Da Vesi Construction Group Pty Ltd v De Andrade [2021] FCA 1033 | Case summary

Background 7 In about 2014, Da Vesi commenced proceedings against Ms De Andrade in the ACT Magistrates Court (proceeding CS 835 of 2014). Da Vesi was a company which provided construction and management services. It claimed against Ms De Andrade damages for breach of contract or, alternatively, on a quantum meruit for work done and materials provided in relation to a new dwelling constructed on Ms De Andrade's property in Griffith in the ACT. 8 On 6 September 2017, Magistrate Fryar made an interlocutory order that Ms De Andrade pay Da Vesi's costs in the amount of $5,191.14. Ms De Andrade did not pay those costs. Da Vesi served a bankruptcy notice on Ms De Andrade on 17 November 2017. Ms De Andrade failed to comply with the bankruptcy notice by 8 December 2017. 9 The Magistrates Court proceedings were heard by Magistrate Fryar on 16, 17 and 27 November 2017 and 19 December 2017. Judgment was reserved. 10 On 26 October 2018, a Registrar of this Court made orders that the estate of Ms De Andrade be sequestrated under the Bankruptcy Act 1966 (Cth) and that the applicant creditor's costs, fixed in the sum of $4,483.50, be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act: Da Vesi Construction Group Pty Ltd v De Andrade [2019] FCA 553 at [1]. Nick Combis of Vincents was appointed the trustee of Ms De Andrade's bankrupt estate. 11 On 24 January 2019, Magistrate Fryar handed down judgment in favour of Da Vesi, concluding that Ms De Andrade was liable for breach of contract, and ordered Ms De Andrade to pay $194,435.57: Da Vesi Construction Group Pty Ltd (ACN 122 278 735) v Rubie De Andrade [2019] ACTMC 1. At [20], in relation to costs, Magistrate Fryar stated: I note the plaintiff in submissions sought to be heard in relation to costs. The usual course is that costs follow the event. However if the parties still wish to be further heard in relation to costs I give leave for an approach to be made to my associate to have the matter listed before me during the week commencing 11 February 2019. 12 On 8 February 2019, Ms De Andrade filed an interlocutory application in the Federal Court of Australia seeking an extension of time for seeking a review under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) of the Registrar's decision to make a sequestration order. 13 Five days later, on 13 February 2019, Magistrate Fryar made the following costs order by consent: By consent, the Defendant is to pay the Plaintiff's costs to be assessed on a party/party basis up to and including 28 June 2017 and thereafter on an indemnity basis. 14 The consent was given by Ms De Andrade's solicitor at the time, Mr John O'Keefe. 15 On 23 April 2019, Robertson J refused the application for an extension of time and for review of the Registrar's sequestration order: Da Vesi Construction Group Pty Ltd v De Andrade [2019] FCA 553. 16 On 24 April 2019, Ms De Andrade's then solicitor, Mr Peter Christensen, sent a letter to the trustee, Mr Combis, seeking his consent as trustee to Ms De Andrade bringing an appeal from Magistrate Fryar's order that Ms Andrade pay damages for breach of contract in the amount of $194,435.57. 17 On 21 June 2019, Mr Combis advised Mr Christensen that neither he, that is, Mr Christensen, nor Mr O'Keefe had provided sufficient information regarding the proposed appeal (being information which he had earlier requested) and stated that he considered that the proposed appeal had been abandoned at law. 18 On 26 May 2020, the judgment debt arising from Magistrate Fryar's order for damages for breach of contract was admitted to proof in the bankruptcy by the bankrupt's trustee, Mr Combis. 19 By 28 July 2020, Da Vesi had prepared a bill of costs identifying the amount claimed as appropriate to give effect to the costs order made by consent on 13 February 2019. It was common ground that the trustee rejected the costs debt as one provable in Ms De Andrade's bankruptcy. I infer that the trustee rejected the debt as being provable in Ms De Andrade's bankruptcy by reason of the High Court's decision in Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52. 20 On 20 November 2020, a Deputy Registrar of the ACT Magistrates Court (Registrar Kamarul) issued a certificate of costs assessment in the following form: I certify that, under the order made on 13 February 2019 I have assessed the bill of costs of DA VESI CONSTRUCTION GROUP PTY LIMITED, the plaintiff in the proceeding, and have allowed costs of $224,665.88. 21 In December 2020, Da Vesi initiated proceedings against the trustee in bankruptcy of Ms De Andrade's estate and Ms De Andrade in the Supreme Court of the Australian Capital Territory (proceeding SC 430 of 2020). The proceedings were related to the priority of the costs judgment debt of 13 February 2019 in the amount certified by Registrar Kamarul on 20 November 2020. 22 On 3 February 2021, Da Vesi filed an application for a bankruptcy notice against Ms De Andrade in relation to the costs judgment debt in the amount certified by Registrar Kamarul on 20 November 2020. On 16 February 2021, the Official Receiver endorsed Bankruptcy Notice BN 251524. Bankruptcy Notice BN 251524 notified Ms De Andrade that Da Vesi claimed she owed $224,665.88, being an amount per a final judgment or final order. This Bankruptcy Notice was served upon Ms De Andrade on 19 February 2021. Ms De Andrade failed to comply with the requirements of the Bankruptcy Notice by 12 March 2021. 23 On 15 March 2021, Da Vesi filed a creditor's petition in this Court in relation to Ms De Andrade's non-compliance with the Bankruptcy Notice. On 27 April 2021, Da Vesi filed an amended creditor's petition in this Court. That is the creditor's petition currently before the Court. By its amended petition, Da Vesi applies for a sequestration order under s 43 of the Bankruptcy Act against the estate of Ms De Andrade. Da Vesi contends that Ms De Andrade owes Da Vesi $224,665.88 pursuant to the order made by Magistrate Fryar on 13 February 2019. Da Vesi states that it holds security over the property of Ms De Andrade to the value of $336,668.13 and consisting of a charge and equitable mortgage over the property at 28 Lefroy St, Griffith. Da Vesi states it is willing to surrender this security for the benefit of creditors generally if a sequestration order is made against Ms De Andrade. 24 In the notice of opposition filed on 1 July 2021, Ms De Andrade opposed the petition on the following grounds: (1) she intends to appeal the judgment which gave rise to the costs order that Bankruptcy Notice BN 251524 is founded on; (2) the Bankruptcy Notice BN 251524 did not have attached to it, at the time of issue, a copy of the final judgment or order on which it relied; and (3) there is other sufficient cause for a sequestration order not to be made: s 52(2) of the Bankruptcy Act. 25 The grounds of opposition were supported by an affidavit of Ms Shelley Anne Mulherin affirmed on 1 July 2021. This affidavit states at [6] and [7]: 6. On 24 January 2019, judgment was entered in the ACTMC Proceeding for Da Vesi and the Bankrupt was ordered to pay Da Vesi's costs of the proceeding (ACTMC Judgment). A copy of the ACTMC Judgment is annexed hereto and marked SAM-5. 7. On 13 February 2019, the costs order in the ACTMC Judgment was varied and the Bankrupt was ordered to pay Da Vesi's costs of the ACTMC Proceeding on a party/party basis up to and including 28 June 2017 and thereafter on an indemnity basis (Second Costs Order). A copy of the Second Costs Order is annexed hereto and marked SAM-6. 26 It should be observed that there is no evidence that Magistrate Fryar made an order for costs on 24 January 2019 notwithstanding the paragraphs of this affidavit, and that proposition is not consistent with her Worship's reasons, which indicate that she only gave judgment for damages for breach of contract. She also made observations about the usual order for costs, noting that Da Vesi wanted to be heard and giving leave for the parties to approach her Associate. 27 As to "other sufficient cause", the affidavit stated: 16. On 24 May 2021, Mr Rory Markham wrote to me and indicated that the First Trustee had accepted and largely paid the principal judgment which arose in the ACTMC Judgment (notwithstanding that the ACTMC Judgment was delivered after the date of Ms De Andrade's bankruptcy). A copy of that email is annexed hereto and marked SAM-12. 17. I have inferred, but do not know, that the First Trustee considered that the judgment debt was merely the crystallisation of an unliquidated contractual debt that vested in the first bankruptcy on 26 October 2018 (that is, prior to the judgment debt arising on 24 January 2019) by virtue of section 82 of the Bankruptcy Act. 18. As the contractual debt in the ACTMC Judgment has been accepted by the First Trustee, the Court should consider whether there is any proper basis for a second bankruptcy, in reliance on the Second Costs order, which arose as a consequence of the ACTMC Judgment. 19. Further, the Court should consider whether it is entitled to go behind the Second Costs Order on the basis that it was an order made by consent, in circumstances where the Bankrupt was bankrupt and was therefore not able to consent to it and in the premises of section 58(3) of the Bankruptcy Act. … 20. The Bankrupt is concerned that Da Vesi was aware of her bankruptcy at all times, as it was the petitioning creditor which moved the Court for sequestration orders against her in October 2018. The Bankrupt is also concerned that Da Vesi apparently failed to inform the Magistrates Court of her bankruptcy when it moved the Court for the Second Costs Order, which relied on the Bankrupt's vitiated consent. 28 After the filing of the grounds of opposition, the affidavit and written submissions, Ms De Andrade ceased to be represented for a period. 29 As I have earlier indicated, Ms De Andrade secured legal representation at least by 11 August 2021 when the creditor's petition was listed for hearing. On 11 August 2021, the Court made an order that Ms De Andrade file and serve a document outlining the matters she wished to raise in response to the creditor's petition. That order was complied with by the provision of written submissions prepared by Mr Thomas. Ms De Andrade's position now is as follows. Ms De Andrade submits that the Court should adjourn the proceedings generally pursuant to s 33(1)(a) of the Bankruptcy Act. Alternatively, the Court should dismiss the creditor's petition pursuant to s 52(2)(b) of the Bankruptcy Act, there being sufficient cause that a sequestration order ought not be made. A further alternative raised during oral argument was that the Court should exercise its discretion to inquire into whether there was in truth and reality a debt owed, if the Court was not satisfied that that matter was a reason for dismissing the creditor's petition outright. The arguments in the written submissions filed on Ms De Andrade's behalf may be summarised as follows: First, it was submitted that, when the applicant applied for the costs order, the application was being made in relation to proceedings then on foot. The application for costs consisted of a "fresh step" which was taken without the leave of the Court in breach of s 58(3) of the Bankruptcy Act. It was submitted for Ms De Andrade that the fact that, as a result of that fresh step, a debt was constituted which was not provable in the bankrupt's estate is not to the point. The submission was that at the time when the fresh step was taken, leave of the court to take that step was required and was neither sought nor obtained. Secondly, it was submitted that the costs order was in fact a debt provable in the respondent's estate because the costs liability arose when the conditions precedent attaching to the applicant's Calderbank Letter crystallised and that event occurred before Ms De Andrade became bankrupt. Thirdly, it was submitted that the Bankruptcy Notice did not comply with the requirements of the Bankruptcy Act and Regulations in that it did not have attached to it the primary judgment, that is, the judgment given by Magistrate Fryar in Da Vesi Construction Group Pty Ltd (ACN 122 278 735) v Rubie De Andrade [2019] ACTMC 1, in relation to which the Costs Certificate was issued. Fourthly, it was submitted that the Report to Creditors states that the trustee reasonably expected that the bankruptcy would be annulled. Fifthly, it was submitted that Ms De Andrade seeks to appeal the primary judgment and "to thus go behind that judgment to [establish] that there is sufficient cause that a sequestration order ought not to have been made". The "sufficient cause" was said to be that the judgment "was obtained improperly by an abuse of process". In oral submissions, the point was put slightly differently, namely that this Court should either dismiss the creditor's petition outright because it would be satisfied that there was not in truth a debt, or it would wish to inquire further into whether there was in truth and reality a debt as a result of the evidence relied upon by Ms De Andrade in this proceeding. The submission that the Court should go behind the debt was not, at least as put in oral argument, allied to Ms De Andrade seeking leave to appeal the primary judgment as it was in the written submissions. 30 As to the first and second matters submitted by Ms De Andrade, the costs order was not a "provable debt" within the meaning of s 82 of the Bankruptcy Act with the result that the terms of s 58(3) of that Act were not engaged to prevent the step of applying for the order or making the order - see: Foots. Section 82 provides: 82 Debts provable in bankruptcy (1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy. 31 Section 58(3) provides: (3) Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor: (a) to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. 32 The costs order was not a debt or liability "present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy": Foots at [8]. A risk that a costs order might be made against a party is not a contingent liability within the meaning of s 82(1): Foots at [36]. Further, exposure to an adverse costs order is not "incidental" to liability for the underlying judgment debt: Foots at [37]. The making of a costs order turns upon discretionary considerations that arise independently of the entry of judgment against the debtor: Foots at [37]. None of this analysis is altered by the fact that there was a Calderbank offer which existed and which might be taken into account in determining the basis of any future costs order should such an order ultimately be made. Costs remain discretionary and the terms of an order for costs are not mandated by whether or not the conditions referred to in a party's Calderbank offer are met. The step of either applying for or making the costs order was not one which was prohibited by s 58(3) of the Bankruptcy Act: Foots at [67]. 33 As to the third matter, the bankruptcy notice did not need to have the judgment of Magistrate Fryar attached to it. The bankruptcy notice was not founded on that judgment. It was founded on a costs order. The costs order was relevantly attached to the bankruptcy notice, both at the time of issue and at the time of service. 34 As to the fourth matter, the creditor's petition is only probative of the state of affairs at that time. I am not satisfied that there is any possibility that Ms De Andrade's bankruptcy is likely to be annulled. 35 As to the fifth matter, the question on hearing of the creditor's petition is whether the Bankruptcy Court is persuaded that there was a debt truly owing to the petitioning creditor. Where the debt arises from a judgment, the Bankruptcy Court may go behind the judgment where sufficient reason is shown for questioning whether behind the judgment there was in truth and reality a debt due to the petitioning creditor: Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132 at [37], [38]. In Ramsay Health at [42], the High Court referred to the following passage in Wren v Mahony (1972) 126 CLR 212 at 224: The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. 36 The Court observed that this passage was not to be read in a constricted way: Ramsay Health at [43]. 37 As mentioned, Ms De Andrade contended that the judgment of Magistrate Fryar was "obtained improperly through an abuse of process". It should first be noted that the relevant bankruptcy notice is founded on the costs order, not the primary judgment delivered by Magistrate Fryar in Da Vesi Construction Group Pty Ltd (ACN 122 278 735) v Rubie De Andrade [2019] ACTMC 1. Nevertheless, it should be accepted that, if there was not in truth a debt lying behind the primary judgment, then the costs order would also be brought into question. 38 The contended "abuse of process" was not identified with any clarity. Ms De Andrade filed an affidavit dated 10 August 2021 in which she gave evidence intended to establish that those solicitors who had represented her in the proceedings ultimately determined by Magistrate Fryar had done so in manner which was either negligent or otherwise unsatisfactory. It was submitted on Ms De Andrade's behalf that paragraphs 8, 9, 13, 33, 34, 41 and 42 of her affidavit furnished evidence which should lead to one of two consequences. First, it was contended that this Court should be satisfied on the basis of that evidence that there was in truth and reality no debt owing and that the Court should therefore dismiss the creditor's petition. Secondly, it was submitted that if the Court were not so satisfied, it would nevertheless be satisfied that sufficient was shown for the Court not to deal with the creditor's petition today and to enquire into whether in truth and reality a debt was owing. 39 The evidence referred to does not raise in me a doubt that there was in truth and reality a debt which lay behind the Magistrates Court decision. The context in which I assess the evidence filed includes the fact that Ms De Andrade has had a number of solicitors acting for her in this proceeding and this is the first time the issue of going behind the judgment for the reasons articulated in the affidavit of Ms De Andrade has been raised. I have not closed my mind to the evidence for that reason. Nevertheless it is a part of the context in which the Court should assess the credibility of the assertions which are made. 40 It is to be noted that whilst parts of the evidence in Ms De Andrade's affidavit seek to call into question the very contract on which the Magistrates Court decision was based, there was no contention made in those proceedings that no contract subsisted. As I have said, Ms De Andrade was represented by two solicitors. 41 I note that Magistrate Fryar at [8] made the following observations concerning the calling of witnesses in those proceedings: The defendant gave the only evidence in her case, despite there being a number of witnesses that seemingly may have something relevant to add but who were not called. The defendant's application (which was refused) at the last moment for an adjournment purportedly in order for the defendant to call other witnesses seemed to be nothing but another delaying tactic by the defendant. These proceedings had been on foot for several years with the defendant represented by various lawyers at most times, and yet no genuine attempt had been made to obtain relevant evidence from other witnesses. Even in that last minute application Mr O'Keefe was not able to readily identify the witnesses that his client was suggesting she might call in the future. A number of potential witnesses were identified in Mr Pattenden's submissions. 42 As mentioned, I am not satisfied that there is sufficient put before me in a reliable way which would lead this Court to exercise the discretion to enquire further into whether there was in truth and reality a debt owing. 43 It was not clear to me whether Ms De Andrade continued to press that she wanted to pursue an appeal of the ACT Magistrates Court decision, and that that is a reason for either deferring the creditor's petition or dismissing it. However, I will proceed on the basis that that submission is advanced. I am not satisfied that there is any real prospect of Ms De Andrade appealing. First, Ms De Andrade does not have standing to appeal - see: Cummings v Claremont Petroleum NL (1996) 185 CLR 124. Even if Ms De Andrade did have standing to appeal, she would need an extension of time. If an application for an extension of time within which to appeal was something which might realistically occur, it would have occurred by now. An appeal is already over 900 days out of time. It is clear that the trustee does not propose to appeal. I cannot accept that there is a genuine desire to seek an extension of time within which to appeal that would be pursued. 44 Section 52(1) of the Bankruptcy Act sets out the following preconditions for the making of a sequestration order: 52 Proceedings and order on creditor's petition (1) At the hearing of a creditor's petition, the Court shall require proof of: (a) the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient); (b) service of the petition; and (c) the fact that the debt or debts on which the petitioning creditor relies is or are still owing; and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor. 45 I am satisfied that Da Vesi has proved the various matters required under s 52(1) of the Bankruptcy Act and complied with the various requirements contained in rules 4.02 and 4.04 to 4.06 of the Federal Court (Bankruptcy) Rules 2016 (Cth). 46 For those reasons, I propose to make a sequestration order against Ms De Andrade, but I wish to hear further from the parties as to the precise terms of the appropriate orders, in light of the matters I have referred to as being contained in the amended creditor's petition. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Thawley.

Da Vesi Construction Group Pty Ltd v De Andrade

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