Alfio Peter Bulic v Commonwealth Bank of Australia Limited

REASONS FOR JUDGMENT 1 This is an application by Mr Alfio Bulic for an annulment of his bankruptcy. The application is made pursuant to s 153B of the Bankruptcy Act 1966 (Cth) ("the Act"). Mr Bulic became bankrupt upon the making of a sequestration order by a Registrar of the Court on 8 May 1995. By operation of s 153(1) of the Act Mr Bulic was discharged from bankruptcy on 8 July 1998. 2 Mr Bulic contends that the sequestration order was wrongly made because he was not indebted to the respondent at the time at which it was made and that, in any event, his assets exceeded any liability which he may have had to the respondent at that time. He seeks to have his bankruptcy annulled because his reputation has suffered and he has suffered significant shame, distress and anxiety. 3 The relevant facts are, largely, not in dispute. In 1990 Mr Bulic owed some $230,000 to the State Bank of Victoria. This sum was made up of principal and interest on loans made to Mr Bulic for business purposes. The loans were secured by a mortgage over a residential property, owned by Mr Bulic, in Balwyn. In 1990 the property was sold and most of the proceeds of the sale were paid to the bank. The mortgage was discharged. Mr Bulic says that he assumed that the money paid to the bank was sufficient to extinguish his debt. The respondent asserts that the debt was not wholly extinguished and Mr Bulic's then solicitor has stated that he had so advised Mr Bulic in early 1991. In 1993 the respondent (which had by then taken over the State Bank of Victoria) commenced proceedings in the County Court of Victoria seeking recovery of $59,638.01 allegedly owed by Mr Bulic. A default judgment was entered on 15 June 1993 and it has never been set aside. On 29 April 1994 Mr Bulic paid the respondent $7,000 pursuant to an agreement made between him and the respondent. He made a further payment of $3,000 on 4 May 1994. On 2 February 1995 the respondent, as judgment creditor, petitioned the Court for a sequestration order against the estate of Mr Bulic. The debt on which the respondent relied was in the sum of $49,638.01. Mr Bulic filed a Notice of Opposition in response to the creditor's petition. That Notice did not assert that Mr Bulic was not indebted to the Respondent. Rather he sought to rely on the claim that the execution of the judgment had been stayed by the agreement. On 8 May 1995 a sequestration order was made by a Registrar. Mr Bulic did not attend before the Registrar and he was not represented. No application was subsequently brought for review of the Registrar's decision. No application was made by Mr Bulic to annul the bankruptcy during its currency. 4 It is necessary to examine, in some greater detail, certain events which occurred between the entry of the default judgment in the County Court in 1993 and the making of the sequestration order in May 1995. Upon becoming aware of the default judgment Mr Bulic sought legal advice. He then entered into negotiations with the respondent. The outcome was the agreement that he pay the respondent the full amount of the judgment debt over a period of four years. The respondent, for its part, agreed not to charge interest on the outstanding sum during this period. The two payments, made in April and May 1994, were paid pursuant to this agreement. When no further payments were made the creditor's petition was filed. When responding to the creditor's petition Mr Bulic did not dispute his alleged indebtedness to the respondent. On the contrary, he admitted it. In an affidavit which he swore on 3 April 1995 he deposed: "6. THAT I have given one Robert Molesworth H Cole a registered Trustee an authority under section 180 of the Bankruptcy Act to call a meeting of creditors. I am informed by him and verily believe that the said authority will be filed in the proper offices of the Registrar in Bankruptcy during the course of today 3 april 1995." "7. THAT I have in all creditors of approximately $250,000 - $300,000 including the debt to the Petitioning Creditor." In the present proceeding he has given evidence that the true position was that he had between $250,000-$300,000 owed to him as a result of work he had undertaken for third parties but for which he had not been paid. He attributed the suggested error in his affidavit to language difficulties. His explanation is not persuasive. Had he been intending to alert the Court to the fact that he had assets which well exceeded the amount of his indebtedness to the respondent it is unlikely that he would have said that the debt to the respondent formed part of the $250,000-$300,000 which he now claims to be monies owing to him at the time. It is also unlikely that he would have caused a meeting of his creditors (which included the respondent) to be called. 5 While the bankruptcy proceeding was pending in this Court the applicant was advised by his then solicitor that he could not succeed in defending the proceeding because he could not prove that he didn't owe the money claimed by the respondent. He took advice from his solicitor as to whether or not he should enter into an arrangement under Part X of the Act. Having considered the matter he decided not to do so. 6 After the sequestration order was made a statement of affairs, signed by Mr Bulic, acknowledged his debt to the respondent. 7 In April 1999, following his discharge from bankruptcy, Mr Bulic applied to the County Court for an order setting aside the 1993 default judgment. The application was dismissed on 22 June 1999 because Mr Bulic's trustee in bankruptcy refused permission for him to prosecute the application. 8 Over the past decade Mr Bulic has made strenuous efforts to obtain bank records which, he claims, would demonstrate that he was not indebted to the respondent (or its predecessor) once the proceeds from the sale of his property were paid to the bank early in 1991. These efforts have included extensive correspondence with the respondent, a complaint to the Banking Ombudsman, an application to the Privacy Commissioner and the bringing of a proceeding in the Supreme Court of Victoria which appears to have been commenced in order that the respondent would be required to discover such records. All these attempts have failed. Mr Bulic has never been provided with a reconciliation and supporting documentation. The respondent claims that, in 1991, Mr Bulic was advised that the relevant statements were available for him to collect at his local bank branch but that he did not avail himself of the offer. Mr Bulic disputes that the offer was made or received by him. There is an ongoing dispute as to what, if any, records continue to be held by the bank. 9 Mr Bulic's application was served on his trustee and on the Respondent. He asserted that, apart from the Respondent, he had no creditors. Despite being served, the trustee did not prepare a report in accordance with the requirements of Rule 7.04(1) of the Federal Court (Bankruptcy) Rules 2005. Neither party sought to make complaint about this failure or to suggest that he or it was prejudiced as a result. The trustee did not appear at the hearing. 10 Although some details of Mr Bulic's financial position were provided by him, those details were far from comprehensive. They did not enable a judgment to be formed as to whether or not he is presently solvent. My attention was drawn to certain documents which established that Mr Bulic entered into an agreement - a deed of assignment - with his trustee when he was seeking to pursue certain persons whom he claimed owed him money for work and labour which he had supplied at a sporting venue. It was a condition of that arrangement that a percentage of any judgment sum which was secured as a result of the then proposed proceeding would be paid to his trustee. On 20 July 1998 Mr Bulic obtained a Court order in his favour for $91,200. He was, pursuant to the agreement, required to pay the agreed sum to his trustee. He has not done so. The amount owed to his trustee was said to be $34,357.04. At the hearing he said that he had advised his trustee that he would not pay this debt until the trustee had secured a proof of debt in relation to the sum allegedly owed by him to the respondent. 11 During the course of the hearing it was noted that Mr Bulic had not proffered any undertakings that he would pay the costs of the Respondent or the trustee's costs of administration in the event that he was successful in obtaining an order that his bankruptcy be annulled. Such undertakings were proffered, on instructions, by his counsel during the course of the hearing. 12 Section 153B(1) of the Act relevantly provides that: "If the Court is satisfied that a sequestration order ought not to have been made …the Court may make an order annulling the bankruptcy." Section 153B(1) and its predecessors have been considered in many decisions of this and other Courts. These authorities establish a number of relevant propositions. They are: (1) An order can be made under s 153B(1) of the Act notwithstanding that the applicant has been discharged from bankruptcy; Re Oates; ex parte Deputy Commissioner of Taxation (1987) 17 FCR 402. (2) An applicant who seeks an annulment of his or her bankruptcy "carries a heavy burden". It is incumbent on an applicant "to place before the Court all relevant material with respect to his or her financial affairs so that the Court may be properly informed and may make a judgment that is based on the actual circumstances of the applicant": Re Papps; Ex parte Tapp (1997) 78 FCR 524 at 531. (3) In determining whether or not a sequestration order "ought not to have been made" the Court is not confined to a consideration of whether the order should have been made on the facts known to the Court at the time at which it was made. The Court must take account of facts, known at the time at which the sequestration order was made and at which it determines an annulment application, even if those facts were not before the Court at the time at which the sequestration order was made: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243; Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426. (4) A sequestration order "ought not to have been made" if, on the facts known at the time of the annulment application, the Court would have been bound not to make the sequestration order: Re Frank; ex parte Piliszky (1987) 16 FCR 396. (5) The Court will be so satisfied if it is established that the debtor was not, at the time the sequestration order was made, indebted to the petitioning creditor: Re Deriu (1970) 16 FLR 420 at 422. (6) If the Court is so satisfied, it is not precluded from annulling the bankruptcy because the bankrupt had not sought to have the default judgment set aside or failed to oppose the creditor's petition or failed to seek a review of the sequestration order: Re Raymond; ex parte Raymond (1992) 36 FCR 424 at 426. (7) The power conferred on the Court by s 153B(1) is discretionary in nature. Even if persuaded that the sequestration order ought not to have been made, the Court can, in appropriate circumstances, decline to annul the bankruptcy: Boles v Official Trustee in Bankruptcy (2001) 183 ALR 239 at 243. (8) Considerations which may have a bearing on the exercise of discretion include unexplained delay in the making of the application, whether or not the applicant is solvent, whether or not the applicant has made full disclosure of his or her financial affairs and a failure by the bankrupt to oppose the creditor's petition and attend the hearing at which the sequestration order was made: Re Williams (1968) 13 FLR 10 at 24-5; Boles at 247; Re Papps; ex parte Tapp (1997) 78 FCR 524 at 531; Rigg v Baker [2006] FCAFC 179 at [79]; Cottrell v Wilcox [2002] FCA 1115 at [7]. Additional considerations are collected in D. A. Hassall, "Annulment of Bankruptcy and Review of Sequestration Orders" (1993) 67 ALJ 761 at 766. 13 Mr Bulic's application to the Court did not set out the grounds on which the annulment was sought. In his written submissions counsel for Mr Bulic contended that "the sequestration order ought not to have been made because the original debt relied upon by the Respondent to secure that the bankruptcy never existed, the County Court was mislead (sic) by the Respondent in obtaining the default judgment, and so there was no basis to obtain the sequestration order." Mr Bulic accepted that he carried the burden of establishing that, for these reasons, the sequestration order ought not to have been made. In seeking to make good these claims he laboured under the difficulty of not having access to relevant bank records and any reconciliation calculated by the respondent. He relied on advice which had been given to him in a letter from the bank in November 1990 which said that his debt was about $208,000. He knew that about $217,000 from the sale price of his property had been paid to the bank. He calculated, by reference to the then current interest rates, that interest on the $208,000 could not have exceeded $9,000 in the period between November 1990 and the end of January 1991 when the proceeds of the sale were paid to the bank. It was submitted that these calculations strongly suggested that "the debt to [the bank] was cleared in January 1991." He noted that no proof of debt has ever been obtained from the Respondent and that the default judgment in the County Court was obtained solely on the basis of a sworn assertion by a bank officer that the debt was owed. 14 Put simply, Mr Bulic contends that the sequestration order ought not to have been made because he was not, in May 1995, indebted to the Respondent. 15 Whilst I entertain some sympathy for the evidentiary difficulties which confront Mr Bulic, and can understand the reason that he has been forced to develop his contentions in the way that he has, I am not persuaded, on the evidence, that the debt was not owed. At the time at which the default judgment was entered in 1993 and, in the early part of 1995 when the creditor's petition was before this Court, Mr Bulic received legal advice from solicitors who were acting for him. At those times he acknowledged his indebtedness to the Respondent. He did so by entering into the arrangement with the Respondent under which it was agreed that he would pay the money owing over a four year period. Such an acknowledgement is also implicit in his making of two payments totalling $10,000 to the Respondent in 1994. The debt is acknowledged in the affidavit which he swore in the proceeding commenced by the filing of the creditor's petition. He did not file a defence in the County Court action which led to the entry of the default judgment. In particular, he did not, at that time, seek to call into question the veracity of the bank officer's deposition on which the default judgment was obtained. As recently as 25 March 2002 Mr Bulic wrote to the Respondent's solicitor referring to his belief that "if I could pay the CBA the money I owed I would feel better inside by 'clearing my name'." 16 There is nothing in the material presently before the Court and which was not before the Registrar which would, in my view, have induced her to refuse to make the sequestration order. 17 Even had I been persuaded that the debt had not been owed I would still not have been disposed to annul Mr Bulic's bankruptcy. I am not satisfied, on the material before me, that he has been solvent, at least since early 1993. He is presently indebted to his trustee for a significant sum and he has provided no evidence of his capacity to pay that debt. His failure to attend the hearing before the Registrar in order to oppose the making of the sequestration order is also relevant as is the 11 year delay in seeking to have the sequestration order annulled. 18 The respondent filed a motion to strike-out the proceeding on the basis that it was an abuse of process. I agreed to hear the strike-out application and argument on the merits of the annulment application together in order to avoid unnecessary costs to the parties and ensure efficient use of Court time. Having regard to my determination that the annulment application should be refused it is unnecessary that I deal with the strike-out application. 19 After the foregoing reasons had been written but before judgment had been delivered Mr Bulic applied to the Court to reopen his case. He did so in the following circumstances. Prior to the original hearing his solicitor had served a notice to produce on the respondent covering, effectively, all documents in the possession of the respondent which touched on his indebtedness. When the notice to produce was called on at trial counsel for the respondent advised the Court that the respondent could not add to the state of the evidence. In fact there was, in the possession of the respondent, four folders containing some 753 pages, most, if not all of which, were comprehended by the notice to produce. There is a dispute between the parties as to why the documents were not produced at or before trial. I accept that there was no intention on the part of the respondent deliberately to withhold the material. Rather, it appears that the files were held in a different part of the respondent's large organisation than the one which was giving instructions in relation to the proceeding. Greater diligence could and should have ensured that the documents were produced to Mr Bulic at or before the initial hearing. That said, the respondent, upon becoming aware of the existence of the files had them copied and supplied them to Mr Bulic on 9 March 2007. Upon receipt of the files Mr Bulic made application to reopen his case. 20 The parties made detailed written submissions in support of and in opposition to the reopening of the case. When the application was called on for hearing both counsel (subject to one exception) advised the Court that their submissions contained all that they desired to submit as to the potential use of the material (should it be admitted in evidence) in supplementing the cases they had already argued. The exception was taken by counsel for Mr Bulic. He indicated that his client may wish to have certain balance inquiry dockets submitted to an accountant for an expert opinion which might then be tendered in evidence. 21 There is no doubt that the Court has a discretion, in the interests of justice, to order that Mr Bulic's case should be reopened so that he can adduce further evidence and advance further argument: see Inspector General in Bankruptcy v Bradshaw [2006] FCA 22 at [24]. The availability of "fresh evidence" will, in some circumstances, warrant the reopening of a case. 22 Mr Bulic submits that the documents would establish a number of negative propositions. They are that: · There are no documents held by the respondent which contain any direct proof of Mr Bulic's indebtedness in the sum alleged. · The files appear to have been "culled" and are incomplete. It is also suggested that the documents appear, in some instances, to be confusing and self contradictory. The balance inquiries which, it is said, should be examined by an expert accountant are numerous. They are printouts of computer records on various dates between 1990 and 1992. They relate to each of the four accounts held by Mr Bulic with the respondent and its predecessor. Each records debit and credit entries over a particular period. They appear to have been printed at the instigation of bank officers and used as the basis for the calculation of Mr Bulic's indebtedness from time to time. 23 The respondent accepts that the Court has a discretion to reopen the case but submits that there is nothing in the newly produced material which would warrant such a step being taken. This is because there is nothing in that material which could reasonably be regarded as advancing the case already put by Mr Bulic. It contends that, on the contrary, there is certain documentary material which confirms Mr Bulic's indebtedness to it, in the amounts alleged, at relevant times. 24 I have examined each of the documents which are relied on by the parties. I have come to the view that there is nothing in any of them which would support Mr Bulic's application for the annulment of his bankruptcy. Indeed, as the respondent submits, there is a good deal of material which tends to confirm Mr Bulic's indebtedness. In particular, there is a letter to the respondent's predecessor from the solicitor acting on Mr Bulic's behalf in relation to the sale of Mr Bulic's residential property. On 10 January 1991 (after the private sale had taken place but before settlement had occurred) the solicitor wrote: "We note that the payout figure in relation to the abovementioned property is now approximately $266,000 and therefore in excess of the amount recoverable at settlement. We confirm that our clients are not presently in a position to pay the balance outstanding in their account but have agreed to transfer the balance payable at settlement to reduce this amount." Other documents confirmed some of the monetary figures relied on when the respondent ultimately sought the making of a sequestration order. There is nothing in the material to which my attention was directed which would support an argument that Mr Bulic was not indebted to the respondent at the time at which the sequestration order was made. 25 It is true, as Mr Bulic contends, that the files appear to be incomplete. The respondent acknowledges that this is the case, explaining that documents are normally destroyed after seven years. Even if I were disposed to accept Mr Bulic's assertion (which I am not) that adverse inferences should be drawn against the respondent by reason of the incompleteness of the records this would not establish that he was not indebted to the respondent at the time at which the sequestration order was made. 26 Mr Bulic has had over three months to submit the balance inquiry printouts to an accountant for an opinion. He has not done so. In any event, having examined them, I do not consider that they would advance, in any way, the case put by him at the original hearing. 27 In the circumstances, it is not appropriate to accede to the application by Mr Bulic to reopen his case. I would refuse the application. 28 The respondent sought indemnity costs in respect to the original hearing and makes the same application in respect of the application by Mr Bulic to reopen his case. 29 The Court has an absolute and unfettered discretion to award costs but that discretion must be exercised judicially: see Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 42 FLR 213 at 219. Any departure from the ordinary rule that costs should be paid on a party-party basis requires the presence of something special or unusual in the conduct of the case to be demonstrated: see Preston v Preston [1981] 3 WLR 619 at 637. The types of case in which it may be appropriate to award indemnity costs do not fall in any closed categories: see Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, French J, 3 May 1991). One type of case in which it has been held that indemnity costs might be ordered is that in which an applicant pursues a hopeless case. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 Woodward J said: "I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the Court will need to consider how it should exercise its unfettered discretion." See also the authorities collected by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 230-234. 30 There is force in the respondent's submissions that both the principal application and the application to reopen were bound to fail. I am not, however, persuaded that any ulterior purpose motivated Mr Bulic in bringing either application. He was, and remains, frustrated by the inability of the respondent to provide him with a detailed documentary foundation for the claims which led to his bankruptcy. He is anxious to clear his name of the perceived stain of bankruptcy. He has sought and obtained legal advice which I must assume was to the effect that he had an arguable case. The application to reopen occurred as a result of the respondent failing to respond (as it should have done) to Mr Bulic's notice to produce. Again, Mr Bulic had legal advice that I must assume was that he could mount an arguable case in favour of the application for leave to reopen. He was, at all hearings, represented by experienced counsel who advanced plausible arguments on his behalf. 31 In the circumstances I consider that the normal order for costs should be made in respect to both the principal application and the application for leave to reopen. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice TRACEY.