PAR and RV Scragg Trading as Peter Scragg and Associates v Vonta
[2017] FCCA 1686
•21 July 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| PAR & RV SCRAGG TRADING AS PETER SCRAGG & ASSOCIATES v VONTA | [2017] FCCA 1686 |
| Catchwords: BANKRUPTCY – Application for review of sequestration order made by Registrar – sequestration order sought on basis of unsatisfied judgment debt – act of bankruptcy – was bankruptcy notice properly served on debtor – was creditor’s petition properly served on debtor – nature of review – hearing de novo – compliance with section 52(1) – whether grounds for going behind judgment debt – application dismissed. |
| Legislation: Bankruptcy Act 1966, ss.40(1)(g); 41(1); 43(1); 43(1)(b); 52(1); 52(2); 306(1); 309(2) Bankruptcy Regulations 1996, r.16.01 |
| Cases cited: T & S Recoveries Pty Ltd v Skalkos [2004] FCA 816 Corney v Brien (1951) 84 CLR 343 Kuhadas v Gomez [2014] FCCA 1130 Wren v Mahony (1972) 126 CLR 212 Sandell v Porter (1966) 115 CLR 666 |
| Applicant: | PAR & RV SCRAGG T/A PETER SCRAGG & ASSOCIATES |
| Respondent: | YANA VONTA |
| File Number: | ADG 33 of 2017 |
| Judgment of: | Judge Brown |
| Hearing date: | 23 June 2017 |
| Date of Last Submission: | 23 June 2017 |
| Delivered at: | Adelaide |
| Delivered on: | 21 July 2017 |
REPRESENTATION
| Counsel for the Applicant: | Mr Scragg |
| Solicitors for the Applicant: | Peter Scragg & Associates |
| Counsel for the Respondent: | In person |
ORDERS
The application for review of the sequestration order made on 23 May 2017 is dismissed.
The petitioning creditor’s costs of the review be paid from the estate of the bankrupt in accordance with the provisions of the Bankruptcy Act 1966.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 33 of 2017
| PAR & RV SCRAGG T/A PETER SCRAGG & ASSOCIATES |
Applicant
And
| YANA VONTA |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant in these proceedings is Yana Vonta. The respondent is a firm of solicitors, Peter Scragg & Associates.[1] The proceedings arise under the provisions of the Bankruptcy Act 1966 (Cth) “the Act”.
[1] The firm is a partnership. In relevant documents, it is referred to as PAR & RV Scragg trading as Peter Scragg & Associates. It is convenient to refer to the firm as Peter Scragg & Associates or “the firm” in these reasons for judgment.
Peter Scragg & Associates successfully sued Ms Vonta, in the Magistrates Court of South Australia, for its fees incurred in respect of the provision of professional services to her. Following the entry of judgment, a bankruptcy notice issued against Ms Vonta.
It is the position of the firm that Ms Vonta did not comply with the bankruptcy notice by paying any of the moneys it claims are due to it. Accordingly it subsequently petitioned this court to make a sequestration order against the estate of Ms Vonta, on the basis that she had committed an act of bankruptcy, within the terms specified by section 40(1)(g) of the Act and the court had authority to do so pursuant to section 52(1) of the Act.
Section 52(1) reads as follows:
“(1)At the hearing of a creditor's petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.”
The onus is on the petitioner to provide proof of these matters. If the court is not satisfied of these matters, pursuant to the provisions of section 52(2), it may dismiss the petition. In addition, if the debtor concerned is able to prove he or she is able to pay his or her debts; or there is other sufficient cause that a sequestration order ought not be made, the court may also dismiss the petition.
The creditor’s petition came before Registrar Parkyn, a Registrar of this court, on 23 May 2017, on which occasion the following orders were made:
“1. The estate of Yana Vonta be sequestrated under the Bankruptcy Act 1966.
2. The Applicant Creditor’s costs fixed in the sum of $4078.00 be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.
The Court notes that the date of the act of Bankruptcy is 16 November 2016.”
On 30 May 2017, Ms Vonta applied to review the decision of Registrar Parkyn. These reasons for judgment are directed towards the resolution of this review. In her application, Ms Vonta seeks the following orders:
·The sequestration order be discharged;
·Peter Scragg & Associates pay her costs.
Ms Vonta has acted on her own behalf throughout the proceedings to date, both in this court and the Magistrates Court. I gather the grounds on which she seeks these orders are that both the bankruptcy notice and the subsequent creditor’s petition were not properly served upon her; and, in any event, the court should exercise its discretion not to make the sequestration order sought by Peter Scragg & Associates.
Background
In 2014 and 2015, Ms Vonta was engaged in litigation, in the Supreme Court of South Australia, regarding various testamentary dispositions made by her late Aunt. Part way through the trial, she engaged Mr Peter Scragg of the firm, to act on her behalf. The hearing of evidence was completed in 2015 and judgment was reserved.
Judgment was delivered by the Supreme Court on 28 October 2016. It was not the judgment promoted by Ms Vonta. She was wholly unsuccessful in the proceedings. It is the position of Peter Scragg & Associates that Ms Vonta is personally responsible to pay its professional fees incurred in representing Ms Vonta in the Supreme Court proceedings, notwithstanding her application was wholly unsuccessful.
On 22 January 2016, a solicitor employed by Peter Scragg & Associates, Ms Carla Scragg, forwarded a final notice to Ms Vonta via email and by pre-post to her address in Hunchy in Queensland seeking payment of the sum of $33,207.96 in respect of the firm’s outstanding legal fees and warning that if payment was not received, within 21 days, proceedings would be instituted against her in the Magistrates Court of South Australia to recoup the sum.
On 16 February 2016, Ms Scragg wrote to Ms Vonta indicating that Peter Scragg & Associates considered that its retainer to act for her had been breached by her failure to pay the firm its fees. Ms Scragg therefore indicated that the firm was no longer prepared to act for Ms Vonta in the Supreme Court proceedings, which were then awaiting judgment.
On 13 April 2016, Peter Scragg & Associates commenced proceedings, against Ms Vonta, in the Magistrates Court of South Australia seeking payment of the sum of $33,452.71 and costs.
Ms Scragg has deposed that the agent engaged by her to serve the relevant process on Ms Vonta had not been able to effect personal service on Ms Vonta, notwithstanding Ms Scragg believed that Ms Vonta remained living at the address provided by her in Hunchy and she continued to operate her facebook account.
As a consequence of this failure of personal service, on 14 July 2016, an application was made by Ms Scragg, on an ex parte basis, for substituted service of the originating summons, on Ms Vonta.
On 18 July 2016, an order for substituted service was made deeming service to be effective if a copy of the claim was left at Ms Vonta’s home at 404 Hunchy Road, Hunchy or by way of a private message being placed on Ms Vonta’s facebook page.
On 5 August 2016, Ms Scragg filed an affidavit in the Magistrates Court in which she deposed that the relevant process had been left at the Hunchy address; sent by email to Ms Yona’s email address; and to her facebook page.
As no defence to the claim was filed on behalf of Ms Vonta, judgment was entered in favour of Peter Scragg & Associates against her in the sum of $34,801.71, by the Magistrates Court, on 15 August 2016. On 5 October 2016, Ms Scragg applied to the Official Receiver for issue of a bankruptcy notice against Ms Vonta.
The bankruptcy notice issued on 5 October 2016, requiring Ms Vonta to pay the sum of $35,288.65 within 21 days of service of the notice upon her. As with issues relating to the service of the Magistrates Court proceedings, controversy arises between the parties as to whether the bankruptcy notice was properly served upon Ms Vonta.
It is the evidence of Mr Darren Whelan, a licenced commercial agent based in Caloundra, Queensland, who was retained by Ms Carla Scragg to effect service on Ms Vonta, that the bankruptcy notice was personally delivered, by him, on 26 October 2016, to a mail box attached to the property located at 404 Hunchy Road, Hunchy, in a sealed envelope addressed to Ms Vonta.
Ms Scragg had earlier provided him with a photograph of Ms Vonta. Mr Whelan deposes that he observed a person, whom he considered corresponded to the photograph provided to him, remove the envelope from the mail box concerned. As such, it is his evidence that the bankruptcy notice was properly served on Ms Vonta.[2]
[2] See affidavit of Darren Whelan filed on 2 November February 2017
Notwithstanding the indication Peter Scragg & Associates were no longer acting for Ms Vonta in the Supreme Court proceedings, when the Supreme Court informed the various parties concerned that judgment was to be delivered on 28 October 2016, Mr Peter Scragg agreed to attend at court to receive the judgment.
It is a reasonable inference to draw that, at the time, both Mr Scragg and Ms Vonta had some expectation that Ms Vonta’s position, in the proceedings, might be vindicated and the will relied upon by Ms Vonta would be proved by the Supreme Court. This did not occur. Thereafter, an issue arose as to whether some or all of Ms Vonta’s costs might be paid out of the relevant estate.
On 28 October 2016, Mr Peter Scragg informed Ms Vonta by email to [email protected] that her case “had been lost”. He further indicated that he would apply for Ms Vonta’s costs to be paid out of the estate. There can be no doubt that Ms Vonta received this email because she promptly replied to it, indicated by return email her indignation and incredulity that the case had gone against her. She provided a mobile telephone number for Mr Scragg’s use to contact her.
On 7 November 2016, Ms Vonta applied to the Magistrates Court of South Australia to set aside the judgment entered against her on 15 August 2016 and for leave to file a defence to the summons. She provided an affidavit in support of her application.
Her position, at the time, can be summarised as follows:
·she had suffered a heart attack in March of 2016 and had been admitted to hospital;
·her mother had died prematurely in hospital on 21 March 2016, after having received neglectful care in a nursing home;
·she had not received any documents in respect of the Magistrates Court proceedings;
·she had not received any adequate or properly itemised account from Scragg & Associates detailing how the firm’s fees were calculated;
·Mr Scragg had personally told her that he would not take action against her to recoup fees;
·Mr Scragg had given her to understand that he was confident about her prospects of success in the Supreme Court proceedings and of the likelihood that her legal expenses would be paid out of the estate;
·Mr Scragg had not communicated with her, in any way, between March of 2016 and 28 October 2016, when he had perfunctorily informed her the Supreme Court judgment was to be released that day;
·she had already paid Mr Scragg the sum of $15,000,00 on account of his fees;
·the bankruptcy notice had been left in her mail box but she did not collect it personally and therefore it had not been properly served upon her, as she was not at the Hunchy property at the time.
The position of Peter Scragg & Associates, in opposing the application to set aside the judgment can be summarised as follows:
·a final notice had issued out of the Magistrates Court to Ms Vonta seeking the payment of $33,207.96 for professional fees;
·it had been provided to Ms Vonta by email to the address [email protected] which was the electronic address utilised by Mr Scragg following the release of the Supreme Court judgment;
·Ms Vonta did not respond to the final notice;
·the Magistrates Court summons had been served on Ms Vonta by email, leaving it at 404 Hunchy Road, Hunchy and to Ms Vonta’s facebook account;
·it relied on the affidavit of Mr Whelan that the bankruptcy notice had been served on Ms Vonta;
·the evidence of the communication between Mr Scragg and Ms Vonta in the period shortly prior to and immediately after delivery of the judgment in the Supreme Court proceedings indicated that Ms Vonta was readily contactable via her email address, when she chose to be;
·there was a logical inconsistency between Ms Vonta claiming not to have been served with the bankruptcy notice and her knowledge of it, including its placement in her mailbox;
·Mr Scragg denied any assertion that he had taken on Ms Vonta’s matter in the Supreme Court only on the basis that the firm’s fees would be paid if Ms Vonta’s application was successful;
·Ms Vonta had executed a fee agreement with the firm on 13 March 2015, in which she agreed to retain Mr Scragg and pay his fees within fourteen days of being provided with an invoice;
·Ms Vonta had not honoured the fee agreement during the course of the Supreme Court litigation, despite correspondence from the firm reminding her of its terms;
·Ms Vonta had indicated her intention to obtain a line of credit to fund the litigation, but had not done so;
·Ms Vonta had paid the firm the sum of $20,000.00 on account of fees on 18 June 2015;
·Ms Vonta had been sent further accounts following this date but had not paid them.
On 1 December 2016, the Magistrates Court of South Australia dismissed Ms Vonta’s application to set aside the judgment. The presiding magistrate endorsed the court record with the following notation:
“It is noted that the affidavit in support of this application to set aside judgment by the defendant is not sufficient discharge her onus to rebut the retainer.”
The current application
On 2 February 2017, Peter Scragg & Associates filed a creditor’s petition seeking a sequestration order under section 43 of the Bankruptcy Act against the estate of Ms Vonta. The petition was made returnable at 9.30 am on 7 March 2017.
The petition asserts that Ms Vonta owes the petitioner the amount of $36,022.15 in respect of the judgment debt entered against Ms Vonta in the Magistrates Court of South Australia, at Adelaide.
The petition further asserts that Ms Vonta committed an act of bankruptcy, when she failed to comply, on or before 17 November 2016, with the requirements of a bankruptcy notice served on her on 27 October 2016 and in particular had failed to establish that she had a counter-claim, set off or cross demand equal to or more than the sum claimed in the bankruptcy notice.
Section 43(1) of the Act establishes the jurisdiction of the court to make a sequestration order. It provides as follows:
“(1) Subject to this Act, where:
(a) a debtor has committed an act of bankruptcy; and
(b)at the time when the act of bankruptcy was committed, the debtor:
(i) was personally present or ordinarily resident in Australia;
(ii) had a dwelling‑house or place of business in Australia;
(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or
(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;
the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor.”
The petition was supported by an affidavit of Mr Peter Scragg, which indicated that he was one of the principals of Peter Scragg & Associates and had access to its accounts. He deposed that the firm’s debt, from Ms Vonta, in respect of the judgment in its favour, remained outstanding.
Ms Vonta filed a notice of opposition to the petition on 6 March 2017. The grounds of opposition were as follows:
·Ms Vonta had not personally received the Magistrates Court Summons, therefore service was defective;
·Rather the summons had been collected from the letter box at 404 Hunchy Road, Hunchy by Neil Pethrick, who had observed a vehicle speeding away from the premises;
·Ms Vonta had been in New South Wales at the time at which Mr Pethrick had retrieved the summons from the letter box;
·Mr Scragg had lied to her about the contents of the documents deposited in the letter box, giving her to understand that they related to her Supreme Court proceedings;
·She had made arrangements to pay the debt and had posted a cheque (in an undisclosed amount) to the firm to pay the account in early January of 2017;
·Scragg & Associates’ fees for the Supreme Court proceedings were excessive;
·Mr Scragg had misled the Magistrates Court when the judgment was entered;
·Mr Scragg had been aware that she was in hospital when the Magistrates Court proceedings were on foot and therefore it was duplicitous for the firm to have commenced the proceedings against her at that time;
·She had made a complaint regarding Mr Scragg’s professional conduct to the Legal Profession Conduct Commissioner;
·The creditor’s petition had not been personally served upon her;
·Rather the petition had been left on the council verge outside 404 Hunchy Road, Hunchy during torrential rain, in the hope Ms Vonta would not receive it;
·She was currently unwell and would be unable to attend court in South Australia and wished in any event to retain legal counsel to oppose the petition.
On 7 March 2017, the petitioning creditor filed an application seeking an order for the substituted service of the petition on Ms Vonta pursuant to the provisions of section 309(2) of the Act. In support of the application, Mr Scragg deposed to the following effect:
·The creditor’s petition had been forwarded by electronic means to Ms Vonta via her email address [email protected] on 24 February 2017;
·The creditor’s petition had been attached in a sealed envelope taped to the front fence of 404 Hunchy Road, Hunchy by a process server retained by his firm, on 24 February 2017, after attempts to personally serve Ms Vonta at the address had been unsuccessful.
On 7 March 2017, Ms Vonta appeared before the court via telephone. The application for substituted service was clearly very freshly filed. In these circumstances, Registrar Parkyn made the following procedural orders:
“1. The Applicant is to file and serve a further affidavit addressing the requirements of Rule 4.04 of the Federal Circuit Court (Bankruptcy) Rules 2016 by 14 March 2017.
2. The Petition be amended by altering the date of the act of bankruptcy in Paragraph 4 to 16 November 2016. The Applicant is to file and serve an amended Petition by 14 March 2017.
3. The Applicant is to file and serve any further affidavit evidence upon which it wishes to rely in relation to the service of the bankruptcy notice by 24 March 2017.
4. The Respondent is to file and serve any further affidavit evidence upon which she wishes to rely in support of the grounds of opposition filed on 3 March 2017 by 18 April 2017.
5. The Petition be adjourned until 2 May 2017 at 9.30 am.”
As directed, an amended petition was filed on 10 March 2017 which amended the date on which it was asserted the relevant act of bankruptcy had occurred from 17 to 16 November 2016. This was apparently necessary as a consequence of the evidence of Mr Whelan that the bankruptcy notice founding the sequestration application had been left at the Hunchy Road property on 26 October rather than 27 October 2016.
Mr Scragg deposed, in an affidavit filed on the firm’s behalf on 10 March 2017, that Ms Vonta had made a proposal that the she pay off the monies owing to the firm in monthly instalments of $400.00. He confirmed that Ms Vonta had sent a cheque in this amount in early January 2017. Mr Scragg further deposed that this proposal was unacceptable to the firm. He provided an email sent to Ms Vonta to this effect, which was forwarded on 2 December 2016.
On 1 May 2017, Ms Carla Scragg deposed an affidavit in which she indicated that she had searched the National Personal Insolvency Register and found no entry referrable to Ms Vonta. She further indicated that the firm’s judgment debt remained outstanding.
On 2 May 2017, Ms Vonta again attended court by telephone. She sought to adjourn the proceedings on the basis of ill health. Registrar Parkyn was concerned that there was limited evidence before him regarding the issue of Ms Vonta’s application to set aside the original judgment debt in the Magistrates Court. In these circumstances, the following orders were made:
“1. The applicant is to provide a copy of the creditor’s petition filed in this proceeding to the Official Receiver by 5 May 2017.
2. The applicant is to file and serve by 9 May 2017 an affidavit:
a. Annexing a copy of the application made by the respondent in the Adelaide Magistrates Court on 7 November 2016 referred to at paragraph 7 of the affidavit of Ms Scragg filed on 24 March 2017; and
b. Providing the outcome of the application filed by the respondent in the Adelaide Magistrates Court referred to at order 2(a) above.
3. The time for the respondent to comply with order 4 of the orders made on 7 March 2017 be extended to 16 May 2017.
4. The Petition be adjourned until 23 May 2017 at 9.30 am.”
On 19 May 2017, Ms Carla Scragg filed a further affidavit in which she provided information regarding the dismissal of Ms Vonta’s application to set aside the judgment entered against her in the Magistrates Court and providing an up-dated search of the National Personal Insolvency Register and relevant court records regarding any other bankruptcy proceedings pertaining to the relevant bankruptcy notice. Ms Vonta did not file any further affidavit material prior to the adjourned date.
This was the background to Registrar Parkyn making the relevant sequestration order against the estate of Ms Vonta on 23 May 2017. Ms Vonta again appeared before the court via telephone.
The record indicates that an affidavit of Ms Vonta was accepted by the court via its electronic filing procedure oat 3.46 pm ACST on 24 May 2017, which of course was the day after the sequestration order had been made.
In this affidavit, Ms Vonta reiterated previously articulated complaints that she had not been personally served with either the relevant bankruptcy notice or the creditor’s petition. Ms Vonta further complained that the firm had not complied with the orders of Registrar Parkyn, which were applicable to it.
This was the background to Ms Vonta’s application seeking a review of the Registrar’s orders of 23 May 2017. This application was supported by two further affidavits of Ms Vonta filed on 25 & 26 May 2017 respectively.
Ms Vonta’s evidence can be summarised as follows:
·The bankruptcy notice was not properly served. She concedes that Mr Petherick retrieved the document, from the mail box at 404 Hunchy Road, Hunchy and he is a resident of the property.
·However, she disputes that Mr Whelan could have observed her remove the documents from the box as she was not in Queensland at the time. In these circumstances, it is tantamount to an abuse of process for the court to accept valid service of the bankruptcy notice.
·The creditor’s petition was not validly served upon her as it was left in a muddy, sodden and illegible state outside her premises where she came upon it by chance.
·She has had on-going issues with the reliability of her internet connection.
·She had not been given a proper opportunity to be heard in the Magistrates Court proceeding.
·The firm had unfairly commenced proceedings against her, in the Magistrates Court, at a time when it knew her personal circumstances were extremely difficult and she was ill.
·The firm had not sent her an itemised account.
·Mr Scragg had not acted in a professional manner towards her and had clandestinely commenced the proceedings against her, both in this court and the Magistrates Court.
·It was contrary to public policy for the court to allow her bankruptcy to stand when the applicant had not strictly complied with the requirement for personal service upon her.
·Her complaint to the Legal Profession Conduct Commissioner remains outstanding.
·Mr Scragg did not conduct the Supreme Court proceedings diligently.
·She and Mr Petherick are in the process of arranging a loan to be secured against their home and therefore she has the capacity to pay the firm its fees, if they are reasonable.
Clearly, there can be no doubt that Ms Vonta has known about these proceedings for a significant period of time. She has been able to make arrangements to attend court on three separate occasions by telephone. She further concedes that, albeit by indirect means, she has been able to access the relevant documents pertaining to the various applications brought by the firm against her.
By necessary implication, it is her position that she has, at times, been tricked into inquiring into the nature of the correspondence forwarded for her attention, by Mr Scragg and this is unprofessional conduct on his part. Most relevantly, this occurred in respect of the bankruptcy notice received by Mr Petherick, which coincided with the handing down of judgment in the Supreme Court proceedings. As I understand it, it is the import of her submission that it would be unconscionable for the court to condone Mr Scragg’s conduct in any way.
In response, it is Mr Scragg’s position that the evidence of Mr Whelan and of Ms Vonta herself indicates that Ms Vonta has demonstrated herself to be extremely resistant to any direct personal service upon her.
In these circumstances, the petitioner has utilised other modes of service to bring the proceedings to Ms Vonta’s attention and the evidence unequivocally indicates that these attempts have been successful. He further submits that the evidence indicates that Ms Vonta is contactable when it suits her but otherwise not.
Ms Vonta’s application for review was first made returnable on 30 May 2017. Ms Vonta did not appear. On the previous day she sent an email to the registry of the court indicating that she was suffering an abscess to one of her teeth. This had led to a blood infection and her collapse, resulting in her admission to the Caloundra Hospital. On this basis she sought the adjournment of the proceedings.
Over the objections of Mr Scragg, the proceedings were adjourned until 23 June 2017. Ms Vonta personally appeared at court on this day and made submissions on her own behalf. During the course of those submissions, she tendered the original envelope addressed to her, bearing the endorsement Private & Confidential which she asserted Mr Petherick had retrieved from the Hunchy Road mail box.[3]
[3] See Exhibit B
She also tendered a further envelope, again addressed to her and bearing the same endorsement, which she asserted had been stuck to her fence with brown adhesive tape.[4] She asserted that it was this envelope she had unexpectedly come upon, in her driveway, on or around 1 March 2017 and the envelope was in a sodden state. She provided a photograph of this envelope where she had allegedly come upon it.[5]
[4] See Exhibit A
[5] See Exhibit C
It may be so that the envelope was in a sad and sorry state and the region of Queensland, in which Ms Vonta lives, is likely to have been subject to heavy rain at the time, but the fact remains that notwithstanding Ms Vonta’s assertions that the envelope was illegible, she was able to attend at court on 7 March 2017, via telephone, on which occasion the proceedings were adjourned.
Legal Principles Applicable
As previously indicated, the court’ jurisdiction to make a sequestration order is founded in section 43(1) of the Act. It depends upon the petitioning creditor establishing the commission of an act of bankruptcy by the debtor concerned.
Section 40 provides an exhaustive list of circumstances which constitute an act of bankruptcy. Of particular relevance in the following matter is section 40(1)(g) which provides as follows:
“(g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i)where the notice was served in Australia--within the time specified in the notice; or
(ii)where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;”
There is no dispute that Ms Vonta was, at relevant times, ordinarily resident in Australia and satisfies the jurisdictional conditions specified in section 43(1)(b). The issue remaining is whether she has committed an act of bankruptcy.
The resolution of this issue turns on whether a bankruptcy notice has been properly served upon Ms Vonta, within the time specified by the notice and she has thereafter failed to comply with its requirements or established that she has some form of counter-claim against the firm.
Section 41(1) deals with the issue of bankruptcy notices. The power to issue such notices resides with the Official Receiver and they are issuable only in respect of judgment debts equal to or greater than an amount of $5,000.00. The court has authority to extend the period of time for compliance with a bankruptcy notice.
The relevant bankruptcy notice, in the present matter, was issued by the Official Receiver on 5 October 2016. It was based on the judgment debt of the Magistrates Court of South Australia made on 15 August 2016. It required payment of the entire debt in question or alternatively that Ms Vonta made arrangements to the satisfaction of Scragg & Associates in respect of the settlement of the debt.
It is Ms Vonta’s position, as I understand it that firstly, she was not served with the bankruptcy notice in question and therefore the question of compliance with it does not arise. Secondly, she has made an offer to compromise the debt. Thirdly, she has possible avenues of redress in respect of the judgment debt. Fourthly, it would not be appropriate for the court to exercise its discretion to make a sequestration order, given she was not properly served with the relevant creditor’s petition. Fifthly, she is able to pay the debt by borrowing monies.
Pursuant to section 103 of the Federal Circuit Court of Australia Act 1999 (Cth) “the FCC Act” the court, through its rules, is authorised to delegate its powers to a registrar of the court. One such power is the power to make a sequestration order pursuant to the Act.
Section 104(2) of the FCC Act authorises the court to review any delegated exercise of power to a registrar pursuant to section 103. In particular, section 104(3) provides as follows:
“(3) The Federal Circuit Court of Australia may, on application under subsection (2) or on its own initiative, review an exercise of power by a Registrar under subsection 102(2) or under a delegation under subsection 103(1), and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.”
On an application for review of a registrar’s decision, the court:
·is engaged in a fresh proceedings;
·does not scrutinise the original reasons to ascertain error;
·makes its own decision on the merits of the case; and
·in an application for review of a sequestration order, where a sequestration order is still sought, the petitioning creditor is required to prove all necessary matters, including those specified in section 52(1) of the Act.
The review hearing arising is a hearing de novo. This is specified by rule 20.03 of the Federal Circuit Rules 2001 “the FCC Rules”, which also authorises the court to receive additional evidence.
Accordingly, in my view, I am required to resolve the following matters:
·Has an act of bankruptcy occurred?
·Have the requirements of section 52(1) of the Act been met?
·Is there other sufficient cause, pursuant to section 52(2) of the Act that a sequestration order not be made?
Legal Provisions relevant to service
Part 6 of the FCC Rules deals with service. Pursuant to rule 6.06 service by hand is required in respect of any application starting a proceeding. However, pursuant to rule 6.04, the court has a discretion in relation to service and may authorise the service of a document in a way which is not specifically provided for by the rules and empower it to find that a document has, in effect, been served.
Pursuant to rule 6.05, evidence of service is provided by affidavit. Rule 6.04 deals with mechanisms for substituted service and circumstances in which service may be dispensed with. In particular, rule 6.15 provides a list of matters to be considered by the court in respect of the exercise of its discretion in regards to service. The court is directed to have regard to the following matters:
·Whether reasonable steps have been taken to attempt to serve the document in question;
·Whether it is likely that the steps, which have been taken, have in fact brought the existence and nature of the document in question to the attention of the person required to be served;
·Whether it is appropriate to alert the attention of the person required to be served through some form of advertising;
·Cost implications arising in respect of issues of service;
·Any other relevant matter.
The Bankruptcy Act, itself provides the court with a discretion in respect of service. Section 309(2) reads as follows:
“(2) Where a notice or other document is required by this Act to be served on or given to a person, the Court may, in a particular case, order that it be given or served in a manner specified by the Court, whether or not any other manner of giving or serving the notice or other document is prescribed.”
In this context, regulation 16.01(1) of the Bankruptcy Regulations 1996 provides as follows:
“16.01 Service of documents
(1)Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:
(a) sent by post, or by a courier service, to the person at his or her last‑known address; or
(b) left, in an envelope or similar packaging marked with the person’s name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility; or
(c) left, in an envelope or similar packaging marked with the person’s name, at the last‑known address of the person; or
(d) personally delivered to the person; or
(e) sent by facsimile transmission or another mode of electronic transmission:
(i) to a facility maintained by the person for receipt of electronically transmitted documents; or
(ii)in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.”
In this case, I am satisfied that Ms Vonta was not personally served with the creditors’ petition, in the sense envisaged by rule 6.07 of the FCC Rules. However, I find that the creditors’ petition was served upon Ms Vonta’s notice on or around 24 February 2017, when it was attached to the front fence of Ms Vonta’s home at 404 Hunchy Road, Hunchy. I also accept that, around the time this occurred, Ms Vonta was provided with the petition by electronic means.
It is axiomatic that Ms Vonta was aware of the petition as she was able to arrange to appear before the court, at its first mention, by telephone. On this occasion, on her application, the proceedings were adjourned for approximately two months. The review application was also adjourned on Ms Vonta’s application because she contended she was unwell.
Although the petition was not personally served upon Ms Vonta, I am satisfied that appropriate steps have been taken to bring the petition to Ms Vonta’s notice and these steps have been successful. In my view, it was appropriate for these steps to be taken by the petitioner because of Ms Vonta’s likely resistance to personal service.
In these circumstances, I am satisfied that it is appropriate for the court to exercise its discretion in respect of the dispensation of the strict requirements of service, including the requirement relating to service by hand of an originating application – in this case, the creditor’s petition.
I am satisfied that the petitioner took all reasonable steps to bring the petition to Ms Vonta’s notice. The process server made several attempts at service. Hitherto Ms Vonta had demonstrated that she was electronically contactable by Mr Scragg in connection with her Supreme Court proceedings.
In all these circumstances, I am satisfied that Ms Vonta was not inclined to be cooperative in respect of the receipt of any documents emanating from the officers of Scragg & Associates. Clearly, there is a significant level of mistrust between Mr Scragg and Ms Scragg on the one hand and Ms Vonta on the other.
I am fortified in this view by the provisions of section 306(1) of the Act, which reads as follows:
“(1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.”
In this case given Ms Vonta was able to appear at the first mention of the petition in question and, as a consequence, has subsequently been given an opportunity to contest the petition. In these circumstances, I do not think that it can be said that she has suffered any substantial injustice as a consequence of the failure of the applicant to personally serve the petition upon her.
In addition, I am also persuaded that this is an appropriate case for the court to exercise its discretion as to substituted service, arising both under its own rules and section 309(2) of the Act. In these circumstances, I find that the creditors’ petition was served upon Ms Vonta by two of the mechanisms provided by regulation 16.01, namely by leaving it at her home and by electronic mail.
As indicated above, a sequestration order is triggered by a debtor’s failure to comply with a bankruptcy notice. Again, Ms Vonta complains that she was not properly served with the relevant bankruptcy notice in these proceedings. However, she concedes that the document in question was left in the mailbox at 404 Hunchy Road and was collected by Mr Petherick, who later brought it to her attention.
Ms Vonta’s evidence does not accord with that of Mr Whelan other than that the document in question was placed in the mailbox concerned. I am not in a position to resolve this evidentiary dispute in the context of the current proceedings. However, I do not consider that it is necessary for me to do so.
I am satisfied that the bankruptcy notice came to Ms Vonta’s attention. She complains that Mr Scragg tricked her into opening the envelope which contained it by leading her to believe that it contained information relevant to the Supreme Court proceedings. As such, it would not be proper for the court to give its imprimatur to what she characterises as some form of legal skulduggery.
I am satisfied that personal service of a bankruptcy notice is not required. In T & S Recoveries Pty Ltd v Skalkos[6] Wilcox J said as follows:
“… the issue in service of a bankruptcy notice is now a purely administrative procedure; unless an application is made to the court for a particular order such as an order for substituted service, the court does not become involved in the process at all. If an application is made, the court deals with only that application. Service upon the debtor is required by the regulations, not by the rules.”
In these circumstances, it was held that a bankruptcy notice could be duly served upon a debtor by one of the mechanisms provided by regulation 16.01.
[6] T & S Recoveries Pty Ltd v Skalkos [2004] FCA 816 at [26]
In this particular case, I accept that the bankruptcy notice was served on Ms Vonta, on 26 October 2016, when it was left, in an envelope, marked with her name, at her last known address, which remains her current address; as well as having been sent electronically to a facility maintained by her, namely her email address. Accordingly, I find that the relevant act of bankruptcy occurred on 16 November 2016
In all the circumstances of this case, I also accept the submission of Mr Scragg that Ms Vonta was readily contactable, via her email address, on occasions when it was convenient for her, particularly in the context of the handing down of judgement in her Supreme Court proceedings. However, I also accept that, at other times, she has asserted that her email address was not operative, when ostensibly at least, it suited her not to be so apparently contactable.
Overall, I accept that Ms Vonta was well aware of the issue of the bankruptcy notice relating to her and the subsequent filing of the creditor’s petition. She was able to secure a deferral of the petition. As such, she has been given an ample opportunity to prevent submissions and evidence in respect of the salient issues in the case.
Compliance with section 52(1)
For the reasons outlined above, I am satisfied that there is satisfactory proof of the service of the petition on Ms Vonta. As a consequence of a minor error, the applicant was required to file an amended petition by order of Registrar Parkyn. I am also satisfied that the amended petition was served upon Ms Vonta. In any event, the matters verifying the two petitions in question remained identical.
In particular, a petitioning creditor must prove that the relevant debt still exists, as at the date on which the petition comes on for hearing. Pursuant to the section, this proof may be provided by the affidavit verifying the petition in question.
In this case, Mr Scragg has deposed that the respondent remains indebted to his firm. I accept this evidence. I also accept his evidence that Ms Vonta’s proposal to repay the debt through monthly instalments of $400.00 is unacceptable to the petitioner.
In all these circumstances, I accept that the petitioning creditor has established an act of bankruptcy, on Ms Vonta’s behalf, through her non-compliance with the bankruptcy notice served upon her. Any proposal, on her part to compromise the debt in question, must be to the creditor’s satisfaction, as well as her own.
Ms Vonta clearly feels that the quantum of the firm’s fees are excessive and do not represent fair value for the legal services provided to her in her unsuccessful Supreme Court proceedings. However, this court does not have jurisdiction to examine this issue or deal generally with the conduct of a legal practitioner appearing before a State Court.
Ms Vonta has complained, as she is entitled to do, about these issues to the relevant South Australian official concerned with the professional conduct of legal practitioners. Her complaint remains outstanding. In my view, it would be inappropriate to adjourn these proceedings until that complaint is resolved. In any event, Ms Vonta is unable to indicate whether the outcome of her complaint will have any specific implications for the level of her indebtedness to Scragg & Associates.
In all these circumstances, I am not satisfied that Ms Vonta has established that she has any form of counterclaim, set off or cross-demand, which is equal to, or exceeding the amount of the judgment debt currently outstanding in these proceedings.
In addition, at present, Ms Vonta has no proceedings on foot in respect of the Magistrates Court proceedings. Her application to set the relevant judgement aside was unsuccessful. These proceedings were concluded in early December of 2016. As such, it appears likely that any further proceedings to review this decision are out of time.
In any event, Ms Vonta has not formally indicated that she proposes to pursue any further proceedings, although when I raised the issue with her, on 23 June 2017, she indicated that she would do so, if at all possible. In the absence of any definite proceedings being on foot in respect of the judgment debt against her, it is difficult, if not impossible for me to gauge the likelihood of success of proceedings, which remain hypothetical in nature.
I am also satisfied that appropriate searches have been made of the records of this court and the Federal Court that show that no applications have been made in relation to the bankruptcy notice served on Ms Vonta and no other relevant entries appear on the National Insolvency Index. In all these circumstances, I am satisfied that the various criteria stipulated in section 52(1) have been satisfied. In particular that the judgment debt, arising from the Magistrates Court proceedings, remains outstanding.
Should a sequestration order not be made – section 52(2)?
Ms Vonta is clearly aggrieved in respect of many aspects of Mr Scragg’s professional conduct. She asserts that his professional competence jeopardised the outcome of her Supreme Court proceedings; his fees are excessive and he has breached his professional obligations towards her by not providing a properly itemised account; and he has behaved disingenuously by seeking to recover his fees in the Magistrates Court, when he said that he would not do so.
Essentially, Ms Vonta wishes the court to go behind the judgment entered in the firm’s favour in the Magistrates Court and exercise its discretion not to make a sequestration order against her because it would be improper or unjust to her to do so. Although she does not specifically say so, she suggests that the firm has engaged in serious impropriety, so far as she is concerned, in its conduct towards her.
In this context, it is important to note that the act of bankruptcy categorised by section 40(1)(g) arises as a consequence of a judgment date, not merely as a result of some other form of indebtedness, arising from the breach of some contractual obligation. Essentially, the debt in question has arisen as a result of the determination of a court.
In Kuhadas v Gomez Judge Manousaridis said as follows regarding the nature of a judgment debt vis-à-vis an act of bankruptcy:
“The reason section 40(1)(g) of the Act requires that it be a judgment debt rather than some other debt which the debtor must fail to pay before the court can be satisfied a person has committed an act of bankruptcy is the nature of a judgment debt: a judgment debt “creates an obligation of its own force” and “for most purposes as between the parties, it is conclusive evidence of the existence of the obligation which it creates”.[7] In other words, a judgment debt constitutes the highest proof of a debt that can be obtained, and thus provides the surest grounds for inferring a judgment debtor’s inability to pay his or her debts when the judgment debtor does not pay the judgment debt in response to a bankruptcy notice issued under the Act.”[8]
[7] Corney v Brien (1951) 84 CLR 343 at 353 per Fullagar J
[8] Kuhadas v Gomez [2014] FCCA 1130 at [21]
There is no dispute that Ms Vonta engaged Scragg & Associates to act on her behalf in proceedings before the Supreme Court of South Australia. As such, she accepted an obligation to pay the firm its fees. Ms Vonta accepts that this is the case. However, she further asserts that the firm did not act with due diligence in her case and was tricky when it instituted proceedings against her to recoup those fees.
In my view, the various matters detailed in Ms Vonta’s several affidavits do not rise above the level of particularised assertions that Scragg & Associates did not act in a professional manner towards her. These assertions fall far short of allegations of fraud, collusion or serious impropriety, which the High Court has indicated justify a court with bankruptcy jurisdiction looking behind a judgment debt said to found an act of bankruptcy.[9]
[9] Wren v Mahony (1972) 126 CLR 212 at 223
In Goodman Law Pty Ltd v Laloma (No 2) Judge Manousaridis said as follows, after summarising a number of authorities applicable to circumstances which justify a court looking behind the judgment debt on which an act of bankruptcy lies:
“A court of bankruptcy has power to go behind a judgment to determine for itself whether the debt is in truth owed by the judgment debtor. It will not do so, however, as a matter of course. It will only do so where “substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner”.[10]
[10] Wren v Mahony (supra) at 225
I do not accept that Ms Vonta has provided substantial reasons which justify me looking behind the judgment entered against her in the Magistrates Court, particularly given that her application to set aside the judgment in question was unsuccessful and given also that it is incontrovertible that she did engage the firm to act on her behalf and so she did incur a contractual obligation to pay its fees.
In my view, it is inappropriate for this court to engage in any inquiry into the professional probity of members of the firm concerned. These are matters for the Legal Profession Conduct Commissioner not this court.
By necessary implication, Ms Vonta asserts that she has the capacity to pay the debt in question, when issues regarding its quantum are resolved, either in a lump sum or in full. Essentially Ms Vonta asserts that she is not insolvent and therefore the sequestration order should not be made, as she is able to pay her debts.
For the reasons outlined above, in my view, it is uncertain whether Ms Vonta has any avenues available to her to challenge the quantum of Scragg & Associates’ fees through the office of the Legal Profession Conduct Commissioner.
In addition, the petitioner is under no obligation to accept any proposal to pay the debt in question through instalments, regardless of Ms Vonta’s financial circumstances. Finally, Ms Vonta has asserted that she is in a position to borrow against the security provided by her home to discharge the debt owed to the petitioner.
In regards to this possible loan, Ms Vonta has not provided any concrete details. Again, she has asserted that this is a possibility but not provided any documents or other evidence in respect of her financial circumstances. As such, in my view, this is not proper a basis on which to exercise the court’s discretion not to make a sequestration order.
In addition, she has provided no evidence regarding her overall financial position or details of what assets she owns, particularly what savings, if any, she has. Rather, she bluntly asserts that she and Mr Petherick are in a position to borrow. She does not indicate from whom and when any such loan will be finalized.
The onus is on Ms Vonta to establish that she is able to pay the debt in a reasonable period of time. These proceedings have been on foot for approximately four months and some six months after the Magistrates Court proceedings were finalized, adversely to Ms Vonta. Apart from making an offer to pay the debt off in monthly instalments of $400.00, Ms Vonta has not hitherto made any firm proposal to pay the debt out.
On my calculation, it would take in excess of seven years for the debt to be paid off in this fashion. As previously indicated, the proposal was not acceptable to the petitioning creditor. In Sandell v Porter the High Court said as follows, in respect of the legal precursor to section 52(2):
“An essential step in making out that a payment is a preference within s. 95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.”
In this case, Ms Vonta has provided no evidence to enable the court to reach any conclusion as to her overall solvency. As such, I am unable to conclude that she has an actual capacity to realize some asset or secure some form of advance against such asset to pay her debt to the firm, within a reasonable period of time. In my view, she has not discharged the onus upon created by section 52(2) that the court ought not make a sequestration order against her estate.
For all these reasons, I propose to dismiss the application for review. I will direct that the petitioner’s costs be paid out of Ms Vonta’s estate. 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 one hundred and fourteen (114) paragraphs are a true copy of the reasons for judgment of Judge Brown
Date: 21 July 2017
[11] Sandell v Porter (1966) 115 CLR 666 at 670
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