Russell v Polites Investments Pty Ltd - [2011] FMCA 476

FEDERAL MAGISTRATES COURT OF AUSTRALIA

RUSSELL v POLITES INVESTMENTS PTY LTD

[2011] FMCA 476

BANKRUPTCY – Application for Review of Registrar’s decision to make a sequestration order – nature of a hearing de novo – matters to be proven at hearing before Federal Magistrate.

Bankruptcy Act 1966 (Cth), ss.52(1), 52(2), 52(2)(a) and 52(2)(b)
Bankruptcy Regulations 1996 (Cth)
Commonwealth of Australia Constitution Act 1900 (Cth)
Federal Magistrates Act 1999 (Cth), s.104(2)
Federal Magistrates Court Rules 2001 (Cth), s.20.3
Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.4.06(3)

Totev v Sfar (2008) 167 FCR 193
Boutros v Santa Sabina College Ltd [2011] FCA 477
Cusack v De Angelis [2008] FMCA 18
Rozenbes v Kronhill (1956) 95 CLR 407
Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509
King v Henderson (1898) AC 720
Moran v Lydiard Financial Services Pty Ltd [2007] FCA 872
Cottrell v Nicholls (trustee in the estate of Cottrell) [2004] FCA 102
Totev v Sfar [2008] FCAFC 35

Applicant:

DOUGLAS CHARLES RUSSELL

Respondent:

POLITES INVESTMENTS PTY LTD (ACN 84 007 620 153)

File Number:

ADG 297 of 2010

Judgment of:

Simpson FM

Hearing date:

9 May 2011

Date of Last Submission:

9 May 2011

Delivered at:

Adelaide

Delivered on:

24 June 2011

REPRESENTATION

Applicant:

In person

Counsel for the Respondent:

Mr Livesey QC

Solicitors for the Respondent:

O'Loughlins Lawyers

ORDERS

The Amended Application for Review filed on 7 February 2011 is dismissed.
The sequestration order of Registrar Christie of 20 December 2010 is affirmed.
The respondent’s costs are to be taxed pursuant to Order 62 of the Federal Court Rules and paid from the bankrupt estate of the applicant debtor in accordance with the Bankruptcy Act 1966.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT ADELAIDE

ADG 297 of 2010

DOUGLAS CHARLES RUSSELL

Applicant

And

POLITES INVESTMENTS PTY LTD (ACN 84 007 620 153)

Respondent

REASONS FOR JUDGMENT

Introduction

For the purposes of clarity, throughout these reasons I will refer to

Mr Douglas Charles Russell as the applicant and Polites Investments Pty Ltd (ACN 84 007 620 153) as the respondent.
I have before me an Application for Review of a decision of Registrar Christie made on 20 December 2010. The Registrar made a sequestration order in respect of the Estate of the applicant. The applicant was respondent to a Creditor’s Petition filed by the respondent on 29 October 2010.
In these reasons a statement of fact is to be treated as a finding of fact established to my satisfaction on the balance of probabilities from the evidence provided by the parties.

Background

The background that has given rise to the current application has been helpfully detailed in the affidavit of Mr Ryder, solicitor for the respondent, in his affidavit filed on 14 December 2010. It will be seen that there has been proceedings between these parties for more than 11 years.
The applicant was the tenant of the respondent’s premises at Hindley Street, Adelaide (“the premises”) for the period 10 June 1999 to about 29 August 2000. The applicant was evicted from those premises on 29 August 2000 for breaches of several of the covenants contained in the lease including the covenant concerning the payment of rent.
Since 2000, the applicant has commenced four separate sets of proceedings against the respondent in the South Australian Magistrates and District Courts.
On 29 August 2000, the applicant filed an application in the Adelaide Magistrates Court for relief against forfeiture as a result of his eviction from the premises. That application was to be heard on 30 August 2000 however on the appointed day the applicant withdrew his application.
On 23 June 2003, the applicant commenced proceedings in the District Court against the respondent and others in which he alleged that he sustained personal injuries during his tenancy of the respondent’s premises for which the respondent and others were responsible. The applicant alleged that on three occasions, namely, October 1999, January 2000, and August 2000 he slipped while descending stairs and on each occasion injured his back. On 8 July 2009, this District Court action was decided against the applicant and the proceedings were dismissed. The applicant was ordered to pay the other parties’ costs.
On or about 19 February 2007, the applicant again commenced proceedings in the District Court against the respondent and others. In this action he claimed damages by reason of his eviction from the respondent’s premises. On or about 21 January 2010, the respondent filed an application seeking to have the action dismissed for want of prosecution by virtue of the fact that the applicant had failed to comply with a security for costs order that had been made by Master Bampton on 9 July 2009. Master Blumberg dealt with the applicant’s application on 31 May 2010 at which time he dismissed the applicant’s action for want of prosecution and ordered that the applicant pay the defendants’ costs to be agreed or taxed. Costs were taxed on 16 September 2010 and the applicant was required to pay the respondent’s costs in the sum of $41,997.55.
On or about 15 June 2010, the applicant commenced further proceedings against the respondent this time in the Magistrates Court. On 10 August 2010, Mr Milazzo SM dismissed the proceedings as an abuse of process on the basis that the applicant was seeking to re-agitate matters that had already been raised and dealt with in District Court proceedings. On 24 September 2010, the applicant was ordered to pay the respondent costs fixed in the sum of $1,500.00.
On or about 18 October 2010, the applicant filed a Notice of Appeal against the order earlier referred to in these reasons, for security for costs made by Master Bampton on 9 July 2009. On or about the same day the respondent filed a Notice of Appeal against the order, also earlier referred to, of Master Blumberg dismissing the applicant’s action for want of prosecution. On or about 20 October 2010, the applicant filed an interlocutory application in the District Court seeking to set aside the costs order of Master Blumberg of 31 May 2010.
The applicant committed an act of bankruptcy on 22 October 2010 when he failed to comply with the requirements of a Bankruptcy Notice personally served on him on 1 October 2010. The Bankruptcy Notice required that the applicant pay the respondent the sum of $43,497.55. This sum comprised the sum of $41,997.55 referred to paragraph 9 hereof and the sum of $1,500.00 referred to in paragraph 10 hereof.
On 29 October 2010, the respondent filed a Creditor’s Petition which was served upon the applicant on 3 November 2010. On 6 December 2010, the matter came before Registrar Christie. Orders were made listing the hearing of the Creditor’s Petition on 20 December 2010 with the respondent (ie the applicant creditor on the petition) to file and serve affidavit material by 13 December 2010.
On 20 December 2010, Registrar Christie heard submissions put on behalf of the parties and made a sequestration order against the Estate of the applicant. Registrar Christie published her reasons for making the sequestration order on 24 December 2010.
The applicant filed an Application for Review of Registrar Christie’s decision on 13 January 2011 and an Amended Application for Review on 7 February 2010. In the Amended Application for Review, the applicant sought orders as follows:
“1.To adjourn … Polites Investments Pty Ltd petition seeking the sequestration order until the outcome of the appeals on the costs and judgments of the applicant before the court’s of South Australia.
2.To set aside the order of Registrar P Christie so as not to prejudice the applicant endeavour to pursue a outcome in the ongoing litigation presently before the courts.
3.Set aside order of costs and the act of bankruptcy on 22 October 2010.”
The two appeals and the interlocutory application referred to in paragraph 11 of these reasons were dealt with by His Honour Judge Herriman of the District Court on 23 March 2011. The applicant was unsuccessful on all counts. His Honour expressed strong views about each of the appeals. His Honour had this to say (emphasis added):
“35 This long and sorry saga can be thus summarised:
(1)In the personal injury claim the appellant specifically raised issues touching upon the conduct of the parties in and about the assignment of the subject lease and as to its true meaning. Evidence was called on those issues and His Honour Judge Millsteed specifically found against the appellant’s contentions.
(2)Those matters having been litigated and judicially determined, it is not open to the appellant to seek to re-litigate them, even if the form of relief sought by him differs from that sought in the personal injury claim, yet he has sought to do so, both in these proceedings and in the 2010 Magistrates Court action.
He must understand that he is not at liberty to do that. He has been told as much several times before but seems unprepared to accept it.
(3)He was unable to articulate or plead any other maintainable cause against the respondent in these proceedings and this led to the making of security and stay orders.
(4)Those orders remained in place for several months without any appeal having been lodged nor security provided, nor indeed any attempt by the appellant to seek to extend the time for compliance with the security order.
(5)Ultimately, when the respondent’s application for dismissal of the proceedings came on for hearing, the appellant still had not sought to plead a maintainable cause nor had he taken any steps with respect to the security order.
In consequence, Master Blumberg dismissed the appellant’s claim. Although not strictly called upon to deal with the merit issues decided upon by Master Bampton, he also considered and noted that he agreed with her findings.
With all due respect to both learned Masters, I must say that I do, too.
(6) I have refused the appellant’s application for extension of time on each appeal.
(7)The appellant advanced no new material or any argument satisfying me that either Master acted on a wrong principle, made incorrect factual findings, had regard to extraneous or irrelevant matters, or failed to give weight or sufficient weight to relevant matters.
There was no other reason advanced for departing from the decision of either Master and, indeed, all that was effectively put to the court on the hearing of each appeal was a submission that the appellant was impecunious and otherwise repetition of his contentions as to the terms of the lease assignment.
(8)On the merits generally, it appears to me that the appellant has been afforded every opportunity to properly plead a cause in this matter and he has failed to do so.
(9)I have found the appellant’s pursuit of both appeals to be frivolous, vexatious and an abuse of court process and, indeed, his repeated attempts at re-litigating a matter already judicially determined against him, put him at risk of being declared a vexatious litigant.
36 Ultimately, there is a serious and practical need for finality in litigation and in respect of the matters which here excite the appellant, that point has been reached and he must accept that.
…”

A Hearing de novo

Section 104(2) of the Federal Magistrates Act 1999 (Cth) (“FM Act”) provides that a party to a proceeding in which a Registrar has exercised any of the powers of the Federal Magistrates Court under s.102(2), or under a delegation under s.103(1), may apply to the Federal Magistrates Court for review of that exercise of power. Under s.104(3), the Federal Magistrates Court may, on an application under s.104(2), or on its own initiative, review an exercise of power by a Registrar under s.102(2) or pursuant to a delegation under s.103(1) and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
Rule 20.03 of the Federal Magistrates Court Rules 2001 (Cth).(“FMC Rules”) provides that the review of an exercise of power by a Registrar shall proceed by way of hearing de novo. The current application is therefore not an appeal from the Registrar’s decision in the strict sense but is a complete re-hearing of the matter, but this time before a justice within the meaning of Chapter III of the Commonwealth of Australia Constitution Act 1900 (Cth). Emmett J clarified the true nature of the hearing de novo in Totev v Sfar (2008) 167 FCR 193[1] cited with approval by Nicholas J in Boutros v Santa Sabina College Ltd [2011] FCA 477[2].
[1]     Paragraphs 12-15.
[2]     Paragraphs 21-22.
[12]A hearing de novo is different from an appeal stricto sensu and is different from an appeal by way of rehearing. In the case of an appeal stricto sensu, the question would be whether, upon the material before the registrar, the conclusion reached by the registrar was correct. In an appeal by way of rehearing, the appellate court would rehear the matter as at the date of the appeal, but on the evidence called before the registrar, subject to a power to receive further evidence where appropriate: the rights of the parties would be determined by reference to the circumstances, including the law, as they existed at the time of rehearing (Harris v Caladine 172 CLR at 125). In each case any question concerning the exercise of discretion would be subject to the restrictions imposed on an appellate court in reviewing the exercise of a discretion (see House v The King [1936] HCA 40; (1936) 55 CLR 499.
[13 In the case of a hearing de novo, however, the judge reviewing the order begins afresh and exercises for himself or herself any discretion exercised by the registrar. The parties commence the proceeding again, subject to any rules concerning the use of evidence adduced before the registrar. The hearing de novo involves the exercise of the original jurisdiction and the petitioner, in the case of a bankruptcy petition, must start again, call witnesses and make out the petitioner's case (Harris v Caladine 172 CLR at 124).
[14]Because the hearing of an application for review of a sequestration order is a hearing de novo, it would not be sufficient for the reviewing judge to be satisfied that the registrar made no error and simply to dismiss the application for review. The judge who hears the review application must hear the petition afresh and must be satisfied as to the matters referred to in s 52 of the Bankruptcy Act. Thus, the reviewing judge must herself or himself be satisfied with the proof of:
·     the matters stated in the petition;
·     the service of the petition; and
·     the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
The reviewing judge must also exercise afresh the discretions conferred by s 52(2).
[15]In particular, unless the Bankruptcy Rules are waived, the judge must have the affidavits referred to in r 4.06 of the Bankruptcy Rules, which must be sworn shortly before the hearing. Except in the case of a review on the same day as the sequestration order was made, affidavits relied upon before the registrar would not satisfy r 4.06. In the absence of fresh affidavits, it would be necessary that compliance with the Bankruptcy Rules be waived.
Section 52(1) of the Bankruptcy Act 1966 (Cth) (“the Act”) provides that at the hearing of a Creditor’s Petition the court must have proof of:
a)the matters stated in the petition;
b)service of the petition; and
c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing.
If the Court is satisfied with the proof of those matters, it may make a sequestration order against the estate of the debtor. However, under s.52(2), if the Court is not satisfied with the proof of any of those matters, it may dismiss the petition. In addition, the Court may dismiss the petition if it is satisfied by the debtor that:
a)he or she is able to pay his or her debts; or
b)for any other sufficient cause a sequestration order ought not to be made.
In addition to the matters referred to in s.52(1), the Court also has to be satisfied that the requirements of r4.06(3) of the Bankruptcy Rules has been complied with. Rule 4.06 relevantly provides:
4.06 Additional affidavits to be filed before hearing
(1) Before the hearing of a creditor’s petition, the applicant creditor must file the affidavits required by this rule.
(2) The applicant creditor must file an affidavit that:
(a)states that the documents required to be served under rule 4.05 have been served and when and how they were served; and
(b)has attached to it a copy of the documents that were served and proof of service in relation to the documents.
(3) The applicant creditor must file an affidavit of a person who has searched, or caused a search to be made, in the National Personal Insolvency Index no earlier than the day before the hearing date for the petition that:
(a) sets out the details of any references in the Index to the debtor; and
(b) states that there were no details of a debt agreement, about the debt on which the applicant creditor relies, in the Index:
(i) on the day when the petition was presented; and
(ii) on the day when the search was made; and
(c) has attached to it a copy of the relevant extract of the Index.
(4) The applicant creditor must file an affidavit of a person who knows the relevant facts that:
(a) was sworn as soon as practicable before the hearing date for the petition; and
(b) states that each debt on which the applicant creditor relies is still owing.
(5) The applicant creditor must file a search affidavit if the debt stated in the petition is an amount payable to the applicant creditor under a judgment of a court that ordered the amount to be paid into the court.

The Hearing

At the hearing, the applicant relied upon the following documents:
(a)Notice Stating Grounds of Opposition to Petition with applicant’s supporting affidavit attached filed on 11 November 2010;
(b)Affidavit of the applicant filed on 20 January 2011; and
(c)Amended Application for Review filed on 7 February 2010.
The respondent relied upon the following documents:
(a)Affidavit of Michael Joseph Connelly filed on 5 November 2010;
(b)Affidavit of Kym David Ryder filed on 14 December 2010;
(c)Affidavit of Kym David Ryder filed on 17 December 2010;
(d)Affidavit of Kym David Ryder filed on 25 March 2011;
(e)Affidavit of Peter David Murphy filed on 9 May 2011;
(f)Affidavit of Kym David Ryder filed on 9 May 2011.
Neither party sought to adduce oral evidence. The applicant put oral submissions. The respondent had filed written submissions on 4 May 2011 and supplemented them with oral submissions.

Conclusions

On the evidence before me, I am satisfied that the matters referred to in Bankruptcy Regulation 4.06 and subsection 52(1) of the Bankruptcy Act have been established. The applicant has not argued otherwise.
The applicant has not attempted to convince the Court that he comes within s.52(2)(a) in that he can pay his debts. On the evidence before me, it is clear that he cannot. The remaining issue therefore is whether there is any other sufficient cause[3] why a sequestration order should not be made.
[3] s.52(2)(b) of the Act.
In his affidavits and oral submissions, the applicant put forward two grounds for the court to decline to make a sequestration order. These can be summarised as follows:
(a)The court should wait until the applicant’s litigation (including any appeals) have been finalised by the courts hearing them;
(b)The respondent is proceeding with the bankruptcy proceedings to stifle or otherwise prevent the applicant from continuing with his litigation in other courts.

As was mentioned earlier in these reasons[4], the applicant was unsuccessful in relation to the two appeals and interlocutory application referred to in paragraph 11 of these reasons. His Honour Judge Herriman expressed strong views about the merits of the applicant’s litigation before him namely that they were “frivolous, vexatious and an abuse of court process”. I respectfully agree with His Honour’s characterisation of that litigation.
[4] Paragraph 16 hereof.
To adjourn the hearing of the petition to await the outcome of the applicant’s litigation would be futile. In these circumstances, an adjournment should not be granted.[5] The applicant’s first ground for the court to decline to make a sequestration order at this stage fails.
[5] See Cusack v De Angelis [2008] FMCA 18 at [30] – [31] per Wilson FM.
In relation to the applicant’s second ground for the court to decline to make the sequestration order, I see no evidence that the respondent is seeking to stifle the applicant’s litigation. Whilst granting the petition may have that effect, it does not follow that the respondent has that ulterior purpose.
Their Honours in Rozenbes v Kronhil[6] and his Honour Isaacs J in Dowling v Colonial Mutual Life Assurance Society Ltd[7] approved the statement of the Judicial Committee of the Privy Council in King v Henderson[8] that:
·A creditor has an absolute right to found a petition seeking a sequestration order on a statutory act of bankruptcy;
·An ulterior private purpose is not necessarily a fraud on the court;
·A further motive is not a bar to bringing a petition for sequestration unless there is fraud; and
·An abuse of process does not exist unless the remedy is unsuitable and would enable the person obtaining it to fraudulently defeat the rights of others, whether legal or equitable.
[6] (1956) 95 CLR 407 at 417 per Dixon CJ, Webb and Fullagar JJ.
[7] (1915) 20 CLR 509 at 522 per Isaacs J.
[8] (1898) AC 720.
The applicant carries the onus of proving fraud on the part of the respondent. He has failed to do so. I find that the respondent pursues the petition for a recognised lawful end. The fact that a consequence of the sequestration order might be that the applicant’s litigation may not be pursued is no reason to decline to make the sequestration order.
There is no proper basis made out to refrain from making the sequestration order sought.
There has been some debate at the hearing of this matter concerning the orders that should be made if I am satisfied that there should be a sequestration order. I am satisfied that the appropriate course is to dismiss the Application and affirm the Registrar’s order. There is no need for this Court to make a fresh sequestration order.[9]
[9] See, Moran v Lydiard Financial Services Pty Ltd [2007] FCA 872 at [24]-[25] (Gordan J); Cottrell v Nicholls (trustee in the estate of Cottrell) [2004] FCA 102 at [16]. But see Totev v Sfar [2008] FCAFC 35 at [16]-[17].
I make the orders to be found at the beginning of these reasons.

I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Simpson FM

Date: 24 June 2011