Zaghloul v Jewellery and Gift Buying Services Pty Ltd

[2019] FCCA 583

FEDERAL CIRCUIT COURT OF AUSTRALIA

ZAGHLOUL v JEWELLERY & GIFT BUYING SERVICES PTY LTD & ANOR [2019] FCCA 583

Catchwords:
BANKRUPTCY – Application for annulment 5 years after sequestration order made – applicant has had bankruptcy discharged – three main grounds – comparison between what applicant now says and what was said at the time of bankruptcy – other applications in equity – behaviour of First Respondent  maladministration by Second Respondent alleged – application dismissed.

Legislation:

Bankruptcy Act 1966 (Cth), s.153B

Applicant: HASSAN ZAGHLOUL

First Respondent:

Second Respondent:

JEWELLERY & GIFT BUYING SERVICES PTY LIMITED T/A NATIONWIDE JEWELLERS
(ACN 050 055 591)

DAVID LOMBE

File Number: PEG 396 of 2017

Judgment of: Judge Vasta

Hearing date: 20 February 2019

Date of Last Submission: 20 February 2019

Delivered at: Brisbane

Delivered on: 20 February 2019

REPRESENTATION

The Applicant appearing on his own behalf

Counsel for the Respondents: Mr S. Majteles

Solicitors for the Respondents: Patrick Ferguson Solicitor

ORDERS

1. That the Application filed 7 May 2018 is dismissed.

2. That the First and Second Respondents provide to the Applicant and chambers by way of email at [email protected] by no later than 9.00am on 26 February 2019:

   (a)Costs pursuant to Schedule 1 of the Federal Circuit Court Rules 2001 from 24 July 2017 to 20 February 2019;

   (b)Costs on an indemnity basis from 24 July 2017 to 20 February 2019; and

   (c)Costs pursuant to Schedule 1 of the Federal Circuit Court Rules 2001 from 24 July 2017 to 25 November 2018 and costs on an indemnity basis from 26 November 2018 to 20 February 2019.

3. That the Application for costs be adjourned for hearing at 9.30am on 27 February 2019 in the Federal Circuit Court of Australia at Perth.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

PEG 396 of 2017

HASSAN ZAGHLOUL

Applicant

And

JEWELLERY & GIFT BUYING SERVICES PTY LTD T/A NATIONWIDE JEWELLERS (ACN 050 055 591)

First Respondent

DAVID LOMBE

Second Respondent

REASONS FOR JUDGMENT

(Ex Tempore)

1. On 24 July 2017, the Applicant filed an originating application in this Court asking the court to annul his bankruptcy that had been made by a sequestration order on 26 July 2013. 

2. The Applicant, Mr Zaghloul, gave quite a number of grounds for this application.  There have been a number of Court appearances before His Honour Judge Lucev, and there have been many interlocutory applications that have occurred.  After those interlocutory applications had been heard in April 2018, Judge Lucev allowed another application or an amended application to be filed.

3. This application was filed on 7 May 2018.  This claim asked for:

   1. The Applicant seeks an order that the bankruptcy notice and sequestration order be set aside on the grounds stated in this proposed amended application.

   2. In the alternative, the Applicant seeks orders pursuant to s 153B of the Bankruptcy Act 1966 (Cth) that:

   (a) that the Court ought not to have made the sequestration order;

   (b) in the exercise of the Court’s discretion, the bankruptcy ought to be annulled.

   3. The applicant seeks an order for damages in equity against the interested party for conduct that, in all circumstances, was unconscionable; misleading or deceptive, or likely to mislead or deceive, and was in breach of the Australian Consumer Law (‘ACL’) 2010 (Cth) and s. 46 of the Competition and Consumer Act 2010 (Cth).

   4. The applicant seeks an order for damages in equity against the Trustee for inefficient management of the estate.

   5. The applicant seeks an order for pre-judgment interest.

4. There may be an argument that all of these matters should not have been allowed to have been joined in the way that they are, but, given the manner in which Mr Zaghloul has conducted litigation in the past, it was fitting and proper that all of these matters were dealt with in the one claim. 

5. The bankruptcy proceedings came about in this way. The Applicant, Mr Zaghloul, joined the First Respondent, Jewellery & Gift Buying Services Proprietary Limited. He paid a membership fee, and, as part of that membership fee, was entitled to be able to order jewellery purchases, watches in particular, at very low prices and that he could then sell in his own store. 

6. There was a debate as to what it was that Mr Zaghloul actually ordered, what it was that he actually asked for, what it is that he received, whether he was given more stock than what he actually had requested, whether the surplus stock, as was claimed, was returned and what moneys were then owed.

7. There were protracted email exchanges between the Respondents and the Applicant to the point where the Respondents filed a claim in the Local Court in Sydney.  The Applicant launched a counter-claim against the application launched by the Respondents.  The matter was heard and determined in the Local Court.  The Court ended up giving judgment for the First Respondent in these proceedings and dismissing the counter-claim.  The award was made up of the amount in the claim, court costs, professional costs and interest; and it totalled $8,350.51.

8. There was time to pay given of 28 days.  That order given on 4 April 2012.  The Applicant, Mr Zaghloul, did not appeal that judgment but neither did he pay that amount within the 28 days.  Because of his failure to pay, the Respondents served the Applicant with a bankruptcy notice. 

9. The Applicant did not comply with the bankruptcy notice in that he did not pay the money, nor did he talk of any counter-claim or appeal against the judgment debt.  The Respondents attempted on many occasions to serve the Applicant with a Creditor’s Petition, but the Applicant proved quite elusive.

10. I have seen the material in the court book and bundle and read the affidavits of the persons who attempted service.  There is little doubt, in my mind, that there was a concerted effort by the Applicant to avoid the person trying to serve the documents. 

11. The solicitor for the Respondents went to the Court and showed the Court the attempts that had been made and asked for an order for substituted service.  That order was given, allowing service to be given three ways; by having the papers personally delivered, either in the mailbox or at the door of the premises, by having the documents sent by registered post to that address, and, thirdly, by email.

12. The address was ascertained from all of the records that the Applicant had, including his driver’s licence, the incoming passenger cards when he would come back into this country after overseas trips, and other addresses that he had asked to be served.  More particularly, he was, at that time, conducting litigation against his former employer, Woodside Energy Limited, and he had given to the Federal Court, as his address for service, the address at which the creditor was attempting to serve him. 

13. The order for substituted service, as I say, was given by the Court. The affidavit of the solicitor shows that someone did go to the house, though, the person who was there at the house and was given the material said that they would pass it along to a real estate agent.

14. The documents were sent by registered mail to the address, and the solicitor did send the documents by email.  The email did not bounce back, and the solicitor had sent a blind copy to his own personal email address, and it was received. 

15. On that evidence, it is clear that substituted service had been effected, and therefore the Applicant had been served.  He did not appear before the Registrar of this Court, but all of the preconditions for sequestration had been made out.  The sequestration order was made on 26 July 2013.

16. The Applicant was contacted by the Trustees in bankruptcy, who ended up being just a single Trustee, that person being a person by the name of David Lombe. Mr Lombe asked the Applicant to fill out the statement of affairs.  The Applicant did do this.  Mr Lombe took hold of the estate and did what he can to realise that estate.  During that time, the Commonwealth Bank had also launched action against the Applicant for using a house as security and was exercising its rights, as mortgagee, to sell the house.

17. In the end, the estate realised some 20-odd thousand dollars, or just something a little bit more than that.  The Bankruptcy Act 1966 (Cth) (“the Act”) prescribed the manner in which payments should be made, and that was first to the Trustee and then to the legal fees of the petitioning creditor. In the end, the money from the estate ran out, and the judgment debt was not met. However, the legal fees of the creditor were met.

18. The Applicant was then discharged from bankruptcy in August 2016.  He has given to the Court a very thorough and voluminous submissions as to why the order that he has sought should be allowed.

19. It is trite to say that for the Court to be looking at an annulment, the Court must do two things.  Number one, find whether or not the sequestration order ought to have been made, or be satisfied that the sequestration order ought not to have been made; and, secondly, to look at all of the circumstances and decide, in the discretion of the Court, whether it would be right to annul the order. 

20. The application was not filed in this Court until almost 12 months after the discharge from bankruptcy. One has to ask, “What is the utility of such an order to a now discharged bankrupt?” But as Mr Zaghloul, the Applicant, has said, there is a stigma to the fact that he had been made a bankrupt and that stigma should not be allowed to remain if there is no reason for it.  The question is for me to look at, and I will look at this first; “should the order have been made?”  It seems to me that there had to be a proven debt.  That debt is proven, because it was a Court ordered debt after the matter had been thoroughly looked at by the Court.

21. The Applicant did not appeal that judgment, and what he says now is that the Court should go behind the judgment.  He says that the Court has to question whether, behind the judgment debt, there was in truth and reality, a debt due to the Respondents. 

22. The Court can, in certain circumstances, though they must be quite exceptional, go behind a judgment if that judgment has been obtained through some form of error, or some form of fraud, or some reason why the Court would look at it and say that it was in error.  That is a very large hurdle to overcome.

23. The Applicant says that the way in which the judgment debt was able to be procured was a reliance upon the terms and conditions of membership.  He claims that he was not given the membership details when he joined Jewellery & Gift Buying Services Proprietary Limited and only became aware of the terms and conditions after he had been delivered material.  He says that this would not be sufficient to enable any Court to find that he has a debt, nor factually did the Court look at the amount of material that he did return to the Respondents. Part of his claim is that whilst the Respondents claim that he returned five of 18 watches, he said that he returned all 18 of the watches.

24. Those claims were all properly looked at by the Local Court.  There has been insufficient given to me to show why on earth this Court should be going behind that judgment.  I do not find that there has been sufficient material adduced that would put the judgment debt in doubt, especially given that the Applicant’s recollection of all of the events is a reconstructed one, that it is reliant upon documents, and where those documents fail, he is simply relying on intuition.  His own medical evidence shows that he has a problem with memory, and his evidence given before me today was, whilst verging on dishonest, totally unreliable.

25. The Court could have no faith that such evidence is sufficient to warrant going through the very serious step of going behind a judgment.  Therefore, I am not persuaded that the judgment debt was not a proper one.  Therefore, I am not satisfied that there was no debt. 

26. The Applicant says that the evidence before this Court now shows that, at the time, he was solvent.  His affidavit filed 8 October 2017, at paragraph 5, says that he had access to a line of credit with the Commonwealth Bank; that he collected $995 a week under a lease agreement of his property, that he had superannuation in the amount of $127,000; that he owned a BMW vehicle outright, that he received $9,148 in salary payment – that is on 21 September 2012, and that he was entitled to 3,000 equity shares with his former employer worth $100,000 at the time.

27. However, when one looks at the statement of affairs, he has said these things; his insolvency, has been caused because of his unemployment and because of his ill-health, and because of some bad decisions.  He did not say that his insolvency is a fiction, and that he did have the ability to pay his debts as they fell due. 

28. If it really were that what he believed in paragraph 5 of his affidavit were correct, such would have been reflected in his statement of affairs.  Again, one is looking at the recollections now of the Applicant as at 8 October 2018, trying to go back to the events of July 2013, when he, according to his own medical evidence, has an extremely faulty memory.

29. It would seem that I should be relying upon what was said in 2013 about the state of affairs in 2013, rather than a reconstruction of that in 2018.  So one then looks at some of the particulars in that statement of affairs and can see that the Applicant said, in his statement of affairs, that he had no motor vehicle and yet he swore in his affidavit that he owned a 2003 BMW vehicle outright, which was then sold to a car dealer on 16 June 2014 for $5,000.  He said that he did not have any shares in his statement of affairs, and yet in this affidavit he says that he was entitled to 3,000 equity shares with his former employer.

30. He has given very unsatisfactory answers as to these anomalies, stating that he had transferred the BMW into his wife’s name but he could still use it, and this being the same wife that he had said in other affidavits he was not on speaking terms with.  His action in the Federal Court, that I have commented upon because he gave an address for service, was an action where he was claiming that he had the 3,000 equity shares worth $100,000 at the time; and yet there is no mention of that in his statement of affairs.

31. It seems, to me, on all of that evidence, I cannot be convinced that he was solvent at the time.  Therefore, I am of the view that the application to annul the bankruptcy, or his alternative application that I use my discretion to annul, ought be dismissed. 

32. His other applications then go to these matters.  He has alleged that the Respondents have engaged in misleading or deceptive conduct.  He says that that is because he was induced to deal with the suppliers, because they offered him a two per cent discount on payment but they failed to disclose that they gave similar or even better discounts to Myer; that he only need to use the JGBS standard form and that the true situation of the company was not as a buyer and a seller, but rather almost as some form of persons who could, under the terms of membership, recover or retake possession of goods, and that the goods remained as Nationwide’s, and the Applicant claims that this is an agent and trustee relationship.

33. He says that this misrepresentation was contrary to consumer law, and therefore, firstly, that it should be a matter that would show that he had no debt.  That is a matter that I dismiss totally.  It does not do anything like that.

34. But the Applicant also says that it is a matter which means that, in equity, he should be paid damages.  The evidence does not go anywhere near to the standard that the Court would have to be convinced that there was misleading or deceptive conduct.  The membership form, which is Exhibit 1, clearly has the terms and conditions as part of the membership form, and these were known to the Applicant.

35. The Applicant claims that he did not sign the guarantor part of the membership application. However, the guarantor part was really only for businesses or companies, not for sole traders, because sole traders were going to be liable in any event. There does not seem, to me, to have been shown that there has been a deceptive and misleading conduct as that term is used in Australian consumer law.

36. The Applicant then says that there was negligence, because the company did not keep a proper account.  The problem is that the Applicant has not kept a proper account at all either.

37. The evidence as to what occurred is in such a shambolic state that I could never be convinced on it that this evidence disclosed some form of negligence with regard to these watches.  Therefore, the claim for negligence is dismissed. 

38. The next claim, which goes beyond the negligence, was that there was unconscionable conduct by the company in the way in which it dealt with the Applicant.  I do not need to go too far into that, because I have really gone through the circumstances of the matter.

39. This was not oppressive conduct.  This was not unconscionable.  The company had acted in accordance with the membership agreement and all of this was within the rights of the company. The Applicant has failed to show me that it was unconscionable. 

40. The last claim is to do with a breach of duty of the Trustee.  The Applicant says that the Trustee, in taking his place, should have taken control of the sale of the property.  However, the Trustee – Mr Lombe explained that this was not a sale by the Trustee to realise the assets of the estate; it was a mortgagee sale that was conducted by the Commonwealth Bank.

41. On the evidence before me with regard to this sale, Mr Lombe conducted himself as a Trustee should.  The Applicant is of the view that the Trustee should have been in charge of the sale, but has not shown me how that happens when it is the evidence that the Commonwealth Bank was in charge of the sale as a mortgagee. 

42. The Trustee placed a caveat on the property, as did the Applicant’s wife, to ensure that their rights were protected under the sale by the mortgagee.  The Applicant complains that the caveat resulted in some penalty interest, but the Trustee was acting in a wise and prudent way in lodging the caveat to ensure that the interests of the estate itself were protected.

43. The Applicant says that he has records showing that there were a number of watches that he had and that when the Trustee went to sell those watches, there were only 250 watches sold rather than 1,235 watches that he claims.  The Trustee denied that and said that all of the watches that he had in his possession were sold by Grays Online, and what he has sworn, they have realised.  I accept his evidence in this regard. 

44. The Trustee was also asked why he discontinued a Supreme Court proceeding that the Applicant had against his lawyers, where it was that he was having some argument as to their costs. The Trustee, quite properly, looked at the merits of the action against the lawyers; and also looked at the fact that there were no funds in the estate to really carry on the litigation; and, that if the litigation was carried on and that there was a loss, the Trustee would personally be responsible.  In all of the circumstances, that was a prudent decision by the Trustee. 

45. The Applicant also takes issue with a failure to tax costs in the sale of the matter where the firm, Gadens, who acted for the Commonwealth Bank, charged a cost. The Trustee answered as to the proper course that he undertook. The Applicant claims that there was excessive remuneration to the Trustee. However, the Trustee justified his costs in his evidence. 

46. The question was asked why the Trustee was paid first before any of the actual creditors, and the Trustee explained that this was because of the priorities that are under the Bankruptcy Act.

1. That covers all of the claims that have been made by the Applicant. I therefore dismiss the application.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Judge Vasta

Date:       13 March 2019