STATHOPOULOS v JUNKEER & ANOR
[2012] FMCA 618
•21 June 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| STATHOPOULOS v JUNKEER & ANOR | [2012] FMCA 618 |
| BANKRUPTCY – Review of sequestration order made by registrar – hearing de novo – underlying judgment in default of defence – application to set aside default judgment dismissed by County Court – application for leave to appeal against dismissal of application to set aside judgment – whether creditor’s petition should be adjourned pending determination of application for leave to appeal. |
| Bankruptcy Act 1966, s.52 County Court Civil Procedure Rules 2008, rr.14.10, 21.02 |
| Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 Australian Bankruptcy Law & Practice, Sixth Edition, McDonald, Henry and Meek |
| Applicant: | GEORGE STATHOPOULOS |
| Respondent Creditor: | DEBORAH LILITHE JUNKEER |
| Supporting Creditor: | GOLDSMITHS LAWYERS |
| File Number: | MLG 1723 of 2011 |
| Judgment of: | Riley FM |
| Hearing date: | 21 June 2012 |
| Date of Last Submission: | 21 June 2012 |
| Delivered at: | Melbourne |
| Delivered on: | 21 June 2012 |
REPRESENTATION
| Counsel for the Applicant: | Mr Sandbach |
| Solicitors for the Applicant: | GPZ Legal |
| Counsel for the Respondent Creditor: | Ms Konstantinou |
| Solicitors for the Respondent Creditor: | Con Kiatos & Co Solicitors |
| Advocate for the Supporting Creditor: | Mr Goldsmith |
| Solicitors for the Supporting Creditor: | Goldsmiths Lawyers |
ORDERS
The supporting creditor have leave to withdraw from the proceeding.
The applicant pay the supporting creditor’s costs of and incidental to its involvement in the proceeding on a solicitor own client basis (including reserved costs).
The application filed on 14 June 2012 be dismissed.
A sequestration order be made against the estate of George Stathopoulos.
The petitioning creditor’s costs, including reserved costs, be taxed and paid from the estate of the bankrupt in accordance with the Bankruptcy Act 1966.
Pursuant to s.52(3) of the Bankruptcy Act 1966, all proceedings under this order are stayed until 4.30pm on 12 July 2012.
AND THE COURT NOTES THAT:
The date of the act of bankruptcy is 12 October 2011.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1723 of 2011
| GEORGE STATHOPOULOS |
Applicant
And
| DEBORAH LILITHE JUNKEER |
Respondent Creditor
| GOLDSMITHS LAWYERS |
Supporting Creditor
REASONS FOR JUDGMENT
(Revised from Transcript)
This is an application for review of a decision of the registrar. The registrar on 12 June 2012 refused an application for an adjournment of a creditor’s petition and made a sequestration order. The registrar also stayed the proceedings under his order until 26 June 2012.
The petitioning creditor has filed the appropriate affidavits as to debt and search today.
The applicant seeks that the sequestration order be set aside and that the creditor’s petition be adjourned to after 2 August 2012. It seems that, on that date, there is an application listed in the Court of Appeal for leave to appeal against a judgment of Kennedy J in the County Court of Victoria. That judgment was handed down on 28 May 2012.
The background to the case is that there was a judgment entered in default of defence in the County Court by the petitioning creditor against the applicant on 22 March 2011.
The petitioning creditor served a bankruptcy notice on the applicant on 21 September 2011. The applicant failed to comply with it.. The creditor’s petition was filed on 7 December 2011. The debtor on
3 April 2012 filed an application to set aside the judgment that was entered against him in default of defence on 22 March 2011.
The applicant says that there are deficiencies in the judgment of Kennedy J which warrant the matter today being adjourned to a date after 2 August 2012 and the sequestration order being set aside to enable the applicant to proceed with his appeal.
The applicant relies particularly on Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137, which stands for the proposition that a court should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings and there are substantial or genuine and arguable grounds for the appeal. This particular case is a little different, in that the underlying judgment upon which the bankruptcy notice was founded was a default judgment and an application to set aside that default judgment was dismissed by Kennedy J.
The applicant now seeks to have time to seek leave to appeal against the decision of Kennedy J. Even if this were simply a straight forward appeal from the underlying judgment, the court would need to be satisfied that there are substantial grounds, or genuine and arguable grounds, on which the appeal might succeed.
The applicant argued today, to justify to justify his application for an adjournment, that the judgment entered by default was irregular. It is said that the judgment was irregular because r. 21.02(1) and (2) of the County Court Civil Procedure Rules 2008 (“the Rules”) provide that:
(1)Where any defendant, being required to serve a defence, does not do so within the time limited, the plaintiff may enter or apply for judgment against that defendant in accordance with this Order.
(2)Judgment shall not be entered or given for the plaintiff unless an affidavit proving the default is filed.
In the present case, it is said that no such affidavit was filed and that, accordingly, the judgment in default was entered irregularly. The applicant says that he was entitled, as a right, to have that default judgment set aside.
That was a matter that was raised before Kennedy J. Her Honour considered that, although technically the default judgment was irregular, there were reasons which persuaded her to dispense with the requirements of the Rules, including r. 21.02(2), and proceed to deal with the case on the basis that the judgment was, in fact, regular.
Primarily, her Honour concluded that, although there was no affidavit proving the default, she was satisfied that the default had occurred because her perusal of the file indicated that no defence had been filed within the time stipulated or any time thereafter. However, the applicant pointed out that what was required by rule 21.02(2) was not that the defence be filed, but that it be served.
That is, in fact, what the relevant rule requires. Nevertheless, the petitioning creditor said that the reality of the situation is that the defence needed to be filed before it was served, and therefore, it was open to her Honour to conclude that, as it had not been filed, it could not possibly have been served.
The applicant, however, then pointed out that, in the County Court, the usual process occurs in the reverse order. Rule 14.10 provides that:
A party who serves a pleading on another party shall forthwith, after service, file a copy of the pleading.
The effect of that rule is that the applicant was required to file a copy of his defence immediately after service of his defence. There is no suggestion that he did that. It seems to me that it was not unreasonable for her Honour to conclude that, in circumstances where the defence had not been filed, it had not been served either.
The applicant’s counsel argued today that the case of Building Guarantee and Discount Co Ltd v Dolejsi (1967) VR 764 stood for the proposition that it is inappropriate to regularise a default judgment if the application to do so is made after an application to set aside for irregularity. That is what happened in this case. However, on examination that case does not actually support the proposition that counsel said that it stood for. The circumstances of that case were that a default judgment had been entered for an excessive amount. The court was asked to amend the judgment to reduce it to the correct amount but, according to the head note, as the plaintiff had not sought to amend the judgment until the defendant had taken steps to take it aside, it was held that the judgment should not be amended.
The reasoning in Dolejsi is not as categorical as counsel suggested. It is not that if there is an application to regularise a default judgment it should not be acceded to if it is made after there is an application to set aside the judgment for irregularity. An examination of the reasons of McInerney J shows that his Honour treated this as a discretionary matter. His Honour took into account numerous factors.
The relevant factors that his Honour listed included the timing of the various applications and, in particular, that the application to amend the judgment was only made on the day of the return of the summons for the application to set aside the judgment. His Honour also noted that prior to that day the plaintiff had made demands for costs based on a taxation already carried out. His Honour noted finally that there was a substantial conflict of fact about whether the judgment was entered into in breach of an understanding between the respective solicitors. The Court said:
In all of those circumstances it appears to me that, in the exercise of my discretion, I should not accede to the prayer for amendment of the judgment but that I should accede to the application to set aside the judgment.
Dolejsi stands for the proposition that, where there is an application to set aside a default judgment and an application to regularise an irregular judgment, the court has a discretion, which is exercised on the basis of all of the circumstances of the case. In the present case, Kennedy J did exercise her discretion on the basis of all of the circumstances that were before the court. It seems to me that it was open to her Honour to conclude that the default judgment was regular, given the way in which the Rules are expressed.
In any event, the petitioning creditor points out that whether the judgment was regularly entered or not is not the end of the matter in bankruptcy proceedings. The court was referred to Australian Bankruptcy Law & Practice by McDonald, Henry and Meek at 52.1.23[1], where there is commentary on default judgments and irregularities in the original proceeding.
[1] Australian Bankruptcy Law & Practice, Sixth Edition, McDonald, Henry and Meek
The commentary says under the heading Irregularities in Original Proceeding:
Even if the irregularity would entitle the debtor to have the judgment set aside, if there was a real debt on which the judgment could have been obtained, the Court may refuse to dismiss the petition.
That means, in effect, that whether or not there was a regular entry of judgment, it is still open to the court to conclude that the creditor’s petition in this case should not be adjourned, and the existing sequestration order made by the registrar should not be set aside, because there is a real debt underlying the judgment.
Kennedy J, in the County Court, after rightly or wrongly determining that the judgment was regular, went on to consider the application to set aside the default judgment as if it were a regularly entered judgment. In doing so, her Honour considered whether there was a real debt, or a viable defence to the claim.
Her Honour noted that the exercise of the discretion to set aside a regular judgment involves a consideration of whether the defendant has a defence on the merits, the reason for the default, any delay in the application and the prejudice to the plaintiff. Her Honour considered the various defences that were raised in the proceedings before her. They were that a particular deed was a sham, that the deed was unenforceable and that a particular solicitor had a conflict of interest. Her Honour considered each of those defences under the heading Prima Facie Defence and ultimately concluded that there was not a prima facie defence on any of the bases identified.
The first defence was that the relevant deed was a sham. Her Honour found that there was an internal inconsistency in the applicant’s claims about the deed being a sham, because his evidence seems to have been that there was an oral undertaking not to enforce the deed, which presupposed that it was real, and absent the agreement, it would have been enforceable. Her Honour found that to be both highly improbable and internally inconsistent.
The applicant argued today that her Honour should not have looked at the logic of the defence and should not have said that the defence was internally inconsistent. The applicant argued that the court was required to enquire whether, if the defences alleged were established on the evidence, they would have been a complete answer to the claim. However, her Honour said that there was no merit whatsoever in the sham defence, on the applicant’s own case.
Similarly, with the material alteration defence, her Honour set out a good deal of authority about why the proposed defence was not viable as a matter of law. The applicant’s counsel today said that there was authority indicating that her Honour was wrong. Unfortunately, however, he did not produce that authority to the court today.
The third defence was an alleged conflict in the solicitor who was somehow involved with the drawing of the deed. However, her Honour concluded in relation to that point that the evidence did not articulate any basis for a conflict. Her Honour also said that it was not explained to her how a conflict would necessarily vitiate the deed. Her Honour noted that there was no authority cited by the defendant. I asked the applicant today for any authority to support the proposition that the deed would be vitiated by the sort of conflict that was alleged. However, counsel was unable to provide any such authority.
I am unable to form the view today that there is any particular flaw in her Honour’s reasoning in relation to the merits of the underlying judgment. The applicant did not raise any new substantive defences today.
Her Honour went on to consider whether the applicant had a satisfactory explanation for his default in filing a defence and for his extensive delays. Her Honour concluded that there was no satisfactory explanation for the delays or the default. Her Honour noted that any prejudice to the plaintiff could, perhaps, be addressed by an order as to costs. However, her Honour concluded that the other factors weighed against the setting aside of the judgment.
Her Honour said at [81]:
… given the absence of a good defence, the inadequate explanation for the default, and the extensive delays, I am not satisfied in the exercise of my discretion, that the default judgment should be set aside.
In all the circumstances before me, it does not seem that there are genuine and arguable grounds for the application for leave to appeal against the judgment of Kennedy J. That being so, it is not appropriate to adjourn the matter for that step to be taken.
The petitioning creditor also drew the court’s attention to the question of the solvency of the applicant. He swore an affidavit on 3 April 2012 in which he asserts that he is solvent. He says that he owes the creditor no money at all, that he owes Goldsmiths lawyers $10,000 and Defteros Lawyers about $15,000. He says that he is unemployed but he has an arrangement with his sister whereby he can call upon her to assist with the payment of outstanding legal fees. The applicant says there is another judgment for $30,000 with Elemen Commercial Real Estate Agents. He says that judgment is subject to an instalment order which the court made on his application. He says that he is meeting the instalments with the assistance of his sister.
The applicant says that he has personal property consisting of furniture and personal effects, worth approximately $120,000. He claims to have three Rolex watches and jewellery. There is no independent valuation of any of those assets.
The applicant says that solvency is irrelevant because the question is whether the judgment of Kennedy J is susceptible to being overturned on appeal, if leave is granted. However, solvency is relevant: see s.52(2)(a) of the Bankruptcy Act 1966.
The facts that the applicant is not employed and seems to be dependent on his sister for financial support tends to undermine his claim to be solvent. I also note that Kennedy J said at [32] of her judgment that the applicant sought an adjournment on 16 May 2012 to adduce evidence as to his impecuniosity.
When the hearing began today there was a petitioning creditor before the court, Goldsmiths Lawyers. Mr Goldsmith sought leave to withdraw on the basis that he had come to an understanding with the applicant. Mr Goldsmith was granted that leave.
Towards the very end of the hearing today, another person advised the court that he represented another potential supporting creditor. That creditor is Campbell’s Cash and Carry Pty Ltd. The court was told that Campbell’s Cash and Carry Pty Ltd had entered a judgment in the sum of $3,027.42 against the applicant on 15 February 2011, and that the applicant had obtained a judgment debt instalment order for the payment of $300 per month in relation to that judgment. The court was also told that the applicant had not paid any of those instalments and that the solicitor was going to attempt to set aside the judgment debt instalment order.
The applicant told the court, through his counsel, that his sister had actually paid out that debt in recent times. There is no evidence either way before the court in relation to any debt owed to the potential petitioning creditor, Campbell’s Cash and Carry Pty Ltd. I disregard that claim for the present purposes.
Taking into account all the material before me, I am not persuaded that there is sufficient merit in the proposed application for leave to appeal against the decision of Kennedy J to warrant an adjournment of the matter or to warrant the sequestration order being set aside. It seems to me that all of the discretionary considerations weigh very strongly against that. There has been considerable delay by the applicant in this matter and he has not adequately explained it. In addition, he does not appear to be solvent.
For these reasons, the application will be dismissed.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Riley FM
Date: 13 July 2012
0