Norris v Lawrence

[2014] FCCA 1392

FEDERAL CIRCUIT COURT OF AUSTRALIA

NORRIS v LAWRENCE [2014] FCCA 1392

Catchwords:

BANKRUPTCY – Sequestration order – review of registrar’s decision – solvency of the debtor – likelihood of success in proceedings in Magistrates Court of Queensland – sequestration order upheld – costs awarded.

Applicant:

Supporting Creditor:

JONATHAN CHARLES BENJAMIN NORRIS

DAVID ANTHONY HATHERLY

Respondent: LINDSAY TERENCE LAWRENCE

File Number: BRG 866 of 2013

Judgment of: Judge Burnett

Hearing dates: 14 May 2014; 28 May 2014

Date of Last Submission: 28 May 2014

Delivered at: Brisbane

Delivered on: 28 May 2014

REPRESENTATION

Solicitors for the Applicant:  Aejis Legal

Counsel for the Supporting Creditor:

Solicitors for the Supporting Creditor:

Mr P. O’Brien

Kenny & Co Solicitors

Counsel for the Respondent: Mr P. Trout

Solicitors for the Respondent: Lawrence & Associates Solicitors

ORDERS

1. The application for review filed on 26 February 2014 be dismissed.

2. A sequestration order be made against the estate of LINDSAY TERENCE LAWRENCE.

3. The Respondent pay the Applicant and Supporting Creditor’s costs of and incidental to the application to be taxed and paid from the estate of the Respondent in accordance with the Bankruptcy Act 1966 (Cth).

The Court notes that the date of the act of bankruptcy is 15 July 2013.

FEDERAL CIRCUIT COURT
OF AUSTRALIA

AT BRISBANE

BRG 866 of 2013

JONATHAN CHARLES BENJAMIN NORRIS

Applicant

And

LINDSAY TERENCE LAWRENCE

Respondent

REASONS FOR JUDGMENT

1. The Respondent (“the debtor”) seeks the setting aside of a sequestration order made by Registrar Lynch on 5 February 2014. For reasons which will be explained, he also seeks the adjournment of today’s hearing so that he may further prepare his material.

2. A brief history of the matter is as follows: on 19 September 2012 judgment was entered by the petitioning creditor against the debtor in the sum of $129,359.56, which included interest and costs to that date.  On 18 June 2013 the creditor caused a bankruptcy notice to issue for the judgment sum, together with statutory interest which had accumulated in the interim.  That notice was served on 22 June 2013.

3. Notwithstanding the service of the notice and the demand contained within the notice, the debtor did not comply with the notice and an act of bankruptcy was committed by him on 15 July 2013.  A creditor’s petition issued on 29 September 2013, and that petition was served on 18 December 2013. 

4. I note that the Affidavit of Service is incorrect, in that it observes that service was effected on 18 December 2012 at 3:55pm.  It is plain that it is in error when one has regard to its contents and the fact that the creditor’s petition itself did not issue until 27 September 2013.  It is not possible for it to have been served on 18 December 2012.

5. The matter was returnable before the Court on 5 February 2014, at which time there was no appearance for the debtor. In the circumstances, the registrar made a sequestration order in the usual terms, together with an order for costs.  It is that order which is now sought to be set aside. 

6. The debtor filed an application for review on 26 February 2014. In support of the application he filed an affidavit which addressed the grounds relied upon. The principal ground was that he intended to apply to set aside the judgment, and to defend the proceeding in respect of which the judgment had been entered. He indicated that at that time he was involved in negotiations with the insurers who he claims will indemnify him in respect of the claim by the judgment creditor, and that he was hopeful at that time that, on that basis, the judgment would be set aside, that he would be granted leave to enter an appearance, and that he would be able to prosecute his defence.

7. Irrespective of the outcome of the defence, he hoped that in any event, the insurer would indemnify him.  It is important to understand that the debtor is a solicitor, and that the judgment creditor’s debt relates to costs incurred by him in respect of negligence contended for by the creditor against the debtor, and in respect of which one would ordinarily expect that there might be a basis for his indemnity insurance to answer. 

8. In any event, the debtor did not promptly make application to the Magistrates Court of Queensland to set the judgment aside. In the meantime a second creditor, also a former client of the debtor, succeeded in obtaining a judgment against him, in this instance for damages to be assessed. That order too was premised upon a claim for professional negligence.  I note that both judgments were entered by default. The debtor has indicated to the Court that he also intends to apply to have that judgment set aside, to enter a defence, and to defend it. Again, in the ordinary course it would be expected, all other things being in order, that his indemnity insurer would answer that claim on his behalf.

9. In summary, what the debtor asks is that the Court look behind the judgment that the creditor enjoys, and examines whether or not there is, indeed, a true state of indebtedness. As to whether that state exists largely depends upon the debtor’s capacity to set the judgment aside.  While it appears that there may be a basis for argument that he is not truly indebted or, perhaps more strongly, that he can claim a basis to engage his indemnity insurer, much depends upon the prospects of success in the application to set aside the judgment.

10. Having regard to the facts of the case, the real issue which will confront the Court determining that application concerns the delay which, in this instance is significant. There has been about an 18 month delay between the time of the entry of judgment and the application to set it aside. The judgment has been allowed to remain in place for a very long period, notwithstanding the debtor’s knowledge of it, and his knowledge of the creditor’s intention to enforce its rights in respect of it. That intention has been evident since at least no earlier than June 2013 when he was served with the bankruptcy notice and, notwithstanding that, he has not made any genuine effort since that time to set it aside. 

11. He relies upon matters detailed in his affidavit filed in this Court on 26 February 2014, and also the matters referred to in an affidavit which has been received in the proceeding today.[1] In that affidavit he purports to address the matters which give rise to the defence.  But, of course, this is not simply a case where one looks to the defence, because in an application to set aside the judgment the Magistrates Court of Queensland will be particularly concerned in trying to understand whether the debtor’s explanation for delay is sufficient to justify setting aside such a long-standing judgment.

    [1] Exhibit 3.

12. The arguments supporting the debtor’s claim for exercise of discretion are essentially threefold. First, there are what he describes as practice management issues, where he identifies that in the first half of 2013 he was inundated with problems to do with his legal practice. These included missing documents, the resignation of staff, the discovery on their resignation of incomplete and unpaid stamp duty and penalties and other administrative matters.

13. There is a matter of difficulties in personal relationships which he says disintegrated during 2013, adding to his “inability to focus on [his] professional tasks and responsibilities.”

14. Finally there is what he described as “property development stress,” which he says relates to difficulties in respect of a property development that he has had for the past five years, which arose at the end of 2012 and early 2013. The project, it seems, has suffered funding issues and had to be refinanced. 

15. As well as refinancing construction funding, the development itself was suffering cost over-runs and problems with contractors, which added to his stress throughout 2013.  He says the development is only now nearing completion and registration should occur within a few weeks.  They appear to be the stresses which he says acted upon him and account for his failure to make earlier application to set aside the judgment.

16. The debtor relies further upon the evidence contained in a report from a psychologist which was tendered today and which addresses some of those matters. While the psychologist has been treating him professionally for the last eight years, the report does not necessarily address the matters in the same terms as the debtor does in his own affidavit.  The psychologist simply makes the observation that he has noticed over the course of the last 14 months that some concerning personality features have become manifest, that the debtor has become socially withdrawn, that his work has suffered and, on multiple occasions, he has sought his guidance with respect to poor sleep patterns and difficulties with concentration and memory.  However, it seems, having regard to the advice that the doctor gave him, his condition did not require too much intervention, because the recommended treatment was that the debtor undertake regular exercise. 

17. It seems to me, having regard to the history of these matters, that not only is there delay, but there is also a general history of failure to attend to court obligations. This is evidenced not only in the proceeding the subject of the judgment, which is now the subject of the application to be set aside, but also in the proceeding involving the other supporting creditor and, indeed, in this proceeding, where there was simply no acknowledgment of any matter until after the sequestration order had been made. 

18. It seems to me that, given the debtor’s chaotic personal circumstances and the history in respect of his response to litigation proceedings generally, one cannot be inspired with any confidence that he will have any real prospects in his application to set aside the judgment in the Magistrates Court of Queensland.

19. In any event, to consider that point is not my role in this application.  The debtor makes application to adjourn today’s hearing. He has now had two opportunities to come to Court with material to properly articulate his case and put the Court in a properly informed position as to whether or not an adjournment ought be granted.  He has failed to do so. 

20. Even today I am left in a position where I have been required to extract basic material from his counsel, whom I do not hold at fault in respect of these matters. He has not had the benefit of proper instructions.  This basic material has included a broad outline of his financial position,[2] a matter which one ought expect to have been addressed in any application competently prosecuted for an adjournment. 

    [2] Exhibit 2.

21. Having regard to the manner in which the debtor has prosecuted this application, I do not have any confidence that any other application before any other court will enjoy better attention by the debtor. It follows that I will refuse the application for the adjournment. 

22. I will now deal directly with the application for review of the Registrar’s decision.  I have earlier addressed the relevant facts as I see them.  The only factor that stands in the debtor’s favour is the prospect that the judgment in the Magistrates Court of Queensland might be set aside next week. 

23. I have no confidence of that outcome because of the matters I have earlier outlined and, in particular, the poorly explained delay.  The matters which have been put before me would not, I think, satisfy a reasonable judicial officer that this is indeed an action where the judgment ought be set aside. It is simply too long after the initial judgment, and the explanation for the delay is wholly unsatisfactory.  In any event, it is not my role to second-guess the outcome of the proceedings next week, but I am satisfied that, given the matters put before me, the applicant has not demonstrated other sufficient cause.

24. I also note that that factor has to be weighed against the issue of the debtor’s general solvency, which is a cause for concern. Exhibit 2 reveals that he is in a perilous situation.  I am told by his counsel that he is essentially a discretionary beneficiary of a trust which has interests in various holdings which have a value of about $1.177 million.  Personally he appears to own nothing of any moment beyond a motor vehicle and a small interest in his practice as a solicitor.

25. The evidence concerning the actions for professional negligence prosecuted against him by the petitioning creditor and the other creditor, together with the matters deposed to in his affidavit, and the manner in which he has performed before me in a professional sense, do not inspire me with any great confidence that his practice will become more profitable. In fact, it concerns me that Mr Lawrence is indeed in practice at all, having regard to the way in which I have assessed his professional conduct in this proceeding.

26. I have real concern about his financial capacity. There is no evidence before me to demonstrate that he has any real means to meet his debts as and when they full due. The absence of material going to solvency is critical. The debtor has had two opportunities now to put material before me and has failed to do so. I am not satisfied that he is solvent. In these circumstances I have a duty to the public to dismiss the application in order to protect creditors generally.  I understand that a consequence of that will be that a receiver will be appointed to his practice, but I think, having regard to the history of this case, that this is a most justifiable outcome. 

27. If I am wrong in any of these matters, and the judgment is set aside next week, the debtor is, of course, at liberty to bring an application for an annulment, which will reinstate him to the position he claims he ought be in. 

28. I will dismiss the application and further direct that the debtor pay the creditor and supporting creditor’s costs of and incidental to the application to be taxed. 

I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Judge Burnett

Date:  28 May 2014