Reidy v Elcheikh
[2006] FMCA 130
•24 March 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| REIDY v ELCHEIKH | [2006] FMCA 130 |
| BANKRUPTCY – Administration of property – effect of bankruptcy on antecedent transactions – undue preferences – having the effect of giving a preference, priority or advantage – particular cases – transactions held to be preferences – repayment of unsecured debt to relative. EVIDENCE – Documentary evidence – statutory provisions as to statements in documents where direct oral evidence admissible – where maker of statement not attending as witness – notice required by Act not given – refusal to admit evidence on this basis. EVIDENCE – Documentary evidence – statutory provisions relating to business records – particular cases – letter from bankrupt’s solicitor to trustee setting out instructions from bankrupt – whether business record – letter admitted into evidence. |
| Bankruptcy Act 1966, ss.121, 122 Evidence Act 1995, ss.64, 67, 68, 69, 135, 140 Evidence Regulations 1995, reg.5 Federal Court Rules 1979, O.35 r.8 Federal Magistrates Act 1999, ss.76, 77(3)(a) Federal Magistrates Court Rules 2001, rr.15.05, 26.01 |
| Australian Competition & Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) [2005] FCA 1357 ASIC v Rich [2005] NSWSC 417 Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 1083 Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 933 San Ching Ming v Ivana Pty Ltd (1996) 140 ALR 273 Sellers Fabrics Ptyt Limited v Hapag-Lloyd AG; Re the ship ‘Encounter Bay’ [1998] NSWSC 644 Technilock (Aust) Pty Ltd & Ors v Mondami Pty Ltd & Anor [1999] SASC 320 Vitali v Stachnik [2001] NSWSC 303 |
| Applicant: | GEOFFREY PHILLIP REIDY (as trustee of the bankrupt estate of TONY ELCHEIKH) |
| Respondent: | SADIE ELCHEIKH |
| File Number: | SYG1900 of 2005 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 25 January 2006 |
| Date of Last Submission: | 25 January 2006 |
| Delivered at: | Melbourne |
| Delivered on: | 24 March 2006 |
REPRESENTATION
| Solicitor for the Applicant | Ms Kahler |
| Solicitors for the Applicant: | Gray Perkins Lawyers |
DECLARATION
That the payment by TONY ELCHEIKH to SADIE ELCHEIKH on or about 16 February 2004 in the sum of $58,572.98 is void against GEOFFREY PHILLIP REIDY (as trustee of the bankrupt estate of Tony Elcheikh) pursuant to sec 122 of the Bankruptcy Act 1966.
ORDERS
The respondent pay to the applicant the sum of $62,397.88 (being $58,572.98, together with interest in the sum of $3,824.90).
The respondent pay the applicant’s costs, as may be agreed, and failing agreement as assessed.
FEDERAL MAGISTRATES |
SYG1900 of 2005
| GEOFFREY PHILLIP REIDY (as trustee of the bankrupt estate of TONY ELCHEIKH) |
Applicant
And
| SADIE ELCHEIKH |
Respondent
REASONS FOR JUDGMENT
This is an application by the trustee of a bankrupt estate to recover the sum of $58,572.98 allegedly paid by the bankrupt to the respondent on or about 16 February 2004 on the basis that the payment was void pursuant to ss.121 and 122 of the Bankruptcy Act 1966.
Section 122 of the Act provides as follows:
SECTION 122 - Avoidance of preferences [see Table B]
(1) A transfer of property by a person who is insolvent (the debtor) in favour of a creditor is void against the trustee in the debtor's bankruptcy if the transfer:
(a) had the effect of giving the creditor a preference, priority or advantage over other creditors; and
(b) was made in the period that relates to the debtor, as indicated in the following table.
Creditor’s petition Period beginning 6 months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor Debtor’s petition presented when at least one creditor’s petition was pending against a petitioning debtor or a member of a partnership against which the debtor’s petition was presented Period beginning on the commencement of the debtor’s bankruptcy and ending immediately before the date of the bankruptcy of the debtor Debtor’s petition presented in any other circumstances Period beginning 6 months before the presentation of the petition and ending immediately before the date of the bankruptcy of the debtor (1A) Subsection (1) applies in relation to a transfer of property by the debtor in favour of a creditor:
(a) whether or not the liability of the debtor to the creditor is his or her separate liability or is a liability with another person or other persons jointly; and
(b) whether or not the property transferred is the debtor's own property or is the property of the debtor and one or more other persons.
(2) Nothing in this section affects:
(a) the rights of a purchaser, payee or encumbrancer in the ordinary course of business who acted in good faith and who gave consideration at least as valuable as the market value of the property; or
(b) the rights of a person who is making title through or under a creditor of the debtor in good faith and who gave consideration at least as valuable as the market value of the property; or
(c) a conveyance, transfer, charge, payment or obligation of the debtor executed, made or incurred under or in pursuance of a maintenance agreement or maintenance order; or
(d) a transfer of property under a debt agreement.
(3) The burden of proving the matters referred to in subsection (2) lies upon the person claiming to have the benefit of that subsection.
(4) For the purposes of this section:
(a) a transfer of property is taken to have been made in favour of a creditor if it is made in favour of a person in trust for the creditor; and
(b) a payment of tax, or of any other amount payable to the Commonwealth, or to the Commissioner of Taxation, under or because of an Act of which the Commissioner has the general administration, is taken to be made for consideration equal in value to the payment and in the ordinary course of business; and
(c) a creditor shall be deemed not to be a purchaser, payee or encumbrancer in good faith if the transfer of property was made under such circumstances as to lead to the inference that the creditor knew, or had reason to suspect:
(i) that the debtor was unable to pay his or her debts as they became due from his or her own money; and
(ii) that the effect of the transfer would be to give him or her a preference, priority or advantage over other creditors.
(4A) A reference in this section (other than subsection (5)) to a creditor of the debtor shall be read as including a reference to a person who would be a creditor of the debtor in relation to a contract, agreement, transaction or other dealing if the contract, agreement, transaction or other dealing were not, in whole or in part, void or unenforceable, or had not been voided in whole or in part, by or under a law of the Commonwealth or of a State or Territory of the Commonwealth.
(5) If a transfer of property is set aside by the trustee in a bankruptcy as a result of this section, the creditor to whom the property was transferred may prove in the bankruptcy as if the transfer had not been made.
(7) In this section:
"tax" means tax (however described) payable under a law of the Commonwealth or of a State or Territory, and includes, for example, a levy, a charge, and municipal or other rates.
(8) For the purposes of this section:
(a) transfer of property includes a payment of money; and
(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and
(c) the market value of property transferred is its market value at the time of the transfer.
The application was not supported by an affidavit but by a statement of claim, in reliance upon the Federal Court Rules rather than in accordance with the Federal Magistrates Court Rules. I note that a useful practice has developed in Melbourne of allowing a pleading to be annexed to a formal affidavit in support of an application in the Federal Magistrates Court in matters that would benefit from pleadings. As time has passed, this has resulted in a practice whereby a statement of claim is filed in lieu of an affidavit in some cases. To the extent that this required formalising by way of an order, such an order was made by Connolly FM on 3 October 2005.
Background
The statement of claim alleges that on 10 July 2002 the respondent loaned to the bankrupt the sum of $43,640. On 16 February 2004 it is said that the bankrupt paid to the respondent $58,572, and that the bankrupt was insolvent by that time as he had not met a judgment debt for over $100,000 entered on 17 December 2003. The creditors' petition was presented on 5 August 2004, less than six months after the date of the alleged payment.
The case has a relevantly short history. The respondent filed a notice of address for service on 15 August 2005, although at that time was unrepresented. The matter was then adjourned from the Sydney Registry to the Melbourne Registry on 17 August 2005.
On 3 October 2005, the matter came before Connolly FM who ordered that the applicant file and serve an affidavit in support of the application no later than 11 October 2005. The applicant was also given leave to apply to have the matter heard on an undefended basis if the respondent failed to appear on the adjourned date. All extant applications were then adjourned to 24 October 2005.
On 24 October 2005 the matter was adjourned to 14 November 2005 with orders by Registrar Mussett that the applicant serve the respondent's solicitors by post to their DX address at Mount Waverley in Melbourne and the respondent by post to an address in Preston.
On 27 October 2005 the solicitor that was acting filed a notice of ceasing to act under cover of a letter from the applicant's solicitors. Also enclosed with the letter was an application that was to be filed in the Sydney Registry seeking a transfer to Melbourne together with a supporting affidavit of the respondent which does not appear to have been formally filed. In the affidavit in support of the transfer the respondent sets out that she is 65 years old, does not enjoy good health, and intended to call three witnesses. There was also an affidavit by the bankrupt expressing a lack of knowledge as to why the proceedings were in Sydney when all of the transactions were in Melbourne, including all the payments to the petitioning creditor and the fact that the petitioning creditor's business premises were in Melbourne.
On 20 October 2005 an affidavit was filed by Geoffrey Phillip Reidy, an accountant in New South Wales, stating that he is the trustee in the estate and that his investigations reveal the following:
2.My investigations into the affairs of the Bankrupt revealed the following:
(a)
The Bankrupt purchased all of the property contained in folio identifier 012 volume 8317 and known as
23 Enfield Avenue, Preston, Victoria (“the Property”) on or about 5 July 2002. Annexed and marked “B” is a copy of:
(i) a land index title search of the Property; and
(ii) a transfer of land form of the Property dated 5 July 2002.
(b)Pursuant to a loan agreement dated 10 July 2002 the respondent loaned to the Bankrupt the sum of $43,640.00. Annexed and marked “C” is a copy of the loan agreement dated 10 July 2002.
(c)On or about 16 February 2004 the Bankrupt sold the Property and paid to the respondent the sum of $58,572 (“the Payment”) being the net proceeds of sale for the Property after settlement. Annexed and marked “D” is a copy of:
(i) a transfer of land form for the Property dated 18 February 2004;
(ii) the settlement statement for the Property dated 16 February 2004; and
(iii) a copy of a letter from A Agrotis & Associates to Rodgers Reidy dated 12 November 2004.
(d)Immediately prior to the Payment being made by the Bankrupt to the respondent the respondent was a creditor of the Bankrupt.
3.I believe the Bankrupt was insolvent at the time he made the payment to the respondent. I have formed my views on the insolvency of the Bankrupt based on the following:
(a)the Bankrupt had a judgment debt against him obtained by Austrim Textiles Pty Limited against the Bankrupt on 17 december 2003 in the sum of
$102, 614.38. A copy of the judgment is annexed and marked “E”;
(b)the Bankrupt had a liability to the respondent pursuant to the loan agreement referred to in paragraph 2(b) above for in excess of $43,6400.00;
(c)the Bankrupt disclosed liabilities in the form of parking fines and traffic infringements in the sum of approximately $16,000.00 in his statement of affairs; and
(d)the Bankrupt disclosed assets of under $8,000.00 in his statement of affairs. Annexed and marked “F” is the Bankrupt’s statement of affairs dated 5 October 2004;
(e)the Bankrupt has not disclosed to me any other assets owned by him at the time the Payment was made to the respondent; and
(f)the total assets of the Bankrupt at the time he made the Payment to the respondent, excluding the Payment, were less than $20,000.00 and the total liabilities of the Bankrupt at the time of the Payment exceeded $145,000.00.
4. The Payment was made in the period beginning 6 months before the presentation of the Bankrupt’ creditors’ petition on 5 August 2004.
The letter referred to in para 2(c)(iii) of the affidavit is in the following terms:
Dear Sirs,
Re: Bankrupt Estate of Tony Elcheikh
File No: NSW 4292/4/9
We refer to previous correspondence in this matter.
In relation to your queries as to the balance of settlement funds by our client we are instructed to advise as follows:
In order to purchase the property at 23 Enfield Avenue, Preston our client borrowed the following funds:
(a)$20,3000.00 from his brother Alan Elcheikh (as evidenced by enclosed bank statements from ANZ Bank).
(b)$43,640.00 from our client’s mother Sadie Elcheikh (as per the attached loan agreement dated 10 July 2002).
When the Enfield property was sold our client paid the balance of the settlement funds namely the sum of $58,792.98 to his mother Sadie Elcheikh.
Our client has no other funds apart from those in the bank accounts with the Commonwealth Bank, details of which had been previously supplied to you.
We are instructed that both accounts remain frozen. Our client’s family clearly requires the financial assistance provided by Centrlink by way of Family Assistance and Parenting payment to meet payments for rental and other living expenses.
We therefore demand the immediate release of these funds and the funds held in the two other accounts.
Yours Faithfully
The loan agreement referred to in the trustee’s affidavit does not include any provision for the creditor to obtain security over the property. Clause 2 of the loan agreement states:
The lender does not require any form of security from the borrower.
Whilst the letter annexed to the affidavit (set out above) refers to a copy of a loan agreement being annexed to the letter, no such annexure is contained within the copy annexed to the affidavit.
On 14 November 2005, affidavits of service were filed confirming service in accordance with Registrar Mussett's orders.
The matter came before me on 14 November 2005 at which time the respondent did not appear. I made orders for the filing of an application for summary judgment and service, and adjourned the matter to 8 December 2005.
On 29 November 2005, an affidavit of service was filed confirming service of my orders of 8 December 2005. The applicant, however, elected not to proceed by way of summary judgment application. I accept the affidavit is evidence of service as a copy of the order was annexed, even though the affidavit refers to it as being an order by a Registrar rather than myself.
The matter came before me again on 8 December 2005, at which time further orders were made for liberty to bring a summary judgment application, and service by way of delivery to the respondent's address in Preston, together with liberty to file subpoenas for further witnesses as might be required and leave to appear by telephone on the next return date which was set at 25 January 2006.
On 25 January 2006 the applicant appeared and sought to proceed by way of final hearing. The applicant relied upon the affidavit that had been filed, and a further affidavit filed by leave. The further affidavit was sworn by the solicitor with the conduct of the matter setting out that she had made inquiries of the solicitor named in the letter of
12 November 2004 in the following terms:
2.On or about 14 December 2005, I telephoned Adrianna Agrotis and said to her words to the effect:
“Would you provide me with an affidavit to confirm the representation you made in your letter of 12 November 2004 to Rodgers Reidy that Tony Elcheikh paid $58,572.00 to Sadie Elcheikh after the sale of the property at Preston?”
She then said to me words to the effect:
“No”
I said:
“I could subpoena you”
She then said:
“You would have to do that”
The affidavit also swears to service of my orders of 8 December 2005 by way of posting them to the respondent on 30 December 2005.
The applicant seeks final judgment relying upon the copy of the solicitor’s letter annexed to Mr Reidy's affidavit. The applicant has not subpoenaed the solicitor concerned nor subpoenaed the file of the solicitor concerned. The evidence is, prima facie, hearsay.
The evidence can potentially be admitted into evidence by one of three different methods:
a)the author can be called to give evidence in accord with the document; or
b)the document admitted under s.64 without calling the solicitor; or
c)the letter admitted as a business record under sec 69.
Neither the author of the letter nor the bankrupt were subpoenaed to give evidence. As a result the first method was not open to the applicant.
Section 64 of the Evidence Act
The applicant's solicitor says that it is a case which falls within an exception, in civil proceedings, to the hearsay rule pursuant to s.64(2) of the Evidence Act 1995. That section is as follows:
Section 64: Exception: civil proceedings if maker available
(1)This section applies in a civil proceeding if a person who made a previous representation is available to give evidence about an asserted fact.
(2) The hearsay rule does not apply to:
(a) evidence of the representation that is given by a person who saw, heard or otherwise perceived the representation being made; or
(b)a document so far as it contains the representation, or another representation to which it is reasonably necessary to refer in order to understand the representation;
if it would cause undue expense or undue delay, or would not be reasonably practicable, to call the person who made the representation to give evidence.
(3) If the person who made the representation has been or is to be called to give evidence, the hearsay rule does not apply to evidence of the representation that is given by:
(a)that person; or
(b) a person who saw, heard or otherwise perceived the representation being made;
if, when the representation was made, the occurrence of the asserted fact was fresh in the memory of the person who made the representation.
(4) A document containing a representation to which subsection (3) applies must not be tendered before the conclusion of the examination in chief of the person who made the representation, unless the court gives leave.
On 23 January 2006 the applicant sent from Sydney by express post a letter to the respondent in the following terms:
Dear Ms Elcheikh
Geoffrey Phillip Reidy –v- Sadie Elcheikh
Federal Magistrates Court Proceedings No: (P)SYG1900 of 2005
We refer to previous correspondence in these proceedings.
As you know, this matter has been adjourned to 25 January 2006 at 9:45am.
We advise that we intend to rely on section 64(3) of the Evidence Act 1995 that states that where the witness is available, evidence of an earlier representation by that witness is admissible in some cases. We rely on this section in respect of the representations made in the letter dated 12 November 2004 to Rodgers Reidy from Adrianna Agrotis. The letter is exhibit E to the affidavit of Geoffrey Reidy sworn 12 October 2005.
Yours faithfully
The submissions are to the effect that:
a)the solicitor who drew the letter had declined to provide an affidavit;
b)to subpoena the solicitor or her file would cause undue expense; and
c)the estimated costs of preparing, filing and serving a subpoena for production on the solicitor and then appearing at a hearing where the solicitor gave evidence would be between $4,000 and $6,000.
Given that appearances were required in one form or another at the hearing in any event I do not see that the hearing cost would be greatly increased by the witness attending. Costs of preparing, filing and serving a subpoena together with witness expenses could not possibly justify such large sums as is alleged in the submissions. It appears to me that for a quite modest sum the solicitor's file could have been subpoenaed and a request could have been made to have evidence of the solicitor by telephone. Alternatively, a summary judgment application could have been filed and served as was previously contemplated by my earlier orders. If the solicitor was the solicitor for the relevant transaction, there would have been direct evidence of the payment. I note here that in a letter of 16 February 2004 from the solicitor to the bankrupt, the provenance of which is unclear, the settlement details for the sale of the relevant land do not disclose any payment to the respondent.
It was submitted that the evidence of the letter should be admitted on the basis that the ‘maker’ is available and that the representation in the letter was made at a time when the asserted fact was fresh in the memory of the witness (see s.64(3)). There are two difficulties with this argument.
Notice under section 67
To take advantage of this exception the parties to the proceedings must give notice to the other parties in the proceedings pursuant to s.67 of the Evidence Act1995. The other parties may serve a notice of objection not later than 21 days after the notice of intention to tender the evidence is served: see s.68 of the Evidence Act 1995. The requirements for a notice under the sections is set out in regulation 5 of the Evidence Regulations 1995.
No such notice was given within 21 days of the hearing date. Rather, a letter containing the notice under regulation 5 was sent by express post on 23 January 2006, two days before the hearing date. It is unlikely that the respondent would have received the letter before the commencement of the hearing. In any event, she certainly would not have received it in reasonable time to object to the admissibility of the hearsay evidence.
In response to this difficulty the solicitor sought to have an order under s.67(5) excusing failure to give notice. The solicitor relied upon the decision of Hill J in San Ching Ming v Ivana Pty Ltd (1996) 140 ALR 273. The facts and the circumstances of that case are not set out in the outline provided by the solicitor. The case concerned the evidence of an interpreter who acted as an interpreter between two parties to a business transaction. The parties to the transaction were both available in Court, one of whom had given evidence and had not been cross-examined or challenged about their evidence as to what the other party had said through the interpreter. The other party to the transaction did not give evidence. The interpreter was not available. In these circumstances Hill J exercised the relevant discretion. That situation was far removed from the circumstances before the Court in this matter.
In the circumstances of this case it does not appear to me to be appropriate to exercise the discretion to allow hearsay evidence in the absence of a notice in compliance with regulation 5 (or r.15.05 of the Federal Magistrates Court Rules 2001) being served on the respondent in reasonable time.
Business records
Alternatively, the solicitor sought to rely upon s.69 of the Evidence Act1995 on the basis that the letter forms part of the business records of the solicitor who was not subpoenaed. Section 69 is as follows:
Section 69 - Exception: business records
(1) This section applies to a document that:
(a) either:
(i)is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or
(ii) at any time was or formed part of such a record; and
(b)contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.
(2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:
(a)by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or
(b)on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.
(3) Subsection (2) does not apply if the representation:
(a)was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding; or
(b)was made in connection with an investigation relating or leading to a criminal proceeding.
(4) If:
(a)the occurrence of an event of a particular kind is in question; and
(b)in the course of a business, a system has been followed of making and keeping a record of the occurrence of all events of that kind;
the hearsay rule does not apply to evidence that tends to prove that there is no record kept, in accordance with that system, of the occurrence of the event.
(5) For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact).
Had the solicitor's file been subpoenaed and tendered, the letter could be relied upon as a business record of the solicitor. However, all that is before the Court at present is a photocopy of a letter annexed to an affidavit of the trustee, from the trustee's records. There is no evidence that the letter forms part of the business records of the solicitor who wrote the letter, although it is probably reasonable for such an inference to be drawn: see for example Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 933 at [10] to [12]
In ASIC v Rich [2005] NSWSC 417 the section was more generally considered, with Austin J saying:
180.The word "records" is not defined in the Act. The concept is a broad one, said to include "a history of events in some form which is not evanescent" (R v Jones [1978] 1 WLR 195, at 199), although it connotes the idea that information is kept in an organised form accessible in the usual course of business (Karmot Auto Spares Pty Ltd v Dominelli Ford (Hurstville) Pty Ltd (1992) 35 FCR 560, at 565) and generally it connotes documents truly regarded as internal records in respect of the company's business (Atra v Farmers & Graziers Co-op Co Ltd (1986) 5 NSWLR 281, at 288).
…
190 … it has been held that documents received from a third party may be admissible business records if retained in the course of or for the purposes of a business (Roach v Page (No 15) [2003] NSWSC 939, at [5]; The Duke Group Ltd (in liq) v Arthur Young (1990) 3 ACSR 420; Southern Equities Corporation Ltd (in liq) v Arthur Andersen & Co (No 10) (2002) 82 SASR 53 (decisions on s 45A of the Evidence Act 1929 (SA); cf Ross McConnel Kitchen & Co Pty Ltd (in liq) v Ross (No 1) (1985) 1 NSWLR 233 (a decision on the Evidence Act 1898 (NSW)), "kept" appears to have the latter meaning in s 69. This is confirmed by Beazley J's judgment in Feltafield Pty Ltd v Heidelberg Graphic Equipment (1995) 56 FCR 481, holding that a "one-off" record of a meeting was a business record, and rejecting the idea (at 483) that a business record must be part of systematic record-keeping involving more than a single document.
The person with the personal knowledge need not bear any particular relationship with the business: see Vitali v Stachnik [2001] NSWSC 303 at [8]. Indeed, in many cases the records of customer complaints or responses are admitted as business records: see for example Technilock (Aust) Pty Ltd & Ors v Mondami Pty Ltd & Anor [1999] SASC 320. In cases where the lack of connection with the business is significant it appears that the issue must be considered as a potential basis for exclusion under s.135, rather than admissibility under section 69.
A solicitor’s letter setting out information obtained from a client has been found to satisfy s.69(2) in Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 1083 by Hamilton J at [5].
When analysing the letter relied upon in this case the following conclusions are apparent:
a)The letter appears to form part of the records kept by the trustee with respect to the trustee’s business of administering the affairs of the bankrupt. It is therefore a document within the meaning of s.69(1)(a) of the Evidence Act.
b)The document contains a ‘previous representation’ that asserts two facts:
i)that the bankrupt ‘instructed [the solicitor] to advise’ the trustee that the bankrupt had paid the balance of settlement funds from the sale of a property to his mother; and
ii)that the bankrupt had in fact made the relevant payment to his mother.
c)The representation appears to have been made in the course of the business of the trustee, and probably the solicitor.
d)The fact asserted by the solicitor, in the letter, is what the bankrupt had ‘instructed [the solicitor] to advise’ the trustee (within the meaning of s.69(2)(a)). This is of little use to the applicant.
e)The fact sought to be relied upon is that said to be asserted by the bankrupt in instructing the solicitor to provide the advice to the trustee. The bankrupt is a person who might reasonably be supposed to have personal knowledge of this fact, within the meaning of s.69(2)(b). This information appears to have been directly supplied by the bankrupt to the solicitor who has recorded it in the letter. As a result it appears to fall within s.69(2)(b) of the Act.
The next issue that arises is whether the letter falls within the exception in s.69(3). There is nothing in the evidence to suggest that any proceedings were on foot, or contemplated at the time of the correspondence. The correspondence formed an enquiry by the trustee with respect to the dealings of the bankrupt with an asset in the six months prior to the sequestration order. It appears to have been an enquiry for the purpose of identifying whether the transaction was one capable of being impugned as a transaction designed to defeat creditors or a preferential payment under s.121 or s.122 of the Bankruptcy Act.
There were no proceedings on foot at the time of the letter. However, it must be considered whether the letter was obtained in contemplation of a proceeding. This can be a difficult test to apply. In Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 1083 Hamilton J said:
9. In … Albrighton's case supra, [1980] 2 NSWLR 542 at 548 – 549] … it was made plain that contemplation of proceedings did not extend to a situation where a transaction was entered into and it was not then anticipated that there would be proceedings, but there was always a chance that there might be in the future, as proceedings may arise out of any legally enforceable transaction. In my opinion that is also the correct view in relation to the contemplation of proceedings under the present Act.
In this case, I have no evidence as to the contemplations of the trustee at the relevant time. The trustee was obviously making enquiries of the bankrupt as to the disposal of the proceeds from the sale as part of his investigations of the estate to determine whether to meek to recover the monies either under s.121 or s.122, or against the bankrupt for failing to deliver up the money or even disclose it in his financial statement. However, at that stage there may have been no evidence for a claim such as this. There is a difference between enquires to determine whether there is a claim and enquiries in contemplation of a claim. The latter can only logically occur after the person decides that they wish to bring a claim.
Importantly, the test is a subjective one based upon the state of mind of the person who obtains or prepares the statement. In Australian Competition & Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) [2005] FCA 1357 Lindgren J said:
26 The person who ‘obtains’ a representation is a person who seeks the representation or procures it to be made. This person is not the maker of the representation, but may be a person who ‘prepared’ it.
27 By referring to persons who prepared or obtained the representation, the legislature was attempting to encompass all those who might cause a representation to be made in the form which it takes. That it was attempting to do so is consistent with the rationale of reliability which underlies the business records exception to the hearsay rule, and the rationale of unreliability which underlies the subs (3) exception to that exception: see LRC 17, paras 48, 51; Australian Law Reform Commission’s Report on Evidence (Interim) (ALRC 26) vol 1, para 343; Vitali v Stachnik [2001] NSWSC 303 at [12]; ALRC Discussion Paper, Review of the Uniform Evidence Acts (ALRC DP 69) at para 7.240.
Lindgren J went on to consider the meaning of ‘contemplation’ in the context of the Evidence Act, saying:
41 The meanings of ‘in contemplation’ in s 7C(1) of the Evidence Act 1905 (Cth) and ‘anticipated’ in s 14B(3) of that Act were considered by Beazley J in Feltafield Pty Ltd v Heidelberg Graphic Equipment (1995) 56 FCR 481 (‘Feltafield’). Her Honour treated the two expressions as synonymous, reviewed the authorities, including Robinson v Stern, and concluded that the correct test was to ask whether there was a reasonable probability or likelihood of proceedings in the mind of the maker of the statement.
42 In Waterwell Shipping Inc v HIH Casualty and General Insurance Ltd (unreported, Sup Ct of NSW, 8 September 1997) (‘Waterwell’) Giles CJ Comm D, treated ‘in contemplation’ in s 69(3) as meaning ‘likely or reasonably probable’ (at 5-6). Importantly, his Honour also stated (at 4):
‘Depending upon the facts, the positions of the parties may be that, while they see it as possible that there could be legal proceedings once sufficient investigations have been made to enable them to form their respective views upon whether there is a valid claim, it is also possible that there will not be legal proceedings because when the facts are known the insured might not maintain its claim or the insurer might acknowledge the claim. The distant, unassessable, possibility of legal proceedings once the facts are known is not, in my view, contemplation of legal proceedings for the purposes of s 69(3).’
43 I agree with Beazley J in Feltafield that the test is subjective, and do not understand Giles CJ Comm D to have suggested otherwise in Waterwell. The question to be asked is whether the person who ‘prepared’ or ‘obtained’ the representation contained in the document, prepared or obtained it having in mind that legal proceedings were likely or reasonably probable, not merely one possibility.
The party seeking to tender the document bears the legal onus of establishing that it falls within s.69. However, the evidentiary onus with respect to sec 69(3) lies upon the respondent: see Sellers Fabrics Ptyt Limited v Hapag-Lloyd AG; Re the ship ‘Encounter Bay’ [1998] NSWSC 644.
There is no evidence to show that the bankrupt, trustee, or solicitor who wrote the letter, contemplated proceedings at the relevant time. It is not an inference that is apparent on the limited material before me.
In the circumstances the letter appears to be admissible under s.69 as prima facie evidence of the truth of the bankrupt’s statement that the monies sought to be recovered were paid to the respondent. The respondent has not appeared or provided any evidence to the contrary.
In the circumstances I accept this evidence and find that the bankrupt made the payment alleged to the respondent.
Payment to avoid preferences
With respect to the elements of s.122:
a)The payment was a transfer of property within the meaning of the section: see s.122(8).
b)Based upon the evidence set out in the trustee’s affidavit of the bankrupt’s assets and liabilities at the time of bankruptcy, together with an unsatisfied judgement debt of over $102,000, at the time of the payment, I draw the inference that the bankrupt was insolvent at the time of the payment.
c)The respondent was the person to whom the payment was made, and was a creditor for the purposes of the section.
d)The effect of the payment was to give the respondent a preference, priority or advantage over the other creditors, in that she was paid before bankruptcy and other creditors have not been paid.
e)The payment was made in the period before bankruptcy required by s.122(1)(b).
The potential defences under s.122(2) are not apparent on the material. The onus of proving a defence under this sub-section lies upon the respondent: s.122(3)
In the circumstances I make orders setting aside the transaction and requiring the respondent to repay the sum to the trustee. I note that the respondent may prove in the bankruptcy as if the transfer had not been made: see s.122(5).
As a result of my findings under s.122 I need not consider the effect of s.121.
The applicant is entitled to interest pursuant to s.76 of the Federal Magistrates Act 1999. In this case there is nothing to indicate that the respondent knew that the monies received by her were a preferential payment until demand for repayment. There is no evidence of the date of any demand, and therefore I rely upon the date of the Notice of Address for service of the respondent, 10 August 2005, as showing a date by which the respondent was aware of the claim. I am satisfied that the appropriate rate of interest is 10.5%, being the rate prescribed in O.35 r.8 of the Federal Court Rules 1979 (applicable as a result of s.77(3)(a) of the Federal Magistrates Court Act 1999 and r.26.01 of the Federal Magistrates Court Rules 2001). I therefore order interest at the rate of 10.5% for 227 days, a total of $3,824.90.
As the applicant has succeeded it is appropriate that costs follow the event.
I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
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