Westpac Banking Corporation v Faress - [2011] FMCA 26

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WESTPAC BANKING CORPORATION v FARESS

[2011] FMCA 26

BANKRUPTCY – Creditor's petition – debtor overseas resident – carrying on business in Australia.

Bankruptcy Act 1966, ss.43(1)(b)(iii), 52

McIntosh v Shashoua (1931) 46 CLR 494
Re Brauch; Ex parte Brittanic Securities & Investments Ltd [1978] Ch 316 (CA)
Re Vassis; Ex parte Leung (1986) 9 FCR 518
Turner v Trevorrow (1994) 49 FCR 566
Morpizitis v Bernasconi [2003] All ER (D) 33

Applicant:

WESTPAC BANKING CORPORATION

Respondent:

ADIB FARESS

File Number:

BRG 735 of 2010

Judgment of:

Jarrett FM

Hearing date:

8 October, 2010

Date of Last Submission:

8 October, 2010

Delivered at:

Brisbane

Delivered on:

24 January, 2011

REPRESENTATION

Counsel for the Applicant:

Mr Goodwin

Solicitors for the Applicant:

Minter Ellison

Solicitors for the Respondent:

No appearance

Solicitor for the creditors Walsh & Dennis:

Ms Petty

Solicitors for the creditors Walsh & Dennis:

Allens Arthur Robinson

Solicitor for the creditor Commissioner for Taxation:

Ms Haskic

Solicitors for the creditor Commissioner for Taxation:

ATO Legal Services Branch

ORDERS

That a sequestration order be made against the Estate of Adib Faress.
That the Petitioning Creditor’s costs of and incidental to the Creditor’s Petition be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act1966.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 735 of 2010

WESTPAC BANKING CORPORATION

Applicant

And

ADIB FARESS

Respondent

REASONS FOR JUDGMENT

The applicant seeks a sequestration order pursuant to s.52 of the Bankruptcy Act 1966 (Cth) against the respondent, Adib Faress. Mr Faress did not appear at the hearing of the petition, either in person or by representative.
Apart from the petitioning creditor, two other creditors appeared in support of the petition. Mr Faress owes $9,600 to Justin Walsh and Richard Dennis, the former receivers and managers of Beaconsfield Australia Pty Ltd (a company to which I shall refer below). Mr Faress also owes approximately $30,000 to the Australian Government for taxation of one description or another.
The issue to be determined is one of jurisdiction given that Mr Faress is no longer a resident of Australia and was not in Australia when the relevant act of bankruptcy was committed.

Background

Mr Faress owes $15,517.80 to the petitioning creditor pursuant to two costs judgments obtained by it on 1 December, 2009 against him in the Supreme Court of Queensland.
Relying upon the two costs judgments, the petitioning creditor caused a bankruptcy notice to issue to Mr Faress on 2 March, 2010.
An order for substituted service of the bankruptcy notice was made by Registrar Belcher on 9 June, 2010. Service of the bankruptcy notice was carried out in accordance with that order: see the affidavit of Michael de Waard filed 21 July, 2010. According to the terms of Registrar Belcher’s order, if service of the bankruptcy notice was effected by 11 June, 2010 in the ways set out in his order, the bankruptcy notice would be deemed to have been served on Mr…

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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Details

Case: [2011] FMCA 26
Decision Date: 24 January, 2011

CaseChat Overview and Summary

Westpac Banking Corporation initiated proceedings against Adib Faress in the Federal Circuit Court, seeking a sequestration order against his estate. The dispute hinges on whether Faress was carrying on business in Australia at the time of the act of bankruptcy, as required by s.43(1)(b)(iii) of the Bankruptcy Act. The petitioning creditor argues that Faress was conducting business in Australia when the act of bankruptcy occurred, which would provide the court with the necessary jurisdiction to make a sequestration order.

The court had to determine whether the evidence demonstrated that Faress was indeed carrying on business in Australia when the act of bankruptcy was committed. This involved assessing the broad interpretation of "carrying on business," which includes situations where active trading has ceased, but the business is still being wound up. The court considered precedents such as Re Vassis; Ex parte Leung, which illustrate that the winding up of a business and the payment of its debts can constitute carrying on business. The court also noted that the payment of debts to conclude a business is not narrowly defined, as evidenced by Morpizitis v Bernasconi.

After reviewing the evidence and relevant legal precedents, the court concluded that Faress was carrying on business in Australia at the relevant time. Consequently, the court found that it had jurisdiction under s.43(1)(b)(iii) of the Bankruptcy Act to make a sequestration order against Faress's estate. The court also ordered that the petitioning creditor's costs be taxed and paid from Faress's estate in accordance with the Bankruptcy Act 1966.

Orders

Orders of the court

That a sequestration order be made against the Estate of Adib Faress.

That the Petitioning Creditor’s costs of and incidental to the Creditor’s Petition be taxed and paid from the estate of the respondent debtor in accordance with the Bankruptcy Act 1966.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Jurisdiction to make sequestration orders is provided for in s.43 of the Bankruptcy Act. That section is in the following terms:Jurisdiction to make sequestration orders(1) Subject to this Act, where:(a) a debtor has committed an act of bankruptcy; and(b) at the time when the act of bankruptcy was committed, the debtor:(i) was personally present or ordinarily resident in Australia;(ii) had a dwelling-house or place of business in Australia;(iii) was carrying on business in Australia, either personally or by means of an agent or manager; or(iv) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager;the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor. Subsection 43(1)(b)(iii) is relied upon by the petitioning creditor as the basis for jurisdiction to make the sequestration order it seeks. It must rely upon that ground because it is conceded by the petitioning creditor that at the time the act of bankruptcy was committed by Mr Faress:a)he was not personally present or ordinarily resident in Australia;b)he did not have a dwelling-house or place of business in Australia;c)he was not a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager. Two matters must be demonstrated by the evidence to engage s.43(1)(a)(iii), namely:a)that the debtor was carrying on business in Australia; andb)the debtor was doing so when the act of bankruptcy was committed. As to the first element, the authorities demonstrate a broad view of what constitutes “carrying on business”. “Carrying on business” extends to situations where active trading has ceased, but the business is still being wound up and debts are being collected or paid. The phrase was explained in Re Vassis; Ex parte Leung (1986) 9 FCR 518 at 525–526 as follows:If it had not been the proper conclusion that Vassis was ordinarily resident in Australia, the question might have arisen whether within s 43(1)(b)(iii) he “was carrying on business in Australia, either personally or by means of an agent or manager”. In Re Mendonca; Ex parte FC of T (1969) 15 FLR 256 at 260–1 Gibbs J (as he then was) referred to “the somewhat wide understanding of those words [ie ‘was carrying on business'] that has come to be established in bankruptcy law”. Gibbs J cited Theophile v Solicitor-General [1950] AC 186; and Re Bird v IRC; Ex parte The Debtor [1962] 1 WLR 686. In Theophile's case Lord Porter (at p 201) said: “Trading does not cease when, as the expression is, ‘the shutters are put up’, but continues until the sums due are collected and all debts paid.” In this sense, it seems clear that at the relevant time Vassis “was carrying on business in Australia”, since the winding up of the business of his practice and the payment of its debts had not been concluded. The payment of the debts of a business, in order to conclude its carrying on, is to be understood in no narrow sense, as the second case cited by Gibbs J shows.see also Morpizitis v Bernasconi [2003] All ER (D) 33.