Low v The Owners Strata Plan No. 35790
[2016] FCCA 900
•22 April 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LOW v THE OWNERS STRATA PLAN No. 35790 | [2016] FCCA 900 |
| Catchwords: BANKRUPTCY – Application for review of sequestration order or annulment of bankruptcy – application dismissed. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52(1), 52(2), 52(4), 153B Civil Procedure Act 2005 (NSW), s.101 |
| Cases cited: Ali v Retail Decisions Pty Ltd [2012] FCA 1130 Coshott v Owners of Strata Plan No. 48892 [2006] NSWSC 308 Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 O’Farrell v Palicave Pty Ltd (2009) 176 FCR 134; [2009] FCAFC 64 Owners of Strata Plan No. 50164 v O’Connor [2010] FMCA 833 Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153 Poulson; Ex parte Hempenstall Bros Limited (No 1) (1929) 1 ABC 54 Re Papps; Ex parte Tapp (1997) 78 FCR 524; [1997] FCA 1031 Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders [2003] FCA 1079 Rozenbes v Kronhill (1956) 95 CLR 407 [1956] ALR 1004 Sandell v Porter (1966) 115 CLR 666 Stankiewicz v Plata [2000] FCA 1185 T&S Recoveries Pty Ltd v Skalkos [2004] FCA 816 Totev v Sfar (2008) 167 FCR 193; [2008] FCAFC 35 Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34 Wren v Mahoney (1972) 126 CLR 212; [1972] ALR 307 |
| Applicant: | LAN HEONG LOW |
| Respondent: | THE OWNERS STRATA PLAN NO. 35790 |
| File Number: | SYG 1663 of 2013 |
| Judgment of: | Judge Barnes |
| Hearing date: | 3 February 2016 |
| Date of Last Submission: | 2 March 2016 |
| Delivered at: | Sydney |
| Delivered on: | 22 April 2016 |
REPRESENTATION
| The Applicant: | In person |
| Solicitors for the Respondent: | J S Mueller & Co, Solicitors |
| Solicitors for the Trustees in Bankruptcy: | O’Neill Partners |
ORDERS
The application for review filed on 7 August 2015 be dismissed.
The orders of the Registrar made on 20 July 2015 be affirmed.
The application for an annulment of the bankruptcy of Lan Heong Low be dismissed.
The petitioning creditor’s costs be paid out of the bankrupt estate in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1663 of 2013
| LAN HEONG LOW |
Applicant
And
| THE OWNERS STRATA PLAN NO. 35790 |
Respondent
REASONS FOR JUDGMENT
On 20 July 2015 a registrar of this court made a sequestration order against the estate of Lan Heong Low. On 7 August 2015 Ms Low filed an application for review of the sequestration order. While Ms Low’s application was made on the form used for an application for review of a sequestration order, she sought, in the alternative, an annulment of her bankruptcy under s.153B of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act).
After the matter was referred to my docket Ms Low was given the opportunity to file and serve affidavit evidence in support of her application and her Trustees in Bankruptcy were required to prepare a report (see Rules 7.04 and 7.06 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth)).
The matter was listed for hearing on 23 November 2015, however on the day of the hearing Ms Low sought and was granted an adjournment on the basis of a medical certificate. She was afforded the opportunity to file and serve further affidavit evidence. The hearing was held on 3 February 2016.
Jurisdiction
At the hearing the solicitor for the Trustees of Ms Low’s bankrupt estate raised an issue as to the jurisdiction of this court to consider the application for review having regard to the fact that the application was filed and heard after the date on which the creditor’s petition would have lapsed (see s.52(4) of the Act). The parties were given the opportunity to file post-hearing submissions addressing the jurisdiction of the court to consider the review application.
Relevantly, the creditor’s petition was presented on 22 July 2013. On 16 July 2014 a registrar of the court extended the life of the petition by 12 months. The petition was heard on 20 July 2015, two days before it would lapse (see s.52(4)(b) of the Bankruptcy Act). The review application was filed on 7 August 2015.
In my view, the court has jurisdiction to consider the review application in circumstances where the sequestration order was made before the date on which the petition would have lapsed, consistent with the approach taken by the majority of the Federal Court in Totev v Sfar (2008) 167 FCR 193; [2008] FCAFC 35.
It is the case that in Totev v Sfar at [42]-[49], Emmett J (who was in the minority) identified an issue arising from the fact that while the sequestration order was made during the currency of the petition, the (two) review applications in that case were heard after the petition had lapsed by reason of s.52(4) of the Act. Emmett J was of the view that in these circumstances the only order open to the primary judge on review of the sequestration order was to dismiss the petition.
However the majority (Bennett and Cowdroy JJ) took a contrary view. Bennett J was of the view that the correct approach was that provided a sequestration order was made before the date on which the petition would lapse, s.52(4) of the Act was no bar to a subsequent review hearing “de novo” which may proceed to the making of a fresh sequestration order (at [54]-[62]). Cowdroy J adopted (at [64]-[65]) the reasons of Bennett J in this respect. His Honour was of the view that as a sequestration order had been made before the date on which the petition would lapse, the requirements of s.52(4) had been satisfied, the petition had not lapsed and was available to support the making of a further sequestration order.
Thus the majority view was that a sequestration order could be made on a de novo hearing notwithstanding that more than 24 months had elapsed since the filing of the petition. Accordingly, the court remitted the matter to the then Federal Magistrates Court for re-determination to enable the court to receive additional evidence in support of the making of a sequestration order.
In the present case, the sequestration order was made on 20 July 2015, prior to the date of 22 July 2015 on which the creditor’s petition would have lapsed. Hence, on the authority of Totev’s case, the court has jurisdiction to consider the application as a hearing de novo and in that context to affirm the order making a sequestration order in an appropriate case, notwithstanding that more than 24 months have elapsed since the filing of the petition.
I have proceeded on the basis that I have jurisdiction to consider the application as an application for review. In any event, there is no suggestion that the court does not have jurisdiction to consider the application as an annulment application. I have, in the alternative, considered the application as an application for annulment under s.153B of the Bankruptcy Act.
Chronology
In light of the various issues raised by Ms Low about the history of this matter it is convenient to set out a chronology of relevant events (based largely on the chronology prepared by the solicitor for the petitioning creditor, The Owners Strata Plan No. 35790 (the Owners Corporation)).
26 October 2011 Default judgment was entered by the Owners Corporation against Ms Low in matter 2011/263221 in the Local Court at Kogarah 23 March 2012 Default judgment was entered in matter 2011/00416840 1 August 2012 Default judgment was entered in matter 2012/00186524 4 December 2012 The bankruptcy notice was issued 19 March 2013 Order for substituted service of the bankruptcy notice 3 May 2013 Ms Low unsuccessfully applied to set aside the 3 default judgments 22 July 2013 Petition presented 16 July 2014 Order made by registrar to extend life of petition by 12 months 23 June 2015 Order for substituted service of the petition 20 July 2015 Sequestration order made – no appearance by Ms Low 7 August 2015 Review/annulment application filed
The Review Application
The application for review was filed within 21 days of the sequestration order (see s.104(2) of the Federal Circuit Court of Australia Act 1999 (Cth) (the FCCA Act)). A review of a registrar’s decision under s.104(3) of the FCCA Act is a hearing de novo. Hence, the petitioning creditor must re-establish to the satisfaction of the court the matters required under s.52(1) of the Bankruptcy Act, including by filing fresh affidavits of final search and debt in accordance with r.4.06 of the Bankruptcy Rules (see Totev v Sfar). I have taken into account all the material before the court at the time of the review.
The creditor’s petition was based on three Local Court judgment debts in relation to unpaid strata levies and fees in relation to a Wollongong unit owned by Ms Low. The Owners Corporation filed and relied on the requisite affidavits (including fresh affidavits of final search and debt) as well as additional affidavits relevant to particular issues as discussed further below. In particular, the Owners Corporation tendered a copy of the owner’s ledger in respect of a particular unit at 2-4 Hindmarsh Avenue, North Wollongong (the Wollongong unit) owned by Ms Low. In an affidavit of 29 January 2016, Faiyaaz Shafiq, the solicitor for the Owners Corporation, explained in some detail the background to these proceedings and the basis for the debt and described communications with Ms Low in relation to the debt and the bankruptcy proceedings.
The trustees of Ms Low’s bankrupt estate prepared a report contained in an affidavit of one of the trustees (Jason Shane Cronan) sworn on 13 November 2015.
Ms Low relied on affidavits sworn by her on 7 August 2015, 13 November 2015 and 6 January 2016. She did not put any evidence before the court as to compliance with rr.7.03 and/or 7.06(3) of the Bankruptcy Rules. Despite being given the opportunity to do so, she did not file any evidence in relation to solvency. The parties made oral submissions and filed post-hearing written submissions.
In her application for review under the heading “Order(s) sought”, Ms Low sought an annulment on the basis that she had “not been given an opportunity to respond”. She suggested that she intended to seek a partial withdrawal of her superannuation; complained that a bankruptcy record could hinder her opportunity to rebuild her life; and stated that “this foreclosure” removed her roof and that her current Kensington address (a PO Box number referred to in orders for substituted service discussed below) was to help secure a job, as Wollongong was known for high unemployment.
Ms Low claimed in her review application and supporting affidavit that an SMS message from a Ms Mead (an employee of the trustees of Ms Low’s bankrupt estate) of 24 July 2015 was the “first info on bankruptcy”; that she had checked her mail in Wollongong; and that, as she explained in her accompanying affidavit, to the best of her knowledge she had not received correspondence or notice of intended bankruptcy proceedings. Despite this, in her affidavit of 7 August 2015 Ms Low claimed that on 19 June 2015 she had attempted to access her superannuation “to address part of the matter”.
In her subsequent affidavits Ms Low repeated her claims that she was not aware of or given the opportunity to respond in relation to the sequestration order made on 20 July 2015.
In submissions Ms Low reiterated her claim that she had not received documents allegedly served on her (in particular the bankruptcy notice and/or the creditor’s petition). She claimed that the law required that she be served in person and suggested generally that she did not know why “they” had “advised or misled” the court to make an order for substituted service. She made various assertions about the conduct of the solicitor for the Owners Corporation and the managing agent for the property in which the Wollongong unit was situated.
Section 52(1) of the Bankruptcy Act
Section 52(1) of the Bankruptcy Act is as follows:
(1)At the hearing of a creditor’s petition, the court shall require proof of:
(a)the matters stated in the petition (for which purpose the court may accept the affidavit verifying the petition as sufficient);
(b)service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
The court may make a sequestration order on proof of the matters in s.52(1)(a) (and see ss.43 and 44). If the court is satisfied by the debtor that she is able to pay her debts or that for other sufficient cause a sequestration order ought not to be made it may dismiss the petition (s.52(2) of the Bankruptcy Act).
The Owners Corporation bears the onus of proving the matters in s.52(1) of the Bankruptcy Act. Ms Low raised several issues with respect to service and the existence of a debt.
The act of bankruptcy relied on in the creditor’s petition (and also see the affidavit of Roy Christopher Darby sworn on 19 July 2013) was said to consist of a failure by Ms Low to comply on or before 7 May 2013 with the requirements of a bankruptcy notice served on her on 16 April 2013. It is not in dispute that Ms Low did not comply with the bankruptcy notice.
The bankruptcy notice was issued on 4 December 2012. It claimed that Ms Low owed the Owners Corporation a debt of $6,546.22 consisting of the amount due under three judgments of the Local Court of New South Wales at Kogarah together with interest thereon in accordance with s.101 of the Civil Procedure Act 2005 (NSW).
The judgments relied on were dated 26 October 2011, 23 March 2012 and 1 August 2012 (see s.41(3)(c)(i) of the Bankruptcy Act). Sealed copies of the orders of the Local Court were attached to the bankruptcy notice. Insofar as Ms Low intended to dispute the existence of judgments forming the basis for the debt relied on in the bankruptcy notice I am satisfied as to the existence of the Local Court judgments which, as discussed below, Ms Low unsuccessfully sought to have set aside in proceedings in the Local Court.
On 19 March 2013, on the application of the Owners Corporation, a registrar of this court made orders for substituted service of a bankruptcy notice on Ms Low. Order 1 required that service of the bankruptcy notice, together with a sealed copy of the order:
“…be effected by the following means occurring on or before 9 April 2013:
(a)By serving on any person above the age of 16 years at Unit [specified] 2-4 Hindmarsh Avenue, North Wollongong, NSW 2500, but if this is not possible, by affixing to the front door of the premises or leaving it in the mail box in a sealed envelope addressed to the respondent.
(b)By prepaid post to P.O. Box [specified] Kensington, NSW 2033 and PO Box [specified] Sutherland NSW 1499.
(c)by scanning and emailing to [email address for Lan Low specified]; and
(d)a text (sms) message be sent to the respondent on mobile number [specified] advising her that a bankruptcy notice has been served on her by substituted service as described in paragraphs 1(a) and (b) above.”
The orders provided that service in accordance with this order should be deemed good and sufficient service of the bankruptcy notice and that it should be deemed to be served on Ms Low on 16 April 2013.
Under Order 5 of the orders the service and proof of service copies of the bankruptcy notice were to be amended by deleting the words “after service on you of this Bankruptcy notice” and substituting “after 16 April 2013” in the part of the bankruptcy notice informing the debtor of the time for payment of the debt.
Ms Low disputes service of the bankruptcy notice on the basis that she claims that she did not receive and was not made aware of the bankruptcy notice or of any bankruptcy proceedings until after the sequestration order was made.
Before addressing that issue, I note that insofar as Ms Low made a very general suggestion that the court was misled into making an order for substituted service of the bankruptcy notice, there is no evidence to support such a claim and there is no suggestion that the address and contact details used in the orders for substituted service were not those of Ms Low.
I am satisfied on the basis of the affidavit of Andrew Jones sworn on 5 April 2013 and filed on 22 July 2013 that copies of the bankruptcy notice and the orders of 19 March 2013 were served in accordance with paragraph (1)(a) of the orders for substituted service. Mr Jones’ unchallenged evidence is that on 2 April 2013 he left copies of the bankruptcy notice and orders for substituted service in the letter box (in a sealed envelope addressed to Ms Low) at the Wollongong unit referred to in the orders for substituted service. Ms Low does not dispute that this is her unit.
A copy of the bankruptcy notice (amended in accordance with the registrar’s orders) was annexed to Mr Jones’ affidavit. As amended the bankruptcy notice required Ms Low to pay the Owners Corporation the amount claimed or to make arrangements for settlement of the debt within 21 days after 16 April 2013 (in place of the previous reference to a period of 21 days after service on her of the bankruptcy notice).
By affidavit sworn on 9 May 2013 and filed on 22 July 2013 Cassandra Graves, solicitor, attested to service of the bankruptcy notice and the orders for substituted service on Ms Low in accordance with the methods provided for in paragraphs 1(b), (c) and (d) of the orders for substituted service on 21 March 2013. I am satisfied that the requirement that a text message be sent in accordance with order 1(d) was met.
However the copy of the bankruptcy notice annexed to the affidavit of Ms Graves was not amended in accordance with the orders of 19 March 2013. As Ms Low was self-represented, I raised this issue with the solicitor for the Owners Corporation. It was addressed in an affidavit of Ms Graves sworn on 27 January 2016 filed on 1 February 2016. I accept Ms Graves’ uncontested evidence that she inadvertently attached the file copy of the original unendorsed bankruptcy notice to her affidavit of 9 May 2013, but that, in fact, she emailed and also posted to Ms Low an amended copy of the bankruptcy notice bearing the date of 16 April 2013. Consistent with this evidence, Ms Graves attached to her affidavit a copy of the email she sent to Ms Low in accordance with order 1(c) of the orders of 19 March 2013, which included an amended copy of the bankruptcy notice bearing the date of 16 April 2013. Ms Graves recalled that, similarly, a copy of a bankruptcy notice amended to refer to the deemed service date of 16 April 2013 was also posted to the two post office box addresses specified in paragraph 1(b) of the orders for substituted service.
On the evidence before the court, I am satisfied that the bankruptcy notice was served on Ms Low in accordance with the orders for substituted service, including in accordance with the methods specified in paragraph 1(b) and 1(c), and in compliance with order 5 of 19 March 2013.
Under order 2 of these orders, service in accordance with the order is deemed to be good and sufficient service of the bankruptcy notice on Ms Low.
Ms Low’s contention that she did not in fact receive the bankruptcy notice does not negate service. The act of bankruptcy relied on in the creditor’s petition was Ms Low’s failure to comply with the bankruptcy notice. Section 40(1)(g) of the Act refers to a notice “served on the debtor”, but there is no section, rule or regulation requiring personal service as Ms Low appeared to contend, (and see T&S Recoveries Pty Ltd v Skalkos [2004] FCA 816) or specifically describing a method by which service of a bankruptcy notice must be effected. As service was effected in accordance with the orders for substituted service it is not necessary to consider whether service was effected in a manner provided for in reg.16.01 of the Bankruptcy Regulations1996 (Cth).
In any event, I note that, contrary to Ms Low’s assertion that she was unaware of any bankruptcy proceedings (insofar as this complaint was intended to refer to her awareness of the bankruptcy notice), as attested to by Mr Shafiq in his affidavit of 29 January 2016, on 2 April 2013 (the date on which Mr Jones served Ms Low with the bankruptcy notice) Ms Low filed with the Kogarah Local Court three notices of motion to have the default judgments relied on in the bankruptcy notice set aside. In an affidavit sworn by her on that date in relation to matter 2011/00416840 Ms Low claimed, among other things, that:
The lodgement in the Federal Magistrates Court on 19/03/13 illustrates failure to address other issues by the plaintiff.
On 19 March 2013 a registrar of the Federal Magistrates Court made the orders for substituted service. A copy of these orders was annexed to each of the bankruptcy notices served on Ms Low (including the copy left in her North Wollongong letterbox on 2 April 2013).
I also note, relevant to Ms Low’s general complaints about misconduct and unfairness and for claimed lack of awareness of any dispute (discussed further below) that Mr Shafiq detailed the dealings of J S Mueller & Co (solicitors for the Owners Corporation) with Ms Low from 2010 on after receipt of instructions to recover from her outstanding strata levies, interests and costs due and payable in circumstances where she had failed to pay her strata levies on time.
Mr Shafiq attested to the fact that in 2010 various letters of demand had been sent to Ms Low at her North Wollongong address, being the address known to the Owners Corporation and provided to it by Ms Low. These remained unsatisfied. He described the institution of legal proceedings in the Kogarah Local Court, the entry of default judgments in relation to each of those proceedings, the issue of the bankruptcy notice, Ms Low’s failure to respond to emails, the application for and orders for substituted service and subsequent service on Ms Low, as well as her three notices of motion to have the default judgments set aside.
I accept that, as attested to by Mr Shafiq, Ms Low’s notices of motion were heard by the Kogarah Local Court on 3 May 2013. At that time, (consistent with the affidavits Ms Low has filed in those proceedings), Ms Low disputed the amount of the debt and claimed that she had not received any communications either from the Owners Corporation’s strata manager or from the office of the solicitor for the Owners Corporation in response to her queries about the debt. Contrary to this claim, Mr Shafiq put in evidence copies of detailed written communications sent from his office to Ms Low in 2011 clarifying queries she had raised and attaching copies of the owner’s ledger for the strata plan. Relevantly, the Local Court heard the parties, considered the evidence and dismissed Ms Low’s notices of motion on the basis that she had failed to satisfy it that she had a defence on the merits against the claims.
Subsequently the Owners Corporation’s solicitors wrote to Ms Low on 20 May 2013 by mail and email inviting her to pay the amount owing (which by then was $11,870.50) and informing her that if she failed to do so a creditor’s petition would be issued. No response was received.
On 22 July 2013, the creditor’s petition was presented by the Owners Corporation. J S Mueller & Co wrote to Ms Low in mid-2014 about their intention to seek an extension of the life of the petition and in mid-2015 in relation to their intention to seek an order for substituted service of the creditor’s petition. After unsuccessful attempts to obtain Ms Low’s address for personal service (by letters sent to her two Post Office Box addresses and her email address) so that the creditor’s petition could be served upon her personally (details of which are provided in Mr Shafiq’s affidavit), the petitioning creditor sought and obtained an order for substituted service in relation to the creditor’s petition.
In oral submissions, Ms Low also appeared to suggest generally that the court had been “misled” in some unspecified manner in relation to that application for substituted service of the creditor’s petition. There is however no evidence before the court to support or substantiate any claim impugning the order for substituted service of the creditor’s petition or the basis on which it was made.
In the absence of an order for substituted service it is necessary to serve a creditor’s petition and accompanying documents personally (see ss.52(1)(b) and 309(2) of the Bankruptcy Act and rr.3.01 and 4.05 of the Federal Circuit Court (Bankruptcy) Rules 2006). Mr Shafiq’s affidavit details attempts made to locate Ms Low to enable the Owners Corporation to serve her personally with the creditor’s petition. This included attempts by mail, email, and by message left on a mobile telephone number which Ms Low does not dispute is hers (and which she subsequently used to send a text message to the petitioning creditor’s solicitors after she was made bankrupt).
On 15 June 2015 the Owners Corporation applied for an order for substituted service in relation to the creditor’s petition.
On 16 June 2015, the petitioning creditor’s solicitors received a letter from Ms Low taking issue with her liability for any debt. Her letter was said to be in response to a telephone conversation with Mr Jeffrey Mueller of 10 June 2015. Ms Low made allegations against the managing agent of intimidation, threats, stalking, and attempts to hinder attempts to resolve the matter. Ms Low referred to telephone conversations and messages in which she disputed her liability for the cost of any legal services provided to the Owners Corporation and suggested she had been unable to obtain “substantiation of the billings” from the managing agent.
On 19 June 2015 the solicitors for the Owners Corporation responded to Ms Low’s letter by letter sent to her post office box address and also to her email address. In that letter reference was made to the proceedings in this court. The letter informed her of the amount claimed in what were described as the “current bankruptcy proceedings”. The basis on which this amount was calculated was explained. A copy of the owner’s ledger as at 8 May 2013 (setting out the amount claimed in the creditor’s petition) was enclosed. Ms Low was informed that the amount due by her to the petitioning creditor “in order to have the creditor’s petition dismissed” was $10,512.51. She was advised that the solicitors were instructed to proceed with the creditor’s petition unless the amount claimed therein was paid by her without further delay and also that as she had made no payments on account of levies since 3 May 2013 a considerable further amount was due. The letter referred to lengthy correspondence with her two years previously about the amount claimed.
On 23 June 2015 a registrar of this court made orders for substituted service of the creditor’s petition. Order 1 expressly dispensed with the need for personal service of the creditor’s petition. Order 2 provided that service on Ms Low of the petition and copies of the affidavits verifying the petition, the affidavit of service of the bankruptcy notice, any consent of a registered trustee and a sealed copy of the order be effected by sending such documents by prepaid post to the two post office box addresses and the unit address that had been specified in the orders for substituted service of the bankruptcy notice; by handing copies to any person apparently over the age of 16 years at the Wollongong unit or, if that was not possible, by affixing to the front door or leaving in the mailbox of the premises at that address, copies of those documents in an envelope addressed to Ms Low; by scanning and sending copies by email to her at her email address; and also by sending a text (SMS) message to Ms Low on her mobile phone number advising her that the creditor’s petition had been sent to/or left at the specified addresses.
Order 3 provided that the creditor’s petition should be deemed to be served on Ms Low five working days after service in accordance with the orders.
Mr Jones attested to service by leaving the specified documents in Ms Low’s Wollongong unit letterbox on 2 July 2015. Mr Mueller attested to service by each of the other methods specified in the orders. The copies of the creditor’s petition served on Ms Low were, in accordance with the orders for substituted service, amended to state that the date of the hearing of the petition was 11:00am on 20 July 2015. This was the date on which the petition was heard and the sequestration order was made. I am satisfied, on the basis of the affidavits of Andrew Jones sworn on 2 July 2015 and Jeffrey Steven Mueller sworn on 7 July 2015, that the creditor’s petition was served in accordance with each of the methods specified in the orders for substituted service.
As the requirement for personal service was dispensed with by order of the court, the creditor’s petition was deemed to have been served on Ms Low, notwithstanding her contention that she did not receive a copy of the creditor’s petition. On the evidence before the court, I am satisfied with proof of service of the petition.
In addition to the affidavits referred to above, the Owners Corporation filed and relied on affidavits of debt and final search sworn on 2 February 2016 for the purposes of the hearing of the review application. I am satisfied that the debt on which the petitioning creditor relies is still owing.
Insofar as Ms Low disputed her liability for the debt, it has not been established that it is appropriate to go behind the judgments obtained in the Local Court of New South Wales in relation to proof of the debts relied on to found the creditor’s petition in the sense considered in Wren v Mahoney (1972) 126 CLR 212; [1972] ALR 307. Substantial reasons have not been given for questioning whether, behind those judgments, there was, in truth and reality, a debt due to the petitioning creditor. I note that while the judgments relied on were obtained by default, Ms Low had and took the opportunity to challenge those judgments by way of notice of motion. Her motions were unsuccessful. However it cannot be said that Ms Low had no opportunity to engage in a trial of any of the issues. There is no evidence of fraud or collusion (notwithstanding unsubstantiated assertions by Ms Low disputing her liability). There is no reason to doubt that the judgments were founded on real debts.
In her “affidavit” of 6 January 2016 Ms Low claimed that the sequestration order relied on “unsubstantiated claims which contravened NSW Consumer Laws or State laws as the Managing Agent failed to explain and/or substantiate invoices” and that she had been unsuccessful in obtaining information from the managing agent (in particular itemised invoices). She repeated these claims in her post-hearing submissions, contending that the legitimacy of the claims could not be confirmed and that the case was “a vendetta, malicious violence, revenge, fraud etc”. She complained generally about the managing agent’s alleged failure or refusal to assist her with “reconciliation of the charges”.
However these general claims do not amount to substantial reasons for doubting whether there is a debt due to the Owners Corporation or, more generally, a liability for levies and other charges pursuant to the Strata Scheme Management Act 1996 (NSW). I note that, as attested to by Mr Shafiq, Ms Low was provided with itemisation of the sum claimed in relation to the owner’s ledger utilised at the time of the Local Court proceedings. She had the opportunity to challenge the debt or any component of the debt in her application to set the judgments aside. She was also provided with copies of subsequent owner’s ledgers in 2015 and February 2016. She had the opportunity to make post-hearing submissions in that respect addressing any issues arising out of the owners’ ledger. She raised no specific issues in these proceedings that establish even an arguable case for doubting whether there really is a debt due to the Owners Corporation (see Ali v Retail Decisions Pty Ltd [2012] FCA 1130 at [25]). In particular, her very general assertions of fraud and miscarriage of justice do not suffice.
Ms Low complained in submissions that the managing agent did not keep or provide her with levy notices so that she could not confirm the amount due and submitted on this basis that it was “irresponsible to expect payment of the bill to encourage unacceptable behaviour” and that there would be “no payment until addressed”.
There is no evidence to support these assertions. I note in any event that under s.78(6) of the Strata Schemes Management Act 1996 (NSW) “[r]egular periodic contributions to the administrative fund and sinking fund of an owners corporation are taken to have been duly levied on an owner of a lot even though notice levying the contribution was not served on the owner” (and see Coshott v Owners of Strata Plan No. 48892 [2006] NSWSC 308 at [39] and Owners of Strata Plan No. 50164 v O’Connor [2010] FMCA 833 at [55]).
The fact that Ms Low now takes unsubstantiated and general issue with the record keeping of the managing agent and asserts that the agent engaged in “binning monies into different buckets to utilize time than (sic) exact figures, correct period to appropriate and legitimate billing” does not establish a basis on which to go behind the Local Court judgments. Ms Low’s contentions are not such to satisfy me that I should not accept the Local Court judgments as satisfactory proof of the debt to the Owners Corporation of the amount of such judgments and interest thereon.
I am satisfied with proof of the matters specified in s.52(1) of the Bankruptcy Act.
Section 52(2) of the Act
I have considered whether Ms Low has satisfied me that she is able to pay her debts within s.52(2)(a) of the Bankruptcy Act or that for other sufficient cause a sequestration order ought not to be made (see s.52(2)(b)).
Prior to the hearing Ms Low was given more than one opportunity to file affidavit evidence in support of the proposition that she was able to pay her debts within s.52(2)(a) of the Act or to establish solvency for the purposes of her annulment application. I explained to her the relevance of such evidence. However while she subsequently filed further affidavit evidence, it contained no information as to her financial position. In addition, notwithstanding requests from the trustees of her bankrupt estate, Ms Low has failed to complete a statement of affairs or to provide requested information.
Ms Low bears the burden of establishing that she is able to pay her debts within the meaning of s.52(2)(a) of the Act. Clearly a debtor who is in a position to pay all the debts that she owes within a reasonable period ought not to be subject to a sequestration order. There is authority to suggest that this does not necessarily require the debtor to have sufficient cash at hand or available on deposit to pay all creditors, provided she has other realisable assets (Sandell v Porter & Anor [1966] HCA 28; (1966) 115 CLR 666 at 670). Moreover, the mere fact that a person might be described as a “recalcitrant debtor” is not of itself such as to warrant bankruptcy (see Re Sanders; Knudsen and Yates (t/a The Hargreaves Practice) v Sanders [2003] FCA 1079 at [23]). However, such a person will have to establish solvency in the sense specified in s.52(2)(a), that is, that she has the “ability to pay [her] debts, as and when they become due and payable” in the “reasonably immediate future” (Re Sanders at [26] and cases cited therein).
In considering whether a person is able to pay her debts for the purposes of s.52(2)(a), it is not sufficient for a debtor merely to establish that her assets exceed her liabilities in value (Eykamp v Deputy Commissioner of Taxation [2010] FCA 797 at [5]). The debtor must establish that her assets are “available to be realised and capable of ready realisation” (see Bennett J in Re Sanders at [22]). In this context it is relevant to have regard to the debtor’s financial position “in its entirety” (Sandell v Porter at 670). I have borne in mind that as pointed out in Sandell v Porter at 671 “generally speaking [a conclusion of insolvency] ought not to be drawn simply from evidence of a temporary lack of liquidity”.
However, as Buchanan J stated in Eykamp at [7]:
Under an earlier definition in the [Bankruptcy] Act considered in Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 it was necessary for a debtor to be able to pay debts as they fell due out of the debtor’s own money. Such monies extended to those capable of being procured by sale, by mortgage or pledge of assets of the debtor’s within a relatively short time. A more flexible position now obtains. I note that in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 Katz J favoured the view that the necessity to pay a debt from a person’s own money continued to be an important element in the scheme established under the Act (see e.g. s 124(3)(a) of the Act). However, with respect, so far as it concerns consideration of whether a person is, or is not, solvent, I prefer the view taken by Palmer J in Lewis v Doran [2004] NSWSC 608; (2004) 184 FLR 454 at [116] (see on appeal Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [109] – [112]) to which I subscribed, with the agreement of Marshall and Tracey JJ, in Whitton at [34] – [38]. Accordingly it would not be impermissible to pay regard to the fact that Mrs Eykamp could raise sufficient money to pay the debt, whether or not that was the direct result of sale, mortgage or pledge of her assets. However, whatever mechanism is employed to secure the necessary funds, and satisfy the Court that it provides adequate evidence of solvency, it remains necessary that it produce results within a realistic frame time (Sandell v Porter at 670, Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [187]).
Thus, in considering whether Ms Low has established that she is able to pay her debts, including debts that would fall due in the reasonably immediate future, it is relevant to have regard to her income and assets and also to any prospect that she can obtain funds by realisation of assets by sale, mortgage or pledge within a relatively short time, relative to the nature and amount of the debts and in all the circumstances.
Despite Ms Low’s failure to put any evidence of solvency before the Court I have considered such evidence as is available. Some very limited information about Ms Low’s financial situation was obtained by the trustees as a result of initial inquiries (in particular as to her ownership of the Wollongong unit). The trustees obtained an online appraisal which indicated that the likely market value of this property was between $314,500 and $425,500 and reported that a registered mortgage over the property was satisfied in 1995. There is also evidence that at the time of the sequestration order Ms Low held shares in the Commonwealth Bank of Australia Limited and Telstra Corporation Limited to an estimated value (at the time of the trustee’s report) in the order of $33,256. On the basis of such initial information identified, assets of Ms Low were to a value of about $403,256.
Ms Low did disclose (in her review application) that she had a superannuation account, but did not disclose the balance of the account. The trustees were unable to confirm the balance or availability of funds, as insufficient details were provided by her.
As at the date of the appointment of the trustees, they were aware of a debt of approximately $33,258 owing by Ms Low to the Owners Corporation, as well as costs of over $10,460, outstanding council rates of over $8,490 and over $783 owed to the Deputy Commissioner of Taxation in respect of outstanding income tax (a total of about $52,996).
It is the case that if these figures were an accurate reflection of Ms Low’s financial position, she would appear, on a balance sheet approach, to have assets exceeding her debts. However, in the face of her failure to file affidavit evidence in this respect (or even to complete a statement of affairs), I cannot be satisfied that this is the case. In particular, there is no evidence at all from her as to the extent of any debts owed by her. Nor is there any evidence that she is employed. It is not possible on the information before the court to be satisfied as to whether Ms Low earns any income available to pay debts. She has not paid her strata levies and there is no evidence to support any suggestion that she has cash available to meet her debts from her own resources as they fall due on a cash flow test. In any event, the mere fact of an excess of assets over liabilities would not of itself be such as to satisfy the requirement that a debtor could procure moneys within a relatively short or reasonable time such as to enable her to meet her debts. As Buchanan J pointed out in Eykamp (at [5]):
...establishing solvency involves more than a mechanical comparison between the extent of the liability upon which a creditor relies and the apparent value of assets possessed by a debtor, should they be able to be realised.
On the limited information obtained by the trustees it would appear that payment of Ms Low’s debts could only be achieved by an immediate sale or refinancing of her Wollongong unit. The appraisal of the property is not evidence that the property is capable of being sold within the reasonably immediate future or a relatively short time.
Nor is the evidence before the court such as to support, let alone establish, any proposition that Ms Low is in a position to borrow money or refinance the Wollongong unit to pay her debts in the sense considered in Sandell v Porter at 670, particularly given the absence of any evidence that she is in employment. I note that Ms Low has not provided her address to the trustees. It is not clear whether the Wollongong unit is her home (see International Alpaca Management Pty Ltd v Ensor [1999] FCA 72). In any event, in the absence of evidence as to the extent of Ms Low’s indebtedness I cannot be satisfied that she has assets that could be realised in a relatively short time sufficient to enable her to pay all her debts (Sandell v Porter at 670 to 672).
Ms Low has not met the onus of proving that she can pay her debts within the meaning of s.52(2)(a) of the Bankruptcy Act or, as discussed further below, that the sequestration order ought not to have been made because she was solvent for the purposes of s.153B of the Act. I note in any event that the court has a discretion under s.52(2) as to whether or not to dismiss a petition. This is also relevant in the conduct of a review of a sequestration order as a hearing de novo. In this case, Ms Low’s failure to disclose her financial situation would tell against the exercise of the discretion.
I have also considered whether Ms Low has satisfied me that for other sufficient cause a sequestration order ought not to be made. In essence, this was the main thrust of her argument. In her original review application she complained generally that she had not been given an opportunity to respond to the creditor’s petition and hence was disadvantaged. She claimed that she intended to seek partial withdrawal of her superannuation, that a bankruptcy record could hinder her opportunities to rebuild her life and that “this foreclosure removes my roof”. She further claimed that the first information she received on bankruptcy was a text message from a solicitor for the petitioning creditor after the sequestration order was made and that she had not received relevant documentation. I note that the review application gave her the opportunity to “respond” to the petition.
Ms Low indicated in her application that she would provide further information when able to establish the facts. In her affidavit in support, she reiterated that, to the best of her knowledge, she had not received correspondence and/or notice of the intention to take such drastic (bankruptcy) action until after the fact. In her affidavit of 13 November 2015 she claimed she was not made aware of or given an opportunity to respond to the petition and that the solicitor for the petitioning creditor had been advised of what she described as a “need for documentation”. In her affidavit of 6 January 2016 (which is for the most part in the nature of submissions) she claimed that the sequestration order relied on:
…unsubstantiated claims which contravened NSW consumer laws or state laws as the managing agent failed to explain and/or substantiate invoices.
Ms Low also complained that she had made unsuccessful attempts to obtain information, in particular an “itemised invoice” from the managing agent or body corporate, that she had drawn this to the attention of the solicitor for the Owners Corporation who was said to have “failed to exercise duty of care and her expert knowledge to seek alternatives such as provide assistance”, that the principal of the firm was aware of this and that those solicitors intended to “solicit for business”. She seemed to suggest that the solicitor for the Owners Corporation should, as part of his obligation to his client, have ordered the managing agent to provide her with the information she requested.
Ms Low also suggested that the court should question the exact intention of these proceedings which were said to be an “abuse of the legal system and deliberately exploited as the legal system could split costs despite being misled (deliberately and/or unintentionally)”.
Ms Low took issue generally with the effect of bankruptcy, suggesting that other alternatives would have been available where all that was in issue was money being owed. She complained (apparently in attempted justification for her failure to provide information as to her solvency) that the strategy adopted forced disclosure “to attack the victim” and that the underlying question was whether there was a refusal to pay or an inability to pay and that she refused to be “blackmailed”.
First, insofar as Ms Low relies on the claim that she was not notified of bankruptcy proceedings, as discussed above the evidence from Mr Shafiq makes it clear that Ms Low was aware of the issue of the bankruptcy notice at the time she sought to have the Local Court judgments set aside. Moreover in addition to correspondence from the solicitors for the petitioning creditor in relation to the debt and the manner in which it was calculated, Ms Low was given a copy of the relevant owner’s ledgers at the time she sought to have the judgments set aside.
Both the bankruptcy notice and the creditor’s petition were served in accordance with orders for substituted service. Ms Low’s letter of 16 June 2015 to the petitioning creditor’s solicitors indicates at least some awareness of these matters. In response to that letter, the petitioning creditor’s solicitors again provided Ms Low with detailed information in relation to the manner in which the debt claimed was calculated, explaining that it consisted of the amounts due pursuant to judgments on account of levies due, interest and legal fees, as well as a further amount due, together with interest and legal fees, claimed as a statutory debt pursuant to s.80(1) of the Strata Schemes Management Act 1996 (NSW).
At that time, the solicitors provided Ms Low with a copy of the owner’s ledger as at the date on which the creditor’s petition was issued and explained that the amount of $10,512.51 was due in order to have the creditor’s petition dismissed and also advised that as she had made no payments on account of levies since 3 May 2013, a considerable further amount was due to the petitioning creditor. The letter concluded by indicating that the amount claimed had been the subject of lengthy correspondence over two years earlier and not only had Ms Low made no further payments during that period, she had also avoided any contact with the solicitors, despite their attempts on numerous occasions to contact her.
Given that the orders for substituted service were complied with and having regard to these matters and the opportunity afforded to Ms Low in these proceedings, I am not satisfied that Ms Low’s claims in relation to a failure to be aware of or notified about bankruptcy proceedings provides any basis on which a sequestration order ought not to be made, whether considered alone or in conjunction with all of the other issues that she raises. As the hearing of the review application was a hearing de novo Ms Low has had the opportunity to raise any matters she wished to raise in opposition to a sequestration order.
Insofar as Ms Low relied on a contention that she had been unsuccessful in obtaining information from the managing agent and/or the body corporate, the petition relies on a bankruptcy notice based on judgment debts which she unsuccessfully challenged. These claims do not provide a basis to establish other sufficient cause within s.52(2)(b) of the Act.
Ms Low’s general claims about the conduct of the solicitors for the petitioning creditor are unsubstantiated and do not amount to other sufficient cause. In particular, it has not been established that there was fraud or an abuse of process such as to constitute other sufficient cause. It is not fraud or an abuse of process to petition for a sequestration order with an indirect motive in the sense considered in Poulson; Ex parte Hempenstall Bros Limited (No 1) (1929) 1 ABC 54. Ms Low has not met the heavy onus of establishing that the bankruptcy proceedings were used as a means of extortion or some illegitimate purpose accompanied by a real exertion of pressure (see Rozenbes v Kronhill (1956) 95 CLR 407 [1956] ALR 1004). Contrary to any allegation to that effect by Ms Low, there is no evidence before the court as to any improper motive on the part of the petitioning creditor or that the predominant purpose was to use the legal process for a purpose other than that for which it was designed (see Williams v Spautz (1992) 174 CLR 509; [1992] HCA 34 at 526 to 527).
I am not satisfied on the evidence before the court that the heavy onus of establishing abuse of process has been met, or that in any other way the circumstances complained of by Ms Low (which consist in essence of unsubstantiated assertions) amount to other sufficient cause within s.52(2)(b) of the Bankruptcy Act.
Contrary to Ms Low’s submission, the fact that other remedies may be available for securing repayment of a debt is not sufficient cause to dismiss the petition given that, as stated by Jacobson, Edmonds and Barker JJ in O’Farrell v Palicave Pty Ltd (2009) 176 FCR 134; [2009] FCAFC 64 at [24]:
...the authorities recognise that a creditor may proceed in insolvency for the purposes of recovering his or her debts.
Even if, in some circumstances, the fact that a petitioning creditor has other equally good facilities to enforce a judgment may constitute sufficient cause to dismiss a petition, it has not been established that that is so in the present case.
In these circumstances, the application for review of the sequestration order must be dismissed and the sequestration order affirmed.
Annulment
I have also considered Ms Low’s application as an application for annulment of her bankruptcy under s.153B of the Bankruptcy Act (see Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153).
In that context I have considered whether I am satisfied that the sequestration order ought not to have been made. I note the discretionary nature of an order for annulment and have considered the principles summarised by the Full Court of the Federal Court in Stankiewicz v Plata [2000] FCA 1185 in relation to whether a sequestration order “ought not to have been made”.
As discussed above, I am not satisfied on the limited financial evidence before the court that Ms Low is solvent. She has had the opportunity to put evidence before the court in that respect. I have had regard to the fact that despite such opportunity Ms Low has not provided any relevant material in relation to her financial position to enable the court to be properly informed and to make a judgment based on the full facts and circumstances (see Re Papps; Ex parte Tapp (1997) 78 FCR 524; [1997] FCA 1031). Nor, for the reasons discussed, has it been established that the sequestration order was an abuse of process or that the proceedings were otherwise such that the sequestration order ought not to have been made. It has not been established that this is an appropriate case in which to go behind the judgments of the Local Court. There is nothing in the material before the court to support any contention that there was no debt upon which the bankruptcy proceedings could have been based.
A sequestration order which was made without proper service should be annulled. I have borne in mind that the making of a sequestration order is a serious matter and that in such circumstances it is critical that proper service be established. In this case the bankruptcy notice and the creditor’s petition were served in accordance with orders for substituted service.
There may be cases in which a creditor’s petition was served in accordance with orders for substituted service, but the bankruptcy ought to be annulled because the orders were not such that there was a reasonable probability that the petition would be brought to the notice of the debtor. This is not such a case. As indicated, the creditor’s petition was served in a number of ways, including to the two post office box addresses and the residential address which Ms Low continues to maintain, to her email address and by notification by SMS to the telephone number which she used in communications with the solicitors for the petitioning creditor.
Furthermore, even if I am wrong and the sequestration order ought not to have been made, I would, in the exercise of my discretion, refuse the application, having regard to my inability to be satisfied by Ms Low that she was at the relevant time solvent and to her conduct during the course of her bankruptcy, in particular her failure to complete a statement of affairs as required under the provisions of the Bankruptcy Act and to otherwise cooperate with her trustees in Bankruptcy as attested to in some detail in the trustees’ report.
I note that one of the matters to which the court may have regard is the interests and wishes of unpaid creditors. In circumstances where Ms Low has neither informed the court or the trustees of her creditors nor given the requisite notice to creditors of these proceedings, this factor does not assist her.
In all the circumstances and having regard to the public interest underlying the Bankruptcy Act and the need for the orderly administration of a debtor’s estate to meet legitimate claims of creditors, the application for an annulment should be dismissed.
I certify that the preceding ninety-eight (98) paragraphs are a true copy of the reasons for judgment of Judge Barnes
Date: 22 April 2016
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