Klinger v Nicholl and Co
[2004] FMCA 844
•5 November 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| KLINGER v NICHOLL & CO | [2004] FMCA 844 |
| BANKRUPTCY – Creditor’s petition – sequestration order – review of decision by registrar – application dismissed – sequestration order affirmed. Bankruptcy Act 1966 (Cth) Re Agrillo; Ex parte The Bankrupt (1977) 13 ALR 635 CSR Ltd trading as CSR Building Materials v Muscat [2002] FMCA 257 Wren v Mahoney (1972) 126 CLR 212 |
| Applicant: | ERWIN KLINGER |
| Respondent: | JOHN DAVID NICHOLL TRADING AS NICHOLL & CO |
| File No: | CAG15 of 2004 |
| Delivered on: | 5 November 2004 |
| Delivered at: | Canberra |
| Hearing date: | 29 October 2004 |
| Judgment of: | Mowbray FM |
REPRESENTATION
| Advocate for the Applicant: | John O’Keefe |
| Solicitors for the Applicant: | Hanstein Solicitors |
| Advocate for the Respondent: | Paul Salinas |
| Solicitors for the Respondent: | John Nicholl & Co |
ORDERS
The application for review be dismissed;
The sequestration order made by Registrar Hedge on 30 September 2004 be affirmed;
The respondent creditor’s costs be taxed in accordance with the Federal Court Rules and paid from the estate of the applicant/debtor in accordance with the Bankruptcy Act 1966; and
The trustee’s costs of these proceedings be taxed in accordance with the Federal Court Rules and paid from the estate of the applicant/debtor in accordance with the Bankruptcy Act 1966.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT CANBERRA |
CAG15 of 2004
| ERWIN KLINGER |
Applicant
And
| JOHN DAVID NICHOLL TRADING AS NICHOLL & CO |
Respondent
REASONS FOR JUDGMENT
This is an ex tempore judgment which has been revised and edited from the transcript of the hearing.
Before the Court is an application by Erwin Klinger, the applicant in these proceedings, but the respondent/debtor in the earlier proceedings before the Registrar. The application seeks review of a decision by Registrar Hedge on 30 September 2004 to make a sequestration order against the estate of Mr Klinger. The respondent to these proceedings and the creditor is John David Nicholl trading as Nicholl & Co. Mr Nicholl was the applicant/creditor in the previous proceedings.
Both parties accept that these proceedings are by way of a de novo hearing.
History
Mr Nicholl obtained judgment in the ACT Magistrates Court against Mr Klinger on 4 March 2003 in the sum of $14,834.39 including interest, plus costs of $567.40. A bankruptcy notice dated 8 December 2003 was served on Mr Klinger on 29 December 2003. Mr Klinger failed to comply with the bankruptcy notice by 19 January 2004, the final date allowed. It is not disputed that this amounted to an act of bankruptcy under section 40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Act).
On 10 February 2004, an application made by Mr Klinger on 30 December 2003 to have this judgment debt set aside was dismissed with costs taxed at $1,578.17 cents. An application filed in this Court on 28 January 2004 to set aside the bankruptcy notice was dismissed on 26 February 2004 with costs ordered against Mr Klinger.
On 11 February 2004 an order was made by a deputy registrar in the ACT Magistrates Court for Mr Klinger to pay the debt by instalments of $40 per month commencing on 6 March 2004. The date of the application for this instalment order was 10 February 2004. On 9 March 2004, an application by Mr Nicholl to overturn the instalment order was dismissed by a magistrate of the ACT Magistrates Court and the instalment order confirmed.
On 29 April 2004 Mr Nicholl filed a creditors petition in this Court and Registrar Hedge made a sequestration order against Mr Klinger’s estate on 30 September 2004. Mr Klinger filed the current application for review on 14 October 2004.
The statutory framework
The relevant legislative provisions are set out in Part IV of the Act. Section 43 relevantly provides:
(1) Subject to this Act, where:
(a)a debtor has committed an act of bankruptcy; and
(b)at the time when the act of bankruptcy was committed, the debtor:
i)was personally present or ordinarily resident in Australia;
ii)had a dwelling-house or place of business in Australia;
…
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.
Section 52 provides:
(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Common ground
Both parties accept that Mr Klinger committed an act of bankruptcy under section 40(1)(g) when he failed to comply with the requirements of the bankruptcy notice before 19 January 2004. This failure satisfies section 43(1)(a).
They further accept that at that time Mr Klinger was personally present and ordinarily resident in Australia and had a dwelling place in Australia. He remains in Australia today. This satisfies section 43(1)(b).
The Court has received affidavit evidence from Messrs Nicholl and Salinas in proof of the matters stated in the creditors petition, that is in respect of the debt, that the creditor does not hold security over the debtor’s property (the creditor does not hold security over the residence in Australia of the debtor) and details of the act of bankruptcy. This satisfies section 52(1)(a).
Mr R. Larkey effected service of the creditor’s petition as outlined in his evidence to the Court which was unchallenged, meeting the requirements of section 52(1)(b). The debt is still outstanding (again I refer to the affidavits of Messrs Nicholl and Salinas). This satisfies section 52(1)(c).
It is therefore not in dispute that the preconditions in section 52(1) are met.
Similarly section 47(1), requiring a creditors petition to be verified by an affidavit of a person who knows the relevant facts, is satisfied.
Section 44 conditions
Section 44(1) relevantly provides:
(1) A creditor's petition shall not be presented against a debtor unless:
…
(b) that debt, or each of those debts, as the case may be:
…
(ii) is payable either immediately or at a certain future time….
A debt must answer this description not only at the date of presentation of the petition but also at the date of hearing (Re Agrillo; Ex parte The Bankrupt (1977) 13 ALR 635; Re Padagas; Ex parte Carrier Air Conditioning Pty Ltd (1977) 16 ALR 475; and CSR Ltd trading as CSR Building Materials v Muscat [2002] FMCA 257).
In the current case the debt has been converted into one payable by instalments. Is such a debt one payable immediately or at a certain future time?
The authorities are clear. The fact that a debt immediately payable is converted by a court order to one payable in future by regular instalments does not make the debt any less payable at some certain future time (Re Seckold; Ex parte Sargood, Gardiner (1933) 5 ABC 195; Agrillo, Padagas and CSR Ltd v Muscat).
An instalment order operating as a stay would have been sufficient to prevent the issue of a bankruptcy notice (see section 41(3)). Here the bankruptcy notice was issued on 8 December 2003 and served on 29 December 2003 with the act of bankruptcy on 19 January 2004. The instalment order was not made until 11 February 2004.
Thus, the section 44(1) requirements were met at the time of presentation of the petition on 29 April 2004, and remain so today.
Going behind the debt
Mr O'Keefe, for Mr Klinger, submitted that I should go behind the debt. He submitted that the debt was the subject of a default judgment. It was not tested in any court. He alleged that the interest rate used in determining the default judgment debt was greater than that in the costs agreement. The difference, he said, was approximately $165.00.
In CSR Ltd v Muscat, Federal Magistrate Raphael, said:
10. In so far as going behind the judgment is concerned, whilst the court has the power to do this, it is a power which should be exercised judiciously and only on the basis of some real indication that something was awry with the judgment itself. This
principle was stated by Barwick in Wren v Mahony (1972 ) 126 CLR 212 at 224:
“The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the court of Bankruptcy can no longer accept the judgment as satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration.”
In my view, Mr O'Keefe did not raise concerns of sufficient seriousness to justify a reopening of the judgment debt. I indicated as much at the hearing. There was no question that there was a debt. There was no evidence of fraud or bad faith. The debt had been subject to an application by Mr Klinger seeking to have it set aside, and that application had been dismissed by the ACT Magistrates Court. Therefore, in my view, there are no substantial grounds raised for going behind the judgment debt.
Other sufficient cause
Section 52(2) relevantly provides:
If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
a)that he or she is able to pay his or her debts; or
b)that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Although there was some discussion on this at the hearing, in the end it was accepted that Mr Klinger was unable to pay his debts (section 52(2)(a)).
This matter then turns on the question of whether there is other sufficient cause and whether I should exercise my discretion to dismiss the petition. Two grounds were put by Mr Klinger, through his advocate, Mr O'Keefe.
Firstly, Mr Klinger says that the trustee’s consent to act has never been served on him as required by Rule 31.05(1)(e) of the Federal Magistrates Court Rules. Mr Klinger gave oral evidence of this fact. On the other hand, Mr Nicholl filed an affidavit of 21 June 2004 in which Mr Wilson, a licensed commercial agent, asserted that he had served the consent to act as a trustee personally on Mr Klinger on 15 June 2004 at 7.45 pm.
In my view, it is not necessary to make a finding whether or not the creditor’s consent was actually served. It is not a prerequisite for a sequestration order under the Act, whereas service of the petition is (section 52(1)(b)). The particular rule can be dispensed with under Rule 1.06. Furthermore, the issue is not relevant to whether a sequestration order should be made. Service is not a prerequisite to the registered trustee becoming the trustee of the debtor’s estate on bankruptcy pursuant to section 156A(3).
The High Court has approved the statement in Cain v Whyte (1933) 48 CLR 639 at 646:
it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.
In my view, even if the trustee’s consent was not served on Mr Klinger, it falls far short of an overriding consideration. I reject this ground.
In the second ground, Mr Klinger says that because he had an instalment order for payment, this should not be defeated by making him bankrupt. Mr Nicholl, he says, is using the bankruptcy proceedings as an alternative means of enforcement. This is an abuse of process. It is an “other sufficient cause”. He relies on paragraph 22 of CSR v Muscat.
Mr Klinger gave evidence that he attempted to make payment of the first instalment of $40 in March 2004. He went to Mr Nicholl’s office. He told a young lady, whom he described as “young and skinny”, that he wanted to pay. She went away and came back and said Mr Nicholl wanted all the debt or nothing. Mr Nicholl denies this. He says, he has never instructed his staff not to accept payment from Mr Klinger. He made inquiries of his staff and none recalls Mr Klinger attending the office at that time, nor did a Miss Amanda McCabe, who is no longer in his employ, but was a receptionist at the time, and whom he accepted might meet the description of “young and skinny”.
Mr Klinger said he then went to the ACT Magistrates Court and spoke to a lady there, and a registrar, and attempted to pay there. He was told that he had to make payment to Mr Nicholl
Ms Marie-Noelle Cure was called in support of Mr Klinger, but she only saw Mr Klinger after the event. She did not witness any attempt at payment.
The evidence is somewhat unsatisfactory. Mr Klinger is vague, as was Mr Nicholl. But for reasons which I will now give, I do not believe I need to reach a finding on this evidence. It is sufficient for present purposes that I assume that Mr Klinger did seek to tender $40, and this was refused by Mr Nicholl.
Do the instalment order and the related matters amount to an “other sufficient cause”? The High Court has endorsed the view that the cause must be of such significance that it overrides the interests of creditors to have their debts paid. This is a matter of important public concern. The test involves the weighing of various considerations. Here Mr Klinger has an interest in a residential property of some value from which his debts can be met. The instalment order made by a deputy registrar of the ACT Magistrates Court and confirmed by a magistrate is ludicrous. It does not even come near meeting the interest.
Mr Klinger is not a person with no assets, as both the deputy registrar and the magistrate must have been aware. It was in the material before their Court. It is bizarre that such an instalment order was made in these circumstances and then upheld by an ACT magistrate.
There is a public policy imperative that bankruptcy and related proceedings are concluded speedily. This is in both the creditor’s and the debtor’s interests. I also accept Mr Salinas’ submissions that Mr O'Keefe has misunderstood the substance of paragraph 22 of CSR Ltd v Muscat. The authorities do not suggest that bankruptcy petitions should not be upheld in these circumstances. Rather they make the point that the issue of a bankruptcy notice is a ministerial, not a judicial act.
Weighing up all these considerations, Mr Klinger has not satisfied me that the instalment order, and the related matters, amount to “other sufficient cause”.
I note also that Mr Klinger has abandoned the first ground set out in his amended notice to oppose.
I therefore see no good reason to exercise my discretion under section 52(2)(b) of the Act.
Conclusion
The Court dismisses the application for review and affirms the sequestration order made by Registrar Hedge on 30 September 2004.
I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Mowbray FM
Associate: Kelisiana Thynne
Date: 1 December 2004
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