Spencer v CRAWFORD GILES and Associates Pty Ltd (in Its Capacity as trustee for the CRAWFORD GILES and Associates Employees Super Fund)
[2016] FCCA 271
•4 March 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SPENCER v CRAWFORD GILES & ASSOCIATES PTY LTD (IN ITS CAPACITY AS TRUSTEE FOR THE CRAWFORD GILES & ASSOCIATES EMPLOYEES SUPER FUND) | [2016] FCCA 271 |
| Catchwords: BANKRUPTCY – Application for annulment – Application for Review. |
| Legislation: Bankruptcy Act 1966 (Cth), s.52 Fair Work Act 2009 (Cth), ss.153A, 153B Federal Circuit Court (Bankruptcy) Rules 2006, rr.4.05, 7.03, 20.03 |
| Cann v Commonwealth Bank of Australia (No. 6) [2011] FMCA 912 |
| Applicant: | JAMES EDWARD SPENCER |
| Respondent: | CRAWFORD GILES & ASSOCIATES PTY LTD (IN ITS CAPACITY AS TRUSTEE FOR THE CRAWFORD GILES & ASSOCIATES EMPLOYEES SUPER FUND) |
| File Number: | SYG 1266 of 2015 |
| Judgment of: | Judge Altobelli |
| Hearing date: | 23 November 2015 |
| Date of Last Submission: | 23 November 2015 |
| Delivered at: | Wollongong |
| Delivered on: | 4 March 2016 |
REPRESENTATION
| The Applicant appeared in person |
| Counsel for the Respondent: | Mr Eardley |
| Solicitors for the Respondent: | Legal Minds Solicitors |
ORDERS
The Application filed 8 May 2015 be dismissed.
The Respondent’s costs are to be paid by the bankrupt estate of the Applicant, as agreed or as assessed.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1266 of 2015
| JAMES EDWARD SPENCER |
Applicant
And
| CRAWFORD GILES & ASSOCIATES PTY LTD (IN ITS CAPACITY AS TRUSTEE FOR THE CRAWFORD GILES & ASSOCIATES EMPLOYEES SUPER FUND) |
Respondent
REASONS FOR JUDGMENT
Introduction
By way of an Application filed 8 May 2015, James Edward Spencer, a bankrupt, seeks final Orders that his bankruptcy be annulled and interim Orders that his bankruptcy be stayed. By way of a Response filed 14 May 2015, the Respondent sought Orders that the Application be dismissed and that the bankrupt estate of the Applicant pay the Respondent’s costs on an indemnity basis.
The Applicant represented himself in this Application. The Respondent appeared through its Counsel, Mr Eardley.
The parties agreed that the Court should treat the Applicant’s application in a practical sense as both one of annulment, but also as an Application to review the learned Registrar’s decision in making the Applicant bankrupt.
Background
The following matters of background are uncontentious.
On 10 July 2013, the Applicant guaranteed a loan to a company of which he was the principal, Spencer Grove Estate Pty Limited, which loan was advanced by the Respondent in the present proceedings. The loan was secured by mortgages over various lots of real estate. The Applicant entered into a guarantee and indemnity under which he guaranteed the obligations of Spencer Grove Estate Pty Limited. This company defaulted under the terms of the agreement on 10 March 2014. The Respondent notified the said company and the Applicant of its intention to exercise its right to possession of the properties over which the securities were held. There were negotiations between the parties which were not fruitful. On 22 July 2014, the Respondent in this case commenced proceedings in the Supreme Court of New South Wales for possession and damages against the Applicant and his company. Notwithstanding the fact that the Applicant and the company were represented, no Defence was entered. On 8 September 2014, judgment was entered for possession and for payment of $687,878.22 against the Applicant’s company. On 7 October 2014, a default judgment was entered in favour of the Respondent against the Applicant in the sum of $709,917.94.
On 11 February 2015, a Bankruptcy Notice was served on the present Applicant, based on the default judgment entered against him. On 28 April 2015, a sequestration order was made by a Registrar of this Court and Trustees were appointed.
On 8 May 2015, the Applicant in these proceedings made the present Application to this Court.
On 29 July 2015, the present Applicant filed a Notice of Motion in the Supreme Court of New South Wales seeking to set aside the default judgment against him. On 23 September 2015, Bellew J in the Supreme Court of New South Wales dismissed the said application, and ordered the present Applicant to pay the Respondent’s costs as agreed or assessed.
The annulment application
The Applicant accepted that the only basis on which he could obtain an order for annulment of his bankruptcy was either pursuant to s.153A of the Bankruptcy Act 1966 (hereafter referred to as ‘the Act’) or s.153B.
The Applicant agreed that s.153A required him to have paid all of his debts in full. In cross-examination he agreed that was not possible. Indeed, he frankly acknowledged that he was insolvent.
Thus, the only basis for annulment, was s.153B, which states:
Annulment by Court
(1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
On 25 May 2015, Registrar Segal ordered the Applicant to file and serve an Affidavit of Service of his Application on the Trustee in bankruptcy, and also to provide the prescribed Notice to his creditors. This is because r.7.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 states that the Applicant must give notice of the Application to each person known to the Applicant to be a creditor of the bankrupt or a creditor of the estate of the deceased person.
When the matter came before me on 31 July 2015 it was apparent that the Applicant had not done so. A further order was made to this effect.
In cross-examination the Applicant admitted that there were at least two other creditors, AMEX and ANZ, and he had not given them notice of the present Application, for the purposes of the Rules. He nonetheless contended that “they know about it”, a contention that is easy to make, but difficult to accept for the Court.
Whether or not the failure to give notice to other creditors is, in itself, a ground for declining the annulment Application, the Applicant’s own evidence that he is insolvent is critical to the exercise of the Court’s discretion under s.153B. Even if there were the irregularities as to service contended for by the Applicant (and as it turns out, the Court does not agree that there were any such irregularities), his evidence is that he is presently insolvent and, indeed, the totality of the evidence establishes that, at the time the sequestration order was made, he was insolvent. The Applicant has simply not established any basis for the Court to apply s.153B of the Act. Giving him the benefit of the doubt, he may have believed that there was sufficient equity in the land now vested in the Respondent as mortgagee in possession, such as to extinguish the debt. However, the evidence given in the Respondent’s case by Mr Serow establishes to the Court’s satisfaction that, even if all the properties were realised, there would still be a substantial shortfall between the sale proceeds and the judgment debt against the Applicant. Thus, the Applicant’s own belief about his insolvency, and the Court’s finding that he is insolvent on his own evidence, are findings unaffected by the value of the properties held by the mortgagee in possession. In any event, the properties were not owned by the Applicant, but by his company.
The Application for annulment under s.153B is dismissed.
Application to review Registrar’s decision
Section 104(2) of the Federal Circuit Court of Australia Act 1999 provides that a party to proceedings in which a Registrar has exercised any of the powers of the Court under s.102(2) or under a delegation under s.103(1) may apply to the Court for review of that exercise of power. Under s.104(3) the Court may, on an application under s.104(2), or on its own initiative, review an exercise of power by a Registrar, 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 Court’s Rules provide that the review of an exercise of power by a Registrar shall proceed by way of a hearing de novo. The current application is therefore not an appeal from the Registrar’s decision in the strict sense, but a complete rehearing of the matter, but this time before a Justice within the meaning of Chapter III of the Constitution. This means the Court, in reviewing the order, begins afresh and exercises for itself any discretion exercised by the Registrar. This means the Court needs to be satisfied afresh about the matters referred to in s.52 of the Act, including proof of the matters stated in the petition, the service of the petition, and the fact that the debt on which the petitioning creditor relies is still owing.
There are obvious difficulties for the Applicant in this case, having regard to matters already set out in these reasons for judgment. He agrees he is presently insolvent. The Court has found that he was insolvent at the time of the making of the sequestration order. His application to set aside the default judgment was dismissed in the Supreme Court of New South Wales.
Doing the best the Court can to understand what was the Applicant’s objection in the circumstances, his first concern is, apparently, that he thought he would receive 28 days’ notice of the hearing of the sequestration order. He was wrong about this. Rule 4.05 of the Federal Circuit Court (Bankruptcy) Rules 2006 provides:
Documents to be served
Unless the Court otherwise orders, at least 5 days before the date fixed for the hearing of a creditor's petition, the applicant creditor must serve on the respondent debtor:
(a) the creditor's petition; and
(b) a copy of the affidavit, or affidavits, verifying the petition required by subsection 47(1) of the Bankruptcy Act; and
(c) if applicable, a copy of the affidavit required by paragraph 4.04(1)(a); and
(d) if applicable, a copy of the affidavit of service of the bankruptcy notice required by paragraph 4.04(1)(b); and
(e) a copy of any consent to act as trustee filed under section 156A of the Bankruptcy Act.
The Applicant did not contend that he had not been served in accordance with r.4.05. The sequestration order was made on 28 April 2015. The Applicant agreed in cross-examination that no later than 11 March 2015, he had received the Creditor’s Petition and supporting documents by email. Whether he read them or not is irrelevant. To the extent that the Applicant suggested in his cross-examination that he did not recall reading them, the Court does not accept this. When the Creditor’s Petition came before District Registrar Wall on 14 April 2015, he adjourned the petition to 28 April 2015 and granted leave to amend the Petition by altering the time and date of the hearing to 2:00pm on the said date. The Applicant agreed in cross-examination that he knew about this later date.
To the extent that the Applicant asserted that there was an agreement between Mr Serow and himself to continue negotiations and, in effect, stay the bankruptcy proceedings, the Court does not accept his contention. Having heard the evidence of both the Applicant and Mr Serow, the Court finds that there was an agreement that, if the Applicant put an offer acceptable to the Respondent by a certain date, the bankruptcy proceedings would not be continued. However, the clear fact is, even on the Applicant’s evidence, no such offer was made by the date in question, leaving aside consideration of whether the offer would have been reasonably acceptable to the Respondent.
To the extent that the Applicant contended that he had not been served with the Bankruptcy Notice, let alone the Creditor’s Petition, the Court does not accept his evidence. But even if it were the case that he had not received the Bankruptcy Notice, it is undisputable that by 11 March 2015 he was aware of the bankruptcy proceedings, and he did nothing about it.
The Court did not apprehend the Applicant to be urging the Court to go behind the default judgment. Indeed, it would be very difficult for the Applicant to contend this in circumstances where his application to set it aside was dismissed by the Court that had entered the judgment. In any event, however, the Applicant’s own evidence is that he was represented in the Supreme Court proceedings that led to judgment against him and his company, and did not enter a defence. Moreover, the Applicant did not contend, indeed could not contend on the evidence before the Court, that he was not indebted to the Respondent, pursuant to the guarantee and indemnity that he signed.
There is simply no basis to go behind the judgment against the Applicant.
The Respondent relies on the Creditor’s Petition filed 6 March 2015, the Affidavit of Service, the Affidavit of Debt and, the Affidavit of Search, all of which satisfy the Court that the matters referred to in s.52 of the Act have been satisfied.
No evidence advanced by the Applicant, and nothing that he said on his own behalf, satisfies the Court that it should do anything other than merely affirm the sequestration order made against the estate of the Applicant on 28 April 2015, and the other Orders he made on that date. The Applicant’s Application for Review is otherwise dismissed, as is his Application for annulment.
The application for indemnity costs
The applications made by the Applicant were plainly misconceived. The history of this matter demonstrates that the Applicant was the author of his own fate. There is no question that the Respondent’s costs should be paid out of the bankrupt’s estate. The Respondent, however, seeks indemnity costs on the basis that the Applicant’s proceedings should never have been commenced, and had no chance of success, that is, the Applicant had a case that was unlikely to succeed.
As a statement of law, the Court accepts and incorporates the comments made by Lucev FM (as he then was) in Cann v Commonwealth Bank of Australia (No. 6) [2011] FMCA 912 at paragraphs 11-14:
Indemnity costs
The power to order indemnity costs in this Court arises from ss.8, 15 and 79 of the FM Act.
The FMC Bankruptcy Rules provide that the FMC Rules apply “so far as they are not inconsistent with these [FMC Bankruptcy] Rules, to a proceeding to which the Bankruptcy Act 1966 (Cth) applies.” The FMC Rules can apply to the present proceedings so far as they are not inconsistent with FMC Bankruptcy Rules, because the indemnity costs application is a “proceeding”, and a proceeding to which the Bankruptcy Act applies and in respect of which costs orders may be made by the Court by reason of s.32 of the Bankruptcy Act (when read in conjunction with the FM Act and FMC Rules).
In determining whether to award indemnity costs the Court has a very wide discretion, to be exercised judicially. What is an appropriate costs or indemnity costs order depends on the circumstances of the case. The normal practice, not to be lightly departed from, is to provide for costs to be on a party – party basis. There are however certain issues to which the Court will give consideration, and weigh, when determining whether to make an indemnity costs order, and the extent of any such order. The issues must establish special or unusual circumstances warranting an indemnity costs order. Those issues include:
a. whether a party should have known that there was no prospect of success in the case;
b. where a party alleges fraud or forgery, knowing the accusation to be false, or irrelevant to the issues;
c. where a party precipitately punctuates proceedings by resiling from a previously adhered to view;
d. where a party acts in a high handed manner;
e. whether the party against whom indemnity costs is sought is a self-represented litigant, and whether the self-represented litigant ought escape the consequences of indemnity costs;
f. where a party proceeds “vexatiously” that is “without sufficient grounds for the purpose of causing trouble or annoyance”;
g. where a party proceeds for no good purpose at all due to inertia and carelessness;
h. where a party persists in the making of allegations which ought not to have been made, or in undue prolongation of groundless contentions;
i. where a party’s conduct causes loss of time to the Court, and to other parties;
j. where a party imprudently refuses an offer to compromise;
k. whether the award of indemnity costs is sought against a contemnor; and
l. having regard to the objects of:
i. encouraging savings of private costs and avoidance of inherent risks, delays and uncertainties of litigation;
i. saving public cost necessarily incurred in litigation which events demonstrate to have been unnecessary; and
iii. indemnifying one party where the real cause and occasion of the litigation is the attitude adopted by the other party.
The bases for the exercise of the discretion in relation to indemnity costs are not closed. Nor are they so circumscribed that an indemnity costs order “may only be made against an ethically or morally delinquent party”. Other elements of litigious misconduct may be considered in the exercise of the Court’s discretion.
The Court does not accept, however, that the present case is one that justifies indemnity costs. The Applicant represented himself and it would thus be inappropriate to impose upon him an imputed knowledge about prospects of success that might otherwise apply in a case where he was properly advised.
There are no features in this case that are not otherwise referred to in the decision above.
The usual order for costs should be made, with the Respondent’s costs to be paid out of the bankrupt estate of the Applicant as agreed or as assessed.
I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Judge Altobelli
Date: 4 March 2016
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