The Owners - Strata Plan No 445 v Fernandez

[2018] FCCA 2205

FEDERAL CIRCUIT COURT OF AUSTRALIA

THE OWNERS - STRATA PLAN NO 445 v FERNANDEZ [2018] FCCA 2205

Catchwords:
BANKRUPTCY – Creditors petition – opposed on multiple grounds which the Respondent contends establishes “other sufficient cause” for the purposes of s.52(1) Bankruptcy Act 1966 (Cth) – sequestration order made.

Legislation:

Bankruptcy Act 1966 (Cth), ss.43, 52, 156A

Cases cited:

Ramsay Healthcare Australia Pty Limited v Compton [2017] HCA 28

Applicant: THE OWNERS - STRATA PLAN NO 445

Respondent: KEITH CHARLES FERNANDEZ

File Number: SYG 3810 of 2017

Judgment of: Judge Altobelli

Hearing date: 18 July 2018

Date of Last Submission: 18 July 2018

Delivered at: Sydney

Delivered on: 10 September 2018

REPRESENTATION

Solicitors for the Applicant: Grace Lawyers Pty Ltd

The Respondent appeared in person.

ORDERS

1. That the estate of Keith Charles Fernandez be sequestrated under the Bankruptcy Act 1966.

2. That the Applicant Creditor’s costs as agreed or taxed are to be paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966.

THE COURT NOTES THAT:

(A)The date of the act of bankruptcy of the Respondent is 10 October 2017.

(B)A consent to act as Trustee signed by Richard Moretti has been filed under section 156A of the Bankruptcy Act 1966.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 3810 of 2017

THE OWNERS - STRATA PLAN NO 445

Applicant

And

KEITH CHARLES FERNANDEZ

Respondent

REASONS FOR JUDGMENT

Introduction

1. These Reasons for Judgment explain why the Court has made an Order that the estate of the Respondent, Keith Charles Fernandez, be sequestrated pursuant to the provisions of the Bankruptcy Act 1966 (Cth).

Background

1. On 18 May 2016, The Owners Corporation, the Applicant in this case, issued a Statement of Claim against the Respondent in the Local Court of New South Wales for an unpaid strata levy, interest and costs in the sum of $4795.54. The Respondent filed a Defence on 14 September 2016. On 2 December 2016, the proceedings were listed for pre-trial Review before Registrar McTegg. At the pre-trial Review, however, the Respondent sought the assistance of the duty Barrister and after discussions with the same, agreed to a Judgment being entered against him in the Local Court for the sum of $10,033.01. The Consent Judgment was comprised of the following debts:

   a)Unpaid strata levy due on 1 May 2015 (the special levy) totalling $3000;

   b)Interest on unpaid strata levy from 1 May 2015 to 18 November 2016 totally $448.43;

   c)Recovery expenses incurred up to and including 6 December 2016 totally $6584.58.

   The grand total being $10,033.01.

2. The parties also agreed to a notation referring to the Respondent’s intention to pay the Judgment debt by way of instalments. Indeed, the Respondent filed a Notice of Motion in the Local Court proceedings on 3 February 2017, seeking to repay the Consent Judgment by monthly instalments of $100. This application was refused by the Court for reasons which included that it would take him more than 19 years to pay the Consent Judgment in full.

3. In August 2017, as the Respondent had failed to make any payments in satisfaction of the Local Court Judgment, a Bankruptcy Notice was issued against him. The Notice is dated 12 September 2017 and is in an amount of $10,490.68, which comprised the Judgment, together with post-judgment interest that had accrued thereon. The said Bankruptcy Notice was personally served on the Respondent on 18 September 2017. There followed some negotiations between the parties in relation to the repayment of the debt, but, ultimately, no repayment was made.

4. On 8 December 2017, a Creditor’s Petition was filed against the Respondent for the debt owing up to the date of bankruptcy, which by then totalled $17,417.60.

5. On 23 February 2018, the Respondent filed a ‘Notice stating grounds of opposition to the petition’. The grounds are stated as follows:

   The fire audit levy has never been justified by its proponents who have dissociated themselves and refused to testify from what seems like a deliberate attempt to extort.  The applicants are one Katarzyna Rutkowska (owner in SP445) and her friend Di Smithers of Di Smithers Strata.

6. The precise nature of the Respondent’s opposition to the petition is not clear from the above stated ground of opposition. Nonetheless, the Applicant, and the Court itself, proceeded on the basis that an understanding of the basis of opposition would be gleaned not just from the Notice, but from the evidence filed on behalf of the Respondent.

7. The matter eventually came before the Court for Hearing on 18 July 2017. Mr Radman, Solicitor, appeared on behalf of the Applicant, and the Respondent appeared in person. Whilst the Respondent was representing himself, and was not legally qualified, the Court observes that he was at all times courteous and respectful, and presented as being an intelligent and articulate man who was passionate about the cause for which he was advocating, but clearly did not understand the legal issues that he had to contend with. It was because of the latter point that both the Applicant, and the Court, adopted a pragmatic, and very expansive approach, to understanding the Respondent’s opposition to the petition. The Court notes, however, that it has no doubt that Mr Fernandez fully understood the consequences of the Creditor’s Petition being granted. 

8. Finally, by way of background, it is important to recognise that the Respondent did not dispute two important facts; firstly, that he was not successful in setting aside the Local Court Judgment that was entered by consent against him on 2 December 2016; secondly, that whilst he was on notice as from 20 March 2018 that if he wished to dispute the debt, or the authority of the Applicant to impose the special levy, he should file and serve any application to set aside the Judgment, or otherwise commence NSW Civil and Administrative Tribunal (‘NCAT’) proceedings. He has not successfully undertaken either. In particular, there was no evidence before the Court to satisfy it that the respondent had commenced NCAT proceedings to challenge the special levy. Indeed, even Mr Fernandez acknowledged this during the course of the proceedings.

The evidence

1. The list of documents read by the Applicant consisted of:

   a)Creditor’s Petition dated 5 December 2017;

   b)Affidavit verifying Creditor’s Petition of Dianne Smithers dated 5 December 2017;

   c)Affidavit of Service of Bankruptcy Notice of Morrie Fahd sworn 19 September 2017;

   d)Affidavit verifying paragraph 4 of the Creditor’s Petition of Sarah Hendry affirmed 6 December 2017;

   e)Affidavit of Service of Creditor’s Petition of Morrie Fahd sworn 12 January 2018;

   f)Affidavit of Debt of Dianne Smithers sworn 22 January 2018;

   g)Affidavit of Search of Sarah Hendry affirmed 23 January 2018;

   h)Affidavit of Sarah Hendry affirmed 19 March 2018;

   i)Affidavit of Dianne Smithers affirmed 19 March 2018; and

   j)Affidavit of Dianne Smithers affirmed 13 April 2018.

2. The documents relied on by the Respondent consisted of his Affidavits filed 19 February 2018, and 3 March 2018. 

3. In addition, there was a tender bundle which included the following documents: 

   a)Letter dated 29 March 2018 from Office of Mark Speakman;

   b)Title Searches in relation to Strata Plan 445 at Westmead;

   c)Service NSW Receipt Tax Invoice dated 2 October 2016;

   d)Minutes of Annual General Meeting on 5 November 2014; and

   e)Bundle of documents including emails, letters and other materials that the Respondent relies on.

4. At the Hearing, Ms Sarah Hendry, and Ms Diane Smithers, both gave evidence and were cross-examined. The Respondent did not require any other witness in the Applicant’s case to be available for cross-examination. The Applicant did not require the Respondent to be cross-examined.

Matters not in issue

1. The Respondent did not put in issue a number of important matters. There was no dispute, for example, that he had been properly served with the Bankruptcy Notice. There is no dispute as to the Creditor’s Petition. The quantification of the debt, and its calculation, were not in dispute, although the substantive issue of liability was put in contention by the Respondent. The commission of an act of bankruptcy was not put in dispute by the Respondent. Subject to a consideration of the Respondent’s grounds of opposition, the date of the act of bankruptcy was 10 October 2017. There is no dispute that the applicant is owed a liquidated debt in excess of the statutory minimum of $5000, which was owing as at the date of bankruptcy. At no point in the evidence did the Respondent contend that he was not insolvent.

The grounds of opposition

1. The Court records is appreciation to the Solicitor for the Applicant in seeking to understand, and to then unpack each of the potential components of the Respondent’s grounds of opposition to the making of a sequestration order. In this regard, the Applicant’s Solicitor acted as a model litigator, and is to be commended for his approach to the litigation.

2. The first basis of the Respondent’s opposition to the Creditor’s Petition seems to be an attack on the validity of the special levy. That seems to be the intent that can be discerned from the Respondent’s assertion that the special levy has never been justified to him. There are some sub-components to this ground. The Court accepts that it includes the assertion that the need for the special levy was questionable, and the assertion that it was not approved by at least 51 per cent of the lot owners. The Court accepts that what the Respondent was asking it to do was, in effect, to go behind the Judgment to enquire into the validity of the underlying Judgment debt, notwithstanding that it was a Consent Judgment.

3. Indeed, it is common ground that the Consent Judgment was made with the Respondent’s full knowledge and consent, and with the benefit of having received advice from Counsel. The Respondent made veiled and not-so-veiled assertions that he had been subjected to duress, fraud or collusion, or a miscarriage of justice such that the Court might go behind even a Consent Default Judgment. However, there was simply no cogent evidence to support the Respondent’s contention. Moreover, the Respondent’s subsequent actions were inconsistent with the assertion he makes about the invalidity of the Judgment and the levy itself. For example, he applied, unsuccessfully, to pay the debt by way of instalments. In subsequent negotiations about the debt, it is asserted that he offered to make a full payment of the debt, but not the associated costs and charges.

4. In any event, there is nothing in the Respondent’s evidence which, on any objective basis, would indicate that the special levy was not necessary. Even the Respondent conceded at the Hearing that he knew that it was NCAT that had the jurisdiction to determine the validity of the special levy in question. Indeed, the evidence suggests that he was informed about his right to commence proceedings in NCAT on 21 October 2016. Registrar McTegg of the Local Court referred to this entitlement in November 2016. District Registrar Wall gave him the opportunity to commence proceedings in NCAT on 20 March 2018.

5. In all the circumstances the Respondent has not satisfied the Court, consistent with authority such as Ramsay Healthcare Australia Pty Limited v Compton [2017] HCA 28 at [48-49] that there is any basis to go behind the Consent Judgment.

6. The second potential basis for opposition that can be discerned from the Respondent’s case is the assertion that the special levy represents a deliberate attempt to extort money from him. In this regard, the Court notes, there was nothing from the Respondents’ presentation at the Hearing to suggest that he was thought-disordered or somehow lacked capacity. Indeed, as previously observed, he represented as an intelligent and articulate man. Whilst Mr Fernandez probably genuinely believed that this whole process was an attempt to extort money from him, it was nonetheless a very serious allegation to make in legal proceedings, and one in which the onus of proof lay on him.

7. The contention made by the Respondent, doing the best the Court can to discern this from his documents, is that some named, or unnamed person sought to create the impression that the building was noncompliant with fire safety requirements, in order to strike the special levy, with the intention that this would apply pressure on the owners to sell their lots to a developer who was apparently interested in purchasing the scheme. There is no cogent evidence before the Court to support this contention. 

8. The third possible basis of the Respondent’s opposition to the Petition seems to be duress, at the time of entering into the Consent Order. It is possible, the Court notes, that this is a duplication of what was, at least possibly, part of this first ground. Duress is a contention that is easy to make, but needs to be supported by cogent evidence, which was plainly lacking in this case. There is no evidence of any pressure that was exercised by the Applicants, or anyone on their behalf, on the Respondent, which could be regarded in any way as illegitimate. He was assisted by a duty Barrister at the relevant time. He then acted, after the Judgment, in a matter which is inconsistent with his present argument. In any event, he has had ample opportunity to seek to have the Local Court Judgment set aside, but has not been successful in relation to the same.

9. The last perceived and purported ground of opposition seems to be an attack on the authority of the Strata Managing Agent to act on behalf of The Owner’s corporation, thus resulting in the voidability of the Consent Judgment on 2 December 2016. There was no evidence to support this contention. Indeed, the evidence led by the Applicant confirmed that the Strata Managing Agency Agreement was not terminated until much later. There is simply no basis for suggesting that there was not the requisite authority to settle the Local Court proceedings, and to enter into the Consent Judgment on 6 December 2016.

Conclusion

1. This is, in many respects, a tragic case. An unpaid special levy in the sum of $3000 has resulted in a debt nearly four times that much and the bankruptcy of the Respondent. With some common sense, this sorry saga could have been avoided. No doubt the Respondent is a man of principle, but there are important principles that underpin the Bankruptcy Act. Thus, if a person is unable to pay his debts when they fall due, and subject to compliance with the quite onerous technical provisions of the Bankruptcy Act 1966 (Cth), the debtor can be made bankrupt. That seems the only result that is available on the facts of this case. The Applicant is entitled to the Orders that it seeks. The Court is satisfied that all of the matters required by s.43 and s.52 of the Bankruptcy Act 1966 (Cth) have been established, and that there is no other sufficient cause as to why the sequestration order ought not be made.

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Judge Altobelli

Associate: 

Date:  10 September 2018