Thomas v Nash

[2011] FMCA 661

FEDERAL MAGISTRATES COURT OF AUSTRALIA

THOMAS & ANOR v NASH [2011] FMCA 661

BANKRUPTCY – Petition – sequestration order granted.

Bankruptcy Act 1966, ss.40(1)(g), 43, 44(1)(a)(c), 47(1), 52(1) and (2)(b)
Federal Magistrates Court (Bankruptcy) Rules 2006, rr.4.02(2), 4.04(1)(a) and 4.05

Cain v Whyte (1993) 48 CLR 639
Re: Svir; Ex Parte Deputy Commissioner of Taxation (1998) 83 FCR 314
Dowling v Colonial Mutual Life Assurance Society Limited (1915) 20 CLR 509
Moore, Ex parte; In Re Faithfull (1885) 14 QBD 627
Williams v Spautz (1992) 174 CLR 509
Bride v KMG Hungerfuds, unreported, Federal Court of Australia
Re: Coyne; Ex Parte Minningup (South) Pty Ltd, unreported, Federal Court of Australia
RE: King; Ex Parte Commercial Bank of Australia Ltd (No 2) [1920] VLR 267

First Applicant: HELEN FRANCES THOMAS

Second Applicant: ROLAND THOMAS

Respondent: PETER PHILIP NASH

File Number: ADG 79 of 2011

Judgment of: Simpson FM

Hearing date: 23 August 2011

Date of Last Submission: 23 August 2011

Delivered at: Adelaide

Delivered on: 24 August 2011

REPRESENTATION

Counsel for the Applicants: Mr Coppola

Solicitors for the Applicants: Peter Fisher Lawyers

Respondent In person: Mr Peter Philip Nash

ORDERS

1. A sequestration order be made against the Estate of Peter Philip Nash.

2. The applicant creditors’ costs, including any reserved costs, be taxed in accordance with the Federal Court Rules and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.

3. The court notes that the date of the act of bankruptcy is 23 March 2011.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT ADELAIDE

ADG 79 of 2011

HELEN FRANCES THOMAS

First Applicant

ROLAND THOMAS

Second Applicant

And

PETER PHILIP NASH

Respondent

REASONS FOR JUDGMENT

Introduction

1. I have before me a creditors’ petition filed by Mrs Helen Frances Thomas (“Mrs Thomas”) and Mr Roland Thomas (“Mr Thomas”) on 12 April 2011 seeking a sequestration order under s.43 of the Bankruptcy Act 1966 (“the Act”) against the Estate of the respondent, Peter Philip Nash (“Mr Nash”).  The petition relies on an act of bankruptcy, namely failing to comply on or before 23 March 2011 with the requirements of a Bankruptcy Notice served on the respondent on

   
   

   2 March 2011.

2. I note the following matters:

   a)The debt relied upon is for $10,000 and is therefore greater than the amount specified in s.44(1)(a) of the Act;

   b)The date of act of bankruptcy is 23 March 2011. The petition was presented on 12 April 2011, and therefore was within 6 months of the act of bankruptcy as is required by s.44(1)(c) of the Act;

   c)The creditor’s petition has been verified by an affidavit of a solicitor, Catherine Margaret O’Donovan, sworn 8 April 2011 and contained within the creditor’s petition. Ms O’Donovan was cross-examined by the respondent in relation to this and other of her affidavits. I accept Ms O’Donovan as a truthful and reliable witness on all matters. The affidavit of 8 April 2011 proves the matters referred to in s.47(1) of the Act and r.4.02(2) of the Federal Magistrates Court (Bankruptcy) Rules 2006 (“the Rules”);

   d)An affidavit of Catherine Margaret O’Donovan, sworn 12 April 2011, proves that on 12 April 2011 a search was carried out of the computer records of the Federal Court of Australia and the Federal Magistrates Court of Australia and establishes that no application has been made in relation to the bankruptcy notice relied upon by the applicants. This affidavit proves the matters required by s.47(1) of the Act and r.4.04(1)(a) of the Rules;

   e)I find that an act of bankruptcy occurred as a result of the respondent’s non-compliance with the bankruptcy notice referred to in the petition and that the bankruptcy notice (which relied upon a judgment debt) had been properly served on the respondent; and

   f)

   I am satisfied on the basis of an affidavit of Brenton Michael Kitson sworn and filed on 6 May 2011 and on his oral evidence, that on 2 May 2011 the respondent was properly served with the petition, supporting affidavits and a copy of the consent to act as Trustee of Alan Geoffrey Scott as it is required by r.4.05 of the Rules.  Mr Kitson had some difficulty in serving the documents as the respondent attempted to avoid service.  I accept

   
   

   Mr Kitson’s evidence about what occurred at the time of service.  I also accept Mr Kitson’s evidence that he was able to recognise the voice of the person that he spoke to when serving the documents as the voice of the respondent in court.

   g)I am satisfied, on the basis of two affidavits of Ms O’Donovan each sworn on 22 August 2011, that the debt of $10,000 remains unpaid and that there are no references to the respondent in the National Personal Insolvency Index as at 22 August 2011.

3. I am satisfied that the applicants have properly complied with the Act and Regulations both in relation to the bankruptcy notice and the petition.

Consequences of the above findings

1. As was said in Cain v Whyte[1]:

   “Prima facie, on proof of the matters mentioned in s.52(1), the court will proceed to make an order for sequestration, and it is for the debtor to show some cause overriding the interests of the public in the stopping of unremunerative trading, and the rights of the individual creditors who are unable to get their debts paid to them as they become due.  Something has to be put before the court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.”

   [1] (1933) 48 CLR 639 at 646.

2. The absence of the factors alluded to in Cain v Whyte “… merely removes a bar [to the debtor escaping a sequestration order]; it does not provide a positive ground constituting “other sufficient cause” why a sequestration order ought not to be made.[2]

   [2]     Re: Svir; Ex Parte Deputy Commissioner of Taxation (1998) 83 FCR 314 at 316.

3. The High Court has held in Dowling v Colonial Mutual Life Assurance Society Limited[3]:

   [3] (1915) 20 CLR 509 at 521.

   (a)that the creditor has an absolute right to found a petition for a sequestration order on a statutory act of bankruptcy;

   (b)an ulterior private purpose is not necessarily a fraud on the court;

   (c)that a by-motive unless there is fraud is not a bar;

   (d)that an abuse of process does not exist unless the remedy is unsuitable and would enable the person obtaining it fraudulently to defeat the rights of others, whether legal or equitable.

4. It follows that once the court is satisfied of compliance with the matters in s.52(1), it will only be in exceptional circumstances that it will refuse a sequestration order under s.52(2)(b). The court has said that it is not appropriate to attempt to catalogue or circumscribe the circumstances which may constitute “other sufficient cause”.

The Respondent’s Case

1. The respondent here has filed a “Notice Stating Grounds of Opposition to Petition”.  The grounds are as follows:

   “1.The Bankruptcy Act and Regulations have not been complied with and the validity of the notice is disputed due to essential missing elements and misstatement/s.

   2.There is no final judgment or final order.

   3.In any event, the notice and petition are an abuse of process.

   4.Denial of natural justice.”

   I will deal with each of these grounds in turn a little later in these reasons.

The Respondent’s Evidence

1. The respondent tendered nine bundles of documents in support of his case.  Some of these bundles of documents were annexed to short affidavits of the respondent.  Other affidavits were included as part of the annexures to the affidavits. 

2. I have not found the respondent’s documents terribly helpful. 

   
   

   They contain much inadmissible material.  A number of highly inappropriate assertions have been made in the documents about matters of law and what the respondent states to be wrong doing by the applicants as well as a variety of persons who are not parties to the action.  The assertions of wrong doing are, by and large, unsubstantiated.  Where it is substantiated, it is done with very general and sweeping allegations.  Most of the respondent’s affidavits contain scandalous and embarrassing allegations without any proper support. 

3. When each of the bundles were sought to be tendered by the respondent, counsel for the applicants submitted that they should not be received because they contained scandalous and embarrassing allegations.  I have decided to receive the documents but to make appropriate orders to ensure that the offending material is kept confidential and cannot be inspected by members of the public.  It was necessary for me to thoroughly read all of the respondent’s affidavits and other documents to enable me to form some view about whether there is any proper basis for the respondent’s submission that the bankruptcy proceedings are tainted as a result of an abuse of process or denial of natural justice.

4. The background to this dispute is that the applicants brought Supreme Court proceedings against Mr Nash in relation to a disputed will.  Those proceedings were protracted.  The applicants believe that the respondent was the reason that the proceedings protracted. 

   
   

   The applicants were put under great financial and emotional pressure as a result of the protracted litigation.  They decided to send communications to numerous prominent people in the State to see whether there was any way that there could be any relief from the protracted litigation.

5. It is understandable that the applicants took some steps to try to bring the Supreme Court litigation to a swift conclusion.  There is no evidence of an illegal or improper motive.  Further, there is no evidence before me to suggest that any of the individuals who received communications from the applicant acted improperly.

6. The Supreme Court litigation continued to conclusion.  The respondent was unsuccessful and was ordered to pay the applicants’ costs. 

   
   

   The $10,000 debt that the bankruptcy notice relies upon was a small portion of the costs that the respondent is likely to have to pay the applicants.

Conclusions

(a)     Failure to comply with Bankruptcy Act and Regulations and invalidity of bankruptcy notice.

1. I have earlier in these reasons found that the applicants have properly complied with the Act and Regulations so far as the bankruptcy notice and petition are concerned. This ground fails.

(b)    There is no final judgment or final order

1. Although it is by no means clear on the material filed by the respondent, I take this ground to refer to the words “… final judgment or final order …” used in s.40(1)(g) of the Act. That subsection provides that a debtor commits an act of bankruptcy in certain situations including:

   (g)if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

   (i)where the notice was served in Australia—within the time specified in the notice; or

   (ii)where the notice was served elsewhere—within the time fixed for the purpose by the order giving leave to effect the service;

   comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

2. I understand the respondent’s argument to be that the costs order for $10,000 that the bankruptcy notice relied upon was described in the Supreme Court certificate as an ‘interim’ allocatur.  The respondent, perhaps understandably, mistakenly believed this to therefore be an interim, and not final order.  An order for payment of costs is final provided it forms part of a judgment which is itself final[4].  The interim allacatur is a taxed and quantified portion of that final costs orders. 

   [4]     Moore, Ex parte; in Re Faithfull (1885) 14 QBD 627 at 633.

Abuse of Process/Denial of Natural Justice

1. The onus of proof of abuse of process is on the person who alleges the abuse.  The onus is a heavy one.[5]  The applicant has to establish that the applicant’s real intention is to use the bankruptcy process for some purpose which is not legitimate and to exert some real pressure on the respondent.  If there is no evidence of the applicant’s state of mind as to the improper motive, the court will not be willing to infer an improper motive.[6]  It is neither fraud nor an abuse of process to petition for a sequestration order with an indirect motive.  If an applicant creditor has an interest in the debtor being made bankrupt to stifle litigation, that in itself is not enough for refusing to make a sequestration order.[7]  An order should not be refused if apart from that motive, the petitioning creditor is entitled to the order sought.[8]

   [5]     Williams v Spautz (1992) 174 CLR 509 at 529.

   [6]

   [7]

   [8] Re: King; Ex Parte Commercial Bank of Australia Ltd (No. 2) [1920] VLR 267 at 410.5.

2. This court has to decide whether there is any merit the respondent’s submission that the bankruptcy proceedings are tainted by abuse of process or by a denial of natural justice.  I can find no evidence in the numerous affidavits relied upon by the applicant that could lead to the inference that either the bankruptcy notice or the petition were issued for an improper purpose. 

3. In my view, the bankruptcy proceedings were clearly pursued for the purpose of invoking the court’s bankruptcy jurisdiction and not for any other improper purpose.  As has been previously mention, the mere fact that a consequence of a sequestration is that the respondent will be unable to pursue litigation if a sequestration order is made, is no reason to deny making such an order.  Similarly, there is no proper evidence of a denial of natural justice.

Conclusions

1. For the above reasons, in my view, there is no “other sufficient cause” why a sequestration order ought not to be made.  No basis has been made out for this court to refrain from making the sequestration order sought.  I exercise my discretion to make such an order.

2. I make the orders to be found at the beginning of these reasons.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Simpson FM

Associate: 

Date:  24 August 2011

Bride v KMG Hungerfuds, unreported, Federal Court of Australia, Carr, Branson and Nicholson J,
23 April 1998 at 8-9.

Re: Coyne; Ex Parte Minningup (South) Pty Ltd, unreported, Federal Court of Australia, French J,
10 November 1992 at para 22.