Daevys v Official Trustee in Bankruptcy; In the Matter of Daevys[2011] FCA 397

Federal Court of Australia|2011-04-20|Before: Pincus J, Flick J

REASONS FOR JUDGMENT 1 On 18 November 2010 a Federal Magistrate dismissed an application made under s 153B of the Bankruptcy Act 1966 (Cth) for the annulment of the bankruptcy of the present Applicant, Mr Stuart Daevys: Daevys v Official Trustee [2010] FMCA 906. The Federal Magistrate rejected Mr Daevys' contention that a debtor's petition which he had presented on 2 March 2004 pursuant to s 55 of the Bankruptcy Act "ought not to have been presented or ought not to have been accepted" within the meaning of and for the purposes of s 153B(1) of that Act. 2 The orders of the Federal Magistrate were made in proceeding SYG2096 of 2010. 3 On 30 December 2010 an Application for Extension of Time to File and Serve a Notice of Appeal was filed in this Court, together with an affidavit sworn by Mr Daevys. The affidavit is dated 18 November 2010 but was apparently sworn on 30 December 2010. The Application filed in this Court was filed presumably in recognition of the requirement imposed by Order 52 r 15 of the Federal Court Rules that a notice of appeal is to be filed and served within 21 days after the judgment appealed from was pronounced. 4 The extension of time which is sought is, accordingly, for a period of about three weeks. The extension of time is refused and the Application is to be dismissed. 5 The present Application was first before this Court on 11 January 2011. The deficiencies in the affidavit evidence as then filed by Mr Daevys were pointed out to him and the matter was adjourned to 1 February 2011, and then further adjourned to 7 March 2011 for hearing. On that occasion there was also before the Court a further application in a separate proceeding in which Mr Daevys sought a review of decisions to admit proofs of debt pursuant to s 104 of the Bankruptcy Act. Both proceedings were further adjourned: Daevys v The Official Trustee in Bankruptcy [2011] FCA 398 at [3] to [4]. The progress of the two proceedings, and the further application made on 7 April 2011 to further adjourn the hearing of the present proceeding, has been separately set forth in Daevys v The Official Trustee in Bankruptcy [2011] FCA 398 at [3] to [4] and need not be repeated.

Sections 55 and 153B 6 Part IV, Division 2 of the Bankruptcy Act deals (inter alia) with the making of a sequestration order on the filing of a creditor's petition (s 43). Division 3 deals with the presentation by a debtor of a petition against himself. 7 Within Division 3, s 55 provides in part as follows: (1) Subject to this section, a debtor may present to the Official Receiver a petition against himself or herself. (2) A petition presented by a debtor under this section: (a) shall be in accordance with the approved form; and (b) shall be accompanied by a statement of the debtor's affairs and a copy of that statement. (2A) The Official Receiver must reject a debtor's petition unless, at the time when the petition is presented, the debtor: (a) was personally present or ordinarily resident in Australia; or (b) had a dwellinghouse or place of business in Australia; or (c) was carrying on business in Australia, either personally or by means of an agent or manager; or (d) was a member of a firm or partnership carrying on business in Australia by means of a partner or partners or of an agent or manager. (3) The Official Receiver may reject a debtor's petition if: (a) the petition does not comply substantially with the approved form; or (b) the petition is not accompanied by a statement of affairs; or (c) the Official Receiver thinks that the statement of affairs accompanying the petition is inadequate. 8 Part VII of the Act thereafter deals with the discharge and annulment of a bankruptcy. Within that Part, Division 5 deals with the annulment of a bankruptcy where the trustee is satisfied that the bankrupt's debts have been paid in full (s 153A) and for annulment by Court order (s 153B). Section 154 deals with the effect of an annulment. The effect of an annulment "will generally be that the bankruptcy is set aside ab initio and the annulled bankruptcy will be treated as never having taken place for any purposes, save those set out in s 154 and save in other special situations": Re Coyle (1993) 42 FCR 72 at 77 per Drummond J. 9 The section of present relevance, s 153B, provides in part as follows: 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. Section 153B(1), it will be noted, addresses two situations, namely where the Court "is satisfied" that: "a sequestration order ought not to have been made"; and, in the case of a debtor's petition, where "the petition ought not to have been presented or ought not to have been accepted by the Official Reciever". If the Court is "satisfied" as to either of these circumstances it "may make an order annulling the bankruptcy". 10 In Re Raymond; Ex parte Raymond (1992) 36 FCR 424 at 427, Spender J annulled a bankruptcy upon the basis that the "sequestration order ought not to have been made". The creditor's petition had been founded upon a judgment debt which was later set aside. The bankruptcy was annulled even though the bankrupt had given no prior indication that the judgment debt would be challenged. On the "true facts", the bankrupt (Mr Raymond) had never been indebted to the judgment creditor. In annulling the bankruptcy, Spender J concluded: I am satisfied that Mr Raymond is not and was not ever indebted to Mrs Henderson, contrary to what the judgment on its face seems to indicate. … In my opinion, on the true facts as they existed at the making of the sequestration order, the sequestration order "ought not to have been made" within the meaning of those words as they appear in s 154 of the Bankruptcy Act. That the bankrupt stood by at the time of the entering of the default judgment, and that he did nothing in respect of the bankruptcy notice or the creditor's petition, does not alter the factual situation as it truly existed at the time of the making of the sequestration order. The judgment, in my view, is one that ought not to have been made, and that conclusion seems to be supported by the fact that it has subsequently been set aside. 11 A similar approach has been adopted in respect to whether a "petition ought not to have been presented". In circumstances where a debtor presents his own petition, but at a time when he is actually solvent, it has been held that such a petition "ought not to have been presented": Re McCormack (Unreported, Federal Court of Australia, Pincus J, 6 April 1990). But where a debtor is in fact insolvent at the time of presentation of a petition, it has been said that it would generally not be possible to say that such a petition "ought not to have been presented": Re Coyle (1993) 42 FCR 72 at 77 to 78. Drummond J there relevantly observed: It will in my view generally not be possible for a debtor to establish that his bankruptcy should be annulled on the ground that the "petition ought not to have been presented" when it is clear that at that time he was insolvent. Although in contrast to earlier legislation, the provisions of the Bankruptcy Act that now govern presentation of a debtor's petition do not require the debtor to admit his insolvency, the procedure available to a debtor to procure his own bankruptcy is only intended to be available to debtors who are insolvent: see Re Mottee; Ex parte Mottee and Official Receiver (1977) 29 FLR 406 at 412. Where an insolvent debtor presents his own petition, s 55 is being used for its intended purpose: it cannot be said, in such circumstances, that the petition ought not to have been presented. If a debtor is insolvent at the time he presents his own petition it cannot, in my view, be said that the petition ought nevertheless not to have been presented because the debtor then had a hope or even a reasonable expectation that his fortunes would improve either in the near future or in the long term. If, after becoming bankrupt on his own petition, the debtor is able for any reason to pay all his debts, then he will be entitled to an annulment of his bankruptcy under s 153a upon complying with the requirements of the section. But that such a situation arises, or may arise, after bankruptcy, in circumstances in which it was anticipated that it would arise at the time the debtor presented his own petition, provides no ground for saying that the petition ought not to have been presented, the debtor then being insolvent in the sense in which the term is used in Sandell v Porter (1966) 115 CLR 666 at 670, at that time. Given that the applicants were insolvent when they presented their petition, I am not prepared to find that it ought not to have been presented. Their application for annulment should be dismissed for that reason. 12 The other phrase employed in s 153B(1), namely, "ought not to have been accepted", has attracted a less "liberal" interpretation: Re Abbas; Ex parte Official Trustee in Bankruptcy (1995) 57 FCR 140 at 142 to 143. Section 55 of the Bankruptcy Act as at the time of that decision vested in the Registrar the function of accepting a petition rather than, as now, the Official Trustee. It was in that statutory context that Moore J concluded that the Registrar was obliged to accept a petition if satisfied that it was in the prescribed form and accompanied by a statement of the debtor's affairs. His Honour referred to some of the earlier decisions and continued: However that liberal approach has not been taken to what is comprehended by the expression "ought not to have been accepted by the Registrar" in s 153B and its legislative predecessor… His Honour then reviewed the terms of s 55 and ultimately concluded: If the Registrar is positively satisfied that the petition and statement of affairs complies with subs (2) he or she is obliged to accept the petition. In other cases it may be rejected or referred to the Court. Thus the expression "ought not to have been accepted by the Registrar" has application to circumstances where a debtor's petition was accepted notwithstanding that the conditions precedent in s55(3)(a) to its acceptance were not satisfied. In my opinion the power to annul in s153B is limited to such a situation if the ground for annulment is that the petition ought not to have been accepted. Any other construction of the relevant part of s 153B would proceed on the basis that the Registrar has a power to consider other facts or matters when deciding to accept the petition. There is plainly no power to do so. It would be a curious result if it was intended that the power to annul was to be exercised by the Court by reference to the prior exercise of a power by the Registrar that has no legislative foundation. The scope of the expression "ought not to have been presented" and the nature of the inquiry the Court might undertake if that ground is advanced, lends weight to this construction of the expression "ought not to have been accepted". The former would permit a more wide ranging inquiry complementing the narrower inquiry arising from reliance on the ground concerning acceptance. There is no reason why both grounds cannot be relied upon: see Re Coyle, supra, though they were not in this application. Nothing was pointed to by counsel for the applicant which demonstrates that either the petition or the statement of affairs did not comply with s 55(2). Accordingly the application to annul the bankruptcy must fail. I dismiss the application with costs. This conclusion of Moore J as to whether or not a petition "ought … to have been accepted" is thus the product of an understanding as to the functions to be discharged when accepting or rejecting a petition. His Honour there dismissed the application seeking the annulment of a bankruptcy resulting from the presentation of a debtor's petition. The debtor claimed that she had no appreciation of what she was doing.

Order 52 Rule 15 - A Discretion To Extend Time 13 Order 52 r 15(1) and (2) of the Federal Court Rules provide as follows: Time for filing and serving notice of appeal (1) The notice of appeal shall be filed and served: (a) within 21 days after: (i) the date when the judgment appealed from was pronounced; (ii) the date when leave to appeal was granted; or (iii) any later date fixed for that purpose by the court appealed from; or (b) within such further time as is allowed by the Court or a Judge upon application made by motion upon notice filed within the period of 21 days referred to in the last preceding paragraph. (2) Notwithstanding anything in the preceding subrule, the Court or a Judge for special reasons may at any time give leave to file and serve a notice of appeal. 14 The threshold imposed by r 15(2) that there be "special reasons" before the discretion conferred by r 15(2) may be exercised is a threshold which has been repeatedly addressed in decisions of this Court. 15 This test is an "elastic test" and one which is intended to direct attention to circumstances which take a particular case out of the usual requirement that an appeal be filed within 21 days: Jess v Scott (1986) 12 FCR 187 at 195. Lockhart, Sheppard and Burchett JJ there said of the test: What is needed to justify an extension of time is indicated in r 15(2) by the words "for special reasons". It is that there be shown a special reason why the appeal should be permitted to proceed, though filed after the expiry of 21 days. In that context, the expression "special reasons" is intended to distinguish the case from the usual course according to which the time is 21 days. But it may be so distinguished (not necessarily will, for the rule gives a discretion) wherever the Court sees a ground which does justify departure from the general rule in the particular case. Such a ground is a special reason because it takes the case out of the ordinary. We do not think the use of the expression "for special reasons" implies something narrower than this. … It should not be overlooked that r 15(2) enables leave to be given "at any time"; the "special reasons" relevant to such a power cannot but describe an elastic test, suitable for application across a range of situations, from an oversight of a day to a neglect persisted in during a prolonged period. It would require something very persuasive indeed to justify a grant of leave after, for example, a year; equally, it may be said, something much less significant might justify leave where a party is a few days late. "Special reasons" must be understood in a sense capable of accommodating both types of situation. It is an expression describing a flexible discretionary power, but one requiring a case to be made upon grounds sufficient to justify a departure, in the particular circumstances, from the ordinary rule prescribing a period within which an appeal must be filed and served. See also: Perpetual Trustee Company Ltd v Smith [2010] FCAFC 91 at [13], 186 FCR 566 at 572 to 573 per Moore and Stone JJ. The discretion is conferred for the purpose of enabling the Court to do justice between the parties: WAAD v Minister for Immigration and Multicultural Affairs [2002] FCAFC 399 at [7] per Lee, R D Nicholson and Finkelstein JJ. See also: Milne v Minister for Immigration and Citizenship [2010] FCA 987 at [18] to [19], 119 ALD 504 at 508 per Marshall J. But "little injustice may be occasioned if an appeal were hopeless": SZHFX v Minister for Immigration and Citizenship [2008] FCA 355 at [19].

The Decision of the Federal Magistrate 16 The Federal Magistrate, in his reasons for decision, recounted the fact that Mr Daevys presented a debtor's petition on 2 March 2004. He did so, according to the Federal Magistrate, to gain the protection of bankruptcy in view of litigation that had been commenced against him and a company with which he was associated. The Federal Magistrate also noted the "intentional non-disclosure" by Mr Daevys of an interest in property in his statement of affairs and the receipt of moneys from an interest in an estate. 17 In dismissing the application, the Federal Magistrate referred to both the requirement relevantly imposed by s 153B(1) for the Court to be satisfied that the "petition ought not to have been presented or ought not to have been accepted" and to the discretion thereafter conferred upon the Court to make an order. 18 It was concluded as follows that the now Applicant did not satisfy the Court that the petition ought not to have been presented or accepted: [6] In this case, the annulment application falls at the first hurdle in that Mr Daevys has been unable to persuade me that the debtor's petition should not have been presented or accepted. I was taken in submissions to the decision of the Federal Court in Re Gada Abbas; ex parte Official Trustee in Bankruptcy [1995] FCA 1263. I am unable to distinguish this case from the case of Abbas, save that the process of accepting a debtor's petition is now an administrative rather than a judicial one. The petition in this case was in proper form when presented. Although Mr Daevys has asserted that he was at the time labouring under some form of mental disability, he was able to pursue ongoing litigation on his own behalf with some success. The scant medical evidence that he presented was too general to be persuasive. [7] It is tolerably clear, in my view, that the Official Receiver was entitled to accept the petition pursuant to s 55 of the Bankruptcy Act. Mr Daevys was personally present at the time and had lodged a statement of affairs. It is noteworthy that the statement of affairs was deficient in that Mr Daevys did not disclose his interest in the property at Mt White in which he is currently living. Mr Daevys conceded, in evidence, that this was an intentional non-disclosure. [8] It is also noteworthy that a substantial sum flowed to Mr Daevys from the deceased estate, which was not provided to the Official Trustee, although a small amount was ultimately recovered. As to solvency, the assets disclosed by Mr Daevys appear to me to have been inchoate as they comprised essentially intellectual property. Mr Daevys is concerned at the non-pursuit of people he describes as debtors that might have realised some or all of that inchoate property, but given the apparent uncertainties in relation to such pursuit, it does not appear to me that the trustee was wrong not to take recovery action. [9] The only asset from which the current estimated creditor's claims of $95,257.95 and the trustee's costs of the administration could be paid is from the sale of the property at Mt White, which Mr Daevys is seeking to prevent by this present application. [10] I have concluded that the debtor's petition was properly accepted and it follows that the annulment application should be dismissed, and that further steps should be taken to realise the asset comprised in the real estate.

The Present Application for an Extension of Time 19 The affidavit initially filed in support of the present Application on 30 December 2010 simply states (without alteration): 1. It was my belief that I had been granted leave to appeal. 2. I am unrepresented. 3. I am terminally ill and was suffering from pneumonia. 4. I have prepared my case for appeal. The affidavit annexes a document headed "Patient Health Summary" dated 5 March 2010. A draft Notice of Appeal is also annexed. 20 The foundation for the "belief" is not disclosed; nor is there any explanation as to why Mr Daevys filed an application for an extension of time in which to appeal if he believed he required and had been granted "leave to appeal". Nor is his status as an unrepresented litigant sufficient in itself to constitute "special reasons" to warrant the exercise of the discretion conferred by O 52 r 15(2). The "Patient Health Summary" sets forth Mr Daevys' "Past History", including a reference to mesothelioma and chronic obstructive pulmonary disease. But that "Patient Health Summary" was issued in March 2010 and says nothing expressly as to Mr Daevys' state of health as at the date of judgment, namely November 2010. 21 A further affidavit was filed on 21 January 2011. That further affidavit in turn purports to annexe a further affidavit from a person who describes herself as "the full time carer of Stuart Daevys who is terminally ill". She also says that he has suffered "four episodes of pneumonia since October 2010" which "render him largely incapacitated". A further affidavit sworn by Mr Daevys on 6 April 2011 takes the explanation no further. 22 Although it may be accepted that Mr Daevys is suffering from a serious illness and that the indulgence which is sought is for a comparatively short period of three weeks, the affidavits fail to provide any adequate explanation for the delay of some three weeks. It may for present purposes also be accepted that some lapse of time may be explained by reason of advice that Mr Daevys may have been given by officers in the Registry of the Court. But there was, in any event, no evidence to support such an explanation. 23 The absence of a satisfactory explanation for the delay, however, is not the principal reason for refusing an extension of time. 24 Even in the absence of an adequate explanation for a failure to comply with the requirements of O 52 r 15(2), it may be accepted that an extension of time may in an appropriate case be granted if the proposed Notice of Appeal raises issues which should be resolved by this Court in the interests of the administration of justice. 25 The proposed Notice of Appeal, however, presents no such issues. It fails to identify any ground identifying any error said to have been committed by the Federal Magistrate in his application of s 153B to the facts before him. Indeed, the proposed Grounds of Appeal seem to indiscriminately refer to another proceeding before the Federal Magistrate and the present proceeding. 26 Much of the further affidavit filed on 21 January 2011 is in inadmissible form. But those deficiencies may be left to one side. Paragraphs [9] to [11] of this further affidavit state: 9. It is my intention to prove that my debtors petition "ought not to have been accepted" because procedural requirement in Section 55(3) and 55(4A) has not been met, and the matter should have been referred to and determined by the court. 10. My debtors petition did not comply with Section 55(2) and should have been referred to the court for determination. 11. I have been physically incapable of performing to the requirements of court dates and listings… Given that Mr Daevys is unrepresented, it is considered appropriate to regard these paragraphs as proposed Grounds of Appeal. These paragraphs, it will be noted, confine attention to whether proofs of debt "ought not to have been accepted". Even so construed, however, Mr Daevys necessarily has to confront further difficulties. First, there is no specification of the manner in which he intends "to prove" that his petition "ought not to have been accepted". And, if it is an argument not previously advanced before the Federal Magistrate, a question arises as to whether he should now be permitted to raise any such further argument on appeal. Nor has any satisfactory explanation been provided by Mr Daevys as to why such further evidence as he apparently wishes to adduce before this Court was not relied upon before the Federal Magistrate. Second, and as the Federal Magistrate concluded on the arguments then raised for consideration, there was no reason to question the basis upon which the petition had been accepted. That which is raised in the further affidavit provides no basis for revisiting or questioning that conclusion of the Federal Magistrate.

Conclusions 27 The Application for an Extension of Time as filed on 30 December 2010 is to be dismissed. 28 There is no adequate explanation for the delay in commencing the proceeding. Nor does the decision of the Federal Magistrate in his consideration and application of s 153B expose any self-evident error and the proposed Grounds of Appeal fail to assist in the identification of any such error. Even if the Grounds of Appeal were to be recast to confine attention to the issues resolved by the Federal Magistrate, it is not considered that any "special reason" would emerge for granting the extension of time which is now sought. 29 It should also, perhaps, be noted that the present application was conducted by the Applicant with scant regard to the fact that the proceeding was in fact an appeal. Given the fact that he was unrepresented, the course pursued during the hearing of the appeal was to permit the Applicant to advance such arguments as he saw fit and by reference to such evidence as he saw fit. Whether that evidence or those arguments were advanced before the Federal Magistrate matters not. There is nothing in the case for the Applicant to warrant the appeal being allowed - let alone an extension of time being granted in which to appeal. 30 To the extent that Mr Daevys sought a further adjournment to adduce evidence to establish that he was not insolvent at the time he presented the debtor's petition, it should be noted that no satisfactory explanation was advanced as to why such evidence was not adduced before the Federal Magistrate. Nor was any satisfactory explanation advanced as to why such evidence was not available for consideration by this Court, notwithstanding the adjournments that he had been previously granted. Whether or not leave would have been granted to adduce any such further evidence on appeal is thus a question which need not be further pursued. 31 There is no reason to question the conclusion either that the petition "ought not to have been presented" or that it "ought not to have been accepted". 32 There is no reason why Mr Daevys should not pay the costs of his unsuccessful Application.

ORDERS 33 The Orders of the Court are: 1. The Application for Extension of Time to File and Serve a Notice of Appeal as filed on 30 December 2010 is dismissed. 2. The Respondent Trustee's costs be costs in the administration of the estate. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.

Bankruptcy Act 1966(Cth)ss 55, 104, 153B

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