Huynh v Conlan
[2005] FMCA 1532
•18 October 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| HUYNH v CONLAN | [2005] FMCA 1532 |
| BANKRUPTCY – Application for review of order of Registrar – orders set aside – whether bankruptcy should be annulled. PRACTICE & PROCEDURE – Application for review of order of Registrar – application to extend time – extension of time granted. |
| Bankruptcy Act 1966 (Cth), s.37 |
| Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4 BBC Hardware Ltd v Boutros (Unrep., Emmett J, Fed Ct, 6 March 1998) Blanco v Employers Mutual Indemnity (Workers Compensation) Ltd & Anor [2002] FMCA 38 Capsalis v Ozdemir [2005] FMCA 1163 Cottrell v Wilcox [2000] FCA 866 Gallo v Dawson [1990] HCA 30; (1990) 64 ALJR 458 Garrett v D.C.T. [2005] FMCA 19 Gollan, Re [1992] FCA unrep5951; (1992) 113 ALR 475; (1992) 44 FCR 38 Hadjimouratis v Casanova [2005] FMCA 1468 Harris v Caladine (1991) 172 CLR 84 Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 Kwiatek, Re; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374; (1989) 89 ALR 631 ([1989] FCA unrep3897) Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338 McAuliffe Williams & Partners v Pecoult [2003] FMCA 278 Sanders v Karayannis [2005] FMCA 1006 Taylor v Deputy Commissioner of Taxation [1999] FCA 195 |
| Applicant: | THI BE NAM HUYNH |
| Respondent: | GERARD ANTHONY CONLAN |
| File Number: | MLG 818 of 2004 |
| Judgment of: | Riethmuller FM |
| Hearing dates: | 3, 15 & 18 August 2005 |
| Date of Last Submission: | 15 August 2005 |
| Delivered at: | Melbourne |
| Delivered on: | 18 October 2005 |
REPRESENTATION
| Counsel for the Applicant: | Applicant appeared on her own behalf |
| Counsel for the Respondent: | Mr Barber |
| Solicitors for the Respondent: | Gerard A Conlan |
| Counsel for the Trustee: | Mr Campbell (solicitor) |
| Solicitors for the Trustee: | GR Campbell |
ORDERS
That the sequestration order of 3 August 2004 be set aside.
That any application for costs be made within 30 days of today.
That the time for filing the application for review be extended to
25 October 2005.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG818 of 2004
| THI NAM HUYNH |
Applicant
And
| GERARD ANTHONY CONLAN |
Respondent
REASONS FOR JUDGMENT
This is an application to review a decision of a Registrar of the Federal Magistrates Court made on 3 August 2004 that the applicant's estate be sequestrated. The application for review was filed on 25 October 2004.
The application is supported by an affidavit of the applicant drawn by her former solicitor, filed on the same date (and an interpreter's affidavit confirming that she understood her affidavit).
The respondent petitioning creditor relied upon an affidavit filed at Court on the morning of the hearing.
The parties are agreed that the applicant ought not be the subject of a sequestration order on the basis that the debt related to two loan agreements, the second of which contained a signature that the applicant said was not hers and which it was admitted appeared to be the subject of a forgery and therefore she did not appear to be liable on that agreement. It is conceded that she would have been able to meet the amount owing on the first loan agreement and it would not have been sufficient to found a sequestration order. In the circumstances there is no need to consider any issues that relate to her liability on that first loan agreement.
The issue that arises in this matter is whether or not the sequestration order ought to be set aside, or an order should be made annulling the bankruptcy pursuant to s.154B of the Bankruptcy Act1966.
The practical difference which arises, as a result of the two different types of orders that are contended for in this case, is that on the orders being set aside the trustee would not receive his costs and expenses from the applicant. On an annulment, the trustee would receive his costs from the applicant's estate.
As the evidence on affidavit in the matter is particularly brief it is appropriate to set it out in full in the judgment.
The applicant's affidavit provided as follows:
1. A sequestration order was made against my estate on 3 August 2004, on the petition of Gerard Anthony Conlan and Mr. Dean Royston McVeigh of Foremans Business Advisors (Vic) Pty Ltd was appointed Trustee.
2. I do not recall ever having been served with documents concerning a claim made against me in the amount of
$7,771.00 and on which judgment was obtained against me in the Melbourne Magistrates’ Court on the 5th of June 2003. I have been advised by my Solicitor that judgment was granted in default of appearance.
3.I have subsequently been advised by my ex-husband that the claim for which judgment was granted against me relates to two loans of which my ex-husband obtained from Gerard Conlan, the applicant in my bankruptcy.
4. I have been informed that these loans were obtained by him in November 2001, and in or about April 2002 for amounts totalling $60,000.00. I have no knowledge concerning these two loans. In addition, I have not signed any documentation regarding these loans, and only recently documents have been produced allegedly bearing my signature.
I categorically deny ever having signed these documents.
5. My only involvement with Gerard Conlan concerning finances relates back to about 1996 when my then husband and myself obtained finance from him for the building of my present residence. The amount of the loan was about $150,000.00, and we jointly gave Mr Conlan a mortgage as security. I understand that the mortgage was paid out when we refinanced with the Bank of Bendigo approximately two years later. The only other contact I had with Mr Conlan was in about January 2004, when he arranged for the transfer of the residence into my name pursuant to a property settlement with my ex-husband.
6. 1 understand that I was served with a bankruptcy notice in the amount of $8,638.10 on 13 April 2004. 1 have also been made aware that 1 was served with a Creditors Petition on or about June 2004.
7. At the time of receiving these documents, I arranged for my daughter Thuy Huynh to contact the Respondent,
Mr. Conlan, as I do not speak or read English. As a result of that contact, I understood that Mr. Conlan had agreed that if my ex-husband could pay the loans that he had taken out, no further action would be taken against me.
8. In addition I arranged with my daughter to give the documentation to my ex-husband to take care of these matters, as it was his responsibility.
9. I now believe my ex-husband failed to make proper arrangements to pay the debt.
10.In regards to my assets and liabilities, I state as follows:
Real Estate:
16 Chatterton Drive, Delahey, value $300,000.00
Less Mortgage $150,000.00
Equity $150,000.00
Household furniture $ 8,000.00
Motor vehicle $ 27,000.00
NET ASSETS $185,000.00
Liabilities:
Judgment (Specifically denied) $ 8,638.10
Car loan $ 23,000.00
TOTAL $ 31,638.10
11.I have been informed that the time for making my Application to Review the Registrar’s decision has expired. However, I did not realize the consequences of the documents that were served on me, as I do not speak or read English, nor did I understand the consequences of being made bankrupt until I first sought legal advice from my Solicitor in late September 2004. 1 have then spent the past two weeks attempting to get my ex-husband to explain his actions to my legal representatives through a Vietnamese interpreter, so that this application could be taken out.
Mr Conlan's affidavit provided as follows:
1. I am the Respondent to this Application. I make this affidavit from my own knowledge except where stated to the contrary.
2. I first became aware that a mortgage in the joint names of the Applicant and her husband Trien Nguyen and given to me by Mr Nguyen probably did not bear the genuine signature of Mrs Huynh in or about September 2004 when Mrs Huynh came to see me in my office. I think it was about four weeks after the sequestration order had been made.
3. In December 2003 and January 2004, I had consented to and arranged a transfer of the half-interest of Mr Nguyen in the property to Mrs Huynh because I believed that I held an enforceable mortgage from both Mr Nguyen and Mrs Huynh.
4 I refer to paragraph 7 of Mrs Huynh’s affidavit. I was contacted by Mrs Huynh’s daughter, possibly about the time of service of the creditor’s petition. At no time did she deny that Mrs Huynh owed the debt. She told me that Mrs Huynh could not pay the debt and that Mr Nguyen would contact me to make arrangements to pay.
The applicant was unrepresented at the time of the hearing and spoke no English. She was assisted by an interpreter.
The applicant and her husband divorced over a year ago.
The applicant’s husband has been declared bankrupt and has taken up a new relationship.
During cross-examination, she agreed that the first borrowings from Mr Conlan were in 1996 when the money was secured with a mortgage, later refinanced through Bendigo Bank.
It appears that during the time of separation, an arrangement was reached between her and her husband that she would receive her husband's share in the matrimonial home (which was secured by a caveat relating to these debts) and the subject of a mortgage and he would receive the other assets, as she had the children living with her. It does not appear that Mr Conlan was aware of this arrangement at the time.
Mr Conlan was later asked to consent to the transfer to the applicant of her husband’s interest, which he did believing that the caveat related to both parties and was security for the moneys loaned to the applicant's husband (and as he believed at the time, the applicant).
The applicant, in her oral evidence, said that she knew nothing about the money that was alleged to be owing. She stated that when documents arrived at the home, her husband would take all of the documents with him and tell her that they related to him. She did not speak English and therefore does not appear to have had the capacity to determine which documents would be more appropriately viewed by her (for which she would have to find an interpreter in any event).
At one stage some documents came to her address and her daughter noticed that they involved her. She then asked her daughter to ring the respondent Mr Conlan, about the matter.
The applicant's daughter gave evidence that she rang Mr Conlan and advised him that the applicant knew nothing of the debt. She explained that Mr Conlan said to her that the applicant had signed the documents, which she disputed. It was agreed that the documents ought to be forwarded to the applicant to consider. The applicant's daughter said that the documents did arrive in the mail and did not appear to contain the applicant's signature. She says that at this point her mother went to see a friend for advice.
During cross-examination the applicant's daughter said that Mr Conlan had responded to her that if her mother had nothing to do with the signing of the documents, her father must have brought a girlfriend with him. It appears that this reflected Mr Conlan’s view that he must have seen the parties or people who appeared to be the parties when receiving the documents. Mr Conlan, during evidence, stated that he did not have a clear recollection of the events that occurred at the time of the signing of the document.
The applicant explained that she attended upon a friend who was an accountant, Mr Phan Van Danh, of Footscray who went to a meeting with her and Mr Conlan and then told her to wait and see what
Mr Conlan would do. She says that on receiving the bankruptcy papers that she was again told by Mr Phan Van Danh to wait, but on receiving a notice to vacate the premises she was told by others to see a solicitor, which she did. A solicitor prepared the documents for the application for review and the affidavit as set out above. As a result of the applicant's financial position, she was not able to afford to have the solicitor appear on the hearing of the matter.
The applicant denied that she had received a request to complete a statement of affairs after the sequestration order, stating that she only received a letter requesting her to vacate the property.
She said during cross-examination that the first time she had told Mr Conlan directly of the forgery was after the bankruptcy. She also conceded that after she had first seen Mr Conlan she received a lot of documents about bankruptcy in the mail, but said she was unable to read them due to a lack of English language skills.
The sequestration order was made on 3 August 2004. The review application was filed in October. On 19 November, the parties had a conference at the Law Institute of Victoria offices where the applicant was represented by a barrister, but the matter was not able to be resolved.
Mr Conlan gave evidence that he is a solicitor. He said that in September 2004 the applicant was in his office stating that she did not sign the documents. A pre-hearing conference was organised in November 2004, which was the first occasion that he compared the signature on the loan documents with other signatures of the applicant's and he realised that it might not be her signature. He stated that he sent the applicant copies of the documents at the request of the daughter back in April 2004 but that nothing had happened following him posting those documents out.
Unfortunately, he had no file notes, simply copies of some of the correspondence, and a yellow ‘post-it-note’ confirming that the applicant’s daughter had rung him on 13 April 2004. He said that he had not compared the documents prior to November 2004.
He explained that prior to the meetings in November, he had been contacted by various people on behalf of the applicant and had some meetings, as people attempted to assist her to arrange a settlement.
He said that at the first meeting he was not told of the denial that the signature was hers, but rather discussions were had to arrange payment of the debt. He explained that the affidavit set out above was done on short notice at the request of his counsel on the morning of the hearing.
Mr Conlan was cross-examined about why he would loan money if the applicant had not come in to his office. He said that he thought that she had come in but could not recall specifically. He noted that staff in his office had witnessed the signatures on the loan agreement.
Whilst the applicant obviously found it difficult to accept that an impersonation could be so easily perpetrated, one must recall that a busy solicitor sees many clients and would not necessarily recall those with whom he has few dealings.
He said that he had been told by the applicant's former husband that he would arrange to pay the debt, and he denied that he had ever asked her former husband to request her to attend upon his office to resign documents. He explained that the applicant's former husband had been to see him a number of times and had paid $400 per month for eight months.
Mr Conlan maintained that the first time he was aware that there was a dispute as to the authenticity of the signature was on 13 April 2004 when the applicant's daughter rang and that he promptly forwarded copies of the documents with a suggestion that if there was a forgery, that she attend upon the police. He said that as he had not heard anything on this issue he proceeded with the bankruptcy application. Mr Conlan’s evidence on this issue was as follows:
HIS HONOUR: Mr Conlan, when was the first occasion that you were aware there was any dispute about the liability of Ms Huynh on these documents? --- The first time was on 13 April 2004.
What did you find out on that occasion? --- I had a telephone call with the previous witness. She rang me and a number of things were said, but the gist of it was that her mother couldn’t pay, she had two or three daughters at school, she was separated from her husband, and she did say she didn’t sign the documents. I said “Well, I’ve got the documents. Has she got a copy of them” and she said, “No”. I said, “I’ll send you a copy of the documents”, and I suggested to her in the letter that she go to the police if there was any suggestion or contact me further and I didn’t hear any more until September when I was told again, but I’d had other conversations in the meantime when it hadn’t been raised that she had not signed the document.
It should be noted that by this time Mr Conlan had already obtained a judgment in the State Magistrate's Court by default. However, it is difficult to conclude that the applicant was actually served with those proceedings given the lack of evidence of service (of those proceedings) in this matter and the statement by the applicant in her affidavit.
Mr Conlan explained that at the time of the loan he understood the purpose of the loan to be for a family business (importation of marble), that the husband had undertaken all of the dealings of the business, and that he did not suspect that there was any fraud involved.
When considering the steps taken by Mr Conlan it must be recalled that he was seeking to recover money due and owing to him (albeit not by the applicant as it turns out) and that he did promptly forward copies of documents at the request of the daughter so as to enable inquiries to be made about the signature.
I accept the evidence of Mr Conlan. I find that the applicant had little capacity to understand the events that were taking place, and has, like Mr Conlan, been the victim of what appears to have been fraud by another. Whilst I accept that the applicant is genuine in her beliefs, to the extent that her evidence differs from that of Mr Conlan I find that she was mistaken or confused about the events.
In this case there are two questions that must be determined:
a)Whether the applicant should be granted an extension of time to bring review proceedings; and
b)If the extension is granted, whether the court ought to set aside the sequestration order or give leave for an amendment to make an annulment application of the bankruptcy.
If the sequestration order is not discharged there is a clear case for annulment pursuant to sec 153B of the Act. In this regard the cases is clearly distinguishable from Garrett v D.C.T. [2005] FMCA 19 where an extension of time was refused as the applicant was bound to fail on the review.
It is appropriate to have regard to the scheme of the Act. Section 37 of the Bankruptcy Act provides that:
37. Power of Court to rescind orders etc. (1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this act or may suspend the operation of such an order.
(2) The Court does not have power to rescind or discharge, or to suspend the operation of:
(a) a sequestration order; or
(b) an order for the administration of the estate of a deceased person under Part XI.
This section was amended in 1991 to provide for the restriction upon rescinding sequestration orders. At the time the Minister said, in the second reading speech:
Clause 8 — Power of court to rescind orders
8.1 The Act provides 3 methods for bringing bankruptcy to an end, namely discharge from bankruptcy annulment of bankruptcy and rescission of sequestration orders. It is established law that a person against whom a sequestration order is made becomes a bankrupt from the first moment of the day on which the order is pronounced, with the consequence that the trustee must immediately begin to take steps to administer the estate.
8.2 In the case of annulment and of rescission, the bankruptcy is treated for most purposes as never having occurred. The Act does however make provision to validate actions taken by a trustee between the time when a debtor becomes a bankrupt and the annulment of the bankruptcy, but makes no corresponding provision in relation to rescission of sequestration orders. This is an anomalous situation, and gives rise to substantial doubts about the validity of transactions entered into by a trustee in good faith where a sequestration order is made against a person, and time elapses before that sequestration order is rescinded.
Since the consequences of annulment and rescission are largely the same for the debtor, no good purpose is served in retaining rescission as a means of bringing bankruptcy to an end. Accordingly, the Bill contains provision to abolish rescission as a means of bringing bankruptcy to an end, so that discharge and annulment will be the only methods of terminating a bankruptcy.
8.3 Section 37 of the Act gives courts power to rescind, vary and discharge orders, and to suspend the operation of orders.
It empowers rescission of a sequestration order or an order for the administration of the estate of a deceased person in bankruptcy, but only where the order has not been signed and sealed as provided by the Bankruptcy Rules made under the Act. The power to rescind therefore depends entirely upon whether formal administrative procedures under subordinate legislation have bean carried out, even though, as mentioned previously, a person against whom a sequestration order is made becomes a bankrupt from the first moment of the day on which the order is pronounced.
3.4 Clause 8 provides for the repeal of section 37 and the insertion of a new section 37 which preserves the powers of courts to rescind, vary and discharge orders, and to suspend the operation of orders, but which specifically precludes the rescission of sequestration orders and orders for the administration of deceased estates in bankruptcy. After the commencement of the Bill, in relation to sequestration orders and administration orders under Part XI of the Act, in those cases where rescission orders night have been sought or made, the appropriate orders to be made will be orders under section 153B or section 252B for the annulment of the sequestration order or administration order.
However, the section does not limit the power to review an order by a registrar. In Re Gollan [1992] FCA unrep5951; (1992) 113 ALR 475; (1992) 44 FCR 38 Spender J said:
7. There is a number of matters thrown up by the application. The first concerns the repeal of s. 37 of the Bankruptcy Act 1966 ('the Act') and the substitution of a new s. 37 by Act No. 9 of 1992. As a consequence of the new s. 37, the Court, subject to s. 37(2), may rescind, vary or discharge an order made by it under the Act, or may suspend the operation of such an order. But by s. 37(2), the Court does not have power to rescind or discharge or to suspend the operation of, inter alia, a sequestration order.
8. There would, therefore, be no power to rescind the making of the sequestration order of 11 November 1992 if that order had been made by the Court. The order was made by the District Registrar in consequence of powers delegated to him pursuant to s. 31A. It seems to me that the effect of s. 37 is to abolish rescission as a means of bringing bankruptcy to an end, so that discharge and annulment are the only methods of terminating a bankruptcy. However, my view is that there still remains power in the Court, pursuant to s. 14(5) to review a sequestration order made by a Registrar under the powers delegated pursuant to
s. 31A, and that it would be competent on summary application, to set aside the sequestration order made on the creditor's petition, and to dismiss the petition.
This is an application to review the decision of a Registrar exercising delegated judicial power. Rules 20.01 and 29.04 of the Federal Magistrates Court Rules provide for review applications to be made within 21 days. Rule 20.01 provides for extensions of the period by order of the court or a Registrar. Rule 3.05 provides a more general power to extent time. Whilst r 29.04 does not specifically provide for a power to extend time the effect of rr 20.01 and 3.05 is to provide a power to extent time: see for example Sanders v Karayannis [2005] FMCA 1006.
The validity of the delegation of such powers (at least by the Federal and Family Courts) is without doubt: see Taylor v Deputy Commissioner of Taxation [1999] FCA 195 and Harris v Caladine (1991) 172 CLR 84.The hearing of a review of a Registrar’s order must necessarily be a hearing de novo: see Harris v Caladine (1991) 172 CLR 84; Re Kwiatek Ex parte Big J Ltd v Pattison (1989) 21 FCR 374; (1989) 89 ALR 631 ([1989] FCA unrep3897); Cottrell v Wilcox [2000] FCA 866 and McAuliffe Williams & Partners v Pecoult [2003] FMCA 278. In Re Kwiatek Northrop J discusses the hearing process that may be adopted on a review, saying:
32. Under s.31A, a Registrar of the Court is exercising powers conferred by the Act initially on the Court itself. The Registrar is an officer of the Court. A party to a proceeding before the Registrar exercising a power referred to in s. 31A(1), may make application that the proceeding be referred to the Court whereupon the Registrar must make arrangements for it to be heard by the Court. Where a review of the exercise of the power by a Registrar is undertaken by the Court it is important that there should be as little restriction as possible on the method by which the review is conducted. In reality, the Court is exercising a power conferred initially upon it. Unless authority constrains me to take a different view, it is my opinion that the review should be a rehearing based upon the evidence before the Registrar supplemented by any evidence the parties desire to produce.
…
35. Having concluded that the review under s. 31A of the Act is a rehearing based upon the evidence before the Registrar, some general observations are made. In the present case, lengthy affidavits were filed on behalf of the petitioning creditor and the Trustee containing evidence of what had occurred at the hearing before the Registrar. In the present case, that evidence was not relevant to the review. In most cases evidence of that kind would not be relevant. The review is based upon the affidavits relied upon at the hearing of the application before the Registrar. If oral evidence was given at that hearing, the parties could agree that the transcript of that evidence be used on review, otherwise oral evidence would need to be led at the review itself. The hearing of the review by the Court is in reality a hearing de novo and the Court relies upon the facts properly brought before it by the parties to the review.
In considering whether to extend the time for seeking a review of the Registrar’s decision the court exercises a broad discretion.
The appropriate test to be applied is to consider what order would, in the circumstances of the particular case, be in the interests of justice.
In Gallo v Dawson [1990] HCA 30; (1990) 64 ALJR 458, McHugh J considered the principles underlying extension of time applications, saying:
2. … The object of the rule is to ensure that those Rules which fix times for doing acts do not become instruments of injustice. The discretion to extend time is given for the sole purpose of enabling the Court or Justice to do justice between the parties: see Hughes v National Trustees Executors & Agency Co of Australasia Ltd [1978] VR 257 at 262. This means that the discretion can only be exercised in favour of an applicant upon proof that strict compliance with the rules will work an injustice upon the applicant. In order to determine whether the rules will work an injustice, it is necessary to have regard to the history of the proceedings, the conduct of the parties, the nature of the litigation, and the consequences for the parties of the grant or refusal of the application for extension of time: see Avery v No 2 Public Service Appeal Board [1973] 2 NZLR 86 at 92; Jess v Scott (1986) 12 FCR 187 at 194-195. When the application is for an extension of time in which to file an appeal, it is always necessary to consider the prospects of the applicant succeeding in the appeal: see Burns v Grigg [1967] VR 871 at 872; Hughes, at 263-264; Mitchelson v Mitchelson (1979) 24 ALR 522 at 524.
It is also necessary to bear in mind in such an application that, upon the expiry of the time for appealing, the respondent has `a vested right to retain the judgment' unless the application is granted: Vilenius v Heinegar (1962) 36 ALJR 200 at 201.
It follows that, before the applicant can succeed in this application, there must be material upon which I can be satisfied that to refuse the application would constitute an injustice.
In considering the interests of justice in the context of an extension of time to appeal Wilcox J said, in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348:
1. Although the section does not, in terms, place any onus of proof upon an applicant for extension an application has to be made. Special circumstances need not be shown but the court will not grant the application unless positively satisfied that it is proper so to do. The `prescribed period' of twenty-eight days is not to be ignored (Ralkon Agricultural Co. Pty Ltd v Aboriginal Development Commission (1982) 43 ALR 535 at 550). Indeed, it is the prima facie rule that proceedings commenced outside that period will not be entertained (Lucic v Nolan (1982) 45 ALR 411 at 416). It is a pre-condition to the exercise of discretion in his favour that the applicant for extension show an `acceptable explanation of the delay' and that it is `fair and equitable in the circumstances' to extend time (Duff at 485; Chapman v Reilly (unreported, Federal Court of Australia, Neaves J, 9 December 1983) at 7).
2. Action taken by the applicant, other than by making an application for review under the Act, is relevant to the consideration of the question whether an acceptable explanation for the delay has been furnished. A distinction is to be made between the case of a person who, by non-curial means, has continued to make the decision-maker aware that he contests the finality of the decision (who has not `rested on his rights': per Fisher J in Doyle v Chief of Staff (1982) 42 ALR 283 at 287) and a case where the decision-maker was allowed to believe that the matter was finally concluded. Compare Doyle, Chapman, Ralkon and Douglas v Allen (1984) 1 FCR 287 with Lucic at 414-415 and Hickey v Australian Telecommunications Commission (1983) 48 ALR 517 at 519. The reasons for this distinction are not only the `need for finality in disputes' (see Lucic at 410) but also the `fading from memory' problem referred to in Wedesweiller v Cole (1983) 47 ALR 528.
3. Any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension: see Doyle at 287, Duff at 484-485, Hickey at 525-527 and Wedesweiller at 533-534.
4. However, the mere absence of prejudice is not enough to justify the grant of an extension: Douglas, Lucic at 416, Hickey at 523. In this context, public considerations often intrude (Lucic, Hickey). A delay which may result, if the application is successful, in the unsettling of other people (Ralkon at 550, Becerra at 12-13) or of established practices (Douglas) is likely to prove fatal to the application.
5. The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted: Lucic at 417, Chapman at 6.
6. Considerations of fairness as between the applicants and other persons otherwise in a like position are relevant to the manner of exercise of the court's discretion: Wedesweiller at 534-535.
Whether it is appropriate to set aside the sequestration order or to decline to do so must then be considered in the circumstances of the case (there being an independent power to order that a bankruptcy be annulled): see BBC Hardware Ltd v Boutros (Unrep., Emmett J, Fed Ct, 6 March 1998); Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4; and Blanco v Employers Mutual Indemnity (Workers Compensation) Ltd & Anor [2002] FMCA 38. In Blanco, Driver FM said:
14. Mr Haylen, for the trustee, submitted to me that it was open to the Court to exercise a discretion not to grant the relief sought by the applicant, having regard to the events leading up to and following the making of the sequestration order. This presents something of an intellectual conundrum. On the one hand, the review of a sequestration order made by a registrar involves rehearing of the creditor's petition. If there was no basis for the sequestration order then it should not have been made and ought to be set aside. On the other hand, time has moved on since the making of the sequestration order. There is authority that it is open to the Court to have regard to considerations relevant to an annulment application on the review of a registrar's decision to make a sequestration order: BBC Hardware Ltd v Boutros (unreported, Federal Court of Australia, 6 March 1998, per Emmett J). That is what I did in Barber v Bone Thorpe International Pty Ltd [2001] FMCA 4. There will be circumstances in which it is reasonable and proper to decline to set aside a sequestration order that should not have been made in the interests of creditors, and having regard to the public policy considerations arising from the Bankruptcy Act. Such cases ought not to be common. The legislature has drawn a distinction between the review of a registrar's decision and an annulment application. The former is subject to a short time limit while the latter can be made years after a sequestration order. Clearly, the significance of the administration of a bankrupt's estate increases as time passes. In most cases a review application will be determined within a short time after the sequestration order is made and events following that sequestration order will not be particularly significant.
In this case the applicant should not have been the subject of a sequestration order. The applicant, like the petitioning creditor, appears to be the victim of a fraud perpetuated by another.
The applicant, by her daughter (as she neither reads nor speaks English), gave the petitioning creditor notice that she was not a signatory to the relevant loan document on 13 April 2004.
The petitioning creditor did not check the signatures until November 2004 (after obtaining the sequestration order).
Submissions were made that many defaulters on loans falsely claim they did not sign the loan agreements. This is a sad fact of life that must be confronted. However, the fact that legal practitioners may become sanguine about such claims does not relieve them of the obligation to carefully consider the claims. Mr Conlan had only to compare the signature of the applicant on the agreement with an earlier agreement in his possession to become acutely aware of the fraud. This was an easy step that he did not undertake until November 2004.
The trustee and petitioning creditor point to delay and inaction on the part of the applicant in resisting the bankruptcy proceedings and primary proceedings. The applicant believed that the claim had nothing to do with her. She had no real grasp of English and had sought advice from persons either incapable of properly assisting her, or unable to properly understand the issues. Her advisors, it seems, just assumed that she owed the money claimed.
The delay must be seen in the context of the applicant being unable to speak or read English, unable to understand the proceedings, and suffering a marital breakdown and divorce at the time shortly before the events.
Arguably the applicant could have been more diligent and forceful in her denials of liability, however it is also clear that the petitioning creditor had notice that it was not her signature (which he could have checked) well before the sequestration order was made.
Whilst it is easy to review conduct in the past with the clarity of hindsight, neither party acted perfectly. Both parties, in their own way, were affected by other pressures: Mr Conlan had a solicitor’s practice to run and the applicant limitations on understanding.
The applicant has good prospects in her application as it is conceded that the sequestration order is not appropriate. The delay was not great.
In all of the circumstances I find that it is in the interests of justice to extend the time for seeking review of the registrar’s decision.
I now turn to considering whether the sequestration order should be set aside or an annulment order should be made. Looked at more broadly, there appears to be great unfairness to the applicant if the order is not set aside. As Weinberg J said, with respect to the debtor in Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338:
40 It would be quite wrong, in my view, to burden [the debtor], who is the successful appellant in this proceeding, with the costs of administering a bankrupt estate that should never have been made the subject of a sequestration order. Regrettably, that leaves the Official Trustee with no obvious and immediate recourse against either the appellant, or the first respondent.
It also leaves him with what might be considered to be a legitimate sense of grievance. He may be out of pocket for doing no more than what he was required by statute to do.41 It might be thought that the Act is deficient in failing to provide for the summary recovery by a trustee of the costs of administering an estate, and his or her reasonable remuneration, in circumstances where a sequestration order has had to be set aside. Perhaps the party responsible for those costs having been unnecessarily incurred, in this case the first respondent, ought to be summarily liable for them. There may be some cases, in which it will be appropriate to annul a bankruptcy under s 153B, thereby triggering the operation of s 154, rather than setting aside a sequestration order. Certainly, Emmett J took that approach in Austral. French J, in Symons, was prepared to contemplate a similar course, though not without reservations.
In my opinion, this is not such a case.Examples of similar results can be found in Hadjimouratis v Casanova [2005] FMCA 1468 and Capsalis v Ozdemir [2005] FMCA 1163.
In this case I am not satisfied that it is appropriate to annul the bankruptcy rather than setting aside the sequestration order.
The applicant ought never to have been made bankrupt. There is no evidence that the rights of persons other than the trustee or parties to this litigation would be affected by an order setting aside the sequestration order rather than an annulment order. Whilst the applicant’s interest in a home was transferred to the trustee this is easily rectified. Had the trustee dealt with this interest during the course of the bankruptcy in a way that involved a third party it would have been a factor in favour of an annulment order, however that did not occur here.
The review should be allowed and the sequestration order set aside.
In the circumstances I make no order as to costs.
I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
Associate:
Date: 18 October 2005
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