Nguyen v Official Trustee - [2002] FMCA 330

FEDERAL MAGISTRATES COURT OF AUSTRALIA

NGUYEN v OFFICIAL TRUSTEE

[2002] FMCA 330

BANKRUPTCY – Annulment application – whether discretion to make order for Trustee’s costs, charges and expenses pursuant to s.154(1)(b) of the Bankruptcy Act – whether discretion to defer order pending arrangements to pay creditors or trustee’s costs.

Bankruptcy Act 1966, ss.153B, 154(1)(b)

Kathleen Wong; ex parte Wong v Robinson (unreported delivered on 15 September 1995)

Re Raymond; ex parte Raymond (1992) FCR 424
Re Griffiths; ex parte Huntley (1892) 3 BC (NSW) 6

Applicant:

VAN LO NGUYEN

Respondent:

OFFICIAL TRUSTEE

File No:

MZ 1119 of 2002

Delivered on:

9 December 2002

Delivered at:

Melbourne

Hearing Date:

9 December 2002

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr P. Gillett

Solicitors for the Applicant:

Consumer Credit Legal Service

Counsel for the Respondent:

Mr M. Galvin

Solicitors for the Respondent:

Official Trustee

ORDERS

The bankruptcy of the applicant pursuant to the sequestration order made on 16 July 2002 is annulled.
The sequestration order made on 16 July 2002 be set aside.
That there be no order as to costs.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 1119 of 2002

VAN LO NGUYEN

Applicant

And

OFFICIAL TRUSTEE

Respondent

REASONS FOR JUDGMENT

This is an application for annulment of bankruptcy by Van Lo Nguyen, who is the applicant, against the respondent, Official Trustee. The application was filed on the 4th day of November 2002.
By an amended application for annulment of bankruptcy filed 15 November 2002, the applicant on the grounds of the accompanying affidavit material seeks orders that
(1)the bankruptcy of the applicant pursuant to a sequestration order made on 16 July 2002 is annulled;
(2)the sequestration order made on 16 July 2002 is set aside;
(3)that there be no order as to costs; and
(4)such other orders as the court sees fit.
It is clear from the material that in this application the sequestration order which was made on 16 July 2002 was an order based upon a creditor's petition by the then applicant creditor, Bendigo Bank Ltd. The amount said to be owing the petitioning creditor was $19,712.97.
When this matter was called on for hearing this day, there was no appearance for the petitioning creditor and indeed no appearance from any other creditors. Mr Galvin, however, sought to appear for the Official Trustee and had provisionally not opposed the making of the orders for annulment of the bankruptcy and/or setting aside the sequestration order made on 16 July 2002.
A substantive issue before this court which has been agitated for and on behalf of the Official Trustee was that this court ought to consider making an annulment order under section 153B of the Bankruptcy Act (1966) (the Act), the further entitlement that the trustee has under section 154(1)(b) of the Bankruptcy Act. That subsection provides as follows:
“(1)If the bankruptcy of a person (…..) is annulled under this Division:
….
(b) the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy including the remuneration and expenses of the trustee”.
It is submitted for and on behalf of the trustee that in considering whether I should make an order annulling the bankruptcy I should have regard to the discretion which it is said the court has in relation to whether or not I simply defer making the order and, upon deferring that order, should consider indicating to the applicant that in the absence of appropriate arrangements to be made by the applicant for payment of the trustee's charges, costs and expenses, I should then indicate that the annulment order would not be made unless that appropriate arrangement has been reached in the intervening period.
I have been referred by Mr Galvin to the decision of Sackville J in the case of Kathleen Wong; ex parte Wong v Robinson (unreported delivered on 15 September 1995). In that case an application for annulment of a sequestration order was made pursuant to section 153B of the Act. I was particularly taken to the following paragraphs in His Honour's judgment where, at page 5 of the printed copy of His Honour's decision, the following paragraphs appear:
“It is, of course, a most material consideration that the applicant was, at the date of the sequestration order, and is now, solvent. Had the applicant offered to pay, in an appropriate manner, the costs and expenses of the bankruptcy and to pay out the creditor in full, I would have been prepared to grant her application. But the trustee's costs and expenses have been incurred because of the course adopted by the applicant, coupled with the delay in pursing proceedings for annulment. If an order annulling the bankruptcy is made, the trustee may apply the property of the former bankrupt still vested in him in payment of the costs, charges and expenses of the administration: Bankruptcy Act 1966, s 154(1)(b). To the extent that the property is insufficient, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by action in a court of competent jurisdiction: s 154(2). I think it is undesirable that either the trustee or the creditor, having regard to the applicant's course of conduct, should have to resort to further court proceedings, to recover the expenses of the bankruptcy or the balance of the debt.
For these reasons, I think that, if no appropriate arrangements are made by the applicant for the payment of outstanding fees, expenses and charges in relation to the bankruptcy (including the present proceedings) and for the payment of the outstanding debt, the application should be dismissed. However, the applicant should be given an opportunity to decide whether she wishes to make such arrangements. As I have noted, even if the application is dismissed, the applicant can secure an annulment of her bankruptcy by paying the outstanding debt and costs and expenses.”
In his conclusion His Honour indicates that he proposed deferring the making of the orders for 14 days to give the applicant an opportunity, should she be so advised, to make appropriate arrangements for payment of outstanding fees, expenses and charges of the bankruptcy and for payment of the balance of the debt due to the creditor. His Honour goes on to refer to arrangements which would also need to be made in relation to the costs of the current application. He then says:
“If, at the expiration of the fourteen days, appropriate arrangements are made, I would be prepared to make an order annulling the bankruptcy. If they are not, I shall make orders dismissing the application and ordering the costs of the trustee and the creditor should be paid out of the applicant's estate.”
It is urged upon me in the present application by counsel for the respondent that I should follow the course that His Honour had adopted in the decision to which I have just referred.
In the present case the application of the applicant is supported by an affidavit sworn by him on 31 October 2002. In that affidavit the applicant refers to the background which I simply recite in summary form as follows. He states that he is Vietnamese by birth, that his first language is Vietnamese and he has limited English skills. He refers to the fact that at all relevant times he has lived with his son, also known as Van San Nguyen, and had read the affidavit of Brandon Van Lee dated 31 October 2002 and he adopts that as being true and correct. I shall refer to that affidavit to the extent that it is necessary in due course.
It is noted in the affidavit of the applicant that on 16 July 2002 a sequestration order was obtained against him by Bendigo Bank Ltd. He states that the bankruptcy proceedings were based upon a default judgment entered against him on 25 January 2002 in favour of the bank in the Magistrates Court of Victoria. He further states that he was not liable for the amounts claimed in the bankruptcy proceedings and in the default judgment to which I have referred. He states he was not served with a bankruptcy notice in the bankruptcy proceedings and was not served with a creditor's petition. It is noted, and does not seem to be in dispute, that he did not of course attend the hearing at which the sequestration order was made on 16 July 2002.
The deponent goes on to state that:
“10.In or around August 2002 I became aware that my assets were at risk of seizure and sale as a result of a Bankruptcy Proceedings.
11.On 2 September 2002 I instructed my solicitor Paul Gillett to take all necessary steps to put me in the position I would have been in but for the Bankruptcy Proceedings and the Default Judgment.”
I refer to a certified extract of orders which have subsequently been made on 9 October 2002 in relation to the default judgment. It is clear on the material before me that the default judgment was entered as a consequence of proceedings which were commenced in the Magistrates Court at Bendigo by the petitioning creditor and I am satisfied those proceedings commenced by the filing of the complaint on 29 November 2001. It is said in the circumstances, and I accept, that a default judgment was entered in relation to that complaint on 25 January 2002 for the amount to which I have already referred.
In the certified extract of orders made by the court on 9 October 2002, it is clear that on an application for rehearing by the applicant, consent orders were made by the parties which involved the setting aside of the judgment the court made on 25 January 2002 and, further, of significance, that the action be discontinued and that any other orders made by the court in the action prior to the hearing of the application for rehearing be struck out and that each party bear their own costs arising out of the action.
The affidavit of Brandon Van Lee to which I have referred exhibits certain documents and is an affidavit sworn on 31 October 2002 by the deponent who is the stepson of the applicant. Reference is made in that affidavit to a loan contract and other material which for the present purposes, in my view, is not relevant. In his affidavit Mr Lee deposes that it was his signature on the Loan Contract and not that of the Applicant. The Loan Contract was the basis of the default judgment against the Applicant.
The respondent has relied upon an affidavit sworn by Alistair Ashley Page on 25 November 2002 which attaches to it the report of the official trustee, which I note is exhibit A to that affidavit. In that exhibit, under the heading “The bankrupt's conduct”, the report states:
“I have no information on file to suggest that the bankrupt's conduct prior to the date of bankruptcy was other than satisfactory.
The bankrupt's conduct since the date of bankruptcy has been satisfactory.”
It is clear that in the present case that there is one significant asset, namely, a motor vehicle, which may be regarded as property which is vested to the trustee pursuant to section 154(1)(b) of the Bankruptcy Act. It is equally clear as a matter of practicality that that section provides a remedy to the trustee in the absence of any further orders of this court other than remedies which may be sought by way of directions for the recovery of that vehicle and its disposition. It is further clear, however, that there may be rights that accrue to the applicant in seeking to challenge what are now said to be the total amount of costs, charges and expenses incurred by the trustee, which I note amount to a total of $5549.67 excluding the costs of appearance and preparation for this day.
In the decision to which I have been referred of His Honour Sackville J in the case of Kathleen Wong, I am satisfied that His Honour concluded in that case that there was some power to the court in exercising its discretion to consider annulment under section 153B of the Act, to also then consider whether further orders should be made either delaying or indeed not making an order for annulment on certain conditions, namely, that there be arrangements made for payments of outstanding fees, expenses and charges of bankruptcy. It is also noteworthy in that case that His Honour considered the issue of payment of the balance of the debt due to the creditor.
Although I am not completely satisfied that as a matter of law it is entirely within the court's discretion under section 153B of the Bankruptcy Act to indeed defer consideration of annulment and the setting aside of the sequestration order in circumstances of the present case, I accept for the present purposes that I am able to exercise my discretion having regard to that option. As I have indicated, I am not totally satisfied that the court does indeed have that discretion.
It seems to me on a proper reading of section 153B, whilst the court may decide to make an order annulling bankruptcy, the discretion to be exercised in relation to that section does not necessarily include a discretion to effectively seek to enforce payment of outstanding costs, charges and expenses of the administration of the bankruptcy by the trustee as it seems to me that there is a protection already given in the statute for the recovery of those costs under section 154(1)(b) and, in any event, if there is any difficulty recovering those costs, I am satisfied the court has a general discretion given to it by virtue of section 30 of the Act in relation to those matters.
Nevertheless, in the present case, in my view, the facts and circumstances of this case are distinguishable from the facts and circumstances in the decision of His Honour Sackville J in Kathleen Wong. In that case it was clear to me that His Honour considered the course of conduct by the applicant. He considered the delay by the applicant to be a relevant factor in making the decision and drawing the conclusion which he did draw, which appears at page 6 of His Honour's judgment.
In the present case, having regard to the chronology of events which I have now recited and the fact that there does not appear to be any amount owing to the creditor and indeed there is implicit, in my view, in the order by consent which included an order that each party bear their own costs, that there is indeed no outstanding debt owed by the applicant to the creditor. It is also clear to me on the material currently before the court that the appropriate factors to consider in deciding whether or not to annul a bankruptcy are matters which are properly before this court, and there is sufficient material before this court to apply the appropriate principles that ought to be applied in considering this application.
In particular, I have been referred to the decision of Spender J in the decision of Re Raymond; ex parte Raymond (1992) FCR 424 and note at page 426 His Honour refers to the observations of Manning J in Re Griffiths; ex parte Huntley (1892) 3 BC (NSW) 6 where at page 9 His Honour said:
“…. I take it that the words ‘ought not to have been made’ do not mean not only upon the case as disclosed at the time, but as it would have been disclosed had all the true facts, as shown in the application of the discharge, been before the judge on the making of the order.”
In my view, had all the facts been known at the sequestration order stage of these proceedings as indicated now in the affidavit material and as clearly conceded by the petitioning creditor, then the order in the present case could properly be said to be one that should not or ought not to have been accepted by the Official Trustee. In the circumstances, I am satisfied it is proper to make the annulment order. I am further satisfied that it is appropriate to set aside the sequestration order.
Having regard to the chronology of events and the lack of unsatisfactory conduct, which I find to be the case on behalf of the applicant, it is my view that in all the circumstances, even if I do have the discretion which, as I have indicated, for the purpose of this case I have accepted that I do have, I would not be prepared to exercise the discretion in the favour of the trustee and make any further orders as to costs.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 9 December 2002