Nicolle v Easson
[2015] FCCA 990
•4 May 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NICOLLE v EASSON & ORS | [2015] FCCA 990 |
| Catchwords: BANKRUPTCY – Application to annul – whether bankruptcy ‘ought not to have been made’ – solvency of bankrupt – matters to be considered by the court in the exercise of its discretion – prejudice to creditors – prejudice to bankrupt – interests of trustee – interests of justice. |
| Legislation: Bankruptcy Act 1966, ss.153B; 154(1)(b) |
| Rigg v Baker (2006) 155 FCR 531 Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 Francis v Eggleston Mitchell Lawyers Pty Ltd & Ors [2013] FCA 564 Re Stubberfield; ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169 Keenan v Deputy Commissioner of Taxation [1999] FCA 524 Brunninghausen v Glavanics (1998) FCA 230 Re Williams (1968) 13 FLR 10 MZZGY & the Minister for Immigration and Border Protection [2014] FCA 488 Stankiewicz v Plata [2006] FMCA 1659 Re Gollan; Ex parte Gollan (1993) 113 ALR 475 |
| Applicant: | LEE DUDLEY NICOLLE |
| First Respondent: | IAN EASSON |
| Second Respondent: | KYM GREGORY |
| Third Respondent: | ROBERT ANTHONY FERGUSON |
| File Number: | ADG 57 of 2015 |
| Judgment of: | Judge Brown |
| Hearing date: | 8 April 2015 |
| Date of Last Submission: | 8 April 2015 |
| Delivered at: | Adelaide |
| Delivered on: | 4 May 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Riggall |
| Solicitors for the Applicant: | Camatta Lempens |
| Counsel for the First & Second Respondent: | Ms Daehn |
| Solicitors for the First & Second Respondent: | SE Lawyers |
| Counsel for the Trustee: | Ms Di Girolamo |
| Solicitors for the Trustee: | Fisher Jeffries |
ORDERS
The application filed 20 February 2015 is dismissed.
The applicant pay the respondent’s cost to be agreed and failing agreement to be taxed.
The costs to be paid out of the bankrupt estate of the applicant.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 57 of 2015
| LEE DUDLEY NICOLLE |
Applicant
And
| IAN EASSON |
First Respondent
| KYM GREGORY |
Second Respondent
| ROBERT ANTHONY FERGUSON |
Third Respondent
REASONS FOR JUDGMENT
Introduction
Lee Dudley Nicolle “the applicant” and Ian Easson “the respondent” were once neighbours. The applicant occupies 39 Furness Avenue, Edwardstown. Until 20 April 2009, the respondent owned 37 Furness Avenue. On this day, the respondent sold the property to Kym Anthony Gregory “the supporting creditor”.
Mr Nicolle is a second-hand licensed motor trade dealer. In 2003, he entered into a verbal agreement to rent the rear portion of 37 Furness Avenue from Mr Easson for the sum of $60.00 per week. It seems he used the land in conjunction with his business as a place to store motor vehicles and related equipment.
It is Mr Easson’s positon that no rent has been paid to him since 4 November 2008, and as a result, he is owed arrears of rent in the sum of $7,260.00. Mr Easson sent a letter demanding payment of this sum, to Mr Nicolle, on 21 September 2009.[1]
[1] See annexure KDA1 to the affidavit of Mr Easson’s solicitor filed 19 March 2015
Mr Gregory purchased the property at 37 Furness Avenue knowing it was subject to some form of periodic tenancy in Mr Nicolle’s favour. On 7 December 2011, he purported to increase the weekly rental from $60.00 to $120.00. It is Mr Gregory’s positon that Mr Nicolle failed to pay the rent due, both before and after the rental increase. He too sent a letter demanding payment.
Counsel for the applicant, Mr Riggall characterises the matter as a classic neighbourhood dispute. Mr Nicolle set out his view of the matter in a letter dated 16 July 2012, which he forwarded to Mr Gregory’s solicitor.[2]
[2] Ibid at annexure
He was aggrieved at what he considered to be an unwarranted doubling of the rent and raised criticisms of the adequacy of maintenance performed at the property, particularly to a shed. It was his position that the property had no real rental value, as it could only be accessed from his property.
Mr Easson instituted proceedings against Mr Nicolle, in the Magistrates Court of South Australia, on 25 September 2013. Mr Gregory instituted his own proceedings against Mr Nicolle, again in the Magistrates Court of South Australia, on 12 September 2012.
Mr Nicolle continues to occupy the rear portion of 37 Furness Avenue. He has not paid any rent to Mr Gregory, despite Mr Gregory indicating to him that he would be willing to accept a weekly amount of $100.00 in lieu of $120.00. Mr Gregory has informed Mr Nicolle that if he does not agree to this weekly amount and pay the arrears so calculated, he is required to vacate the land in question. Mr Nicolle remains in occupation of the premises.
On 11 November 2013, Mr Easson obtained a default judgement against Mr Nicolle, in the Magistrates Court of South Australia in the sum of $7,754.00. As a consequence of this default judgement, an investigation summons issued requiring Mr Nicolle to attend at court to be orally examined as to his financial circumstances and means of satisfying the judgement debt. Mr Nicolle failed to attend court on 23 January 2014 and again on 27 February 2014.
As a consequence of his non-appearance, on 25 March 2014 a warrant issued for Mr Nicolle’s arrest. Mr Nicolle appeared at the Magistrates Court on 2 April 2014, on which occasion he advised the court that he disputed the debt and wished to have the judgement entered against him set aside. On this basis, the warrant of arrest herein was adjourned to 17 April 2014.
On 17 April 2014, Mr Nicolle made an application to set aside the judgement entered in default of his appearance. The hearing of this application was fixed for 15 May 2014. Mr Nicolle failed to attend this hearing. As a consequence, Magistrate Gumpl dismissed the application noting no reason had been provided as to Mr Nicolle’s non-appearance and further noted on the court record that no further applications will be permitted. Magistrate Gumpl awarded judgement to Mr Easson in the sum of $8,118.75.
Mr Gregory instituted proceedings against Mr Nicolle in the Magistrates Court of South Australia on 12 September 2012. The applicant failed to appear or file a defence. As a consequence, Mr Gregory obtained judgement in default against Mr Nicolle in an amount of $4,376.00. Thereafter, on 3 January 2013, the applicant successfully applied to set aside the judgement but failed to file a defence as ordered. This led to Mr Gregory obtaining judgement against Mr Nicolle once again, on 19 July 2013.
On 16 December 2013, Mr Nicolle made an application to set aside the judgement, which was listed on 16 January 2014. Mr Nicolle did not attend this hearing and his application was dismissed.
On 2 April 2014, Mr Nicolle made yet another application to set aside the judgement, which was listed for hearing on 17 April 2014. Once again, Mr Nicolle did not attend the hearing and the Presiding Magistrate, Mr Milazzo made an order that no further applications would be considered from Mr Nicolle without the leave of the court.
Notwithstanding this order, the applicant made a further application to set aside the hearing. It was listed for 15 May 2014, but the applicant did not appear. As a consequence, on 2 July 2014 judgement was entered in Mr Gregory’s favour in an amount of $4,566.00.
On 6 June 2014, Mr Nicolle sent an email to Mr Gregory’s solicitor objecting to the notice with which he had been provided to remove his goods from 37 Furness Avenue. In this email, he indicated that he had fourteen cars, shelving, racking, a work bench as well as other pieces of equipment and automotive components, which he valued in excess of $100,000.00.
On 9 July 2014, Mr Gregory instituted further proceedings, seeking payment of $12,369.20 in respect of what was alleged to be further arrears of rent for the 37 Furness Avenue property. On 5 August 2014, as a consequence of Mr Nicolle’s failure to file a defence, he obtained a second judgement against the applicant in the sum of $13,024.20. Mr Nicolle remains in occupation of the premises concerned.
On 20 July 2014, a bankruptcy notice was issued to Mr Nicolle in respect of the judgement debt owed by him to Mr Easson. The bankruptcy notice required payment of $8,413.00 within 21 days of service. There is no dispute that Mr Nicolle did not comply with this bankruptcy notice, which was served on him on 28 July 2014.
As a consequence of this, Mr Easson’s solicitors caused a creditors petition to be filed in the court, which was listed before Registrar Bochner on 27 October 2014. The applicant attended the first hearing of the petition, which was adjourned to 24 November 2014 to allow him to obtain legal advice.
Between 24 November and 15 December 2014, the petition was adjourned on four occasions. The applicant attended one such hearing by telephone. Ultimately, on 15 December 2014 Registrar Bochner made a sequestration order against Mr Nicolle’s estate and directed that the creditor’s costs be fixed in a sum of $6,051.75. At the time, Registrar Bochner had before her a consent signed by Robert Ferguson, a chartered accountant, to act as Mr Nicolle’s trustee in bankruptcy.
Prior to the hearing of 15 December 2014, Mr Easson’s solicitor wrote to Mr Nicolle informing him of the adjourned date and advising him that the consequences of bankruptcy were potentially serious, particularly in respect of the fees likely to be levied by any trustee appointed as a consequence of the sequestration of his estate.
In respect of each of his non appearances before Registrar Bochner, Mr Nicolle deposes as follows:
“Prior to each court hearing, I forwarded copies of medicalal certificates to the court to explain the reasons for my non-attendance.”[3]
The adequacy and content of these certificates will be considered below.
[3] See affidavit of Lee Dudley Nicolle filed 20 February 2015 at [16]
The current application
On 20 February 2015, Mr Nicolle’s solicitor applied on his behalf to have his bankruptcy annulled pursuant to the provisions of section 153B of the Bankruptcy Act 1966 (Cth). This application is opposed by Mr Easson and the supporting creditor, Mr Gregory.
As previously indicated, it is Mr Nicolle’s evidence that he was unable to attend court between 24 November 2014 and 15 December 2014, as he was suffering chronic anxiety and depression. This assertion is supported by three medical certificates, two of which are in generic terms and a third which reads as follows:
“Mr Lee Nicolle has chronic anxiety and depression which is interfering with his ability to function with stressful circumstances. He is starting medication and may show improvement over a 4-6 week period.”[4]
[4] Ibid at annexure LDN3
It is the first certificate, dated 13 November 2014, which contains the above statement. The other two certificates, dated 8 December 2014 and 14 December 2014 respectively, indicate that Mr Nicolle suffers from a medical condition and will be unfit for work between 8 and 9 December and from 15 to 15 (sic) December. In my view, these certificates can only be regarded as being bald of detail and in the case of the most recent one, haphazard in nature.
Given Registrar Bochner adjourned the proceedings on a number of occasions, it seems implicit that she gave the certificates some credence but by the time of the hearing of the petition’s ultimate hearing, her stores of indulgence (and those of the petitioner) were exhausted.
On or about 14 January 2015, Mr Ferguson provided a report to the creditors of Mr Nicolle, who were identified as follows:
·Mr Easson (judgement debt) $8,118.00
·Adelaide Bank $1,015.00
·Mr Gregory (judgement debt) $17,640.00
·SA Water $1,400.00
·AGL Energy $ 41.00
Unsecured creditors $28,214.00
Mr Ferguson has contacted the Australian Taxation Office and been advised that Mr Nicolle has not submitted a tax return since 30 June 2006. Accordingly, the amount of tax owed by him, if any, is unknown to the Trustee.
Mr Ferguson calculated that Mr Nicolle had assets to a value of approximately $1,000,000.00. In particular, he had in excess of $100,000.00 in cash at bank and stock and vehicles valued at $200,000.00.
Mr Ferguson also found that Mr Nicolle owned the 39 Furness Avenue property, which was valued at $400,000.00 and a rental property, at O’Halloran Hill valued at $300,000.00. The Furness Avenue property was subject to a mortgage but the mortgagee concerned was not owed any moneys by Mr Nicolle.
Mr Ferguson calculated his costs to be in the vicinity of $24,000.00 together with six percent of the funds required to annul the bankruptcy. On any view, it is a significant sum of money.
In all these circumstances, on 14 January 2015, Mr Ferguson determined to declare a first and final dividend to Mr Nicolle’s unsecured creditors of one hundred cents in the dollar payable after 6 February 2015, if no further creditors came forward after public advertising of the bankruptcy.
It is Mr Ferguson’s position that he is in a position to pay such a final dividend of one hundred cents in the dollar and was so positioned from 2 March 2015 onwards. He has not paid the dividend as a consequence of these proceedings. If the dividend is paid, Mr Nicolle’s bankruptcy would be annulled as a consequence of the payment of all his debts.
Solicitors for Mr Ferguson appeared on the first mention of Mr Nicolle’s application, which was 23 March 2015. Mr Ferguson neither opposes nor consents to the annulment. As such, he has not taken an active role in these proceedings other than that he seeks the payment of his costs from the bankrupt’s estate pursuant to the provisions of section 154(1)(b) of the Act.
It is the submission of Mr Riggall, counsel for the applicant, that the sequestration order should not have been made because his client was not insolvent at the time. He argues that the respondent’s use of the mechanisms of bankruptcy, in this case, constitute an abuse of process as Mr Easson and those advising him had ample means of recovering the debt in question through enforcement channels available in the Magistrates Court.
Ms Daehn, counsel for Mr Easson and the supporting creditor, Mr Gregory submits that, in the exercise of its discretion, the court should not annul the bankruptcy of Mr Nicolle as his conduct from 2009 onwards has been unacceptable and evasive.
It is her submission that Mr Nicolle has been given ample opportunity, in both the Magistrates Court and this court, to challenge debts on which the bankruptcy is founded, but has consistently failed to avail himself of those opportunities by not appearing at court or filing necessary documents.
These reasons for judgment are directed to resolving this controversy between the parties and determine whether or not Mr Nicolle’s bankruptcy should be annulled.
The applicable legal principles
The sequestration order of Registrar Bochner was made in Mr Nicolle’s absence on 15 December 2014 pursuant to section 52 of the Act. In the absence of Mr Nicolle, no doubt Registrar Bochner was satisfied that the petition had been served on Mr Nicolle and the debt, on which it was founded, remained outstanding. She heard no specific evidence regarding Mr Nicolle’s solvency.
The court’s authority to annul Mr Nicolle’s bankruptcy arises pursuant to section 153B(1) of the Act, which reads as follows:
“If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.”
In Rigg v Baker[5] French J (as His Honour then was) noted that the court’s power to annul a bankruptcy involved the consideration of two elements:
·firstly, the court’s satisfaction that the sequestration order ought not to have been made.
·secondly, the court exercising a discretion to make such an order.
[5] See Rigg v Baker (2006) 155FCR 531 at [59]
It is clearly the case that the power conferred on the court by section 153B(1) is discretionary in nature. Accordingly, even if the court is persuaded that a sequestration order ought not to have been made, the court can, in appropriate circumstances, decline to annul the relevant bankruptcy.[6]
[6] See Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307 at [12] per Tracey J
In Francis v Eggleston Mitchell Lawyers Pty Ltd & Ors[7] Marshal J listed the following matters as being relevant as to the exercise of such a discretion:
[7] See Francis v Eggleston Mitchell Lawyers Pty Ltd & Ors [2013] FCA 564 at [26]
·any delay in making the application, especially if it is unexplained;
·whether or not the applicant is solvent;
·whether the applicant has made full disclosure regarding his/her financial affairs;
·lack of opposition to the creditor’s petition;
·lack of preparedness to pay the costs thrown away by the annulment proceedings;
·the time that has elapsed since the making of the sequestration order;
·the right and interest of the creditors;
·the conduct of the bankrupt, particularly with respect to bankruptcy offences;
·the steps taken by the trustee;
·the degree of cooperation with the trustee;
·the nature of any proposed arrangement alternative to bankruptcy;
·considerations of fairness and justice to bankrupt; and
·above all the public interest.
As previously indicated, Mr Riggall characterises the use of a bankruptcy petition to recover what he categorises as a minor civil debt arising from a neighbourhood dispute, as an abuse of process, which this court should not countenance given the objects of the Act, which are directed to resolving issues arising from personal insolvency rather than to collect debts per se.
In this regard, Mr Riggall places particular emphasis on what was said by Drummond J in Re Stubberfield; Ex parte Paradise Grove Pty Ltd.[8] In the case, Mr Stubberfield was subject to a judgement debt of $6,583.68. As in the current case, he owned unencumbered real estate and cash deposits of over $100,000.00.
[8] See Re Stubberfield; ex parte Paradise Grove Pty Ltd (1995) 134 ALR 169 at 172
In these circumstances, Drummond J characterised Mr Stubberfield as being solvent, as he had vastly more assets than he needed to meet his only debt. However, although Mr Stubberfield was found to be well able to pay the amount of the judgement debt, Drummond J described him as being intransigent in his refusal to do that.
The judgement creditor had issued a bankruptcy notice demanding payment, with which Mr Stubberfield had failed to comply. The issue for the court was whether a sequestration order should be made. In the circumstances, Drummond J declined to make a sequestration order. He said as follows:
“… proceedings in bankruptcy are not an alternative means of enforcing a money judgement, convenient though they may be for putting pressure on a reluctant but solvent debtor to pay, and inconvenient though ordinary methods of execution may be for the creditor.”
In Keenan v Deputy Commissioner of Taxation[9] Kiefel J said as follows:
“The second argument relates to his solvency. If he is able to show that he is able to pay his debts, a sequestration order would not be appropriate. The Court would usually exercise its discretion not to make a sequestration order where it was satisfied of that: see Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372. That is so even if the debtor is able to pay the debt but has determined not to do so, for whatever reason. As Deane J pointed out in Re Sarina, there is no policy discernible in the bankruptcy legislation which would entitle a creditor to make a recalcitrant debtor bankrupt even though the debtor satisfies the Court that he is solvent. The Bankruptcy Act 1966 is concerned with persons who are insolvent.”
[9] See Keenan v Deputy Commissioner of Taxation [1999] FCA 524 at [4]
Given the evidence, available to me in the current proceedings, it appears clear that Mr Nicolle is solvent. His various debts are modest, when compared to his assets, particularly his cash at bank. In these circumstances, Mr Riggall submits that, if these circumstances had been made known to Registrar Bochner, she ought not to have made the sequestration order in question and almost certainly would not have done so had she known of the evidence currently before the court.
It is Mr Riggall’s further submission that both Mr Easson and Mr Gregory had ample mechanisms available to them to recover the moneys owing to them through the enforcement procedures of the Magistrates Court and should have utilised them in lieu of insolvency proceedings. It is on this basis that Mr Riggall characterises the sequestration order as an abuse of process, which this court cannot countenance.
In this context, Mr Riggall relies on Brunninghausen v Glavanics[10] in which Emmett J categorised a situation where the purpose of a bankruptcy notice was to put pressure on a debtor to pay a debt rather than to invoke the court’s jurisdiction in relation to insolvency, as constituting an abuse of process.
[10] See Brunninghausen v Glavanics (1998) FCA 230
In this case, when the sequestration order was made, Registrar Bochner was not aware of the applicant’s financial circumstances, particularly the sums standing to his credit in his bank account. It is the submission of Ms Daehn, counsel for Mr Easson that she and her client were in the same position, given that Mr Nicolle had failed to attend a number of debtor examinations in the Magistrates Court and failed to attend the sequestration hearing itself.
I am not conducting a review of the proceedings before Registrar Bochner. As a consequence, I must consider the application arising pursuant to section 153B on the basis of the material to me, not that which was before Registrar Bochner. In Re Williams[11] explained the approach to be taken in respect of annulment applications as follows:
“In determining the question whether the sequestration order ought not to have been made, the court is entitled to consider not only the case as disclosed at the time the order was made, but as it would have been disclosed had all the true facts been before the court on the making of the order. If the court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order, but must consider in the light of all the circumstances whether the order ought to be annulled.”
[11] See Re Williams (1968) 13 FLR 10
However, notwithstanding that I must consider Mr Nicolle’s current level of solvency, I must also have regard to the history of the proceedings in this court, particularly the fact that Mr Nicolle failed to appear before the Registrar on a number of occasions, notwithstanding the admonishment of both the court and Ms Daehn herself that he needed to attend.
In this regard, Ms Daehn submits what was said by French J in Rigg v Baker is germane. His Honour said as follows:
“A further relevant fact was that Mrs Baker did not appear before the Registrar on the hearing of the petition. It is not open to disregard that as a matter which would have been relevant to the exercise of the Registrar’s discretion. Indeed in circumstances where a party voluntarily absents himself or herself from a hearing of a petition and does not take any other step to oppose the order sought, there is a significant, if not insuperable, obstacle raised to the proposition that the registrar or a judge hearing the petition was bound not to make a sequestration order.”[12]
[12] Ibid at [71]
It is her submission that Mr Nicolle by his regular non appearances before the court has himself created insuperable barriers in the way of the court exercising its discretion in his favour. Mr Riggall points to the fact that the applicant has subsequently provided an explanation for his non-appearance – he was unwell.
In my view, the medical certificates in question are singularly un-compelling. They were tendered to the court at the last minute and without expansion in order to support an adjournment application. They do not provide any extensive explanation as to why Mr Nicolle was totally prevented from attending court.
The most complete certificate indicates that his anxiety and depression will interfere with Mr Nicolle’s ability to function in stressful circumstances but that these conditions are likely to respond to medication. Thereafter the certificates allude to an inchoate medical condition precluding employment.
I acknowledge that court proceedings in which one is a respondent are inherently stressful and difficult. However, Mr Riggall, in effect, asks me to infer from this certificate that his client was paralysed to such a degree that he could not make a telephone call; come to court; or consult a solicitor. All these things may be true but there is no actual evidence of them before me. In addition, the certificates are provided after Mr Nicolle has failed to appear in the Magistrates’ Court on a consistent basis.
In my view, what was said by Davies J, concerning such generic medical certificate, albeit in the context of a migration matter, is apposite to the current situation. In MZZGY & the Minister for Immigration and Border Protection His Honour said as follows:
These documents were wholly inadequate to support an adjournment application. The certificate did not state the nature of the appellant’s condition nor explain why it would prevent the appellant from attending and participating effectively in the court hearing. And the fact that some tablets were prescribed was insufficient reason to be satisfied that the appellant could not attend and participate effectively in the court hearing. Further, wholly unexplained was why it was left until late the day before to seek the adjournment. It is reasonable to infer that the late notice was deliberate and intended to bring about the outcome of the adjournment by the short notice. I accordingly refused the adjournment application and proceeded to hear the appeal on its merits. [13]
[13] MZZGY & the Minister for Immigration and Border Protection [2014] FCA 488
In my view, it was open to the Registrar to conclude that the certificates tendered by Mr Nicolle were such a delaying tactic and, as such, she considered it appropriate to proceed with the hearing of the petition.
Consideration
Solvency
I am satisfied that the sequestration order in this matter ought not to have been made, as Mr Nicolle was solvent when the order was made. Given the quantum of the judgement debts in question and the cash available to him, it is clearly the case that Mr Nicolle had the capacity to discharge all of his debts, when the order was made. It is also clearly the case that Mr Nicolle was not inclined to pay any monies to either Mr Easson or Mr Gregory, when he was rendered bankrupt.
The epithet of intransigent, as utilised by Drummond J, appears apposite to Mr Nicolle given his conduct to date and the tone of his correspondence to the judgement creditors concerned, which arose in the context of the longstanding dispute over his occupation of the rear yard at 37 Furness Avenue.
For reasons about which I can only conjecture, a dispute over the modest rental of a backyard, used to store motor vehicles and related bits and pieces, has apparently and regrettably reached dimensions out of proportion to its moment. The final resolution of this dispute does not appear to be in sight, as Mr Nicolle continues to occupy the property in question but refuses to pay any rent. There appears no prospect of compromise.
It is in this context that the bankruptcy proceedings arose. No criticism can attach to Registrar Bochner for making the sequestration order, given that Mr Nicolle did not appear before her, after being given ample opportunity to do so. However, be that as it may, it is now clear to me, as it was not to the Registrar, that these proceedings are not concerned with Mr Nicolle’s insolvency.
Rather they centre on how an intractable neighbourhood dispute can be brought to a head, in circumstances where one party to it has declined to take part in the appropriate legal processes applicable to its resolution. In this sense, the institution of bankruptcy proceedings may be likened to using a sledge hammer to crack a nut.
However, that is not an end to the matter. The sequestration order was made. The court is not bound to set aside the order just because it originally ought not to have been made.[14] In these circumstances, the onus lies on Mr Nicolle to persuade the court to exercise its discretion in his favour to annul his bankruptcy. In this context, I propose to address the various factors which influence the exercise of such a discretion.
[14] See Stankiewicz v Plata [2006] FMCA 1659
Delay
I accept there has been no great delay in the institution of the annulment proceedings, which were commenced some sixty five days after the sequestration order, in question, was made. However, in this period, Mr Ferguson has been able to complete his administration of the estate and, were it not for these proceedings, would be in a position to pay a dividend of 100 cents in the dollar to creditors. In my view, it is a significant matter that the administration of the applicant’s estate has been completed.
Disclosure
After some initial reluctance to cooperate with Mr Ferguson, it seems that Mr Nicolle has provided the necessary information to him to enable Mr Ferguson to administer the estate. However, up to this stage, Mr Nicolle’s financial affairs cannot be described as pristine. He has not lodged a tax return for a considerable period of time.
Notwithstanding this situation, in my view, it would be an overstatement to say there is any species of commercial immorality attaches to Mr Nicolle’s circumstances. He may be an ornery and difficult character, certainly from the perception of the creditor petitioner, but in my view, it is an overstatement to assert that since the sequestration of his estate, it is the first time he has been held to account for commercial immorality.[15]
[15] See Respondent’s written submissions at paragraph 26
Lack of opposition to the creditor’s petition
The applicant did not formally oppose the petition, which was granted in his absence. I agree with counsel for the creditor that such a lack of opposition should usually represent a very significant, if not insuperable obstacle to the success of the application in question.
For the reasons outlined above, the explanation as to why the applicant failed to attend at court and do anything concrete about the petition is inadequate and unacceptable. Mr Nicolle was given a number of opportunities to attend court. He did not do so. Rather he submitted medical certificates likely to tax the credulity of even the most liberal of judges.
He has not attempted to enlarge upon these certificates in the context of the current proceedings, which turn on the exercise of the court’s discretion. In my view, it would be improper if the court did not place significant emphasis on the applicant’s lack of formal opposition to the petition in this matter.
Preparedness to pay the costs thrown away as a consequence of annulment
Mr Ferguson has played no part in these proceedings. He does however seek his costs regardless of their outcome. To his credit, Mr Nicolle accepts that he must be liable for those costs as a consequence of the operation of section 154B(1) of the Act. Given the amount of the debt in question, those costs will be a significant impost on Mr Nicolle, irrespective of whether his application is successful or not.
The rights and interests of the creditors
It is submitted by Mr Riggall that the rights and interests of Mr Easson and Mr Gregory will be unaffected by any annulment of the bankruptcy as their rights to pursue Mr Nicolle in the Magistrates’ Court remain. These rights include seizure and sale of assets, garnishment and action against real property.
It is further submitted that any other prejudice to the creditors can be satisfied by an order for costs being made in their favour. Essentially Mr Riggall submits that, as the sequestration order ought not to have been made, the prejudice to the creditors is limited to the costs incurred by them in obtaining the order in question. This can be compensated by an award of costs.[16]
[16] See Re Gollan; Ex parte Gollan (1993) 113 ALR 475 at 479 per Spender J
However, there is likely to be other prejudice suffered by Mr Easson in particular, if Mr Nicolle’s application is granted. If the annulment is not made, Mr Easson will receive the monies due to him, from Mr Ferguson, in a few days’ time, pursuant to the default judgement made in his favour in the Magistrates’ Court. As a consequence of this, his unhappy relationship and litigation with Mr Nicolle will come to an end. There will be no point in Mr Nicolle attempting to set aside this judgement. Mr Easson will have reached a state of closure.
Mr Gregory will also receive some monies from Mr Ferguson but the extent of the closure of his litigious relationship with Mr Nicolle will be more limited than that to be sustained by Mr Easson. It seems improbable that the conclusion of the bankruptcy administration will mark the end of his litigious relationship with Mr Nicolle. He will remain the landlord of 37 Furness Avenue, which Mr Nicolle continues to occupy.
Issues will continue to accrue about the payment of the rent and the continued occupation of the property. Further litigation seems highly probable. However, if the bankruptcy is not annulled, Mr Gregory will receive some funds. Clearly, it will be prejudicial to both him and Mr Easson if they are deprived of this opportunity. In my view, the loss of the opportunity to at least confine future litigation between the parties will be prejudicial to both Mr Easson and Mr Gregory, but particularly the former.
Steps taken by the trustee
Mr Ferguson has all but concluded his administration of the estate of Mr Nicolle. No doubt this is a corollary of the fact that Mr Nicolle is not insolvent in the sense that he had access to funds sufficient to pay the judgement debts in question. However the fact remains that the administration of the estate cannot be regarded as being in its nascent stages. It has been almost completely administered at significant cost. If the bankruptcy is annulment, this will have been to no effect other than it will constitute an expense lesson for Mr Nicolle and a waste of time and effort for Mr Easson and Mr Gregory.
The nature of any proposed arrangement as an alternative to bankruptcy
Mr Nicolle does not propose any alternative mode of payment to either Mr Easson or Mr Gregory, either in full or through compromise, in respect of the unsatisfied judgements which both hold against him. It remains his position that he is not indebted to either of his creditors. The implication of his position is that they must pursue him by means other than bankruptcy, for payment of the monies owed to them, presumably through other forms of process in another court, at their potential expense, which he will resist.
The nature of Mr Nicolle’s defence to the actions is unclear to me, particularly as he has not as yet articulated his defence formally in the Magistrates’ Court. However, it is clear that there has been some form of tenant/landlord relationship between him and Mr Easson firstly and Mr Gregory secondly in respect of 37 Furness Avenue and it was anticipated that some rent would be paid by him. These issues have been outstanding since late 2008.
In my view, it is a significant factor in respect of the exercise of the discretion that Mr Nicolle has no proposals to satisfy the debts other than that his creditors should execute against him in another way, given the overall and protracted history of the matter and given the Mr Nicolle failed to appear at the final sequestration hearing.
Considerations of fairness and justice to the bankrupt
It is clearly the case that Mr Nicolle feels aggrieved at how he perceives he has been treated by firstly Mr Easson and more recently Mr Gregory in respect of his occupation of the 37 Furness Avenue property. As such, he disputes the debts owed by him.
If the bankruptcy is not annulled, he will be deprived of his ability to contest the debts in the Magistrates’ Court, which ability is dependent upon him obtaining that Court’s leave to apply to set aside the judgements in question and then file defences, given that Magistrates Gumpl and Milazzo have both ruled that no further application will be entertained in this regard.
In addition, if Mr Nicolle’s application is not successful, he will be deprived of any opportunity to review the decisions of the magistrates concerned in the District Court, as his continued bankruptcy will render such a course otiose. I accept that such an outcome is potential unfair to Mr Nicolle and that he will certainly perceive it as such.
The underpinning of Mr Riggall’s submission is that in the period leading up to the sequestration petition, after the default judgements were entered, both Mr Easson and Mr Gregory had available to them other avenues to enforce the judgement amounts due to them other than through bankruptcy and that they did not do so if fundamentally unfair to his client.
In this context, Mr Riggall relies on correspondence originating with Mr Easson’s solicitor which states “[w]e are aware that you have assets, and in the event of bankruptcy, these will be seized by the Official Receiver and sold off in order to make payment of the debts.”[17] In Mr Riggall’s submission the necessary implication arising from this statement being that if it was known that Mr Nicolle had such assets, the proper course was to seek to execute against these assets through enforcement proceedings emanating from the Magistrates’ Court.
[17] See affidavit of Karine Deahn-Alabi filed 5 March 2015
This submission is closely related to what Marshall J categorised as the most important of the factors influencing the exercise of the discretion, namely the public interest. It is Mr Riggall’s submission that it is not in the public interest for insolvency proceedings to be utilised to collect debts, given that there are other mechanisms available to achieve such an object.
Public Interest
It is not in the public interest that inappropriate legal mechanisms be utilised to resolve disputes between citizens. The parties in this particular matter have been involved in a long-standing dispute regarding the rental of a suburban yard for storage purposes. The appropriate forum for the resolution of the dispute is in either the Magistrates’ Court or some species of tenancy tribunal, if available.
As the issues remain in dispute between Mr Nicolle and Mr Gregory, it seems highly likely that there will be further proceedings regarding the property in at least one of these forums. I acknowledge that the issues which gave rise to these proceedings are not amenable to resolution through sequestration, particularly given that Mr Nicolle was solvent at relevant times.
The major objective of bankruptcy proceedings is to enable individuals, who are insolvent, to enter appropriate arrangements, with their various creditors, which do not advantage one particular creditor over another. There are clear public policy considerations, which dictate that sequestration should be reserved for cases where a person is unable to pay his/her debts not merely recalcitrant in the satisfaction of them.
I acknowledge that the issue of a bankruptcy notice and resultant sequestration proceedings are not an appropriate alternative, for creditors, to the application of orthodox debt collection mechanisms to persons who are indebted to them. Bankruptcy should be reserved for those who are insolvent.
Conclusions
However, the sequestration order in this case has been made and the resulting administration is close to finalisation. The sequestration order was made after Mr Nicolle failed to appear on a number of occasions and after he provided inadequate grounds to support his application to adjourn the proceedings. In my view, the evidence indicates that up until the time the sequestration order was made, Mr Nicolle has had a cavalier attitude to the claims of both Mr Easson and Mr Gregory.
At this stage, he has no proposal to mollify their respective situations other than he has inchoate plans to pursue possible remedies available to him in the Magistrates’ Court and the District Court to set aside the judgement debts in question. It is regrettable, in the extreme, that the various issues between the parties have got so out of hand. Mr Nicolle has played his part in this.
In my view, Mr Nicolle’s conduct is significant in determining how the court should exercise the discretion, which he seeks be exercised in his favour. On balance, I consider that there will be greater prejudice to Mr Easson and Mr Gregory, if the bankruptcy is annulled than to Mr Nicolle if it is allowed to stand, particularly given that the costs of administering the estate will be borne by him regardless.
Regardless of the fact that the bankruptcy ought not to have been made in the first place, in my view, it would be unfair to the creditors to annul it at this stage. If the matter returns to the Magistrates’ Court, there will be further costs of execution and possibly more proceedings. Accordingly I decline to grant the application herein.
In these circumstances, it is appropriate that the applicant pay the costs of these proceedings, which should be taxed, if the parties are unable to agree on their quantum. These costs are to be paid out of the estate of the applicant.
For all these reasons, the orders of the court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding ninety-nine (99) paragraphs are a true copy of the reasons for judgment of Judge Brown
Associate:
Date: 4 May 2015
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