Musgrave v ALEX TAXIS and Broker P/L
[2002] FMCA 208
•17 September 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MUSGRAVE v ALEX TAXIS & BROKER P/L & ANOR | [2002] FMCA 208 |
| BANKRUPTCY – Review of Registrar’s sequestration order – nature of review. |
| Applicant: | DAVID KEVIN MUSGRAVE |
| First Named Respondent: | ALEX TAXIS & BROKER PTY LTD |
| Second Named Respondent: | MICHAEL GREGORY JONES |
| File No: | MZ 448 OF 2002 |
| Delivered on: | 17 September 2002 |
| Delivered at: | Melbourne |
| Hearing Date: | 9 September 2002 |
| Judgment of: | Connolly FM |
REPRESENTATION
| Counsel for the Applicant: | Applicant in person |
| Solicitors for the Applicant: | In person |
| Counsel for the First Named Respondent: | Mr M P Barrett |
| Solicitors for the First Named Respondent: | Theodore Sklavos Solicitors |
| Counsel for the Second Named Respondent: | Mr Hall |
ORDERS
THAT the Application of DAVID KEVIN MUSGRAVE to set aside the sequestration order made on 29 July 2002 be dismissed.
THAT the time for the Applicant to file a statement of affairs pursuant to section 54(1) be extended to 1 October 2002.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MZ448 of 2002
| DAVID KEVIN MUSGRAVE |
Applicant
And
| ALEX TAXIS & BROKER PTY LTD |
First Named Respondent
And
| MICHAEL GREGORY JONES |
Second Named Respondent
REASONS FOR JUDGMENT
The proceedings
These proceedings commenced by way of Mr Musgrave’s Application (filed 20 August 2002) for review of the Registrar’s sequestration order made on 29 July 2002.
The Trustee, Michael Gregory Jones filed an Application to Intervene in these proceedings on the 9 September 2002 and be added as a Second Respondent. That document also sought orders that the application be dismissed and that the Applicant attend upon the offices of the Second Named Respondent at 11:00am on 11, 12 or 13 September 2002 for the purposes of reviewing his statement of affairs and that he promptly and diligently attend upon all other requests reasonably made of him by the Second Respondent.
The application was supported by:
a)the Applicant’s Affidavit sworn on 6 July 2002 and filed 20 August 2002;
b)the Notice of Intention to Oppose Petition filed 20 June 2002;
c)the Affidavit in Support of Notice of Intention to Oppose the Petition sworn 19 June 2002 filed 20 June 2002;
d)the Notice of Appearance filed 20 June 2002;
e)in addition the Applicant gave vive voce evidence on the
9 September 2002.The First Named Respondent in opposing the Application of Mr Musgrave relied on:
a)the Creditor’s Petition filed 13 May 2002;
b)the Affidavit verifying paragraphs 1, 2 and 3 of petition sworn and filed 13 May 2002;
c)
the Affidavit verifying paragraph 4 of petition sworn and filed
13 May 2002;
d)the Affidavit of Search sworn and filed 25 June 2002;
e)the Affidavit of Debt sworn and filed 25 June 2002;
f)the Affidavit of Service sworn 29 May 2002 and filed 25 June 2002;
g)the Affidavit of Search sworn and filed 29 July 2002;
h)the Affidavit of Debt sworn and filed 29 July 2002;
i)the Affidavit in opposition to application for review of decision sworn 4 September 2002 and filed 5 September 2002.
The Second Named Respondent relied on:
a)the Application of Michael Gregory Jones filed 9 September 2002;
b)the Affidavit of Michael Gregory Jones sworn 6 September 2002 and filed 9 September 2002;
Michael Gregory Jones was appointed as Trustee of the Bankrupt Estate of the Applicant by resolution of creditors at a meeting of creditors on 4 September 2002 at 11:00am. Prior to that he was appointed an agent for the Official Receiver on 7 August 2002. On that basis I granted Michael Gregory Jones leave to intervene in the proceedings and to be joined as the Second Named Respondent.
The Trustee referred to section 37(2) of the Bankruptcy Act which states:
(1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order.
(2) The Court does not have power to rescind or discharge, or to suspend the operation of:
(a) a sequestration order; or
(b) an order for the administration of the estate of a deceased person underPart XI.”
He submits that while Order 29 of the rules of the Federal Magistrates Court in relation to bankruptcy provide for a review of a decision by a Registrar, that rule must be read in accordance with the provisions of section 37 of the Act itself. The order sought, that the sequestration order be set aside, is an order that the Court has no jurisdiction to make. He argues that the only way out of sequestration is through the annulment provision of sections 153A and 153B. Mr Hall who appeared for the Trustee offered no case law in support of his proposition. The Applicant merely reaffirmed his view that the Application for review was the appropriate mechanism to consider the setting aside of the sequestration order.
The law with respect to the Court’s jurisdiction to review the Registrar’s sequestration order is conveniently and succinctly set out in the decision of Federal Magistrate R Driver of Adelaide Bank Limited v Badcock AZ202 of 2001 and in particular at paragraphs 2 to 12 of that determination which states as follows:
“…
2.Division 4 of the Federal Magistrates Act 1999 (Cth) (“the FMA”) deals with the role and power of Registrars. Section 103 of the FMA provides for delegation of powers to the Registrars and the Federal Magistrates Court (Delegation to Registrars) Rules 2000 provides in rule 1.4(1)(viii) the power to make a sequestration order against the estate of a debtor. Subsections 104(2) & (3) of the FMA provide as follows:
104(2) Review of the Exercise of Registrar’s Powers
A party to proceedings in which a Registrar has exercised any of the powers of the Federal Magistrates Court under subsection 102(2) or under a delegation under subsection 103(1) may:(a) within the time prescribed by the rules of court; or
(b) within any further time allowed in accordance with the rules of court; apply to the Federal Magistrates Court for review of that exercise of power.
104(3) [Review]
The Federal Magistrates Court may, on application under subsection (2) or on its own initiative, review an exercise of power by a Registrar under subsection 102(2) or under a delegation under subsection 103(1), and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercise.3.These provisions mirror provisions in the Federal Court of Australia Act 1976 (Cth) “(the FCA”) and Rules.
4.At the commencement of this application Mr Lunn, who appears for the petitioning creditor, submitted to the Court that the Court did not have jurisdiction to deal with this application. In response to my request for clarification Mr Lunn confirmed that his submission would be that the Federal Court was also devoid of jurisdiction to review the decision of a Registrar to make a sequestration order. Mr Lunn suggested that the appropriate way of seeking relief in respect of such a decision was to appeal it to the Full Bench of the Federal Court.
5.The basis upon which the respondent made the submission is its reading of section 37 of the Bankruptcy Act:
37(1) Subject to subsection (2), the Court may rescind, vary or discharge an order made by it under this Act or may suspend the operation of such an order.
The Court does not have power to rescind or discharge, or to suspend the operation of:
(a) a sequestration order; or
(b) an order for the administration of the estate of a deceased person under Part IX.
6.The respondent argued that this provision of the Bankruptcy Act overrode the provisions of the FMA and the Rules. He submitted there was no discretion in relation to the matter. The Court was bound by the clear words of the provision.
7.I asked Mr Lunn whether he had any authority to support this application but he advised me that he did not.
8.The clear words of section 37 are, on further examination, somewhat more opaque. Firstly, notwithstanding the prohibition on any power to suspend the operation of sequestration order found in section 37 there is a clear power to do so granted by section 52(3). That section puts a limit of 21 days on the stay of any sequestration but this limitation does not prevent the Court from granting a stay for longer pursuant to section 29 of the FCA and Order 52, rule 17 of the Federal Court Rules: Evans v Heather Thiedeke Group Pty Ltd (1990) 95 ALR 424; Coleman v Lazy Days Investments Limited (1994) 55 FCR 297. Section 37 as it now is came into the Act by way of an amendment in 1992. In March 1993 Burchett J considered the new section in Norman Young & Kristine Young v Hunter MMI Finance Limited (unreported, FCA, 23 March 1993, Burchett J). His Honour said:
“My attention has been properly directed to section 37 which provides, as it has fairly recently been amended, a bar to the rescission by the Court of a sequestration order. However, it seems clear to me that section 37 has nothing to say to section 31A, which is not a general provision about the powers of the Court in bankruptcy, but a specific provision dealing with the delegation of powers to the Registrar, and with the consequences of such a delegation, framed, of course, in terms designed to overcome the constitutional problem which was highlighted in Reg v Davison (1954) 90 CLR 353.”
9.Section 31A was repealed by the Bankruptcy (Legislation Amendment) Act 1996, section 3 and schedule 1. Since then an identical power has been exercised pursuant to section 35A of the FCA. That section is identical to sections 102 – 104 of the FMA.
10.The Full Bench of the Federal Court considered the amended sections in Trustees of the Franciscan Missionaries of Mary v Weir (2000) FCA 574. The Court approved the decision in
Re Young and went on to say at paragraph 23:“In our opinion sections 37 and 52(3) of the Bankruptcy Act are provisions having general application to the exercise of jurisdiction in bankruptcy by the Court; but the exercise of that jurisdiction through a delegation satisfying the strict requirements in Harris v Caladine and the other authorities to which we have referred is a special case, and it is governed by its rules.”
11.Mr Lunn did not impugn the power of a Registrar to make sequestration orders. I am satisfied that the proper method of reconsidering the sequestration order made by a Registrar is by way of review and that the form of that review should be in accordance with the view of the Full Bench in Martin & Anor v Commonwealth Bank of Australia (2001) FCA 87.
12.The decision in Martin makes it quite clear that the responsibility of a judge in bankruptcy hearing a review of a Registrar’s decision to make a sequestration order is to hear
de novo the creditor’s petition. In order to hear the creditor’s petition de novo it is necessary for the judicial officer to be satisfied with the proof of the matters of which subsection 52(1) of the Bankruptcy Act requires the Court to be satisfied. Those requirements include matters which have to be proved by way of affidavit evidence. Rule 31.06 of the Federal Magistrates Court Rules sets those out in detail.
13.…”
I am well satisfied, that the proper mode of reconsidering the sequestration order made by the Registrar, is by way of review pursuant to Order 29 and that the form of the review should accord with what was said in Martin & Anor v Commonwealth Bank of Australia 2001 FCA87.
I am further satisfied that the creditor (First Named Respondent) has complied with the formalities required by the Bankruptcy Act and Rules. On 29 April 2002 Registrar Efthim ordered as follows:
“1.Leave be granted to annul paragraph 4 of the petition to substitute date of commission of Act of Bankruptcy as the
29 April 2002 for 30 April 2002.
2. Re-verification and re-service be dispensed with.
3.A sequestration order be made against the estate of David Kevin Musgrave
4. The applicant creditor’s cost of and incidental to the petition including reserved costs be taxed pursuant to Order 62 of the Federal Court Rules and paid in accordance with the statute.
Date of Act of Bankruptcy: David Kevin Musgrave 29/4/2002”
Conclusions and findings
The basis of the Applicant’s claim seems to be that the sequestration ought to be set aside on two grounds. Firstly, the validity of the judgment debt and secondly, the Applicant’s solvency in that he claims that he is solvent and can pay his debts when they fall due. He also makes reference to the state of negotiations as at the date of bankruptcy.
The Applicant says that the validity of the judgment debt can be impugned for a number of reasons. He says that the debt is for the same claim that was made against a company conducted by him and that the cheque for the sum of $31,167.30 was converted by his former partner.
However, what is incontrovertible is that the judgment debt is the sum of $56,297.69 plus costs. On the 30 January 2001 after trial of fraud proceedings, Judge Hanlon of the County Court gave judgment in favour of the First Named Respondent in the amount of $56,297.69 plus costs. The Applicant sought to appeal the judgment of the County Court to the Court of Appeal but was unsuccessful.
On 26 July 2002 the Court of Appeal handed down its decision which refused an extension of time for applying for leave to appeal (the application was 10½ months out of time).
And I refer to paragraphs 17 and 18 of the decision of the Court of Appeal, which states:
“…
17. The fate of an application for extension of time for applying for leave to appeal will often be treated as turning upon that of the application for leave to appeal itself, considered proleptically, but here the summons applying for an extension of time (reading it extremely benevolently as doing so) was filed some10 and half months late. The fact seems to me an independent reason in this case militating against the grant of an extension, especially when an earlier, though incompetent, appeal had not be regularised and pursued. In any case, leave to appeal will not ordinarily be granted unless an applicant can show that the decision below is plainly wrong or at least attended by sufficient doubt to justify the granting of leave and that substantial injustice will be done by leaving the decision unreversed. In my opinion, even if the application for leave were within time, this is not an appropriate case for the grant of leave for the reasons which I shall give in a moment, and, on that ground also, no extension of time should be granted.
18. The decision o f Judge Hanlon involved an exercise of discretion, and I am not satisfied that the applicant has shown any of the defects, one of which must, as stated in House v the King, be shown if a discretionary decision by a judge is to be reversed. In any event, the reasons I have given earlier, the applicant does not have a defence on the merits, and furthermore the applicant took, as I have sought to show earlier, a deliberate decision not attend before Judge Hanlon on 30 January. Quite apart from that, no substantial injustice would result from leaving his Honour’s decision unreversed because, for the reasons which I have given when considering the applicant’s primary application, the applicant has no worthwhile defence to the respondent’s claim. In other words, if the judgment of
30 January 2001 were set aside and a re-trial ordered, the ultimate result would be another judgment in favour of the respondent, this time for a much greater amount of interest and costs. That would be an exercise in futility.
19. …”
And further the Court of Appeal spoke of “apparent falsehood and dishonest conduct of Musgrave’s credibility” (page 6 paragraph 11) and said “there is reason to doubt the bona fides of Musgrave’s application”. The Court of Appeal considered that he was temporising by making the application (page 6 paragraph 13).
The Applicant repeatedly asserts that he is solvent and can pay his debts when they full due. That proposition runs contrary to the evidence. The amount of the judgment debt is still outstanding and there is no evidence that he is able to pay it. Section 52(2)(a) provides that a debtor who is in the position to pay all the debts he or she owes within a reasonable time ought not to be subject to a sequestration order Re: Sarina; ExP Wollondilly Shire Council (1980) 43 FLR 163. Mr Musgrave provides no evidence that he is able to borrow funds to pay the monies that he owes to the judgment creditors or that he has funds available to withdraw or assets to sell, that will provide the necessary funds to pay his debts.
The onus of proving that his assets are sufficient to pay his debts lies on the debtor (see Re: Poulson; Ex Parte Hempenstall Bros Ltd (No. 2) 1929. The Applicant’s evidence about the value of his assets is inconsistent and unsatisfactory. On 5 March of this year the Applicant sought to pay the judgment debt by instalments of $1,000 per month in an application made to the District Court of New South Wales. In support of that application, he filed a statement of assets and liabilities, which disclosed assets of $319,587.30 and liabilities totalling $239,400 with income of $600 per week. The only asset he discloses in that document is a house which he says is valued at $350,000 less certain liabilities of $30,412.70. There is no evidence to support the value of the property is what is asserted by the Applicant and no evidence that a sale after payment of costs and disbursements would achieve the required amount. The evidence of the Applicant’s expenditure at that time is $875 per week. There is no evidence that he is able to borrow the required funds on the security of the real property or that he has sufficient income to support such a loan application. Whether the debtor can establish that he has assets that can be realised in a relatively short time to enable him to pay the debts is a question of fact for the Court to determine Sandell v Porter (1966) 115 CLR 666, 670-672.
In the Applicant’s viva voce evidence on 9 September 2002 he indicated that he had assets in excess of $800,000 and he said his liabilities would be approximately $400,000. He further stated that he reduced the mortgage by $30,000 during that time, while on an income of $500 per week and still with expenses of $875 per week. He asserts that his house has been revalued in the 6 months that have elapsed since March from $350,000 to between $600,000 and $680,000. Again there is no evidence to support the value of the property and no evidence at all as to what might be realised by the sale after payment of costs and disbursements. Nor is there any evidence as to what amount might be borrowed. The Applicant’s evidence with respect to the reduction of the mortgage having regard to what he says he earns and what he spends, is conflicting and lacks plausibility. Finally, when cross examined by Counsel for the Second Respondent about owing money to any other creditor than the First Respondent, Mr Musgrave said “No only the St George Bank”. It was then put to him “That statement wasn’t correct was it Mr Musgrave?” And he responded “at the time No”.
Given the contradictory nature of the financial evidence proffered by the Applicant I am certainly not satisfied that he has overcome the onus of proving that his assets are sufficient to pay his debts or that he has other means by which he is able to satisfy his creditors.
For all of these reasons I am satisfied that Mr Musgrave’s application to set aside the sequestration order should be dismissed.
I now turn to the balance of the orders sought by the Trustee in his application filed 9 September 2002. It is clear that the Applicant is in breach of the requests for the filing of Statement of Affairs and I am therefore satisfied that it is appropriate to extend the time for filing of this document accordingly. I am satisfied that it is appropriate to extend the time to 1 October 2002.
I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Connolly FM
Associate: Sylvia Loveless
Date: 16 September 2002
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