Van Dijk v Pearce
[2011] FMCA 312
•13 April 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| VAN DIJK v PEARCE | [2011] FMCA 312 |
| BANKRUPTCY – Sequestration order – set aside – service of bankruptcy notice – service of creditors petition – annulment – test of solvency. |
| Bankruptcy Act 1966 (Cth), ss.52(1), 153B Bankruptcy Regulations 1996 (Cth) Property Law Act 1974 (Qld), s.55 |
| Alfio Peter Bulic v Commonwealth Bank of Australia Limited [2007] FCA 307 Gargan v Kippin Investments Pty Ltd [2008] FCA 1718 Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347; (1988) 83 ALR 265 In re Long; Ex parte Fraser Confirming Pty Ltd (1975) 12 SASR 130; (1975) 6 ALR 338 Re Williams; Ex parte Alberton v Electrical Service Pty Ltd (1982) 43 ALR 552 Samootin v Wagner [2008] FCA 1066 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107; (1988) 62 ALJR 508 |
| Applicant: | RAYMOND VAN DIJK |
| Respondent: | MARK PEARCE |
| File Number: | BRG 740 of 2010 |
| Judgment of: | Burnett FM |
| Hearing date: | 13 April 2011 |
| Date of Last Submission: | 13 April 2011 |
| Delivered at: | Brisbane |
| Delivered on: | 13 April 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr G. Smart |
| Solicitors for the Applicant: | Queensland Public Interest Law Clearing House |
| Solicitors for the Respondent: | Gregg Lawyers Pty Ltd |
ORDERS
That the application filed 23 July 2010 be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 740 of 2010
| RAYMOND VAN DIJK |
Applicant
And
| MARK PEARCE |
Respondent
REASONS FOR JUDGMENT
(Revised from Transcript)
Introduction
On 11 June 2003, a sequestration order was made against the applicant bankrupt, Raymond Van Dijk. The applicant now seeks orders for the setting aside of that sequestration order or, alternatively, for an annulment, pursuant to s.153B of the Bankruptcy Act 1966 (Cth) (the Act).
Background
On 17 August 2001, the petitioning creditors, Emanuel Casimir Van Dijk and Wilhelmina Joanna Cornelia Van Dijk who, incidentally, were the bankrupt’s parents, successfully obtained judgment in the District Court at Maryborough, in default of a notice of intention to defend. The judgment was obtained against the bankrupt. Subsequently, on 5 March 2001, a bankruptcy notice issued and on 2 September 2002 time for service of that notice was extended, as required by the Bankruptcy Regulations 1996 (Cth) (The Regulations). The time for service was extended to 2 March 2003.
On 7 October 2002, there was purported service of the bankruptcy notice by the petitioning creditor personally upon the bankrupt. If service occurred, an act of bankruptcy was then committed on 3 November 2002. On 13 March 2003, a creditor’s petition issued in the court. Recorded service of the creditor’s petition occurred on 28 May 2003. The matter came on before Registrar Ramsey, on 11 June 2003, when a sequestration order was made. The Insolvency and Trustee Service Australia (ITSA) was initially appointed as trustee, but on 17 December 2009 it, in turn, transferred its appointment to the present trustees, Mark Pearce and Andrew Heers, who accepted an assignment of that appointment.
It appears that until the appointment of Messrs Pearce and Heers, no real action was taken in the administration of the bankrupt’s estate. On 7 May 2009, ITSA who were still then, acting as trustees, did write to the bankrupt noting earlier correspondence to the bankrupt in 2003. In that correspondence, presumably following up earlier requests to the bankrupt to file a statement of affairs it noted:
“You were advised that you were made a bankrupt by an order of the court, on 11 June 2003, as a result of a creditor making petition for your bankruptcy. The official trustee in bankruptcy, for which I act, is the trustee of your bankrupt estate.”
That letter enclosed and requested the bankrupt complete a statement of affairs and informed the bankrupt of the consequences of failing to do so. In addition, it made the observation that the bankrupt was, by that time, the registered owner of a house property, located at 6 Harris Street, Grantham. It observed that:
“The effect of the bankruptcy was that the trustee in bankruptcy had become the owner of any property, including real property, and/or personal rights to property or action you owned at the date of your bankruptcy and after acquired property under section 58 of the Act.”
That correspondence was personally served upon the bankrupt by a process server engaged by ITSA. That service took place on 17 May 2009, at approximately 9 am. The bankrupt claims that the fact of his bankruptcy came to him as a matter of complete surprise. The following day, that is, on 18 May 2003, at about 12 pm, the bankrupt phoned the relevant officer at ITSA. That officer made a record of her conversation with him and noted that she explained to the bankrupt that he had been made bankrupt by a creditor following court proceedings and that she required he file a statement of affairs to permit her to determine the extent of and liabilities of the bankrupt and also because that document was significant in terms of the commencement of the bankruptcy period.
It was requested that he should read the documents that had been provided to him and perhaps seek advice to get an understanding of his position. The bankrupt advised that he thought the debt was for only $10,000.00, although he acknowledged it had been outstanding for a while. To his mind the debt was subject to a bill of sale over a fishing licence and he noted that he had seen his parents at Christmas and that they had not said anything about it, but that, in any event, he wanted to sort it out. When he was asked about whether he had repaid anything on the debt when he was paid out on the sale of his fishing licence, he told the officer that the funds received on the sale of his fishing licence had been used to purchase a house.
It seems also – although it was not recorded in the diary note maintained by the officer – that on that occasion he expressed surprise: that surprise was noted in a letter forwarded to him by ITSA, dated 21 May 2009, which stated that:
“In a telephone conversation you had with me last morning, you advised that you cannot complete and file your statement of affairs, as you were never served any documents relating to the bankruptcy proceedings and that you dispute your status as a bankrupt.”
It is by reason of these events that the bankrupt now makes application for the annulment of his bankruptcy. The application, in its form, seeks:
“That the sequestration order made against the applicant on the 11th day of June 2003, be set aside and that the application for annulment under section 153B of the Bankruptcy Act 1996 (as amended), be granted.”
The application
It is, in effect, advanced in two parts: first, to set aside the sequestration order because of formal defects relating to the service of the bankruptcy notice and/or the creditor’s petition, and, finally, an annulment, in any event, because the sequestration order ought not to have been made on solvency grounds.
Relevantly, section 153B of the Act provides:
“Annulment by Court:
(1) If the court is satisfied that a sequestration order ought to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, a court may make an order annulling the bankruptcy.
(2) In the case of a debtor’s petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.”
In relation to that provision Perram J, in Gargan v Kippin Investments Pty Ltd[1] stated at [10]:
“It is apparent from a cursory reading of s 153B that there are two elements to it. The first is the satisfaction in the Court of the fact that a sequestration order ought not to have been made. The second is an exercise by the court of a discretionary power if that condition precedent is satisfied.
[11] That operation of s 153B was confirmed by Flick J in this Court in Samootin v Wagner [2008] FCA 1066 at [32] and [33]. His Honour applied what had fallen from Carr, Finn and Sundberg JJ in Heinrich v Commonwealth Bank of Australia [2003] FCAFC 315 at [20]:
‘The Court must first consider whether the sequestration order ought not to have been made. If it so finds, then the Court must consider whether, in the exercise of its discretion, the bankruptcy should be annulled: Re Deriu (1970) 16 FLR 420. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not to have been made. That is, the Court is entitled to consider not only the case as disclosed at the time when the sequestration order was made, but also those facts now known then to have existed. The Court excludes those facts which have occurred since the order was made. Later evidence of previously unknown facts may disclose matters which show that the sequestration order ought not have been made: Re Frank; Ex parte Piliszky (1987) 16 FCR 396; Stankiewicz v Plata [2000] FCA 1185 at [19]; Re Williams (1968) 13 FLR 10 at 23; Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCA 347. These authorities, all of which were cited by the learned primary judge in his judgment, were accepted at first instance as reflecting the relevant law.’”
[1] [2008] FCA 1718
More recently, in Bulic v Commonwealth Bank of Australia Limited,[2] Tracey J set out the often quoted list of relevant principles as follows:
[2] [2007] FCA 307
“Section 153B(1) and its predecessors have been considered in many decisions of this and other courts. These authorities establish a number of relevant propositions. They are:
(1) an order can be made under section 153B(1) of the Act, notwithstanding that the applicant has been discharged from bankruptcy;
(2) an applicant who seeks an annulment of his or her bankruptcy carries a heavy burden. It is incumbent on the applicant to place before the court all relevant material with respect to his or her financial affairs so that the court may be properly informed and make a judgment that is based on the actual circumstances of the applicant;
(3) in determining whether or not a sequestration order ought not to have been made, the court is not confined to a consideration of whether the order should have been made, on the facts known to the court at the time at which it was made. The court must take account of facts known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the court at the time at which the sequestration order was made;
(4) a sequestration order ought not to have been made if, on the facts known at the time of the annulment application, the court would have been bound not to make the sequestration order;
(5) the court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor;
(6) if the court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose a creditor’s petition or failed to seek a review of the sequestration order;
(7) the power conferred on the court by section 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the court can, in appropriate circumstances, decline to annul the bankruptcy;
(8) considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose a creditor’s petition and attend the hearing at which the sequestration order was made.”
It is with those principles in mind that I now approach the factual issues in the application.
Service of Bankruptcy Notice
It is now settled that absence of proof of service of a bankruptcy notice will impeach a sequestration order. As was observed by Gummow J in Re Ditfort; Ex parte Deputy Commissioner of Taxation[3] at [358]:
“In Re Long; Ex parte Fraser Confirming Pty Ltd,[4] Walters J reviewed the authorities, which indicate the necessity for structures of proof and observance of the requirements for service of bankruptcy notices and bankruptcy petitions. The applicant properly placed much reliance upon this decision. It is he who drew it to the attention of the court. The dispute before Walters J arose as an application to set aside for want of due service of a bankruptcy notice on which the petition had been based. Although an affidavit of service by a process server deposed to personal service of a bankruptcy notice on the debtor, Walters J found after hearing evidence that the notice had not been served personally on the debtor. Rather, the notice had been handed to the wife of the debtor at his house and the notice had not been brought to his attention till some eight or 10 days had elapsed. Walters J held:
(1) that the failure of the petitioner to prove personal service of the bankruptcy notice was not a formal defect or irregularity which might be corrected in bringing it within the umbrella of section 306 of the Bankruptcy Act;
(2) that the want of personal service of the bankruptcy notice rendered defective the petition founded on it.”
Despite the debtor’s subsequently acquired knowledge of the existence of the notice and even though there was no proof of substantial injustice having been done to the debtor by the defect in service, in the result Walters J ordered that the bankruptcy notice be set aside and it followed that the petition was dismissed. Whilst not necessarily being of the view that section 306 can never apply in such a case in any circumstances, I respectfully agree with what was said by his Honour as to the importance of proper proof in these cases and as to the salutary consequences for creditors of failing to comply with the rules. Similar views were expressed by Fisher J in Re Williams; Ex parte Alberton v Electrical Service Pty Ltd (1982) 43 ALR 552.
These considerations have particular force where the petitioning creditor, as in this case, is a frequent litigant before the court and there may be a tendency to follow routine procedures in the preparation of affidavits of service.”
[3] (1988) 19 FCR 347
[4] (1975) 12 SASR 130
In the present case, the bankrupt in his affidavit explains the origin of the primary debt. The primary debt was based on moneys loaned by the creditors who were his parents, to assist him in the purchase of a fishing boat. Those funds were secured by a bill of sale over the relevant fishing boat. He acknowledged the service of the District Court proceedings, which enlivened the judgment, but claimed no knowledge of the default judgment.
I note at this point that a subsequent application to set aside that judgment did not proceed, that application having been brought in more recent times. Accepting the bankrupt had no knowledge of the default judgment, he then proceeded to address the matters relevant to service of the bankruptcy notice. At paragraphs [33] and [34] of his affidavit filed 23 July 2010, he stated that the petitioning creditor, says that he personally served him, that is the bankrupt, with documents by leaving documents on the doorstep of his house at Lot 225 Bergmans Road, Willowbank. He said that he noted that the creditor claimed to have observed he, that is the bankrupt, through the window and yelled out to him. He said:
“At the time my father says he served me with a copy of the bankruptcy notice, I was residing at 224 Bergmans Road, Ebenezer, Queensland.
My father never visited me at this address and at any time whilst I was living there. Nor did he leave any documents on the doorstep of my house. I say that the affidavit that he has sworn, dated
13 March 2003, is false.”
It should be noted that Ebenezer is an adjoining suburb of Willowbank and it is conceded that Ebenezer is Willowbank for the purposes of this application.
In his affidavit of service, the creditor swore:
“On Monday 7 October 2002 at 8.50 am, I served Raymond Van Dijk, the respondent herein, with a copy of the bankruptcy notice number 208, with a copy of the judgment attached and signed and dated by the official receiver issued in the application of McDuff & Daniel Lawyers for Emanuel Casimir Van Dijk & Wilhelmina Joanna Cornelia Van Dijk together with a true copy of a letter dated 2 September 2002 addressed to McDuff & Daniel from Insolvency and Trustee Service Australia, personally at lot 225 Bergmans Road, Willowbank, a remote location west of Ipswich in the State of Queensland.
(2) Identified the person I served by the fact that he is my son and he is well known to me as I have had many dealings with him over his lifetime.
(3) I personally served Raymond Van Dijk by leaving the documents on the doorstep of his house at the above address. I observed him through the window. I yelled to him that, “These are bankruptcy forms I am serving on you.” At the same time there was also present a Mr Boyd Allard.”
In an affidavit relied upon by the creditors and sworn by Mr Allard he stated that he is a son-in-law of the creditors. He recalled that in or about 2002 he drove with Mr Van Dijk senior, the creditor, to a property at Willowbank. Although he says that it was some eight years ago and he was unable to recall an exact date on which this occurred or the precise address of the property he does recall that it was some time in 2002. He says he can recall that upon driving to the property at Willowbank he saw the bankrupt looking through the window of the house on the property and heard Mr Van Dijk senior yell something at the bankrupt and leave some documents on the doorstep of the house.
The debtor denies service saying that he then resided at Lot 224 Bergmans Road so, on the bankrupt’s case, service was clearly effected by the creditor at the wrong property. Two points are made by the bankrupt. First, the creditor does not establish the bankruptcy notice was delivered at the last known address of the bankrupt; and second, the affidavit of the creditor does not provide sufficient evidence as to the identity of the bankrupt at the time of purported service. Ultimately, these matters are questions of fact. Neither the serving creditor or the bankrupt were produced for cross-examination, although one wonders what utility cross-examination may have served in the circumstances given the length of time that has lapsed since these events. However, to my mind, the matters can be resolved without reference to the need to determine issues of credit and reliability on this point.
The two relevant factors, that is, identification and address, need to be considered together. The creditor says he saw the bankrupt, his son. There is nothing to suggest that prior to these events the parties were estranged such that the creditor would not have been able to recognise his son, even by a casual and momentary glimpse of him. He says he:
“…observed him through the window.”
If I accept this identification as accurate then the statement that had occurred at 225 rather than 224 Bergmans Road bears less significance. I also have the corroborating evidence of Mr Allard, although there is less basis to accept the reliability of his evidence given that I am not provided with any detailed information as to the knowledge he then possessed of the bankrupt, aside from the fact that he was the bankrupt’s brother-in-law. Plainly, given the proximity of the relevant addresses, that is, Lot 224 and Lot 225 on Bergmans Road, it is fair to infer that the creditor may have been mistaken as to his identity of the lot number. Plainly, if the bankrupt resided at an entirely different location, the creditor’s evidence as to identification may be less plausible. However, on balance, I am satisfied from his identification evidence and the creditor’s capacity to effect that identification and that he saw the bankrupt at a premises on Bergmans Road, Willowbank, on the date that he says that he effected service and that he did effect service. I think he was mistaken as to the lot number but overall, I am satisfied that he did effect service of the bankruptcy notice upon the bankrupt as is required by the Bankruptcy Act.
As I have earlier noted, the bankrupt failed to comply with the bankruptcy notice and thereby, committed an act of bankruptcy.
Service of the Creditor’s Petition
The bankrupt additionally complains that he was not served with the creditor’s petition. Proof of service of the creditor’s petition is required by s.52(1) of the Act as a condition precedent for the making of a sequestration order.
If the bankrupt was not served with the creditor’s petition then the sequestration order ought not to have been made and arguably, the bankrupt would be, prima facie, entitled to a favourable order on his application. In his affidavit the bankrupt stated at paragraphs [35] and [36] in response to the affidavit of the creditor concerning service of the creditor’s petition, that he recalls an event on a date he does not recall in 2003 when he spoke with his father and his father had some documents with him. He says however:
“He did not serve any documents upon me and I say that the affidavit that he has sworn on 28 May 2003 is false.”
In his affidavit the creditor deposes to service occurring in the following circumstances:
“On 29 April 2003 I served the respondent debtor, Raymond Van Dijk, with a signed and sealed copy of the creditor’s petition herein, a copy of the affidavit verifying paragraph 1, 2 and 3 of the petition sworn by the solicitors for the applicants, McDuff & Daniel Lawyers, a copy of the affidavit verifying paragraph 4 of the petition sworn by David Kelly, and a copy of the affidavit of service of the bankruptcy notice sworn by myself by handing the documents to him, personally, at Grumpy’s Wharf at the Spit, Southport, Queensland.
(2) Identified the person I served as the respondent debtor as he is my son, well known to me through numerous family over his lifetime.”
At the time these events occurred the creditor was in company with Renski Hendrieka Van Dijk. In a statutory declaration filed in the application she swore:
“In about 2003 E.C. Van Dijk and his wife, Wilhelmina C. Van Dijk, asked me to go with them to give Raymond Van Dijk some papers. We went to Marina Mirage at the Southport Spit. We wait until Raymond would come out of the charter boat. As Raymond walked on the pier E.C. Van Dijk started abusing Raymond. Raymond had both his hands full with books, a bag, fishing gear. He looked shocked and scared seeing his father screaming and abusing him. Raymond kept on walking. His father threw the envelope in Raymond’s face. It fell on the ground, another person, a stranger, picked it up and put it on the tourist information desk. Raymond kept walking. I asked E.C. Van Dijk why he did not tell Raymond he was being served with papers. All E.C. Van Dijk could say, “The f… b…, I will get him.” I was shocked about the manner and behaviour of E.C. Van Dijk and his wife.”
These events occurred approximately six months after the service of the bankruptcy notice. The parties by this time were clearly in dispute. The uncontested evidence of an unpleasant exchange and of the somewhat intemperate discourse alluded to by Ms Van Dijk was indicative of that matter. The bankrupt contended that the purported manner of service fell well short of that which is expected, as was observed by Gummow J in Re Ditfort (supra), where at [360], his Honour said:
“I accept the submission by the respondent to the present application that there may be delivery personally to the debtor of process within the meaning of rule 15 of the Bankruptcy Rules, even though the process has not been left in what Patterson J described as the “actual corporeal possession of the defendant.” If the debtor were refusing to take such actual corporeal possession of the process, but the process server inform the debtor of the nature of the process enacted before or near the debtor so that the debtor had unimpeded and immediate access to the documents, that in my view, should, in general, be sufficient to comply with rule 15.”
While in this case, there is no evidence about the precise words exchanged, little imagination is required to infer from the circumstances that the bankrupt knew the creditor had not just happened upon him by chance; and particularly so, when papers were thrown at him by the creditor as was stated by Ms Van Dijk. I am satisfied that in this instance, the bankrupt was served with the petition, but knowing the contents of the documents thrown to him, refused to accept possession of them. He was served with the creditor’s petition. It follows, in my view, that all the preconditions provided for by s.52(1) were satisfied.
Solvency
The bankrupt contends that even if service in each case was efficacious, then at the date of the sequestration order, he was solvent.
The date from which the assessment of solvency must be effected is the date of the order and the court does not look to facts which occurred after the making of the order. Here, the debtor’s circumstances as at the date of the sequestration order are somewhat unclear. It must be remembered that the bankrupt applicant bears the onus of proof in the context of this application. The bankrupt’s material is, in summary, poor. However, adopting even the most favourable case able to be advanced for the bankrupt, real questions, arise as to the state of solvency of the bankrupt at the time of the sequestration order. In his recent statement of affairs, he claimed to be the owner of property at Grantham.
That property was not owned by him at the time of the sequestration order. In fact, at the time of the sequestration order, the principal asset owned by the bankrupt appears to have been commercial fishing licences which were associated with the operation of the fishing vessel which gave rise to the primary dispute between the parties.
I was informed in the course of submissions these licences were eventually the subject of a government buy back, with the funds received on the buy back then being applied to the acquisition of the property at Grantham. The property of Grantham cost approximately $184,000.00, which was a sum slightly in excess of that which was received on the sale of the licences being the sum of $180,000.00.
However, for present purposes, despite evidence as to the precise dates of the buy back and their immediate relevance to the date of the sequestration order, I will adopt that sum as the value of his assets at the time the order was made.
The difficulty, however, appears to relate principally to the value of the licences themselves at the time of application. It can be seen from correspondence which passed between the Department of Primary Industries and ITSA, in part incorporated in a facsimile dated 8 February 2005 that these licences were clearly not readily transferable at any time prior to they being acquired. I note, in particular, observations in the third paragraph of the email that the Torres Strait fishing boat licences were placed in a “no boat” status on 9 August 2001, that is, preceding the date of sequestration.
Torres Strait licences can be held in this status for three years from the date this status is recorded, but while held in “no boat”, the licences are not renewable.
It seems, for reasons which I am unable to explain based on the material which is placed before me, the licences were not able to be renewed, but were subsequently renewed; but furthermore, they did not apply to any vessel because the applicant did not have any vessel. Later in the correspondence, it was observed, for instance, that if the boats would no longer be operating, then the bankrupt’s master fisherman’s licence must also be surrendered. If the boats were to continue to operate, then a letter of nomination would be required from the new licence holders for the bankrupt to be a Torrens master fisherman aboard the FWAP operation.
As I have noted, it is not clear from the correspondence how these matters impacted upon the value of the licence, but it does seem patently obvious that without a boat, the licences were mere choses in action and were subject to significant caveats which one assumes would have impacted upon their realisable value. From that material, I infer that the licence was not readily realisable in the hands of the bankrupt.
That brings into question as a matter of fact, of the then capacity of the bankrupt to readily realise the asset in order to discharge his indebtedness, which at the time of the order, was approximately $65,000.00. In that regard, I am mindful of the observations of Barwick CJ in Sandell v Porter,[5] where his Honour observed:
“The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety, and generally speaking, ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability to utilising such cash resources as he has or can command through the use of his assets to meet his debts as they fall due, which indicates insolvency. Whether that state of affairs is arrived [is a question for the court].”
[5] [1966] HCA 28; (1966) 115 CLR 666
In this case, I have come to the conclusion, having regard to the facts as they then were, and despite adopting the most favourable approach possible on the bankrupt’s case, that he was, indeed, insolvent at the time that the sequestration order was made.
In any event, if I am wrong and he was solvent, in my view, other discretionary factors now militate against the making of an order in his favour. First is the length of time involved in bringing this application, especially given that I accept that he was served with both the bankruptcy notice and the creditor’s petition. He has sat on his rights for approximately eight years. No satisfactory explanation has been provided for that omission.
Second, the principal asset, the subject of the bankrupt’s estate, is the house property at Grantham. In the affidavit of Mr Michael Dullaway, who is the trustee’s delegate handling this particular file, he stated that during the recent flooding in Grantham – that is the notorious flooding which occurred in early 2011 in the Lockyer Valley – the flooding caused significant damage to the property and it is, at this stage, considered that the house built on the property may have to be demolished. It follows that it is possible that the property, in its current state, being significantly damaged, has little if any net value when taking into account the likely impact of that flooding.
Furthermore, having regard to the impact of flooding generally in the Grantham district, it is likely that property prices in the area will be adversely affected. He noted that the trustees have submitted an insurance claim to their insurer, Lumley Insurance, in respect of the damage to the improvements caused by the flooding, and he has advice from the insurer that they are presently assessing the trustee’s insurance claim and that the insurer will be engaging an assessor to assess the damage caused to the improvements, in the near future. However, at this time he is uncertain as to what effect an order made annulling the bankruptcy might have on the insurance policy for the property which the trustees hold with Lumley Insurance.
In this regard, it is important to note that prior to the appointment of the trustees the property was uninsured. Upon their appointment the trustees had a policy of insurance issue in respect of the property. The policy of insurance has been produced and is admitted and marked exhibit 4. In its schedule it notes that the insured is the bankrupt estate of Raymond Van Dijk, the appointees being Mark Pearce and Andrew Hughes. Fortuitously or otherwise, the trustee had the perspicacity to ensure that the policy also covered flood damage, thereby, enlivening a prima facie right to now claim under the policy. In that regard again I make observation that it is a matter of notoriety in South-East Queensland that there is presently considerable debate, ensuing between insurers and insureds concerning the definition of “flood.”
Although no submissions have been made in respect of this policy, it is not entirely unforeseeable that there may indeed be a similar argument made here. Putting that matter to one side and looking to the policy itself and the definitions in the policy, in particular, the definition of “you” which is relevant to the person who is entitled to make the claim – it means the person named as the insured in the schedule, that is the bankrupt estate of Raymond Van Dijk. While questions may arise concerning the bankrupt’s right as a beneficiary, as defined for the purposes of s.55 of the Property Law Act 1974 (Qld), and under the principles following the decision of the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,[6] the fact remains the trustee is anxious about the bankrupt’s capacity to enforce his rights under the contract of insurance.
[6] [1988] HCA 44; (1988) 165 CLR 107; (1988) 62 ALJR 508
Given the bankrupt’s attitude to the enforcement of his rights under the Bankruptcy Act, I consider the trustee’s concerns in this regard as justifiable. This concern has real significance when regard is also had to the bankrupt’s present financial state. In his most recent affidavit the trustee concludes that he is of the view that the bankrupt presently has a deficiency in his estate. After allowance for the realisation of all assets at the best possible value, and deduction from outstanding creditors, including costs, that there will be an overall deficiency in the estate of $21,737.00.
Clearly, if the trustee has any difficulty in enforcing the insurance, the shortfall is likely to be greater, at least insofar as additional legal costs may be incurred. Plainly, the creditors will be prejudiced if the trustee is not able to continue in the administration of this estate, even if it was a case where there was the order ought not to have been made in the first instance.
It follows, in my view, that on a discretionary ground the application ought be dismissed, in any event.
I certify that the preceding forty-eight (48) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 16 May 2011
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