Cooper v Selection Steel Trading Pty Ltd

Federal Court of Australia|2023-08-18|Before: O'Sullivan J

The application is dismissed.
The applicant is to pay the costs of the respondent of and incidental to this application as a lump sum to be assessed by a Registrar of the Court if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

O'SULLIVAN J: 1 The applicant seeks the annulment of a sequestration order made on 5 March 2020 against him by a Registrar of the Court on the sole ground that contrary to r 4.06 of the Bankruptcy Rules 2016 (Cth), he was not served with the Bankruptcy Petition personally such that the sequestration order is invalid (application). 2 The second part of the application claims that as a consequence of that invalidity, the Court: (a) Must annul the sequestration order pursuant to s 153B of the Bankruptcy Act 1966 (Cth); and (b) Order a taking of account of the damage caused and penalties that have accrued "by action of law". 3 At the hearing of the matter, the applicant, who represented himself, went far beyond the sole ground set out above. Nonetheless, the respondent was content to address the matters raised by the applicant such that the following issues arise: (a) On the question of whether the Court is satisfied that a sequestration order ought not to have been made: (i) The validity of the debt upon which the Bankruptcy Notice proceeded; (ii) Whether the parties entered into a settlement agreement which provided for mutual releases; (iii) Service of the originating process in the Magistrates Court of Victoria and the default judgment obtained by the respondent in that Court; (iv) Service of the Bankruptcy Notice; and (v) Service of the Creditor's Petition. (b) If the Court is satisfied that a sequestration order ought not to have been made, whether in the exercise of the Court's discretion under s 153B of the Act, the sequestration order should be annulled. 4 It is for the reasons which follow that the application is dismissed.

Documents read 5 Initially, the applicant identified five affidavits upon which he relied but during the course of this matter, he has sworn the following: (a) 20 April 2022, filed 11 May 2022 (first Cooper affidavit); (b) 10 June 2022, filed 10 June 2022 (second Cooper affidavit); (c) 23 June 2022 (third Cooper affidavit); (d) 20 July 2022 (fourth Cooper affidavit); (e) 16 September 2022 (fifth Cooper affidavit); (f) 7 October 2022 (sixth Cooper affidavit); (g) 27 March 2023 (seventh Cooper affidavit); and (h) 30 March 2023, sworn 4 April 2023 (eighth Cooper affidavit). 6 The respondent reads the affidavits of: (a) Paul Kocsis affirmed 14 March 2023 (Kocsis affidavit); (b) Melissa McPherson affirmed 19 April 2023 (McPherson affidavit); and (c) Cameron Henderson sworn 19 July 2022 (Henderson Affidavit).

Background 7 Mr Paul Kocsis is the General Manager, Finance, of the respondent. He deposes in and annexes to the Kocsis affidavit that on 19 September 2017 the applicant, as a sole trader, applied for a trading account in the name of Cooper Engineering. The application gave a trading address at Paskeville in rural South Australia. The application was stamped as approved by the respondent on 20 September 2017. The form is said to comprise six pages, however only two pages are annexed to the Kocsis affidavit. Neither party made any point about the missing pages. 8 In a Complaint issued out of the Magistrates Court of Victoria at Dandenong on 16 February 2018 (Complaint) the respondent alleged that the applicant owed it $17,947.28 for the sale and delivery of steel products and services to the applicant during September 2017: (second Cooper affidavit), annexure RJC-10. 9 The Complaint is incomplete but at [6] pleads part payment by the applicant of $5,000 against an outstanding amount of $22,947.28 leaving a balance of $17,947.28. 10 On 22 June 2018, the respondent, using a process server, served the Magistrates Court proceedings on a person at the applicant's place of business (being Paskeville) apparently above the age of 16 and apparently in charge of that business and employed in the office of that business: second Cooper affidavit annexure RJC-10. 11 On 10 August 2018, the respondent obtained default judgment against the applicant in the sum of $20,455.55: Henderson affidavit, annexure A, p 30. 12 No application to set aside the default judgment has been made. 13 On 3 April 2019, the respondent served a Bankruptcy Notice on the applicant: Henderson affidavit, annexure CH-2 p 25. 14 The applicant failed to comply with the Bankruptcy Notice. On 27 May 2019, the respondent issued a Creditor's Petition and applied for a sequestration order against the applicant's estate pursuant to ss 40(1)(g) and 43(1) of the Act. 15 On 15 January 2020, a Registrar of the Federal Circuit Court of Australia (as it was then known) made an order dispensing with personal service of the Creditor's Petition. The Registrar ordered the Creditor's Petition, together with other documents, be served on the applicant by regular mail at an address at Two Wells, South Australia. The Registrar also ordered an email be sent to the applicant at a specified email address with the documents attached, a particular subject header for the message, as well as specified words to be included in the body of the email: Henderson affidavit, annexure CH-1. 16 On 16 January 2020, the respondent served the documents in accordance with the Registrar's orders. 17 Notwithstanding the Registrar's orders made 15 January 2020, the applicant contends that he was not served personally with the Creditor's Petition. 18 On 11 May 2022, over two years after the sequestration order was made, the applicant commenced these proceedings seeking an order that his bankruptcy be annulled.

Principles 19 The application is brought under s 153B(1) of the Act which provides: 153B Annulment by Court (1) If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy. (2) In the case of a debtor's petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented. (3) The trustee must, before the end of the period of 2 days beginning on the day the trustee becomes aware of the order, give to the Official Receiver a written certificate setting out the former bankrupt's name and bankruptcy number and the date of the annulment. 20 The process under s 153B of the Act is a two-stage process. The first is that a Court must be satisfied a sequestration order ought not to have been made and the second, if satisfied, the exercise of the discretion as to whether or not the bankruptcy should be annulled. 21 In Bulic v Commonwealth Bank of Australia Ltd [2007] FCA 307, at [12] Tracey J identified a number of relevant propositions applicable to s 153B(1) of the Act: (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. 22 Tracey J's summary of relevant considerations was referred to with apparent approval in Francis v Eggleston Mitchell lawyers Pty Ltd [2014] FCAFC 18 at [16] (Rares, Flick and Bromberg JJ).

Whether the Court is satisfied that a sequestration order ought not to have been made 23 In summary, the applicant makes three points. The first is that he does not owe the respondent any money (the validity of the debt). The second is that a settlement agreement was reached as between the respondent and himself. The third is that he was not served with the Magistrates Court proceedings, nor the Bankruptcy Notice, nor the Creditor's Petition.

The validity of the debt 24 The applicant contends he is in credit with the respondent in the sum of $9,185.20 and sets out a list of payments he alleges he made to the respondent over the period 14 September 2017 to 19 January 2020: first Cooper affidavit, annexure RJC-3 at p 13. Some of those payments were by cheque and others by electronic funds transfer. 25 Ms Melissa McPherson is the National Credit Manager/Accountant employed by the respondent. She deposes in the MacPherson affidavit as to payments received from the applicant through its former solicitors who issued the Complaint on behalf of the respondent. Ms McPherson annexes a copy of the trust account statement from those solicitors, as well as a copy of the respondent's bank statements between 25 October 2019 to 1 November 2019 showing payments received from the applicant via the solicitors. 26 She deposes further that she has inspected the respondent's records and is not aware of any other payments received from the applicant during the period 1 September 2019 and 1 April 2020. 27 The only payments received by the respondent's former solicitors and transferred to the respondent were those made by electronic funds transfer on 18 and 24 September 2019, respectively. 28 The remaining payments the applicant alleges he made were made by cheque. He deposes in the first Cooper affidavit at annexure RJC-3 that he either posted the cheques to the respondent or handed them to a manager. The respondent has no record of those cheques. 29 Although the applicant annexes at annexure RJC-3 his bank account statement showing that two of the cheques, being numbers 823 and 824 were presented on 14 September 2017, as well as the cheque butts for those cheques made out to the respondent, they are the only cheques for which the applicant produced evidence as being presented. The remaining cheques alleged to have been paid were on 25 May 2018 ($3,000); 27 May 2018 ($5,813.50); 22 April 2019 ($1,000); 27 December 2019 ($3,000); and 9 January 2020 ($3,000). The respondent has no record of receiving any payments, other than the ones to which Ms McPherson has deposed between 1 September 2019 and 1 April 2020 and there is no record of those other cheques being presented. 30 The applicant has produced the cheque butts but not the cheques themselves, which he could have obtained from his bank, nor has he deposed to any attempt to obtain the cheques. 31 Further, in the second Cooper affidavit at RJC-10, the applicant annexes the statement of claim in the Magistrates Court of Victoria. That statement of claim acknowledges payment of the sum of $5,000 (cheque number 824) such that one of the cheques to which I have referred above has been taken into account. 32 Under those circumstances, save for the one payment of $5,000, I do not accept that the applicant has made the payments he asserts were made by cheque. 33 Accordingly, the challenge by the applicant to the debt alleged by the respondent fails and I am satisfied the applicant was indebted to the respondent at the time the sequestration order was made.

Settlement agreement 34 The applicant contends that a settlement agreement was reached as between himself and the respondent. As I understand the applicant's submission, the settlement agreement was reached between the parties in satisfaction of the debt owed by the applicant to the respondent. 35 The settlement agreement is titled "Terms of Settlement" and is annexed to the seventh Cooper affidavit. It is unsigned and undated. 36 An initial objection made by the respondent to the Court receiving the seventh Cooper affidavit and the settlement agreement annexed to it was subsequently withdrawn. 37 The seventh Cooper affidavit was read on the application and a version of the settlement agreement, signed by the applicant only but undated, was tendered by the respondent and received into evidence as exhibit A1. 38 The respondent has no copy of the settlement agreement which has been executed by it. Clause 6 of the settlement agreement provides for execution by counterpart. 39 On 16 November 2019, the applicant wrote to the respondent: eighth Cooper affidavit annexure RJL-56, in which the applicant disagreed with the contents of the settlement agreement. Nonetheless, the applicant had signed and returned the document previously and agreed to its contents. Although in the letter dated 16 November 2019, the applicant attempts to distance himself from the agreement on the basis that he had been in hospital and was not thinking clearly at the time, there is no medical evidence or any other evidence to substantiate that assertion. 40 The applicant therefore seeks to disavow the settlement agreement notwithstanding the applicant also seeks to rely on it. 41 The respondent submits no binding settlement was reached and points to the applicant's letter dated 16 November 2019. 42 Accepting for the moment (but not deciding) that the settlement agreement was operative as between the parties, the recitals to the settlement agreement recorded that the applicant is indebted to the respondent in the sum of $25,850.55 for material supplied and legal costs. 43 Clause 5 of the settlement agreement provided that: In consideration of the parties entering into these Terms of Settlement and subject to their performance, the parties mutually release and discharge each other from all other further claims, demands, suits and costs of whatsoever nature, however arising out of or connected with the subject matter of the dispute. 44 Clause 2(b) of the settlement agreement provided for the debt of $25,850.55 to be paid off by 11 December 2019. That did not occur. 45 Clause 8 of the settlement agreement provided that time is of the essence. 46 Under those circumstances, the releases contained within cl 5 of the settlement agreement were subject to the parties complying with its terms. The applicant failed to comply with his obligations under the settlement agreement by failing to pay the entirety of the debt by 11 December 2019. On that basis, the releases do not operate. 47 Accordingly, I am satisfied the applicant was indebted to the respondent at the time the sequestration order was made.

Service of the originating process in the Magistrates Court of Victoria and the judgment obtained by the respondent in that Court 48 The applicant contends he was not served with the originating process out of the Magistrates Court of Victoria. 49 Annexure RJC-13 to the second Cooper affidavit annexes the affidavit of service of the Magistrates Court proceedings sworn by a process server. The applicant contests the mode of service at the Paskeville address. 50 It is apparent from the affidavit of service that the Magistrate Court proceedings were served in accordance with r 6.03(1)(c) of the Magistrates Court General Civil Procedure Rules 2010 (VIC) which were current at the time. That rule provides for service of a Complaint by: … if the person to be served conducts a business, by delivering a copy of the document to the place of business of the person to be served to a person apparently above the age of 16 years who is apparently in charge of that business or is employed in the office of that business. 51 Notwithstanding default judgment was obtained by the respondent on 10 August 2018, no application was made by the applicant to set aside that default judgment. The applicant asserted from the Bar Table that he had attempted to apply to set aside the default judgment but the Registry "kept refusing" him. There is no evidence from the applicant that he made such an application and I do not accept his assertion from the Bar Table. 52 Had it been the case that he had not been served with the originating process from the Magistrates Court, upon learning of default judgment I would have expected the applicant to apply to set the default judgment aside. 53 In the circumstances, I do not accept the applicant was not served with the originating process out of the Magistrates Court of Victoria.

Service of the Bankruptcy Notice 54 On 4 April 2019, the applicant was served with a Bankruptcy Notice by a process server leaving the document in an envelope marked with the applicant's name, at his last known address in accordance with the Bankruptcy Regulations. The address was the Paskeville address: second Cooper affidavit annexure RJC-13. That form of service was permitted by r 16.01(1)(c) of the Bankruptcy Regulations 1996 (Cth) as they were then in force. 55 The applicant contends that on 3 April 2019 he was not at the Paskeville address but was in another location in South Australia. 56 That may be so, but the process server does not depose that he served the applicant personally. 57 Further, the last known address of the person may include a business address of a debtor in circumstances where the debtor has "had such a degree of connection with the premises that they may properly be described as his last-known address": Skalkos v T & S Recoveries Pty Ltd (2004) 141 FCR 107; [2004] FCAFC 321, [37], citing Drake v Stanton [1999] FCA 1635 (Tamberlin J). 58 The Paskeville address at which the Bankruptcy Notice was served is the address which appears on the trading account opened by the applicant with the respondent in September 2017. 59 The applicant does not contend that the Paskeville address was not his trading address but rather that he was not served at it. 60 Given the permitted mode of service, I do not accept that the applicant was not served with the Bankruptcy Notice.

Service of the Creditor's Petition 61 The respondent's Creditor's Petition was served in accordance with the orders of the Registrar made 15 January 2020 by post and by email: Henderson affidavit annexure CH-2. 62 The applicant contends he did not receive the documents. 63 The non-receipt of documents by the applicant is a common theme which defies belief. Whether it be personal service to a person at an address where his business trades from, postal address, email address or leaving documents at his business address, the applicant denies receipt. 64 I do not accept the applicant was not served with the Creditor's Petition.

Conclusion 65 Nothing the applicant has put before me satisfies me that sequestration order ought not have been made.

The exercise of the Court's discretion under s 153B of the Act 66 The exercise of the discretion is only enlivened if the Court is satisfied the sequestration order ought not have been made. Since I am not satisfied that the sequestration order ought not have been made, the discretion is not enlivened. 67 In any event, even had the discretion been enlivened I would not exercise it for the following reasons. 68 The considerations relevant to the exercise of the discretion were set out in Bulic by Tracey J as including 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 a creditor's petition and attend the hearing at which the sequestration order was made. 69 In Yang v L & H Group (a limited partnership) [2015] FCA 932, Beach J at [29(d)] set out matters the Court may consider in the exercise of its discretion at as including: Whether the applicant is solvent at the time of the annulment application; Whether the applicant has made full disclosure of his financial affairs; Any failure by the applicant not to attend the hearing concerning the making of the sequestration order or to oppose such an order, and the explanation for such conduct; Any failure by the applicant to put before the earlier court facts then known to the applicant and the explanation for that failure; Whether the applicant has delayed in making the annulment application and the time that has elapsed since the making of the sequestration order; The preparedness of the applicant to pay the costs thrown away by reason of the annulment application and the trustee's costs and expenses of the bankruptcy to the extent that they have not otherwise been recovered from the bankrupt's estate; The rights and interests of the creditors, including the applicant's preparedness to pay any outstanding debts as an alternative arrangement to the continuation of the bankruptcy; The conduct of the applicant during the period of the bankruptcy, including the applicant's co-operation with the trustee and also whether there has been any conduct that may give rise to bankruptcy offences; The steps taken by the trustee to investigate and realise the estate and whether there has been any impediment due to the conduct of the applicant or a third party; Whether it is fair or just to the applicant or the creditors to grant the annulment; and The public interest. 70 See also the observations of Banks-Smith J in Zaghloul v Jewellery & Gift Buying Service Pty Ltd t/as Nationwide Jewellers [2020] FCA 1045 at [12]. 71 In answer to a request from the respondent's solicitors, the applicant's Trustee in Bankruptcy, advised that the applicant had: Henderson affidavit, annexure CH-4: (a) Failed to file a statement of affairs with the official receiver; and (b) Failed to comply with a notice under s 77C of the Act to provide information, such that the applicant had been referred by the Official Receiver to the Commonwealth Director of Public Prosecutions who has commenced prosecution action against the applicant. 72 The Trustee also advised that on the basis of information and documentation obtained, which the Trustee accepted was limited because of the lack of information from the applicant, the applicant has assets totalling $769,060 against known liabilities of $1,288,148. 73 The Trustee's outstanding remuneration as of 30 June 2022 was $71,080 (plus GST) with outstanding disbursements as at the same date of $15,794.17 (plus GST). 74 The Trustee also advised that: (a) The applicant had generally failed to co-operate with his obligations as an undischarged bankrupt; (b) That failure to co-operate has been to the Trustee's detriment in performing his duties; (c) Communication with the applicant had been protracted and difficult; and (d) He had contacted the applicant by a number of different means in an attempt to elicit engagement from the applicant with the Trustee's office. 75 On any measure, by reference to the matters identified by Tracey J in Bulic and Beach J in Yang, the conduct of the applicant militates strongly against the exercise of the discretion. 76 Under those circumstances, had the exercise of the discretion been enlivened, I would have declined to exercise it.

Conclusion 77 The application is dismissed. 78 There is no reason why the applicant should not pay the costs of the respondent of and incidental to this application in a lump sum as assessed by a Registrar of the Court if not agreed. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan.

Bankruptcy Rules 2016(Cth)

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