Equuscorp Pty Ltd, in the matter of Chang v Chang

REASONS FOR JUDGMENT 1 Equuscorp Pty Ltd brought a petition to sequestrate the estate of Meng Chang. The act of bankruptcy upon which the petition was based was the alleged failure by the debtor to comply with a bankruptcy notice that had been served upon him. That notice was based on a judgment debt in the sum of $10,663.33 that had been obtained against the debtor in the Magistrates' Court at Melbourne on 15 April 1993. 2 The petition had been listed for hearing on nine occasions (there has been eight adjournments with costs reserved on each day). With three exceptions, the hearing was adjourned at the request of the debtor. Initially, the debtor requested an adjournment so that he could pay the debt due to the petitioner. When the debt was not paid, the debtor then alleged that the judgment against him had been improperly obtained. He sought and obtained an adjournment so that he could apply to the Magistrates' Court to have the judgment set aside. As events transpired, the debtor was successful in that regard because he had not been properly served with the court process. 3 Notwithstanding that judgment was set aside, the petitioner sought to proceed with the petition. It intended to argue that although the judgment had been set aside, the debtor had failed to comply with the bankruptcy notice. The contention was that at the time the notice was served there was in place a "final order … the execution of which had not been stayed" and that was sufficient to found the bankruptcy notice and requiring compliance with it: see s 40(1)(g) and s 40(3)(d) of the Bankruptcy Act 1966 (Cth). The petitioner also intended to argue that the debtor was still indebted to it in the amount for which judgment had been entered. 4 This attitude provoked the debtor to move for orders that the bankruptcy notice and the petition be set aside. The debtor filed affidavits in support of that motion. The affidavits were designed to show that, contrary to the petitioner's assertion, there was in fact no money owing to it. The debtor wished to contend that as the judgment which was the foundation of the petition had been set aside, no debt was owing. His case was that the loan agreement upon which he had been sued was void. The material also raised the prospect of a claim for compensation against the petitioner. 5 The debtor requested and was granted three adjournments to enable him to file further evidence. In due course his motion and the petition were set down for hearing on 7 June 1999. However, on 20 May 1999 the debtor was made a bankrupt on his own petition. Accordingly, when the petition came on for hearing it was dismissed, the petitioner not wishing to set aside the order that had been made on the debtor's petition. 6 When the petition was dismissed the costs of the proceeding were reserved to enable the parties and the trustee in bankruptcy to make submissions on the appropriate order to be made. The petitioner now seeks an order that its costs, including all reserved costs, be taxed and paid out of the bankrupt estate with the same priority as if a sequestration order had been made on the creditor's petitioner. 7 It was decided in Re Hankey; Ex parte Kratzmann (1986) 11 FCR 512 that the presentation of a debtor's petition during the currency of a creditor's petition did not deprive the court of power to make an order for costs in respect of the creditor's petition although the petition had been dismissed. The court's power to make the order derives from s 32 of the Bankruptcy Act which provides: "The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit." 8 The Hankey case also decided that upon the dismissal of a creditor's petition the court could order that the petitioner's costs be taxed and paid as if a sequestration order had been made and order those costs to be paid out of the estate. 9 I think that it is appropriate for such an order to be made in this case. The consequence of the presentation by the debtor of his own petition was, in the upshot, to deprive the creditor of its right to obtain a sequestration order. I have examined the material on the court file and I do not think that the debtor could have resisted an order being made against him, in the absence of a sequestration order on his own petition. However, I do not believe that all of the reserved costs should be paid out of the estate. Certain of those costs were incurred in circumstances where it would be unfair to order the estate to bear them. I have in mind, in particular, the costs that were reserved on 25 May 1998 and 30 July 1998. The adjournment orders made on those days could not be attributed to the fault of the debtor. 10 Accordingly, the order that I will make is that the petitioner's costs of and incidental to the petition, excluding the costs reserved on 25 May 1998 and 30 July 1998, be taxed and when taxed be paid out of the bankrupt estate of the debtor with the same priority as if a sequestration order had been made on the creditor's petition. The costs of the adjournment that was granted on 30 July 1998 should go against the petitioner. The amount of those costs should be estimated or taxed and then deducted from the amount payable out of the estate. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.