Khadpekar v Official Trustee in Bankruptcy
[2008] FMCA 700
•23 May 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KHADPEKAR v OFFICIAL TRUSTEE IN BANKRUPTCY | [2008] FMCA 700 |
| BANKRUPTCY – Review of decision of Trustee – application for extension of time – appeal against orders giving rise to judgment debt. |
| Bankruptcy Act 1966 (Cth) |
| Cummings v Claremont Petroleum (1996) 185 CLR 124 Freeman v National Australia Bank [2002] FCA 427 Healey v Prentice (No.2) [2000] FCA 1598 |
| Applicant: | MANGALA KHADPEKAR |
| Respondent: | OFFICIAL TRUSTEE IN BANKRUPTCY |
| File Number: | BRG 841 of 2007 |
| Judgment of: | Burnett FM |
| Hearing date: | 23 May 2008 |
| Date of Last Submission: | 23 May 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 23 May 2008 |
REPRESENTATION
| Ms Khadpekar appeared on her own behalf |
| Counsel for the Respondent: | Mr Rogers |
| Solicitors for the Respondent: | Rogers Barn & Green |
ORDERS
That the application be dismissed.
That the applicant pay the respondent's costs of and incidental to the application to be assessed on a standard basis.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 841 of 2007
| MANGALA KHADPEKAR |
Applicant
And
| OFFICIAL TRUSTEE IN BANKRUPTCY |
Respondent
EX TEMPORE REASONS FOR JUDGMENT
This application is an application made today by the applicant for a further adjournment of her application filed on 1 October 2007. Her application on that date, in essence, seeks to review various decisions made by her trustee pursuant to s.178 of the Bankruptcy Act. In particular she seeks review of a decision made by her trustee not to pursue an appeal or an application for an extension of time to appeal to the District Court of Queensland at Cairns in respect of orders made against her on 16 September 1997 and on 18 September 1997 in the Magistrates Court at Cairns. They gave rise to the judgment underlying the original judgment debt in support of the bankruptcy notice and in turn the creditors petition resulting in her sequestration by an order made by his Honour, Coker FM on 3 February 2004.
The events since February 2004 and to some extent those preceding that time are relevant to a determination of this application for an adjournment. But before proceeding to deal with them I should just note for the record that after the filing of the application on 1 October 2007 the matter came on before Registrar Ramsay where it would appear the parties each agreed that the matter should be subject to the issue of some directions and that it be listed for review on 12 December 2007. It would appear that the matter was dealt with on or about that date and was stood over to 30 January 2008, at which time further directions again issued and the parties were directed to file material.
The matter was mentioned again on 7 May 2008 at which time the applicant indicated the matter was ready for trial, although she anticipated the production of some medico legal reports in the near future. She then indicated that she was having difficulty in obtaining legal representation because she complains a medical condition prevents her from concentrating simultaneously on multiple matters, which has impaired her ability to brief a new pro bono solicitor.
The matter came before me on 21 May at which time this application for an adjournment was first raised. The matter was stood over until this morning in order to enable me to source the Court's file from its archives concerning the sequestration of the applicant's estate as it appeared from my discussions with the applicant on the 21st that she was not entirely certain whether she had indeed been sequestrated. That matter was, as I say, put beyond doubt by a reference to the orders made by Coker FM on 3 February 2004. The reasons for his Honour's orders are contained in his reasons of judgment published on that day.
In broad terms the applicant claims that she requires more time to prepare her application, in particular she needs time to secure medical reports from two doctors, one being a Dr Robert Bright, who is a clinical psychologist, and the other being Dr Janis Fairbairn, who is a forensic cognitive psychologist. She has informed the Court that she has appointments in place for examination by those doctors, one being for an examination on 30 May, and the other for 31 May. The information provided to her suggests that, at least on the part of Dr Fairbairn, a report would not be available for approximately six weeks following her appointment of 31 May, meaning that she would probably have a report available by mid to late July.
From my inquiries of the applicant it appears that she principally requires these reports to deal with the underlying issue which concerns the decision which gives rise to her application today. In other words, she believes these reports will support her contention that the trustee wrongly exercised his discretion in not seeking to appeal the orders made in the Magistrates Court. She seeks to appeal on the basis that at the time the orders were made the applicant was suffering under some mental disability which inhibited her from exercising her rights and accordingly resulting in a judgment which was not a proper judgment because it was one that should not have been entered.
It is clear to me from the matters of which Ms Khadpekar has informed me of this morning that these reports do not bear upon her immediate circumstances. In her submissions before me this morning she struck me as being particularly lucid and she is clearly quite able. Those matters are consistent with her described occupation as a town planner and architect. I note that she is, or she was at least, registered as an architect in Queensland, although she may not be practising as such any more.
Furthermore, it was clear to me that the need for these reports did not bear upon the outcome of the application which is pursued by her against the trustee. Whilst it could be said that those matters are relevant to the underlying contention, which is the entry of the judgment, it could not be said that the medical reports themselves are particularly relevant to the events which were immediately in the mind of the trustee at the time that he made his decision the subject of the review application. The significance of that will be apparent in a short time.
The application is opposed by the trustee. It challenges the relevance of the medical information to this application, and further complains that in any event the applicant has had a reasonable opportunity to provide or prepare this material and provide it to the Court, and despite having had that opportunity she has simply failed in that regard.
If I can turn now to some of the relevant chronology in this case. This case is somewhat complicated by its background. It would seem that the applicant entered into an arrangement with the creditor to supply architectural and related services to it. There was a falling out between them and as a consequence of that the creditor instituted proceedings in the Magistrates Court in Cairns. It succeeded in obtaining a summary judgment against the debtor for a sum of approximately $45,000 in September 1997. Matters were allowed to drift a little and then eventually a bankruptcy notice was served which was the subject of an application to set aside. That application came on before Kiefel J, then of the Federal Court, in 1999, being heard on or about 9 December 1999. The application was the subject of reasons by her Honour on 15 December 1999. Her application was dismissed.
There were some observations made by her Honour, however, in the course of her Honour's reasons which would suggest that in terms of what the applicant was misguided in seeking what she sought to do. Her Honour clearly informed the applicant in the course of that hearing that:
“But, of course, that doesn’t mean you can't continue with your appeal and to set aside the judgment. I think what you really need to do, you need to concentrate on appealing the Magistrate's refusal to let you defend the action. Have that default judgment set aside.”
In the draft affidavit of Mr Johnson at sheet 33 there is a reference to the transcript, page 14, line 16.
As I have indicated, it seems that application was dismissed. There was a further hearing in April of 2003, which appears to have been another application in relation to setting aside a notice of bankruptcy; one assumes in respect of the same notice. I expect without wishing to speculate about the entire history of the action that the earlier bankruptcy notice must have become stale, a second notice was delivered and it too was the subject of an application to set aside. See again, at sheet 34 of the draft affidavit where it is noted by reference to a note of 11 April 2003 and a submission in relation to the intention to oppose an application to set aside a bankruptcy notice in proceeding 961/2002, which again indicates an application was made. I anticipate it too was unsuccessful having regard to the subsequent history of the matter.
But in any event for present purposes what is significant is that on that occasion it was pointed out that the debt arose in respect of a default judgment in the Magistrates Court, and it was further noted that the applicant applied to have the judgment set aside and such application was unsuccessful. The applicant did not appeal from that decision. That is confirmed later at page 36 where in reference to a letter from McDonald's Lawyers a similar observation is made.
It then seemed following that earlier history that orders were made by Coker FM and a trustee was appointed following the sequestration of the applicant's estate. However, that was not the end of it. As is seen in the draft affidavit, the subsequent history of the case appears to indicate that the applicant then consulted with various legal practitioners for the purposes of obtaining assistance. From para.83 to 98 she summarises a history of having consulted legal practitioners about her difficulties from late 1999 through until at least mid to late 2007. It is clearly a case where, from the draft affidavit prepared on her behalf, she has consulted it would seem at least 15 or so legal practitioners, including barristers and solicitors, and even approached a retired Supreme Court Judge for legal assistance.
In addition to having approached these people she also had people act on her behalf. For instance she indicates that she was given some assistance from Mr Tom Harden, who is a barrister. She further received some assistance from Mr Terry Fisher, and some assistance from Mr John Bickford, together with assistance from a Mr Jean Patterson, before ultimately receiving some further assistance from Mr Morris Morrissey. However, it was not until Mr Morrissey became involved that the notion of the appeal against the order 12 December 1997 and the view taken by the trustee appears to have been put in issue.
However, that independent advice aside, this issue has been alive at least on the applicant's own material, since well before then. For instance, as she deposed to these matters at paragraph 81 of her affidavit under the heading "The second bankruptcy proceedings." She made an express observation about the default judgment and of being on notice from the creditors' response to her applications that the view was taken that the debt arose out of a default judgment. Further to that she applied to set the judgment aside. She had been unsuccessful and she had not appealed that decision. As an issue that was apparent to the applicant from 24 April 2003.
Now, all that background is relevant against the material which is contained in her affidavit filed on 28 March and her statements made to me today. She has said to me today, that this medical condition has been extant since about 1996. It was either deposed to in the affidavit or stated to me in evidence today. So this medical condition is a long standing condition, it is not something that simply arose in recent times, and it was addressed in part in a medical certificate which was attached to her affidavit filed on 28 March 2007 by a Dr Lance who made observations that she had attended for various general health problems as well as ongoing anxiety depression symptoms.
Dr Lance noted:
“She has ongoing stress induced symptoms which are associated, causing her to have reduced mental functioning associated with an inability to concentrate, anxiety symptoms and losing train of thought. This does not generally interfere with her ability to perform her work, as in the main she is able to remain focused on tasks that are work related. Most symptoms come to the forefront when issues regarding the ongoing legal battle are needing to be dealt with. She is then unable to stay on task, gets confused and has periods of brain shut down, those symptoms consistent with panic attacks.”
He noted:
“She has presented to myself and the local emergency department on several occasions due to acute anxiety states causing various physical symptoms consistent with panic attacks. It is my understanding that the traumas associated with these litigation issues are severe and create an acute fright and flight response whenever is she unable to push the issue or push the issues in the background.”
He did make the note that she needed ongoing psychological help in order to keep functioning in her daily life. And that he had referred her to a psychiatrist.
It seems odd to me having regard to the history of this application; its extended length; and, the applicant's own evidence that she has had this complaint now for something approaching 11 years or more, that she has not before today's date undertaken any reasonable steps to obtain the medical evidence that she says she needs to support her application to set aside the judgment: on the basis, one expects, that the evidence would support some contention that by reason of her medical condition she was unable to appear at Court and respond as she should have responded to the proceedings in the Magistrates Court.
I accept she may have some psychological difficulties, that is consistent with the medical evidence. But given its long standing nature, given the involvement of numerous legal advisors along the way, given indeed that since no later than 1 October 2007 she should have been aware that these were issues, if she wished to raise them, she should have been aware that they were matters that should have been attended to. It is no answer as I say to come along to Court today at the 11th hour and state she has appointments arranged for some time in the next couple of weeks.
These are matters that should have been attended to, if not prior to 1 October in support of her application, then they are matters that should have been attended to in accordance with the directions that were issued by the Court following the matter coming on for mention in the course of the administration of the file through the Court. But that is not the end of it. I think in any event to determine whether or not an adjournment application should be entertained one has to have regard to the merits of the application itself.
Five points are made by the respondent trustee to the applicant's application which go to the merits of the applicant's application against the trustee. The first is that the applicant has no standing as a result of the bankruptcy to extend time to appeal the decision of the Magistrates Court which was made on 11 and 16 September 1997. It is contended there is no property in defending an action of this kind which is capable of vesting in the trustee, and therefore the official trustee is unable to assign any right to prosecute the appeal.
In support of that contention the trustee relies upon the High Court authority in Cummings v Claremont Petroleum.[1] From my perusal of the head note of that authority it is plain that the trustee's contention in that regard is correct. As they submit the fact that the appeal is in relation to the judgment upon which the bankruptcy petition was founded does not justify any departure from the general rule denying locus standi. And to reinforce their submission on this point they make the further observation, and again in my view correctly so, that any right of appeal from a sequestration order or a money judgment against the bankrupt is not property of the bankrupt within the meaning of s.5.
[1] (1996) 185 CLR 124
The second ground raised by the trustee concerns the improper exercise of the trustee's duties. To this end it relies upon what could be seen as the issue of the proper exercise of the trustee's discretion in the proper administration of the bankrupt's estate. It is submitted that it would be an improper exercise of the duty of the trustee to act in the best interests of the estate to permit the bankrupt to maintain an action in the name of the trustee which the bankrupt has no standing herself to pursue.
There would be no possibility of a realisation in the estate that would benefit the creditors if the trustee were to seek the appeal in her own name, and that the ultimate purpose of the action would be to overturn a sequestration order made against the bankrupt, so that in taking the action the trustee would effectively be acting on behalf of the bankrupt against the petitioning creditor. That of course would be inconsistent with the trustee's role to act impartially. Again, I think that submission has merit.
Thirdly, it is contended that there were no irregularities in the Magistrates Court proceedings. The chronology of those proceedings demonstrate that the complaint was issued on 13 February 1997, there was an entry of appearance on 18 March 1997, a defence to the counter-claim on 13 May 1997, there was disclosure in the usual course. And then on 5 August 1997 there was an application for judgment. When the matter came on on 11 September 1997 the order noted there had been a failure to appear and to otherwise take any steps in the action. And it followed the judgment was entered then on 16 September.
The judgment appears to be one that in part was premised upon an order for disclosure that was made on 17 July 1997, which was not complied with. The Court rules provided that a Court may make an order to make disclosure, and further that if a party fails to comply with an order for disclosure then the Court order that the party be debarred from defending the proceeding.
The issue which is now sought to be agitated by the bankrupt is that the order of 11 September should not have been made because it could not be said that the order for disclosure made on 17 July 1997 was not complied with since the order did not specify a time within which the discovery had to be given.
It is conceded by the trustee that the only irregularity that can be pointed to is the earlier order in that it did not specify a time for compliance. But the lack of specificity in the earlier order had already been identified prior to the matter going to Court on 11 September 1997. So just because the earlier order may have been irregular does not mean that the Court erred then in making its order on 11 September. As was contended for by the trustee, the rules do not stipulate how the Court should proceed in the event that the earlier order did not state a date for compliance.
The Court has a power to override any gaps in procedure, and in particular reference is made to r.8 of the Court's powers, which provide that:
“Non compliance with any of these rules shall not render void the proceedings in which the non compliance has occurred, at least as it is expressly so provided in these rules. But the proceedings may be set aside either wholly or in part as irregular or amended or otherwise dealt with on such terms as to costs and otherwise as a Court thinks fit.”
The respondent trustee contends two arguments in relation to this matter if it were to be argued by the applicant. First is that if it was considered that the order of 17 July was irregular because it should have specified a date for compliance, then the irregularity had been accepted and waived by the Court under r.8 by the very fact that the Court accepted what had occurred and proceeded to make its order on 11 September. It does appear that the Court considered that the bankrupt had ample time to comply with the order for discovery, especially taking into account the letter of the plaintiff's solicitors on 21 July 1997.
Secondly, it is contended by the trustee that even if the entire matter were to be re-enlivened and sent back to be dealt with by the Magistrates Court, then it would be open to the Court to apply its discretion under r.8 to cure an irregularity, especially given the non compliance with the notice of discovery and the letter asking for discovery and the original order for discovery, and the continued failure by the applicant to make discovery even up to the time when she applied to set the judgment aside. Again, for that reason it strikes me that the merits of the applicant's case are not particularly strong.
The fourth ground raised by the trustee is that the merits of the application to extend time are poor. In order to succeed for leave to extend time, or to appeal out of time, it is necessary to show not only that there are grounds for appeal, but that in the circumstances of the case it would be a proper exercise of the Court's discretion, in this case for a District Court Judge, to extend the time to lodge an appeal.
Ordinarily it is well settled that to show there are good prospects of applying to extend time to appeal an applicant should address the following, namely the merits of the appeal, an explanation of delay and whether the explanation demonstrates a reasonable excuse for the delay, any prejudice to the other party as a result of the delay, and any public interest considerations.
I have already dealt with the merits on the appeal, and as I have indicated, in my view their prospects are poor. As to the explanation for delay, as I have earlier noted the delay now is almost in the order of 11 years. I have addressed the history of the matter and it shows that during the course of that 11 year period the applicant was informed on numerous occasions by differing persons including a very senior judicial officer of what needed to occur in order to protect her position. In particular I refer to the observations made by Kiefel J in 2003 at a time before the sequestration order was made. The applicant was in my view on clear notice from that time that if she wished to appeal she should do so, and she should have done so promptly thereafter. It is in those circumstances to me particularly curious that she then waited until 1997 after a chance meeting with Mr Morrissey before she decided to action that matter.
Her explanation as to delay is in my view inadequate. As I have noted the matter has been before the Courts on numerous occasions. She contends that she has failed to raise the matter because she did not appreciate it. I do not accept that fact by reason of the material, but in any event that does not constitute an excuse. Further she has had ample opportunity to make such application. She has had reference to any number of lawyers who have agreed to speak with her, putting aside those who would not. But despite those matters still chose not to mention the matter or to pursue the matter.
Finally, even if I were to excuse all the earlier delay, it is apparent that she has been aware of this matter since at least 10 February 2007, but has still chosen not to take any action. By that I mean more particularly having regard to the more recent date, she has had time to properly prepare her material. Accordingly if she could contend for instance that the medical evidence was essential to the prosecution of this application, it should have been in place for a hearing today.
As I have earlier noted, despite her long standing knowledge of her medical condition, her intention to pursue this application since at least 1 October, and since having received the enlightening advice of Mr Morrissey on 10 February 2007 she still had not made arrangements for appropriate medical examination until May of 2008, with a further anticipated delay on account of the production of reports. In my view there is no reasonable excuse apparent to the applicant for those matters.
Finally, there is the matter of prejudice. The trustee contends the following matters are relevant. It is contended that the trustee tries to estimate the standard costs incurred by the creditor in all of the various proceedings that have taken place since the judgment. However, I agree that in the context of this application only an order for indemnity costs would be an appropriate measure for compensating prejudice, particularly having regard to the background facts of this case.
There is no indication in the material of the applicant as to how or what means might be available to her to meet the costs which would be ordered, whether they be on an indemnity basis or standard basis. In any event, it would be likely that if a Court was to grant leave to appeal it would be conditional upon the payment of those costs.
Finally, it is contended that in the event that the appeal was to be successful then the bankrupt and the creditor will be back to the position of litigating the issues which were originally the subject of the Magistrates Court proceedings. In para.104 of her draft affidavit she attempts to summarise the issues that would need to be determined in those proceedings. It is plain that oral evidence would need to be called from both sides as to the background facts of the agreement, against which its proper construction can be viewed, and to determine what would have been a reasonable time for performance and whether there had been repudiatory conduct.
That of course gives rise to a number of issues, the bankrupt's own medical evidence would put in question her reliability as a witness, if indeed it demonstrated that she was so affected as she contends. Further, the evidence of the trustee's solicitors demonstrates that with the passing of time it is now difficult to locate witnesses for his client's part, or for the plaintiff's part, I should say. That is without having regard to the requirement to call upon these people to give recollection of events that occurred 12 to 15 years ago. And finally, the parties would need to make disclosure of documents, which on the applicant's own admission have been lost.
As to the matter of public interest, there does not in my view appear to be any particular public interest consideration in allowing the applicant who has delayed so long and who has been before so many different Courts and on so many occasions since the original judgment, a further opportunity to defend. Especially so long after the original events giving rise to these proceedings, have passed.
The fifth ground raised by the trustee concerns whether or not the terms required for the exercise of the trustee's discretion would be adequate, including the issue of the adequacy of indemnity for costs. The trustee contends that the cost and expenses that would be incurred by it and for which it would become liable in the event that it were to pursue an application to extend time to appeal, having regard to the unsecured indemnity as to costs offered by the applicant, would not for its part be a proper exercise of its duty to act in the interest of creditors or the proper administration of a bankrupt estate. Accordingly, it would not be proper for it to lend its name to such an application.
Those matters are addressed in the affidavit of Mr Rogers, who deposes that the likely costs to be incurred if the trustee was to agree to the course proposed by the applicant would be at least District Court costs of appeal estimated at about $11,000. If the trustee was unsuccessful then an award of costs against the trustee are estimated in the order of about $7000. If the trustee was successful in the appeal and the matter proceeded to the Magistrates Court for a full trial and trial costs are estimated at about $30,000. If the trustee was successful in the appeal and it proceeded to trial and it lost at trial then the prospect is for an award of costs against it of about $14,000. There is, as the trustee indicates, no evidence to demonstrate how such costs could be adequately covered.
All up I am of the view that the applicant's prospects in her application are poor, verging on hopeless. And even if I am wrong in relation to my views concerning prejudice to the applicant by reason of her not placing or having an opportunity to place the further medical evidence before me, I am firmly of the view that having regard to her prospects on any application to set aside the exercise of the trustee's discretion are so poor as to warrant the Court's refusal of an exercise of any discretion to further adjourn these proceedings. And so the application for the adjournment is refused.
Dealing then with the substantive application, as I have earlier indicated, and I will not restate my reasons, I am satisfied that on the merits the applicants prospects are poor if not hopeless.
The principles that apply to determining whether or not relief should be granted under s.178 of the Act are well established. It has been said that the Court should only interfere with the trustee's exercise of a discretion such as an election not to pursue a proceeding under s.62 if it be shown by the applicant that the impugned conduct of the trustee was incorrect or that other conduct was or would be preferable and that justice and equity require the Court's intervention. I refer to Healey v Prentice (No.2).[2]
[2] [2000] FCA 1589
It has been further stated that in the case of a decision by a trustee not to pursue litigation, that might involve the Court being satisfied that the trustee has reached a perverse or necessarily wrong conclusion about the prospects of the proposed litigation being successful. Alternatively it would require the decision by the trustee not to pursue proceedings being shown to be either unjust or inequitable. Freeman v National Australia Bank [2002] FCA 427.
The Court, in exercising its power, has to bear in mind that the trustee is an officer of the Court and has both a public duty and a duty to administer the estate so as to maximise the return from estate assets and thereby maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt. In that regard when one considers the prospects of the application it seems to me that it could not be demonstrated that there has been or there is any likelihood that the trustee's decision in relation to those matters was wrong, having regard to that overriding obligation upon him.
In these sorts of applications the applicant bears the onus of proof to demonstrate a ground upon which the trustee's administration ought to be reviewed. And in my view the applicant has failed to satisfy me in relation to those matters.
Accordingly, the application should be dismissed.
In my view there is no reason why the usual costs order should not follow in this case. The applicant brought an application, in my view the application was one that could almost be described as hopeless having regard to the facts and there is no reason why the ordinary order for costs should not follow.
I certify that the preceding fifty-five paragraphs (55) are a true copy of the reasons for judgment of Burnett FM
Associate: Beverley Schmidt
Date: 24 July 2008
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