BANKRUPTCY – sequestration – application for review to Federal Magistrate from sequestration order made by Registrar – dismissal by Federal Magistrate of application for review – requirements on an application for review of a sequestration order – hearing de novo – necessity for fresh compliance with s 52(1) of the Bankruptcy Act 1966 (Cth) and with Pt 4 r 4.06(1) of the Bankruptcy Rules 2005 – sequestration order set aside – whether same bankruptcy petition had lapsed – making of a sequestration order within 12 months of presentation of bankruptcy petition – whether ‘other sufficient cause’ existed to prevent the making of a sequestration order.
EMMETT, BENNETT AND COWDROY JJ 12 MARCH 2008 SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 582 OF 2007
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN:
VASIL TOTEV Appellant
AND:
MICHAEL SFAR First Respondent
ENAYET SFAR Second Respondent
JUDGES:
EMMETT, BENNETT AND COWDROY JJ
DATE OF ORDER:
12 MARCH 2008
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The appeal be allowed.
2.The proceedings be remitted to Federal Magistrate Driver for re-determination.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 582 OF 2007
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN:
VASIL TOTEV Appellant
AND:
MICHAEL SFAR First Respondent
ENAYET SFAR Second Respondent
JUDGES:
EMMETT, BENNETT AND COWDROY JJ
DATE:
12 MARCH 2008
PLACE:
SYDNEY
REASONS FOR JUDGMENT
EMMETT J
On 10 May 2005, a registrar of the Federal Magistrates Court made a sequestration order in respect…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Totev v Sfar [2008] FCAFC 35
Case
[2008] FCAFC 35
Decision Date
CaseChat Overview and Summary
Totev v Sfar involved a dispute between the appellant, Mr Totev, and the respondents, Mr and Mrs Sfar, relating to a creditor's petition and subsequent sequestration order. Mr Totev had been involved in business dealings with the respondents, which led to proceedings in the District Court of New South Wales. Due to the unreadiness of Mr Totev to proceed with the case, costs were awarded against him, resulting in a judgment debt. This debt formed the basis of a bankruptcy notice issued against Mr Totev. Following the issuance of the bankruptcy notice, a sequestration order was made by Registrar Hedge in the Federal Magistrates Court of Australia, which Mr Totev sought to have reviewed. The initial application for review was dismissed by Federal Magistrate Driver, but this decision was overturned on appeal, leading to a rehearing of the review application.
The central legal issues in the case were whether the sequestration order made by the registrar was valid, and whether the creditor's petition had lapsed before the sequestration order was made. The appeal raised questions about the interplay between statutory time limits for petitions and the nature of the de novo review process for appeals to the Federal Magistrates Court. The court had to determine whether the statutory time limit for a creditor's petition to remain valid was suspended during the pendency of an appeal against the dismissal of a review application.
The court held that the first approach, which considered the statutory time limit in the context of a de novo hearing, was to be preferred. The court concluded that a sequestration order could be made on the de novo hearing of an appeal from a sequestration order even if more than 12 months had elapsed since the filing of the petition, provided that the sequestration order was made within the statutory time frame. The petition in this case was presented on 15 December 2004, and the sequestration order was made on 10 May 2005, which was within the 12-month period prescribed by the Bankruptcy Act. The appeal was therefore allowed, and the matter was remitted to Federal Magistrate Driver for re-determination, allowing for additional evidence to support the making of a sequestration order.
The final orders of the court were that the appeal be allowed, and the proceedings be remitted to Federal Magistrate Driver for re-determination. This decision ensured that the matter could be fully and fairly heard, taking into account all relevant evidence and legal considerations.
Orders
Orders of the court
1. The appeal be allowed.
2. The proceedings be remitted to Federal Magistrate Driver for re-determination.
Background
Background to the litigation
In relation to the issues contained in the notice of appeal dated 5 April 2007 and raised during the hearing, such grounds do not succeed for the reasons set out hereunder.FACTSProceedings in the District Court Between March 2000 and July 2000 the appellant (‘Mr Totev’) and the respondents had certain business dealings related to the borrowing of money from a Spanish-based corporation for Mr Totev’s proposed development project. The loan to Mr Totev did not eventuate, and Mr Totev commenced proceedings by ordinary statement of claim in the District Court of New South Wales on 13 December 2001 against the respondents alleging, inter alia, a breach of s 53 of the Fair Trading Act 1987 (NSW). The claim for damages included Mr Totev’s travel expenses in respect of his travel to Spain in the sum of $16,500 and loss of profit on a development at 114-116 Hartington Street, Rooty Hill in the amount of $564,258. The hearing in the District Court was listed on 2 June 2003 but Mr Totev was not ready to proceed. An adjournment was granted, but costs were awarded against Mr Totev. Such costs were later assessed and judgment was awarded in favour of the respondents against Mr Totev in the sum of $4,684.68. Such judgment debt was the foundation for the bankruptcy notice which was issued against Mr Totev. On 3 December 2004 Mr Totev filed an amended ordinary statement of claim in his District Court proceedings and a further amended ordinary statement of claim was prepared on 5 September 2006, but not filed. The proceedings have never been heard.Proceedings in the Federal Magistrates Court of Australia On 10 May 2005 a sequestration order was made by Registrar Hedge in the Federal Magistrates Court against Mr Totev. The sequestration order was made upon the petition of Mr Michael Sfar and Ms Enayet Sfar. Mr Totev sought judicial review of the making of the sequestration order. The application for review was heard by Federal Magistrate Driver on 5 July 2005 and dismissed on the same day (‘the first decision’). However, his Honour’s decision was set aside on appeal by a judge of this Court in a judgment delivered on 5 May 2006 (see Totev v Sfar [2006] FCA 470) because of the Federal Magistrate’s finding that the District Court proceedings had no prospects of success. Accordingly, the proceedings were remitted to Driver FM for re-determination. The remitted hearing came before Driver FM on 2 March 2007. His Honour was informed that the District Court proceedings had been placed in that Court’s dormant list in consequence of the operation of s 60(3) of the Act, and that Mr Totev wished to file a further amended statement of claim for which no leave had been given by the District Court. It was submitted by the respondents that Mr Totev’s claim for damages for loss of profits was highly speculative and that, even if successful, it would not be sufficient to pay the debts disclosed in the statement of affairs. Accordingly, the respondents submitted that the proceedings had limited prospects of success and that the claim was not ready to proceed to a hearing.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
EMMETT, BENNETT AND COWDROY JJ
When the petition came on for hearing, the registrar adjourned the hearing to enable Mr Totev to prosecute a proceeding in the Supreme Court of New South Wales concerning a decision of the Costs Review Panel, which had acceded to complaints by Mr and Mrs Sfar about certain aspects of the original costs assessor’s decision. On 20 April 2005, Master Malpass dismissed the appeal from the Costs Review Panel, describing the appeal as misconceived and hopeless. Accordingly, the petition was again listed for hearing before a registrar on 10 May 2005, when the sequestration order was made. First Decision of the Primary Judge On 31 May 2005, Mr Totev filed an application for review of the registrar’s decision. That matter came before a judge of the Federal Magistrates Court for hearing on 5 July 2005. The evidence before the primary judge did not satisfy r 4.06(1) of the Bankruptcy Rules and his Honour did not dispense with compliance with that provision. The primary judge considered that the sequestration order was properly made. His Honour found that there was no basis upon which the application for review could succeed and that there was no error made by the registrar in making the sequestration order. Accordingly, his Honour ordered that the application for review be dismissed and that Mr Totev pay the costs of Mr and Mrs Sfar. In the course of his reasons, the primary judge said that Mr Totev was seeking orders setting aside the sequestration order and the dismissal of the creditors’ petition. His Honour dealt with Mr Totev’s assertion that, by reason of formal aspects of the documents filed in support of the sequestration order, the registrar erred in making the sequestration order. His Honour concluded that there was no substance in that ground and said that, plainly, Mr Totev had committed an act of bankruptcy and that the material presented to the registrar, to which his Honour had regard, was sufficient, on its face, to support the making of a sequestration order. The primary judge noted that Mr Totev had also sought to challenge the sequestration order on the basis that he had a counter claim, set off or cross demand of an amount equal to or greater than the amount of the debt due to Mr and Mrs Sfar that could not have been set up in the proceeding leading to the judgment debt. His Honour considered that there was no substance in that argument because the costs order supporting the bankruptcy notice and the petition was made in the proceeding instituted by Mr Totev in which he asserts his alleged counter claim, set off or cross demand. His Honour considered that the claim in the District Court proceeding could not have been a proper basis of opposition to the bankruptcy notice and could not be a proper basis of opposition to the petition filed by Mr and Mrs Sfar. The First Appeal Mr Totev appealed to the Federal Court from the orders of the Federal Magistrates Court of 5 July 2005. On 5 May 2006, a judge of the Federal Court, sitting alone at the direction of the Chief Justice, ordered that the appeal be allowed with costs and that the orders of the Federal Magistrates Court made on 5 July 2005 be set aside. The matter was remitted to the Federal Magistrates Court for rehearing.
Ratio Decidendi
Legal Principle Established
Established by:
EMMETT, BENNETT AND COWDROY JJ
The first is to start with s 52(4) of the Bankruptcy Act which provides:A creditor’s petition lapses at the expiration of:(a)subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or(b)if the Court makes an order under subsection (5) in relation to the petition – the period fixed by the order;unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.[emphasis added] On this approach, a sequestration order was made before the expiration of the relevant period. The subsection is therefore no bar to the application of the law at the hearing de novo which may proceed to the making of a fresh sequestration order. The second approach is to start, as did Emmett J, with r 20.03 of the Federal Magistrates Court Rules 2001 (Cth) (‘the Federal Magistrates Court Rules’) which provides that the review of an exercise of power by a registrar must proceed by way of a hearing de novo. As the hearing is de novo, it must proceed on the basis that no sequestration order has been made. As Emmett J pointed out at [48], the result is that the petition is “stale”. It lapsed as more than 12 months had expired since the presentation of the petition. The question is which of these approaches is correct. It is apparent that the second approach gives rise to an anomaly. It is unlikely that the Legislature or the rule-making authority intended the result that an appeal from the correct making of a valid sequestration order within time would necessarily have to result in a decision to make no sequestration order, merely because the time between hearing and appeal was such as to render the appellate hearing more than 12 months after the date of the petition. The anomaly is well illustrated by the facts of this case. One way of reading the provisions to avoid the anomaly is to read r 20.03 of the Federal Magistrates Court Rules as meaning that one proceeds as if no sequestration order had been made for all purposes except the application of s 52(4) of the Bankruptcy Act. The distinction between a de novo hearing and other forms of appeal concerns evidence and the relevance of the correctness of the order below. It is not concerned with time limits. Bearing in mind the possibility of reading the two provisions together in this manner and bearing in mind the anomalous result produced by the other construction, it appears to me that the first approach is to be preferred. It follows that a sequestration order can be made on the de novo hearing of an appeal from a sequestration order notwithstanding that more than 24 months have elapsed since the filing of the petition. I would set aside the order disposing the application for review and remit the matter to Driver FM to enable his Honour to receive additional evidence in support of the making of a sequestration order. I have considered the judgments of Emmett and Bennett JJ. I respectfully adopt the reasons of Bennett J and her finding relating to the question of whether the petition expired before the making of the sequestration order. The petition was presented on 15 December 2004 and the sequestration order was made on 10 May 2005 namely within the 12 month period prescribed by s 52(4) of the Bankruptcy Act 1966 (Cth) (‘the Act’), which provides, inter alia, that a creditor's petition lapses at the expiration of a period of 12 months commencing on the date of presentation of the petition unless a sequestration order is made on the petition or the petition is dismissed or withdrawn.