Revis v Murphy - [2008] FMCA 1638

FEDERAL MAGISTRATES COURT OF AUSTRALIA

REVIS v MURPHY

[2008] FMCA 1638

BANKRUPTCY – Annulment of bankruptcy – whether sequestration order should have been made considered.

Bankruptcy Act 1966 (Cth), s.52

Murphy v Revis [2008] FMCA 1561

Applicant:

RINA REVIS

Respondent:

ELEANOR MURPHY

File Number:

SYG 2494 of 2008

Judgment of:

Driver FM

Hearing date:

5 December 2008

Date of Last Submission:

10 December 2008

Delivered at:

Sydney

Delivered on:

22 December 2008

REPRESENTATION

The Applicant appeared in person

Counsel for the Respondent:

Ms J Merkel

Solicitors for the Respondent:

Eleanor Murphy & Co

Solicitors for the Official Trustee:

Mr S Mullette
Bartier Perry

ORDERS

Leave is granted for the applicant to rely upon her affidavit and further written submissions filed on 10 December 2008.
The annulment application is dismissed with costs.
The trustee’s costs of these proceedings be costs in the administration of the estate.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 2494 of 2008

RINA REVIS

Applicant

And

ELEANOR MURPHY

Respondent

REASONS FOR JUDGMENT

Introduction and background

By application filed on 25 September 2008 Ms Revis seeks an order under s.153B of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”) annulling her bankruptcy. She asserts that she was denied natural justice at the time the sequestration order was made by this Court on 2 September 2008. In the alternative, Ms Revis seeks an order that the sequestration order be set aside for reason of denial of natural justice in the hearing of the creditor’s petition and that the creditor’s petition be fixed for hearing on another date. The application gave as the address for service “C/- David Landa Stewart Lawyers, 86-90 Bay Street, Broadway, NSW, 2007”. The email address of “[email protected]” was also provided.
The application is supported by the affidavit of Colin Cunio made on 25 September 2008. The footer to that affidavit states that the affidavit was prepared by Mr Cunio, solicitor, of David Landa Stewart Lawyers of the same address given previously. The same email address is also given as well as telephone and facsimile contacts and the lawyers’ code.
The matter came before me on 11 November 2008 when Ms Revis appeared unrepresented. I adjourned to enable her solicitor to attend. A solicitor from the firm of David Landa Stewart later attended court and informed me that his firm did not act for Ms Revis, that Mr Cunio was no longer employed by the firm and was overseas and that Ms Revis had simply used the firm’s address as a “post box”. However, the firm had previously acted for her. I gave leave for the firm to withdraw from the record and a notice of withdrawal was filed on 3 December 2008.
The application is opposed by the petitioning creditor, Eleanor Murphy, on the following grounds:
1.The Debtor is out of time for any appeal.
2.There was no denial of natural justice to the Debtor who has been aware since April 2008 of 2 September 2008, the date set down for hearing of the petition and was properly served with all documents pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006 and the Federal Court Rules.
3.In the time since 1 August 2007, being the date on which service of the Creditor’s Petition was deemed to have been effected, the Debtor has not filed a Notice of Opposition to the Creditor’s Petition.
4.The Debtor did not file an application to set aside the Bankruptcy Notice.
5.The Debtor has had a history of delaying proceedings.
6.The Debtor has made no attempt to make any payment to the Creditor.

Evidence and submissions

Ms Revis relies upon the affidavit of Mr Cunio. He was required for cross-examination, attended court and was cross-examined. Ms Murphy relies upon the affidavit of a solicitor from her firm (Anthony Peter Steel) made on 6 November 2008. Mr Steel was also required for cross-examination and, being in court, was cross-examined. I also have before me the affidavit of Barry Anthony Taylor (the trustee of Ms Revis’ bankrupt estate) made on 1 December 2008. The purpose of that affidavit was to provide a report from the trustee in accordance with orders made by me on 11 November 2008. I also received two documents as exhibits. Exhibit A1 is a letter dated 11 July 2007 from Mr Steel to Mr Lionel Taitz, of Taitz Solicitors. Exhibit R1 is a letter dated 28 April 2008 from Taitz Solicitors to Mr Cunio of David Landa Stewart.
On 10 December 2008 Ms Revis filed an affidavit in the court registry seeking leave to rely upon additional material, including further written submissions filed on the same day and documents relating to the professional negligence claim in the District Court. Significantly, those documents include an expert witness statement by Bruce MacDonald, a solicitor engaged by Ms Revis to provide expert evidence in those proceedings. I decided that the interests of justice required that that additional material be taken into account.
Ms Revis submits that the sequestration order made by this Court should not have been made because:
a)she had an offsetting claim against Ms Murphy in the District Court of NSW in which she claims damages for professional negligence;
b)those proceedings have good prospects of success, based upon a report by Mr MacDonald;
c)Ms Murphy has frustrated Ms Revis’ attempts to refinance a mortgage on her home in order to deal with her debts by placing a writ of execution on the title to the property;
d)her bankruptcy prevents her pursuing her claim for damages against Ms Murphy and the parties intended that bankruptcy proceedings would be “suspended” until the District Court proceedings could be determined; and
e)the sole reason why Ms Revis is bankrupt was because her solicitor at the time (Mr Cunio) did not appear at the hearing of the creditor’s petition due to a mistake.
Ms Revis also submits that Mr Steel should be restrained from acting for Ms Murphy because his firm had acted for her in family law proceedings which gave rise to the costs claim leading to the bankruptcy proceedings and which also gave rise to the professional negligence action she has instituted in the District Court. I declined to restrain Mr Steel or his firm from acting for Ms Murphy on the basis that the firm was simply defending its own position in relation to its costs leading to a sequestration order and the interests of the administration of justice did not require that the solicitors be restrained from continuing to act.
Counsel for Ms Murphy submitted that attendance by Mr Cunio at the hearing of the creditor’s petition would not have affected the outcome and that the Court should have regard to the reasons given by Federal Magistrate Smith for the orders his Honour made on that day. She submits that Ms Murphy is not frustrating attempts by Ms Revis to refinance her mortgage and that the mortgagee was in the course of taking action in court in order to protect its security. She submits that Ms Revis, who is unemployed, does not have the capacity to service a loan in any event. She submits that Ms Revis is probably insolvent and that the interests of creditors would not be served by annulling the bankruptcy. She further submits that the existence of the claim of negligence in the District Court does not provide a reason why the sequestration order should not have been made.
Counsel for the trustee submitted that the trustee had had some concerns about delay in Ms Revis submitting a statement of affairs but the trustee was generally satisfied with Ms Revis’ co-operation with the trustee. That statement of affairs discloses a deficiency of liabilities over assets, but a valuation obtained on the residential property occupied by Ms Revis suggests that, on a sale of that property, there could be a small surplus. Ms Revis’ income is limited to a social security pension and child support. The realisation of Ms Revis’ equity in the house property is the only means by which the proven debts can be met and the trustee’s fees and expenses recovered.
In reply, Ms Revis submitted that she had always contested the costs claimed by Ms Murphy and denied service upon her of the bankruptcy notice and creditor’s petition. She was unable to refinance the mortgage on her home because of the writ of execution placed on the title and has obtained Legal Aid to resist legal action by the mortgagee taken against her.

Consideration

The application was filed outside the time for the filing of a review application and I have treated it solely as an annulment application. I accept from the evidence of Mr Cunio that he failed to attend the hearing of the creditor’s petition in this Court because of a diary error by him. He also failed to prepare for that hearing. All he could have done was to seek an adjournment. Mr Cunio is no longer a legal practitioner. No notice of opposition to the creditor’s petition was ever filed. Mr Cunio had attempted to deal with the petition on an interlocutory basis but that procedure was inappropriate. In his decision on the creditor’s petition[1] Smith FM dealt with the procedural history of the matter in the following terms:
1.This is a bankruptcy petition filed on 16 February 2007. It relies on a debt totalling $115,186.97, based on two costs orders of the Family Court which have been assessed and registered in the District Court. There is evidence that the debt is still owing. There is evidence that the applicant failed to comply on or before 15 February 2007 with a bankruptcy notice based upon those judgments, which was served under the regulations on 24 January 2007.
2.At earlier stages in the proceedings, the debtor raised disputes about service of both the bankruptcy notice and the petition. However, in the course of proceedings before Raphael FM on 14 August 2007, his Honour determined that service of the petition had been effected in accordance with O.7 r.1(3)(c) of the Federal Court Rules (Cth) on 1 August 2007. That rule deems personal service to have been effected when the person appears in the proceeding “in response to the process”. It appears to me that his Honour was satisfied that this occurred in the present case, due to the bringing by the debtor through a solicitor of an interim application. The application made a misconceived attempt to have the petition dismissed on an interlocutory basis by reference to s.52(2) of the Bankruptcy Act 1966 (Cth). His Honour’s order of 14 August 2007 also noted that the debtor did not dispute the facts contained in the affidavit of service of the bankruptcy notice.
3.On a later occasion, on 12 September 2007, Raphael FM dealt with the matter again in circumstances where both parties were legally represented before him. He then dismissed the debtor’s interim application “without prejudice of the debtor’s right to raise the matters in the interim application in a Notice of Objection to the Petition”. His Honour noted an undertaking by the creditor not to seek the listing of the petition for six months from 12 September 2007 or the earlier resolution of District Court proceedings brought by the debtor against the creditor for damages. That six month period has now elapsed, and the creditor is free to proceed with the petition.
4.The petition was re‑listed before me on 15 April 2008. I then made orders on the application of the applicant, extending the petition under s.52(5) on a nunc pro tunc basis . I appointed today for the hearing of the petition, and directed that my orders should be served on the debtor.
5.I am satisfied that due service of notice of today’s listing has occurred, through service on the debtor’s solicitor at a time when the solicitor was still on the record of the proceedings. Although the solicitor subsequently indicated a desire to cease to act for the debtor, this has not yet been effected under our rules. On all the evidence, I am satisfied that the debtor has had sufficient opportunity to appear today to oppose the petition if she wished to do so.
[1] Murphy v Revis [2008] FMCA 1561
In my view, the process followed by this Court was fair. Ms Revis was given the opportunity to raise grounds of opposition to the creditor’s petition but failed to do so. If Mr Cunio had appeared on the hearing of the petition it is most unlikely that he would have been able to secure a further adjournment of the hearing of it. In my view, the outcome would have been the same if Mr Cunio had appeared. Ms Revis appears to have been let down by her then solicitor but that does not mean that the sequestration order should not have been made.
Neither is the existence of the District Court proceedings a reason why the sequestration order should not have been made. Smith FM dealt with those proceedings in the following terms:
6.The evidence which was before Raphael FM contained the debtor’s statement of claim in the District Court alleging professional negligence by the applicant. It is pleaded with some detail, but its merits and prospects of success are not immediately apparent, and there is no sufficient evidence before me that there would be “other sufficient cause” for the Court to decline in its discretion to make a sequestration order, pursuant to principles such as were discussed by Allsop J in Totev v Sfar [2006] FCA 470. I am not satisfied that the debtor has shown that she has a claim against the applicant exceeding the amount of the debt relied on in the petition, which is “likely to succeed” and is being pursued with sufficient expedition.
7.In any event, as was submitted by the applicant, the debtor was on notice from the proceedings before Raphael FM and from his orders, that if she wished to raise and pursue an opposition to the petition it was necessary to comply with the Bankruptcy Rules in relation to the filing of a notice of grounds of opposition and evidence. This has not occurred.
There has been no appeal to the Federal Court from his Honour’s judgment. In my view, it is an inappropriate course for a bankrupt to seek, by annulment application, to achieve what she is unwilling or unable to achieve through an appeal, namely the reconsideration of the reasons of this Court for the making of the sequestration order. In any event, I accept from the evidence of Mr Steel that those District Court proceedings appear to be a defensive action in order to avoid dealing with the bills of costs rendered by Ms Murphy for the family law proceedings. The trustee has been unable to form a view as to the prospects of success of the claim in the District Court as he has not been funded to pursue or inquire into them. Those proceedings are presently stayed by the bankruptcy.
Ms Revis relies upon the witness statement by Mr MacDonald. That statement, in the form of a “report” discloses that the proceedings in the Family Court involved net matrimonial property worth well over $1 million. The marriage was a short one in which Ms Revis made no financial contribution and Ms Murphy advised Ms Revis that she could expect to receive less than 40% - 50% of those assets in a judgment and that it might be cost effective to offer to take 33%. That is said to have been competent advice. There followed a series of offers and counter offers. In fact the proceedings became protracted and Ms Revis made a series of bizarre demands for up to 91.4% of the net asset pool, apparently as a negotiating tactic. Mr MacDonald describes the best offer achieved by Ms Murphy of a 53.97% asset split in favour of Ms Revis as a “good achievement” in the circumstances. Mr MacDonald is critical of some aspects of Ms Murphy’s conduct, on the assumption that Ms Revis’ evidence of what she was advised by Ms Murphy (and some hearsay evidence about what she is reputed to have said at a conciliation conference) is accepted by the District Court. That is a substantial assumption.
Ms Revis changed solicitors in September 2005. The property dispute went to a contested hearing in the Family Court. The case settled on the third day of the trial on 23 November 2005. By that stage the asset pool had reduced in value and Ms Revis settled for 31.2% of the net assets at that time (but only 16.5% of the net assets as originally disclosed). Plainly, Ms Revis would have been better off if she had accepted her husband’s best offer. Her case against Ms Murphy centres on the proposition that the conduct of Ms Murphy prevented her from accepting that offer. That is one possible characterisation. Another is that there was an offer on the table for higher than what Ms Murphy had advised Ms Revis she could expect to get on a judgment, but Ms Revis had unrealistic expectations and Ms Murphy pursued the matter as best she could in accordance with her instructions. I accept, based upon the available material, that Ms Revis has an arguable case of professional negligence in the District Court, but that does not alter my conclusions about the motivation for those proceedings and the manner in which they have been conducted.
I have considered the suggestion by Ms Revis that the creditor’s petition may have been an abuse of process in the light of exhibit A1 wherein Mr Steel stated, among other things:
The writ and the bankruptcy proceedings will however be suspended pending the outcome of the above [District Court] proceedings.
It does appear that there was some agreement or understanding between the parties, which was referred to by Smith FM in his Honour’s reasons at [3]. The period of the agreed suspension expired and the creditor elected to proceed. Mr Steel’s letter may have related to an earlier agreement or understanding which was overtaken by the agreement referred to by Smith FM. The creditor’s petition was filed approximately seven months after the date of Mr Steel’s letter and that petition proceeded very slowly. The life of the petition was extended by Smith FM on 15 April 2008 and could not have been further extended. I conclude that the creditor’s petition was not an abuse of this Court’s process and that Ms Revis was using the District Court proceedings in an attempt to achieve delay.
Further, Ms Revis has failed to satisfy me that she is solvent. She is currently defending action by the mortgagee over her house property to deal with its security and that is her only asset of significance. The trustee’s report discloses a valuation of that property higher than that offered by Ms Revis in her statement of affairs but the real value of the property could only be determined at a sale. The trustee’s valuation is simply a kerbside appraisal and the Court should be cautious in placing reliance upon it. In a best case scenario the sale of that property would be sufficient to discharge debts notified to the trustee and to pay the trustee’s remuneration (leaving aside the cost of these present proceedings) but that assessment is necessarily speculative. Ms Revis had not been servicing her present mortgage and has not disclosed any means of servicing an alternative loan. She does not have the means to pay her debts as and when they fall due or within a reasonable time. She is, in my view, insolvent.
I do not accept that the sequestration order made by this Court should not have been made. It is unnecessary to consider the factors relevant to an exercise of the Court’s discretion but, in general terms, the interests of creditors would be best served by the orderly administration of Ms Revis’ affairs in the bankruptcy and the realisation of her interest in the house property before that equity is further dissipated.
I will order that the annulment application be dismissed with costs.
I will further order that the trustee’s costs of these proceedings be costs in the administration of the estate.

I certify that the preceding twenty-three (23) paragraphs are a true copy of the reasons for judgment of Driver FM

Associate:

Date: 22 December 2008