The Owners of Strata Plan 58041 v Temelkovski
[2014] FCCA 2962
•19 December 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| THE OWNERS OF STRATA PLAN 58041 v TEMELKOVSKI | [2014] FCCA 2962 |
| Catchwords: BANKRUPTCY – Application to extend time to file application for review of Registrar’s decision to make a sequestration order – whether from the time on which the creditor’s petition was served on the debtor up to the day on which a litigation guardian of the debtor was appointed the debtor was a person who needed a litigation guardian – if during that period the debtor was a person who needed a litigation guardian whether the debtor was responsible for the delay in the filing of an application for review of the Registrar’s decision to make a sequestration order against the estate of the debtor. BANKRUPTCY – Whether the Court should set aside the sequestration order or make an order annulling the bankruptcy – whether it is relevant to determining that question that the trustee had a greater opportunity than the bankrupt to avoid or minimise the expenses and effort the trustee incurred and expended – whether the trustee had a greater opportunity than the bankrupt to avoid or minimise the expenses and effort the trustee incurred and expended. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.30(1), 52(1), 52(1)(c), 52(2), 52(2)(a), 54,153B, 154 Bankruptcy Regulations 1996 (Cth), reg.16.01 |
| Australian and New Zealand Banking Group v Daher [2014] FCCA 365 Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 Elias Christianos (Debtors) Ex Parte: Louis Kennedy & Hilda Kennedy (Creditors) [1996] FCA 1375 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Owners Corp (formerly The Proprietors) Strata Plan 3438 v Geoffrey Stephen Hudson [1998] FCA 762 Owners - Strata Plan No. 23007 v Cross, in the matter of Cross [2006] FCA 900 Presentaciones Musicales S.A. v Secunda [1994] Ch 271 R v Governor of Pentonville Prison; Ex parte Singh [1981] 3 All ER 23 STX Pan Ocean Co Ltd v Bowen Basin Coal Group Pty Ltd [2010] FCA 1002 |
| Applicant: | THE OWNERS OF STRATA PLAN 58041 |
| Respondent: | ZORA TEMELKOVSKI |
| File Numbers: | SYG 2967 of 2012 & SYG 1078 of 2014 |
| Judgment of: | Judge Manousaridis |
| Hearing date: | 28 July 2014 |
| Date of Last Submission: | 3 November 2014 |
| Delivered at: | Sydney |
| Delivered on: | 19 December 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Blank |
| Solicitors for the Applicant: | O’ Neill Partners |
| Counsel for the Respondent: | Mr Parish |
| Solicitors for the Respondent: Counsel for the Trustee: Solicitors for the Trustee: | K M Harkness & Co Mr Johnson Sally Nash & Co |
ORDERS
The time prescribed by r.2.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) for the filing of an application for review of the decision of the Registrar made on 15 February 2013 to make a sequestration order against the estate of Zora Temelkovski is dispensed with.
The sequestration order made on 15 February 2013 against the estate of Zora Temelkovski is set aside.
The order for costs made by the Registrar on 15 February 2013 is set aside.
The creditor’s petition is dismissed.
Subject to order 6, the applicant, the respondent, and the trustee each bear its, her, and his own costs of the application for review.
Should any one or more of the applicant, respondent, or trustee wish to apply for an order for costs different from that referred to in order 5:
(a)such person must by 23 January 2015 file and serve short written submissions (together with any affidavit) stating the costs order that should be made, and the grounds on which such person submits such costs order should be made;
(b)all other persons must by 6 February 2015 file and serve short written submissions (together with any affidavits) responding to submissions served pursuant to order 6(a); and
(c)each person must by 13 February 2015 inform the Associate to Judge Manousaridis whether they would be content for the question of costs to be determined on the basis of the written submissions filed pursuant to orders 6(a) and (b) without any further hearing or whether the question of costs should be decided after a further hearing.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2967 of 2012 & SYG 1078 of 2014
| THE OWNERS OF STRATA PLAN 58041 |
Applicant
And
| ZORA TEMELKOVSKI |
Respondent
REASONS FOR JUDGMENT
Introduction
There are two applications before the Court. The first is an application filed on 10 April 2014 in the name of Zora Temelkovski for review of a sequestration order made on 15 February 2013 by a Registrar of the Court against the estate of Ms Temelkovski, and for an order that the time for filing the application for review be extended. The second application is one filed on 17 April 2014, again in the name of Ms Temelkovski, for an order annulling Ms Temelkovski’s bankruptcy.
When entertaining an application for review of a Registrar’s decision to make a sequestration order, the Court must consider whether the petitioning creditor has proved the matters specified in s.52(1) of the Bankruptcy Act 1966 (Cth) (Act).[1] If the petitioning creditor proves those matters, but the bankrupt seeking review claims the Court ought not make a sequestration order for the reason specified in s.52(2)(a) of the Act, or for some other sufficient cause, the Court must also consider whether a sequestration order ought not to be made.
[1] Australian and New Zealand Banking Group v Daher [2014] FCCA 365 at [23] – [25]
This way of stating what the Court must consider on an application for review appears to ignore the reality that a sequestration order has in fact been made by a Registrar. But that, in effect, is what the Court is required to do, at least where the application for review is brought within the 21 day period provided for in r.2.03 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Bankruptcy Rules). Under r.20.03 of the Federal Circuit Court Rules 2001 (Cth) (FCC Rules), a review of an exercise of power by a Registrar “must proceed by way of a hearing de novo”.
Where, as is the case here, the application for review of a sequestration order is made after the 21 day period provided for in r.2.03 of the Bankruptcy Rules, the Court must ordinarily consider the matters it would consider if the application were made within the permitted time, if only to satisfy itself there would be utility in reviewing the Registrar’s decision. The Court, however, must consider at least two other matters. The first is why the application for review was not brought within the time allowed under r.2.03 of the Bankruptcy Rules. The second, and often more significant matter is whether any steps have been taken by persons as a consequence of the making of the sequestration order and, if the sequestration order were to be set aside, whether the persons who have taken such steps will suffer prejudice.
The person who is most likely to be in that position is the trustee in whom the bankrupt’s estate has been vested when the sequestration order was made. If there are grounds for setting aside the sequestration order pursuant to which the bankrupt’s estate was vested in the trustee, but the trustee will suffer prejudice if the sequestration order is set aside, the trustee often submits the Court should make an order annulling the bankruptcy, rather than an order setting aside the sequestration order. The trustee in this case makes that submission. The advantage to a trustee in the Court making an order annulling the bankruptcy is that he or she will have the benefit of the rights conferred by s.154 of the Act. These include the right to apply the property of the bankrupt that has been vested in the trustee to pay for the remuneration and expenses of the trustee.
There are, therefore, at least three issues I must consider when determining the applications made by Ms Temelkovski. The first is whether the petitioning creditor (Strata Owners) has proved the matters prescribed by s.52(1) of the Act and, if so, whether Ms Temelkovski has proved any of the matters specified in s.52(2) of the Act. Ms Temelkovski contends Strata Owners have not proved the matters specified in s.52(1) of the Act.[2] She submits the bankruptcy notice served on her is void; Strata Owners have not proved the bankruptcy notice was served on Ms Temelkovski; the creditor’s petition was not verified; and the creditor’s petition was not properly served on Ms Temelkovski. Further, even if Strata Owners have proved the matters specified in s.52(1) of the Act, Ms Temelkovski submits she is able to pay her debts.
[2] Although Strata Owners is a single legal entity, I will refer to it in the plural to avoid awkwardness of expression.
The second issue I must consider is whether Ms Temelkovski has provided an adequate explanation for her delay in filing an application for review of the Registrar’s decision. Ms Temelkovski submits she did not apply earlier than she did because she was, and remains incapable of managing her own affairs in relation to the bankruptcy proceedings that led to the making of the sequestration order.
The third issue arises only if I am satisfied that, because of any of the matters on which Ms Temelkovski relies for setting aside the sequestration order, the sequestration order ought not to have been made. And that is whether, instead of ordering that the sequestration order be set aside, I should make an order under s.153B of the Act annulling Ms Temelkovski’s bankruptcy.
Impacting on each of these questions, at least potentially, is the mental condition of Ms Temelkovski. At the hearing on 28 July 2014, counsel for the trustee, to his credit, raised the question of whether, given the material that was filed in support of Ms Temelkovski’s applications, a litigation guardian should be appointed for Ms Temelkovski. After hearing evidence and submissions, I ordered, pursuant to r.11.11 of the FCC Rules, that Mary Temelkovski be appointed litigation guardian of Ms Temelkovski.
When I made the order appointing Mary Temelkovski litigation guardian of Ms Temelkovski, it may not have been appreciated by counsel, and I certainly did not appreciate, that Ms Temelkovski was a person who may have needed a litigation guardian at a time before the hearing of the application for review, and that the possibility of her being in such need may have been relevant to the three issues I have already identified, as well as to other issues. After I appreciated the potential significance of these matters, I invited the parties to provide submissions on a number of questions on the assumption that Ms Temelkovski was a person who needed a litigation guardian at earlier times, and in particular, at the time Ms Temelkovski was served with the creditor’s petition. Those questions included the potential relevance of r.11.09 and r.11.15 of the FCC Rules to any of the issues I must decide.
Accordingly, in addition to the three broad issues I have already identified, and the relevance to those issues of Ms Temelkovski being a person who required a litigation guardian, I will also consider the significance of r.11.09 of the FCC Rules to the making of the sequestration order, the filing of the applications that are the subject of these reasons, and, if I find that the sequestration order ought not to have been made, whether I should set aside the sequestration order or instead annul Ms Temelkovski’s bankruptcy.
Before I address these issues, it will be necessary to set out the circumstances in which the sequestration order was made against Ms Temelkovski’s estate, and the course of the administration of the bankruptcy.
Background
Ms Temelkovski is seventy-six years of age. She migrated to Australia from Macedonia in the middle of the 1960’s. Apart from working in factories in the 1970’s, Ms Temelkovski has been what her daughter, Mary Temelkovski, describes as a “homemaker”.[3] Ms Temelkovski has had “no formal education” in Australia, and her English is poor.[4]
[3] M. Temelkovski 19.05.14 affidavit, [3]
[4] M. Temelkovski 19.05.14 affidavit, [3]
In 2000, after she and her husband divorced, Ms Temelkovski purchased and moved into a unit (Unit) where she still lives.[5] The Unit is a lot comprised in a strata scheme of which the Strata Owners are the body corporate. Ms Temelkovski purchased the Unit with her own resources, and the Unit is unencumbered.[6] Mary Temelkovski moved into the Unit to live with her mother about four years ago.[7]
[5] M. Temelkovski 19.05.14 affidavit, [4]
[6] M. Temelkovski 19.05.14 affidavit, [4]
[7] M. Temelkovski 19.05.14 affidavit, [2]
Mary Temelkovski says she is one of two attorneys whom Ms Temelkovski appointed under a general power of attorney dated 19 January 2007. I am not satisfied, however, that Mary Temelkovski’s sister has been appointed an attorney. There is in evidence a general power of attorney dated 19 January 2007 signed by Ms Temelkovski by which she purports to appoint “my daughters”, Mary “Temelovski” and Lila “Temelovski”, to be her attorneys. On the page which provides for each attorney to signify her acceptance of her appointment, only one of the attorneys has signed the document. I assume it is the signature of Mary Temelkovski. Under s.20(2) of the Powers of Attorney Act (2003) (NSW), the acceptance by one of two attorneys appointed under a power of attorney, at least where, as in this case, the two attorneys are appointed jointly and severally, is sufficient to confer authority on the attorney who accepts the appointment. Thus, even if Mary Temelkovski’s sister has not accepted the appointment, Mary Temelkovski’s acceptance of her appointment was sufficient for her to be appointed attorney for Ms Temelkovski.
According to Mary Temelkovski, Ms Temelkovski is in poor health. About seven years ago Ms Temelkovski suffered renal failure and has since developed type 1 diabetes.[8] Further, about three years ago Mary Temelkovski began to notice Ms Temelkovski started to forget things, and showed confusion and paranoia. Mary Temelkovski arranged for Ms Temelkovski to be assessed by a specialist in aged health, a psychogeriatrician. On 14 February 2012 a psychologist, a psychogeriatrician, and a neuropsychologist interviewed Ms Temelkovski. In a letter dated 14 February 2012, the psychologist reported that Ms Temelkovski “presented as acutely psychotic with prominent thought disorder and paranoid delusions” (psychology report).[9]
[8] M. Temelkovski 19.05.14 affidavit, [5]
[9] M. Temelkovski 19.05.14 affidavit, [6], Annexure “A”
On 10 July 2012 the Strata Owners recovered a judgment against Ms Temelkovski in the Local Court for the amount of $7,502.63. I infer that the amount of the judgment, excluding costs, represents strata fees levied by Strata Owners on Ms Temelkovski that Ms Temelkovski failed to pay. I also infer the judgment was entered in default of Ms Temelkovski filing a defence.
On 24 August 2012 Strata Owners arranged for a bankruptcy notice to be issued against Ms Temelkovski demanding that Ms Temelkovski pay the judgment debt. According to an affidavit sworn by a solicitor for Strata Owners, Ms Schiller, the bankruptcy notice was sent by post to Ms Temelkovski’s last known residential address. The address specified in the letter annexed to the affidavit is the address of the Unit. The bankruptcy notice was served in this manner pursuant to reg.16.01 of the Bankruptcy Regulations 1996 (Cth). Ms Temelkovski did not comply with the bankruptcy notice, and a creditor’s petition was filed with this Court on 13 December 2012. According to an affidavit of Matthew Ellsmore, the creditor’s petition, together with the solicitor’s affidavit of service of the bankruptcy notice, were personally served on Ms Temelkovski on 20 December 2012. On 15 February 2013 a sequestration order was made against the estate of Ms Temelkovski, and Mr Alan Geoffrey Scott was appointed trustee in bankruptcy (trustee). The sequestration order was made in the absence of any appearance by or on behalf of Ms Temelkovski.
By letter dated 21 February 2013 to Ms Temelkovski at the address of the Unit, the trustee informed Ms Temelkovski that a sequestration order had been made against her estate on 15 February 2013, provided her with the sequestration order, and then set out in some detail Ms Temelkovski’s “duties and responsibilities as a bankrupt”. The trustee stated that Ms Temelkovski’s “property and assets now vests in me, as your trustee in bankruptcy”.[10] He also stated the trustee was “required to realise (i.e. collect and sell) the assets for the benefit of the estate”, and required that Ms Temelkovski provide the trustee with details of the property in her estate.
[10] A G Scott 29.05.14 affidavit, Annexure “D”
According to Mary Temelkovski, she became aware of the trustee’s letter in late February 2013. She says that when she became aware of the letter, she telephoned the trustee’s office, and had a conversation with Mr Travis Olsen in words to the following effect:[11]
M. Temelkovski: I am Mary Temelkovski and I am ringing on behalf of my mother, Zora Temelkovski. I have received a letter from you to my mother. My mother can’t talk to you. She is from a migrant background. Her English is poor and she would not understand. She is 76 and in poor health. She has aging-related issues. I need to understand this. I don’t understand how my mother can be made bankrupt when this is a small debt. My mother owns her own property outright.
T.Olsen: How much is the property worth?
M. Temelkovski: It’s a two-bedroom villa, relatively new. We need to figure out how to sort this out.
T. Olsen:So you’ll cooperate with us?
M. Temelkovski: I’ve a lot going on at the moment. I have a personal injury case of my own which is running.
T. Olsen:We’ll be in touch.
[11] M. Temelkovski 19.05.14 affidavit, [20]–[25]
Mr Olsen was not called to give evidence, and I have no reason to doubt the accuracy of Mary Temelkovski’s recollection of the conversation she says she had with Mr Olsen. I therefore find Mary Temelkovski and Mr Olsen had a conversation to the effect deposed by Mary Temelkovski.
On or about 28 February 2013 the trustee sent to Mary Temelkovski a letter that referred to Mary Temelkovski’s conversation with Mr Olsen, and set out information “[t]o assist in concluding the bankruptcy affairs of your mother”.[12] The letter referred to the sequestration order that had been made against Ms Temelkovski, to Ms Temelkovski’s property vesting in the trustee, to Ms Temelkovski’s being unable to deal with her property, and to the necessity of Ms Temelkovski completing a statement of affairs.
[12] M. Temelkovski 19.05.14 affidavit, [27], Annexure “H”
The trustee’s letter also stated that during her conversation with Mr Olsen, Mary Temelkovski said words to the effect that “the Caveat has a forged signature of your mother”. The trustee stated that, as trustee of Mary Temelkovski’s estate, he was entitled to lodge a caveat over the Unit to protect any interest Ms Temelkovski’s estate may have in the Unit. The letter then noted that “[a]s discussed with Mr Olsen, you have two options to annul the bankruptcy”. One of the options was for Ms Temelkovski “to seek urgent independent legal advice regarding the setting aside of the Sequestration Order”. The trustee noted “this option will need to be undertaken as a matter of urgency”. The second of the options was for Ms Temelkovski to “annul the bankruptcy by payment in full of all of your mother’s debts which are provable in the bankrupt estate”.[13] Because, however, the trustee had not yet received Ms Temelkovski’s statement of affairs, the trustee said he was unable to provide full details of what was required to be paid to annul the bankruptcy.
[13] M. Temelkovski 19.05.14 affidavit, [27], Annexure “H”
The trustee further noted in his letter that his remuneration in administering Ms Temelkovski’s estate “is required to be paid in full”. The trustee said that his remuneration for the period 15 February 2013 to 25 February 2013 “currently totals $4,659.50 (exc. GST) and my costs for the same period total $411.36 (exc. GST)”. The trustee estimated that he would incur a further $5,000 to $10,000 to enable the annulment of Ms Temelkovski’s bankrupt estate.[14]
[14] M. Temelkovski 19.05.14 affidavit, [27], Annexure “H”
According to Mary Temelkovski, after she read the trustee’s letter of 28 February 2013, she had a telephone conversation with Mr Olsen to the following effect:[15]
M. Temelkovski: I want to speak to Mr Scott about this.
T. Olsen:He is not available but you can talk to me about it.
M. Temelkovski: Obviously this is a small debt. Why would you be charging five to ten thousand dollars to annul the bankruptcy?
T.Olsen: You’ll receive a costs schedule.
[15] M. Temelkovski 19.05.14 affidavit, [28]-[20] (sic)
Mary Temelkovski did not attempt to communicate with the trustee or anyone else at the trustee’s office until 15 October 2013 when Mr Fiddes, a solicitor retained by Mary Temelkovski, wrote to the trustee’s solicitor, Ms Nash. Before that date, the trustee sent to Ms Temelkovski at least two letters. First, there is a letter dated 3 April 2013 in which the trustee informed Ms Temelkovski that he was in the process of having the Unit transferred to him to allow him to realise the Unit, and requested that Ms Temelkovski provide him with the certificate of title for the Unit.[16] Second, there is a letter dated 24 April 2013 in which the trustee again requested Ms Temelkovski to provide him with the certificate of title for the Unit or the name of the person who holds the certificate of title.[17]
[16] A G Scott 29.05.14 affidavit, Annexure “E”
[17] A G Scott 29.05.14 affidavit, Annexure “E”
In addition, according to Mary Temelkovski, in about July 2013 Mary Temelkovski became aware the trustee had served a “notice to vacate” the Unit.[18] I infer that this was intended by Mary Temelkovski to be a reference to a statement of claim for possession that was filed on behalf of the trustee.[19] By that stage, the trustee had been made aware that Shine Lawyers held the certificate of title, and the trustee obtained the certificate of title from those lawyers.[20]
[18] M. Temelkovski 19.05.14 affidavit, [32]
[19] The statement of claim is not in evidence. However, in an affidavit made on 28 March 2014 in support of the issue of a writ of possession, Ms Nash refers to a statement of claim having been filed, and to a notice to occupier having been served to an occupant of the unit, whom Ms Nash said she believed was Mary Temelkovski.
[20] A G Scott 29.05.14 affidavit, [6]
Mary Temelkovski has provided an account of what she did after her second telephone conversation with Mr Olsen:[21]
Following that letter [from the trustee dated 28 February 2013] I attempted to obtain an understanding of what had happened and what could [be] done about it. I spoke with an accountant who was an old school friend . . . who referred me to Ms Melanie Wilde, solicitor, of Wilde Legal Pty Ltd. We spoke over the telephone but Ms Wilde was not formally instructed. I also met with a Mr Sean Stotter, solicitor, whose firm specialised in conveyancing and property transactions. I did not formally instruct him. I had also contacted ITSA to enquire what could be done.
[21] M. Temelkovski 19.05.14 affidavit, [30]
Mary Temelkovski deposes that, “[d]espite these efforts I could not achieve a coherent understanding of what the applicant (or I as her attorney) should do”.[22] Mary Temelkovski further deposes that none of the persons to whom she spoke advised her of the possibility that Ms Temelkovski could set aside the sequestration order on the ground of solvency.[23] At any rate, by 15 October 2013 Mary Temelkovski sought and obtained assistance from Mr Ross Fiddes, a partner of Whitelaw McDonald.
[22] M. Temelkovski 19.05.14 affidavit, [31]
[23] M. Temelkovski 19.05.14 affidavit, [31]
As I have already noted, on 15 October 2013 Mr Fiddes wrote to the trustee’s solicitor, Ms Nash, in which he put a number of matters to explain Mary Temelkovski’s delay in responding to the notice to vacate.[24] Mr Fiddes asked whether the trustee would be prepared to allow a personal injuries matter that Mary Temelkovski was pursuing “run its course”, and for the trustee’s “debt as claimed be paid out of the proceeds of the claim”.[25]
[24] M. Temelkovski 19.05.14 affidavit, annexure “I”
[25] M. Temelkovski 19.05.14 affidavit, annexure “I”
Ms Nash responded by letter dated 25 October 2013 in which she suggested that Mr Fiddes, if he acts for Ms Temelkovski, arrange for Ms Temelkovski to prepare a statement of affairs, and to inform her whether Ms Temelkovski was prepared to pay out the bankruptcy.[26] Mr Fiddes responded by email sent on 29 October 2013 in which he said he could not confirm he was acting for Ms Temelkovski, but he was acting on instructions from Mary Temelkovski who held a power of attorney.[27] Mr Fiddes also said that a “reverse mortgage loan will be applied for” to pay the debt. After further correspondence, a statement of affairs was prepared on behalf of Ms Temelkovski on 18 November 2013 and sent to the trustee shortly after that day.
[26] M. Temelkovski 19.05.14 affidavit, annexure “J”
[27] M. Temelkovski 19.05.14 affidavit, annexure “K”
By letter dated 20 December 2013, Ms Nash informed Mr Fiddes of the estimated payout figure for an administrative annulment.[28] The estimate was $82,000.31. In addition to the petitioning creditor’s costs and the amount owed to Strata Owners, this amount included an estimate of $55,843.38 of the trustee’s disbursements, remuneration and costs to complete the annulment. By letter dated 25 February 2014 Ms Nash informed Mr Fiddes that the estimate of the amount that would be required to annul the bankruptcy had increased to $89,528.60.[29] The letter directed that Ms Temelkovski pay the amount of $89,528.60 within thirty days, failing which the trustee would continue to seek possession of the Unit.
[28] M. Temelkovski 19.05.14 affidavit, annexure “Q”
[29] M. Temelkovski 19.05.14 affidavit, annexure “R”
On 19 March 2014 Ms Nash sent another letter to Mr Fiddes.[30] Ms Nash expressed concern because she received no reply to three of her letters, including her letter dated 25 February 2014. Ms Nash said that the trustee had previously “agreed to hold on to the Writ of Execution to enable a reverse mortgage to be entered into by the bankrupt but this has not occurred”. Ms Nash then gave “7 days’ notice of the intention to reactivate the Writ for Possession”.
[30] A G Scott affidavit, annexure “H”, page 173
By letter dated 24 March 2014, Mary Temelkovski, through her solicitor, Mr Harkness, informed Ms Nash that Ms Temelkovski was not insolvent at the time she was made bankrupt and, for that reason, the sequestration order should be set aside under r.20.03 of the FCC Rules or annulled under s.153B of the Act. Mr Harkness said he anticipated collecting the evidence needed to support the application within fourteen days, and requested that the trustee confirm he would take no action to recover possession of the Unit “pending its filing within a reasonable time”.[31]
[31] M. Temelkovski 19.05.14 affidavit, annexure “S”
Has Strata Owners proved the matters specified in s.52(1) of the Act?
As I note above, Ms Temelkovski contends that Strata Owners have not proved the matters specified in s.52(1) of the Act because the bankruptcy notice that was served on her was void; Strata Owners have not proved the bankruptcy notice was served on Ms Temelkovski; the creditor’s petition was not verified; and the creditor’s petition was not properly served on Ms Temelkovski. I will now examine each of these contentions.
Validity of bankruptcy notice
The sequestration order made against Ms Temelkovski’s estate was based on her not complying with bankruptcy notice No. BN5254 issued on 24 August 2012 that demanded payment of $7,502.63. The first issue I must consider is whether the bankruptcy notice was valid.
Ms Temelkovski submits the bankruptcy notice is void because it provides two addresses for the creditor. She points to page 1 of the bankruptcy notice identifying the address of the Strata Owners as “c/- Level 3, 50 Clarence Street, SYDNEY NSW”, and page 2 of the bankruptcy notice stating that payment of the amount demanded by the bankruptcy notice “can be made to . . . O’NEILL PARTNERS, LEVEL 17, 55 HUNTER STREET, SYDNEY NSW 2000”.
Ms Temelkovski relies on a decision of Beaumont J in Re Elias Christianos (Debtors) Ex Parte: Louis Kennedy & Hilda Kennedy (Creditors).[32] In that case, his Honour held to be void a bankruptcy notice because it did not include the creditor’s address for service. His Honour held the bankruptcy notice to be void because it failed to comply with a requirement in relation to bankruptcy notices that was made essential by the Act. This case is of no assistance to Ms Temelkovski. The bankruptcy notice that was issued to her did specify an address for service for Strata Owners, the creditor.
[32] Re Elias Christianos (Debtors) Ex Parte: Louis Kennedy & Hilda Kennedy (Creditors) [1996] FCA 1375
Ms Temelkovski also relies on the decision of Lindgren J in Owners Corp (formerly The Proprietors) Strata Plan 3438 v Geoffrey Stephen Hudson.[33] In that case, the bankruptcy notice provided two places at which the amount demanded could be paid. His Honour held the bankruptcy notice to be invalid, not because the bankruptcy notice contained two addresses at which the amount demanded in the bankruptcy notice could be paid, but because one of the two addresses at which the bankruptcy notice stated the amount could be paid was not one at which it was reasonably practicable for the debtor to make payment to the creditor throughout the period fixed in the bankruptcy notice. This case, too, is of no assistance to Ms Temelkovski. She does not claim the address specified in the bankruptcy notice issued against her was one where it was not reasonably practicable for her to pay the amount demanded.
[33] Owners Corp (formerly The Proprietors) Strata Plan 3438 v Geoffrey Stephen Hudson [1998] FCA 762
Ms Temelkovski also submits the bankruptcy notice stated the incorrect address for Strata Owners. There is no basis for that submission. The address for Strata Owners specified in the bankruptcy notice is “c/- Level 3, 50 Clarence Street, SYDNEY NSW”.
Ms Temelkovski’s challenges to the validity of the bankruptcy notice, therefore, do not succeed.
Proof of service of bankruptcy notice by post
Next, Ms Temelkovski submits there is insufficient proof of service of the bankruptcy notice.
As I note above, there is an affidavit made by the solicitor for Strata Owners, Ms Schiller, that the bankruptcy notice was served on Ms Temelkovski by post. Ms Schiller deposed as follows:
On 31 August 2012, pursuant to Bankruptcy Regulation 16.01, I caused to be forwarded a copy of Bankruptcy Notice No. 5254 issued 24 August 2012 to the Respondent named herein, being Zora Temelkovski.
A copy of the Bankruptcy Notice was sent by post to the Respondent’s last known residential address, being [address of the Unit] . . .
Ms Temelkovski submits that in order to prove service of a bankruptcy notice by post, it is necessary to have evidence that the bankruptcy notice was placed in an envelope on which there is affixed the correct name and address of the debtor, that the envelope so addressed was stamped, and was either physically deposited at a post office or dropped into a post box for the reception of a mail article.[34] Ms Temelkovski submits that there is no such evidence in relation to the bankruptcy notice that was issued against her.
[34] Applicant’s submissions, [2.3.2]
This submission ignores the affidavit of Ms Courtney Lockwood affirmed on 13 February 2013. She deposes that she enclosed the bankruptcy notice and a covering letter addressed to Ms Temelkovski at the address of the Unit, placed the letter and bankruptcy notice in an envelope and franked the envelope at the applicable rate of postage. Ms Lockwood further deposes that she placed the franked envelope into the Australia Post box on Elizabeth Street (near Hunter Street).[35]
[35] C Lockwood affidavit, [3]-[5]
I am satisfied the bankruptcy notice was sent by post to Ms Temelkovski addressed to the Unit and was, therefore, properly served.
Verification by affidavit of creditor’s petition
Ms Temelkovski submits the affidavit verifying the creditor’s petition has not been verified because the jurat does not specify whether the affidavit was sworn or affirmed. The jurat simply contains the words “SWORN/AFFIRMED at”. Further, the introductory part of the purported affidavit says:
“On 5th December 2012, I [name and address of deponent] say on oath/affirm:’
The Strata Owners accept the jurat does not specify whether the affidavit was affirmed or sworn. They submit, however, that this is a formal defect only which ought to be cured because no prejudice can be said to have been suffered by Ms Temelkovski.
In my opinion, the issue raised by Ms Temelkovski’s submission is not whether there is a defect capable of being cured. The issue is whether, given that the jurat does not identify whether the affidavit was sworn or affirmed, I should nevertheless be satisfied that the affidavit was verified, either by being sworn or affirmed.
If the only rational inferences that could be drawn from the failure to delete either the word “SWORN” or “AFFIRMED” is that the affidavit was either sworn or affirmed, the failure to delete one of these two words could only be viewed as a technical omission which could not deprive the affidavit verifying the creditor’s petition of the character it purports to have, namely, an affidavit. The difficulty, however, is this is not the only available inference. Another inference is that neither of the procedures for taking an oath or an affirmation was observed at the time the purported deponent signed the affidavit verifying the petition.
Under s.21 of Evidence Act 1995 (Cth) (EA), a witness must either take an oath or make an affirmation before giving evidence. The forms of oath and affirmation, which are prescribed by the schedule to the EA, are:
I swear ... by Almighty God ...that the evidence I shall give will be the truth, the whole truth and nothing but the truth.
I solemnly and sincerely declare and affirm that the evidence I shall give will be the truth, the whole truth and nothing but the truth.”
This form of words, or, at least in the case of affirmations, words whose adoption by the person making the affidavit “recognise the gravity and importance of the truth being told on the particular occasion”,[36] must be spoken or adopted by the person making the affidavit before the person who takes the affidavit. Signing a document that states it has been sworn or affirmed without stating or adopting these forms of words cannot give the signed document the character of an affidavit.
[36] R v Governor of Pentonville Prison; Ex parte Singh [1981] 3 All ER 23 at 27 cited with approval by Rares J in STX Pan Ocean Co Ltd v Bowen Basin Coal Group Pty Ltd [2010] FCA 1002 at [11]
The failure by either the purported deponent of the affidavit verifying the creditor’s petition, or by the person taking the affidavit, to remove one of the words “SWORN/AFFIRMED” in the jurat of the purported affidavit raises sufficient doubt in my mind about whether the purported affidavit was in fact sworn or affirmed. For that reason, I am not satisfied the creditor’s petition has been sworn or affirmed, and therefore verified and, for that reason, I am not satisfied Strata Owners have proved the matters specified in s.52(1) of the Act.
This conclusion may appear to cross well into the pedantic. It does. However, it is pedantry mandated by the Act. Section 52(1) of the Act permits the matters stated in the petition to be proved by an affidavit verifying the petition. That permission, however, extends only to proof by an affidavit verifying the petition. If the only proof a creditor offers of the matters stated in the petition is what purports to be, but is not in fact, an affidavit, the requirements of s.52(1) of the Act are not met.
My conclusion that the creditor’s petition filed by Strata Owners was not verified does not necessarily mean that the sequestration order will be set aside or annulled. That is so because I may not grant to Ms Temelkovski the extension of time she has sought for applying for a review of the Registrar’s decision making the sequestration order. However, if I were to conclude that the sequestration order should be set aside, and the only reason would be my conclusion that the creditor’s petition was not verified, I would invite submissions on whether Strata Owners should be permitted to reopen their case by adducing evidence of the circumstances in which the affidavit verifying the creditor’s petition was made.
Service of the creditor’s petition
Assuming the creditor’s petition has been verified, I next consider whether it has been properly served on Ms Temelkovski.
There is in evidence an affidavit of Mr Ellsmore who deposes that on 20 December 2012 he personally served a person by the name of Zora Temelkovski with the creditor’s petition, the affidavit of service of the bankruptcy notice sworn by Ms Schiller, and the trustee’s consent to act. Mr Ellsmore deposes that at the time he served these documents, he asked the person on whom he served them whether the person was “Zora Temelovski [sic] the debtor referred to in this Creditor’s Petition”, and the person answered “Yes”.
Ms Temelkovski submits this service was not valid because at the time she was served she was a mentally disabled person. That meant that the creditor’s petition had to be served according to r.10.09 of the Federal Court Rules 2011 (Cth) (FCR). She submits that r.10.09 of the FCR applies, or at least, should be made to apply to these proceedings under r.1.05 of the FCC Rules because the FCC Rules do not have a rule that is equivalent to r.10.09 of the FCR and, for that reason, the FCC Rules are insufficient.[37]
[37] R.1.05 of the FCC Rules provides: “if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules or the Family Law Rules, in whole or in part and modified or dispensed with, as necessary.”
Strata Owners, on the other hand, submit that r.10.09 of the FCR does not apply to proceedings in this Court, and, in any event, should not be made to apply in the circumstances of this case because it would impose retrospectively on Strata Owners a requirement they were not required to meet at the time Ms Temelkovski was served with the creditor’s petition. Strata Owners also submit that the evidence does not establish that Ms Temelkovski is a mentally disabled person. The trustee, for his part, submits Ms Temelkovski at all times had the assistance of Mary Temelkovski who understood the nature of the bankruptcy process.
The first question I must consider is whether, as submitted by Ms Temelkovski, the FCC Rules do not have an equivalent rule to r.10.09 of the FCR. That rule provides:
Service on person under a legal incapacity
(1) If a person under a legal incapacity has a litigation representative, a document that must be served personally on the person must be served on the litigation representative.
(2) If the person is under a legal incapacity only because of minority and does not have a litigation representative, the document must be served:
(a) if the minor is at least 16 and is not a mentally disabled person:
(i) on the minor; and
(ii) on the minor's parent or guardian; or
(b)if the minor has no parent or guardian:
(i) on a person with whom the minor lives; or
(ii) on a person who is responsible for the care of the minor.
(3) If the person under a legal incapacity is a mentally disabled person and does not have a litigation representative, the document must be served:
(a)on the mentally disabled person's guardian; or
(b)if the mentally disabled person has no guardian:
(i)on a person with whom the mentally disabled person lives; or
(ii) on a person who is responsible for the care of the mentally disabled person.
(4) If the person under a legal incapacity cannot be served in any of the ways mentioned in subrule (2) or (3), a party may apply to the Court for an order that the document be served in some other way or on some other person.
(5) The application may be made before or after the document has been given to some other person.
The expression “mentally disabled person” is defined in Schedule 1 to the FCR as “a person who, because of a mental disability or illness, is not capable of managing the person’s own affairs in a proceeding”.
In my opinion, the FCC Rules do have an equivalent rule to r.10.09 of the FCR; and that is r.11.15(1) of the FCC Rules. That sub-rule provides:
A document required to be served by hand on a person who needs a litigation guardian must be served:
(a)on the person’s litigation guardian for the proceeding; or
(b)if there is no litigation guardian – on a person who is entitled under subrule 11.12(1) to be the person’s litigation guardian for the proceeding; or
(c)if there is no-one under paragraph (a) or (b) – on an adult who has care of the person.
The meaning of the expression “person who needs a litigation guardian” is to be derived from r.11.08(1) of the FCC Rules, which provides:
For these Rules, a person needs a litigation guardian in relation to a proceeding if the person does not understand the nature and possible consequences of the proceeding or is not capable of adequately conducting, or giving adequate instruction for the conduct of, the proceeding.
In my opinion, this rule applies to creditor’s petitions. A creditor’s petition is an “application starting a proceeding” within the meaning of r.6.06(1) of the FCC Rules. Under that rule, therefore, a creditor’s petition must be served by hand. Thus, if the debtor named in a creditor’s petition is a person who needs a litigation guardian, the creditor’s petition must be served in the manner prescribed by r.11.15(1) of the FCC Rules. If that is so, the next question I must consider is whether Ms Temelkovski was a person in need of a litigation guardian at the time she was served with the creditor’s petition.
Service of the creditor’s petition - was Ms Temelkovski a person who needed a litigation guardian?
There are a number of items of evidence that are relevant to whether Ms Temelkovski understood the nature and possible consequences of the proceeding that was initiated against her by the creditor’s petition, or whether she was capable of adequately conducting, or giving adequate instruction for the conduct of these proceedings.
The first is the psychology report dated 14 February 2012 to which I have already referred where the psychologist reported that Ms Temelkovski “presented as acutely psychotic with prominent thought disorder and paranoid delusions”.[38] The report continued:
She was cooperative, socially appropriate and pleasant. Her speech was tangential, but she generally answered questions before going off-topic. At times she used mixed languages and was difficult to understand, even for the interpreter. Her affect was reactive and she reported her mood as good, and she was able to outline a previous time when her mood was low in contrast to now. . . . Although Mrs Temelkovska [sic] denied current perceptual disturbance or auditory hallucinations, she consistently referred to “they” (i.e. as in “they’ve told me to always use their surnames”). Mrs Temelkovska [sic] did not appear distressed by her thought content. In interview, Mrs Temelkovska showed no overt signs of memory difficulties. . . .
In summary, Mrs Temelkovska presents with acute psychosis consistent with her history of chronic untreated schizophrenia. There was little evidence of depression or anxiety, and she did not appear overtly distressed by her thought content. Given her thought disorder, it was not considered appropriate to conduct cognitive testing at clinic today.
[38] M. Temelkovski 19.05.14 affidavit, annexure “A”
Counsel for Strata Owners objected to my receiving the psychology report into evidence to the extent it contains opinions purportedly based on specialised knowledge or experience. The ground of the objection was that s.79 of the EA was not satisfied. It was submitted that the report did not comply with the requirements of Makita (Australia) Pty Ltd v Sprowles.[39]
[39] (2001) 52 NSWLR 705 at pages 743-744
Although I did not refer to it when ruling on counsel’s objection, the following passage from the plurality’s reasons for judgment in Dasreef Pty Ltd v Hawchar[40] satisfies me that I was correct in overruling counsel’s objection to the extent the objection was based on the psychology report not satisfying Makita:
It should be unnecessary, but it is nonetheless important, to emphasise that what was said by Gleeson CJ in HG (and later by Heydon JA in the Court of Appeal in Makita (Australia) Pty Ltd v Sprowles) is to be read with one basic proposition at the forefront of consideration. The admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than by any attempt to parse and analyse particular statements in decided cases divorced from the context in which those statements were made. Accepting that to be so, it remains useful to record that it is ordinarily the case, as Heydon JA said in Makita, that “the expert's evidence must explain how the field of ‘specialised knowledge’ in which the witness is expert by reason of 'training, study or experience', and on which the opinion is ‘wholly or substantially based’, applies to the facts assumed or observed so as to produce the opinion propounded”. The way in which s 79(1) is drafted necessarily makes the description of these requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. That a specialist medical practitioner expressing a diagnostic opinion in his or her relevant field of specialisation is applying “specialised knowledge” based on his or her “training, study or experience”, being an opinion “wholly or substantially based” on that “specialised knowledge”, will require little explicit articulation or amplification once the witness has described his or her qualifications and experience, and has identified the subject matter about which the opinion is proffered.
[40] (2011) 243 CLR 588 at page 604 ([37])
This passage, however, reveals a potential flaw in the admissibility of the psychology report. The report does not in terms state the qualifications or, at least, the experience of the person or persons whose opinions are recorded in the document. This, however, is not necessarily fatal to the admissibility of the purported expert opinions stated in the psychology report. Under s.183 of the EA it is permissible for me to examine the document which records the psychology report and “draw any reasonable inferences” from the document “as well as from other matters from which inferences may properly be drawn” about the application of a provision of the EA in relation to the document – in this case, s.79 of the EA. And, in my opinion, there are a number of features of the document from which it would be reasonable for me to draw the inference that the purported expert opinions stated in the report are based on specialised knowledge and experience.
First, the document is signed by Alexandra Harry, who is described as a psychologist. Second, although not signed by him, the document does contain the printed name “Dr Stephen Ticehurst”. He is one of the persons the psychology report states saw Ms Temelkovski. The document describes Dr Ticehurst as “Senior Staff Psychogeriatrician Specialist Mental Health Service for Older People Hunter New England Local Health District”. It is reasonable to infer, and I do infer, that the report was written and sent with his knowledge and authority. Third, there is the letterhead on which the psychology report is recorded. It contains the words “New South Wales Government Health Hunter New England Local District Health”. The letterhead also states “Specialist Mental Health Service for Older People”.
From all these features of the document, I am of the opinion that it is reasonable to infer, and I do infer, that:
a)the psychology report was prepared and written on behalf of Hunter New England Local Health District;
b)Hunter New England Local Health District provides services that include the assessment of the mental condition of elderly persons;
c)Hunter New England Local Health District would assess the mental conditions of elderly persons only through appropriately qualified and experienced persons; and
d)to the extent the psychology report expressed opinions about the mental condition of Ms Temelkovski, those opinions have been expressed by a person or persons who have the qualifications and experience necessary to express such opinions.
The second item of evidence that is relevant to whether Ms Temelkovski understood the nature and possible consequences of the proceeding that was initiated against her by the creditor’s petition is the evidence Mary Temelkovski gave when applying to be appointed litigation guardian for Ms Temelkovski. Mary Temelkovski had difficulty separating her opinions about Ms Temelkovski’s condition from the observations on the basis of which she had formed those opinions. Nevertheless, Mary Temelkovski gave evidence of a number of observations. One observation which I consider significant was that Ms Temelkovski obtains “catalogues from Kmart and Target and Woolies and prioritise those over a letter that she will mix up in some books, or move things around so that things are constantly being cleaned and ordered and tidied but they end up somewhere else”,[41] and that she prioritises “catalogues, shopping catalogues over important letters that she will hide”.[42]
[41] T17.35-40
[42] T18.25
Mary Temelkovski also said that Ms Temelkovski was no longer capable of actually understanding the importance of information, or of retaining information.[43] This is evidence of opinion. It is opinion, however, that I find is based on Mary Temelkovski’s observations of Ms Temelkovski during the course of living with her. I also find, based on my observation of the answers Mary Temelkovski gave to questions I asked about her observations of Ms Temelkovski’s behaviour, that the only way Mary Temelkovski was able to give evidence of her observations of Ms Temelkovski’s ability to understand and retain information was by expressing that opinion.[44] Stated another way, I found her statements of opinion to be “a compendious mode of ascertaining the result of [her] actual observation of” Ms Temelkovski.[45]
[43] T19.10-15
[44] There was no objection to the evidence Mary Temelkovsky gave in answer to my questions. In my opinion, however, even if there were any objections based on the opinion rule, I would have ruled Mary Temelkovski’s evidence to be admissible under s.78 of the EA.
[45] Wright v Tatham (1838) 4 Bing NC 489 at pages 543-544
A third item of evidence is the dealings between the trustee and his solicitor with Mary Temelkovski after the sequestration order was made. The particularly relevant aspect of that evidence is that Ms Temelkovski herself did not communicate with the trustee or the trustee’s solicitor. The communications were made either by Mary Temelkovski or solicitors retained by Mary Temelkovski.
None of this evidence directly addresses Ms Temelkovski’s mental state as at the date she was given the creditor’s petition. The psychology report was based on an assessment made in February 2012, some ten months before the creditor’s petition was served on Ms Temelkovski, and Mary Temelkovski’s evidence, which was given in July 2014, over one and a half years after the creditor’s petition was served on Ms Temelkovski, was largely expressed in the present progressive tense. Counsel for Strata Owners submits, therefore, that even if I accept the opinions expressed in the psychology report, that does not mean Ms Temelkovski possessed the characteristics described in the report when she was served with the creditor’s petition.
It is true that the fact that in February 2012 Ms Temelkovski suffered from the conditions described in the psychology report does not necessarily mean she suffered from those conditions in December 2012 when she was served with the creditor’s petition. It is open to me to infer, however, Ms Temelkovski’s mental condition in December 2012 from Ms Temelkovski’s mental condition that existed at other points in time by relying on the presumption of fact identified by Wigmore in the following passage:[46]
A condition of mental disease is always a more or less continuous one, either in latent tendency or in manifest operation. It is therefore proper, in order to ascertain the fact of its existence at a certain time, to consider its existence at a prior or a subsequent time. The degree of continuity varies infinitely in various cases, and hence there can be little certainty in the inference from one period to another. Nevertheless, since it can never be known beforehand to what variety the case in question belongs in this respect, the facts of prior and subsequent existence cannot be absolutely known beforehand to be relevant. Much must depend on the type of insanity, as preliminarily indicated by the person’s conduct at the time in question. There is also a further element of uncertainty in criminal cases in that the accused has a strong motive to feign insanity after the act charged; and thus particular scrutiny is required in weighing the evidence of an accused person’s subsequent insane conduct.
In spite, however, of these uncertainties and difficulties, courts are today universally agreed that both prior and subsequent mental conditions, within some limits, are receivable for consideration; stress being always properly laid on the truth that these conditions are merely evidential towards ascertaining the mental condition at the precise time of the act in issue.
[46] J H Wigmore, Evidence in Trials at Common Law, 3rd ed, Little Brown & Co., Boston, 1940, Vol 2 § 233 page 26. This passage was quoted with approval by Edmonds J in Owners – Strata Plan No. 23007 v Cross, in the matter of Cross [2006] FCA 900 at [68]
I make the following findings. First, Ms Temelkovski did not understand when she was served with the creditor’s petition the nature and possible consequences of the proceedings that had been initiated against her by the filing of the creditor’s petition. I base that finding on two matters. The first is Mary Temelkovski’s evidence that Ms Temelkovski cannot differentiate between insignificant documents such as shopping catalogues and important letters. The second is Mary Temelkovski’s evidence that Ms Temelkovski did not show Mary Temelkovski “any Bankruptcy Notice or Creditor’s Petition”, and that Mary Temelkovski did not find a “copy of them amongst any papers at home”[47] and “never saw the original creditors petition and any of the documents” that were served on Ms Temelkovski.[48] These two matters lead me to infer that Ms Temelkovski did not bring to Mary Temelkovski’s attention the creditor’s petition and any other documents with which she was served; and she did not do that because she did not appreciate the nature and possible consequences of the proceedings that had been initiated against her by the filing of the creditor’s petition. It may well be that Ms Temelkovski did not appreciate the nature and possible consequences of the proceedings because of the conditions described in the psychology report. It is not necessary for me, however, to make, and I do not make any such finding.
[47] M. Temelkovski 19.05.14 affidavit, [10]
[48] T17.45
Second, Ms Temelkovski did not, and does not have the ability to instruct any advisor with sufficient clarity to enable the advisor to understand the situation and to advise her appropriately. In other words, I find that Ms Temelkovski was not, and continues not to be capable of adequately conducting, or giving adequate instruction, for the conduct of these proceedings. I rely on the observations contained in the psychology report that Ms Temelkovski’s speech was “tangential, but she generally answered questions before going off-topic”, that “[a]t times she used mixed languages and was difficult to understand, even for the interpreter”.[49] I also rely on the evidence of Mary Temelkovski that Ms Temelkovski was no longer capable of actually understanding the importance of information, or of retaining information.
[49] M. Temelkovski 19.05.14 affidavit, Annexure “A”
In my opinion, therefore, at the time she was served with the creditor’s position, Ms Temelkovski was a person who did not understand the nature and possible consequences of the proceedings that were initiated against her by the filing of the creditor’s petition that was served on her; and she was not capable of adequately conducting, or giving adequate instructions for the conduct of the proceeding. In short, Ms Temelkovski was a person who needed a litigation guardian. That being the case, the creditor’s petition had to be served on one of the classes of persons specified in r.11.15(1) of the FCC Rules. That did not occur. The creditor’s petition, therefore, was not served in accordance with the FCC Rules.
I should note here the decision of Edmonds J in Owners - Strata Plan No. 23007 v Cross, in the matter of Cross.[50] His Honour held that the failure by the applicant creditor in those proceedings to comply with the rule under the former Federal Court Rules governing the service of originating process was a substantial injustice incapable of remedy. His Honour said:[51]
In my judgment, strict compliance with the provisions of O 43, r 13 is necessary in bankruptcy proceedings. A breach of these rules could result in substantial injustice being visited upon the disabled respondent. Moreover, a serious breach could defeat the intention of the O 43 altogether and lead to a breach of the fundamental rules of natural justice. The FCR require service upon a particular person and that was not done. The FCR also prohibit service upon the disabled person and that was ignored. The conduct of the Creditor constituted a serious breach of the FCR and resulted in a defect in the proceedings which was not a formal one. Section 306 [of the Act] does not apply and the sequestration order is voidable.
[50] [2006] FCA 900
[51] [2006] FCA 900 at [105]
Strata Owners submit that the facts of the case before me are distinguishable from those in Owners - Strata Plan No. 23007 v Cross, in the matter of Cross. They submit that I should infer that if Mary Temelkovski had been served with the creditor’s petition, as permitted by r.11.15(1) of the FCC Rules, Mary Temelkovski would not have informed Ms Temelkovski of the creditor’s petition and she would not have acted in a timely way and thus have prevented a sequestration being made, as in fact occurred. The basis of the inference is the conduct of Mary Temelkovski after she received notice of the making of the sequestration order.
I am not prepared to draw the inference Strata Owners urge I draw. Mary Temelkovski did not do nothing after she received notice of the sequestration order. She immediately telephoned the trustee’s office. The likelihood is that if Mary Temelkovski became aware of the creditor’s petition, she would have attempted to contact the solicitors for Strata Owners. It is also likely that Mary Temelkovski would have read the creditor’s petition, and would have understood that a hearing for the petition had been appointed. I am not prepared to infer she would have done nothing before the appointed day for the hearing of the application for a sequestration order. Even if, however, I were to infer that Mary would have done nothing had she been served with the creditor’s petition, that does not alter the fact that the creditor’s petition was not served as required by r.11.15 of the FCC Rules.
The Strata Owners further submit that, if the creditor’s petition was not properly served on Ms Temelkovski because at the time she was served she required a litigation guardian, the deficiency can be cured under r.6.04(b) of the FCC Rules. Paragraph (b) of r.6.04 of the FCC Rules provides that nothing in Part 6 of the FCCR (which deals with service), affects the power of the Court to find that a document has been served. Strata Owners submit I should find that the creditor’s petition has been served because Mary Temelkovski would not have told Ms Temelkovski about the creditor’s petition and would not have arranged for Ms Temelkovski to appear at the hearing of the creditor’s petition.
In my opinion, r.6.04(b) of the FCC Rules cannot be used in the manner submitted by Strata Owners. The power reserved by the rule is for the Court to determine that a document has been served, even though the methods prescribed by Part 6 of the FCC Rules have not been followed. And here the word “served”, when used in relation to a document, means an act or sequence of events by which the contents of the document has been brought to the actual notice of the person who it is claimed has been served. In other words, r.6.04(b) of the FCC Rules empowers the Court to find that a document has been served on a person, even if the document has not been served in the manner otherwise required under Part 6 of the FCC Rules, if the Court is satisfied that the contents of the document have been brought to the actual notice of the person. If that is the proper construction of r.6.04(b) of the FCC Rules, the fact Mary Temelkovski would not have informed Ms Temelkovski of the creditor’s petition had the creditor’s petition been served on Mary Temelkovski is not a ground for the Court finding that the creditor’s petition was in fact served on Ms Temelkovski.
I also find that Ms Temelkovski did not at any time after she was served with the creditor’s petition understand the nature and possible consequences of the proceedings that had been initiated by the filing of the creditor’s petition, or have the capability of adequately conducting, or giving adequate instruction, for the conduct of these proceedings. In other words, I find that Ms Temelkovski was a person who needed a litigation guardian in these proceedings from at least the time she was served with the creditor’s petition.
Affidavit of debt
Strata Owners filed an affidavit of debt at the hearing, as required by r.4.06(4) of the Bankruptcy Rules. According to that affidavit, Ms Temelkovski still owed Strata Owners the following amounts:
a)$7,502.63, being the amount demanded in the bankruptcy notice;
b)$4,972, being the amount of costs Ms Temelkovski was ordered to pay at the time the sequestration order was made;
c)$4,541.25 being the amount of additional levies raised by Strata Owners in relation to the Unit; and
d)$1,996.17, being interest on unpaid levies.
After the affidavit was sworn, Ms Temelkovski, through her solicitor, paid to Strata Owners the sum of $13,000. This payment was stated to be made in relation to the outstanding levies and interest, but not for the costs that were ordered to be paid when the sequestration order was made. The consequence of this payment is that, unless Ms Temelkovski owes to Strata Owners any debt which had accrued before Ms Temelkovski’s non-compliance with the bankruptcy notice, namely, 27 September 2012, s.52(1)(c) of the Act cannot be satisfied.
The affidavit of debt to which I refer above does refer to a number of debts in addition to the debt demanded in the bankruptcy notice. But, apart from interest that accrued on that amount from the date on which judgment was entered, and Ms Temelkovski’s non-compliance with the bankruptcy notice, the debts referred to in the affidavit of debt accrued after the act of bankruptcy. Because the amount of $13,000 Ms Temelkovski paid to the Strata Owners is sufficient to cover interest, it follows that the debts referred to in the affidavit of debt do not include any debt that accrued before 27 September 2012.
Affidavit of Search
Strata Owners have filed an affidavit of search as required by r.4.06(3) of the Bankruptcy Rules.
Conclusion on proof of matters specified in s.52(1) of Act
I am satisfied that the bankruptcy notice is valid, and that Strata Owners have proved service of the bankruptcy notice on Ms Temelkovski. I am not satisfied, however, that the creditor’s petition was verified, or that the creditor’s petition was properly served on Ms Temelkovski, or that Ms Temelkovski now owes any debt to Strata Owners that had accrued before the act of bankruptcy, namely, 27 September 2012. Had Ms Temelkovski applied for an order of review within the time permitted by r.2.03 of the Bankruptcy Rules, Ms Temelkovski would have been entitled to have the sequestration order set aside.
Can Ms Temelkovski pay her debts?
Given I am not satisfied the creditor’s petition was verified, and that the creditor’s petition was not properly served on Ms Temelkovski, it is not necessary for me to consider whether Ms Temelkovski is able to pay her debts.
Relevance of r.11.09(1) of the FCC Rules
If, as I have found, in December 2012 Ms Temelkovski was a person who needed a litigation guardian, I need to consider r.11.09(1) of the FCC Rules, which provides as follows:
A person who needs a litigation guardian may start, continue, respond to or seek to be included as a party to a proceeding only by his or her litigation guardian.
This rule prohibits a person who needs a litigation guardian from responding to a proceeding unless the Court appoints a litigation guardian for that person. Thus, even if Ms Temelkovski was properly served with the creditor’s petition, r.11.09(1) of the FCC Rules prohibited Ms Temelkovski from responding to the creditor’s petition.
Sub-rule 11.09(1) does not by its terms prohibit a party from continuing to maintain a proceeding against a person who needs a litigation guardian. That is to be contrasted with r.7.17(1) of the Uniform Civil Procedure Rules 2005 (NSW) which prohibits the plaintiff in proceedings against a defendant who is a person under legal incapacity from taking any further step after serving the originating process until a tutor has entered an appearance. Thus, if I had found the creditor’s petition had been properly served on Ms Temelkovski, the Strata Owners would have been at liberty to continue with the creditor’s petition and obtain a sequestration order.
What of the application that was filed in the name of Ms Temelkovski that is before me now? Ms Temelkovski did not have a litigation guardian at the time the application was filed. Sub-rule 11.09(1) of the FCC Rules prohibited Ms Temelkovski from filing the application that was filed in her name.
Counsel for Ms Temelkovski accepts that the application for review and annulment filed in the name of Ms Temelkovski was not permitted by r.11.09(1). He submits, however, that the breach can be remedied under r.1.06 of the FCC Rules which permits the Court to dispense with compliance, or full compliance, with any of the FCC Rules at any time. The trustee agrees.
Counsel’s submission assumes that the filing in the name of Ms Temelkovski of the application to set aside the sequestration order and for an annulment was an act done by Ms Temelkovski, and that, by so acting, Ms Temelkovski breached r.11.09(1) of the FCC Rules. I am not prepared to accept that assumption. At the hearing, counsel for Ms Temelkovski informed me his instructing solicitor was taking instructions from Mary Temelkovski, not from Ms Temelkovski. That means that the application to review the Registrar’s decision was filed in the name of Ms Temelkovski, but on instructions from Mary Temelkovski who, at that stage, had not been appointed litigation guardian of Ms Temelkovski. Further, if, as I have found, Ms Temelkovski needed a litigation guardian, I am not prepared to find that she had the capacity to instruct the lawyers to file the application.
In my opinion, the proper characterisation of the filing of the application for review is not that it was filed in breach of r.11.09(1) of the FCC Rules, but that it was filed without the authority of Ms Temelkovski. The position is analogous to where a lawyer commences proceedings in the name of a company, but it has been discovered that those who had purportedly instructed the lawyer on behalf of the company did not have the authority to do so. In those circumstances, it has been held that persons with authority to give instructions for the commencement of proceedings can ratify the instructions to commence proceedings given earlier by the persons who did not have the authority. The relevant principles was stated as follows by Dillon LJ in Presentaciones Musicales S.A. v Secunda:[52]
It is well recognised law that where a solicitor starts proceedings in the name of a plaintiff – be it a company or an individual – without authority, the plaintiff may ratify the act of the solicitor and adopt the proceedings. In that event, in accordance with the ordinary law of principal and agent and the ordinary doctrine of ratification the defect in the proceedings as originally constituted is cured . . . . The reason is that by English law ratification relates back to the unauthorised act of the agent which is ratified . . .
[52] [1994] Ch 271 at page 277
In my opinion, Ms Temelkovski ratified Mary Temelkovski’s lawyer’s act of filing the application for review, and of all other steps her lawyers took in connection with the application. The act of ratification occurred after Mary Temelkovski was appointed litigation guardian of Ms Temelkovski. The relevant act of ratification was Mary Temelkovski’s counsel pressing for the relief sought in the application for review.
Setting aside of sequestration order or annulment?
I have found that, had Ms Temelkovski filed her application for review of the Registrar’s decision to make a sequestration order within the 21 day period provided for by r.2.03 of the Bankruptcy Rules, she would have been entitled to have the sequestration order set aside. But Ms Temelkovski did not file the application within time. The question, therefore, is whether I should extend the time and make an order setting aside the sequestration order or, instead, annul Ms Temelkovski’s bankruptcy.
Parties’ submissions
Counsel for Ms Temelkovski submits the Court should extend the time because, given her age and medical condition as reported in the psychology report, she would not have understood the effect or implications of the bankruptcy notice or the creditor’s petition that was served on her. Counsel further submits that the conduct of Mary Temelkovski should not be imputed to Ms Temelkovski because Ms Temelkovski would not have had knowledge of her conduct.
The trustee, on the other hand, submits that the extension of time should not be granted because of the length of the delay, and because an inadequate explanation for the delay has been given. The trustee further submits that if Ms Temelkovski has demonstrated grounds for setting aside the sequestration order, the Court should not extend time and set aside the sequestration order because that would prejudice the trustee; the Court should instead make an order under s.153B of the Act annulling the bankruptcy.
The competing submissions raise two questions. The first is whether the delay between the making of the sequestration order and the filing of the application for review of the Registrar’s decision should be treated as a factor against the granting of the extension sought by Ms Temelkovski. The second is whether, in any event, the Court should annul the bankruptcy rather than set aside the sequestration order.
Delay
There has been a significant delay in filing the application for review of the decision of the Registrar to make a sequestration order. In my opinion, however, no part of the delay can be attributed to Ms Temelkovski. As I have found, Ms Temelkovski was a person who needed a litigation guardian in these proceedings from at least the time she was served with the creditor’s petition, and r.11.09(1) of the FCC Rules prevented her from doing anything in the proceedings until such time as a litigation guardian was appointed to look after her interests.
One cause of the delay is Mary Temelkovski not taking any action to file the application after she became aware of the sequestration order. If Mary Temelkovski were the person against whose estate the sequestration order was made, her delay in bringing the application so long after she had received notice of the sequestration order would have counted against her obtaining an extension of time. But the sequestration order was not made against Mary Temelkovski; and Mary Temelkovski was not appointed the litigation guardian of Ms Temelkovski until 28 July 2014. Mary Temelkovski’s delay, therefore, cannot be attributed to Ms Temelkovski because before 28 July 2014 Mary Temelkovski did not have the authority to act on behalf of Ms Temelkovski in the proceedings.
Set aside sequestration order or annul bankruptcy?
I now turn to the question of whether I should, on the one hand, extend the time for the filing of the application for review and set aside the sequestration order, or, on the other hand, annul Ms Temelkovski’s bankruptcy. This question arises because the trustee has incurred significant costs and has earned significant remuneration. If an order setting aside the sequestration order is made, the trustee will be unable to recoup these expenses and remuneration. That would be a severe prejudice to the trustee. If, on the other hand, Ms Temelkovski’s bankruptcy is annulled under s.153B of the Act, the trustee will be able to recover his expenses and remuneration. That would be a severe prejudice to Ms Temelkovski given, as I have found, no sequestration order should have been made against her estate, and that Ms Temelkovski could have taken no action until a litigation guardian was appointed.
Whether or not the Court should set aside the sequestration order made against the estate of Ms Temelkovski, or instead should annul Ms Temelkovski’s bankruptcy is a matter that is within the discretion of the Court. A number of cases have discussed the matters the Court must consider when it exercises such discretion. The effect of those decisions was summarised by Edmonds J in Owners Strata Plan No. 23007 v Cross, in the matter of Cross:[53]
When this choice – as between an order that the sequestration order be set aside on the one hand and an order for annulment of the bankruptcy on the other – has come before the courts on earlier occasions, the courts have consistently stressed that a balance must be struck between the rights of the applicant, who should never have been made bankrupt in the first place, and the Trustee who has simply done what the Act requires him to do . . . . The rights of the petitioning creditor have never been referred to as a relevant factor, and understandably so.
[53] [2006] FCA 900 at [115]
How is that balance to be struck in any particular case? In most cases, the balance will be struck in favour of the trustee. That is so because, when a sequestration order is made, the trustee comes under an obligation to administer the bankrupt estate in the manner required by the Act. That will usually require the trustee to commence work and incur expenses as soon as the trustee is notified of the making of the sequestration order. There will be, in most cases, a direct causal link between a bankrupt’s delay in applying for an order to set aside the sequestration order and the trustee’s incurring costs and expending effort. And, in most cases, it would have been in the power of the bankrupt to have applied for the setting aside of the sequestration order sooner than he or she did. In such circumstances, it would be just to require the bankrupt’s estate to bear the trustee’s expenses and remuneration because in a very real sense it could be said that it was the bankrupt, through his or her failing to apply to set aside the sequestration order earlier, that led the trustee to incur expenses and expend effort. In my opinion, however, the circumstances of the case before me fall outside this pattern.
As I have found, Ms Temelkovski was a person who required, but did not have, a litigation guardian. That rendered her incapable of applying to the Court to set aside the sequestration order without the Court first appointing a litigation guardian. A litigation guardian was not appointed until 28 July 2014. Ms Temelkovski, therefore, was not at fault in not applying to set aside the sequestration order until the application to set aside the sequestration order was filed in her name.
Considered alone, this factor may not be sufficient to tilt the balance in favour of Ms Temelkovski; at least not if there is nothing that ought to have suggested to the trustee that Ms Temelkovski may not have been in a position to attend to her affairs. In my opinion, however, the evidence reveals there were matters of which the trustee was aware that ought to have suggested to him that Ms Temelkovski may not have been in a position to properly attend to her affairs and which, therefore, ought reasonably to have alerted the trustee to the possibility that at some stage a person might be appointed by the Court to represent Ms Temelkovski’s interests in the proceedings, and apply to set aside the sequestration order. These matters include the following.
First, Mr Olsen informed the trustee of the telephone conversation Mr Olsen had with Mary Temelkovski in late February 2013,[54] and Mr Olsen informed the trustee that Ms Temelkovski was infirm.[55] Second, the trustee did not receive any communication from Ms Temelkovski. The only communication he received in relation to Ms Temelkovski’s estate was from Mary Temelkovski. Third, the relationship between the trustee and Mary Temelkovski had broken down “[v]ery early in the estate” (sic);[56] and that the relationship broke down because Mary Temelkovski “[f]ailed to communicate properly” and had accused the trustee of “falsifying documents”.[57] Fourth, in cross-examination, the trustee gave the following evidence (emphasis added):[58]
Did it strike you that Mary wasn’t really cooperating in the process of the bankruptcy? - - - I would say that. Yes.
But you hadn’t taken any steps to try and deal with someone else? - - - I couldn’t deal with Zora because she was – as you’ve explained and I understood, she wasn’t in a position to deal with it. If I couldn’t deal with Mary I’m not sure who else there was.
[54] T57.15
[55] T57.20-25
[56] T60.10
[57] T60.15
[58] T60.20-30
The trustee also gave the following evidence:[59]
The position was, Mr Scott, according to you the debtor was unable to engage in the proceedings? --- Yes.
[59] T60.40
The evidence, therefore, shows that the trustee was on notice, early in the administration of the bankruptcy, and the trustee in fact believed, that he could not deal with Ms Temelkovski, and Ms Temelkovski was not in a position to engage in the proceedings. These matters too, however, may not be sufficient to tilt the balance in favour of Ms Temelkovski, for the trustee may nevertheless have been obliged to continue to act in the way he did. But was he so obliged? In my opinion, he was not.
Once the trustee was on notice that Ms Temelkovski could not handle her affairs, and in particular, could not engage in the proceedings, and that the relationship with Mary Temelkovski had broken down, the trustee could have considered applying to the Court for an order under s.30(1) of the Act compelling Ms Temelkovski to do that which she was required to do under the Act, the most pressing thing being Ms Temelkovski’s completing a statement of affairs, as required by s.54 of the Act. Had the trustee done that, in all likelihood Ms Temelkovski’s need for a litigation guardian would have been exposed, and the trustee himself could have applied for an order that a litigation guardian, other than Mary Temelkovski, be appointed. And had that occurred, it may well be that the litigation guardian that would have been appointed would have uncovered and then advanced the grounds on which I have held a sequestration order ought not to have been made against Ms Temelkovski’s estate.
In my opinion, these matters – the inability of Ms Temelkovski to take any action in the proceedings without a litigation guardian, the trustee’s being on notice that Ms Temelkovski could not handle her affairs, and the availability to the trustee of the option of approaching the Court to obtain orders compelling Ms Temelkovski to complete a statement of affairs, and the consequent likelihood of the Court appointing a litigation guardian for Ms Temelkovski – tilt the balance in favour of my extending the time for the filing of the application for review, and setting aside the sequestration order, rather than making an order annulling the bankruptcy. Why? Because, on the one hand, Ms Temelkovski did not have the capacity to look after her own interests in the bankruptcy, and in particular, she did not have the capacity to do anything that could have prevented the trustee from incurring expenses and expending effort; whereas, on the other hand, the trustee had the opportunity, or at least, a greater opportunity than was available to Ms Temelkovski, to take steps that could have reduced the expenses he incurred and the efforts he undertook.
I am therefore satisfied that I should exercise my discretion in favour of dispensing with the requirement that the application for review of the decision of the Registrar to make a sequestration order be filed within 21 days, to order that the sequestration order and the costs order made on 15 February 2013 be set aside, and that the creditor’s petition be dismissed.
It should go without saying that nothing I have said in this section of my reasons is intended by me to be a criticism of the trustee.
Conclusion and Disposition
My conclusions may be summarised as follows:
a)The sequestration order made on 15 February 2013 ought not to have been made because the creditor’s petition was not served in accordance with the FCC Rules. The creditor’s petition was not properly served because, although the creditor’s petition was personally served on Ms Temelkovski, at the time she was served Ms Temelkovski was a person who needed a litigation guardian. The creditor’s petition, therefore, should have been, but was not, served in the manner required by r.11.15(1) of the FCC Rules.
b)Ms Temelkovski was not at fault in not filing an application for review of the sequestration order within the 21 day period prescribed by r.2.03 of the Bankruptcy Rules. That is so because at that time she was a person who needed a litigation guardian and r.11.09(1) of the FCC Rules prevented Ms Temelkovski from taking any step in the proceedings without a litigation guardian.
c)An order setting aside the sequestration order should be made rather than an order annulling Ms Temelkovski’s bankruptcy because the trustee was in a better position than Ms Temelkovski to minimise the costs and effort the trustee incurred and expended during the administration of the bankruptcy.
I propose, therefore, to make an order dispensing with the need for Ms Temelkovski to have filed the application for review within the time prescribed by r.2.03 of the Bankruptcy Rules, an order setting aside the sequestration order and the costs order made by the Registrar on 15 February 2013, and an order dismissing the creditor’s petition. I also propose to order that each party bear its, or his or her own costs of the application for review, subject to allowing the parties to apply for a different costs order.
I certify that the preceding one hundred and nineteen (119) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis
Associate:
Date: 19 December 2014
8
6
9