Mailau v Kennards Hire Pty Ltd
[2014] FCCA 2959
•18 December 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MAILAU v KENNARDS HIRE PTY LTD | [2014] FCCA 2959 |
| Catchwords: BANKRUPTCY – Application for review of sequestration order made by Registrar – whether bankruptcy notice was served on debtor – whether creditor’s petition was served on debtor – whether debtor able to pay his debts – whether order should be made dispensing with the requirement under r.2.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) that an application for review be made within 21 days of the Registrar’s decision to make a sequestration order – whether Court should instead made an order under s.153B of the Bankruptcy Act 1966 (Cth) annulling the bankruptcy. |
| Legislation: Bankruptcy Act 1966 (Cth), s. 5(2), 52(1), 52(2)(a), 52(2)(b), 153B, 154 Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), r. 2.03, 4.02(1), 4.02(2), 4.04(1)(a), 4.06(2), 4.06(4) Federal Circuit Court of Australia Act 1999 (Cth), s. 104(2) |
| Australian and New Zealand Banking Group v Daher [2014] FCCA 365 Kyriackou v Shield Mercantile Pty Ltd(No 2) [2004] FCA 1338 |
| Applicant: | TEVITA MAILAU |
| Respondent: | KENNARDS HIRE PTY LTD ACN 001 740 727 |
| File Number: | SYG 1214 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 2 December 2014 |
| Delivered at: | Sydney |
| Delivered on: | 18 December 2014 |
REPRESENTATION
| Solicitors for the Applicant: | Mr D. Robens of Kamy Saeedi Law |
| Counsel for the Respondent: | Mr D.W. Robertson |
| Solicitors for the Respondent: | BBW Lawyers |
ORDERS
Pursuant to s.153B of the Bankruptcy Act 1966 (Cth) the bankruptcy of Tevita Mailau is annulled.
Should any party wish to apply for an order for costs, he or it must do so by filing an application in a case seeking such order, together with any supporting affidavit, by 31 January 2015.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1214 of 2014
| TEVITA MAILAU |
Applicant
And
| KENNARDS HIRE PTY LTD ACN 001 740 727 |
Respondent
REASONS FOR JUDGMENT
Introduction
On 20 August 2014 a Registrar of this Court made a sequestration order against the estate of Mr Mailau. The sequestration order was made on the petition of Kennards Hire Pty Ltd (Kennards).
The act of bankruptcy specified in the creditor’s petition is Mr Mailau’s failure to comply with a bankruptcy notice demanding payment of $11,266.20. That is the amount of a default judgment Kennards recovered against Mr Mailau in the Local Court at Balmain, together with interest.
Mr Mailau now applies for a review of the Registrar’s decision.[1] Because Mr Mailau filed his application for review more than 21 days after the date on which the Registrar made the sequestration order, Mr Mailau requires a direction from the Court dispensing with the requirement that Mr Mailau apply for a review within 21 days.[2] Mr Mailau also applies, for an order under s.153B of the Bankruptcy Act 1966 (Cth) (Act) annulling the bankruptcy.
[1] Under s.104(2) of the Federal Circuit Court of Australia Act 1999 (Cth)
[2] See r.2.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (Bankruptcy Rules)
Applications for review and annulment
On an application for review of a Registrar’s decision to make a sequestration order, the Court must consider whether the petitioning creditor has proved the matters specified in s.52(1) of the Act.[3] These include, among other things, that the debtor committed an act of bankruptcy in Australia during the six-month period before the creditor’s petition was filed, the creditor’s petition has been served, and the debtor still owes the debt on which the creditor relies. The onus of proving these matters rests on the petitioning creditor.
[3] Australian and New Zealand Banking Group v Daher [2014] FCCA 365 at [23]-[25]
If the petitioning creditor proves those matters, but the bankrupt seeking the review claims the Court ought not to make a sequestration because he or she can pay his or her debts, or for some “other sufficient cause”, the Court must also consider whether a sequestration order ought not to be made. The bankrupt bears the onus of proving these matters, and persuading the Court not to make a sequestration order for these reasons.
Where, as is the case here, the application for the review of a sequestration order is made after the 21 day period provided for in r.2.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) (Bankruptcy Rules), the Court must ordinarily consider the matters it would consider if the application were made within the permitted time. It usually must do so to determine whether there would be utility in reviewing the Registrar’s decision. The Court, however, must consider at least two other matters. The first is why the application for review was not brought within the time allowed under r.2.03 of the Bankruptcy Rules. The second is whether any steps have been taken by persons as a consequence of the making of the sequestration order and, if the sequestration order were to be set aside, whether the persons who have taken such steps will suffer prejudice. The person who is most likely to be in that position is the trustee in whom the bankrupt’s estate has been vested on the making of the sequestration order.
When considering an application under s.153B of the Act for the annulment of a bankruptcy made on presentation of a creditor’s petition, the Court will consider the same matters as it considers when reviewing the Registrar’s decision to make a sequestration order. Where a bankruptcy is annulled under s.153B of the Act, however, the trustee will have the benefit of the rights conferred by s.154 of the Act. These include the right to apply the property of the bankrupt that has been vested in the trustee to pay for the remuneration and expenses of the trustee. The trustee has no such right if the sequestration is set aside.
Issues on Mr Mailau’s application
The grounds on which Mr Mailau applies for a review of the Registrar’s decision and for an order annulling the bankruptcy are the same. Mr Mailau claims he was not served with the statement of claim on the basis of which Kennards recovered its default judgment against him; and Mr Mailau denies he was served with the bankruptcy notice or had knowledge of the creditor’s petition.[4] Mr Mailau claims he first became aware that Kennards had taken any bankruptcy proceedings against him when Mr Mailau contacted an employee of the trustees on 3 September 2014.[5] Mr Mailau also claims he is able to pay his debts.
[4] T. Mailau affidavit, 26.09.14, [5]
[5] T. Mailau affidavit, 26.09.14, [4]
There are, therefore, up to four questions I must consider.
a)The first is whether Kennards can prove the matters prescribed by s.52(1) of the Act. The principal issues that arise on that question are whether Mr Mailau was served with the bankruptcy notice and the creditor’s petition.
b)If (a) is answered in the affirmative, there are up to two questions I must consider. One is whether Mr Mailau can prove he was not served with the statement of claim that led to the entry of default judgment in the Local Court. The other question is whether Mr Mailau is able to pay his debts
c)If any one of the questions in (b) is answered in the affirmative, should the Court set aside the sequestration order and dismiss the creditor’s petition, or should it instead make an order under s.153B of the Act annulling Mr Mailau’s bankruptcy?
Before I consider these questions, it will be necessary to set out in some detail the relevant facts that are not in dispute, and the conflicting evidence on those issues of fact about which there is dispute.
Background
Kennards is in the business of leasing equipment. It conducts at least part of its business from 1 Townsville Street, Fyshwick, in the Australian Capital Territory.[6] Mr Mailau operates a business through a company known as TTM Corporation Group Pty Limited (TTM)[7] whose headquarters are located at 151-155 Gladstone Street, Fyshwick.[8]
[6] L. Ormazabal affidavit, 10.10.14, annexure “A”
[7] T. Mailau affidavit, 26.09.14, [9], annexure “B”
[8] 02.12.14, T39.15
On 19 April 2013 Mr Mailau collected a pressure washer for hire from Kennard’s premises at 1 Townsville Street.[9] Immediately before Mr Mailau collected the pressure washer from Kennards, he provided his driver’s licence to an employee at Kennards. [10] The driver’s licence showed an address in McKellar in the Australian Capital Territory.[11] Mr Mailau claims that is the address of Mr Mailau’s parents, and is an address at which Mr Mailau says he has not lived for some twenty years.[12] That address, together with other information, was recorded by a Kennards’ employee and then included in a document described as a “Hire Schedule”.[13]
[9] L. Ormazabal affidavit, 10.10.14, annexure “A”; 02.12.14, T31.25
[10] 02.12.14, T31.20-31.30
[11] 02.12.14, T29.30
[12] 02.12.14, T30.15-30.25
[13] L. Ormazabal affidavit, 10.10.14, annexure “A”
According to Mr Mailau, he hired the pressure washer on a Saturday, and he personally returned it to Kennards on the following Monday.[14] The date the Hire Schedule specifies as the date of hire is 19 April 2013. That was a Friday.
[14] T. Mailau (Local Court) affidavit, 23.09.14, [12] (T. Mailau affidavit, 26.09.14, annexure “A”, page 8)
According to Mr Mailau, in or about April 2013 a staff member from Kennards telephoned him and Mr Mailau and that staff member had a conversation to the following effect:[15]
Staff:We have a record that you hired a pressure cleaner that has not been returned. We will need you to return the machine or we will charge you for the replacement cost.
Mr Mailau:I hired that machine on Saturday and I returned it myself the following Monday. I do not have it anymore so I will not agree to paying the replacement cost.
[15] T. Mailau (Local Court) affidavit, 23.09.14, [12] (T. Mailau affidavit, 26.09.14, annexure “A”, page 8)
Mr Mailau’s credit card was charged with $1,000 on 1 May 2013 and a further sixteen charges totalling $1,040 on 23 May 2013.[16] In evidence given under cross-examination, Mr Mailau said that the charges to his credit card were made “[i]n and around about a month” after he returned the pressure washer.[17] Mr Mailau says he called the bank to find out who was debiting his credit card.[18] He was informed that Kennards was debiting his account.[19] Mr Mailau, however, did not attempt to contact Kennards after he was informed Kennards had debited his account.[20]
[16] T. Mailau (Local Court) affidavit, 23.09.14, [13], [14], annexure “A3”, T. Mailau affidavit, 26.09.14, annexure “A”, pages 8, 64, 67-68)
[17] 02.12.14, T32.5
[18] 02.12.14, T32.10
[19] 02.12.14, T32.20-32.25
[20] 02.12.14, T32.30
On 30 June 2013 Kennards generated an invoice addressed to Mr Mailau.[21] The invoice includes the following details:
[21] L. Ormazabal affidavit, 10.10.14, annexure “B”
Invoice Date: 30/06/2013
Invoice Type: HIRE
Hire Schedule No: 2403476
The particulars of the invoice described the pressure washer as “Plant Sold”, and listed the price of $7,127.30.
In addition, Kennards generated an invoice dated 1 July 2013 addressed to Mr Mailau charging $712.73 for what the invoice states is a “LATE PAYMENT FEE”.[22]
[22] L. Ormazabal affidavit 10.10.14, annexure “C”
Kennards commenced proceedings in the Local Court at Balmain. The statement of liquidated claim by which Kennards commenced those proceedings is not in evidence. There is in evidence, however, an affidavit of service made by Mr Luke Shannon Tierney in which he deposes:[23]
[23] L. Ormazabal affidavit, 10.10.14, annexure “F”
On Tuesday 5 November 2013 at 04:40 pm, I served Tevita MAILAU with the following documents:
Statement of Claim filed in these proceedings on 30 September, 2013.
Notice to Defendant Service and Execution of Process Act 1992 Form 1.
I served the documents by delivering them to a male person apparently over the age of sixteen years and residing or apparently residing at [the McKellar address] in the aforesaid State, being Tevita MAILAU’s most usual place of abode.
At the time of service I asked: “Does Tevita MAILAU live here?” the male replied: “Yes.”
Mr Mailau has deposed that he did not become aware of the Local Court proceedings until his solicitor forwarded to him an email from Neerja Malwade sent on 15 September 2014.
In any event, no defence was filed to the statement of liquidated claim. On 10 December 2013, therefore, Kennards applied for and obtained default judgment against Mr Mailau; and, on 28 February 2014, bankruptcy notice BN 169839 was issued against Mr Mailau demanding payment of the judgment Kennards obtained against Mr Mailau, together with interest.
Mr Shaun Patrick Tierney has sworn that he served the bankruptcy notice on Mr Mailau on 11 March 2014:[24]
[24] S. P. Tierney affidavit, 12.03.14
On the 11th day of March 2014 at 1:30pm, I served TEVITA MAILAU, with an official original Bankruptcy Notice herein issued on the application of KENNARDS HIRE PTY LTD, by delivering an official original copy thereof signed and stamped by the Official Receiver together with a sealed copy of the Judgment/Order obtained in the Supreme Court of New South Wales [sic], by delivering the same to Tevita Mailau personally at Suite 11, 151 – 155 Gladstone Street, Fyshwick in Australia’s Capital Territory.
At the time of service the following conversation took place:
I said: “Are you Tevita Mailau?”
To which the reply was “Yes.”
As I have noted above, 151-155 Gladstone Street, Fyshwick, is the headquarters of TTM.
Mr Mailau denies he was served with the bankruptcy notice.[25] He deposes that he does not “meet with anyone at my office without a prior appointment being made”. He further deposes that this “is an essential precaution in the security industry which is strictly enforced by my staff”.[26] Mr Mailau also deposes that he does not go by the name “Tevita” but by the name “David Mailau”, and that all his staff know him as “David Mailau”.[27] Mr Mailau further says that if “someone attended my premises and asked for Tevita that would cause confusion and would have been a memorable event”.[28] Mr Mailau says he first became aware of the bankruptcy notice on 3 September 2014 when a staff member handed to him copies of documents sent to her from the trustees’ office.[29]
[25] T. Mailau (Local Court) affidavit, 23.09.14, [19] (T. Mailau affidavit, 26.09.14, annexure “A”, page 8)
[26] T. Mailau (Local Court) affidavit, 23.09.14, [20] (T. Mailau affidavit, 26.09.14, annexure “A”, page 9)
[27] T. Mailau (Local Court) affidavit, 23.09.14, [21] (T. Mailau affidavit, 26.09.14, annexure “A”, page 9)
[28] T. Mailau (Local Court) affidavit, 23.09.14, [21] (T. Mailau affidavit, 26.09.14, annexure “A”, page 9)
[29] T. Mailau affidavit, 26.09.14, [4]
The bankruptcy notice has not been complied with. That led to Kennards filing a creditor’s petition on 6 May 2014. On 21 July 2014 a Registrar of the Court made an order dispensing with personal service of the creditor’s petition. That order was obtained on the basis of an affidavit sworn by Mr Arlen Tierney on 3 June 2014.[30] In that affidavit, Mr Tierney deposes he attempted to serve, among other things, the creditor’s petition on Mr Mailau on three occasions at Suite 11, 151-155 Gladstone Street, Fyshwick as follows:[31]
[30] L. Ormazabal affidavit, 01.07.14, annexure “C”
[31] L. Ormazabal affidavit, 01.07.14, annexure “C”
On 15/05/14 at 4:00 pm I attended Suite 11, 151 - 155 Gladstone Street, FYSHWICK. This is a business called TTM Security. The door was locked with no person in attendance.
On 20/05/14 at 10:00 am I attended Suite 11, 151 - 155 Gladstone Street, FYSHWICK. The entrance to the office was again locked. Despite door knocking the premises I was unable to get a response.
I speak to neighbouring businesses who advised Tevita Mailau better known as David was currently in the premises as they had seen him enter 15 minutes earlier.
I again knock on the door but there was no answer.
On 26/05/14 at 2:00 pm I attended Suite 11, 151 - 155 Gladstone Street, FYSHWICK. I spoke with a female working at the address (she answered the door). She confirmed the respondent was currently in the office.
She went to the rear of the premises and later returned to me stating the respondent was not in it [sic] was unsure when he would be returning. I asked if something was left, would the respondent receive it.
The female states he would get it.
The Registrar ordered that the creditor’s petition, and other documents, be served by sending by pre-paid post the creditor’s petition to Suite 11, 151-155 Gladstone Street, Fyshwick South and by handing the document to a person apparently over the age of sixteen years or, if that is not possible, by leaving the document in a letter box or by affixing it to the front door in a sealed envelope addressed to Mr Mailau at Suite 11, 151-155 Gladstone Street, Fyshwick South.
On 7 August 2014, Mr Shaun Patrick Tierney swore an affidavit in which he deposed that he placed in a sealed envelope addressed to Mr Mailau a notice of appearance, the order dated 21 July 2014, the creditor’s petition, an affidavit verifying paragraph 4 of the creditor’s petition, an affidavit of service of the bankruptcy notice, and a trustee consent to act declaration, and he then affixed the envelope to the front door of the premises at 11, 151-155 Gladstone Street, Fyshwick.
Mr Mailau denies he received notice of any of the documents that have been filed in the proceedings. In any event, on 20 August 2014 a Registrar of the Court made a sequestration order against the estate of Mr Mailau, and Mr Aravanis and Mr Roy became the trustees in bankruptcy.
On 25, 26 and 28 August 2014, an employee of the trustees’ office, Neerja Malwade, attempted to contact Mr Mailau by telephone.[32] On 3 September 2014, Neerja Malwade sent an email addressed to Mr Mailau at “[email protected]”:[33]
[32] R. P. Roy affidavit, 06.11.14, annexure “A”
[33] R. P. Roy affidavit, 06.11.14, annexure “A”
Mr Mailau,
Please be advised that you have been declared bankrupt on 20 August 2014 by [sic] Kennards Hire Pty Ltd and Andrew Aravanis and Ronil Prakash Roy of Aravanis Insolvency have been appointed as Joint and Several Trustees of your bankrupt estate.
Please find attached a copy of the Certificate of Appointment and Sequestration order for your attention.
Please contact me asap on . . . to discuss this matter further.
According to a file note prepared by Neerja Malwade, on 3 September 2014 Neerja Malwade received a telephone call from Mr Mailau, and had a conversation as follows:[34]
Mr Mailau called and advised that he is not a bankrupt and threatened that he would leave the country and would call the Trustees from USA.
He threatened that he would sue Kennards and the Trustees. When asked about his employment he was very vague and stated that he is unemployed and does not have any assets.
He kept threatening and repeating that he would leave the country and would not return. I advised him that he cannot leave the country without the Trustee’s [sic] permission and that he would have to complete the Statement of Affairs in order for the bankruptcy to commence. He kept on saying that he does not owe any money to Kennards and the machine was returned.
He said that he is not going to complete any paperwork and his solicitors would get in touch with our office. I tried asking him questions with respect to his residential address and company but he was not co-operative.
I advised him that . . . [the] paperwork was sent to him at [the McKellar address]. On the same day I forwarded all the initial paperwork and the Statement of Affairs to him at his work email address obtained from his secretary.
[34] R. P. Roy affidavit, 06.11.14, annexure “A”
Mr Mailau did not in the two affidavits he has filed in these proceedings refer to the conversation set out in Neerja Malwade’s file note. Mr Mailau, however, accepted in cross-examination that he called the trustees, but he could not recall the date of the telephone call.[35] In response to the question whether he had a conversation with “Mr Malwade”, Mr Mailau said “I never spoke with a gentleman”.[36] The effect of the conversation as set out in the file note of Neerja Malwade was put to Mr Mailau in cross-examination where cross-examining counsel referred to Neerja Malwade as “he”.[37] Mr Mailau denied he had any such conversation. He said “I never spoke with a gentleman” and that “[t]his conversation never happened with a gentleman. I never spoke to anyone”.[38]
[35] 02.12.14, T47.25
[36] 02.12.14, T47.30
[37] 02.12.14, T47.25-47.40
[38] 02.12.14, T47.40
I cannot accept Mr Mailau’s evidence to the extent he intended to say he spoke to no one from the trustees’ office. Mr Mailau agreed in cross-examination that he called the trustees. He did not in his affidavit of 21 November 2014 address Neerja Malwade’s file note of 3 September 2014, even though that file note was annexed to the affidavit of Mr Roy sworn on 6 November 2014. And there is nothing to suggest Neerja Malwade’s file note is not an accurate record of the conversation it purports to record. I find that a conversation to the effect set out in Neerja Malwade’s file note took place on 3 September 2014.
According to another file note of Neerja Malwade, on 15 September 2014 Mr Mailau telephoned Neerja Malwade, and a conversation to the following effect took place:[39]
[39] R. P. Roy affidavit 06.11.14, annexure “A”
Bankrupt called and wanted to know about bankruptcy and annulment. I advised him that in order to annul his bankruptcy he would need to pay all his debts in full including the Petitioning Creditor’s costs and the Trustee’s fees. I requested him to complete his Statement of Affairs in order for the bankruptcy to commence [sic].
He asked me to forward all the information to him via email. I told him that it has already been forwarded to him on 3 September 2014 but he said he couldn’t find the email and asked me to send it again at his personal email address.
I forwarded the email attaching the SOA and initial correspondence to him at . . . .
Bankrupt advised over the phone that he has received the paperwork and would be completing his Statement of Affairs and forwarding it to our office. He mentioned again that he returned the machine to Kennards and does not have any debt.
When I asked about his assets, the bankrupt confirmed that he jointly owns a property in Wamboin and therefore I requested him to put the details of the property in the SOA. I enquired whether he has any other debts he said he just has a credit card debt.
I advised that the initial paperwork was also sent via mail to [the McKellar address]. I asked whether this is the correct address and he vaguely said yes but did not mention anything else.
Mr Mailau does not address the conversation recorded in this file note in his affidavit of 21 November 2014. In cross-examination, Mr Mailau said he could have called the trustees on 15 September 2014 to ask about annulment but he could not remember.[40] He then said he could recall calling the trustees but denied that one of the matters he discussed was an annulment.[41] Mr Mailau said:[42]
All I discussed was comply [sic] with them and asking them what was this about. They told me so I passed that on to my lawyers.
[40] 02.12.14, T48.1
[41] 02.12.14, T48.5
[42] 02.12.14, T48.5
Mr Mailau disagreed he was told that he would have to pay all his debts, including the trustees’ fees, and that he would have to complete a statement of affairs. Mr Mailau accepted he requested the trustee to provide him with information “in regards to the bankruptcy”.[43] In response to the question that Mr Mailau received the paperwork and that he said he would complete his statement of affairs, Mr Mailau said: “Like I said, I passed that on to my lawyers”.[44]
[43] 02.12.14, T48.20
[44] 02.12.14, T48.25
To the extent Mr Mailau intended in cross-examination to dispute the substance of the conversation set out in Neerja Malwade’s file note of the conversation of 15 September 2014, I prefer what is set out in the file note. Apart from Mr Mailau not addressing in his affidavit Neerja Malwade’s file note of the conversation, Mr Mailau’s evidence on this issue was unsatisfactory. He initially accepted he could have telephoned the trustees about annulment but said he could not remember, yet immediately after he said that he could remember telephoning the trustees but denied that one of the matters he discussed was annulment. Further, on the one hand Mr Mailau appeared to accept that he discussed with the trustees what the bankruptcy was about, and was provided with information through an email, which he forwarded to his solicitor, yet, on the other hand, Mr Mailau did not accept he had a conversation to the effect set out in the file note. The matters the file note records were discussed with Mr Mailau are the very matters it would be expected a trustee or an employee of the trustee would discuss with a bankrupt in response to an inquiry from a bankrupt about what the bankrupt was required to do.
By 15 September 2014 Mr Mailau had engaged solicitors. On that day Mr Mailau’s solicitor, Mr Robens, sent an email to “Ms Malwade” stating that he was “currently taking instructions from Mr Mailau which show that the sequestration order should not have been made”, and that he expected “to make an application under s 153B seeking to have the bankruptcy annulled”. Mr Robens requested a copy of various documents, including affidavits of service.
Was the bankruptcy notice served?
The first question I must consider is whether the bankruptcy notice was served. The resolution of that issue depends on whether I accept the evidence of Mr Shaun Patrick Tierney, who has deposed that he served the bankruptcy notice on Mr Mailau at Suite 11, 151-155 Gladstone Street, Fyshwick, or the evidence of Mr Mailau. Before I address that question, I need to refer to the basis on which the hearing was conducted before me.
On 1 December 2014 the matter was relisted before me because, so I was informed, the process servers (Mr Shaun Patrick Tierney and Mr Luke Shannon Tierney) could not be available to be cross-examined at the hearing on 2 December 2014. Mr Robens indicated he would not object to affidavits of service being read on the basis that I would give the affidavits such weight as they deserved. Counsel for Kennards indicated he would make enquiries about whether the process servers could be made available to be cross-examined by telephone. At the commencement of the hearing on 2 December 2014, counsel for Kennards could not confirm that the process servers were available to be cross-examined by telephone, although he stated that his instructing solicitor could attempt to contact them. I took that response to be that counsel could not then confirm to me that the process servers would be available for cross-examination by telephone. The hearing, therefore, was conducted on the basis that the process servers were not available.
Mr Shaun Patrick Tierney deposes to a conversation with a person who answered “yes” to the question of whether that person was “Tevita Mailau”.[45] Against that evidence is Mr Mailau’s evidence that he does not “meet with anyone at my office without a prior appointment being made”.[46] Given that Mr Shaun Patrick Tierney has not been cross-examined, it has not been submitted that Mr Shaun Patrick Tierney is not a truthful witness, and it would not be open to me to make any such finding. Mr Shaun Patrick Tierney’s evidence, therefore, if it is to be disregarded, must be disregarded for some reason other than dishonesty.
[45] S. P. Tierney affidavit, 12.03.14
[46] T. Mailau (Local Court) affidavit, 23.09.14, [20] (T. Mailau affidavit, 26.09.14, annexure “A”, page 9)
There are a number of possible reasons why Mr Shaun Patrick Tierney’s evidence could be incorrect. Mr Shaun Patrick Tierney may have misheard the answer the person gave to Mr Shaun Patrick Tierney’s question whether that person was “Tevita Mailau”; or the person who answered “Yes” to Mr Shaun Patrick Tierney’s question misheard the question that was directed to him. Another possibility is there was no misunderstanding between Mr Shaun Patrick Tierney and the person to whom he directed his question but that, by coincidence, the person who answered yes to whether he was Tevita Mailau was a different person to Mr Mailau, but bore the same name.
The third of these possibilities can be immediately discounted. According to Mr Shaun Patrick Tierney, the bankruptcy notice was served at 151-155 Gladstone Street, Fyshwick, Mr Mailau’s place of business. If there was another person who bore Mr Mailau’s name at Mr Mailau’s business premises, surely Mr Mailau would have given evidence of that fact. The first and second possibilities, although not as improbable as the third possibility, may also be discounted. The question and answer were each straightforward, and, therefore, unlikely to be misunderstood.
On the other hand, Mr Mailau’s evidence that he does not “meet with anyone at my office without a prior appointment being made”[47] is evidence of invariable practice. I find the truth of that evidence inherently improbable. Although it may well be that, as a general practice, a person such as Mr Mailau, who operates a business, would not see people without a prior appointment, there may well be circumstances where that may not occur. For example, a prospective customer may simply turn up at the office and make enquiries about the services Mr Mailau’s business offers, and Mr Mailau may then see the person if he is on the premises.
[47] T. Mailau (Local Court) affidavit, 23.09.14, [20] (T. Mailau affidavit, 26.09.14, annexure “A”, page 9)
I do not, however, need to rely on the inherent improbability of Mr Mailau’s evidence of an invariable practice not to accept it. There is evidence that indicates it was not Mr Mailau’s invariable practice not to see anyone without a prior appointment. The evidence is contained in Mr Arlen Tierney’s affidavit that was filed in support for the order for substituted service.[48] In that affidavit he deposes that at 2.00 pm he attended Suite 11, 151-155 Gladstone Street, Fyshwick and spoke with a female working at the address who answered the door and who confirmed Mr Mailau was currently in the office. The female worker did not ask Mr Arlen Tierney whether he had a prior appointment with Mr Mailau. Nor did she inform Mr Arlen Tierney that he was required to make a prior appointment before he could see Mr Mailau. Instead, the female worker went to the rear of the premises and later returned to Mr Arlen Tierney stating Mr Mailau was not in, and that she was unsure when he would be returning.
[48] L. Ormazabal affidavit, 01.07.14, annexure “C”
Also relevant in my assessing whether to accept Mr Shaun Patrick Tierney’s evidence over that of Mr Mailau is that Mr Mailau did not give any other evidence which it was in his power to give which could raise doubt about Mr Shaun Patrick Tierney’s evidence. In particular, Mr Mailau did not give any evidence that he was not at Suite 11, 151-155 Gladstone Street, Fyshwick at the time Mr Shaun Patrick Tierney deposes he served a person who answered to the name “Tevita Mailau”, but was somewhere else. Further, Mr Mailau has put on no evidence to show there was no one present at Suite 11, 151-155 Gladstone Street, Fyshwick at the time Mr Shaun Patrick Tierney deposes he served the bankruptcy notice or, if there was a person or persons present in the premises at that time, he has not put on any evidence from such person about whether they recalled anyone asking for “Tevita Mailau” at the time Mr Shaun Patrick Tierney says he served the bankruptcy notice. As Lord Mansfield said over two hundred years ago, “all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”.[49]
[49] Blatch v Archer (1774) 1 Cowp 63; 98 E.R. 969
Mr Mailau’s evidence that he was known by the name of “David Mailau” and that a person seeking to serve a document on a person name “Tevita” would be met by confusion from those who worked with Mr Mailau, is inherently implausible. Mr Mailau may well have been known as “David Mailau”, but Mr Mailau did use the one surname. If Mr Mailau was only known by his employees as “David Mailau”, an inquiry to an employee about whether “Tevita Mailau” was in the premises would have been met with a response along the lines of: “I know of no Tevita Mailau, but I do know of a David Mailau”.
In any event, Mr Mailau’s evidence on this point is undermined by the evidence contained in Mr Arlen Tierney’s affidavit that Kennards relied in obtaining an order for substituted service of the creditor’s petition. Mr Arlen Tierney there deposed to neighbouring businesses advising him that “Tevita Mailau” was better known as “David”.[50] That indicates that it was reasonably well known in the neighbourhood in which Mr Mailau worked that Mr Mailau’s name was “Tevita Mailau” but that he was better known as “David”. That, in turn, renders it more probable than not that employees of Mr Mailau would also have been aware that Mr Mailau’s name was “Tevita Mailau” but he normally went by the name of “David” and, therefore, would not have been confused by someone who said he was looking for “Tevita Mailau”.
[50] L. Ormazabal affidavit, 01.07.14, annexure “C”
I am satisfied that Mr Mailau was served with the bankruptcy notice on 11 March 2014 as deposed by Mr Shaun Patrick Tierney.
Service of creditor’s petition
The only matter I need to consider here is whether the creditor’s petition was served in accordance with the orders for substituted service the Registrar made on 21 July 2014. I am satisfied that on 28 July 2014 the creditor’s petition (together with other documents) was sent by prepaid post to Suite 11, 151-155 Gladstone Street, Fyshwick,[51] and that the creditor’s petition (together with other documents) was placed in an envelope addressed to Mr Mailau at Suite 11, 151-155 Gladstone Street, Fyshwick and the envelope affixed to the front door of those premises.[52]
[51] L. Ormazabal affidavit, 30.07.14
[52] S. P. Tierney affidavit, 07.08.14
Satisfaction of matters prescribed by s.52(1) of the Act
I now return to whether Kennards has proved the matters specified in s.52(1) of the Bankruptcy Act. I am satisfied that:
a)as I have already held, the bankruptcy notice was served on Mr Mailau on 11 March 2014;
b)the creditor’s petition filed by Kennards on 6 May 2014 is in accordance with Form 6 of the Bankruptcy Rules;[53]
c)the matters stated in paragraphs 1, 2, 3, and 4 of the creditor’s petition are verified in accordance with Part 2 of Form 6 and those matters, therefore, are proved;[54]
d)the creditor’s petition was accompanied by an affidavit stating that on 5 May 2014 the computer records of the Federal Court and of this Court had been searched and no application had been made in relation to a bankruptcy notice issued to Mr Mailau; [55]
e)by no later than 4 August 2014, being more than five days before 20 August 2014, being the date fixed for the hearing of the creditor’s petition, Mr Mailau was served with, among other things, a sealed copy of the creditor’s petition, an affidavit of service of the bankruptcy notice on Mr Mailau sworn by Mr Shaun Patrick Tierney on 12 March 2014, and a copy of the affidavit to which I refer in (d);[56] and
f)on 3 December 2014, with my leave, Kennards filed an affidavit of debt as required by r.4.06(4) of the Bankruptcy Rules.
[53] Sub-rule 4.02(1) of the Bankruptcy Rules
[54] Sub-rule 4.02(2) of the Bankruptcy Rules
[55] Sub-rule 4.04(1)(a) of the Bankruptcy Rules; L. Ormazabal affidavit, 05.05.14
[56] Sub-rule 4.06(2) of the Bankruptcy Rules; S. P. Tierney affidavit, 07.08.14
In my opinion, therefore, Kennards has proved the matters required under s.52(1) of the Act in relation to Mr Mailau, and is, therefore, entitled to a sequestration order against the estate of Mr Mailau unless Mr Mailau can establish one or more of the matters referred to in s.52(2) of the Act. I will first consider whether Mr Mailau can pay his debts.
Can Mr Mailau pay his debts?
Before I consider the evidence, it would be useful if I repeat here the relevant legal principles that I have set out elsewhere.[57]
[57] Australian and New Zealand Banking Group v Daher [2014] FCCA 365 at [29]-[35]
Sub-section 52(2) – legal principles
Even if the Court is satisfied the matters specified in s.52(1) of the Bankruptcy Act are proved, the Court may dismiss the petition if it “is satisfied by the debtor” that, the debtor “is able to pay his or her debts” (s.52(2)(a) of the Bankruptcy Act) or if there is some “other sufficient cause” for dismissing the petition (s.52(2)(b) of the Bankruptcy Act).
Subsection 52(2)(a) of the Bankruptcy Act does not use the word “solvent”;[58] nor does it use the words “as and when they become due and payable”.[59] Nevertheless, s.52(2)(a) has been construed as requiring the Court to be satisfied the debtor is “solvent” in the sense of not being “insolvent” as that term was explained in Sandell v Porter:[60]
Insolvency is expressed in s.95 [of the Bankruptcy Act 1924] as an inability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they may fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.
[58] Being a term which is defined in s.5(2) of the Act.
[59] Which is part of the definition of “solvent” in s.5(2) of the Act.
[60] [1966] HCA 28 at [15]; (1966) 115 CLR 666 at 670-671. The cases which so construed s.52(2)(a) were identified by Cowdroy J in Rigg v Baker [2006] FCAFC 179 at [104]. His Honour referred to Lawman v Queensland Building Services Authority [1999] FCA 1781 (Full Court at [21]); Stankiewicz v Plata[2000] FCA 1185 (Full Court at [30]); St George Bank Ltd v Helfenbaum [1999] FCA 1337 at [22]; Re Eather; Ex parte Palada (unreported 30 May 1996 FCA, Cooper J); McVey, re Ex Parte Carswell & Company (unreported 22 May 1996 FCA, Cooper J) and International Alpaca Management Pty Ltd v Ensor[1999] FCA 72.
Some of the relevant principles for determining whether, on this approach, a debtor is able to pay his or her debts were usefully stated by Driver FM (as his Honour then was) in Deputy Commissioner Of Taxation v Caporale as follows (omitting references):[61]
The inquiry emphasises that it involves a consideration of the ability to command cash resources through his or her own assets. The Court must also look at the level of the debtor’s recurrent expenses and earnings in addition to whether there are cash resources from assets.
A respondent debtor bears the onus of proving to the Court that their assets are sufficient to pay their liabilities as and when they become due and payable. It is not sufficient to simply show an excess of assets over liabilities. The respondent debtor must also establish that their assets are available to be realised and that they are capable of ready realisation.
[61] [2013] FMCA 5 at [23] and [24]
The evidence
Mr Mailau seeks to prove he is able to pay his debts by identifying his assets and liabilities and income and expenses.
Mr Mailau identifies a number of assets or groups of assets.
a)The first is his sole shareholding in TTM. Mr Mailau claims TTM is “a very profitable company”.[62] There is in evidence unaudited financial statements of TTM for the year ending 30 June 2013. The profit and loss statement shows a gross income of $1,033,819, a net profit before tax of $321,135, and a net profit after tax of $232,195.[63] The profit and loss statement also shows the payment of a dividend of $55,000. After taking into account $155,284 worth of accumulated losses, the profit and loss statement shows retained earnings of $21,911. The balance sheet for TTM as at 30 June 2013 shows total liabilities of $413,514 and total assets of $435,427, leaving net assets of $21,913.[64] However, although all liabilities are current liabilities, only $221,391 of the $435,427 are described as current assets.
b)A second asset is a one third interest in land situated at Wamboin in New South Wales.[65] There is in evidence a title search of the property which shows that the registered proprietors are Halaevalu Maureen Kivalu, Tevita Tu Itavake Mailau, and Halafihi Kimanu Kivalu.[66] Mr Mailau has provided no evidence of the value of this land, other than evidence that the property had been purchased on 24 November 2011 for $399,000.[67] The trustees have obtained a market appraisal of the land which appraises the land to have a value of $420,000.
c)A third asset is a parcel of land at Karabar in New South Wales. Mr Mailau claims he is a 50% beneficial owner of a property at Karabar.[68] There is in evidence a search which records that there is one registered proprietor of the land, namely, Halaevalu Kosteski.[69] That was the former name of Mr Mailau’s sister, Ms Kivalu.[70] Ms Kivalu has sworn an affidavit which indicates that Mr Mailau agreed to contribute 50% towards the mortgage repayments on a loan taken out to acquire the land at Karabar. I am satisfied Mr Mailau holds a 50% beneficial interest in that land.
d)A fourth group of assets is eleven motor vehicles said to be registered in Mr Mailau’s name.[71]
e)The final asset is an unsecured amount of $82,842 owed to Mr Mailau by TTM.[72]
[62] T. Mailau affidavit, 26.09.14, [9]
[63] T. Mailau affidavit, 21.11.14, annexure “F”
[64] T. Mailau affidavit, 21.11.14, annexure “F”
[65] T. Mailau affidavit, 21.11.14, [9]
[66] T. Mailau affidavit, 21.11.14, annexure “G”
[67] T. Mailau affidavit, 21.11.14, [10], annexure “H”
[68] T. Mailau affidavit, 21.11.14, [11]
[69] T. Mailau affidavit, 21.11.14, Annexure “I”
[70] H. M. Kivalu affidavit, 21.11.14
[71] T. Mailau affidavit, 21.11.14, [16]
[72] T. Mailau affidavit, 21.11.14, annexure “F”, page 8 of financial statements, note 10.
Mr Mailau’s liabilities are as follows.[73] First, he is a joint debtor of an amount owed to ANZ Bank which is secured over the land at Wamboin and Karabar. In his affidavit of 21 November 2014, Mr Mailau states that the secured amount is $730,264.13. This is currently the total amount owed to the ANZ Bank on three mortgage accounts Mr Mailau holds with that bank.[74] It is the total of three loans the ANZ Bank made on accounts which includes Mr Mailau. These are: [75]
a)Account number [X] having a balance as at 17 October 2014 of $290,649.99.
b)Account number [Y] having a balance as at 17 October 2014 of $47,529.79.
c)Account number [Z] having a balance as at 17 October 2014 of $392,084.35.
[73] T. Mailau affidavit, 21.11.14, [18]
[74] R. P. Roy affidavit, 06.11.14, [7.d.]
[75] R. P. Roy affidavit, 06.11.14, [7.d.], annexure “B”, page 12 (First Report to Creditors)
Second, Mr Mailau owes the following amounts:
a)$9,032.36 on a credit card issued by St George Bank.[76]
b)$14,767.67 from St George Bank.[77]
c)He holds a personal loan of $1,494.26 from ANZ Bank.[78]
d)He is currently liable to pay the amount of $11,266.20 demanded in the bankruptcy notice Kennards served on him, and the costs of $7,293 that was ordered by the Registrar to be paid out of Mr Mailau’s estate.
[76] R. P. Roy affidavit, 06.11.14, [10], annexure “B”, page 12 (First Report to Creditors); T. Mailau affidavit, 21.11.14, annexure “C”
[77] R P Roy affidavit, 06.11.14, [10], annexure “B”, page 12 (First Report to Creditors); T. Mailau affidavit, 21.11.14, annexure “D”
[78] R. P. Roy affidavit, 06.11.14, [10], annexure “B”, page 12 (First Report to Creditors)
The evidence that is before the Court indicates that all the loans to which Mr Mailau is a party are in order. In the trustees’ first report to creditors, there is listed all creditors of Mr Mailau known to the trustees, including all the creditors I have referred to in paragraph 59 of these reasons. Under the heading “Claimed”, for each of the creditors there is included the number “0”. From that I infer that all the loans recorded in the list are in order. This inference is supported by statements issued by ANZ Bank in relation to the two largest of the three mortgage accounts to which I have referred in paragraph 58 of these reasons.[79] They show that, for the six-month period ending 24 May 2014, payments have been regularly made.
[79] T. Mailau affidavit, 21.11.14, annexure “J”
There is also in evidence Mr Mailau’s income tax return for the year ending 30 June 2013 that shows an income of $78,575.[80] Mr Mailau also relies on the fact that he owes the $14,767.67 to which I refer in paragraph 59(b) of these reasons under a loan facility with a limit of $25,000 which remains available to him.[81]
[80] T. Mailau affidavit, 21.11.14, annexure “K”
[81] T. Mailau affidavit, 21.11.14, annexure “D”
Is Mr Mailau able to pay his debts?
There are gaps in the evidence Mr Mailau has put forward to prove he is able to pay his debts. The most obvious is the absence of any evidence of his day to day expenses such as accommodation and general living expenses. Notwithstanding these gaps, however, I am satisfied that on 20 August 2014, when the sequestration order was made, Mr Mailau was able to pay his debts as and when they fell due. That is made clear in the creditor’s listing contained in the trustees’ first report to creditors, and is confirmed by the bank statements that are in evidence that show that the two largest of the three mortgage accounts, and the personal loans to Mr Mailau, have been conducted according to the terms of the loans. And, to the extent it is relevant, I am satisfied that Mr Mailau remains in a position to pay his debts.
Does Mr Mailau owe the debt?
On an application for a sequestration order based on the non-compliance with a bankruptcy notice demanding the payment of a judgment debt, the Court has the power, in an appropriate case, to examine whether the debt recorded by the judgment is in truth owed by the judgement debtor. A bankruptcy court is more likely to do that where the judgment has been entered by default.
I have concluded, however, that Mr Mailau is able to pay his debts. For that reason, Mr Mailau has established a ground for the setting aside of the sequestration order (assuming I dispense unconditionally with the requirement that Mr Mailau file his application for review within 21 days as required by r.2.03 of the Bankruptcy Rules), or for the making of an order annulling his bankruptcy. Whichever of these two orders I make, Mr Mailau will be in a position to apply to the Local Court to set aside the default judgment. In my opinion, it would be more appropriate for the Local Court, rather than this Court, to consider that application.
Relief
Had Mr Mailau filed his application for review within the 21 day period provided for by r.2.03 of the Bankruptcy Rules, I would have ordered that the sequestration order be set aside, and I would have made an order dismissing the creditor’s petition. However, because the application was filed outside the 21 day period, I have a discretion about whether I should make such an order or, instead, order that the bankruptcy be annulled.[82]
[82] Pattison v Hadjimouratis (2006) 155 FCR 226
There are a number of factors relevant to the exercise of my discretion. The first is whether Mr Mailau has given an explanation why he did not apply for review within the 21 days permitted by r.2.03 of the Bankruptcy Rules. Mr Mailau became aware he was made bankrupt on 3 September 2014. He did not contact a lawyer until 15 September 2014. By that time, the 21 day period for making the application for review had expired. Mr Mailau has given no explanation why he waited until 15 September 2014 before he consulted a lawyer. That is a factor against my dispensing with the 21 day requirement under r.2.03 of the Bankruptcy Rules for filing an application for review.
A second relevant factor is that, in his telephone conversation with Neerja Malwade on 3 September 2014, Mr Mailau indicated he proposed to challenge his bankruptcy. That is a factor against making an order annulling the sequestration order for the reasons given by Weinberg J in Kyriackou v Shield Mercantile Pty Ltd(No 2):[83]
It seems to me that a trustee who administers a bankrupt estate, in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain.
[83] Kyriackou v Shield Mercantile Pty Ltd(No 2) [2004] FCA 1338 at [42]
A third relevant factor is Mr Mailau’s conduct. I have found he was served with the bankruptcy notice on 11 March 2014. That meant he had ample opportunity to apply to the Local Court to set aside the bankruptcy notice. I have also found that the creditor’s petition was served in the manner required by the order for substituted service made on 21 July 2014. On the basis of that finding, I also find that Mr Mailau received notice of the creditor’s petition, and that Mr Mailau had ample opportunity to defend the creditor’s petition, as well as apply to the Local Court to set aside the default judgment. These are matters that count against dispensing with the 21 day requirement prescribed by r.2.03 of the Bankruptcy Rules. They are matters that show it was within Mr Mailau’s power to have taken steps to avoid the costs Kennards and the trustees have incurred.
A fourth factor is that the work the trustees have carried out have contributed to my being satisfied that Mr Mailau was able to pay his debts on 20 August 2014. I am particularly referring to the information contained in the trustees’ first report to creditors. That is a factor in favour of ordering an annulment because the trustees should not be denied their costs of having carried out work that has benefited Mr Mailau.
In my opinion, bearing these factors in mind, the appropriate order would be for me to annul Mr Mailau’s bankruptcy, rather than to dispense with the 21 day period for filing an application for review and order that the sequestration order made on 20 August 2014 be set aside.
Disposition
I propose, therefore, to order that the bankruptcy of Mr Mailau be annulled.
As to the question of costs, my preliminary view is that:
a)Mr Mailau should pay:
i)Kennards’ costs of the applications for review and annulment up to the time Mr Mailau served on Kennards Mr Mailau’s affidavit of 21 November 2014 and the affidavit of Ms Kivalu made on 21 November 2014; and
ii)the reasonable costs of Kennards reviewing the affidavits referred to in (a); and
b)Kennards should pay Mr Mailau’s costs of the hearings on 1 and 2 December 2014.
I will not, however, make any order as to costs other than to direct that, should any party wish to apply for an order for costs, he or it may do so by filing by 31 January 2015 an application in a case.
I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 18 December 2014
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