Pinnuck v SERPELL - [2004] FMCA 44

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PINNUCK v SERPELL & ANOR

[2004] FMCA 44

BANKRUPTCY – Application for review of an order of the Registrar to make a sequestration order against the estate of the Applicant – creditor’s petition.

Bankruptcy Act 1966 (Cth), ss.52, 52(1)
Federal Magistrates Act 1999, ss.104(2), 104(3)
Federal Magistrates Court Rules 2001, Rule 20.02
Federal Court Rules 1976, Order 62

Chancillif Holdings Pty Ltd v Bell (1999) FCA 1708
Wren v Mahoney (1972) 126 CLR 212
Corney v Brian (1951) 84 CLR 343
Hearne v Deputy Commissioner of Taxation (1987) 76 ALR 137
Re Bedford; ex parte HC Sleigh (Qld) Pty Ltd (1967) 9 FLR 497
Re Ferguson; ex parte EN Thorn and Co Pty Ltd (1969) 14 FLR 311
Re Skaff; ex parte Farrow Mortgage Services Pty Ltd (1993) 41 FCR 331

Applicant:

CHRISTOPHER PAUL PINNUCK

Respondent:

MATTHEW SERPELL & VOULI SERPELL

File No:

MZ 219 of 2003

Delivered on:

13 February 2004

Delivered at:

Melbourne

Hearing date:

14 July 2003

Judgment of:

Bryant CFM

REPRESENTATION

Counsel for the Applicant:

In person

Solicitors for the Applicant:

In person

Counsel for the Respondent:

Mr Galvin

Solicitors for the Respondent:

Moores Legal Lawyers

ORDERS

THAT the Application for review of sequestration order be dismissed.
THAT the Respondent’s costs be taxed on the Federal Court scale and paid from the bankrupt estate with priority according to section 109(1)(a) of the Bankruptcy Act 1966 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 219 of 2003

CHRISTOPHER PAUL PINNUCK

Applicant

And

MATTHEW SERPELL & VOULI SERPELL

Respondents

REASONS FOR JUDGMENT

Introduction

This matter is a review of the decision of Registrar Efthim of 20 May 2003 on which date Registrar Efthim ordered that a sequestration order be made against the estate of Christopher Paul Pinnuck and that the applicant's cost of and incidental to the petition be taxed pursuant to Order 62 of the Federal Court Rules and paid in accordance with the statute.
The power to review the decision of a Registrar by the Federal Magistrates Court is to be found in s.104(2) and (3) of the Federal Magistrates Act 1999 and in Rule 20.02 of the Federal Magistrates Court Rules 2001.
The application was filed on 11 June 2003.
The respondent was represented by counsel and Mr Pinnuck appeared by arrangement from Queensland by telephone.

Background

On 26 July 2002 the applicant was served with a copy of an application brought by the respondent in the Victorian Civil and Administrative Tribunal ("VCAT"). Service was effected by posting the VCAT application together with a covering letter from the respondent's solicitors in a pre paid post envelope addressed to the applicant at

18 Crawford Street, Braeside, Victoria, 3195. The said address was the Victorian street address for the business ACM Coatings which was operated by the applicant.
On 2 August 2002 an amended application was served on the applicant having been amended to correct the applicant's address. The amended application was also sent to 18 Crawford Street, Braeside.
On 8 August 2002 the solicitors for the respondents received notification from VCAT that the hearing of the matter was listed before the Victorian Civil and Administrative Tribunal Domestic Building list on 16 September 2002 at 10 am. The notice informed the parties that the hearing would be conducted at 55 King Street, Melbourne and the above dispute was listed for hearing and determination.
The applicant did not appear at the hearing and on 16 September 2002 VCAT made an order, inter alia that the applicant pay the respondents the sum of $9781 plus $1565.40 costs.
On 27 September 2002 under cover of a letter the respondents' solicitors served a copy of the said order on the applicant. There is also a note on the VCAT file stating a copy of the order was posted to the respondent on 16 September.
On 14 October 2002 the applicant wrote to the principal Registrar of VCAT seeking to have the matter re-heard and asking if a re-hearing could be granted and the date for same.
On 23 October 2002 the VCAT order was registered by the respondents in the Ringwood Magistrates Court.
On 6 December 2002 the respondent was served with a sealed copy of bankruptcy notice VM1704/02.
On 15 January the respondents' solicitors received a letter from the applicant dated 20 December 2002. The address of the letter was

18 Crawford Street, Braeside, Victoria. The letter from the applicant says inter alia that he was served with the bankruptcy notice on

13 December. I note that this is despite an affidavit sworn by a process server who deposes to the fact that he served the applicant personally at 18 Crawford Street, Braeside on Friday, 6 December 2002 at 1.04 o'clock.
The applicant in his letter of 20 December asserts that the matter was brought to his attention when he found a letter "slipped under our factory door from VCAT advising that a matter had been heard in my absence and that a judgment had been awarded against me."
He asserted that he subsequently wrote to VCAT advising them that he was not aware the matter was pending and had been heard in his absence. He further says that:
"I had been spending extended periods of time in Queensland and have only been coming to Victoria when the occasion warranted. Any mail sent to that address is collected by a third party and sometimes is passed on to me."
On 6 March 2003 the respondents filed a creditors petition in the Federal Magistrates Court of Australia relying upon the applicant's failure on or before 27 December 2002 either to comply with the requirements of the bankruptcy notice or to satisfy the Court that he had a counter claim, set off or cross demand equal to or exceeding the funds specified in the bankruptcy notice, being a counter claim, set off or cross demand that he could not set up in the proceeding in which the judgment or order referred to in the bankruptcy notice was obtained. The creditors petition was listed for hearing at 10.30 am on 17 April 2003.
An affidavit from a process server indicates that the petition was served on 9 April 2003 by delivering it personally to the applicant at

18 Crawford Street, Braeside.
On 17 April 2003 Registrar Wood adjourned the further hearing of the petition to 20 May at 10.30 am. The respondent (the applicant in this review) was to file and serve a notice of opposition and any affidavits in support by 8 May 2003 and any affidavits in reply by 16 May. At the hearing on 17 April the applicant represented himself by telephone.
On 8 May 2003 the applicant filed a notice of address for service giving his address as PO Box 364, Braeside, Victoria. On the same day he swore an affidavit giving his address as 18 Crawford Street, Braeside and saying the following:
(1)"I did not receive notice of VCAT hearing. I was made aware of VCAT ruling and wrote to them on 14 October 2002 requesting another hearing. No reply.
(2)I did not receive notice of Magistrates Court hearing and as such could not defend the action."
A notice of intention to oppose the petition was filed on 8 May and says that the intention to oppose the application was made on the following grounds:
(1)"not advised of VCAT hearing;
(2)not advised of Magistrates Court hearing;
(3)application has been lodged with VCAT for re-hearing."
On 20 May 2003 the respondent did not appear before Registrar Efthim on the adjourned hearing date and a sequestration order was made. On the same date a letter was sent to the applicant by the Federal Magistrates Court referring to a conversation of that date confirming that a sequestration order was made in his absence and enclosing a copy.
On 11 June 2003 the applicant filed an application for review of Registrar Efthim's decision. That application was listed for hearing on 30 June 2003 at 9.45 am.
The applicant did not appear on that date. The Federal Magistrates Court wrote to the applicant indicating that the Court required him to indicate reasons for his non-appearance. It appears that he noted the incorrect date for hearing and arranged to have the matter adjourned to 14 July. The matter proceeded before me on that day. The applicant has given liberty to appear by telephone from Queensland.

The applicant's case

The applicant filed no further material other than that to which I have already referred. The applicant indicated at the hearing that VCAT had informed him that they would give him a re-hearing but that at he has now been made bankrupt they will no longer proceed with the hearing. If a sequestration order was discharged then I am to infer that VCAT would provide a re-hearing of the original proceedings.

The respondent's contentions

An application for review requires a hearing de novo. Hence the applicant is entitled to have the matter re-heard. The respondent contended that the applicant had not made out any grounds under the Bankruptcy Act1966 ("the Act."). to ? a sequestration order from being made.

The relevant law

On the hearing of a creditors petition the Court has the discretion, under s.52(1) of the Act to examine the circumstances out of which a judgment arose where the judgment has relied upon as proof of the existence of a debt. For a Court of Bankruptcy a judgment is not necessarily conclusive of the existence of a true debt. It must be shown to the Court, however, that there are circumstances which justify the Court going behind a judgment to examine whether in truth and reality there is a real debt underlying the judgment. The Court may be persuaded to exercise that power more readily where the judgment relied upon is a default judgment. Where the judgment is the result of a trial, however, the Court may decline to exercise the power unless fraud or unconscionable conduct is suggested by material presented Chancillif Holdings Pty Ltd v Bell (1999) (FCA 1708) per Lee J. The point is amplified by Barwick CJ in Wren v Mahoney (1972) 126 CLR 212 at 224-225:
"His Lordship, in using this expression, was not intending, in my opinion, to weaken the emphasis he had always placed on the need for the Court of Bankruptcy to be satisfied of the existence of the petitioning creditors debt. Rather, if one reads all his expressions in the several cases I have cited, he was pointing out that the Bankruptcy Court could in general accept a judgment debt as sufficient proof of that debt particularly where it resulted from a fully heard contest between parties but that it always had the power to go behind the judgment and if the case was a proper one it should do so. The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditors debt. In that sense that Court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment; to what is its consideration. It is not the law, in my opinion that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditors debt is a mere matter of its own discretion. Nothing in Corney v Brian (1951) 84 CLR 343 lends support to such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditors debt. The Court's discretion in my opinion has a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner."
In Hearne v Deputy Commissioner of Taxation (1987) (76) ALR 137 at 148 the Full Court of the Federal Court said:
"These cases rest on the broad principle that before a person can be made bankrupt the Court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor he ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter parties litigation. It involves change of status and has quasi penal consequences."
In Chancillif Holdings His Honour said (at paragraph 89):
"Where the inquiry undertaken by the Court depends upon a prima facie case being shown that there are grounds to examine the reality of a debt recorded in a judgment, or upon the Court being satisfied upon preliminary investigation, of the merits of the attack on the judgment, is, perhaps a distinction without a difference."
The question to be determined by a Court of Bankruptcy is whether the Court is satisfied with proof of a debt relied upon by the petitioning creditor .....
"If a judgment is not accepted as satisfactory proof of a debt, the judgment, of course, remains on foot and continues to bind the judgment debtor, and stopping the debtor from saying everywhere else but in a Court of Bankruptcy that no debt is due to the judgment creditor."
Chancillif Holdings at paragraph 94:
"In going behind a judgment a Court of Bankruptcy is not determining whether the judgment is to be set aside and is not restricted by principles relevant to that issue, namely the existence of an equitable or legal right to impeach the judgment."
Chancillif Holdings paragraph 95:
"The exercise of a discretion not to accept this judgment is proof of the existence of a debt for the purpose of s 52 of the Act does not depend upon it being shown that the creditor has engaged in sharp practice or taken unfair advantage of the debtor in obtaining a compromise on the judgment based upon it."
Chancillif Holdings paragraph 98:
"Any regularity or deficiency of procedure in a judgment or the proceedings in which it was obtained may not be sufficient to make the Court that looks behind a judgment dismiss a petition. Even if the irregularity would entitle the debtor to have the judgment set aside, if there was a real debt on which the judgment could have been obtained the Court may refuse to dismiss the petition. Re Bedford; ex parte HC Sleigh (Qld) Pty Ltd (1967) 9 FLR 497, Gibbs J at 499; re Ferguson; ex parte EN Thorn and Co Pty Ltd (indistinct) (1969) 14 FLR 311; re Skaff; ex parte Farrow Mortgage Services Pty Ltd (1993) 41 FCR 331, Drummond J at 335; 113 ALR 715."
The hearing of the petition by the Court does not determine between the parties whether there ever was a debt, but rather whether there were circumstances justifying the exercise of a discretion to accept the judgment as proof of the debt, and the discretion whether or not to make a sequestration order.
Despite the fact that this matter proceeded as a hearing de novo and the applicant gave evidence by telephone, there is scant evidence from him about as to the existence of the debt. It appears, and I accept that the applicant did not appear at the VCAT hearing at which the initial judgment was obtained. It appears that documents were served at the address of the business from which he operated and which he still gives as his Victorian address. It also appears that he has been spending much of his time in Queensland and has not put in place arrangements to ensure that correspondence is regularly brought to his attention. This is his responsibility and he cannot subsequently complain if documents have not reached him when he himself has apparently been unavailable to collect them. I accept nevertheless that he may be able to have a re-hearing and possibly have the judgment set aside at VCAT because he was not present at the hearing. However, this alone does not entitle him to have the petition dismissed if there was a real debt on which judgment could have been obtained.
The question then seems to me is whether there is any evidence that there was not a real debt on which judgment could have been obtained. The only other piece of evidence is that contained in the letter from ACM Coatings dated 20 December 2002 in which the applicant says:
"I find it difficult to understand how I can be responsible for a debt of some $11,000 for a job that was done at a cost of $3990."
In short, although the VCAT hearing proceeded in the absence of the applicant, and that may entitle him to have a re-hearing, there is no evidence which satisfied me that there is not a real debt underlying the judgment. Accordingly I am not persuaded to exercise my discretion to look behind the judgment and the application for review filed

11 June 2003 must be dismissed.

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Bryant CFM

Associate: Peter Smith

Date: 13 February 2004