Mathai v Kwee

REASONS FOR JUDGMENT 1 On 18 May 2004 a sequestration order was made by Registrar Wood in the Victorian District Registry of the Court against the estate of Mathew Keralavakayil Mathai ("Mr Mathai"). This order was made under s 43 of the Bankruptcy Act 1966 (Cth) ("the Act") which provides as follows:- "43(1)Subject to this Act, where: (a) a debtor has committed an act of bankruptcy; and (b) at the time when the act of bankruptcy was committed, the debtor: (i) was personally present or ordinarily resident in Australia; (ii) had a dwelling-house or place of business in Australia; (iii) was carrying on business in Australia, either personally or by means of an agent or manager; or (iv) 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; the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor. (2) Upon the making of a sequestration order against the estate of a debtor, the debtor becomes a bankrupt, and continues to be a bankrupt until: (a) he or she is discharged by force of subsection 149(1); or (b) his or her bankruptcy is annulled by force of subsection 74(5) or 153A(1) or under section 153B." 2 This order was made by Registrar Wood in the exercise of a power of the Court in accordance with s 35A(1)(h) of the Federal Court of Australia Act 1976 (Cth) and a direction given under Order 77 Rule 7 of the Federal Court Rules. 3 Section 35A of the Federal Court of Australia Act 1976 (Cth) makes provision for reviews to be undertaken by the Court of the exercise of such powers by Registrars as follows:- "35A(5) A party to proceedings in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the Court to review that exercise of power. (6) The Court may, on application under subsection (5) or of its own motion, review an exercise of power by a Registrar pursuant to this section and may make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised." 4 It is common ground between the parties that any review by the Court under s 35A(6) of the Federal Court of Australia Act 1976 (Cth) would involve an exercise of the original jurisdiction of the Court and be a rehearing de novo based upon the evidence before the Registrar supplemented by any evidence the parties may desire to produce (see Re Kwiatek and Kwiatek; Ex parte Big J Limited v Pattison (1989) 21 FCR 374 at 380 - 1 and Harris v Caladine (1991) 172 CLR 84 at 95, 122 and 163 - 4). 5 Order 77 Rule 8 of the Rules empowers the Court or a Judge to review a decision such as that of Registrar Wood on an application under s 35A(5) provided that the application is made within 21 days of the date of the decision. Under Order 3 Rule 3 it is open to the Court or a Judge to extend the 21 day period nunc pro tunc. 6 The Creditor's Petition on which the sequestration order was made in proceedings No. VID 2 of 2004 in the Victorian District Registry was filed on 2 January 2004. It alleged that Mr. Mathai owed the Applicant Creditor Low Mooi Kwee (also known as Monica Low or Monica Leong) GBP 118,317.11 and that on 12 February 2003 judgment had been entered in proceeding number 8216 of 2002 in the Supreme Court of Victoria for the Applicant Creditor against the Respondent Debtor in the sum of $288,086.46 being the Australian equivalent of GBP 118,317.11 in accordance with s 6 of the Foreign Judgments Act 1991 (Cth). 7 Paragraph 3 of the Creditor's Petition stated as follows:- "At the time when the act of bankruptcy was committed, the respondent debtor: · was personally present or ordinarily resident in Australia · had a dwelling-house or place of business in Australia" 8 The Creditor's Petition was signed by the Applicant Creditor in British Columbia, Canada at 1.05 pm on 29 December 2003 (30 December 2003 in Australia). At the same time she swore an affidavit verifying the Creditor's Petition before a Notary Public in British Columbia. Paragraphs 2 and 3 of her affidavit verifying read as follows:- "2. I make this affidavit from my own knowledge, except where indicated to the contrary. Where I depose to matters on information and belief, I verily believe such matters to be true. 3. I am able to depose to the fact that each of the statements contained in paragraphs 1, 2 and 3 of the Creditor's Petition … are true and correct in every respect." 9 Paragraph 4 of the Creditor's Petition relevantly provided as follows:- "4. The following act of bankruptcy was committed by the respondent debtor within 6 months before the presentation of this petition: The applicant creditor who has obtained against the respondent debtor a final judgment, being a judgment the execution of which has not been stayed, served on the respondent debtor in Australia on 6 December 2003, a bankruptcy notice under the Bankruptcy Act 1966 (number VN 1006/03) and the debtor has not within the time specified in the bankruptcy notice complied with the requirements of the bankruptcy notice or satisfied the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment was obtained. …" 10 Prior to making the sequestration order Registrar Wood granted leave to the Applicant Creditor to amend paragraph 4 of the petition "to substitute (sic) 'Falling on 20/12/2003 (sic)' after the word Notice as it appears in line 8 of the paragraph." 11 As I understand the effect of this amendment to paragraph 4 of the Creditor's Petition it relevantly became:- "… and the debtor has not within the time specified in the bankruptcy notice Falling on 20/12/2003 (sic) complied with the requirements of the bankruptcy notice or …" 12 It is difficult to comprehend the reference to the date "20/12/2003". Query, the intended date may have been 29/12/2003 or 30/12/2003 and there has simply been a typographical error made in the engrossment of the order. 13 In the foregoing context Mr. Mathai has instituted the current proceedings. The Application was filed on 19 April 2005. By his Amended Application filed in Court on 26 May 2005 he seeks, inter alia, an order extending the time within which an application for review of Registrar Wood's decision of 18 May 2004 may be sought, a review of that decision and in particular an order that it be set aside upon the ground that at the time when the alleged act of bankruptcy described in the Creditor's Petition was said to have been committed, the Applicant was not a person falling within any of the sub-paragraphs of s 43(1)(b) of the Act and, in the alternative, an order pursuant to s 153B of the Act annulling the bankruptcy. 14 Section 153B of the Act relevantly provides:- "153B(1) If the Court is satisfied that a sequestration order ought not to have been made … the Court may make an order annulling the bankruptcy." 15 The First Respondent named in the Amended Application is Low Mooi Kwee and the Second Respondent is Loke Ching Wong as Trustee of the property of Mr. Mathai. Loke Ching Wong is a registered trustee in whom the property of the Applicant vested upon his appointment as trustee under s 181A of the Act on 22 December 2004, he being a replacement for the original trustee, Paul Anthony Pattison. 16 As mentioned above, in her Creditor's Petition, the First Respondent alleged that the Applicant had committed an act of bankruptcy by virtue of s 40(1)(g) of the Act. That section relevantly provides:- "40(1)A debtor commits an act of bankruptcy in each of the following cases: … (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia … a bankruptcy notice under this Act and the debtor does not: (i) where the notice was served in Australia - within the time specified in the notice; … … comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained." 17 The Applicant concedes that if it be established that there were other available acts of bankruptcy at the time of presentation of the Creditor's Petition, then the Court may take such matters into account in determining whether or not it should exercise its discretion under s 153B of the Act favourably to the Applicant. 18 Counsel who appeared for the First Respondent on 26 and 27 May 2005 indicated that on the application presently before the Court his client proposed to rely upon s 40(1)(c)(i) of the Act in addition to s 40(1)(g). Section 40(1)(c) (i) provides as follows: "40(1)A debtor commits an act of bankruptcy in each of the following cases: … (c ) if, with intent to defeat or delay his or her creditors: (i) he or she departs or remains out of Australia; …" 19 However, his successor in brief abandoned his client's reliance upon s 40(1)(c)(i) on 4 July 2005. 20 The Applicant has conceded that the First Respondent had obtained a final judgment or final order against him being a judgment or order the execution of which had not been stayed, that on 6 December 2003 a bankruptcy notice was served personally on him on behalf of the First Respondent at Tullamarine Airport, Melbourne, Victoria upon his arrival from Malaysia via Sydney earlier that day, that this notice had been issued on 3 July 2003 at the request of the First Respondent in reliance upon the judgment obtained by the First Respondent against the Applicant in the Supreme Court of Victoria in accordance with the Foreign Judgments Act 1991 (Cth) on 12 February 2003 and that he did not comply with the requirements of the notice. He has also conceded that there is no issue as to his solvency, i.e. for the purposes of the application he accepts that he is insolvent. He accepts that he knew of the judgment against him in June 2003 and acknowledges that he did nothing to dispute it or pay it. 21 On 28 December 2003 the Applicant left Australia. Thereafter, he returned on 1 April 2005. 22 The Applicant's case is that he only learnt of the sequestration order having been made in respect of his estate on 10 April 2005 when he attempted to leave the country. 23 In the foregoing circumstances the following substantive issues would appear to arise. At the time when the Applicant committed an act of bankruptcy by failing to comply with the requirements of the Bankruptcy Notice which had been served personally upon him on 6 December 2003: (a) Was he personally present in Australia? (b) Was he ordinarily resident in Australia? (c) Did he have a dwelling-house in Australia? (d) Did he have a place of business in Australia? (e) Was he carrying on business in Australia, either personally or by means of an agent or manager? (f) Was he 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? 24 In respect of the proposed application for review of Registrar Wood's decision to make the sequestration order, the preliminary question which arises is whether or not an order should be made nunc pro tunc extending the time fixed by Order 77 Rule 8(2) of the Rules within which an application for review of Registrar Wood's decision may be brought. 25 The Trustee's position is that he will submit to the order of the Court in respect of the annulment application. Whether annulment were to be granted or refused the Trustee would simply seek an order that his costs and expenses be costs and expenses in the administration of the bankrupt's estate. However, the Trustee indicated at the outset that he would wish to be heard if the Court was minded to set aside the sequestration order because that would have different ramifications for the Trustee in relation to the costs and expenses incurred to date in administering the estate (cf s 154 of the Act). Having said that, on 4 July 2005 the Trustee indicated that, due to a lack of funding, he wished to take no further part in the proceedings. 26 In relation to his appreciation of the effect of service upon him of the Bankruptcy Notice the Applicant gave the following evidence:- "Q. Did you read the notice when it was served on you? A. Yes, I did, yes. Q. Did you read it carefully? A. Yes. … Q. … you read each and every paragraph; that's correct? A. I read the whole lot, yes. Q. Did you read it at the airport or at home? A. At home. Q. Home being 69 Wellington Road (Kew)? A. Well, that's where I was staying there. Q. So you took it home and you read it as soon as you got home? A. When I was at the house, yes. … Q. It was a fairly significant event on 6 December being served with that notice? A. Yes, that's true. Q. It would have concerned you no doubt? A. Yes. Q. That's correct? A. Yes. Q. That you could possibly have been made a bankrupt; that's correct? A. Yes. Q. You were aware that in the event you were made a bankrupt you would have difficulties in undertaking your employment in Malaysia? A. That's correct. Q. And you were aware of that, weren't you, on 6 December? A. Well, soon after I read the document." 27 The Bankruptcy Notice served upon Mr. Mathai on 6 December 2003 showed his address as "69 Wellington Street Kew Victoria 3101". It bore a prominent note reading:- "This Bankruptcy Notice is an important document. You should get legal advice if you are unsure of what to do after you have read it." 28 The Bankruptcy Notice clearly identified the First Respondent as a creditor claiming that GBP 118,317.11 or $288,086.46, being the Australian currency equivalent thereof, constituted a debt due and payable by Mr. Mathai to the First Respondent. After reading the Bankruptcy Notice Mr. Mathai asked his son Christopher to make contact with John Denton, a solicitor with whom Christopher had had dealings. Mr. Mathai says that he was unable to contact Mr. Denton before he next travelled to Malaysia. 29 Paragraph 5 of the Bankruptcy Notice recorded in bold type that bankruptcy proceedings may be taken against Mr. Mathai if within the time stated in paragraph 3 (21 days after service on him of the Bankruptcy Notice) he did not comply with the requirements of the Bankruptcy Notice. 30 After the Creditor's Petition, on which the sequestration order was later made, was filed on 2 January 2004, Registrar Mussett made an order for substituted service. This order was entered on 8 April 2004. 31 In accordance with the order for substituted service so made, a copy of the Creditor's Petition was served on Mr. Mathai on or shortly after 13 April 2004. An envelope addressed to 69 Wellington Street, Kew containing, amongst other things, a copy of the Creditor's Petition and copies of the affidavits verifying the petition together with a sealed copy of the order for substituted service was posted by ordinary prepaid post by an employee of AJH Lawyers on 13 April 2004. A bundle of documents was also hand delivered to Mr. Gerald Lee Mathai, one of Mr. Mathai's sons, at 69 Wellington Street, Kew. The Creditor's Petition clearly identified the First Respondent as the Applicant Creditor and Mr. Mathai as the Respondent Debtor. It detailed the alleged indebtedness of Mr. Mathai to the First Respondent and alleged that an act of bankruptcy had been committed by Mr. Mathai by failing to comply with the Bankruptcy Notice. The Creditor's Petition also showed Mr. Mathai's address as "69 Wellington Street, Kew, Victoria 3101". 32 The Applicant's evidence is that in early 1977 he made application for migration to Australia which application was approved in December 1977. On 30 January 1978 his family moved to Melbourne with the exception of two sons, namely Gerald and Michael, who were studying in England at the time. 33 Mr. Mathai says that when he first went to Melbourne he lived with his immediate family in his sister-in-law, Lucy Wee's apartment until 68A Wellington Street, Kew was purchased in the name of his wife, Margaret Lee Mathai, his brother-in-law, Eng Poh Wee and a solicitor, Brian Gill, as trustees of the "Mathai Family Trust". Mr. Matthai acknowledges that he "provided some assistance in relation to the decision to purchase" this property. The purchase price was met partly from an amount of $40,000 which Mr. Mathai brought to Australia and partly from funds borrowed from a bank in Hong Kong under a loan which Mr. Mathai had arranged and for the repayment of which Mr. Mathai was personally responsible. Mr. Mathai spoke to the solicitor, Mr. Gill, and also inspected the property. 34 Gerald Lee Mathai took a Bachelor of Arts degree from Oxford University in the United Kingdom graduating in about 1983. Later he enrolled for a Doctor of Philosophy degree in Computer Science at Monash University but did not complete same. He works as a Futures Trader from 69 Wellington Street, Kew. His father provided him with $30,000 by way of seed capital for his business as a Futures Trader. 35 Michael Mathai, a Medical Researcher, took a Bachelor of Science degree with honours at the University of Melbourne and later a Doctor of Philosophy degree at the same university. He has lived at 118 Montana Road, Heidelberg since 1999. Before that he lived at Greensborough. 36 Christopher Mathai, another brother, is a Marketing Assistant. In April 2003 he acquired 24/50 Morang Road, Hawthorn in which he has lived since earlier this year. 37 After 68A Wellington Street, Kew was acquired as aforesaid, Michael Lee Mathai, then a student aged 20, became the registered proprietor of 69 Wellington Street, Kew, a two-bedroom house across the road from 68A Wellington Street, for which a purchase price of $210,000 was paid. The relevant transfer was dated 2 August 1983. Michael Mathai says that the money to purchase this property was "given to him by his parents". At the time his mother was not working and he was unable to say who provided the purchase price. It would appear that Michael Mathai executed a Declaration of Trust in which he declared that he had purchased the property in trust for himself, one of his brothers and his sister. Mr. Mathai says that 69 Wellington Street was paid for with moneys lent to his wife, Margaret Lee Mathai, and his son Michael, by a Mr. Lee from Singapore, a friend of Mr. Mathai. Mr. Mathai arranged that loan. The loan moneys were apparently sent by Mr. Lee to lawyers in Melbourne. Mr. Mathai says that the loan from Mr. Lee was repaid by his wife out of moneys from Tacs Sdn Bhd ("Tacs"). Tacs is a company established by Mr Mathai in which Mrs. Mathai owns 24,998 shares out of 25,000 shares on issue. 38 Gerald Mathai's evidence was that after he received the bundle of documents on 13 April 2004 he flipped through the bundle of documents, glancing at them. He knew that they related to someone suing his father and he realised that they related to the "judgment from England". 39 He recognised that the documents had come from AJH Lawyers (the then solicitors for the First Respondent). 40 After glancing at the documents in the bundle Mr. Gerald Mathai telephoned his father informing him that he had received documents from AJH Lawyers. He further informed his father that the process server who gave them to him had said that by giving them to him or to his mother "was like giving it to" Mr. Mathai. 41 Mr. Gerald Mathai told his father that the documents looked like they were "to do with this action that was happening". In relation to the nature of the documents he had received he told his father "it was a summons to court". 42 In the course of the conversation which Mr. Gerald Mathai says lasted for about three or four minutes his father instructed him "to return the documents", which he had received, "to the Court". 43 Mr. Gerald Mathai says that he received this instruction from his father after he asked him what he should do with the documents. When asked what his father's actual words of instruction were Mr. Gerald Mathai said they were "… send them back with a cover letter …". Mr. Gerald Mathai proceeded to do as he was instructed. On 14 April 2004 he wrote a letter to The Registrar of the Court as follows:-