FINDINGS
5 Mr Diab swore a detailed affidavit and there is extensive material in evidence as to the circumstances in which he dealt with the bank. Mr Diab has been the victim of some sad and unfortunate family circumstances, including the fact that he and his wife have had the misfortune to lose a child and his wife has suffered a number of miscarriages. Towards the early part of 2004, Mr Diab and members of his family had a number of properties which appear to have been offered as security to various lenders, including one at 187 West Street, South Hurstville, which was offered as security to the bank.
6 Some time in about early May 2004, Mr Diab applied to the bank for an extra facility of $25,000. On 3 May 2004, Mr Berenger, who was at the time a Premium Advantage Service Lender with the bank, had dealings with Mr Diab concerning his request for the extra $25,000. Mr Berenger's position was one in which he worked with customers making loan applications via telephone. On 3 May 2004, Mr Berrenger received advice internally within the bank that Mr Diab's application for the further facility of $25,000 had been approved conditionally. He recorded on the bank's internal computer diary system that the loan had received conditional approval and had advanced to a stage where documents were to be prepared. He telephoned Mr Diab and told him that. He said to Mr Diab that because he wanted the money quickly and was an existing customer the bank would be arranging a temporary excess on the overdraft account of $25,000 for three months which would be paid out by the loan that the bank would make to Mr Diab once the bank had prepared the security documentation and he had signed it. A colleague of Mr Berenger's in the bank made some contemporaneous entries to do with that.
7 On 6 May 2004, Mr Berenger telephoned Mr Diab and left a message for him. By then the bank had agreed to advance the $25,000 as a temporary excess. Mr Berenger spoke with him later on 6 May telling Mr Diab that the loan had been conditionally approved and would proceed once the documentation was in place. As Mr Diab wanted the money quickly and was an existing customer, Mr Berenger offered to arrange for Mr Diab a temporary excess on the account of $25,000 for 30 days. This could be repaid from the loan advance once the loan was in place and he arranged for the security documentation to be drawn up and sent to Mr Diab. According to the bank's diary entries and records, such documentation was prepared and sent to Mr Diab at least twice. Mr Diab says he never received the documents.
8 It is common ground that Mr Diab never signed any documents and never returned any to the bank. Thus, I do not need to decide whether or not he received the documents.
9 The only existing security that the bank had from Mr Diab relevant to the proceeding was a mortgage granted by him and Ali and Omar Diab over the property at West Street on 19 August 1997. That mortgage incorporated the bank's standard terms which had been registered with the Land Titles Office of New South Wales under the provisions of the Real Property Act 1900 (NSW). The registered conditions included cl 2.2 which recited that declarations made by the borrower about his, her or its financial position in relationship to the property the subject of the security were all true and were repeated every time a request for credit under what was called a 'secured agreement' was made. Clause 3.1 of the standard terms required the mortgagors to ensure that they were not in default under the mortgage, and they had to carry out all of their obligations under the secured agreement, including the obligation to pay any of the amount owing. 'Secured agreement' was defined in the standard terms as follows:
'Secured agreement means:
(a) an agreement between one or more of you and us (including a guarantee given by one or more of you), whenever signed, under which you undertake to pay or repay us money, and which all of you acknowledge in writing to be an agreement to which this mortgage extends; and
(b) any such agreement as varied.' (emphasis added)
10 In these proceedings no document in relation to the $25,000 advance appears to conform to a secured agreement, as defined. As I have said, while the parties are in dispute as to whether Mr Diab ever received documents from the bank, there is no dispute that Mr Diab never signed any document for that advance which could come within the meaning of the expression 'secured agreement' in the standard terms of the mortgage. Indeed, in his affidavit in support of his application, Mr Diab said that he received the money in about April 2004 but did not receive any loan documents, nor did his brothers receive any guarantee documents in respect of that loan.
11 Accordingly, I am of opinion that, irregular and unusual as the circumstances in which the bank provided temporary assistance to Mr Diab were, the bank was unsecured for the advance of $25,000 on which the bankruptcy notice and petition were based.
12 During the months following May 2004 the bank pressed for documentation to be provided by Mr Diab and also for the repayment. Ultimately, it commenced proceedings in the Local Court against Mr Diab seeking recovery of the amount of the advance, together with interest accrued.
13 On 9 November 2004, a process server served Mr Diab's father with the Local Court statement of liquidated claim at 31 Connells Point Road, South Hurstville. At the time of service, Mr Diab's father ‑ or the person who identified himself as Mr Diab's father ‑ said that he would give the document to Mr Diab. Mr Diab's father lived at 31 Connells Point Road, which was next door, but one, to the home which Mr Diab lived in at 27 Connells Point Road.
14 Mr Diab claimed he had no notice of the statement of claim. But the bank's internal diary records show that, on the same day as the process server left the document at 31 Connells Point Road, Mr Diab telephoned the bank and spoke to a bank officer. The officer recorded an entry that Mr Diab had called in relation to the overdraft account and said that he had received 'an affidavit due to this account. He stated he believed it was closed'. The diary entry recorded that the officer was speaking to another officer in the Premium Service Centre of the bank about the matter when the caller hung up.
15 On 10 November 2004, that is, the next day, Mr Berenger spoke with Mr Diab and they had a conversation in which Mr Diab said that he wanted to settle the matter as soon as possible and asked that documents be sent to his home address which was 27 Connells Point Road, South Hurstville. Mr Berenger recorded that as the home address in the system. A company, Sans Pareil Pty Limited, which was then controlled by Mr Diab, owned 29 Connells Point Road. Mr Diab denied that he had any conversation with an officer of the bank in which he acknowledged receipt of the statement of claim.
16 I am satisfied on the evidence that it is more probable than not that Mr Diab did receive the statement of claim on 9 November and that that was the reason for his telephone call to the bank on that day.
17 On 23 December 2004, the bank entered default judgment in the local court, Mr Diab not having appeared. It sent a letter to him on that day advising him of that judgment. On 28 January 2005 Mr Diab had a conversation with Mr Berenger in which Mr Diab said that he was aware the bank had obtained judgment against him because of the overdrawing of the account, and that his home loan was also in arrears. He told Mr Berenger that he was trying to sell 29 Connells Point Road and was using an estate agent for that purpose. Mr Berenger informed Mr Diab that he would discuss the matter with the collections personnel at the branch and call him again.
18 In late June 2005 Mr Berenger told Mr Diab that the matter had been passed to the bank's collections section and that they were now in control of it. In the meantime, on 2 May 2005, the bank had written to Mr Diab informing him that it was considering the commencement of bankruptcy actions against him and reminded him that the debt had now increased to over $28,000, including interest.
19 On 30 August 2005, Mr Diab was served personally at 27 Connells Point Road with a bankruptcy notice. He acknowledged that he was the person named in the notice at the time the process server served him. Mr Diab denied that he was at home at the time the process server swore service was effected, namely, 8.13 am. I am not satisfied that Mr Diab's evidence on this point should be accepted and I accept the unchallenged evidence of the process server that he in fact served Mr Diab with the bankruptcy notice.
20 On 20 October 2005, Mr Diab completed and caused to be lodged his tax return which gave his residential address as 31 Connells Point Road. He explained in his evidence that sometimes that address was used and that documents sent there were received by his parents for him. But, he said, he was not responsible for what his taxation agent put in the tax return. While that may be so, the fact is that Mr Diab was content to use the address of his father for some purposes as an address at which documents could be served or brought to his notice.
21 On 3 January 2006, Mr Diab was served with the creditor's petition at his home at 27 Connells Point Road. At the time of service he was asked who he was and identified himself. The process server told him he had a creditor's petition with affidavits which were then handed to Mr Diab. Mr Diab says that he was not served, but I accept the unchallenged evidence of Mr Slater, the process server, that service was properly effected. The petition was returnable on 23 February 2006.
22 Mr Diab claimed that only on 22 February 2006 did he learn of the petition and that he then made attempts to contact officers of the bank and the court and seek an adjournment. He said that he sought to contact the bank and was referred by a legal assistant, Ms Dalton, to a person at the bank responsible for collection, Mr Nettleship. Mr Diab says that he spoke to Mr Nettleship and that Mr Nettleship asserted that he had no idea why he was being called and could not help him. Mr Nettleship denied saying that he had no knowledge as to why his number had been given to Mr Diab and that he needed to talk with the people who had given him his number, but accepted he may have said he was sorry but could not help Mr Diab.
23 I am satisfied that Mr Diab was fully aware that the hearing of the creditor's petition was to take place on 23 February 2006, because he had been served on 3 January 2006. He had ample time to prepare for and be present at the hearing. While he may have telephoned and spoken to bank officers on the afternoon before the hearing, I regard him as having had adequate and reasonable time with which to respond to the petition and, had he chosen to do so, to be heard on it.
24 Mr Diab then learnt of his bankruptcy and went to a solicitor's office to prepare a statement of affairs, which was signed on 14 March 2006. The statement of affairs, he claimed, was not fully or correctly completed. One of the problems in the case before me is that Mr Diab has not sought to set out fully or completely any statement of what he says his true financial position is. But the statement of affairs revealed that the three properties in respect of which he or his company or family had given security were effectively mortgaged to their full value, with the exception of 187 West Street.
25 He claimed that after taking account of the mortgage over the West Street property there was a surplus of about $150,000. In total, he acknowledged indebtedness to secured creditors of about $1.8 million. In the statement of affairs he said that he owed Omar Diab $165,000 and the person I understand to be his father, Ibrahim Diab, $15,000 as unsecured creditors. The statement of affairs did not reveal the judgment debt owing to the petitioning creditor. It revealed a disputed claim with Everlasting Concrete and that Mr Diab's only income in the preceding 12 months had been rent for 29 Connells Point Road of about $10,000.
26 Mr Diab has pointed to a number of errors which he claimed were made by the solicitor who filled out the text of the statement of affairs which he signed. However that may be, Mr Diab signed the document. He had been a bank officer for over 10 years with a different bank, the Arab Bank, and was a person who, from my observation of him in the witness box, had some commercial experience. However, it is not unusual for people, who ask lawyers to assist them, then to sign documents on faith of what the lawyers say is a proper compilation of what they were told by the client.
27 Because Mr Diab has not given any evidence of a detailed statement of his actual financial position, it is difficult to piece together where and how any errors might appear in this statement of affairs. Be that as it may, that is one document he has actually signed which acknowledges what his assets and liabilities position is. It is not a document that reveals any confidence that at the time he signed it he was solvent.
28 Mr Diab sought assistance from other lawyers and ultimately commenced the preparation of the application for annulment in late August 2006. A detailed affidavit was prepared when he was represented by solicitors and it had annexed to it a considerable amount of material from him. It included an income questionnaire that had been returned to the trustee in which, as in evidence before me showed, Mr Diab failed to disclose any details of his employment by his brother. He worked for his brother on a cash basis following his leaving the bank's employment to look after his wife when their health tragedies began to befall the couple.
29 The trustee conducted some investigations into Mr Diab's financial position. He prepared a report for the court which indicates that Mr Diab has an estimated deficiency in his estate of something in the order of about $260,000. There are some potential deficiencies with the way in which the trustee had estimated this but I do not think the trustee is to blame. Mr Diab, who is apparently a fiscally literate person, has not chosen to put in any comprehensible form a statement of his financial position. It is true that the trustee has not taken account in his report of whatever security value Mr Diab's father's property at 31 Connells Point Road provides. Of course, one reason may be that that is not a property registered in Mr Diab's name or over which he had any relevant control. He has today tendered, and I have received as evidence, only as an assertion, in the form of a letter said to be signed by his father on 23 March 2007, that Mr Diab's father owed his son $200,000. I am not satisfied that there is any present ability of Mr Diab senior to pay that money. There is no evidence as to when it is due.
30 Mr Diab has also today produced a letter from Caveat Lenders seeking to respond to material in the trustee's affidavit of 13 March 2007. The trustee's affidavit evidence showed that something in the order of $400,000 was owing to Caveat Lenders (being $245,000 said to be secured against 29 Connells Point Road, about $100,000 said to be secured against 187 West Street, and two unsecured loans totaling $50,000). The letter from Caveat Lenders is signed only under the personal name of a George Zajakoeski. It contains assertions that Mr Diab owes $185,000 to Caveat Lenders as of 27 March 2007, that all monthly repayments have been paid in full on the due date and that the loan is in accordance with Caveat Lenders' terms and conditions. Caveat Lenders has not produced any statement of account or other documents indicating the position as between it and Mr Diab.
31 I had earlier adjourned the hearing of the petition, which had been fixed for 15 March 2007, because of the late service of the trustee's report and affidavit required under the Rules and directions which I had made. The reason I granted the adjournment was that the default of the trustee in timely preparation and service of the report had prejudiced Mr Diab, because it contained a large amount of material which he had only been given the day before and to which he said he wished to respond. Despite the adjournment until 26 March, Mr Diab produced no further evidence as to his financial position on that occasion or other material from which it could be inferred that the trustee made errors. He did cross‑examine the trustee but this in no way affected, in my opinion, the reliability or the credibility of the trustee's evidence.
32 Today Mr Diab has tendered some material which shows that the mortgage accounts with the bank over the property at West Street had been apparently conducted so that they are in order and that the loans are not in default. He has a small debt to Westpac of around $8,000. His company, Sans Pareil, which is now in liquidation, owned 29 Connells Point Road and according to the statement of affairs it owed a debt to Westpac of about $490,000. The documentation shows that currently the limit on that security is $490,000 and that $484,500 is owing.
33 While Mr Diab has sought to put before me material to suggest that he is solvent, I am not satisfied that he is solvent at the moment. Nor am I satisfied that he was solvent at the time of the date of the making of the sequestration order. But more importantly than that, I am not satisfied that Mr Diab at any relevant time was unaware of the proceedings in the local court or the obtaining of judgment against him, for the reasons that I have already given. I am satisfied that he was served with the bankruptcy notice and did nothing about it. I am also satisfied that he was served in early January 2006 with the creditor's petition and again did nothing about it.
34 I can understand why, in his position, and having regard to the experiences he and his wife have had to endure which have no doubt been emotionally, physically and mentally extremely stressful and draining for them, it would be difficult to cope with liabilities such as those that he came to owe, and it may also have been difficult for him to cope with the processes of the legal documents that were served on him seeking to collect this debt. But, nonetheless, I am not satisfied that he has established any basis upon which I could exercise a discretion either to annul his bankruptcy under s 153B of the Act, or to review the registrar's order for sequestration of his estate.
35 Although there was considerable delay in the filing of the application for annulment or review, it does seem that Mr Diab was seeking legal advice. He perceived that there was a problem with advice that he had earlier received and was taking steps to try to rectify his position. Unfortunately, in the meantime the trustee, until about 31 August 2006, was not informed that his fees might be at risk, and even then was only told that an application to annul the sequestration order would be made, rather than an application to set aside the order under s 35(a) of the Federal Court of Australia Act 1976 (Cth). In all the circumstances in the exercise of my discretion I will not extend the time in which an application to set aside the registrar's order could be made. I am not satisfied that it was brought with reasonable diligence or that there has been a sufficient explanation for the delay between 23 February and 20 October 2006.
36 In any event, on the basis of the evidence, I would not be prepared to make an order either annulling the bankruptcy or setting aside the sequestration order. For these reasons I am of opinion that the application should be dismissed with costs.
I certify that the preceding thirty six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.