Owners of Strata Plan No.5227 v Gorst - [2008] FMCA 1443

FEDERAL MAGISTRATES COURT OF AUSTRALIA

OWNERS OF STRATA PLAN NO.5227 v GORST

[2008] FMCA 1443

BANKRUPTCY – Sequestration order – judgment debt based on unpaid strata levies – debtor jointly and severally liable with estranged wife – time to pay previously allowed – no agreement or estoppel preventing a sequestration order – no other sufficient cause to dismiss petition – sequestration order made.

Bankruptcy Act 1966 (Cth), s.52

Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400
Cain v Whyte (1933) 48 CLR 639
Totev v Sfar [2006] FCA 470

Applicant:

OWNERS OF STRATA PLAN NO.5227

Respondent:

JOHN GREGORY GORST

File Number:

SYG 3170 of 2007

Judgment of:

Smith FM

Hearing date:

10 October 2008

Delivered at:

Sydney

Delivered on:

10 October 2008

REPRESENTATION

Counsel for the Applicant:

Mr D Radman

Solicitors for the Applicant:

Grace Lawyers

Counsel for the Respondent:

In Person

ORDERS

A sequestration order be made against the estate of JOHN GREGORY GORST.
All proceedings under the sequestration order are stayed under s.52(3) of the Bankruptcy Act 1966 (Cth) for 21 days.
The applicant creditor’s costs, including all reserved costs, be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966 (Cth).
Note that the date of the act of bankruptcy is 4 September 2007.
Note that a consent to act as trustee has been signed by Brett Richard Geoffrey Harrison and has been lodged with the Official Receiver in Sydney.
The applicant must within 2 days give a copy of this order to the Official Receiver in Sydney.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3170 of 2007

OWNERS OF STRATA PLAN NO.5227

Applicant

And

JOHN GREGORY GORST

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

This is a petition filed on 12 October 2007 by the body corporate of a strata plan. It relies on a judgment debt for $15,591.28, obtained against Mr Gorst in the Local Court of New South Wales on 12 July 2007 in relation to unpaid strata levies over many years previously. According to the affidavit of debt which is sworn today, the debt has been reduced by payments made by Mr Gorst, so that it now stands at $9,015.24. I am satisfied that this debt remains owing, and that there is no reason to look behind the judgment debt and to question the affidavit verifying the petition in respect of the existence of debt.
Indeed, Mr Gorst allowed the original judgment to be entered by concession, and the reduction in the debt has occurred by reason of his applying for, and obtaining, an instalment order. The instalment order was made on 31 October 2007, after the act of bankruptcy had occurred, although Mr Gorst had been unsuccessfully seeking such orders previously.
The act of bankruptcy relied upon by the petitioner is Mr Gorst’s failure to make payments on the then owing balance under the Local Court judgment within the time for compliance with a bankruptcy notice issued on 9 August 2007, which was served on Mr Gorst personally on 14 August 2007. I am satisfied that the act of bankruptcy relied upon occurred. This also has not been challenged by Mr Gorst.
I am satisfied on the other evidence before me that the petitioner has made out an entitlement to the making of a sequestration order in accordance with the requirements of the Bankruptcy Act 1966 (Cth) and the Bankruptcy Rules.
Mr Gorst filed a notice of opposition on 4 August 2008, at a time when he employed solicitors in the proceeding. His notice of opposition raises one ground:
The applicant creditor and the respondent debtor have entered into an agreement for the repayment of the debt relied upon by the applicant creditor in this application.
The exact terms of the alleged agreement, and the evidence of its making, are not clearly identified in the grounds of opposition nor in the affidavit of Mr Gorst which was filed in support of it. He appears to allege some sort of agreement being made when he attended a meeting of the executive committee of the Owners Corporation on 7 February 2008, and subsequently made a handwritten request for time to pay the debt by way of instalments.
The circumstances of that meeting and later meetings of the body corporate and its executive are also touched upon by other evidence before me. I am not persuaded by any of the evidence, nor by the arguments of Mr Gorst, not to accept the accuracy of minutes prepared by the strata manager for meetings held on 7 February 2008,

19 February 2008
and 13 May 2008. These record decisions made by the owners, and the executive committee of the owners, in relation to the strata levies unpaid by the two owners of unit 33, being Mr Gorst and his former wife. The minutes contain the following extracts:
Minutes of a meeting of the Executive Committee of Strata Plan 5227 on 7 February 2008:
General Business
1.Mr J Gorst the part owner of Unit 33 addressed the meeting in relation to the current legal action to recover the levy arrears. Mr Gorst indicated that he is paying the minimum payment as set by the magistrate in his case. The committee discussed that this payment was less than the annual strata fees. Resolved: That legal action be halted at this stage.
Minutes of a meeting of the Executive Committee of Strata Plan 5227 on 19 February 2008:
General Business
1.Unit 33 levy arrears. The managing agent is to write to the owners of Unit 33 to advise that the committee has agreed to accept payments of $500.00 per month, on receipt of written request from Mr J Gorst. But this agreement cannot continue for any unlimited period of time and that full payment will be expected once there is new ownership of the unit. The Executive Committee will periodically review this situation and reserves the right to demand full payment at any time.
Minutes of an Extraordinary General Meeting of “The Owners” of Strata Plan 5227 on 13 May 2008:
Levy arrears
Resolved: That legal action be recommenced to recover the levy arrears owing by the owners of Unit 33. Motion carried.
The evidence of correspondence between Mr Gorst to the strata managers and the body corporate, and their responses, does not cause me to identify any alternative evidentiary basis for the agreement alleged in Mr Gorst’s grounds of opposition.
In my opinion, assuming that the relevant passages in the minutes of the Executive Committee in February 2007 contain or record representations made to Mr Gorst in relation to allowing him time to pay the arrears of levies, and assuming that they gave rise to a legally binding agreement or representations enforceable under principles of estoppel, in their own terms they were not indefinitely binding upon the relevant authority of the body corporate. Rather, in my opinion, they are properly construed as reserving to the petitioner the right to “demand full payment at any time”. According to the evidence before me, on 13 May 2008 the owners, in effect, determined to terminate their previous indulgence to the owners of unit 33, and to recover the full amount owing by them.
I am not persuaded that this was something which was contrary to a binding agreement, or which they are estopped from relying upon in the present proceeding. For that reason, I am not persuaded by the evidence that the debt relied upon in the petition was not immediately owing at the time of the lodgement of the petition, nor that the balance is not currently owing by Mr Gorst.
Nor am I persuaded that the circumstances in which Mr Gorst was previously allowed time to pay, nor those in which he obtained an instalment order in October 2007, should provide this Court with "other sufficient cause" not to make a sequestration Order pursuant to the Court's discretion under s.52(2)(b) of the Bankruptcy Act. I note that it is common ground that the instalments being offered, and currently being paid by Mr Gorst, do not even meet the presently accruing strata levies.
As Allsop J's discussion of that discretion in Totev v Sfar [2006] FCA 470 from [32] onwards points out, the Court will generally proceed to make an Order for sequestration on proof of the matters in s.52(1) of the Act, as has occurred here. His Honour cited the well known statement in Cain v Whyte (1933) 48 CLR 639 that the discretion to identify other sufficient cause is to be approached:
with the full appreciation that, prima facie, on proof of the matters mentioned in sec.56(2), the Court will proceed to make an order for sequestration, and that it is for the debtor to show some cause overriding the interests of the public in the stopping of unremunerative trading and the rights of individual creditors who are unable to get their debts paid to them as they become due.
Mr Gorst has not presented any evidence to show that either he, or his former wife, in fact, are currently able to pay this debt from their jointly owned or separate assets or other financial resources, in a timely manner (cf. Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 at [17] and [19]). The history of this debt indicates that over many years they have failed to do so, for whatever reason. In my opinion, Mr Gorst's evidence does not raise a sufficient basis for my declining to make a sequestration order on this petition.
Mr Gorst today also sought to adjourn the petition on a number of bases. In a document he sent to the Court, he referred to the fact that he could no longer employ the solicitors whom he had employed in the bankruptcy proceeding. However, I do not consider that the fact that those solicitors have ceased to act for him provides a sufficient reason for adjourning the petition. Mr Gorst has been on notice since 2 September 2008, that it was fixed for hearing today. He has not held out any prospect that he will be able to obtain alternative representation in the future, nor any likelihood that a legal representative would be able to present his case to the Court in a way which would improve his prospects.
In his evidence and oral submissions today, I understood Mr Gorst to be pointing to three other circumstances in support of adjourning the petition. The first, was that there was a prospect of this debt being paid when his matrimonial property litigation is finally resolved.
However, there is scant evidence before the Court to explain the issues, evidence and progress of that litigation. There is no evidence showing Mr and Mrs Gorst’s financial circumstances, nor when their disputes are likely to be resolved by judicial determination, if they are unable to be resolved by the parties by agreement. All the evidence points to a very acrimonious property dispute being on foot for several years, in which sensible financial decisions affecting both parties to the former marriage have been unable to be made, including as to the prompt payment of their strata levies. On the evidence before me, this situation appears to be current, and I can see no prospect that it will change in the near or foreseeable future.
Secondly, Mr Gorst said that he understood that the body corporate has also brought a bankruptcy petition against his former wife as co-owner of the strata unit, relying on the same debt owed by both of them. He understands that the hearing in that petition may occur soon in this Court, and he submitted that he is hopeful that the debt will be paid by his wife at or near the hearing of her petition.
However, he has not been able to put before the Court any evidence to give substance to his hope. As I have indicated above, the evidence before me leaves as entirely speculative, his former wife's financial capacity to pay this debt within a reasonable time. It certainly throws into doubt her willingness to do so. I am not persuaded that adjourning the petition to await the outcome of the wife's petition holds a prospect for the payment of the debt, sufficient to justify withholding the sequestration order which the Court is being asked to make today by the body corporate against Mr Gorst.
If, indeed, the debt is paid by the wife at some time in the near future, then Mr Gorst will be able to take advice on an early annulment of his bankruptcy. To focus the minds of Mr Gorst and his former wife on this, I am prepared to give the maximum stay on operation of the sequestration order, being 21 days under s.52(3) of the Bankruptcy Act. However, I am not prepared to withhold the making of a sequestration order itself.
Thirdly, Mr Gorst sought the adjournment of the petition on the ground that he has recently sought an adjudication from the Consumer Trader & Tenancy Tribunal, in relation to disputes he claims to have with the body corporate. These disputes largely concern its refusal to send to his own address notices required to be sent under the legislation, including notices of levy. It appears that the body corporate is sending them to the unit owners’ address shown on the strata roll, being an address which can only be changed by joint action of the two owners. Since they have been unco-operative, Mr Gorst is in the unfortunate situation where he does not receive copies of these notices directly from the body corporate at his currently preferred address.
How this dispute about the sending of notices may or may not be resolved by the Tribunal is unclear to me. However, I do not consider that the dispute has any bearing on Mr Gorst's obligation to pay the debt relied upon in the petition. Nor does it have any bearing on his ability to pay it in the reasonably foreseeable future.
It also appears that Mr Gorst has raised disputes in the Tribunal concerning old claims for repairs and other similar strata matters. However, the nature and merits of these claims is most unclear in the evidence before me. I am not persuaded that any such dispute provides other sufficient cause, either for declining to make a sequestration order today, or for adjourning the petition until the outcome of the proceedings in that Tribunal.
Taking into account all the matters that have been put to me by

Mr Gorst in his evidence and submissions today, I consider that the appropriate exercise of discretion in the present case is for a sequestration order to be made.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Smith FM

Associate: Michael Abood

Date: 23 October 2008