Lazarou v Bright and Duggan Pty Ltd - [2006] FMCA 1651

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LAZAROU v BRIGHT & DUGGAN PTY LTD

[2006] FMCA 1651

BANKRUPTCY – Sequestration order – application for review – appropriateness of substituted service orders – debt from costs order in litigation concerning strata unit management – whether evidence of waiver of petitioner’s debt – outstanding complaints about strata agent and solicitor – whether other sufficient cause – application dismissed.

Bankruptcy Act 1966 (Cth), ss.52(1), 55(1)(a), 52(2), 52(2)(a), 52(2)(b)
Strata Schemes Management Act 1996 (NSW)

Wren v Mahoney (1972) 126 CLR 212
Totev v Sfar [2006] FCA 470

Applicant/Bankrupt:

ANNA LAZAROU

Respondent/Petitioner:

BRIGHT & DUGGAN PTY LTD

(ACN 001 554 650)

File number:

SYG 550 of 2006

Judgment of:

Smith FM

Hearing date:

27 October 2006

Delivered at:

Sydney

Delivered on:

27 October 2006

REPRESENTATION

Counsel for the Applicant:

Applicant in person.

Counsel for the Respondent:

Mr C Pedersen

Solicitors for the Respondent:

Somerville & Co. Solicitors

ORDERS

The application for review filed on 22 September 2006 is dismissed.
The costs incurred by the petitioner, Bright & Duggan Pty Ltd, in relation to the application for review, including reserved costs, are to be taxed and paid from the estate of the bankrupt Anna Lazarou in accordance with the Bankruptcy Act.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 550 of 2006

ANNA LAZAROU

Applicant

And

BRIGHT & DUGGAN PTY LTD (ACN 001 554 650)

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

I have before me an application for review of an order made by a Registrar on 7 September 2006, which made a sequestration order in relation to the estate of Anna Lazarou. The order was made on an uncontested basis, following orders for substituted service of the petition and supporting documents. Similar orders had previously allowed substituted service of the bankruptcy notice.
The application for review was filed on 22 September 2006, and was referred to me for hearing as duty bankruptcy Federal Magistrate. It is supported by an affidavit, and I allowed Ms Lazarou to tender further documents. She also made various statements of fact from the bar table, which were not sworn. I have taken them into account where they appear consistent with the sworn evidence in the file, and were not contested by the petitioner’s representative.
The background to the petition is that Ms Lazarou is the registered proprietor of a strata lot in a building of home units in Pelican Street, Surry Hills. She has from time to time been dissatisfied with the accounts sent to her on behalf of the owners’ corporation by Bright & Duggan Pty Limited, the managing agents of the strata scheme. Bright & Duggan is the present petitioner. Her disputes with the owners’ corporation and Bright & Duggan have involved at least two court proceedings. In one matter, the owners’ corporation sued Ms Lazarou for unpaid levies and costs. It was resolved by terms of settlement signed by the solicitors for the owners’ corporation and for Ms Lazarou, and filed in the Local Court at North Sydney on 1 September 2004. This required payment of a sum of money by Ms Lazarou, giving rise to a release in relation to any outstanding amounts owing to the owners’ corporation as at 14 September 2004.
Ms Lazarou had earlier brought other, separate, proceedings against Bright & Duggan Pty Limited personally, and against the caretaker of the premises, alleging that their actions had caused her damages by way of loss of rent. The exact nature of those proceedings is unclear on the evidence before me. It is conceded by Ms Lazarou that the proceedings were brought to an end, when a notice of motion was determined by the Registrar at the Downing Centre Local Court on 12 February 2004. The Registrar made orders striking out Ms Lazarou’s statement of claim “on the entire proceedings” and ordered that “the plaintiff is to pay the first defendant’s costs as agreed or assessed.”
To enforce that costs order, Bright & Duggan obtained a certificate of assessed costs under procedures available in the Supreme Court of New South Wales. The enforcement of the assessment was commenced by obtaining a judgment in the Local Court at North Sydney on 30 August 2004 in the sum of $3,939.40. I assume that Ms Lazarou had an entitlement at some stage in that process to challenge the costs assessment. She would also, of course, have had the right to be heard in relation to the original costs order. There is no evidence before me to call into question either the making of the costs order or the assessment of the costs.
Ms Lazarou applied to the Local Court to pay the judgment debt by instalments. This was refused by the Registrar on 23 June 2004, on the basis that the application was inadequately supported by evidence. There is also evidence that Ms Lazarou applied for a stay on enforcement of the judgment debt by way of a garnishee order, but this application was dismissed on 12 August 2005. There is no evidence to suggest that, at the dates of issuance of the bankruptcy notice, of its service, of the petition, or now, there was or is any stay on enforcement of the Local Court judgment obtained by Bright & Duggan.
A bankruptcy notice relying upon a Local Court certificate in relation to that judgment was issued on 12 September 2005. On evidence presented to the Registrar, which I have considered, an order allowing service of the bankruptcy notice to be effected by post to two addresses which were associated with Ms Lazarou, being her mother’s home and the home unit in question, was made by Registrar on 9 December 2005. I am satisfied that this order was appropriately made. Service was affected in accordance with that order and an act of bankruptcy occurred on 27 January 2006.
The petition was filed on 21 February 2006, once again relying solely upon the Local Court judgment debt obtained by Bright & Duggan. There was evidence before the Registrar that the debt was still outstanding, and the applicant today has not contested that she has not paid that debt.
The petition could not be served personally on Ms Lazarou because, as she concedes, she has not been disclosing her actual residential address. She told me that she has been keeping her address secret for reasons which may be valid, but which I do not need to go into. However, the consequence was that the creditor, Bright & Duggan, was obliged to seek another order for substituted service. Evidence in support was presented to the Registrar, in particular, showing that Ms Lazarou had requested that correspondence in relation to strata matters should be sent to the home unit address, and showing that she had in fact received and responded to levies sent to that address. There was also evidence that attempts to serve her at that address could not get past the security door, and that enquiries failed to disclose any other address where she could be served personally. I am satisfied that the order for substituted service of the petition and supporting documents made by the Registrar on 10 August 2006 was appropriately made, and that service was effected in accordance with that order by posting the petition to the home unit address. I am satisfied that Ms Lazarou now has, at least, actual notice of the contents of the documents relied upon by the petitioner, including by inspecting the court file.
In unsworn statements from the bar table, Ms Lazarou denied receiving the petition, and claimed only to have received notice of her bankruptcy when she was contacted by the trustee. There is no sworn evidence to that effect, but assuming it to be true, I would not set aside the Registrar’s order for substituted service in all the circumstances shown before me today.
I have read all the evidence that was before the Registrar, and I am satisfied as to the matters required to be satisfied under s.52(1) of the Bankruptcy Act 1966 (Cth), including due service of the petition, the fact that the debt is still owing, and the act of bankruptcy.
Ms Lazarou has not filed a notice of objection outlining her objections to the making of a sequestration order, but I understood her to raise three issues. The first was the manner of service on her of the bankruptcy notice and the petition. I have above addressed the basis on which the Registrar satisfied himself as to these matters, and have already indicated my conclusions.
The second basis on which she challenged the making of a sequestration order, in effect, was that the debt relied upon was no longer outstanding or due to the petitioner, Bright and Duggan. She argued that the debt for the amount of costs in the Local Court proceeding had been waived by, or on behalf of, the owners’ corporation.
In support, she tendered a number of statements of account from the owners’ corporation, and correspondence derived from the pursuit of complaints to the Legal Services Commissioner and the Fair Trading Office of the Department of Commerce, New South Wales, which is responsible for providing remedies under the Strata Schemes Management Act1996 (NSW). She pointed to three aspects of this evidence as indicating a waiver. The first is in a letter to her from Somerville & Co, who currently act as solicitors for Bright & Duggan, and it would seem at other times have acted for the owners’ corporation and/or its executive committee. The letter is dated 2 August 2005, and sets out the history of the litigation which I have drawn upon above. It was sent in an attempt to resolve a complaint which had been made by Ms Lazarou to the Legal Services Commissioner concerning their conduct. It refers to the two Local Court proceedings which I described above. In relation to the costs order obtained by Bright & Duggan, and to the measures taken to enforce it, the solicitors expressly say:
We note that these proceedings are totally separate to any proceedings or action between you and the Owners relating to levy arrears, interest and legal costs.
The letter, on my reading of it, makes no suggestion that Bright & Duggan, or Somerville & Co on behalf of Bright & Duggan, waived the entitlement to enforce the judgment for costs which was in favour of Bright & Duggan Pty Limited.
The letter then referred to negotiations in relation to the other proceeding, brought by the owners’ corporation, and to subsequent disputes in relation to the recovery of unpaid levies. It said:
We have received instructions, based on purely commercial considerations and without admission, that the Owners will not be proceeding with any further legal action against you for the recovery of interest and legal fees associated with the recovery of unpaid levies in relation to your property. In this regard, the Owners have agreed to remove from your levy statement all legal costs and interest. Accordingly, we enclose your most recent levy statement which provides that you only owe to the Owners an amount of $711.76 for strata levies for the period 1 August 2005 to 31 October 2005. Accordingly, the matters which you have requested the assistance of the Department of Fair Trading to mediate have been resolved and there is no reason for the mediation which has been scheduled for the 15 August 2005 to continue to take place.
I cannot read that paragraph as constituting or evidencing a waiver of the judgment obtained by Bright & Duggan, which gives rise to the debt which the petition relies upon.
That letter was attached to a letter to Ms Lazarou from the office of the Legal Services Commission dated 23 November 2005. This letter provided:
I refer to your complaint received in this Office on 23 June 2005.
I apologise for the delay in my Office attending to your complaint due to internal staff movements.
You have complained that, despite paying Somerville & Co’s professional fees as provided by the Terms of Settlement filed on 14 September 2004, they have continued to pursue you for outstanding costs. In doing so, you claim that they have failed to comply with the Terms of Settlement
We have contacted Somerville & Co concerning the issues you have raised. They have provided a response, a copy of which is enclosed.
Mr. Pedersen explains that after 15 July 2004 (when the Terms of Settlement were agreed upon), the legal costs (referred to in their letter dated 6 June 2005) “related to a different claim from the one in which the Terms of Settlement were filed.”
Nevertheless, Mr. Pedersen has confirmed that his client has decided not to pursue for these legal costs incurred after 15 July 2004.
Accordingly, this matter has now been finalised and I am taking measures to close the file.
Ms Lazarou argued that the reference to: “…Mr Pedersen has confirmed that his client has decided not to pursue for these legal costs incurred after 15 July 2004” indicated a waiver of the debt owed to Bright & Duggan which is the subject of the petition. The evidence as to the actual contents of the conversation with Mr Pedersen is obscure, since there is no evidence from Mr Pedersen as to the conversation (although he represented the petitioner before me), and neither of the parties tendered “their letter dated 6 June 2005” which is referred to by the Legal Services Commissioner.
I am unable to read the Commissioner’s letter as providing evidence, or even as suggestive of evidence, of a waiver as is argued. There are two reasons for this. First, the letter suggests that Mr Pedersen was confirming that legal costs incurred after 15 July 2004 would not be pursued, and it is clear that the present judgment relates to costs assessed in relation to a prior period. Secondly, the context of the conversation appears to relate to the legal costs of the owners’ corporation and not of Bright & Duggan Pty Limited. On the evidence before me, I would not understand the “client” to have been Bright & Duggan. I therefore do not consider that this letter advances Ms Lazarou’s argument.
The third area of evidence pointed to by Ms Lazarou to establish that she did not owe the debt the subject of the petition is a series of strata plan accounts sent to her. This included a three page statement of accounts for the period 1 November 2003 to 23 October 2005. She points to amounts being debited to her account in May 2005, which she argues total the amount of the judgment debt for the costs assessment obtained by Bright & Duggan. She also points to amounts in the region of $8000 being subsequently credited to her account, which she argues are attributable to the waiving of that judgment amount by the owners’ corporation.
There is obscurity as to how these accounts can be interpreted, and inadequate evidence has been led by Ms Lazarou to allow any definitive findings as to the reasons for items being debited and credited to this account. What is clear, in my opinion, is that the statement of account does not purport to cover amounts owing independently of any strata accounts to the managing agent by reason of litigation brought against the managing agent in its personal capacity by Ms Lazarou.
As I have indicated above, the evidence before me suggests that the costs amount which is sought by the petitioner was an amount of costs incurred directly by the managing agent as a result of being named as second defendant in proceedings. It therefore appears as the principal in the current proceedings for the recovery of that debt, not as agent for the owners’ corporation. Its entitlement to enforce that judgment is not dependent upon any actions taken by the owners’ corporation, and, without further evidence, these accounts do not provide evidence against the entitlement of Bright & Duggan to enforce that judgment debt.
For all the above reasons, I am not satisfied by any evidence presented by Ms Lazarou that the debt upon which the petition is based is not owing to the petitioner. The evidence presented by Ms Lazarou does not cause me to reject the affidavit verifying the petition as sufficient, as is permitted by s.52(1)(a). As I have indicated above, Ms Lazarou’s argument did not seek to go behind the judgment itself, and I can see no reason for the Court doing that, applying principles discussed in Wren v Mahoney (1972) 126 CLR 212.
The third argument by Ms Lazarou against the making of a sequestration order implicitly invited the Court to exercise its discretion under s.52(2)(b) not to make a sequestration order. That provision allows the Court to dismiss a petition even where satisfied as to proof of the matters alleged in the petition, where for other sufficient cause a sequestration order ought not to be made.
Authorities concerning this discretion refer to the principle that:
On proof of the matters in s.52(1) of the act, the Court would generally proceed to make an order for sequestration. It is for the debtor to persuade the Court that the public interest in the dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations. (See Allsop J in Totev v Sfar [2006] FCA 470 at [37] and following).
As is discussed by Allsop J in that case, an unresolved claim by the debtor against the petitioning creditor, which is likely to produce a verdict exceeding the debt relied upon, may amount to other sufficient cause for not making a sequestration order.
In the present case, Ms Lazarou submitted evidence that she has on foot a further complaint to the Legal Service Commissioner against a principal in the firm of solicitors acting for Bright & Duggan and the owner’s corporation, complaining about their actions including in relation to the bankruptcy proceeding itself. However, she does not present, in my opinion, evidence that points to the likelihood of obtaining any award of compensation with any prospects which would cause me to exercise my discretion under s.52(2).
She also points to a new complaint that she has made to the Office of Fair Trading, seeking mediation with Bright & Duggan and the owner’s corporation. Under the heading ‘What are you hoping to achieve?’ her complaint states:
to prevent the owners corporation & Bright & Duggan from placing any “legal fees” and “other” fees on my levy notices which are not due and owing by me. To prevent them from further breaching of the act. To appoint a new managing agent who is honest and more capable of their functions in keeping accounts. To avoid any further fraud and misappropriation of funds. Both executive committee and Bright & Duggan have made account fraud and misappropriation of funds shown on financial statement.

Under the heading ‘What issues do you want to bring to Mediation?’ Ms Lazarou states:

‘Legal Fees’ and ‘other’ amounts continued placing on my notices not due by me. That an individual accountant needs to investigate the statements and accounts, especially costs incurred in legal fees.

I am prepared to assume that she may have genuine grievances in relation to her ability to understand the strata levy accounts which have been sent to her. Also that she has a basis for her concerns arising from the correspondence and communications she has had with the owners corporation, its agents, and their solicitors. However, on the evidence before me I am not satisfied that there is a prospect of compensation being paid which causes me to exercise my discretion under s.52(2).
Ms Lazarou has not attempted to persuade the Court that she is “able to pay her debts” within s.52(2)(a), and has not presented any information as to her financial position. Such information as is on the file suggests that she is indeed insolvent and unable to pay her debts as they fall due. In all the circumstances shown on the evidence, I am not persuaded that the public interest in making an order for sequestration based on the unpaid judgment debt is outweighed by any other considerations.
For all the above reasons, I have decided that the appropriate order on the application for review of the sequestration order is to dismiss the application.

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

Associate: Yvette Harvey

Date: 13 November 2006