Stillman v Pascoe - [2012] FMCA 111

FEDERAL MAGISTRATES COURT OF AUSTRALIA

STILLMAN v PASCOE

[2012] FMCA 111

BANKRUPTY – Sequestration Order made on debtor’s own petition – annulment application – debtor consents to judgment debt – inability to pay debt leads to his own petition being presented – debtor now wishes to demonstrate judgment debt based on erroneous contentions as to legal relationship between creditor and his company – legal principles.

Bankruptcy Act 1966, ss.55, 40 & 153B

Re Almassy [1999] 92 FCR 597
Registrar of Titles (WA) v Franzon (1975) 132 CLR 611
Re Abbas; Ex parte Official Trustee in Bankruptcy (1995) FCR 140
Rigg v Baker [2006] FCAFC 179
Miller v Bondi Securities and the Official Trustee in Bankruptcy FED No. 654/94
O’Keefe v Wyndham City Council [2010] VSC 394
Jones v Dunkel [1959] HCA 8
Re Cook (1946) 13 ABC 245

Applicant:

TREVOR JAMES STILLMAN

Respondent:

SCOTT PASCOE

File Number:

PEG 116 of 2011

Judgment of:

Lindsay FM

Hearing date:

8 & 9 February 2012

Date of Last Submission:

9 February 2012

Delivered at:

Perth

Delivered on:

9 February 2012

REPRESENTATION

Counsel for the Applicant:

Mr R.W. Bower

Solicitors for the Applicant:

Corser & Corser Lawyers

Counsel for the Respondent:

Mr Donoghue

Solicitors for the Respondent:

Carles Solicitors

ORDERS

The application filed on 19 May 2011 do stand dismissed.
The applicant pay the respondent’s costs of and incidental to these proceedings.
The quantum of costs is such sum as may be agreed between the parties within seven (7) days, in the event of non agreement between the parties, liberty to the parties to have the matter relisted before me.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT PERTH

PEG 116 of 2011

TREVOR JAMES STILLMAN

Applicant

And

SCOTT PASCOE

Respondent

REASONS FOR JUDGMENT

This is an application filed on 19 May 2011 by the applicant bankrupt. He was bankrupt on his own petition and this is an application pursuant to section 153B of the Bankruptcy Act 1966 (“the Act”) for an annulment of that bankruptcy. Section 153B provides in subsection (1) that:
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.
Subsection (2) provides:
In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.
The trustee has been represented throughout the hearing by Mr Donoghue. He has filed a report and an extensive affidavit. His position is in a formal sense neutrality on the application but it is plain from the contents and tenor of his report and the contents and tenor of his affidavit that he apprehends there to be some difficulties, or some obstacles might be a better way of expressing his position, that, confront the debtor in making this application.
I have, in dealing with the application, had regard to the three extensive affidavits of the debtor. In addition to that, I had affidavits of Scott Rolf Bereth, Julie Anne Brewster and Henry Neville, all of which affidavits were read into the transcript. Those deponents were not required for cross-examination. The debtor was required for cross-examination and so submitted himself and in addition to that I have been greatly assisted by the comprehensive submissions of counsel.
I will come to this matter in more detail in a moment, but the burden of persuasion in respect of the application, of course, rests upon the debtor. One of the cases to which I was referred by Mr Bower was a decision of Mansfield J in Re Almassy [1999] 92 FCR 597. The reference to the case was promoted by Mr Bower in relation to a particularly helpful description of the requirements of the section that appears at the bottom of p.599. There is a description of the nature of the exercise the Court embarks upon in an application under s.153B of the Act and I will return to this decision in relation to that aspect of the matter in a moment.
But presently I wanted to note that his Honour was dealing in that case with, as here, an application by a debtor who had presented his own petition and it will be noted in respect of creditors’ petition, the language of subsection (1) is the Court looking for satisfaction that a sequestration order “ought not to have been made”; 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”.
For present purposes in terms of the differing expressions that are used within the subsection in relation to creditors’ petitions and debtors’ petitions, his Honour has this to say at p.600:
In respect of the expression, “ought not to have been received”, a similar threshold has been required. I have referred to decisions on that expression above.
Moore J in re Abbas (at 142) noted that the expression ‘ought not to have” has been treated as comprehending circumstances where the Registrar or judge making the order was not aware of facts that, had they been known, would have resulted in no sequestration order being made. His Honour noted also that a similar approach had been adopted to the expression “ought not to have been presented” in relation to a debtor’s petition. Thus, if the debtor was solvent at the time the petition was presented, the bankruptcy can be annulled.
And his Honour goes on in the next paragraph:
There is every reason to apply the expression “ought not to have” consistently to the terms “made” “presented” and “received” in s 153B:
And in support of that proposition his Honour cites the decision of Mason J in Registrar of Titles (WA) v Franzon (1975) 132 CLR 611.
So that is the approach I will be taking in relation to the circumstance of dealing with the language that the section uses in relation to debtors’ petitions and the language it uses in relation to creditors’ petitions; consistently with the approach taken by his Honour in that case I will be dealing with each of the situations as if they are not materially different.
That deals with the language choice of the section in contrasting creditors’ and debtors’ petitions but, of course, in respect of debtors’ petitions there are two expressions used. The first is that the petition ought not to have been presented and the second is that it ought not to have been accepted by the Official Receiver. In a technical sense, or in a formal sense I should say, Mr Bower left open for me a consideration of both aspects of that matter although I have been unable to identify any factual circumstances in the affidavit material upon which Mr Stillman relied that would assist me in being satisfied that the petition ought not to have been accepted by the Official Receiver.
With respect to the nature of the exercise involved in that aspect of the matter, I propose to follow the dicta of Moore J in Re Abbas; Ex parte Official Trustee in Bankruptcy (1995) FCR 140 at [144] where his Honour says this:
If the Registrar is positively satisfied that the petition and statement of affairs complies with subs (2), he or she is obliged to accept the petition. In other cases it may be rejected or referred to the Court. Thus the expression “ought not to have been accepted by the Registrar” has application to circumstances where a debtor’s petition was accepted notwithstanding that the conditions precedent in s 55(3)(a) to its acceptance were not satisfied. In my opinion the power to annul in s 153B is limited to such a situation if the ground for annulment is that the petition ought not to have been accepted. Any other construction of the relevant part of s 153B would proceed on the basis that the Registrar has a power to consider other facts or matters when deciding to accept the petition. There is plainly no power to do so.
Section 55 of the Act was in a form different to that in which it is currently expressed but there is nothing about the amendments to s.55 that have been affected since the date of that judgment which in my view derogates from the correctness, if I may say so with respect, of his Honour’s remarks, in relation to that expression. So whilst the “ought not to have been accepted by the Official Receiver” arm of the matter is before me in a formal sense, in a real sense the application only relates to the first arm, that in relation to debtors’ petitions and my task is to consider whether or not I am satisfied that the petition ought not to have been presented.
Perhaps at this stage it is appropriate to say something about the nature of the judgment debt. In relation to it, I have to rely almost exclusively upon the affidavit material filed by the applicant and in particular his affidavit filed on 19 May 2011. The debt appears to have arisen in the circumstances of his membership of and directorship of a company called Goldfields Crushing and Screening Pty Ltd. A Mr Greg Bereth also appears to have been a member and director of that company at the relevant times during the period of time giving rise to the judgment debt. Paragraph 20 of the May affidavit explains and I accept the explanation as to what happened in relation to Mr Bereth prior to the time at which the proceedings were resolved by a consent order.
It looks as if the debt arose on account of that company’s relationship with another company known as Coast to Country Pty Ltd. But surprisingly, given the nature of the argument the applicant makes, I did not have much in terms of direct, precise information as to the nature of the claim by Coast to Country against Goldfields Crushing, in the sense, for example, that I did not have the actual Writ or Statement of Claim. It looks as if the claim of Coast to Country was in excess of $2 million. I know that by reference to paragraph 27 of the May affidavit. Ultimately though, the settlement of the matter by which the applicant in this application was bound was in the sum of $1 million.
I know that from paragraph 31 of the May affidavit where Mr Stillman deposes that he accepted his solicitor’s advice that he should enter into an agreement under which judgment in favour of Coast to Country was entered against Goldfields Crushing & Screening “and me” for $1 million. That sum was to be paid by instalments over time. We know that the first instalment was due on 31 October 2007, vide paragraph 36 of the May affidavit. Two other things happened on that day though according to the affidavit at paragraph 37. The first was that he sustained what he describes as a serious injury to his left thumb which then has some fairly significant sequelae.
And vide paragraph 42, Goldfields Crushing & Screening Pty Ltd, was placed in voluntary administration on 31 October 2007.
Now, notwithstanding the figure referred to in [13] above, the statement of affairs of the applicant – and I am referring here to paragraph 46 of the affidavit of Mr Pascoe, the trustee –indicates or indicated that the debt to Coast to Country was in the amount of $1.7 million. It may be that the explanation for the disparity between the consent to judgment figure and that figure is to be found at paragraph 44 of the May affidavit, where the applicant says that:
To the best of my recollection, I think that Coast to Country Crushing & Screening Pty Ltd through its solicitors, also called upon me to pay the entire sum of $1,499,270.98 owing under the consent judgment in the NSW court, as agreed in the Deed of Release dated 11 July 2007.
I did not have that Deed of Release either. Paragraph 44 is to some extent speculative on the part of the applicant, but doing the best I can, I proceed upon the assumption that this is the circumstance in which the judgment debt grows to about one and a half million dollars, and then I am prepared to draw the inference that the figure that is then found in the statement of affairs comprises legal costs and perhaps some additional interest. They are assumptions I am making, but I think it is reasonably safe for me to make those assumptions. Another assumption I must make is that the debt arose out of directors’ guarantees that were given by the applicant and presumably – although I am not directly informed of this by the debtor; once again, I am not provided with copies of the guarantee documents - but I am told, vide paragraph 143 of the May affidavit that:
Coast to Country did not require me –
says the applicant –

or any other officer of Goldfields Crushing & Screening to sign a personal guarantee in April 2005 or later for all the machinery being delivered at that time, under the joint venture agreement.

And I will come to that joint venture agreement in a moment. So it looks as if – and again as I say, it is perhaps a little surprising in an application of this nature that I am having to piece these matters together somewhat and draw inferences on the basis of material that is before me – but it looks as if the indebtedness, the judgment debt, arose from a personal guarantee that was given by Mr Stillman at the outset of his company’s relationship with Coast to Country. But again, I think there is enough material there for me to consider that a safe inference to draw.
In July 2007, the legal proceedings between the two companies and the two directors are resolved in the wake of what is described as compulsory mediation.
Again, the affidavit tells me that by the time of the matter reaching that point, and, says the applicant, on account of cooperation that is extended by his former co-director, Mr Bereth, to Coast and Country, effectively the only defendant to the proceedings, the only non‑corporate defendant to the proceedings, is the applicant. As I say, I am told about that compulsory mediation in paragraphs 19 to 35 of the May affidavit. The applicant sets out in those paragraphs what he says was his experience of a late change in the attitude and advice that was given by the solicitors who had been conducting the litigation for him, solicitors from Watkins Tapsell. The fact that the mediation continued throughout most of the day and was effected with increasing urgency as he describes it in paragraph 29, leads to the circumstance that he is advised that he should abandon thoughts of defending the case at trial.
Paragraph 30 says he felt crushed by the entire experience of the mediation. He was shocked by the advice given by his solicitors which was so different from the advice that they had given him at the earlier phases of the proceedings. However, he accepts his solicitor’s advice. I will read out paragraph 31:
Thinking that my solicitors must have known best, and feeling completely exhausted, I finally accepted their advice that I should enter into an agreement under which a judgment in favour of Coast to Country Crushing & Screening Pty Ltd was entered against Goldfields Crushing Pty Ltd and me for $1 million. That sum was to be paid by instalments over time.
In January 2008, he consults his present legal representatives. Between January and July 2008, there is some information gathering that goes on by him and his newly instructed legal representatives. But by July 2008 and specifically by 8 July 2008 when he presents his own petition, the applicant has accepted his current legal representatives’ advice that there is no basis on which to challenge the New South Wales Supreme Court judgment in that amount of just under $1.5 million, and that because he could not satisfy that judgment, he should place himself in voluntary bankruptcy. He explicitly accepts the advice given by his solicitor that any application he made to set aside the consent judgment would be unsuccessful.
And in the context of his being legally represented and in the context of there being no allegation of any fraud or misrepresentation or impropriety on the part of the plaintiff in those proceedings or its legal representatives, it is unsurprising – I think I am entitled to observe – that he was given that advice and it is unsurprising that he accepted it.
So that is what I know about the judgment debt.
As to the factual basis on which the application is promoted, it really relates to Mr Stillman’s account of the various phases of his company’s relationship with Coast to Country. He essentially says that he has a set‑off partly, partly a cross‑demand and partly a defence for the claim that led to the judgment debt. And as to what those – which I will cumulatively call “his defence” – as to what constitutes his defence, we firstly have to go to what he says in relation to the three distinct periods that existed in relation to the dealings between the two companies.
The first period – this is dealt with in paragraph 60 to 83 of the May affidavit – is the period during which the relationship is really one where one company, Coast to Country, hired its equipment to the applicant’s company. The second period is that described in paragraphs 84 to 166 of the May affidavit and is the period, July 2004 to April 2005, and it is the period during which the applicant said negotiations were being conducted between the two companies with a view to the formation of a joint venture. As I understand the affidavit – and I will come to it in a little more detail in a moment – it is contended by the applicant, as I understand it on the basis of the information available to me, that that was not a period, this second period, during which invoices were raised by Coast to Country in respect of the hiring of equipment to the applicant’s company.
Paragraphs 117 to 175 of the affidavit describe in considerable detail the circumstances attending what is said was the third period, which is the period between April and December 2005, which the applicant said was a period of joint venture between the respective companies which essentially involved crushing work being carried out for another company called Cawse Nickel, although not exclusively for them. And that part of the affidavit is taken up with an identification of those issues which are said to give rise to why in the applicant’s view there is such a clear delineation between that period and the previous two periods, in other words, a series of matters said to give rise to the irresistible inference and conclusion that there was truly a joint venture relationship extant between the two companies.
So, for example, in paragraph 118 there is reference to the absence in this period of written agreements for the hire of equipment. There is a letter from Coast to Country’s manager confirming the existence of a joint venture; that is referred to at paragraph 120 and constitutes annexure TJ2. There is evidence as to the authority given by Coast to Country for the applicant’s company to incur debts in the name of Coast to Country and that is something which is said not to have existed prior to this period: that is referred to in paragraph 123, annexure TJ3. There is further evidence in the form of joint venture reports prepared by officers of the applicant’s company during this period, they are referred to at paragraph 129 and 130. And in paragraph 134 it is contended that during this period no invoices relating to the hire of equipment were raised by Coast to Country.
Paragraph 161 says that the joint venture came to an end in December 2005 when Coast to Country removed its equipment. And it is said, paragraph 163, that in early-2006 Coast to Country issued invoices to the applicant’s company as if there had been an equipment rental agreement in operation between the two companies during the joint venture period but only after the equipment had been returned by the applicant’s company to Coast to Country when the joint venture came to an end. And it is those invoices that form – again, I have to say inferentially because I do not have the Writ itself – a significant part of the claim by Coast to Country against the applicant and his company.

Now, all of those matters which are explained in some detail (the applicant can certainly be satisfied that all facts material to his claim have been explicated in a very careful and comprehensive way by his legal representatives) are said to give rise to some calculations which can be characterised as either set-offs, cross-demands or defences to the claim which eventually led to the judgment debt. And those calculations begin at paragraph 176 of the May affidavit and were expanded upon by the applicant in his oral evidence.
Firstly, it is said that the applicant’s company was entitled to a one-half share of a sum of money, $276,527.56, which during the period of the joint venture was paid to Coast to Country by a company called Perilya but the amount was retained in full by Coast to Country. It is said that this sum was paid by Perilya for work done by the joint venture and should have been accounted for as joint venture income and there is a calculation of entitlement, therefore, of 50 per cent of that amount.
Secondly, it is contended that rental arrears to July 2004 were – on the applicant’s own calculations – $324,684.02. And he produces and introduces into evidence a spreadsheet that he has prepared which is based, he says, on weekly plant reports maintained by his company and invoices rendered by Coast to Country. His oral evidence indicated though that there were a couple of problems associated with that.

It was not quite as straightforward as paragraph 178 of his affidavit contends. He acknowledged that his own spreadsheet was essentially based upon data that was provided to him by his former legal representatives. And he conceded that the actual invoices rendered by Coast to Country formed no part of that material and were not available to him when he prepared his own spreadsheet.
So in terms of the accuracy of that calculation, based upon the evidence we have as to how it was calculated there is no certainty associated with that. I doubt whether I am able to make a finding one way or the other whether that figure is an accurate one; an insufficient basis has been established for me to find that the data upon which the applicant relied in devising his spreadsheet was accurate. The other assumption I have to make for that figure to be a meaningful one for the purposes of the calculations of the debt is that in truth no invoices were raised at all in that middle period, that is, July 2004 to April 2005. That is not something that is explicitly contended for in the affidavit; it is something that I am really just inferentially assuming on account of the contents of the May affidavit.
That is how I understand, in any event, paragraph 181 of the applicant’s May affidavit where he says:
If I am treated as not being liable for any additional charges after July 2004 (because after that date there was no hiring agreement imposing liability on Goldfields Crushing & Screening, no director’s guarantee and indemnity provided by me and instead the joint venture agreement operated between the two companies with no security being provided by directors of either entity)…
and I pause there just to note that those facts and circumstances do not attend to the period July 2004 to April 2005; it is not contended the joint venture agreement was in operation prior to April 2005.
So I have some hesitancy about even knowing whether I should be proceeding upon the basis that the way in which the applicant has ignored that period, that middle period, altogether in terms of the calculation of amounts owing is an appropriate attitude for him to take. It is simply a case of it not being clear to me on the basis of the material that is available that such was the position in the period July 2004 to April 2005. It may have been. As I say, paragraphs 84 to 166 deal with this middle period and it is just not a fact about which I can safely draw inferences that such was in truth the position that attended the relationship between the two companies in that period.
In any event, to return to the applicant’s calculations of the set-offs, from his own calculation of what is truly owing in respect of arrears to July 2004 he deducts that one-half sum of the moneys received by Coast to Country from Perilya. He also deducts a sum of $50,000 which he says is paid by his company to Coast to Country, being moneys during the course of this joint venture agreement which were paid from Goldfields Crushing & Screening to Coast to Country, and, as I say, that is reflected in paragraph 167. He says that the nature of the joint venture arrangement is such that that sum now ought to be credited. And so the net result of his own calculations then made upon that basis is that as at the date of his bankruptcy an amount of $136,420.05 is owing by him and/or his company to Coast to Country.
The affidavit goes on in paragraph 185 to refer to three other sums which he calculates should be, as it were, added back but – and this is acknowledged in the affidavit and in the argument put by Mr Bower – these sums relate to the post-bankruptcy period and that being the case, for reasons I will come to in a moment, can only go to matters relevant to the exercise of the Court’s discretion and not to the question as to whether the petition ought not to have been brought.
So the net result of all of that information is that the applicant contends that we should go behind the judgment debt and that if we do that, the facts and circumstances he sets forth in his affidavit, he says, indicate that the state of indebtedness was of that amount of $136,000. And he says that the equity he had in his properties at the relevant time would have been sufficient for him either to raise money or would have enabled him to liquidate one or other of them, he says, and pay out a debt of that amount and so he points to his solvency as at the date that he presented his own petition.
The state of the law in relation to applications of this nature are perhaps most helpfully set out in the judgment of French J, as he then was, in the Full Court decision of Rigg v Baker [2006] FCAFC 179. That case was an appeal from a decision of a Judge of the Federal Court to grant an annulment. The annulment was made upon the basis of circumstances relating to the appeal of a judgment said to give rise to the judgment debt although the factual circumstances are somewhat more complicated than that and are actually set out in the judgment of French J. I want to refer to this judgment for two reasons. Firstly, paragraphs [61] to [63] of the judgment set out in very helpful abbreviated form the relevant principles on which these applications are determined and to summarise what those paragraphs describe: Firstly, [61]:
In determining whether a sequestration order ought to have been made the Court may consider “not only the case as disclosed at the time that the order was made, but as it would have been disclosed had all the true facts been before the Court on the making of the order”.

And from the expression “not only” that I just read out there, down to the words “making of the order” that is essentially a direct citation from an earlier case, Re Cook (1946) 13 ABC 245. His Honour goes on:

But facts which have come into existence since the making of the order are not relevant to the question whether the order ought to have been made.

And then there is a series of decisions that are cited as authority for that proposition. French J goes on [62] to say:
The circumstances under which a sequestration order ought not to be made were described by Fisher J in Frank.

And the citation for Frank has been given at [61]:
A judge “ought” not to have made an order only if he was “bound” not to make the order.

And further, continuing the citation from that same judgment of Fisher J in Frank:
In my opinion “ought” in s 154(1)(a)…

it says 154(1)A but I assume that is an error
…is of imperative significance and an order should not be annulled unless the judge was in the circumstances bound not to make it and even then there is a residual discretion not to annul.

And his Honour goes on to note that that proposition is quoted with evident approval by the Full Court of the Federal Court in Hudson v Whalen [1999] FCA 189 at paragraph [10]. He then sets out at [63] a series of five propositions which are distilled from the judgment of Carr J in Pollock v Deputy Commissioner of Taxation (Cth) (1994) 94 ATC 4148. Those propositions in turn were derived from the judgment of Riley J in re Calderon (unreported, Federal Court of Australia, Riley J, No NSW 573 of 1976, 31 May 1977). And the five propositions relevant to the amplifications are then summarised. Firstly, the applicant bears the burden of satisfying the Court that the sequestration order ought not to have been made. Secondly, the Court is interested in the ascertainment of facts as to the actual state of affairs at the time when the sequestration order is made. Thirdly, in order to ascertain the actual state of affairs the Court looks at the facts that were before the Court that made the order and any other facts that were not before the Court but are shown at the hearing to have been in existence when the sequestration order was made. Fourthly, having considered all the facts so looked at the Court then determines whether on those facts the applicant has satisfied that the sequestration order ought not to have been made. Fifthly, if it is so satisfied the Court is not bound to annul the sequestration order but must consider in all the circumstances of the case whether it ought to be annulled.
So it is a two stage process. It is determining, firstly, whether the order ought not to have been made. If there is a finding that is the case, then the Court moves to a consideration of those matters which go to the exercise of the discretion in favour of the order the applicant is seeking.
The other proposition which is explicated in Rigg v Baker (supra) is set forth in his Honour’s judgment is in [65]. His Honour notes that:
One basis upon which a creditor’s petition may be dismissed is that the debtor has a cross claim against the creditor.
And then his Honour goes on to cite a passage from the decision of St George Bank Limited v Helfenbaum [1999] FCA 1337. And whilst his Honour is there referring to the dismissal of a creditor’s petition, it is plain from the discussion that then follows that he considers that such argument also exists in the context of applications for annulment.
There is no doubting that for the purposes of my adjudication of this claim I am entitled to go behind the judgment debt. There is ample authority for that proposition. Perhaps it is put most clearly by Beazley J in the Federal Court decision of Miller v Bondi Securities and the Official Trustee in Bankruptcy FED No. 654/94. His Honour was dealing in that case with that very application, the attempt by a judgment debtor to go beyond the debt upon which the sequestration order was made.
His Honour says at [22]:
In the proceeding before me, as it is part of the applicant’s case that Cole J’s judgment was in error and further that she does not owe the monies alleged by the petitioning creditor in the petition, it is also necessary to consider the circumstances in which the court will go behind a judgment debt to determine whether there is, in truth, a debt owing to the petitioning creditor. It is be remembered of course that the application here is not to set aside the Supreme Court judgment, but to annul the bankruptcy, including, as I have said, upon a ground that there is no debt owing to the petitioning creditor and that Cole J was in error in his judgment in finding that there was. That ground requires the court to consider whether it should look behind that judgment to determine whether, in truth, a debt exists. In the exercise of that jurisdiction the court may in an appropriate case be guided by similar principles to those which govern the setting aside of a judgment.
And as authority for that latter proposition his Honour refers to M V Bourke and Anor v Beneficial Finance Corporation Limited (unreported Full Court of the Federal Court 8 December 1993). And there then follows a very careful scrutiny of the judgment upon which the judgment debt is based in that case. In the case, there is a finding that in respect of the affidavit of search that was relied upon by the judgment creditor at the time of the making of the sequestration order, that it was false. That is the only finding in favour of the applicant that emerges from the scrutiny of the judgment and ultimately, notwithstanding that finding as to the falsity of the affidavit of search, his Honour was not prepared to annul the bankruptcy although it is plain from the discussion which begins at [64] onwards that that is on account of discretionary factors, and not any lack of power so to do.
So I proceed to deal with this application upon the basis that the ability of the Court to go behind the judgment debt is, in applications of this nature, clear.
However, I have come to a determination that the annulment order ought not to be made; in other words, that I am not satisfied that the petition in this case ought not to have been presented. I will explain why.
Firstly, I deal with the application on the same basis as if I were dealing with a creditor’s petition where the relevant expression is “the order should not have been made”. The differing language pertinent to a debtor’s position will not be used to make the position of a debtor petition applicant as here subject to a different legal test than a debtor whose sequestration order arises from a creditor’s petition. Furthermore, there is no doubting my power to go behind the judgment. And that principle is as applicable to the position with respect to debtors’ petitions as it is in respect of creditors’ petitions. The claim by the applicant is really for me to recognise a series of set-offs and cross-demands and defences. In that sense the exercise is analogous to the application that is described in s.40(g) of the Act which deals with applications to set aside bankruptcy notices. There, the only claims, set-offs and cross-demands of course that are recognised are those that he could not have set up in the action in which the judgment was obtained. Here, the applicant knew all the relevant facts relating to the set-off and cross-claims at the time of the presenting of his own petition. Documents evidencing the matters upon which he proposes to rely may have only come into his possession or have been returned to his possession in the period since the sequestration order was made but he knew about the salient facts about the joint venture at all material times. And so, for example, he knew from his knowledge the facts and circumstances relevant to what he says is the lack of entitlement on the part of the petitioning creditor to hold on to all of the Pirilya moneys. He knew about what he says were the facts and circumstances giving rise to what he says was the invalid retrospective claim for rental which the petitioning creditor issued at the conclusion of the alleged joint venture period. Not only did he know about them at the time that he presented his own petition, he knew of these matters when he consented to the judgment in the first place.
It is important though that I remind myself that the relevant time for the evaluation of all of these issues and for the ascertainment of the state of facts is the time of the presentation of the petition and not at the time of the consent to judgment itself.
The applicant points to his inability to set aside the judgment debt as a matter to be taken into account in coming to a conclusion that the petition ought not to have been presented. In particular he adverts to advice received. And I have referred earlier to what I considered was the high degree of likelihood that the advice not to apply to set aside the judgment was sound. But his difficulties setting aside the judgment are not technical problems. They are not, for example, problems relating to time limits or the existence of some technical legal entitlement by the other party.
His difficulty is a fundamental problem to do with the attitude the law takes as to his being bound by the decisions he makes during the course of the conduct of litigation, and the view the law takes that litigants ought to be held to be responsible and be bound by the decisions they make. That proposition is fundamental to the certainty for which the law looks in the finalisation of disputes. It is readily accepted, as Mr Bower put, that the applicant’s difficulties in setting aside the judgment are real. His predicament is the kind of predicament that is described by Robson J in that decision of O’Keefe v Wyndham City Council [2010] VSC 394 to which my attention was drawn this morning. But it is important to remind myself, as I say, that that circumstance and those difficulties are not technical in nature. They arise on account of the view the law takes as to the necessity and the utility of ensuring that litigants are bound by the decisions they make to settle litigation.
The analogy between this matter and the circumstances that would apply in the context of a creditor’s petition (of course, there was no Court event associated with the presentation of a creditor’s petition), would be a debtor turning up, as it were, at the hearing of the creditor’s petition several years after the judgment for the debt had been entered with his various set-offs and cross‑demands and defences; it must be thought that in that context, the answer of the Court would be to inquire – and in my view, reasonably inquire – of the applicant why he had not yet sought to set aside the judgment debt, and if necessary, sought a stay from the Court in which the judgment debt was made in relation to it while the setting aside application was furthered.
The presentation of the debtor’s petition was a voluntary act on the part of the applicant.
Even if it could be thought that the matters of personal pressure or, implicitly, incompetence of counsel, or the other matters that are identified in the affidavit as attending the circumstances of the entry of the consent judgment following the mediation, can explain or can be taken to explain the consent to judgment, they do not, in my view, go any way to adequately explaining the presentation of the petition.

We have to be careful in the context of these cases, in not dealing with the applicant as if he was in the position of a person responding to the presentation of a creditor’s petition. I have already indicated that the legal test involved in determining whether the annulment takes place is the same, despite the differing use of language in s.153B of the Act. But it is important to bear in mind that the factual situations attending those petitions are very different.
The sequestration order was made on the debtor’s own application and it was made knowing what he did of the circumstances in which the judgment was entered. To follow through with the analogy of dealing with a debtor’s petition if we were dealing with a creditor’s petition, we would still have some questions to be asked of the applicant as to why there was no setting aside application afoot and why no stay application, pending the disposal of that application to set aside. But here we have the additional, and in my view, highly significant problem associated with the voluntariness of the act of the presenting of the debtor’s petition itself. It is not a case of the applicant having laboured under some misapprehension at the time of the presentation of the petition as to the true factual position. On the contrary, he personally knew of and had acquaintance with all of the facts pertinent to the issue of whether or not a joint venture arrangement existed during the relevant period, and the existence of the other matters that he would seek to promote, if given the opportunity, as setoffs or cross‑demands.

Ultimately, the determination as to whether or not the petition ought to have been presented means an inquiry, as Mansfield J pointed out in the Re Almassy (supra), as to whether the debtor was not eligible, to use his Honour’s expression, to present the petition or to the identification of circumstances relating to the presentation which carry with them some suggestion of irregularity of impropriety, or of the petition having been presented when the true facts were not known to the debtors, such as to render the presentation of the petition, in that context, inappropriate or unfair. None of those circumstances attend the presentation of the debtor’s petition in this case.
In addition to that, I observe too that some doubt attends the calculation of both the setoffs and cross‑demands and other contentions that are at the heart of the applicant’s contentions. I have already adverted to my inability to come to a clear finding as to the amount owing in respect of the hire of equipment as at July 2004. I have also adverted to the lack of evidence which enables me to make a finding one way or the other as to whether or not charges were levied or entitled to be levied by the creditor against the applicant’s companies in what I have described as the second period of their relationship. And thirdly, apart from the applicant’s own contentions, I have been given no basis for making any assumption that the retention by the petitioning creditor of the Perilya monies was unreasonable or inappropriate.
Part of the reason I am in such a position of uncertainty with respect to those key factual matters is, of course, that I do not know what the creditor’s version as to all of those important matters is. I am not prepared to accept that the hearing of an application of this nature is an occasion for me to draw any inferences from the non‑participation of the creditors in the hearing of this annulment application. I accept that the creditors, and in particular, the Coast to Country creditor, have been served with the application. I accept that they have had an opportunity to participate in the proceedings, but I am not prepared to draw inferences that arise from their failure to participate in the proceedings. The fact of the matter is that that creditor has the protection of its judgment. It is a judgment that was entered in 2007. It is a judgment in respect of which no application to set it aside or to appeal from it has been made and there is no suggestion, even at this stage, that such an application will be made.
That present situation of the applicant situation arises from the circumstance that he elected in 2007 not to put his account of the history of commercial relations between the two companies to the test. Now, three or four years later, it seems to me a fair summary of his position to say that he wants to run the same arguments that were available to him in 2007. And in those circumstances, I am not prepared to consider that it is unreasonable, (particularly when I bear in mind that the applicant bears the burden of persuasion in relation to whether or not the order ought to have been presented) that the creditor has adopted a position of not participating in the proceedings. I am certainly not prepared to draw any inference about the creditor’s case analogous to the inference relating to the failure to call a witness discussed in Jones v Dunkel [1959] HCA 8 arising from that set of circumstances.
As I have indicated, I am not satisfied that the petition ought not to have been presented and as I indicated earlier, there are no facts and circumstances that would go any way to satisfying that the petition ought not to have been accepted by the Official Receiver. Having come to that conclusion, it is unnecessary for me to turn to a consideration of the various discretionary factors that would have followed from my being so satisfied of one of those matters, but I observe that the applicant may have had some difficulties associated with the exercise of the discretion in his favour on account of a number of matters, in particular what was said to have been his uncooperative, to some degree, conduct in respect of the administration of his estate since the sequestration order was made. There would have been difficulties associated with insolvency issues.
There were problems too, associated with the existence of two outstanding costs orders and the trustees’ regular costs in respect of administration currently outstanding, which I was told were of a cumulative total of something in the order of $60,000. The applicant, while indicating a preparedness to respond to any initiatives the Court took to fashion a conditional annulment order which dealt with these sums, did not have any specific proposals himself in respect of those matters, and it may be that that is on account of an incapacity to make any meaningful payment in discharge of them. And finally, it might have been thought to have given rise to some difficulties that his delay in bringing the application was, at best, only partially explained.

I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Lindsay FM

Date: 21 February 2012

Addendum to Reasons:

The foregoing is a settled version of oral Reasons for Judgment given on 9 February 2012.
At the conclusion of my oral Reasons on that day, Mr Bower, counsel for the applicant, drew my attention to paragraph 84 of the affidavit of Mr Stillman of 19 May 2011.
He did so, in my view quite properly, to respond to the matter to which I refer in paragraphs 33 to 35 and paragraph 56 herein: namely the lack of a specific contention by the applicant that no invoices were raised by Coast to Country in the “second period” of the relations between that company and Goldfields Crushing and Screening (July 2004 to April 2005).
I accept that the inference to be drawn from paragraph 84 is that no invoices were raised. However, that matter does not cause me to come to any different conclusion on the issue of the calculation of rental arrears to July 2004, that is, I am still not in a position to conclude on the balance of probabilities that the calculation of rental arrears as at July 2004 is accurate. We are still only left with his contentions and those inferences in support of which can be drawn from the other affidavits. It may be an accurate calculation. It may not be. Similarly, the applicant’s contentions as to proper sharing of the Perilya debt may be correct. But it may not. The judgment creditor has not participated in the proceedings. I do not have their account. It is inevitable that, having delayed his promotion of these contentions since 2007 when the judgment was entered, we would be in this state of uncertainty as to the true facts relating to the calculation of the debt. I accept the applicant can do more than put his version forward. I do not reject his account. But I am not in a position to accept it either. These are matters that the applicant had the opportunity to test and promote in 2007 but chose not to do so.
In any event, I recognise the explanation by the applicant as to there being no equipment hired in period two.
The significance of this issue, however, should not be overstated.
Ordinarily, I would not respond to a submission made following the delivery of Judgment. But the applicant has manifestly laboured hard to provide detail of his account of the nature of the arrangements between the two companies in the periods described and I considered it to be important to acknowledge this factual correction but also to indicate that it does not cause me to reconsider my adjudication of the relevant issues in the proceedings.