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[1999] FCA 1124
Federal Court of Australia
1999-08-04
Original judgment source is linked above.
Introduction 1 The applicant seeks to annul a sequestration order made by a Registrar on 30 September 1998 on the ground that the petition was not served on him. The question that has arisen in the case is whether it was served on the applicant or on his brother. The applicant denied service of both the petition and the bankruptcy notice. The evidence on both sides is quite unsatisfactory.
The process server's evidence 2 The process server's evidence was, in many respects, quite unbelievable. It is quite clear that the applicant has not, for many years, lived at the Guildford address at which she claimed to have served the documents. Whilst it is true that he made short visits there on occasions for various purposes, and he was cross-examined to establish the number of occasions and the purposes for which he went there, he was not asked whether he had ever been there at 7:51 am on a Sunday morning, which is when it is suggested the petition was served. From the rest of the evidence, it would seem quite unlikely that he would have made a casual visit to the premises at such a time. 3 The evidence of the process server was quite unsatisfactory in other respects as well. From the work sheet produced in respect of the service of the bankruptcy notice, she made two entries for the evening of 25 April 1998, Anzac Day. A 6 pm entry had the response "not in", meaning that there was someone at the premises to whom she spoke at that time but the applicant was not there. The second entry for the same date was at 6:30 pm and was noted as "no-one at home". She said in evidence that 6 pm was an error for 6:30 pm, ie that the entry for 6.30 pm is correct. She said that she did not delete the other one because she thought that this work sheet was some sort of court document. 4 I reject that evidence completely. It is firstly inconceivable that she could now recall such a trivial event, having served thousands of documents in the intervening period. Secondly, no one could ever have thought or said that this was a court document. Even if it was, no-one would ever have thought that a court document can have been permitted to retain an entry which was false. Moreover, it is quite clear that the second entry on 25 April has itself been an alteration from another time. If it can be altered for whatever purpose that was, it can certainly be altered to delete it altogether. In addition, no explanation was given as to how a completely false entry could have been made. 5 Another unsatisfactory matter about the process server's evidence is that whilst her affidavits of service did not contain any conversations at all in respect of the service of either the petition or of the bankruptcy notice, her affidavit of 19 June which has been filed in the present application is to a different effect. The affidavits of service state in a completely stereotyped form that when she served the applicant with the respective documents, he replied "yes" to both the questions whether his name was that of the applicant and whether he was the respondent debtor or debtor as the case may be. According to her affidavit of 19 June, they were in fact not his answers at all. She now says that on the first occasion, after having answered to his name, she said "I have a bankruptcy notice for you", to which his reply was "Yep, thanks a lot". In relation to the petition, she says that she asked him whether he was the applicant Warren Alfred McKay, the person referred to in the documents and that he answered "Yes, I am". This position that she asked him only one question is not consistent with the affidavit of the service of the petition where she said that she asked him two questions. 6 It is quite clear to me that the affidavit of 19 June came about as a consequence of her seeing the affidavits of the applicant and his brother in these proceedings. I do not accept that from the work sheets or from the previous affidavits she would be able to recall conversations of such insignificance which took place in each case so many months before. Moreover, when asked in Court to identify the person spoken to at the residence, she actually identified the brother, Darren McKay, and could only say of the applicant that his face looked familiar but that he seemed to have had a haircut. As I observed at the time, no doubt he had. That evidence came from a person who said that she served the applicant twice with process. She recognised the brother to whom she spoke on an occasion when the applicant was not at home but did not and could not identify accurately the person she says that she had actual engaged in conversation on two occasions. Her evidence was simply not believable.
The applicant's evidence 7 On the other hand, the evidence of the applicant and his brother was also not entirely satisfactory. The most significant discrepancy in relation to the applicant arose from the material produced from the Australian Securities and Investments Commission which showed his and his wife's address, and the address of a company of which they were at various times directors and secretaries, including quite recently, as the place where the brother lives and at which the service is said to have taken place. The applicant said that this form was completed by his accountant, but the evidence shows that the same accountant has been handling his tax returns long after he left that address ten years ago and clearly has been sending bills and making other contact with the applicant at other addresses in that period. There is simply no explanation at all as to how the accountant could have given, quite wrongly and quite contrary to the Corporations Law, an address which the applicant's wife has never occupied and which the applicant himself has not occupied for a decade. 8 The evidence of the applicant's brother Darren McKay was also not entirely without doubt although I think that any doubts surrounding it can be put down to the fact that he is a man to whom legal process and the formalities of life do not appear to be of any great significance. It is extraordinary that 70 or 80 letters for Warren could pile up in the house without him taking steps to have Warren come and collect them, or forwarding them on or re-addressing them, but that appears to be a characteristic of Darren without any particular sinister import.
Conclusion on service 9 I find that the bankruptcy notice and the petition were not served on the applicant at the Guildford address alleged. That finding, especially in relation to the service of the petition, is sufficient to hold that the sequestration order should not have been made. The trustee's role 10 The trustee argued, but the actual creditor did not, that notwithstanding a finding that the documents were not served, the Court should exercise its discretion not to annul the bankruptcy on the basis that there is no genuine dispute about the debt. It is quite unusual in my experience for a trustee to take a stand in relation to the annulment at all, especially when the creditor is here to defend it. A trustee is supposed to be, as it were, an independent person who takes charge of estates when bankruptcy is pronounced. It is perfectly legitimate for a trustee to present to the Court evidence which goes to relevant questions, but it is surely unusual for the trustee to take a particular partisan line in relation to annulments. In particular, a trustee is not supposed to have a position on whether service was actually effected or not unless perhaps there is no-one else to present that argument. I find it strange that the weight in this regard has been carried more by the trustee than by the creditor.
Dispute over debt 11 The argument that there was no evidence genuinely disputing the judgment must, in any event, be rejected. There was ample evidence that the debtor, the applicant in the case, does, and always did, dispute the debt of $23,357.93 which includes $6,582.43 interest calculated after judgment was obtained against the debtor in the Magistrate's Court of Victoria on 25 August 1994. Firstly, he says that there was a limit of $6000 on the credit facilities that he had been allowed by the creditor. Secondly, he says that all of the debt, including the $6000 limit, was in fact incurred by a person to whom he had sold the relevant vehicle at the time and that he himself did not incur the debt at all. Had he been notified that bankruptcy proceedings were on foot, or for that matter that judgment was being sought against him in respect of this amount, he would have taken steps to defend the claim and to bring before the Court the person who he alleges in fact incurred the sum involved. There was no contrary evidence. 12 In fact, although the applicant was cross-examined to try to establish that this contention had no merit and was, in effect, a product of late invention, I found his evidence in this regard quite persuasive and not invented just for the purpose of avoiding bankruptcy. It is clear that the applicant is a person who retains both solicitors and accountants as necessary. It seems quite likely that had he been informed of both the bankruptcy proceedings and the proceedings in the Magistrate's Court which led to them, he would have taken some steps to put himself in a position to defend the claims being made. 13 There is correspondence before the Court which indicates that he made an offer in 1996 to settle the dispute by paying the $6000 credit limit but that offer was rejected. If it had been accepted, the creditor would have received the $6000 from the applicant and no doubt his cooperation in chasing the rest of the debt from the person who actually incurred it, and there would have been no bankruptcy proceedings at all. I do not see that this offer was made solely to avoid bankruptcy proceedings. No doubt by offering to pay the debt which might be thought to have been his contractual obligation, and agreeing to assist in the recovery of the balance of the amount owing, he would have avoided bankruptcy proceedings. But an offer of settlement before proceedings were commenced can hardly be an invention after the fact in order to avoid a bankruptcy that, without his knowledge, was going to be entered against him much later. 14 In my opinion there is a real reason to believe that the applicant does not owe the debt claimed in the petition. If there is an obligation on his part to pay $6000, that is a matter which can or could be litigated, but that is not the debt on which the sequestration order was obtained. The sequestration order should be set aside and the bankruptcy annulled.
Costs 15 The trustee claimed that he is entitled to his costs, notwithstanding that outcome. He said that authority establishes that provided that it can be shown that he acted both honestly and reasonably, he should be able to get his costs out of the property which has been vested in him while the bankruptcy has been standing, or pursuant to a special order under section 154(2). He also stated that if the estate is not sufficient to provide those costs, he is entitled to access the applicant's own funds and that, pursuant to that subsection, a condition should be imposed, as an extra burden on the annulment of bankruptcy, that the applicant pay the trustee's costs. 16 Accepting for the purposes of argument that so long as the trustee was acting honestly and reasonably, he is or may be entitled to orders of that kind, I do not accept that the circumstances warrant the orders sought. There is no evidence of any dishonesty, but there is considerable evidence which establishes that the trustee's opposition to the applicant's motion was not reasonable. The trustee has argued here that he was entitled to act on the basis of the creditor's information that service was effected by the process server. Even if that is so, it does not necessarily justify the strong opposition which the trustee made to the contention of the applicant that he was not served. On the face of it, there were two accounts, one rather formalistic account on behalf of the creditor through the process server, the details of which only became patent after the present application was filed and the affidavits of the applicant and his brother placed on the record. The other was a detailed description by the applicant and his brother of the circumstances from their point of view. At the very least the trustee ought to have stood aloof from this dispute. He could not add anything to it and if he had any evidence, he could have offered it to the Court or to the creditor to present to the Court, making it available to the applicant as well. I do not think that he was entitled in the circumstances to take a partisan view and to strongly press the opposition to the application. That conduct was not reasonable, and thus the circumstances said to be necessary for the order for costs that he seeks are not established. The proper order to make in the case is that the applicant's costs should be paid by the respondents. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marcus Einfeld AO.
Associate: Dated: 4 August 1999 Counsel for the Applicants: Mr M. B. Duncan
Solicitor for the Applicants: Mr Domenico Mosca
Counsel for the Insurers: Mr L. Tyndall
Solicitors for the First Respondent: Gary Cassim & Associates
Counsel for the Second Respondent: Mr R. C. Beasley
Solicitors for the Second Respondent: Dickson Fisher Macansh
Dates of Hearing: 4 August 1999
Date of Judgment: 4 August 1999
McKay
Mobil Oil Australia Ltd