Patten v New Holland Credit Australia Pty Ltd

[2006] FMCA 1020

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PATTEN v NEW HOLLAND CREDIT AUSTRALIA PTY LTD [2006] FMCA 1020

BANKRUPTCY – Annulment application – whether applicant served with statement of liquidated claim and with bankruptcy notice – whether court should go behind judgment – application of Consumer Credit Code.

Bankruptcy Act 1966 (Cth), ss.19, 54,153B
Farm Debt Mediation Act 1994 (NSW), ss.8, 9
Federal Magistrates Act 1999 (Cth), s.64
Trade Practices Act 1974 (Cth)
Credit Act 1984 (NSW)
Consumer Credit (New South Wales) Act 1995 (NSW)
Credit Act 1985 (ACT)
Consumer Credit Act 1995 (ACT)
De Facto Relationships Act 1984 (NSW)
Federal Magistrates Court (Bankruptcy) Rules 2006, r.7

Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239
Cottrell v Wilcox [2002] FCA 1115
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Estee Lauder Pty Ltd v Drew [1999] FCA 642
Flevinge v Director of Custodial Services (1987) 9 NSWLR 546
Grundy v Wattle Australia [2002] FCA 615
Heinrich v Commonwealth Bank of Australia [2003] FCA 539
Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315
Jillawarra Grazing Company v John Shearer Limited (1984) 6 ATPR 40
Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576
Layton v Westpac Banking Corp (2000) 181 ALR 603
Marek v Tregenza (1963) 109 CLR 1
Metropolitan Water Board v Colleys Patents Limited (1911) 2 KB 38
Mansour v Wiggins [2005] FMCA 603
Oberlechner v Commonwealth Securities Limited [2003] FMCA 511
Pollock v Deputy Commissioner of Taxation (Cth) (1994) 93 ATC 4,148
Rafaraci v Pearce & Heers [2003] FCA 1307
Re Almacy (1999) 92 FCR 597
Re Deriu (1970) 16 FLR 420
Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347
Re Frank; Ex parte Piliszky (1987) 16 FCR 396
Re Gollan; Ex parte Gollan (1992) 40 FCR 38
Re Haddad; Ex parte RW Jordan Pty Limited (Federal Court Sackville J 20 August 1997)
Re Papps; Ex parte Tapp (1997) 78 FCR 524
Re Piccardi; Ex parte Grivas (unreported Einfeld J 3 August 1988 Federal Court W1607 of 1988)
Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163
Re Williams (1968) 13 FLR 10
Re Wong; Ex parte Wong, unreported, Federal Court, Sackville J, 15 September 1995
Sandell v Porter (1966) 115 CLR 666
Stankiewicz v Plata [2000] FCA 1185
Wren v Mahony (1971) 126 CLR 212

Applicant: LESLIE ALYN PATTEN

Respondent: NEW HOLLAND CREDIT AUSTRALIA PTY LIMITED

File Number: SYG840 of 2006

Judgment of: Barnes FM

Hearing dates: 24, 25 May 2006 & 2 June 2006

Date of Last Submission: 16 June 2006

Delivered at: Sydney

Delivered on: 2 August 2006

REPRESENTATION

Applicant: In person

Counsel for the Respondent: Mr A. Spencer

Solicitors for the Respondent: Bayside Solicitors

Counsel for the Trustee: Ms J. Baxter

Solicitors for the Trustee: Sally Nash & Co

ORDERS

1. The application is dismissed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG840 of 2006

LESLIE ALYN PATTEN

Applicant

And

NEW HOLLAND CREDIT AUSTRALIA PTY LIMITED

Respondent

REASONS FOR JUDGMENT

This application

1. This is an application filed on 22 March 2006 pursuant to s.153B of the Bankruptcy Act 1966 (Cth) (the Act) seeking annulment of the bankruptcy of the applicant, Ms Patten.

2. A sequestration order was made against the estate of the applicant by this Court on 23 February 2006 on the application of the respondent New Holland Credit Australia Pty Limited (NHC) following the filing of a creditor’s petition by the respondent on 16 September 2005.  NHC is a subsidiary of CNH Global NV.  The act of bankruptcy on which the petition relied was the failure by the debtor to comply with bankruptcy notice NN1184/05 dated 22 April 2005 which was said to have been served on the debtor on 8 June 2005.  In turn the bankruptcy notice relied upon a certificate of judgment in respect of a default judgment obtained against the debtor by NHC in proceedings 182 of 2005 in the Local Court of New South Wales at Parramatta on 30 March 2005 in the sum of $38,257.94.  The bankruptcy notice claimed a debt of this amount together with interest of $207.54 giving rise to a total debt of $38,465.48. 

3. In support of her application for annulment the bankrupt relies on an affidavit sworn by her on 21 March 2006 and an affidavit sworn by Alan William Pearce on 25 May 2006.  She also tendered in Court a folder of documents by way of submission as well as providing written submissions during and after the hearing. 

4. The respondent filed a notice of intention to oppose the application on 3 April 2006 and relies on affidavits sworn by Susan Rapley on 9 May 2006, Robin Spencer Brookes on 9 May 2006, Richard Skellern on 9 May 2006 and Robert Warren on 12 May 2006. 

5. In compliance with the requirements of Rule 7.04 of the Federal Magistrates Court (Bankruptcy) Rules 2006 the Official Trustee in Bankruptcy as trustee of the bankrupt estate of Ms Patten filed an affidavit sworn on 4 April 2006 by Giulia Inga, the Official Receiver for the bankruptcy districts of the State of New South Wales and the Australian Capital Territory by way of a report in relation to the bankrupt. At that time Ms Patten had not filed a statement of affairs as required under s.54 of the Bankruptcy Act 1966 (despite letters to her of 7 March 2006 and 29 March 2006 from the Official Trustee advising and reminding her of her obligation). Counsel for the trustee also tendered and addressed a report to creditors dated 12 May 2006 prepared by the trustee pursuant to s.19 of the Bankruptcy Act 1966 which takes into account the statement of affairs filed by Ms Patten on 1 May 2006. 

6. Section 153B(1) of the Act is as follows:

   If the Court is satisfied that a sequestration order ought not to have been made … the Court may make an order annulling the bankruptcy.

7. Division 7.1 of Part 7 of the Federal Magistrates Court (Bankruptcy) Rules 2006 is applicable. While Rule 7.02(1) requires an application for an annulment to set out the grounds on which the annulment is sought, the application filed on 22 March 2006 merely seeks an annulment pursuant to s.153B and costs. The grounds relied on by Ms Patten as they emerged during the hearing are discussed further below.

8. The report to creditors prepared by the trustee indicates that Ms Patten disclosed a number of secured and unsecured creditors.  There is no evidence before the Court that the applicant gave notice of the annulment application to each person known to be a creditor as required by Rule 7.03. 

9. Under s.153B of the Bankruptcy Act 1966 the Court must consider, first, whether the sequestration order ought not to have been made and, secondly, if the Court is satisfied of that, whether in the exercise of its discretion the bankruptcy should be annulled (see Re Deriu (1970) 16 FLR 420 at [421] per Gibbs J and Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 at [20]). As the Full Court of the Federal Court stated at [20] in Heinrich:  The Court is entitled to consider “not only the facts disclosed at a time when the sequestration order was made, but also those facts now known then to have existed.” (Also see Stankiewicz v Plata [2000] FCA 1185 at [19]; Re Williams (1968) 13 FLR 10 at [23] per Gibbs J and Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 at [350] per Gummow J.) As was pointed out by Gibbs J in Re Williams at [23] in relation to the equivalent of s.153B (and as has been adopted in subsequent cases), the Court is entitled to consider the case as it would have been had all the “true facts” been before the Court on the making of the order. However the concept “ought not to have been made” has also been said to require that the Court be satisfied that the trial judge (in this case a Registrar of this Court) who made the sequestration order “was, on the basis of the facts disclosed on hearing of the application bound not to make the order Re Frank; Ex parte Piliszky (1987) 16 FCR 396”   Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at [16] (per Emmett J with whom Katz and Conti JJ agreed). Further, even if the Court is satisfied that the sequestration order ought not to have been made, as Emmett J observed in Boles at [16] it “nonetheless has a discretion to decline to order that the bankruptcy be annulled, at least in some circumstances”.  

Grounds relied on by the applicant

1. The procedural grounds on which the applicant relies in support of her annulment application are first that she asserts a failure by NHC to serve the statement of liquidated claim commencing the Local Court proceedings in which the default judgment was obtained on 30 March 2005 and secondly she claims that she was not served with the bankruptcy notice.  While not expressed in these terms, Ms Patten’s contentions also raised the issue of whether or not the Court ought to go behind the default judgment of the Local Court relied upon by NHC to found the bankruptcy notice (and hence the sequestration order) and find that the judgment ought not to have been entered against her as there was not in truth or reality a debt.  From Ms Patten’s affidavit this appeared to be put on the basis that there was a breach of contract or misrepresentation by NHC or that the terms of the agreement with NHC had been varied.  She claimed generally to have “a valid defence or set-off to the debt”.  In her affidavit she also took issue with the suitability of the machine for use on her property – although the relationship between such a claim and the position of NHC as lender and mortgagee was not clarified.  In submissions Ms Patten suggested that the financial arrangements between herself and NHC were governed by consumer credit laws, in particular the Consumer Credit Code.  She contended that NHC breached provisions of the Consumer Credit Code and submitted that NHC was prevented by provisions of the Consumer Credit Code from proceeding in the way that it did. 

2. Ms Patten also took issue generally with the conduct of NHC in its dealings with her and with other debtors, suggesting that the respondent “consciously throughout this whole process have tried to thwart my rights at every turn and also to deceive the Court through this process as well as breeching [sic] nearly every process that is put in place to protect people’s rights”.  She contended that the bankruptcy was “unfair and must have occurred by some sort of mistake”.  She also expressed concern in her written submissions about the conduct of her former lawyer and former partner but did not explain the relevance of these concerns to the annulment application. 

Transactions between bankrupt and petitioning creditor

1. It is necessary to have regard to the history of transactions and dealings between NHC and Ms Patten to consider all of the matters raised by her in support of her contention that the sequestration order ought not to have been made.

2. In her affidavit of 21 March 2006, prepared at a time when she had legal representation, the applicant described herself as a biodynamic farmer who worked a property at Gundaroo in New South Wales which she owned as a joint tenant with her former de facto husband, Leslie Bobruk.  He was said to reside at the property and work with her.  Ms Patten and Mr Bobruk operated a family partnership trading under the name “Leslez Organics”.

3. In 2001 Ms Patten made enquiries of a company known as Advantec-SAM (or Sustainable Agricultural Machinery Developments Pty Ltd) (SAM) about purchasing an agricultural machine known as an Agric GLF 50 Bed Former.  Following these enquiries she agreed to purchase a machine.  She made arrangements through the salesman at SAM (Alan Pearce) to apply for finance from NHC to fund the purchase. 

4. On 8 March 2002 the respondent received by facsimile a finance application form completed by Ms Patten referring to a SAM bed former/locker/seeder at a price of $32,660.  She subsequently provided a requested statement of assets and liabilities to NHC.  On 12 March 2002 NHC forwarded to Mr Pearce a copy of the approval of the provision of finance to the applicant to facilitate her purchase from SAM of the bed former for $32,660 (the “machine”).  An invoice dated 12 March 2002 was issued by Advantec-SAM which described the machine as including a bed former, locker, seeders, Fertaply applicators and seeder mounting frame for a cost of $32,660 including GST.  A separate invoice for the dealer’s fee of $160 was issued on 28 March 2002. 

5. On 13 March 2002 Ms Patten executed a loan and mortgage agreement providing for a loan of $32,910 from NHC to finance the purchase of new goods described in the schedule to the agreement as an Agric GLF 50 BF Bed Former No. 426080 manufactured in 2002.  The borrower was described as Ms Patten, trading in the name of Leslez Organics.  The agreement provided for the loan to be secured by a mortgage over the goods and any goods acquired by the borrower as a replacement for or in addition or accessory to, the goods.  Clause 15 of that agreement is as follows:

   To the extent permitted by law, and subject to New Holland Credit meeting any applicable requirement imposed by law, at any time after the occurrence of an event of default (whether or not it is continuing) and without any notice to the Borrower:

   (i)     New Holland Credit may, in its absolute discretion, take possession of the Goods, and for that purpose enter on the Borrower’s premises or any premises occupied by the Borrower;

   (ii)    New Holland Credit may, in its absolute discretion, sell the Goods, whether or not New Holland Credit has taken possession; and

   (iii)   the unpaid balance of the Borrower’s account will become immediately due and payable on demand.

   Any sale under paragraph (ii) may, without limitation, be made by public auction, private treaty or tender, for cash or on credit, either with or without special conditions or stipulations as to title or time or mode of payment of purchase money or otherwise, and whether or not in conjunction with the sale of any property by any person.  New Holland Credit will also be entitled to do anything which, in its opinion, is necessary to exercise, or is incidental to, the power of sale, including, without limitation, to receive, and give receipts for, purchase consideration.  The rights and powers conferred on New Holland Credit under this clause are without prejudice to any other right, remedy or power conferred by any law on New Holland Credit as a mortgagee.

6. The agreement provided for repayments to be made half yearly, the first on 12 September 2002.  Annexed to the affidavit of Susan Rapley is a signed direct debit request form completed in the name of Ms Patten addressed to a credit union in relation to an account in the name of Leslez Organics.  The respondent received this form by facsimile on 13 March 2006. 

7. Ms Patten stated in her affidavit that she did not know what documents she signed or what information was included and did not know whether she had authorised NHC to directly debit loan payments from her bank account (although she had a copy of a letter from NHC dated 2 April 2002 which referred to the completed direct debit application having been processed).  There is no suggestion by Ms Patten that she contacted NHC to query the reference in its letter of 2 April 2002 to a direct debit request.  She also acknowledged she had a copy of a document from NHC headed “Direct Debit Request Service Agreement”.  I am satisfied, based on all the evidence before me, including the completed copy of a direct debit request received by the respondent on 13 March 2002 and the letter from NHC to Ms Patten of 2 April 2002, that Ms Patten provided the completed direct debit request to NHC. 

8. It is not disputed that the machine was delivered to Ms Patten.  While Ms Patten referred in her affidavit to a three month delay in delivery of the machine, that was from the time of her conversations with Mr Pearce in late 2001 and early 2002.  There is nothing in the evidence before me to suggest that any delay in delivery was attributable to NHC. 

9. In her affidavit Ms Patten stated that she “tried [the machine] out on our soil”.  She deposed that she found it worked well as a bed former but, “as she had feared”, it was too damaging for their soil, turning it into powder, that she was unable to try the “seeder attachment” as seeding time had passed and that she used the machine for five or six hours “before deciding that it was not suitable for use on our property”.

10. Insofar as it may be intended to suggest that there was a defect in the machine such that Ms Patten might have some claim which might in some way have implications for NCH’s enforcement of the loan agreement, there is no suggestion of fault in the machine itself in the correspondence from Ms Patten to NHC in December 2002 and June 2003 which is referred to below.  In any event, any issue about the suitability of the machine for use on Ms Patten’s property was a matter between Ms Patten and SAM.  There is nothing to suggest that NHC, as lender and mortgagee, had any liability to Ms Patten in relation to the suitability of the machine and indeed it was ultimately not so contended by Ms Patten. 

11. Subsequently, as stated in the affidavit of Susan Rapley, a direct debit withdrawal by the respondent pursuant to the direct debit authority was dishonoured when the first instalment was due on 12 September 2002.  Hence Ms Patten failed to pay the respondent the first instalment due under the loan agreement. 

12. On 15 October 2002 the respondent forwarded a default notice to the applicant together with a notice under s.8 of the Farm Debt Mediation Act 1994 (NSW) advising her of her rights under the Farm Debt Mediation Act to insist that a mediation take place between herself and the creditor. The default notice advised Ms Patten that she had failed to make the repayment of $4,059.61 due on 12 September 2002, that she had 30 days to remedy the default (by paying the instalment plus default charges) and that if she did not do so all monies owing under the contract would be due and payable and that NHC would be entitled to take enforcement action against her without further notice. The default notice also explained the operation of the acceleration clause in the agreement of 13 March 2002.

13. In her affidavit Ms Patten acknowledged receipt both of the default notice and of the forms under the Farm Debt Mediation Act 1994, copies of which she annexed to her affidavit (including the form of notice of intention to take enforcement action in respect to the farm mortgage (Form 1), a blank notice under s.9 of the Farm Debt Mediation Act requesting mediation which provided that it was to be returned to the issuing creditor within 21 days of receipt and that if there was no such response the recipient would lose her rights under the Act and a blank Form 6 notice to the creditor of a decision not to enter into mediation). In her affidavit Ms Patten stated in relation to these documents “I did not understand the relevance of that document [the Default Notice], which seemed to indicate I had missed a payment for the machine in September 2002.  I assumed it was an error on the part of New Holland, as they were, from my point of view, very well aware of the situation with the machine, so I ignored the notice.”

14. This assertion appears to be based on Ms Patten’s evidence that some days after delivery of the machine in April 2002 she had told both Alan Pearce and David Henderson (a representative of NHC) that the machine was not suitable for her soil and that she understood that they would each try to find another buyer for the machine.  She does not explain how this would relieve her of the obligation to meet loan repayments as they fell due.  She also stated in her affidavit that she had heard nothing further from NHC after the April 2002 conversation and assumed they were attempting to find a buyer.  In cross-examination she claimed, somewhat unconvincingly, that she did not ignore the notice completely and if her affidavit could be read in that way it was an error.  She also claimed that she thought the notice was an error on the part of NHC because she had been in contact with them and that she also contacted them thereafter thinking they were looking into this matter and dealing with it.  In cross-examination she said that she ignored the implications of what NCH could do but that she did not ignore the notice. 

1. In any event, it is not disputed that Ms Patten received a default notice which informed her that the respondent intended to take enforcement action and that she did not take the action available to her under the Farm Debt Mediation Act 1994.  Even if, as she contends, she thought the default notice was an error and that Mr Pearce and NHC were each seeking a buyer for the machine in circumstances that relieved her of any liability, some six months had passed since the conversations which Ms Patten said gave rise to this belief.  On her own evidence she had not heard from NHC in this time – yet she gave no evidence of action in relation to the default notice apart from a general claim in response to cross-examination that she contacted NHC on an unspecified occasion thinking they were dealing with the matter.  Moreover by this time the first instalment was due and was not paid.  Ms Patten has provided no explanation for what was to occur in relation to her liability to make payments to NHC.  There is no evidence from Mr Henderson before the Court.  Ms Patten relies on an affidavit of Mr Pearce.  It makes no reference to any conversation in April 2002 or to any offer or agreement at that time about trying to find another buyer for the machine. 

2. On 6 December 2002, on the instructions of NHC to George Rowe of Investigation and Process Serving Co, Robert Warren attended at the applicant’s property and arranged to take possession of the machine (described as a bed former and seeder) which was subsequently transported to a farm machinery dealership known as Albury Tractors Pty Ltd where, as confirmed in the affidavit of Mr Pearce, it was advertised for sale. 

3. In her affidavit Ms Patten seemed to suggest that she did not connect the repossession of the machine with the default notice, but rather assumed that it was being taken away to be sold, although she denied this in cross-examination.  She claimed in her affidavit that she subsequently asked Mr Pearce if he had found a buyer and that he told her that he had not been asked to do so and that NHC was dealing with it.  She claimed a representative of NHC told her that they had not yet found a buyer, that she had then said if NHC could not find a buyer Mr Pearce would or she would and that the representative of NHC said he would let her know.  She deposed that she heard nothing further from NHC for six months, that she did not make enquiries about the machine and assumed it had been sold for its full price and the matter had been finalised. 

4. However, on the day that the machine was repossessed Ms Patten wrote a letter to Anne Vojecena at NHC in which she said:

   … Well they have come to repossess the equipment which we owe money for.  Seeing that the machinery arrived three months late we were unable to use it for last season’s planting.  Thus the payments were not able to be made.  I did write to David Henderson [of NHC] regarding this.  This year my two share farmers who are the ones who do this part of the work, and wanted me to purchase this machine, have also left.  I also was called away for three months in April, so I was not here to do it either.  So they have hardly been used.  Also the drought has played a further factor … this machine is for specialised people … I would like to have the opportunity to contact the manufacturers who also happen to be in Albury as they may be able to sell it easily for a good price, as well as to find a buyer myself.  This may require a little time as the drought has left most farmers with little reserve for this type of machine.  Otherwise if this does not bring a buyer I want to be assured that the reserve is set and it does not sell for less.  I would like this to be for the amount I owe due to the circumstances.  It is not a great time to sell at present due to the drought and also the marketing must be targeted to a specific market. I cannot afford to lose money on this as a lot of the circumstances that have occurred have been beyond my control and all of this has cost and created a lost (sic).  I hope you understand and that we can come to a mutually agreeable arrangement. 

5. There is no evidence before the Court of any written response from NHC.  However, this letter shows that at the time of the repossession Ms Patten had a clear understanding of her liability to NHC.  Moreover there is no suggestion in Ms Patten’s letter that the machine was defective or, indeed, unsuitable for her use.  When this was put to Ms Patten in cross-examination she claimed that such unsuitability was ‘intimated’ and then suggested it would have been put in an earlier letter.  No such letter is before the Court. 

6. On or about 30 April 2003 the respondent sought a valuation of the machine from Richard Skellern, a valuer with DMS Auction Services at Wagga.  On 1 May 2003, based on photographs supplied, Mr Skellern expressed the opinion that the total value of the machine (bed former and “hiller”) was $12,000. 

7. On 24 June 2003 the respondent forwarded to the applicant a document headed “Form 8 – Notice after taking possession of mortgaged goods” which refers to s.94(1)(c) of the “Code” and “section 25 of the regulations” advising Ms Patten of her rights and obligations and some of the options open to her. It described the machine, provided an estimate of its value as $15,000 and advised Ms Patten of what she needed to do to get the machine back and also of the fact that if she did not act within 21 days after the date of the notice the credit provider may sell the goods.

8. Ms Patten acknowledged in her affidavit that she received this notice.  She made it clear that she observed that it included the statement that the goods were taken because of “non-payment of account” and that the credit provider’s estimate of the value of the goods was $15,000.  Ms Patten’s evidence is that she was concerned about these statements and that she had telephone conversations with representatives of NHC expressing concern that they were to find a buyer as agreed, that they should not sell the machine for $15,000 as it was worth more and that she indicated that if “worst comes to the worst” she would pay for the machine herself. 

9. Ms Patten stated in her affidavit that she wrote to NHC on 30 June 2003 setting out her “concerns”, although she did not have a copy of that letter.  However the respondent tendered a copy of a letter dated 30 June 2003 (which was also annexed to Ms Rapley’s affidavit) from Ms Patten to Peter Brotherson of NHC in which she acknowledged receipt of the Form 8 notice, referred to a telephone conversation with a Ms Barker of NHC and apologised for “not being able to service the loan during these difficult times”.  She stated:

   … but these are the reasons.  As you probably have many others in this situation at this time.  The first point I would like to make is that, due to the machine arriving 3 months late we lost the season as it was too late to plant. So we had to wait.  We then used it for only a short period of time no more than an hour on the seeder and perhaps only eight hours on the bedformer. Then of course the drought came and we had made no income on the farm due to all of these factors. Now the cost of these two machines was close to $40,000 and on the form it states the valuation is only $15,000. The two machines were in pristine condition especially the seeder so I find the valuation extremely low. As you know the farming community has just gone through a terrible drought, and we have had no income from the farm this past year. My partner has had to get work just to keep us a float. I have no reserve funds so I am depending that this machinery is only sold at a reasonable price or that we find a better solution to it. I have contacted the people whom I bought the machine from and they are going to see if they can find a buyer. However because of the drought no one has any spare cash to purchase such items. They have sold next to nothing this year. 

   These circumstances are not of my making and I can see no reason why I should have to carry such a shortfall at this time. I would like to try to find a better solution for all of us. Such as to have more time to find a suitable buyer once the country picks up or to take possession of them and use them to produce a crop this summer and perhaps see if I can find others who would like to use it and earn money from leasing it. If you could offer me a better solution I would be very grateful for we really at this time can take no further burdens as we have also had to use our super fund just to service the bank loan on the property. So things are tight and I cannot tighten the belt any tighter.

10. Ms Patten concluded by referring to her plans for the farm and reiterated that there was a need for a “better solution”.  It is clear that in this letter Ms Patten acknowledged her indebtedness to NHC.  The letter does express concern about the valuation but it does not refer to any prior agreement that NHC would find a buyer other than in accordance with its entitlement to sell the goods under the agreement of 13 March 2002.  Ms Patten did not suggest that she could or would pay the amount outstanding to the creditor.  Nor does this letter constitute introduction of a buyer to the credit provider in writing in the manner referred to in the notice of 24 June 2003.  The letter is also inconsistent with any suggestion that the machine was unsuitable for use on her property, in that Ms Patten suggested that she could take the machine back and use it to produce a crop. 

11. In her affidavit Ms Patten suggested that she had told Mr Henderson of NHC that if he could not find a buyer, Mr Pearce should be allowed to do so and “if the worst comes to the worst I will pay for the machine myself”.  There is, however, no evidence that Ms Patten put any specific proposition to NHC to pay out the loan (or that she was in a position to do so) or to introduce a buyer.  Rather she sought more time to find a suitable buyer. 

12. Ms Patten acknowledged receiving a reply to her letter of 30 June 2003 dated 4 July 2003 from Karen Baldocchino of NHC which noted her comments and included the statement “We will continue to re-market this unit in an attempt to find a suitable buyer at the best possible sale price”.  The letter of 4 July 2003 acknowledged Ms Patten’s comments as to the late delivery.  It maintained that she should not have signed the contract until she had possession of the unit.  The letter did state that it “appreciated” her comments in relation to the valuation obtained and agreed “that as it is a specialised piece of machinery…a better price may be achievable if the right buyer for this unit can be found”.  On this basis it was indicated that CNH Capital Australia Pty Ltd was prepared to allow a longer period of time before selling this unit than was stated in the Form 8 Notice issued on 23 June 2003.  The letter requested the applicant’s assistance to try to target people who may benefit from the unit and indicated that she was “more than welcome to introduce any prospective buyers to our office”.  It stated that NHC would be prepared to consider financing any buyer who met its credit approval criteria. 

13. In her affidavit Ms Patten stated that the letter of 30 June 2003 put her mind at ease about the matter and that she “then heard and received nothing further from New Holland for more than a year”.  In contrast, in response to cross-examination Ms Patten said that she thereafter had many conversations with Mr Henderson and with Mr Pearce in an attempt to find buyers.  In relation to Mr Pearce, only the conversations in April 2002 and December 2002 are recorded in her affidavit and the conversation of December 2002 recorded that Mr Pearce said that he had not been asked to find a buyer.  When asked about this period of time and these inconsistencies about conversations with Mr Pearce in cross-examination Ms Patten could not reconcile the statements in her affidavit with her oral evidence and blamed her former lawyer for the contents of the affidavit which she swore on 21 March 2006. 

14. The evidence before the Court does establish that NHC was prepared to allow a longer period of time to sell the machine than was stated in the Form 8 Notice (which provided that once the 21 day period expired without Ms Patten taking any of the action listed the credit provider must sell the goods as soon as reasonably practicable unless it and Ms Patten agreed on some other time for sale).  It has not been established that there was any agreement or even that it was arguable that there was an agreement between Ms Patten and NHC that the machine would not be sold without further notification to her or that there was a variation to the agreement of 13 March 2002. 

15. During the hearing (after she had failed to appear on the second day despite the fact that her cross-examination was incomplete) Ms Patten sought an adjournment to put on fresh evidence.  She was granted the adjournment and leave to file further evidence.  She filed an affidavit of Mr Pearce sworn on 25 May 2006.  In that affidavit Mr Pearce deposed that he rang David Henderson “as we had seen them [the bed former and seeder] advertised by Albury Tractors some time in 2003”.  He stated that the sale price quoted to him was basically “full retail” and that Mr Henderson suggested he call NHC as he had no further authority on that account.  Mr Pearce spoke to another person at NHC and was quoted basically the full price and “At that price I was not interested, as I would supply one myself.”

16. The affidavit continued that: “Sometime later, no more than 2 weeks, Leslie [Patten] called me and said the products had been repossessed and would I do anything to help to sell it”.  Mr Pearce again spoke to NHC and was given a price “not conducive to be able to sell as a used machine”.  NHC was said to have told him it wanted its funds back and Mr Pearce said that he “wished no further involvement with this matter”.  He then added that if NHC had requested him to sell or market the goods he would have tried to achieve an acceptable price.  It is clear from this affidavit and Ms Patten’s evidence that Mr Pearce was offering to re-sell the machine for NHC – not to buy it himself and that he did not suggest that he had been asked by anyone other than Ms Patten to help sell it. 

17. In February 2004 the machine was transported to DMS and presented for public auction on 26 March 2004 after advertising and promotion.  No bids were received.  According to the affidavit of Richard Skellern of DMS Auction Services, the machine was included in a second auction sale on 27 August 2004 after a period of advertising and promotion such as had occurred prior to the first scheduled auction.  Annexed to Mr Skellern’s affidavit is an Auction Sheet for a sale on 27 August 2004 in which an item identified by the same serial number as is borne by the machine which is described as an agric RBMGLF50BF 4’ bed renovator serial number 426080 is listed as having sold for $2,000 (plus $200 GST).  A tax invoice was issued to CNH Capital on 15 September 2004 in relation to the sale of these goods.  This document refers to a sale on 27 August 2004 bearing the same item number as the item on the sales sheet annexed to Mr Skellern’s affidavit. 

18. Ms Patten claimed that there was some doubt about the auction date and the circumstances of the sale.  It is the case that in her affidavit, Ms Rapley, a legal debt and loss recoveries officer with the respondent, suggested that the goods were sold on 14 September 2004 and reference was made to a sale on 14 September 2004 in a letter to Ms Patten of 5 October 2004 from NHC.  Ms Patten was, understandably, concerned about the actual sale date.  However I am satisfied on the evidence before me, in particular the unchallenged affidavit evidence of Mr Skellern and the tax invoice of 15 September 2004 that the machine was sold on 27 August 2004. 

19. Ms Patten also expressed concern about the appropriateness of the sale price and the identity of the purchaser. Insofar as these concerns are intended to suggest some possible lack of bona fides on the part of NHC, this is not supported by the evidence before the Court. It is the case that the sale price obtained at auction was considerably less than the earlier estimate of $15,000 value but the goods, while advertised and promoted, did not sell at the first auction. There is no evidence before the Court to support Ms Patten’s assertion that the buyer bore the same name as a director of a company associated with the respondent. I note that none of the persons who swore affidavits that were relied on by the respondent were required for cross-examination by the applicant, who had been advised on the first date this matter came before me that she should consider whether she wished to cross-examine any of the witnesses during the hearing and should advise the respondent’s solicitors if she wished to do so (see s.64(4) Federal Magistrates Act 1999 (Cth)).

20. Ms Patten acknowledged receipt of the letter of 5 October 2004 which advised her of the sale and of the fact that the balance due to NHC was $36,152.01.  The letter also advised that that amount “is now due and payable in full.  It is CNH’s intention to ensure it recovers any deficiency balance owed by the borrower”.  The letter invited Ms Patten to contact the writer of the letter to make a suitable arrangement on the debt.  This letter clearly informed her that there was a shortfall for which NHC held her to be liable. 

21. As indicated, Ms Patten asserted in her affidavit that she had an agreement with CNH that the machine was to go to Mr Pearce to be resold and if he could not find a buyer that she would do so and that she would be kept informed and that she was to authorise any sale.  She seems to suggest that this in some way excused her of any liability under the loan agreement.  In her affidavit Ms Patten stated that she complained to NHC that she had an agreement with David [Henderson] and that “the machine was to go to Alan [Pearce] to be resold and if he couldn’t find a buyer then I would.  David said he would keep me informed and now you have just gone off and sold it for a ridiculously low price without even telling me”.  Yet she also stated that she then rang Alan Pearce who told her that he “tried to get the machine from New Holland to re-sell but they would only release it to me for the full price of $33,000 …”  She annexed to her affidavit a copy of a letter sent to Mr Pearce requiring information from him as to a list of all conversations between himself and New Holland.  However she received no response from Mr Pearce to this letter. 

22. In her affidavit Ms Patten did not suggest that she took any other action in the two months after being notified of the sale despite the claim she now makes that the sale was contrary to an agreement with NHC.  In cross-examination Ms Patten stated that she made many calls to New Holland after this time.  She blamed her former solicitor for the absence of reference to such calls in her affidavit. 

23. On 13 December 2004 the solicitors for NHC forwarded a notice of termination and demand for payment to Ms Patten (which she acknowledged that she received) terminating the loan agreement and stating that “if you do not pay the amount in the first schedule below, New Holland will exercise the rights, powers and remedies conferred upon it by the agreement and/or at law”.  According to Ms Patten’s affidavit she enquired of the solicitors for the respondent and Ms Rapley of NHC in an endeavour to sort out this issue, but took no further action as she was waiting to hear from NHC.  If this is so, on Ms Patten’s affidavit account of what occurred thereafter, she took no further action and followed up neither call for over a year thereafter despite the fact that the matter was now in the hands of the respondent’s solicitors.  She contradicted her evidence in response to cross-examination, suggesting that despite the statement in her affidavit that she “heard and received nothing further” from NHC until 6 February 2006 she had in fact made “many many” calls to NHC.  Yet she claimed to be unaware of the Local Court proceedings or the bankruptcy notice. 

1. On 27 January 2005 the respondent’s solicitors issued a statement of liquidated claim against the applicant in the Local Court at Parramatta seeking to recover the outstanding sum plus interest and costs.  Ms Patten claims that she was not served with any documentation in relation to those proceedings. 

2. The respondent’s evidence as to service of the statement of liquidated claim is that on 31 January 2005 the respondent forwarded the statement of claim to Mr Rowe of Investigation and Process Serving Co (IPS) for service on the debtor.  Mr Brooks stated in his affidavit of 9 May 2006 that in or about February 2006 he received written instructions from Mr Rowe to attend to the service of a statement of liquidated claim on behalf of New Holland on Mr Patten.  He instructed Mr Robert Warren to attend to service of the document on Ms Patten.  In his affidavit of 12 May 2006 Mr Warren stated that on 26 February 2005 he attended Ms Patten’s property, with which he was familiar (having attended it to repossess the bed former and also having met Ms Patten on that occasion) and handed her the statement of liquidated claim.  He recalled that Ms Patten said to him that they did not sell the goods for enough money and that this was the only occasion that anyone had ever said to him that Ms Patten took issue with the sale price.  Mr Warren prepared a report as to service immediately thereafter which is annexed to his affidavit.  Mr Warren stated in his affidavit of 12 May 2006 that on 2 March 2005 he swore and signed an affidavit on a form that had been prepared by Premier Investigations Pty Ltd (the company of which Mr Brooks is a director) deposing to his service of the statement of liquidated claim.  That affidavit was forwarded to NHC’s solicitors under cover of a letter dated 3 March 2005. 

3. However the affidavit of 2 March 2005 records the name of the deponent as Robin Spencer Brooks.  Mr Warren’s unchallenged evidence in his affidavit of 12 May 2006 is that the signature on that affidavit is his and that he served the statement of liquidated claim on Ms Patten.  The contents of the affidavit conform with the contemporaneous report prepared by Mr Warren.  His account of the error as to name is confirmed by Mr Brooks in his affidavit filed in these proceedings.  The evidence as to service is considered below. 

4. In cross-examination counsel for the respondent put to Ms Patten that on 1 March 2005 she completed, signed and dated an application for finance from CNH Capital Australia Pty Ltd (a company which traded as Case Credit Financial Services and which is associated with NHC) to finance the purchase of a tractor.  As part of that application the response “no” was circled beside the question “current and/or past CNH Capital/ New Holland Credit finance”.  It was also indicated that Ms Patten had no other finance company accounts. 

5. It was put to the Court for the respondent that it should infer that Ms Patten’s failure to refer to the NHC loan in this document was calculated to avoid the history of that loan coming to the attention of those considering the application.  It was also pointed out that in the pro forma statement of assets and liabilities in the application form a zero had been placed next to each of the various headings in the liabilities column so as to convey the impression that Ms Patten had no liabilities whatsoever at a time when, as she conceded in cross-examination and as was said to be clear having regard to her statement of affairs as described in the trustee’s report to creditors, she owed at least $140,000 to her mother secured by a first mortgage over the property, $10,000 to Westpac, $800 to Biodynamic Farmers Australia and possibly amounts to other creditors. 

6. When confronted with this document in cross-examination, Ms Patten, apparently reluctantly, conceded that it was “possible” that the writing and signature were hers, then that some of it “looked like” her writing, then that some of it was her writing.  She stated that she did apply for finance for a tractor so it was possible, and then when asked if it was her signature she said “Yes – well perhaps”.  She agreed that the date was in her hand writing on the application form.  She agreed that the zeros beside liabilities were in her writing.  When asked for an explanation of the implication that she had no liabilities, Ms Patten first expressed doubt about when the mortgage over the property was refinanced by her mother, then stated that nothing was owed to the Credit Union as it had been paid out with a loan from her mother.  She then agreed they owed “somebody” approximately $140,000 on the mortgage but then suggested that the other loans were between herself and Mr Bobruk and that it was Mr Bobruk who was liable for the mortgage and that she did not owe any money and had no liabilities.  She claimed that she did not owe the bank any money and that the other loans were more Mr Bobruk’s than hers so that personally she did not owe that amount of money because he [Mr Bobruk] owed her more than her share of the loan. 

7. Counsel for the respondent suggested that this response smacked of recent invention.  It is certainly inconsistent with the fact of the loan from NHC and with the documentation of the mortgage to Ms Patten’s mother and with Ms Patten’s statement of affairs.  There has been no other suggestion in the evidence before the Court that Ms Patten is a creditor of Mr Bobruk.  The proposed consent orders in the de facto property proceedings do not appear to reflect such a claimed liability to Ms Patten. 

8. Ms Patten did not admit that she circled “no” beside the question about current and/or past CNH Capital/New Holland credit finance, but it is clear that she did not insert account details in the space provided.  She agreed she inserted the words “have none” beside the words “other finance company account details”.  She then claimed she did not think it was “necessary” to disclose the NHC finance details because CNH (which she understood had taken over NHC) was not willing to deal with her honestly.  However she then conceded that she did not realise that Case Credit was also CNH Capital.

9. On 30 March 2005 NHC obtained a default judgment against Ms Patten in the Local Court.  On 22 April 2005 a bankruptcy notice issued.  On 26 April 2005 NHC’s solicitor forwarded the bankruptcy notice to IPS for service. 

10. On 13 May 2005 Mr Bobruk, Ms Patten’s de facto partner, commenced proceedings under the De Facto Relationships Act 1984 (NSW) in the New South Wales District Court.

11. According to the respondent, on 8 June 2005 the bankruptcy notice was served on Ms Patten.  Ms Patten disputes this.  The affidavit evidence from Mr Brooks is that in or about April 2005 he received further instructions from Mr Rowe (of IPS) to attend to service of the bankruptcy notice on Ms Patten.  He instructed Mr Warren to attend at her property to effect service of the notice.  Mr Warren’s affidavit of 12 May 2006 stated that in or about April 2005 he received instructions from Mr Brooks to serve the bankruptcy notice on Ms Patten issued against her by New Holland.  He stated that on 8 June 2005 at approximately 1.49pm he returned to Ms Patten’s property, observed a female person whom he recognised as Ms Patten, told her he had a bankruptcy notice to serve and asked if she was Lesley Alyn Patten, the person referred to in the bankruptcy notice.  She replied “Yes, I am not paying for it”.  His evidence is that he then handed Ms Patten the bankruptcy notice and left the property and that immediately thereafter he prepared a report in his motor vehicle.  A copy of the report was annexed to his affidavit as was a copy of an affidavit of service sworn by him on 9 June 2005.  In his affidavit Mr Brooks stated that he recognised his wife’s signature as the attesting witness to the execution of that affidavit of service by Mr Warren.  On 16 June 2005 IPS instructed the respondent’s solicitors that service of the bankruptcy notice had been effected personally on Ms Patten who was a self-employed vegetable grower and attached the affidavit of service sworn by Mr Warren. 

12. Ms Patten claimed in relation to Mr Warren’s affidavit of service sworn on 9 June 2005 that “I have no recollection of receiving the bankruptcy notice at 1.49pm on 8 June 2005 as deposed to in [that] affidavit of service”.  Ms Patten does not, however, positively assert in her affidavit that she did not receive the bankruptcy notice.  She stated that she had “attempted” to account for her movements on 8 June 2005 and that from her bank statement had been able to ascertain that she was at the general store in Gundaroo at 12.40pm on that day.  She claimed that as she did not own a car she usually walked (about 6 kilometres) to the shop and that she did not believe that she could have been home by 1.49pm.  She also claimed that although the affidavit of service of bankruptcy gave the right name for her property, there was no signage on the gate or fences and over the years the mail had often been wrongly delivered to the similarly named neighbouring property.  She claimed that if she had received the bankruptcy notice in June 2005 as alleged, she would certainly have reacted to it and would have kept the document in her file. 

13. On 16 September 2005 the respondent presented and filed a creditor’s petition dated 15 September 2005 against the applicant in this Court seeking a sequestration order under the Bankruptcy Act.

14. There were a number of unsuccessful attempts to serve Ms Patten with the creditor’s petition.  The hearing of the creditor’s petition was originally listed for October and then December 2005 but adjourned because service was not effected.  The creditor’s petition was served on 6 February 2006, at least five days before the date fixed for hearing of the creditor’s petition (23 February 2006) as required by Rule 4.05 of the Federal Magistrates Court (Bankruptcy) Rules, as is apparent from the copy served on Ms Patten which was tendered in these proceedings and from the affidavit of Ms Inga.  It is not disputed that on 6 February 2006 Ms Patten was served with the creditor’s petition and that the documents served included an affidavit of service of the bankruptcy notice which included a copy of the bankruptcy notice which attached a copy of the certificate of judgment from the Local Court.  

15. In her affidavit Ms Patten stated that after being served with the creditor’s petition she saw the date, 15 September 2005, on the second page of the petition (this is apparently a reference to the date on which it was signed by the solicitor for the respondent) and believed that she had been made bankrupt on that date.  As counsel for the respondent pointed out, if she read pages 1 to 2 she would have seen the statement that she had failed to comply with a bankruptcy notice served on her on 8 June 2005 in relation to the judgment in the Local Court.  There is no suggestion that she sought the advice of the lawyers then acting for her in the de facto property matter.  Ms Patten claimed that she did not observe, or if she did she did not understand from her observations, that she was required to be at court on 23 February 2006 (despite the clear statement to this effect on the last page of the petition).  She also claimed that she had no understanding of what bankruptcy meant and, having just reached agreement with her ex de facto husband as to a property settlement and having arranged and had approved a bank loan to pay him out she decided “to ignore the bankruptcy documents with the intention of dealing with that issue after the property settlement with Les was finalised”.  She claimed to believe that the bankruptcy was “unfair and must have occurred by some sort of mistake, so I just put all the papers aside with the intention of sorting it out with New Holland later”.  Counsel for NHC submitted that it strained credibility to suggest that had Ms Patten read the document, then if she had not in fact been served with the earlier documents as claimed, she would not have taken some action such as instructing her solicitors to make representations on her behalf.  It was contended that the more likely explanation was that Ms Patten knew she had no defence but did not appreciate the effect that bankruptcy would have on the property settlement. 

16. On 23 February 2006 a sequestration order was made against the estate of Ms Patten.  She did not attend the hearing on that day.  Ms Patten claimed that on or about 8 March 2006 she was contacted by ITSA and then came to understand that a sequestration order had been made on 23 February 2006.  She stated that she contacted her lawyers on 9 March 2006.  ITSA wrote to Ms Patten on 7 March 2006 advising her that she had been made bankrupt and that she was required to file a statement of affairs within 14 days. 

17. Annexed to the affidavit of Ms Inga is a copy of a letter of 10 March 2006 from the solicitors for Mr Bobruk to ITSA annexing draft consent orders in relation to the de facto property proceedings.  On its face the document appears to have been signed by Ms Patten as defendant in those proceedings on 7 March 2006 (although apparently signed by her solicitor on 8 March 2006) and to have been signed by the plaintiff (Mr Bobruk) and his solicitor on 9 March 2006.  The consent orders sought include an order that Ms Patten pay Mr Bobruk the sum of $240,000, that he contemporaneously transfer his interest in the Gundaroo property to her and that she indemnify him in respect of all moneys owing to her mother secured by mortgage on the property. 

Service of the statement of claim

1. There are a number of issues raised by Ms Patten in relation to the procedures that were followed by the respondent and as to whether the debt underlying the bankruptcy notice and creditor’s petition was in truth and reality a debt.  In particular, Ms Patten contends that she was not served with the statement of liquidated claim filed in the Local Court on 27 January 2005, which the respondent states was personally served on her on 26 February 2005.  She also claims that she was not served with a copy of the bankruptcy notice, which the respondent claims was personally served on her on 8 June 2005.

2. In her affidavit Ms Patten stated that after instructing lawyers to represent her in relation to her bankruptcy matter (which she said she did on 20 March 2006) she was shown a copy of the certificate of judgment which related to the Local Court proceedings of 30 March 2005.  She claimed that she had “never previously received any documents or notice whatsoever regarding any proceedings in Parramatta Local Court and I was unaware of those proceedings”.  She also stated in her affidavit that between December 2004 and 6 February 2006 she “heard and received nothing further” from New Holland. 

3. On the other hand, the affidavit evidence from Mr Brooks, Mr Warren and Ms Rapley is that Mr Warren personally served Ms Patten with a copy of the statement of liquidated claim on 26 February 2005.  It is the case that the affidavit of service sworn on that date is in the name Robin Spencer Brooks, but both Mr Warren and Mr Brooks depose that the signature appearing on the affidavit of service is not that of Mr Brooks but of Mr Warren and both confirm that it was Mr Warren who executed the affidavit of service.  Mr Warren also confirmed in his affidavit of 12 May 2006 that save for the misdescription in his name, the contents of the affidavit of 2 March 2005 otherwise remained true and correct.  He deposed that he attended Ms Patten’s property on 26 February 2005 and handed her the statement of liquidated claim, that at the time Ms Patten said to him “They didn’t sell the goods for enough money.  They should have got more for them.  They were virtually new” and that this was the only occasion on which anyone had said to him that there was an issue taken by her over the price obtained for the sale of the goods.  He confirmed that he completed a report as to service immediately after serving Ms Patten on 26 February 2005 which was annexed to his affidavit. 

4. When this matter first came before me, on 16 May 2006, Ms Patten sought a hearing that day. However the matter was adjourned for hearing on 24 May 2006. I advised Ms Patten that she should consider whether she wanted to cross-examine any of the persons who had sworn affidavits filed by the respondent’s solicitors and that she should notify the respondent’s solicitors if she sought to do so (see s.64(4) of the Federal Magistrates Act 1999 (Cth)). However, she did not do so.

5. I am satisfied on the evidence before the Court that at the time at which the statement of claim was allegedly served (26 February 2005) Ms Patten knew that the machine had been sold at a shortfall.  She had received the letter of 4 October 2004 in which she was advised of this and of her liability for the shortfall.  Ms Patten did not pay anything to NHC under the loan contract.  She had written to Alan Pearce, the salesman who had sold her the machine in October 2004 and had not received a reply.  She had received a notice of termination and demand for payment in December 2004.  She also claimed that she had telephone conversations with Ms Rapley at NHC in October 2004 and then in December 2004 to “sort this out” and that on her evidence Ms Rapley said that she would look into it and “Don’t worry, it will be okay”.  However, there is no suggestion by Ms Patten that Ms Rapley ever spoke to her again to advise her of the outcome of her enquiries.  Ms Patten claimed in her affidavit that she heard and received nothing further from NHC until 6 February 2006.  In cross-examination Ms Patten acknowledged that she understood that she was liable for the shortfall yet on her own affidavit evidence, notwithstanding her desire to “sort this out”, she did nothing to follow it up.  Her claims in response to cross-examination that she did call NHC are inconsistent with her affidavit evidence.  There is no evidence before the Court other than Ms Patten’s assertions in response to cross-examination to support these claims. 

6. Ms Patten did complete the finance application of 1 March 2005 referred to above, in which she failed to disclose her prior dealings with NHC.  When cross-examined as to how she came to complete this finance application inaccurately (also in relation to liabilities) she provided various explanations, ranging from an assertion that she had no liabilities to an assertion that somehow Mr Bobruk was responsible for them.  She did not offer a cogent explanation for the manner in which the finance application was completed.  Yet if she did believe she had sorted out the matter with NHC (and that Case was not associated with CNH) there would seem to be no explanation for the omission of her prior dealings with NHC. 

7. NHC submitted that it was open to the Court to infer that the reason Ms Patten did not follow up her call to Ms Rapley was because she knew what NHC’s attitude was, having received the statement of claim on 26 February 2005 and that, given that less than three months later Mr Bobruk commenced proceedings for a property settlement under the De Facto Relationships Act 1984 (NSW), Ms Patten’s personal circumstances would have been difficult. It was contended that the Court should reject Ms Patten’s evidence that she “was not particularly troubled” by the breakdown of her relationship with Mr Bobruk. It was also submitted that to the extent her finances were much the same in February 2005 (as demonstrated by her bank statements for May 2005 annexed to her affidavit), she had no prospect of addressing her indebtedness to NHC.

8. It is not, however, necessary for me to go so far as to draw an inference as to what Ms Patten’s state of mind was in relation to the breakdown of her relationship or why she did not follow up her call to Ms Rapley.  On the evidence before me I am not satisfied that she did follow up on that call with Ms Rapley as claimed.  While she suggested in cross-examination that there had been many instances on which she sought to follow up matters with New Holland, there was no particularisation of the claimed calls or documentary evidence to support such claims.  There is no evidence of written correspondence, other than that referred to above and there is no reference in Ms Patten’s affidavit to such calls.  She sought to blame her former lawyer for matters which did not appear in her affidavit, but was not able to provide a clear and coherent explanation of her claims in this respect.  Moreover a failure to pursue an unresolved issue is also consistent with Ms Patten’s own evidence about her inaction in the face of documents and notices affecting her position.  While her failure to do so would be consistent with her being aware of NHC’s attitude because she had received the statement of liquidated claim as counsel for the respondent suggests, of itself this failure to establish that she sought to follow up matters with NHC (or CNH), does not compel the inference that Ms Patten was served with the statement of claim.  It is, however, part of all the circumstances relevant to that issue. 

1. In Oberlechner v Commonwealth Securities Limited [2003] FMCA 511 at [9] Federal Magistrate Driver suggested that the applicant for annulment bore the onus of proof that a sequestration order ought not to have been made because the applicant had not been served with relevant process (in that case the creditor’s petition). However Tamberlin J stated in Rafaraci v Pearce & Heers [2003] FCA 1307 at [24]:

   If it can be shown that a default judgment found in the bankruptcy notice was entered, although necessary process was not served, the Court should not in the exercise of its discretion make a Sequestration Order.  If an order is made without proper service it should be annulled. 

   His Honour stated that it was critical that the requirement of service:

   should be established with sufficient certainty, on the balance of probabilities, to warrant the making of the order in an appropriate case.    

   (Also see Re Ditfort at [358] – [359] suggesting in relation to an annulment application that in circumstances where personal service was required there was a need for strictness of proof in the bankruptcy context.) 

2. In Rafaraci v Pearce & Heers Tamberlin J considered whether he was satisfied that the requirement of service of originating process had been met in relation to documents which originated the proceedings in which a default judgment was issued founding a bankruptcy notice.  In the particular circumstances of Rafaraci, on the whole of the evidence before the Court Tamberlin J was not satisfied on the balance of probabilities that it had been proven that the originating process was served on the debtor.  However in Rafaraci the process server gave oral and affidavit evidence in which there were substantial inconsistencies.  The process server was found to have had an unsatisfactory record-keeping procedure and was unable to identify the debtor as the person he saw at the premises.  His Honour also had before him and took into account the denials of the debtors as to service.  Tamberlin J found that the inconsistencies in the process server’s evidence cast substantial doubt on the reliability of his recollection.  On that basis his Honour was not persuaded that either the statement of claim or a subsequent bankruptcy notice was duly served. 

3. However in this case the respondent’s evidence as to service of the statement of liquidated claim is as set out in the affidavits of Mr Warren and Mr Brooks.  There are no significant ‘unexplained’ discrepancies in the evidence of the respondent in relation to service.  The only discrepancy is the name of the deponent on the affidavit of service of 2 March 2005.  I am satisfied however on the affidavit evidence of Messrs Warren and Brooks that this has been adequately explained.  Mr Warren confirmed the signature on the affidavit of 2 March 2005 was his signature.  The contents of the affidavit of 2 March 2005 conform with the contemporaneous report prepared by Mr Warren and his account of the error is confirmed by Mr Brooks (who prepared and whose name appears on the affidavit of service of 2 March 2005) but who deposes that the signature on that affidavit is not his signature.  The evidence for the respondent provided in explanation of what is said to be an incorrectly named deponent is consistent. 

4. Ms Patten chose not to cross-examine Mr Warren or Mr Brooks.  This is not a case in which it can be said that their affidavit evidence is “inherently improbable” (see Flevinge v Director of Custodial Services (1987) 9 NSWLR 546 at 560 per McHugh JA as he then was) and also see Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 587). The inconsistencies between Ms Patten’s account and that of Messrs Warren and Brooks are discussed further below in relation to service of the bankruptcy notice.

5. Ms Patten’s denials about service of the statement of claim (and the bankruptcy notice) and her claims that she was unaware of the Local Court proceedings until shown a copy of the certificate of judgment after instructing her lawyers on 20 March 2006 must be seen in the context of her evidence that she ignored or failed to follow up clear warnings contained in other documents that she admitted receiving, that she ignored documents because she assumed there was some error on the part of NHC and that she took no action in relation to the creditor’s petition she received, with which would have been included a copy of the affidavit of service of the bankruptcy notice (which annexed the bankruptcy notice to which was attached the Local Court certificate of judgment in relation to the Local Court proceedings) consistent with the affidavit of service of the creditor’s petition sworn by David Budd on 7 February 2006 and tendered as an exhibit in these proceedings. Ms Patten does not dispute service of these documents on 6 February 2006. Her circumstances at 26 February 2005, the date of the claimed service of the statement of claim as set out at [70] above are also relevant.

6. Given the importance of service and the obligation on a petitioning creditor to establish service when seeking a sequestration order I have considered, consistent with the approach in Rarafaci v Pearce and Heers whether in all the circumstances I am satisfied on the balance of probabilities that the originating process was served on the debtor – rather than requiring the applicant to establish a negative – that she was not served.  However, in all the circumstances I am satisfied that Ms Patten was served with the statement of claim as attested to by Mr Warren. 

The Bankruptcy Notice

1. Also in issue is whether or not Ms Patten was served with the bankruptcy notice on 8 June 2005.  Again there is affidavit evidence for the respondent from Mr Warren and Mr Brooks, supported by Ms Rapley’s affidavit evidence, as to service of the bankruptcy notice on Ms Patten by Mr Warren on 8 June 2005 as set out above.  Ms Patten’s evidence is that she has no recollection of service as deposed to in the affidavit of service. 

2. However, in the course of cross-examination Ms Patten produced from her file a copy of the bankruptcy notice bearing the original stamped numbering (which was tendered as Exhibit 8).  That document was not the same as the one copied and annexed to her affidavit (which bore a fax header “9 March 2006 16:23 ITSA …” and an annexure note referring to Mr Warren’s affidavit of service and the letter “A”) which appears to have been part of a copy of the affidavit of service of the creditor’s petition faxed to Ms Patten or her lawyers on 9 March 2006, consistent with Ms Patten’s statement that she learned of the sequestration order on 8 March 2006 and contacted her then lawyers on the following day. 

3. In relation to the material on Ms Patten’s bank statement, it is clear from the terms of her affidavit that at the time she swore it Ms Patten had no actual recollection of the day in question, but deduced from the bank statement that she was at the general store in Gundaroo at 12.40pm on 8 June 2005.  Even assuming that the time on the bank statement and the time recorded by Mr Warren are both accurate and that the distance between the shop and Ms Patten’s home is six kilometres, that does not of itself establish that she was not able to return from the shop to her property within that time.  Indeed in cross-examination she conceded that it was possible that she may have had a lift for part or all of the way home from a neighbour or Mr Bobruk or one of the share farmers working on the property.  The material in relation to the bank statement is not conclusive of Ms Patten’s contention that she could not have been at her property at 1.49pm on 8 June 2005 to be served with the bankruptcy notice.

4. While mail addressed to ‘Wingrove” may be mistakenly delivered to a similarly-named property next door, I note that Mr Warren gave evidence that he had previously attended Ms Patten’s property to repossess the machine (as well as to serve the statement of claim) and indeed Ms Patten admitted that she spoke with him at the time that the machine was repossessed. 

5. As to Ms Patten’s suggestion that she would have reacted to the bankruptcy notice, on her own evidence she did not in fact react to important notices.  She ignored the default notice which attached the particularly important farm debt mediation form.  She did not take advantage of the invitation to notify the respondent in writing of another buyer offered in the letter of 4 July 2003, and on her own evidence she ignored the creditor’s petition. 

6. As to Ms Patten’s contention that she would have retained the document had she received it, the respondent submitted that in fact she did so and indeed produced it to the Court as Exhibit 8.  Ms Patten’s explanation in cross-examination was that the bankruptcy notice she produced was amongst the documents served on her on 6 February 2006 with the creditor’s petition.  However, as contended for by counsel for the respondent, this is improbable given that the copy of the bankruptcy notice (which is a photocopy) annexed to the affidavit of service in the court file bears an annexure note, that a second copy is part of annexure “D” to the affidavit of service of the creditor’s petition on the court file and also bears an annexure note, whereas Exhibit 8 bears no annexure note.  On Ms Patten’s account not only would Mr Warren have had to have sworn a false or mistaken affidavit but also Mr Budd (who swore an affidavit of service of the creditor’s petition including service of a copy of Mr Warren’s affidavit that attached a copy bankruptcy notice with the annexure note) would have to be in error. 

7. In any event, Ms Patten’s claims as to the absence of documents from files maintained by her do not establish that she did not receive the bankruptcy notice.  She told the Court that over time she has either mislaid or failed to take copies of some documents.  She was unable to explain the absence of a number of documents, including paperwork she received from NHC in March or April 2002, a copy of the finance application, a copy of the direct debit authority, a copy of the bank statement referred to in paragraph 8 of her affidavit, a copy of a letter to Anne Vojecena of NHC of 6 December 2002 and a copy of her letter of 30 June 2003 to NHC. 

8. In submissions Ms Patten contended that she could not have been served on 8 June 2005 with the bankruptcy notice, and if that were so why did “they” keep trying to serve the notice on many other occasions.  She referred to dates “according to ITSA” of 13 October 2005 and 29 November 2005 and at least four occasions.  Ms Patten referred to tax invoices annexed to Ms Inga’s affidavit relating to unsuccessful attempts at service on 13 October 2005 and 29 November 2005.  However, these invoices (from IPS) were annexed to the Bill of Costs of the petitioning creditor and clearly relate to unsuccessful attempts to serve the creditor’s petition (not the bankruptcy notice) before it was ultimately served on 6 February 2006. 

9. As contended for by the respondent, against Ms Patten’s denial and evidence there is the evidence of Mr Warren the process server who relevantly stated that in December 2002 while taking possession of the goods the subject of the debt due to the respondent, he visited the property, met with Ms Patten and spoke with her.  Ms Patten conceded that the machine was repossessed and that she spoke with the person repossessing the machine.  Mr Warren also stated in his affidavit that on 26 February 2005, while serving the statement of claim, he again went to the property and met with Ms Patten and that on 8 June 2005 he served the bankruptcy notice personally on Ms Patten.  He stated that after serving the bankruptcy notice he made contemporaneous notes which were annexed to his affidavit and soon after swore an affidavit deposing to service of the bankruptcy notice.  

10. Faced with such a direct contest of evidence and credit between the witnesses it is relevant that Mr Warren’s evidence is supported in each case by a contemporaneous note.  In contrast Ms Patten has given inconsistent evidence in a number of respects.  The account in her affidavit as to why the machine was not used is inconsistent with the account given by her in correspondence at the time.  She completed incorrect details on the finance application in March of 2005 in relation to pre-existing transactions with NHC.  Even if this was not consciously deceptive as submitted by the respondent, it was certainly incorrect and she did not disclose any liabilities on that form, despite there being a mortgage over the property.  Her explanation for this was unconvincing. 

11. Ms Patten was on many occasions evasive in her responses to cross-examination.  Counsel for the respondent contended that Ms Patten’s manner of giving evidence in cross-examination was such as would cause the Court to reject her evidence where it conflicted with Mr Warren’s and was unsupported by contemporaneous documents. 

12. It was contended that Ms Patten was evasive in her evidence using questions as an opportunity to make speeches rather than answer frankly.  I accept that, as a self-represented litigant keen to tell her story as she saw it, some aspects of Ms Patten’s conduct and responses may well have reflected impatience with the constraints of cross-examination.  However the difficulties with her evidence went beyond interrupting counsel for the respondent, anticipating incomplete questions and using questions as an opportunity to make statements about her general concerns rather than providing direct responses.  In important respects her evidence was inconsistent.  She was given an opportunity to consider the content of her affidavit at the outset.  She suggested it was “fairly brief” but was “true and correct…”  When given an opportunity to correct or clarify her affidavit evidence in oral evidence, she stated that it was “pretty well correct” but there was “a little bit more to support it”.  She agreed that there was nothing she wanted to add or change in the affidavit.  Her later evidence that her lawyer was responsible for the content of the affidavit when various deficiencies were highlighted in cross-examination was unconvincing.  She was extremely slow to make appropriate concessions, such as acknowledgment of her handwriting and signature on the finance application she completed in March 2005.  In all of the circumstances, where Ms Patten’s evidence conflicts with Mr Warren’s and is unsupported by contemporaneous documents, I prefer that of Mr Warren.  I accept the affidavit evidence of Mr Warren and Mr Brooks and am satisfied that the bankruptcy notice was served on Ms Patten on 8 June 2005 as stated by Mr Warren in his affidavit. 

13. Hence I am not satisfied that the sequestration ought not to have been made on the basis that either the statement of claim or the bankruptcy notice was not served on Ms Patten. 

Complaints about the conduct of NHC

1. The other main basis on which it was argued by Ms Patten that the Court should be satisfied that the sequestration ought not to have been made, arises out of her complaints about the conduct of NHC, her suggestions that it acted contrary to an agreement, that she was denied “due process” and that NHC breached the Consumer Credit Code. 

2. Some of these claims raise the question of whether the Court should go behind the judgment founding the creditor’s petition to ascertain whether a debt in reality exists.  The Court has power to go behind such a judgment on an application for an annulment: Pollock v Deputy Commissioner of Taxation (Cth) (1994) 93 ATC 4,148 and Mansour v Wiggins [2005] FMCA 603). It is well established that for a party to persuade the Court that it ought to go behind a judgment it must be demonstrated that there is a substantial reason for doubting whether there is a debt due to the creditor: see Joosse v Deputy Commissioner of Taxation (2004) 137 FCR 576 and Wren v Mahoney (1971) 126 CLR 212. It is for the applicant to persuade the Court that this is appropriate (see Heinrich v Commonwealth Bank of Australia [2003] FCA 539 upheld on appeal at [2003] FCAFC 315). While the Court will be more inclined to address whether an underlying debt exists in the case of a default judgment (such as in the present case), it is not bound to go behind a judgment which is prima facie evidence of the debt. There must be material put before the Court to justify an investigation by the Court of the existence of the debt (see Re Haddad; Ex parte RW Jordan Pty Limited (Federal Court, Sackville J, 20 August 1997).

3. Insofar as the applicant intended to suggest that she has a valid defence or cross-claim to any claim made by the respondent, no basis for such a contention is established on the material before the Court.  Ms Patten purchased the machine from SAM, which was paid by NHC for the machine.  To the extent that she has any complaint about the operation of the machine, that is a matter between herself and SAM.  NHC was empowered by Clause 15 of the loan and mortgage agreement to take possession of and sell the machine by public auction.  The machine was marketed and advertised for sale over a period of 18 months.  It failed to attract a bid the first time it was auctioned. 

4. Ms Patten asserted a belief that she had come to an arrangement with a former representative of NHC to have the machine resold through Mr Pearce and that this arrangement was departed from by NHC under the CNH management.  However, there is no evidence before the Court, other than her assertions, to establish such a claim.  Importantly, even the affidavit evidence of Mr Pearce filed by Ms Patten during the hearing does not support the claim that there was such an agreement.  In his affidavit of 25 May 2006 Mr Pearce stated that he rang New Holland after he saw the machine advertised by Albury Tractors and that at the price quoted he was not interested.  He also said that he was then contacted by Ms Patten who asked him to help to sell it.  He did not give evidence that he had many conversations with Mr Henderson of NHC.  Instead he stated that he once again spoke to NHC and was given a price that was not conducive to being able to resell the machine as a used machine.  In other words his proposed involvement would have been as a vendor of the goods not as a purchaser.  He deposed that he wished no further involvement with the matter.  His evidence does not support the claim that there was in fact an agreement between Ms Patten and NHC that he would resell the machine. 

5. There is nothing in the evidence, including Mr Pearce’s affidavit evidence, to suggest that he (or anyone else) could have achieved a better price than that obtained by the auction sale.  To the contrary is the fact of the lack of buyer interest at the first auction and the price at the second auction.  There is no evidence to support the claim that Ms Patten sought to introduce a buyer for the machine. 

6. Further there is nothing in the conversations that the applicant stated in her affidavit that she had with NHC that could be construed as relieving her of liability to make the payments she had agreed to make under the terms of the loan and mortgage agreement executed on 13 March 2002.  She had made no payments at all pursuant to that agreement, despite the provision for half yearly instalments commencing 12 September 2002. 

7. Even if it was the case that it was for NHC to try to find a buyer at a higher price for the machine (which NHC denies) there is nothing to suggest that, contrary to the loan agreement, the applicant was not obliged to meet any shortfall.  Nor is there anything to suggest that NHC did not make such efforts by advertising and promoting the machine and through the auction process.  There is no evidence to suggest that a buyer at a higher price was available.  NHC marketed the machine through Albury Tractors and put it up for auction twice.  Ms Patten acknowledged that she was indebted to NHC in her letters of 6 December 2002 and 30 June 2003. 

1. NHC did allow a longer period of time before selling the machine than was provided in the notice of 23 June 2003. Ms Patten was informed by the notice of 23 June 2003 that the credit provider may sell the goods. There was no obligation under the agreement to give a further notice (see Clause 15 set out at [16] above). The evidence of subsequent correspondence between Ms Patten and NHC is not such as to establish that NHC was under an obligation to notify her of the proposed auction sale as claimed.

2. Ms Patten raised a concern about the absence of separate reference to the “seeder” in the auction documentation.  That is, however, consistent with the description of the goods in the agreement executed on 13 March 2002.

3. Ms Patten also took issue with the conduct of NHC’s solicitors (in particular in relation to when she was served with affidavits relied on in these proceedings).  However on her own account that was no later than 16 May 2006 and these concerns do not provide a basis for her contention that the sequestration order ought not to have been made.  Nor do her complaints about the conduct of her former lawyer in connection with the preparation of her affidavit or the conduct of her former partner and his lawyers in relation to the timing of the property settlement. 

4. Her general submissions about the conduct of CNH Capital Australia (in their dealings with her and with other farmers) do not establish a basis for annulment.  In particular her contention that the respondent defrauded her and deceived the Court is not sustainable on the evidence before the Court. 

5. Nor is Ms Patten’s assertion that there was deception in connection with the service of documents sustainable. Ms Patten contended that the requirements of the Bankruptcy Act in relation to service of documents were not met. However this is not established. Her submissions confuse the bankruptcy notice and the creditor’s petition and the distinction between service of original documents and those copies annexed to affidavits of service, the date of service and the date of affidavits of service.

6. In all of the circumstances there is nothing to suggest that there is not in truth and reality a debt, that there is any cross-claim against NHC or that NHC was not a creditor at the time of the bankruptcy proceedings.  There is nothing in the evidence before me that would justify the Court in going behind the judgment debt on any of these bases. 

Consumer credit laws

1. In closing submissions Ms Patten raised the suggestion that her financial arrangements with NHC were governed by the Consumer Credit Code.  I have considered whether there is any basis in these contentions on which the Court should go behind the judgment or any reason to suggest that the default judgment ought not to have been entered against Ms Patten because NHC was prevented by provisions of the Consumer Credit Code from proceeding in the way that it did. 

2. In order to consider Ms Patten’s argument it is necessary to have regard to the precise nature of the transaction between the parties and the application of the consumer credit laws. 

3. As summarised above, in late 2001 Ms Patten ordered the machine from SAM.  Mr Pearce of SAM arranged finance through NHC.  On 7 March 2002 Ms Patten filled out and signed a finance application which was forwarded to NHC.  The application contained a declaration that the loan was to be “applied wholly or predominantly for business or investment purposes”.  On 13 March 2002 Mr Patten executed the loan and mortgage agreement bearing a commencement date of 12 March 2002 pursuant to which NCH advanced the sum of $32,910 to fund the purchase of the machine. 

4. In written submissions Ms Patten referred to the Credit Act 1985 which, it appears from the material annexed to her submissions, is in fact a reference to the Australian Capital Territory legislation – not that applicable in New South Wales.  There is nothing to suggest that the A.C.T. law is applicable to the loan and mortgage agreement signed on 13 March 2002 which states that it is governed by the laws of New South Wales.

5. Ms Patten lives in New South Wales. She acknowledged in her affidavit that she received paperwork in the mail from NHC in March or April 2002 and believed she signed and returned part of the paperwork. There is no suggestion that the contract was signed in the A.C.T. (see s.3 of the Credit Act 1984 (NSW) and s.3 of the Credit Act 1985 (ACT). Moreover under s.6(1) of each Consumer Credit Code the applicable law is that of the jurisdiction in which the debtor is ordinarily resident.  Hence the New South Wales law is considered, although I note in any event that the position under the ACT law is comparable. 

6. In her affidavit sworn on 21 March 2006 Ms Patten described herself as a “biodynamic farmer” who “work(s)” her property at Gundaroo.  She also stated that at the time of the loan she had an informal farming arrangement with two share farmers who worked on the property.  In cross-examination Ms Patten stated that the farm was growing biodynamic produce for local and Sydney markets.  The machine was described by Ms Patten in her affidavit as an “agricultural machine” designed, inter alia, to form planting beds. 

7. Ms Patten apparently contends that because the loan agreement of 13 March 2002 relates to farming machinery it falls within the scope of the Consumer Credit Code, or, perhaps, that as a finance provider NHC is subject to certain provisions of the Consumer Credit Code. 

8. Given Ms Patten’s description of the nature of the machine and the work carried out by her on the farm it is relevant to refer to the history of consumer credit legislation in New South Wales. 

9. The Credit Act 1984 (NSW) (and the 1985 ACT equivalent) imposed various obligations on a credit provider in relation to credit sales contracts and loan contracts, including requirements as to prescribed notices and certain disclosure requirements. When the Credit Act applied, under s.107 a credit provider could not exercise rights under a regulated contract in respect of any default without first issuing a notice as prescribed. Failure to issue the notice entitled the debtor to instigate court proceedings to recover consequential losses. In addition, where the credit provider had the benefit of a mortgage over goods that were the subject of a regulated contract and took possession of the goods pursuant to that mortgage, s.112 of the Credit Act 1984 (NSW) prohibited the credit provider from selling or disposing of those goods until 21 days had elapsed from the date that the debtor was served with a notice detailing the debtor’s rights and specifying the estimated value of the goods. Relevantly s.30 of the Credit Act excluded from its operation credit sale contracts and loan contracts where the goods or services the subject of the contract were priced at more than $20,000 unless the credit sale contract related to a commercial vehicle or farm machinery or the mortgage in relation to a loan contract related to a commercial vehicle or farm machinery. It may be that Ms Patten has this provision in mind. Further, under s.115 of the Credit Act, where a mortgagor under a regulated mortgage was a person whose sole or principal business was a farming undertaking and the mortgagee gave the mortgagor a s.107 notice of his intention to exercise a right under the mortgage to take possession of goods comprising farm machinery used in connection with the farming undertaking, then the mortgagor could, unless the mortgagee had sold or otherwise parted with possession of the goods, apply to a court for an order suspending the power of the mortgagee to take possession of the goods for a period of up to 12 months or an order that the mortgagee restore the goods to the applicant and be restrained from taking possession for a period of up to 12 months. There was also provision in s.116 for negotiation of a postponement of the institution of proceedings or sale of goods. Where such a postponement was negotiated and a written statement of the conditions of the postponement given to the debtor or mortgagor, the s.107 notice was deemed not to have been given if there was compliance with the conditions of the postponement.

10. There were also penalty provisions in the Credit Act relevant if a credit provider failed to comply with certain obligations.  In some circumstances s.42 relieved the debtor from having to pay the credit provider’s credit charges under the contract. 

11. However Part 2 of the Consumer Credit (New South Wales) Act 1995 (the Act) incorporated the Consumer Credit Code originally set out in the Appendix to the Consumer Credit (Queensland) Act as the Consumer Credit (NSW) Code (the Code).  By this Act the Code and the Consumer Credit (NSW) Regulations (the Regulations) commenced on 1 November 1996.  For the sake of completeness I note that the Consumer Credit Act 1995 (ACT) also incorporated the Consumer Credit Code as a law of the Territory. 

12. Importantly Schedule 1 to the Act amended the Credit Act 1984 by adding a new s.19A which provides that the Credit Act does not apply to a credit contract made on or after the commencement of Schedule 1.2 to the Consumer Credit (New South Wales) Act 1995 and to mortgages and guarantees relating to such a credit contract (unless the offer to enter the contract was made before that commencement). Thus the Credit Act has no application to credit contracts and associated agreements made after 1 November 1996, such as the loan and mortgage agreement between Ms Patten and NHC entered into on 13 March 2002. (See to the same effect s.19B of the Credit Act 1985 (ACT)).

13. It is necessary however to determine whether the Code which came into force in 1996 is applicable to the agreement between Ms Patten and NHC, assuming it involves the provision of credit (s.4(1) of the Code) under a credit contract (s.5 of the Code) and a mortgage securing obligations under such a contract (see s.8 of the Code). Section 6 of the Code relevantly provides:

    (1)This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into –

    (a)    The debtor is a natural person ordinarily resident in this jurisdiction or a strata corporation formed in this jurisdiction; and

    (b)    The credit is provided or intended to be provided wholly or predominantly for personal, domestic or household purposes; and

    (c)     A charge is or may be made for providing the credit; and

    (d)    The credit provider provides the credit in the course of a business of providing credit or as part of or incidentally to any other business of the credit provider.

    …

    (4)For the purposes of this section, investment by the debtor is not a personal, domestic or household purpose.

    (5)For the purposes of this section, the predominant purpose for which credit is provided is –

    (a)    the purpose for which more than half of the credit is intended to be used; or

    (b)    if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.

14. The requirements of s.6(1) are cumulative and there is no provision in the Code (unlike the position under s.30 of each of the Credit Acts) to extend the application of the Code to contracts relating to farm machinery. 

15. Section 11 of the Code sets out various presumptions relating to the application of the Code.  It is as follows:

    (1)    [Where application is claimed]      In any proceedings (whether brought under this Code or not) in which a party claims that a credit contract, mortgage or guarantee is one to which this Code applies, it is presumed to be such unless the contrary is established.

    (2)    [Whole or predominant purpose]       Credit is presumed conclusively for the purposes of this Code not to be provided wholly or predominantly for personal, domestic or household purposes if the debtor declares, before entering into the credit contract, that the credit is to be applied wholly or predominantly for business or investment purposes (or for both purposes).

    (3)    [Personal, domestic or household purposes]      However, such a declaration is ineffective for the purposes of this section if the credit provider (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, at the time the declaration was made that the credit was in fact to be applied wholly or predominantly for personal, domestic or household purposes.  For the purposes of this subsection, a relevant person is a person associated with the credit provider or a finance broker (or a person acting for a finance broker) through whom the credit was obtained.

    (4)    [Form of declaration]   A declaration under this section is to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of this section if it is not.

16. While Ms Patten claimed generally that the Code applied, I am satisfied for the reasons set out below that the respondent has established that that is not the case. 

17. It is relevant first to have regard to whether there is a declaration to which s.11(2) applies.  Any such declaration must, by virtue of s.11(4), be in the form prescribed by the Regulations.  Section 10 of the Regulations specifies that the form of the declaration is as follows:

    (1)    For the purposes of s.11 of the Code, the form of the declaration is as follows –

    I/We declare that the credit to be provided to me/us by the credit provider is to be applied wholly or predominantly for business or investment purposes (or for both purposes).

    (2)    The declaration is to contain (immediately below the words) a warning in the following form –

IMPORTANT

You should not sign this declaration unless this loan is wholly or predominantly for business or investment purposes.

By signing this declaration you may lose your protection under the consumer credit code.

10(3)     The declaration is to contain – (a) the signature of each person making the declaration; and (b) either the date on which the declaration is signed or the date on which it is received by the credit provider.

1. Tendered as an exhibit in these proceedings was a copy of the finance application signed by Ms Patten on 7 March 2002.  That document contains (on page 3, under the heading Business and/or Investment Purpose Declaration) a declaration addressed to New Holland Credit Australia Pty Limited which is in the form required by the Consumer Credit Regulations.  The declaration is signed by Ms Patten and bears the date of 7 March 2002 under her signature.  On this basis the provisions of s.11(2) of the Code apply (and would have applied in any proceedings to recover the judgment debt on which the petition was founded).  I am satisfied that the declaration and the warning are such as to dispose of any argument (if it was to be so contended) that the credit in this instance was provided wholly or predominantly for personal, domestic or household purposes.  Section 11(2) of the Code would operate to presume the credit conclusively not to have been provided for such purposes in light of the declaration and hence the credit would be outside the requirements of s.6(1)(b).  On this basis the Code does not apply to the contract between Ms Patten and NHC. 

2. There is nothing in the material before the Court to suggest that s.11(3) is relevant.  There is no suggestion that NHC (or any other relevant person) knew or had any reason to believe the credit was to be applied wholly or predominantly for personal, domestic or household purposes. 

3. Counsel for the respondent further submitted that even if the declaration of 7 March 2002 did not put paid to Ms Patten’s contention about the application of the Code, the evidence before this Court positively establishes that the loan in question was for a business or commercial purpose so that even without the benefit of the presumption contained in s.11(2) of the Code the evidence demonstrates that the Code has no application.

4. I agree.  I note first that Ms Patten did not present any evidence to suggest or support a contention that the purpose of the loan obtained from NHC was to acquire goods to be used wholly or predominantly for personal, domestic or household purposes (although it is the case that she would not bear the burden of establishing this under s.11(1)).  It is nonetheless relevant that all of the evidence before the Court points to the conclusion that the loan was for a business or commercial purpose.  Ms Patten was quite open in her evidence about her intention to use the bed former and seeder for commercial farming purposes.  As the respondent contended, on the undisputed evidence in this respect before the Court, the loan was clearly not to be used for personal, domestic or household purposes, but rather for a business or commercial enterprise, being the farming and selling on the local and Sydney markets of biodynamic produce. 

5. The nature of the machine as described by Ms Patten supports the contention that it was not to be used for domestic purposes and hence that the loan to acquire the machine was not provided or intended to be provided wholly or predominantly for personal, domestic or household purposes.  In Jillawarra Grazing Company v John Shearer Limited (1984) 6 ATPR 40,441 the phrase “personal, domestic or household purposes” was considered in the context of the Trade Practices Act 1974 (Cth). The Federal Court found that an air seeder purchased for use on a farm was not a machine of a kind ordinarily acquired for domestic use. In rejecting an argument that everything purchased for a farm was “domestic” the Court referred to Metropolitan Water Board v Colleys Patents Limited (1911) 2 KB 38 at 40 per Phillimore J stating that “… ‘domestic’ does not mean civilised or domesticated or something appertaining to man, but means something to do with man as occupying or using a house or dwelling”. On this basis, even absent the benefit of the presumption which I am satisfied arises by force of s.11(2) of the Code, the evidence before the Court is sufficient to establish that the credit in this instance was not to be provided wholly or predominantly for personal, domestic or household purposes within s.6(1)(b). Thus the presumption as to the application of the Code in s.11(1) of the Code is displaced, as the contrary has been established by the respondent. Hence the contract is outside the provision of s.6(1)(b) of the Code. Thus there is no substance in Ms Patten’s contention that the Consumer Credit Code is applicable.

6. Moreover, even if the Code did apply, the evidence before the Court does not support Ms Patten’s contention that there was a failure to comply with the Code by NHC such as to render the contract void or unenforceable or otherwise such as to prevent NHC from proceeding in the way that it did.  

7. Division 2 of Part 5 of the Code deals with enforcement of credit contracts, mortgages and guarantees. Section 80 in particular requires a credit provider to give the debtor a default notice allowing the debtor a period of at least 30 days from the date of the notice to remedy the default. Failure to comply with s.80 attracts a maximum penalty of 50 penalty units. Also see ss.84 and 85 as to the requirements to be met before a credit provider can enforce an acceleration clause.

8. However, annexed to Ms Patten’s affidavit is a copy of the default notice dated 15 October 2002 given to her by NHC, well before any enforcement proceedings had begun. Ms Patten acknowledged receipt of this document in her affidavit. The default notice gave Ms Patten notice at a time when she was in default under the contract, not having met any of the periodic payments. It allowed her 30 days from the date of the notice to remedy the default (explaining the action necessary to remedy the default). It also set out that the contract contained an acceleration clause and stated the manner in which the liabilities of the debtor under the contract were affected by the operation of the acceleration clause, as well as the amount required to pay out the contract as accelerated. Thus such document satisfies the requirements of ss. 80 and 85 of the Code.

1. Moreover, Ms Patten acknowledged receipt of the Form 8 notice dated 24 June 2003 after NHC had taken possession of mortgaged goods. It was given to her some 14 months before the machine was sold. This form refers to the provisions of s.94(1)(c) of the Code (which appears to be a reference to the Consumer Credit Code provision which requires a notice where a credit provider has taken possession of goods). That section requires such notice to be given 14 days after possession is taken. While it appears that this temporal requirement was not met in this case, in all other respects the notice informed Ms Patten of matters required under s.94. The time requirement in s.94(1) has no effect on the capacity of the credit provider to sell the goods once the 21 day period after the notice is given has expired. In this case NHC did not sell the goods for some considerable time thereafter, consistent with Ms Patten’s request as set out above.

2. A failure to comply with s.94 attracts a penalty, but s.170(1) of the Code provides that “The credit contract, mortgage or guarantee or any other contract is not illegal, void or unenforceable because of a contravention of this Code unless this Code contains an express provision to that effect”. Sections 80, 84, 85 and 94 are all contained within Part 5 of the Code which is entitled “ending and enforcing credit contracts, mortgages and guarantees”. While there are provisions in the Code under which civil penalties and compensation to debtors may be ordered in relation to “key requirements” (see Part 6 and s.100), none of the key requirements specified in s.100 for the purposes of the civil penalty provisions are within Part 5 of the Act.

3. Thus on the material before me it is not established that, even assuming that the Consumer Credit Code applied and that NHC had failed to comply, it would have been prevented by the Code from enforcing its contract. 

4. Ms Patten also contended that NHC made misleading representations.  She did not suggest that these related to a matter material to entry into a credit contract or related transaction or constituted an attempt to induce a person to enter a contract (see s.144 of the Code).  Her complaints in this respect are not such as to suggest that NHC would have been prevented by the Code or by any other law from enforcing its contract and her unsubstantiated contentions about the conduct of NHC do not demonstrate that there is a substantial reason for deciding that there is a debt such that the Court ought to go behind the Local Court judgment.  On this basis there could be no challenge to NHC’s status as a creditor.  In all the circumstances there is nothing to persuade the Court to enquire further about the judgment debt. 

5. For the sake of completeness I note that, despite the fact that the Consumer Credit Code does not apply to farm machinery, there is some relevant legislative protection in that respect under the Farm Debt Mediation Act 1994 (NSW). That Act came into force on 12 February 1995. It provides for mediation concerning farm debts before a creditor can take possession of property or other enforcement action under a farm mortgage. In particular s.8 provides that a creditor to whom money is owed under a farm mortgage must not take enforcement action against the farmer until at least 21 days have elapsed after the creditor has given notice of the intended enforcement and of the availability of mediation under the Act. Upon receipt of the notice, the farmer has 21 days to notify the creditor in writing that mediation concerning the farm debt is required. If this notification is given the creditor is prevented from taking enforcement action until the New South Wales Rural Assistance Authority certifies in writing that the Act does not apply. There is provision for the Authority to certify that the Act is not to apply if it is satisfied that satisfactory mediation has taken place, that the farmer has declined to mediate or where three months have elapsed after the creditor gave the statutory notice and the creditor has throughout that period attempted to mediate in good faith.

6. However, attached to the default notice of 15 October 2002, which Ms Patten acknowledged receiving, were forms under and in compliance with the Farm Debt Mediation Act 1994. The first of these notices, Form 1, was a notice of intention to take enforcement action in respect of a farm mortgage setting out Ms Patten’s rights to insist that a mediation between herself and the creditor take place within the next three months. It suggested that she give consideration to obtaining independent professional advice before making any decision regarding mediation. It also informed her that she had 21 days in which to give the creditor notice of her intention to participate in mediation which should be in the form of a notice under s.9 of the Farm Debt Mediation Act 1994. Also attached was a blank s.9 notice. A Form 6, notice to the creditor of a decision not to enter into a mediation was also provided to Ms Patten but not completed by her.

7. Ms Patten stated in her affidavit, and I accept, that she ignored the notice received in October 2002 (which included both the default notice and the documents under the Farm Debt Mediation Act). In other words she did not give notice to the creditor of a request for mediation. The forms provided to her informed her that if she did not respond within the 21 days she would lose her rights under the Farm Debt Mediation Act 1994.  Hence insofar as it might be argued that Ms Patten had any rights under the Farm Debt Mediation Act 1994, by ignoring the notice of 15 October 2002 Ms Patten lost such rights. 

The question of solvency

1. Finally, in considering whether the sequestration ought not to have been made I have considered whether the bankrupt has adduced evidence that she was solvent (see Estee Lauder Pty Ltd v Drew [1999] FCA 642; Re Gollan; Ex parte Gollan (1992) 40 FCR 38).

2. It has been said (see Re Papps; Ex parte Tapp (1997) 78 FCR 524 at [531] per O’Loughlin J) that:

   The test, when a person comes to court seeking an annulment, is one that is akin to ‘full and true disclosure’.  It is incumbent upon such applicant to place before the court all relevant material with respect to his or her financial affairs so that the court may properly be informed to make a judgment that is based on full facts and circumstances.  A person who seeks an annulment carries a heavy burden.

3. The respondent creditor indicated in the motion of intention to oppose the annulment application filed on 3 April 2006 that one of the grounds on which it intended to oppose the application was that the applicant debtor had presented no evidence to establish her solvency and at that stage she had not filed a statement of affairs.  Hence Ms Patten was alerted to this issue.  She later filed a statement of affairs with the trustee, but she did not put evidence before the Court such as to establish her solvency.  Nonetheless I have considered the evidence that is before me in relation to solvency. 

4. Before Ms Patten filed her statement of affairs an affidavit was sworn and filed by the Official Receiver in relation to the financial position of Ms Patten.  However in oral submissions counsel for the trustee indicated that as a statement of affairs had subsequently been filed, the trustee’s report to creditors, a copy of which was tendered in these proceedings, was more current and was based on information provided by Ms Patten.  Counsel for the trustee elaborated on the creditor’s report. 

5. It is apparent from the evidence before the Court that Ms Patten disclosed to the trustee assets consisting of the property at Wingrove which she stated was worth $480,000 and farm equipment to which she attributed a value of $20,000.  She disclosed a number of creditors, some of whom she described as secured and the balance as unsecured.  On her calculations she owes $452,000 to secured creditors.  Even without taking into account the claimed debt to NHC and the trustee’s costs, she provided information in her statement of affairs indicating that she owed something in the order of $65,700 to unsecured creditors.  Thus, on Ms Patten’s own calculations she can be seen to have an asset deficiency. 

6. The report to creditors from the trustee was prepared on the basis of the statement of affairs and took into account other known creditors (including NHC and a Mr Heap).  Ms Patten’s asset position was calculated on two alternative bases, recognising that she and Leslie Bobruk own the property Wingrove (the property) jointly.  That property, as indicated above, is said by her to be valued at $480,000.  There is no evidence from any valuer as to the value of the property.  Ms Inga’s affidavit stated that a Canberra solicitor who had previously acted for Ms Patten advised that he would estimate the market value of the property at approximately $500,000.  Ms Patten’s estimate of the value is $480,000 and that is the basis on which the report to creditors was prepared.  Ms Patten also disclosed a mortgage securing $200,000 owed to her mother, Evelyn Lois Patten.  On the basis that this is a joint liability, that would reduce the amount available from the property to $280,000. 

7. Counsel for the trustee suggested that in considering Ms Patten’s financial position insofar as possible on the information before the Court, it would be appropriate for present purposes to first consider Ms Patten’s position by deducting half of the net value of the property on the basis that that was Mr Bobruk’s entitlement as joint tenant.  Ms Patten would then have an equity in the property of $140,000, from which must be deducted the $11,000 said to be a secured debt owed by Ms Patten to her former lawyers, Dobinson Davey Lawyers, and (again on the basis that this would appear to be a joint liability) at least half of what is said to be a secured debt for rates owing to Yass Shire Council in the total amount of $1,000.  Deducting $11,500 from $140,000 this method of calculation would leave a net equity of $128,500 for payment of unsecured creditors.  It was calculated that the applicant had unsecured creditors in the amount of $109,165.48. 

8. The report to creditors noted that Ms Patten had stated that the business trading as Leslez Organics had ceased trading due to drought.  She disclosed tools of trade worth $20,000.  The trustee is to make further enquiries to ascertain the net equity for the purpose of possible realisation. 

9. However Ms Patten included in her statement of affairs as a secured creditor her former partner, Leslie Bobruk in the sum of $240,000.  It is apparent that this is on the basis of the proposed consent orders in the de facto property proceedings in the New South Wales District Court.  The proposed orders are that within 42 days of the date of the order Ms Patten should pay to Mr Bobruk the sum of $240,000 and Mr Bobruk should transfer to her all his interest in the Wingrove property.  Ms Patten would indemnify Mr Bobruk in respect of all moneys owing to her mother, Mrs Patten, secured by mortgage on the Wingrove property.  The solicitors for Mr Bobruk notified the trustee by letter dated 10 March 2006 of the de facto property proceedings and stated that settlement had recently been reached in the form of consent orders which were yet to be filed with the District Court.  Ms Patten suggested that she had reached an agreement with Mr Bobruk to this effect. 

10. Assuming, without deciding for present purposes, that these orders were to be made by the District Court, the trustee included alternative calculations in the report for creditors taking into account the effect of such a settlement, which would be to reduce the trustee’s estimate of equity in the property from $128,500 to $28,000.  On these figures Ms Patten would have a significant asset deficiency.  However the trustee is yet to consider the validity of this transaction. 

11. While Ms Patten indicated that she proposed to redevelop the property at Gundaroo and that she had loan approval, there was no evidence in relation to such contentions and no evidence before the Court such as to satisfy me that Ms Patten has assets that could be realised by sale or mortgage in a relatively short time to enable her to pay her debts.  (See Re Sarina; Ex parte Wollondilly Shire Council (1980) 43 FLR 163 and Sandell v Porter (1966) 115 CLR 666 at 670). Her evidence in relation to her income was that last year her earnings were confined to $10,400 in government benefits and that this year she expects to receive only $5,000, although she spoke generally about her ability to obtain alternative employment. Even if the applicant’s assets exceeded her debts at the date of the sequestration order (that is, on the first basis suggested by counsel for the trustee), the evidence before the Court is insufficient to establish that Ms Patten was able to pay her debts at the date on which the sequestration order was made. Her only asset of significance was the share in the Gundaroo property and there is no evidence before the Court to establish that Ms Patten could, “utilising such cash resources as [she] has or can command through the use of [her] assets”, meet her debts (see Sandell v Porter (1966) 115 CLR 666 at 670 per Barwick CJ).

12. Hence, even on the more favourable view of her financial position, if Ms Patten’s assets did exceed her debts at the date of the sequestration order this does not establish that the sequestration order should not have been made (see Stankiewicz v Plata [2000] FCA 1185).

13. The evidence before the Court is not such as to establish that Ms Patten was solvent at the time of the sequestration order. 

Whether the bankruptcy should be annulled

1. My conclusions in relation to the first issue under s.153B mean that strictly speaking, it is unnecessary to consider discretionary issues. However, even if the Court was satisfied that the sequestration order ought not to have been made, in all the circumstances of this case the discretionary factors would militate against the making of an annulment order (see Re Wong; Ex parte Wong, unreported, Federal Court, Sackville J, 15 September 1995 at [22] – [26] and Stankiewicz v Plata [2000] FCA 1185 at [32]).

2. First, there is authority to suggest that the debtor’s insolvency is a factor which weighs heavily against the exercise of the discretion as a matter of significant public interest (see Re Williams (1968) 13 FLR 10 at [25]; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 and Layton v Westpac Banking Corp (2000) 181 ALR 603).

3. As set out above, the material before the Court is insufficient to determine that Ms Patten is solvent.  At best her asset position is marginal.  There is no evidence before the Court of how Ms Patten would service her substantial debt in the event that her bankruptcy was annulled, whatever the position is in relation to the de facto property litigation with Mr Bobruk. 

4. It is also relevant to have regard to the fact that there is no indication of any proposal by Ms Patten to pay the fees and charges incurred by the trustee in the course of administration of the estate or the petitioning creditor’s costs.  There is no evidence before the Court as to her willingness and ability to pay such costs (see Re Deriu at 421, Grundy v Wattle Australia [2002] FCA 615 at [20]; Re Almacy (1999) 92 FCR 597 and Cottrell v Wilcox [2002] FCA 1115). Nor is there any suggestion from Ms Patten as to satisfaction of the debt due to NHC.

5. Counsel for the creditor contended that it was also relevant to have regard to the bankrupt’s conduct in relation to the veracity or otherwise of evidence given in support of the application for annulment (see Re Grey (1960) 19 ABC 29; Marek v Tregenza (1963) 109 CLR 1 at 6 and Re Piccardi; Ex parte Grivas unreported Einfeld J 3 August 1988 Federal Court W1607 of 1988).  In this respect attention was drawn to inconsistencies between the evidence of Ms Patten in her affidavit and her responses to cross-examination, to her incomplete disclosure in the finance application of March 2005 and to the conflict in her evidence and that of Mr Warren as discussed above. 

6. Such matters, as outlined above, are not factors which support the applicant’s application for an annulment (see Boles v Official Trusteein Bankruptcy (2001) 183 ALR 239 at [36]). However it is notable that, as Kitto and Menzies JJ pointed out in Marek v Tregenza (1963) 109 CLR 1 at 5, in this context relevant circumstances in the conduct of the bankrupt are those which establish a reason “relevant to the purpose of the [Bankruptcy] Act” why the bankrupt should not be restored to his or her former condition and see Re Piccardi at [66] addressing the interests of creditors and the public interest.  In that respect I note that Ms Patten admitted that she received the creditor’s petition.  However she ignored the implications of that document and the impending court date.  As in Re Wong at [23] this was “hardly a measure calculated to avoid bankruptcy”.  Nor did Ms Patten lodge her statement of affairs on time or provide the Court with evidence as to solvency.  There is no evidence before the Court that all Ms Patten’s creditors were given notice of these proceedings.  Hence no inference can be drawn as to the views of creditors other than the petitioning creditor. 

7. Having regard to all of the circumstances of this case I am not satisfied either that the sequestration order ought not to have been made or that the Court should make an order annulling the bankruptcy.  I will hear submissions in relation to costs. 

I certify that the preceding one hundred and fifty-seven (157) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate: 

Date:  2 August 2006.