Leared v Lordan

Case [2020] FCA 138

FEDERAL COURT OF AUSTRALIA

Leared v Lordan [2020] FCA 138

Appeal from: Application for review of a decision of a Registrar
File number: VID 1076 of 2019
Judge: SNADEN J
Date of judgment: 14 February 2020
Date of publication of reasons: 17 February 2020
Catchwords:

BANKRUPTCY AND INSOLVENCY – review of a decision of a registrar – review of a sequestration order – hearing de novo – sequestration order affirmed

PRACTICE AND PROCEDURE – oral application for adjournment to obtain legal representation – application refused

Legislation:

Bankruptcy Act 1966 (Cth) ss 40, 41, 43, 52

Federal Court of Australia Act 1976 (Cth) s 35A

Federal Court (Bankruptcy Rules) 2016 (Cth) r 4.04

Federal Court Rules 2011 (Cth) r 36.03

Cases cited:

Christou v Demandem Holdings Pty Ltd [2012] FCA 695

Knudsen & Yates v Sanders [2003] FCA 1079

Sandell v Porter (1966) 115 CLR 666

Shaw v Official Trustee in Bankruptcy [2019] FCA 1574

Totev v Sfar and Anor (2008) 167 FCR 193

Zdrilic and Anor v Hickie and Anor (2016) 246 FCR 532

Date of hearing: 14 February 2020
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 64
Counsel for the Applicant: Mr P W Lithgow
Solicitor for the Applicant: Dwyer Legal
Counsel for the Respondent: The Respondent appeared in person with the assistance of a support person

ORDERS

VID 1076 of 2019
BETWEEN:

JOHN ROBERT LEARED

Applicant
AND:

JOHN LORDAN

Respondent

JUDGE:

SNADEN J

DATE OF ORDER:

14 FEBRUARY 2020

THE COURT ORDERS THAT:

1.The respondent’s oral application for an adjournment of the hearing of his interim application dated 7 January 2020 be dismissed.

2.The applicant have leave to amend the Creditor’s Petition herein to substitute “$262,479.05” in place of the reference in paragraph 1 thereof to “$383,267.04”.

3.Any requirements under the Federal Court (Bankruptcy) Rules 2016 for verification and service of the Creditor’s Petition so amended be dispensed with.

4.The orders of Registrar Ryan that are the subject of the respondent’s interim application dated 7 January 2020 be affirmed.

5.The respondent’s interim application dated 7 January 2020 otherwise be dismissed.

6.The applicant creditor’s costs of and pertaining to the respondent’s interim application dated 7 January 2020 be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


ORDERS

VID 1076 of 2019
BETWEEN:

JOHN ROBERT LEARED

Applicant
AND:

JOHN LORDAN

Respondent

JUDGE:

SNADEN J

DATE OF ORDER:

17 FEBRUARY 2020

THE COURT ORDERS THAT:

1.The deadline by which the respondent must file any notice of appeal be Tuesday, 10 March 2020.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

SNADEN J:

  1. By an application dated 7 January 2020, the respondent debtor, Mr Lordan, applies under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (hereafter, the “

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Leared v Lordan [2020] FCA 138
Case
[2020] FCA 138
Decision Date

CaseChat Overview and Summary

In the case of Leared v Lordan, Mr Leared, a creditor, sought to have Mr Lordan, a property developer, declared bankrupt. The dispute arose from a County Court judgment debt of $262,479.05, along with associated costs amounting to $111,727.07, which Mr Lordan had not paid. Mr Leared served a bankruptcy notice requiring Mr Lordan to pay the total amount of $383,267.04 by a specified date. When Mr Lordan failed to comply, Mr Leared filed a creditor’s petition for sequestration. The matter was initially heard by Registrar Ryan, who made sequestration orders against Mr Lordan. Mr Lordan subsequently sought a review of those orders under section 35A(6) of the Federal Court Act. The central legal issue was whether the sequestration orders should be affirmed or set aside, based on the evidence presented during the de novo review.

The court determined that a review under section 35A(6) of the Federal Court Act is conducted de novo, meaning that the decision is made afresh based on the current evidence. The court had to decide if Mr Lordan had committed an act of bankruptcy, which would justify the sequestration order. An act of bankruptcy, as defined under section 40(1)(g) of the Bankruptcy Act, includes failing to comply with a bankruptcy notice served by a creditor who has obtained a final judgment or final order against the debtor. The court noted that Mr Lordan had not paid the amount specified in the bankruptcy notice, nor had he disputed the validity of the notice within the time allowed. Therefore, the court found that Mr Lordan had indeed committed an act of bankruptcy.

Given the evidence, the court concluded that Mr Lordan’s failure to comply with the bankruptcy notice justified the sequestration order. The court affirmed the sequestration orders made by Registrar Ryan. The final order required Mr Lordan to file any notice of appeal by Tuesday, 10 March 2020.

Orders

Orders of the court

1. The deadline by which the respondent must file any notice of appeal be Tuesday, 10 March 2020.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Mr Lordan is a property developer. He was the unsuccessful party in litigation that Mr Leared commenced against him in 2017 in the County Court of Victoria, the apparent subject of which was moneys that Mr Leared alleged—and that that court ultimately agreed—that Mr Lordan owed him. By orders dated 8 April 2019, the County Court of Victoria ordered Mr Lordan to pay Mr Leared a net sum of $262,479.05 (hereafter, the “Primary Judgment Debt”). On 10 April 2019, further orders were made requiring that Mr Lordan pay Mr Leared 70% of his costs of that proceeding, which Mr Leared has since had assessed as $159,610.11 (70% of which is $111,727.07). Mr Lordan has not paid those sums to Mr Leared. On 22 August 2019, Mr Leared served upon Mr Lordan a bankruptcy notice under s 41 of the Bankruptcy Act. By that notice (hereafter, the “Bankruptcy Notice”), Mr Leared required that Mr Lordan pay him $374,206.12 (comprising the net judgment debt of $262,479.05 plus $111,727.07, being 70% of Mr Leared’s assessed costs) plus interest of $9,060.92 (a total of $383,267.04). Alternatively, it required that Mr Lordan make arrangements satisfactory to Mr Leared by which that debt could be settled. Mr Lordan had until 12 September 2019 to do one or other of those things. Again, Mr Lordan did neither. On 31 October 2019, Mr Leared served his Creditor’s Petition upon Mr Lordan. It was verified by a number of affidavits: one of which was sworn on 4 October 2019 by a legal assistant employed by Mr Leared’s solicitors, Ms Tammie Maree Jansen (hereafter, the “Jansen Affidavit”). That affidavit was made in satisfaction of r 4.04(1)(b) of the Federal Court (Bankruptcy Rules) 2016 (Cth). Mr Leared also filed an affidavit sworn by Dennis John Domaille, process server, on 1 November 2019 (hereafter, the “Affidavit of Service”), which attested to service of the Creditor’s Petition upon Mr Lordan. The Creditor’s Petition came before Registrar Ryan for hearing on 28 November 2019. By that date, two further affidavits were sworn in support of it. The content of those affidavits need not here be set out. That 28 November 2019 hearing was adjourned and orders were made by which Mr Lordan was required to “…file and serve an affidavit which sets out his current financial position, including details of all assets, liabilities, incomes and expenses by 13 December 2019.” Again, Mr Lordan did not comply with that requirement. The hearing of the Creditor’s Petition resumed on 23 December 2019. Mr Lordan apparently made some attempt to have that hearing adjourned further on the ground that he was labouring under mental health concerns that had hampered or prevented his preparations, or that would hamper or prevent his appearance. Regardless, Registrar Ryan proceeded on that day to make the Sequestration Orders that Mr Lordan now seeks to overturn by way of review under s 35A(6) of the FCA Act. There was no material disagreement about the nature of the hearing before me. A review conducted pursuant to s 35A(6) of the FCA Act is conducted by way of a hearing de novo: Totev v Sfar and Anor (2008) 167 FCR 193, 197 [14]-[15] (Emmett J, with whom Bennett J agreed); Zdrilic and Anor v Hickie and Anor (2016) 246 FCR 532, 540-541 [28]-[29] (Katzmann, Farrell and Markovic JJ). The issue for me to determine, on the evidence as it presently stands (rather than as it stood when Registrar Ryan made the Sequestration Orders), is how the Creditor’s Petition ought to be determined: that is, should there be a sequestration order operative against Mr Lordan’s estate under s 52(1) of the Bankruptcy Act, or should the Creditor’s Petition be dismissed pursuant to s 52(2)? If I am inclined to the former, Registrar Ryan’s Sequestration Orders should be affirmed. If I am inclined to the latter, then they should be set aside.

Ratio Decidendi

Legal Principle Established

Section 43 of the Bankruptcy Act establishes the court’s jurisdiction to make sequestration orders. It relevantly provides as follows:43 Jurisdiction to make sequestration orders(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;(iii)was carrying on business in Australia, either personally or by means of an agent or manager; or(iv)was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.… Section 40 of the Bankruptcy Act defines the circumstances in which a debtor commits an “act of bankruptcy”. It relevantly provides:40 Acts of bankruptcy (1) A debtor commits an act of bankruptcy in each of the following cases: …(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:(i)where the notice was served in Australia—within the time specified in the notice; or(ii)where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter claim, set off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter claim, set off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;(3) For the purposes of paragraph (1)(g):…(d)a person who is for the time being entitled to enforce a final judgment or final order for the payment of money shall be deemed to be a creditor who has obtained a final judgment or final order; Bankruptcy notices are the subject of s 41 of the Bankruptcy Act. That section relevantly provides:41 Bankruptcy notices …(3) A bankruptcy notice shall not be issued in relation to a debtor:(a)except on the application of a creditor who has obtained against the debtor a final judgment or final order within the meaning of paragraph 40(1)(g) or a person who, by virtue of paragraph 40(3)(d), is to be deemed to be such a creditor;(b)if, at the time of the application for the issue of the bankruptcy notice, execution of a judgment or order to which it relates has been stayed; or(c) in respect of a judgment or order for the payment of money if:(i)a period of more than 6 years has elapsed since the judgment was given or the order was made; or(ii)the operation of the judgment or order is suspended under section 37. …(5)A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement.…