Kidney v Fitzpatrick [2007] FMCA 943

This is an ex tempore judgment given on 22 May 2007 which has been revised and edited from the transcript.

Mr Kidney, the applicant, filed a creditor's petition on 5 April 2007. It was served on Mr Fitzpatrick, the respondent and debtor, on 12 April 2007. The petition is based on a debt of $8,110.76 resulting from a Certificate of Taxation made by a Deputy Registrar of the ACT Supreme Court on 1 November 2004. It concerns costs orders made by Master Harper on 14 November 2003 and Connolly J on 6 February 2004. The underlying dispute goes back to a matter before Special Magistrate Symons on 22 September 2003 in the ACT Magistrates Court in its small claims jurisdiction.

Yesterday I gave judgment dismissing an application by the respondent/debtor to have the bankruptcy notice set aside (Fitzpatrick v Kidney [2007] FMCA 942). Many of the issues before the Court in the current matter, and his underlying concerns, are the same as those he put at the bankruptcy notice hearing. I do not intend to repeat what I said in that judgment. These reasons should be read together with those in that judgment.

The bankruptcy notice is dated 13 February 2007. It was served on the debtor on 25 February 2007. The time for compliance with that bankruptcy notice was extended to 29 March 2007 by Registrar Dowley on 5 March 2007. It is common ground that the debt was not paid by 29 March 2007.

The documents on which the creditor relies are:

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the creditor's petition filed on 5 April 2007 and the accompanying affidavit of the applicant

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the Consent to Act and Trustee Declaration filed on 5 April 2007

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an affidavit of Mr Ian Gillespie-Jones, the applicant's solicitor, filed on 1 May 2007, enclosing a sealed order of Registrar Hedge dismissing the application to set aside the bankruptcy notice, a copy of Registrar Dowley's order extending the time for compliance with the bankruptcy notice, and a copy of my procedural directions for the hearing of this matter

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an affidavit of Mr Michael Ronald Harrison sworn on 11 May 2007 and filed on 21 May 2007 testifying to service on the respondent/debtor of certain documents

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a further affidavit of Mr Gillespie-Jones filed on 21 May 2007 in which he testifies to having caused a search of the National Personal Insolvency Index on 21 May 2007. The only reference in that index to the debtor was a reference to the current petition. There were no details of any debt agreement in relation to the debt on which the applicant relies. He annexed a copy of the relevant extract from the National Personal Insolvency Index

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an affidavit filed on 1 May 2007 sworn by Mr Harrison certifying personal service of the bankruptcy notice on 25 February 2007

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a further affidavit of Mr Harrison sworn on 20 April 2007 and filed on 26 April 2007 certifying service of the creditor's petition on the respondent on 12 April 2007

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an affidavit sworn and filed on 21 May 2007 by the applicant deposing that the debt the subject of the creditor's petition is still owing.

The respondent filed a notice of opposition on 18 April 2007 setting out six grounds of opposition. He has also filed two affidavits. The first was sworn by the respondent on 17 April 2007 and filed on 18 April 2007. The second was sworn by the respondent on 13 May 2007 and filed on 14 May 2007.

Save in respect of one matter, the respondent does not assert that the documents required to be filed and served under the Bankruptcy Act 1966 (Cth) are defective.

The respondent asserts one defect in the affidavit verifying the creditor's petition filed on 5 April 2007. Paragraph 3 is worded differently from the affidavit set out in Form 6 of the Federal Magistrates Court (Bankruptcy) Rules 2006.

The reason for the different wording is obvious. The standard paragraph 3 is based on the normal requirement that the debtor should pay the debt, or make an arrangement for satisfactory payment of the debt, within 21 days after service of the bankruptcy notice. However that time limit clearly has no application in this case because of the order of Registrar Dowley on 5 March 2007 when she extended the time for compliance with the bankruptcy notice to 29 March 2007. Consequently the applicant in the verifying affidavit could not swear in the terms set out in the standard form affidavit. Instead he amended paragraph 3 to read:

...the respondent failed, within the time fixed by the order of Registrar Dowley of 5 March 2007, namely by 29 March 2007, to pay the debt or make an arrangement to my satisfaction for payment of the debt.

This is clearly appropriate.

I note also that rule 4.02(2) of the Rules says that the verifying affidavit "may be in accordance" with that set out in the form. In this case it was appropriate and proper that the creditor swear an affidavit in the way he has. Otherwise it would be both untruthful and serve no utility. I thus reject the respondent's submissions on this issue.

The notice of opposition contains six grounds which can be summarised as follows:

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the respondent still has relevant matters before the ACT Court of Appeal - matter number ACTCA 47 of 2006. The hearing date for the appeal has not yet been set

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it has been a miscarriage of justice for the creditor to pursue costs against the debtor, and for the subsequent serving of the bankruptcy notice and creditor's petition

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there is no lawful basis for the creditor to seek such costs - this is related to the second ground

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the respondent relies on his application for review and sworn affidavit filed in the application to set aside the bankruptcy notice

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there is evidence to support an order dismissing or striking out the bankruptcy notice and creditor's petition, as well as the order made by Registrar Hedge on 29 March 2007

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there is evidence that justifies the granting of an order to have all relevant circumstances determined by the Court.

Some of these are clearly not "grounds" but mere assertions by the respondent.

Reopening issues from Fitzpatrick v Kidney; taking further evidence

As noted above I do not propose to reopen what was decided in Fitzpatrick v Kidney.

The sixth ground appears to seek the taking of further unspecified evidence. I have given reasons for rejecting a similar proposal to have the applicant and Mr Gillespie-Jones give oral evidence in Fitzpatrick v Kidney.

I asked the respondent at the hearing to indicate the issues he would explore in cross-examination. He stated that they included the reasons why Mr Gillespie-Jones and the applicant were seeking costs against him, what were the lawful grounds for seeking such costs, and why the applicant appeared in court on one occasion in 2003 but not on another. In my view they were clearly not relevant to the creditor's petition and the sequestration order sought in this Court.

Notwithstanding the grounds in his notice of opposition, the respondent's oral submissions relied particularly on ss.52(2)(a) and (b) of the Act to have the petition dismissed. They provide:

(2) If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:

(a) that he or she is able to pay his or her debts; or

(b) that for other sufficient cause a sequestration order ought not to be made;

The respondent referred to his affidavit of 13 May 2007 where he says that he made an offer to pay the creditor $100 a fortnight and enclosed an Australian money order for $100 (see annexure D to the affidavit). This was rejected by the creditor.

This could in no way satisfy a court that the respondent is able to pay his debts. The relevant debt is $8,110.76. If the respondent were to pay $100 every fortnight the debt would only be repaid at a time more than three years in the future, even if no interest were payable. It is hardly an indicator that the respondent has the capacity or ability "to pay his or her debts". There is no other evidence before the Court which could satisfy me that the debtor is able to pay his debts.

The respondent says that there is "other sufficient cause" to justify dismissing the petition. He relies on his belief that the litigation on the $8,110.76 debt is incomplete being still before the ACT Court of Appeal in the matter ACTCA 47 of 2006. The notice of appeal in ACTCA 47 of 2006 is attached to his notice of opposition. That is an application to appeal the decision of Crispin J made on 8 December 2006 to dismiss the matter before him.

This question was extensively considered in the hearing of and decision in Fitzpatrick v Kidney on the application to set aside the bankruptcy notice. I remain firmly of the view expressed in that decision that litigation on the $8,110.76 is finalised. This is supported by the fact that the matter went as far as the High Court where Hayne and Crennan JJ dismissed an application for special leave to appeal on 7 September 2006.

The litigation before the ACT Court of Appeal is about a decision of the Registrar taxing costs ordered by Crispin J in the ACT Supreme Court on 1 February 2006. It is not about the debt the subject of the creditor's petition.

The respondent also argued that a counter-claim he may have may constitute sufficient cause. Again this was considered in Fitzpatrick v Kidney. I referred there to vague assertions by the respondent about the possibility of defamation proceedings against certain persons in this litigation, and also about the possibility of costs being awarded in his favour if his litigation in the ACT Court of Appeal were successful. As I noted then the respondent must do more than merely assert the possibility of taking action leading to a counter-claim. In this case there has been no detailed material before me which would suggest that this possibility is something to which I can give any great weight.

For completeness I mention that the respondent has spent much of the time at this hearing, and the hearing of Fitzpatrick v Kidney, arguing that the Court go behind the decisions of the ACT Supreme Court, the decision and the actions of Special Magistrate Symons, and, indeed, the decision of the High Court. When examining judgment debts this Court has said in CSR Ltd v Muscat [2002] FMCA 257:

[10] In so far as going behind the judgment is concerned, whilst the court has the power to do this, it is a power which should be exercised judiciously and only on the basis of some real indication that something was awry with the judgment itself.

The Court then referred to the principle stated by Barwick CJ in Wren v Mahony [1972] HCA 5; (1972) 126 CLR 212 at 224.

Nothing before me has suggested that it would be appropriate, even if permissible, for me to go behind the judgments of the various judicial officers in the Supreme Court where they made orders for costs, or, indeed, the judgment of their Honours in the High Court.

On the test for "sufficient cause" the High Court has approved the statement in Cain v Whyte [1932] HCA 6; (1933) 48 CLR 639 at 646:

...it is for the debtor to show some cause overriding the interest of the public in the stopping of unremunerative trading, and the rights of individual creditors who are unable to get their debts paid to them as they become due. Something has to be put before the Court to outweigh those considerations before it can be said that sufficient cause is shown against the making of a sequestration order.

In this matter I have considered the various issues raised in the grounds in the notice of opposition. In particular I have considered the respondent's strongly held belief that he does not owe the debt to the creditor. I have also considered the alleged counter-claim. In my view all these matters fall far short of "overriding" other interests referred to by their Honours in Cain v Whyte.

As I indicated earlier, the respondent asserts no defects in the documentation filed by the creditor, apart from the one matter which I have already considered. The respondent has also not provided any evidence which would satisfy me that he is able to pay his or her debts or of other sufficient cause.

I am satisfied that the material put to me by the creditor meets the statutory requirements. Furthermore there is no dispute that the respondent did not pay the debt of $8,110.76 by the time required under the legislation following the extension of time by Registrar Dowley - that is by 29 March 2007.

I therefore find that the respondent has committed an act of bankruptcy in accordance with s.40(1)(g) of the Act. At the time of the act of bankruptcy he was personally present or ordinarily resident in Australia. Section 43 provides that where a debtor has committed an act of bankruptcy and at that time was personally present or ordinarily resident in Australia the Court may make a sequestration order against the estate of the debtor.

The important procedural requirements for a sequestration order have also been satisfied. Turning to s.52(1), the matters stated in the petition have in my view been proved at the hearing. The service of the petition has been proved, and the fact that debts are still owing is proved by the affidavit of the applicant sworn and filed on 21 May 2007.

On the evidence before me I am not satisfied that the debtor is able to pay his debts or that there is other sufficient cause not to make a sequestration order.

I propose therefore to make a sequestration order against the estate of the respondent.

For the sake of completeness I refer to the question of compliance by the applicant with rule 4.04(1)(a) and (2) of the Rules. This was the subject of a ruling during the course of the hearing. There has been substantial compliance in relation to the matter before Registrar Hedge in the affidavit of Mr Gillespie-Jones filed on 1 May 2007. However subsequently Registrar Hedge's decision was the subject of an application for review before me. This was only decided yesterday and there was no further affidavit concerning that review.

In my ruling I noted that I could see no prejudice to the respondent if I were to dispense with full compliance with rule 4.04(1)(a) and (2). The matters which have been dealt concerning the bankruptcy notice and the application to set it aside were very much known to the respondent and to the Court. It would serve no useful purpose for the Court to adjourn for further affidavits covering the matter which was so recently before it. I also note what the High Court has said in Sali v SPC Ltd [1993] HCA 47; (1993) 116 ALR 625 about the responsibilities of a court in deciding on adjournments having regard to the effective and efficient use of its resources.

The orders of the Court are that a sequestration order be issued against the estate of Raymond Arthur Fitzpatrick and that the applicant's costs be taxed and paid in accordance with the Act.

The Court notes that the date of the act of bankruptcy was 29 March 2007, that a consent to act as trustee has been signed by Michael Edward Slaven of the firm of Rangott Slaven, and has been lodged with the Official Receiver, and a copy of this order is to be provided to the trustee and to the Official Receiver within two days after the order is entered.

I certify that the preceding thirty-seven paragraphs are a true copy of the reasons for judgment of Mowbray FM