JG Liddy, RJ McClenahan and IA Simic T/As Taylor and Scott Lawyers v Melhem (No.2)
[2018] FCCA 3338
•18 October 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| JG LIDDY, RJ MCCLENAHAN & IA SIMIC T/AS TAYLOR AND SCOTT LAWYERS v MELHEM (No.2) | [2018] FCCA 3338 |
| Catchwords: BANKRUPTCY – Creditor’s petition – no appearance by debtor – sequestration order. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52 |
| Cases cited: Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132 Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 |
| Applicant: | JG LIDDY, RJ MCCLENAHAN & IA SIMIC T/AS TAYLOR AND SCOTT LAWYERS |
| Respondent: | ROUSELL ANTANIOS MELHEM |
| File Number: | SYG 350 of 2017 |
| Judgment of: | Judge Barnes |
| Hearing date: | 18 October 2018 |
| Delivered at: | Sydney |
| Delivered on: | 18 October 2018 |
REPRESENTATION
| Solicitors for the Applicant: | Carneys Lawyers |
| Respondent: | No appearance |
ORDERS
The estate of Rousell Antanios Melhem be sequestrated under the Bankruptcy Act 1966 (Cth).
The Applicant Creditor’s costs fixed for professional costs of $11,835.00 and disbursements of $1,445.00 totalling $13,280.00 be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966 (Cth).
Under the Bankruptcy Regulations 1996 (Cth) a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.
THE COURT NOTES THAT
The date of the act of bankruptcy is 30 August 2016.
A consent to act as trustee signed by Nicholas Craig Malanos has been filed under s.156A of the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 350 of 2017
| JG LIDDY, RJ MCCLENAHAN & IA SIMIC T/AS TAYLOR AND SCOTT LAWYERS |
Applicant
And
| ROUSELL ANTANIOS MELHEM |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
The petitioning creditors (partners in Taylor and Scott, a firm of solicitors) filed and presented a creditors’ petition on 8 February 2017. They seek a sequestration order against the Respondent, Mr Melhem.
This matter has a somewhat protracted history. Relevantly, given his failure to appear today, Mr Melhem chose, in recent times, to participate in directions and hearings by way of telephone link, which the court facilitated (as discussed in my earlier judgment in JG Liddy, RJ McClenahan & IA Simic T/as Taylor And Scott Lawyers v Melhem [2018] FCCA 2695 in relation to Mr Melhem’s unsuccessful application for the appointment of a litigation guardian). In particular, he participated by way of telephone link on 21 September 2018 when the matter was listed for hearing today at 10.15 am. I noted in the orders of 21 September 2018 that Mr Melhem would participate in the hearing today by telephone.
My associate made three attempts to telephone Mr Melhem on the number he had provided to the court (and on which he had been successfully contacted on both 21 September 2018 and 2 August 2018) shortly before I came on the bench. The phone went to voicemail twice and appears to have been hung up (or at least stopped ringing) once. When I came on the bench at 10.20 am a further attempt was made to telephone Mr Melhem. The phone rang and then stopped. I adjourned the matter until 10.30 am in case Mr Melhem was otherwise occupied. The matter was called outside the court. There was no appearance by Mr Melhem at 10.30 am.
My associate made a final effort to call Mr Melhem in open court. The telephone was answered by a woman who said “Hello.” When I identified myself and asked to speak to Mr Melhem, she hung up. I understand from the earlier proceedings that the number that Mr Melhem provided was his mother’s telephone number.
My staff have checked with the registry and there is no evidence of any notification to the court from or on behalf of Mr Melhem to explain his failure to appear today. In these circumstances I consider it appropriate to proceed with the hearing of the creditor’s petition today, notwithstanding the absence of Mr Melhem. He was on notice of the hearing today, having participated by way of telephone link in the directions hearing on 21 September 2018. Copies of the orders made that day (listing the hearing today) were also sent to him by email and post. In accordance with the orders of 21 September 2018 the petitioning creditor has filed written submissions. Mr Melhem has not filed any documents or submissions since that date, but he has previously filed three notices of opposition and supporting affidavits.
The debt relied on in this case is a debt of $39,478.72 for legal costs based on a default judgment of the Local Court at Sutherland made on 27 May 2016 and entered on 28 July 2016.
As detailed in my judgment of 21 September 2018, and as attested to in affidavits of Mr Melhem and also Mr Titus, the solicitor for the petitioning creditors, Mr Melhem made three attempts to have that default judgment set aside by the Local Court. Mr Melhem first filed a notice of motion in the Local Court on 6 July 2017 seeking to set aside the judgment. There was no appearance in the Local Court by Mr Melhem on 26 July 2017 and that notice of motion was dismissed.
However the Local Court apparently later discovered that an explanation for Mr Melhem’s non-appearance and a request for an adjournment had been provided to that Court about midnight the night before the hearing of 26 July 2017. The default judgment was set aside on 16 August 2017 on the basis that Mr Melhem must file his defence within 21 days. He failed to do so.
On 6 December 2017 Mr Melhem filed a further notice of motion to set aside the judgment of the Local Court supported by an affidavit of his brother. Issues were raised in the affidavit as to Mr Melhem’s health and also about the nature of Mr Melhem’s arrangement with the petitioning creditor in relation to legal costs.
That notice of motion was returnable on 10 January 2018. Mr Titus, the solicitor for the petitioning creditors in these proceedings, appeared in the Local Court on 10 January 2018. Mr Melhem also appeared, but he had not filed a defence. Both his notices of motion were dismissed.
While these proceedings were on foot, Mr Melhem also sought an adjournment on the basis of what was said to be an application to the Supreme Court of New South Wales for a cost assessment. This was said to be have been made on 6 March 2018. It later emerged that such an application was not in fact pursued.
Subsequently, on 27 July 2018, Mr Melhem filed a further notice of motion in the Local Court with a supporting affidavit and written submissions. He claimed to the Local Court that the default judgment was based on a false and misleading representation by an employee of the petitioning creditors and also that he was owed money by the petitioning creditors. Mr Melhem sought a further adjournment of these proceedings pending determination of his Local Court motion.
On 5 September 2018 that motion came before the Local Court. As attested to in an affidavit of Mr Titus, Mr Melhem provided written and oral submissions, but his application to set aside the default judgment was refused.
In other words, Mr Melhem has had the opportunity to seek to have the default judgment set aside and for his opposition to the petitioning creditors’ claimed debt to be resolved in the Local Court.
With this background I turn to consider the present proceedings.
The act of bankruptcy on which the petition is based is a failure by Mr Melhem to comply with the bankruptcy notice issued on 7 August 2016 based on the Local Court judgment. The bankruptcy notice was served on Mr Melhem on 8 August 2016 as attested to in the affidavit of Behiye Kol affirmed on 30 November 2016.
The creditors’ petition was filed and presented on 8 February 2017. It was stood over unserved. Ultimately, on 8 November 2017, a registrar made an order for substituted service. The order for substituted service was subsequently varied. The life of the petition was extended under s.52(5) of the Bankruptcy Act 1966 (Cth) by order of a registrar on 23 January 2018.
In evidence are affidavits sworn by Frank Hoare on 19 December 2017 and also by Stephen Titus on 16 January 2018 as to service of the amended creditors’ petition in accordance with the orders for substituted service.
Mr Melhem was clearly on notice of the creditors’ petition as he participated in the proceedings before me after the matter came into my docket. While he did not appear on the first occasion the matter was before me (on 7 March 2018) he appeared in person on 4 April 2018 in circumstances where in his first notice of opposition (filed on 26 February 2018) he had sought the appointment of a litigation guardian. As described in Liddy & Ors v Melhem, the application for a litigation guardian was refused on 21 September 2018. In the meantime, Mr Melhem had filed two further notices of opposition raising substantive issues to which I refer below.
Under s.52(1)(a) of the Act at the hearing of a creditor’s petition the court requires proof of the matters stated in the petition, for which purpose the court may accept the affidavit verifying the petition as sufficient. In this case an affidavit of Mark Youssef of 23 November 2017 verifies paragraphs 1, 2 and 3 of the amended petition and an affidavit of James Carroll of 27 November 2017 verifies paragraph 4 of the petition. I am satisfied with proof of the matters stated in the petition and I am also satisfied, on the basis of the affidavits filed by the petitioning creditors, with service of the amended petition as required under s.52(1)(b) of the Act.
Under s.52(1)(c) the court also requires proof of the fact that the debt on which the petitioning creditor relies is still owing. An affidavit of final debt of Christine Childs was sworn and filed yesterday. It states, and I accept, that no part of the debt has been paid.
I have borne in mind that in his various notices of opposition and supporting affidavits Mr Melhem disputes that he owes the debt that formed the basis of the judgment debt. As indicated, he unsuccessfully raised such an argument before the Local Court.
Notwithstanding Mr Melhem’s failure to appear, for the purpose of these proceedings, and having regard to the approach of the High Court in Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132, I have considered whether I should accept the Local Court judgment as proof of the debt or whether this is a case in which the court should go behind the judgment, bearing in mind the principles in the authorities discussed in Ramsay v Compton. As pointed out by Barwick CJ in Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 the court has a discretion as to whether to accept a judgment as satisfactory proof of the petitioning creditor’s debt, but where reason is shown for questioning whether behind the judgment there was in truth and reality a debt due to the petitioning creditor, the court cannot accept the judgment as proof of a satisfactory debt, but must exercise its power to go behind the judgment.
In this case there appears to have been some confusion on Mr Melhem’s part as to the basis for the debt. As explained by the solicitor for the petitioning creditors, the debt is based on four unpaid invoices issued on 30 April 2015, 28 May 2015, 26 June 2015 and 30 October 2015 by the petitioning creditors who were acting for Mr Melhem in family law proceedings. Mr Melhem appears to have looked only at these invoices and to have calculated on that basis that he had paid Taylor and Scott an amount a little more than the total of these invoices (as indicated in a trust statement of account for the firm). However, as explained by Mr Titus, this did not take into account the fact that the monies Mr Melhem paid to Taylor and Scott were applied to earlier memoranda of costs and disbursements in circumstances where the four invoices that were described as unpaid did not cover the total period for which the firm acted for Mr Melhem. That is consistent with the firm’s trust statement of account annexed to Mr Titus’ affidavit of 17 July 2018. Mr Melhem had the opportunity to challenge the judgment in the Local Court and has unsuccessfully sought to have it set aside. In all the circumstances I am satisfied that I should accept the judgment as proof of the debt.
On this basis I am satisfied with proof of the matters in s.52(1) of the Bankruptcy Act.
On proof of the matters in s.52(1) the court will generally proceed to make a sequestration order. I note that in his notices of opposition, apart from taking issue with whether the debt was due, Mr Melhem sought various adjournments pending the result of the Supreme Court application (which was not actually proceeded with) and resolution of his Local Court notice of motion and other adjournments. Mr Melhem has had the benefit of the additional time these proceedings have taken, in part because the hearing of the petition was delayed until Mr Melhem’s application for a litigation guardian could be determined. There is no current application by Mr Melhem for an adjournment.
Under s.52(2) of the Act the onus shifts to the debtor to prove that he or she is able to pay his or her debts or that, for other sufficient cause, a sequestration order ought not to be made. There is no evidence or suggestion from Mr Melhem that he is able to pay his debts within s.52(2)(a) of the Act.
Mr Melhem has not referred to s.52(2) of the Bankruptcy Act in his notices of opposition. I have, however, considered whether there is anything in the circumstances of this case that would amount to “other sufficient cause” not to make a sequestration order, but am not satisfied he has established that he has a genuine and serious claim against the petitioning creditors that he has not reasonably been able to litigate (given the three Local Court notices of motion and Mr Melhem’s failure to address the creditors’ explanation for the calculation of the debt). Nor is there any other evidence that satisfies me there is other sufficient cause within s.52(2)(b).
I also note that for reasons set out in some detail in my judgment of 21 September 2018, I did not appoint a litigation guardian for Mr Melhem, albeit that, as explained in those reasons, I acknowledged that he may require additional time, in that he found it easier to deal with matters of complexity in writing and also that he found attending court premises (as distinct from appearing by telephone link) to be stressful. The orders made on 21 September 2018 were intended to accommodate Mr Melhem’s wish for additional time and to be able to address issues in writing. I made orders requiring the petitioning creditors to file written submissions in advance of the hearing today and gave Mr Melhem the opportunity to do so as well. He was also permitted to participate in the hearing by way of telephone link. I am satisfied that he has had the time to plan out and make responses with sufficient speed in these particular proceedings. The concerns that he raised about his ability to participate in these proceedings are not such as to establish that for other sufficient cause the sequestration order ought not to be made.
In all the circumstances I am satisfied that the Respondent committed the act of bankruptcy alleged in the petition as amended. I am satisfied with proof of the other matters required by s.52 of the Bankruptcy Act and that I should make a sequestration order against the estate of Mr Melhem.
The Applicants seek their costs associated with obtaining the sequestration order. The costs sought are somewhat more than would be incurred in the usual circumstances of a sequestration order made by a registrar. However, the matter has been protracted by the circumstances in which Mr Melhem appeared, the need to determine his application for the appointment of a litigation guardian, and the adjournments he sought to enable him to pursue proceedings in the Supreme Court which did not eventuate and proceedings in the Local Court which were ultimately unsuccessful.
I have been provided with detailed submissions and an account of the costs and disbursements incurred in these proceedings. I consider that the amount sought is reasonable and appropriate.
I note that the date of the act of bankruptcy is 30 August 2016 and that a consent to act as trustee signed by Nicholas Craig Malanos has been filed under s.156A of the Bankruptcy Act.
I certify that the preceding thirty-three (33) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Date: 16 November 2018
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