Daly v Watson

[1995] FCA 971

Federal Court of Australia|1995-11-24|Before: Moore JJ, Lockhart J, Hill J, O'Loughlin JJ

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

1995-11-24

Before

Moore JJ, Lockhart J, Hill J, O'Loughlin JJ

Catchwords

Ex parte Credit Assistance Pty Ltd (1979) 36 FLR 182 Re O'Leary
Ex parte Bayne (1985) 61 ALR 674 Re Vassis

Source

Original judgment source is linked above.

Catchwords

Ex parte Credit Assistance Pty Ltd (1979) 36 FLR 182 Re O'LearyEx parte Bayne (1985) 61 ALR 674 Re Vassis

Judgment (36 paragraphs)

[1]

" ... [the appellant] failed on or before the 4 May 1994 either to comply with the requirements of a Bankruptcy Notice served on him on the 16 January 1994, or to satisfy the Court that he had a counter-claim, set off or cross demand equal to or exceeding the sum specified in paragraph (A) of the Bankruptcy Notice."

[2]

The appellant had earlier applied to set aside the bankruptcy notice referred to in the petition. The time for compliance with the bankruptcy notice was extended by Registrars to 15 March 1994, on which date the hearing of that application commenced before Hill J. On 4 May 1994 his Honour gave judgment, making orders: (1) declaring that the bankruptcy notice had been personally served upon the appellant on 16 January 1994, (2) dismissing the application to set aside the bankruptcy notice, and (3) refusing to extend the time for compliance with the bankruptcy notice. The appellant appealed, and that appeal was dismissed by a Full Court (Davies, Foster and O'Loughlin JJ) on 9 November 1994. An application for special leave to appeal to the High Court from the decision of the Full Court was pending at the time of the hearing before Lockhart J. The bankruptcy notice was issued in respect of a judgment debt of $2,427,329.34 obtained in the Supreme Court of New South Wales. The respondent set out in its petition particulars of mortgages on property of the appellant held by it as security for that debt. The value of its security was stated at $1,250,000. This left an unsecured balance owing to the respondent of $1,177,329.34. Prior to the date fixed for hearing of the petition the appellant filed a notice of appearance. This notice did not identify any statements in the petition that he intended to deny or dispute, but it did specify several grounds of opposition to the petition. The hearing date was subsequently re-fixed from time to time by Registrars who, on three occasions, directed the appellant to file affidavits setting out the facts upon which he intended to rely. On the last of these occasions, 13 December 1994, the appellant filed a further notice setting out slightly revised grounds of opposition, and a direction was given that he file the affidavits upon which he intended to rely by 10 February 1995. The notice specified the following grounds of opposition: "1. That service of the creditor's petition was not properly affected [sic]. 2. The creditors [sic] petition failed to include the proper address for service of the solicitor for the petitioner. 3. [The appellant] disputes the quantum of the debt. 4. The bankruptcy notice to which reference is made in paragraph 4 of the creditor's petition is subject to Special Leave to appeal in the High Court of Australia. 5. The final judgment to which reference is made in paragraph 2 of the Creditor's Petition is subject to appeal, being proceedings CA 40602 of 1993 in the Supreme Court of New South Wales, Court of Appeal. 6. [The appellant] is able to pay his debts. 7. There really was no debt due to [the respondent]. 8. The bankruptcy is malicious. 9. That [the appellant's] claim in the Federal Court is still running, and is subject to appeal."

[8]

THE COURSE OF THE HEARING The petition was heard by Lockhart J on 30 March 1995. At the hearing counsel for the respondent applied ore tenus to alter the date of the act of bankruptcy specified in paragraph 4 of the petition to 15 March 1994. The amendment was sought because Hill J had not, in fact, extended the time for compliance with the bankruptcy notice from 15 March 1994, when the hearing before him commenced, to 4 May 1994, when he delivered judgment. The appellant opposed the amendment, but said that he was unable to point to any prejudice. Lockhart J allowed the amendment and dispensed with service of the amended process. The hearing then continued. Counsel for the respondent read, without objection, what was described on the face of the document as an "Affidavit of Truth of Statements in Creditor's Petition" made by Charles William Doughty on 22 June 1994. Counsel then read an affidavit of service made by Malcolm Hill on 25 August 1994, affidavits of search made by David Paul Courtenay on 27 June 1994 and 29 March 1995, and an affidavit of debt made by Mr Doughty on 29 March 1995. Mr Hill was required for cross-examination. In his case the appellant first sought to read an affidavit made by him on 15 March 1994 and filed in support of his earlier application before Hill J. Counsel for the respondent objected that the appellant had given no notice of his intention to use this affidavit, but his Honour allowed the affidavit to be read. Next, the appellant sought to read the affidavit of Robert B. McCullough, a chartered accountant, made on 17 August 1994. Upon objection by counsel for the respondent, his Honour rejected as inadmissible the whole of this affidavit save for paragraph 1, in which the deponent stated that he had been retained as the appellant's accountant. The appellant then indicated that he had no other affidavits he wished to read, but that he did want to call Mr McCullough to give evidence. The appellant tendered a number of documents, which were received in evidence and marked variously as exhibits 1-6. Some of these documents were admitted subject to their relevance being established. The appellant also tendered three letters from different real estate agents as evidence of estimates of sale values of the appellant's properties mentioned in the petition. His Honour rejected the tender on the basis that such evidence should have been given by affidavits filed in accordance with the Registrar's directions and that, in any event, it was not probative of any issue in the case. Mr Hill was cross-examined about the service of the petition. Mr Courtenay, the respondent's solicitor, was cross-examined as to the address of his firm. The appellant then called Mr McCullough. Counsel for the respondent objected to most of his evidence, principally on the basis that it was covered by the Registrar's direction of 13 December 1994, and such evidence was rejected. However, Lockhart J himself asked some questions of Mr McCullough about the appellant's assets and liabilities, and the appellant was permitted, over objection, to ask Mr McCullough his view about the appellant's capacity "to raise $2.4 million in the current market place". The answers to these questions were admitted. The appellant then applied for an adjournment in order to be able to adduce evidence of the matters dealt with in the three letters from the real estate agents referred to above. The application was opposed by counsel for the respondent. Following counsel's submissions, Lockhart J indicated to the appellant that, if he wished to pursue the adjournment application, further evidence of his financial position would be required. The appellant then re-called Mr McCullough to give evidence solely for the purposes of the adjournment application. The trial judge asked Mr McCullough several questions about the appellant's assets and liabilities. The appellant asked Mr McCullough nothing further in chief or in re-examination, and the witness was only briefly cross-examined by senior counsel for the respondent. The three letters were received in evidence for the purposes of the adjournment application only. In his judgment on the adjournment application Lockhart J summarized the evidence of the financial position of the appellant, his companies and family trusts. His Honour then concluded: "I have taken a view most favourable to [the appellant] of all that material, to determine whether or not there would be any reasonable prospects of his being able, through proper evidence, to establish his own solvency for the purpose of defeating the creditor's petition in this case. I have borne in mind that the petitioning creditor has a judgment debt in its favour in the sum of $2.4 million which excludes interest on judgment; the judgment having been signed in October 1993. I have also taken into account that, in accordance with the Bankruptcy Act and rules, the petitioning creditor has valued its securities over the various parcels of real estate of which it is a secured creditor in the sum of $1.25 million. It claims to be an unsecured creditor in the sum of $1.17 million. I can see on the material no purpose to be served by the adjournment. It would not in my view have any realistic prospect of establishing solvency of Mr Bryant. Accordingly, I decline to grant the adjournment."

[9]

No further evidence was adduced and the hearing proceeded to addresses. FINDINGS AND CONCLUSIONS OF THE PRIMARY JUDGE His Honour held that the petition was served in accordance with the Act. He rejected submissions that the petition was not delivered personally to the appellant and, in the alternative, that service on the appellant in the precincts of the court was an "abuse of process". His Honour also said that there was no evidence to support a finding that the address of the respondent's solicitors stated in the petition was not the proper address for service of the respondent. The appellant submitted, in effect, that he was unwilling to pay the judgment debt on the basis that he contested the quantum of the debt owing to the respondent. His Honour held that the evidence could not conceivably satisfy a court that the appellant was solvent. His Honour also found no substance in the allegation that the petition had been presented and prosecuted maliciously. The appellant further submitted that the court should go behind the judgment debt obtained in the Supreme Court, asserting that he had there been denied discovery and an opportunity to prepare his case. Importantly too, he relied upon what he submitted was an acknowledgment by a member of the Full Court during the hearing of his appeal from Hill J that he had "a real case on natural justice" in relation to the proceedings in the Supreme Court. This involved the circumstances in which the appellant had been allowed to amend his defences and cross-claims in those proceedings and which, the member of the Full Court had observed, provided his "best ground of appeal". His Honour rejected this submission, holding that there was no material before the court which would justify going behind the judgment of the Supreme Court. Finally, his Honour declined to exercise the discretion to adjourn the petition pending the disposal of the appeal to the Court of Appeal and of the special leave application to the High Court. Being satisfied with the proof of the matters required by s 52(1) of the Act, his Honour made the sequestration order. GROUNDS OF APPEAL AND CONCLUSIONS ON THE APPEAL The appellant has specified his grounds of appeal in paragraphs 2-35 of the notice of appeal. It is convenient to deal with them in the same order as his written submissions. "2. His Honour erred in not dismissing the Creditor's Petition."

[12]

The first thing that may be observed is that none of these alleged deficiencies was either specified in the appellant's grounds of opposition or pressed by him at the hearing of the petition. It is, therefore, quite wrong to submit that the primary judge erred in these respects. In any event, the appellant's "points" are misconceived. As to point (1): if the serial number of the judgment debt proceedings be inaccurately stated in the creditor's petition, it may be amended so that the correct number is stated. No possible prejudice is suggested by the appellant. In fact, the office copy of the judgment filed with the application for the issue of the subject bankruptcy notice is headed with the serial number stated in the petition and certifies entry of the relevant judgment debt. There was no evidence before Lockhart J that the judgment was entered in any other proceedings. Points (2) and (4) concern the position of the respondent as a secured creditor under s 44 of the Act. The requirements of s 44 were explained by Lockhart J in Re Wiggins; Ex parte Credit Assistance Pty Ltd (1979) 36 FLR 182. In that case his Honour rejected a submission that s 44(2) required a petitioning creditor to state in its petition not its estimate of the value of its security, but the actual value thereof. His Honour held that a petitioning secured creditor may in its petition estimate the value of its security, provided the creditor acts in good faith, and that, in the event of a sequestration order being made, it is not bound by the estimate when it seeks to prove its debt. This construction is consistent with the prescribed form of petition required by s 47(1)(a) of the Act, which envisages a global value being placed on a creditor's security and not a separate value for each mortgage, charge or lien. See too the definition of "secured creditor" in s 5(1) of the Act. Once it is appreciated that the "value" referred to in s 44(2) is an estimated value, there is no difficulty in calculating the excess (or "unsecured balance" as it is termed in the prescribed form) in respect of which a secured creditor is deemed to be a creditor. Such an amount is plainly a "liquidated sum" within the meaning of s 44(1)(b)(i) of the Act. Of course, as Sheppard J observed in Re O'Leary; Ex parte Bayne (1985) 61 ALR 674 (at 682), the petitioning creditor's estimate "must bear a close relationship to the realities of the matter ... [and] not be arbitrary or capricious". But, it could not, in our view, be said that, in this sense, there was a mis-statement in this petition. (See also Re Vassis; Ex parte Leung (1986) 9 FCR 518 per Burchett J at 528-531.) At first glance the appellant's point (3) has a superficial attraction. Rule 12(3)(b) requires the affidavit verifying the petition to be filed at the time when the petition is filed. In this case an affidavit expressly verifying, in terms, paragraph 4 of the petition was not filed. It may have been safer or more prudent if such an affidavit had been filed. The failure to file such an affidavit would not, however, render the filing of the petition a nullity. The petition has still been presented: r 12(1).

[15]

The appellant's contention that the date of the act of bankruptcy was 4 May 1994 is hopeless. No order was ever pronounced extending the time for compliance with the bankruptcy notice beyond 15 March 1994. Nor did the appellant submit at the hearing of the petition that the later date was applicable. The possibility of an implied extension by operation of s 41(7) of the Act was also explicitly determined against the appellant by the Full Court on 9 November 1994 and must be regarded as res judicata. Under these grounds the appellant also submitted, in effect, that an amendment to the date of the act of bankruptcy stated in the petition may only be allowed within 6 months of the date to be relied on. So, it is said, in the present case an amendment may not be allowed on 30 March 1995 to allege an act of bankruptcy on 15 March 1994. The submission depends upon the correct construction of s 44(1)(c) of the Act, which provides that an available act of bankruptcy must have occurred "within 6 months before the presentation of the petition". Support for the submission is said to be found in the decision in Re Hastings [1985] 1 WLR 969. In that case a Divisional Court in England treated an application for leave to amend a petition as equivalent to the presentation of a petition, so that the available act of bankruptcy had to occur within the prescribed period prior to the application for leave to amend, apparently for the reason that the date of service of the bankruptcy notice was not as deposed to by the process server. For this reason, the amendment was treated as a matter of substance rather than form. The case should be distinguished for our purposes. Here the altered date of 15 March 1994 was within the prescribed period, the petition having been presented on 28 June 1994. Moreover, the amendment was purely formal, arising out of the absence of an application by the appellant to extend time beyond 15 March 1994, when Hill J reserved his decision. Indeed had no application to amend been made, it would have been open to the primary judge to have dealt with the petition without it having been formally amended. At the time the petition was served the appellant knew of the extension granted by the Registrar to 15 March 1994 and the order of Hill J refusing to extend the time further. The appellant would have known that the petition was based on an act of bankruptcy occurring on 15 March 1994 as a result of his failure to comply with the bankruptcy notice on or before that date. Section 306(1) of the Act provides: "Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court."

[27]

The appellant's submissions in support of this ground are barely comprehensible. They appear to rest on three complaints: the failure of the trial judge expressly to invite the appellant to object to the respondent's evidence, the rejection of Mr McCullough's evidence, and excessive intervention in the examination of Mr McCullough. The submissions are most confusing. The tender of the respondent's evidence in support of the petition is recorded in four pages of the transcript of the hearing. A reading of those four pages shows that the appellant was obviously conscious of his right to object to evidence, that he did object to evidence being read, and that he knew deponents might be required for cross-examination. There was plainly no need to advise the appellant on these matters. The rejection of Mr McCullough's evidence is said, in effect, to be unfair since he had been required for cross-examination and, when objection was taken by senior counsel for the respondent, the basis of the objection was not articulated. The most striking thing about the appellant's submissions on this point is that no attempt is made, nor could it be, to justify the reception of Mr McCullough's opinion as to the ultimate issue of the appellant's solvency. The primary judge did, in fact, explain patiently to the appellant why he could not adduce from Mr McCullough evidence of facts which should have been set out in an affidavit filed in accordance with the Registrar's direction. The appellant submits that the primary judge's questioning "blocked" the conduct of his case. The guidelines to be applied in considering a submission of this sort were usefully laid out by Kirby A-CJ in Galea v Galea (1990) 19 NSWLR 263 at 280-282. In the present case it could not be said that the questions asked by Lockhart J during Mr McCullough's examination were anything other than helpful to the appellant's case. His Honour could not conceivably be viewed as acting as an advocate for the respondent in his questions. It is true that his Honour took the initiative in questioning when Mr McCullough was recalled to give evidence in support of the adjournment application. But it should be noted, as we have mentioned above, that the appellant sought to ask no questions at all in this segment of the hearing. The transcript admits of no possible conclusion other than that the primary judge lent over backwards to ensure that the unrepresented litigant in person received the fairest hearing possible in the circumstances where that party had persistently ignored directions to file his evidence. In our opinion, there is no room for the slightest doubt that the appellant received a fair hearing. "21. His Honour erred in refusing to accept into evidence the Market Assessments obtained by the appellant and sought to be tendered as evidence at the hearing."

[30]

The appellant did not develop any submission on bias. The exercise of the primary judge's discretion in relation to the appellant's adjournment application is said to have miscarried because an adjournment was necessary to obtain the real estate agents' evidence in admissible form. But, once it is appreciated that such evidence is irrelevant, this ground must also necessarily fail without further consideration. "24. His Honour erred in denying natural justice and procedural fairness to the appellant in finding to the effect that previous directions of the Court directing that the appellant "file and serve ANY affidavit's [sic] he wished to rely on", made to a litigant in person without explanation, should have been understood by the litigant in person as meaning that he was to "file ALL his evidence by affidavit and would be prevented from tendering any further evidence at the hearing". 25. His Honour erred in denying natural justice and procedural fairness to the appellant in not finding that as an unrepresented litigant he should have had it explained to him by the Court before the hearing that evidence ONLY BY AFFIDAVIT would be accepted. 26. His Honour erred in denying natural justice and procedural fairness to the appellant by refusing and or preventing the appellant from tendering relevant evidence which was crucial to the appellant's effective opposition to the creditor's petition. 27. His Honour erred in denying natural justice and procedural fairness to the appellant by refusing to accept evidence which was not in affidavit form." The appellant complains in his submissions that the respondent had the affidavit sworn by the appellant on 15 March 1994 for over 12 months. We do not understand why this point is raised as the primary judge admitted that evidence. As to the Registrars' directions about filing affidavits, it cannot be suggested that the appellant was unaware of their terms and effect. Two of the minutes of the relevant orders were actually signed by the appellant. There was nothing unfair about such directions. "29. His Honour erred in denying natural justice and procedural fairness to the appellant by refusing the appellant adequate time and the opportunity to prepare effective affidavits which would have contained ALL his evidence presented in a manner acceptable to the Court for it's [sic] consideration before making a determination in such an important matter affecting the appellant's rights, his status and his reputation."

Daly v Watson

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Judgment (36 paragraphs)

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Cases Cited (9)

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