Murdaca v Accounts Control Management Services Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Murdaca v Accounts Control Management Services Pty Ltd [2007] FCA 577

PROCEDURE – application to file new evidence on appeal – litigant unrepresented before Federal Magistrate – evidence could have been led at trial and would not have affected decision

BANKRUPTCY APPEALS – creditor relies on judgment debt – court must be satisfied as to validity of judgment debt – refusal of Federal Magistrate to go behind debt – assignment of debt – plea of assignment of debt not traversed in Local Court proceedings – no evidence of assignment of debt in Supreme Court proceedings – no adverse inference from lack of evidence in Supreme Court – validity of assignment not challenged before Federal Magistrate – no obligation on Federal Magistrate to reconsider settled issue

BANKRUPTCY – solvency of debtor – existence of instalment order raises only rebuttable presumption of solvency – failure to pay instalments when due rebuts presumption

Bankruptcy Act 1966 (Cth) ss 51, 52
Federal Court of Australia Act 1976 (Cth) ss 25(1A), 27
Civil Procedure Act 2005 (NSW) ss 3, 43(2)
Conveyancing Act 1919 (NSW) s 12

Local Courts Act 1982 (NSW) s 4
Uniform Civil Procedure Rules 2005 (NSW) r 37.7

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, cited
Cain v Whyte (1933) 48 CLR 639, cited
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194, cited
Commonwealth Bank of Australia v Jeans [2005] FCA 978, cited
Corney v Brien (1951) 84 CLR 343, cited
Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435, cited
Guss v Johnstone [2000] FCA 1455, cited
Freeman v National Australia Bank Limited [2003] FCAFC 200, cited
Murdaca v Accounts Control Management Services Pty Ltd [2006] NSWSC 68, considered
Simon v Vincent J. O’Gorman Pty Ltd (1979) 41 FLR 95, cited
Totev v Sfar (2006) 230 ALR 236, cited
Udovenko v Mitchell (1997) 79 FCR 418, cited
Wren v Mahony (1972) 126 CLR 212, cited

ANTHONY MURDACA v ACCOUNTS CONTROL MANAGEMENT SERVICES PTY LTD
NSD 2268 OF 2006

STONE J
30 APRIL 2007
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NSD 2268 OF 2006
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

ANTHONY MURDACA
Appellant

AND:

ACCOUNTS CONTROL MANAGEMENT SERVICES PTY LTD
Respondent

JUDGE:

STONE J

DATE OF ORDER:

30 APRIL 2007

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The appeal be dismissed

2.The costs of the respondent creditor to this appeal to be paid by the appellant debtor to be taxed according to the scale of costs referred to in O 62 r 12 of the Federal Court Rules and be paid out of the estate of the appellant debtor in accordance with the provisions of the Bankruptcy Act 1966 (Cth).

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

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Details
Case
[2007] FCA 577
Decision Date

CaseChat Overview and Summary

This appeal concerns the appeal of a decision of a Federal Magistrate dismissing an application for review of a sequestration order made against the estate of the appellant. The Federal Magistrate had found that the appellant had not discharged the onus of proving solvency and had dismissed the application to review the sequestration order. The grounds of appeal challenge the Federal Magistrate’s findings on the issues of solvency and the failure to go behind the Local Court judgment to determine the existence of a debt. The appeal was dismissed.

The appeal concerned two issues. First, whether the Federal Magistrate erred by failing to go behind the judgment of the Local Court to determine if there was a debt owed to the respondent. Second, whether the Federal Magistrate’s discretion to make the sequestration order miscarried in that, in assessing the appellant’s solvency, the Federal Magistrate made errors of fact, took into account irrelevant matters and failed to give sufficient weight to other matters. The Court found that the Federal Magistrate had not erred in law or fact and that the Federal Magistrate’s discretion had not miscarried. The appeal was dismissed.

Orders

Orders of the court

1. The appeal be dismissed

2. The costs of the respondent creditor to this appeal to be paid by the appellant debtor to be taxed according to the scale of costs referred to in O 62 r 12 of the Federal Court Rules and be paid out of the estate of the appellant debtor in accordance with the provisions of the Bankruptcy Act 1966 (Cth).

Background

Background to the litigation

This is an appeal from a decision of a Federal Magistrate dismissing an application for review of a sequestration order made against the estate of the appellant. The Chief Justice has determined, in accordance with s 25(1A) of the Federal Court of Australia Act 1976 (Cth), that the appeal be heard by a single judge. The sequestration order was made pursuant to a creditor’s petition filed in the Federal Magistrates Court by the respondent, Accounts Control Management Services Pty Ltd.Outline of facts The chronology of events relevant to the present proceedings is:29 July 2005 - decision of New South Wales Local Court adverse to the appellant handed down giving rise to judgment debt in favour of the respondent;24 February 2006 - appeal from judgment of Local Court dismissed by Malpass AJ in Murdaca v Accounts Control Management Services Pty Ltd [2006] NSWSC 68;6 and 23 July 2006 respectively - bankruptcy notice issued and served by the respondent;2 August 2006 - appellant obtains ex parte stay on enforcement of judgment of Local Court granted to the appellant pending hearing of respondent’s objection to the instalment order;15 August 2006 - application to set aside the bankruptcy notice dismissed on the last date for compliance with the notice;22 August 2006 - creditor’s petition filed in Federal Magistrates Court;7 September 2006 - Local Court ordered that the judgment debt be paid by weekly instalments commencing 1 October 2006;29 September 2006 - sequestration order made;9 October 2006 - the appellant’s application to review the sequestration order filed in the Federal Magistrates Court;16 or 17 October 2006 - appellant attempted to make instalment payments to the trustees; trustees refused to accept the payment;24 October 2006 - stay of sequestration order granted on condition that the appellant lodges a completed Statement of Affairs;26 October 2006 - statement of affairs completed;9 November 2006 - Federal Magistrates Court dismisses application to set aside sequestration order;17 November 2006 - notice of appeal from Federal Magistrate’s decision filed in Federal Court of Australia. Grounds of appeal The appellant's grounds of appeal can be summarised briefly. First, he claims that the Federal Magistrate erred by failing to go behind the judgment of the Local Court to determine if there was a debt owed to the respondent. Second, he claims that his Honour’s discretion to make the sequestration order miscarried in that, in assessing the appellant’s solvency, his Honour made errors of fact, took into account irrelevant matters and failed to give sufficient weight to other matters. Application to adduce new evidence on appeal At the hearing of this appeal I refused the appellant’s application to adduce evidence that was not put before the Federal Magistrate for the following reason. Section 27 of the Federal Court of Australia Act deals with the Court’s reception of evidence on appeal:27. In an appeal, the Court shall have regard to the evidence given in the proceedings out of which the appeal arose, and has power to draw inferences of fact and, in its discretion, to receive further evidence…

Evidence

Evidence Before The Court

The appellant's grounds of appeal can be summarised briefly. First, he claims that the Federal Magistrate erred by failing to go behind the judgment of the Local Court to determine if there was a debt owed to the respondent. Second, he claims that his Honour’s discretion to make the sequestration order miscarried in that, in assessing the appellant’s solvency, his Honour made errors of fact, took into account irrelevant matters and failed to give sufficient weight to other matters. Application to adduce new evidence on appeal At the hearing of this appeal I refused the appellant’s application to adduce evidence that was not put before the Federal Magistrate for the following reason. Section 27 of the Federal Court of Australia Act deals with the Court’s reception of evidence on appeal:27. In an appeal, the Court shall have regard to the evidence given in the proceedings out of which the appeal arose, and has power to draw inferences of fact and, in its discretion, to receive further evidence… Although the discretion conferred by s 27 is not expressed to be limited in any way, the principles that should guide the Court in its exercise are well established and uncontroversial. In general the Court must be satisfied that the evidence could not, with reasonable diligence, have been adduced at the trial; Council of the City of Greater Wollongong v Cowan (1955) 93 CLR 435 at 444. Moreover the evidence that was not presented at the trial must have sufficient probative value that it is likely to have produced a different result had it been presented at the trial; Guss v Johnstone [2000] FCA 1455, Freeman v National Australia Bank Limited [2003] FCAFC 200. The proposed further evidence is an affidavit affirmed by the appellant to which are attached seven annexures comprising: (a) documents relevant to the appellant’s application to the Local Court for the judgment debt to be paid by instalments; and (b) correspondence between the appellant and Mr Porter, one of the joint trustees in his bankruptcy. In his letter, the appellant argued that he had a right to apply for an instalment order after receiving the bankruptcy notice and requested the Trustee to prepare an affidavit for the purposes of this appeal addressing a number of issues including: (i) the basis for the Trustee’s fees; and (ii) the appellant’s attempts to make payments under the instalment order and the alleged rejection of those payments by the Trustee’s office. The affidavit itself was more in the nature of submissions than evidence. In so far as the evidence is directed to establishing that the instalment order was made, it is clear from the Federal Magistrate’s reasons that his Honour was aware that the order had been made and that, in relation to payments due on 1, 8 and 15 October 2006, the appellant had not complied with the order. The appellant’s attempt to make the outstanding instalment payment on 16 or 17 October was described in an annexure to the affidavit of Mr Adam Biddles, a paralegal in the employ of the respondent’s solicitor. This affidavit was in evidence before his Honour.

Decision

Reasons for decision

STONE J
An appeal from a judgment of the Federal Magistrates Court is an appeal by way of re-hearing. To succeed on appeal the appellant needs to show that the Federal Magistrate made an error of law or fact or that his Honour’s discretion miscarried; Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194, Branir Pty Ltd v Owston Nominees(No 2) Pty Ltd (2001) 117 FCR 424. Failure to go behind judgment debt Where a petitioning creditor relies on a judgment debt the Court must be satisfied as to the validity of the debt and, to that extent, it may be said that the judgment ‘is never conclusive in bankruptcy’; Wren v Mahony (1972) 126 CLR 212 at 224. It is accepted however, that the Court will not investigate validity as a matter of course; Simon v Vincent J. O’Gorman Pty Ltd (1979) 41 FLR 95 at 111, Commonwealth Bank of Australia v Jeans [2005] FCA 978. There must be something to suggest that no real debt lay behind the judgment, whether because of fraud, collusion or miscarriage of justice; Corney v Brien (1951) 84 CLR 343 at 357; Udovenko v Mitchell (1997) 79 FCR 418 at 421. The debt on which the appellant relies arose from a loan agreement made between the appellant and Avco Financial Services Limited, and which was secured by the appellant’s interest in a motor vehicle. The appellant defaulted on the loan. Avco repossessed the vehicle and sold it in May 2000 however there was a shortfall on the sale and an amount of more than $13,000 was left outstanding. Avco assigned that debt to the respondent. The appellant says that there was not sufficient evidence to support the assignment from Avco to the respondent and, on that basis, says that the respondent did not prove the debt. It appears that there were some irregularities or discrepancies in the documentation of the debt and the assignment, but although the assignment was pleaded in the Local Court, the appellant did not take issue with that plea in his defence in the Local Court. Instead, while not admitting that there had been a default under the loan agreement with Avco, the appellant’s defence was that the agreement with Avco had been fully satisfied by Avco taking possesson of the motor car. In his judgment in the Supreme Court appeal, Malpass AJ noted at [16]-[19]:The plaintiff conducted his case before the Local Court on the basis that there was no issue concerning the assignment. At the commencement of her judgment, the Magistrate made a finding that the interests, rights and entitlements under the agreement for loan had been assigned. In my view, she did not fall into error in making that finding.The plaintiff now complains that there was no evidence of the assignment before the court and that there was no evidence of service of notice of the assignment. The defendant disputes that contention. It looks to admissions, the documentary material that was before the court and to evidence given by the plaintiff during his cross-examination. ……There is a contest between the parties as to what inferences may be drawn from all of the material. It is unnecessary to enter into that debate. It suffices to say that the material leads to the conclusion that the plaintiff was aware of the assignment and was not concerned to make any challenge in relation to it.Leaving that consideration aside, it seems to me that it was unnecessary to tender the assignment, or any notice of it, in the light of the admissions that arise from the pleadings and the manner in which the plaintiff conducted his case in the Local Court.His Honour concluded:It would seem from the record of the proceedings that neither the parties nor the court noticed the discrepancies in the purported notice. No doubt, this was because the assignment and notice thereof were not seen as matters in issue.

Ratio Decidendi

Legal Principle Established

Established by: STONE J

I also do not accept that it would be appropriate for this Court to allow the appellant to reopen that issue either in this Court or before the Local Court. Since the arbitration, purported re-hearing and appeal to which Malpass AJ referred, an application to set aside the bankruptcy notice has been dismissed by a registrar of this Court, a sequestration order has been made by a registrar of this Court, there has been an unsuccessful application to set aside the sequestration order in the Federal Magistrates Court and now an appeal to this Court. There are even greater reasons now to say, as did Malpass AJ, that it is not in the interests of the parties or the public for there to be a further hearing. Discretion to make sequestration order or to dismiss the creditor’s petition Section 52 (1) of the Bankruptcy Act 1966 (Cth) provides for the proof of certain matters and states that the Court, ‘if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor’. It is accepted that the section gives the Court discretion to decline to make the order if persuaded ‘that the public interest in dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations’; Totev v Sfar (2006) 230 ALR 236 at 243. See also Cain v Whyte (1933) 48 CLR 639 at 645-6 and 648. It is for the debtor to persuade the Court that the circumstances are such as to warrant an exercise of the Court’s discretion in his or her favour. Before the Federal Magistrate, the appellant raised the issue of whether the Local Court judgment was a final judgment and also whether the stay order made by the Local Court ought to preclude the creditor from pursuing its petition. His Honour made findings adverse to the appellant on both these issues and the appellant has not challenged those findings in this appeal. The appellant did challenge his Honour’s finding in respect of his solvency. The issue is relevant because s 52(2) of the Act would allow the Court to dismiss the creditor’s petition if the Court was not satisfied with the proof of the matters referred to in s 51(1), or was satisfied by the debtor that he is able to pay his debts; or that for other sufficient cause a sequestration order ought not to be made. The appellant submits that the existence of the instalment order was proof that the appellant had satisfied a court (the Local Court) that he was able to pay his debts as they fell due and that the Federal Magistrate erred in concluding otherwise. In the alternative the appellant submits that his Honour should have enquired into the circumstances surrounding the appellant’s failure to make the instalment payments. His Honour dealt with the solvency question briefly:The court has the usual discretion to consider whether a sequestration order should be made and in this instance, whether it is appropriate to simply dismiss the application for the review of the order which is already in existence. In exercising that discretion the court is required to take into account the various matters referred to in the Bankruptcy Act, including amongst others, the issue of solvency. The debtor has not produced to this court evidence which would establish solvency at the relevant time as defined, that is an ability to pay the debts as and when they arise.The statement of affairs whilst revealing that the debtor is in receipt of a disability pension, otherwise refers to assets which ultimately can only be characterised as including one substantive asset, namely a property. It is not appropriate for me to otherwise analyse the materials safe [sic] to say that the income of the debtor appears to be a sum of $505.00 per fortnight and the assets include a car valued at $300.00 and the residence to which I have referred already estimated to have a net value of approximately $140,000.00.In my view, there is no issue that has been properly raised concerning solvency of the debtor.