QBE Insurance (Australia) Limited v Cura

[2012] FMCA 1221

FEDERAL MAGISTRATES COURT OF AUSTRALIA

QBE INSURANCE (AUSTRALIA) LIMITED v CURA [2012] FMCA 1221

BANKRUPTCY – Application to review Sequestration Order or to annul under s.153B – whether court should exercise discretion – consideration of bankrupt’s financial position – consideration of position of Trustee.

Bankruptcy Act 1966 (Cth), ss.153B, 154

Kyriackou & Shield Mercantile Proprietary Limited (No. 2) [2004] FCA 1338
Adams v Lambert (2006) 228 CLR 409

Applicant on the motion: NICOLE KATHLEEN CURA

Respondent to the motion: QBE INSURANCE (AUSTRALIA) LIMITED

File Number: SYG 1837 of 2012

Judgment of: Raphael FM

Hearing date: 3 December 2012

Date of Last Submission: 3 December 2012

Delivered at: Sydney

Delivered on: 3 December 2012

REPRESENTATION

Counsel for the Applicant: Mr M. Dempsey SC

Solicitors for the Respondents: Turks Legal

ORDERS

1. The bankruptcy effected by the Sequestration Order of 27 September 2012 against the estate of NICOLE KATHLEEN CURA be annulled pursuant to s.153B of the Bankruptcy Act 1966 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1837 of 2012

NICOLE KATHLEEN CURA

Applicant on the motion

And

QBE INSURANCE (AUSTRALIA) LIMITED

Respondent to the motion

REASONS FOR JUDGMENT

1. There comes before me today the adjourned hearing of an application filed on 18 October 2012, to review a decision of Registrar Morgan on 27 September 2012, to make a sequestration order against Nicole Kathleen Cura. Alternatively, the application seeks the annulment of that sequestration order under s.153B of the Bankruptcy Act 1966 (Cth).

2. In short form, the facts with which the court has been apprised through the affidavits of Ms Cura dated 16 November 2012 and 30 November 2012 and the helpful submissions of Mr Dempsey, who appears pro bono in this matter, are as follows.  Ms Cura was married to Mr Ramon Chito Cura.  On 18 August 2009 Mr and Mrs Cura applied to QBE for a deposit bond of $65,000.00 in respect of a property they intended to purchase in Little Lonsdale Street, Melbourne.  Mr Cura’s parents were guarantors of the obligations under the bond.  The contract of sale of the property did not proceed and on 4 February 2011 the vendor called upon the deposit bond and QBE paid the call on the bond.  QBE then commenced proceedings in the Local Court of New South Wales against Mr and Mrs Cura and the parents.  It would appear that one firm of solicitors purported to act, at least on behalf of the husband and the parents, possibly on behalf of Ms Cura, but, in any event, did not seem to do very much about the proceedings, save to try and arrange for payment by instalments by the husband.  Ms Cura says in her evidence that she was not served with the Local Court proceedings.  They were served on a person in the property that she formerly occupied with her husband but which she had ceased to occupy by that time, having decided that the marriage was at an end.

3. After judgment was obtained by QBE a bankruptcy notice was issued against Ms Cura.  This document was served upon her and she was aware, through it, of the existence of the judgment.  Her evidence is that upon receipt of the bankruptcy notice she went to Legal Aid and asked for their assistance.  Assistance was apparently declined.  At that stage Ms Cura would have been able to take proceedings to have the judgment set aside and, provided that this was done within the time limited for compliance with the bankruptcy notice, the bankruptcy notice would be stayed.  She did not take that step although I have no evidence that she knew that she could do this.  There is, however, contained within every bankruptcy notice a note that would point to this ability.

4. After the expiry of the bankruptcy notice a petition was issued.  This was also served upon Ms Cura.  She does not appear to have taken any steps in relation to that and she did not appear at the hearing before Registrar Morgan on 27 September 2012 when the sequestration order was made. 

5. On being notified of the sequestration order Ms Cura did commence to take a number of steps.  Firstly, but not necessarily in time, she brought her financial position to the attention of a group known as Christians Against Poverty (“CAP”) who help persons such as her in arranging their financial affairs.  This includes negotiating on behalf of debtors with their creditors for instalment payments of debts.   Secondly, Ms Cura obtained the assistance of Mr Dempsey SC on a pro bono basis, and he has been highly active in doing what he could to assist her.  One of the things that he appears to have done is to persuade QBE not only to waive their debt against Ms Cura but not to oppose this application.  One of the grounds upon which Mr Dempsey made representations to QBE was that he believed, upon instructions, that the obligation to QBE was something that might be found to be invalid under the Contracts Review Act 1980 (NSW) because of the actions of Mr Cura and the fact that, at the time she signed the document, Ms Cura was suffering from certain psychological difficulties, including severe post natal depression.

6. When the matter came before this Court for the first time it was clear that there were two concerns that the Court would have to consider. The first was the financial health of Ms Cura other than the alleged debt to QBE. The second was, assuming that the Court was prepared to exercise its discretion in one of the two ways sought by the orders, whether it should exercise its discretion under s.153B, which would have the effect of allowing the trustee to recoup his costs, or whether the Court should set aside the sequestration order and dismiss the petition by way of review of the decision of the Registrar, which would have the effect that no costs would be due to the trustee: Kyriackou v Shield Mercantile Proprietary Limited (No. 2) [2004] FCA 1338[1]. 

   [1] ‘Kyriackou’

7. It appeared from the evidence that was produced by Ms Cura, including a statement of her financial position drawn up for that she does have some debts outside the debt to QBE.  In particular, she has a debt to GE Credit of approximately $3,563.56, a debt to American Express of $10,927.09 as at 29 August 2012 and a debt on a car loan of $26,634.46.  It would therefore appear that unless agreements were reached with these creditors Ms Cura was insolvent, notwithstanding the negating of the QBE debt. 

8. In the time between the first return date and today considerable effort has been made to deal with these creditors.  It should be stated for the record that Ms Cura does not have any other assets, apart from those represented by the car.  She lives in rented accommodation with her children and although in employment, she is in receipt of various Federal Government benefits, all these being taken into account in the repayment plan produced by CAP.  In that regard there has been produced to me today a document from American Express indicating the balance is $12,959.51:

   “We note that, prior to the commencement of bankruptcy proceedings, Ms Dargie [which I presume is Ms Cura’s maiden name] was on a hardship arrangement agreed to by our client to pay $100 per month off the outstanding amount.  We note her intention to continue with that arrangement with the next payment due on 15.12.12”

9. I infer from this email that, at least for the time being, American Express is prepared to accept the $100.00 per month.  But as would be clear to anyone of any experience in credit matters, a payment of $100.00 per month would not see the full debt being extinguished for many years even on a reasonably modest interest regime.  How many years may be inferred from an account summary from GE Credit Line to whom $3563.56 is owed with a minimum monthly repayment of $110.78.  According to this document if Ms Cura was to pay nothing but the minimum repayment it would take 30 years and three months to pay off the debt and she would have paid in those years $14,637.26 interest. 

10. The debt on the car has been factored into the repayment schedule produced by CAP.  This repayment schedule leaves Ms Cura with approximately $319.01 every fortnight over and above what CAP have estimated are her normal expenses.  The system they appear to operate is that this sum must be paid into the CAP account by her, presumably for contingencies.  CAP do not arrange for payment of the instalments of the debts that have been factored in to her repayment plan. 

11. In her affidavit of 30 November 2012 Ms Cura says in regard to the application:

    “3. I am pressing my application to set aside the sequestration order for the following reasons: 

    3.1 I wish to an[d] am determined to repay my outstanding debts with the help of CAPs  (see below),

    3.2 The sequestration order was made in circumstances which I believe are unfair (see below), and

    3.3 If the sequestration order was to stand it would be likely to prejudice me in the future both in the conduct and growth of my business and in my future plans to purchase a property and in dealings with banks and financial organisations generally.” 

12. Having read that affidavit and having heard Mr Dempsey on behalf of the applicant, the court is minded to set aside the sequestration order, either by way of annulment or by way of review, and a decision upon which really turns upon whether it is appropriate in all the circumstances that the trustee not be entitled to his costs which he has assessed in the sum of some $5,100.00 of which he is prepared to accept $1,700.00 paid by instalments.  In Kyriackou Weinberg J said at [41] and [42]:

    “[41] It might be thought that the Act is deficient in failing to provide for the summary recovery by a trustee of the costs of administering an estate, and his or her reasonable remuneration, in circumstances where a sequestration order has had to be set aside. Perhaps the party responsible for those costs having been unnecessarily incurred, in this case the first respondent, ought to be summarily liable for them. There may be some cases, in which it will be appropriate to annul a bankruptcy under s 153B, thereby triggering the operation of s 154, rather than setting aside a sequestration order. Certainly, Emmett J took that approach in Austral. French J, in Symons, was prepared to contemplate a similar course, though not without reservations. In my opinion, this is not such a case.

    [42]It seems to me that a trustee who administers a bankrupt estate, in the knowledge that the bankrupt is challenging the validity of the sequestration order, must exercise caution when incurring expenses whilst the status of the bankruptcy remains uncertain. I can well understand why, in Austral, given the facts of that case, involving as it did a resolution of a dispute between a debtor and a creditor, Emmett J concluded that it was appropriate to order the annulment of the bankruptcy, rather than simply setting aside the sequestration order. There was something to be said for making the putative bankrupt’s estate meet the costs needlessly thrown away, particularly given the fact that there had been a short administration. The argument for fixing the estate with the costs and expenses of the administration seems to me to be less cogent when the putative bankrupt should never have been the subject of a sequestration order in the first place. That is particularly so when the sequestration order is based upon a bankruptcy notice that has always been attacked as invalid.”

13. This is not one of those cases where it is clear on the face of the documents that the sequestration order was clearly invalid.  Such a situation will pertain when, for example, a bankruptcy notice is clearly invalid on its face for one of the many reasons that these Courts have determined that fact, even since the views of the High Court that were expressed in Adams v Lambert (2006) 228 CLR 409. The basis upon which Ms Cura argues that the sequestration order ought not to have been made is that she was not served with the bankruptcy notice and that is a matter for evidence even if it is more likely than not that her evidence, would be accepted. The next thing that the court must consider is what occurred after service of the bankruptcy notice which Ms Cura admits she received. She did not take the steps to which I have referred to attempt to set aside the original judgment even though that was a judgment in respect of which she has deposed that she was not served with the originating process. This decision is based on the assumption that assertion would have been made out.

14. It is understandable that a party who is rebuffed by Legal Aid may bury her head in the sand.  The applicant is now asking for, not just the consideration of the court, but an order that would, effectively, debar her trustee from being remunerated for the work he undertook.  I would also note that Mr Dempsey’s other ground for arguing that the sequestration ought not be made was based upon an untested assertion concerning the Contracts Review Act 1980 (NSW).

15. The court has taken into account all these matters and the attitude taken by QBE.  It has also taken note of the fact that the trustee has agreed to waive part of his costs although, as Mr Dempsey submits, the trustee has two other debtors from whom he may well be able to recover the balance.

16. In my view, the trustee in this case has exercised sufficient caution whilst the status of the bankruptcy remained uncertain.  There is no evidence to the contrary and the very figure proposed for his costs would seem to indicate that little was done.  Ms Cura waited almost until the final date for filing the application for review, which meant that the trustee received information that he was to be trustee of her bankrupt estate and would have opened files and sent out the usual letters concerning the debtor’s obligations under the Bankruptcy Act 1966.  He would have undertaken some other steps to familiarise himself with the situation.  It would appear that once notice of the application was made the trustee did little more than instruct the solicitors retained by QBE.

17. Under these circumstances it is my view that it would not be appropriate to keep the trustee out of his fees by making an order that will have that effect.  As Weinberg J said in Kyriackou at [43]:

    “In this case, a balance must be struck between the rights of the appellant, who should never have been made bankrupt in the first place, and the Official Trustee, who has simply done what the Act requires him to do.”

    I believe the balance should tilt in favour of the trustee rather than in favour of the applicant because it seems to me that the decision of the Registrar at the time it was made and without knowledge of the matters that have been deposed to in the affidavits that have come before me or the submissions made by Mr Dempsey, was an appropriate one in all the circumstances. This is a case where, at best, an order should be made under s.153B with the corresponding obligation on the debtor and the corresponding rights in the trustee under s.154.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of Raphael FM

Date:  14 December 2012