Mitzev v Foxman (No.2)

[2008] FMCA 405

FEDERAL MAGISTRATES COURT OF AUSTRALIA

MITZEV v FOXMAN (No.2) [2008] FMCA 405

BANKRUPTCY – Creditor’s petition – service of bankruptcy notice and creditor’s petition in the precincts of a court.

Bankruptcy Act 1966 ss.40, 43, 44, 50, 52, 54, 160

Brookfield v Davey Products Pty Limited [1998] FCA 1201
Matheson v Scottish Pacific Business Finance Pty Limited [2005] FCA 670
McIntosh v Shashoua (1931) 46 CLR 494
Mitzev v Foxman [2007] NSWCA 273
Mitzev v Foxman [2008] FMCA 404
Re Buckley and Another Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496
Re Gentry (1910) 1 KB 825
Re O'Sullivan; Ex parte O'Sullivan v Commonwealth Bank of Australia (1995) 57 FCR 145
Rigby v Beames [2002] FMCA 101
Wren v Mahony (1972) 126 CLR 212

Applicant: ASSEN ATANASOV MITZEV

Respondent: MARSHA FOXMAN

File Number: SYG 3987 of 2007

Judgment of: Barnes FM

Hearing date: 25 March 2008

Delivered at: Sydney

Delivered on: 25 March 2008

REPRESENTATION

Counsel for the Applicant: Mr B. Skinner

Solicitors for the Applicant: Hancock Lawyers

Respondent: In person

ORDERS

1. A sequestration order be made against the estate of Marsha Foxman.

2. The Applicant Creditor’s costs (including any reserved costs) be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966. 

3. Under the Bankruptcy Regulations a copy of this sequestration order be given to the Official Receiver in Sydney within 2 days.

The Court notes that the date of the act of bankruptcy is 10 December 2007.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3987 of 2007

ASSEN ATANASOV MITZEV

Applicant

And

MARSHA FOXMAN

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

1. On 31 December 2007 the applicant creditor presented and filed a creditor's petition seeking that a sequestration order be made against the estate of the respondent debtor, Marsha Foxman. The petition is founded on the failure by the respondent debtor to comply with a bankruptcy notice issued and said to have been served on 19 November 2007.

2. The bankruptcy notice required the debtor to pay the creditor within 21 days the sum of $50,405.18, said to be due to the creditor under an order of the Court of Appeal of the Supreme Court of New South Wales of 5 October 2007 entered on 12 November 2007 (Mitzev v Foxman, in matter number CA40040 of 2007) which required the respondent debtor to pay to the creditor the sum of $50,405.18 or such other amount as was received by her from the trustee for sale upon the sale of property together with interest.  The creditor's petition claims that the debtor owes the applicant creditor the amount of $50,405.18 pursuant to this judgment. 

3. The debtor filed a notice of intention to oppose the creditor's petition and relies on two affidavits sworn and filed by her on 19 and 25 March 2008 and an affidavit sworn by Richard Putral on 25 March 2008 and filed on that date. 

4. As discussed in an earlier judgment in relation to the respondent’s application for adjournment (see Mitzev v Foxman [2008] FMCA 404) the notice of opposition primarily addressed the question of an adjournment. The application for an adjournment was unsuccessful.

5. The other ground on which the creditor's petition is opposed is on the basis of an issue as to the effectiveness of service of the bankruptcy notice and the creditor's petition.  In submissions today the debtor raised the fact that she had made an offer to pay the creditor the debt due by way of Credex credits and that offer had not been accepted. 

6. I note for the sake of completeness that the affidavits relied on by the debtor also relate in essence to the application for an adjournment and say nothing of her solvency.  The issue of whether the debtor sought to put either affidavit or oral evidence in relation to her solvency before the Court was raised this morning and this afternoon.  On both occasions the debtor indicated that she did not seek to rely on evidence of solvency.  However she did seek to rely on the fact that she had made an offer to pay the creditor in Credex credits.  On that basis the debtor contended that it had not been established that she was insolvent and hence that no sequestration order should be made. 

7. The debtor also stated in her affidavit that she had no other “pressing” creditors (although no details were disclosed) and that she was not in default of any of her dealings. There is no other evidence before the Court as to the assets and liabilities of the debtor or otherwise addressing the issue of solvency. The debtor was given the opportunity to give oral evidence but did not seek to do so. Nor was she cross-examined.

8. It is clear that the creditor's petition relies on a debt said to be owing to the creditor which amounts to more than $2,000 consistent with the requirements of s.44 of the Bankruptcy Act 1966. No issue was taken as to whether or not the bankruptcy notice complied with the requirements applicable to a bankruptcy notice. Nor was it disputed that the debt is still owing. Relevant to the issue of whether there is an act of bankruptcy (see s.40(1)(g)(i)) the debtor contended that the effectiveness of service of the bankruptcy notice (and the creditor's petition) was questionable as both documents were served adjacent to Court 7G of the Supreme Court of New South Wales where she was required to attend for public examination in relation to another matter (Matter Number 3743 of 2006, Marsha Foxman v Credex National Australia Trade Exchange Limited). This contention was not elaborated on by the debtor in submissions.

9. It was contended for the creditor that such service did not establish either contempt of court or raise any issue as to the validity of service of either the bankruptcy notice or the creditor's petition. It was submitted that while in limited circumstances service of documents in the precinct of a court could amount to a contempt of court, that was not the case here. In particular, it was said that this was not a situation in which the creditor had compelled the debtor to attend the court and then used the process to serve her, such that a contempt might be found. It was not disputed that the debtor was served within the precinct of a court.

10. While I am not persuaded that the concept of contempt of court in relation to service of bankruptcy documents in the precincts of a court is necessarily limited to situations where the creditor compels the debtor’s attendance, I am satisfied that, as Lindgren J stated in Re O'Sullivan; Ex parte O'Sullivan v Commonwealth Bank of Australia (1995) 57 FCR 145 at 149:

    …it is not the law that service of any process within the precincts of a court constitutes a contempt of that court, and even if it were, it would not follow that service would be set aside. Whether conduct constitutes contempt of court by reason of its being calculated to interfere with the administration of justice by a court is to be determined by reference to matters of greater substance than the general proposition contended for by the Debtor would allow. No doubt the physical proximity of conduct to a court may be a factor sometimes to be taken into account when a contempt of court of a relevant kind is alleged. It cannot be said that service of process within the precincts of a court can never with other circumstances, constitute a contempt. But this is hardly a useful statement: analysis shows that it signifies only that service within the precincts of a court is not precluded from being part of contemptuous conduct.

11. That principle was considered in Brookfield v Davey Products Pty Limited [1998] FCA 120. Mansfield J expressed the view that even if there may be a contempt of court in some circumstances, it was necessary to consider whether the service would be invalid by reference to the principles addressed in O'Sullivan and a consideration of whether service within the precincts of the court in the particular case had “such a deterrent effect as to obstruct the administration of justice” (Baldry v Jackson [1976] 1 NSWLR 19 at 25).

12. In this instance service was in a foyer outside a court of the Supreme Court.  As recognised in O’Sullivan at [63] – [64] such a foyer may be used by a large number of people. The knowledge that process such as a bankruptcy notice or creditor’s petition can be served outside a court as freely as elsewhere, is not such as to be apt to interfere with the administration of justice in the courts, for example, by discouraging litigants and witnesses from attending the court.

13. In Matheson v Scottish Pacific Business Finance Pty Limited [2005] FCA 670, Kiefel J, sitting as the Full Court of the Federal Court on appeal from the Federal Magistrates Court, addressed the validity of service of a creditor’s petition in the precincts of the court. The Federal Magistrate had found that service was effective. Kiefel J stated at [11] that there was no reason to doubt such finding. Her Honour recognised that service in the precincts of the Court might, on one view, amount to contempt if it had “such a deterrent effect as to obstruct the administration of justice …” (see Baldry v Jackson at 25) but found that service where the debtor in issue “was present in the court precincts in connection with earlier aspects of this matter, does not amount to any interference in the administration of justice”.  Her Honour did not understand that the debtor in that case said that it had any “deterrent effect” and suggested “objectively, it is difficult to see how that could be the case”. 

14. In this instance service in the precincts of the Supreme Court when the debtor was present in connection with another matter should not be set aside as a contempt of court. It was valid service of the bankruptcy notice and of the petition as required under the provisions of the Bankruptcy Act.

15. On the material before the Court I am satisfied that there has been an act of bankruptcy consisting of a failure to comply with the bankruptcy notice.  No issue is taken with the form of the bankruptcy notice.  The date of the act of bankruptcy was 10 December 2007. 

16. According to the creditor's petition, the applicant creditor does not hold security over the property of the respondent debtor. There is no dispute about the respondent debtor being personally present in Australia, ordinarily a resident of Australia or having a dwelling house or place of business in Australia. The requirements of s.43 of the Bankruptcy Act are met.

17. In relation to the matters required under s.52 the creditor has filed and relies on a creditor’s petition and the requisite affidavits under the Bankruptcy Rules of service of the creditor's petition and the bankruptcy notice and verification of the creditor’s petition, final search, and final debt. However, it was acknowledged by counsel for the creditor that a copy of the affidavit of service of the bankruptcy notice should be served on the debtor at least five days before the date fixed for the hearing under r.4.05 of the Federal Magistrates Court Bankruptcy Rules unless the Court otherwise orders (see r.4.04(1)(b) and r.4.06(2)). It was not in dispute that the debtor was served with that affidavit – but not until today.

18. It was contended that the Court should dispense with compliance with the relevant Rules on the basis that the debtor was served with that document and other requisite documents and that no issue was taken as to whether there had been personal service in the sense of service on the debtor herself. 

19. The applicant did not address this issue in submissions.  On the material before me I am not persuaded that any prejudice would be occasioned to her by dispensing with the requirement that that document be served on her five days prior to the hearing.  Hence I dispense with compliance with the requirement as to the time of service in accordance with the Rules.

20. In addition, the creditor sought to file in Court a consent to act as trustee which had not been served on and was opposed by the debtor. Leave was not granted. There is no consent to act as trustee before the Court. Appointment of a trustee will be a matter for the official trustee (see s.160).

21. The creditor's petition has been presented in correct form for a debt of more than $2000 and within six months of the date of the act of bankruptcy signed by a solicitor for the creditor. No issue was taken with the content of the creditor's petition or the affidavits before the Court.

22. I am satisfied with proof of the matters required under s.52(1) of the Bankruptcy Act.

23. For the sake of completeness I note that there is nothing in the material relied on by the debtor which in any way suggests that the Court should exercise a discretion to go behind the judgment of the New South Wales Court of Appeal.  The judgment was not a default judgment.  The parties were represented.  It has not been established that special circumstances exist such that the Court should go behind the judgment, albeit the applicant takes issue with the conduct of the creditor and in relation to Credex funds generally.  The debtor contends that in the future there may be some public information that may be relevant to that issue.  These matters are not such as to give rise to sufficient reason to question the existence of a real debt behind a judgment on the material presently before the Court (see Wren v Mahony (1972) 126 CLR 212). Nor is there anything in the material before the Court to establish that the applicant had any counter-claim, set-off or cross-demand equal to or exceeding the amount of the judgment debt that she could not have set up in the Supreme Court proceedings within s.40(1)(g) of the Bankruptcy Act.

24. Under s.52(2) if the Court is not satisfied with proof of any of the matters in s.52(1), or if it is satisfied by the debtor that he or she is able to pay his or her debts, or that for any other sufficient cause a sequestration order ought not to be made, then the Court may dismiss the petition. The debtor contends that it has not been established that she is not solvent. However she has not established that she is able to pay her debts within s.52(2) despite being given the opportunity to put evidence before the Court in relation to her ability to do so.

25. The fact that the debtor indicated a willingness and offered to pay the creditor with Credex credits is not such as to satisfy me to dismiss the petition. The offer made by the debtor to the creditor was not accepted. It is well established that there is no obligation on a creditor to accept payment of a debt in circumstances such as are before the Court. The fact of proposed payment, in whatever form, does not of itself suffice (see Rigby v Beames [2002] FMCA 101) in which a cheque had been provided to the solicitors for a creditor. Their holding such a cheque was not such as to prevent the creditor proceeding with the creditor's petition. Also see Re Buckley and Another Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496). Indeed a petition will not necessarily be dismissed even if the debt of a petitioning creditor has been paid. In this instance there has not been tender of any amount in money by the debtor to the creditor, but only a suggestion that she would pay in Credex credits. Even if the debtor had admitted the debt and paid money into court the petitioning creditor would not be bound to accept payment by taking the money but could proceed with the petition (see Re Gentry [1910] 1 KB 825 and McIntosh v Shashoua (1931) 46 CLR 494 at 495).

26. In this instance I am not satisfied that the circumstances that the debtor relies on are such as to satisfy me that she is able to pay her debts or otherwise such that the sequestration order ought not to be made.  

27. In conclusion, I am satisfied that the respondent debtor committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters required by s.52 of the Bankruptcy Act. Accordingly, I make a sequestration order against the estate of Marsha Foxman. The costs order sought by the creditor is appropriate.

I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  3 April 2008