Re Raymond; Ex parte Raymond
[1992] FCA 495
•30 JUNE 1992
Re: GEOFFREY RAYMOND
Ex Parte: THE ABOVENAMED (Applicant)
No. Q B2845 of 1991
FED No. 495
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND
Spender J.(1)
CATCHWORDS
Bankruptcy - application for annulment of sequestration order - meaning of words "ought not to have been made" - no debt founding creditor's petition - judgment debt set aside after making of sequestration order - standing-by by bankrupt - costs.
Bankruptcy Act 1966 s. 154
Re Scott (1975) 6 ALR 558
Re Deriu (1970) 16 FLR 420
Re Griffiths; Ex parte Huntley Vol. III NSW Bktcy Cas (1890-99) 6
HEARING
BRISBANE
#DATE 30:6:1992
Counsel for the applicant: Mr S.R. Blaxland
instructed by : Barbeler and Cooke
Counsel for the petitioning creditor: Mr F.G. Forde
instructed by: Crowley and Greenhalgh
ORDER
The Court orders that:
1. The bankruptcy of Geoffrey Raymond be annulled.
2. Geoffrey Raymond pay to the petitioning creditor the costs of and incidental to the petition and to the application for annulment, to be taxed if not agreed.
3. Geoffrey Raymond pay the trustee's costs in respect of his proper fees of administering the estate of Geoffrey Raymond to the date of this order.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
This is an application for the annulment of a sequestration order made against the estate of Geoffrey Raymond on 3 December 1991. The application for annulment poses a question as to the proper construction of the words "ought not to have been made" contained in s. 154(1) of the Bankruptcy Act 1966. Section 154(1) relevantly provides:
" Where the Court is satisfied:
(a) that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Registrar; ...
the Court may make an order annulling the bankruptcy. "
On 11 May 1990, judgment was entered in the Magistrates Court at Brisbane against Mr Raymond in respect of a plaint and summons issued on behalf of Morre Anna Henderson. The total amount of the judgment, including costs, was $12,426.49. The gravamen of Mrs Henderson's claim was for $11,250.00, being the balance of the purchase price said to be owing by Mr Raymond to the plaintiff pursuant to an agreement in writing dated 18 December 1989. The agreement related to the sale of a dwelling house located at 49 Station Road, Indooroopilly, with all fittings and fixtures for removal for the sum of $12,500.00. It was alleged that Mr Raymond had paid a deposit to the plaintiff of $1,250.00 on or about 18 December pursuant to the terms of that contract.
Judgment was obtained in default of entry of appearance and defence. Pursuant to the judgment, Bankruptcy Notice No. 195 of 1991 was issued. No attempt was made by Mr Raymond to set aside that bankruptcy notice, nor did he take any step in respect of an amended creditor's petition based on that same judgment which was served upon him on 21 November 1991.
As is clear from the contract of 18 December 1989, the agreement on which the judgment was based is an agreement made between Tappington Pty Ltd trading as Heritage House Removals on the one part, and Morre Anna Henderson on the other. I am satisfied that that judgment has since been set aside on the application of Mr Raymond, but not until after the making of the sequestration order.
I am satisfied that Mr Raymond is not and was not ever indebted to Mrs Henderson, contrary to what the judgment on its face seems to indicate.
Notwithstanding that conclusion, it was submitted by Mr Forde, counsel on behalf of Mrs Henderson, that I should decline to annul the sequestration order in the exercise of my discretion. Reliance was place on the judgment of Lucas J. in Re Scott (1975) 6 ALR 558.
In that case a judgment had been obtained against a debtor and a bankruptcy notice issued on that judgment with which the bankrupt failed to comply. A creditor's petition was issued and came before the court, and was then adjourned. On the adjourned date, a sequestration order was made. Some time later, on an application by the bankrupt, the original judgment debt was set aside. The bankrupt then applied to have the sequestration order annulled.
It was held by Lucas J. that the applicant in this type of proceedings must show that the sequestration order "ought not to have been made" upon the facts as they existed at the date when the sequestration order was made.
His Honour concluded that in that case the bankrupt did not bring himself within the section, as at the date of the sequestration order the judgment debt was still standing, and no application had been made for it to be set aside. His Honour exercised the discretion against the bankrupt as, at the time of the bankruptcy proceedings, no indication had been given that the judgment debt would be challenged.
Based on the reasoning in that case, Mr Forde submitted that the discretion should be exercised against Mr Raymond in this case.
In my opinion, on the true facts as they existed at the making of the sequestration order, the sequestration order "ought not to have been" made within the meaning of those words as they appear in s. 154 of the Bankruptcy Act.
That the bankrupt stood by at the time of the entering of the default judgment, and that he did nothing in respect of the bankruptcy notice or the creditor's petition, does not alter the factual situation as it truly existed at the time of the making of the sequestration order.
The judgment, in my view, is one that ought not to have been made, and that conclusion seems to be supported by the fact that it has subsequently been set aside.
I propose to make an order annulling the bankruptcy on terms as to costs, which will reflect the standing-by by the bankrupt at the various stages of the proceedings leading up to the making of the sequestration order, and also taking into account the necessity of this present application.
In deciding to annul the bankruptcy, I accept the correctness of the observations by Manning J. in Re Griffiths; Ex parte Huntley Vol. III NSW Bktcy. Cas. (1890-99) 6. His Honour at 9 said:
" ...I take it that the words 'ought not to have been made' do not mean not only upon the case as disclosed at the time, but as it would have been disclosed had all the true facts, as shewn in the application for the discharge, been before the Judge on the making of the order. "
It is clear that where a party seeks relief ex parte, there is an obligation on that party to put before the court the true factual position. That a judgment is based on erroneous facts propounded by an applicant seeking ex parte relief, does not make true those erroneous facts.
My conclusion is strengthened by a consideration of the judgment of Gibbs J. (as he then was) in Re Deriu (1970) 16 FLR 420.
In that case the bankrupt applied for an order rescinding the sequestration order which had been made on a creditor's petition on the ground of his failure to comply with the bankruptcy notice. The bankrupt alleged that he was never indebted to the petitioning creditor.
Gibbs J. found, on the facts of that case, that the debt for which the petitioning creditor obtained his judgment was the debt of a company, not that of the applicant, and that the applicant was never indebted to the petitioning creditor.
That factual position is the same as applies in the instant case.
His Honour said at 420:
" This Court has jurisdiction to go behind the default judgment of the District Court and to inquire whether it was founded on a real debt (Corney v. Brien (1951) 84 CLR 343). I hold that the judgment was not founded upon a real debt and the petitioner was not entitled to a sequestration order.
Section 154(1) of the Bankruptcy Act 1966-1969 provides that where the Court is satisfied (inter alia) that a sequestration order ought not to have been made, the Court may make an order annulling the bankruptcy. Under this section there are two matters which the Court has to consider, first, whether a sequestration ought not to have been made, and then, if the Court is satisfied of that, whether in the exercise of the Court's discretion the order should be annulled (Re Williams (1968) 13 FLR 10, at 23). It follows from what I have said that I am satisfied that a sequestration order ought not to have been made. "
For precisely those reasons, I am similarly satisfied in the instant case.
His Honour then considered whether it was appropriate to rescind the sequestration order or whether the more appropriate course was to annul the bankruptcy. At 422 he said:
" I give the applicant leave to amend the application by substituting for the word 'rescinded' in par 1 thereof the word 'annulled'. I annul the bankruptcy under the sequestration order made on 9th October, 1969, but order that such annulment shall not take effect until the bankrupt shall have paid to the official receiver the amount of $165.80 owing in respect of official fees. I order that the bankrupt pay to the petitioning creditor his costs of and incidental to the petition and this application to be taxed."
For the reasons which I have set out I do not adopt the view of Lucas J. in Re Scott (supra). I am of the opinion that there is not and was not in truth and reality a debt which founded the creditor's petition, and that consequently, the sequestration order ought not to have been made. The fact that the proceedings to set the judgment debt aside had not been initiated at the time of the making of the sequestration order does not, in my view, lead to the conclusion that the discretion to annul a bankruptcy should be exercised against the bankrupt. Considerations relevant to the standing-by by the bankrupt during the bankruptcy proceedings can be met by appropriate orders as to costs.
I annul the bankruptcy of Geoffrey Raymond. I order that he pay to the petitioning creditor the costs of and incidental to the petition and this application for annulment, to be taxed if not agreed.
I order that Mr Raymond pay the trustee's costs in respect of his proper fees of administering the estate to the date of this order. I will not make any provision requiring payment of those fees in connexion with the order of annulment.
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