Vlad v Lopez
[2016] FCCA 823
•14 April 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| VLAD v LOPEZ | [2016] FCCA 823 |
| Catchwords: PRACTICE AND PROCEDURE – Adjournment – consideration of factors. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.52(1) and (2), 153B(1) Federal Circuit Court of Australia Act 1999 (Cth), ss.3, 42 |
| Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175; (2009) 83 ALJR 951; (2009) 258 ALR 14 Christie v Harvey & Hayward (1900) 2 WALR 146 Doyle v Gillespie [2010] ACT SC 21; [2010] 173 ACTR 66; (2010) 4 ACTLR 188 Fair Work Ombudsman v Kentwood Industries Pty Ltd [2010] FCA 98 Farley v Official Trustee in Bankruptcy [2011] FMCA 10 Lejmanoski v The University of Western Australia (No. 3) [2016] FCCA 154 Maxwell-Smith v S & E Hall Pty Ltd, in the matter of Maxwell-Smith [2004] FCA 840 Myers v Myers [1969] WAR 19 Rigg v Baker [2006] FCAFC 179; (2006) 155 FCR 531; (2006) 4 ABC(NS) 419 Salter Rex & Co v Ghosh [1971] 2 QB 597 Transport Workers Union v School Bus Contractors Pty Ltd [2011] FMCA 28; (2011) 246 FLR 430; (2011) 201 IR 327 |
| Applicant: | TRAIAN VLAD |
| Respondent: | GEORGE LOPEZ |
| Intervener: | DEPUTY COMMISSIONER OF TAXATION |
| File Number: | PEG 246 of 2015 |
| Judgment of: | Judge Antoni Lucev |
| Hearing date: | 11 August 2015 |
| Date of Last Submission: | 11 August 2015 |
| Delivered at: | Perth |
| Delivered on: | 14 April 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr W Chestnutt |
| Solicitors for the Applicant: | BW Duckham & Co |
| For the Respondent: | Mr G Lopez in person |
Counsel for the Intervener: | Mr C Slater |
| Solicitors for the Intervener: | ATO Dispute Resolution |
ORDERS (as made on 11 August 2015)
The hearing of the annulment application be adjourned to a date to be fixed.
The matter otherwise be adjourned to a directions hearing at 9.30am on 27 August 2015.
The parties and intervener confer as to appropriate orders prior to the next directions hearing.
Reasons for judgment with respect to order 1 be published from Chambers at a later date.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT PERTH |
PEG 246 of 2015
| TRAIAN VLAD |
Applicant
And
| GEORGE LOPEZ |
Respondent
| DEPUTY COMMISSIONER OF TAXATION |
Intervener
REASONS FOR JUDGMENT
Introduction – adjournment sought
By this application made under the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) the applicant seeks to annul a sequestration order made by a Registrar of this Court on 4 February 2014 which made the applicant a bankrupt.
The Court made the following orders on 11 August 2015:
1. The hearing of the annulment application be adjourned to a date to be fixed.
2. The matter otherwise be adjourned to a directions hearing at 9.30am on 27 August 2015.
3. The parties and intervener confer as to appropriate orders prior to the next directions hearing.
4. Reasons for judgment with respect to order 1 be published from Chambers at a later date.
Set out hereunder are the Court’s reasons for judgment referred to in order 4 above.
Adjournment – principles
Whether an adjournment is granted is a matter involving the exercise of a wide discretion by the Court: Myers v Myers [1969] WAR 19 at 21 per Jackson J; Lejmanoski v The University of Western Australia (No. 3) [2016] FCCA 154 at [32]-[33] per Judge Lucev, and must take into account the relevant statutory, factual and case management context: Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175; (2009) 83 ALJR 951; (2009) 258 ALR 14 at [30] per French CJ and [97]-[103] per Gummow, Hayne, Crennan, Kiefel and Bell JJ (“Aon Risk Services”). In so doing the Court must take into account the following overarching principles when determining whether or not to grant leave to allow an adjournment:
a)the paramount consideration remains the doing of justice between the parties, but a just resolution must have regard to any relevant legislative purpose or object;
b)modern principles of case management;
c)the avoidance of undue delay; and
d)the wastage of public resources:
Aon Risk Services at [30] per French CJ and [97]-[103] per Gummow, Hayne, Crennan, Kiefel and Bell JJ; Fair Work Ombudsman v Kentwood Industries Pty Ltd [2010] FCA 98 at [2] per McKerracher J.
The role and mode of operation of this Court as set out in the Federal Circuit Court of Australia Act 1999 (Cth) (“FCCA Act”) and the Federal Circuit Court Rules 2001 (Cth) (“FCC Rules”), as prescribed by the objects of ss.3 and 42 of the FCC Act and the objects of r.1.03 of the FCC Rules, provide for the Court to operate in a manner:
a)as informal as possible in the exercise of judicial power;
b)which is not protracted in its proceedings;
c)which resolves proceedings justly, efficiently and economically;
d)which uses streamlined procedures; and
e)that avoids undue delay, expense and technicality.
Adjournment – submissions
The Court was assisted by oral submissions from Counsel for the applicant who sought to adjourn the proceedings, and Counsel for the intervener who opposed the adjournment. The respondent, who is the Trustee in Bankruptcy (“Trustee”), adopted a neutral position, as was appropriate in the circumstances.
The applicant submitted that an adjournment ought to be granted because:
a)fundamental evidence with respect to the question of the number of sheep and the value of those sheep on a farming property in Corrigin owned by the applicant, and an associated contract for approximately $500,000 for the sale of those sheep, at or about the time the sequestration order was made, was still being sought;
b)there was evidence which might be corroborative already before the Court as to the number of sheep on the property by reason of Mr Nottle’s Affidavit which might support an inference that the amount of feed being bought by the applicant was consistent with the number of sheep that the applicant asserted were on the property (namely 5200) at or about the time the sequestration order was made;
c)Counsel had only recently been instructed, and had provided urgent advice with respect to the questions which needed to be addressed in relation to insolvency, which had been followed up on by the applicant’s solicitor;
d)there were difficulties in relation to the applicant, whom it was said he was a farmer, a native of Romania, with limited education and very little in the way of record-keeping skills;
e)there was a dispute concerning the applicant’s amended assessment issued by the Deputy Commissioner of Taxation in relation to winnings from hobby gambling;
f)the evidence otherwise indicated that the applicant was at the time the sequestration order issued the owner of two residential properties valued at around $700,000, encumbered to a bank in the sum of $600,000, and the owner of the farm at Corrigin which was said to be valued at about $700,000, and therefore had approximately $800,000 equity in fixed real property assets;
g)even if the number of sheep was less than the estimate of 5,200, and was say 2,000 to 3,000, there was evidence that their general sale value was about $40 a head (giving a value of $80,000 to $120,000);
h)a Valuer’s affidavit valued plant and equipment on the farm at $91,000;
i)the default judgment upon which the bankruptcy is founded was for $104,000;
j)in relation to the usual principle that a bankrupt must address in an application for an annulment how, and whether, the applicant is prepared to pay the Official Trustee’s costs, it was relevant that the Official Trustee’s costs were only advised to the applicant by email at 5.00pm on the Friday preceding a hearing on the following Tuesday, and the applicant wished to give some further consideration to his position given that the Official Trustee’s costs were somewhat higher than had been anticipated;
k)in relation to the overall merits of the substantive application, it was to be argued that the Registrar should never have made the sequestration order in circumstances where, even on conservative valuations, the applicant’s sheep, which were able to be sold readily, would have met the judgment debt, and the applicant’s overall financial position indicated that he had assets worth at least five times the amount of the debt that the creditors petition was based upon.
The intervener opposed the application for an adjournment and submitted that:
a)there was a dispute as to the number of sheep in the flock at the time the sequestration order was made, and that the applicant estimated livestock worth $100,000 was on the farm when he filled out his Statement of Affairs in 2014, and that what was now being sought to be established was significantly different to the amount reported to the Trustee;
b)currently there were significantly less sheep available on the property;
c)the applicant did not appear at the hearing of the creditors petition before a Registrar of this Court because his then lawyer advised him that there was little reason to oppose the creditors petition;
d)at the time of the hearing of the creditors petition before the Registrar the intervener did not know of available assets or of an ability to pay the judgment debt, and although he was likely to be aware of the applicant’s property holdings was unaware of their value and whether the property holdings were the subject of charges to third parties, including banks; and
e)the Bankruptcy Act and associated rules require the observance of a form and procedure, and that was followed before the Registrar on the hearing of the creditors petition application, and resulted in the issuance of the sequestration order.
During the course of submissions for the intervener there were relatively lengthy exchanges between the Court and Counsel for the intervener as to whether the intervener was, or ought to have been, aware of the nature and scope of the assets allegedly held by the applicant at or about the time the matter came before the Registrar on the creditors petition application, and whether that information was disclosed to the Registrar in pursuance of the intervener’s obligations as a Commonwealth model litigant, and whether if such information had been disclosed it would, or ought to have, made a difference as to whether a sequestration order issued at the hearing before the Registrar. The Court was told, and it is relevant to observe that there was only one hearing before the Registrar.
In reply, the applicant submitted that:
a)the point in time which is relevant to the question of the annulment of the sequestration order is the point in time at which the sequestration order was made, and whether all of the facts known concerning the applicant at that point in time were, or should have been, placed before the Registrar hearing the creditors petition application;
b)it was utterly fundamental to the creditors petition application that the applicant had clear title to a farming property worth $700,000 and was the subject of a petition referring to a debt of $104,000, and if that information had been put before the Registrar it was unlikely that a sequestration order would have been made;
c)the intervener knew, or was on notice, that the applicant had assets, and there was no reason to believe that those assets were ever made known to the Registrar on the hearing of the creditors petition application; and
d)in all the circumstances it was appropriate that the applicant be able to obtain substantiating evidence concerning the sheep that were on the property, and the price at which they had been agreed to, or were able to be, sold (on the applicant’s case), before the matter was fully heard by the Court,
and in all of the above circumstances an adjournment was appropriate.
Adjournment – consideration
Section 52(1) and (2) of the Bankruptcy Act provides as follows:
(1) At the hearing of a creditor's petition, the Court shall require proof of:
(a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(1B) …
(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b) that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
Section 153B(1) of the Bankruptcy Act provides as follows:
(1) If the Court is satisfied that a sequestration order ought not 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, the Court may make an order annulling the bankruptcy.
In the exercise of its discretion the Court is not persuaded that an adjournment should not be granted to the applicant. There are several matters which influence the exercise of that discretion.
The Court is not presently persuaded that before the Registrar who made the sequestration order the intervener disclosed all of the relevant facts which the intervener knew, or ought to have known. The Court finds it difficult to believe that a Registrar, if informed that the applicant had substantial equity, including the freehold of a farming property valued at $700,000, plus some equity in two residential properties, plus farming plant and equipment and livestock, would have been prepared to make a sequestration order on the first occasion that the creditors petition came before the Registrar, notwithstanding the non-appearance of the applicant. It is plain from the letter written by the intervener on 6 February 2012, to Mr Cooke, who was then advising the applicant, that the Commissioner was aware that the applicant had “substantial assets”, albeit that no information had been provided as to how the applicant might arrange his finances or borrow against those assets in order to meet the debt. It is not however apparent that the Registrar was informed of the assets, or how substantial they were, or how much equity the applicant had in the real property assets, or if the Registrar was informed at all about the plant and equipment and the number and value of the sheep, at or about the time the sequestration order was made.
On the information presently before the Court it appears to be at least arguable that the applicant, at the time the sequestration order was made, may have had assets of well over $1,000,000. Some of those assets, and in particular the sheep, which arguably had a value of somewhere between $80,000 and $500,000, might have been readily disposable at sale. The real property (valued at $1.4m but encumbered in the sum of $600,000 it is said) might also have been capable of further encumbrance. Either of the foregoing processes might have raised funds capable of satisfying the judgment debt of $104,000, and other debts the applicant may have had. Those facts, if established, would arguably have been more than sufficient to warrant a Registrar adjourning the first hearing date of a creditors petition: Maxwell-Smith v S & E Hall Pty Ltd, in the matter of Maxwell-Smith [2004] FCA 840, rather than making a sequestration order. On that basis there is sufficient substance in the applicant’s argument to warrant an adjournment to allow evidence relevant to those issues (and in particular the value and saleability of the sheep) to be put before the Court.
It is not sufficient in bankruptcy proceedings, with all the consequences for both creditors and debtor that follow from the issuance of a sequestration order, for the intervener, acting, both now and before the Registrar, as a Commonwealth model litigant, to say that there was a process and the intervener followed that process, without also being able to say whether information relevant to the applicant’s solvency, or at least the applicant’s “substantial assets”, and arguably known to the intervener, was put before the Registrar. In short, the Court is not presently persuaded that relevant information was put before the Registrar by the intervener which would have allowed the Registrar to better consider whether or not the applicant was in fact solvent, and whether there was other sufficient cause not to make a sequestration order on the first occasion on which the creditors petition came before the Registrar: Bankruptcy Act, s.52(2)(b).
The fact that the applicant did not appear before the Registrar might ordinarily be an insuperable obstacle to an argument that a sequestration order ought not be made: Rigg v Baker [2006] FCAFC 179; (2006) 155 FCR 531; (2006) 4 ABC(NS) 419 at [71] per French J. But it appears to be arguable that in relation to not appearing before the Registrar the applicant may have received incorrect advice, either directly or by silent omission, from professionals then advising him. The law does not like to see people penalised or punished because of poor or incorrect advice, or the errors or omissions of their lawyers: see, for example, the many cases dealing with time limitations on actions: Christie v Harvey & Hayward (1900) 2 WALR 146 at 150 per Hensman J; Salter Rex & Co v Ghosh [1971] 2 QB 597 at 601 per Lord Denning MR; Doyle v Gillespie [2010] ACT SC 21; [2010] 173 ACTR 66; (2010) 4 ACTLR 188 at [54]-[60] per Refshauge J; Transport Workers Union v School Bus Contractors Pty Ltd [2011] FMCA 28; (2011) 246 FLR 430; (2011) 201 IR 327 at [58]-[67] per Lucev FM. Arguably, all the more so in a bankruptcy which still has quasi-penal elements, and significant consequences for the debtor. In Farley v Official Trustee in Bankruptcy [2011] FMCA 10 (“Farley”) an application for annulment of a sequestration order made on the debtor’s own petition was granted by the Federal Magistrates Court where the applicant for annulment had relied upon incorrect advice from the officers of the then Insolvency & Trustee Services Australia in making a decision to present his debtor’s petition: Farley at [29] per Lindsay FM. There is arguably little difference between filing a debtor’s petition on incorrect advice from statutory officers and failing to oppose a creditors petition on incorrect or omitted advice from one’s own professional advisers, where in both cases the debtor was reliant upon the advice concerned.
The intervener relied upon the delay in making the application for an adjournment, and the delay in taking certain steps with a view to obtaining the necessary evidence to endeavour to fulfil the requirements for the Court to make an order annulling the sequestration order. There is a serious issue with respect to delay. The application was originally lodged in the Federal Court on 21 January 2015, and transferred to this Court by a 3 June 2015 order of the Federal Court. The application was then listed for hearing on 16 July 2015, but a consent order of 15 July 2015 saw that hearing adjourned to 11 August 2015. Less than seven months has elapsed since the filing of the application, and that is not a particularly lengthy delay. But an adjournment now will cause a further delay, with any adjourned hearing having to be listed in the first half of 2016, and in February 2016 at the earliest. The further period of at least six months delay arising from the proposed adjournment makes the delay lengthy, and arguably particularly so in the context of a sequestration order issued on 4 February 2014, and which would ordinarily expire by effluxion of time on 3 February 2017. And certainly, as the Court observed during the hearing of the adjournment application, an adjournment now into 2016 would leave no opportunity for a further adjournment at that time.
The Court has considered the earlier consent adjournment for the listed hearing on 15 July 2015, the current proposed adjournment of the hearing for 11 August 2015, and the loss of hearing time and inconvenience, not only to the intervener and the Court, but also to other litigants who might have been able to have earlier hearings on those dates, or will not now get future dates for hearing if the matter is further adjourned. Both the delay, and more particularly the case management issues arising from the previous proposed adjournments, weigh against a grant of the application for the proposed adjournment. Against that, it is relevant to note that Counsel for the applicant who appeared on the adjournment application was only recently instructed, had taken relevant steps to advise the applicant and his other advisors, and had been forthright with the Court as to what had and had not been done in the circumstances. The Court notes that the applicant is said to be semi-literate, and not born in Australia, but rather Romania, from which the Court can infer that English is not his first language. Albeit that that information is somewhat scant, the Court does, as an overriding factor, have to have regard to the interests of justice: Aon Risk Services at [30] per French CJ and [97]-[103] per Gummow, Kiefel and Bell JJ. Taken together, the Court’s concerns with respect to disclosure, the applicant’s arguable solvency at the time the sequestration order was made, the fact that he may have received incorrect advice, or no advice (when he should have been given proper advice), as to whether or not he should appear before the Registrar on the hearing of the creditors petition, and the applicant’s personal characteristics, weigh against the issues of delay and case management (which otherwise might have been persuasive), so that the Court considers that in order to ensure that justice may be given the opportunity to be done, an adjournment ought to be granted.
Conclusion and orders
The Court concluded that an adjournment is appropriate, and so ordered, for the reasons set out above.
I certify that the preceding nineteen (10) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev
Date: 14 April 2016
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