Scottish Pacific Business Finance Pty Ltd v Matheson - [2005] FMCA 336

FEDERAL MAGISTRATES COURT OF AUSTRALIA

SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD v MATHESON

[2005] FMCA 336

BANKRUPTCY – Sequestration – service of bankruptcy notice – was debt outstanding – identification of correct respondent on bankruptcy notice – alleged flaw in District Court proceedings.

Bankruptcy Act 1966 (Cth)

Applicant:

SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD

Respondent:

FREDERICK MATHESON

File Number:

BRG 609 of 2004

Judgment of:

Rimmer FM

Hearing date:

22 February 2005

Delivered at:

Brisbane

Delivered on:

03 March 2005

REPRESENTATION

Solicitors for the Applicant:

Clayton Utz

Respondent in person

Frederick Matheson

ORDERS

That the estate of Frederick Matheson be sequestrated Orders.
That the respondent debtor pay the applicant creditor's costs.
That such costs to be paid out of the respondent's estate.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 609 of 2004

SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD

Applicant

And

FREDERICK MATHESON

Respondent

REASONS FOR JUDGMENT

Introduction

The matter before me is an application by Scottish Pacific Business Finance Pty Ltd, whom I will refer to as the creditor, for the making of a sequestration order which is opposed by Frederick Matheson who I will refer to as the debtor. The petition is based upon a judgment for the total sum of $90,487.33 which is comprised of the amount of the judgment obtained in the District Court of Queensland on 14 April 2004 by the creditor against the debtor for $87,153.93 together with interest to 31 August 2004 of $3333.40.
The act of bankruptcy in respect of which the petition was issued was failure to comply with the bankruptcy notice served on the debtor on

7 June 2004 or to satisfy the Court that the debtor had a counter-claim, set-off or cross-demand equal to, or exceeding, the amount specified in the bankruptcy notice.

Background

The judgment relied upon by the creditor was obtained in defended proceedings in the District Court of Queensland on 14 April 2004 and determined by McGill J SC. The proceedings had been brought in the name of a different plaintiff, a company, Allen Services Limited (who I will refer to as “Allens”). This company had hired equipment to the debtor. Allens brought the proceedings in the District Court to recover the amount of rental due to them by the debtor under the hire agreement.
The debt was then factored to Scottish Pacific Business Finance Pty Limited, the creditor, in or about April 2002 and the creditor was joined as plaintiff in those District Court proceedings.
On 9 August 2002 Allens and the debtor had entered into a written equipment hire agreement. Pursuant to that agreement Allens had agreed to hire certain equipment to the debtor. This was done between about 4 August 2002 and 18 November 2002.
During that period rental invoices were issued by Allens to the debtor and were unpaid. Allens had factored their debt with respect to this debtor and assigned all rights with respect to it to the creditor. On

14 April 2004 an order was made in the District Court of Queensland removing Allens from the proceedings and substituting the creditor as the plaintiff in the proceedings. This was done, it is clear, from the judgment of McGill J in recognition of the fact that legal assignment to Scottish Pacific of the debt between Allens and the debtor, had been effected with proper notice to the debtor of the assignment in December 2002.
The matter was then concluded by his Honour on the same day by a summary judgment and he found that the arguments which were raised and argued by the debtor as to various matters including a counter-claim or set-off were, even if they did exist, not allowable by him against the creditor under the terms and conditions of that hire purchase agreement. The creditor issued a bankruptcy notice based on the District Court judgment.
On 15 June 2004 the debtor filed an application in this Court to seek a stay of the bankruptcy notice. This was dealt with by the Court as an application pursuant to Section 41(4)A of the Bankruptcy Act to set aside the bankruptcy notice. This matter was determined by Federal Magistrate Driver on 31 August 2004 wherein he dismissed the application with costs.
His Honour's reasons disclosed that the arguments put to the Court and dismissed by it amounted to an assertion by Mr Matheson that there was no debt supporting the bankruptcy notice notwithstanding that the bankruptcy notice was founded upon a judgment of the District Court in defendant proceedings, a further assertion that the wrong person was sued and that the proper debtor was, in fact, a trust rather than the debtor himself and an assertion that the debt acquired by the creditor was not in law or fact a true debt but was, in fact, an invitation for the Federal Magistrate to look behind the judgment in the District Court.
All of those assertions were determined by the Court and were unsuccessful and dismissed. The debtor then lodged an appeal against the decision of Federal Magistrate Driver which was heard by Justice Dowsett who was constituting the Full Court of the Federal Court sitting as a single justice. The appeal was heard on 14 October 2004. The appeal was dismissed.
Justice Dowsett permitted the debtor to ventilate further issues which had not been raised before the Federal Magistrate at first instance. These included the following:
a)that the judgment of the District Court was obtained by fraud;
b)that the debt was at some stage assigned back to Allens by the creditor; and
c)that the payment of his debt to the creditor was secured by Allens.
His Honour considered these additional matters and determined them against the debtor and the appeal was dismissed.

Issues to be considered

The issues to be considered in this matter are the issues raised by the debtor on his responding material before the Court and one issue which was raised by the creditor. These are identified as follows:
·that the incorrect person was named on the bankruptcy notice and that this was carried through to the creditor's petition. It would appear that the debtor contends this on the basis that he was named as Frederick Matheson and not by his full name, Frederick James Matheson, such as to make the bankruptcy notice and the creditor's petition invalid:
·that the debtor was served with the creditor's petition and supporting affidavits personally in the precincts of the Court and that the method of service did not constitute a proper service of the application upon him:
·that the failure by the creditor to file an affidavit proving service of the District Court claim is in someway fatal to these proceedings;
·that the debt is not owing any more because Deloittes, the liquidators of Allens, have issued a report which clearly indicates that the creditor has recovered its debt against Allens in full and that this establishes that he no longer owes the debt to the creditor.
The creditor raised that the Court should consider the issue of whether a creditor's petition can be brought against a debtor who is an undischarged bankrupt as this was raised in passing in the judgment of Driver FM and to be fair to the respondent it should be considered although not specifically raised by him in his material.

Material relied upon by the parties

The applicant has filed all of the appropriate documents in relation to this creditor's petition. The material which was relied upon by the creditor was set out in written submissions handed to the Court. The debtor has filed a notice of intention to oppose the petition and numerous affidavits with a great number of annexures, all of which were read by him at the commencement of the proceedings. All of those have been taken into account.

Consideration and determination of each of the issues

The applicant submits that there is no proper basis for any opposition to the creditor's petition by the debtor and seeks that a sequestration order be made. Submissions were made on behalf of the creditor and on behalf of the debtor in relation to each of the issues that I have identified. The first issue deals with the respondent’s contention that the incorrect person has been named on the bankruptcy notice and creditor's petition. The applicant submits that this is clearly not the case as the person named in the creditor's petition is the debtor, Frederick Matheson, and that Frederick Matheson was also the person who was named in the District Court order and in the bankruptcy notice.
The applicant submits that although the full name of the debtor, which included his middle name of James, had not been included in the bankruptcy notice or creditor's petition this was in no way fatal as it did not mislead the debtor in relation to the fact that he was, in fact, the person against whom the bankruptcy notice was issued. The applicant submits that the judgment was made against the debtor in the name of Frederick Matheson and clearly this was then followed through appropriately by them into the bankruptcy notice and the creditor's petition.
It is submitted on behalf of the applicant that there is no doubt that Mr Matheson is the proper debtor and no doubt can be established that he is the person who owes the debt under the judgment and that he is the person before the Court.
The respondent says that the creditor, by leaving out his middle name and not including his full name, has in some way tried to tamper with the judgment of the District Court. He says that this error has been carried through from the Bankruptcy Notice to this Creditor’s Petition and in some way is seeking to materially change the judgment of the District Court of Queensland.
I do not accept that there is any merit in this contention by the debtor. There is no doubt that he is fully aware that he is the proper person who has a judgment made against him by order of the District Court of Queensland and that under such order that he is the person who is obliged to pay the creditor in these proceedings the amount claimed in the bankruptcy notice.
He has already applied to set aside that very same bankruptcy notice which issued against him in the name of Frederick Matheson in this Court and has had that application determined both at first instance and on appeal to the Federal Court. It cannot be said that he is in any doubt whatsoever that he is in fact the person who the creditor is now seeking a sequestration order against.
The next issue is that raised by the respondent as to whether the method of service by the creditor’s solicitor amounts to proper service. The debtor’s evidence and submissions relate that he was served outside in the waiting area of this Court when the documents were put beside him on a chair on which he was sitting and the documents were not handed to him.
He says that he picked the documents up and said to the solicitor serving him, "Is that good service?". It appears that he now contends that service was in some way defective, although his submissions to the court were not at all clear as to why he says this is so.
The applicant sets out in an affidavit of service by Michael Makridakis exactly what occurred at the time of service. That affidavit of service states clearly that the required documents in relation to this creditor's petition were served on the debtor by leaving them with him on a seat beside him on the lobby area of the Federal Magistrates Court situated in the Commonwealth Courts Building at North Quay in Brisbane.
He further states that after he did this that he witnessed the debtor physically picking up those documents and collecting the same. He says that he is clearly able to identify the debtor as Frederick Matheson as he personally knows him from having been involved in lengthy legal proceedings in the District Court of Queensland, the Federal Magistrates Court and the Federal Court of Australia in which the debtor has been self-represented.
The applicant submits that they are entitled to serve documents upon the debtor by placing them where he can see them and retrieve them and that there is no difficulty in serving him in a court building as long as service does not interfere with the conduct of the Court's business and therefore constitute a contempt of court.
The application and petition was served on the debtor by leaving them clearly on a seat beside him in the lobby area of this Court. I am satisfied that he knew that he was the person being served with the documents and also he was aware that they were in relation to bankruptcy proceedings. The purpose of any requirement in respect of service of proceedings in a Federal Magistrates Court Rules is to make sure that the correct person gets the correct documents so that they can properly know what the application is they have to meet.
Clearly, given the evidence outlined both by the debtor himself and by Mr Makridakis, the person serving the documents has established that I can be satisfied that service was effected on behalf of the creditor by his solicitor in a manner which brought those proceedings to the attention of the debtor. I find that it was effective service and I am not satisfied there is any merit therefore in that contention by the debtor.
The next issue raised by the debtor is that the failure by the creditor to file an affidavit of service of the District Court claim is grounds for him to oppose the creditor's petition now because if the creditor did in fact give him a copy of that affidavit of service, it would show that the creditor has contravened the Privacy Act in order to serve the claim.
I do not understand the relevance of this assertion by the debtor. It was not a matter raised by him in the District Court proceedings. He filed the notice of intention to defend the claim in that court and clearly rule 144 of the Uniform Civil Practice Rules, which operate in the District Court, provides that when a defendant files a notice of intention to defend he waives any irregularity in relation to the claim. Further, Mr Matheson did not raise this as an issue to be determined in the District Court proceedings.
Further, he did not raise it as an issue before Federal Magistrate Driver with respect to any application to set aside the bankruptcy notice nor did he raise it in the proceedings on appeal before Justice Dowsett and His Honour permitted the debtor to raise other issues that he had not raised before the Federal Magistrate at first instance in that appeal. The judgment was the basis to found the bankruptcy notice. The debtor has already applied to have that bankruptcy notice set aside and he was not successful in that application either at first instance or on appeal. He was given the opportunity in both those hearings to raise all his issues to support his contention that the Court should set aside the bankruptcy notice on the basis that the Court should go behind or set aside the judgment of the District Court.
He failed both at first instance and on appeal to satisfy the Court that he had grounds to do so. In any event I am satisfied that the debtor has no basis upon which to do so, even on the matters which he now contends. Whether or not an affidavit of service would now prove that there was some breach or otherwise of the Privacy Act does not go to whether or not a claim, which was made against him in the District Court, was founded on any basis which now he could contend should be set aside or establish in any way that a proper debt is not due and owing.
The fact that he was served with the claim in some way which may have breached the Privacy Act does not in any way vitiate the validity of the debt arising under the District Court judgment. Clearly, the creditor is entitled to rely upon that judgment debt to form the basis of the bankruptcy notice which was validly issued. An act of bankruptcy has occurred under that bankruptcy notice and now the creditor's petition has validly been issued in the bankruptcy jurisdiction. There is no merit to this argument raised by the debtor.
The next issue raised by the debtor is that the liquidator's report in the liquidation of Allens, prepared by Deloittes, clearly says that the creditor has now recovered its debt in full and accounted for the surplus funds. This statement in the liquidator’s report, must be read in its proper context, having regard to the factoring agreement and the totality of that paragraph of Deloitte's report.
The report is annexed to the debtor's affidavit, filed on 30 December 2004, as annexure FJM315. At page 4, under heading 4: Asset Realisation and Expenditure, Debtors and Trading Sales, that report states the following:
At the time of our appointment as administrators trade debt has amounted to 5.2 million according to the books and records of ASL, who is Allens, and SPBF, who is the creditor. ASL had historically factored their invoices through SPBF for cash-flow purposes. They would batch up invoices on a weekly basis and raise and submit them to SPBF for approval and payment. SPBF would typically advance 85 per cent of the face value and assume ownership of these debt.
The credit limit of 8 million permitted ASL to draw down to that amount. At the date of our appointment this facility was drawn down to 3.7 million. During the administration and liquidation the liquidators identified numerous contras and disputes relating to the following:
-ASL authorised back charges for purchases made by customers on behalf of ASL
-Unauthorised back charges for necessary costs incurred by the customers
-Disputes concerning quality and quantity of work
-Errors in invoicing
-Unreconciled accounts
-Payments received by ASL and not forwarded to SPBF
During the course of the administration and liquidation we have worked with SPBF to realise debtors. We have performed a number of detailed reconciliations to identify the actual balance outstanding, dealt with numerous queries and in some instances commenced legal proceedings to exact payment. The majority of outstanding issues have now been resolved and amounts due collected. SPBF has now recovered its debt in full and accounted to us for surplus funds.
That is the totality of what is in the relevant clause in the liquidator's report and that does not establish in any way what the debtor has contended to this Court that it does, and that is, that he no longer owes the debt because Allens has satisfied his debt to the creditor. He clearly stated in his submissions that he had not paid the creditor the amount due and owing under the judgment debt but he says that Allens must have done this.
What that paragraph of the liquidator's report establishes is that any outstanding issues and disputes in the factoring arrangement and credit facility arrangement between Allens and the creditor have been settled and all outstanding claims as between Scottish Pacific and Allens have been paid in full.
It does not of course negate the fact that Allens legally assigned the rights to certain debts to the creditor, one of which is that owned by the debtor. The creditor has pursued their enforcement rights in the District Court of Queensland. The District Court of Queensland has found in their favour against this debtor and there is now a judgment debt which is outstanding. That judgment debt has founded properly the basis of the bankruptcy notice. An act of bankruptcy has occurred and the creditor's petition has properly issued, founded on that bankruptcy notice and the act of bankruptcy.
The creditor still has its substantive rights to be paid the judgment debt by the debtor. I find that there is no merit in that argument by the debtor.
The final issue was in fact raised by the creditor to be considered; and that is whether or not the creditor can bring an application for sequestration on a creditor's petition against a debtor who is at this time an undischarged bankrupt. They did that because of a paragraph in the final reasons of judgment of Federal Magistrate Driver who raised that this may be a query. It is clearly set out by the applicant that there is no impediment to the Court making a sequestration order against the estate of a person who is already an undischarged bankrupt.

There is no dispute that the debtor is in fact at this date an undischarged bankrupt. The applicant argues that in the circumstances of the provisions under section 59 of the Bankruptcy Act it clearly provides the proper procedure to be adopted where a second sequestration order is made against somebody who is already bankrupt. Clearly that matter has been addressed by a decision of the Federal Court of Von Doussa J as referred to in the submissions provided by the applicants.
I accept that in that decision his Honour clearly refers to the fact and accepts that a creditor's petition can be issued and a sequestration order can be made against a person who is at the time an undischarged bankrupt. His Honour then goes on to talk about section 56 of the Bankruptcy Act and the appropriate process to be followed in circumstances where the second sequestration order is made.
Therefore clearly under the provisions of the Bankruptcy Act itself it is contemplated and anticipated that the Court can make a sequestration order in appropriate circumstances against a debtor who is at the time an undischarged bankrupt. This is clearly one of those appropriate matters as the debtor has incurred further debt while an undischarged bankrupt and has committed an act of bankruptcy such as to found this creditor’s petition
In those circumstances, I am satisfied that overall there is nothing raised by the debtor in this case before me to permit the Court to properly dismiss the creditor's petition.
I am satisfied therefore that there is a proper basis to found the creditor's petition. I am also satisfied as to all the formal requirements which are the subject of proof by the creditor pursuant to section 52 of the Bankruptcy Act and I will make a sequestration order.
I therefore order that the estate of Frederick Matheson be sequestrated. I will further order that the respondent debtor pay the applicant creditor's costs. Such costs to be paid out of the respondent's estate.

I certify that the preceding forty-six (46) paragraphs are a true copy of the reasons for judgment of Rimmer FM

Associate: Alexandra Adsett

Date: 22.03.2005