Spencer v Lane Rowin Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Spencer v Lane Rowin Pty Ltd [2007] FCA 1519

BANKRUPTCY – Related appeals from decisions of same Federal Magistrate – Where Federal Magistrate refused two applications to set aside bankruptcy notices – Whether overstatement in each of the notices – Further appeal against sequestration order made against the estate of one of the appellants – Whether sequestration order ought not have been made – Whether Federal Magistrate should have disqualified himself on the ground of bias – Whether adjournment should have been granted to one of the appellants to put on further evidence as to her ability to pay her debts  

Bankruptcy Act 1966 (Cth) ss 41(5), 52(2)(a), 153B

Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 followed
House v R (1936) 55 CLR 499 cited
Livesey v NSW Bar Association (1983) 151 CLR 288 applied
Perovich v Traditional Values Management Limited [2006] FMCA 1471 discussed
Sali v SPC Limited (1993) 116 ALR 625 cited
Sydney City Council v Ke-Su Investments Pty Ltd (1985) 1 NSWLR 246 referred to
Re Greenhill; ex parte Myer (NSW) Limited (1984) 5 FCR 84 distinguished
Re Wilson v Official Trustee in Bankruptcy [1999] FCA 1760 discussed
Vakauta v Kelly (1989) 167 CLR 568 referred to
Water Board v Moustakas (1988) 180 CLR 491 referred to

RICHARD WILLIAM SPENCER v LANE ROWIN PTY LTD (A.C.N. 064 310 999)
QUD 167 OF 2007

SILVANA PEROVICH v LANE ROWIN PTY LTD (A.C.N. 064 310 999)
QUD 168 OF 2007

SILVANA PEROVICH v LANE ROWIN PTY LTD (A.C.N. 064 310 999)
QUD 264 OF 2007

TRACEY J
15 OCTOBER 2007
MELBOURNE (HEARD IN BRISBANE)


IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

QUD 167 OF 2007
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

RICHARD WILLIAM SPENCER
Appellant

AND:

LANE ROWIN PTY LTD (A.C.N. 064 310 999)
Respondent

QUD 168 OF 2007

BETWEEN:

SILVANA PEROVICH
Appellant

AND:

LANE ROWIN PTY LTD (A.C.N. 064 310 999)
Respondent

QUD 264 OF 2007

BETWEEN:

SILVANA PEROVICH
Appellant

AND:

LANE ROWIN PTY LTD (A.C.N. 064 310 999)
Respondent

JUDGE:

TRACEY J

DATE OF ORDER:

15 OCTOBER 2007

WHERE MADE:

MELBOURNE (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

QUD 167 of 2007

1.The appeal be dismissed with costs.

QUD 168 of 2007

1.        The appeal be dismissed with costs.

QUD 264 OF 2007

1.        The appeal be dismissed with costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY

QUD 167 OF 2007
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

BETWEEN:

RICHARD WILLIAM SPENCER
Appellant

AND:

LANE ROWIN PTY LTD (A.C.N. 064 310 999)
Respondent

QUD 168 OF 2007

BETWEEN:

SILVANA PEROVICH
Appellant

AND:

LANE ROWIN PTY LTD (A.C.N. 064 310 999)
Respondent

QUD 264 OF 2007

BETWEEN:

SILVANA PEROVICH
Appellant

AND:

LANE ROWIN PTY LTD (A.C.N. 064 310 999)
Respondent

JUDGE:

TRACEY J

DATE:

15 OCTOBER 2007

PLACE:

MELBOURNE (HEARD IN BRISBANE)

REASONS FOR JUDGMENT

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Details
Case
[2007] FCA 1519
Decision Date

CaseChat Overview and Summary

In the matter of Spencer v Lane Rowin Pty Ltd, the applicants sought to annul their bankruptcies under section 153B of the Act. The sequestration orders were based on judgment debts obtained from the New South Wales District Court. The applicants argued that the creditor was not entitled to judgment in the full amount of the debt because of certain payments made earlier. Emmett J dismissed the applications and declined to follow Greenhill. His Honour held that section 41(5) is concerned with a claim of a bankruptcy notice for an amount greater than is, in fact, owed under a judgment. The reasoning of the Court was that a bankruptcy notice must require the debtor to pay the judgment debt, in accordance with the judgment. The pre-existing obligation, which the judgment is intended to enforce, will have merged in the new obligation created by the judgment. Upon an application to a court exercising jurisdiction in bankruptcy to set aside a bankruptcy notice, the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced, and would not support a finding that there was, in truth, no debt at all.

The Court found that the $15,000 payment, made on 24 July 2006, was made to secure an extension of time for payment of the monies owing and was not intended to be deducted from the principal sum. The Federal Magistrate dealt with the first payment of $10,000 by accepting the evidence of the respondent’s solicitor that the parties agreed that the payment of $10,000 would be made to secure a forbearance, and would not be deducted from the amount otherwise owing. The Federal Magistrate concluded that the amount stated in the bankruptcy notices was not an overstatement. The Court then considered the sequestration order, which was based on the applicants’ failure to comply with the requirements of the bankruptcy notice on or before 27 March 2007. The applicants filed a notice opposing the making of a sequestration order on the grounds that they were able to pay their debts and that, in the exercise of its discretion, the Court should not make the order. However, the Court found that the applicants had not provided sufficient evidence to support their claim, and the sequestration order was therefore upheld.

In conclusion, the Court dismissed the applicants' appeals and found that the sequestration orders were valid. The Court held that the bankruptcy notices were not overstatements of the amount owed, and the applicants' failure to comply with the requirements of the bankruptcy notice resulted in the sequestration order being made against their estates. The Court also found that the applicants had not provided sufficient evidence to support their claim that they were able to pay their debts, and therefore, the sequestration order was upheld.

Orders

Orders of the court

QUD 167 of 2007

1. The appeal be dismissed with costs.

QUD 168 of 2007

1. The appeal be dismissed with costs.

QUD 264 OF 2007

1. The appeal be dismissed with costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

TRACEY J
In Re Wilson v Official Trustee in Bankruptcy [1999] FCA 1760 the applicants sought an annulment of their bankruptcies under s 153B of the Act. Sequestration orders had been made on the basis of a judgment debt obtained from the New South Wales District Court. The applicants claimed that the creditor was not entitled to judgment in the full amount of the debt because of certain payments earlier made. Emmett J dismissed the applications. He declined to follow Greenhill and held that s 41(5) “is concerned with a claim of a bankruptcy notice for an amount greater than is, in fact, [owed] under a judgment” (emphasis in original). His Honour explained his reasons for differing from Morling J as follows:“[39] A bankruptcy notice must require the debtor to pay the judgment debt, in accordance with the judgment. The pre-existing obligation, which the judgment is intended to enforce, will have merged in the new obligation created by the judgment – see Corney v Brien (1951) 84 CLR 343 at 353-354. It may well be that there would be good grounds for setting aside a judgment which was entered for an excessive amount. Further, it may be that this Court, as a Court of Bankruptcy would go behind a judgement in order to determine whether there was, in fact, anything due. Following the entry of a judgment, however, the amount due by the judgment debtor to the judgment creditor, and the amount for which execution might issue, is the sum stated in the judgment. Where a bankruptcy notice claims that amount, it cannot be said that it claims an amount that exceeds the amount in fact due. By reason of the judgment itself, the amount of the judgment is due.[40] Upon an application to a court exercising jurisdiction in bankruptcy to set aside a bankruptcy notice, the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted, they would only support a finding that the amount of the debt be reduced, and would not support a finding that there was, in truth, no debt at all – see Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 589. That decision of a Full Court of this Court is binding upon me and, it appears to me, that it would preclude a Judge, on hearing a bankruptcy petition, to go behind the judgment if the only purpose for doing so would be to show that the amount of the judgment should be reduced, not to show that no amount was owing. It may be relevant, if the amount of the judgment should be reduced to an amount below the minimum amount that supports a petition. However, that is not the case here.” In Emerson the Full Court (presided over by Morling J) accepted that a bankruptcy notice may be invalid if the amount specified in the notice exceeds the amount in fact due. It held that the date on which the inquiry as to whether or not the amount specified in the notice is excessive was to be made as at the date of the issue of the notice. In that case the amount specified in the notice was an amount for which judgment had been obtained in the District Court in Queensland. After the bankruptcy notice had issued the Supreme Court allowed an appeal from the District Court’s judgment and reduced the judgment sum by $5,400. The Court held that the notice claimed the amount of the judgment and did not, therefore, exceed the amount in fact due. The subsequent reduction of the amount of the judgment did not alter this position. The Court then dealt with the question of when it might be permissible for a Court of Bankruptcy to go behind a judgment on which a bankruptcy notice was founded. The Court said (at 587 – 588) that:“It is not open to doubt that a Court exercising jurisdiction in bankruptcy may, in an appropriate case, ‘go behind’ a judgment and inquire whether it was founded on a real debt: Corney v Brien … . Such a Court, however, has no power to set aside a judgment but only to prevent the judgment creditor from having recourse to the provisions of the Bankruptcy Act … As between the parties, the judgment remains unimpeached and maybe enforced accordingly by what ever means may otherwise be available.In the present case, there had been a full hearing before the District Court at which the appellants and the respondent appeared and were legally represented. All the issues were carefully examined and judicially determined. This is not a case, like many of the cases in this area of the law, where judgment was entered in default of appearance or defence. There may be circumstances which justify, in a particular case a review of the proceedings in another Court which, after a hearing, have resulted in the entry of judgment against a debtor … For example, if an allegation is made that a judgment has been obtained by fraud, it may be proper for a Court exercising jurisdiction in bankruptcy to go behind the judgment to ascertain whether there is a real debt. But there is nothing in the facts of the present case which would have warranted this Court embarking on what would have amounted to a re-trial of the issues that had been determined after a contested hearing and which were the subject of an appeal to the Supreme Court of Queensland. That Court, not this Court, was the appropriate forum in which to review the correctness of the District Court judgment. The circumstance that the Supreme Court subsequently varied the judgment entered in the District Court, reducing it by the sum of $5,400, provides no support for the contention that this Court should have itself examined the correctness of the judgment. Nor, given the particular circumstances of this case, do any of the cases on which the appellants relied support the appellants’ contention.”

Ratio Decidendi

Legal Principle Established

Established by: TRACEY J

The Federal Magistrate accepted that the $15,000 payment, made on 24 July 2006, was made to secure an extension of time for payment of the monies owing and was not intended to be deducted from the principal sum. He dealt with the first payment of $10,000 as follows:“[28] The position with the first payment is not as clear. As I have said, the contemporaneous documents exchanged between the parties do not expressly state how the payment of $10,000 is to be applied. Accordingly, parol evidence will be admissible to assist the court in determining the intent of the parties.[29] To this end, the evidence of the respondent’s solicitor is unchallenged. By reference to his file note, the solicitor has given evidence that the parties agreed that the payment of $10,000 will be made to secure a forbearance, and would not be deducted from the amount otherwise owing. This is consistent with what occurred when an indulgence was sought. The [appellants] were facing an application for summary judgment, and wanted to secure further time to pay. This indulgence came at a price; initially $10,000 and subsequently $15,000. Neither of the [appellants] could contradict the solicitor’s evidence. They did not speak to him. As I have said, the [appellants] agent, who did speak to the respondent’s solicitor, did not give evidence. In the absence of any contradiction, there is no reason why I should not accept the solicitor’s evidence. It is not glaringly improbable, or even doubtful. In fact it is consistent with what occurred subsequently so far as the $15,000 payment is concerned. Further, the failure to call the [appellants] agent entitles me to infer that his evidence would not have assisted the [appellants].[30] The [appellants] were unable to point to any evidence prior to the making of the two agreements that supported their contention that the two payments were to be offset against the amount otherwise owing. As I have said, recourse to the subsequent, erroneous schedules, does not assist them.”For these reasons the Federal Magistrate determined that neither the $10,000 sum nor the $15,000 sum was, pursuant to any agreement, to be offset against the principal sum for which judgment was obtained. He concluded that the amount stated in the bankruptcy notices was not an overstatement.THE SEQUESTRATION ORDER The bankruptcy notice which was served on Mrs Perovich on 6 March 2007 required her to pay the respondent the $340,512.51 on or before 27 March 2007. The money was not paid by that date and has not since been paid. On 18 June 2007 the Federal Magistrate dismissed Mrs Perovich’s application to set aside the bankruptcy notice. On 26 June 2007 the respondent filed a creditor’s petition alleging that Mrs Perovich had committed an act of bankruptcy by failing to comply with the requirements of the bankruptcy notice on or before 27 March 2007. A sequestration order was sought against Mrs Perovich’s estate. On 14 August 2007 Mrs Perovich filed a notice opposing the making of a sequestration order on the grounds that she was able to pay her debts and that, in the exercise of its discretion, the Court should not make the order.