Mounsey trading as Creative Cabinets v Archer
[2022] FedCFamC2G 315
•23 March 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Mounsey trading as Creative Cabinets v Archer [2022] FedCFamC2G 315
File number(s): BRG 431 of 2021 Judgment of: JUDGE VASTA Date of judgment: 23 March 2022 Catchwords: BANKRUPTCY – sequestration order – review of registrar’s decision – debt now paid – no sequestration order – costs of trustee to be paid by the creditor. Legislation: Bankruptcy Act 1966 (Cth) Division: Division 2 General Federal Law Number of paragraphs: 23 Date of last submission/s: 23 March 2022 Date of hearing: 23 March 2022 Place: Brisbane Solicitor for the Applicant: Celtic Legal Counsel for the Respondents: Mr Schriiffer Solicitor for the Respondents: Ellison Moschelle & Co Solicitor for the Interested Person: Mr Jones
ORDERS
BRG 431 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: GARY LANCE MOUNSEY TRADING AS CREATIVE CABINETS (ABN 13 500691 221)
Applicant
DAVID MICHAEL STIMPSON AND JASON SHANE CRONAN AS TRUSTEES OF THE BANKRUPT ESTATE OF CHRISTOPHER IAN ARCHER & JODIE ELLEN REID Interested Person
AND: CHRISTOPHER IAN ARCHER
First Respondent
JODEE ELLEN REID
Second Respondent
ORDER MADE BY:
JUDGE VASTA
DATE OF ORDER:
23 MARCH 2022
THE COURT ORDERS THAT:
1.The orders made on 16 February 2022 by Registrar Schmidt be set aside.
2.The Creditor’s Petition is dismissed.
3.No orders as to costs.
4.The Applicant pay the fees incurred by David Michael Stimpson and Jason Shane Cronan (Trustees) since their appointment on 16 February 2022.
5.The Trustees return the Respondents’ money in the amount of $20,790 to the Respondents.
IT IS NOTED:
A.That the Court will not provide a written version of the reasons for judgment delivered today, unless an appeal has been lodged or the Court has received a request in writing from either party seeking that written reasons be produced.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
(Ex tempore)JUDGE VASTA
On 16 February 2022, Registrar Schmidt of this Court made a sequestration order against the estate of Christopher Ian Archer and Another. By application for review filed on 3 March 2022, Mr Archer and the other person, Jodie Ellen Reid, have asked the Court to review that order.
The origin of the dispute seems to have come from work that the Applicant creditor, Gary Lance Mounsey, who trades as Creative Cabinets, performed on the house of Mr Archer. Mr Archer had paid a deposit. Mr Mouncey then produced an invoice to Mr Archer which meant that Mr Archer owed Mr Mouncey the sum of $20,970. The Applicant, Mr Mounsey, sued for the debt and there was a default judgment entered. That judgment was for the $20,970. There were a number of other costs that were included in the judgment amount which rounded it up to $28,230.39.
The Applicant then served a bankruptcy notice on Mr Archer. Mr Archer paid the sum of $20,970 (which was the original invoice amount) and paid it into the trust account of the solicitors of Mr Mouncey on 6 September 2021. Mr Mounsey, through his solicitors, claimed the full amount of the judgment debt (in effect, a further $7,260.39).
There have been a number of missives sent between the solicitors for Mr Mounsey and Mr Archer. It would seem that Mr Archer had made an offer that he would make payments of a fortnightly nature until it was that he sold his property, which was an unencumbered property.
The solicitors rejected that offer and announced that they were keeping the funds, $20,790, in escrow but were proceeding with the bankruptcy application. It is trite to say that a creditor can reject a part payment and proceed with the full amount of the debt. However, if the creditor proceeds with action for the full amount of the debt, it is somewhat disingenuous of them to keep the funds and not make any attempt to return the funds. Those funds could, on what I have seen of the financial plight of Mr Archer, have been well and truly utilised. At the very least, Mr Archer could have had the interest on those funds.
In any event, the matter was listed before Registrar Buckingham in December 2021, who adjourned the matter to February 2022. On 2 February 2022, Mr Archer and Ms Reid entered into a contract to sell their property. The sale price was $945,000. There was no security or mortgage over the property, and the settlement date was 4 March 2022. Because of the fact that, in effect, Mr Archer at this stage was asset-rich but cash-poor, he, it would seem, was not au fait with the filing procedures.
On 8 February 2022, he sent to the Queensland Registry by email a copy of the contract of sale and the receipt which showed that he had already paid $20,790. The contract is easily discernible as an unconditional contract, and it was to be settled on 4 March.
Mr Archer sent to the registry another email which attached more documents. He said in that email:
I have made a number of offers to settle my debt; willing to put on a payment plan until I am able to pay in full. All attempts to sort this have been rejected because we couldn’t pay the remaining balance in full after already having paid $21,790, being more than the initial invoice given to me from Mr Mounsey. I am including the contract of sale of our property. The property is awaiting a pool safety certificate, which is booked for 12 February, and once the certificate is issued, the property will be settled, the settlement due on 4 March with a possibility to settle sooner if our solicitor has the time to do so.
Upon settlement, I agree to pay the funds owing. I have attached the contact details associated with the sale of the property, but I’ve asked that they be private and not given to Mr Mounsey or his lawyer, and Ms Cavanaugh from the registry said that the matters need to be sent. There cannot be a unilateral communication with the court, and she sent her reply to the solicitors and said that she would bring the matter to the attention of the Registrar.
Those documents, that were sent, showed that there was no mortgage on the property and that Mr Archer and Ms Reid would be receiving, in effect, the full amount minus the outgoings relating to the sale.
When the matter came before the Registrar, there was the following exchange at page 7, where the Registrar was stopping the submissions of Mr Archer, quite justifiably, and getting him to look at what was relevant for the Registrar’s determination. At line 21, the Registrar said:
Just stopping you - just stopping you there. On the issue - so on the issue of whether there’s a ground, which I raised last time, to say that they weren’t accredited at the time, I think that doesn’t help you, because it appears, from what correspondence that they were, that they want the full payment. They didn’t get full payment. They’re entitled not to accept the part payment. So that leaves - the only issue, then, is to - and otherwise, so you’re aware that Mr Long’s client is otherwise compliant with the requirement to proceed today. The only issue, though: if there’s any evidence of insolvency. Now, there is no material before me apart from the $20,000. Can I ask one question, Mr Archer. You did put in some evidence previously about the sale of your house. How much equity is there in the house?
Mr Archer said:
It’s freehold.
The Registrar said:
No, I mean you must have a bank - you must owe money to a bank.
Mr Archer said:
No, I don’t owe a cent to a bank. I own the house completely freehold. If you look on the contract - if you look on the contract, it clearly stipulates that the house has been sold freehold.
The Registrar said:
Yes, no, that’s - freehold is a different thing, Mr Archer. That’s a legal expression.
Mr Archer interrupted and said:
I don’t owe a cent.
The Registrar said:
Freehold means the title. That’s a reference to the title on which you own the land. That’s not the same as whether there’s a mortgage or not. It’s totally different.
Mr Archer said:
There’s no mortgage. There is no mortgage over the property. I own the property outright. The property is mine, hence the reason that I’m so upset that I’ve had to sell it 90 per cent incomplete -10 per cent left to for my full renovation a property that’s worth 1.2 million with the threat of getting it taken off me.
The Registrar said:
Remind me, Mr Archer, what was the price on the contract – the contract price?‑‑‑$945,000.
$945,000? And you say there is no money owed to another bank based on that?‑‑‑I have been 100 per cent upfront and honest with everyone in this matter from the get-go. In 2020, I was –
and he went through the history of his ownership of the property. The Registrar, after some time, said:
My problem is Mr Long’s client is entitled to process.
The Registrar then asked Mr Long:
Have your clients have any evidence whether, in respect of the house, because it does concern me, I do have to say if, Mr Long – if Mr Archer does own an unencumbered house worth $900,000 and he’s really not insolvent. And I appreciate there is no actual evidence apart from just ..... to bank someone who will then just have it all destroyed by liquidators. I mean your – I mean I’m not sure if there’s any other evidence of other creditors but it appears that his only credit is your balanced debt, which is some – what? 11, 12 grand probably now with costs.
Mr Long then said to the Registrar:
Thank you, Registrar. Two points on this is that if there has been actually no affidavit filed by Mr Archer at all. And the reason I say that is that the document that was filed yesterday is simply signed by the deponent. It has never been witnessed. In any event, even if that was to be overlooked, on 1 December, the respondents obtained a two-month adjournment to file and serve a grounds of opposition and any affidavits. None of that has been complied with.
So they’re actually is no evidence that either the applicant or the court can go on with respect to the position of the respondents at all. So I’m simply listening to Mr Archer the same as the court is and there’s no evidence whatsoever. There has been two and a half months of time to provide evidence and a couple of examples – and I think – and part of these submissions are based on the submissions that Mr Archer has made is that – I think that’s an exceptional period of time that legal advice could certainly have been obtained.
There’s a number – there’s a multitude of legal firms and barristers in Brisbane that certainly not all of them would have been conflicted or tied up with other commitments in that time. Whether or not in that time period – I don’t think it’s unreasonable – that is, to be taken at any – the little weight I say it must be taken at is that the respondents have made no attempt to obtain any advance from any lender of any kind if there is a property of a million dollar value that’s unencumbered and hasn’t been able to obtain, say, a $50,000 advance on that with a security, I think it’s farfetched to expect that that couldn’t have occurred so the applicant is left with a situation when it must simply be allowed to proceed in the absence of any evidence, let alone persuasive evidence before the court.
The Registrar then made the sequestration order. What has happened since then is exactly what Mr Archer told the court would happen and that is that the property did, in fact, settle and he received well over $900,000 clear. It was only once the sequestration order was made that the solicitors for the applicant, Mr Mounsey, gave the money – the $20,790 in their trust account – to the official trustee or the trustee in bankruptcy.
The problem that I have here is that it seems obvious to me that Registrar Schmidt did not have the contract in front of him. Notwithstanding that the applicant had sent the contract to the registry, he did not file that material. It was not under cover of an affidavit. And there is a notation by Ms Kavanagh that she would bring it to the attention of the Registrar.
The Registrar speaks only of some evidence that Mr Archer filed the day previously. That evidence that he filed was done as a series of photographs of the aspects of paying for the kitchen and the other correspondence about the payment of the debt, being the suggestion that it would be done after the sale of the house.
The contract was not part of that affidavit and was not part of the material that the Registrar referred to as being “filed yesterday”. It seems to me that the Registrar did not have the material before him which gives evidence of solvency because there is a contract which has been duly authorised and says that the matter will settle on 4 March 2022. To my mind, the Registrar was led into error.
I’m also quite concerned about the keeping of the $20,790 in the trust account. I asked the solicitor appearing for the applicant, Mr Mounsey, today why that money was kept. The first answer I was given was that the applicant made it clear to Mr Archer that this money was not going to be accepted and that the applicant was proceeding for the full judgment debt. I again asked why the money wasn’t returned and I was told, “We didn’t have bank details.” There was no evidence that, firstly, the applicant asked Mr Archer for his bank details so that that money could be returned; or, secondly, that they went to the bank and asked them to reverse the transaction, which banks will do.
But that seems to be the only reason that the Applicant says that he kept the money. In keeping the money, it would seem to me that it was obvious that they were accepting that money as part-payment but did not want to give the money back so that they could still argue before the Registrar that the sum, that was owed, was one of $28,000 rather than one of just over $7000. If it were that the debt, at that stage, was just over $7000, the Registrar would not have made the sequestration order because the debt was one of less than $10,000.
The actions of the Applicant in not returning the money are such that, on the facts before me, the debt at the time that the matter was before the Registrar was a debt of less than $10,000.
In any event, I do not have to determine this matter as there has been, now, a full payment. And so because of that, there is no judgment debt and there cannot be a sequestration order.
The complicating factor is who should pay the costs of the Trustee. The Trustee has expended the sum of $26,531.69 and they were appointed by Registrar Schmidt on 16 February until 3 March when His Honour, Judge Egan, stayed the order for 21 days. And because there is no sequestration order to be made, there will be no further costs expended by the Trustees in bankruptcy.
Having regard to the conduct of this matter, it seems to me that if the Registrar had been given a copy of the contract, he would not have found that Mr Archer was insolvent. The solicitor for the applicant, Mr Mounsey, had a copy of that contract. His duty to the Court was to inform the Registrar that they had a copy of the contract and to inform the Court as to what it contained. He failed to do so.
It was also the duty of the solicitor, if the Applicant were not going to accept the $20,790, for that money to be returned. The fact that it was not returned meant that it should have been treated as a part-payment of the debt. The solicitor cannot simply make up the rules that “we will keep the money in escrow” as they have. If it had been treated as part-payment of the debt, the sequestration order would not have been made and the Trustees would not have been engaged.
It seems to me that this could well have been avoided. This whole matter could well have been avoided if there had been full and frank disclosure to the Registrar, as there obviously was before His Honour, Judge Egan, who stayed the orders.
For those reasons, I am of the view that I will make no order as to costs between the parties, but the costs of the Trustees will be borne by the Applicant, Gary Lance Mounsey.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Vasta. Dated: 10 May 2022
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