Sampson (Trustee) v Taboada

Case [2017] FCA 79

FEDERAL COURT OF AUSTRALIA

Sampson (Trustee) v Taboada [2017] FCA 79

File number: NSD 650 of 2016
Judge: BURLEY J
Date of judgment: 10 February 2017
Catchwords:

BANKRUPTCY AND INSOLVENCY – failure to comply with notice issued pursuant to s 139ZQ of the Bankruptcy Act 1996 (Cth) – failure to apply to set notice aside within required time – whether there is a basis to challenge the decision of the Delegate of the Official Receiver to issue the notice

PRACTICE AND PROCEDURE – application to set aside default judgment – whether respondents supplied satisfactory explanation for their absence – whether the evidence discloses a defence of sufficient merit to warrant setting aside order – application dismissed

Legislation:

Administrative Decisions (Judicial Review) Act 1977 (Cth) s 5

Bankruptcy Act 1966 (Cth) ss 120, 121, 139ZQ, 139ZS, 139ZT, 181A

Civil Law and Justice (Omnibus Amendments) Act 2015 (Cth)

Federal Court Rules 2011 (Cth) r 39.05

Cases cited:

3D Funtimes Limited v Intellec Development Group Pty Ltd (No 2) [2011] FCA 407

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 4) [2013] FCA 318

Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296; (2010) 81 ATR 40

Sampson (Trustee) v Taboada [2016] FCA 926

Vale v Sutherland (2009) 237 CLR 638

Wati v Minister for Immigration and Multicultural Affairs (1997) 78 FCR 543

Date of hearing: 5 December 2016
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Category: Catchwords
Number of paragraphs: 53
Counsel for the Applicant: Mr A Ahmad
Solicitor for the Applicant: Grace Lawyers
Counsel for the Respondents: Mr J T Johnson
Solicitor for the Respondents: Streeter Law

ORDERS

NSD 650 of 2016
BETWEEN:

DAVID SAMPSON AS TRUSTEE OF THE BANKRUPT ESTATES OF NATALIE JOANNE MAKISI & TUIPULOTU SIONE MAKISI

Applicant
AND:

MONICA TABOADA

First Respondent

JULIO TABOADA

Second Respondent

JUDGE:

BURLEY J

DATE OF ORDER:

10 FEBRUARY 2017

THE COURT ORDERS THAT:

1.The interlocutory application dated 6 October 2016 be dismissed.

2.The respondents pay the applicant’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

1         INTRODUCTION

[1]

1.1      Background

[1]

1.2      Default judgment

[5]

1.3      The Notice

[7]

2         LEGAL PRINCIPLES

[10]

3         SUMMARY OF THE EVIDENCE

[13]

3.1      The respondents’ evidence

[13]

3.2      The applicant’s evidence

[22]

4         CONSIDERATION

[24]

4.1      Explanation for absence from the hearing

[24]

4.2      Is there a reasonably arguable defence available to the respondents?

[30]

4.2.1    The arguments

[30]

4.2.2    Consideration

[38]

5         DISPOSITION

[52]

BURLEY J:

1.               INTRODUCTION

1.1             Background

  1. In these proceedings the respondents, Monica Taboada and Julio Taboada (respondents), apply pursuant to an interlocutory application dated 6 October 2016 to set aside a default judgment made by this Court on 12 August 2016 awarded in favour of the applicant in the amount of $262,026.29, plus interest and costs.  The relevant background to the default judgment is as follows.

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Sampson (Trustee) v Taboada [2017] FCA 79
Case
[2017] FCA 79
Decision Date

CaseChat Overview and Summary

In the matter of Sampson (Trustee) v Taboada, the Federal Court was tasked with determining whether the respondents had provided a satisfactory explanation for their absence from a hearing and if there was a reasonably arguable defence against the default judgment. The respondents, Monica and Julio Taboada, sought to set aside a default judgment entered against them in proceedings related to a claim for the recovery of a debt under the Bankruptcy Act 1996 (Cth). The primary issue before the court was whether the respondents had supplied a satisfactory explanation for their absence at the hearing and whether they had disclosed a defence with sufficient merit to warrant setting aside the order.

The court found that Monica Taboada’s evidence did not constitute a satisfactory explanation for her absence. Despite her claims of being unable to instruct her legal representatives due to a major depressive disorder, the medical records did not support her assertion that she was completely incapacitated. Moreover, there was no evidence to suggest that the respondents’ former solicitors had failed to inform them of the proceedings or the consequences of non-participation. Consequently, the court was not satisfied that the respondents had provided a satisfactory explanation for their absence.

Additionally, the court considered whether the respondents had disclosed a reasonably arguable defence. The respondents argued that the decision of the Delegate of the Official Receiver to issue a notice under section 139ZQ of the Bankruptcy Act was flawed, but they failed to provide any draft cross-claim or written submissions identifying the basis for such an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth). The respondents only vaguely referenced "errors" in the schedule without specifying the grounds on which the decision could be deemed vitiated.

The court ultimately dismissed the respondents’ application to set aside the default judgment. It held that the respondents had not provided a satisfactory explanation for their absence and had not disclosed a reasonably arguable defence. Consequently, the respondents were ordered to pay the applicant’s costs.

Orders

Orders of the court

1. The interlocutory application dated 6 October 2016 be dismissed.

2. The respondents pay the applicant’s costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The power under rule 39.05 is to be exercised with caution, and is ordinarily only exercised in “exceptional circumstances”; Wati v Minister for Immigration and Multicultural Affairs (1997) 78 FCR 543 at 549 – 552; Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 4) [2013] FCA 318 at [6].3. SUMMARY OF THE EVIDENCE3.1 The respondents’ evidence The respondents rely on an affidavit sworn by Monica Taboada on 6 October 2016 in order to supply an explanation for the absence of the respondents at the hearing and also to disclose the basis of a defence which is submitted by the respondents to have sufficient merit to warrant setting aside the orders made on 12 August 2016. In relation to the explanation for absence, Ms Taboada deposes to the following relevant matters. She says that she was unable to instruct her legal representatives due to her diagnosis with a major depressive disorder. She claims to have had a breakdown during the course of the proceedings and that, although she instructed a legal representative to accept service on her and her husband’s behalf, she was unable to provide proper instructions. Ms Taboada annexes her medical records. No evidence was adduced by any medical practitioner to explain the records or Ms Taboada’s medical condition. No substantive submissions were put as to precisely what was to be taken from the rather voluminous exhibit that included materials concerning the medical affairs of the respondents. The summary that follows appears from a review of those materials insofar as they record Ms Taboada’s health from the end of 2015. On 21 December 2015, Ms Taboada was involved in a motor vehicle accident but was discharged on the same day. On 10 January 2016, she suffered chest pains, visited her local hospital and was discharged five days after admission. On 30 January 2016, she presented to her doctor feeling depressed and appears to have been prescribed medication to treat it. On 10 June 2016, she again presented to her doctor with depression. His observations record “has insight and cognition is not impaired”. It appears that some medication was prescribed. On 5 July 2016, Ms Taboada presented to her doctor with influenza, and on 11 July 2016, 2 September 2016 and 12 September 2016, she attended on medical practitioners, although their notes appear to make no reference to mental illness. On 12 September 2016, one of the doctor’s notes records “good control on meds. No complains [sic], no SE. Needs refill script. General chat”. Ms Taboada’s affidavit also records that she is the primary carer for her husband, Julio Taboada, and that he has been diagnosed with Parkinson’s Disease and has suffered other health ailments including “a number of heart attacks and a quadruple bypass surgery at the time of one of the Federal Court proceedings”. She also records that she is the primary carer for her 80 year old mother and that at the time of the Federal Court proceedings (which I assume to mean the events set out above at [3] and [5]), the receipt of correspondence from the applicant or his legal representative became too much and she “attempted/had suicidal thoughts. I did not understand that [sic, the] Federal Court proceedings or what I was supposed to do, given my condition I was unable to process or function”.

Decision

Reasons for decision

In her affidavit, Ms Taboada said:6.On 12 August 2016, judgment was entered against Julio and I by default in these proceedings (“the Judgment”).7.I was unaware of the listing of the matter before the court at that time having previously instructed F C Bryant Thomas & Co to act on behalf of myself and Julio. It might be noted that the respondents’ former solicitors filed a Notice of Address for Service on 18 May 2016 and for the entirety of the conduct of the proceedings up until judgment was entered on 12 August 2016 that position did not change. Ms Taboada does state that she was unaware of the listing of the matter before the Court, but the listing of which she was “unaware” is the date upon which judgment was delivered (12 August 2016) not the date that it was listed to be heard (8 August 2016) or any of the dates for earlier procedural steps in the proceedings. Further, no evidence has been supplied by the respondents’ former solicitors, and there is no suggestion that they had failed to; keep her informed of the progress of the proceedings, inform her of the date or content of procedural directions made in the proceedings, or inform the respondents of the consequences that were likely to follow upon their failure to participate in the proceedings. Such evidence was plainly able to be adduced by the respondents, but was not. In the absence of such evidence, I infer that the respondents were so informed. In this context, it is also to be noted that no affidavit evidence has been supplied by Mr Taboada. Nor is it suggested that Ms Taboada is supplying evidence on information and belief from Mr Taboada. Whilst it is possible to infer that Mr Taboada’s poor health had impaired his ability to participate in the proceedings, there is insufficient material to conclude that he is a purely passive actor in the matter or that he has no knowledge of the affairs concerning his own finances. Given that the respondents were in a position to supply a cogent explanation for their failure to attend and that the onus lay clearly upon them to do so, I am not satisfied that they have provided a satisfactory explanation for their absence at court.4.2 Is there a reasonably arguable defence available to the respondents?4.2.1The arguments The focus of the respondents’ arguments was upon the decision of the Delegate of the Official Receiver (Delegate) to issue the Notice. Counsel for the respondent accepted that the provisions of section 139ZS of the Bankruptcy Act, and in particular subsection 139ZS(1A), precluded the respondents from mounting a challenge to the Notice under the Bankruptcy Act, because no application was made for an order setting the Notice aside within 60 days after it had been given to the respondents. As a consequence, counsel submitted that it was necessary, and appropriate, to seek orders under the ADJR Act for the decision of the Delegate to be set aside. The respondents provided no draft cross-claim that identified the basis upon which such an application may be brought. Nor did any written submission identify the circumstances in which it might be said that the decision of the Delegate was vitiated. However, the respondents submitted that various “errors” were to be found in the Schedule which provided a basis for concluding that the decision to issue the Notice had been based on incorrect information, with no opportunity being afforded to the respondents to address or rectify the errors.

Ratio Decidendi

Legal Principle Established

Mr Sampson also deposes to the fact that on 20 October 2010, the respondents and the bankrupts, together the owners of the Ramsgate property, refinanced the loan and granted a first mortgage to the BABL in the sum of $560,000 comprising two loan accounts for $350,000 and $210,000. The $210,000 was paid only to the respondents and constituted a withdrawal from the equity in the Ramsgate property. This forms the foundation of the claim (set out in [11] and [12] of the Schedule) that the respondents had received a transfer of an additional 50% interest in the 2010 equity drawdown of $210,000. 4. CONSIDERATION4.1 Explanation for absence from the hearing The first requirement under rule 39.05 of the Rules, as interpreted by the authorities, is to consider whether the respondents have supplied a satisfactory explanation for their absence at Court. In this regard I consider Ms Taboada to be somewhat deficient. There are a number of difficulties with Ms Taboada’s evidence as an explanation for her failure to attend or be represented at the interlocutory hearing in the application for default judgment. The primary reason which she advances for being unable to instruct her legal representatives was due to her asserted major depressive disorder. However, the medical reports to which I have referred above did not indicate that Ms Taboada was in no condition to provide instructions to those representing her. To the contrary, the medical material available suggests that despite suffering from depression, her cognitive abilities are not impaired and her evidence of seeking to obtain pro bono legal advice suggests that she was in a position, at least to that extent, to look after her affairs in the period from May to August 2016. The doctor’s note on 12 September 2016 indicated “no complains [sic]”. In her affidavit, Ms Taboada said:6.On 12 August 2016, judgment was entered against Julio and I by default in these proceedings (“the Judgment”).7.I was unaware of the listing of the matter before the court at that time having previously instructed F C Bryant Thomas & Co to act on behalf of myself and Julio. It might be noted that the respondents’ former solicitors filed a Notice of Address for Service on 18 May 2016 and for the entirety of the conduct of the proceedings up until judgment was entered on 12 August 2016 that position did not change. Ms Taboada does state that she was unaware of the listing of the matter before the Court, but the listing of which she was “unaware” is the date upon which judgment was delivered (12 August 2016) not the date that it was listed to be heard (8 August 2016) or any of the dates for earlier procedural steps in the proceedings. Further, no evidence has been supplied by the respondents’ former solicitors, and there is no suggestion that they had failed to; keep her informed of the progress of the proceedings, inform her of the date or content of procedural directions made in the proceedings, or inform the respondents of the consequences that were likely to follow upon their failure to participate in the proceedings. Such evidence was plainly able to be adduced by the respondents, but was not. In the absence of such evidence, I infer that the respondents were so informed.