscarriage of justice because an error of fact or law has occurred in the earlier determination of the application, which error demands correction.
Insofar as the debtor proposes a special leave application in relation to the judgment of Bromwich J, I consider that any such special leave application is also doomed to failure. Apparently, the criticism made of that judgment is the breach of the “duty to give reasons of a certain kind”. I am not sure what that really means but the simple fact of the matter is that his Honour’s judgment is, with respect, detailed and reasoned and I could not conceive of a successful argument that its content is inadequate or in some respect lacking.
I should also record that Mr Newell at the resumed hearing on 3 March 2017 sought to read and rely upon a further affidavit of the debtor and a further affidavit of Mr Muriniti, both sworn that morning. I refused leave to the debtor to read and rely upon her affidavit because Mr Gray of Counsel, who appeared for the creditors, said that he would be prejudiced by its lateness and I regarded that as a reasonable position. The evidence in that affidavit should have been given by the debtor far earlier in the proceeding. Further, it attached a valuation report from a registered valuer dated 24 February 2017 (Mr Staltari’s valuation) which valued her residential property referred to below at $1,075,000 but this valuation did not comply with the rules relating to expert evidence. Mr Newell only relied upon certain paragraphs of the affidavit of Mr Muriniti, which were not objected to by Mr Gray. The reading of those paragraphs of Mr Muriniti’s affidavit of 3 March 2017 led to Mr Staltari’s valuation going into evidence.
Accordingly, the only remaining grounds of opposition are those contained in [10] and [11] of the notice of opposition and to which I now turn.
Remaining Grounds of Opposition to the Making of a Sequestration Order
Solvency
The debtor asserts in [10] of her notice of opposition that she is able to discharge all of her financial obligations as and when they fall due.
Under s.52(2)(a) of the Bankruptcy Act 1966 (Cth) (the Act) she needs to satisfy the Court that she is able to pay her debts. By s.5(1) of the Act:-
“debt” includes liability.
The test for solvency is set out in s.5 of the Act in the following terms:-
(2)A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.
(3) A person who is not solvent is insolvent.
Bennett J in Re Sanders; Knudsen & Yates v Sanders (2003) 1 ABC(NS) 408 said of these statutory provisions at 414 [26] and [27] as follows:-
[26]“Debts” as referred to in s 52(2)(a), by reason of s 5(1) includes liabilities. Katz J in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 discussed the distinction between “solvent” as defined in s 5(2) and “debt”. His Honour (at [8]-[10]) proceeded to deal with s 52(2)(a) on the basis that the debtor should prove an ability to pay his debts as and when they become due and payable. In this context only the reasonably immediate future is looked at (Bank of Australasia v Hall (1907) 4 CLR 1514 (‘Hall’)). Katz J proceeded on this basis because that was the way the parties in that case approached the matter and also because that was the approach of other Judges of this Court. His Honour also pointed out that the broader considerations so encompassed were of importance in considering the exercise of the discretion in s 52(2) to dismiss the petition. Katz J said (at [31]) that, in determining the debtor’s ability to pay any debts becoming payable in the future, it is incumbent upon the debtor to satisfy the Court either that no debts will become payable in the immediate future or that, if they will, he will be able to pay them.
[27]This was also the approach taken by Hely J in Foyster (at [19]) who expressed the view that s 52(2)(a) refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations. Mr Diethelm relied on Hall (at 1527) for the proposition that the debts to be considered are not limited to those presently payable but also include those payable in the reasonably immediate future. He submitted that the question is not one of temporary lack of liquidity (Sandell v Porter (1966) 115 CLR 666 at 670-671). In Foyster (at [19]) Hely J concluded that s 52(2)(a) refers to “a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527-1528 as well as debts which are presently due and payable”.
It is clear from numerous authorities that the onus of proving that she is able to pay her debts is on the debtor.
When a party seeks to discharge the onus of showing solvency and ability to pay debts, it is necessary for the Court to be presented with the “fullest and best” evidence of the financial position said to establish solvency. Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency nor are bald assertions of solvency: Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711 at 719 [16].
In this case the debtor has not led realistic and probative evidence which would establish that she is solvent.
She is the owner of a residential property at 35 Calca Crescent, Forestville (the Calca property) in Sydney. The only evidence before the Court of its value is:
a)Mr Staltari’s valuation of $1,075,000 (see [33] above) which does not address saleability of the Calca property; and
b)An uninformative “Comparative Market Analysis” dated 12 October 2016 of a real estate agent, Mr Jason Zeaiter which gives the Calca property a price range of between $1,300,000 to $1,430,000.
Mr Zeaiter also gives no evidence of its saleability and does not appear to be a registered valuer.
Neither Mr Staltari’s valuation nor Mr Zeaiter’s comparative market analysis comply with Division 23.2 of Part 23 of the Federal Court Rules 2011 (Cth) and do not prove that the Calca property is capable of being sold within a relatively short time or in the reasonably immediate future.
Nevertheless I am prepared for the purpose of this proceeding and particularly having regard to the present state of the Sydney property market to assume that the debtor could sell the Calca property for a figure of around $1,200,000 “within a relatively short time”: Eykamp v Deputy Commissioner of Taxation (2010) 8 ABC(NS) 105 at 107 [7] per Buchanan J and “in the reasonably immediate future”: International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 at [19] per Katz J.
However, the debtor is heavily indebted to a number of creditors.
First, she is indebted to the St George Bank in the sum of approximately $90,000 secured by first registered mortgage over the Calca property.
Second, on her own admission the debtor owes Mr Muriniti, her solicitor, approximately $3,000,000 for legal fees incurred in relation to all the litigation in which his firm has acted for her. She asserts that these fees are secured by way of an unregistered mortgage and a caveat over the Calca property. She further asserts that Mr Muriniti is not pressing her for payment of these fees.
However, Mr Muriniti himself has never stated that he is not pressing for payment or upon what basis or conditions he is not pressing for payment, although he has sworn two affidavits which have been read in this proceeding and was present in Court instructing Mr Newell during the hearing on 3 March 2017. In his affidavit of 11 October 2016, Mr Muriniti claimed to be a secured creditor on title to the Calca property after the first mortgage to the St George Bank. It is true that in a letter dated 10 October 2016 and addressed to the creditors’ solicitors, Mr Muriniti conveyed the debtor’s offer to the creditors to secure the judgment debt by way of an unregistered mortgage over her home, with such mortgage to have priority over the security held by Mr Muriniti which would be postponed in favour of the creditors’ unregistered mortgage. However that offer was conditional on the unregistered mortgage offered to the creditors being unenforceable “until all proceedings against your clients have been exhausted”. In the context of the storm of litigation between the creditors and others with the debtor which I have recited above, this was an offer that was unlikely to be accepted, and indeed was not.
At the hearing on 3 March 2017 Mr Newell read an affidavit of Mr Muriniti sworn on that day which in no way stated that he was not pressing for payment of the $3,000,000 debt for legal costs. The only evidence before the Court is the mere assertion by the debtor that Mr Muriniti is not pressing, unconfirmed by Mr Muriniti himself. In these circumstances there is no estoppel, waiver or preclusion from Mr Muriniti enforcing the debt forthwith.
Even if Mr Muriniti had provided evidence that he was not pressing for payment of the $3,000,000 debt, this would not have assisted the debtor’s argument that she is solvent. This is so because of the principle explained by Edelman J (as he then was) in Hussain v CSR Building Products Ltd (2016) 112 ACSR 507 at 521-522 [63] as follows:
[63]There is considerable authority that supports the conclusion that an assessment of when debts are due and payable is based upon when those debts are legally due. In Lee Kong v Pilkington (Australia) Ltd (1997) 25 ACSR 103 at 112 , in the Full Court of the Supreme Court of Western Australia, Owen J said that whether or not a ‘debt’ is ‘due’ is to be determined with reference to the legally binding agreement between the parties and not with regard to any reluctance by creditors to enforce legal rights. In other words, it does not matter even if it is unlikely that a creditor will enforce its debt because the statutory test is whether the debt is due and payable. See also Re Toowong Trading Pty Ltd (in liq) [1989] 1 Qd R 207 at 211 (Ryan J); Standard Chartered Bank of Australia Ltd v Antico (Nos 1 & 2) (1995) 38 NSWLR 290 at 331 ; 131 ALR 1 at 73–4 ; 18 ACSR 1 at 73–4 (Hodgson J); Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 ; 188 ALR 114 ; 39 ACSR 305 ; [2001] NSWSC 621 at [54] (Palmer J).
Next, on her own admission the debtor owes approximately $300,000 to her sister, Mrs Eleanor Denise Schofield. The debtor says that her sister is not pressing her for repayment of this amount which Mrs Schofield has apparently lent to her. However, Mrs Schofield, who has sworn an affidavit in this proceeding, does not herself state that she is not pressing the debtor for repayment or given any evidence concerning her attitude as to repayment of the debt of $300,000.
Next, she owes Mr Ian Hemmings SC, who is a Supporting Creditor in this proceeding, the sum of $200,000 pursuant to the judgment of Garling J in Young v Hones (No.3) plus interest to 27 February 2017 amounting to $46,051.
She owes Hones Lawyers $190,000 pursuant to Young v Hones (No.3) which together with interest to 27 February 2017 amounts to at least $221,445.90.
Finally, to the creditors, she owes the sum of $128,838.63, which consists of the judgment debt and interest.
Accordingly, either on her own admission or pursuant to judgments the debtor owes debts to her various creditors in the amount of $3,986,335.53:
| Creditor | Description | Amount |
| St George Bank | Loan secured by mortgage | $90,000 |
| Mr Muriniti | Legal fees | $3,000,000 |
| Ms Schofield | Loan from sister | $300,000 |
| Mr Hemmings SC | Young v Hones (No.3) & Interest | $246,051 |
| Hones Lawyers | Young v Hones (No.3) & Interest | $221,445.90 |
| First and Second Applicants | Judgment debt & Interest | $128,838.63 |
| Total | $3,986,335.53 |
I find that the debtor has not discharged the onus of satisfying the Court that she is able to pay her debts for the purposes of s.52(2)(a) of the Act.
Further, as pointed out in [36] above, the definition of debt under the Act includes liability. The evidence establishes to my satisfaction that the debtor has liabilities in the order of at least some hundreds of thousands of dollars for legal costs arising out of the various legal proceedings since 2003. These legal costs have not yet been taxed or assessed, but at the option of the parties which have the benefit of those costs orders, they would become debts which are payable in the reasonably immediate future or within a relatively short time, but which the debtor could not pay.
I further take into account these outstanding liabilities for legal costs not yet taxed or assessed as a factor in exercising my discretion not to dismiss the Creditors Petition but rather to make a sequestration order.
Creditors Petition Maintained for Improper Purpose
There is not a jot of evidence that the creditors have presented the Creditors Petition for any purpose other than the legitimate one of pursuing an appropriate remedy for the recovery of moneys owed by the debtor to them. There is no evidence at all that the creditors have presented the Creditors Petition for any illegitimate, collateral or improper purpose. Their object in obtaining a sequestration order is within the lawful scope of the Act.
Conclusion
In my view for the purposes of s.52(2)(b) there is no other sufficient cause for not making a sequestration order against the estate of the debtor and accordingly I order as follows:
1)A sequestration order be made against the estate of Ms Margo Young.
2)The Applicant Creditors’ costs, including any reserved costs and the costs of the hearings before the Court on 14 October 2016, 9 December 2016 and 3 March 2017, be taxed and paid from the bankrupt estate of Ms Margo Young according to the Bankruptcy Act 1966 (Cth).
3)A copy of this sequestration order be given to the Official Receiver in Sydney within two days.
4)The Court Notes that the date of the act of bankruptcy is 1 May 2016.
I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of Judge Dowdy
Associate:
Date: 23 March 2017
3
25
3