Re Faour, Maha Ex parte NEC Home Electronics Australia Pty Ltd

[1996] FCA 254

CATCHWORDS

BANKRUPTCY - discharge of bankrupt and annulment of sequestration order - discretion to annul bankruptcy where the court is satisfied that the sequestration order "ought not to be made" under s153B of the Bankruptcy Act 1966 - denial of natural justice not to order re-hearing of petition

Bankruptcy Act 1966 s153B

Re Anasis; Ex parte Total Australia Ltd (1985) 63 ALR 493 - applied

Re MAHA FAOUR; Ex parte NEC HOME ELECTRONICS AUSTRALIA PTY LTD & ANOR.

No. B 1512 of 1995

BEAUMONT J

SYDNEY

2 APRIL 1996

IN THE FEDERAL COURT OF AUSTRALIA  )
  )
BANKRUPTCY DISTRICT OF THE STATE   )    No.  NB 1512 of 1995
  )
OF NEW SOUTH WALES               )

Re:          MAHA FAOUR

Ex parte:NEC HOME ELECTRONICS AUSTRALIA PTY LIMITED & ANOR.

CORAM:    Beaumont J.

DATE:     2 April 1996

MINUTES OF ORDER

THE COURT ORDERS:

1. That the sequestration order made on 4 July 1995 be set aside and the bankruptcy thereunder be annulled.

1. That the petition be extended up to and including this day, 2 April, and that the petition be re-heard instanter.

1. That the applicant pay the costs of the petitioning creditor of the application to set aside the sequestration order and of all steps properly taken under the sequestration order and that the applicant further pay the costs of, and the expenses properly incurred by, the Trustee.

1. That the costs of the petitioning creditor up to the making of the sequestration order on 4 July 1995 be reserved to be dealt with upon the re-hearing of the petition.  I further reserve liberty to the applicant to apply for an order that her former solicitor pay the whole or part of the costs already ordered.  In that connection, I reserve liberty to apply on 7 days written notice.

Note:Settlement and entry of orders is dealt with in rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )
  )
BANKRUPTCY DISTRICT OF THE STATE   )    No.  NB 1512 of 1995
  )
OF NEW SOUTH WALES               )

Re:          MAHA FAOUR

Ex parte:NEC HOME ELECTRONICS AUSTRALIA PTY LIMITED & ANOR.

CORAM:    Beaumont J.

DATE:     2 April 1996

REASONS FOR JUDGMENT

This is an application for the annulment of a bankruptcy arising under a sequestration order made by a Registrar on 4 July 1995.  The order was made on the petition of a creditor, NEC Home Electronics Australia Pty Limited.  The creditor had recovered a default judgment against the bankrupt on 9 December 1994 in the District Court of New South Wales in the sum of approximately $38,000.

In her affidavit sworn in this application on 28 September 1995, the bankrupt says, and this evidence is not challenged, that she instructed her solicitor (who is not her present solicitor) in February 1994, to defend the District Court proceedings brought against her and the company which she had managed, Mistmorn Pty Limited.  She says that her solicitor assured her that the matter would be defended; however, on 18 July 1995 she was informed by another solicitor that a default judgment had been entered against her in December 1994.

In her affidavit sworn in these proceedings on 28 September 1995, and again this is not challenged, the bankrupt says that she was served with a bankruptcy notice, upon which NEC's petition was to be based, in January 1995.  She says that she gave the bankruptcy notice to her previous solicitor, who informed her that he would "handle it".  She says that she did not understand what the bankruptcy notice meant and relied on her solicitor at the time to handle the matter on her behalf.

On 22 May 1995, her solicitor at the time filed a notice of intention to appear at the hearing.  She further says, and again this is not in contention for present purposes, that she believed that she would be represented in court on the hearing of the petition in July 1995 to oppose the making of a sequestration order.  On 7 July 1995, she received a letter from the Trustee in bankruptcy informing her that she had been made bankrupt.  She then spoke to the Trustee and complained that she should not have been made bankrupt.  This led to the making of the present application, which was filed in August 1995.

The application came before another Judge of this Court in October 1995.  The Court was informed then that the bankrupt proposed to apply to the District Court to set aside the default judgment and to be allowed to defend the action.  On that footing, the present application was stood over to be dealt with by this Court after the District Court had dealt with the application before it.  On 15 March 1996, the matter came before a Judge of the District Court in a contested application.  Freeman D.C.J. ordered that the default judgment be set aside and that the applicant (the bankrupt) be given leave to file a defence within seven days.

A number of the submissions made on behalf of NEC in the District Court application are of a complex and technical nature which I need not mention, but reference should be made to one of the findings of the Judge.  That is his Honour's finding in respect of a defence of payment that had been raised as what was said to be the triable issue in the District Court.  His Honour said:

"As to the defence of payment there is no doubt that the bank cheque for $27,000.00 by which the respondent received payment was purchased by a cheque issued on the account of Mistmorn Pty. Ltd.  However, the applicant claims that she was owed money by Mr Yasseen and that he had given her, in part payment of this debt, three bank cheques originally payable to him but which he assigned to her.  She says that at that time she had access to only two accounts.  One of those accounts was a joint account with Mr Yasseen (apparently an arrangement outstanding from a period when they had lived together) and the other was the company account of Mistmorn Pty Ltd.  Since she was intending to pass through the company account the cheques which she had received from Mr Yasseen in respect of this personal debt she regarded the money as being her own and this, so it is said, is confirmed by the assurance given by Mr Yasseen to the respondent's credit manager.  These matters may or may not be capable of proof to the satisfaction of a trial judge.  I discharge my function by determining that this is a defence raised bona fide."

The matter has come before me initially as the duty Judge some weeks ago.  Appearing before me were not only counsel for NEC, but also counsel for Panasonic Australia Pty Limited, which claims to be a creditor in the sum of approximately $106,000, including an amount of $3723.09, being the amount of a default judgment recovered by Panasonic against the bankrupt in the Local Court on 22 December 1993.

Whilst the bankrupt has not sought to set aside the judgment for $3723.09, the solicitor appearing to-day for the bankrupt has made it clear that if the question were to arise for final determination, it is his client's instructions that the debt of $106,000 claimed by Panasonic will be disputed.   It appears that this debt also arises under a guarantee given by the bankrupt in respect of liabilities incurred by Mistmorn to Panasonic.  That claim (i.e. the principal debt alleged) is itself complicated, as it seems that Mistmorn made a payment of at least part of the principal debt to Panasonic, but, upon the liquidation of Mistmorn, proceedings were taken by the liquidator against Panasonic to recover, as a preferential payment, the amount paid to Panasonic.  I am now informed that Judge of the Equity Division of the Supreme Court of New South Wales has upheld the liquidator's claim and ordered Panasonic repay the sum in question.   However, I have also been informed that Panasonic intends to appeal against the decision.  It appears further that it would be some years in the ordinary course before that appeal would be dealt with by the Court of Appeal of the Supreme Court.

(It may be noted, in passing, that the Panasonic claim against the bankrupt is founded upon a written guarantee.  A question may well arise as to its application, as the payment of the principal debt was purportedly made by Mistmorn, but in effect, as has been noted, a subsequent order has been made for the repayment of that amount as a preference.  I say nothing, of course, of the validity of the contention of any of the parties in that connection.)

The Trustee has also appeared before me in this application.  He has, in the form of a statutory report, provided information as to the assets and liabilities of the bankrupt.  It appears that her only asset is the family home, in which she and her children reside.  I was informed that this home was acquired by the bankrupt some time ago by way of purchase following upon the sale of an earlier matrimonial home, which had itself been acquired by the bankrupt on her divorce. 

There are before me market appraisals of the property which suggests that it has a value of something in excess of $200,000.  However, the property is mortgaged to the ANZ Bank in an amount of approximately $160,000.   The bankrupt and the bank entered into a deed of settlement dated 7 March, 1996 which, within the limits of its time frame, appears to offer some advantage to the bankrupt in the event that the bankruptcy is annulled.

It further appears that the only creditors of the bankrupt are those parties appearing before me, namely, NEC and Panasonic.  Although those debts are challenged by the bankrupt, it is clear that if they can be substantiated, even to a significant degree, let alone wholly substantiated, the bankrupt will be insolvent.  The reality is that there are no liquid assets available to service any of the debts now claimed.  Moreover, the Trustee has indicated that his costs and expenses are not substantial in their own right.  (I should here note that the solicitor for the bankrupt has indicated that there may be a challenge as to the amount of the Trustee's costs and expenses.)

The present application is brought under s.153B of the Act, which gives the court a discretion to annul a bankruptcy where it is satisfied that the sequestration order "ought not to have been made." On behalf of the bankrupt reliance is placed on the approach taken by Burchett J in Re: Anasis;  Ex parte Total Australia Limited (1985) 63 ALR 493. In my view, that decision does provide a proper analogy for present purposes. It was a case in which notice of the hearing date was not received by the debtor by reason of the failure of an agent employed by the debtor to notify the hearing date to the debtor or to arrange representation.
         Burchett J considered, and exercised, the inherent jurisdiction of the court to set aside a sequestration order and to order the re-hearing of a petition where it appears that natural justice has been denied in those circumstances.  I am content to adopt his Honour's discussion, with which I respectfully agree.  It is true, of course, that the court has a discretion in this area, the question being, as Gibbs J said in Taylor v Taylor (1979) 143 CLR 1 at 8-9 that there is a "real question to be tried."

In Anasis, Burchett J went on to say:

"Although I think the applicant's case would satisfy the test of a `defence on the merits', as that test has been understood in relation to applications to set aside default judgments, I do not understand the expression `a real question to be tried' as, in this context, demanding so much.  Even an unwitting denial of natural justice is so fundamental a fault in the structure of a decision of a dispute that a party who has not been heard is, in my opinion, entitled to a hearing unless there is shown to be in fact nothing genuinely in dispute ... .  The lines in Seneca's Medea to which Dixon CJ and Webb J refer in Commissioner of Police v Tanos ... assert that a judge who, though he has not heard the defence, happens to reach a just decision, has none the less not been just.  Through the inherent jurisdiction, the law provides a remedy to avoid this reproach, and provides it as a prima facie right." 

I propose to apply that reasoning here.  In any event, as we have seen, a Judge of the District Court has already addressed the question of the defence on the merits in the passage which I have quoted.  It seems to me that this reasoning is sufficient for present purposes, notwithstanding the full argument that was addressed to me on behalf of NEC.
         In those circumstances, I propose to make orders, including orders as to costs, along the lines of those made by Burchett J in Anasis.

I make the following orders:

1. That the sequestration order made on 4 July 1995 be set aside and the bankruptcy thereunder be annulled.

1. I order that the petition be extended up to and including this day, 2 April and that the petition be re-heard in stanter.

1. I order that the applicant pay the costs of the petitioning creditor of the application to set aside the sequestration order and of all steps properly taken under the sequestration order and that the applicant further pay the costs of, and the expenses properly incurred by the Trustee.

1. I order that the costs of the petitioning creditor up to the making of the sequestration order on 4 July 1995 be reserved to be dealt with upon the re-hearing of the petition.  I further reserve liberty to the applicant to apply for an order that her former solicitor pay the whole or part of the costs already ordered.  In that connection I reserve liberty to apply on 7 days written notice.  

   I note that until further order, the applicant undertakes to cause any proceeds of the sale of the property at 171 Davies Road, Padstow, which belong to her beneficially, or to which she is otherwise entitled, to be paid forthwith upon completion to the solicitors for the applicant and for NEC jointly (by payment into a bank IBD deposit account) to be held by those solicitors until further order of the Court, or to be disposed of in accordance with written directions given unanimously from time to time - if any - by the applicant, NEC and Panasonic.  It is noted that interest on the IBD account will also abide the further order of the court, or the unanimous written direction of the three parties.

I reserve general liberty to apply to any party upon such notice as a judge may allow.  In any event, I fix the matter for mention before myself at 9:30 am on October 21 1996, for the giving of any directions as may be necessary or appropriate.

I order that the petition be dismissed, but make no order as to costs.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Beaumont.

Associate:

Dated:30 April 1996

Solicitor for the Debtor:    Mr. J. Assi of Janus Lawyers

Counsel and Solicitors      Mr. D. Pritchard instructed by

for creditor NEC:           P.W. Turk & Associates

Counsel and Solicitors      Mr. P. Walsh instructed by

for creditor Panasonic:     Rowley & Associates

The Trustee, Mr. S. Nicols, appeared in person

Date of Hearing:            2 April 1996

Date Judgment delivered:         2 April 1996