Leading Edge Group Limited v Apap

[2010] FMCA 325

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LEADING EDGE GROUP LIMITED v APAP [2010] FMCA 325

BANKRUPTCY – Creditor’s petition based on default judgment – debtor’s evidence challenged only part of the alleged indebtedness – insufficient reasons to go behind judgment – sequestration order made.

Bankruptcy Act 1966 (Cth), ss.52(1), 52(1)(a), 52(2), 52(2)(a), 52(2)(b)
Bankruptcy Regulations 1996 (Cth), regs.16.01(1)(a), 16.01(2)(a)

Allesch v Maunz (2000) 203 CLR 172
Boglari v Coadys (A Firm) (Receiver and Manager Appointed) [2009] FCA 1398
Cain v Whyte (1933) 48 CLR 639
Re Longo; Ex parte Longo (1995) 57 FCR 523
Rozenbes v Kronhill (1956) 95 CLR 407
Wolff v Donovan (1991) 29 FCR 480
Wren v Mahony (1972) 126 CLR 212

Applicant: LEADING EDGE GROUP LIMITED
ACN 093 019 213

Respondent: GARRY APAP

File Number: SYG 2793 of 2009

Judgment of: Smith FM

Hearing date: 27 April 2010

Delivered at: Sydney

Delivered on: 27 April 2010

REPRESENTATION

Counsel for the Applicant: Mr J Merewether
Merewether & Co, Solicitors (city agent)

Solicitors for the Applicant: Simons Ravden Lawyers

Counsel for the Respondent: Mr L Jackson

Solicitors for the Respondent: Grech Partners

ORDERS

1. A sequestration order be made against the estate of Garry Apap. 

2. The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

3. Note that the date of the act of bankruptcy is 26 October 2009. 

4. Note that a consent to act as trustee has been signed by Robert William Whitton and has been lodged with the Official Receiver in Sydney. 

5. The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2793 of 2009

LEADING EDGE GROUP LIMITED
ACN 093 019 213

Applicant

And

GARRY APAP

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. Leading Edge Group Limited (“Leading Edge”) applies for a sequestration order against Mr Apap, based on an alleged indebtedness in the amount of $29,858.58.  The indebtedness arises under a judgment in the Local Court entered by default on 12 August 2009.  The same indebtedness was asserted in a bankruptcy notice issued at the request of Leading Edge on 21 September 2009. 

2. I am satisfied that the bankruptcy notice was served by post in accordance with reg.16.01(1)(a) of the Bankruptcy Regulations 1996 (Cth), and no issue is taken by Mr Apap that it was sent to him at his last known address, nor that its date of deemed service pursuant to reg.16.01(2)(a) is improperly asserted in the bankruptcy petition as occurring on or before 5 October 2009.

3. Mr Apap does not contest the validity of the bankruptcy notice, nor that there was no compliance with the bankruptcy notice, nor that no application was made to the Court within the time allowed.  I am therefore satisfied as to an act of bankruptcy based on non‑compliance with the bankruptcy notice. 

4. I am satisfied as to the other matters required to be proved under the Bankruptcy Act 1966 (Cth) and the Rules, before a creditor acquires the right to obtain a sequestration order, including as to all the formal requirements.

5. Mr Apap relies upon a notice of grounds of opposition filed in Court today, which contends: 

   1.The judgment debt is disputed, judgment entered by default. 

   2.The Respondent was not able to defend the Local Court matter due to ill health. 

   3.The Applicant has either failed to account or to account properly to the Respondent. 

   4.The Applicant has overcharged for services or has charged for services not provided. 

6. An affidavit in support was filed in other proceedings on 23 April 2010, and is relied upon today in the present proceedings as Mr Apap’s only evidence in support of his notice of opposition.  Mr Apap has been given many opportunities prior to today to file better evidence in support of his notice of opposition, including in orders made by Registrars on 8 March 2010 and 19 April 2010.  No further adjournment was sought by Mr Apap to file better evidence. 

7. In the course of his submissions, Mr Apap’s solicitor applied to lead additional oral evidence from Mr Apap, but I refused that application.  The evidence which was foreshadowed was of such vagueness, and no notice of an intention to elicit it had been given to the applicant.  In these circumstances, I considered that the presentation of that oral evidence would unfairly prejudice the applicant.  Moreover, I did not consider that the evidence which was foreshadowed would have substantially advanced Mr Apap’s case, given its vague and undocumented nature. 

8. In his affidavit, Mr Apap said that he intended to apply to have the default judgment set aside in the Local Court.  However, he presents no evidence that he has ever made such an application, nor does he tender either the statement of claim that was presumably served upon him in the Local Court nor the form of his proposed defence.  The Court is left entirely unclear as to how the claims of Leading Edge were formulated in the pleading upon which it gained a default judgment, and the extent to which Mr Apap seeks to dispute the indebtedness asserted by Leading Edge. 

9. Mr Apap did not dispute that he was duly served with a statement of claim, and had the opportunity to defend the proceedings.  He does however assert a health condition.  He said: 

   5.I have not made any admissions as to the amount of the judgment and have not been afforded the opportunity of Defending [Leading Edge’s] Statement of Claim in the Local Court proceedings due to prolonged health concerns following a heart attack on 11 April 2009 and an operation on 14 April 2009. 

   6.I am currently seeing my cardiologist, Dr. Cooper of Westmead and have asked him to provide a corroborating letter regarding my on‑going heart condition but I have not as at the date of swearing this affidavit been able to obtain that letter from him. 

10. The unverified and un‑particularised nature of this medial evidence would not leave me with any optimism that Mr Apap has a prospect of success in an application to set aside in the Local Court in relation to the ‘critical issue’ of an adequate explanation for a failure to defend a proceeding (see Kirby J in Allesch v Maunz (2000) 203 CLR 172 at [48]). It does not persuade me that Mr Apap was unfairly denied an opportunity to file a defence in the Local Court, as a reason for my going behind the judgment debt or declining to make a sequestration order.

11. Nor does the affidavit satisfy me that he has an arguable defence on the merits, at least to most of the asserted indebtedness to Leading Edge.  Mr Apap’s affidavit said: 

    7.My retail premises in Castle Hill closed in May 2009 due to a fall off in sales and supply restrictions placed on me in or around March 2009 by the Respondent which acted as a central purchasing bureau for companies such as Time Warner and Sony, amongst others. 

    8.Supply was completely stopped in or around late March 2009 by the Respondent. 

    9.The Respondent claims that I am indebted in the sum of $29,273.90 which I dispute. 

    10.The Respondent charged monthly fees in addition to the cost of goods notwithstanding that it had stopped supply in or around late March 2009. 

    11.When the Respondent commenced proceedings against me it had overcharged me for at least three months membership. 

    12.The Respondent charged me twice for February 2009 and has acknowledged that it has done so. 

    13.I cancelled my membership with the Respondent in June 2010 [sic: 2009] but the Respondent still charged membership fees for June, July and August 2009. 

12. There is much of the background in relation to the trading arrangements between Leading Edge and Mr Apap which these paragraphs leave entirely obscure.  As I read them, Mr Apap does not assert that the entire amount recovered by Leading Edge under the default judgment was not owing by him, nor does he provide any quantification of the disputed amount to show whether it is substantial.  He appears to challenge the accounting underlying the default judgment, as failing to credit him with amounts of overcharging, but their quantification and exact details are left entirely obscure.  The contractual basis for disputing the amount recovered is not elucidated. 

13. I am not persuaded that Mr Apap has presented to the Court sufficient evidence to show any substance to his assertion that he has a defence to all or part of the indebtedness recovered by Leading Edge in its default judgment. 

14. In oral submissions, Mr Apap’s solicitor also asserted that he would have a partial defence by way of a set‑off in relation to the return of goods to Leading Edge.  However, no evidence to this effect was led, and as I have indicated, I have refused an application to lead vague and unparticularised oral evidence in relation to it. 

15. In effect, the notice of grounds of opposition and the evidence I have referred to above invite the Court to decline to permit the petitioning creditor to rely upon its affidavits of debt, which it is otherwise entitled to rely upon under s.52(1)(a). It further invites the Court to go behind a judgment upon which that indebtedness arises.

16. I was referred to a recent judgment of Gray J in Boglari v Coadys (A Firm) (Receiver and Manager Appointed) [2009] FCA 1398. In this judgment, Gray J cites the relevant authorities at [11] to [13] in relation to what has been referred to as a ‘discretion’ held by a bankruptcy court to ‘go behind’ a judgment, particularly a default judgment, and to investigate the actual state of indebtedness or lack thereof between creditor and debtor.

17. As the discussion in Wolff v Donovan (1991) 29 FCR 480 points out, the High Court judgments in the area do not require a court to embark on a trial of the true state of indebtedness in every case where a debtor challenges a default judgment. There is a preliminary burden of proof on a debtor to persuade the Court that it is appropriate to embark on a trial of the true state of indebtedness. In Boglari, Gray J referred to the proposition of Barwick CJ in Wren v Mahony (1972) 126 CLR 212 at 224:

    The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt.  That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner. 

18. Mr Apap’s solicitor relied upon this proposition, and its application by Gray J in Boglari. He submitted here that Mr Apap’s affidavit sufficiently raised doubt about the quantification of his indebtedness to Leading Edge, and that general assertions that various credits were not recognised was sufficient for the Court to reject the affidavit verifying the indebtedness relied upon by Leading Edge and to ‘go behind’ the default judgment so as to arrive at its own findings as to his true indebtedness.

19. However, a sufficient reason for questioning whether “there was in truth and reality a debt due to the petitioner” requires more than pointing to some ground upon which the Court could “reconsider the judgment merely with a view to seeing whether the judgment should be reduced” (see the judgments of Gummow J cited by Cooper J in Re Longo; Ex parte Longo (1995) 57 FCR 523 at 530).

20. In the present case, it appears not to be challenged by Mr Apap that there is an underlying indebtedness upon which bankruptcy proceedings could be founded, and his evidence at best invites a finding which reduces the amount of the judgment debt.  The contrary appears to have been the case in Boglari, where I would understand Gray J in [15] to accept that the debtors in that case had raised substantial reasons for questioning whether the whole of the default judgment was owing to the creditor.  There also appears to have been before the Court in Boglari more ample evidence explaining and supporting the debtors’ defences to the creditor’s claims. 

21. Taking into account all the evidence and submissions before me today, I am not persuaded in the present case that substantial reasons have been shown for questioning whether there was a debt underlying the default judgment upon which bankruptcy petition proceedings could properly be brought. I am not persuaded that I should exercise my discretion to look behind the judgment debt, and decline to accept it as a foundation for making a sequestration order. I do not accept that sufficient grounds for rejecting the affidavit of debt have been shown, and I am satisfied that the creditor, Leading Edge, has made out its prima facie entitlement to the making of a sequestration order (see Cain v Whyte (1933) 48 CLR 639 at 645‑646 and 648 and Rozenbes v Kronhill (1956) 95 CLR 407 at 414).

22. I am not persuaded that any of the contentions made by Mr Apap have raised any other sufficient cause for declining to make a sequestration order in the exercise of my discretion under s.52(2)(b) of the Bankruptcy Act. I note that Mr Apap has not asserted to the Court that he is able to pay his debts, so as to be able to invoke s.52(2)(a).

23. I am therefore satisfied that it is appropriate today to make a sequestration order. 

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate:  Lilian Khaw

Date:  14 May 2010