Kent (a bankrupt); Ex parte, Bunting [2022] FedCFamC2G 630
File number(s):
MLG 3656 of 2019
Judgment of:
JUDGE A KELLY
Date of judgment:
9 August 2022
Catchwords:
BANKRUPTCY – De novo review of delegated exercise of power by registrar of court – application for extension of time to seek review – where application over two years out of time – application refused – consideration of de novo on assumption refusal of extension may be attended by error – whether condition for presentation of petition not complied with – whether court should have gone behind judgment – whether security exceeds the value of debt – where no evidence from debtor of solvency – whether discretionary considerations militate in favour or against dismissal of petition – application dismissed.
Legislation:
Acts Interpretation Act 1901 (Cth), s 15AA Bankruptcy Act 1966 (Cth), ss 30, 43, 44, 49, 50, 52, 54, 60, 78, 115, 116, 118, 122, 123, 306 Federal Circuit and Family Court of Australia Act 2021 (Cth), ss 7, 8, 217, 254, 256 Federal Circuit Court of Australia Act 1999 (Cth), ss 103, 104 Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth), rr 1.01, 2.02, 7.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth), rr 1.01, 1.03, 3.05, 20.02, 20.03, 21.02 Federal Circuit and Family Court of Australia (Division 2) (Family Law) Rules 2021 (Cth), r 1.01 Federal Circuit Court (Bankruptcy) Rules 2016 (Cth), rr 1.03, 2.02, Sch 1 Item 5
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Kent (a bankrupt); Ex parte, Bunting [2022] FedCFamC2G 630
Case
[2022] FedCFamC2G 630
Decision Date
CaseChat Overview and Summary
The case of Kent (a bankrupt); Ex parte, Bunting involved Mr Kent, who had been issued a bankruptcy notice by Mr Bunting, seeking to extend the time for filing an application to review the decision of the registrar. The application was ultimately dismissed by the court. Mr Kent, a former medical researcher and local government officer, had obtained judgments against him by two creditors, Mr Bunting and Mr Neve, in the County Court of Victoria. A bankruptcy notice was issued by Mr Bunting on 14 March 2019, which was served on Mr Kent on 18 March 2019. The court was required to decide whether to exercise its discretion to grant an extension of time for Mr Kent to file an application to review the registrar’s decision, and if so, whether the application should be dismissed.
The court considered three arguments put forward by Mr Kent to demonstrate there were sufficient prospects of success in challenging the amended petition: (1) there was no debt owing to Mr Bunting; (2) the amended creditor’s petition was invalid as it failed to disclose the security held by Mr Bunting at the time of presenting the amended petition; and (3) if a debt was owed, the value of security held by Mr Bunting over the assets of Mr Kent exceeded the debt claimed as specified in the amended creditor’s petition. The court found that there was no evidence of fraud, collusion, or miscarriage of justice, and that the interests of other bona fide creditors should not be prejudiced by the making of a sequestration order. Additionally, the court found that there was no reasonable prospect of an appeal from the order of Lewitan J.
The court held that despite Mr Kent's arguments, it was not satisfied that the court should exercise its discretion to grant an extension of time. The court found that Mr Kent had not provided sufficient evidence to demonstrate his solvency or that there was some other reason the petition should be dismissed. The court also found that it should not exercise its residual discretion to do so. The application was ultimately dismissed.
Orders
Orders of the court
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Background
Background to the litigation
For the reasons which follow, I am not satisfied the Court should exercise its discretion to grant an extension of time. Had I been so satisfied and granted leave out of time to apply for a review of the registrar’s decision, I would have dismissed the application. I would have so dismissed the application in the combined circumstances that: I was satisfied of the matters of which the Court is required to be satisfied under s 52(1) of the Act; I was not satisfied by the debtor of his solvency or that there was some other reason the petition ought be dismissed, and; I was not satisfied the Court should exercise its residual discretion to do so.Background The matters set out below are drawn from the evidence and submissions filed by the parties. For the most part, the chronology of events is not in issue. As will appear, there is a degree of overlap in certain events that have occurred in this, and other, courts involving these parties. Mr Kent, now aged 67 years, appears to be a person of some qualification and experience. From his affidavit made on 1 July 2022, Mr Kent deposed to holding a Master of Science (Physiology), a Bachelor of Agricultural Science and a Bachelor of Business (Local Government) obtained from the University of Melbourne and Royal Melbourne Institute of Technology. From 1977, Mr Kent worked in medical research, variously at the University of Melbourne in its Department of Medicine and then its Department of Surgery (each at St Vincent’s Hospital), before taking employment at the Commonwealth Serum Laboratory. From the early 1980s, Mr Kent pursued further study in economic philosophy at the Melbourne School of Philosophy. In the mid-1980s he commenced studying a Bachelor of Business (Local Government). From the mid-1980s until about 2010 he undertook placements with a variety of local councils including the City of Melbourne, Mount Alexander Shire Council, Bass Coast Shire Council and Victoria Regional Council. Subsequently he undertook finance related roles at La Trobe University and Loan Finance and Energy Australia. While attending the Melbourne School of Philosophy, Mr Kent met both Mr Roger Bunting and Mr Adrian Neve, who are two creditors of his bankrupt estate. Each of those creditors brought proceedings in the County Court of Victoria for the recovery of monies that they claimed were owed to them by the bankrupt. Each of them obtained judgment against Mr Kent. An application to set aside a default judgment was dismissed. Notwithstanding some attempt to institute one appeal, none of those judgments has been the subject of any appeal. On 14 March 2019, a bankruptcy notice was issued by Mr Bunting to Mr Kent for the default debt amount. On 18 March 2019, service of the bankruptcy notice was effected upon Mr Kent. On the same day, Mr Kent filed a summons in proceeding CI-18-03570 seeking to set aside the default judgment obtained by Mr Bunting and for leave to file a defence and counterclaim. On 3 April 2019, Mr Kent filed a counterclaim against Mr Neve in proceeding CI-18-02246.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Counsel for Mr Kent advanced three bases upon which it was sought to demonstrate there were sufficient prospects of success in challenging the amended petition: (1) there was no debt owing to Mr Bunting; (2) the amended creditor’s petition was invalid in that it failed to disclose the security held by Mr Bunting at the time of presenting the amended petition, and; (3) if a debt was owed, the value of security held by Mr Bunting over the assets of Mr Kent exceeded the debt claimed as specified in the amended creditor’s petition. For the purposes of the application for an extension of time, Mr Kent adduced no evidence or submission as to his solvency, however, he sought to do so in oral submissions on the de novo review.(1) Merits – going behind judgment The Court has power to go behind a judgment for the purposes of deciding whether a sequestration order should be made: Wren v Mahony (1972) 126 CLR 212, 221-226; Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132, [68]. Two substantive considerations are involved in the exercise of power to ‘go behind’ a judgment. First is that the Bankruptcy Court is to be satisfied whether in truth and reality there is a debt upon which the petitioning creditor may obtain a sequestration order. Secondly is recognition that the exercise of power to make the order is one which directly interferes with the interests of other creditors: Ramsay Health Care (2017) 261 CLR 132, [55]-[56], [71], [92], [98], [109]. In Ramsay Health Care, Kiefel CJ, Keane and Nettle JJ, with whom Edelman J agreed, recognised that a judgment may usually be taken as a reliable indication of the true state of a party’s indebtedness, particularly where that judgment reflected the testing of the relative merits of a claim, defence and any counterclaim following the conduct of a proceeding “under the rigours of adversarial litigation”: [68], [96]. Their Honours acknowledged the need to look with suspicion upon judgments obtained by default or consent or where evidence had not been adduced in good faith such that the interests of other bona fide creditors may be prejudiced by the making of a sequestration order: [55], [69]-[71]. Although dissenting in the result, upon a detailed examination of the authorities, Gageler J at [92] adhered to the foundational consideration “that, under whatever circumstances a judgment may have been obtained” the interests of other bona fide creditors should not fall victim of a failed legal process and accordingly, a Bankruptcy Court retained jurisdiction “to go behind a judgment entered into after a trial on the merits were a prima facie case of miscarriage of justice can be shown.” The point of principle upon which Gageler J dissented was that the discretion conferred by s 52 to dismiss a petition should not extend to cases where, after a fully contested trial, a debtor sought, retrospectively, to go behind the judgment on the basis of poor forensic choices which may have been made in the course of that trial. In such cases, bona fide creditors were as much bound by the result of the litigation as were the parties to it: [92]. The plurality also recognised the force of those considerations but concluded the interests of other bona fide creditors should not have been prejudiced by the making of a sequestration order where the evidence left open whether a debt was truly owing: [71]. Edelman J observed that, absent some evidence of fraud, collusion, or miscarriage of justice, once a judgment had been established following a contested trial, a Bankruptcy Court would “rarely have substantial reasons to investigate whether the debt which merged in the judgment was truly owed”: [111]; see also Sayer-Jones v Juju Bean Investments Pty Ltd [2020] FCA 177, [11] (Bromwich, J).
Ratio Decidendi
Legal Principle Established
Despite apparent difficulties, there has been no appeal from the order of Lewitan J. More particularly, there has not been exhibited to any affidavit any document (whether by way of notice of appeal or opinion on prospects) to demonstrate any reasonable prospect of an appeal.Sequestration of estate Each of Mr Neve and Mr Bunting applied to the Official Receiver for the issue of a bankruptcy notice to be addressed to Mr Kent. In particular, on 14 March 2019, the Official Receiver issued bankruptcy notice BN 238140 doing so at Mr Bunting’s behest which identified a debt of $708,299.25 being grounded upon a default judgment obtained on 7 March 2019 in the County Court of Victoria (and not claiming any interest) or costs. On 18 March 2019, Mr Bunting’s bankruptcy notice was served on Mr Kent who immediately took action to set aside that notice. Mr Kent was unsuccessful in his application to do so. However for the purposes of this application, Mr Kent relied upon a proposed challenge to the default judgment obtained against him. On 6 June 2019, a registrar extended the time for compliance with the bankruptcy notice and on 4 July 2019, the application to set aside the notice was dismissed. Written reasons given by the registrar recorded there was no evidence any appeal had reasonable prospects. As Mr Kent did not comply with that notice, he committed an act of bankruptcy on 4 July 2019. On 23 October 2019, Mr Neve presented a petition for the sequestration of Mr Kent’s estate. The petition recorded that Mr Kent’s application to set aside that judgment had been dismissed. Affidavits as to service of the bankruptcy notice and of search and debt were each filed. In the course of the proceeding a series of further affidavits of search and debt were filed. The petition was served personally upon Mr Kent on 31 October 2019. On 28 November 2019, a registrar ordered that the hearing of the petition be adjourned to 12 December 2019 and that Mr Kent file and serve a notice of opposition and any affidavit in support by 5 December 2019. He filed a series of affidavits. On 5 December 2019, Mr Kent filed a notice of appearance, a notice stating his grounds of opposition to the petition and an affidavit made by him on that date. The notice of grounds that was completed in hand-writing by Mr Kent stated that there was no proper basis for orders made in the earlier proceedings and that an appeal was being made against the default judgment. On 6 December 2019, Mr Kent filed a further notice stating his grounds of opposition, however, this notice was simply a duplicate of the earlier notice. Mr Kent’s affidavit made on 5 December 2019 deposed to the basis upon which he denied any liability to Mr Neve and that the default judgment obtained by Mr Bunting was the subject of an appeal, including by way of interim relief, “a stay of proceedings.” Exhibited to this affidavit was a copy of the writ issued in the County Court by Mr Neve, a chronology of events entitled “Neve v Kent Chronology” and a limited extract of the submissions filed by Mr Neve.