Webb v Insurance Manufacturers of Australia Pty Ltd - [2004] FMCA 613

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WEBB v INSURANCE MANUFACTURERS OF AUSTRALIA PTY LTD

[2004] FMCA 613

BANKRUPTCY – Annulment application – going behind judgment – confusion as to basis of judgment – relevance of whether judgment should have been for lesser amount – application dismissed.

Bankruptcy Act 1966, s.153B

Re Wilson and Williams; Wilson v Official Trustee in Bankruptcy – BC9908304 9 December 1999
Stankiewicz v Plata BC200005021 22 August 2000
Re Williams (1968) 13 FLR 10
Re Longo ex parte Longo [1995] 57 FCR 523
Harrison v Charalambous (1999) FCA 902
Re Almassy (1999) 92 FCR 597
Cottrell v Wilcox [2002] FCA 115

Applicant:

RONALD PHILLIP LEWIS WEBB

Respondent:

INSURANCE MANUFACTURERS OF AUSTRALIA PTY LTD

File No:

MLG 440 of 2004

Delivered on:

6 September 2004

Delivered at:

Melbourne

Hearing Date:

6 September 2004

Judgment of:

McInnis FM

REPRESENTATION

Counsel for the Applicant:

Mr D Baker

Solicitors for the Applicant:

McNamaras

Counsel for the Respondent:

Mr P Fary

Solicitors for the Respondent:

Mendelsons

Solicitor for the Trustee:

Mr E Fice

Solicitors for the Trustee:

Charles Fice

ORDERS

The application for annulment be refused.
The application be dismissed.
The costs of and incidental to the application of the respondent be paid out of the estate of the applicant as part of the taxed costs of the petitioning creditor.
That trustee's costs be paid out of the estate of the applicant.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 440 of 2004

RONALD PHILLIP LEWIS WEBB

Applicant

and

INSURANCE MANUFACTURERS OF AUSTRALIA PTY LTD

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

This is an application by Ronald Phillip Lewis Webb pursuant to s.153B of the Bankruptcy Act 1966 (the Act) seeking to annul a sequestration order made on 20 April 2004. In the application filed on 29 April 2004 the applicant claims annulment by court of bankruptcy, refers to the Act and the appropriate section and states, "Loan was unconditionally approved and settlement imminent." In support of that application the applicant has relied upon an affidavit sworn by him on 28 April 2004 and a further more detailed affidavit sworn by him on 26 July 2004. In the first of those two affidavits it appears clear to me that there are at least, according to the applicant, reasonable prospects of refinancing and approval of an unconditional arrangement consolidating debts.
In the application before me this day there were essentially two main issues raised: one was a challenge to the judgment which was the foundation stone for the petition, that is, a default judgment in the Magistrates Court of Victoria entered on 6 January 2003 against the debtor in favour of the creditor in the sum of $12,415.80. As I understand the thrust of the submissions made before me on behalf of the debtor, a challenge is made as to the basis upon which that amount was calculated and in essence seeks to encourage the court to go behind that judgment. The consolidation of debt and reference otherwise to the financial circumstances of the debtor would appear to be supportive of the second limb of the argument before me, namely, that the debtor is solvent. So essentially there are two issues that are before the court, although not perhaps as clearly spelled out as they might be in the application, the first being an attempt to challenge or go behind the judgment which is the basis for the petition, and in the alternative to also persuade the court that the debtor is solvent.
It is useful to note that in this matter the respondent has opposed the application for annulment and has relied upon an affidavit sworn by Maurice Selwyn Block on 5 May 2004. The trustee, who has appeared, also seeks to rely upon and place before the court two affidavits, the first of Terrence David Clark sworn 7 May 2004 and a further affidavit, a more up‑to‑date affidavit. The second affidavit relied upon by the trustee is an affidavit of Paul Anthony Pattison sworn 30 August 2004.
It is appropriate in an application of this kind to briefly set out the background. As I indicated, there is a judgment by default which had been entered in this matter against the debtor in favour of a creditor on 6 January 2003. It is noteworthy, in my view, that from that date until the presentation of the creditors petition no application had been made to set aside that judgment. It appears that there has been no explanation provided in the affidavit material as to why no attempt has been made to set aside that judgment. Whilst on the affidavit material of the applicant debtor one can understand a degree of confusion and uncertainty as to the final amount of that judgment debt, I accept for the present purposes that at least in part the extent of that judgment no doubt are higher than what the judgment debtor expected or appreciates to be the reality, in part at least explained by interests which may have accrued on an outstanding debt which arose from a settlement agreement.
It is also clear that there is little or indeed inadequate explanation to persuade this court that the applicant debtor has taken any or any reasonable steps to address the concerns he has about that judgment debt by way of an application to set aside. There is indeed a period of some 12 months that elapsed between the entry of that judgment and the presentation of the creditors petition, which I note was presented on 21 January 2004. The history of that litigation includes an adjournment of the petition on 9 March 2004 to 30 March 2004, a further adjournment by consent from 30 March 2004 to 20 April 2004 and on 20 April 2004 in the absence of the applicant a sequestration order was made. On 29 April 2004 the applicant filed the current application. That application has been adjourned on numerous occasions. It was adjourned on 10 May, 31 May, 15 June, 28 June, 26 July, 9 August 2004. It is clear on a proper reading of the affidavit material that both prior to the sequestration order being made and even after the application for annulment pursuant to section 153B had been filed, that there had been numerous attempts or at least opportunities given to the applicant debtor to make arrangements in order to resolve the matter.
In considering the issue of whether or not the court should go behind a judgment, it is helpful to refer to the decision cited by counsel for the creditor of His Honour Emmett J in the matter of Re Wilson and Williams; Wilson v Official Trustee in Bankruptcy – BC9908304 9 December 1999. In particular it is noted, with perhaps some similarity to the present case, that in paragraph 37 His Honour refers to a discrepancy in relation to amounts claimed and states:-
“There is no suggestion the bankruptcy notice claimed more than was owing under the default judgment in the favour of Wiggins. …”
In the present case there is no suggestion that the notice in the petition has not accurately reflected what had been stated in the default judgment. What is in issue is whether or not the default judgment itself accurately represented the facts as presented to that court prior to the making of the default judgment. Nevertheless, it is relevant to take into account what His Honour in the Wilson case states at paragraph 40:
“ … the court should not go behind a judgment where the grounds upon which the judgment is challenged are such that, if accepted they would only support a finding that the amount of the debt be reduced, and would not support a finding that there was, in truth, no debt at all …”
In this application on my analysis of the material there is no suggestion that there is no debt at all but there is a suggestion that the debt may not be as extensive as that entered by default in the Magistrates Court. The range, however, is still a range of debt which would attract the operation of a petition and the possibility of a sequestration order. It is useful to note that in this application under s.153B, the precise wording of the section as follows:-
“ Annulment by Court
(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.
(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.”
The decision of the Full Court of the Federal Court in the often‑cited decision of Stankiewicz v Plata BC200005021 22 August 2000. In that case the Full Court set out the principles to be applied in relation to an application for annulment. In summary, those principles are that the court is entitled to consider not only the case as disclosed at the time the order was made but also as it would have been disclosed had all the true facts been before the court on the making of the order. The court in that case cites with approval the reasoning of His Honour Gibbs J as he then was in Re Williams (1968) 13 FLR 10. His Honour in that case had stated in relation to the then equivalent of s.153B of the Act the following:
In determining the question whether the sequestration order ought not to have been made, the court is entitled to consider not only the case as disclosed at the time the order was made but as it would have been disclosed had all the true facts been before the court on the making of the order. The court is satisfied that the order ought not to have been made. It is not bound as a matter of course to annul the order but must consider in the light of all the circumstances of the case whether the order ought to be annulled.
A further principle set out in the Stankiewicz case is that if the court is satisfied that the order ought not to have been made, it is not bound as a matter of course to annul the order but must consider in the light of all the circumstances of the case whether the order, to use the words of the section, ought to be annulled. The true facts exclude facts that occurred since the date of the order.
In the present case it is clear that the judgment was entered in default, that the applicant did not attend upon the hearing of the creditors petition which resulted in the sequestration order and that numerous adjournments were granted by consent to endeavour to have the matter resolved by agreement. Likewise, as I have indicated, there have been numerous adjournments before this court. Nevertheless, what is now before the court by way of affidavit material from the applicant is material which at least refer to two matters.. It first seeks to challenge the basis upon which the judgment by default was calculated and further seeks on an analysis of the financial circumstances of the applicant to establish that he does indeed have the capacity to pay debts as and when they fall due, that is, seeks to assert solvency.
In the affidavit in opposition and in the affidavits relied upon by the trustee there is a further analysis of the financial circumstances of the applicant. It seems to be common ground that the significant asset is the property in this matter, which is a property valued at somewhere between $220,000 and $230,000. The property is subject to a secured debt of $144,056.19. There are unsecured debts which on the material before me would appear to be somewhere in the range of $43,000 to $45,000. There is further affidavit material from the trustee that currently the fees outstanding in the administration of the estate from the commencement of administration to 27 August 2004 are $22,356.
Whilst there is some challenge made to the trustees fees and it is noted that the amount has increased significantly over recent months, the fact remains that the financial circumstances even upon sale of the property are somewhat precarious on my assessment. It is also relevant to note that in making an assessment of the issue of solvency, it is not sufficient to simply undertake what might be regarded as a somewhat narrow task of viewing only the property which may or may not be realised by the applicant.
In my view, when exercising the discretion the court undoubtedly has on annulment, it is not appropriate in a matter of this kind where the only issue to be considered in relation to an analysis of the judgment to go behind that judgment, whereas I indicate all that would be occurring would be an analysis that may or may not lead the court to take the view that the amount of the default judgment should be reduced. In any event, applying the normal principles in relation to going behind a judgment that I am bound to apply to this case, I do not see any basis upon which this court should go behind the judgment. I am mindful of the decision of Re Longo ex parte Longo [1995] 57 FCR 523 that it must be established that there are substantial reasons for questioning whether there is in truth and reality a debt owed to the creditor. I accept that where a judgment has been obtained by default a court will mor e readily go behind that judgment to inquire whether there is a good debt (see Harrison v Charalambous (1999) FCA 902 per Finkelstein J). It is relevant to take into account not only the fact that the only dispute is the issue of reduction rather than indebtedness of the amount claimed, but rather also take into account that there has been ample opportunity for the applicant, if he chose to do so, to seek to challenge by way of setting aside that judgment over a period of some 12 months. In my view, it is inappropriate to go behind the judgment.
On the issue of solvency, it is too simplistic to analyse the material on the basis advanced for and on behalf of the applicant in an endeavour to determine that there is sufficient funds which might establish that the applicant is solvent. The proper approach is to consider the material not as it appears to have unfolded in the somewhat confused manner which appears in the material before the court, but rather to consider whether or not the sequestration ought to have been made at the time. In my view, there is no basis upon which it can be said in the present case that the sequestration ought not to have been made. There is ample and appropriate evidence consistent with the material before me which would encourage the decision‑maker to make the sequestration order at the time.
The chronology of events and the material otherwise before the court satisfy me that there is in the exercise of my discretion no proper basis upon which this court should grant the annulment application. I take into account further as a relevant matter that there is nothing before this court advanced which would suggest that the trustee's costs and expenses are to be paid or that there is any agreement that they be paid (see Re Almassy (1999) 92 FCR 597; Cottrell v Wilcox [2002] FCA 115).
For those reasons the application for annulment is refused. The application is dismissed.

I certify that the preceding seventeen (17) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate:

Date: 6 September 2004