Liberty Funding Pty Ltd v De Zoysa - [2005] FMCA 778

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LIBERTY FUNDING PTY LTD v DE ZOYSA & ANOR

[2005] FMCA 778

BANKRUPTCY – Application for review of Registrar’s decision – sequestration order – whether statement of account evidence of no debt or forgiveness of debt – mere recording of bad debt written off no sufficient basis for forgiveness of debt – mistake in correspondence from creditor to debtor insufficient to constitute forgiveness of debt.

PRACTICE AND PROCEDURE – Non-attendance of debtors at adjourned hearing – arrangement for audio link hearing for debtor – hearing in absence of debtor.

Bankruptcy Act 1966

Applicant:

LIBERTY FUNDING PTY LTD

Respondents:

STANLEY DE ZOYSA &
SUZANNE YASMINE DE ZOYSA

File No:

MLG 1628 of 2004

Delivered on:

18 May 2005

Delivered at:

Perth

Hearing Dates:

13 and 18 May 2005

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr. P. Fary (18 May only by audio link)

Solicitors for the Applicant:

Russell Kennedy Lawyers

Respondents in person

(13 May only)

ORDERS

The application for review filed 28 April 2005 be dismissed.
The Creditor’s costs of the application for review be taxed and paid out of the Bankrupt Estate of the Debtors in accordance with the Bankruptcy Act 1966.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

MLG 1628 of 2004

LIBERTY FUNDING PTY LTD

Applicant

and

STANLEY DE ZOYSA AND ANOR

Respondent

REASONS FOR JUDGMENT

(Revised from Transcript)

Before the Court is an application for review of a Registrar’s order made on 7 April 2005 whereby sequestration orders made against the Respondent Debtors. The application for review filed on 28 April 2005 is taken to be an application seeking to set aside the sequestration orders. That application was supported by an application of the First Respondent Debtor sworn 28 April 2005. For convenience, given this is an application for review, I shall refer to the parties respectively as the Creditor and Debtors.
It is clear, however, that the First Respondent Debtor at all times sought to appear on his own behalf and as agent for the Second Respondent Debtor. There being no objection to that course I permitted it to occur. The affidavit in support of the application for review is very brief and sworn by Mr De Zoysa on 28 April 2005. The matter was commenced before this Court on 13 May 2005. On that occasion counsel appeared for the Creditor and as I have indicated Mr De Zoysa appeared in person on his own behalf and seeking to appear as agent for the Second Respondent who he indicated is his wife.
On 13 May 2005 after hearing argument orders were made that the matter be further adjourned to this day. It did so upon being advised by Mr De Zoysa that he would be in Perth on this day and indeed during this week. The Court in the circumstances and primarily for the convenience of Mr De Zoysa was prepared to allow an adjournment for a short period of time to enable him to provide any further affidavit material to be relied upon and otherwise provide further argument.
A key issue agitated at the hearing on 13 May 2005 was whether or not the debt relied upon by the Creditor in the petition was a debt which had been either subsequently or prior to the bankruptcy notice forgiven or indeed whether there had been any other basis upon which it could properly be claimed that there was no amount owing by the Debtors to the Creditor.
In any event the matter was listed for hearing this day. The orders made by the Court on 13 May 2005 were as follows:
“1.The application be adjourned for further hearing at 2 pm WST (4 pm EST) on 18 May 2005 with the Respondent Debtor to appear in person at the Perth Federal Magistrates Court and the Applicant Creditor by audio link from Melbourne.
2.Each party shall file and serve any further affidavits to be relied upon no later than 4 pm on 17 May 2005.
IT IS NOTED THAT:
1. In event that either party wishes to alter the arrangement for the hearing my Associate should be notified no later than 4 pm on 17 May 2005.
2. The Respondent has this day provided to the Court and to the Applicant Creditor a facsimile number which until further order shall be deemed to be an appropriate address for service”.
It is evident from those orders that the Court was prepared to allow the further hearing to be conducted by audio-link. It should also be noted that during the hearing on 13 May 2005 Mr De Zoysa provided to the Associate a mobile phone number and it was indicated by Mr De Zoysa that if he had any difficulty attending Court in Perth at the resumed hearing time then that mobile phone number could be used so that the proceedings would conclude by way of an audio-link hearing.
I was satisfied in the circumstances that it was in the interests of justice and indeed fairness to Mr De Zoysa to permit the matter to proceed on that basis giving him a brief opportunity to provide further material which in the circumstances seemed appropriate. That further material, as I have indicated, was material which would address the issue of whether indeed any compromise had been reached in relation to the amount owing to the Creditor or whether or not there had been any forgiveness of the debt or release by the Creditor of the Debtor’s indebtedness.
When the matter was called on for hearing this day there was no appearance for the Debtors. I had indicated to counsel for the Creditor that certain correspondence had been forwarded to the Debtor by the Court and a copy sent to the Creditor’s solicitors. A facsimile in fact dated 16 May 2005 was forwarded to the Debtors at the facsimile number provided by him to the Court on 13 May 2005. The facsimile reads:
“Herewith sealed copy Orders made by the Court ob 13 May 2005. [sic]
The Court has received a telephone message from Suzanne De Zoysa advising that you are unable to attend the hearing scheduled on 18 May 2004 due to training commitments in Sydney and are seeking an adjournment to a date after 7 June 2005.[sic]
The matter will proceed as scheduled from Perth by audio link to the parties’ nominated phone numbers.
As indicated at the hearing on 18 May 2005 an audio link will be established with your mobile phone number which you provided to the court officer. You should make yourself available for the resumed hearing at 4 pm EST (2 pm WST). If you do not make yourself available then the matter will proceed in your absence.”
I am satisfied that the facsimile message was forwarded to both parties on 17 May 2005, albeit, it is dated 16 May 2005. I am further satisfied that despite the fact that there is an error in that facsimile referring to the hearing scheduled for 18 May 2004 that the error is corrected in the last paragraph of that letter and there can be no doubt that the correction combined with the clear indication in the enclosed order meant that the Debtor and indeed the Creditor would be aware that this hearing was to resume this day at the scheduled time.
According to the Court file on 17 May 2005 a telephone call was made by my Associate to Mrs De Zoysa. The exact time of the call is not recorded. Ms De Zoysa was asked whether she had received the facsimile that had been sent this morning. The file note reads, “She said she had.” The file note goes on to provide the following:
“…
She advised that Mr De Zoysa could not attend tomorrow as he was “travelling all over the place in Sydney”. I said that we had a mobile contact number that he had left with the court officer in Melbourne last week and that we would contact him on that number.
She advised that he was not in a mobile area. I suggested that she give me an alternate landline phone number on which Mr De Zoysa could be contacted on and that the Court would use that number instead.
I left my telephone contact details (Perth chambers telephone number) and Mrs De Zoysa advised that she would get back to me with an alternate phone number.
I drew Mrs De Zoysa’s attention to the last paragraph of the facsimile that I had sent - that the matter would proceed if Mr De Zoysa did not make himself available tomorrow at the resumed hearing
…”.
The file reveals a further file note on 18 May 2005 at 9.15 am and records, my Associate notes:
“…
… (upon accessing my voice mail messages)
Mrs De Zoysa left a message on my voicemail in chambers.
She advised that Mr De Zoysa was unable to make phone conference as he will be in conference all day.
She has not been able to get in touch with him this morning.
The proceedings will have to go ahead without him and he regrets this.
He has meetings all day today and tomorrow.
He will call when he is free to explain his situation.
…”
Whilst that telephone note refers to a phone conference it is clear that the conference means the hearing. Those file notes together with the facsimile message satisfy me that the Debtors have had notice of this resumed hearing. They further satisfy me that the Debtors have failed to provide any or any adequate explanation for non-appearance this day. It is not satisfactory for a Debtor granted an indulgence of the kind granted to this Debtor to provide further material and to reconvene in a place convenient to the Debtor to simply allow his wife, albeit, another party to the proceedings, to communicate in this manner with the Court and simply advise the Court that the person is “not in a mobile area” or that the person will call when “he is free to explain his situation” or that he is “unable to make the phone conference” or indeed that she has been unable to get in touch with him in the morning.
Those references combined with the suggestion that Mr De Zoysa was “travelling all over the place in Sydney” or that he was “in a mobile area” indicate a somewhat cavalier approach to these proceedings and that cavalier approach should not lead this Court in my view to do anything other than conclude the resumed hearing. To simply dismiss the application for review for non-appearance would be an unrealistic and artificial procedure to adopt having regard to the background set out in the telephone notes and facsimile transmission to which I have referred.
Accordingly, it is appropriate to proceed with the application for review. Given the absence of the Debtors who ought to be present to pursue the application for review, it is clear to me that on one basis the simple order should be made that the application be dismissed with an order as to costs. However, given that the matter is part‑heard and that certain arguments were advanced, it is in my view, in the alternative desirable to at least refer to the application for review and specifically to refer to the orders sought in that application and to briefly refer to the affidavit in support.
It is noted that this matter came before the Court by way of a Creditor’s petition. The Creditor’s petition relied upon a debt and in this instance the debt is sought to be challenged. In the affidavit provided by the Debtor he states the following:
“…
1.The Creditor acknowledges in writing the finalisation of the debt in question. (Refer attached letter and statement).
2.The property title was released at the time of sale and in doing so the creditor acknowledged acceptance of full and final settlement.
…”
Annexed to that affidavit are two documents. The first a copy letter dated 23 May 2003 from the Creditor to Mrs De Zoysa. That letter clearly refers to the security being released and the loan facility has been finalised. Further attached to the affidavit is an account statement revealing a zero balance after the transactions have been recorded, including a number of transactions which have the title, “Bad debts written off, principle” or “Bad debts written off – non‑lending losses.”
It is after that process that a zero balance is arrived at. Affidavit material relied upon by Creditor’s in response to the Debtor’s affidavit refer to the statement of account being an internal statement of account where a bad debt has been written off. The correspondence dated 23 May 2003 is conceded to be a mistake. It was in those circumstances that considering the orders sought in the application for review and considering the affidavit material filed in support of the application for review by the Debtor, that this Court deemed it appropriate to give the Debtor an opportunity to provide further material addressing the issue of whether the letter was a mistake and/or providing other material as to whether in truth and in fact there was a zero balance of a kind supported by any compromise, forgiveness of debt or other arrangement between the Creditor and the Debtors.
Further affidavit material has been filed with the Court for and on behalf of the Creditor’s. Significantly that affidavit material, apart from providing the usual material required on a hearing de novo of an application of this kind in considering a sequestration order further provides, especially in the affidavit of Antony Jacques Kiburg sworn 17 May 2005, the following:
“…
6. I refer to the transaction entries in the Account Statements on various dates from 19 May 2003 to 21 August 2003 prefaced with the words “bad debts written off”. The amounts corresponding with those transaction entries have been written off by the Applicant by way of book entries only for internal accounting and taxation purposes.
7.These relevant transaction entries do not mean that any compromise has been reached with the Respondents in respect of the balance of the loan debt or that the debt or any part thereof has been forgiven or that there has been any release by the Applicant of the Respondents of their obligations under loan account number 25409.
8.The relevant entries in the Account Statements have been made that way for internal accounting and taxation purposes only, given the doubt on the part of the Applicant as to whether the funds could actually be recovered from the Respondents.”
It is argued for and on behalf of the Creditors that in the absence of any other evidence concerning a compromise or forgiveness of debt that the debt relied upon in this instance as the basis upon which the petition was filed and indeed as the basis upon which the Court is invited to consider making a sequestration order remains applicable. It is clear in an application of this kind that the material on the face of it does not provide any or any proper basis upon which this Court should set aside the sequestration order according to the submissions on behalf of the Creditor.
The Creditor submits the application for review should be dismissed. Orders were obtained which form the foundation stone for the bankruptcy notice and which in turn formed a basis upon which the petition was filed. In my view, in the absence of any further evidence relied upon by the Debtors it is appropriate to dismiss the application for review. The mere fact that a Creditor in a statement of account has indicated a zero balance after a write-off of bad debts does not of itself provide evidence that the debt has been given as between the Creditor and the respective Debtors.
It is not an uncommon business practice for commercial enterprises to ‘write-off’ bad debt in one financial year and then to review the issue of recovery in subsequent years depending upon the financial resources of the Debtor which may change from year to year. The mere recording of a bad debt and a reduction of an indebtedness to zero upon realisation as in the present case of assets does not of itself preclude a Creditor from pursuing an outstanding debt by way of proceedings and then seeking otherwise to execute the judgment then obtained and nor is a Creditor in those circumstances precluded from pursuing the avenues which are available to any Creditor under the Bankruptcy Act 1966.
Likewise, in my view, where a mistake has been made as in this case evidenced by the correspondence dated 23 May 2003 that a mistake cannot be relied upon as a matter of law as a basis upon which it could be claimed that the debt has been forgiven or indeed that there has been some compromise reached. Accordingly, in the absence of any other material provided by the Debtors in this instance and relying upon the affidavit material provided by the Creditor the appropriate conclusion in relation to this application for review is that the application for review should be dismissed.
The orders of the Court are:
i)The application for review filed 28 April 2005 be dismissed.
ii)The Creditor’s costs of the application for review be taxed and paid out of the Bankrupt Estate of the Debtors in accordance with the Bankruptcy Act 1966.

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

Associate:

Date: 18 May 2005