Alam v QBE Insurance

Alam v QBE Insurance - [2018] FCA 1560 - FCA 2018 case summary — Zoe

A Introduction 1 This highly unfortunate case is an exemplar of the problems that arise by the use of the law of bankruptcy (a legislative scheme which reflects a balance between private and public interests transcending the interests of the parties) as a debt-collecting mechanism for the recovery of small debts. 2 The bankruptcy jurisdiction of the Federal Circuit Court of Australia and this Court is of fundamental importance in the social and commercial life of this country. The jurisdiction should not be viewed, in its essential character, as part of the execution of judgment debts. It involves changing the status of an insolvent person. Fundamental to the law of bankruptcy is that a sequestration order should not be made against the estate of a person who is solvent: see, generally, Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8; (2017) 343 ALR 632 at 643-645 [40]-[44] discussing Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 (Deane J) and Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 (Bowen CJ, Sweeney and Lockhart JJ). 3 Even accepting a diminution in emphasis in the quasi-penal nature of bankruptcy and that the contemporary stigma associated with being a bankrupt is not the same as in earlier times, the serious consequences of bankruptcy to ordinary people should never be ignored. For this reason, it is necessary to pay regard to the words of Deane J in Kleinwort Benson Australia Limited v Crowl (1988) 165 CLR 71 at 82 (quoted in Culleton at 647 [55]): It is true that the strictness of the above rules leaves open the possibility of abuse by unscrupulous debtors. That is, however, an unavoidable concomitant of the protection of ordinary people faced with the threat of being made bankrupt. Many, and possibly most, of the petitions in the bankruptcy lists of this country seek the bankruptcy of honest, albeit unbusinesslike or naïve, people whose indebtedness springs from causes which evoke sympathy rather than indignation. For such people, bankruptcy does not represent a game to be played to the frustration of their creditors. It represents a pronouncement of failure and humiliation attended by the fear of unknown consequences and the susceptibility to criminal punishment for what would otherwise be innocent conduct. (citations omitted) 4 The seriousness of the consequences of bankruptcy does not mean that matters should not be dealt with expeditiously. Not only are bankruptcy matters to be conducted (like any other civil litigation), according to law and as quickly, inexpensively and efficiently as possible, but the potential for damage to the general public of an insolvent person contracting further debts, is a further imperative requiring bankruptcy matters to be resolved with appropriate despatch. 5 That said, the resolution must be just; and it is vital that close consideration be given to the circumstances of a debtor, especially one who is self-represented, when the debtor is in a position to assert solvency. This often arises in the context of an application for an adjournment: see Culleton at 647 [54]. It may also arise in the context of deciding the assistance to be given to a litigant or litigants in persons in relation to what is required of the debtor in discharging any onus, not only as to proof of solvency but also on the question as to whether the bankruptcy court should "go behind" a judgment (a fortiori when an impressionistic examination of the materials in evidence raises an apparent issue as to whether the court should do so). 6 It is with these matters in mind that I come to the somewhat remarkable circumstances of the present case.

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B relevant background 7 The first appellant (Muhammad Alam) and the second appellant (Saqiba Sattar) brought District Court proceedings against the respondent (QBE) in relation to an insurance claim arising from a fire which occurred after their residence was burgled and set on fire while they were overseas. A judge of the District Court of New South Wales delivered judgment in relation to the insurance claim in March 2016. In circumstances which do not need to be recounted for present purposes, QBE's submissions were treated by the District Court judge as a concession that it would "surrender to a judgment". 8 As a consequence, judgment was entered in favour of the first and second appellants against QBE in the amount of $131,281.24. 9 The District Court proceedings were then stood over for a hearing of applications as to costs. Regrettably, this is the point when matters started to go awry. Costs orders were made in December 2016 and a 61 page judgment was delivered giving reasons for those orders (Costs Judgment). 10 For reasons set out at considerable length, the District Court judge ordered the first and second appellants to pay QBE's costs of the proceedings on an indemnity basis from 17 November 2014 on the grounds that a Calderbank offer made on that date (in an amount of $250,000) had not been accepted. The costs order was made in the gross sums of $133,007.07 and $8,643 for a total award of $141,470.97. 11 A singular aspect of the Costs Judgment in seen from a further order that was made by the District Court judge. The first and second appellants sought costs orders against their former solicitors, Legal and Company Solicitors, pursuant to a motion filed on 21 July 2016. Without any intended disrespect to the appellants, it is fair to say that the orders sought in the motion were far from pellucid. Essentially, however, two contentions were made: the first was that the third appellant (Qamar Sattar) was not liable for any costs associated with the proceedings by reason of the fact that the third appellant had not validly been appointed as a tutor; and, secondly, that the first and second appellants never received the Calderbank letter which, as explained above, was the foundation for the award of costs. 12 The District Court judge characterised the application as the appellants seeking an order under s 99(2)(b) of the Civil Procedure Act 2005 (NSW) that the appellants' former solicitors pay to the appellants "the whole or any part of any costs that the ... [appellants] have been ordered to pay to any other person, whether or not the … [appellants have] paid those costs". 13 Ultimately, the first and second appellants established that there had been "serious neglect, serious incompetence and serious misconduct … within the meaning of s 99(1)", being the statutory pre-condition to the making of a s 99(2) order. This was because, among other reasons, the solicitor failed to inform the appellants that an offer of settlement had been made and failed to convey the actual terms of the Calderbank offer together with the reasons advanced by QBE as to why the offer ought to be accepted. 14 An order for costs was also made against the third appellant on the basis that the third appellant "was appointed as the tutor for [the second appellant] in July 2015". This was despite: (a) the third appellant disputing she had ever been appointed as the first appellant's tutor; (b) the District Court judge finding that the third appellant was not the tutor when the Calderbank offer was made; and (c) the third appellant denying that she had signed the consent to act as tutor which had been filed in the District Court and purported to bear her signature. 15 The circumstances become even more remarkable when after hearing argument concerning these contentions, one of the orders made by the District Court judge was a direction that the Registrar of the District Court refer the papers to the Director of Public Prosecutions. The District Court judge had noted that the third appellant was an honest witness and her evidence about the consent to tutor being filed without her consent was an allegation not contradicted by the solicitors who were "unable to offer any assistance" on this matter. The apparently false basis upon which the third appellant became a tutor was said by the District Court judge to be "beyond the scope of this judgment". 16 Also in the context of dispute arising as to whether the third appellant was appointed a tutor, the District Court judge found that the second appellant was "not a person under a legal disability". Although she had physical disability (the details of which I will recount below) which rendered her unable to speak, she had "full legal capacity" and could communicate with the aid of a computer. Additionally, the third appellant's evidence, which was not rejected by the District Court judge, was that she had received no advice from her former solicitors about her exposure to any liability by becoming tutor. Again this was said to be a "matter beyond the scope of the judgment". The District Court judge, in referring to the third appellant, observed that the "touchstone for the liability for costs" was the fact that the third appellant was the tutor. After referring to two decisions of the New South Wales Court of Appeal, being Azar v Kathirgamalingan [2012] NSWCA 429; (2012) 62 MVR 462 at 506-507 [201]-[204]; and Ashton v Pratt No 2 [2015] NSWCA 134 at [18], both of which refer to the fact that it is possible to make costs orders directly against a tutor and that responsibility for costs is one purpose of appointing a tutor, so that the opposing party has the benefit of orders against both the person under the incapacity and their tutor, her Honour concluded: The result may seem unfair to [the third appellant], particularly if, as she says, she was not warned about this consequence. But the authority is binding and the result inevitable. 17 Again, it should be noted that this passage arose immediately after a finding of the District Court judge that the person on whose behalf the tutor was appointed, the second appellant: … is not a person under a legal disability. She is an adult with the carriage of her own affairs, and full legal capacity. Her relevant restriction is purely physical. She is unable to articulate to speak. She communicates with the aid of a computer and body language. 18 There was no consideration by the District Court judge of the threshold requirement for the appointment of a tutor under Part 7 Division 4 of the Uniform Civil Procedure Rules 2005 (NSW) that the appointment relates to a "person under a legal incapacity" (emphasis added). Nor was there any explanation of why her Honour formed the view that the authorities to which the District Court judge referred, mandated a costs order be made against a tutor rather than merely indicated that a costs order was within the judge's power, subject to the consideration of the individual circumstances of the case and the exercise of judicial discretion. 19 Before leaving the District Court judgment, it is worth making one final point. Attention should be drawn to the unusual situation where the first and second appellants had the benefit of a judgment against QBE and yet QBE, following the Costs Judgment, had the benefit of a costs order not only against the first and second appellants, but also against the third appellant. It was common ground that the District Court orders provided for each of the appellants to be jointly and severally liable for the costs order made against QBE. It was in this context that an application was made by QBE for a set off of the costs order against the principal sum owing pursuant to the judgment. This was noted by the District Court judge to be on the basis that there was a "risk that the defendant might fail to recover its costs". Submissions were made that there was a material risk that QBE would be unable to recover, or would experience real difficulty in recovering costs from the appellants, and evidence was adduced on the application which was said to provide a basis for concern as to whether the judgment would be paid. 20 The District Court judge rejected this submission and made a number of findings about the likelihood of recovery of the amounts required to be paid pursuant to the costs orders. A finding was made that the third appellant was a person of some, albeit, limited means and that she owned real property (although the first and second appellants do not). The District Court judge found: None of the [appellants] are persons of substantial means. But there is nothing to suggest that any of them, nor are they collectively, are likely to do anything but honour their debts. 21 No suggestion was made before me that this finding was inaccurate. 22 What then occurred, in February 2017, was that the judgment sum of $140,407.30 was paid to the first and second appellants. The costs order were not paid and on 11 April 2017, the Official Receiver issued a bankruptcy notice in respect of the three appellants. It was a joint bankruptcy notice and the first and second appellants were served with the bankruptcy notice separately on 23 May 2017. 23 It is also contended that the third appellant was served with the bankruptcy notice on 4 May 2017. I will come back to the circumstances surrounding the alleged service of a compliant bankruptcy notice on the third appellant below. 24 On 17 August 2017, QBE filed a creditor's petition in the Federal Circuit Court which was served the following month. By the first return date of the creditor's petition, QBE was only in a position to proceed against the second appellant. At that time, the court adjourned the matter. Following service of the creditor's petition on the other appellants, on 21 September 2017, the matter was adjourned on an application of QBE to 2 November 2017, the matter was then adjourned administratively until 9 November 2018, when there was no appearance by the appellants. On 23 November 2017, the first appellant appeared by telephone and sought an adjournment to obtain legal representation and the court adjourned the matter. On 30 November 2017, interlocutory orders were made to ready the matter for hearing on 21 December 2018. By consent, the creditor's petition was then adjourned until 15 February 2018, when the matter finally came before the primary judge for hearing.

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C Proceedings Before the Primary Judge 25 The proceedings before the primary judge are recorded across 24 pages of transcript. QBE was represented by its solicitor and the appellants were self-represented. A "supporting creditor" announced his appearance, but no identification before the primary judge was made as to the identity of the supporting creditor and no evidence was read identifying any details of the alleged debt. 26 The judge was informed at the outset that the second appellant had recently had a child and a caesarean operation and could not attend. The primary judge asked whether QBE was ready to proceed and then stood the matter down for half an hour. When it came back the primary judge noted: Madam, the bankruptcy application is proceeding now before this court against you … THIRD APPELLANT: Yes. HIS HONOUR: … and the second respondent and against you, Mr First Respondent. THIRD APPELLANT: Yes. HIS HONOUR: The court is going to hear the evidence. THIRD APPELLANT: Yes. HIS HONOUR: And the court will then hear submissions from you as to why the court shouldn't make a sequestration order. THIRD APPELLANT: Yes. HIS HONOUR: And the court will then determine the matter. 27 After then identifying the evidence (including affidavit material which annexed the Costs Judgment), and in response to a request as to whether the third appellant had any objection to the affidavit of service of the creditor's petition served upon her, the third appellant informed his Honour that the second appellant (who, as noted above, had just been in confinement) suffered cerebral palsy and was physically disabled. His Honour responded, "that's not a proper objection." 28 The third appellant, again after being asked whether she had any objection to a further affidavit read by the petitioner, said as follows: THIRD APPELLANT: And second thing I am not the tutor for my daughter. I am nothing in this case. HIS HONOUR: Yes, that's not a - neither of those matters, madam, identify a proper objection. Mr First Respondent, do you have any objection to the affidavit of debt that's - I'm asking you, Mr First Respondent. Do you have any objection to the affidavit of debt of Mr Ferris? FIRST APPELLANT: Yes. SECOND APPELLANT: Which affidavit? HIS HONOUR: It's the affidavit that has just been handed. These were joint liabilities, weren't they … Mr Webeck? 29 The third appellant, again after being asked for an objection, returned to the topic that her daughter was not a disabled person and that she was not a tutor for her daughter. His Honour responded by noting, "[n]one of that goes to a proper ground of objection." 30 Shortly thereafter, the third appellant then turned to her objection that she had not received the Calderbank letter and, on that basis, she was not liable to pay costs. The following is then transcribed: HIS HONOUR: Yes, that's not a proper objection to the affidavit, Mr Applicant (sic). THIRD APPELLANT: That is the main thing, your Honour. FIRST APPELLANT: That is the main thing. HIS HONOUR: No, madam, I'm not speaking to you. Mr First Respondent, that's not a proper objection. I treat the affidavit of Mr Ferris of 21 March as read … 31 His Honour then invited the reading of further evidence and then the following exchange occurred: THIRD APPELLANT: Please we have to understand first properly then tell you, but we have objection. HIS HONOUR: What's your objection to the affidavit of search, madam? THIRD APPELLANT: We can't tell you straightaway. We are not the solicitors. HIS HONOUR: No, no. We will treat the - - - THIRD APPELLANT: We have to take some times - - - HIS HONOUR: - - - affidavit of search as read. THIRD APPELLANT: - - - to read and understand. 32 Again, the first appellant returned to the issue of his objection that the appellant should not have to pay indemnity costs for QBE and was met by the response that this was not a proper objection to the affidavit of search. The following is then transcribed: HIS HONOUR: Could you hand a copy to the third respondent. Madam, do you have any objection to the affidavit of Mr Webeck of 14 March? THIRD APPELLANT: … you haven't - - - HIS HONOUR: Do you have any objection? THIRD APPELLANT: - - - served this one either. Have you served it - this one? PETITIONER: … THIRD APPELLANT: When? PETITIONER: 14 March. THIRD APPELLANT: To who? HIS HONOUR: Madam, it's not appropriate to be having a conversation with a solicitor. I am asking you a question. THIRD APPELLANT: Okay. HIS HONOUR: Do you have any objection to the - - - THIRD APPELLANT: Yes. HIS HONOUR: - - - court receiving into evidence that affidavit? THIRD APPELLANT: Because I haven't seen those things. HIS HONOUR: Yes, I don't regard that as a proper objection. I treat the affidavit of Mr Webeck of 14 March 2018 - actually it goes to both parties, doesn't it, Mr Webeck? PETITIONER: Yes. HIS HONOUR: Yes, Mr First Respondent, do you have any objection to the affidavit of Mr Webeck of 14 March? FIRST APPELLANT: I haven't received this one. I haven't received this one. HIS HONOUR: I don't regard that as a proper objection to the affidavit being read into evidence. I treat the affidavit of Mr Webeck of 14 March 2018 as read. Mr Webeck, in relation to the affidavits that you've actually provided copies of to the court those affidavits - each of them were forwarded to the respective respondents by your office; is that correct? PETITIONER: That's correct. HIS HONOUR: Yes. In relation to - that's your evidence, Mr Webeck. 33 An affidavit was then read on behalf of the first and third appellants, and a further affidavit on behalf of the first appellant. His Honour then proceeded to observe that he was satisfied that QBE had, on a prima facie basis, made out the entitlement to the sequestration order. His Honour then invited submissions as to why a sequestration order should not be made. A number of matters were raised, in a very discursive way, by the third appellant, including the fact that the third appellant had not been appropriately appointed as a tutor and that she had not signed a consent to act. A request was made to file written submissions to which his Honour responded, "Madam, you're not being given any further opportunity to put submissions. Now is your only time to put submissions. What else do you wish to say?" 34 Again, the third appellant returned to the fact that she should not have been appointed a tutor and the District Court judge had referred the matter to the DPP for investigation, and that an investigation was still pending. The third appellant indicated that this was the "main thing" and that "[w]ithout the DPP report I should receive - I cannot file anything in the court as well against those decisions". 35 As counsel for QBE on the appeal accepted, the exchange to which I have just referred is appropriately characterised as the third appellant saying that without receiving a report from the DPP as to the result of the investigation, the third appellant did not believe that she could file any appeal against the costs decisions made by the District Court judge. 36 After then making reference to the second appellant's cerebral palsy, the following exchange occurred: HIS HONOUR: Is there anything new you wish to say? THIRD APPELLANT: Yes, yes. I'm seeking time to finalise the DPP report. HIS HONOUR: I see. You're seeking an adjournment, are you? THIRD APPELLANT: Yes, please. HIS HONOUR: Is the adjournment opposed, Mr Webeck? PETITIONER: Yes, it is. HIS HONOUR: Yes. Why should I give you an adjournment? THIRD APPELLANT: Because I am chasing to DPP to give me the report for that one and exhibit 9. HIS HONOUR: Is there anything else you want to say as to why you should have an adjournment? THIRD APPELLANT: This is the main thing plus all the affidavit I received it today. I will have a look the laws and all - everything in that one what are they saying. So I couldn't object because I couldn't understand. I didn't receive in time those ones. HIS HONOUR: Yes, madam, the court doesn't propose to grant an adjournment, and I will give reasons for that. Is there anything else you want to say as to why a sequestration order shouldn't be made? THIRD APPELLANT: No, it should be made without looking all the matters. HIS HONOUR: Yes, thank you, madam. Yes, Mr First Respondent, is there anything you want to say as to why the court shouldn't make a sequestration order against you? THIRD APPELLANT: Same thing. FIRST APPELLANT: Yes, same thing I am asking too. The - wait for the decision - the DPP decision. HIS HONOUR: Okay. So you're seeking an adjournment, are you? FIRST APPELLANT: And some papers - yes, we didn't receive it. We have to read and answer - find answer. HIS HONOUR: Yes, is there anything else you want to say as to why you should have an adjournment? FIRST APPELLANT: Yes, the other thing I … THIRD APPELLANT: ... HIS HONOUR: Anything else you want to say as to why you should have an adjournment? FIRST APPELLANT: Yes, for the DPP and also, like, that - those papers which we received today that we have to read and find answer. THIRD APPELLANT: Object those. FIRST APPELLANT: Object those papers too. HIS HONOUR: Is the adjournment opposed, Mr Webeck? PETITIONER: Yes, it is, your Honour. HIS HONOUR: Yes, Mr Applicant, I don't propose to grant an adjournment, and I will give reasons for that shortly. Is there anything you want to say as to why the court shouldn't make a sequestration order against you? FIRST APPELLANT: No. THIRD APPELLANT: Yes. HIS HONOUR: Is there anything you wish to say as to why the court shouldn't make a sequestration order against you? THIRD APPELLANT: Yes. No, no. ... FIRST APPELLANT: Yes, we need a time ... THIRD APPELLANT: ... HIS HONOUR: Yes, I'm not giving you time. FIRST APPELLANT: ... HIS HONOUR: Mr Applicant, is there anything - no, I've refused that request. Is there anything else you want to say as to why I shouldn't make a sequestration order against your estate? THIRD APPELLANT: ... anything you want to say that order shouldn't make against you let him say yes or no. He's asking. FIRST APPELLANT: Yes, I told you already. I told you. HIS HONOUR: Yes, Mr Webeck, I don't need to hear you in reply (emphasis added). 37 A judgment was then delivered. I have set out what occurred before the primary judge at some length because it is appropriate in understanding the reasons then delivered by the primary judge which comprised 12 paragraphs. It is convenient to set it out in full: This is an application within the Court's jurisdiction for sequestration orders against three respondents arising out of a District Court judgment entered on 16 December 2016 against all three respondents in amounts totalling $141,470.97. The petitioning creditor has moved for a sequestration order against all three respondents. The first and third respondents have appeared. The second respondent is at home and has not come to Court. I am satisfied the second respondent was aware of the hearing date and that this is an appropriate matter in which to exercise the Court's powers under r 13.03C(1)(e) of the Federal Circuit Court Rules 2001, to proceed with the hearing against the second respondent. The petitioning creditor has read affidavits in support of the service of the bankruptcy notice upon each of the three respondents, service of the creditor's petition on each of the three respondents, has read an affidavit of debt, an affidavit of search, and the creditor's petition was verified in relation to paragraphs 1 to 4, which was served on the respective respondents. I am satisfied on the material before the Court that the first respondent committed an act of bankruptcy on 13 June 2017 and that the first respondent was within the jurisdiction at that time. I am satisfied that the second respondent has committed an act of bankruptcy on 13 June 2017 and the second respondent was within the jurisdiction at that time. I am satisfied that the third respondent has committed an act of bankruptcy on 25 June 2017. I am satisfied the petitioning creditor has established the matters required for the making of a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) ("the Act") and that the petitioning creditor has established the grounds for the making of a sequestration order under s 52 of the Act. The third respondent is also the subject of a supporting creditor who is before the Court. The first and third respondents in the course of the hearing asked for an adjournment on the basis that they were awaiting material from the DPP. The material from the DPP could not give rise to any basis upon which the judgment that had been obtained in the District Court appears to be impeached or is able to be set aside. Whatever steps the first and third respondent and/or second respondent were taking in relation to the DPP is not something that gives rise to a proper basis upon which these proceedings should be adjourned. Bankruptcy proceedings are ones which, under the legislation, must be expeditiously dealt with. The first and third respondents also complained that they had only just received material in relation to the sequestration proceedings. These proceedings were commenced on 16 August 2017 and were before the Registrar on five occasions and Court is satisfied that the affidavit material relied upon by the petitioning creditor had been provided to the respondents. No proper basis for an adjournment was identified by the first or third respondents, and the Court is not satisfied that an adjournment is warranted in the interests of the administration of justice. For these reasons the adjournment was refused. From the bar table, the third respondent maintained that she should not have been joined as a tutor in the proceedings giving rise to the judgment debt. No steps have been taken by the third respondent to seek to have the judgment set aside. Nothing said by the third respondent identified any proper basis upon which this Court could go behind the judgment obtained in the District Court of New South Wales. The third respondent was of the view that she had not consented to act as a tutor and took issue with her liability. Under the order made by the District Court, the District Court order does identify the third respondent as being the tutor for the second respondent. Material has been read before the Court on behalf of the first and third respondents stating that the second respondent is not the subject of any disability that would prevent her being able to handle her own affairs. There is no evidence before the Court, for the purposes of these proceedings that the second respondent was not able to participate in the proceedings if she chose to do so. On the face of the material before the Court, the order and judgment given in the proceedings in the District Court had not been the subject of any step to have the same set aside. The Court is satisfied that the petitioning creditor is entitled to the making of a sequestration order. Nothing said by the first or third respondents established sufficient cause as to why a sequestration order should not be made. I am satisfied that the first, second and third respondents are unable to pay their debts as and when they fall due. I am also satisfied that other sufficient cause has not been established by the second respondent why a sequestration order should not be made. I am satisfied that this is an appropriate matter in which to make a sequestration order against each respondent (emphasis added).

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D Grounds of Appeal 38 The matter first came before me in an application made by the appellants, who remained self-represented, to seek a stay of the sequestration order. I explained to the appellants that it was "conceptually incoherent to contemplate a judicial stay as being available to countermand [the] automatic legislative operation" of the Act: see Endresz v Australian Securities and Investments Commission [2014] FCA 1139 at [8]. As reflected in s 37(2) of the Bankruptcy Act 1966 (Cth) (Act), there can be no "stay" of a sequestration order, although there may be a limited stay of a proceeding or action under a sequestration order pursuant to s 52(3) of the Act. 39 After hearing some of the background to the matter, I ordered a stay of any proceeding or action under the sequestration order, which was to have effect until the determination of the appeal or further order of the Court. I also referred the appellants for legal assistance pursuant to FCR 4.12. Following the issue of a referral certificate, Mr Hewitt appeared on behalf of the appellants. It is appropriate to record at the outset the Court's gratitude to Mr Hewitt in accepting the referral and for his very comprehensive and able submissions on behalf of the appellants. 40 An amended notice of appeal was filed in which six grounds were agitated. They were as follows: 1. In relation to the first, second and third appellants, the primary judge erred in making sequestration orders in circumstances where the respondent asserted that the appellants were able to pay the respondent's debt, and the proceedings under the Bankruptcy Act 1966 (Cth) were being used as a form of debt collection. 2. In relation to the first and second appellants (Muhammad Alam and Saqiba Sattar): (a) the primary judge erred in declining to go behind the judgment of the District Court of New South Wales in relation to the basis for the making of a costs order against the first and second appellants in the District Court in circumstances where the respondent surrendered to a judgment in favour of the first and second appellants in the District Court and an order was made pursuant to s 99 of the Civil Procedure Act 2005 (NSW) against a legal practitioner; (b) the primary judge failed to find that the debt on which the respondent relied did not provide a basis for the making of a sequestration order against the first and second appellants. 3. In relation to the third appellant (Qamar Sattar): (a) the primary judge erred in declining to go behind the judgment of the District Court of New South Wales (particularly pages 12 to 16 of the costs judgment given on 15 December 2016) in relation to the basis for the making of a costs order against the third appellant in the District Court; (b) the primary judge failed to find that the debt on which the respondent relied did not provide a basis for the making of a sequestration order against the third appellant. 4. In relation to the third appellant (Qamar Sattar): (a) the primary judge erred in finding that the third appellant committed an act of bankruptcy; (b) the primary judge failed to find that the bankruptcy notice was invalid because the order of the District Court of New South Wales relied upon was not attached to the bankruptcy notice at the time of service. 5. In relation to the first, second and third appellants, the primary judge failed to provide adequate reasons for the making of the Orders. 6. In relation to the first, second and third appellants, the primary judge failed to afford procedural fairness to the appellants by declining the application for an adjournment of the proceedings before the Federal Circuit Court of Australia so as to give the appellants an adequate opportunity to present their case. 41 It is convenient to take these grounds somewhat out of turn and deal initially with Ground 4. I will then return to deal with the other grounds.

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D.1 Appeal Ground 4: Failure to attach the District Court order 42 It was alleged that the bankruptcy notice relied upon for the sequestration order against the third appellant was invalid and a nullity because the order of the District Court was not attached to the bankruptcy notice when it was served, amounting to a fundamental defect. 43 It is clear from the material filed in the Federal Court proceeding that the District Court orders referred to in the bankruptcy notice were not attached to the notice served upon the third appellant. This was not in contention between the parties. The failure to attach the order is significant for at least two reasons. The first is that, as the Full Court explained in Curtis v Singtel Optus Pty Ltd [2014] FCAFC 144; (2014) 225 FCR 458 at 470 [35], there "are many authorities that refer to the importance of attaching a copy of the final judgment or order at the time of service". Neither party contested that this was an essential requirement. 44 Secondly, s 41(2) of the Act requires the bankruptcy notice to be in a form prescribed by the regulations. The form prescribed by regulation 4.02 requires the final judgment or order to be attached: see Singtel Optus at 471 [38] citing Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409 at 413-414 [11]-[14]. In this way it forms a part of the prescribed notice. At the hearing of the creditor's petition, the court was required to be satisfied, pursuant to s 52(1), that the matters stated in the petition had been proved. One of the matters referred to in the creditor's petition at [4(b)] was that a bankruptcy notice (that is, a notice in the prescribed form), had been served on the third appellant on 4 May 2017. It follows from what I have just outlined, that this was incapable of being proved, given the fundamental defect of failing to attach the District Court order. 45 It was submitted on behalf of the respondent that this was a formal defect which could be cured by s 306(1) of the Act. The administrative nature of the error was sought to be emphasised by counsel for the respondent, who provided evidence to the Court which demonstrated that the notice as originally prepared did in fact contain the order. This claim was bolstered by the fact that those notices served on the first and second appellant did contain the relevant order. Upon service on the third appellant, however, it clearly did not. In Curtis, the Full Court noted as follows at 474-475 [59]-[63]: In our view… if the copy judgment was not attached to the bankruptcy notice at the time of issue and there had not been substantial compliance, then the bankruptcy notice would be a nullity. The defect or irregularity would not be cured by s 306(1). What is a "formal defect or irregularity" in a bankruptcy notice for the purpose of s 306(1)? A defect is substantive and not formal if the defect is such that the bankruptcy notice fails to meet a requirement made essential by the Act (Kleinwort at 79 per Mason CJ and Wilson, Brennan and Gaudron JJ). In such a case, the notice is a nullity. What is a requirement made essential by the Act? In order to determine that question, one needs to consider the legislative purpose of the Act generally, the purpose of the provisions relating to bankruptcy notices, the purpose of the particular requirement and whether it was the legislative purpose that failure to comply with such a requirement should necessarily invalidate the bankruptcy notice. Further, one needs to evaluate the significance or importance of the defect in the circumstances of the case (Adams v Lambert at [26]-[29]). Generally, it seems to us that the attaching of a copy of the judgment or order to the bankruptcy notice at the time of issue is essential. We have set out the significance of the judgment as a foundation for the issue of the notice and the significance of the judgment debt being properly identified (see [31]-[34]). Further, the authorities referred to at [35] demonstrate such a requirement to be essential at the time of service. Equally, we would consider that the requirement is essential at the time of issue, for that is when validity needs to be assessed. Not to have the copy judgment so attached at the time of issue entails that the foundation for the notice and the basis for the administrative act of issue has not been properly identified. Moreover, the notice on its face would be incomplete and uncertain in an essential respect. 46 As the Full Court explained, the relevant authorities make plain that the requirement of attaching a copy of the judgment or order is essential at the time of service. It follows that the notice on its face was incomplete and uncertain in an essential respect and s 306(1) does not apply. The creditor's petition against the third appellant should have been dismissed for this reason alone.

[7]

D.2 Appeal Ground 1: Bankruptcy proceedings being used as a form of debt collection 47 Although what has been identified above is sufficient to determine the appeal in relation to the third appellant, as noted above, there was no such defect in the bankruptcy notice served on the first and second appellants. 48 I have already made reference to the fact that proceedings under the Act should not be used as a form of debt collection: see Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18 at [51]. The key characteristic of the bankruptcy process is that it provides a collective remedy for all creditors rather an option for collection of an individual claim. To use the threat of bankruptcy to achieve goals relevant only to the individual, and as a means of enforcement and collection of individual debts, is an attempt to leverage the debtor's fear of the stigma of bankruptcy in the hope that it produces the desired effect and the debtor pays the debt. Prior to engaging in a bankruptcy proceeding, it is necessary that a creditor have a reason to think that it is appropriate for the bankruptcy proceeding to be commenced in respect of a debtor. If a debtor is able to pay his or her debts, then individualised enforcement action should be used. 49 As noted above, the District Court judge had found that there was no evidence to suggest that the appellants were likely to do anything other than honour their debts. This was material that was in evidence before the primary judge. The only thing that had happened since the Costs Judgment was the augmentation of assets available to the first and second respondents by reason of the payment of the judgment by QBE. 50 Perhaps in recognition of this, on 17 May 2017, the solicitors for QBE wrote to the appellants noting that the first and second appellants were "served with QBE's cheque in the sum of $140,407.30" and they had previously been provided with a cheque for Legal & Company in the sum of $141,470.97. On the basis of this material, the QBE solicitors contended that the first and second appellants "therefore have the money to pay QBE the ordered sum of $141,470.97". This letter was in evidence before the primary judge. 51 Under these circumstances, it is difficult to see why no discussion took place before the primary judge as to whether the creditor's petition should be dismissed under s 52(2)(a) of the Act. As the QBE solicitors appear to have recognised, the evidence indicated that the appellants "had the money to pay QBE". Further, there was no exploration as to whether the creditor's petition could possibly have been set aside pursuant to s 52(2)(b) because there was "other sufficient cause a sequestration order ought not to be made", being that, in the light of at least some apparent evidence as to solvency, the proceedings were being used as a form of debt collection. 52 None of this material or these considerations were referred to in the Court below. Indeed, as noted above, a positive finding was made that the primary judge "that the first, second and third respondents are unable to pay their debts as and when they fall due." It is unclear as to how his Honour made that finding given the evidence. 53 Moreover, no suggestion was made to the self-represented litigants that advice should be obtained in relation to these matters or as to what was required of them to prove solvency. In making this point I am conscious that, in part, this is understandable given the submissions made on behalf of the appellants before the primary judge were difficult to follow. 54 Having said that, even if the view was formed that the debtors were insolvent (a conclusion which is difficult to sustain given the evidence before the primary judge), given the serious consequences of sequestration orders, it might have been expected that some guidance should have been provided as to what the appellants were required to do to discharge any onus of proof as to solvency. Be that as it may, the approach of the Court in dealing with the submissions of the appellants as to why the Court should be satisfied they could pay their debts or as to why a sequestration order ought not to be made against the appellants demonstrates error. The material in evidence before the primary judge pointing to possible solvency should, at the very least, have been properly considered.

[8]

D.3 Appeal Ground 2: Going behind the judgment against the first and second appellants 55 Again, given what I have found in relation to the previous grounds, it is not strictly necessary to deal with this appeal ground. 56 Notwithstanding this, having regard to the helpful submissions made on behalf of both parties, it is appropriate that I deal with this and the other grounds in short compass. 57 On the hearing of a creditor's petition, the Court has a statutory duty to be satisfied for the purposes of s 52 of the Act as to the existence of the petitioning creditor's debt: see Lowbeer v De Varda [2018] FCAFC 115 at [53], [87]. A judgment or order is never conclusive of the existence of the debt and the Court should go behind the judgment where "sufficient reason is shown for questioning whether behind the judgment there is in truth and reality a debt due to the petitioning creditor": Ramsay Health Care Australia Pty Ltd v Compton [2017] HCA 28; (2017) 261 CLR 132 at 143 [37]-[38]. 58 Importantly, as the High Court explained in Ramsay Health Care, scrutiny by a Bankruptcy Court of the debt is not an attempt to impeach the judgment upon which a bankruptcy notice is based and is not concerned with the question of whether the judgment should be set aside on appeal: at 147-148 [54]-[57]. 59 The appellants rely on three reasons as to why it was appropriate for the Court to have reached the level of satisfaction necessary to go behind the judgment. At [16]-[20] of the appellants' submissions, the following was set out: One reason to go behind a judgment is if the merits of a claim have not been tested in adversarial litigation (Ramsay at (68]) or where there has not been a hearing on the merits in respect of a particular issue: Cheung v Burness (Trustee) [2016] FCA 1381 at [77). A court is also entitled to go behind a judgment where there has been a miscarriage of justice (Ramsay at (69) citing Petrie v Redmond (1943) St R Qd 71 at 75-6). Inadequate representation may also provide grounds for going behind a judgment because relevant failures to present a case on its merits "should not enure to the disadvantage of persons who were not parties to those proceedings'": Ramsay at [71]. Once a court decides to go behind a judgment, the onus of proof in relation to the underlying issue falls on the party claiming to be a creditor: Corney v O'Brien (1951) 84 CLR 343 at 358; see also Lowbeer at [88] citing Cheung at [79]. ln the present case there was sufficient reason to question the existence of a real debt against the first and second appellants and to determine that there was no such debt in existence. Insofar as Saqiba Sattar is concerned, Legal and Company instituted proceedings in her name without having met her, seen her, seen any form of authority from her or obtaining instructions from her and did not tell her about the Calderbank offer (or an offer made under the Uniform Civil Procedure Rules). [The District Court judge] found that there was "serious neglect, serious incompetence and serious misconduct" by Legal and Company. However, [the District Court judge] made a costs order against Saqiba Sattar notwithstanding those findings. The institution of proceedings by a solicitor without authority is a recognised basis for the making of an order that the solicitor pay the defendant's costs directly: In re Gardiner, Ex parte Orgill (1890) 16 VLR 641; Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 187. The making of the costs order against Saqiba Sattar was a miscarriage of justice brought about by the "serious neglect, serious incompetence and serious misconduct" of Legal and Company. The costs order should not have been made against Saqiba Sattar. Rather, Legal and Company should have been ordered to pay QBE's costs directly. Insofar as Muhammad Alam is concerned, [the District Court judge] also found that there was "serious neglect, serious incompetence and serious misconduct" by Legal and Company. Mr Alam was not told about the Calderbank offer (or an offer made under the UCPR) and his instructions were not sought in respect of those offers. In circumstances where Mr Alam had a meritorious claim against QBE (and recovered judgment against them), the costs order in favour of QBE should have been made against the solicitor and not him. 60 At the very least, the matters referred to by the appellants raised the real issue as to whether or not the costs order relied upon by QBE should have been made. Given the remarkable circumstances revealed by even a cursory examination of the District Court judgment, some consideration should have been given to the possibility of examining the circumstances more closely to ascertain whether the suggestion that there was a miscarriage of justice in making the costs order survived closer examination. As can be seen from the transcript (see [36] above) it was expressly submitted to the primary judge that a sequestration order should not be made "without looking all (sic) the matters", that is, the circumstances in which the costs order was made. The primary judge rejected this by noting (see [37] above), that "(n)othing said by the third respondent identified any proper basis upon which this Court could go behind the judgment obtained". With respect, the judgment was not conclusive and the circumstances as revealed in the evidence required that some effort be made to understand whether a bankruptcy court ought to "go behind" the judgment debt, given the suggestion of a miscarriage of justice. In short, the primary judge erred in failing to consider the point properly, although it is unnecessary to conclude whether a miscarriage would have been established in the circumstances.

[9]

D.4 Appeal Ground 3: Going behind the judgment against the third appellant 61 In relation to the third appellant, the point I have just made is qualitatively stronger. The costs order against her was based on the finding that she was a tutor. However, the chronology and the findings of the District Court judge that the second appellant was not suffering from a disability brought into sharp focus the insecure basis for such an order being made. As the appellants correctly submitted: [The District Court judge] addressed Qamar Sattar's liability for costs at pages 12 to 16 of the costs judgment given on 15 December 2016. Although the judgment states that "Qamar Sattar was appointed as the tutor for Ms Saqiba Sattar in July 2015", Qamar Sattar disputed that she was appointed as Saqiba Sattar's tutor. Rather, [the District Court judge] noted that Qamar Sattar did not want to be a tutor for Saqiba Sattar, found that Qamar Sattar was not the tutor when the Calderbank offer was made and noted that Qamar Sattar denied that she had signed the consent to act as tutor which was filed in the District Court on 22 July 2015 and purported to bear Qamar Sattar's signature. That evidence was not contradicted by the Legal and Company solicitor who was "unable to offer any assistance" on the issue. [The District Court judge] stated that these matters were "beyond the scope of [the] judgment" and did not seek to resolve the question as to whether Qamar Sattar had in fact consented to act as tutor. [The District Court judge] noted in relation to other disputed evidence that she found Qamar Sattar to be an honest witness. A sequestration order should not have been made against Qamar Sattar, in reliance on a costs order which was premised on Qamar Sattar's valid appointment as Saqiba Sattar's tutor, in circumstances where Qamar Sattar gave uncontradicted evidence that she did not provide her consent to act as tutor. There is a further reason why a sequestration order should not have been made against Qamar Sattar. [The District Court judge] also found that "Saqiba Sattar is not a person under a legal disability". Under Part 7, Div 4 of the UCPR, a threshold requirement for the appointment of a tutor is a "person under legal incapacity" which is defined in section 3 of the Civil Procedure Act. However, [the District Court judge] found that Saqiba Sattar had "full legal capacity" and made a costs order against her. In NSW Insurance Ministerial Corporation v Abualfoul (1999) 94 FCR 247, Sackville J dismissed a creditor's petition in circumstances where the debt was based on a judgment for costs in District Court proceedings against a "next friend". In considering the general law requirements concerning persons who are incapable of bringing an action without the assistance of some other person, Sackville J noted at 254 that one reason for the requirement "was so that there would be a person answerable to the defendant for the costs of the litigation". In the circumstances, there was no basis in the UCPR for the appointment of Qamar Sattar as a tutor and no basis for the making of a costs order against her in that capacity given that a costs order was made against Saqiba Sattar. Further, [the District Court judge] found that Qamar Sattar was appointed tutor in July 2015. That was well after the commencement of proceedings in 2014 and after the making of the Calderbank offer on 17 October 2014. However, the costs order made against Qamar Sattar was for the entirety of the proceedings including the costs incurred prior to her appointment as tutor. A costs order for the entirety of the proceedings should not have formed the basis for the making of a sequestration order against Qamar Sattar: see NSW Insurance v Abualfoul at 257. [The District Court judge] also noted that Qamar Sattar received no relevant advice about her exposure to costs liability and that while it "may seem unfair" to make a costs order against Qamar Sattar, [the District Court judge] was bound by authority to make the order by "the fact that Ms Qamar Sattar was the tutor". However, there is no invariable rule that a litigation representative must be ordered to pay the costs of proceedings unsuccessfully brought or defended on behalf of a person under a legal capacity: Challenger Life Company Limited v Estate of the Late Robert John Real (No 2) [2017] FCA 1059 at [53]. To the contrary, there are cases where the Court has imposed restraints upon the liability of a tutor for costs: see for example, Jaffari v Minister for Immigration and Multicultural Affairs (2001) 113 FCR 10; Adams by her next friend O'Grady v State of New South Wales (No 2) [2008] NSWSC 1394 at [7]-[8). In the case of Qamar Sattar, there was good reason not to make a costs order against her given the unfairness noted by [the District Court judge]. 62 Given these matters, my view is that a miscarriage did occur in ordering costs against the third appellant and this is a further reason why the appeal ought to be allowed on behalf of the third appellant, in addition to the fundamental problem in relation to the petition against the third appellant already discussed in section D.1 above.

[12]

E Conclusion and Orders 68 In all the circumstances, the appeal should be allowed, and the orders of the Federal Circuit Court made on 22 March 2018 be set aside. The question then becomes: where do we go from here? 69 It seems to me that it is appropriate for me to proceed to deal with the creditor's petition dated 16 August 2017 against each of the appellants, rather than remitting the matter to the Federal Circuit Court for redetermination. Neither side of the record submitted otherwise and it is possible to resolve the proceeding without updated affidavits of debt and as to searches. 70 The fundamental defect in the bankruptcy notice against the third respondent means the petition ought to be dismissed against her. 71 As to the first and second appellants, even without forming views as to miscarriage of justice in the making of the costs order, the creditor's petition against them should not result in a sequestration order being made. The state of the evidence before the Court, although not complete, provides a basis for concluding, consistently with the view apparently formed by the District Court judge, that it is more probable than not that the first and second appellants are able to pay their debts. 72 As the Full Court in Re Sarina explained, the words "able to pay his [or her] debts" in s 52(2) of the Act do not mean "willing and able" to do so: at 165. It will be a matter for the appellants as to whether, properly advised, they propose to take steps to appeal the orders made by the District Court judge. Irrespective of whether that order remains in force, the failure to pay the judgment debt alone, does not entitle QBE to a sequestration order. Subject to any appeal, QBE is entitled to resort to the remedies otherwise available to it at law, such as an execution against property or garnishee proceedings, but bankruptcy proceedings should not be pursued as a debt collection mechanism against apparently solvent persons. 73 The creditor's petition should be dismissed against each of the appellants. Accordingly, I will make such an order and also order that QBE pay the appellants' costs of the appeal and the proceedings in this Court. I am conscious, however, that given that the appellants were unrepresented, it may be that no legal costs are recoverable in the Federal Circuit Court. In relation to the costs of the appeal in this Court, it seems to me appropriate that a lump sum costs order be made. I grant leave to the appellants to provide to my Associate within seven days, any material which will assist in determining the appropriate quantification of the lump sum costs order that should be made with respect to the proceeding in this Court. 74 At that time I will also make an order under FCR 4.19(3), given that I understand a costs agreement has been entered into, and that is that QBE pay any costs directly to Mr Hewitt when it has been quantified. I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

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