Owners of Strata Plan 50164 v O'Connor
[2010] FMCA 833
•5 November 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| OWNERS OF STRATA PLAN 50164 v O'CONNOR | [2010] FMCA 833 |
| BANKRUPTCY – Contested creditor’s petition – whether the creditor was entitled to petition in circumstances where the judgment debt had fallen below the statutory threshold for a petition but other monies were claimed, considered. |
| Bankruptcy Act 1966, ss.44, 52 Strata Schemes Management Act 1996 (Cth), ss.78, 79, 80 Unit Titles Act 1970 (ACT), s.48 |
| Coshott v Owners of Strata Plan No 48992 [2006] NSWSC 308 Schelkeloff; ex parte Schelkeloff v Hopkins Group Pty Ltd (1989) 22 FCR 407 |
| Applicant: | OWNERS OF STRATA PLAN 50164 |
| Respondent: | ANTHONY CHRISTOPHER O'CONNOR |
| File Number: | SYG 1099 of 2010 |
| Judgment of: | Driver FM |
| Hearing dates: | 20 July, 2 August 2010 |
| Date of Last Submission: | 4 November 2010 |
| Delivered at: | Sydney |
| Delivered on: | 5 November 2010 |
REPRESENTATION
| Solicitors for the Applicant: | Mr F Shafiq J S Mueller & Co Solicitors |
| Counsel for the Respondent: | Mr M Duncan |
| Solicitors for the Respondent: | The People's Solicitors |
ORDERS
The estate of Anthony Christopher O’Connor be sequestrated.
The petitioning creditor’s costs, including reserved costs, are to be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
All proceedings under the sequestration order made in order 1 are stayed for a period of 21 days.
The Court notes that the date of the act of bankruptcy is 22 February 2010.
The Court notes that Scott Darren Pascoe has signed a consent to act as trustee.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1099 of 2010
| OWNERS OF STRATA PLAN 50164 |
Applicant
And
| ANTHONY CHRISTOPHER O'CONNOR |
Respondent
REASONS FOR JUDGMENT
Introduction and background
This case concerns an opposed creditor’s petition arising out of unpaid strata fees. The amount at issue is relatively small and only a small component of that amount is based upon a judgment debt. The case raises a number of issues, some of which have arisen before but which require re-affirmation. The issues raised for consideration involve significant considerations of principle and practice.
The following statement of background facts is derived from the applicant’s submissions filed on 16 August 2010.
On 26 June 2008, the applicant commenced proceedings against the respondent by issuing a statement of claim out of the Local Court of New South Wales at North Sydney claiming unpaid strata contributions for the period 1 October 2007 to 1 April 2008, interest on unpaid contributions and expenses incurred by the applicant.
The amount claimed was in the sum of $4,310.25. Even though the service of the statement of claim was denied by the respondent in his evidence nonetheless it was personally served upon him by a licensed process server on 30 August 2008.
No defence was filed to the statement of claim by the respondent.
On 24 October 2008, judgment was entered against the respondent in the Local Court at North Sydney in the sum of $4,561.42.
On 24 December 2009, a bankruptcy notice was issued by the Insolvency and Trustee Service Australia.
On 31 January 2010, the bankruptcy notice was personally served upon the respondent by a licensed process server. The affidavit of service of the bankruptcy notice is on the court file and is in evidence.
No application was made by the respondent to set aside the bankruptcy notice.
On 22 February 2010, the respondent committed an act of bankruptcy when he failed to comply with the requirements of the bankruptcy notice.
On 3 March 2010, after having committed an act of bankruptcy, the respondent made an instalment application to the Local Court at North Sydney to pay the judgment debt in instalments of $50.00 per week.
On 19 May 2010, the applicant presented the creditor’s petition the subject of these proceedings.
On 15 June 2010, the creditor’s petition was served upon the respondent personally and the petition was listed for hearing on 23 June 2010.
On 23 June 2010, Mr Shafiq appeared for the applicant and Mr Duncan of counsel appeared for the respondent. The applicant on that day was ready to proceed, however, an application was made by Mr Duncan opposing the creditor’s petition and seeking leave to file in court a notice stating grounds of opposition to the creditor’s petition.
The creditor’s petition was then adjourned to 30 June 2010 and the respondent was granted an opportunity to file any affidavits he sought to rely upon.
On 25 June 2010, the respondent filed and served an affidavit in support of his notice of opposition.
On 30 June 2010, when the matter was re-mentioned the applicant was ready to proceed on the petition and also sought leave to file in court an affidavit of Ms Samantha Sinclair in response to the respondent’s affidavit of 25 June 2010.
Upon hearing Mr Shafiq and Mr Duncan of counsel, the Registrar then made the following orders:
1.The creditor’s petition and the notice of opposition are adjourned to 20 July 2010.
2.Leave granted to the applicant to file in court the affidavit of Ms Sinclair.
3.The respondent to file and serve any affidavit in reply by 14 July 2010.
4.The applicant to file and serve any affidavit in reply by 19 July 2010.
On 7 July 2010, the respondent filed and served his affidavit in reply in accordance with order 3.
Since the matter remained unresolved, it then came before me on 20 July 2010 for a hearing of the creditor’s petition and the notice of grounds of opposition.
I commenced hearing the creditor’s petition on that day and completed the hearing on 2 August 2010. In view of the issues of substance raised in opposition to the petition, I made orders for the filing of written submissions between 13 August 2010 and 10 September 2010.
The creditor’s petition
The creditor’s petition is based upon the respondent owing to the applicant a total sum of $9,941.91 for outstanding strata contributions, interest and expenses. The contributions were allegedly struck in accordance with s.78 of the Strata Schemes Management Act 1996 (NSW) (“SSMA”), interest claimed pursuant to s.79 of the SSMA and expenses claimed pursuant to s.80(1) of the SSMA.
The sum of $9,941.91 is made up of two components as pleaded in paragraphs 1(a) and (b) of the creditor’s petition.
Paragraph 1 (a)
Paragraph 1(a) relies upon a judgment debt entered against the respondent on 24 October 2008 in the sum of $4,561.42 which was reduced to $1,603.55 at the time the applicant presented the creditor’s petition.
The sum claimed in paragraph 1(a) is for contributions struck for the period 1 October 2007 to 1 April 2008 together with interest and expenses pursuant to ss.78, 79 and 80 of the SSMA.
Paragraph 1 (b)
Paragraph 1(b) of the creditor’s petition relies upon a further sum of $8,338.36 being strata contributions struck for the period 1 July 2008 to 1 January 2010 together with interest and expenses pursuant to ss.78, 79 and 80 of the SSMA.
The notice of grounds of opposition
The respondent’s notice of grounds of opposition is confined to four issues namely:
1.The alleged debt in paragraph 1(a) cannot satisfy the threshold requirement of s.44 (1) (a) of the Bankruptcy Act 1966 Commonwealth.
2.The alleged debt in paragraph 1(b) of the petition is not a debt and therefore cannot satisfy s.44(1)(b) of the Bankruptcy Act.
3.Neither the alleged Bankruptcy Notice, the petition or the statement of claim was served.
4.The petition is an abuse of process.
Ground 3 was not pressed. Further issues were raised by Mr Duncan during the hearing as grounds of opposition which were not specifically pleaded in the notice of grounds of opposition.
The evidence and submissions
The creditor’s petition is supported by the affidavits within it verifying paragraphs 1 to 4 of it. The applicant also relies upon:
a)the affidavit of Geoffrey David Threlfo, a licensed process server, made on 2 February 2010 verifying service of the bankruptcy notice;
b)the affidavit of Mr Threlfo made on 18 June 2010 verifying service of the creditor’s petition, the consent to act as trustee of Scott Darren Pascoe dated 16 April 2010 and other documents required to be served in accordance with the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth);
c)the affidavit of Samantha Sinclair made on 29 June 2010 concerning the status of the strata manager and the issuing of levy notices;
d)the affidavit of Ms Sinclair made on 2 August 2010 providing evidence of the asserted debts; and
e)the final affidavit of search made on 30 July 2010 by Jeffrey Steven Mueller[1].
[1] Various earlier affidavits of search and debt were prepared and filed for the purposes of previous court dates in the matter.
I also received a number of exhibits during the course of the hearing. Ms Sinclair was cross-examined on her affidavits.
The notice stating grounds of opposition filed on 23 June 2010 is supported by two affidavits by Mr O’Connor made on 25 June 2010 and 7 July 2010. He was cross-examined on those affidavits.
Mr O’Connor made oral submissions at the hearing through his counsel, who is his step-father. The petitioning creditor made both oral submissions and filed written submissions three days after the due date under order 1 made by me on 2 August 2010. I had agreed to a three day extension of time requested by the applicant. Order 2 made by me on 2 August 2010 required written submissions from the respondent debtor by 31 August 2010.
My associate advised the parties on 27 October 2010 that judgment would be delivered on 5 November 2010. On 4 November 2010, the day before judgment in this matter, my associate received the following submissions by email from counsel for Mr O’Connor:
First, I must tender my humble apologies for the lateness of these submissions. I have been having some difficulty establishing the amounts that have been paid to the Petitioning Creditor since the Petition was filed. Mr O’Connor is not a man of business. I mean no personal disrespect to the Court for not complying with its directions and have actively been trying to obtain satisfactory instruction for some time. It should be said, however, that the submissions made by the solicitor for the Petitioning Creditor were, themselves, late although that does not excuse the extreme delay on our part. Finally, I have obtained relevant payment details and it is clear that substantial amounts have been paid in reduction of the debt alleged.
As to matters of law, regarding the submissions made by the solicitor for the Petitioning Creditor, the following propositions are submitted.
McClymont is clearly and immediately distinguishable on the grounds that the two debts relied on in the bankruptcy notice were truly perfected debts in that they were both based on judgment debts issued out of the Local Court.
Turning to an analysis of Re Charles Alroy Goldberg Ex Parte: the Law Society of New South Wales [1988] FCA 181 (6 June 1988)
The relevant passage is:
14. I confess that I do not understand this concept. There can only be recovery if there is some antecedent liability. The sub-section accepts this by referring to the amount being recoverable as a debt. This must mean that it is deemed to be a debt, notwithstanding that, at common law, there would have been no liability for the receiver's costs. I think that this is the way in which the sub-section was understood by Hunt J in Law Society of New South Wales v Gordon (unreported, 23 April 1982) where his Honour referred to an argument made on behalf of The Law Society that the claim was one of "a common indebitatus count to recover as a statutory debt the money paid by it to the Receiver at the defendant's assumed request"; and note his Honour's reference to State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Limited [1969] HCA 59; (1969) 123 CLR 228 at p.245. The effect of the sub-section, in my opinion, is to make the amount paid out of the Fund in law a debt which is recoverable by the Society in any usual manner. In other words, the relevant amount is an amount which would be able to be recovered by way of judgment if the Society sued Mr Goldberg in a court of competent jurisdiction.
15. So understood, the claim falls within s.44(1)(b). That paragraph requires that the relevant debt be a liquidated sum. There is no question about the fulfillment of that requirement. It also requires that the relevant sum be "due at law or in equity". I understand this requirement to mean that the relevant sum must be recoverable in proceedings at law or in equity. If the relevant sum is recoverable as a debt, the requirement that the sum be "due at law" is satisfied. I think that it is not to the point to say that in fact the Society has not recovered judgment against Mr Goldberg. Although it is common for a judgment to be recovered against a debtor before bankruptcy proceedings are commenced -- and, of course, this is an essential ingredient of the use of s.40(1)(g) of the Bankruptcy Act -- it is not an essential prerequisite of successful bankruptcy proceedings that there be a judgment. What is required is that there be a debt "due at law or in equity"; and this requirement directs the Court's attention to the question whether the amount is recoverable, as distinct from recovered, "at law or in equity". Once it be determined that the amount is recoverable, then there is a compliance with the requirements of s.44(1)(b).
16. It follows from the foregoing that I am of the opinion that the objection taken by the debtor on the point of principle is misconceived and that the first ground of opposition, which relies upon that objection, must be overruled.
This must be understood against the peculiar facts of the case:
1.The phrase “as a debt” was contained in the Legal Practitioners Act and involved an amount already expended or incurred by Miss Sayer in her administration of the receivership of the practice i.e. monies had actually been expended not merely become due in the sense of a levy.
2.It is axiomatic that an Owners Corporation cannot expend funds out of either its Administrative fund or its Sinking fund unless they have already been paid in.
3.The logical consequence of that is that, although the wording may be the same, the effect is different under the Strata Schemes Management Act. (“the Act”) The latter merely makes the sum owing recoverable, it does not make it a debt “due at law or in equity”. Indeed, unlike the recovery of a receivers fees already expended (being a sum certain) the expression “as a debt” in the Act merely gives a statutory right to recover an amount struck for the future at a future date if the contingency arises that the amount remains unpaid.
4.A Statutory debt is not a debt due either at law or in equity as it is always liable to be defeated by the whim of the legislature. Indeed, in relation to Strata levies, the legislature radically altered the regime of recovering levies by its introduction of the Act. Prior to that, levies formed a charge on the land and were realisable either by registration of a writ or, ultimately sale in the same way as, in New South Wales council rates are still recoverable.
Taylor is no longer good authority to the extent that the provisions of the UCPR in NSW which provide for an instalment order to operate as a stay of a judgment, whenever granted, are applicable. Semble, once stayed and while the instalments continue to be paid, it was the intention of the NSW Legislature that no further recovery action should be taken and the Commonwealth should give full faith and credit to that intention pursuant to s 118 of the Constitution.
Gold’s Case is completely distinguishable. First, Mrs Gold was already bankrupt at the time of the hearing of the appeal and secondly the action was to recover monies already expended not just owing. Here, there is no evidence before the Court that any expenditure has been incurred referrable to the contribution under s 76 of the Act. Likewise, there is no evidence in this case that the expenditure of the Owners’ Corporation has been “ascertained.”
The stark reality of this case is that, had the Applicant followed the simple procedure of suing in the Local Court, a judgment would have been obtained by consent and an appropriate instalment order would have been made to repay the judgment (as happened in the first instance) without resorting to the ludicrous expense of incurring solicitors costs to fight what may be, for lawyers, interesting esoteric points of statutory interpretation, at the expense of simple home-owners.
It remains the fact that s 44 of the Bankruptcy Act in clear terms requires the debt to be liquidated. In none of the cases cited by the Applicant has the procedure under a Creditors’ Petition been called in aid of an unliquidated sum and on any view of the evidence in this case, apart from the stayed judgment which is below the threshold amount (which disposes in any event of the arguments propounded on the basis of Schekeloff and Re Agrillo), any amount owing, (even if it were capable of being characterised as a debt) remains unliquidated. It may be quantifiable but is not a liquidated sum.
THE INTERACTION OF SS 76 AND 80 OF THE ACT
The Act must be taken to mean that there is a clear distinction between a “levy” and a “contribution”. Stupid and artificial though this distinction is, one is all too used to Parliaments passing laws which are stupid and artificial. The policy of the Act is understandable and, logically, compelling: a legal person should be liable for his just debts. Where that person is not able to pay we have evolved systems which spread the risk in the sense that it is the imprudent creditor who does not protect himself who bears the ultimate burden. That is what the concept of insolvency is all about. Leaving aside the criminal consequences, the concept of civil liability entails that the debtor who cannot pay a lawfully incurred debt is given a second chance and the risk falls where it lies. Thus, if I act for Mr O’Connor and he agrees to pay my usual outrageous daily fee but, ultimately cannot pay me, I suffer the loss incurred by my stupidity in not getting the payment in advance. The law then steps in and says that, in certain circumstances, if that payment is made within the relation back period or with an intent to defraud creditors, it is repayable by me to his trustee for the benefit of all creditors equally. That does not necessarily meet the policy objective of creditors being paid in full.
In the instant circumstances, the policy is slightly different in that it is designed not only to protect creditors but also to protect property interests. The policy behind ss 76 and 80 of the Strata Schemes Management Act is both to protect potential creditors of an Owners Corporation (a legal person) from improvident or grandiose schemes by ensuring a mechanism of spreading the liability to lot holders in proportion to their Unit entitlement but also to protect lot owners from what would otherwise in a corporate context be properly characterisable as a fraud on the minority.
The Act does this in a particularly cack-handed and obscurantist way. Under the original Strata Titles Act, the predecessor of the bastard legislation currently in force in NSW and mirrored in other jurisdictions, contributions from Unit Holders duly payable to the Body Corporate were recoverable as charges on the lot and gave the Body Corporate the right (pari passu with e.g. a Local Council) to execute against the property incorporated in the registered lot. For reasons beyond my ken, at least, the Act now speaks of an entitlement to recover an unpaid contribution “as a debt”. That begs the question of what a contribution might be. Common experience, and the evidence in this case, is that the “contribution” is set (or in the language of the Statute ‘levied”) as two amounts (one relating to the Sinking Fund and one relating to the Administrative Fund) payable quarterly and levied by notice in writing to the Unit Holder once in each and every quarter.
THE EVIDENCE
In the instant case it is in issue whether this actually happened. Miss Sinclair says it was her office practice to do so by personal delivery to mailboxes in the building although she did not do it herself and can give no probative evidence that it was actually done by any of her employees, servants or agents. Mr O’Connor vehemently denies that he received any such notice but candidly admits to receiving mail regularly through his mail box in the building and gives unchallenged evidence of payment of bills received in such a fashion.
Mr O’Connor’s evidence that he did not receive notices of levies should, on balance be believed for several reasons. First, the Sinclair evidence goes no further than that she thought an employee followed the office procedure of delivering mail. The employee was not called, there was no satisfactory evidence to show why she was not called and there is a clear Jones v Dunkel conclusion to be drawn from that. More importantly, when Mr O’Connor became aware of the claim against him he took immediate steps to satisfy the judgment that had been obtained by making an application to pay by instalments which, even in the Petition, is acknowledged to have happened. Given that judgment had been obtained against him once, it beggars belief that a prudent and diligent managing agent would not have taken steps to ensure that the further outstanding levies were brought to his attention. The Court, semble, ought be satisfied that, had that happened, these proceedings would not have been brought.
The plaintiff then relies on the Act to say that it does not need to issue a notice once a “contribution” has been set at an AGM. While that might, on one view, be correct, what it ignores is that the Act contemplates two steps: the setting of a “contribution” (semble a power only available to the proprietors of lots in the Scheme at a general meeting) followed by a “levy” of that “contribution” levied by notice to the lot owner of a particular lot. Here, the evidence is that the “contribution” has been determined but there is no cogent evidence that the “levy” has been made in accordance with the Act. It is clear that where Mr O’Connor has been made aware of his obligations to pay “contributions” he has made efforts to do so. Indeed, of the $9,941.91 claimed in the Creditor’s Petition in the instant proceedings, from the date of filing of that petition to date, some $8,950 has been paid, an instalment order for the balance is on foot and there is no basis in law for a sequestration order to be made against his estate.
SUBSEQUENT EVENTS
On my instructions, the following amounts have been paid:
Payments to to SP 50164 a/c
17/3/10 $50
24/3/10 $50
6/4/10 $100
16/4/10 $50
20/4/10 $50
7/5/10 $50
20/5/10 $50
23/7/10 $50
28/9/10 $1000
29/9/10 $1000
30/9/10 $1000
8/10/10 $250
15/10/10 $5,000
21/10/10 $250
TOTAL $8950
Given that the total amount claimed in the petition is $9,941.91 and given that the instalment order relating to the judgment is still in force and no application has been made to set it aside, the amount outstanding (whether or not the Court accepts my submissions as to the applicable legal principles) is not sufficient to allow the Court to make a sequestration order in this matter.
COSTS
In the circumstances it is clear that Mr O’Connor has made a genuine effort to repay what is, after all, a minor debt. he fact that an initial judgment had been obtained against him and the Petitioning Creditor acknowledges that substantial amounts of that debt have been repaid leads, inevitably, to the conclusion that the current action (brought without due notice and in circumstances where under the rules of this Court there is no mechanism for payment by instalments) was heavy-handed in the extreme and unreasonable.
Mr O’Connor has been put to much trouble and expense defending them. Either the costs of the action should be his and set off against any residual debt owing to the Petitioning Creditor or each party should bear its own costs and there should be an order that, in the circumstances, the Owners’ Corporation not be entitled to recover its costs from Mr O’Connor.
If that not be accepted, Mr O’Connor will, in relation to costs seek to tender MFI A in relation to the costs issue.
CONCLUSION
In the circumstances, the petition should be dismissed and the Owners Corporation be ordered to bear its own costs as well as those of Mr O’Connor certified for Counsel at the appropriate Federal Court rate without any further recourse to Mr O’Connor. The question of how those costs should be paid and whether they should be borne by the legal representatives for the Owners Corporation or the Managing Agent should be stood over for argument on the basis that, if Mr O’Connor is required to make submissions on the question, his legal costs should be paid on an indemnity basis by the party ultimately found liable.
I have taken those submissions into account.
Consideration
The parties are in dispute over whether the petitioning creditor is entitled to petition in circumstances where the judgment debt, at the time of the petition, had fallen below the threshold for a petition by augmenting claims for additional unpaid strata fees as debts. Mr O’Connor asserts that the petition is an abuse of process because the threshold for the presentation of the petition was not met, because the additional strata fees claims were not properly raised and notice of levies were not sent to him and those amounts are not a “debt” in any event.
Section 44(1) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) at the relevant time stated:
(1) A creditor’s petition shall not be presented against a debtor unless:
(a)there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000;
(b)that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c)the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
The first issue to resolve is whether the amount claimed in paragraph 1(b) of the creditor’s petition is a debt which can support the petition given that the amount of the judgment debt fell below the $2,000 threshold at the time the petition was presented. The applicant submits that the sum in paragraph 1(b) is a debt comprised of outstanding contributions due and payable for the period 1 July 2008 to 1 January 2010, which includes interest and expenses incurred by the petitioning creditor in recovering outstanding levies.
The power of strata owners to raise and recover levies and other expenses and interest is regulated by the SSMA. Section 78 of the SSMA regulates the authority of the owners corporation to strike contributions to be paid by a lot owner to the administrative or sinking fund of the strata plan. Such contributions are struck in accordance with the lot owners’ entitlement. I accept from annexure B to the affidavit of Ms Sinclair made on 2 August 2010 and exhibit A1 tendered at the hearing that the strata manager was duly appointed and that the contributions in issue were properly struck by the owners corporation at its general meeting.
Section 79(2) of the SSMA empowers an owners corporation to levy interest at the rate of 10 per cent if a contribution is not paid at the end of one month. The owners corporation has a statutory right to recover interest as a debt under s.80 of the SSMA. Interest may be waived or the rate of interest reduced if the owners corporation passes a special resolution at its general meeting. There is no evidence that it has done so. Paragraph 4 of Ms Sinclair’s affidavit of 2 August 2010 sets out the interest claimed on the statement of claim, the entry of judgment and the bankruptcy notice and deducts that from the total interest to arrive at a figure of $32.45 being the interest said to be due on the creditor’s petition.
Section 80(1) of the SSMA provides:
An owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts.
The section permits the owners corporation to recover as a debt any contributions not paid at the end of one month after they become due and payable, together with any interest payable and the expenses of the corporation incurred in recovering such contributions.
The applicant submits that the amounts claimed in the creditor’s petition are amounts that relate to outstanding contributions, interest and expenses which are due and payable by Mr O’Connor. Annexure A to Ms Sinclair’s affidavit of 2 August 2010 is a ledger statement which details the contributions, interest and expenses incurred in respect of Mr O’Connor’s lot. I accept the accuracy of those statements.
In order to maintain a creditor’s petition, there must be a petitioning creditor’s debt of at least the threshold amount, an act of bankruptcy and a proper petitioning creditor[2]. The debt relied upon must have accrued before the act of bankruptcy relied upon. That debt must have been liquidated before the act of bankruptcy[3]. There is no requirement that the debt relied on to support the creditor’s petition be a judgment debt, or even the same debt as the one used to create the act of bankruptcy[4]. In O’Farrell v Palicave Pty Ltd[5] at [23] the petitioning creditor was granted leave to amend the petition to add the amount remaining due under a loan agreement after four instalments due under the loan agreement and the subject of a judgment were paid following the presentation of the petition.
[2] See Ex parte Dearle, re Hastings (1884) 14QBD 184 at 190.
[3] Re Mendonca, ex parte Commissioner of Taxation (1969) 15 FLR 256.
[4] See Emerson v Wreckair Pty Ltd (1992) 33 FCR 581.
[5] [2009] FCAFC 64.
I accept that the unpaid contributions component of paragraph 1(b) of the creditor’s petition as itemised in paragraph 3 of Ms Sinclair’s affidavit of 2 August 2010 remains unpaid. I also accept that following Mr O’Connor’s failure to pay those contributions within a month of them being raised, interest accrued and expenses were incurred. I further accept that s.80(1) of the SSMA gives the owners corporation the right to treat all such outstanding items as a debt because of the failure to pay the contributions within one month after they had become due and payable.
Counsel for Mr O’Connor submitted that the sum identified in paragraph 1(b) of the petition is not a debt for the purposes of s.44 of the Bankruptcy Act because s.80 of the SSMA is only an enabling provision permitting recovery of the amount outstanding. I think the better view is that the effect of s.80(1) is to establish a debt due and payable to the owners corporation which is a liquidated debt for the purposes of s.44 of the Bankruptcy Act.
In McClymont v Owners of Strata Plan No 12139[6] at [11] Smith FM said:
In my opinion, the right of an owners corporation to pursue recovery of unpaid strata contributions through bankruptcy proceedings does not arise directly under s.80, but under the provisions of the Bankruptcy Act available to the owners corporation as a creditor for debts recovered or recoverable under s.80.
[6] [2009] FMCA 1079.
I agree with Smith FM.
I also agree with the further submissions on this issue made by the applicant. In the case of Proprietors Units Plan No. 52 v Gold[7] (“Gold’s case”) the full bench of the Federal Court of Australia dealt with the equivalent of s.80 in the SSMA in the Australian Capital Territory being s.48 of the Unit Titles Act 1970 (ACT) (“the Unit Titles Act”). In that case the Full Court was considering whether the body corporate was entitled to recover its expenditure in the recovery of unpaid levies from a defaulting member as a debt. Section 48 of the Unit Titles Act stated:
Where a corporation has incurred any expenditure or performed any repairs, work or act that it was required or authorised by its articles or by or under this Act or any other law in force in the Territory to perform, the expenditure, repairs work or act having been rendered necessary by reason of any wilful or negligent act or omission on the part of, or breach of any provision of its articles by, a member of the corporation, the amount of that expenditure or any money expended by it in performing the repairs, work or act is recoverable by it from the member as debt.
[7] (1993) 116 ALR 638.
In Gold’s case the argument advanced by counsel for Mrs Gold before the single Judge of the ACT Supreme Court was that s.48 of the Unit Titles Act did not create a liability, it merely provided a means by which such a liability may be enforced. It simplified enforcement by deeming the quantum of liability to be a debt due from the member rather than an unliquidated claim. A single Judge of the ACT Supreme Court agreed with counsel’s argument by holding that s.48 merely simplified enforcement of the antecedent liability which, in the circumstances of that case, could not have come into existence without a court order for the payment of costs. This is the same argument that is being raised in this case by the respondent.
The Full Court held that s.48 of the Unit Titles Act created a statutory debt which a member is liable to pay as soon as the amount of the body corporate’s expenditure has been ascertained. It does not merely simplify enforcement of an antecedent liability. It was not necessary for the appellant to have obtained a court order for its costs before the appellant could rely on s.48. It was clear to the Full Court that the expenditure incurred by the body corporate was predicated on an obligation imposed with each member to pay contributions by an ascertainable due date.
The Full Court stated at 642 the following:
In our opinion section 48, like many similar provisions creates a statutory debt for which a member is liable as soon as the amount of the body corporate’s expenditure has been ascertained. In Re McGreavy; Exparte McGreavy v Benfleet Urban District Council [1950] Ch 269 it was held that an analogous statutory liability to pay municipal rates, although non-actionable at the suit of the local authority, was a debt on which it could present a petition under s.4(1) of the Bankruptcy Act 1914 (UK). In the present case, of course, s48 expressly makes the debt recoverable at the suit of the corporation.
I conclude that, on the authority of Gold’s case and Re McGreavy, the sum claimed in paragraph 1(b) of the creditor’s petition is a debt for the purposes of s.44 of the Bankruptcy Act and when that sum is added to paragraph 1(a) of the creditor’s petition it meets the threshold requirement under s.44. Further, even on its own the sum pleaded in paragraph 1(b) of the creditor’s petition is capable of satisfying the threshold requirement in s.44.
Mr O’Connor asserted in evidence that he was not clearly aware of his levy obligations until told by his counsel and that he did not receive levy notices. Ms Sinclair gave evidence, which I accept, of the general practice of the strata manager to issue levy notices to lot owners on a regular basis. She also gave evidence, which I accept, of discussions between her office and Mr O’Connor concerning outstanding contributions. Exhibit A2 is an email from Mr O’Connor, apparently to a person in the strata manager’s office, on 8 April 2009 which establishes to my satisfaction that at that time Mr O’Connor was aware of the need to deal with outstanding contribution payments. I prefer the evidence of Ms Sinclair than that of Mr O’Connor. I think it more likely than not that levy notices were sent to Mr O’Connor by the strata manager and that he received them. In any event, s.78(6) of the SSMA provides:
Regular periodic contributions to the administrative fund and sinking fund of an owners corporation are taken to have been duly levied on an owner of a lot even though notice levying the contributions was not served on the owner.
In Coshott v Owners of Strata Plan No 48992[8] Cooper AJ said:
… I uphold the decision of the learned magistrate that the Act casts the responsibility on the owner to pay the contributions as levied even if notice levying the contributions was not served on the owner.
[8] [2006] NSWSC 308 at [39].
I accept the applicant’s submission that the owners corporation does not need to serve levy notices on lot owners even though it did so.
Mr O’Connor also submits that the instalment order he has obtained operates as a stay on the judgment, thereby preventing the issuing of the creditor’s petition. I reject that contention.
The instalment order was made by the Local Court at North Sydney on 3 March 2010 in respect of the judgment debt. The instalment order required payment of instalments of $50 per week. The amount of the judgment debt has subsequently been reduced, presumably by reason of payment of those instalments. I accept the petitioning creditor’s submission that the making of an instalment order does not prevent an act of bankruptcy being committed where the order is made after service of the bankruptcy notice[9]. Further, if an instalment order comes into force after the commission of an act of bankruptcy it is not an impediment to the presentation of a creditor’s petition[10]. Accordingly, the instalment order obtained by Mr O’Connor did not prevent the presentation of the present petition.
[9] See Schelkeloff; ex parte Schelkeloff v Hopkins Group Pty Ltd (1989) 22 FCR 407.
[10] See Re Agrillo; ex parte Bankrupt (1976) 29 FLR 484; Re Padagas; ex parte Carrier Air Conditioning Pty Ltd (1977) 16 ALR 475.
Mr O’Connor has not asserted solvency. It is possible that he might look to his mother and step-father for support concerning the debt, which is not a very large amount of money. However, I am not satisfied that he could pay the debt from his own money.
Counsel for Mr O’Connor has attempted to introduce in his written submissions evidence of payments made by or on behalf of Mr O’Connor to the applicant since the hearing of this matter. Those asserted payments total $8,500. It is not appropriate to seek to introduce additional evidence in submissions, especially the day before a reserved judgment is due to be delivered. I do not treat the assertions of the additional payments as evidence that those payments were made. Even if those payments were tendered I do not know where the money came from or whether the payments were accepted. The applicant is not bound to accept such payments if made but if the payments have been made and accepted only a further $1,000 (approximately) would seem to be required to discharge the debt identified in the petition. Nevertheless, the reduction of the debt to less than the prescribed amount after a petition is presented does not prevent a sequestration order being made: Re Debtor, ex parte Petitioning Creditors[11].
[11] [1917] 2 KB 60
I am satisfied that Mr O’Connor committed the act of bankruptcy alleged in the petition. I am satisfied of the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof. I will make a sequestration order against Mr O’Connor’s estate. Costs should be taxed and paid in accordance with the Bankruptcy Act. I am not persuaded that any of the matters raised by counsel for Mr O’Connor in relation to costs call for any different order in circumstances where a sequestration order is made.
It is possible that, through the support of his mother and step-father, Mr O’Connor could be spared bankruptcy by payment of the balance of the amount due. In view of that possibility and noting that the amount due is a relatively modest sum, I will suspend proceedings under the sequestration order for a period of 21 days.
I certify that the preceding sixty-one (61) paragraphs are a true copy of the reasons for judgment of Driver FM
Date: 5 November 2010
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