Re Nemeruck, Anastasia

[1996] FCA 977

IN THE FEDERAL COURT OF AUSTRALIA  )
GENERAL DIVISION  )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES               )         No.  NB 1380 of 1994

RE:ANASTASIA NEMERUCK

Applicant

CORAM:Lehane J

PLACE:Sydney

DATE:22 October 1996

MINUTE OF ORDERS

THE COURT ORDERS:

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

IN THE FEDERAL COURT OF AUSTRALIA  )
GENERAL DIVISION  )
BANKRUPTCY DISTRICT OF NEW SOUTH WALES               )         No.  NB 1380 of 1994

RE:ANASTASIA NEMERUCK

Applicant

CORAM:Lehane J

PLACE:Sydney

DATE:22 October 1996

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J: This is an application by the debtor, Mrs Anastasia Nemeruck, for the annulment of a sequestration order made in relation to her estate on 20 June 1994. I am told that there is also an issue (or at least a potential issue) as to whether certain property is, under s 116 of the Bankruptcy Act 1966 (the Act), not divisible among Mrs Nemeruck's creditors; but if that is or becomes an actual issue, it is not one that is relevant to the question whether the sequestration should be annulled.

The jurisdiction to annul a bankruptcy in a case such as the present arises under s 153B of the Act and it may be exercised in circumstances where the Court is satisfied that the sequestration order ought not to have been made.  The ground on which it is said that the sequestration order in this case ought not to have been made is that neither the bankruptcy notice nor the petition was properly served on Mrs Nemeruck.

A Mr Peter, a licensed commercial sub‑agent, has sworn affidavits, in a common form, deposing to proper service of both documents on Mrs Nemeruck.  Mr Peter has been cross‑examined today.  While he was unable to remember the circumstances of service of the documents in these proceedings (hardly surprising given the lapse of time and the number of documents to which he deposed to serving in an average day), he gave evidence that he had never deposed falsely to serving any documents or process.

On the other hand, Mrs Nemeruck has given affidavit evidence, and gave oral evidence before me today, to the effect that the documents were not served on her as deposed by Mr Peter and that she was not, at the times when the documents were said to have been served, at the place, her home, where service was said to have been effected.  It is true that, in an affidavit which she swore on 27 August 1996, Mrs Nemeruck, while saying that she had never been served with the documents, did not depose to the detailed circumstances of which she has more recently given evidence; that is to say, that she was not at the relevant time at the place where the documents were said to have been served.  But it is evident also, from the material which Mr Harris has tendered on behalf of the Trustee, that the claim that the documents (or at least the petition) were not properly served has been made on behalf of Mrs Nemeruck almost from the day on which she was first informed that the sequestration order had been made: she did not appear on the hearing of the petition.

If this evidence had been available before the Court at a date shortly after the sequestration order was made, it may well be that an order for annulment would have
been made.  Similarly, if it had been before the Court on the hearing of the petition I have little doubt that without further evidence the sequestration order would not have been made.  This is, of course, speculation, because there is no doubt that the memory of all concerned is likely to have been more precise and reliable then, than it is now as to the events which occurred at the alleged time of service.

As matters now stand, there is a clear conflict of evidence which I find it impossible satisfactorily to resolve.  It is impossible for me to conclude simply that Mr Peter's evidence is false.  On the other hand, on the evidence, I also could not positively conclude that the documents were properly served: particularly, I am not satisfied that the attack that was made on Mrs Nemeruck's credit was in the circumstances, and especially given the history of complaints at a much earlier date, sufficient to enable me simply to reject her evidence that she did not receive the documents.   But the statutory condition of the discretion to annul the sequestration order is that I be satisfied that it ought not to have been made: in this case, on the ground that the documents were not served.

In the circumstances I think it is necessary, or at least desirable, for me to consider certain matters going to the exercise of my discretion which were put to me on behalf of the Trustee.  As Mr Harris submitted, an anullment of the bankruptcy does not necessarily follow from a conclusion that the Court is not satisfied that the documents were properly served.  Even where the statutory condition is met, the question whether a bankruptcy should be annulled is a discretionary question to be exercised in the manner in which all judicial discretions are exercised, that is, with regard to all relevant matters.
Relevant matters in this case include, in my view, two significant circumstances.  One is the circumstance of delay; another is the circumstance that while there may be some issue as to the precise amount owing by Mrs Nemeruck to the petitioning creditor, in substance there is no dispute that Mrs Nemeruck was, and is, indebted to the petitioning creditor, albeit as joint not sole debtor.

In relation to the question of delay, Mr Nicholas Nemeruck, who appeared this morning by leave for his mother, put to me that he and his mother had been advised shortly after the making of the sequestration order by a former solicitor that the fact the documents had not been served meant that the sequestration order was simply ineffective.  He put to me also that, although it was subsequently pointed out to him that in the absence of an application for annulment the sequestration order was effective and gave rise to binding obligations, the information then available suggested to him and his mother that it would be a difficult and expensive process, requiring a payment of large sums of money, to set in motion the procedure for obtaining an annulment.  Therefore, he said, those steps were not taken until, following further research which he himself had made, the application was filed.

There is a third matter which I think has some relevance.  Even if an annulment order is made, the Trustee will be entitled to recover its proper costs out of Mrs Nemeruck's property.  A number of questions which will arise in the bankruptcy would apparently arise in any event, even if I make the order which is sought today.  To say this is not to diminish the importance of recognising that an order of the Court imposing serious
detriment on a debtor should not stand, if wrongly made.  But it is nevertheless a relevant consideration.

The question which I have to decide is not entirely untouched by authority.  There is an early decision of the High Court in Delph Singh v Wood (1918) 25 CLR 497. In that case the High Court dismissed an appeal from a judgment of Street J in the Supreme Court of New South Wales, and expressed full agreement with his Honour's reasons. The circumstances were that a sequestration order had been made some two years previously; an application was made for an annulment of the bankruptcy under section 37(i) of the Bankruptcy Act 1898 then in force, which was in terms very similar to section 153(b) of the present Act. The ground on which annulment was sought was that the court, it was said, should be satisfied that the sequestration order ought not to have been made. The Court ought to be so satisfied, it was claimed, on the basis that the debtor could show that the debt on which the petition was founded was not, at the relevant time, owing. The court considered it to be plain that, had that matter been before the court at the time the petition was heard, the sequestration order ought not and would not have been made. The question, however, was whether in the circumstances (including delay of a period similar to that which has occurred here), and where the debt at the time when the matter came to be dealt with by the Court was in fact owed, it was appropriate in the exercise of the Court's discretion to annul the bankruptcy.

The Court held in those circumstances that it was inappropriate to make an order of annulment.  Street J said (his Honour's words are reported at 503 of the report of the case in the High Court):

... that in every case the court must have some circumstances before it going to show that a miscarriage of justice has taken place.

Of course, if a person is made bankrupt on a petition where, at the time, the evidence does not sufficiently establish proper service, then a miscarriage has indeed taken place.  That I think is inescapable.  I do not think, however, that that is the sense in which the term was used by Street J.  It seems clear that both Street J and the members of the High Court were directing their attention not to the time at which the sequestration order was made but to the circumstances as they existed at the time when the order for annulment was sought.

This is by no means an easy case.  But, as I have said, as to the matter of which I must be satisfied there is a conflict of evidence the resolution of which is not easy or; indeed perhaps impossible.  The debt on which the petition was founded is at least substantially conceded to be owing.  And, despite the explanations that have been given, Mrs Nemeruck must be taken to have been aware since very early after the sequestration order was made of the possibility of an application for an order of annulment.  The Trustee inevitably has taken a great many steps and incurred substantial costs in the administration of the estate.  In the end I think this is a case in which I should exercise my discretion in the way contended for by the Trustee.

As I have said, it is a decision to which I have come with some hesitation; but I am satisfied that it is the correct course.  The consequence is that the application must be dismissed.

I certify that this and the preceding 6 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated:  22 October 1996

Heard:  22 October 1996

Place:  Sydney

Decision:  22 October 1996

Appearances: Mr N Nemeruck appeared for the applicant with leave of the Court.

Mr C M Harris of counsel instructed by Robinson, Beale and Horton Solicitors appeared for the respondent.