Woods and Lombe as Trustees of the Bankrupt Estate of Barnes v Barnes

[2016] FCCA 2966

FEDERAL CIRCUIT COURT OF AUSTRALIA

WOODS AND LOMBE AS TRUSTEES OF THE BANKRUPT ESTATE OF BARNES v BARNES [2016] FCCA 2966

Catchwords:
BANKRUPTCY – Ruling on application for stay of extant orders.

Legislation:

Bankruptcy Act 1966 (Cth), ss.52(2)(a), 52(3), 154

Federal Circuit Court Rules 2001 (Cth), s.29.12

Applicant: ROBERT SCOTT WOODS AND DAVID JOHN FRANK LOMBE (AS TRUSTEES OF THE BANKRUPT ESTATE OF LINDSAY HAROLD BARNES)

Respondent: LINDSAY HAROLD BARNES

File Number: MLG 216 of 2016

Judgment of: Judge Burchardt

Hearing date: 11 November 2016

Date of Last Submission: 10 November 2016

Delivered at: Melbourne

Delivered on: 11 November 2016

REPRESENTATION

Counsel for the Applicant: Ms McCredden

Solicitors for the Applicant: White Cleland Pty Ltd

Counsel for the Respondent: No appearance

ORDERS

1. That the time for the Respondent to deliver vacant possession of the property comprised in Certificate of Title Volume 8670 Folio 877 and known as 5 Robin Hood Court, Doncaster East in the State of Victoria (“the Property”) in paragraph 2 of the orders made 20 July 2016 be extended to 4pm on 12 December 2016.

2. That the Applicants appoint the real estate agents Jellis Craig Balwyn of 244A Whitehorse Road, Balwyn to act as the real estate agents for the purposes of conducting the sale of the Property.

3. That the Respondent’s application made 20 October 2016 otherwise be dismissed.

4. Costs of the Applicants to be paid out of the estate of the bankrupt.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

No. MLG 216 of 2016

ROBERT SCOTT WOODS AND DAVID JOHN FRANK LOMBE (AS TRUSTEES OF THE BANKRUIPT ESTATE OF LINDSAY HAROLD BARNES)

Applicant

And

LINDSAY HAROLD BARNES

Respondent

REASONS FOR JUDGMENT

1. These reasons for judgment will be transcribed and forwarded to the parties as soon as practicable, all the more so since, notwithstanding that I announced at the conclusion of the matter yesterday that I would give oral reasons for judgment at 9.30 am today, Mr Barnes has not attended, for whatever reason. 

2. On 20 July 2016, I gave judgment in this matter.  Relevantly, I made orders for the sale of Mr Barnes’ property at 5 Robin Hood Court in Doncaster.  I also ordered him to provide vacant possession and made ancillary orders providing for the disposal of any chattels not removed by the relevant time.  I further ordered that the trustee was to have control of the sale of the property. 

3. I refer to my reasons for judgment issued at that time as a whole.  They touched in part upon an issue as to substituted service.  I noted that the question of whether a substituted service order should have been made had apparently not been raised with Beach J in 2015.  If one goes to the judgment of Beach J, which is annexed to earlier affidavit material at paragraph 24, his Honour said – in relation to the question before him then raised by Mr Barnes, “Should the sequestration order have been made?” his Honour said:

   There are three arguments in support of the proposition that the sequestration order ought not to have been made that arise from the material, namely:

   (a) First, Mr Barnes was able at the time of the sequestration order to pay his debts as and when they fell due;   accordingly, s 52(2)(a) of the Act was satisfied;

   (b) Second, there was no valid service of the creditor’s petition;

   (c) Third, the hearing of the petition ought to have been adjourned.  On that analysis, the sequestration order would not have been made.

4. It is worthy of note that Mr Barnes has said on a number of occasions that Beach J accepted that he was solvent at the time that the sequestration order was made.  That is, in fact, not correct.  What his Honour actually said at paragraphs [46] – [47] was as follows:

   “If the current material had been placed before the court at the time of the sequestration order, I am not satisfied that s 52(2)(a) would then have been satisfied. 

   It also follows that on that same material, Mr Barnes is not now solvent.”

5. His Honour was, in fact, quite critical of the materials advanced by Mr Barnes in support of the proposition that he was solvent at the relevant time.  As to the question of service, paragraphs [48] – [56] of his Honour’s decision disclosed no raising of the issue of whether a substituted service order should have been made, and indeed, I have since discovered at paragraph 2 of his Honour’s reasons for judgment the following, namely:

   Mr Barnes has contended that the sequestration order made –

   Sorry.  I beg your pardon.  I will come back to it.  There is, in fact, an express reference in his Honour’s decision to the fact that the question of the substituted service was not challenged.

6. The facts raised in the proceeding before Beach J are similar, if not identical, to those now asserted, dealing with matters such as access to the site of Mr Barnes’ house and the like, which are at the forefront of his complaints now made about the service orders.  Mr Barnes was given a conditional annulment, and he did not comply with the condition.  On 8 February 2016, the trustee applied for orders enabling the sale of the property, and as I have already indicated, on 20 July 2016 I gave my judgment and orders.  No appeal has been lodged against my decision, and any appeal would now be out of time.  On 20 October 2010, Mr Barnes lodged his interim application, and I will read out the orders that the application seeks.

   “(1) An interim and permanent injunction staying the sale of 3 Robin Hood Court East Doncaster 3109 pending determination of an appeal to the Full Court of the Federal Court against the decision of Justice Beach made on 28 August 2015.

   (2) Give Lindsay Barnes control of the preparation of the house for sale.

   (3) Give Lindsay Barnes the choice of a real estate agent.

   (4) Let Lindsay Barnes stay in the house until sold.

   (5) Allow 6 months to prepare for sale or a decision on the appeal.”

7. The affidavit filed contemporaneously with the interim application can be summarised.  Mr Barnes asserts that he will be lodging an appeal to the Full Federal Court against the annulment decision by Beach J in relation to the decision to allow substituted service.  He then goes on to say he had delayed because he had not had the funds to hire a lawyer but had now engaged a lawyer to help and the appeal will be lodged very soon.  He then goes on, in further material, to assert that he was solvent at the time of the sequestration order and to the fact that he will suffer significant losses in the event that he does not himself control the sale of the property, if it is to occur.

8. He says that the trustee is not interested in maximising the sale price but only wants to cover what he says is owing.  Annexed to Mr Barnes’ affidavit is a letter from Messrs Jellis Craig dated 18 October 2016, which, inter alia, asserts that the property would achieve a sale price in the vicinity of $900,000 but could be sold for $200,000 more.  However, this is if the house and garden were properly prepared for sale, including essential repairs, and it is estimated that the work should take around about six months to complete. It was noted that for security reasons, it would be best if Mr Barnes remained in the property pending sale. 

9. The written submission filed on behalf of the trustee can also be paraphrased relatively quickly. There is an introductory chronology. There is then a consideration of s.52(3) and the Court’s capacity thereunder to stay a sequestration order for a period not more than 21 days. I will come back to that aspect of the matter, but I would indicate now that in my view, it is questionable whether these proceedings really are proceedings under a sequestration order. What they really are is proceedings ancillary to the administration of the bankrupt’s estate. I am not convinced at all that section 52(3) actually operates in these circumstances.

10. However, I do accept the submission that the Court does have power pursuant to rule 29.12 of the Court’s rules to grant a stay of execution of a judgment of the Court.  So plainly, the Court has power to grant Mr Barnes the relief he seeks if it is minded to do so.  The submissions note that the conduct of the party applying for a stay is relevant, and I accept that, and they also helpfully traverse the decision of Beach J.  The submissions disdain any analysis of the likelihood of success of the posited appeal, should it occur. 

11. I will return to that, because I do have a view about it, and the submissions point to the operation of s.154 of the Bankruptcy Act, in any event, even were the orders that Mr Barnes says he would hope to get from the Full Court of the Federal Court to be made.  I finally note that the submissions contend against Mr Barnes being permitted to remain in the property pending sale, given his lack of cooperation with the matter over its history, but that the trustee has no objection to Mr Barnes being permitted to nominate the real estate, subject to sensible conditions. 

12. I will traverse briefly the oral submissions made by the parties.  Mr Barnes indicated that his lawyer had actually written part of the proposed appeal.  He said if there was no substituted service, then there would not have been a valid hearing and therefore his bankruptcy – although he did not use the phrase – would be set aside.  He asserted he wanted the original creditor, Lion, to pay the trustees’ costs.  He referred to the loss of $200,000 arising from the report from Jellis Craig. 

13. He pointed out that Beach J had, in effect, annulled his bankruptcy provided he paid out the approximately $400,000 now owing to his creditors and the trustee.  He noticed that his original debt was $130,000, which he could have borrowed.  He described the bankruptcy as a false bankruptcy and had much to say about the alleged negligence of the process server who failed to serve him with the original documentation.  He described the matter as incredibly unfair and made a number of other submissions to the like effect.  He returned on numerous occasions to the proposition that the order approving substituted service was not valid. 

14. In essence, counsel for the trustees relied upon the written submissions.  She did point out that the trustee has obligations regarding sale, and I accept that that is so, and she noted further that although the original petitioning creditor’s debt was about $112,000, in fact, Mr Barnes had unsecured creditors of over $240,000 and a secured creditor – on a mortgage, I think – of a further $50,000. 

15. I make the following points.  First of all, there is no appeal, as things presently stand, against the judgment of Beach J.   Were it to be lodged tomorrow, it would be something like a year out of time, less the appeal period of 28 days, I presume.  There is no appeal against the orders and judgment I made in July.  That is also now out of time.  Next, it is hard to see that there is any arguable point in the appeal.  Beach J was not actually asked to adjudicate any issue about whether the order for substituted service should have been made. 

16. It seems highly improbable, as a result, that he fell into error in not disposing of an argument that was never put to him, and I would return to his Honour’s judgment, paragraph 7, which is the overlooked passage to which I referred in passing before, where his Honour said, in the last sentence:

    “There has been no challenge to the validity or appropriateness of such an order.”

    And the order to which he was referring was the order for substituted service.  So it is plain that his Honour was never asked to consider that aspect of the matter, and I would say, for my part at least, it seems inconceivable that his Honour could be said to have fallen into error in therefore not dealing with the matter. 

17. Mr Barnes’ real complaint is about the substituted service order, which must have been made, of course, before the sequestration order, as long ago as 22 October 2013.  Mr Barnes’ chances of raising this issue now, whether before this Court or, as he posits, before the Full Court of the Federal Court, face what I described in my judgment in July this year as obvious difficulties.  I do not propose to elaborate further because they are very obvious. 

18. Leaving those matters aside, one comes to the balance of convenience.  Mr Barnes says he will lose $200,000 if the trustee sells the property hastily.  He accused the trustee of improper motivation and conduct.  There is no evidence to support these assertions, which, in my view, are scandalous.  I note that Messrs Jellis Craig say that if the property was properly prepared, it is likely worth $200,000 more, but this will take some six months or more to complete.  No estimate is given for the costs of the essential repairs or other work. 

19. There must, of course, be a very significant query as to who could possibly pay for it because Mr Barnes is bankrupt and the trustees would have strong reservations about any orders compelling them to start spending creditors’ funds in this fashion.  Furthermore, as I indicated, Mr Barnes’ unsecured creditors, according to his statement of affairs, are some $234,000, and there is a $50,000 secured debt.  There is also the costs of the administration of the estate. 

20. Having said all that, however, I am still prepared to accept that there is a potential loss of the applicant if the property is not sold in the fashion that he would seek, but his interests are not the only interests with which the Court is concerned.  The creditors and the trustee need consideration.  The creditors have been waiting for a dividend since, at the very least, 22 October 2013.  The trustee is required to bring the administration of the estate to a conclusion. 

21. Furthermore and very importantly, s.154 of the Bankruptcy Act operates in any event.  Should, contrary to my perceptions of the matter, Mr Barnes file an application for leave to appeal out of time and be successful in raising a ground never raised before Beach J, and if he is successful, the property will still remain vested in the trustees, who can sell the property to meet the costs of the administration of the estate in any event. 

22. In all these circumstances, it is absolutely clear that the discretion to effectively stay the orders I made in July should not be granted.  Although Mr Barnes has described this in terms of an injunction in his application, in substance it is really a stay application.  Mr Barnes also seeks control of preparation for sale and to remain in the property and to nominate the agent.  As I have indicated, the trustees agree to that latter matter.  On the face of it, Jellis Craig in Balwyn seem an appropriate agent.  They are reasonably close to East Doncaster.  They profess expertise in their material.

23. I am minded to appoint Jellis Craig to conduct the sale.  I am not prepared to make an order that Mr Barnes remain in the property;  his conduct throughout the entirety of the proceeding makes it clear he would not cooperate with the sale.  So far, as I understand it, the date for him to leave has been put off by agreement to 20 November 2016.

24. It seems abundantly clear Mr Barnes has made no arrangements to vacate thus far.  I am minded to grant him 30 days to vacate himself and his possessions from now, bearing in mind he has informed me, albeit without medical evidence, that he has recently been the subject of a car accident and significant injury.  Otherwise, however, the orders made in July will continue.  The trustee will otherwise control the sale, and so on.

25. The criteria to grant a stay, even pursuant to s.52(3), are whether there is an arguable point on the proposed appeal and whether the balance of convenience favours the granting of the stay. Copious authority for that proposition is quoted in Australian Bankruptcy Law and Practice, McQuade and Gronow, sixth edition, at paragraph 52.3.15, and it will be noted that that is effectively the test I would adopt under rule 29 in any event.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Buchardt

Date: 18 November 2016