Jaafar v Gleeson in His Capacity as Bankruptcy Trustee of the Bankrupt Estate of Mohamad Jaafar
[2019] FCCA 1226
•10 May 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JAAFAR v GLEESON IN HIS CAPACITY AS BANKRUPTCY TRUSTEE OF THE BANKRUPT ESTATE OF MOHAMAD JAAFAR & ANOR | [2019] FCCA 1226 |
| Catchwords: BANKRUPTCY – Application for court to set aside sequestration order within inherent jurisdiction – annulment application – section 153B – substituted service of creditor’s petition when debtor outside Australia – reference in creditor’s petition to incorrect jurisdictional basis within s.43(1)(b) of the Bankruptcy Act 1966 – whether amendment of petition available or appropriate – whether sequestration order ought not to have been made – discretionary factors – debtor’s assertion that the debt on which the creditor’s judgment was based was not his debt. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.27, 33, 43(1)(b), 52, 153B, 306, 309 Federal Circuit Court Rules 2001 (Cth), rr.1.05, 6.06, 6.14, 6.16 Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr.2.02, 7.06 Federal Court Rules 2011 (Cth), Part 10, Division 10.4 |
| Cases cited: Allesch v Maunz [2000] HCA 40; (2002) 203 CLR 172 Battenbergv Restrom [2006] FCAFC 20; (2006) 149 FCR 128 Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 De Robillard vCarver [2007] FCAFC 73; (2007) 159 FCR 38 Re Anasis; Ex parte Total Australia Ltd (1985) 11 FCR 127 Re Finn, Ex parte Amoco Australia Ltd and Official Receiver in Bankruptcy [1982] FCA 49 Taylor v Taylor (1979) 143 CLR 1 |
| Applicant: | MOHAMAD JAAFAR |
| First Respondent: | BRUCE GLEESON IN HIS CAPACITY AS BANKRUPTCY TRUSTEE OF THE BANKRUPT ESTATE OF MOHAMAD JAAFAR |
| Second Respondent: | GROUP AND GENERAL FINANCE PTY LTD (ACN 000 903 257) |
| File Number: | SYG 1109 of 2018 |
| Judgment of: | Judge Barnes |
| Hearing date: | 31 August 2018 |
| Date of Last Submission: | 19 September 2018 |
| Delivered at: | Sydney |
| Delivered on: | 10 May 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr Ash |
| Solicitors for the Applicant: | Teneo Legal |
| First Respondent: | No Appearance |
| Solicitors for the Second Respondent: | CCSG Legal Pty Ltd |
ORDERS
Paragraph 3 of the creditor’s petition be amended by deleting the words “personally present” and inserting the words “ordinary resident”.
The application is dismissed.
The costs of the Second Respondent be paid out of the bankrupt estate of Mohamad Jaafar in accordance with the provisions of the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1109 of 2018
| MOHAMAD JAAFAR |
Applicant
And
| BRUCE GLEESON IN HIS CAPACITY AS BANKRUPTCY TRUSTEE OF THE BANKRUPT ESTATE OF MOHAMAD JAAFAR |
First Respondent
| GROUP AND GENERAL FINANCE PTY LTD (ACN 000 903 257) |
Second Respondent
REASONS FOR JUDGMENT
These Proceedings
On 8 August 2017 a registrar of this court made a sequestration order against the estate of the Applicant, Mohamad Jaafar. Mr Jaafar was not present or represented at the hearing of the creditor’s petition.
On 18 April 2018 Mr Jaafar filed an application seeking either an order “in the inherent jurisdiction” of the court setting aside the sequestration order or an order pursuant to s.153B(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) that his bankruptcy be annulled. The First Respondent, Mr Gleeson, is Mr Jaafar’s trustee in bankruptcy. The Second Respondent, Group and General Finance Pty Ltd (G and G) was the petitioning creditor.
In support of this application Mr Jaafar relied on affidavits he swore on 18 April 2018 and 14 August 2018 on which he was cross-examined and an affidavit of Lynette Marie Prichard sworn on 7 May 2018 in relation to service on his trustee in bankruptcy. Mr Jaafar also tendered copies of the application by the petitioning creditor of 15 June 2017 to dispense with personal service of the petition, the supporting affidavit of Hayley Warren, solicitor, and copy of the orders made by a registrar of this court on 5 July 2017 for substituted service of the petition and other documents.
G and G relied on affidavits of Peter Brown, its General Manager and Paul Thorndike, the Legal Recoveries Manager at CCSG Legal Pty Ltd (CCSG), the solicitors for G and G, both affirmed on 19 June 2018. Mr Brown was cross-examined.
Neither party sought a report from Mr Jaafar’s trustee in bankruptcy pursuant to r.7.06 of the Federal Circuit Court (Bankruptcy) Rules 2016 (Cth). In those circumstances, I did not direct the trustee to prepare such a report.
I am satisfied on the basis of Ms Prichard’s affidavit that Mr Gleeson was served with a copy of Mr Jaafar’s present application. As attested to by Ms Prichard, Mr Gleeson advised Mr Jaafar’s solicitor by email of 1 May 2018 that he did not intend to oppose the application and orders sought on the information before him if the court was satisfied that such orders should be made. Mr Gleeson took no part in these proceedings.
In essence, the present application is an application for annulment of Mr Jaafar’s bankruptcy under s.153B of the Bankruptcy Act. However, initially Mr Jaafar sought, in the alternative, an order “in the inherent jurisdiction” of the court setting aside the sequestration order.
Mr Jaafar did not seek review of the exercise of the powers of a registrar under s.104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (the FCCA Act). Had he done so, it would have been necessary for him to obtain an extension of time, as the application filed on 18 April 2018 was well outside 21 days after the date of the sequestration order (see r.2.02(3) of the Federal Circuit Court (Bankruptcy) Rules 2016).
The issues Mr Jaafar raised in support of his application to set aside the sequestration order in the inherent jurisdiction of the court were also relied on in support of the proposition that the court could be satisfied that the sequestration order ought not to have been made within s.153B of the Bankruptcy Act.
However it was conceded in Mr Jaafar’s post-hearing supplementary submissions that even if the court set aside the sequestration order in its inherent jurisdiction, it would also be necessary for it to annul the bankruptcy to bring Mr Jaafar’s bankruptcy to an end (see s.43(2) of the Bankruptcy Act and Re Anasis; Ex parte Total Australia Ltd (1985) 11 FCR 127). Mr Jaafar did not seek orders that the sequestration order be set aside and the petition reheard (cf Re Anasis and Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 and also see Taylor v Taylor (1979) 143 CLR 1).
Background
The background to these proceedings is that on 21 November 2016 G and G filed a statement of claim against Mr Jaafar in the Local Court of New South Wales. It is not in dispute that the statement of claim was served on Mr Jaafar pursuant to r.10.5(1)(c) of the Uniform Civil Procedure Rules 2005 (NSW) which does not require personal service. Mr Jaafar denies receiving the statement of claim.
On 6 January 2017 G and G obtained a default judgment against Mr Jaafar for $45,541.13. This debt related to chattel mortgage repayments under an agreement of July 2015 in relation to a Mercedes Benz car purchased in the name of “Excavation & Building Solutions Pty Ltd” (the Company). At that time Mr Jaafar was the director of the Company. The Company was subsequently the subject of a strike out action from 26 November 2015 and was deregistered by ASIC on 8 February 2016.
The chattel mortgage agreement included a guarantee in the name of Mr Jaafar. It was a term of the chattel mortgage agreement that Mr Jaafar guarantee prompt and punctual payment of the entire loan amount and every other sum payable by the Company as borrowed under the agreement. The copy of the Schedule to the agreement annexed to Mr Brown’s affidavit bears signatures in Mr Jaafar’s name, both on behalf of the Company and as guarantor and dates of 9 July 2015. Mr Jaafar denied that he signed the Schedule to the chattel mortgage.
Other documents annexed to Mr Brown’s affidavit include a tax invoice issued by a car dealer to the Company dated 10 July 2015 in relation to the purchase of the Mercedes Benz and a copy of Mr Jaafar’s driver’s licence (which he denies he ever provided, but concedes that it is his driver’s licence). The address on the driver’s licence appears in the Schedule to the chattel mortgage.
Mr Jaafar contended that (as evidenced by Department of Home Affairs Movement Records) he was not in Australia between 24 June 2015 and 29 October 2015 (including the date on which he was alleged to have signed the guarantee). He denied that a vehicle was purchased by his Company as shown in the tax invoice dated 10 July 2015.
Mr Brown’s affidavit also annexes copies of extensive email correspondence between G and G and Mr Jaafar c/- the Company from 19 November 2015 on in relation to arrears and also correspondence with Mr Jaafar personally (at the email address which he acknowledged was his email address). Mr Jaafar denied “the matters” in Mr Brown’s affidavit detailing correspondence and telephone communications with G and G from 19 November 2015 to 22 April 2016 in relation to dishonoured instalments arrears (including an email from his email address attaching a payment receipt).
A final notice was issued to the Company in January 2016. It is apparent that some payments were made in 2016 (after the Company was deregistered) although no payments were received by G and G after 5 October 2016.
Mr Brown gave evidence that on 15 March 2016 he met with the general manager of the car dealer who sold the Mercedes Benz to request details of the sale. This was confirmed in an email of 16 March 2016. On 16 March 2016 Mr Brown also spoke to the dealer in a telephone call (of which he kept a file note). He was informed that Mr Jaafar was present with the dealer. Mr Brown spoke to someone he understood was Mr Jaafar and arranged to attend his home (a unit in Arncliffe) to inspect the vehicle. Mr Jaafar denied that he spoke to the car dealer or to Mr Brown on 16 March 2016.
Mr Brown attested to meeting Mr Jaafar on 23 March 2016 outside his home address and inspecting the vehicle. His evidence is that Mr Jaafar advised that he would satisfy all arrears on the account. In oral evidence Mr Brown identified Mr Jaafar in the courtroom as the man he met with on that occasion. Mr Jaafar denied meeting Mr Brown on 23 March 2016 (or at all) although he agreed he was in Australia on that date.
Mr Brown’s evidence was consistent and convincing. As discussed further below (at [44] – [46]), Mr Jaafar’s was not. Where there is such a direct factual dispute, I prefer the evidence of Mr Brown.
Annexed to Mr Thorndike’s affidavit are contemporaneous file notes of telephone conversations and text messages between CCSG and Mr Jaafar’s mobile telephone number from 10 March 2016 onwards and copies of emails to and from Mr Jaafar’s email address.
Mr Jaafar acknowledged that the mobile telephone number recorded for him in G and G’s evidence is his telephone number. However Mr Jaafar denied making or receiving some (but not all) of the telephone calls recorded by Mr Thorndike and some emails to or from his email address (copies of which are annexed to Mr Thorndike’s affidavit). He does not dispute that on 10 March 2016 he rang CCSG and claimed he was not in Australia at the time the agreement was entered into. He claims he told CCSG that “I did not obtain finance from Group and General” and that he would send evidence he was not in the country. He received and replied to CCSG’s text message with contact details.
However, Mr Jaafar denied having a telephone conversation with Mr Thorndike on 17 March 2016 (which Mr Thorndike recorded he made to Mr Jaafar’s telephone number). The note of the conversation annexed to Mr Thorndike’s affidavit records that Mr Jaafar provided the address that CCSG had on file and stated that he was no longer claiming fraud, that he had paid the arrears and wanted to keep the vehicle and that he would keep making payments.
Mr Jaafar also denied sending or receiving subsequent emails to or from CCSG about outstanding payments and the amount due, including an email from his email address of 22 July 2016 questioning fees shown on a statement provided to him by CCSG. He denied receiving the reply of 25 July 2016 which pointed out that he had retracted his allegation that the account was fraudulently obtained and explained the calculation of arrears. Mr Jaafar denied sending emails from his email address which confirmed payments had been made and provided receipt details.
Mr Jaafar accepted that he received a telephone call (on the same mobile telephone number) from Mr Thorndike on 21 September 2016 during which he again claimed he did not take out the loan and was overseas at the time, that he did not have the vehicle and was not making the payments. However he denied responding a telephone call on 7 November 2016 in which he was recorded as confirming he had made another payment.
As indicated, G and G obtained a Local Court default judgment against Mr Jaafar on 6 January 2017.
On 31 January 2017 a bankruptcy notice was issued. On 8 March 2017 Mr Thorndike sent a copy of the bankruptcy notice (with a copy of the order of the Local Court) to Mr Jaafar by email. In his affidavit of 14 August 2018 Mr Jaafar denied receiving this email. He also denied making a telephone call to Mr Thorndike on 10 March 2017 in which he confirmed receipt of the bankruptcy notice, or receiving follow-up emails from CCSG of 16 and 24 March 2017.
Yet Mr Jaafar accepted that he received (and replied to) an email from Mr Thorndike of 10 April 2017 advising him that the time for compliance with the bankruptcy notice would expire on 12 April 2017 and that thereafter instructions would be sought to “proceed with issuing summons to attend a Creditors Petition Hearing” at which a sequestration order would be sought.
Mr Jaafar agreed that he replied that day, claimed he was overseas, asserted that the loan was “a fraud by your client” which he never authorised and that the chattel mortgage documents were fraudulently signed by a “Raymond Carnaby”, who was not otherwise identified.
The creditor’s petition was presented and filed in this court on 9 May 2017.
On 15 June 2017 G and G filed an interim application seeking orders for substituted service of the creditor’s petition. In support of this application, Ms Warren attested to Mr Thorndike’s email correspondence with Mr Jaafar about the bankruptcy notice and the creditor’s intention to seek a sequestration order (including the email of 10 April 2017 Mr Jaafar agreed he received and his response of the same date in which he said he was currently overseas and not sure when he would get back) as well as a report by a process server as to his inability on 2 occasions to effect personal service of the creditor’s petition on Mr Jaafar at the Arncliffe home address where the bankruptcy notice had been left.
On 5 July 2017 a registrar of this court made an order dispensing with personal service of the creditor’s petition and ordered that:
5. A sealed copy of the Creditor’s Petition and this order, and a copy of each affidavit verifying the Creditor’s Petition, and a copy of any affidavit of service of the bankruptcy notice, and a copy of any consent of a registered trustee, be served:
(a) By handing them to any person apparently over the age of 16 years but, if this is not possible, by leaving them in the letterbox or affixing them to the front door in an envelope addressed to the Respondent at [address] Arncliffe NSW 2205; and
(b) By sending them by prepaid ordinary post addressed to the Respondent at [address] Arncliffe NSW 2205; and
(c) By scanning them and sending by email to [email address].
6. A text (sms) message be sent to the Respondent on mobile number [number] stating that the Applicant(s) has filed a Creditor’s Petition with the Court, that the documents have been sent to or left at [address] Arncliffe NSW 2205 and emailed to [email address], and that the Creditor’s Petition will be heard in Court on 8 August 2017.
7. The Creditor’s Petition shall be deemed to be served on the Respondent 7 days after service in accordance with order 5 (a), (b) and (c) and compliance with order 6 whichever is the later.
According to G and G, an amended creditor’s petition was served on Mr Jaafar in accordance with these orders, including by email of 5 July 2017 sent to the email address specified, annexing a copy of the creditor’s petition and other documents and advising Mr Jaafar of the date, time and place for the hearing of the creditor’s petition.
In his first affidavit of 18 April 2018, Mr Jaafar claimed that at no time prior to September 2017 was he aware that the petitioning creditor had presented its petition or obtained a sequestration order. He denied receiving a copy of the bankruptcy notice or a telephone call in that respect. He denied receiving the creditor’s petition or any of the other documents referred to in the orders for substituted service. Yet he admitted that the email address referred to in the orders for substituted service was one of his email addresses.
However, in his affidavit of 14 August 2018, Mr Jaafar admitted that he had received CCSG’s email of 5 July 2017 serving him with a copy of the creditor’s petition and other documents and that he replied by email on 7 July 2017.
In cross examination, when asked if he had received the email of 5 July 2017 Mr Jaafar initially stated “I did not read this email”, then said he did not know and did not remember, but when his evidence of 14 August 2018 was put to him, he agreed that he had received the email of 5 July 2017 and the emailed copy of the creditor’s petition.
In his email response of 7 July 2017 (which he accepted he sent) Mr Jaafar stated he had decided to appoint a lawyer to act on his behalf “on this fraudulent matter”. He did not do so.
The sequestration order was made on 8 August 2017 in Mr Jaafar’s absence.
The movement records show (and this was not disputed) that Mr Jaafar was in Australia at various times during 2016 to 2018. He was out of Australia on 22 March 2017 (the date the bankruptcy notice was said to have been served), 12 April 2017 (the date of the act of bankruptcy), 9 May 2017 (the date of presentation of the petition), 5 July 2017 (the date of the order for substituted service of the petition and of the email to him annexing a copy of the petition) and 8 August 2017 (the date of the hearing of the creditor’s petition and the sequestration order).
Whether the sequestration order should be set aside
Despite detailed submissions which contended that the circumstances warranted an order in the inherent jurisdiction of the court setting aside the sequestration order, counsel for Mr Jaafar ultimately acknowledged that if he was successful in such an application Mr Jaafar would remain a bankrupt. Accordingly he sought annulment under s.153B of the Bankruptcy Act.
Insofar as Mr Jaafar’s post-hearing submissions suggested that it was nonetheless appropriate for the court to exercise its inherent power to set aside the sequestration order because it was made in the absence of Mr Jaafar and then proceed to annul the bankruptcy under s.153B of the Act, such an order setting aside a sequestration order is not a prerequisite to annulment under s.153B of the Bankruptcy Act. As noted, Mr Jaafar did not seek review of the sequestration order under s.104(2) of the FCCA Act.
G and G conceded that the court had inherent power to set aside a sequestration order. For the sake of completeness, I note that on the assumption that the inherent power to set aside a sequestration order made in the absence of a party may be exercised by this court in the bankruptcy jurisdiction, the mere fact of the absence of the debtor at the hearing of the creditor’s petition would not suffice. As discussed in Re Anasis, such power is discretionary. Consistent with the authorities cited for Mr Jaafar, it is appropriately exercised in circumstances where an order is made against a person who does not have a reasonable opportunity to appear and present his or her case (see Taylor at [8] and [10]). What would be in issue in such a context would not be whether there had been strict compliance by the petitioning creditor with the rules in relation to service of a creditor’s petition, but whether the debtor was on notice of the hearing and had been afforded an adequate opportunity to be heard (see Allesch v Maunz [2000] HCA 40; (2002) 203 CLR 172 at [27]).
On Mr Jaafar’s account of which communications he did and did not receive from the petitioning creditor and/or its solicitor, he accepted that he received an email from Mr Thorndike of CCSG dated 10 April 2017 which informed him of the bankruptcy notice and that if he did not comply CCSG would seek G and G’s instructions to proceed with a creditor’s petition and for the court to make a sequestration order which would make Mr Jaafar bankrupt.
I do not accept Mr Jaafar’s assertion in his first affidavit of 18 April 2018 that at no time prior to September 2017 was he aware the petition was presented and that he did not receive the creditor’s petition or any of the documents referred to, and that had he done so would have taken steps to immediately oppose the bankruptcy proceedings. Nor do I accept his claim that his bankruptcy was a complete surprise because he was not aware of any proceedings in which a court was being asked to make him a bankrupt.
As indicated, such evidence is contrary to Mr Jaafar’s subsequent evidence of 14 August 2018. Mr Jaafar accepted that he received the email from CCSG of 5 July 2017 as referred to in Mr Thorndike’s affidavit and that he responded on 7 July 2017. In cross-examination he also ultimately accepted that he received the email and replied on 7 July 2017. Importantly, Mr Jaafar agreed that he received the creditor’s petition that was served on him on 5 July 2017 by email.
In other words, Mr Jaafar ultimately accepted that he received the email from CCSG of 5 July 2017 which, in accordance with the orders for substituted service made by a registrar of the court on 5 July 2017, attached copies of the creditor’s petition and the supporting documents by way of service and notified Mr Jaafar that the matter was listed for hearing of the creditor’s petition on 8 August 2017 at the time and place described. Mr Jaafar acknowledged responding to this email. In his email response he indicated that as soon as possible he would get someone who specialised in this area of the law to act for him.
There is no evidence that Mr Jaafar did obtain legal representation at that stage. He did not attend the hearing of the creditor’s petition at which time the sequestration order was made. Mr Jaafar did not suggest that he could not open or did not understand the nature of this document. The suggestion by his counsel in submissions that service by email was in some way an inadequate notification because it would involve the recipient opening attachments to an email and that Mr Jaafar might be “sitting in a restaurant” in Lebanon with his telephone and might experience some difficulty in that respect is no more than speculation. There was no suggestion from Mr Jaafar (who described himself as an IT professional in network engineering) that he experienced any such difficulty, notwithstanding that he did indicate in evidence that he did not “always” have email access while in Lebanon.
The correspondence of 5 July 2017 is clear. Whatever the merits of Mr Jaafar’s technical argument (considered below) that substituted service of the petition on him while he was outside Australia was not “service” within s.52(1)(b) of the Bankruptcy Act, I am satisfied that he was on notice of the hearing of the creditor’s petition and of the fact that the petitioning creditor would be seeking a sequestration order on 8 August 2017. He had an adequate opportunity to be heard.
In these circumstances I am not satisfied that it is appropriate to set aside the sequestration order on the basis that Mr Jaafar’s failure to appear at the hearing of the petition was through no fault of his own or on the basis that he did not have a reasonable opportunity to appear and present his case before the sequestration order was made. The first order sought in the application of 18 April 2018 should not be made.
That does not, however, address the grounds ultimately relied on in support of the application for annulment.
Annulment under s.153B of the Bankruptcy Act
Section 153B(1) of the Bankruptcy Act is as follows:
(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
Insofar as Mr Jaafar referred generally to the prospect of annulment, there is no suggestion that his bankruptcy should be annulled by virtue of his payment of debts under s.153A of the Bankruptcy Act. Rather, annulment under s.153B is sought.
Section 153B imposes a heavy burden on an applicant seeking to rely on it. In an oft-cited passage in Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 at [12] (approved in Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [16]), Tracey J summarised the principles applicable to the exercise of the power under s.153B(1) as follows:
(1) An order can be made under s 153B(1) of the Act notwithstanding that the applicant has been discharged from bankruptcy; Re Oates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402.
(2) An applicant who seeks an annulment of his or her bankruptcy “carries a heavy burden”. It is incumbent on an applicant “to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant”: Re Papps; ; Ex parte Tapp (1997) 78 FCR 524 at 531.
(3) In determining whether or not a sequestration order “ought not to have been made” the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.
(4) A sequestration order “ought not to have been made” if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396.
(5) The Court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422.
(6) If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor’s petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426.
(7) The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243.
(8) Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor’s petition and attend the hearing at which the sequestration order was made: Re Williams (1968) 13 FLR 10 at 24–5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker [2006] FCAFC 179 at [79]; Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, “Annulment of Bankruptcy and Review of Sequestration Orders” (1993) 67 ALJ 761 at 766.
As recognised in the parties’ submissions, even if the court is satisfied that a sequestration order “ought not to have been made”, it is within the court’s discretion to decide whether or not the bankruptcy ought to be annulled.
There is no obligation on the trustee in bankruptcy to appear on an annulment application. In this case the trustee has taken no role. As indicated, the trustee was not required to prepare a report for the court in circumstances where neither party saw such a report as of potential assistance. However at the time that such issue arose, the application appeared to be pursued primarily as an application to set aside the sequestration order on the basis that it was made in the absence of the Mr Jaafar. Such an order would have left the creditor’s petition on foot to be reheard. The absence of a trustee’s report in what is now in essence an application for annulment under s.153B of the Bankruptcy Act means that the court has not had the benefit of an objective analysis of the bankrupt’s financial position, beyond what Mr Jaafar chose to put before the court. His sworn evidence in that respect was confined to annexing a copy of the statement of affairs he provided to his trustee in bankruptcy. This is discussed further below.
In relation to the test “ought not to have been made” in s.153B(1), counsel for Mr Jaafar contended that, in fact, the court could be satisfied that the sequestration order “could not” have been made.
There is authority that the word “ought” (which also appears in s.52(2)(b) of the Bankruptcy Act) requires an applicant (in this case Mr Jaafar) to establish that the court was “bound” not to make sequestration order (see Nathan v Burness(No.2) [2011] FCA 289 at [9]).
Mr Jaafar initially submitted that there were three issues relevant to the first limb in s.158B(1) of the Bankruptcy Act:
1)Whether the order for substituted service of the creditor’s petition was “bad”, because a general power to make such an order could not be used to effect service outside the jurisdiction;
2)The consequences of the fact the petition was said to have been “ heard and determined on the jurisdictional basis that the Applicant was in Australia”; and
3)Whether Mr Jaafar committed any act of bankruptcy in circumstances where it was contended that he had “proof to the contrary” in relation to service of the bankruptcy notice within the meaning of reg.16.01(2) of the Bankruptcy Regulations 1996 (Cth) (the Bankruptcy Regulations).
The last of these issues was not pressed. Insofar as Mr Jaafar maintained a contention that he did not actually receive the bankruptcy notice and it did not come to his attention (even if it was served in accordance with reg.16.01), on his evidence no later than 10 April 2017 he became aware of the bankruptcy notice and of the prospect the creditor would proceed with a creditor’s petition after the time for compliance expired on 12 April 2017.
It has not been established that the bankruptcy notice was not served or that Mr Jaafar did not commit an act of bankruptcy. The circumstances relied on in relation to actual receipt of the bankruptcy notice (before a copy was emailed to him with the creditor’s petition on 5 July 2017 as part of the affidavit of service of the bankruptcy notice) are not such as to establish that the sequestration order ought not to have been made.
The court was not asked to go behind the default judgment on which the bankruptcy notice was based in the context of considering whether the sequestration order ought not to have been made. Rather, Mr Jaafar submitted that it was relevant to the second limb (the exercise of the discretion whether to annul the bankruptcy) that the court could be satisfied on the balance of the evidence that the alleged guarantee (which was the basis for the default judgment) was “bad”. It was also said to be relevant to the exercise of discretion that on return his to Australia (in January 2018) Mr Jaafar had taken steps to obtain a lawyer; that he had completed his statement of affairs in which he indicated that his only other creditor was the issuer of his credit card; and that there was no public interest in maintaining the bankruptcy.
Service of the Creditor’s Petition
The first issue relied on by Mr Jaafar in support of the proposition that the sequestration order ought not to have been made was a contention that the registrar’s order permitting substituted service of the creditor’s petition was “bad”, on the basis that a general power to make such an order could not be used to effect service outside the jurisdiction.
Under the Bankruptcy Act a creditor’s petition and supporting affidavits must be served personally on the debtor unless an order for substituted service is obtained (see ss.52(1)(b) and 309(2) of the Bankruptcy Act). Mr Jaafar was not personally served.
He submitted that the registrar’s order for substituted service was ineffective in circumstances where he was, as is not disputed, outside Australia at the time of service. It was submitted that it was clear that a power to order substituted service could not be used as a way to effect service out of the jurisdiction. Reliance was placed on Laurie v Carroll [1958] HCA 4; (1958) 98 CLR 310 at 325. Mr Jaafar contended that, as an originating process, a creditor’s petition was subject to the rules for service provided in the rules of the relevant court and not those in the Bankruptcy Act, Rules or Regulations, and that the specific rules governing service of originating process outside Australia had not been met.
The Federal Circuit Court Rules 2001 (Cth) (FCC Rules) provide for personal service of originating process (in r.6.06) and for substituted service (r.6.14 to r.6.16). However Mr Jaafar submitted that it was relevant to have regard to the Federal Court Rules 2011 (Cth) (the FC Rules) (Part 10, Division 10.4) as this court has no rules in relation to service of originating process on a person in a foreign country. It was submitted that under Part 10 of the FC Rules, it was only if leave had been obtained and personal service was not successful in accordance with that part of the FC Rules, that an application may be made to the court for an order for substituted service. It was submitted that this court had no equivalent to r.10.49 of the FC Rules (which deals with substituted service where service has not been successful on a person in a foreign country in accordance with a convention, the Hague Convention or the law of the foreign country). In fact r.10.49 and other provisions in Part 10, Division 10.4 of the FC Rules are applicable in this court by virtue of r.1.05 and Schedule 3, Part 2 to the FCC Rules.
Counsel for Mr Jaafar pointed out that reg.16.01 of the Bankruptcy Regulations did not authorise service of a creditor’s petition in any of the ways provided for therein (and see Sogelease Australia Limited v Griffin, in the matter of DJ Griffin [2003] FCA 453; (2003) 128 FCR 399 at [36] per Emmett J).
It was suggested that the reasoning in Sogelease had been adopted by the Full Court of the Federal Court in De Robillard vCarver [2007] FCAFC 73; (2007) 159 FCR 38 at [76]-[79] and that such reasoning also applied to exclude the operation of s.309(2) of the Bankruptcy Act which, while it authorised substituted service, was preconditioned on the existence of “a notice or other document being required by this Act to be served or given to a person”.
On this basis, Mr Jaafar contended that the creditor’s petition, as an originating process, could not simply be served on him, as a person overseas, pursuant to an order for substituted service and that the only appropriate course would have been to attempt service on him in accordance with the FC Rules for service on a person in a foreign country and then, if service was not successful, to apply for an order for substituted service under r.10.49 (see Park (Trustee) v Tschannen (Bankrupt) [2016] FCA 137; (2016) 341 ALR 452).
It was acknowledged that in Deputy Commissioner of Taxation v Cranswick [2010] FCA 891; (2010) 117 ALD 95 McKerracher J had stated at [2] that:
Court process cannot be served out of the jurisdiction without some level of authority. Section 309(2) of the Act confers such legislative authority: Battenberg v Restrom (2006) 149 FCR 128 at [13]–[18].
However counsel for Mr Jaafar contended that this court “is required not to follow” this decision of McKerracher J. Mr Jaafar submitted that the first sentence in the remarks of McKerracher J in Cranswick at [2] (set out above) was correct, but that the second sentence was not. This submission was put on the basis that the Full Court case cited in support of the proposition that s.309(2) of the Bankruptcy Act authorised service out of the jurisdiction (Battenbergv Restrom [2006] FCAFC 20; (2006) 149 FCR 128) dealt only with bankruptcy notices (which were clearly amenable to s.309(2) of the Bankruptcy Act).
It was submitted that Battenberg v Restrom was not authority for the proposition that s.309(2) conferred legislative authority for the service of a creditor’s petition overseas. It was also submitted that to the extent that earlier Federal Court decisions (such as Re Mendonca; Ex parte Federal Commissioner of Taxation (1969) 15 FLR 256) may have provided such authority, this could not stand since the Full Court’s endorsement of Sogelease in De Robillard v Carver.
However counsel for Mr Jaafar acknowledged that the approach taken by McKerracher J in Cranswick had been followed by Gleeson J in Ramsay Healthcare Australia Pty Limited; in the matter of Compton v Compton [2018] FCA 742.
In effect, Mr Jaafar’s contention is that neither s.309(2) of the Bankruptcy Act nor reg.16.01 of the Bankruptcy Regulations applies and that as a creditor’s petition is an originating process it must be served in accordance with the rules of court which provide for personal service (subject to the other provisions therein, relevantly, in relation to service outside of the jurisdiction). It was also contended that r.6.14 of the FCC Rules (which permits substituted service and is the equivalent of r.10.2 of the FC Rules) could not be relied upon, because long standing High Court authority (apparently a reference to Laurie v Carroll) supported the proposition that a general provision for substituted service did not provide legislative authority for service outside the jurisdiction.
G and G contended that, consistent with the position outlined in Re Mendonca, Ginnane v Diner’s Club Ltd (1993) 42 FCR 90 and Cranswick, s.309(2) of the Bankruptcy Act could be relied on as specific legislative authorisation for substituted service of the creditor’s petition outside the jurisdiction.
It was pointed out that in Ginnane the Full Court of the Federal Court had stated that the discretion conferred by s.309(2) was unfettered. G and G acknowledged that in this power was not to be exercised lightly in relation to a creditor’s petition and that normally before making an order for such substituted service the court must be satisfied that abnormal difficulties existed in effecting personal service and that there was a reasonable probability that the debtor would be informed of the creditor’s petition as a result of the form of service sought.
G and G submitted that it was apparent from the June 2017 application for substituted service and Ms Warren’s affidavit in support that the court was appropriately satisfied in this respect. Further, it was observed that the substituted service order was successful, given that Mr Jaafar had confirmed that he had received the email in which those documents were sent to him on 5 July 2017.
As G and G pointed out, Laurie v Carroll did not relate to service of a creditor’s petition. It concerned the jurisdiction of the Supreme Court of Victoria in an action in personam against a defendant who was resident in England and was not connected with Victoria, except that he had visited the state on business. Relevantly, the High Court considered whether an order for substituted service of a writ should be set aside in circumstances where the defendant was not within the jurisdiction at the time of the issue of the writ.
In Laurie v Carroll, Dixon CJ, Williams and Webb JJ considered the common law principle that a court had jurisdiction only over persons within the jurisdiction at the time the initiating process was issued or who, by their actions, had submitted to the jurisdiction of the court. Their Honours discussed nineteenth century English cases suggesting that there could not be substituted service of a writ which could not, at the time it was issued, be served personally, referring with approval to the view expressed in Fry v Moore (1889) 23 QBD 395 that “[w]ere it otherwise the strict conditions regulating and limiting service out of the jurisdiction upon defendants abroad would be ineffective; for they could be avoided by obtaining an order for substituted service within the jurisdiction” (Laurie v Carroll at 325).
However in this case there is applicable legislation in the form of the Bankruptcy Act. What is in issue is whether on the proper construction of the Bankruptcy Act, s.309(2) gives the court sitting as a court in bankruptcy (see s.27 of the Bankruptcy Act) power to order substituted service of a creditor’s petition outside the jurisdiction. Section 309(2) is a follows:
(2) Where a notice or other document is required by this Act to be served on or given to a person, the Court may, in a particular case, order that it be given or served in a manner specified by the Court, whether or not any other manner of giving or serving the notice or other document is prescribed.
In Re Mendonca Gibbs J, sitting in the Federal Court of Bankruptcy, considered an application for an order serving a creditor’s petition by post on a debtor in Portugal. The debtor was a foreigner who had left the jurisdiction, but had previously been an “alien resident” in Australia for some 10 years.
His Honour found (at 260) that it was clear that the Federal Court of Bankruptcy had jurisdiction to make a sequestration order on the basis that at the time of the act of bankruptcy the debtor was connected with Australia in one of the ways mentioned in s.43(1)(b) of the Bankruptcy Act. While noting that neither the Bankruptcy Act or the Bankruptcy Rules (as they stood at the relevant time) made any express provision permitting service outside the jurisdiction, his Honour relied (at 261) on s.309(2) of the Bankruptcy Act as giving the court “ample power to order service outside the jurisdiction”. Gibbs J found it appropriate to order service of a creditor’s petition by post to an address in Portugal provided the documents were not returned unclaimed through the post (also see Re Trimbole; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 586 in which substituted service of a petition which had been presented in circumstances which brought the case within s.43(1) of the Bankruptcy Act was ordered where the debtor had absconded from Australia).
Similarly, in Ginnane the Full Court of the Federal Court took the view (at 92) that s.309(2) of the Bankruptcy Act conferred an unfettered discretion on the court to order substituted service of a creditor’s petition, albeit that, as considered in Mendonca at 261, such discretion was not to be exercised lightly.
In addressing the discretion to make such an order, the Full Court in Ginnane observed at 95:
An order for substituted service should not be made as of course. But the circumstances which may require the making of such an order are many and varied. It is undesirable, therefore, to limit the discretions of judges and registrars by prescribing requirements which lack flexibility. Each case must depend upon its own facts. The fact that a debtor is overseas may not be sufficient, by itself, despite the problems arising in the serving of a document bearing the seal of the court in an overseas country: see for example Re Trimbole; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 586. Nevertheless it is a factor to be taken into account.
Although it is a matter of methodology, it is useful to consider these two limbs separately, it must be remembered that the discretion conferred by s 309(2) of the Bankruptcy Act is unfettered. The two limbs are not separate and distinct compartments. Together, they form a composite basis for the exercise of a discretion. Normally, the evidence must show some need for substituted service and the basis by which the substituted form of service will, in all probability, be effective to bring the petition to the knowledge of the debtor. In some cases, the evidence may establish almost a certainty that the form of substituted service will have the effect of bringing the petition to the knowledge of the debtor. This is such a case. In these circumstances, the evidence justifying the departure from personal service need not be as strong as in other cases. In some cases, the evidence may disclose very strong grounds for substituted service, but that the form of service is less likely to bring the petition to the knowledge of the debtor. In any particular case, it is necessary to weigh the different considerations, the statutory requirement for personal service of the petition, the facts making personal service unusually difficult or impossible and the likelihood of the form of substituted service ordered bringing the petition to the knowledge of the debtor. Having regard to all those factors, it is necessary to exercise the discretion to make or not to make the order for substituted service.
It is the case that in Sogelease Emmett J found that reg.16.01 of the Bankruptcy Regulations had no application to the service of a creditor’s petition and did not negate the requirement in the then applicable FC Rules for personal service upon a debtor of a creditor’s petition as “originating process”. His Honour was also of the view that want of service in accordance with the FC Rule requiring personal service of originating process was not a mere formal defect or irregularity within the meaning of s.306 of the Bankruptcy Act.
However, it is not disputed that reg.16.01 of the Bankruptcy Regulations does not apply to a creditor’s petition. In any event, service under reg.16.01 is distinct from service in accordance with an order for substituted service (see Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321; (2004) 141 FCR 107).
Indeed in Sogelease Emmett J also indicated (at [3]) that he had deferred consideration of any application for an order under s.309(2) of the Bankruptcy Act until after disposing of the application in relation to whether reg.16.01 applied to service of a petition.
Subsequently his Honour noted, in Sogelease Australia Ltd v Griffin, in the matter of DJ Griffin [2003] FCA 454 at [1], that he had indicated in making the earlier decision (reported as [2003] FCA 453) that he would be disposed to waive compliance with the rule requiring personal service of the creditor’s petition or, alternatively, to make an order under s.309(2) of the Bankruptcy Act dispensing with personal service (although as the debtor filed an unconditional appearance, this issue was not determined).
Nonetheless, this indicates that the fact that reg.16.01 of the Bankruptcy Regulations does not apply to service of a creditor’s petition does not preclude the application of s.309(2) of the Bankruptcy Act.
In Battenberg v Restrom the Full Court of the Federal Court considered a challenge to the validity of service of a bankruptcy notice under an order for substituted service on a debtor at the office of an Australian law firm, at a time at which the debtor was overseas. A registrar of this court had made such order for substituted service. It was not suggested that the creditor knew that the debtor was at any material time absent from Australia. At first instance, the appellant had submitted unsuccessfully (referring to Laurie v Carroll) that a person outside the jurisdiction could not be served within the jurisdiction by means of an order for substituted service. Gyles J had refused to set aside or declare invalid the service of the bankruptcy notice (see Battenberg v Restrom at [5]). Before the Full Court it was argued that the debtor had been served with the bankruptcy notice without the leave of the court as required under s.40(1)(g) of the Bankruptcy Act. As the Full Court pointed out (at [6]), this argument assumed that compliance with the order for substituted service constituted service on the debtor at the place the proceedings came to his attention.
The Court referred (at [10]) to the jurisdictional requirement in s.43(1) of the Bankruptcy Act and made the point that only the first limb of s.43(1)(b) (which refers to circumstances in which at the time of the act of bankruptcy a debtor “was personally present or ordinarily resident in Australia”) contemplated the debtor necessarily being in Australia at the time of the act of bankruptcy.
The Court also noted the absence of any suggestion that the Court lacked jurisdiction to make an order for substituted service of a bankruptcy notice in appropriate circumstances “exercising the power conferred by s 309(2)” (at [12]) or to grant leave to serve a bankruptcy notice outside Australia pursuant to s.40(1)(g) of the Bankruptcy Act.
In considering the s.40(1)(g) argument, their Honours made the point (at [15]) that Laurie v Carroll concerned the jurisdiction of the Court. The Court referred to the views expressed in Laurie v Carroll about whether want of jurisdiction could be overcome by an order for substituted service but, contrary to the approach now suggested for Mr Jaafar, saw “no reason to apply well-settled rules concerning jurisdiction to the administrative issue and service of a bankruptcy notice” (at [14] – [15]).
Relevantly, in Battenberg v Restrom, the Court referred to the approach taken in Re Mendonca to service of a creditor’s petition as follows:
17. We turn to the proper construction of the Act. There can be no doubt that it applies to debtors who are not Australian citizens (s 7(1)), that par 43(1)(b) contemplates commission by a debtor of an act of bankruptcy whilst out of Australia, and that he or she may be bankrupted upon that basis, subject only to par 43(1)(b). It must therefore have been intended that such a person be amenable to service of a bankruptcy notice, notwithstanding the fact that he or she was out of Australia.
18. In Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 261, Gibbs J, sitting as a Judge of the Federal Court of Bankruptcy, observed that subs 309(2) and rule 113(1) (which authorized the Court to give directions as to practice and procedure) conferred ‘... ample power to order service outside the jurisdiction ... .’ of a bankruptcy petition. In that case the petition was issued after the debtor had left Australia. It seems that his Honour did not consider that fact to be a bar to such an order. In other words, exercise of the power conferred by subs 309(2) is not conditional upon a debtor’s presence in Australia. It is true that Gibbs J considered that an order for such service would be made only if one of the criteria identified in par 43(1)(b) were present. In this case the evidence does not presently establish, or deny the existence of, any of those criteria. That is no doubt because issue and service of the bankruptcy notice (as opposed to making a sequestration order) are not conditional upon the existence of one of those criteria.
While Battenberg v Restrom did not concern the service of a creditor’s petition, it is supportive of the correctness of Re Mendonca and the view expressed by McKerracher J in Cranswick at [2]. As the Court in Battenberg v Restrom noted at [19]:
… Re Mendonca establishes that subs 309(2) authorizes service out of Australia even when the relevant process was issued after the debtor left Australia…
In De Robillard the Full Court of the Federal Court was considering, on appeal, an application that a sequestration order be set aside. Various issues arose for consideration. In essence, the Court found (see Buchanan J, with whom Moore and Conti JJ agreed) that the bankruptcy notice had not been served in accordance with reg.16.01 of the Bankruptcy Regulations.
In addition, Buchanan J addressed the appellant’s contention that the creditor’s petition had not been personally served. It was submitted that personal service was required because, consistent with the approach of Emmett J in Sogelease, reg.16.01 of the Bankruptcy Regulations did not apply to service of a petition. Buchanan J did observe that, subject to any other provisions of the FC Rules, the FC Rules required personal service of a creditor’s petition.In De Robillard, consistent with another provision of the then applicable FC Rules, as the bankrupt had filed a notice of opposition to the creditor’s petition and had appeared personally, personal service of the petition was taken to have been effected (see De Robillard at [74] – [86]).
However this case said nothing about the availability of substituted service of a creditor’s petition under s.309(2) of the Bankruptcy Act.
In contrast, in Cranswick McKerracher J dispensed with the need for personal service and made orders for substituted service of a creditor’s petition on a debtor who was outside Australia. His Honour was of the view that s.309(2) of the Bankruptcy Act conferred legislative authority for court process (the creditor’s petition) to be served out of the jurisdiction. McKerracher J pointed out (at [4]) that the exercise of the power conferred by s.309(2) of the Bankruptcy Act was not conditioned upon the debtor’s presence in Australia and found that s.309(2) authorised service out of Australia even when the relevant process was issued after the debtor had left Australia and while the debtor was outside Australia (at [4]). McKerracher J referred (at [5]) to the approach taken by Gibbs J in Re Mendonca to the effect that although the Bankruptcy Act and the (then) Bankruptcy Rules did not make express provision for service out of the jurisdiction, s.309(2) of the Bankruptcy Act was sufficient to provide the court with “ample power” to order service outside of the jurisdiction. His Honour also stated (at [5]) that, as such, the then applicable Order 8 of the FC Rules (the predecessor to Part 10, Division 10.4 in relation to service outside the jurisdiction) was “not engaged”.
Similar to the orders for substituted service made in the present case, the orders made by McKerracher J in Cranswick included sending or leaving copies of the petition and supporting documents at various addresses in Australia and also sending electronic copies of the documents and the court orders to the respondent at email addresses. This is clear authority. It is directly in point. It is consistent with Battenberg v Restrom and Re Mendonca. Even if it is not binding on this court, contrary to Mr Jaafar’s submission I consider I should follow it.
Moreover, in Ramsay, Gleeson J granted leave pursuant to s.309(2) of the Bankruptcy Act to a creditor to serve a respondent (who was a person outside the jurisdiction) with documents which included a creditor’s petition.
Gleeson J was similarly of the view that the exercise of the power in s.309(2) was not conditioned upon a debtor’s presence in Australia, referring (at [18]) to Battenberg v Restrom, Re Mendonca and Cranswick. Gleeson J also referred (at [19] – [20]) to the fact that in Re Trimbole at 587 Sheppard J had not doubted the Federal Court’s jurisdiction to grant leave for overseas service of a creditor’s petition in circumstances which brought the case within s.43(1) of the Bankruptcy Act.
In these circumstances, whether or not I am bound to follow Cranswick and Ramsay, I am of the view that, for the reasons discussed therein, it is open to the court to make an order for substituted service of a creditor’s petition under s.309(2) of the Bankruptcy Act where the debtor is outside the jurisdiction. In such circumstances, the rules of the Federal Court which are applicable in this court in relation to service outside the jurisdiction (Part 10, Division 10.4) are not engaged (see Cranswick at [5]).
I have borne in mind that in Cranswick McKerracher J indicated (at [7]) that before making such an order for substituted service the court was required to reach a provisional or tentative conclusion on the material before it that the petitioning creditor had an arguable case. Mr Jaafar raised no particular issue about the registrar’s approach in this respect.
There are no reasons for the decision of the registrar to order substituted service of the petition in this case. However the documents attached to the affidavit of Ms Warren that were relied on in support of the application for substituted service include an exchange of emails between Mr Jaafar and Mr Thorndike (although Mr Jaafar disputes receiving or sending some emails), including the email from Mr Jaafar of 10 April 2017 in which he stated that he was currently overseas and not sure when he would get back, a process server’s report in relation to attempts to serve Mr Jaafar at his home address in Australia and other correspondence. It was open to the registrar to provisionally conclude that Mr Jaafar owed G and G an amount in respect of the judgment it had obtained in the Local Court and that at the time when the act of bankruptcy was committed a jurisdictional requirement in s.43(1)(b) of the Bankruptcy Act was satisfied. I am satisfied that it was open to the registrar to make an order for substituted service of the creditor’s petition, notwithstanding that Mr Jaafar was out of Australia when it was presented.
I am not persuaded by Mr Jaafar’s contention that personal service of the creditor’s petition in accordance with Part 10, Division 10.4 of the FC Rules was necessary for service of the creditor’s petition to be effective, having regard to the operation of s.309(2) of the Bankruptcy Act. As s.309(2) applies, Part 10 of the FC Rules (including r.10.49 which deals with substituted service after attempted personal service overseas) is not engaged (see Cranswick at [6]).
Further, I am satisfied that the service of the petition and supporting documents was in accordance with the order for substituted service and was effective. Insofar as it was contended that Mr Jaafar was unaware of or not on notice of the hearing of the creditor’s petition and that this provided some basis on which the court could be satisfied that the sequestration ought not to have been made, for the reasons given above, I am satisfied that he was on notice. He ultimately admitted receiving the email attaching the petition and providing details of the hearing. His response showed awareness of it and of the fact it was to be heard.
The circumstances are not such as to satisfy me that the sequestration order ought not to have been made because the order for substituted service of the creditor’s petition was “bad” as Mr Jaafar contended.
Jurisdictional Issue
The other basis on which Mr Jaafar contended that the sequestration order ought not to have been made is a contention that the petition was “erroneously heard and determined” on the jurisdictional basis that he was in Australia.
It is not in dispute that Mr Jaafar was outside of Australia at the time of the act of bankruptcy relied on in the petition. Mr Jaafar acknowledged that s.43(1)(b)(i) of the Bankruptcy Act imposes a jurisdictional requirement of either personal presence or ordinary resident in Australia. It was also acknowledged that there is now evidence that Mr Jaafar was ordinarily resident in Australia at the relevant time.
The petition was (incorrectly) expressed to be founded on Mr Jaafar’s personal presence in Australia at the time the act of bankruptcy was committed. Mr Jaafar submitted that the court could not make an order nunc pro tunc or amend the petition to cure what was described as a “want of jurisdiction”.
Mr Jaafar’s argument involves a contention that, notwithstanding the fact that one of the jurisdictional prerequisites in s.43(1)(b)(i) was in fact met, because the petition expressly relied on his personal presence in Australia at the time of the act of bankruptcy, this rendered the sequestration order an order that “ought not to have been made”. It was submitted that the fact that the petition could have been amended prior to the making of the sequestration order and that the court would have had jurisdiction on the basis of Mr Jaafar’s residence in Australia was not to the point and that it would not be valid exercise of the nunc pro tunc power, or of the power to amend, for this court to make such an order in circumstances where the sequestration order was made upon a precondition of jurisdiction on the basis of personal presence in Australia which was not in fact met.
In post-hearing submissions addressing the making of orders nunc pro tunc, counsel for Mr Jaafar sought to distinguish the circumstances considered by the High Court in Emanuele & Anor v Australian Securities Commission & Ors [1997] HCA 20; (1997) 188 CLR 114 from the circumstances of this case. In Emanuele the Australian Taxation Office (the ATO) had applied to the Federal Court for an order that several companies be wound up. Subsequently a deed of company arrangement was entered into which prevented the ATO from proceeding. The Australian Securities Commission intervened in the application to wind up the companies and gave notice of its intention to apply for a winding up order pursuant to s.459A of the Corporations Law.Section 459P(2) of the Corporations Law provided that such an application may only be made with the leave of the court. The Australian Securities Commission had not sought or obtained such leave. Nonetheless the judge at first instance ordered that the companies be wound up.
On appeal, the Full Court of the Federal Court held that leave under s.459P(2) could be granted nunc pro tunc. A majority of the High Court agreed. Dawson, Toohey and Kirby JJ held that a failure to obtain the leave of the court as required by s.459P(2) of the Corporations Law before applying for an order that a company be wound up in insolvency was a mere defect or irregularity in the exercise of the court’s jurisdiction which did not affect the validity of the order made and that it could be cured by leave granted nunc pro tunc.
Mr Jaafar submitted that each of the majority judges in Emanuele had reasoned to the effect that s.459P(2) was not jurisdictional in the relevant sense.However it was contended that while s.459P of the Corporations Law did not confer jurisdiction on the Federal Court to make a winding up order, in this case there could be no doubt that the alternative requirement in s.43(1)(b)(i) of the Bankruptcy Act was jurisdictional.
G and G submitted that, in essence, the issue raised by Mr Jaafar was whether paragraph 3 of the creditor’s petition, which stated “[a]t the time when the act of bankruptcy was committed, the respondent debtor: was personally present in Australia”, rendered the petition defective and was incapable of being remedied by amendment such that the sequestration order ought not to have been made.
It was pointed out that the evidence currently before the court was that while Mr Jaafar was not personally present in Australia at the time of the act of bankruptcy, he was ordinarily resident, so the relevant facts were still capable of satisfying the requirements of s.43.
G and G referred to s.33 of the Bankruptcy Act. It permits the court at any time to allow the amendment of any written process proceeding or notice under the Act. In De Robillard Buchanan J (with whom Moore and Conti JJ agreed) pointed out at [55]-[56] that it was well-established that a creditor may amend a petition to correctly allege a matter required by the Bankruptcy Act, whether before or after the making of a sequestration order. It was submitted that in circumstances where a sequestration order had already been made, a relevant consideration was the case that would have been disclosed had all the true facts been before the court on the making of the sequestration order.
G and G also placed reliance on s.306(1) of the Bankruptcy Act, which provides that proceedings under the Bankruptcy Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of the opinion that a substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of the court.
It was submitted that in this case the court had the express power to amend the petition following a making of the sequestration order to correct the incorrect statement and that there was no substantial injustice in allowing such amendment, because the sequestration order could have been made given that the jurisdictional requirement under s.43 was in fact satisfied.
Mr Jaafar contended that G and G’s reliance on s.33(1)(b) of the Bankruptcy Act was not supported by authority and that the power in s.33 could not be used to cure the making of an order which the court had no power to make.
It was acknowledged that in De Robillard at [55] Buchanan J had cited MacDonald v Official Trustee in Bankruptcy [2001] FCA 140; (2001) 107 FCR 72at [25] in which the Full Court of the Federal Court referred to the existence of extensive authority for the proposition that the power of amendment in s.33(1)(b) extended to authorising the amendment of petitions to cure omissions of allegations made mandatory by the various provision of the Bankruptcy Act and Bankruptcy Rules, “that is, to cure what can be accepted to be more serious deficiencies in petitions than “formal defects or irregularities” within s.306”.
However Mr Jaafar submitted that the power to amend after judgment should not, absent good reason, differ in its nature or extent from the power to grant leave nunc pro tunc and that as such a remedy was not available where there was no jurisdiction, this reasoning must also apply to an amendment under s.33 of the Bankruptcy Act.
As pointed out in Re Mendonca (and also see Re Trimboli and Ginnane) the court has jurisdiction if, at the time the act of bankruptcy was committed, the debtor was connected with Australia in one of the ways mentioned in s.43(1)(b) of the Bankruptcy Act. While I accept on the basis of Mr Jaafar’s affidavit evidence and the Department of Home Affairs Movement Records annexed to his affidavit that he was not personally present in Australia at the time the act of bankruptcy was committed, it is conceded that he was ordinarily resident in Australia at that time. In other words, while the creditor’s petition incorrectly referred to his personal presence in Australia, the alternative jurisdictional prerequisite in s.43(1)(b)(i) of the Bankruptcy Act was in fact satisfied.
The parties’ submissions in this respect did not emerge clearly until post-hearing submissions. One possible way of addressing this issue could have been to set aside the sequestration order on the basis that the petition be amended, but then reheard (see Re Finn, Ex parte Amoco Australia Ltd and Official Receiver in Bankruptcy [1982] FCA 49). However Mr Jaafar did not seek that the sequestration order be set aside on a basis which would allow the petition to be reheard (cf Cameron v Cole) but rather that his bankruptcy be brought to an end. Hence it is necessary to consider whether the error in the petition is such that the sequestration order ought not to have been made as required under s.153B of the Act.
It may be accepted that, as Mr Jaafar submitted, the only reasonable inference is that at the hearing of the petition, the registrar who made the sequestration order accepted proof of the matters stated in the petition, including that the jurisdictional requirement in s.43(1)(b)(i) was met on the basis of Mr Jaafar’s personal presence in Australia. Insofar as the affidavit verifying the petition referred to Mr Jaafar’s personal presence in Australia, it was incorrect.
I also accept that the circumstances in this case are not analogous to those considered in Emanuele. The requirement that the court have jurisdiction under s.43 of the Bankruptcy Act to make a sequestration order is of a different nature to the requirement of leave to apply to the court under s.459P(2) of the Corporations Act.
However in this case the court in fact had jurisdiction, because at the time the act of bankruptcy was committed, Mr Jaafar was ordinarily resident in Australian (see Re Mendonca, Re Trimbole and Ginnane). I bear in mind that in considering an annulment application the court is not confined to a consideration of whether the sequestration order ought not to have been made on the facts known to the court at that time and must take into account facts known at the time of the annulment application. On these facts, it is clear that the jurisdictional prerequisite of ordinary residence in Australia within s.43(1)(b)(i) was met.
The court has power under s.33 of the Bankruptcy Act to “allow the amendment of any written process, proceeding or notice” under the Bankruptcy Act. As stated De Robillard (at [5]), it is well-established that the petitioning creditor may amend a petition to correctly allege “a matter required by the Bankruptcy Act” before or after the making of a sequestration order.
In De Robillard, Buchanan J cited MacDonald in which the Full Court of the Federal Court addressed considerations relevant to the exercise of the Court’s discretion to annul a bankruptcy under s.153B of the Bankruptcy Act after the bankrupt was discharge from bankruptcy. As in this case, the debtor in MacDonald had sought annulment of his bankruptcy on the ground that the sequestration order ought not to have been made. He asserted that there were defects in the petition that were incapable of being remedied (including a failure to specify an act of bankruptcy in all respects). In contrast to this case, a registrar had amended the petition under s.33(1)(b) to cure the deficiencies in the petition before making the sequestration order.
The trial judge rejected the contention that the deficiencies in the petition (and the other issue raised) prevented the making of the sequestration order, but also found that even if he were wrong in so holding he would nevertheless exercise the discretion to refuse annulment (see MacDonald at [3]).
The Full Court found in MacDonald (at [21] – [34]) that the brief statement in the petition of the act of bankruptcy was sufficient; second, that if it was not, s.306 operated to prevent invalidation of the proceedings and third, that even if the alleged deficiency was more significant than “a formal defect or irregularity” curable by s.306, an amendment could be made under s.33(1)(b) of the Act. As Spender J pointed out in Mathews v Collett [2000] FCA 224 at [17]:
… if the amendment to the petition is to cure a formal defect or irregularity, the petitioner can rely on the provisions of s306 of the Act. However, a defect of substance requires leave of the Court pursuant to s33(1)(b) of the Act…
In MacDonald the Full Court concluded that s.33 of the Bankruptcy Act authorised the amendment in question, stating at [24] - [25]:
[24] … In terms, s33(1)(b) expressly permits amendment, at the discretion of the Court, of "any written process, proceeding or notice under this Act". This phrase, in its ordinary meaning, is well capable of including creditor's petitions. The appellant relies on the isolated dictum in Re Abrahamson directed to s306 the Bankruptcy Act as justifying a construction of s33(1)(b) so as to imply into the otherwise unqualified words of that provision a limitation that would deny power to amend process, including petitions, to remedy defects, at least if they could be said to be of fundamental substance. No other basis upon which it would be permissible to restrict the wide words of this provision was identified. To read s33(1)(b) down in the way suggested is inconsistent with the object of the Parliament in conferring on the Court an unqualified discretion to amend process in bankruptcy, a discretion exercisable in all cases according to the circumstances of the particular case and, in particular, whether the exercise of the discretion would inflict injustice on or avoid injustice to any person.
[25] The appellant's submission is also inconsistent with authority. There is extensive authority for the proposition that the power of amendment in s33(1)(b) extends to authorising the amendment of petitions to cure omissions of allegations made mandatory by the various provisions of the Bankruptcy Act and Rules, ie, to cure what can be accepted to be more serious deficiencies in petitions than "formal defects or irregularities" within s306.
It can be accepted that the deficiency in this case is a more serious deficiency than a formal defect or irregularity. However while the misstatement of the basis for jurisdiction in the petition is more than a formal defect or irregularity curable under s.306 of the Act, s.33(1)(b) nonetheless confers power on the court to amend a petition that fails to contain an accurate statement of the basis on which the court had jurisdiction, provided the court in fact had jurisdiction to make the sequestration order. I do not regard s.43(1)(b) as evincing a contrary intention. Clearly, if the court did not in fact have jurisdiction, such an amendment could not be made. It would also be inappropriate to exercise the discretion to allow an amendment if it would inflict injustice on any party. However, in this case, a jurisdictional requirement in s.43(1)(b)(i) was in fact satisfied and the commission of the act of bankruptcy is not disputed (subject to what is said below in relation to Mr Jaafar’s assertion that it is clear that he did not owe the debt that formed the basis for the bankruptcy notice) and I am satisfied that no injustice would be done by such amendment.
It is appropriate to make an order amending paragraph 3 of the petition by deleting the words “personally present” and inserting the words “ordinary resident”.
In these circumstances, the misstatement in the affidavit verifying the petition, including the statement in paragraph 3 of the petition that the debtor was personally present in Australia at the time of commission of the act of bankruptcy, is also not such as to establish that the sequestration order ought not to have been made. As pointed out in MacDonald at [31], even a failure to file an affidavit verifying a petition in accordance with s.47(1) of the Bankruptcy Act does not render a petition a nullity.
I am not satisfied that Mr Jaafar has established any basis on which the sequestration order ought not to have been made.
Discretionary Factors
In any event, even if I am wrong and the sequestration order ought not to have been made, in the particular circumstances in this case I would, in the exercise of my discretion, refuse the application for annulment.
First, while made aware of the petition and of the hearing date by 5 July 2017, Mr Jaafar did not oppose the petition and there is no evidence he took any steps to be represented at the hearing of the petition. There is no explanation for this, other than his initial evidence that he was not aware of the petition or the hearing until after the sequestration order was made. Yet in his later affidavit and oral evidence he admitted receiving the email of 5 July 2017 serving him with the petition and advising him of the hearing, consistent with his email response of 7 July 2017.
It was only in the context of matters relevant to the exercise of the court’s discretion under s.153B(1) that Mr Jaafar raised a contention that, on the balance of the evidence before the court, the alleged guarantee which was the basis of the default judgment on which the bankruptcy notice, and in turn the petition, was based, was “bad”. It was contended that this was not simply an “assertion”. This was put on the basis that Mr Jaafar was out of the country on the date his signature was said to have been put on the chattel mortgage as guarantor; he denied that it was his signature; and G and G did not challenge the denial, call contrary evidence or did not explain why it did not call the witness to Mr Jaafar’s signature.
There are a number of difficulties with this contention. First, the fact that Mr Jaafar was out of the country on the date which appears on the guarantee does not in itself mean that he could not have signed the guarantee, either electronically or, indeed, in person. He baldly asserts fraud. It has not been established. While he denies in these proceedings that it was his signature and has done so on some occasions in his dealings with the petitioning creditor and its solicitor, I am satisfied that at times he has proceeded on the basis that he accepted that the debt was his. I do not find persuasive his assertion that he received and made or sent only some selected emails and telephone calls referred to in the evidence of Mr Brown and Mr Thorndike (such assertion is unsupported by any other evidence and is contrary to the evidence of communications involving his email address and mobile telephone number in the evidence for G and G). Mr Jaafar agreed the email address and mobile telephone number recoded by G and G and CCSG were correct. As set out above, Mr Jaafar’s evidence in this respect has not been consistent.
Mr Jaafar has, according to the records of the petitioning creditor, made payments and provided the petitioning creditor with details of receipts. Indeed, it appears that the assertion that it was not his debt (and that his Company had not purchased the car) did not emerge until some considerable time after July 2015.
Insofar as it was suggested that the petitioning creditor was in some way inadequate in responding to this assertion by failing to call (or explain why it did not call) the witness to Mr Jaafar’s alleged signature, that is a somewhat surprising suggestion. I was not asked to go behind the default judgment in the context of considering whether the sequestration order ought not to have been made. The creditor does not bear an onus in the present context. It is for Mr Jaafar to satisfy the court that his bankruptcy should be annulled. The witness to what was said to be Mr Jaafar’s signature was identified by name only. He was not a witness to a signature on behalf of the petitioner. There is no evidence or suggestion that the witness was a person known to or who ought to be known to G and G.
As indicated, in his affidavit and oral evidence Mr Jaafar has been inconsistent. In particular, as set out above, his evidence as to whether he received or sent particular emails has changed, both between his affidavits and within his oral evidence. He made assertions that he did not receive or send various emails, notwithstanding that the documents bore the email address which he concedes is his email address. He claimed that he did not participate in telephone calls, notwithstanding documents recording that the telephone call was made to or (importantly) from the number which is his mobile telephone number.
Moreover if there was an issue in relation to whether the debt was Mr Jaafar’s, he took no prompt action in that respect. At the latest, he was made aware of the existence of the bankruptcy notice on 10 April 2017. While he denied receipt of the bankruptcy notice, he admitted becoming aware of it on 10 April 2017. Had he wished to dispute the debt he could have taken proceedings to have the Local Court default judgment set aside or to set aside the bankruptcy notice. He did not do so. Nor did he take any action at a later stage. He did not oppose the petition at the hearing, in circumstances where he had been made aware of the existence of the petition and the date, time and place of the hearing and had stated that he would obtain representation.
I am not satisfied that the assertion that the guarantee was “bad” is more than a mere assertion. I am not satisfied, on the evidence before me, that the debt is not Mr Jaafar’s or that the issues he raises in that respect are in favour of annulling his bankruptcy.
Also of concern is Mr Jaafar’s failure to take steps to have his bankruptcy annulled until 18 April 2018, some 8 months after the making of the sequestration order and some 3 months after his return to Australia.
It is generally relevant to the exercise of the discretion to have regard to Mr Jaafar’s delay after becoming aware of the sequestration order in September 2017. The evidence as to the reason for this delay is not entirely satisfactory. It is the case that Mr Jaafar was overseas until 15 January 2018. This should not, in itself, have prevented him from seeking advice or initiating appropriate proceedings in Australia. I accept that “after” he returned to Australia in January 2018 he contacted the Law Society to seek a referral to a solicitor, contacted three suggested solicitors and then instructed his present solicitor on 1 March 2018 to seek an annulment of the bankruptcy. However this does not provide a complete explanation for his delay in taking action.
Furthermore, Mr Jaafar’s statement of affairs was not completed until 18 April 2018. Notwithstanding the absence of opposition to annulment by the trustee in bankruptcy if the court was satisfied it was appropriate, this delay is not a factor supporting the exercise of the discretion.
Critically, I cannot be satisfied on the evidence before the court as to Mr Jaafar’s financial position. It is well-established that full and frank disclosure is required by a bankrupt who seeks annulment of his or her bankruptcy. It is incumbent on the bankrupt to place before the court all relevant material with respect to his or her financial affairs so that the court may be properly informed and make a decision based on all the facts and circumstances. In this case Mr Jaafar has not made such appropriate disclosure. On the contrary. In his affidavits, apart from claiming that he did not sign the guarantee and it was dated and witnessed on a day when he was not in Australia and the bald assertion that he was a victim of identity theft or fraud in relation to the alleged loan and guarantee, Mr Jaafar did not give evidence in relation to his financial situation beyond annexing a copy of his statement of affairs.
However the statement of affairs is an inadequate basis on which to be satisfied as to Mr Jaafar’s financial position. As to liabilities, the petitioning creditor has a judgment debt. Mr Jaafar did not seek to have that judgment set aside in the Local Court. He has not asked the court to go behind the judgment to determine whether in truth and reality a debt was due to the petitioning creditor. As indicated, I am not satisfied on the limited evidence before me that the debt is not his debt. In these circumstances it is appropriate to proceed on the basis that Mr Jaafar is indebted to the petitioning creditor in the amount of over $45,500 claimed in the creditor’s petition.
In the statement of affairs, under the heading “Unsecured Creditors”, Mr Jaafar discloses one unnamed creditor who is described simply, and with no elaboration, as “credit card”. There is no disclosure of the identity of the creditor, the precise nature of the debt, the account number, when it was incurred or, importantly, the amount owing. This is not evidence which amounts to full disclosure of Mr Jaafar’s financial position such as to support the application for annulment.
In the statement of affairs the disclosure as to assets and income is similarly incomplete. The only asset disclosed is $152 in a Westpac bank account. The only source of income that Mr Jaafar disclosed was income before tax over the previous 12 months of $30,000. This was said to be income received from “contract work income”. No more was disclosed. Mr Jaafar also stated in the statement of affairs he expected “contract work income” in the sum of $150,000 in the next 12 months. There was no explanation for why this would be so. This is an inadequate basis on which to be satisfied as to the Applicant’s financial position, particularly as he also states that he is not in employment and as there is evidence that the Company, of which he was a director, has been de-registered.
Having regard to the inadequacy of Mr Jaafar’s financial disclosure it is impossible to be satisfied as to his financial position, let alone to determine whether he was, at the relevant time, solvent. Mr Jaafar has not met the “heavy burden” in the sense described in Bulic and cases cited therein.
In the particular and unusual circumstances of this case, having regard to Mr Jaafar’s failure to oppose the petition; the fact that I am not satisfied on the evidence before me that the debt was not his; the absence of an entirely satisfactory explanation for Mr Jaafar’s delay in making the present application; and his failure to make full disclosure of his financial affairs, I am not satisfied that an order should be made annulling Mr Jaafar’s bankruptcy.
Accordingly the application should be dismissed. The costs of G and G should be paid out of the bankrupt estate of Mr Jaafar.
I certify that the preceding one hundred and fifty-five (155) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Associate:
Date: 10 May 2019
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