Lane Rowin Pty Ltd v Perovich - [2007] FMCA 1429

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LANE ROWIN PTY LTD v PEROVICH

[2007] FMCA 1429

BANKRUPTCY – Creditor’s petition – opposition on grounds respondent can pay debts – onus of proof.

BANKRUPTCY – Creditor’s petition – application for adjournment – whether likelihood of further evidence made out.

Bankruptcy Act 1966, s.52

Perovich v Lane Rowin Pty Ltd [2007] FMCA 940
Perovich v Neolido Holdings Pty Ltd [2007] FMCA 1105
Perovich v Traditional Values Management Ltd [2006] FMCA 1471
Perovich v Tesla Nominees Pty Ltd [2006] FMCA 1342
Johnson v Johnson (2000) 201 CLR 488
Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337
Livesey v NSW Bar Association (1983) 151 CLR 288
Re JRL; ex parte CJL (1986) 161 CLR 342
Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70
Sandell v Porter (1966) 115 CLR 666
International Alpaca Management Pty Ltd v Ensor (1999) FCA 72
Australian and New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400

Applicant:

LANE ROWIN PTY LTD

Respondent:

SILVANA PEROVICH

File number:

BRG 532 of 2007

Judgment of:

Wilson FM

Hearing date:

17 August 2007

Date of last submission:

17 August 2007

Delivered at:

Brisbane

Delivered on:

20 August 2007

REPRESENTATION

Counsel for the Applicant:

Mr M. Bland

Solicitors for the Applicant:

QBM Lawyers

Counsel for the Respondent:

Mr M. Martin

Solicitors for the Respondent:

Qld Law Group

ORDERS

The instanter application that I disqualify myself from hearing the application be refused.
The instanter application for an adjournment of the hearing be refused.
A Sequestration Order be made against the estate of SILVANA PEROVICH.
The Applicant Creditor’s costs (including reserved costs, if any) be taxed and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 532 of 2007

LANE ROWIN PTY LTD

Applicant

And

SILVANA PEROVICH

Respondent

REASONS FOR JUDGMENT

The applicant creditor seeks a sequestration order against the estate of the respondent debtor. By notice filed 14 August 2007 the respondent opposes the making of a sequestration order on the following grounds:
(1)The respondent is able to pay her debts within the meaning of s.52(2)(a) of the Bankruptcy Act 1966 (“the Act”)
(2)The court in the exercise of its discretion should not make a sequestration order against the respondent.
On the hearing of the application, Mr Martin of Counsel, who appeared on behalf of the respondent, accepted that the respondent’s opposition to the making of a sequestration order was confined to ground 1.
The respondent made two preliminary instanter applications. First, the respondent applied for an order that I disqualify myself from hearing the application. The basis for such application was that I had earlier dismissed an application by the respondent to set aside the bankruptcy notice (see Perovich v Lane Rowin Pty Ltd [2007] FMCA 940). That decision is the subject of an appeal, but there is no stay of the judgment in force. In reliance on that fact it was submitted that the respondent perceives that I may be biased against her because of my previous adverse finding against her. I should add that I have not only decided that matter involving the respondent but other matters as well (Perovich v Neolido Holdings Pty Ltd [2007] FMCA 1105; Perovich v Traditional Values Management Ltd [2006] FMCA 1471; Perovich v Tesla Nominees Pty Ltd [2006] FMCA 1342). The respondent did not rely on my having heard those matters as founding her application that I disqualify myself.
The law relating to disqualification of a judicial officer on the ground of reasonable apprehension of bias is well settled. In Johnson v Johnson (2000) 201 CLR 488 at [11] in a joint judgment their Honours said:
“It has been established by a series of decisions of this Court that the test to be applied in Australia in determining whether a judge is disqualified by reason of the appearance of bias (which, in the present case, was said to take the form of prejudgment) is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial and unprejudiced mind to the resolution of the question the judge is required to decide.”
Their Honours observed at [13]:
“Whilst the fictional observer, by reference to whom the test is formulated, is not to be assumed to have a detailed knowledge of the law, or of the character or ability of a particular judge, the reasonableness of any suggested apprehension of bias is to be considered in the context of ordinary judicial practice. The rules and conventions governing such practice are not frozen in time. They develop to take account of the exigencies of modern litigation. At the trial level, modern judges, responding to a need for more active case management, intervene in the conduct of cases to an extent that may surprise a person who come to court expecting a judge to remain, until the moment of pronouncement of judgment, as inscrutable as the Sphinx. In Vakauta v Kelly Brennan, Deane and Gaudron JJ, referring both to trial and appellate proceedings, spoke of “the dialogue between Bench and Bar which is so helpful in the identification of real issues and real problems in a particular case”. Judges, at trial or appellate level, who, in exchanges with counsel, express tentative views which reflect a certain tendency of mind, are not on that account alone to be taken to indicate prejudgment. Judges are not expected to wait until the end of a case before they start thinking about the issues, or to sit mute while evidence is advanced and arguments are presented. On the contrary, they will often form tentative opinions on matters in issue, and counsel are usually assisted by hearing those opinions, and being given an opportunity to deal with them.”
In Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 their Honours said at [7]:
“Deciding whether a judicial officer (or juror) might not bring an impartial mind to the resolution of a question that has not been determined requires no prediction about how the judge or juror will in fact approach the matter. The question is one of possibility (real and not remote), not probability. Similarly, if the matter has already been decided, the test is one which requires no conclusion about what factors actually influenced the outcome.”
Their Honours continued, at [8]:
“The apprehension of bias principle admits of the possibility of human frailty. Its application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits”
Importantly, at [19] – [21], their Honours said:
“19. Judges have a duty to exercise their judicial functions when their jurisdiction is regularly invoked and they are assigned to cases in accordance with the practice which prevails in the court to which they belong. They do not select the cases they will hear, and they are not at liberty to decline to hear cases without good cause. Judges do not choose their cases; and litigants do not choose their judges. If one party to a case objects to a particular judge sitting, or continuing to sit, then that objection should not prevail unless it is based upon a substantial ground for contending that the judge is disqualified from hearing and deciding the case.
20. This is not to say that it is improper for a judge to decline to sit unless the judge has affirmatively concluded that he or she is disqualified. In a case of real doubt, it will often be prudent for a judge to decide not to sit in order to avoid the inconvenience that could result if an appellate court were to take a different view on the matter of disqualification. However, if the mere making of an insubstantial objection were sufficient to lead a judge to decline to hear or decide a case, the system would soon reach a stage where, for practical purposes, individual parties could influence the composition of the bench. That would be intolerable.
21. It is not possible to state in a categorical form the circumstances in which a judge, although personally convinced that he or she is not disqualified, may properly decline to sit. Circumstances vary, and may include such factors as the stage at which an objection is raised, the practical possibility of arranging for another judge to hear the case, and the public or constitutional role of the court before which the proceedings are being conducted. These problems usually arise in a context in which a judge has no particular personal desire to hear a case. If a judge were anxious to sit in a particular case, and took pains to arrange that he or she would do so, questions of actual bias may arise.”
In Johnson v Johnson, Kirby J traced the development of the principle and the modern formulation of it, which his Honour ascribed to Livesey v NSW Bar Association (1983) 151 CLR 288 at 293-4. In that case, at 300, the court said:
“a fair minded observer might entertain a reasonable apprehension of bias by reason of prejudgment if a judge sits to hear a case at first instance after he has, in a previous case, expressed clear views either about a question of fact which constitutes a live and significant issue in the subsequent case or about the credit of a witness whose evidence is of significance on such a question of fact.”
Kirby J also referred to the salutary warning given by Mason J in Re JRL; ex parte CJL (1986) 161 CLR 342 at 352 that judicial officers in Australia were obliged to discharge their professional duties unless disqualified by law. They were told not to accede too readily to suggestions of an appearance of bias, lest parties be encouraged to seek such disqualification without justification. These remarks were also endorsed by Callinan J at [80] and by the Full Family Court in O v L [2006] FamCA 1341. In Re JRL Mason J said:
“It seems that the acceptance by this Court of the test of reasonable apprehension of bias in such cases as Watson and Livesay has led to an increase in the frequency of applications by litigants that judicial officers should disqualify themselves from sitting in particular cases on account of their participation in other proceedings involving one of the litigants or on account of conduct during the litigation. It needs to be said loudly and clearly that the ground of disqualification is a reasonable apprehension that the judicial officer will not decide the case impartially or without prejudice, rather than that he will decide the case adversely to one party. There may be many situations in which previous decisions of a judicial officer on issues of fact and law may generate an expectation that he is likely to decide issues in a particular case adversely to one of the parties. But this does not mean either that he will approach the issues in that case otherwise than with an impartial and unprejudiced mind in the sense in which that expression is used in the authorities or that his previous decisions provide an acceptable basis for inferring that there is a reasonable apprehension that he will approach the issues in this way. In cases of this kind, disqualification is only made out by showing that there is a reasonable apprehension of bias by reason of prejudgment and this must be “firmly established”: Reg. v Commonwealth Conciliation and Arbitration Commission; Ex parte Angliss Group; Watson; Re Lusink; Ex parte Shaw. Although it is important that justice must be seen to be done, it is equally important that judicial officers discharge their duty to sit and do not, by acceding too readily to suggestions of appearance of bias, encourage parties to believe that by seeking the disqualification of a judge, they will have their case tried by someone thought to be more likely to decide the case in their favour.”
In Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70 at 100 Gaudron and McHugh JJ said
“A reasonable bystander does not entertain a reasonable fear that a decision maker will bring an unfair or prejudiced mind to an inquiry merely because he has formed a conclusion about an issue involved in the inquiry . . . When suspected prejudgment of an issue is relied upon to ground the disqualification of a decision maker, what must be firmly established is a reasonable fear that the decision maker’s mind is so prejudiced in favour of a conclusion already formed that he or she will not alter that conclusion irrespective of the evidence or arguments presented to him or her.”
The issue that I have previously decided is whether or not the bankruptcy notice overstated the amount due by the respondent to the applicant. That issue was decided on documentary and unchallenged evidence. No finding of credit was made against the respondent. It is presumably said that having found that the bankruptcy notice did not overstate the amount of the debt owed by the respondent to the applicant there is a reasonable apprehension that I cannot impartially decide the issue of whether the respondent is able to pay her debts, as required by s.52(2)(a) of the Act. In my view the two issues are quite separate and there is not a logical connection between my having previously determined the validity of the bankruptcy notice and the feared deviation from the course of deciding the case on its merits. I have not, because it has not previously arisen, expressed any view about a question of fact which is in issue on the present application, nor about the credit of a witness whose evidence is of significance on such a question of fact.
In my view, application of the above authorities mandates that I refuse to accede to the application that I disqualify myself.
Mr Martin on behalf of the respondent then applied to adjourn the hearing of the creditors petition so that the respondent could put on more complete affidavit material to discharge her evidentiary onus under s.52(2)(a) of the Act. The adjournment was opposed. The applicant submits that even with further time the respondent is incapable of establishing that she is able to pay her own debts. The respondent seeks to put on further affidavit evidence to show that she is able to raise additional monies on the security of properties she owns. To test the possibility that the respondent may be able to adduce such evidence it is necessary to consider the applicable law, and the evidence that the respondent has adduced to date.
Section 52(2)(a) of the Act requires the respondent to satisfy the court that she is able to pay her debts. The language of s.52(2)(a) has changed from that considered in earlier cases such as Sandell v Porter (1966) 115 CLR 666. It is no longer a statutory pre-requisite that the debtor be able to pay debts from his or her own money.
One starts from the uncontroversial proposition that a debtor who is in a position to pay all the debts which she owes within a reasonable time ought not be subject to a sequestration order. The ability to pay debts does not necessarily require a debtor to have sufficient cash on hand or available on deposit to pay all creditors in full immediately, if the debtor has other realisable assets. In Sandell v Porter at 670 – 671 Barwick CJ said:
“But the debtor’s own monies are not limited to his cash resources immediately available. They extend to monies which he can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear for the consideration of the debtor’s financial position in its entirety and generally speaking ought not be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”
In International Alpaca Management Pty Ltd v Ensor (1999) FCA 72 Katz J gave detailed consideration to what is required to be proved by a debtor to satisfy the court under s.52(2)(a) of the Act. His Honour considered, at [7], that the debtor must satisfy the court that he or she can discharge his or her liabilities in order to show solvency. At [14] his Honour said that although the notion of a person’s own monies is to be treated in an expansive way it does not extend to money borrowed without security for the purpose of paying debts. Thus, if the respondent in the present case intends to borrow money on an unsecured basis and thereby incur a further debt, that would not satisfy the test of solvency. Katz J proceeded to decide the question of solvency on the basis that it required the debtor to prove that he could satisfy his debts (including liabilities) when they became payable from his own money (see [18]).
In Australian and New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 Hely J at [17] and [19] said:
“The onus with proving sufficiency of assets lies on the respondent. It is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in value. It must also be established that the assets are available to be realised and that they are capable of ready realisation. If a debtor is able to pay his or her debts, but is recalcitrant, the creditors may resort to other remedies, such as execution against property and garnishee proceedings, but not to sequestration. Bankruptcy is not a proceeding designed for the recovery of debts…
[19] Under s.52(2)(a) the respondent must satisfy the court that he is “able to pay his … debts”, including liabilities: s.5(1). In my view, the subsection refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations … as well as debts which are presently due and payable. However, whether that is so or not, for the reasons explained by Katz J in International Alpalca Management Pty Ltd account needs to be taken, if not in assessing solvency, then in the exercise of the discretion whether or not to dismiss the petition, of liabilities which will become payable in the reasonably immediate future.”
Against that background of the statement of principles to be applied, I turn to the respondent’s affidavit. At exhibit SP-4 the respondent has exhibited a statement of assets and liabilities showing an alleged surplus of assets over liabilities of $33,919,848.00. Whilst superficially impressive, it is apparent that the respondent’s assets, apart from an interest in a house property, the value of which is less than the debt in this case and which is owned with another, unidentified person, stem from two sources. First, the respondent owns one quarter of the issued share capital in Kinsella Heights Developments Pty Ltd. It is alleged that that company is owed a large sum of money by Mango Boulevard Pty Ltd. Kinsella Heights Developments Pty Ltd also claims to be owed monies under various commercial documents executed with Mango Boulevard Pty Ltd. The interest of the respondent in Kinsella Heights Developments Pty Ltd amounts, according to her schedule, to $41,750,000.00 out of alleged assets of $54,525,000.00.
It is relevant to point out that the property at Mango Hill is not owned by the respondent. It is either owned by Kinsella Heights Developments Pty Ltd or Neolido Holdings Pty Ltd. The valuation upon which the respondent relies at exhibit SP-1 to her affidavit is addressed to the respondent as a director of Neolido Pty Ltd. That valuation recounts that Neolido Pty Ltd in fact acquired the parcel of land, but apparently did so on behalf of Kinsella Heights Developments Pty Ltd.

There is litigation on foot between the respondent and Neolido Holdings Pty Ltd and Mango Boulevard Pty Ltd. Neolido Holdings Pty Ltd has receivers and managers appointed and is in liquidation.

I have previously determined proceedings between the respondent and Neolido Holdings Pty Ltd in my judgment at [2007] FMCA 1105. In my reasons for judgment at paragraphs [12] and following I set out the history of the dealings between the various parties and the litigation which has arisen relating to the Mango Hill property. It is sufficient for present purposes to observe that Mango Boulevard Pty Ltd is an adverse party to the respondent in Supreme Court litigation concerning the development of the Mango Hill property. Mango Boulevard Pty Ltd owns one half of the share capital of Kinsella Heights Developments Pty Ltd. Neolido Holdings Pty Ltd, in which name the property is registered, is under the control of liquidators and receivers and managers. It is therefore highly improbable that the respondent would be able to cause either of those two companies to borrow further monies against the security of the Mango Hill property. The respondent herself cannot borrow money against the security of that property as she does not own it. She would have to get the consent of other parties and given the litigious context in which the respondent finds herself it is unlikely that such consent would be forthcoming.
It is, in my view, beyond any reasonable doubt, that, given the existing litigation between the parties that the respondent could not expect to receive any payment, if in fact she does receive such payment for her interest in the Mango Hill property, for some undefined time.
A property at Montague Road, South Brisbane is owned by Spars Pty Ltd as trustee of the Ecomonitors Unit Trust. The respondent is a director and shareholder of the corporate trustee and the Perovich Investment Trust holds an interest in the Ecomonitors Unit Trust. The applicant was prepared, on the hearing of the application for an adjournment, to accept that the respondent effectively owned one half of the Montague Road asset. Approximately two thirds of that property has been resumed by the Brisbane City Council. The council is to pay an advance of compensation of $9.5 million, and the balance compensation has to be determined by the Land Court. There is no evidence as to when those proceedings are likely to be concluded, although the only reasonable inference is that it will be longer than several weeks. All of the advance of compensation will be paid to secured creditors who are owed $14 million. It is intended to sell the balance of the land, that has not been resumed. At paragraph 14 of her affidavit, the respondent deposes:-
“As a result of the statutory resumption and the compensation agreed to be paid by the council for the resumed part of the property, and the sale of the unresumed balance of the property, the property will yield approximately $19.4 million in due course and with further resumption compensation to be determined through the Land Court.”
Although it is not entirely clear, and accepting the respondent’s evidence at face value, it seems to be the respondent’s evidence that the portion of the land that is not resumed can be sold for a little under $10 million. If that is the case, then the respondent would be (on the concession made above) entitled to approximately $5 million. Even if it is assumed that she only remains liable for one half of the deficiency owed to secured creditors after the payment of advance compensation, the receipt of those sale proceeds if distributed to the respondent is not sufficient to cover the respondent’s other disclosed loans and liabilities. In any event, I question the accuracy of the disclosed loans and liabilities. It is said that the debt owing to the present applicant is $175,000.00. However the amount of the judgment is $340,512.51. It may be that the respondent has halved the amount owing given that it is jointly owed by her and Mr Spencer. If she has done that in respect of the debt owed to Lane Rowin Pty Ltd I query whether she has also performed the same exercise in relation to other creditors. She has, for example, performed the same exercise in relation to the debt owed to Neolido Holdings Pty Ltd.
Given that the receipt of sale proceeds would be of the magnitude of $2.5 million for each of the respondent and Mr Spencer (after satisfaction of the secured creditors in the amount of a further $5 million), it is clear that the respondent has debts well exceeding this sum, even on her own evidence.
For the respondent to raise money against the Montague Road property she would have to do so through Spars Pty Ltd as trustee of the Ecomonitors Unit Trust. I very much doubt that that corporate trustee could lawfully borrow monies on the security of property owned by it on trust for the purpose of advancing money to a director of the corporate trustee albeit that such director is also an ultimate beneficiary (through a chain of trusts) of the unit trust. Such borrowings could hardly be said to be for the purpose of the trust. Further, I think it unlikely that a lender would be prepared to advance monies against the unresumed portion of the property in circumstances where the resuming authority has rights of temporary occupation (referred to in exhibit SP-2 to the affidavit of the respondent). In any event even if such monies could be raised, it would simply be adding another debt to the respondent’s statement of assets and liabilities and would further demonstrate her inability to meet her obligations.
The respondent was served with the creditor’s petition following an order for substituted service on 3 August 2007. It is curious why her affidavit did not contain any statement that she wished to adduce further evidence in support of her opposition to the creditor’s petition. One suspects that experienced counsel, having reviewed the respondent’s affidavit, has formed the view, correctly in my opinion, that it is not sufficient to discharge the onus under s.52(2)(a) of the Act.
Counsel for the respondent also made a submission effectively along the following lines. This is the first return date of the hearing of a creditor’s petition and the respondent is if not entitled to an adjournment to put on better material, then such an application for an adjournment should almost invariably be favourably considered. Counsel submitted that in a way his client would be in a better position if she had not put on any affidavit evidence and simply asked for further time to do so. However, that is not what occurred. An affidavit was prepared and filed. It is insufficient to discharge the onus under s.52(2)(a) of the Act. The respondent has not put on any evidence herself that she wishes to adduce further evidence. A submission to that effect was made from the Bar table. The respondent’s affidavit does not state that her evidence is incomplete. As I have attempted to demonstrate the purpose advanced for an adjournment, namely to put on evidence that the respondent can borrow further monies to satisfy her indebtedness to the applicant, is in all likelihood incapable of being achieved. I should also state, in plain terms, that an adjournment is not granted as a matter of course, even on the first hearing date. Grounds for an adjournment should be identified, and should. Preferably, be the subject of evidence.
In my view, there is no point in adjourning the further hearing of the creditor’s petition as I am not persuaded that the respondent will be in a position to adduce any further evidence as to her ability to pay her debts in a manner that would discharge the onus cast upon her by s.52(2)(a) of the Act.
Mr Martin conceded, on behalf of the respondent, that if an adjournment was not granted, a sequestration order ought be made. I will so order.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 21 August 2007