Re Menere, Paul Henry v Donnelly, Max Christopher

[1996] FCA 796

CATCHWORDS

BANKRUPTCY - Application to annul sequestration order - Bankruptcy Act 1966 (Cth) s 153B - broad discretion - Bankruptcy Notice will result in available act of Bankruptcy notwithstanding judgment on which it is based is set aside - setting aside judgment conditional - conditions not fulfilled - no reasonably arguable defence.

Bankruptcy Act 1966 (Cth) s 153B

Corporations Law, s 183

Re Vella; Ex parte Seymour (1983) 67 FLR 287, cited

Re Hayes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216, cited

Re Handby; Ex parte Flemington Central Spares Pty Limited (1967) 10 FLR 378, cited

Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983)
48 ALR 545, cited

Re Raymond; Ex parte Raymond (1992) 36 FCR 424, cited

Re Deriu (1970) 16 FLR 420, considered

Cook Hills Investments Pty Ltd v Rodriguez (No 2) (unreported, 10 December 1986), cited

RE: PAUL HENRY MENERE
MAX CHRISTOPHER DONNELLY and THE AUSTRALIAN POSTAL CORPORATION

No NB 1574 of 1996

Tamberlin J
Sydney
5 September 1996

IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION                 )  No NB 1574 of 1996
BANKRUPTCY DISTRICT OF THE       )
STATE OF NEW SOUTH WALES

RE:  PAUL HENRY MENERE           
  Applicant

MAX CHRISTOPHER DONNELLY
  First Respondent

THE AUSTRALIAN POSTAL
  CORPORATION
  Second Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       5 SEPTEMBER 1996

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1.  The application be dismissed.

1. The applicant pay the costs of the second respondent.

NOTE:     Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )
GENERAL DIVISION                 )  No NB 1574 of 1996
BANKRUPTCY DISTRICT OF THE       )
STATE OF NEW SOUTH WALES

RE:  PAUL HENRY MENERE           
  Applicant

MAX CHRISTOPHER DONNELLY
  First Respondent

THE AUSTRALIAN POSTAL
  CORPORATION
  Second Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       5 SEPTEMBER 1996

REASONS FOR JUDGMENT

Before me is an application for annulment of a sequestration order made on 3 June 1996 in respect of the applicant, Paul Henry Menere. The application is resisted by the respondents.

The relevant provision of the Bankruptcy Act 1966 (Cth) ("the Act") is s153B which reads:

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

The basis on which the application is made is that prior to the making of the sequestration order the judgment of the Local Court on which the Bankruptcy Notice was founded, was
set aside by consent. The only evidence as to the basis on which the judgment was set aside is a rather cryptic handwritten note on the Civil Claims Cover Sheet in respect of the callover on 15 March 1996. That note reads:

"Rasmussen J.C. (8.6)

Durston J.B.
         Opposed

LATER -

B\C ASAJ Granted
         Subject D. 7 days
         D paying P. Costs $456 in
         28 days from 15/3"

The sequence of relevant events is that on 5 September 1994, the second respondent, Australian Postal Corporation, issued a Liquidated Statement of Claim against the applicant for a total amount of $7,546.63 including interest, fees and costs.

No defence was filed and on 5 May 1995 default judgment was entered against the applicant in the Local Court.

On 6 October 1995 a fourteen day bankruptcy notice was issued and it was served on 7 December 1995. On 21 December 1995 the act of bankruptcy was committed, being non-compliance with the bankruptcy notice, and on 25 January 1996 the Creditors' Petition was issued.  On 15 March 1996 there was a hearing of an application to set aside the default judgment at the Downing Centre Local Court. The default judgment was set aside in the terms with the notation set out above.

On 14 May 1996, two months later, the Creditors' Petition was served and on 3 June 1996 the sequestration order was made.

These annulment proceedings were commenced by application on 4 July 1996. On 6 August 1996 there was a public examination of the applicant and he filed a Statement of Affairs.

The annulment application first came on for hearing on 13 August 1996 but was part heard on that day and was adjourned until 4 September 1996.

Principles

Non-compliance with the Bankruptcy Notice will bring about an available act of bankruptcy notwithstanding that the judgment upon which it is based may subsequently be set aside. See Re Vella; Ex parte Seymour (1983) 67 FLR 287 at 292-293 per Morling J; Re Hayes; Ex parte Thomas Borthwick & Sons (Australasia) Ltd (1970) 18 FLR 216; Re Handby; Ex parte Flemington Central Spares Pty Limited (1967) 10 FLR 378 and Clyne v Deputy Commissioner of Taxation (NSW) (No 3) (1983) 48 ALR 545.

The relevant time for determining whether a sequestration order "ought not to have been made" is the time when the order was made. See Re Raymond; Ex parte Raymond (1992) 36 FCR 424 at 425 per Spender J.
In Re Deriu (1970) 16 FLR 420, Gibbs J held that the debt for which the petitioning creditor obtained judgment was the debt of a company, not that of the applicant, and that the applicant was never indebted to the petitioning creditor.

In the present case, the affidavit filed by the applicant in the Local Court on the application to set aside the judgment, denied that he entered into a contract with the second respondent. The applicant's case is that a company of which he was an employee, entered into the contract with the second respondent.  The applicant swore that at the time of entering into the contract on about 3 November 1993 he was an undischarged bankrupt and was neither a director nor secretary of the Company, P Menere Civil Engineering Pty Limited ("the Company").  He swore that subsequent to 3 November 1993, when an oral demand was made on him for the moneys, he informed the second respondent that he was not a director or secretary of the Company and that he was at that time an undischarged bankrupt employed by the Company.  Evidence before me discloses that when the second respondent accepted the relevant tender giving rise to the claim, the acceptance was addressed to the Company and not to the applicant personally. From this letter the applicant contends that the debt was owed by the Company and not by him personally.  However, evidence before me also discloses that the Company was dissolved on 24 June 1993, which was more than four months before the contract was entered into. Notwithstanding this the applicant signed a cheque, dated 20 November 1993, for $2,000 made out to the second respondent and drawn on the Company account. This cheque was dishonoured on presentation.

The evidence also indicates that the relevant tender lodged on or about 15 October 1993 to the second respondent was signed by the applicant under the heading "Tenderer's Signature" but on the tender form there was also reference to the Company.

The applicant submits that the foundation for the sequestration order, namely the Local Court judgment, had been set aside by the time the sequestration order was made. He contends that as the judgment was set aside by consent, after filing of the affidavit referred to earlier, the appropriate course is to allow the matter to be litigated in the Local Court and to annul the sequestration order.

For the second respondent it is submitted that the effect of the notation on the Court record of 15 March 1993, is that the judgment was only set aside subject to a defence being lodged within seven days and also subject to a condition that the applicant should pay the costs of the second respondent in the sum of $456 within 28 days from the 15 March 1996. It is said that neither of these conditions were satisfied and that therefore the judgment had not been set aside.

Although the Local Court is not a court of pleading the condition did require that some proper semblance of a defence be entered and there was no defence ever filed. It is said that the default judgment had not been set aside because the only "defence" filed was simply an allegation that the applicant was "never indebted to the plaintiff directly or indirectly as alleged".  This general issue defence, it is said, was not a defence and that therefore the judgment has not been set aside. See Cook Hills Investments Pty Ltd v Rodriguez (No 2) (unreported, Young J, 10 December 1986).

In my opinion, the defence lodged by the applicant raising the general issue, was not in accordance with the terms on which the judgment was set aside on 15 March 1996.  It was not a defence to a claim specifically pleaded. The second respondent's claim made specific allegations and gave detailed particulars. Accordingly, as a result of the breach of this condition, I do not consider that the consent order to set aside the judgment was operative as at 3 June 1996 when the sequestration order was made. 

The second respondent claims that the order requiring the applicant to pay the costs of the second respondent in relation to the application to set aside the Local Court judgment was a further and independent condition which operated to defeat the setting aside of the default judgment. In my view, the costs order was a separate and distinct order severable from the first order, in any event, and it did not operate to avoid the setting aside of the judgment.

Accordingly, I consider that the consent order made by the Local Court to set aside the default judgment was inoperative because no defence was filed before (or after) the date of sequestration and so the judgment remained in force.

However, even if the judgment had been effectively set aside the petition was still based on an available act of bankruptcy, and I am not persuaded that the sequestration was invalid or ineffective. Indeed, the application to set aside the sequestration order is based on the premise that there is a valid order.

In exercising its power pursuant to s153B the Court has a wide discretion as to whether it ought to annul the sequestration on the ground that the order ought not to have been made.

In this matter, having regard to the fact that the Company alleged by the applicant to be the actual contractor had been dissolved, it does not seem to me that the applicant has shown a reasonably arguable defence in the proceedings before the Local Court. I can see no useful purpose being served by annulling the sequestration order.

Under s183 of the Corporations Law, the applicant may be personally liable in respect of the contract, even though he purported to contract on behalf of a non-existent company.

Accordingly, I am not satisfied in the present case, on the evidence placed before me, that any grounds have been made out to justify an annulment of the sequestration order.

Accordingly, I dismiss the application with costs.

I certify that this and
the preceding seven (7)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.

Associate:

Date:  5 September 1996  

Counsel for Applicant:           Mr C Hogg  

Solicitor for Applicant:              J Pappas, Solicitor

Counsel for Respondent:          Mr R Rasmussen  

Solicitor for Respondent:        Cutler Hughes & Harris

Date of Hearing:               4 September 1996  

Date Judgment Delivered:              5 September 1996